424B3: Prospectus [Rule 424(b)(3)]
Published on
PRUCO LIFE INSURANCE COMPANY
A Prudential Financial Company
751 Broad Street, Newark, NJ 07102-3777
PRUDENTIAL PREMIER(R) RETIREMENT VARIABLE ANNUITY B SERIES/SM/ ("B SERIES")
PRUDENTIAL PREMIER(R) RETIREMENT VARIABLE ANNUITY L SERIES/SM/ ("L SERIES")
PRUDENTIAL PREMIER(R) RETIREMENT VARIABLE ANNUITY C SERIES/SM/ ("C SERIES")
(For contracts issued on or after February 25, 2013)
Flexible Premium Deferred Annuities
PROSPECTUS: February 14, 2013
This prospectus describes three different flexible premium deferred annuity
classes offered by Pruco Life Insurance Company ("Pruco Life", "we", "our", or
"us"). For convenience in this prospectus, we sometimes refer to each of these
annuity contracts as an "Annuity", and to the annuity contracts collectively
as the "Annuities." We also sometimes refer to each class by its specific name
(e.g., the "B Series"). Each Annuity may be offered as an individual annuity
contract or as an interest in a group annuity. 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. There are
differences among the Annuities that are discussed throughout the prospectus
and summarized in Appendix B entitled "Selecting the Variable Annuity That's
Right for You". Financial Professionals may be compensated for the sale of
each Annuity. Selling broker-dealer firms through which each Annuity is sold
may decline to recommend to their customers certain of the optional features
and Investment Options offered generally under the Annuity or may impose
restrictions (e.g., a lower maximum issue age for certain Annuities and/or
optional benefits). Selling broker-dealer firms may not make available or may
not recommend all the Annuities and/or benefits described in this prospectus.
Please speak to your Financial Professional for further details. Each Annuity
or certain of its investment options and/or features may not be available in
all states. The guarantees provided by the variable annuity contracts and the
optional benefits are the obligations of and subject to the claims paying
ability of Pruco Life. Certain terms are capitalized in this prospectus. Those
terms are either defined in the Glossary of Terms or in the context of the
particular section.
THE SUB-ACCOUNTS
The Pruco Life Flexible Premium Variable Annuity Account is a Separate Account
of Pruco Life, and is the investment vehicle in which your Purchase Payments
invested in the Sub-accounts are held. Each Sub-account of the Pruco Life
Flexible Premium Variable Annuity Account invests in an underlying mutual fund
- see the following page for a complete list of the Sub-accounts. Currently,
portfolios of Advanced Series Trust are being offered. Certain Sub-accounts
are not available if you participate in an optional living benefit - see
"Limitations With Optional Benefits" later in this prospectus for details.
PLEASE READ THIS PROSPECTUS
This prospectus sets forth information about the Annuities that you ought to
know before investing. Please read this prospectus and the current prospectus
for the underlying mutual funds. Keep them for future reference. If you are
purchasing one of the Annuities as a replacement for an existing variable
annuity or variable life coverage, or a fixed insurance policy, you should
consider any surrender or penalty charges you may incur and any benefits you
may also be forfeiting when replacing your existing coverage and that this
Annuity may be subject to a Contingent Deferred Sales Charge if you elect to
surrender the Annuity or take a partial withdrawal. You should consider your
need to access the Annuity's Account Value and whether the Annuity's liquidity
features will satisfy that need. Please note that if you are investing in this
Annuity through a tax-advantaged retirement plan (such as an Individual
Retirement Account or 401(k) plan), you will get no additional tax advantage
through the Annuity itself.
OTHER CONTRACTS
We offer a variety of fixed and variable annuity contracts. They may offer
features, including investment options, and have fees and charges, that are
different from the annuity contracts offered by this prospectus. Not every
annuity contract we issue is offered through every selling broker-dealer firm.
Upon request, your financial professional can show you information regarding
other Pruco Life annuity contracts that he or she distributes. You can also
contact us to find out more about the availability of any of the Pruco Life
annuity contracts. You should work with your financial professional to decide
whether this annuity contract is appropriate for you based on a thorough
analysis of your particular needs, financial objectives, investment goals,
time horizons and risk tolerance.
AVAILABLE INFORMATION
We have also filed a Statement of Additional Information dated the same date
as this prospectus that is available from us, without charge, upon your
request. The contents of the Statement of Additional Information are described
at the end of this prospectus - see Table of Contents. The Statement of
Additional Information is incorporated by reference into this prospectus. This
prospectus is part of the registration statement we filed with the SEC
regarding this offering. Additional information on us and this offering is
available in the registration statement and the exhibits thereto. You may
review and obtain copies of these materials at no cost to you by contacting
us. These documents, as well as documents incorporated by reference, may also
be obtained through the SEC's Internet Website (www.sec.gov) for this
registration statement as well as for other registrants that file
electronically with the SEC. Please see the section of this prospectus
entitled "How to Contact Us" for our Service Office address.
These annuities are NOT deposits or obligations of, or issued, guaranteed or
endorsed by, any bank, are NOT insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or
any other agency. An investment in an annuity involves investment risks,
including possible loss of value, even with respect to amounts allocated to
the AST Money Market Sub-account.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRUDENTIAL, PRUDENTIAL FINANCIAL, PRUDENTIAL ANNUITIES AND THE ROCK LOGO ARE
SERVICEMARKS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND ITS
AFFILIATES. OTHER PROPRIETARY PRUDENTIAL MARKS MAY BE DESIGNATED AS SUCH
THROUGH USE OF THE/ SM/ OR (R) SYMBOLS.
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FOR FURTHER INFORMATION CALL: 1-888-PRU-2888 OR GO TO OUR WEBSITE
AT HTTP://WWW.PRUDENTIALANNUITIES.COM
PLEASE SEE OUR IRA, ROTH IRA AND FINANCIAL DISCLOSURE STATEMENTS ATTACHED TO
THE BACK COVER OF THIS PROSPECTUS.
VARIABLE INVESTMENT OPTIONS
Advanced Series Trust
AST Academic Strategies Asset Allocation Portfolio/1/
AST Advanced Strategies Portfolio/1/
AST AQR Emerging Markets Equity Portfolio
AST Balanced Asset Allocation Portfolio/1/
AST BlackRock Global Strategies Portfolio/1/
AST BlackRock Value Portfolio
AST Capital Growth Asset Allocation Portfolio/1/
AST Clearbridge Dividend Growth Portfolio
AST Cohen & Steers Realty Portfolio
AST Federated Aggressive Growth Portfolio
AST FI Pyramis(R) Asset Allocation Portfolio/1/
AST First Trust Balanced Target Portfolio/1/
AST First Trust Capital Appreciation Target Portfolio/1/
AST Franklin Templeton Founding Funds Allocation Portfolio/1/
AST Global Real Estate Portfolio
AST Goldman Sachs Concentrated Growth Portfolio
AST Goldman Sachs Large-Cap Value Portfolio
AST Goldman Sachs Mid-Cap Growth Portfolio
AST Goldman Sachs Small-Cap Value Portfolio
AST High Yield Portfolio
AST Horizon Moderate Asset Allocation Portfolio/1/
AST International Growth Portfolio
AST International Value Portfolio
AST Investment Grade Bond Portfolio/2/
AST Jennison Large-Cap Growth Portfolio
AST Jennison Large-Cap Value Portfolio
AST J.P. Morgan Global Thematic Portfolio/1/
AST J.P. Morgan International Equity Portfolio
AST J.P. Morgan Strategic Opportunities Portfolio/1/
AST Large-Cap Value Portfolio
AST Lord Abbett Core Fixed-Income Portfolio
AST Marsico Capital Growth Portfolio
AST MFS Global Equity Portfolio
AST MFS Growth Portfolio
AST MFS Large-Cap Value Portfolio
AST Mid-Cap Value Portfolio
AST Moderate Asset Allocation Portfolio/1/
AST Money Market Portfolio
AST Neuberger Berman Core Bond Portfolio
AST Neuberger Berman Mid-Cap Growth Portfolio
AST Neuberger Berman/LSV Mid-Cap Value Portfolio
AST New Discovery Asset Allocation Portfolio/1/
AST Parametric Emerging Markets Equity Portfolio
AST PIMCO Limited Maturity Bond Portfolio
AST PIMCO Total Return Bond Portfolio
AST Preservation Asset Allocation Portfolio/1/
AST Prudential Core Bond Portfolio
AST QMA Emerging Markets Equity Portfolio
AST QMA US Equity Alpha Portfolio
AST Quantitative Modeling Portfolio
AST Schroders Global Tactical Portfolio/1/
AST Schroders Multi-Asset World Strategies Portfolio/1/
AST Small-Cap Growth Portfolio
AST Small-Cap Value Portfolio
AST T. Rowe Price Asset Allocation Portfolio/1/
AST T. Rowe Price Equity Income Portfolio
AST T. Rowe Price Global Bond Portfolio
AST T. Rowe Price Large-Cap Growth Portfolio
AST T. Rowe Price Natural Resources Portfolio
AST Wellington Management Hedged Equity Portfolio/1/
AST Western Asset Core Plus Bond Portfolio
AST Western Asset Emerging Markets Debt Portfolio
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(1)These are the only variable investment options available to you if you
select one of the optional benefits.
(2)The AST Investment Grade Bond Portfolio is not available for allocation of
Purchase Payments or contract owner transfers.
CONTENTS
(i)
(ii)
GLOSSARY OF TERMS
We set forth here definitions of some of the key terms used throughout this
prospectus. In addition to the definitions here, we also define certain terms
in the section of the prospectus that uses such terms.
Account Value: The total value of all allocations to the Sub-accounts and/or
the MVA Options on any Valuation Day. The Account Value is determined
separately for each Sub-account and for each MVA Option, and then totaled to
determine the Account Value for your entire Annuity. The Account Value of each
MVA Option will be calculated using any applicable MVA.
Accumulation Period: The period of time from the Issue Date through the last
Valuation Day immediately preceding the Annuity Date.
Annuitant: The natural person upon whose life annuity payments made to the
Owner are based.
Annuitization: Annuitization is the process by which you "annuitize" your
Unadjusted Account Value. When you annuitize, we apply the Unadjusted Account
Value to one of the available annuity options to begin making periodic
payments to the Owner.
Annuity Date: The date on which we apply your Unadjusted Account Value to the
applicable annuity option and begin the payout period. As discussed in the
Annuity Options section, there is an age by which you must begin receiving
annuity payments, which we call the "Latest Annuity Date."
Annuity Year: The first Annuity Year begins on the Issue Date and continues
through and includes the day immediately preceding the first anniversary of
the Issue Date. Subsequent Annuity Years begin on the anniversary of the Issue
Date and continue through and include the day immediately preceding the next
anniversary of the Issue Date.
Beneficiary(ies): The natural person(s) or entity(ies) designated as the
recipient(s) of the Death Benefit or to whom any remaining period certain
payments may be paid in accordance with the annuity payout options section of
this Annuity.
Beneficiary Annuity: You may purchase an Annuity if you are a Beneficiary of
an account that was owned by a decedent, subject to the requirements discussed
in this prospectus. You may transfer the proceeds of the decedent's account
into one of the Annuities described in this prospectus and continue receiving
the distributions that are required by the tax laws. This transfer option is
only available for purchase of an IRA, Roth IRA, or a non-qualified
Beneficiary Annuity.
Code: The Internal Revenue Code of 1986, as amended from time to time and the
regulations promulgated thereunder.
Contingent Deferred Sales Charge (CDSC): This is a sales charge that may be
deducted when you make a surrender or take a partial withdrawal from your
Annuity. We refer to this as a "contingent" charge because it is imposed only
if you surrender or take a withdrawal from your Annuity. The charge is a
percentage of each applicable Purchase Payment that is being surrendered
or withdrawn.
Dollar Cost Averaging ("DCA") MVA Option: An Investment Option that offers a
fixed rate of interest for a specified period. The DCA MVA Option is used only
with our 6 or 12 Month Dollar Cost Averaging Program, under which the Purchase
Payments that you have allocated to that DCA MVA Option are transferred to the
designated Sub-accounts over a 6 month or 12 month period. Withdrawals or
transfers from the DCA MVA Option will be subject to a Market Value Adjustment
if made other than pursuant to the 6 or 12 month DCA Program.
Due Proof of Death: Due Proof of Death is satisfied when we receive all of the
following in Good Order: (a) a death certificate or similar documentation
acceptable to us; (b) all representations we require or which are mandated by
applicable law or regulation in relation to the death claim and the payment of
death proceeds; and (c) any applicable election of the method of payment of
the death benefit, if not previously elected by the Owner, by at least one
Beneficiary.
Free Look: The right to examine your Annuity, during a limited period of time,
to decide if you want to keep it or cancel it. The length of this time period,
and the amount of refund, depends on applicable law and thus may vary. In
addition, there is a different Free Look period that applies if your Annuity
is held within an IRA. In your Annuity contract, your Free Look right is
referred to as your "Right to Cancel."
Good Order: Good Order is the standard that we apply when we determine whether
an instruction is satisfactory. An instruction will be considered in Good
Order if it is received at our Service Office: (a) in a manner that is
satisfactory to us such that it is sufficiently complete and clear that we do
not need to exercise any discretion to follow such instruction and complies
with all relevant laws and regulations; (b) on specific forms, or by other
means we then permit (such as via telephone or electronic submission); and/or
(c) with any signatures and dates as we may require. We will notify you if an
instruction is not in Good Order.
1
Guarantee Period: The period of time during which we credit a fixed rate of
interest to an MVA Option.
Investment Option: A Sub-account or MVA Option available as of any given time
to which Account Value may be allocated.
Issue Date: The effective date of your Annuity.
Key Life: Under the Beneficiary Continuation Option, or the Beneficiary
Annuity, the person whose life expectancy is used to determine the required
distributions.
Market Value Adjustment ("MVA"): A positive or negative adjustment used to
determine the Account Value in an MVA Option.
Market Value Adjustment Options ("MVA Options"): Investment Options to which a
fixed rate of interest is credited for a specified Guarantee Period and to
which an MVA may apply. The MVA Options consist of (a) the DCA MVA Option used
with our 6 or 12 Month DCA Program and (b) the "Long-Term MVA Options", under
which Guarantee Periods of different yearly lengths are offered.
Maturity Date: With respect to an MVA Option, the last day in a Guarantee
Period.
Owner: With an Annuity issued as an individual annuity contract, the Owner is
either an eligible entity or person named as having ownership rights in
relation to the Annuity. In certain states, with an Annuity issued as a
certificate under a group annuity contract, the "Owner" refers to the person
or entity that has the rights and benefits designated to the "participant" in
the certificate. Thus, an Owner who is a participant has rights that are
comparable to those of the Owner of an individual annuity contract.
Purchase Payment: A cash consideration in currency of the United States of
America given to us in exchange for the rights, privileges, and benefits of
the Annuity.
Service Office: The place to which all requests and payments regarding the
Annuity are to be sent. We may change the address of the Service Office at any
time, and will notify you in advance of any such change of address. Please see
the section of this prospectus entitled "How to Contact Us" for the Service
Office address.
Separate Account: Referred to as the "Variable Separate Account" in your
Annuity, this is the variable Separate Account(s) shown in the Annuity.
Sub-Account: A division of the Separate Account.
Surrender Value: The Account Value (which includes the effect of any MVA) less
any applicable CDSC, any applicable tax charges, any charges assessable as a
deduction from the Account Value for any optional benefits provided by rider
or endorsement, and any Annual Maintenance Fee.
Unadjusted Account Value: The Unadjusted Account Value is equal to the Account
Value prior to the application of any MVA.
Unit: A share of participation in a Sub-account used to calculate your
Unadjusted Account Value prior to the Annuity Date.
Valuation Day: Every day the New York Stock Exchange is open for trading or
any other day the Securities and Exchange Commission requires mutual funds or
unit investment trusts to be valued.
we, us, our: Pruco Life Insurance Company.
you, your: The Owner(s) shown in the Annuity.
2
SUMMARY OF CONTRACT FEES AND CHARGES
The following tables describe the fees and expenses that you will pay when
buying, owning, and surrendering one of the Annuities. The first table
describes the fees and expenses that you will pay at the time you surrender an
Annuity, take a partial withdrawal, or transfer Account Value between the
Investment Options. State premium taxes also may be deducted.
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ANNUITY OWNER TRANSACTION EXPENSES
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CONTINGENT DEFERRED SALES CHARGE/ 1/
B SERIES
L SERIES
C SERIES
There is no CDSC or other sales load applicable to the C Series.
1 The years referenced in the above CDSC tables refer to the length of time
since a Purchase Payment was made (i.e., the age of the Purchase Payment).
Contingent Deferred Sales Charges are applied against the Purchase
Payment(s) being withdrawn. Thus, the appropriate percentage is multiplied
by the Purchase Payment(s) being withdrawn to determine the amount of the
CDSC. For example, if with respect to the B Series on November 1, 2018 you
withdrew a Purchase Payment made on August 1, 2013, that Purchase Payment
would be between 5 and 6 years old, and thus subject to a 5% CDSC. Purchase
Payments are withdrawn on a "first-in, first-out" basis.
2 Currently, we deduct the fee after the 20/th/ transfer each Annuity Year.
3 We reserve the right to deduct the charge either at the time the tax is
imposed, upon a full surrender of the Annuity, or upon Annuitization.
The following table provides a summary of the periodic fees and charges you
will pay while you own your Annuity, excluding the underlying portfolio annual
expenses. These fees and charges are described in more detail within this
prospectus.
3
4 Assessed annually on the Annuity's anniversary date or upon surrender. Only
applicable if the sum of the Purchase Payments at the time the fee is due
is less than $100,000.
5 The Insurance Charge is the combination of Mortality & Expense Risk Charge
and the Administration Charge. For the C Series and L Series, on the
Valuation Day immediately following the 9/th/ Annuity Anniversary, the
Mortality & Expense Risk Charge drops to 1.30% annually (the B Series is a
constant 1.30% annually).
6 For Beneficiaries who elect the Beneficiary Continuation Option, the Annual
Maintenance Fee is the lesser of $30 or 2% of Unadjusted Account Value and
is only applicable if Unadjusted Account Value is less than $25,000 at the
time the fee is assessed. For Beneficiaries who elect the Beneficiary
Continuation Option, the Mortality and Expense and Administration Charges
do not apply. However, a Settlement Service Charge equal to 1.00% is
assessed as a percentage of the daily net assets of the Sub-accounts as an
annual charge.
The following table sets forth the charge for each optional benefit under the
Annuity. These fees would be in addition to the periodic fees and transaction
fees set forth in the tables above. The first column shows the charge for each
optional benefit on a maximum and current basis. The next four columns show
the total expenses you would pay for each class of Annuity if you purchased
the relevant optional benefit. More specifically, these columns show the total
charge for the optional benefit plus the Total Annualized Insurance
Fees/Charges (during the first 9 Annuity Years) applicable to the Annuity
class (as shown in the prior table). Where the charges cannot actually be
totaled (because they are assessed against different base values), we show
both individual charges.
4
7 The charge for each of the Highest Daily Lifetime Income v2.1 benefits
listed above is assessed against the greater of Unadjusted Account Value
and the Protected Withdrawal Value (PWV). PWV is described in the Living
Benefits section of this prospectus.
8 HOW THE OPTIONAL BENEFIT FEES AND CHARGES ARE DETERMINED
The charge is taken out of the Sub-accounts. For B Series, in all Annuity
Years, the current optional benefit charge is in addition to the 1.45%
annualized charge of amounts invested in the Sub-accounts. For each of the
L Series and C Series the annualized charge for the base Annuity drops
after Annuity Year 9 as described below:
Highest Daily Lifetime Income v2.1: 1.00% current optional benefit charge
is in addition to 1.45% annualized charge of amounts invested in the
Sub-accounts for base Annuity after the 9/th/ Annuity Year.
Spousal Highest Daily Lifetime Income v2.1: 1.10% current optional benefit
charge is in addition to 1.45% annualized charge of amounts invested in the
Sub-accounts for base Annuity after the 9/th/ Annuity Year.
Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit: 1.50%
current optional benefit charge is in addition to 1.45% annualized charge
of amounts invested in the Sub-accounts for base Annuity after the 9/th/
Annuity Year.
Spousal Highest Daily Lifetime Income v2.1 with Highest Daily Death
Benefit: 1.60% current optional benefit charge is in addition to 1.45%
annualized charge of amounts invested in the Sub-accounts for base Annuity
after the 9/th/ Annuity Year.
9 We reserve the right to increase the charge to the maximum charge
indicated, upon any step-up under the benefit. Also, if you decide to elect
or re-add a benefit after your contract has been issued, the charge for the
benefit under your contract will equal the current charge for then new
contract owners up to the maximum indicated.
The following table provides the range (minimum and maximum) of the total
annual expenses for the underlying mutual funds ("Portfolios") before any
contractual waivers and expense reimbursements. Each figure is stated as a
percentage of the underlying Portfolio's average daily net assets.
The following are the total annual expenses for each underlying mutual fund
("Portfolio"). The "Total Annual Portfolio Operating Expenses" reflect the
combination of the underlying Portfolio's investment management fee, other
expenses, any 12b-1 fees, and certain other expenses. The fees and expenses
have been restated to reflect fee and expense changes implemented following
shareholder approval of a Rule 12b-1 plan for the Portfolios, as explained in
the current prospectus for the Portfolios. Each figure is stated as a
percentage of the underlying Portfolio's average daily net assets. For certain
of the Portfolios, a portion of the management fee has been contractually
waived and/or other expenses have been contractually partially reimbursed,
which is shown in the table. The following expenses are deducted by the
underlying Portfolio before it provides Pruco Life with the daily net asset
value. The underlying Portfolio information was provided by the underlying
mutual funds and has not been independently verified by us. See the
prospectuses or statements of additional information of the underlying
Portfolios for further details. The current prospectus and statement of
additional information for the underlying Portfolios can be obtained by
calling 1-888-PRU-2888.
5
6
+ Expense information in the Underlying Mutual Fund Portfolio Annual Expenses
Table has been restated to reflect current fees.
1 The AST AQR Emerging Markets Equity Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $300 million for the Portfolio
for the fiscal period ending December 31, 2013.
2 The AST Clearbridge Dividend Growth Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $400 million for the Portfolio
for the fiscal period ending December 31, 2013.
3 Pyramis is a registered service mark of FMR LLC. Used under license.
4 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses so that the investment management
fees plus other expenses (exclusive in all cases of taxes, short sale
interest and dividend expenses, brokerage commissions, underlying portfolio
fees and expenses, and extraordinary expenses) for the Portfolio do not
exceed 1.10% of the average daily net assets of the Portfolio through June
30, 2015. This expense limitation may not be terminated or modified prior to
7
June 30, 2015, but may be discontinued or modified thereafter. The decision
on whether to renew, terminate or modify this waiver after June 30, 2015
will be subject to review by the Manager and the Board of Trustees of the
Trust.
5 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses for the Portfolio so that the
Portfolio's investment management fees plus other expenses (exclusive in
all cases of taxes, interest, brokerage commissions, acquired portfolio
fees and expenses and extraordinary expenses) do not exceed 0.99% of the
Portfolio's average daily net assets through June 30, 2015. This
arrangement may not be terminated or modified prior to June 30, 2015, and
may be discontinued or modified thereafter. The decision on whether to
renew, modify or discontinue the arrangement after June 30, 2015 will be
subject to review by the Manager and the Portfolio's Board of Trustees.
6 The Portfolio's distributor, Prudential Annuities Distributors, Inc.
("PAD"), has contractually agreed to reduce its distribution and service
fees so that the effective distribution and service fee rate paid by the
Portfolio is reduced based on the average daily net assets of the Portfolio
as follows: 0.08% over $300 million in daily net assets up to and including
$500 million in average daily net assets; 0.07% over $500 million in daily
net assets up to and including $750 million in average daily net assets;
and 0.06% over $750 million in daily net assets. The contractual waiver
does not include an expiration or termination date as it is contractually
guaranteed by PAD on a permanent basis, and the Investment Managers and PAD
cannot terminate or otherwise modify the waiver.
7 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fee, so that the effective management fee rate paid by the Portfolio is as
follows: 0.70% to $500 million of average daily net assets; 0.675% over
$500 million in average daily net assets up to and including $1 billion in
average daily net assets; and 0.65% over $1 billion in average daily net
assets. This arrangement may not be terminated or modified prior to June
30, 2015, and may be discontinued or modified thereafter. The decision on
whether to renew, modify or discontinue the arrangement after June 30, 2015
will be subject to review by the Investment Managers and the Portfolio's
Board of Trustees.
8 If approved by shareholders, the Portfolio will be restructured on or about
April 29, 2013. As restructured, the Portfolio will no longer be a
fund-of-funds and will be renamed the AST RCM World Trends Portfolio. Based
on assets of December 31, 2012, as restructured, the Portfolio would have a
management fee of 0.92%, other expenses of 0.14%, acquired fund fees and
expenses of 0.00%, total annual operating expenses before contractual fee
waiver of 1.06%, a contractual fee waiver of 0.07% through at least June
30, 2014, and net annual operating expenses after fee waiver of 0.99%.
9 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees so that the Portfolio's investment management fee would equal 0.70% of
the Portfolio's first $500 million of average daily net assets, 0.675% of
the Portfolio's average daily net assets between $500 million and $1
billion, and 0.65% of the Portfolio's average daily net assets in excess of
$1 billion through June 30, 2015. This contractual investment management
fee waiver may not be terminated or modified prior to June 30, 2015, but
may be discontinued or modified thereafter. The decision on whether to
renew, modify, or discontinue this expense limitation after June 30, 2015
will be subject to review by the Manager and the Board of Trustees of the
Portfolio.
10 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses, so that the investment management
fees plus other expenses (exclusive in all cases of taxes, short sale
interest and dividend expenses, brokerage commissions, acquired portfolio
fees and expenses, and extraordinary expenses) for the Portfolio do not
exceed 1.08% of its average daily net assets through June 30, 2015. This
expense limitation may not be terminated or modified prior to June 30,
2015, and may be discontinued or modified thereafter. The decision on
whether to renew, modify or discontinue the expense limitation after
June 30, 2015 will be subject to review by the Investment Managers and the
Portfolio's Board of Trustees.
11 The AST QMA Emerging Markets Equity Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $300 million for the Portfolio
for the fiscal period ending December 31, 2013.
12 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fee so that the Portfolio's investment management fee would equal 0.80% of
the Portfolio's average daily net assets through June 30, 2015. This
contractual investment management fee waiver may not be terminated or
modified prior to June 30, 2015, but may be discontinued or modified
thereafter. The decision on whether to renew, modify, or discontinue this
expense limitation after June 30, 2015 will be subject to review by the
Manager and the Board of Trustees of the Trust.
8
EXPENSE EXAMPLES
These examples are intended to help you compare the cost of investing in one
Pruco Life Annuity with the cost of investing in other Pruco Life Annuities
and/or other variable annuities. Below are examples for each Annuity showing
what you would pay cumulatively in expenses at the end of the stated time
periods had you invested $10,000 in the Annuity and your investment has a 5%
return each year. The examples reflect the following fees and charges for each
Annuity as described in "Summary of Contract Fees and Charges."
. Insurance Charge
. Contingent Deferred Sales Charge (when and if applicable)
. Annual Maintenance Fee
. Optional benefit fees, as described below
The examples also assume the following for the period shown:
. You allocate all of your Account Value to the Sub-account with the
maximum gross total operating expenses and those expenses remain the
same each year*
. For each charge, we deduct the maximum charge rather than the current
charge
. You make no withdrawals of Account Value
. You make no transfers, or other transactions for which we charge a fee
. No tax charge applies
. You elect the Spousal Highest Daily Lifetime Income v2.1 with Highest
Daily Death Benefit, which is the maximum optional benefit charge. There
is no other combination of optional benefits that would result in higher
maximum charges than those shown in the examples.
Amounts shown in the examples are rounded to the nearest dollar.
* Note: Not all Portfolios offered as Sub-accounts may be available depending
on optional benefit selection, the applicable jurisdiction and selling firm.
THE EXAMPLES ARE ILLUSTRATIVE ONLY. THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING PORTFOLIOS. ACTUAL
EXPENSES WILL BE LESS THAN THOSE SHOWN DEPENDING UPON WHICH OPTIONAL BENEFIT
YOU ELECT OTHER THAN INDICATED IN THE EXAMPLES OR IF YOU ALLOCATE ACCOUNT
VALUE TO ANY OTHER AVAILABLE SUB-ACCOUNTS.
Expense Examples are provided as follows:
If you surrender your annuity at the end of the applicable time period:
If you do not surrender your Annuity, or if you annuitize your Annuity:
Please see Appendix A for a table of Accumulation Unit Values.
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SUMMARY
This Summary describes key features of the Annuities offered in this
prospectus. It is intended to give you an overview, and to point you to
sections of the prospectus that provide greater detail. You should not rely on
the Summary alone for all the information you need to know before purchasing
an Annuity. You should read the entire prospectus for a complete description
of the Annuities. Your Financial Professional can also help you if you have
questions.
The Annuity: The variable annuity contract issued by Pruco Life is a contract
between you, the Owner, and Pruco Life, an insurance company. It is designed
for retirement purposes, or other long-term investing, to help you save money
for retirement, on a tax deferred basis, and provide income during your
retirement. Although this prospectus describes key features of the variable
annuity contract, the prospectus is a distinct document, and is not part of
the contract.
The Annuity offers various investment portfolios. With the help of your
Financial Professional, you choose how to invest your money within your
Annuity. Investing in a variable annuity involves risk and you can lose your
money. On the other hand, investing in a variable annuity can provide you with
the opportunity to grow your money through participation in "underlying"
mutual funds.
This prospectus describes three different Annuities. The Annuities differ
primarily in the fees and charges deducted. With the help of your Financial
Professional, you choose the Annuity based on your time horizon and liquidity
needs.
Please see Appendix B "Selecting the Variable Annuity That's Right For You,"
for a side-by-side comparison of the key features of each of these Annuities.
GENERALLY SPEAKING, VARIABLE ANNUITIES ARE INVESTMENTS DESIGNED TO BE HELD FOR
THE LONG TERM. WORKING WITH YOUR FINANCIAL PROFESSIONAL, YOU SHOULD CAREFULLY
CONSIDER WHETHER A VARIABLE ANNUITY IS APPROPRIATE FOR YOU, GIVEN YOUR LIFE
EXPECTANCY, NEED FOR INCOME, AND OTHER PERTINENT FACTORS.
Purchase: Your eligibility to purchase is based on your age and the amount of
your initial Purchase Payment. See your Financial Professional to complete an
application.
The "Maximum Age for Initial Purchase" applies to the oldest Owner as of the
day we would issue the Annuity. If the Annuity is to be owned by an entity,
the maximum age applies to the Annuitant as of the day we would issue the
Annuity. For Annuities purchased as a Beneficiary Annuity, the maximum issue
age is 70 and applies to the Key Life.
After you purchase your Annuity, you will have a limited period of time during
which you may cancel (or "Free Look") the purchase of your Annuity. Your
request for a Free Look must be received in Good Order.
Please see "Requirements for Purchasing One of the Annuities" for more detail.
Investment Options: You may choose from a variety of variable Investment
Options ranging from conservative to aggressive. Certain optional benefits may
limit your ability to invest in the variable Investment Options otherwise
available to you under the Annuity. Each of the underlying mutual funds is
described in its own prospectus, which you should read before investing. There
is no assurance that any variable Investment Option will meet its investment
objective.
You may also allocate money to an MVA Option that earns interest for a
specific time period. In general, if you withdraw your money from this option
more than 30 days prior to the end of the "Guarantee Period", you will be
subject to a "Market Value Adjustment", which can either increase or decrease
your Account Value. We also offer a 6 or 12 Month DCA Program under which your
money is transferred monthly from a DCA MVA Option to the other Investment
Options you have designated. Premature withdrawals from the DCA MVA Option may
also be subject to a Market Value Adjustment.
Please see "Investment Options," and "Managing Your Account Value" for
information.
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Access To Your Money: You can receive income by taking withdrawals or electing
annuity payments. Please note that withdrawals may be subject to tax, and may
be subject to a Contingent Deferred Sales Charge (discussed below). You may
withdraw up to 10% of your Purchase Payments each year without being subject
to a Contingent Deferred Sales Charge.
You may elect to receive income through annuity payments over your lifetime,
also called "Annuitization". If you elect to receive annuity payments, you
convert your Account Value into a stream of future payments. This means in
most cases you no longer have an Account Value and therefore cannot make
withdrawals. We offer different types of annuity options to meet your needs.
Please see "Access to Account Value" and "Annuity Options" for more
information.
Optional Living Benefits
Guaranteed Lifetime Withdrawal Benefits. We offer optional living benefits,
for an additional charge, that guarantee your ability to take withdrawals for
life as a percentage of "Protected Withdrawal Value", even if your Account
Value falls to zero. The Protected Withdrawal Value is not the same as your
Account Value, and it is not available for a lump sum withdrawal. The Account
Value has no guarantees, may fluctuate, and can lose value. If you withdraw
more than the allowable amount during any year (referred to as "Excess
Income"), your future level of guaranteed withdrawals decreases.
We currently offer the following benefits:
.. Highest Daily Lifetime Income v2.1
.. Spousal Highest Daily Lifetime Income v2.1
.. Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit
.. Spousal Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit
These benefits utilize a predetermined mathematical formula to help us manage
your guarantee through all market cycles. Under the predetermined mathematical
formula, your Account Value may be transferred between certain "permitted
Sub-accounts" on the one hand and the AST Investment Grade Bond Sub-account on
the other hand. Please see the applicable optional benefits section as well as
the Appendices to this prospectus for more information on the formulas.
In the Living Benefits section, we describe guaranteed minimum withdrawal
benefits that allow you to withdraw a specified amount each year for life (or
joint lives, for the spousal version of the benefit). Please be aware that if
you withdraw more than that amount in a given year (i.e., excess income), that
may permanently reduce the guaranteed amount you can withdraw in future years.
Thus, you should think carefully before taking such excess income.
Please see "Living Benefits" for more information.
Death Benefits: You may name a Beneficiary to receive the proceeds of your
Annuity upon your death. Your death benefit must be distributed within the
time period required by the tax laws. Each of our Annuities offers a minimum
death benefit.
Please see "Death Benefits" for more information.
Fees and Charges: Each Annuity, and the optional living benefits and optional
death benefits, are subject to certain fees and charges, as discussed in the
"Summary of Contract Fees and Charges" table in the prospectus. In addition,
there are fees and expenses of the underlying Portfolios.
What does it mean that my Annuity is "tax-deferred"? Variable annuities are
"tax deferred", meaning you pay no taxes on any earnings from your Annuity
until you withdraw the money. You may also transfer among your Investment
Options without paying a tax at the time of the transfer. When you take your
money out of the Annuity, however, you will be taxed on the earnings at
ordinary income tax rates. If you withdraw money before you reach age 59 1/2,
you also may be subject to a 10% federal tax penalty.
You may also purchase one of our Annuities as a tax-qualified retirement
investment such as an IRA, SEP-IRA, Roth IRA, 401(a) plan, or non-ERISA 403(b)
plan. Although there is no additional tax advantage to a variable annuity
purchased through one of these plans, the Annuity has features and benefits
other than tax deferral that may make it an important investment for a
qualified plan. You should consult your tax advisor regarding these features
and benefits prior to purchasing a contract for use with a tax-qualified plan.
Market Timing: We have market timing policies and procedures that attempt to
detect transfer activity that may adversely affect other Owners or portfolio
shareholders in situations where there is potential for pricing inefficiencies
or that involve certain other types of disruptive trading activity (i.e.,
market timing). Our market timing policies and procedures are discussed in
more detail in the section entitled "Restrictions on Transfers Between
Investment Options."
Other Information: Please see the section entitled "General Information" for
more information about our Annuities, including legal information about Pruco
Life, the Separate Account, and underlying funds.
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INVESTMENT OPTIONS
The Investment Options under each Annuity consist of the Sub-accounts and the
MVA Options. In this section, we describe the portfolios. We then discuss the
investment restrictions that apply if you elect certain optional benefits.
Finally, we discuss the MVA Options. Each Sub-account invests in an underlying
portfolio whose share price generally fluctuates each Valuation Day. The
portfolios that you select, among those that are available, are your choice -
we do not provide investment advice, nor do we recommend any particular
portfolio. You bear the investment risk for amounts allocated to the
portfolios.
In contrast to the Sub-accounts, Account Value allocated to an MVA Option
earns a fixed rate of interest during the Guarantee Period. We guarantee both
the stated amount of interest and the principal amount of your Account Value
in an MVA Option, so long as you remain invested in the MVA Option for the
duration of the Guarantee Period. In general, if you withdraw Account Value
prior to the end of the MVA Option's Guarantee Period, you will be subject to
a Market Value Adjustment or "MVA", which can be positive or negative. A
"Guarantee Period" is the period of time during which we credit a fixed rate
of interest to an MVA Option.
As a condition of participating in the optional benefits, you may be
restricted from investing in certain Sub-accounts or MVA Options. We describe
those restrictions below. In addition, the optional living benefits (e.g.,
Highest Daily Lifetime Income v2.1) employ a predetermined mathematical
formula, under which money is transferred between your chosen Sub-accounts and
the AST Investment Grade Bond Portfolio.
You should be aware that the operation of the formula may result in
large-scale asset flows into and out of your chosen Sub-accounts and the AST
Investment Grade Bond Portfolio, which could subject those portfolios to
certain risks and adversely impact their expenses and performance. Even if you
do not elect an optional living benefit that employs a predetermined
mathematical formula, the expenses, performance, and risk profile of your
investment may be adversely impacted as described below to the extent you
select Permitted Sub-accounts. The mathematical formula may adversely affect a
portfolio's investment performance by requiring the sub-advisor to purchase
and sell securities at inopportune times and by otherwise limiting the
sub-advisor's ability to fully implement that portfolio's investment
strategies. Because transfers to and from your chosen Sub-accounts and the AST
Investment Grade Bond Portfolio can be frequent and the amount transferred can
vary, any of these portfolios could experience the following additional
effects, among others:
(a)the sub-advisor may be required to hold a larger portion of assets in
highly liquid securities than it otherwise would, which could diminish
performance if the highly liquid securities underperform other securities
(e.g., equities) that otherwise would have been held;
(b)a portfolio may experience higher turnover, which could result in higher
operating expense ratios and transaction costs for the portfolio compared
to other similar funds; and,
(c)if the sub-advisor must sell securities that are thinly-traded to satisfy
redemption requests initiated pursuant to the formula, such sales could
have a significant adverse impact on the price of such securities and the
cash proceeds received by the portfolio.
Please consult the prospectus for the applicable portfolio for additional
information about these effects.
VARIABLE INVESTMENT OPTIONS
Each variable Investment Option is a Sub-account of the Pruco Life Flexible
Premium Variable Annuity Account (see "Pruco Life and the Separate Account"
for more detailed information). Each Sub-account invests exclusively in one
portfolio. You should carefully read the prospectus for any portfolio in which
you are interested. The Investment Objectives/Policies Chart below classifies
each of the portfolios based on our assessment of their investment style. The
chart also provides a description of each portfolio's investment objective (in
italics) and a short, summary description of their key policies to assist you
in determining which Portfolios may be of interest to you. Please note: the
AST Investment Grade Bond Portfolio is not available for allocation of
Purchase Payments.
Not all portfolios offered as Sub-accounts may be available depending on
optional benefit selection. Thus, if you selected particular optional
benefits, you would be precluded from investing in certain portfolios and
therefore would not receive investment appreciation (or depreciation)
affecting those portfolios.
The portfolios are not publicly traded mutual funds. They are only available
as Investment Options in variable annuity contracts and variable life
insurance policies issued by insurance companies, or in some cases, to
participants in certain qualified retirement plans. However, some of the
portfolios available as Sub-accounts under the Annuities are managed by the
same portfolio advisor or sub-advisor as a retail mutual fund of the same or
similar name that the portfolio may have been modeled after at its inception.
Conversely, certain retail mutual funds may be managed by the same portfolio
advisor or sub-advisor of a Portfolio available as a Sub-account or have a
similar name. While the investment objective and policies of the retail mutual
funds and the portfolios may be substantially similar, the actual investments
will differ to varying degrees. Differences in the performance of the funds
can be expected, and in some cases could be substantial. You should not
compare the performance of a publicly traded mutual fund with the performance
of any similarly named portfolio offered as a Sub-account. Details about the
investment objectives, policies, risks,
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costs and management of the portfolios are found in the prospectuses for the
portfolios. The current prospectuses and statements of additional information
for the underlying Portfolios can be obtained by calling 1-888-PRU-2888.
Please read the prospectus carefully before investing.
The name of the advisor/sub-advisor for each portfolio appears next to the
description. Those portfolios whose name includes the prefix "AST" are
portfolios of the Advanced Series Trust. The portfolios of the Advanced Series
Trust are co-managed by AST Investment Services, Inc. and Prudential
Investments LLC, both of which are affiliated companies of Pruco Life.
However, one or more sub-advisors, as noted below, are engaged to conduct
day-to-day management. Allocations made to all AST Portfolios benefit us
financially.
Please see the Additional Information section, under the heading concerning
"Service Fees Payable to Pruco Life" for a discussion of fees that we may
receive from underlying mutual funds and/or their affiliates. You may select
portfolios individually, create your own combination of portfolios (certain
limitations apply -- see "Limitations with Optional Benefits" later in this
section), or select from among combinations of portfolios that we have created
called "Prudential Portfolio Combinations." Under Prudential Portfolio
Combinations, each Portfolio Combination consists of several asset allocation
portfolios, each of which represents a specified percentage of your
allocations. If you elect to invest according to one of these Portfolio
Combinations, we will allocate your initial Purchase Payment among the
Sub-accounts within the Portfolio Combination according to the percentage
allocations. You may elect to allocate additional Purchase Payments according
to the composition of the Portfolio Combination, although if you do not make
such an explicit election, we will allocate additional Purchase Payments as
discussed below under "Additional Purchase Payments." Once you have selected a
Portfolio Combination, we will not rebalance your Account Value to take into
account differences in performance among the Sub-accounts. This is a static,
point of sale model allocation. Over time, the percentages in each asset
allocation portfolio may vary from the Portfolio Combination you selected when
you purchased your Annuity based on the performance of each of the portfolios
within the Portfolio Combination. However, you may elect to participate in an
automatic rebalancing program, under which we would transfer Account Value
periodically so that your Account Value allocated to the Sub-accounts is
brought back to the exact percentage allocations stipulated by the Portfolio
Combination you elected. Please see "Automatic Rebalancing Programs" below for
details about how such a program operates. If you are participating in an
optional living benefit (such as Highest Daily Lifetime Income v2.1) that uses
a predetermined mathematical formula under which your Account Value may be
transferred between certain "Permitted Sub-accounts" and a bond portfolio
sub-account, and you have elected automatic rebalancing in addition to
Prudential Portfolio Combinations, you should be aware that: (a) the AST bond
portfolio used as part of the predetermined mathematical formula will not be
included as part of automatic rebalancing and (b) the operation of the formula
may result in the rebalancing not conforming to the percentage allocations
that existed originally as part of Prudential Portfolio Combinations.
If you are interested in a Portfolio Combination, you should work with your
Financial Professional to select the Portfolio Combination that is appropriate
for you, in light of your investment time horizon, investment goals and
expectations and market risk tolerance, and other relevant factors. In
providing these Portfolio Combinations, we are not providing investment
advice. You are responsible for determining which Portfolio Combination or
Sub-account(s) is best for you. Asset allocation does not ensure a profit or
protect against a loss.
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Pyramis is a registered service mark of FMR LLC. Used under license.
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LIMITATIONS WITH OPTIONAL BENEFITS
As a condition to your participating in any Highest Daily Lifetime Income v2.1
benefit, we limit the Investment Options to which you may allocate your
Account Value, as set forth in the Allowable Benefit Allocations table below.
Allowable Benefit Allocations
MARKET VALUE ADJUSTMENT OPTIONS
When you allocate your Account Value to an MVA Option, you earn a fixed rate
of interest over a set period of time called a Guarantee Period. There are two
types of MVA Options available under each Annuity - the Long-Term MVA Options
and the DCA MVA Options. We discuss each MVA Option below. In brief, under the
Long-Term MVA Options, you earn interest over a multi-year time period that
you have selected. Currently, the Guarantee Periods we offer are 3 years, 5
years, 7 years, and 10 years. We reserve the right to eliminate any or all of
these Guarantee Periods or offer Guarantee Periods of different durations.
Under the DCA MVA Options, you earn interest over a 6 month or 12 month period
while your Account Value in that option is systematically transferred monthly
to the Sub-accounts you have designated.
For the Long-Term MVA Option, a Guarantee Period for an MVA Option begins:
. when all or part of a Purchase Payment is allocated to that MVA Option;
. upon transfer of any of your Account Value to a Long-Term MVA Option for
that particular Guarantee Period; or
. when you "renew" an MVA Option into a new Guarantee Period.
RATES FOR MVA OPTIONS
We do not have a single method for determining the fixed interest rates for
the MVA Options. In general, the interest rates we offer for MVA Options will
reflect the investment returns available on the types of investments we make
to support our fixed rate guarantees. These investment types may include cash,
debt securities guaranteed by the United States government and its agencies
and instrumentalities, money market instruments, corporate debt obligations of
different durations, private placements, asset-backed obligations and
municipal bonds. In determining rates we also consider factors such as the
length of the Guarantee Period for the MVA Option, regulatory and tax
requirements, liquidity of the markets for the type of investments we make,
commissions, administrative and investment expenses, our insurance risks in
relation to the MVA Options, general economic trends and competition. We also
take into consideration mortality, expense, administration, profit and other
factors in determining the interest rates we credit to MVA Options, and
therefore, we credit lower interest rates due to the existence of these
factors than we otherwise would.
The interest rate credited to an MVA Option is the rate in effect when the
Guarantee Period begins and does not change during the Guarantee Period. The
rates are an effective annual rate of interest. We determine, in our sole
discretion, the interest rates for the various Guarantee Periods. At the time
that we confirm your MVA Option, we will advise you of the interest rate in
effect and the
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date your MVA Option matures. We may change the rates we credit to new MVA
Options at any time. To inquire as to the current rates for the MVA Options,
please call 1-888-PRU-2888. MVA Options may not be available in all States and
are subject to a minimum rate. Currently, the MVA Options are not available in
the States of Illinois, Oregon and Washington.
To the extent permitted by law, we may establish different interest rates for
MVA Options offered to a class of Owners who choose to participate in various
optional investment programs we make available. This may include, but is not
limited to, Owners who elect to use DCA MVA Options.
For any MVA Option, you will not be permitted to allocate or renew to the MVA
Option if the Guarantee Period associated with that MVA Option would end after
your Annuity Date. Thus, for example, we would not allow you to start a new
Guarantee Period of 5 years if the Owner/Annuitant were aged 94, because the 5
year period would end after the Latest Annuity Date.
MARKET VALUE ADJUSTMENT
With certain exceptions, if you transfer or withdraw Account Value from an MVA
Option prior to the end of the applicable Guarantee Period, you will be
subject to a Market Value Adjustment or "MVA". We assess an MVA (whether
positive or negative) upon:
. any surrender, partial withdrawal (including a systematic withdrawal,
Medically-Related Surrender, or a withdrawal program under Sections
72(t) or 72(q) of the Code), or transfer out of an MVA Option made
outside the 30 days immediately preceding the maturity of the Guarantee
Period; and
. your exercise of the Free Look right under your Annuity, unless
prohibited by law.
We will NOT assess an MVA (whether positive or negative) in connection with
any of the following:
. partial withdrawals made to meet Required Minimum Distribution
requirements under the Code in relation to your Annuity or a required
distribution if your Annuity is held as a Beneficiary Annuity, but only
if the Required Minimum Distribution or required distribution from
Beneficiary Annuity is an amount that we calculate and is distributed
through a program that we offer;
. transfers or partial withdrawals from an MVA Option during the 30 days
immediately prior to the end of the applicable Guarantee Period,
including the Maturity Date of the MVA option;
. transfers made in accordance with our 6 or 12 Month DCA Program;
. when a Death Benefit is determined;
. deduction of a Annual Maintenance Fee for the Annuity;
. Annuitization under the Annuity; and
. transfers made pursuant to a mathematical formula used with an optional
benefit (e.g., Highest Daily Lifetime Income).
The amount of the MVA is determined according to the formulas set forth in
Appendix C. We use one formula for the Long-Term MVA Option and another
formula for the DCA MVA Option. In general, the amount of the MVA is dependent
on the difference between interest rates at the time your MVA Option was
established and current interest rates for the remaining Guarantee Period of
your MVA Option. For the Long-Term MVA Option, as detailed in the formula, we
essentially (i) divide the current interest rate you are receiving under the
Guarantee Period by the interest rate we are crediting for a Guarantee Period
equal in duration to the time remaining under the Guarantee Period (plus a
Liquidity Factor as defined below) and (ii) raise that quotient by a
mathematical power that represents the time remaining until the maturity of
the Guarantee Period. That result produces the MVA factor. The Liquidity
Factor is an element of the MVA formula currently equal to 0.0025 or 25 basis
points. It is an adjustment that is applied when an MVA is assessed
(regardless of whether the MVA is positive or negative) and, relative to when
no Liquidity Factor is applied, will reduce the amount being surrendered or
transferred from the MVA Option. If we have no interest rate for a Guarantee
Period equal in duration to the time remaining under the Guarantee Period, we
may use certain US Treasury interest rates to calculate a proxy for that
interest rate. All else being equal, the longer the time remaining until the
maturity of the MVA Option from which you are making the withdrawal, the
larger the mathematical power that is applied to the quotient in (i) above,
and thus the larger the MVA itself. The formula for the DCA MVA Option works
in a similar fashion, including the Liquidity Factor described above, except
that both interest rates used in the MVA formula are derived directly from the
Federal Reserve's "Constant Maturity (CMT) rate." Under either formula, the
MVA may be positive or negative, and a negative MVA could result in a loss of
interest previously earned as well as some portion of your Purchase Payments.
LONG-TERM MVA OPTIONS
We offer Long-Term MVA Options, offering a range of durations. When you select
this option, your payment will earn interest at the established rate for the
applicable Guarantee Period. A new Long-Term MVA Option is established every
time you allocate or transfer money into a Long-Term MVA Option. You may have
money allocated in more than one Guarantee Period at the same time. This could
result in your money earning interest at different rates and each Guarantee
Period maturing at a different time. While the interest rates we credit to the
MVA Options may change from time to time, the minimum interest rate is what is
set forth in your Annuity.
We retain the right to limit the amount of Account Value that may be
transferred into a new or out of an existing a Long-Term MVA Option and/or to
require advance notice for transfers exceeding a specified amount. In
addition, we reserve the right to limit or restrict the availability of
certain Guarantee Periods from time to time.
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DCA MVA OPTIONS
In addition to the Long-Term MVA Options, we offer DCA MVA Options that are
used with our 6 or 12 Month DCA Program. Amounts allocated to the DCA MVA
Options earn the declared rate of interest while the amount is transferred
over a 6 or 12 month period into the Sub-accounts that you have designated.
Because the interest we credit is applied against a balance that declines as
transfers are made periodically to the Subaccounts, you do not earn interest
on the full amount you allocated initially to the DCA MVA Options. A dollar
cost averaging program does not assure a profit, or protect against a loss.
For a complete description of our 6 or 12 month DCA Program, see the
applicable section of this prospectus within the section entitled "Managing
Your Account Value."
GUARANTEE PERIOD TERMINATION
An MVA Option ends on the earliest of (a) the "Maturity Date" of the Guarantee
Period (b) the date the entire amount in the MVA Option is withdrawn or
transferred (c) the Annuity Date (d) the date the Annuity is surrendered and
(e) the date as of which a Death Benefit is determined, unless the Annuity is
continued by a spousal Beneficiary. "Annuity Date" means the date on which we
apply your Unadjusted Account Value to the applicable annuity option and begin
the payout period. As discussed in the Annuity Options section, there is an
age by which you must begin receiving annuity payments, which we call the
"Latest Annuity Date."
We will notify you before the end of the Guarantee Period. You may elect to
have the value of the Long-Term MVA Option on its Maturity Date transferred to
any Investment Option, including any Long-Term MVA Option, we then make
available. If we do not receive instructions from you in Good Order at our
Service Office before the Maturity Date of the Long-Term MVA Option, regarding
how the Account Value in your maturing Long-Term MVA Option is to be
allocated, we will allocate the Account Value in the maturing Long-Term MVA
Option to the AST Money Market Sub-account, unless the Maturity Date is the
Annuity Date. We will not assess an MVA if you choose to renew an MVA Option
on its Maturity Date or transfer the Account Value to another Investment
Option on the Maturity Date (or at any time during the 30 days immediately
preceding the Maturity Date).
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FEES, CHARGES AND DEDUCTIONS
In this section, we provide detail about the charges you incur if you own the
Annuity.
The charges under each Annuity are designed to cover, in the aggregate, our
direct and indirect costs of selling, administering and providing benefits
under each Annuity. They are also designed, in the aggregate, to compensate us
for the risks of loss we assume. If, as we expect, the charges that we collect
from the Annuities exceed our total costs in connection with the Annuities, we
will earn a profit. Otherwise we will incur a loss. For example, Pruco Life
may make a profit on the Insurance Charge if, over time, the actual costs of
providing the guaranteed insurance obligations and other expenses under an
Annuity are less than the amount we deduct for the Insurance Charge. To the
extent we make a profit on the Insurance Charge, such profit may be used for
any other corporate purpose.
The rates of certain of our charges have been set with reference to estimates
of the amount of specific types of expenses or risks that we will incur. In
general, a given charge under the Annuity compensates us for our costs and
risks related to that charge and may provide for a profit. However, it is
possible that with respect to a particular obligation we have under this
Annuity, we may be compensated not only by the charge specifically tied to
that obligation, but also from one or more other charges we impose.
With regard to charges that are assessed as a percentage of the value of the
Sub-accounts, please note that such charges are assessed through a reduction
to the Unit value of your investment in each Sub-account, and in that way
reduce your Account Value. A "Unit" refers to a share of participation in a
Sub-account used to calculate your Unadjusted Account Value prior to the
Annuity Date.
Contingent Deferred Sales Charge ("CDSC"): The CDSC reimburses us for expenses
related to sales and distribution of the Annuity, including commissions,
marketing materials and other promotional expenses. We may deduct a CDSC if
you surrender your Annuity or when you make a partial withdrawal (except that
there is no CDSC on the C Series Annuity). The CDSC is calculated as a
percentage of your Purchase Payment being surrendered or withdrawn. The CDSC
percentage varies with the number of years that have elapsed since each
Purchase Payment being withdrawn was made. If a withdrawal is effective on the
day before the anniversary of the date that the Purchase Payment being
withdrawn was made, then the CDSC percentage as of the next following year
will apply. The CDSC percentages for the B Series and the L Series are shown
under "Summary of Contract Fees and Charges."
With respect to a partial withdrawal, we calculate the CDSC by assuming that
any available free withdrawal amount is taken out first (see "Free Withdrawal
Amounts" later in this prospectus). If the free withdrawal amount is not
sufficient, we then assume that partial withdrawals are taken from Purchase
Payments that have not been previously withdrawn, on a first-in, first-out
basis, and subsequently from any other Account Value in the Annuity (such as
gains). In a "gross" withdrawal, you request a specific withdrawal amount,
with the understanding that the amount you actually receive is reduced by each
applicable amount. In a "net" withdrawal, you request a withdrawal for an
exact dollar amount, with the understanding that any amount deducted (e.g.,
for a CDSC) is taken from your remaining Unadjusted Account Value. If you
request a gross withdrawal, you may receive less than the specified dollar
amount, as any applicable CDSC and tax withholding would be deducted from the
amount you requested (although any MVA will not be applied to the amount you
receive, but instead will be applied to your Unadjusted Account Value). If you
request a net withdrawal, a larger amount may be deducted from your Unadjusted
Account Value in order for you to receive the specified dollar amount after
any applicable CDSC, MVA and tax withholding is assessed. See "Free Withdrawal
Amounts" below for further detail on net and gross withdrawals, as well as how
this might affect an optional living benefit you may have. Please be aware
that under the Highest Daily Lifetime Income v2.1 suite of benefits: (a) for a
gross withdrawal, if the amount requested exceeds the Annual Income Amount,
the excess portion will be treated as Excess Income and (b) for a net
withdrawal, if the amount you receive plus the amount of the CDSC deducted
from your Unadjusted Account Value exceeds the Annual Income Amount, the
excess portion will be treated as Excess Income (which has negative
consequences under these optional benefits).
Upon surrender, we calculate a CDSC based on any Purchase Payments that have
not been withdrawn. The amount of such Purchase Payments could be greater than
your remaining Account Value. This could occur if you have made prior partial
withdrawals or if your Account Value has declined in value due to negative
market performance. Thus, for example, the CDSC could be greater than if it
were calculated as percentage of remaining Account Value.
We may waive any applicable CDSC under certain circumstances described herein.
Transfer Fee: Currently, you may make twenty free transfers between Investment
Options each Annuity Year. We may charge $10 for each transfer after the
twentieth in each Annuity Year. We do not consider transfers made as part of a
Dollar Cost Averaging, Automatic Rebalancing or Custom Portfolio Program when
we count the twenty free transfers. All transfers made on the same day will be
treated as one transfer. Renewals or transfers of Account Value from an MVA
Option within the 30 days immediately preceding the end of its Guarantee
Period are not subject to the Transfer Fee and are not counted toward the
twenty free transfers. Similarly, transfers made under our 6 or 12 Month DCA
Program and transfers made pursuant to a formula used
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with an optional benefit are not subject to the Transfer Fee and are not
counted toward the twenty free transfers. Transfers made through any
electronic method or program we specify are not counted toward the twenty free
transfers. The transfer fee is deducted pro rata from all Sub-accounts in
which you maintain Account Value immediately subsequent to the transfer.
Annual Maintenance Fee: Prior to Annuitization, we deduct an Annual
Maintenance Fee. The Annual Maintenance Fee is equal to $50 or 2% of your
Unadjusted Account Value, whichever is less. This fee will be deducted
annually on the anniversary of the Issue Date of your Annuity or, if you
surrender your Annuity during the Annuity Year, the fee is deducted at the
time of surrender unless the surrender is taken within 30 days of most
recently assessed Annual Maintenance Fee. The fee is taken out first from the
Sub-accounts pro rata, and then from the MVA Options (if the amount in the
Sub-accounts is insufficient to pay the fee). The Annual Maintenance Fee is
only deducted if the sum of the Purchase Payments at the time the fee is
deducted is less than $100,000. We do not impose the Annual Maintenance Fee
upon Annuitization (unless Annuitization occurs on an Annuity anniversary), or
the payment of a Death Benefit. For Beneficiaries that elect the Beneficiary
Continuation Option, the Annual Maintenance Fee is the lesser of $30 or 2% of
Unadjusted Account Value and is only assessed if the Unadjusted Account Value
is less than $25,000 at the time the fee is assessed. The amount of the Annual
Maintenance Fee may differ in certain states.
Tax Charge: Some states and some municipalities charge premium taxes or
similar taxes on annuities that we are required to pay. The amount of tax will
vary from jurisdiction to jurisdiction and is subject to change. We reserve
the right to deduct the tax either when Purchase Payments are received, upon
surrender or upon Annuitization. If deducted upon Annuitization, we would
deduct the tax from your Unadjusted Account Value. The Tax Charge is designed
to approximate the taxes that we are required to pay and is assessed as a
percentage of Purchase Payments, Surrender Value, or Account Value as
applicable. The Tax Charge currently ranges up to 3.5%. We may assess a charge
against the Sub-accounts and the MVA Options equal to any taxes which may be
imposed upon the Separate Accounts. "Surrender Value" refers to the Account
Value (which includes the effect of any MVA) less any applicable CDSC, any
applicable tax charges, any charges assessable as a deduction from the Account
Value for any optional benefits provided by rider or endorsement, and any
Annual Maintenance Fee.
We will pay company income taxes on the taxable corporate earnings created by
this Annuity. While we may consider company income taxes when pricing our
products, we do not currently include such income taxes in the tax charges you
pay under the Annuity. We will periodically review the issue of charging for
these taxes, and we may charge for these taxes in the future. We reserve the
right to impose a charge for federal income taxes if we determine, in our sole
discretion, that we will incur a tax as a result of the operation of the
Separate Account.
In calculating our corporate income tax liability, we may derive certain
corporate income tax benefits associated with the investment of company
assets, including Separate Account assets, which are treated as company assets
under applicable income tax law. These benefits reduce our overall corporate
income tax liability. We do not pass these tax benefits through to holders of
the Separate Account annuity contracts because (i) the contract Owners are not
the Owners of the assets generating these benefits under applicable income tax
law and (ii) we do not currently include company income taxes in the tax
charges you pay under the Annuity.
Insurance Charge: We deduct an Insurance Charge daily based on the annualized
rate shown in the "Summary of Contract Fees and Charges." The charge is
assessed against the assets allocated to the Sub-accounts. The Insurance
Charge is the combination of the Mortality & Expense Risk Charge and the
Administration Charge. The Insurance Charge is intended to compensate Pruco
Life for providing the insurance benefits under each Annuity, including each
Annuity's basic Death Benefit that provides guaranteed benefits to your
Beneficiaries even if your Account Value declines, and the risk that persons
we guarantee annuity payments to will live longer than our assumptions. The
charge also covers administrative costs associated with providing the Annuity
benefits, including preparation of the contract and prospectus, confirmation
statements, annual account statements and annual reports, legal and accounting
fees as well as various related expenses. Finally, the charge covers the risk
that our assumptions about the mortality risks and expenses under each Annuity
are incorrect and that we have agreed not to increase these charges over time
despite our actual costs. Each Annuity has a different Insurance Charge during
the first 9 Annuity Years. However, for the L Series and C Series, on the
Valuation Day immediately following the 9/th/ Annuity Anniversary, the
Insurance Charge drops to 1.45% annually (the B Series Insurance Charge is a
constant 1.45%).
Optional Benefits for which we assess a charge: If you elect to purchase an
optional benefit, we will deduct an additional charge. The charge is assessed
against the greater of the Unadjusted Account Value and the Protected
Withdrawal Value and is taken out of the Sub-accounts quarterly. Please refer
to the section entitled "Summary of Contract Fees and Charges" for the list of
charges for each optional benefit.
Settlement Service Charge: If your Beneficiary takes the death benefit under a
Beneficiary Continuation Option, the Insurance Charge no longer applies.
However, we then begin to deduct a Settlement Service Charge which is assessed
daily against the assets allocated to the Sub-accounts and is equal to an
annualized charge of 1.00%.
Fees and Expenses Incurred by the Portfolios: Each portfolio incurs total
annualized operating expenses comprised of an investment management fee, other
expenses and any distribution and service (12b-1) fees or short sale expenses
that may apply.
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These fees and expenses are reflected daily by each portfolio before it
provides Pruco Life with the net asset value as of the close of business each
Valuation Day. More detailed information about fees and expenses can be found
in the prospectuses for the portfolios.
MVA OPTION CHARGES
No specific fees or expenses are deducted when determining the rates we credit
to an MVA Option. However, for some of the same reasons that we deduct the
Insurance Charge against the Account Value allocated to the Sub-accounts, we
also take into consideration mortality, expense, administration, profit and
other factors in determining the interest rates we credit to an MVA Option.
ANNUITY PAYMENT OPTION CHARGES
If you select a fixed payment option, the amount of each fixed payment will
depend on the Unadjusted Account Value of your Annuity when you elected to
annuitize. There is no specific charge deducted from these payments; however,
the amount of each annuity payment reflects assumptions about our insurance
expenses. Also, a tax charge may apply.
EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES
We may reduce or eliminate certain fees and charges or alter the manner in
which the particular fee or charge is deducted. For example, we may reduce the
amount of any CDSC or the length of time it applies, reduce or eliminate the
amount of the Annual Maintenance Fee or reduce the portion of the total
Insurance Charge that is deducted as an Administration Charge. We will not
discriminate unfairly between Annuity purchasers if and when we reduce any
fees and charges.
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PURCHASING YOUR ANNUITY
REQUIREMENTS FOR PURCHASING THE ANNUITY
We may apply certain limitations, restrictions, and/or underwriting standards
as a condition of our issuance of an Annuity and/or acceptance of Purchase
Payments. All such conditions are described below.
Initial Purchase Payment: An initial Purchase Payment is considered the first
Purchase Payment received by us in Good Order. This is the payment that issues
your Annuity. All subsequent Purchase Payments allocated to the Annuity will
be considered Additional Purchase Payments. Unless we agree otherwise and
subject to our rules, you must make a minimum initial Purchase Payment as
follows: $1,000 for the B Series and $10,000 for the L Series and C Series.
However, if you decide to make payments under a systematic investment or an
electronic funds transfer program, we may accept a lower initial Purchase
Payment provided that, within the first Annuity Year, your subsequent Purchase
Payments plus your initial Purchase Payment total the minimum initial Purchase
Payment amount required for the Annuity purchased.
We must approve any initial and additional Purchase Payments where the total
amount of Purchase Payments equals $1,000,000 or more with respect to this
Annuity and any other annuities you are purchasing from us (or that you
already own) and/or our affiliates. To the extent allowed by state law, that
required approval also will apply to a proposed change of owner of the
Annuity, if as a result of the ownership change, total Purchase Payments would
equal or exceed that $1 million threshold. Applicable laws designed to counter
terrorists and prevent money laundering might, in certain circumstances,
require us to block an Annuity Owner's ability to make certain transactions,
and thereby refuse to accept Purchase Payments or requests for transfers,
partial withdrawals, total withdrawals, death benefits, or income payments
until instructions are received from the appropriate regulator. We also may be
required to provide additional information about you and your Annuity to
government regulators.
Speculative Investing: Do not purchase this Annuity if you, anyone acting on
your behalf, and/or anyone providing advice to you plan to use it, or any of
its riders, for speculation, arbitrage, viatication or any other type of
collective investment scheme now or at any time prior to termination of the
Annuity. Your Annuity may not be traded on any stock exchange or secondary
market. By purchasing this Annuity, you represent and warrant that you are not
using this Annuity, or any of its riders, for speculation, arbitrage,
viatication or any other type of collective investment scheme.
Currently, we will not issue an Annuity, permit changes in ownership or allow
assignments to certain ownership types, including but not limited to:
corporations, partnerships, endowments and grantor trusts with multiple
grantors. Further, we will only issue an Annuity, allow changes of ownership
and/or permit assignments to certain ownership types if the Annuity is held
exclusively for the benefit of the designated annuitant. These rules are
subject to state law. Additionally, we will not permit election or re-election
of any optional death benefit or optional living benefit by certain ownership
types. We may issue an Annuity in ownership structures where the annuitant is
also the participant in a Qualified or Non-Qualified employer sponsored plan
and the Annuity represents his or her segregated interest in such plan. We
reserve the right to further limit, restrict and/or change to whom we will
issue an Annuity in the future, to the extent permitted by state law. Further,
please be aware that we do not provide administration for employer-sponsored
plans and may also limit the number of plan participants that elect to use our
Annuity as a funding vehicle.
Except as noted below, Purchase Payments must be submitted by check drawn on a
U.S. bank, in U.S. dollars, and made payable to 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.
Additional Purchase Payments may also be applied to your Annuity under an
electronic funds transfer, an arrangement where you authorize us to deduct
money directly from your bank account. We may reject any payment if it is
received in an unacceptable form. Our acceptance of a check is subject to our
ability to collect funds.
Once we accept your application, we invest your Purchase Payment in your
Annuity according to your instructions. You can allocate Purchase Payments to
one or more available Investment Options. Investment restrictions will apply
if you elect optional benefits.
Age Restrictions: Unless we agree otherwise and subject to our rules, each of
the Owner(s) and Annuitant(s) must not be older than the maximum issue age of
85 as of the Issue Date of the Annuity. No additional Purchase Payments will
be permitted after age 85 for any of the Annuities. If you purchase a
Beneficiary Annuity, the maximum issue age is 70 based on the Key Life. The
availability and level of protection of certain optional benefits may vary
based on the age of the oldest Owner (or Annuitant, if entity owned) on the
Issue Date of the Annuity or the date of the Owner's death. In addition, the
broker-dealer firm through which you are purchasing an Annuity may impose a
younger maximum issue age than what is described above - check with the
broker-dealer firm for details. The "Annuitant" refers to the natural person
upon whose life annuity payments payable to the Owner are based.
Additional Purchase Payments: If allowed by applicable state law, you may make
additional Purchase Payments, provided that the payment is at least $100 (we
impose a $50 minimum for electronic funds transfer ("EFT") purchases). We may
amend this Purchase Payment minimum, and/or limit the Investment Options to
which you may direct Purchase Payments. You may make
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additional Purchase Payments, unless the Annuity is held as a Beneficiary
Annuity, at any time before the earlier of the Annuity Date and (i) for
Annuities that are not entity-owned, the oldest Owner's 86/th/ birthday or
(ii) for entity-owned Annuities, the Annuitant's 86/th/ birthday. However,
Purchase Payments are not permitted after the Account Value is reduced to zero.
Each additional Purchase Payment will be allocated to the Investment Options
according to the instructions you provide with such Purchase Payment. You may
not provide allocation instructions that apply to more than one additional
Purchase Payment. Thus, if you have not provided allocation instructions with
a particular additional Purchase Payment, we will allocate the Purchase
Payment on a pro rata basis to the Sub-accounts in which your Account Value is
then allocated, excluding Sub-accounts to which you may not electively
allocate Account Value.
For Annuities that have one of the Highest Daily Lifetime Income v2.1
benefits, we may limit, suspend or reject any additional Purchase Payment at
any time, but would do so only on a non-discriminatory basis. Circumstances
where we may limit, restrict, suspend or reject additional Purchase Payments
include, but are not limited to, the following:
.. if we determine that, as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to suspend, reject and/or place limitations on the
acceptance of additional Purchase Payments, you may no longer be able to fund
the Highest Daily Lifetime Income v2.1 benefit that you selected. This means
that you may no longer be able to increase the values associated with your
Highest Daily Lifetime Income v2.1 benefit through additional Purchase
Payments. Please see the "Living Benefits" section of this prospectus for
further information on additional Purchase Payments.
Depending on the tax status of your Annuity (e.g., if you own the Annuity
through an IRA), there may be annual contribution limits dictated by
applicable law. Please see the Tax Considerations section for additional
information on these contribution limits.
If you have elected to participate in the 6 or 12 Month DCA Program, your
initial Purchase Payment will be applied to your chosen program. Each time you
make an additional Purchase Payment, you will need to elect a new 6 or 12
Month DCA Program for that additional Purchase Payment. If you do not provide
such instructions, we will allocate that additional Purchase Payment on a pro
rata basis to the Sub-accounts in which your Account Value is then allocated,
excluding Sub-accounts to which you may not electively allocate Account Value.
Additionally, if your initial Purchase Payment is funded from multiple sources
(e.g., a transfer of assets/1035 exchange) then the total amount that you have
designated to fund your annuity will be treated as the initial Purchase
Payment for purposes of your participation in the 6 or 12 Month DCA Program.
DESIGNATION OF OWNER, ANNUITANT, AND BENEFICIARY
Owner, Annuitant and Beneficiary Designations: We will ask you to name the
Owner(s), Annuitant and one or more Beneficiaries for your Annuity.
. Owner: Each Owner holds all rights under the Annuity. You may name up to
two Owners in which case all ownership rights are held jointly.
Generally, joint Owners are required to act jointly; however, if each
Owner provides us with an instruction that we find acceptable, we will
permit each Owner to act independently on behalf of both Owners. All
information and documents that we are required to send you will be sent
to the first named Owner. Co-ownership by entity Owners or an entity
Owner and an individual is not permitted. Refer to the Glossary of Terms
for a complete description of the term "Owner." Prior to Annuitization,
there is no right of survivorship (other than any spousal continuance
right that may be available to a surviving spouse).
. Annuitant: The Annuitant is the person upon whose life we make annuity
payments. You must name an Annuitant who is a natural person. We do not
accept a designation of joint Annuitants during the Accumulation Period.
In limited circumstances and where allowed by law, we may allow you to
name one or more "Contingent Annuitants" with our prior approval.
Generally, a Contingent Annuitant will become the Annuitant if the
Annuitant dies before the Annuity Date. Please refer to the discussion
of "Considerations for Contingent Annuitants" in the Tax Considerations
section of the prospectus. For Beneficiary Annuities, instead of an
Annuitant there is a "Key Life" which is used to determine the annual
required distributions.
. Beneficiary: The Beneficiary is the person(s) or entity you name to
receive the Death Benefit. Your Beneficiary designation should be the
exact name of your Beneficiary, not only a reference to the
Beneficiary's relationship to you. If you use a class designation in
lieu of designating individuals (e.g. "surviving children"), we will pay
the class of Beneficiaries as determined at the time of your death and
not the class of Beneficiaries that existed at the time the designation
was made. If no Beneficiary is named, the Death Benefit will be paid to
you or your estate. For Annuities that designate a custodian or a plan
as Owner, the custodian or plan must also be designated as the
Beneficiary. For Beneficiary Annuities, instead of a Beneficiary, the
term "Successor" is used. If an Annuity is co-owned by spouses, we will
assume that the sole primary Beneficiary is the surviving spouse that
was named as the co-Owner, unless you elect an alternative Beneficiary
designation.
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Your right to make certain designations may be limited if your Annuity is to
be used as an IRA, Beneficiary Annuity or other "qualified" investment that is
given beneficial tax treatment under the Code. You should seek competent tax
advice on the income, estate and gift tax implications of your designations.
"Beneficiary" Annuity
You may purchase an Annuity if you are a Beneficiary of an account that was
owned by a decedent, subject to the following requirements. You may transfer
the proceeds of the decedent's account into one of the Annuities described in
this prospectus and receive distributions that are required by the tax laws.
This transfer option is not available if the proceeds are being transferred
from an annuity issued by us or one of our affiliates and the annuity offers a
"Beneficiary Continuation Option".
Upon purchase, the Annuity will be issued in the name of the decedent for your
benefit. You must take required distributions at least annually, which we will
calculate based on the applicable life expectancy in the year of the
decedent's death, using Table 1 in IRS Publication 590. We do not assess a
CDSC (if applicable) on distributions from your Annuity if you are required by
law to take such distributions from your Annuity at the time it is taken,
provided the amount withdrawn is the amount we calculate and is paid out
through a program of systematic withdrawals that we make available.
For IRAs and Roth IRAs, distributions must begin by December 31 of the year
following the year of the decedent's death. If you are the surviving spouse
Beneficiary, distributions may be deferred until the decedent would have
attained age 70 1/2, however if you choose to defer distributions, you are
responsible for complying with the distribution requirements under the Code,
and you must notify us when you would like distributions to begin. For
additional information regarding the tax considerations applicable to
Beneficiaries of an IRA or Roth IRA, see "Required Distributions Upon Your
Death for Qualified Annuity Contracts" in the Tax Considerations section of
this prospectus.
For non-qualified Annuities, distributions must begin within one year of the
decedent's death. For additional information regarding the tax considerations
applicable to Beneficiaries of a non-qualified Annuity see "Required
Distributions Upon Your Death for Nonqualified Annuity Contracts" in the Tax
Considerations section of this prospectus.
You may take withdrawals in excess of your required distributions, however
such withdrawals may be subject to the Contingent Deferred Sales Charge. Any
withdrawals you take count toward the required distribution for the year. All
applicable charges will be assessed against your Annuity, such as the
Insurance Charge and the Annual Maintenance Fee.
The Annuity provides a basic Death Benefit upon death, and you may name
"successors" who may either receive the Death Benefit as a lump sum or
continue receiving distributions after your death under the Beneficiary
Continuation Option.
Please note the following additional limitations for a Beneficiary Annuity:
.. No additional Purchase Payments are permitted. You may only make a one-time
initial Purchase Payment transferred to us directly from another annuity or
eligible account. You may not make your Purchase Payment as an indirect
rollover, or combine multiple assets or death benefits into a single
contract as part of this Beneficiary Annuity.
.. You may not elect any optional living or death benefits.
.. You may not annuitize the Annuity; no annuity options are available.
.. You may participate only in the following programs: Auto-Rebalancing,
Dollar Cost Averaging (but not the 6 or 12 Month DCA Program), or
Systematic Withdrawals.
.. You may not assign or change ownership of the Annuity, and you may not
change or designate another life upon which distributions are based. A
Beneficiary Annuity may not be co-owned.
.. If the Annuity is funded by means of transfer from another Beneficiary
Annuity with another company, we require that the sending company or the
beneficial Owner provide certain information in order to ensure that
applicable required distributions have been made prior to the transfer of
the contract proceeds to us. We further require appropriate information to
enable us to accurately determine future distributions from the Annuity.
Please note we are unable to accept a transfer of another Beneficiary
Annuity where taxes are calculated based on an exclusion amount or an
exclusion ratio of earnings to original investment. We are also unable to
accept a transfer of an annuity that has annuitized.
.. The beneficial Owner of the Annuity can be an individual, grantor trust,
or, for an IRA or Roth IRA, a qualified trust. In general, a qualified
trust (1) must be valid under state law; (2) must be irrevocable or became
irrevocable by its terms upon the death of the IRA or Roth IRA Owner; and
(3) the Beneficiaries of the trust who are Beneficiaries with respect to
the trust's interest in this Annuity must be identifiable from the trust
instrument and must be individuals. A qualified trust may be required to
provide us with a list of all Beneficiaries to the trust (including
contingent and remainder Beneficiaries with a description of the conditions
on their entitlement), all of whom must be individuals, as of
September 30/th/ of the year following the year of death of the IRA or Roth
IRA Owner, or date of Annuity application if later. The trustee may also be
required to provide a copy of the trust document upon request. If the
beneficial Owner of the Annuity is a grantor trust, distributions must be
based on the life expectancy of the grantor. If the beneficial Owner of the
Annuity is a qualified trust, distributions must be based on the life
expectancy of the oldest Beneficiary under the trust.
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.. If this Beneficiary Annuity is transferred to another company as a tax-free
exchange with the intention of qualifying as a Beneficiary annuity with the
receiving company, we may require certifications from the receiving company
that required distributions will be made as required by law.
.. If you are transferring proceeds as Beneficiary of an annuity that is owned
by a decedent, we must receive your transfer request at least 45 days prior
to your first or next required distribution. If, for any reason, your
transfer request impedes our ability to complete your required distribution
by the required date, we will be unable to accept your transfer request.
RIGHT TO CANCEL
You may cancel (or "Free Look") your Annuity for a refund by notifying us in
Good Order or by returning the Annuity to our Service Office or to the
representative who sold it to you within 10 days after you receive it (or such
other period as may be required by applicable law). The Annuity can be mailed
or delivered either to us, at our Service Office, or to the representative who
sold it to you. Return of the Annuity by mail is effective on being
postmarked, properly addressed and postage prepaid. Unless required by
applicable law, the amount of the refund will equal the Account Value as of
the Valuation Day we receive the returned Annuity at our Service Office or the
cancellation request in Good Order, plus any fees or tax charges deducted from
the Purchase Payment. However, where we are required by applicable law to
return Purchase Payments, we will return the greater of Account Value and
Purchase Payments. If you had Account Value allocated to any MVA Option upon
your exercise of the Free Look, we will, to the extent allowed by applicable
state law, calculate any applicable MVA with a zero "liquidity factor". See
the section of this prospectus entitled "Market Value Adjustment Options."
SCHEDULED PAYMENTS DIRECTLY FROM A BANK ACCOUNT
You can make additional Purchase Payments to your Annuity by authorizing us to
deduct money directly from your bank account and applying it to your Annuity,
unless the Annuity is held as a Beneficiary Annuity. Investment restrictions
will apply if you elect optional benefits. No additional Purchase Payments are
permitted if you have elected the Beneficiary Annuity. We may suspend or
cancel electronic funds transfer privileges if sufficient funds are not
available from the applicable financial institution on any date that a
transaction is scheduled to occur. We may also suspend or cancel electronic
funds transfer privileges if we have limited, restricted, suspended or
rejected our acceptance of additional Purchase Payments.
SALARY REDUCTION PROGRAMS
These types of programs are only available with certain types of qualified
investments. If your employer sponsors such a program, we may agree to accept
periodic Purchase Payments through a salary reduction program as long as the
allocations are not directed to the MVA Options.
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MANAGING YOUR ANNUITY
CHANGE OF OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS
In general, you may change the Owner, Annuitant and Beneficiary designations
by sending us a request in Good Order, which will be effective upon receipt at
our Service Office. However, if the Annuity is held as a Beneficiary Annuity,
the Owner may not be changed and you may not designate another Key Life upon
which distributions are based. As of the Valuation Day we receive an ownership
change, including an assignment, 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. Any change we accept is
subject to any transactions processed by us before we receive the notice of
change at our Service Office. 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 if the annuity option
includes a life contingency;
.. a new Annuitant prior to the Annuity Date if the Owner is an entity;
.. a new Owner such that the new Owner is older than the age for which we
would then issue the Annuity as of the effective date of such change,
unless the change of Owner is the result of spousal continuation;
.. any permissible designation change if the change request is received at our
Service Office after the Annuity Date;
.. a new Owner or Annuitant that is a certain ownership type, including but
not limited to corporations, partnerships, endowments, and grantor trusts
with multiple grantors; and
.. a new Annuitant for a contract issued to a grantor trust where the new
Annuitant is not the grantor of the trust.
In general, you may change the Owner, Annuitant, and Beneficiary designations
as indicated above, and also may assign the Annuity. We will allow changes of
ownership and/or assignments only if the Annuity is held exclusively for the
benefit of the Annuitant or Contingent Annuitant. We accept assignments of
non-qualified Annuities only.
We reserve the right to reject any proposed change of Owner, Annuitant, or
Beneficiary, as well as any proposed assignment of the Annuity.
We will reject a proposed change where the proposed Owner, Annuitant,
Beneficiary or assignee is any of the following:
.. a company(ies) that issues or manages viatical or structured settlements;
.. an institutional investment company;
.. an Owner with no insurable relationship to the Annuitant or Contingent
Annuitant (a "Stranger-Owned Annuity" or "STOA"); or
.. a change in designation(s) that does not comply with or that we cannot
administer in compliance with Federal and/or state law.
We will implement this right on a non-discriminatory basis and to the extent
allowed by state law, but are not obligated to process your request within any
particular time frame. There are restrictions on designation changes when you
have elected certain optional benefits.
Death Benefit Suspension Upon Change of Owner or Annuitant. If there is a
change of Owner or Annuitant, the change may affect the amount of the Death
Benefit. See the Death Benefits section of this prospectus for additional
details.
Spousal Designations
If an Annuity is co-owned by spouses, we will assume that the sole primary
Beneficiary is the surviving spouse that was named as the co-Owner unless you
elect an alternative Beneficiary designation.
Certain spousal rights under the contract, and our administration of such
spousal rights and related tax reporting comport 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, domestic partners or same-sex marriages. You
should be aware, however, that federal tax law does not recognize civil union
couples, domestic partners or marriage spouses of the same sex. Therefore, we
cannot permit a same-sex civil union partner, domestic partner or spouse to
continue the annuity within the meaning of the tax law upon the death of the
first partner under the annuity's "spousal continuance" provision. Please note
there may be federal tax consequences at the death of the first same-sex civil
union partner, domestic partner or spouse. Civil union couples, domestic
partners and spouses of the same sex should consider that limitation before
selecting a spousal benefit under the annuity.
Contingent Annuitant
Generally, if an Annuity is owned by an entity and the entity has named a
Contingent Annuitant, the Contingent Annuitant will become the Annuitant upon
the death of the Annuitant, and no Death Benefit is payable. Unless we agree
otherwise, the Annuity is only eligible to have a Contingent Annuitant
designation if the entity which owns the Annuity is (1) a plan described in
Internal Revenue Code Section 72(s)(5)(A)(i) (or any successor Code section
thereto); (2) an entity described in Code Section 72(u)(1) (or any successor
Code section thereto); or (3) a Custodial Account established to hold
retirement assets for the benefit of the natural person Annuitant pursuant to
the provisions of Section 408(a) of the Internal Revenue Code (or any
successor Code section thereto) ("Custodial Account").
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Where the Annuity is held by a Custodial Account, the Contingent Annuitant
will not automatically become the Annuitant upon the death of the Annuitant.
Upon the death of the Annuitant, the Custodial Account will have the choice,
subject to our rules, to either elect to receive the Death Benefit or elect to
continue the Annuity. If the Custodial Account elects to continue the Annuity,
the Death Benefit payable will equal the Death Benefit described in the
spousal continuation section of the Death Benefits section of this prospectus.
See the section above entitled "Spousal Designations" for more information
about how the Annuity can be continued by a Custodial Account.
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MANAGING YOUR ACCOUNT VALUE
There are several programs we administer to help you manage your Account
Value, as described in this section.
DOLLAR COST AVERAGING PROGRAMS
We offer Dollar Cost Averaging Programs during the Accumulation Period. In
general, Dollar Cost Averaging allows you to systematically transfer an amount
periodically from one Sub-account to one or more other Sub-accounts. You can
choose to transfer earnings only, principal plus earnings or a flat dollar
amount. You may elect a Dollar Cost Averaging program that transfers amounts
monthly, quarterly, semi-annually, or annually from Sub-accounts (if you make
no selection, we will effect transfers on a monthly basis). In addition, you
may elect the 6 or 12 Month DCA Program described below.
There is no guarantee that Dollar Cost Averaging will result in a profit or
protect against a loss in a declining market.
6 OR 12 MONTH DOLLAR COST AVERAGING PROGRAM (THE "6 OR 12 MONTH DCA PROGRAM")
The 6 or 12 Month DCA Program is subject to our rules at the time of election
and may not be available in conjunction with other programs and benefits we
make available. We may discontinue, modify or amend this program from time to
time. The 6 or 12 Month DCA Program may not be available in all states or with
certain benefits or programs. Currently, the DCA MVA Options are not available
in the States of Illinois, Iowa and Oregon.
Criteria for Participating in the Program
.. If you have elected to participate in the 6 or 12 Month DCA Program, your
initial Purchase Payment will be applied to your chosen program. Each time
you make an additional Purchase Payment, you will need to elect a new 6 or
12 Month DCA Program for that additional Purchase Payment. If you do not
provide such instructions, we will allocate that additional Purchase
Payment on a pro rata basis to the Sub-accounts in which your Account Value
is then allocated, excluding Sub-accounts to which you may not electively
allocate Account Value. Additionally, if your initial Purchase Payment is
funded from multiple sources (e.g., a transfer of assets/1035 exchange)
then the total amount that you have designated to fund your annuity will be
treated as the initial Purchase Payment for purposes of your participation
in the 6 or 12 Month DCA Program.
.. You may only allocate Purchase Payments to the DCA MVA Options. You may not
transfer Account Value into this program. To institute a program, you must
allocate at least $2,000 to the DCA MVA Options.
.. As part of your election to participate in the 6 or 12 Month DCA Program,
you specify whether you want 6 or 12 monthly transfers under the program.
We then set the monthly transfer amount, by dividing the Purchase Payment
you have allocated to the DCA MVA Options by the number of months. For
example, if you allocated $6,000, and selected a 6 month DCA Program, we
would transfer $1,000 each month (with the interest earned added to the
last payment). We will adjust the monthly transfer amount if, during the
transfer period, the amount allocated to the DCA MVA Options is reduced. In
that event, we will re-calculate the amount of each remaining transfer by
dividing the amount in the DCA MVA Option (including any interest) by the
number of remaining transfers. If the recalculated transfer amount is below
the minimum transfer required by the program, we will transfer the
remaining amount from the DCA MVA Option on the next scheduled transfer and
terminate the program.
.. We impose no fee for your participation in the 6 or 12 Month DCA Program.
.. You may cancel the DCA Program at any time. If you do, we will transfer any
remaining amount held within the DCA MVA Options according to your
instructions, subject to any applicable MVA. If you do not provide any such
instructions, we will transfer any remaining amount held in the DCA MVA
Options on a pro rata basis to the Sub-accounts in which you are invested
currently, excluding any Sub-accounts to which you are not permitted to
electively allocate or transfer Account Value. If any such Sub-account is
no longer available, we may allocate the amount that would have been
applied to that Sub-account to the AST Money Market Sub-account.
.. We credit interest to amounts held within the DCA MVA Options at the
applicable declared rates. We credit such interest until the earliest of
the following (a) the date the entire amount in the DCA MVA Option has been
transferred out; (b) the date the entire amount in the DCA MVA Option is
withdrawn; (c) the date as of which any Death Benefit payable is
determined, unless the Annuity is continued by a spouse Beneficiary (in
which case we continue to credit interest under the program); or (d) the
Annuity Date.
.. The interest rate earned in a DCA MVA Option will be no less than the
minimum guaranteed interest rate. We may, from time to time, declare new
interest rates for new Purchase Payments that are higher than the minimum
guaranteed interest rate. Please note that the interest rate that we apply
under the 6 or 12 Month DCA Program is applied to a declining balance.
Therefore, the dollar amount of interest you receive will decrease as
amounts are systematically transferred from the DCA MVA Option to the
Sub-accounts, and the effective interest rate earned will therefore be less
than the declared interest rate.
Details Regarding Program Transfers
.. Transfers made under this program are not subject to any MVA.
.. Any partial withdrawals, transfers, or fees deducted from the DCA MVA
Options will reduce the amount in the DCA MVA Options. If you have only one
6 or 12 Month DCA Program in operation, withdrawals, transfers, or fees may
be deducted from the DCA MVA Options associated with that program. You may,
however, have more than one 6 or 12 Month DCA Program
37
operating at the same time (so long as any such additional 6 or 12 Month
DCA Program is of the same duration). For example, you may have more than
one 6 month DCA Program running, but may not have a 6 month Program running
simultaneously with a 12 month Program.
.. 6 or 12 Month DCA transfers will begin on the date the DCA MVA Option is
established (unless modified to comply with state law) and on each month
following until the entire principal amount plus earnings is transferred.
We do not count transfers under the 6 or 12 Month DCA Program against the
number of free transfers allowed under your Annuity.
.. The minimum transfer amount is $100, although we will not impose that
requirement with respect to the final amount to be transferred under the
program.
.. If you are not participating in an optional benefit, we will make transfers
under the 6 or 12 month DCA Program to the Sub-accounts that you specified
upon your election of the Program. If you are participating in any optional
benefit, we will allocate amounts transferred out of the DCA MVA Options in
the following manner: (a) if you are participating in the Custom Portfolios
Program, we will allocate to the Sub-accounts in accordance with the rules
of that program (b) if you are not participating in the Custom Portfolios
Program, we will make transfers under the 6 or 12 Month DCA Program to the
Sub-accounts that you specified upon your election of the 6 or 12 Month DCA
Program, provided those instructions comply with the allocation
requirements for the optional benefit and (c) whether or not you
participate in the Custom Portfolios Program, no portion of our monthly
transfer under the 6 or 12 Month DCA Program will be directed initially to
the AST Investment Grade Bond Portfolio Sub-account used with the optional
benefit (although the DCA MVA Option is treated as a "Permitted
Sub-account" for purposes of transfers made by any predetermined
mathematical formula associated with the optional benefit).
.. If you are participating in an optional benefit and also are participating
in the 6 or 12 Month DCA Program, and the predetermined mathematical
formula under the benefit dictates a transfer from the Permitted
Sub-accounts to the applicable AST Investment Grade Bond Portfolio
Sub-account, then the amount to be transferred will be taken entirely from
the Sub-accounts, provided there is sufficient Account Value in those
Sub-accounts to meet the required transfer amount. Only if there is
insufficient Account Value in those Sub-accounts will an amount be
transferred from the DCA MVA Options associated with the 6 or 12 Month DCA
Program. Amounts transferred from the DCA MVA Options under the formula
will be taken on a last-in, first-out basis, without the imposition of a
market value adjustment.
.. If you are participating in one of our automated withdrawal programs (e.g.,
Systematic Withdrawals), we may include within that withdrawal program
amounts held within the DCA MVA Options. If you have elected any optional
living benefit, any withdrawals will be taken on a pro rata basis from your
Sub-accounts and the DCA MVA Options. Such withdrawals will be assessed any
applicable MVA.
AUTOMATIC REBALANCING PROGRAMS
During the Accumulation Period, we offer Automatic Rebalancing among the
Sub-accounts you choose. The "Accumulation Period" refers to the period of
time from the Issue Date through the last Valuation Day immediately preceding
the Annuity Date. You can choose to have your Account Value rebalanced
monthly, quarterly, semi-annually, or annually. On the appropriate date, the
Sub-accounts you choose are rebalanced to the allocation percentages you
requested. With Automatic Rebalancing, we transfer the appropriate amount from
the "overweighted" Sub-accounts to the "underweighted" Sub-accounts to return
your allocations to the percentages you request. For example, over time the
performance of the Sub-accounts will differ, causing your percentage
allocations to shift. You may make additional transfers; however, the
Automatic Rebalancing program will not reflect such transfers unless we
receive instructions from you indicating that you would like to adjust the
program. There is no minimum Account Value required to enroll in Automatic
Rebalancing. All rebalancing transfers as part of an Automatic Rebalancing
program are not included when counting the number of transfers each year
toward the maximum number of free transfers. We do not deduct a charge for
participating in an Automatic Rebalancing program. Participation in the
Automatic Rebalancing program may be restricted if you are enrolled in certain
other optional programs. Sub-accounts that are part of a Systematic Withdrawal
program or Dollar Cost Averaging program will be excluded from an Automatic
Rebalancing program.
If you are participating in an optional living benefit (such as Highest Daily
Lifetime Income v2.1) that makes transfers under a predetermined mathematical
formula, and you have elected automatic rebalancing, you should be aware that:
(a) the AST bond portfolio used as part of the predetermined mathematical
formula will not be included as part of automatic rebalancing and (b) the
operation of the formula may result in the rebalancing not conforming to the
percentage allocations that you specified originally as part of your Automatic
Rebalancing Program.
FINANCIAL PROFESSIONAL PERMISSION TO FORWARD TRANSACTION INSTRUCTIONS
Unless you direct otherwise, your Financial Professional may forward
instructions regarding the allocation of your Account Value, and request
financial transactions involving Investment Options. If your Financial
Professional has this authority, we deem that all such transactions that are
directed by your Financial Professional with respect to your Annuity have been
authorized by you. You will receive a confirmation of any financial
transaction involving the purchase or sale of Units of your Annuity. You must
contact us immediately if and when you revoke such authority. We will not be
responsible for acting on instructions from your Financial Professional until
we receive notification of the revocation of such person's authority. We may
also suspend, cancel or limit these authorizations at any time. In addition,
we may restrict the Investment Options available for transfers or allocation
of Purchase Payments by such Financial Professional. We will notify you and
your Financial Professional if we implement any such restrictions or
prohibitions.
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Please Note: Contracts managed by your Financial Professional also are subject
to the restrictions on transfers between Investment Options that are discussed
in the section below entitled "Restrictions on Transfers Between Investment
Options." We may also require that your Financial Professional transmit all
financial transactions using the electronic trading functionality available
through our Internet website (www.prudentialannuities.com). Limitations that
we may impose on your Financial Professional under the terms of an
administrative agreement (e.g., a custodial agreement) do not apply to
financial transactions requested by an Owner on their own behalf, except as
otherwise described in this prospectus.
RESTRICTIONS ON TRANSFERS BETWEEN INVESTMENT OPTIONS
During the Accumulation Period you may transfer Account Value between
Investment Options subject to the restrictions outlined below. Transfers are
not subject to taxation on any gain. We do not currently require a minimum
amount in each Sub-account you allocate Account Value to at the time of any
allocation or transfer. Although we do not currently impose a minimum transfer
amount, we reserve the right to require that any transfer be at least $50.
Transfers under this Annuity consist of those you initiate or those made under
a systematic program, such as the 6 or 12 Month DCA Program, another dollar
cost averaging program, an asset rebalancing program, or pursuant to a
mathematical formula required as part of an optional benefit (e.g., Highest
Daily Lifetime Income v2.1). The transfer restrictions discussed in this
section apply only to the former type of transfer (i.e., a transfer that you
initiate).
Once you have made 20 transfers among the Sub-accounts during an Annuity Year,
we will accept any additional transfer request during that year only if the
request is submitted to us in writing with an original signature and otherwise
is in Good Order. For purposes of this 20 transfer limit, we (i) do not view a
facsimile transmission as a "writing", (ii) will treat multiple transfer
requests submitted on the same Valuation Day as a single transfer, and
(iii) do not count any transfer that solely involves the Sub-account
corresponding to the AST Money Market Portfolio or an MVA Option, or any
transfer that involves one of our systematic programs, such as automated
withdrawals.
Frequent transfers among Sub-accounts in response to short-term fluctuations
in markets, sometimes called "market timing," can make it very difficult for a
portfolio manager to manage a portfolio's investments. Frequent transfers may
cause the portfolio to hold more cash than otherwise necessary, disrupt
management strategies, increase transaction costs, or affect performance. In
light of the risks posed to Owners and other investors by frequent transfers,
we reserve the right to limit the number of transfers in any Annuity Year for
all existing or new Owners and to take the other actions discussed below. We
also reserve the right to limit the number of transfers in any Annuity Year or
to refuse any transfer request for an Owner or certain Owners if: (a) we
believe that excessive transfer activity (as we define it) or a specific
transfer request or group of transfer requests may have a detrimental effect
on Unit Values or the share prices of the portfolios; or (b) we are informed
by a portfolio (e.g., by the portfolio's portfolio manager) that the purchase
or redemption of shares in the portfolio must be restricted because the
portfolio believes the transfer activity to which such purchase and redemption
relates would have a detrimental effect on the share prices of the affected
portfolio. Without limiting the above, the most likely scenario where either
of the above could occur would be if the aggregate amount of a trade or trades
represented a relatively large proportion of the total assets of a particular
portfolio. In furtherance of our general authority to restrict transfers as
described above, and without limiting other actions we may take in the future,
we have adopted the following specific restrictions:
.. With respect to each Sub-account (other than the AST Money Market
Sub-account), we track amounts exceeding a certain dollar threshold that
were transferred into the Sub-account. If you transfer such amount into a
particular Sub-account, and within 30 calendar days thereafter transfer
(the "Transfer Out") all or a portion of that amount into another
Sub-account, then upon the Transfer Out, the former Sub-account becomes
restricted (the "Restricted Sub-account"). Specifically, we will not permit
subsequent transfers into the Restricted Sub-account for 90 calendar days
after the Transfer Out if the Restricted Sub-account invests in a
non-international portfolio, or 180 calendar days after the Transfer Out if
the Restricted Sub-account invests in an international portfolio. For
purposes of this rule, we (i) do not count transfers made in connection
with one of our systematic programs, such as auto-rebalancing or under a
predetermined mathematical formula used with an optional living benefit;
(ii) do not count any transfer that solely involves the AST Money Market
Portfolio or an MVA Option; and (iii) do not categorize as a transfer the
first transfer that you make after the Issue Date, if you make that
transfer within 30 calendar days after the Issue Date. Even if an amount
becomes restricted under the foregoing rules, you are still free to redeem
the amount from your Annuity at any time.
.. We reserve the right to effect transfers on a delayed basis for all
Annuities in accordance with our rules regarding frequent transfers. That
is, we may price a transfer involving the Sub-accounts on the Valuation Day
subsequent to the Valuation Day on which the transfer request was received.
Before implementing such a practice, we would issue a separate written
notice to Owners that explains the practice in detail.
If we deny one or more transfer requests under the foregoing rules, we will
inform you or your Financial Professional promptly of the circumstances
concerning the denial.
There are contract Owners of different variable annuity contracts that are
funded through the same Separate Account that may not be subject to the
above-referenced transfer restrictions and, therefore, might make more
numerous and frequent transfers than
39
contract Owners who are subject to such limitations. Finally, there are
contract Owners of other variable annuity contracts or variable life contracts
that are issued by Pruco Life as well as other insurance companies that have
the same underlying mutual fund portfolios available to them. Since some
contract Owners are not subject to the same transfer restrictions, unfavorable
consequences associated with such frequent trading within the underlying
mutual fund (e.g., greater portfolio turnover, higher transaction costs, or
performance or tax issues) may affect all contract Owners. Similarly, while
contracts managed by a Financial Professional are subject to the restrictions
on transfers between Investment Options that are discussed above, if the
Financial Professional manages a number of contracts in the same fashion
unfavorable consequences may be associated with management activity since it
may involve the movement of a substantial portion of an underlying mutual
fund's assets which may affect all contract Owners invested in the affected
options. Apart from jurisdiction-specific and contract differences in transfer
restrictions, we will apply these rules uniformly (including contracts managed
by a Financial Professional) and will not waive a transfer restriction for any
Owner.
Although our transfer restrictions are designed to prevent excessive
transfers, they are not capable of preventing every potential occurrence of
excessive transfer activity. The portfolios have adopted their own policies
and procedures with respect to excessive trading of their respective shares,
and we reserve the right to enforce any such current or future policies and
procedures. The prospectuses for the portfolios describe any such policies and
procedures, which may be more or less restrictive than the policies and
procedures we have adopted. Under SEC rules, we are required to: (1) enter
into a written agreement with each portfolio or its principal underwriter or
its transfer agent that obligates us to provide to the portfolio promptly upon
request certain information about the trading activity of individual contract
Owners (including an Annuity Owner's TIN number), and (2) execute instructions
from the portfolio to restrict or prohibit further purchases or transfers by
specific contract Owners who violate the excessive trading policies
established by the portfolio. In addition, you should be aware that some
portfolios may receive "omnibus" purchase and redemption orders from other
insurance companies or intermediaries such as retirement plans. The omnibus
orders reflect the aggregation and netting of multiple orders from individual
Owners of variable insurance contracts and/or individual retirement plan
participants. The omnibus nature of these orders may limit the portfolios in
their ability to apply their excessive trading policies and procedures. In
addition, the other insurance companies and/or retirement plans may have
different policies and procedures or may not have any such policies and
procedures because of contractual limitations. For these reasons, we cannot
guarantee that the portfolios (and thus contract Owners) will not be harmed by
transfer activity relating to other insurance companies and/or retirement
plans that may invest in the portfolios.
A portfolio also may assess a short-term trading fee (redemption fee) in
connection with a transfer out of the Sub-account investing in that portfolio
that occurs within a certain number of days following the date of allocation
to the Sub-account. Each portfolio determines the amount of the short-term
trading fee and when the fee is imposed. The fee is retained by or paid to the
portfolio and is not retained by us. The fee will be deducted from your
Account Value, to the extent allowed by law. At present, no portfolio has
adopted a short-term trading fee.
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ACCESS TO ACCOUNT VALUE
TYPES OF DISTRIBUTIONS AVAILABLE TO YOU
During the Accumulation Period you can access your Account Value through
partial withdrawals, systematic withdrawals, and where required for tax
purposes, Required Minimum Distributions. You can also surrender your Annuity
at any time. Depending on your instructions, we may deduct a portion of the
Account Value being withdrawn or surrendered as a CDSC. If you surrender your
Annuity, in addition to any CDSC, we may deduct the Annual Maintenance Fee,
any Tax Charge that applies and the charge for any optional benefits and may
impose an MVA. Certain amounts may be available to you each Annuity Year that
are not subject to a CDSC. These are called "Free Withdrawals." Unless you
notify us differently as permitted, partial withdrawals are taken pro rata
(i.e. "pro rata" meaning that the percentage of each Investment Option
withdrawn is the same percentage that the Investment Option bears to the total
Account Value). Each of these types of distributions is described more fully
below.
If you participate in any Lifetime Guaranteed Minimum Withdrawal Benefit, and
you take a withdrawal deemed to be Excess Income that brings your Unadjusted
Account Value to zero, both the benefit and the Annuity itself will terminate.
TAX IMPLICATIONS FOR DISTRIBUTIONS FROM NON-QUALIFIED ANNUITIES
Prior to Annuitization
A distribution prior to Annuitization is deemed to come first from any "gain"
in your Annuity and second as a return of your "cost basis", if any.
Distributions from your Annuity are generally subject to ordinary income
taxation on the amount of any investment gain unless the distribution
qualifies as a non-taxable exchange or transfer. If you take a distribution
prior to the taxpayer's age 59 1/2, you may be subject to a 10% penalty in
addition to ordinary income taxes on any gain. You may wish to consult a
professional tax advisor for advice before requesting a distribution.
During the Annuitization Period
During the Annuitization period, a portion of each annuity payment is taxed as
ordinary income at the tax rate you are subject to at the time of the payment.
The Code and regulations have "exclusionary rules" that we use to determine
what portion of each annuity payment should be treated as a return of any cost
basis you have in your Annuity. Once the cost basis in your Annuity has been
distributed, the remaining annuity payments are taxable as ordinary income.
The cost basis in your Annuity may be based on the cost basis from a prior
contract in the case of a 1035 exchange or other qualifying transfer.
There may also be tax implications on distributions from qualified Annuities.
See "Tax Considerations" for information about qualified Annuities and for
additional information about non-qualified Annuities.
FREE WITHDRAWAL AMOUNTS
You can make a full or partial withdrawal from any of the Annuities during the
Accumulation Period, although a CDSC, MVA, and tax consequences may apply.
There is no CDSC with respect to the C Series. A CDSC may apply to the B
Series and L Series, but each Annuity offers a "Free Withdrawal" amount that
applies only to partial withdrawals. The Free Withdrawal amount is the amount
that can be withdrawn from your Annuity each Annuity Year without the
application of any CDSC. The Free Withdrawal amount during each Annuity Year
is equal to 10% of all Purchase Payments that are currently subject to a CDSC.
Withdrawals made within an Annuity Year reduce the Free Withdrawal amount
available for the remainder of the Annuity Year. If you do not make a
withdrawal during an Annuity Year, you are not allowed to carry over the Free
Withdrawal amount to the next Annuity Year. With respect to the C Series,
because any withdrawal is free of a CDSC, the concept of "free withdrawal" is
not applicable.
. The Free Withdrawal amount is not available if you choose to surrender
your Annuity. Amounts withdrawn as a Free Withdrawal do not reduce the
amount of CDSC that may apply upon a subsequent withdrawal or surrender
of your Annuity.
. You can also make partial withdrawals in excess of the Free Withdrawal
amount. The minimum partial withdrawal you may request is $100.
Example. This example assumes that no withdrawals have previously been taken.
On January 3, to purchase your B Series Annuity, you make an initial Purchase
Payment of $20,000.
On January 3 of the following calendar year, you make a subsequent Purchase
Payment to your B Series Annuity of $10,000.
. Because in Annuity Year 1 your initial Purchase Payment of $20,000 is
still within the CDSC schedule (see "Annuity Owner Transaction
Expenses"), your Free Withdrawal amount in Annuity Year 1 equals $20,000
X 10%, or $2,000.
. Because in Annuity Year 2 both your initial Purchase Payment of $20,000
and your subsequent Purchase Payment of $10,000 are still within the
CDSC schedule (see "Annuity Owner Transaction Expenses"), your Free
Withdrawal amount in Annuity Year 2 equals $20,000 X 10%, plus $10,000 X
10%, or $2,000 + $1,000 for a total of $3,000.
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To determine if a CDSC applies to partial withdrawals, we:
1. First determine what, if any, amounts qualify as a Free Withdrawal. These
amounts are not subject to the CDSC.
2. Next determine what, if any, remaining amounts are withdrawals of Purchase
Payments. Amounts in excess of the Free Withdrawal amount will be treated
as withdrawals of Purchase Payments unless all Purchase Payments have been
previously withdrawn. These amounts may be subject to the CDSC. Purchase
Payments are withdrawn on a first-in, first-out basis. We withdraw your
oldest Purchase Payments first so that the lowest CDSC will apply to the
amount withdrawn.
3. Withdraw any remaining amounts from any other Account Value. These amounts
are not subject to the CDSC.
You may request a "gross" withdrawal, in which you ask for a specific
withdrawal amount, with the understanding that the amount you actually receive
is reduced by each applicable amount. If you request a gross withdrawal, you
may receive less than the specified dollar amount, as any applicable CDSC and
tax withholding would be deducted from the amount you requested (although any
MVA will not be applied to the amount you receive, but instead will be applied
to your Unadjusted Account Value). In a "net" withdrawal, you request a
withdrawal for an exact dollar amount, with the understanding that any amount
deducted (e.g., for a CDSC) is taken from your remaining Unadjusted Account
Value. If you do not provide instruction on how you want the withdrawal
processed, we will process the withdrawal as a gross withdrawal. We will
deduct the partial withdrawal from your Unadjusted Account Value in accordance
with your instructions, although if you are participating in an optional
living benefit, your withdrawal must be taken pro rata from each of your
Investment Options. For purposes of calculating the applicable portion to
deduct from the MVA Options, the Unadjusted Account Value in all your MVA
Options is deemed to be in one Investment Option. If you provide no
instructions, then (a) we will take the withdrawal from your Sub-accounts and
MVA Options in the same proportion that each such Investment Option represents
to your total Unadjusted Account Value; (b) with respect to MVA Options with
different amounts of time remaining until maturity, we take the withdrawal
from the MVA Option with the shortest remaining duration, followed by the MVA
Option with the next-shortest remaining duration (if needed to satisfy the
withdrawal request) and so forth; (c) with respect to multiple MVA Options
that have the same duration remaining until maturity, we take the withdrawal
first from the MVA Option with the shortest overall Guarantee Period and
(d) with respect to multiple MVA Options that have both the same Guarantee
Period length and duration remaining until the end of the Guarantee Period, we
take the withdrawal pro rata from each such MVA Option.
Please be aware that although a given partial withdrawal may qualify as a free
withdrawal for purposes of not incurring a CDSC, the amount of the withdrawal
could exceed the Annual Income Amount under one of the Highest Daily Lifetime
Income v2.1 benefits. In that scenario, the partial withdrawal would be deemed
"Excess Income" - thereby reducing your Annual Income Amount for future years.
For example, if the Annual Income Amount under Highest Daily Lifetime Income
v2.1 were $2000 and a $2500 withdrawal that qualified as a free withdrawal
were made, the withdrawal would be deemed Excess Income, in the amount of $500.
SYSTEMATIC WITHDRAWALS FROM MY ANNUITY DURING THE ACCUMULATION PERIOD
You can receive systematic withdrawals of earnings only, or a flat dollar
amount. Systematic withdrawals may be subject to any applicable CDSC and/or an
MVA. We will determine whether a CDSC applies and the amount in the same way
as we would for a partial withdrawal.
Systematic withdrawals can be made from Account Value allocated to the
Sub-accounts or certain MVA Options. There is no minimum Surrender Value we
require to allow you to begin a program of Systematic Withdrawals. The minimum
amount for each systematic withdrawal is $100. If any scheduled systematic
withdrawal is for less than $100 (which may occur under a program that
provides payment of an amount equal to the earnings in your Annuity for the
period requested), we may postpone the withdrawal and add the expected amount
to the amount that is to be withdrawn on the next scheduled systematic
withdrawal.
We will withdraw systematic withdrawals from the Investment Options you have
designated (your "designated Investment Options"). If you do not designate
Investment Options for systematic withdrawals, we will withdraw systematic
withdrawals pro rata based on the Account Value in the Investment Options at
the time we pay out your withdrawal (i.e. "pro rata" meaning that the
percentage of each Investment Option withdrawn is the same percentage that the
Investment Option bears to the total Account Value). For any scheduled
systematic withdrawal for which you have elected a specific dollar amount and
have specified percentages to be withdrawn from your designated Investment
Options, if the amounts in your designated Investment Options cannot satisfy
such instructions, we will withdraw systematic withdrawals pro rata, as just
described, based on the Account Value across all your Investment Options.
Please note that if you are participating in certain optional living benefits
(e.g., Highest Daily Lifetime Income v2.1), systematic withdrawals must be
taken pro rata. Ownership changes to and assignment of your Annuity will
terminate any systematic withdrawals that had been in effect on the date of
the change.
SYSTEMATIC WITHDRAWALS UNDER SECTIONS 72(t)/72(q) OF THE INTERNAL REVENUE CODE
If your Annuity is used as a funding vehicle for certain retirement plans that
receive special tax treatment under Sections 401, 403(b), 408 or 408A of the
Code, Section 72(t) of the Code may provide an exception to the 10% penalty
tax on distributions made prior to age 59 1/2 if you elect to receive
distributions as a series of "substantially equal periodic payments." For
Annuities issued as
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non-qualified annuities, the Code may provide a similar exemption from penalty
under Section 72(q) of the Code. Systematic withdrawals under Sections
72(t)/72(q) may be subject to a CDSC (except that no CDSC applies to the C
Series) and/or an MVA. To request a program that complies with Sections
72(t)/72(q), you must provide us with certain required information in writing
on a form acceptable to us. We may require advance notice to allow us to
calculate the amount of 72(t)/72(q) withdrawals. There is no minimum Surrender
Value we require to allow you to begin a program for withdrawals under
Sections 72(t)/72(q). The minimum amount for any such withdrawal is $100 and
payments may be made monthly, quarterly, semi-annually or annually.
You may also annuitize your Annuity and begin receiving payments for the
remainder of your life (or life expectancy) as a means of receiving income
payments before age 59 1/2 that are not subject to the 10% penalty.
Please note that if a withdrawal under Sections 72(t) or 72(q) was scheduled
to be effected between December 25/th/ and December 31/st/ of a given year,
then we will implement the withdrawal on December 28 or on the last Valuation
Day prior to December 28/th/ of that year.
REQUIRED MINIMUM DISTRIBUTIONS
Required Minimum Distributions are a type of systematic withdrawal we allow to
meet distribution requirements under Sections 401, 403(b) or 408 of the Code.
Required Minimum Distribution rules do not apply to Roth IRAs during the
Owner's lifetime. Under the Code, you may be required to begin receiving
periodic amounts from your Annuity. In such case, we will allow you to make
systematic withdrawals in amounts that satisfy the minimum distribution rules
under the Code. We do not assess a CDSC (if applicable) or an MVA on Required
Minimum Distributions from your Annuity if you are required by law to take
such Required Minimum Distributions from your Annuity at the time it is taken,
provided the amount withdrawn is the amount we calculate as the Required
Minimum Distribution and is paid out through a program of systematic
withdrawals that we make available. However, a CDSC (if applicable) or an MVA
may be assessed on that portion of a systematic withdrawal that is taken to
satisfy the Required Minimum Distribution rules in relation to other savings
or investment plans under other qualified retirement plans.
The amount of the Required Minimum Distribution for your particular situation
may depend on other annuities, savings or investments. We will only calculate
the amount of your Required Minimum Distribution based on the value of your
Annuity. We require three (3) days advance written notice to calculate and
process the amount of your payments. You may elect to have Required Minimum
Distributions paid out monthly, quarterly, semi-annually or annually. The $100
minimum amount that applies to systematic withdrawals applies to monthly
Required Minimum Distributions but does not apply to Required Minimum
Distributions taken out on a quarterly, semi-annual or annual basis.
You may also annuitize your Annuity and begin receiving payments for the
remainder of your life (or life expectancy) as a means of receiving income
payments and satisfying the Required Minimum Distribution rules under the
Code. Please see "Living Benefits" for further information relating to
Required Minimum Distributions if you own a living benefit.
In any year in which the requirement to take Required Minimum Distributions is
suspended by law, we reserve the right, in our sole discretion and regardless
of any position taken on this issue in a prior year, to treat any amount that
would have been considered as a Required Minimum Distribution if not for the
suspension as eligible for treatment as described herein.
Please note that if a Required Minimum Distribution was scheduled to be
effected between December 25/th/ and December 31/st/ of a given year, then we
will implement the Required Minimum Distribution on December 28 or on the last
Valuation Day prior to December 28/th/ of that year.
No withdrawal taken as a Required Minimum Distribution for your Annuity under
a program that we administer is subject to an MVA.
See "Tax Considerations" for a further discussion of Required Minimum
Distributions.
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SURRENDERS
SURRENDER VALUE
During the Accumulation Period you can surrender your Annuity at any time, and
will receive the Surrender Value. Upon surrender of your Annuity, you will no
longer have any rights under the surrendered Annuity. Your Surrender Value is
equal to the Account Value (which includes the effect of any MVA) less any
applicable CDSC, any applicable tax charges, any charges assessable as a
deduction from the Account Value for any optional benefits provided by rider
or endorsement, and any Annual Maintenance Fee.
We apply as a threshold, in certain circumstances, a minimum Surrender Value
of $2,000. If you purchase an Annuity without a lifetime guaranteed minimum
withdrawal benefit, we will not allow you to take any withdrawals that would
cause your Annuity's Account Value, after taking the withdrawal, to fall below
the minimum Surrender Value. Likewise, if you purchase an Annuity with a
lifetime guaranteed minimum withdrawal benefit, we will not allow you to take
a Non-Lifetime Withdrawal (see "Living Benefits - Non-Lifetime Withdrawal
Feature") that would cause your Annuity's Account Value, after taking the
withdrawal, to fall below the minimum Surrender Value. See "Annuity Options"
for information on the impact of the minimum Surrender Value at annuitization.
MEDICALLY-RELATED SURRENDERS
Where permitted by law, you may request to surrender all or part of your B
Series or L Series Annuity prior to the Annuity Date without application of
any otherwise applicable CDSC upon occurrence of a medically-related
"Contingency Event" as described below (a "Medically-Related Surrender"). The
requirements of such a surrender and waiver may vary by state. The CDSC and
this waiver are not applicable to the C Series.
If you request a full surrender, the amount payable will be your Account Value
as of the date we receive, in Good Order, your request to surrender your
Annuity. Any applicable MVA will apply to a Medically-Related Surrender.
Although a CDSC will not apply to qualifying Medically-Related Surrenders,
please be aware that a withdrawal from the Annuity before you have reached age
59 1/2 may be subject to a 10% tax penalty and other tax consequences - see
the Tax Considerations section of this prospectus.
This waiver of any applicable CDSC is subject to our rules in place at the
time of your request, which currently include but are not limited to the
following:
. If the Owner is an entity, the Annuitant must have been named or any
change of Annuitant must have been accepted by us, prior to the
"Contingency Event" described below in order to qualify for a
Medically-Related Surrender;
. If the Owner is an entity, the Annuitant must be alive as of the date we
pay the proceeds of such surrender request;
. If the Owner is one or more natural persons, all such Owners must also
be alive at such time;
. We must receive satisfactory proof of the Owner's (or the Annuitant's if
entity-owned) confinement in a Medical Care Facility or Fatal Illness in
writing on a form satisfactory to us; and
. no additional Purchase Payments can be made to the Annuity.
We reserve the right to impose a maximum amount of a Medically-Related
Surrender (equal to $500,000), but we do not currently impose that maximum.
That is, if the amount of a partial medically-related withdrawal request, when
added to the aggregate amount of Medically-Related Surrenders you have taken
previously under this Annuity and any other annuities we and/or our affiliates
have issued to you exceeds that maximum amount, we reserve the right to treat
the amount exceeding that maximum as not an eligible Medically-Related
Surrender. A "Contingency Event" occurs if the Owner (or Annuitant if
entity-owned) is:
. first confined in a "Medical Care Facility" after the Issue Date and
while the Annuity is in force, remains confined for at least 90
consecutive days, and remains confined on the date we receive the
Medically-Related Surrender request at our Service Office; or
. first diagnosed as having a "Fatal Illness" after the Issue Date and
while the Annuity is in force. We may require a second or third opinion
by a licensed physician chosen by us regarding a diagnosis of Fatal
Illness. We will pay for any such second or third opinion.
"Fatal Illness" means a condition (a) diagnosed by a licensed physician; and
(b) that is expected to result in death within 24 months after the diagnosis
in 80% of the cases diagnosed with the condition. "Medical Care Facility"
means a facility operated and licensed pursuant to the laws of any United
States jurisdiction providing medically necessary in-patient care, which is
(a) prescribed by a licensed physician in writing; (b) recognized as a general
hospital or long-term care facility by the proper authority of the United
States jurisdiction in which it is located; (c) recognized as a general
hospital by the Joint Commission on the Accreditation of Hospitals; and
(d) certified as a hospital or long-term care facility; OR (e) a nursing home
licensed by the United States jurisdiction in which it is located and offers
the services of a Registered Nurse (RN) or Licensed Practical Nurse (LPN) 24
hours a day that maintains control of all prescribed medications dispensed and
daily medical records. This benefit is not currently available in California
and Massachusetts.
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ANNUITY OPTIONS
Annuitization involves converting your Unadjusted Account Value to an annuity
payment stream, the length of which depends on the terms of the applicable
annuity option. Thus, once annuity payments begin, your death benefit, if any,
is determined solely under the terms of the applicable annuity payment option,
and you no longer participate in any optional living benefit (unless you have
annuitized under that benefit). We currently make annuity options available
that provide fixed annuity payments. Fixed annuity payments provide the same
amount with each payment. Please refer to the "Living Benefits" section in
this prospectus for a description of annuity options that are available when
you elect one of the living benefits. You must annuitize your entire Account
Value; partial annuitizations are not allowed.
You have a right to choose your annuity start date, provided that it is no
later than the first day of the calendar month next following the 95/th/
birthday of the oldest of any Owner and Annuitant whichever occurs first
("Latest Annuity Date") and no earlier than the earliest permissible Annuity
Date. You may choose one of the Annuity Options described below, and the
frequency of annuity payments. You may change your choices before the Annuity
Date. If you have not provided us with your Annuity Date or annuity payment
option in writing, then your Annuity Date will be the Latest Annuity Date.
Certain annuity options and/or periods certain may not be available, depending
on the age of the Annuitant. If a CDSC is still remaining on your Annuity, any
period certain must be at least 10 years (or the maximum period certain
available, if life expectancy is less than 10 years).
If needed, we will require proof in Good Order of the Annuitant's age before
commencing annuity payments. Likewise, we may require proof in Good Order that
an Annuitant is still alive, as a condition of our making additional annuity
payments while the Annuitant lives. We will seek to recover any life income
annuity payments that we made after the death of the Annuitant.
If the initial annuity payment would be less than $100, we will not allow you
to annuitize (except as otherwise specified by applicable law). Instead, we
will pay you your current Unadjusted Account Value in a lump sum and terminate
your Annuity. Similarly, we reserve the right to pay your Unadjusted Account
Value in a lump sum, rather than allow you to annuitize, if the Surrender
Value of your Annuity is less than $2000 on the Annuity Date.
Once annuity payments begin, you no longer receive benefits under any optional
living benefit (unless you have annuitized under that benefit) or the Death
Benefits described below.
Certain of these annuity options may be available as "settlement options" to
Beneficiaries who choose to receive the Death Benefit proceeds as a series of
payments instead of a lump sum payment.
Please note that you may not annuitize within the first three Annuity Years
(except as otherwise specified by applicable law).
For Beneficiary Annuities, no annuity payments are available and all
references to Annuity Date are not applicable.
Option 1
Annuity Payments for a Period Certain: Under this option, we will make equal
payments for the period chosen, up to 25 years (but not to exceed the life
expectancy of the Annuitant at the time the Annuity Option becomes effective,
as computed under applicable IRS tables). The annuity payments may be made
monthly, quarterly, semiannually, or annually, as you choose, for the fixed
period. If the Owner dies during the income phase, payments will continue to
any surviving Owner, or if there is no surviving Owner, the named Beneficiary
or your estate if no Beneficiary is named for the remainder of the period
certain.
Option 2
Life Income Annuity Option with a Period Certain: Under this option, income is
payable monthly, quarterly, semiannually, or annually for the number of years
selected (the "period certain"), subject to our then current rules, and
thereafter until the death of the Annuitant. Should the Owner or Annuitant die
before the end of the period certain, the remaining period certain payments
are paid to any surviving Owner, or if there is no surviving Owner, the named
Beneficiary, or your estate if no Beneficiary is named, until the end of the
period certain. If an annuity option is not selected by the Annuity Date, this
is the option we will automatically select for you. We will use a period
certain of 10 years, or a shorter duration if the Annuitant's life expectancy
at the time the Annuity Option becomes effective, as computed under applicable
IRS tables, is less than 10 years. If in this instance the duration of the
period certain is prohibited by applicable law, then we will pay you a lump
sum in lieu of this option.
Other Annuity Options We May Make Available
At the Annuity Date, we may make available other annuity options not described
above. The additional options we currently offer are:
.. Life Annuity Option. We currently make available an annuity option that
makes payments for the life of the Annuitant. Under that option, income is
payable monthly, quarterly, semiannually, or annually, as you choose, until
the death of the Annuitant. No additional annuity payments are made after
the death of the Annuitant. No minimum number of payments is guaranteed. It
is possible that only one payment will be payable if the death of the
Annuitant occurs before the date the second payment was due, and no other
payments nor death benefits would be payable.
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.. Joint Life Annuity Option. Under the joint lives option, income is payable
monthly, quarterly, semiannually, or annually, as you choose, during the
joint lifetime of two Annuitants, ceasing with the last payment prior to
the death of the second to die of the two Annuitants. No minimum number of
payments is guaranteed under this option. It is possible that only one
payment will be payable if the death of all the Annuitants occurs before
the date the second payment was due, and no other payments or death
benefits would be payable.
.. Joint Life Annuity Option With a Period Certain. Under this option, income
is payable monthly, quarterly, semiannually, or annually for the number of
years selected (the "period certain"), subject to our current rules, and
thereafter during the joint lifetime of two Annuitants, ceasing with the
last payment prior to the death of the second to die of the two Annuitants.
If the Annuitants' joint life expectancy is less than the period certain,
we will institute a shorter period certain, determined according to
applicable IRS tables. Should the two Annuitants die before the end of the
period certain, the remaining period certain payments are paid to any
surviving Owner, or if there is no surviving Owner, the named Beneficiary,
or to your estate if no Beneficiary is named, until the end of the period
certain.
We reserve the right to cease offering any of these Other Annuity Options. If
we do so, we will amend this prospectus to reflect the change. We reserve the
right to make available other annuity or settlement options.
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LIVING BENEFITS
Pruco Life offers different optional living benefits, for an additional
charge, that can provide investment protection for Owners while they are
alive. No optional living benefit may be elected if your Annuity is held as a
Beneficiary Annuity. Notwithstanding the additional protection provided under
the optional living benefits, the additional cost has the impact of reducing
net performance of the Investment Options. Each optional benefit offers a
distinct type of guarantee, regardless of the performance of the Sub-accounts,
that may be appropriate for you depending on the manner in which you intend to
make use of your Annuity while you are alive. We reserve the right to cease
offering any of these optional living benefits for new elections at any time.
Depending on which optional living benefit you choose, you can have
substantial flexibility to invest in the Sub-accounts while:
.. guaranteeing a minimum amount of growth to be used as the basis for
lifetime withdrawals; or
.. providing spousal continuation of certain benefits.
Each living benefit requires your participation in a predetermined
mathematical formula that may transfer your account value between the
Sub-accounts you have chosen from among those we permit with the benefit
(i.e., the "permitted Sub-accounts") and the AST Investment Grade Bond
Sub-account. The optional living benefit investment requirements and the
formula are designed to reduce the difference between your Account Value and
our liability under the benefit. Minimizing such difference generally benefits
us by decreasing the risk that we will use our own assets to make benefit
payments to you. Though the investment requirements and formula are designed
to reduce risk, they do not guarantee any appreciation of your Account Value.
In fact, they could mean that you miss appreciation opportunities in other
investment options. We are not providing you with investment advice through
the use of the formula. In addition, the formula does not constitute an
investment strategy that we are recommending to you.
The Highest Daily Lifetime v2.1 benefits are "Lifetime Guaranteed Minimum
Withdrawal Benefits." These benefits are designed for someone who wants a
guaranteed lifetime income stream through withdrawals over time, rather than
by annuitizing. Please note that there is a Latest Annuity Date under your
Annuity, by which date annuity payments must commence.
Under any of the Highest Daily Lifetime v2.1 benefits (e.g., Highest Daily
Lifetime Income v2.1, Spousal Highest Daily Lifetime Income v2.1, Highest
Daily Lifetime Income v2.1 with Highest Daily Death Benefit, and Spousal
Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit,
withdrawals in excess of the Annual Income Amount, called "Excess Income,"
will result in a permanent reduction in future guaranteed amounts.
Please refer to the benefit description that follows for a complete
description of the terms, conditions and limitations of each optional benefit.
See the chart in the "Investment Options" section of the prospectus for a list
of Investment Options available and permitted with each benefit. We reserve
the right to terminate a benefit if you allocate funds into non-permitted
Investment Options. Prior to terminating a benefit, we will send you written
notice and provide you with an opportunity to reallocate to permitted
Investment Options applicable to your benefit. You should consult with your
Financial Professional to determine if any of these optional benefits may be
appropriate for you based on your financial needs. As is the case with
optional living benefits in general, the fulfillment of our guarantee under
these benefits is dependent on our claims-paying ability.
Termination of Existing Benefits and Election of New Benefits
If you elect an optional living benefit, you may subsequently terminate the
benefit and elect one of the then currently available benefits, subject to
availability of the benefit at that time and our then current rules. There is
currently no waiting period for such an election (you may elect a new benefit
beginning on the next Valuation Day), provided that upon such an election,
your Account Value must be allocated to the Investment Options permitted for
the optional benefit. We reserve the right to waive, change and/or further
limit availability and election frequencies in the future. Check with your
Financial Professional regarding the availability of re-electing or electing a
benefit and any waiting period. The benefit you re-elect or elect may not
provide the same guarantees and/or may be more expensive than the benefit you
are terminating. Note that once you terminate an existing benefit, you lose
the guarantees that you had accumulated under your existing benefit and will
begin the new guarantees under the new benefit you elect based on your
Unadjusted Account Value as of the date the new benefit becomes effective. You
should carefully consider whether terminating your existing benefit and
electing a new benefit is appropriate for you.
No Long-Term MVA Option is permitted if you elect any Optional Living Benefit.
47
Certain spousal rights under the contract, and our administration of such
spousal rights and related tax reporting comport 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, domestic partners or same-sex marriages. You
should be aware, however, that federal tax law does not recognize civil union
couples, domestic partners or marriage spouses of the same sex. Therefore, we
cannot permit a same-sex civil union partner, domestic partner or spouse to
continue the annuity within the meaning of the tax law upon the death of the
first partner under the annuity's "spousal continuance" provision. Please note
there may be federal tax consequences at the death of the first same-sex civil
union partner, domestic partner or spouse. Civil union couples, domestic
partners and spouses of the same sex should consider that limitation before
selecting a spousal benefit under the annuity.
HIGHEST DAILY LIFETIME INCOME v2.1 BENEFIT
Highest Daily Lifetime Income v2.1 is a lifetime guaranteed minimum withdrawal
benefit, under which, subject to the terms of the benefit, we guarantee your
ability to take a certain annual withdrawal amount for life. We reserve the
right, in our sole discretion, to cease offering this benefit for new
elections, at any time.
We offer a benefit that guarantees until the death of the single designated
life (the Annuitant) the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial value (the "Protected
Withdrawal Value") regardless of the impact of Sub-account performance on the
Unadjusted Account Value, subject to our rules regarding the timing and amount
of withdrawals. You are guaranteed to be able to withdraw the Annual Income
Amount for the rest of your life provided that you do not take withdrawals of
Excess Income that result in your Unadjusted Account Value being reduced to
zero. We also permit you to designate the first withdrawal from your Annuity
as a one-time "Non-Lifetime Withdrawal". All other partial withdrawals from
your Annuity are considered a "Lifetime Withdrawal" under the benefit.
Withdrawals are taken first from your own Account Value. We are only required
to begin making lifetime income payments to you under our guarantee when and
if your Unadjusted Account Value is reduced to zero (for any reason other than
due to partial withdrawals of Excess Income). Highest Daily Lifetime Income
v2.1 may be appropriate if you intend to make periodic withdrawals from your
Annuity, and wish to ensure that Sub-account performance will not affect your
ability to receive annual payments. You are not required to take withdrawals
as part of the benefit - the guarantees are not lost if you withdraw less than
the maximum allowable amount each year under the rules of the benefit. An
integral component of Highest Daily Lifetime Income v2.1 is the predetermined
mathematical formula we employ that may periodically transfer your Unadjusted
Account Value to and from the AST Investment Grade Bond Sub-account. See the
section below entitled "How Highest Daily Lifetime Income v2.1 Transfers
Unadjusted Account Value Between Your Permitted Sub-accounts and the AST
Investment Grade Bond Sub-account."
The income benefit under Highest Daily Lifetime Income v2.1 currently is based
on a single "designated life" who is at least 50 years old on the date that
the benefit is acquired. Highest Daily Lifetime Income v2.1 is not available
if you elect any other optional living benefit. As long as your Highest Daily
Lifetime Income v2.1 is in effect, you must allocate your Unadjusted Account
Value in accordance with the permitted Sub-accounts and other Investment
Option(s) available with this benefit. For a more detailed description of the
permitted Investment Options, see the "Investment Options" section.
Although you are guaranteed the ability to withdraw your Annual Income Amount
for life even if your Unadjusted Account Value falls to zero, if that
particular withdrawal of Excess Income (described below) brings your
Unadjusted Account Value to zero, your Annual Income Amount also would fall to
zero, and the benefit and the Annuity then would terminate. In that scenario,
no further amount would be payable under Highest Daily Lifetime Income v2.1.
As to the impact of such a scenario on any other optional benefit you may
have, please see the following sections in this prospectus: "Spousal Highest
Daily Lifetime Income v2.1 Benefit", "Highest Daily Lifetime Income v2.1 with
Highest Daily Death Benefit" and "Spousal Highest Daily Lifetime Income v2.1
with Highest Daily Death Benefit".
You may also participate in the 6 or 12 Month DCA Program if you elect Highest
Daily Lifetime Income v2.1, subject to the 6 or 12 Month DCA Program's rules.
See the section of this prospectus entitled "6 or 12 Month Dollar Cost
Averaging Program" for details.
Key Feature - Protected Withdrawal Value
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter, until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraphs.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
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The Periodic Value on or before the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment made on the Current
Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value after the Roll-Up End Date
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments and reduced for subsequent Lifetime Withdrawals (see the
examples that begin immediately prior to the sub-heading below entitled
"Example of dollar-for-dollar reductions").
Please note that if you elect Highest Daily Lifetime Income v2.1, your Account
Value is not guaranteed, can fluctuate and may lose value.
Key Feature - Annual Income Amount under Highest Daily Lifetime Income v2.1
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the Annuitant on the date of the first Lifetime Withdrawal. The
percentages are: 3% for ages 50 to 54; 3.5% for ages 55 to less than 591/2; 4%
for ages 591/2 to 64; 4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for
ages 85 or older. Under Highest Daily Lifetime Income v2.1, if your cumulative
Lifetime Withdrawals in an Annuity Year are less than or equal to the Annual
Income Amount, they will not reduce your Annual Income Amount in subsequent
Annuity Years, but any such withdrawals will reduce the Annual Income Amount
on a dollar-for-dollar basis in that Annuity Year and also will reduce the
Protected Withdrawal Value on a dollar-for-dollar basis. If your cumulative
Lifetime Withdrawals in an Annuity Year are in excess of the Annual Income
Amount ("Excess Income"), your Annual Income Amount in subsequent years will
be reduced (except with regard to Required Minimum Distributions for this
Annuity that comply with our rules) by the result of the ratio of the Excess
Income to the Account Value immediately prior to such withdrawal (see examples
of this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
As discussed in this paragraph, when you make a partial withdrawal that is
subject to a CDSC and/or tax withholding, we will identify the amount that
includes not only the amount you actually receive, but also the amount of the
CDSC and/or tax withholding, to determine whether your withdrawal has exceeded
the Annual Income Amount. When you take a partial withdrawal, you may request
a "gross" withdrawal amount (e.g., $2,000) but then have any CDSC and/or tax
withholding deducted from the amount you actually receive (although an MVA may
also be applied to your remaining Unadjusted Account Value, it is not
considered for purposes of determining Excess Income). The portion of a
withdrawal that exceeded your Annual Income Amount (if any) would be treated
as Excess Income and thus would reduce your Annual Income Amount in subsequent
years. Alternatively, you may request that a "net" withdrawal amount actually
be paid to you (e.g., $2,000), with the understanding that any CDSC and/or tax
withholding (e.g., $240) be applied to your remaining Unadjusted Account Value
(although an MVA may also be applied to your remaining Unadjusted Account
Value, it is not considered for purposes of determining Excess Income). In the
latter scenario, we determine whether any portion of the withdrawal is to be
treated as Excess Income by looking to the sum of the net amount you actually
receive (e.g., $2,000) and the amount of any CDSC and/or tax withholding (in
this example, a total of $2,240). The amount of that sum (e.g., the $2,000 you
received plus the $240 for the CDSC and/or tax withholding) that exceeds your
Annual Income Amount will be treated as Excess Income - thereby reducing your
Annual Income Amount in subsequent years.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Highest Daily
Lifetime Income v2.1 and subsequent to the first Lifetime Withdrawal will
(i) immediately increase the then-existing Annual Income Amount by an amount
equal to a percentage of the Purchase Payment based on the age of the
Annuitant at the time of the first Lifetime Withdrawal (the percentages are:
3% for ages 50 to 54; 3.5% for ages 55 to less than 591/2; 4% for ages 591/2
to 64; 4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for ages 85 or
older) and (ii) increase the Protected Withdrawal Value by the amount of the
Purchase Payment.
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While Highest Daily Lifetime Income v2.1 is in effect, we may limit, restrict,
suspend or reject any additional Purchase Payment at any time, but would do so
on a non-discriminatory basis. Circumstances where we may limit, restrict,
suspend or reject additional Purchase Payments include, but are not limited
to, the following:
.. if we determine that, as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Highest Daily Lifetime Income v2.1 benefit. This means that you
may no longer be able to increase the values associated with your Highest
Daily Lifetime Income v2.1 benefit through additional Purchase Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity, in a non-discriminatory manner.
Highest Daily Auto Step-Up
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of Highest
Daily Lifetime Income v2.1. As detailed in this paragraph, the Highest Daily
Auto Step-Up feature can result in a larger Annual Income Amount subsequent to
your first Lifetime Withdrawal. The Highest Daily Auto Step-Up starts with the
anniversary of the Issue Date of the Annuity (the "Annuity Anniversary")
immediately after your first Lifetime Withdrawal under the benefit.
Specifically, upon the first such Annuity Anniversary, we identify the
Unadjusted Account Value on each Valuation Day within the immediately
preceding Annuity Year after your first Lifetime Withdrawal. Having identified
the highest daily value (after all daily values have been adjusted for
subsequent Purchase Payments and withdrawals), we then multiply that value by
a percentage that varies based on the age of the Annuitant on the Annuity
Anniversary as of which the step-up would occur. The percentages are: 3% for
ages 50 to 54; 3.5% for ages 55 to less than 59 1/2; 4% for ages 59 1/2 to 64;
4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for ages 85 or order. If
that value exceeds the existing Annual Income Amount, we replace the existing
amount with the new, higher amount. Otherwise, we leave the existing Annual
Income Amount intact. We will not automatically increase your Annual Income
Amount solely as a result of your attaining a new age that is associated with
a new age-based percentage. The Unadjusted Account Value on the Annuity
Anniversary is considered the last daily step-up value of the Annuity Year.
All daily valuations and annual step-ups will only occur on a Valuation Day.
In later years (i.e., after the first Annuity Anniversary after the first
Lifetime Withdrawal), we determine whether an automatic step-up should occur
on each Annuity Anniversary, by performing a similar examination of the
Unadjusted Account Values that occurred on Valuation Days during the year.
Taking Lifetime Withdrawals could produce a greater difference between your
Protected Withdrawal Value and your Unadjusted Account Value, which may make a
Highest Daily Auto Step-up less likely to occur. At the time that we increase
your Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the date that we implement a Highest Daily Auto Step-Up to your Annual
Income Amount, the charge for Highest Daily Lifetime Income v2.1 has changed
for new purchasers, you may be subject to the new charge at the time of such
step-up. Prior to increasing your charge for Highest Daily Lifetime Income
v2.1 upon a step-up, we would notify you, and give you the opportunity to
cancel the automatic step-up feature. If you receive notice of a proposed
step-up and accompanying fee increase, you should consult with your Financial
Professional and carefully evaluate whether the amount of the step-up
justifies the increased fee to which you will be subject. Any such increased
charge will not be greater than the maximum charge set forth in the table
entitled "Your Optional Benefit Fees and Charges."
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Highest Daily Lifetime Income v2.1 does not affect your ability to take
partial withdrawals under your Annuity, or limit your ability to take partial
withdrawals that exceed the Annual Income Amount. Under Highest Daily Lifetime
Income v2.1, if your cumulative Lifetime Withdrawals in an Annuity Year are
less than or equal to the Annual Income Amount, they will not reduce your
Annual Income Amount in subsequent Annuity Years, but any such withdrawals
will reduce the Annual Income Amount on a dollar-for-dollar basis in that
Annuity Year. If your cumulative Lifetime Withdrawals in any Annuity Year are
less than the Annual Income Amount, you cannot carry over the unused portion
of the Annual Income Amount to subsequent Annuity Years. If your cumulative
Lifetime Withdrawals in an Annuity Year exceed the Annual Income Amount, your
Annual Income Amount in subsequent years will be reduced (except with regard
to Required Minimum Distributions for this Annuity that comply with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
50
Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Highest Daily Lifetime
Income v2.1 or any other fees and charges under the Annuity. Assume the
following for all three examples:
.. The Issue Date is November 1,
.. Highest Daily Lifetime Income v2.1 is elected on August 1 of the following
calendar year
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
Example of dollar-for-dollar reductions
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $6,000 (since the designated life is between the ages
of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual Income
Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000).
Assuming $2,500 is withdrawn from the Annuity on this date, the remaining
Annual Income Amount for that Annuity Year (up to and including October 31) is
$3,500. This is the result of a dollar-for-dollar reduction of the Annual
Income Amount ($6,000 less $2,500 = $3,500).
Example of proportional reductions
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $3,500 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $1,500 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there are other
future withdrawals in that Annuity Year, each would result in another
proportional reduction to the Annual Income Amount).
Here is the calculation:
Example of highest daily auto step-up
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
Annuitant's age on that Annuity Anniversary) of the highest daily value since
your first Lifetime Withdrawal (or last Annuity Anniversary in subsequent
years), adjusted for withdrawals and additional Purchase Payments is greater
than the Annual Income Amount, adjusted for Excess Income and additional
Purchase Payments.
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $6,000. However, the Excess Income on October 29 reduces the
amount to $5,921.40 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 5% (since the designated life
is between 70 and 84 on the date of the potential step-up) of the highest
daily Unadjusted Account Value, adjusted for withdrawals and Purchase Payments
is greater than $5,921.40. Here are the calculations for determining the daily
values. Only the October 28 value is being adjusted for Excess Income as the
October 30, October 31, and November 1 Valuation Days occur after the Excess
Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be the Annuity Anniversary and every day
following the Annuity Anniversary. The Annuity Anniversary Date of
November 1 is considered the first Valuation Date in the Annuity Year.
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** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,950.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income
Amount for the Annuity Year), resulting in Unadjusted Account Value of
$115,500 before the Excess Income.
. This amount ($115,500) is further reduced by 1.31% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.95.
. The adjusted October 29 Highest Daily Value, $113,986.95, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.95 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.95 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.95
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 5%, generating
an Annual Income Amount of $5,950.00. Since this amount is greater than the
current year's Annual Income Amount of $5,921.40 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,950.00.
Non-Lifetime Withdrawal Feature
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Highest Daily Lifetime Income v2.1. It is an optional feature of the
benefit that you can only elect at the time of your first withdrawal. You
cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders - Surrender Value"). This
Non-Lifetime Withdrawal will not establish your initial Annual Income Amount
and the Periodic Value described above will continue to be calculated.
However, the total amount of the withdrawal will proportionally reduce all
guarantees associated with Highest Daily Lifetime Income v2.1. You must tell
us at the time you take the withdrawal if your withdrawal is intended to be
the Non-Lifetime Withdrawal and not the first Lifetime Withdrawal under
Highest Daily Lifetime Income v2.1. If you don't elect the Non-Lifetime
Withdrawal, the first withdrawal you make will be the first Lifetime
Withdrawal that establishes your Annual Income Amount, which is based on your
Protected Withdrawal Value. Once you elect to take the Non-Lifetime Withdrawal
or Lifetime Withdrawals, no additional Non-Lifetime Withdrawals may be taken.
If you do not take a Non-Lifetime Withdrawal before beginning Lifetime
Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value by the percentage the total withdrawal amount (including any
applicable CDSC) represents of the then current Account Value immediately
prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
Example - Non-Lifetime Withdrawal (proportional reduction)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit.
Assume the following:
.. The Issue Date is December 3
.. Highest Daily Lifetime Income v2.1 is elected on September 4 of the
following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1
.. No previous withdrawals have been taken under Highest Daily Lifetime Income
v2.1
On October 3 of the year the benefit is elected, the Protected Withdrawal
Value is $125,000 and the Account Value is $120,000. Assuming $15,000 is
withdrawn from the Annuity on that same October 3 and is designated as a
Non-Lifetime Withdrawal, all guarantees associated with Highest Daily Lifetime
Income v2.1 will be reduced by the ratio the total withdrawal amount
represents of the Account Value just prior to the withdrawal being taken.
Here is the calculation:
Required Minimum Distributions
Required Minimum Distributions ("RMD") for this Annuity must be taken by
April 1st in the year following the date you turn age 70 1/2 and by
December 31/st/ for subsequent calendar years. If the annual RMD amount is
greater than the Annual Income Amount,
52
a withdrawal of the RMD amount will not be treated as a withdrawal of Excess
Income, as long as the RMD amount is calculated by us for this Annuity and
administered under a program we support each calendar year. If you are not
participating in an RMD withdrawal program each calendar year, you can
alternatively satisfy the RMD amount without it being treated as a withdrawal
of Excess Income.
The following rules apply to determine if any portion of an RMD amount will be
treated as Excess Income.
For purposes of this provision, in relation to any Annuity Year, the "Second
Calendar Year" is the calendar year following the calendar year in which the
Annuity Year began.
In general, withdrawals made from the Annuity during an Annuity Year to meet
the RMD provisions of the Code will not be treated as Excess Income. However,
if in any Annuity Year, you take a Lifetime Withdrawal in the Second Calendar
Year, then the amount which will not be treated as Excess Income is the
greater of:
(1)the remaining Annual Income Amount for that Annuity Year, and
(2)the difference between the Second Calendar Year's remaining RMD amount and
the Annual Income Amount.
Any remaining RMD amount for the Second Calendar Year can be taken in the
following Annuity Year.
If, in any Annuity Year, your RMD amount is not greater than the Annual Income
Amount, any withdrawals in excess of the Annual Income Amount will be treated
as Excess Income.
Please see hypothetical examples below for details.
If you do not comply with the rules described above, any withdrawal that
exceeds the Annual Income Amount will be treated as a withdrawal of Excess
Income, which will reduce your Annual Income Amount in future Annuity Years.
This may include situations where you comply with the rules outlined above and
then decide to take additional withdrawals after satisfying your RMD
requirement from the Annuity.
We will assume your first withdrawal under the benefit is a Lifetime
Withdrawal unless you designated the withdrawal as a Non-Lifetime Withdrawal.
Example
The following example is purely hypothetical and intended to illustrate a
scenario as described above. Note that withdrawals must comply with all IRS
guidelines in order to satisfy the RMD for the current calendar year.
Assumptions:
RMD Calendar Year
01/01/2013 to 12/31/2013
Annuity Year
06/01/2012 to 05/31/2013
Annual Income Amount and RMD Amount
Annual Income Amount = $5,000
Remaining Annual Income Amount as of 1/3/2013 = $3,000 (a $2,000 withdrawal
was taken on 7/1/2012)
RMD Amount for Calendar Year 2013 = $6,000
The amount you may withdraw in the current Annuity Year (between 1/3/2013 and
5/31/2013) without it being treated as Excess Income is $4,000. Here is the
calculation: $3,000 + ($6,000 - $5,000) = $4,000.
If the $4,000 withdrawal is taken in the current Annuity Year (prior to
6/1/2013), the remaining Annual Income Amount will be zero and the remaining
RMD amount of $2,000 may be taken in the subsequent Annuity Year beginning on
6/1/2013 (when your Annual Income Amount is reset to $5,000).
If you had chosen to not take any additional withdrawals until on or after
6/1/2013, then you would be eligible to withdraw $6,000 without it being
treated as a withdrawal of Excess Income.
53
Benefits Under Highest Daily Lifetime Income v2.1
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and amounts are still payable
under Highest Daily Lifetime Income v2.1, we will make an additional
payment, if any, for that Annuity Year equal to the remaining Annual Income
Amount for the Annuity Year. Thus, in that scenario, the remaining Annual
Income Amount would be payable even though your Unadjusted Account Value
was reduced to zero. In subsequent Annuity Years we make payments that
equal the Annual Income Amount as described in this section. We will make
payments until the death of the single designated life. After the
Unadjusted Account Value is reduced to zero, you will not be permitted to
make additional Purchase Payments to your Annuity. To the extent that
cumulative partial withdrawals in the Annuity Year that reduced your
Unadjusted Account Value to zero are more than the Annual Income Amount,
Highest Daily Lifetime Income v2.1 terminates, and no additional payments
are permitted. However, if a partial withdrawal in the latter scenario was
taken to satisfy a Required Minimum Distribution (as described above) under
the Annuity, then the benefit will not terminate, and we will continue to
pay the Annual Income Amount in subsequent Annuity Years until the death of
the designated life.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments. Also, any Death Benefit will terminate if
withdrawals reduce your Unadjusted Account Value to zero. This means that
any Death Benefit is terminated and no Death Benefit is payable if your
Unadjusted Account Value is reduced to zero as the result of either a
withdrawal in excess of your Annual Income Amount or less than or equal to,
your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable tax charges,
to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. If this
option is elected, the Annual Income Amount will not increase after
annuity payments have begun. We will make payments until the death of
the single designated life. We must receive your request in a form
acceptable to us at our Service Office. If applying your Unadjusted
Account Value, less any applicable tax charges, to the life-only
annuity payment rates results in a higher annual payment, we will
give you the higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin
we currently make annual annuity payments in the form of a single life
fixed annuity with eight payments certain, by applying the greater of the
annuity rates then currently available or the annuity rates guaranteed in
your Annuity. We reserve the right at any time to increase or decrease the
period certain in order to comply with the Code (e.g., to shorten the
period certain to match life expectancy under applicable Internal Revenue
Service tables). The amount that will be applied to provide such annuity
payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual
Income Amount as if you made your first Lifetime Withdrawal on the
date the annuity payments are to begin). Such present value will be
calculated using the greater of the single life fixed annuity rates
then currently available or the single life fixed annuity rates
guaranteed in your Annuity; and
(2)the Unadjusted Account Value.
Other Important Considerations
.. Withdrawals under Highest Daily Lifetime Income v2.1 are subject to all of
the terms and conditions of the Annuity, including any applicable CDSC for
the Non-Lifetime Withdrawal as well as partial withdrawals that exceed the
Annual Income Amount. If you have an active Systematic Withdrawal program
running at the time you elect this benefit, the first systematic withdrawal
that processes after your election of the benefit will be deemed a Lifetime
Withdrawal. Withdrawals made while Highest Daily Lifetime Income v2.1 is in
effect will be treated, for tax purposes, in the same way as any other
withdrawals under the Annuity. Any withdrawals made under the benefit will
be taken pro rata from the Sub-accounts (including the AST Investment Grade
Bond Sub-account) and the DCA MVA Options. If you have an active Systematic
Withdrawal program running at the time you elect this benefit, the program
must withdraw funds pro rata.
.. Any Lifetime Withdrawal that you take that is not a withdrawal of Excess
Income is not subject to a CDSC, even if the total amount of such
withdrawals in any Annuity Year exceeds the maximum Free Withdrawal amount.
Any Lifetime Withdrawal that is treated as Excess Income is subject to any
applicable CDSC, if the withdrawal is greater than the Free Withdrawal
amount. (See "Fees, Charges and Deductions - Contingent Deferred Sales
Charge ("CDSC")" and "Access to Account Value - Free Withdrawal Amounts.")
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
54
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolio appears within the section
entitled "Investment Options." You can find a copy of the AST Investment
Grade Bond Portfolio prospectus by going to www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the predetermined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to the Permitted Sub-accounts, or
to the requirements as to how you may allocate your Account Value with this
benefit, will apply to new elections of the benefit and may apply to
current participants in the benefit. To the extent that changes apply to
current participants in the benefit, they will only apply upon
re-allocation of Account Value, or upon addition of subsequent Purchase
Payments. That is, we will not require such current participants to
re-allocate Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Highest Daily
Lifetime Income v2.1 reduce your Unadjusted Account Value to zero. This
means that any Death Benefit is terminated and no Death Benefit is payable
if your Unadjusted Account Value is reduced to zero as the result of either
a withdrawal in excess of your Annual Income Amount or less than or equal
to, your Annual Income Amount. (See "Death Benefits" for more information.)
.. The current charge for Highest Daily Lifetime Income v2.1 is 1.00% annually
of the greater of the Unadjusted Account Value and Protected Withdrawal
Value. The maximum charge for Highest Daily Lifetime Income v2.1 is 2.00%
annually of the greater of the Unadjusted Account Value and Protected
Withdrawal Value. As discussed in "Highest Daily Auto Step-Up" above, we
may increase the fee upon a step-up under this benefit. We deduct this
charge on quarterly anniversaries of the benefit effective date, based on
the values on the last Valuation Day prior to the quarterly anniversary.
Thus, we deduct, on a quarterly basis, 0.25% of the greater of the prior
Valuation Day's Unadjusted Account Value and the prior Valuation Day's
Protected Withdrawal Value. We deduct the fee pro rata from each of your
Sub-accounts, including the AST Investment Grade Bond Sub-account. You will
begin paying this charge as of the effective date of the benefit even if
you do not begin taking withdrawals for many years, or ever. We will not
refund the charges you have paid if you choose never to take any
withdrawals and/or if you never receive any lifetime income payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the benefit is less than the
Account Value Floor, then no charge will be assessed for that benefit quarter.
Charges deducted upon termination of the benefit may cause the Unadjusted
Account Value to fall below the Account Value Floor. If a charge for Highest
Daily Lifetime Income v2.1 would be deducted on the same day we process a
withdrawal request, the charge will be deducted first, then the withdrawal
will be processed. The withdrawal could cause the Unadjusted Account Value to
fall below the Account Value Floor. While the deduction of the charge (other
than the final charge) may not reduce the Unadjusted Account Value to zero,
partial withdrawals may reduce the Unadjusted Account Value to zero. If this
happens and the Annual Income Amount is greater than zero, we will make
payments under the benefit.
Election of and Designations under the Benefit
For Highest Daily Lifetime Income v2.1, there must be either a single Owner
who is the same as the Annuitant, or if the Annuity is entity owned, there
must be a single natural person Annuitant. In either case, the Annuitant must
be at least 50 years old. Any change of the Annuitant under the Annuity will
result in cancellation of Highest Daily Lifetime Income v2.1. Similarly, any
change of Owner will result in cancellation of Highest Daily Lifetime Income
v2.1, except if (a) the new Owner has the same taxpayer identification number
as the previous Owner, (b) ownership is transferred from a custodian or other
entity to the Annuitant, or vice versa or (c) ownership is transferred from
one entity to another entity that satisfies our administrative ownership
guidelines.
Highest Daily Lifetime Income v2.1 can be elected at the time that you
purchase your Annuity or after the Issue Date, subject to its availability,
and our eligibility rules and restrictions. If you elect Highest Daily
Lifetime Income v2.1 and terminate it, you can re-elect it, subject to our
current rules and availability. See "Termination of Existing Benefits and
Election of New Benefits" for information pertaining to elections, termination
and re-election of benefits. Please note that if you terminate a living
benefit and elect Highest Daily Lifetime Income v2.1, you lose the guarantees
that you had accumulated under your existing benefit and your guarantees under
Highest Daily Lifetime Income v2.1 will be based on your Unadjusted Account
Value on the effective date of Highest Daily Lifetime Income v2.1. You and
your Financial Professional should carefully consider whether terminating your
existing benefit and electing Highest Daily Lifetime Income v2.1 is
appropriate for you. We reserve the right to waive, change and/or further
limit the election frequency in the future for new elections of this benefit.
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If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Highest Daily Lifetime Income v2.1 so long as you participate in a
Systematic Withdrawal program in which withdrawals are not taken pro rata.
Termination of the Benefit
You may terminate Highest Daily Lifetime Income v2.1 at any time by notifying
us. If you terminate the benefit, any guarantee provided by the benefit will
terminate as of the date the termination is effective, and certain
restrictions on re-election may apply.
The benefit automatically terminates upon the first to occur of the following:
(i)your termination of the benefit;
(ii)your surrender of the Annuity;
(iii)your election to begin receiving annuity payments (although if you have
elected to receive the Annual Income Amount in the form of annuity
payments, we will continue to pay the Annual Income Amount);
(iv)our receipt of Due Proof of Death of the Owner or Annuitant (for
entity-owned annuities);
(v)both the Unadjusted Account Value and Annual Income Amount equal zero due
to a withdrawal of Excess Income;
(vi)you allocate or transfer any portion of your Account Value to any
Sub-account(s) to which you are not permitted to electively allocate or
transfer Account Value (may vary by state);* or
(vii)you cease to meet our requirements as described in "Election of and
Designations under the Benefit" above.
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Highest Daily Lifetime Income v2.1, other than upon the
death of the Annuitant or Annuitization, we impose any accrued fee for the
benefit (i.e., the fee for the pro-rated portion of the year since the fee was
last assessed), and thereafter we cease deducting the charge for the benefit.
However, if the amount in the Sub-accounts is not enough to pay the charge, we
will reduce the fee to no more than the amount in the Sub-accounts. With
regard to your investment allocations, upon termination we will: (i) leave
intact amounts that are held in the Permitted Sub-accounts, and (ii) unless
you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
If a surviving spouse elects to continue the Annuity, Highest Daily Lifetime
Income v2.1 terminates upon Due Proof of Death. The spouse may newly elect the
benefit subject to the restrictions discussed above.
How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account
Overview of The Predetermined Mathematical Formula
Our goal is to seek a careful balance between providing value-added products,
such as the Highest Daily Lifetime Income v2.1 suite of benefits, while
managing the risk associated with offering these products. One of the key
features that helps us accomplish that balance and an integral part of the
Highest Daily Lifetime Income v2.1 suite is the predetermined mathematical
formula used to transfer Unadjusted Account Value between the Permitted
Subaccounts and the AST Investment Grade Bond Sub-account, referred to in this
section as the "Bond Sub-account". The formula is designed primarily to
mitigate some of the financial risks that we incur in providing the guarantee
under the Highest Daily Lifetime Income v2.1 suite of benefits.
The formula is set forth in Appendix E (and is described below).
The predetermined mathematical formula ("formula") monitors each individual
contract each Valuation Day that the benefit is in effect on your Annuity, in
order to help us manage guarantees through all market cycles. It helps manage
the risk associated with these benefits, which is generally represented by the
gap between your Unadjusted Account Value and the Protected Withdrawal Value.
As the gap between these two values increases, the formula will determine if
and how much money should be transferred into the Bond Sub-account. This
movement is intended to reduce the equity risk we will bear in funding our
obligation associated with these benefits. As the gap decreases (due to
favorable performance of the Unadjusted Account Value), the formula then
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determines if and how much money should transfer back into the Permitted
Sub-accounts. The use of the formula, combined with restrictions on the
Sub-accounts you are allowed to invest in, lessens the risk that your
Unadjusted Account Value will be reduced to zero while you are still alive,
thus reducing the likelihood that we will make any lifetime income payments
under this benefit. It may also limit the potential for your Account Value to
grow.
However, in addition to providing lifetime income when your Account Value is
reduced to zero, Highest Daily Lifetime Income v2.1 can potentially dampen the
impact of volatility on your Account Value during extreme market downturns by
transferring assets from your chosen investments into the Bond Sub-account as
described above. This occurs pursuant to the predetermined mathematical
formula, which can limit the possibility or reduce the amount of a significant
loss of Account Value, and potentially provide a higher income stream in
retirement.
The formula is not forward looking and contains no predictive or projective
component with respect to the markets, the Unadjusted Account Value or the
Protected Withdrawal Value. We are not providing you with investment advice
through the use of the formula nor does the formula constitute an investment
strategy that we are recommending to you.
Transfer Activity Under the Formula
Prior to the first Lifetime Withdrawal, the primary driver of transfers to the
Bond Sub-account is the difference between your Unadjusted Account Value and
your Protected Withdrawal Value. If none of your Unadjusted Account Value is
allocated to the Bond Sub-account, then over time the formula permits an
increasing difference between the Unadjusted Account Value and the Protected
Withdrawal Value before a transfer to the Bond Sub-account occurs. Therefore,
over time, assuming none of the Unadjusted Account Value is allocated to the
Bond Sub-account, the formula will allow for a greater decrease in the
Unadjusted Account Value before a transfer to the Bond Sub-account is made.
It is important to understand that transfers within your Annuity are specific
to the performance of your chosen investment options, the performance of the
Bond Sub-account while money is invested in it, as well as how long the
benefit has been owned. For example, two contracts purchased on the same day,
but invested differently, will likely have different results, as would two
contracts purchased on different days with the same investment options.
Each market cycle is unique, therefore the performance of your Sub-accounts,
and its impact on your Unadjusted Account Value, will differ from market cycle
to market cycle, therefore producing different transfer activity under the
formula. The amount and timing of transfers to and from the Bond Sub-account
depend on various factors unique to your Annuity and are not necessarily
directly correlated with the securities markets, bond markets, interest rates
or any other market or index. Some of the factors that determine the amount
and timing of transfers (as applicable to your Annuity), include:
.. The difference between your Unadjusted Account Value and your Protected
Withdrawal Value;
.. The amount of time the benefit has been in effect on your Annuity;
.. The amount allocated to and the performance of the Permitted Sub-accounts
and the Bond Sub-account;
.. Any additional Purchase Payments you make to your Annuity (while the
benefit is in effect); and
.. Any withdrawals you take from your Annuity (while the benefit is in effect).
Under the formula, investment performance of your Unadjusted Account Value
that is negative, flat, or even moderately positive may result in a transfer
of a portion of your Unadjusted Account Value in the Permitted Sub-accounts to
the Bond Sub-account.
At any given time, some, most or none of your Unadjusted Account Value will be
allocated to the Bond Sub-account, as dictated by the formula.
The amount allocated to the Bond Sub-account and the amount allocated to the
Permitted Sub-accounts each is a variable in the formula. Therefore, the
investment performance of each affects whether a transfer occurs for your
Annuity. As the amounts allocated to either the Bond Sub-account or the
Permitted Sub-accounts increase, the performance of those sub-accounts will
have a greater impact on your Unadjusted Account Value and hence a greater
impact on if (and how much of) your Unadjusted Account Value is transferred to
or from the Bond Sub-account. It is possible that if a significant portion of
your Unadjusted Account Value is allocated to the Bond Sub-account and that
Sub-account has positive performance, the formula might transfer a portion of
your Unadjusted Account Value to the Permitted Sub-accounts, even if the
performance of your Permitted Sub-accounts is negative. Conversely, if a
significant portion of your Unadjusted Account Value is allocated to the Bond
Sub-account and that Sub-account has negative performance, the formula may
transfer additional amounts from your Permitted Sub-accounts to the Bond
Sub-account even if the performance of your Permitted Sub-accounts is positive.
How the Formula Operates
Generally, the formula, which is applied each Valuation Day, takes four steps
in determining any applicable transfers within your Annuity.
(1)First, the formula starts by identifying the value of future income
payments we expect to pay. We refer to that value as the "Target Value" or
"L".
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(2)Second, we subtract any amounts invested in the Bond Sub-account ("B") from
the Target Value and divide that number by the amount invested in the
Permitted Sub-Accounts ("V\\V\\ + V\\F\\"). We refer to this resulting
value as the "Target Ratio" or "R".
(3)Third, we compare the Target Ratio to designated thresholds and other rules
described in greater detail below to determine if a transfer needs to occur.
(4)If a transfer needs to occur, we use another calculation to determine the
amount of the transfer.
The Formula is:
More specifically, the formula operates as follows:
(1)We calculate the Target Value (L) by multiplying the income basis for that
day by 5% and by the applicable Annuity Factor found in Appendix E. If you
have already made a Lifetime Withdrawal, your Target Value would take into
account any automatic step-up, any subsequent Purchase Payments and any
withdrawals of Excess Income.
Example (assume the income basis is $200,000, and the contract is 11 1/2
months old, resulting in an annuity factor of 14.95)
(2)Next, to calculate the Target Ratio (R), the Target Value is reduced by any
amount held within the Bond Sub-account (B) on that day. The remaining
amount is divided by the amount held within the Permitted Sub-accounts (V).
Example (assume the amount in the Bond Sub-account is zero, and the amount
held within the Permitted Sub-accounts is $179,500)
(3)If, on each of three consecutive Valuation Days, the Target Ratio is
greater than 83% but less than or equal to 84.5%, the formula will, on the
third Valuation Day, make a transfer from your Permitted Sub-accounts to
the Bond Sub-account (subject to the 90% cap discussed below). If, however,
on any Valuation Day, the Target Ratio is above 84.5%, the formula will
make a transfer from the Permitted Sub-accounts to the Bond Sub-account
(subject to the 90% cap). Once a transfer is made, the Target Ratio must
again be greater than 83% but less than or equal to 84.5% for three
consecutive Valuation Days before a subsequent transfer to the Bond
Sub-account will occur. If the Target Ratio falls below 78% on any
Valuation Day, then a transfer from the Bond Sub-account to the Permitted
Sub-accounts (excluding the DCA MVA Options) will occur.
Example: Assuming the Target Ratio is above 83% for a 3/rd/ consecutive
Valuation Day, but less than or equal to 84.5% for three consecutive
Valuation Days, a transfer into the Bond Portfolio occurred.
(4)In deciding how much to transfer, we perform a calculation that essentially
seeks to reallocate amounts held in the Permitted Sub-accounts and the Bond
Sub-account so that the Target Ratio meets a target, which currently is
equal to 80% (subject to the 90% Cap discussion below). The further the
Target Ratio is from 80% when a transfer is occurring under the formula,
the greater the transfer amount will be.
The 90% Cap
The formula will not execute a transfer to the Bond Sub-account that results
in more than 90% of your Unadjusted Account Value being allocated to the Bond
Sub-account ("90% cap") on that Valuation Day. Thus, on any Valuation Day, if
the formula would require a transfer to the Bond Sub-account that would result
in more than 90% of the Unadjusted Account Value being allocated to the Bond
Sub-account, only the amount that results in exactly 90% of the Unadjusted
Account Value being allocated to the Bond Sub-account will be transferred.
Additionally, future transfers into the Bond Sub-account will not be made
(regardless of the performance of the Bond Sub-account and the Permitted
Sub-accounts) at least until there is first a transfer out of the Bond
Sub-account. Once this transfer occurs out of the Bond Sub-account, future
amounts may be transferred to or from the Bond Sub-account (subject to the 90%
cap).
Under the operation of the formula, the 90% cap may come into and out of
effect multiple times while you participate in the benefit. At no time will
the formula make a transfer to the Bond Sub-account that results in greater
than 90% of your Unadjusted Account Value being allocated to the Bond
Sub-account. However, it is possible that, due to the investment performance
of your allocations in the Bond Sub-account and your allocations in the
Permitted Sub-accounts you have selected, your Unadjusted Account Value could
be more than 90% invested in the Bond Sub-account.
58
Monthly Transfers
Additionally, on each monthly Annuity Anniversary (if the monthly Annuity
Anniversary does not fall on a Valuation Day, the next Valuation Day will be
used), following all of the above described daily calculations, if there is
money allocated to the Bond Sub-account, the formula will perform an
additional calculation to determine whether or not a transfer will be made
from the Bond Sub-account to the Permitted Sub-accounts. This transfer will
automatically occur provided that the Target Ratio, as described above, would
be less than 83% after this transfer. The formula will not execute a transfer
if the Target Ratio after this transfer would occur would be greater than or
equal to 83%.
The amount of the transfer will be equal to the lesser of:
a) The total value of all your Unadjusted Account Value in the Bond
Sub-account, or
b) An amount equal to 5% of your total Unadjusted Account Value.
Other Important Information
.. The Bond sub-account is not a Permitted Sub-account. As such, only the
formula can transfer Unadjusted Account Value to or from the Bond
Sub-account. You may not allocate Purchase Payments or transfer any of your
Unadjusted Account Value to or from the Bond Sub-account.
.. While you are not notified before a transfer occurs to or from the Bond
Sub-account, you will receive a confirmation statement indicating the
transfer of a portion of your Unadjusted Account Value either to or from
the Bond Sub-account. Your confirmation statements will be detailed to
include the effective date of the transfer, the dollar amount of the
transfer and the Permitted Sub-accounts the funds are being transferred
to/from. Depending on the results of the calculations of the formula, we
may, on any Valuation Day:
. Not make any transfer between the Permitted Sub-accounts and the Bond
Sub-account; or
. If a portion of your Unadjusted Account Value was previously allocated
to the Bond Sub-account, transfer all or a portion of those amounts to
the Permitted Sub-accounts (as described above); or
. Transfer a portion of your Unadjusted Account Value in the Permitted
Sub-accounts and the DCA MVA Options to the Bond Sub-account.
.. If you make additional Purchase Payments to your Annuity, they will be
allocated to the Permitted Sub-accounts and will be subject to the formula.
.. Additional Purchase Payments to your Annuity do not increase "B" within the
formula, and may result in an additional Account Value being transferred to
the Permitted Sub-accounts, or a transfer to the Bond Sub-account due to
the change in the ratio.
.. If you make additional Purchase Payments to your Annuity while the 90% cap
is in effect, the formula will not transfer any of such additional Purchase
Payments to the Bond Sub-account at least until there is first a transfer
out of the Bond Sub-account, regardless of how much of your Unadjusted
Account Value is in the Permitted Sub-accounts. This means that there could
be scenarios under which, because of the additional Purchase Payments you
make, less than 90% of your entire Unadjusted Account Value is allocated to
the Bond Sub-account, and the formula will still not transfer any of your
Unadjusted Account Value to the Bond Sub-account (at least until there is
first a transfer out of the Bond Sub-account).
.. If you are participating in Highest Daily Lifetime Income v2.1 and you are
also participating in the 6 or 12 Month DCA Program, the following rules
apply:
. DCA MVA Options are considered "Permitted Sub-accounts" for purpose of
the Target Ratio calculation ("L") described above.
. The formula may transfer amounts out of the DCA MVA Options to the Bond
Sub-account if the amount allocated to the other Permitted Sub-accounts
is insufficient to cover the amount of the transfer.
. The transfer formula will not allocate amounts to the DCA MVA Options
when there is a transfer out of the Bond Sub-account . Such transfers
will be allocated pro-rata to the variable Sub-accounts, excluding the
Bond Sub-account.
. A Market Value Adjustment is not assessed when amounts are transferred
out of the DCA MVA Options under the transfer formula.
Additional Tax Considerations
If you purchase an annuity as an investment vehicle for "qualified"
investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or
employer plan under Code Section 401(a), the Required Minimum Distribution
rules under the Code provide that you begin receiving periodic amounts
beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for
which the participant is not a greater than five (5) percent Owner of the
employer, this required beginning date can generally be deferred to
retirement, if later. Roth IRAs are not subject to these rules during the
Owner's lifetime. In addition, the amount and duration of payments under the
annuity payment provision may be adjusted so that the payments do not trigger
any penalty or excise taxes due to tax considerations such as Required Minimum
Distribution rules under the tax law.
As indicated, withdrawals made while this benefit is in effect will be
treated, for tax purposes, in the same way as any other withdrawals under the
Annuity. Please see the Tax Considerations section for a detailed discussion
of the tax treatment of withdrawals. We do not address each potential tax
scenario that could arise with respect to this benefit here. However, we do
note that if you participate in Highest Daily Lifetime Income v2.1 or Spousal
Highest Daily Lifetime Income v2.1 through a non-qualified annuity, as with
all withdrawals, once all Purchase Payments are returned under the Annuity,
all subsequent withdrawal amounts will be taxed as ordinary income.
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SPOUSAL HIGHEST DAILY LIFETIME INCOME v2.1 BENEFIT
Spousal Highest Daily Lifetime Income v2.1 is a lifetime guaranteed minimum
withdrawal benefit, under which, subject to the terms of the benefit, we
guarantee your ability to take a certain annual withdrawal amount for the
lives of two individuals who are spouses. We reserve the right, in our sole
discretion, to cease offering this benefit for new elections at any time.
We offer a benefit that guarantees, until the later death of two natural
persons who are each other's spouses at the time of election of the benefit
and at the first death of one of them (the "designated lives", and each, a
"designated life"), the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial principal value (the
"Protected Withdrawal Value") regardless of the impact of Sub-account
performance on the Unadjusted Account Value, subject to our rules regarding
the timing and amount of withdrawals. You are guaranteed to be able to
withdraw the Annual Income Amount for the lives of the designated lives,
provided you have not made withdrawals of Excess Income that result in your
Unadjusted Account Value being reduced to zero. We also permit you to
designate the first withdrawal from your Annuity as a one-time "Non-Lifetime
Withdrawal." All other withdrawals from your Annuity are considered a
"Lifetime Withdrawal" under the benefit. Withdrawals are taken first from your
own Account Value. We are only required to begin making lifetime income
payments to you under our guarantee when and if your Unadjusted Account Value
is reduced to zero (for any reason other than due to partial withdrawals of
Excess Income). The benefit may be appropriate if you intend to make periodic
withdrawals from your Annuity, wish to ensure that Sub-account performance
will not affect your ability to receive annual payments, and wish either
spouse to be able to continue Spousal Highest Daily Lifetime Income v2.1 after
the death of the first spouse. You are not required to make withdrawals as
part of the benefit - the guarantees are not lost if you withdraw less than
the maximum allowable amount each year under the rules of the benefit. An
integral component of Spousal Highest Daily Lifetime Income v2.1 is the
predetermined mathematical formula we employ that may periodically transfer
your Unadjusted Account Value to and from the AST Investment Grade Bond
Sub-account. See the section above entitled "How Highest Daily Lifetime Income
v2.1 Transfers Unadjusted Account Value Between Your Permitted Sub-accounts
and the AST Investment Grade Bond Sub-account."
Spousal Highest Daily Lifetime Income v2.1 is the spousal version of Highest
Daily Lifetime Income v2.1. This version is only being offered in those
jurisdictions where we have received regulatory approval and will be offered
subsequently in other jurisdictions when we receive regulatory approval in
those jurisdictions. Currently, if you elect Spousal Highest Daily Lifetime
Income v2.1 and subsequently terminate the benefit, you may elect another
living benefit, subject to our current rules. See "Election of and
Designations under the Benefit" below and "Termination of Existing Benefits
and Election of New Benefits" for details. Please note that if you terminate
Spousal Highest Daily Lifetime Income v2.1 and elect another benefit, you lose
the guarantees that you had accumulated under your existing benefit and will
begin the new guarantees under the new benefit you elect based on your
Unadjusted Account Value as of the date the new benefit becomes active.
Spousal Highest Daily Lifetime Income v2.1 must be elected based on two
designated lives, as described below. Each designated life must be at least 50
years old when the benefit is elected. Spousal Highest Daily Lifetime Income
v2.1 is not available if you elect any other optional living benefit. As long
as your Spousal Highest Daily Lifetime Income v2.1 is in effect, you must
allocate your Unadjusted Account Value in accordance with the permitted
Sub-accounts and other Investment Option(s) available with this benefit. For a
more detailed description of the permitted Investment Options, see the
"Investment Options" section.
Although you are guaranteed the ability to withdraw your Annual Income Amount
for life even if your Unadjusted Account Value falls to zero, if that
particular withdrawal of Excess Income (described below) brings your
Unadjusted Account Value to zero, your Annual Income Amount also would fall to
zero, and the benefit and the Annuity then would terminate. In that scenario,
no further amount would be payable under Spousal Highest Daily Lifetime Income
v2.1. As to the impact of such a scenario on any other optional benefit you
may have, please see the following sections in this prospectus: "Highest Daily
Lifetime Income v2.1 Benefit", "Highest Daily Lifetime Income v2.1 with
Highest Daily Death Benefit" and "Spousal Highest Daily Lifetime Income v2.1
with Highest Daily Death Benefit".
You may also participate in the 6 or 12 Month Dollar Cost Averaging Program if
you elect Spousal Highest Daily Lifetime Income, subject to the 6 or 12 Month
DCA Program's rules. See the section of this prospectus entitled "6 or 12
Month Dollar Cost Averaging Program" for details.
Key Feature - Protected Withdrawal Value
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraph.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
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The Periodic Value on or before the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment made on the Current
Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value after the Roll-Up End Date
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments and reduced for subsequent Lifetime Withdrawals (see the
examples that begin immediately prior to the sub-heading below entitled
"Example of dollar-for-dollar reductions").
Please note that if you elect Spousal Highest Daily Lifetime Income v2.1, your
Account Value is not guaranteed, can fluctuate and may lose value.
Key Feature - Annual Income Amount under Spousal Highest Daily Lifetime Income
v2.1
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the younger designated life on the date of the first Lifetime
Withdrawal after election of the benefit. The percentages are: 2.5% for ages
50 to 54; 3% for ages 55 to less than 591/2; 3.5% for ages 591/2 to 64; 4% for
ages 65 to 69; 4.5% for ages 70 to 84; and 5.5% for ages 85 or older. We use
the age of the younger designated life even if that designated life is no
longer a participant under the Annuity due to death or divorce. Under Spousal
Highest Daily Lifetime Income v2.1, if your cumulative Lifetime Withdrawals in
an Annuity Year are less than or equal to the Annual Income Amount, they will
not reduce your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year and also will reduce the Protected Withdrawal Value on a
dollar-for-dollar basis. If your cumulative Lifetime Withdrawals in an Annuity
Year are in excess of the Annual Income Amount for any Annuity Year ("Excess
Income"), your Annual Income Amount in subsequent years will be reduced
(except with regard to Required Minimum Distributions for this Annuity that
comply with our rules) by the result of the ratio of the Excess Income to the
Unadjusted Account Value immediately prior to such withdrawal (see examples of
this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
As discussed in this paragraph, when you make a partial withdrawal that is
subject to a CDSC and/or tax withholding, we will identify the amount that
includes not only the amount you actually receive, but also the amount of the
CDSC and/or tax withholding, to determine whether your withdrawal has exceeded
the Annual Income Amount. When you take a partial withdrawal, you may request
a "gross" withdrawal amount (e.g., $2,000) but then have any CDSC and/or tax
withholding deducted from the amount you actually receive (although an MVA may
also be applied to your remaining Unadjusted Account Value, it is not
considered for purposes of determining Excess Income). The portion of a
withdrawal that exceeded your Annual Income Amount (if any) would be treated
as Excess Income and thus would reduce your Annual Income Amount in subsequent
years. Alternatively, you may request that a "net" withdrawal amount actually
be paid to you (e.g., $2,000), with the understanding that any CDSC and/or tax
withholding (e.g., $240) be applied to your remaining Unadjusted Account Value
(although an MVA may also be applied to your remaining Unadjusted Account
Value, it is not considered for purposes of determining Excess Income). In the
latter scenario, we determine whether any portion of the withdrawal is to be
treated as Excess Income by looking to the sum of the net amount you actually
receive (e.g., $2,000) and the amount of any CDSC and/or tax withholding (in
this example, a total of $2,240). The amount of that sum (e.g., the $2,000 you
received plus the $240 for the CDSC and/or tax withholding) that exceeds your
Annual Income Amount will be treated as Excess Income - thereby reducing your
Annual Income Amount in subsequent years.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Spousal
Highest Daily Lifetime Income v2.1 and subsequent to the first Lifetime
Withdrawal will (i) immediately increase the then-existing Annual Income
Amount by an amount equal to a percentage of the Purchase Payment based on the
age of the younger designated life at the time of the first Lifetime Withdrawal
61
(the percentages are: 2.5% for ages 50 to 54; 3% for ages 55 to less than
591/2; 3.5% for ages 591/2 to 64; 4% for ages 65 to 69; 4.5% for ages 70 to
84; and 5.5% for ages 85 or older), and (ii) increase the Protected Withdrawal
Value by the amount of the Purchase Payment.
While Spousal Highest Daily Lifetime Income v2.1 is in effect, we may limit,
restrict, suspend or reject any additional Purchase Payment at any time, but
would do so on a non-discriminatory basis. Circumstances where we may limit,
restrict, suspend or reject additional Purchase Payments include, but are not
limited to, the following:
.. if we determine that, as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Spousal Highest Daily Lifetime Income v2.1 benefit. This means
that you may no longer be able to increase the values associated with your
Spousal Highest Daily Lifetime Income v2.1 benefit through additional Purchase
Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity, in a non-discriminatory manner.
Highest Daily Auto Step-Up
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of this
benefit. As detailed in this paragraph, the Highest Daily Auto Step-Up feature
can result in a larger Annual Income Amount subsequent to your first Lifetime
Withdrawal. The Highest Daily Step-Up starts with the anniversary of the Issue
Date of the Annuity (the "Annuity Anniversary") immediately after your first
Lifetime Withdrawal under the benefit. Specifically, upon the first such
Annuity Anniversary, we identify the Unadjusted Account Value on each
Valuation Day within the immediately preceding Annuity Year after your first
Lifetime Withdrawal. Having identified the highest daily value (after all
daily values have been adjusted for subsequent Purchase Payments and
withdrawals), we then multiply that value by a percentage that varies based on
the age of the younger designated life on the Annuity Anniversary as of which
the step-up would occur. The percentages are 2.5% for ages 50 to 54; 3% for
ages 55 to less than 591/2; 3.5% for ages 591/2 to 64; 4% for ages 65 to 69;
4.5% for ages 70 to 84; and 5.5% for ages 85 or older. If that value exceeds
the existing Annual Income Amount, we replace the existing amount with the
new, higher amount. Otherwise, we leave the existing Annual Income Amount
intact. We will not automatically increase your Annual Income Amount solely as
a result of your attaining a new age that is associated with a new age-based
percentage. The Unadjusted Account Value on the Annuity Anniversary is
considered the last daily step-up value of the Annuity Year. In later years
(i.e., after the first Annuity Anniversary after the first Lifetime
Withdrawal), we determine whether an automatic step-up should occur on each
Annuity Anniversary by performing a similar examination of the Unadjusted
Account Values that occurred on Valuation Days during the year. Taking
Lifetime Withdrawals could produce a greater difference between your Protected
Withdrawal Value and your Unadjusted Account Value, which may make a Highest
Daily Auto Step-up less likely to occur. At the time that we increase your
Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the date that we implement a Highest Daily Auto Step-Up to your Annual
Income Amount, the charge for Spousal Highest Daily Lifetime Income v2.1 has
changed for new purchasers, you may be subject to the new charge at the time
of such step-up. Prior to increasing your charge for Spousal Highest Daily
Lifetime Income v2.1 upon a step-up, we would notify you, and give you the
opportunity to cancel the automatic step-up feature. If you receive notice of
a proposed step-up and accompanying fee increase, you should carefully
evaluate whether the amount of the step-up justifies the increased fee to
which you will be subject. Any such increased charge will not be greater than
the maximum charge set forth in the table entitled "Your Optional Benefit Fees
and Charges".
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Spousal Highest Daily Lifetime Income v2.1 does not affect your ability to
take withdrawals under your Annuity, or limit your ability to take partial
withdrawals that exceed the Annual Income Amount. Under Spousal Highest Daily
Lifetime Income v2.1, if your cumulative Lifetime Withdrawals in an Annuity
Year are less than or equal to the Annual Income Amount, they will not reduce
your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year. If, cumulatively, you withdraw an amount less than the
Annual Income Amount in any Annuity Year, you cannot carry over the unused
portion of the Annual Income Amount to subsequent Annuity Years. If your
cumulative Lifetime Withdrawals in an Annuity Year exceed the Annual Income
Amount, your Annual Income Amount in subsequent years will be reduced (except
with regard to Required Minimum Distributions for this Annuity that comply
with our rules).
62
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Spousal Highest Daily
Lifetime Income v2.1 or any other fees and charges under the Annuity. Assume
the following for all three examples:
.. The Issue Date is November 1
.. Spousal Highest Daily Lifetime Income v2.1 is elected on August 1 of the
following calendar year
.. Both designated lives were 70 years old when they elected Spousal Highest
Daily Lifetime Income v2.1
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
Example of dollar-for-dollar reductions
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $5,400 (since the younger designated life is between
the ages of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual
Income Amount is 4.5% of the Protected Withdrawal Value, in this case 4.5% of
$120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the
remaining Annual Income Amount for that Annuity Year (up to and including
October 31) is $2,900. This is the result of a dollar-for-dollar reduction of
the Annual Income Amount ($5,400 less $2,500 = $2,900).
Example of Proportional Reductions
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $2,900 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $2,100 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there were other
withdrawals in that Annuity Year, each would result in another proportional
reduction to the Annual Income Amount).
Here is the calculation:
Example of highest daily auto step-up
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
younger designated life's age on that Annuity Anniversary) of the highest
daily value since your first Lifetime Withdrawal (or last Annuity Anniversary
in subsequent years), adjusted for withdrawals and additional Purchase
Payments, is greater than the Annual Income Amount, adjusted for Excess Income
and additional Purchase Payments.
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $5,400. However, the Excess Income on October 29 reduces the
amount to $5,301.72 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 4.5% (since the younger
designated life is between 70 and 84 on the date of the potential step-up) of
the highest daily Unadjusted Account Value adjusted for withdrawals and
Purchase Payments, is greater than $5,301.72. Here are the calculations for
determining the daily values. Only the October 28 value is being adjusted for
Excess Income as the October 30, October 31 and November 1 Valuation Days
occur after the Excess Income on October 29.
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* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be every day following the Annuity
Anniversary. The Annuity Anniversary Date of November 1 is considered the
final Valuation Date for the Annuity Year.
** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,355.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $2,900 ($2,900 is the remaining Annual Income
Amount for the Annuity Year), resulting in an Unadjusted Account Value
of $116,100 before the Excess Income.
. This amount ($116,100) is further reduced by 1.82% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.98.
. The adjusted October 29 Highest Daily Value, $113,986.98, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.98 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.98 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.98
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 4.5%, generating
an Annual Income Amount of $5,355.00. Since this amount is greater than the
current year's Annual Income Amount of $5,301.72 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,355.00.
Non-Lifetime Withdrawal Feature
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Spousal Highest Daily Lifetime Income v2.1. It is an optional feature of
the benefit that you can only elect at the time of your first withdrawal. You
cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders - Surrender Value"). This
Non-Lifetime Withdrawal will not establish your initial Annual Income Amount
and the Periodic Value above will continue to be calculated. However, the
total amount of the withdrawal will proportionally reduce all guarantees
associated with Spousal Highest Daily Lifetime Income v2.1. You must tell us
at the time you take the partial withdrawal if your withdrawal is intended to
be the Non-Lifetime Withdrawal and not the first Lifetime Withdrawal under
Spousal Highest Daily Lifetime Income v2.1. If you don't elect the
Non-Lifetime Withdrawal, the first withdrawal you make will be the first
Lifetime Withdrawal that establishes your Annual Income Amount, which is based
on your Protected Withdrawal Value. Once you elect the Non-Lifetime Withdrawal
or Lifetime Withdrawals, no additional Non-Lifetime Withdrawals may be taken.
If you do not take a Non-Lifetime Withdrawal before beginning Lifetime
Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value by the percentage the total withdrawal amount (including any
applicable CDSC) represents of the then current Account Value immediately
prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
Example - Non-Lifetime Withdrawal (proportional reduction)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit. Assume the following:
.. The Issue Date is December 3
.. Spousal Highest Daily Lifetime Income v2.1 is elected on September 4 of the
following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. Each designated life was 70 years old when he/she elected Spousal Highest
Daily Lifetime Income v2.1
.. No previous withdrawals have been taken under Spousal Highest Daily
Lifetime Income v2.1
On October 3 of the same year the benefit is elected, the Protected Withdrawal
Value is $125,000 and the Account Value is $120,000. Assuming $15,000 is
withdrawn from the Annuity on that same October 3 and is designated as a
Non-Lifetime Withdrawal, all guarantees associated with Spousal Highest Daily
Lifetime Income v2.1 will be reduced by the ratio the total withdrawal amount
represents of the Account Value just prior to the withdrawal being taken.
Here is the calculation:
64
Required Minimum Distributions
See the sub-section entitled "Required Minimum Distributions" in the
prospectus section above concerning Highest Daily Lifetime Income v2.1 for a
discussion of the relationship between the RMD amount and the Annual Income
Amount.
Benefits Under Spousal Highest Daily Lifetime Income v2.1
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and amounts are still payable
under Spousal Highest Daily Lifetime Income v2.1, we will make an
additional payment, if any, for that Annuity Year equal to the remaining
Annual Income Amount for the Annuity Year. Thus, in that scenario, the
remaining Annual Income Amount would be payable even though your Unadjusted
Account Value was reduced to zero. In subsequent Annuity Years we make
payments that equal the Annual Income Amount as described in this section.
We will make payments until the death of the first of the designated lives
to die, and will continue to make payments until the death of the second
designated life as long as the designated lives were spouses at the time of
the first death. After the Unadjusted Account Value is reduced to zero, you
are not permitted to make additional Purchase Payments to your Annuity. To
the extent that cumulative withdrawals in the Annuity Year that reduced
your Unadjusted Account Value to zero are more than the Annual Income
Amount, Spousal Highest Daily Lifetime Income v2.1 terminates, and no
additional payments will be permitted. However, if a partial withdrawal in
the latter scenario was taken to satisfy a Required Minimum Distribution
(as described above) under the Annuity then the benefit will not terminate,
and we will continue to pay the Annual Income Amount in subsequent Annuity
Years until the death of the second designated life provided the designated
lives were spouses at the death of the first designated life.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments. Also, any Death Benefit will terminate if
withdrawals reduce your Unadjusted Account Value to zero. This means that
any Death Benefit is terminated and no Death Benefit is payable if your
Unadjusted Account Value is reduced to zero as the result of either a
withdrawal in excess of your Annual Income Amount or less than or equal to,
your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable state
required premium tax, to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. We will
make payments until the first of the designated lives to die, and
will continue to make payments until the death of the second
designated life as long as the designated lives were spouses at the
time of the first death. If, due to death of a designated life or
divorce prior to annuitization, only a single designated life
remains, then annuity payments will be made as a life annuity for the
lifetime of the designated life. We must receive your request in a
form acceptable to us at our office. If applying your Unadjusted
Account Value, less any applicable tax charges, to our current life
only (or joint life, depending on the number of designated lives
remaining) annuity payment rates results in a higher annual payment,
we will give you the higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin,
we currently make annual annuity payments as a joint and survivor or single
(as applicable) life fixed annuity with eight payments certain, by applying
the greater of the annuity rates then currently available or the annuity
rates guaranteed in your Annuity. We reserve the right at any time to
increase or decrease the certain period in order to comply with the Code
(e.g., to shorten the period certain to match life expectancy under
applicable Internal Revenue Service tables). The amount that will be
applied to provide such annuity payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual
Income Amount as if you made your first Lifetime Withdrawal on the
date the annuity payments are to begin). Such present value will be
calculated using the greater of the joint and survivor or single (as
applicable) life fixed annuity rates then currently available or the
joint and survivor or single (as applicable) life fixed annuity rates
guaranteed in your Annuity; and
(2)the Unadjusted Account Value.
Other Important Considerations
.. Withdrawals under the Spousal Highest Daily Lifetime Income v2.1 benefit
are subject to all of the terms and conditions of the Annuity, including
any applicable CDSC for the Non-Lifetime Withdrawal as well as partial
withdrawals that exceed the Annual Income Amount. If you have an active
Systematic Withdrawal program running at the time you elect this benefit,
the first systematic withdrawal that processes after your election of the
benefit will be deemed a Lifetime Withdrawal. Withdrawals made while
Spousal Highest Daily Lifetime Income v2.1 is in effect will be treated,
for tax purposes, in the same way as any other withdrawals under the
Annuity. Any withdrawals made under the benefit will be taken pro rata from
the Sub-accounts (including the AST Investment Grade Bond Sub-account) and
the DCA MVA Options. If you have an active Systematic Withdrawal program
running at the time you elect this benefit, the program must withdraw funds
pro rata.
65
.. Any Lifetime Withdrawal that you take that is not a withdrawal of Excess
Income is not subject to a CDSC, even if the total amount of such
withdrawals in any Annuity Year exceeds the maximum Free Withdrawal amount.
Any Lifetime Withdrawal that is treated as Excess Income is subject to any
applicable CDSC, if the withdrawal is greater than the Free Withdrawal
amount. (See "Fees, Charges and Deductions - Contingent Deferred Sales
Charge ("CDSC")" and "Access to Account Value - Free Withdrawal Amounts.")
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolios appears in the prospectus
section entitled "Investment Options." In addition, you can find a copy of
the AST Investment Grade Bond Portfolio prospectus by going to
www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the predetermined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to Permitted Sub-accounts, or to
the requirements as to how you may allocate your Unadjusted Account Value
with this benefit, will apply to new elections of the benefit and may apply
to current participants in the benefit. To the extent that changes apply to
current participants in the benefit, they will apply only upon
re-allocation of Unadjusted Account Value, or upon addition of additional
Purchase Payments. That is, we will not require such current participants
to re-allocate Unadjusted Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Spousal Highest
Daily Lifetime Income v2.1 reduce your Unadjusted Account Value to zero.
This means that any Death Benefit is terminated and no Death Benefit is
payable if your Unadjusted Account Value is reduced to zero as the result
of either a withdrawal in excess of your Annual Income Amount or less than
or equal to, your Annual Income Amount. (See "Death Benefits" for more
information.)
.. The current charge for Spousal Highest Daily Lifetime Income v2.1 is 1.10%
annually of the greater of Unadjusted Account Value and Protected
Withdrawal Value. The maximum charge for Spousal Highest Daily Lifetime
Income v2.1 is 2.00% annually of the greater of the Unadjusted Account
Value and Protected Withdrawal Value. As discussed in "Highest Daily Auto
Step-Up" above, we may increase the fee upon a step-up under this benefit.
We deduct this charge on quarterly anniversaries of the benefit effective
date, based on the values on the last Valuation Day prior to the quarterly
anniversary. Thus, we deduct, on a quarterly basis, 0.275% of the greater
of the prior Valuation Day's Unadjusted Account Value, or the prior
Valuation Day's Protected Withdrawal Value. We deduct the fee pro rata from
each of your Sub-accounts, including the AST Investment Grade Bond
Sub-account. You will begin paying this charge as of the effective date of
the benefit even if you do not begin taking withdrawals for many years, or
ever. We will not refund the charges you have paid if you choose never to
take any withdrawals and/or if you never receive any lifetime income
payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the benefit is less than the
Account Value Floor, then no charge will be assessed for that benefit quarter.
Charges deducted upon termination of the benefit may cause the Unadjusted
Account Value to fall below the Account Value Floor. If a charge for Spousal
Highest Daily Lifetime Income v2.1 would be deducted on the same day we
process a withdrawal request, the charge will be deducted first, then the
withdrawal will be processed. The withdrawal could cause the Unadjusted
Account Value to fall below the Account Value Floor. While the deduction of
the charge (other than the final charge) may not reduce the Unadjusted Account
Value to zero, withdrawals may reduce the Unadjusted Account Value to zero. If
this happens and the Annual Income Amount is greater than zero, we will make
payments under the benefit.
Election of and Designations under the Benefit
Spousal Highest Daily Lifetime Income v2.1 can only be elected based on two
designated lives. Designated lives must be natural persons who are each
other's spouses at the time of election of the benefit and at the death of the
first of the designated lives to die.
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Currently, Spousal Highest Daily Lifetime Income v2.1 only may be elected if
the Owner, Annuitant, and Beneficiary designations are as follows:
.. One Annuity Owner, where the Annuitant and the Owner are the same person
and the sole Beneficiary is the Owner's spouse. Each Owner/Annuitant and
the Beneficiary must be at least 50 years old at the time of election; or
.. Co-Annuity Owners, where the Owners are each other's spouses. The
Beneficiary designation must be the surviving spouse, or the spouses named
equally. One of the Owners must be the Annuitant. Each Owner must be at
least 50 years old at the time of election; or
.. One Annuity Owner, where the Owner is a custodial account established to
hold retirement assets for the benefit of the Annuitant pursuant to the
provisions of Section 408(a) of the Internal Revenue Code (or any successor
Code section thereto) ("Custodial Account"), the Beneficiary is the
Custodial Account, and the spouse of the Annuitant is the Contingent
Annuitant. Each of the Annuitant and the Contingent Annuitant must be at
least 50 years old at the time of election.
We do not permit a change of Owner under this benefit, except as follows:
(a) if one Owner dies and the surviving spousal Owner assumes the Annuity, or
(b) if the Annuity initially is co-owned, but thereafter the Owner who is not
the Annuitant is removed as Owner. We permit changes of Beneficiary
designations under this benefit. However, if the Beneficiary is changed, the
benefit may not be eligible to be continued upon the death of the first
designated life. If the designated lives divorce, Spousal Highest Daily
Lifetime Income v2.1 may not be divided as part of the divorce settlement or
judgment. Nor may the divorcing spouse who retains ownership of the Annuity
appoint a new designated life upon re-marriage. A change in designated lives
will result in cancellation of Spousal Highest Daily Lifetime Income v2.1.
Spousal Highest Daily Lifetime Income v2.1 can be elected at the time that you
purchase your Annuity or after the Issue Date, subject to its availability,
and our eligibility rules and restrictions. If you elect Spousal Highest Daily
Lifetime Income v2.1 and terminate it, you can re-elect it, subject to our
current rules and availability. See "Termination of Existing Benefits and
Election of New Benefits" for information pertaining to elections, termination
and re-election of benefits. Please note that if you terminate a living
benefit and elect Spousal Highest Daily Lifetime Income v2.1, you lose the
guarantees that you had accumulated under your existing benefit, and your
guarantees under Spousal Highest Daily Lifetime Income v2.1 will be based on
your Unadjusted Account Value on the effective date of Spousal Highest Daily
Lifetime Income v2.1. You and your Financial Professional should carefully
consider whether terminating your existing benefit and electing Spousal
Highest Daily Lifetime Income v2.1 is appropriate for you. We reserve the
right to waive, change and/or further limit the election frequency in the
future for new elections of this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Spousal Highest Daily Lifetime Income v2.1 so long as you
participate in a Systematic Withdrawal program in which withdrawals are not
taken pro rata.
Termination of the Benefit
You may terminate the benefit at any time by notifying us. If you terminate
the benefit, any guarantee provided by the benefit will terminate as of the
date the termination is effective, and certain restrictions on re-election may
apply.
The benefit automatically terminates upon the first to occur of the following:
(i) upon our receipt of Due Proof of Death of the first designated life, if
the surviving spouse opts to take the death benefit under the Annuity
(rather than continue the Annuity) or if the surviving spouse is not an
eligible designated life;
(ii)upon the death of the second designated life;
(iii)your termination of the benefit;
(iv)your surrender of the Annuity;
(v) your election to begin receiving annuity payments (although if you have
elected to take annuity payments in the form of the Annual Income Amount,
we will continue to pay the Annual Income Amount);
(vi)both the Unadjusted Account Value and Annual Income Amount equal zero due
to a withdrawal of Excess Income;
(vii)you allocate or transfer any portion of your Account Value to any
Sub-account(s) to which you are not permitted to electively allocate or
transfer Account Value (may vary by state);* or
(viii)you cease to meet our requirements as described in "Election of and
Designations under the Benefit".
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
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Upon termination of Spousal Highest Daily Lifetime Income v2.1 other than upon
the death of the second Designated Life or Annuitization, we impose any
accrued fee for the benefit (i.e., the fee for the pro-rated portion of the
year since the fee was last assessed), and thereafter we cease deducting the
charge for the benefit. This final charge will be deducted even if it results
in the Unadjusted Account Value falling below the Account Value Floor.
However, if the amount in the Sub-accounts is not enough to pay the charge, we
will reduce the fee to no more than the amount in the Sub-accounts. With
regard to your investment allocations, upon termination we will: (i) leave
intact amounts that are held in the Permitted Sub-accounts, and (ii) unless
you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
How Spousal Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account
Value Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account
See "How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account" in the discussion of Highest Daily Lifetime Income v2.1 above for
information regarding this component of the benefit.
Additional Tax Considerations
Please see the Additional Tax Considerations section under Highest Daily
Lifetime Income v2.1 above.
HIGHEST DAILY LIFETIME INCOME v2.1 WITH HIGHEST DAILY DEATH BENEFIT
Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit ("HD DB")
is a lifetime guaranteed minimum withdrawal benefit, under which, subject to
the terms of the benefit, we guarantee your ability to take a certain annual
withdrawal amount for life. This benefit also provides for a highest daily
death benefit, subject to the terms of the benefit. This version is only being
offered in those jurisdictions where we have received regulatory approval and
will be offered subsequently in other jurisdictions when we receive regulatory
approval in those jurisdictions. We reserve the right, in our sole discretion,
to cease offering this benefit for new elections, at any time.
We offer a benefit that guarantees until the death of the single designated
life (the Annuitant) the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial value (the "Protected
Withdrawal Value") regardless of the impact of Sub-account performance on the
Unadjusted Account Value, subject to our rules regarding the timing and amount
of withdrawals. You are guaranteed to be able to withdraw the Annual Income
Amount for the rest of your life provided that you do not take withdrawals of
Excess Income that result in your Unadjusted Account Value being reduced to
zero. We also permit you to designate the first withdrawal from your Annuity
as a one-time "Non-Lifetime Withdrawal". All other partial withdrawals from
your Annuity are considered a "Lifetime Withdrawal" under the benefit.
Withdrawals are taken first from your own Account Value. We are only required
to begin making lifetime income payments to you under our guarantee when and
if your Unadjusted Account Value is reduced to zero (for any reason other than
due to partial withdrawals of Excess Income) ("Guarantee Payments"). Highest
Daily Lifetime Income v2.1 with HD DB may be appropriate if you intend to make
periodic withdrawals from your Annuity, and wish to ensure that Sub-account
performance will not affect your ability to receive annual payments, and also
wish to provide a death benefit to your beneficiaries. You are not required to
take withdrawals as part of the benefit - the guarantees are not lost if you
withdraw less than the maximum allowable amount each year under the rules of
the benefit. An integral component of Highest Daily Lifetime Income v2.1 with
HD DB is the predetermined mathematical formula we employ that may
periodically transfer your Unadjusted Account Value to and from the AST
Investment Grade Bond Sub-account. See the section above entitled "How Highest
Daily Lifetime Income v2.1 Transfers Unadjusted Account Value Between Your
Permitted Sub-accounts and the AST Investment Grade Bond Sub-account."
Highest Daily Lifetime Income v2.1 is offered with or without the HD DB
component; however, you may only elect HD DB with Highest Daily Lifetime
Income v2.1, and you must elect the HD DB benefit at the time you elect
Highest Daily Lifetime Income v2.1. If you elect Highest Daily Lifetime Income
v2.1 without HD DB and would like to add the feature later, you must first
terminate Highest Daily Lifetime Income v2.1 and elect Highest Daily Lifetime
Income v2.1 with HD DB (subject to availability and benefit re-election
provisions). Please note that if you terminate Highest Daily Lifetime Income
v2.1 and elect Highest Daily Lifetime Income v2.1 with HD DB you lose the
guarantees that you had accumulated under your existing benefit and will begin
the new guarantees under the new benefit you elect based on your Unadjusted
Account Value as of the date the new benefit becomes active. Highest Daily
Lifetime Income v2.1 with HD DB is offered as an alternative to other lifetime
withdrawal options. If you elect this benefit, it may not be combined with any
other optional living or death benefit.
The income benefit under Highest Daily Lifetime Income v2.1 with HD DB
currently is based on a single "designated life" who is between the ages of 50
and 79 on the date that the benefit is elected and received in Good Order. As
long as your Highest Daily Lifetime Income v2.1 with HD DB is in effect, you
must allocate your Unadjusted Account Value in accordance with the permitted
Sub-accounts and other Investment Option(s) available with this benefit. For a
more detailed description of the permitted Investment Options, see the
"Investment Options" section.
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Although you are guaranteed the ability to withdraw your Annual Income Amount
for life even if your Unadjusted Account Value falls to zero, if that
particular withdrawal of Excess Income (described below) brings your
Unadjusted Account Value to zero, your Annual Income Amount also would fall to
zero, and the benefit and the Annuity then would terminate. In that scenario,
no further amount would be payable under Highest Daily Lifetime Income v2.1
with HD DB (including no payment of the Highest Daily Death Benefit Amount).
As to the impact of such a scenario on any other optional benefit, please see
the following sections in this prospectus: "Highest Daily Lifetime Income v2.1
Benefit", "Spousal Highest Daily Lifetime Income v2.1 Benefit" and "Spousal
Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit". You may
also participate in the 6 or 12 Month DCA Program if you elect Highest Daily
Lifetime Income v2.1 with HD DB, subject to the 6 or 12 Month DCA Program's
rules. See the section of this prospectus entitled "6 or 12 Month Dollar Cost
Averaging Program" for details.
Key Feature - Protected Withdrawal Value
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter, until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraphs.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value on or before the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment made on the Current
Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value after the Roll-Up End Date
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments and reduced for subsequent Lifetime Withdrawals (see the
examples that begin immediately prior to the sub-heading below entitled
"Example of dollar-for-dollar reductions").
Please note that if you elect Highest Daily Lifetime Income v2.1 with HD DB,
your Account Value is not guaranteed, can fluctuate and may lose value.
Key Feature - Annual Income Amount under Highest Daily Lifetime Income v2.1
with HD DB.
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the Annuitant on the date of the first Lifetime Withdrawal. The
percentages are: 3% for ages 50 to 54; 3.5% for ages 55 to less than 59 1/2;
4% for ages 59 1/2 to 64; 4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6%
for ages 85 or older. Under Highest Daily Lifetime Income v2.1 with HD DB, if
your cumulative Lifetime Withdrawals in an Annuity Year are less than or equal
to the Annual Income Amount, they will not reduce your Annual Income Amount in
subsequent Annuity Years, but any such withdrawals will reduce the Annual
Income Amount on a dollar-for-dollar basis in that Annuity Year and also will
reduce the Protected Withdrawal Value on a dollar-for-dollar basis. If your
cumulative Lifetime Withdrawals in an Annuity Year are in excess of the Annual
Income Amount ("Excess Income"), your Annual Income Amount in subsequent years
will be reduced (except with regard to Required Minimum Distributions for this
Annuity that comply with our rules) by the result of the ratio of the Excess
Income to the Account Value immediately prior to such withdrawal (see examples
of this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
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As discussed in this paragraph, when you make a partial withdrawal that is
subject to a CDSC and/or tax withholding, we will identify the amount that
includes not only the amount you actually receive, but also the amount of the
CDSC and/or tax withholding, to determine whether your withdrawal has exceeded
the Annual Income Amount. When you take a partial withdrawal, you may request
a "gross" withdrawal amount (e.g., $2,000) but then have any CDSC and/or tax
withholding deducted from the amount you actually receive (although an MVA may
also be applied to your remaining Unadjusted Account Value, it is not
considered for purposes of determining Excess Income). The portion of a
withdrawal that exceeded your Annual Income Amount (if any) would be treated
as Excess Income and thus would reduce your Annual Income Amount in subsequent
years. Alternatively, you may request that a "net" withdrawal amount actually
be paid to you (e.g., $2,000), with the understanding that any CDSC and/or tax
withholding (e.g., $240) be applied to your remaining Unadjusted Account Value
(although an MVA may also be applied to your remaining Unadjusted Account
Value, it is not considered for purposes of determining Excess Income). In the
latter scenario, we determine whether any portion of the withdrawal is to be
treated as Excess Income by looking to the sum of the net amount you actually
receive (e.g., $2,000) and the amount of any CDSC and/or tax withholding (in
this example, a total of $2,240). The amount of that sum (e.g., the $2,000 you
received plus the $240 for the CDSC and/or tax withholding) that exceeds your
Annual Income Amount will be treated as Excess Income - thereby reducing your
Annual Income Amount in subsequent years.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Highest Daily
Lifetime Income v2.1 with HD DB and subsequent to the first Lifetime
Withdrawal will (i) immediately increase the then-existing Annual Income
Amount by an amount equal to a percentage of the Purchase Payment based on the
age of the Annuitant at the time of the first Lifetime Withdrawal (the
percentages are: 3% for ages 50 to 54; 3.5% for ages 55 to less than 591/2; 4%
for ages 591/2 to 64; 4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for
ages 85 or older) and (ii) increase the Protected Withdrawal Value by the
amount of the Purchase Payment.
After your first Lifetime Withdrawal and before your Unadjusted Account Value
is reduced to zero, you may make additional Purchase Payments, subject to the
limits in the next paragraph. We reserve the right not to accept additional
Purchase Payments if the Unadjusted Account Value becomes zero.
While Highest Daily Lifetime Income v2.1 with HD DB is in effect, we may
limit, restrict, suspend or reject any additional Purchase Payment at any
time, but would do so on a non-discriminatory basis. Circumstances where we
may limit, restrict, suspend or reject additional Purchase Payments include,
but are not limited to the following:
.. if we determine that, as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new-issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Highest Daily Lifetime Income v2.1 with HD DB. This means that
you may no longer be able to increase the values associated with your Highest
Daily Lifetime Income v2.1 with HD DB through additional Purchase Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity, in a non-discriminatory manner.
Highest Daily Auto Step-Up
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of Highest
Daily Lifetime Income v2.1 with HD DB. As detailed in this paragraph, the
Highest Daily Auto Step-Up feature can result in a larger Annual Income Amount
subsequent to your first Lifetime Withdrawal. The Highest Daily Auto Step-Up
starts with the anniversary of the Issue Date of the Annuity (the "Annuity
Anniversary") immediately after your first Lifetime Withdrawal under the
benefit. Specifically, upon the first such Annuity Anniversary, we identify
the Unadjusted Account Value on each Valuation Day within the immediately
preceding Annuity Year after your first Lifetime Withdrawal. Having identified
the highest daily value (after all daily values have been adjusted for
subsequent Purchase Payments and withdrawals), we then multiply that value by
a percentage that varies based on the age of the Annuitant on the Annuity
Anniversary as of which the step-up would occur. The percentages are: 3% for
ages 50 to 54; 3.5% for ages 55 to less than 591/2; 4% for ages 591/2 to 64;
4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for ages 85 or older. If
that value exceeds the existing Annual Income Amount, we replace the existing
amount with the new, higher amount. Otherwise, we leave the existing Annual
Income Amount intact. We will not automatically increase your Annual Income
Amount solely as a result of your attaining a new age that is associated with
a new age-based percentage. The Unadjusted Account Value on the Annuity
Anniversary is considered the last daily step-up value of the Annuity Year.
All daily valuations and annual step-ups
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will only occur on a Valuation Day. In later years (i.e., after the first
Annuity Anniversary after the first Lifetime Withdrawal), we determine whether
an automatic step-up should occur on each Annuity Anniversary, by performing a
similar examination of the Unadjusted Account Values that occurred on
Valuation Days during the year. Taking Lifetime Withdrawals could produce a
greater difference between your Protected Withdrawal Value and your Unadjusted
Account Value, which may make a Highest Daily Auto Step-up less likely to
occur. At the time that we increase your Annual Income Amount, we also
increase your Protected Withdrawal Value to equal the highest daily value upon
which your step-up was based only if that results in an increase to the
Protected Withdrawal Value. Your Protected Withdrawal Value will never be
decreased as a result of an income step-up. If, on the date that we implement
a Highest Daily Auto Step-Up to your Annual Income Amount, the charge for
Highest Daily Lifetime Income v2.1 with HD DB has changed for new purchasers,
you may be subject to the new charge at the time of such step-up. Prior to
increasing your charge for Highest Daily Lifetime Income v2.1 with HD DB upon
a step-up, we would notify you, and give you the opportunity to cancel the
automatic step-up feature. If you receive notice of a proposed step-up and
accompanying fee increase, you should consult with your Financial Professional
and carefully evaluate whether the amount of the step-up justifies the
increased fee to which you will be subject. Any such increased charge will not
be greater than the maximum charge set forth in the table entitled "Your
Optional Benefit Fees and Charges."
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Highest Daily Lifetime Income v2.1 with HD DB does not affect your ability to
take partial withdrawals under your Annuity, or limit your ability to take
partial withdrawals that exceed the Annual Income Amount. Under Highest Daily
Lifetime Income v2.1 with HD DB, if your cumulative Lifetime Withdrawals in an
Annuity Year are less than or equal to the Annual Income Amount, they will not
reduce your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year. If your cumulative Lifetime Withdrawals in any Annuity
Year are less than the Annual Income Amount, you cannot carry over the unused
portion of the Annual Income Amount to subsequent Annuity Years. If your
cumulative Lifetime Withdrawals in an Annuity Year exceed the Annual Income
Amount, your Annual Income Amount in subsequent years will be reduced (except
with regard to Required Minimum Distributions for this Annuity that comply
with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Highest Daily Lifetime
Income v2.1 with HD DB or any other fees and charges under the Annuity. Assume
the following for all three examples:
.. The Issue Date is November 1
.. Highest Daily Lifetime Income v2.1 with HD DB is elected on August 1 of the
following calendar year
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1 with HD DB
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
Example of dollar-for-dollar reductions
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $6,000 (since the designated life is between the ages
of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual Income
Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000).
The Highest Daily Death Benefit Amount is $115,420. Assuming $2,500 is
withdrawn from the Annuity on this date, the remaining Annual Income Amount
for that Annuity Year (up to and including October 31) is $3,500. This is the
result of a dollar-for-dollar reduction of the Annual Income Amount ($6,000
less $2,500 = $3,500) and the Highest Daily Death Benefit Amount ($115,420
less $2,500 = $112,920).
Example of proportional reductions
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $3,500 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $1,500 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there are other
future withdrawals in that Annuity Year, each would result in another
proportional reduction to the Annual Income Amount).
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Here is the calculation:
Example of highest daily auto step-up
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
Annuitant's age on that Annuity Anniversary) of the highest daily value since
your first Lifetime Withdrawal (or last Annuity Anniversary in subsequent
years), adjusted for withdrawals and additional Purchase Payments, is greater
than the Annual Income Amount, adjusted for Excess Income and additional
Purchase Payments.
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $6,000. However, the Excess Income on October 29 reduces the
amount to $5,921.40 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 5% (since the designated life
is between 70 and 84 on the date of the potential step-up) of the highest
daily Unadjusted Account Value, adjusted for withdrawals and Purchase
Payments, is greater than $5,921.40. Here are the calculations for determining
the daily values. Only the October 28 value is being adjusted for Excess
Income as the October 30, October 31, and November 1 Valuation Days occur
after the Excess Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be the Annuity Anniversary and every day
following the Annuity Anniversary. The Annuity Anniversary Date of
November 1 is considered the first Valuation Date in the Annuity Year.
** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,950.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income
Amount for the Annuity Year), resulting in Unadjusted Account Value of
$115,500 before the Excess Income.
. This amount ($115,500) is further reduced by 1.31% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.95.
. The adjusted October 29 Highest Daily Value, $113,986.95, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.95 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.95 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.95
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 5%, generating
an Annual Income Amount of $5,950.00. Since this amount is greater than the
current year's Annual Income Amount of $5,921.40 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,950.00.
Non-Lifetime Withdrawal Feature
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Highest Daily Lifetime Income v2.1 with HD DB. It is an optional feature
of the benefit that you can only elect at the time of your first withdrawal.
You cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders - Surrender Value"). This
Non-Lifetime Withdrawal will not establish your initial Annual Income Amount
and the Periodic Value described above will continue to be calculated.
However, the total amount of the withdrawal will proportionally reduce all
guarantees associated with Highest Daily Lifetime Income v2.1 with HD DB. You
must tell us at the time you take the withdrawal if your withdrawal is
intended to be the Non-Lifetime Withdrawal and not the first Lifetime
Withdrawal under Highest Daily Lifetime Income v2.1 with HD DB. If you don't
elect the Non-Lifetime Withdrawal, the first withdrawal you make will be the
first Lifetime Withdrawal that establishes your Annual Income Amount, which is
based on
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your Protected Withdrawal Value. Once you elect to take the Non-Lifetime
Withdrawal or Lifetime Withdrawals, no additional Non-Lifetime Withdrawals may
be taken. If you do not take a Non-Lifetime Withdrawal before beginning
Lifetime Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value. It will also proportionally reduce the Highest Daily Death
Benefit Amount. It will reduce each value by the percentage the total
withdrawal amount (including any applicable CDSC) represents of the then
current Account Value immediately prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
Example - Non-Lifetime Withdrawal (proportional reduction)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit.
Assume the following:
.. The Issue Date is December 3
.. Highest Daily Lifetime Income v2.1 with HD DB is elected on September 4 of
the following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1 with HD DB
.. No previous withdrawals have been taken under Highest Daily Lifetime Income
v2.1 with HD DB
On October 3 of the year the benefit is elected, the Protected Withdrawal
Value is $125,000, the Highest Daily Death Benefit Amount is $115,420, and the
Account Value is $120,000. Assuming $15,000 is withdrawn from the Annuity on
that same October 3 and is designated as a Non-Lifetime Withdrawal, all
guarantees associated with Highest Daily Lifetime Income v2.1 with HD DB will
be reduced by the ratio the total withdrawal amount represents of the Account
Value just prior to the withdrawal being taken.
Here is the calculation:
Required Minimum Distributions
Required Minimum Distributions ("RMD") for this Annuity must be taken by
April 1st in the year following the date you turn age 70 1/2 and by
December 31st for subsequent calendar years. If the annual RMD amount is
greater than the Annual Income Amount, a withdrawal of the RMD amount will not
be treated as a withdrawal of Excess Income, as long as the RMD amount is
calculated by us for this Annuity and administered under a program we support
each calendar year. If you are not participating in an RMD withdrawal program
each calendar year, you can alternatively satisfy the RMD amount without it
being treated as a withdrawal of Excess Income.
The following rules apply to determine if any portion of an RMD amount will be
treated as Excess Income.
For purposes of this provision, in relation to any Annuity Year, the "Second
Calendar Year" is the calendar year following the calendar year in which the
Annuity Year began.
In general, withdrawals made from the Annuity during an Annuity Year to meet
the RMD provisions of the Code will not be treated as Excess Income. However,
if in any Annuity Year, you take a Lifetime Withdrawal in the Second Calendar
Year, then the amount which will not be treated as Excess Income is the
greater of:
(1)the remaining Annual Income Amount for that Annuity Year, and
(2)the difference between the Second Calendar Year's remaining RMD amount and
the Annual Income Amount.
Any remaining RMD amount for the Second Calendar Year can be taken in the
following Annuity Year.
If, in any Annuity Year, your RMD amount is not greater than the Annual Income
Amount, any withdrawals in excess of the Annual Income Amount will be treated
as Excess Income.
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Please see hypothetical examples below for details.
If you do not comply with the rules described above, any withdrawal that
exceeds the Annual Income Amount will be treated as a withdrawal of Excess
Income, which will reduce your Annual Income Amount in future Annuity Years.
This may include situations where you comply with the rules outlined above and
then decide to take additional withdrawals after satisfying your RMD
requirement from the Annuity.
We will assume your first withdrawal under the benefit is a Lifetime
Withdrawal unless you designated the withdrawal as a Non-Lifetime Withdrawal.
Example
The following example is purely hypothetical and intended to illustrate a
scenario as described above. Note that withdrawals must comply with all IRS
guidelines in order to satisfy the RMD for the current calendar year.
Assumptions:
RMD Calendar Year
01/01/2013 to 12/31/2013
Annuity Year
06/01/2012 to 05/31/2013
Annual Income Amount and RMD Amount
Annual Income Amount = $5,000
Remaining Annual Income Amount as of 1/3/2013 = $3,000 (a $2,000 withdrawal
was taken on 7/1/2012)
RMD Amount for Calendar Year 2013 = $6,000
The amount you may withdraw in the current Annuity Year (between 1/3/2013 and
5/31/2013) without it being treated as Excess Income is $4,000. Here is the
calculation: $3,000 + ($6,000 - $5,000) = $4,000.
If the $4,000 withdrawal is taken in the current Annuity Year (prior to
6/1/2013), the remaining Annual Income Amount will be zero and the remaining
RMD amount of $2,000 may be taken in the subsequent Annuity Year beginning on
6/1/2013 (when your Annual Income Amount is reset to $5,000).
If you had chosen to not take any additional withdrawals until on or after
6/1/2013, then you would be eligible to withdraw $6,000 without it being
treated as a withdrawal of Excess Income.
Highest Daily Death Benefit
A Death Benefit is payable under Highest Daily Lifetime Income v2.1 with HD DB
(until we begin making Guarantee Payments under the benefit or annuity
payments have begun) upon the death of the Owner (Annuitant if entity owned),
also referred to as the "Single Designated Life", when we receive Due Proof of
Death. The Death Benefit is the greatest of: the Minimum Death Benefit
(described later in this prospectus) or the Highest Daily Death Benefit Amount
described below.
Highest Daily Death Benefit Amount:
On the date you elect Highest Daily Lifetime Income v2.1 with HD DB, the
Highest Daily Death Benefit Amount is equal to your Unadjusted Account Value.
On each subsequent Valuation Day, until the date of death of the decedent, the
Highest Daily Death Benefit Amount will be the greater of:
(1)The Unadjusted Account Value on the current Valuation Day; and
(2)The Highest Daily Death Benefit Amount of the immediately preceding
Valuation Day,
. increased by any Purchase Payments made on the current Valuation Day and,
. reduced by the effect of withdrawals made on the current Valuation Day,
as described below.
Please note that the Highest Daily Death Benefit Amount does not have any
guaranteed growth rate associated with it and therefore can be a different
amount than any of the guaranteed values associated with the living benefit
features of Highest Daily Lifetime Income v2.1 with HD DB.
A Non-Lifetime Withdrawal will proportionately reduce the Highest Daily Death
Benefit Amount by the ratio of the Non-Lifetime Withdrawal to the Account
Value immediately prior to the Non-Lifetime Withdrawal. A Lifetime Withdrawal
that is not considered Excess Income will reduce the Highest Daily Death
Benefit Amount (dollar-for-dollar) by the amount of the withdrawal. All or a
portion of a Lifetime Withdrawal that is considered Excess Income will
proportionately reduce the Highest Daily Death Benefit Amount by the ratio of
the Excess Income to the Account Value immediately prior to the withdrawal of
the Excess Income.
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The Highest Daily Death Benefit will be calculated on the date of death of the
decedent and will be:
.. increased by the amount of any additional Adjusted Purchase Payments, and
.. reduced by the effect of any withdrawals (as described in the preceding
paragraph),
made during the period between the decedent's date of death and the date we
receive Due Proof of Death.
Please note that the Highest Daily Death Benefit Amount is available only
until we make Guarantee Payments under Highest Daily Lifetime Income v2.1 with
HD DB or annuity payments begin. This means that any withdrawals that reduce
your Unadjusted Account Value to zero will also reduce the Highest Daily Death
Benefit Amount to zero.
All other provisions applicable to Death Benefits under your Annuity will
continue to apply. See the "Death Benefits" section of this prospectus for
more information pertaining to Death Benefits.
Benefits Under Highest Daily Lifetime Income v2.1 with HD DB
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and Guarantee Payments amounts
are still payable under Highest Daily Lifetime Income v2.1 with HD DB, we
will make an additional payment, if any, for that Annuity Year equal to the
remaining Annual Income Amount for the Annuity Year. Thus, in that
scenario, the remaining Annual Income Amount would be payable even though
your Unadjusted Account Value was reduced to zero. In subsequent Annuity
Years we make payments that equal the Annual Income Amount as described in
this section. We will make payments until the death of the single
designated life. After the Unadjusted Account Value is reduced to zero, you
will not be permitted to make additional Purchase Payments to your Annuity.
To the extent that cumulative partial withdrawals in the Annuity Year that
reduced your Unadjusted Account Value to zero are more than the Annual
Income Amount, Highest Daily Lifetime Income v2.1 with HD DB terminates,
and no additional payments are permitted.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments. Please note that if your Unadjusted Account
Value is reduced to zero due to withdrawals or annuitization, any Death
Benefit value, including that of the HD DB feature, will terminate. This
means that the HD DB is terminated and no Death Benefit is payable if your
Unadjusted Account Value is reduced to zero as the result of either a
withdrawal in excess of your Annual Income Amount or less than or equal to,
your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable tax charges,
to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. If this
option is elected, the Annual Income Amount will not increase after
annuity payments have begun. We will make payments until the death of
the single designated life. We must receive your request in a form
acceptable to us at our Service Office. If applying your Unadjusted
Account Value, less any applicable tax charges, to the life-only
annuity payment rates results in a higher annual payment, we will
give you the higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin
we currently make annual annuity payments in the form of a single life
fixed annuity with eight payments certain, by applying the greater of the
annuity rates then currently available or the annuity rates guaranteed in
your Annuity. We reserve the right at any time to increase or decrease the
period certain in order to comply with the Code (e.g., to shorten the
period certain to match life expectancy under applicable Internal Revenue
Service tables). The amount that will be applied to provide such annuity
payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual
Income Amount as if you made your first Lifetime Withdrawal on the
date the annuity payments are to begin). Such present value will be
calculated using the greater of the single life fixed annuity rates
then currently available or the single life fixed annuity rates
guaranteed in your Annuity; and
(2)the Unadjusted Account Value.
Other Important Considerations
.. Withdrawals under Highest Daily Lifetime Income v2.1 with HD DB are subject
to all of the terms and conditions of the Annuity, including any applicable
CDSC for the Non-Lifetime Withdrawal as well as partial withdrawals that
exceed the Annual Income Amount. If you have an active Systematic
Withdrawal program running at the time you elect this benefit, the first
systematic withdrawal that processes after your election of the benefit
will be deemed a Lifetime Withdrawal. Withdrawals made while Highest Daily
Lifetime Income v2.1 with HD DB is in effect will be treated, for tax
purposes, in the same way as any other withdrawals under the Annuity. Any
withdrawals made under the benefit will be taken pro rata from the
Sub-accounts (including the AST Investment Grade Bond Sub-account) and the
DCA MVA Options. If you have an active Systematic Withdrawal program
running at the time you elect this benefit, the program must withdraw funds
pro rata.
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.. Any Lifetime Withdrawal that you take that is not a withdrawal of Excess
Income is not subject to a CDSC, even if the total amount of such
withdrawals in any Annuity Year exceeds the maximum Free Withdrawal amount.
Any Lifetime Withdrawal that is treated as Excess Income is subject to any
applicable CDSC, if the withdrawal is greater than the Free Withdrawal
amount. (See "Fees, Charges and Deductions - Contingent Deferred Sales
Charge ("CDSC")" and "Access to Account Value - Free Withdrawal Amounts.")
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolio appears within the section
entitled "Investment Options." You can find a copy of the AST Investment
Grade Bond Portfolio prospectus by going to www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the predetermined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to the Permitted Sub-accounts, or
to the requirements as to how you may allocate your Account Value with this
benefit, will apply to new elections of the benefit and may apply to
current participants in the benefit. To the extent that changes apply to
current participants in the benefit, they will only apply upon
re-allocation of Account Value, or upon addition of subsequent Purchase
Payments. That is, we will not require such current participants to
re-allocate Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Highest Daily
Lifetime Income v2.1 with HD DB reduce your Unadjusted Account Value to
zero. This means that any Death Benefit, including the HD DB, will
terminate and no Death Benefit is payable if your Unadjusted Account Value
is reduced to zero as the result of either a withdrawal in excess of your
Annual Income Amount or less than or equal to, your Annual Income Amount.
(See "Death Benefits" for more information.)
.. The current charge for Highest Daily Lifetime Income v2.1 with HD DB is
1.50% annually of the greater of the Unadjusted Account Value and Protected
Withdrawal Value. The maximum charge for Highest Daily Lifetime Income v2.1
with HD DB is 2.00% annually of the greater of the Unadjusted Account Value
and Protected Withdrawal Value. As discussed in "Highest Daily Auto
Step-Up" above, we may increase the fee upon a step-up under this benefit.
We deduct this charge on quarterly anniversaries of the benefit effective
date, based on the values on the last Valuation Day prior to the quarterly
anniversary. Thus, we deduct, on a quarterly basis, 0.375% of the greater
of the prior Valuation Day's Unadjusted Account Value and the prior
Valuation Day's Protected Withdrawal Value. We deduct the fee pro rata from
each of your Sub-accounts, including the AST Investment Grade Bond
Sub-account. You will begin paying this charge as of the effective date of
the benefit even if you do not begin taking withdrawals for many years, or
ever. We will not refund the charges you have paid if you choose never to
take any withdrawals and/or if you never receive any lifetime income
payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the benefit is less than the
Account Value Floor, then no charge will be assessed for that benefit quarter.
Charges deducted upon termination of the benefit may cause the Unadjusted
Account Value to fall below the Account Value Floor. If a charge for Highest
Daily Lifetime Income v2.1 with HD DB would be deducted on the same day we
process a withdrawal request, the charge will be deducted first, then the
withdrawal will be processed. The withdrawal could cause the Unadjusted
Account Value to fall below the Account Value Floor. While the deduction of
the charge (other than the final charge) may not reduce the Unadjusted Account
Value to zero, partial withdrawals may reduce the Unadjusted Account Value to
zero. If this happens and the Annual Income Amount is greater than zero, we
will make payments under the benefit.
Election of and Designations under the Benefit
For Highest Daily Lifetime Income v2.1 with HD DB, there must be either a
single Owner who is the same as the Annuitant, or if the Annuity is entity
owned, there must be a single natural person Annuitant. In either case, the
Annuitant must be between 50 and 79 years old. Any change of the Annuitant
under the Annuity will result in cancellation of Highest Daily Lifetime Income
v2.1 with HD DB. Similarly, any change of Owner will result in cancellation of
Highest Daily Lifetime Income v2.1 with HD DB, except if (a) the
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new Owner has the same taxpayer identification number as the previous Owner,
(b) ownership is transferred from a custodian or other entity to the
Annuitant, or vice versa or (c) ownership is transferred from one entity to
another entity that satisfies our administrative ownership guidelines.
Highest Daily Lifetime Income v2.1 with HD DB can be elected at the time that
you purchase your Annuity or after the Issue Date, subject to its
availability, and our eligibility rules and restrictions. If you elect Highest
Daily Lifetime Income v2.1 with HD DB and terminate it, you can re-elect it,
subject to our current rules and availability. See "Termination of Existing
Benefits and Election of New Benefits" for information pertaining to
elections, termination and re-election of benefits. Please note that if you
terminate a living benefit and elect Highest Daily Lifetime Income v2.1 with
HD DB, you lose the guarantees that you had accumulated under your existing
benefit and your guarantees under Highest Daily Lifetime Income v2.1 with HD
DB will be based on your Unadjusted Account Value on the effective date of
Highest Daily Lifetime Income v2.1 with HD DB. You and your Financial
Professional should carefully consider whether terminating your existing
benefit and electing Highest Daily Lifetime Income v2.1 with HD DB is
appropriate for you. We reserve the right to waive, change and/or further
limit the election frequency in the future for new elections of this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Highest Daily Lifetime Income v2.1 with HD DB so long as you
participate in a Systematic Withdrawal program in which withdrawals are not
taken pro rata.
Termination of the Benefit
You may terminate Highest Daily Lifetime Income v2.1 with HD DB at any time by
notifying us. If you terminate the benefit, any guarantee provided by the
benefit, including the HD DB, will terminate as of the date the termination is
effective, and certain restrictions on re-election may apply.
The benefit automatically terminates upon the first to occur of the following:
(i)your termination of the benefit;
(ii)your surrender of the Annuity;
(iii)your election to begin receiving annuity payments (although if you have
elected to receive the Annual Income Amount in the form of annuity
payments, we will continue to pay the Annual Income Amount);
(iv)our receipt of Due Proof of Death of the Owner (or Annuitant for
entity-owned annuities);
(v)both the Unadjusted Account Value and Annual Income Amount equal zero due
to a withdrawal of Excess Income;
(vi)you allocate or transfer any portion of your Account Value to any
Sub-account(s) to which you are not permitted to electively allocate or
transfer Account Value (may vary by state);* or
(vii)you cease to meet our requirements as described in "Election of and
Designations under the Benefit" above.
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Highest Daily Lifetime Income v2.1 with HD DB, other than
upon the death of the Owner or Annuitization, we impose any accrued fee for
the benefit (i.e., the fee for the pro-rated portion of the year since the fee
was last assessed), and thereafter we cease deducting the charge for the
benefit. However, if the amount in the Sub-accounts is not enough to pay the
charge, we will reduce the fee to no more than the amount in the Sub-accounts.
With regard to your investment allocations, upon termination we will:
(i) leave intact amounts that are held in the Permitted Sub-accounts, and
(ii) unless you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
If a surviving spouse elects to continue the Annuity, Highest Daily Lifetime
Income v2.1 with HD DB terminates upon Due Proof of Death. The spouse may
newly elect the benefit subject to the restrictions discussed above.
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How Highest Daily Lifetime Income v2.1 with HD DB Transfers Unadjusted Account
Value Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account
See "How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account" in the discussion of Highest Daily Lifetime Income v2.1 above for
information regarding this component of the benefit.
Additional Tax Considerations
Please see the Additional Tax Considerations section under Highest Daily
Lifetime Income v2.1 above.
SPOUSAL HIGHEST DAILY LIFETIME INCOME v2.1 WITH HIGHEST DAILY DEATH BENEFIT
Spousal Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit
("HD DB") is a lifetime guaranteed minimum withdrawal benefit, under which,
subject to the terms of the benefit, we guarantee your ability to take a
certain annual withdrawal amount for the lives of two individuals who are
spouses. This benefit also provides for a highest daily death benefit, subject
to the terms of the benefit. This version is only being offered in those
jurisdictions where we have received regulatory approval and will be offered
subsequently in other jurisdictions when we receive regulatory approval in
those jurisdictions. We reserve the right, in our sole discretion, to cease
offering this benefit for new elections at any time.
We offer a benefit that guarantees, until the death of the Remaining
Designated Life (as described below) (the "designated lives", and each, a
"designated life"), the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial principal value (the
"Protected Withdrawal Value") regardless of the impact of Sub-account
performance on the Unadjusted Account Value, subject to our rules regarding
the timing and amount of withdrawals. You are guaranteed to be able to
withdraw the Annual Income Amount for the lives of the designated lives,
provided you have not made withdrawals of Excess Income that result in your
Unadjusted Account Value being reduced to zero. We also permit you to
designate the first withdrawal from your Annuity as a one-time "Non-Lifetime
Withdrawal." All other withdrawals from your Annuity are considered a
"Lifetime Withdrawal" under the benefit. Withdrawals are taken first from your
own Account Value. We are only required to begin making lifetime income
payments to you under our guarantee when and if your Unadjusted Account Value
is reduced to zero (for any reason other than due to partial withdrawals of
Excess Income) ("Guarantee Payments"). The benefit may be appropriate if you
intend to make periodic withdrawals from your Annuity, wish to ensure that
Sub-account performance will not affect your ability to receive annual
payments, and wish either spouse to be able to continue Spousal Highest Daily
Lifetime Income v2.1 with HD DB after the death of the first spouse (subject
to the provisions below regarding a Remaining Designated Life), and also want
to provide a death benefit. You are not required to make withdrawals as part
of the benefit - the guarantees are not lost if you withdraw less than the
maximum allowable amount each year under the rules of the benefit.
An integral component of Spousal Highest Daily Lifetime Income v2.1 with HD DB
is the predetermined mathematical formula we employ that may periodically
transfer your Unadjusted Account Value to and from the AST Investment Grade
Bond Sub-account. See the section above entitled "How Highest Daily Lifetime
Income v2.1 Transfers Unadjusted Account Value Between Your Permitted
Sub-accounts and the AST Investment Grade Bond Sub-account."
Spousal Highest Daily Lifetime Income v2.1 with HD DB is the spousal version
of Highest Daily Lifetime Income v2.1 with HD DB. Spousal Highest Daily
Lifetime Income v2.1 is offered with or without the HD DB component; however,
you may only elect HD DB with Spousal Highest Daily Lifetime Income v2.1, and
you must elect the HD DB benefit at the time you elect Spousal Highest Daily
Lifetime Income v2.1. If you elect Spousal Highest Daily Lifetime Income v2.1
without HD DB and would like to add the feature later, you must first
terminate Spousal Highest Daily Lifetime Income v2.1 and elect Spousal Highest
Daily Lifetime Income v2.1 with HD DB (subject to availability and benefit
re-election provisions). Please note that if you terminate Spousal Highest
Daily Lifetime Income v2.1 and elect Spousal Highest Daily Lifetime Income
v2.1 with HD DB you lose the guarantees that you had accumulated under your
existing benefit and will begin the new guarantees under the new benefit you
elect based on your Unadjusted Account Value as of the date the new benefit
becomes active. Spousal Highest Daily Lifetime Income v2.1 with HD DB is
offered as an alternative to other lifetime withdrawal options. Currently, if
you elect Spousal Highest Daily Lifetime Income v2.1 with HD DB and
subsequently terminate the benefit, you may elect another living benefit,
subject to our current rules. See "Election of and Designations under the
Benefit" below and "Termination of Existing Benefits and Election of New
Benefits" for details. Spousal Highest Daily Lifetime Income v2.1 with HD DB
must be elected based on two designated lives, as described below. Each
designated life must be between the ages of 50 and 79 years old when the
benefit is elected. Spousal Highest Daily Lifetime Income v2.1 with HD DB is
not available if you elect any other optional living or death benefit.
As long as your Spousal Highest Daily Lifetime Income v2.1 with HD DB is in
effect, you must allocate your Unadjusted Account Value in accordance with the
permitted Sub-accounts and other Investment Option(s) available with this
benefit. For a more detailed description of the permitted Investment Options,
see the "Investment Options" section.
Although you are guaranteed the ability to withdraw your Annual Income Amount
for life even if your Unadjusted Account Value falls to zero, if that
particular withdrawal of Excess Income (described below) brings your
Unadjusted Account Value to zero, your Annual Income Amount also would fall to
zero, and the benefit and the Annuity then would
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terminate. In that scenario, no further amount would be payable under Spousal
Highest Daily Lifetime Income v2.1 with HD DB. As to the impact of such a
scenario on any other optional benefit, please see the following sections in
this prospectus: "Highest Daily Lifetime Income v2.1 Benefit", "Spousal
Highest Daily Lifetime Income v2.1 Benefit" and "Highest Daily Lifetime Income
v2.1 with Highest Daily Death Benefit".
You may also participate in the 6 or 12 Month Dollar Cost Averaging Program if
you elect Spousal Highest Daily Lifetime Income v2.1 with HD DB, subject to
the 6 or 12 Month DCA Program's rules. See the section of this prospectus
entitled "6 or 12 Month Dollar Cost Averaging Program" for details.
Key Feature - Protected Withdrawal Value
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraph.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value on or before the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment made on the Current
Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value after the Roll-Up End date
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments and reduced for subsequent Lifetime Withdrawals (see the
examples that begin immediately prior to the sub-heading below entitled
"Example of dollar-for-dollar reductions").
Please note that if you elect Spousal Highest Daily Lifetime Income v2.1 with
HD DB, your Account Value is not guaranteed, can fluctuate and may lose value.
Key Feature - Annual Income Amount under Spousal Highest Daily Lifetime Income
v2.1 with HD DB
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the younger spousal designated life on the date of the first
Lifetime Withdrawal after election of the benefit. The percentages are: 2.5%
for ages 50 to 54; 3% for ages 55 to less than 591/2; 3.5% for ages 591/2 to
64; 4% for ages 65 to 69; 4.5% for ages 70 to 84; and 5.5% for ages 85 or
older. We use the age of the younger designated life. If you elected this
benefit and one of the Spousal Designated Lives becomes the Remaining
Designated Life, we will continue to use the age of the younger of both the
original Spousal Designated Lives for purposes of calculating the applicable
Annual Income percentage. Under Spousal Highest Daily Lifetime Income v2.1
with HD DB, if your cumulative Lifetime Withdrawals in an Annuity Year are
less than or equal to the Annual Income Amount, they will not reduce your
Annual Income Amount in subsequent Annuity Years, but any such withdrawals
will reduce the Annual Income Amount on a dollar-for-dollar basis in that
Annuity Year and also will reduce the Protected Withdrawal Value on a
dollar-for-dollar basis. If your cumulative Lifetime Withdrawals in an Annuity
Year are in excess of the Annual Income Amount for any Annuity Year ("Excess
Income"), your Annual Income Amount in subsequent years will be reduced
(except with regard to Required Minimum Distributions for this Annuity that
comply with our rules) by the result of the ratio of the Excess Income to the
Unadjusted Account Value immediately prior to such withdrawal (see examples of
this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
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As discussed in this paragraph, when you make a partial withdrawal that is
subject to a CDSC and/or tax withholding, we will identify the amount that
includes not only the amount you actually receive, but also the amount of the
CDSC and/or tax withholding, to determine whether your withdrawal has exceeded
the Annual Income Amount. When you take a partial withdrawal, you may request
a "gross" withdrawal amount (e.g., $2,000) but then have any CDSC and/or tax
withholding deducted from the amount you actually receive (although an MVA may
also be applied to your remaining Unadjusted Account Value, it is not
considered for purposes of determining Excess Income). The portion of a
withdrawal that exceeded your Annual Income Amount (if any) would be treated
as Excess Income and thus would reduce your Annual Income Amount in subsequent
years. Alternatively, you may request that a "net" withdrawal amount actually
be paid to you (e.g., $2,000), with the understanding that any CDSC and/or tax
withholding (e.g., $240) be applied to your remaining Unadjusted Account Value
(although an MVA may also be applied to your remaining Unadjusted Account
Value, it is not considered for purposes of determining Excess Income). In the
latter scenario, we determine whether any portion of the withdrawal is to be
treated as Excess Income by looking to the sum of the net amount you actually
receive (e.g., $2,000) and the amount of any CDSC and/or tax withholding (in
this example, a total of $2,240). The amount of that sum (e.g., the $2,000 you
received plus the $240 for the CDSC and/or tax withholding) that exceeds your
Annual Income Amount will be treated as Excess Income - thereby reducing your
Annual Income Amount in subsequent years.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Spousal
Highest Daily Lifetime Income v2.1 with HD DB and subsequent to the first
Lifetime Withdrawal will (i) immediately increase the then-existing Annual
Income Amount by an amount equal to a percentage of the Purchase Payment based
on the age of the younger designated life at the time of the first Lifetime
Withdrawal (the percentages are: 2.5% for ages 50 to 54; 3% for ages 55 to
less than 591/2; 3.5% for ages 591/2 to 64; 4% for ages 65 to 69; 4.5% for
ages 70 to 84; and 5.5% for ages 85 or older), and (ii) increase the Protected
Withdrawal Value by the amount of the Purchase Payment.
After your first Lifetime Withdrawal and before your Unadjusted Account Value
is reduced to zero, you may make additional Purchase Payments, subject to the
limits in the next paragraph. We reserve the right not to accept additional
Purchase Payments if the Unadjusted Account Value becomes zero.
While Spousal Highest Daily Lifetime Income v2.1 with HD DB is in effect, we
may limit, restrict, suspend or reject any additional Purchase Payment at any
time, but would do so on a non-discriminatory basis. Circumstances where we
may limit, restrict, suspend or reject additional Purchase Payments include,
but are not limited to, the following:
.. if we determine that, as a result of the timing and amounts of your
additional Purchase Payments and Withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Spousal Highest Daily Lifetime Income v2.1 with HD DB. This means
that you may no longer be able to increase the values associated with your
Spousal Highest Daily Lifetime Income v2.1 with HD DB through additional
Purchase Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity, in a non-discriminatory manner.
Highest Daily Auto Step-Up
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of this
benefit. As detailed in this paragraph, the Highest Daily Auto Step-Up feature
can result in a larger Annual Income Amount subsequent to your first Lifetime
Withdrawal. The Highest Daily Step-Up starts with the anniversary of the Issue
Date of the Annuity (the "Annuity Anniversary") immediately after your first
Lifetime Withdrawal under the benefit. Specifically, upon the first such
Annuity Anniversary, we identify the Unadjusted Account Value on each
Valuation Day within the immediately preceding Annuity Year after your first
Lifetime Withdrawal. Having identified the highest daily value (after all
daily values have been adjusted for subsequent Purchase Payments and
withdrawals), we then multiply that value by a percentage that varies based on
the age of the younger spousal designated life on the Annuity Anniversary as
of which the step-up would occur. The percentages are 2.5% for ages 50 to 54;
3% for ages 55 to less than 591/2; 3.5% for ages 591/2 to 64; 4% for ages 65
to 69; 4.5% for ages 70 to 84; and 5.5% for ages 85 or older. If that value
exceeds the existing Annual Income Amount, we replace the existing amount with
the new, higher amount. Otherwise, we leave the existing Annual Income Amount
intact. We will not automatically increase your Annual Income Amount solely as
a result of your attaining a new age that is associated with a new age-based
percentage. The Unadjusted Account Value on the Annuity Anniversary is
considered the last daily step-up value of the Annuity Year. In later years
(i.e., after the first Annuity Anniversary
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after the first Lifetime Withdrawal), we determine whether an automatic
step-up should occur on each Annuity Anniversary by performing a similar
examination of the Unadjusted Account Values that occurred on Valuation Days
during the year. Taking Lifetime Withdrawals could produce a greater
difference between your Protected Withdrawal Value and your Unadjusted Account
Value, which may make a Highest Daily Auto Step-up less likely to occur. At
the time that we increase your Annual Income Amount, we also increase your
Protected Withdrawal Value to equal the highest daily value upon which your
step-up was based only if that results in an increase to the Protected
Withdrawal Value. Your Protected Withdrawal Value will never be decreased as a
result of an income step-up. If, on the date that we implement a Highest Daily
Auto Step-Up to your Annual Income Amount, the charge for Spousal Highest
Daily Lifetime Income v2.1 with HD DB has changed for new purchasers, you may
be subject to the new charge at the time of such step-up. Prior to increasing
your charge for Spousal Highest Daily Lifetime Income v2.1 with HD DB upon a
step-up, we would notify you, and give you the opportunity to cancel the
automatic step-up feature. If you receive notice of a proposed step-up and
accompanying fee increase, you should carefully evaluate whether the amount of
the step-up justifies the increased fee to which you will be subject. Any such
increased charge will not be greater than the maximum charge set forth in the
table entitled "Your Optional Benefit Fees and Charges".
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Spousal Highest Daily Lifetime Income v2.1 with HD DB does not affect your
ability to take withdrawals under your Annuity, or limit your ability to take
partial withdrawals that exceed the Annual Income Amount. Under Spousal
Highest Daily Lifetime Income v2.1 with HD DB, if your cumulative Lifetime
Withdrawals in an Annuity Year are less than or equal to the Annual Income
Amount, they will not reduce your Annual Income Amount in subsequent Annuity
Years, but any such withdrawals will reduce the Annual Income Amount on a
dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw
an amount less than the Annual Income Amount in any Annuity Year, you cannot
carry over the unused portion of the Annual Income Amount to subsequent
Annuity Years. If your cumulative Lifetime Withdrawals in an Annuity Year
exceed the Annual Income Amount, your Annual Income Amount in subsequent years
will be reduced (except with regard to Required Minimum Distributions for this
Annuity that comply with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Spousal Highest Daily
Lifetime Income v2.1 with HD DB or any other fees and charges under the
Annuity. Assume the following for all three examples:
.. The Issue Date is November 1
.. Spousal Highest Daily Lifetime Income v2.1 with HD DB is elected on
August 1 of the following calendar year
.. Both designated lives were 70 years old when they elected Spousal Highest
Daily Lifetime Income v2.1 with HD DB
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
Example of dollar-for-dollar reductions
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $5,400 (since the younger designated life is between
the ages of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual
Income Amount is 4.5% of the Protected Withdrawal Value, in this case 4.5% of
$120,000). The Highest Daily Death Benefit Amount is $115,420. Assuming $2,500
is withdrawn from the Annuity on this date, the remaining Annual Income Amount
for that Annuity Year (up to and including October 31) is $2,900. This is the
result of a dollar-for-dollar reduction of the Annual Income Amount ($5,400
less $2,500 = $2,900) and the Highest Daily Death Benefit Amount ($115,420
less $2,500 = $112,920.).
Example of Proportional Reductions
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $2,900 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $2,100 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there were other
withdrawals in that Annuity Year, each would result in another proportional
reduction to the Annual Income Amount.)
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Here is the calculation:
Example of highest daily auto step-up
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
younger designated life's age on that Annuity Anniversary) of the highest
daily value since your first Lifetime Withdrawal (or last Annuity Anniversary
in subsequent years), adjusted for withdrawals and additional Purchase
Payments, is greater than the Annual Income Amount, adjusted for Excess Income
and additional Purchase Payments.
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $5,400. However, the Excess Income on October 29 reduces the
amount to $5,301.72 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 4.5% (since the younger
designated life is between 70 and 84 on the date of the potential step-up) of
the highest daily Unadjusted Account Value adjusted for withdrawals and
Purchase Payments, is greater than $5,301.72. Here are the calculations for
determining the daily values. Only the October 28 value is being adjusted for
Excess Income as the October 30, October 31 and November 1 Valuation Days
occur after the Excess Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be every day following the Annuity
Anniversary. The Annuity Anniversary Date of November 1 is considered the
final Valuation Date for the Annuity Year.
** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,355.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $2,900 ($2,900 is the remaining Annual Income
Amount for the Annuity Year), resulting in an Unadjusted Account Value
of $116,100 before the Excess Income.
. This amount ($116,100) is further reduced by 1.82% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.98.
. The adjusted October 29 Highest Daily Value, $113,986.98, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.98 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.98 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.98
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 4.5%, generating
an Annual Income Amount of $5,355.00. Since this amount is greater than the
current year's Annual Income Amount of $5,301.72 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,355.00.
Non-Lifetime Withdrawal Feature
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Spousal Highest Daily Lifetime Income v2.1 with HD DB. It is an optional
feature of the benefit that you can only elect at the time of your first
withdrawal. You cannot take a Non-Lifetime Withdrawal in an amount that would
cause your Annuity's Account Value, after taking the withdrawal, to fall below
the minimum Surrender Value (see "Surrenders - Surrender Value"). This
Non-Lifetime Withdrawal will not establish your initial Annual Income Amount
and the Periodic Value above will continue to be calculated. However, the
total amount of the withdrawal will proportionally reduce all guarantees
associated with Spousal Highest Daily Lifetime Income v2.1 with HD DB. You
must tell us at the time you take the partial withdrawal if your withdrawal is
intended to be the Non-Lifetime Withdrawal and not the first Lifetime
Withdrawal under Spousal Highest Daily Lifetime Income v2.1 with HD DB. If you
don't elect the Non-Lifetime Withdrawal, the first withdrawal you make will be
the first Lifetime Withdrawal that establishes your Annual
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Income Amount, which is based on your Protected Withdrawal Value. Once you
elect the Non-Lifetime Withdrawal or Lifetime Withdrawals, no additional
Non-Lifetime withdrawals may be taken. If you do not take a Non-Lifetime
Withdrawal before beginning Lifetime Withdrawals, you lose the ability to take
it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value. It will also proportionally reduce the Highest Daily Death
Benefit Amount. It will reduce each value by the percentage the total
withdrawal amount (including any applicable CDSC) represents of the then
current Account Value immediately prior to the time of the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
Example - Non-Lifetime Withdrawal (proportional reduction)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit. Assume the following:
.. The Issue Date is December 3
.. Spousal Highest Daily Lifetime Income v2.1 with HD DB is elected on
September 4 of the following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. Each designated life was 70 years old when he/she elected Spousal Highest
Daily Lifetime Income v2.1 with HD DB
.. No previous withdrawals have been taken under Spousal Highest Daily
Lifetime Income v2.1 with HD DB
On October 3 of the same year the benefit is elected, the Protected Withdrawal
Value is $125,000, the Highest Daily Death Benefit Amount is $115,420, and the
Account Value is $120,000. Assuming $15,000 is withdrawn from the Annuity on
that same October 3 and is designated as a Non-Lifetime Withdrawal, all
guarantees associated with Spousal Highest Daily Lifetime Income v2.1 with HD
DB will be reduced by the ratio the total withdrawal amount represents of the
Account Value just prior to the withdrawal being taken.
Here is the calculation:
Required Minimum Distributions
See the sub-section entitled "Required Minimum Distributions" in the
prospectus section above concerning Highest Daily Lifetime Income v2.1 with HD
DB for a discussion of the relationship between the RMD amount and the Annual
Income Amount.
Highest Daily Death Benefit
A Death Benefit is payable under Spousal Highest Daily Lifetime Income v2.1
with HD DB (until we begin making Guarantee Payments under the benefit or
annuity payments have begun) upon the death of the Remaining Designated Life
when we receive Due Proof of Death. The Death Benefit is the greatest of: the
Minimum Death Benefit (described later in this prospectus) or the Highest
Daily Death Benefit Amount described below.
Highest Daily Death Benefit Amount:
On the date you elect Spousal Highest Daily Lifetime Income v2.1 with HD DB,
the Highest Daily Death Benefit Amount is equal to your Unadjusted Account
Value. On each subsequent Valuation Day, until the date of death of the
decedent, the Highest Daily Death Benefit Amount will be the greater of:
(1)The Unadjusted Account Value on the current Valuation Day; and
(2)The Highest Daily Death Benefit Amount of the immediately preceding
Valuation Day,
. increased by any Purchase Payments made on the current Valuation Day and,
. reduced by the effect of withdrawals made on the current Valuation Day,
as described below.
Please note that the Highest Daily Death Benefit Amount does not have any
guaranteed growth rate associated with it and therefore can be a different
amount than any of the guaranteed values associated with the living benefit
features of Spousal Highest Daily Lifetime Income v2.1 with HD DB.
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A Non-Lifetime Withdrawal will proportionately reduce the Highest Daily Death
Benefit Amount by the ratio of the Non-Lifetime Withdrawal to the Account
Value immediately prior to the Non-Lifetime Withdrawal. A Lifetime Withdrawal
that is not considered Excess Income will reduce the Highest Daily Death
Benefit Amount (dollar-for-dollar) by the amount of the withdrawal. All or a
portion of a Lifetime Withdrawal that is considered Excess Income will
proportionately reduce the Highest Daily Death Benefit Amount by the ratio of
the Excess Income to the Account Value immediately prior to the withdrawal of
the Excess Income.
The Highest Daily Death Benefit will be calculated on the date of death of the
Remaining Designated Life and will be:
. increased by the amount of any additional Adjusted Purchase Payments, and
. reduced by the effect of any withdrawals (as described in the preceding
paragraph),
made during the period between the decedent's date of death and the date we
receive Due Proof of Death.
Please note that Highest Daily Death Benefit Amount is available only until we
make Guarantee Payments under Spousal Highest Daily Lifetime Income v2.1 with
HD DB or annuity payments begin. This means that any withdrawals that reduce
your Unadjusted Account Value to zero will also reduce the Highest Daily Death
Benefit Amount to zero.
All other provisions applicable to Death Benefits under your Annuity continue
to apply. See the "Death Benefits" section of this prospectus for more
information pertaining to Death Benefits.
Benefits Under Spousal Highest Daily Lifetime Income v2.1 with HD DB
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and Guarantee Payments amounts
are still payable under Spousal Highest Daily Lifetime Income v2.1 with HD
DB, we will make an additional payment, if any, for that Annuity Year equal
to the remaining Annual Income Amount for the Annuity Year. Thus, in that
scenario, the remaining Annual Income Amount would be payable even though
your Unadjusted Account Value was reduced to zero. In subsequent Annuity
Years we make payments that equal the Annual Income Amount as described in
this section. We will continue to make payments until the simultaneous
deaths of both spousal designated lives, or the death of the Remaining
Designated Life. After the Unadjusted Account Value is reduced to zero, you
are not permitted to make additional Purchase Payments to your Annuity. To
the extent that cumulative withdrawals in the Annuity Year that reduced
your Unadjusted Account Value to zero are more than the Annual Income
Amount, Spousal Highest Daily Lifetime Income v2.1 with HD DB terminates,
and no additional payments will be permitted.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments.
.. Please note that if your Unadjusted Account Value is reduced to zero due to
withdrawals or annuitization, any Death Benefit value, including that of
the HD DB feature, will terminate. This means that the HD DB is terminated
and no Death Benefit is payable if your Unadjusted Account Value is reduced
to zero as the result of either a withdrawal in excess of your Annual
Income Amount or less than or equal to, your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable state
required premium tax, to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. We will
make payments until the death of the Remaining Designated Life. We
must receive your request in a form acceptable to us at our office.
If applying your Unadjusted Account Value, less any applicable tax
charges, to our current life only (or joint life, depending on the
number of designated lives remaining) annuity payment rates results
in a higher annual payment, we will give you the higher annual
payment.
.. In the absence of an election when mandatory annuity payments are to begin,
we currently make annual annuity payments as a joint and survivor or single
(as applicable) life fixed annuity with eight payments certain, by applying
the greater of the annuity rates then currently available or the annuity
rates guaranteed in your Annuity. We reserve the right at any time to
increase or decrease the certain period in order to comply with the Code
(e.g., to shorten the period certain to match life expectancy under
applicable Internal Revenue Service tables). The amount that will be
applied to provide such annuity payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual
Income Amount as if you made your first Lifetime Withdrawal on the
date the annuity payments are to begin). Such present value will be
calculated using the greater of the joint and survivor or single (as
applicable) life fixed annuity rates then currently available or the
joint and survivor or single (as applicable) life fixed annuity rates
guaranteed in your Annuity; and
(2)the Unadjusted Account Value.
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Other Important Considerations
.. Withdrawals under the Spousal Highest Daily Lifetime Income v2.1 with HD DB
benefit are subject to all of the terms and conditions of the Annuity,
including any applicable CDSC for the Non-Lifetime Withdrawal as well as
partial withdrawals that exceed the Annual Income Amount. If you have an
active Systematic Withdrawal program running at the time you elect this
benefit, the first systematic withdrawal that processes after your election
of the benefit will be deemed a Lifetime Withdrawal. Withdrawals made while
Spousal Highest Daily Lifetime Income v2.1 with HD DB is in effect will be
treated, for tax purposes, in the same way as any other withdrawals under
the Annuity. Any withdrawals made under the benefit will be taken pro rata
from the Sub-accounts (including the AST Investment Grade Bond Sub-account)
and the DCA MVA Options. If you have an active Systematic Withdrawal
program running at the time you elect this benefit, the program must
withdraw funds pro rata.
.. Any Lifetime Withdrawal that you take that is not a withdrawal of Excess
Income is not subject to a CDSC, even if the total amount of such
withdrawals in any Annuity Year exceeds the maximum Free Withdrawal amount.
Any Lifetime Withdrawal that is treated as Excess Income is subject to any
applicable CDSC, if the withdrawal is greater than the Free Withdrawal
amount. (See "Fees, Charges and Deductions - Contingent Deferred Sales
Charge ("CDSC")" and "Access to Account Value - Free Withdrawal Amounts.")
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolios appears in the prospectus
section entitled "Investment Options." In addition, you can find a copy of
the AST Investment Grade Bond Portfolio prospectus by going to
www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the predetermined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to Permitted Sub-accounts, or to
the requirements as to how you may allocate your Unadjusted Account Value
with this benefit, will apply to new elections of the benefit and may apply
to current participants in the benefit. To the extent that changes apply to
current participants in the benefit, they will apply only upon
re-allocation of Unadjusted Account Value, or upon addition of additional
Purchase Payments. That is, we will not require such current participants
to re-allocate Unadjusted Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Spousal Highest
Daily Lifetime Income v2.1 with HD DB reduce your Unadjusted Account Value
to zero. This means that any Death Benefit, including the HD DB, will
terminate and no Death Benefit is payable if your Unadjusted Account Value
is reduced to zero as the result of either a withdrawal in excess of your
Annual Income Amount or less than or equal to, your Annual Income Amount.
(See "Death Benefits" for more information.)
.. Spousal Continuation: If a Death Benefit is not payable on the death of a
spousal designated life (e.g., if the first of the spousal designated lives
to die is the Beneficiary but not an Owner), Spousal Highest Daily Lifetime
Income v2.1 with HD DB will remain in force unless we are instructed
otherwise.
.. The current charge for Spousal Highest Daily Lifetime Income v2.1 with HD
DB is 1.60% annually of the greater of Unadjusted Account Value and
Protected Withdrawal Value. The maximum charge for Spousal Highest Daily
Lifetime Income v2.1 with HD DB is 2.00% annually of the greater of the
Unadjusted Account Value and Protected Withdrawal Value. As discussed in
"Highest Daily Auto Step-Up" above, we may increase the fee upon a step-up
under this benefit. We deduct this charge on quarterly anniversaries of the
benefit effective date, based on the values on the last Valuation Day prior
to the quarterly anniversary. Thus, we deduct, on a quarterly basis, 0.40%
of the greater of the prior Valuation Day's Unadjusted Account Value, or
the prior Valuation Day's Protected Withdrawal Value. We deduct the fee pro
rata from each of your Sub-accounts, including the AST Investment Grade
Bond Sub-account. You will begin paying this charge as of the effective
date of the benefit even if you do not begin taking withdrawals for many
years, or ever. We will not refund the charges you have paid if you choose
never to take any withdrawals and/or if you never receive any lifetime
income payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the
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benefit is less than the Account Value Floor, then no charge will be assessed
for that benefit quarter. Charges deducted upon termination of the benefit may
cause the Unadjusted Account Value to fall below the Account Value Floor. If a
charge for Spousal Highest Daily Lifetime Income v2.1 with HD DB would be
deducted on the same day we process a withdrawal request, the charge will be
deducted first, then the withdrawal will be processed. The withdrawal could
cause the Unadjusted Account Value to fall below the Account Value Floor.
While the deduction of the charge (other than the final charge) may not reduce
the Unadjusted Account Value to zero, withdrawals may reduce the Unadjusted
Account Value to zero. If this happens and the Annual Income Amount is greater
than zero, we will make payments under the benefit.
Election of and Designations under the Benefit
Spousal Highest Daily Lifetime Income v2.1 with HD DB can only be elected
based on two designated lives. Designated lives must be natural persons who
are each other's spouses at the time of election of the benefit. Currently,
Spousal Highest Daily Lifetime Income v2.1 with HD DB only may be elected if
the Owner, Annuitant, and Beneficiary designations are as follows:
.. One Annuity Owner, where the Annuitant and the Owner are the same person
and the sole Beneficiary is the Owner's spouse. Each Owner/Annuitant and
the Beneficiary must be between 50-79 years old at the time of election; or
.. Co-Annuity Owners, where the Owners are each other's spouses. The
Beneficiary designation must be the surviving spouse, or the spouses named
equally. One of the Owners must be the Annuitant. Each Owner must be
between 50 and 79 years old at the time of election; or
.. One Annuity Owner, where the Owner is a custodial account established to
hold retirement assets for the benefit of the Annuitant pursuant to the
provisions of Section 408(a) of the Internal Revenue Code (or any successor
Code section thereto) ("Custodial Account"), the Beneficiary is the
Custodial Account, and the spouse of the Annuitant is the Contingent
Annuitant. Each of the Annuitant and the Contingent Annuitant must be
between 50 and 79 years old at the time of election.
Remaining Designated Life: A Remaining Designated Life must be a natural
person and must have been listed as one of the spousal designated lives when
the benefit was elected. A spousal designated life will become the Remaining
Designated Life on the earlier of the death of the first of the spousal
designated lives to die, provided that they are each other's spouses at that
time, or divorce from the other spousal designated life while the benefit is
in effect. That said, if a spousal designated life is removed as Owner,
Beneficiary, or Annuitant due to divorce, the other spousal designated life
becomes the Remaining Designated Life when we receive notice of the divorce,
and any other documentation we require, in Good Order. Any new
Beneficiary(ies) named by the Remaining Designated Life will not be a spousal
designated life.
We do not permit a change of Owner under this benefit, except as follows:
(a) if one Owner dies and the surviving spousal Owner assumes the Annuity, or
(b) if the Annuity initially is co-owned, but thereafter the Owner who is not
the Annuitant is removed as Owner. We permit changes of Beneficiary
designations under this benefit, however if the Beneficiary is changed, the
benefit may not be eligible to be continued upon the death of the first
designated life. If the designated lives divorce, Spousal Highest Daily
Lifetime Income v2.1 with HD DB may not be divided as part of the divorce
settlement or judgment. Nor may the divorcing spouse who retains ownership of
the Annuity appoint a new designated life upon re-marriage. A change in
designated lives will result in cancellation of Spousal Highest Daily Lifetime
Income v2.1 with HD DB.
Spousal Highest Daily Lifetime Income v2.1 with HD DB can be elected at the
time that you purchase your Annuity or after the Issue Date, subject to its
availability, and our eligibility rules and restrictions. If you elect Spousal
Highest Daily Lifetime Income v2.1 with HD DB and terminate it, you can
re-elect it, subject to our current rules and availability. See "Termination
of Existing Benefits and Election of New Benefits" for information pertaining
to elections, termination and re-election of benefits. Please note that if you
terminate a living benefit and elect Spousal Highest Daily Lifetime Income
v2.1 with HD DB, you lose the guarantees that you had accumulated under your
existing benefit, and your guarantees under Spousal Highest Daily Lifetime
Income v2.1 with HD DB will be based on your Unadjusted Account Value on the
effective date of Spousal Highest Daily Lifetime Income v2.1 with HD DB. You
and your Financial Professional should carefully consider whether terminating
your existing benefit and electing Spousal Highest Daily Lifetime Income v2.1
with HD DB is appropriate for you. We reserve the right to waive, change
and/or further limit the election frequency in the future for new elections of
this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Spousal Highest Daily Lifetime Income v2.1 so long as you
participate in a Systematic Withdrawal program in which withdrawals are not
taken pro rata.
Termination of the Benefit
You may terminate the benefit at any time by notifying us. If you terminate
the benefit, any guarantee provided by the benefit will terminate as of the
date the termination is effective, and certain restrictions on re-election may
apply.
The benefit automatically terminates upon the first to occur of the following:
(i) upon our receipt of Due Proof of Death of the first designated life who is
an Owner (or who is the Annuitant if entity owned), if the Remaining
Designated Life elects not to continue the Annuity;
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(ii)upon our receipt of Due Proof of Death of an Owner (or Annuitant if entity
owned) if the surviving spouse is not eligible to continue the benefit
because such spouse is not a spousal designated life and there is any
Unadjusted Account Value on the date of death;
(iii)upon our receipt of Due Proof of Death of the Remaining Designated Life if
a Death Benefit is payable under this benefit;
(iv)your termination of the benefit;
(v) your surrender of the Annuity;
(vi)when annuity payments begin (although if you have elected to take annuity
payments in the form of the Annual Income Amount, we will continue to pay
the Annual Income Amount);
(vii)both the Unadjusted Account Value and Annual Income Amount equal zero due
to a withdrawal of Excess Income;
(viii)you allocate or transfer any portion of your Account Value to any
Sub-account(s) to which you are not permitted to electively allocate or
transfer Account Value (may vary by state);* or
(ix)you cease to meet our requirements as described in "Election of and
Designations under the Benefit".
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Spousal Highest Daily Lifetime Income v2.1 with HD DB
other than upon the death of the Remaining Designated Life or Annuitization,
we impose any accrued fee for the benefit (i.e., the fee for the pro-rated
portion of the year since the fee was last assessed), and thereafter we cease
deducting the charge for the benefit. This final charge will be deducted even
if it results in the Unadjusted Account Value falling below the Account Value
Floor. However, if the amount in the Sub-accounts is not enough to pay the
charge, we will reduce the fee to no more than the amount in the Sub-accounts.
With regard to your investment allocations, upon termination we will:
(i) leave intact amounts that are held in the Permitted Sub-accounts, and
(ii) unless you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
How Spousal Highest Daily Lifetime Income v2.1 with HD DB Transfers Unadjusted
Account Value Between Your Permitted Sub-accounts and the AST Investment Grade
Bond Sub-account
See "How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account" in the discussion of Highest Daily Lifetime Income v2.1 above for
information regarding this component of the benefit.
Additional Tax Considerations
Please see the Additional Tax Considerations section under Highest Daily
Lifetime Income v2.1 above.
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DEATH BENEFITS
TRIGGERS FOR PAYMENT OF THE DEATH BENEFIT
Each Annuity provides a Death Benefit prior to Annuitization. If the Annuity
is owned by one or more natural persons, the Death Benefit is payable upon the
death of the Owner (or the first to die, if there are multiple Owners). If an
Annuity is owned by an entity, the Death Benefit is payable upon the
Annuitant's death if there is no Contingent Annuitant. Generally, if a
Contingent Annuitant was designated before the Annuitant's death and the
Annuitant dies, then the Contingent Annuitant becomes the Annuitant and a
Death Benefit will not be paid upon the Annuitant's death. The person upon
whose death the Death Benefit is paid is referred to below as the "decedent".
Where an Annuity is structured so that it is owned by a grantor trust but the
Annuitant is not the grantor, then the Annuity 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 Surrender Value will
be paid out to the trust and there is no Death Benefit provided under the
Annuity.
We determine the amount of the Death Benefit as of the date we receive "Due
Proof of Death." Due Proof of Death can be met only if each of the following
is submitted to us in Good Order: (a) a death certificate or similar
documentation acceptable to us (b) all representations we require or which are
mandated by applicable law or regulation in relation to the death claim and
the payment of death proceeds and (c) any applicable election of the method of
payment of the death benefit by at least one Beneficiary (if not previously
elected by the Owner). We must be made aware of the entire universe of
eligible Beneficiaries in order for us to have received Due Proof of Death.
Any given Beneficiary must submit the written information we require in order
to be paid his/her share of the Death Benefit.
Once we have received Due Proof of Death, each eligible Beneficiary may take
his/her portion of the Death Benefit in one of the forms described in this
prospectus (e.g., distribution of the entire interest in the Annuity within 5
years after the date of death, or as periodic payments over a period not
extending beyond the life or life expectancy of the Beneficiary - see "Payment
of Death Benefits" below).
After our receipt of Due Proof of Death, we automatically transfer any
remaining Death Benefit to the AST Money Market Sub-account. However, between
the date of death and the date that we transfer any remaining Death Benefit to
the AST Money Market Sub-account, the amount of the Death Benefit is subject
to market fluctuations.
No Death Benefit will be payable if the Annuity terminates because your
Unadjusted Account Value reaches zero (which can happen if, for example, you
are taking withdrawals under an optional living benefit).
Exceptions to Amount of Death Benefit
There are certain exceptions to the amount of the Death Benefit:
Submission of Due Proof of Death within One Year. If we receive Due Proof of
Death more than one year after the date of death, we reserve the right to
limit the Death Benefit to the Unadjusted Account Value on the date we receive
Due Proof of Death (i.e., we would not pay the minimum Death Benefit or any
Optional Death Benefit).
Death Benefit Suspension Period. You also should be aware that there is a
Death Benefit suspension period. If the decedent was not the Owner or
Annuitant as of the Issue Date (or within 60 days thereafter), any Death
Benefit (including the Minimum Death Benefit, any optional Death Benefit and
Highest Daily Lifetime Income v2.1 with HD DB and Spousal Highest Daily
Lifetime Income v2.1 with HD DB) that applies will be suspended for a two year
period starting from the date that person first became Owner or Annuitant.
This suspension would not apply if the ownership or annuitant change was the
result of Spousal Continuation or death of the prior Owner or Annuitant. While
the two year suspension is in effect, the Death Benefit amount will equal the
Unadjusted Account Value on the date we receive Due Proof of Death. Thus, if
you had elected Highest Daily Lifetime Income v2.1 with HD DB or Spousal
Highest Daily Lifetime Income v2.1 with HD DB, and the suspension were in
effect, you would be paying the fee for the Optional Death Benefit, Highest
Daily Lifetime Income v2.1 with HD DB or Spousal Highest Daily Lifetime Income
v2.1 with HD DB even though during the suspension period your Death Benefit
would be limited to the Unadjusted Account Value. After the two-year
suspension period is completed the Death Benefit is the same as if the
suspension period had not been in force. See the section of the prospectus
above generally with regard to changes of Owner or Annuitant that are
allowable.
With respect to a Beneficiary Annuity, the Death Benefit is triggered by the
death of the beneficial Owner (or the Key Life, if entity-owned). However, if
the Annuity is held as a Beneficiary Annuity, the Owner is an entity, and the
Key Life is already deceased, then no Death Benefit is payable upon the death
of the beneficial Owner.
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MINIMUM DEATH BENEFIT
Each Annuity provides a minimum Death Benefit at no additional charge. The
amount of the minimum Death Benefit is equal to the greater of:
. The sum of all Purchase Payments you have made since the Issue Date of
the Annuity until the date of Due Proof of Death, reduced proportionally
by the ratio of the amount of any withdrawal to the Account Value
immediately prior to the withdrawal; AND
. Your Unadjusted Account Value on the date we receive Due Proof of Death.
Spousal Continuation of Annuity
Unless you designate a Beneficiary other than your spouse, upon the death of
either spousal Owner, the surviving spouse may elect to continue ownership of
the Annuity instead of taking the Death Benefit payment. The Unadjusted
Account Value as of the date of Due Proof of Death will be equal to the Death
Benefit that would have been payable. Any amount added to the Unadjusted
Account Value will be allocated to the Sub-accounts (if you participate in an
optional living benefit, such amount will not be directly added to any bond
portfolio Sub-account used by the benefit, but may be reallocated by the
predetermined mathematical formula on the same day). No CDSC will apply to
Purchase Payments made prior to the effective date of a spousal continuance.
However, any additional Purchase Payments applied after the date the
continuance is effective will be subject to all provisions of the Annuity,
including the CDSC when applicable.
Subsequent to spousal continuation, the basic Death Benefit will be equal to
the greater of:
. The Unadjusted Account Value on the effective date of the spousal
continuance, plus all Purchase Payments you have made since the spousal
continuance until the date of Due Proof of Death, reduced proportionally
by the ratio of the amount of any withdrawal to the Account Value
immediately prior to the withdrawal; and
. The Unadjusted Account Value on Due Proof of Death of the surviving
spouse.
With respect to Highest Daily Lifetime Income v2.1 with HD DB and Spousal
Highest Daily Lifetime Income v2.1 with HD DB:
. If the Highest Daily Death Benefit is not payable upon the death of a
Spousal Designated Life, and the Remaining Designated Life chooses to
continue the Annuity, the benefit will remain in force unless we are
instructed otherwise.
. If a Death Benefit is not payable upon the death of a Spousal Designated
Life (e.g., if the first of the Spousal Designated Lives to die is the
Beneficiary but not an Owner), the benefit will remain in force unless
we are instructed otherwise.
Spousal continuation is also permitted, subject to our rules and regulatory
approval, if the Annuity is held by a custodial account established to hold
retirement assets for the benefit of the natural person Annuitant pursuant to
the provisions of Section 408(a) of the Code ("Custodial Account") and, on the
date of the Annuitant's death, the spouse of the Annuitant is (1) the
Contingent Annuitant under the Annuity and (2) the Beneficiary of the
Custodial Account. The ability to continue the Annuity in this manner will
result in the Annuity no longer qualifying for tax deferral under the Code.
However, such tax deferral should result from the ownership of the Annuity by
the Custodial Account. Please consult your tax or legal advisor.
Any Optional Death Benefit in effect at the time the first of the spouses dies
will continue only if spousal assumption occurs prior to the Death Benefit
Target Date and prior to the assuming spouse's 80th birthday. If spousal
assumption occurs after the Death Benefit Target Date (or the 80th birthday of
the assuming spouse), then any Optional Death Benefit will terminate as of the
date of spousal assumption. In that event, the assuming spouse's Death Benefit
will equal the basic Death Benefit.
We allow a spouse to continue the Annuity even though he/she has reached or
surpassed the Latest Annuity Date. However, upon such a spousal continuance,
annuity payments would begin immediately.
A surviving spouse's ability to continue ownership of the Annuity may be
impacted by the Defense of Marriage Act (see "Managing Your Annuity - Spousal
Designations"). Please consult your tax or legal advisor for more information
about such impact in your state.
PAYMENT OF DEATH BENEFITS
Alternative Death Benefit Payment Options - Annuities Owned By Individuals
(Not Associated With Tax-Favored Plans)
Except in the case of a spousal continuation as described above, upon your
death, certain distributions must be made under the Annuity. The required
distributions depend on whether you die before you start taking annuity
payments under the Annuity or after you start taking annuity payments under
the Annuity. If you die on or after the Annuity Date, the remaining portion of
the interest in the Annuity must be distributed at least as rapidly as under
the method of distribution being used as of the date of death. In the event of
the decedent's death before the Annuity Date, the Death Benefit must be
distributed:
. within five (5) years of the date of death (the "5 Year Deadline"); or
. as a series of payments not extending beyond the life expectancy of the
Beneficiary or over the life of the Beneficiary. Payments under this
option must begin within one year of the date of death. If the
Beneficiary does not begin installments by such time, then we require
that the Beneficiary take the Death Benefit as a lump sum within the 5
Year Deadline.
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If the Annuity is held as a Beneficiary Annuity, the payment of the Death
Benefit must be distributed:
. as a lump sum payment; or
. as a series of required distributions under the Beneficiary Continuation
Option as described below in the section entitled "Beneficiary
Continuation Option", unless you have made an election prior to Death
Benefit proceeds becoming due.
Alternative Death Benefit Payment Options - Annuities Held by Tax-Favored Plans
The Code provides for alternative death benefit payment options when an
Annuity is used as an IRA, 403(b) or other "qualified investment" that
requires minimum distributions. Upon your death under an IRA, 403(b) or other
"qualified investment", the designated Beneficiary may generally elect to
continue the Annuity and receive Required Minimum Distributions under the
Annuity instead of receiving the Death Benefit in a single payment. The
available payment options will depend on whether you die before the date
Required Minimum Distributions under the Code were to begin, whether you have
named a designated Beneficiary and whether the Beneficiary is your surviving
spouse.
. If you die after a designated Beneficiary has been named, the death
benefit must be distributed by December 31st of the year including the
five year anniversary of the date of death (the "Qualified 5 Year
Deadline"), or as periodic payments not extending beyond the life
expectancy of the designated Beneficiary (provided such payments begin
by December 31st of the year following the year of death). If the
Beneficiary does not begin installments by such time, then we require
that the Beneficiary take the Death Benefit as a lump sum by the
Qualified 5 Year Deadline. However, if your surviving spouse is the
Beneficiary, the death benefit can be paid out over the life expectancy
of your spouse with such payments beginning no later than December 31st
of the year following the year of death, or December 31st of the year in
which you would have reached age 70 1/2, whichever is later.
Additionally, if the Death Benefit is solely payable to (or for the
benefit of) your surviving spouse, then the Annuity may be continued
with your spouse as the Owner. If your Beneficiary elects to receive
full distribution by the Qualified 5 Year Deadline, 2009 shall not be
included in the five year requirement period. This effectively extends
this period to December 31st of the year including the six year
anniversary date of death.
. 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 the Qualified 5 Year Deadline. If the
Beneficiary does not begin installments by December 31st of the year
following the year of death, we will require that the Beneficiary take
the Death Benefit as a lump sum by the Qualified 5 Year Deadline. For
Annuities 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 Annuity is deemed to have
no designated Beneficiary. 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 Annuities 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 Annuity
is deemed to have no designated Beneficiary.
A Beneficiary has the flexibility to take out more each year than mandated
under the Required Minimum Distribution rules.
Until withdrawn, amounts in an IRA, 403(b) or other "qualified investment"
continue to be tax deferred. Amounts withdrawn each year, including amounts
that are required to be withdrawn under the Required Minimum Distribution
rules, are subject to tax. You may wish to consult a professional tax advisor
for tax advice as to your particular situation.
For a Roth IRA, if death occurs before the entire interest is distributed, the
Death Benefit must be distributed under the same rules applied to IRAs where
death occurs before the date Required Minimum Distributions must begin under
the Code.
The tax consequences to the Beneficiary may vary among the different Death
Benefit payment options. See the Tax Considerations section of this
prospectus, and consult your tax advisor.
Beneficiary Continuation Option
Instead of receiving the Death Benefit in a single payment, or under an
Annuity Option, a Beneficiary may take the Death Benefit under an alternative
Death Benefit payment option, as provided by the Code and described above
under the sections entitled "Payment of Death Benefits" and "Alternative Death
Benefit Payment Options - Annuities Held by Tax-Favored Plans". This
"Beneficiary Continuation Option" is described below and is available for both
qualified Annuities (i.e. annuities sold to an IRA, Roth IRA, SEP IRA, or
403(b)), Beneficiary Annuities and non-qualified Annuities. This option is
different from the "Beneficiary Annuity", because the Beneficiary Continuation
Option is a death benefit payout option used explicitly for annuities issued
by a Prudential affiliate. Under the Beneficiary Continuation Option:
.. The Beneficiary must apply at least $15,000 to the Beneficiary Continuation
Option (thus, the Death Benefit amount payable to each Beneficiary must be
at least $15,000).
.. The Annuity will be continued in the Owner's name, for the benefit of the
Beneficiary.
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.. Beginning on the date we receive an election by the Beneficiary to take the
Death Benefit in a form other than a lump sum, the Beneficiary will incur a
Settlement Service Charge which is an annual charge assessed on a daily
basis against the average assets allocated to the Sub-accounts. The charge
is 1.00% per year.
.. Beginning on the date we receive an election by the Beneficiary to take the
Death Benefit in a form other than a lump sum, the Beneficiary will incur
an annual maintenance fee equal to the lesser of $30 or 2% of Unadjusted
Account Value. The fee will only apply if the Unadjusted Account Value is
less than $25,000 at the time the fee is assessed. The fee will not apply
if it is assessed 30 days prior to a surrender request.
.. The initial Account Value will be equal to any Death Benefit (including any
optional Death Benefit) that would have been payable to the Beneficiary if
the Beneficiary had taken a lump sum distribution.
.. The available Sub-accounts will be among those available to the Owner at
the time of death, however certain Sub-accounts may not be available.
.. The Beneficiary may request transfers among Sub-accounts, subject to the
same limitations and restrictions that applied to the Owner. Transfers in
excess of 20 per year will incur a $10 transfer fee.
.. No MVA Options will be offered for Beneficiary Continuation Options.
.. No additional Purchase Payments can be applied to the Annuity. Multiple
death benefits cannot be combined in a single Beneficiary Continuation
Option.
.. The basic Death Benefit and any optional benefits elected by the Owner will
no longer apply to the Beneficiary.
.. The Beneficiary can request a withdrawal of all or a portion of the Account
Value at any time, unless the Beneficiary Continuation Option was the
payout predetermined by the Owner and the Owner restricted the
Beneficiary's withdrawal rights.
.. Withdrawals are not subject to CDSC.
.. Upon the death of the Beneficiary, any remaining Account Value will be paid
in a lump sum to the person(s) named by the Beneficiary (successor), unless
the successor chooses to continue receiving payments through a Beneficiary
Continuation Option established for the successor. However, the
distributions will continue to be based on the Key Life of the Beneficiary
Continuation Option the successor received the death benefit proceeds from.
.. If the Beneficiary elects to receive the death benefit proceeds under the
Beneficiary Continuation Option, we must receive the election in Good Order
at least 14 days prior to the first required distribution. If, for any
reason, the election impedes our ability to complete the first distribution
by the required date, we will be unable to accept the election.
We may pay compensation to the broker-dealer of record on the Annuity based on
amounts held in the Beneficiary Continuation Option. Please contact us for
additional information on the availability, restrictions and limitations that
will apply to a Beneficiary under the Beneficiary Continuation Option.
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VALUING YOUR INVESTMENT
VALUING THE SUB-ACCOUNTS
When you allocate Account Value to a Sub-account, you are purchasing Units of
the Sub-account. Each Sub-account invests exclusively in shares of an
underlying Portfolio. The value of the Units fluctuates with the market
fluctuations of the Portfolios. The value of the Units also reflects the daily
accrual for the Insurance Charge, and if you elected one or more optional
benefits whose annualized charge is deducted daily, the additional charge for
such benefits.
Each Valuation Day, we determine the price for a Unit of each Sub-account,
called the "Unit Price". The Unit Price is used for determining the value of
transactions involving Units of the Sub-accounts. We determine the number of
Units involved in any transaction by dividing the dollar value of the
transaction by the Unit Price of the Sub-account as of the Valuation Day.
There may be several different Unit Prices for each Sub-account to reflect the
Insurance Charge and the charges for any optional benefits. The Unit Price for
the Units you purchase will be based on the total charges for the benefits
that apply to your Annuity. See the section below entitled "Termination of
Optional Benefits" for a detailed discussion of how Units are purchased and
redeemed to reflect changes in the daily charges that apply to your Annuity.
Example
Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the
allocation, the Unit Price is $14.83. Your $5,000 buys 337.154 Units of the
Sub-account. Assume that later, you wish to transfer $3,000 of your Account
Value out of that Sub-account and into another Sub-account. On the Valuation
Day you request the transfer, the Unit Price of the original Sub-account has
increased to $16.79 and the Unit Price of the new Sub-account is $17.83. To
transfer $3,000, we redeem 178.677 Units at the current Unit Price, leaving
you 158.477 Units. We then buy $3,000 of Units of the new Sub-account at the
Unit Price of $17.83. You would then have 168.255 Units of the new Sub-account.
PROCESSING AND VALUING TRANSACTIONS
Pruco Life is generally open to process financial transactions on those days
that the New York Stock Exchange (NYSE) is open for trading. There may be
circumstances where the NYSE does not open on a regularly scheduled date or
time or closes at an earlier time than scheduled (normally 4:00 p.m. EST).
Generally, financial transactions requested in Good Order before the close of
regular trading on the NYSE will be processed according to the value next
determined following the close of business. Financial transactions requested
on a non-business day or after the close of regular trading on the NYSE will
be processed based on the value next computed on the next Valuation Day. There
may be circumstances when the opening or closing time of regular trading on
the NYSE is different than other major stock exchanges, such as NASDAQ or the
American Stock Exchange. Under such circumstances, the closing time of regular
trading on the NYSE will be used when valuing and processing transactions.
The NYSE is closed on the following nationally recognized holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas. On those dates, we
will not process any financial transactions involving purchase or redemption
orders. Pruco Life will also not process financial transactions involving
purchase or redemption orders or transfers on any day that:
.. trading on the NYSE is restricted;
.. an emergency, as determined by the SEC, exists making redemption or
valuation of securities held in the Separate Account impractical; or
.. the SEC, by order, permits the suspension or postponement for the
protection of security holders.
If, pursuant to SEC rules, the AST Money Market Portfolio suspends payment of
redemption proceeds in connection with a liquidation of the Portfolio, we will
delay payment of any transfer, full or partial withdrawal, or death
benefit from the AST Money Market Sub-account until the Portfolio is
liquidated.
We have arrangements with certain selling firms, under which receipt by the
firm in Good Order prior to our cut-off time on a given Valuation Day is
treated as receipt by us on that Valuation Day for pricing purposes.
Currently, we have such an arrangement with Citigroup Global Markets Inc.
("CGM"). We extend this pricing treatment to orders that you submit directly
through CGM and to certain orders submitted through Morgan Stanley Smith
Barney LLC ("MSSB") where CGM serves as clearing firm for MSSB. Your MSSB
registered representative can tell you whether your order will be cleared
through CGM. In addition, we currently have an arrangement with Merrill,
Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch") under which transfer
orders between Sub-accounts that are received in Good Order by Merrill Lynch
prior to the NYSE close on a given Valuation Day will be priced by us as of
that Valuation Day. The arrangements with CGM, MSSB, and Merrill Lynch may be
terminated at any time or modified in certain circumstances.
Initial Purchase Payments: We are required to allocate your initial Purchase
Payment to the Sub-accounts within two (2) Valuation Days after we receive the
Purchase Payment in Good Order at our Service Office. If we do not have all
the required information to allow us to issue your Annuity, we may retain the
Purchase Payment while we try to reach you or your representative to obtain
all of our requirements. If we are unable to obtain all of our required
information within five (5) Valuation
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Days, we are required to return the Purchase Payment to you at that time,
unless you specifically consent to our retaining the Purchase Payment while we
gather the required information. Once we obtain the required information, we
will invest the Purchase Payment and issue an Annuity within two (2) Valuation
Days. With respect to your initial Purchase Payment that is pending investment
in our separate account, we may hold the amount temporarily in a suspense
account and may earn interest on such amount. You will not be credited with
interest during that period.
As permitted by applicable law, the broker-dealer firm through which you
purchase your Annuity may forward your initial Purchase Payment to us prior to
approval of your purchase by a registered principal of the firm. These
arrangements are subject to a number of regulatory requirements, including
that until such time that the insurer is notified of the firm's principal
approval and is provided with the application, or is notified of the firm
principal's rejection, customer funds will be held by the insurer in a
segregated bank account. In addition, the insurer must promptly return the
customer's funds at the customer's request prior to the firm's principal
approval or upon the firm's rejection of the application. The monies held in
the bank account will be held in a suspense account within our general account
and we may earn interest on amounts held in that suspense account. Contract
owners will not be credited with any interest earned on amounts held in that
suspense account. The monies in such suspense account may be subject to our
general creditors. Moreover, because the FINRA rule authorizing the use of
such accounts is new, there may be uncertainty as to the segregation and
treatment of such insurance company general account assets under applicable
Federal and State laws.
Additional Purchase Payments: We will apply any additional Purchase Payments
on the Valuation Day that we receive the Purchase Payment at our Service
Office in Good Order. We may limit, restrict, suspend or reject any additional
Purchase Payments at any time, on a non-discriminatory basis.
Scheduled Transactions: Scheduled transactions include transfers under Dollar
Cost Averaging, the Asset Allocation Program, Auto-Rebalancing, Systematic
Withdrawals, Systematic Investments, Required Minimum Distributions,
substantially equal periodic payments under section 72(t)/72(q) of the Code,
and annuity payments. Scheduled transactions are processed and valued as of
the date they are scheduled, unless the scheduled day is not a Valuation Day.
In that case, the transaction will be processed and valued on the next
Valuation Day, unless (with respect to Required Minimum Distributions,
substantially equal periodic payments under Section 72(t)/72(q) of the Code,
and annuity payments only), the next Valuation Day falls in the subsequent
calendar year, in which case the transaction will be processed and valued on
the prior Valuation Day.
Unscheduled Transactions: "Unscheduled" transactions include any other
non-scheduled transfers and requests for partial withdrawals or Free
Withdrawals or Surrenders. With respect to certain written requests to
withdraw Account Value, we may seek to verify the requesting Owner's
signature. Specifically, we reserve the right to perform a signature
verification for (a) any withdrawal exceeding a certain dollar amount and
(b) a withdrawal exceeding a certain dollar amount if the payee is someone
other than the Owner. In addition, we will not honor a withdrawal request in
which the requested payee is the Financial Professional or agent of record. We
reserve the right to request a signature guarantee with respect to a written
withdrawal request. If we do perform a signature verification, we will pay the
withdrawal proceeds within 7 days after the withdrawal request was received by
us in Good Order, and will process the transaction in accordance with the
discussion in "Processing And Valuing Transactions"
Medically-related Surrenders & Death Benefits: Medically-Related Surrender
requests and Death Benefit claims require our review and evaluation before
processing. We price such transactions as of the date we receive at our
Service Office in Good Order all supporting documentation we require for such
transactions.
We are generally required by law to pay any surrender request or death benefit
claims from the Separate Account within 7 days of our receipt of your request
in Good Order at our Service Office.
Termination of Optional Benefits: In general, if an optional benefit
terminates, we will no longer deduct the charge we apply to purchase the
optional benefit. However, for the Highest Daily Lifetime Income v2.1
benefits, if the benefit terminates for any reason other than death or
annuitization, we will deduct a final charge upon termination, based on the
number of days since the charge for the benefit was most recently deducted.
Certain optional benefits may be added after you have purchased your Annuity.
On the date a charge no longer applies or a charge for an optional benefit
begins to be deducted, your Annuity will become subject to a different charge.
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TAX CONSIDERATIONS
The tax considerations associated with an Annuity vary depending on whether
the contract is (i) owned by an individual or non-natural person, and not
associated with a tax-favored retirement plan, or (ii) held under a
tax-favored retirement plan. We discuss the tax considerations for these
categories of contracts below. The discussion is general in nature and
describes only federal income tax law (not state or other tax laws). It is
based on current law and interpretations, which may change. The information
provided is not intended as tax advice. You should consult with a qualified
tax advisor for complete information and advice. References to Purchase
Payments below relate to your cost basis in your contract. Generally, your
cost basis in a contract not associated with a tax-favored retirement plan is
the amount you pay into your contract, or into annuities exchanged for your
contract, on an after-tax basis less any withdrawals of such payments. Cost
basis for a tax-favored retirement plan is provided only in limited
circumstances, such as for contributions to a Roth IRA or nondeductible IRA.
The discussion includes a description of certain spousal rights under the
contract, and our administration of such spousal rights and related tax
reporting comport 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,
domestic partners or same-sex marriages. You should be aware, however, that
federal tax law does not recognize civil union couples, domestic partners or
marriage spouses of the same sex. Therefore, we cannot permit a same-sex civil
union partner, domestic partner or spouse to continue the annuity within the
meaning of the tax law upon the death of the first partner under the annuity's
"spousal continuance" provision. Please note there may be federal tax
consequences at the death of the first same-sex civil union partner, domestic
partner or spouse. Civil union couples, domestic partners and spouses of the
same sex should consider that limitation before selecting a spousal benefit
under the annuity.
The discussion below generally assumes that the Annuity is issued to the
Annuity Owner. For Annuities issued under the Beneficiary Continuation Option
or as a Beneficiary Annuity, refer to the Taxes Payable by Beneficiaries for
Nonqualified Annuity Contracts and Required Distributions Upon Your Death for
Qualified Annuity Contracts in this Tax Considerations section.
NONQUALIFIED ANNUITY CONTRACTS
In general, as used in this prospectus, a Nonqualified Annuity is owned by an
individual or non-natural person and is not associated with a tax-favored
retirement plan.
Taxes Payable by You We believe the Annuity is an annuity contract for tax
purposes. Accordingly, as a general rule, you should not pay any tax until you
receive money under the contract. Generally, annuity contracts issued by the
same company (and affiliates) to you during the same calendar year must be
treated as one annuity contract for purposes of determining the amount subject
to tax under the rules described below. Charges for investment advisory fees
that are taken from the contract are treated as a partial withdrawal from the
contract and will be reported as such to the contract Owner.
It is possible that the Internal Revenue Service (IRS) could assert that some
or all of the charges for the optional benefits under the contract should be
treated for federal income tax purposes as a partial withdrawal from the
contract. If this were the case, the charge for this benefit could be deemed a
withdrawal and treated as taxable to the extent there are earnings in the
contract. Additionally, for Owners under age 59 1/2, the taxable income
attributable to the charge for the benefit could be subject to a tax penalty.
If the IRS determines that the charges for one or more benefits under the
contract are taxable withdrawals, then the sole or surviving Owner will be
provided with a notice from us describing available alternatives regarding
these benefits.
You must commence annuity payments or surrender your Annuity no later than the
first day of the calendar month next following the maximum Annuity date for
your Annuity. For some of our contracts, you are able to choose to defer the
Annuity Date beyond the default Annuity date described in your Annuity.
However, the IRS may not then consider your contract to be an annuity under
the tax law.
Taxes on Withdrawals and Surrender If you make a withdrawal from your contract
or surrender it before annuity payments begin, the amount you receive will be
taxed as ordinary income, rather than as return of Purchase Payments, until
all gain has been withdrawn. Once all gain has been withdrawn, payments will
be treated as a nontaxable return of Purchase Payments until all Purchase
Payments have been returned. After all Purchase Payments are returned, all
subsequent amounts will be taxed as ordinary income. You will generally be
taxed on any withdrawals from the contract while you are alive even if the
withdrawal is paid to someone else. Withdrawals under any of the optional
living benefits or as a systematic payment are taxed under these rules. If you
assign or pledge all or part of your contract as collateral for a loan, the
part assigned generally will be treated as a withdrawal and subject to income
tax to the extent of gain. If you transfer your contract for less than full
consideration, such as by gift, you will also trigger tax on any gain in the
contract. This rule does not apply if you transfer the contract to your spouse
or under most circumstances if you transfer the contract incident to divorce.
If you choose to receive payments under an interest payment option, or a
Beneficiary chooses to receive a death benefit under an interest payment
option, that election will be treated, for tax purposes, as surrendering your
Annuity and will immediately subject any gain in the contract to income tax.
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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 has 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.
If your Account Value is reduced to zero but the Annuity remains in force due
to a benefit provision, further distributions from the Annuity will be
reported as annuity payments, using an exclusion ratio based upon the
undistributed purchase payments in the Annuity and the total value of the
anticipated future payments until such time as all Purchase Payments have been
recovered.
Please refer to your Annuity contract for the maximum Annuity Date, also
described above.
Partial Annuitization Effective January 1, 2011, an individual may partially
annuitize their non-qualified annuity if the contract so permits. The Small
Business Jobs Act of 2010 included a provision which allows for a portion of a
non-qualified annuity, endowment or life insurance contract to be annuitized
while the balance is not annuitized. The annuitized portion must be paid out
over 10 or more years or over the lives of one or more individuals. The
annuitized portion of the contract is treated as a separate contract for
purposes of determining taxability of the payments under IRC section 72. We do
not currently permit partial annuitization.
Medicare Tax on Net Investment Income The Patient Protection and Affordable
Care Act, also known as the 2010 Health Care Act, included a new Medicare tax
on investment income. This new tax, which is effective in 2013, assesses a
3.8% surtax on the lesser of (1) net investment income or (2) the excess of
"modified adjusted gross income" over a threshold amount. The "threshold
amount" is $250,000 for married taxpayers filing jointly, $125,000 for married
taxpayers filing separately, $200,000 for single taxpayers, and approximately
$12,000 for trusts. The taxable portion of payments received as a withdrawal,
surrender, annuity payment, death benefit payment or any other actual or
deemed distribution under the contract will be considered investment income
for purposes of this surtax.
Tax Penalty for Early Withdrawal from a Nonqualified Annuity Contract You may
owe a 10% tax penalty on the taxable part of distributions received from your
Nonqualified Annuity contract before you attain age 59 1/2. Amounts are not
subject to this tax penalty if:
.. the amount is paid on or after you reach age 59 1/2 or die;
.. the amount received is attributable to your becoming disabled;
.. generally the amount paid or received is in the form of substantially equal
payments (as defined in the Code) not less frequently than annually (please
note that substantially equal payments must continue until the later of
reaching age 59 1/2 or 5 years and modification of payments during that
time period will result in retroactive application of the 10% tax penalty);
or
.. the amount received is paid under an immediate annuity contract (in which
annuity payments begin within one year of purchase).
Other exceptions to this tax may apply. You should consult your tax advisor
for further details.
Special Rules in Relation to Tax-free Exchanges Under Section 1035
Section 1035 of the Code permits certain tax-free exchanges of a life
insurance, annuity or endowment contract for an annuity, including tax-free
exchanges of annuity death benefits for a Beneficiary Annuity. Partial
surrenders may be treated in the same way as tax-free 1035 exchanges of entire
contracts, therefore avoiding current taxation of the partially exchanged
amount as well as the 10% tax penalty on pre-age 59 1/2 withdrawals. In
Revenue Procedure 2011-38, the IRS has indicated that, for exchanges on or
after October 24, 2011, where there is a surrender or distribution from either
the initial annuity contract or receiving annuity contract within 180 days of
the date on which the partial exchange was completed, the IRS will apply
general tax rules to determine the substance and treatment of the original
transfer. We strongly urge you to discuss any transaction of this type with
your tax advisor before proceeding with the transaction.
If an Annuity is purchased through a tax-free exchange of a life insurance,
annuity or endowment contract that was purchased prior to August 14, 1982,
then any Purchase Payments made to the original contract prior to August 14,
1982 will be treated as made to the new contract prior to that date.
Generally, such pre-August 14, 1982 withdrawals are treated as a recovery of
your investment in the contract first until Purchase Payments made before
August 14, 1982 are withdrawn. Moreover, income allocable to Purchase Payments
made before August 14, 1982, is not subject to the 10% tax penalty.
Taxes Payable by Beneficiaries
The Death Benefit options are subject to ordinary 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 for federal estate tax purposes. Generally, the same tax rules
described above would also apply to amounts received by your Beneficiary.
Choosing an
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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 in the year of payment on
gain in the contract.
.. Within 5 years of death of Owner: the Beneficiary is taxed as amounts are
withdrawn (in this case gain is treated as being distributed first).
.. Under an annuity or annuity settlement option with distribution beginning
within one year of the date of death of the Owner: the Beneficiary is taxed
on each payment (part will be treated as gain and part as return of
Purchase Payments).
Considerations for Contingent Annuitants: We may allow the naming of a
contingent Annuitant when a Nonqualified Annuity contract is held by a pension
plan or a tax favored retirement plan, or held by a Custodial Account (as
defined earlier in this prospectus). In such a situation, the Annuity may no
longer qualify for tax deferral where the Annuity contract continues after the
death of the Annuitant. However, tax deferral should be provided instead by
the pension plan, tax favored retirement plan, or Custodial Account. We may
also allow the naming of a contingent annuitant when a Nonqualified Annuity
contract is held by an entity owner when such contracts do not qualify for tax
deferral under the current tax law. This does not supersede any benefit
language which may restrict the use of the contingent annuitant.
Reporting and Withholding on Distributions Taxable amounts distributed from an
Annuity are subject to federal and state income tax reporting and withholding.
In general, we will withhold federal income tax from the taxable portion of
such distribution based on the type of distribution. In the case of an annuity
or similar periodic payment, we will withhold as if you are a married
individual with three (3) exemptions unless you designate a different
withholding status. If no U.S. taxpayer identification number is provided, we
will automatically withhold using single with zero exemptions as the default.
In the case of all other distributions, we will withhold at a 10% rate. You
may generally elect not to have tax withheld from your payments. An election
out of withholding must be made on forms that we provide. If you are a U.S.
person (including resident alien), and your address of record is a non-U.S.
address, we are required to withhold income tax unless you provide us with a
U.S. residential address.
State income tax withholding rules vary and we will withhold based on the
rules of your State of residence. Special tax rules apply to withholding for
nonresident aliens, and we generally withhold income tax for nonresident
aliens at a 30% rate. A different withholding rate may be applicable to a
nonresident alien based on the terms of an existing income tax treaty between
the United States and the nonresident alien's country. Please refer to the
discussion below regarding withholding rules for a Qualified Annuity.
Regardless of the amount withheld by us, you are liable for payment of federal
and state income tax on the taxable portion of annuity distributions. You
should consult with your tax advisor regarding the payment of the correct
amount of these income taxes and potential liability if you fail to pay such
taxes.
Entity Owners
Where a contract is held by a non-natural person (e.g. a corporation), other
than as an agent or nominee for a natural person (or in other limited
circumstances), the contract will not be taxed as an annuity and increases in
the value of the contract over its cost basis will be subject to tax annually.
Where a contract is issued to a Charitable Remainder Trust (CRT), 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. As there are charges for
the living benefits described elsewhere in this prospectus, and such charges
reduce the contract value of the Annuity, trustees of the CRT should discuss
with their legal advisors whether election of such living benefits violates
their fiduciary duty to the remainder beneficiary.
Where a contract is issued to a trust, and such trust is characterized as a
grantor trust under the Code, such contract shall not be considered to be held
by a non-natural person and will be subject to the tax reporting and
withholding requirements generally applicable to a Nonqualified Annuity. At
this time, we will not issue an Annuity to grantor trusts with multiple
grantors.
At this time, we will not issue an Annuity to a grantor trust where the
Grantor is not also the Annuitant. Where a previously issued contract was
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 of the trust 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 trust and it is not eligible for the death benefit provided
under the contract.
Annuity Qualification
Diversification And Investor Control. In order to qualify for the tax rules
applicable to annuity contracts described above, the assets underlying the
Sub-accounts of an Annuity must be diversified, according to certain rules
under the Internal Revenue Code. Each portfolio is required to diversify its
investments each quarter so that no more than 55% of the value of its assets
is represented by any one investment, no more than 70% is represented by any
two investments, no more than 80% is represented by any three investments, and
no more than 90% is represented by any four investments. Generally, securities
of a single issuer are treated as
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one investment and obligations of each U.S. Government agency and
instrumentality (such as the Government National Mortgage Association) are
treated as issued by separate issuers. In addition, any security issued,
guaranteed or insured (to the extent so guaranteed or insured) by the United
States or an instrumentality of the U.S. will be treated as a security issued
by the U.S. Government or its instrumentality, where applicable. We believe
the Portfolios underlying the variable Investment Options of the Annuity meet
these diversification requirements.
An additional requirement for qualification for the tax treatment described
above is that we, and not you as the contract Owner, must have sufficient
control over the underlying assets to be treated as the Owner of the
underlying assets for tax purposes. While we also believe these investor
control rules will be met, the Treasury Department may promulgate guidelines
under which a variable annuity will not be treated as an annuity for tax
purposes if persons with ownership rights have excessive control over the
investments underlying such variable annuity. It is unclear whether such
guidelines, if in fact promulgated, would have retroactive effect. It is also
unclear what effect, if any, such guidelines might have on transfers between
the Investment Options offered pursuant to this prospectus. We reserve the
right to take any action, including modifications to your Annuity or the
Investment Options, required to comply with such guidelines if promulgated.
Any such changes will apply uniformly to affected Owners and will be made with
such notice to affected Owners as is feasible under the circumstances.
Required Distributions Upon Your Death for Nonqualified Annuity Contracts.
Upon your death, certain distributions must be made under the contract. The
required distributions depend on whether you die before you start taking
annuity payments under the contract or after you start taking annuity payments
under the contract. If you die on or after the Annuity Date, the remaining
portion of the interest in the contract must be distributed at least as
rapidly as under the method of distribution being used as of the date of
death. If you die before the Annuity Date, the entire interest in the contract
must be distributed within 5 years after the date of death, or as periodic
payments over a period not extending beyond the life or life expectancy of the
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 Annuity is payable to (or for the benefit of)
your surviving spouse, that portion of the contract may be continued with your
spouse as the Owner. For Nonqualified annuity contracts owned by a non-natural
person, the required distribution rules apply upon the death of the Annuitant.
This means that for a contract held by a non-natural person (such as a trust)
for which there is named a co-annuitant, then such required distributions will
be triggered by the death of the first co-annuitants to die.
Changes In Your Annuity. We reserve the right to make any changes we deem
necessary to assure that your Annuity qualifies as an annuity contract for tax
purposes. Any such changes will apply to all contract Owners and you will be
given notice to the extent feasible under the circumstances.
QUALIFIED ANNUITY CONTRACTS
In general, as used in this prospectus, a Qualified Annuity is an Annuity
contract with applicable endorsements for a tax-favored plan or a Nonqualified
Annuity contract held by a tax-favored retirement plan.
The following is a general discussion of the tax considerations for Qualified
Annuity contracts. This Annuity may or may not be available for all types of
the tax-favored retirement plans discussed below. This discussion assumes that
you have satisfied the eligibility requirements for any tax-favored retirement
plan. Please consult your Financial Professional prior to purchase to confirm
if this contract is available for a particular type of tax-favored retirement
plan or whether we will accept the type of contribution you intend for this
contract.
A Qualified annuity may typically be purchased for use in connection with:
.. Individual retirement accounts and annuities (IRAs), 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 annuity 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.
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).
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Types of Tax-Favored Plans
IRA. If you buy an Annuity for use as an IRA, we will provide you a copy of
the prospectus and contract. The "IRA Disclosure Statement" and "Roth IRA
Disclosure Statement" which accompany the prospectus contain information about
eligibility, contribution limits, tax particulars, and other IRA information.
In addition to this information (some of which is summarized below), the IRS
requires that you have a "Free Look" after making an initial contribution to
the contract. During this time, you can cancel the Annuity by notifying us in
writing, and we will refund all of the Purchase Payments under the Annuity
(or, if provided by applicable state law, the amount credited under the
Annuity, if greater), less any applicable federal and state income
tax withholding.
Contributions Limits/Rollovers. Subject to the minimum Purchase Payment
requirements of an Annuity, you may purchase an Annuity for an IRA in
connection with a "rollover" of amounts from a qualified retirement plan, as a
transfer from another IRA, by making a contribution consisting of your IRA
contributions and catch-up contributions, if applicable, attributable to the
prior year during the period from January 1 to April 15 (or the applicable due
date of your federal income tax return, without extension), or as a current
year contribution. In 2013 the contribution limit is $5,500 ($5,000 for 2012).
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 an Annuity, you can make regular IRA
contributions under the Annuity (to the extent permitted by law). However, if
you make such regular IRA contributions, you should note that you will not be
able to treat the contract as a "conduit IRA", which means that you will not
retain possible favorable tax treatment if you subsequently "roll over" the
contract funds originally derived from a qualified retirement plan or TDA into
another Section 401(a) plan or TDA.
In some circumstances, non-spouse Beneficiaries may roll over to an IRA
amounts due from qualified plans, 403(b) plans, and governmental 457(b) plans.
However, 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 Worker,
Retiree and Employer Recovery Act of 2008, 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. An inherited IRA must be
directly rolled over from the employer plan or transferred from an IRA and
must be titled in the name of the deceased (i.e., John Doe deceased for the
benefit of Jane Doe). No additional contributions can be made to an inherited
IRA. In this prospectus, an inherited IRA is also referred to as a Beneficiary
Annuity.
Required Provisions. Contracts that are IRAs (or endorsements that are part of
the contract) must contain certain provisions:
.. You, as Owner of the contract, must be the "Annuitant" under the contract
(except in certain cases involving the division of property under a decree
of divorce);
.. Your rights as Owner are non-forfeitable;
.. You cannot sell, assign or pledge the contract;
.. The annual contribution you pay cannot be greater than the maximum amount
allowed by law, including catch-up contributions if applicable (which does
not include any rollover amounts);
.. The date on which required minimum distributions must begin cannot be later
than April 1st of the calendar year after the calendar year you turn age
70 1/2; and
.. Death and annuity payments must meet "required minimum distribution" rules
described below.
Usually, the full amount of any distribution from an IRA (including a
distribution from this contract) which is not a rollover is taxable. As
taxable income, these distributions are subject to the general tax withholding
rules described earlier regarding a Nonqualified Annuity. In addition to this
normal tax liability, you may also be liable for the following, depending on
your actions:
.. A 10% early withdrawal penalty described below;
.. Liability for "prohibited transactions" if you, for example, borrow against
the value of an IRA; or
.. Failure to take a required minimum distribution, also described below.
SEPs. SEPs are a variation on a standard IRA, and contracts issued to a SEP
must satisfy the same general requirements described under IRAs (above). There
are, however, some differences:
.. If you participate in a SEP, you generally do not include in income any
employer contributions made to the SEP on your behalf up to the lesser of
(a) $51,000 in 2013 ($50,000 in 2012) 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 2013, this limit is $255,000 ($250,000
for 2012);
.. SEPs must satisfy certain participation and nondiscrimination requirements
not generally applicable to IRAs; and
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.. SEPs that contain a salary reduction or "SARSEP" provision prior to 1997
may permit salary deferrals up to $17,500 in 2013 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 2013. These amounts are indexed for
inflation. Not all Annuities issued by us are available for SARSEPs. You
will also be provided the same information, and have the same "Free Look"
period, as you would have if you purchased the contract for a standard IRA.
ROTH IRAs. The "Roth IRA Disclosure Statement" contains information about
eligibility, contribution limits, tax particulars and other Roth IRA
information. Like standard IRAs, income within a Roth IRA accumulates
tax-free, and contributions are subject to specific limits. Roth IRAs have,
however, the following differences:
.. Contributions to a Roth IRA cannot be deducted from your gross income;
.. "Qualified distributions" from a Roth IRA are excludable from gross income.
A "qualified distribution" is a distribution that satisfies two
requirements: (1) the distribution must be made (a) after the Owner of the
IRA attains age 59 1/2; (b) after the Owner's death; (c) due to the Owner's
disability; or (d) for a qualified first time homebuyer distribution within
the meaning of Section 72(t)(2)(F) of the Code; and (2) the distribution
must be made in the year that is at least five tax years after the first
year for which a contribution was made to any Roth IRA established for the
Owner or five years after a rollover, transfer, or conversion was made from
a traditional IRA to a Roth IRA. Distributions from a Roth IRA that are not
qualified distributions will be treated as made first from contributions
and then from earnings and earnings will be taxed generally in the same
manner as distributions from a traditional IRA.
.. If eligible (including meeting income limitations and earnings
requirements), you may make contributions to a Roth IRA after attaining age
70 1/2, and distributions are not required to begin upon attaining such age
or at any time thereafter.
Subject to the minimum Purchase Payment requirements of an Annuity, you may
purchase an Annuity for a Roth IRA in connection with a "rollover" of amounts
of another traditional IRA, SEP, SIMPLE-IRA, employer sponsored retirement
plan (under sections 401(a) or 403(b) of the Code) or Roth IRA; or, if you
meet certain income limitations, by making a contribution consisting of your
Roth IRA contributions and catch-up contributions, if applicable, attributable
to the prior year during the period from January 1 to April 15 (or the
applicable due date of your federal income tax return, without extension), or
as a current year contribution. The Code permits persons 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. The conversion of non-Roth
accounts triggers current taxation (but is not subject to a 10% early
distribution penalty). Once an Annuity 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. 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. However, it is our
understanding of the Code that non-spouse Beneficiaries cannot "rollover"
benefits from a traditional IRA to a Roth IRA.
TDAs. In general, you may own a Tax Deferred Annuity (also known as a TDA, Tax
Sheltered Annuity (TSA), 403(b) plan or 403(b) annuity) 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
non-forfeitable. 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 $17,500 in 2013. 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 2013. This amount is indexed
for inflation. Further, you may roll over TDA amounts to another TDA or an
IRA. You may also roll over TDA amounts to a qualified retirement plan, a SEP
and a 457 government plan. A contract may generally only qualify as a TDA if
distributions of salary deferrals (other than "grandfathered" amounts held as
of December 31, 1988) may be made only on account of:
.. Your attainment of age 59 1/2;
.. Your severance of employment;
.. Your death;
.. Your total and permanent disability; or
.. Hardship (under limited circumstances, and only related to salary
deferrals, not including earnings attributable to these amounts).
In any event, you must begin receiving distributions from your TDA by
April 1st of the calendar year after the calendar year you turn age 70 1/2 or
retire, whichever is later. These distribution limits do not apply either to
transfers or exchanges of investments under the contract, or to any "direct
transfer" of your interest in the contract to another 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 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
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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. Required minimum
distributions are calculated based on the sum of the Account Value and the
actuarial value of any additional living and death benefits from optional
riders that you have purchased under the contract. As a result, the required
minimum distributions may be larger than if the calculation were based on the
Account Value only, which may in turn result in an earlier (but not before the
required beginning date) distribution of amounts under the Annuity and an
increased amount of taxable income distributed to the Annuity Owner, and a
reduction of payments under the living and death benefit optional riders.
You can use the Minimum Distribution option to satisfy the required minimum
distribution rules for an Annuity without either beginning annuity payments or
surrendering the Annuity. We will distribute to you the required minimum
distribution amount, less any other partial withdrawals that you made during
the year. Such amount will be based on the value of the contract as of
December 31 of the prior year, but is determined without regard to other
contracts you may own.
Although the IRS rules determine the required amount to be distributed from
your IRA each year, certain payment alternatives are still available to you.
If you own more than one IRA, you can choose to satisfy your minimum
distribution requirement for each of your IRAs by withdrawing that amount from
any of your IRAs. If you inherit more than one IRA or more than one Roth IRA
from the same Owner, similar rules apply.
Charitable IRA Distributions.
The Pension Protection Act of 2006 included a charitable giving incentive
permitting tax-free IRA distributions for charitable purposes. The American
Taxpayer Relief Act extended this provision until the end of 2013.
For distributions in tax years beginning after 2005 and before 2014, provide
an exclusion from gross income, up to $100,000 for otherwise taxable IRA
distributions from a traditional or Roth IRA that are qualified charitable
distributions. To constitute a qualified charitable distribution, the
distribution must be made (1) directly by the IRA trustee to certain qualified
charitable organizations and (2) on or after the date the IRA owner attains
age 70 1/2. Special transition rules related to retroactive extension of this
tax law provision permitted different distribution treatment for charitable
IRA distributions made by January 31, 2013. Distributions that are excluded
from income under this provision are not taken into account in determining the
individual's deductions, if any, for charitable contributions.
The IRS has indicated that an IRA trustee is not responsible for determining
whether a distribution to a charity is one that satisfies the requirements for
the new income tax exclusion added by the Pension Protection Act. As a result
the general rules for reporting IRA distributions 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 31st 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 31st 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 31st of the year
following the year of death or December 31st of the year in which you would
have reached age 70 1/2, whichever is later. Additionally, if the contract
is payable to (or for the benefit of) your surviving spouse as sole primary
beneficiary, the contract may be continued with your spouse as the Owner.
.. If you die before a designated Beneficiary is named and before the date
required minimum distributions must begin under the Code, the death benefit
must be paid out by December 31st of the year including the five year
anniversary of the date of death. For contracts where multiple
Beneficiaries have been named and at least one of the Beneficiaries does
not qualify as a designated Beneficiary and the account has not been
divided into separate accounts by December 31st of the year following the
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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.
A Beneficiary has the flexibility to take out more each year than mandated
under the required minimum distribution rules.
Until withdrawn, amounts in a Qualified Annuity contract continue to be tax
deferred. Amounts withdrawn each year, including amounts that are required to
be withdrawn under the required minimum distribution rules, are subject to
tax. You may wish to consult a professional tax advisor for tax advice as to
your particular situation.
For a Roth IRA, if death occurs before the entire interest is distributed, the
death benefit must be distributed under the same rules applied to IRAs where
death occurs before the date required minimum distributions must begin under
the Code.
Tax Penalty for Early Withdrawals from Qualified Annuity Contracts You may owe
a 10% tax penalty on the taxable part of distributions received from an IRA,
SEP, Roth IRA, TDA or qualified retirement plan before you attain age 59 1/2.
Amounts are not subject to this tax penalty if:
.. the amount is paid on or after you reach age 59 1/2 or die;
.. the amount received is attributable to your becoming disabled; or
.. generally the amount paid or received is in the form of substantially equal
payments (as defined in the Code) 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 or
additional contributions to the contract 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. We will not withhold for payments
made from trustee owned contracts or for payments under a 457 plan. 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.
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
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paid to any agent selling the contract. Information about any applicable fees,
charges, discounts, penalties or adjustments may be found in the applicable
sections of this prospectus. Information about sales representatives and
commissions may be found in the sections of this prospectus addressing
distribution of the Annuities.
Other relevant information required by the exemptions is contained in the
contract and accompanying documentation.
Please consult with your tax advisor if you have any questions about ERISA and
these disclosure requirements.
Spousal Consent Rules for Retirement Plans - Qualified Contracts
If you are married at the time your payments commence, you may be required by
federal law to choose an income option that provides survivor annuity income
to your spouse, unless your spouse waives that right. Similarly, if you are
married at the time of your death, federal law may require all or a portion of
the Death Benefit to be paid to your spouse, even if you designated someone
else as your Beneficiary. A brief explanation of the applicable rules follows.
For more information, consult the terms of your retirement arrangement.
Defined Benefit Plans and Money Purchase Pension Plans. If you are married at
the time your payments commence, federal law requires that benefits be paid to
you in the form of a "qualified joint and survivor annuity" (QJSA), unless you
and your spouse waive that right, in writing. Generally, this means that you
will receive a reduced payment during your life and, upon your death, your
spouse will receive at least one-half of what you were receiving for life. You
may elect to receive another income option if your spouse consents to the
election and waives his or her right to receive the QJSA. If your spouse
consents to the alternative form of payment, your spouse may not receive any
benefits from the plan upon your death. Federal law also requires that the
plan pay a Death Benefit to your spouse if you are married and die before you
begin receiving your benefit. This benefit must be available in the form of an
annuity for your spouse's lifetime and is called a "qualified pre-retirement
survivor annuity" (QPSA). If the plan pays Death Benefits to other
Beneficiaries, you may elect to have a Beneficiary other than your spouse
receive the Death Benefit, but only if your spouse consents to the election
and waives his or her right to receive the QPSA. If your spouse consents to
the alternate Beneficiary, your spouse will receive no benefits from the plan
upon your death. Any QPSA waiver prior to your attaining age 35 will become
null and void on the first day of the calendar year in which you attain age
35, if still employed.
Defined Contribution Plans (including 401(k) Plans and ERISA 403(b)
Annuities). Spousal consent to a distribution is generally not required. Upon
your death, your spouse will receive the entire Death Benefit, even if you
designated someone else as your Beneficiary, unless your spouse consents in
writing to waive this right. Also, if you are married and elect an annuity as
a periodic income option, federal law requires that you receive a QJSA (as
described above), unless you and your spouse consent to waive this right.
IRAs, non-ERISA 403(b) Annuities, and 457 Plans. Spousal consent to a
distribution usually is not required. Upon your death, any Death Benefit will
be paid to your designated Beneficiary.
Gifts and Generation-skipping Transfers
If you transfer your contract to another person for less than adequate
consideration, there may be gift tax consequences in addition to income tax
consequences. Also, 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.
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.
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OTHER INFORMATION
PRUCO LIFE AND THE SEPARATE ACCOUNT
Pruco Life. Pruco Life Insurance Company (Pruco Life) is a stock life
insurance company organized in 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 1875.
Prudential is an indirect wholly-owned subsidiary of Prudential Financial,
Inc. (Prudential Financial), a New Jersey insurance holding company. No
company other than Pruco Life has any legal responsibility to pay amounts that
it owes under its annuity contracts. Among other things, this means that where
you participate in an optional living benefit or death benefit and the value
of that benefit (e.g., the Protected Withdrawal Value for Highest Daily
Lifetime Income v2.1) exceeds your current Account Value, you would rely
solely on the ability of Pruco Life to make payments under the benefit out of
its own assets. As Pruco Life's ultimate parent, Prudential Financial,
however, exercises significant influence over the operations and capital
structure of Pruco Life.
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
Securities Exchange Act of 1934 (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 Pruco Life
Insurance Company, One Corporate Drive, Shelton, CT 06484 or by calling
800-752-6342. Pruco Life files periodic reports as required under the Exchange
Act. 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 202-551-8090. The SEC maintains an
Internet site that contains reports, proxy, and information statements, and
other information regarding issuers that file electronically with the SEC (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" or "administrators" under the Investment Company Act of
1940. The entities engaged by Pruco Life may change over time. As of
December 31, 2011, 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, Alerus Retirement Solutions (qualified plan
administrator), State Street Financial Center One, Lincoln Street, Boston, MA
02111, Aprimo (fulfillment of marketing materials), 510 East 96/th/ Street,
Suite 300, Indianapolis, IN 46240, Aplifi (order entry systems provider)
located at 555 SW 12th Ave, Suite 202, Pompano Beach, FL 33069, Broadridge
Investor Communication Solutions, Inc. (proxy tabulation services), 51
Mercedes Way, Edgewood, NY 11717, Consona (maintenance and storage of
administrative documents), 333 Allegheny Avenue, Suite 301 North, Oakmont, PA
15139-2066, Depository Trust & Clearing Corporation (clearing and settlement
services), 55 Water Street, 26/th/ Floor, New York, NY 10041, DG3 North
America, Inc. (proxy and prospectus printing and mailing services), 100 Burma
Road, Jersey City, NJ 07305, DST Systems, Inc. (clearing and settlement
services), 4900 Main, 7/th/ Floor, Kansas City, MO 64112, EBIX, Inc.
(order-entry system), 5 Concourse Parkway, Suite 3200, Atlanta, GA 30328,
ExlService Holdings, Inc., (administration of annuity contracts), 350 Park
Avenue, 10th Floor, New York, NY 10022, Diversified Information Technologies
Inc. (records management), 123 Wyoming Avenue, Scranton, PA 18503, Fiserv
(composition, printing and mailing of confirmation and quarterly statements),
881 Main Street, Manchester, CT 06040, Fosdick Fulfillment Corp. (fulfillment
of prospectuses and marketing materials), 26 Barnes Industrial Park Road,
North Wallingford, CT 06492, Insurance Technologies (annuity illustrations),
38120 Amrhein Ave., Livonia, MI 48150, Morningstar Associates LLC (asset
allocation recommendations) , 225 West Wacker Drive Chicago, IL 60606,
National Financial Services (clearing and settlement services), NEPS, LLC
(composition, printing, and mailing of contracts and benefit documents), 12
Manor Parkway, Salem, NJ 03079, Pershing LLC (order-entry systems provider),
One Pershing Plaza, Jersey City, NJ 07399, RR Donnelley Receivables, Inc.
(printing annual reports and prospectuses), 111 South Wacker Drive, Chicago,
IL 60606-4301, Skywire Software (composition, printing, and mailing of
contracts and benefit documents), 150 Post Street, Suite 500, San Francisco,
CA 94108, VG Reed & Sons, Inc. (printing and fulfillment of annual reports),
1002 South 12th Street, Louisville, KY 40210, William B. Meyer (printing and
fulfillment of prospectuses and marketing materials), 255 Long Beach
Boulevard, Stratford, CT 06615, Right Now Technologies (business information
repository), 136 Enterprise Blvd, Bozeman, MT 59718, The Harty Press (print
vendor for client communications) 25 James Street, New Haven, CT 06513.
The Separate Account. We have established a Separate Account, the Pruco Life
Flexible Premium Variable Annuity Account (Separate Account), to hold the
assets that are associated with the variable annuity contracts. The Separate
Account was established under Arizona law on June 16, 1995, and is registered
with the SEC under the Investment Company Act of 1940 as a unit investment
trust, which is a type of investment company. The assets of the Separate
Account are held in the name of Pruco Life and legally belong to us. These
assets are kept separate from all of our other assets and may not be charged
with liabilities arising
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out of any other business we may conduct. Income, gains, and losses, whether
or not realized, for assets allocated to the Separate Account are, in
accordance with the Annuities, credited to or charged against the Separate
Account without regard to other income, gains, or losses of Pruco Life. The
obligations under the Annuities are those of Pruco Life, which is the issuer
of the Annuities and the depositor of the Separate Account. More detailed
information about Pruco Life, including its audited consolidated financial
statements, is provided in the Statement of Additional Information.
We may offer new Sub-accounts, eliminate Sub-accounts, or combine Sub-accounts
at our sole discretion. We may also close Sub-accounts to additional Purchase
Payments on existing Annuities or close Sub-accounts for Annuities purchased
on or after specified dates. We will first notify you and receive any
necessary SEC and/or state approval before making such a change. If an
underlying mutual fund is liquidated, we will ask you to reallocate any amount
in the liquidated fund. If you do not reallocate these amounts, we will
reallocate such amounts only in accordance with guidance provided by the SEC
or its staff (or after obtaining an order from the SEC, if required). We
reserve the right to substitute underlying portfolios, as allowed by
applicable law. If we make a fund substitution or change, we may change the
Annuity contract to reflect the substitution or change. We do not control the
underlying mutual funds, so we cannot guarantee that any of those funds will
always be available.
If you are enrolled in a Dollar Cost Averaging, Automatic Rebalancing, or
comparable programs while an underlying fund merger, substitution or
liquidation takes place, unless otherwise noted in any communication from us,
your Account Value invested in such underlying fund will be transferred
automatically to the designated surviving fund in the case of mergers, the
replacement fund in the case of substitutions, and an available Money Market
Fund in the case of fund liquidations. Your enrollment instructions will be
automatically updated to reflect the surviving fund, the replacement fund or a
Money Market Fund for any continued and future investments.
With the MVA Options, we use a separate account of Pruco Life different from
the Pruco Life Flexible Premium Variable Annuity Account discussed above. This
separate account is not registered under the Investment Company Act of 1940.
Moreover, you do not participate in the appreciation or depreciation of the
assets held by that separate account.
Service Fees Payable to Pruco Life
Pruco Life and/or our affiliates receive substantial and varying
administrative service payments, Rule 12b-1 fees, and "revenue sharing"
payments from certain underlying Portfolios or related parties. Rule 12b-1
fees compensate our affiliated principal underwriter for shareholder services
and distribution expenses. Administrative services payments compensate us for
providing administrative services with respect to Annuity Owners invested
indirectly in the Portfolio, which include duties such as recordkeeping
shareholder services, and the mailing of periodic reports. We receive
administrative services fees with respect to both affiliated underlying
Portfolios and unaffiliated underlying Portfolios. The administrative services
fees we receive from affiliates originate from the assets of the affiliated
Portfolio itself and/or the assets of the Portfolio's investment advisor. In
recognition of the administrative services provided by the relevant affiliated
insurance companies, the investment advisors to certain affiliated Portfolios
also make "revenue sharing" payments to such affiliated insurance companies.
In any case, the existence of these payments tends to increase the overall
cost of investing in the Portfolio. In addition, because these payments are
made to us, allocations you make to these affiliated underlying Portfolios
benefit us financially.
We collect these payments and fees under agreements between us and a
Portfolio's principal underwriter, transfer agent, investment advisor and/or
other entities related to the Portfolio.
The 12b-1 fees and administrative services fees that we receive may vary among
the different fund complexes that are part of our investment platform. Thus,
the fees we collect may be greater or smaller, based on the Portfolios that
you select. In addition, we may consider these payments and fees, among a
number of factors, when deciding to add or keep a Portfolio on the "menu" of
Portfolios that we offer through the Annuity. Please see the table entitled
"Underlying Mutual Fund Portfolio Annual Expenses" earlier in this prospectus
for a listing of the Portfolios that pay a 12b-1 fee.
With respect to administrative services fees, the maximum fee (as of December
31, 2011) that we receive is equal to 0.40% of the average assets allocated to
the Portfolio(s) under the Annuity. We expect to make a profit on these fees.
In addition, an investment advisor, sub-advisor or distributor of the
underlying Portfolios may also compensate us by providing reimbursement,
defraying the costs of, or paying directly for, among other things, marketing
and/or administrative services and/or other services they provide in
connection with the Annuity. These services may include, but are not limited
to: sponsoring or co-sponsoring various promotional, educational or marketing
meetings and seminars attended by distributors, wholesalers, and/or broker
dealer firms' registered representatives, and creating marketing material
discussing the contract, available options, and underlying Portfolios. The
amounts paid depend on the nature of the meetings, the number of meetings
attended by the advisor, sub-advisor, or distributor, the number of
participants and attendees at the meetings, the costs expected to be incurred,
and the level of the advisor's, sub-advisor's or distributor's participation.
These payments or reimbursements may not be offered by all advisors,
sub-advisors, or distributors, and the amounts of such payments may vary
between and among each advisor, sub-advisor, and distributor depending on
their respective participation.
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During 2011, with regard to amounts that were paid under these kinds of
arrangements described immediately above, the amounts ranged from
approximately $125 to approximately $789,756. These amounts may have been paid
to one or more Prudential-affiliated insurers issuing individual variable
annuities.
LEGAL STRUCTURE OF THE UNDERLYING FUNDS
Each underlying mutual fund is registered as an open-end management investment
company under the Investment Company Act of 1940. Shares of the underlying
mutual fund Portfolios are sold to Separate Accounts of life insurance
companies offering variable annuity and variable life insurance products. The
shares may also be sold directly to qualified pension and retirement plans.
Voting Rights
We are the legal owner of the shares of the underlying mutual funds in which
the Sub-accounts invest. However, under current SEC rules, you have voting
rights in relation to Account Value maintained in the Sub-accounts. If an
underlying mutual fund portfolio requests a vote of shareholders, we will vote
our shares based on instructions received from Owners with Account Value
allocated to that Sub-account. Owners have the right to vote an amount equal
to the number of shares attributable to their contracts. If we do not receive
voting instructions in relation to certain shares, we will vote those shares
in the same manner and proportion as the shares for which we have received
instructions. This voting procedure is sometimes referred to as "mirror
voting" because, as indicated in the immediately preceding sentence, we mirror
the votes that are actually cast, rather than decide on our own how to vote.
We will also "mirror vote" shares that are owned directly by us or an
affiliate (excluding shares held in the separate account of an affiliated
insurer). In addition, because all the shares of a given mutual fund held
within our Separate Account are legally owned by us, we intend to vote all of
such shares when that underlying fund seeks a vote of its shareholders. As
such, all such shares will be counted towards whether there is a quorum at the
underlying fund's shareholder meeting and towards the ultimate outcome of the
vote. Thus, under "mirror voting", it is possible that the votes of a small
percentage of contract holders who actually vote will determine the ultimate
outcome. We will furnish those Owners who have Account Value allocated to a
Sub-account whose underlying mutual fund portfolio has requested a "proxy"
vote with proxy materials and the necessary forms to provide us with their
voting instructions. Generally, you will be asked to provide instructions for
us to vote on matters such as changes in a fundamental investment strategy,
adoption of a new investment advisory agreement, or matters relating to the
structure of the underlying mutual fund that require a vote of shareholders.
We reserve the right to change the voting procedures described above if
applicable SEC rules change.
Advanced Series Trust (the "Trust") has obtained an exemption from the
Securities and Exchange Commission that permits its co-investment advisers,
AST Investment Services, Inc. and Prudential Investments LLC, subject to
approval by the Board of Trustees of the Trust, to change sub-advisors for a
Portfolio and to enter into new sub-advisory agreements, without obtaining
shareholder approval of the changes. This exemption (which is similar to
exemptions granted to other investment companies that are organized in a
similar manner as the Trust) is intended to facilitate the efficient
supervision and management of the sub-advisors by AST Investment Services,
Inc., Prudential Investments LLC and the Trustees. The exemption does not
apply to the AST Franklin Templeton Founding Funds Allocation Portfolio;
shareholder approval of new subadvisory agreements for this Portfolio only is
required. The Trust is required, under the terms of the exemption, to provide
certain information to shareholders following these types of changes. We may
add new Sub-accounts that invest in a series of underlying funds other than
the Trust. Such series of funds may have a similar order from the SEC. You
also should review the prospectuses for the other underlying funds in which
various Sub-accounts invest as to whether they have obtained similar orders
from the SEC.
Material Conflicts
It is possible that differences may occur between companies that offer shares
of an underlying mutual fund portfolio to their respective Separate Accounts
issuing variable annuities and/or variable life insurance products.
Differences may also occur surrounding the offering of an underlying mutual
fund portfolio to variable life insurance policies and variable annuity
contracts that we offer. Under certain circumstances, these differences could
be considered "material conflicts", in which case we would take necessary
action to protect persons with voting rights under our variable annuity
contracts and variable life insurance policies against persons with voting
rights under other insurance companies' variable insurance products. If a
"material conflict" were to arise between Owners of variable annuity contracts
and variable life insurance policies issued by us we would take necessary
action to treat such persons equitably in resolving the conflict. "Material
conflicts" could arise due to differences in voting instructions between
Owners of variable life insurance and variable annuity contracts of the same
or different companies. We monitor any potential conflicts that may exist.
Confirmations, Statements, and Reports
We send any statements and reports required by applicable law or regulation to
you at your last known address of record. You should therefore give us prompt
notice of any address change. We reserve the right, to the extent permitted by
law and subject to your prior consent, to provide any prospectus, prospectus
supplements, confirmations, statements and reports required by applicable law
or regulation to you through our Internet Website at
www.prudentialannuities.com or any other electronic means, including diskettes
or CD ROMs. We generally send a confirmation statement to you each time a
financial transaction is made affecting Account Value, such as making
additional Purchase Payments, transfers, exchanges or withdrawals. We also
send quarterly statements detailing the activity affecting your Annuity during
the calendar quarter, if there have been transactions during the quarter. We
may confirm regularly scheduled transactions, including, but not limited to
the Annual Maintenance Fee, systematic withdrawals (including 72(t)/72(q)
payments and Required Minimum Distributions), electronic funds transfer, Dollar
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Cost Averaging, auto rebalancing, and the Custom Portfolios Program in
quarterly statements instead of confirming them immediately. You should review
the information in these statements carefully. You may request additional
reports or copies of reports previously sent. We reserve the right to charge
$50 for each such additional or previously sent report, but may waive that
charge in the future. We will also send an annual report and a semi-annual
report containing applicable financial statements for the portfolios to Owners
or, with your prior consent, make such documents available electronically
through our Internet Website or other electronic means.
DISTRIBUTION OF ANNUITIES OFFERED BY PRUCO LIFE
Prudential Annuities Distributors, Inc. (PAD), a wholly-owned subsidiary of
Prudential Annuities, Inc., is the distributor and principal underwriter of
the annuities offered through this prospectus. PAD acts as the distributor of
a number of annuity and life insurance products. PAD's principal business
address is One Corporate Drive, Shelton, Connecticut 06484. PAD is registered
as a broker-dealer under the Securities Exchange Act of 1934 (Exchange Act),
and is a member of the Financial Industry Regulatory Authority (FINRA). Each
Annuity is offered on a continuous basis. PAD enters into distribution
agreements with broker/dealers who are registered under the Exchange Act and
with entities that may offer the Annuities but are exempt from registration
(firms). Applications for each Annuity are solicited by registered
representatives of those firms. In addition, PAD may offer the Annuity
directly to potential purchasers.
Under the selling agreements, commissions are paid to firms on sales of the
Annuity according to one or more schedules. The registered representative will
receive all or a portion of the compensation, depending on the practice of his
or her firm. Commissions are generally based on a percentage of Purchase
Payments made, up to a maximum of 6.5% for the B Series, 5.0% for the L Series
and 2.0% for the C Series. Alternative compensation schedules are available
that generally provide a lower initial commission plus ongoing quarterly
compensation based on all or a portion of Unadjusted Account Value. We may
also provide compensation to the distributing firm for providing ongoing
service to you in relation to the Annuity. Commissions and other compensation
paid in relation to the Annuity do not result in any additional charge to you
or to the Separate Account. Compensation varies by Annuity product, and such
differing compensation could be a factor in which Annuity a Financial
Professional recommends to you.
In addition, in an effort to promote the sale of our products (which may
include the placement of Pruco Life and/or the Annuity 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/dealers 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 to us or our affiliates. These services may include, but
are not limited to: educating customers of the firm on the Annuity's features;
conducting due diligence and analysis; providing office access, operations and
systems support; holding seminars intended to educate registered
representatives and make them more knowledgeable about the Annuities;
providing a dedicated marketing coordinator; providing priority sales desk
support; and providing expedited marketing compliance approval and preferred
programs to PAD. 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 (e.g., gifts, occasional meals and entertainment,
sponsorship of training and due diligence events). These arrangements may not
be offered to all firms and the terms of such arrangements may differ between
firms. In addition, we or our affiliates may provide such compensation,
payments and/or incentives to firms arising out of the marketing, sale and/or
servicing of variable annuities or life insurance offered by different
Prudential business units.
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
assets, subject to certain criteria in certain Pruco Life products.
. 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.
. Fixed Payments: These types of payments are made directly to or in
sponsorship of the firm.
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 registered
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 periodically
during the 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, 2011) received payment
with respect to our annuity business generally during 2011 (or as to which a
payment amount was accrued during 2011). The firms listed below include those
receiving payments in connection with marketing of 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 request. During 2011, the least
amount paid, and greatest
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amount paid, were $19.35 and $6,443,077.91, respectively. Each of these
Annuities also is distributed by other selling firms that previously were
appointed only with our affiliate Prudential Annuities Life Assurance
Corporation ("PALAC"). Such other selling firms may have received compensation
similar to the types discussed above with respect to their sale of PALAC
annuities. In addition, such other selling firms may, on a going forward
basis, receive substantial compensation that is not reflected in this 2011
retrospective depiction.
Name of Firm:
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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 Annuities than
for selling a different annuity that is not eligible for these compensation
arrangements. While compensation is generally taken into account as an expense
in considering the charges applicable to 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 request.
This Annuity 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.
FINANCIAL STATEMENTS
The financial statements of the Separate Account and Pruco Life are included
in the Statement of Additional Information.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Securities Act") may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, the
registrant has been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
LEGAL PROCEEDINGS
We are subject to legal and regulatory actions in the ordinary course of our
business. Our pending legal and regulatory actions include proceedings
specific to us and proceedings generally applicable to business practices in
the industry in which we operate. We are subject to class action lawsuits and
other litigation involving a variety of issues and allegations involving sales
practices, claims payment and procedures, premium charges, policy servicing
and breach of fiduciary duty to customers. We are also subject to litigation
arising out of our general business activities, such as our investments,
contracts, leases and labor and employment relationships, including claims of
discrimination and harassment, and could be exposed to claims or litigation
concerning certain business or process patents. In some of the pending legal
and regulatory actions, plaintiffs are seeking large and/or indeterminate
amounts, including punitive or exemplary damages. In addition, we, along with
other participants in the businesses in which we engage, may be subject from
time to time to investigations, examinations and inquiries, in some cases
industry-wide, concerning issues or matters upon which such regulators have
determined to focus. In some of our pending legal and regulatory actions,
parties are seeking large and/or indeterminate amounts, including punitive or
exemplary damages. The outcome of a litigation or a regulatory matter, and the
amount or range of potential loss at any particular time, is often inherently
uncertain.
Pruco Life establishes accruals for litigation and regulatory matters when it
is probable that a loss has been incurred and the amount of that loss can be
reasonably estimated. For litigation and regulatory matters where a loss may
be reasonably possible, but not probable, or is probable but not reasonably
estimable, no accrual is established, but the matter, if material, is
disclosed, including matters discussed below. As of September 30, 2012, the
aggregate range of reasonably possible losses in excess of accruals
established is not currently estimable. Pruco Life reviews relevant
information with respect to its litigation and regulatory matters on a
quarterly and annual basis and updates its accruals, disclosures and estimates
of reasonably possible loss based on such reviews.
In December 2010, a purported state-wide class action complaint, Phillips v.
Prudential Financial, Inc., was filed in the Circuit Court of the First
Judicial Circuit, Williamson County, Illinois. The complaint makes claims of
breach of contract, breaches of fiduciary duty, and violation of Illinois law
on behalf of a class of Illinois residents whose death benefits were settled
by retained assets accounts and seeks damages and disgorgement of profits. In
January 2011, the case was removed to the United States District Court for the
Southern District of Illinois. In March 2011, the complaint was amended to
drop Prudential Financial as a defendant and add Pruco Life as a defendant.
The matter is now captioned Phillips v. Prudential Insurance and Pruco Life
Insurance Company. In April 2011, a motion to dismiss the amended complaint
was filed. In November 2011, the complaint was dismissed and the dismissal
appealed in December 2011.
In July 2010, Pruco Life, along with other life insurance industry
participants, received a formal request for information from the State of New
York Attorney General's Office in connection with its investigation into
industry practices relating to the use of retained asset accounts. In August
2010, Pruco Life received a similar request for information from the State of
Connecticut Attorney General's Office. Pruco Life is cooperating with these
investigations. Pruco Life has also been contacted by state insurance
regulators and other governmental entities, including the U.S. Department of
Veterans Affairs and Congressional committees regarding retained asset
accounts. These matters may result in additional investigations, information
requests, claims, hearings, litigation, adverse publicity and potential
changes to business practices.
In January 2012, a qui tam action on behalf of the State of Illinois, Total
Asset Recovery Services v. Met Life Inc, et al., Prudential Financial, Inc.,
The Prudential Insurance Company of America, and Prudential Holdings, LLC,
filed in the Circuit Court of Cook
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County, Illinois, was served on Pruco Life. The complaint alleges that Pruco
Life failed to escheat life insurance proceeds to the State of Illinois in
violation of the Illinois False Claims Whistleblower Reward and Protection Act
and seeks injunctive relief, compensatory damages, civil penalties, treble
damages, prejudgment interest, attorneys' fees and costs. In April, 2012,
Pruco Life filed a motion to dismiss the complaint. In September 2012, the
complaint was withdrawn without prejudice. In March 2012, a qui tam action on
behalf of the State of Minnesota, Total Asset Recovery v. MetLife Inc., et
al., Prudential Financial Inc., The Prudential Insurance Company of America
and Prudential Holdings, Inc., filed in the Fourth Judicial District, Hennepin
County, in the State of Minnesota was served on Pruco Life. The complaint
alleges that Pruco Life failed to escheat life insurance proceeds to the State
of Minnesota in violation of the Minnesota False Claims Act and seeks
injunctive relief, compensatory damages, civil penalties, treble damages,
prejudgment interest, attorneys' fees and costs. In June 2012, the company
filed a motion to dismiss the complaint.
In January 2012, a Global Resolution Agreement entered into by Pruco Life and
a third party auditor became effective upon its acceptance by the unclaimed
property departments of 20 states and jurisdictions. Under the terms of the
Global Resolution Agreement, the third party auditor acting on behalf of the
signatory states will compare expanded matching criteria to the Social
Security Master Death File ("SSMDF") to identify deceased insureds and
contract holders where a valid claim has not been made. In February 2012, a
Regulatory Settlement Agreement entered into by Pruco Life to resolve a
multi-state market conduct examination regarding its adherence to state claim
settlement practices became effective upon its acceptance by the insurance
departments of 20 states and jurisdictions. The Regulatory Settlement
Agreement applies prospectively and requires Pruco Life to adopt and implement
additional procedures comparing its records to the SSMDF to identify unclaimed
death benefits and prescribes procedures for identifying and locating
beneficiaries once deaths are identified. Other jurisdictions that are not
signatories to the Regulatory Settlement Agreement are considering proposals
that would apply prospectively and require life insurance companies to take
additional steps to identify unreported deceased policy and contract holders.
These prospective changes and any escheatable property identified as a result
of the audits and inquiries could result in: (1) additional payments of
previously unclaimed death benefits; (2) the payment of abandoned funds to
U.S. jurisdictions; and (3) changes in Pruco Life's practices and procedures
for the identification of escheatable funds and beneficiaries, which would
impact claim payments and reserves, among other consequences.
Pruco Life is one of several companies subpoenaed by the New York Attorney
General regarding its unclaimed property procedures. Additionally, the New
York Department of Financial Services ("NYDFS") has requested that 172 life
insurers (including Pruco Life) provide data to the NYDFS regarding use of the
SSMDF. The New York Office of Unclaimed Funds recently notified Pruco Life
that it intends to conduct an audit of Pruco Life's compliance with New York's
unclaimed property laws. The Minnesota Attorney General has also requested
information regarding Pruco Life's use of the SSMDF and its claim handling
procedures and Pruco Life is one of several companies subpoenaed by the
Minnesota Department of Commerce, Insurance Division. In February 2012, the
Massachusetts Office of the Attorney General requested information regarding
Pruco Life's unclaimed property procedures.
In October 2012, the State of West Virginia, through its State Treasurer,
filed a lawsuit, State of West Virginia ex. Rel. John D. Perdue v. PRUCO Life
Insurance Company, in the Circuit Court of Putnam County, West Virginia. The
complaint alleges violations of the West Virginia Uniform Unclaimed Property
Fund Act by failing to properly identify and report all unclaimed insurance
policy proceeds which should either be paid to beneficiaries or escheated to
West Virginia. The complaint seeks to examine the records of Prudential
Insurance to determine compliance with the West Virginia Uniform Unclaimed
Property Fund Act, and to assess penalties and costs in an undetermined amount.
Pruco Life's litigation and regulatory matters are subject to many
uncertainties, and given their complexity and scope, their outcome cannot be
predicted. It is possible that Pruco Life's results of operations or cash flow
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.
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The following are the contents of the Statement of Additional Information:
.. Company
.. Experts
.. Principal Underwriter
.. Payments Made to Promote Sale of Our Products
.. Determination of Accumulation Unit Values
.. Financial Statements
110
HOW TO CONTACT US
You can contact us by:
. calling our Customer Service Team at 1-888-PRU-2888 during our normal
business hours,
. 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.
. writing to us via overnight mail, certified, or registered mail delivery
at the Prudential Annuity Service Center, 2101 Welsh Road, Dresher, PA
19025.
. accessing information about your Annuity through our Internet Website at
www.prudentialannuities.com.
You can obtain account information by calling our automated response system
and at www.prudentialannuities.com, our Internet Website. Our Customer Service
representatives are also available during business hours to provide you with
information about your account. You can request certain transactions through
our telephone voice response system, our Internet Website or through a
customer service representative. You can provide authorization for a third
party, including your attorney-in-fact acting pursuant to a power of attorney,
to access your account information and perform certain transactions on your
account. You will need to complete a form provided by us which identifies
those transactions that you wish to authorize via telephonic and electronic
means and whether you wish to authorize a third party to perform any such
transactions. Please note that unless you tell us otherwise, we deem that all
transactions that are directed by your Financial Professional with respect to
your Annuity have been authorized by you. We require that you or your
representative provide proper identification before performing transactions
over the telephone or through our Internet Website. This may include a
Personal Identification Number (PIN) that will be provided to you upon issue
of your Annuity or you may establish or change your PIN by calling our
automated response system and at www.prudentialannuities.com, our Internet
Website. Any third party that you authorize to perform financial transactions
on your account will be assigned a PIN for your account.
Transactions requested via telephone are recorded. To the extent permitted by
law, we will not be responsible for any claims, loss, liability or expense in
connection with a transaction requested by telephone or other electronic means
if we acted on such transaction instructions after following reasonable
procedures to identify those persons authorized to perform transactions on
your Annuity using verification methods which may include a request for your
Social Security number, PIN or other form of electronic identification. We may
be liable for losses due to unauthorized or fraudulent instructions if we did
not follow such procedures.
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. Nor, due to circumstances beyond our
control, can we provide any assurances as to the delivery of transaction
instructions submitted to us by regular and/or express mail. Regular and/or
express mail (if operational) 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.
111
APPENDIX A - ACCUMULATION UNIT VALUES
Because the Annuity is new, no historical Unit Values are depicted here.
However, such historical Unit Values will be set forth in subsequent
amendments to this prospectus.
A-1
APPENDIX B - SELECTING THE VARIABLE ANNUITY THAT'S RIGHT FOR YOU
Pruco Life Insurance Company offers several deferred variable annuity
products. Each annuity, (X, L, B, C Series), has different features and
benefits that may be appropriate for you based on your individual financial
situation and how you intend to use the annuity. Not all of these annuities
may be available to you, depending on factors such as the broker-dealer
through which your annuity was sold. You can verify which of these annuities
is available to you by speaking to your Financial Professional or calling
1-888-PRU-2888.
Among the factors you should consider when choosing which annuity product and
benefit may be most appropriate for your individual needs are the following:
.. Your age;
.. The amount of your investment and any planned future Purchase Payments into
the annuity,
.. How long you intend to hold the annuity (also referred to as investment
time horizon);
.. Your desire to make withdrawals from the annuity and the timing thereof;
.. Your investment objectives;
.. The guarantees optional benefits may provide
.. Your desire to minimize costs and/or maximize return associated with the
annuity.
You can compare the costs of the L-Series, B-Series, and C-Series by examining
the section in this prospectus entitled "Summary of Contract Fees and
Charges". There are trade-offs associated with the costs and benefits provided
by each of the Series. Generally, shorter-term CDSC products such as the
C-Series and L-Series provide higher Surrender Value in short-duration
scenarios, while long-term CDSC classes such as the B-Series provide higher
Surrender Values in long-term scenarios. Please note, while the Insurance
Charges differ among the Series, beginning after the 9th Annuity Year they are
all equal.
In choosing which Series to purchase, you should consider the features and the
associated costs that offer the greatest value to you. The different features
may include:
.. Variations on your ability to access funds in your Annuity without the
imposition of a Contingent Deferred Sales Charge (CDSC),
.. Different ongoing fees and charges you pay to stay in the Annuity.
An Annuity without CDSC or a shorter CDSC may provide flexibility and greater
Surrender Value in earlier years; however, if you intend to hold the Annuity
long term, it may result in a trade off for value in later years.
The following chart outlines some of the different features for each Annuity
sold through this prospectus. The availability of optional benefits, such as
those noted in the chart, increase the total cost of the Annuity. Certain
living benefits are intended to address longevity risks or market risk. You
should consider whether your need for a living benefit alters your time
horizon and then ultimately your share class decision. You should carefully
consider which features you plan to use when selecting your annuity, and the
impact of such features in relation to your investment objectives and which
share class may be most appropriate for you.
To demonstrate the impact of the various expense structures, the hypothetical
examples on the following pages reflect the Account Value and Surrender Value
of each Annuity over a variety of holding periods. These charts reflect the
impact of different hypothetical rates of return and the comparable value of
each of the Annuities (which reflects the charges associated with each
Annuity) under the assumptions noted.
Pruco Life Product Comparison
Below is a summary of Pruco Life's annuity products sold through this
prospectus. B Series refers to Prudential Premier Retirement Variable Annuity
B Series, L Series refers to Prudential Premier Retirement Variable Annuity L
Series, and C Series refers to Prudential Premier Retirement Variable Annuity
C Series. Your registered Financial Professional can provide you with the
prospectus for the underlying portfolios and can guide you through Selecting
the Annuity That's Right For You and help you decide upon the Annuity that
would be most advantageous for you given your individual needs. Please read
the prospectus carefully before investing. Pruco Life Insurance Company does
not make recommendations or provide investment advice.
B-1
HYPOTHETICAL ILLUSTRATION
The following examples outline the value of each Annuity as well as the amount
that would be available to an investor as a full surrender at the end of each
of the Annuity Years specified. The values shown below are based on the
following assumptions: An initial investment of $100,000 is made into each
Annuity earning a gross rate of return of 0% and 6% and 10%, respectively.
No additional Purchase Payments or withdrawals are made from the Annuity. The
hypothetical gross rates of return are reduced by the arithmetic average of
the fees and expenses of the underlying portfolios and the charges that are
deducted from the Annuity at the Separate Account level (which is 1.07% for
all Series) based on the fees and expenses of the applicable underlying
portfolios as of December 31, 2011. The arithmetic average of all fund
expenses is computed by adding portfolio management fees, 12b-1 fees and other
expenses of all the underlying portfolios and then dividing by the number of
portfolios. For purposes of the illustrations, we do not reflect any expense
reimbursements or expense waivers that might apply and are described in the
prospectus fee table. The Separate Account level charges refer to the
Insurance Charge.
The Account Value and Surrender Value are further reduced by the Annual
Maintenance Fee, if applicable.
The Account Value assumes no surrender, while the Surrender Value assumes a
100% surrender two days prior to the anniversary of the Issue Date of the
Annuity ("Annuity Anniversary"), therefore reflecting the CDSC applicable to
that Annuity Year. Note that a withdrawal on the Annuity Anniversary, or the
day before the Annuity Anniversary, would be subject to the CDSC applicable to
the next Annuity Year, which may be lower. The CDSC is calculated based on the
date that the Purchase Payment was made and for purposes of these examples, we
assume that a single Purchase Payment of $100,000 was made on the Issue Date.
The values that you actually experience under an Annuity will be different
from what is depicted here if any of the assumptions we make here differ from
your circumstances, however the relative values for each Annuity reflected
below will remain the same. (We will provide your Financial Professional with
a personalized illustration upon request).
If, for an additional fee, you elect an optional living benefit that has a
Protected Withdrawal Value (PWV), the expenses will be higher and the values
will differ from those shown in the charts below. Similar to Account and
Surrender Values, the PWV will differ by share class. Typically, the share
class with the higher Account Value will translate into a relatively higher
PWV, unless the net rate of return is below the roll-up rate, where the PWV of
the C, L and B would all grow equally by the guaranteed amount.
B-2
0% Gross Rate of Return
Assumptions:
a. $100,000 initial investment
b. Fund Expenses = 1.07%
c. No optional death benefits or living benefits elected
d. Annuity was issued on or after February 25, 2013
e. Surrender value assumes surrender 2 days before Annuity Anniversary
The shaded values indicate the highest Surrender Values in that year based on
the stated assumptions. Assuming a 0% gross annual return, the C-Series has
the highest Surrender Value in the first four Annuity Years, the L-Series has
the highest Surrender Value in Annuity Years five, six and seven, the B-Series
has the highest Surrender Value starting in Annuity Year eight.
B-3
6% Gross Rate of Return
Assumptions:
a. $100,000 initial investment
b. Fund Expenses = 1.07%
c. No optional death benefits or living benefits elected
d. Annuity was issued on or after February 25, 2013
e. Surrender value assumes surrender 2 days before Annuity Anniversary
The shaded values indicate the highest Surrender Values in that year based on
the stated assumptions. Assuming a 6% gross annual return, the C-Series has
the highest Surrender Value in the first four Annuity Years, the L-Series has
the highest Surrender Value in Annuity Years five, six and seven, the B-Series
has the highest Surrender Value starting in Annuity Year eight.
B-4
10% Gross Rate of Return
Assumptions:
a. $100,000 initial investment
b. Fund Expenses = 1.07%
c. No optional death benefits or living benefits elected
d. Annuity was issued on or after February 25, 2013
e. Surrender value assumes surrender 2 days before Annuity Anniversary
The shaded values indicate the highest Surrender Values in that year based on
the stated assumptions. Assuming a 10% gross annual return, the C-Series has
the highest Surrender Value in the first four Annuity Years, the L-Series has
the highest Surrender Value in Annuity Years five and six and the B-Series has
the highest Surrender Value starting in Annuity Year seven.
B-5
APPENDIX C - SPECIAL CONTRACT PROVISIONS FOR ANNUITIES ISSUED IN CERTAIN STATES
Certain features of your Annuity may be different than the features described
earlier in this prospectus, if your Annuity is issued in certain states
described below. Further variations may arise in connection with additional
state reviews.
C-1
APPENDIX D - MVA FORMULAS
MVA FORMULA FOR LONG-TERM MVA OPTIONS
The MVA formula is applied separately to each MVA Option to determine the
Account Value of the MVA Option on a particular date.
The MVA factor is equal to:
[(l+I)/(l+J+K)]/^/N/12//
where:
I = the Crediting Rate for the MVA Option;
J = the Rate for the remaining Guarantee Period, determined as
described below;
K = the Liquidity Factor, currently equal to 0.0025; and
N = the number of months remaining in the Guarantee Period duration,
rounded up to the nearest whole month
For the purposes of determining "j",
Y = /N/12/
GP\\1\\ = the smallest whole number of years greater than or equal to Y.
r\\1\\ = the rate for Guarantee Periods of duration GP\\1\\, which will equal
the crediting rate if such Guarantee Period duration is currently available.
GP\\2\\ = the greatest whole number of years less than or equal to Y, but not
less than 1.
r\\2\\ = the rate for Guarantee Periods of duration GP\\2\\, which will equal
the crediting rate if such Guarantee Period duration is currently available.
If we do not currently offer a Guarantee Period of duration GP\\1\\ or
duration GP\\2\\, we will determine r\\1\\ and / or r\\2\\ by linearly
interpolating between the current rates of Guarantee Periods closest in
duration. If we cannot interpolate because a Guarantee Period of lesser
duration is not available, then r\\1\\ and / or r\\2\\ will be equal to [(1) +
(2) - (3)], where (1), (2), and (3) are defined as:
(1)= the current Treasury spot rate for GP\\1\\ or GP\\2\\, respectively, and
(2)= the current crediting rate for the next longer Guaranteed Period duration
currently available, and
(3)= the current Treasury spot rate for the next longer Guaranteed Period
duration currently available.
The term "current Treasury spot rate" refers to the rates that existed at the
time the crediting rates were last determined.
To determine "j":
If Y is an integer, and if Y is equal to a Guarantee Period duration that we
currently offer, "j" is equal to the crediting rate associated with a
Guarantee Period duration of Y years.
If Y is less than 1, then "j" = r\\2\\.
Otherwise, we determine "j" by linearly interpolating between r\\1\\ and
r\\2\\, using the following formula:
J = (R\\1\\ * (Y - GP\\2\\) + r\\2\\ * (GP\\1\\ - Y))/(GP\\1\\ - GP\\2\\)
The current rate ("j") in the MVA formula is subject to the same Guaranteed
Minimum Interest Rate as the Crediting Rate.
D-1
We reserve the right to waive the liquidity factor set forth above.
MVA Examples For Long-Term MVA Options
The following hypothetical examples show the effect of the MVA in determining
Account Value. Assume the following:
. You allocate $50,000 into an MVA Option (we refer to this as the
"Allocation Date" in these examples) with a Guarantee Period of 5 years
(we refer to this as the "Maturity Date" in these examples).
. The crediting rate associated with the MVA Option beginning on
Allocation Date and maturing on Maturity Date is 5.50% (I = 5.50%).
. You make no withdrawals or transfers until you decide to withdraw the
entire MVA Option after exactly three (3) years, at which point 24
months remain before the Maturity Date (N = 24).
Example of Positive MVA
Assume that at the time you request the withdrawal, the crediting rate
associated with the fixed allocation maturing on the Maturity Date is 4.00% (J
= 4.00%). Based on these assumptions, the MVA would be calculated as follows:
MVA Factor = [(1+I)/(1+J+0.0025)]/^/N/12// = [1.055/1.0425]/^/2// = 1.024125
Unadjusted Value = $58,712.07
Adjusted Account Value after MVA = Unadjusted Value X MVA Factor = $60,128.47
Example of Negative MVA
Assume that at the time you request the withdrawal, the crediting rate
associated with the fixed allocation maturing on the Maturity Date is 7.00% (J
= 7.00%). Based on these assumptions, the MVA would be calculated as follows:
MVA Factor = [(1+I)/(1+J+0.0025)]/^/N/12// = [1.055/1.0725]/^/2// = 0.967632
Unadjusted Value = $58,712.07
Adjusted Account Value after MVA = Unadjusted Value X MVA Factor = $56,811.69
MVA FORMULA FOR 6 OR 12 MONTH DCA MVA OPTIONS
The MVA formula is applied separately to each DCA MVA Option to determine the
Account Value of the DCA MVA Option on a particular date.
The Market Value Adjustment Factor applicable to the MVA Options we make
available under the 6 or 12 Month Dollar Cost Averaging Program is as follows:
The MVA factor is equal to:
[(l+I)/(l+J+K/)]^N/12/
where:
I = the Index Rate established at inception of a DCA MVA Option. This
Index Rate will be based on a Constant Maturity Treasury (CMT) rate for
a maturity (in months) equal to the initial duration of the DCA MVA
Option. This CMT rate will be determined based on the weekly average of
the CMT Index of appropriate maturity as of two weeks prior to
initiation of the DCA MVA Option. The CMT Index will be based on
"Treasury constant maturities nominal 12" rates as published in Federal
Reserve Statistical Release H.15. If a CMT index for the number of
months needed is not available, the applicable CMT index will be
determined based on a linear interpolation of the published CMT indices;
J = the Index Rate determined at the time the MVA calculation is
needed, based on a CMT rate for the amount of time remaining in the DCA
MVA Option. The amount of time will be based on the number of complete
months remaining in the DCA MVA Option, rounded up to the nearest whole
month. This CMT rate will be determined based on the weekly average of
the CMT Index of appropriate maturity as of two weeks prior to the date
for which the MVA calculation is needed. The CMT Index will be based on
"Treasury constant maturities nominal 12" rates as published in Federal
Reserve Statistical Release H.15. If a CMT index for the number of
months needed is not available, the applicable CMT index will be
determined based on a linear interpolation of the published CMT indices;
K = the Liquidity Factor, currently equal to 0.0025; and
N = the number of complete months remaining in the DCA MVA Option,
rounded up to the nearest whole month.
D-2
If the "Treasury constant maturities nominal 12" rates available through
Federal Reserve Statistical Release H. 15 should become unavailable at any
time, or if the rate for a 1-month maturity should become unavailable through
this source, we will substitute rates which, in our opinion, are comparable.
We reserve the right to waive the Liquidity Factor.
D-3
APPENDIX E - FORMULA FOR HIGHEST DAILY LIFETIME INCOME V2.1 SUITE OF
LIVING BENEFITS
TRANSFERS OF ACCOUNT VALUE BETWEEN YOUR PERMITTED SUB-ACCOUNTS AND THE AST
INVESTMENT GRADE BOND SUB-ACCOUNT
TERMS AND DEFINITIONS REFERENCED IN THE CALCULATION FORMULAS:
. C\\u\\ - the upper target is established on the effective date of the
Highest Daily Lifetime Income v2.1 Suite of benefits (the "Effective
Date") and is not changed for the life of the guarantee. Currently, it
is 83%.
. C\\us\\ - The secondary upper target is established on the Effective
Date and is not changed for the life of the guarantee. Currently it is
84.5%
. C\\t\\ - the target is established on the Effective Date and is not
changed for the life of the guarantee. Currently, it is 80%.
. C\\l\\ - the lower target is established on the Effective Date and is
not changed for the life of the guarantee. Currently, it is 78%.
. L - the target value as of the current Valuation Day.
. r - the target ratio.
. a - factors used in calculating the target value. These factors are
established on the Effective Date and are not changed for the life of
the guarantee. (See below for the table of "a" factors)
. V\\v\\ - the total value of all Permitted Sub-accounts in the Annuity.
. V\\F\\ - the Unadjusted Account Value of all elected DCA MVA Options in
the Annuity.
. B - the total value of the AST Investment Grade Bond Portfolio
Sub-account.
. P - Income Basis. Prior to the first Lifetime Withdrawal, the Income
Basis is equal to the Protected Withdrawal Value calculated as if the
first Lifetime Withdrawal were taken on the date of calculation. After
the first Lifetime Withdrawal, the Income Basis is equal to the greater
of (1) the Protected Withdrawal Value on the date of the first Lifetime
Withdrawal, increased for additional Purchase Payments, and adjusted
proportionally for Excess Income*, and (2) the Protected Withdrawal
Value on any Annuity Anniversary subsequent to the first Lifetime
Withdrawal, increased for subsequent additional Purchase Payments and
adjusted proportionately for Excess Income* and (3) any highest daily
Unadjusted Account Value occurring on or after the later of the
immediately preceding Annuity anniversary, or the date of the first
Lifetime Withdrawal, and prior to or including the date of this
calculation, increased for additional Purchase Payments and adjusted for
withdrawals, as described herein.
. T - the amount of a transfer into or out of the AST Investment Grade
Bond Portfolio Sub-account.
. T\\M\\ - the amount of a monthly transfer out of the AST Investment
Grade Bond Portfolio.
* Note: Lifetime Withdrawals of less than or equal to the Annual Income
Amount do not reduce the Income Basis.
DAILY TARGET VALUE CALCULATION:
On each Valuation Day, a target value (L) is calculated, according to the
following formula. If (V\\V\\ + V\\F\\) is equal to zero, no calculation is
necessary. Target Values are subject to change for new elections of this
benefit on a going-forward basis.
Daily Transfer Calculation:
The following formula, which is set on the Benefit Effective Date and is not
changed for the life of the guarantee, determines when a transfer is required:
E-1
. If on the third consecutive Valuation Day r (greater than) C\\u\\ and r
(less or =) C\\us\\ or if on any day r (greater than) C\\us\\, and
transfers have not been suspended due to the 90% cap rule, assets in the
Permitted Sub-accounts and the DCA MVA Options, if applicable, are
transferred to the AST Investment Grade Bond Portfolio Sub-account.
. If r (less than) C\\l\\, and there are currently assets in the AST
Investment Grade Bond Portfolio Sub-account (B (greater than) 0), assets
in the AST Investment Grade Bond Portfolio Sub-account are transferred
to the Permitted Sub-accounts as described above.
90% Cap Rule: If, on any Valuation Day this benefit remains in effect, a
transfer into the AST Investment Grade Bond Portfolio Sub-account occurs that
results in 90% of the Unadjusted Account Value being allocated to the AST
Investment Grade Bond Portfolio Sub-account, any transfers into the AST
Investment Grade Bond Portfolio Sub-account will be suspended, even if the
formula would otherwise dictate that a transfer into the AST Investment Grade
Bond Portfolio Sub-account should occur. Transfers out of the AST Investment
Grade Bond Portfolio Sub-account and into the elected Sub-accounts will still
be allowed. The suspension will be lifted once a transfer out of the AST
Investment Grade Bond Portfolio Sub-account occurs either due to a Daily or
Monthly Transfer Calculation. Due to the performance of the AST Investment
Grade Bond Portfolio Sub-account and the elected Sub-accounts, the Unadjusted
Account value could be more than 90% invested in the AST Investment Grade Bond
Portfolio Sub-account.
The following formula, which is set on the Benefit Effective Date and is not
changed for the life of the guarantee, determines the transfer amount:
Monthly Transfer Calculation
On each monthly anniversary of the Annuity Issue Date and following the daily
Transfer Calculation above, the following formula determines if a transfer
from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts
will occur:
If, after the daily Transfer Calculation is performed,
{Min (B, .05 * (V\\V\\ + V\\F\\ + B))} (less than) (C\\u\\ * (V\\V\\ + V\\F\\)
- L + B) / (1 - C\\u\\), then
E-2
"A" Factors for Liability Calculations
(in Years and Months since Benefit Effective Date)*
* The values set forth in this table are applied to all ages.
** In all subsequent years and months thereafter, the annuity factor is 4.06
E-3
Please see the section of this prospectus
entitled "How To Contact Us" for
where to send your request for
a Statement of Additional Information
PRUCO LIFE INSURANCE COMPANY
A Prudential Financial Company
751 Broad Street, Newark, NJ 07102-3777
PRUDENTIAL PREMIER(R) ADVISOR/SM/ VARIABLE ANNUITY SERIES ("ADVISOR SERIES")
(FOR CONTRACTS ISSUED ON OR AFTER FEBRUARY 25, 2013)
FLEXIBLE PREMIUM DEFERRED ANNUITY
PROSPECTUS: FEBRUARY 14, 2013
This prospectus describes a flexible premium deferred annuity offered by Pruco
Life Insurance Company ("Pruco Life"), which we refer to in this prospectus as
the "Annuity" or the "Advisor Series". The Annuity described in this
prospectus is designed for investors who have hired an investment advisor to
provide advice about allocating Account Value within the Annuity. The Annuity
may be offered as an individual annuity contract or as an interest in a group
annuity. The Annuity has different features and benefits that may be
appropriate for you based on your financial situation, your age and how you
intend to use the Annuity. Financial Professionals may be compensated for the
sale of the Annuity. Selling broker-dealer firms through which the Annuity is
sold may decline to make available or may not recommend to their customers
certain of the optional features and/or benefits and Investment Options
offered generally under the Annuity or may impose restrictions (e.g., a lower
maximum issue age for certain optional benefits). Please speak to your
Financial Professional for further details. CERTAIN OF THE INVESTMENT OPTIONS
AND/OR FEATURES MAY NOT BE AVAILABLE IN ALL STATES. The guarantees provided by
the variable annuity contract and the optional benefits are the obligations of
and subject to the claims paying ability of Pruco Life. Certain terms are
capitalized in this prospectus. Those terms are either defined in the Glossary
of Terms or in the context of the particular section.
THE SUB-ACCOUNTS
The Pruco Life Flexible Premium Variable Annuity Account is a Separate Account
of Pruco Life, and is the investment vehicle in which your Purchase Payments
invested in the Sub-accounts are held. Each Sub-account of the Pruco Life
Flexible Premium Variable Annuity Account invests in an underlying mutual fund
- see the following page for a complete list of the Sub-accounts. Currently,
portfolios of Advanced Series Trust and ProFunds VP are being offered. Certain
Sub-accounts are not available if you participate in an optional living
benefit - see "Limitations With Optional Benefits" later in this prospectus
for details.
PLEASE READ THIS PROSPECTUS
THIS PROSPECTUS SETS FORTH INFORMATION ABOUT THE ANNUITY THAT YOU OUGHT TO
KNOW BEFORE INVESTING. PLEASE READ THIS PROSPECTUS AND THE CURRENT PROSPECTUS
FOR THE UNDERLYING MUTUAL FUNDS. KEEP THEM FOR FUTURE REFERENCE. If you are
purchasing the Annuity as a replacement for an existing variable annuity or
variable life coverage, or a fixed insurance policy, you should consider any
surrender or penalty charges you may incur and any benefits you may also be
forfeiting when replacing your existing coverage. Please note that if you are
investing in this Annuity through a tax-advantaged retirement plan (such as an
Individual Retirement Account or 401(k) plan), you will get no additional tax
advantage through the Annuity itself.
OTHER CONTRACTS
We offer a variety of fixed and variable annuity contracts. They may offer
features, including investment options, and have fees and charges, that are
different from the annuity contracts offered by this prospectus. Not every
annuity contract we issue is offered through every selling broker-dealer firm.
Upon request, your financial professional can show you information regarding
other Pruco Life annuity contracts that he or she distributes. You can also
contact us to find out more about the availability of any of the Pruco Life
annuity contracts. You should work with your financial professional to decide
whether this annuity contract is appropriate for you based on a thorough
analysis of your particular needs, financial objectives, investment goals,
time horizons and risk tolerance.
AVAILABLE INFORMATION
We have also filed a Statement of Additional Information dated the same date
as this prospectus that is available from us, without charge, upon your
request. The contents of the Statement of Additional Information are described
at the end of this prospectus - see Table of Contents. The Statement of
Additional Information is incorporated by reference into this prospectus. This
prospectus is part of the registration statement we filed with the SEC
regarding this offering. Additional information on us and this offering is
available in the registration statement and the exhibits thereto. You may
review and obtain copies of these materials at no cost to you by contacting
us. These documents, as well as documents incorporated by reference, may also
be obtained through the SEC's Internet Website (www.sec.gov) for this
registration statement as well as for other registrants that file
electronically with the SEC. Please see the section of the prospectus entitled
"How to Contact Us" for our Service Office address.
This Annuity is NOT a deposit or obligation of, or issued, guaranteed or
endorsed by, any bank, is NOT insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or
any other agency. An investment in an annuity involves investment risks,
including possible loss of value, even with respect to amounts allocated to
the AST Money Market Sub-account.
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THIS SECURITY HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRUDENTIAL, PRUDENTIAL FINANCIAL, PRUDENTIAL ANNUITIES AND THE ROCK LOGO ARE
SERVICEMARKS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND ITS
AFFILIATES. OTHER PROPRIETARY PRUDENTIAL MARKS MAY BE DESIGNATED AS SUCH
THROUGH USE OF THE/ SM/ OR (R) SYMBOLS.
--------------------------------------------------------------------------------
FOR FURTHER INFORMATION CALL: 1-888-PRU-2888 OR GO TO OUR WEBSITE AT
HTTP://WWW.PRUDENTIALANNUITIES.COM
Prospectus Dated: Statement of Additional
February 14, 2013 Information Dated:
February 14, 2013
PLEASE SEE OUR IRA, ROTH IRA AND FINANCIAL DISCLOSURE STATEMENTS ATTACHED TO
THE BACK COVER OF THIS PROSPECTUS.
VARIABLE INVESTMENT OPTIONS
ADVANCED SERIES TRUST
AST Academic Strategies Asset Allocation Portfolio /1/
AST Advanced Strategies Portfolio /1/
AST AQR Emerging Markets Equity Portfolio
AST Balanced Asset Allocation Portfolio /1/
AST BlackRock Global Strategies Portfolio /1/
AST BlackRock Value Portfolio
AST Capital Growth Asset Allocation Portfolio /1/
AST Clearbridge Dividend Growth Portfolio
AST Cohen & Steers Realty Portfolio
AST Federated Aggressive Growth Portfolio
AST FI Pyramis(R) Asset Allocation Portfolio /1/
AST First Trust Balanced Target Portfolio /1/
AST First Trust Capital Appreciation Target Portfolio /1/
AST Franklin Templeton Founding Funds Allocation Portfolio /1/
AST Global Real Estate Portfolio
AST Goldman Sachs Concentrated Growth Portfolio
AST Goldman Sachs Large-Cap Value Portfolio
AST Goldman Sachs Mid-Cap Growth Portfolio
AST Goldman Sachs Small-Cap Value Portfolio
AST High Yield Portfolio
AST Horizon Moderate Asset Allocation Portfolio /1/
AST International Growth Portfolio
AST International Value Portfolio
AST Investment Grade Bond Portfolio /2/
AST Jennison Large-Cap Growth Portfolio
AST Jennison Large-Cap Value Portfolio
AST J.P. Morgan Global Thematic Portfolio /1/
AST J.P. Morgan International Equity Portfolio
AST J.P. Morgan Strategic Opportunities Portfolio /1/
AST Large-Cap Value Portfolio
AST Lord Abbett Core Fixed-Income Portfolio
AST Marsico Capital Growth Portfolio
AST MFS Global Equity Portfolio
AST MFS Growth Portfolio
AST MFS Large-Cap Value Portfolio
AST Mid-Cap Value Portfolio
AST Moderate Asset Allocation Portfolio /1/
AST Money Market Portfolio
AST Neuberger Berman Core Bond Portfolio
AST Neuberger Berman Mid-Cap Growth Portfolio
AST Neuberger Berman/LSV Mid-Cap Value Portfolio
AST New Discovery Asset Allocation Portfolio /1/
AST Parametric Emerging Markets Equity Portfolio
AST PIMCO Limited Maturity Bond Portfolio
AST PIMCO Total Return Bond Portfolio
AST Preservation Asset Allocation Portfolio /1/
AST Prudential Core Bond Portfolio
AST QMA Emerging Markets Equity Portfolio
AST QMA US Equity Alpha Portfolio
AST Quantitative Modeling Portfolio
AST Schroders Global Tactical Portfolio /1/
AST Schroders Multi-Asset World Strategies Portfolio /1/
AST Small-Cap Growth Portfolio
AST Small-Cap Value Portfolio
AST T. Rowe Price Asset Allocation Portfolio /1/
AST T. Rowe Price Equity Income Portfolio
AST T. Rowe Price Global Bond Portfolio
AST T. Rowe Price Large-Cap Growth Portfolio
AST T. Rowe Price Natural Resources Portfolio
AST Wellington Management Hedged Equity Portfolio /1/
AST Western Asset Core Plus Bond Portfolio
AST Western Asset Emerging Markets Debt Portfolio
PROFUNDS VP PORTFOLIOS
Consumer Goods
Consumer Services
Financials
Health Care
Industrials
Large-Cap Growth
Large-Cap Value
Mid-Cap Growth
Mid-Cap Value
Real Estate
Small-Cap Growth
Small-Cap Value
Telecommunications
Utilities
--------
(1)These are the only variable investment options available to you if you
select one of the optional benefits.
(2)The AST Investment Grade Bond Portfolio is not available for allocation of
Purchase Payments or contract owner transfers.
CONTENTS
(i)
(ii)
GLOSSARY OF TERMS
We set forth here definitions of some of the key terms used throughout this
prospectus. In addition to the definitions here, we also define certain terms
in the section of the prospectus that uses such terms.
ACCOUNT VALUE: The total value of all allocations to the Sub-accounts and/or
the MVA Options on any Valuation Day. The Account Value is determined
separately for each Sub-account and for each MVA Option, and then totaled to
determine the Account Value for your entire Annuity. The Account Value of each
MVA Option will be calculated using any applicable MVA.
ACCUMULATION PERIOD: The period of time from the Issue Date through the last
Valuation Day immediately preceding the Annuity Date.
ANNUITANT: The natural person upon whose life annuity payments made to the
Owner are based.
ANNUITIZATION: Annuitization is the process by which you "annuitize" your
Unadjusted Account Value. When you annuitize, we apply the Unadjusted Account
Value to one of the available annuity options to begin making periodic
payments to the Owner.
ANNUITY DATE: The date on which we apply your Unadjusted Account Value to the
applicable annuity option and begin the payout period. As discussed in the
Annuity Options section, there is an age by which you must begin receiving
annuity payments, which we call the "Latest Annuity Date."
ANNUITY YEAR: The first Annuity Year begins on the Issue Date and continues
through and includes the day immediately preceding the first anniversary of
the Issue Date. Subsequent Annuity Years begin on the anniversary of the Issue
Date and continue through and include the day immediately preceding the next
anniversary of the Issue Date.
BENEFICIARY(IES): The natural person(s) or entity(ies) designated as the
recipient(s) of the Death Benefit or to whom any remaining period certain
payments may be paid in accordance with the annuity payout options section of
this Annuity.
BENEFICIARY ANNUITY: You may purchase an Annuity if you are a Beneficiary of
an account that was owned by a decedent, subject to the requirements discussed
in this prospectus. You may transfer the proceeds of the decedent's account
into the Annuity described in this prospectus and continue receiving the
distributions that are required by the tax laws. This transfer option is only
available for purchase of an IRA, Roth IRA, or a non-qualified Beneficiary
Annuity.
CODE: The Internal Revenue Code of 1986, as amended from time to time and the
regulations promulgated thereunder.
DOLLAR COST AVERAGING ("DCA") MVA OPTION: An Investment Option that offers a
fixed rate of interest for a specified period. The DCA MVA Option is used only
with our 6 or 12 Month Dollar Cost Averaging Program, under which the Purchase
Payments that you have allocated to that DCA MVA Option are transferred to the
designated Sub-accounts over a 6 month or 12 month period. Withdrawals or
transfers from the DCA MVA Option will be subject to a Market Value Adjustment
if made other than pursuant to the 6 or 12 month DCA Program.
DUE PROOF OF DEATH: Due Proof of Death is satisfied when we receive all of the
following in Good Order: (a) a death certificate or similar documentation
acceptable to us; (b) all representations we require or which are mandated by
applicable law or regulation in relation to the death claim and the payment of
death proceeds; and (c) any applicable election of the method of payment of
the death benefit, if not previously elected by the Owner, by at least one
Beneficiary.
FREE LOOK: The right to examine your Annuity, during a limited period of time,
to decide if you want to keep it or cancel it. The length of this time period,
and the amount of refund, depends on applicable law and thus may vary. In
addition, there is a different Free Look period that applies if your Annuity
is held within an IRA. In your Annuity contract, your Free Look right is
referred to as your "Right to Cancel."
GOOD ORDER: Good Order is the standard that we apply when we determine whether
an instruction is satisfactory. An instruction will be considered in Good
Order if it is received at our Service Office: (a) in a manner that is
satisfactory to us such that it is sufficiently complete and clear that we do
not need to exercise any discretion to follow such instruction and complies
with all relevant laws and regulations; (b) on specific forms, or by other
means we then permit (such as via telephone or electronic submission); and/or
(c) with any signatures and dates as we may require. We will notify you if an
instruction is not in Good Order.
GUARANTEE PERIOD: The period of time during which we credit a fixed rate of
interest to an MVA Option.
INVESTMENT OPTION: A Sub-account or MVA Option available as of any given time
to which Account Value may be allocated.
1
ISSUE DATE: The effective date of your Annuity.
KEY LIFE: Under the Beneficiary Continuation Option, or the Beneficiary
Annuity, the person whose life expectancy is used to determine the required
distributions.
MARKET VALUE ADJUSTMENT ("MVA"): A positive or negative adjustment used to
determine the Account Value in an MVA Option.
MARKET VALUE ADJUSTMENT OPTIONS ("MVA OPTIONS"): Investment Options to which a
fixed rate of interest is credited for a specified Guarantee Period and to
which an MVA may apply. The MVA Options consist of (a) the DCA MVA Option used
with our 6 or 12 Month DCA Program and (b) the "Long-Term MVA Options", under
which Guarantee Periods of different yearly lengths are offered.
MATURITY DATE: With respect to an MVA Option, the last day in a Guarantee
Period.
OWNER: With an Annuity issued as an individual annuity contract, the Owner is
either an eligible entity or person named as having ownership rights in
relation to the Annuity. In certain states, with an Annuity issued as a
certificate under a group annuity contract, the "Owner" refers to the person
or entity that has the rights and benefits designated to the "participant" in
the certificate. Thus, an Owner who is a participant has rights that are
comparable to those of the Owner of an individual annuity contract.
PURCHASE PAYMENT: A cash consideration in currency of the United States of
America given to us in exchange for the rights, privileges, and benefits of
the Annuity.
SERVICE OFFICE: The place to which all requests and payments regarding the
Annuity are to be sent. We may change the address of the Service Office at any
time, and will notify you in advance of any such change of address. Please see
the section of this prospectus entitled "How to Contact Us" for the Service
Office address.
SEPARATE ACCOUNT: Referred to as the "Variable Separate Account" in your
Annuity, this is the variable Separate Account(s) shown in the Annuity.
SUB-ACCOUNT: A division of the Separate Account.
SURRENDER VALUE: The Account Value (which includes the effect of any MVA) less
any applicable tax charges, any charges assessable as a deduction from the
Account Value for any optional benefits provided by rider or endorsement, and
any Annual Maintenance Fee.
UNADJUSTED ACCOUNT VALUE: The Unadjusted Account Value is equal to the Account
Value prior to the application of any MVA.
UNIT: A share of participation in a Sub-account used to calculate your
Unadjusted Account Value prior to the Annuity Date.
VALUATION DAY: Every day the New York Stock Exchange is open for trading or
any other day the Securities and Exchange Commission requires mutual funds or
unit investment trusts to be valued.
WE, US, OUR: Pruco Life Insurance Company.
YOU, YOUR: The Owner(s) shown in the Annuity.
2
SUMMARY OF CONTRACT FEES AND CHARGES
The following tables describe the fees and expenses that you will pay when
buying, owning, and surrendering the Annuity. The first table describes the
fees and expenses that you will pay at the time you surrender the Annuity,
take a partial withdrawal, or transfer Account Value between the Investment
Options. State premium taxes also may be deducted.
The following table provides a summary of the periodic fees and charges you
will pay while you own your Annuity, excluding the underlying portfolio annual
expenses. These fees and charges are described in more detail within this
prospectus.
1 Currently, we deduct the fee after the 20/th/ transfer each Annuity Year.
2 We reserve the right to deduct the charge either at the time the tax is
imposed, upon a full surrender of the Annuity, or upon Annuitization.
3 Assessed annually on the Annuity's anniversary date or upon surrender. Only
applicable if the sum of the Purchase Payments at the time the fee is due
is less than $100,000.
4 These charges are assessed as a percentage of the daily net assets of the
Sub-accounts. The Insurance Charge is the combination of Mortality &
Expense Risk Charge and the Administration Charge.
5 For Beneficiaries who elect the Beneficiary Continuation Option, the Annual
Maintenance Fee is the lesser of $30 or 2% of Unadjusted Account Value and
is only applicable if Unadjusted Account Value is less than $25,000 at the
time the fee is assessed. For Beneficiaries who elect the Beneficiary
Continuation Option, the Mortality and Expense and Administration Charges
do not apply. However, a Settlement Service Charge equal to 1.00% is
assessed as a percentage of the daily net assets of the Sub-accounts as an
annual charge.
3
The following table sets forth the charge for each optional benefit under the
Annuity. These fees would be in addition to the periodic fees and transaction
fees set forth in the tables above. The first column shows the charge for each
optional benefit on a maximum and current basis. The next column shows the
total expenses you would pay for the Annuity if you purchased the relevant
optional benefit. More specifically, this column shows the total charge for
the optional benefit plus the Total Annualized Insurance Fees/Charges
applicable to the Annuity (as shown in the prior table). Where the charges
cannot actually be totaled (because they are assessed against different base
values), we show both individual charges.
6 The charge for each of Highest Daily Lifetime Income v2.1 benefits listed
above is assessed against the greater of Unadjusted Account Value and the
Protected Withdrawal Value (PWV). PWV is described in the Living Benefits
section of this prospectus.
7 HOW THE OPTIONAL BENEFIT FEES AND CHARGES ARE DETERMINED
The charge is taken out of the Sub-accounts. The current optional benefit
charge is in addition to the 0.55% annualized charge of amounts invested in
the Sub-accounts.
Highest Daily Lifetime Income v2.1: 1.00% current optional benefit charge
is in addition to 0.55% annualized charge of amounts invested in the
Sub-accounts for base Annuity.
Spousal Highest Daily Lifetime Income v2.1: 1.10% current optional benefit
charge is in addition to 0.55% annualized charge of amounts invested in the
Sub-accounts for base Annuity.
Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit: 1.50%
current optional benefit charge is in addition to 0.55% annualized charge
of amounts invested in the Sub-accounts for base Annuity.
Spousal Highest Daily Lifetime Income v2.1 with Highest Daily Death
Benefit: 1.60% current optional benefit charge is in addition to 0.55%
annualized charge of amounts invested in the Sub-accounts for base Annuity.
8 We reserve the right to increase the charge to the maximum charge
indicated, upon any step-up under the benefit. Also, if you decide to elect
or re-add a benefit after your contract has been issued, the charge for the
benefit under your contract will equal the current charge for then new
contract owners up to the maximum indicated.
4
The following table provides the range (minimum and maximum) of the total
annual expenses for the underlying mutual funds ("Portfolios") before any
contractual waivers and expense reimbursements. Each figure is stated as a
percentage of the underlying Portfolio's average daily net assets.
The following are the total annual expenses for each underlying mutual fund
("Portfolio"). The "Total Annual Portfolio Operating Expenses" reflect the
combination of the underlying Portfolio's investment management fee, other
expenses, any 12b-1 fees, and certain other expenses. The fees and expenses
have been restated to reflect fee and expense changes implemented following
shareholder approval of a Rule 12b-1 plan for the Portfolios, as explained in
the current prospectus for the Portfolios. Each figure is stated as a
percentage of the underlying Portfolio's average daily net assets. For certain
of the Portfolios, a portion of the management fee has been contractually
waived and/or other expenses have been contractually partially reimbursed,
which is shown in the table. The following expenses are deducted by the
underlying Portfolio before it provides Pruco Life with the daily net asset
value. The underlying Portfolio information was provided by the underlying
mutual funds and has not been independently verified by us. See the
prospectuses or statements of additional information of the underlying
Portfolios for further details. The current prospectus and statement of
additional information for the underlying Portfolios can be obtained by
calling 1-888-PRU-2888.
5
6
+ Expense information in the Underlying Mutual Fund Portfolio Annual Expenses
Table has been restated to reflect current fees.
1 The AST AQR Emerging Markets Equity Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $300 million for the Portfolio
for the fiscal period ending December 31, 2013.
2 The AST Clearbridge Dividend Growth Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $400 million for the Portfolio
for the fiscal period ending December 31, 2013.
3 Pyramis is a registered service mark of FMR LLC. Used under license.
4 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses so that the investment management
fees plus other expenses (exclusive in all cases of taxes, short sale
interest and dividend expenses, brokerage commissions, underlying portfolio
fees and expenses, and extraordinary expenses) for the Portfolio do not
exceed 1.10% of the average daily net assets of the Portfolio through June
30, 2015. This expense limitation may not be terminated or modified prior
to June 30, 2015, but may be discontinued or modified thereafter. The
decision on whether to renew, terminate or modify this waiver after June
30, 2015 will be subject to review by the Manager and the Board of Trustees
of the Trust.
5 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses for the Portfolio so that the
Portfolio's investment management fees plus other expenses (exclusive in
all cases of taxes, interest, brokerage commissions, acquired portfolio
fees and expenses and extraordinary expenses) do not exceed 0.99% of the
Portfolio's average daily net assets through June 30, 2015. This
arrangement may not be terminated or modified prior to June 30, 2015, and
may be discontinued or modified thereafter. The decision on whether to
renew, modify or discontinue the arrangement after June 30, 2015 will be
subject to review by the Manager and the Portfolio's Board of Trustees.
7
6 The Portfolio's distributor, Prudential Annuities Distributors, Inc. (PAD),
has contractually agreed to reduce its distribution and service fees so
that the effective distribution and service fee rate paid by the Portfolio
is reduced based on the average daily net assets of the Portfolio as
follows: 0.08% over $300 million in daily net assets up to and including
$500 million in average daily net assets; 0.07% over $500 million in daily
net assets up to and including $750 million in average daily net assets;
and 0.06% over $750 million in daily net assets. The contractual waiver
does not include an expiration or termination date as it is contractually
guaranteed by PAD on a permanent basis, and the Investment Managers and PAD
cannot terminate or otherwise modify the waiver.
7 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fee, so that the effective management fee rate paid by the Portfolio is as
follows: 0.70% to $500 million of average daily net assets; 0.675% over
$500 million in average daily net assets up to and including $1 billion in
average daily net assets; and 0.65% over $1 billion in average daily net
assets. This arrangement may not be terminated or modified prior to June
30, 2015, and may be discontinued or modified thereafter. The decision on
whether to renew, modify or discontinue the arrangement after June 30, 2015
will be subject to review by the Investment Managers and the Portfolio's
Board of Trustees.
8 If approved by shareholders, the Portfolio will be restructured on or about
April 29, 2013. As restructured, the Portfolio will no longer be a
fund-of-funds and will be renamed the AST RCM World Trends Portfolio. Based
on assets of December 31, 2012, as restructured, the Portfolio would have a
management fee of 0.92%, other expenses of 0.14%, acquired fund fees and
expenses of 0.00%, total annual operating expenses before contractual fee
waiver of 1.06%, a contractual fee waiver of 0.07% through at least June
30, 2014, and net annual operating expenses after fee waiver of 0.99%.
9 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees so that the Portfolio's investment management fee would equal 0.70% of
the Portfolio's first $500 million of average daily net assets, 0.675% of
the Portfolio's average daily net assets between $500 million and $1
billion, and 0.65% of the Portfolio's average daily net assets in excess of
$1 billion through June 30, 2015. This contractual investment management
fee waiver may not be terminated or modified prior to June 30, 2015, but
may be discontinued or modified thereafter. The decision on whether to
renew, modify, or discontinue this expense limitation after June 30, 2015
will be subject to review by the Manager and the Board of Trustees of the
Portfolio.
10 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses, so that the investment management
fees plus other expenses (exclusive in all cases of taxes, short sale
interest and dividend expenses, brokerage commissions, acquired portfolio
fees and expenses, and extraordinary expenses) for the Portfolio do not
exceed 1.08% of its average daily net assets through June 30, 2015. This
expense limitation may not be terminated or modified prior to June 30,
2015, and may be discontinued or modified thereafter. The decision on
whether to renew, modify or discontinue the expense limitation after June
30, 2015 will be subject to review by the Investment Managers and the
Portfolio's Board of Trustees.
11 The AST QMA Emerging Markets Equity Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $300 million for the Portfolio
for the fiscal period ending December 31, 2013.
12 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fee so that the Portfolio's investment management fee would equal 0.80% of
the Portfolio's average daily net assets through June 30, 2015. This
contractual investment management fee waiver may not be terminated or
modified prior to June 30, 2015, but may be discontinued or modified
thereafter. The decision on whether to renew, modify, or discontinue this
expense limitation after June 30, 2015 will be subject to review by the
Manager and the Board of Trustees of the Trust.
8
EXPENSE EXAMPLES
These examples are intended to help you compare the cost of investing in the
Annuity with the cost of investing in other Pruco Life Annuities and/or other
variable annuities. Below are examples for the Annuity showing what you would
pay in expenses at the end of the stated time periods had you invested $10,000
in the Annuity and your investment has a 5% return each year. The examples
reflect the following fees and charges for the Annuity as described in
"Summary of Contract Fees and Charges."
. Insurance Charge
. Annual Maintenance Fee
. Optional benefit fees, as described below
The examples also assume the following for the period shown:
. You allocate all of your Account Value to the Sub-account with the
maximum gross total operating expenses and these expenses remain the
same each year*
. For each charge, we deduct the maximum charge rather than the current
charge
. You make no transfers, or other transactions for which we charge a fee
. No tax charge applies
. You elect the Spousal Highest Daily Lifetime Income v2.1 with Highest
Daily Death Benefit, which is the maximum optional benefit charge. There
is no other combination of optional benefits that would result in higher
maximum charges than those shown in the examples.
Amounts shown in the examples are rounded to the nearest dollar.
* Note: Not all Portfolios offered as Sub-accounts may be available depending
on optional benefit selection, the applicable jurisdiction and selling firm.
THE EXAMPLES ARE ILLUSTRATIVE ONLY. THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING PORTFOLIOS. ACTUAL
EXPENSES WILL BE LESS THAN THOSE SHOWN DEPENDING UPON WHICH OPTIONAL BENEFIT
YOU ELECT OTHER THAN INDICATED IN THE EXAMPLES OR IF YOU ALLOCATE ACCOUNT
VALUE TO ANY OTHER AVAILABLE SUB-ACCOUNTS.
EXPENSE EXAMPLES ARE PROVIDED AS FOLLOWS:
If you surrender your Annuity, do not surrender, or annuitize at the end of
the applicable time period:
PLEASE SEE APPENDIX A FOR A TABLE OF ACCUMULATION UNIT VALUES.
9
SUMMARY
PRUDENTIAL PREMIER ADVISOR VARIABLE ANNUITY SERIES ("ADVISOR SERIES")
This Summary describes key features of the Annuity offered in this prospectus.
It is intended to give you an overview, and to point you to sections of the
prospectus that provide greater detail. You should not rely on the Summary
alone for all the information you need to know before purchasing the Annuity.
You should read the entire prospectus for a complete description of the
Annuity. Your Financial Professional can also help you if you have questions.
THE ANNUITY: The variable annuity contract issued by Pruco Life is a contract
between you, the Owner, and Pruco Life, an insurance company. It is designed
for retirement purposes, or other long-term investing, to help you save money
for retirement, on a tax deferred basis, and provide income during your
retirement. Although this prospectus describes key features of the variable
annuity contract, the prospectus is a distinct document, and is not part of
the contract.
The Annuity offers various investment portfolios. With the help of your
Financial Professional, you choose how to invest your money within your
Annuity. Investing in a variable annuity involves risk and you can lose your
money. On the other hand, investing in a variable annuity can provide you with
the opportunity to grow your money through participation in "underlying"
mutual funds.
GENERALLY SPEAKING, VARIABLE ANNUITIES ARE INVESTMENTS DESIGNED TO BE HELD FOR
THE LONG TERM. WORKING WITH YOUR FINANCIAL PROFESSIONAL, YOU SHOULD CAREFULLY
CONSIDER WHETHER A VARIABLE ANNUITY IS APPROPRIATE FOR YOU, GIVEN YOUR LIFE
EXPECTANCY, NEED FOR INCOME, AND OTHER PERTINENT FACTORS.
PURCHASE: Your eligibility to purchase is based on your age and the amount of
your initial Purchase Payment. See your Financial Professional to complete an
application. The maximum age for purchasing the Annuity is 85 and the minimum
initial Purchase Payment is $10,000.
The "Maximum Age for Initial Purchase" applies to the oldest Owner as of the
day we would issue the Annuity. If the Annuity is to be owned by an entity,
the maximum age applies to the Annuitant as of the day we would issue the
Annuity. For Annuities purchased as a Beneficiary Annuity, the maximum issue
age is 70 and applies to the Key Life.
After you purchase your Annuity, you will have a limited period of time during
which you may cancel (or "Free Look") the purchase of your Annuity. Your
request for a Free Look must be received in Good Order.
Please see "Purchasing the Annuity" for more detail.
INVESTMENT OPTIONS: You may choose from a variety of variable Investment
Options ranging from conservative to aggressive. Certain optional benefits may
limit your ability to invest in the variable Investment Options otherwise
available to you under the Annuity. Each of the underlying mutual funds is
described in its own prospectus, which you should read before investing. There
is no assurance that any variable Investment Option will meet its investment
objective.
You may also allocate money to an MVA Option that earns interest for a
specific time period. In general, if you withdraw your money from this option
more than 30 days prior to the end of the "Guarantee Period", you will be
subject to a "Market Value Adjustment", which can either increase or decrease
your Account Value. We also offer a 6 or 12 Month DCA Program under which your
money is transferred monthly from a DCA MVA Option to the other Investment
Options you have designated. Premature withdrawals from the DCA MVA Option may
also be subject to a Market Value Adjustment.
We also offer other programs to help discipline your investing, such as dollar
cost averaging or automatic rebalancing.
Please see "Investment Options," and "Managing Your Account Value" for
information.
ACCESS TO YOUR MONEY: You can receive income by taking withdrawals or electing
annuity payments. Please note that withdrawals may be subject to tax.
You may elect to receive income through annuity payments over your lifetime,
also called "Annuitization". If you elect to receive annuity payments, you
convert your Account Value into a stream of future payments. This means in
most cases you no longer have an Account Value and therefore cannot make
withdrawals. We offer different types of annuity options to meet your needs.
Please see "Access to Account Value" and "Annuity Options" for more
information.
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OPTIONAL LIVING BENEFITS
GUARANTEED LIFETIME WITHDRAWAL BENEFITS. We offer optional living benefits,
for an additional charge, that guarantee your ability to take withdrawals for
life as a percentage of "Protected Withdrawal Value", even if your Account
Value falls to zero. The Protected Withdrawal Value is not the same as your
Account Value, and it is not available for a lump sum withdrawal. The Account
Value has no guarantees, may fluctuate, and can lose value. If you withdraw
more than the allowable amount during any year (referred to "Excess Income"),
your future level of guaranteed withdrawals decreases.
We currently offer the following benefits:
. Highest Daily Lifetime Income v2.1
. Spousal Highest Daily Lifetime Income v2.1
. Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit
. Spousal Highest Daily Lifetime Income v2.1 with Highest Daily Death
Benefit
These benefits utilize a predetermined mathematical formula to help us manage
your guarantee through all market cycles. Under the predetermined mathematical
formula, your Account Value may be transferred between certain "permitted
Sub-accounts" on the one hand and the AST Investment Grade Bond Sub-account on
the other hand. Please see the applicable optional benefits section as well as
the Appendices to this prospectus for more information on the formulas.
In the Living Benefits section, we describe guaranteed minimum withdrawal
benefits that allow you to withdraw a specified amount each year for life (or
joint lives, for the spousal version of the benefit). Please be aware that if
you withdraw more than that amount in a given year (i.e., excess income), that
may permanently reduce the guaranteed amount you can withdraw in future years.
Thus, you should think carefully before taking such excess income.
Please see "Living Benefits" for more information.
DEATH BENEFITS: You may name a Beneficiary to receive the proceeds of your
Annuity upon your death. Your death benefit must be distributed within the
time period required by the tax laws. The Annuity offers a minimum death
benefit. Please see "Death Benefits" for more information.
FEES AND CHARGES: The Annuity, and the optional living benefits and optional
death benefits, are subject to certain fees and charges, as discussed in the
"Summary of Contract Fees and Charges" table in the prospectus. In addition,
there are fees and expenses of the underlying Portfolios.
WHAT DOES IT MEAN THAT MY ANNUITY IS "TAX-DEFERRED"? Variable annuities are
"tax deferred", meaning you pay no taxes on any earnings from your Annuity
until you withdraw the money. You may also transfer among your Investment
Options without paying a tax at the time of the transfer. When you take your
money out of the Annuity, however, you will be taxed on the earnings at
ordinary income tax rates. If you withdraw money before you reach age 59 1/2,
you also may be subject to a 10% federal tax penalty.
You may also purchase the Annuity as a tax-qualified retirement investment
such as an IRA, SEP-IRA, Roth IRA, 401(a) plan, or non-ERISA 403(b) plan.
Although there is no additional tax advantage to a variable annuity purchased
through one of these plans, the Annuity has features and benefits other than
tax deferral that may make it an important investment for a qualified
plan. You should consult your tax advisor regarding these features and
benefits prior to purchasing a contract for use with a tax-qualified plan.
MARKET TIMING: We have market timing policies and procedures that attempt to
detect transfer activity that may adversely affect other Owners or portfolio
shareholders in situations where there is potential for pricing inefficiencies
or that involve certain other types of disruptive trading activity (i.e.,
market timing). Our market timing policies and procedures are discussed in
more detail in the section entitled "Restrictions on Transfers Between
Investment Options."
OTHER INFORMATION: Please see the section entitled "General Information" for
more information about the Annuity, including legal information about Pruco
Life, the Separate Account, and underlying funds.
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INVESTMENT OPTIONS
The Investment Options under the Annuity consist of the Sub-accounts and the
MVA Options. In this section, we describe the portfolios. We then discuss the
investment restrictions that apply if you elect certain optional benefits.
Finally, we discuss the MVA Options.
Each Sub-account invests in an underlying portfolio whose share price
generally fluctuates each Valuation Day. The portfolios that you select, among
those that are available, are your choice - we do not provide investment
advice, nor do we recommend any particular portfolio. You bear the investment
risk for amounts allocated to the portfolios.
In contrast to the Sub-accounts, Account Value allocated to an MVA Option
earns a fixed rate of interest during the Guarantee Period. We guarantee both
the stated amount of interest and the principal amount of your Account Value
in an MVA Option, so long as you remain invested in the MVA Option for the
duration of the Guarantee Period. In general, if you withdraw Account Value
prior to the end of the MVA Option's Guarantee Period, you will be subject to
a Market Value Adjustment or "MVA", which can be positive or negative. A
"Guarantee Period" is the period of time during which we credit a fixed rate
of interest to an MVA Option.
As a condition of participating in the optional benefits, you may be
prohibited from investing in certain Sub-accounts or MVA Options. We describe
those restrictions below. In addition, the optional living benefits (e.g.,
Highest Daily Lifetime Income v2.1) employ a pre-determined mathematical
formula, under which money is transferred between your chosen Sub-accounts and
the AST Investment Grade Bond Portfolio.
You should be aware that the operation of the formula may result in
large-scale asset flows into and out of your chosen Sub-accounts and the AST
Investment Grade Bond Portfolio, which could subject those portfolios to
certain risks and adversely impact their expenses and performance. Even if you
do not elect an optional living benefit that employs a predetermined
mathematical formula, the expenses, performance, and risk profile of your
investment may be adversely impacted as described below to the extent you
select Permitted Sub-accounts. The mathematical formula may adversely affect a
portfolio's investment performance by requiring the sub-advisor to purchase
and sell securities at inopportune times and by otherwise limiting the
sub-advisor's ability to fully implement that portfolio's investment
strategies. Because transfers to and from your chosen Sub-accounts and the AST
Investment Grade Bond Portfolio can be frequent and the amount transferred can
vary, any of these portfolios could experience the following additional
effects, among others:
(a)the sub-advisor may be required to hold a larger portion of assets in
highly liquid securities than it otherwise would, which could diminish
performance if the highly liquid securities underperform other securities
(e.g., equities) that otherwise would have been held;
(b)a portfolio may experience higher turnover, which could result in higher
operating expense ratios and transaction costs for the portfolio compared
to other similar funds; and,
(c)if the sub-advisor must sell securities that are thinly-traded to satisfy
redemption requests initiated pursuant to the formula, such sales could
have a significant adverse impact on the price of such securities and the
cash proceeds received by the portfolio.
Please consult the prospectus for the applicable portfolio for additional
information about these effects.
VARIABLE INVESTMENT OPTIONS
Each variable Investment Option is a Sub-account of the Pruco Life Flexible
Premium Variable Annuity Account (see "Pruco Life and the Separate Account"
for more detailed information). Each Sub-account invests exclusively in one
portfolio. You should carefully read the prospectus for any portfolio in which
you are interested. The Investment Objectives/Policies Chart below classifies
each of the portfolios based on our assessment of their investment style. The
chart also provides a description of each portfolio's investment objective (in
italics) and a short, summary description of their key policies to assist you
in determining which Portfolios may be of interest to you.
Not all portfolios offered as Sub-accounts may be available depending on
optional benefit selection. Thus, if you selected particular optional
benefits, you would be precluded from investing in certain portfolios and
therefore would not receive investment appreciation (or depreciation)
affecting those portfolios.
The portfolios are not publicly traded mutual funds. They are only available
as Investment Options in variable annuity contracts and variable life
insurance policies issued by insurance companies, or in some cases, to
participants in certain qualified retirement plans. However, some of the
portfolios available as Sub-accounts under the Annuities are managed by the
same portfolio advisor or sub-advisor as a retail mutual fund of the same or
similar name that the portfolio may have been modeled after at its inception.
Conversely, certain retail mutual funds may be managed by the same portfolio
advisor or sub-advisor of a Portfolio available as a Sub-account or have a
similar name. While the investment objective and policies of the retail mutual
funds and the portfolios may be substantially similar, the actual investments
will differ to varying degrees. Differences in the performance of the funds
can be
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expected, and in some cases could be substantial. You should not compare the
performance of a publicly traded mutual fund with the performance of any
similarly named portfolio offered as a Sub-account. Details about the
investment objectives, policies, risks, costs and management of the portfolios
are found in the prospectuses for the portfolios. The current prospectuses and
statements of additional information for the underlying Portfolios can be
obtained by calling 1-888-PRU-2888. Please read the prospectus carefully
before investing.
The name of the advisor/sub-advisor for each portfolio appears next to the
description. Those portfolios whose name includes the prefix "AST" are
portfolios of the Advanced Series Trust. The portfolios of the Advanced Series
Trust are co-managed by AST Investment Services, Inc. and Prudential
Investments LLC, both of which are affiliated companies of Pruco Life.
However, one or more sub-advisors, as noted below, is engaged to conduct
day-to-day management. Allocations made to all AST Portfolios benefit us
financially.
Please see the Additional Information section, under the heading concerning
"Service Fees Payable to Pruco Life" for a discussion of fees that we may
receive from underlying mutual funds and/or their affiliates. You may select
portfolios individually, create your own combination of portfolios (certain
limitations apply - see "Limitations With Optional Benefits" later in this
section), or select from among combinations of portfolios that we have created
called "Prudential Portfolio Combinations." Under Prudential Portfolio
Combinations, each Portfolio Combination consists of several asset allocation
portfolios, each of which represents a specified percentage of your
allocations. If you elect to invest according to one of these Portfolio
Combinations, we will allocate your initial Purchase Payment among the
Sub-accounts within the Portfolio Combination according to the percentage
allocations. You may elect to allocate additional Purchase Payments according
to the composition of the Portfolio Combination, although if you do not make
such an explicit election, we will allocate additional Purchase Payments as
discussed below under "Additional Purchase Payments." Once you have selected a
Portfolio Combination, we will not rebalance your Account Value to take into
account differences in performance among the Sub-accounts. This is a static,
point of sale model allocation. Over time, the percentages in each asset
allocation portfolio may vary from the Portfolio Combination you selected when
you purchased your Annuity based on the performance of each of the portfolios
within the Portfolio Combination. However, you may elect to participate in an
automatic rebalancing program, under which we would transfer Account Value
periodically so that your Account Value allocated to the Sub-accounts is
brought back to the exact percentage allocations stipulated by the Portfolio
Combination you elected. Please see "Automatic Rebalancing Programs" below for
details about how such a program operates. If you are participating in an
optional living benefit (such as Highest Daily Lifetime Income v2.1) that uses
a predetermined mathematical formula, under which your Account Value may be
transferred between certain "Permitted Sub-accounts" and a bond portfolio
sub-account, and you have elected automatic rebalancing in addition to
Prudential Portfolio Combinations, you should be aware that: (a) the AST bond
portfolio used as part of the pre-determined mathematical formula will not be
included as part of automatic rebalancing and (b) the operation of the formula
may result in the rebalancing not conforming to the percentage allocations
that existed originally as part of Prudential Portfolio Combinations.
If you are interested in a Portfolio Combination, you should work with your
Financial Professional to select the Portfolio Combination that is appropriate
for you, in light of your investment time horizon, investment goals and
expectations and market risk tolerance, and other relevant factors. In
providing these Portfolio Combinations, we are not providing investment
advice. You are responsible for determining which Portfolio Combination or
Sub-account(s) is best for you. Asset allocation does not ensure a profit or
protect against a loss.
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Pyramis is a registered service mark of FMR LLC. Used under license.
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Dow Jones has no relationship to the ProFunds VP, other than the licensing of
the Dow Jones sector indices and its service marks for use in connection with
the ProFunds VP. The ProFunds VP are not sponsored, endorsed, sold, or
promoted by Standard & Poor's or NASDAQ, and neither Standard & Poor's nor
NASDAQ makes any representations regarding the advisability of investing in
the ProFunds VP.
LIMITATIONS WITH OPTIONAL BENEFITS
As a condition to your participating in any Highest Daily Lifetime Income v2.1
benefit, we limit the Investment Options to which you may allocate your
Account Value, as set forth in the Allowable Benefit Allocations table below.
ALLOWABLE BENEFIT ALLOCATIONS
AST Academic Strategies Asset Allocation
AST Advanced Strategies
AST Balanced Asset Allocation
AST BlackRock Global Strategies
AST Capital Growth Asset Allocation
AST FI Pyramis(R) Asset Allocation
AST First Trust Balanced Target
AST First Trust Capital Appreciation Target
AST Franklin Templeton Founding Funds Allocation
AST Horizon Moderate Asset Allocation
AST J.P. Morgan Global Thematic
AST J.P. Morgan Strategic Opportunities
AST Moderate Asset Allocation
AST New Discovery Asset Allocation
AST Preservation Asset Allocation
AST Schroders Global Tactical
AST Schroders Multi-Asset World Strategies
AST T. Rowe Price Asset Allocation
AST Wellington Management Hedged Equity
MARKET VALUE ADJUSTMENT OPTIONS
When you allocate your Account Value to an MVA Option, you earn a fixed rate
of interest over a set period of time called a Guarantee Period. There are two
types of MVA Options available under each Annuity - the Long-Term MVA Options
and the DCA MVA Options. We discuss each MVA Option below. In brief, under the
Long-Term MVA Options, you earn interest over a multi-year time period that
you have selected. Currently, the Guarantee Periods we offer are 3 years, 5
years, 7 years, and 10 years. We reserve the right to eliminate any or all of
these Guarantee Periods or offer Guarantee Periods of different durations.
Under the DCA MVA Options, you earn interest over a 6 month or 12 month period
while your Account Value in that option is systematically transferred monthly
to the Sub-accounts you have designated.
For the Long-Term MVA Option, a Guarantee Period for an MVA Option begins:
. when all or part of a Purchase Payment is allocated to that MVA Option;
. upon transfer of any of your Account Value to a Long-Term MVA Option for
that particular Guarantee Period; or
. when you "renew" an MVA Option into a new Guarantee Period.
RATES FOR MVA OPTIONS
We do not have a single method for determining the fixed interest rates for
the MVA Options. In general, the interest rates we offer for MVA Options will
reflect the investment returns available on the types of investments we make
to support our fixed rate guarantees. These investment types may include cash,
debt securities guaranteed by the United States government and its agencies
and instrumentalities, money market instruments, corporate debt obligations of
different durations, private placements, asset-backed obligations and
municipal bonds. In determining rates we also consider factors such as the
length of the Guarantee Period
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for the MVA Option, regulatory and tax requirements, liquidity of the markets
for the type of investments we make, commissions, administrative and
investment expenses, our insurance risks in relation to the MVA Options,
general economic trends and competition. We also take into consideration
mortality, expense, administration, profit and other factors in determining
the interest rates we credit to MVA Options, and therefore, we credit lower
interest rates due to the existence of these factors than we otherwise would.
The interest rate credited to an MVA Option is the rate in effect when the
Guarantee Period begins and does not change during the Guarantee Period. The
rates are an effective annual rate of interest. We determine, in our sole
discretion, the interest rates for the various Guarantee Periods. At the time
that we confirm your MVA Option, we will advise you of the interest rate in
effect and the date your MVA Option matures. We may change the rates we credit
to new MVA Options at any time. To inquire as to the current rates for the MVA
Options, please call 1-888-PRU-2888. MVA Options may not be available in all
States and are subject to a minimum rate. Currently, the MVA Options are not
available in the States of Illinois, Oregon and Washington.
To the extent permitted by law, we may establish different interest rates for
MVA Options offered to a class of Owners who choose to participate in various
optional investment programs we make available. This may include, but is not
limited to, Owners who elect to use DCA MVA Options.
For any MVA Option, you will not be permitted to allocate or renew to the MVA
Option if the Guarantee Period associated with that MVA Option would end after
your Latest Annuity Date. Thus, for example, we would not allow you to start a
new Guarantee Period of 5 years if the Owner/Annuitant were aged 94, because
the 5 year period would end after the Latest Annuity Date.
MARKET VALUE ADJUSTMENT
With certain exceptions, if you transfer or withdraw Account Value from an MVA
Option prior to the end of the applicable Guarantee Period, you will be
subject to a Market Value Adjustment or "MVA". We assess an MVA (whether
positive or negative) upon:
. any surrender, partial withdrawal (including a systematic withdrawal, or
a withdrawal program under Sections 72(t) or 72(q) of the Code), or
transfer out of an MVA Option made outside the 30 days immediately
preceding the maturity of the Guarantee Period; and
. your exercise of the Free Look right under your Annuity, unless
prohibited by law.
We will NOT assess an MVA (whether positive or negative) in connection with
any of the following:
. partial withdrawals made to meet Required Minimum Distribution
requirements under the Code in relation to your Annuity or a required
distribution if your Annuity is held as a Beneficiary Annuity, but only
if the Required Minimum Distribution or required distribution from
Beneficiary Annuity is an amount that we calculate and is distributed
through a program that we offer;
. transfers or partial withdrawals from an MVA Option during the 30 days
immediately prior to the end of the applicable Guarantee Period,
including the Maturity Date of the MVA option;
. transfers made in accordance with our 6 or 12 Month DCA Program;
. when a Death Benefit is determined;
. deduction of a Annual Maintenance Fee for the Annuity;
. Annuitization under the Annuity; and
. transfers made pursuant to a mathematical formula used with an optional
benefit (e.g., Highest Daily Lifetime Income).
The amount of the MVA is determined according to the formulas set forth in
Appendix C. We use one formula for the Long-Term MVA Option and another
formula for the DCA MVA Option. In general, the amount of the MVA is dependent
on the difference between interest rates at the time your MVA Option was
established and current interest rates for the remaining Guarantee Period of
your MVA Option. For the Long-Term MVA Option, as detailed in the formula, we
essentially (i) divide the current interest rate you are receiving under the
Guarantee Period by the interest rate we are crediting for a Guarantee Period
equal in duration to the time remaining under the Guarantee Period (plus a
Liquidity Factor as defined below) and (ii) raise that quotient by a
mathematical power that represents the time remaining until the maturity of
the Guarantee Period. That result produces the MVA factor. The Liquidity
Factor is an element of the MVA formula currently equal to 0.0025 or 25 basis
points. It is an adjustment that is applied when an MVA is assessed
(regardless of whether the MVA is positive or negative) and, relative to when
no Liquidity Factor is applied, will reduce the amount being surrendered or
transferred from the MVA Option. If we have no interest rate for a Guarantee
Period equal in duration to the time remaining under the Guarantee Period, we
may use certain US Treasury interest rates to calculate a proxy for that
interest rate. All else being equal, the longer the time remaining until the
maturity of the MVA Option from which you are making the withdrawal, the
larger the mathematical power that is applied to the quotient in (i) above,
and thus the larger the MVA itself. The formula for the DCA MVA Option works
in a similar fashion, including the Liquidity Factor described above, except
that both interest rates used in the MVA formula are derived directly from the
Federal Reserve's "Constant Maturity (CMT) rate." Under either formula, the
MVA may be positive or negative, and a negative MVA could result in a loss of
interest previously earned as well as some portion of your Purchase Payments.
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LONG-TERM MVA OPTIONS
We offer Long-Term MVA Options, offering a range of durations. When you select
this option, your payment will earn interest at the established rate for the
applicable Guarantee Period. A new Long-Term MVA Option is established every
time you allocate or transfer money into a Long-Term MVA Option. You may have
money allocated in more than one Guarantee Period at the same time. This could
result in your money earning interest at different rates and each Guarantee
Period maturing at a different time. While the interest rates we credit to the
MVA Options may change from time to time, the minimum interest rate is what is
set forth in your Annuity.
We retain the right to limit the amount of Account Value that may be
transferred into a new or out of an existing a Long-Term MVA Option and/or to
require advance notice for transfers exceeding a specified amount. In
addition, we reserve the right to limit or restrict the availability of
certain Guarantee Periods from time to time.
DCA MVA OPTIONS
In addition to the Long-Term MVA Options, we offer DCA MVA Options that are
used with our 6 or 12 Month DCA Program. Amounts allocated to the DCA MVA
Options earn the declared rate of interest while the amount is transferred
over a 6 or 12 month period into the Sub-accounts that you have designated.
Because the interest we credit is applied against a balance that declines as
transfers are made periodically to the Subaccounts, you do not earn interest
on the full amount you allocated initially to the DCA MVA Options. A dollar
cost averaging program does not assure a profit, or protect against a loss.
For a complete description of our 6 or 12 month DCA Program, see the
applicable section of this prospectus within the section entitled "Managing
Your Account Value."
GUARANTEE PERIOD TERMINATION
An MVA Option ends on the earliest of (a) the "Maturity Date" of the Guarantee
Period (b) the date the entire amount in the MVA Option is withdrawn or
transferred (c) the Annuity Date (d) the date the Annuity is surrendered and
(e) the date as of which a Death Benefit is determined, unless the Annuity is
continued by a spousal Beneficiary. "Annuity Date" means the date on which we
apply your Unadjusted Account Value to the applicable annuity option and begin
the payout period. As discussed in the Annuity Options section, there is an
age by which you must begin receiving annuity payments, which we call the
"Latest Annuity Date."
We will notify you before the end of the Guarantee Period. You may elect to
have the value of the Long-Term MVA Option on its Maturity Date transferred to
any Investment Option, including any Long-Term MVA Option, we then make
available. If we do not receive instructions from you in Good Order at our
Service Office before the Maturity Date of the Long-Term MVA Option, regarding
how the Account Value in your maturing Long-Term MVA Option is to be
allocated, we will allocate the Account Value in the maturing Long-Term MVA
Option to the AST Money Market Sub-account, unless the Maturity Date is the
Annuity Date. We will not assess an MVA if you choose to renew an MVA Option
on its Maturity Date or transfer the Account Value to another Investment
Option on the Maturity Date (or at any time during the 30 days immediately
preceding the Maturity Date).
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FEES, CHARGES AND DEDUCTIONS
In this section, we provide detail about the charges you incur if you own the
Annuity.
The charges under the Annuity are designed to cover, in the aggregate, our
direct and indirect costs of selling, administering and providing benefits
under the Annuity. They are also designed, in the aggregate, to compensate us
for the risks of loss we assume. If, as we expect, the charges that we collect
from the Annuity exceed our total costs in connection with the Annuity, we
will earn a profit. Otherwise we will incur a loss. For example, Pruco Life
may make a profit on the Insurance Charge if, over time, the actual costs of
providing the guaranteed insurance obligations and other expenses under the
Annuity are less than the amount we deduct for the Insurance Charge. To the
extent we make a profit on the Insurance Charge, such profit may be used for
any other corporate purpose.
The rates of certain of our charges have been set with reference to estimates
of the amount of specific types of expenses or risks that we will incur. In
general, a given charge under the Annuity compensates us for our costs and
risks related to that charge and may provide for a profit. However, it is
possible that with respect to a particular obligation we have under this
Annuity, we may be compensated not only by the charge specifically tied to
that obligation, but also from one or more other charges we impose.
With regard to charges that are assessed as a percentage of the value of the
Sub-accounts, please note that such charges are assessed through a reduction
to the Unit value of your investment in each Sub-account, and in that way
reduce your Account Value. A "Unit" refers to a share of participation in a
Sub-account used to calculate your Unadjusted Account Value prior to the
Annuity Date.
TRANSFER FEE: Currently, you may make twenty free transfers between Investment
Options each Annuity Year. We may charge $10 for each transfer after the
twentieth in each Annuity Year. We do not consider transfers made as part of a
Dollar Cost Averaging, Automatic Rebalancing or Custom Portfolio Program when
we count the twenty free transfers. All transfers made on the same day will be
treated as one transfer. Renewals or transfers of Account Value from an MVA
Option within the 30 days immediately preceding the end of its Guarantee
Period are not subject to the Transfer Fee and are not counted toward the
twenty free transfers. Similarly, transfers made under our 6 or 12 Month DCA
Program and transfers made pursuant to a formula used with an optional benefit
are not subject to the Transfer Fee and are not counted toward the twenty free
transfers. Transfers made through any electronic method or program we specify
are not counted toward the twenty free transfers. The transfer fee is deducted
pro rata from all Sub-accounts in which you maintain Account Value immediately
subsequent to the transfer.
ANNUAL MAINTENANCE FEE: Prior to Annuitization, we deduct an Annual
Maintenance Fee. The Annual Maintenance Fee is equal to $50 or 2% of your
Unadjusted Account Value, whichever is less. This fee will be deducted
annually on the anniversary of the Issue Date of your Annuity or, if you
surrender your Annuity during the Annuity Year, the fee is deducted at the
time of surrender unless the surrender is taken within 30 days of most
recently assessed Annual Maintenance Fee. The fee is taken out first from the
Sub-accounts pro rata, and then from the MVA Options (if the amount in the
Sub-accounts is insufficient to pay the fee). The Annual Maintenance Fee is
only deducted if the sum of the Purchase Payments at the time the fee is
deducted is less than $100,000. We do not impose the Annual Maintenance Fee
upon Annuitization (unless Annuitization occurs on an Annuity anniversary), or
the payment of a Death Benefit. For Beneficiaries that elect the Beneficiary
Continuation Option, the Annual Maintenance Fee is the lesser of $30 or 2% of
Unadjusted Account Value and is only assessed if the Unadjusted Account Value
is less than $25,000 at the time the fee is assessed. The amount of the Annual
Maintenance Fee may differ in certain states.
TAX CHARGE: Some states and some municipalities charge premium taxes or
similar taxes on annuities that we are required to pay. The amount of tax will
vary from jurisdiction to jurisdiction and is subject to change. We reserve
the right to deduct the tax either when Purchase Payments are received, upon
surrender or upon Annuitization. If deducted upon Annuitization, we would
deduct the tax from your Unadjusted Account Value. The Tax Charge is designed
to approximate the taxes that we are required to pay and is assessed as a
percentage of Purchase Payments, Surrender Value, or Account Value as
applicable. The Tax Charge currently ranges up to 3.5%. We may assess a charge
against the Sub-accounts and the MVA Options equal to any taxes which may be
imposed upon the Separate Accounts. "Surrender Value" refers to the Account
Value (which includes the effect of any MVA) less any applicable tax charges,
any charges assessable as a deduction from the Account Value for any optional
benefits provided by rider or endorsement, and any Annual Maintenance Fee.
We will pay company income taxes on the taxable corporate earnings created by
this Annuity. While we may consider company income taxes when pricing our
products, we do not currently include such income taxes in the tax charges you
pay under the Annuity. We will periodically review the issue of charging for
these taxes, and we may charge for these taxes in the future. We reserve the
right to impose a charge for federal income taxes if we determine, in our sole
discretion, that we will incur a tax as a result of the operation of the
Separate Account.
In calculating our corporate income tax liability, we may derive certain
corporate income tax benefits associated with the investment of company
assets, including Separate Account assets, which are treated as company assets
under applicable income
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tax law. These benefits reduce our overall corporate income tax liability. We
do not pass these tax benefits through to holders of the Separate Account
annuity contracts because (i) the contract Owners are not the Owners of the
assets generating these benefits under applicable income tax law and (ii) we
do not currently include company income taxes in the tax charges you pay under
the Annuity.
INSURANCE CHARGE: We deduct an Insurance Charge daily based on the annualized
rate shown in the "Summary of Contract Fees and Charges." The charge is
assessed against the assets allocated to the Sub-accounts. The Insurance
Charge is the combination of the Mortality & Expense Risk Charge and the
Administration Charge. The Insurance Charge is intended to compensate Pruco
Life for providing the insurance benefits under the Annuity, including the
Annuity's basic Death Benefit that provides guaranteed benefits to your
Beneficiaries even if your Account Value declines, and the risk that persons
we guarantee annuity payments to will live longer than our assumptions. The
charge also covers administrative costs associated with providing the Annuity
benefits, including preparation of the contract and prospectus, confirmation
statements, annual account statements and annual reports, legal and accounting
fees as well as various related expenses. Finally, the charge covers the risk
that our assumptions about the mortality risks and expenses under the Annuity
are incorrect and that we have agreed not to increase these charges over time
despite our actual costs.
OPTIONAL BENEFITS FOR WHICH WE ASSESS A CHARGE: If you elect to purchase an
optional benefit, we will deduct an additional charge. The charge is assessed
against the greater of the Unadjusted Account Value and the Protected
Withdrawal Value and is taken out of the Sub-accounts quarterly. Please refer
to the section entitled "Summary of Contract Fees and Charges" for the list of
charges for each optional benefit.
SETTLEMENT SERVICE CHARGE: If your Beneficiary takes the death benefit under a
Beneficiary Continuation Option, the Insurance Charge no longer applies.
However, we then begin to deduct a Settlement Service Charge which is assessed
daily against the assets allocated to the Sub-accounts and is equal to an
annualized charge of 1.00%.
FEES AND EXPENSES INCURRED BY THE PORTFOLIOS: Each portfolio incurs total
annualized operating expenses comprised of an investment management fee, other
expenses and any distribution and service (12b-1) fees or short sale expenses
that may apply. These fees and expenses are reflected daily by each portfolio
before it provides Pruco Life with the net asset value as of the close of
business each Valuation Day. More detailed information about fees and expenses
can be found in the prospectuses for the portfolios.
MVA OPTION CHARGES
No specific fees or expenses are deducted when determining the rates we credit
to an MVA Option. However, for some of the same reasons that we deduct the
Insurance Charge against the Account Value allocated to the Sub-accounts, we
also take into consideration mortality, expense, administration, profit and
other factors in determining the interest rates we credit to an MVA Option.
ANNUITY PAYMENT OPTION CHARGES
If you select a fixed payment option, the amount of each fixed payment will
depend on the Unadjusted Account Value of your Annuity when you elected to
annuitize. There is no specific charge deducted from these payments; however,
the amount of each annuity payment reflects assumptions about our insurance
expenses. Also, a tax charge may apply.
EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES
We may reduce or eliminate certain fees and charges or alter the manner in
which the particular fee or charge is deducted. For example, we may reduce or
eliminate the amount of the Annual Maintenance Fee or reduce the portion of
the total Insurance Charge that is deducted as an Administration Charge. We
will not discriminate unfairly between Annuity purchasers if and when we
reduce any fees and charges.
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PURCHASING YOUR ANNUITY
REQUIREMENTS FOR PURCHASING THE ANNUITY
WE MAY APPLY CERTAIN LIMITATIONS, RESTRICTIONS, AND/OR UNDERWRITING STANDARDS
AS A CONDITION OF OUR ISSUANCE OF AN ANNUITY AND/OR ACCEPTANCE OF PURCHASE
PAYMENTS. ALL SUCH CONDITIONS ARE DESCRIBED BELOW.
INITIAL PURCHASE PAYMENT: An initial Purchase Payment is considered the first
Purchase Payment received by us in Good Order. This is the payment that issues
your Annuity. All subsequent Purchase Payments allocated to the Annuity will
be considered Additional Purchase Payments. Unless we agree otherwise and
subject to our rules, you must make an initial Purchase Payment of at least
$10,000 for the Advisor Series. However, if you decide to make payments under
a systematic investment or an electronic funds transfer program, we may accept
a lower initial Purchase Payment provided that, within the first Annuity Year,
your subsequent Purchase Payments plus your initial Purchase Payment total the
minimum initial Purchase Payment amount required for the Annuity purchased.
We must approve any initial and additional Purchase Payments where the total
amount of Purchase Payments equals $1,000,000 or more with respect to this
Annuity and any other annuities you are purchasing from us (or that you
already own) and/or our affiliates. To the extent allowed by state law, that
required approval also will apply to a proposed change of owner of the
Annuity, if as a result of the ownership change, total Purchase Payments would
equal or exceed that $1 million threshold. Applicable laws designed to counter
terrorists and prevent money laundering might, in certain circumstances,
require us to block an Annuity Owner's ability to make certain transactions,
and thereby refuse to accept Purchase Payments or requests for transfers,
partial withdrawals, total withdrawals, death benefits, or income payments
until instructions are received from the appropriate regulator. We also may be
required to provide additional information about you and your Annuity to
government regulators.
SPECULATIVE INVESTING: Do not purchase this Annuity if you, anyone acting on
your behalf, and/or anyone providing advice to you plan to use it, or any of
its riders, for speculation, arbitrage, viatication or any other type of
collective investment scheme now or at any time prior to termination of the
Annuity. Your Annuity may not be traded on any stock exchange or secondary
market. By purchasing this Annuity, you represent and warrant that you are not
using this Annuity, or any of its riders, for speculation, arbitrage,
viatication or any other type of collective investment scheme.
Currently, we will not issue an Annuity, permit changes in ownership or allow
assignments to certain ownership types, including but not limited to:
corporations, partnerships, endowments and grantor trusts with multiple
grantors. Further, we will only issue an Annuity, allow changes of ownership
and/or permit assignments to certain ownership types if the Annuity is held
exclusively for the benefit of the designated annuitant. These rules are
subject to state law. Additionally, we will not permit election or re-election
of any optional death benefit or optional living benefit by certain ownership
types. We may issue an Annuity in ownership structures where the annuitant is
also the participant in a Qualified or Non-Qualified employer sponsored plan
and the Annuity represents his or her segregated interest in such plan. We
reserve the right to further limit, restrict and/or change to whom we will
issue an Annuity in the future, to the extent permitted by state law. Further,
please be aware that we do not provide administration for employer-sponsored
plans and may also limit the number of plan participants that elect to use our
Annuity as a funding vehicle.
Except as noted below, Purchase Payments must be submitted by check drawn on a
U.S. bank, in U.S. dollars, and made payable to 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.
Additional Purchase Payments may also be applied to your Annuity under an
electronic funds transfer, an arrangement where you authorize us to deduct
money directly from your bank account. We may reject any payment if it is
received in an unacceptable form. Our acceptance of a check is subject to our
ability to collect funds.
Once we accept your application, we invest your Purchase Payment in your
Annuity according to your instructions. You can allocate Purchase Payments to
one or more available Investment Options. Investment restrictions will apply
if you elect optional benefits.
AGE RESTRICTIONS: Unless we agree otherwise and subject to our rules, each of
the Owner(s) and Annuitant(s) must not be older than a maximum issue age as of
the Issue Date of the Annuity, which is age 85. If you purchase a Beneficiary
Annuity, the maximum issue age is 70 based on the Key Life. The availability
and level of protection of certain optional benefits may vary based on the age
of the oldest Owner (or Annuitant, if entity owned) on the Issue Date of the
Annuity or the date of the Owner's death. In addition, the broker-dealer firm
through which you are purchasing the Annuity may impose a younger maximum
issue age than what is described above - check with the broker-dealer firm for
details. The "Annuitant" refers to the natural person upon whose life annuity
payments payable to the Owner are based.
ADDITIONAL PURCHASE PAYMENTS: If allowed by applicable state law, you may make
additional Purchase Payments, provided that the payment is at least $100 (we
impose a $50 minimum for electronic funds transfer ("EFT") purchases). We may
amend this
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Purchase Payment minimum, and/or limit the Investment Options to which you may
direct Purchase Payments. You may make additional Purchase Payments, unless
the Annuity is held as a Beneficiary Annuity, at any time before the earlier
of the Annuity Date and (i) for Annuities that are not entity-owned, the
oldest Owner's 86/th/ birthday or (ii) for entity-owned Annuities, the
Annuitant's 86/th/ birthday. However, Purchase Payments are not permitted
after the Account Value is reduced to zero.
Additional Purchase Payments will be allocated to the Investment Options
according to your instructions. If you have not provided any allocation
instructions with the additional Purchase Payment, we will allocate the
Purchase Payment on a pro rata basis to the Sub-accounts in which your Account
Value is then allocated, excluding any Sub-accounts to which you may not
electively allocate Account Value.
FOR ANNUITIES THAT HAVE ONE OF THE HIGHEST DAILY LIFETIME INCOME V2.1
BENEFITS, WE MAY LIMIT, SUSPEND OR REJECT ANY ADDITIONAL PURCHASE PAYMENT AT
ANY TIME, BUT WOULD DO SO ONLY ON A NON-DISCRIMINATORY BASIS. CIRCUMSTANCES
WHERE WE MAY LIMIT, RESTRICT, SUSPEND OR REJECT ADDITIONAL PURCHASE PAYMENTS
INCLUDE, BUT ARE NOT LIMITED TO THE FOLLOWING:
.. IF WE DETERMINE THAT, AS A RESULT OF THE TIMING AND AMOUNTS OF YOUR
ADDITIONAL PURCHASE PAYMENTS AND WITHDRAWALS, THE ANNUAL INCOME AMOUNT IS
BEING INCREASED IN AN UNINTENDED FASHION. AMONG THE FACTORS WE WILL USE IN
MAKING A DETERMINATION AS TO WHETHER AN ACTION IS DESIGNED TO INCREASE THE
ANNUAL INCOME AMOUNT IN AN UNINTENDED FASHION IS THE RELATIVE SIZE OF
ADDITIONAL PURCHASE PAYMENT(S);
.. IF WE ARE NOT THEN OFFERING THIS BENEFIT FOR NEW ISSUES; OR
.. IF WE ARE OFFERING A MODIFIED VERSION OF THIS BENEFIT FOR NEW ISSUES.
IF WE EXERCISE OUR RIGHT TO SUSPEND, REJECT AND/OR PLACE LIMITATIONS ON THE
ACCEPTANCE OF ADDITIONAL PURCHASE PAYMENTS, YOU MAY NO LONGER BE ABLE TO FUND
THE HIGHEST DAILY LIFETIME INCOME V2.1 BENEFIT THAT YOU SELECTED. THIS MEANS
THAT YOU MAY NO LONGER BE ABLE TO INCREASE THE VALUES ASSOCIATED WITH YOUR
HIGHEST DAILY LIFETIME INCOME V2.1 BENEFIT THROUGH ADDITIONAL PURCHASE
PAYMENTS. Please see the "Living Benefits" section of this prospectus for
further information on additional Purchase Payments.
Depending on the tax status of your Annuity (e.g, if you own the Annuity
through an IRA), there may be annual contribution limits dictated by
applicable law. Please see the Tax Considerations section for additional
information on these contribution limits.
If you have elected to participate in the 6 or 12 Month DCA Program, your
initial Purchase Payment will be applied to your chosen program. Each time you
make an additional Purchase Payment, you will need to elect a new 6 or 12
Month DCA Program for that additional Purchase Payment. If you do not provide
such instructions, we will allocate that additional Purchase Payment on a pro
rata basis to the Sub-accounts in which your Account Value is then allocated,
excluding Sub-accounts to which you may not electively allocate Account Value.
Additionally, if your initial Purchase Payment is funded from multiple sources
(e.g., a transfer of assets/1035 exchange) then the total amount that you have
designated to fund your annuity will be treated as the initial Purchase
Payment for purposes of your participation in the 6 or 12 Month DCA Program.
DESIGNATION OF OWNER, ANNUITANT AND BENEFICIARY
OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS: We will ask you to name the
Owner(s), Annuitant and one or more Beneficiaries for your Annuity.
. Owner: Each Owner holds all rights under the Annuity. You may name up to
two Owners in which case all ownership rights are held jointly.
Generally, joint Owners are required to act jointly; however, if each
Owner provides us with an instruction that we find acceptable, we will
permit each Owner to act independently on behalf of both Owners. All
information and documents that we are required to send you will be sent
to the first named Owner. Co-ownership by entity Owners or an entity
Owner and an individual is not permitted. Refer to the Glossary of Terms
for a complete description of the term "Owner." Prior to Annuitization,
there is no right of survivorship (other than any spousal continuance
right that may be available to a surviving spouse).
. Annuitant: The Annuitant is the person upon whose life we make annuity
payments. You must name an Annuitant who is a natural person. We do not
accept a designation of joint Annuitants during the Accumulation Period.
In limited circumstances and where allowed by law, we may allow you to
name one or more "Contingent Annuitants" with our prior approval.
Generally, a Contingent Annuitant will become the Annuitant if the
Annuitant dies before the Annuity Date. Please refer to the discussion
of "Considerations for Contingent Annuitants" in the Tax Considerations
section of the prospectus. For Beneficiary Annuities, instead of an
Annuitant there is a "Key Life" which is used to determine the annual
required distributions.
. Beneficiary: The Beneficiary is the person(s) or entity you name to
receive the Death Benefit. Your Beneficiary designation should be the
exact name of your Beneficiary, not only a reference to the
Beneficiary's relationship to you. If you use a class designation in
lieu of designating individuals (e.g. "surviving children"), we will pay
the class of Beneficiaries as determined at the time of your death and
not the class of Beneficiaries that existed at the time the designation
was made. If no Beneficiary is named, the Death Benefit will be paid to
you or your estate. For Annuities that designate a custodian or a plan
as Owner, the custodian or plan must also be designated as the
Beneficiary. For Beneficiary Annuities, instead of a Beneficiary, the
term "Successor" is used. If an Annuity is co-owned by spouses, we will
assume that the sole primary Beneficiary is the surviving spouse that
was named as the co-Owner, unless you elect an alternative Beneficiary
designation.
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Your right to make certain designations may be limited if your Annuity is to
be used as an IRA, Beneficiary Annuity or other "qualified" investment that is
given beneficial tax treatment under the Code. You should seek competent tax
advice on the income, estate and gift tax implications of your designations.
"BENEFICIARY" ANNUITY
You may purchase an Annuity if you are a Beneficiary of an account that was
owned by a decedent, subject to the following requirements. You may transfer
the proceeds of the decedent's account into the Annuity described in this
prospectus and receive distributions that are required by the tax laws. This
transfer option is not available if the proceeds are being transferred from an
annuity issued by us or one of our affiliates and the annuity offers a
"Beneficiary Continuation Option".
Upon purchase, the Annuity will be issued in the name of the decedent for your
benefit. You must take required distributions at least annually, which we will
calculate based on the applicable life expectancy in the year of the
decedent's death, using Table 1 in IRS Publication 590.
For IRAs and Roth IRAs, distributions must begin by December 31 of the year
following the year of the decedent's death. If you are the surviving spouse
Beneficiary, distributions may be deferred until the decedent would have
attained age 70 1/2, however if you choose to defer distributions, you are
responsible for complying with the distribution requirements under the Code,
and you must notify us when you would like distributions to begin. For
additional information regarding the tax considerations applicable to
Beneficiaries of an IRA or Roth IRA, see "Required Distributions Upon Your
Death for Qualified Annuity Contracts" in the Tax Considerations section of
this prospectus.
For non-qualified Annuities, distributions must begin within one year of the
decedent's death. For additional information regarding the tax considerations
applicable to Beneficiaries of a non-qualified Annuity see "Required
Distributions Upon Your Death for Nonqualified Annuity Contracts" in the Tax
Considerations section of this prospectus.
You may take withdrawals in excess of your required distributions. Any
withdrawals you take count toward the required distribution for the year. All
applicable charges will be assessed against your Annuity, such as the
Insurance Charge and the Annual Maintenance Fee.
The Annuity provides a basic Death Benefit upon death, and you may name
"successors" who may either receive the Death Benefit as a lump sum or
continue receiving distributions after your death under the Beneficiary
Continuation Option.
Please note the following additional limitations for a Beneficiary Annuity:
.. No additional Purchase Payments are permitted. You may only make a one-time
initial Purchase Payment transferred to us directly from another annuity or
eligible account. You may not make your Purchase Payment as an indirect
rollover, or combine multiple assets or death benefits into a single
contract as part of this Beneficiary Annuity.
.. You may not elect any optional living or death benefits.
.. You may not annuitize the Annuity; no annuity options are available.
.. You may participate only in the following programs: Auto-Rebalancing,
Dollar Cost Averaging (but not the 6 or 12 Month DCA Program), or
Systematic Withdrawals.
.. You may not assign or change ownership of the Annuity, and you may not
change or designate another life upon which distributions are based. A
Beneficiary Annuity may not be co-owned.
.. If the Annuity is funded by means of transfer from another Beneficiary
Annuity with another company, we require that the sending company or the
beneficial Owner provide certain information in order to ensure that
applicable required distributions have been made prior to the transfer of
the contract proceeds to us. We further require appropriate information to
enable us to accurately determine future distributions from the Annuity.
Please note we are unable to accept a transfer of another Beneficiary
Annuity where taxes are calculated based on an exclusion amount or an
exclusion ratio of earnings to original investment. We are also unable to
accept a transfer of an annuity that has annuitized.
.. The beneficial Owner of the Annuity can be an individual, grantor trust,
or, for an IRA or Roth IRA, a qualified trust. In general, a qualified
trust (1) must be valid under state law; (2) must be irrevocable or became
irrevocable by its terms upon the death of the IRA or Roth IRA Owner; and
(3) the Beneficiaries of the trust who are Beneficiaries with respect to
the trust's interest in this Annuity must be identifiable from the trust
instrument and must be individuals. A qualified trust may be required to
provide us with a list of all Beneficiaries to the trust (including
contingent and remainder Beneficiaries with a description of the conditions
on their entitlement), all of whom must be individuals, as of
September 30/th/ of the year following the year of death of the IRA or Roth
IRA Owner, or date of Annuity application if later. The trustee may also be
required to provide a copy of the trust document upon request. If the
beneficial Owner of the Annuity is a grantor trust, distributions must be
based on the life expectancy of the grantor. If the beneficial Owner of the
Annuity is a qualified trust, distributions must be based on the life
expectancy of the oldest Beneficiary under the trust.
.. If this Beneficiary Annuity is transferred to another company as a tax-free
exchange with the intention of qualifying as a Beneficiary annuity with the
receiving company, we may require certifications from the receiving company
that required distributions will be made as required by law.
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.. If you are transferring proceeds as Beneficiary of an annuity that is owned
by a decedent, we must receive your transfer request at least 45 days prior
to your first or next required distribution. If, for any reason, your
transfer request impedes our ability to complete your required distribution
by the required date, we will be unable to accept your transfer request.
RIGHT TO CANCEL
You may cancel (or "Free Look") your Annuity for a refund by notifying us in
Good Order or by returning the Annuity to our Service Office or to the
representative who sold it to you within 10 days after you receive it (or such
other period as may be required by applicable law). The Annuity can be mailed
or delivered either to us, at our Service Office, or to the representative who
sold it to you. Return of the Annuity by mail is effective on being
postmarked, properly addressed and postage prepaid. Unless otherwise required
by applicable law, the amount of the refund will equal the Account Value as of
the Valuation Day we receive the returned Annuity at our Service Office or the
cancellation request in Good Order, plus any fees or tax charges deducted from
the Purchase Payment. However, where we are required by applicable law to
return Purchase Payments, we will return the greater of Account Value and
Purchase Payments. If you had Account Value allocated to any MVA Option upon
your exercise of the Free Look, we will calculate, to the extent allowed by
applicable state law, any applicable MVA with a zero "liquidity factor". See
the section of this prospectus entitled "Market Value Adjustment Options."
SCHEDULED PAYMENTS DIRECTLY FROM A BANK ACCOUNT
You can make additional Purchase Payments to your Annuity by authorizing us to
deduct money directly from your bank account and applying it to your Annuity,
unless the Annuity is held as a Beneficiary Annuity. Investment restrictions
will apply if you elect optional benefits. No additional Purchase Payments are
permitted if you have elected the Beneficiary Annuity. We may suspend or
cancel electronic funds transfer privileges if sufficient funds are not
available from the applicable financial institution on any date that a
transaction is scheduled to occur. We may also suspend or cancel electronic
funds transfer privileges if we have limited, restricted, suspended or
rejected our acceptance of additional Purchase Payments.
SALARY REDUCTION PROGRAMS
These types of programs are only available with certain types of qualified
investments. If your employer sponsors such a program, we may agree to accept
periodic Purchase Payments through a salary reduction program as long as the
allocations are not directed to the MVA Options.
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MANAGING YOUR ANNUITY
CHANGE OF OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS
In general, you may change the Owner, Annuitant and Beneficiary designations
by sending us a request in Good Order, which will be effective when received
at our Service Office. However, if the Annuity is held as a Beneficiary
Annuity, the Owner may not be changed and you may not designate another Key
Life upon which distributions are based. As of the Valuation Day we receive an
ownership change, including an assignment, 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. Any change we
accept is subject to any transactions processed by us before we receive the
notice of change at our Service Office. 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 if the annuity option
includes a life contingency;
.. a new Annuitant prior to the Annuity Date if the Owner is an entity;
.. a new Owner such that the new Owner is older than the age for which we
would then issue the Annuity as of the effective date of such change,
unless the change of Owner is the result of spousal continuation;
.. any permissible designation change if the change request is received at our
Service Office after the Annuity Date;
.. a new Owner or Annuitant that is a certain ownership type, including but
not limited to corporations, partnerships, endowments, and grantor trusts
with multiple grantors; and
.. a new Annuitant for a contract issued to a grantor trust where the new
Annuitant is not the grantor of the trust.
In general, you may change the Owner, Annuitant, and Beneficiary designations
as indicated above, and also may assign the Annuity. WE WILL ALLOW CHANGES OF
OWNERSHIP AND/OR ASSIGNMENTS ONLY IF THE ANNUITY IS HELD EXCLUSIVELY FOR THE
BENEFIT OF THE ANNUITANT OR CONTINGENT ANNUITANT. WE ACCEPT ASSIGNMENTS OF
NON-QUALIFIED ANNUITIES ONLY.
WE RESERVE THE RIGHT TO REJECT ANY PROPOSED CHANGE OF OWNER, ANNUITANT, OR
BENEFICIARY, AS WELL AS ANY PROPOSED ASSIGNMENT OF THE ANNUITY.
We will reject a proposed change where the proposed Owner, Annuitant,
Beneficiary or assignee is any of the following:
.. a company(ies) that issues or manages viatical or structured settlements;
.. an institutional investment company;
.. an Owner with no insurable relationship to the Annuitant or Contingent
Annuitant (a "Stranger-Owned Annuity" or "STOA"); or
.. a change in designation(s) that does not comply with or that we cannot
administer in compliance with Federal and/or state law.
WE WILL IMPLEMENT THIS RIGHT ON A NON-DISCRIMINATORY BASIS, AND TO THE EXTENT
ALLOWED BY STATE LAW, BUT ARE NOT OBLIGATED TO PROCESS YOUR REQUEST WITHIN ANY
PARTICULAR TIME FRAME. There are restrictions on designation changes when you
have elected certain optional benefits.
DEATH BENEFIT SUSPENSION UPON CHANGE OF OWNER OR ANNUITANT. If there is a
change of Owner or Annuitant, the change may affect the amount of the Death
Benefit. See the Death Benefits section of this prospectus for additional
details.
SPOUSAL DESIGNATIONS
If an Annuity is co-owned by spouses, we will assume that the sole primary
Beneficiary is the surviving spouse that was named as the co-Owner unless you
elect an alternative Beneficiary designation.
Certain spousal rights under the contract, and our administration of such
spousal rights and related tax reporting comport 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, domestic partners or same-sex marriages. You
should be aware, however, that federal tax law does not recognize civil union
couples, domestic partners or marriage spouses of the same sex. Therefore, we
cannot permit a same-sex civil union partner, domestic partner or spouse to
continue the annuity within the meaning of the tax law upon the death of the
first partner under the annuity's "spousal continuance" provision. Please note
there may be federal tax consequences at the death of the first same-sex civil
union partner, domestic partner or spouse. Civil union couples, domestic
partners and spouses of the same sex should consider that limitation before
selecting a spousal benefit under the annuity.
CONTINGENT ANNUITANT
Generally, if an Annuity is owned by an entity and the entity has named a
Contingent Annuitant, the Contingent Annuitant will become the Annuitant upon
the death of the Annuitant, and no Death Benefit is payable. Unless we agree
otherwise, the Annuity is only eligible to have a Contingent Annuitant
designation if the entity which owns the Annuity is (1) a plan described in
Internal Revenue Code Section 72(s)(5)(A)(i) (or any successor Code section
thereto); (2) an entity described in Code Section 72(u)(1) (or any successor
Code section thereto); or (3) a Custodial Account established to hold
retirement assets for the benefit of the natural person Annuitant pursuant to
the provisions of Section 408(a) of the Internal Revenue Code (or any
successor Code section thereto) ("Custodial Account").
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Where the Annuity is held by a Custodial Account, the Contingent Annuitant
will not automatically become the Annuitant upon the death of the Annuitant.
Upon the death of the Annuitant, the Custodial Account will have the choice,
subject to our rules, to either elect to receive the Death Benefit or elect to
continue the Annuity. If the Custodial Account elects to continue the Annuity,
the Death Benefit payable will equal the Death Benefit described in the
spousal continuation section of the Death Benefits section of this prospectus.
See the section above entitled "Spousal Designations" for more information
about how the Annuity can be continued by a Custodial Account.
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MANAGING YOUR ACCOUNT VALUE
There are several programs we administer to help you manage your Account
Value, as described in this section.
DOLLAR COST AVERAGING PROGRAMS
We offer Dollar Cost Averaging Programs during the Accumulation Period. In
general, Dollar Cost Averaging allows you to systematically transfer an amount
periodically from one Sub-account to one or more other Sub-accounts. You can
choose to transfer earnings only, principal plus earnings or a flat dollar
amount. You may elect a Dollar Cost Averaging program that transfers amounts
monthly, quarterly, semi-annually, or annually from Sub-accounts (if you make
no selection, we will effect transfers on a monthly basis). In addition, you
may elect the 6 or 12 Month DCA Program described below.
There is no guarantee that Dollar Cost Averaging will result in a profit or
protect against a loss in a declining market.
6 OR 12 MONTH DOLLAR COST AVERAGING PROGRAM (THE "6 OR 12 MONTH DCA PROGRAM")
The 6 or 12 Month DCA Program is subject to our rules at the time of election
and may not be available in conjunction with other programs and benefits we
make available. We may discontinue, modify or amend this program from time to
time. The 6 or 12 Month DCA Program may not be available in all states or with
certain benefits or programs. Currently, the DCA MVA Options are not available
in the States of Illinois, Iowa and Oregon.
CRITERIA FOR PARTICIPATING IN THE PROGRAM
.. If you have elected to participate in the 6 or 12 Month DCA Program, your
initial Purchase Payment will be applied to your chosen program. Each time
you make an additional Purchase Payment, you will need to elect a new 6 or
12 Month DCA Program for that additional Purchase Payment. If you do not
provide such instructions, we will allocate that additional Purchase
Payment on a pro rata basis to the Sub-accounts in which your Account Value
is then allocated, excluding Sub-accounts to which you may not electively
allocate Account Value. Additionally, if your initial Purchase Payment is
funded from multiple sources (e.g., a transfer of assets/1035 exchange)
then the total amount that you have designated to fund your annuity will be
treated as the initial Purchase Payment for purposes of your participation
in the 6 or 12 Month DCA Program.
.. You may only allocate Purchase Payments to the DCA MVA Options. You may not
transfer Account Value into this program. To institute a program, you must
allocate at least $2,000 to the DCA MVA Options.
.. As part of your election to participate in the 6 or 12 Month DCA Program,
you specify whether you want 6 or 12 monthly transfers under the program.
We then set the monthly transfer amount, by dividing the Purchase Payment
you have allocated to the DCA MVA Options by the number of months. For
example, if you allocated $6,000, and selected a 6 month DCA Program, we
would transfer $1,000 each month (with the interest earned added to the
last payment). We will adjust the monthly transfer amount if, during the
transfer period, the amount allocated to the DCA MVA Options is reduced. In
that event, we will re-calculate the amount of each remaining transfer by
dividing the amount in the DCA MVA Option (including any interest) by the
number of remaining transfers. If the recalculated transfer amount is below
the minimum transfer required by the program, we will transfer the
remaining amount from the DCA MVA Option on the next scheduled transfer and
terminate the program.
.. We impose no fee for your participation in the 6 or 12 Month DCA Program.
.. You may cancel the DCA Program at any time. If you do, we will transfer any
remaining amount held within the DCA MVA Options according to your
instructions, subject to any applicable MVA. If you do not provide any such
instructions, we will transfer any remaining amount held in the DCA MVA
Options on a pro rata basis to the Sub-accounts in which you are invested
currently, excluding any Sub-accounts to which you are not permitted to
electively allocate or transfer Account Value. If any such Sub-account is
no longer available, we may allocate the amount that would have been
applied to that Sub-account to the AST Money Market Sub-account.
.. We credit interest to amounts held within the DCA MVA Options at the
applicable declared rates. We credit such interest until the earliest of
the following (a) the date the entire amount in the DCA MVA Option has been
transferred out; (b) the date the entire amount in the DCA MVA Option is
withdrawn; (c) the date as of which any Death Benefit payable is
determined, unless the Annuity is continued by a spouse Beneficiary (in
which case we continue to credit interest under the program); or (d) the
Annuity Date.
.. The interest rate earned in a DCA MVA Option will be no less than the
minimum guaranteed interest rate. We may, from time to time, declare new
interest rates for new Purchase Payments that are higher than the minimum
guaranteed interest rate. Please note that the interest rate that we apply
under the 6 or 12 Month DCA Program is applied to a declining balance.
Therefore, the dollar amount of interest you receive will decrease as
amounts are systematically transferred from the DCA MVA Option to the
Sub-accounts, and the effective interest rate earned will therefore be less
than the declared interest rate.
DETAILS REGARDING PROGRAM TRANSFERS
.. Transfers made under this program are not subject to any MVA.
.. Any partial withdrawals, transfers, or fees deducted from the DCA MVA
Options will reduce the amount in the DCA MVA Options. If you have only one
6 or 12 Month DCA Program in operation, withdrawals, transfers, or fees may
be deducted from the DCA MVA Options associated with that program. You may,
however, have more than one 6 or 12 Month DCA Program
39
operating at the same time (so long as any such additional 6 or 12 Month
DCA Program is of the same duration). For example, you may have more than
one 6 month DCA Program running, but may not have a 6 month Program running
simultaneously with a 12 month Program.
.. 6 or 12 Month DCA transfers will begin on the date the DCA MVA Option is
established (unless modified to comply with state law) and on each month
following until the entire principal amount plus earnings is transferred.
.. We do not count transfers under the 6 or 12 Month DCA Program against the
number of free transfers allowed under your Annuity.
.. The minimum transfer amount is $100, although we will not impose that
requirement with respect to the final amount to be transferred under the
Program.
.. If you are not participating in an optional benefit, we will make transfers
under the 6 or 12 month DCA Program to the Sub-accounts that you specified
upon your election of the Program. If you are participating in any optional
benefit, we will allocate amounts transferred out of the DCA MVA Options in
the following manner: (a) if you are participating in the Custom Portfolios
Program, we will allocate to the Sub-accounts in accordance with the rules
of that program (b) if you are not participating in the Custom Portfolios
Program, we will make transfers under the 6 or 12 Month DCA Program to the
Sub-accounts that you specified upon your election of the 6 or 12 Month DCA
Program, provided those instructions comply with the allocation
requirements for the optional benefit and (c) whether or not you
participate in the Custom Portfolios Program, no portion of our monthly
transfer under the 6 or 12 Month DCA Program will be directed initially to
the AST Investment Grade Bond Portfolio Sub-account used with the optional
benefit (although the DCA MVA Option is treated as a "Permitted
Sub-account" for purposes of transfers made by any predetermined
mathematical formula associated with the optional benefit).
.. If you are participating in an optional benefit and also are participating
in the 6 or 12 Month DCA Program, and the pre-determined mathematical
formula under the benefit dictates a transfer from the Permitted
Sub-accounts to the applicable AST Investment Grade Bond Portfolio
Sub-account, then the amount to be transferred will be taken entirely from
the Sub-accounts, provided there is sufficient Account Value in those
Sub-accounts to meet the required transfer amount. Only if there is
insufficient Account Value in those Sub-accounts will an amount be
transferred from the DCA MVA Options associated with the 6 or 12 Month DCA
Program. Amounts transferred from the DCA MVA Options under the formula
will be taken on a last-in, first-out basis, without the imposition of a
market value adjustment.
.. If you are participating in one of our automated withdrawal programs (e.g.,
Systematic Withdrawals), we may include within that withdrawal program
amounts held within the DCA MVA Options. If you have elected any optional
living benefit, any withdrawals will be taken on a pro rata basis from your
Sub-accounts and the DCA MVA Options. Such withdrawals will be assessed any
applicable MVA.
AUTOMATIC REBALANCING PROGRAMS
During the Accumulation Period, we offer Automatic Rebalancing among the
Sub-accounts you choose. The "Accumulation Period" refers to the period of
time from the Issue Date through the last Valuation Day immediately preceding
the Annuity Date. You can choose to have your Account Value rebalanced
monthly, quarterly, semi-annually, or annually. On the appropriate date, the
Sub-accounts you choose are rebalanced to the allocation percentages you
requested. With Automatic Rebalancing, we transfer the appropriate amount from
the "overweighted" Sub-accounts to the "underweighted" Sub-accounts to return
your allocations to the percentages you request. For example, over time the
performance of the Sub-accounts will differ, causing your percentage
allocations to shift. You may make additional transfers; however, the
Automatic Rebalancing program will not reflect such transfers unless we
receive instructions from you indicating that you would like to adjust the
program. There is no minimum Account Value required to enroll in Automatic
Rebalancing. All rebalancing transfers as part of an Automatic Rebalancing
program are not included when counting the number of transfers each year
toward the maximum number of free transfers. We do not deduct a charge for
participating in an Automatic Rebalancing program. Participation in the
Automatic Rebalancing program may be restricted if you are enrolled in certain
other optional programs. Sub-accounts that are part of a Systematic Withdrawal
program or Dollar Cost Averaging program will be excluded from an Automatic
Rebalancing program.
If you are participating in an optional living benefit (such as Highest Daily
Lifetime Income v2.1) that makes transfers under a pre-determined mathematical
formula, and you have elected automatic rebalancing, you should be aware that:
(a) the AST bond portfolio used as part of the pre-determined mathematical
formula will not be included as part of automatic rebalancing and (b) the
operation of the formula may result in the rebalancing not conforming to the
percentage allocations that you specified originally as part of your Automatic
Rebalancing Program.
AUTHORIZATION OF A THIRD PARTY INVESTMENT ADVISOR TO MANAGE MY ACCOUNT
This Annuity is intended to be used where you have engaged your own investment
advisor to provide advice regarding the allocation of your Account Value. That
investment advisor may be a firm or person appointed by us, or whose
affiliated broker-dealer is appointed by us, as authorized sellers of the
Annuity. Even if this is the case, however, please note that the investment
advisor you engage to provide advice and/or make transfers for you is not
acting on our behalf, but rather is acting on your behalf. To be eligible to
take any action with respect to your Annuity, an investment advisor must meet
our standards. These standards include, but are not limited to, restricting
the amount of the advisor's fee that the advisor can deduct from your account
to a specified percentage of your Account Value (this fee cap may change
periodically at our discretion). In general, we reserve the right to change
these standards at any time. Although we impose these standards, you bear the
responsibility for choosing a suitable investment advisor.
40
We do not offer advice about how to allocate your Account Value. As such, we
are not responsible for any recommendations your investment advisor makes, any
investment models or asset allocation programs they choose to follow, or any
specific transfers they make on your behalf. Moreover, if you participate in
an optional living benefit that transfers Account Value under a pre-determined
mathematical formula, you and your investment advisor should realize that such
transfers will occur as dictated solely by the formula, and may or may not be
in accord with the investment program being pursued by your investment
advisor. As one possible example, prompted by a decline in the value of your
chosen Sub-accounts, the formula might direct a transfer to an AST bond
portfolio - even though your advisor's program might call for an increased
investment in equity Sub-accounts in that scenario.
WE ARE NOT A PARTY TO THE AGREEMENT YOU HAVE WITH YOUR INVESTMENT ADVISOR, AND
DO NOT VERIFY THAT AMOUNTS WITHDRAWN FROM YOUR ANNUITY, INCLUDING AMOUNTS
WITHDRAWN TO PAY FOR THE INVESTMENT ADVISOR'S FEE, ARE WITHIN THE TERMS OF
YOUR AGREEMENT WITH YOUR INVESTMENT ADVISOR. You will, however, receive
confirmations of transactions that affect your Annuity that among other things
reflect advisory fees deducted from your Account Value. It is your
responsibility to arrange for the payment of the advisory fee charged by your
investment advisor. Similarly, it is your responsibility to understand the
advisory services provided by your investment advisor and the advisory fees
charged for those services.
Any fee that is charged by your investment advisor is in addition to the fees
and expenses that apply under your Annuity. Please be aware that if you
authorize your investment advisor to withdraw amounts from your Annuity to pay
for the investment advisor's fee, such fee deduction will be treated as a
withdrawal. A withdrawal can have many consequences, particularly if you are
participating in certain optional living benefits and/or optional death
benefits. For example, as with any other withdrawal from your Annuity, you may
incur adverse tax consequences upon the deduction of your advisor's fee from
your Annuity. In addition, a withdrawal generally may also reduce the level of
various living and death benefit guarantees provided.
Please note that the investment restrictions for certain optional living and
death benefits, and/or the investment in certain assets allocation
sub-accounts, may limit or preclude the investment advisor's ability to deduct
advisory fees from your Annuity. For example, if you elect any Highest Daily
Lifetime Income v2.1 benefit, we will not allow your investment advisor to
deduct fees from your Annuity (although you may pay your advisor in some other
manner).
SPECIAL RULES FOR DISTRIBUTIONS TO PAY ADVISORY FEES
We treat partial withdrawals to pay advisory fees as taxable distributions
unless your Annuity is being used in conjunction with a "qualified" retirement
plan (plans meeting the requirements of Sections 401, 403 or 408 of the Code).
However, if your Annuity has an optional benefit that is ineligible for
advisory fee deduction, and if you take partial withdrawals from such Annuity
to pay advisory fees, such partial withdrawals will be considered taxable
distributions for all contracts, including the "qualified" retirement plans
enumerated above.
FINANCIAL PROFESSIONAL PERMISSION TO FORWARD TRANSACTION INSTRUCTIONS
Unless you direct otherwise, your Financial Professional may forward
instructions regarding the allocation of your Account Value, and request
financial transactions involving Investment Options. IF YOUR FINANCIAL
PROFESSIONAL HAS THIS AUTHORITY, WE DEEM THAT ALL SUCH TRANSACTIONS THAT ARE
DIRECTED BY YOUR FINANCIAL PROFESSIONAL WITH RESPECT TO YOUR ANNUITY HAVE BEEN
AUTHORIZED BY YOU. You will receive a confirmation of any financial
transaction involving the purchase or sale of Units of your Annuity. You must
contact us immediately if and when you revoke such authority. We will not be
responsible for acting on instructions from your Financial Professional until
we receive notification of the revocation of such person's authority. We may
also suspend, cancel or limit these authorizations at any time. In addition,
we may restrict the Investment Options available for transfers or allocation
of Purchase Payments by such Financial Professional. We will notify you and
your Financial Professional if we implement any such restrictions or
prohibitions.
PLEASE NOTE: Contracts managed by your Financial Professional also are subject
to the restrictions on transfers between Investment Options that are discussed
in the section below entitled "Restrictions On Transfers Between Investment
Options". We may also require that your Financial Professional transmit all
financial transactions using the electronic trading functionality available
through our Internet website (www.prudentialannuities.com). Limitations that
we may impose on your Financial Professional under the terms of an
administrative agreement (e.g., a custodial agreement) do not apply to
financial transactions requested by an Owner on their own behalf, except as
otherwise described in this prospectus.
RESTRICTIONS ON TRANSFERS BETWEEN INVESTMENT OPTIONS
During the Accumulation Period you may transfer Account Value between
Investment Options subject to the restrictions outlined below. Transfers are
not subject to taxation on any gain. We do not currently require a minimum
amount in each Sub-account you allocate Account Value to at the time of any
allocation or transfer. Although we do not currently impose a minimum transfer
amount, we reserve the right to require that any transfer be at least $50.
Transfers under this Annuity consist of those you initiate or those made under
a systematic program, such as the 6 or 12 Month DCA Program, another dollar
cost averaging program, an asset rebalancing program, or pursuant to a
mathematical formula required as part of an optional benefit (e.g., Highest
Daily Lifetime Income v2.1). The transfer restrictions discussed in this
section apply only to the former type of transfer (i.e., a transfer that you
initiate).
41
Once you have made 20 transfers among the Sub-accounts during an Annuity Year,
we will accept any additional transfer request during that year only if the
request is submitted to us in writing with an original signature and otherwise
is in Good Order. For purposes of this 20 transfer limit, we (i) do not view a
facsimile transmission as a "writing", (ii) will treat multiple transfer
requests submitted on the same Valuation Day as a single transfer, and
(iii) do not count any transfer that solely involves Sub-accounts
corresponding to any ProFund portfolio and/or the AST Money Market Portfolio,
or any transfer that involves one of our systematic programs, such as
automated withdrawals.
Frequent transfers among Sub-accounts in response to short-term fluctuations
in markets, sometimes called "market timing," can make it very difficult for a
portfolio manager to manage a portfolio's investments. Frequent transfers may
cause the portfolio to hold more cash than otherwise necessary, disrupt
management strategies, increase transaction costs, or affect performance. The
Annuity offers Sub-accounts designed for Owners who wish to engage in frequent
transfers (i.e., the Sub-accounts corresponding to the AST Money Market
Portfolio or ProFunds VP portfolios), and we encourage Owners seeking frequent
transfers to utilize those Sub-accounts. In light of the risks posed to Owners
and other investors by frequent transfers, we reserve the right to limit the
number of transfers in any Annuity Year for all existing or new Owners and to
take the other actions discussed below. We also reserve the right to limit the
number of transfers in any Annuity Year or to refuse any transfer request for
an Owner or certain Owners if: (a) we believe that excessive transfer activity
(as we define it) or a specific transfer request or group of transfer requests
may have a detrimental effect on Unit Values or the share prices of the
portfolios; or (b) we are informed by a portfolio (e.g., by the portfolio's
portfolio manager) that the purchase or redemption of shares in the portfolio
must be restricted because the portfolio believes the transfer activity to
which such purchase and redemption relates would have a detrimental effect on
the share prices of the affected portfolio. Without limiting the above, the
most likely scenario where either of the above could occur would be if the
aggregate amount of a trade or trades represented a relatively large
proportion of the total assets of a particular portfolio. In furtherance of
our general authority to restrict transfers as described above, and without
limiting other actions we may take in the future, we have adopted the
following specific restrictions:
.. With respect to each Sub-account (other than the AST Money Market
Sub-account, or a Sub-account corresponding to a ProFund portfolio), we
track amounts exceeding a certain dollar threshold that were transferred
into the Sub-account. If you transfer such amount into a particular
Sub-account, and within 30 calendar days thereafter transfer (the "Transfer
Out") all or a portion of that amount into another Sub-account, then upon
the Transfer Out, the former Sub-account becomes restricted (the
"Restricted Sub-account"). Specifically, we will not permit subsequent
transfers into the Restricted Sub-account for 90 calendar days after the
Transfer Out if the Restricted Sub-account invests in a non-international
portfolio, or 180 calendar days after the Transfer Out if the Restricted
Sub-account invests in an international portfolio. For purposes of this
rule, we (i) do not count transfers made in connection with one of our
systematic programs, such as auto rebalancing or under a pre-determined
mathematical formula used with an optional living benefit; (ii) do not
count any transfer that solely involves the AST Money Market Portfolio
and/or a ProFund VP Portfolio; and (iii) do not categorize as a transfer
the first transfer that you make after the Issue Date, if you make that
transfer within 30 calendar days after the Issue Date. Even if an amount
becomes restricted under the foregoing rules, you are still free to redeem
the amount from your Annuity at any time.
.. We reserve the right to effect transfers on a delayed basis for all
Annuities in accordance with our rules regarding frequent transfers. That
is, we may price a transfer involving the Sub-accounts on the Valuation Day
subsequent to the Valuation Day on which the transfer request was received.
Before implementing such a practice, we would issue a separate written
notice to Owners that explains the practice in detail.
If we deny one or more transfer requests under the foregoing rules, we will
inform you or your Financial Professional promptly of the circumstances
concerning the denial.
There are contract Owners of different variable annuity contracts that are
funded through the same Separate Account that may not be subject to the
above-referenced transfer restrictions and, therefore, might make more
numerous and frequent transfers than contract Owners who are subject to such
limitations. Finally, there are contract Owners of other variable annuity
contracts or variable life contracts that are issued by Pruco Life as well as
other insurance companies that have the same underlying mutual fund portfolios
available to them. Since some contract Owners are not subject to the same
transfer restrictions, unfavorable consequences associated with such frequent
trading within the underlying mutual fund (e.g., greater portfolio turnover,
higher transaction costs, or performance or tax issues) may affect all
contract Owners. Similarly, while contracts managed by a Financial
Professional are subject to the restrictions on transfers between Investment
Options that are discussed above, if the Financial Professional manages a
number of contracts in the same fashion unfavorable consequences may be
associated with management activity since it may involve the movement of a
substantial portion of an underlying mutual fund's assets which may affect all
contract Owners invested in the affected options. Apart from
jurisdiction-specific and contract differences in transfer restrictions, we
will apply these rules uniformly (including contracts managed by a Financial
Professional) and will not waive a transfer restriction for any Owner.
ALTHOUGH OUR TRANSFER RESTRICTIONS ARE DESIGNED TO PREVENT EXCESSIVE
TRANSFERS, THEY ARE NOT CAPABLE OF PREVENTING EVERY POTENTIAL OCCURRENCE OF
EXCESSIVE TRANSFER ACTIVITY. The portfolios have adopted their own policies
and procedures with respect to excessive trading of their respective shares,
and we reserve the right to enforce any such current or future policies and
procedures. The prospectuses for the portfolios describe any such policies and
procedures, which may be more or less restrictive than the policies and
procedures we have adopted. Under SEC rules, we are required to: (1) enter
into a written agreement with each portfolio or its principal underwriter or
its transfer agent that obligates us to provide to the portfolio promptly upon
request certain
42
information about the trading activity of individual contract Owners
(including an Annuity Owner's TIN number), and (2) execute instructions from
the portfolio to restrict or prohibit further purchases or transfers by
specific contract Owners who violate the excessive trading policies
established by the portfolio. In addition, you should be aware that some
portfolios may receive "omnibus" purchase and redemption orders from other
insurance companies or intermediaries such as retirement plans. The omnibus
orders reflect the aggregation and netting of multiple orders from individual
Owners of variable insurance contracts and/or individual retirement plan
participants. The omnibus nature of these orders may limit the portfolios in
their ability to apply their excessive trading policies and procedures. In
addition, the other insurance companies and/or retirement plans may have
different policies and procedures or may not have any such policies and
procedures because of contractual limitations. For these reasons, we cannot
guarantee that the portfolios (and thus contract Owners) will not be harmed by
transfer activity relating to other insurance companies and/or retirement
plans that may invest in the portfolios.
A portfolio also may assess a short-term trading fee (redemption fee) in
connection with a transfer out of the Sub-account investing in that portfolio
that occurs within a certain number of days following the date of allocation
to the Sub-account. Each portfolio determines the amount of the short-term
trading fee and when the fee is imposed. The fee is retained by or paid to the
portfolio and is not retained by us. The fee will be deducted from your
Account Value, to the extent allowed by law. At present, no portfolio has
adopted a short-term trading fee.
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ACCESS TO ACCOUNT VALUE
TYPES OF DISTRIBUTIONS AVAILABLE TO YOU
During the Accumulation Period you can access your Account Value through
partial withdrawals, systematic withdrawals, and where required for tax
purposes, Required Minimum Distributions. You can also surrender your Annuity
at any time. Depending on your instructions, we may deduct the Annual
Maintenance Fee, any Tax Charge that applies and the charge for any optional
benefits and may impose an MVA. Unless you notify us differently as permitted,
partial withdrawals are taken pro rata (i.e. "pro rata" meaning that the
percentage of each Investment Option withdrawn is the same percentage that the
Investment Option bears to the total Account Value). Each of these types of
distributions is described more fully below.
If you participate in any Lifetime Guaranteed Minimum Withdrawal Benefit, and
you take a withdrawal deemed to be Excess Income that brings your Unadjusted
Account Value to zero, both the benefit and the Annuity itself will terminate.
TAX IMPLICATIONS FOR DISTRIBUTIONS FROM NON-QUALIFIED ANNUITIES
PRIOR TO ANNUITIZATION
A distribution prior to Annuitization is deemed to come first from any "gain"
in your Annuity and second as a return of your "cost basis", if any.
Distributions from your Annuity are generally subject to ordinary income
taxation on the amount of any investment gain unless the distribution
qualifies as a non-taxable exchange or transfer. If you take a distribution
prior to the taxpayer's age 59 1/2, you may be subject to a 10% penalty in
addition to ordinary income taxes on any gain. You may wish to consult a
professional tax advisor for advice before requesting a distribution.
DURING THE ANNUITIZATION PERIOD
During the Annuitization period, a portion of each annuity payment is taxed as
ordinary income at the tax rate you are subject to at the time of the payment.
The Code and regulations have "exclusionary rules" that we use to determine
what portion of each annuity payment should be treated as a return of any cost
basis you have in your Annuity. Once the cost basis in your Annuity has been
distributed, the remaining annuity payments are taxable as ordinary income.
The cost basis in your Annuity may be based on the cost basis from a prior
contract in the case of a 1035 exchange or other qualifying transfer.
There may also be tax implications on distributions from qualified Annuities.
See "Tax Considerations" for information about qualified Annuities and for
additional information about non-qualified Annuities.
SYSTEMATIC WITHDRAWALS FROM MY ANNUITY DURING THE ACCUMULATION PERIOD
You can receive systematic withdrawals of earnings only, or a flat dollar
amount. Systematic Withdrawals may be subject to an MVA.
Systematic withdrawals can be made from Account Value allocated to the
Sub-accounts or certain MVA Options. There is no minimum Surrender Value we
require to allow you to begin a program of Systematic Withdrawals. The minimum
amount for each systematic withdrawal is $100. If any scheduled systematic
withdrawal is for less than $100 (which may occur under a program that
provides payment of an amount equal to the earnings in your Annuity for the
period requested), we may postpone the withdrawal and add the expected amount
to the amount that is to be withdrawn on the next scheduled systematic
withdrawal.
We will withdraw systematic withdrawals from the Investment Options you have
designated (your "designated Investment Options"). If you do not designate
Investment Options for systematic withdrawals, we will withdraw systematic
withdrawals pro rata based on the Account Value in the Investment Options at
the time we pay out your withdrawal (i.e. "pro rata" meaning that the
percentage of each Investment Option withdrawn is the same percentage that the
Investment Option bears to the total Account Value). For any scheduled
systematic withdrawal for which you have elected a specific dollar amount and
have specified percentages to be withdrawn from your designated Investment
Options, if the amounts in your designated Investment Options cannot satisfy
such instructions, we will withdraw systematic withdrawals pro rata, as just
described, based on the Account Value across all your Investment Options.
Please note that if you are participating in certain optional living benefits
(e.g., Highest Daily Lifetime Income), systematic withdrawals must be taken
pro rata. Ownership changes to and assignment of your Annuity will terminate
any systematic withdrawals that had been in effect on the date of the change.
SYSTEMATIC WITHDRAWALS UNDER SECTIONS 72(T)/72(Q) OF THE INTERNAL REVENUE CODE
If your Annuity is used as a funding vehicle for certain retirement plans that
receive special tax treatment under Sections 401, 403(b), 408 or 408A of the
Code, Section 72(t) of the Code may provide an exception to the 10% penalty
tax on distributions made prior to age 59 1/2 if you elect to receive
distributions as a series of "substantially equal periodic payments." For
Annuities issued as non-qualified annuities, the Code may provide a similar
exemption from penalty under Section 72(q) of the Code. Systematic withdrawals
under Sections 72(t)/72(q) may be subject to an MVA. To request a program that
complies with Sections 72(t)/72(q), you must provide us with certain required
information in writing on a form acceptable to us. We may require advance
notice to allow us to calculate the amount of 72(t)/72(q) withdrawals. There
is no minimum Surrender Value we require to allow you to
44
begin a program for withdrawals under Sections 72(t)/72(q). The minimum amount
for any such withdrawal is $100 and payments may be made monthly, quarterly,
semi-annually or annually.
You may also annuitize your Annuity and begin receiving payments for the
remainder of your life (or life expectancy) as a means of receiving income
payments before age 59 1/2 that are not subject to the 10% penalty.
Please note that if a withdrawal under 72(t) or 72(q) was scheduled to be
effected between December 25/th/ and December 31/st/ of a given year, then we
will implement the withdrawal on December 28/th/ or on the last Valuation Day
prior to December 28/th/ of that year.
REQUIRED MINIMUM DISTRIBUTIONS
Required Minimum Distributions are a type of systematic withdrawal we allow to
meet distribution requirements under Sections 401, 403(b) or 408 of the Code.
Required Minimum Distribution rules do not apply to Roth IRAs during the
Owner's lifetime. Under the Code, you may be required to begin receiving
periodic amounts from your Annuity. In such case, we will allow you to make
systematic withdrawals in amounts that satisfy the minimum distribution rules
under the Code.
The amount of the Required Minimum Distribution for your particular situation
may depend on other annuities, savings or investments. We will only calculate
the amount of your Required Minimum Distribution based on the value of your
Annuity. We require three (3) days advance written notice to calculate and
process the amount of your payments. You may elect to have Required Minimum
Distributions paid out monthly, quarterly, semi-annually or annually. The $100
minimum amount that applies to systematic withdrawals applies to monthly
Required Minimum Distributions but does not apply to Required Minimum
Distributions taken out on a quarterly, semi-annual or annual basis.
You may also annuitize your Annuity and begin receiving payments for the
remainder of your life (or life expectancy) as a means of receiving income
payments and satisfying the Required Minimum Distribution rules under the
Code. Please see "Living Benefits" for further information relating to
Required Minimum Distributions if you own a living benefit.
In any year in which the requirement to take Required Minimum Distributions is
suspended by law, we reserve the right, in our sole discretion and regardless
of any position taken on this issue in a prior year, to treat any amount that
would have been considered as a Required Minimum Distribution if not for the
suspension as eligible for treatment as described herein.
Please note that if a Required Minimum Distribution was scheduled to be
effected between December 25/th/ and December 31/st/ of a given year, then we
will implement the Required Minimum Distribution on December 28/th/ or on the
last Valuation Day prior to December 28/th/ of that year.
See "Tax Considerations" for a further discussion of Required Minimum
Distributions.
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SURRENDERS
SURRENDER VALUE
During the Accumulation Period you can surrender your Annuity at any time, and
you will receive the Surrender Value. Upon surrender of your Annuity, you will
no longer have any rights under the surrendered Annuity. Your Surrender Value
is equal to the Account Value (which includes the effect of any MVA) less any
applicable tax charges, any charges assessable as a deduction from the Account
Value for any optional benefits provided by rider or endorsement, and any
Annual Maintenance Fee.
We apply as a threshold, in certain circumstances, a minimum Surrender Value
of $2,000. If you purchase an Annuity without a lifetime guaranteed minimum
withdrawal benefit, we will not allow you to take any withdrawals that would
cause your Annuity's Account Value, after taking the withdrawal, to fall below
the minimum Surrender Value. Likewise, if you purchase an Annuity with a
lifetime guaranteed minimum withdrawal benefit, we will not allow you to take
a Non-Lifetime Withdrawal (see "Living Benefits - Non-Lifetime Withdrawal
Feature") that would cause your Annuity's Account Value, after taking the
withdrawal, to fall below the minimum Surrender Value. See "Annuity Options"
for information on the impact of the minimum Surrender Value at annuitization.
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ANNUITY OPTIONS
Annuitization involves converting your Unadjusted Account Value to an annuity
payment stream, the length of which depends on the terms of the applicable
annuity option. Thus, once annuity payments begin, your death benefit, if any,
is determined solely under the terms of the applicable annuity payment option,
and you no longer participate in any optional living benefit (unless you have
annuitized under that benefit). We currently make annuity options available
that provide fixed annuity payments. Fixed annuity payments provide the same
amount with each payment. Please refer to the "Living Benefits" section in
this prospectus for a description of annuity options that are available when
you elect one of the living benefits. You must annuitize your entire Account
Value; partial annuitizations are not allowed.
You have a right to choose your annuity start date, provided that it is no
later than the first day of the calendar month next following the 95/th/
birthday of the oldest of any Owner and Annuitant whichever occurs first
("Latest Annuity Date") and no earlier than the earliest permissible Annuity
Date. You may choose one of the Annuity Options described below, and the
frequency of annuity payments. You may change your choices before the Annuity
Date. If you have not provided us with your Annuity Date or annuity payment
option in writing, then your Annuity Date will be the Latest Annuity Date.
Certain annuity options and/or periods certain may not be available, depending
on the age of the Annuitant.
If needed, we will require proof in Good Order of the Annuitant's age before
commencing annuity payments. Likewise, we may require proof in Good Order that
an Annuitant is still alive, as a condition of our making additional annuity
payments while the Annuitant lives. We will seek to recover any life income
annuity payments that we made after the death of the Annuitant.
If the initial annuity payment would be less than $100, we will not allow you
to annuitize (except as otherwise specified by applicable law). Instead, we
will pay you your current Unadjusted Account Value in a lump sum and terminate
your Annuity. Similarly, we reserve the right to pay your Unadjusted Account
Value in a lump sum, rather than allow you to annuitize, if the Surrender
Value of your Annuity is less than $2000 on the Annuity Date.
Once annuity payments begin, you no longer receive benefits under any optional
living benefit (unless you have annuitized under that benefit) or the Death
Benefits described below.
Certain of these annuity options may be available as "settlement options" to
Beneficiaries who choose to receive the Death Benefit proceeds as a series of
payments instead of a lump sum payment.
Please note that you may not annuitize within the first three Annuity Years
(except as otherwise specified by applicable law).
For Beneficiary Annuities, no annuity payments are available and all
references to Annuity Date are not applicable.
OPTION 1
ANNUITY PAYMENTS FOR A PERIOD CERTAIN: Under this option, we will make equal
payments for the period chosen, up to 25 years (but not to exceed the life
expectancy of the Annuitant at the time the Annuity Option becomes effective,
as computed under applicable IRS tables). The annuity payments may be made
monthly, quarterly, semiannually, or annually, as you choose, for the fixed
period. If the Owner dies during the income phase, payments will continue to
any surviving Owner, or if there is no surviving Owner, the named Beneficiary
or your estate if no Beneficiary is named for the remainder of the period
certain.
OPTION 2
LIFE INCOME ANNUITY OPTION WITH A PERIOD CERTAIN: Under this option, income is
payable monthly, quarterly, semiannually, or annually for the number of years
selected (the "period certain"), subject to our then current rules, and
thereafter until the death of the Annuitant. Should the Owner or Annuitant die
before the end of the period certain, the remaining period certain payments
are paid to any surviving Owner, or if there is no surviving Owner, the named
Beneficiary, or your estate if no Beneficiary is named, until the end of the
period certain. If an annuity option is not selected by the Annuity Date, this
is the option we will automatically select for you. We will use a period
certain of 10 years, or a shorter duration if the Annuitant's life expectancy
at the time the Annuity Option becomes effective, as computed under applicable
IRS tables, is less than 10 years. If in this instance the duration of the
period certain is prohibited by applicable law, then we will pay you a lump
sum in lieu of this option.
OTHER ANNUITY OPTIONS WE MAY MAKE AVAILABLE
At the Annuity Date, we may make available other annuity options not described
above. The additional options we currently offer are:
. Life Annuity Option. We currently make available an annuity option that
makes payments for the life of the Annuitant. Under that option, income
is payable monthly, quarterly, semiannually, or annually, as you choose,
until the death of the Annuitant. No additional annuity payments are
made after the death of the Annuitant. No minimum number of payments is
guaranteed. It is possible that only one payment will be payable if the
death of the Annuitant occurs before the date the second payment was
due, and no other payments nor death benefits would be payable.
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. Joint Life Annuity Option. Under the joint lives option, income is
payable monthly, quarterly, semiannually, or annually, as you choose,
during the joint lifetime of two Annuitants, ceasing with the last
payment prior to the death of the second to die of the two Annuitants.
No minimum number of payments is guaranteed under this option. It is
possible that only one payment will be payable if the death of all the
Annuitants occurs before the date the second payment was due, and no
other payments or death benefits would be payable.
. Joint Life Annuity Option With a Period Certain. Under this option,
income is payable monthly, quarterly, semiannually, or annually for the
number of years selected (the "period certain"), subject to our current
rules, and thereafter during the joint lifetime of two Annuitants,
ceasing with the last payment prior to the death of the second to die of
the two Annuitants. If the Annuitants' joint life expectancy is less
than the period certain, we will institute a shorter period certain,
determined according to applicable IRS tables. Should the two Annuitants
die before the end of the period certain, the remaining period certain
payments are paid to any surviving Owner, or if there is no surviving
Owner, the named Beneficiary, or to your estate if no Beneficiary is
named, until the end of the period certain.
We reserve the right to cease offering any of these Other Annuity Options. If
we do so, we will amend this prospectus to reflect the change. We reserve the
right to make available other annuity or settlement options.
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LIVING BENEFITS
Pruco Life offers different optional living benefits, for an additional
charge, that can provide investment protection for Owners while they are
alive. No optional living benefit may be elected if your Annuity is held as a
Beneficiary Annuity. Notwithstanding the additional protection provided under
the optional living benefits, the additional cost has the impact of reducing
net performance of the Investment Options. Each optional benefit offers a
distinct type of guarantee, regardless of the performance of the Sub-accounts,
that may be appropriate for you depending on the manner in which you intend to
make use of your Annuity while you are alive. We reserve the right to cease
offering any of these optional living benefits for new elections at any time.
Depending on which optional living benefit you choose, you can have
substantial flexibility to invest in the Sub-accounts while:
.. guaranteeing a minimum amount of growth to be used as the basis for
lifetime withdrawals; or
.. providing spousal continuation of certain benefits.
We currently offer the Highest Daily Lifetime v2.1 benefits suite.
.. Highest Daily Lifetime Income v2.1
.. Spousal Highest Daily Lifetime Income v2.1
.. Highest Daily Lifetime Income v2.1 With Highest Daily Death Benefit
.. Spousal Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit
Each living benefit requires your participation in a predetermined
mathematical formula that may transfer your account value between the
Sub-accounts you have chosen from among those we permit with the benefit
(i.e., the "permitted Sub-accounts") and the AST Investment Grade Bond
Sub-account. The optional living benefit investment requirements and the
formula are designed to reduce the difference between your Account Value and
our liability under the benefit. Minimizing such difference generally benefits
us by decreasing the risk that we will use our own assets to make benefit
payments to you. Though the investment requirements and formula are designed
to reduce risk, they do not guarantee any appreciation of your Account Value.
In fact, they could mean that you miss appreciation opportunities in other
investment options. We are not providing you with investment advice through
the use of the formula. In addition, the formula does not constitute an
investment strategy that we are recommending to you.
The Highest Daily Lifetime v2.1 benefits are "Lifetime Guaranteed Minimum
Withdrawal Benefits". These benefits are designed for someone who wants a
guaranteed lifetime income stream through withdrawals over time, rather than
by annuitizing. Please note that there is a Latest Annuity Date under your
Annuity, by which date annuity payments must commence.
Under any of the Highest Daily Lifetime v2.1 Benefits (e.g., Highest Daily
Lifetime Income v2.1, Spousal Highest Daily Lifetime Income v2.1, Highest
Daily Lifetime Income v2.1 with Highest Daily Death Benefit, and Spousal
Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit),
WITHDRAWALS IN EXCESS OF THE ANNUAL INCOME AMOUNT, CALLED "EXCESS INCOME,"
WILL RESULT IN A PERMANENT REDUCTION IN FUTURE GUARANTEED AMOUNTS.
PLEASE REFER TO THE BENEFIT DESCRIPTION THAT FOLLOWS FOR A COMPLETE
DESCRIPTION OF THE TERMS, CONDITIONS AND LIMITATIONS OF EACH OPTIONAL BENEFIT.
SEE THE CHART IN THE "INVESTMENT OPTIONS" SECTION OF THE PROSPECTUS FOR A LIST
OF INVESTMENT OPTIONS AVAILABLE AND PERMITTED WITH EACH BENEFIT. WE RESERVE
THE RIGHT TO TERMINATE A BENEFIT IF YOU ALLOCATE FUNDS INTO NON-PERMITTED
INVESTMENT OPTIONS. Prior to terminating a benefit, we will send you written
notice and provide you with an opportunity to reallocate to permitted
Investment Options applicable to your benefit. You should consult with your
Financial Professional to determine if any of these optional benefits may be
appropriate for you based on your financial needs. As is the case with
optional living benefits in general, the fulfillment of our guarantee under
these benefits is dependent on our claims-paying ability.
TERMINATION OF EXISTING BENEFITS AND ELECTION OF NEW BENEFITS
If you elect an optional living benefit, you may subsequently terminate the
benefit and elect one of the then currently available benefits, subject to
availability of the benefit at that time and our then current rules. There is
currently no waiting period for such an election (you may elect a new benefit
beginning on the next Valuation Day), provided that upon such an election,
your Account Value must be allocated to the Investment Options permitted for
the optional benefit. We reserve the right to waive, change and/or further
limit availability and election frequencies in the future. Check with your
Financial Professional regarding the availability of re-electing or electing a
benefit and any waiting period. The benefit you re-elect or elect may not
provide the same guarantees and/or may be more expensive than the benefit you
are terminating. NOTE THAT ONCE YOU TERMINATE AN EXISTING BENEFIT, YOU LOSE
THE GUARANTEES THAT YOU HAD ACCUMULATED UNDER YOUR EXISTING BENEFIT AND WILL
BEGIN THE NEW GUARANTEES UNDER THE NEW BENEFIT YOU ELECT BASED ON YOUR
UNADJUSTED ACCOUNT VALUE AS OF THE DATE THE NEW BENEFIT BECOMES EFFECTIVE. You
should carefully consider whether terminating your existing benefit and
electing a new benefit is appropriate for you.
No Long-Term MVA Option is permitted if you elect any Optional Living Benefit.
Certain spousal rights under the contract, and our administration of such
spousal rights and related tax reporting comport 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
49
"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, domestic partners or same-sex marriages. You should be aware,
however, that federal tax law does not recognize civil union couples, domestic
partners or marriage spouses of the same sex. Therefore, we cannot permit a
same-sex civil union partner, domestic partner or spouse to continue the
annuity within the meaning of the tax law upon the death of the first partner
under the annuity's "spousal continuance" provision. Please note there may be
federal tax consequences at the death of the first same-sex civil union
partner, domestic partner or spouse. Civil union couples, domestic partners
and spouses of the same sex should consider that limitation before selecting a
spousal benefit under the annuity.
HIGHEST DAILY LIFETIME(R) INCOME v2.1 BENEFIT
Highest Daily Lifetime(R) Income v2.1 Benefit is a lifetime guaranteed minimum
withdrawal benefit, under which, subject to the terms of the benefit, we
guarantee your ability to take a certain annual withdrawal amount for life. We
reserve the right, in our sole discretion, to cease offering this benefit, for
new elections at any time.
We offer a benefit that guarantees until the death of the single designated
life (the Annuitant) the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial value (the "Protected
Withdrawal Value") regardless of the impact of Sub-account performance on the
Unadjusted Account Value, subject to our rules regarding the timing and amount
of withdrawals. You are guaranteed to be able to withdraw the Annual Income
Amount for the rest of your life provided that you do not take withdrawals of
Excess Income that result in your Unadjusted Account Value being reduced to
zero. We also permit you to designate the first withdrawal from your Annuity
as a one-time "Non-Lifetime Withdrawal". All other partial withdrawals from
your Annuity are considered a "Lifetime Withdrawal" under the benefit.
Withdrawals are taken first from your own Account Value. We are only required
to begin making lifetime income payments to you under our guarantee when and
if your Unadjusted Account Value is reduced to zero (for any reason other than
due to partial withdrawals of Excess Income). Highest Daily Lifetime Income
v2.1 may be appropriate if you intend to make periodic withdrawals from your
Annuity, and wish to ensure that Sub-account performance will not affect your
ability to receive annual payments. You are not required to take withdrawals
as part of the benefit - the guarantees are not lost if you withdraw less than
the maximum allowable amount each year under the rules of the benefit. An
integral component of Highest Daily Lifetime Income v2.1 is the predetermined
mathematical formula we employ that may periodically transfer your Unadjusted
Account Value to and from the AST Investment Grade Bond Sub-account. See the
section below entitled "How Highest Daily Lifetime Income v2.1 Transfers
Unadjusted Account Value Between Your Permitted Sub-accounts and the AST
Investment Grade Bond Sub-account."
The income benefit under Highest Daily Lifetime Income v2.1 currently is based
on a single "designated life" who is at least 50 years old on the date that
the benefit is acquired. Highest Daily Lifetime Income v2.1 is not available
if you elect any other optional living benefit. As long as your Highest Daily
Lifetime Income v2.1 is in effect, you must allocate your Unadjusted Account
Value in accordance with the permitted Sub-accounts and other Investment
Option(s) available with this benefit. For a more detailed description of the
permitted Investment Options, see the "Investment Options" section.
ALTHOUGH YOU ARE GUARANTEED THE ABILITY TO WITHDRAW YOUR ANNUAL INCOME AMOUNT
FOR LIFE EVEN IF YOUR UNADJUSTED ACCOUNT VALUE FALLS TO ZERO, IF THAT
PARTICULAR WITHDRAWAL OF EXCESS INCOME (DESCRIBED BELOW) BRINGS YOUR
UNADJUSTED ACCOUNT VALUE TO ZERO, YOUR ANNUAL INCOME AMOUNT ALSO WOULD FALL TO
ZERO, AND THE BENEFIT AND THE ANNUITY THEN WOULD TERMINATE. IN THAT SCENARIO,
NO FURTHER AMOUNT WOULD BE PAYABLE UNDER HIGHEST DAILY LIFETIME INCOME V2.1.
AS TO THE IMPACT OF SUCH A SCENARIO ON ANY OTHER OPTIONAL BENEFIT YOU MAY
HAVE, PLEASE SEE THE FOLLOWING SECTIONS IN THIS PROSPECTUS: "SPOUSAL HIGHEST
DAILY LIFETIME INCOME V2.1 BENEFIT", "HIGHEST DAILY LIFETIME INCOME V2.1 WITH
HIGHEST DAILY DEATH BENEFIT" AND "SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1
WITH HIGHEST DAILY DEATH BENEFIT".
You may also participate in the 6 or 12 Month DCA Program if you elect Highest
Daily Lifetime Income, subject to the 6 or 12 Month DCA Program's rules. See
the section of this prospectus entitled "6 or 12 Month Dollar Cost Averaging
Program" for details.
KEY FEATURE - PROTECTED WITHDRAWAL VALUE
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter, until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraphs.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
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The Periodic Value on or before the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment made on the Current
Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value after the Roll-Up End Date
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments and reduced for subsequent Lifetime Withdrawals (see the
examples that begin immediately prior to the sub-heading below entitled
"Example of dollar-for-dollar reductions").
PLEASE NOTE THAT IF YOU ELECT HIGHEST DAILY LIFETIME INCOME V2.1, YOUR ACCOUNT
VALUE IS NOT GUARANTEED, CAN FLUCTUATE AND MAY LOSE VALUE.
KEY FEATURE - ANNUAL INCOME AMOUNT UNDER HIGHEST DAILY LIFETIME INCOME V2.1
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the Annuitant on the date of the first Lifetime Withdrawal. The
percentages are: 3% for ages 50 to 54; 3.5% for ages 55 to less than 591/2; 4%
for ages 591/2 to 64; 4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for
ages 85 or older. Under Highest Daily Lifetime Income v2.1, if your cumulative
Lifetime Withdrawals in an Annuity Year are less than or equal to the Annual
Income Amount, they will not reduce your Annual Income Amount in subsequent
Annuity Years, but any such withdrawals will reduce the Annual Income Amount
on a dollar-for-dollar basis in that Annuity Year and also will reduce the
Protected Withdrawal Value on a dollar-for-dollar basis. If your cumulative
Lifetime Withdrawals in an Annuity Year are in excess of the Annual Income
Amount ("Excess Income"), your Annual Income Amount in subsequent years will
be reduced (except with regard to Required Minimum Distributions for this
Annuity that comply with our rules) by the result of the ratio of the Excess
Income to the Account Value immediately prior to such withdrawal (see examples
of this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
AS DISCUSSED IN THIS PARAGRAPH, WHEN YOU MAKE A PARTIAL WITHDRAWAL THAT IS
SUBJECT TO TAX WITHHOLDING, WE WILL IDENTIFY THE AMOUNT THAT INCLUDES NOT ONLY
THE AMOUNT YOU ACTUALLY RECEIVE, BUT ALSO THE AMOUNT OF THE TAX WITHHOLDING,
TO DETERMINE WHETHER YOUR WITHDRAWAL HAS EXCEEDED THE ANNUAL INCOME AMOUNT.
WHEN YOU TAKE A PARTIAL WITHDRAWAL, YOU MAY REQUEST A "GROSS" WITHDRAWAL
AMOUNT (E.G., $2,000) BUT THEN HAVE ANY TAX WITHHOLDING DEDUCTED FROM THE
AMOUNT YOU ACTUALLY RECEIVE (ALTHOUGH AN MVA MAY ALSO BE APPLIED TO YOUR
REMAINING UNADJUSTED ACCOUNT VALUE, IT IS NOT CONSIDERED FOR PURPOSES OF
DETERMINING EXCESS INCOME). THE PORTION OF A WITHDRAWAL THAT EXCEEDED YOUR
ANNUAL INCOME AMOUNT (IF ANY) WOULD BE TREATED AS EXCESS INCOME AND THUS WOULD
REDUCE YOUR ANNUAL INCOME AMOUNT IN SUBSEQUENT YEARS. ALTERNATIVELY, YOU MAY
REQUEST THAT A "NET" WITHDRAWAL AMOUNT ACTUALLY BE PAID TO YOU (E.G., $2,000),
WITH THE UNDERSTANDING THAT ANY TAX WITHHOLDING (E.G., $240) BE APPLIED TO
YOUR REMAINING UNADJUSTED ACCOUNT VALUE (ALTHOUGH AN MVA MAY ALSO BE APPLIED
TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE, IT IS NOT CONSIDERED FOR PURPOSES
OF DETERMINING EXCESS INCOME). IN THE LATTER SCENARIO, WE DETERMINE WHETHER
ANY PORTION OF THE WITHDRAWAL IS TO BE TREATED AS EXCESS INCOME BY LOOKING TO
THE SUM OF THE NET AMOUNT YOU ACTUALLY RECEIVE (E.G., $2,000) AND THE AMOUNT
OF ANY TAX WITHHOLDING (IN THIS EXAMPLE, A TOTAL OF $2,240). THE AMOUNT OF
THAT SUM (E.G., THE $2,000 YOU RECEIVED PLUS THE $240 FOR THE TAX WITHHOLDING)
THAT EXCEEDS YOUR ANNUAL INCOME AMOUNT WILL BE TREATED AS EXCESS INCOME -
THEREBY REDUCING YOUR ANNUAL INCOME AMOUNT IN SUBSEQUENT YEARS.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Highest Daily
Lifetime Income v2.1 and subsequent to the first Lifetime Withdrawal will (i)
immediately increase the then-existing Annual Income Amount by an amount equal
to a percentage of the Purchase Payment based on the age of the Annuitant at
the time of the first Lifetime Withdrawal (the percentages are: 3% for ages 50
to 54; 3.5% for ages 55 to less than 591/2; 4% for ages 591/2 to 64; 4.5% for
ages 65 to 69; 5% for ages 70 to 84; and 6% for ages 85 or older) and
(ii) increase the Protected Withdrawal Value by the amount of the Purchase
Payment.
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While Highest Daily Lifetime Income v2.1 is in effect, we may limit, restrict,
suspend or reject, any additional Purchase Payment at any time, but would do
so on a non-discriminatory basis. Circumstances where we may limit, restrict,
suspend or reject additional Purchase Payments include, but are not limited
to, the following:
.. if we determine that, as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Highest Daily Lifetime Income v2.1 benefit. This means that you
may no longer be able to increase the values associated with your Highest
Daily Lifetime Income v2.1 benefit through additional Purchase Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity in a non-discriminatory manner.
HIGHEST DAILY AUTO STEP-UP
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of Highest
Daily Lifetime Income v2.1. As detailed in this paragraph, the Highest Daily
Auto Step-Up feature can result in a larger Annual Income Amount subsequent to
your first Lifetime Withdrawal. The Highest Daily Auto Step-Up starts with the
anniversary of the Issue Date of the Annuity (the "Annuity Anniversary")
immediately after your first Lifetime Withdrawal under the benefit.
Specifically, upon the first such Annuity Anniversary, we identify the
Unadjusted Account Value on each Valuation Day within the immediately
preceding Annuity Year after your first Lifetime Withdrawal. Having identified
the highest daily value (after all daily values have been adjusted for
subsequent Purchase Payments and withdrawals), we then multiply that value by
a percentage that varies based on the age of the Annuitant on the Annuity
Anniversary as of which the step-up would occur. The percentages are: 3% for
ages 50 to 54; 3.5% for ages 55 to less than 591/2; 4% for ages 591/2 to 64;
4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for ages 85 or older. If
that value exceeds the existing Annual Income Amount, we replace the existing
amount with the new, higher amount. Otherwise, we leave the existing Annual
Income Amount intact. We will not automatically increase your Annual Income
Amount solely as a result of your attaining a new age that is associated with
a new age-based percentage. The Unadjusted Account Value on the Annuity
Anniversary is considered the last daily step-up value of the Annuity Year.
All daily valuations and annual step-ups will only occur on a Valuation Day.
In later years (i.e., after the first Annuity Anniversary after the first
Lifetime Withdrawal), we determine whether an automatic step-up should occur
on each Annuity Anniversary, by performing a similar examination of the
Unadjusted Account Values that occurred on Valuation Days during the year.
Taking Lifetime Withdrawals could produce a greater difference between your
Protected Withdrawal Value and your Unadjusted Account Value, which may make a
Highest Daily Auto Step-up less likely to occur. At the time that we increase
your Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the date that we implement a Highest Daily Auto Step-Up to your Annual
Income Amount, the charge for Highest Daily Lifetime Income v2.1 has changed
for new purchasers, you may be subject to the new charge at the time of such
step-up. Prior to increasing your charge for Highest Daily Lifetime Income
v2.1 upon a step-up, we would notify you, and give you the opportunity to
cancel the automatic step-up feature. If you receive notice of a proposed
step-up and accompanying fee increase, you should consult with your Financial
Professional and carefully evaluate whether the amount of the step-up
justifies the increased fee to which you will be subject. Any such increased
charge will not be greater than the maximum charge set forth in the table
entitled "Your Optional Benefit Fees and Charges."
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Highest Daily Lifetime Income v2.1 does not affect your ability to take
partial withdrawals under your Annuity, or limit your ability to take partial
withdrawals that exceed the Annual Income Amount. Under Highest Daily Lifetime
Income v2.1, if your cumulative Lifetime Withdrawals in an Annuity Year are
less than or equal to the Annual Income Amount, they will not reduce your
Annual Income Amount in subsequent Annuity Years, but any such withdrawals
will reduce the Annual Income Amount on a dollar-for-dollar basis in that
Annuity Year. If your cumulative Lifetime Withdrawals in any Annuity Year are
less than the Annual Income Amount, you cannot carry over the unused portion
of the Annual Income Amount to subsequent Annuity Years. If your cumulative
Lifetime Withdrawals in an Annuity Year exceed the Annual Income Amount, your
Annual Income Amount in subsequent years will be reduced (except with regard
to Required Minimum Distributions for this Annuity that comply with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
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Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for Highest Daily Lifetime Income
v2.1 or any other fees and charges under the Annuity. Assume the following for
all three examples:
.. The Issue Date is November 1
.. Highest Daily Lifetime Income v2.1 is elected on August 1 of the following
calendar year
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
EXAMPLE OF DOLLAR-FOR-DOLLAR REDUCTIONS
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $6,000 (since the designated life is between the ages
of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual Income
Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000).
Assuming $2,500 is withdrawn from the Annuity on this date, the remaining
Annual Income Amount for that Annuity Year (up to and including October 31) is
$3,500. This is the result of a dollar-for-dollar reduction of the Annual
Income Amount ($6,000 less $2,500 = $3,500).
EXAMPLE OF PROPORTIONAL REDUCTIONS
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $3,500 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $1,500 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there are other
future withdrawals in that Annuity Year, each would result in another
proportional reduction to the Annual Income Amount).
HERE IS THE CALCULATION:
EXAMPLE OF HIGHEST DAILY AUTO STEP-UP
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
Annuitant's age on that Annuity Anniversary) of the highest daily value since
your first Lifetime Withdrawal (or last Annuity Anniversary in subsequent
years), adjusted for withdrawals and additional Purchase Payments is greater
than the Annual Income Amount, adjusted for Excess Income and additional
Purchase Payments.
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $6,000. However, the Excess Income on October 29 reduces the
amount to $5,921.40 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 5% (since the designated life
is between 70 and 84 on the date of the potential step-up) of the highest
daily Unadjusted Account Value, adjusted for withdrawals and Purchase Payments
is greater than $5,921.40. Here are the calculations for determining the daily
values. Only the October 28 value is being adjusted for Excess Income as the
October 30, October 31, and November 1 Valuation Days occur after the Excess
Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be the Annuity Anniversary and every day
following the Annuity Anniversary. The Annuity Anniversary Date of
November 1 is considered the first Valuation Date in the Annuity Year.
53
** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,950.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income
Amount for the Annuity Year), resulting in Unadjusted Account Value of
$115,500 before the Excess Income.
. This amount ($115,500) is further reduced by 1.31% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.95.
. The adjusted October 29 Highest Daily Value, $113.986.95, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.95 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.95 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.95
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 5%, generating
an Annual Income Amount of $5,950.00. Since this amount is greater than the
current year's Annual Income Amount of $5,921.40 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,950.00.
NON-LIFETIME WITHDRAWAL FEATURE
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Highest Daily Lifetime Income v2.1. It is an optional feature of the
benefit that you can only elect at the time of your first withdrawal. You
cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders - Surrender Value"). This
Non-Lifetime Withdrawal will not establish your initial Annual Income Amount
and the Periodic Value described above will continue to be calculated.
However, the total amount of the withdrawal will proportionally reduce all
guarantees associated with Highest Daily Lifetime Income v2.1. You must tell
us at the time you take the withdrawal if your withdrawal is intended to be
the Non-Lifetime Withdrawal and not the first Lifetime Withdrawal under
Highest Daily Lifetime Income v2.1. If you don't elect the Non-Lifetime
Withdrawal, the first withdrawal you make will be the first Lifetime
Withdrawal that establishes your Annual Income Amount which is based on your
Protected Withdrawal Value. Once you elect to take the Non-Lifetime Withdrawal
or Lifetime Withdrawals, no additional Non-Lifetime Withdrawals may be taken.
If you do not take a Non-Lifetime Withdrawal before beginning Lifetime
Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value by the percentage the total withdrawal amount represents of
the then current Account Value immediately prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
EXAMPLE - NON-LIFETIME WITHDRAWAL (PROPORTIONAL REDUCTION)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit.
Assume the following:
.. The Issue Date is December 3
.. Highest Daily Lifetime Income v2.1 is elected on September 4 of the
following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1
.. No previous withdrawals have been taken under Highest Daily Lifetime Income
v2.1
On October 3 of the year the benefit is elected, the Protected Withdrawal
Value is $125,000 and the Account Value is $120,000. Assuming $15,000 is
withdrawn from the Annuity on that same October 3 and is designated as a
Non-Lifetime Withdrawal, all guarantees associated with Highest Daily Lifetime
Income v2.1 will be reduced by the ratio the total withdrawal amount
represents of the Account Value just prior to the withdrawal being taken.
HERE IS THE CALCULATION:
54
REQUIRED MINIMUM DISTRIBUTIONS
Required Minimum Distributions ("RMD") for this Annuity must be taken by
April 1st in the year following the date you turn age 70 1/2 and by
December 31/st/ for subsequent calendar years. If the annual RMD amount is
greater than the Annual Income Amount, a withdrawal of the RMD amount will not
be treated as a withdrawal of Excess Income, as long as the RMD amount is
calculated by us for this Annuity and administered under a program we support
each calendar year. If you are not participating in an RMD withdrawal program
each calendar year, you can alternatively satisfy the RMD amount without it
being treated as a withdrawal of Excess Income.
The following rules apply to determine if any portion of an RMD amount will be
treated as Excess Income.
For purposes of this provision, in relation to any Annuity Year, the "Second
Calendar Year" is the calendar year following the calendar year in which the
Annuity Year began.
In general, withdrawals made from the Annuity during an Annuity Year to meet
the RMD provisions of the Code will not be treated as Excess Income. However,
if in any Annuity Year, you take a Lifetime Withdrawal in the Second Calendar
Year, then the amount which will not be treated as Excess Income is the
greater of:
(1)the remaining Annual Income Amount for that Annuity Year, and
(2)the difference between the Second Calendar Year's remaining RMD amount and
the Annual Income Amount.
Any remaining RMD amount for the Second Calendar Year can be taken in the
following Annuity Year.
If, in any Annuity Year, your RMD amount is not greater than the Annual Income
Amount, any withdrawals in excess of the Annual Income Amount will be treated
as Excess Income.
Please see hypothetical examples below for details.
If you do not comply with the rules described above, any withdrawal that
exceeds the Annual Income Amount will be treated as a withdrawal of Excess
Income, which will reduce your Annual Income Amount in future Annuity Years.
This may include situations where you comply with the rules outlined above and
then decide to take additional withdrawals after satisfying your RMD
requirement from the Annuity.
We will assume your first withdrawal under the benefit is a Lifetime
Withdrawal unless you designated the withdrawal as a Non-Lifetime Withdrawal.
Example
The following example is purely hypothetical and intended to illustrate a
scenario as described above. Note that withdrawals must comply with all IRS
guidelines in order to satisfy the RMD for the current calendar year.
Assumptions:
RMD Calendar Year
01/01/2013 to 12/31/2013
Annuity Year
06/01/2012 to 05/31/2013
Annual Income Amount and RMD Amount
Annual Income Amount = $5,000
Remaining Annual Income Amount as of 1/3/2013 = $3,000 (a $2,000 withdrawal
was taken on 7/1/2012)
RMD Amount for Calendar Year 2013 = $6,000
The amount you may withdraw in the current Annuity Year (between 1/3/2013 and
5/31/2013) without it being treated as Excess Income is $4,000. Here is the
calculation: $3,000 + ($6,000 - $5,000) = $4,000.
If the $4,000 withdrawal is taken in the current Annuity Year (prior to
6/1/2013), the remaining Annual Income Amount will be zero and the remaining
RMD amount of $2,000 may be taken in the subsequent Annuity Year beginning on
6/1/2013 (when your Annual Income Amount is reset to $5,000).
If you had chosen to not take any additional withdrawals until on or after
6/1/2013, then you would be eligible to withdraw $6,000 without it being
treated as a withdrawal of Excess Income.
55
BENEFITS UNDER HIGHEST DAILY LIFETIME INCOME V2.1
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and amounts are still payable
under Highest Daily Lifetime Income v2.1, we will make an additional
payment, if any, for that Annuity Year equal to the remaining Annual Income
Amount for the Annuity Year. Thus, in that scenario, the remaining Annual
Income Amount would be payable even though your Unadjusted Account Value
was reduced to zero. In subsequent Annuity Years we make payments that
equal the Annual Income Amount as described in this section. We will make
payments until the death of the single designated life. After the
Unadjusted Account Value is reduced to zero, you will not be permitted to
make additional Purchase Payments to your Annuity. TO THE EXTENT THAT
CUMULATIVE PARTIAL WITHDRAWALS IN THE ANNUITY YEAR THAT REDUCED YOUR
UNADJUSTED ACCOUNT VALUE TO ZERO ARE MORE THAN THE ANNUAL INCOME AMOUNT,
HIGHEST DAILY LIFETIME INCOME V2.1 TERMINATES, AND NO ADDITIONAL PAYMENTS
ARE PERMITTED. HOWEVER, IF A PARTIAL WITHDRAWAL IN THE LATTER SCENARIO WAS
TAKEN TO SATISFY A REQUIRED MINIMUM DISTRIBUTION (AS DESCRIBED ABOVE) UNDER
THE ANNUITY, THEN THE BENEFIT WILL NOT TERMINATE, AND WE WILL CONTINUE TO
PAY THE ANNUAL INCOME AMOUNT IN SUBSEQUENT ANNUITY YEARS UNTIL THE DEATH OF
THE DESIGNATED LIFE.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments. Also, any Death Benefit will terminate if
withdrawals reduce your Unadjusted Account Value to zero. This means that
any Death Benefit is terminated and no Death Benefit is payable if your
Unadjusted Account Value is reduced to zero as the result of either a
withdrawal in excess of your Annual Income Amount or less than or equal to,
your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable tax charges,
to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. If this
option is elected, the Annual Income Amount will not increase after
annuity payments have begun. We will make payments until the death of
the single designated life. We must receive your request in a form
acceptable to us at our Service Office. If applying your Unadjusted
Account Value, less any applicable tax charges, to the life-only
annuity payment rates results in a higher annual payment, we will
give you the higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin
we currently make annual annuity payments in the form of a single life
fixed annuity with eight payments certain, by applying the greater of the
annuity rates then currently available or the annuity rates guaranteed in
your Annuity. We reserve the right at any time to increase or decrease the
period certain in order to comply with the Code (e.g., to shorten the
period certain to match life expectancy under applicable Internal Revenue
Service tables). The amount that will be applied to provide such annuity
payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual
Income Amount as if you made your first Lifetime Withdrawal on the
date the annuity payments are to begin). Such present value will be
calculated using the greater of the single life fixed annuity rates
then currently available or the single life fixed annuity rates
guaranteed in your Annuity; and
(2)the Unadjusted Account Value.
OTHER IMPORTANT CONSIDERATIONS
.. Withdrawals under Highest Daily Lifetime Income v2.1 are subject to all of
the terms and conditions of the Annuity. If you have an active Systematic
Withdrawal program running at the time you elect this benefit, the first
systematic withdrawal that processes after your election of the benefit
will be deemed a Lifetime Withdrawal. Withdrawals made while Highest Daily
Lifetime Income v2.1 is in effect will be treated, for tax purposes, in the
same way as any other withdrawals under the Annuity. Any withdrawals made
under the benefit will be taken pro rata from the Sub-accounts (including
the AST Investment Grade Bond Sub-account) and the DCA MVA Options. If you
have an active Systematic Withdrawal program running at the time you elect
this benefit, the program must withdraw funds pro rata.
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolio appears within the section
entitled "Investment Options." You can find a copy of the AST Investment
Grade Bond Portfolio prospectus by going to www.prudentialannuities.com.
.. Transfers to and from the permitted elected Sub-accounts, the DCA MVA
Options, and the AST Investment Grade Bond Sub-account triggered by the
predetermined mathematical formula will not count toward the maximum number
of free transfers allowable under an Annuity.
56
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to the Permitted Sub-accounts, or
to the requirements as to how you may allocate your Account Value with this
benefit, will apply to new elections of the benefit and may apply to
current participants in the benefit. To the extent that changes apply to
current participants in the benefit, they will only apply upon
re-allocation of Account Value, or upon addition of subsequent Purchase
Payments. That is, we will not require such current participants to
re-allocate Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Highest Daily
Lifetime Income v2.1 reduce your Unadjusted Account Value to zero. This
means that any Death Benefit is terminated and no Death Benefit is payable
if your Unadjusted Account Value is reduced to zero as the result of either
a withdrawal in excess of your Annual Income Amount or less than or equal
to, your Annual Income Amount. (See "Death Benefits" for more information.)
.. The current charge for Highest Daily Lifetime Income v2.1 is 1.00% annually
of the greater of the Unadjusted Account Value and Protected Withdrawal
Value. The maximum charge for Highest Daily Lifetime Income v2.1 is 2.00%
annually of the greater of the Unadjusted Account Value and Protected
Withdrawal Value. As discussed in "Highest Daily Auto Step-Up" above, we
may increase the fee upon a step-up under this benefit. We deduct this
charge on quarterly anniversaries of the benefit effective date, based on
the values on the last Valuation Day prior to the quarterly anniversary.
Thus, we deduct, on a quarterly basis, 0.25% of the greater of the prior
Valuation Day's Unadjusted Account Value and the prior Valuation Day's
Protected Withdrawal Value. We deduct the fee pro rata from each of your
Sub-accounts, including the AST Investment Grade Bond Sub-account. You will
begin paying this charge as of the effective date of the benefit even if
you do not begin taking withdrawals for many years, or ever. We will not
refund the charges you have paid if you choose never to take any
withdrawals and/or if you never receive any lifetime income payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the benefit is less than the
Account Value Floor, then no charge will be assessed for that benefit quarter.
Charges deducted upon termination of the benefit may cause the Unadjusted
Account Value to fall below the Account Value Floor. If a charge for Highest
Daily Lifetime Income v2.1 would be deducted on the same day we process a
withdrawal request, the charge will be deducted first, then the withdrawal
will be processed. The withdrawal could cause the Unadjusted Account Value to
fall below the Account Value Floor. While the deduction of the charge (other
than the final charge) may not reduce the Unadjusted Account Value to zero,
partial withdrawals may reduce the Unadjusted Account Value to zero. If this
happens and the Annual Income Amount is greater than zero, we will make
payments under the benefit.
ELECTION OF AND DESIGNATIONS UNDER THE BENEFIT
For Highest Daily Lifetime Income v2.1, there must be either a single Owner
who is the same as the Annuitant, or if the Annuity is entity owned, there
must be a single natural person Annuitant. In either case, the Annuitant must
be at least 50 years old. Any change of the Annuitant under the Annuity will
result in cancellation of Highest Daily Lifetime Income v2.1. Similarly, any
change of Owner will result in cancellation of Highest Daily Lifetime Income
v2.1, except if (a) the new Owner has the same taxpayer identification number
as the previous Owner, (b) ownership is transferred from a custodian or other
entity to the Annuitant, or vice versa or (c) ownership is transferred from
one entity to another entity that satisfies our administrative ownership
guidelines.
Highest Daily Lifetime Income v2.1 can be elected at the time that you
purchase your Annuity or after the Issue Date, subject to its availability,
and our eligibility rules and restrictions. If you elect Highest Daily
Lifetime Income v2.1 and terminate it, you can re-elect it, subject to our
current rules and availability. See "Termination of Existing Benefits and
Election of New Benefits" for information pertaining to elections, termination
and re-election of benefits. PLEASE NOTE THAT IF YOU TERMINATE A LIVING
BENEFIT AND ELECT HIGHEST DAILY LIFETIME INCOME V2.1, YOU LOSE THE GUARANTEES
THAT YOU HAD ACCUMULATED UNDER YOUR EXISTING BENEFIT AND YOUR GUARANTEES UNDER
HIGHEST DAILY LIFETIME INCOME V2.1 WILL BE BASED ON YOUR UNADJUSTED ACCOUNT
VALUE ON THE EFFECTIVE DATE OF HIGHEST DAILY LIFETIME INCOME V2.1. You and
your Financial Professional should carefully consider whether terminating your
existing benefit and electing Highest Daily Lifetime Income v2.1 is
appropriate for you. We reserve the right to waive, change and/or further
limit the election frequency in the future for new elections of this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Highest Daily Lifetime Income v2.1 so long as you participate in a
Systematic Withdrawal program in which withdrawals are not taken pro rata.
57
TERMINATION OF THE BENEFIT
You may terminate Highest Daily Lifetime Income v2.1 at any time by notifying
us. If you terminate the benefit, any guarantee provided by the benefit will
terminate as of the date the termination is effective, and certain
restrictions on re-election may apply.
THE BENEFIT AUTOMATICALLY TERMINATES UPON THE FIRST TO OCCUR OF THE FOLLOWING:
(I)YOUR TERMINATION OF THE BENEFIT;
(II)YOUR SURRENDER OF THE ANNUITY;
(III)YOUR ELECTION TO BEGIN RECEIVING ANNUITY PAYMENTS (ALTHOUGH IF YOU HAVE
ELECTED TO RECEIVE THE ANNUAL INCOME AMOUNT IN THE FORM OF ANNUITY
PAYMENTS, WE WILL CONTINUE TO PAY THE ANNUAL INCOME AMOUNT);
(IV)OUR RECEIPT OF DUE PROOF OF DEATH OF THE OWNER OR ANNUITANT (FOR
ENTITY-OWNED ANNUITIES);
(V)BOTH THE UNADJUSTED ACCOUNT VALUE AND ANNUAL INCOME AMOUNT EQUAL ZERO DUE
TO A WITHDRAWAL OF EXCESS INCOME;
(VI)YOU ALLOCATE OR TRANSFER ANY PORTION OF YOUR ACCOUNT VALUE TO ANY
SUB-ACCOUNT(S) TO WHICH YOU ARE NOT PERMITTED TO ELECTIVELY ALLOCATE OR
TRANSFER ACCOUNT VALUE (MAY VARY BY STATE);* OR
(VII)YOU CEASE TO MEET OUR REQUIREMENTS AS DESCRIBED IN "ELECTION OF AND
DESIGNATIONS UNDER THE BENEFIT" ABOVE.
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Highest Daily Lifetime Income v2.1 other than upon the
death of the Annuitant or Annuitization, we impose any accrued fee for the
benefit (i.e., the fee for the pro-rated portion of the year since the fee was
last assessed), and thereafter we cease deducting the charge for the benefit.
However, if the amount in the Sub-accounts is not enough to pay the charge, we
will reduce the fee to no more than the amount in the Sub-accounts. With
regard to your investment allocations, upon termination we will: (i) leave
intact amounts that are held in the Permitted Sub-accounts, and (ii) unless
you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
If a surviving spouse elects to continue the Annuity, Highest Daily Lifetime
Income v2.1 terminates upon Due Proof of Death. The spouse may newly elect the
benefit subject to the restrictions discussed above.
HOW HIGHEST DAILY LIFETIME INCOME V2.1 TRANSFERS UNADJUSTED ACCOUNT VALUE
BETWEEN YOUR PERMITTED SUB-ACCOUNTS AND THE AST INVESTMENT GRADE BOND
SUB-ACCOUNT
OVERVIEW OF THE PREDETERMINED MATHEMATICAL FORMULA
Our goal is to seek a careful balance between providing value-added products,
such as the Highest Daily Lifetime Income v2.1 suite of benefits, while
managing the risk associated with offering these products. One of the key
features that helps us accomplish that balance and an integral part of the
Highest Daily Lifetime Income v2.1 suite is the predetermined mathematical
formula used to transfer Unadjusted Account Value between the Permitted
Subaccounts and the AST Investment Grade Bond Sub-account, referred to in this
section as the "Bond Sub-account". The formula is designed primarily to
mitigate some of the financial risks that we incur in providing the guarantee
under the Highest Daily Lifetime Income v2.1 suite of benefits.
The formula is set forth in Appendix D (and is described below).
The predetermined mathematical formula ("formula") monitors each individual
contract each Valuation Day that the benefit is in effect on your Annuity, in
order to help us manage guarantees through all market cycles. It helps manage
the risk associated with these benefits, which is generally represented by the
gap between your Unadjusted Account Value and the Protected Withdrawal Value.
As the gap between these two values increases, the formula will determine if
and how much money should be transferred into the Bond Sub-account. This
movement is intended to reduce the equity risk we will bear in funding our
obligation associated with these benefits. As the gap decreases (due to
favorable performance of the Unadjusted Account Value), the formula then
determines if and how much money should transfer back into the Permitted
Sub-accounts. The use of the formula, combined with restrictions on the
Sub-accounts you are allowed to invest in, lessens the risk that your
Unadjusted Account Value will be reduced to zero while you are still alive,
thus reducing the likelihood that we will make any lifetime income payments
under this benefit. It may also limit the potential for your Account Value to
grow.
58
However, in addition to providing lifetime income when your Account Value is
reduced to zero, Highest Daily Lifetime Income v2.1 can potentially dampen the
impact of volatility on your Account Value during extreme market downturns by
transferring assets from your chosen investments into the Bond Sub-account as
described above. This occurs pursuant to the predetermined mathematical
formula, which can limit the possibility or reduce the amount of a significant
loss of Account Value, and potentially provide a higher income stream in
retirement.
The formula is not forward looking and contains no predictive or projective
component with respect to the markets, the Unadjusted Account Value or the
Protected Withdrawal Value. We are not providing you with investment advice
through the use of the formula nor does the formula constitute an investment
strategy that we are recommending to you.
TRANSFER ACTIVITY UNDER THE FORMULA
Prior to the first Lifetime Withdrawal, the primary driver of transfers to the
Bond Sub-account is the difference between your Unadjusted Account Value and
your Protected Withdrawal Value. If none of your Unadjusted Account Value is
allocated to the Bond Sub-account, then over time the formula permits an
increasing difference between the Unadjusted Account Value and the Protected
Withdrawal Value before a transfer to the Bond Sub-account occurs. Therefore,
over time, as none of the Unadjusted Account Value is allocated to the Bond
Sub-account, the formula will allow for a greater decrease in the Unadjusted
Account Value before a transfer to the Bond Sub-account is made.
It is important to understand that transfers within your Annuity are specific
to the performance of your chosen investment options, the performance of the
Bond Sub-account while money is invested in it, as well as how long the
benefit has been owned. For example, two contracts purchased on the same day,
but invested differently, will likely have different results, as would two
contracts purchased on different days with the same investment options.
Each market cycle is unique, therefore the performance of your Sub-accounts,
and its impact on your Unadjusted Account Value, will differ from market cycle
to market cycle, therefore producing different transfer activity under the
formula. The amount and timing of transfers to and from the Bond Sub-account
depend on various factors unique to your Annuity and are not necessarily
directly correlated with the securities markets, bond markets, interest rates
or any other market or index. Some of the factors that determine the amount
and timing of transfers (as applicable to your Annuity), include:
.. The difference between your Unadjusted Account Value and your Protected
Withdrawal Value;
.. The amount of time the benefit has been in effect on your Annuity;
.. The amount allocated to and the performance of the Permitted Sub-accounts
and the Bond Sub-account;
.. Any additional Purchase Payments you make to your Annuity (while the
benefit is in effect); and
.. Any withdrawals you take from your Annuity (while the benefit is in effect).
Under the formula, investment performance of your Unadjusted Account Value
that is negative, flat, or even moderately positive may result in a transfer
of a portion of your Unadjusted Account Value in the Permitted Sub-accounts to
the Bond Sub-account.
At any given time, some, most or none of your Unadjusted Account Value will be
allocated to the Bond Sub-account, as dictated by the formula.
The amount allocated to the Bond Sub-account and the amount allocated to the
Permitted Sub-accounts each is a variable in the formula. Therefore, the
investment performance of each affects whether a transfer occurs for your
Annuity. As the amounts allocated to either the Bond Sub-account or the
Permitted Sub-accounts increase, the performance of those sub-accounts will
have a greater impact on your Unadjusted Account Value and hence a greater
impact on if (and how much of) your Unadjusted Account Value is transferred to
or from the Bond Sub-account. It is possible that if a significant portion of
your Unadjusted Account Value is allocated to the Bond Sub-account and that
Sub-account has positive performance, the formula might transfer a portion of
your Unadjusted Account Value to the Permitted Sub-accounts, even if the
performance of your Permitted Sub-accounts is negative. Conversely, if a
significant portion of your Unadjusted Account Value is allocated to the Bond
Sub-account and that Sub-account has negative performance, the formula may
transfer additional amounts from your Permitted Sub-accounts to the Bond
Sub-account even if the performance of your Permitted Sub-accounts is positive.
HOW THE FORMULA OPERATES
Generally, the formula, which is applied each Valuation Day, takes four steps
in determining any applicable transfers within your Annuity.
(1)First, the formula starts by identifying the value of future income
payments we expect to pay. We refer to that value as the "Target Value" or
"L".
(2)Second, we subtract any amounts invested in the Bond Sub-account ("B") from
the Target Value and divide that number by the amount invested in the
Permitted Sub-Accounts ("V\\V\\ + V\\F\\"). We refer to this resulting
value as the "Target Ratio" or "R".
(3)Third, we compare the Target Ratio to designated thresholds and other rules
described in greater detail below to determine if a transfer needs to occur.
(4)If a transfer needs to occur, we use another calculation to determine the
amount of the transfer.
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The Formula is:
R = (L - B) / (V\\V\\ + V\\F\\)
More specifically, the formula operates as follows:
(1)We calculate the Target Value (L) by multiplying the income basis for that
day by 5% and by the applicable Annuity Factor found in Appendix D. If you
have already made a Lifetime Withdrawal, your Target Value would take into
account any automatic step-up, any subsequent Purchase Payments, and any
withdrawals of Excess Income.
Example (assume the income basis is $200,000, and the contract is 11 1/2
months old, resulting in an annuity factor of 14.95)
Target Value (L) = $200,000 x 5% x 14.95 = $149,500
(2)Next, to calculate the Target Ratio (R), the Target Value is reduced by any
amount held within the Bond Sub-account (B) on that day. The remaining
amount is divided by the amount held within the Permitted Sub-accounts (V).
Example (assume the amount in the Bond Sub-account is zero, and the amount
held within the Permitted Sub-accounts is $179,500)
Target Ratio (R) = ($149,500 - 0)/$179,500 = 83.3%
(3)If, on each of three consecutive Valuation Days, the Target Ratio is
greater than 83% but less than or equal to 84.5%, the formula will, on the
third Valuation Day, make a transfer from your Permitted Sub-accounts to
the Bond Sub-account (subject to the 90% cap discussed below). If, however,
on any Valuation Day, the Target Ratio is above 84.5%, the formula will
make a transfer from the Permitted Sub-accounts to the Bond Sub-account
(subject to the 90% cap). Once a transfer is made, the Target Ratio must
again be greater than 83% but less than or equal to 84.5% for three
consecutive Valuation Days before a subsequent transfer to the Bond
Sub-account will occur. If the Target Ratio falls below 78% on any
Valuation Day, then a transfer from the Bond Sub-account to the Permitted
Sub-accounts (excluding the DCA MVA Options) will occur.
Example: Assuming the Target Ratio is above 83% for a 3/rd/ consecutive
Valuation Day, but less than or equal to 84.5% for three consecutive
Valuation Days, a transfer into the Bond Portfolio occurred.
(4)In deciding how much to transfer, we perform a calculation that essentially
seeks to reallocate amounts held in the Permitted Sub-accounts and the Bond
Sub-account so that the Target Ratio meets a target, which currently is
equal to 80% (subject to the 90% Cap discussion below). The further the
Target Ratio is from 80% when a transfer is occurring under the formula,
the greater the transfer amount will be.
THE 90% CAP
The formula will not execute a transfer to the Bond Sub-account that results
in more than 90% of your Unadjusted Account Value being allocated to the Bond
Sub-account ("90% cap") on that Valuation Day. Thus, on any Valuation Day, if
the formula would require a transfer to the Bond Sub-account that would result
in more than 90% of the Unadjusted Account Value being allocated to the Bond
Sub-account, only the amount that results in exactly 90% of the Unadjusted
Account Value being allocated to the Bond Sub-account will be transferred.
Additionally, future transfers into the Bond Sub-account will not be made
(regardless of the performance of the Bond Sub-account and the Permitted
Sub-accounts) at least until there is first a transfer out of the Bond
Sub-account. Once this transfer occurs out of the Bond Sub-account, future
amounts may be transferred to or from the Bond Sub-account (subject to the 90%
cap).
Under the operation of the formula, the 90% cap may come into and out of
effect multiple times while you participate in the benefit. At no time will
the formula make a transfer to the Bond Sub-account that results in greater
than 90% of your Unadjusted Account Value being allocated to the Bond
Sub-account. However, it is possible that, due to the investment performance
of your allocations in the Bond Sub-account and your allocations in the
Permitted Sub-accounts you have selected, your Unadjusted Account Value could
be more than 90% invested in the Bond Sub-account.
MONTHLY TRANSFERS
Additionally, on each monthly Annuity Anniversary (if the monthly Annuity
Anniversary does not fall on a Valuation Day, the next Valuation Day will be
used), following all of the above described daily calculations, if there is
money allocated to the Bond Sub-account, the formula will perform an
additional calculation to determine whether or not a transfer will be made
from the Bond Sub-account to the Permitted Sub-accounts. This transfer will
automatically occur provided that the Target Ratio, as described above, would
be less than 83% after this transfer. The formula will not execute a transfer
if the Target Ratio after this transfer would occur would be greater than or
equal to 83%.
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The amount of the transfer will be equal to the lesser of:
a) The total value of all your Unadjusted Account Value in the Bond
Sub-account, or
b) An amount equal to 5% of your total Unadjusted Account Value.
OTHER IMPORTANT INFORMATION
.. The Bond sub-account is not a Permitted Sub-account. As such, only the
formula can transfer Unadjusted Account Value to or from the Bond
Sub-account. You may not allocate Purchase Payments or transfer any of your
Unadjusted Account Value to or from the Bond Sub-account.
.. While you are not notified before a transfer occurs to or from the Bond
Sub-account, you will receive a confirmation statement indicating the
transfer of a portion of your Unadjusted Account Value either to or from
the Bond Sub-account. Your confirmation statements will be detailed to
include the effective date of the transfer, the dollar amount of the
transfer and the Permitted Sub-accounts the funds are being transferred
to/from. Depending on the results of the calculations of the formula, we
may, on any Valuation Day:
. Not make any transfer between the Permitted Sub-accounts and the Bond
Sub-account; or
. If a portion of your Unadjusted Account Value was previously allocated
to the Bond Sub-account, transfer all or a portion of those amounts to
the Permitted Sub-accounts (as described above); or
. Transfer a portion of your Unadjusted Account Value in the Permitted
Sub-accounts and the DCA MVA Options to the Bond Sub-account.
.. If you make additional Purchase Payments to your Annuity, they will be
allocated to the Permitted Sub-accounts and will be subject to the formula.
.. Additional Purchase Payments to your Annuity do not increase "B" within the
formula, and may result in an additional Account Value being transferred to
the Permitted Sub-accounts, or a transfer to the Bond Sub-account due to
the change in the ratio.
.. If you make additional Purchase Payments to your Annuity while the 90% cap
is in effect, the formula will not transfer any of such additional Purchase
Payments to the Bond Sub-account at least until there is first a transfer
out of the Bond Sub-account, regardless of how much of your Unadjusted
Account Value is in the Permitted Sub-accounts. This means that there could
be scenarios under which, because of the additional Purchase Payments you
make, less than 90% of your entire Unadjusted Account Value is allocated to
the Bond Sub-account, and the formula will still not transfer any of your
Unadjusted Account Value to the Bond Sub-account (at least until there is
first a transfer out of the Bond Sub-account).
.. If you are participating in Highest Daily Lifetime Income v2.1 and you are
also participating in the 6 or 12 Month DCA Program, the following rules
apply:
. DCA MVA Options are considered "Permitted Sub-accounts" for purpose of
the Target Ratio calculation ("L") described above.
. The formula may transfer amounts out of the DCA MVA Options to the Bond
Sub-account if the amount allocated to the other Permitted Sub-accounts
is insufficient to cover the amount of the transfer.
. The transfer formula will not allocate amounts to the DCA MVA Options
when there is a transfer out of the Bond Sub-account . Such transfers
will be allocated pro-rata to the variable Sub-accounts, excluding the
Bond Sub-account.
. A Market Value Adjustment is not assessed when amounts are transferred
out of the DCA MVA Options under the transfer formula.
ADDITIONAL TAX CONSIDERATIONS
If you purchase an annuity as an investment vehicle for "qualified"
investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or
employer plan under Code Section 401(a), the Required Minimum Distribution
rules under the Code provide that you begin receiving periodic amounts
beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for
which the participant is not a greater than five (5) percent Owner of the
employer, this required beginning date can generally be deferred to
retirement, if later. Roth IRAs are not subject to these rules during the
Owner's lifetime. In addition, the amount and duration of payments under the
annuity payment provision may be adjusted so that the payments do not trigger
any penalty or excise taxes due to tax considerations such as Required Minimum
Distribution rules under the tax law.
As indicated, withdrawals made while this benefit is in effect will be
treated, for tax purposes, in the same way as any other withdrawals under the
Annuity. Please see the Tax Considerations section for a detailed discussion
of the tax treatment of withdrawals. We do not address each potential tax
scenario that could arise with respect to this benefit here. However, we do
note that if you participate in Highest Daily Lifetime Income v2.1 or Spousal
Highest Daily Lifetime Income v2.1 through a non-qualified annuity, as with
all withdrawals, once all Purchase Payments are returned under the Annuity,
all subsequent withdrawal amounts will be taxed as ordinary income.
SPOUSAL HIGHEST DAILY LIFETIME(R) INCOME v2.1 BENEFIT
Spousal Highest Daily Lifetime(R) Income v2.1 Benefit is a lifetime guaranteed
minimum withdrawal benefit, under which, subject to the terms of the benefit,
we guarantee your ability to take a certain annual withdrawal amount for the
lives of two individuals who are spouses. We reserve the right, in our sole
discretion, to cease offering this benefit for new elections at any time.
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We offer a benefit that guarantees, until the later death of two natural
persons who are each other's spouses at the time of election of the benefit
and at the first death of one of them (the "designated lives", and each, a
"designated life"), the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial principal value (the
"Protected Withdrawal Value") regardless of the impact of Sub-account
performance on the Unadjusted Account Value, subject to our rules regarding
the timing and amount of withdrawals. You are guaranteed to be able to
withdraw the Annual Income Amount for the lives of the designated lives,
provided you have not made withdrawals of Excess Income that result in your
Unadjusted Account Value being reduced to zero. We also permit you to
designate the first withdrawal from your Annuity as a one-time "Non-Lifetime
Withdrawal." All other withdrawals from your Annuity are considered a
"Lifetime Withdrawal" under the benefit. Withdrawals are taken first from your
own Account Value. We are only required to begin making lifetime income
payments to you under our guarantee when and if your Unadjusted Account Value
is reduced to zero (for any reason other than due to partial withdrawals of
Excess Income). The benefit may be appropriate if you intend to make periodic
withdrawals from your Annuity, wish to ensure that Sub-account performance
will not affect your ability to receive annual payments, and wish either
spouse to be able to continue Spousal Highest Daily Lifetime Income v2.1 after
the death of the first spouse. You are not required to make withdrawals as
part of the benefit - the guarantees are not lost if you withdraw less than
the maximum allowable amount each year under the rules of the benefit. An
integral component of Spousal Highest Daily Lifetime Income v2.1 is the
predetermined mathematical formula we employ that may periodically transfer
your Unadjusted Account Value to and from the AST Investment Grade Bond
Sub-account. See the section above entitled "How Highest Daily Lifetime Income
v2.1 Transfers Unadjusted Account Value Between Your Permitted Sub-accounts
and the AST Investment Grade Bond Sub-account."
Spousal Highest Daily Lifetime Income v2.1 is the spousal version of Highest
Daily Lifetime Income v2.1. This version is only being offered in those
jurisdictions where we have received regulatory approval and will be offered
subsequently in other jurisdictions when we receive regulatory approval in
those jurisdictions. Currently, if you elect Spousal Highest Daily Lifetime
Income v2.1 and subsequently terminate the benefit, you may elect another
living benefit, subject to our current rules. See "Election of and
Designations under the Benefit" below and "Termination of Existing Benefits
and Election of New Benefits" for details. Please note that if you terminate
Spousal Highest Daily Lifetime Income v2.1 and elect another benefit, you lose
the guarantees that you had accumulated under your existing benefit and will
begin the new guarantees under the new benefit you elect based on your
Unadjusted Account Value as of the date the new benefit becomes active.
Spousal Highest Daily Lifetime Income v2.1 must be elected based on two
designated lives, as described below. Each designated life must be at least 50
years old when the benefit is elected. Spousal Highest Daily Lifetime Income
v2.1 is not available if you elect any other optional living benefit. As long
as your Spousal Highest Daily Lifetime Income v2.1 is in effect, you must
allocate your Unadjusted Account Value in accordance with the permitted
Sub-accounts and other Investment Option(s) available with this benefit. For a
more detailed description of the permitted Investment Options, see the
"Investment Options" section.
ALTHOUGH YOU ARE GUARANTEED THE ABILITY TO WITHDRAW YOUR ANNUAL INCOME AMOUNT
FOR LIFE EVEN IF YOUR UNADJUSTED ACCOUNT VALUE FALLS TO ZERO, IF THAT
PARTICULAR WITHDRAWAL OF EXCESS INCOME (DESCRIBED BELOW) BRINGS YOUR
UNADJUSTED ACCOUNT VALUE TO ZERO, YOUR ANNUAL INCOME AMOUNT ALSO WOULD FALL TO
ZERO, AND THE BENEFIT AND THE ANNUITY THEN WOULD TERMINATE. IN THAT SCENARIO,
NO FURTHER AMOUNT WOULD BE PAYABLE UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME
V2.1. AS TO THE IMPACT OF SUCH A SCENARIO ON ANY OTHER OPTIONAL BENEFIT YOU
MAY HAVE, PLEASE SEE THE FOLLOWING SECTIONS IN THIS PROSPECTUS: "HIGHEST DAILY
LIFETIME INCOME V2.1 BENEFIT", "HIGHEST DAILY LIFETIME INCOME V2.1 WITH
HIGHEST DAILY DEATH BENEFIT" AND "SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1
WITH HIGHEST DAILY DEATH BENEFIT".
You may also participate in the 6 or 12 Month Dollar Cost Averaging Program if
you elect Spousal Highest Daily Lifetime Income v2.1, subject to the 6 or 12
Month DCA Program's rules. See the section of this prospectus entitled "6 or
12 Month Dollar Cost Averaging Program" for details.
KEY FEATURE - PROTECTED WITHDRAWAL VALUE
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraph.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value on or before the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for
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successive Valuation Days, but more than one calendar day for Valuation
Days that are separated by weekends and/or holidays), plus the amount of
any Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value after the Roll-Up End Date
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments and reduced for subsequent Lifetime Withdrawals (see the
examples that begin immediately prior to the sub-heading below entitled
"Example of dollar-for-dollar reductions").
PLEASE NOTE THAT IF YOU ELECT SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1, YOUR
ACCOUNT VALUE IS NOT GUARANTEED, CAN FLUCTUATE AND MAY LOSE VALUE.
KEY FEATURE - ANNUAL INCOME AMOUNT UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME
V2.1
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the younger designated life on the date of the first Lifetime
Withdrawal after election of the benefit. The percentages are: 2.5% for ages
50 to 54; 3% for ages 55 to less than 591/2; 3.5% for ages 591/2 to 64; 4% for
ages 65 to 69; 4.5% for ages 70 to 84; and 5.5% for ages 85 and older. We use
the age of the younger designated life even if that designated life is no
longer a participant under the Annuity due to death or divorce. Under Spousal
Highest Daily Lifetime Income v2.1, if your cumulative Lifetime Withdrawals in
an Annuity Year are less than or equal to the Annual Income Amount, they will
not reduce your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year and also will reduce the Protected Withdrawal Value on a
dollar-for-dollar basis. If your cumulative Lifetime Withdrawals in an Annuity
Year are in excess of the Annual Income Amount for any Annuity Year ("Excess
Income"), your Annual Income Amount in subsequent years will be reduced
(except with regard to Required Minimum Distributions for this Annuity that
comply with our rules) by the result of the ratio of the Excess Income to the
Unadjusted Account Value immediately prior to such withdrawal (see examples of
this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
AS DISCUSSED IN THIS PARAGRAPH, WHEN YOU MAKE A PARTIAL WITHDRAWAL THAT IS
SUBJECT TO A TAX WITHHOLDING, WE WILL IDENTIFY THE AMOUNT THAT INCLUDES NOT
ONLY THE AMOUNT YOU ACTUALLY RECEIVE, BUT ALSO THE AMOUNT OF THE TAX
WITHHOLDING, TO DETERMINE WHETHER YOUR WITHDRAWAL HAS EXCEEDED THE ANNUAL
INCOME AMOUNT. WHEN YOU TAKE A PARTIAL WITHDRAWAL, YOU MAY REQUEST A "GROSS"
WITHDRAWAL AMOUNT (E.G., $2,000) BUT THEN HAVE ANY TAX WITHHOLDING DEDUCTED
FROM THE AMOUNT YOU ACTUALLY RECEIVE (ALTHOUGH AN MVA MAY ALSO BE APPLIED TO
YOUR REMAINING UNADJUSTED ACCOUNT VALUE, IT IS NOT CONSIDERED FOR PURPOSES OF
DETERMINING EXCESS INCOME). THE PORTION OF A WITHDRAWAL THAT EXCEEDED YOUR
ANNUAL INCOME AMOUNT (IF ANY) WOULD BE TREATED AS EXCESS INCOME AND THUS WOULD
REDUCE YOUR ANNUAL INCOME AMOUNT IN SUBSEQUENT YEARS. ALTERNATIVELY, YOU MAY
REQUEST THAT A "NET" WITHDRAWAL AMOUNT ACTUALLY BE PAID TO YOU (E.G., $2,000),
WITH THE UNDERSTANDING THAT ANY TAX WITHHOLDING (E.G., $240) BE APPLIED TO
YOUR REMAINING UNADJUSTED ACCOUNT VALUE (ALTHOUGH AN MVA MAY ALSO BE APPLIED
TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE, IT IS NOT CONSIDERED FOR PURPOSES
OF DETERMINING EXCESS INCOME). IN THE LATTER SCENARIO, WE DETERMINE WHETHER
ANY PORTION OF THE WITHDRAWAL IS TO BE TREATED AS EXCESS INCOME BY LOOKING TO
THE SUM OF THE NET AMOUNT YOU ACTUALLY RECEIVE (E.G., $2,000) AND THE AMOUNT
OF ANY TAX WITHHOLDING (IN THIS EXAMPLE, A TOTAL OF $2,240). THE AMOUNT OF
THAT SUM (E.G., THE $2,000 YOU RECEIVED PLUS THE $240 FOR THE TAX WITHHOLDING)
THAT EXCEEDS YOUR ANNUAL INCOME AMOUNT WILL BE TREATED AS EXCESS INCOME -
THEREBY REDUCING YOUR ANNUAL INCOME AMOUNT IN SUBSEQUENT YEARS.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Spousal
Highest Daily Lifetime Income v2.1 and subsequent to the first Lifetime
Withdrawal will (i) immediately increase the then-existing Annual Income
Amount by an amount equal to a percentage of the Purchase Payment based on the
age of the younger designated life at the time of the first Lifetime
Withdrawal (the percentages are: 2.5% for ages 50 to 54; 3% for ages 55 to
less than 591/2; 3.5% for ages 591/2 to 64; 4% for ages 65 to 69; 4.5% for
ages 70 to 84; and 5.5% for ages 85 and older), and (ii) increase the
Protected Withdrawal Value by the amount of the Purchase Payment.
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While Spousal Highest Daily Lifetime Income v2.1 is in effect, we may limit,
restrict, suspend or reject any additional Purchase Payment at any time, but
would do so on a non-discriminatory basis. Circumstances where we may limit,
restrict, suspend or reject additional Purchase Payments include, but are not
limited to, the following:
.. if we determine that, as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Spousal Highest Daily Lifetime Income v2.1 benefit. This means
that you may no longer be able to increase the values associated with your
Spousal Highest Daily Lifetime Income v2.1 benefit through additional Purchase
Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity, in a non-discriminatory manner.
HIGHEST DAILY AUTO STEP-UP
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of this
benefit. As detailed in this paragraph, the Highest Daily Auto Step-Up feature
can result in a larger Annual Income Amount subsequent to your first Lifetime
Withdrawal. The Highest Daily Step-Up starts with the anniversary of the Issue
Date of the Annuity (the "Annuity Anniversary") immediately after your first
Lifetime Withdrawal under the benefit. Specifically, upon the first such
Annuity Anniversary, we identify the Unadjusted Account Value on each
Valuation Day within the immediately preceding Annuity Year after your first
Lifetime Withdrawal. Having identified the highest daily value (after all
daily values have been adjusted for subsequent Purchase Payments and
withdrawals), we then multiply that value by a percentage that varies based on
the age of the younger designated life on the Annuity Anniversary as of which
the step-up would occur. The percentages are 2.5% for ages 50 to 54; 3% for
ages 55 to less than 591/2; 3.5% for ages 591/2 to 64; 4% for ages 65 to 69;
4.5% for ages 70 to 84; and 5.5% for ages 85 and older. If that value exceeds
the existing Annual Income Amount, we replace the existing amount with the
new, higher amount. Otherwise, we leave the existing Annual Income Amount
intact. We will not automatically increase your Annual Income Amount solely as
a result of your attaining a new age that is associated with a new age-based
percentage. The Unadjusted Account Value on the Annuity Anniversary is
considered the last daily step-up value of the Annuity Year. In later years
(i.e., after the first Annuity Anniversary after the first Lifetime
Withdrawal), we determine whether an automatic step-up should occur on each
Annuity Anniversary by performing a similar examination of the Unadjusted
Account Values that occurred on Valuation Days during the year. Taking
Lifetime Withdrawals could produce a greater difference between your Protected
Withdrawal Value and your Unadjusted Account Value, which may make a Highest
Daily Auto Step-up less likely to occur. At the time that we increase your
Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the date that we implement a Highest Daily Auto Step-Up to your Annual
Income Amount, the charge for Spousal Highest Daily Lifetime Income v2.1 has
changed for new purchasers, you may be subject to the new charge at the time
of such step-up. Prior to increasing your charge for Spousal Highest Daily
Lifetime Income v2.1 upon a step-up, we would notify you, and give you the
opportunity to cancel the automatic step-up feature. If you receive notice of
a proposed step-up and accompanying fee increase, you should carefully
evaluate whether the amount of the step-up justifies the increased fee to
which you will be subject. Any such increased charge will not be greater than
the maximum charge set forth in the table entitled "Your Optional Benefit Fees
and Charges".
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Spousal Highest Daily Lifetime Income v2.1 does not affect your ability to
take withdrawals under your Annuity, or limit your ability to take partial
withdrawals that exceed the Annual Income Amount. Under Spousal Highest Daily
Lifetime Income v2.1, if your cumulative Lifetime Withdrawals in an Annuity
Year are less than or equal to the Annual Income Amount, they will not reduce
your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year. If, cumulatively, you withdraw an amount less than the
Annual Income Amount in any Annuity Year, you cannot carry over the unused
portion of the Annual Income Amount to subsequent Annuity Years. If your
cumulative Lifetime Withdrawals in an Annuity Year exceed the Annual Income
Amount, your Annual Income Amount in subsequent years will be reduced (except
with regard to Required Minimum Distributions for this Annuity that comply
with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
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Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Spousal Highest Daily
Lifetime Income v2.1 or any other fees and charges under the Annuity. Assume
the following for all three examples:
.. The Issue Date is November 1
.. Spousal Highest Daily Lifetime Income v2.1 is elected on August 1 of the
following calendar year
.. Both designated lives were 70 years old when they elected Spousal Highest
Daily Lifetime Income v2.1
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
EXAMPLE OF DOLLAR-FOR-DOLLAR REDUCTIONS
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $5,400 (since the younger designated life is between
the ages of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual
Income Amount is 4.5% of the Protected Withdrawal Value, in this case 4.5% of
$120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the
remaining Annual Income Amount for that Annuity Year (up to and including
October 31) is $2,900. This is the result of a dollar-for-dollar reduction of
the Annual Income Amount ($5,400 less $2,500 = $2,900).
EXAMPLE OF PROPORTIONAL REDUCTIONS
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $2,900 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $2,100 - reduces the Annual Income Amount in future Annuity Years on
a proportional basis based on the ratio of the Excess Income (i.e., Excess
Income) to the Account Value immediately prior to the Excess Income. (Note
that if there were other withdrawals in that Annuity Year, each would result
in another proportional reduction to the Annual Income Amount).
HERE IS THE CALCULATION:
EXAMPLE OF HIGHEST DAILY AUTO STEP-UP
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
younger designated life's age on that Annuity Anniversary) of the highest
daily value since your first Lifetime Withdrawal (or last Annuity Anniversary
in subsequent years), adjusted for withdrawals and additional Purchase
Payments is greater than the Annual Income Amount, adjusted for Excess Income
and additional Purchase Payments.
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $5,400. However, the Excess Income on October 29 reduces the
amount to $5,301.72 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 4.5% (since the younger
designated life is between 70 and 84 on the date of the potential step-up) of
the highest daily Unadjusted Account Value adjusted for withdrawals and
Purchase Payments, is greater than $5,301.72. Here are the calculations for
determining the daily values. Only the October 28 value is being adjusted for
Excess Income as the October 30, October 31 and November 1 Valuation Days
occur after the Excess Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be every day following the Annuity
Anniversary. The Annuity Anniversary Date of November 1 is considered the
final Valuation Date for the Annuity Year.
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** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,355.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $2,900 ($2,900 is the remaining Annual Income
Amount for the Annuity Year), resulting in an Unadjusted Account Value
of $116,100 before the Excess Income.
. This amount ($116,100) is further reduced by 1.82% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.98.
. The adjusted October 29 Highest Daily Value, $113,986.98, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.98 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.98 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.98
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 4.5%, generating
an Annual Income Amount of $5,355.00. Since this amount is higher than the
current year's Annual Income Amount of $5,301.72 (adjusted for excess
withdrawals), the Annual Income Amount for the next Annuity Year, starting on
November 1 and continuing through October 31 of the following calendar year,
will be stepped-up to $5,355.00.
NON-LIFETIME WITHDRAWAL FEATURE
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Spousal Highest Daily Lifetime Income v2.1. It is an optional feature of
the benefit that you can only elect at the time of your first withdrawal. You
cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders - Surrender Value"). This
Non-Lifetime Withdrawal will not establish your initial Annual Income Amount
and the Periodic Value above will continue to be calculated. However, the
total amount of the withdrawal will proportionally reduce all guarantees
associated with Spousal Highest Daily Lifetime Income v2.1. You must tell us
at the time you take the partial withdrawal if your withdrawal is intended to
be the Non-Lifetime Withdrawal and not the first Lifetime Withdrawal under
Spousal Highest Daily Lifetime Income v2.1. If you don't elect the
Non-Lifetime Withdrawal, the first withdrawal you make will be the first
Lifetime Withdrawal that establishes your Annual Income Amount, which is based
on your Protected Withdrawal Value. Once you elect the Non-Lifetime Withdrawal
or Lifetime Withdrawals, no additional Non-Lifetime Withdrawals may be taken.
If you do not take a Non-Lifetime Withdrawal before beginning Lifetime
Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value by the percentage the total withdrawal amount represents of
the then current Account Value immediately prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
EXAMPLE - NON-LIFETIME WITHDRAWAL (PROPORTIONAL REDUCTION)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit. Assume the following:
.. The Issue Date is December 3
.. Spousal Highest Daily Lifetime Income v2.1 is elected on September 4 of the
following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. Each designated life was 70 years old when he/she elected Spousal Highest
Daily Lifetime Income v2.1
.. No previous withdrawals have been taken under Spousal Highest Daily
Lifetime Income v2.1
On October 3 of the same year the benefit is elected, the Protected Withdrawal
Value is $125,000 and the Account Value is $120,000. When $15,000 is withdrawn
from the Annuity on that same October 3 and is designated as a Non-Lifetime
Withdrawal, all guarantees associated with Spousal Highest Daily Lifetime
Income v2.1 will be reduced by the ratio the total withdrawal amount
represents of the Account Value just prior to the withdrawal being taken.
HERE IS THE CALCULATION:
REQUIRED MINIMUM DISTRIBUTIONS
See the sub-section entitled "Required Minimum Distributions" in the
prospectus section above concerning Highest Daily Lifetime Income v2.1 for a
discussion of the relationship between the RMD amount and the Annual Income
Amount.
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BENEFITS UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and amounts are still payable
under Spousal Highest Daily Lifetime Income v2.1, we will make an
additional payment, if any, for that Annuity Year equal to the remaining
Annual Income Amount for the Annuity Year. Thus, in that scenario, the
remaining Annual Income Amount would be payable even though your Unadjusted
Account Value was reduced to zero. In subsequent Annuity Years we make
payments that equal the Annual Income Amount as described in this section.
We will make payments until the death of the first of the designated lives
to die, and will continue to make payments until the death of the second
designated life as long as the designated lives were spouses at the time of
the first death. After the Unadjusted Account Value is reduced to zero, you
are not permitted to make additional Purchase Payments to your Annuity. TO
THE EXTENT THAT CUMULATIVE WITHDRAWALS IN THE ANNUITY YEAR THAT REDUCED
YOUR UNADJUSTED ACCOUNT VALUE TO ZERO ARE MORE THAN THE ANNUAL INCOME
AMOUNT, SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 TERMINATES, AND NO
ADDITIONAL PAYMENTS WILL BE PERMITTED. HOWEVER, IF A PARTIAL WITHDRAWAL IN
THE LATTER SCENARIO WAS TAKEN TO SATISFY A REQUIRED MINIMUM DISTRIBUTION
(AS DESCRIBED ABOVE) UNDER THE ANNUITY THEN THE BENEFIT WILL NOT TERMINATE,
AND WE WILL CONTINUE TO PAY THE ANNUAL INCOME AMOUNT IN SUBSEQUENT ANNUITY
YEARS UNTIL THE DEATH OF THE SECOND DESIGNATED LIFE PROVIDED THE DESIGNATED
LIVES WERE SPOUSES AT THE DEATH OF THE FIRST DESIGNATED LIFE.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments. Also, any Death Benefit will terminate if
withdrawals reduce your Unadjusted Account Value to zero. This means that
any Death Benefit is terminated and no Death Benefit is payable if your
Unadjusted Account Value is reduced to zero as the result of either a
withdrawal in excess of your Annual Income Amount or less than or equal to,
your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable state required
premium tax, to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. We will
make payments until the first of the designated lives to die, and will
continue to make payments until the death of the second designated life
as long as the designated lives were spouses at the time of the first
death. If, due to death of a designated life or divorce prior to
annuitization, only a single designated life remains, then annuity
payments will be made as a life annuity for the lifetime of the
designated life. We must receive your request in a form acceptable to us
at our office. If applying your Unadjusted Account Value, less any
applicable tax charges, to our current life only (or joint life,
depending on the number of designated lives remaining) annuity payment
rates results in a higher annual payment, we will give you the higher
annual payment.
.. In the absence of an election when mandatory annuity payments are to begin,
we currently make annual annuity payments as a joint and survivor or single
(as applicable) life fixed annuity with eight payments certain, by applying
the greater of the annuity rates then currently available or the annuity
rates guaranteed in your Annuity. We reserve the right at any time to
increase or decrease the certain period in order to comply with the Code
(e.g., to shorten the period certain to match life expectancy under
applicable Internal Revenue Service tables). The amount that will be
applied to provide such annuity payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual Income
Amount as if you made your first Lifetime Withdrawal on the date the
annuity payments are to begin). Such present value will be calculated
using the greater of the joint and survivor or single (as applicable)
life fixed annuity rates then currently available or the joint and
survivor or single (as applicable) life fixed annuity rates guaranteed
in your Annuity; and
(2)the Unadjusted Account Value.
OTHER IMPORTANT CONSIDERATIONS
.. Withdrawals under Spousal Highest Daily Lifetime Income v2.1 are subject to
all of the terms and conditions of the Annuity. If you have an active
Systematic Withdrawal program running at the time you elect this benefit,
the first systematic withdrawal that processes after your election of the
benefit will be deemed a Lifetime Withdrawal. Withdrawals made while
Spousal Highest Daily Lifetime Income v2.1 is in effect will be treated,
for tax purposes, in the same way as any other withdrawals under the
Annuity. Any withdrawals made under the benefit will be taken pro rata from
the Sub-accounts (including the AST Investment Grade Bond Sub-account) and
the DCA MVA Options. If you have an active Systematic Withdrawal program
running at the time you elect this benefit, the program must withdraw funds
pro rata.
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
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.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolios appears in the prospectus
section entitled "Investment Options." In addition, you can find a copy of
the AST Investment Grade Bond Portfolio prospectus by going to
www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by pre-determined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to Permitted Sub-accounts, or to
the requirements as to how you may allocate your Account Value with this
benefit, will apply to new elections of the benefit and may apply to
current participants in the benefit. To the extent that changes apply to
current participants in the benefit, they will apply only upon
re-allocation of Account Value, or upon addition of additional Purchase
Payments. That is, we will not require such current participants to
re-allocate Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Investment Options and (ii) invest the proceeds of those
sales in the Sub-accounts that you have designated. During this
reallocation process, your Unadjusted Account Value allocated to the
Sub-accounts will remain exposed to investment risk, as is the case
generally. The newly-elected benefit will commence at the close of business
on the following Valuation Day. Thus, the protection afforded by the
newly-elected benefit will not begin until the close of business on the
following Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Spousal Highest
Daily Lifetime Income v2.1 reduce your Unadjusted Account Value to zero.
This means that any Death Benefit is terminated and no Death Benefit is
payable if your Unadjusted Account Value is reduced to zero as the result
of either a withdrawal in excess of your Annual Income Amount or less than
or equal to, your Annual Income Amount. (See "Death Benefits" for more
information.)
.. The current charge for Spousal Highest Daily Lifetime Income v2.1 is 1.10%
annually of the greater of Unadjusted Account Value and Protected
Withdrawal Value. The maximum charge for Spousal Highest Daily Lifetime
Income v2.1 is 2.00% annually of the greater of the Unadjusted Account
Value and Protected Withdrawal Value. As discussed in "Highest Daily Auto
Step-Up" above, we may increase the fee upon a step-up under this benefit.
We deduct this charge on quarterly anniversaries of the benefit effective
date, based on the values on the last Valuation Day prior to the quarterly
anniversary. Thus, we deduct, on a quarterly basis, 0.275% of the greater
of the prior Valuation Day's Unadjusted Account Value, or the prior
Valuation Day's Protected Withdrawal Value. We deduct the fee pro rata from
each of your Sub-accounts, including the AST Investment Grade Bond
Sub-account. You will begin paying this charge as of the effective date of
the benefit even if you do not begin taking withdrawals for many years, or
ever. We will not refund the charges you have paid if you choose never to
take any withdrawals and/or if you never receive any lifetime income
payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the benefit is less than the
Account Value Floor, then no charge will be assessed for that benefit quarter.
Charges deducted upon termination of the benefit may cause the Unadjusted
Account Value to fall below the Account Value Floor. If a charge for Spousal
Highest Daily Lifetime Income v2.1 would be deducted on the same day we
process a withdrawal request, the charge will be deducted first, then the
withdrawal will be processed. The withdrawal could cause the Unadjusted
Account Value to fall below the Account Value Floor. While the deduction of
the charge (other than the final charge) may not reduce the Unadjusted Account
Value to zero, withdrawals may reduce the Unadjusted Account Value to zero. If
this happens and the Annual Income Amount is greater than zero, we will make
payments under the benefit.
ELECTION OF AND DESIGNATIONS UNDER THE BENEFIT
Spousal Highest Daily Lifetime Income v2.1 can only be elected based on two
designated lives. Designated lives must be natural persons who are each
other's spouses at the time of election of the benefit and at the death of the
first of the designated lives to die. Currently, Spousal Highest Daily
Lifetime Income v2.1 only may be elected if the Owner, Annuitant, and
Beneficiary designations are as follows:
.. One Annuity Owner, where the Annuitant and the Owner are the same person
and the sole Beneficiary is the Owner's spouse. Each Owner/Annuitant and
the Beneficiary must be at least 50 years old at the time of election; or
.. Co-Annuity Owners, where the Owners are each other's spouses. The
Beneficiary designation must be the surviving spouse, or the spouses named
equally. One of the Owners must be the Annuitant. Each Owner must be at
least 50 years old at the time of election; or
.. One Annuity Owner, where the Owner is a custodial account established to
hold retirement assets for the benefit of the Annuitant pursuant to the
provisions of Section 408(a) of the Internal Revenue Code (or any successor
Code section thereto) ("Custodial Account"), the Beneficiary is the
Custodial Account, and the spouse of the Annuitant is the Contingent
Annuitant. Each of the Annuitant and the Contingent Annuitant must be at
least 50 years old at the time of election.
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We do not permit a change of Owner under this benefit, except as follows:
(a) if one Owner dies and the surviving spousal Owner assumes the Annuity, or
(b) if the Annuity initially is co-owned, but thereafter the Owner who is not
the Annuitant is removed as Owner. We permit changes of Beneficiary
designations under this benefit. However if the Beneficiary is changed, the
benefit may not be eligible to be continued upon the death of the first
designated life. If the designated lives divorce, Spousal Highest Daily
Lifetime Income v2.1 may not be divided as part of the divorce settlement or
judgment. Nor may the divorcing spouse who retains ownership of the Annuity
appoint a new designated life upon re-marriage. A change in designated lives
will result in a cancellation of Spousal Highest Daily Lifetime Income v2.1.
Spousal Highest Daily Lifetime Income v2.1 can be elected at the time that you
purchase your Annuity or after the Issue Date, subject to its availability,
and our eligibility rules and restrictions. If you elect Spousal Highest Daily
Lifetime Income v2.1 and terminate it, you can re-elect it, subject to our
current rules and availability. See "Termination of Existing Benefits and
Election of New Benefits" for information pertaining to elections, termination
and re-election of benefits. PLEASE NOTE THAT IF YOU TERMINATE A LIVING
BENEFIT AND ELECT SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1, YOU LOSE THE
GUARANTEES THAT YOU HAD ACCUMULATED UNDER YOUR EXISTING BENEFIT, AND YOUR
GUARANTEES UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 WILL BE BASED ON
YOUR UNADJUSTED ACCOUNT VALUE ON THE EFFECTIVE DATE OF SPOUSAL HIGHEST DAILY
LIFETIME INCOME V2.1. You and your Financial Professional should carefully
consider whether terminating your existing benefit and electing Spousal
Highest Daily Lifetime Income v2.1 is appropriate for you. We reserve the
right to waive, change and/or further limit the election frequency in the
future for new elections of this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Spousal Highest Daily Lifetime Income v2.1 so long as you
participate in a Systematic Withdrawal program in which withdrawals are not
taken pro rata.
TERMINATION OF THE BENEFIT
You may terminate the benefit at any time by notifying us. If you terminate
the benefit, any guarantee provided by the benefit will terminate as of the
date the termination is effective, and certain restrictions on re-election may
apply.
THE BENEFIT AUTOMATICALLY TERMINATES UPON THE FIRST TO OCCUR OF THE FOLLOWING:
(I) UPON OUR RECEIPT OF DUE PROOF OF DEATH OF THE FIRST DESIGNATED LIFE, IF
THE SURVIVING SPOUSE OPTS TO TAKE THE DEATH BENEFIT UNDER THE ANNUITY
(RATHER THAN CONTINUE THE ANNUITY) OR IF THE SURVIVING SPOUSE IS NOT AN
ELIGIBLE DESIGNATED LIFE;
(II)UPON THE DEATH OF THE SECOND DESIGNATED LIFE;
(III)YOUR TERMINATION OF THE BENEFIT;
(IV)YOUR SURRENDER OF THE ANNUITY;
(V) YOUR ELECTION TO BEGIN RECEIVING ANNUITY PAYMENTS (ALTHOUGH IF YOU HAVE
ELECTED TO TAKE ANNUITY PAYMENTS IN THE FORM OF THE ANNUAL INCOME AMOUNT,
WE WILL CONTINUE TO PAY THE ANNUAL INCOME AMOUNT);
(VI)BOTH THE UNADJUSTED ACCOUNT VALUE AND ANNUAL INCOME AMOUNT EQUAL ZERO DUE
TO A WITHDRAWAL OF EXCESS INCOME;
(VII)YOU ALLOCATE OR TRANSFER ANY PORTION OF YOUR ACCOUNT VALUE TO ANY
SUB-ACCOUNT(S) TO WHICH YOU ARE NOT PERMITTED TO ELECTIVELY ALLOCATE OR
TRANSFER ACCOUNT VALUE (MAY VARY BY STATE);* OR
(VIII)YOU CEASE TO MEET OUR REQUIREMENTS AS DESCRIBED IN "ELECTION OF AND
DESIGNATIONS UNDER THE BENEFIT".
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us; (b)
all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Spousal Highest Daily Lifetime Income v2.1 other than upon
the death of the second Designated Life or Annuitization, we impose any
accrued fee for the benefit (i.e., the fee for the pro-rated portion of the
year since the fee was last assessed), and thereafter we cease deducting the
charge for the benefit. This final charge will be deducted even if it results
in the Unadjusted Account Value falling below the Account Value Floor.
However, if the amount in the Sub-accounts is not enough to pay the charge, we
will reduce the fee to no more than the amount in the Sub-accounts. With
regard to your investment allocations, upon termination we will: (i) leave
intact amounts that are held in the Permitted Sub-accounts, and (ii) unless
you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
69
HOW SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 TRANSFERS UNADJUSTED ACCOUNT
VALUE BETWEEN YOUR PERMITTED SUB-ACCOUNTS AND THE AST INVESTMENT GRADE BOND
SUB-ACCOUNT
See "How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account" in the discussion of Highest Daily Lifetime Income v2.1 above for
information regarding this component of the benefit.
ADDITIONAL TAX CONSIDERATIONS
Please see the Additional Tax Considerations section under Highest Daily
Lifetime Income v2.1 above.
HIGHEST DAILY LIFETIME INCOME v2.1 WITH HIGHEST DAILY DEATH BENEFIT
Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit ("HD DB")
is a lifetime guaranteed minimum withdrawal benefit, under which, subject to
the terms of the benefit, we guarantee your ability to take a certain annual
withdrawal amount for life. This benefit also provides for a highest daily
death benefit, subject to the terms of the benefit. This version is only being
offered in those jurisdictions where we have received regulatory approval and
will be offered subsequently in other jurisdictions when we receive regulatory
approval in those jurisdictions. We reserve the right, in our sole discretion,
to cease offering this benefit for new elections, at any time.
We offer a benefit that guarantees until the death of the single designated
life (the Annuitant) the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial value (the "Protected
Withdrawal Value") regardless of the impact of Sub-account performance on the
Unadjusted Account Value, subject to our rules regarding the timing and amount
of withdrawals. You are guaranteed to be able to withdraw the Annual Income
Amount for the rest of your life provided that you do not take withdrawals of
Excess Income that result in your Unadjusted Account Value being reduced to
zero. We also permit you to designate the first withdrawal from your Annuity
as a one-time "Non-Lifetime Withdrawal". All other partial withdrawals from
your Annuity are considered a "Lifetime Withdrawal" under the benefit.
Withdrawals are taken first from your own Account Value. We are only required
to begin making lifetime income payments to you under our guarantee when and
if your Unadjusted Account Value is reduced to zero (for any reason other than
due to partial withdrawals of Excess Income) ("Guarantee Payments"). Highest
Daily Lifetime Income v2.1 with HD DB may be appropriate if you intend to make
periodic withdrawals from your Annuity, and wish to ensure that Sub-account
performance will not affect your ability to receive annual payments, and also
wish to provide a death benefit to your beneficiaries. You are not required to
take withdrawals as part of the benefit - the guarantees are not lost if you
withdraw less than the maximum allowable amount each year under the rules of
the benefit. An integral component of Highest Daily Lifetime Income v2.1 with
HD DB is the predetermined mathematical formula we employ that may
periodically transfer your Unadjusted Account Value to and from the AST
Investment Grade Bond Sub-account. See the section above entitled "How Highest
Daily Lifetime Income v2.1 Transfers Unadjusted Account Value Between Your
Permitted Sub-accounts and the AST Investment Grade Bond Sub-account."
Highest Daily Lifetime Income v2.1 is offered with or without the HD DB
component, however, you may only elect HD DB with Highest Daily Lifetime
Income v2.1, and you must elect the HD DB benefit at the time you elect
Highest Daily Lifetime Income v2.1. If you elect Highest Daily Lifetime Income
v2.1 without HD DB and would like to add the feature later, you must first
terminate Highest Daily Lifetime Income v2.1 and elect Highest Daily Lifetime
Income v2.1 with HD DB (subject to availability and benefit re-election
provisions). Please note that if you terminate Highest Daily Lifetime Income
v2.1 and elect Highest Daily Lifetime Income v2.1 with HD DB you lose the
guarantees that you had accumulated under your existing benefit and will begin
the new guarantees under the new benefit you elect based on your Unadjusted
Account Value as of the date the new benefit becomes active. Highest Daily
Lifetime Income v2.1 with HD DB is offered as an alternative to other lifetime
withdrawal options. If you elect this benefit, it may not be combined with any
other optional living or death benefit.
The income benefit under Highest Daily Lifetime Income v2.1 with HD DB
currently is based on a single "designated life" who is between the ages of 50
and 79 on the date that the benefit is elected and received in Good Order. As
long as your Highest Daily Lifetime Income v2.1 with HD DB is in effect, you
must allocate your Unadjusted Account Value in accordance with the permitted
Sub-accounts and other Investment Option(s) available with this benefit. For a
more detailed description of the permitted Investment Options, see the
"Investment Options" section.
ALTHOUGH YOU ARE GUARANTEED THE ABILITY TO WITHDRAW YOUR ANNUAL INCOME AMOUNT
FOR LIFE EVEN IF YOUR UNADJUSTED ACCOUNT VALUE FALLS TO ZERO, IF THAT
PARTICULAR WITHDRAWAL OF EXCESS INCOME (DESCRIBED BELOW) BRINGS YOUR
UNADJUSTED ACCOUNT VALUE TO ZERO, YOUR ANNUAL INCOME AMOUNT ALSO WOULD FALL TO
ZERO, AND THE BENEFIT AND THE ANNUITY THEN WOULD TERMINATE. IN THAT SCENARIO,
NO FURTHER AMOUNT WOULD BE PAYABLE UNDER HIGHEST DAILY LIFETIME INCOME V2.1
WITH HD DB (INCLUDING NO PAYMENT OF THE HIGHEST DAILY DEATH BENEFIT AMOUNT).
AS TO THE IMPACT OF SUCH A SCENARIO ON ANY OTHER OPTIONAL BENEFIT, PLEASE SEE
THE FOLLOWING SECTIONS IN THIS PROSPECTUS: "HIGHEST DAILY LIFETIME INCOME V2.1
BENEFIT", "SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 BENEFIT" AND "SPOUSAL
HIGHEST DAILY LIFETIME INCOME V2.1 WITH HIGHEST DAILY DEATH BENEFIT".
You may also participate in the 6 or 12 Month DCA Program if you elect Highest
Daily Lifetime Income v2.1 with HD DB, subject to the 6 or 12 Month DCA
Program's rules. See the section of this prospectus entitled "6 or 12 Month
Dollar Cost Averaging Program" for details.
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KEY FEATURE - PROTECTED WITHDRAWAL VALUE
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter, until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraphs.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value on or before the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment made on the Current
Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value after the Roll-Up End Date
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments and reduced for subsequent Lifetime Withdrawals (see the
examples that begin immediately prior to the sub-heading below entitled
"Example of dollar-for-dollar reductions").
PLEASE NOTE THAT IF YOU ELECT HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB,
YOUR ACCOUNT VALUE IS NOT GUARANTEED, CAN FLUCTUATE AND MAY LOSE VALUE.
KEY FEATURE - ANNUAL INCOME AMOUNT UNDER HIGHEST DAILY LIFETIME INCOME V2.1
WITH HD DB. The Annual Income Amount is equal to a specified percentage of the
Protected Withdrawal Value at the first Lifetime Withdrawal and does not
reduce in subsequent Annuity Years, as described below. The percentage
initially depends on the age of the Annuitant on the date of the first
Lifetime Withdrawal. The percentages are: 3% for ages 50 to 54; 3.5% for ages
55 to less than 591/2; 4% for ages 591/2 to 64; 4.5% for ages 65 to 69; 5% for
ages 70 to 84; and 6% for ages 85 or older. Under Highest Daily Lifetime
Income v2.1 with HD DB, if your cumulative Lifetime Withdrawals in an Annuity
Year are less than or equal to the Annual Income Amount, they will not reduce
your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year and also will reduce the Protected Withdrawal Value on a
dollar-for-dollar basis. If your cumulative Lifetime Withdrawals in an Annuity
Year are in excess of the Annual Income Amount ("Excess Income"), your Annual
Income Amount in subsequent years will be reduced (except with regard to
Required Minimum Distributions for this Annuity that comply with our rules) by
the result of the ratio of the Excess Income to the Account Value immediately
prior to such withdrawal (see examples of this calculation below). Excess
Income also will reduce the Protected Withdrawal Value by the same ratio.
AS DISCUSSED IN THIS PARAGRAPH, WHEN YOU MAKE A PARTIAL WITHDRAWAL THAT IS
SUBJECT TO TAX WITHHOLDING, WE WILL IDENTIFY THE AMOUNT THAT INCLUDES NOT ONLY
THE AMOUNT YOU ACTUALLY RECEIVE, BUT ALSO THE AMOUNT OF THE TAX WITHHOLDING,
TO DETERMINE WHETHER YOUR WITHDRAWAL HAS EXCEEDED THE ANNUAL INCOME AMOUNT.
WHEN YOU TAKE A PARTIAL WITHDRAWAL, YOU MAY REQUEST A "GROSS" WITHDRAWAL
AMOUNT (E.G., $2,000) BUT THEN HAVE ANY TAX WITHHOLDING DEDUCTED FROM THE
AMOUNT YOU ACTUALLY RECEIVE (ALTHOUGH AN MVA MAY ALSO BE APPLIED TO YOUR
REMAINING UNADJUSTED ACCOUNT VALUE, IT IS NOT CONSIDERED FOR PURPOSES OF
DETERMINING EXCESS INCOME). THE PORTION OF A WITHDRAWAL THAT EXCEEDED YOUR
ANNUAL INCOME AMOUNT (IF ANY) WOULD BE TREATED AS EXCESS INCOME AND THUS WOULD
REDUCE YOUR ANNUAL INCOME AMOUNT IN SUBSEQUENT YEARS. ALTERNATIVELY, YOU MAY
REQUEST THAT A "NET" WITHDRAWAL AMOUNT ACTUALLY BE PAID TO YOU (E.G., $2,000),
WITH THE UNDERSTANDING THAT ANY TAX WITHHOLDING (E.G., $240) BE APPLIED TO
YOUR REMAINING UNADJUSTED ACCOUNT VALUE (ALTHOUGH AN MVA MAY ALSO BE APPLIED
TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE, IT IS NOT CONSIDERED FOR PURPOSES
OF DETERMINING EXCESS INCOME). IN THE LATTER SCENARIO, WE DETERMINE WHETHER
ANY PORTION OF THE WITHDRAWAL IS TO BE TREATED AS EXCESS INCOME BY LOOKING TO
THE SUM OF THE NET AMOUNT YOU ACTUALLY RECEIVE (E.G., $2,000) AND THE AMOUNT
OF ANY TAX WITHHOLDING (IN THIS EXAMPLE, A TOTAL OF $2,240).
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THE AMOUNT OF THAT SUM (E.G., THE $2,000 YOU RECEIVED PLUS THE $240 FOR THE
TAX WITHHOLDING) THAT EXCEEDS YOUR ANNUAL INCOME AMOUNT WILL BE TREATED AS
EXCESS INCOME - THEREBY REDUCING YOUR ANNUAL INCOME AMOUNT IN SUBSEQUENT YEARS.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Highest Daily
Lifetime Income v2.1 with HD DB and subsequent to the first Lifetime
Withdrawal will (i) immediately increase the then-existing Annual Income
Amount by an amount equal to a percentage of the Purchase Payment based on the
age of the Annuitant at the time of the first Lifetime Withdrawal (the
percentages are: 3% for ages 50 to 54; 3.5% for ages 55 to less than 591/2; 4%
for ages 591/2 to 64; 4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for
ages 85 or older and (ii) increase the Protected Withdrawal Value by the
amount of the Purchase Payment.
After your first Lifetime Withdrawal and before your Unadjusted Account Value
is reduced to zero, you may make additional Purchase Payments, subject to the
limits in the next paragraph. We reserve the right not to accept additional
Purchase Payments if the Unadjusted Account Value becomes zero.
While Highest Daily Lifetime Income v2.1 with HD DB is in effect, we may
limit, restrict, suspend or reject any additional Purchase Payment at any
time, but would do so on a non-discriminatory basis. Circumstances where we
may limit, restrict, suspend or reject additional Purchase Payments include,
but are not limited to, the following:
.. if we determine that, as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Highest Daily Lifetime Income v2.1 with HD DB. This means that
you may no longer be able to increase the values associated with your Highest
Daily Lifetime Income v2.1 with HD DB through additional Purchase Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity, in a non-discriminatory manner.
HIGHEST DAILY AUTO STEP-UP
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of Highest
Daily Lifetime Income v2.1 with HD DB. As detailed in this paragraph, the
Highest Daily Auto Step-Up feature can result in a larger Annual Income Amount
subsequent to your first Lifetime Withdrawal. The Highest Daily Auto Step-Up
starts with the anniversary of the Issue Date of the Annuity (the "Annuity
Anniversary") immediately after your first Lifetime Withdrawal under the
benefit. Specifically, upon the first such Annuity Anniversary, we identify
the Unadjusted Account Value on each Valuation Day within the immediately
preceding Annuity Year after your first Lifetime Withdrawal. Having identified
the highest daily value (after all daily values have been adjusted for
subsequent Purchase Payments and withdrawals), we then multiply that value by
a percentage that varies based on the age of the Annuitant on the Annuity
Anniversary as of which the step-up would occur. The percentages are: 3% for
ages 50 to 54; 3.5% for ages 55 to less than 591/2; 4% for ages 591/2 to 64;
4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for ages 85 or older. If
that value exceeds the existing Annual Income Amount, we replace the existing
amount with the new, higher amount. Otherwise, we leave the existing Annual
Income Amount intact. We will not automatically increase your Annual Income
Amount solely as a result of your attaining a new age that is associated with
a new age-based percentage. The Unadjusted Account Value on the Annuity
Anniversary is considered the last daily step-up value of the Annuity Year.
All daily valuations and annual step-ups will only occur on a Valuation Day.
In later years (i.e., after the first Annuity Anniversary after the first
Lifetime Withdrawal), we determine whether an automatic step-up should occur
on each Annuity Anniversary, by performing a similar examination of the
Unadjusted Account Values that occurred on Valuation Days during the year.
Taking Lifetime Withdrawals could produce a greater difference between your
Protected Withdrawal Value and your Unadjusted Account Value, which may make a
Highest Daily Auto Step-up less likely to occur. At the time that we increase
your Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the date that we implement a Highest Daily Auto Step-Up to your Annual
Income Amount, the charge for Highest Daily Lifetime Income v2.1 with HD DB
has changed for new purchasers, you may be subject to the new charge at the
time of such step-up. Prior to increasing your charge for Highest Daily
Lifetime Income v2.1 with HD DB upon a step-up, we would notify you, and give
you the opportunity to cancel the automatic step-up feature. If you receive
notice of a proposed step-up and accompanying fee increase, you should consult
with your Financial Professional and carefully evaluate whether the amount of
the step-up justifies the increased fee to which you will be subject. Any such
increased charge will not be greater than the maximum charge set forth in the
table entitled "Your Optional Benefit Fees and Charges."
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If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Highest Daily Lifetime Income v2.1 with HD DB does not affect your ability to
take partial withdrawals under your Annuity, or limit your ability to take
partial withdrawals that exceed the Annual Income Amount. Under Highest Daily
Lifetime Income v2.1 with HD DB, if your cumulative Lifetime Withdrawals in an
Annuity Year are less than or equal to the Annual Income Amount, they will not
reduce your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year. If your cumulative Lifetime Withdrawals in any Annuity
Year are less than the Annual Income Amount, you cannot carry over the unused
portion of the Annual Income Amount to subsequent Annuity Years. If your
cumulative Lifetime Withdrawals in an Annuity Year exceed the Annual Income
Amount, your Annual Income Amount in subsequent years will be reduced (except
with regard to Required Minimum Distributions for this Annuity that comply
with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Highest Daily Lifetime
Income v2.1 with HD DB or any other fees and charges under the Annuity. Assume
the following for all three examples:
.. The Issue Date is November 1
.. Highest Daily Lifetime Income v2.1 with HD DB is elected on August 1 of the
following calendar year
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1 with HD DB
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
EXAMPLE OF DOLLAR-FOR-DOLLAR REDUCTIONS
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $6,000 (since the designated life is between the ages
of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual Income
Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000).
The Highest Daily Death Benefit Amount is $115,420. Assuming $2,500 is
withdrawn from the Annuity on this date, the remaining Annual Income Amount
for that Annuity Year (up to and including October 31) is $3,500. This is the
result of a dollar-for-dollar reduction of the Annual Income Amount ($6,000
less $2,500 = $3,500) and the Highest Daily Death Benefit Amount ($115,420
less $2,500 = $112,920).
EXAMPLE OF PROPORTIONAL REDUCTIONS
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $3,500 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $1,500 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there are other
future withdrawals in that Annuity Year, each would result in another
proportional reduction to the Annual Income Amount).
HERE IS THE CALCULATION:
EXAMPLE OF HIGHEST DAILY AUTO STEP-UP
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
Annuitant's age on that Annuity Anniversary) of the highest daily value since
your first Lifetime Withdrawal (or last Annuity Anniversary in subsequent
years), adjusted for withdrawals and additional Purchase Payments, is greater
than the Annual Income Amount, adjusted for Excess Income and additional
Purchase Payments.
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Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $6,000. However, the Excess Income on October 29 reduces the
amount to $5,921.40 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 5% (since the designated life
is between 70 and 84 on the date of the potential step-up) of the highest
daily Unadjusted Account Value, adjusted for withdrawals and Purchase
Payments, is greater than $5,921.40. Here are the calculations for determining
the daily values. Only the October 28 value is being adjusted for Excess
Income as the October 30, October 31, and November 1 Valuation Days occur
after the Excess Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be the Annuity Anniversary and every day
following the Annuity Anniversary. The Annuity Anniversary Date of
November 1 is considered the first Valuation Date in the Annuity Year.
** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,950.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income
Amount for the Annuity Year), resulting in Unadjusted Account Value of
$115,500 before the Excess Income.
. This amount ($115,500) is further reduced by 1.31% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.95.
. The adjusted October 29 Highest Daily Value, $113,986.95, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.95 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.95 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.95
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 5%, generating
an Annual Income Amount of $5,950.00. Since this amount is greater than the
current year's Annual Income Amount of $5,921.40 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,950.00.
NON-LIFETIME WITHDRAWAL FEATURE
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Highest Daily Lifetime Income v2.1 with HD DB. It is an optional feature
of the benefit that you can only elect at the time of your first withdrawal.
You cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders - Surrender Value"). This
Non-Lifetime Withdrawal will not establish your initial Annual Income Amount
and the Periodic Value described above will continue to be calculated.
However, the total amount of the withdrawal will proportionally reduce all
guarantees associated with Highest Daily Lifetime Income v2.1 with HD DB. You
must tell us at the time you take the withdrawal if your withdrawal is
intended to be the Non-Lifetime Withdrawal and not the first Lifetime
Withdrawal under Highest Daily Lifetime Income v2.1 with HD DB. If you don't
elect the Non-Lifetime Withdrawal, the first withdrawal you make will be the
first Lifetime Withdrawal that establishes your Annual Income Amount, which is
based on your Protected Withdrawal Value. Once you elect to take the
Non-Lifetime Withdrawal or Lifetime Withdrawals, no additional Non-Lifetime
Withdrawals may be taken. If you do not take a Non-Lifetime Withdrawal before
beginning Lifetime Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value. It will also proportionally reduce the Highest Daily Death
Benefit Amount. It will reduce each value by the percentage the total
withdrawal amount represents of the then current Account Value immediately
prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
EXAMPLE - NON-LIFETIME WITHDRAWAL (PROPORTIONAL REDUCTION)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit.
Assume the following:
.. The Issue Date is December 3
.. Highest Daily Lifetime Income v2.1 with HD DB is elected on September 4 of
the following calendar year
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.. The Unadjusted Account Value at benefit election was $105,000
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1 with HD DB
.. No previous withdrawals have been taken under Highest Daily Lifetime Income
v2.1 with HD DB
On October 3 of the year the benefit is elected, the Protected Withdrawal
Value is $125,000, the Highest Daily Death Benefit Amount is $115,420, and the
Account Value is $120,000. Assuming $15,000 is withdrawn from the Annuity on
that same October 3 and is designated as a Non-Lifetime Withdrawal, all
guarantees associated with Highest Daily Lifetime Income v2.1 with HD DB will
be reduced by the ratio the total withdrawal amount represents of the Account
Value just prior to the withdrawal being taken.
HERE IS THE CALCULATION:
REQUIRED MINIMUM DISTRIBUTIONS
Required Minimum Distributions ("RMD") for this Annuity must be taken by
April 1st in the year following the date you turn age 70 1/2 and by
December 31/st/ for subsequent calendar years. If the annual RMD amount is
greater than the Annual Income Amount, a withdrawal of the RMD amount will not
be treated as a withdrawal of Excess Income, as long as the RMD amount is
calculated by us for this Annuity and administered under a program we support
each calendar year. If you are not participating in an RMD withdrawal program
each calendar year, you can alternatively satisfy the RMD amount without it
being treated as a withdrawal of Excess Income.
The following rules apply to determine if any portion of an RMD amount will be
treated as Excess Income.
For purposes of this provision, in relation to any Annuity Year, the "Second
Calendar Year" is the calendar year following the calendar year in which the
Annuity Year began.
In general, withdrawals made from the Annuity during an Annuity Year to meet
the RMD provisions of the Code will not be treated as Excess Income. However,
if in any Annuity Year, you take a Lifetime Withdrawal in the Second Calendar
Year, then the amount which will not be treated as Excess Income is the
greater of:
(1)the remaining Annual Income Amount for that Annuity Year, and
(2)the difference between the Second Calendar Year's remaining RMD amount and
the Annual Income Amount.
Any remaining RMD amount for the Second Calendar Year can be taken in the
following Annuity Year.
If, in any Annuity Year, your RMD amount is not greater than the Annual Income
Amount, any withdrawals in excess of the Annual Income Amount will be treated
as Excess Income.
Please see hypothetical examples below for details.
If you do not comply with the rules described above, any withdrawal that
exceeds the Annual Income Amount will be treated as a withdrawal of Excess
Income, which will reduce your Annual Income Amount in future Annuity Years.
This may include situations where you comply with the rules outlined above and
then decide to take additional withdrawals after satisfying your RMD
requirement from the Annuity.
We will assume your first withdrawal under the benefit is a Lifetime
Withdrawal unless you designated the withdrawal as a Non-Lifetime Withdrawal.
EXAMPLE
The following example is purely hypothetical and intended to illustrate a
scenario as described above. Note that withdrawals must comply with all IRS
guidelines in order to satisfy the RMD for the current calendar year.
Assumptions:
RMD Calendar Year
01/01/2013 to 12/31/2013
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Annuity Year
06/01/2012 to 05/31/2013
Annual Income Amount and RMD Amount
Annual Income Amount = $5,000
Remaining Annual Income Amount as of 1/3/2013 = $3,000 (a $2,000 withdrawal
was taken on 7/1/2012)
RMD Amount for Calendar Year 2013 = $6,000
The amount you may withdraw in the current Annuity Year (between 1/3/2013 and
5/31/2013) without it being treated as Excess Income is $4,000. Here is the
calculation: $3,000 + ($6,000 - $5,000) = $4,000.
If the $4,000 withdrawal is taken in the current Annuity Year (prior to
6/1/2013), the remaining Annual Income Amount will be zero and the remaining
RMD amount of $2,000 may be taken in the subsequent Annuity Year beginning on
6/1/2013 (when your Annual Income Amount is reset to $5,000).
If you had chosen to not take any additional withdrawals until on or after
6/1/2013, then you would be eligible to withdraw $6,000 without it being
treated as a withdrawal of Excess Income.
HIGHEST DAILY DEATH BENEFIT
A Death Benefit is payable under Highest Daily Lifetime Income v2.1 with HD DB
(until we begin making Guarantee Payments under the benefit or annuity
payments have begun) upon the death of the Owner (Annuitant if entity owned),
also referred to as the "Single Designated Life", when we receive Due Proof of
Death. The Death Benefit is the greatest of: the Minimum Death Benefit
(described later in this prospectus) or the Highest Daily Death Benefit Amount
described below.
Highest Daily Death Benefit Amount:
On the date you elect Highest Daily Lifetime Income v2.1 with HD DB, the
Highest Daily Death Benefit Amount is equal to your Unadjusted Account Value.
On each subsequent Valuation Day, until the date of death of the decedent, the
Highest Daily Death Benefit Amount will be the greater of:
(1)The Unadjusted Account Value on the current Valuation Day; and
(2)The Highest Daily Death Benefit Amount of the immediately preceding
Valuation Day,
. increased by any Purchase Payments made on the current Valuation Day and,
. reduced by the effect of withdrawals made on the current Valuation Day,
as described below.
Please note that the Highest Daily Death Benefit Amount does not have any
guaranteed growth rate associated with it and therefore can be a different
amount than any of the guaranteed values associated with the living benefit
features of Highest Daily Lifetime Income v2.1 with HD DB.
A Non-Lifetime Withdrawal will proportionately reduce the Highest Daily Death
Benefit Amount by the ratio of the Non-Lifetime Withdrawal to the Account
Value immediately prior to the Non-Lifetime Withdrawal. A Lifetime Withdrawal
that is not considered Excess Income will reduce the Highest Daily Death
Benefit Amount (dollar-for-dollar) by the amount of the withdrawal. All or a
portion of a Lifetime Withdrawal that is considered Excess Income will
proportionately reduce the Highest Daily Death Benefit Amount by the ratio of
the Excess Income to the Account Value immediately prior to the withdrawal of
the Excess Income.
The Highest Daily Death Benefit will be calculated on the date of death of the
decedent and will be:
. increased by the amount of any additional Adjusted Purchase Payments, and
. reduced by the effect of any withdrawals (as described in the preceding
paragraph),
made during the period between the decedent's date of death and the date we
receive Due Proof of Death.
PLEASE NOTE THAT THE HIGHEST DAILY DEATH BENEFIT AMOUNT IS AVAILABLE ONLY
UNTIL WE MAKE GUARANTEE PAYMENTS UNDER HIGHEST DAILY LIFETIME INCOME V2.1 WITH
HD DB OR ANNUITY PAYMENTS BEGIN. THIS MEANS THAT ANY WITHDRAWALS THAT REDUCE
YOUR UNADJUSTED ACCOUNT VALUE TO ZERO WILL ALSO REDUCE THE HIGHEST DAILY DEATH
BENEFIT AMOUNT TO ZERO.
ALL OTHER PROVISIONS APPLICABLE TO DEATH BENEFITS UNDER YOUR ANNUITY WILL
CONTINUE TO APPLY. SEE THE "DEATH BENEFITS" SECTION OF THIS PROSPECTUS FOR
MORE INFORMATION PERTAINING TO DEATH BENEFITS.
BENEFITS UNDER HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and Guarantee Payments amounts
are still payable under Highest Daily Lifetime Income v2.1 with HD DB, we
will make an additional payment, if any, for that Annuity Year equal to the
remaining Annual Income Amount for the Annuity Year. Thus, in that
scenario, the remaining Annual Income
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Amount would be payable even though your Unadjusted Account Value was
reduced to zero. In subsequent Annuity Years we make payments that equal
the Annual Income Amount as described in this section. We will make
payments until the death of the single designated life. After the
Unadjusted Account Value is reduced to zero, you will not be permitted to
make additional Purchase Payments to your Annuity. TO THE EXTENT THAT
CUMULATIVE PARTIAL WITHDRAWALS IN THE ANNUITY YEAR THAT REDUCED YOUR
UNADJUSTED ACCOUNT VALUE TO ZERO ARE MORE THAN THE ANNUAL INCOME AMOUNT,
HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB TERMINATES, AND NO ADDITIONAL
PAYMENTS ARE PERMITTED.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments. Please note that if your Unadjusted Account
Value is reduced to zero due to withdrawals or annuitization, any Death
Benefit value, including that of the HD DB feature, will terminate. This
means that the HD DB is terminated and no Death Benefit is payable if your
Unadjusted Account Value is reduced to zero as the result of either a
withdrawal in excess of your Annual Income Amount or less than or equal to,
your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable tax charges,
to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. If this
option is elected, the Annual Income Amount will not increase after
annuity payments have begun. We will make payments until the death of
the single designated life. We must receive your request in a form
acceptable to us at our Service Office. If applying your Unadjusted
Account Value, less any applicable tax charges, to the life-only
annuity payment rates results in a higher annual payment, we will
give you the higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin
we currently make annual annuity payments in the form of a single life
fixed annuity with eight payments certain, by applying the greater of the
annuity rates then currently available or the annuity rates guaranteed in
your Annuity. We reserve the right at any time to increase or decrease the
period certain in order to comply with the Code (e.g., to shorten the
period certain to match life expectancy under applicable Internal Revenue
Service tables). The amount that will be applied to provide such annuity
payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual
Income Amount as if you made your first Lifetime Withdrawal on the
date the annuity payments are to begin). Such present value will be
calculated using the greater of the single life fixed annuity rates
then currently available or the single life fixed annuity rates
guaranteed in your Annuity; and
(2)the Unadjusted Account Value.
OTHER IMPORTANT CONSIDERATIONS
.. Withdrawals under Highest Daily Lifetime Income v2.1 with HD DB are subject
to all of the terms and conditions of the Annuity. If you have an active
Systematic Withdrawal program running at the time you elect this benefit,
the first systematic withdrawal that processes after your election of the
benefit will be deemed a Lifetime Withdrawal. Withdrawals made while
Highest Daily Lifetime Income v2.1 with HD DB is in effect will be treated,
for tax purposes, in the same way as any other withdrawals under the
Annuity. Any withdrawals made under the benefit will be taken pro rata from
the Sub-accounts (including the AST Investment Grade Bond Sub-account) and
the DCA MVA Options. If you have an active Systematic Withdrawal program
running at the time you elect this benefit, the program must withdraw funds
pro rata.
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolio appears within the section
entitled "Investment Options." You can find a copy of the AST Investment
Grade Bond Portfolio prospectus by going to www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the predetermined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to the Permitted Sub-accounts, or
to the requirements as to how you may allocate your Account Value with this
benefit, will apply to new elections of the benefit and may apply to
current participants in the benefit. To the extent that changes apply to
current participants in the benefit, they will only apply upon
re-allocation of Account Value, or upon addition of subsequent Purchase
Payments. That is, we will not require such current participants to
re-allocate Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and
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(ii) invest the proceeds of those sales in the Sub-accounts that you have
designated. During this reallocation process, your Unadjusted Account Value
allocated to the Sub-accounts will remain exposed to investment risk, as is
the case generally. The newly-elected benefit will commence at the close of
business on the following Valuation Day. Thus, the protection afforded by
the newly-elected benefit will not begin until the close of business on the
following Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Highest Daily
Lifetime Income v2.1 with HD DB reduce your Unadjusted Account Value to
zero. This means that any Death Benefit, including the HD DB, will
terminate and no Death Benefit is payable if your Unadjusted Account Value
is reduced to zero as the result of either a withdrawal in excess of your
Annual Income Amount or less than or equal to, your Annual Income Amount.
(See "Death Benefits" for more information.)
.. The current charge for Highest Daily Lifetime Income v2.1 with HD DB is
1.50% annually of the greater of the Unadjusted Account Value and Protected
Withdrawal Value. The maximum charge for Highest Daily Lifetime Income v2.1
with HD DB is 2.00% annually of the greater of the Unadjusted Account Value
and Protected Withdrawal Value. As discussed in "Highest Daily Auto
Step-Up" above, we may increase the fee upon a step-up under this benefit.
We deduct this charge on quarterly anniversaries of the benefit effective
date, based on the values on the last Valuation Day prior to the quarterly
anniversary. Thus, we deduct, on a quarterly basis, 0.375% of the greater
of the prior Valuation Day's Unadjusted Account Value and the prior
Valuation Day's Protected Withdrawal Value. We deduct the fee pro rata from
each of your Sub-accounts, including the AST Investment Grade Bond
Sub-account. You will begin paying this charge as of the effective date of
the benefit even if you do not begin taking withdrawals for many years, or
ever. We will not refund the charges you have paid if you choose never to
take any withdrawals and/or if you never receive any lifetime income
payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the benefit is less than the
Account Value Floor, then no charge will be assessed for that benefit quarter.
Charges deducted upon termination of the benefit may cause the Unadjusted
Account Value to fall below the Account Value Floor. If a charge for Highest
Daily Lifetime Income v2.1 with HD DB would be deducted on the same day we
process a withdrawal request, the charge will be deducted first, then the
withdrawal will be processed. The withdrawal could cause the Unadjusted
Account Value to fall below the Account Value Floor. While the deduction of
the charge (other than the final charge) may not reduce the Unadjusted Account
Value to zero, partial withdrawals may reduce the Unadjusted Account Value to
zero. If this happens and the Annual Income Amount is greater than zero, we
will make payments under the benefit.
ELECTION OF AND DESIGNATIONS UNDER THE BENEFIT
For Highest Daily Lifetime Income v2.1 with HD DB, there must be either a
single Owner who is the same as the Annuitant, or if the Annuity is entity
owned, there must be a single natural person Annuitant. In either case, the
Annuitant must be between 50 and 79 years old. Any change of the Annuitant
under the Annuity will result in cancellation of Highest Daily Lifetime Income
v2.1 with HD DB. Similarly, any change of Owner will result in cancellation of
Highest Daily Lifetime Income v2.1 with HD DB, except if (a) the new Owner has
the same taxpayer identification number as the previous Owner, (b) ownership
is transferred from a custodian or other entity to the Annuitant, or vice
versa or (c) ownership is transferred from one entity to another entity that
satisfies our administrative ownership requirements.
Highest Daily Lifetime Income v2.1 with HD DB can be elected at the time that
you purchase your Annuity or after the Issue Date, subject to its
availability, and our eligibility rules and restrictions. If you elect Highest
Daily Lifetime Income v2.1 with HD DB and terminate it, you can re-elect it,
subject to our current rules and availability. See "Termination of Existing
Benefits and Election of New Benefits" for information pertaining to
elections, termination and re-election of benefits. PLEASE NOTE THAT IF YOU
TERMINATE A LIVING BENEFIT AND ELECT HIGHEST DAILY LIFETIME INCOME V2.1 WITH
HD DB, YOU LOSE THE GUARANTEES THAT YOU HAD ACCUMULATED UNDER YOUR EXISTING
BENEFIT AND YOUR GUARANTEES UNDER HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD
DB WILL BE BASED ON YOUR UNADJUSTED ACCOUNT VALUE ON THE EFFECTIVE DATE OF
HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB. You and your Financial
Professional should carefully consider whether terminating your existing
benefit and electing Highest Daily Lifetime Income v2.1 with HD DB is
appropriate for you. We reserve the right to waive, change and/or further
limit the election frequency in the future for new elections of this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Highest Daily Lifetime Income v2.1 with HD DB so long as you
participate in a Systematic Withdrawal program in which withdrawals are not
taken pro rata.
TERMINATION OF THE BENEFIT
You may terminate Highest Daily Lifetime Income v2.1 with HD DB at any time by
notifying us. If you terminate the benefit, any guarantee provided by the
benefit, including the HD DB, will terminate as of the date the termination is
effective, and certain restrictions on re-election may apply.
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THE BENEFIT AUTOMATICALLY TERMINATES UPON THE FIRST TO OCCUR OF THE FOLLOWING:
(I)YOUR TERMINATION OF THE BENEFIT;
(II)YOUR SURRENDER OF THE ANNUITY;
(III)YOUR ELECTION TO BEGIN RECEIVING ANNUITY PAYMENTS (ALTHOUGH IF YOU HAVE
ELECTED TO RECEIVE THE ANNUAL INCOME AMOUNT IN THE FORM OF ANNUITY
PAYMENTS, WE WILL CONTINUE TO PAY THE ANNUAL INCOME AMOUNT);
(IV)OUR RECEIPT OF DUE PROOF OF DEATH OF THE OWNER (OR ANNUITANT FOR IF
ENTITY-OWNED ANNUITIES);
(V)BOTH THE UNADJUSTED ACCOUNT VALUE AND ANNUAL INCOME AMOUNT EQUAL ZERO DUE
TO A WITHDRAWAL OF EXCESS INCOME;
(VI)YOU ALLOCATE OR TRANSFER ANY PORTION OF YOUR ACCOUNT VALUE TO ANY
SUB-ACCOUNT(S) TO WHICH YOU ARE NOT PERMITTED TO ELECTIVELY ALLOCATE OR
TRANSFER ACCOUNT VALUE (MAY VARY BY STATE);* OR
(VII)YOU CEASE TO MEET OUR REQUIREMENTS AS DESCRIBED IN "ELECTION OF AND
DESIGNATIONS UNDER THE BENEFIT" ABOVE.
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Highest Daily Lifetime Income v2.1 with HD DB, other than
upon the death of the Owner or Annuitization, we impose any accrued fee for
the benefit (i.e., the fee for the pro-rated portion of the year since the fee
was last assessed), and thereafter we cease deducting the charge for the
benefit. However, if the amount in the Sub-accounts is not enough to pay the
charge, we will reduce the fee to no more than the amount in the Sub-accounts.
With regard to your investment allocations, upon termination we will:
(i) leave intact amounts that are held in the Permitted Sub-accounts, and
(ii) unless you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
If a surviving spouse elects to continue the Annuity, Highest Daily Lifetime
Income v2.1 with HD DB terminates upon Due Proof of Death. The spouse may
newly elect the benefit subject to the restrictions discussed above.
HOW HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB TRANSFERS ACCOUNT VALUE
BETWEEN YOUR PERMITTED SUB-ACCOUNTS AND THE AST INVESTMENT GRADE BOND
SUB-ACCOUNT
See "How Highest Daily Lifetime Income v2.1 Transfers Account Value Between
Your Permitted Sub-accounts and the AST Investment Grade Bond Sub-account" in
the discussion of Highest Daily Lifetime Income v2.1 above for information
regarding this component of the benefit.
ADDITIONAL TAX CONSIDERATIONS
Please see the Additional Tax Considerations section under Highest Daily
Lifetime Income v2.1 above.
SPOUSAL HIGHEST DAILY LIFETIME INCOME v2.1 WITH HIGHEST DAILY DEATH BENEFIT
Spousal Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit
("HD DB") is a lifetime guaranteed minimum withdrawal benefit, under which,
subject to the terms of the benefit, we guarantee your ability to take a
certain annual withdrawal amount for the lives of two individuals who are
spouses. This benefit also provides for a highest daily death benefit, subject
to the terms of the benefit. This version is only being offered in those
jurisdictions where we have received regulatory approval and will be offered
subsequently in other jurisdictions when we receive regulatory approval in
those jurisdictions. We reserve the right, in our sole discretion, to cease
offering this benefit for new elections at any time.
We offer a benefit that guarantees, until the death of the Remaining
Designated Life (as described below) (the "designated lives", and each, a
"designated life"), the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial principal value (the
"Protected Withdrawal Value") regardless of the impact of Sub-account
performance on the Unadjusted Account Value, subject to our rules regarding
the timing and amount of withdrawals. You are guaranteed to be able to
withdraw the Annual Income Amount for the lives of the designated lives,
provided you have not made withdrawals of Excess Income that result in your
Unadjusted Account Value being reduced to zero. We also permit you to
designate the first withdrawal from your Annuity as a one-time "Non-Lifetime
Withdrawal." All other withdrawals from your Annuity are considered a
"Lifetime Withdrawal" under the benefit. Withdrawals are taken first from your
own Account Value. We are only required to begin making lifetime income
payments to you under our guarantee when and if your Unadjusted Account Value
is reduced to zero (for any reason other than due to partial withdrawals of
Excess Income) ("Guarantee Payments"). The benefit may be appropriate if you
intend to make periodic withdrawals from your Annuity, wish to ensure that
Sub-account performance will not affect your ability
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to receive annual payments, and wish either spouse to be able to continue
Spousal Highest Daily Lifetime Income v2.1 with HD DB after the death of the
first spouse (subject to the provisions below regarding a Remaining Designated
Life), and also want to provide a death benefit. You are not required to make
withdrawals as part of the benefit - the guarantees are not lost if you
withdraw less than the maximum allowable amount each year under the rules of
the benefit.
An integral component of Spousal Highest Daily Lifetime Income v2.1 with HD DB
is the predetermined mathematical formula we employ that may periodically
transfer your Unadjusted Account Value to and from the AST Investment Grade
Bond Sub-account. See the section above entitled "How Highest Daily Lifetime
Income v2.1 Transfers Unadjusted Account Value Between Your Permitted
Sub-accounts and the AST Investment Grade Bond Sub-account."
Spousal Highest Daily Lifetime Income v2.1 with HD DB is the spousal version
of Highest Daily Lifetime Income v2.1 with HD DB. Spousal Highest Daily
Lifetime Income v2.1 is offered with or without the HD DB component; however,
you may only elect HD DB with Spousal Highest Daily Lifetime Income v2.1, and
you must elect the HD DB benefit at the time you elect Spousal Highest Daily
Lifetime Income v2.1. If you elect Spousal Highest Daily Lifetime Income v2.1
without HD DB and would like to add the feature later, you must first
terminate Spousal Highest Daily Lifetime Income v2.1 and elect Spousal Highest
Daily Lifetime Income v2.1 with HD DB (subject to availability and benefit
re-election provisions). Please note that if you terminate Spousal Highest
Daily Lifetime Income v2.1 and elect Spousal Highest Daily Lifetime Income
v2.1 with HD DB you lose the guarantees that you had accumulated under your
existing benefit and will begin the new guarantees under the new benefit you
elect based on your Unadjusted Account Value as of the date the new benefit
becomes active. Spousal Highest Daily Lifetime Income v2.1 with HD DB is
offered as an alternative to other lifetime withdrawal options. Currently, if
you elect Spousal Highest Daily Lifetime Income v2.1 with HD DB and
subsequently terminate the benefit, you may elect another living benefit,
subject to our current rules. See "Election of and Designations under the
Benefit" below and "Termination of Existing Benefits and Election of New
Benefits" for details. Spousal Highest Daily Lifetime Income v2.1 with HD DB
must be elected based on two designated lives, as described below. Each
designated life must be between the ages of 50 and 79 years old when the
benefit is elected. Spousal Highest Daily Lifetime Income v2.1 with HD DB is
not available if you elect any other optional living or death benefit.
As long as your Spousal Highest Daily Lifetime Income v2.1 with HD DB is in
effect, you must allocate your Unadjusted Account Value in accordance with the
permitted Sub-accounts and other Investment Option(s) available with this
benefit. For a more detailed description of the permitted Investment Options,
see the "Investment Options" section.
ALTHOUGH YOU ARE GUARANTEED THE ABILITY TO WITHDRAW YOUR ANNUAL INCOME AMOUNT
FOR LIFE EVEN IF YOUR UNADJUSTED ACCOUNT VALUE FALLS TO ZERO, IF THAT
PARTICULAR WITHDRAWAL OF EXCESS INCOME (DESCRIBED BELOW) BRINGS YOUR
UNADJUSTED ACCOUNT VALUE TO ZERO, YOUR ANNUAL INCOME AMOUNT ALSO WOULD FALL TO
ZERO, AND THE BENEFIT AND THE ANNUITY THEN WOULD TERMINATE. IN THAT SCENARIO,
NO FURTHER AMOUNT WOULD BE PAYABLE UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME
V2.1 WITH HD DB. AS TO THE IMPACT OF SUCH A SCENARIO ON ANY OTHER OPTIONAL
BENEFIT, PLEASE SEE THE FOLLOWING SECTIONS IN THIS PROSPECTUS: "HIGHEST DAILY
LIFETIME INCOME V2.1 BENEFIT", "SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1
BENEFIT" AND "HIGHEST DAILY LIFETIME INCOME V2.1 WITH HIGHEST DAILY DEATH
BENEFIT".
You may also participate in the 6 or 12 Month Dollar Cost Averaging Program if
you elect Spousal Highest Daily Lifetime Income v2.1 with HD DB, subject to
the 6 or 12 Month DCA Program's rules. See the section of this prospectus
entitled "6 or 12 Month Dollar Cost Averaging Program" for details.
KEY FEATURE - PROTECTED WITHDRAWAL VALUE
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraph.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value on or before the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment made on the Current
Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
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The Periodic Value after the Roll-Up End Date
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments and reduced for subsequent Lifetime Withdrawals (see the
examples that begin immediately prior to the sub-heading below entitled
"Example of dollar-for-dollar reductions").
PLEASE NOTE THAT IF YOU ELECT SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 WITH
HD DB, YOUR ACCOUNT VALUE IS NOT GUARANTEED, CAN FLUCTUATE AND MAY LOSE VALUE.
KEY FEATURE - ANNUAL INCOME AMOUNT UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME
V2.1 WITH HD DB
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the younger spousal designated life on the date of the first
Lifetime Withdrawal after election of the benefit. The percentages are: 2.5%
for ages 50 to 54; 3% for ages 55 to less than 591/2; 3.5% for ages 591/2 to
64; 4% for ages 65 to 69; 4.5% for ages 70 to 84; and 5.5% for ages 85 and
older. We use the age of the younger designated life. If you elected this
benefit and one of the Spousal Designated Lives becomes the Remaining
Designated Life, we will continue to use the age of the younger of both the
original Spousal Designated Lives for purposes of calculating the applicable
Annual Income percentage. Under Spousal Highest Daily Lifetime Income v2.1
with HD DB, if your cumulative Lifetime Withdrawals in an Annuity Year are
less than or equal to the Annual Income Amount, they will not reduce your
Annual Income Amount in subsequent Annuity Years, but any such withdrawals
will reduce the Annual Income Amount on a dollar-for-dollar basis in that
Annuity Year and also will reduce the Protected Withdrawal Value on a
dollar-for-dollar basis. If your cumulative Lifetime Withdrawals in an Annuity
Year are in excess of the Annual Income Amount for any Annuity Year ("Excess
Income"), your Annual Income Amount in subsequent years will be reduced
(except with regard to Required Minimum Distributions for this Annuity that
comply with our rules) by the result of the ratio of the Excess Income to the
Unadjusted Account Value immediately prior to such withdrawal (see examples of
this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
AS DISCUSSED IN THIS PARAGRAPH, WHEN YOU MAKE A PARTIAL WITHDRAWAL THAT IS
SUBJECT TO TAX WITHHOLDING, WE WILL IDENTIFY THE AMOUNT THAT INCLUDES NOT ONLY
THE AMOUNT YOU ACTUALLY RECEIVE, BUT ALSO THE AMOUNT OF THE TAX WITHHOLDING,
TO DETERMINE WHETHER YOUR WITHDRAWAL HAS EXCEEDED THE ANNUAL INCOME AMOUNT.
WHEN YOU TAKE A PARTIAL WITHDRAWAL, YOU MAY REQUEST A "GROSS" WITHDRAWAL
AMOUNT (E.G., $2,000) BUT THEN HAVE ANY TAX WITHHOLDING DEDUCTED FROM THE
AMOUNT YOU ACTUALLY RECEIVE (ALTHOUGH AN MVA MAY ALSO BE APPLIED TO YOUR
REMAINING UNADJUSTED ACCOUNT VALUE, IT IS NOT CONSIDERED FOR PURPOSES OF
DETERMINING EXCESS INCOME). THE PORTION OF A WITHDRAWAL THAT EXCEEDED YOUR
ANNUAL INCOME AMOUNT (IF ANY) WOULD BE TREATED AS EXCESS INCOME AND THUS WOULD
REDUCE YOUR ANNUAL INCOME AMOUNT IN SUBSEQUENT YEARS. ALTERNATIVELY, YOU MAY
REQUEST THAT A "NET" WITHDRAWAL AMOUNT ACTUALLY BE PAID TO YOU (E.G., $2,000),
WITH THE UNDERSTANDING THAT ANY TAX WITHHOLDING (E.G., $240) BE APPLIED TO
YOUR REMAINING UNADJUSTED ACCOUNT VALUE (ALTHOUGH AN MVA MAY ALSO BE APPLIED
TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE, IT IS NOT CONSIDERED FOR PURPOSES
OF DETERMINING EXCESS INCOME). IN THE LATTER SCENARIO, WE DETERMINE WHETHER
ANY PORTION OF THE WITHDRAWAL IS TO BE TREATED AS EXCESS INCOME BY LOOKING TO
THE SUM OF THE NET AMOUNT YOU ACTUALLY RECEIVE (E.G., $2,000) AND THE AMOUNT
OF ANY TAX WITHHOLDING (IN THIS EXAMPLE, A TOTAL OF $2,240). THE AMOUNT OF
THAT SUM (E.G., THE $2,000 YOU RECEIVED PLUS THE $240 FOR THE TAX WITHHOLDING)
THAT EXCEEDS YOUR ANNUAL INCOME AMOUNT WILL BE TREATED AS EXCESS INCOME -
THEREBY REDUCING YOUR ANNUAL INCOME AMOUNT IN SUBSEQUENT YEARS.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Spousal
Highest Daily Lifetime Income v2.1 with HD DB and subsequent to the first
Lifetime Withdrawal will (i) immediately increase the then-existing Annual
Income Amount by an amount equal to a percentage of the Purchase Payment based
on the age of the younger designated life at the time of the first Lifetime
Withdrawal (the percentages are: 2.5% for ages 50 to 54; 3% for ages 55 to
less than 591/2; 3.5% for ages 591/2 to 64; 4% for ages 65 to 69; 4.5% for
ages 70 to 84; and 5.5% for ages 85 and older), and (ii) increase the
Protected Withdrawal Value by the amount of the Purchase Payment.
After your first Lifetime Withdrawal and before your Unadjusted Account Value
is reduced to zero, you may make additional Purchase Payments, subject to the
limits in the next paragraph. We reserve the right not to accept additional
Purchase Payments if the Unadjusted Account Value becomes zero.
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While Spousal Highest Daily Lifetime Income v2.1 with HD DB is in effect, we
may limit, restrict, suspend or reject any additional Purchase Payment at any
time, but would do so on a non-discriminatory basis. Circumstances where we
may limit, restrict, suspend or reject additional Purchase Payments include,
but are not limited to, the following:
.. if we determine that, as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Spousal Highest Daily Lifetime Income v2.1 with HD DB. This means
that you may no longer be able to increase the values associated with your
Spousal Highest Daily Lifetime Income v2.1 with HD DB through additional
Purchase Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity, in a non-discriminatory manner.
HIGHEST DAILY AUTO STEP-UP
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of this
benefit. As detailed in this paragraph, the Highest Daily Auto Step-Up feature
can result in a larger Annual Income Amount subsequent to your first Lifetime
Withdrawal. The Highest Daily Step-Up starts with the anniversary of the Issue
Date of the Annuity (the "Annuity Anniversary") immediately after your first
Lifetime Withdrawal under the benefit. Specifically, upon the first such
Annuity Anniversary, we identify the Unadjusted Account Value on each
Valuation Day within the immediately preceding Annuity Year after your first
Lifetime Withdrawal. Having identified the highest daily value (after all
daily values have been adjusted for subsequent Purchase Payments and
withdrawals), we then multiply that value by a percentage that varies based on
the age of the younger spousal designated life on the Annuity Anniversary as
of which the step-up would occur. The percentages are 2.5% for ages 50 to 54;
3% for ages 55 to less than 591/2; 3.5% for ages 591/2 to 64; 4% for ages 65
to 69; 4.5% for ages 70 to 84; and 5.5% for ages 85 or older. If that value
exceeds the existing Annual Income Amount, we replace the existing amount with
the new, higher amount. Otherwise, we leave the existing Annual Income Amount
intact. We will not automatically increase your Annual Income Amount solely as
a result of your attaining a new age that is associated with a new age-based
percentage. The Unadjusted Account Value on the Annuity Anniversary is
considered the last daily step-up value of the Annuity Year. In later years
(i.e., after the first Annuity Anniversary after the first Lifetime
Withdrawal), we determine whether an automatic step-up should occur on each
Annuity Anniversary by performing a similar examination of the Unadjusted
Account Values that occurred on Valuation Days during the year. Taking
Lifetime Withdrawals could produce a greater difference between your Protected
Withdrawal Value and your Unadjusted Account Value, which may make a Highest
Daily Auto Step-up less likely to occur. At the time that we increase your
Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the date that we implement a Highest Daily Auto Step-Up to your Annual
Income Amount, the charge for Spousal Highest Daily Lifetime Income v2.1 with
HD DB has changed for new purchasers, you may be subject to the new charge at
the time of such step-up. Prior to increasing your charge for Spousal Highest
Daily Lifetime Income v2.1 with HD DB upon a step-up, we would notify you, and
give you the opportunity to cancel the automatic step-up feature. If you
receive notice of a proposed step-up and accompanying fee increase, you should
carefully evaluate whether the amount of the step-up justifies the increased
fee to which you will be subject. Any such increased charge will not be
greater than the maximum charge set forth in the table entitled "Your Optional
Benefit Fees and Charges".
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Spousal Highest Daily Lifetime Income v2.1 with HD DB does not affect your
ability to take withdrawals under your Annuity, or limit your ability to take
partial withdrawals that exceed the Annual Income Amount. Under Spousal
Highest Daily Lifetime Income v2.1 with HD DB, if your cumulative Lifetime
Withdrawals in an Annuity Year are less than or equal to the Annual Income
Amount, they will not reduce your Annual Income Amount in subsequent Annuity
Years, but any such withdrawals will reduce the Annual Income Amount on a
dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw
an amount less than the Annual Income Amount in any Annuity Year, you cannot
carry over the unused portion of the Annual Income Amount to subsequent
Annuity Years. If your cumulative Lifetime Withdrawals in an Annuity Year
exceed the Annual Income Amount, your Annual Income Amount in subsequent years
will be reduced (except with regard to Required Minimum Distributions for this
Annuity that comply with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
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Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Spousal Highest Daily
Lifetime Income v2.1 with HD DB or any other fees and charges under the
Annuity. Assume the following for all three examples:
.. The Issue Date is November 1
.. Spousal Highest Daily Lifetime Income v2.1 with HD DB is elected on
August 1 of the following calendar year
.. Both designated lives were 70 years old when they elected Spousal Highest
Daily Lifetime Income v2.1 with HD DB
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and if is assumed that they fall
on consecutive business days.
EXAMPLE OF DOLLAR-FOR-DOLLAR REDUCTIONS
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $5,400 (since the younger designated life is between
the ages of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual
Income Amount is 4.5% of the Protected Withdrawal Value, in this case 4.5% of
$120,000). The Highest Daily Death Benefit Amount is $115,420. Assuming $2,500
is withdrawn from the Annuity on this date, the remaining Annual Income Amount
for that Annuity Year (up to and including October 31) is $2,900. This is the
result of a dollar-for-dollar reduction of the Annual Income Amount ($5,400
less $2,500 = $2,900) and the Highest Daily Death Benefit Amount ($115,420
less $2,500 = $112,920.).
EXAMPLE OF PROPORTIONAL REDUCTIONS
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $2,900 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $2,100 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there were other
withdrawals in that Annuity Year, each would result in another proportional
reduction to the Annual Income Amount.)
HERE IS THE CALCULATION:
EXAMPLE OF HIGHEST DAILY AUTO STEP-UP
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
younger designated life's age on that Annuity Anniversary) of the highest
daily value since your first Lifetime Withdrawal (or last Annuity Anniversary
in subsequent years), adjusted for withdrawals and additional Purchase
Payments, is greater than the Annual Income Amount, adjusted for Excess Income
and additional Purchase Payments.
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $5,400. However, the Excess Income on October 29 reduces the
amount to $5,301.72 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 4.5% (since the younger
designated life is between 70 and 84 on the date of the potential step-up) of
the highest daily Unadjusted Account Value adjusted for withdrawals and
Purchase Payments, is greater than $5,301.72. Here are the calculations for
determining the daily values. Only the October 28 value is being adjusted for
Excess Income as the October 30, October 31 and November 1 Valuation Days
occur after the Excess Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be every day following the Annuity
Anniversary. The Annuity Anniversary Date of November 1 is considered the
final Valuation Date for the Annuity Year.
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** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,355.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $2,900 ($2,900 is the remaining Annual Income
Amount for the Annuity Year), resulting in an Unadjusted Account Value
of $116,100 before the Excess Income.
. This amount ($116,100) is further reduced by 1.82% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.98.
. The adjusted October 29 Highest Daily Value, $113,986.98, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.98 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.98 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.98
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 4.5%, generating
an Annual Income Amount of $5,355.00. Since this amount is greater than the
current year's Annual Income Amount of $5,301.72 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,355.00.
NON-LIFETIME WITHDRAWAL FEATURE
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Spousal Highest Daily Lifetime Income v2.1 with HD DB. It is an optional
feature of the benefit that you can only elect at the time of your first
withdrawal. You cannot take a Non-Lifetime Withdrawal in an amount that would
cause your Annuity's Account Value, after taking the withdrawal, to fall below
the minimum Surrender Value (see "Surrenders - Surrender Value"). This
Non-Lifetime Withdrawal will not establish your initial Annual Income Amount
and the Periodic Value above will continue to be calculated. However, the
total amount of the withdrawal will proportionally reduce all guarantees
associated with Spousal Highest Daily Lifetime Income v2.1 with HD DB. You
must tell us at the time you take the partial withdrawal if your withdrawal is
intended to be the Non-Lifetime Withdrawal and not the first Lifetime
Withdrawal under Spousal Highest Daily Lifetime Income v2.1 with HD DB. If you
don't elect the Non-Lifetime Withdrawal, the first withdrawal you make will be
the first Lifetime Withdrawal that establishes your Annual Income Amount,
which is based on your Protected Withdrawal Value. Once you elect the
Non-Lifetime Withdrawal or Lifetime Withdrawals, no additional Non-Lifetime
withdrawals may be taken. If you do not take a Non-Lifetime Withdrawal before
beginning Lifetime Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value. It will also proportionally reduce the Highest Daily Death
Benefit Amount. It will reduce each value by the percentage the total
withdrawal amount represents of the then current Account Value immediately
prior to the time of the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
EXAMPLE - NON-LIFETIME WITHDRAWAL (PROPORTIONAL REDUCTION)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit. Assume the following:
.. The Issue Date is December 3
.. Spousal Highest Daily Lifetime Income v2.1 with HD DB is elected on
September 4 of the following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. Each designated life was 70 years old when he/she elected Spousal Highest
Daily Lifetime Income v2.1 with HD DB
.. No previous withdrawals have been taken under Spousal Highest Daily
Lifetime Income v2.1 with HD DB
On October 3 of the same year the benefit is elected, the Protected Withdrawal
Value is $125,000, the Highest Daily Death Benefit Amount is $115,420, and the
Account Value is $120,000. Assuming $15,000 is withdrawn from the Annuity on
that same October 3 and is designated as a Non-Lifetime Withdrawal, all
guarantees associated with Spousal Highest Daily Lifetime Income v2.1 with HD
DB will be reduced by the ratio the total withdrawal amount represents of the
Account Value just prior to the withdrawal being taken.
HERE IS THE CALCULATION:
REQUIRED MINIMUM DISTRIBUTIONS
See the sub-section entitled "Required Minimum Distributions" in the
prospectus section above concerning Highest Daily Lifetime Income v2.1 with HD
DB for a discussion of the relationship between the RMD amount and the Annual
Income Amount.
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HIGHEST DAILY DEATH BENEFIT
A Death Benefit is payable under Spousal Highest Daily Lifetime Income v2.1
with HD DB (until we begin making Guarantee Payments under the benefit or
annuity payments have begun) upon the death of the Remaining Designated Life
when we receive Due Proof of Death. The Death Benefit is the greatest of: the
Minimum Death Benefit (described later in this prospectus) or the Highest
Daily Death Benefit Amount described below.
Highest Daily Death Benefit Amount:
On the date you elect Spousal Highest Daily Lifetime Income v2.1 with HD DB,
the Highest Daily Death Benefit Amount is equal to your Unadjusted Account
Value. On each subsequent Valuation Day, until the date of death of the
decedent, the Highest Daily Death Benefit Amount will be the greater of:
(1)The Unadjusted Account Value on the current Valuation Day; and
(2)The Highest Daily Death Benefit Amount of the immediately preceding
Valuation Day,
. increased by any Purchase Payments made on the current Valuation Day and,
. reduced by the effect of withdrawals made on the current Valuation Day,
as described below.
Please note that the Highest Daily Death Benefit Amount does not have any
guaranteed growth rate associated with it and therefore can be a different
amount than any of the guaranteed values associated with the living benefit
features of Spousal Highest Daily Lifetime Income v2.1 with HD DB.
A Non-Lifetime Withdrawal will proportionately reduce the Highest Daily Death
Benefit Amount by the ratio of the Non-Lifetime Withdrawal to the Account
Value immediately prior to the Non-Lifetime Withdrawal. A Lifetime Withdrawal
that is not considered Excess Income will reduce the Highest Daily Death
Benefit Amount (dollar-for-dollar) by the amount of the withdrawal. All or a
portion of a Lifetime Withdrawal that is considered Excess Income will
proportionately reduce the Highest Daily Death Benefit Amount by the ratio of
the Excess Income to the Account Value immediately prior to the withdrawal of
the Excess Income.
The Highest Daily Death Benefit will be calculated on the date of death of the
Remaining Designated Life and will be:
. increased by the amount of any additional Adjusted Purchase Payments, and
. reduced by the effect of any withdrawals (as described in the preceding
paragraph),
made during the period between the decedent's date of death and the date we
receive Due Proof of Death.
PLEASE NOTE THAT HIGHEST DAILY DEATH BENEFIT AMOUNT IS AVAILABLE ONLY UNTIL WE
MAKE GUARANTEE PAYMENTS UNDER SPOUSAL HIGHEST LIFETIME INCOME V2.1 WITH HD DB
OR ANNUITY PAYMENTS BEGIN. THIS MEANS THAT ANY WITHDRAWALS THAT REDUCE YOUR
UNADJUSTED ACCOUNT VALUE TO ZERO WILL ALSO REDUCE THE HIGHEST DAILY DEATH
BENEFIT AMOUNT TO ZERO.
ALL OTHER PROVISIONS APPLICABLE TO DEATH BENEFITS UNDER YOUR ANNUITY CONTINUE
TO APPLY. SEE THE "DEATH BENEFITS" SECTION OF THIS PROSPECTUS FOR MORE
INFORMATION PERTAINING TO DEATH BENEFITS.
BENEFITS UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and Guarantee Payments amounts
are still payable under Spousal Highest Daily Lifetime Income v2.1 with HD
DB, we will make an additional payment, if any, for that Annuity Year equal
to the remaining Annual Income Amount for the Annuity Year. Thus, in that
scenario, the remaining Annual Income Amount would be payable even though
your Unadjusted Account Value was reduced to zero. In subsequent Annuity
Years we make payments that equal the Annual Income Amount as described in
this section. We will continue to make payments until the simultaneous
deaths of both spousal designated lives, or the death of the Remaining
Designated Life. After the Unadjusted Account Value is reduced to zero, you
are not permitted to make additional Purchase Payments to your Annuity. TO
THE EXTENT THAT CUMULATIVE WITHDRAWALS IN THE ANNUITY YEAR THAT REDUCED
YOUR UNADJUSTED ACCOUNT VALUE TO ZERO ARE MORE THAN THE ANNUAL INCOME
AMOUNT, SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB TERMINATES,
AND NO ADDITIONAL PAYMENTS WILL BE PERMITTED.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments.
.. Please note that if your Unadjusted Account Value is reduced to zero due to
withdrawals or annuitization, any Death Benefit value, including that of
the HD DB feature, will terminate. This means that the HD DB is terminated
and no Death Benefit is payable if your Unadjusted Account Value is reduced
to zero as the result of either a withdrawal in excess of your Annual
Income Amount or less than or equal to, your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable state required
premium tax, to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. We will
make payments until the death of the Remaining Designated Life We must
receive your request
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in a form acceptable to us at our office. If applying your Unadjusted
Account Value, less any applicable tax charges, to our current life only
(or joint life, depending on the number of designated lives remaining)
annuity payment rates results in a higher annual payment, we will give
you the higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin,
we currently make annual annuity payments as a joint and survivor or single
(as applicable) life fixed annuity with eight payments certain, by applying
the greater of the annuity rates then currently available or the annuity
rates guaranteed in your Annuity. We reserve the right at any time to
increase or decrease the certain period in order to comply with the Code
(e.g., to shorten the period certain to match life expectancy under
applicable Internal Revenue Service tables). The amount that will be
applied to provide such annuity payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual Income
Amount as if you made your first Lifetime Withdrawal on the date the
annuity payments are to begin). Such present value will be calculated
using the greater of the joint and survivor or single (as applicable)
life fixed annuity rates then currently available or the joint and
survivor or single (as applicable) life fixed annuity rates guaranteed
in your Annuity; and
(2)the Unadjusted Account Value.
OTHER IMPORTANT CONSIDERATIONS
.. Withdrawals under the Spousal Highest Daily Lifetime Income v2.1 with HD DB
benefit are subject to all of the terms and conditions of the Annuity. If
you have an active Systematic Withdrawal program running at the time you
elect this benefit, the first systematic withdrawal that processes after
your election of the benefit will be deemed a Lifetime Withdrawal.
Withdrawals made while Spousal Highest Daily Lifetime Income v2.1 with HD
DB is in effect will be treated, for tax purposes, in the same way as any
other withdrawals under the Annuity. Any withdrawals made under the benefit
will be taken pro rata from the Sub-accounts (including the AST Investment
Grade Bond Sub-account) and the DCA MVA Options. If you have an active
Systematic Withdrawal program running at the time you elect this benefit,
the program must withdraw funds pro rata.
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolios appears in the prospectus
section entitled "Investment Options." In addition, you can find a copy of
the AST Investment Grade Bond Portfolio prospectus by going to
www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the predetermined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to Permitted Sub-accounts, or to
the requirements as to how you may allocate your Unadjusted Account Value
with this benefit, will apply to new elections of the benefit and may apply
to current participants in the benefit. To the extent that changes apply to
current participants in the benefit, they will apply only upon
re-allocation of Unadjusted Account Value, or upon addition of additional
Purchase Payments. That is, we will not require such current participants
to re-allocate Unadjusted Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Spousal Highest
Daily Lifetime Income v2.1 with HD DB reduce your Unadjusted Account Value
to zero. This means that any Death Benefit, including the HD DB, will
terminate and no Death Benefit is payable if your Unadjusted Account Value
is reduced to zero as the result of either a withdrawal in excess of your
Annual Income Amount or less than or equal to, your Annual Income Amount.
(See "Death Benefits" for more information.)
.. Spousal Continuation: If a Death Benefit is not payable on the death of a
spousal designated life (e.g., if the first of the spousal designated lives
to die is the Beneficiary but not an Owner), Spousal Highest Daily Lifetime
Income v2.1 with HD DB will remain in force unless we are instructed
otherwise.
.. The current charge for Spousal Highest Daily Lifetime Income v2.1 with HD
DB is 1.60% annually of the greater of Unadjusted Account Value and
Protected Withdrawal Value. The maximum charge for Spousal Highest Daily
Lifetime Income v2.1 with HD DB is 2.00% annually of the greater of the
Unadjusted Account Value and Protected Withdrawal Value. As discussed in
"Highest Daily Auto Step-Up" above, we may increase the fee upon a step-up
under this benefit. We deduct this
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charge on quarterly anniversaries of the benefit effective date, based on
the values on the last Valuation Day prior to the quarterly anniversary.
Thus, we deduct, on a quarterly basis, 0.40% of the greater of the prior
Valuation Day's Unadjusted Account Value, or the prior Valuation Day's
Protected Withdrawal Value. We deduct the fee pro rata from each of your
Sub-accounts, including the AST Investment Grade Bond Sub-account. You will
begin paying this charge as of the effective date of the benefit even if
you do not begin taking withdrawals for many years, or ever. We will not
refund the charges you have paid if you choose never to take any
withdrawals and/or if you never receive any lifetime income payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the benefit is less than the
Account Value Floor, then no charge will be assessed for that benefit quarter.
Charges deducted upon termination of the benefit may cause the Unadjusted
Account Value to fall below the Account Value Floor. If a charge for Spousal
Highest Daily Lifetime Income v2.1 with HD DB would be deducted on the same
day we process a withdrawal request, the charge will be deducted first, then
the withdrawal will be processed. The withdrawal could cause the Unadjusted
Account Value to fall below the Account Value Floor. While the deduction of
the charge (other than the final charge) may not reduce the Unadjusted Account
Value to zero, withdrawals may reduce the Unadjusted Account Value to zero. If
this happens and the Annual Income Amount is greater than zero, we will make
payments under the benefit.
ELECTION OF AND DESIGNATIONS UNDER THE BENEFIT
Spousal Highest Daily Lifetime Income v2.1 with HD DB can only be elected
based on two designated lives. Designated lives must be natural persons who
are each other's spouses at the time of election of the benefit. Currently,
Spousal Highest Daily Lifetime Income v2.1 with HD DB only may be elected if
the Owner, Annuitant, and Beneficiary designations are as follows:
.. One Annuity Owner, where the Annuitant and the Owner are the same person
and the sole Beneficiary is the Owner's spouse. Each Owner/Annuitant and
the Beneficiary must be between 50-79 years old at the time of election; or
.. Co-Annuity Owners, where the Owners are each other's spouses. The
Beneficiary designation must be the surviving spouse, or the spouses named
equally. One of the Owners must be the Annuitant. Each Owner must be
between 50 and 79 years old at the time of election; or
.. One Annuity Owner, where the Owner is a custodial account established to
hold retirement assets for the benefit of the Annuitant pursuant to the
provisions of Section 408(a) of the Internal Revenue Code (or any successor
Code section thereto) ("Custodial Account"), the Beneficiary is the
Custodial Account, and the spouse of the Annuitant is the Contingent
Annuitant. Each of the Annuitant and the Contingent Annuitant must be
between 50 and 79 years old at the time of election.
Remaining Designated Life: A Remaining Designated Life must be a natural
person and must have been listed as one of the spousal designated lives when
the benefit was elected. A spousal designated life will become the Remaining
Designated Life on the earlier of the death of the first of the spousal
designated lives to die, provided that they are each other's spouses at that
time, or divorce from the other spousal designated life while the benefit is
in effect. That said, if a spousal designated life is removed as Owner,
Beneficiary, or Annuitant due to divorce, the other spousal designated life
becomes the Remaining Designated Life when we receive notice of the divorce,
and any other documentation we require, in Good Order. Any new
Beneficiary(ies) named by the Remaining Designated Life will not be a spousal
designated life.
We do not permit a change of Owner under this benefit, except as follows:
(a) if one Owner dies and the surviving spousal Owner assumes the Annuity, or
(b) if the Annuity initially is co-owned, but thereafter the Owner who is not
the Annuitant is removed as Owner. We permit changes of Beneficiary
designations under this benefit, however if the Beneficiary is changed, the
benefit may not be eligible to be continued upon the death of the first
designated life. If the designated lives divorce, Spousal Highest Daily
Lifetime Income v2.1 with HD DB may not be divided as part of the divorce
settlement or judgment. Nor may the divorcing spouse who retains ownership of
the Annuity appoint a new designated life upon re-marriage. A change in
designated lives will result in cancellation of Spousal Highest Daily Lifetime
Income v2.1 with HD DB.
Spousal Highest Daily Lifetime Income v2.1 with HD DB can be elected at the
time that you purchase your Annuity or after the Issue Date, subject to its
availability, and our eligibility rules and restrictions. If you elect Spousal
Highest Daily Lifetime Income v2.1 with HD DB and terminate it, you can
re-elect it, subject to our current rules and availability. See "Termination
of Existing Benefits and Election of New Benefits" for information pertaining
to elections, termination and re-election of benefits. PLEASE NOTE THAT IF YOU
TERMINATE A LIVING BENEFIT AND ELECT SPOUSAL HIGHEST DAILY LIFETIME INCOME
V2.1 WITH HD DB, YOU LOSE THE GUARANTEES THAT YOU HAD ACCUMULATED UNDER YOUR
EXISTING BENEFIT, AND YOUR GUARANTEES UNDER SPOUSAL HIGHEST DAILY LIFETIME
INCOME V2.1 WITH HD DB WILL BE BASED ON YOUR UNADJUSTED ACCOUNT VALUE ON THE
EFFECTIVE DATE OF SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB. You
and your Financial Professional should carefully consider whether terminating
your existing benefit and electing Spousal Highest Daily Lifetime Income v2.1
with HD DB is appropriate for you. We reserve the right to waive, change
and/or further limit the election frequency in the future for new elections of
this benefit.
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If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Spousal Highest Daily Lifetime Income v2.1 so long as you
participate in a Systematic Withdrawal program in which withdrawals are not
taken pro rata.
TERMINATION OF THE BENEFIT
You may terminate the benefit at any time by notifying us. If you terminate
the benefit, any guarantee provided by the benefit will terminate as of the
date the termination is effective, and certain restrictions on re-election may
apply.
THE BENEFIT AUTOMATICALLY TERMINATES UPON THE FIRST TO OCCUR OF THE FOLLOWING:
(I) UPON OUR RECEIPT OF DUE PROOF OF DEATH OF THE FIRST DESIGNATED LIFE WHO IS
AN OWNER (OR WHO IS THE ANNUITANT IF ENTITY OWNED), IF THE REMAINING
DESIGNATED LIFE ELECTS NOT TO CONTINUE THE ANNUITY;
(II)UPON OUR RECEIPT OF DUE PROOF OF DEATH OF AN OWNER (OR ANNUITANT IF ENTITY
OWNED) IF THE SURVIVING SPOUSE IS NOT ELIGIBLE TO CONTINUE THE BENEFIT
BECAUSE SUCH SPOUSE IS NOT A SPOUSAL DESIGNATED LIFE AND THERE IS ANY
UNADJUSTED ACCOUNT VALUE ON THE DATE OF DEATH;
(III)UPON OUR RECEIPT OF DUE PROOF OF DEATH OF THE REMAINING DESIGNATED LIFE IF
A DEATH BENEFIT IS PAYABLE UNDER THIS BENEFIT;
(IV)YOUR TERMINATION OF THE BENEFIT;
(V) YOUR SURRENDER OF THE ANNUITY;
(VI)WHEN ANNUITY PAYMENTS BEGIN (ALTHOUGH IF YOU HAVE ELECTED TO TAKE ANNUITY
PAYMENTS IN THE FORM OF THE ANNUAL INCOME AMOUNT, WE WILL CONTINUE TO PAY
THE ANNUAL INCOME AMOUNT);
(VII)BOTH THE UNADJUSTED ACCOUNT VALUE AND ANNUAL INCOME AMOUNT EQUAL ZERO DUE
TO A WITHDRAWAL OF EXCESS INCOME;
(VIII)YOU ALLOCATE OR TRANSFER ANY PORTION OF YOUR ACCOUNT VALUE TO ANY
SUB-ACCOUNT(S) TO WHICH YOU ARE NOT PERMITTED TO ELECTIVELY ALLOCATE OR
TRANSFER ACCOUNT VALUE (MAY VARY BY STATE);* OR
(IX)YOU CEASE TO MEET OUR REQUIREMENTS AS DESCRIBED IN "ELECTION OF AND
DESIGNATIONS UNDER THE BENEFIT".
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us; (b)
all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Spousal Highest Daily Lifetime Income v2.1 with HD DB
other than upon the death of the Remaining Designated Life or Annuitization,
we impose any accrued fee for the benefit (i.e., the fee for the pro-rated
portion of the year since the fee was last assessed), and thereafter we cease
deducting the charge for the benefit. This final charge will be deducted even
if it results in the Unadjusted Account Value falling below the Account Value
Floor. However, if the amount in the Sub-accounts is not enough to pay the
charge, we will reduce the fee to no more than the amount in the Sub-accounts.
With regard to your investment allocations, upon termination we will:
(i) leave intact amounts that are held in the Permitted Sub-accounts, and
(ii) unless you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
HOW SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB TRANSFERS UNADJUSTED
ACCOUNT VALUE BETWEEN YOUR PERMITTED SUB-ACCOUNTS AND THE AST INVESTMENT GRADE
BOND SUB-ACCOUNT
See "How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account" in the discussion of Highest Daily Lifetime Income v2.1 above for
information regarding this component of the benefit.
ADDITIONAL TAX CONSIDERATIONS
Please see the Additional Tax Considerations section under Highest Daily
Lifetime Income v2.1 above.
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DEATH BENEFITS
TRIGGERS FOR PAYMENT OF THE DEATH BENEFIT
The Annuity provides a Death Benefit prior to Annuitization. If the Annuity is
owned by one or more natural persons, the Death Benefit is payable upon the
death of the Owner (or the first to die, if there are multiple Owners). If an
Annuity is owned by an entity, the Death Benefit is payable upon the
Annuitant's death if there is no Contingent Annuitant. Generally, if a
Contingent Annuitant was designated before the Annuitant's death and the
Annuitant dies, then the Contingent Annuitant becomes the Annuitant and a
Death Benefit will not be paid upon the Annuitant's death. The person upon
whose death the Death Benefit is paid is referred to below as the "decedent."
Where an Annuity is structured so that it is owned by a grantor trust but the
Annuitant is not the grantor, then the Annuity 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 Surrender Value will
be paid out to the trust and there is no Death Benefit provided under the
Annuity.
We determine the amount of the Death Benefit as of the date we receive "Due
Proof of Death". Due Proof of Death can be met only if each of the following
is submitted to us in Good Order: (a) a death certificate or similar
documentation acceptable to us (b) all representations we require or which are
mandated by applicable law or regulation in relation to the death claim and
the payment of death proceeds and (c) any applicable election of the method of
payment of the death benefit by at least one Beneficiary (if not previously
elected by the Owner). We must be made aware of the entire universe of
eligible Beneficiaries in order for us to have received Due Proof of Death.
Any given Beneficiary must submit the written information we require in order
to be paid his/her share of the Death Benefit.
Once we have received Due Proof of Death, each eligible Beneficiary may take
his/her portion of the Death Benefit in one of the forms described in this
prospectus (e.g., distribution of the entire interest in the Annuity within 5
years after the date of death, or as periodic payments over a period not
extending beyond the life or life expectancy of the Beneficiary - see "Payment
of Death Benefits" below).
After our receipt of Due Proof of Death, we automatically transfer any
remaining Death Benefit to the AST Money Market Sub-account. However, between
the date of death and the date that we transfer any remaining Death Benefit to
the AST Money Market Sub-account, the amount of the Death Benefit is subject
to market fluctuations.
No Death Benefit will be payable if the Annuity terminates because your
Unadjusted Account Value reaches zero (which can happen if, for example, you
are taking withdrawals under an optional living benefit).
EXCEPTIONS TO AMOUNT OF DEATH BENEFIT
There are certain exceptions to the amount of the Death Benefit:
SUBMISSION OF DUE PROOF OF DEATH WITHIN ONE YEAR. If we receive Due Proof of
Death more than one year after the date of death, we reserve the right to
limit the Death Benefit to the Unadjusted Account Value on the date we receive
Due Proof of Death (i.e., we would not pay the basic Death Benefit or any
Optional Death Benefit).
DEATH BENEFIT SUSPENSION PERIOD. You also should be aware that there is a
Death Benefit suspension period. If the decedent was not the Owner or
Annuitant as of the Issue Date (or within 60 days thereafter), any Death
Benefit (including the Minimum Death Benefit, any optional Death Benefit and
Highest Daily Lifetime Income v2.1 with HD DB and Spousal Highest Daily
Lifetime Income v2.1 with HD DB) that applies will be suspended for a two year
period starting from the date that person first became Owner or Annuitant.
This suspension would not apply if the ownership or annuitant change was the
result of Spousal Continuation or death of the prior Owner or Annuitant. While
the two year suspension is in effect, the Death Benefit amount will equal the
Unadjusted Account Value. Thus, if you had elected Highest Daily Lifetime
Income v2.1 with HD DB or Spousal Highest Daily Lifetime Income v2.1 with HD
DB, and the suspension were in effect, you would be paying the fee for the
Optional Death Benefit, Highest Daily Lifetime Income v2.1 with HD DB or
Spousal Highest Daily Lifetime Income v2.1 with HD DB even though during the
suspension period your Death Benefit would be limited to the Unadjusted
Account Value. After the two-year suspension period is completed the Death
Benefit is the same as if the suspension period had not been in force. See the
section of the prospectus above generally with regard to changes of Owner or
Annuitant that are allowable.
With respect to a Beneficiary Annuity, the Death Benefit is triggered by the
death of the beneficial Owner (or the Key Life, if entity-owned). However, if
the Annuity is held as a Beneficiary Annuity, the Owner is an entity, and the
Key Life is already deceased, then no Death Benefit is payable upon the death
of the beneficial Owner.
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MINIMUM DEATH BENEFIT
The Annuity provides a minimum Death Benefit at no additional charge. The
amount of the minimum Death Benefit is equal to the greater of:
. The sum of all Purchase Payments you have made since the Issue Date of
the Annuity until the date of Due Proof of Death, reduced proportionally
by the ratio of the amount of any withdrawal to the Account Value
immediately prior to the withdrawal; AND
. Your Unadjusted Account Value on the date we receive Due Proof of Death.
SPOUSAL CONTINUATION OF ANNUITY
Unless you designate a Beneficiary other than your spouse, upon the death of
either spousal Owner, the surviving spouse may elect to continue ownership of
the Annuity instead of taking the Death Benefit payment. The Unadjusted
Account Value as of the date of Due Proof of Death will be equal to the Death
Benefit that would have been payable. Any amount added to the Unadjusted
Account Value will be allocated to the Sub-accounts (if you participate in an
optional living benefit, such amount will not be directly added to any bond
portfolio Sub-account used by the benefit, but may be reallocated by the
pre-determined mathematical formula on the same day).
Subsequent to spousal continuation, the minimum Death Benefit will be equal to
the greater of:
. The Unadjusted Account Value on the effective date of the spousal
continuance, plus all Purchase Payments you have made since the spousal
continuance until the date of Due Proof of Death, reduced proportionally
by the ratio of the amount of any withdrawal to the Account Value
immediately prior to the withdrawal; AND
. The Unadjusted Account Value on Due Proof of Death of the assuming
spouse.
With respect to Highest Daily Lifetime Income v2.1 with HD DB and Spousal
Highest Daily Lifetime Income v2.1 with HD DB:
. If the Highest Daily Death Benefit is not payable upon the death of a
Spousal Designated Life, and the Remaining Designated Life chooses to
continue the Annuity, the benefit will remain in force unless we are
instructed otherwise.
. If a Death Benefit is not payable upon the death of a Spousal Designated
Life (e.g., if the first of the Spousal Designated Lives to die is the
Beneficiary but not an Owner), the benefit will remain in force unless
we are instructed otherwise.
Spousal continuation is also permitted, subject to our rules and regulatory
approval, if the Annuity is held by a custodial account established to hold
retirement assets for the benefit of the natural person Annuitant pursuant to
the provisions of Section 408(a) of the Code ("Custodial Account") and, on the
date of the Annuitant's death, the spouse of the Annuitant is (1) the
Contingent Annuitant under the Annuity and (2) the Beneficiary of the
Custodial Account. The ability to continue the Annuity in this manner will
result in the Annuity no longer qualifying for tax deferral under the Code.
However, such tax deferral should result from the ownership of the Annuity by
the Custodial Account. Please consult your tax or legal advisor.
Any Optional Death Benefit in effect at the time the first of the spouses dies
will continue only if spousal assumption occurs prior to the Death Benefit
Target Date and prior to the assuming spouse's 80/th/ birthday. If spousal
assumption occurs after the Death Benefit Target Date (or the 80/th/ birthday
of the assuming spouse), then any Optional Death Benefit will terminate as of
the date of spousal assumption. In that event, the assuming spouse's Death
Benefit will equal the basic Death Benefit.
We allow a spouse to continue the Annuity even though he/she has reached or
surpassed the Latest Annuity Date. However, upon such a spousal continuance,
annuity payments would begin immediately.
A surviving spouse's ability to continue ownership of the Annuity may be
impacted by the Defense of Marriage Act (see "Managing Your Annuity - Spousal
Designations"). Please consult your tax or legal advisor for more information
about such impact in your state.
PAYMENT OF DEATH BENEFITS
ALTERNATIVE DEATH BENEFIT PAYMENT OPTIONS - ANNUITIES OWNED BY INDIVIDUALS
(NOT ASSOCIATED WITH TAX-FAVORED PLANS)
Except in the case of a spousal continuation as described above, upon your
death, certain distributions must be made under the Annuity. The required
distributions depend on whether you die before you start taking annuity
payments under the Annuity or after you start taking annuity payments under
the Annuity. If you die on or after the Annuity Date, the remaining portion of
the interest in the Annuity must be distributed at least as rapidly as under
the method of distribution being used as of the date of death. In the event of
the decedent's death before the Annuity Date, the Death Benefit must be
distributed:
. within five (5) years of the date of death (the "5 Year Deadline"); or
. as a series of payments not extending beyond the life expectancy of the
Beneficiary or over the life of the Beneficiary. Payments under this
option must begin within one year of the date of death. If the
Beneficiary does not begin installments by such time, then we require
that the Beneficiary take the Death Benefit as a lump sum within the 5
Year Deadline.
If the Annuity is held as a Beneficiary Annuity, the payment of the Death
Benefit must be distributed:
. as a lump sum payment; or
. as a series of required distributions under the Beneficiary Continuation
Option as described below in the section entitled "Beneficiary
Continuation Option," unless you have made an election prior to Death
Benefit proceeds becoming due
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ALTERNATIVE DEATH BENEFIT PAYMENT OPTIONS - ANNUITIES HELD BY TAX-FAVORED PLANS
The Code provides for alternative death benefit payment options when an
Annuity is used as an IRA, 403(b) or other "qualified investment" that
requires minimum distributions. Upon your death under an IRA, 403(b) or other
"qualified investment", the designated Beneficiary may generally elect to
continue the Annuity and receive Required Minimum Distributions under the
Annuity instead of receiving the Death Benefit in a single payment. The
available payment options will depend on whether you die before the date
Required Minimum Distributions under the Code were to begin, whether you have
named a designated Beneficiary and whether the Beneficiary is your surviving
spouse.
. If you die after a designated Beneficiary has been named, the death
benefit must be distributed by December 31/st/ of the year including the
five year anniversary of the date of death (the "Qualified 5 Year
Deadline"), or as periodic payments not extending beyond the life
expectancy of the designated Beneficiary (provided such payments begin
by December 31/st/ of the year following the year of death). If the
Beneficiary does not begin installments by such time, then we require
that the Beneficiary take the Death Benefit as a lump sum by the
Qualified 5 Year Deadline. However, if your surviving spouse is the
Beneficiary, the death benefit can be paid out over the life expectancy
of your spouse with such payments beginning no later than
December 31/st/ of the year following the year of death or
December 31/st/ of the year in which you would have reached age 70 1/2,
whichever is later. Additionally, if the Death Benefit is solely payable
to (or for the benefit of) your surviving spouse, then the Annuity may
be continued with your spouse as the Owner. If your Beneficiary elects
to receive full distribution by the Qualified 5 Year Deadline, 2009
shall not be included in the five year requirement period. This
effectively extends this period to December 31/st/ of the year including
the six year anniversary date of death.
. 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 the Qualified 5 Year Deadline. If the
Beneficiary does not begin installments by December 31/st/ of the year
following the year of death, we will require that the Beneficiary take
the Death Benefit as a lump sum by the Qualified 5 Year Deadline. For
Annuities 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 Annuity is
deemed to have no designated Beneficiary. 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 Annuities 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 Annuity
is deemed to have no designated Beneficiary.
A Beneficiary has the flexibility to take out more each year than mandated
under the Required Minimum Distribution rules.
Until withdrawn, amounts in an IRA, 403(b) or other "qualified investment"
continue to be tax deferred. Amounts withdrawn each year, including amounts
that are required to be withdrawn under the Required Minimum Distribution
rules, are subject to tax. You may wish to consult a professional tax advisor
for tax advice as to your particular situation.
For a Roth IRA, if death occurs before the entire interest is distributed, the
Death Benefit must be distributed under the same rules applied to IRAs where
death occurs before the date Required Minimum Distributions must begin under
the Code.
The tax consequences to the Beneficiary may vary among the different Death
Benefit payment options. See the Tax Considerations section of this
prospectus, and consult your tax advisor.
BENEFICIARY CONTINUATION OPTION
Instead of receiving the Death Benefit in a single payment, or under an
Annuity Option, a Beneficiary may take the Death Benefit under an alternative
Death Benefit payment option, as provided by the Code and described above
under the sections entitled "Payment of Death Benefits" and "Alternative Death
Benefit Payment Options - Annuities Held by Tax-Favored Plans." This
"Beneficiary Continuation Option" is described below and is available for both
qualified Annuities (i.e. annuities sold to an IRA, Roth IRA, SEP IRA, or
403(b)), Beneficiary Annuities and non-qualified Annuities. This option is
different from the "Beneficiary Annuity because the Beneficiary Continuation
Option is a death benefit payout option used explicitly for annuities issued
by a Prudential affiliate. Under the Beneficiary Continuation Option:
. The Beneficiary must apply at least $15,000 to the Beneficiary
Continuation Option (thus, the Death Benefit amount payable to each
Beneficiary must be at least $15,000).
. The Annuity will be continued in the Owner's name, for the benefit of
the Beneficiary.
. Beginning on the date we receive an election by the Beneficiary to take
the Death Benefit in a form other than a lump sum, the Beneficiary will
incur a Settlement Service Charge which is an annual charge assessed on
a daily basis against the average assets allocated to the Sub-accounts.
The charge is 1.00% per year.
. Beginning on the date we receive an election by the Beneficiary to take
the Death Benefit in a form other than a lump sum, the Beneficiary will
incur an annual maintenance fee equal to the lesser of $30 or 2% of
Unadjusted Account Value. The fee will only apply if the Unadjusted
Account Value is less than $25,000 at the time the fee is assessed. The
fee will not apply if it is assessed 30 days prior to a surrender
request.
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. The initial Account Value will be equal to any Death Benefit (including
any optional Death Benefit) that would have been payable to the
Beneficiary if the Beneficiary had taken a lump sum distribution.
. The available Sub-accounts will be among those available to the Owner at
the time of death, however certain Sub-accounts may not be available.
. The Beneficiary may request transfers among Sub-accounts, subject to the
same limitations and restrictions that applied to the Owner. Transfers
in excess of 20 per year will incur a $10 transfer fee.
. No MVA Options will be offered for Beneficiary Continuation Options.
. No additional Purchase Payments can be applied to the Annuity. Multiple
death benefits cannot be combined in a single Beneficiary Continuation
Option.
. The basic Death Benefit and any optional benefits elected by the Owner
will no longer apply to the Beneficiary.
. The Beneficiary can request a withdrawal of all or a portion of the
Account Value at any time, unless the Beneficiary Continuation Option
was the payout predetermined by the Owner and the Owner restricted the
Beneficiary's withdrawal rights.
. Upon the death of the Beneficiary, any remaining Account Value will be
paid in a lump sum to the person(s) named by the Beneficiary
(successor), unless the successor chooses to continue receiving payments
through a Beneficiary Continuation Option established for the successor.
However, the distributions will continue to be based on the Key Life of
the Beneficiary Continuation Option the successor received the death
benefit proceeds from.
. If the Beneficiary elects to receive the death benefit proceeds under
the Beneficiary Continuation Option, we must receive the election in
Good Order at least 14 days prior to the first required distribution.
If, for any reason, the election impedes our ability to complete the
first distribution by the required date, we will be unable to accept the
election.
We may pay compensation to the broker-dealer of record on the Annuity based on
amounts held in the Beneficiary Continuation Option. Please contact us for
additional information on the availability, restrictions and limitations that
will apply to a Beneficiary under the Beneficiary Continuation Option.
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VALUING YOUR INVESTMENT
VALUING THE SUB-ACCOUNTS
When you allocate Account Value to a Sub-account, you are purchasing Units of
the Sub-account. Each Sub-account invests exclusively in shares of an
underlying Portfolio. The value of the Units fluctuates with the market
fluctuations of the Portfolios. The value of the Units also reflects the daily
accrual for the Insurance Charge, and if you elected one or more optional
benefits whose annualized charge is deducted daily, the additional charge for
such benefits.
Each Valuation Day, we determine the price for a Unit of each Sub-account,
called the "Unit Price." The Unit Price is used for determining the value of
transactions involving Units of the Sub-accounts. We determine the number of
Units involved in any transaction by dividing the dollar value of the
transaction by the Unit Price of the Sub-account as of the Valuation Day.
There may be several different Unit Prices for each Sub-account to reflect the
Insurance Charge and the charges for any optional benefits. The Unit Price for
the Units you purchase will be based on the total charges for the benefits
that apply to your Annuity. See the section below entitled "Termination of
Optional Benefits" for a detailed discussion of how Units are purchased and
redeemed to reflect changes in the daily charges that apply to your Annuity.
EXAMPLE
Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the
allocation, the Unit Price is $14.83. Your $5,000 buys 337.154 Units of the
Sub-account. Assume that later, you wish to transfer $3,000 of your Account
Value out of that Sub-account and into another Sub-account. On the Valuation
Day you request the transfer, the Unit Price of the original Sub-account has
increased to $16.79 and the Unit Price of the new Sub-account is $17.83. To
transfer $3,000, we redeem 178.677 Units at the current Unit Price, leaving
you 158.477 Units. We then buy $3,000 of Units of the new Sub-account at the
Unit Price of $17.83. You would then have 168.255 Units of the new Sub-account.
PROCESSING AND VALUING TRANSACTIONS
Pruco Life is generally open to process financial transactions on those days
that the New York Stock Exchange (NYSE) is open for trading. There may be
circumstances where the NYSE does not open on a regularly scheduled date or
time or closes at an earlier time than scheduled (normally 4:00 p.m. EST).
Generally, financial transactions requested in Good Order before the close of
regular trading on the NYSE will be processed according to the value next
determined following the close of business. Financial transactions requested
on a non-business day or after the close of regular trading on the NYSE will
be processed based on the value next computed on the next Valuation Day. There
may be circumstances when the opening or closing time of regular trading on
the NYSE is different than other major stock exchanges, such as NASDAQ or the
American Stock Exchange. Under such circumstances, the closing time of regular
trading on the NYSE will be used when valuing and processing transactions.
The NYSE is closed on the following nationally recognized holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas. On those dates, we
will not process any financial transactions involving purchase or redemption
orders. Pruco Life will also not process financial transactions involving
purchase or redemption orders or transfers on any day that:
.. trading on the NYSE is restricted;
.. an emergency, as determined by the SEC, exists making redemption or
valuation of securities held in the Separate Account impractical; or
.. the SEC, by order, permits the suspension or postponement for the
protection of security holders.
If, pursuant to SEC rules, the AST Money Market Portfolio suspends payment of
redemption proceeds in connection with a liquidation of the Portfolio, we will
delay payment of any transfer, full or partial withdrawal, or death
benefit from the AST Money Market Sub-account until the Portfolio is
liquidated.
We have arrangements with certain selling firms, under which receipt by the
firm in Good Order prior to our cut-off time on a given Valuation Day is
treated as receipt by us on that Valuation Day for pricing purposes.
Currently, we have such an arrangement with Citigroup Global Markets Inc.
("CGM"). We extend this pricing treatment to orders that you submit directly
through CGM and to certain orders submitted through Morgan Stanley Smith
Barney LLC ("MSSB") where CGM serves as clearing firm for MSSB. Your MSSB
registered representative can tell you whether your order will be cleared
through CGM. In addition, we currently have an arrangement with Merrill,
Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch") under which transfer
orders between Sub-accounts that are received in Good Order by Merrill Lynch
prior to the NYSE close on a given Valuation Day will be priced by us as of
that Valuation Day. The arrangements with CGM, MSSB, and Merrill Lynch may be
terminated at any time or modified in certain circumstances.
INITIAL PURCHASE PAYMENTS: We are required to allocate your initial Purchase
Payment to the Sub-accounts within two (2) Valuation Days after we receive the
Purchase Payment in Good Order at our Service Office. If we do not have all
the required information to allow us to issue your Annuity, we may retain the
Purchase Payment while we try to reach you or your representative to obtain
all of our requirements. If we are unable to obtain all of our required
information within five (5) Valuation Days, we are required to return the
Purchase Payment to you at that time, unless you specifically consent to our
retaining the
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Purchase Payment while we gather the required information. Once we obtain the
required information, we will invest the Purchase Payment and issue an Annuity
within two (2) Valuation Days. With respect to your initial Purchase Payment
that is pending investment in our separate account, we may hold the amount
temporarily in a suspense account and may earn interest on such amount. You
will not be credited with interest during that period.
As permitted by applicable law, the broker-dealer firm through which you
purchase your Annuity may forward your initial Purchase Payment to us prior to
approval of your purchase by a registered principal of the firm. These
arrangements are subject to a number of regulatory requirements, including
that until such time that the insurer is notified of the firm's principal
approval and is provided with the application, or is notified of the firm
principal's rejection, customer funds will be held by the insurer in a
segregated bank account. In addition, the insurer must promptly return the
customer's funds at the customer's request prior to the firm's principal
approval or upon the firm's rejection of the application. The monies held in
the bank account will be held in a suspense account within our general account
and we may earn interest on amounts held in that suspense account. Contract
owners will not be credited with any interest earned on amounts held in that
suspense account. The monies in such suspense account may be subject to our
general creditors. Moreover, because the FINRA rule authorizing the use of
such accounts is new, there may be uncertainty as to the segregation and
treatment of such insurance company general account assets under applicable
Federal and State laws.
ADDITIONAL PURCHASE PAYMENTS: We will apply any additional Purchase Payments
on the Valuation Day that we receive the Purchase Payment at our Service
Office in Good Order. We may limit, restrict, suspend or reject any additional
Purchase Payment at any time, on a non-discriminatory basis.
SCHEDULED TRANSACTIONS: Scheduled transactions include transfers under Dollar
Cost Averaging, the Asset Allocation Program, Auto-Rebalancing, Systematic
Withdrawals, Systematic Investments, Required Minimum Distributions,
substantially equal periodic payments under section 72(t)/72(q) of the Code,
and annuity payments. Scheduled transactions are processed and valued as of
the date they are scheduled, unless the scheduled day is not a Valuation Day.
In that case, the transaction will be processed and valued on the next
Valuation Day, unless (with respect to Required Minimum Distributions,
substantially equal periodic payments under Section 72(t)/72(q) of the Code,
and annuity payments only), the next Valuation Day falls in the subsequent
calendar year, in which case the transaction will be processed and valued on
the prior Valuation Day.
UNSCHEDULED TRANSACTIONS: "Unscheduled" transactions include any other
non-scheduled transfers and requests for partial withdrawals or Free
Withdrawals or Surrenders. With respect to certain written requests to
withdraw Account Value, we may seek to verify the requesting Owner's
signature. Specifically, we reserve the right to perform a signature
verification for (a) any withdrawal exceeding a certain dollar amount and
(b) a withdrawal exceeding a certain dollar amount if the payee is someone
other than the Owner. In addition, we will not honor a withdrawal request in
which the requested payee is the Financial Professional or agent of record. We
reserve the right to request a signature guarantee with respect to a written
withdrawal request. If we do perform a signature verification, we will pay the
withdrawal proceeds within 7 days after the withdrawal request was received by
us in Good Order, and will process the transaction in accordance with the
discussion in "Processing And Valuing Transactions"
DEATH BENEFITS: Death Benefit claims require our review and evaluation before
processing. We price such transactions as of the date we receive at our
Service Office in Good Order all supporting documentation we require for such
transactions.
We are generally required by law to pay any death benefit claims from the
Separate Account within 7 days of our receipt of your request in Good Order at
our Service Office.
TRANSACTIONS IN PROFUNDS VP SUB-ACCOUNTS: Generally, purchase or redemption
orders or transfer requests must be received by us by no later than the close
of the NYSE to be processed on the current Valuation Day. However, any
purchase order or transfer request involving the ProFunds VP Sub-accounts must
be received by us no later than one hour prior to any announced closing of the
applicable securities exchange (generally, 3:00 p.m. Eastern time) to be
processed on the current Valuation Day. The "cut-off" time for such financial
transactions involving a ProFunds VP Sub-account will be extended to 1/2 hour
prior to any announced closing (generally, 3:30 p.m. Eastern time) for
transactions submitted electronically through Prudential Annuities' Internet
website (www.prudentialannuities.com). You cannot request a transaction (other
than a redemption order) involving the transfer of units in one of the
ProFunds VP Sub-accounts between the applicable "cut-off" time and 4:00 p.m.
Owners attempting to process a purchase order or transfer request between the
applicable "cut-off" time and 4:00 p.m., are informed that their transactions
cannot be processed as requested. We will not process the trade until we
receive further instructions from you. However, Owners receiving the "cut off"
message may process a purchase order or transfer request up until 4:00 p.m. on
that same day with respect to any other available investment option under
their Annuity, other than ProFunds. Transactions received after 4:00 p.m. will
be treated as received by us on the next Valuation Day.
TERMINATION OF OPTIONAL BENEFITS: In general, if an optional benefit
terminates, we will no longer deduct the charge we apply to purchase the
optional benefit. However, for the Highest Daily Lifetime Income v2.1 suite of
benefits, if the benefit terminates for any reason other than death or
annuitization, we will deduct a final charge upon termination, based on the
number of days since the charge for the benefit was most recently deducted.
Certain optional benefits may be added after you have purchased your Annuity.
On the date a charge no longer applies or a charge for an optional benefit
begins to be deducted, your Annuity will become subject to a different charge.
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TAX CONSIDERATIONS
The tax considerations associated with an Annuity vary depending on whether
the contract is (i) owned by an individual or non-natural person, and not
associated with a tax-favored retirement plan, or (ii) held under a
tax-favored retirement plan. We discuss the tax considerations for these
categories of contracts below. The discussion is general in nature and
describes only federal income tax law (not state or other tax laws). It is
based on current law and interpretations, which may change. The information
provided is not intended as tax advice. You should consult with a qualified
tax advisor for complete information and advice. References to Purchase
Payments below relate to your cost basis in your contract. Generally, your
cost basis in a contract not associated with a tax-favored retirement plan is
the amount you pay into your contract, or into annuities exchanged for your
contract, on an after-tax basis less any withdrawals of such payments. Cost
basis for a tax-favored retirement plan is provided only in limited
circumstances, such as for contributions to a Roth IRA or nondeductible IRA.
The discussion includes a description of certain spousal rights under the
contract, and our administration of such spousal rights and related tax
reporting comport 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,
domestic partners or same-sex marriages. You should be aware, however, that
federal tax law does not recognize civil union couples, domestic partners or
marriage spouses of the same sex. Therefore, we cannot permit a same-sex civil
union partner, domestic partner or spouse to continue the annuity within the
meaning of the tax law upon the death of the first partner under the annuity's
"spousal continuance" provision. Please note there may be federal tax
consequences at the death of the first same-sex civil union partner, domestic
partner or spouse. Civil union couples, domestic partners and spouses of the
same sex should consider that limitation before selecting a spousal benefit
under the annuity.
The discussion below generally assumes that the Annuity is issued to the
Annuity Owner. For Annuities issued under the Beneficiary Continuation Option
or as a Beneficiary Annuity, refer to the Taxes Payable by Beneficiaries for
Nonqualified Annuity Contracts and Required Distributions Upon Your Death for
Qualified Annuity Contracts in this Tax Considerations section.
NONQUALIFIED ANNUITY CONTRACTS
IN GENERAL, AS USED IN THIS PROSPECTUS, A NONQUALIFIED ANNUITY IS OWNED BY AN
INDIVIDUAL OR NON-NATURAL PERSON AND IS NOT ASSOCIATED WITH A TAX-FAVORED
RETIREMENT PLAN.
TAXES PAYABLE BY YOU
We believe the Annuity is an annuity contract for tax purposes. Accordingly,
as a general rule, you should not pay any tax until you receive money under
the contract. Generally, annuity contracts issued by the same company (and
affiliates) to you during the same calendar year must be treated as one
annuity contract for purposes of determining the amount subject to tax under
the rules described below. Charges for investment advisory fees that are taken
from the contract are treated as a partial withdrawal from the contract and
will be reported as such to the contract Owner.
It is possible that the Internal Revenue Service (IRS) could assert that some
or all of the charges for the optional benefits under the contract should be
treated for federal income tax purposes as a partial withdrawal from the
contract. If this were the case, the charge for this benefit could be deemed a
withdrawal and treated as taxable to the extent there are earnings in the
contract. Additionally, for Owners under age 59 1/2, the taxable income
attributable to the charge for the benefit could be subject to a tax penalty.
If the IRS determines that the charges for one or more benefits under the
contract are taxable withdrawals, then the sole or surviving Owner will be
provided with a notice from us describing available alternatives regarding
these benefits.
You must commence annuity payments or surrender your Annuity no later than the
first day of the calendar month next following the maximum Annuity date for
your Annuity. For some of our contracts, you are able to choose to defer the
Annuity Date beyond the default Annuity date described in your Annuity.
However, the IRS may not then consider your contract to be an annuity under
the tax law.
TAXES ON WITHDRAWALS AND SURRENDER
If you make a withdrawal from your contract or surrender it before annuity
payments begin, the amount you receive will be taxed as ordinary income,
rather than as return of Purchase Payments, until all gain has been withdrawn.
Once all gain has been withdrawn, payments will be treated as a nontaxable
return of Purchase Payments until all Purchase Payments have been returned.
After all Purchase Payments are returned, all subsequent amounts will be taxed
as ordinary income. You will generally be taxed on any withdrawals from the
contract while you are alive even if the withdrawal is paid to someone else.
Withdrawals under any of the optional living benefits or as a systematic
payment are taxed under these rules. If you assign or pledge all or part of
your contract as collateral for a loan, the part assigned generally will be
treated as a withdrawal and subject to income tax to the extent of gain. 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.
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If you choose to receive payments under an interest payment option, or a
Beneficiary chooses to receive a death benefit under an interest payment
option, that election will be treated, for tax purposes, as surrendering your
Annuity and will immediately subject any gain in the contract to income tax.
TAXES ON ANNUITY PAYMENTS
A portion of each annuity payment you receive will be treated as a partial
return of your Purchase Payments and will not be taxed. The remaining portion
will be taxed as ordinary income. Generally, the nontaxable portion is
determined by multiplying the 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 has 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.
If your Account Value is reduced to zero but the Annuity remains in force due
to a benefit provision, further distributions from the Annuity will be
reported as annuity payments, using an exclusion ratio based upon the
undistributed purchase payments in the Annuity and the total value of the
anticipated future payments until such time as all Purchase Payments have been
recovered.
Please refer to your Annuity contract for the maximum Annuity Date, also
described above.
PARTIAL ANNUITIZATION
Effective January 1, 2011, an individual may partially annuitize their
non-qualified annuity if the contract so permits. The Small Business Jobs Act
of 2010 included a provision which allows for a portion of a non-qualified
annuity, endowment or life insurance contract to be annuitized while the
balance is not annuitized. The annuitized portion must be paid out over 10 or
more years or over the lives of one or more individuals. The annuitized
portion of the contract is treated as a separate contract for purposes of
determining taxability of the payments under IRC section 72. We do not
currently permit partial annuitization.
MEDICARE TAX ON NET INVESTMENT INCOME
The Patient Protection and Affordable Care Act, also known as the 2010 Health
Care Act, included a new Medicare tax on investment income. This new tax,
which is effective in 2013, assesses a 3.8% surtax on the lesser of (1) net
investment income or (2) the excess of "modified adjusted gross income" over a
threshold amount. The "threshold amount" is $250,000 for married taxpayers
filing jointly, $125,000 for married taxpayers filing separately, $200,000 for
single taxpayers, and approximately $12,000 for trusts. The taxable portion of
payments received as a withdrawal, surrender, annuity payment, death benefit
payment or any other actual or deemed distribution under the contract will be
considered investment income for purposes of this surtax.
TAX PENALTY FOR EARLY WITHDRAWAL FROM A NONQUALIFIED ANNUITY CONTRACT
You may owe a 10% tax penalty on the taxable part of distributions received
from your Nonqualified Annuity contract before you attain age 59 1/2. Amounts
are not subject to this tax penalty if:
.. the amount is paid on or after you reach age 59 1/2 or die;
.. the amount received is attributable to your becoming disabled;
.. generally the amount paid or received is in the form of substantially equal
payments (as defined in the Code) not less frequently than annually (please
note that substantially equal payments must continue until the later of
reaching age 59 1/2 or 5 years and modification of payments during that
time period will result in retroactive application of the 10% tax penalty);
or
.. the amount received is paid under an immediate annuity contract (in which
annuity payments begin within one year of purchase).
Other exceptions to this tax may apply. You should consult your tax advisor
for further details.
SPECIAL RULES IN RELATION TO TAX-FREE EXCHANGES UNDER SECTION 1035
Section 1035 of the Code permits certain tax-free exchanges of a life
insurance, annuity or endowment contract for an annuity, including tax-free
exchanges of annuity death benefits for a Beneficiary Annuity. Partial
surrenders may be treated in the same way as tax-free 1035 exchanges of entire
contracts, therefore avoiding current taxation of the partially exchanged
amount as well as the 10% tax penalty on pre-age 59 1/2 withdrawals. In
Revenue Procedure 2011-38, the IRS has indicated that, for exchanges on or
after October 24, 2011, where there is a surrender or distribution from either
the initial annuity contract or receiving annuity contract within 180 days of
the date on which the partial exchange was completed, the IRS will apply
general tax rules to determine the substance and treatment of the original
transfer. We strongly urge you to discuss any transaction of this type with
your tax advisor before proceeding with the transaction.
If an Annuity is purchased through a tax-free exchange of a life insurance,
annuity or endowment contract that was purchased prior to August 14, 1982,
then any Purchase Payments made to the original contract prior to August 14,
1982 will be treated as made to the new contract prior to that date.
Generally, such pre-August 14, 1982 withdrawals are treated as a recovery of
your investment in the contract first until Purchase Payments made before
August 14, 1982 are withdrawn. Moreover, income allocable to Purchase Payments
made before August 14, 1982, is not subject to the 10% tax penalty.
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TAXES PAYABLE BY BENEFICIARIES
The Death Benefit options are subject to ordinary 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 for federal estate tax purposes. Generally, the same tax rules
described above would also apply to amounts received by your Beneficiary.
Choosing an 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 in the year of payment on
gain in the contract.
.. Within 5 years of death of Owner: the Beneficiary is taxed as amounts are
withdrawn (in this case gain is treated as being distributed first).
.. Under an annuity or annuity settlement option with distribution beginning
within one year of the date of death of the Owner: the Beneficiary is taxed
on each payment (part will be treated as gain and part as return of
Purchase Payments).
CONSIDERATIONS FOR CONTINGENT ANNUITANTS: We may allow the naming of a
contingent Annuitant when a Nonqualified Annuity contract is held by a pension
plan or a tax favored retirement plan, or held by a Custodial Account (as
defined earlier in this prospectus). In such a situation, the Annuity may no
longer qualify for tax deferral where the Annuity contract continues after the
death of the Annuitant. However, tax deferral should be provided instead by
the pension plan, tax favored retirement plan, or Custodial Account. We may
also allow the naming of a contingent annuitant when a Nonqualified Annuity
contract is held by an entity owner when such contracts do not qualify for tax
deferral under the current tax law. This does not supersede any benefit
language which may restrict the use of the contingent annuitant.
REPORTING AND WITHHOLDING ON DISTRIBUTIONS Taxable amounts distributed from an
Annuity are subject to federal and state income tax reporting and withholding.
In general, we will withhold federal income tax from the taxable portion of
such distribution based on the type of distribution. In the case of an annuity
or similar periodic payment, we will withhold as if you are a married
individual with three (3) exemptions unless you designate a different
withholding status. If no U.S. taxpayer identification number is provided, we
will automatically withhold using single with zero exemptions as the default.
In the case of all other distributions, we will withhold at a 10% rate. You
may generally elect not to have tax withheld from your payments. An election
out of withholding must be made on forms that we provide. If you are a U.S.
person (including resident alien), and your address of record is a non-U.S.
address, we are required to withhold income tax unless you provide us with a
U.S. residential address.
State income tax withholding rules vary and we will withhold based on the
rules of your State of residence. Special tax rules apply to withholding for
nonresident aliens, and we generally withhold income tax for nonresident
aliens at a 30% rate. A different withholding rate may be applicable to a
nonresident alien based on the terms of an existing income tax treaty between
the United States and the nonresident alien's country. Please refer to the
discussion below regarding withholding rules for a Qualified Annuity.
Regardless of the amount withheld by us, you are liable for payment of federal
and state income tax on the taxable portion of annuity distributions. You
should consult with your tax advisor regarding the payment of the correct
amount of these income taxes and potential liability if you fail to pay such
taxes.
ENTITY OWNERS
Where a contract is held by a non-natural person (e.g. a corporation), other
than as an agent or nominee for a natural person (or in other limited
circumstances), the contract will not be taxed as an annuity and increases in
the value of the contract over its cost basis will be subject to tax annually.
Where a contract is issued to a Charitable Remainder Trust (CRT), 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. As there are charges for
the living benefits described elsewhere in this prospectus, and such charges
reduce the contract value of the Annuity, trustees of the CRT should discuss
with their legal advisors whether election of such living benefits violates
their fiduciary duty to the remainder beneficiary.
Where a contract is issued to a trust, and such trust is characterized as a
grantor trust under the Code, such contract shall not be considered to be held
by a non-natural person and will be subject to the tax reporting and
withholding requirements generally applicable to a Nonqualified Annuity. At
this time, we will not issue an Annuity to grantor trusts with multiple
grantors.
At this time, we will not issue an Annuity to a grantor trust where the
Grantor is not also the Annuitant. Where a previously issued contract was
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 of the trust 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 trust and it is not eligible for the death benefit provided
under the contract.
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ANNUITY QUALIFICATION
Diversification And Investor Control. In order to qualify for the tax rules
applicable to annuity contracts described above, the assets underlying the
Sub-accounts of an Annuity must be diversified, according to certain rules
under the Internal Revenue Code. Each portfolio is required to diversify its
investments each quarter so that no more than 55% of the value of its assets
is represented by any one investment, no more than 70% is represented by any
two investments, no more than 80% is represented by any three investments, and
no more than 90% is represented by any four investments. Generally, securities
of a single issuer are treated as one investment and obligations of each U.S.
Government agency and instrumentality (such as the Government National
Mortgage Association) are treated as issued by separate issuers. In addition,
any security issued, guaranteed or insured (to the extent so guaranteed or
insured) by the United States or an instrumentality of the U.S. will be
treated as a security issued by the U.S. Government or its instrumentality,
where applicable. We believe the Portfolios underlying the variable Investment
Options of the Annuity meet these diversification requirements.
An additional requirement for qualification for the tax treatment described
above is that we, and not you as the contract Owner, must have sufficient
control over the underlying assets to be treated as the Owner of the
underlying assets for tax purposes. While we also believe these investor
control rules will be met, the Treasury Department may promulgate guidelines
under which a variable annuity will not be treated as an annuity for tax
purposes if persons with ownership rights have excessive control over the
investments underlying such variable annuity. It is unclear whether such
guidelines, if in fact promulgated, would have retroactive effect. It is also
unclear what effect, if any, such guidelines might have on transfers between
the Investment Options offered pursuant to this prospectus. We reserve the
right to take any action, including modifications to your Annuity or the
Investment Options, required to comply with such guidelines if promulgated.
Any such changes will apply uniformly to affected Owners and will be made with
such notice to affected Owners as is feasible under the circumstances.
Required Distributions Upon Your Death for Nonqualified Annuity Contracts.
Upon your death, certain distributions must be made under the contract. The
required distributions depend on whether you die before you start taking
annuity payments under the contract or after you start taking annuity payments
under the contract. If you die on or after the Annuity Date, the remaining
portion of the interest in the contract must be distributed at least as
rapidly as under the method of distribution being used as of the date of
death. If you die before the Annuity Date, the entire interest in the contract
must be distributed within 5 years after the date of death, or as periodic
payments over a period not extending beyond the life or life expectancy of the
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 Annuity is payable to (or for the benefit of)
your surviving spouse, that portion of the contract may be continued with your
spouse as the Owner. For Nonqualified annuity contracts owned by a non-natural
person, the required distribution rules apply upon the death of the Annuitant.
This means that for a contract held by a non-natural person (such as a trust)
for which there is named a co-annuitant, then such required distributions will
be triggered by the death of the first co-annuitants to die.
Changes In Your Annuity. We reserve the right to make any changes we deem
necessary to assure that your Annuity qualifies as an annuity contract for tax
purposes. Any such changes will apply to all contract Owners and you will be
given notice to the extent feasible under the circumstances.
QUALIFIED ANNUITY CONTRACTS
In general, as used in this prospectus, a Qualified Annuity is an Annuity
contract with applicable endorsements for a tax-favored plan or a Nonqualified
Annuity contract held by a tax-favored retirement plan.
The following is a general discussion of the tax considerations for Qualified
Annuity contracts. This Annuity may or may not be available for all types of
the tax-favored retirement plans discussed below. This discussion assumes that
you have satisfied the eligibility requirements for any tax-favored retirement
plan. Please consult your Financial Professional prior to purchase to confirm
if this contract is available for a particular type of tax-favored retirement
plan or whether we will accept the type of contribution you intend for this
contract.
A Qualified annuity may typically be purchased for use in connection with:
.. Individual retirement accounts and annuities (IRAs), 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 annuity 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.
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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
IRA. If you buy an Annuity for use as an IRA, we will provide you a copy of
the prospectus and contract. The "IRA Disclosure Statement" and "Roth IRA
Disclosure Statement" which accompany the prospectus contain information about
eligibility, contribution limits, tax particulars, and other IRA information.
In addition to this information (some of which is summarized below), the IRS
requires that you have a "Free Look" after making an initial contribution to
the contract. During this time, you can cancel the Annuity by notifying us in
writing, and we will refund all of the Purchase Payments under the Annuity
(or, if provided by applicable state law, the amount credited under the
Annuity, if greater), less any applicable federal and state income
tax withholding.
Contributions Limits/Rollovers. Subject to the minimum Purchase Payment
requirements of an Annuity, you may purchase an Annuity for an IRA in
connection with a "rollover" of amounts from a qualified retirement plan, as a
transfer from another IRA, by making a contribution consisting of your IRA
contributions and catch-up contributions, if applicable, attributable to the
prior year during the period from January 1 to April 15 (or the applicable due
date of your federal income tax return, without extension), or as a current
year contribution. In 2013 the contribution limit is $5,500 ($5,000 for 2012).
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 an Annuity, you can make regular IRA
contributions under the Annuity (to the extent permitted by law). However, if
you make such regular IRA contributions, you should note that you will not be
able to treat the contract as a "conduit IRA," which means that you will not
retain possible favorable tax treatment if you subsequently "roll over" the
contract funds originally derived from a qualified retirement plan or TDA into
another Section 401(a) plan or TDA.
In some circumstances, non-spouse Beneficiaries may roll over to an IRA
amounts due from qualified plans, 403(b) plans, and governmental 457(b) plans.
However, 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 Worker,
Retiree and Employer Recovery Act of 2008, 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. An inherited IRA must be
directly rolled over from the employer plan or transferred from an IRA and
must be titled in the name of the deceased (i.e., John Doe deceased for the
benefit of Jane Doe). No additional contributions can be made to an inherited
IRA. In this prospectus, an inherited IRA is also referred to as a Beneficiary
Annuity.
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 1/st/ of the calendar year after the calendar year you turn age
70 1/2; and
.. Death and annuity payments must meet "required minimum distribution" rules
described below.
Usually, the full amount of any distribution from an IRA (including a
distribution from this contract) which is not a rollover is taxable. As
taxable income, these distributions are subject to the general tax withholding
rules described earlier regarding a Nonqualified Annuity. In addition to this
normal tax liability, you may also be liable for the following, depending on
your actions:
.. A 10% early withdrawal penalty described below;
.. Liability for "prohibited transactions" if you, for example, borrow against
the value of an IRA; or
.. Failure to take a required minimum distribution, also described below.
SEPs. SEPs are a variation on a standard IRA, and contracts issued to a SEP
must satisfy the same general requirements described under IRAs (above). There
are, however, some differences:
.. If you participate in a SEP, you generally do not include in income any
employer contributions made to the SEP on your behalf up to the lesser of
(a) $51,000 in 2013 ($50,000 in 2012) or (b) 25% of your taxable
compensation paid by the contributing
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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 2013, this
limit is $255,000 ($250,000 for 2012);
.. SEPs must satisfy certain participation and nondiscrimination requirements
not generally applicable to IRAs; and
.. SEPs that contain a salary reduction or "SARSEP" provision prior to 1997
may permit salary deferrals up to $17,500 in 2013 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 2013. These amounts are indexed for
inflation. Not all Annuities issued by us are available for SARSEPs. You
will also be provided the same information, and have the same "Free Look"
period, as you would have if you purchased the contract for a standard IRA.
ROTH IRAs. The "Roth IRA Disclosure Statement" contains information about
eligibility, contribution limits, tax particulars and other Roth IRA
information. Like standard IRAs, income within a Roth IRA accumulates
tax-free, and contributions are subject to specific limits. Roth IRAs have,
however, the following differences:
.. Contributions to a Roth IRA cannot be deducted from your gross income;
.. "Qualified distributions" from a Roth IRA are excludable from gross income.
A "qualified distribution" is a distribution that satisfies two
requirements: (1) the distribution must be made (a) after the Owner of the
IRA attains age 59 1/2; (b) after the Owner's death; (c) due to the Owner's
disability; or (d) for a qualified first time homebuyer distribution within
the meaning of Section 72(t)(2)(F) of the Code; and (2) the distribution
must be made in the year that is at least five tax years after the first
year for which a contribution was made to any Roth IRA established for the
Owner or five years after a rollover, transfer, or conversion was made from
a traditional IRA to a Roth IRA. Distributions from a Roth IRA that are not
qualified distributions will be treated as made first from contributions
and then from earnings and earnings will be taxed generally in the same
manner as distributions from a traditional IRA.
.. If eligible (including meeting income limitations and earnings
requirements), you may make contributions to a Roth IRA after attaining age
70 1/2, and distributions are not required to begin upon attaining such age
or at any time thereafter.
Subject to the minimum Purchase Payment requirements of an Annuity, you may
purchase an Annuity for a Roth IRA in connection with a "rollover" of amounts
of another traditional IRA, SEP, SIMPLE-IRA employer sponsored retirement plan
(under Sections 401(a) or 403(b) of the Code) or Roth IRA; or if you meet
certain income limitations, by making a contribution consisting of your Roth
IRA contributions and catch-up contributions, if applicable, attributable to
the prior year during the period from January 1 to April 15 (or the applicable
due date of your federal income tax return, without extension), or as a
current year contribution. The Code permits persons 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. The conversion of non-Roth
accounts triggers current taxation (but is not subject to a 10% early
distribution penalty). Once an Annuity 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. 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. However, it is our
understanding of the Code that non-spouse Beneficiaries cannot "rollover"
benefits from a traditional IRA to a Roth IRA.
TDAs. In general, you may own a Tax Deferred Annuity (also known as a TDA, Tax
Sheltered Annuity (TSA), 403(b) plan or 403(b) annuity) 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 $17,500 in 2013. 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 2013. This amount is indexed
for inflation. Further, you may roll over TDA amounts to another TDA or an
IRA. You may also roll over TDA amounts to a qualified retirement plan, a SEP
and a 457 government plan. A contract may generally only qualify as a TDA if
distributions of salary deferrals (other than "grandfathered" amounts held as
of December 31, 1988) may be made only on account of:
.. Your attainment of age 59 1/2;
.. Your severance of employment;
.. Your death;
.. Your total and permanent disability; or
.. Hardship (under limited circumstances, and only related to salary
deferrals, not including earnings attributable to these amounts).
In any event, you must begin receiving distributions from your TDA by
April 1/st/ 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
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"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 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. Required minimum
distributions are calculated based on the sum of the Account Value and the
actuarial value of any additional living and death benefits from optional
riders that you have purchased under the contract. As a result, the required
minimum distributions may be larger than if the calculation were based on the
Account Value only, which may in turn result in an earlier (but not before the
required beginning date) distribution of amounts under the Annuity and an
increased amount of taxable income distributed to the Annuity Owner, and a
reduction of payments under the living and death benefit optional riders.
You can use the Minimum Distribution option to satisfy the required minimum
distribution rules for an Annuity without either beginning annuity payments or
surrendering the Annuity. We will distribute to you the required minimum
distribution amount, less any other partial withdrawals that you made during
the year. Such amount will be based on the value of the contract as of
December 31 of the prior year, but is determined without regard to other
contracts you may own.
Although the IRS rules determine the required amount to be distributed from
your IRA each year, certain payment alternatives are still available to you.
If you own more than one IRA, you can choose to satisfy your minimum
distribution requirement for each of your IRAs by withdrawing that amount from
any of your IRAs. If you inherit more than one IRA or more than one Roth IRA
from the same Owner, similar rules apply.
CHARITABLE IRA DISTRIBUTIONS.
The Pension Protection Act of 2006 included a charitable giving incentive
permitting tax-free IRA distributions for charitable purposes. The American
Taxpayer Relief Act extended this provision until the end of 2013.
For distributions in tax years beginning after 2005 and before 2014, provide
an exclusion from gross income, up to $100,000 for otherwise taxable IRA
distributions from a traditional or Roth IRA that are qualified charitable
distributions. To constitute a qualified charitable distribution, the
distribution must be made (1) directly by the IRA trustee to certain qualified
charitable organizations and (2) on or after the date the IRA owner attains
age 70 1/2. Special transition rules related to retroactive extension of this
tax law provision permitted different distribution treatment for charitable
IRA distributions made by January 31, 2013. Distributions that are excluded
from income under this provision are not taken into account in determining the
individual's deductions, if any, for charitable contributions.
The IRS has indicated that an IRA trustee is not responsible for determining
whether a distribution to a charity is one that satisfies the requirements for
the new income tax exclusion added by the Pension Protection Act. As a result
the general rules for reporting IRA distributions 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
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the year in which you would have reached age 70 1/2, whichever is later.
Additionally, if the contract is payable to (or for the benefit of) your
surviving spouse as sole primary beneficiary, the contract may be continued
with your spouse as the Owner.
.. If you die before a designated Beneficiary is named and before the date
required minimum distributions must begin under the Code, the death benefit
must be paid out by December 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 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.
A Beneficiary has the flexibility to take out more each year than mandated
under the required minimum distribution rules.
Until withdrawn, amounts in a Qualified Annuity contract continue to be tax
deferred. Amounts withdrawn each year, including amounts that are required to
be withdrawn under the required minimum distribution rules, are subject to
tax. You may wish to consult a professional tax advisor for tax advice as to
your particular situation.
For a Roth IRA, if death occurs before the entire interest is distributed, the
death benefit must be distributed under the same rules applied to IRAs where
death occurs before the date required minimum distributions must begin under
the Code.
TAX PENALTY FOR EARLY WITHDRAWALS FROM QUALIFIED ANNUITY CONTRACTS
You may owe a 10% tax penalty on the taxable part of distributions received
from an IRA, SEP, Roth IRA, TDA or qualified retirement plan before you attain
age 59 1/2. Amounts are not subject to this tax penalty if:
.. the amount is paid on or after you reach age 59 1/2 or die;
.. the amount received is attributable to your becoming disabled; or
.. generally the amount paid or received is in the form of substantially equal
payments (as defined in the Code) 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 or
additional contributions to the contract 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. We will not withhold for payments
made from trustee owned contracts or for payments under a 457 plan. 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.
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ERISA REQUIREMENTS
ERISA (the "Employee Retirement Income Security Act of 1974") and the Code
prevent a fiduciary and other "parties in interest" with respect to a plan
(and, for these purposes, an IRA would also constitute a "plan") from
receiving any benefit from any party dealing with the plan, as a result of the
sale of the contract. Administrative exemptions under ERISA generally permit
the sale of insurance/annuity products to plans, provided that certain
information is disclosed to the person purchasing the contract. This
information has to do primarily with the fees, charges, discounts and other
costs related to the contract, as well as any commissions paid to any agent
selling the contract. Information about any applicable fees, charges,
discounts, penalties or adjustments may be found in the applicable sections of
this prospectus. Information about sales representatives and commissions may
be found in the sections of this prospectus addressing distribution of the
Annuities.
Other relevant information required by the exemptions is contained in the
contract and accompanying documentation.
Please consult with your tax advisor if you have any questions about ERISA and
these disclosure requirements.
SPOUSAL CONSENT RULES FOR RETIREMENT PLANS - QUALIFIED CONTRACTS
If you are married at the time your payments commence, you may be required by
federal law to choose an income option that provides survivor annuity income
to your spouse, unless your spouse waives that right. Similarly, if you are
married at the time of your death, federal law may require all or a portion of
the Death Benefit to be paid to your spouse, even if you designated someone
else as your Beneficiary. A brief explanation of the applicable rules follows.
For more information, consult the terms of your retirement arrangement.
Defined Benefit Plans and Money Purchase Pension Plans. If you are married at
the time your payments commence, federal law requires that benefits be paid to
you in the form of a "qualified joint and survivor annuity" (QJSA), unless you
and your spouse waive that right, in writing. Generally, this means that you
will receive a reduced payment during your life and, upon your death, your
spouse will receive at least one-half of what you were receiving for life. You
may elect to receive another income option if your spouse consents to the
election and waives his or her right to receive the QJSA. If your spouse
consents to the alternative form of payment, your spouse may not receive any
benefits from the plan upon your death. Federal law also requires that the
plan pay a Death Benefit to your spouse if you are married and die before you
begin receiving your benefit. This benefit must be available in the form of an
annuity for your spouse's lifetime and is called a "qualified pre-retirement
survivor annuity" (QPSA). If the plan pays Death Benefits to other
Beneficiaries, you may elect to have a Beneficiary other than your spouse
receive the Death Benefit, but only if your spouse consents to the election
and waives his or her right to receive the QPSA. If your spouse consents to
the alternate Beneficiary, your spouse will receive no benefits from the plan
upon your death. Any QPSA waiver prior to your attaining age 35 will become
null and void on the first day of the calendar year in which you attain age
35, if still employed.
Defined Contribution Plans (including 401(k) Plans and ERISA 403(b)
Annuities). Spousal consent to a distribution is generally not required. Upon
your death, your spouse will receive the entire Death Benefit, even if you
designated someone else as your Beneficiary, unless your spouse consents in
writing to waive this right. Also, if you are married and elect an annuity as
a periodic income option, federal law requires that you receive a QJSA (as
described above), unless you and your spouse consent to waive this right.
IRAs, non-ERISA 403(b) Annuities, and 457 Plans. Spousal consent to a
distribution usually is not required. Upon your death, any Death Benefit will
be paid to your designated Beneficiary.
GIFTS AND GENERATION-SKIPPING TRANSFERS
If you transfer your contract to another person for less than adequate
consideration, there may be gift tax consequences in addition to income tax
consequences. Also, 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.
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.
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OTHER INFORMATION
PRUCO LIFE AND THE SEPARATE ACCOUNT
PRUCO LIFE. Pruco Life Insurance Company (Pruco Life) is a stock life
insurance company organized in 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 1875.
Prudential is an indirect wholly-owned subsidiary of Prudential Financial,
Inc. (Prudential Financial), a New Jersey insurance holding company. No
company other than Pruco Life has any legal responsibility to pay amounts that
it owes under its annuity contracts. Among other things, this means that where
you participate in an optional living benefit or death benefit and the value
of that benefit (e.g., the Protected Withdrawal Value for Highest Daily
Lifetime Income v2.1) exceeds your current Account Value, you would rely
solely on the ability of Pruco Life to make payments under the benefit out of
its own assets. Prudential Financial, however, exercises significant influence
over the operations and capital structure of Pruco Life. As Pruco Life's
ultimate parent, Prudential Financial, however, exercises significant
influence over the operations and capital structure of Pruco Life.
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
Securities Exchange Act of 1934 (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 Pruco Life
Insurance Company, One Corporate Drive, Shelton, CT 06484 or by calling
800-752-6342. Pruco Life files periodic reports as required under the Exchange
Act. 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 202-551-8090. The SEC maintains an
Internet site that contains reports, proxy, and information statements, and
other information regarding issuers that file electronically with the SEC (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" or "administrators" under the Investment Company Act of
1940. The entities engaged by Pruco Life may change over time. As of
December 31, 2011, 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, Alerus Retirement Solutions (qualified plan
administrator), State Street Financial Center One, Lincoln Street, Boston, MA
02111, Aprimo (fulfillment of marketing materials), 510 East 96/th/ Street,
Suite 300, Indianapolis, IN 46240, Aplifi (order entry systems provider)
located at 555 SW 12th Ave, Suite 202, Pompano Beach, FL 33069, Broadridge
Investor Communication Solutions, Inc. (proxy tabulation services), 51
Mercedes Way, Edgewood, NY 11717, Consona (maintenance and storage of
administrative documents), 333 Allegheny Avenue, Suite 301 North, Oakmont, PA
15139-2066, Depository Trust & Clearing Corporation (clearing and settlement
services), 55 Water Street, 26/th/ Floor, New York, NY 10041, DG3 North
America, Inc. (proxy and prospectus printing and mailing services), 100 Burma
Road, Jersey City, NJ 07305, DST Systems, Inc. (clearing and settlement
services), 4900 Main, 7/th/ Floor, Kansas City, MO 64112, EBIX, Inc.
(order-entry system), 5 Concourse Parkway, Suite 3200, Atlanta, GA 30328,
ExlService Holdings, Inc., (administration of annuity contracts), 350 Park
Avenue, 10th Floor, New York, NY 10022, Diversified Information Technologies
Inc. (records management), 123 Wyoming Avenue, Scranton, PA 18503, Fiserv
(composition, printing and mailing of confirmation and quarterly statements),
881 Main Street, Manchester, CT 06040, Fosdick Fulfillment Corp. (fulfillment
of prospectuses and marketing materials), 26 Barnes Industrial Park Road,
North Wallingford, CT 06492, Insurance Technologies (annuity illustrations),
38120 Amrhein Ave., Livonia, MI 48150, Morningstar Associates LLC (asset
allocation recommendations) , 225 West Wacker Drive Chicago, IL 60606,
National Financial Services (clearing and settlement services), NEPS, LLC
(composition, printing, and mailing of contracts and benefit documents), 12
Manor Parkway, Salem, NJ 03079, Pershing LLC (order-entry systems provider),
One Pershing Plaza, Jersey City, NJ 07399, RR Donnelley Receivables, Inc.
(printing annual reports and prospectuses), 111 South Wacker Drive, Chicago,
IL 60606-4301, Skywire Software (composition, printing, and mailing of
contracts and benefit documents), 150 Post Street, Suite 500, San Francisco,
CA 94108, VG Reed & Sons, Inc. (printing and fulfillment of annual reports),
1002 South 12th Street, Louisville, KY 40210, William B. Meyer (printing and
fulfillment of prospectuses and marketing materials), 255 Long Beach
Boulevard, Stratford, CT 06615, Right Now Technologies (business information
repository), 136 Enterprise Blvd, Bozeman, MT 59718, The Harty Press (print
vendor for client communications) 25 James Street, New Haven, CT 06513.
THE SEPARATE ACCOUNT. We have established a Separate Account, the Pruco Life
Flexible Premium Variable Annuity Account (Separate Account), to hold the
assets that are associated with the variable annuity contracts. The Separate
Account was established under Arizona law on June 16, 1995, and is registered
with the SEC under the Investment Company Act of 1940 as a unit
104
investment trust, which is a type of investment company. The assets of the
Separate Account are held in the name of Pruco Life and legally belong to us.
These assets are kept separate from all of our other assets and may not be
charged with liabilities arising out of any other business we may conduct.
Income, gains, and losses, whether or not realized, for assets allocated to
the Separate Account are, in accordance with the Annuities, credited to or
charged against the Separate Account without regard to other income, gains, or
losses of Pruco Life. The obligations under the Annuities are those of Pruco
Life, which is the issuer of the Annuities and the depositor of the Separate
Account. More detailed information about Pruco Life, including its audited
consolidated financial statements, is provided in the Statement of Additional
Information.
We may offer new Sub-accounts, eliminate Sub-accounts, or combine Sub-accounts
at our sole discretion. We may also close Sub-accounts to additional Purchase
Payments on existing Annuities or close Sub-accounts for Annuities purchased
on or after specified dates. We will first notify you and receive any
necessary SEC and/or state approval before making such a change. If an
underlying mutual fund is liquidated, we will ask you to reallocate any amount
in the liquidated fund. If you do not reallocate these amounts, we will
reallocate such amounts only in accordance with guidance provided by the SEC
or its staff (or after obtaining an order from the SEC, if required). We
reserve the right to substitute underlying portfolios, as allowed by
applicable law. If we make a fund substitution or change, we may change the
Annuity contract to reflect the substitution or change. We do not control the
underlying mutual funds, so we cannot guarantee that any of those funds will
always be available.
If you are enrolled in a Dollar Cost Averaging, Automatic Rebalancing, or
comparable programs while an underlying fund merger, substitution or
liquidation takes place, unless otherwise noted in any communication from us,
your Account Value invested in such underlying fund will be transferred
automatically to the designated surviving fund in the case of mergers, the
replacement fund in the case of substitutions, and an available Money Market
Fund in the case of fund liquidations. Your enrollment instructions will be
automatically updated to reflect the surviving fund, the replacement fund or a
Money Market Fund for any continued and future investments.
With the MVA Options, we use a separate account of Pruco Life different from
the Pruco Life Flexible Premium Variable Annuity Account discussed above. This
separate account is not registered under the Investment Company Act of 1940.
Moreover, you do not participate in the appreciation or depreciation of the
assets held by that separate account.
SERVICE FEES PAYABLE TO PRUCO LIFE
Pruco Life and/or our affiliates receive substantial and varying
administrative service payments, Rule 12b-1 fees, and "revenue sharing"
payments from certain underlying Portfolios or related parties. Rule 12b-1
fees compensate our affiliated principal underwriter for shareholder services
and distribution expenses. Administrative services payments compensate us for
providing administrative services with respect to Annuity Owners invested
indirectly in the Portfolio, which include duties such as recordkeeping
shareholder services, and the mailing of periodic reports. We receive
administrative services fees with respect to both affiliated underlying
Portfolios and unaffiliated underlying Portfolios. The administrative services
fees we receive from affiliates originate from the assets of the affiliated
Portfolio itself and/or the assets of the Portfolio's investment advisor. In
recognition of the administrative services provided by the relevant affiliated
insurance companies, the investment advisors to certain affiliated Portfolios
also make "revenue sharing" payments to such affiliated insurance companies.
In any case, the existence of these payments tends to increase the overall
cost of investing in the Portfolio. In addition, because these payments are
made to us, allocations you make to these affiliated underlying Portfolios
benefit us financially.
We collect these payments and fees under agreements between us and a
Portfolio's principal underwriter, transfer agent, investment advisor and/or
other entities related to the Portfolio.
The 12b-1 fees and administrative services fees that we receive may vary among
the different fund complexes that are part of our investment platform. Thus,
the fees we collect may be greater or smaller, based on the Portfolios that
you select. In addition, we may consider these payments and fees, among a
number of factors, when deciding to add or keep a Portfolio on the "menu" of
Portfolios that we offer through the Annuity. Please see the table entitled
"Underlying Mutual Fund Portfolio Annual Expenses" earlier in this prospectus
for a listing of the Portfolios that pay a 12b-1 fee.
With respect to administrative services fees, the maximum fee (as of December
31, 2011) that we receive is equal to 0.40% of the average assets allocated to
the Portfolio(s) under the Annuity. We expect to make a profit on these fees.
In addition, an investment advisor, sub-advisor or distributor of the
underlying Portfolios may also compensate us by providing reimbursement,
defraying the costs of, or paying directly for, among other things, marketing
and/or administrative services and/or other services they provide in
connection with the Annuity. These services may include, but are not limited
to: sponsoring or co-sponsoring various promotional, educational or marketing
meetings and seminars attended by distributors, wholesalers, and/or broker
dealer firms' registered representatives, and creating marketing material
discussing the contract, available options, and underlying Portfolios. The
amounts paid depend on the nature of the meetings, the number of meetings
attended by the advisor, sub-advisor, or distributor, the number of
participants and attendees at the meetings, the costs expected to be incurred,
and the level of the advisor's, sub-advisor's or distributor's participation.
These payments or reimbursements may not be offered by all advisors,
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sub-advisors, or distributors, and the amounts of such payments may vary
between and among each advisor, sub-advisor, and distributor depending on
their respective participation.
During 2011, with regard to amounts that were paid under these kinds of
arrangements described immediately above, the amounts ranged from
approximately $125 to approximately $789,756. These amounts may have been paid
to one or more Prudential-affiliated insurers issuing individual variable
annuities.
LEGAL STRUCTURE OF THE UNDERLYING FUNDS
Each underlying mutual fund is registered as an open-end management investment
company under the Investment Company Act of 1940. Shares of the underlying
mutual fund Portfolios are sold to Separate Accounts of life insurance
companies offering variable annuity and variable life insurance products. The
shares may also be sold directly to qualified pension and retirement plans.
VOTING RIGHTS
We are the legal owner of the shares of the underlying mutual funds in which
the Sub-accounts invest. However, under current SEC rules, you have voting
rights in relation to Account Value maintained in the Sub-accounts. If an
underlying mutual fund portfolio requests a vote of shareholders, we will vote
our shares based on instructions received from Owners with Account Value
allocated to that Sub-account. Owners have the right to vote an amount equal
to the number of shares attributable to their contracts. If we do not receive
voting instructions in relation to certain shares, we will vote those shares
in the same manner and proportion as the shares for which we have received
instructions. This voting procedure is sometimes referred to as "mirror
voting" because, as indicated in the immediately preceding sentence, we mirror
the votes that are actually cast, rather than decide on our own how to vote.
We will also "mirror vote" shares that are owned directly by us or an
affiliate (excluding shares held in the separate account of an affiliated
insurer). In addition, because all the shares of a given mutual fund held
within our Separate Account are legally owned by us, we intend to vote all of
such shares when that underlying fund seeks a vote of its shareholders. As
such, all such shares will be counted towards whether there is a quorum at the
underlying fund's shareholder meeting and towards the ultimate outcome of the
vote. Thus, under "mirror voting", it is possible that the votes of a small
percentage of contract holders who actually vote will determine the ultimate
outcome. We will furnish those Owners who have Account Value allocated to a
Sub-account whose underlying mutual fund portfolio has requested a "proxy"
vote with proxy materials and the necessary forms to provide us with their
voting instructions. Generally, you will be asked to provide instructions for
us to vote on matters such as changes in a fundamental investment strategy,
adoption of a new investment advisory agreement, or matters relating to the
structure of the underlying mutual fund that require a vote of shareholders.
We reserve the right to change the voting procedures described above if
applicable SEC rules change.
Advanced Series Trust (the "Trust") has obtained an exemption from the
Securities and Exchange Commission that permits its co-investment advisers,
AST Investment Services, Inc. and Prudential Investments LLC, subject to
approval by the Board of Trustees of the Trust, to change sub-advisors for a
Portfolio and to enter into new sub-advisory agreements, without obtaining
shareholder approval of the changes. This exemption (which is similar to
exemptions granted to other investment companies that are organized in a
similar manner as the Trust) is intended to facilitate the efficient
supervision and management of the sub-advisors by AST Investment Services,
Inc., Prudential Investments LLC and the Trustees. The exemption does not
apply to the AST Franklin Templeton Founding Funds Allocation Portfolio;
shareholder approval of new subadvisory agreements for this Portfolio only is
required. The Trust is required, under the terms of the exemption, to provide
certain information to shareholders following these types of changes. We may
add new Sub-accounts that invest in a series of underlying funds other than
the Trust. Such series of funds may have a similar order from the SEC. You
also should review the prospectuses for the other underlying funds in which
various Sub-accounts invest as to whether they have obtained similar orders
from the SEC.
MATERIAL CONFLICTS
It is possible that differences may occur between companies that offer shares
of an underlying mutual fund portfolio to their respective Separate Accounts
issuing variable annuities and/or variable life insurance products.
Differences may also occur surrounding the offering of an underlying mutual
fund portfolio to variable life insurance policies and variable annuity
contracts that we offer. Under certain circumstances, these differences could
be considered "material conflicts," in which case we would take necessary
action to protect persons with voting rights under our variable annuity
contracts and variable life insurance policies against persons with voting
rights under other insurance companies' variable insurance products. If a
"material conflict" were to arise between Owners of variable annuity contracts
and variable life insurance policies issued by us we would take necessary
action to treat such persons equitably in resolving the conflict. "Material
conflicts" could arise due to differences in voting instructions between
Owners of variable life insurance and variable annuity contracts of the same
or different companies. We monitor any potential conflicts that may exist.
CONFIRMATIONS, STATEMENTS, AND REPORTS
We send any statements and reports required by applicable law or regulation to
you at your last known address of record. You should therefore give us prompt
notice of any address change. We reserve the right, to the extent permitted by
law and subject to your prior consent, to provide any prospectus, prospectus
supplements, confirmations, statements and reports required by applicable law
or regulation to you through our Internet Website at
www.prudentialannuities.com or any other electronic means,
106
including diskettes or CD ROMs. We generally send a confirmation statement to
you each time a financial transaction is made affecting Account Value, such as
making additional Purchase Payments, transfers, exchanges or withdrawals. We
also send quarterly statements detailing the activity affecting your Annuity
during the calendar quarter, if there have been transactions during the
quarter. We may confirm regularly scheduled transactions, including, but not
limited to the Annual Maintenance Fee, Systematic Withdrawals (including
72(t)/72(q) payments and Required Minimum Distributions), electronic funds
transfer, Dollar Cost Averaging, auto rebalancing, and the Custom Portfolios
Program in quarterly statements instead of confirming them immediately. You
should review the information in these statements carefully. You may request
additional reports or copies of reports previously sent. We reserve the right
to charge $50 for each such additional or previously sent report, but may
waive that charge in the future. We will also send an annual report and a
semi-annual report containing applicable financial statements for the
portfolios to Owners or, with your prior consent, make such documents
available electronically through our Internet Website or other electronic
means.
DISTRIBUTION OF ANNUITIES OFFERED BY PRUCO LIFE
Prudential Annuities Distributors, Inc. (PAD), a wholly-owned subsidiary of
Prudential Annuities, Inc., is the distributor and principal underwriter of
the annuities offered through this prospectus. PAD acts as the distributor of
a number of annuity and life insurance products. PAD's principal business
address is One Corporate Drive, Shelton, Connecticut 06484. PAD is registered
as a broker-dealer under the Securities Exchange Act of 1934 (Exchange Act),
and is a member of the Financial Industry Regulatory Authority (FINRA). Each
Annuity is offered on a continuous basis. PAD enters into distribution
agreements with broker/dealers who are registered under the Exchange Act and
with entities that may offer the Annuities but are exempt from registration
(firms). Applications for each Annuity are solicited by registered
representatives of those firms. In addition, PAD may offer the Annuity
directly to potential purchasers.
Under the selling agreements, commissions may be paid to firms on sales of the
Annuity according to one or more schedules. The registered representative will
receive all or 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 2.0% for the Advisor Series. Alternative
compensation schedules are available that generally provide a lower initial
commission plus ongoing quarterly compensation based on all or a portion of
Unadjusted Account Value. We may also provide compensation to the distributing
firm for providing ongoing service to you in relation to the Annuity.
Commissions and other compensation paid in relation to the Annuity do not
result in any additional charge to you or to the Separate Account.
Compensation varies by Annuity product, and such differing compensation could
be a factor in which Annuity a Financial Professional recommends to you.
In addition, in an effort to promote the sale of our products (which may
include the placement of Pruco Life and/or the Annuity 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/dealers 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 to us or our affiliates. These services may include, but
are not limited to: educating customers of the firm on the Annuity's features;
conducting due diligence and analysis; providing office access, operations and
systems support; holding seminars intended to educate registered
representatives and make them more knowledgeable about the Annuities;
providing a dedicated marketing coordinator; providing priority sales desk
support; and providing expedited marketing compliance approval and preferred
programs to PAD. 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 (e.g., gifts, occasional meals and entertainment,
sponsorship of training and due diligence events). These arrangements may not
be offered to all firms and the terms of such arrangements may differ between
firms. In addition, we or our affiliates may provide such compensation,
payments and/or incentives to firms arising out of the marketing, sale and/or
servicing of variable annuities or life insurance offered by different
Prudential business units.
This Annuity will be offered on a fee-based variable annuity platform offered
by LPL Financial LLC ("LPL") through LPL's Strategic Asset Management advisory
program. In connection with that platform, LPL entered into agreements with
several variable annuity issuers, including Pruco Life Insurance Company and
Pruco Life Insurance Company of New Jersey, under which such insurers agreed
to make upfront and ongoing contributions to defray the technology and systems
costs associated with the operation and maintenance of LPL's platform. LPL in
turn agreed, through January 2013, to limit the variable annuities offered
through its platform to those issued by such insurers. Because LPL benefited
from the contributions from such annuity insurers, there may be a conflict
between LPL's financial interest and its ability to use strictly objective
factors to select and/or retain variable annuities available on the platform.
However, LPL does not guarantee that such insurers' variable annuities
actually will be used in any client account.
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
assets, subject to certain criteria in certain Pruco Life products.
107
.. 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.
.. Fixed Payments: These types of payments are made directly to or in
sponsorship of the firm.
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 registered
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 periodically
during the 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, 2011) received payment
with respect to our annuity business generally during 2011 (or as to which a
payment amount was accrued during 2011). The firms listed below include those
receiving payments in connection with marketing of 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 request. During 2011, the least
amount paid, and greatest amount paid, were $19.35 and $6,443,077.91,
respectively. Each of these Annuities also is distributed by other selling
firms that previously were appointed only with our affiliate Prudential
Annuities Life Assurance Corporation ("PALAC"). Such other selling firms may
have received compensation similar to the types discussed above with respect
to their sale of PALAC annuities. In addition, such other selling firms may,
on a going forward basis, receive substantial compensation that is not
reflected in this 2011 retrospective depiction.
NAME OF FIRM:
1/st/ Global Capital Corp.
1934 Group
Aaron Industries
Advantage Fire Sprinkler Co.
Aegon Transamerica
A.G. Edwards & Sons, Inc.
Afore ING
AIG Financial Advisors Inc
Allen & Company of Florida, Inc.
Alliance Bernstein L.P.
Allstate Financial Srvcs, LLC
American Century
American Independent Marketing
AMERICAN PORTFOLIO FIN SVCS INC
Ameriprise Financial, Inc. Total
Ameritas Investment Corp.
ANCHOR BAY SECURITIES, LLC
ARETE WEALTH MANAGEMENT
Arlington Securities, Inc.
Arque Capital, Ltd.
ARVEST ASSET MANAGEMENT
ASKAR CORPORATION
AUSDAL FINANCIAL PARTNERS, INC.
AXA Advisors, LLC
BancorpSouth Investment Services, Inc.
Banc of America Invest.Svs(SO)
BBVA Compass Investment Solutions, Inc.
Ballew Investments
Bank of the West
Battery Ventures
BB&T Investment Services, Inc.
BCG Companies
BCG Securities, Inc.
Beaconsfield Financial Services
Berthel Fisher & Company
BlackRock Financial Management Inc.
Broker Dealer Financial Services
Brookstone Financial Services
Brown Builders
Cadaret, Grant & Co., Inc.
Calton & Associates, Inc.
Cambridge Investment Research, Inc.
Cambridge Legacy Securities, LLC
Cantella & Co., Inc.
CAPE SECURITIES, INC.
Capital Advisors
Capital Analysts
Capital Financial Services, Inc.
CAPITAL GROWTH RESOURCES
Capital Guardian
Capital Investment Group, Inc.
Capital One Investment Services, LLC
Capital Securities Management
Castner Josephs Retirement Group
CBIZ
CCF Investments, Inc.
Centaurus Financial, Inc.
CFD Investments, Inc.
Charter One Bank (Cleveland)
Chase Investment Services
Citigroup Global Markets Inc.
Citizens Bank and Trust Company
Clairmont Oaks
CLS Investments
COMERICA SECURITIES, INC.
Commonwealth Financial Network
Compak Securities
Compass Bank Wealth Management Group
Crescent Securities Group
Crown Capital Securities, L.P.
CUNA Brokerage Svcs, Inc.
CUSO Financial Services, L.P.
D.A. Davidson
David A. Noyes & Company
Delta Equity
Dempsey Lord Smith, LLC
Deutsche Bank
DeWaay Financial Network, LLC
Eaton Vance
EDI Financial
Edward Jones & Co.
ELLIOTT DAVIS BROKERAGE SERVICES, LLC
Equitrust
Equity Services, Inc.
ESSEX FINANCIAL SERVICES, INC.
Evergreen Consulting
Federated Investors
Fidelity Investments
Fifth Third Securities, Inc.
FINANCIAL ADVISERS OF AMERICA LLC
Financial Network Investment
Financial Planning Consultants
Financial Security Management, Inc.
Financial Telesis Inc.
Financial West Group
Fintegra, LLC
First Allied Securities Inc
First American Insurance Underwriters (FAIU)
First Brokerage America, LLC
FIRST CITIZENS INVESTOR SERVICES INC
First Financial Equity Corp.
First Heartland Capital, Inc.
First Merit Investments
First Southeast Investor Services
First State Financial Management
108
First Tennessee Brokerage, Inc
First Trust Portfolios L.P.
First Western Advisors
Florida Investment Advisers
Foothill Securities, Inc.
Forrester Research
Fortune Financial Services, Inc.
Franklin Templeton
FROST BROKERAGE SERVICES
FSC Securities Corp.
G.A. Repple & Company
GATX Southern Star Agency
Garden State Securities, Inc.
Gary Goldberg & Co., Inc.
Geneos Wealth Management, Inc.
Genworth Financial Securities Corporation
Girard Securities, Inc.
Golden Years Advisors
Goldman Sachs & Co.
Great American Advisors, Inc.
Great American Investors, Inc.
GWN Securities, Inc.
H. Beck, Inc.
HBW SECURITIES LLC
HD Associates
H.D. Vest Investment
Hantz Financial Services,Inc.
HARBOR FINANCIAL SERVICES LLC
Harbour Investments, Inc.
Harmon Dennis Bradshaw
Hartford Life Insurance Company
Harvest Capital, LLC
Hazard & Siegel, Inc.
Heim, Young & Associates, Inc.
Horizon Investments
Hornor, Townsend & Kent, Inc.
HSBC
Huntleigh Securities
ICC
IMS Securities
Independent Financial Grp, LLC
IFS (Industry Fund Services)
Impact Speakers
Infinex Investments, Inc.
ING Financial Partners, LLC
Institutional Securities Corp.
INTERCAROLINA FINANCIAL SERVICES, INC.
Intersecurities, Inc
Intervest International Equities Corp.
Invest Financial Corporation
Investacorp
Investment Centers of America
Investment Professionals
Investors Capital Corporation
Investors Security Co, Inc.
ISG Equity Sales
JHS Capital
J.J.B. Hilliard Lyons, Inc.
J.P. Morgan
J.P. Turner & Company, LLC
J.W. Cole Financial, Inc.
Jack Cramer & Associates
Janney Montgomery Scott, LLC.
Jennison Associates, LLC
John Hancock
Key Bank
KEY INVESTMENT SERVICES LLC
Klosterman Baking
KMS Financial Services, Inc.
Kovack Securities, Inc.
LaSalle St. Securities, LLC
Leaders Group Inc.
Legend Equities Corporation
Legg Mason
Leigh Baldwin & Company, LLC
Lincoln Financial Advisors
Lincoln Financial Securities Corporation
Lincoln Investment Planning
Lord Abbett
LPL Financial Corporation
LSG Financial Services
M3 Insurance Solutions, Inc.
M Holdings Securities, Inc
Main Street Securities, LLC
Mason Wells
Merrill Lynch, P,F,S
Merritt Wealth Strategies
MetLife
MFS
Michigan Securities, Inc.
Mid-Atlantic Capital Corp.
Milkie Ferguson Investments
MML Investors Services, Inc.
Money Concepts Capital Corp.
Montgomery Agency
Morgan Keegan & Company
Morgan Stanley Smith Barney
MTL Equity Products, Inc.
Multi Financial Securities Crp
National Planning Corporation
National Securities Corp.
Nationwide Securities, LLC
Navigator Financial
Neuberger Berman
New Alliance Bank
New England Securities Corp.
New York Life
Newbridge Securities Corp.
Newport Coast Securities
Next Financial Group, Inc.
NFP Securities, Inc.
North Ridge Securities Corp.
NPB Financial Group, LLC
OneAmerica Securities, Inc.
One Resource Group
OPPENHEIMER & CO, INC.
Pacific West Securities, Inc.
Packerland Brokerage Services, Inc.
Park Avenue Securities, LLC
Paulson Investment Co., Inc.
PIMCO
PlanMember Securities Corp.
PNC Investments, LLC
Presidential Brokerage, Inc.
Prime Capital Services, Inc.
PRIMEVEST FINANCIAL SERVICES
Principal Financial Group
Princor Financial Services Corp.
Private Client Services, LLC
ProEquities
Prospera Financial Services, Inc.
Pruco Securities, LLC
Purshe Kaplan Sterling Investments
QA3 Financial Corp.
Quest Financial Services
Questar Capital Corporation
Raymond James & Associates
Raymond James Financial Svcs
RBC CAPITAL MARKETS CORPORATION
Resource Horizons Group
Ridgeway & Conger, Inc.
RNR Securities, LLC
Robert W. Baird & Co., Inc.
Royal Alliance Associates
Royal Bank of Scotland
Sagemark Consulting
SAGEPOINT FINANCIAL, INC.
Sage Rutty & Co., Inc.
Sammons Securities Co., LLC
Sanders Morris Harris Inc.
SAUNDERS RETIREMENT ADVISORS INC
SCF Securities, Inc.
Schroders Investment Management
Scott & Stringfellow, Inc.
Seacoast Capital
Securian Financial Svcs, Inc.
Securities America, Inc.
Securities Service Network
Sigma Financial Corporation
Signator Investors, Inc.
SII Investments, Inc.
Silver Oaks Securities
SMH Capital, Inc.
Southwest Securities, Inc.
SPIRE SECURITIES LLC
STERLING MONROE SECURITIES LLC
Sterne Agee Financial Services, Inc.
Stifel Nicolaus & Co.
STRATEGIC FIN ALLIANCE INC
Summit Brokerage Services, Inc
Summit Equities, Inc.
Summit Financial
Sunset Financial Services, Inc
SunTrust Investment Services, Inc.
SWBC Investment Services
109
SWS Financial Services, Inc
SYMETRA INVESTMENT SERVICES INC
Syndicated
T. Rowe Price Group, Inc.
TFS Securities, Inc.
The Capital Group Securities, Inc.
The Investment Center
The O.N. Equity Sales Co.
The Prudential Insurance Company of America
The Wharton School
Tower Square Securities, Inc.
TransAmerica Financial Advisors, Inc.
Triad Advisors, Inc.
Trustmont Financial Group, Inc.
UBS Financial Services, Inc.
UNIONBANC INVESTMENT SERV, LLC
United Planners Fin. Serv.
USA Financial Securities Corp.
US Bank
UVEST Fin'l Srvcs Group, Inc.
VALIC Financial Advisors, Inc
Valmark Securities, Inc.
Veritrust Financial LLC
VFinance Investments
VSR Financial Services, Inc.
WADDELL & REED INC.
Wall Street Financial Group
Walnut Street Securities, Inc.
WAYNE HUMMER INVESTMENTS LLC
Wedbush Morgan Securities
Wells Fargo Advisors LLC
WELLS FARGO ADVISORS LLC - WEALTH
WFG Investments, Inc.
Wilbanks Securities, Inc.
Williams Financial Group
Woodbury Financial Services
Woodstock Financial
Workman Securities Corporation
World Equity Group, Inc.
World Group Securities, Inc.
WRP Investments, Inc
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 Annuities than
for selling a different annuity that is not eligible for these compensation
arrangements. While compensation is generally taken into account as an expense
in considering the charges applicable to 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 request.
This Annuity 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.
FINANCIAL STATEMENTS
The financial statements of the Separate Account and Pruco Life are included
in the Statement of Additional Information.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Securities Act") may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, the
registrant has been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
LEGAL PROCEEDINGS
We are subject to legal and regulatory actions in the ordinary course of our
business. Our pending legal and regulatory actions include proceedings
specific to us and proceedings generally applicable to business practices in
the industry in which we operate. We are subject to class action lawsuits and
other litigation involving a variety of issues and allegations involving sales
practices, claims payment and procedures, premium charges, policy servicing
and breach of fiduciary duty to customers. We are also subject to litigation
arising out of our general business activities, such as our investments,
contracts, leases and labor and employment relationships, including claims of
discrimination and harassment, and could be exposed to claims or litigation
concerning certain business or process patents. In some of the pending legal
and regulatory actions, plaintiffs are seeking large and/or indeterminate
amounts, including punitive or exemplary damages. In addition, we, along with
other participants in the businesses in which we engage, may be subject from
time to time to investigations, examinations and inquiries, in some cases
industry-wide, concerning issues or matters upon which such regulators have
determined to focus. In some of our pending legal and regulatory actions,
parties are seeking large and/or indeterminate amounts, including punitive or
exemplary damages. The outcome of a litigation or a regulatory matter, and the
amount or range of potential loss at any particular time, is often inherently
uncertain.
Pruco Life establishes accruals for litigation and regulatory matters when it
is probable that a loss has been incurred and the amount of that loss can be
reasonably estimated. For litigation and regulatory matters where a loss may
be reasonably possible, but not probable, or is probable but not reasonably
estimable, no accrual is established, but the matter, if material, is
disclosed, including matters discussed below. As of September 30, 2012, the
aggregate range of reasonably possible losses in excess of accruals
established is not currently estimable. Pruco Life reviews relevant
information with respect to its litigation and regulatory matters on a
quarterly and annual basis and updates its accruals, disclosures and estimates
of reasonably possible loss based on such reviews.
In December 2010, a purported state-wide class action complaint, Phillips v.
Prudential Financial, Inc., was filed in the Circuit Court of the First
Judicial Circuit, Williamson County, Illinois. The complaint makes claims of
breach of contract, breaches of
110
fiduciary duty, and violation of Illinois law on behalf of a class of Illinois
residents whose death benefits were settled by retained assets accounts and
seeks damages and disgorgement of profits. In January 2011, the case was
removed to the United States District Court for the Southern District of
Illinois. In March 2011, the complaint was amended to drop Prudential
Financial as a defendant and add Pruco Life as a defendant. The matter is now
captioned Phillips v. Prudential Insurance and Pruco Life Insurance Company.
In April 2011, a motion to dismiss the amended complaint was filed. In
November 2011, the complaint was dismissed and the dismissal appealed in
December 2011.
In July 2010, Pruco Life, along with other life insurance industry
participants, received a formal request for information from the State of New
York Attorney General's Office in connection with its investigation into
industry practices relating to the use of retained asset accounts. In August
2010, Pruco Life received a similar request for information from the State of
Connecticut Attorney General's Office. Pruco Life is cooperating with these
investigations. Pruco Life has also been contacted by state insurance
regulators and other governmental entities, including the U.S. Department of
Veterans Affairs and Congressional committees regarding retained asset
accounts. These matters may result in additional investigations, information
requests, claims, hearings, litigation, adverse publicity and potential
changes to business practices.
In January 2012, a qui tam action on behalf of the State of Illinois, Total
Asset Recovery Services v. Met Life Inc, et al., Prudential Financial, Inc.,
The Prudential Insurance Company of America, and Prudential Holdings, LLC,
filed in the Circuit Court of Cook County, Illinois, was served on Pruco Life.
The complaint alleges that Pruco Life failed to escheat life insurance
proceeds to the State of Illinois in violation of the Illinois False Claims
Whistleblower Reward and Protection Act and seeks injunctive relief,
compensatory damages, civil penalties, treble damages, prejudgment interest,
attorneys' fees and costs. In April, 2012, Pruco Life filed a motion to
dismiss the complaint. In September 2012, the complaint was withdrawn without
prejudice. In March 2012, a qui tam action on behalf of the State of
Minnesota, Total Asset Recovery v. MetLife Inc., et al., Prudential Financial
Inc., The Prudential Insurance Company of America and Prudential Holdings,
Inc., filed in the Fourth Judicial District, Hennepin County, in the State of
Minnesota was served on Pruco Life. The complaint alleges that Pruco Life
failed to escheat life insurance proceeds to the State of Minnesota in
violation of the Minnesota False Claims Act and seeks injunctive relief,
compensatory damages, civil penalties, treble damages, prejudgment interest,
attorneys' fees and costs. In June 2012, the company filed a motion to dismiss
the complaint.
In January 2012, a Global Resolution Agreement entered into by Pruco Life and
a third party auditor became effective upon its acceptance by the unclaimed
property departments of 20 states and jurisdictions. Under the terms of the
Global Resolution Agreement, the third party auditor acting on behalf of the
signatory states will compare expanded matching criteria to the Social
Security Master Death File ("SSMDF") to identify deceased insureds and
contract holders where a valid claim has not been made. In February 2012, a
Regulatory Settlement Agreement entered into by Pruco Life to resolve a
multi-state market conduct examination regarding its adherence to state claim
settlement practices became effective upon its acceptance by the insurance
departments of 20 states and jurisdictions. The Regulatory Settlement
Agreement applies prospectively and requires Pruco Life to adopt and implement
additional procedures comparing its records to the SSMDF to identify unclaimed
death benefits and prescribes procedures for identifying and locating
beneficiaries once deaths are identified. Other jurisdictions that are not
signatories to the Regulatory Settlement Agreement are considering proposals
that would apply prospectively and require life insurance companies to take
additional steps to identify unreported deceased policy and contract holders.
These prospective changes and any escheatable property identified as a result
of the audits and inquiries could result in: (1) additional payments of
previously unclaimed death benefits; (2) the payment of abandoned funds to
U.S. jurisdictions; and (3) changes in Pruco Life's practices and procedures
for the identification of escheatable funds and beneficiaries, which would
impact claim payments and reserves, among other consequences.
Pruco Life is one of several companies subpoenaed by the New York Attorney
General regarding its unclaimed property procedures. Additionally, the New
York Department of Financial Services ("NYDFS") has requested that 172 life
insurers (including Pruco Life) provide data to the NYDFS regarding use of the
SSMDF. The New York Office of Unclaimed Funds recently notified Pruco Life
that it intends to conduct an audit of Pruco Life's compliance with New York's
unclaimed property laws. The Minnesota Attorney General has also requested
information regarding Pruco Life's use of the SSMDF and its claim handling
procedures and Pruco Life is one of several companies subpoenaed by the
Minnesota Department of Commerce, Insurance Division. In February 2012, the
Massachusetts Office of the Attorney General requested information regarding
Pruco Life's unclaimed property procedures.
In October 2012, the State of West Virginia, through its State Treasurer,
filed a lawsuit, State of West Virginia ex. Rel. John D. Perdue v. PRUCO Life
Insurance Company, in the Circuit Court of Putnam County, West Virginia. The
complaint alleges violations of the West Virginia Uniform Unclaimed Property
Fund Act by failing to properly identify and report all unclaimed insurance
policy proceeds which should either be paid to beneficiaries or escheated to
West Virginia. The complaint seeks to examine the records of Prudential
Insurance to determine compliance with the West Virginia Uniform Unclaimed
Property Fund Act, and to assess penalties and costs in an undetermined amount.
111
Pruco Life's litigation and regulatory matters are subject to many
uncertainties, and given their complexity and scope, their outcome cannot be
predicted. It is possible that Pruco Life's results of operations or cash flow
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.
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The following are the contents of the Statement of Additional Information:
.. Company
.. Experts
.. Principal Underwriter
.. Payments Made to Promote Sale of Our Products
.. Determination of Accumulation Unit Values
.. Financial Statements
HOW TO CONTACT US
You can contact us by:
.. calling our Customer Service Team at 1-888-PRU-2888 during our normal
business hours,
.. 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.
.. writing to us via overnight mail, certified, or registered mail delivery at
the Prudential Annuity Service Center, 2101 Welsh Road, Dresher, PA 19025.
.. accessing information about your Annuity through our Internet Website at
www.prudentialannuities.com.
You can obtain account information by calling our automated response system
and at www.prudentialannuities.com, our Internet Website. Our Customer Service
representatives are also available during business hours to provide you with
information about your account. You can request certain transactions through
our telephone voice response system, our Internet Website or through a
customer service representative. You can provide authorization for a third
party, including your attorney-in-fact acting pursuant to a power of attorney,
to access your account information and perform certain transactions on your
account. You will need to complete a form provided by us which identifies
those transactions that you wish to authorize via telephonic and electronic
means and whether you wish to authorize a third party to perform any such
transactions. Please note that unless you tell us otherwise, we deem that all
transactions that are directed by your Financial Professional with respect to
your Annuity have been authorized by you. We require that you or your
representative provide proper identification before performing transactions
over the telephone or through our Internet Website. This may include a
Personal Identification Number (PIN) that will be provided to you upon issue
of your Annuity or you may establish or change your PIN by calling our
automated response system and at www.prudentialannuities.com, our Internet
Website. Any third party that you authorize to perform financial transactions
on your account will be assigned a PIN for your account.
Transactions requested via telephone are recorded. To the extent permitted by
law, we will not be responsible for any claims, loss, liability or expense in
connection with a transaction requested by telephone or other electronic means
if we acted on such transaction instructions after following reasonable
procedures to identify those persons authorized to perform transactions on
your Annuity using verification methods which may include a request for your
Social Security number, PIN or other form of electronic identification. We may
be liable for losses due to unauthorized or fraudulent instructions if we did
not follow such procedures.
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. Nor, due to circumstances beyond our
control, can we provide any assurances as to the delivery of transaction
instructions submitted to us by regular and/or express mail. Regular and/or
express mail (if operational) 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.
112
APPENDIX A - ACCUMULATION UNIT VALUES
As we have indicated throughout this prospectus, the Annuity is a contract
that allows you to select or decline any of several features that carries with
it a specific asset-based charge. We maintain a unique Unit value
corresponding to each combination of such contract features.
Here, we set forth the historical Unit values corresponding to the lowest
charge level and the highest charge level. In the Statement of Additional
Information, which is available free of charge, we set forth Unit values
corresponding to the remaining charge levels.
PREMIER RETIREMENT ADVISOR SERIES
PRUCO LIFE INSURANCE COMPANY
PROSPECTUS
ACCUMULATION UNIT VALUES: Basic Death Benefit Only (0.55%)
A-1
A-2
A-3
A-4
* Denotes the start date of these sub-accounts
A-5
APPENDIX B - SPECIAL CONTRACT PROVISIONS FOR ANNUITIES ISSUED IN CERTAIN STATES
Certain features of your Annuity may be different than the features described
earlier in this prospectus, if your Annuity is issued in certain states
described below. Further variations may arise in connection with additional
state reviews.
B-1
APPENDIX C - MVA FORMULAS
MVA FORMULA FOR LONG TERM MVA OPTIONS
The MVA formula is applied separately to each MVA Option to determine the
Account Value of the MVA Option on a particular date.
The MVA factor is equal to:
[(1+I)/(1+J+K)]/n/12/
where:
I = the Crediting Rate for the MVA Option;
J = the Rate for the remaining Guarantee Period, determined as
described below;
K = the Liquidity Factor, currently equal to 0.0025; and
N = the number of months remaining in the Guarantee Period duration,
rounded up to the nearest whole month
For the purposes of determining "J",
Y = n /12
GP\\1\\ = the smallest whole number of years greater than or equal to Y.
r\\1\\ = the rate for Guarantee Periods of duration GP\\1\\, which will equal
the crediting rate if such Guarantee Period duration is currently available.
GP\\2\\ = the greatest whole number of years less than or equal to Y, but not
less than 1.
r\\2\\ = the rate for Guarantee Periods of duration GP\\2\\, which will equal
the crediting rate if such Guarantee Period duration is currently available.
If we do not currently offer a Guarantee Period of duration GP\\1\\ or
duration GP\\2\\, we will determine r\\1\\ and / or r\\2\\ by linearly
interpolating between the current rates of Guarantee Periods closest in
duration. If we cannot interpolate because a Guarantee Period of lesser
duration is not available, then r\\1\\ and / or r\\2\\ will be equal to [(1) +
(2) - (3)], where (1), (2), and (3) are defined as:
(1)= the current Treasury spot rate for GP\\1\\ or GP\\2\\, respectively, and
(2)= the current crediting rate for the next longer Guaranteed Period duration
currently available, and
(3)= the current Treasury spot rate for the next longer Guaranteed Period
duration currently available.
The term "current Treasury spot rate" refers to the rates that existed at the
time the crediting rates were last determined.
To determine "J":
If Y is an integer, and if Y is equal to a Guarantee Period duration that we
currently offer, "J" is equal to the crediting rate associated with a
Guarantee Period duration of Y years.
If Y is less than 1, then "J" = r\\2\\.
Otherwise, we determine "J" by linearly interpolating between r\\1\\ and
r\\2\\, using the following formula:
J = (R\\1\\ * (Y - GP\\2\\) + r\\2\\ * (GP\\1\\ - Y)) / (GP\\1\\ - GP\\2\\)
The current rate ("J") in the MVA formula is subject to the same Guaranteed
Minimum Interest Rate as the Crediting Rate.
We reserve the right to waive the liquidity factor set forth above.
C-1
MVA EXAMPLES FOR LONG TERM MVA OPTION
The following hypothetical examples show the effect of the MVA in determining
Account Value. Assume the following:
.. You allocate $50,000 into an MVA Option (we refer to this as the
"Allocation Date" in these examples) with a Guarantee Period of 5 years (we
refer to this as the "Maturity Date" in these examples).
.. The crediting rate associated with the MVA Option beginning on Allocation
Date and maturing on Maturity Date is 5.50% (I = 5.50%).
.. You make no withdrawals or transfers until you decide to withdraw the
entire MVA Option after exactly three (3) years, at which point 24 months
remain before the Maturity Date (N = 24).
EXAMPLE OF POSITIVE MVA
Assume that at the time you request the withdrawal, the crediting rate
associated with the fixed allocation maturing on the Maturity Date is 4.00% (J
= 4.00%). Based on these assumptions, the MVA would be calculated as follows:
MVA Factor = [(1+I)/(1+J+0.0025)]/N/12/ = [1.055/1.0425]/2/ = 1.024125
Unadjusted Value = $58,712.07
Adjusted Account Value after MVA = Unadjusted Value X MVA Factor = $60,128.47
EXAMPLE OF NEGATIVE MVA
Assume that at the time you request the withdrawal, the crediting rate
associated with the fixed allocation maturing on the Maturity Date is 7.00% (J
= 7.00%). Based on these assumptions, the MVA would be calculated as follows:
MVA Factor = [(1+I)/(1+J+0.0025)]/N/12/ = [1.055/1.0725]/2/ = 0.967632
Unadjusted Value = $58,712.07
Adjusted Account Value after MVA = Unadjusted Value x MVA Factor = $56,811.69
MVA FORMULA FOR 6 OR 12 MONTH DCA MVA OPTIONS
The MVA formula is applied separately to each DCA MVA Option to determine the
Account Value of the DCA MVA Option on a particular date.
The MVA factor is equal to:
[(1+I)/(1+J+K)]/n/12/
where:
I = the Index Rate established at inception of a DCA MVA Option. This
Index Rate will be based on a Constant Maturity Treasury (CMT) rate for
a maturity (in months) equal to the initial duration of the DCA MVA
Option. This CMT rate will be determined based on the weekly average of
the CMT Index of appropriate maturity as of two weeks prior to
initiation of the DCA MVA Option. The CMT Index will be based on
"Treasury constant maturities nominal 12" rates as published in Federal
Reserve Statistical Release H.15. If a CMT index for the number of
months needed is not available, the applicable CMT index will be
determined based on a linear interpolation of the published CMT indices;
J = the Index Rate determined at the time the MVA calculation is
needed, based on a CMT rate for the amount of time remaining in the DCA
MVA Option. The amount of time will be based on the number of complete
months remaining in the DCA MVA Option, rounded up to the nearest whole
month. This CMT rate will be determined based on the weekly average of
the CMT Index of appropriate maturity as of two weeks prior to the date
for which the MVA calculation is needed. The CMT Index will be based on
"Treasury constant maturities nominal 12" rates as published in Federal
Reserve Statistical Release H.15. If a CMT index for the number of
months needed is not available, the applicable CMT index will be
determined based on a linear interpolation of the published CMT indices;
K = the Liquidity Factor, currently equal to 0.0025; and
N = the number of complete months remaining in the DCA MVA Option,
rounded up to the nearest whole month.
C-2
If the "Treasury constant maturities nominal 12" rates available through
Federal Reserve Statistical Release H. 15 should become unavailable at any
time, or if the rate for a 1-month maturity should become unavailable through
this source, we will substitute rates which, in our opinion, are comparable.
We reserve the right to waive the Liquidity Factor.
C-3
APPENDIX D - FORMULA FOR HIGHEST DAILY LIFETIME INCOME V2.1
SUITE OF LIVING BENEFITS
TRANSFERS OF ACCOUNT VALUE BETWEEN YOUR PERMITTED SUB-ACCOUNTS AND THE AST
INVESTMENT GRADE BOND SUB-ACCOUNT
TERMS AND DEFINITIONS REFERENCED IN THE CALCULATION FORMULAS:
. C\\u\\ - the upper target is established on the effective date of the
Highest Daily Lifetime Income v2.1 Suite of benefits (the "Effective
Date") and is not changed for the life of the guarantee. Currently, it
is 83%.
. C\\us\\ - The secondary upper target is established on the Effective
Date and is not changed for the life of the guarantee. Currently it is
84.5%
. C\\t\\ - the target is established on the Effective Date and is not
changed for the life of the guarantee. Currently, it is 80%.
. C\\l\\ - the lower target is established on the Effective Date and is
not changed for the life of the guarantee. Currently, it is 78%.
. L - the target value as of the current Valuation Day.
. r - the target ratio.
. a - factors used in calculating the target value. These factors are
established on the Effective Date and are not changed for the life of
the guarantee. (See below for the table of "a" factors)
. V\\v\\ - the total value of all Permitted Sub-accounts in the Annuity.
. V\\F\\ - the Unadjusted Account Value of all elected DCA MVA Options in
the Annuity.
. B - the total value of the AST Investment Grade Bond Portfolio
Sub-account.
. P - Income Basis. Prior to the first Lifetime Withdrawal, the Income
Basis is equal to the Protected Withdrawal Value calculated as if the
first Lifetime Withdrawal were taken on the date of calculation. After
the first Lifetime Withdrawal, the Income Basis is equal to the greater
of (1) the Protected Withdrawal Value on the date of the first Lifetime
Withdrawal, increased for additional Purchase Payments and adjusted
proportionally for Excess Income*, and (2) the Protected Withdrawal
Value on any Annuity Anniversary subsequent to the first Lifetime
Withdrawal, increased for subsequent additional Purchase Payments and
adjusted proportionately for Excess Income* and (3) any highest daily
Unadjusted Account Value occurring on or after the later of the
immediately preceding Annuity anniversary, or the date of the first
Lifetime Withdrawal, and prior to or including the date of this
calculation, increased for additional Purchase Payments and adjusted for
withdrawals, as described herein.
. T - the amount of a transfer into or out of the AST Investment Grade
Bond Portfolio Sub-account.
. T\\M\\ - the amount of a monthly transfer out of the AST Investment
Grade Bond Portfolio.
* Note: Lifetime Withdrawals of less than or equal to the Annual Income
Amount do not reduce the Income Basis.
DAILY TARGET VALUE CALCULATION:
On each Valuation Day, a target value (L) is calculated, according to the
following formula. If (V\\V\\ + V\\F\\) is equal to zero, no calculation is
necessary. Target Values are subject to change for new elections of this
benefit on a going-forward basis.
DAILY TRANSFER CALCULATION:
The following formula, which is set on the Benefit Effective Date and is not
changed for the life of the guarantee, determines when a transfer is required:
. If on the third consecutive Valuation Day r (greater than) C\\u\\ and r
(less or =) C\\us\\ or if on any day r (greater than) C\\us\\, and
transfers have not been suspended due to the 90% cap rule, assets in the
Permitted Sub-accounts and the DCA MVA Options, if applicable, are
transferred to the AST Investment Grade Bond Portfolio Sub-account.
D-1
. If r (less than) C\\l\\, and there are currently assets in the AST
Investment Grade Bond Portfolio Sub-account (B (greater than) 0), assets
in the AST Investment Grade Bond Portfolio Sub-account are transferred
to the Permitted Sub-accounts as described above.
90% CAP RULE: If, on any Valuation Day this benefit remains in effect, a
transfer into the AST Investment Grade Bond Portfolio Sub-account occurs that
results in 90% of the Unadjusted Account Value being allocated to the AST
Investment Grade Bond Portfolio Sub-account, any transfers into the AST
Investment Grade Bond Portfolio Sub-account will be suspended, even if the
formula would otherwise dictate that a transfer into the AST Investment Grade
Bond Portfolio Sub-account should occur. Transfers out of the AST Investment
Grade Bond Portfolio Sub-account and into the elected Sub-accounts will still
be allowed. The suspension will be lifted once a transfer out of the AST
Investment Grade Bond Portfolio Sub-account occurs either due to a Daily or
Monthly Transfer Calculation. Due to the performance of the AST Investment
Grade Bond Portfolio Sub-account and the elected Sub-accounts, the Unadjusted
Account value could be more than 90% invested in the AST Investment Grade Bond
Portfolio Sub-account.
The following formula, which is set on the Benefit Effective Date and is not
changed for the life of the guarantee, determines the transfer amount:
MONTHLY TRANSFER CALCULATION
On each monthly anniversary of the Annuity Issue Date and following the daily
Transfer Calculation above, the following formula determines if a transfer
from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts
will occur:
If, after the daily Transfer Calculation is performed,
{Min (B, .05 * (V\\V\\ + V\\F\\ + B))} (less than) (C\\u\\ * (V\\V\\ + V\\F\\)
- L + B) / (1 - C\\u\\), then
D-2
"A" FACTORS FOR LIABILITY CALCULATIONS
(in Years and Months since Benefit Effective Date)*
* The values set forth in this table are applied to all ages.
** In all subsequent years and months thereafter, the annuity factor is 4.06
D-3
Please see the section of this prospectus
entitled "How To Contact Us" for
where to send your request for
a Statement of Additional Information
PRUCO LIFE INSURANCE COMPANY
A Prudential Financial Company
751 Broad Street, Newark, NJ 07102-3777
PRUDENTIAL PREMIER(R) RETIREMENT VARIABLE ANNUITY
(FOR CONTRACTS ISSUED ON OR AFTER FEBRUARY 25, 2013)
FLEXIBLE PREMIUM DEFERRED ANNUITY
PROSPECTUS: FEBRUARY 14, 2013
This prospectus describes a flexible premium deferred annuity contract
("Annuity") offered by Pruco Life Insurance Company ("Pruco Life", "we",
"our", or "us"). The Annuity has features and benefits that may be appropriate
for you based on your financial situation, your age and how you intend to use
the Annuity. Financial Professionals may be compensated for the sale of the
Annuity. Selling broker-dealer firms through which the Annuity is sold may
decline to recommend to their customers certain of the optional features and
Investment Options offered generally under the Annuity or may impose
restrictions (e.g., a lower maximum issue age and/or optional benefits).
Please speak to your Financial Professional for further details. The
guarantees provided by the variable annuity contract and the optional benefits
are the obligations of and subject to the claims paying ability of Pruco Life.
THE ANNUITY OR CERTAIN OF ITS INVESTMENT OPTIONS AND/OR FEATURES MAY NOT BE
AVAILABLE IN ALL STATES. Certain terms are capitalized in this prospectus.
Those terms are either defined in the Glossary of Terms or in the context of
the particular section.
THE SUB-ACCOUNTS
The Pruco Life Flexible Premium Variable Annuity Account is a Separate Account
of Pruco Life, and is the investment vehicle in which your Purchase Payments
invested in the Sub-accounts are held. Each Sub-account of the Pruco Life
Flexible Premium Variable Annuity Account invests in an underlying mutual fund
- see the following page for a complete list of the Sub-accounts. Currently,
portfolios of Advanced Series Trust are being offered.
PLEASE READ THIS PROSPECTUS
THIS PROSPECTUS SETS FORTH INFORMATION ABOUT THE ANNUITY THAT YOU OUGHT TO
KNOW BEFORE INVESTING. PLEASE READ THIS PROSPECTUS AND THE CURRENT PROSPECTUS
FOR THE UNDERLYING MUTUAL FUNDS. KEEP THEM FOR FUTURE REFERENCE. If you are
purchasing the Annuity as a replacement for an existing variable annuity or
variable life coverage, or a fixed insurance policy, you should consider any
surrender or penalty charges you may incur and any benefits you may also be
forfeiting when replacing your existing coverage and that this Annuity is
subject to a Contingent Deferred Sales Charge if you elect to surrender the
Annuity or take a partial withdrawal. You should consider your need to access
the Annuity's Account Value and whether the Annuity's liquidity features will
satisfy that need. Please note that if you are investing in this Annuity
through a tax-advantaged retirement plan (such as an Individual Retirement
Account or 401(k) plan), you will get no additional tax advantage through the
Annuity itself.
OTHER CONTRACTS
We offer a variety of fixed and variable annuity contracts. They may offer
features, including investment options, and have fees and charges, that are
different from the annuity contracts offered by this prospectus. Not every
annuity contract we issue is offered through every selling broker-dealer firm.
Upon request, your financial professional can show you information regarding
other Pruco Life annuity contracts that he or she distributes. You can also
contact us to find out more about the availability of any of the Pruco Life
annuity contracts. You should work with your financial professional to decide
whether this annuity contract is appropriate for you based on a thorough
analysis of your particular needs, financial objectives, investment goals,
time horizons and risk tolerance.
AVAILABLE INFORMATION
We have also filed a Statement of Additional Information dated the same date
as this prospectus that is available from us, without charge, upon your
request. The contents of the Statement of Additional Information are described
at the end of this prospectus - see Table of Contents. The Statement of
Additional Information is incorporated by reference into this prospectus. This
prospectus is part of the registration statement we filed with the U.S.
Securities and Exchange Commission (SEC) regarding this offering. Additional
information on us and this offering is available in the registration statement
and the exhibits thereto. You may review and obtain copies of these materials
at no cost to you by contacting us. These documents, as well as documents
incorporated by reference, may also be obtained through the SEC's Internet
Website (www.sec.gov) for this registration statement as well as for other
registrants that file electronically with the SEC. Please see the section of
this prospectus entitled "How To Contact Us" for details regarding our
addresses.
THIS ANNUITY IS NOT A DEPOSIT OR OBLIGATION OF, OR ISSUED, GUARANTEED OR
ENDORSED BY, ANY BANK, IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD OR
ANY OTHER AGENCY. AN INVESTMENT IN AN ANNUITY INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF VALUE, EVEN WITH RESPECT TO AMOUNTS ALLOCATED TO
THE AST MONEY MARKET SUB-ACCOUNT.
--------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRUDENTIAL, PRUDENTIAL FINANCIAL, PRUDENTIAL ANNUITIES AND THE ROCK LOGO ARE
SERVICEMARKS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND ITS
AFFILIATES. OTHER PROPRIETARY PRUDENTIAL MARKS MAY BE DESIGNATED AS SUCH
THROUGH USE OF THE/ SM/ OR (R) SYMBOLS.
--------------------------------------------------------------------------------
FOR FURTHER INFORMATION CALL: 1-888-PRU-2888 OR GO TO OUR WEBSITE AT
http://www.prudentialannuities.com
Prospectus Dated: Statement of Additional
February 14, 2013 Information Dated:
February 14, 2013
PLEASE SEE OUR IRA, ROTH IRA AND FINANCIAL DISCLOSURE STATEMENTS ATTACHED TO
THE BACK COVER OF THIS PROSPECTUS.
VARIABLE INVESTMENT OPTIONS
ADVANCED SERIES TRUST
AST Academic Strategies Asset Allocation Portfolio /1/
AST Advanced Strategies Portfolio /1/
AST AQR Emerging Markets Equity Portfolio
AST Balanced Asset Allocation Portfolio /1/
AST BlackRock Global Strategies Portfolio /1/
AST BlackRock Value Portfolio
AST Capital Growth Asset Allocation Portfolio /1/
AST Clearbridge Dividend Growth Portfolio
AST Cohen & Steers Realty Portfolio
AST Federated Aggressive Growth Portfolio
AST FI Pyramis(R) Asset Allocation Portfolio /1/
AST First Trust Balanced Target Portfolio /1/
AST First Trust Capital Appreciation Target Portfolio /1/
AST Franklin Templeton Founding Funds Allocation Portfolio /1/
AST Global Real Estate Portfolio
AST Goldman Sachs Concentrated Growth Portfolio
AST Goldman Sachs Large-Cap Value Portfolio
AST Goldman Sachs Mid-Cap Growth Portfolio
AST Goldman Sachs Small-Cap Value Portfolio
AST High Yield Portfolio
AST Horizon Moderate Asset Allocation Portfolio /1/
AST International Growth Portfolio
AST International Value Portfolio
AST Investment Grade Bond Portfolio /2/
AST Jennison Large-Cap Growth Portfolio
AST Jennison Large-Cap Value Portfolio
AST J.P. Morgan Global Thematic Portfolio /1/
AST J.P. Morgan International Equity Portfolio
AST J.P. Morgan Strategic Opportunities Portfolio /1/
AST Large-Cap Value Portfolio
AST Lord Abbett Core Fixed-Income Portfolio
AST Marsico Capital Growth Portfolio
AST MFS Global Equity Portfolio
AST MFS Growth Portfolio
AST MFS Large-Cap Value Portfolio
AST Mid-Cap Value Portfolio
AST Moderate Asset Allocation Portfolio /1/
AST Money Market Portfolio
AST Neuberger Berman Core Bond Portfolio
AST Neuberger Berman Mid-Cap Growth Portfolio
AST Neuberger Berman/LSV Mid-Cap Value Portfolio
AST New Discovery Asset Allocation Portfolio /1/
AST Parametric Emerging Markets Equity Portfolio
AST PIMCO Limited Maturity Bond Portfolio
AST PIMCO Total Return Bond Portfolio
AST Preservation Asset Allocation Portfolio /1/
AST Prudential Core Bond Portfolio
AST QMA Emerging Markets Equity Portfolio
AST QMA US Equity Alpha Portfolio
AST Schroders Global Tactical Portfolio /1/
AST Schroders Multi-Asset World Strategies Portfolio /1/
AST Small-Cap Growth Portfolio
AST Small-Cap Value Portfolio
AST T. Rowe Price Asset Allocation Portfolio /1/
AST T. Rowe Price Equity Income Portfolio
AST T. Rowe Price Global Bond Portfolio
AST T. Rowe Price Large-Cap Growth Portfolio
AST T. Rowe Price Natural Resources Portfolio
AST Wellington Management Hedged Equity Portfolio /1/
AST Western Asset Core Plus Bond Portfolio
AST Western Asset Emerging Markets Debt Portfolio
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(1) These are the only variable investment options available to you if you
select one of the optional benefits.
(2) The AST Investment Grade Bond Portfolio is not available for allocation
of Purchase Payments or contract owner transfers.
CONTENTS
(i)
(ii)
GLOSSARY OF TERMS
We set forth here definitions of some of the key terms used throughout this
prospectus. In addition to the definitions here, we also define certain terms
in the section of the prospectus that uses such terms.
ACCOUNT VALUE: The total value of all allocations to the Sub-accounts and the
DCA MVA Options on any Valuation Day. The Account Value is determined
separately for each Sub-account and for each DCA MVA Option, and then totaled
to determine the Account Value for your entire Annuity. The Account Value of
each DCA MVA Option will be calculated using any applicable MVA.
ACCUMULATION PERIOD: The period of time from the Issue Date through the last
Valuation Day immediately preceding the Annuity Date.
ANNUITANT: The natural person upon whose life annuity payments payable to the
Owner are based.
ANNUITIZATION: Annuitization is the process by which you "annuitize" your
Unadjusted Account Value. When you annuitize, we apply the Unadjusted Account
Value to one of the available annuity options to begin making periodic
payments to the Owner.
ANNUITY DATE: The date on which we apply your Unadjusted Account Value to the
applicable annuity option and begin the payout period. As discussed in the
Annuity Options section, there is an age by which you must begin receiving
annuity payments, which we call the "Latest Annuity Date."
ANNUITY YEAR: The first Annuity Year begins on the Issue Date and continues
through and includes the day immediately preceding the first anniversary of
the Issue Date. Subsequent Annuity Years begin on the anniversary of the Issue
Date and continue through and include the day immediately preceding the next
anniversary of the Issue Date.
BENEFICIARY(IES): The natural person(s) or entity(ies) designated as the
recipient(s) of the Death Benefit or to whom any remaining period certain
payments may be paid in accordance with the annuity payout options section of
the Annuity.
CODE: The Internal Revenue Code of 1986, as amended from time to time and the
regulations promulgated thereunder.
CONTINGENT DEFERRED SALES CHARGE (CDSC): This is a sales charge that may be
deducted when you make a surrender or take a partial withdrawal from your
Annuity. We refer to this as a "contingent" charge because it is imposed only
if you surrender or take a withdrawal from your Annuity. The charge is a
percentage of each applicable Purchase Payment that is being surrendered or
withdrawn.
DOLLAR COST AVERAGING ("DCA") MVA OPTION: An Investment Option that offers a
fixed rate of interest for a specified period. The DCA MVA Option is used only
with our 6 or 12 Month Dollar Cost Averaging Program, under which the Purchase
Payments that you have allocated to that DCA MVA Option are transferred to the
designated Sub-accounts over a 6 month or 12 month period. Withdrawals or
transfers from the DCA MVA Option generally will be subject to a Market Value
Adjustment if made other than pursuant to the 6 or 12 Month DCA Program.
DUE PROOF OF DEATH: Due Proof of Death is satisfied when we receive all of the
following in Good Order: (a) a death certificate or similar documentation
acceptable to us; (b) all representations we require or which are mandated by
applicable law or regulation in relation to the death claim and the payment of
death proceeds; and (c) any applicable election of the method of payment of
the death benefit, if not previously elected by the Owner, by at least one
Beneficiary.
FREE LOOK: The right to examine your Annuity, during a limited period of time,
to decide if you want to keep it or cancel it. The length of this time period,
and the amount of refund, depends on applicable law and thus may vary. In
addition, there is a different Free Look period that applies if your Annuity
is held within an IRA. In your Annuity contract, your Free Look right is
referred to as your "Right to Cancel."
GOOD ORDER: Good Order is the standard that we apply when we determine whether
an instruction is satisfactory. An instruction will be considered in Good
Order if it is received at our Service Office: (a) in a manner that is
satisfactory to us such that it is sufficiently complete and clear that we do
not need to exercise any discretion to follow such instruction and complies
with all relevant laws and regulations; (b) on specific forms, or by other
means we then permit (such as via telephone or electronic submission); and/or
(c) with any signatures and dates as we may require. We will notify you if an
instruction is not in Good Order.
GUARANTEE PERIOD: The period of time during which we credit a fixed rate of
interest to a DCA MVA Option.
INVESTMENT OPTION: A Sub-account or DCA MVA Option available as of any given
time to which Account Value may be allocated.
1
ISSUE DATE: The effective date of your Annuity.
KEY LIFE: Under the Beneficiary Continuation Option, the person whose life
expectancy is used to determine the required distributions.
MARKET VALUE ADJUSTMENT ("MVA"): A positive or negative adjustment used to
determine the Account Value of a DCA MVA Option.
OWNER: The Owner is either an eligible entity or person named as having
ownership rights in relation to the Annuity.
PAYOUT PERIOD: The period starting on the Annuity Date and during which
annuity payments are made.
PREMIUM BASED CHARGE: A charge that is deducted on each Quarterly Annuity
Anniversary from your Account Value, during the first seven years after each
Purchase Payment is made.
PURCHASE PAYMENT: A cash consideration (a "premium") in currency of the United
States of America given to us in exchange for the rights, privileges, and
benefits of the Annuity.
QUARTERLY ANNUITY ANNIVERSARY: Each successive three-month anniversary of the
Issue Date of the Annuity.
SERVICE OFFICE: The place to which all requests and payments regarding the
Annuity are to be sent. We may change the address of the Service Office at any
time, and will notify you in advance of any such change of address. Please see
the cover page of the Annuity contract for the Service Office address.
SEPARATE ACCOUNT: Referred to as the "Variable Separate Account" in your
Annuity, this is the variable Separate Account(s) shown in the Annuity.
SUB-ACCOUNT: A division of the Separate Account.
SURRENDER VALUE: The Account Value (which includes the effect of any MVA) less
any applicable CDSC, any applicable tax charges, any charges assessable as a
deduction from the Account Value for any optional benefits provided by rider
or endorsement, and any Annual Maintenance Fee.
UNADJUSTED ACCOUNT VALUE: The Unadjusted Account Value is equal to the Account
Value prior to the application of any MVA.
UNIT: A share of participation in a Sub-account used to calculate your Account
Value prior to the Annuity Date.
VALUATION DAY: Every day the New York Stock Exchange is open for trading or
any other day the Securities and Exchange Commission requires mutual funds or
unit investment trusts to be valued.
WE, US, OUR: Pruco Life Insurance Company.
YOU, YOUR: The Owner(s) shown in the Annuity.
2
SUMMARY OF CONTRACT FEES AND CHARGES
The following tables describe the fees and expenses that you will pay when
buying, owning, and surrendering the Annuity. The first table describes the
fees and expenses that you will pay at the time you surrender the Annuity,
take a partial withdrawal, or transfer Account Value between the Investment
Options. State premium taxes also may be deducted.
-------------------------------------
ANNUITY OWNER TRANSACTION EXPENSES
-------------------------------------
CONTINGENT DEFERRED SALES CHARGE/ 1/
The Contingent Deferred Sales Charge ("CDSC") for each Purchase Payment is a
percentage of the Purchase Payment being withdrawn. Thus, the appropriate
percentage is multiplied by the Purchase Payment(s) being withdrawn to
determine the amount of the CDSC. See "Contingent Deferred Sales Charge
("CDSC")" under "Fees, Charges and Deductions" for more information about how
the CDSC is calculated.
1 The different tiers of Contingent Deferred Sales Charges, separated by
"breakpoints", are shown in the table above. If a portion of a Purchase
Payment results in total Purchase Payments crossing into a new Purchase
Payment tier (as set forth in the table above), then the ENTIRE Purchase
Payment will be subject to the Contingent Deferred Sales Charge applicable
to that tier. Once a Purchase Payment is assigned to a particular tier for
purposes of the CDSC, the CDSC schedule for that specific Purchase Payment
will not change for the remainder of that CDSC period. Please see Appendix
E for examples of the operation of the Contingent Deferred Sales Charge.
2 Currently, we deduct the fee after the 20/th/ transfer each Annuity Year.
3 Currently, we deduct the tax charge only upon annuitization and only in
certain states - we will give you further details in the "maturity package"
that we will send to you prior to annuitization. We reserve the right to
deduct the tax charge upon any of the following events: the time the
Purchase Payment is allocated to the Annuity, upon a full surrender of the
Annuity, or upon Annuitization.
3
The following table provides a summary of the periodic fees and charges you
will pay while you own your Annuity, excluding the underlying portfolio annual
expenses. These fees and charges are described in more detail within this
prospectus.
----------------------------
PERIODIC FEES AND CHARGES
----------------------------
ANNUAL MAINTENANCE FEE/ 4,5/: Lesser of $50 or 2% of the Unadjusted Account
Value.
PREMIUM BASED CHARGE/ 6,7/.
4 Assessed annually on the Annuity's anniversary date or upon surrender. Only
applicable if the total of all Purchase Payments at the time the fee is due
is less than $50,000.
5 For Beneficiaries who elect the Beneficiary Continuation Option, the Annual
Maintenance Fee is the lesser of $30 or 2% of Unadjusted Account Value and
is only applicable if Unadjusted Account Value is less than $25,000 at the
time the fee is assessed.
6 The Premium Based Charge applicable to a Purchase Payment is determined by
multiplying (1) the amount of that Purchase Payment by (2) its associated
Premium Based Charge percentage, as shown in the table above. Each Purchase
Payment is subject to a Premium Based Charge for a 7 year period following
the date the Purchase Payment is allocated to the Annuity. The Premium
Based Charge for each Purchase Payment is determined when it is allocated
to the Annuity (except for those Purchase Payments that are allocated to
the Annuity prior to the first Quarterly Annuity Anniversary) based on the
total of all Purchase Payments received to date. For Purchase Payments
allocated to the Annuity before the first Quarterly Annuity Anniversary,
the Premium Based Charge for each Purchase Payment is based on the total of
all such Purchase Payments received up to and including the Valuation Day
before the first Quarterly Annuity Anniversary. Please see the Fees and
Charges section for details and Appendix E for examples of the operation of
the Premium Based Charge. "Quarterly Annuity Anniversary" refers to each
successive three-month anniversary of the Issue Date of the Annuity.
7 The different tiers of Premium Based Charges separated by "breakpoints",
are shown in the table above. If a portion of a Purchase Payment results in
total Purchase Payments crossing into a new Purchase Payment tier (as set
forth in the table above), then the ENTIRE Purchase Payment will be subject
to the Premium Based Charge applicable to that tier. With respect to those
Purchase Payments allocated to the Annuity prior to the first Quarterly
Annuity Anniversary, the Premium Based Charge percentage applicable to each
of those Purchase Payments is based on the total of all such Purchase
Payments (that is, we total all the Purchase Payments received before the
first Quarterly Annuity Anniversary to determine the Premium Based Charge
that applies to each). Purchase Payments received on or after the first
Quarterly Annuity Anniversary that result in breakpoints being reached will
result in lower charge percentages for only such Purchase Payments and
those that follow. Once a Premium Based Charge percentage is established
for any Purchase Payment, such percentage is fixed and will not be reduced
even if additional Purchase Payments are made or partial withdrawals are
taken. Please see Appendix E for examples of the operation of the Premium
Based Charge.
8 The Insurance Charge is the combination of Mortality & Expense Risk Charge
and the Administration Charge. For Beneficiaries who elect the Beneficiary
Continuation Option, the Mortality and Expense and Administration Charges
do not apply. However, a Settlement Service Charge equal to 1.00% is
assessed as a percentage of the daily net assets of the Sub-accounts as an
annual charge.
4
-----------------------------------------
YOUR OPTIONAL BENEFIT FEES AND CHARGES
-----------------------------------------
The following table sets forth the charge for each optional benefit under the
Annuity. These fees would be in addition to the periodic fees and transaction
fees set forth in the tables above. The first column shows the charge for each
optional benefit on a maximum and current basis. The next column shows the
total expenses you would pay for the Annuity if you purchased the relevant
optional benefit. More specifically, this column shows the total charge for
the optional benefit plus the Total Annualized Insurance Fees/Charges
applicable to the Annuity. Where the charges cannot actually be totaled
(because they are assessed against different base values), we show both
individual charges.
9 The charge for each of the Highest Daily Lifetime Income v2.1 benefits
listed above is assessed against the greater of Unadjusted Account Value
and the Protected Withdrawal Value (PWV). Please see the Living Benefits
section of this prospectus for an explanation of PWV.
10 HOW THE OPTIONAL BENEFIT FEES AND CHARGES ARE DETERMINED
The charge is taken out of the Sub-accounts as described below:
Highest Daily Lifetime Income v2.1: 1.00% current optional benefit charge
is in addition to the current 0.85% Insurance charge of amounts invested in
the Sub-accounts.
Spousal Highest Daily Lifetime Income v2.1: 1.10% current optional benefit
charge is in addition to the current 0.85% Insurance charge of amounts
invested in the Sub-accounts.
11 We reserve the right to increase the charge to the maximum charge
indicated, upon any step-up under the benefit. Also, if you decide to elect
or re-add a benefit after your contract has been issued, the charge for the
benefit under your contract will equal the current charge for then new
contract owners up to the maximum indicated.
The following table provides the range (minimum and maximum) of the total
annual expenses for the underlying mutual funds ("Portfolios") before any
contractual waivers and expense reimbursements. Each figure is stated as a
percentage of the underlying Portfolio's average daily net assets.
The following are the total annual expenses for each underlying mutual fund
("Portfolio"). The "Total Annual Portfolio Operating Expenses" reflect the
combination of the underlying Portfolio's investment management fee, other
expenses, any 12b-1 fees, and certain other expenses. The fees and expenses
have been restated to reflect fee and expense changes implemented following
shareholder approval of a Rule 12b-1 plan for the Portfolios, as explained in
the current prospectus for the Portfolios. Each figure is stated as a
percentage of the underlying Portfolio's average daily net assets. For certain
of the Portfolios, a portion of the management fee has been contractually
waived and/or other expenses have been contractually partially reimbursed,
which is shown in the table. The following expenses are deducted by the
underlying Portfolio before it provides Pruco Life with the daily net asset
value. The underlying Portfolio information was provided by the underlying
mutual funds and has not been independently verified by us. See the
prospectuses or statements of additional information of the underlying
Portfolios for further details. The current prospectus and statement of
additional information for the underlying Portfolios can be obtained by
calling 1-888-PRU-2888.
5
6
+ Expense information in the Underlying Mutual Fund Portfolio Annual Expenses
Table has been restated to reflect current fees.
1 The AST AQR Emerging Markets Equity Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $300 million for the Portfolio
for the fiscal period ending December 31, 2013.
7
2 The AST Clearbridge Dividend Growth Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $400 million for the Portfolio
for the fiscal period ending December 31, 2013.
3 Pyramis is a registered service mark of FMR LLC. Used under license.
4 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses so that the investment management
fees plus other expenses (exclusive in all cases of taxes, short sale
interest and dividend expenses, brokerage commissions, underlying portfolio
fees and expenses, and extraordinary expenses) for the Portfolio do not
exceed 1.10% of the average daily net assets of the Portfolio through June
30, 2015. This expense limitation may not be terminated or modified prior
to June 30, 2015, but may be discontinued or modified thereafter. The
decision on whether to renew, terminate or modify this waiver after June
30, 2015 will be subject to review by the Manager and the Board of Trustees
of the Trust.
5 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses for the Portfolio so that the
Portfolio's investment management fees plus other expenses (exclusive in
all cases of taxes, interest, brokerage commissions, acquired portfolio
fees and expenses and extraordinary expenses) do not exceed 0.99% of the
Portfolio's average daily net assets through June 30, 2015. This
arrangement may not be terminated or modified prior to June 30, 2015, and
may be discontinued or modified thereafter. The decision on whether to
renew, modify or discontinue the arrangement after June 30, 2015 will be
subject to review by the Manager and the Portfolio's Board of Trustees.
6 The Portfolio's distributor, Prudential Annuities Distributors, Inc.
("PAD"), has contractually agreed to reduce its distribution and service
fees so that the effective distribution and service fee rate paid by the
Portfolio is reduced based on the average daily net assets of the Portfolio
as follows: 0.08% over $300 million in daily net assets up to and including
$500 million in average daily net assets; 0.07% over $500 million in daily
net assets up to and including $750 million in average daily net assets;
and 0.06% over $750 million in daily net assets. The contractual waiver
does not include an expiration or termination date as it is contractually
guaranteed by PAD on a permanent basis, and the Investment Managers and PAD
cannot terminate or otherwise modify the waiver.
7 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fee, so that the effective management fee rate paid by the Portfolio is as
follows: 0.70% to $500 million of average daily net assets; 0.675% over
$500 million in average daily net assets up to and including $1 billion in
average daily net assets; and 0.65% over $1 billion in average daily net
assets. This arrangement may not be terminated or modified prior to June
30, 2015, and may be discontinued or modified thereafter. The decision on
whether to renew, modify or discontinue the arrangement after June 30, 2015
will be subject to review by the Investment Managers and the Portfolio's
Board of Trustees.
8 If approved by shareholders, the Portfolio will be restructured on or about
April 29, 2013. As restructured, the Portfolio will no longer be a
fund-of-funds and will be renamed the AST RCM World Trends Portfolio. Based
on assets of December 31, 2012, as restructured, the Portfolio would have a
management fee of 0.92%, other expenses of 0.14%, acquired fund fees and
expenses of 0.00%, total annual operating expenses before contractual fee
waiver of 1.06%, a contractual fee waiver of 0.07% through at least June
30, 2014, and net annual operating expenses after fee waiver of 0.99%.
9 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees so that the Portfolio's investment management fee would equal 0.70% of
the Portfolio's first $500 million of average daily net assets, 0.675% of
the Portfolio's average daily net assets between $500 million and $1
billion, and 0.65% of the Portfolio's average daily net assets in excess of
$1 billion through June 30, 2015. This contractual investment management
fee waiver may not be terminated or modified prior to June 30, 2015, but
may be discontinued or modified thereafter. The decision on whether to
renew, modify, or discontinue this expense limitation after June 30, 2015
will be subject to review by the Manager and the Board of Trustees of the
Portfolio.
10 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses, so that the investment management
fees plus other expenses (exclusive in all cases of taxes, short sale
interest and dividend expenses, brokerage commissions, acquired portfolio
fees and expenses, and extraordinary expenses) for the Portfolio do not
exceed 1.08% of its average daily net assets through June 30, 2015. This
expense limitation may not be terminated or modified prior to June 30,
2015, and may be discontinued or modified thereafter. The decision on
whether to renew, modify or discontinue the expense limitation after June
30, 2015 will be subject to review by the Investment Managers and the
Portfolio's Board of Trustees.
11 The AST QMA Emerging Markets Equity Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $300 million for the Portfolio
for the fiscal period ending December 31, 2013.
12 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fee so that the Portfolio's investment management fee would equal 0.80% of
the Portfolio's average daily net assets through June 30, 2015. This
contractual investment management fee waiver may not be terminated or
modified prior to June 30, 2015, but may be discontinued or modified
thereafter. The decision on whether to renew, modify, or discontinue this
expense limitation after June 30, 2015 will be subject to review by the
Manager and the Board of Trustees of the Trust.
8
EXPENSE EXAMPLES
These examples are intended to help you compare the cost of investing in one
Pruco Life Annuity with the cost of investing in other Pruco Life Annuities
and/or other variable annuities. Below are examples for the Annuity showing
what you would pay cumulatively in expenses at the end of the stated time
periods had you invested $10,000 in the Annuity and your investment has a 5%
return each year. The examples reflect the following fees and charges for the
Annuity as described in "Summary of Contract Fees and Charges."
. Insurance Charge
. Premium Based Charge
. Contingent Deferred Sales Charge (when and if applicable)
. Annual Maintenance Fee
. Optional benefit fees
The examples also assume the following for the period shown:
. You allocate all of your Account Value to the Sub-account with the
maximum gross total operating expenses and the expenses remain the same
each year*
. For each charge, we deduct the maximum charge rather than the current
charge
. You make no withdrawals of Account Value
. You make no transfers, or other transactions for which we charge a fee
. No tax charge applies
. You elect the Spousal Highest Daily Lifetime Income v2.1, which is the
maximum optional benefit charge. There is no other combination of
optional benefits that would result in higher maximum charges than those
shown in the examples.
Amounts shown in the examples are rounded to the nearest dollar.
* Note: Not all Portfolios offered as Sub-accounts may be available depending
on optional benefit election.
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING PORTFOLIOS. ACTUAL
EXPENSES WILL BE MORE OR LESS THAN THOSE SHOWN DEPENDING UPON WHICH OPTIONAL
BENEFIT YOU ELECT OTHER THAN INDICATED IN THE EXAMPLES OR IF YOU ALLOCATE
ACCOUNT VALUE TO ANY OTHER AVAILABLE SUB-ACCOUNTS.
EXPENSE EXAMPLES ARE PROVIDED AS FOLLOWS:
If you surrender your Annuity at the end of the applicable time period:
If you do not surrender your Annuity, or if you annuitize your Annuity:
PLEASE SEE APPENDIX A FOR A TABLE OF ACCUMULATION UNIT VALUES.
9
SUMMARY
This Summary describes key features of the Annuity offered in this prospectus.
It is intended to give you an overview, and to point you to sections of the
prospectus that provide greater detail. You should not rely on the Summary
alone for all the information you need to know before purchasing the Annuity.
You should read the entire prospectus for a complete description of the
Annuity. Your Financial Professional can also help you if you have questions.
THE ANNUITY: The variable annuity contract issued by Pruco Life is a contract
between you, the Owner, and Pruco Life, an insurance company. It is designed
for retirement purposes, or other long-term investing, to help you save money
for retirement, on a tax deferred basis, and provide income during your
retirement. Although this prospectus describes key features of the variable
annuity contract, the prospectus is a distinct document, and is not part of
the contract.
The Annuity offers various investment portfolios. With the help of your
Financial Professional, you choose how to invest your money within your
Annuity. Investing in a variable annuity involves risk and you can lose your
money. On the other hand, investing in a variable annuity can provide you with
the opportunity to grow your money through participation in "underlying"
mutual funds.
GENERALLY SPEAKING, VARIABLE ANNUITIES ARE INVESTMENTS DESIGNED TO BE HELD FOR
THE LONG TERM. WORKING WITH YOUR FINANCIAL PROFESSIONAL, YOU SHOULD CAREFULLY
CONSIDER WHETHER A VARIABLE ANNUITY IS APPROPRIATE FOR YOU, GIVEN YOUR LIFE
EXPECTANCY, NEED FOR INCOME, AND OTHER PERTINENT FACTORS.
PURCHASE: Your eligibility to purchase the Annuity is based on your age and
the amount of your initial Purchase Payment. The "Maximum Age for Initial
Purchase" applies to the oldest Owner and Annuitant as of the day we would
issue the Annuity. If the Annuity is to be owned by an entity, the maximum age
applies to the Annuitant as of the day we would issue the Annuity. For this
Annuity the maximum age is 80. The minimum initial Purchase Payment is
$10,000. See your Financial Professional to complete an application.
After you purchase your Annuity, you will have a limited period of time during
which you may cancel (or "Free Look") the purchase of your Annuity. Your
request for a Free Look must be received in Good Order. "Good Order" is the
standard that we apply when we determine whether an instruction is
satisfactory. An instruction will be considered in Good Order if it is
received at our Service Office: (a) in a manner that is satisfactory to us
such that it is sufficiently complete and clear that we do not need to
exercise any discretion to follow such instruction and complies with all
relevant laws and regulations; (b) on specific forms, or by other means we
then permit (such as via telephone or electronic submission); and/or (c) with
any signatures and dates as we may require. We will notify you if an
instruction is not in Good Order. The "Service Office" is the place to which
all requests and payments regarding the Annuity are to be sent. We may change
the address of the Service Office at any time, and will notify you in advance
of any such change of address. Please see the section of this prospectus
entitled "How To Contact Us" for the Service Office address.
Please see "Requirements for Purchasing the Annuity" for more detail.
INVESTMENT OPTIONS: You may choose from a variety of variable Investment
Options ranging from conservative to aggressive. The optional benefits may
limit your ability to invest in the variable Investment Options otherwise
available to you under the Annuity. Each of the underlying mutual funds is
described in its own prospectus, which you should read before investing. There
is no assurance that any variable Investment Option will meet its investment
objective.
You may also allocate Purchase Payments to the DCA MVA Option, an Investment
Option that offers a fixed rate of interest for a specified period. The DCA
MVA Option is used only with our 6 or 12 Month Dollar Cost Averaging Program,
under which the Purchase Payments that you have allocated to that DCA MVA
Option are transferred to the designated Sub-accounts over a 6 month or 12
month period. Withdrawals or transfers from the DCA MVA Option generally will
be subject to a Market Value Adjustment if made other than pursuant to the 6
or 12 Month DCA Program.
Please see "Investment Options," and "Managing Your Account Value" for
information.
ACCESS TO YOUR MONEY: You can receive income by taking partial withdrawals or
electing annuity payments. Please note that withdrawals may be subject to tax,
and may be subject to a Contingent Deferred Sales Charge (discussed below). You
may withdraw up to 10% of your Purchase Payments each Annuity Year without
being subject to a Contingent Deferred Sales Charge.
You may elect to receive income through annuity payments, also called
"Annuitization". If you elect to receive annuity payments, you convert your
Unadjusted Account Value into a stream of future payments. This means you no
longer have an Account Value and therefore cannot make withdrawals. We offer
different types of annuity options to meet your needs. The "Unadjusted Account
Value" refers to the Account Value prior to the application of any market
value adjustment (i.e., "MVA").
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Please see "Access to Account Value" and "Annuity Options" for more
information.
OPTIONAL LIVING BENEFITS
GUARANTEED LIFETIME WITHDRAWAL BENEFITS. We offer optional living benefits,
for an additional charge, that guarantee your ability to take withdrawals for
life as a percentage of "Protected Withdrawal Value", even if your Account
Value falls to zero. The Protected Withdrawal Value is not the same as your
Account Value, and it is not available for a lump sum withdrawal. The Account
Value has no guarantees, may fluctuate, and can lose value. If you withdraw
more than the allowable amount during any year (referred to as "Excess
Income"), your future level of guaranteed withdrawals decreases.
We currently offer the following benefits:
.. Highest Daily Lifetime Income v2.1
.. Spousal Highest Daily Lifetime Income v2.1
These benefits utilize a predetermined mathematical formula to help us manage
your guarantee through all market cycles. Under the predetermined mathematical
formula, your Account Value may be transferred between certain "permitted
Sub-accounts" on the one hand and the AST Investment Grade Bond Sub-account on
the other hand. Please see the applicable optional benefits section as well as
Appendix B to this prospectus for more information on the formula.
In the Living Benefits section, we describe guaranteed minimum withdrawal
benefits that allow you to withdraw a specified amount each year for life (or
joint lives, for the spousal version of the benefit). PLEASE BE AWARE THAT IF
YOU WITHDRAW MORE THAN THAT AMOUNT IN A GIVEN YEAR (I.E., "EXCESS INCOME"),
THAT MAY PERMANENTLY REDUCE THE GUARANTEED AMOUNT YOU CAN WITHDRAW IN FUTURE
YEARS. THUS, YOU SHOULD THINK CAREFULLY BEFORE TAKING SUCH EXCESS INCOME.
DEATH BENEFITS: You may name a Beneficiary to receive the proceeds of your
Annuity upon your death. Your death benefit must be distributed within the
time period required by the tax laws. The Annuity offers a death benefit
generally equal to the greater of Unadjusted Account Value and Purchase
Payments (adjusted for partial withdrawals). The calculation of the death
benefit may be different if you elect Highest Daily Lifetime Income v2.1 or
Spousal Highest Daily Lifetime Income v2.1.
Please see "Death Benefit" for more information.
FEES AND CHARGES: Each Annuity, and the optional living benefits, are subject
to certain fees and charges, as discussed in the "Summary of Contract Fees and
Charges" table in the prospectus. In addition, there are fees and expenses of
the underlying Portfolios.
WHAT DOES IT MEAN THAT MY ANNUITY IS "TAX-DEFERRED"? Variable annuities are
"tax deferred", meaning you pay no taxes on any earnings from your Annuity
until you withdraw the money. You may also transfer among your Investment
Options without paying a tax at the time of the transfer. When you take your
money out of the Annuity, however, you will be taxed on the earnings at
ordinary income tax rates. If you withdraw money before you reach age 59 1/2,
you also may be subject to a 10% federal tax penalty.
You may also purchase the Annuity as a tax-qualified retirement investment
such as an IRA, SEP-IRA, Roth IRA, 401(a) plan, or non-ERISA 403(b) plan.
Although there is no additional tax advantage to a variable annuity purchased
through one of these plans, the Annuity has features and benefits other than
tax deferral that may make it an important investment for a qualified plan.
You should consult your tax advisor regarding these features and benefits
prior to purchasing a contract for use with a tax-qualified plan.
MARKET TIMING: We have market timing policies and procedures that attempt to
detect transfer activity that may adversely affect other Owners or portfolio
shareholders in situations where there is potential for pricing inefficiencies
or that involve certain other types of disruptive trading activity (i.e.,
market timing). Our market timing policies and procedures are discussed in
more detail in the section entitled "Restrictions on Transfers Between
Investment Options."
OTHER INFORMATION: Please see the section entitled "General Information" for
more information about the Annuity, including legal information about Pruco
Life, the Separate Account, and underlying funds. The "Separate Account" is
referred to as the "Variable Separate Account" in your Annuity.
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INVESTMENT OPTIONS
The Investment Options under each Annuity consist of the Sub-accounts and the
DCA MVA Options. In this section, we describe the portfolios. We then discuss
the investment restrictions that apply if you elect certain optional benefits.
Finally, we discuss the DCA MVA Options.
Each Sub-account invests in an underlying portfolio whose share price
generally fluctuates each Valuation Day. The portfolios that you select, among
those that are available, are your choice - we do not provide investment
advice, nor do we recommend any particular portfolio. You bear the investment
risk for amounts allocated to the portfolios.
In contrast to the Sub-accounts, Account Value allocated to a DCA MVA Option
earns a fixed rate of interest. We guarantee both the stated amount of
interest and the principal amount of your Account Value in a DCA MVA Option,
so long as you remain invested in the DCA MVA Option for the duration of the
Guarantee Period. In general, if you withdraw Account Value prior to the end
of the DCA MVA Option's Guarantee Period, you will be subject to a Market
Value Adjustment or "MVA", which can be positive or negative. A "Guarantee
Period" is the period of time during which we credit a fixed rate of interest
to a DCA MVA Option.
As a condition of participating in the optional living benefits, you may be
restricted from investing in certain Sub-accounts. We describe those
restrictions below. In addition, the optional living benefits (e.g., Highest
Daily Lifetime Income v2.1) employ a predetermined mathematical formula, under
which money is transferred between your chosen Sub-accounts and the AST
Investment Grade Bond Portfolio.
You should be aware that the operation of the formula may result in
large-scale asset flows into and out of your chosen Sub-accounts and the AST
Investment Grade Bond Portfolio, which could subject those portfolios to
certain risks and adversely impact their expenses and performance. Even if you
do not elect an optional living benefit that employs a predetermined
mathematical formula, the expenses, performance, and risk profile of your
investment may be adversely impacted as described below to the extent you
select Permitted Sub-accounts. The mathematical formula may adversely affect a
portfolio's investment performance by requiring the sub-advisor to purchase
and sell securities at inopportune times and by otherwise limiting the
sub-advisor's ability to fully implement that portfolio's investment
strategies. Because transfers to and from your chosen Sub-accounts and the AST
Investment Grade Bond Portfolio can be frequent and the amount transferred can
vary, any of these portfolios could experience the following additional
effects, among others:
(a)the sub-advisor may be required to hold a larger portion of assets in
highly liquid securities than it otherwise would, which could diminish
performance if the highly liquid securities underperform other securities
(e.g., equities) that otherwise would have been held;
(b)a portfolio may experience higher turnover, which could result in higher
operating expense ratios and transaction costs for the portfolio compared
to other similar funds; and,
(c)if the sub-advisor must sell securities that are thinly-traded to satisfy
redemption requests initiated pursuant to the formula, such sales could
have a significant adverse impact on the price of such securities and the
cash proceeds received by the portfolio.
Please consult the prospectus for the applicable portfolio for additional
information about these effects.
VARIABLE INVESTMENT OPTIONS
Each Variable Investment Option is a Sub-account of the Pruco Life Flexible
Premium Variable Annuity Account (see "Pruco Life and the Separate Account"
for more detailed information). Each Sub-account invests exclusively in one
portfolio. You should carefully read the prospectus for any portfolio in which
you are interested. The Investment Objectives/Policies Chart below classifies
each of the portfolios based on our assessment of their investment style. The
chart also provides a description of each portfolio's investment objective (in
italics) and a short, summary description of their key policies to assist you
in determining which Portfolios may be of interest to you. PLEASE NOTE: THE
AST INVESTMENT GRADE BOND PORTFOLIO IS NOT AVAILABLE FOR ALLOCATION OF
PURCHASE PAYMENTS.
Not all portfolios offered as Sub-accounts may be available depending on
optional benefit selection. Thus, if you selected particular optional
benefits, you would be precluded from investing in certain portfolios and
therefore would not receive investment appreciation (or depreciation)
affecting those portfolios.
The portfolios are not publicly traded mutual funds. They are only available
as Investment Options in variable annuity contracts and variable life
insurance policies issued by insurance companies, or in some cases, to
participants in certain qualified retirement plans. However, some of the
portfolios available as Sub-accounts under the Annuities are managed by the
same portfolio advisor or sub-advisor as a retail mutual fund of the same or
similar name that the portfolio may have been modeled after at its inception.
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Conversely, certain retail mutual funds may be managed by the same portfolio
advisor or sub-advisor as a Portfolio available as a Sub-account or have a
similar name. While the investment objective and policies of the retail mutual
funds and the portfolios may be substantially similar, the actual investments
will differ to varying degrees. Differences in the performance of the funds
can be expected, and in some cases could be substantial. You should not
compare the performance of a publicly traded mutual fund with the performance
of any similarly named portfolio offered as a Sub-account. Details about the
investment objectives, policies, risks, costs and management of the portfolios
are found in the prospectuses for the portfolios. THE CURRENT PROSPECTUSES AND
STATEMENTS OF ADDITIONAL INFORMATION FOR THE UNDERLYING PORTFOLIOS CAN BE
OBTAINED BY CALLING 1-888-PRU-2888. PLEASE READ THE PROSPECTUS CAREFULLY
BEFORE INVESTING.
The name of the advisor/sub-advisor for each portfolio appears next to the
description. Those portfolios whose name includes the prefix "AST" are
portfolios of the Advanced Series Trust. The portfolios of the Advanced Series
Trust are co-managed by AST Investment Services, Inc. and Prudential
Investments LLC, both of which are affiliated companies of Pruco Life.
However, one or more sub-advisors, as noted below, are engaged to conduct
day-to-day management. Allocations made to all AST Portfolios benefit us
financially.
Please see the Other Information section, under the heading "Service Fees
Payable to Pruco Life" for a discussion of fees that we may receive from
underlying mutual funds and/or their affiliates. You may select portfolios
individually, create your own combination of portfolios (certain limitations
apply--see "Limitations with Optional Benefits" later in this section), or
select from among combinations of portfolios that we have created called
"Prudential Portfolio Combinations." Under Prudential Portfolio Combinations,
each Prudential Portfolio Combination consists of several asset allocation
portfolios, each of which represents a specified percentage of your
allocations. If you elect to invest according to one of these Prudential
Portfolio Combinations, we will allocate your initial Purchase Payment among
the Sub-accounts within the Prudential Portfolio Combination according to the
percentage allocations. You may elect to allocate additional Purchase Payments
according to the composition of the Prudential Portfolio Combination, although
if you do not make such an explicit election, we will allocate additional
Purchase Payments as discussed below under "Additional Purchase Payments."
Once you have selected a Prudential Portfolio Combination, we will not
rebalance your Account Value to take into account differences in performance
among the Sub-accounts. This is a static, point of sale model allocation. Over
time, the percentages in each asset allocation portfolio may vary from the
Prudential Portfolio Combination you selected when you purchased your Annuity
based on the performance of each of the portfolios within the Prudential
Portfolio Combination. However, you may elect to participate in an automatic
rebalancing program, under which we would transfer Account Value periodically
so that your Account Value allocated to the Sub-accounts is brought back to
the exact percentage allocations stipulated by the Prudential Portfolio
Combination you elected. Please see "Automatic Rebalancing Programs" below for
details about how such a program operates. If you are participating in an
optional living benefit (such as Highest Daily Lifetime Income v2.1) that
makes transfers under a predetermined mathematical formula, and you have
elected automatic rebalancing in addition to Prudential Portfolio
Combinations, you should be aware that: (a) the AST bond portfolio used as
part of the predetermined mathematical formula will not be included as part of
automatic rebalancing and (b) the operation of the formula may result in the
rebalancing not conforming to the percentage allocations that existed
originally as part of Prudential Portfolio Combinations.
If you are interested in a Prudential Portfolio Combination, you should work
with your Financial Professional to select the Prudential Portfolio
Combination that is appropriate for you, in light of your investment time
horizon, investment goals and expectations and market risk tolerance, and
other relevant factors. Some selling firms may not offer Prudential Portfolio
Combinations. In providing these Prudential Portfolio Combinations, we are not
providing investment advice. You are responsible for determining which
Prudential Portfolio Combination or Sub-account(s) is best for you. Asset
allocation does not ensure a profit or protect against a loss.
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Pyramis is a registered service mark of FMR LLC. Used under license.
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LIMITATIONS WITH OPTIONAL BENEFITS
As a condition of your participating in any Highest Daily Lifetime Income v2.1
benefit, we limit the Investment Options to which you may allocate your
Account Value, as set forth in the Allowable Benefit Allocations table below.
ALLOWABLE BENEFIT ALLOCATIONS
MARKET VALUE ADJUSTMENT OPTION
We currently offer DCA MVA Options. The DCA MVA Options are used with our 6 or
12 Month DCA Program. Amounts allocated to the DCA MVA Options earn the
declared rate of interest while the amount is transferred over a 6 or 12 month
period into the Sub-accounts that you have designated. A dollar cost averaging
program does not assure a profit, or protect against a loss.
For a complete description of our 6 or 12 Month DCA Program, see the
applicable section of this prospectus within the section entitled "Managing
Your Account Value."
We do not currently offer any long term MVA options.
GUARANTEE PERIOD TERMINATION
A DCA MVA Option ends on the earliest of (a) the date the entire amount in the
DCA MVA Option is withdrawn or transferred (b) the Annuity Date (c) the date
the Annuity is surrendered or (d) the date as of which a Death Benefit is
determined, unless the Annuity is continued by a spousal Beneficiary. "Annuity
Date" means the date on which we apply your Unadjusted Account Value to the
applicable annuity option and begin the payout period. As discussed in the
Annuity Options section, there is an age by which you must begin receiving
annuity payments, which we call the "Latest Annuity Date." The "Payout Period"
is the period starting on the Annuity Date and during which annuity payments
are made.
RATES FOR DCA MVA OPTIONS
We do not have a single method for determining the fixed interest rates for
the DCA MVA Options. In general, the interest rates we offer for the DCA MVA
Options will reflect the investment returns available on the types of
investments we make to support our fixed rate guarantees. These investment
types may include cash, debt securities guaranteed by the United States
government and its agencies and instrumentalities, money market instruments,
corporate debt obligations of different durations, private placements,
asset-backed obligations and municipal bonds. In determining rates we also
consider factors such as the length of the Guarantee Period for the DCA MVA
Options, regulatory and tax requirements, liquidity of the markets for the
type of investments we make, commissions, administrative and investment
expenses, our insurance risks in relation to the DCA MVA Options, general
economic trends and competition. We also take into consideration mortality,
expense, administration, profit and other factors in determining the interest
rates we credit to DCA MVA Options, and therefore, we credit lower interest
rates due to the existence of these factors than we otherwise would.
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The interest rate credited to a DCA MVA Option is the rate in effect when the
Guarantee Period begins and does not change during the Guarantee Period. The
rates are an effective annual rate of interest. We determine, in our sole
discretion, the interest rates for the DCA MVA Options. At the time that we
confirm your DCA MVA Option, we will advise you of the interest rate in effect
and the date your DCA MVA Option matures. We may change the rates we credit to
new DCA MVA Options at any time. To inquire as to the current rates for the
DCA MVA Options, please call 1-888-PRU-2888. DCA MVA Options are not available
in all States and are subject to a minimum rate. Currently, the DCA MVA
Options are not available in the States of Illinois, Oregon and Washington and
are available in Iowa only for Annuities purchased on or after August 20, 2012.
The interest under a DCA MVA Option is credited daily on a balance that
declines as amounts are transferred, and therefore you do not earn interest on
the full amount deposited to the DCA MVA Option.
To the extent permitted by law, we may establish different interest rates for
DCA MVA Options offered to a class of Owners who choose to participate in
various optional investment programs we make available. For any DCA MVA
Option, you will not be permitted to allocate to the DCA MVA Option if the
Guarantee Period associated with that DCA MVA Option would end after your
Annuity Date.
MARKET VALUE ADJUSTMENT
With certain exceptions, if you transfer or partially withdraw Account Value
from a DCA MVA Option prior to the end of the applicable Guarantee Period, you
will be subject to a Market Value Adjustment or "MVA". We assess an MVA
(whether positive or negative) upon:
. any surrender, partial withdrawal (including a systematic withdrawal,
Medically-Related Surrender, or a withdrawal program under Sections
72(t) or 72(q) of the Code), or transfer out of a DCA MVA Option made
outside the 30 days immediately preceding the maturity of the Guarantee
Period; and
. your exercise of the Free Look right under your Annuity, unless
prohibited by law.
We will NOT assess an MVA (whether positive or negative) in connection with
any of the following:
. partial withdrawals made to meet Required Minimum Distribution rules
under the Code in relation to your Annuity, but only if the Required
Minimum Distribution is an amount that we calculate and is distributed
through a program that we offer;
. transfers or partial withdrawals from a DCA MVA Option during the 30
days immediately prior to the maturity of the applicable Guarantee
Period;
. transfers made in accordance with the 6 or 12 Month DCA Program;
. when a Death Benefit is determined;
. deduction of an Annual Maintenance Fee or the Premium Based Charge from
the Annuity;
. Annuitization under the Annuity; and
. transfers made pursuant to a mathematical formula used with an optional
benefit (e.g., Highest Daily Lifetime Income v2.1).
The amount of the MVA is determined according to the formula set forth in
Appendix D. In general, the amount of the MVA is dependent on the difference
between interest rates at the time your DCA MVA Option was established and
current interest rates for the remaining Guarantee Period of your DCA MVA
Option. For purposes of determining the amount of an MVA, we make reference to
an index interest rate that in turn is based on a Constant Maturity Treasury
(CMT) rate for a maturity (in months) equal to the applicable duration of the
DCA MVA Option. This CMT rate will be determined based on the weekly average
of the CMT index of appropriate maturity as of two weeks prior to initiation
of the DCA MVA Option. The CMT index will be based on certain U.S. Treasury
interest rates, as published in a Federal Reserve Statistical Release. The
Liquidity Factor is an element of the MVA formula currently equal to 0.0025 or
25 basis points. It is an adjustment that is applied when an MVA is assessed
(regardless of whether the MVA is positive or negative) and, relative to when
no Liquidity Factor is applied, will reduce the amount being surrendered or
transferred from the DCA MVA Option. Please consult the DCA MVA formula in the
appendices to this prospectus for additional detail.
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FEES, CHARGES AND DEDUCTIONS
In this section, we provide detail about the charges you may incur if you own
the Annuity.
The charges under each Annuity are designed to cover, in the aggregate, our
direct and indirect costs of selling, administering and providing benefits
under the Annuity. They are also designed, in the aggregate, to compensate us
for the risks of loss we assume. If, as we expect, the charges that we collect
from the Annuity exceed our total costs in connection with the Annuity, we
will earn a profit. Otherwise we will incur a loss. For example, Pruco Life
may make a profit on the Insurance Charge if, over time, the actual costs of
providing the guaranteed insurance obligations and other expenses under the
Annuity are less than the amount we deduct for the Insurance Charge. To the
extent we make a profit on the Insurance Charge, such profit may be used for
any other corporate purpose.
The rates of certain of our charges have been set with reference to estimates
of the amount of specific types of expenses or risks that we will incur. In
general, a given charge under the Annuity compensates us for our costs and
risks related to that charge and may provide for a profit. However, it is
possible that with respect to a particular obligation we have under this
Annuity, we may be compensated not only by the charge specifically tied to
that obligation, but also from one or more other charges we impose.
With regard to charges that are assessed as a percentage of the value of the
Sub-accounts, please note that such charges are assessed through a reduction
to the Unit value of your investment in each Sub-account, and in that way
reduce your Account Value. A "Unit" refers to a share of participation in a
Sub-account used to calculate your Unadjusted Account Value prior to the
Annuity Date.
CONTINGENT DEFERRED SALES CHARGE ("CDSC"): The CDSC reimburses us for expenses
related to sales and distribution of the Annuity, including commissions,
marketing materials, and other promotional expenses. We may deduct a CDSC if
you surrender your Annuity or when you make a partial withdrawal. The CDSC for
each Purchase Payment is a percentage of the Purchase Payment being withdrawn.
The charge decreases as the Purchase Payment ages. The aging of a Purchase
Payment is measured from the date it is allocated to your Annuity. If you make
a partial withdrawal of a Purchase Payment on the day before an anniversary of
the date that Purchase Payment was allocated to the Annuity, we will use the
CDSC percentage that would apply if the withdrawal was made on the following
day. The charge is deducted from the Investment Options in the same proportion
as the partial withdrawal upon which it is assessed. The imposition of a CDSC
on a withdrawal will not result in any additional CDSC being incurred as a
result of the amount withdrawn from the Annuity being greater than the amount
of the withdrawal request (i.e., no CDSC will be imposed on the withdrawal of
a CDSC).
Each Purchase Payment has its own schedule of CDSCs associated with it. The
schedule of CDSCs associated with a Purchase Payment is determined when the
Purchase Payment is allocated to the Annuity. The schedule of CDSCs applicable
to a Purchase Payment is based on the total of all Purchase Payments allocated
to the Annuity, including the full amount of the "new" Purchase Payment, when
the Purchase Payment is allocated. Purchase Payments are not reduced by
partial withdrawals for purposes of determining the applicable schedule of
CDSCs. Thus, to determine which CDSC tier a given Purchase Payment being made
currently is assigned, we consider only the sum of Purchase Payments and do
not reduce that sum by the amount of any withdrawal. The combination of CDSC
assessed and Premium Based Charge (see below) deducted with respect to any
Purchase Payment will never be greater than 9%, as stipulated by Rule 6c-8
under the Investment Company Act of 1940. Purchase Payments are withdrawn on a
"first-in, first-out" basis. All Purchase Payments allocated to the Annuity on
the same day will be treated as one Purchase Payment for purposes of
determining the applicable schedule of CDSCs. The table of CDSCs is as follows:
With respect to a partial withdrawal, we calculate the CDSC by assuming that
any available free withdrawal amount is taken out first (see "Free Withdrawal
Amounts" later in this prospectus). If the free withdrawal amount is not
sufficient, we then assume that partial withdrawals are taken from Purchase
Payments that have not been previously withdrawn, on a first-in, first-out
basis, and subsequently from any other Account Value in the Annuity (such as
gains). You can request a partial withdrawal as either a "gross"
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or "net" withdrawal. In a "gross" withdrawal, you request a specific
withdrawal amount, with the understanding that the amount you actually receive
is reduced by any applicable CDSC or tax withholding. Therefore, you may
receive less than the dollar amount you specify. In a "net" withdrawal, you
request a withdrawal for an exact dollar amount, with the understanding that
any applicable deduction for CDSC or tax withholding is taken from your
remaining Unadjusted Account Value. Therefore, a larger amount may be deducted
from your Unadjusted Account Value than the amount you specify. No matter how
you specify the withdrawal, any MVA will not be applied to the amount you
receive, but instead will be applied to your Unadjusted Account Value. See
"Free Withdrawal Amounts" below for discussion as to how this might affect an
optional living benefit you may have. Please be aware that under the Highest
Daily Lifetime Income v2.1 suite of benefits: (a) for a gross withdrawal, if
the amount requested exceeds the Annual Income Amount, the excess portion will
be treated as Excess Income and (b) for a net withdrawal, if the amount you
receive plus the amount of the CDSC deducted from your Unadjusted Account
Value exceeds the Annual Income Amount, the excess portion will be treated as
Excess Income (which has negative consequences under those benefits).
Upon surrender, we calculate a CDSC based on any Purchase Payments that have
not been withdrawn. The Purchase Payments being withdrawn may be greater than
your remaining Account Value. This is most likely to occur if you have made
prior partial withdrawals or if your Account Value has declined in value due
to negative market performance. Thus, for example, the CDSC could be greater
than if it were calculated as percentage of remaining Account Value.
We may waive any applicable CDSC as described herein.
PREMIUM BASED CHARGE. The Premium Based Charge reimburses us for expenses
related to sales and distribution of the Annuity, including commissions,
marketing materials, and other promotional expenses. The Premium Based Charge
applicable to the Annuity is the sum of such charges applicable to each
Purchase Payment. The Premium Based Charge is calculated on each Quarterly
Annuity Anniversary for those Purchase Payments subject to the charge as of
the prior Valuation Day. Each Purchase Payment is subject to a Premium Based
Charge on each of the 28 Quarterly Annuity Anniversaries (i.e., for seven
years) that occurs after the Purchase Payment is allocated to the Annuity.
Once that time period has expired, the Purchase Payment is no longer subject
to the Premium Based Charge. For purposes of calculating the Premium Based
Charge: (a) a Purchase Payment is the amount of the Purchase Payment before we
deduct any applicable fees, charges or taxes; and (b) Purchase Payments are
not reduced by partial withdrawals taken from the Annuity.
The Premium Based Charge for each Purchase Payment is determined when it is
allocated to the Annuity (except for those Purchase Payments that are
allocated to the Annuity prior to the first Quarterly Annuity Anniversary)
based on the total of all Purchase Payments received to date. With respect to
those Purchase Payments allocated to the Annuity prior to the first Quarterly
Annuity Anniversary, the associated Premium Based Charge percentage for each
of those Purchase Payments is determined using the total of all Purchase
Payments allocated to the Annuity prior to the first Quarterly Annuity
Anniversary (that is, we total all the Purchase Payments received before the
first Quarterly Annuity Anniversary to determine the Premium Based Charge that
applies to each). For each Purchase Payment allocated to the Annuity on or
after the first Quarterly Annuity Anniversary, the associated Premium Based
Charge percentage during the seven year charge period is determined using the
total of all Purchase Payments allocated to the Annuity through the date of
the "new" Purchase Payment, including the full amount of that "new" Purchase
Payment. That is, to determine which Premium Based Charge tier a given
Purchase Payment being made currently (i.e., a "new" Purchase Payment) is
assigned, we add that Purchase Payment amount to the sum of all prior Purchase
Payments. A Purchase Payment received on a Quarterly Annuity Anniversary will
be subject to its first Premium Based Charge on the next Quarterly Annuity
Anniversary.
Each tier of Premium Based Charge is separated by a "breakpoint" dollar
amount, as shown in the table below. If a portion of a Purchase Payment
results in total Purchase Payments crossing a new Purchase Payment breakpoint
(as set forth in the table below), then the ENTIRE "new" Purchase Payment will
be subject to the Premium Based Charge applicable to that tier. Purchase
Payments received on or after the first Quarterly Annuity Anniversary that
result in breakpoints being reached will result in lower charge percentages
for only such Purchase Payments and those that follow. ONCE A PREMIUM BASED
CHARGE PERCENTAGE IS ESTABLISHED FOR ANY PURCHASE PAYMENT, SUCH PERCENTAGE IS
FIXED AND WILL NOT BE REDUCED EVEN IF ADDITIONAL PURCHASE PAYMENTS ARE MADE OR
PARTIAL WITHDRAWALS ARE TAKEN. PLEASE SEE APPENDIX E FOR EXAMPLES OF THE
OPERATION OF THE PREMIUM BASED CHARGE. The Premium Based Charge is deducted
pro rata from the Sub-accounts in which you maintain Account Value on the date
the Premium Based Charge is due. To the extent that the Unadjusted Account
Value in the Sub-accounts at the time the Premium Based Charge is to be
deducted is insufficient to pay the charge, we will deduct the remaining
charge from the DCA MVA Options. If a Quarterly Annuity Anniversary falls on a
day other than a Valuation Day, we will deduct the Premium Based Charge on the
next following Valuation Day. If both a Premium Based Charge and a fee for an
optional benefit are to be deducted on the same day, then the Premium Based
Charge will be deducted first.
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A Premium Based Charge is not deducted: (a) when there are no Purchase
Payments subject to the Premium Based Charge; (b) on or after the Annuity
Date; (c) if a Death Benefit has been determined under the Annuity (unless
Spousal Continuation occurs); or (d) in the event of a full surrender of the
Annuity (unless the full surrender occurs on a Quarterly Annuity Anniversary,
in which case we will deduct the charge prior to terminating the Annuity).
As mentioned above, we will take the Premium Based Charge pro rata from each
of the Sub-accounts (including an AST Investment Grade Bond Portfolio used as
part of an optional living benefit). If the value of those Sub-accounts is not
sufficient to cover the charge, we will take any remaining portion of the
charge from the DCA MVA Options. For purposes of deducting the charge from the
DCA MVA Options (a) with respect to DCA MVA Options with different amounts of
time remaining until maturity, we will take the withdrawal from the DCA MVA
Option with the shortest remaining duration, followed by the DCA MVA Option
with the next-shortest remaining duration (if needed to pay the charge) and so
forth (b) with respect to multiple DCA MVA Options that have the same duration
remaining until maturity, we take the charge first from the DCA MVA Option
with the shortest overall Guarantee Period and (c) with respect to multiple
DCA MVA Options that have the same Guarantee Period length and duration
remaining until the end of the Guarantee Period, we take the charge pro rata
from each such DCA MVA Option. In this prospectus, we refer to the preceding
hierarchy as the "DCA MVA Option Hierarchy." We will only deduct that portion
of the Premium Based Charge that does not reduce the Unadjusted Account Value
below the lesser of $500 or 5% of the sum of the Purchase Payments allocated
to the Annuity (which we refer to here as the "floor"). However, if a Premium
Based Charge is deducted on the same day that a withdrawal is taken, it is
possible that the deduction of the charge will cause the Unadjusted Account
Value to fall below the immediately-referenced Account Value "floor." The
Premium Based Charge is not considered a withdrawal for any purpose, including
determination of free withdrawals, CDSC, or calculation of values associated
with the optional living benefits.
The table of Premium Based Charges is as follows:
TRANSFER FEE: Currently, you may make twenty free transfers between Investment
Options each Annuity Year. We may charge $10 for each transfer after the
twentieth in each Annuity Year. We do not consider transfers made as part of a
Dollar Cost Averaging, Automatic Rebalancing or Custom Portfolio Program when
we count the twenty free transfers. All transfers made on the same day will be
treated as one transfer. Transfers made under our 6 or 12 Month DCA Program
and transfers made pursuant to a formula used with an optional benefit are not
subject to the Transfer Fee and are not counted toward the twenty free
transfers. Transfers made through any electronic method or program we specify
are not counted toward the twenty free transfers. The transfer fee is deducted
pro rata from all Sub-accounts in which you maintain Account Value immediately
subsequent to the transfer.
ANNUAL MAINTENANCE FEE: Prior to Annuitization, we deduct an Annual
Maintenance Fee. The Annual Maintenance Fee is equal to $50 or 2% of your
Unadjusted Account Value, whichever is less. This fee will be deducted
annually on the anniversary of the Issue Date of your Annuity or, if you
surrender your Annuity during the Annuity Year, the fee is deducted at the
time of surrender unless the surrender is taken within 30 days of most
recently assessed Annual Maintenance Fee. The fee is taken out first from the
Sub-accounts pro rata, and then from the DCA MVA Options (if the amount in the
Sub-accounts is insufficient to pay the fee). The Annual Maintenance Fee is
only deducted if the sum of the Purchase Payments at the time the fee is
deducted is less than $50,000. For purposes of determining the sum of the
Purchase Payments at the time the fee is deducted, we do not reduce Purchase
Payments by the amount of withdrawals. We do not impose the Annual Maintenance
Fee upon Annuitization (unless Annuitization occurs on an Annuity
anniversary), or the payment of a Death Benefit. For Beneficiaries that elect
the Beneficiary Continuation Option, the Annual Maintenance Fee is the lesser
of $30 or 2% of Unadjusted Account Value and is only assessed if the
Unadjusted Account Value is less than $25,000 at the time the fee is assessed.
TAX CHARGE: Some states and some municipalities charge premium taxes or
similar taxes on annuities that we are required to pay. The amount of tax will
vary from jurisdiction to jurisdiction and is subject to change. We reserve
the right to deduct the tax either when Purchase Payments are received, upon
surrender or upon Annuitization. If deducted upon Annuitization, we would
deduct the tax from your Unadjusted Account Value. The Tax Charge is designed
to approximate the taxes that we are required to pay and is assessed as a
percentage of Purchase Payments, Surrender Value, or Account Value as
applicable. The Tax Charge currently ranges up to 3.5%. We may assess a charge
against the Sub-accounts and the DCA MVA Options equal to any taxes which may
be
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imposed upon the Separate Accounts. "Surrender Value" refers to the Account
Value (which includes the effect of any MVA) less any applicable CDSC, any
applicable tax charges, any charges assessable as a deduction from the Account
Value for any optional benefits provided by rider or endorsement, and any
Annual Maintenance Fee.
We will pay company income taxes on the taxable corporate earnings created by
this Annuity. While we may consider company income taxes when pricing our
products, we do not currently include such income taxes in the tax charges you
pay under the Annuity. We will periodically review the issue of charging for
these taxes, and may charge for these taxes in the future. We reserve the
right to impose a charge for federal income taxes if we determine, in our sole
discretion, that we will incur a tax as a result of the operation of the
Separate Account.
In calculating our corporate income tax liability, we may derive certain
corporate income tax benefits associated with the investment of company
assets, including Separate Account assets, which are treated as company assets
under applicable income tax law. These benefits reduce our overall corporate
income tax liability. We do not pass these tax benefits through to holders of
the Separate Account annuity contracts because (i) the contract Owners are not
the Owners of the assets generating these benefits under applicable income tax
law and (ii) we do not currently include company income taxes in the tax
charges you pay under the Annuity.
INSURANCE CHARGE: We deduct an Insurance Charge daily based on the annualized
rate shown in the "Summary of Contract Fees and Charges." The charge, which is
equal to 0.85% annually, is assessed against the assets allocated to the
Sub-accounts. The Insurance Charge is the combination of the MORTALITY &
EXPENSE RISK CHARGE AND THE ADMINISTRATION CHARGE. The Insurance Charge is
intended to compensate Pruco Life for providing the insurance benefits under
the Annuity, including the Annuity's Death Benefit that provides guaranteed
benefits to your Beneficiaries even if your Account Value declines, and the
risk that persons we guarantee annuity payments to will live longer than our
assumptions. The charge also covers administrative costs associated with
providing the Annuity benefits, including preparation of the contract and
prospectus, confirmation statements, annual account statements and annual
reports, legal and accounting fees as well as various related expenses.
Finally, the charge covers the risk that our assumptions about the mortality
risks and expenses under the Annuity are incorrect and that we have agreed not
to increase these charges over time despite our actual costs.
OPTIONAL BENEFITS FOR WHICH WE ASSESS A CHARGE: If you elect to purchase an
optional benefit, we will deduct an additional charge. The charge is assessed
against the greater of the Unadjusted Account Value and the Protected
Withdrawal Value and is taken out of the Sub-accounts quarterly. Please refer
to the section entitled "Summary of Contract Fees and Charges" for the list of
charges for each optional benefit.
SETTLEMENT SERVICE CHARGE: If your Beneficiary takes the death benefit under a
Beneficiary Continuation Option, the Insurance Charge no longer applies.
However, we then begin to deduct a Settlement Service Charge which is assessed
daily against the assets allocated to the Sub-accounts and is equal to an
annualized charge of 1.00%.
FEES AND EXPENSES INCURRED BY THE PORTFOLIOS: Each Portfolio incurs total
annualized operating expenses comprised of an investment management fee, other
expenses and any distribution and service (12b-1) fees or short sale expenses
that may apply. These fees and expenses are reflected daily by each Portfolio
before it provides Pruco Life with the net asset value as of the close of
business each Valuation Day. More detailed information about fees and expenses
can be found in the prospectuses for the Portfolios.
DCA MVA OPTION CHARGES
No specific fees or expenses are deducted when determining the rates we credit
to a DCA MVA Option. However, for some of the same reasons that we deduct the
Insurance Charge against the Account Value allocated to the Sub-accounts, we
also take into consideration mortality, expense, administration, profit and
other factors in determining the interest rates we credit to a DCA MVA Option.
ANNUITY PAYMENT OPTION CHARGES
There is no specific charge deducted from annuity payments; however, the
amount of each annuity payment reflects assumptions about our insurance
expenses. Also, a tax charge may apply.
EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES
We may reduce or eliminate certain fees and charges or alter the manner in
which the particular fee or charge is deducted. For example, we may reduce the
amount of any CDSC or the length of time it applies, reduce or eliminate the
amount of the Annual Maintenance Fee or reduce the portion of the total
Insurance Charge that is deducted as an Administration Charge. We will not
discriminate unfairly between Annuity purchasers if and when we reduce any
fees and charges.
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PURCHASING YOUR ANNUITY
REQUIREMENTS FOR PURCHASING THE ANNUITY
WE MAY APPLY CERTAIN LIMITATIONS, RESTRICTIONS, AND/OR UNDERWRITING STANDARDS
AS A CONDITION OF OUR ISSUANCE OF THE ANNUITY AND/OR ACCEPTANCE OF PURCHASE
PAYMENTS. ALL SUCH CONDITIONS ARE DESCRIBED BELOW.
INITIAL PURCHASE PAYMENT: An initial Purchase Payment is considered the first
Purchase Payment received by us in Good Order. This is the payment that issues
your Annuity. All subsequent Purchase Payments allocated to the Annuity will
be considered additional Purchase Payments. Unless we agree otherwise and
subject to our rules, you must make a minimum initial Purchase Payment of
$10,000. However, if you decide to make payments under a systematic investment
or an electronic funds transfer program, we may accept a lower initial
Purchase Payment provided that, within the first Annuity Year, your subsequent
Purchase Payments plus your initial Purchase Payment total the minimum initial
Purchase Payment amount required for the Annuity purchased.
We must approve any initial and additional Purchase Payments where the total
amount of Purchase Payments equals $1,000,000 or more with respect to the
aggregate of all annuities you are purchasing from us (or that you already
own) and/or our affiliates. To the extent allowed by state law, that required
approval also will apply to a proposed change of owner of the Annuity, if as a
result of the ownership change, total Purchase Payments would equal or exceed
that $1 million threshold. Applicable laws designed to counter terrorists and
prevent money laundering might, in certain circumstances, require us to block
an Annuity Owner's ability to make certain transactions, and thereby refuse to
accept Purchase Payments or requests for transfers, partial withdrawals, total
surrenders, death benefits, or income payments until instructions are received
from the appropriate regulator. We also may be required to provide additional
information about you and your Annuity to government regulators.
Except as noted below, Purchase Payments must be submitted by check drawn on a
U.S. bank, in U.S. dollars, and made payable to 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.
Additional Purchase Payments may also be applied to your Annuity under an
electronic funds transfer, an arrangement where you authorize us to deduct
money directly from your bank account. We may reject any payment if it is
received in an unacceptable form. Our acceptance of a check is subject to our
ability to collect funds.
Once we accept your application, we invest your Purchase Payment in your
Annuity according to your instructions. You can allocate Purchase Payments to
one or more available Investment Options. Investment restrictions will apply
if you elect optional benefits.
SPECULATIVE INVESTING: Do not purchase this Annuity if you, anyone acting on
your behalf, and/or anyone providing advice to you plan to use it, or any of
its riders, for speculation, arbitrage, viatication or any other type of
collective investment scheme now or at any time prior to termination of the
Annuity. Your Annuity may not be traded on any stock exchange or secondary
market. By purchasing this Annuity, you represent and warrant that you are not
using this Annuity, or any of its riders, for speculation, arbitrage,
viatication or any other type of collective investment scheme.
We will not issue an Annuity, permit changes in ownership or allow assignments
to certain ownership types, including but not limited to: corporations,
partnerships, endowments, and grantor trusts with multiple grantors. Further,
we will only issue an Annuity, allow changes of ownership of the Annuity
and/or permit assignments of the Annuity to certain ownership types if the
Annuity is held exclusively for the benefit of the designated annuitant. These
rules are subject to state law. Additionally, we will not permit election or
re-election of any optional living benefit by certain ownership types. We may
issue an Annuity to ownership structures where the annuitant is also the
participant in a Qualified or Non-Qualified employer sponsored plan and the
Annuity represents his or her segregated interest in such plan. We reserve the
right to further limit, restrict and/or change to whom we will issue an
Annuity in the future, to the extent permitted by state law. Further, please
be aware that we do not provide administration for employer-sponsored plans
and may also limit the number of plan participants that elect to use our
Annuity as a funding vehicle.
AGE RESTRICTIONS: Unless we agree otherwise and subject to our rules, the
oldest of the Owner(s) and Annuitant must not be older than 80 in order for us
to issue the Annuity. The availability of certain optional living benefits may
vary based on the age of the Owners and Annuitant. In addition, the selling
firm through which you are purchasing the Annuity may impose a younger maximum
issue age than what is described above - check with your selling firm for
details. The "Annuitant" refers to the natural person upon whose life annuity
payments payable to the Owner are based.
ADDITIONAL PURCHASE PAYMENTS: You may make additional Purchase Payments,
provided that the payment is at least $100 (we impose a $50 minimum for
electronic funds transfer ("EFT") purchases). We may amend this Purchase
Payment minimum, and/or limit the Investment Options to which you may direct
Purchase Payments. Purchase Payments are not permitted after the Account Value
is reduced to zero.
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Each additional Purchase Payment will be allocated to the Investment Options
according to the instructions you provide with such Purchase Payment. You may
not provide allocation instructions that apply to more than one additional
Purchase Payment. Thus, if you have not provided allocation instructions with
a particular Purchase Payment, we will allocate the Purchase Payment on a pro
rata basis to the Sub-accounts in which your Account Value is then allocated,
excluding Sub-accounts to which you may not electively allocate Account Value.
We will accept additional Purchase Payments up to and including the day prior
to the later of (a) the oldest Owner's 81st birthday (the Annuitant's 81/st/
birthday, if the Annuity is owned by an entity), or (b) the first anniversary
of the Issue Date, unless otherwise required by applicable law or regulation
to maintain the tax status of the Annuity.
FOR ANNUITIES THAT HAVE ONE OF THE HIGHEST DAILY LIFETIME INCOME V2.1
BENEFITS, WE MAY LIMIT, SUSPEND OR REJECT ANY ADDITIONAL PURCHASE PAYMENT AT
ANY TIME, BUT WOULD DO SO ONLY ON A NON-DISCRIMINATORY BASIS. CIRCUMSTANCES
WHERE WE MAY LIMIT, RESTRICT, SUSPEND OR REJECT ADDITIONAL PURCHASE PAYMENTS
INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING:
.. IF WE DETERMINE THAT, AS A RESULT OF THE TIMING AND AMOUNTS OF YOUR
ADDITIONAL PURCHASE PAYMENTS AND WITHDRAWALS, THE ANNUAL INCOME AMOUNT IS
BEING INCREASED IN AN UNINTENDED FASHION. AMONG THE FACTORS WE WILL USE IN
MAKING A DETERMINATION AS TO WHETHER AN ACTION IS DESIGNED TO INCREASE THE
ANNUAL INCOME AMOUNT IN AN UNINTENDED FASHION IS THE RELATIVE SIZE OF
ADDITIONAL PURCHASE PAYMENT(S);
.. IF WE ARE NOT THEN OFFERING THIS BENEFIT FOR NEW ISSUES; OR
.. IF WE ARE OFFERING A MODIFIED VERSION OF THIS BENEFIT FOR NEW ISSUES.
IF WE EXERCISE OUR RIGHT TO SUSPEND, REJECT AND/OR PLACE LIMITATIONS ON THE
ACCEPTANCE OF ADDITIONAL PURCHASE PAYMENTS, YOU MAY NO LONGER BE ABLE TO FUND
THE HIGHEST DAILY LIFETIME INCOME V2.1 BENEFIT THAT YOU SELECTED. THIS MEANS
THAT YOU MAY NO LONGER BE ABLE TO INCREASE THE VALUES ASSOCIATED WITH YOUR
HIGHEST DAILY LIFETIME INCOME V2.1 BENEFIT THROUGH ADDITIONAL PURCHASE
PAYMENTS. PLEASE SEE THE "LIVING BENEFITS" SECTION OF THIS PROSPECTUS FOR
FURTHER INFORMATION ON ADDITIONAL PURCHASE PAYMENTS.
Depending on the tax status of your Annuity (e.g, if you own the Annuity
through an IRA), there may be annual contribution limits dictated by
applicable law. Please see the Tax Considerations section for additional
information on these contribution limits.
If you have elected to participate in the 6 or 12 Month DCA Program, your
initial Purchase Payment will be applied to your chosen program. Each time you
make an additional Purchase Payment, you will need to elect a new 6 or 12
Month DCA Program for that additional Purchase Payment. If you do not provide
such instructions, we will allocate that additional Purchase Payment on a pro
rata basis to the Sub-accounts in which your Account Value is then allocated,
excluding Sub-accounts to which you may not electively allocate Account Value.
Additionally, if your initial Purchase Payment is funded from multiple sources
(e.g., a transfer of assets/1035 exchange) then the total amount that you have
designated to fund your annuity will be treated as the initial Purchase
Payment for purposes of your participation in the 6 or 12 Month DCA Program.
DESIGNATION OF OWNER, ANNUITANT, AND BENEFICIARY: We will ask you to name the
Owner(s), Annuitant and one or more Beneficiaries for your Annuity.
. Owner: Each Owner holds all rights under the Annuity. You may name up to
two Owners in which case all ownership rights are held jointly.
Generally, joint Owners are required to act jointly; however, if each
Owner provides us with an instruction that we find acceptable, we will
permit each Owner to act independently on behalf of both Owners. All
information and documents that we are required to send you will be sent
to the first named Owner. Co-ownership by entity Owners or an entity
Owner and an individual is not permitted. Refer to the Glossary of Terms
for a complete description of the term "Owner." Prior to Annuitization,
there is no right of survivorship (other than any spousal continuation
right that may be available to a surviving spouse).
. Annuitant: The Annuitant is the person upon whose life we make annuity
payments. You must name an Annuitant who is a natural person. We do not
accept a designation of joint Annuitants during the Accumulation Period.
In limited circumstances and where allowed by law, we may allow you to
name one or more "Contingent Annuitants" with our prior approval.
Generally, a Contingent Annuitant will become the Annuitant if the
Annuitant dies before the Annuity Date. Please refer to the discussion
of "Considerations for Contingent Annuitants" in the Tax Considerations
section of the prospectus.
. Beneficiary: The Beneficiary is the person(s) or entity you name to
receive the Death Benefit. Your Beneficiary designation should be the
exact name of your Beneficiary, not only a reference to the
Beneficiary's relationship to you. If you use a class designation in
lieu of designating individuals (e.g. "surviving children"), we will pay
the class of Beneficiaries as determined at the time of your death and
not the class of Beneficiaries that existed at the time the designation
was made. If no Beneficiary is named, the Death Benefit will be paid to
you or your estate. For Annuities that designate a custodian or a plan
as Owner, the custodian or plan must also be designated as the
Beneficiary. If an Annuity is co-owned by spouses, we will assume that
the sole primary Beneficiary is the surviving spouse that was named as
the co-Owner, unless you elect an alternative Beneficiary designation.
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Your right to make certain designations may be limited if your Annuity is to
be used as an IRA or other "qualified" investment that is given beneficial tax
treatment under the Code. You should seek competent tax advice on the income,
estate and gift tax implications of your designations.
RIGHT TO CANCEL
You may cancel (or "Free Look") your Annuity for a refund by notifying us in
Good Order or by returning the Annuity to our Service Office or to the
representative who sold it to you within 10 days after you receive it (or such
other period as may be required by applicable law). The Annuity can be mailed
or delivered either to us, at our Service Office, or to the representative who
sold it to you. Return of the Annuity by mail is effective on being
postmarked, properly addressed and postage prepaid. Unless required by
applicable law, the amount of the refund will equal the Account Value as of
the Valuation Day we receive the returned Annuity at our Service Office or the
cancellation request in Good Order, plus any fees or tax charges deducted from
the Purchase Payment upon allocation to the Annuity or imposed under the
Annuity. However, where we are required by applicable law to return Purchase
Payments, we will return the greater of Account Value and Purchase Payments.
If you had Account Value allocated to any DCA MVA Option upon your exercise of
the Free Look, we will calculate any applicable MVA with a zero "liquidity
factor". See the section of this prospectus entitled "Market Value Adjustment."
SCHEDULED PAYMENTS DIRECTLY FROM A BANK ACCOUNT
You can make additional Purchase Payments to your Annuity by authorizing us to
deduct money directly from your bank account and applying it to your Annuity.
We may suspend or cancel electronic funds transfer privileges if sufficient
funds are not available from the applicable financial institution on any date
that a transaction is scheduled to occur. We may also suspend or cancel
electronic funds transfer privileges if we have limited, restricted, suspended
or rejected our acceptance of additional Purchase Payments.
SALARY REDUCTION PROGRAMS
These types of programs are only available with certain types of qualified
investments. If your employer sponsors such a program, we may agree to accept
periodic Purchase Payments through a salary reduction program as long as the
allocations are not directed to the DCA MVA Options.
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MANAGING YOUR ANNUITY
CHANGE OF OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS
In general, you may change the Owner, Annuitant and Beneficiary designations
by sending us a request in Good Order, which will be effective upon receipt at
our Service Office. As of the Valuation Day we receive an ownership change,
including an assignment, 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. Any change we accept is subject to any
transactions processed by us before we receive the notice of change at our
Service Office.
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 if the annuity option
includes a life contingency;
.. a new Annuitant prior to the Annuity Date if the Owner is an entity;
.. a new Owner such that the new Owner is older than the age for which we
would then issue the Annuity as of the effective date of such change,
unless the change of Owner is the result of spousal continuation;
.. any permissible designation change if the change request is received at our
Service Office after the Annuity Date;
.. a new Owner or Annuitant that is a certain ownership type, including but
not limited to corporations, partnerships, endowments, and grantor trusts
with multiple grantors; and
.. a new Annuitant for a contract issued to a grantor trust where the new
Annuitant is not the grantor of the trust.
In general, you may change the Owner, Annuitant, and Beneficiary designations
as indicated above, and also may assign the Annuity. WE WILL ALLOW CHANGES OF
OWNERSHIP AND/OR ASSIGNMENTS ONLY IF THE ANNUITY IS HELD EXCLUSIVELY FOR THE
BENEFIT OF THE DESIGNATED ANNUITANT. WE ACCEPT ASSIGNMENTS OF NON-QUALIFIED
ANNUITIES ONLY.
WE RESERVE THE RIGHT TO REJECT ANY PROPOSED CHANGE OF OWNER, ANNUITANT, OR
BENEFICIARY, AS WELL AS ANY PROPOSED ASSIGNMENT OF THE ANNUITY.
We will reject a proposed change where the proposed Owner, Annuitant,
Beneficiary or assignee is any of the following:
.. a company(ies) that issues or manages viatical or structured settlements;
.. an institutional investment company;
.. an Owner with no insurable relationship to the Annuitant or Contingent
Annuitant (a "Stranger-Owned Annuity" or "STOA"); or
.. a change in designation(s) that does not comply with or that we cannot
administer in compliance with Federal and/or state law.
WE WILL IMPLEMENT THIS RIGHT ON A NON-DISCRIMINATORY BASIS, AND TO THE EXTENT
ALLOWED BY STATE LAW. WE ARE NOT OBLIGATED TO PROCESS YOUR REQUEST WITHIN ANY
PARTICULAR TIME FRAME. There are restrictions on designation changes when you
have elected certain optional benefits.
DEATH BENEFIT SUSPENSION UPON CHANGE OF OWNER OR ANNUITANT. If there is a
change of Owner or Annuitant, the change may affect the amount of the Death
Benefit. See the Death Benefit section of this prospectus for additional
details.
SPOUSAL DESIGNATIONS
If an Annuity is co-owned by spouses, we will assume that the sole primary
Beneficiary is the surviving spouse that was named as the co-Owner unless you
elect an alternative Beneficiary designation.
Certain spousal rights under the contract, and our administration of such
spousal rights and related tax reporting comport 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, domestic partners or same-sex marriages. You
should be aware, however, that federal tax law does not recognize civil union
couples, domestic partners or marriage spouses of the same sex. Therefore, we
cannot permit a same-sex civil union partner, domestic partner or spouse to
continue the annuity within the meaning of the tax law upon the death of the
first partner under the annuity's "spousal continuance" provision. Please note
there may be federal tax consequences at the death of the first same-sex civil
union partner, domestic partner or spouse. Civil union couples, domestic
partners and spouses of the same sex should consider that limitation before
selecting a spousal benefit under the annuity.
CONTINGENT ANNUITANT
Generally, if an Annuity is owned by an entity and the entity has named a
Contingent Annuitant, the Contingent Annuitant will become the Annuitant upon
the death of the Annuitant, and no Death Benefit is payable. Unless we agree
otherwise, the Annuity is only eligible to have a Contingent Annuitant
designation if the entity which owns the Annuity is (1) a plan described in
Internal Revenue Code Section 72(s)(5)(A)(i) (or any successor Code section
thereto); (2) an entity described in Code Section 72(u)(1) (or any successor
Code section thereto); or (3) a Custodial Account established to hold
retirement assets for the benefit of the natural person Annuitant pursuant to
the provisions of Section 408(a) of the Internal Revenue Code (or any
successor Code section thereto) ("Custodial Account").
Where the Annuity is held by a Custodial Account, the Contingent Annuitant
will not automatically become the Annuitant upon the death of the Annuitant.
Upon the death of the Annuitant, the Custodial Account will have the choice,
subject to our rules, to either elect to receive the Death Benefit or elect to
continue the Annuity. If the Custodial Account elects to continue the Annuity,
the Death Benefit payable will equal the Death Benefit described in the
spousal continuation section of the Death Benefit section of this prospectus.
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MANAGING YOUR ACCOUNT VALUE
There are several programs we administer to help you manage your Account
Value, as described in this section.
DOLLAR COST AVERAGING PROGRAMS
We offer Dollar Cost Averaging Programs during the Accumulation Period. In
general, Dollar Cost Averaging allows you to systematically transfer an amount
periodically from one Sub-account to one or more other Sub-accounts. You can
choose to transfer earnings only, principal plus earnings or a flat dollar
amount. You may elect a Dollar Cost Averaging program that transfers amounts
monthly, quarterly, semi-annually, or annually from Sub-accounts (if you make
no selection, we will effect transfers on a monthly basis). In addition, you
may elect the 6 or 12 Month DCA Program described below.
There is no guarantee that Dollar Cost Averaging will result in a profit or
protect against a loss in a declining market.
6 OR 12 MONTH DOLLAR COST AVERAGING PROGRAM (THE "6 OR 12 MONTH DCA PROGRAM")
The 6 or 12 Month DCA Program is subject to our rules at the time of election
and may not be available in conjunction with other programs and benefits we
make available. We may discontinue, modify or amend this program from time to
time. The 6 or 12 Month DCA Program is not available in all states or with
certain benefits or programs. Currently, the DCA MVA Options are not available
in the States of Illinois, Oregon and Washington and are available in Iowa
only for Annuities purchased on or after August 20, 2012.
CRITERIA FOR PARTICIPATING IN THE PROGRAM
.. If you have elected to participate in the 6 or 12 Month DCA Program, your
initial Purchase Payment will be applied to your chosen program. Each time
you make an additional Purchase Payment, you will need to elect a new 6 or
12 Month DCA Program for that additional Purchase Payment. If you do not
provide such instructions, we will allocate that additional Purchase
Payment on a pro rata basis to the Sub-accounts in which your Account Value
is then allocated, excluding Sub-accounts to which you may not electively
allocate Account Value. Additionally, if your initial Purchase Payment is
funded from multiple sources (e.g., a transfer of assets/1035 exchange)
then the total amount that you have designated to fund your annuity will be
treated as the initial Purchase Payment for purposes of your participation
in the 6 or 12 Month DCA Program.
.. You may only allocate Purchase Payments to the DCA MVA Options. You may not
transfer Account Value into this program. To institute a program, you must
allocate at least $2,000 to the DCA MVA Options.
.. As part of your election to participate in the 6 or 12 Month DCA Program,
you specify whether you want 6 or 12 monthly transfers under the program.
We then set the monthly transfer amount, by dividing the Purchase Payment
you have allocated to the DCA MVA Options by the number of months. For
example, if you allocated $6,000, and selected a 6 month DCA Program, we
would transfer $1,000 each month (with the interest earned added to the
last payment). We will adjust the monthly transfer amount if, during the
transfer period, the amount allocated to the DCA MVA Options is reduced. In
that event, we will re-calculate the amount of each remaining transfer by
dividing the amount in the DCA MVA Option (including any interest) by the
number of remaining transfers. If the recalculated transfer amount is below
the minimum transfer required by the program, we will transfer the
remaining amount from the DCA MVA Option on the next scheduled transfer and
terminate the program.
.. We impose no fee for your participation in the 6 or 12 Month DCA Program.
.. You may cancel the DCA Program at any time. If you do, we will transfer any
remaining amount held within the DCA MVA Options according to your
instructions, subject to any applicable MVA. If you do not provide any such
instructions, we will transfer any remaining amount held in the DCA MVA
Options on a pro rata basis to the Sub-accounts in which you are invested
currently, excluding any Sub-accounts to which you are not permitted to
electively allocate or transfer Account Value. If any such Sub-account is
no longer available, we may allocate the amount that would have been
applied to that Sub-account to the AST Money Market Sub-account.
.. We credit interest to amounts held within the DCA MVA Options at the
applicable declared rates. We credit such interest until the earliest of
the following (a) the date the entire amount in the DCA MVA Option has been
transferred out; (b) the date the entire amount in the DCA MVA Option is
withdrawn; (c) the date as of which any Death Benefit payable is
determined, unless the Annuity is continued by a spouse Beneficiary (in
which case we continue to credit interest under the program); or (d) the
Annuity Date.
.. The interest rate earned in a DCA MVA Option will be no less than the
minimum guaranteed interest rate. We may, from time to time, declare new
interest rates for new Purchase Payments that are higher than the minimum
guaranteed interest rate. Please note that the interest rate that we apply
under the 6 or 12 Month DCA Program is applied to a declining balance.
Therefore, the dollar amount of interest you receive will decrease as
amounts are systematically transferred from the DCA MVA Option to the
Sub-accounts, and the effective interest rate earned will therefore be less
than the declared interest rate.
DETAILS REGARDING PROGRAM TRANSFERS
.. Transfers made under the Program are not subject to any MVA.
.. Any partial withdrawals, transfers, or fees deducted from the DCA MVA
Options will reduce the amount in the DCA MVA Options. If you have only one
6 or 12 Month DCA Program in operation, partial withdrawals, transfers, or
fees may be deducted from the DCA MVA Options associated with that program.
You may, however, have more than one 6 or 12 Month
35
DCA Program operating at the same time (so long as any such additional 6 or
12 Month DCA Program is of the same duration). For example, you may have
more than one 6 month DCA Program running, but may not have a 6 month
Program running simultaneously with a 12 month Program.
.. We will recalculate the monthly transfer amount to reflect the reduction of
Account Value in the DCA MVA Option caused by a partial withdrawal, fees
(including Annual Maintenance fee, Premium Based charge, or any other
charges for optional benefits), or transfers of Account Value from the DCA
MVA Option made by us pursuant to a transfer calculation formula under any
optional benefits made a part of your Annuity ("Optional Benefit
Transfer"). This recalculation may include some or all of the interest
credited to the date of the next scheduled transfer. Any interest that is
not included in the recalculated transfer amount will be paid with the
final transfer amount, unless there is another subsequent withdrawal or
Optional Benefit Transfer. If a partial withdrawal or Optional Benefit
Transfer reduces the monthly transfer amount below the Minimum Monthly
Transfer Amount shown in the DCA Program Schedule Supplement, the remaining
balance in the DCA MVA Option will be transferred on the next monthly
transfer date to the most-recently selected Investment Options applicable
to the DCA MVA Option. If there is no Account Value remaining in the DCA
MVA Option following a partial withdrawal or Optional Benefit Transfer, the
DCA MVA Option will terminate.
.. 6 or 12 Month DCA transfers will begin on the date the DCA MVA Option is
established (unless modified to comply with state law) and on each month
following until the entire principal amount plus earnings is transferred.
.. We do not count transfers under the 6 or 12 Month DCA Program against the
number of free transfers allowed under your Annuity.
.. The minimum transfer amount is $100, although we will not impose that
requirement with respect to the final amount to be transferred under the
program.
.. If you are not participating in an optional benefit, we will make transfers
under the 6 or 12 month DCA Program to the Sub-accounts that you specified
upon your election of the Program. If you are participating in any optional
benefit, we will allocate amounts transferred out of the DCA MVA Options in
the following manner: (a) we will make transfers under the 6 or 12 Month
DCA Program to the Sub-accounts that you specified upon your election of
the 6 or 12 Month DCA Program, provided those instructions comply with the
allocation requirements for the optional benefit and (b) no portion of our
monthly transfer under the 6 or 12 Month DCA Program will be directed
initially to the AST Investment Grade Bond Portfolio Sub-account used with
the optional benefit (although the DCA MVA Option is treated as a
"Permitted Sub-account" for purposes of transfers made by any predetermined
mathematical formula associated with the optional benefit).
.. If you are participating in an optional benefit and also are participating
in the 6 or 12 Month DCA Program, and the predetermined mathematical
formula under the benefit dictates a transfer from the Permitted
Sub-accounts to the applicable AST Investment Grade Bond Portfolio
Sub-account, then the amount to be transferred will be taken entirely from
the Sub-accounts, provided there is sufficient Account Value in those
Sub-accounts to meet the required transfer amount. Only if there is
insufficient Account Value in those Sub-accounts will an amount be
transferred from the DCA MVA Options associated with the 6 or 12 Month DCA
Program. Amounts transferred from the DCA MVA Options under the formula
will be taken on a last-in, first-out basis, without the imposition of a
market value adjustment.
.. If you are participating in one of our automated withdrawal programs (e.g.,
Systematic Withdrawals), we may include within that withdrawal program
amounts held within the DCA MVA Options. If you have elected any optional
living benefit, any withdrawals will be taken on a pro rata basis from your
Sub-accounts and the DCA MVA Options. Such withdrawals will be assessed any
applicable MVA.
AUTOMATIC REBALANCING PROGRAMS
During the Accumulation Period, we offer Automatic Rebalancing among the
Sub-accounts you choose. The "Accumulation Period" refers to the period of
time from the Issue Date through the last Valuation Day immediately preceding
the Annuity Date. You can choose to have your Account Value rebalanced
monthly, quarterly, semi-annually, or annually. On the appropriate date, the
Sub-accounts you choose are rebalanced to the allocation percentages you
requested. With Automatic Rebalancing, we transfer the appropriate amount from
the "overweighted" Sub-accounts to the "underweighted" Sub-accounts to return
your allocations to the percentages you request. For example, over time the
performance of the Sub-accounts will differ, causing your percentage
allocations to shift. You may make additional transfers; however, the
Automatic Rebalancing program will not reflect such transfers unless we
receive instructions from you indicating that you would like to adjust the
program. There is no minimum Account Value required to enroll in Automatic
Rebalancing. All rebalancing transfers as part of an Automatic Rebalancing
program are not included when counting the number of transfers each year
toward the maximum number of free transfers. We do not deduct a charge for
participating in an Automatic Rebalancing program. Participation in the
Automatic Rebalancing program may be restricted if you are enrolled in certain
other optional programs. Sub-accounts that are part of a Systematic Withdrawal
program or Dollar Cost Averaging program will be excluded from an Automatic
Rebalancing program.
If you are participating in an optional living benefit (such as Highest Daily
Lifetime Income v2.1) that makes transfers under a predetermined mathematical
formula, and you have elected automatic rebalancing, you should be aware that:
(a) the AST bond portfolio used as part of the predetermined mathematical
formula will not be included as part of automatic rebalancing and (b) the
operation of the formula may result in the rebalancing not conforming to the
percentage allocations that you specified originally as part of your Automatic
Rebalancing Program.
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FINANCIAL PROFESSIONAL PERMISSION TO FORWARD TRANSACTION INSTRUCTIONS
Unless you direct otherwise, your Financial Professional may forward
instructions regarding the allocation of your Account Value, and request
financial transactions involving Investment Options. IF YOUR FINANCIAL
PROFESSIONAL HAS THIS AUTHORITY, WE DEEM THAT ALL SUCH TRANSACTIONS THAT ARE
DIRECTED BY YOUR FINANCIAL PROFESSIONAL WITH RESPECT TO YOUR ANNUITY HAVE BEEN
AUTHORIZED BY YOU. You will receive a confirmation of any financial
transaction involving the purchase or sale of Units of your Annuity. You must
contact us immediately if and when you revoke such authority. We will not be
responsible for acting on instructions from your Financial Professional until
we receive notification of the revocation of such person's authority. We may
also suspend, cancel or limit these authorizations at any time. In addition,
we may restrict the Investment Options available for transfers or allocation
of Purchase Payments by such Financial Professional. We will notify you and
your Financial Professional if we implement any such restrictions or
prohibitions. PLEASE NOTE: Contracts managed by your Financial Professional
also are subject to the restrictions on transfers between Investment Options
that are discussed in the section below entitled "Restrictions on Transfers
Between Investment Options." We may also require that your Financial
Professional transmit all financial transactions using the electronic trading
functionality available through our Internet website
(www.prudentialannuities.com). Limitations that we may impose on your
Financial Professional under the terms of an administrative agreement (e.g., a
custodial agreement) do not apply to financial transactions requested by an
Owner on their own behalf, except as otherwise described in this prospectus.
RESTRICTIONS ON TRANSFERS BETWEEN INVESTMENT OPTIONS
During the Accumulation Period you may transfer Account Value between
Investment Options subject to the restrictions outlined below. Transfers are
not subject to taxation on any gain. We do not currently require a minimum
amount in each Sub-account you allocate Account Value to at the time of any
allocation or transfer. Although we do not currently impose a minimum transfer
amount, we reserve the right to require that any transfer be at least $50.
Transfers under this Annuity consist of those you initiate or those made under
a systematic program, such as the 6 or 12 Month DCA Program, another dollar
cost averaging program, an asset rebalancing program, or pursuant to a
mathematical formula required as part of an optional benefit (e.g., Highest
Daily Lifetime Income v2.1). The transfer restrictions discussed in this
section apply only to the former type of transfer (i.e., a transfer that you
initiate).
Once you have made 20 transfers among the Sub-accounts during an Annuity Year,
we will accept any additional transfer request during that year only if the
request is submitted to us in writing with an original signature and otherwise
is in Good Order. For purposes of this 20 transfer limit, we (i) do not view a
facsimile transmission as a "writing", and (ii) will treat multiple transfer
requests submitted on the same Valuation Day as a single transfer, and
(iii) do not count any transfer that involves one of our systematic programs,
such as automated withdrawals.
Frequent transfers among Sub-accounts in response to short-term fluctuations
in markets, sometimes called "market timing," can make it very difficult for a
portfolio manager to manage a portfolio's investments. Frequent transfers may
cause the portfolio to hold more cash than otherwise necessary, disrupt
management strategies, increase transaction costs, or affect performance. In
light of the risks posed to Owners and other investors by frequent transfers,
we reserve the right to limit the number of transfers in any Annuity Year for
all existing or new Owners and to take the other actions discussed below. We
also reserve the right to limit the number of transfers in any Annuity Year or
to refuse any transfer request for an Owner or certain Owners if: (a) we
believe that excessive transfer activity (as we define it) or a specific
transfer request or group of transfer requests may have a detrimental effect
on Unit Values or the share prices of the portfolios; or (b) we are informed
by a portfolio (e.g., by the portfolio's portfolio manager) that the purchase
or redemption of shares in the portfolio must be restricted because the
portfolio believes the transfer activity to which such purchase and redemption
relates would have a detrimental effect on the share prices of the affected
portfolio. Without limiting the above, the most likely scenario where either
of the above could occur would be if the aggregate amount of a trade or trades
represented a relatively large proportion of the total assets of a particular
portfolio. In furtherance of our general authority to restrict transfers as
described above, and without limiting other actions we may take in the future,
we have adopted the following specific restrictions:
. With respect to each Sub-account (other than the AST Money Market
Sub-account), we track amounts exceeding a certain dollar threshold that
were transferred into the Sub-account. If you transfer such amount into
a particular Sub-account, and within 30 calendar days thereafter
transfer (the "Transfer Out") all or a portion of that amount into
another Sub-account, then upon the Transfer Out, the former Sub-account
becomes restricted (the "Restricted Sub-account"). Specifically, we will
not permit subsequent transfers into the Restricted Sub-account for 90
calendar days after the Transfer Out if the Restricted Sub-account
invests in a non-international portfolio, or 180 calendar days after the
Transfer Out if the Restricted Sub-account invests in an international
portfolio. For purposes of this rule, we (i) do not count transfers made
in connection with one of our systematic programs, such as
auto-rebalancing or under a predetermined mathematical formula used with
an optional living benefit; and (ii) do not categorize as a transfer the
first transfer that you make after the Issue Date, if you make that
transfer within 30 calendar days after the Issue Date. Even if an amount
becomes restricted under the foregoing rules, you are still free to
redeem the amount from your Annuity at any time.
. We reserve the right to effect transfers on a delayed basis in
accordance with our rules regarding frequent transfers. That is, we may
price a transfer involving the Sub-accounts on the Valuation Day
subsequent to the Valuation Day on which the transfer request was
received. Before implementing such a practice, we would issue a separate
written notice to Owners that explains the practice in detail.
37
If we deny one or more transfer requests under the foregoing rules, we will
inform you or your Financial Professional promptly of the circumstances
concerning the denial.
There are contract Owners of different variable annuity contracts that are
funded through the same Separate Account that may not be subject to the
above-referenced transfer restrictions and, therefore, might make more
numerous and frequent transfers than contract Owners who are subject to such
limitations. Finally, there are contract Owners of other variable annuity
contracts or variable life contracts that are issued by Pruco Life as well as
other insurance companies that have the same underlying mutual fund portfolios
available to them. Since some contract Owners are not subject to the same
transfer restrictions, unfavorable consequences associated with such frequent
trading within the underlying mutual fund (e.g., greater portfolio turnover,
higher transaction costs, or performance or tax issues) may affect all
contract Owners. Similarly, while contracts managed by a Financial
Professional are subject to the restrictions on transfers between Investment
Options that are discussed above, if the Financial Professional manages a
number of contracts in the same fashion unfavorable consequences may be
associated with management activity since it may involve the movement of a
substantial portion of an underlying mutual fund's assets which may affect all
contract Owners invested in the affected options. Apart from
jurisdiction-specific and contract differences in transfer restrictions, we
will apply these rules uniformly (including contracts managed by a Financial
Professional) and will not waive a transfer restriction for any Owner.
ALTHOUGH OUR TRANSFER RESTRICTIONS ARE DESIGNED TO PREVENT EXCESSIVE
TRANSFERS, THEY ARE NOT CAPABLE OF PREVENTING EVERY POTENTIAL OCCURRENCE OF
EXCESSIVE TRANSFER ACTIVITY. The portfolios have adopted their own policies
and procedures with respect to excessive trading of their respective shares,
and we reserve the right to enforce any such current or future policies and
procedures. The prospectuses for the portfolios describe any such policies and
procedures, which may be more or less restrictive than the policies and
procedures we have adopted. Under SEC rules, we are required to: (1) enter
into a written agreement with each portfolio or its principal underwriter or
its transfer agent that obligates us to provide to the portfolio promptly upon
request certain information about the trading activity of individual contract
Owners (including an Annuity Owner's TIN number), and (2) execute instructions
from the portfolio to restrict or prohibit further purchases or transfers by
specific contract Owners who violate the excessive trading policies
established by the portfolio. In addition, you should be aware that some
portfolios may receive "omnibus" purchase and redemption orders from other
insurance companies or intermediaries such as retirement plans. The omnibus
orders reflect the aggregation and netting of multiple orders from individual
Owners of variable insurance contracts and/or individual retirement plan
participants. The omnibus nature of these orders may limit the portfolios in
their ability to apply their excessive trading policies and procedures. In
addition, the other insurance companies and/or retirement plans may have
different policies and procedures or may not have any such policies and
procedures because of contractual limitations. For these reasons, we cannot
guarantee that the portfolios (and thus contract Owners) will not be harmed by
transfer activity relating to other insurance companies and/or retirement
plans that may invest in the portfolios.
A portfolio also may assess a short-term trading fee (redemption fee) in
connection with a transfer out of the Sub-account investing in that portfolio
that occurs within a certain number of days following the date of allocation
to the Sub-account. Each portfolio determines the amount of the short-term
trading fee and when the fee is imposed. The fee is retained by or paid to the
portfolio and is not retained by us. The fee will be deducted from your
Account Value, to the extent allowed by law. At present, no portfolio has
adopted a short-term trading fee.
38
ACCESS TO ACCOUNT VALUE
TYPES OF DISTRIBUTIONS AVAILABLE TO YOU
During the Accumulation Period you can access your Account Value through
partial withdrawals, systematic withdrawals, and where required for tax
purposes, Required Minimum Distributions. You can also surrender your Annuity
at any time. Depending on your instructions, we may deduct a portion of the
Account Value being withdrawn or surrendered as a CDSC. If you surrender your
Annuity, in addition to any CDSC, we may deduct the Annual Maintenance Fee,
the Premium Based Charge if the surrender occurs on the Quarterly Anniversary
that the charge is due, any Tax Charge that applies and the charge for any
optional benefits and may impose an MVA. Certain amounts may be available to
you each Annuity Year that are not subject to a CDSC. These are called "Free
Withdrawals." Unless you notify us differently as permitted, partial
withdrawals are taken pro rata (i.e. "pro rata" meaning that the percentage of
each Investment Option withdrawn is the same percentage that the Investment
Option bears to the total Account Value). Each of these types of distributions
is described more fully below.
If you participate in any optional living benefit, and you take a withdrawal
deemed to be Excess Income that brings your Unadjusted Account Value to zero,
both the benefit and the Annuity itself will terminate.
TAX IMPLICATIONS FOR DISTRIBUTIONS FROM NON-QUALIFIED ANNUITIES
PRIOR TO ANNUITIZATION
A distribution prior to Annuitization is deemed to come first from any "gain"
in your Annuity and second as a return of your "cost basis", if any.
Distributions from your Annuity are generally subject to ordinary income
taxation on the amount of any investment gain unless the distribution
qualifies as a non-taxable exchange or transfer. If you take a distribution
prior to the taxpayer's age 59 1/2, you may be subject to a 10% penalty in
addition to ordinary income taxes on any gain. You may wish to consult a
professional tax advisor for advice before requesting a distribution.
DURING THE ANNUITIZATION PERIOD
During the Annuitization period, a portion of each annuity payment is taxed as
ordinary income at the tax rate you are subject to at the time of the payment.
The Code and regulations have "exclusionary rules" that we use to determine
what portion of each annuity payment should be treated as a return of any cost
basis you have in your Annuity. Once the cost basis in your Annuity has been
distributed, the remaining annuity payments are taxable as ordinary income.
The cost basis in your Annuity may be based on the cost basis from a prior
contract in the case of a 1035 exchange or other qualifying transfer.
There may also be tax implications on distributions from qualified Annuities.
See "Tax Considerations" for information about qualified Annuities and for
additional information about non-qualified Annuities.
FREE WITHDRAWAL AMOUNTS
You can make a full or partial withdrawal from the Annuity during the
Accumulation Period, although a CDSC, MVA, and tax consequences may apply. The
Annuity offers a "Free Withdrawal" amount that applies only to partial
withdrawals. The Free Withdrawal amount is the amount that can be withdrawn
from your Annuity each Annuity Year without the application of any CDSC. The
Free Withdrawal amount during each Annuity Year is equal to 10% of all
Purchase Payments that are currently subject to a CDSC. Withdrawals made
within an Annuity Year reduce the Free Withdrawal amount available for the
remainder of the Annuity Year. If you do not make a withdrawal during an
Annuity Year, you are not allowed to carry over the Free Withdrawal amount to
the next Annuity Year.
. The Free Withdrawal amount is not available if you choose to surrender
your Annuity. Amounts withdrawn as a Free Withdrawal do not reduce the
amount of CDSC that may apply upon a subsequent partial withdrawal or
surrender of your Annuity.
. You can also make partial withdrawals in excess of the Free Withdrawal
amount. The minimum partial withdrawal you may request is $100.
EXAMPLE. This example assumes that no withdrawals have previously been taken.
On January 3, to purchase your Annuity, you make an initial Purchase Payment
of $20,000.
On January 3 of the following calendar year, you make a subsequent Purchase
Payment to your Annuity of $10,000.
. Because in Annuity Year 1 your initial Purchase Payment of $20,000 is
still within the CDSC schedule (see "Annuity Owner Transaction
Expenses"), your Free Withdrawal amount in Annuity Year 1 equals $20,000
X 10%, or $2,000.
. Because in Annuity Year 2 both your initial Purchase Payment of $20,000
and your subsequent Purchase Payment of $10,000 are still within the
CDSC schedule (see "Annuity Owner Transaction Expenses"), your Free
Withdrawal amount in Annuity Year 2 equals $20,000 X 10%, plus $10,000 X
10%, or $2,000 + $1,000 for a total of $3,000.
39
To determine if a CDSC applies to partial withdrawals, we:
1. First determine what, if any, amounts qualify as a Free Withdrawal. These
amounts are not subject to the CDSC.
2. Next determine what, if any, remaining amounts are withdrawals of Purchase
Payments. Amounts in excess of the Free Withdrawal amount will be treated
as withdrawals of Purchase Payments unless all Purchase Payments have been
previously withdrawn. These amounts may be subject to the CDSC. Purchase
Payments are withdrawn on a first-in, first-out basis.
3. Withdraw any remaining amounts from any other Account Value. These amounts
are not subject to the CDSC.
You can request a partial withdrawal as either a "gross" or "net" withdrawal.
In a "gross" withdrawal, you request a specific withdrawal amount, with the
understanding that the amount you actually receive is reduced by any
applicable CDSC or tax withholding. Therefore, you may receive less than the
dollar amount you specify. In a "net" withdrawal, you request a withdrawal for
an exact dollar amount, with the understanding that any applicable deduction
for CDSC or tax withholding is taken from your remaining Unadjusted Account
Value. Therefore, a larger amount may be deducted from your Unadjusted Account
Value than the amount you specify. No matter how you specify the withdrawal,
any MVA will not be applied to the amount you receive, but instead will be
applied to your Unadjusted Account Value. We will deduct the partial
withdrawal from your Unadjusted Account Value in accordance with your
instructions, although if you are participating in an optional living benefit,
your withdrawal must be taken pro rata from each of your Investment Options.
For purposes of calculating the applicable portion to deduct from the DCA MVA
Options, the Unadjusted Account Value in all your DCA MVA Options is deemed to
be in one Investment Option. If you provide no instructions, then we will take
the withdrawal according to the DCA MVA Option Hierarchy defined above.
Please be aware that although a given partial withdrawal may qualify as a free
withdrawal for purposes of not incurring a CDSC, the amount of the withdrawal
could exceed the Annual Income Amount under one of the Highest Daily Lifetime
Income v2.1 benefits. In that scenario, the partial withdrawal would be deemed
"Excess Income" - thereby reducing your Annual Income Amount for future years.
For example, if the Annual Income Amount under Highest Daily Lifetime Income
v2.1 were $2000 and a $2500 withdrawal that qualified as a free withdrawal
were made, the withdrawal would be deemed Excess Income, in the amount of $500.
SYSTEMATIC WITHDRAWALS DURING THE ACCUMULATION PERIOD
You can receive systematic withdrawals of earnings only, or a flat dollar
amount. Systematic withdrawals may be subject to any applicable CDSC and/or an
MVA. We will determine whether a CDSC applies and the amount in the same way
as we would for a partial withdrawal.
Systematic withdrawals can be made from Account Value allocated to the
Sub-accounts or DCA MVA Options. The minimum amount for each systematic
withdrawal is $100. If any scheduled systematic withdrawal is for less than
$100 (which may occur under a program that provides payment of an amount equal
to the earnings in your Annuity for the period requested), we may postpone the
withdrawal and add the expected amount to the amount that is to be withdrawn
on the next scheduled systematic withdrawal.
We will withdraw systematic withdrawals from the Investment Options you have
designated (your "designated Investment Options"). If you do not designate
Investment Options for systematic withdrawals, we will withdraw systematic
withdrawals pro rata based on the Account Value in the Investment Options at
the time we pay out your withdrawal (i.e. "pro rata" meaning that the
percentage of each Investment Option withdrawn is the same percentage that the
Investment Option bears to the total Account Value). For any scheduled
systematic withdrawal for which you have elected a specific dollar amount and
have specified percentages to be withdrawn from your designated Investment
Options, if the amounts in your designated Investment Options cannot satisfy
such instructions, we will withdraw systematic withdrawals pro rata, as just
described, based on the Account Value across all your Investment Options.
Please note that if you are participating in certain optional living benefits
(e.g., Highest Daily Lifetime Income v2.1), systematic withdrawals must be
taken pro rata. Ownership changes to and assignment of your Annuity will
terminate any systematic withdrawals that had been in effect on the date of
the change.
SYSTEMATIC WITHDRAWALS UNDER SECTIONS 72(T)/72(Q) OF THE INTERNAL REVENUE CODE
If your Annuity is used as a funding vehicle for certain retirement plans that
receive special tax treatment under Sections 401, 403(b), 408 or 408A of the
Code, Section 72(t) of the Code may provide an exception to the 10% penalty
tax on distributions made prior to age 59 1/2 if you elect to receive
distributions as a series of "substantially equal periodic payments." For
Annuities issued as non-qualified annuities, the Code may provide a similar
exemption from penalty under Section 72(q) of the Code. Systematic withdrawals
under Sections 72(t)/72(q) may be subject to a CDSC and/or an MVA. To request
a program that complies with Sections 72(t)/72(q), you must provide us with
certain required information in writing on a form acceptable to us. We may
require advance notice to allow us to calculate the amount of 72(t)/72(q)
withdrawals. The minimum amount for any such withdrawal is $100 and payments
may be made monthly, quarterly, semi-annually or annually.
You may also annuitize your Annuity and begin receiving payments for the
remainder of your life (or life expectancy) as a means of receiving income
payments before age 59 1/2 that are not subject to the 10% penalty.
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Please note that if a withdrawal under Sections 72(t) or 72(q) was scheduled
to be effected between December 25th and December 31st of a given year, then
we will implement the withdrawal on December 28 or on the last Valuation Day
prior to December 28th of that year.
REQUIRED MINIMUM DISTRIBUTIONS
Required Minimum Distributions are a type of systematic withdrawal we allow to
meet distribution requirements under Sections 401, 403(b) or 408 of the Code.
Required Minimum Distribution rules do not apply to Roth IRAs during the
Owner's lifetime. Under the Code, you may be required to begin receiving
periodic amounts from your Annuity. In such case, we will allow you to make
systematic withdrawals in amounts that satisfy the minimum distribution rules
under the Code. We do not assess a CDSC (if applicable) or an MVA on Required
Minimum Distributions from your Annuity if you are required by law to take
such Required Minimum Distributions from your Annuity at the time it is taken,
provided the amount withdrawn is the amount we calculate as the Required
Minimum Distribution and is paid out through a program of systematic
withdrawals that we make available. However, a CDSC (if applicable) or an MVA
may be assessed on that portion of a systematic withdrawal that is taken to
satisfy the Required Minimum Distribution rules in relation to other savings
or investment plans under other qualified retirement plans.
The amount of the Required Minimum Distribution may depend on other annuities,
savings or investments. We will only calculate the amount of your Required
Minimum Distribution based on the value of your Annuity. We require three
(3) days advance written notice to calculate and process the amount of your
payments. You may elect to have Required Minimum Distributions paid out
monthly, quarterly, semi-annually or annually. The $100 minimum amount that
applies to systematic withdrawals applies to monthly Required Minimum
Distributions but does not apply to Required Minimum Distributions taken out
on a quarterly, semi-annual or annual basis.
You may also annuitize your Annuity and begin receiving payments for the
remainder of your life (or life expectancy) as a means of receiving income
payments and satisfying the Required Minimum Distribution rules under the
Code. Please see "Living Benefits" for further information relating to
Required Minimum Distributions if you own a living benefit.
In any year in which the requirement to take Required Minimum Distributions is
suspended by law, we reserve the right, in our sole discretion and regardless
of any position taken on this issue in a prior year, to treat any amount that
would have been considered as a Required Minimum Distribution if not for the
suspension as eligible for treatment as described herein.
Please note that if a Required Minimum Distribution was scheduled to be
effected between December 25th and December 31st of a given year, then we will
implement the Required Minimum Distribution on December 28 or on the last
Valuation Day prior to December 28th of that year.
See "Tax Considerations" for a further discussion of Required Minimum
Distributions.
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SURRENDERS
SURRENDER VALUE
During the Accumulation Period you can surrender your Annuity at any time, and
will receive the Surrender Value. Upon surrender of your Annuity, you will no
longer have any rights under the surrendered Annuity. Your Surrender Value is
equal to the Account Value (which includes the effect of any MVA) less any
applicable CDSC, any applicable tax charges, any charges assessable as a
deduction from the Account Value for any optional benefits provided by rider
or endorsement, and any Annual Maintenance Fee.
Please Note: Although the Premium Based Charge is not included in the
surrender value calculation, if you surrender your Annuity on a Quarterly
Annuity Anniversary, any applicable Premium Based Charges will apply.
We apply as a threshold, in certain circumstances, a minimum Surrender Value
of $2,000. If you purchase an Annuity without a lifetime guaranteed minimum
withdrawal benefit, we will not allow you to take any withdrawals that would
cause your Annuity's Account Value, after taking the withdrawal, to fall below
the minimum Surrender Value. Likewise, if you purchase an Annuity with a
lifetime guaranteed minimum withdrawal benefit, we will not allow you to take
a Non-Lifetime Withdrawal (see "Living Benefits - Non-Lifetime Withdrawal
Feature") that would cause your Annuity's Account Value, after taking the
withdrawal, to fall below the minimum Surrender Value. See "Annuity Options"
for information on the impact of the minimum Surrender Value at annuitization.
MEDICALLY-RELATED SURRENDERS
Where permitted by law, you may request to surrender all or part of your
Annuity prior to the Annuity Date without application of any otherwise
applicable CDSC upon occurrence of a medically-related "Contingency Event" as
described below (a "Medically-Related Surrender"). The requirements of such
surrender and waiver may vary by state. Although a CDSC will not apply to a
qualifying Medically-Related Surrender, please be aware that a withdrawal from
the Annuity before you have reached age 59 1/2 may be subject to a 10% tax
penalty and other tax consequences - see the Tax Considerations section of
this prospectus.
If you request a full surrender, the amount payable will be your Account Value
as of the date we receive, in Good Order, your request to surrender your
Annuity. Any applicable MVA will apply to a medically-related surrender.
This waiver of any applicable CDSC is subject to our rules in place at the
time of your request, which currently include but are not limited to the
following:
.. If the Owner is an entity, the Annuitant must have been named or any change
of Annuitant must have been accepted by us, prior to the "Contingency
Event" described below in order to qualify for a Medically-Related
Surrender;
.. If the Owner is an entity, the Annuitant must be alive as of the date we
pay the proceeds of such surrender request;
.. If the Owner is one or more natural persons, all such Owners must also be
alive at such time;
.. We must receive satisfactory proof of the Owner's (or the Annuitant's if
entity-owned) confinement in a Medical Care Facility or Fatal Illness in
writing on a form satisfactory to us; and
.. no additional Purchase Payments can be made to the Annuity.
We reserve the right to impose a maximum amount of a Medically-Related
Surrender (equal to $500,000), but we do not currently impose that maximum.
That is, if the amount of a partial medically-related withdrawal request, when
added to the aggregate amount of Medically-Related Surrenders you have taken
previously under this Annuity and any other annuities we and/or our affiliates
have issued to you exceeds that maximum amount, we reserve the right to treat
the amount exceeding that maximum as not an eligible Medically-Related
Surrender. A "Contingency Event" occurs if the Owner (or Annuitant if
entity-owned) is:
.. first confined in a "Medical Care Facility" after the Issue Date and while
the Annuity is in force, remains confined for at least 90 consecutive days,
and remains confined on the date we receive the Medically-Related Surrender
request at our Service Office; or
.. first diagnosed as having a "Fatal Illness" after the Issue Date and while
the Annuity is in force. We may require a second or third opinion by a
licensed physician chosen by us regarding a diagnosis of Fatal Illness. We
will pay for any such second or third opinion.
"Fatal Illness" means a condition (a) diagnosed by a licensed physician; and
(b) that is expected to result in death within 24 months after the diagnosis
in 80% of the cases diagnosed with the condition. "Medical Care Facility"
means a facility operated and licensed pursuant to the laws of any United
States jurisdiction providing medically necessary in-patient care, which is
(a) prescribed by a licensed physician in writing; (b) recognized as a general
hospital or long-term care facility by the proper authority of the United
States jurisdiction in which it is located; (c) recognized as a general
hospital by the Joint Commission on the Accreditation of Hospitals; and
(d) certified as a hospital or long-term care facility; OR (e) a nursing home
licensed by the United States jurisdiction in which it is located and offers
the services of a Registered Nurse (RN) or Licensed Practical Nurse (LPN) 24
hours a day that maintains control of all prescribed medications dispensed and
daily medical records. This benefit is not currently available in California
and Massachusetts.
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ANNUITY OPTIONS
Annuitization involves converting your Unadjusted Account Value to an annuity
payment stream, the length of which depends on the terms of the applicable
annuity option. Thus, once annuity payments begin, your death benefit, if any,
is determined solely under the terms of the applicable annuity payment option,
and you no longer participate in any optional living benefit (unless you have
annuitized under that benefit). We currently make annuity options available
that provide fixed annuity payments. Fixed annuity payments provide the same
amount with each payment. Please refer to the "Living Benefits" section in
this prospectus for a description of annuity options that are available when
you elect one of the living benefits. You must annuitize your entire
Unadjusted Account Value; partial annuitizations are not allowed.
You have a right to choose your annuity start date, provided that it is no
later than the first day of the calendar month next following the 95th
birthday of the oldest of any Owner and Annuitant whichever occurs first
("Latest Annuity Date") and no earlier than the earliest permissible Annuity
Date. You may choose one of the Annuity Options described below, and the
frequency of annuity payments. You may change your choices before the Annuity
Date. If you have not provided us with your Annuity Date or annuity payment
option in writing, then your Annuity Date will be the Latest Annuity Date.
Certain annuity options and/or periods certain may not be available, depending
on the age of the Annuitant. If a CDSC is still remaining on your Annuity, any
period certain must be at least 10 years (or the maximum period certain
available, if life expectancy is less than 10 years).
If needed, we will require proof in Good Order of the Annuitant's age before
commencing annuity payments. Likewise, we may require proof in Good Order that
an Annuitant is still alive, as a condition of our making additional annuity
payments while the Annuitant lives. We will seek to recover any life income
annuity payments that we made after the death of the Annuitant.
If the initial annuity payment would be less than $100, we will not allow you
to annuitize (except as otherwise specified by applicable law). Instead, we
will pay you your current Unadjusted Account Value in a lump sum and terminate
your Annuity. Similarly, we reserve the right to pay your Unadjusted Account
Value in a lump sum, rather than allow you to annuitize, if the Surrender
Value of your Annuity is less than $2000 on the Annuity Date.
Once annuity payments begin, you no longer receive benefits under any optional
living benefit (unless you have annuitized under that benefit) or the Death
Benefit described below.
Certain of these annuity options may be available as "settlement options" to
Beneficiaries who choose to receive the Death Benefit proceeds as a series of
payments instead of a lump sum payment.
Please note that you may not annuitize within the first three Annuity Years
(except as otherwise specified by applicable law).
OPTION 1
ANNUITY PAYMENTS FOR A PERIOD CERTAIN: Under this option, we will make equal
payments for the period chosen, up to 25 years (but not to exceed the life
expectancy of the Annuitant at the time the Annuity Option becomes effective,
as computed under applicable IRS tables). The annuity payments may be made
monthly, quarterly, semiannually, or annually, as you choose, for the fixed
period. If the Owner dies during the income phase, payments will continue to
any surviving Owner, or if there is no surviving Owner, the named Beneficiary,
or your estate if no Beneficiary is named for the remainder of the period
certain.
OPTION 2
LIFE INCOME ANNUITY OPTION WITH A PERIOD CERTAIN: Under this option, income is
payable monthly, quarterly, semiannually, or annually for the number of years
selected (the "period certain"), subject to our then current rules, and
thereafter until the death of the Annuitant. Should the Owner or Annuitant die
before the end of the period certain, the remaining period certain payments
are paid to any surviving Owner, or if there is no surviving Owner, the named
Beneficiary, or your estate if no Beneficiary is named, until the end of the
period certain. If an annuity option is not selected by the Annuity Date, this
is the option we will automatically select for you. We will use a period
certain of 10 years, or a shorter duration if the Annuitant's life expectancy
at the time the Annuity Option becomes effective, as computed under applicable
IRS tables, is less than 10 years. If in this instance the duration of the
period certain is prohibited by applicable law, then we will pay you a lump
sum in lieu of this option.
OTHER ANNUITY OPTIONS WE MAY MAKE AVAILABLE
At the Annuity Date, we may make available other annuity options not described
above. The additional options we currently offer are:
. Life Annuity Option. We currently make available an annuity option that
makes payments for the life of the Annuitant. Under that option, income
is payable monthly, quarterly, semiannually, or annually, as you choose,
until the death of the Annuitant. No additional annuity payments are
made after the death of the Annuitant. No minimum number of payments is
guaranteed. It is possible that only one payment will be payable if the
death of the Annuitant occurs before the date the second payment was
due, and no other payments nor death benefits would be payable.
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. Joint Life Annuity Option. Under the joint lives option, income is
payable monthly, quarterly, semiannually, or annually, as you choose,
during the joint lifetime of two Annuitants, ceasing with the last
payment prior to the death of the second to die of the two Annuitants.
No minimum number of payments is guaranteed under this option. It is
possible that only one payment will be payable if the death of all the
Annuitants occurs before the date the second payment was due, and no
other payments or death benefits would be payable.
. Joint Life Annuity Option With a Period Certain. Under this option,
income is payable monthly, quarterly, semiannually, or annually for the
number of years selected (the "period certain"), subject to our current
rules, and thereafter during the joint lifetime of two Annuitants,
ceasing with the last payment prior to the death of the second to die of
the two Annuitants. If the Annuitants' joint life expectancy is less
than the period certain, we will institute a shorter period certain,
determined according to applicable IRS tables. Should the two Annuitants
die before the end of the period certain, the remaining period certain
payments are paid to any surviving Owner, or if there is no surviving
Owner, the named Beneficiary, or to your estate if no Beneficiary is
named, until the end of the period certain.
We reserve the right to cease offering any of these Other Annuity Options. If
we do so, we will amend this prospectus to reflect the change. We reserve the
right to make available other annuity or settlement options.
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LIVING BENEFITS
Pruco Life offers different optional living benefits, for an additional
charge, that can provide investment protection for Owners while they are
alive. Notwithstanding the additional protection provided under the optional
living benefits, the additional cost has the impact of reducing net
performance of the Investment Options. Each optional benefit offers a type of
guarantee, regardless of the performance of the Sub-accounts, that may be
appropriate for you depending on the manner in which you intend to make use of
your Annuity while you are alive. We reserve the right to cease offering any
of these optional living benefits for new elections at any time. Depending on
which optional living benefit you choose, you can have substantial flexibility
to invest in the Sub-accounts while:
.. guaranteeing a minimum amount of growth to be used as the basis for
lifetime withdrawals; or
.. guaranteeing a minimum amount of growth to be used as the basis for
withdrawals over the life of two spouses
We currently offer the following "living benefits":
.. Highest Daily Lifetime Income v2.1
.. Spousal Highest Daily Lifetime Income v2.1
Each living benefit requires your participation in a predetermined
mathematical formula that may transfer your account value between the
Sub-accounts you have chosen from among those we permit with the benefit
(i.e., the "permitted Sub-accounts") and the AST Investment Grade Bond
Sub-account. The optional living benefit investment requirements and the
applicable formula are designed to reduce the difference between your Account
Value and our liability under the benefit. Minimizing such difference
generally benefits us by decreasing the risk that we will use our own assets
to make benefit payments to you. Though the investment requirements and
formula are designed to reduce risk, they do not guarantee any appreciation of
your Account Value. In fact, they could mean that you miss appreciation
opportunities in other investment options. We are not providing you with
investment advice through the use of the formula. In addition, the formula
does not constitute an investment strategy that we are recommending to you.
The Highest Daily Lifetime v2.1 benefits are "Lifetime Guaranteed Minimum
Withdrawal Benefits." These benefits are designed for someone who wants a
guaranteed lifetime income stream through withdrawals over time, rather than
by annuitizing. Please note that there is a Latest Annuity Date under your
Annuity, by which date annuity payments must commence.
Under any of the Guaranteed Lifetime Withdrawal Benefits, WITHDRAWALS IN
EXCESS OF THE ANNUAL INCOME AMOUNT, CALLED "EXCESS INCOME," WILL RESULT IN A
PERMANENT REDUCTION IN FUTURE GUARANTEED AMOUNTS.
PLEASE REFER TO THE BENEFIT DESCRIPTION THAT FOLLOWS FOR A COMPLETE
DESCRIPTION OF THE TERMS, CONDITIONS AND LIMITATIONS OF EACH OPTIONAL BENEFIT.
SEE THE CHART IN THE "INVESTMENT OPTIONS" SECTION OF THE PROSPECTUS FOR A LIST
OF INVESTMENT OPTIONS AVAILABLE AND PERMITTED WITH EACH BENEFIT. WE RESERVE
THE RIGHT TO TERMINATE A BENEFIT IF YOU ALLOCATE FUNDS INTO NON-PERMITTED
INVESTMENT OPTIONS. Prior to terminating a benefit, we will send you written
notice and provide you with an opportunity to reallocate to permitted
Investment Options applicable to your benefit. You should consult with your
Financial Professional to determine if any of these optional benefits may be
appropriate for you based on your financial needs. As is the case with
optional living benefits in general, the fulfillment of our guarantee under
these benefits is dependent on our claims-paying ability.
TERMINATION OF EXISTING BENEFITS AND ELECTION OF NEW BENEFITS
If you elect an optional living benefit, you may subsequently terminate the
benefit and elect one of the then currently available benefits, subject to
availability of the benefit at that time and our then current rules. There is
currently no waiting period for such an election (you may elect a new benefit
beginning on the next Valuation Day), provided that upon such an election,
your Account Value must be allocated to the Investment Options permitted for
the optional benefit. We reserve the right to waive, change and/or further
limit availability and election frequencies in the future. Check with your
Financial Professional regarding the availability of re-electing or electing a
benefit and any waiting period. The benefit you re-elect or elect may not
provide the same guarantees and/or may be more expensive than the benefit you
are terminating. NOTE THAT ONCE YOU TERMINATE AN EXISTING BENEFIT, YOU LOSE
THE GUARANTEES THAT YOU HAD ACCUMULATED UNDER YOUR EXISTING BENEFIT AND WILL
BEGIN THE NEW GUARANTEES UNDER THE NEW BENEFIT YOU ELECT BASED ON YOUR
UNADJUSTED ACCOUNT VALUE AS OF THE DATE THE NEW BENEFIT BECOMES EFFECTIVE. You
should carefully consider whether terminating your existing benefit and
electing a new benefit is appropriate for you.
Certain spousal rights under the contract, and our administration of such
spousal rights and related tax reporting comport 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, domestic partners or same-sex marriages. You
should be aware, however, that federal tax law does not recognize civil union
couples, domestic partners or marriage spouses of the same sex. Therefore, we
cannot permit a same-sex civil union partner, domestic partner or spouse to
continue the annuity within the meaning of the tax law upon the death of the
first partner under the annuity's "spousal continuance" provision. Please note
there may be federal tax consequences at the death of the first same-sex civil
union partner, domestic partner or spouse. Civil union couples, domestic
partners and spouses of the same sex should consider that limitation before
selecting a spousal benefit under the annuity.
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HIGHEST DAILY LIFETIME INCOME V2.1 BENEFIT
Highest Daily Lifetime(R) Income v2.1 Benefit is a lifetime guaranteed minimum
withdrawal benefit, under which, subject to the terms of the benefit, we
guarantee your ability to take a certain annual withdrawal amount for life. We
reserve the right, in our sole discretion, to cease offering this benefit for
new elections, at any time.
We offer a benefit that guarantees until the death of the single designated
life (the Annuitant) the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial value (the "Protected
Withdrawal Value") regardless of the impact of Sub-account performance on the
Unadjusted Account Value, subject to our rules regarding the timing and amount
of withdrawals. You are guaranteed to be able to withdraw the Annual Income
Amount for the rest of your life provided that you do not take withdrawals
treated as Excess Income that result in your Unadjusted Account Value being
reduced to zero. We also permit you to designate the first withdrawal from
your Annuity as a one-time "Non-Lifetime Withdrawal". All other partial
withdrawals from your Annuity are considered a "Lifetime Withdrawal" under the
benefit. Withdrawals are taken first from your own Unadjusted Account Value.
We are only required to begin making lifetime income payments to you under our
guarantee when and if your Unadjusted Account Value is reduced to zero (for
any reason other than due to partial withdrawals of Excess Income). Highest
Daily Lifetime Income v2.1 may be appropriate if you intend to make periodic
withdrawals from your Annuity, and wish to ensure that Sub-account performance
will not affect your ability to receive annual payments. You are not required
to take withdrawals as part of the benefit - the guarantees are not lost if
you withdraw less than the maximum allowable amount each year under the rules
of the benefit. An integral component of Highest Daily Lifetime Income v2.1 is
the predetermined mathematical formula we employ that may periodically
transfer your Unadjusted Account Value to and from the AST Investment Grade
Bond Sub-account. See the section below entitled "How Highest Daily Lifetime
Income v2.1 Transfers Unadjusted Account Value Between Your Permitted
Sub-accounts and the AST Investment Grade Bond Sub-account."
The income benefit under Highest Daily Lifetime Income v2.1 currently is based
on a single "designated life" who is at least 50 years old on the date that
the benefit is acquired. Highest Daily Lifetime Income v2.1 is not available
if you elect any other optional living benefit. As long as your Highest Daily
Lifetime Income v2.1 is in effect, you must allocate your Unadjusted Account
Value in accordance with the permitted Sub-accounts and other Investment
Option(s) available with this benefit. For a more detailed description of the
permitted Investment Options, see the "Investment Options" section.
ALTHOUGH YOU ARE GUARANTEED THE ABILITY TO WITHDRAW YOUR ANNUAL INCOME AMOUNT
FOR LIFE EVEN IF YOUR UNADJUSTED ACCOUNT VALUE FALLS TO ZERO, IF THAT
PARTICULAR WITHDRAWAL OF EXCESS INCOME (DESCRIBED BELOW) BRINGS YOUR
UNADJUSTED ACCOUNT VALUE TO ZERO, YOUR ANNUAL INCOME AMOUNT ALSO WOULD FALL TO
ZERO, AND THE BENEFIT AND THE ANNUITY THEN WOULD TERMINATE. IN THAT SCENARIO,
NO FURTHER AMOUNT WOULD BE PAYABLE UNDER HIGHEST DAILY LIFETIME INCOME V2.1.
AS TO THE IMPACT OF SUCH A SCENARIO ON ANY OTHER OPTIONAL BENEFIT YOU MAY
HAVE, PLEASE SEE "SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 BENEFIT."
You may also participate in the 6 or 12 Month DCA Program if you elect Highest
Daily Lifetime Income v2.1, subject to the 6 or 12 Month DCA Program's rules.
KEY FEATURE - PROTECTED WITHDRAWAL VALUE
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter, until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraphs.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value on or before the Roll-Up End Date:
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment made on the Current
Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
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The Periodic Value after the Roll-Up End Date:
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments reduced for subsequent Lifetime Withdrawals (see examples
that begin immediately prior to the sub-heading below entitled "Example of
dollar-for-dollar reductions").
PLEASE NOTE THAT IF YOU ELECT HIGHEST DAILY LIFETIME INCOME V2.1, YOUR ACCOUNT
VALUE IS NOT GUARANTEED, CAN FLUCTUATE AND MAY LOSE VALUE.
KEY FEATURE - ANNUAL INCOME AMOUNT UNDER HIGHEST DAILY LIFETIME INCOME V2.1
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the Annuitant on the date of the first Lifetime Withdrawal. The
percentages are: 3% for ages 50 to 54; 3.5% for ages 55 to less than 59 1/2;
4% for ages 59 1/2 to 64; 4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6%
for ages 85 or older. Under Highest Daily Lifetime Income v2.1, if your
cumulative Lifetime Withdrawals in an Annuity Year are less than or equal to
the Annual Income Amount, they will not reduce your Annual Income Amount in
subsequent Annuity Years, but any such withdrawals will reduce the Annual
Income Amount on a dollar-for-dollar basis in that Annuity Year and also will
reduce the Protected Withdrawal Value on a dollar-for-dollar basis. If your
cumulative Lifetime Withdrawals in an Annuity Year are in excess of the Annual
Income Amount ("Excess Income"), your Annual Income Amount in subsequent years
will be reduced (except with regard to Required Minimum Distributions for this
Annuity that comply with our rules) by the result of the ratio of the Excess
Income to the Account Value immediately prior to such withdrawal (see examples
of this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
AS DISCUSSED IN THIS PARAGRAPH, WHEN YOU MAKE A PARTIAL WITHDRAWAL THAT IS
SUBJECT TO A CDSC AND/OR TAX WITHHOLDING, WE WILL IDENTIFY THE AMOUNT THAT
INCLUDES NOT ONLY THE AMOUNT YOU ACTUALLY RECEIVE, BUT ALSO THE AMOUNT OF THE
CDSC AND/OR TAX WITHHOLDING, TO DETERMINE WHETHER YOUR WITHDRAWAL HAS EXCEEDED
THE ANNUAL INCOME AMOUNT. WHEN YOU TAKE A PARTIAL WITHDRAWAL, YOU MAY REQUEST
A "GROSS" WITHDRAWAL AMOUNT (E.G., $2,000) BUT THEN HAVE ANY CDSC AND/OR TAX
WITHHOLDING DEDUCTED FROM THE AMOUNT YOU ACTUALLY RECEIVE (ALTHOUGH AN MVA MAY
ALSO BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE, IT IS NOT
CONSIDERED FOR PURPOSES OF DETERMINING EXCESS INCOME). THE PORTION OF A
WITHDRAWAL THAT EXCEEDED YOUR ANNUAL INCOME AMOUNT (IF ANY) WOULD BE TREATED
AS EXCESS INCOME AND THUS WOULD REDUCE YOUR ANNUAL INCOME AMOUNT IN SUBSEQUENT
YEARS. ALTERNATIVELY, YOU MAY REQUEST THAT A "NET" WITHDRAWAL AMOUNT ACTUALLY
BE PAID TO YOU (E.G., $2,000), WITH THE UNDERSTANDING THAT ANY CDSC AND/OR TAX
WITHHOLDING (E.G., $240) BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE
(ALTHOUGH AN MVA MAY ALSO BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT
VALUE, IT IS NOT CONSIDERED FOR PURPOSES OF DETERMINING EXCESS INCOME). IN THE
LATTER SCENARIO, WE DETERMINE WHETHER ANY PORTION OF THE WITHDRAWAL IS TO BE
TREATED AS EXCESS INCOME BY LOOKING TO THE SUM OF THE NET AMOUNT YOU ACTUALLY
RECEIVE (E.G., $2,000) AND THE AMOUNT OF ANY CDSC AND/OR TAX WITHHOLDING (IN
THIS EXAMPLE, A TOTAL OF $2,240). THE AMOUNT OF THAT SUM (E.G., THE $2,000 YOU
RECEIVED PLUS THE $240 FOR THE CDSC AND/OR TAX WITHHOLDING) THAT EXCEEDS YOUR
ANNUAL INCOME AMOUNT WILL BE TREATED AS EXCESS INCOME - THEREBY REDUCING YOUR
ANNUAL INCOME AMOUNT IN SUBSEQUENT YEARS.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Highest Daily
Lifetime Income v2.1 and subsequent to the first Lifetime Withdrawal will (i)
immediately increase the then-existing Annual Income Amount by an amount equal
to a percentage of the Purchase Payment based on the age of the Annuitant at
the time of the first Lifetime Withdrawal (the percentages are: 3% for ages 50
to 54; 3.5% for ages 55 to less than 59 1/2; 4% for ages 59 1/2 to 64; 4.5%
for ages 65 to 69; 5% for ages 70 to 84; and 6% for ages 85 or older) and
(ii) increase the Protected Withdrawal Value by the amount of the Purchase
Payment.
While Highest Daily Lifetime Income v2.1 is in effect, we may limit, restrict,
suspend or reject any additional Purchase Payment at any time, but would do so
on a non-discriminatory basis. Circumstances where we may limit, restrict,
suspend or reject additional Purchase Payments include, but are not limited
to, the following:
.. if we determine that, as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
47
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Highest Daily Lifetime Income v2.1 benefit. This means that you
may no longer be able to increase the values associated with your Highest
Daily Lifetime Income v2.1 benefit through additional Purchase Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity in a non-discriminatory manner.
HIGHEST DAILY AUTO STEP-UP
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of Highest
Daily Lifetime Income v2.1. As detailed in this paragraph, the Highest Daily
Auto Step-Up feature can result in a larger Annual Income Amount subsequent to
your first Lifetime Withdrawal. The Highest Daily Auto Step-Up starts with the
anniversary of the Issue Date of the Annuity (the "Annuity Anniversary")
immediately after your first Lifetime Withdrawal under the benefit.
Specifically, upon the first such Annuity Anniversary, we identify the
Unadjusted Account Value on each Valuation Day within the immediately
preceding Annuity Year after your first Lifetime Withdrawal. Having identified
the highest daily value (after all daily values have been adjusted for
subsequent Purchase Payments and withdrawals), we then multiply that value by
a percentage that varies based on the age of the Annuitant on the Annuity
Anniversary as of which the step-up would occur. The percentages are: 3% for
ages 50 to 54; 3.5% for ages 55 to less than 59 1/2; 4% for ages 59 1/2 to 64;
4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for ages 85 or older. If
that value exceeds the existing Annual Income Amount, we replace the existing
amount with the new, higher amount. Otherwise, we leave the existing Annual
Income Amount intact. We will not automatically increase your Annual Income
Amount solely as a result of your attaining a new age that is associated with
a new age-based percentage. The Unadjusted Account Value on the Annuity
Anniversary is considered the last daily step-up value of the Annuity Year.
All daily valuations and annual step-ups will only occur on a Valuation Day.
In later years (i.e., after the first Annuity Anniversary after the first
Lifetime Withdrawal), we determine whether an automatic step-up should occur
on each Annuity Anniversary, by performing a similar examination of the
Unadjusted Account Values that occurred on Valuation Days during the year.
Taking Lifetime Withdrawals could produce a greater difference between your
Protected Withdrawal Value and your Unadjusted Account Value, which may make a
Highest Daily Auto Step-up less likely to occur. At the time that we increase
your Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the date that we implement a Highest Daily Auto Step-Up to your Annual
Income Amount, the charge for Highest Daily Lifetime Income v2.1 has changed
for new purchasers, you may be subject to the new charge at the time of such
step-up. Prior to increasing your charge for Highest Daily Lifetime Income
v2.1 upon a step-up, we would notify you, and give you the opportunity to
cancel the automatic step-up feature. If you receive notice of a proposed
step-up and accompanying fee increase, you should consult with your Financial
Professional and carefully evaluate whether the amount of the step-up
justifies the increased fee to which you will be subject. Any such increased
charge will not be greater than the maximum charge set forth in the table
entitled "Your Optional Benefit Fees and Charges."
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Highest Daily Lifetime Income v2.1 does not affect your ability to take
partial withdrawals under your Annuity, or limit your ability to take partial
withdrawals that exceed the Annual Income Amount. Under Highest Daily Lifetime
Income v2.1, if your cumulative Lifetime Withdrawals in an Annuity Year are
less than or equal to the Annual Income Amount, they will not reduce your
Annual Income Amount in subsequent Annuity Years, but any such withdrawals
will reduce the Annual Income Amount on a dollar-for-dollar basis in that
Annuity Year. If your cumulative Lifetime Withdrawals in any Annuity Year are
less than the Annual Income Amount, you cannot carry over the unused portion
of the Annual Income Amount to subsequent Annuity Years. If your cumulative
(partial) Lifetime Withdrawals in an Annuity Year exceed the Annual Income
Amount, your Annual Income Amount in subsequent years will be reduced (except
with regard to Required Minimum Distributions for this Annuity that comply
with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Highest Daily Lifetime
Income v2.1 or any other fees and charges under the Annuity. Assume the
following for all three examples:
.. The Issue Date is November 1
.. Highest Daily Lifetime Income v2.1 is elected on August 1 of the following
calendar year
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
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EXAMPLE OF DOLLAR-FOR-DOLLAR REDUCTIONS
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $6,000 (since the designated life is between the ages
of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual Income
Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000).
Assuming $2,500 is withdrawn from the Annuity on this date, the remaining
Annual Income Amount for that Annuity Year (up to and including October 31) is
$3,500. This is the result of a dollar-for-dollar reduction of the Annual
Income Amount ($6,000 less $2,500 = $3,500).
EXAMPLE OF PROPORTIONAL REDUCTIONS
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $3,500 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $1,500 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there are other
future withdrawals in that Annuity Year, each would result in another
proportional reduction to the Annual Income Amount).
HERE IS THE CALCULATION:
EXAMPLE OF HIGHEST DAILY AUTO STEP-UP
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
Annuitant's age on that Annuity Anniversary) of the highest daily value since
your first Lifetime Withdrawal (or last Annuity Anniversary in subsequent
years), adjusted for withdrawals and additional Purchase Payments, is greater
than the Annual Income Amount, adjusted for Excess Income and additional
Purchase Payments.
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $6,000. However, the Excess Income on October 29 reduces the
amount to $5,921.40 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 5% (since the designated life
is between 70 and 84 on the date of the potential step-up) of the highest
daily Unadjusted Account Value, adjusted for withdrawals and Purchase
Payments, is greater than $5,921.40. Here are the calculations for determining
the daily values. Only the October 28 value is being adjusted for Excess
Income as the October 30, October 31 and November 1 Valuation Days occur after
the Excess Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be the Annuity Anniversary and every day
following the Annuity Anniversary. The Annuity Anniversary Date of
November 1 is considered the first Valuation Date in the Annuity Year.
** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,950.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income
Amount for the Annuity Year), resulting in Unadjusted Account Value of
$115,500 before the Excess Income.
. This amount ($115,500) is further reduced by 1.31% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.98.
. The adjusted October 29 Highest Daily Value, $113,986.98, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.98 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.98 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.98
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value so we will continue
to carry $119,000.00 forward to the first Valuation Day of November 1.
49
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 5%, generating
an Annual Income Amount of $5,950.00. Since this amount is greater than the
current year's Annual Income Amount of $5,921.40 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,950.00.
NON-LIFETIME WITHDRAWAL FEATURE
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Highest Daily Lifetime Income v2.1. It is an optional feature of the
benefit that you can only elect at the time of your first withdrawal. You
cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders - Surrender Value"). This
Non-Lifetime Withdrawal will not establish your initial Annual Income Amount
and the Periodic Value described above will continue to be calculated.
However, the total amount of the withdrawal will proportionally reduce all
guarantees associated with Highest Daily Lifetime Income v2.1. You must tell
us at the time you take the partial withdrawal if your withdrawal is intended
to be the Non-Lifetime Withdrawal and not the first Lifetime Withdrawal under
Highest Daily Lifetime Income v2.1. If you don't elect the Non-Lifetime
Withdrawal, the first withdrawal you make will be the first Lifetime
Withdrawal that establishes your Annual Income Amount, which is based on your
Protected Withdrawal Value. Once you elect to take the Non-Lifetime Withdrawal
or Lifetime Withdrawals, no additional Non-Lifetime Withdrawals may be taken.
If you do not take a Non-Lifetime Withdrawal before beginning Lifetime
Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value by the percentage the total withdrawal amount (including any
applicable CDSC) represents of the then current Account Value immediately
prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
EXAMPLE - NON-LIFETIME WITHDRAWAL (PROPORTIONAL REDUCTION)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit.
Assume the following:
.. The Issue Date is December 3
.. Highest Daily Lifetime Income v2.1 is elected on September 4 of the
following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1
.. No previous withdrawals have been taken under Highest Daily Lifetime Income
v2.1
On October 3 of the year the benefit is elected, the Protected Withdrawal
Value is $125,000 and the Account Value is $120,000. Assuming $15,000 is
withdrawn from the Annuity on that same October 3 and is designated as a
Non-Lifetime Withdrawal, all guarantees associated with Highest Daily Lifetime
Income v2.1 will be reduced by the ratio the total withdrawal amount
represents of the Account Value just prior to the withdrawal being taken.
HERE IS THE CALCULATION:
REQUIRED MINIMUM DISTRIBUTIONS
Required Minimum Distributions ("RMD") for this Annuity must be taken by
April 1st in the year following the date you turn age 70 1/2 and by
December 31st for subsequent calendar years. If the annual RMD amount is
greater than the Annual Income Amount, a withdrawal of the RMD amount will not
be treated as a withdrawal of Excess Income, as long as the RMD amount is
calculated by us for this Annuity and administered under a program we support
each calendar year. If you are not participating in an RMD withdrawal program
each calendar year, you can alternatively satisfy the RMD amount without it
being treated as a withdrawal of Excess Income.
50
The following rules apply to determine if any portion of an RMD amount will be
treated as Excess Income.
For purposes of this provision, in relation to any Annuity Year, the "Second
Calendar Year" is the calendar year following the calendar year in which the
Annuity Year began.
In general, withdrawals made from the Annuity during an Annuity Year to meet
the RMD provisions of the Code will not be treated as Excess Income. However,
if in any Annuity Year, you take a Lifetime Withdrawal in the Second Calendar
Year, then the amount which will not be treated as Excess Income is the
greater of:
(1)the remaining Annual Income Amount for that Annuity Year, and
(2)the difference between the Second Calendar Year's remaining RMD amount and
the Annual Income Amount.
Any remaining RMD amount for the Second Calendar Year can be taken in the
following Annuity Year.
If, in any Annuity Year, your RMD amount is not greater than the Annual Income
Amount, any withdrawals in excess of the Annual Income Amount will be treated
as Excess Income.
Please see hypothetical examples below for details.
If you do not comply with the rules described above, any withdrawal that
exceeds the Annual Income Amount will be treated as a withdrawal of Excess
Income, which will reduce your Annual Income Amount in future Annuity Years.
This may include situations where you comply with the rules outlined above and
then decide to take additional withdrawals after satisfying your RMD
requirement from the Annuity.
We will assume your first withdrawal under the benefit is a Lifetime
Withdrawal unless you designated the withdrawal as a Non-Lifetime Withdrawal.
EXAMPLE
The following example is purely hypothetical and intended to illustrate a
scenario as described above. Note that withdrawals must comply with all IRS
guidelines in order to satisfy the RMD for the current calendar year.
Assumptions:
RMD Calendar Year
01/01/2013 to 12/31/2013
Annuity Year
06/01/2012 to 05/31/2013
Annual Income Amount and RMD Amount
Annual Income Amount = $5,000
Remaining Annual Income Amount as of 1/3/2013 = $3,000 (a $2,000 withdrawal
was taken on 7/1/2012)
RMD Amount for Calendar Year 2013 = $6,000
The amount you may withdraw in the current Annuity Year (between 1/3/2013 and
5/31/2013) without it being treated as Excess Income is $4,000. Here is the
calculation: $3,000 + ($6,000 - $5,000) = $4,000.
If the $4,000 withdrawal is taken in the current Annuity Year (prior to
6/1/2013), the remaining Annual Income Amount will be zero and the remaining
RMD amount of $2,000 may be taken in the subsequent Annuity Year beginning on
6/1/2013 (when your Annual Income Amount is reset to $5,000).
If you had chosen to not take any additional withdrawals until on or after
6/1/2013, then you would be eligible to withdraw $6,000 without it being
treated as a withdrawal of Excess Income.
BENEFITS UNDER HIGHEST DAILY LIFETIME INCOME V2.1
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and amounts are still payable
under Highest Daily Lifetime Income v2.1, we will make an additional
payment, if any, for that Annuity Year equal to the remaining Annual Income
Amount for the Annuity Year. Thus, in that scenario, the remaining Annual
Income Amount would be payable even though your Unadjusted Account Value
was reduced to zero. In subsequent Annuity Years we make payments that
equal the
51
Annual Income Amount as described in this section. We will make payments
until the death of the single designated life. After the Unadjusted Account
Value is reduced to zero, you will not be permitted to make additional
Purchase Payments to your Annuity. TO THE EXTENT THAT CUMULATIVE PARTIAL
WITHDRAWALS IN THE ANNUITY YEAR THAT REDUCED YOUR UNADJUSTED ACCOUNT VALUE
TO ZERO ARE MORE THAN THE ANNUAL INCOME AMOUNT, HIGHEST DAILY LIFETIME
INCOME V2.1 TERMINATES, AND NO ADDITIONAL PAYMENTS ARE PERMITTED. HOWEVER,
IF A PARTIAL WITHDRAWAL IN THE LATTER SCENARIO WAS TAKEN TO SATISFY A
REQUIRED MINIMUM DISTRIBUTION (AS DESCRIBED ABOVE) UNDER THE ANNUITY, THEN
THE BENEFIT WILL NOT TERMINATE, AND WE WILL CONTINUE TO PAY THE ANNUAL
INCOME AMOUNT IN SUBSEQUENT ANNUITY YEARS UNTIL THE DEATH OF THE DESIGNATED
LIFE.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments. Also, any Death Benefit will terminate if
withdrawals reduce your Unadjusted Account Value to zero. This means that
any Death Benefit is terminated and no Death Benefit is payable if your
Unadjusted Account Value is reduced to zero as the result of either a
withdrawal in excess of your Annual Income Amount or less than or equal to,
your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable tax charges,
to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. If this
option is elected, the Annual Income Amount will not increase after
annuity payments have begun. We will make payments until the death of
the single designated life. We must receive your request in a form
acceptable to us at our Service Office. If applying your Unadjusted
Account Value, less any applicable tax charges, to the life-only
annuity payment rates results in a higher annual payment, we will
give you the higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin
we currently make annual annuity payments in the form of a single life
fixed annuity with eight payments certain, by applying the greater of the
annuity rates then currently available or the annuity rates guaranteed in
your Annuity. We reserve the right at any time to increase or decrease the
period certain in order to comply with the Code (e.g., to shorten the
period certain to match life expectancy under applicable Internal Revenue
Service tables). The amount that will be applied to provide such annuity
payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual
Income Amount as if you made your first Lifetime Withdrawal on the
date the annuity payments are to begin). Such present value will be
calculated using the greater of the single life fixed annuity rates
then currently available or the single life fixed annuity rates
guaranteed in your Annuity; and
(2)the Unadjusted Account Value.
OTHER IMPORTANT CONSIDERATIONS
.. Withdrawals under Highest Daily Lifetime Income v2.1 are subject to all of
the terms and conditions of the Annuity, including any applicable CDSC for
the Non-Lifetime Withdrawal as well as partial withdrawals that exceed the
Annual Income Amount. If you have an active Systematic Withdrawal program
running at the time you elect this benefit, the first systematic withdrawal
that processes after your election of the benefit will be deemed a Lifetime
Withdrawal. Withdrawals made while Highest Daily Lifetime Income v2.1 is in
effect will be treated, for tax purposes, in the same way as any other
withdrawals under the Annuity. Any partial withdrawals made under the
benefit will be taken pro rata from the Sub-accounts (including the AST
Investment Grade Bond Sub-account) and the DCA MVA Options. If you have an
active Systematic Withdrawal program running at the time you elect this
benefit, the program must withdraw funds pro rata.
.. Any Lifetime Withdrawal that you take that is not a withdrawal of Excess
Income is not subject to a CDSC, even if the total amount of such
withdrawals in any Annuity Year exceeds the maximum Free Withdrawal amount.
Any Lifetime Withdrawal that is treated as Excess Income is subject to any
applicable CDSC, if the withdrawal is greater than the Free Withdrawal
amount. (See "Fees, Charges and Deductions - Contingent Deferred Sales
Charge ("CDSC")" and "Access to Account Value - Free Withdrawal Amounts.")
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolio appears within the section
entitled "Investment Options." You can find a copy of the AST Investment
Grade Bond Portfolio prospectus by going to www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the predetermined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
52
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to the Permitted Sub-accounts, or
to the requirements as to how you may allocate your Account Value with this
benefit, will apply to new elections of the benefit and may apply to
current participants in the benefit. To the extent that changes apply to
current participants in the benefit, they will only apply upon
re-allocation of Account Value, or upon addition of subsequent Purchase
Payments. That is, we will not require such current participants to
re-allocate Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Highest Daily
Lifetime Income v2.1 reduce your Unadjusted Account Value to zero. This
means that any Death Benefit is terminated and no Death Benefit is payable
if your Unadjusted Account Value is reduced to zero as the result of either
a withdrawal in excess of your Annual Income Amount or less than or equal
to, your Annual Income Amount. (See "Death Benefit" for more information.)
.. The current charge for Highest Daily Lifetime Income v2.1 is 1.00% annually
of the greater of the Unadjusted Account Value and Protected Withdrawal
Value. The maximum charge for Highest Daily Lifetime Income v2.1 is 2.00%
annually of the greater of the Unadjusted Account Value and Protected
Withdrawal Value. As discussed in "Highest Daily Auto Step-Up" above, we
may increase the fee upon a step-up under this benefit. We deduct this
charge on quarterly anniversaries of the benefit effective date, based on
the values on the last Valuation Day prior to the quarterly anniversary.
Thus, we deduct, on a quarterly basis, 0.25% of the greater of the prior
Valuation Day's Unadjusted Account Value and the prior Valuation Day's
Protected Withdrawal Value. We deduct the fee pro rata from each of your
Sub-accounts, including the AST Investment Grade Bond Sub-account. You will
begin paying this charge as of the effective date of the benefit even if
you do not begin taking withdrawals for many years, or ever. We will not
refund the charges you have paid if you choose never to take any
withdrawals and/or if you never receive any lifetime income payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the benefit is less than the
Account Value Floor, then no charge will be assessed for that benefit quarter.
Charges deducted upon termination of the benefit may cause the Unadjusted
Account Value to fall below the Account Value Floor. If a charge for the
Highest Daily Lifetime Income v2.1 would be deducted on the same day we
process a withdrawal request, the charge will be deducted first, then the
withdrawal will be processed. The withdrawal could cause the Unadjusted
Account Value to fall below the Account Value Floor. While the deduction of
the charge (other than the final charge) may not reduce the Unadjusted Account
Value to zero, partial withdrawals may reduce the Unadjusted Account Value to
zero. If this happens and the Annual Income Amount is greater than zero, we
will make payments under the benefit.
ELECTION OF AND DESIGNATIONS UNDER THE BENEFIT
For Highest Daily Lifetime Income v2.1, there must be either a single Owner
who is the same as the Annuitant, or if the Annuity is entity owned, there
must be a single natural person Annuitant. In either case, the Annuitant must
be at least 50 years old. Any change of the Annuitant under the Annuity will
result in cancellation of Highest Daily Lifetime Income v2.1. Similarly, any
change of Owner will result in cancellation of Highest Daily Lifetime Income
v2.1, except if (a) the new Owner has the same taxpayer identification number
as the previous Owner, (b) ownership is transferred from a custodian or other
entity to the Annuitant, or vice versa or (c) ownership is transferred from
one entity to another entity that satisfies our administrative ownership
guidelines.
Highest Daily Lifetime Income v2.1 can be elected at the time that you
purchase your Annuity or after the Issue Date, subject to its availability,
and our eligibility rules and restrictions. If you elect Highest Daily
Lifetime Income v2.1 and terminate it, you can re-elect it, subject to our
current rules and availability. See "Termination of Existing Benefits and
Election of New Benefits" for information pertaining to elections, termination
and re-election of benefits. PLEASE NOTE THAT IF YOU TERMINATE A LIVING
BENEFIT AND ELECT HIGHEST DAILY LIFETIME INCOME V2.1, YOU LOSE THE GUARANTEES
THAT YOU HAD ACCUMULATED UNDER YOUR EXISTING BENEFIT AND YOUR GUARANTEES UNDER
HIGHEST DAILY LIFETIME INCOME V2.1 WILL BE BASED ON YOUR UNADJUSTED ACCOUNT
VALUE ON THE EFFECTIVE DATE OF HIGHEST DAILY LIFETIME INCOME V2.1. You and
your Financial Professional should carefully consider whether terminating your
existing benefit and electing Highest Daily Lifetime Income v2.1 is
appropriate for you. We reserve the right to waive, change and/or further
limit the election frequency in the future for new elections of this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Highest Daily Lifetime Income v2.1 so long as you participate in a
Systematic Withdrawal program in which withdrawals are not taken pro rata.
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TERMINATION OF THE BENEFIT
You may terminate Highest Daily Lifetime Income v2.1 at any time by notifying
us. If you terminate the benefit, any guarantee provided by the benefit will
terminate as of the date the termination is effective, and certain
restrictions on re-election may apply.
THE BENEFIT AUTOMATICALLY TERMINATES UPON THE FIRST TO OCCUR OF THE FOLLOWING:
(I) YOUR TERMINATION OF THE BENEFIT;
(II)YOUR SURRENDER OF THE ANNUITY;
(III)YOUR ELECTION TO BEGIN RECEIVING ANNUITY PAYMENTS (ALTHOUGH IF YOU HAVE
ELECTED TO RECEIVE THE ANNUAL INCOME AMOUNT IN THE FORM OF ANNUITY
PAYMENTS, WE WILL CONTINUE TO PAY THE ANNUAL INCOME AMOUNT);
(IV)OUR RECEIPT OF DUE PROOF OF DEATH OF THE OWNER OR ANNUITANT (FOR
ENTITY-OWNED ANNUITIES);
(V) BOTH THE UNADJUSTED ACCOUNT VALUE AND ANNUAL INCOME AMOUNT EQUAL ZERO DUE
TO A WITHDRAWAL OF EXCESS INCOME;
(VI)YOU ALLOCATE OR TRANSFER ANY PORTION OF YOUR ACCOUNT VALUE TO ANY
SUB-ACCOUNT(S) TO WHICH YOU ARE NOT PERMITTED TO ELECTIVELY ALLOCATE OR
TRANSFER ACCOUNT VALUE (MAY VARY BY STATE);* OR
(VII)YOU CEASE TO MEET OUR REQUIREMENTS AS DESCRIBED IN "ELECTION OF AND
DESIGNATIONS UNDER THE BENEFIT" ABOVE.
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Highest Daily Lifetime Income v2.1 other than upon the
death of the Annuitant or Annuitization, we impose any accrued fee for the
benefit (i.e., the fee for the pro-rated portion of the year since the fee was
last assessed), and thereafter we cease deducting the charge for the benefit.
However, if the amount in the Sub-accounts is not enough to pay the charge, we
will reduce the fee to no more than the amount in the Sub-accounts. With
regard to your investment allocations, upon termination we will: (i) leave
intact amounts that are held in the Permitted Sub-accounts, and (ii) unless
you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
If a surviving spouse elects to continue the Annuity, Highest Daily Lifetime
Income v2.1 terminates upon Due Proof of Death. The spouse may newly elect the
benefit subject to the restrictions discussed above.
HOW HIGHEST DAILY LIFETIME INCOME V2.1 BENEFIT TRANSFERS UNADJUSTED ACCOUNT
VALUE BETWEEN YOUR PERMITTED SUB-ACCOUNTS AND THE AST INVESTMENT GRADE BOND
SUB-ACCOUNT
OVERVIEW OF THE PREDETERMINED MATHEMATICAL FORMULA
Our goal is to seek a careful balance between providing value-added products,
such as the Highest Daily Lifetime Income v2.1 suite of benefits, while
managing the risk associated with offering these products. One of the key
features that helps us accomplish that balance and an integral part of the
Highest Daily Lifetime Income v2.1 suite is the predetermined mathematical
formula used to transfer Unadjusted Account Value between the Permitted
Subaccounts and the AST Investment Grade Bond Sub-account, referred to in this
section as the "Bond Sub-account". The formula is designed primarily to
mitigate some of the financial risks that we incur in providing the guarantee
under the Highest Daily Lifetime Income v2.1 suite of benefits.
The formula is set forth in Appendix B (and is described below).
The predetermined mathematical formula ("formula") monitors each individual
contract each Valuation Day that the benefit is in effect on your Annuity, in
order to help us manage guarantees through all market cycles. It helps manage
the risk associated with these benefits, which is generally represented by the
gap between your Unadjusted Account Value and the Protected Withdrawal Value.
As the gap between these two values increases, the formula will determine if
and how much money should be transferred into the Bond Sub-account. This
movement is intended to reduce the equity risk we will bear in funding our
obligation associated with these benefits. As the gap decreases (due to
favorable performance of the Unadjusted Account Value), the formula then
determines if and how much money should transfer back into the Permitted
Sub-accounts. The use of the formula, combined with restrictions on the
Sub-accounts you are allowed to invest in, lessens the risk that your
Unadjusted Account Value will be reduced to zero while you are still alive,
thus reducing the likelihood that we will make any lifetime income payments
under this benefit. It may also limit the potential for your Account Value to
grow.
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However, in addition to providing lifetime income when your Account Value is
reduced to zero, Highest Daily Lifetime Income v2.1 can potentially dampen the
impact of volatility on your Account Value during extreme market downturns by
transferring assets from your chosen investments into the Bond Sub-account as
described above. This occurs pursuant to the predetermined mathematical
formula, which can limit the possibility or reduce the amount of a significant
loss of Account Value, and potentially provide a higher income stream in
retirement.
The formula is not forward looking and contains no predictive or projective
component with respect to the markets, the Unadjusted Account Value or the
Protected Withdrawal Value. We are not providing you with investment advice
through the use of the formula nor does the formula constitute an investment
strategy that we are recommending to you.
TRANSFER ACTIVITY UNDER THE FORMULA
Prior to the first Lifetime Withdrawal, the primary driver of transfers to the
Bond Sub-account is the difference between your Unadjusted Account Value and
your Protected Withdrawal Value. If none of your Unadjusted Account Value is
allocated to the Bond Sub-account, then over time the formula permits an
increasing difference between the Unadjusted Account Value and the Protected
Withdrawal Value before a transfer to the Bond Sub-account occurs. Therefore,
over time, assuming none of the Unadjusted Account Value is allocated to the
Bond Sub-account, the formula will allow for a greater decrease in the
Unadjusted Account Value before a transfer to the Bond Sub-account is made.
It is important to understand that transfers within your Annuity are specific
to the performance of your chosen investment options, the performance of the
Bond Sub-account while money is invested in it, as well as how long the
benefit has been owned. For example, two contracts purchased on the same day,
but invested differently, will likely have different results, as would two
contracts purchased on different days with the same investment options.
Each market cycle is unique, therefore the performance of your Sub-accounts,
and its impact on your Unadjusted Account Value, will differ from market cycle
to market cycle, therefore producing different transfer activity under the
formula. The amount and timing of transfers to and from the Bond Sub-account
depend on various factors unique to your Annuity and are not necessarily
directly correlated with the securities markets, bond markets, interest rates
or any other market or index. Some of the factors that determine the amount
and timing of transfers (as applicable to your Annuity), include:
.. The difference between your Unadjusted Account Value and your Protected
Withdrawal Value;
.. The amount of time the benefit has been in effect on your Annuity;
.. The amount allocated to and the performance of the Permitted Sub-accounts
and the Bond Sub-account;
.. Any additional Purchase Payments you make to your Annuity (while the
benefit is in effect); and
.. Any withdrawals you take from your Annuity (while the benefit is in effect).
Under the formula, investment performance of your Unadjusted Account Value
that is negative, flat, or even moderately positive may result in a transfer
of a portion of your Unadjusted Account Value in the Permitted Sub-accounts to
the Bond Sub-account.
At any given time, some, most or none of your Unadjusted Account Value will be
allocated to the Bond Sub-account, as dictated by the formula.
The amount allocated to the Bond Sub-account and the amount allocated to the
Permitted Sub-accounts each is a variable in the formula. Therefore, the
investment performance of each affects whether a transfer occurs for your
Annuity. As the amounts allocated to either the Bond Sub-account or the
Permitted Sub-accounts increase, the performance of those sub-accounts will
have a greater impact on your Unadjusted Account Value and hence a greater
impact on if(and how much of) your Unadjusted Account Value is transferred to
or from the Bond Sub-account. It is possible that if a significant portion of
your Unadjusted Account Value is allocated to the Bond Sub-account and that
Sub-account has positive performance, the formula might transfer a portion of
your Unadjusted Account Value to the Permitted Sub-accounts, even if the
performance of your Permitted Sub-accounts is negative. Conversely, if a
significant portion of your Unadjusted Account Value is allocated to the Bond
Sub-account and that Sub-account has negative performance, the formula may
transfer additional amounts from your Permitted Sub-accounts to the Bond
Sub-account even if the performance of your Permitted Sub-accounts is positive.
HOW THE FORMULA OPERATES
Generally, the formula, which is applied each Valuation Day, takes four steps
in determining any applicable transfers within your Annuity.
(1)First, the formula starts by identifying the value of future income
payments we expect to pay. We refer to that value as the "Target Value" or
"L".
(2)Second, we subtract any amounts invested in the Bond Sub-account ("B") from
the Target Value and divide that number by the amount invested in the
Permitted Sub-Accounts ("V\\V\\ + V\\F\\"). We refer to this resulting
value as the "Target Ratio" or "R".
(3)Third, we compare the Target Ratio to designated thresholds and other rules
described in greater detail below to determine if a transfer needs to occur.
(4)If a transfer needs to occur, we use another calculation to determine the
amount of the transfer.
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The Formula is:
R = (L - B)/ (V\\V\\ + V\\F\\)
More specifically, the formula operates as follows:
(1)We calculate the Target Value (L) by multiplying the income basis for that
day by 5% and by the applicable Annuity Factor found in Appendix B. If you
have already made a Lifetime Withdrawal, your Target Value would take into
account any automatic step-up, any subsequent Purchase Payments and any
withdrawals of Excess Income.
Example (assume the income basis is $200,000, and the contract is 11 1/2
months old, resulting in an annuity factor of 14.95)
Target Value (L) = $200,000 x 5% x 14.95 = $149,500
(2)Next, to calculate the Target Ratio (R), the Target Value is reduced by any
amount held within the Bond Sub-account (B) on that day. The remaining
amount is divided by the amount held within the Permitted Sub-accounts (V).
Example (assume the amount in the Bond Sub-account is zero, and the amount
held within the Permitted Sub-accounts is $179,500)
Target Ratio (R) = ($149,500 - 0)/$179,500 = 83.3%
(3)If, on each of three consecutive Valuation Days, the Target Ratio is
greater than 83% but less than or equal to 84.5%, the formula will, on the
third Valuation Day, make a transfer from your Permitted Sub-accounts to
the Bond Sub-account (subject to the 90% cap discussed below). If, however,
on any Valuation Day, the Target Ratio is above 84.5%, the formula will
make a transfer from the Permitted Sub-accounts to the Bond Sub-account
(subject to the 90% cap). Once a transfer is made, the Target Ratio must
again be greater than 83% but less than or equal to 84.5% for three
consecutive Valuation Days before a subsequent transfer to the Bond
Sub-account will occur. If the Target Ratio falls below 78% on any
Valuation Day, then a transfer from the Bond Sub-account to the Permitted
Sub-accounts (excluding the DCA MVA Options) will occur.
Example: Assuming the Target Ratio is above 83% for a 3/rd/ consecutive
Valuation Day, but less than or equal to 84.5% for three consecutive
Valuation Days, a transfer into the Bond Portfolio occurred.
(4)In deciding how much to transfer, we perform a calculation that essentially
seeks to reallocate amounts held in the Permitted Sub-accounts and the Bond
Sub-account so that the Target Ratio meets a target, which currently is
equal to 80% (subject to the 90% Cap discussion below). The further the
Target Ratio is from 80% when a transfer is occurring under the formula,
the greater the transfer amount will be.
THE 90% CAP
The formula will not execute a transfer to the Bond Sub-account that results
in more than 90% of your Unadjusted Account Value being allocated to the Bond
Sub-account ("90% cap") on that Valuation Day. Thus, on any Valuation Day, if
the formula would require a transfer to the Bond Sub-account that would result
in more than 90% of the Unadjusted Account Value being allocated to the Bond
Sub-account, only the amount that results in exactly 90% of the Unadjusted
Account Value being allocated to the Bond Sub-account will be transferred.
Additionally, future transfers into the Bond Sub-account will not be made
(regardless of the performance of the Bond Sub-account and the Permitted
Sub-accounts) at least until there is first a transfer out of the Bond
Sub-account. Once this transfer occurs out of the Bond Sub-account, future
amounts may be transferred to or from the Bond Sub-account (subject to the 90%
cap).
Under the operation of the formula, the 90% cap may come into and out of
effect multiple times while you participate in the benefit. At no time will
the formula make a transfer to the Bond Sub-account that results in greater
than 90% of your Unadjusted Account Value being allocated to the Bond
Sub-account. However, it is possible that, due to the investment performance
of your allocations in the Bond Sub-account and your allocations in the
Permitted Sub-accounts you have selected, your Unadjusted Account Value could
be more than 90% invested in the Bond Sub-account.
MONTHLY TRANSFERS
Additionally, on each monthly Annuity Anniversary (if the monthly Annuity
Anniversary does not fall on a Valuation Day, the next Valuation Day will be
used), following all of the above described daily calculations, if there is
money allocated to the Bond Sub-account, the formula will perform an
additional calculation to determine whether or not a transfer will be made
from the Bond Sub-account to the Permitted Sub-accounts. This transfer will
automatically occur provided that the Target Ratio, as described above, would
be less than 83% after this transfer. The formula will not execute a transfer
if the Target Ratio after this transfer would occur would be greater than or
equal to 83%.
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The amount of the transfer will be equal to the lesser of:
a) The total value of all your Unadjusted Account Value in the Bond
Sub-account, or
b) An amount equal to 5% of your total Unadjusted Account Value.
OTHER IMPORTANT INFORMATION
.. The Bond sub-account is not a Permitted Sub-account. As such, only the
formula can transfer Unadjusted Account Value to or from the Bond
Sub-account. You may not allocate Purchase Payments or transfer any of your
Unadjusted Account Value to or from the Bond Sub-account.
.. While you are not notified before a transfer occurs to or from the Bond
Sub-account, you will receive a confirmation statement indicating the
transfer of a portion of your Unadjusted Account Value either to or from
the Bond Sub-account. Your confirmation statements will be detailed to
include the effective date of the transfer, the dollar amount of the
transfer and the Permitted Sub-accounts the funds are being transferred
to/from. Depending on the results of the calculations of the formula, we
may, on any Valuation Day:
. Not make any transfer between the Permitted Sub-accounts and the Bond
Sub-account; or
. If a portion of your Unadjusted Account Value was previously allocated
to the Bond Sub-account, transfer all or a portion of those amounts to
the Permitted Sub-accounts (as described above); or
. Transfer a portion of your Unadjusted Account Value in the Permitted
Sub-accounts and the DCA MVA Options to the Bond Sub-account.
.. If you make additional Purchase Payments to your Annuity, they will be
allocated to the Permitted Sub-accounts and will be subject to the formula.
.. Additional Purchase Payments to your Annuity do not increase "B" within the
formula, and may result in an additional Account Value being transferred to
the Permitted Sub-accounts, or a transfer to the Bond Sub-account due to
the change in the ratio.
.. If you make additional Purchase Payments to your Annuity while the 90% cap
is in effect, the formula will not transfer any of such additional Purchase
Payments to the Bond Sub-account at least until there is first a transfer
out of the Bond Sub-account, regardless of how much of your Unadjusted
Account Value is in the Permitted Sub-accounts. This means that there could
be scenarios under which, because of the additional Purchase Payments you
make, less than 90% of your entire Unadjusted Account Value is allocated to
the Bond Sub-account, and the formula will still not transfer any of your
Unadjusted Account Value to the Bond Sub-account (at least until there is
first a transfer out of the Bond Sub-account).
.. If you are participating in Highest Daily Lifetime Income v2.1 and you are
also participating in the 6 or 12 Month DCA Program, the following rules
apply:
. DCA MVA Options are considered "Permitted Sub-accounts" for purpose of
the Target Ratio calculation ("L") described above.
. The formula may transfer amounts out of the DCA MVA Options to the Bond
Sub-account if the amount allocated to the other Permitted Sub-accounts
is insufficient to cover the amount of the transfer.
. The transfer formula will not allocate amounts to the DCA MVA Options
when there is a transfer out of the Bond Sub-account. Such transfers
will be allocated pro-rata to the variable Sub-accounts, excluding the
Bond Sub-account.
. A Market Value Adjustment is not assessed when amounts are transferred
out of the DCA MVA Options under the transfer formula.
ADDITIONAL TAX CONSIDERATIONS
If you purchase an annuity as an investment vehicle for "qualified"
investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or
employer plan under Code Section 401(a), the Required Minimum Distribution
rules under the Code provide that you begin receiving periodic amounts
beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for
which the participant is not a greater than five (5) percent Owner of the
employer, this required beginning date can generally be deferred to
retirement, if later. Roth IRAs are not subject to these rules during the
Owner's lifetime. In addition, the amount and duration of payments under the
annuity payment provision may be adjusted so that the payments do not trigger
any penalty or excise taxes due to tax considerations such as Required Minimum
Distribution rules under the tax law.
As indicated, withdrawals made while this benefit is in effect will be
treated, for tax purposes, in the same way as any other withdrawals under the
Annuity. Please see the Tax Considerations section for a detailed discussion
of the tax treatment of withdrawals. We do not address each potential tax
scenario that could arise with respect to this benefit here. However, we do
note that if you participate in Highest Daily Lifetime Income v2.1 or Spousal
Highest Daily Lifetime Income v2.1 through a non-qualified annuity, as with
all withdrawals, once all Purchase Payments are returned under the Annuity,
all subsequent withdrawal amounts will be taxed as ordinary income.
SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 BENEFIT
Spousal Highest Daily Lifetime(R) Income v2.1 Benefit is a lifetime guaranteed
minimum withdrawal benefit, under which, subject to the terms of the benefit,
we guarantee your ability to take a certain annual withdrawal amount for the
lives of two individuals who are spouses. We reserve the right, in our sole
discretion, to cease offering this benefit for new elections, at any time.
57
We offer a benefit that guarantees, until the later death of two natural
persons who are each other's spouse at the time of election of the benefit and
at the first death of one of them (the "designated lives", and each, a
"designated life"), the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial principal value (the
"Protected Withdrawal Value") regardless of the impact of Sub-account
performance on the Unadjusted Account Value, subject to our rules regarding
the timing and amount of withdrawals. You are guaranteed to be able to
withdraw the Annual Income Amount for the lives of the designated lives,
provided you have not made withdrawals treated as Excess Income that result in
your Unadjusted Account Value being reduced to zero. We also permit you to
designate the first withdrawal from your Annuity as a one-time "Non-Lifetime
Withdrawal." All other partial withdrawals from your Annuity are considered a
"Lifetime Withdrawal" under the benefit. Withdrawals are taken first from your
own Unadjusted Account Value. We are only required to begin making lifetime
income payments to you under our guarantee when and if your Unadjusted Account
Value is reduced to zero (for any reason other than due to partial withdrawals
of Excess Income). The benefit may be appropriate if you intend to make
periodic withdrawals from your Annuity, wish to ensure that Sub-account
performance will not affect your ability to receive annual payments, and wish
either spouse to be able to continue Spousal Highest Daily Lifetime Income
v2.1 after the death of the first spouse. You are not required to make
withdrawals as part of the benefit - the guarantees are not lost if you
withdraw less than the maximum allowable amount each year under the rules of
the benefit. An integral component of Spousal Highest Daily Lifetime Income
v2.1 is the predetermined mathematical formula we employ that may periodically
transfer your Unadjusted Account Value to and from the AST Investment Grade
Bond Sub-account. See the section above entitled "How Highest Daily Lifetime
Income v2.1 Transfers Unadjusted Account Value Between Your Permitted
Sub-accounts and the AST Investment Grade Bond Sub-account."
Spousal Highest Daily Lifetime Income v2.1 is the spousal version of Highest
Daily Lifetime Income v2.1. This version is only being offered in those
jurisdictions where we have received regulatory approval and will be offered
subsequently in other jurisdictions when we receive regulatory approval in
those jurisdictions. Currently, if you elect Spousal Highest Daily Lifetime
Income v2.1 and subsequently terminate the benefit, you may elect another
living benefit, subject to our current rules. See "Election of and
Designations under the Benefit" below and "Termination of Existing Benefits
and Election of New Benefits" for details. Please note that if you terminate
Spousal Highest Daily Lifetime Income v2.1 Benefit and elect another benefit,
you lose the guarantees that you had accumulated under your existing benefit
and will begin the new guarantees under the new benefit you elect based on
your Unadjusted Account Value as of the date the new benefit becomes active.
Spousal Highest Daily Lifetime Income v2.1 must be elected based on two
designated lives, as described below. Each designated life must be at least 45
years old when the benefit is elected. Spousal Highest Daily Lifetime Income
v2.1 is not available if you elect any other optional living benefit. As long
as your Spousal Highest Daily Lifetime Income v2.1 is in effect, you must
allocate your Unadjusted Account Value in accordance with the permitted
Sub-accounts and other Investment Option(s) available with this benefit. For a
more detailed description of the permitted Investment Options, see the
"Investment Options" section.
ALTHOUGH YOU ARE GUARANTEED THE ABILITY TO WITHDRAW YOUR ANNUAL INCOME AMOUNT
FOR LIFE EVEN IF YOUR UNADJUSTED ACCOUNT VALUE FALLS TO ZERO, IF THAT
PARTICULAR WITHDRAWAL OF EXCESS INCOME (DESCRIBED BELOW) BRINGS YOUR
UNADJUSTED ACCOUNT VALUE TO ZERO, YOUR ANNUAL INCOME AMOUNT ALSO WOULD FALL TO
ZERO, AND THE BENEFIT AND THE ANNUITY THEN WOULD TERMINATE. IN THAT SCENARIO,
NO FURTHER AMOUNT WOULD BE PAYABLE UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME
V2.1. AS TO THE IMPACT OF SUCH A SCENARIO ON ANY OTHER OPTIONAL BENEFIT YOU
MAY HAVE, PLEASE SEE "HIGHEST DAILY LIFETIME INCOME V2.1 BENEFIT."
You may also participate in the 6 or 12 Month Dollar Cost Averaging Program if
you elect Spousal Highest Daily Lifetime Income v2.1, subject to the 6 or 12
Month DCA Program's rules.
KEY FEATURE - PROTECTED WITHDRAWAL VALUE
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter until the date of first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraph.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value on or before the Roll-Up End Date:
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for
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successive Valuation Days, but more than one calendar day for Valuation
Days that are separated by weekends and/or holidays), plus the amount of
any Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value after the Roll-Up End Date:
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments and reduced for subsequent Lifetime Withdrawals (see the
examples that begin immediately prior to the sub-heading below entitled
"Example of dollar-for-dollar reductions").
PLEASE NOTE THAT IF YOU ELECT SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1, YOUR
ACCOUNT VALUE IS NOT GUARANTEED, CAN FLUCTUATE AND MAY LOSE VALUE.
KEY FEATURE - ANNUAL INCOME AMOUNT UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME
V2.1
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the younger designated life on the date of the first Lifetime
Withdrawal after election of the benefit. The percentages are: 2.5% for ages
50 to 54; 3% for ages 55 to less than 59 1/2; 3.5% for ages 59 1/2 to 64; 4%
for ages 65 to 69; 4.5% for ages 70 to 84; and 5.5% for ages 85 or older. We
use the age of the younger designated life even if that designated life is no
longer a participant under the Annuity due to death or divorce. Under Spousal
Highest Daily Lifetime Income v2.1, if your cumulative Lifetime Withdrawals in
an Annuity Year are less than or equal to the Annual Income Amount, they will
not reduce your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year and also will reduce the Protected Withdrawal Value on a
dollar-for-dollar basis. If your cumulative Lifetime Withdrawals in an Annuity
Year are in excess of the Annual Income Amount for any Annuity Year ("Excess
Income"), your Annual Income Amount in subsequent years will be reduced
(except with regard to Required Minimum Distributions for this Annuity that
comply with our rules) by the result of the ratio of the Excess Income to the
Unadjusted Account Value immediately prior to such withdrawal (see examples of
this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
AS DISCUSSED IN THIS PARAGRAPH, WHEN YOU MAKE A PARTIAL WITHDRAWAL THAT IS
SUBJECT TO A CDSC AND/OR TAX WITHHOLDING, WE WILL IDENTIFY THE AMOUNT THAT
INCLUDES NOT ONLY THE AMOUNT YOU ACTUALLY RECEIVE, BUT ALSO THE AMOUNT OF THE
CDSC AND/OR TAX WITHHOLDING, TO DETERMINE WHETHER YOUR WITHDRAWAL HAS EXCEEDED
THE ANNUAL INCOME AMOUNT. WHEN YOU TAKE A PARTIAL WITHDRAWAL, YOU MAY REQUEST
A "GROSS" WITHDRAWAL AMOUNT (E.G., $2,000) BUT THEN HAVE ANY CDSC AND/OR TAX
WITHHOLDING DEDUCTED FROM THE AMOUNT YOU ACTUALLY RECEIVE (ALTHOUGH AN MVA MAY
ALSO BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE, IT IS NOT
CONSIDERED FOR PURPOSES OF DETERMINING EXCESS INCOME). THE PORTION OF A
WITHDRAWAL THAT EXCEEDED YOUR ANNUAL INCOME AMOUNT (IF ANY) WOULD BE TREATED
AS EXCESS INCOME AND THUS WOULD REDUCE YOUR ANNUAL INCOME AMOUNT IN SUBSEQUENT
YEARS. ALTERNATIVELY, YOU MAY REQUEST THAT A "NET" WITHDRAWAL AMOUNT ACTUALLY
BE PAID TO YOU (E.G., $2,000), WITH THE UNDERSTANDING THAT ANY CDSC AND/OR TAX
WITHHOLDING (E.G., $240) BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE
(ALTHOUGH AN MVA MAY ALSO BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT
VALUE, IT IS NOT CONSIDERED FOR PURPOSES OF DETERMINING EXCESS INCOME). IN THE
LATTER SCENARIO, WE DETERMINE WHETHER ANY PORTION OF THE WITHDRAWAL IS TO BE
TREATED AS EXCESS INCOME BY LOOKING TO THE SUM OF THE NET AMOUNT YOU ACTUALLY
RECEIVE (E.G., $2,000) AND THE AMOUNT OF ANY CDSC AND/OR TAX WITHHOLDING (IN
THIS EXAMPLE, A TOTAL OF $2,240). THE AMOUNT OF THAT SUM (E.G., THE $2,000 YOU
RECEIVED PLUS THE $240 FOR THE CDSC AND/OR TAX WITHHOLDING) THAT EXCEEDS YOUR
ANNUAL INCOME AMOUNT WILL BE TREATED AS EXCESS INCOME - THEREBY REDUCING YOUR
ANNUAL INCOME AMOUNT IN SUBSEQUENT YEARS.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Spousal
Highest Daily Lifetime Income v2.1 and subsequent to the first Lifetime
Withdrawal will (i) immediately increase the then-existing Annual Income
Amount by an amount equal to a percentage of the Purchase Payment based on the
age of the younger designated life at the time of the first Lifetime
Withdrawal (the percentages are: 2.5% for ages 50 to 54; 3% for ages 55 to
less than 59 1/2; 3.5% for ages 59 1/2 to 64; 4% for ages 65 to 69; 4.5% for
ages 70 to 84; and 5.5% for ages 85 or older), and (ii) increase the Protected
Withdrawal Value by the amount of the Purchase Payment.
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While Spousal Highest Daily Lifetime Income v2.1 is in effect, we may limit,
restrict, suspend or reject any additional Purchase Payment at any time, but
would do so on a non-discriminatory basis. Circumstances where we may limit,
restrict, suspend or reject additional Purchase Payments include, but are not
limited to, the following:
.. if we determine that, as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Spousal Highest Daily Lifetime Income v2.1 benefit. This means
that you may no longer be able to increase the values associated with your
Spousal Highest Daily Lifetime Income v2.1 benefit through additional Purchase
Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity in a non-discriminatory manner.
HIGHEST DAILY AUTO STEP-UP
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of this
benefit. As detailed in this paragraph, the Highest Daily Auto Step-Up feature
can result in a larger Annual Income Amount subsequent to your first Lifetime
Withdrawal. The Highest Daily Step-Up starts with the anniversary of the Issue
Date of the Annuity (the "Annuity Anniversary") immediately after your first
Lifetime Withdrawal under the benefit. Specifically, upon the first such
Annuity Anniversary, we identify the Unadjusted Account Value on each
Valuation Day within the immediately preceding Annuity Year after your first
Lifetime Withdrawal. Having identified the highest daily value (after all
daily values have been adjusted for subsequent Purchase Payments and
withdrawals), we then multiply that value by a percentage that varies based on
the age of the younger designated life on the Annuity Anniversary as of which
the step-up would occur. The percentages are 2.5% for ages 50 to 54; 3% for
ages 55 to less than 59 1/2; 3.5% for ages 59 1/2 to 64; 4% for ages 65 to 69;
4.5% for ages 70 to 84; and 5.5% for ages 85 or older. If that value exceeds
the existing Annual Income Amount, we replace the existing amount with the
new, higher amount. Otherwise, we leave the existing Annual Income Amount
intact. We will not automatically increase your Annual Income Amount solely as
a result of your attaining a new age that is associated with a new age-based
percentage. The Unadjusted Account Value on the Annuity Anniversary is
considered the last daily step-up value of the Annuity Year. In later years
(i.e., after the first Annuity Anniversary after the first Lifetime
Withdrawal), we determine whether an automatic step-up should occur on each
Annuity Anniversary by performing a similar examination of the Unadjusted
Account Values that occurred on Valuation Days during the year. Taking
Lifetime Withdrawals could produce a greater difference between your Protected
Withdrawal Value and your Unadjusted Account Value, which may make a Highest
Daily Auto Step-up less likely to occur. At the time that we increase your
Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the date that we implement a Highest Daily Auto Step-Up to your Annual
Income Amount, the charge for Spousal Highest Daily Lifetime Income v2.1 has
changed for new purchasers, you may be subject to the new charge at the time
of such step-up. Prior to increasing your charge for Spousal Highest Daily
Lifetime Income v2.1 Benefit upon a step-up, we would notify you, and give you
the opportunity to cancel the automatic step-up feature. If you receive notice
of a proposed step-up and accompanying fee increase, you should carefully
evaluate whether the amount of the step-up justifies the increased fee to
which you will be subject. Any such increased charge will not be greater than
the maximum charge set forth in the table entitled "Your Optional Benefit Fees
and Charges".
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Spousal Highest Daily Lifetime Income v2.1 does not affect your ability to
take partial withdrawals under your Annuity, or limit your ability to take
partial withdrawals that exceed the Annual Income Amount. Under Spousal
Highest Daily Lifetime Income v2.1, if your cumulative Lifetime Withdrawals in
an Annuity Year are less than or equal to the Annual Income Amount, they will
not reduce your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year. If, cumulatively, you withdraw an amount less than the
Annual Income Amount in any Annuity Year, you cannot carry over the unused
portion of the Annual Income Amount to subsequent Annuity Years. If your
cumulative (partial) Lifetime Withdrawals in an Annuity Year exceed the Annual
Income Amount, your Annual Income Amount in subsequent years will be reduced
(except with regard to Required Minimum Distributions for this Annuity that
comply with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
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Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for Spousal Highest Daily
Lifetime Income v2.1 or any other fees and charges under the Annuity. Assume
the following for all three examples:
.. The Issue Date is November 1
.. Spousal Highest Daily Lifetime Income v2.1 is elected on August 1 of the
following calendar year
.. Both designated lives were 70 years old when they elected Spousal Highest
Daily Lifetime Income v2.1
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
EXAMPLE OF DOLLAR-FOR-DOLLAR REDUCTIONS
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $5,400 (since the younger designated life is between
the ages of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual
Income Amount is 4.5% of the Protected Withdrawal Value, in this case 4.5% of
$120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the
remaining Annual Income Amount for that Annuity Year (up to and including
October 31) is $2,900. This is the result of a dollar-for-dollar reduction of
the Annual Income Amount ($5,400 less $2,500 = $2,900).
EXAMPLE OF PROPORTIONAL REDUCTIONS
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $2,900 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $2,100 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there were other
withdrawals in that Annuity Year, each would result in another proportional
reduction to the Annual Income Amount).
HERE IS THE CALCULATION:
EXAMPLE OF HIGHEST DAILY AUTO STEP-UP
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
younger designated life's age on that Annuity Anniversary) of the highest
daily value since your first Lifetime Withdrawal (or last Annuity Anniversary
in subsequent years), adjusted for withdrawals and additional Purchase
Payments, is greater than the Annual Income Amount, adjusted for Excess Income
and additional Purchase Payments.
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $5,400. However, the Excess Income on October 29 reduces the
amount to $5,301.72 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 4.5% (since the younger
designated life is between 70 and 84 on the date of the potential step-up) of
the highest daily Unadjusted Account Value adjusted for withdrawals and
Purchase Payments, is greater than $5,301.72. Here are the calculations for
determining the daily values. Only the October 28 value is being adjusted for
Excess Income as the October 30, October 31 and November 1 Valuation Days
occur after the Excess Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be every day following the Annuity
Anniversary. The Annuity Anniversary Date of November 1 is considered the
final Valuation Date for the Annuity Year.
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** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,355.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $2,900 ($2,900 is the remaining Annual Income
Amount for the Annuity Year), resulting in an Unadjusted Account Value
of $116,100 before the Excess Income.
. This amount ($116,100) is further reduced by 1.82% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.98.
. The adjusted October 29 Highest Daily Value, $113,986.98, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.98 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.98 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.98
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 4.5%, generating
an Annual Income Amount of $5,355.00. Since this amount is greater than the
current year's Annual Income Amount of $5,301.72 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,355.00.
NON-LIFETIME WITHDRAWAL FEATURE
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Spousal Highest Daily Lifetime Income v2.1. It is an optional feature of
the benefit that you can only elect at the time of your first withdrawal. You
cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders - Surrender Value"). This
Non-Lifetime Withdrawal will not establish your initial Annual Income Amount
and the Periodic Value above will continue to be calculated. However, the
total amount of the withdrawal will proportionally reduce all guarantees
associated with Spousal Highest Daily Lifetime Income v2.1. You must tell us
at the time you take the partial withdrawal if your withdrawal is intended to
be the Non-Lifetime Withdrawal and not the first Lifetime Withdrawal under
Spousal Highest Daily Lifetime Income v2.1. If you don't elect the
Non-Lifetime Withdrawal, the first withdrawal you make will be the first
Lifetime Withdrawal that establishes your Annual Income Amount, which is based
on your Protected Withdrawal Value. Once you elect the Non-Lifetime Withdrawal
or Lifetime Withdrawals, no additional Non-Lifetime Withdrawals may be taken.
If you do not take a Non-Lifetime Withdrawal before beginning Lifetime
Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value by the percentage the total withdrawal amount (including any
applicable CDSC) represents of the then current Account Value immediately
prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
EXAMPLE - NON-LIFETIME WITHDRAWAL (PROPORTIONAL REDUCTION)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit. Assume the following:
.. The Issue Date is December 3
.. Spousal Highest Daily Lifetime Income v2.1 is elected on September 4 of the
following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. Each designated life was 70 years old when he/she elected Spousal Highest
Daily Lifetime Income v2.1
.. No previous withdrawals have been taken under Spousal Highest Daily
Lifetime Income v2.1
On October 3 of the same year the benefit is elected, the Protected Withdrawal
Value is $125,000 and the Account Value is $120,000. Assuming $15,000 is
withdrawn from the Annuity on that same October 3 and is designated as a
Non-Lifetime Withdrawal, all guarantees associated with Spousal Highest Daily
Lifetime Income v2.1 will be reduced by the ratio the total withdrawal amount
represents of the Account Value just prior to the withdrawal being taken.
HERE IS THE CALCULATION:
REQUIRED MINIMUM DISTRIBUTIONS
See Required Minimum Distributions sub-section, within the discussion above
concerning Highest Daily Lifetime Income v2.1.
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BENEFITS UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and amounts are still payable
under Spousal Highest Daily Lifetime Income v2.1, we will make an
additional payment, if any, for that Annuity Year equal to the remaining
Annual Income Amount for the Annuity Year. Thus, in that scenario, the
remaining Annual Income Amount would be payable even though your Unadjusted
Account Value was reduced to zero. In subsequent Annuity Years we make
payments that equal the Annual Income Amount as described in this section.
We will make payments until the death of the first of the designated lives
to die, and will continue to make payments until the death of the second
designated life as long as the designated lives were spouses at the time of
the first death. After the Unadjusted Account Value is reduced to zero, you
are not permitted to make additional Purchase Payments to your Annuity. TO
THE EXTENT THAT CUMULATIVE WITHDRAWALS IN THE ANNUITY YEAR THAT REDUCED
YOUR UNADJUSTED ACCOUNT VALUE TO ZERO ARE MORE THAN THE ANNUAL INCOME
AMOUNT, SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 TERMINATES, AND NO
ADDITIONAL PAYMENTS WILL BE PERMITTED. HOWEVER, IF A PARTIAL WITHDRAWAL IN
THE LATTER SCENARIO WAS TAKEN TO SATISFY A REQUIRED MINIMUM DISTRIBUTION
(AS DESCRIBED ABOVE) UNDER THE ANNUITY THEN THE BENEFIT WILL NOT TERMINATE,
AND WE WILL CONTINUE TO PAY THE ANNUAL INCOME AMOUNT IN SUBSEQUENT ANNUITY
YEARS UNTIL THE DEATH OF THE SECOND DESIGNATED LIFE PROVIDED THE DESIGNATED
LIVES WERE SPOUSES AT THE DEATH OF THE FIRST DESIGNATED LIFE.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments. Also, any Death Benefit will terminate if
withdrawals reduce your Unadjusted Account Value to zero. This means that
any Death Benefit is terminated and no Death Benefit is payable if your
Unadjusted Account Value is reduced to zero as the result of either a
withdrawal in excess of your Annual Income Amount or less than or equal to,
your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable state
required premium tax, to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. We will
make payments until the first of the designated lives to die, and
will continue to make payments until the death of the second
designated life as long as the designated lives were spouses at the
time of the first death. If, due to death of a designated life or
divorce prior to annuitization, only a single designated life
remains, then annuity payments will be made as a life annuity for the
lifetime of the designated life. We must receive your request in a
form acceptable to us at our office. If applying your Unadjusted
Account Value, less any applicable tax charges, to our current life
only (or joint life, depending on the number of designated lives
remaining) annuity payment rates results in a higher annual payment,
we will give you the higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin,
we currently make annual annuity payments as a joint and survivor or single
(as applicable) life fixed annuity with eight payments certain, by applying
the greater of the annuity rates then currently available or the annuity
rates guaranteed in your Annuity. We reserve the right at any time to
increase or decrease the certain period in order to comply with the Code
(e.g., to shorten the period certain to match life expectancy under
applicable Internal Revenue Service tables). The amount that will be
applied to provide such annuity payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual
Income Amount as if you made your first Lifetime Withdrawal on the
date the annuity payments are to begin). Such present value will be
calculated using the greater of the joint and survivor or single (as
applicable) life fixed annuity rates then currently available or the
joint and survivor or single (as applicable) life fixed annuity rates
guaranteed in your Annuity; and
(2)the Unadjusted Account Value.
OTHER IMPORTANT CONSIDERATIONS
.. Withdrawals under Spousal Highest Daily Lifetime Income v2.1 are subject to
all of the terms and conditions of the Annuity, including any applicable
CDSC for the Non-Lifetime Withdrawal as well as partial withdrawals that
exceed the Annual Income Amount. If you have an active Systematic
Withdrawal program running at the time you elect this benefit, the first
systematic withdrawal that processes after your election of the benefit
will be deemed a Lifetime Withdrawal. Withdrawals made while Spousal
Highest Daily Lifetime Income v2.1 is in effect will be treated, for tax
purposes, in the same way as any other withdrawals under the Annuity. Any
withdrawals made under the benefit will be taken pro rata from the
Sub-accounts (including the AST Investment Grade Bond Sub-account) and the
DCA MVA Options. If you have an active Systematic Withdrawal program
running at the time you elect this benefit, the program must withdraw funds
pro rata.
.. Any Lifetime Withdrawal that you take that is not a withdrawal of Excess
Income is not subject to a CDSC, even if the total amount of such
withdrawals in any Annuity Year exceeds the maximum Free Withdrawal amount.
Any Lifetime Withdrawal that is treated as Excess Income is subject to any
applicable CDSC, if the withdrawal is greater than the Free Withdrawal
amount. (See "Fees, Charges and Deductions - Contingent Deferred Sales
Charge ("CDSC")" and "Access to Account Value - Free Withdrawal Amounts.")
63
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolios appears in the prospectus
section entitled "Investment Options." In addition, you can find a copy of
the AST Investment Grade Bond Portfolio prospectus by going to
www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the predetermined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to Permitted Sub-accounts, or to
the requirements as to how you may allocate your Unadjusted Account Value
with this benefit, will apply to new elections of the benefit and may apply
to current participants in the benefit. To the extent that changes apply to
current participants in the benefit, they will apply only upon
re-allocation of Unadjusted Account Value, or upon addition of additional
Purchase Payments. That is, we will not require such current participants
to re-allocate Unadjusted Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Spousal Highest
Daily Lifetime Income v2.1 reduce your Unadjusted Account Value to zero.
This means that any Death Benefit is terminated and no Death Benefit is
payable if your Unadjusted Account Value is reduced to zero as the result
of either a withdrawal in excess of your Annual Income Amount or less than
or equal to, your Annual Income Amount. (See "Death Benefit" for more
information.)
.. The current charge for Spousal Highest Daily Lifetime Income v2.1 is 1.10%
annually of the greater of Unadjusted Account Value and Protected
Withdrawal Value. The maximum charge for Spousal Highest Daily Lifetime
Income v2.1 is 2.00% annually of the greater of the Unadjusted Account
Value and Protected Withdrawal Value. As discussed in "Highest Daily Auto
Step-Up" above, we may increase the fee upon a step-up under this benefit.
We deduct this charge on quarterly anniversaries of the benefit effective
date, based on the values on the last Valuation Day prior to the quarterly
anniversary. Thus, we deduct, on a quarterly basis, 0.275% of the greater
of the prior Valuation Day's Unadjusted Account Value, or the prior
Valuation Day's Protected Withdrawal Value. We deduct the fee pro rata from
each of your Sub-accounts, including the AST Investment Grade Bond
Sub-account. You will begin paying this charge as of the effective date of
the benefit even if you do not begin taking withdrawals for many years, or
ever. We will not refund the charges you have paid if you choose never to
take any withdrawals and/or if you never receive any lifetime income
payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the benefit is less than the
Account Value Floor, then no charge will be assessed for that benefit quarter.
Charges deducted upon termination of the benefit may cause the Unadjusted
Account Value to fall below the Account Value Floor. If a charge for Spousal
Highest Daily Lifetime Income v2.1 would be deducted on the same day we
process a withdrawal request, the charge will be deducted first, then the
withdrawal will be processed. The withdrawal could cause the Unadjusted
Account Value to fall below the Account Value Floor. While the deduction of
the charge (other than the final charge) may not reduce the Unadjusted Account
Value to zero, withdrawals may reduce the Unadjusted Account Value to zero. If
this happens and the Annual Income Amount is greater than zero, we will make
payments under the benefit.
ELECTION OF AND DESIGNATIONS UNDER THE BENEFIT
Spousal Highest Daily Lifetime Income v2.1 can only be elected based on two
designated lives. Designated lives must be natural persons who are each
other's spouses at the time of election of the benefit and at the death of the
first of the designated lives to die. Currently, Spousal Highest Daily
Lifetime Income v2.1 only may be elected if the Owner, Annuitant, and
Beneficiary designations are as follows:
.. One Annuity Owner, where the Annuitant and the Owner are the same person
and the sole Beneficiary is the Owner's spouse. Each Owner/Annuitant and
the Beneficiary must be at least 50 years old at the time of election; or
.. Co-Annuity Owners, where the Owners are each other's spouses. The
Beneficiary designation must be the surviving spouse, or the spouses named
equally. One of the Owners must be the Annuitant. Each Owner must be at
least 50 years old at the time of election; or
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.. One Annuity Owner, where the Owner is a custodial account established to
hold retirement assets for the benefit of the Annuitant pursuant to the
provisions of Section 408(a) of the Internal Revenue Code (or any successor
Code section thereto) ("Custodial Account"), the Beneficiary is the
Custodial Account, and the spouse of the Annuitant is the Contingent
Annuitant. Each of the Annuitant and the Contingent Annuitant must be at
least 50 years old at the time of election.
We do not permit a change of Owner under this benefit, except as follows:
(a) if one Owner dies and the surviving spousal Owner assumes the Annuity, or
(b) if the Annuity initially is co-owned, but thereafter the Owner who is not
the Annuitant is removed as Owner. We permit changes of Beneficiary
designations under this benefit. However if the Beneficiary is changed, the
benefit may not be eligible to be continued upon the death of the first
designated life. If the designated lives divorce, Spousal Highest Daily
Lifetime Income v2.1 may not be divided as part of the divorce settlement or
judgment. Nor may the divorcing spouse who retains ownership of the Annuity
appoint a new designated life upon re-marriage. A change in designated lives
will result in cancellation of Spousal Highest Daily Lifetime Income v2.1.
Spousal Highest Daily Lifetime Income v2.1 can be elected at the time that you
purchase your Annuity or after the Issue Date, subject to its availability,
and our eligibility rules and restrictions. If you elect Spousal Highest Daily
Lifetime Income v2.1 and terminate it, you can re-elect it, subject to our
current rules and availability. See "Termination of Existing Benefits and
Election of New Benefits" for information pertaining to elections, termination
and re-election of benefits. PLEASE NOTE THAT IF YOU TERMINATE A LIVING
BENEFIT AND ELECT SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1, YOU LOSE THE
GUARANTEES THAT YOU HAD ACCUMULATED UNDER YOUR EXISTING BENEFIT, AND YOUR
GUARANTEES UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 WILL BE BASED ON
YOUR UNADJUSTED ACCOUNT VALUE ON THE EFFECTIVE DATE OF SPOUSAL HIGHEST DAILY
LIFETIME INCOME V2.1. You and your Financial Professional should carefully
consider whether terminating your existing benefit and electing Spousal
Highest Daily Lifetime Income v2.1 is appropriate for you. We reserve the
right to waive, change and/or further limit the election frequency in the
future for new elections of this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Spousal Highest Daily Lifetime Income v2.1 so long as you
participate in a Systematic Withdrawal program in which withdrawals are not
taken pro rata.
TERMINATION OF THE BENEFIT
You may terminate the benefit at any time by notifying us. If you terminate
the benefit, any guarantee provided by the benefit will terminate as of the
date the termination is effective, and certain restrictions on re-election may
apply.
THE BENEFIT AUTOMATICALLY TERMINATES UPON THE FIRST TO OCCUR OF THE FOLLOWING:
(I) UPON OUR RECEIPT OF DUE PROOF OF DEATH OF THE FIRST DESIGNATED LIFE, IF
THE SURVIVING SPOUSE OPTS TO TAKE THE DEATH BENEFIT UNDER THE ANNUITY
(RATHER THAN CONTINUE THE ANNUITY) OR IF THE SURVIVING SPOUSE IS NOT AN
ELIGIBLE DESIGNATED LIFE;
(II)UPON THE DEATH OF THE SECOND DESIGNATED LIFE;
(III)YOUR TERMINATION OF THE BENEFIT;
(IV)YOUR SURRENDER OF THE ANNUITY;
(V) YOUR ELECTION TO BEGIN RECEIVING ANNUITY PAYMENTS (ALTHOUGH IF YOU HAVE
ELECTED TO TAKE ANNUITY PAYMENTS IN THE FORM OF THE ANNUAL INCOME AMOUNT,
WE WILL CONTINUE TO PAY THE ANNUAL INCOME AMOUNT);
(VI)BOTH THE UNADJUSTED ACCOUNT VALUE AND ANNUAL INCOME AMOUNT EQUAL ZERO DUE
TO A WITHDRAWAL OF EXCESS INCOME;
(VII)YOU ALLOCATE OR TRANSFER ANY PORTION OF YOUR ACCOUNT VALUE TO ANY
SUB-ACCOUNT(S) TO WHICH YOU ARE NOT PERMITTED TO ELECTIVELY ALLOCATE OR
TRANSFER ACCOUNT VALUE (MAY VARY BY STATE);* OR
(VIII)YOU CEASE TO MEET OUR REQUIREMENTS AS DESCRIBED IN "ELECTION OF AND
DESIGNATIONS UNDER THE BENEFIT".
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Spousal Highest Daily Lifetime Income v2.1 other than upon
the death of the second Designated Life or Annuitization, we impose any
accrued fee for the benefit (i.e., the fee for the pro-rated portion of the
year since the fee was last assessed), and thereafter we cease deducting the
charge for the benefit. This final charge will be deducted even if it results
in the Unadjusted Account Value falling below the Account Value Floor.
However, if the amount in the Sub-accounts is not enough to pay the charge, we
will reduce the fee to no more than the amount in the Sub-accounts. With
regard to your investment allocations,
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upon termination we will: (i) leave intact amounts that are held in the
Permitted Sub-accounts, and (ii) unless you are participating in an asset
allocation program (i.e., Static Re-balancing Program, or 6 or 12 Month DCA
Program for which we are providing administrative support), transfer all
amounts held in the AST Investment Grade Bond Sub-account to your variable
Investment Options, pro rata (i.e. in the same proportion as the current
balances in your variable Investment Options). If, prior to the transfer from
the AST Investment Grade Bond Sub-account, the Unadjusted Account Value in the
variable Investment Options is zero, we will transfer such amounts to the AST
Money Market Sub-account.
HOW SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 TRANSFERS UNADJUSTED ACCOUNT
VALUE BETWEEN YOUR PERMITTED SUB-ACCOUNTS AND THE AST INVESTMENT GRADE BOND
SUB-ACCOUNT
See "How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account" in the discussion of Highest Daily Lifetime Income v2.1 above for
information regarding this component of the benefit.
ADDITIONAL TAX CONSIDERATIONS
Please see the Additional Tax Considerations section under Highest Daily
Lifetime Income v2.1 above.
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DEATH BENEFIT
TRIGGERS FOR PAYMENT OF THE DEATH BENEFIT
The Annuity provides a Death Benefit prior to Annuitization. If the Annuity is
owned by one or more natural persons, the Death Benefit is payable upon the
death of the Owner (or the first to die, if there are multiple Owners). If the
Annuity is owned by an entity, the Death Benefit is payable upon the
Annuitant's death if there is no Contingent Annuitant. If the Annuity is owned
by a natural person Owner who is not also the Annuitant and the Annuitant
dies, then no Death Benefit is payable because of the Annuitant's death.
Generally, if a Contingent Annuitant was designated before the Annuitant's
death and the Annuitant dies, then the Contingent Annuitant becomes the
Annuitant and a Death Benefit will not be paid upon the Annuitant's death. The
person upon whose death the Death Benefit is paid is referred to below as the
"decedent." Where an Annuity is structured so that it is owned by a grantor
trust but the Annuitant is not the grantor, then the Annuity 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
Surrender Value will be paid out to the trust and there is no Death Benefit
provided under the Annuity.
We determine the amount of the Death Benefit as of the date we receive "Due
Proof of Death." Due Proof of Death can be met only if each of the following
is submitted to us in Good Order: (a) a death certificate or similar
documentation acceptable to us (b) all representations we require or which are
mandated by applicable law or regulation in relation to the death claim and
the payment of death proceeds and (c) any applicable election of the method of
payment of the death benefit by at least one Beneficiary (if not previously
elected by the Owner). We must be made aware of all eligible Beneficiaries in
order for us to have received Due Proof of Death. Any given Beneficiary must
submit the written information we require in order to be paid his/her share of
the Death Benefit.
Once we have received Due Proof of Death, each eligible Beneficiary may take
his/her portion of the Death Benefit in one of the forms described in this
prospectus (e.g., distribution of the entire interest in the Annuity within 5
years after the date of death, or as periodic payments over a period not
extending beyond the life or life expectancy of the Beneficiary - see "Payment
of Death Benefit" below).
After our receipt of Due Proof of Death, we automatically transfer any
remaining Death Benefit to the AST Money Market Sub-account. However, between
the date of death and the date that we transfer any remaining Death Benefit to
the AST Money Market Sub-account, THE AMOUNT OF THE DEATH BENEFIT IS SUBJECT
TO MARKET FLUCTUATIONS.
No Death Benefit will be payable if the Annuity terminates because your
Unadjusted Account Value reaches zero (which can happen if, for example, you
are taking withdrawals under an optional living benefit).
EXCEPTIONS TO AMOUNT OF DEATH BENEFIT
There are certain exceptions to the amount of the Death Benefit:
SUBMISSION OF DUE PROOF OF DEATH WITHIN ONE YEAR. If we receive Due Proof of
Death more than one year after the date of death, we reserve the right to
limit the Death Benefit to the Unadjusted Account Value on the date we receive
Due Proof of Death (i.e., we would not pay the "Return of Adjusted Purchase
Payment" amount defined below).
DEATH BENEFIT SUSPENSION PERIOD. You also should be aware that there is a
Death Benefit suspension period. If the decedent was not the Owner or
Annuitant as of the Issue Date (or within 60 days thereafter), the Death
Benefit will be suspended for a two year period starting from the date that
person first became Owner or Annuitant. This suspension would not apply if the
ownership or annuitant change was the result of Spousal Continuation or death
of the prior Owner or Annuitant. While the two year suspension is in effect,
the Death Benefit amount will equal the Unadjusted Account Value. After the
two-year suspension period is completed, the Death Benefit is the same as if
the suspension period had not been in force. See the section of the prospectus
above generally with regard to changes of Owner or Annuitant that are
allowable.
DEATH BENEFIT AMOUNT
The Annuity provides a Death Benefit at no additional charge. The amount of
the Death Benefit is equal to the greater of:
. The Return of Adjusted Purchase Payment amount, defined as the sum of
all Purchase Payments you have made since the Issue Date of the Annuity
until the date of Due Proof of Death, reduced by withdrawals as
described below (currently, there are no charges that reduce Purchase
Payments, for purposes of the Return of Adjusted Purchase Payment
amount); AND
. Your Unadjusted Account Value on the date we receive Due Proof of Death.
IMPACT OF WITHDRAWALS ON DEATH BENEFIT AMOUNT
Partial withdrawals reduce the Return of Adjusted Purchase Payment amount. The
calculation utilized to reduce the Return of Adjusted Purchase Payment amount
is dependent upon whether or not either Highest Daily Lifetime Income v2.1 or
Spousal
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Highest Daily Lifetime Income v2.1 is in effect on the date of the withdrawal.
Initially, the Return of Adjusted Purchase Payment amount is equal to the sum
of all "adjusted" Purchase Payments (i.e., the amount of Purchase Payments we
receive, less any fees or tax charges deducted from Purchase Payments upon
allocation to the Annuity) allocated to the Annuity on its Issue Date.
Thereafter, the Return of Adjusted Purchase Payments Amount is:
(1)Increased by any additional adjusted Purchase Payments allocated to the
Annuity, and
(2)Reduced for any partial withdrawals. The method of reduction depends on
whether or not any Highest Daily Lifetime Income v2.1 Benefit is in effect
on the date the withdrawal is made and the amount of the withdrawal, as
described below.
(i)If either Highest Daily Lifetime Income v2.1 or Spousal Highest Daily
Lifetime Income v2.1 is in effect on the date the partial withdrawal
is made, a Non-Lifetime Withdrawal, as defined under the benefit, will
proportionally reduce the Return of Adjusted Purchase Payments amount
(i.e., by the ratio of the amount of the withdrawal to the Unadjusted
Account Value immediately prior to the withdrawal). Any Lifetime
Withdrawal that is not deemed Excess Income, as those terms are
described in the benefit, will cause a dollar-for-dollar basis
reduction to the Return of Adjusted Purchase Payments amount. All or
any portion of a Lifetime Withdrawal in an Annuity Year that is deemed
Excess Income, as defined in the benefit, will cause a proportional
basis reduction to the Return of Adjusted Purchase Payments amount
(i.e., by the ratio of the amount of the withdrawal to the Unadjusted
Account Value immediately prior to the withdrawal).
(ii)If neither Highest Daily Lifetime Income v2.1 nor Spousal Highest
Daily Lifetime Income v2.1 is in effect on the date the partial
withdrawal is made, the withdrawal will cause a proportional basis
reduction to the Return of Adjusted Purchase Payments Amount (i.e., by
the ratio of the amount of the withdrawal to the Unadjusted Account
Value immediately prior to the withdrawal).
Please be advised that a partial withdrawal that occurs on the same date as
the effective date of Highest Daily Lifetime Income v2.1 or Spousal Highest
Daily Lifetime Income v2.1 will be treated as if such benefit were in effect
at the time of the withdrawal, for purposes of calculating the Return of
Adjusted Purchase Payments amount. Further, if you terminate Highest Daily
Lifetime Income v2.1 or Spousal Highest Daily Lifetime Income v2.1, and also
take a withdrawal on that date, then the withdrawal will be treated as if such
benefit were NOT in effect at the time of the withdrawal.
SPOUSAL CONTINUATION OF ANNUITY
Unless you designate a Beneficiary other than your spouse, upon the death of
either spousal Owner, the surviving spouse may elect to continue ownership of
the Annuity instead of taking the Death Benefit payment. The Unadjusted
Account Value as of the date of Due Proof of Death will be equal to the Death
Benefit that would have been payable. Any amount added to the Unadjusted
Account Value will be allocated to the Sub-accounts (if you participate in an
optional living benefit, such amount will not be directly added to any bond
portfolio Sub-account used by the benefit, but may be reallocated by the
predetermined mathematical formula on the same day). No CDSC will apply to
Purchase Payments made prior to the effective date of a spousal continuation.
However, any additional Purchase Payments made after the date the spousal
continuation is effective will be subject to all provisions of the Annuity,
including the CDSC when applicable. For purposes of calculating the CDSC to
which Purchase Payments made after spousal continuation may be subject, we
employ the same CDSC schedule in the same manner as for Purchase Payments made
prior to spousal continuation. Moreover, to calculate the CDSC applicable to
the withdrawal of a Purchase Payment made by the surviving spouse, we would
consider cumulative Purchase Payments made both before, on and after the date
of spousal continuation. We will impose the Premium Based Charge on all
Purchase Payments (whether received before, on or after the date of spousal
continuation) according to the same schedule used prior to spousal
continuation. To calculate the Premium Based Charge applicable to Purchase
Payments after the date of spousal continuation, we would consider cumulative
Purchase Payments made both before, on and after the date of spousal
continuation.
Subsequent to spousal continuation, the Death Benefit will be equal to the
greater of:
.. The Unadjusted Account Value on Due Proof of Death of the surviving spouse;
and
.. The Return of Adjusted Purchase Payments amount (as described above).
However, upon spousal continuation, we reset the Return of Adjusted
Purchase Payments amount to equal the Unadjusted Account Value. Any
subsequent additional Purchase Payments or partial withdrawals would affect
the Return of Adjusted Purchase Payments amount as described above.
Spousal continuation is also permitted, subject to our rules and regulatory
approval, if the Annuity is held by a custodial account established to hold
retirement assets for the benefit of the natural person Annuitant pursuant to
the provisions of Section 408(a) of the Code ("Custodial Account") and, on the
date of the Annuitant's death, the spouse of the Annuitant is (1) the
Contingent Annuitant under the Annuity and (2) the Beneficiary of the
Custodial Account. The ability to continue the Annuity in this manner will
result in the Annuity no longer qualifying for tax deferral under the Code.
However, such tax deferral should result from the ownership of the Annuity by
the Custodial Account. Please consult your tax or legal advisor.
We allow a spouse to continue the Annuity even though he/she has reached or
surpassed the Latest Annuity Date. However, upon such a spousal continuation,
annuity payments would begin immediately.
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A surviving spouse's ability to continue ownership of the Annuity may be
impacted by the Defense of Marriage Act (see "Managing Your Annuity - Spousal
Designations"). Please consult your tax or legal advisor for more information
about such impact in your state.
PAYMENT OF DEATH BENEFIT
ALTERNATIVE DEATH BENEFIT PAYMENT OPTIONS - ANNUITIES OWNED BY INDIVIDUALS
(NOT ASSOCIATED WITH TAX-FAVORED PLANS)
Except in the case of a spousal continuation as described above, upon your
death, certain distributions must be made under the Annuity. The required
distributions depend on whether you die before you start taking annuity
payments under the Annuity or after you start taking annuity payments under
the Annuity. If you die on or after the Annuity Date, the remaining portion of
the interest in the Annuity must be distributed at least as rapidly as under
the method of distribution being used as of the date of death. In the event of
the decedent's death before the Annuity Date, the Death Benefit must be
distributed:
. within five (5) years of the date of death (the "5 Year Deadline"); or
. as a series of payments not extending beyond the life expectancy of the
Beneficiary or over the life of the Beneficiary. Payments under this
option must begin within one year of the date of death. If the
Beneficiary does not begin installments by such time, then we require
that the Beneficiary take the Death Benefit as a lump sum within the 5
Year Deadline.
ALTERNATIVE DEATH BENEFIT PAYMENT OPTIONS - ANNUITIES HELD BY TAX-FAVORED PLANS
The Code provides for alternative death benefit payment options when an
Annuity is used as an IRA, 403(b) or other "qualified investment" that
requires minimum distributions. Upon your death under an IRA, 403(b) or other
"qualified investment", the designated Beneficiary may generally elect to
continue the Annuity and receive Required Minimum Distributions under the
Annuity instead of receiving the Death Benefit in a single payment. The
available payment options will depend on whether you die before the date
Required Minimum Distributions under the Code were to begin, whether you have
named a designated Beneficiary and whether the Beneficiary is your surviving
spouse as defined for federal tax law purposes.
. 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 (the "Qualified 5 Year
Deadline"), or as periodic payments not extending beyond the life
expectancy of the designated Beneficiary (provided such payments begin
by December 31/st/ of the year following the year of death). If the
Beneficiary does not begin installments by such time, then we require
that the Beneficiary take the Death Benefit as a lump sum by the
Qualified 5 Year Deadline. However, if your surviving spouse is the
Beneficiary, the death benefit can be paid out over the life expectancy
of your spouse with such payments beginning no later than
December 31/st/ of the year following the year of death or
December 31/st/ of the year in which you would have reached age 70 1/2,
whichever is later. Additionally, if the Death Benefit is payable to (or
for the benefit of) your surviving spouse as sole primary beneficiary,
the Annuity may be continued with your spouse as the Owner.
. If you die before a designated Beneficiary is named and before the date
Required Minimum Distributions must begin under the Code, the Death
Benefit must be paid out by the Qualified 5 Year Deadline. If the
Beneficiary does not begin installments by December 31/st/ of the year
following the year of death, we will require that the Beneficiary take
the Death Benefit as a lump sum by the Qualified 5 Year Deadline. For
Annuities 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 Annuity is
deemed to have no designated Beneficiary.
. 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 Annuities 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 Annuity
is deemed to have no designated Beneficiary. A Beneficiary has the
flexibility to take out more each year than mandated under the Required
Minimum Distribution rules.
Until withdrawn, amounts in an IRA, 403(b) or other "qualified investment"
continue to be tax deferred. Amounts withdrawn each year, including amounts
that are required to be withdrawn under the Required Minimum Distribution
rules, are subject to tax. You may wish to consult a professional tax advisor
for tax advice as to your particular situation.
For a Roth IRA, if death occurs before the entire interest is distributed, the
Death Benefit must be distributed under the same rules applied to IRAs where
death occurs before the date Required Minimum Distributions must begin under
the Code. The tax consequences to the Beneficiary may vary among the different
Death Benefit payment options. See the Tax Considerations section of this
prospectus, and consult your tax advisor.
BENEFICIARY CONTINUATION OPTION
Instead of receiving the Death Benefit in a single payment, or under an
Annuity Option, a Beneficiary may take the Death Benefit under an alternative
Death Benefit payment option, as provided by the Code and described above
under the sections entitled "Payment of Death Benefits" and "Alternative Death
Benefit Payment Options - Annuities Held by Tax-Favored Plans." This
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"Beneficiary Continuation Option" is described below and is available for both
qualified Annuities (i.e. annuities sold to an IRA, Roth IRA, SEP IRA, or
403(b)), Beneficiary Annuities and non-qualified Annuities. Under the
Beneficiary Continuation Option:
.. The Beneficiary must apply at least $15,000 to the Beneficiary Continuation
Option (thus, the Death Benefit amount payable to each Beneficiary must be
at least $15,000).
.. The Annuity will be continued in the Owner's name, for the benefit of the
Beneficiary.
.. Beginning on the date we receive an election by the Beneficiary to take the
Death Benefit in a form other than a lump sum, the Beneficiary will incur a
Settlement Service Charge which is an annual charge assessed on a daily
basis against the average assets allocated to the Sub-accounts. The charge
is 1.00% per year.
.. Beginning on the date we receive an election by the Beneficiary to take the
Death Benefit in a form other than a lump sum, the Beneficiary will incur
an annual maintenance fee equal to the lesser of $30 or 2% of Unadjusted
Account Value. The fee will only apply if the Unadjusted Account Value is
less than $25,000 at the time the fee is assessed. The fee will not apply
if it is assessed 30 days prior to a surrender request.
.. The initial Unadjusted Account Value will be equal to any Death Benefit
that would have been payable to the Beneficiary if the Beneficiary had
taken a lump sum distribution.
.. The available Sub-accounts will be among those available to the Owner at
the time of death, however certain Sub-accounts may not be available.
.. The Beneficiary may request transfers among Sub-accounts, subject to the
same limitations and restrictions that applied to the Owner. Transfers in
excess of 20 per year will incur a $10 transfer fee.
.. No DCA MVA Options will be offered for Beneficiary Continuation Options.
.. No additional Purchase Payments can be applied to the Annuity. Multiple
death benefits cannot be combined in a single Beneficiary Continuation
Option.
.. Premium Based Charges will no longer apply.
.. The Death Benefit and any optional benefits elected by the Owner will no
longer apply to the Beneficiary.
.. The Beneficiary can request a withdrawal of all or a portion of the
Unadjusted Account Value at any time, unless the Beneficiary Continuation
Option was the payout predetermined by the Owner and the Owner restricted
the Beneficiary's withdrawal rights.
.. Withdrawals are not subject to CDSC.
.. Upon the death of the Beneficiary, any remaining Unadjusted Account Value
will be paid in a lump sum to the person(s) named by the Beneficiary
(successor), unless the successor chooses to continue receiving payments
through a Beneficiary Continuation Option established for the successor.
.. If the Beneficiary elects to receive the death benefit proceeds under the
Beneficiary Continuation Option, we must receive the election in Good Order
at least 14 days prior to the first required distribution. If, for any
reason, the election impedes our ability to complete the first distribution
by the required date, we will be unable to accept the election.
We may pay compensation to the broker-dealer of record on the Annuity based on
amounts held in the Beneficiary Continuation Option. Please contact us for
additional information on the availability, restrictions and limitations that
will apply to a Beneficiary under the Beneficiary Continuation Option.
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VALUING YOUR INVESTMENT
VALUING THE SUB-ACCOUNTS
When you allocate Account Value to a Sub-account, you are purchasing Units of
the Sub-account. Each Sub-account invests exclusively in shares of an
underlying Portfolio. The value of the Units fluctuates with the market
fluctuations of the Portfolios. The value of the Units also reflects the daily
accrual for the Insurance Charge, and if you elected one or more optional
benefits whose annualized charge is deducted daily, the additional charge for
such benefits.
Each Valuation Day, we determine the price for a Unit of each Sub-account,
called the "Unit Price." The Unit Price is used for determining the value of
transactions involving Units of the Sub-accounts. We determine the number of
Units involved in any transaction by dividing the dollar value of the
transaction by the Unit Price of the Sub-account as of the Valuation Day.
There may be several different Unit Prices for each Sub-account to reflect the
Insurance Charge and the charges for any optional benefits. The Unit Price for
the Units you purchase will be based on the total charges for the benefits
that apply to your Annuity. See the section below entitled "Termination of
Optional Benefits" for a detailed discussion of how Units are purchased and
redeemed to reflect changes in the daily charges that apply to your Annuity.
EXAMPLE
Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the
allocation, the Unit Price is $14.83. Your $5,000 buys 337.154 Units of the
Sub-account. Assume that later, you wish to transfer $3,000 of your Account
Value out of that Sub-account and into another Sub-account. On the Valuation
Day you request the transfer, the Unit Price of the original Sub-account has
increased to $16.79 and the Unit Price of the new Sub-account is $17.83. To
transfer $3,000, we redeem 178.677 Units at the current Unit Price, leaving
you 158.477 Units. We then buy $3,000 of Units of the new Sub-account at the
Unit Price of $17.83. You would then have 168.255 Units of the new Sub-account.
PROCESSING AND VALUING TRANSACTIONS
Pruco Life is generally open to process financial transactions on those days
that the New York Stock Exchange (NYSE) is open for
trading. There may be circumstances where the NYSE does not open on a
regularly scheduled date or time or closes at an earlier time than scheduled
(normally 4:00 p.m. EST). Generally, financial transactions requested in Good
Order before the close of regular trading on the NYSE will be processed
according to the value next determined following the close of business.
Financial transactions requested on a non-business day or after the close of
regular trading on the NYSE will be processed based on the value next computed
on the next Valuation Day. There may be circumstances when the opening or
closing time of regular trading on the NYSE is different than other major
stock exchanges, such as NASDAQ or the American Stock Exchange. Under such
circumstances, the closing time of regular trading on the NYSE will be used
when valuing and processing transactions.
The NYSE is closed on the following nationally recognized holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas. On those dates, we
will not process any financial transactions involving purchase or redemption
orders. Pruco Life will also not process financial transactions involving
purchase or redemption orders or transfers on any day that:
.. trading on the NYSE is restricted;
.. an emergency, as determined by the SEC, exists making redemption or
valuation of securities held in the Separate Account impractical; or
.. the SEC, by order, permits the suspension or postponement for the
protection of security holders.
If, pursuant to SEC rules, the AST Money Market Portfolio suspends payment of
redemption proceeds in connection with a liquidation of the Portfolio, we will
delay payment of any transfer, full or partial withdrawal, or death benefit
from the AST Money Market Sub-account until the Portfolio is liquidated.
INITIAL PURCHASE PAYMENTS: We are required to allocate your initial Purchase
Payment to the Sub-accounts within two (2) Valuation Days after we receive the
Purchase Payment in Good Order at our Service Office. If we do not have all
the required information to allow us to issue your Annuity, we may retain the
Purchase Payment while we try to reach you or your representative to obtain
all of our requirements. If we are unable to obtain all of our required
information within five (5) Valuation Days, we are required to return the
Purchase Payment to you at that time, unless you specifically consent to our
retaining the Purchase Payment while we gather the required information. Once
we obtain the required information, we will invest the Purchase Payment and
issue an Annuity within two (2) Valuation Days. With respect to your initial
Purchase Payment that is pending investment in our separate account, we may
hold the amount temporarily in a suspense account and may earn interest on
such amount. You will not be credited with interest during that period.
As permitted by applicable law, the broker-dealer firm through which you
purchase your Annuity may forward your initial Purchase Payment to us prior to
approval of your purchase by a registered principal of the firm. These
arrangements are subject to a number of regulatory requirements, including
that until such time that the insurer is notified of the firm's principal
approval and is provided with the application, or is notified of the firm
principal's rejection, customer funds will be held by the insurer in a
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segregated bank account. In addition, the insurer must promptly return the
customer's funds at the customer's request prior to the firm's principal
approval or upon the firm's rejection of the application. The monies held in
the bank account will be held in a suspense account within our general account
and we may earn interest on amounts held in that suspense account. Contract
owners will not be credited with any interest earned on amounts held in that
suspense account. The monies in such suspense account may be subject to our
general creditors. Moreover, because the FINRA rule authorizing the use of
such accounts is new, there may be uncertainty as to the segregation and
treatment of such insurance company general account assets under applicable
Federal and State laws.
ADDITIONAL PURCHASE PAYMENTS: We will apply any additional Purchase Payments
on the Valuation Day that we receive the Purchase Payment at our Service
Office in Good Order. We may limit, restrict, suspend or reject any additional
Purchase Payments at any time on a non-discriminatory basis.
SCHEDULED TRANSACTIONS: Scheduled transactions include transfers under Dollar
Cost Averaging, the Asset Allocation Program, Auto-Rebalancing, Systematic
Withdrawals, Systematic Investments, Required Minimum Distributions,
substantially equal periodic payments under section 72(t)/72(q) of the Code,
and annuity payments. Scheduled transactions are processed and valued as of
the date they are scheduled, unless the scheduled day is not a Valuation Day.
In that case, the transaction will be processed and valued on the next
Valuation Day, unless (with respect to Required Minimum Distributions,
substantially equal periodic payments under Section 72(t)/72(q) of the Code,
and annuity payments only), the next Valuation Day falls in the subsequent
calendar year, in which case the transaction will be processed and valued on
the prior Valuation Day.
UNSCHEDULED TRANSACTIONS: "Unscheduled" transactions include any other
non-scheduled transfers and requests for partial withdrawals or Free
Withdrawals or Surrenders. With respect to certain written requests to
withdraw Account Value, we may seek to verify the requesting Owner's
signature. Specifically, we reserve the right to perform a signature
verification for (a) any withdrawal exceeding a certain dollar amount and
(b) a withdrawal exceeding a certain dollar amount if the payee is someone
other than the Owner. In addition, we will not honor a withdrawal request in
which the requested payee is the Financial Professional or agent of record. We
reserve the right to request a signature guarantee with respect to a written
withdrawal request. If we do perform a signature verification, we will pay the
withdrawal proceeds within 7 days after the withdrawal request was received by
us in Good Order, and will process the transaction in accordance with the
discussion in "Processing And Valuing Transactions".
MEDICALLY-RELATED SURRENDERS & DEATH BENEFITS: Medically-Related Surrender
requests and Death Benefit claims require our review and evaluation before
processing. We price such transactions as of the date we receive at our
Service Office in Good Order all supporting documentation we require for such
transactions.
We are generally required by law to pay any surrender request or death benefit
claims from the Separate Account within 7 days of our receipt of your request
in Good Order at our Service Office.
TERMINATION OF OPTIONAL BENEFITS: For the Highest Daily Lifetime Income v2.1
benefits, if the benefit terminates for any reason other than death or
annuitization, we will deduct a final charge upon termination, based on the
number of days since the charge for the benefit was most recently deducted.
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TAX CONSIDERATIONS
The tax considerations associated with an Annuity vary depending on whether
the contract is (i) owned by an individual or non-natural person, and not
associated with a tax-favored retirement plan, or (ii) held under a
tax-favored retirement plan. We discuss the tax considerations for these
categories of contracts below. The discussion is general in nature and
describes only federal income tax law (not state or other tax laws). It is
based on current law and interpretations, which may change. The information
provided is not intended as tax advice. You should consult with a qualified
tax advisor for complete information and advice. References to Purchase
Payments below relate to your cost basis in your contract. Generally, your
cost basis in a contract not associated with a tax- favored retirement plan is
the amount you pay into your contract, or into annuities exchanged for your
contract, on an after-tax basis less any withdrawals of such payments. Cost
basis for a tax-favored retirement plan is provided only in limited
circumstances, such as for contributions to a Roth IRA or nondeductible IRA.
The discussion includes a description of certain spousal rights under the
contract, and our administration of such spousal rights and related tax
reporting comport 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,
domestic partners or same-sex marriages. You should be aware, however, that
federal tax law does not recognize civil union couples, domestic partners or
marriage spouses of the same sex. Therefore, we cannot permit a same-sex civil
union partner, domestic partner or spouse to continue the annuity within the
meaning of the tax law upon the death of the first partner under the annuity's
"spousal continuance" provision. Please note there may be federal tax
consequences at the death of the first same-sex civil union partner, domestic
partner or spouse. Civil union couples, domestic partners and spouses of the
same sex should consider that limitation before selecting a spousal benefit
under the annuity.
The discussion below generally assumes that the Annuity is issued to the
Annuity Owner. For Annuities issued under the Beneficiary Continuation Option
or as a Beneficiary Annuity, refer to the Taxes Payable by Beneficiaries for
Nonqualified Annuity Contracts and Required Distributions Upon Your Death for
Qualified Annuity Contracts in this Tax Considerations section.
NONQUALIFIED ANNUITY CONTRACTS
IN GENERAL, AS USED IN THIS PROSPECTUS, A NONQUALIFIED ANNUITY IS OWNED BY AN
INDIVIDUAL OR NON-NATURAL PERSON AND IS NOT ASSOCIATED WITH A TAX-FAVORED
RETIREMENT PLAN.
TAXES PAYABLE BY YOU
We believe the Annuity is an annuity contract for tax purposes. Accordingly,
as a general rule, you should not pay any tax until you receive money under
the contract. Generally, annuity contracts issued by the same company (and
affiliates) to you during the same calendar year must be treated as one
annuity contract for purposes of determining the amount subject to tax under
the rules described below. Charges for investment advisory fees that are taken
from the contract are treated as a partial withdrawal from the contract and
will be reported as such to the contract Owner.
It is possible that the Internal Revenue Service (IRS) could assert that some
or all of the charges for the optional benefits under the contract should be
treated for federal income tax purposes as a partial withdrawal from the
contract. If this were the case, the charge for this benefit could be deemed a
withdrawal and treated as taxable to the extent there are earnings in the
contract. Additionally, for Owners under age 59 1/2, the taxable income
attributable to the charge for the benefit could be subject to a tax penalty.
If the IRS determines that the charges for one or more benefits under the
contract are taxable withdrawals, then the sole or surviving Owner will be
provided with a notice from us describing available alternatives regarding
these benefits.
You must commence annuity payments or surrender your Annuity no later than the
first day of the calendar month next following the maximum Annuity date for
your Annuity. For some of our contracts, you are able to choose to defer the
Annuity Date beyond the default Annuity date described in your Annuity.
However, the IRS may not then consider your contract to be an annuity under
the tax law.
TAXES ON WITHDRAWALS AND SURRENDER
If you make a withdrawal from your contract or surrender it before annuity
payments begin, the amount you receive will be taxed as ordinary income,
rather than as return of Purchase Payments, until all gain has been withdrawn.
Once all gain has been withdrawn, payments will be treated as a nontaxable
return of Purchase Payments until all Purchase Payments have been returned.
After all Purchase Payments are returned, all subsequent amounts will be taxed
as ordinary income.
You will generally be taxed on any withdrawals from the contract while you are
alive even if the withdrawal is paid to someone else. Withdrawals under any of
the optional living benefits or as a systematic payment are taxed under these
rules. If you assign or pledge all or part of your contract as collateral for
a loan, the part assigned generally will be treated as a withdrawal and
subject to income tax to the extent of gain. 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.
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If you choose to receive payments under an interest payment option, or a
Beneficiary chooses to receive a death benefit under an interest payment
option, that election will be treated, for tax purposes, as surrendering your
Annuity and will immediately subject any gain in the contract to income tax.
TAXES ON ANNUITY PAYMENTS
A portion of each annuity payment you receive will be treated as a partial
return of your Purchase Payments and will not be taxed. The remaining portion
will be taxed as ordinary income. Generally, the nontaxable portion is
determined by multiplying the 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 has 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.
If your Account Value is reduced to zero but the Annuity remains in force due
to a benefit provision, further distributions from the Annuity will be
reported as annuity payments, using an exclusion ratio based upon the
undistributed purchase payments in the Annuity and the total value of the
anticipated future payments until such time as all Purchase Payments have been
recovered.
Please refer to your Annuity contract for the maximum Annuity Date, also
described above.
PARTIAL ANNUITIZATION
Effective January 1, 2011, an individual may partially annuitize their
non-qualified annuity if the contract so permits. The Small Business Jobs Act
of 2010 included a provision which allows for a portion of a non-qualified
annuity, endowment or life insurance contract to be annuitized while the
balance is not annuitized. The annuitized portion must be paid out over 10 or
more years or over the lives of one or more individuals. The annuitized
portion of the contract is treated as a separate contract for purposes of
determining taxability of the payments under IRC section 72. We do not
currently permit partial annuitization.
MEDICARE TAX ON NET INVESTMENT INCOME
The Patient Protection and Affordable Care Act, also known as the 2010 Health
Care Act, included a new Medicare tax on investment income. This new tax,
which is effective in 2013, assesses a 3.8% surtax on the lesser of (1) net
investment income or (2) the excess of "modified adjusted gross income" over a
threshold amount. The "threshold amount" is $250,000 for married taxpayers
filing jointly, $125,000 for married taxpayers filing separately, $200,000 for
single taxpayers, and approximately $12,000 for trusts. The taxable portion of
payments received as a withdrawal, surrender, annuity payment, death benefit
payment or any other actual or deemed distribution under the contract will be
considered investment income for purposes of this surtax.
TAX PENALTY FOR EARLY WITHDRAWAL FROM A NONQUALIFIED ANNUITY CONTRACT
You may owe a 10% tax penalty on the taxable part of distributions received
from your Nonqualified Annuity contract before you attain age 59 1/2. Amounts
are not subject to this tax penalty if:
.. the amount is paid on or after you reach age 59 1/2 or die; the amount
received is attributable to your becoming disabled;
.. generally the amount paid or received is in the form of substantially equal
payments (as defined in the Code) not less frequently than annually (please
note that substantially equal payments must continue until the later of
reaching age 59 1/2 or 5 years and modification of payments during that
time period will result in retroactive application of the 10% tax penalty);
or
.. the amount received is paid under an immediate annuity contract (in which
annuity payments begin within one year of purchase).
Other exceptions to this tax may apply. You should consult your tax advisor
for further details.
SPECIAL RULES IN RELATION TO TAX-FREE EXCHANGES UNDER SECTION 1035
Section 1035 of the Code permits certain tax-free exchanges of a life
insurance, annuity or endowment contract for an annuity, including tax-free
exchanges of annuity death benefits for a Beneficiary Annuity. Partial
surrenders may be treated in the same way as tax-free 1035 exchanges of entire
contracts, therefore avoiding current taxation of the partially exchanged
amount as well as the 10% tax penalty on pre-age 591/2 withdrawals. In Revenue
Procedure 2011-38, the IRS has indicated that, for exchanges on or after
October 24, 2011, where there is a surrender or distribution from either the
initial annuity contract or receiving annuity contract within 180 days of the
date on which the partial exchange was completed, the IRS will apply general
tax rules to determine the substance and treatment of the original transfer.
We strongly urge you to discuss any transaction of this type with your tax
advisor before proceeding with the transaction.
If an Annuity is purchased through a tax-free exchange of a life insurance,
annuity or endowment contract that was purchased prior to August 14, 1982,
then any Purchase Payments made to the original contract prior to August 14,
1982 will be treated as made to the new contract prior to that date.
Generally, such pre-August 14, 1982 withdrawals are treated as a recovery of
your investment in the contract first until Purchase Payments made before
August 14, 1982 are withdrawn. Moreover, income allocable to Purchase Payments
made before August 14, 1982, is not subject to the 10% tax penalty.
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TAXES PAYABLE BY BENEFICIARIES
The Death Benefit options are subject to ordinary 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 for federal estate tax purposes. Generally, the same tax rules
described above would also apply to amounts received by your Beneficiary.
Choosing an 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 in the year of payment on
gain in the contract.
.. Within 5 years of death of Owner: the Beneficiary is taxed as amounts are
withdrawn (in this case gain is treated as being distributed first).
.. Under an annuity or annuity settlement option with distribution beginning
within one year of the date of death of the Owner: the Beneficiary is taxed
on each payment (part will be treated as gain and part as return of
Purchase Payments).
CONSIDERATIONS FOR CONTINGENT ANNUITANTS: We may allow the naming of a
contingent Annuitant when a Nonqualified Annuity contract is held by a pension
plan or a tax favored retirement plan, or held by a Custodial Account (as
defined earlier in this prospectus). In such a situation, the Annuity may no
longer qualify for tax deferral where the Annuity contract continues after the
death of the Annuitant. However, tax deferral should be provided instead by
the pension plan, tax favored retirement plan, or Custodial Account. We may
also allow the naming of a contingent annuitant when a Nonqualified Annuity
contract is held by an entity owner when such contracts do not qualify for tax
deferral under the current tax law. This does not supersede any benefit
language which may restrict the use of the contingent annuitant.
REPORTING AND WITHHOLDING ON DISTRIBUTIONS
Taxable amounts distributed from an Annuity are subject to federal and state
income tax reporting and withholding. In general, we will withhold federal
income tax from the taxable portion of such distribution based on the type of
distribution. In the case of an annuity or similar periodic payment, we will
withhold as if you are a married individual with three (3) exemptions unless
you designate a different withholding status. If no U.S. taxpayer
identification number is provided, we will automatically withhold using single
with zero exemptions as the default. In the case of all other distributions,
we will withhold at a 10% rate. You may generally elect not to have tax
withheld from your payments. An election out of withholding must be made on
forms that we provide. If you are a U.S. person (including resident alien),
and your address of record is a non-U.S. address, we are required to withhold
income tax unless you provide us with a U.S. residential address.
State income tax withholding rules vary and we will withhold based on the
rules of your State of residence. Special tax rules apply to withholding for
nonresident aliens, and we generally withhold income tax for nonresident
aliens at a 30% rate. A different withholding rate may be applicable to a
nonresident alien based on the terms of an existing income tax treaty between
the United States and the nonresident alien's country. Please refer to the
discussion below regarding withholding rules for a Qualified Annuity.
Regardless of the amount withheld by us, you are liable for payment of federal
and state income tax on the taxable portion of annuity distributions. You
should consult with your tax advisor regarding the payment of the correct
amount of these income taxes and potential liability if you fail to pay such
taxes.
ENTITY OWNERS
Where a contract is held by a non-natural person (e.g. a corporation), other
than as an agent or nominee for a natural person (or in other limited
circumstances), the contract will not be taxed as an annuity and increases in
the value of the contract over its cost basis will be subject to tax annually.
Where a contract is issued to a Charitable Remainder Trust (CRT), 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. As there are charges for
the living benefits described elsewhere in this prospectus, and such charges
reduce the contract value of the Annuity, trustees of the CRT should discuss
with their legal advisors whether election of such living benefits violates
their fiduciary duty to the remainder beneficiary.
Where a contract is issued to a trust, and such trust is characterized as a
grantor trust under the Code, such contract shall not be considered to be held
by a non-natural person and will be subject to the tax reporting and
withholding requirements generally applicable to a Nonqualified Annuity. At
this time, we will not issue an Annuity to grantor trusts with multiple
grantors.
At this time, we will not issue an Annuity, to a grantor trust where the
Grantor is not also the Annuitant. Where a previously issued contract was
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 of the trust 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 trust and it is not eligible for the death benefit provided
under the contract.
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ANNUITY QUALIFICATION
Diversification And Investor Control. In order to qualify for the tax rules
applicable to annuity contracts described above, the assets underlying the
Sub-accounts of an Annuity must be diversified, according to certain rules
under the Internal Revenue Code. Each portfolio is required to diversify its
investments each quarter so that no more than 55% of the value of its assets
is represented by any one investment, no more than 70% is represented by any
two investments, no more than 80% is represented by any three investments, and
no more than 90% is represented by any four investments. Generally, securities
of a single issuer are treated as one investment and obligations of each U.S.
Government agency and instrumentality (such as the Government National
Mortgage Association) are treated as issued by separate issuers. In addition,
any security issued, guaranteed or insured (to the extent so guaranteed or
insured) by the United States or an instrumentality of the U.S. will be
treated as a security issued by the U.S. Government or its instrumentality,
where applicable. We believe the Portfolios underlying the variable Investment
Options of the Annuity meet these diversification requirements.
An additional requirement for qualification for the tax treatment described
above is that we, and not you as the contract Owner, must have sufficient
control over the underlying assets to be treated as the Owner of the
underlying assets for tax purposes. While we also believe these investor
control rules will be met, the Treasury Department may promulgate guidelines
under which a variable annuity will not be treated as an annuity for tax
purposes if persons with ownership rights have excessive control over the
investments underlying such variable annuity. It is unclear whether such
guidelines, if in fact promulgated, would have retroactive effect. It is also
unclear what effect, if any, such guidelines might have on transfers between
the Investment Options offered pursuant to this prospectus. We reserve the
right to take any action, including modifications to your Annuity or the
Investment Options, required to comply with such guidelines if promulgated.
Any such changes will apply uniformly to affected Owners and will be made with
such notice to affected Owners as is feasible under the circumstances.
REQUIRED DISTRIBUTIONS UPON YOUR DEATH FOR NONQUALIFIED ANNUITY CONTRACTS.
Upon your death, certain distributions must be made under the contract. The
required distributions depend on whether you die before you start taking
annuity payments under the contract or after you start taking annuity payments
under the contract. If you die on or after the Annuity Date, the remaining
portion of the interest in the contract must be distributed at least as
rapidly as under the method of distribution being used as of the date of
death. If you die before the Annuity Date, the entire interest in the contract
must be distributed within 5 years after the date of death, or as periodic
payments over a period not extending beyond the life or life expectancy of the
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 Annuity is payable to (or for the benefit of)
your surviving spouse, that portion of the contract may be continued with your
spouse as the Owner. For Nonqualified annuity contracts owned by a non-natural
person, the required distribution rules apply upon the death of the Annuitant.
This means that for a contract held by a non-natural person (such as a trust)
for which there is named a co-annuitant, then such required distributions will
be triggered by the death of the first co-annuitants to die.
CHANGES IN YOUR ANNUITY. We reserve the right to make any changes we deem
necessary to assure that your Annuity qualifies as an annuity contract for tax
purposes. Any such changes will apply to all contract Owners and you will be
given notice to the extent feasible under the circumstances.
QUALIFIED ANNUITY CONTRACTS
IN GENERAL, AS USED IN THIS PROSPECTUS, A QUALIFIED ANNUITY IS AN ANNUITY
CONTRACT WITH APPLICABLE ENDORSEMENTS FOR A TAX-FAVORED PLAN OR A NONQUALIFIED
ANNUITY CONTRACT HELD BY A TAX-FAVORED RETIREMENT PLAN.
The following is a general discussion of the tax considerations for Qualified
Annuity contracts. This Annuity may or may not be available for all types of
the tax-favored retirement plans discussed below. This discussion assumes that
you have satisfied the eligibility requirements for any tax-favored retirement
plan. Please consult your Financial Professional prior to purchase to confirm
if this contract is available for a particular type of tax-favored retirement
plan or whether we will accept the type of contribution you intend for this
contract.
A Qualified annuity may typically be purchased for use in connection with:
.. Individual retirement accounts and annuities (IRAs), 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 annuity 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.
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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
IRA. If you buy an Annuity for use as an IRA, we will provide you a copy of
the prospectus and contract. The "IRA Disclosure Statement" and "Roth IRA
Disclosure Statement" which accompany the prospectus contain information about
eligibility, contribution limits, tax particulars, and other IRA information.
In addition to this information (some of which is summarized below), the IRS
requires that you have a "Free Look" after making an initial contribution to
the contract. During this time, you can cancel the Annuity by notifying us in
writing, and we will refund all of the Purchase Payments under the Annuity
(or, if provided by applicable state law, the amount credited under the
Annuity, if greater), less any applicable federal and state income tax
withholding.
Contributions Limits/Rollovers. Subject to the minimum Purchase Payment
requirements of an Annuity, you may purchase an Annuity for an IRA in
connection with a "rollover" of amounts from a qualified retirement plan, as a
transfer from another IRA, by making a contribution consisting of your IRA
contributions and catch-up contributions, if applicable, attributable to the
prior year during the period from January 1 to April 15 (or the applicable due
date of your federal income tax return, without extension), or as a current
year contribution. In 2013 the contribution limit is $5,500 ($5,000 for 2012).
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 an Annuity, you can make regular IRA
contributions under the Annuity (to the extent permitted by law). However, if
you make such regular IRA contributions, you should note that you will not be
able to treat the contract as a "conduit IRA," which means that you will not
retain possible favorable tax treatment if you subsequently "roll over" the
contract funds originally derived from a qualified retirement plan or TDA into
another Section 401(a) plan or TDA.
In some circumstances, non-spouse Beneficiaries may roll over to an IRA
amounts due from qualified plans, 403(b) plans, and governmental 457(b) plans.
However, 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 Worker,
Retiree and Employer Recovery Act of 2008, 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. An inherited IRA must be
directly rolled over from the employer plan or transferred from an IRA and
must be titled in the name of the deceased (i.e., John Doe deceased for the
benefit of Jane Doe). No additional contributions can be made to an inherited
IRA. In this prospectus, an inherited IRA is also referred to as a Beneficiary
Annuity.
Required Provisions. Contracts that are IRAs (or endorsements that are part of
the contract) must contain certain provisions:
.. You, as Owner of the contract, must be the "Annuitant" under the contract
(except in certain cases involving the division of property under a decree
of divorce);
.. Your rights as Owner are non-forfeitable;
.. You cannot sell, assign or pledge the contract;
.. The annual contribution you pay cannot be greater than the maximum amount
allowed by law, including catch-up contributions if applicable (which does
not include any rollover amounts);
.. The date on which required minimum distributions must begin cannot be later
than April 1st of the calendar year after the calendar year you turn age
70 1/2; and
.. Death and annuity payments must meet "required minimum distribution" rules
described below.
Usually, the full amount of any distribution from an IRA (including a
distribution from this contract) which is not a rollover is taxable. As
taxable income, these distributions are subject to the general tax withholding
rules described earlier regarding a Nonqualified Annuity. In addition to this
normal tax liability, you may also be liable for the following, depending on
your actions:
.. A 10% early withdrawal penalty described below;
.. Liability for "prohibited transactions" if you, for example, borrow against
the value of an IRA; or
.. Failure to take a required minimum distribution, also described below.
SEPs. SEPs are a variation on a standard IRA, and contracts issued to a SEP
must satisfy the same general requirements described under IRAs (above). There
are, however, some differences:
.. If you participate in a SEP, you generally do not include in income any
employer contributions made to the SEP on your behalf up to the lesser of
(a) $51,000 in 2013 ($50,000 in 2012) or (b) 25% of your taxable
compensation paid by the contributing
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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 2013, this
limit is $255,000 ($250,000 for 2012);
.. SEPs must satisfy certain participation and nondiscrimination requirements
not generally applicable to IRAs; and
.. SEPs that contain a salary reduction or "SARSEP" provision prior to 1997
may permit salary deferrals up to $17,500 in 2013 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 2013. These amounts are indexed for
inflation. Not all Annuities issued by us are available for SARSEPs. You
will also be provided the same information, and have the same "Free Look"
period, as you would have if you purchased the contract for a standard IRA.
ROTH IRAs. The "Roth IRA Disclosure Statement" contains information about
eligibility, contribution limits, tax particulars and other Roth IRA
information. Like standard IRAs, income within a Roth IRA accumulates
tax-free, and contributions are subject to specific limits. Roth IRAs have,
however, the following differences:
.. Contributions to a Roth IRA cannot be deducted from your gross income;
.. "Qualified distributions" from a Roth IRA are excludable from gross income.
A "qualified distribution" is a distribution that satisfies two
requirements: (1) the distribution must be made (a) after the Owner of the
IRA attains age 59 1/2; (b) after the Owner's death; (c) due to the Owner's
disability; or (d) for a qualified first time homebuyer distribution within
the meaning of Section 72(t)(2)(F) of the Code; and (2) the distribution
must be made in the year that is at least five tax years after the first
year for which a contribution was made to any Roth IRA established for the
Owner or five years after a rollover, transfer, or conversion was made from
a traditional IRA to a Roth IRA. Distributions from a Roth IRA that are not
qualified distributions will be treated as made first from contributions
and then from earnings and earnings will be taxed generally in the same
manner as distributions from a traditional IRA.
.. If eligible (including meeting income limitations and earnings
requirements), you may make contributions to a Roth IRA after attaining age
70 1/2, and distributions are not required to begin upon attaining such age
or at any time thereafter.
Subject to the minimum Purchase Payment requirements of an Annuity, you may
purchase an Annuity for a Roth IRA in connection with a "rollover" of amounts
of another traditional IRA, SEP, SIMPLE-IRA, employer sponsored retirement
plan (under sections 401(a) or 403(b) of the Code) or Roth IRA; or, if you
meet certain income limitations, by making a contribution consisting of your
Roth IRA contributions and catch-up contributions, if applicable, attributable
to the prior year during the period from January 1 to April 15 (or the
applicable due date of your federal income tax return, without extension), or
as a current year contribution. The Code permits persons 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. The conversion of non-Roth
accounts triggers current taxation (but is not subject to a 10% early
distribution penalty). Once an Annuity 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. 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. However, it is our
understanding of the Code that non-spouse Beneficiaries cannot "rollover"
benefits from a traditional IRA to a Roth IRA.
TDAs. In general, you may own a Tax Deferred Annuity (also known as a TDA, Tax
Sheltered Annuity (TSA), 403(b) plan or 403(b) annuity) 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
non-forfeitable. 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 $17,500 in 2013. 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 2013. This amount is indexed
for inflation. Further, you may roll over TDA amounts to another TDA or an
IRA. You may also roll over TDA amounts to a qualified retirement plan, a SEP
and a 457 government plan. A contract may generally only qualify as a TDA if
distributions of salary deferrals (other than "grandfathered" amounts held as
of December 31, 1988) may be made only on account of:
.. Your attainment of age 59 1/2;
.. Your severance of employment;
.. Your death;
.. Your total and permanent disability; or
.. Hardship (under limited circumstances, and only related to salary
deferrals, not including earnings attributable to these amounts).
In any event, you must begin receiving distributions from your TDA by
April 1st of the calendar year after the calendar year you turn age 70 1/2 or
retire, whichever is later. These distribution limits do not apply either to
transfers or exchanges of investments under the contract, or to any "direct
transfer" of your interest in the contract to another 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.
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CAUTION: Under 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.
Required minimum distributions are calculated based on the sum of the Account
Value and the actuarial value of any additional living and death benefits from
optional riders that you have purchased under the contract. As a result, the
required minimum distributions may be larger than if the calculation were
based on the Account Value only, which may in turn result in an earlier (but
not before the required beginning date) distribution of amounts under the
Annuity and an increased amount of taxable income distributed to the Annuity
Owner, and a reduction of payments under the living and death benefit optional
riders.
You can use the Minimum Distribution option to satisfy the required minimum
distribution rules for an Annuity without either beginning annuity payments or
surrendering the Annuity. We will distribute to you the required minimum
distribution amount, less any other partial withdrawals that you made during
the year. Such amount will be based on the value of the contract as of
December 31 of the prior year, but is determined without regard to other
contracts you may own.
Although the IRS rules determine the required amount to be distributed from
your IRA each year, certain payment alternatives are still available to you.
If you own more than one IRA, you can choose to satisfy your minimum
distribution requirement for each of your IRAs by withdrawing that amount from
any of your IRAs. If you inherit more than one IRA or more than one Roth IRA
from the same Owner, similar rules apply.
CHARITABLE IRA DISTRIBUTIONS.
The Pension Protection Act of 2006 included a charitable giving incentive
permitting tax-free IRA distributions for charitable purposes. The American
Taxpayer Relief Act extended this provision until the end of 2013.
For distributions in tax years beginning after 2005 and before 2014, provide
an exclusion from gross income, up to $100,000 for otherwise taxable IRA
distributions from a traditional or Roth IRA that are qualified charitable
distributions. To constitute a qualified charitable distribution, the
distribution must be made (1) directly by the IRA trustee to certain qualified
charitable organizations and (2) on or after the date the IRA owner attains
age 70 1/2. Special transition rules related to retroactive extension of this
tax law provision permitted different distribution treatment for charitable
IRA distributions made by January 31, 2013. Distributions that are excluded
from income under this provision are not taken into account in determining the
individual's deductions, if any, for charitable contributions.
The IRS has indicated that an IRA trustee is not responsible for determining
whether a distribution to a charity is one that satisfies the requirements for
the new income tax exclusion added by the Pension Protection Act. As a result
the general rules for reporting IRA distributions 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, whichever is later. Additionally, if the
contract is payable to (or for the benefit of) your surviving spouse as
sole primary beneficiary, the contract may be continued with your spouse as
the Owner.
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.. 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.
.. If you die before a designated Beneficiary is named and after the date
required minimum distributions must begin under the Code, the death benefit
must be paid out at least as rapidly as under the method then in effect.
For contracts where multiple Beneficiaries have been named and at least one
of the Beneficiaries does not qualify as a designated Beneficiary and the
account has not been divided into separate accounts by December 31/st/ of
the year following the year of death, such contract is deemed to have no
designated Beneficiary. A designated Beneficiary may elect to apply the
rules for no designated Beneficiary if those would provide a smaller
payment requirement.
A Beneficiary has the flexibility to take out more each year than mandated
under the required minimum distribution rules.
Until withdrawn, amounts in a Qualified Annuity contract continue to be tax
deferred. Amounts withdrawn each year, including amounts that are required to
be withdrawn under the required minimum distribution rules, are subject to
tax. You may wish to consult a professional tax advisor for tax advice as to
your particular situation.
For a Roth IRA, if death occurs before the entire interest is distributed, the
death benefit must be distributed under the same rules applied to IRAs where
death occurs before the date required minimum distributions must begin under
the Code.
TAX PENALTY FOR EARLY WITHDRAWALS FROM QUALIFIED ANNUITY CONTRACTS
You may owe a 10% tax penalty on the taxable part of distributions received
from an IRA, SEP, Roth IRA, TDA or qualified retirement plan before you attain
age 59 1/2. Amounts are not subject to this tax penalty if:
.. the amount is paid on or after you reach age 59 1/2 or die;
.. the amount received is attributable to your becoming disabled; or
.. generally the amount paid or received is in the form of substantially equal
payments (as defined in the Code) 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 or
additional contributions to the contract 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. We will not withhold for payments
made from trustee owned contracts or for payments under a 457 plan. 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.
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
80
dealing with the plan, as a result of the sale of the contract. Administrative
exemptions under ERISA generally permit the sale of insurance/annuity products
to plans, provided that certain information is disclosed to the person
purchasing the contract. This information has to do primarily with the fees,
charges, discounts and other costs related to the contract, as well as any
commissions paid to any agent selling the contract. Information about any
applicable fees, charges, discounts, penalties or adjustments may be found in
the applicable sections of this prospectus. Information about sales
representatives and commissions may be found in the sections of this
prospectus addressing distribution of the Annuities.
Other relevant information required by the exemptions is contained in the
contract and accompanying documentation.
Please consult with your tax advisor if you have any questions about ERISA and
these disclosure requirements.
SPOUSAL CONSENT RULES FOR RETIREMENT PLANS - QUALIFIED CONTRACTS
If you are married at the time your payments commence, you may be required by
federal law to choose an income option that provides survivor annuity income
to your spouse, unless your spouse waives that right. Similarly, if you are
married at the time of your death, federal law may require all or a portion of
the Death Benefit to be paid to your spouse, even if you designated someone
else as your Beneficiary. A brief explanation of the applicable rules follows.
For more information, consult the terms of your retirement arrangement.
Defined Benefit Plans and Money Purchase Pension Plans. If you are married at
the time your payments commence, federal law requires that benefits be paid to
you in the form of a "qualified joint and survivor annuity" (QJSA), unless you
and your spouse waive that right, in writing. Generally, this means that you
will receive a reduced payment during your life and, upon your death, your
spouse will receive at least one-half of what you were receiving for life. You
may elect to receive another income option if your spouse consents to the
election and waives his or her right to receive the QJSA. If your spouse
consents to the alternative form of payment, your spouse may not receive any
benefits from the plan upon your death. Federal law also requires that the
plan pay a Death Benefit to your spouse if you are married and die before you
begin receiving your benefit. This benefit must be available in the form of an
annuity for your spouse's lifetime and is called a "qualified pre-retirement
survivor annuity" (QPSA). If the plan pays Death Benefits to other
Beneficiaries, you may elect to have a Beneficiary other than your spouse
receive the Death Benefit, but only if your spouse consents to the election
and waives his or her right to receive the QPSA. If your spouse consents to
the alternate Beneficiary, your spouse will receive no benefits from the plan
upon your death. Any QPSA waiver prior to your attaining age 35 will become
null and void on the first day of the calendar year in which you attain age
35, if still employed.
Defined Contribution Plans (including 401(k) Plans and ERISA 403(b)
Annuities). Spousal consent to a distribution is generally not required. Upon
your death, your spouse will receive the entire Death Benefit, even if you
designated someone else as your Beneficiary, unless your spouse consents in
writing to waive this right. Also, if you are married and elect an annuity as
a periodic income option, federal law requires that you receive a QJSA (as
described above), unless you and your spouse consent to waive this right.
IRAs, non-ERISA 403(b) Annuities, and 457 Plans. Spousal consent to a
distribution usually is not required. Upon your death, any Death Benefit will
be paid to your designated Beneficiary.
GIFTS AND GENERATION-SKIPPING TRANSFERS
If you transfer your contract to another person for less than adequate
consideration, there may be gift tax consequences in addition to income tax
consequences. Also, 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.
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.
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OTHER INFORMATION
PRUCO LIFE AND THE SEPARATE ACCOUNT
PRUCO LIFE. Pruco Life Insurance Company (Pruco Life) is a stock life
insurance company organized in 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 1875.
Prudential is an indirect wholly-owned subsidiary of Prudential Financial,
Inc. (Prudential Financial), a New Jersey insurance holding company. No
company other than Pruco Life has any legal responsibility to pay amounts that
it owes under its annuity contracts. This means that where you participate in
an optional living benefit and the value of that benefit (e.g., the Protected
Withdrawal Value for Highest Daily Lifetime Income v2.1) exceeds your current
Account Value, you would rely solely on the ability of Pruco Life to make
payments under the benefit out of its own assets. As Pruco Life's ultimate
parent, Prudential Financial, however, exercises significant influence over
the operations and capital structure of Pruco Life.
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
Securities Exchange Act of 1934 (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 Pruco Life
Insurance Company, One Corporate Drive, Shelton, CT 06484 or by calling
800-752-6342. Pruco Life files periodic reports as required under the Exchange
Act. 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 202-551-8090. The SEC maintains an
Internet site that contains reports, proxy, and information statements, and
other information regarding issuers that file electronically with the SEC (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" or "administrators" under the Investment Company Act of
1940. The entities engaged by Pruco Life may change over time. As of
December 31, 2011, 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, Alerus Retirement Solutions (qualified plan
administrator), State Street Financial Center One, Lincoln Street, Boston, MA
02111, Aprimo (fulfillment of marketing materials), 510 East 96/th/ Street,
Suite 300, Indianapolis, IN 46240, Aplifi (order entry systems provider)
located at 555 SW 12/th/ Ave, Suite 202, Pompano Beach, FL 33069, Broadridge
Investor Communication Solutions, Inc. (proxy tabulation services), 51
Mercedes Way, Edgewood, NY 11717, Consona (maintenance and storage of
administrative documents), 333 Allegheny Avenue, Suite 301 North, Oakmont, PA
15139-2066, Depository Trust & Clearing Corporation (clearing and settlement
services), 55 Water Street, 26/th/ Floor, New York, NY 10041, DG3 North
America, Inc. (proxy and prospectus printing and mailing services), 100 Burma
Road, Jersey City, NJ 07305, DST Systems, Inc. (clearing and settlement
services), 4900 Main, 7/th/ Floor, Kansas City, MO 64112, EBIX, Inc.
(order-entry system), 5 Concourse Parkway, Suite 3200, Atlanta, GA 30328,
ExlService Holdings, Inc., (administration of annuity contracts), 350 Park
Avenue, 10/th/ Floor, New York, NY 10022, Diversified Information Technologies
Inc. (records management), 123 Wyoming Avenue, Scranton, PA 18503, Fiserv
(composition, printing and mailing of confirmation and quarterly statements),
881 Main Street, Manchester, CT 06040, Fosdick Fulfillment Corp. (fulfillment
of prospectuses and marketing materials), 26 Barnes Industrial Park Road,
North Wallingford, CT 06492, Insurance Technologies (annuity illustrations),
38120 Amrhein Ave., Livonia, MI 48150, Morningstar Associates LLC (asset
allocation recommendations) , 225 West Wacker Drive Chicago, IL 60606,
National Financial Services (clearing and settlement services), NEPS, LLC
(composition, printing, and mailing of contracts and benefit documents), 12
Manor Parkway, Salem, NJ 03079, Pershing LLC (order-entry systems provider),
One Pershing Plaza, Jersey City, NJ 07399, RR Donnelley Receivables, Inc.
(printing annual reports and prospectuses), 111 South Wacker Drive, Chicago,
IL 60606-4301, Skywire Software (composition, printing, and mailing of
contracts and benefit documents), 150 Post Street, Suite 500, San Francisco,
CA 94108, VG Reed & Sons, Inc. (printing and fulfillment of annual reports),
1002 South 12/th/ Street, Louisville, KY 40210, William B. Meyer (printing and
fulfillment of prospectuses and marketing materials), 255 Long Beach
Boulevard, Stratford, CT 06615, Right Now Technologies (business information
repository), 136 Enterprise Blvd, Bozeman, MT 59718, The Harty Press (print
vendor for client communications) 25 James Street, New Haven, CT 06513.
THE SEPARATE ACCOUNT. We have established a Separate Account, the Pruco Life
Flexible Premium Variable Annuity Account (Separate Account), to hold the
assets that are associated with the variable annuity contracts. The Separate
Account was established under Arizona law on June 16, 1995, and is registered
with the SEC under the Investment Company Act of 1940 as a unit investment
trust, which is a type of investment company. The assets of the Separate
Account are held in the name of Pruco Life and legally belong to us. These
assets are kept separate from all of our other assets and may not be charged
with liabilities arising
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out of any other business we may conduct. Income, gains, and losses, whether
or not realized, for assets allocated to the Separate Account are, in
accordance with the Annuities, credited to or charged against the Separate
Account without regard to other income, gains, or losses of Pruco Life. The
obligations under the Annuities are those of Pruco Life, which is the issuer
of the Annuities and the depositor of the Separate Account. More detailed
information about Pruco Life, including its audited consolidated financial
statements, is provided in the Statement of Additional Information.
We may offer new Sub-accounts, eliminate Sub-accounts, or combine Sub-accounts
at our sole discretion. We may also close Sub-accounts to additional Purchase
Payments on existing Annuities or close Sub-accounts for Annuities purchased
on or after specified dates. We will first notify you and receive any
necessary SEC and/or state approval before making such a change. If an
underlying mutual fund is liquidated, we will ask you to reallocate any amount
in the liquidated fund. If you do not reallocate these amounts, we will
reallocate such amounts only in accordance with guidance provided by the SEC
or its staff (or after obtaining an order from the SEC, if required). We
reserve the right to substitute underlying portfolios, as allowed by
applicable law. If we make a fund substitution or change, we may change the
Annuity contract to reflect the substitution or change. We do not control the
underlying mutual funds, so we cannot guarantee that any of those funds will
always be available.
If you are enrolled in a Dollar Cost Averaging, Automatic Rebalancing, or
comparable programs while an underlying fund merger, substitution or
liquidation takes place, unless otherwise noted in any communication from us,
your Account Value invested in such underlying fund will be transferred
automatically to the designated surviving fund in the case of mergers, the
replacement fund in the case of substitutions, and an available Money Market
Fund in the case of fund liquidations. Your enrollment instructions will be
automatically updated to reflect the surviving fund, the replacement fund or a
Money Market Fund for any continued and future investments.
With the DCA MVA Options, we use a separate account of Pruco Life different
from the Pruco Life Flexible Premium Variable Annuity Account discussed above.
This separate account is not registered under the Investment Company Act of
1940. Moreover, you do not participate in the appreciation or depreciation of
the assets held by that separate account.
SERVICE FEES PAYABLE TO PRUCO LIFE
Pruco Life and/or our affiliates receive substantial and varying
administrative service payments, Rule 12b-1 fees, and "revenue sharing"
payments from certain underlying Portfolios or related parties. Rule 12b-1
fees compensate our affiliated principal underwriter for shareholder services
and distribution expenses. Administrative services payments compensate us for
providing administrative services with respect to Annuity Owners invested
indirectly in the Portfolio, which include duties such as recordkeeping
shareholder services, and the mailing of periodic reports. We receive
administrative services fees with respect to both affiliated underlying
Portfolios and unaffiliated underlying Portfolios. The administrative services
fees we receive from affiliates originate from the assets of the affiliated
Portfolio itself and/or the assets of the Portfolio's investment advisor. In
recognition of the administrative services provided by the relevant affiliated
insurance companies, the investment advisors to certain affiliated Portfolios
also make "revenue sharing" payments to such affiliated insurance companies.
In any case, the existence of these payments tends to increase the overall
cost of investing in the Portfolio. In addition, because these payments are
made to us, allocations you make to these affiliated underlying Portfolios
benefit us financially.
We collect these payments and fees under agreements between us and a
Portfolio's principal underwriter, transfer agent, investment advisor and/or
other entities related to the Portfolio.
The 12b-1 fees and administrative services fees that we receive may vary among
the different fund complexes that are part of our investment platform. Thus,
the fees we collect may be greater or smaller, based on the Portfolios that
you select. In addition, we may consider these payments and fees, among a
number of factors, when deciding to add or keep a Portfolio on the "menu" of
Portfolios that we offer through the Annuity. Please see the table entitled
"Underlying Mutual Fund Portfolio Annual Expenses" earlier in this prospectus
for a listing of the Portfolios that pay a 12b-1 fee.
With respect to administrative services fees, the maximum fee (as of
December 31, 2011) that we receive is equal to 0.40% of the average assets
allocated to the Portfolio(s) under the Annuity. We expect to make a profit on
these fees.
In addition, an investment advisor, sub-advisor or distributor of the
underlying Portfolios may also compensate us by providing reimbursement,
defraying the costs of, or paying directly for, among other things, marketing
and/or administrative services and/or other services they provide in
connection with the Annuity. These services may include, but are not limited
to: sponsoring or co-sponsoring various promotional, educational or marketing
meetings and seminars attended by distributors, wholesalers, and/or broker
dealer firms' registered representatives, and creating marketing material
discussing the contract, available options, and underlying Portfolios. The
amounts paid depend on the nature of the meetings, the number of meetings
attended by the advisor, sub-advisor, or distributor, the number of
participants and attendees at the meetings, the costs expected to be incurred,
and the level of the advisor's, sub-advisor's or distributor's participation.
These payments or reimbursements may not be offered by all advisors,
sub-advisors, or distributors, and the amounts of such payments may vary
between and among each advisor, sub-advisor, and distributor depending on
their respective participation.
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During 2011, with regard to amounts that were paid under these kinds of
arrangements described immediately above, the amounts ranged from
approximately $125 to approximately $789,756. These amounts may have been paid
to one or more Prudential-affiliated insurers issuing individual variable
annuities.
LEGAL STRUCTURE OF THE UNDERLYING FUNDS
Each underlying mutual fund is registered as an open-end management investment
company under the Investment Company Act of 1940. Shares of the underlying
mutual fund Portfolios are sold to Separate Accounts of life insurance
companies offering variable annuity and variable life insurance products. The
shares may also be sold directly to qualified pension and retirement plans.
VOTING RIGHTS
We are the legal Owner of the shares of the underlying mutual funds in which
the Sub-accounts invest. However, under current SEC rules, you have voting
rights in relation to Account Value maintained in the Sub-accounts. If an
underlying mutual fund portfolio requests a vote of shareholders, we will vote
our shares based on instructions received from Owners with Account Value
allocated to that Sub-account. Owners have the right to vote an amount equal
to the number of shares attributable to their contracts. If we do not receive
voting instructions in relation to certain shares, we will vote those shares
in the same manner and proportion as the shares for which we have received
instructions. This voting procedure is sometimes referred to as "mirror
voting" because, as indicated in the immediately preceding sentence, we mirror
the votes that are actually cast, rather than decide on our own how to vote.
We will also "mirror vote" shares that are owned directly by us or an
affiliate (excluding shares held in the separate account of an affiliated
insurer). In addition, because all the shares of a given mutual fund held
within our Separate Account are legally owned by us, we intend to vote all of
such shares when that underlying fund seeks a vote of its shareholders. As
such, all such shares will be counted towards whether there is a quorum at the
underlying fund's shareholder meeting and towards the ultimate outcome of the
vote. Thus, under "mirror voting", it is possible that the votes of a small
percentage of contract holders who actually vote will determine the ultimate
outcome. We will furnish those Owners who have Account Value allocated to a
Sub-account whose underlying mutual fund portfolio has requested a "proxy"
vote with proxy materials and the necessary forms to provide us with their
voting instructions. Generally, you will be asked to provide instructions for
us to vote on matters such as changes in a fundamental investment strategy,
adoption of a new investment advisory agreement, or matters relating to the
structure of the underlying mutual fund that require a vote of shareholders.
We reserve the right to change the voting procedures described above if
applicable SEC rules change.
Advanced Series Trust (the "Trust") has obtained an exemption from the
Securities and Exchange Commission that permits its co-investment advisers,
AST Investment Services, Inc. and Prudential Investments LLC, subject to
approval by the Board of Trustees of the Trust, to change sub-advisors for a
Portfolio and to enter into new sub-advisory agreements, without obtaining
shareholder approval of the changes. This exemption (which is similar to
exemptions granted to other investment companies that are organized in a
similar manner as the Trust) is intended to facilitate the efficient
supervision and management of the sub-advisors by AST Investment Services,
Inc., Prudential Investments LLC and the Trustees. The exemption does not
apply to the AST Franklin Templeton Founding Funds Allocation Portfolio;
shareholder approval of new subadvisory agreements for this Portfolio only is
required. The Trust is required, under the terms of the exemption, to provide
certain information to shareholders following these types of changes. We may
add new Sub-accounts that invest in a series of underlying funds other than
the Trust. Such series of funds may have a similar order from the SEC. You
also should review the prospectuses for the other underlying funds in which
various Sub-accounts invest as to whether they have obtained similar orders
from the SEC.
MATERIAL CONFLICTS
It is possible that differences may occur between companies that offer shares
of an underlying mutual fund portfolio to their respective Separate Accounts
issuing variable annuities and/or variable life insurance products.
Differences may also occur surrounding the offering of an underlying mutual
fund portfolio to variable life insurance policies and variable annuity
contracts that we offer. Under certain circumstances, these differences could
be considered "material conflicts," in which case we would take necessary
action to protect persons with voting rights under our variable annuity
contracts and variable life insurance policies against persons with voting
rights under other insurance companies' variable insurance products. If a
"material conflict" were to arise between Owners of variable annuity contracts
and variable life insurance policies issued by us we would take necessary
action to treat such persons equitably in resolving the conflict. "Material
conflicts" could arise due to differences in voting instructions between
Owners of variable life insurance and variable annuity contracts of the same
or different companies. We monitor any potential conflicts that may exist.
CONFIRMATIONS, STATEMENTS, AND REPORTS
We send any statements and reports required by applicable law or regulation to
you at your last known address of record. You should therefore give us prompt
notice of any address change. We reserve the right, to the extent permitted by
law and subject to your prior consent, to provide any prospectus, prospectus
supplements, confirmations, statements and reports required by applicable law
or regulation to you through our Internet Website at
www.prudentialannuities.com or any other electronic means, including diskettes
or CD ROMs. We generally send a confirmation statement to you each time a
financial transaction is made affecting Account Value, such as making
additional Purchase Payments, transfers, exchanges or withdrawals. We also
send quarterly statements detailing the activity affecting your Annuity during
the calendar quarter, if there have been transactions during the quarter. We
may confirm certain regularly scheduled transactions, including, but not
limited to the Annual Maintenance Fee,
84
systematic withdrawals (including 72(t)/72(q) payments and Required Minimum
Distributions), electronic funds transfer, Dollar Cost Averaging, auto
rebalancing, and Premium Based Charges in quarterly statements instead of
confirming them immediately. You should review the information in these
statements carefully. You may request additional reports or copies of reports
previously sent. We reserve the right to charge $50 for each such additional
or previously sent report, but may waive that charge in the future. We will
also send an annual report and a semi-annual report containing applicable
financial statements for the portfolios to Owners or, with your prior consent,
make such documents available electronically through our Internet Website or
other electronic means.
DISTRIBUTION OF ANNUITIES OFFERED BY PRUCO LIFE
Prudential Annuities Distributors, Inc. (PAD), a wholly-owned subsidiary of
Prudential Annuities, Inc., is the distributor and principal underwriter of
the annuity 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
Annuity is offered on a continuous basis. PAD enters into distribution
agreements with broker/dealers who are registered under the Exchange Act and
with entities that may offer the Annuities but are exempt from registration
(firms). Applications for each Annuity are solicited by registered
representatives of those firms. Such representatives will also be our
appointed insurance agents under state insurance law. In addition, PAD may
offer the Annuity directly to potential purchasers.
Under the selling agreements, commissions are paid to firms on sales of the
Annuity according to one or more schedules. The registered representative will
receive all or 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%. In addition, we may pay trail
commissions, equal to a percentage of the average account value or based on
other criteria. We may also provide compensation to the distributing firm for
providing ongoing service to you in relation to the Annuity. Commissions and
other compensation paid in relation to the Annuity do not result in any
additional charge to you or to the Separate Account. Compensation varies by
annuity product, and such differing compensation could be a factor in which
annuity a Financial Professional recommends to you.
In addition, in an effort to promote the sale of our products (which may
include the placement of Pruco Life and/or our annuities generally 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/dealers 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 to us or our affiliates. These services may include, but
are not limited to: educating customers of the firm on an annuity's features;
conducting due diligence and analysis; providing office access, operations and
systems support; holding seminars intended to educate registered
representatives and make them more knowledgeable about our annuities;
providing a dedicated marketing coordinator; providing priority sales desk
support; and providing expedited marketing compliance approval and preferred
programs to PAD. 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. In addition, we
or our affiliates may provide such compensation, payments and/or incentives to
firms arising out of the marketing, sale and/or servicing of variable
annuities or life insurance offered by different Prudential business units.
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
assets, subject to certain criteria in certain Pruco Life products.
. 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.
. Fixed Payments: These types of payments are made directly to or in
sponsorship of the firm.
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 registered
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 periodically
during the 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, 2011) received payment
with respect to our annuity business generally during 2011 (or as to which a
payment amount was accrued during 2011). Because this Annuity is new, the list
below does not reflect amounts paid with respect to the sale of this Annuity.
The firms listed below include those receiving payments in connection with
marketing of products issued by Pruco Life Insurance Company and Pruco Life
Insurance Company of New Jersey. Your Financial Professional can provide you
with more information about the compensation arrangements that apply upon
request. During 2011, the least amount paid, and greatest amount paid, were
$19.35 and $6,443,077.91, respectively.
85
NAME OF FIRM:
1st Global Capital Corp.
1934 Group
Aaron Industries
Advantage Fire Sprinkler Co.
Aegon Transamerica
A.G. Edwards & Sons, Inc.
Afore ING
AIG Financial Advisors Inc
Allen & Company of Florida, Inc.
Alliance Bernstein L.P.
Allstate Financial Srvcs, LLC
American Century
American Independent Marketing
AMERICAN PORTFOLIO FIN SVCS INC
Ameriprise Financial, Inc. Total
Ameritas Investment Corp.
ANCHOR BAY SECURITIES, LLC
ARETE WEALTH MANAGEMENT
Arlington Securities, Inc.
Arque Capital, Ltd.
ARVEST ASSET MANAGEMENT
ASKAR CORPORATION
AUSDAL FINANCIAL PARTNERS, INC.
AXA Advisors, LLC
BancorpSouth Investment Services, Inc.
Banc of America Invest.Svs(SO)
BBVA Compass Investment Solutions, Inc.
Ballew Investments
Bank of the West
Battery Ventures
BB&T Investment Services, Inc.
BCG Companies
BCG Securities, Inc.
Beaconsfield Financial Services
Berthel Fisher & Company
BlackRock Financial Management Inc.
Broker Dealer Financial Services
Brookstone Financial Services
Brown Builders
Cadaret, Grant & Co., Inc.
Calton & Associates, Inc.
Cambridge Investment Research, Inc.
Cambridge Legacy Securities, LLC
Cantella & Co., Inc.
CAPE SECURITIES, INC.
Capital Advisors
Capital Analysts
Capital Financial Services, Inc.
CAPITAL GROWTH RESOURCES
Capital Guardian
Capital Investment Group, Inc.
Capital One Investment Services, LLC
Capital Securities Management
Castner Josephs Retirement Group
CBIZ
CCF Investments, Inc.
Centaurus Financial, Inc.
CFD Investments, Inc.
Charter One Bank (Cleveland)
Chase Investment Services
Citigroup Global Markets Inc.
Citizens Bank and Trust Company
Clairmont Oaks
CLS Investments
COMERICA SECURITIES, INC.
Commonwealth Financial Network
Compak Securities
Compass Bank Wealth Management Group
Crescent Securities Group
Crown Capital Securities, L.P.
CUNA Brokerage Svcs, Inc.
CUSO Financial Services, L.P.
D.A. Davidson
David A. Noyes & Company
Delta Equity
Dempsey Lord Smith, LLC
Deutsche Bank
DeWaay Financial Network, LLC
Eaton Vance
EDI Financial
Edward Jones & Co.
ELLIOTT DAVIS BROKERAGE SERVICES, LLC
Equitrust
Equity Services, Inc.
ESSEX FINANCIAL SERVICES, INC.
Evergreen Consulting
Federated Investors
Fidelity Investments
Fifth Third Securities, Inc.
FINANCIAL ADVISERS OF AMERICA LLC
Financial Network Investment
Financial Planning Consultants
Financial Security Management, Inc.
Financial Telesis Inc.
Financial West Group
Fintegra, LLC
First Allied Securities Inc
First American Insurance Underwriters (FAIU)
First Brokerage America, LLC
FIRST CITIZENS INVESTOR SERVICES INC
First Financial Equity Corp.
First Heartland Capital, Inc.
First Merit Investments
First Southeast Investor Services
First State Financial Management
First Tennessee Brokerage, Inc
First Trust Portfolios L.P.
First Western Advisors
Florida Investment Advisers
Foothill Securities, Inc.
Forrester Research
Fortune Financial Services, Inc.
Franklin Templeton
FROST BROKERAGE SERVICES
FSC Securities Corp.
G.A. Repple & Company
GATX Southern Star Agency
Garden State Securities, Inc.
Gary Goldberg & Co., Inc.
Geneos Wealth Management, Inc.
Genworth Financial Securities Corporation
Girard Securities, Inc.
Golden Years Advisors
Goldman Sachs & Co.
Great American Advisors, Inc.
Great American Investors, Inc.
GWN Securities, Inc.
H. Beck, Inc.
HBW SECURITIES LLC
HD Associates
H.D. Vest Investment
Hantz Financial Services,Inc.
HARBOR FINANCIAL SERVICES LLC
Harbour Investments, Inc.
Harmon Dennis Bradshaw
Hartford Life Insurance Company
Harvest Capital, LLC
Hazard & Siegel, Inc.
Heim, Young & Associates, Inc.
Horizon Investments
Hornor, Townsend & Kent, Inc.
HSBC
Huntleigh Securities
ICC
IMS Securities
Independent Financial Grp, LLC
IFS (Industry Fund Services)
Impact Speakers
Infinex Investments, Inc.
ING Financial Partners, LLC
Institutional Securities Corp.
INTERCAROLINA FINANCIAL SERVICES, INC.
Intersecurities, Inc
Intervest International Equities Corp.
Invest Financial Corporation
Investacorp
Investment Centers of America
Investment Professionals
Investors Capital Corporation
Investors Security Co, Inc.
ISG Equity Sales
JHS Capital
J.J.B. Hilliard Lyons, Inc.
J.P. Morgan
J.P. Turner & Company, LLC
86
J.W. Cole Financial, Inc.
Jack Cramer & Associates
Janney Montgomery Scott, LLC.
Jennison Associates, LLC
John Hancock
Key Bank
KEY INVESTMENT SERVICES LLC
Klosterman Baking
KMS Financial Services, Inc.
Kovack Securities, Inc.
LaSalle St. Securities, LLC
Leaders Group Inc.
Legend Equities Corporation
Legg Mason
Leigh Baldwin & Company, LLC
Lincoln Financial Advisors
Lincoln Financial Securities Corporation
Lincoln Investment Planning
Lord Abbett
LPL Financial Corporation
LSG Financial Services
M3 Insurance Solutions, Inc.
M Holdings Securities, Inc
Main Street Securities, LLC
Mason Wells
Merrill Lynch, P,F,S
Merritt Wealth Strategies
MetLife
MFS
Michigan Securities, Inc.
Mid-Atlantic Capital Corp.
Milkie Ferguson Investments
MML Investors Services, Inc.
Money Concepts Capital Corp.
Montgomery Agency
Morgan Keegan & Company
Morgan Stanley Smith Barney
MTL Equity Products, Inc.
Multi Financial Securities Crp
National Planning Corporation
National Securities Corp.
Nationwide Securities, LLC
Navigator Financial
Neuberger Berman
New Alliance Bank
New England Securities Corp.
New York Life
Newbridge Securities Corp.
Newport Coast Securities
Next Financial Group, Inc.
NFP Securities, Inc.
North Ridge Securities Corp.
NPB Financial Group, LLC
OneAmerica Securities, Inc.
One Resource Group
OPPENHEIMER & CO, INC.
Pacific West Securities, Inc.
Packerland Brokerage Services, Inc.
Park Avenue Securities, LLC
Paulson Investment Co., Inc.
PIMCO
PlanMember Securities Corp.
PNC Investments, LLC
Presidential Brokerage, Inc.
Prime Capital Services, Inc.
PRIMEVEST FINANCIAL SERVICES
Principal Financial Group
Princor Financial Services Corp.
Private Client Services, LLC
ProEquities
Prospera Financial Services, Inc.
Pruco Securities, LLC
Purshe Kaplan Sterling Investments
QA3 Financial Corp.
Quest Financial Services
Questar Capital Corporation
Raymond James & Associates
Raymond James Financial Svcs
RBC CAPITAL MARKETS CORPORATION
Resource Horizons Group
Ridgeway & Conger, Inc.
RNR Securities, LLC
Robert W. Baird & Co., Inc.
Royal Alliance Associates
Royal Bank of Scotland
Sagemark Consulting
SAGEPOINT FINANCIAL, INC.
Sage Rutty & Co., Inc.
Sammons Securities Co., LLC
Sanders Morris Harris Inc.
SAUNDERS RETIREMENT ADVISORS INC
SCF Securities, Inc.
Schroders Investment Management
Scott & Stringfellow, Inc.
Seacoast Capital
Securian Financial Svcs, Inc.
Securities America, Inc.
Securities Service Network
Sigma Financial Corporation
Signator Investors, Inc.
SII Investments, Inc.
Silver Oaks Securities
SMH Capital, Inc.
Southwest Securities, Inc.
SPIRE SECURITIES LLC
STERLING MONROE SECURITIES LLC
Sterne Agee Financial Services, Inc.
Stifel Nicolaus & Co.
STRATEGIC FIN ALLIANCE INC
Summit Brokerage Services, Inc
Summit Equities, Inc.
Summit Financial
Sunset Financial Services, Inc
SunTrust Investment Services, Inc.
SWBC Investment Services
SWS Financial Services, Inc
SYMETRA INVESTMENT SERVICES INC
Syndicated
T. Rowe Price Group, Inc.
TFS Securities, Inc.
The Capital Group Securities, Inc.
The Investment Center
The O.N. Equity Sales Co.
The Prudential Insurance Company of America
The Wharton School
Tower Square Securities, Inc.
TransAmerica Financial Advisors, Inc.
Triad Advisors, Inc.
Trustmont Financial Group, Inc.
UBS Financial Services, Inc.
UNIONBANC INVESTMENT SERV, LLC
United Planners Fin. Serv.
USA Financial Securities Corp.
US Bank
UVEST Fin'l Srvcs Group, Inc.
VALIC Financial Advisors, Inc
Valmark Securities, Inc.
Veritrust Financial LLC
VFinance Investments
VSR Financial Services, Inc.
WADDELL & REED INC.
Wall Street Financial Group
Walnut Street Securities, Inc.
WAYNE HUMMER INVESTMENTS LLC
Wedbush Morgan Securities
Wells Fargo Advisors LLC
WELLS FARGO ADVISORS LLC - WEALTH
WFG Investments, Inc.
Wilbanks Securities, Inc.
Williams Financial Group
Woodbury Financial Services
Woodstock Financial
Workman Securities Corporation
World Equity Group, Inc.
World Group Securities, Inc.
WRP Investments, Inc
87
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 Financial Professional can provide you with more
information about the compensation arrangements that apply upon request.
FINANCIAL STATEMENTS
The financial statements of the Separate Account and Pruco Life are included
in the Statement of Additional Information.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Securities Act") may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, the
registrant has been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
LEGAL PROCEEDINGS
We are subject to legal and regulatory actions in the ordinary course of our
business. Our pending legal and regulatory actions include proceedings
specific to us and proceedings generally applicable to business practices in
the industry in which we operate. We are subject to class action lawsuits and
other litigation involving a variety of issues and allegations involving sales
practices, claims payment and procedures, premium charges, policy servicing
and breach of fiduciary duty to customers. We are also subject to litigation
arising out of our general business activities, such as our investments,
contracts, leases and labor and employment relationships, including claims of
discrimination and harassment, and could be exposed to claims or litigation
concerning certain business or process patents. In some of the pending legal
and regulatory actions, plaintiffs are seeking large and/or indeterminate
amounts, including punitive or exemplary damages. In addition, we, along with
other participants in the businesses in which we engage, may be subject from
time to time to investigations, examinations and inquiries, in some cases
industry-wide, concerning issues or matters upon which such regulators have
determined to focus. In some of our pending legal and regulatory actions,
parties are seeking large and/or indeterminate amounts, including punitive or
exemplary damages. The outcome of a litigation or a regulatory matter, and the
amount or range of potential loss at any particular time, is often inherently
uncertain.
Pruco Life establishes accruals for litigation and regulatory matters when it
is probable that a loss has been incurred and the amount of that loss can be
reasonably estimated. For litigation and regulatory matters where a loss may
be reasonably possible, but not probable, or is probable but not reasonably
estimable, no accrual is established, but the matter, if material, is
disclosed, including matters discussed below. As of September 30, 2012, the
aggregate range of reasonably possible losses in excess of accruals
established is not currently estimable. Pruco Life reviews relevant
information with respect to its litigation and regulatory matters on a
quarterly and annual basis and updates its accruals, disclosures and estimates
of reasonably possible loss based on such reviews.
In December 2010, a purported state-wide class action complaint, Phillips v.
Prudential Financial, Inc., was filed in the Circuit Court of the First
Judicial Circuit, Williamson County, Illinois. The complaint makes claims of
breach of contract, breaches of fiduciary duty, and violation of Illinois law
on behalf of a class of Illinois residents whose death benefits were settled
by retained assets accounts and seeks damages and disgorgement of profits. In
January 2011, the case was removed to the United States District Court for the
Southern District of Illinois. In March 2011, the complaint was amended to
drop Prudential Financial as a defendant and add Pruco Life as a defendant.
The matter is now captioned Phillips v. Prudential Insurance and Pruco Life
Insurance Company. In April 2011, a motion to dismiss the amended complaint
was filed. In November 2011, the complaint was dismissed and the dismissal
appealed in December 2011.
In July 2010, Pruco Life, along with other life insurance industry
participants, received a formal request for information from the State of New
York Attorney General's Office in connection with its investigation into
industry practices relating to the use of retained asset accounts. In August
2010, Pruco Life received a similar request for information from the State of
Connecticut Attorney General's Office. Pruco Life is cooperating with these
investigations. Pruco Life has also been contacted by state insurance
regulators and other governmental entities, including the U.S. Department of
Veterans Affairs and Congressional committees regarding retained asset
accounts. These matters may result in additional investigations, information
requests, claims, hearings, litigation, adverse publicity and potential
changes to business practices.
In January 2012, a qui tam action on behalf of the State of Illinois, Total
Asset Recovery Services v. Met Life Inc, et al., Prudential Financial, Inc.,
The Prudential Insurance Company of America, and Prudential Holdings, LLC,
filed in the Circuit Court of Cook County, Illinois, was served on Pruco Life.
The complaint alleges that Pruco Life failed to escheat life insurance
proceeds to the State of Illinois in violation of the Illinois False Claims
Whistleblower Reward and Protection Act and seeks injunctive relief,
compensatory damages, civil penalties, treble damages, prejudgment interest,
attorneys' fees and costs. In April, 2012, Pruco Life filed a motion to
dismiss the complaint. In September 2012, the complaint was withdrawn without
prejudice. In March 2012, a qui tam action on behalf of the State of
Minnesota, Total Asset Recovery v. MetLife Inc., et al., Prudential Financial
Inc., The Prudential Insurance Company of America and Prudential Holdings,
Inc., filed in the Fourth Judicial District, Hennepin County, in the State of
Minnesota was served on Pruco Life. The complaint alleges that Pruco Life
failed to escheat life insurance proceeds
88
to the State of Minnesota in violation of the Minnesota False Claims Act and
seeks injunctive relief, compensatory damages, civil penalties, treble
damages, prejudgment interest, attorneys' fees and costs. In June 2012, the
company filed a motion to dismiss the complaint.
In January 2012, a Global Resolution Agreement entered into by Pruco Life and
a third party auditor became effective upon its acceptance by the unclaimed
property departments of 20 states and jurisdictions. Under the terms of the
Global Resolution Agreement, the third party auditor acting on behalf of the
signatory states will compare expanded matching criteria to the Social
Security Master Death File ("SSMDF") to identify deceased insureds and
contract holders where a valid claim has not been made. In February 2012, a
Regulatory Settlement Agreement entered into by Pruco Life to resolve a
multi-state market conduct examination regarding its adherence to state claim
settlement practices became effective upon its acceptance by the insurance
departments of 20 states and jurisdictions. The Regulatory Settlement
Agreement applies prospectively and requires Pruco Life to adopt and implement
additional procedures comparing its records to the SSMDF to identify unclaimed
death benefits and prescribes procedures for identifying and locating
beneficiaries once deaths are identified. Other jurisdictions that are not
signatories to the Regulatory Settlement Agreement are considering proposals
that would apply prospectively and require life insurance companies to take
additional steps to identify unreported deceased policy and contract holders.
These prospective changes and any escheatable property identified as a result
of the audits and inquiries could result in: (1) additional payments of
previously unclaimed death benefits; (2) the payment of abandoned funds to
U.S. jurisdictions; and (3) changes in Pruco Life's practices and procedures
for the identification of escheatable funds and beneficiaries, which would
impact claim payments and reserves, among other consequences.
Pruco Life is one of several companies subpoenaed by the New York Attorney
General regarding its unclaimed property procedures. Additionally, the New
York Department of Financial Services ("NYDFS") has requested that 172 life
insurers (including Pruco Life) provide data to the NYDFS regarding use of the
SSMDF. The New York Office of Unclaimed Funds recently notified Pruco Life
that it intends to conduct an audit of Pruco Life's compliance with New York's
unclaimed property laws. The Minnesota Attorney General has also requested
information regarding Pruco Life's use of the SSMDF and its claim handling
procedures and Pruco Life is one of several companies subpoenaed by the
Minnesota Department of Commerce, Insurance Division. In February 2012, the
Massachusetts Office of the Attorney General requested information regarding
Pruco Life's unclaimed property procedures.
In October 2012, the State of West Virginia, through its State Treasurer,
filed a lawsuit, State of West Virginia ex. Rel. John D. Perdue v. PRUCO Life
Insurance Company, in the Circuit Court of Putnam County, West Virginia. The
complaint alleges violations of the West Virginia Uniform Unclaimed Property
Fund Act by failing to properly identify and report all unclaimed insurance
policy proceeds which should either be paid to beneficiaries or escheated to
West Virginia. The complaint seeks to examine the records of Prudential
Insurance to determine compliance with the West Virginia Uniform Unclaimed
Property Fund Act, and to assess penalties and costs in an undetermined amount.
Pruco Life's litigation and regulatory matters are subject to many
uncertainties, and given their complexity and scope, their outcome cannot be
predicted. It is possible that Pruco Life's results of operations or cash flow
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.
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The following are the contents of the Statement of Additional Information:
.. Company
.. Experts
.. Principal Underwriter
.. Payments Made to Promote Sale of Our Products
.. Determination of Accumulation Unit Values
.. Financial Statements
89
HOW TO CONTACT US
You can contact us by:
.. calling our Customer Service Team at 1-888-PRU-2888 during our normal
business hours,
.. 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.
.. writing to us via overnight mail, certified, or registered mail delivery at
the Prudential Annuity Service Center, 2101 Welsh Road, Dresher, PA 19025.
.. accessing information about your Annuity through our Internet Website at
www.prudentialannuities.com.
You can obtain account information by calling our automated response system
and at www.prudentialannuities.com, our Internet Website. Our Customer Service
representatives are also available during business hours to provide you with
information about your account. You can request certain transactions through
our telephone voice response system, our Internet Website or through a
customer service representative. You can provide authorization for a third
party, including your attorney-in-fact acting pursuant to a power of attorney,
to access your account information and perform certain transactions on your
account. You will need to complete a form provided by us which identifies
those transactions that you wish to authorize via telephonic and electronic
means and whether you wish to authorize a third party to perform any such
transactions. Please note that unless you tell us otherwise, we deem that all
transactions that are directed by your Financial Professional with respect to
your Annuity have been authorized by you. We require that you or your
representative provide proper identification before performing transactions
over the telephone or through our Internet Website. This may include a
Personal Identification Number (PIN) that will be provided to you upon issue
of your Annuity or you may establish or change your PIN by calling our
automated response system and at www.prudentialannuities.com, our Internet
Website. Any third party that you authorize to perform financial transactions
on your account will be assigned a PIN for your account.
Transactions requested via telephone are recorded. To the extent permitted by
law, we will not be responsible for any claims, loss, liability or expense in
connection with a transaction requested by telephone or other electronic means
if we acted on such transaction instructions after following reasonable
procedures to identify those persons authorized to perform transactions on
your Annuity using verification methods which may include a request for your
Social Security number, PIN or other form of electronic identification. We may
be liable for losses due to unauthorized or fraudulent instructions if we did
not follow such procedures.
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. Nor, due to circumstances beyond our
control, can we provide any assurances as to the delivery of transaction
instructions submitted to us by regular and/or express mail. Regular and/or
express mail (if operational) 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.
90
APPENDIX A - ACCUMULATION UNIT VALUES
Here, we set forth historical Unit values.
PREMIER RETIREMENT VARIABLE ANNUITY
PRUCO LIFE INSURANCE COMPANY
PROSPECTUS
ACCUMULATION UNIT VALUES: BASIC DEATH BENEFIT ONLY (0.85%)
A-1
A-2
* Denotes the start date of these sub-accounts
A-3
APPENDIX B - FORMULA FOR HIGHEST DAILY LIFETIME INCOME V2.1 SUITE OF BENEFITS
TRANSFERS OF ACCOUNT VALUE BETWEEN YOUR PERMITTED SUB-ACCOUNTS AND THE AST
INVESTMENT GRADE BOND SUB-ACCOUNT
TERMS AND DEFINITIONS REFERENCED IN THE CALCULATION FORMULAS:
. C\\u\\ - the upper target is established on the effective date of the
Highest Daily Lifetime Income v2.1 Suite of benefits (the "Effective
Date") and is not changed for the life of the guarantee. Currently, it
is 83%.
. C\\us\\ - The secondary upper target is established on the Effective
Date and is not changed for the life of the guarantee. Currently it is
84.5%
. C\\t\\ - the target is established on the Effective Date and is not
changed for the life of the guarantee. Currently, it is 80%.
. C\\l\\ - the lower target is established on the Effective Date and is
not changed for the life of the guarantee. Currently, it is 78%.
. L - the target value as of the current Valuation Day.
. r - the target ratio.
. a - factors used in calculating the target value. These factors are
established on the Effective Date and are not changed for the life of
the guarantee. (See below for the table of "a" factors)
. V\\v\\ - the total value of all Permitted Sub-accounts in the Annuity.
. V\\F\\ - the Unadjusted Account Value of all elected DCA MVA Options in
the Annuity.
. B - the total value of the AST Investment Grade Bond Portfolio
Sub-account.
. P - Income Basis. Prior to the first Lifetime Withdrawal, the Income
Basis is equal to the Protected Withdrawal Value calculated as if the
first Lifetime Withdrawal were taken on the date of calculation. After
the first Lifetime Withdrawal, the Income Basis is equal to the greater
of (1) the Protected Withdrawal Value on the date of the first Lifetime
Withdrawal, increased for additional Purchase Payments and adjusted
proportionally for Excess Income*, and (2) the Protected Withdrawal
Value on any Annuity Anniversary subsequent to the first Lifetime
Withdrawal, increased for subsequent additional Purchase Payments and
adjusted proportionately for Excess Income* and (3) any highest daily
Unadjusted Account Value occurring on or after the later of the
immediately preceding Annuity anniversary, or the date of the first
Lifetime Withdrawal, and prior to or including the date of this
calculation, increased for additional Purchase Payments and adjusted for
withdrawals, as described herein.
. T - the amount of a transfer into or out of the AST Investment Grade
Bond Portfolio Sub-account.
. T\\M\\ - the amount of a monthly transfer out of the AST Investment
Grade Bond Portfolio.
* Note: Lifetime Withdrawals of less than or equal to the Annual Income
Amount do not reduce the Income Basis.
DAILY TARGET VALUE CALCULATION:
On each Valuation Day, a target value (L) is calculated, according to the
following formula. If (V\\V\\ + V\\F\\) is equal to zero, no calculation is
necessary. Target Values are subject to change for new elections of this
benefit on a going-forward basis.
DAILY TRANSFER CALCULATION:
The following formula, which is set on the Benefit Effective Date and is not
changed for the life of the guarantee, determines when a transfer is required:
B-1
. If on the third consecutive Valuation Day r (greater than) C\\u\\
and r (less or =) C\\us\\ or if on any day r (greater than) C\\us\\,
and transfers have not been suspended due to the 90% cap rule,
assets in the Permitted Sub-accounts and the DCA MVA Options, if
applicable, are transferred to the AST Investment Grade Bond
Portfolio Sub-account.
. If r (less than) C\\l\\, and there are currently assets in the AST
Investment Grade Bond Portfolio Sub-account (B (greater than) 0),
assets in the AST Investment Grade Bond Portfolio Sub-account are
transferred to the Permitted Sub-accounts as described above.
90% CAP RULE: If, on any Valuation Day this benefit remains in effect, a
transfer into the AST Investment Grade Bond Portfolio Sub-account occurs that
results in 90% of the Unadjusted Account Value being allocated to the AST
Investment Grade Bond Portfolio Sub-account, any transfers into the AST
Investment Grade Bond Portfolio Sub-account will be suspended, even if the
formula would otherwise dictate that a transfer into the AST Investment Grade
Bond Portfolio Sub-account should occur. Transfers out of the AST Investment
Grade Bond Portfolio Sub-account and into the elected Sub-accounts will still
be allowed. The suspension will be lifted once a transfer out of the AST
Investment Grade Bond Portfolio Sub-account occurs either due to a Daily or
Monthly Transfer Calculation. Due to the performance of the AST Investment
Grade Bond Portfolio Sub-account and the elected Sub-accounts, the Unadjusted
Account Value could be more than 90% invested in the AST Investment Grade Bond
Portfolio Sub-account.
The following formula, which is set on the Benefit Effective Date and is not
changed for the life of the guarantee, determines the transfer amount:
MONTHLY TRANSFER CALCULATION
On each monthly anniversary of the Annuity Issue Date and following the daily
Transfer Calculation above, the following formula determines if a transfer
from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts
will occur:
If, after the daily Transfer Calculation is performed,
{Min (B, .05 * (V\\V\\ + V\\F\\ + B))} (less than) (C\\u\\ * (V\\V\\ + V\\F\\)
- L + B) / (1 - C\\u\\), then
B-2
"A" FACTORS FOR LIABILITY CALCULATIONS
(in Years and Months since Benefit Effective Date)*
* The values set forth in this table are applied to all ages.
** In all subsequent years and months thereafter, the annuity factor is 4.06
B-3
APPENDIX C - SPECIAL CONTRACT PROVISIONS FOR ANNUITIES ISSUED IN CERTAIN STATES
Certain features of your Annuity may be different than the features described
earlier in this prospectus, if your Annuity is issued in certain states
described below. Further variations may arise in connection with additional
state reviews.
C-1
APPENDIX D - MVA FORMULA
MVA FORMULA FOR 6 OR 12 MONTH DCA MVA OPTIONS
The MVA formula is applied separately to each DCA MVA Option to determine the
Account Value of the DCA MVA Option on a particular date.
The Market Value Adjustment Factor applicable to the DCA MVA Options we make
available is as follows:
MVA Factor = [(1+i)/(1+j+k)]/n/12/
If the "Treasury constant maturities nominal 12" rates available through
Federal Reserve Statistical Release H. 15 should become unavailable at any
time, or if the rate for a 1-month maturity should become unavailable through
this source, we will substitute rates which, in our opinion, are comparable.
D-1
APPENDIX E - HYPOTHETICAL EXAMPLES OF OPERATION OF PREMIUM BASED CHARGE AND
CONTINGENT DEFERRED SALES CHARGE
To demonstrate how the Contingent Deferred Sales Charge and the Premium Based
Charge operate, set forth below are various hypothetical examples. These
examples are illustrative only, and do not represent the values under any
particular Annuity.
A. CDSC EXAMPLES
In this example, please note that the first Purchase Payment receives a CDSC
schedule for total Purchase Payments less than $50,000.00. The second Purchase
Payment results in a situation where the total Purchase Payments are
$100,000.00 and the CDSC schedule reflects this.
B. PREMIUM BASED CHARGE EXAMPLES
EXAMPLE 1: Assume that two Purchase Payments received prior to the first
Quarterly Annuity Anniversary attain the Premium Based Charge tier indicated
below. In this example, the Premium Based Charge rate for both Purchase
Payments will be established based upon the total Purchase Payments received
prior to the first Quarterly Annuity Anniversary, or 9/1/2011.
EXAMPLE 2: In this example, the second Purchase Payment is not received prior
to the first Quarterly Annuity Anniversary. The Premium Based Charge rate for
the first payment will be established based upon the total Purchase Payments
received prior to the first Quarterly Annuity Anniversary, or 9/1/2011. The
Premium Based Charge rate for the second Purchase Payment will be established
based upon the total Purchase Payments received as of the date it is received,
or 9/15/2011.
EXAMPLE 3: In this example, assume that two Purchase Payments received prior
to the first Quarterly Annuity Anniversary attain the indicated Premium Based
Charge tier. Assume the third Purchase Payment is received after the first
Quarterly Annuity Anniversary. In this example, the Premium Based Charge rate
for the first two Purchase Payments will be established based upon the total
Purchase Payments received prior to the first Quarterly Annuity Anniversary,
or 9/1/2011. The Premium Based Charge rate for the third Purchase Payment will
be established based upon the total Purchase Payments received as of the date
it is received, or 9/15/2011.
E-1
EXAMPLE 4: In this example, assume that the second Purchase Payment is
received the day before the quarter's end. In this example, the Premium Based
Charge rate for both Purchase Payments will be established based upon the
total Purchase Payments received on the first Quarterly Annuity Anniversary,
or 9/1/2011.
EXAMPLE 5: In this example, assume that the second Purchase Payment is
received on the first Quarterly Annuity Anniversary. Since the second Purchase
Payment is received on the first Quarterly Annuity Anniversary, it is not
utilized for purposes of determining the Premium Based Charge rate for the
first Purchase Payment.
E-2
Please see the section of this prospectus entitled "How To Contact Us" for
where to send your request for a Statement of Additional Information.
PRUCO LIFE INSURANCE COMPANY
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
PRUDENTIAL PREMIER(R) RETIREMENT VARIABLE ANNUITY X SERIES/SM/ ("X SERIES")
PRUDENTIAL PREMIER(R) RETIREMENT VARIABLE ANNUITY B SERIES/SM/ ("B SERIES")
PRUDENTIAL PREMIER(R) RETIREMENT VARIABLE ANNUITY L SERIES/SM/ ("L SERIES")
PRUDENTIAL PREMIER(R) RETIREMENT VARIABLE ANNUITY C SERIES/SM/ ("C SERIES")
SUPPLEMENT, DATED FEBRUARY 14, 2013,
TO PROSPECTUS DATED AUGUST 20, 2012
THIS SUPPLEMENT SHOULD BE READ AND RETAINED WITH THE PROSPECTUS FOR YOUR
ANNUITY. THIS SUPPLEMENT IS INTENDED TO UPDATE CERTAIN INFORMATION IN THE
PROSPECTUS FOR THE VARIABLE ANNUITY YOU OWN AND IS NOT INTENDED TO BE A
PROSPECTUS OR OFFER FOR ANY OTHER VARIABLE ANNUITY LISTED HERE THAT YOU DO NOT
OWN. IF YOU WOULD LIKE ANOTHER COPY OF THE CURRENT PROSPECTUS, PLEASE CALL US
AT 1-888-PRU-2888.
We are issuing this supplement to describe new optional "living benefits" that
are available under your annuity, to reflect changes to the Advanced Series
Trust ("AST") and to describe certain other updates to your prospectus.
TABLE OF CONTENTS
I. CHANGES TO THE ADVANCED SERIES TRUST
A. APPROVAL AND EFFECTIVENESS OF A NEW 12B-1 PLAN.
i. Restated Portfolio Expenses. At a recent special meeting, shareholders of
Portfolios of the Advanced Series Trust (the "Trust") approved a Shareholder
Services and Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. The Plan is applicable to all of
the Portfolios of the Trust except AST Balanced Asset Allocation Portfolio,
AST Capital Growth Asset Allocation Portfolio, AST Preservation Asset
Allocation Portfolio, AST Horizon Moderate Asset Allocation Portfolio, and AST
Quantitative Modeling Portfolio.
Pursuant to the Plan, each Portfolio of the Trust covered by the Plan will
compensate Prudential Annuities Distributors ("PAD"), Inc. for shareholder
servicing and distribution expenses at the annual rate of 0.10% of the average
daily net assets of the shares of each Portfolio. The existing administrative
services fee, which was paid by each Portfolio at the same annual rate of
0.10% of the average daily net assets of the shares of each Portfolio, will be
discontinued.
The Trust's investment managers have contractually reduced their management
fee rates for all Portfolios covered by the Plan. Additionally, PAD has
contractually agreed to reduce its distribution and service fees for certain
bond Portfolios so that the effective distribution and service fee rate paid
by those Portfolios is reduced based on the average daily net assets of the
relevant Portfolio. The Plan, including the reduced management fee rates, is
anticipated to become operational on or about February 25, 2013.
Accordingly, we have restated the "Total Annual Portfolio Operating Expenses"
table and the "Underlying Mutual Fund Portfolio Annual Expenses" table that
appear in the "Summary of Contract Fees and Charges" chapter of your
prospectus to reflect the new 12b-1 plan, as follows:
The following table provides the range (minimum and maximum) of the total
annual expenses for the underlying mutual funds ("Portfolios") before any
contractual waivers and expense reimbursements. Each figure is stated as a
percentage of the underlying Portfolio's average daily net assets.
The following are the total annual expenses for each underlying mutual fund
("Portfolio"). The "Total Annual Portfolio Operating Expenses" reflect the
combination of the underlying Portfolio's investment management fee, other
expenses, any 12b-1 fees, and certain other expenses. The fees and expenses
have been restated to reflect fee and expense changes implemented following
shareholder approval of a Rule 12b-1 plan for the Portfolios, as explained in
the current prospectus for the Portfolios. Each figure is stated as a
percentage of the underlying Portfolio's average daily net assets. For certain
of the Portfolios, a portion of the management fee has been contractually
waived and/or other expenses have been contractually partially reimbursed,
which is shown in the table. The following expenses are deducted by the
underlying Portfolio before it provides Pruco Life with the daily net asset
value. The underlying Portfolio information was provided by the underlying
mutual funds and has not been independently verified by us. See the
prospectuses or statements of additional information of the underlying
Portfolios for further details. The current prospectus and statement of
additional information for the underlying Portfolios can be obtained by
calling 1-888-PRU-2888.
2
3
4
+ Expense information in the Underlying Mutual Fund Portfolio Annual Expenses
Table has been restated to reflect current fees.
1 The AST AQR Emerging Markets Equity Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $300 million for the Portfolio
for the fiscal period ending December 31, 2013.
2 The Portfolio's distributor, Prudential Annuities Distributors, Inc.
("PAD"), has contractually agreed to reduce its distribution and service
fees so that the effective distribution and service fee rate paid by the
Portfolio is reduced based on the average daily net assets of the Portfolio
as follows: 0.08% over $300 million in daily net assets up to and including
$500 million in average daily net assets; 0.07% over $500 million in daily
net assets up to an including $750 million in average daily net assets; and
0.06% over $750 million in daily net assets. The contractual waiver does
not include an expiration or termination date as it is contractually
guaranteed by PAD on a permanent basis, and the Investment Managers and PAD
cannot terminate or otherwise modify the waiver.
3 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses for the Portfolio so that the
Portfolio's investment management fees plus other expenses (exclusive in
all cases of taxes, interest, brokerage commissions, acquired portfolio
fees and expenses and extraordinary expenses) do not exceed 0.99% of the
Portfolio's average daily net assets through June 30, 2015. This
arrangement may not be terminated or modified prior to June 30, 2015, and
may be discontinued or modified thereafter. The decision on whether to
renew, modify or discontinue the arrangement after June 30, 2015 will be
subject to review by the Manager and the Portfolio's Board of Trustees.
4 The AST Clearbridge Dividend Growth Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $400 million for the Portfolio
for the fiscal period ending December 31, 2013.
5 Pyramis is a registered service mark of FMR LLC. Used under license.
6 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses so that the investment management
fees plus other expenses (exclusive in all cases of taxes, short sale
interest and dividend expenses, brokerage commissions, underlying portfolio
fees and expenses, and extraordinary expenses) for the Portfolio do not
exceed 1.10% of the average daily net assets of the Portfolio through
June 30, 2015. This expense limitation may not be terminated or modified
prior to June 30, 2015, but may be discontinued or modified thereafter. The
decision on whether to renew, terminate or modify this waiver after
June 30, 2015 will be subject to review by the Manager and the Board of
Trustees of the Trust.
7 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fee, so that the effective management fee rate paid by the Portfolio is as
follows: 0.70% to $500 million of average daily net assets; 0.675% over
$500 million in average daily net assets up to and including $1 billion in
average daily net assets; and 0.65% over $1 billion in average daily net
assets. This arrangement may not be terminated or modified prior to
June 30, 2015, and may be discontinued or modified thereafter. The decision
on whether to renew, modify or discontinue the arrangement after June 30,
2015 will be subject to review by the Investment Managers and the
Portfolio's Board of Trustees.
8 If approved by shareholders, the Portfolio will be restructured on or about
April 29, 2013. As restructured, the Portfolio will no longer be a
fund-of-funds and will be renamed the AST RCM World Trends Portfolio. Based
on assets as of December 31, 2012, as restructured, the Portfolio would
have a management fee of 0.92%, other expenses of 0.14%, acquired portfolio
fees and expenses of 0.00%, total annual operating expenses before
contractual fee waiver of 1.06%, a contractual fee waiver of 0.07% through
at least June 30, 2014, and net annual operating expenses after fee waiver
of 0.99%.
9 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees so that the Portfolio's investment management fee would equal 0.70% of
the Portfolio's first $500 million of average daily net assets, 0.675% of
the Portfolio's average daily net assets between $500 million and $1
billion, and 0.65% of the Portfolio's average daily net assets in excess of
$1 billion through June 30, 2015. This contractual investment management
fee waiver may not be terminated or modified prior to June 30, 2015, but
may be discontinued or modified thereafter. The decision on whether to
renew, modify, or discontinue this expense limitation after June 30, 2015
will be subject to review by the Manager and the Board of Trustees of the
Portfolio.
10 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses, so that the investment management
fees plus other expenses (exclusive in all cases of taxes, short sale
interest and dividend expenses, brokerage commissions, acquired portfolio
fees and expenses, and extraordinary expenses) for the Portfolio do not
exceed 1.08% of its average daily net assets through June 30, 2015. This
expense limitation may not be terminated or modified prior to June 30,
2015, and may be discontinued or modified thereafter. The decision on
whether to renew, modify or discontinue the expense limitation after
June 30, 2015 will be subject to review by the Investment Managers and the
Portfolio's Board of Trustees.
11 The AST QMA Emerging Markets Equity Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $300 million for the Portfolio
for the fiscal period ending December 31, 2013.
12 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fee so that the Portfolio's investment management fee would equal 0.80% of
the Portfolio's average daily net assets through June 30, 2015. This
contractual investment management fee waiver may not be terminated or
modified prior to June 30, 2015, but may be discontinued or modified
thereafter. The decision on whether to renew, modify, or discontinue this
expense limitation after June 30, 2015 will be subject to review by the
Manager and the Board of Trustees of the Trust.
5
ii. Revised Expense Examples. The restated Portfolio expenses resulted in a
new maximum Portfolio expense, as described above. Accordingly, we have
updated the Expense Examples that appear in your prospectus as follows:
EXPENSE EXAMPLES
These examples are intended to help you compare the cost of investing in one
Pruco Life Annuity with the cost of investing in other Pruco Life Annuities
and/or other variable annuities. Below are examples for each Annuity showing
what you would pay cumulatively in expenses at the end of the stated time
periods had you invested $10,000 in the Annuity and your investment has a 5%
return each year. The examples reflect the following fees and charges for each
Annuity as described in "Summary of Contract Fees and Charges."
. Insurance Charge
. Contingent Deferred Sales Charge (when and if applicable)
. Annual Maintenance Fee
. Optional benefit fees, as described below
The examples also assume the following for the period shown:
. You allocate all of your Account Value to the Sub-account with the
maximum gross total operating expenses and those expenses remain the
same each year *
. For each charge, we deduct the maximum charge rather than the current
charge
. You make no withdrawals of Account Value
. You make no transfers, or other transactions for which we charge a fee
. No tax charge applies
. You elect the Spousal Highest Daily Lifetime Income v2.1 with Highest
Daily Death Benefit, which is the maximum optional benefit charge. There
is no other combination of optional benefits that would result in higher
maximum charges than those shown in the examples.
. For the X Series example, no Purchase Credit is granted under the
Annuity. If Purchase Credits were reflected in the calculations,
expenses would be higher, because the charges would have been applied to
a larger Account Value.
Amounts shown in the examples are rounded to the nearest dollar.
* Note: Not all Portfolios offered as Sub-accounts may be available depending
on optional benefit selection, the applicable jurisdiction and selling firm.
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING PORTFOLIOS -
ACTUAL EXPENSES WILL BE LESS THAN THOSE SHOWN DEPENDING UPON WHICH OPTIONAL
BENEFIT YOU ELECT OTHER THAN INDICATED IN THE EXAMPLES OR IF YOU ALLOCATE
ACCOUNT VALUE TO ANY OTHER AVAILABLE SUB-ACCOUNTS.
EXPENSE EXAMPLES ARE PROVIDED AS FOLLOWS:
If you surrender your annuity at the end of the applicable time period:
If you do not surrender your Annuity, or if you annuitize your Annuity:
B. OTHER PORTFOLIO CHANGES AND ADDITIONS
i. All references in your annuity prospectus to the "JPMorgan International
Equity Portfolio" are replaced with "J.P. Morgan International Equity
Portfolio;" and all references in your annuity prospectus to "Barclays Capital
U.S. Aggregate Bond Index" are replaced with "Barclays U.S. Aggregate Bond
Index."
6
ii. To the list of available variable investment options that appear on the
backside of the first page of your prospectus, we add the following new
available investment options and modify footnote 3:
AST AQR Emerging Markets Equity Portfolio /4/
AST Clearbridge Dividend Growth Portfolio /3/
AST QMA Emerging Markets Equity Portfolio /4/
(3)Not available with HDI v2.1 suite of benefits.
(4)Not available if you purchase any optional benefit.
iii. In the table of Underlying Mutual Fund Portfolio Annual Expenses found in
the prospectus section titled, "Summary of Contract Fees and Charges," we add
the fees for the AST AQR Emerging Markets Equity Portfolio, the AST
Clearbridge Dividend Growth Portfolio, and the AST QMA Emerging Markets Equity
Portfolio as appears in the table above.
iv. In the Investment Objectives/Policies table found in the section titled,
"Investment Options," we add summary descriptions for the AST AQR Emerging
Markets Equity Portfolio, the AST Clearbridge Dividend Growth Portfolio, and
the AST QMA Emerging Markets Equity Portfolio as follows:
7
v. The Custom Portfolios Program is not available with the Highest Daily
Lifetime Income v2.1 suite of benefits. Accordingly, we add the Highest Daily
Lifetime Income v2.1 suite of benefits to the "Group I: Allowable Benefit
Allocations" list of available options only, under "Limitations with Optional
Benefits" as follows:
LIMITATIONS WITH OPTIONAL BENEFITS
As a condition to your participating in any Highest Daily Lifetime Income v2.1
benefit, we limit the Investment Options to which you may allocate your
Account Value, as set forth in the Allowable Benefit Allocations table below.
8
II. NEW OPTIONAL BENEFITS
This supplement describes new lifetime withdrawal benefits called Highest
Daily Lifetime(R) Income v2.1 Benefit, Spousal Highest Daily Lifetime(R)
Income v2.1 Benefit, Highest Daily Lifetime(R) Income v2.1 with Highest Daily
Death Benefit, and Spousal Highest Daily Lifetime(R) Income v2.1 with Highest
Daily Death Benefit (the "Highest Daily Lifetime Income v2.1 suite of
benefits" or "HDI v2.1"). Beginning on or about February 25, 2013, the Highest
Daily Lifetime Income v2.1 suite of benefits is available in states where we
have received regulatory approval. Once the Highest Daily Lifetime Income v2.1
suite of benefits has been approved in your state we will close the Highest
Daily Lifetime Income 2.0 suite of benefits and they will no longer be
available for purchase in your state.
The Highest Daily Lifetime Income v2.1 suite of benefits is available for
purchase (subject to our rules and your eligibility, as described below):
.. if you currently own an annuity WITHOUT a living benefit and wish to
purchase one of the Highest Daily Lifetime Income v2.1 suite of benefits; or
.. if you currently own an annuity WITH a living benefit, and you wish to
terminate your existing benefit and elect one of the Highest Daily Lifetime
Income v2.1 benefits.
IF YOU CURRENTLY OWN AN ANNUITY WITH A LIVING BENEFIT, IT IS IMPORTANT TO NOTE
THAT THE BENEFIT YOU ELECT MAY NOT PROVIDE THE SAME GUARANTEES AND/OR MAY BE
MORE EXPENSIVE THAN THE BENEFIT YOU ARE TERMINATING. ONCE YOU TERMINATE AN
EXISTING BENEFIT, YOU LOSE THE GUARANTEES THAT YOU HAVE ACCUMULATED UNDER YOUR
EXISTING BENEFIT. YOU SHOULD CAREFULLY CONSIDER WHETHER TERMINATING YOUR
EXISTING BENEFIT AND ELECTING ONE OF THE BENEFITS DESCRIBED IN THIS SUPPLEMENT
IS APPROPRIATE FOR YOU. PLEASE SPEAK TO YOUR FINANCIAL PROFESSIONAL FOR
FURTHER DETAILS. THE GUARANTEES PROVIDED BY THE VARIABLE ANNUITY CONTRACTS AND
THE OPTIONAL BENEFITS ARE THE OBLIGATIONS OF AND SUBJECT TO THE CLAIMS PAYING
ABILITY OF PRUCO LIFE.
The new guarantees under the new benefit you elect will begin based on your
Unadjusted Account Value as of the date the new benefit becomes effective
under your annuity. Also, you may be required to reallocate your Account Value
to certain permitted investment options.
Your existing benefit is described in your current prospectus. If you need
another copy of your prospectus, please contact us at 1-888-PRU-2888 or you
can visit our website at http://www.prudentialannuities.com.
ACCORDINGLY, WE REVISE YOUR ANNUITY PROSPECTUS AS FOLLOWS.
A. BENEFIT FEES. We add the charges for the new Highest Daily Lifetime Income
v2.1 suite of benefits to the table in the "Your Optional Benefit Fees and
Charges" section and modify the footnotes thereto, as follows:
9
7 The charge for each of the Highest Daily Lifetime Income v2.1 benefits
listed above is assessed against the greater of Unadjusted Account Value
and the Protected Withdrawal Value (PWV). PWV is described in the Living
Benefits section of the prospectus.
8 HOW THE OPTIONAL BENEFIT FEES AND CHARGES ARE DETERMINED
.... For each of the L Series, X Series, and C Series the annualized charge
for the base Annuity drops after Annuity Year 9 as described below:
Highest Daily Lifetime Income v2.1: 1.00% current optional benefit charge
is in addition to 1.30% annualized charge of amounts invested in the
Subaccounts for base Annuity after the 9th Annuity Year.
Spousal Highest Daily Lifetime Income v2.1: 1.10% current optional benefit
charge is in addition to 1.30% annualized charge of amounts invested in the
Sub-accounts for base Annuity after the 9th Annuity Year.
Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit: 1.50%
current optional benefit charge is in addition to 1.30% annualized charge
of amounts invested in the Sub-accounts for base Annuity after the 9th
Annuity Year.
Spousal Highest Daily Lifetime Income v2.1 with Highest Daily Death
Benefit: 1.60% current optional benefit charge is in addition to 1.30%
annualized charge of amounts invested in the Sub-accounts for base Annuity
after the 9th Annuity Year.
9 We reserve the right to increase the charge to the maximum charge
indicated, upon any step-up under the benefit. Also if you decide to elect
or re-add a benefit after your contract has been issued, the charge for the
benefit under your contract will equal the current charge for then new
contract owners up to the maximum indicated.
B. HIGHEST DAILY LIFETIME INCOME V2.1 SUITE OF BENEFITS. To the "Living
Benefits" chapter of your prospectus, we add a subsection corresponding to
each Highest Daily Lifetime Income v2.1 benefit, as follows:
HIGHEST DAILY LIFETIME(R) INCOME V2.1 BENEFIT
Highest Daily Lifetime(R) Income v2.1 is a lifetime guaranteed minimum
withdrawal benefit, under which, subject to the terms of the benefit, we
guarantee your ability to take a certain annual withdrawal amount for life. We
reserve the right, in our sole discretion, to cease offering this benefit, for
new elections at any time.
We offer a benefit that guarantees until the death of the single designated
life (the Annuitant) the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial value (the "Protected
Withdrawal Value") regardless of the impact of Sub-account performance on the
Unadjusted Account Value, subject to our rules regarding the timing and amount
of withdrawals. You are guaranteed to be able to withdraw the Annual Income
Amount for the rest of your life provided that you do not take withdrawals of
Excess Income that result in your Unadjusted Account Value being reduced to
zero. We also permit you to designate the first withdrawal from your Annuity
as a one-time "Non-Lifetime Withdrawal". All other partial withdrawals from
your Annuity are considered a "Lifetime Withdrawal" under the benefit.
Withdrawals are taken first from your own Account Value. We are only required
to begin making lifetime income payments to you under our guarantee when and
if your Unadjusted Account Value is reduced to zero (for any reason other than
due to partial withdrawals of Excess Income). Highest Daily Lifetime Income
v2.1 may be appropriate if you intend to make periodic withdrawals from your
Annuity, and wish to ensure that Sub-account performance will not affect your
ability to receive annual payments. You are not required to take withdrawals
as part of the benefit - the guarantees are not lost if you withdraw less than
the maximum allowable amount each year under the rules of the benefit. An
integral component of Highest Daily Lifetime Income v2.1 is the predetermined
mathematical formula we employ
10
that may periodically transfer your Unadjusted Account Value to and from the
AST Investment Grade Bond Sub-account. See the section below entitled "How
Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value Between
Your Permitted Sub-accounts and the AST Investment Grade Bond Sub-account."
The income benefit under Highest Daily Lifetime Income v2.1 currently is based
on a single "designated life" who is at least 50 years old on the date that
the benefit is acquired. Highest Daily Lifetime Income v2.1 is not available
if you elect any other optional living benefit. As long as your Highest Daily
Lifetime Income v2.1 is in effect, you must allocate your Unadjusted Account
Value in accordance with the permitted Sub-accounts and other Investment
Option(s) available with this benefit. For a more detailed description of the
permitted Investment Options, see the "Investment Options" section of the
prospectus.
ALTHOUGH YOU ARE GUARANTEED THE ABILITY TO WITHDRAW YOUR ANNUAL INCOME AMOUNT
FOR LIFE EVEN IF YOUR UNADJUSTED ACCOUNT VALUE FALLS TO ZERO, IF THAT
PARTICULAR WITHDRAWAL OF EXCESS INCOME (DESCRIBED BELOW) BRINGS YOUR
UNADJUSTED ACCOUNT VALUE TO ZERO, YOUR ANNUAL INCOME AMOUNT ALSO WOULD FALL TO
ZERO, AND THE BENEFIT AND THE ANNUITY THEN WOULD TERMINATE. IN THAT SCENARIO,
NO FURTHER AMOUNT WOULD BE PAYABLE UNDER HIGHEST DAILY LIFETIME INCOME V2.1.
AS TO THE IMPACT OF SUCH A SCENARIO ON ANY OTHER OPTIONAL BENEFIT YOU MAY
HAVE, PLEASE SEE THE FOLLOWING SECTIONS IN THIS SUPPLEMENT: "SPOUSAL HIGHEST
DAILY LIFETIME INCOME V2.1 BENEFIT", "HIGHEST DAILY LIFETIME INCOME V2.1 WITH
HIGHEST DAILY DEATH BENEFIT" AND "SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1
WITH HIGHEST DAILY DEATH BENEFIT".
You may also participate in the 6 or 12 Month DCA Program if you elect Highest
Daily Lifetime Income v2.1, subject to the 6 or 12 Month DCA Program's rules.
See the section of the prospectus entitled "6 or 12 Month Dollar Cost
Averaging Program" for details.
KEY FEATURE - PROTECTED WITHDRAWAL VALUE
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter, until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraphs.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value ON OR BEFORE the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls ON OR BEFORE the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment (including any
associated Purchase Credits) made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value AFTER the Roll-Up End Date
On any Current Valuation Day that falls AFTER the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment (including any associated Purchase Credits) made on the
Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments (including any associated Purchase Credits) and reduced for
subsequent Lifetime Withdrawals, and (ii) the highest daily Unadjusted Account
Value upon any step-up, increased for subsequent Purchase Payments (including
any associated Purchase Credits) and reduced for subsequent Lifetime
Withdrawals (see the examples that begin immediately prior to the sub-heading
below entitled "Example of dollar-for-dollar reductions").
PLEASE NOTE THAT IF YOU ELECT HIGHEST DAILY LIFETIME INCOME V2.1, YOUR ACCOUNT
VALUE IS NOT GUARANTEED, CAN FLUCTUATE AND MAY LOSE VALUE.
11
KEY FEATURE - ANNUAL INCOME AMOUNT UNDER HIGHEST DAILY LIFETIME INCOME V2.1
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the Annuitant on the date of the first Lifetime Withdrawal after
election of the benefit. The percentages are: 3% for ages 50 to 54; 3.5% for
ages 55 to less than 59 1/2; 4% for ages 59 1/2 to 64; 4.5% for ages 65 to 69;
5% for ages 70 to 84; and 6% for ages 85 or older. Under the Highest Daily
Lifetime Income v2.1, if your cumulative Lifetime Withdrawals in an Annuity
Year are less than or equal to the Annual Income Amount, they will not reduce
your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year and also will reduce the Protected Withdrawal Value on a
dollar-for-dollar basis. If your cumulative Lifetime Withdrawals in an Annuity
Year are in excess of the Annual Income Amount ("Excess Income"), your Annual
Income Amount in subsequent years will be reduced (except with regard to
Required Minimum Distributions for this Annuity that comply with our rules) by
the result of the ratio of the Excess Income to the Account Value immediately
prior to such withdrawal (see examples of this calculation below). Excess
Income also will reduce the Protected Withdrawal Value by the same ratio.
AS DISCUSSED IN THIS PARAGRAPH, WHEN YOU MAKE A PARTIAL WITHDRAWAL THAT IS
SUBJECT TO A CDSC AND/OR TAX WITHHOLDING, WE WILL IDENTIFY THE AMOUNT THAT
INCLUDES NOT ONLY THE AMOUNT YOU ACTUALLY RECEIVE, BUT ALSO THE AMOUNT OF THE
CDSC AND/OR TAX WITHHOLDING, TO DETERMINE WHETHER YOUR WITHDRAWAL HAS EXCEEDED
THE ANNUAL INCOME AMOUNT. WHEN YOU TAKE A PARTIAL WITHDRAWAL, YOU MAY REQUEST
A "GROSS" WITHDRAWAL AMOUNT (E.G., $2,000) BUT THEN HAVE ANY CDSC AND/OR TAX
WITHHOLDING DEDUCTED FROM THE AMOUNT YOU ACTUALLY RECEIVE (ALTHOUGH AN MVA MAY
ALSO BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE, IT IS NOT
CONSIDERED FOR PURPOSES OF DETERMINING EXCESS INCOME). THE PORTION OF A
WITHDRAWAL THAT EXCEEDED YOUR ANNUAL INCOME AMOUNT (IF ANY) WOULD BE TREATED
AS EXCESS INCOME AND THUS WOULD REDUCE YOUR ANNUAL INCOME AMOUNT IN SUBSEQUENT
YEARS. ALTERNATIVELY, YOU MAY REQUEST THAT A "NET" WITHDRAWAL AMOUNT ACTUALLY
BE PAID TO YOU (E.G., $2,000), WITH THE UNDERSTANDING THAT ANY CDSC AND/OR TAX
WITHHOLDING (E.G., $240) BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE
(ALTHOUGH AN MVA MAY ALSO BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT
VALUE, IT IS NOT CONSIDERED FOR PURPOSES OF DETERMINING EXCESS INCOME). IN THE
LATTER SCENARIO, WE DETERMINE WHETHER ANY PORTION OF THE WITHDRAWAL IS TO BE
TREATED AS EXCESS INCOME BY LOOKING TO THE SUM OF THE NET AMOUNT YOU ACTUALLY
RECEIVE (E.G., $2,000) AND THE AMOUNT OF ANY CDSC AND/OR TAX WITHHOLDING (IN
THIS EXAMPLE, A TOTAL OF $2,240). THE AMOUNT OF THAT SUM (E.G., THE $2,000 YOU
RECEIVED PLUS THE $240 FOR THE CDSC AND/OR TAX WITHHOLDING) THAT EXCEEDS YOUR
ANNUAL INCOME AMOUNT WILL BE TREATED AS EXCESS INCOME - THEREBY REDUCING YOUR
ANNUAL INCOME AMOUNT IN SUBSEQUENT YEARS.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Highest Daily
Lifetime Income v2.1 and subsequent to the first Lifetime Withdrawal will
(i) immediately increase the then-existing Annual Income Amount by an amount
equal to a percentage of the Purchase Payment (including any associated
Purchase Credits) based on the age of the Annuitant at the time of the first
Lifetime Withdrawal (the percentages are: 3% for ages 50 to 54; 3.5% for ages
55 to less than 59 1/2; 4% for ages 59 1/2 to 64; 4.5% for ages 65 to 69; 5%
for ages 70 to 84; and 6% for ages 85 or older) and (ii) increase the
Protected Withdrawal Value by the amount of the Purchase Payment (including
any associated Purchase Credits).
While Highest Daily Lifetime Income v2.1 is in effect, we may limit, restrict,
suspend or reject any additional Purchase Payment at any time, but would do so
on a non-discriminatory basis. Circumstances where we may limit, restrict,
suspend or reject additional Purchase Payments include, but are not limited
to, the following:
.. if we determine that as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Highest Daily Lifetime Income v2.1 benefit. This means that you
may no longer be able to increase the values associated with your Highest
Daily Lifetime Income v2.1 benefit through additional Purchase Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity in a non-discriminatory manner.
HIGHEST DAILY AUTO STEP-UP
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of Highest
Daily Lifetime Income v2.1. As detailed in this paragraph, the Highest Daily
Auto Step-Up feature can result in a larger Annual Income Amount subsequent to
your first Lifetime Withdrawal. The Highest Daily Auto Step-Up starts with the
anniversary of the Issue Date of the Annuity (the "Annuity Anniversary")
immediately after your first Lifetime Withdrawal under the benefit.
Specifically, upon the first such Annuity
12
Anniversary, we identify the Unadjusted Account Value on each Valuation Day
within the immediately preceding Annuity Year after your first Lifetime
Withdrawal. Having identified the highest daily value (after all daily values
have been adjusted for subsequent Purchase Payments and withdrawals), we then
multiply that value by a percentage that varies based on the age of the
Annuitant on the Annuity Anniversary as of which the step-up would occur. The
percentages are: 3% for ages 50 to 54; 3.5% for ages 55 to less than 59 1/2;
4% for ages 59 1/2 to 64; 4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6%
for ages 85 or older. If that value exceeds the existing Annual Income Amount,
we replace the existing amount with the new, higher amount. Otherwise, we
leave the existing Annual Income Amount intact. We will not automatically
increase your Annual Income Amount solely as a result of your attaining a new
age that is associated with a new age-based percentage. The Unadjusted Account
Value on the Annuity Anniversary is considered the last daily step-up value of
the Annuity Year. All daily valuations and annual step-ups will only occur on
a Valuation Day. In later years (i.e., after the first Annuity Anniversary
after the first Lifetime Withdrawal), we determine whether an automatic
step-up should occur on each Annuity Anniversary, by performing a similar
examination of the Unadjusted Account Values that occurred on Valuation Days
during the year. Taking Lifetime Withdrawals could produce a greater
difference between your Protected Withdrawal Value and your Unadjusted Account
Value, which may make a Highest Daily Auto Step-up less likely to occur. At
the time that we increase your Annual Income Amount, we also increase your
Protected Withdrawal Value to equal the highest daily value upon which your
step-up was based only if that results in an increase to the Protected
Withdrawal Value. Your Protected Withdrawal Value will never be decreased as a
result of an income step-up. If, on the date that we implement a Highest Daily
Auto Step-Up to your Annual Income Amount, the charge for Highest Daily
Lifetime Income v2.1 has changed for new purchasers, you may be subject to the
new charge at the time of such step-up. Prior to increasing your charge for
Highest Daily Lifetime Income v2.1 upon a step-up, we would notify you, and
give you the opportunity to cancel the automatic step-up feature. If you
receive notice of a proposed step-up and accompanying fee increase, you should
consult with your Financial Professional and carefully evaluate whether the
amount of the step-up justifies the increased fee to which you will be
subject. Any such increased charge will not be greater than the maximum charge
set forth in the table entitled "Your Optional Benefit Fees and Charges."
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Highest Daily Lifetime Income v2.1 does not affect your ability to take
partial withdrawals under your Annuity, or limit your ability to take partial
withdrawals that exceed the Annual Income Amount. Under Highest Daily Lifetime
Income v2.1, if your cumulative Lifetime Withdrawals in an Annuity Year are
less than or equal to the Annual Income Amount, they will not reduce your
Annual Income Amount in subsequent Annuity Years, but any such withdrawals
will reduce the Annual Income Amount on a dollar-for-dollar basis in that
Annuity Year. If your cumulative Lifetime Withdrawals in any Annuity Year are
less than the Annual Income Amount, you cannot carry over the unused portion
of the Annual Income Amount to subsequent Annuity Years. If your cumulative
Lifetime Withdrawals in an Annuity Year exceed the Annual Income Amount, your
Annual Income Amount in subsequent years will be reduced (except with regard
to Required Minimum Distributions for this Annuity that comply with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Highest Daily Lifetime
Income v2.1 or any other fees and charges under the Annuity. Assume the
following for all three examples:
.. The Issue Date is November 1
.. Highest Daily Lifetime Income v2.1 is elected on August 1 of the following
calendar year
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
EXAMPLE OF DOLLAR-FOR-DOLLAR REDUCTIONS
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $6,000 (since the designated life is between the ages
of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual Income
Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000).
Assuming $2,500 is withdrawn from the Annuity on this date, the remaining
Annual Income Amount for that Annuity Year (up to and including October 31) is
$3,500. This is the result of a dollar-for-dollar reduction of the Annual
Income Amount ($6,000 less $2,500 = $3,500).
13
EXAMPLE OF PROPORTIONAL REDUCTIONS
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $3,500 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $1,500 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there are other
future withdrawals in that Annuity Year, each would result in another
proportional reduction to the Annual Income Amount).
HERE IS THE CALCULATION:
EXAMPLE OF HIGHEST DAILY AUTO STEP-UP
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
Annuitant's age on that Annuity Anniversary) of the highest daily value since
your first Lifetime Withdrawal (or last Annuity Anniversary in subsequent
years), adjusted for withdrawals and additional Purchase Payments (including
any associated Purchase Credits), is greater than the Annual Income Amount,
adjusted for Excess Income and additional Purchase Payments (including any
associated Purchase Credits).
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $6,000. However, the Excess Income on October 29 reduces the
amount to $5,921.40 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 5% (since the designated life
is between 70 and 84 on the date of the potential step-up) of the highest
daily Unadjusted Account Value, adjusted for withdrawals and Purchase Payments
(including any associated Purchase Credits), is greater than $5,921.40. Here
are the calculations for determining the daily values. Only the October 28
value is being adjusted for Excess Income as the October 30, October 31, and
November 1 Valuation Days occur after the Excess Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be the Annuity Anniversary and every day
following the Annuity Anniversary. The Annuity Anniversary Date of
November 1 is considered the first Valuation Date in the Annuity Year.
** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,950.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income
Amount for the Annuity Year), resulting in Unadjusted Account Value of
$115,500 before the Excess Income.
. This amount ($115,500) is further reduced by 1.31% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.95.
. The adjusted October 29 Highest Daily Value, $113,986.95, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.95 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.95 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.95
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 5%, generating
an Annual Income Amount of $5,950.00. Since this amount is greater than the
current year's Annual Income Amount of $5,921.40 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year will be
stepped-up to $5,950.00.
14
NON-LIFETIME WITHDRAWAL FEATURE
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Highest Daily Lifetime Income v2.1. It is an optional feature of the
benefit that you can only elect at the time of your first withdrawal. You
cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders - Surrender Value" in the
prospectus). This Non-Lifetime Withdrawal will not establish your initial
Annual Income Amount and the Periodic Value described above will continue to
be calculated. However, the total amount of the withdrawal will proportionally
reduce all guarantees associated with Highest Daily Lifetime Income v2.1. You
must tell us at the time you take the withdrawal if your withdrawal is
intended to be the Non-Lifetime Withdrawal and not the first Lifetime
Withdrawal under Highest Daily Lifetime Income v2.1. If you don't elect the
Non-Lifetime Withdrawal, the first withdrawal you make will be the first
Lifetime Withdrawal that establishes your Annual Income Amount, which is based
on your Protected Withdrawal Value. Once you elect to take the Non-Lifetime
Withdrawal or Lifetime Withdrawals, no additional Non-Lifetime Withdrawals may
be taken. If you do not take a Non-Lifetime Withdrawal before beginning
Lifetime Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value by the percentage the total withdrawal amount (including any
applicable CDSC) represents of the then current Account Value immediately
prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
EXAMPLE - NON-LIFETIME WITHDRAWAL (PROPORTIONAL REDUCTION)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit.
Assume the following:
.. The Issue Date is December 3
.. Highest Daily Lifetime Income v2.1 is elected on September 4 of the
following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1
.. No previous withdrawals have been taken under Highest Daily Lifetime Income
v2.1
On October 3 of the year the benefit is elected, the Protected Withdrawal
Value is $125,000 and the Account Value is $120,000. Assuming $15,000 is
withdrawn from the Annuity on that same October 3 and is designated as a
Non-Lifetime Withdrawal, all guarantees associated with Highest Daily Lifetime
Income v2.1 will be reduced by the ratio the total withdrawal amount
represents of the Account Value just prior to the withdrawal being taken.
HERE IS THE CALCULATION:
REQUIRED MINIMUM DISTRIBUTIONS
Required Minimum Distributions ("RMD") for this Annuity must be taken by
April 1st in the year following the date you turn age 70 1/2 and by
December 31/st/ for subsequent calendar years. If the annual RMD amount is
greater than the Annual Income Amount, a withdrawal of the RMD amount will not
be treated as a withdrawal of Excess Income, as long as the RMD amount is
calculated by us for this Annuity and administered under a program we support
each calendar year. If you are not participating in an RMD withdrawal program
each calendar year, you can alternatively satisfy the RMD amount without it
being treated as a withdrawal of Excess Income.
The following rules apply to determine if any portion of an RMD amount will be
treated as Excess Income.
For purposes of this provision, in relation to any Annuity Year, the "Second
Calendar Year" is the calendar year following the calendar year in which the
Annuity Year began.
In general, withdrawals made from the Annuity during an Annuity Year to meet
the RMD provisions of the Code will not be treated as Excess Income. However,
if in any Annuity Year, you take a Lifetime Withdrawal in the Second Calendar
Year, then the amount which will not be treated as Excess Income is the
greater of:
(1)the remaining Annual Income Amount for that Annuity Year, and
(2)the difference between the Second Calendar Year's remaining RMD amount and
the Annual Income Amount.
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Any remaining RMD amount for the Second Calendar Year can be taken in the
following Annuity Year.
If, in any Annuity Year, your RMD amount is not greater than the Annual Income
Amount, any withdrawals in excess of the Annual Income Amount will be treated
as Excess Income.
Please see hypothetical examples below for details.
If you do not comply with the rules described above, any withdrawal that
exceeds the Annual Income Amount will be treated as a withdrawal of Excess
Income, which will reduce your Annual Income Amount in future Annuity Years.
This may include situations where you comply with the rules outlined above and
then decide to take additional withdrawals after satisfying your RMD
requirement from the Annuity.
We will assume your first withdrawal under the benefit is a Lifetime
Withdrawal unless you designated the withdrawal as a Non-Lifetime Withdrawal.
EXAMPLE
The following example is purely hypothetical and intended to illustrate a
scenario as described above. Note that withdrawals must comply with all IRS
guidelines in order to satisfy the RMD for the current calendar year.
Assumptions:
RMD Calendar Year
01/01/2013 to 12/31/2013
Annuity Year
06/01/2012 to 05/31/2013
Annual Income Amount and RMD Amount
Annual Income Amount = $5,000
Remaining Annual Income Amount as of 1/3/2013 = $3,000 (a $2,000 withdrawal
was taken on 7/1/2012)
RMD Amount for Calendar Year 2013 = $6,000
The amount you may withdraw in the current Annuity Year (between 1/3/2013 and
5/31/2013) without it being treated as Excess Income is $4,000. Here is the
calculation: $3,000 + ($6,000 - $5,000) = $4,000.
If the $4,000 withdrawal is taken in the current Annuity Year (prior to
6/1/2013), the remaining Annual Income Amount will be zero and the remaining
RMD amount of $2,000 may be taken in the subsequent Annuity Year beginning on
6/1/2013 (when your Annual Income Amount is reset to $5,000).
If you had chosen to not take any additional withdrawals until on or after
6/1/2013, then you would be eligible to withdraw $6,000 without it being
treated as a withdrawal of Excess Income.
BENEFITS UNDER HIGHEST DAILY LIFETIME INCOME V2.1
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and amounts are still payable
under Highest Daily Lifetime Income v2.1, we will make an additional
payment, if any, for that Annuity Year equal to the remaining Annual Income
Amount for the Annuity Year. Thus, in that scenario, the remaining Annual
Income Amount would be payable even though your Unadjusted Account Value
was reduced to zero. In subsequent Annuity Years we make payments that
equal the Annual Income Amount as described in this section. We will make
payments until the death of the single designated life. After the
Unadjusted Account Value is reduced to zero, you will not be permitted to
make additional Purchase Payments to your Annuity. TO THE EXTENT THAT
CUMULATIVE PARTIAL WITHDRAWALS IN THE ANNUITY YEAR THAT REDUCED YOUR
UNADJUSTED ACCOUNT VALUE TO ZERO ARE MORE THAN THE ANNUAL INCOME AMOUNT,
HIGHEST DAILY LIFETIME INCOME V2.1 TERMINATES, AND NO ADDITIONAL PAYMENTS
ARE PERMITTED. HOWEVER, IF A PARTIAL WITHDRAWAL IN THE LATTER SCENARIO WAS
TAKEN TO SATISFY A REQUIRED MINIMUM DISTRIBUTION (AS DESCRIBED ABOVE) UNDER
THE ANNUITY, THEN THE BENEFIT WILL NOT TERMINATE, AND WE WILL CONTINUE TO
PAY THE ANNUAL INCOME AMOUNT IN SUBSEQUENT ANNUITY YEARS UNTIL THE DEATH OF
THE DESIGNATED LIFE.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments. Also, any Death Benefit will terminate if
withdrawals reduce your Unadjusted Account Value to zero. This means that
any Death Benefit is terminated and no Death Benefit is payable if your
Unadjusted Account Value is reduced to zero as the result of either a
withdrawal in excess of your Annual Income Amount or less than or equal to,
your Annual Income Amount.
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.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable tax charges, to
any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. If this
option is elected, the Annual Income Amount will not increase after
annuity payments have begun. We will make payments until the death of
the single designated life. We must receive your request in a form
acceptable to us at our Service Office. If applying your Unadjusted
Account Value, less any applicable tax charges, to the life-only annuity
payment rates results in a higher annual payment, we will give you the
higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin
we currently make annual annuity payments in the form of a single life
fixed annuity with eight payments certain, by applying the greater of the
annuity rates then currently available or the annuity rates guaranteed in
your Annuity. We reserve the right at any time to increase or decrease the
period certain in order to comply with the Code (e.g., to shorten the
period certain to match life expectancy under applicable Internal Revenue
Service tables). The amount that will be applied to provide such annuity
payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual Income
Amount as if you made your first Lifetime Withdrawal on the date the
annuity payments are to begin). Such present value will be calculated
using the greater of the single life fixed annuity rates then currently
available or the single life fixed annuity rates guaranteed in your
Annuity; and
(2)the Unadjusted Account Value.
OTHER IMPORTANT CONSIDERATIONS
.. Withdrawals under Highest Daily Lifetime Income v2.1 are subject to all of
the terms and conditions of the Annuity, including any applicable CDSC for
the Non-Lifetime Withdrawal as well as partial withdrawals that exceed the
Annual Income Amount. If you have an active Systematic Withdrawal program
running at the time you elect this benefit, the first systematic withdrawal
that processes after your election of the benefit will be deemed a Lifetime
Withdrawal. Withdrawals made while Highest Daily Lifetime Income v2.1 is in
effect will be treated, for tax purposes, in the same way as any other
withdrawals under the Annuity. Any withdrawals made under the benefit will
be taken pro rata from the Sub-accounts (including the AST Investment Grade
Bond Sub-account) and the DCA MVA Options. If you have an active Systematic
Withdrawal program running at the time you elect this benefit, the program
must withdraw funds pro rata.
.. Any Lifetime Withdrawal that you take that is not a withdrawal of Excess
Income is not subject to a CDSC, even if the total amount of such
withdrawals in any Annuity Year exceeds the maximum Free Withdrawal amount.
Any Lifetime Withdrawal that is treated as Excess Income is subject to any
applicable CDSC, if the withdrawal is greater than the Free Withdrawal
amount. (See "Fees, Charges and Deductions - Contingent Deferred Sales
Charge ("CDSC")" and "Access to Account Value - Free Withdrawal Amounts" in
the prospectus.)
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolio appears within the prospectus
section entitled "Investment Options." You can find a copy of the AST
Investment Grade Bond Portfolio prospectus by going to
www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the predetermined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to the Permitted Sub-accounts, or
to the requirements as to how you may allocate your Unadjusted Account
Value with this benefit, will apply to new elections of the benefit and may
apply to current participants in the benefit. To the extent that changes
apply to current participants in the benefit, they will only apply upon
re-allocation of Unadjusted Account Value, or upon addition of subsequent
Purchase Payments. That is, we will not require such current participants
to re-allocate Unadjusted Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
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newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Highest Daily
Lifetime Income v2.1 reduce your Unadjusted Account Value to zero. This
means that any Death Benefit is terminated and no Death Benefit is payable
if your Unadjusted Account Value is reduced to zero as the result of either
a withdrawal in excess of your Annual Income Amount or less than or equal
to, your Annual Income Amount. (See "Death Benefits" in the prospectus for
more information.)
.. The current charge for Highest Daily Lifetime Income v2.1 is 1.00% annually
of the greater of the Unadjusted Account Value and Protected Withdrawal
Value. The maximum charge for Highest Daily Lifetime Income v2.1 is 2.00%
annually of the greater of the Unadjusted Account Value and Protected
Withdrawal Value. As discussed in "Highest Daily Auto Step-Up" above, we
may increase the fee upon a step-up under this benefit. We deduct this
charge on quarterly anniversaries of the benefit effective date, based on
the values on the last Valuation Day prior to the quarterly anniversary.
Thus, we deduct, on a quarterly basis, 0.25% of the greater of the prior
Valuation Day's Unadjusted Account Value and the prior Valuation Day's
Protected Withdrawal Value. We deduct the fee pro rata from each of your
Sub-accounts, including the AST Investment Grade Bond Sub-account. You will
begin paying this charge as of the effective date of the benefit even if
you do not begin taking withdrawals for many years, or ever. We will not
refund the charges you have paid if you choose never to take any
withdrawals and/or if you never receive any lifetime income payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (and any associated Purchase Credits) (we refer to this as
the "Account Value Floor"), we will only deduct that portion of the charge
that would not cause the Unadjusted Account Value to fall below the Account
Value Floor. If the Unadjusted Account Value on the date we would deduct a
charge for the benefit is less than the Account Value Floor, then no charge
will be assessed for that benefit quarter. Charges deducted upon termination
of the benefit may cause the Unadjusted Account Value to fall below the
Account Value Floor. If a charge for Highest Daily Lifetime Income v2.1 would
be deducted on the same day we process a withdrawal request, the charge will
be deducted first, then the withdrawal will be processed. The withdrawal could
cause the Unadjusted Account Value to fall below the Account Value Floor.
While the deduction of the charge (other than the final charge) may not reduce
the Unadjusted Account Value to zero, partial withdrawals may reduce the
Unadjusted Account Value to zero. If this happens and the Annual Income Amount
is greater than zero, we will make payments under the benefit.
ELECTION OF AND DESIGNATIONS UNDER THE BENEFIT
For Highest Daily Lifetime Income v2.1, there must be either a single Owner
who is the same as the Annuitant, or if the Annuity is entity owned, there
must be a single natural person Annuitant. In either case, the Annuitant must
be at least 50 years old. Any change of the Annuitant under the Annuity will
result in cancellation of Highest Daily Lifetime Income v2.1. Similarly, any
change of Owner will result in cancellation of Highest Daily Lifetime Income
v2.1, except if (a) the new Owner has the same taxpayer identification number
as the previous Owner, (b) ownership is transferred from a custodian or other
entity to the Annuitant, or vice versa or (c) ownership is transferred from
one entity to another entity that satisfies our administrative ownership
guidelines.
Highest Daily Lifetime Income v2.1 can be elected at the time that you
purchase your Annuity or after the Issue Date, subject to its availability,
and our eligibility rules and restrictions. If you elect Highest Daily
Lifetime Income v2.1 and terminate it, you can re-elect it, subject to our
current rules and availability. See "Termination of Existing Benefits and
Election of New Benefits" in the prospectus for information pertaining to
elections, termination and re-election of benefits. PLEASE NOTE THAT IF YOU
TERMINATE A LIVING BENEFIT AND ELECT HIGHEST DAILY LIFETIME INCOME V2.1, YOU
LOSE THE GUARANTEES THAT YOU HAD ACCUMULATED UNDER YOUR EXISTING BENEFIT AND
YOUR GUARANTEES UNDER HIGHEST DAILY LIFETIME INCOME V2.1 WILL BE BASED ON YOUR
UNADJUSTED ACCOUNT VALUE ON THE EFFECTIVE DATE OF HIGHEST DAILY LIFETIME
INCOME V2.1. You and your Financial Professional should carefully consider
whether terminating your existing benefit and electing Highest Daily Lifetime
Income v2.1 is appropriate for you. We reserve the right to waive, change
and/or further limit the election frequency in the future for new elections of
this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Highest Daily Lifetime Income v2.1 so long as you participate in a
Systematic Withdrawal program in which withdrawals are not taken pro rata.
TERMINATION OF THE BENEFIT
You may terminate Highest Daily Lifetime Income v2.1 at any time by notifying
us. If you terminate the benefit, any guarantee provided by the benefit will
terminate as of the date the termination is effective, and certain
restrictions on re-election may apply.
THE BENEFIT AUTOMATICALLY TERMINATES UPON THE FIRST TO OCCUR OF THE FOLLOWING:
(I)YOUR TERMINATION OF THE BENEFIT;
(II)YOUR SURRENDER OF THE ANNUITY;
(III)YOUR ELECTION TO BEGIN RECEIVING ANNUITY PAYMENTS (ALTHOUGH IF YOU HAVE
ELECTED TO RECEIVE THE ANNUAL INCOME AMOUNT IN THE FORM OF ANNUITY
PAYMENTS, WE WILL CONTINUE TO PAY THE ANNUAL INCOME AMOUNT);
18
(IV)OUR RECEIPT OF DUE PROOF OF DEATH OF THE OWNER OR ANNUITANT (FOR
ENTITY-OWNED ANNUITIES);
(V)BOTH THE UNADJUSTED ACCOUNT VALUE AND ANNUAL INCOME AMOUNT EQUAL ZERO DUE
TO A WITHDRAWAL OF EXCESS INCOME;
(VI)YOU ALLOCATE OR TRANSFER ANY PORTION OF YOUR ACCOUNT VALUE TO ANY
SUB-ACCOUNT(S) TO WHICH YOU ARE NOT PERMITTED TO ELECTIVELY ALLOCATE OR
TRANSFER ACCOUNT VALUE (MAY VARY BY STATE);* OR
(VII)YOU CEASE TO MEET OUR REQUIREMENTS AS DESCRIBED IN "ELECTION OF AND
DESIGNATIONS UNDER THE BENEFIT" ABOVE.
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Highest Daily Lifetime Income v2.1 other than upon the
death of the Annuitant or Annuitization, we impose any accrued fee for the
benefit (i.e., the fee for the pro-rated portion of the year since the fee was
last assessed), and thereafter we cease deducting the charge for the benefit.
However, if the amount in the Sub-accounts is not enough to pay the charge, we
will reduce the fee to no more than the amount in the Sub-accounts. With
regard to your investment allocations, upon termination we will: (i) leave
intact amounts that are held in the Permitted Sub-accounts, and (ii) unless
you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
If a surviving spouse elects to continue the Annuity, Highest Daily Lifetime
Income v2.1 terminates upon Due Proof of Death. The spouse may newly elect the
benefit subject to the restrictions discussed above.
HOW HIGHEST DAILY LIFETIME INCOME V2.1 TRANSFERS UNADJUSTED ACCOUNT VALUE
BETWEEN YOUR PERMITTED SUB-ACCOUNTS AND THE AST INVESTMENT GRADE BOND
SUB-ACCOUNT
OVERVIEW OF THE PREDETERMINED MATHEMATICAL FORMULA
Our goal is to seek a careful balance between providing value-added products,
such as the Highest Daily Lifetime Income v2.1 suite of benefits, while
managing the risk associated with offering these products. One of the key
features that helps us accomplish that balance and an integral part of the
Highest Daily Lifetime Income v2.1 suite is the predetermined mathematical
formula used to transfer Unadjusted Account Value between the Permitted
Subaccounts and the AST Investment Grade Bond Sub-account, referred to in this
section as the "Bond Sub-account". The formula is designed primarily to
mitigate some of the financial risks that we incur in providing the guarantee
under the Highest Daily Lifetime Income v2.1 suite of benefits.
The formula is set forth in Appendix I of the prospectus (and is described
below).
The predetermined mathematical formula ("formula") monitors each individual
contract each Valuation Day that the benefit is in effect on your Annuity, in
order to help us manage guarantees through all market cycles. It helps manage
the risk associated with these benefits, which is generally represented by the
gap between your Unadjusted Account Value and the Protected Withdrawal Value.
As the gap between these two values increases, the formula will determine if
and how much money should be transferred into the Bond Sub-account. This
movement is intended to reduce the equity risk we will bear in funding our
obligation associated with these benefits. As the gap decreases (due to
favorable performance of the Unadjusted Account Value), the formula then
determines if and how much money should transfer back into the Permitted
Sub-accounts. The use of the formula, combined with restrictions on the
Sub-accounts you are allowed to invest in, lessens the risk that your
Unadjusted Account Value will be reduced to zero while you are still alive,
thus reducing the likelihood that we will make any lifetime income payments
under this benefit. It may also limit the potential for your Account Value to
grow.
However, in addition to providing lifetime income when your Account Value is
reduced to zero, Highest Daily Lifetime Income v2.1 can potentially dampen the
impact of volatility on your Account Value during extreme market downturns by
transferring assets from your chosen investments into the Bond Sub-account as
described above. This occurs pursuant to the predetermined mathematical
formula, which can limit the possibility or reduce the amount of a significant
loss of Account Value, and potentially provide a higher income stream in
retirement.
The formula is not forward looking and contains no predictive or projective
component with respect to the markets, the Unadjusted Account Value or the
Protected Withdrawal Value. We are not providing you with investment advice
through the use of the formula nor does the formula constitute an investment
strategy that we are recommending to you.
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TRANSFER ACTIVITY UNDER THE FORMULA
Prior to the first Lifetime Withdrawal, the primary driver of transfers to the
Bond Sub-account is the difference between your Unadjusted Account Value and
your Protected Withdrawal Value. If none of your Unadjusted Account Value is
allocated to the Bond Sub-account, then over time the formula permits an
increasing difference between the Unadjusted Account Value and the Protected
Withdrawal Value before a transfer to the Bond Sub-account occurs. Therefore,
over time, assuming none of the Unadjusted Account Value is allocated to the
Bond Sub-account, the formula will allow for a greater decrease in the
Unadjusted Account Value before a transfer to the Bond Sub-account is made.
It is important to understand that transfers within your Annuity are specific
to the performance of your chosen investment options, the performance of the
Bond Sub-account while money is invested in it, as well as how long the
benefit has been owned. For example, two contracts purchased on the same day,
but invested differently, will likely have different results, as would two
contracts purchased on different days with the same investment options.
Each market cycle is unique, therefore the performance of your Sub-accounts,
and its impact on your Unadjusted Account Value, will differ from market cycle
to market cycle, therefore producing different transfer activity under the
formula. The amount and timing of transfers to and from the Bond Sub-account
depend on various factors unique to your Annuity and are not necessarily
directly correlated with the securities markets, bond markets, interest rates
or any other market or index. Some of the factors that determine the amount
and timing of transfers (as applicable to your Annuity), include:
.. The difference between your Unadjusted Account Value and your Protected
Withdrawal Value;
.. The amount of time the benefit has been in effect on your Annuity;
.. The amount allocated to and the performance of the Permitted Sub-accounts
and the Bond Sub-account;
.. Any additional Purchase Payments you make to your Annuity (while the
benefit is in effect); and
.. Any withdrawals you take from your Annuity (while the benefit is in effect).
Under the formula, investment performance of your Unadjusted Account Value
that is negative, flat, or even moderately positive may result in a transfer
of a portion of your Unadjusted Account Value in the Permitted Sub-accounts to
the Bond Sub-account.
At any given time, some, most or none of your Unadjusted Account Value will be
allocated to the Bond Sub-account, as dictated by the formula.
The amount allocated to the Bond Sub-account and the amount allocated to the
Permitted Sub-accounts each is a variable in the formula. Therefore, the
investment performance of each affects whether a transfer occurs for your
Annuity. As the amounts allocated to either the Bond Sub-account or the
Permitted Sub-accounts increase, the performance of those sub-accounts will
have a greater impact on your Unadjusted Account Value and hence a greater
impact on if (and how much of) your Unadjusted Account Value is transferred to
or from the Bond Sub-account. It is possible that if a significant portion of
your Unadjusted Account Value is allocated to the Bond Sub-account and that
Sub-account has positive performance, the formula might transfer a portion of
your Unadjusted Account Value to the Permitted Sub-accounts, even if the
performance of your Permitted Sub-accounts is negative. Conversely, if a
significant portion of your Unadjusted Account Value is allocated to the Bond
Sub-account and that Sub-account has negative performance, the formula may
transfer additional amounts from your Permitted Sub-accounts to the Bond
Sub-account even if the performance of your Permitted Sub-accounts is positive.
HOW THE FORMULA OPERATES
Generally, the formula, which is applied each Valuation Day, takes four steps
in determining any applicable transfers within your Annuity.
(1)First, the formula starts by identifying the value of future income
payments we expect to pay. We refer to that value as the "Target Value" or
"L".
(2)Second, we subtract any amounts invested in the Bond Sub-account ("B") from
the Target Value and divide that number by the amount invested in the
Permitted Sub-Accounts ("V\\V\\ + V\\F\\"). We refer to this resulting
value as the "Target Ratio" or "R".
(3)Third, we compare the Target Ratio to designated thresholds and other rules
described in greater detail below to determine if a transfer needs to occur.
(4)If a transfer needs to occur, we use another calculation to determine the
amount of the transfer.
The Formula is:
More specifically, the formula operates as follows:
(1)We calculate the Target Value (L) by multiplying the income basis for that
day by 5% and by the applicable Annuity Factor found in Appendix I of the
prospectus. If you have already made a Lifetime Withdrawal, your Target
Value would take into account any automatic step-up, any subsequent
Purchase Payments (including any associated Purchase Credits with respect
to the X Series), and any withdrawals of Excess Income.
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Example (assume the income basis is $200,000, and the contract is 11 1/2
months old, resulting in an annuity factor of 14.95)
(2)Next, to calculate the Target Ratio (R), the Target Value is reduced by any
amount held within the Bond Sub-account (B) on that day. The remaining
amount is divided by the amount held within the Permitted Sub-accounts (V).
Example (assume the amount in the Bond Sub-account is zero, and the amount
held within the Permitted Sub-accounts is $179,500)
(3)If, on each of three consecutive Valuation Days, the Target Ratio is
greater than 83% but less than or equal to 84.5%, the formula will, on the
third Valuation Day, make a transfer from your Permitted Sub-accounts to
the Bond Sub-account (subject to the 90% cap discussed below). If, however,
on any Valuation Day, the Target Ratio is above 84.5%, the formula will
make a transfer from the Permitted Sub-accounts to the Bond Sub-account
(subject to the 90% cap). Once a transfer is made, the Target Ratio must
again be greater than 83% but less than or equal to 84.5% for three
consecutive Valuation Days before a subsequent transfer to the Bond
Sub-account will occur. If the Target Ratio falls below 78% on any
Valuation Day, then a transfer from the Bond Sub-account to the Permitted
Sub-accounts (excluding the DCA MVA Options) will occur.
Example: Assuming the Target Ratio is above 83% for a 3/rd/ consecutive
Valuation Day, but less than or equal to 84.5% for three consecutive
Valuation Days, a transfer into the Bond Portfolio occurred.
(4)In deciding how much to transfer, we perform a calculation that essentially
seeks to reallocate amounts held in the Permitted Sub-accounts and the Bond
Sub-account so that the Target Ratio meets a target, which currently is
equal to 80% (subject to the 90% Cap discussion below). The further the
Target Ratio is from 80% when a transfer is occurring under the formula,
the greater the transfer amount will be.
THE 90% CAP
The formula will not execute a transfer to the Bond Sub-account that results
in more than 90% of your Unadjusted Account Value being allocated to the Bond
Sub-account ("90% cap") on that Valuation Day. Thus, on any Valuation Day, if
the formula would require a transfer to the Bond Sub-account that would result
in more than 90% of the Unadjusted Account Value being allocated to the Bond
Sub-account, only the amount that results in exactly 90% of the Unadjusted
Account Value being allocated to the Bond Sub-account will be transferred.
Additionally, future transfers into the Bond Sub-account will not be made
(regardless of the performance of the Bond Sub-account and the Permitted
Sub-accounts) at least until there is first a transfer out of the Bond
Sub-account. Once this transfer occurs out of the Bond Sub-account, future
amounts may be transferred to or from the Bond Sub-account (subject to the 90%
cap).
Under the operation of the formula, the 90% cap may come into and out of
effect multiple times while you participate in the benefit. At no time will
the formula make a transfer to the Bond Sub-account that results in greater
than 90% of your Unadjusted Account Value being allocated to the Bond
Sub-account. However, it is possible that, due to the investment performance
of your allocations in the Bond Sub-account and your allocations in the
Permitted Sub-accounts you have selected, your Unadjusted Account Value could
be more than 90% invested in the Bond Sub-account.
MONTHLY TRANSFERS
Additionally, on each monthly Annuity Anniversary (if the monthly Annuity
Anniversary does not fall on a Valuation Day, the next Valuation Day will be
used), following all of the above described daily calculations, if there is
money allocated to the Bond Sub-account, the formula will perform an
additional calculation to determine whether or not a transfer will be made
from the Bond Sub-account to the Permitted Sub-accounts. This transfer will
automatically occur provided that the Target Ratio, as described above, would
be less than 83% after this transfer. The formula will not execute a transfer
if the Target Ratio after this transfer would occur would be greater than or
equal to 83%.
The amount of the transfer will be equal to the lesser of:
a) The total value of all your Unadjusted Account Value in the Bond
Sub-account, or
b) An amount equal to 5% of your total Unadjusted Account Value.
OTHER IMPORTANT INFORMATION
.. The Bond sub-account is not a Permitted Sub-account. As such, only the
formula can transfer Unadjusted Account Value to or from the Bond
Sub-account. You may not allocate Purchase Payments or transfer any of your
Unadjusted Account Value to or from the Bond Sub-account.
21
.. While you are not notified before a transfer occurs to or from the Bond
Sub-account, you will receive a confirmation statement indicating the
transfer of a portion of your Unadjusted Account Value either to or from
the Bond Sub-account. Your confirmation statements will be detailed to
include the effective date of the transfer, the dollar amount of the
transfer and the Permitted Sub-accounts the funds are being transferred
to/from. Depending on the results of the calculations of the formula, we
may, on any Valuation Day:
. Not make any transfer between the Permitted Sub-accounts and the Bond
Sub-account; or
. If a portion of your Unadjusted Account Value was previously allocated
to the Bond Sub-account, transfer all or a portion of those amounts to
the Permitted Sub-accounts (as described above); or
. Transfer a portion of your Unadjusted Account Value in the Permitted
Sub-accounts and the DCA MVA Options to the Bond Sub-account.
.. If you make additional Purchase Payments to your Annuity, they will be
allocated to the Permitted Sub-accounts and will be subject to the formula.
.. Additional Purchase Payments to your Annuity do not increase "B" within the
formula, and may result in an additional Account Value being transferred to
the Permitted Sub-accounts, or a transfer to the Bond Sub-account due to
the change in the ratio.
.. If you make additional Purchase Payments to your Annuity while the 90% cap
is in effect, the formula will not transfer any of such additional Purchase
Payments to the Bond Sub-account at least until there is first a transfer
out of the Bond Sub-account, regardless of how much of your Unadjusted
Account Value is in the Permitted Sub-accounts. This means that there could
be scenarios under which, because of the additional Purchase Payments you
make, less than 90% of your entire Unadjusted Account Value is allocated to
the Bond Sub-account, and the formula will still not transfer any of your
Unadjusted Account Value to the Bond Sub-account (at least until there is
first a transfer out of the Bond Sub-account).
.. If you are participating in Highest Daily Lifetime Income v2.1 and you are
also participating in the 6 or 12 Month DCA Program, the following rules
apply:
. DCA MVA Options are considered "Permitted Sub-accounts" for purpose of
the Target Ratio calculation ("L") described above.
. The formula may transfer amounts out of the DCA MVA Options to the Bond
Sub-account if the amount allocated to the other Permitted Sub-accounts
is insufficient to cover the amount of the transfer.
. The transfer formula will not allocate amounts to the DCA MVA Options
when there is a transfer out of the Bond Sub-account . Such transfers
will be allocated pro-rata to the variable Sub-accounts, excluding the
Bond Sub-account.
. A Market Value Adjustment is not assessed when amounts are transferred
out of the DCA MVA Options under the transfer formula.
ADDITIONAL TAX CONSIDERATIONS
If you purchase an annuity as an investment vehicle for "qualified"
investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or
employer plan under Code Section 401(a), the Required Minimum Distribution
rules under the Code provide that you begin receiving periodic amounts
beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for
which the participant is not a greater than five (5) percent Owner of the
employer, this required beginning date can generally be deferred to
retirement, if later. Roth IRAs are not subject to these rules during the
Owner's lifetime. In addition, the amount and duration of payments under the
annuity payment provision may be adjusted so that the payments do not trigger
any penalty or excise taxes due to tax considerations such as Required Minimum
Distribution rules under the tax law.
As indicated, withdrawals made while this benefit is in effect will be
treated, for tax purposes, in the same way as any other withdrawals under the
Annuity. Please see the Tax Considerations section of the prospectus for a
detailed discussion of the tax treatment of withdrawals. We do not address
each potential tax scenario that could arise with respect to this benefit
here. However, we do note that if you participate in any Highest Daily
Lifetime Income v2.1 benefit through a non-qualified annuity, as with all
withdrawals, once all Purchase Payments are returned under the Annuity, all
subsequent withdrawal amounts will be taxed as ordinary income.
SPOUSAL HIGHEST DAILY LIFETIME(R) INCOME V2.1 BENEFIT
Spousal Highest Daily Lifetime(R) Income v2.1 is a lifetime guaranteed minimum
withdrawal benefit, under which, subject to the terms of the benefit, we
guarantee your ability to take a certain annual withdrawal amount for the
lives of two individuals who are spouses. We reserve the right, in our sole
discretion, to cease offering this benefit for new elections at any time.
We offer a benefit that guarantees, until the later death of two natural
persons who are each other's spouses at the time of election of the benefit
and at the first death of one of them (the "designated lives", and each, a
"designated life"), the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial principal value (the
"Protected Withdrawal Value") regardless of the impact of Sub-account
performance on the Unadjusted Account Value, subject to our rules regarding
the timing and amount of withdrawals. You are guaranteed to be able to
withdraw the Annual Income Amount for the lives of the designated lives,
provided you have not made withdrawals of Excess Income that result in your
Unadjusted Account Value being reduced to zero. We also permit you to
designate the first withdrawal from your Annuity as a one-time "Non-Lifetime
Withdrawal." All other withdrawals from your Annuity are considered a
"Lifetime Withdrawal" under the benefit. Withdrawals are
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taken first from your own Account Value. We are only required to begin making
lifetime income payments to you under our guarantee when and if your
Unadjusted Account Value is reduced to zero (for any reason other than due to
partial withdrawals of Excess Income). The benefit may be appropriate if you
intend to make periodic withdrawals from your Annuity, wish to ensure that
Sub-account performance will not affect your ability to receive annual
payments, and wish either spouse to be able to continue Spousal Highest Daily
Lifetime Income v2.1 after the death of the first spouse. You are not required
to make withdrawals as part of the benefit - the guarantees are not lost if
you withdraw less than the maximum allowable amount each year under the rules
of the benefit. An integral component of Spousal Highest Daily Lifetime Income
v2.1 is the predetermined mathematical formula we employ that may periodically
transfer your Unadjusted Account Value to and from the AST Investment Grade
Bond Sub-account. See the section above entitled "How Highest Daily Lifetime
Income v2.1 Transfers Unadjusted Account Value Between Your Permitted
Sub-accounts and the AST Investment Grade Bond Sub-account."
Spousal Highest Daily Lifetime Income v2.1 is the spousal version of Highest
Daily Lifetime Income v2.1. This version is only being offered in those
jurisdictions where we have received regulatory approval and will be offered
subsequently in other jurisdictions when we receive regulatory approval in
those jurisdictions. Currently, if you elect Spousal Highest Daily Lifetime
Income v2.1 and subsequently terminate the benefit, you may elect another
living benefit, subject to our current rules. See "Election of and
Designations under the Benefit" below and "Termination of Existing Benefits
and Election of New Benefits" in the prospectus for details. Please note that
if you terminate Spousal Highest Daily Lifetime Income v2.1 and elect another
benefit, you lose the guarantees that you had accumulated under your existing
benefit and will begin the new guarantees under the new benefit you elect
based on your Unadjusted Account Value as of the date the new benefit becomes
active. Spousal Highest Daily Lifetime Income v2.1 must be elected based on
two designated lives, as described below. Each designated life must be at
least 50 years old when the benefit is elected. Spousal Highest Daily Lifetime
Income v2.1 is not available if you elect any other optional living benefit.
As long as your Spousal Highest Daily Lifetime Income v2.1 is in effect, you
must allocate your Unadjusted Account Value in accordance with the permitted
Sub-accounts and other Investment Option(s) available with this benefit. For a
more detailed description of the permitted Investment Options, see the
"Investment Options" section of the prospectus.
ALTHOUGH YOU ARE GUARANTEED THE ABILITY TO WITHDRAW YOUR ANNUAL INCOME AMOUNT
FOR LIFE EVEN IF YOUR UNADJUSTED ACCOUNT VALUE FALLS TO ZERO, IF THAT
PARTICULAR WITHDRAWAL OF EXCESS INCOME (DESCRIBED BELOW) BRINGS YOUR
UNADJUSTED ACCOUNT VALUE TO ZERO, YOUR ANNUAL INCOME AMOUNT ALSO WOULD FALL TO
ZERO, AND THE BENEFIT AND THE ANNUITY THEN WOULD TERMINATE. IN THAT SCENARIO,
NO FURTHER AMOUNT WOULD BE PAYABLE UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME
V2.1. AS TO THE IMPACT OF SUCH A SCENARIO ON ANY OTHER OPTIONAL BENEFIT YOU
MAY HAVE, PLEASE SEE THE FOLLOWING SECTIONS IN THIS SUPPLEMENT: "HIGHEST DAILY
LIFETIME INCOME V2.1 BENEFIT", "HIGHEST DAILY LIFETIME INCOME V2.1 WITH
HIGHEST DAILY DEATH BENEFIT" AND "SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1
WITH HIGHEST DAILY DEATH BENEFIT".
You may also participate in the 6 or 12 Month Dollar Cost Averaging Program if
you elect Spousal Highest Daily Lifetime Income v2.1, subject to the 6 or 12
Month DCA Program's rules. See the section of the prospectus entitled "6 or 12
Month Dollar Cost Averaging Program" for details.
KEY FEATURE - PROTECTED WITHDRAWAL VALUE
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraph.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value ON OR BEFORE the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls ON OR BEFORE the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment (including any
associated Purchase Credits) made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
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The Periodic Value AFTER the Roll-Up End Date
On any Current Valuation Day that falls AFTER the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment (including any associated Purchase Credits) made on the
Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments (including any associated Purchase Credits) and reduced for
subsequent Lifetime Withdrawals, and (ii) the highest daily Unadjusted Account
Value upon any step-up, increased for subsequent Purchase Payments (including
any associated Purchase Credits) and reduced for subsequent Lifetime
Withdrawals (see the examples that begin immediately prior to the sub-heading
below entitled "Example of dollar-for-dollar reductions").
PLEASE NOTE THAT IF YOU ELECT SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1, YOUR
ACCOUNT VALUE IS NOT GUARANTEED, CAN FLUCTUATE AND MAY LOSE VALUE.
KEY FEATURE - ANNUAL INCOME AMOUNT UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME
V2.1
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the younger designated life on the date of the first Lifetime
Withdrawal after election of the benefit. The percentages are: 2.5% for ages
50 to 54; 3% for ages 55 to less than 59 1/2; 3.5% for ages 59 1/2 to 64; 4%
for ages 65 to 69; 4.5% for ages 70 to 84; and 5.5% for ages 85 or older. We
use the age of the younger designated life even if that designated life is no
longer a participant under the Annuity due to death or divorce. Under Spousal
Highest Daily Lifetime Income v2.1, if your cumulative Lifetime Withdrawals in
an Annuity Year are less than or equal to the Annual Income Amount, they will
not reduce your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year and also will reduce the Protected Withdrawal Value on a
dollar-for-dollar basis. If your cumulative Lifetime Withdrawals in an Annuity
Year are in excess of the Annual Income Amount for any Annuity Year ("Excess
Income"), your Annual Income Amount in subsequent years will be reduced
(except with regard to Required Minimum Distributions for this Annuity that
comply with our rules) by the result of the ratio of the Excess Income to the
Unadjusted Account Value immediately prior to such withdrawal (see examples of
this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
AS DISCUSSED IN THIS PARAGRAPH, WHEN YOU MAKE A PARTIAL WITHDRAWAL THAT IS
SUBJECT TO A CDSC AND/OR TAX WITHHOLDING, WE WILL IDENTIFY THE AMOUNT THAT
INCLUDES NOT ONLY THE AMOUNT YOU ACTUALLY RECEIVE, BUT ALSO THE AMOUNT OF THE
CDSC AND/OR TAX WITHHOLDING, TO DETERMINE WHETHER YOUR WITHDRAWAL HAS EXCEEDED
THE ANNUAL INCOME AMOUNT. WHEN YOU TAKE A PARTIAL WITHDRAWAL, YOU MAY REQUEST
A "GROSS" WITHDRAWAL AMOUNT (E.G., $2,000) BUT THEN HAVE ANY CDSC AND/OR TAX
WITHHOLDING DEDUCTED FROM THE AMOUNT YOU ACTUALLY RECEIVE (ALTHOUGH AN MVA MAY
ALSO BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE, IT IS NOT
CONSIDERED FOR PURPOSES OF DETERMINING EXCESS INCOME). THE PORTION OF A
WITHDRAWAL THAT EXCEEDED YOUR ANNUAL INCOME AMOUNT (IF ANY) WOULD BE TREATED
AS EXCESS INCOME AND THUS WOULD REDUCE YOUR ANNUAL INCOME AMOUNT IN SUBSEQUENT
YEARS. ALTERNATIVELY, YOU MAY REQUEST THAT A "NET" WITHDRAWAL AMOUNT ACTUALLY
BE PAID TO YOU (E.G., $2,000), WITH THE UNDERSTANDING THAT ANY CDSC AND/OR TAX
WITHHOLDING (E.G., $240) BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE
(ALTHOUGH AN MVA MAY ALSO BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT
VALUE, IT IS NOT CONSIDERED FOR PURPOSES OF DETERMINING EXCESS INCOME). IN THE
LATTER SCENARIO, WE DETERMINE WHETHER ANY PORTION OF THE WITHDRAWAL IS TO BE
TREATED AS EXCESS INCOME BY LOOKING TO THE SUM OF THE NET AMOUNT YOU ACTUALLY
RECEIVE (E.G., $2,000) AND THE AMOUNT OF ANY CDSC AND/OR TAX WITHHOLDING (IN
THIS EXAMPLE, A TOTAL OF $2,240). THE AMOUNT OF THAT SUM (E.G., THE $2,000 YOU
RECEIVED PLUS THE $240 FOR THE CDSC AND/OR TAX WITHHOLDING) THAT EXCEEDS YOUR
ANNUAL INCOME AMOUNT WILL BE TREATED AS EXCESS INCOME - THEREBY REDUCING YOUR
ANNUAL INCOME AMOUNT IN SUBSEQUENT YEARS.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Spousal
Highest Daily Lifetime Income v2.1 and subsequent to the first Lifetime
Withdrawal will (i) immediately increase the then-existing Annual Income
Amount by an amount equal to a percentage of the Purchase Payment (including
any associated Purchase Credits) based on the age of the younger designated
life at the time of the first Lifetime Withdrawal (the percentages are: 2.5%
for ages 50 to 54; 3% for ages 55 to less than 59 1/2; 3.5% for ages 59 1/2 to
64; 4% for ages 65 to 69; 4.5% for ages 70 to 84; and 5.5% for ages 85 or
older), and (ii) increase the Protected Withdrawal Value by the amount of the
Purchase Payment (including any associated Purchase Credits).
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While Spousal Highest Daily Lifetime Income v2.1 is in effect, we may limit,
restrict, suspend or reject any additional Purchase Payment at any time, but
would do so on a non-discriminatory basis. Circumstances where we may limit,
restrict, suspend or reject additional Purchase Payments include, but are not
limited to, the following:
.. if we determine that as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Spousal Highest Daily Lifetime Income v2.1 benefit. This means
that you may no longer be able to increase the values associated with your
Spousal Highest Daily Lifetime Income v2.1 benefit through additional Purchase
Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity, in a non-discriminatory manner.
HIGHEST DAILY AUTO STEP-UP
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of this
benefit. As detailed in this paragraph, the Highest Daily Auto Step-Up feature
can result in a larger Annual Income Amount subsequent to your first Lifetime
Withdrawal. The Highest Daily Step-Up starts with the anniversary of the Issue
Date of the Annuity (the "Annuity Anniversary") immediately after your first
Lifetime Withdrawal under the benefit. Specifically, upon the first such
Annuity Anniversary, we identify the Unadjusted Account Value on each
Valuation Day within the immediately preceding Annuity Year after your first
Lifetime Withdrawal. Having identified the highest daily value (after all
daily values have been adjusted for subsequent Purchase Payments and
withdrawals), we then multiply that value by a percentage that varies based on
the age of the younger designated life on the Annuity Anniversary as of which
the step-up would occur. The percentages are 2.5% for ages 50 to 54; 3% for
ages 55 to less than 59 1/2; 3.5% for ages 59 1/2 to 64; 4% for ages 65 to 69;
4.5% for ages 70 to 84; and 5.5% for ages 85 or older. If that value exceeds
the existing Annual Income Amount, we replace the existing amount with the
new, higher amount. Otherwise, we leave the existing Annual Income Amount
intact. We will not automatically increase your Annual Income Amount solely as
a result of your attaining a new age that is associated with a new age-based
percentage. The Unadjusted Account Value on the Annuity Anniversary is
considered the last daily step-up value of the Annuity Year. In later years
(i.e., after the first Annuity Anniversary after the first Lifetime
Withdrawal), we determine whether an automatic step-up should occur on each
Annuity Anniversary by performing a similar examination of the Unadjusted
Account Values that occurred on Valuation Days during the year. Taking
Lifetime Withdrawals could produce a greater difference between your Protected
Withdrawal Value and your Unadjusted Account Value, which may make a Highest
Daily Auto Step-up less likely to occur. At the time that we increase your
Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the date that we implement a Highest Daily Auto Step-Up to your Annual
Income Amount, the charge for Spousal Highest Daily Lifetime Income v2.1 has
changed for new purchasers, you may be subject to the new charge at the time
of such step-up. Prior to increasing your charge for Spousal Highest Daily
Lifetime Income v2.1 upon a step-up, we would notify you, and give you the
opportunity to cancel the automatic step-up feature. If you receive notice of
a proposed step-up and accompanying fee increase, you should carefully
evaluate whether the amount of the step-up justifies the increased fee to
which you will be subject. Any such increased charge will not be greater than
the maximum charge set forth in the table entitled "Your Optional Benefit Fees
and Charges".
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Spousal Highest Daily Lifetime Income v2.1 does not affect your ability to
take withdrawals under your Annuity, or limit your ability to take partial
withdrawals that exceed the Annual Income Amount. Under Spousal Highest Daily
Lifetime Income v2.1, if your cumulative Lifetime Withdrawals in an Annuity
Year are less than or equal to the Annual Income Amount, they will not reduce
your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year. If, cumulatively, you withdraw an amount less than the
Annual Income Amount in any Annuity Year, you cannot carry over the unused
portion of the Annual Income Amount to subsequent Annuity Years. If your
cumulative Lifetime Withdrawals in an Annuity Year exceed the Annual Income
Amount, your Annual Income Amount in subsequent years will be reduced (except
with regard to Required Minimum Distributions for this Annuity that comply
with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
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Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Spousal Highest Daily
Lifetime Income v2.1 or any other fees and charges under the Annuity. Assume
the following for all three examples:
.. The Issue Date is November 1
.. Spousal Highest Daily Lifetime Income v2.1 is elected on August 1 of the
following calendar year
.. Both designated lives were 70 years old when they elected Spousal Highest
Daily Lifetime Income v2.1
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
EXAMPLE OF DOLLAR-FOR-DOLLAR REDUCTIONS
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $5,400 (since the younger designated life is between
the ages of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual
Income Amount is 4.5% of the Protected Withdrawal Value, in this case 4.5% of
$120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the
remaining Annual Income Amount for that Annuity Year (up to and including
October 31) is $2,900. This is the result of a dollar-for-dollar reduction of
the Annual Income Amount ($5,400 less $2,500 = $2,900).
EXAMPLE OF PROPORTIONAL REDUCTIONS
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $2,900 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $2,100 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there were other
withdrawals in that Annuity Year, each would result in another proportional
reduction to the Annual Income Amount).
HERE IS THE CALCULATION:
EXAMPLE OF HIGHEST DAILY AUTO STEP-UP
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
younger designated life's age on that Annuity Anniversary) of the highest
daily value since your first Lifetime Withdrawal (or last Annuity Anniversary
in subsequent years), adjusted for withdrawals and additional Purchase
Payments (including any associated Purchase Credits), is greater than the
Annual Income Amount, adjusted for Excess Income and additional Purchase
Payments (including any associated Purchase Credits).
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $5,400. However, the Excess Income on October 29 reduces the
amount to $5,301.72 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 4.5% (since the younger
designated life is between 70 and 84 on the date of the potential step-up) of
the highest daily Unadjusted Account Value adjusted for withdrawals and
Purchase Payments (including any associated Purchase Credits), is greater than
$5,301.72. Here are the calculations for determining the daily values. Only
the October 28 value is being adjusted for Excess Income as the
October 30, October 31 and November 1 Valuation Days occur after the Excess
Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be every day following the Annuity
Anniversary. The Annuity Anniversary Date of November 1 is considered the
final Valuation Date for the Annuity Year.
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** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,355.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $2,900 ($2,900 is the remaining Annual Income
Amount for the Annuity Year), resulting in an Unadjusted Account Value
of $116,100 before the Excess Income.
. This amount ($116,100) is further reduced by 1.82% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.98.
. The adjusted October 29 Highest Daily Value, $113,986.98, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.98 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.98 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.98
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 4.5%, generating
an Annual Income Amount of $5,355.00. Since this amount is greater than the
current year's Annual Income Amount of $5,301.72 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,355.00.
NON-LIFETIME WITHDRAWAL FEATURE
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Spousal Highest Daily Lifetime Income v2.1. It is an optional feature of
the benefit that you can only elect at the time of your first withdrawal. You
cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders - Surrender Value" in the
prospectus). This Non-Lifetime Withdrawal will not establish your initial
Annual Income Amount and the Periodic Value above will continue to be
calculated. However, the total amount of the withdrawal will proportionally
reduce all guarantees associated with Spousal Highest Daily Lifetime Income
v2.1. You must tell us at the time you take the partial withdrawal if your
withdrawal is intended to be the Non-Lifetime Withdrawal and not the first
Lifetime Withdrawal under Spousal Highest Daily Lifetime Income v2.1. If you
don't elect the Non-Lifetime Withdrawal, the first withdrawal you make will be
the first Lifetime Withdrawal that establishes your Annual Income Amount,
which is based on your Protected Withdrawal Value. Once you elect the
Non-Lifetime Withdrawal or Lifetime Withdrawals, no additional Non-Lifetime
Withdrawals may be taken. If you do not take a Non-Lifetime Withdrawal before
beginning Lifetime Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value by the percentage the total withdrawal amount (including any
applicable CDSC) represents of the then current Account Value immediately
prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
EXAMPLE - NON-LIFETIME WITHDRAWAL (PROPORTIONAL REDUCTION)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit. Assume the following:
.. The Issue Date is December 3
.. Spousal Highest Daily Lifetime Income v2.1 is elected on September 4 of the
following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. Each designated life was 70 years old when he/she elected Spousal Highest
Daily Lifetime Income v2.1
.. No previous withdrawals have been taken under Spousal Highest Daily
Lifetime Income v2.1
On October 3 of the year the benefit is elected, the Protected Withdrawal
Value is $125,000 and the Account Value is $120,000. Assuming $15,000 is
withdrawn from the Annuity on that same October 3 and is designated as a
Non-Lifetime Withdrawal, all guarantees associated with Spousal Highest Daily
Lifetime Income v2.1 will be reduced by the ratio the total withdrawal amount
represents of the Account Value just prior to the withdrawal being taken.
HERE IS THE CALCULATION:
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REQUIRED MINIMUM DISTRIBUTIONS
See the sub-section entitled "Required Minimum Distributions" in the section
above concerning Highest Daily Lifetime Income v2.1 for a discussion of the
relationship between the RMD amount and the Annual Income Amount.
BENEFITS UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and amounts are still payable
under Spousal Highest Daily Lifetime Income v2.1, we will make an
additional payment, if any, for that Annuity Year equal to the remaining
Annual Income Amount for the Annuity Year. Thus, in that scenario, the
remaining Annual Income Amount would be payable even though your Unadjusted
Account Value was reduced to zero. In subsequent Annuity Years we make
payments that equal the Annual Income Amount as described in this section.
We will make payments until the death of the first of the designated lives
to die, and will continue to make payments until the death of the second
designated life as long as the designated lives were spouses at the time of
the first death. After the Unadjusted Account Value is reduced to zero, you
are not permitted to make additional Purchase Payments to your Annuity. TO
THE EXTENT THAT CUMULATIVE WITHDRAWALS IN THE ANNUITY YEAR THAT REDUCED
YOUR UNADJUSTED ACCOUNT VALUE TO ZERO ARE MORE THAN THE ANNUAL INCOME
AMOUNT, SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 TERMINATES, AND NO
ADDITIONAL PAYMENTS WILL BE PERMITTED. HOWEVER, IF A WITHDRAWAL IN THE
LATTER SCENARIO WAS TAKEN TO SATISFY A REQUIRED MINIMUM DISTRIBUTION (AS
DESCRIBED ABOVE) UNDER THE ANNUITY THEN THE BENEFIT WILL NOT TERMINATE, AND
WE WILL CONTINUE TO PAY THE ANNUAL INCOME AMOUNT IN SUBSEQUENT ANNUITY
YEARS UNTIL THE DEATH OF THE SECOND DESIGNATED LIFE PROVIDED THE DESIGNATED
LIVES WERE SPOUSES AT THE DEATH OF THE FIRST DESIGNATED LIFE.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments. Also, any Death Benefit will terminate if
withdrawals reduce your Unadjusted Account Value to zero. This means that
any Death Benefit is terminated and no Death Benefit is payable if your
Unadjusted Account Value is reduced to zero as the result of either a
withdrawal in excess of your Annual Income Amount or less than or equal to,
your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable state
required premium tax, to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. We will
make payments until the first of the designated lives to die, and
will continue to make payments until the death of the second
designated life as long as the designated lives were spouses at the
time of the first death. If, due to death of a designated life or
divorce prior to annuitization, only a single designated life
remains, then annuity payments will be made as a life annuity for the
lifetime of the designated life. We must receive your request in a
form acceptable to us at our office. If applying your Unadjusted
Account Value, less any applicable tax charges, to our current life
only (or joint life, depending on the number of designated lives
remaining) annuity payment rates results in a higher annual payment,
we will give you the higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin,
we currently make annual annuity payments as a joint and survivor or single
(as applicable) life fixed annuity with eight payments certain, by applying
the greater of the annuity rates then currently available or the annuity
rates guaranteed in your Annuity. We reserve the right at any time to
increase or decrease the certain period in order to comply with the Code
(e.g., to shorten the period certain to match life expectancy under
applicable Internal Revenue Service tables). The amount that will be
applied to provide such annuity payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual
Income Amount as if you made your first Lifetime Withdrawal on the
date the annuity payments are to begin). Such present value will be
calculated using the greater of the joint and survivor or single (as
applicable) life fixed annuity rates then currently available or the
joint and survivor or single (as applicable) life fixed annuity rates
guaranteed in your Annuity; and
(2)the Unadjusted Account Value.
OTHER IMPORTANT CONSIDERATIONS
.. Withdrawals under the Spousal Highest Daily Lifetime Income v2.1 benefit
are subject to all of the terms and conditions of the Annuity, including
any applicable CDSC for the Non-Lifetime Withdrawal as well as partial
withdrawals that exceed the Annual Income Amount. If you have an active
Systematic Withdrawal program running at the time you elect this benefit,
the first systematic withdrawal that processes after your election of the
benefit will be deemed a Lifetime Withdrawal. Withdrawals made while
Spousal Highest Daily Lifetime Income v2.1 is in effect will be treated,
for tax purposes, in the same way as any other withdrawals under the
Annuity. Any withdrawals made under the benefit will be taken pro rata from
the Sub-accounts (including the AST Investment Grade Bond Sub-account) and
the DCA MVA Options. If you have an active Systematic Withdrawal program
running at the time you elect this benefit, the program must withdraw funds
pro rata.
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.. Any Lifetime Withdrawal that you take that is not a withdrawal of Excess
Income is not subject to a CDSC, even if the total amount of such
withdrawals in any Annuity Year exceeds the maximum Free Withdrawal amount.
Any Lifetime Withdrawal that is treated as Excess Income is subject to any
applicable CDSC, if the withdrawal is greater than the Free Withdrawal
amount. (See "Fees, Charges and Deductions - Contingent Deferred Sales
Charge ("CDSC")" and "Access to Account Value - Free Withdrawal Amounts" in
the prospectus)
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolios appears in the prospectus
section entitled "Investment Options." In addition, you can find a copy of
the AST Investment Grade Bond Portfolio prospectus by going to
www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the pre-determined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to Permitted Sub-accounts, or to
the requirements as to how you may allocate your Unadjusted Account Value
with this benefit, will apply to new elections of the benefit and may apply
to current participants in the benefit. To the extent that changes apply to
current participants in the benefit, they will apply only upon
re-allocation of Unadjusted Account Value, or upon addition of additional
Purchase Payments. That is, we will not require such current participants
to re-allocate Unadjusted Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Spousal Highest
Daily Lifetime Income v2.1 reduce your Unadjusted Account Value to zero.
This means that any Death Benefit is terminated and no Death Benefit is
payable if your Unadjusted Account Value is reduced to zero as the result
of either a withdrawal in excess of your Annual Income Amount or less than
or equal to, your Annual Income Amount. (See "Death Benefits" in the
prospectus for more information.)
.. The current charge for Spousal Highest Daily Lifetime Income v2.1 is 1.10%
annually of the greater of Unadjusted Account Value and Protected
Withdrawal Value. The maximum charge for Spousal Highest Daily Lifetime
Income v2.1 is 2.00% annually of the greater of the Unadjusted Account
Value and Protected Withdrawal Value. As discussed in "Highest Daily Auto
Step-Up" above, we may increase the fee upon a step-up under this benefit.
We deduct this charge on quarterly anniversaries of the benefit effective
date, based on the values on the last Valuation Day prior to the quarterly
anniversary. Thus, we deduct, on a quarterly basis, 0.275% of the greater
of the prior Valuation Day's Unadjusted Account Value, or the prior
Valuation Day's Protected Withdrawal Value. We deduct the fee pro rata from
each of your Sub-accounts, including the AST Investment Grade Bond
Sub-account. You will begin paying this charge as of the effective date of
the benefit even if you do not begin taking withdrawals for many years, or
ever. We will not refund the charges you have paid if you choose never to
take any withdrawals and/or if you never receive any lifetime income
payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (and any associated Purchase Credits) (we refer to this as
the "Account Value Floor"), we will only deduct that portion of the charge
that would not cause the Unadjusted Account Value to fall below the Account
Value Floor. If the Unadjusted Account Value on the date we would deduct a
charge for the benefit is less than the Account Value Floor, then no charge
will be assessed for that benefit quarter. Charges deducted upon termination
of the benefit may cause the Unadjusted Account Value to fall below the
Account Value Floor. If a charge for Spousal Highest Daily Lifetime Income
v2.1 would be deducted on the same day we process a withdrawal request, the
charge will be deducted first, then the withdrawal will be processed. The
withdrawal could cause the Unadjusted Account Value to fall below the Account
Value Floor. While the deduction of the charge (other than the final charge)
may not reduce the Unadjusted Account Value to zero, withdrawals may reduce
the Unadjusted Account Value to zero. If this happens and the Annual Income
Amount is greater than zero, we will make payments under the benefit.
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ELECTION OF AND DESIGNATIONS UNDER THE BENEFIT
Spousal Highest Daily Lifetime Income v2.1 can only be elected based on two
designated lives. Designated lives must be natural persons who are each
other's spouses at the time of election of the benefit and at the death of the
first of the designated lives to die. Currently, Spousal Highest Daily
Lifetime Income v2.1 only may be elected if the Owner, Annuitant, and
Beneficiary designations are as follows:
.. One Annuity Owner, where the Annuitant and the Owner are the same person
and the sole Beneficiary is the Owner's spouse. Each Owner/Annuitant and
the Beneficiary must be at least 50 years old at the time of election; or
.. Co-Annuity Owners, where the Owners are each other's spouses. The
Beneficiary designation must be the surviving spouse, or the spouses named
equally. One of the Owners must be the Annuitant. Each Owner must be at
least 50 years old at the time of election; or
.. One Annuity Owner, where the Owner is a custodial account established to
hold retirement assets for the benefit of the Annuitant pursuant to the
provisions of Section 408(a) of the Internal Revenue Code (or any successor
Code section thereto) ("Custodial Account"), the Beneficiary is the
Custodial Account, and the spouse of the Annuitant is the Contingent
Annuitant. Each of the Annuitant and the Contingent Annuitant must be at
least 50 years old at the time of election.
We do not permit a change of Owner under this benefit, except as follows:
(a) if one Owner dies and the surviving spousal Owner assumes the Annuity, or
(b) if the Annuity initially is co-owned, but thereafter the Owner who is not
the Annuitant is removed as Owner. We permit changes of Beneficiary
designations under this benefit. However, if the Beneficiary is changed, the
benefit may not be eligible to be continued upon the death of the first
designated life. If the designated lives divorce, Spousal Highest Daily
Lifetime Income v2.1 may not be divided as part of the divorce settlement or
judgment. Nor may the divorcing spouse who retains ownership of the Annuity
appoint a new designated life upon re-marriage. A change in designated lives
will result in cancellation of Spousal Highest Daily Lifetime Income v2.1.
Spousal Highest Daily Lifetime Income v2.1 can be elected at the time that you
purchase your Annuity or after the Issue Date, subject to its availability,
and our eligibility rules and restrictions. If you elect Spousal Highest Daily
Lifetime Income v2.1 and terminate it, you can re-elect it, subject to our
current rules and availability. See "Termination of Existing Benefits and
Election of New Benefits" in the prospectus for information pertaining to
elections, termination and re-election of benefits. PLEASE NOTE THAT IF YOU
TERMINATE A LIVING BENEFIT AND ELECT SPOUSAL HIGHEST DAILY LIFETIME INCOME
V2.1, YOU LOSE THE GUARANTEES THAT YOU HAD ACCUMULATED UNDER YOUR EXISTING
BENEFIT, AND YOUR GUARANTEES UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1
WILL BE BASED ON YOUR UNADJUSTED ACCOUNT VALUE ON THE EFFECTIVE DATE OF
SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1. You and your Financial
Professional should carefully consider whether terminating your existing
benefit and electing Spousal Highest Daily Lifetime Income v2.1 is appropriate
for you. We reserve the right to waive, change and/or further limit the
election frequency in the future for new elections of this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Spousal Highest Daily Lifetime Income v2.1 so long as you
participate in a Systematic Withdrawal program in which withdrawals are not
taken pro rata.
TERMINATION OF THE BENEFIT
You may terminate the benefit at any time by notifying us. If you terminate
the benefit, any guarantee provided by the benefit will terminate as of the
date the termination is effective, and certain restrictions on re-election may
apply.
THE BENEFIT AUTOMATICALLY TERMINATES UPON THE FIRST TO OCCUR OF THE FOLLOWING:
(I) UPON OUR RECEIPT OF DUE PROOF OF DEATH OF THE FIRST DESIGNATED LIFE, IF
THE SURVIVING SPOUSE OPTS TO TAKE THE DEATH BENEFIT UNDER THE ANNUITY
(RATHER THAN CONTINUE THE ANNUITY) OR IF THE SURVIVING SPOUSE IS NOT AN
ELIGIBLE DESIGNATED LIFE;
(II)UPON THE DEATH OF THE SECOND DESIGNATED LIFE;
(III)YOUR TERMINATION OF THE BENEFIT;
(IV)YOUR SURRENDER OF THE ANNUITY;
(V) YOUR ELECTION TO BEGIN RECEIVING ANNUITY PAYMENTS (ALTHOUGH IF YOU HAVE
ELECTED TO TAKE ANNUITY PAYMENTS IN THE FORM OF THE ANNUAL INCOME AMOUNT,
WE WILL CONTINUE TO PAY THE ANNUAL INCOME AMOUNT);
(VI)BOTH THE UNADJUSTED ACCOUNT VALUE AND ANNUAL INCOME AMOUNT EQUAL ZERO DUE
TO A WITHDRAWAL OF EXCESS INCOME;
(VII)YOU ALLOCATE OR TRANSFER ANY PORTION OF YOUR ACCOUNT VALUE TO ANY
SUB-ACCOUNT(S) TO WHICH YOU ARE NOT PERMITTED TO ELECTIVELY ALLOCATE OR
TRANSFER ACCOUNT VALUE (MAY VARY BY STATE);* OR
(VIII)YOU CEASE TO MEET OUR REQUIREMENTS AS DESCRIBED IN "ELECTION OF AND
DESIGNATIONS UNDER THE BENEFIT".
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation
30
to the death claim and the payment of death proceeds (representations may
include, but are not limited to, trust or estate paperwork (if needed);
consent forms (if applicable); and claim forms from at least one beneficiary);
and (c) any applicable election of the method of payment of the death benefit,
if not previously elected by the Owner, by at least one Beneficiary.
Upon termination of Spousal Highest Daily Lifetime Income v2.1 other than upon
the death of the second Designated Life or Annuitization, we impose any
accrued fee for the benefit (i.e., the fee for the pro-rated portion of the
year since the fee was last assessed), and thereafter we cease deducting the
charge for the benefit. This final charge will be deducted even if it results
in the Unadjusted Account Value falling below the Account Value Floor.
However, if the amount in the Sub-accounts is not enough to pay the charge, we
will reduce the fee to no more than the amount in the Sub-accounts. With
regard to your investment allocations, upon termination we will: (i) leave
intact amounts that are held in the Permitted Sub-accounts, and (ii) unless
you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
HOW SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 TRANSFERS UNADJUSTED ACCOUNT
VALUE BETWEEN YOUR PERMITTED SUB-ACCOUNTS AND THE AST INVESTMENT GRADE BOND
SUB-ACCOUNT
See "How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account" in the discussion of Highest Daily Lifetime Income v2.1 above for
information regarding this component of the benefit.
ADDITIONAL TAX CONSIDERATIONS
Please see the Additional Tax Considerations section under Highest Daily
Lifetime Income v2.1 above.
HIGHEST DAILY LIFETIME INCOME V2.1 WITH HIGHEST DAILY DEATH BENEFIT
Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit ("HD DB")
is a lifetime guaranteed minimum withdrawal benefit, under which, subject to
the terms of the benefit, we guarantee your ability to take a certain annual
withdrawal amount for life. This benefit also provides for a highest daily
death benefit, subject to the terms of the benefit. This version is only being
offered in those jurisdictions where we have received regulatory approval and
will be offered subsequently in other jurisdictions when we receive regulatory
approval in those jurisdictions. We reserve the right, in our sole discretion,
to cease offering this benefit for new elections, at any time.
We offer a benefit that guarantees until the death of the single designated
life (the Annuitant) the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial value (the "Protected
Withdrawal Value") regardless of the impact of Sub-account performance on the
Unadjusted Account Value, subject to our rules regarding the timing and amount
of withdrawals. You are guaranteed to be able to withdraw the Annual Income
Amount for the rest of your life provided that you do not take withdrawals of
Excess Income that result in your Unadjusted Account Value being reduced to
zero. We also permit you to designate the first withdrawal from your Annuity
as a one-time "Non-Lifetime Withdrawal". All other partial withdrawals from
your Annuity are considered a "Lifetime Withdrawal" under the benefit.
Withdrawals are taken first from your own Account Value. We are only required
to begin making lifetime income payments to you under our guarantee when and
if your Unadjusted Account Value is reduced to zero (for any reason other than
due to partial withdrawals of Excess Income) ("Guarantee Payments"). Highest
Daily Lifetime Income v2.1 with HD DB may be appropriate if you intend to make
periodic withdrawals from your Annuity, and wish to ensure that Sub-account
performance will not affect your ability to receive annual payments, and also
wish to provide a death benefit to your beneficiaries. You are not required to
take withdrawals as part of the benefit - the guarantees are not lost if you
withdraw less than the maximum allowable amount each year under the rules of
the benefit. An integral component of Highest Daily Lifetime Income v2.1 with
HD DB is the predetermined mathematical formula we employ that may
periodically transfer your Unadjusted Account Value to and from the AST
Investment Grade Bond Sub-account. See the section above entitled "How Highest
Daily Lifetime Income v2.1 Transfers Unadjusted Account Value Between Your
Permitted Sub-accounts and the AST Investment Grade Bond Sub-account."
Highest Daily Lifetime Income v2.1 is offered with or without the HD DB
component; however, you may only elect HD DB with Highest Daily Lifetime
Income v2.1, and you must elect the HD DB benefit at the time you elect
Highest Daily Lifetime Income v2.1. If you elect Highest Daily Lifetime Income
v2.1 without HD DB and would like to add the feature later, you must first
terminate Highest Daily Lifetime Income v2.1 and elect Highest Daily Lifetime
Income v2.1 with HD DB (subject to availability and benefit re-election
provisions). Please note that if you terminate Highest Daily Lifetime Income
v2.1 and elect Highest Daily Lifetime Income v2.1 with HD DB you lose the
guarantees that you had accumulated under your existing benefit and will begin
the new guarantees under the new benefit you elect based on your Unadjusted
Account Value as of the date the new benefit becomes active. Highest Daily
Lifetime Income v2.1 with HD DB is offered as an alternative to other lifetime
withdrawal options. If you elect this benefit, it may not be combined with any
other optional living or death benefit.
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The income benefit under Highest Daily Lifetime Income v2.1 with HD DB
currently is based on a single "designated life" who is between the ages of 50
and 79 on the date that the benefit is elected and received in Good Order. As
long as your Highest Daily Lifetime Income v2.1 with HD DB is in effect, you
must allocate your Unadjusted Account Value in accordance with the permitted
Sub-accounts and other Investment Option(s) available with this benefit. For a
more detailed description of the permitted Investment Options, see the
"Investment Options" section of the prospectus.
ALTHOUGH YOU ARE GUARANTEED THE ABILITY TO WITHDRAW YOUR ANNUAL INCOME AMOUNT
FOR LIFE EVEN IF YOUR UNADJUSTED ACCOUNT VALUE FALLS TO ZERO, IF THAT
PARTICULAR WITHDRAWAL OF EXCESS INCOME (DESCRIBED BELOW) BRINGS YOUR
UNADJUSTED ACCOUNT VALUE TO ZERO, YOUR ANNUAL INCOME AMOUNT ALSO WOULD FALL TO
ZERO, AND THE BENEFIT AND THE ANNUITY THEN WOULD TERMINATE. IN THAT SCENARIO,
NO FURTHER AMOUNT WOULD BE PAYABLE UNDER HIGHEST DAILY LIFETIME INCOME V2.1
WITH HD DB (INCLUDING NO PAYMENT OF THE HIGHEST DAILY DEATH BENEFIT AMOUNT).
AS TO THE IMPACT OF SUCH A SCENARIO ON ANY OTHER OPTIONAL BENEFIT, PLEASE SEE
THE FOLLOWING SECTIONS IN THIS SUPPLEMENT: "HIGHEST DAILY LIFETIME INCOME V2.1
BENEFIT", "SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 BENEFIT" AND "SPOUSAL
HIGHEST DAILY LIFETIME INCOME V2.1 WITH HIGHEST DAILY DEATH BENEFIT".
You may also participate in the 6 or 12 Month DCA Program if you elect Highest
Daily Lifetime Income v2.1 with HD DB, subject to the 6 or 12 Month DCA
Program's rules. See the section of the prospectus entitled "6 or 12 Month
Dollar Cost Averaging Program" for details.
KEY FEATURE - PROTECTED WITHDRAWAL VALUE
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter, until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraphs.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value ON OR BEFORE the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls ON OR BEFORE the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment (including any
associated Purchase Credits) made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value AFTER the Roll-Up End Date
On any Current Valuation Day that falls AFTER the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment (including any associated Purchase Credits) made on the
Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments (including any associated Purchase Credits) and reduced for
subsequent Lifetime Withdrawals, and (ii) the highest daily Unadjusted Account
Value upon any step-up, increased for subsequent Purchase Payments (including
any associated Purchase Credits) and reduced for subsequent Lifetime
Withdrawals (see the examples that begin immediately prior to the sub-heading
below entitled "Example of dollar-for-dollar reductions").
PLEASE NOTE THAT IF YOU ELECT HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB,
YOUR ACCOUNT VALUE IS NOT GUARANTEED, CAN FLUCTUATE AND MAY LOSE VALUE.
KEY FEATURE - ANNUAL INCOME AMOUNT UNDER HIGHEST DAILY LIFETIME INCOME V2.1
WITH HD DB
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the Annuitant on the date of the first Lifetime Withdrawal. The
percentages are: 3% for ages 50 to 54; 3.5% for ages 55 to less than 59 1/2;
4% for
32
ages 59 1/2 to 64; 4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for
ages 85 or older. Under Highest Daily Lifetime Income v2.1 with HD DB, if your
cumulative Lifetime Withdrawals in an Annuity Year are less than or equal to
the Annual Income Amount, they will not reduce your Annual Income Amount in
subsequent Annuity Years, but any such withdrawals will reduce the Annual
Income Amount on a dollar-for-dollar basis in that Annuity Year and also will
reduce the Protected Withdrawal Value on a dollar-for-dollar basis. If your
cumulative Lifetime Withdrawals in an Annuity Year are in excess of the Annual
Income Amount ("Excess Income"), your Annual Income Amount in subsequent years
will be reduced (except with regard to Required Minimum Distributions for this
Annuity that comply with our rules) by the result of the ratio of the Excess
Income to the Account Value immediately prior to such withdrawal (see examples
of this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
AS DISCUSSED IN THIS PARAGRAPH, WHEN YOU MAKE A PARTIAL WITHDRAWAL THAT IS
SUBJECT TO A CDSC AND/OR TAX WITHHOLDING, WE WILL IDENTIFY THE AMOUNT THAT
INCLUDES NOT ONLY THE AMOUNT YOU ACTUALLY RECEIVE, BUT ALSO THE AMOUNT OF THE
CDSC AND/OR TAX WITHHOLDING, TO DETERMINE WHETHER YOUR WITHDRAWAL HAS EXCEEDED
THE ANNUAL INCOME AMOUNT. WHEN YOU TAKE A PARTIAL WITHDRAWAL, YOU MAY REQUEST
A "GROSS" WITHDRAWAL AMOUNT (E.G., $2,000) BUT THEN HAVE ANY CDSC AND/OR TAX
WITHHOLDING DEDUCTED FROM THE AMOUNT YOU ACTUALLY RECEIVE (ALTHOUGH AN MVA MAY
ALSO BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE, IT IS NOT
CONSIDERED FOR PURPOSES OF DETERMINING EXCESS INCOME). THE PORTION OF A
WITHDRAWAL THAT EXCEEDED YOUR ANNUAL INCOME AMOUNT (IF ANY) WOULD BE TREATED
AS EXCESS INCOME AND THUS WOULD REDUCE YOUR ANNUAL INCOME AMOUNT IN SUBSEQUENT
YEARS. ALTERNATIVELY, YOU MAY REQUEST THAT A "NET" WITHDRAWAL AMOUNT ACTUALLY
BE PAID TO YOU (E.G., $2,000), WITH THE UNDERSTANDING THAT ANY CDSC AND/OR TAX
WITHHOLDING (E.G., $240) BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE
(ALTHOUGH AN MVA MAY ALSO BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT
VALUE, IT IS NOT CONSIDERED FOR PURPOSES OF DETERMINING EXCESS INCOME). IN THE
LATTER SCENARIO, WE DETERMINE WHETHER ANY PORTION OF THE WITHDRAWAL IS TO BE
TREATED AS EXCESS INCOME BY LOOKING TO THE SUM OF THE NET AMOUNT YOU ACTUALLY
RECEIVE (E.G., $2,000) AND THE AMOUNT OF ANY CDSC AND/OR TAX WITHHOLDING (IN
THIS EXAMPLE, A TOTAL OF $2,240). THE AMOUNT OF THAT SUM (E.G., THE $2,000 YOU
RECEIVED PLUS THE $240 FOR THE CDSC AND/OR TAX WITHHOLDING) THAT EXCEEDS YOUR
ANNUAL INCOME AMOUNT WILL BE TREATED AS EXCESS INCOME - THEREBY REDUCING YOUR
ANNUAL INCOME AMOUNT IN SUBSEQUENT YEARS.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Highest Daily
Lifetime Income v2.1 with HD DB and subsequent to the first Lifetime
Withdrawal will (i) immediately increase the then-existing Annual Income
Amount by an amount equal to a percentage of the Purchase Payment (including
any associated Purchase Credits) based on the age of the Annuitant at the time
of the first Lifetime Withdrawal (the percentages are: 3% for ages 50 to 54;
3.5% for ages 55 to less than 59 1/2; 4% for ages 59 1/2 to 64; 4.5% for ages
65 to 69; 5% for ages 70 to 84; and 6% for ages 85 or older) and (ii) increase
the Protected Withdrawal Value by the amount of the Purchase Payment
(including any associated Purchase Credits).
After your first Lifetime Withdrawal and before your Unadjusted Account Value
is reduced to zero, you may make additional Purchase Payments, subject to the
limits in the next paragraph. We reserve the right not to accept additional
Purchase Payments if the Unadjusted Account Value becomes zero.
While Highest Daily Lifetime Income v2.1 with HD DB is in effect, we may
limit, restrict, suspend or reject any additional Purchase Payment at any
time, but would do so on a non-discriminatory basis. Circumstances where we
may limit, restrict, suspend or reject additional Purchase Payments include,
but are not limited to, the following:
.. if we determine that, as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Highest Daily Lifetime Income v2.1 with HD DB. This means that
you may no longer be able to increase the values associated with your Highest
Daily Lifetime Income v2.1 with HD DB through additional Purchase Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity, in a non-discriminatory manner.
HIGHEST DAILY AUTO STEP-UP
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of Highest
Daily Lifetime Income v2.1 with HD DB. As detailed in this paragraph, the
Highest Daily Auto Step-Up feature can result in a larger Annual Income Amount
subsequent to your first Lifetime Withdrawal. The Highest Daily Auto Step-Up
starts with the anniversary of the Issue Date of the Annuity (the
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"Annuity Anniversary") immediately after your first Lifetime Withdrawal under
the benefit. Specifically, upon the first such Annuity Anniversary, we
identify the Unadjusted Account Value on each Valuation Day within the
immediately preceding Annuity Year after your first Lifetime Withdrawal.
Having identified the highest daily value (after all daily values have been
adjusted for subsequent Purchase Payments and withdrawals), we then multiply
that value by a percentage that varies based on the age of the Annuitant on
the Annuity Anniversary as of which the step-up would occur. The percentages
are: 3% for ages 50 to 54; 3.5% for ages 55 to less than 59 1/2; 4% for ages
59 1/2 to 64; 4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for ages 85
or older. If that value exceeds the existing Annual Income Amount, we replace
the existing amount with the new, higher amount. Otherwise, we leave the
existing Annual Income Amount intact. We will not automatically increase your
Annual Income Amount solely as a result of your attaining a new age that is
associated with a new age-based percentage. The Unadjusted Account Value on
the Annuity Anniversary is considered the last daily step-up value of the
Annuity Year. All daily valuations and annual step-ups will only occur on a
Valuation Day. In later years (i.e., after the first Annuity Anniversary after
the first Lifetime Withdrawal), we determine whether an automatic step-up
should occur on each Annuity Anniversary, by performing a similar examination
of the Unadjusted Account Values that occurred on Valuation Days during the
year. Taking Lifetime Withdrawals could produce a greater difference between
your Protected Withdrawal Value and your Unadjusted Account Value, which may
make a Highest Daily Auto Step-up less likely to occur. At the time that we
increase your Annual Income Amount, we also increase your Protected Withdrawal
Value to equal the highest daily value upon which your step-up was based only
if that results in an increase to the Protected Withdrawal Value. Your
Protected Withdrawal Value will never be decreased as a result of an income
step-up. If, on the date that we implement a Highest Daily Auto Step-Up to
your Annual Income Amount, the charge for Highest Daily Lifetime Income v2.1
with HD DB has changed for new purchasers, you may be subject to the new
charge at the time of such step-up. Prior to increasing your charge for
Highest Daily Lifetime Income v2.1 with HD DB upon a step-up, we would notify
you, and give you the opportunity to cancel the automatic step-up feature. If
you receive notice of a proposed step-up and accompanying fee increase, you
should consult with your Financial Professional and carefully evaluate whether
the amount of the step-up justifies the increased fee to which you will be
subject. Any such increased charge will not be greater than the maximum charge
set forth in the table entitled "Your Optional Benefit Fees and Charges."
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Highest Daily Lifetime Income v2.1 with HD DB does not affect your ability to
take partial withdrawals under your Annuity, or limit your ability to take
partial withdrawals that exceed the Annual Income Amount. Under Highest Daily
Lifetime Income v2.1 with HD DB, if your cumulative Lifetime Withdrawals in an
Annuity Year are less than or equal to the Annual Income Amount, they will not
reduce your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year. If your cumulative Lifetime Withdrawals in any Annuity
Year are less than the Annual Income Amount, you cannot carry over the unused
portion of the Annual Income Amount to subsequent Annuity Years. If your
cumulative Lifetime Withdrawals in an Annuity Year exceed the Annual Income
Amount, your Annual Income Amount in subsequent years will be reduced (except
with regard to Required Minimum Distributions for this Annuity that comply
with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Highest Daily Lifetime
Income v2.1 with HD DB or any other fees and charges under the Annuity. Assume
the following for all three examples:
.. The Issue Date is November 1
.. Highest Daily Lifetime Income v2.1 with HD DB is elected on August 1 of the
following calendar year
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1 with HD DB
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
EXAMPLE OF DOLLAR-FOR-DOLLAR REDUCTIONS
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $6,000 (since the designated life is between the ages
of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual Income
Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000).
The Highest Daily Death Benefit Amount is $115,420. Assuming $2,500 is
withdrawn from the Annuity on this date, the remaining Annual Income Amount
for that Annuity Year (up to and including October 31) is $3,500. This is the
result of a dollar-for-dollar reduction of the Annual Income Amount ($6,000
less $2,500 = $3,500) and the Highest Daily Death Benefit Amount ($115,420
less $2,500 = $112,920).
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EXAMPLE OF PROPORTIONAL REDUCTIONS
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $3,500 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $1,500 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there are other
future withdrawals in that Annuity Year, each would result in another
proportional reduction to the Annual Income Amount).
HERE IS THE CALCULATION:
EXAMPLE OF HIGHEST DAILY AUTO STEP-UP
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
Annuitant's age on that Annuity Anniversary) of the highest daily value since
your first Lifetime Withdrawal (or last Annuity Anniversary in subsequent
years), adjusted for withdrawals and additional Purchase Payments (including
any associated Purchase Credits), is greater than the Annual Income Amount,
adjusted for Excess Income and additional Purchase Payments (including any
associated Purchase Credits).
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $6,000. However, the Excess Income on October 29 reduces the
amount to $5,921.40 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 5% (since the designated life
is between 70 and 84 on the date of the potential step-up) of the highest
daily Unadjusted Account Value, adjusted for withdrawals and Purchase Payments
(including any associated Purchase Credits), is greater than $5,921.40. Here
are the calculations for determining the daily values. Only the October 28
value is being adjusted for Excess Income as the October 30, October 31, and
November 1 Valuation Days occur after the Excess Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be the Annuity Anniversary and every day
following the Annuity Anniversary. The Annuity Anniversary Date of
November 1 is considered the first Valuation Date in the Annuity Year.
** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,950.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income
Amount for the Annuity Year), resulting in Unadjusted Account Value of
$115,500 before the Excess Income.
. This amount ($115,500) is further reduced by 1.31% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.95.
. The adjusted October 29 Highest Daily Value, $113,986.95, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.95 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.95 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.95
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 5%, generating
an Annual Income Amount of $5,950.00. Since this amount is greater than the
current year's Annual Income Amount of $5,921.40 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,950.00.
35
NON-LIFETIME WITHDRAWAL FEATURE
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Highest Daily Lifetime Income v2.1 with HD DB. It is an optional feature
of the benefit that you can only elect at the time of your first withdrawal.
You cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders - Surrender Value" in the
prospectus). This Non-Lifetime Withdrawal will not establish your initial
Annual Income Amount and the Periodic Value described above will continue to
be calculated. However, the total amount of the withdrawal will proportionally
reduce all guarantees associated with Highest Daily Lifetime Income v2.1 with
HD DB. You must tell us at the time you take the withdrawal if your withdrawal
is intended to be the Non-Lifetime Withdrawal and not the first Lifetime
Withdrawal under Highest Daily Lifetime Income v2.1 with HD DB. If you don't
elect the Non-Lifetime Withdrawal, the first withdrawal you make will be the
first Lifetime Withdrawal that establishes your Annual Income Amount, which is
based on your Protected Withdrawal Value. Once you elect to take the
Non-Lifetime Withdrawal or Lifetime Withdrawals, no additional Non-Lifetime
Withdrawals may be taken. If you do not take a Non-Lifetime Withdrawal before
beginning Lifetime Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value. It will also proportionally reduce the Highest Daily Death
Benefit Amount. It will reduce each value by the percentage the total
withdrawal amount (including any applicable CDSC) represents of the then
current Account Value immediately prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
EXAMPLE - NON-LIFETIME WITHDRAWAL (PROPORTIONAL REDUCTION)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit.
Assume the following:
.. The Issue Date is December 3
.. Highest Daily Lifetime Income v2.1 with HD DB is elected on September 4 of
the following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1 with HD DB
.. No previous withdrawals have been taken under Highest Daily Lifetime Income
v2.1 with HD DB
On October 3 of the year the benefit is elected, the Protected Withdrawal
Value is $125,000, the Highest Daily Death Benefit Amount is $115,420, and the
Account Value is $120,000. Assuming $15,000 is withdrawn from the Annuity on
that same October 3 and is designated as a Non-Lifetime Withdrawal, all
guarantees associated with Highest Daily Lifetime Income v2.1 with HD DB will
be reduced by the ratio the total withdrawal amount represents of the Account
Value just prior to the withdrawal being taken.
HERE IS THE CALCULATION:
REQUIRED MINIMUM DISTRIBUTIONS
Required Minimum Distributions ("RMD") for this Annuity must be taken by
April 1st in the year following the date you turn age 70 1/2 and by
December 31/st/ for subsequent calendar years. If the annual RMD amount is
greater than the Annual Income Amount, a withdrawal of the RMD amount will not
be treated as a withdrawal of Excess Income, as long as the RMD amount is
calculated by us for this Annuity and administered under a program we support
each calendar year. If you are not participating in an RMD withdrawal program
each calendar year, you can alternatively satisfy the RMD amount without it
being treated as a withdrawal of Excess Income.
The following rules apply to determine if any portion of an RMD amount will be
treated as Excess Income.
For purposes of this provision, in relation to any Annuity Year, the "Second
Calendar Year" is the calendar year following the calendar year in which the
Annuity Year began.
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In general, withdrawals made from the Annuity during an Annuity Year to meet
the RMD provisions of the Code will not be treated as Excess Income. However,
if in any Annuity Year, you take a Lifetime Withdrawal in the Second Calendar
Year, then the amount which will not be treated as Excess Income is the
greater of:
(1)the remaining Annual Income Amount for that Annuity Year, and
(2)the difference between the Second Calendar Year's remaining RMD amount and
the Annual Income Amount.
Any remaining RMD amount for the Second Calendar Year can be taken in the
following Annuity Year.
If, in any Annuity Year, your RMD amount is not greater than the Annual Income
Amount, any withdrawals in excess of the Annual Income Amount will be treated
as Excess Income.
Please see hypothetical examples below for details.
If you do not comply with the rules described above, any withdrawal that
exceeds the Annual Income Amount will be treated as a withdrawal of Excess
Income, which will reduce your Annual Income Amount in future Annuity Years.
This may include situations where you comply with the rules outlined above and
then decide to take additional withdrawals after satisfying your RMD
requirement from the Annuity.
We will assume your first withdrawal under the benefit is a Lifetime
Withdrawal unless you designated the withdrawal as a Non-Lifetime Withdrawal.
EXAMPLE
The following example is purely hypothetical and intended to illustrate a
scenario as described above. Note that withdrawals must comply with all IRS
guidelines in order to satisfy the RMD for the current calendar year.
Assumptions:
RMD Calendar Year
01/01/2013 to 12/31/2013
Annuity Year
06/01/2012 to 05/31/2013
Annual Income Amount and RMD Amount
Annual Income Amount = $5,000
Remaining Annual Income Amount as of 1/3/2013 = $3,000 (a $2,000 withdrawal
was taken on 7/1/2012)
RMD Amount for Calendar Year 2013 = $6,000
The amount you may withdraw in the current Annuity Year (between 1/3/2013 and
5/31/2013) without it being treated as Excess Income is $4,000. Here is the
calculation: $3,000 + ($6,000 - $5,000) = $4,000.
If the $4,000 withdrawal is taken in the current Annuity Year (prior to
6/1/2013), the remaining Annual Income Amount will be zero and the remaining
RMD amount of $2,000 may be taken in the subsequent Annuity Year beginning on
6/1/2013 (when your Annual Income Amount is reset to $5,000).
If you had chosen to not take any additional withdrawals until on or after
6/1/2013, then you would be eligible to withdraw $6,000 without it being
treated as a withdrawal of Excess Income.
HIGHEST DAILY DEATH BENEFIT
A Death Benefit is payable under Highest Daily Lifetime Income v2.1 with HD DB
(until we begin making Guarantee Payments under the benefit or annuity
payments have begun) upon the death of the Owner (Annuitant if entity owned),
also referred to as the "Single Designated Life", when we receive Due Proof of
Death. The Death Benefit is the greatest of: the Minimum Death Benefit
(described in the prospectus) or the Highest Daily Death Benefit Amount
described below.
HIGHEST DAILY DEATH BENEFIT AMOUNT:
On the date you elect Highest Daily Lifetime Income v2.1 with HD DB, the
Highest Daily Death Benefit Amount is equal to your Unadjusted Account Value.
On each subsequent Valuation Day, until the date of death of the decedent, the
Highest Daily Death Benefit Amount will be the greater of:
(1)The Unadjusted Account Value on the current Valuation Day; and
(2)The Highest Daily Death Benefit Amount of the immediately preceding
Valuation Day,
. increased by any Purchase Payments made on the current Valuation Day and,
. reduced by the effect of withdrawals made on the current Valuation Day,
as described below.
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Please note that the Highest Daily Death Benefit Amount does not have any
guaranteed growth rate associated with it and therefore can be a different
amount than any of the guaranteed values associated with the living benefit
features of Highest Daily Lifetime Income v2.1 with HD DB.
A Non-Lifetime Withdrawal will proportionately reduce the Highest Daily Death
Benefit Amount by the ratio of the Non-Lifetime Withdrawal to the Account
Value immediately prior to the Non-Lifetime Withdrawal. A Lifetime Withdrawal
that is not considered Excess Income will reduce the Highest Daily Death
Benefit Amount (dollar-for-dollar) by the amount of the withdrawal. All or a
portion of a Lifetime Withdrawal that is considered Excess Income will
proportionately reduce the Highest Daily Death Benefit Amount by the ratio of
the Excess Income to the Account Value immediately prior to the withdrawal of
the Excess Income.
The Highest Daily Death Benefit will be calculated on the date of death of the
decedent and will be:
.. increased by the amount of any additional Adjusted Purchase Payments, and
.. reduced by the effect of any withdrawals (as described in the preceding
paragraph),
made during the period between the decedent's date of death and the date we
receive Due Proof of Death.
We will reduce the Highest Daily Death Benefit Amount payable under this
benefit by Purchase Credits applied during the period beginning 12 months
prior to the decedent's date of death and ending on the date we receive Due
Proof of Death. We may waive, on a non-discriminatory basis, our right to
deduct such Purchase Credits.
PLEASE NOTE THAT THE HIGHEST DAILY DEATH BENEFIT AMOUNT IS AVAILABLE ONLY
UNTIL WE MAKE GUARANTEE PAYMENTS UNDER HIGHEST DAILY LIFETIME INCOME V2.1 WITH
HD DB OR ANNUITY PAYMENTS BEGIN. THIS MEANS THAT ANY WITHDRAWALS THAT REDUCE
YOUR UNADJUSTED ACCOUNT VALUE TO ZERO WILL ALSO REDUCE THE HIGHEST DAILY DEATH
BENEFIT AMOUNT TO ZERO.
ALL OTHER PROVISIONS APPLICABLE TO DEATH BENEFITS UNDER YOUR ANNUITY WILL
CONTINUE TO APPLY. SEE THE "DEATH BENEFITS" SECTION OF THE PROSPECTUS FOR MORE
INFORMATION PERTAINING TO DEATH BENEFITS.
BENEFITS UNDER HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and Guarantee Payments amounts
are still payable under Highest Daily Lifetime Income v2.1 with HD DB, we
will make an additional payment, if any, for that Annuity Year equal to the
remaining Annual Income Amount for the Annuity Year. Thus, in that
scenario, the remaining Annual Income Amount would be payable even though
your Unadjusted Account Value was reduced to zero. In subsequent Annuity
Years we make payments that equal the Annual Income Amount as described in
this section. We will make payments until the death of the single
designated life. After the Unadjusted Account Value is reduced to zero, you
will not be permitted to make additional Purchase Payments to your Annuity.
TO THE EXTENT THAT CUMULATIVE PARTIAL WITHDRAWALS IN THE ANNUITY YEAR THAT
REDUCED YOUR UNADJUSTED ACCOUNT VALUE TO ZERO ARE MORE THAN THE ANNUAL
INCOME AMOUNT, HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB TERMINATES,
AND NO ADDITIONAL PAYMENTS ARE PERMITTED.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments.
.. Please note that if your Unadjusted Account Value is reduced to zero due to
withdrawals or annuitization, any Death Benefit value, including that of
the HD DB feature, will terminate. This means that the HD DB is terminated
and no Death Benefit is payable if your Unadjusted Account Value is reduced
to zero as the result of either a withdrawal in excess of your Annual
Income Amount or less than or equal to, your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable tax charges, to
any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. If this
option is elected, the Annual Income Amount will not increase after
annuity payments have begun. We will make payments until the death of
the single designated life. We must receive your request in a form
acceptable to us at our Service Office. If applying your Unadjusted
Account Value, less any applicable tax charges, to the life-only annuity
payment rates results in a higher annual payment, we will give you the
higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin
we currently make annual annuity payments in the form of a single life
fixed annuity with eight payments certain, by applying the greater of the
annuity rates then currently available or the annuity rates guaranteed in
your Annuity. We reserve the right at any time to increase or decrease the
period
38
certain in order to comply with the Code (e.g., to shorten the period
certain to match life expectancy under applicable Internal Revenue Service
tables). The amount that will be applied to provide such annuity payments
will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual Income
Amount as if you made your first Lifetime Withdrawal on the date the
annuity payments are to begin). Such present value will be calculated
using the greater of the single life fixed annuity rates then currently
available or the single life fixed annuity rates guaranteed in your
Annuity; and
(2)the Unadjusted Account Value.
OTHER IMPORTANT CONSIDERATIONS
.. Withdrawals under Highest Daily Lifetime Income v2.1 with HD DB are subject
to all of the terms and conditions of the Annuity, including any applicable
CDSC for the Non-Lifetime Withdrawal as well as partial withdrawals that
exceed the Annual Income Amount. If you have an active Systematic
Withdrawal program running at the time you elect this benefit, the first
systematic withdrawal that processes after your election of the benefit
will be deemed a Lifetime Withdrawal. Withdrawals made while Highest Daily
Lifetime Income v2.1 with HD DB is in effect will be treated, for tax
purposes, in the same way as any other withdrawals under the Annuity. Any
withdrawals made under the benefit will be taken pro rata from the
Sub-accounts (including the AST Investment Grade Bond Sub-account) and the
DCA MVA Options. If you have an active Systematic Withdrawal program
running at the time you elect this benefit, the program must withdraw funds
pro rata.
.. Any Lifetime Withdrawal that you take that is not a withdrawal of Excess
Income is not subject to a CDSC, even if the total amount of such
withdrawals in any Annuity Year exceeds the maximum Free Withdrawal amount.
Any Lifetime Withdrawal that is treated as Excess Income is subject to any
applicable CDSC, if the withdrawal is greater than the Free Withdrawal
amount. (See "Fees, Charges and Deductions - Contingent Deferred Sales
Charge ("CDSC")" and "Access to Account Value -Free Withdrawal Amounts" in
the prospectus)
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolio appears within the prospectus
section entitled "Investment Options." You can find a copy of the AST
Investment Grade Bond Portfolio prospectus by going to
www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the predetermined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to the Permitted Sub-accounts, or
to the requirements as to how you may allocate your Unadjusted Account
Value with this benefit, will apply to new elections of the benefit and may
apply to current participants in the benefit. To the extent that changes
apply to current participants in the benefit, they will only apply upon
re-allocation of Unadjusted Account Value, or upon addition of subsequent
Purchase Payments. That is, we will not require such current participants
to re-allocate Unadjusted Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if any withdrawals taken under Highest
Daily Lifetime Income v2.1 with HD DB reduce your Unadjusted Account Value
to zero. This means that any Death Benefit, including the HD DB, will
terminate and no Death Benefit is payable if your Unadjusted Account Value
is reduced to zero as the result of either a withdrawal in excess of your
Annual Income Amount or less than or equal to, your Annual Income Amount.
(See "Death Benefits" in the prospectus for more information.)
.. The current charge for Highest Daily Lifetime Income v2.1 with HD DB is
1.50% annually of the greater of the Unadjusted Account Value and Protected
Withdrawal Value. The maximum charge for Highest Daily Lifetime Income v2.1
with HD DB is 2.00% annually of the greater of the Unadjusted Account Value
and Protected Withdrawal Value. As discussed in "Highest Daily Auto
Step-Up" above, we may increase the fee upon a step-up under this benefit.
We deduct this charge on quarterly anniversaries of the benefit effective
date, based on the values on the last Valuation Day prior to the quarterly
anniversary. Thus, we deduct, on a quarterly basis, 0.375% of the greater
of the prior Valuation Day's Unadjusted Account Value and the prior
Valuation Day's Protected Withdrawal Value. We deduct the fee pro rata from
each of your Sub-accounts, including the AST Investment Grade Bond
Sub-account. You will begin paying this charge as of the effective date of
the benefit even if you do not begin taking withdrawals for many years, or
ever. We will not refund the charges you have paid if you choose never to
take any withdrawals and/or if you never receive any lifetime income
payments.
39
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (and any associated Purchase Credits) (we refer to this as
the "Account Value Floor"), we will only deduct that portion of the charge
that would not cause the Unadjusted Account Value to fall below the Account
Value Floor. If the Unadjusted Account Value on the date we would deduct a
charge for the benefit is less than the Account Value Floor, then no charge
will be assessed for that benefit quarter. Charges deducted upon termination
of the benefit may cause the Unadjusted Account Value to fall below the
Account Value Floor. If a charge for Highest Daily Lifetime Income v2.1 with
HD DB would be deducted on the same day we process a withdrawal request, the
charge will be deducted first, then the withdrawal will be processed. The
withdrawal could cause the Unadjusted Account Value to fall below the Account
Value Floor. While the deduction of the charge (other than the final charge)
may not reduce the Unadjusted Account Value to zero, partial withdrawals may
reduce the Unadjusted Account Value to zero. If this happens and the Annual
Income Amount is greater than zero, we will make payments under the benefit.
ELECTION OF AND DESIGNATIONS UNDER THE BENEFIT
For Highest Daily Lifetime Income v2.1 with HD DB, there must be either a
single Owner who is the same as the Annuitant, or if the Annuity is entity
owned, there must be a single natural person Annuitant. In either case, the
Annuitant must be between 50 and 79 years old. Any change of the Annuitant
under the Annuity will result in cancellation of Highest Daily Lifetime Income
v2.1 with HD DB. Similarly, any change of Owner will result in cancellation of
Highest Daily Lifetime Income v2.1 with HD DB, except if (a) the new Owner has
the same taxpayer identification number as the previous Owner, (b) ownership
is transferred from a custodian or other entity to the Annuitant, or vice
versa or (c) ownership is transferred from one entity to another entity that
satisfies our administrative ownership guidelines.
Highest Daily Lifetime Income v2.1 with HD DB can be elected at the time that
you purchase your Annuity or after the Issue Date, subject to its
availability, and our eligibility rules and restrictions. If you elect Highest
Daily Lifetime Income v2.1 with HD DB and terminate it, you can re-elect it,
subject to our current rules and availability. See "Termination of Existing
Benefits and Election of New Benefits" in the prospectus for information
pertaining to elections, termination and re-election of benefits. PLEASE NOTE
THAT IF YOU TERMINATE A LIVING BENEFIT AND ELECT HIGHEST DAILY LIFETIME INCOME
V2.1 WITH HD DB, YOU LOSE THE GUARANTEES THAT YOU HAD ACCUMULATED UNDER YOUR
EXISTING BENEFIT AND YOUR GUARANTEES UNDER HIGHEST DAILY LIFETIME INCOME V2.1
WITH HD DB WILL BE BASED ON YOUR UNADJUSTED ACCOUNT VALUE ON THE EFFECTIVE
DATE OF HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB. You and your Financial
Professional should carefully consider whether terminating your existing
benefit and electing Highest Daily Lifetime Income v2.1 with HD DB is
appropriate for you. We reserve the right to waive, change and/or further
limit the election frequency in the future for new elections of this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Highest Daily Lifetime Income v2.1 with HD DB so long as you
participate in a Systematic Withdrawal program in which withdrawals are not
taken pro rata.
TERMINATION OF THE BENEFIT
You may terminate Highest Daily Lifetime Income v2.1 with HD DB at any time by
notifying us. If you terminate the benefit, any guarantee provided by the
benefit, including the HD DB, will terminate as of the date the termination is
effective, and certain restrictions on re-election may apply.
THE BENEFIT AUTOMATICALLY TERMINATES UPON THE FIRST TO OCCUR OF THE FOLLOWING:
(I)YOUR TERMINATION OF THE BENEFIT;
(II)YOUR SURRENDER OF THE ANNUITY;
(III)YOUR ELECTION TO BEGIN RECEIVING ANNUITY PAYMENTS (ALTHOUGH IF YOU HAVE
ELECTED TO RECEIVE THE ANNUAL INCOME AMOUNT IN THE FORM OF ANNUITY
PAYMENTS, WE WILL CONTINUE TO PAY THE ANNUAL INCOME AMOUNT);
(IV)OUR RECEIPT OF DUE PROOF OF DEATH OF THE OWNER (OR ANNUITANT FOR
ENTITY-OWNED ANNUITIES);
(V)BOTH THE UNADJUSTED ACCOUNT VALUE AND ANNUAL INCOME AMOUNT EQUAL ZERO DUE
TO A WITHDRAWAL OF EXCESS INCOME;
(VI)YOU ALLOCATE OR TRANSFER ANY PORTION OF YOUR ACCOUNT VALUE TO ANY
SUB-ACCOUNT(S) TO WHICH YOU ARE NOT PERMITTED TO ELECTIVELY ALLOCATE OR
TRANSFER ACCOUNT VALUE (MAY VARY BY STATE);* OR
(VII)YOU CEASE TO MEET OUR REQUIREMENTS AS DESCRIBED IN "ELECTION OF AND
DESIGNATIONS UNDER THE BENEFIT" ABOVE.
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
40
Upon termination of Highest Daily Lifetime Income v2.1 with HD DB, other than
upon the death of the Owner or Annuitization, we impose any accrued fee for
the benefit (i.e., the fee for the pro-rated portion of the year since the fee
was last assessed), and thereafter we cease deducting the charge for the
benefit. However, if the amount in the Sub-accounts is not enough to pay the
charge, we will reduce the fee to no more than the amount in the Sub-accounts.
With regard to your investment allocations, upon termination we will:
(i) leave intact amounts that are held in the Permitted Sub-accounts, and
(ii) unless you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
If a surviving spouse elects to continue the Annuity, Highest Daily Lifetime
Income v2.1 with HD DB terminates upon Due Proof of Death. The spouse may
newly elect the benefit subject to the restrictions discussed above.
HOW HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB TRANSFERS UNADJUSTED ACCOUNT
VALUE BETWEEN YOUR PERMITTED SUB-ACCOUNTS AND THE AST INVESTMENT GRADE BOND
SUB-ACCOUNT
See "How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account" in the discussion of Highest Daily Lifetime Income v2.1 above for
information regarding this component of the benefit.
ADDITIONAL TAX CONSIDERATIONS
Please see the Additional Tax Considerations section under Highest Daily
Lifetime Income v2.1 above.
SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 WITH HIGHEST DAILY DEATH BENEFIT
Spousal Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit
("HD DB") is a lifetime guaranteed minimum withdrawal benefit, under which,
subject to the terms of the benefit, we guarantee your ability to take a
certain annual withdrawal amount for the lives of two individuals who are
spouses. This benefit also provides for a highest daily death benefit, subject
to the terms of the benefit. This version is only being offered in those
jurisdictions where we have received regulatory approval and will be offered
subsequently in other jurisdictions when we receive regulatory approval in
those jurisdictions. We reserve the right, in our sole discretion, to cease
offering this benefit for new elections at any time.
We offer a benefit that guarantees, until the death of the Remaining
Designated Life (as described below) (the "designated lives", and each, a
"designated life"), the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial principal value (the
"Protected Withdrawal Value") regardless of the impact of Sub-account
performance on the Unadjusted Account Value, subject to our rules regarding
the timing and amount of withdrawals. You are guaranteed to be able to
withdraw the Annual Income Amount for the lives of the designated lives,
provided you have not made withdrawals of Excess Income that result in your
Unadjusted Account Value being reduced to zero. We also permit you to
designate the first withdrawal from your Annuity as a one-time "Non-Lifetime
Withdrawal." All other withdrawals from your Annuity are considered a
"Lifetime Withdrawal" under the benefit. Withdrawals are taken first from your
own Account Value. We are only required to begin making lifetime income
payments to you under our guarantee when and if your Unadjusted Account Value
is reduced to zero (for any reason other than due to partial withdrawals of
Excess Income) ("Guarantee Payments"). The benefit may be appropriate if you
intend to make periodic withdrawals from your Annuity, wish to ensure that
Sub-account performance will not affect your ability to receive annual
payments, and wish either spouse to be able to continue Spousal Highest Daily
Lifetime Income v2.1 with HD DB after the death of the first spouse (subject
to the provisions below regarding a Remaining Designated Life), and also want
to provide a death benefit. You are not required to make withdrawals as part
of the benefit - the guarantees are not lost if you withdraw less than the
maximum allowable amount each year under the rules of the benefit.
An integral component of Spousal Highest Daily Lifetime Income v2.1 with HD DB
is the predetermined mathematical formula we employ that may periodically
transfer your Unadjusted Account Value to and from the AST Investment Grade
Bond Sub-account. See the section above entitled "How Highest Daily Lifetime
Income v2.1 Transfers Unadjusted Account Value Between Your Permitted
Sub-accounts and the AST Investment Grade Bond Sub-account."
Spousal Highest Daily Lifetime Income v2.1 with HD DB is the spousal version
of Highest Daily Lifetime Income v2.1 with HD DB. Spousal Highest Daily
Lifetime Income v2.1 is offered with or without the HD DB component; however,
you may only elect HD DB with Spousal Highest Daily Lifetime Income v2.1, and
you must elect the HD DB benefit at the time you elect Spousal Highest Daily
Lifetime Income v2.1. If you elect Spousal Highest Daily Lifetime Income v2.1
without HD DB and would like to add the feature later, you must first
terminate Spousal Highest Daily Lifetime Income v2.1 and elect Spousal Highest
Daily Lifetime Income v2.1 with HD DB (subject to availability and benefit
re-election provisions). Please note that if you terminate Spousal Highest
Daily Lifetime Income v2.1 and elect Spousal Highest Daily Lifetime Income
v2.1 with HD DB you lose the guarantees that you had accumulated under your
existing benefit and will begin the new guarantees under the new benefit you
elect based on your Unadjusted Account Value as of the date the new benefit
becomes active. Spousal Highest Daily Lifetime Income
41
v2.1 with HD DB is offered as an alternative to other lifetime withdrawal
options. Currently, if you elect Spousal Highest Daily Lifetime Income v2.1
with HD DB and subsequently terminate the benefit, you may elect another
living benefit, subject to our current rules. See "Election of and
Designations under the Benefit" below and "Termination of Existing Benefits
and Election of New Benefits" in the prospectus for details. Spousal Highest
Daily Lifetime Income v2.1 with HD DB must be elected based on two designated
lives, as described below. Each designated life must be between the ages of 50
and 79 years old when the benefit is elected. Spousal Highest Daily Lifetime
Income v2.1 with HD DB is not available if you elect any other optional living
or death benefit.
As long as your Spousal Highest Daily Lifetime Income v2.1 with HD DB is in
effect, you must allocate your Unadjusted Account Value in accordance with the
permitted Sub-accounts and other Investment Option(s) available with this
benefit. For a more detailed description of the permitted Investment Options,
see the "Investment Options" section of the prospectus.
ALTHOUGH YOU ARE GUARANTEED THE ABILITY TO WITHDRAW YOUR ANNUAL INCOME AMOUNT
FOR LIFE EVEN IF YOUR UNADJUSTED ACCOUNT VALUE FALLS TO ZERO, IF THAT
PARTICULAR WITHDRAWAL OF EXCESS INCOME (DESCRIBED BELOW) BRINGS YOUR
UNADJUSTED ACCOUNT VALUE TO ZERO, YOUR ANNUAL INCOME AMOUNT ALSO WOULD FALL TO
ZERO, AND THE BENEFIT AND THE ANNUITY THEN WOULD TERMINATE. IN THAT SCENARIO,
NO FURTHER AMOUNT WOULD BE PAYABLE UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME
V2.1 WITH HD DB. AS TO THE IMPACT OF SUCH A SCENARIO ON ANY OTHER OPTIONAL
BENEFIT, PLEASE SEE THE FOLLOWING SECTIONS IN THIS SUPPLEMENT: "HIGHEST DAILY
LIFETIME INCOME V2.1 BENEFIT", "SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1
BENEFIT" AND "HIGHEST DAILY LIFETIME INCOME V2.1 WITH HIGHEST DAILY DEATH
BENEFIT".
You may also participate in the 6 or 12 Month Dollar Cost Averaging Program if
you elect Spousal Highest Daily Lifetime Income v2.1 with HD DB, subject to
the 6 or 12 Month DCA Program's rules. See the section of the prospectus
entitled "6 or 12 Month Dollar Cost Averaging Program" for details.
KEY FEATURE - PROTECTED WITHDRAWAL VALUE
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraph.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value ON OR BEFORE the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls ON OR BEFORE the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment (including any
associated Purchase Credits) made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value AFTER the Roll-Up End Date
On any Current Valuation Day that falls AFTER the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment (including any associated Purchase Credits) made on the
Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments (including any associated Purchase Credits) and reduced for
subsequent Lifetime Withdrawals, and (ii) the highest daily Unadjusted Account
Value upon any step-up, increased for subsequent Purchase Payments (including
any associated Purchase Credits) and reduced for subsequent Lifetime
Withdrawals (see the examples that begin immediately prior to the sub-heading
below entitled "Example of dollar-for-dollar reductions").
PLEASE NOTE THAT IF YOU ELECT SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 WITH
HD DB, YOUR ACCOUNT VALUE IS NOT GUARANTEED, CAN FLUCTUATE AND MAY LOSE VALUE.
42
KEY FEATURE - ANNUAL INCOME AMOUNT UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME
V2.1 WITH HD DB
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the younger spousal designated life on the date of the first
Lifetime Withdrawal after election of the benefit. The percentages are: 2.5%
for ages 50 to 54; 3% for ages 55 to less than 59 1/2; 3.5% for ages 59 1/2 to
64; 4% for ages 65 to 69; 4.5% for ages 70 to 84; and 5.5% for ages 85 or
older. We use the age of the younger designated life. If you elected this
benefit and one of the Spousal Designated Lives becomes the Remaining
Designated Life, we will continue to use the age of the younger of both the
original Spousal Designated Lives for purposes of calculating the applicable
Annual Income percentage. Under Spousal Highest Daily Lifetime Income v2.1
with HD DB, if your cumulative Lifetime Withdrawals in an Annuity Year are
less than or equal to the Annual Income Amount, they will not reduce your
Annual Income Amount in subsequent Annuity Years, but any such withdrawals
will reduce the Annual Income Amount on a dollar-for-dollar basis in that
Annuity Year and also will reduce the Protected Withdrawal Value on a
dollar-for-dollar basis. If your cumulative Lifetime Withdrawals in an Annuity
Year are in excess of the Annual Income Amount for any Annuity Year ("Excess
Income"), your Annual Income Amount in subsequent years will be reduced
(except with regard to Required Minimum Distributions for this Annuity that
comply with our rules) by the result of the ratio of the Excess Income to the
Unadjusted Account Value immediately prior to such withdrawal (see examples of
this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
AS DISCUSSED IN THIS PARAGRAPH, WHEN YOU MAKE A PARTIAL WITHDRAWAL THAT IS
SUBJECT TO A CDSC AND/OR TAX WITHHOLDING, WE WILL IDENTIFY THE AMOUNT THAT
INCLUDES NOT ONLY THE AMOUNT YOU ACTUALLY RECEIVE, BUT ALSO THE AMOUNT OF THE
CDSC AND/OR TAX WITHHOLDING, TO DETERMINE WHETHER YOUR WITHDRAWAL HAS EXCEEDED
THE ANNUAL INCOME AMOUNT. WHEN YOU TAKE A PARTIAL WITHDRAWAL, YOU MAY REQUEST
A "GROSS" WITHDRAWAL AMOUNT (E.G., $2,000) BUT THEN HAVE ANY CDSC AND/OR TAX
WITHHOLDING DEDUCTED FROM THE AMOUNT YOU ACTUALLY RECEIVE (ALTHOUGH AN MVA MAY
ALSO BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE, IT IS NOT
CONSIDERED FOR PURPOSES OF DETERMINING EXCESS INCOME). THE PORTION OF A
WITHDRAWAL THAT EXCEEDED YOUR ANNUAL INCOME AMOUNT (IF ANY) WOULD BE TREATED
AS EXCESS INCOME AND THUS WOULD REDUCE YOUR ANNUAL INCOME AMOUNT IN SUBSEQUENT
YEARS. ALTERNATIVELY, YOU MAY REQUEST THAT A "NET" WITHDRAWAL AMOUNT ACTUALLY
BE PAID TO YOU (E.G., $2,000), WITH THE UNDERSTANDING THAT ANY CDSC AND/OR TAX
WITHHOLDING (E.G., $240) BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT VALUE
(ALTHOUGH AN MVA MAY ALSO BE APPLIED TO YOUR REMAINING UNADJUSTED ACCOUNT
VALUE, IT IS NOT CONSIDERED FOR PURPOSES OF DETERMINING EXCESS INCOME). IN THE
LATTER SCENARIO, WE DETERMINE WHETHER ANY PORTION OF THE WITHDRAWAL IS TO BE
TREATED AS EXCESS INCOME BY LOOKING TO THE SUM OF THE NET AMOUNT YOU ACTUALLY
RECEIVE (E.G., $2,000) AND THE AMOUNT OF ANY CDSC AND/OR TAX WITHHOLDING (IN
THIS EXAMPLE, A TOTAL OF $2,240). THE AMOUNT OF THAT SUM (E.G., THE $2,000 YOU
RECEIVED PLUS THE $240 FOR THE CDSC AND/OR TAX WITHHOLDING) THAT EXCEEDS YOUR
ANNUAL INCOME AMOUNT WILL BE TREATED AS EXCESS INCOME - THEREBY REDUCING YOUR
ANNUAL INCOME AMOUNT IN SUBSEQUENT YEARS.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Spousal
Highest Daily Lifetime Income v2.1 with HD DB and subsequent to the first
Lifetime Withdrawal will (i) immediately increase the then-existing Annual
Income Amount by an amount equal to a percentage of the Purchase Payment
(including any associated Purchase Credits) based on the age of the younger
designated life at the time of the first Lifetime Withdrawal (the percentages
are: 2.5% for ages 50 to 54; 3% for ages 55 to less than 59 1/2; 3.5% for ages
59 1/2 to 64; 4% for ages 65 to 69; 4.5% for ages 70 to 84; and 5.5% for ages
85 or older), and (ii) increase the Protected Withdrawal Value by the amount
of the Purchase Payment (including any associated Purchase Credits).
After your first Lifetime Withdrawal and before your Unadjusted Account Value
is reduced to zero, you may make additional Purchase Payments, subject to the
limits in the next paragraph. We reserve the right not to accept additional
Purchase Payments if the Unadjusted Account Value becomes zero.
While Spousal Highest Daily Lifetime Income v2.1 with HD DB is in effect, we
may limit, restrict, suspend or reject any additional Purchase Payment at any
time, but would do so on a non-discriminatory basis. Circumstances where we
may limit, restrict, suspend or reject additional Purchase Payments include,
but are not limited to, the following:
.. if we determine that, as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Spousal Highest Daily Lifetime Income v2.1 with HD DB. This means
that you may no longer be able to increase the values associated with your
Spousal Highest Daily Lifetime Income v2.1 with HD DB through additional
Purchase Payments.
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We will exercise such reservation of right for all annuity purchasers in the
same class of annuity in a non-discriminatory manner.
HIGHEST DAILY AUTO STEP-UP
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of this
benefit. As detailed in this paragraph, the Highest Daily Auto Step-Up feature
can result in a larger Annual Income Amount subsequent to your first Lifetime
Withdrawal. The Highest Daily Step-Up starts with the anniversary of the Issue
Date of the Annuity (the "Annuity Anniversary") immediately after your first
Lifetime Withdrawal under the benefit. Specifically, upon the first such
Annuity Anniversary, we identify the Unadjusted Account Value on each
Valuation Day within the immediately preceding Annuity Year after your first
Lifetime Withdrawal. Having identified the highest daily value (after all
daily values have been adjusted for subsequent Purchase Payments and
withdrawals), we then multiply that value by a percentage that varies based on
the age of the younger spousal designated life on the Annuity Anniversary as
of which the step-up would occur. The percentages are 2.5% for ages 50 to 54;
3% for ages 55 to less than 59 1/2; 3.5% for ages 59 1/2 to 64; 4% for ages 65
to 69; 4.5% for ages 70 to 84; and 5.5% for ages 85 or older. If that value
exceeds the existing Annual Income Amount, we replace the existing amount with
the new, higher amount. Otherwise, we leave the existing Annual Income Amount
intact. We will not automatically increase your Annual Income Amount solely as
a result of your attaining a new age that is associated with a new age-based
percentage. The Unadjusted Account Value on the Annuity Anniversary is
considered the last daily step-up value of the Annuity Year. In later years
(i.e., after the first Annuity Anniversary after the first Lifetime
Withdrawal), we determine whether an automatic step-up should occur on each
Annuity Anniversary by performing a similar examination of the Unadjusted
Account Values that occurred on Valuation Days during the year. Taking
Lifetime Withdrawals could produce a greater difference between your Protected
Withdrawal Value and your Unadjusted Account Value, which may make a Highest
Daily Auto Step-up less likely to occur. At the time that we increase your
Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the date that we implement a Highest Daily Auto Step-Up to your Annual
Income Amount, the charge for Spousal Highest Daily Lifetime Income v2.1 with
HD DB has changed for new purchasers, you may be subject to the new charge at
the time of such step-up. Prior to increasing your charge for Spousal Highest
Daily Lifetime Income v2.1 with HD DB upon a step-up, we would notify you, and
give you the opportunity to cancel the automatic step-up feature. If you
receive notice of a proposed step-up and accompanying fee increase, you should
carefully evaluate whether the amount of the step-up justifies the increased
fee to which you will be subject. Any such increased charge will not be
greater than the maximum charge set forth in the table entitled "Your Optional
Benefit Fees and Charges".
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Spousal Highest Daily Lifetime Income v2.1 with HD DB does not affect your
ability to take withdrawals under your Annuity, or limit your ability to take
partial withdrawals that exceed the Annual Income Amount. Under Spousal
Highest Daily Lifetime Income v2.1 with HD DB, if your cumulative Lifetime
Withdrawals in an Annuity Year are less than or equal to the Annual Income
Amount, they will not reduce your Annual Income Amount in subsequent Annuity
Years, but any such withdrawals will reduce the Annual Income Amount on a
dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw
an amount less than the Annual Income Amount in any Annuity Year, you cannot
carry over the unused portion of the Annual Income Amount to subsequent
Annuity Years. If your cumulative Lifetime Withdrawals in an Annuity Year
exceed the Annual Income Amount, your Annual Income Amount in subsequent years
will be reduced (except with regard to Required Minimum Distributions for this
Annuity that comply with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Spousal Highest Daily
Lifetime Income v2.1 with HD DB or any other fees and charges under the
Annuity. Assume the following for all three examples:
.. The Issue Date is November 1
.. Spousal Highest Daily Lifetime Income v2.1 with HD DB is elected on
August 1 of the following calendar year
.. Both designated lives were 70 years old when they elected Spousal Highest
Daily Lifetime Income v2.1 with HD DB
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
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EXAMPLE OF DOLLAR-FOR-DOLLAR REDUCTIONS
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $5,400 (since the younger designated life is between
the ages of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual
Income Amount is 4.5% of the Protected Withdrawal Value, in this case 4.5% of
$120,000). The Highest Daily Death Benefit Amount is $115,420. Assuming $2,500
is withdrawn from the Annuity on this date, the remaining Annual Income Amount
for that Annuity Year (up to and including October 31) is $2,900. This is the
result of a dollar-for-dollar reduction of the Annual Income Amount ($5,400
less $2,500 = $2,900) and the Highest Daily Death Benefit Amount ($115,420
less $2,500 = $112,920).
EXAMPLE OF PROPORTIONAL REDUCTIONS
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $2,900 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $2,100 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there were other
withdrawals in that Annuity Year, each would result in another proportional
reduction to the Annual Income Amount.)
HERE IS THE CALCULATION:
EXAMPLE OF HIGHEST DAILY AUTO STEP-UP
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
younger designated life's age on that Annuity Anniversary) of the highest
daily value since your first Lifetime Withdrawal (or last Annuity Anniversary
in subsequent years), adjusted for withdrawals and additional Purchase
Payments including any associated Purchase Credits), is greater than the
Annual Income Amount, adjusted for Excess Income and additional Purchase
Payments (including any associated Purchase Credits).
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $5,400. However, the Excess Income on October 29 reduces the
amount to $5,301.72 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 4.5% (since the younger
designated life is between 70 and 84 on the date of the potential step-up) of
the highest daily Unadjusted Account Value adjusted for withdrawals and
Purchase Payments (including any associated Purchase Credits), is greater than
$5,301.72. Here are the calculations for determining the daily values. Only
the October 28 value is being adjusted for Excess Income as the
October 30, October 31 and November 1 Valuation Days occur after the Excess
Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be every day following the Annuity
Anniversary. The Annuity Anniversary Date of November 1 is considered the
final Valuation Date for the Annuity Year.
** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,355.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $2,900 ($2,900 is the remaining Annual Income
Amount for the Annuity Year), resulting in an Unadjusted Account Value
of $116,100 before the Excess Income.
. This amount ($116,100) is further reduced by 1.82% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.98.
. The adjusted October 29 Highest Daily Value, $113,986.98, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.98 is greater than the
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October 30 Unadjusted Account Value, we will continue to carry
$113,986.98 forward to the next Valuation Day of October 31. The
Unadjusted Account Value on October 31, $119,000.00, becomes the final
Highest Daily Value since it exceeds the $113,986.98 carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 4.5%, generating
an Annual Income Amount of $5,355.00. Since this amount is greater than the
current year's Annual Income Amount of $5,301.72 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,355.00.
NON-LIFETIME WITHDRAWAL FEATURE
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Spousal Highest Daily Lifetime Income v2.1 with HD DB. It is an optional
feature of the benefit that you can only elect at the time of your first
withdrawal. You cannot take a Non-Lifetime Withdrawal in an amount that would
cause your Annuity's Account Value, after taking the withdrawal, to fall below
the minimum Surrender Value (see "Surrenders - Surrender Value" in the
prospectus). This Non-Lifetime Withdrawal will not establish your initial
Annual Income Amount and the Periodic Value above will continue to be
calculated. However, the total amount of the withdrawal will proportionally
reduce all guarantees associated with Spousal Highest Daily Lifetime Income
v2.1 with HD DB. You must tell us at the time you take the partial withdrawal
if your withdrawal is intended to be the Non-Lifetime Withdrawal and not the
first Lifetime Withdrawal under Spousal Highest Daily Lifetime Income v2.1
with HD DB. If you don't elect the Non-Lifetime Withdrawal, the first
withdrawal you make will be the first Lifetime Withdrawal that establishes
your Annual Income Amount, which is based on your Protected Withdrawal Value.
Once you elect the Non-Lifetime Withdrawal or Lifetime Withdrawals, no
additional Non-Lifetime withdrawals may be taken. If you do not take a
Non-Lifetime Withdrawal before beginning Lifetime Withdrawals, you lose the
ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value. It will also proportionally reduce the Highest Daily Death
Benefit Amount. It will reduce each value by the percentage the total
withdrawal amount (including any applicable CDSC) represents of the then
current Account Value immediately prior to the time of the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
EXAMPLE - NON-LIFETIME WITHDRAWAL (PROPORTIONAL REDUCTION)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit. Assume the following:
.. The Issue Date is December 3
.. Spousal Highest Daily Lifetime Income v2.1 with HD DB is elected on
September 4 of the following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. Each designated life was 70 years old when he/she elected Spousal Highest
Daily Lifetime Income v2.1 with HD DB
.. No previous withdrawals have been taken under Spousal Highest Daily
Lifetime Income v2.1 with HD DB
On October 3 of the year the benefit is elected, the Protected Withdrawal
Value is $125,000, the Highest Daily Death Benefit Amount is $115,420, and the
Account Value is $120,000. Assuming $15,000 is withdrawn from the Annuity on
that same October 3 and is designated as a Non-Lifetime Withdrawal, all
guarantees associated with Spousal Highest Daily Lifetime Income v2.1 with HD
DB will be reduced by the ratio the total withdrawal amount represents of the
Account Value just prior to the withdrawal being taken.
HERE IS THE CALCULATION:
REQUIRED MINIMUM DISTRIBUTIONS
See the sub-section entitled "Required Minimum Distributions" in the section
above concerning Highest Daily Lifetime Income v2.1 with HD DB for a
discussion of the relationship between the RMD amount and the Annual Income
Amount.
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HIGHEST DAILY DEATH BENEFIT
A Death Benefit is payable under Spousal Highest Daily Lifetime Income v2.1
with HD DB (until we begin making Guarantee Payments under the benefit or
annuity payments have begun) upon the death of the Remaining Designated Life
when we receive Due Proof of Death. The Death Benefit is the greatest of: the
Minimum Death Benefit (described in the prospectus) or the Highest Daily Death
Benefit Amount described below.
HIGHEST DAILY DEATH BENEFIT AMOUNT:
On the date you elect Spousal Highest Daily Lifetime Income v2.1 with HD DB,
the Highest Daily Death Benefit Amount is equal to your Unadjusted Account
Value. On each subsequent Valuation Day, until the date of death of the
decedent, the Highest Daily Death Benefit Amount will be the greater of:
(1)The Unadjusted Account Value on the current Valuation Day; and
(2)The Highest Daily Death Benefit Amount of the immediately preceding
Valuation Day,
.. increased by any Purchase Payments made on the current Valuation Day and,
.. reduced by the effect of withdrawals made on the current Valuation Day, as
described below.
Please note that the Highest Daily Death Benefit Amount does not have any
guaranteed growth rate associated with it and therefore can be a different
amount than any of the guaranteed values associated with the living benefit
features of Spousal Highest Daily Lifetime Income v2.1 with HD DB.
A Non-Lifetime Withdrawal will proportionately reduce the Highest Daily Death
Benefit Amount by the ratio of the Non-Lifetime Withdrawal to the Account
Value immediately prior to the Non-Lifetime Withdrawal. A Lifetime Withdrawal
that is not considered Excess Income will reduce the Highest Daily Death
Benefit Amount (dollar-for-dollar) by the amount of the withdrawal. All or a
portion of a Lifetime Withdrawal that is considered Excess Income will
proportionately reduce the Highest Daily Death Benefit Amount by the ratio of
the Excess Income to the Account Value immediately prior to the withdrawal of
the Excess Income.
The Highest Daily Death Benefit will be calculated on the date of death of the
Remaining Designated Life and will be:
.. increased by the amount of any additional Adjusted Purchase Payments, and
.. reduced by the effect of any withdrawals (as described in the preceding
paragraph),
made during the period between the decedent's date of death and the date we
receive Due Proof of Death.
We will reduce the Highest Daily Death Benefit Amount payable under this
benefit by Purchase Credits applied during the period beginning 12 months
prior to the decedent's date of death and ending on the date we receive Due
Proof of Death. We may waive, on a non-discriminatory basis, our right to
deduct such Purchase Credits.
PLEASE NOTE THAT HIGHEST DAILY DEATH BENEFIT AMOUNT IS AVAILABLE ONLY UNTIL WE
MAKE GUARANTEE PAYMENTS UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 WITH
HD DB OR ANNUITY PAYMENTS BEGIN. THIS MEANS THAT ANY WITHDRAWALS THAT REDUCE
YOUR UNADJUSTED ACCOUNT VALUE TO ZERO WILL ALSO REDUCE THE HIGHEST DAILY DEATH
BENEFIT AMOUNT TO ZERO.
ALL OTHER PROVISIONS APPLICABLE TO DEATH BENEFITS UNDER YOUR ANNUITY CONTINUE
TO APPLY. SEE THE "DEATH BENEFITS" SECTION OF THE PROSPECTUS FOR MORE
INFORMATION PERTAINING TO DEATH BENEFITS.
BENEFITS UNDER SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and Guarantee Payments amounts
are still payable under Spousal Highest Daily Lifetime Income v2.1 with HD
DB, we will make an additional payment, if any, for that Annuity Year equal
to the remaining Annual Income Amount for the Annuity Year. Thus, in that
scenario, the remaining Annual Income Amount would be payable even though
your Unadjusted Account Value was reduced to zero. In subsequent Annuity
Years we make payments that equal the Annual Income Amount as described in
this section. We will continue to make payments until the simultaneous
deaths of both spousal designated lives, or the death of the Remaining
Designated Life. After the Unadjusted Account Value is reduced to zero, you
are not permitted to make additional Purchase Payments to your Annuity. TO
THE EXTENT THAT CUMULATIVE WITHDRAWALS IN THE ANNUITY YEAR THAT REDUCED
YOUR UNADJUSTED ACCOUNT VALUE TO ZERO ARE MORE THAN THE ANNUAL INCOME
AMOUNT, SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB TERMINATES,
AND NO ADDITIONAL PAYMENTS WILL BE PERMITTED.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments.
.. Please note that if your Unadjusted Account Value is reduced to zero due to
withdrawals or annuitization, any Death Benefit value, including that of
the HD DB feature, will terminate. This means that the HD DB is terminated
and no Death Benefit is payable if your Unadjusted Account Value is reduced
to zero as the result of either a withdrawal in excess of your Annual
Income Amount or less than or equal to, your Annual Income Amount.
47
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable state required
premium tax, to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. We will
make payments until the death of the Remaining Designated Life We must
receive your request in a form acceptable to us at our office. If
applying your Unadjusted Account Value, less any applicable tax charges,
to our current life only (or joint life, depending on the number of
designated lives remaining) annuity payment rates results in a higher
annual payment, we will give you the higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin,
we currently make annual annuity payments as a joint and survivor or single
(as applicable) life fixed annuity with eight payments certain, by applying
the greater of the annuity rates then currently available or the annuity
rates guaranteed in your Annuity. We reserve the right at any time to
increase or decrease the certain period in order to comply with the Code
(e.g., to shorten the period certain to match life expectancy under
applicable Internal Revenue Service tables). The amount that will be
applied to provide such annuity payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual Income
Amount as if you made your first Lifetime Withdrawal on the date the
annuity payments are to begin). Such present value will be calculated
using the greater of the joint and survivor or single (as applicable)
life fixed annuity rates then currently available or the joint and
survivor or single (as applicable) life fixed annuity rates guaranteed
in your Annuity; and
(2)the Unadjusted Account Value.
OTHER IMPORTANT CONSIDERATIONS
.. Withdrawals under the Spousal Highest Daily Lifetime Income v2.1 with HD DB
benefit are subject to all of the terms and conditions of the Annuity,
including any applicable CDSC for the Non-Lifetime Withdrawal as well as
partial withdrawals that exceed the Annual Income Amount. If you have an
active Systematic Withdrawal program running at the time you elect this
benefit, the first systematic withdrawal that processes after your election
of the benefit will be deemed a Lifetime Withdrawal. Withdrawals made while
Spousal Highest Daily Lifetime Income v2.1 with HD DB is in effect will be
treated, for tax purposes, in the same way as any other withdrawals under
the Annuity. Any withdrawals made under the benefit will be taken pro rata
from the Sub-accounts (including the AST Investment Grade Bond Sub-account)
and the DCA MVA Options. If you have an active Systematic Withdrawal
program running at the time you elect this benefit, the program must
withdraw funds pro rata.
.. Any Lifetime Withdrawal that you take that is not a withdrawal of Excess
Income is not subject to a CDSC, even if the total amount of such
withdrawals in any Annuity Year exceeds the maximum Free Withdrawal amount.
Any Lifetime Withdrawal that is treated as Excess Income is subject to any
applicable CDSC, if the withdrawal is greater than the Free Withdrawal
amount. (See "Fees, Charges and Deductions - Contingent Deferred Sales
Charge ("CDSC")" and "Access to Account Value - Free Withdrawal Amounts" in
the prospectus.)
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolios appears in the prospectus
section entitled "Investment Options." In addition, you can find a copy of
the AST Investment Grade Bond Portfolio prospectus by going to
www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the predetermined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to Permitted Sub-accounts, or to
the requirements as to how you may allocate your Unadjusted Account Value
with this benefit, will apply to new elections of the benefit and may apply
to current participants in the benefit. To the extent that changes apply to
current participants in the benefit, they will apply only upon
re-allocation of Unadjusted Account Value, or upon addition of additional
Purchase Payments. That is, we will not require such current participants
to re-allocate Unadjusted Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
48
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if any withdrawals taken under Spousal
Highest Daily Lifetime Income v2.1 with HD DB reduce your Unadjusted
Account Value to zero. This means that any Death Benefit, including the HD
DB, will terminate and no Death Benefit is payable if your Unadjusted
Account Value is reduced to zero as the result of either a withdrawal in
excess of your Annual Income Amount or less than or equal to, your Annual
Income Amount. (See "Death Benefits" in the prospectus for more
information.)
.. Spousal Continuation: If a Death Benefit is not payable on the death of a
spousal designated life (e.g., if the first of the spousal designated lives
to die is the Beneficiary but not an Owner), Spousal Highest Daily Lifetime
Income v2.1 with HD DB will remain in force unless we are instructed
otherwise.
.. The current charge for Spousal Highest Daily Lifetime Income v2.1 with HD
DB is 1.60% annually of the greater of Unadjusted Account Value and
Protected Withdrawal Value. The maximum charge for Spousal Highest Daily
Lifetime Income v2.1 with HD DB is 2.00% annually of the greater of the
Unadjusted Account Value and Protected Withdrawal Value. As discussed in
"Highest Daily Auto Step-Up" above, we may increase the fee upon a step-up
under this benefit. We deduct this charge on quarterly anniversaries of the
benefit effective date, based on the values on the last Valuation Day prior
to the quarterly anniversary. Thus, we deduct, on a quarterly basis, 0.40%
of the greater of the prior Valuation Day's Unadjusted Account Value, or
the prior Valuation Day's Protected Withdrawal Value. We deduct the fee pro
rata from each of your Sub-accounts, including the AST Investment Grade
Bond Sub-account. You will begin paying this charge as of the effective
date of the benefit even if you do not begin taking withdrawals for many
years, or ever. We will not refund the charges you have paid if you choose
never to take any withdrawals and/or if you never receive any lifetime
income payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (and any associated Purchase Credits) (we refer to this as
the "Account Value Floor"), we will only deduct that portion of the charge
that would not cause the Unadjusted Account Value to fall below the Account
Value Floor. If the Unadjusted Account Value on the date we would deduct a
charge for the benefit is less than the Account Value Floor, then no charge
will be assessed for that benefit quarter. Charges deducted upon termination
of the benefit may cause the Unadjusted Account Value to fall below the
Account Value Floor. If a charge for Spousal Highest Daily Lifetime Income
v2.1 with HD DB would be deducted on the same day we process a withdrawal
request, the charge will be deducted first, then the withdrawal will be
processed. The withdrawal could cause the Unadjusted Account Value to fall
below the Account Value Floor. While the deduction of the charge (other than
the final charge) may not reduce the Unadjusted Account Value to zero,
withdrawals may reduce the Unadjusted Account Value to zero. If this happens
and the Annual Income Amount is greater than zero, we will make payments under
the benefit.
ELECTION OF AND DESIGNATIONS UNDER THE BENEFIT
Spousal Highest Daily Lifetime Income v2.1 with HD DB can only be elected
based on two designated lives. Designated lives must be natural persons who
are each other's spouses at the time of election of the benefit. Currently,
Spousal Highest Daily Lifetime Income v2.1 with HD DB only may be elected if
the Owner, Annuitant, and Beneficiary designations are as follows:
.. One Annuity Owner, where the Annuitant and the Owner are the same person
and the sole Beneficiary is the Owner's spouse. Each Owner/Annuitant and
the Beneficiary must be between 50 - 79 years old at the time of election;
or
.. Co-Annuity Owners, where the Owners are each other's spouses. The
Beneficiary designation must be the surviving spouse, or the spouses named
equally. One of the Owners must be the Annuitant. Each Owner must be
between 50 and 79 years old at the time of election; or
.. One Annuity Owner, where the Owner is a custodial account established to
hold retirement assets for the benefit of the Annuitant pursuant to the
provisions of Section 408(a) of the Internal Revenue Code (or any successor
Code section thereto) ("Custodial Account"), the Beneficiary is the
Custodial Account, and the spouse of the Annuitant is the Contingent
Annuitant. Each of the Annuitant and the Contingent Annuitant must be
between 50 and 79 years old at the time of election.
REMAINING DESIGNATED LIFE: A Remaining Designated Life must be a natural
person and must have been listed as one of the spousal designated lives when
the benefit was elected. A spousal designated life will become the Remaining
Designated Life on the earlier of the death of the first of the spousal
designated lives to die, provided that they are each other's spouses at that
time, or divorce from the other spousal designated life while the benefit is
in effect. That said, if a spousal designated life is removed as Owner,
Beneficiary, or Annuitant due to divorce, the other spousal designated life
becomes the Remaining Designated Life when we receive notice of the divorce,
and any other documentation we require, in Good Order. Any new
Beneficiary(ies) named by the Remaining Designated Life will not be a spousal
designated life.
We do not permit a change of Owner under this benefit, except as follows:
(a) if one Owner dies and the surviving spousal Owner assumes the Annuity, or
(b) if the Annuity initially is co-owned, but thereafter the Owner who is not
the Annuitant is removed as Owner. We permit changes of Beneficiary
designations under this benefit, however if the Beneficiary is changed, the
benefit may not be eligible to be continued upon the death of the first
designated life. If the designated lives divorce, Spousal Highest Daily
Lifetime Income v2.1 with HD DB may not be divided as part of the divorce
settlement or judgment. Nor may the divorcing spouse who retains ownership of
the Annuity appoint a new designated life upon re-marriage. A change in
designated lives will result in cancellation of Spousal Highest Daily Lifetime
Income v2.1 with HD DB.
49
Spousal Highest Daily Lifetime Income v2.1 with HD DB can be elected at the
time that you purchase your Annuity or after the Issue Date, subject to its
availability, and our eligibility rules and restrictions. If you elect Spousal
Highest Daily Lifetime Income v2.1 with HD DB and terminate it, you can
re-elect it, subject to our current rules and availability. See "Termination
of Existing Benefits and Election of New Benefits" in the prospectus for
information pertaining to elections, termination and re-election of benefits.
PLEASE NOTE THAT IF YOU TERMINATE A LIVING BENEFIT AND ELECT SPOUSAL HIGHEST
DAILY LIFETIME INCOME V2.1 WITH HD DB, YOU LOSE THE GUARANTEES THAT YOU HAD
ACCUMULATED UNDER YOUR EXISTING BENEFIT, AND YOUR GUARANTEES UNDER SPOUSAL
HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB WILL BE BASED ON YOUR UNADJUSTED
ACCOUNT VALUE ON THE EFFECTIVE DATE OF SPOUSAL HIGHEST DAILY LIFETIME INCOME
V2.1 WITH HD DB. You and your Financial Professional should carefully consider
whether terminating your existing benefit and electing Spousal Highest Daily
Lifetime Income v2.1 with HD DB is appropriate for you. We reserve the right
to waive, change and/or further limit the election frequency in the future for
new elections of this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Spousal Highest Daily Lifetime Income v2.1 so long as you
participate in a Systematic Withdrawal program in which withdrawals are not
taken pro rata.
TERMINATION OF THE BENEFIT
You may terminate the benefit at any time by notifying us. If you terminate
the benefit, any guarantee provided by the benefit will terminate as of the
date the termination is effective, and certain restrictions on re-election may
apply.
THE BENEFIT AUTOMATICALLY TERMINATES UPON THE FIRST TO OCCUR OF THE FOLLOWING:
(I) UPON OUR RECEIPT OF DUE PROOF OF DEATH OF THE FIRST DESIGNATED LIFE WHO IS
AN OWNER (OR WHO IS THE ANNUITANT IF ENTITY OWNED), IF THE REMAINING
DESIGNATED LIFE ELECTS NOT TO CONTINUE THE ANNUITY;
(II)UPON OUR RECEIPT OF DUE PROOF OF DEATH OF AN OWNER (OR ANNUITANT IF ENTITY
OWNED) IF THE SURVIVING SPOUSE IS NOT ELIGIBLE TO CONTINUE THE BENEFIT
BECAUSE SUCH SPOUSE IS NOT A SPOUSAL DESIGNATED LIFE AND THERE IS ANY
UNADJUSTED ACCOUNT VALUE ON THE DATE OF DEATH;
(III)UPON OUR RECEIPT OF DUE PROOF OF DEATH OF THE REMAINING DESIGNATED LIFE IF
A DEATH BENEFIT IS PAYABLE UNDER THIS BENEFIT;
(IV)YOUR TERMINATION OF THE BENEFIT;
(V) YOUR SURRENDER OF THE ANNUITY;
(VI)WHEN ANNUITY PAYMENTS BEGIN (ALTHOUGH IF YOU HAVE ELECTED TO TAKE ANNUITY
PAYMENTS IN THE FORM OF THE ANNUAL INCOME AMOUNT, WE WILL CONTINUE TO PAY
THE ANNUAL INCOME AMOUNT);
(VII)BOTH THE UNADJUSTED ACCOUNT VALUE AND ANNUAL INCOME AMOUNT EQUAL ZERO DUE
TO A WITHDRAWAL OF EXCESS INCOME;
(VIII)YOU ALLOCATE OR TRANSFER ANY PORTION OF YOUR ACCOUNT VALUE TO ANY
SUB-ACCOUNT(S) TO WHICH YOU ARE NOT PERMITTED TO ELECTIVELY ALLOCATE OR
TRANSFER ACCOUNT VALUE (MAY VARY BY STATE);* OR
(IX)YOU CEASE TO MEET OUR REQUIREMENTS AS DESCRIBED IN "ELECTION OF AND
DESIGNATIONS UNDER THE BENEFIT".
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Spousal Highest Daily Lifetime Income v2.1 with HD DB
other than upon the death of the Remaining Designated Life or Annuitization,
we impose any accrued fee for the benefit (i.e., the fee for the pro-rated
portion of the year since the fee was last assessed), and thereafter we cease
deducting the charge for the benefit. This final charge will be deducted even
if it results in the Unadjusted Account Value falling below the Account Value
Floor. However, if the amount in the Sub-accounts is not enough to pay the
charge, we will reduce the fee to no more than the amount in the Sub-accounts.
With regard to your investment allocations, upon termination we will:
(i) leave intact amounts that are held in the Permitted Sub-accounts, and (ii)
unless you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
50
HOW SPOUSAL HIGHEST DAILY LIFETIME INCOME V2.1 WITH HD DB TRANSFERS UNADJUSTED
ACCOUNT VALUE BETWEEN YOUR PERMITTED SUB-ACCOUNTS AND THE AST INVESTMENT GRADE
BOND SUB-ACCOUNT
See "How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account" in the discussion of Highest Daily Lifetime Income v2.1 above for
information regarding this component of the benefit.
ADDITIONAL TAX CONSIDERATIONS
Please see the Additional Tax Considerations section under Highest Daily
Lifetime Income v2.1 above.
51
III. OTHER UPDATES
CORRECTION TO HIGHEST DAILY LIFETIME 6 PLUS. If you own a Highest Daily
Lifetime 6 Plus benefit, we make the following correction in the description
of the 10/th/ Anniversary guarantee that appears in the second to last
paragraph of the "Key Feature - Protected Withdrawal Value" subsections for
each of the Highest Daily Lifetime 6 Plus suit of benefits.
KEY FEATURE - PROTECTED WITHDRAWAL VALUE
...
This means that: if you do not take a withdrawal on or before the 10/th/
Anniversary of the benefit, your Protected Withdrawal Value on the 10/th/
Anniversary will be at least double (200%) your initial Protected Withdrawal
Value established on the date of benefit election; or if you do not take a
withdrawal on or before the 20/th/ anniversary of the benefit, your Protected
Withdrawal Value on the 20/th/ anniversary will be at least quadruple
(400%) of your initial Protected Withdrawal Value established on the date of
benefit election. As such, you should carefully consider when it is most
appropriate for you to begin taking withdrawals under the benefit.
THIS SUPPLEMENT SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
52
PRUCO LIFE INSURANCE COMPANY
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
PRUDENTIAL PREMIER(R) ADVISOR/SM/ VARIABLE ANNUITY ("ADVISOR SERIES")
FLEXIBLE PREMIUM DEFERRED ANNUITY
Supplement, dated February 14, 2013,
to Prospectus dated August 20, 2012
This Supplement should be read and retained with the Prospectus for your
Annuity. This supplement is intended to update certain information in the
Prospectus for the variable annuity you own and is not intended to be a
prospectus or offer for any other variable annuity listed here that you do not
own. If you would like another copy of the current Prospectus, please call us
at 1-888-PRU-2888.
We are issuing this supplement to describe new optional "living benefits" that
are available under your annuity, to reflect changes to the Advanced Series
Trust ("AST") and to describe certain other updates to your prospectus.
TABLE OF CONTENTS
I. CHANGES TO THE ADVANCED SERIES TRUST
A. APPROVAL AND EFFECTIVENESS OF A NEW 12b-1 PLAN.
i. Restated Portfolio Expenses. At a recent special meeting, shareholders of
Portfolios of the Advanced Series Trust (the "Trust") approved a Shareholder
Services and Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. The Plan is applicable to all of
the Portfolios of the Trust except AST Balanced Asset Allocation Portfolio,
AST Capital Growth Asset Allocation Portfolio, AST Preservation Asset
Allocation Portfolio, AST Horizon Moderate Asset Allocation Portfolio, and AST
Quantitative Modeling Portfolio.
Pursuant to the Plan, each Portfolio of the Trust covered by the Plan will
compensate Prudential Annuities Distributors ("PAD"), Inc. for shareholder
servicing and distribution expenses at the annual rate of 0.10% of the average
daily net assets of the shares of each Portfolio. The existing administrative
services fee, which was paid by each Portfolio at the same annual rate of
0.10% of the average daily net assets of the shares of each Portfolio, will be
discontinued.
The Trust's investment managers have contractually reduced their management
fee rates for all Portfolios covered by the Plan. Additionally, PAD has
contractually agreed to reduce its distribution and service fees for certain
bond Portfolios so that the effective distribution and service fee rate paid
by those Portfolios is reduced based on the average daily net assets of the
relevant Portfolio. The Plan, including the reduced management fee rates, is
anticipated to become operational on or about February 25, 2013.
Accordingly, we have restated the "Total Annual Portfolio Operating Expenses"
table and the "Underlying Mutual Fund Portfolio Annual Expenses" table that
appear in the "Summary of Contract Fees and Charges" chapter of your
prospectus to reflect the new 12b-1 plan, as follows:
The following table provides the range (minimum and maximum) of the total
annual expenses for the underlying mutual funds ("Portfolios") before any
contractual waivers and expense reimbursements. Each figure is stated as a
percentage of the underlying Portfolio's average daily net assets.
The following are the total annual expenses for each underlying mutual fund
("Portfolio"). The "Total Annual Portfolio Operating Expenses" reflect the
combination of the underlying Portfolio's investment management fee, other
expenses, any 12b-1 fees, and certain other expenses. The fees and expenses
have been restated to reflect fee and expense changes implemented following
shareholder approval of a Rule 12b-1 plan for the Portfolios, as explained in
the current prospectus for the Portfolios. Each figure is stated as a
percentage of the underlying Portfolio's average daily net assets. For certain
of the Portfolios, a portion of the management fee has been contractually
waived and/or other expenses have been contractually partially reimbursed,
which is shown in the table. The following expenses are deducted by the
underlying Portfolio before it provides Pruco Life with the daily net asset
value. The underlying Portfolio information was provided by the underlying
mutual funds and has not been independently verified by us. See the
prospectuses or statements of additional information of the underlying
Portfolios for further details. The current prospectus and statement of
additional information for the underlying Portfolios can be obtained by
calling 1-888-PRU-2888.
2
3
4
+ Expense information in the Underlying Mutual Fund Portfolio Annual Expenses
Table has been restated to reflect current fees.
1 The AST AQR Emerging Markets Equity Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $300 million for the Portfolio
for the fiscal period ending December 31, 2013.
2 The Portfolio's distributor, Prudential Annuities Distributors, Inc.
("PAD"), has contractually agreed to reduce its distribution and service
fees so that the effective distribution and service fee rate paid by the
Portfolio is reduced based on the average daily net assets of the Portfolio
as follows: 0.08% over $300 million in daily net assets up to and including
$500 million in average daily net assets; 0.07% over $500 million in daily
net assets up to an including $750 million in average daily net assets; and
0.06% over $750 million in daily net assets. The contractual waiver does
not include an expiration or termination date as it is contractually
guaranteed by PAD on a permanent basis, and the Investment Managers and PAD
cannot terminate or otherwise modify the waiver.
3 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses for the Portfolio so that the
Portfolio's investment management fees plus other expenses (exclusive in
all cases of taxes, interest, brokerage commissions, acquired portfolio
fees and expenses and extraordinary expenses) do not exceed 0.99% of the
Portfolio's average daily net assets through June 30, 2015. This
arrangement may not be terminated or modified prior to June 30, 2015, and
may be discontinued or modified thereafter. The decision on whether to
renew, modify or discontinue the arrangement after June 30, 2015 will be
subject to review by the Manager and the Portfolio's Board of Trustees.
4 The AST Clearbridge Dividend Growth Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $400 million for the Portfolio
for the fiscal period ending December 31, 2013.
5 Pyramis is a registered service mark of FMR LLC. Used under license.
6 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses so that the investment management
fees plus other expenses (exclusive in all cases of taxes, short sale
interest and dividend expenses, brokerage commissions, underlying portfolio
fees and expenses, and extraordinary expenses) for the Portfolio do not
exceed 1.10% of the average daily net assets of the Portfolio through
June 30, 2015. This expense limitation may not be terminated or modified
prior to June 30, 2015, but may be discontinued or modified thereafter. The
decision on whether to renew, terminate or modify this waiver after
June 30, 2015 will be subject to review by the Manager and the Board of
Trustees of the Trust.
7 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fee, so that the effective management fee rate paid by the Portfolio is as
follows: 0.70% to $500 million of average daily net assets; 0.675% over
$500 million in average daily net assets up to and including $1 billion in
average daily net assets; and 0.65% over $1 billion in average daily net
assets. This arrangement may not be terminated or modified prior to
June 30, 2015, and may be discontinued or modified thereafter. The decision
on whether to renew, modify or discontinue the arrangement after June 30,
2015 will be subject to review by the Investment Managers and the
Portfolio's Board of Trustees.
8 If approved by shareholders, the Portfolio will be restructured on or about
April 29, 2013. As restructured, the Portfolio will no longer be a
fund-of-funds and will be renamed the AST RCM World Trends Portfolio. Based
on assets as of December 31, 2012, as restructured, the Portfolio would
have a management fee of 0.92%, other expenses of 0.14%, acquired portfolio
fees and expenses of 0.00%, total annual operating expenses before
contractual fee waiver of 1.06%, a contractual fee waiver of 0.07% through
at least June 30, 2014, and net annual operating expenses after fee waiver
of 0.99%.
5
9 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees so that the Portfolio's investment management fee would equal 0.70% of
the Portfolio's first $500 million of average daily net assets, 0.675% of
the Portfolio's average daily net assets between $500 million and $1
billion, and 0.65% of the Portfolio's average daily net assets in excess of
$1 billion through June 30, 2015. This contractual investment management
fee waiver may not be terminated or modified prior to June 30, 2015, but
may be discontinued or modified thereafter. The decision on whether to
renew, modify, or discontinue this expense limitation after June 30, 2015
will be subject to review by the Manager and the Board of Trustees of the
Portfolio.
10 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses, so that the investment management
fees plus other expenses (exclusive in all cases of taxes, short sale
interest and dividend expenses, brokerage commissions, acquired portfolio
fees and expenses, and extraordinary expenses) for the Portfolio do not
exceed 1.08% of its average daily net assets through June 30, 2015. This
expense limitation may not be terminated or modified prior to June 30,
2015, and may be discontinued or modified thereafter. The decision on
whether to renew, modify or discontinue the expense limitation after
June 30, 2015 will be subject to review by the Investment Managers and the
Portfolio's Board of Trustees.
11 The AST QMA Emerging Markets Equity Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $300 million for the Portfolio
for the fiscal period ending December 31, 2013.
12 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fee so that the Portfolio's investment management fee would equal 0.80% of
the Portfolio's average daily net assets through June 30, 2015. This
contractual investment management fee waiver may not be terminated or
modified prior to June 30, 2015, but may be discontinued or modified
thereafter. The decision on whether to renew, modify, or discontinue this
expense limitation after June 30, 2015 will be subject to review by the
Manager and the Board of Trustees of the Trust.
ii. Revised Expense Examples. We have updated the Expense Examples that appear
in your prospectus as follows:
EXPENSE EXAMPLES
These examples are intended to help you compare the cost of investing in the
Annuity with the cost of investing in other Pruco Life Annuities and/or other
variable annuities. Below are examples for the Annuity showing what you would
pay in expenses at the end of the stated time periods had you invested $10,000
in the Annuity and your investment has a 5% return each year. The examples
reflect the following fees and charges for the Annuity as described in
"Summary of Contract Fees and Charges."
. Insurance Charge
. Annual Maintenance Fee
. Optional benefit fees, as described below
The examples also assume the following for the period shown:
. You allocate all of your Account Value to the Sub-account with the
maximum gross total operating expenses and those expenses remain the
same each year*
. For each charge, we deduct the maximum charge rather than the current
charge
. You make no transfers, or other transactions for which we charge a fee
. No tax charge applies
. You elect the Spousal Highest Daily Lifetime Income v2.1 with Highest
Daily Death Benefit which is the maximum optional benefit charge. There
is no other combination of optional benefits that would result in higher
maximum charges than those shown in the examples.
Amounts shown in the examples are rounded to the nearest dollar.
* Note: Not all Portfolios offered as Sub-accounts may be available depending
on optional benefit selection, and selling firm.
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING PORTFOLIOS. ACTUAL
EXPENSES WILL BE LESS THAN THOSE SHOWN DEPENDING UPON WHICH OPTIONAL BENEFIT
YOU ELECT OTHER THAN INDICATED IN THE EXAMPLES OR IF YOU ALLOCATE ACCOUNT
VALUE TO ANY OTHER AVAILABLE SUB-ACCOUNTS.
Expense Examples are provided as follows:
If you surrender your Annuity, do not surrender your Annuity, or if you
annuitize your Annuity at the end of the applicable time period:
B. OTHER PORTFOLIO CHANGES AND ADDITIONS.
i. All references in your annuity prospectus to the "JPMorgan International
Equity Portfolio" are replaced with "J.P. Morgan International Equity
Portfolio;" and all references in your annuity prospectus to "Barclays Capital
U.S. Aggregate Bond Index" are replaced with "Barclays U.S. Aggregate Bond
Index."
6
ii. To the list of available variable investment options that appear on the
backside of the first page of your prospectus, we add the following new
available investment options and modify footnote 3:
AST AQR Emerging Markets Equity Portfolio/ 4/
AST Clearbridge Dividend Growth Portfolio/3/
AST QMA Emerging Markets Equity Portfolio/ 4/
(3)Not available with HDI v2.1 suite of benefits
(4)Not available if you purchase any optional benefit.
iii. In the table of Underlying Mutual Fund Portfolio Annual Expenses found in
the section titled, "Summary of Contract Fees and Charges," we add the fees
for the AST AQR Emerging Markets Equity Portfolio, the AST Clearbridge
Dividend Growth Portfolio, and the AST QMA Emerging Markets Equity Portfolio
as appears in the table above.
iv. In the Investment Objectives/Policies table found in the section titled,
"Investment Options," we add summary descriptions for the AST AQR Emerging
Markets Equity Portfolio, the AST Clearbridge Dividend Growth Portfolio, and
the AST QMA Emerging Markets Equity Portfolio as follows:
7
v. The Custom Portfolios Program is not available with the Highest Daily
Lifetime Income v2.1 suite of benefits. Accordingly, we add the Highest Daily
Lifetime Income v2.1 suite of benefits to the "Group I: Allowable Benefit
Allocations" list of available options only, under "Limitations with Optional
Benefits" as follows:
LIMITATIONS WITH OPTIONAL BENEFITS
As a condition to your participating in any Highest Daily Lifetime Income v2.1
benefit, we limit the Investment Options to which you may allocate your
Account Value, as set forth in the Allowable Benefit Allocations table below.
Allowable Benefit Allocations
AST Academic Strategies Asset AST J.P. Morgan Global Thematic
Allocation
AST Advanced Strategies AST J.P. Morgan Strategic
Opportunities
AST Balanced Asset Allocation AST Moderate Asset Allocation
AST BlackRock Global Strategies AST New Discovery Asset Allocation
AST Capital Growth Asset Allocation AST Preservation Asset Allocation
AST FI Pyramis(R) Asset Allocation AST Schroders Global Tactical
AST First Trust Balanced Target AST Schroders Multi-Asset World
Strategies
AST First Trust Capital Appreciation AST T. Rowe Price Asset Allocation
Target
AST Franklin Templeton Founding AST Wellington Management Hedged
Funds Allocation Equity
AST Horizon Moderate Asset Allocation
8
II. NEW OPTIONAL BENEFITS
This supplement describes new lifetime withdrawal benefits called Highest
Daily Lifetime(R) Income v2.1 Benefit, Spousal Highest Daily Lifetime(R)
Income v2.1 Benefit, Highest Daily Lifetime(R) Income v2.1 with Highest Daily
Death Benefit, and Spousal Highest Daily Lifetime(R) Income v2.1 with Highest
Daily Death Benefit (the "Highest Daily Lifetime Income v2.1 suite of
benefits" or "HDI v2.1"). Beginning on or about February 25, 2013, the Highest
Daily Lifetime Income v2.1 suite of benefits is available in states where we
have received regulatory approval. Once the Highest Daily Lifetime Income v2.1
suite of benefits has been approved in your state, we will close the Highest
Daily Lifetime Income 2.0 suite of benefits and they will no longer be
available for purchase in your state.
The Highest Daily Lifetime Income v2.1 suite of benefits is available for
purchase (subject to our rules and your eligibility, as described below):
.. if you currently own an annuity without a living benefit and wish to
purchase one of the Highest Daily Lifetime Income v2.1 suite of benefits; or
.. if you currently own an annuity with a living benefit, and you wish to
terminate your existing benefit and elect one of the Highest Daily Lifetime
Income v2.1 benefits.
If you currently own an annuity with a living benefit, it is important to note
that the benefit you elect may not provide the same guarantees and/or may be
more expensive than the benefit you are terminating. Once you terminate an
existing benefit, you lose the guarantees that you have accumulated under your
existing benefit. You should carefully consider whether terminating your
existing benefit and electing one of the benefits described in this Supplement
is appropriate for you. Please speak to your Financial Professional for
further details. The guarantees provided by the variable annuity contracts and
the optional benefits are the obligations of and subject to the claims paying
ability of Pruco Life.
The new guarantees under the new benefit you elect will begin based on your
Unadjusted Account Value as of the date the new benefit becomes effective
under your annuity. Also, you may be required to reallocate your Account Value
to certain permitted investment options.
Your existing benefit is described in your current prospectus. If you need
another copy of your prospectus, please contact us at 1-888-PRU-2888 or you
can visit our website at http://www.prudentialannuities.com.
Accordingly, we revise your annuity prospectus as follows.
A. Benefit Fees. We add the charges for the new Highest Daily Lifetime Income
v2.1 suite of benefits to the table in the "Your Optional Benefit Fees and
Charges" section and modify the footnotes thereto, as follows:
9
4 The charge for each of the Highest Daily Lifetime Income v2.1 benefits
listed above is assessed against the greater of Unadjusted Account Value
and the Protected Withdrawal Value (PWV). PWV is described in the Living
Benefits section of the prospectus.
5 HOW THE OPTIONAL BENEFIT FEES AND CHARGES ARE DETERMINED
.... The charge is taken out of the Sub-accounts. The current optional
benefit charge is in addition to the 0.55% annualized charge of amounts
invested in the Sub-accounts.
Highest Daily Lifetime Income v2.1: 1.00% current optional benefit charge
is in addition to 0.55% annualized charge of amounts invested in the
Subaccounts for base Annuity.
Spousal Highest Daily Lifetime Income v2.1: 1.10% current optional benefit
charge is in addition to 0.55% annualized charge of amounts invested in the
Sub-accounts for base Annuity.
Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit: 1.50%
current optional benefit charge is in addition to 0.55% annualized charge
of amounts invested in the Sub-accounts for base Annuity.
Spousal Highest Daily Lifetime Income v2.1 with Highest Daily Death
Benefit: 1.60% current optional benefit charge is in addition to 0.55%
annualized charge of amounts invested in the Sub-accounts for base Annuity.
6 We reserve the right to increase the charge to the maximum charge
indicated, upon any step-up under the benefit. Also, if you decide to elect
or re-add a benefit after your contract has been issued, the charge for the
benefit under your contract will equal the current charge for the new
contract owners up to the maximum indicated.
B. Highest Daily Lifetime Income v2.1 Suite of Benefits. To the "Living
Benefits" chapter of your prospectus, we add a subsection corresponding to
each Highest Daily Lifetime Income v2.1 benefit, as follows:
HIGHEST DAILY LIFETIME(R) INCOME v2.1 BENEFIT
Highest Daily Lifetime(R) Income v2.1 is a lifetime guaranteed minimum
withdrawal benefit, under which, subject to the terms of the benefit, we
guarantee your ability to take a certain annual withdrawal amount for life. We
reserve the right, in our sole discretion, to cease offering this benefit, for
new elections at any time.
We offer a benefit that guarantees until the death of the single designated
life (the Annuitant) the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial value (the "Protected
Withdrawal Value") regardless of the impact of Sub-account performance on the
Unadjusted Account Value, subject to our rules regarding the timing and amount
of withdrawals. You are guaranteed to be able to withdraw the Annual Income
Amount for the rest of your life provided that you do not take withdrawals of
Excess Income that result in your Unadjusted Account Value being reduced to
zero. We also permit you to designate the first withdrawal from your Annuity
as a one-time "Non-Lifetime Withdrawal". All other partial withdrawals from
your Annuity are considered a "Lifetime Withdrawal" under the benefit.
Withdrawals are taken first from your own Account Value. We are only required
to begin making lifetime income payments to you under our guarantee when and
if your Unadjusted Account Value is reduced to zero (for any reason other than
due to partial withdrawals of Excess Income). Highest Daily Lifetime Income
v2.1 may be appropriate if you intend to make periodic withdrawals from your
Annuity, and wish to ensure that Sub-account performance will not affect your
ability to receive annual payments. You are not required to take withdrawals
as part of the benefit - the guarantees are not lost if you withdraw less than
the maximum allowable amount each year under the rules of the benefit. An
integral component of Highest Daily Lifetime Income v2.1 is the predetermined
mathematical formula we employ that may periodically transfer your Unadjusted
Account Value to and from the AST Investment Grade Bond Sub-account. See the
section below entitled "How Highest Daily Lifetime Income v2.1 Transfers
Unadjusted Account Value Between Your Permitted Sub-accounts and the AST
Investment Grade Bond Sub-account."
The income benefit under Highest Daily Lifetime Income v2.1 currently is based
on a single "designated life" who is at least 50 years old on the date that
the benefit is acquired. Highest Daily Lifetime Income v2.1 is not available
if you elect any other optional living benefit. As long as your Highest Daily
Lifetime Income v2.1 is in effect, you must allocate your Unadjusted Account
Value in accordance with the permitted Sub-accounts and other Investment
Option(s) available with this benefit. For a more detailed description of the
permitted Investment Options, see the "Investment Options" section of the
prospectus.
Although you are guaranteed the ability to withdraw your Annual Income Amount
for life even if your Unadjusted Account Value falls to zero, if that
particular withdrawal of Excess Income (described below) brings your Unadjusted
10
Account Value to zero, your Annual Income Amount also would fall to zero, and
the benefit and the Annuity then would terminate. In that scenario, no further
amount would be payable under Highest Daily Lifetime Income v2.1. As to the
impact of such a scenario on any other optional benefit you may have, please
see the following sections in this supplement: "Spousal Highest Daily Lifetime
Income v2.1 Benefit", "Highest Daily Lifetime Income v2.1 with Highest Daily
Death Benefit" and "Spousal Highest Daily Lifetime Income v2.1 with Highest
Daily Death Benefit".
You may also participate in the 6 or 12 Month DCA Program if you elect Highest
Daily Lifetime Income v2.1, subject to the 6 or 12 Month DCA Program's rules.
See the section of the prospectus entitled "6 or 12 Month Dollar Cost
Averaging Program" for details.
Key Feature - Protected Withdrawal Value
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter, until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraphs.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value on or before the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment made on the Current
Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value after the Roll-Up End Date
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments and reduced for subsequent Lifetime Withdrawals (see the
examples that begin immediately prior to the sub-heading below entitled
"Example of dollar-for-dollar reductions").
Please note that if you elect Highest Daily Lifetime Income v2.1, your Account
Value is not guaranteed, can fluctuate and may lose value.
Key Feature - Annual Income Amount under Highest Daily Lifetime Income v2.1
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the Annuitant on the date of the first Lifetime Withdrawal after
election of the benefit. The percentages are: 3% for ages 50 to 54; 3.5% for
ages 55 to less than 59 1/2; 4% for ages 59 1/2 to 64; 4.5% for ages 65 to 69;
5% for ages 70 to 84; and 6% for ages 85 or older. Under the Highest Daily
Lifetime Income v2.1, if your cumulative Lifetime Withdrawals in an Annuity
Year are less than or equal to the Annual Income Amount, they will not reduce
your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year and also will reduce the Protected Withdrawal Value on a
dollar-for-dollar basis. If your cumulative Lifetime Withdrawals in an Annuity
Year are in excess of the Annual Income Amount ("Excess Income"), your Annual
Income Amount in subsequent years will be reduced (except with regard to
Required Minimum Distributions for this Annuity that comply with our rules) by
the result of the ratio of the Excess Income to the Account Value immediately
prior to such withdrawal (see examples of this calculation below). Excess
Income also will reduce the Protected Withdrawal Value by the same ratio.
11
As discussed in this paragraph, when you make a partial withdrawal that is
subject to tax withholding, we will identify the amount that includes not only
the amount you actually receive, but also the amount of the tax withholding,
to determine whether your withdrawal has exceeded the Annual Income Amount.
When you take a partial withdrawal, you may request a "gross" withdrawal
amount (e.g., $2,000) but then have any tax withholding deducted from the
amount you actually receive(although an MVA may also be applied to your
remaining Unadjusted Account Value, it is not considered for purposes of
determining Excess Income). The portion of a withdrawal that exceeded your
Annual Income Amount (if any) would be treated as Excess Income and thus would
reduce your Annual Income Amount in subsequent years. Alternatively, you may
request that a "net" withdrawal amount actually be paid to you (e.g., $2,000),
with the understanding that any tax withholding (e.g., $240) be applied to
your remaining Unadjusted Account Value (although an MVA may also be applied
to your remaining Unadjusted Account Value, it is not considered for purposes
of determining Excess Income). In the latter scenario, we determine whether
any portion of the withdrawal is to be treated as Excess Income by looking to
the sum of the net amount you actually receive (e.g., $2,000) and the amount
of any tax withholding (in this example, a total of $2,240). The amount of
that sum (e.g., the $2,000 you received plus the $240 for the tax withholding)
that exceeds your Annual Income Amount will be treated as Excess Income -
thereby reducing your Annual Income Amount in subsequent years.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Highest Daily
Lifetime Income v2.1 and subsequent to the first Lifetime Withdrawal will
(i) immediately increase the then-existing Annual Income Amount by an amount
equal to a percentage of the Purchase Payment based on the age of the
Annuitant at the time of the first Lifetime Withdrawal (the percentages are:
3% for ages 50 to 54; 3.5% for ages 55 to less than 59 1/2; 4% for ages 59 1/2
to 64; 4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for ages 85 or
older) and (ii) increase the Protected Withdrawal Value by the amount of the
Purchase Payment.
While Highest Daily Lifetime Income v2.1 is in effect, we may limit, restrict,
suspend or reject any additional Purchase Payment at any time, but would do so
on a non-discriminatory basis. Circumstances where we may limit, restrict,
suspend or reject additional Purchase Payments include, but are not limited
to, the following:
.. if we determine that as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Highest Daily Lifetime Income v2.1 benefit. This means that you
may no longer be able to increase the values associated with your Highest
Daily Lifetime Income v2.1 benefit through additional Purchase Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity in a non-discriminatory manner.
Highest Daily Auto Step-Up
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of Highest
Daily Lifetime Income v2.1. As detailed in this paragraph, the Highest Daily
Auto Step-Up feature can result in a larger Annual Income Amount subsequent to
your first Lifetime Withdrawal. The Highest Daily Auto Step-Up starts with the
anniversary of the Issue Date of the Annuity (the "Annuity Anniversary")
immediately after your first Lifetime Withdrawal under the benefit.
Specifically, upon the first such Annuity Anniversary, we identify the
Unadjusted Account Value on each Valuation Day within the immediately
preceding Annuity Year after your first Lifetime Withdrawal. Having identified
the highest daily value (after all daily values have been adjusted for
subsequent Purchase Payments and withdrawals), we then multiply that value by
a percentage that varies based on the age of the Annuitant on the Annuity
Anniversary as of which the step-up would occur. The percentages are: 3% for
ages 50 to 54; 3.5% for ages 55 to less than 59 1/2; 4% for ages 59 1/2 to 64;
4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for ages 85 or older. If
that value exceeds the existing Annual Income Amount, we replace the existing
amount with the new, higher amount. Otherwise, we leave the existing Annual
Income Amount intact. We will not automatically increase your Annual Income
Amount solely as a result of your attaining a new age that is associated with
a new age-based percentage. The Unadjusted Account Value on the Annuity
Anniversary is considered the last daily step-up value of the Annuity Year.
All daily valuations and annual step-ups will only occur on a Valuation Day.
In later years (i.e., after the first Annuity Anniversary after the first
Lifetime Withdrawal), we determine whether an automatic step-up should occur
on each Annuity Anniversary, by performing a similar examination of the
Unadjusted Account Values that occurred on Valuation Days during the year.
Taking Lifetime Withdrawals could produce a greater difference between your
Protected Withdrawal Value and your Unadjusted Account Value, which may make a
Highest Daily Auto Step-up less likely to occur. At the time that we increase
your Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the
12
date that we implement a Highest Daily Auto Step-Up to your Annual Income
Amount, the charge for Highest Daily Lifetime Income v2.1 has changed for new
purchasers, you may be subject to the new charge at the time of such step-up.
Prior to increasing your charge for Highest Daily Lifetime Income v2.1 upon a
step-up, we would notify you, and give you the opportunity to cancel the
automatic step-up feature. If you receive notice of a proposed step-up and
accompanying fee increase, you should consult with your Financial Professional
and carefully evaluate whether the amount of the step-up justifies the
increased fee to which you will be subject. Any such increased charge will not
be greater than the maximum charge set forth in the table entitled "Your
Optional Benefit Fees and Charges."
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Highest Daily Lifetime Income v2.1 does not affect your ability to take
partial withdrawals under your Annuity, or limit your ability to take partial
withdrawals that exceed the Annual Income Amount. Under Highest Daily Lifetime
Income v2.1, if your cumulative Lifetime Withdrawals in an Annuity Year are
less than or equal to the Annual Income Amount, they will not reduce your
Annual Income Amount in subsequent Annuity Years, but any such withdrawals
will reduce the Annual Income Amount on a dollar-for-dollar basis in that
Annuity Year. If your cumulative Lifetime Withdrawals in any Annuity Year are
less than the Annual Income Amount, you cannot carry over the unused portion
of the Annual Income Amount to subsequent Annuity Years. If your cumulative
Lifetime Withdrawals in an Annuity Year exceed the Annual Income Amount, your
Annual Income Amount in subsequent years will be reduced (except with regard
to Required Minimum Distributions for this Annuity that comply with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Highest Daily Lifetime
Income v2.1 or any other fees and charges under the Annuity. Assume the
following for all three examples:
.. The Issue Date is November 1
.. Highest Daily Lifetime Income v2.1 is elected on August 1 of the following
calendar year
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
Example of dollar-for-dollar reductions
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $6,000 (since the designated life is between the ages
of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual Income
Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000).
Assuming $2,500 is withdrawn from the Annuity on this date, the remaining
Annual Income Amount for that Annuity Year (up to and including October 31) is
$3,500. This is the result of a dollar-for-dollar reduction of the Annual
Income Amount ($6,000 less $2,500 = $3,500).
Example of proportional reductions
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $3,500 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $1,500 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there are other
future withdrawals in that Annuity Year, each would result in another
proportional reduction to the Annual Income Amount).
13
Here is the calculation:
Example of Highest Daily Auto Step-Up
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
Annuitant's age on that Annuity Anniversary) of the highest daily value since
your first Lifetime Withdrawal (or last Annuity Anniversary in subsequent
years), adjusted for withdrawals and additional Purchase Payments, is greater
than the Annual Income Amount, adjusted for Excess Income and additional
Purchase Payments.
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $6,000. However, the Excess Income on October 29 reduces the
amount to $5,921.40 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 5% (since the designated life
is between 70 and 84 on the date of the potential step-up) of the highest
daily Unadjusted Account Value, adjusted for withdrawals and Purchase
Payments, is greater than $5,921.40. Here are the calculations for determining
the daily values. Only the October 28 value is being adjusted for Excess
Income as the October 30, October 31, and November 1 Valuation Days occur
after the Excess Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be the Annuity Anniversary and every day
following the Annuity Anniversary. The Annuity Anniversary Date of
November 1 is considered the first Valuation Date in the Annuity Year.
** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,950.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income
Amount for the Annuity Year), resulting in Unadjusted Account Value of
$115,500 before the Excess Income.
. This amount ($115,500) is further reduced by 1.31% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.95.
. The adjusted October 29 Highest Daily Value, $113,986.95, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.95 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.95 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.95
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 5%, generating
an Annual Income Amount of $5,950.00. Since this amount is greater than the
current year's Annual Income Amount of $5,921.40 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year will be
stepped-up to $5,950.00.
Non-Lifetime Withdrawal Feature
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Highest Daily Lifetime Income v2.1. It is an optional feature of the
benefit that you can only elect at the time of your first withdrawal. You
cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders - Surrender Value" in the
prospectus). This Non-Lifetime Withdrawal will not establish your initial
Annual Income Amount and the Periodic Value described above will continue to
be calculated. However, the total amount of the withdrawal will proportionally
reduce all guarantees associated with Highest Daily Lifetime Income v2.1. You
must tell us at the time you take the withdrawal if your withdrawal is
intended to be the Non-Lifetime Withdrawal and not the first Lifetime
Withdrawal under Highest Daily Lifetime Income v2.1. If you don't elect the
Non-Lifetime Withdrawal, the first withdrawal you make will be the first
Lifetime Withdrawal that establishes your Annual Income Amount, which is based
on your Protected
14
Withdrawal Value. Once you elect to take the Non-Lifetime Withdrawal or
Lifetime Withdrawals, no additional Non-Lifetime Withdrawals may be taken. If
you do not take a Non-Lifetime Withdrawal before beginning Lifetime
Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value by the percentage the total withdrawal amount represents of
the then current Account Value immediately prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
Example - Non-Lifetime Withdrawal (proportional reduction)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit. Assume the following:
.. The Issue Date is December 3
.. Highest Daily Lifetime Income v2.1 is elected on September 4 of the
following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1
.. No previous withdrawals have been taken under Highest Daily Lifetime Income
v2.1
On October 3 of the year the benefit is elected, the Protected Withdrawal
Value is $125,000 and the Account Value is $120,000. Assuming $15,000 is
withdrawn from the Annuity on that same October 3 and is designated as a
Non-Lifetime Withdrawal, all guarantees associated with Highest Daily Lifetime
Income v2.1 will be reduced by the ratio the total withdrawal amount
represents of the Account Value just prior to the withdrawal being taken.
Here is the calculation:
Required Minimum Distributions
Required Minimum Distributions ("RMD") for this Annuity must be taken by
April 1st in the year following the date you turn age 70 1/2 and by
December 31/st/ for subsequent calendar years. If the annual RMD amount is
greater than the Annual Income Amount, a withdrawal of the RMD amount will not
be treated as a withdrawal of Excess Income, as long as the RMD amount is
calculated by us for this Annuity and administered under a program we support
each calendar year. If you are not participating in an RMD withdrawal program
each calendar year, you can alternatively satisfy the RMD amount without it
being treated as a withdrawal of Excess Income.
The following rules apply to determine if any portion of an RMD amount will be
treated as Excess Income.
For purposes of this provision, in relation to any Annuity Year, the "Second
Calendar Year" is the calendar year following the calendar year in which the
Annuity Year began.
In general, withdrawals made from the Annuity during an Annuity Year to meet
the RMD provisions of the Code will not be treated as Excess Income. However,
if in any Annuity Year, you take a Lifetime Withdrawal in the Second Calendar
Year, then the amount which will not be treated as Excess Income is the
greater of:
(1)the remaining Annual Income Amount for that Annuity Year, and
(2)the difference between the Second Calendar Year's remaining RMD amount and
the Annual Income Amount.
Any remaining RMD amount for the Second Calendar Year can be taken in the
following Annuity Year.
If, in any Annuity Year, your RMD amount is not greater than the Annual Income
Amount, any withdrawals in excess of the Annual Income Amount will be treated
as Excess Income.
15
Please see hypothetical examples below for details.
If you do not comply with the rules described above, any withdrawal that
exceeds the Annual Income Amount will be treated as a withdrawal of Excess
Income, which will reduce your Annual Income Amount in future Annuity Years.
This may include situations where you comply with the rules outlined above and
then decide to take additional withdrawals after satisfying your RMD
requirement from the Annuity.
We will assume your first withdrawal under the benefit is a Lifetime
Withdrawal unless you designated the withdrawal as a Non-Lifetime Withdrawal.
Example
The following example is purely hypothetical and intended to illustrate a
scenario as described above. Note that withdrawals must comply with all IRS
guidelines in order to satisfy the RMD for the current calendar year.
Assumptions:
RMD Calendar Year
01/01/2013 to 12/31/2013
Annuity Year
06/01/2012 to 05/31/2013
Annual Income Amount and RMD Amount
Annual Income Amount = $5,000
Remaining Annual Income Amount as of 1/3/2013 = $3,000 (a $2,000 withdrawal
was taken on 7/1/2012)
RMD Amount for Calendar Year 2013 = $6,000
The amount you may withdraw in the current Annuity Year (between 1/3/2013 and
5/31/2013) without it being treated as Excess Income is $4,000. Here is the
calculation: $3,000 + ($6,000 - $5,000) = $4,000.
If the $4,000 withdrawal is taken in the current Annuity Year (prior to
6/1/2013), the remaining Annual Income Amount will be zero and the remaining
RMD amount of $2,000 may be taken in the subsequent Annuity Year beginning on
6/1/2013 (when your Annual Income Amount is reset to $5,000).
If you had chosen to not take any additional withdrawals until on or after
6/1/2013, then you would be eligible to withdraw $6,000 without it being
treated as a withdrawal of Excess Income.
Benefits Under Highest Daily Lifetime Income v2.1
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and amounts are still payable
under Highest Daily Lifetime Income v2.1, we will make an additional
payment, if any, for that Annuity Year equal to the remaining Annual Income
Amount for the Annuity Year. Thus, in that scenario, the remaining Annual
Income Amount would be payable even though your Unadjusted Account Value
was reduced to zero. In subsequent Annuity Years we make payments that
equal the Annual Income Amount as described in this section. We will make
payments until the death of the single designated life. After the
Unadjusted Account Value is reduced to zero, you will not be permitted to
make additional Purchase Payments to your Annuity. To the extent that
cumulative partial withdrawals in the Annuity Year that reduced your
Unadjusted Account Value to zero are more than the Annual Income Amount,
Highest Daily Lifetime Income v2.1 terminates, and no additional payments
are permitted. However, if a partial withdrawal in the latter scenario was
taken to satisfy a Required Minimum Distribution (as described above) under
the Annuity, then the benefit will not terminate, and we will continue to
pay the Annual Income Amount in subsequent Annuity Years until the death of
the designated life.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments. Also, any Death Benefit will terminate if
withdrawals reduce your Unadjusted Account Value to zero. This means that
any Death Benefit is terminated and no Death Benefit is payable if your
Unadjusted Account Value is reduced to zero as the result of either a
withdrawal in excess of your Annual Income Amount or less than or equal to,
your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable tax charges,
to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. If this
option is elected, the Annual Income Amount will not increase after
annuity payments have
16
begun. We will make payments until the death of the single designated
life. We must receive your request in a form acceptable to us at our
Service Office. If applying your Unadjusted Account Value, less any
applicable tax charges, to the life-only annuity payment rates
results in a higher annual payment, we will give you the higher
annual payment.
.. In the absence of an election when mandatory annuity payments are to begin
we currently make annual annuity payments in the form of a single life
fixed annuity with eight payments certain, by applying the greater of the
annuity rates then currently available or the annuity rates guaranteed in
your Annuity. We reserve the right at any time to increase or decrease the
period certain in order to comply with the Code (e.g., to shorten the
period certain to match life expectancy under applicable Internal Revenue
Service tables). The amount that will be applied to provide such annuity
payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual
Income Amount as if you made your first Lifetime Withdrawal on the
date the annuity payments are to begin). Such present value will be
calculated using the greater of the single life fixed annuity rates
then currently available or the single life fixed annuity rates
guaranteed in your Annuity; and
(2)the Unadjusted Account Value.
Other Important Considerations
.. Withdrawals under Highest Daily Lifetime Income v2.1 are subject to all of
the terms and conditions of the Annuity. If you have an active Systematic
Withdrawal program running at the time you elect this benefit, the first
systematic withdrawal that processes after your election of the benefit
will be deemed a Lifetime Withdrawal. Withdrawals made while Highest Daily
Lifetime Income v2.1 is in effect will be treated, for tax purposes, in the
same way as any other withdrawals under the Annuity. Any withdrawals made
under the benefit will be taken pro rata from the Sub-accounts (including
the AST Investment Grade Bond Sub-account) and the DCA MVA Options. If you
have an active Systematic Withdrawal program running at the time you elect
this benefit, the program must withdraw funds pro rata.
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolio appears within the prospectus
section entitled "Investment Options." You can find a copy of the AST
Investment Grade Bond Portfolio prospectus by going to
www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the predetermined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to the Permitted Sub-accounts, or
to the requirements as to how you may allocate your Unadjusted Account
Value with this benefit, will apply to new elections of the benefit and may
apply to current participants in the benefit. To the extent that changes
apply to current participants in the benefit, they will only apply upon
re-allocation of Unadjusted Account Value, or upon addition of subsequent
Purchase Payments. That is, we will not require such current participants
to re-allocate Unadjusted Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Highest Daily
Lifetime Income v2.1 reduce your Unadjusted Account Value to zero. This
means that any Death Benefit is terminated and no Death Benefit is payable
if your Unadjusted Account Value is reduced to zero as the result of either
a withdrawal in excess of your Annual Income Amount or less than or equal
to, your Annual Income Amount. (See "Death Benefits" in the prospectus for
more information.)
.. The current charge for Highest Daily Lifetime Income v2.1 is 1.00% annually
of the greater of the Unadjusted Account Value and Protected Withdrawal
Value. The maximum charge for Highest Daily Lifetime Income v2.1 is 2.00%
annually of the greater of the Unadjusted Account Value and Protected
Withdrawal Value. As discussed in "Highest Daily Auto Step-Up" above, we
may increase the fee upon a step-up under this benefit. We deduct this
charge on quarterly anniversaries of the benefit effective date, based on
the values on the last Valuation Day prior to the quarterly anniversary.
Thus, we deduct, on a quarterly basis, 0.25% of the greater of the prior
Valuation Day's Unadjusted Account Value and the prior Valuation Day's
Protected Withdrawal Value. We deduct the fee pro rata from each of your
Sub-accounts, including the AST Investment Grade Bond Sub-account. You will
begin paying this charge as of the effective date of the benefit even if
you do not begin taking
17
withdrawals for many years, or ever. We will not refund the charges you
have paid if you choose never to take any withdrawals and/or if you never
receive any lifetime income payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto) (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the benefit is less than the
Account Value Floor, then no charge will be assessed for that benefit quarter.
Charges deducted upon termination of the benefit may cause the Unadjusted
Account Value to fall below the Account Value Floor. If a charge for Highest
Daily Lifetime Income v2.1 would be deducted on the same day we process a
withdrawal request, the charge will be deducted first, then the withdrawal
will be processed. The withdrawal could cause the Unadjusted Account Value to
fall below the Account Value Floor. While the deduction of the charge (other
than the final charge) may not reduce the Unadjusted Account Value to zero,
partial withdrawals may reduce the Unadjusted Account Value to zero. If this
happens and the Annual Income Amount is greater than zero, we will make
payments under the benefit.
Election of and Designations under the Benefit
For Highest Daily Lifetime Income v2.1, there must be either a single Owner
who is the same as the Annuitant, or if the Annuity is entity owned, there
must be a single natural person Annuitant. In either case, the Annuitant must
be at least 50 years old. Any change of the Annuitant under the Annuity will
result in cancellation of Highest Daily Lifetime Income v2.1. Similarly, any
change of Owner will result in cancellation of Highest Daily Lifetime Income
v2.1, except if (a) the new Owner has the same taxpayer identification number
as the previous Owner, (b) ownership is transferred from a custodian or other
entity to the Annuitant, or vice versa or (c) ownership is transferred from
one entity to another entity that satisfies our administrative ownership
guidelines.
Highest Daily Lifetime Income v2.1 can be elected at the time that you
purchase your Annuity or after the Issue Date, subject to its availability,
and our eligibility rules and restrictions. If you elect Highest Daily
Lifetime Income v2.1 and terminate it, you can re-elect it, subject to our
current rules and availability. See "Termination of Existing Benefits and
Election of New Benefits" in the prospectus for information pertaining to
elections, termination and re-election of benefits. Please note that if you
terminate a living benefit and elect Highest Daily Lifetime Income v2.1, you
lose the guarantees that you had accumulated under your existing benefit and
your guarantees under Highest Daily Lifetime Income v2.1 will be based on your
Unadjusted Account Value on the effective date of Highest Daily Lifetime
Income v2.1. You and your Financial Professional should carefully consider
whether terminating your existing benefit and electing Highest Daily Lifetime
Income v2.1 is appropriate for you. We reserve the right to waive, change
and/or further limit the election frequency in the future for new elections of
this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Highest Daily Lifetime Income v2.1 so long as you participate in a
Systematic Withdrawal program in which withdrawals are not taken pro rata.
Termination of the Benefit
You may terminate Highest Daily Lifetime Income v2.1 at any time by notifying
us. If you terminate the benefit, any guarantee provided by the benefit will
terminate as of the date the termination is effective, and certain
restrictions on re-election may apply.
The benefit automatically terminates upon the first to occur of the following:
(i) your termination of the benefit;
(ii)your surrender of the Annuity;
(iii)your election to begin receiving annuity payments (although if you have
elected to receive the Annual Income Amount in the form of annuity
payments, we will continue to pay the Annual Income Amount);
(iv)our receipt of Due Proof of Death of the Owner or Annuitant (for
entity-owned annuities);
(v) both the Unadjusted Account Value and Annual Income Amount equal zero due
to a withdrawal of Excess Income;
(vi)you allocate or transfer any portion of your Account Value to any
Sub-account(s) to which you are not permitted to electively allocate or
transfer Account Value (may vary by state);* or
(vii)you cease to meet our requirements as described in "Election of and
Designations under the Benefit" above.
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
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Upon termination of Highest Daily Lifetime Income v2.1 other than upon the
death of the Annuitant or Annuitization, we impose any accrued fee for the
benefit (i.e., the fee for the pro-rated portion of the year since the fee was
last assessed), and thereafter we cease deducting the charge for the benefit.
However, if the amount in the Sub-accounts is not enough to pay the charge, we
will reduce the fee to no more than the amount in the Sub-accounts. With
regard to your investment allocations, upon termination we will: (i) leave
intact amounts that are held in the Permitted Sub-accounts, and (ii) unless
you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
If a surviving spouse elects to continue the Annuity, Highest Daily Lifetime
Income v2.1 terminates upon Due Proof of Death. The spouse may newly elect the
benefit subject to the restrictions discussed above.
How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account
Overview of the Predetermined Mathematical Formula
Our goal is to seek a careful balance between providing value-added products,
such as the Highest Daily Lifetime Income v2.1 suite of benefits, while
managing the risk associated with offering these products. One of the key
features that helps us accomplish that balance and an integral part of the
Highest Daily Lifetime Income v2.1 suite is the predetermined mathematical
formula used to transfer Unadjusted Account Value between the Permitted
Subaccounts and the AST Investment Grade Bond Sub-account, referred to in this
section as the "Bond Sub-account". The formula is designed primarily to
mitigate some of the financial risks that we incur in providing the guarantee
under the Highest Daily Lifetime Income v2.1 suite of benefits.
The formula is set forth in Appendix H of the prospectus (and is described
below).
The predetermined mathematical formula ("formula") monitors each individual
contract each Valuation Day that the benefit is in effect on your Annuity, in
order to help us manage guarantees through all market cycles. It helps manage
the risk associated with these benefits, which is generally represented by the
gap between your Unadjusted Account Value and the Protected Withdrawal Value.
As the gap between these two values increases, the formula will determine if
and how much money should be transferred into the Bond Sub-account. This
movement is intended to reduce the equity risk we will bear in funding our
obligation associated with these benefits. As the gap decreases (due to
favorable performance of the Unadjusted Account Value), the formula then
determines if and how much money should transfer back into the Permitted
Sub-accounts. The use of the formula, combined with restrictions on the
Sub-accounts you are allowed to invest in, lessens the risk that your
Unadjusted Account Value will be reduced to zero while you are still alive,
thus reducing the likelihood that we will make any lifetime income payments
under this benefit. It may also limit the potential for your Account Value to
grow.
However, in addition to providing lifetime income when your Account Value is
reduced to zero, Highest Daily Lifetime Income v2.1 can potentially dampen the
impact of volatility on your Account Value during extreme market downturns by
transferring assets from your chosen investments into the Bond Sub-account as
described above. This occurs pursuant to the predetermined mathematical
formula, which can limit the possibility or reduce the amount of a significant
loss of Account Value, and potentially provide a higher income stream in
retirement.
The formula is not forward looking and contains no predictive or projective
component with respect to the markets, the Unadjusted Account Value or the
Protected Withdrawal Value. We are not providing you with investment advice
through the use of the formula nor does the formula constitute an investment
strategy that we are recommending to you.
Transfer Activity Under the Formula
Prior to the first Lifetime Withdrawal, the primary driver of transfers to the
Bond Sub-account is the difference between your Unadjusted Account Value and
your Protected Withdrawal Value. If none of your Unadjusted Account Value is
allocated to the Bond Sub-account, then over time the formula permits an
increasing difference between the Unadjusted Account Value and the Protected
Withdrawal Value before a transfer to the Bond Sub-account occurs. Therefore,
over time, assuming none of the Unadjusted Account Value is allocated to the
Bond Sub-account, the formula will allow for a greater decrease in the
Unadjusted Account Value before a transfer to the Bond Sub-account is made.
It is important to understand that transfers within your Annuity are specific
to the performance of your chosen investment options, the performance of the
Bond Sub-account while money is invested in it, as well as how long the
benefit has been owned. For example, two contracts purchased on the same day,
but invested differently, will likely have different results, as would two
contracts purchased on different days with the same investment options.
19
Each market cycle is unique, therefore the performance of your Sub-accounts,
and its impact on your Unadjusted Account Value, will differ from market cycle
to market cycle, therefore producing different transfer activity under the
formula. The amount and timing of transfers to and from the Bond Sub-account
depend on various factors unique to your Annuity and are not necessarily
directly correlated with the securities markets, bond markets, interest rates
or any other market or index. Some of the factors that determine the amount
and timing of transfers (as applicable to your Annuity), include:
.. The difference between your Unadjusted Account Value and your Protected
Withdrawal Value;
.. The amount of time the benefit has been in effect on your Annuity;
.. The amount allocated to and the performance of the Permitted Sub-accounts
and the Bond Sub-account;
.. Any additional Purchase Payments you make to your Annuity (while the
benefit is in effect); and
.. Any withdrawals you take from your Annuity (while the benefit is in effect).
Under the formula, investment performance of your Unadjusted Account Value
that is negative, flat, or even moderately positive may result in a transfer
of a portion of your Unadjusted Account Value in the Permitted Sub-accounts to
the Bond Sub-account.
At any given time, some, most or none of your Unadjusted Account Value will be
allocated to the Bond Sub-account, as dictated by the formula.
The amount allocated to the Bond Sub-account and the amount allocated to the
Permitted Sub-accounts each is a variable in the formula. Therefore, the
investment performance of each affects whether a transfer occurs for your
Annuity. As the amounts allocated to either the Bond Sub-account or the
Permitted Sub-accounts increase, the performance of those sub-accounts will
have a greater impact on your Unadjusted Account Value and hence a greater
impact on if (and how much of) your Unadjusted Account Value is transferred to
or from the Bond Sub-account. It is possible that if a significant portion of
your Unadjusted Account Value is allocated to the Bond Sub-account and that
Sub-account has positive performance, the formula might transfer a portion of
your Unadjusted Account Value to the Permitted Sub-accounts, even if the
performance of your Permitted Sub-accounts is negative. Conversely, if a
significant portion of your Unadjusted Account Value is allocated to the Bond
Sub-account and that Sub-account has negative performance, the formula may
transfer additional amounts from your Permitted Sub-accounts to the Bond
Sub-account even if the performance of your Permitted Sub-accounts is positive.
How the Formula Operates
Generally, the formula, which is applied each Valuation Day, takes four steps
in determining any applicable transfers within your Annuity.
(1)First, the formula starts by identifying the value of future income
payments we expect to pay. We refer to that value as the "Target Value" or
"L".
(2)Second, we subtract any amounts invested in the Bond Sub-account ("B") from
the Target Value and divide that number by the amount invested in the
Permitted Sub-accounts ("V\\V\\ + V\\F\\"). We refer to this resulting
value as the "Target Ratio" or "R".
(3)Third, we compare the Target Ratio to designated thresholds and other rules
described in greater detail below to determine if a transfer needs to occur.
(4)If a transfer needs to occur, we use another calculation to determine the
amount of the transfer.
The Formula is:
More specifically, the formula operates as follows:
(1)We calculate the Target Value (L) by multiplying the income basis for that
day by 5% and by the applicable Annuity Factor found in Appendix H of the
prospectus. If you have already made a Lifetime Withdrawal, your Target
Value would take into account any automatic step-up, any subsequent
Purchase Payments, and any withdrawals of Excess Income.
Example (assume the income basis is $200,000, and the contract is 11 1/2
months old, resulting in an annuity factor of 14.95)
(2)Next, to calculate the Target Ratio (R), the Target Value is reduced by any
amount held within the Bond Sub-account (B) on that day. The remaining
amount is divided by the amount held within the Permitted Sub-accounts (V).
Example (assume the amount in the Bond Sub-account is zero, and the amount
held within the Permitted Sub-accounts is $179,500)
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(3)If, on each of three consecutive Valuation Days, the Target Ratio is
greater than 83% but less than or equal to 84.5%, the formula will, on the
third Valuation Day, make a transfer from your Permitted Sub-accounts to
the Bond Sub-account (subject to the 90% cap discussed below). If, however,
on any Valuation Day, the Target Ratio is above 84.5%, the formula will
make a transfer from the Permitted Sub-accounts to the Bond Sub-account
(subject to the 90% cap). Once a transfer is made, the Target Ratio must
again be greater than 83% but less than or equal to 84.5% for three
consecutive Valuation Days before a subsequent transfer to the Bond
Sub-account will occur. If the Target Ratio falls below 78% on any
Valuation Day, then a transfer from the Bond Sub-account to the Permitted
Sub-accounts (excluding the DCA MVA Options) will occur.
Example: Assuming the Target Ratio is above 83% for a 3rd consecutive
Valuation Day, but less than or equal to 84.5% for three consecutive
Valuation Days, a transfer into the Bond Portfolio occurred.
(4)In deciding how much to transfer, we perform a calculation that essentially
seeks to reallocate amounts held in the Permitted Sub-accounts and the Bond
Sub-account so that the Target Ratio meets a target, which currently is
equal to 80% (subject to the 90% Cap discussion below). The further the
Target Ratio is from 80% when a transfer is occurring under the formula,
the greater the transfer amount will be.
The 90% Cap
The formula will not execute a transfer to the Bond Sub-account that results
in more than 90% of your Unadjusted Account Value being allocated to the Bond
Sub-account ("90% cap") on that Valuation Day. Thus, on any Valuation Day, if
the formula would require a transfer to the Bond Sub-account that would result
in more than 90% of the Unadjusted Account Value being allocated to the Bond
Sub-account, only the amount that results in exactly 90% of the Unadjusted
Account Value being allocated to the Bond Sub-account will be transferred.
Additionally, future transfers into the Bond Sub-account will not be made
(regardless of the performance of the Bond Sub-account and the Permitted
Sub-accounts) at least until there is first a transfer out of the Bond
Sub-account. Once this transfer occurs out of the Bond Sub-account, future
amounts may be transferred to or from the Bond Sub-account (subject to the 90%
cap).
Under the operation of the formula, the 90% cap may come into and out of
effect multiple times while you participate in the benefit. At no time will
the formula make a transfer to the Bond Sub-account that results in greater
than 90% of your Unadjusted Account Value being allocated to the Bond
Sub-account. However, it is possible that, due to the investment performance
of your allocations in the Bond Sub-account and your allocations in the
Permitted Sub-accounts you have selected, your Unadjusted Account Value could
be more than 90% invested in the Bond Sub-account.
Monthly Transfers
Additionally, on each monthly Annuity Anniversary (if the monthly Annuity
Anniversary does not fall on a Valuation Day, the next Valuation Day will be
used), following all of the above described daily calculations, if there is
money allocated to the Bond Sub-account, the formula will perform an
additional calculation to determine whether or not a transfer will be made
from the Bond Sub-account to the Permitted Sub-accounts. This transfer will
automatically occur provided that the Target Ratio, as described above, would
be less than 83% after this transfer. The formula will not execute a transfer
if the Target Ratio after this transfer would occur would be greater than or
equal to 83%.
The amount of the transfer will be equal to the lesser of:
a) The total value of all your Unadjusted Account Value in the Bond
Sub-account, or
b) An amount equal to 5% of your total Unadjusted Account Value.
Other Important Information
.. The Bond sub-account is not a Permitted Sub-account. As such, only the
formula can transfer Unadjusted Account Value to or from the Bond
Sub-account. You may not allocate Purchase Payments or transfer any of your
Unadjusted Account Value to or from the Bond Sub-account.
.. While you are not notified before a transfer occurs to or from the Bond
Sub-account, you will receive a confirmation statement indicating the
transfer of a portion of your Unadjusted Account Value either to or from
the Bond Sub-account. Your confirmation statements will be detailed to
include the effective date of the transfer, the dollar amount of the
transfer and the Permitted Sub-accounts the funds are being transferred
to/from. Depending on the results of the calculations of the formula, we
may, on any Valuation Day:
. Not make any transfer between the Permitted Sub-accounts and the Bond
Sub-account; or
. If a portion of your Unadjusted Account Value was previously allocated
to the Bond Sub-account, transfer all or a portion of those amounts to
the Permitted Sub-accounts (as described above); or
. Transfer a portion of your Unadjusted Account Value in the Permitted
Sub-accounts and the DCA MVA Options to the Bond Sub-account.
.. If you make additional Purchase Payments to your Annuity, they will be
allocated to the Permitted Sub-accounts and will be subject to the formula.
21
.. Additional Purchase Payments to your Annuity do not increase "B" within the
formula, and may result in an additional Account Value being transferred to
the Permitted Sub-accounts, or a transfer to the Bond Sub-account due to
the change in the ratio.
.. If you make additional Purchase Payments to your Annuity while the 90% cap
is in effect, the formula will not transfer any of such additional Purchase
Payments to the Bond Sub-account at least until there is first a transfer
out of the Bond Sub-account, regardless of how much of your Unadjusted
Account Value is in the Permitted Sub-accounts. This means that there could
be scenarios under which, because of the additional Purchase Payments you
make, less than 90% of your entire Unadjusted Account Value is allocated to
the Bond Sub-account, and the formula will still not transfer any of your
Unadjusted Account Value to the Bond Sub-account (at least until there is
first a transfer out of the Bond Sub-account).
.. If you are participating in Highest Daily Lifetime Income v2.1 and you are
also participating in the 6 or 12 Month DCA Program, the following rules
apply:
. DCA MVA Options are considered "Permitted Sub-accounts" for purpose of
the Target Ratio calculation ("L") described above.
. The formula may transfer amounts out of the DCA MVA Options to the Bond
Sub-account if the amount allocated to the other Permitted Sub-accounts
is insufficient to cover the amount of the transfer.
. The transfer formula will not allocate amounts to the DCA MVA Options
when there is a transfer out of the Bond Sub-account. Such transfers
will be allocated pro-rata to the variable Sub-accounts, excluding the
Bond Sub-account.
. A Market Value Adjustment is not assessed when amounts are transferred
out of the DCA MVA Options under the transfer formula.
Additional Tax Considerations
If you purchase an annuity as an investment vehicle for "qualified"
investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or
employer plan under Code Section 401(a), the Required Minimum Distribution
rules under the Code provide that you begin receiving periodic amounts
beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for
which the participant is not a greater than five (5) percent Owner of the
employer, this required beginning date can generally be deferred to
retirement, if later. Roth IRAs are not subject to these rules during the
Owner's lifetime. In addition, the amount and duration of payments under the
annuity payment provision may be adjusted so that the payments do not trigger
any penalty or excise taxes due to tax considerations such as Required Minimum
Distribution rules under the tax law.
As indicated, withdrawals made while this benefit is in effect will be
treated, for tax purposes, in the same way as any other withdrawals under the
Annuity. Please see the Tax Considerations section of the prospectus for a
detailed discussion of the tax treatment of withdrawals. We do not address
each potential tax scenario that could arise with respect to this benefit
here. However, we do note that if you participate in any Highest Daily
Lifetime Income v2.1 benefit through a non-qualified annuity, as with all
withdrawals, once all Purchase Payments are returned under the Annuity, all
subsequent withdrawal amounts will be taxed as ordinary income.
SPOUSAL HIGHEST DAILY LIFETIME(R) INCOME v2.1 BENEFIT
Spousal Highest Daily Lifetime(R) Income v2.1 is a lifetime guaranteed minimum
withdrawal benefit, under which, subject to the terms of the benefit, we
guarantee your ability to take a certain annual withdrawal amount for the
lives of two individuals who are spouses. We reserve the right, in our sole
discretion, to cease offering this benefit for new elections at any time.
We offer a benefit that guarantees, until the later death of two natural
persons who are each other's spouses at the time of election of the benefit
and at the first death of one of them (the "designated lives", and each, a
"designated life"), the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial principal value (the
"Protected Withdrawal Value") regardless of the impact of Sub-account
performance on the Unadjusted Account Value, subject to our rules regarding
the timing and amount of withdrawals. You are guaranteed to be able to
withdraw the Annual Income Amount for the lives of the designated lives,
provided you have not made withdrawals of Excess Income that result in your
Unadjusted Account Value being reduced to zero. We also permit you to
designate the first withdrawal from your Annuity as a one-time "Non-Lifetime
Withdrawal." All other withdrawals from your Annuity are considered a
"Lifetime Withdrawal" under the benefit. Withdrawals are taken first from your
own Account Value. We are only required to begin making lifetime income
payments to you under our guarantee when and if your Unadjusted Account Value
is reduced to zero (for any reason other than due to partial withdrawals of
Excess Income). The benefit may be appropriate if you intend to make periodic
withdrawals from your Annuity, wish to ensure that Sub-account performance
will not affect your ability to receive annual payments, and wish either
spouse to be able to continue Spousal Highest Daily Lifetime Income v2.1 after
the death of the first spouse. You are not required to make withdrawals as
part of the benefit - the guarantees are not lost if you withdraw less than
the maximum allowable amount each year under the rules of the benefit. An
integral component of Spousal Highest Daily Lifetime Income v2.1 is the
predetermined mathematical formula we employ that may periodically transfer
your Unadjusted Account Value to and from the AST Investment Grade Bond
Sub-account. See the section above entitled "How Highest Daily Lifetime Income
v2.1 Transfers Unadjusted Account Value Between Your Permitted Sub-accounts
and the AST Investment Grade Bond Sub-account."
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Spousal Highest Daily Lifetime Income v2.1 is the spousal version of Highest
Daily Lifetime Income v2.1. This version is only being offered in those
jurisdictions where we have received regulatory approval and will be offered
subsequently in other jurisdictions when we receive regulatory approval in
those jurisdictions. Currently, if you elect Spousal Highest Daily Lifetime
Income v2.1 and subsequently terminate the benefit, you may elect another
living benefit, subject to our current rules. See "Election of and
Designations under the Benefit" below and "Termination of Existing Benefits
and Election of New Benefits" in the prospectus for details. Please note that
if you terminate Spousal Highest Daily Lifetime Income v2.1 and elect another
benefit, you lose the guarantees that you had accumulated under your existing
benefit and will begin the new guarantees under the new benefit you elect
based on your Unadjusted Account Value as of the date the new benefit becomes
active. Spousal Highest Daily Lifetime Income v2.1 must be elected based on
two designated lives, as described below. Each designated life must be at
least 50 years old when the benefit is elected. Spousal Highest Daily Lifetime
Income v2.1 is not available if you elect any other optional living benefit.
As long as your Spousal Highest Daily Lifetime Income v2.1 is in effect, you
must allocate your Unadjusted Account Value in accordance with the permitted
Sub-accounts and other Investment Option(s) available with this benefit. For a
more detailed description of the permitted Investment Options, see the
"Investment Options" section of the prospectus.
Although you are guaranteed the ability to withdraw your Annual Income Amount
for life even if your Unadjusted Account Value falls to zero, if that
particular withdrawal of Excess Income (described below) brings your
Unadjusted Account Value to zero, your Annual Income Amount also would fall to
zero, and the benefit and the Annuity then would terminate. In that scenario,
no further amount would be payable under Spousal Highest Daily Lifetime Income
v2.1. As to the impact of such a scenario on any other optional benefit you
may have, please see the following sections in this supplement: "Highest Daily
Lifetime Income v2.1 Benefit", "Highest Daily Lifetime Income v2.1 with
Highest Daily Death Benefit" and "Spousal Highest Daily Lifetime Income v2.1
with Highest Daily Death Benefit".
You may also participate in the 6 or 12 Month Dollar Cost Averaging Program if
you elect Spousal Highest Daily Lifetime Income v2.1, subject to the 6 or 12
Month DCA Program's rules. See the section of the prospectus entitled "6 or 12
Month Dollar Cost Averaging Program" for details.
Key Feature - Protected Withdrawal Value
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraph.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value on or before the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment made on the Current
Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value after the Roll-Up End Date
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments and reduced for subsequent Lifetime Withdrawals (see the
examples that begin immediately prior to the sub-heading below entitled
"Example of dollar-for-dollar reductions").
23
Please note that if you elect Spousal Highest Daily Lifetime Income v2.1, your
Account Value is not guaranteed, can fluctuate and may lose value.
Key Feature - Annual Income Amount under Spousal Highest Daily Lifetime Income
v2.1
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the younger designated life on the date of the first Lifetime
Withdrawal after election of the benefit. The percentages are: 2.5% for ages
50 to 54; 3% for ages 55 to less than 59 1/2; 3.5% for ages 59 1/2 to 64; 4%
for ages 65 to 69; 4.5% for ages 70 to 84; and 5.5% for ages 85 or older. We
use the age of the younger designated life even if that designated life is no
longer a participant under the Annuity due to death or divorce. Under Spousal
Highest Daily Lifetime Income v2.1, if your cumulative Lifetime Withdrawals in
an Annuity Year are less than or equal to the Annual Income Amount, they will
not reduce your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year and also will reduce the Protected Withdrawal Value on a
dollar-for-dollar basis. If your cumulative Lifetime Withdrawals in an Annuity
Year are in excess of the Annual Income Amount for any Annuity Year ("Excess
Income"), your Annual Income Amount in subsequent years will be reduced
(except with regard to Required Minimum Distributions for this Annuity that
comply with our rules) by the result of the ratio of the Excess Income to the
Unadjusted Account Value immediately prior to such withdrawal (see examples of
this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
As discussed in this paragraph, when you make a partial withdrawal that is
subject to tax withholding, we will identify the amount that includes not only
the amount you actually receive, but also the amount of the tax withholding,
to determine whether your withdrawal has exceeded the Annual Income Amount.
When you take a partial withdrawal, you may request a "gross" withdrawal
amount (e.g., $2,000) but then have tax withholding deducted from the amount
you actually receive (although an MVA may also be applied to your remaining
Unadjusted Account Value, it is not considered for purposes of determining
Excess Income). The portion of a withdrawal that exceeded your Annual Income
Amount (if any) would be treated as Excess Income and thus would reduce your
Annual Income Amount in subsequent years. Alternatively, you may request that
a "net" withdrawal amount actually be paid to you (e.g., $2,000), with the
understanding that any tax withholding (e.g., $240) be applied to your
remaining Unadjusted Account Value (although an MVA may also be applied to
your remaining Unadjusted Account Value, it is not considered for purposes of
determining Excess Income). In the latter scenario, we determine whether any
portion of the withdrawal is to be treated as Excess Income by looking to the
sum of the net amount you actually receive (e.g., $2,000) and the amount of
any tax withholding (in this example, a total of $2,240). The amount of that
sum (e.g., the $2,000 you received plus the $240 for the tax withholding) that
exceeds your Annual Income Amount will be treated as Excess Income - thereby
reducing your Annual Income Amount in subsequent years.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Spousal
Highest Daily Lifetime Income v2.1 and subsequent to the first Lifetime
Withdrawal will (i) immediately increase the then-existing Annual Income
Amount by an amount equal to a percentage of the Purchase Payment based on the
age of the younger designated life at the time of the first Lifetime
Withdrawal (the percentages are: 2.5% for ages 50 to 54; 3% for ages 55 to
less than 59 1/2; 3.5% for ages 59 1/2 to 64; 4% for ages 65 to 69; 4.5% for
ages 70 to 84; and 5.5% for ages 85 or older), and (ii) increase the Protected
Withdrawal Value by the amount of the Purchase Payment.
While Spousal Highest Daily Lifetime Income v2.1 is in effect, we may limit,
restrict, suspend or reject any additional Purchase Payment at any time, but
would do so on a non-discriminatory basis. Circumstances where we may limit,
restrict, suspend or reject additional Purchase Payments include, but are not
limited to, the following:
.. if we determine that as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Spousal Highest Daily Lifetime Income v2.1 benefit. This means
that you may no longer be able to increase the values associated with your
Spousal Highest Daily Lifetime Income v2.1 benefit through additional Purchase
Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity, in a non-discriminatory manner.
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Highest Daily Auto Step-Up
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of this
benefit. As detailed in this paragraph, the Highest Daily Auto Step-Up feature
can result in a larger Annual Income Amount subsequent to your first Lifetime
Withdrawal. The Highest Daily Step-Up starts with the anniversary of the Issue
Date of the Annuity (the "Annuity Anniversary") immediately after your first
Lifetime Withdrawal under the benefit. Specifically, upon the first such
Annuity Anniversary, we identify the Unadjusted Account Value on each
Valuation Day within the immediately preceding Annuity Year after your first
Lifetime Withdrawal. Having identified the highest daily value (after all
daily values have been adjusted for subsequent Purchase Payments and
withdrawals), we then multiply that value by a percentage that varies based on
the age of the younger designated life on the Annuity Anniversary as of which
the step-up would occur. The percentages are 2.5% for ages 50 to 54; 3% for
ages 55 to less than 59 1/2; 3.5% for ages 59 1/2 to 64; 4% for ages 65 to 69;
4.5% for ages 70 to 84; and 5.5% for ages 85 or older. If that value exceeds
the existing Annual Income Amount, we replace the existing amount with the
new, higher amount. Otherwise, we leave the existing Annual Income Amount
intact. We will not automatically increase your Annual Income Amount solely as
a result of your attaining a new age that is associated with a new age-based
percentage. The Unadjusted Account Value on the Annuity Anniversary is
considered the last daily step-up value of the Annuity Year. In later years
(i.e., after the first Annuity Anniversary after the first Lifetime
Withdrawal), we determine whether an automatic step-up should occur on each
Annuity Anniversary by performing a similar examination of the Unadjusted
Account Values that occurred on Valuation Days during the year. Taking
Lifetime Withdrawals could produce a greater difference between your Protected
Withdrawal Value and your Unadjusted Account Value, which may make a Highest
Daily Auto Step-up less likely to occur. At the time that we increase your
Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the date that we implement a Highest Daily Auto Step-Up to your Annual
Income Amount, the charge for Spousal Highest Daily Lifetime Income v2.1 has
changed for new purchasers, you may be subject to the new charge at the time
of such step-up. Prior to increasing your charge for Spousal Highest Daily
Lifetime Income v2.1 upon a step-up, we would notify you, and give you the
opportunity to cancel the automatic step-up feature. If you receive notice of
a proposed step-up and accompanying fee increase, you should carefully
evaluate whether the amount of the step-up justifies the increased fee to
which you will be subject. Any such increased charge will not be greater than
the maximum charge set forth in the table entitled "Your Optional Benefit Fees
and Charges".
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Spousal Highest Daily Lifetime Income v2.1 does not affect your ability to
take withdrawals under your Annuity, or limit your ability to take partial
withdrawals that exceed the Annual Income Amount. Under Spousal Highest Daily
Lifetime Income v2.1, if your cumulative Lifetime Withdrawals in an Annuity
Year are less than or equal to the Annual Income Amount, they will not reduce
your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year. If, cumulatively, you withdraw an amount less than the
Annual Income Amount in any Annuity Year, you cannot carry over the unused
portion of the Annual Income Amount to subsequent Annuity Years. If your
cumulative Lifetime Withdrawals in an Annuity Year exceed the Annual Income
Amount, your Annual Income Amount in subsequent years will be reduced (except
with regard to Required Minimum Distributions for this Annuity that comply
with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Spousal Highest Daily
Lifetime Income v2.1 or any other fees and charges under the Annuity. Assume
the following for all three examples:
.. The Issue Date is November 1
.. Spousal Highest Daily Lifetime Income v2.1 is elected on August 1 of the
following calendar year
.. Both designated lives were 70 years old when they elected Spousal Highest
Daily Lifetime Income v2.1
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
25
Example of dollar-for-dollar reductions
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $5,400 (since the younger designated life is between
the ages of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual
Income Amount is 4.5% of the Protected Withdrawal Value, in this case 4.5% of
$120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the
remaining Annual Income Amount for that Annuity Year (up to and including
October 31) is $2,900. This is the result of a dollar-for-dollar reduction of
the Annual Income Amount ($5,400 less $2,500 = $2,900).
Example of proportional reductions
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $2,900 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $2,100 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there were other
withdrawals in that Annuity Year, each would result in another proportional
reduction to the Annual Income Amount).
Here is the calculation:
Example of Highest Daily Auto Step-Up
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
younger designated life's age on that Annuity Anniversary) of the highest
daily value since your first Lifetime Withdrawal (or last Annuity Anniversary
in subsequent years), adjusted for withdrawals and additional Purchase
Payments, is greater than the Annual Income Amount, adjusted for Excess Income
and additional Purchase Payments .
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $5,400. However, the Excess Income on October 29 reduces the
amount to $5,301.72 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 4.5% (since the younger
designated life is between 70 and 84 on the date of the potential step-up) of
the highest daily Unadjusted Account Value adjusted for withdrawals and
Purchase Payments, is greater than $5,301.72. Here are the calculations for
determining the daily values. Only the October 28 value is being adjusted for
Excess Income as the October 30, October 31 and November 1 Valuation Days
occur after the Excess Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be every day following the Annuity
Anniversary. The Annuity Anniversary Date of November 1 is considered the
final Valuation Date for the Annuity Year.
** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,355.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $2,900 ($2,900 is the remaining Annual Income
Amount for the Annuity Year), resulting in an Unadjusted Account Value
of $116,100 before the Excess Income.
. This amount ($116,100) is further reduced by 1.82% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.98.
. The adjusted October 29 Highest Daily Value, $113,986.98, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.98 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.98 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.98
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
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In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 4.5%, generating
an Annual Income Amount of $5,355.00. Since this amount is greater than the
current year's Annual Income Amount of $5,301.72 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,355.00.
Non-Lifetime Withdrawal Feature
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Spousal Highest Daily Lifetime Income v2.1. It is an optional feature of
the benefit that you can only elect at the time of your first withdrawal. You
cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders - Surrender Value" in the
prospectus). This Non-Lifetime Withdrawal will not establish your initial
Annual Income Amount and the Periodic Value above will continue to be
calculated. However, the total amount of the withdrawal will proportionally
reduce all guarantees associated with Spousal Highest Daily Lifetime Income
v2.1. You must tell us at the time you take the partial withdrawal if your
withdrawal is intended to be the Non-Lifetime Withdrawal and not the first
Lifetime Withdrawal under Spousal Highest Daily Lifetime Income v2.1. If you
don't elect the Non-Lifetime Withdrawal, the first withdrawal you make will be
the first Lifetime Withdrawal that establishes your Annual Income Amount,
which is based on your Protected Withdrawal Value. Once you elect the
Non-Lifetime Withdrawal or Lifetime Withdrawals, no additional Non-Lifetime
Withdrawals may be taken. If you do not take a Non-Lifetime Withdrawal before
beginning Lifetime Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value by the percentage the total withdrawal amount represents of
the then current Account Value immediately prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
Example - Non-Lifetime Withdrawal (proportional reduction)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit. Assume the following:
.. The Issue Date is December 3
.. Spousal Highest Daily Lifetime Income v2.1 is elected on September 4 of the
following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. Each designated life was 70 years old when he/she elected Spousal Highest
Daily Lifetime Income v2.1
.. No previous withdrawals have been taken under Spousal Highest Daily
Lifetime Income v2.1
On October 3 of the year the benefit is elected, the Protected Withdrawal
Value is $125,000 and the Account Value is $120,000. Assuming $15,000 is
withdrawn from the Annuity on that same October 3 and is designated as a
Non-Lifetime Withdrawal, all guarantees associated with Spousal Highest Daily
Lifetime Income v2.1 will be reduced by the ratio the total withdrawal amount
represents of the Account Value just prior to the withdrawal being taken.
Here is the calculation:
Required Minimum Distributions
See the sub-section entitled "Required Minimum Distributions" in the section
above concerning Highest Daily Lifetime Income v2.1 for a discussion of the
relationship between the RMD amount and the Annual Income Amount.
Benefits Under Spousal Highest Daily Lifetime Income v2.1
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and amounts are still payable
under Spousal Highest Daily Lifetime Income v2.1, we will make an
additional payment, if any, for that Annuity Year equal to the remaining
Annual Income Amount for the Annuity Year. Thus, in that scenario, the
remaining Annual Income Amount would be payable even though your Unadjusted
Account Value was reduced to zero.
27
.. In subsequent Annuity Years we make payments that equal the Annual Income
Amount as described in this section. We will make payments until the death
of the first of the designated lives to die, and will continue to make
payments until the death of the second designated life as long as the
designated lives were spouses at the time of the first death. After the
Unadjusted Account Value is reduced to zero, you are not permitted to make
additional Purchase Payments to your Annuity. To the extent that cumulative
withdrawals in the Annuity Year that reduced your Unadjusted Account Value
to zero are more than the Annual Income Amount, Spousal Highest Daily
Lifetime Income v2.1 terminates, and no additional payments will be
permitted. However, if a withdrawal in the latter scenario was taken to
satisfy a Required Minimum Distribution (as described above) under the
Annuity then the benefit will not terminate, and we will continue to pay
the Annual Income Amount in subsequent Annuity Years until the death of the
second designated life provided the designated lives were spouses at the
death of the first designated life.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments. Also, any Death Benefit will terminate if
withdrawals reduce your Unadjusted Account Value to zero. This means that
any Death Benefit is terminated and no Death Benefit is payable if your
Unadjusted Account Value is reduced to zero as the result of either a
withdrawal in excess of your Annual Income Amount or less than or equal to,
your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable state
required premium tax, to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. We will
make payments until the first of the designated lives to die, and
will continue to make payments until the death of the second
designated life as long as the designated lives were spouses at the
time of the first death. If, due to death of a designated life or
divorce prior to annuitization, only a single designated life
remains, then annuity payments will be made as a life annuity for the
lifetime of the designated life. We must receive your request in a
form acceptable to us at our office. If applying your Unadjusted
Account Value, less any applicable tax charges, to our current life
only (or joint life, depending on the number of designated lives
remaining) annuity payment rates results in a higher annual payment,
we will give you the higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin,
we currently make annual annuity payments as a joint and survivor or single
(as applicable) life fixed annuity with eight payments certain, by applying
the greater of the annuity rates then currently available or the annuity
rates guaranteed in your Annuity. We reserve the right at any time to
increase or decrease the certain period in order to comply with the Code
(e.g., to shorten the period certain to match life expectancy under
applicable Internal Revenue Service tables). The amount that will be
applied to provide such annuity payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual
Income Amount as if you made your first Lifetime Withdrawal on the
date the annuity payments are to begin). Such present value will be
calculated using the greater of the joint and survivor or single (as
applicable) life fixed annuity rates then currently available or the
joint and survivor or single (as applicable) life fixed annuity rates
guaranteed in your Annuity; and
(2)the Unadjusted Account Value.
Other Important Considerations
.. Withdrawals under the Spousal Highest Daily Lifetime Income v2.1 benefit
are subject to all of the terms and conditions of the Annuity. If you have
an active Systematic Withdrawal program running at the time you elect this
benefit, the first systematic withdrawal that processes after your election
of the benefit will be deemed a Lifetime Withdrawal. Withdrawals made while
Spousal Highest Daily Lifetime Income v2.1 is in effect will be treated,
for tax purposes, in the same way as any other withdrawals under the
Annuity. Any withdrawals made under the benefit will be taken pro rata from
the Sub-accounts (including the AST Investment Grade Bond Sub-account) and
the DCA MVA Options. If you have an active Systematic Withdrawal program
running at the time you elect this benefit, the program must withdraw funds
pro rata.
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolios appears in the prospectus
section entitled "Investment Options." In addition, you can find a copy of
the AST Investment Grade Bond Portfolio prospectus by going to
www.prudentialannuities.com.
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.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the pre-determined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to Permitted Sub-accounts, or to
the requirements as to how you may allocate your Unadjusted Account Value
with this benefit, will apply to new elections of the benefit and may apply
to current participants in the benefit. To the extent that changes apply to
current participants in the benefit, they will apply only upon
re-allocation of Unadjusted Account Value, or upon addition of additional
Purchase Payments. That is, we will not require such current participants
to re-allocate Unadjusted Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Spousal Highest
Daily Lifetime Income v2.1 reduce your Unadjusted Account Value to zero.
This means that any Death Benefit is terminated and no Death Benefit is
payable if your Unadjusted Account Value is reduced to zero as the result
of either a withdrawal in excess of your Annual Income Amount or less than
or equal to, your Annual Income Amount. (See "Death Benefits" in the
prospectus for more information.)
.. The current charge for Spousal Highest Daily Lifetime Income v2.1 is 1.10%
annually of the greater of Unadjusted Account Value and Protected
Withdrawal Value. The maximum charge for Spousal Highest Daily Lifetime
Income v2.1 is 2.00% annually of the greater of the Unadjusted Account
Value and Protected Withdrawal Value. As discussed in "Highest Daily Auto
Step-Up" above, we may increase the fee upon a step-up under this benefit.
We deduct this charge on quarterly anniversaries of the benefit effective
date, based on the values on the last Valuation Day prior to the quarterly
anniversary. Thus, we deduct, on a quarterly basis, 0.275% of the greater
of the prior Valuation Day's Unadjusted Account Value, or the prior
Valuation Day's Protected Withdrawal Value. We deduct the fee pro rata from
each of your Sub-accounts, including the AST Investment Grade Bond
Sub-account. You will begin paying this charge as of the effective date of
the benefit even if you do not begin taking withdrawals for many years, or
ever. We will not refund the charges you have paid if you choose never to
take any withdrawals and/or if you never receive any lifetime income
payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the benefit is less than the
Account Value Floor, then no charge will be assessed for that benefit quarter.
Charges deducted upon termination of the benefit may cause the Unadjusted
Account Value to fall below the Account Value Floor. If a charge for Spousal
Highest Daily Lifetime Income v2.1 would be deducted on the same day we
process a withdrawal request, the charge will be deducted first, then the
withdrawal will be processed. The withdrawal could cause the Unadjusted
Account Value to fall below the Account Value Floor. While the deduction of
the charge (other than the final charge) may not reduce the Unadjusted Account
Value to zero, withdrawals may reduce the Unadjusted Account Value to zero. If
this happens and the Annual Income Amount is greater than zero, we will make
payments under the benefit.
Election of and Designations under the Benefit
Spousal Highest Daily Lifetime Income v2.1 can only be elected based on two
designated lives. Designated lives must be natural persons who are each
other's spouses at the time of election of the benefit and at the death of the
first of the designated lives to die. Currently, Spousal Highest Daily
Lifetime Income v2.1 only may be elected if the Owner, Annuitant, and
Beneficiary designations are as follows:
. One Annuity Owner, where the Annuitant and the Owner are the same person
and the sole Beneficiary is the Owner's spouse. Each Owner/Annuitant and
the Beneficiary must be at least 50 years old at the time of election; or
. Co-Annuity Owners, where the Owners are each other's spouses. The
Beneficiary designation must be the surviving spouse, or the spouses
named equally. One of the Owners must be the Annuitant. Each Owner must
be at least 50 years old at the time of election; or
. One Annuity Owner, where the Owner is a custodial account established to
hold retirement assets for the benefit of the Annuitant pursuant to the
provisions of Section 408(a) of the Internal Revenue Code (or any
successor Code section thereto) ("Custodial Account"), the Beneficiary
is the Custodial Account, and the spouse of the Annuitant is the
Contingent Annuitant. Each of the Annuitant and the Contingent Annuitant
must be at least 50 years old at the time of election.
We do not permit a change of Owner under this benefit, except as follows:
(a) if one Owner dies and the surviving spousal Owner assumes the Annuity, or
(b) if the Annuity initially is co-owned, but thereafter the Owner who is not
the Annuitant is removed as Owner. We permit changes of Beneficiary
designations under this benefit. However, if the Beneficiary is changed, the
benefit may not be eligible to be continued upon the death of the first
designated life. If the designated lives divorce, Spousal Highest Daily
Lifetime Income v2.1 may not be divided as part of the divorce settlement or
judgment. Nor may the divorcing spouse who retains
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ownership of the Annuity appoint a new designated life upon re-marriage. A
change in designated lives will result in cancellation of Spousal Highest
Daily Lifetime Income v2.1.
Spousal Highest Daily Lifetime Income v2.1 can be elected at the time that you
purchase your Annuity or after the Issue Date, subject to its availability,
and our eligibility rules and restrictions. If you elect Spousal Highest Daily
Lifetime Income v2.1 and terminate it, you can re-elect it, subject to our
current rules and availability. See "Termination of Existing Benefits and
Election of New Benefits" in the prospectus for information pertaining to
elections, termination and re-election of benefits. Please note that if you
terminate a living benefit and elect Spousal Highest Daily Lifetime Income
v2.1, you lose the guarantees that you had accumulated under your existing
benefit, and your guarantees under Spousal Highest Daily Lifetime Income v2.1
will be based on your Unadjusted Account Value on the effective date of
Spousal Highest Daily Lifetime Income v2.1. You and your Financial
Professional should carefully consider whether terminating your existing
benefit and electing Spousal Highest Daily Lifetime Income v2.1 is appropriate
for you. We reserve the right to waive, change and/or further limit the
election frequency in the future for new elections of this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Spousal Highest Daily Lifetime Income v2.1 so long as you
participate in a Systematic Withdrawal program in which withdrawals are not
taken pro rata.
Termination of the Benefit
You may terminate the benefit at any time by notifying us. If you terminate
the benefit, any guarantee provided by the benefit will terminate as of the
date the termination is effective, and certain restrictions on re-election may
apply.
The benefit automatically terminates upon the first to occur of the following:
(i) upon our receipt of Due Proof of Death of the first designated life, if
the surviving spouse opts to take the death benefit under the Annuity
(rather than continue the Annuity) or if the surviving spouse is not an
eligible designated life;
(ii)upon the death of the second designated life;
(iii)your termination of the benefit;
(iv)your surrender of the Annuity;
(v) your election to begin receiving annuity payments (although if you have
elected to take annuity payments in the form of the Annual Income Amount,
we will continue to pay the Annual Income Amount);
(vi)both the Unadjusted Account Value and Annual Income Amount equal zero due
to a withdrawal of Excess income;
(vii)you allocate or transfer any portion of your Account Value to any
Sub-account(s) to which you are not permitted to electively allocate or
transfer Account Value (may vary by state);* or
(viii)you cease to meet our requirements as described in "Election of and
Designations under the Benefit".
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Spousal Highest Daily Lifetime Income v2.1 other than upon
the death of the second Designated Life or Annuitization, we impose any
accrued fee for the benefit (i.e., the fee for the pro-rated portion of the
year since the fee was last assessed), and thereafter we cease deducting the
charge for the benefit. This final charge will be deducted even if it results
in the Unadjusted Account Value falling below the Account Value Floor.
However, if the amount in the Sub-accounts is not enough to pay the charge, we
will reduce the fee to no more than the amount in the Sub-accounts. With
regard to your investment allocations, upon termination we will: (i) leave
intact amounts that are held in the Permitted Sub-accounts, and (ii) unless
you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
30
How Spousal Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account
Value Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account
See "How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account" in the discussion of Highest Daily Lifetime Income v2.1 above for
information regarding this component of the benefit.
Additional Tax Considerations
Please see the Additional Tax Considerations section under Highest Daily
Lifetime Income v2.1 above.
HIGHEST DAILY LIFETIME(R) INCOME v2.1 WITH HIGHEST DAILY DEATH BENEFIT
Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit ("HD DB")
is a lifetime guaranteed minimum withdrawal benefit, under which, subject to
the terms of the benefit, we guarantee your ability to take a certain annual
withdrawal amount for life. This benefit also provides for a highest daily
death benefit, subject to the terms of the benefit. This version is only being
offered in those jurisdictions where we have received regulatory approval and
will be offered subsequently in other jurisdictions when we receive regulatory
approval in those jurisdictions. We reserve the right, in our sole discretion,
to cease offering this benefit for new elections, at any time.
We offer a benefit that guarantees until the death of the single designated
life (the Annuitant) the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial value (the "Protected
Withdrawal Value") regardless of the impact of Sub-account performance on the
Unadjusted Account Value, subject to our rules regarding the timing and amount
of withdrawals. You are guaranteed to be able to withdraw the Annual Income
Amount for the rest of your life provided that you do not take withdrawals of
Excess Income that result in your Unadjusted Account Value being reduced to
zero. We also permit you to designate the first withdrawal from your Annuity
as a one-time "Non-Lifetime Withdrawal". All other partial withdrawals from
your Annuity are considered a "Lifetime Withdrawal" under the benefit.
Withdrawals are taken first from your own Account Value. We are only required
to begin making lifetime income payments to you under our guarantee when and
if your Unadjusted Account Value is reduced to zero (for any reason other than
due to partial withdrawals of Excess Income) ("Guarantee Payments"). Highest
Daily Lifetime Income v2.1 with HD DB may be appropriate if you intend to make
periodic withdrawals from your Annuity, and wish to ensure that Sub-account
performance will not affect your ability to receive annual payments, and also
wish to provide a death benefit to your beneficiaries. You are not required to
take withdrawals as part of the benefit - the guarantees are not lost if you
withdraw less than the maximum allowable amount each year under the rules of
the benefit. An integral component of Highest Daily Lifetime Income v2.1 with
HD DB is the predetermined mathematical formula we employ that may
periodically transfer your Unadjusted Account Value to and from the AST
Investment Grade Bond Sub-account. See the section above entitled "How Highest
Daily Lifetime Income v2.1 Transfers Unadjusted Account Value Between Your
Permitted Sub-accounts and the AST Investment Grade Bond Sub-account."
Highest Daily Lifetime Income v2.1 is offered with or without the HD DB
component; however, you may only elect HD DB with Highest Daily Lifetime
Income v2.1, and you must elect the HD DB benefit at the time you elect
Highest Daily Lifetime Income v2.1. If you elect Highest Daily Lifetime Income
v2.1 without HD DB and would like to add the feature later, you must first
terminate Highest Daily Lifetime Income v2.1 and elect Highest Daily Lifetime
Income v2.1 with HD DB (subject to availability and benefit re-election
provisions). Please note that if you terminate Highest Daily Lifetime Income
v2.1 and elect Highest Daily Lifetime Income v2.1 with HD DB you lose the
guarantees that you had accumulated under your existing benefit and will begin
the new guarantees under the new benefit you elect based on your Unadjusted
Account Value as of the date the new benefit becomes active. Highest Daily
Lifetime Income v2.1 with HD DB is offered as an alternative to other lifetime
withdrawal options. If you elect this benefit, it may not be combined with any
other optional living or death benefit.
The income benefit under Highest Daily Lifetime Income v2.1 with HD DB
currently is based on a single "designated life" who is between the ages of 50
and 79 on the date that the benefit is elected and received in Good Order. As
long as your Highest Daily Lifetime Income v2.1 with HD DB is in effect, you
must allocate your Unadjusted Account Value in accordance with the permitted
Sub-accounts and other Investment Option(s) available with this benefit. For a
more detailed description of the permitted Investment Options, see the
"Investment Options" section of the prospectus.
Although you are guaranteed the ability to withdraw your Annual Income Amount
for life even if your Unadjusted Account Value falls to zero, if that
particular withdrawal of Excess Income (described below) brings your
Unadjusted Account Value to zero, your Annual Income Amount also would fall to
zero, and the benefit and the Annuity then would terminate. In that scenario,
no further amount would be payable under Highest Daily Lifetime Income v2.1
with HD DB (including no payment of the Highest Daily Death Benefit Amount).
As to the impact of such a scenario on any other optional benefit, please see
the following sections in this supplement: "Highest Daily Lifetime Income v2.1
Benefit", "Spousal Highest Daily Lifetime Income v2.1 Benefit" and "Spousal
Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit".
31
You may also participate in the 6 or 12 Month DCA Program if you elect Highest
Daily Lifetime Income v2.1 with HD DB, subject to the 6 or 12 Month DCA
Program's rules. See the section of the prospectus entitled "6 or 12 Month
Dollar Cost Averaging Program" for details.
Key Feature - Protected Withdrawal Value
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter, until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraphs.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value on or before the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment made on the Current
Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value after the Roll-Up End Date
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments and reduced for subsequent Lifetime Withdrawals (see the
examples that begin immediately prior to the sub-heading below entitled
"Example of dollar-for-dollar reductions").
Please note that if you elect Highest Daily Lifetime Income v2.1 with HD DB,
your Account Value is not guaranteed, can fluctuate and may lose value.
Key Feature - Annual Income Amount under Highest Daily Lifetime Income v2.1
with HD DB
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the Annuitant on the date of the first Lifetime Withdrawal. The
percentages are: 3% for ages 50 to 54; 3.5% for ages 55 to less than 59 1/2;
4% for ages 59 1/2 to 64; 4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6%
for ages 85 or older. Under Highest Daily Lifetime Income v2.1 with HD DB, if
your cumulative Lifetime Withdrawals in an Annuity Year are less than or equal
to the Annual Income Amount, they will not reduce your Annual Income Amount in
subsequent Annuity Years, but any such withdrawals will reduce the Annual
Income Amount on a dollar-for-dollar basis in that Annuity Year and also will
reduce the Protected Withdrawal Value on a dollar-for-dollar basis. If your
cumulative Lifetime Withdrawals in an Annuity Year are in excess of the Annual
Income Amount ("Excess Income"), your Annual Income Amount in subsequent years
will be reduced (except with regard to Required Minimum Distributions for this
Annuity that comply with our rules) by the result of the ratio of the Excess
Income to the Account Value immediately prior to such withdrawal (see examples
of this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
As discussed in this paragraph, when you make a partial withdrawal that is
subject to tax withholding, we will identify the amount that includes not only
the amount you actually receive, but also the amount of the tax withholding,
to determine whether your withdrawal has exceeded the Annual Income Amount.
When you take a partial withdrawal, you may request a "gross" withdrawal
amount (e.g., $2,000) but then have any tax withholding deducted from the
amount you actually receive (although an MVA may also be applied to your
remaining Unadjusted Account Value, it is not considered for purposes of
determining Excess Income). The portion of a withdrawal that exceeded your
Annual Income Amount (if any) would be treated as Excess Income and thus would
reduce your Annual Income Amount in subsequent years. Alternatively,
32
you may request that a "net" withdrawal amount actually be paid to you (e.g.,
$2,000), with the understanding that any tax withholding (e.g., $240) be
applied to your remaining Unadjusted Account Value (although an MVA may also
be applied to your remaining Unadjusted Account Value, it is not considered
for purposes of determining Excess Income). In the latter scenario, we
determine whether any portion of the withdrawal is to be treated as Excess
Income by looking to the sum of the net amount you actually receive (e.g.,
$2,000) and the amount of any tax withholding (in this example, a total of
$2,240). The amount of that sum (e.g., the $2,000 you received plus the $240
for the tax withholding) that exceeds your Annual Income Amount will be
treated as Excess Income - thereby reducing your Annual Income Amount in
subsequent years.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Highest Daily
Lifetime Income v2.1 with HD DB and subsequent to the first Lifetime
Withdrawal will (i) immediately increase the then-existing Annual Income
Amount by an amount equal to a percentage of the Purchase Payment based on the
age of the Annuitant at the time of the first Lifetime Withdrawal (the
percentages are: 3% for ages 50 to 54; 3.5% for ages 55 to less than 59 1/2;
4% for ages 59 1/2 to 64; 4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6%
for ages 85 or older) and (ii) increase the Protected Withdrawal Value by the
amount of the Purchase Payment.
After your first Lifetime Withdrawal and before your Unadjusted Account Value
is reduced to zero, you may make additional Purchase Payments, subject to the
limits in the next paragraph. We reserve the right not to accept additional
Purchase Payments if the Unadjusted Account Value becomes zero.
While Highest Daily Lifetime Income v2.1 with HD DB is in effect, we may
limit, restrict, suspend or reject any additional Purchase Payment at any
time, but would do so on a non-discriminatory basis. Circumstances where we
may limit, restrict, suspend or reject additional Purchase Payments include,
but are not limited to, the following:
.. if we determine that, as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Highest Daily Lifetime Income v2.1 with HD DB. This means that
you may no longer be able to increase the values associated with your Highest
Daily Lifetime Income v2.1 with HD DB through additional Purchase Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity, in a non-discriminatory manner.
Highest Daily Auto Step-Up
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of Highest
Daily Lifetime Income v2.1 with HD DB. As detailed in this paragraph, the
Highest Daily Auto Step-Up feature can result in a larger Annual Income Amount
subsequent to your first Lifetime Withdrawal. The Highest Daily Auto Step-Up
starts with the anniversary of the Issue Date of the Annuity (the "Annuity
Anniversary") immediately after your first Lifetime Withdrawal under the
benefit. Specifically, upon the first such Annuity Anniversary, we identify
the Unadjusted Account Value on each Valuation Day within the immediately
preceding Annuity Year after your first Lifetime Withdrawal. Having identified
the highest daily value (after all daily values have been adjusted for
subsequent Purchase Payments and withdrawals), we then multiply that value by
a percentage that varies based on the age of the Annuitant on the Annuity
Anniversary as of which the step-up would occur. The percentages are: 3% for
ages 50 to 54; 3.5% for ages 55 to less than 59 1/2; 4% for ages 59 1/2 to 64;
4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for ages 85 or older. If
that value exceeds the existing Annual Income Amount, we replace the existing
amount with the new, higher amount. Otherwise, we leave the existing Annual
Income Amount intact. We will not automatically increase your Annual Income
Amount solely as a result of your attaining a new age that is associated with
a new age-based percentage. The Unadjusted Account Value on the Annuity
Anniversary is considered the last daily step-up value of the Annuity Year.
All daily valuations and annual step-ups will only occur on a Valuation Day.
In later years (i.e., after the first Annuity Anniversary after the first
Lifetime Withdrawal), we determine whether an automatic step-up should occur
on each Annuity Anniversary, by performing a similar examination of the
Unadjusted Account Values that occurred on Valuation Days during the year.
Taking Lifetime Withdrawals could produce a greater difference between your
Protected Withdrawal Value and your Unadjusted Account Value, which may make a
Highest Daily Auto Step-up less likely to occur. At the time that we increase
your Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the date that we implement a Highest Daily Auto Step-Up to your Annual
Income Amount, the charge for Highest Daily Lifetime
33
Income v2.1 with HD DB has changed for new purchasers, you may be subject to
the new charge at the time of such step-up. Prior to increasing your charge
for Highest Daily Lifetime Income v2.1 with HD DB upon a step-up, we would
notify you, and give you the opportunity to cancel the automatic step-up
feature. If you receive notice of a proposed step-up and accompanying fee
increase, you should consult with your Financial Professional and carefully
evaluate whether the amount of the step-up justifies the increased fee to
which you will be subject. Any such increased charge will not be greater than
the maximum charge set forth in the table entitled "Your Optional Benefit Fees
and Charges."
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Highest Daily Lifetime Income v2.1 with HD DB does not affect your ability to
take partial withdrawals under your Annuity, or limit your ability to take
partial withdrawals that exceed the Annual Income Amount. Under Highest Daily
Lifetime Income v2.1 with HD DB, if your cumulative Lifetime Withdrawals in an
Annuity Year are less than or equal to the Annual Income Amount, they will not
reduce your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year. If your cumulative Lifetime Withdrawals in any Annuity
Year are less than the Annual Income Amount, you cannot carry over the unused
portion of the Annual Income Amount to subsequent Annuity Years. If your
cumulative Lifetime Withdrawals in an Annuity Year exceed the Annual Income
Amount, your Annual Income Amount in subsequent years will be reduced (except
with regard to Required Minimum Distributions for this Annuity that comply
with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
Examples of dollar-for-dollar and proportional reductions and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Highest Daily Lifetime
Income v2.1 with HD DB or any other fees and charges under the Annuity. Assume
the following for all three examples:
.. The Issue Date is November 1
.. Highest Daily Lifetime Income v2.1 with HD DB is elected on August 1 of the
following calendar year
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1 with HD DB
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
Example of dollar-for-dollar reductions
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $6,000 (since the designated life is between the ages
of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual Income
Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000).
The Highest Daily Death Benefit Amount is $115,420. Assuming $2,500 is
withdrawn from the Annuity on this date, the remaining Annual Income Amount
for that Annuity Year (up to and including October 31) is $3,500. This is the
result of a dollar-for-dollar reduction of the Annual Income Amount ($6,000
less $2,500 = $3,500) and the Highest Daily Death Benefit Amount ($115,420
less $2,500 = $112,920).
Example of proportional reductions
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $3,500 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $1,500 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there are other
future withdrawals in that Annuity Year, each would result in another
proportional reduction to the Annual Income Amount).
Here is the calculation:
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Example of highest daily auto step-up
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
Annuitant's age on that Annuity Anniversary) of the highest daily value since
your first Lifetime Withdrawal (or last Annuity Anniversary in subsequent
years), adjusted for withdrawals and additional Purchase Payments, is greater
than the Annual Income Amount, adjusted for Excess Income and additional
Purchase Payments.
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $6,000. However, the Excess Income on October 29 reduces the
amount to $5,921.40 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 5% (since the designated life
is between 70 and 84 on the date of the potential step-up) of the highest
daily Unadjusted Account Value, adjusted for withdrawals and Purchase
Payments, is greater than $5,921.40. Here are the calculations for determining
the daily values. Only the October 28 value is being adjusted for Excess
Income as the October 30, October 31, and November 1 Valuation Days occur
after the Excess Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be the Annuity Anniversary and every day
following the Annuity Anniversary. The Annuity Anniversary Date of
November 1 is considered the first Valuation Date in the Annuity Year.
** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,950.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income
Amount for the Annuity Year), resulting in Unadjusted Account Value of
$115,500 before the Excess Income.
. This amount ($115,500) is further reduced by 1.31% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.95.
. The adjusted October 29 Highest Daily Value, $113,986.95, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.95 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.95 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.95
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 5%, generating
an Annual Income Amount of $5,950.00. Since this amount is greater than the
current year's Annual Income Amount of $5,921.40 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,950.00.
Non-Lifetime Withdrawal Feature
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Highest Daily Lifetime Income v2.1 with HD DB. It is an optional feature
of the benefit that you can only elect at the time of your first withdrawal.
You cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders - Surrender Value" in the
prospectus). This Non-Lifetime Withdrawal will not establish your initial
Annual Income Amount and the Periodic Value described above will continue to
be calculated. However, the total amount of the withdrawal will proportionally
reduce all guarantees associated with Highest Daily Lifetime Income v2.1 with
HD DB. You must tell us at the time you take the withdrawal if your withdrawal
is intended to be the Non-Lifetime Withdrawal and not the first Lifetime
Withdrawal under Highest Daily Lifetime Income v2.1 with HD DB. If you don't
elect the Non-Lifetime Withdrawal, the first withdrawal you make will be the
first Lifetime Withdrawal that establishes your Annual Income Amount, which is
based on your Protected Withdrawal Value. Once you elect to take the
Non-Lifetime Withdrawal or Lifetime Withdrawals, no additional Non-Lifetime
Withdrawals may be taken. If you do not take a Non-Lifetime Withdrawal before
beginning Lifetime Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value. It will also proportionally reduce the Highest Daily Death
Benefit Amount. It will reduce each value by the percentage the total
withdrawal amount represents of the then current Account Value immediately
prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
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Example - Non-Lifetime Withdrawal (proportional reduction)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit. Assume the following:
.. The Issue Date is December 3
.. Highest Daily Lifetime Income v2.1 with HD DB is elected on September 4 of
the following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1 with HD DB
.. No previous withdrawals have been taken under Highest Daily Lifetime Income
v2.1 with HD DB
On October 3 of the year the benefit is elected, the Protected Withdrawal
Value is $125,000, the Highest Daily Death Benefit Amount is $115,420, and the
Account Value is $120,000. Assuming $15,000 is withdrawn from the Annuity on
that same October 3 and is designated as a Non-Lifetime Withdrawal, all
guarantees associated with Highest Daily Lifetime Income v2.1 with HD DB will
be reduced by the ratio the total withdrawal amount represents of the Account
Value just prior to the withdrawal being taken.
Here is the calculation:
Required Minimum Distributions
Required Minimum Distributions ("RMD") for this Annuity must be taken by
April 1st in the year following the date you turn age 70 1/2 and by
December 31/st/ for subsequent calendar years. If the annual RMD amount is
greater than the Annual Income Amount, a withdrawal of the RMD amount will not
be treated as a withdrawal of Excess Income, as long as the RMD amount is
calculated by us for this Annuity and administered under a program we support
each calendar year. If you are not participating in an RMD withdrawal program
each calendar year, you can alternatively satisfy the RMD amount without it
being treated as a withdrawal of Excess Income.
The following rules apply to determine if any portion of an RMD amount will be
treated as Excess Income.
For purposes of this provision, in relation to any Annuity Year, the "Second
Calendar Year" is the calendar year following the calendar year in which the
Annuity Year began.
In general, withdrawals made from the Annuity during an Annuity Year to meet
the RMD provisions of the Code will not be treated as Excess Income. However,
if in any Annuity Year, you take a Lifetime Withdrawal in the Second Calendar
Year, then the amount which will not be treated as Excess Income is the
greater of:
(1)the remaining Annual Income Amount for that Annuity Year, and
(2)the difference between the Second Calendar Year's remaining RMD amount and
the Annual Income Amount.
Any remaining RMD amount for the Second Calendar Year can be taken in the
following Annuity Year.
If, in any Annuity Year, your RMD amount is not greater than the Annual Income
Amount, any withdrawals in excess of the Annual Income Amount will be treated
as Excess Income.
Please see hypothetical examples below for details.
If you do not comply with the rules described above, any withdrawal that
exceeds the Annual Income Amount will be treated as a withdrawal of Excess
Income, which will reduce your Annual Income Amount in future Annuity Years.
This may include situations where you comply with the rules outlined above and
then decide to take additional withdrawals after satisfying your RMD
requirement from the Annuity.
We will assume your first withdrawal under the benefit is a Lifetime
Withdrawal unless you designated the withdrawal as a Non-Lifetime Withdrawal.
36
Example
The following example is purely hypothetical and intended to illustrate a
scenario as described above. Note that withdrawals must comply with all IRS
guidelines in order to satisfy the RMD for the current calendar year.
Assumptions:
RMD Calendar Year
01/01/2013 to 12/31/2013
Annuity Year
06/01/2012 to 05/31/2013
Annual Income Amount and RMD Amount
Annual Income Amount = $5,000
Remaining Annual Income Amount as of 1/3/2013 = $3,000 (a $2,000 withdrawal
was taken on 7/1/2012)
RMD Amount for Calendar Year 2013 = $6,000
The amount you may withdraw in the current Annuity Year (between 1/3/2013 and
5/31/2013) without it being treated as Excess Income is $4,000. Here is the
calculation: $3,000 + ($6,000 - $5,000) = $4,000.
If the $4,000 withdrawal is taken in the current Annuity Year (prior to
6/1/2013), the remaining Annual Income Amount will be zero and the remaining
RMD amount of $2,000 may be taken in the subsequent Annuity Year beginning on
6/1/2013 (when your Annual Income Amount is reset to $5,000).
If you had chosen to not take any additional withdrawals until on or after
6/1/2013, then you would be eligible to withdraw $6,000 without it being
treated as a withdrawal of Excess Income.
Highest Daily Death Benefit
A Death Benefit is payable under Highest Daily Lifetime Income v2.1 with HD DB
(until we begin making Guarantee Payments under the benefit or annuity
payments have begun) upon the death of the Owner (Annuitant if entity owned),
also referred to as the "Single Designated Life", when we receive Due Proof of
Death. The Death Benefit is the greatest of: the Minimum Death Benefit
(described in the prospectus) or the Highest Daily Death Benefit Amount
described below.
Highest Daily Death Benefit Amount:
On the date you elect Highest Daily Lifetime Income v2.1 with HD DB, the
Highest Daily Death Benefit Amount is equal to your Unadjusted Account Value.
On each subsequent Valuation Day, until the date of death of the decedent, the
Highest Daily Death Benefit Amount will be the greater of:
(1)The Unadjusted Account Value on the current Valuation Day; and
(2)The Highest Daily Death Benefit Amount of the immediately preceding
Valuation Day,
. increased by any Purchase Payments made on the current Valuation Day and,
. reduced by the effect of withdrawals made on the current Valuation Day,
as described below.
Please note that the Highest Daily Death Benefit Amount does not have any
guaranteed growth rate associated with it and therefore can be a different
amount than any of the guaranteed values associated with the living benefit
features of Highest Daily Lifetime Income v2.1 with HD DB.
A Non-Lifetime Withdrawal will proportionately reduce the Highest Daily Death
Benefit Amount by the ratio of the Non-Lifetime Withdrawal to the Account
Value immediately prior to the Non-Lifetime Withdrawal. A Lifetime Withdrawal
that is not considered Excess Income will reduce the Highest Daily Death
Benefit Amount (dollar-for-dollar) by the amount of the withdrawal. All or a
portion of a Lifetime Withdrawal that is considered Excess Income will
proportionately reduce the Highest Daily Death Benefit Amount by the ratio of
the Excess Income to the Account Value immediately prior to the withdrawal of
the Excess Income.
The Highest Daily Death Benefit will be calculated on the date of death of the
decedent and will be:
. increased by the amount of any additional Adjusted Purchase Payments, and
. reduced by the effect of any withdrawals (as described in the preceding
paragraph),
made during the period between the decedent's date of death and the date we
receive Due Proof of Death.
Please note that the Highest Daily Death Benefit Amount is available only
until we make Guarantee Payments under Highest Daily Lifetime Income v2.1 with
HD DB or annuity payments begin. This means that any withdrawals that reduce
your Unadjusted Account Value to zero will also reduce the Highest Daily Death
Benefit Amount to zero.
37
All other provisions applicable to Death Benefits under your Annuity will
continue to apply. See the "Death Benefits" section of the prospectus for more
information pertaining to Death Benefits.
Benefits Under Highest Daily Lifetime Income v2.1 with HD DB
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and Guarantee Payments amounts
are still payable under Highest Daily Lifetime Income v2.1 with HD DB, we
will make an additional payment, if any, for that Annuity Year equal to the
remaining Annual Income Amount for the Annuity Year. Thus, in that
scenario, the remaining Annual Income Amount would be payable even though
your Unadjusted Account Value was reduced to zero. In subsequent Annuity
Years we make payments that equal the Annual Income Amount as described in
this section. We will make payments until the death of the single
designated life. After the Unadjusted Account Value is reduced to zero, you
will not be permitted to make additional Purchase Payments to your Annuity.
To the extent that cumulative partial withdrawals in the Annuity Year that
reduced your Unadjusted Account Value to zero are more than the Annual
Income Amount, Highest Daily Lifetime Income v2.1 with HD DB terminates,
and no additional payments are permitted.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments.
.. Please note that if your Unadjusted Account Value is reduced to zero due to
withdrawals or annuitization, any Death Benefit value, including that of
the HD DB feature, will terminate. This means that the HD DB is terminated
and no Death Benefit is payable if your Unadjusted Account Value is reduced
to zero as the result of either a withdrawal in excess of your Annual
Income Amount or less than or equal to, your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable tax charges,
to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. If this
option is elected, the Annual Income Amount will not increase after
annuity payments have begun. We will make payments until the death of
the single designated life. We must receive your request in a form
acceptable to us at our Service Office. If applying your Unadjusted
Account Value, less any applicable tax charges, to the life-only
annuity payment rates results in a higher annual payment, we will
give you the higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin
we currently make annual annuity payments in the form of a single life
fixed annuity with eight payments certain, by applying the greater of the
annuity rates then currently available or the annuity rates guaranteed in
your Annuity. We reserve the right at any time to increase or decrease the
period certain in order to comply with the Code (e.g., to shorten the
period certain to match life expectancy under applicable Internal Revenue
Service tables). The amount that will be applied to provide such annuity
payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual
Income Amount as if you made your first Lifetime Withdrawal on the
date the annuity payments are to begin). Such present value will be
calculated using the greater of the single life fixed annuity rates
then currently available or the single life fixed annuity rates
guaranteed in your Annuity; and
(2)the Unadjusted Account Value.
Other Important Considerations
.. Withdrawals under Highest Daily Lifetime Income v2.1 with HD DB are subject
to all of the terms and conditions of the Annuity. If you have an active
Systematic Withdrawal program running at the time you elect this benefit,
the first systematic withdrawal that processes after your election of the
benefit will be deemed a Lifetime Withdrawal. Withdrawals made while
Highest Daily Lifetime Income v2.1 with HD DB is in effect will be treated,
for tax purposes, in the same way as any other withdrawals under the
Annuity. Any withdrawals made under the benefit will be taken pro rata from
the Sub-accounts (including the AST Investment Grade Bond Sub-account) and
the DCA MVA Options. If you have an active Systematic Withdrawal program
running at the time you elect this benefit, the program must withdraw funds
pro rata.
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolio appears within the prospectus
section entitled "Investment Options." You can find a copy of the AST
Investment Grade Bond Portfolio prospectus by going to
www.prudentialannuities.com.
38
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the predetermined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to the Permitted Sub-accounts, or
to the requirements as to how you may allocate your Unadjusted Account
Value with this benefit, will apply to new elections of the benefit and may
apply to current participants in the benefit. To the extent that changes
apply to current participants in the benefit, they will only apply upon
re-allocation of Unadjusted Account Value, or upon addition of subsequent
Purchase Payments. That is, we will not require such current participants
to re-allocate Unadjusted Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if any withdrawals taken under Highest
Daily Lifetime Income v2.1 with HD DB reduce your Unadjusted Account Value
to zero. This means that any Death Benefit, including the HD DB, will
terminate and no Death Benefit is payable if your Unadjusted Account Value
is reduced to zero as the result of either a withdrawal in excess of your
Annual Income Amount or less than or equal to, your Annual Income Amount.
(See "Death Benefits" in the prospectus for more information.)
.. The current charge for Highest Daily Lifetime Income v2.1 with HD DB is
1.50% annually of the greater of the Unadjusted Account Value and Protected
Withdrawal Value. The maximum charge for Highest Daily Lifetime Income v2.1
with HD DB is 2.00% annually of the greater of the Unadjusted Account Value
and Protected Withdrawal Value. As discussed in "Highest Daily Auto
Step-Up" above, we may increase the fee upon a step-up under this benefit.
We deduct this charge on quarterly anniversaries of the benefit effective
date, based on the values on the last Valuation Day prior to the quarterly
anniversary. Thus, we deduct, on a quarterly basis, 0.375% of the greater
of the prior Valuation Day's Unadjusted Account Value and the prior
Valuation Day's Protected Withdrawal Value. We deduct the fee pro rata from
each of your Sub-accounts, including the AST Investment Grade Bond
Sub-account. You will begin paying this charge as of the effective date of
the benefit even if you do not begin taking withdrawals for many years, or
ever. We will not refund the charges you have paid if you choose never to
take any withdrawals and/or if you never receive any lifetime income
payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the benefit is less than the
Account Value Floor, then no charge will be assessed for that benefit quarter.
Charges deducted upon termination of the benefit may cause the Unadjusted
Account Value to fall below the Account Value Floor. If a charge for Highest
Daily Lifetime Income v2.1 with HD DB would be deducted on the same day we
process a withdrawal request, the charge will be deducted first, then the
withdrawal will be processed. The withdrawal could cause the Unadjusted
Account Value to fall below the Account Value Floor. While the deduction of
the charge (other than the final charge) may not reduce the Unadjusted Account
Value to zero, partial withdrawals may reduce the Unadjusted Account Value to
zero. If this happens and the Annual Income Amount is greater than zero, we
will make payments under the benefit.
Election of and Designations under the Benefit
For Highest Daily Lifetime Income v2.1 with HD DB, there must be either a
single Owner who is the same as the Annuitant, or if the Annuity is entity
owned, there must be a single natural person Annuitant. In either case, the
Annuitant must be between 50 and 79 years old. Any change of the Annuitant
under the Annuity will result in cancellation of Highest Daily Lifetime Income
v2.1 with HD DB. Similarly, any change of Owner will result in cancellation of
Highest Daily Lifetime Income v2.1 with HD DB, except if (a) the new Owner has
the same taxpayer identification number as the previous Owner, (b) ownership
is transferred from a custodian or other entity to the Annuitant, or vice
versa or (c) ownership is transferred from one entity to another entity that
satisfies our administrative ownership guidelines.
Highest Daily Lifetime Income v2.1 with HD DB can be elected at the time that
you purchase your Annuity or after the Issue Date, subject to its
availability, and our eligibility rules and restrictions. If you elect Highest
Daily Lifetime Income v2.1 with HD DB and terminate it, you can re-elect it,
subject to our current rules and availability. See "Termination of Existing
Benefits and Election of New Benefits" in the prospectus for information
pertaining to elections, termination and re-election of benefits. Please note
that if you terminate a living benefit and elect Highest Daily Lifetime Income
v2.1 with HD DB, you lose the guarantees that you had accumulated under your
existing benefit and your guarantees under Highest Daily Lifetime Income v2.1
with HD DB will be based on your Unadjusted Account Value on the effective
date of Highest Daily Lifetime Income v2.1 with HD DB. You and your Financial
Professional should carefully consider whether terminating your existing
benefit and electing Highest Daily Lifetime Income v2.1 with HD DB is
appropriate for you. We reserve the right to waive, change and/or further
limit the election frequency in the future for new elections of this benefit.
39
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Highest Daily Lifetime Income v2.1 with HD DB so long as you
participate in a Systematic Withdrawal program in which withdrawals are not
taken pro rata.
Termination of the Benefit
You may terminate Highest Daily Lifetime Income v2.1 with HD DB at any time by
notifying us. If you terminate the benefit, any guarantee provided by the
benefit, including the HD DB, will terminate as of the date the termination is
effective, and certain restrictions on re-election may apply.
The benefit automatically terminates upon the first to occur of the following:
(i) your termination of the benefit;
(ii)your surrender of the Annuity;
(iii)your election to begin receiving annuity payments (although if you have
elected to receive the Annual Income Amount in the form of annuity
payments, we will continue to pay the Annual Income Amount);
(iv)our receipt of Due Proof of Death of the Owner (or Annuitant for
entity-owned annuities);
(v) both the Unadjusted Account Value and Annual Income Amount equal zero due
to a withdrawal of Excess Income;
(vi)you allocate or transfer any portion of your Account Value to any
Sub-account(s) to which you are not permitted to electively allocate or
transfer Account Value (may vary by state);*or
(vii)you cease to meet our requirements as described in "Election of and
Designations under the Benefit" above.
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Highest Daily Lifetime Income v2.1 with HD DB, other than
upon the death of the Owner or Annuitization, we impose any accrued fee for
the benefit (i.e., the fee for the pro-rated portion of the year since the fee
was last assessed), and thereafter we cease deducting the charge for the
benefit. However, if the amount in the Sub-accounts is not enough to pay the
charge, we will reduce the fee to no more than the amount in the Sub-accounts.
With regard to your investment allocations, upon termination we will:
(i) leave intact amounts that are held in the Permitted Sub-accounts, and
(ii) unless you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
If a surviving spouse elects to continue the Annuity, Highest Daily Lifetime
Income v2.1 with HD DB terminates upon Due Proof of Death. The spouse may
newly elect the benefit subject to the restrictions discussed above.
How Highest Daily Lifetime Income v2.1 with HD DB Transfers Unadjusted Account
Value Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account
See "How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account" in the discussion of Highest Daily Lifetime Income v2.1 above for
information regarding this component of the benefit.
Additional Tax Considerations
Please see the Additional Tax Considerations section under Highest Daily
Lifetime Income v2.1 above.
SPOUSAL HIGHEST DAILY LIFETIME INCOME v2.1 WITH HIGHEST DAILY DEATH BENEFIT
Spousal Highest Daily Lifetime Income v2.1 with Highest Daily Death Benefit
("HD DB") is a lifetime guaranteed minimum withdrawal benefit, under which,
subject to the terms of the benefit, we guarantee your ability to take a
certain annual withdrawal amount for the lives of two individuals who are
spouses. This benefit also provides for a highest daily death benefit, subject
to the terms of the benefit. This version is only being offered in those
jurisdictions where we have received regulatory approval and will be offered
subsequently in other jurisdictions when we receive regulatory approval in
those jurisdictions. We reserve the right, in our sole discretion, to cease
offering this benefit for new elections at any time.
40
We offer a benefit that guarantees, until the death of the Remaining
Designated Life (as described below) (the "designated lives", and each, a
"designated life"), the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial principal value (the
"Protected Withdrawal Value") regardless of the impact of Sub-account
performance on the Unadjusted Account Value, subject to our rules regarding
the timing and amount of withdrawals. You are guaranteed to be able to
withdraw the Annual Income Amount for the lives of the designated lives,
provided you have not made withdrawals of Excess Income that result in your
Unadjusted Account Value being reduced to zero. We also permit you to
designate the first withdrawal from your Annuity as a one-time "Non-Lifetime
Withdrawal." All other withdrawals from your Annuity are considered a
"Lifetime Withdrawal" under the benefit. Withdrawals are taken first from your
own Account Value. We are only required to begin making lifetime income
payments to you under our guarantee when and if your Unadjusted Account Value
is reduced to zero (for any reason other than due to partial withdrawals of
Excess Income) ("Guarantee Payments"). The benefit may be appropriate if you
intend to make periodic withdrawals from your Annuity, wish to ensure that
Sub-account performance will not affect your ability to receive annual
payments, and wish either spouse to be able to continue Spousal Highest Daily
Lifetime Income v2.1 with HD DB after the death of the first spouse (subject
to the provisions below regarding a Remaining Designated Life), and also want
to provide a death benefit. You are not required to make withdrawals as part
of the benefit - the guarantees are not lost if you withdraw less than the
maximum allowable amount each year under the rules of the benefit.
An integral component of Spousal Highest Daily Lifetime Income v2.1 with HD DB
is the predetermined mathematical formula we employ that may periodically
transfer your Unadjusted Account Value to and from the AST Investment Grade
Bond Sub-account. See the section above entitled "How Highest Daily Lifetime
Income v2.1 Transfers Unadjusted Account Value Between Your Permitted
Sub-accounts and the AST Investment Grade Bond Sub-account."
Spousal Highest Daily Lifetime Income v2.1 with HD DB is the spousal version
of Highest Daily Lifetime Income v2.1 with HD DB. Spousal Highest Daily
Lifetime Income v2.1 is offered with or without the HD DB component; however,
you may only elect HD DB with Spousal Highest Daily Lifetime Income v2.1, and
you must elect the HD DB benefit at the time you elect Spousal Highest Daily
Lifetime Income v2.1. If you elect Spousal Highest Daily Lifetime Income v2.1
without HD DB and would like to add the feature later, you must first
terminate Spousal Highest Daily Lifetime Income v2.1 and elect Spousal Highest
Daily Lifetime Income v2.1 with HD DB (subject to availability and benefit
re-election provisions). Please note that if you terminate Spousal Highest
Daily Lifetime Income v2.1 and elect Spousal Highest Daily Lifetime Income
v2.1 with HD DB you lose the guarantees that you had accumulated under your
existing benefit and will begin the new guarantees under the new benefit you
elect based on your Unadjusted Account Value as of the date the new benefit
becomes active. Spousal Highest Daily Lifetime Income v2.1 with HD DB is
offered as an alternative to other lifetime withdrawal options. Currently, if
you elect Spousal Highest Daily Lifetime Income v2.1 with HD DB and
subsequently terminate the benefit, you may elect another living benefit,
subject to our current rules. See "Election of and Designations under the
Benefit" below and "Termination of Existing Benefits and Election of New
Benefits" in the prospectus for details. Spousal Highest Daily Lifetime Income
v2.1 with HD DB must be elected based on two designated lives, as described
below. Each designated life must be between the ages of 50 and 79 years old
when the benefit is elected. Spousal Highest Daily Lifetime Income v2.1 with
HD DB is not available if you elect any other optional living or death benefit.
As long as your Spousal Highest Daily Lifetime Income v2.1 with HD DB is in
effect, you must allocate your Unadjusted Account Value in accordance with the
permitted Sub-accounts and other Investment Option(s) available with this
benefit. For a more detailed description of the permitted Investment Options,
see the "Investment Options" section of the prospectus.
Although you are guaranteed the ability to withdraw your Annual Income Amount
for life even if your Unadjusted Account Value falls to zero, if that
particular withdrawal of Excess Income (described below) brings your
Unadjusted Account Value to zero, your Annual Income Amount also would fall to
zero, and the benefit and the Annuity then would terminate. In that scenario,
no further amount would be payable under Spousal Highest Daily Lifetime Income
v2.1 with HD DB. As to the impact of such a scenario on any other optional
benefit, please see the following sections in this supplement: "Highest Daily
Lifetime Income v2.1 Benefit", "Spousal Highest Daily Lifetime Income v2.1
Benefit" and "Highest Daily Lifetime Income v2.1 with Highest Daily Death
Benefit".
You may also participate in the 6 or 12 Month Dollar Cost Averaging Program if
you elect Spousal Highest Daily Lifetime Income v2.1 with HD DB, subject to
the 6 or 12 Month DCA Program's rules. See the section of the prospectus
entitled "6 or 12 Month Dollar Cost Averaging Program" for details.
Key Feature - Protected Withdrawal Value
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraph.
41
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value on or before the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment made on the Current
Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value after the Roll-Up End Date
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments and reduced for subsequent Lifetime Withdrawals (see the
examples that begin immediately prior to the sub-heading below entitled
"Example of dollar-for-dollar reductions").
Please note that if you elect Spousal Highest Daily Lifetime Income v2.1 with
HD DB, your Account Value is not guaranteed, can fluctuate and may lose value.
Key Feature - Annual Income Amount under Spousal Highest Daily Lifetime Income
v2.1 with HD DB
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the younger spousal designated life on the date of the first
Lifetime Withdrawal after election of the benefit. The percentages are: 2.5%
for ages 50 to 54; 3% for ages 55 to less than 59 1/2; 3.5% for ages 59 1/2 to
64; 4% for ages 65 to 69; 4.5% for ages 70 to 84; and 5.5% for ages 85 or
older. We use the age of the younger designated life. If you elected this
benefit and one of the Spousal Designated Lives becomes the Remaining
Designated Life, we will continue to use the age of the younger of both the
original Spousal Designated Lives for purposes of calculating the applicable
Annual Income percentage. Under Spousal Highest Daily Lifetime Income v2.1
with HD DB, if your cumulative Lifetime Withdrawals in an Annuity Year are
less than or equal to the Annual Income Amount, they will not reduce your
Annual Income Amount in subsequent Annuity Years, but any such withdrawals
will reduce the Annual Income Amount on a dollar-for-dollar basis in that
Annuity Year and also will reduce the Protected Withdrawal Value on a
dollar-for-dollar basis. If your cumulative Lifetime Withdrawals in an Annuity
Year are in excess of the Annual Income Amount for any Annuity Year ("Excess
Income"), your Annual Income Amount in subsequent years will be reduced
(except with regard to Required Minimum Distributions for this Annuity that
comply with our rules) by the result of the ratio of the Excess Income to the
Unadjusted Account Value immediately prior to such withdrawal (see examples of
this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
As discussed in this paragraph, when you make a partial withdrawal that is
subject to tax withholding, we will identify the amount that includes not only
the amount you actually receive, but also the amount of the tax withholding,
to determine whether your withdrawal has exceeded the Annual Income Amount.
When you take a partial withdrawal, you may request a "gross" withdrawal
amount (e.g., $2,000) but then have any tax withholding deducted from the
amount you actually receive (although an MVA may also be applied to your
remaining Unadjusted Account Value, it is not considered for purposes of
determining Excess Income). The portion of a withdrawal that exceeded your
Annual Income Amount (if any) would be treated as Excess Income and thus would
reduce your Annual Income Amount in subsequent years. Alternatively, you may
request that a "net" withdrawal amount actually be paid to you (e.g., $2,000),
with the understanding that any tax withholding (e.g., $240) be applied to
your remaining Unadjusted Account Value (although an MVA may also be applied
to your remaining Unadjusted Account Value, it is not considered for purposes
of determining Excess Income). In the latter scenario, we determine whether
any portion of the withdrawal is to be treated as Excess Income by looking to
the sum of the net amount you actually receive (e.g., $2,000) and the amount
of any tax withholding (in this example, a total of $2,240). The amount of
that sum (e.g., the $2,000 you received plus the $240 for the tax withholding)
that exceeds your Annual Income Amount will be treated as Excess Income -
thereby reducing your Annual Income Amount in subsequent years.
42
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Spousal
Highest Daily Lifetime Income v2.1 with HD DB and subsequent to the first
Lifetime Withdrawal will (i) immediately increase the then-existing Annual
Income Amount by an amount equal to a percentage of the Purchase Payment based
on the age of the younger designated life at the time of the first Lifetime
Withdrawal (the percentages are: 2.5% for ages 50 to 54; 3% for ages 55 to
less than 59 1/2; 3.5% for ages 59 1/2 to 64; 4% for ages 65 to 69; 4.5% for
ages 70 to 84; and 5.5% for ages 85 or older), and (ii) increase the Protected
Withdrawal Value by the amount of the Purchase Payment.
After your first Lifetime Withdrawal and before your Unadjusted Account Value
is reduced to zero, you may make additional Purchase Payments, subject to the
limits in the next paragraph. We reserve the right not to accept additional
Purchase Payments if the Unadjusted Account Value becomes zero.
While Spousal Highest Daily Lifetime Income v2.1 with HD DB is in effect, we
may limit, restrict, suspend or reject any additional Purchase Payment at any
time, but would do so on a non-discriminatory basis. Circumstances where we
may limit, restrict, suspend or reject additional Purchase Payments include,
but are not limited to, the following:
.. if we determine that, as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Spousal Highest Daily Lifetime Income v2.1with HD DB. This means
that you may no longer be able to increase the values associated with your
Spousal Highest Daily Lifetime Income v2.1 with HD DB through additional
Purchase Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity in a non-discriminatory manner.
Highest Daily Auto Step-Up
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of this
benefit. As detailed in this paragraph, the Highest Daily Auto Step-Up feature
can result in a larger Annual Income Amount subsequent to your first Lifetime
Withdrawal. The Highest Daily Step-Up starts with the anniversary of the Issue
Date of the Annuity (the "Annuity Anniversary") immediately after your first
Lifetime Withdrawal under the benefit. Specifically, upon the first such
Annuity Anniversary, we identify the Unadjusted Account Value on each
Valuation Day within the immediately preceding Annuity Year after your first
Lifetime Withdrawal. Having identified the highest daily value (after all
daily values have been adjusted for subsequent Purchase Payments and
withdrawals), we then multiply that value by a percentage that varies based on
the age of the younger spousal designated life on the Annuity Anniversary as
of which the step-up would occur. The percentages are 2.5% for ages 50 to 54;
3% for ages 55 to less than 59 1/2; 3.5% for ages 59 1/2 to 64; 4% for ages 65
to 69; 4.5% for ages 70 to 84; and 5.5% for ages 85 or older. If that value
exceeds the existing Annual Income Amount, we replace the existing amount with
the new, higher amount. Otherwise, we leave the existing Annual Income Amount
intact. We will not automatically increase your Annual Income Amount solely as
a result of your attaining a new age that is associated with a new age-based
percentage. The Unadjusted Account Value on the Annuity Anniversary is
considered the last daily step-up value of the Annuity Year. In later years
(i.e., after the first Annuity Anniversary after the first Lifetime
Withdrawal), we determine whether an automatic step-up should occur on each
Annuity Anniversary by performing a similar examination of the Unadjusted
Account Values that occurred on Valuation Days during the year. Taking
Lifetime Withdrawals could produce a greater difference between your Protected
Withdrawal Value and your Unadjusted Account Value, which may make a Highest
Daily Auto Step-up less likely to occur. At the time that we increase your
Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the date that we implement a Highest Daily Auto Step-Up to your Annual
Income Amount, the charge for Spousal Highest Daily Lifetime Income v2.1 with
HD DB has changed for new purchasers, you may be subject to the new charge at
the time of such step-up. Prior to increasing your charge for Spousal Highest
Daily Lifetime Income v2.1 with HD DB upon a step-up, we would notify you, and
give you the opportunity to cancel the automatic step-up feature. If you
receive notice of a proposed step-up and accompanying fee increase, you should
carefully evaluate whether the amount of the step-up justifies the increased
fee to which you will be subject. Any such increased charge will not be
greater than the maximum charge set forth in the table entitled "Your Optional
Benefit Fees and Charges".
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
43
Spousal Highest Daily Lifetime Income v2.1 with HD DB does not affect your
ability to take withdrawals under your Annuity, or limit your ability to take
partial withdrawals that exceed the Annual Income Amount. Under Spousal
Highest Daily Lifetime Income v2.1 with HD DB, if your cumulative Lifetime
Withdrawals in an Annuity Year are less than or equal to the Annual Income
Amount, they will not reduce your Annual Income Amount in subsequent Annuity
Years, but any such withdrawals will reduce the Annual Income Amount on a
dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw
an amount less than the Annual Income Amount in any Annuity Year, you cannot
carry over the unused portion of the Annual Income Amount to subsequent
Annuity Years. If your cumulative Lifetime Withdrawals in an Annuity Year
exceed the Annual Income Amount, your Annual Income Amount in subsequent years
will be reduced (except with regard to Required Minimum Distributions for this
Annuity that comply with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Spousal Highest Daily
Lifetime Income v2.1 with HD DB or any other fees and charges under the
Annuity. Assume the following for all three examples:
.. The Issue Date is November 1
.. Spousal Highest Daily Lifetime Income v2.1 with HD DB is elected on
August 1 of the following calendar year
.. Both designated lives were 70 years old when they elected Spousal Highest
Daily Lifetime Income v2.1 with HD DB
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
Example of dollar-for-dollar reductions
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $5,400 (since the younger designated life is between
the ages of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual
Income Amount is 4.5% of the Protected Withdrawal Value, in this case 4.5% of
$120,000). The Highest Daily Death Benefit Amount is $115,420. Assuming $2,500
is withdrawn from the Annuity on this date, the remaining Annual Income Amount
for that Annuity Year (up to and including October 31) is $2,900. This is the
result of a dollar-for-dollar reduction of the Annual Income Amount ($5,400
less $2,500 = $2,900) and the Highest Daily Death Benefit Amount ($115,420
less $2,500 = $112,920.).
Example of proportional reductions
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $2,900 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $2,100 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there were other
withdrawals in that Annuity Year, each would result in another proportional
reduction to the Annual Income Amount.)
Here is the calculation:
Example of highest daily auto step-up
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
younger designated life's age on that Annuity Anniversary) of the highest
daily value since your first Lifetime Withdrawal (or last Annuity Anniversary
in subsequent years), adjusted for withdrawals and additional Purchase
Payments, is greater than the Annual Income Amount, adjusted for Excess Income
and additional Purchase Payments.
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $5,400. However, the Excess Income on October 29 reduces the
amount to $5,301.72 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 4.5% (since the younger
designated life is between 70 and 84 on the date of the potential step-up) of
44
the highest daily Unadjusted Account Value adjusted for withdrawals and
Purchase Payments, is greater than $5,301.72. Here are the calculations for
determining the daily values. Only the October 28 value is being adjusted for
Excess Income as the October 30, October 31 and November 1 Valuation Days
occur after the Excess Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be every day following the Annuity
Anniversary. The Annuity Anniversary Date of November 1 is considered the
final Valuation Date for the Annuity Year.
** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,355.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $2,900 ($2,900 is the remaining Annual Income
Amount for the Annuity Year), resulting in an Unadjusted Account Value
of $116,100 before the Excess Income.
. This amount ($116,100) is further reduced by 1.82% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.98.
. The adjusted October 29 Highest Daily Value, $113,986.98, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.98 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.98 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.98
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00
. forward to the first Valuation Day of November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 4.5%, generating
an Annual Income Amount of $5,355.00. Since this amount is greater than the
current year's Annual Income Amount of $5,301.72 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,355.00.
Non-Lifetime Withdrawal Feature
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Spousal Highest Daily Lifetime Income v2.1 with HD DB. It is an optional
feature of the benefit that you can only elect at the time of your first
withdrawal. You cannot take a Non-Lifetime Withdrawal in an amount that would
cause your Annuity's Account Value, after taking the withdrawal, to fall below
the minimum Surrender Value (see "Surrenders - Surrender Value" in the
prospectus). This Non-Lifetime Withdrawal will not establish your initial
Annual Income Amount and the Periodic Value above will continue to be
calculated. However, the total amount of the withdrawal will proportionally
reduce all guarantees associated with Spousal Highest Daily Lifetime Income
v2.1 with HD DB. You must tell us at the time you take the partial withdrawal
if your withdrawal is intended to be the Non-Lifetime Withdrawal and not the
first Lifetime Withdrawal under Spousal Highest Daily Lifetime Income v2.1
with HD DB. If you don't elect the Non-Lifetime Withdrawal, the first
withdrawal you make will be the first Lifetime Withdrawal that establishes
your Annual Income Amount, which is based on your Protected Withdrawal Value.
Once you elect the Non-Lifetime Withdrawal or Lifetime Withdrawals, no
additional Non-Lifetime withdrawals may be taken. If you do not take a
Non-Lifetime Withdrawal before beginning Lifetime Withdrawals, you lose the
ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value. It will also proportionally reduce the Highest Daily Death
Benefit Amount. It will reduce each value by the percentage the total
withdrawal amount represents of the then current Account Value immediately
prior to the time of the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
Example - Non-Lifetime Withdrawal (proportional reduction)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit. Assume the following:
.. The Issue Date is December 3
.. Spousal Highest Daily Lifetime Income v2.1 with HD DB is elected on
September 4 of the following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. Each designated life was 70 years old when he/she elected Spousal Highest
Daily Lifetime Income v2.1 with HD DB
.. No previous withdrawals have been taken under Spousal Highest Daily
Lifetime Income v2.1 with HD DB
45
On October 3 of the year the benefit is elected, the Protected Withdrawal
Value is $125,000, the Highest Daily Death Benefit Amount is $115,420, and the
Account Value is $120,000. Assuming $15,000 is withdrawn from the Annuity on
that same October 3 and is designated as a Non-Lifetime Withdrawal, all
guarantees associated with Spousal Highest Daily Lifetime Income v2.1 with HD
DB will be reduced by the ratio the total withdrawal amount represents of the
Account Value just prior to the withdrawal being taken.
Here is the calculation:
Required Minimum Distributions
See the sub-section entitled "Required Minimum Distributions" in the section
above concerning Highest Daily Lifetime Income v2.1 with HD DB for a
discussion of the relationship between the RMD amount and the Annual Income
Amount.
Highest Daily Death Benefit
A Death Benefit is payable under Spousal Highest Daily Lifetime Income v2.1
with HD DB (until we begin making Guarantee Payments under the benefit or
annuity payments have begun) upon the death of the Remaining Designated Life
when we receive Due Proof of Death. The Death Benefit is the greatest of: the
Minimum Death Benefit (described in the prospectus) or the Highest Daily Death
Benefit Amount described below.
Highest Daily Death Benefit Amount:
On the date you elect Spousal Highest Daily Lifetime Income v2.1 with HD DB,
the Highest Daily Death Benefit Amount is equal to your Unadjusted Account
Value. On each subsequent Valuation Day, until the date of death of the
decedent, the Highest Daily Death Benefit Amount will be the greater of:
(1)The Unadjusted Account Value on the current Valuation Day; and
(2)The Highest Daily Death Benefit Amount of the immediately preceding
Valuation Day,
. increased by any Purchase Payments made on the current Valuation Day and,
. reduced by the effect of withdrawals made on the current Valuation Day,
as described below.
Please note that the Highest Daily Death Benefit Amount does not have any
guaranteed growth rate associated with it and therefore can be a different
amount than any of the guaranteed values associated with the living benefit
features of Spousal Highest Daily Lifetime Income v2.1 with HD DB.
A Non-Lifetime Withdrawal will proportionately reduce the Highest Daily Death
Benefit Amount by the ratio of the Non-Lifetime Withdrawal to the Account
Value immediately prior to the Non-Lifetime Withdrawal. A Lifetime Withdrawal
that is not considered Excess Income will reduce the Highest Daily Death
Benefit Amount (dollar-for-dollar) by the amount of the withdrawal. All or a
portion of a Lifetime Withdrawal that is considered Excess Income will
proportionately reduce the Highest Daily Death Benefit Amount by the ratio of
the Excess Income to the Account Value immediately prior to the withdrawal of
the Excess Income.
The Highest Daily Death Benefit will be calculated on the date of death of the
Remaining Designated Life and will be:
. increased by the amount of any additional Adjusted Purchase Payments, and
. reduced by the effect of any withdrawals (as described in the preceding
paragraph),
made during the period between the decedent's date of death and the date we
receive Due Proof of Death.
Please note that Highest Daily Death Benefit Amount is available only until we
make guarantee payments under Spousal Highest Daily Lifetime Income v2.1 with
HD DB or Annuity Payments begin. This means that any withdrawals that reduce
your Unadjusted Account Value to zero will also reduce the Highest Daily Death
Benefit Amount to zero. All other provisions applicable to death benefits
under your Annuity continue to apply. See the "Death Benefits" section of the
prospectus for more information pertaining to death benefits.
Benefits Under Spousal Highest Daily Lifetime Income v2.1 with HD DB
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and Guarantee Payments amounts
are still payable under Spousal Highest Daily Lifetime Income v2.1 with HD
DB, we will make an additional payment, if any, for that Annuity
46
Year equal to the remaining Annual Income Amount for the Annuity Year.
Thus, in that scenario, the remaining Annual Income Amount would be payable
even though your Unadjusted Account Value was reduced to zero. In
subsequent Annuity Years we make payments that equal the Annual Income
Amount as described in this section. We will continue to make payments
until the simultaneous deaths of both spousal designated lives, or the
death of the Remaining Designated Life. After the Unadjusted Account Value
is reduced to zero, you are not permitted to make additional Purchase
Payments to your Annuity. To the extent that cumulative withdrawals in the
Annuity Year that reduced your Unadjusted Account Value to zero are more
than the Annual Income Amount, Spousal Highest Daily Lifetime Income v2.1
with HD DB terminates, and no additional payments will be permitted.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments.
.. Please note that if your Unadjusted Account Value is reduced to zero due to
withdrawals or annuitization, any Death Benefit value, including that of
the HD DB feature, will terminate. This means that the HD DB is terminated
and no Death Benefit is payable if your Unadjusted Account Value is reduced
to zero as the result of either a withdrawal in excess of your Annual
Income Amount or less than or equal to, your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable state
required premium tax, to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. We will
make payments until the death of the Remaining Designated Life We
must receive your request in a form acceptable to us at our office.
If applying your Unadjusted Account Value, less any applicable tax
charges, to our current life only (or joint life, depending on the
number of designated lives remaining) annuity payment rates results
in a higher annual payment, we will give you the higher annual
payment.
.. In the absence of an election when mandatory annuity payments are to begin,
we currently make annual annuity payments as a joint and survivor or single
(as applicable) life fixed annuity with eight payments certain, by applying
the greater of the annuity rates then currently available or the annuity
rates guaranteed in your Annuity. We reserve the right at any time to
increase or decrease the certain period in order to comply with the Code
(e.g., to shorten the period certain to match life expectancy under
applicable Internal Revenue Service tables). The amount that will be
applied to provide such annuity payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual
Income Amount as if you made your first Lifetime Withdrawal on the
date the annuity payments are to begin). Such present value will be
calculated using the greater of the joint and survivor or single (as
applicable) life fixed annuity rates then currently available or the
joint and survivor or single (as applicable) life fixed annuity rates
guaranteed in your Annuity; and
(2)the Unadjusted Account Value.
Other Important Considerations
.. Withdrawals under the Spousal Highest Daily Lifetime Income v2.1 with HD DB
benefit are subject to all of the terms and conditions of the Annuity. If
you have an active Systematic Withdrawal program running at the time you
elect this benefit, the first systematic withdrawal that processes after
your election of the benefit will be deemed a Lifetime Withdrawal.
Withdrawals made while Spousal Highest Daily Lifetime Income v2.1 with HD
DB is in effect will be treated, for tax purposes, in the same way as any
other withdrawals under the Annuity. Any withdrawals made under the benefit
will be taken pro rata from the Sub-accounts (including the AST Investment
Grade Bond Sub-account) and the DCA MVA Options. If you have an active
Systematic Withdrawal program running at the time you elect this benefit,
the program must withdraw funds pro rata.
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolios appears in the prospectus
section entitled "Investment Options." In addition, you can find a copy of
the AST Investment Grade Bond Portfolio prospectus by going to
www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the predetermined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
47
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to Permitted Sub-accounts, or to
the requirements as to how you may allocate your Unadjusted Account Value
with this benefit, will apply to new elections of the benefit and may apply
to current participants in the benefit. To the extent that changes apply to
current participants in the benefit, they will apply only upon
re-allocation of Unadjusted Account Value, or upon addition of additional
Purchase Payments. That is, we will not require such current participants
to re-allocate Unadjusted Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if any withdrawals taken under Spousal
Highest Daily Lifetime Income v2.1 with HD DB reduce your Unadjusted
Account Value to zero. This means that any Death Benefit, including the HD
DB, will terminate and no Death Benefit is payable if your Unadjusted
Account Value is reduced to zero as the result of either a withdrawal in
excess of your Annual Income Amount or less than or equal to, your Annual
Income Amount. (See "Death Benefits" in the prospectus for more
information.)
.. Spousal Continuation: If a Death Benefit is not payable on the death of a
spousal designated life (e.g., if the first of the spousal designated lives
to die is the Beneficiary but not an Owner), Spousal Highest Daily Lifetime
Income v2.1 with HD DB will remain in force unless we are instructed
otherwise.
.. The current charge for Spousal Highest Daily Lifetime Income v2.1 with HD
DB is 1.60% annually of the greater of Unadjusted Account Value and
Protected Withdrawal Value. The maximum charge for Spousal Highest Daily
Lifetime Income v2.1 with HD DB is 2.00% annually of the greater of the
Unadjusted Account Value and Protected Withdrawal Value. As discussed in
"Highest Daily Auto Step-Up" above, we may increase the fee upon a step-up
under this benefit. We deduct this charge on quarterly anniversaries of the
benefit effective date, based on the values on the last Valuation Day prior
to the quarterly anniversary. Thus, we deduct, on a quarterly basis, 0.40%
of the greater of the prior Valuation Day's Unadjusted Account Value, or
the prior Valuation Day's Protected Withdrawal Value. We deduct the fee pro
rata from each of your Sub-accounts, including the AST Investment Grade
Bond Sub-account. You will begin paying this charge as of the effective
date of the benefit even if you do not begin taking withdrawals for many
years, or ever. We will not refund the charges you have paid if you choose
never to take any withdrawals and/or if you never receive any lifetime
income payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the benefit is less than the
Account Value Floor, then no charge will be assessed for that benefit quarter.
Charges deducted upon termination of the benefit may cause the Unadjusted
Account Value to fall below the Account Value Floor. If a charge for Spousal
Highest Daily Lifetime Income v2.1 with HD DB would be deducted on the same
day we process a withdrawal request, the charge will be deducted first, then
the withdrawal will be processed. The withdrawal could cause the Unadjusted
Account Value to fall below the Account Value Floor. While the deduction of
the charge (other than the final charge) may not reduce the Unadjusted Account
Value to zero, withdrawals may reduce the Unadjusted Account Value to zero. If
this happens and the Annual Income Amount is greater than zero, we will make
payments under the benefit.
Election of and Designations under the Benefit
Spousal Highest Daily Lifetime Income v2.1 with HD DB can only be elected
based on two designated lives. Designated lives must be natural persons who
are each other's spouses at the time of election of the benefit. Currently,
Spousal Highest Daily Lifetime Income v2.1 with HD DB only may be elected if
the Owner, Annuitant, and Beneficiary designations are as follows:
.. One Annuity Owner, where the Annuitant and the Owner are the same person
and the sole Beneficiary is the Owner's spouse. Each Owner/Annuitant and
the Beneficiary must be between 50 - 79 years old at the time of election;
or
.. Co-Annuity Owners, where the Owners are each other's spouses. The
Beneficiary designation must be the surviving spouse, or the spouses named
equally. One of the Owners must be the Annuitant. Each Owner must be
between 50 and 79 years old at the time of election; or
.. One Annuity Owner, where the Owner is a custodial account established to
hold retirement assets for the benefit of the Annuitant pursuant to the
provisions of Section 408(a) of the Internal Revenue Code (or any successor
Code section thereto) ("Custodial Account"), the Beneficiary is the
Custodial Account, and the spouse of the Annuitant is the Contingent
Annuitant. Each of the Annuitant and the Contingent Annuitant must be
between 50 and 79 years old at the time of election.
Remaining Designated Life: A Remaining Designated Life must be a natural
person and must have been listed as one of the spousal designated lives when
the benefit was elected. A spousal designated life will become the Remaining
Designated Life on the earlier of the death of the first of the spousal
designated lives to die, provided that they are each other's spouses at that
time, or divorce from the other spousal designated life while the benefit is
in effect. That said, if a spousal designated life is removed as Owner,
Beneficiary, or Annuitant due to divorce, the other spousal designated life
becomes the Remaining Designated Life when
48
we receive notice of the divorce, and any other documentation we require, in
Good Order. Any new Beneficiary(ies) named by the Remaining Designated Life
will not be a spousal designated life.
We do not permit a change of Owner under this benefit, except as follows:
(a) if one Owner dies and the surviving spousal Owner assumes the Annuity, or
(b) if the Annuity initially is co-owned, but thereafter the Owner who is not
the Annuitant is removed as Owner. We permit changes of Beneficiary
designations under this benefit, however if the Beneficiary is changed, the
benefit may not be eligible to be continued upon the death of the first
designated life. If the designated lives divorce, Spousal Highest Daily
Lifetime Income v2.1 with HD DB may not be divided as part of the divorce
settlement or judgment. Nor may the divorcing spouse who retains ownership of
the Annuity appoint a new designated life upon re-marriage. A change in
designated lives will result in cancellation of Spousal Highest Daily Lifetime
Income v2.1 with HD DB.
Spousal Highest Daily Lifetime Income v2.1 with HD DB can be elected at the
time that you purchase your Annuity or after the Issue Date, subject to its
availability, and our eligibility rules and restrictions. If you elect Spousal
Highest Daily Lifetime Income v2.1 with HD DB and terminate it, you can
re-elect it, subject to our current rules and availability. See "Termination
of Existing Benefits and Election of New Benefits" in the prospectus for
information pertaining to elections, termination and re-election of benefits.
Please note that if you terminate a living benefit and elect Spousal Highest
Daily Lifetime Income v2.1 with HD DB, you lose the guarantees that you had
accumulated under your existing benefit, and your guarantees under Spousal
Highest Daily Lifetime Income v2.1 with HD DB will be based on your Unadjusted
Account Value on the effective date of Spousal Highest Daily Lifetime Income
v2.1 with HD DB. You and your Financial Professional should carefully consider
whether terminating your existing benefit and electing Spousal Highest Daily
Lifetime Income v2.1 with HD DB is appropriate for you. We reserve the right
to waive, change and/or further limit the election frequency in the future for
new elections of this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Spousal Highest Daily Lifetime Income v2.1 so long as you
participate in a Systematic Withdrawal program in which withdrawals are not
taken pro rata.
Termination of the Benefit
You may terminate the benefit at any time by notifying us. If you terminate
the benefit, any guarantee provided by the benefit will terminate as of the
date the termination is effective, and certain restrictions on re-election may
apply.
The benefit automatically terminates upon the first to occur of the following:
(i) upon our receipt of Due Proof of Death of the first designated life who is
an Owner (or who is the Annuitant if entity owned), if the Remaining
Designated Life elects not to continue the Annuity;
(ii)upon our receipt of Due Proof of Death of an Owner (or Annuitant if entity
owned) if the surviving spouse is not eligible to continue the benefit
because such spouse is not a spousal designated life and there is any
Unadjusted Account Value on the date of death;
(iii)upon our receipt of due proof of death of the remaining designated life if
a death benefit is payable under this benefit;
(iv)your termination of the benefit;
(v) your surrender of the Annuity;
(vi)when annuity payments begin (although if you have elected to take annuity
payments in the form of the Annual Income Amount, we will continue to pay
the Annual Income Amount);
(vii)both the Unadjusted Account Value and Annual Income Amount equal zero due
to a withdrawal of Excess Income;
(viii)you allocate or transfer any portion of your Account Value to any
Sub-account(s) to which you are not permitted to electively allocate or
transfer Account Value (may vary by state);* or
(ix)you cease to meet our requirements as described in "Election of and
Designations under the Benefit".
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Spousal Highest Daily Lifetime Income v2.1 with HD DB
other than upon the death of the Remaining Designated Life or Annuitization,
we impose any accrued fee for the benefit (i.e., the fee for the pro-rated
portion of the year since the fee was last assessed), and thereafter we cease
deducting the charge for the benefit. This final charge will be deducted even
if it results in the Unadjusted Account Value falling below the Account Value
Floor. However, if the amount in the Sub-accounts is not enough to pay the
charge, we will reduce the fee to no more than the amount in the Sub-accounts.
With regard to
49
your investment allocations, upon termination we will: (i) leave intact
amounts that are held in the Permitted Sub-accounts, and (ii) unless you are
participating in an asset allocation program (i.e., Static Re-balancing
Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
How Spousal Highest Daily Lifetime Income v2.1 with HD DB Transfers Unadjusted
Account Value Between Your Permitted Sub-accounts and the AST Investment Grade
Bond Sub-account.
See "How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account" in the discussion of Highest Daily Lifetime Income v2.1 above for
information regarding this component of the benefit.
Additional Tax Considerations
Please see the Additional Tax Considerations section under Highest Daily
Lifetime Income v2.1 above.
50
III. OTHER UPDATES
A. Revised Disclosure Regarding Advisory Fees. We do not allow third party
investment advisors to liquidate advisory fees from Annuities with certain
optional benefits. To clarify this and other aspects of third party investment
advisor arrangements, we modify the subsection, "Authorization of a Third
Party Investment Advisor to Manage My Account" as follows:
Authorization of a Third Party Investment Advisor to Manage My Account
This Annuity is intended to be used where you have engaged your own investment
advisor to provide advice regarding the allocation of your Account Value. That
investment advisor may be a firm or person appointed by us, or whose
affiliated broker-dealer is appointed by us, as authorized sellers of the
Annuity. Even if this is the case, however, please note that the investment
advisor you engage to provide advice and/or make transfers for you is not
acting on our behalf, but rather is acting on your behalf. To be eligible to
take any action with respect to your Annuity, an investment advisor must meet
our standards. These standards include, but are not limited to, restricting
the amount of the advisor's fee that the advisor can deduct from your account
to a specified percentage of your Account Value (this fee cap may change
periodically at our discretion). In general, we reserve the right to change
these standards at any time. Although we impose these standards, you bear the
responsibility for choosing a suitable investment advisor.
We do not offer advice about how to allocate your Account Value. As such, we
are not responsible for any recommendations your investment advisor makes, any
investment models or asset allocation programs they choose to follow, or any
specific transfers they make on your behalf. Moreover, if you participate in
an optional living benefit that transfers Account Value under a pre-determined
mathematical formula, you and your investment advisor should realize that such
transfers will occur as dictated solely by the formula, and may or may not be
in accord with the investment program being pursued by your investment
advisor. As one possible example, prompted by a decline in the value of your
chosen Sub-accounts, the formula might direct a transfer to an AST bond
portfolio - even though your advisor's program might call for an increased
investment in equity Sub-accounts in that scenario.
We are not a party to the agreement you have with your investment advisor, and
do not verify that amounts withdrawn from your Annuity, including amounts
withdrawn to pay for the investment advisor's fee, are within the terms of
your agreement with your investment advisor. You will, however, receive
confirmations of transactions that affect your Annuity that among other things
reflect advisory fees deducted from your Account Value. It is your
responsibility to arrange for the payment of the advisory fee charged by your
investment advisor. Similarly, it is your responsibility to understand the
advisory services provided by your investment advisor and the advisory fees
charged for those services.
Any fee that is charged by your investment advisor is in addition to the fees
and expenses that apply under your Annuity. Please be aware that if you
authorize your investment advisor to withdraw amounts from your Annuity to pay
for the investment advisor's fee, such fee deduction will be treated as a
withdrawal. A withdrawal can have many consequences, particularly if you are
participating in certain optional living benefits and/or optional death
benefits. For example, as with any other withdrawal from your Annuity, you may
incur adverse tax consequences upon the deduction of your advisor's fee from
your Annuity. In addition, a withdrawal generally may also reduce the level of
various living and death benefit guarantees provided.
Please note that the investment restrictions for certain optional living and
death benefits, and/or the investment in certain assets allocation
sub-accounts, may limit or preclude the investment advisor's ability to deduct
advisory fees from your Annuity. For example you elect any Highest Daily
Lifetime Income v2.1 benefit, we will not allow your investment advisor to
deduct fees from your Annuity (although you may pay your advisor in some other
manner).
Special Rules For Distributions To Pay Advisory Fees
We treat partial withdrawals to pay advisory fees as taxable distributions
unless your Annuity is being used in conjunction with a "qualified" retirement
plan (plans meeting the requirements of Sections 401, 403 or 408 of the Code).
However, if your Annuity has an optional benefit that is ineligible for
advisory fee deduction, and if you take partial withdrawals from such Annuity
to pay advisory fees, such partial withdrawals will be considered taxable
distributions for all contracts, including the "qualified" retirement plans
enumerated above.
B. Correction to Highest Daily Lifetime 6 Plus. If you own a Highest Daily
Lifetime 6 Plus benefit, we make the following correction in the description
of the 10/th/ Anniversary guarantee that appears in the second to last
paragraph of the "Key Feature - Protected Withdrawal Value" subsections for
each of the Highest Daily Lifetime 6 Plus suit of benefits.
Key Feature - Protected Withdrawal Value
...
This means that: if you do not take a withdrawal on or before the 10/th/
Anniversary of the benefit, your Protected Withdrawal Value on the 10/th/
Anniversary will be at least double (200%) your initial Protected Withdrawal
Value established on the date of benefit election; or if you do not take a
withdrawal on or before the 20/th/ anniversary of the benefit, your Protected
Withdrawal Value on the 20/th/ anniversary will be at least quadruple
(400%) of your initial Protected Withdrawal Value established on the date of
benefit election. As such, you should carefully consider when it is most
appropriate for you to begin taking withdrawals under the benefit.
THIS SUPPLEMENT SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
51
PRUCO LIFE INSURANCE COMPANY
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
PRUDENTIAL PREMIER(R) RETIREMENT VARIABLE ANNUITY
Supplement, dated February 14, 2013,
to Prospectus dated August 20, 2012
This Supplement should be read and retained with the Prospectus for your
Annuity. This supplement is intended to update certain information in the
Prospectus for the variable annuity you own and is not intended to be a
prospectus or offer for any other variable annuity listed here that you do not
own. If you would like another copy of the current Prospectus, please call us
at 1-888-PRU-2888.
We are issuing this supplement to describe new optional "living benefits" that
are available under your annuity, and to reflect changes to the Advanced
Series Trust ("AST").
TABLE OF CONTENTS
I. CHANGES TO THE ADVANCED SERIES TRUST
A. APPROVAL AND EFFECTIVENESS OF A NEW 12B-1 PLAN.
i. Restated Portfolio Expenses. At a recent special meeting, shareholders of
Portfolios of the Advanced Series Trust (the "Trust") approved a Shareholder
Services and Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. The Plan is applicable to all of
the Portfolios of the Trust except AST Balanced Asset Allocation Portfolio,
AST Capital Growth Asset Allocation Portfolio, AST Preservation Asset
Allocation Portfolio, AST Horizon Moderate Asset Allocation Portfolio, and AST
Quantitative Modeling Portfolio.
Pursuant to the Plan, each Portfolio of the Trust covered by the Plan will
compensate Prudential Annuities Distributors ("PAD"), Inc. for shareholder
servicing and distribution expenses at the annual rate of 0.10% of the average
daily net assets of the shares of each Portfolio. The existing administrative
services fee, which was paid by each Portfolio at the same annual rate of
0.10% of the average daily net assets of the shares of each Portfolio, will be
discontinued.
The Trust's investment managers have contractually reduced their management
fee rates for all Portfolios covered by the Plan. Additionally, PAD has
contractually agreed to reduce its distribution and service fees for certain
bond Portfolios so that the effective distribution and service fee rate paid
by those Portfolios is reduced based on the average daily net assets of the
relevant Portfolio. The Plan, including the reduced management fee rates, is
anticipated to become operational on or about February 25, 2013.
Accordingly, we have restated the "Total Annual Portfolio Operating Expenses"
table and the "Underlying Mutual Fund Portfolio Annual Expenses" table that
appear in the "Summary of Contract Fees and Charges" chapter of your
prospectus to reflect the new 12b-1 plan, as follows:
The following table provides the range (minimum and maximum) of the total
annual expenses for the underlying mutual funds ("Portfolios") before any
contractual waivers and expense reimbursements. Each figure is stated as a
percentage of the underlying Portfolio's average daily net assets.
The following are the total annual expenses for each underlying mutual fund
("Portfolio"). The "Total Annual Portfolio Operating Expenses" reflect the
combination of the underlying Portfolio's investment management fee, other
expenses, any 12b-1 fees, and certain other expenses. The fees and expenses
have been restated to reflect fee and expense changes implemented following
shareholder approval of a Rule 12b-1 plan for the Portfolios, as explained in
the current prospectus for the Portfolios. Each figure is stated as a
percentage of the underlying Portfolio's average daily net assets. For certain
of the Portfolios, a portion of the management fee has been contractually
waived and/or other expenses have been contractually partially reimbursed,
which is shown in the table. The following expenses are deducted by the
underlying Portfolio before it provides Pruco Life with the daily net asset
value. The underlying Portfolio information was provided by the underlying
mutual funds and has not been independently verified by us. See the
prospectuses or statements of additional information of the underlying
Portfolios for further details. The current prospectus and statement of
additional information for the underlying Portfolios can be obtained by
calling 1-888-PRU-2888.
2
3
4
+ Expense information in the Underlying Mutual Fund Portfolio Annual Expenses
Table has been restated to reflect current fees.
1 The AST AQR Emerging Markets Equity Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $300 million for the Portfolio
for the fiscal period ending December 31, 2013.
2 The AST Clearbridge Dividend Growth Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $400 million for the Portfolio
for the fiscal period ending December 31, 2013.
3 Pyramis is a registered service mark of FMR LLC. Used under license.
4 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses so that the investment management
fees plus other expenses (exclusive in all cases of taxes, short sale
interest and dividend expenses, brokerage commissions, underlying portfolio
fees and expenses, and extraordinary expenses) for the Portfolio do not
exceed 1.10% of the average daily net assets of the Portfolio through
June 30, 2015. This expense limitation may not be terminated or modified
prior to June 30, 2015, but may be discontinued or modified thereafter. The
decision on whether to renew, terminate or modify this waiver after
June 30, 2015 will be subject to review by the Manager and the Board of
Trustees of the Trust.
5 The Portfolio's distributor, Prudential Annuities Distributors, Inc.
("PAD"), has contractually agreed to reduce its distribution and service
fees so that the effective distribution and service fee rate paid by the
Portfolio is reduced based on the average daily net assets of the Portfolio
as follows: 0.08% over $300 million in daily net assets up to and including
$500 million in average daily net assets; 0.07% over $500 million in daily
net assets up to an including $750 million in average daily net assets; and
0.06% over $750 million in daily net assets. The contractual waiver does
not include an expiration or termination date as it is contractually
guaranteed by PAD on a permanent basis, and the Investment Managers and PAD
cannot terminate or otherwise modify the waiver.
6 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses for the Portfolio so that the
Portfolio's investment management fees plus other expenses (exclusive in
all cases of taxes, interest, brokerage commissions, acquired portfolio
fees and expenses and extraordinary expenses) do not exceed 0.99% of the
Portfolio's average daily net assets through June 30, 2015. This
arrangement may not be terminated or modified prior to June 30, 2015, and
may be discontinued or modified thereafter. The decision on whether to
renew, modify or discontinue the arrangement after June 30, 2015 will be
subject to review by the Manager and the Portfolio's Board of Trustees.
7 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fee, so that the effective management fee rate paid by the Portfolio is as
follows: 0.70% to $500 million of average daily net assets; 0.675% over
$500 million in average daily net assets up to and including $1 billion in
average daily net assets; and 0.65% over $1 billion in average daily net
assets. This arrangement may not be terminated or modified prior to
June 30, 2015, and may be discontinued or modified thereafter. The decision
on whether to renew, modify or discontinue the arrangement after June 30,
2015 will be subject to review by the Investment Managers and the
Portfolio's Board of Trustees.
8 If approved by shareholders, the Portfolio will be restructured on or about
April 29, 2013. As restructured, the Portfolio will no longer be a
fund-of-funds and will be renamed the AST RCM World Trends Portfolio. Based
on assets as of December 31, 2012, as restructured, the Portfolio would
have a management fee of 0.92%, other expenses of 0.14%, acquired portfolio
fees and expenses of 0.00%, total annual operating expenses before
contractual fee waiver of 1.06%, a contractual fee waiver of 0.07% through
at least June 30, 2014, and net annual operating expenses after fee waiver
of 0.99%.
9 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees so that the Portfolio's investment management fee would equal 0.70% of
the Portfolio's first $500 million of average daily net assets, 0.675% of
the Portfolio's average daily net assets between $500 million and $1
billion, and 0.65% of the Portfolio's average daily net assets in excess of
$1 billion through June 30, 2015. This contractual investment management
fee waiver may not be terminated or modified prior to June 30, 2015, but
may be discontinued or modified thereafter. The decision on whether to
renew, modify, or discontinue this expense limitation after June 30, 2015
will be subject to review by the Manager and the Board of Trustees of the
Portfolio.
10 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fees and/or reimburse certain expenses, so that the investment management
fees plus other expenses (exclusive in all cases of taxes, short sale
interest and dividend expenses, brokerage commissions, acquired portfolio
fees and expenses, and extraordinary expenses) for the Portfolio do not
exceed 1.08% of its average daily net assets through June 30, 2015. This
expense limitation may not be terminated or modified prior to June 30,
2015, and may be discontinued or modified thereafter. The decision on
whether to renew, modify or discontinue the expense limitation after
June 30, 2015 will be subject to review by the Investment Managers and the
Portfolio's Board of Trustees.
11 The AST QMA Emerging Markets Equity Portfolio will commence operations on
February 25, 2013. Estimated "Other Expenses" based in part on assumed
average daily net assets of approximately $300 million for the Portfolio
for the fiscal period ending December 31, 2013.
12 Prudential Investments LLC ("PI") and AST Investment Services, Inc. ("AST")
have contractually agreed to waive a portion of their investment management
fee so that the Portfolio's investment management fee would equal 0.80% of
the Portfolio's average daily net assets through June 30, 2015. This
contractual investment management fee waiver may not be terminated or
modified prior to June 30, 2015, but may be discontinued or modified
thereafter. The decision on whether to renew, modify, or discontinue this
expense limitation after June 30, 2015 will be subject to review by the
Manager and the Board of Trustees of the Trust.
5
ii. Revised Expense Examples. The restated Portfolio expenses resulted in a
new maximum Portfolio expense, as described above. Accordingly, we have
updated the Expense Examples that appear in your prospectus as follows:
EXPENSE EXAMPLES
These examples are intended to help you compare the cost of investing in one
Pruco Life Annuity with the cost of investing in other Pruco Life Annuities
and/or other variable annuities. Below are examples for the Annuity showing
what you would pay cumulatively in expenses at the end of the stated time
periods had you invested $10,000 in the Annuity and your investment has a 5%
return each year. The examples reflect the following fees and charges for each
Annuity as described in "Summary of Contract Fees and Charges."
. Insurance Charge
. Premium Based Charge
. Contingent Deferred Sales Charge (when and if applicable)
. Annual Maintenance Fee
. Optional benefit fees, as described below
The examples also assume the following for the period shown:
. You allocate all of your Account Value to the Sub-account with the
maximum gross total operating expenses and those expenses remain the
same each year *
. For each charge, we deduct the maximum charge rather than the current
charge
. You make no withdrawals of Account Value
. You make no transfers, or other transactions for which we charge a fee
. No tax charge applies
. You elect the Spousal Highest Daily Lifetime Income v2.1, which is the
maximum optional benefit charge. There is no other combination of
optional benefits that would result in higher maximum charges than those
shown in the examples.
Amounts shown in the examples are rounded to the nearest dollar.
* Note: Not all Portfolios offered as Sub-accounts may be available depending
on optional benefit selection, the applicable jurisdiction and selling firm.
THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING PORTFOLIOS -
ACTUAL EXPENSES WILL BE LESS THAN THOSE SHOWN DEPENDING UPON WHICH OPTIONAL
BENEFIT YOU ELECT OTHER THAN INDICATED IN THE EXAMPLES OR IF YOU ALLOCATE
ACCOUNT VALUE TO ANY OTHER AVAILABLE SUB-ACCOUNTS.
Expense Examples are provided as follows:
If you surrender your annuity at the end of the applicable time period:
If you do not surrender your Annuity, or if you annuitize your Annuity:
B. OTHER PORTFOLIO CHANGES AND ADDITIONS
i. All references in your annuity prospectus to the "JPMorgan International
Equity Portfolio" are replaced with "J.P. Morgan International Equity
Portfolio;" and all references in your annuity prospectus to "Barclays Capital
U.S. Aggregate Bond Index" are replaced with "Barclays U.S. Aggregate Bond
Index."
ii. To the list of available variable investment options that appear on the
backside of the first page of your prospectus, we add the following new
available investment options and modify footnote 3:
AST AQR Emerging Markets Equity Portfolio /2/
AST Clearbridge Dividend Growth Portfolio /3/
AST QMA Emerging Markets Equity Portfolio /2/
(2)Not available if you purchase any optional benefit.
(3)Not available with HDI v2.1 suite of benefits.
6
iii. In the table of Underlying Mutual Fund Portfolio Annual Expenses found in
the section titled, "Summary of Contract Fees and Charges," we add the fees
for the AST AQR Emerging Markets Equity Portfolio, the AST Clearbridge
Dividend Growth Portfolio, and the AST QMA Emerging Markets Equity Portfolio
as appears in the table above.
iv. In the Investment Objectives/Policies table found in the section titled,
"Investment Options," we add summary descriptions for the AST AQR Emerging
Markets Equity Portfolio, the AST Clearbridge Dividend Growth Portfolio, and
the AST QMA Emerging Markets Equity Portfolio as follows:
v. The Custom Portfolios Program is not available with the Highest Daily
Lifetime Income v2.1 suite of benefits. Accordingly, we add the Highest Daily
Lifetime Income v2.1 suite of benefits to the "Group I: Allowable Benefit
Allocations" list of available options only, under "Limitations with Optional
Benefits" as follows:
LIMITATIONS WITH OPTIONAL BENEFITS
As a condition to your participating in any Highest Daily Lifetime Income v2.1
benefit, we limit the Investment Options to which you may allocate your
Account Value, as set forth in the Allowable Benefit Allocations table below.
Allowable Benefit Allocations
AST Academic Strategies Asset AST J.P. Morgan Global Thematic
Allocation
AST Advanced Strategies AST J.P. Morgan Strategic
Opportunities
AST Balanced Asset Allocation AST Moderate Asset Allocation
AST BlackRock Global Strategies AST New Discovery Asset Allocation
AST Capital Growth Asset Allocation AST Preservation Asset Allocation
AST FI Pyramis(R) Asset Allocation AST Schroders Global Tactical
AST First Trust Balanced Target AST Schroders Multi-Asset World
Strategies
AST First Trust Capital Appreciation AST T. Rowe Price Asset Allocation
Target
AST Franklin Templeton Founding AST Wellington Management Hedged
Funds Allocation Equity
AST Horizon Moderate Asset Allocation
7
II. NEW OPTIONAL BENEFITS
This supplement describes new lifetime withdrawal benefits called Highest
Daily Lifetime(R) Income v2.1 Benefit and Spousal Highest Daily Lifetime(R)
Income v2.1 Benefit (the "Highest Daily Lifetime Income v2.1 suite of
benefits" or "HDI v2.1"). Beginning on or about February 25, 2013, the Highest
Daily Lifetime Income v2.1 suite of benefits is available in states where we
have received regulatory approval. Once the Highest Daily Lifetime Income v2.1
suite of benefits has been approved in your state, we will close the Highest
Daily Lifetime Income 2.0 suite of benefits and they will no longer be
available for purchase in your state.
The Highest Daily Lifetime Income v2.1 suite of benefits is available for
purchase (subject to our rules and your eligibility, as described below):
.. if you currently own an annuity without a living benefit and wish to
purchase one of the Highest Daily Lifetime Income v2.1 suite of benefits; or
.. if you currently own an annuity with a living benefit, and you wish to
terminate your existing benefit and elect one of the Highest Daily Lifetime
Income v2.1 benefits.
If you currently own an annuity with a living benefit, it is important to note
that the benefit you elect may not provide the same guarantees and/or may be
more expensive than the benefit you are terminating. Once you terminate an
existing benefit, you lose the guarantees that you have accumulated under your
existing benefit. You should carefully consider whether terminating your
existing benefit and electing one of the benefits described in this Supplement
is appropriate for you. Please speak to your Financial Professional for
further details. The guarantees provided by the variable annuity contracts and
the optional benefits are the obligations of and subject to the claims paying
ability of Pruco Life.
The new guarantees under the new benefit you elect will begin based on your
Unadjusted Account Value as of the date the new benefit becomes effective
under your annuity. Also, you may be required to reallocate your Account Value
to certain permitted investment options.
Your existing benefit is described in your current prospectus. If you need
another copy of your prospectus, please contact us at 1-888-PRU-2888 or you
can visit our website at http://www.prudentialannuities.com.
Accordingly, we revise your annuity prospectus as follows.
A. Benefit Fees. We add the charges for the new Highest Daily Lifetime Income
v2.1 suite of benefits to the table in the "Your Optional Benefit Fees and
Charges" section and modify the footnotes thereto, as follows:
/9/ The charge for each of the Highest Daily Lifetime Income v2.1 benefits
listed above is assessed against the greater of Unadjusted Account Value
and the Protected Withdrawal Value (PWV). PWV is described in the Living
Benefits section of the prospectus.
/10/ HOW THE OPTIONAL BENEFIT FEES AND CHARGES ARE DETERMINED
For Highest Daily Lifetime Income suite of benefits listed above: The
charge is taken out of the Sub-accounts as described below. Highest Daily
Lifetime Income v2.1: 1.00% current optional benefit charge is in addition
to the current 0.85% Insurance charge of amounts invested in the
Sub-accounts.
Spousal Highest Daily Lifetime Income v2.1: 1.10% current optional benefit
charge is in addition to the current 0.85% Insurance charge of amounts
invested in the Sub-accounts.
/11/ We reserve the right to increase the charge to the maximum charge
indicated, upon any step-up under the benefit. Also, if you decide to
elect or re-add a benefit after your contract has been issued, the charge
for the benefit under your contract will equal the current charge for then
new contract owners up to the maximum indicated.
8
B. Highest Daily Lifetime Income v2.1 Suite of Benefits. To the "Living
Benefits" chapter of your prospectus, we add a subsection corresponding to
each Highest Daily Lifetime Income v2.1 benefit, as follows:
HIGHEST DAILY LIFETIME(R) INCOME v2.1 BENEFIT
Highest Daily Lifetime(R) Income v2.1 is a lifetime guaranteed minimum
withdrawal benefit, under which, subject to the terms of the benefit, we
guarantee your ability to take a certain annual withdrawal amount for life. We
reserve the right, in our sole discretion, to cease offering this benefit, for
new elections at any time.
We offer a benefit that guarantees until the death of the single designated
life (the Annuitant) the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial value (the "Protected
Withdrawal Value") regardless of the impact of Sub-account performance on the
Unadjusted Account Value, subject to our rules regarding the timing and amount
of withdrawals. You are guaranteed to be able to withdraw the Annual Income
Amount for the rest of your life provided that you do not take withdrawals of
Excess Income that result in your Unadjusted Account Value being reduced to
zero. We also permit you to designate the first withdrawal from your Annuity
as a one-time "Non-Lifetime Withdrawal". All other partial withdrawals from
your Annuity are considered a "Lifetime Withdrawal" under the benefit.
Withdrawals are taken first from your own Account Value. We are only required
to begin making lifetime income payments to you under our guarantee when and
if your Unadjusted Account Value is reduced to zero (for any reason other than
due to partial withdrawals of Excess Income). Highest Daily Lifetime Income
v2.1 may be appropriate if you intend to make periodic withdrawals from your
Annuity, and wish to ensure that Sub-account performance will not affect your
ability to receive annual payments. You are not required to take withdrawals
as part of the benefit - the guarantees are not lost if you withdraw less than
the maximum allowable amount each year under the rules of the benefit. An
integral component of Highest Daily Lifetime Income v2.1 is the predetermined
mathematical formula we employ that may periodically transfer your Unadjusted
Account Value to and from the AST Investment Grade Bond Sub-account. See the
section below entitled "How Highest Daily Lifetime Income v2.1 Transfers
Unadjusted Account Value Between Your Permitted Sub-accounts and the AST
Investment Grade Bond Sub-account."
The income benefit under Highest Daily Lifetime Income v2.1 currently is based
on a single "designated life" who is at least 50 years old on the date that
the benefit is acquired. Highest Daily Lifetime Income v2.1 is not available
if you elect any other optional living benefit. As long as your Highest Daily
Lifetime Income v2.1 is in effect, you must allocate your Unadjusted Account
Value in accordance with the permitted Sub-accounts and other Investment
Option(s) available with this benefit. For a more detailed description of the
permitted Investment Options, see the "Investment Options" section of the
prospectus.
Although you are guaranteed the ability to withdraw your Annual Income Amount
for life even if your Unadjusted Account Value falls to zero, if that
particular withdrawal of Excess Income (described below) brings your
Unadjusted Account Value to zero, your Annual Income Amount also would fall to
zero, and the benefit and the Annuity then would terminate. In that scenario,
no further amount would be payable under Highest Daily Lifetime Income v2.1.
As to the impact of such a scenario on any other optional benefit you may
have, please see "Spousal Highest Daily Lifetime Income v2.1 Benefit" in this
supplement.
You may also participate in the 6 or 12 Month DCA Program if you elect Highest
Daily Lifetime Income v2.1, subject to the 6 or 12 Month DCA Program's rules.
See the section of the prospectus entitled "6 or 12 Month Dollar Cost
Averaging Program" for details.
Key Feature - Protected Withdrawal Value
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter, until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraphs.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
The Periodic Value on or before the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment made on the Current
Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
9
The Periodic Value after the Roll-Up End Date
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments reduced for subsequent Lifetime Withdrawals (see the
examples that begin immediately prior to the sub-heading below entitled
"Example of dollar-for-dollar reductions").
Please note that if you elect Highest Daily Lifetime Income v2.1, your Account
Value is not guaranteed, can fluctuate and may lose value.
Key Feature - Annual Income Amount under Highest Daily Lifetime Income v2.1
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the Annuitant on the date of the first Lifetime Withdrawal after
election of the benefit. The percentages are: 3% for ages 50 to 54; 3.5% for
ages 55 to less than 59 1/2; 4% for ages 59 1/2 to 64; 4.5% for ages 65 to 69;
5% for ages 70 to 84; and 6% for ages 85 or older. Under the Highest Daily
Lifetime Income v2.1, if your cumulative Lifetime Withdrawals in an Annuity
Year are less than or equal to the Annual Income Amount, they will not reduce
your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year and also will reduce the Protected Withdrawal Value on a
dollar-for-dollar basis. If your cumulative Lifetime Withdrawals in an Annuity
Year are in excess of the Annual Income Amount ("Excess Income"), your Annual
Income Amount in subsequent years will be reduced (except with regard to
Required Minimum Distributions for this Annuity that comply with our rules) by
the result of the ratio of the Excess Income to the Account Value immediately
prior to such withdrawal (see examples of this calculation below). Excess
Income also will reduce the Protected Withdrawal Value by the same ratio.
As discussed in this paragraph, when you make a partial withdrawal that is
subject to a CDSC and/or tax withholding, we will identify the amount that
includes not only the amount you actually receive, but also the amount of the
CDSC and/or tax withholding, to determine whether your withdrawal has exceeded
the Annual Income Amount. When you take a partial withdrawal, you may request
a "gross" withdrawal amount (e.g., $2,000) but then have any CDSC and/or tax
withholding deducted from the amount you actually receive (although an MVA may
also be applied to your remaining Unadjusted Account Value, it is not
considered for purposes of determining Excess Income). The portion of a
withdrawal that exceeded your Annual Income Amount (if any) would be treated
as Excess Income and thus would reduce your Annual Income Amount in subsequent
years. Alternatively, you may request that a "net" withdrawal amount actually
be paid to you (e.g., $2,000), with the understanding that any CDSC and/or tax
withholding (e.g., $240) be applied to your remaining Unadjusted Account Value
(although an MVA may also be applied to your remaining Unadjusted Account
Value, it is not considered for purposes of determining Excess Income). In the
latter scenario, we determine whether any portion of the withdrawal is to be
treated as Excess Income by looking to the sum of the net amount you actually
receive (e.g., $2,000) and the amount of any CDSC and/or tax withholding (in
this example, a total of $2,240). The amount of that sum (e.g., the $2,000 you
received plus the $240 for the CDSC and/or tax withholding) that exceeds your
Annual Income Amount will be treated as Excess Income - thereby reducing your
Annual Income Amount in subsequent years.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Highest Daily
Lifetime Income v2.1 and subsequent to the first Lifetime Withdrawal will
(i) immediately increase the then-existing Annual Income Amount by an amount
equal to a percentage of the Purchase Payment based on the age of the
Annuitant at the time of the first Lifetime Withdrawal (the percentages are:
3% for ages 50 to 54; 3.5% for ages 55 to less than 59 1/2; 4% for ages 59 1/2
to 64; 4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for ages 85 or
older) and (ii) increase the Protected Withdrawal Value by the amount of the
Purchase Payment.
While Highest Daily Lifetime Income v2.1 is in effect, we may limit, restrict,
suspend or reject any additional Purchase Payment at any time, but would do so
on a non-discriminatory basis. Circumstances where we may limit, restrict,
suspend or reject additional Purchase Payments include, but are not limited
to, the following:
.. if we determine that as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
10
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Highest Daily Lifetime Income v2.1 benefit. This means that you
may no longer be able to increase the values associated with your Highest
Daily Lifetime Income v2.1 benefit through additional Purchase Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity in a non-discriminatory manner.
Highest Daily Auto Step-Up
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of Highest
Daily Lifetime Income v2.1. As detailed in this paragraph, the Highest Daily
Auto Step-Up feature can result in a larger Annual Income Amount subsequent to
your first Lifetime Withdrawal. The Highest Daily Auto Step-Up starts with the
anniversary of the Issue Date of the Annuity (the "Annuity Anniversary")
immediately after your first Lifetime Withdrawal under the benefit.
Specifically, upon the first such Annuity Anniversary, we identify the
Unadjusted Account Value on each Valuation Day within the immediately
preceding Annuity Year after your first Lifetime Withdrawal. Having identified
the highest daily value (after all daily values have been adjusted for
subsequent Purchase Payments and withdrawals), we then multiply that value by
a percentage that varies based on the age of the Annuitant on the Annuity
Anniversary as of which the step-up would occur. The percentages are: 3% for
ages 50 to 54; 3.5% for ages 55 to less than 59 1/2; 4% for ages 59 1/2 to 64;
4.5% for ages 65 to 69; 5% for ages 70 to 84; and 6% for ages 85 or older. If
that value exceeds the existing Annual Income Amount, we replace the existing
amount with the new, higher amount. Otherwise, we leave the existing Annual
Income Amount intact. We will not automatically increase your Annual Income
Amount solely as a result of your attaining a new age that is associated with
a new age-based percentage. The Unadjusted Account Value on the Annuity
Anniversary is considered the last daily step-up value of the Annuity Year.
All daily valuations and annual step-ups will only occur on a Valuation Day.
In later years (i.e., after the first Annuity Anniversary after the first
Lifetime Withdrawal), we determine whether an automatic step-up should occur
on each Annuity Anniversary, by performing a similar examination of the
Unadjusted Account Values that occurred on Valuation Days during the year.
Taking Lifetime Withdrawals could produce a greater difference between your
Protected Withdrawal Value and your Unadjusted Account Value, which may make a
Highest Daily Auto Step-up less likely to occur. At the time that we increase
your Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the date that we implement a Highest Daily Auto Step-Up to your Annual
Income Amount, the charge for Highest Daily Lifetime Income v2.1 has changed
for new purchasers, you may be subject to the new charge at the time of such
step-up. Prior to increasing your charge for Highest Daily Lifetime Income
v2.1 upon a step-up, we would notify you, and give you the opportunity to
cancel the automatic step-up feature. If you receive notice of a proposed
step-up and accompanying fee increase, you should consult with your Financial
Professional and carefully evaluate whether the amount of the step-up
justifies the increased fee to which you will be subject. Any such increased
charge will not be greater than the maximum charge set forth in the table
entitled "Your Optional Benefit Fees and Charges."
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Highest Daily Lifetime Income v2.1 does not affect your ability to take
partial withdrawals under your Annuity, or limit your ability to take partial
withdrawals that exceed the Annual Income Amount. Under Highest Daily Lifetime
Income v2.1, if your cumulative Lifetime Withdrawals in an Annuity Year are
less than or equal to the Annual Income Amount, they will not reduce your
Annual Income Amount in subsequent Annuity Years, but any such withdrawals
will reduce the Annual Income Amount on a dollar-for-dollar basis in that
Annuity Year. If your cumulative Lifetime Withdrawals in any Annuity Year are
less than the Annual Income Amount, you cannot carry over the unused portion
of the Annual Income Amount to subsequent Annuity Years. If your cumulative
Lifetime Withdrawals in an Annuity Year exceed the Annual Income Amount, your
Annual Income Amount in subsequent years will be reduced (except with regard
to Required Minimum Distributions for this Annuity that comply with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Highest Daily Lifetime
Income v2.1 or any other fees and charges under the Annuity. Assume the
following for all three examples:
.. The Issue Date is November 1
.. Highest Daily Lifetime Income v2.1 is elected on August 1 of the following
calendar year
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.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
Example of dollar-for-dollar reductions
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $6,000 (since the designated life is between the ages
of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual Income
Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000).
Assuming $2,500 is withdrawn from the Annuity on this date, the remaining
Annual Income Amount for that Annuity Year (up to and including October 31) is
$3,500. This is the result of a dollar-for-dollar reduction of the Annual
Income Amount ($6,000 less $2,500 = $3,500).
Example of proportional reductions
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $3,500 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $1,500 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there are other
future withdrawals in that Annuity Year, each would result in another
proportional reduction to the Annual Income Amount).
Here is the calculation:
Example of highest daily auto step-up
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
Annuitant's age on that Annuity Anniversary) of the highest daily value since
your first Lifetime Withdrawal (or last Annuity Anniversary in subsequent
years), adjusted for withdrawals and additional Purchase Payments, is greater
than the Annual Income Amount, adjusted for Excess Income and additional
Purchase Payments.
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $6,000. However, the Excess Income on October 29 reduces the
amount to $5,921.40 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 5% (since the designated life
is between 70 and 84 on the date of the potential step-up) of the highest
daily Unadjusted Account Value, adjusted for withdrawals and Purchase
Payments, is greater than $5,921.40. Here are the calculations for determining
the daily values. Only the October 28 value is being adjusted for Excess
Income as the October 30, October 31, and November 1 Valuation Days occur
after the Excess Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be the Annuity Anniversary and every day
following the Annuity Anniversary. The Annuity Anniversary Date of
November 1 is considered the first Valuation Date in the Annuity Year.
** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,950.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income
Amount for the Annuity Year), resulting in Unadjusted Account Value of
$115,500 before the Excess Income.
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. This amount ($115,500) is further reduced by 1.31% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.98.
. The adjusted October 29 Highest Daily Value, $113,986.98, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.98 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.98 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.98
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 5%, generating
an Annual Income Amount of $5,950.00. Since this amount is greater than the
current year's Annual Income Amount of $5,921.40 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year will be
stepped-up to $5,950.00.
Non-Lifetime Withdrawal Feature
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Highest Daily Lifetime Income v2.1. It is an optional feature of the
benefit that you can only elect at the time of your first withdrawal. You
cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders - Surrender Value" in the
prospectus). This Non-Lifetime Withdrawal will not establish your initial
Annual Income Amount and the Periodic Value described above will continue to
be calculated. However, the total amount of the withdrawal will proportionally
reduce all guarantees associated with Highest Daily Lifetime Income v2.1. You
must tell us at the time you take the withdrawal if your withdrawal is
intended to be the Non-Lifetime Withdrawal and not the first Lifetime
Withdrawal under Highest Daily Lifetime Income v2.1. If you don't elect the
Non-Lifetime Withdrawal, the first withdrawal you make will be the first
Lifetime Withdrawal that establishes your Annual Income Amount, which is based
on your Protected Withdrawal Value. Once you elect to take the Non-Lifetime
Withdrawal or Lifetime Withdrawals, no additional Non-Lifetime Withdrawals may
be taken. If you do not take a Non-Lifetime Withdrawal before beginning
Lifetime Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value by the percentage the total withdrawal amount (including any
applicable CDSC) represents of the then current Account Value immediately
prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
Example - Non-Lifetime Withdrawal (proportional reduction)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit.
Assume the following:
.. The Issue Date is December 3
.. Highest Daily Lifetime Income v2.1 is elected on September 4 of the
following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. The Annuitant was 70 years old when he/she elected Highest Daily Lifetime
Income v2.1
.. No previous withdrawals have been taken under Highest Daily Lifetime Income
v2.1
On October 3 of the year the benefit is elected, the Protected Withdrawal
Value is $125,000 and the Account Value is $120,000. Assuming $15,000 is
withdrawn from the Annuity on that same October 3 and is designated as a
Non-Lifetime Withdrawal, all guarantees associated with Highest Daily Lifetime
Income v2.1 will be reduced by the ratio the total withdrawal amount
represents of the Account Value just prior to the withdrawal being taken.
Here is the calculation:
Required Minimum Distributions
Required Minimum Distributions ("RMD") for this Annuity must be taken by
April 1st in the year following the date you turn age 70 1/2 and by
December 31/st/ for subsequent calendar years. If the annual RMD amount is
greater than the Annual Income Amount, a withdrawal of the RMD amount will not
be treated as a withdrawal of Excess Income, as long as the RMD amount is
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calculated by us for this Annuity and administered under a program we support
each calendar year. If you are not participating in an RMD withdrawal program
each calendar year, you can alternatively satisfy the RMD amount without it
being treated as a withdrawal of Excess Income.
The following rules apply to determine if any portion of an RMD amount will be
treated as Excess Income.
For purposes of this provision, in relation to any Annuity Year, the "Second
Calendar Year" is the calendar year following the calendar year in which the
Annuity Year began.
In general, withdrawals made from the Annuity during an Annuity Year to meet
the RMD provisions of the Code will not be treated as Excess Income. However,
if in any Annuity Year, you take a Lifetime Withdrawal in the Second Calendar
Year, then the amount which will not be treated as Excess Income is the
greater of:
(1)the remaining Annual Income Amount for that Annuity Year, and
(2)the difference between the Second Calendar Year's remaining RMD amount and
the Annual Income Amount.
Any remaining RMD amount for the Second Calendar Year can be taken in the
following Annuity Year.
If, in any Annuity Year, your RMD amount is not greater than the Annual Income
Amount, any withdrawals in excess of the Annual Income Amount will be treated
as Excess Income.
Please see hypothetical examples below for details.
If you do not comply with the rules described above, any withdrawal that
exceeds the Annual Income Amount will be treated as a withdrawal of Excess
Income, which will reduce your Annual Income Amount in future Annuity Years.
This may include situations where you comply with the rules outlined above and
then decide to take additional withdrawals after satisfying your RMD
requirement from the Annuity.
We will assume your first withdrawal under the benefit is a Lifetime
Withdrawal unless you designated the withdrawal as a Non-Lifetime Withdrawal.
Example
The following example is purely hypothetical and intended to illustrate a
scenario as described above. Note that withdrawals must comply with all IRS
guidelines in order to satisfy the RMD for the current calendar year.
Assumptions:
RMD Calendar Year
01/01/2013 to 12/31/2013
Annuity Year
06/01/2012 to 05/31/2013
Annual Income Amount and RMD Amount
Annual Income Amount = $5,000
Remaining Annual Income Amount as of 1/3/2013 = $3,000 (a $2,000 withdrawal
was taken on 7/1/2012)
RMD Amount for Calendar Year 2013 = $6,000
The amount you may withdraw in the current Annuity Year (between 1/3/2013 and
5/31/2013) without it being treated as Excess Income is $4,000. Here is the
calculation: $3,000 + ($6,000 - $5,000) = $4,000.
If the $4,000 withdrawal is taken in the current Annuity Year (prior to
6/1/2013), the remaining Annual Income Amount will be zero and the remaining
RMD amount of $2,000 may be taken in the subsequent Annuity Year beginning on
6/1/2013 (when your Annual Income Amount is reset to $5,000).
If you had chosen to not take any additional withdrawals until on or after
6/1/2013, then you would be eligible to withdraw $6,000 without it being
treated as a withdrawal of Excess Income.
Benefits Under Highest Daily Lifetime Income v2.1
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and amounts are still payable
under Highest Daily Lifetime Income v2.1, we will make an additional
payment, if any, for that Annuity Year equal to the remaining Annual Income
Amount for the Annuity Year. Thus, in that scenario, the remaining Annual
Income Amount would be payable even
14
though your Unadjusted Account Value was reduced to zero. In subsequent
Annuity Years we make payments that equal the Annual Income Amount as
described in this section. We will make payments until the death of the
single designated life. After the Unadjusted Account Value is reduced to
zero, you will not be permitted to make additional Purchase Payments to
your Annuity. To the extent that cumulative partial withdrawals in the
Annuity Year that reduced your Unadjusted Account Value to zero are more
than the Annual Income Amount, Highest Daily Lifetime Income v2.1
terminates, and no additional payments are permitted. However, if a partial
withdrawal in the latter scenario was taken to satisfy a Required Minimum
Distribution (as described above) under the Annuity, then the benefit will
not terminate, and we will continue to pay the Annual Income Amount in
subsequent Annuity Years until the death of the designated life.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments. Also, any Death Benefit will terminate if
withdrawals reduce your Unadjusted Account Value to zero. This means that
any Death Benefit is terminated and no Death Benefit is payable if your
Unadjusted Account Value is reduced to zero as the result of either a
withdrawal in excess of your Annual Income Amount or less than or equal to,
your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable tax charges,
to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. If this
option is elected, the Annual Income Amount will not increase after
annuity payments have begun. We will make payments until the death of
the single designated life. We must receive your request in a form
acceptable to us at our Service Office. If applying your Unadjusted
Account Value, less any applicable tax charges, to the life-only
annuity payment rates results in a higher annual payment, we will
give you the higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin
we currently make annual annuity payments in the form of a single life
fixed annuity with eight payments certain, by applying the greater of the
annuity rates then currently available or the annuity rates guaranteed in
your Annuity. We reserve the right at any time to increase or decrease the
period certain in order to comply with the Code (e.g., to shorten the
period certain to match life expectancy under applicable Internal Revenue
Service tables). The amount that will be applied to provide such annuity
payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual
Income Amount as if you made your first Lifetime Withdrawal on the
date the annuity payments are to begin). Such present value will be
calculated using the greater of the single life fixed annuity rates
then currently available or the single life fixed annuity rates
guaranteed in your Annuity; and
(2)the Unadjusted Account Value.
Other Important Considerations
.. Withdrawals under Highest Daily Lifetime Income v2.1 are subject to all of
the terms and conditions of the Annuity, including any applicable CDSC for
the Non-Lifetime Withdrawal as well as partial withdrawals that exceed the
Annual Income Amount. If you have an active Systematic Withdrawal program
running at the time you elect this benefit, the first systematic withdrawal
that processes after your election of the benefit will be deemed a Lifetime
Withdrawal. Withdrawals made while Highest Daily Lifetime Income v2.1 is in
effect will be treated, for tax purposes, in the same way as any other
withdrawals under the Annuity. Any withdrawals made under the benefit will
be taken pro rata from the Sub-accounts (including the AST Investment Grade
Bond Sub-account) and the DCA MVA Options. If you have an active Systematic
Withdrawal program running at the time you elect this benefit, the program
must withdraw funds pro rata.
.. Any Lifetime Withdrawal that you take that is not a withdrawal of Excess
Income is not subject to a CDSC, even if the total amount of such
withdrawals in any Annuity Year exceeds the maximum Free Withdrawal amount.
Any Lifetime Withdrawal that is treated as Excess Income is subject to any
applicable CDSC, if the withdrawal is greater than the Free Withdrawal
amount. (See "Fees, Charges and Deductions - Contingent Deferred Sales
Charge ("CDSC")" and "Access to Account Value - Free Withdrawal Amounts" in
the prospectus.)
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolio appears within the prospectus
section entitled "Investment Options." You can find a copy of the AST
Investment Grade Bond Portfolio prospectus by going to
www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the predetermined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
15
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to the Permitted Sub-accounts, or
to the requirements as to how you may allocate your Unadjusted Account
Value with this benefit, will apply to new elections of the benefit and may
apply to current participants in the benefit. To the extent that changes
apply to current participants in the benefit, they will only apply upon
re-allocation of Unadjusted Account Value, or upon addition of subsequent
Purchase Payments. That is, we will not require such current participants
to re-allocate Unadjusted Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Highest Daily
Lifetime Income v2.1 reduce your Unadjusted Account Value to zero). This
means that any Death Benefit is terminated and no Death Benefit is payable
if your Unadjusted Account Value is reduced to zero as the result of either
a withdrawal in excess of your Annual Income Amount or less than or equal
to, your Annual Income Amount. (See "Death Benefits" in the prospectus for
more information.)
.. The current charge for Highest Daily Lifetime Income v2.1 is 1.00% annually
of the greater of the Unadjusted Account Value and Protected Withdrawal
Value. The maximum charge for Highest Daily Lifetime Income v2.1 is 2.00%
annually of the greater of the Unadjusted Account Value and Protected
Withdrawal Value. As discussed in "Highest Daily Auto Step-Up" above, we
may increase the fee upon a step-up under this benefit. We deduct this
charge on quarterly anniversaries of the benefit effective date, based on
the values on the last Valuation Day prior to the quarterly anniversary.
Thus, we deduct, on a quarterly basis, 0.25% of the greater of the prior
Valuation Day's Unadjusted Account Value and the prior Valuation Day's
Protected Withdrawal Value. We deduct the fee pro rata from each of your
Sub-accounts, including the AST Investment Grade Bond Sub-account. You will
begin paying this charge as of the effective date of the benefit even if
you do not begin taking withdrawals for many years, or ever. We will not
refund the charges you have paid if you choose never to take any
withdrawals and/or if you never receive any lifetime income payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the benefit is less than the
Account Value Floor, then no charge will be assessed for that benefit quarter.
Charges deducted upon termination of the benefit may cause the Unadjusted
Account Value to fall below the Account Value Floor. If a charge for Highest
Daily Lifetime Income v2.1 would be deducted on the same day we process a
withdrawal request, the charge will be deducted first, then the withdrawal
will be processed. The withdrawal could cause the Unadjusted Account Value to
fall below the Account Value Floor. While the deduction of the charge (other
than the final charge) may not reduce the Unadjusted Account Value to zero,
partial withdrawals may reduce the Unadjusted Account Value to zero. If this
happens and the Annual Income Amount is greater than zero, we will make
payments under the benefit.
Election of and Designations under the Benefit
For Highest Daily Lifetime Income v2.1, there must be either a single Owner
who is the same as the Annuitant, or if the Annuity is entity owned, there
must be a single natural person Annuitant. In either case, the Annuitant must
be at least 50 years old. Any change of the Annuitant under the Annuity will
result in cancellation of Highest Daily Lifetime Income v2.1. Similarly, any
change of Owner will result in cancellation of Highest Daily Lifetime Income
v2.1, except if (a) the new Owner has the same taxpayer identification number
as the previous Owner, (b) ownership is transferred from a custodian or other
entity to the Annuitant, or vice versa or (c) ownership is transferred from
one entity to another entity that satisfies our administrative ownership
guidelines.
Highest Daily Lifetime Income v2.1 can be elected at the time that you
purchase your Annuity or after the Issue Date, subject to its availability,
and our eligibility rules and restrictions. If you elect Highest Daily
Lifetime Income v2.1 and terminate it, you can re-elect it, subject to our
current rules and availability. See "Termination of Existing Benefits and
Election of New Benefits" in the prospectus for information pertaining to
elections, termination and re-election of benefits. Please note that if you
terminate a living benefit and elect Highest Daily Lifetime Income v2.1, you
lose the guarantees that you had accumulated under your existing benefit and
your guarantees under Highest Daily Lifetime Income v2.1 will be based on your
Unadjusted Account Value on the effective date of Highest Daily Lifetime
Income v2.1. You and your Financial Professional should carefully consider
whether terminating your existing benefit and electing Highest Daily Lifetime
Income v2.1 is appropriate for you. We reserve the right to waive, change
and/or further limit the election frequency in the future for new elections of
this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Highest Daily Lifetime Income v2.1 so long as you participate in a
Systematic Withdrawal program in which withdrawals are not taken pro rata.
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Termination of the Benefit
You may terminate Highest Daily Lifetime Income v2.1 at any time by notifying
us. If you terminate the benefit, any guarantee provided by the benefit will
terminate as of the date the termination is effective, and certain
restrictions on re-election may apply.
The benefit automatically terminates upon the first to occur of the following:
(i) your termination of the benefit;
(ii)your surrender of the Annuity;
(iii)your election to begin receiving annuity payments (although if you have
elected to receive the Annual Income Amount in the form of annuity
payments, we will continue to pay the Annual Income Amount);
(iv)our receipt of Due Proof of Death of the Owner or Annuitant (for
entity-owned annuities);
(v) both the Unadjusted Account Value and Annual Income Amount equal zero due
to a withdrawal of Excess Income;
(vi)you allocate or transfer any portion of your Account Value to any
Sub-account(s) to which you are not permitted to electively allocate or
transfer Account Value (may vary by state);* or
(vii)you cease to meet our requirements as described in "Election of and
Designations under the Benefit" above.
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Highest Daily Lifetime Income v2.1 other than upon the
death of the Annuitant or Annuitization, we impose any accrued fee for the
benefit (i.e., the fee for the pro-rated portion of the year since the fee was
last assessed), and thereafter we cease deducting the charge for the benefit.
However, if the amount in the Sub-accounts is not enough to pay the charge, we
will reduce the fee to no more than the amount in the Sub-accounts. With
regard to your investment allocations, upon termination we will: (i) leave
intact amounts that are held in the Permitted Sub-accounts, and (ii) unless
you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
If a surviving spouse elects to continue the Annuity, Highest Daily Lifetime
Income v2.1 terminates upon Due Proof of Death. The spouse may newly elect the
benefit subject to the restrictions discussed above.
How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account
Overview of the Predetermined Mathematical Formula
Our goal is to seek a careful balance between providing value-added products,
such as the Highest Daily Lifetime Income v2.1 suite of benefits, while
managing the risk associated with offering these products. One of the key
features that helps us accomplish that balance and an integral part of the
Highest Daily Lifetime Income v2.1 suite is the predetermined mathematical
formula used to transfer Unadjusted Account Value between the Permitted
Subaccounts and the AST Investment Grade Bond Sub-account, referred to in this
section as the "Bond Sub-account". The formula is designed primarily to
mitigate some of the financial risks that we incur in providing the guarantee
under the Highest Daily Lifetime Income v2.1 suite of benefits.
The formula is set forth in Appendix C in the prospectus (and is described
below).
The predetermined mathematical formula ("formula") monitors each individual
contract each Valuation Day that the benefit is in effect on your Annuity, in
order to help us manage guarantees through all market cycles. It helps manage
the risk associated with these benefits, which is generally represented by the
gap between your Unadjusted Account Value and the Protected Withdrawal Value.
As the gap between these two values increases, the formula will determine if
and how much money should be transferred into the Bond Sub-account. This
movement is intended to reduce the equity risk we will bear in funding our
obligation associated with these benefits. As the gap decreases (due to
favorable performance of the Unadjusted Account Value), the formula then
determines if and how much money should transfer back into the Permitted
Sub-accounts. The use of the formula, combined with restrictions on the
Sub-accounts you are allowed to invest in, lessens the risk that your
Unadjusted Account Value will be reduced to zero while you are still alive,
thus reducing the likelihood that we will make any lifetime income payments
under this benefit. It may also limit the potential for your Account Value to
grow.
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However, in addition to providing lifetime income when your Account Value is
reduced to zero, Highest Daily Lifetime Income v2.1 can potentially dampen the
impact of volatility on your Account Value during extreme market downturns by
transferring assets from your chosen investments into the Bond Sub-account as
described above. This occurs pursuant to the predetermined mathematical
formula, which can limit the possibility or reduce the amount of a significant
loss of Account Value, and potentially provide a higher income stream in
retirement.
The formula is not forward looking and contains no predictive or projective
component with respect to the markets, the Unadjusted Account Value or the
Protected Withdrawal Value. We are not providing you with investment advice
through the use of the formula nor does the formula constitute an investment
strategy that we are recommending to you.
Transfer Activity under the Formula
Prior to the first Lifetime Withdrawal, the primary driver of transfers to the
Bond Sub-account is the difference between your Unadjusted Account Value and
your Protected Withdrawal Value. If none of your Unadjusted Account Value is
allocated to the Bond Sub-account, then over time the formula permits an
increasing difference between the Unadjusted Account Value and the Protected
Withdrawal Value before a transfer to the Bond Sub-account occurs. Therefore,
over time, assuming none of the Unadjusted Account Value is allocated to the
Bond Sub-account, the formula will allow for a greater decrease in the
Unadjusted Account Value before a transfer to the Bond Sub-account is made.
It is important to understand that transfers within your Annuity are specific
to the performance of your chosen investment options, the performance of the
Bond Sub-account while money is invested in it, as well as how long the
benefit has been owned. For example, two contracts purchased on the same day,
but invested differently, will likely have different results, as would two
contracts purchased on different days with the same investment options.
Each market cycle is unique, therefore the performance of your Sub-accounts,
and its impact on your Unadjusted Account Value, will differ from market cycle
to market cycle, therefore producing different transfer activity under the
formula. The amount and timing of transfers to and from the Bond Sub-account
depend on various factors unique to your Annuity and are not necessarily
directly correlated with the securities markets, bond markets, interest rates
or any other market or index. Some of the factors that determine the amount
and timing of transfers (as applicable to your Annuity), include:
.. The difference between your Unadjusted Account Value and your Protected
Withdrawal Value;
.. The amount of time the benefit has been in effect on your Annuity;
.. The amount allocated to and the performance of the Permitted Sub-accounts
and the Bond Sub-account;
.. Any additional Purchase Payments you make to your Annuity (while the
benefit is in effect); and
.. Any withdrawals you take from your Annuity (while the benefit is in effect).
Under the formula, investment performance of your Unadjusted Account Value
that is negative, flat, or even moderately positive may result in a transfer
of a portion of your Unadjusted Account Value in the Permitted Sub-accounts to
the Bond Sub-account.
At any given time, some, most or none of your Unadjusted Account Value will be
allocated to the Bond Sub-account, as dictated by the formula.
The amount allocated to the Bond Sub-account and the amount allocated to the
Permitted Sub-accounts each is a variable in the formula. Therefore, the
investment performance of each affects whether a transfer occurs for your
Annuity. As the amounts allocated to either the Bond Sub-account or the
Permitted Sub-accounts increase, the performance of those sub-accounts will
have a greater impact on your Unadjusted Account Value and hence a greater
impact on if (and how much of) your Unadjusted Account Value is transferred to
or from the Bond Sub-account. It is possible that if a significant portion of
your Unadjusted Account Value is allocated to the Bond Sub-account and that
Sub-account has positive performance, the formula might transfer a portion of
your Unadjusted Account Value to the Permitted Sub-accounts, even if the
performance of your Permitted Sub-accounts is negative. Conversely, if a
significant portion of your Unadjusted Account Value is allocated to the Bond
Sub-account and that Sub-account has negative performance, the formula may
transfer additional amounts from your Permitted Sub-accounts to the Bond
Sub-account even if the performance of your Permitted Sub-accounts is positive.
How the Formula Operates
Generally, the formula, which is applied each Valuation Day, takes four steps
in determining any applicable transfers within your Annuity.
(1)First, the formula starts by identifying the value of future income
payments we expect to pay. We refer to that value as the "Target Value" or
"L".
(2)Second, we subtract any amounts invested in the Bond Sub-account ("B") from
the Target Value and divide that number by the amount invested in the
Permitted Sub-accounts ("V\\V\\ + V\\F\\"). We refer to this resulting
value as the "Target Ratio" or "R".
(3)Third, we compare the Target Ratio to designated thresholds and other rules
described in greater detail below to determine if a transfer needs to occur.
(4)If a transfer needs to occur, we use another calculation to determine the
amount of the transfer.
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The Formula is:
More specifically, the formula operates as follows:
(1) We calculate the Target Value (L) by multiplying the income basis for that
day by 5% and by the applicable Annuity Factor found in Appendix C in the
prospectus. If you have already made a Lifetime Withdrawal, your Target
Value would take into account any automatic step-up, any subsequent
Purchase Payments and any withdrawals of Excess Income.
Example (assume the income basis is $200,000, and the contract is 11 1/2
months old, resulting in an annuity factor of 14.95)
(2) Next, to calculate the Target Ratio (R), the Target Value is reduced by
any amount held within the Bond Sub-account (B) on that day. The remaining
amount is divided by the amount held within the Permitted Sub-accounts (V).
Example (assume the amount in the Bond Sub-account is zero, and the amount
held within the Permitted Sub-accounts is $179,500)
(3) If, on each of three consecutive Valuation Days, the Target Ratio is
greater than 83% but less than or equal to 84.5%, the formula will, on the
third Valuation Day, make a transfer from your Permitted Sub-accounts to
the Bond Sub-account (subject to the 90% cap discussed below). If,
however, on any Valuation Day, the Target Ratio is above 84.5%, the
formula will make a transfer from the Permitted Sub-accounts to the Bond
Sub-account (subject to the 90% cap). Once a transfer is made, the Target
Ratio must again be greater than 83% but less than or equal to 84.5% for
three consecutive Valuation Days before a subsequent transfer to the Bond
Sub-account will occur. If the Target Ratio falls below 78% on any
Valuation Day, then a transfer from the Bond Sub-account to the Permitted
Sub-accounts (excluding the DCA MVA Options) will occur.
Example: Assuming the Target Ratio is above 83% for a 3rd consecutive
Valuation Day, but less than or equal to 84.5% for three consecutive
Valuation Days, a transfer into the Bond Portfolio occurred.
(4) In deciding how much to transfer, we perform a calculation that
essentially seeks to reallocate amounts held in the Permitted Sub-accounts
and the Bond Sub-account so that the Target Ratio meets a target, which
currently is equal to 80% (subject to the 90% Cap discussion below). The
further the Target Ratio is from 80% when a transfer is occurring under
the formula, the greater the transfer amount will be.
The 90% Cap
The formula will not execute a transfer to the Bond Sub-account that results
in more than 90% of your Unadjusted Account Value being allocated to the Bond
Sub-account ("90% cap") on that Valuation Day. Thus, on any Valuation Day, if
the formula would require a transfer to the Bond Sub-account that would result
in more than 90% of the Unadjusted Account Value being allocated to the Bond
Sub-account, only the amount that results in exactly 90% of the Unadjusted
Account Value being allocated to the Bond Sub-account will be transferred.
Additionally, future transfers into the Bond Sub-account will not be made
(regardless of the performance of the Bond Sub-account and the Permitted
Sub-accounts) at least until there is first a transfer out of the Bond
Sub-account. Once this transfer occurs out of the Bond Sub-account, future
amounts may be transferred to or from the Bond Sub-account (subject to the 90%
cap).
Under the operation of the formula, the 90% cap may come into and out of
effect multiple times while you participate in the benefit. At no time will
the formula make a transfer to the Bond Sub-account that results in greater
than 90% of your Unadjusted Account Value being allocated to the Bond
Sub-account. However, it is possible that, due to the investment performance
of your allocations in the Bond Sub-account and your allocations in the
Permitted Sub-accounts you have selected, your Unadjusted Account Value could
be more than 90% invested in the Bond Sub-account.
Monthly Transfers
Additionally, on each monthly Annuity Anniversary (if the monthly Annuity
Anniversary does not fall on a Valuation Day, the next Valuation Day will be
used), following all of the above described daily calculations, if there is
money allocated to the Bond Sub-account, the formula will perform an
additional calculation to determine whether or not a transfer will be made
from the Bond Sub-account to the Permitted Sub-accounts. This transfer will
automatically occur provided that the Target Ratio, as described above, would
be less than 83% after this transfer. The formula will not execute a transfer
if the Target Ratio after this transfer would occur would be greater than or
equal to 83%.
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The amount of the transfer will be equal to the lesser of:
a) The total value of all your Unadjusted Account Value in the Bond
Sub-account, or
b) An amount equal to 5% of your total Unadjusted Account Value.
Other Important Information
.. The Bond sub-account is not a Permitted Sub-account. As such, only the
formula can transfer Unadjusted Account Value to or from the Bond
Sub-account. You may not allocate Purchase Payments or transfer any of your
Unadjusted Account Value to or from the Bond Sub-account.
.. While you are not notified before a transfer occurs to or from the Bond
Sub-account, you will receive a confirmation statement indicating the
transfer of a portion of your Unadjusted Account Value either to or from
the Bond Sub-account. Your confirmation statements will be detailed to
include the effective date of the transfer, the dollar amount of the
transfer and the Permitted Sub-accounts the funds are being transferred
to/from. Depending on the results of the calculations of the formula, we
may, on any Valuation Day:
. Not make any transfer between the Permitted Sub-accounts and the Bond
Sub-account; or
. If a portion of your Unadjusted Account Value was previously allocated
to the Bond Sub-account, transfer all or a portion of those amounts to
the Permitted Sub-accounts (as described above); or
. Transfer a portion of your Unadjusted Account Value in the Permitted
Sub-accounts and the DCA MVA Options to the Bond Sub-account.
.. If you make additional Purchase Payments to your Annuity, they will be
allocated to the Permitted Sub-accounts and will be subject to the formula.
.. Additional Purchase Payments to your Annuity do not increase "B" within the
formula, and may result in an additional Account Value being transferred to
the Permitted Sub-accounts, or a transfer to the Bond Sub-account due to
the change in the ratio.
.. If you make additional Purchase Payments to your Annuity while the 90% cap
is in effect, the formula will not transfer any of such additional Purchase
Payments to the Bond Sub-account at least until there is first a transfer
out of the Bond Sub-account, regardless of how much of your Unadjusted
Account Value is in the Permitted Sub-accounts. This means that there could
be scenarios under which, because of the additional Purchase Payments you
make, less than 90% of your entire Unadjusted Account Value is allocated to
the Bond Sub-account, and the formula will still not transfer any of your
Unadjusted Account Value to the Bond Sub-account (at least until there is
first a transfer out of the Bond Sub-account).
.. If you are participating in Highest Daily Lifetime Income v2.1 and you are
also participating in the 6 or 12 Month DCA Program, the following rules
apply:
. DCA MVA Options are considered "Permitted Sub-accounts" for purpose of
the Target Ratio calculation ("L") described above.
. The formula may transfer amounts out of the DCA MVA Options to the Bond
Sub-account if the amount allocated to the other Permitted Sub-accounts
is insufficient to cover the amount of the transfer.
. The transfer formula will not allocate amounts to the DCA MVA Options
when there is a transfer out of the Bond Sub-account. Such transfers
will be allocated pro-rata to the variable Sub-accounts, excluding the
Bond Sub-account.
. A Market Value Adjustment is not assessed when amounts are transferred
out of the DCA MVA Options under the transfer formula.
Additional Tax Considerations
If you purchase an annuity as an investment vehicle for "qualified"
investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or
employer plan under Code Section 401(a), the Required Minimum Distribution
rules under the Code provide that you begin receiving periodic amounts
beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for
which the participant is not a greater than five (5) percent Owner of the
employer, this required beginning date can generally be deferred to
retirement, if later. Roth IRAs are not subject to these rules during the
Owner's lifetime. In addition, the amount and duration of payments under the
annuity payment provision may be adjusted so that the payments do not trigger
any penalty or excise taxes due to tax considerations such as Required Minimum
Distribution rules under the tax law.
As indicated, withdrawals made while this benefit is in effect will be
treated, for tax purposes, in the same way as any other withdrawals under the
Annuity. Please see the Tax Considerations section of the prospectus for a
detailed discussion of the tax treatment of withdrawals. We do not address
each potential tax scenario that could arise with respect to this benefit
here. However, we do note that if you participate in any Highest Daily
Lifetime Income v2.1 benefit through a non-qualified annuity, as with all
withdrawals, once all Purchase Payments are returned under the Annuity, all
subsequent withdrawal amounts will be taxed as ordinary income.
SPOUSAL HIGHEST DAILY LIFETIME(R) INCOME v2.1 BENEFIT
Spousal Highest Daily Lifetime(R) Income v2.1 is a lifetime guaranteed minimum
withdrawal benefit, under which, subject to the terms of the benefit, we
guarantee your ability to take a certain annual withdrawal amount for the
lives of two individuals who are spouses. We reserve the right, in our sole
discretion, to cease offering this benefit for new elections at any time.
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We offer a benefit that guarantees, until the later death of two natural
persons who are each other's spouses at the time of election of the benefit
and at the first death of one of them (the "designated lives", and each, a
"designated life"), the ability to withdraw an annual amount (the "Annual
Income Amount") equal to a percentage of an initial principal value (the
"Protected Withdrawal Value") regardless of the impact of Sub-account
performance on the Unadjusted Account Value, subject to our rules regarding
the timing and amount of withdrawals. You are guaranteed to be able to
withdraw the Annual Income Amount for the lives of the designated lives,
provided you have not made withdrawals of Excess Income that result in your
Unadjusted Account Value being reduced to zero. We also permit you to
designate the first withdrawal from your Annuity as a one-time "Non-Lifetime
Withdrawal." All other withdrawals from your Annuity are considered a
"Lifetime Withdrawal" under the benefit. Withdrawals are taken first from your
own Account Value. We are only required to begin making lifetime income
payments to you under our guarantee when and if your Unadjusted Account Value
is reduced to zero (for any reason other than due to partial withdrawals of
Excess Income). The benefit may be appropriate if you intend to make periodic
withdrawals from your Annuity, wish to ensure that Sub-account performance
will not affect your ability to receive annual payments, and wish either
spouse to be able to continue Spousal Highest Daily Lifetime Income v2.1 after
the death of the first spouse. You are not required to make withdrawals as
part of the benefit - the guarantees are not lost if you withdraw less than
the maximum allowable amount each year under the rules of the benefit. An
integral component of Spousal Highest Daily Lifetime Income v2.1 is the
predetermined mathematical formula we employ that may periodically transfer
your Unadjusted Account Value to and from the AST Investment Grade Bond
Sub-account. See the section above entitled "How Highest Daily Lifetime Income
v2.1 Transfers Unadjusted Account Value Between Your Permitted Sub-accounts
and the AST Investment Grade Bond Sub-account."
Spousal Highest Daily Lifetime Income v2.1 is the spousal version of Highest
Daily Lifetime Income v2.1. This version is only being offered in those
jurisdictions where we have received regulatory approval and will be offered
subsequently in other jurisdictions when we receive regulatory approval in
those jurisdictions. Currently, if you elect Spousal Highest Daily Lifetime
Income v2.1 and subsequently terminate the benefit, you may elect another
living benefit, subject to our current rules. See "Election of and
Designations under the Benefit" below and "Termination of Existing Benefits
and Election of New Benefits" in the prospectus for details. Please note that
if you terminate Spousal Highest Daily Lifetime Income v2.1 and elect another
benefit, you lose the guarantees that you had accumulated under your existing
benefit and will begin the new guarantees under the new benefit you elect
based on your Unadjusted Account Value as of the date the new benefit becomes
active.
Spousal Highest Daily Lifetime Income v2.1 must be elected based on two
designated lives, as described below. Each designated life must be at least 45
years old when the benefit is elected. Spousal Highest Daily Lifetime Income
v2.1 is not available if you elect any other optional living benefit. As long
as your Spousal Highest Daily Lifetime Income v2.1 is in effect, you must
allocate your Unadjusted Account Value in accordance with the permitted
Sub-accounts and other Investment Option(s) available with this benefit. For a
more detailed description of the permitted Investment Options, see the
"Investment Options" section of the prospectus.
Although you are guaranteed the ability to withdraw your Annual Income Amount
for life even if your Unadjusted Account Value falls to zero, if that
particular withdrawal of Excess Income (described below) brings your
Unadjusted Account Value to zero, your Annual Income Amount also would fall to
zero, and the benefit and the Annuity then would terminate. In that scenario,
no further amount would be payable under Spousal Highest Daily Lifetime Income
v2.1. As to the impact of such a scenario on any other optional benefit you
may have, please see "Highest Daily Lifetime Income v2.1 Benefit" in this
supplement.
You may also participate in the 6 or 12 Month Dollar Cost Averaging Program if
you elect Spousal Highest Daily Lifetime Income v2.1, subject to the 6 or 12
Month DCA Program's rules. See the section of the prospectus entitled "6 or 12
Month Dollar Cost Averaging Program" for details.
Key Feature - Protected Withdrawal Value
The Protected Withdrawal Value is only used to calculate the initial Annual
Income Amount and the benefit fee. The Protected Withdrawal Value is separate
from your Unadjusted Account Value and not available as cash or a lump sum
withdrawal. On the effective date of the benefit, the Protected Withdrawal
Value is equal to your Unadjusted Account Value. On each Valuation Day
thereafter until the date of your first Lifetime Withdrawal (excluding any
Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is
equal to the "Periodic Value" described in the next paragraph.
The "Periodic Value" is initially equal to the Unadjusted Account Value on the
effective date of the benefit. On each Valuation Day thereafter until the
first Lifetime Withdrawal, we recalculate the Periodic Value. We stop
determining the Periodic Value upon your first Lifetime Withdrawal after the
effective date of the benefit. The Periodic Value is proportionally reduced
for any Non-Lifetime Withdrawal.
21
The Periodic Value on or before the Roll-Up End Date
On any day we recalculate the Periodic Value (a "Current Valuation Day") that
falls on or before the tenth (10/th/) anniversary of the benefit effective
date (or the "Roll-Up End Date"), the Periodic Value is equal to the greater
of:
(1)the Periodic Value for the immediately preceding business day (the "Prior
Valuation Day") appreciated at the daily equivalent of 5% annually during
the calendar day(s) between the Prior Valuation Day and the Current
Valuation Day (i.e., one day for successive Valuation Days, but more than
one calendar day for Valuation Days that are separated by weekends and/or
holidays), plus the amount of any Purchase Payment made on the Current
Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
The Periodic Value after the Roll-Up End Date
On any Current Valuation Day that falls after the Roll-Up End Date, the
Periodic Value is equal to the greater of:
(1)the Periodic Value for the Prior Valuation Day, plus the amount of any
Purchase Payment made on the Current Valuation Day; and
(2)the Unadjusted Account Value on the current Valuation Day.
Once the first Lifetime Withdrawal is made, the Protected Withdrawal Value at
any time is equal to the greater of (i) the Protected Withdrawal Value on the
date of the first Lifetime Withdrawal, increased for subsequent Purchase
Payments and reduced for subsequent Lifetime Withdrawals, and (ii) the highest
daily Unadjusted Account Value upon any step-up, increased for subsequent
Purchase Payments and reduced for subsequent Lifetime Withdrawals (see the
examples that begin immediately prior to the sub-heading below entitled
"Example of dollar-for-dollar reductions").
Please note that if you elect Spousal Highest Daily Lifetime Income v2.1, your
Account Value is not guaranteed, can fluctuate and may lose value.
Key Feature - Annual Income Amount under Spousal Highest Daily Lifetime Income
v2.1
The Annual Income Amount is equal to a specified percentage of the Protected
Withdrawal Value at the first Lifetime Withdrawal and does not reduce in
subsequent Annuity Years, as described below. The percentage initially depends
on the age of the younger designated life on the date of the first Lifetime
Withdrawal after election of the benefit. The percentages are: 2.5% for ages
50 to 54; 3% for ages 55 to less than 59 1/2; 3.5% for ages 59 1/2 to 64; 4%
for ages 65 to 69; 4.5% for ages 70 to 84; and 5.5% for ages 85 or older. We
use the age of the younger designated life even if that designated life is no
longer a participant under the Annuity due to death or divorce. Under Spousal
Highest Daily Lifetime Income v2.1, if your cumulative Lifetime Withdrawals in
an Annuity Year are less than or equal to the Annual Income Amount, they will
not reduce your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year and also will reduce the Protected Withdrawal Value on a
dollar-for-dollar basis. If your cumulative Lifetime Withdrawals in an Annuity
Year are in excess of the Annual Income Amount for any Annuity Year ("Excess
Income"), your Annual Income Amount in subsequent years will be reduced
(except with regard to Required Minimum Distributions for this Annuity that
comply with our rules) by the result of the ratio of the Excess Income to the
Unadjusted Account Value immediately prior to such withdrawal (see examples of
this calculation below). Excess Income also will reduce the Protected
Withdrawal Value by the same ratio.
As discussed in this paragraph, when you make a partial withdrawal that is
subject to a CDSC and/or tax withholding, we will identify the amount that
includes not only the amount you actually receive, but also the amount of the
CDSC and/or tax withholding, to determine whether your withdrawal has exceeded
the Annual Income Amount. When you take a partial withdrawal, you may request
a "gross" withdrawal amount (e.g., $2,000) but then have any CDSC and/or tax
withholding deducted from the amount you actually receive (although an MVA may
also be applied to your remaining Unadjusted Account Value, it is not
considered for purposes of determining Excess Income). The portion of a
withdrawal that exceeded your Annual Income Amount (if any) would be treated
as Excess Income and thus would reduce your Annual Income Amount in subsequent
years. Alternatively, you may request that a "net" withdrawal amount actually
be paid to you (e.g., $2,000), with the understanding that any CDSC and/or tax
withholding (e.g., $240) be applied to your remaining Unadjusted Account Value
(although an MVA may also be applied to your remaining Unadjusted Account
Value, it is not considered for purposes of determining Excess Income). In the
latter scenario, we determine whether any portion of the withdrawal is to be
treated as Excess Income by looking to the sum of the net amount you actually
receive (e.g., $2,000) and the amount of any CDSC and/or tax withholding (in
this example, a total of $2,240). The amount of that sum (e.g., the $2,000 you
received plus the $240 for the CDSC and/or tax withholding) that exceeds your
Annual Income Amount will be treated as Excess Income - thereby reducing your
Annual Income Amount in subsequent years.
You may use the Systematic Withdrawal program to make withdrawals of the
Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime
Withdrawal under this benefit.
Any Purchase Payment that you make subsequent to the election of Spousal
Highest Daily Lifetime Income v2.1 and subsequent to the first Lifetime
Withdrawal will (i) immediately increase the then-existing Annual Income
Amount by an amount equal to a percentage of the Purchase Payment based on the
age of the younger designated life at the time of the first Lifetime
Withdrawal (the percentages are: 2.5% for ages 50 to 54; 3% for ages 55 to
less than 59 1/2; 3.5% for ages 59 1/2 to 64; 4% for ages 65 to 69; 4.5% for
ages 70 to 84; and 5.5% for ages 85 or older), and (ii) increase the Protected
Withdrawal Value by the amount of the Purchase Payment.
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While Spousal Highest Daily Lifetime Income v2.1 is in effect, we may limit,
restrict, suspend or reject any additional Purchase Payment at any time, but
would do so on a non-discriminatory basis. Circumstances where we may limit,
restrict, suspend or reject additional Purchase Payments include, but are not
limited to, the following:
.. if we determine that as a result of the timing and amounts of your
additional Purchase Payments and withdrawals, the Annual Income Amount is
being increased in an unintended fashion. Among the factors we will use in
making a determination as to whether an action is designed to increase the
Annual Income Amount in an unintended fashion is the relative size of
additional Purchase Payment(s);
.. if we are not then offering this benefit for new issues; or
.. if we are offering a modified version of this benefit for new issues.
If we exercise our right to restrict, suspend, reject and/or place limitations
on the acceptance of additional Purchase Payments, you may no longer be able
to fund your Spousal Highest Daily Lifetime Income v2.1 benefit. This means
that you may no longer be able to increase the values associated with your
Spousal Highest Daily Lifetime Income v2.1 benefit through additional Purchase
Payments.
We will exercise such reservation of right for all annuity purchasers in the
same class of annuity, in a non-discriminatory manner.
Highest Daily Auto Step-Up
An automatic step-up feature ("Highest Daily Auto Step-Up") is part of this
benefit. As detailed in this paragraph, the Highest Daily Auto Step-Up feature
can result in a larger Annual Income Amount subsequent to your first Lifetime
Withdrawal. The Highest Daily Step-Up starts with the anniversary of the Issue
Date of the Annuity (the "Annuity Anniversary") immediately after your first
Lifetime Withdrawal under the benefit. Specifically, upon the first such
Annuity Anniversary, we identify the Unadjusted Account Value on each
Valuation Day within the immediately preceding Annuity Year after your first
Lifetime Withdrawal. Having identified the highest daily value (after all
daily values have been adjusted for subsequent Purchase Payments and
withdrawals), we then multiply that value by a percentage that varies based on
the age of the younger designated life on the Annuity Anniversary as of which
the step-up would occur. The percentages are 2.5% for ages 50 to 54; 3% for
ages 55 to less than 59 1/2; 3.5% for ages 59 1/2 to 64; 4% for ages 65 to 69;
4.5% for ages 70 to 84; and 5.5% for ages 85 or older. If that value exceeds
the existing Annual Income Amount, we replace the existing amount with the
new, higher amount. Otherwise, we leave the existing Annual Income Amount
intact. We will not automatically increase your Annual Income Amount solely as
a result of your attaining a new age that is associated with a new age-based
percentage. The Unadjusted Account Value on the Annuity Anniversary is
considered the last daily step-up value of the Annuity Year. In later years
(i.e., after the first Annuity Anniversary after the first Lifetime
Withdrawal), we determine whether an automatic step-up should occur on each
Annuity Anniversary by performing a similar examination of the Unadjusted
Account Values that occurred on Valuation Days during the year. Taking
Lifetime Withdrawals could produce a greater difference between your Protected
Withdrawal Value and your Unadjusted Account Value, which may make a Highest
Daily Auto Step-up less likely to occur. At the time that we increase your
Annual Income Amount, we also increase your Protected Withdrawal Value to
equal the highest daily value upon which your step-up was based only if that
results in an increase to the Protected Withdrawal Value. Your Protected
Withdrawal Value will never be decreased as a result of an income step-up. If,
on the date that we implement a Highest Daily Auto Step-Up to your Annual
Income Amount, the charge for Spousal Highest Daily Lifetime Income v2.1 has
changed for new purchasers, you may be subject to the new charge at the time
of such step-up. Prior to increasing your charge for Spousal Highest Daily
Lifetime Income v2.1 upon a step-up, we would notify you, and give you the
opportunity to cancel the automatic step-up feature. If you receive notice of
a proposed step-up and accompanying fee increase, you should carefully
evaluate whether the amount of the step-up justifies the increased fee to
which you will be subject. Any such increased charge will not be greater than
the maximum charge set forth in the table entitled "Your Optional Benefit Fees
and Charges".
If you are enrolled in a Systematic Withdrawal program, we will not
automatically increase the withdrawal amount when there is an increase to the
Annual Income Amount. You must notify us in order to increase the withdrawal
amount of any Systematic Withdrawal program.
Spousal Highest Daily Lifetime Income v2.1 does not affect your ability to
take withdrawals under your Annuity, or limit your ability to take partial
withdrawals that exceed the Annual Income Amount. Under Spousal Highest Daily
Lifetime Income v2.1, if your cumulative Lifetime Withdrawals in an Annuity
Year are less than or equal to the Annual Income Amount, they will not reduce
your Annual Income Amount in subsequent Annuity Years, but any such
withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis
in that Annuity Year. If, cumulatively, you withdraw an amount less than the
Annual Income Amount in any Annuity Year, you cannot carry over the unused
portion of the Annual Income Amount to subsequent Annuity Years. If your
cumulative Lifetime Withdrawals in an Annuity Year exceed the Annual Income
Amount, your Annual Income Amount in subsequent years will be reduced (except
with regard to Required Minimum Distributions for this Annuity that comply
with our rules).
Because both the Protected Withdrawal Value and Annual Income Amount are
determined in a way that is not solely related to the Unadjusted Account
Value, it is possible for the Unadjusted Account Value to fall to zero, even
though the Annual Income Amount remains.
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Examples of dollar-for-dollar and proportional reductions, and the Highest
Daily Auto Step-Up are set forth below. The values shown here are purely
hypothetical, and do not reflect the charges for the Spousal Highest Daily
Lifetime Income v2.1 or any other fees and charges under the Annuity. Assume
the following for all three examples:
.. The Issue Date is November 1
.. Spousal Highest Daily Lifetime Income v2.1 is elected on August 1 of the
following calendar year
.. Both designated lives were 70 years old when they elected Spousal Highest
Daily Lifetime Income v2.1
.. The first withdrawal is a Lifetime Withdrawal
Unless otherwise indicated, all dates referenced hereafter in these examples
occur in the same year the benefit is elected and it is assumed that they fall
on consecutive business days.
Example of dollar-for-dollar reductions
On October 28, the Protected Withdrawal Value is $120,000, resulting in an
Annual Income Amount of $5,400 (since the younger designated life is between
the ages of 70 and 84 at the time of the first Lifetime Withdrawal, the Annual
Income Amount is 4.5% of the Protected Withdrawal Value, in this case 4.5% of
$120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the
remaining Annual Income Amount for that Annuity Year (up to and including
October 31) is $2,900. This is the result of a dollar-for-dollar reduction of
the Annual Income Amount ($5,400 less $2,500 = $2,900).
Example of proportional reductions
Continuing the previous example, assume an additional withdrawal of $5,000
occurs on October 29 and the Account Value at the time and immediately prior
to this withdrawal is $118,000. The first $2,900 of this withdrawal reduces
the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal
amount of $2,100 reduces the Annual Income Amount in future Annuity Years on a
proportional basis based on the ratio of the Excess Income to the Account
Value immediately prior to the Excess Income. (Note that if there were other
withdrawals in that Annuity Year, each would result in another proportional
reduction to the Annual Income Amount).
Here is the calculation:
Example of highest daily auto step-up
On each Annuity Anniversary date after the first Lifetime Withdrawal, the
Annual Income Amount is stepped-up if the appropriate percentage (based on the
younger designated life's age on that Annuity Anniversary) of the highest
daily value since your first Lifetime Withdrawal (or last Annuity Anniversary
in subsequent years), adjusted for withdrawals and additional Purchase
Payments, is greater than the Annual Income Amount, adjusted for Excess Income
and additional Purchase Payments.
Continuing the same example as above, the Annual Income Amount for this
Annuity Year is $5,400. However, the Excess Income on October 29 reduces the
amount to $5,301.72 for future years (see above). For the next Annuity Year,
the Annual Income Amount will be stepped up if 4.5% (since the younger
designated life is between 70 and 84 on the date of the potential step-up) of
the highest daily Unadjusted Account Value adjusted for withdrawals and
Purchase Payments, is greater than $5,301.72. Here are the calculations for
determining the daily values. Only the October 28 value is being adjusted for
Excess Income as the October 30, October 31 and November 1 Valuation Days
occur after the Excess Income on October 29.
* In this example, the Annuity Anniversary date is November 1. The Valuation
Dates are every day following the first Lifetime Withdrawal. In subsequent
Annuity Years Valuation Dates will be every day following the Annuity
Anniversary. The Annuity Anniversary Date of November 1 is considered the
final Valuation Date for the Annuity Year.
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** In this example, the first daily value after the first Lifetime Withdrawal
is $119,000 on October 28, resulting in an adjusted Annual Income Amount of
$5,355.00. This amount is adjusted on October 29 to reflect the $5,000
withdrawal. The calculations for the adjustments are:
. The Unadjusted Account Value of $119,000 on October 28 is first reduced
dollar-for-dollar by $2,900 ($2,900 is the remaining Annual Income
Amount for the Annuity Year), resulting in an Unadjusted Account Value
of $116,100 before the Excess Income.
. This amount ($116,100) is further reduced by 1.82% (this is the ratio in
the above example which is the Excess Income divided by the Account
Value immediately preceding the Excess Income) resulting in a Highest
Daily Value of $113,986.98.
. The adjusted October 29 Highest Daily Value, $113,986.98, is carried
forward to the next Valuation Date of October 30. At this time, we
compare this amount to the Unadjusted Account Value on October 30,
$113,000. Since the October 29 adjusted Highest Daily Value of
$113,986.98 is greater than the October 30 Unadjusted Account Value, we
will continue to carry $113,986.98 forward to the next Valuation Day of
October 31. The Unadjusted Account Value on October 31, $119,000.00,
becomes the final Highest Daily Value since it exceeds the $113,986.98
carried forward.
. The October 31 adjusted Highest Daily Value of $119,000.00 is also
greater than the November 1 Unadjusted Account Value, so we will
continue to carry $119,000.00 forward to the first Valuation Day of
November 1.
In this example, the final Highest Daily Value of $119,000.00 is converted to
an Annual Income Amount based on the applicable percentage of 4.5%, generating
an Annual Income Amount of $5,355.00. Since this amount is greater than the
current year's Annual Income Amount of $5,301.72 (adjusted for Excess Income),
the Annual Income Amount for the next Annuity Year, starting on November 1 and
continuing through October 31 of the following calendar year, will be
stepped-up to $5,355.00.
Non-Lifetime Withdrawal Feature
You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal")
under Spousal Highest Daily Lifetime Income v2.1. It is an optional feature of
the benefit that you can only elect at the time of your first withdrawal. You
cannot take a Non-Lifetime Withdrawal in an amount that would cause your
Annuity's Account Value, after taking the withdrawal, to fall below the
minimum Surrender Value (see "Surrenders--Surrender Value" in the prospectus).
This Non-Lifetime Withdrawal will not establish your initial Annual Income
Amount and the Periodic Value above will continue to be calculated. However,
the total amount of the withdrawal will proportionally reduce all guarantees
associated with Spousal Highest Daily Lifetime Income v2.1. You must tell us
at the time you take the partial withdrawal if your withdrawal is intended to
be the Non-Lifetime Withdrawal and not the first Lifetime Withdrawal under
Spousal Highest Daily Lifetime Income v2.1. If you don't elect the
Non-Lifetime Withdrawal, the first withdrawal you make will be the first
Lifetime Withdrawal that establishes your Annual Income Amount, which is based
on your Protected Withdrawal Value. Once you elect the Non-Lifetime Withdrawal
or Lifetime Withdrawals, no additional Non-Lifetime Withdrawals may be taken.
If you do not take a Non-Lifetime Withdrawal before beginning Lifetime
Withdrawals, you lose the ability to take it.
The Non-Lifetime Withdrawal will proportionally reduce the Protected
Withdrawal Value by the percentage the total withdrawal amount (including any
applicable CDSC) represents of the then current Account Value immediately
prior to the withdrawal.
If you are participating in a Systematic Withdrawal program, the first
withdrawal under the program cannot be classified as the Non-Lifetime
Withdrawal. Thus, the first withdrawal will be a Lifetime Withdrawal.
Example - Non-Lifetime Withdrawal (proportional reduction)
This example is purely hypothetical and does not reflect the charges for the
benefit or any other fees and charges under the Annuity. It is intended to
illustrate the proportional reduction of the Non-Lifetime Withdrawal under
this benefit. Assume the following:
.. The Issue Date is December 3
.. Spousal Highest Daily Lifetime Income v2.1 is elected on September 4 of the
following calendar year
.. The Unadjusted Account Value at benefit election was $105,000
.. Each designated life was 70 years old when he/she elected Spousal Highest
Daily Lifetime Income v2.1
.. No previous withdrawals have been taken under Spousal Highest Daily
Lifetime Income v2.1
On October 3 of the year the benefit is elected, the Protected Withdrawal
Value is $125,000 and the Account Value is $120,000. Assuming $15,000 is
withdrawn from the Annuity on that same October 3 and is designated as a
Non-Lifetime Withdrawal, all guarantees associated with Spousal Highest Daily
Lifetime Income v2.1 will be reduced by the ratio the total withdrawal amount
represents of the Account Value just prior to the withdrawal being taken.
Here is the calculation:
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Required Minimum Distributions
See the sub-section entitled "Required Minimum Distributions" in the section
above concerning Highest Daily Lifetime Income v2.1 for a discussion of the
relationship between the RMD amount and the Annual Income Amount.
Benefits Under Spousal Highest Daily Lifetime Income v2.1
.. To the extent that your Unadjusted Account Value was reduced to zero as a
result of cumulative Lifetime Withdrawals in an Annuity Year that are less
than or equal to the Annual Income Amount, and amounts are still payable
under Spousal Highest Daily Lifetime Income v2.1, we will make an
additional payment, if any, for that Annuity Year equal to the remaining
Annual Income Amount for the Annuity Year. Thus, in that scenario, the
remaining Annual Income Amount would be payable even though your Unadjusted
Account Value was reduced to zero. In subsequent Annuity Years we make
payments that equal the Annual Income Amount as described in this section.
We will make payments until the death of the first of the designated lives
to die, and will continue to make payments until the death of the second
designated life as long as the designated lives were spouses at the time of
the first death. After the Unadjusted Account Value is reduced to zero, you
are not permitted to make additional Purchase Payments to your Annuity. To
the extent that cumulative withdrawals in the Annuity Year that reduced
your Unadjusted Account Value to zero are more than the Annual Income
Amount, Spousal Highest Daily Lifetime Income v2.1 terminates, and no
additional payments will be permitted. However, if a withdrawal in the
latter scenario was taken to satisfy a Required Minimum Distribution (as
described above) under the Annuity then the benefit will not terminate, and
we will continue to pay the Annual Income Amount in subsequent Annuity
Years until the death of the second designated life provided the designated
lives were spouses at the death of the first designated life.
.. Please note that if your Unadjusted Account Value is reduced to zero, all
subsequent payments will be treated as annuity payments. Further, payments
that we make under this benefit after the Latest Annuity Date will be
treated as annuity payments. Also, any Death Benefit will terminate if
withdrawals reduce your Unadjusted Account Value to zero. This means that
any Death Benefit is terminated and no Death Benefit is payable if your
Unadjusted Account Value is reduced to zero as the result of either a
withdrawal in excess of your Annual Income Amount or less than or equal to,
your Annual Income Amount.
.. If annuity payments are to begin under the terms of your Annuity, or if you
decide to begin receiving annuity payments and there is an Annual Income
Amount due in subsequent Annuity Years, you can elect one of the following
two options:
(1)apply your Unadjusted Account Value, less any applicable state
required premium tax, to any annuity option available; or
(2)request that, as of the date annuity payments are to begin, we make
annuity payments each year equal to the Annual Income Amount. We will
make payments until the first of the designated lives to die, and
will continue to make payments until the death of the second
designated life as long as the designated lives were spouses at the
time of the first death. If, due to death of a designated life or
divorce prior to annuitization, only a single designated life
remains, then annuity payments will be made as a life annuity for the
lifetime of the designated life. We must receive your request in a
form acceptable to us at our office. If applying your Unadjusted
Account Value, less any applicable tax charges, to our current life
only (or joint life, depending on the number of designated lives
remaining) annuity payment rates results in a higher annual payment,
we will give you the higher annual payment.
.. In the absence of an election when mandatory annuity payments are to begin,
we currently make annual annuity payments as a joint and survivor or single
(as applicable) life fixed annuity with eight payments certain, by applying
the greater of the annuity rates then currently available or the annuity
rates guaranteed in your Annuity. We reserve the right at any time to
increase or decrease the certain period in order to comply with the Code
(e.g., to shorten the period certain to match life expectancy under
applicable Internal Revenue Service tables). The amount that will be
applied to provide such annuity payments will be the greater of:
(1)the present value of the future Annual Income Amount payments (if no
Lifetime Withdrawal was ever taken, we will calculate the Annual
Income Amount as if you made your first Lifetime Withdrawal on the
date the annuity payments are to begin). Such present value will be
calculated using the greater of the joint and survivor or single (as
applicable) life fixed annuity rates then currently available or the
joint and survivor or single (as applicable) life fixed annuity rates
guaranteed in your Annuity; and
(2)the Unadjusted Account Value.
Other Important Considerations
.. Withdrawals under the Spousal Highest Daily Lifetime Income v2.1 benefit
are subject to all of the terms and conditions of the Annuity, including
any applicable CDSC for the Non-Lifetime Withdrawal as well as partial
withdrawals that exceed the Annual Income Amount. If you have an active
Systematic Withdrawal program running at the time you elect this benefit,
the first systematic withdrawal that processes after your election of the
benefit will be deemed a Lifetime Withdrawal. Withdrawals made while
Spousal Highest Daily Lifetime Income v2.1 is in effect will be treated,
for tax purposes, in the same way as any other withdrawals under the
Annuity. Any withdrawals made under the benefit will be taken pro rata from
the Sub-accounts (including the AST Investment Grade Bond Sub-account) and
the DCA MVA Options. If you have an active Systematic Withdrawal program
running at the time you elect this benefit, the program must withdraw funds
pro rata.
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.. Any Lifetime Withdrawal that you take that is not a withdrawal of Excess
Income is not subject to a CDSC, even if the total amount of such
withdrawals in any Annuity Year exceeds the maximum Free Withdrawal amount.
Any Lifetime Withdrawal that is treated as Excess Income is subject to any
applicable CDSC, if the withdrawal is greater than the Free Withdrawal
amount. (See "Fees, Charges and Deductions - Contingent Deferred Sales
Charge ("CDSC")" and "Access to Account Value - Free Withdrawal Amounts" in
the prospectus)
.. You should carefully consider when to begin taking Lifetime Withdrawals. If
you begin taking withdrawals early, you may maximize the time during which
you may take Lifetime Withdrawals due to longer life expectancy, and you
will be using an optional benefit for which you are paying a charge. On the
other hand, you could limit the value of the benefit if you begin taking
withdrawals too soon. For example, withdrawals reduce your Unadjusted
Account Value and may limit the potential for increasing your Protected
Withdrawal Value. You should discuss with your Financial Professional when
it may be appropriate for you to begin taking Lifetime Withdrawals.
.. You cannot allocate Purchase Payments or transfer Unadjusted Account Value
to or from the AST Investment Grade Bond Sub-account. A summary description
of the AST Investment Grade Bond Portfolios appears in the prospectus
section entitled "Investment Options." In addition, you can find a copy of
the AST Investment Grade Bond Portfolio prospectus by going to
www.prudentialannuities.com.
.. Transfers to and from the Permitted Sub-accounts, the DCA MVA Options, and
the AST Investment Grade Bond Sub-account triggered by the pre-determined
mathematical formula will not count toward the maximum number of free
transfers allowable under an Annuity.
.. Upon inception of the benefit, 100% of your Unadjusted Account Value must
be allocated to the Permitted Sub-accounts. We may amend the Permitted
Sub-accounts from time to time. Changes to Permitted Sub-accounts, or to
the requirements as to how you may allocate your Unadjusted Account Value
with this benefit, will apply to new elections of the benefit and may apply
to current participants in the benefit. To the extent that changes apply to
current participants in the benefit, they will apply only upon
re-allocation of Unadjusted Account Value, or upon addition of additional
Purchase Payments. That is, we will not require such current participants
to re-allocate Unadjusted Account Value to comply with any new requirements.
.. If you elect this benefit and in connection with that election, you are
required to reallocate to different Sub-accounts, then on the Valuation Day
we receive your request in Good Order, we will (i) sell Units of the
non-permitted Sub-accounts and (ii) invest the proceeds of those sales in
the Sub-accounts that you have designated. During this reallocation
process, your Unadjusted Account Value allocated to the Sub-accounts will
remain exposed to investment risk, as is the case generally. The
newly-elected benefit will commence at the close of business on the
following Valuation Day. Thus, the protection afforded by the newly-elected
benefit will not begin until the close of business on the following
Valuation Day.
.. Any Death Benefit will terminate if withdrawals taken under Spousal Highest
Daily Lifetime Income v2.1 reduce your Unadjusted Account Value to zero.
This means that any Death Benefit is terminated and no Death Benefit is
payable if your Unadjusted Account Value is reduced to zero as the result
of either a withdrawal in excess of your Annual Income Amount or less than
or equal to, your Annual Income Amount. (See "Death Benefits" in the
prospectus for more information.)
.. The current charge for Spousal Highest Daily Lifetime Income v2.1 is 1.10%
annually of the greater of Unadjusted Account Value and Protected
Withdrawal Value. The maximum charge for Spousal Highest Daily Lifetime
Income v2.1 is 2.00% annually of the greater of the Unadjusted Account
Value and Protected Withdrawal Value. As discussed in "Highest Daily Auto
Step-Up" above, we may increase the fee upon a step-up under this benefit.
We deduct this charge on quarterly anniversaries of the benefit effective
date, based on the values on the last Valuation Day prior to the quarterly
anniversary. Thus, we deduct, on a quarterly basis, 0.275% of the greater
of the prior Valuation Day's Unadjusted Account Value, or the prior
Valuation Day's Protected Withdrawal Value. We deduct the fee pro rata from
each of your Sub-accounts, including the AST Investment Grade Bond
Sub-account. You will begin paying this charge as of the effective date of
the benefit even if you do not begin taking withdrawals for many years, or
ever. We will not refund the charges you have paid if you choose never to
take any withdrawals and/or if you never receive any lifetime income
payments.
If the deduction of the charge would result in the Unadjusted Account Value
falling below the lesser of $500 or 5% of the sum of the Unadjusted Account
Value on the effective date of the benefit plus all Purchase Payments made
subsequent thereto (we refer to this as the "Account Value Floor"), we will
only deduct that portion of the charge that would not cause the Unadjusted
Account Value to fall below the Account Value Floor. If the Unadjusted Account
Value on the date we would deduct a charge for the benefit is less than the
Account Value Floor, then no charge will be assessed for that benefit quarter.
Charges deducted upon termination of the benefit may cause the Unadjusted
Account Value to fall below the Account Value Floor. If a charge for Spousal
Highest Daily Lifetime Income v2.1 would be deducted on the same day we
process a withdrawal request, the charge will be deducted first, then the
withdrawal will be processed. The withdrawal could cause the Unadjusted
Account Value to fall below the Account Value Floor. While the deduction of
the charge (other than the final charge) may not reduce the Unadjusted Account
Value to zero, withdrawals may reduce the Unadjusted Account Value to zero. If
this happens and the Annual Income Amount is greater than zero, we will make
payments under the benefit.
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Election of and Designations under the Benefit
Spousal Highest Daily Lifetime Income v2.1 can only be elected based on two
designated lives. Designated lives must be natural persons who are each
other's spouses at the time of election of the benefit and at the death of the
first of the designated lives to die. Currently, Spousal Highest Daily
Lifetime Income v2.1 only may be elected if the Owner, Annuitant, and
Beneficiary designations are as follows:
.. One Annuity Owner, where the Annuitant and the Owner are the same person
and the sole Beneficiary is the Owner's spouse. Each Owner/Annuitant and
the Beneficiary must be at least 50 years old at the time of election; or
.. Co-Annuity Owners, where the Owners are each other's spouses. The
Beneficiary designation must be the surviving spouse, or the spouses named
equally. One of the Owners must be the Annuitant. Each Owner must be at
least 50 years old at the time of election; or
.. One Annuity Owner, where the Owner is a custodial account established to
hold retirement assets for the benefit of the Annuitant pursuant to the
provisions of Section 408(a) of the Internal Revenue Code (or any successor
Code section thereto) ("Custodial Account"), the Beneficiary is the
Custodial Account, and the spouse of the Annuitant is the Contingent
Annuitant. Each of the Annuitant and the Contingent Annuitant must be at
least 50 years old at the time of election.
We do not permit a change of Owner under this benefit, except as follows:
(a) if one Owner dies and the surviving spousal Owner assumes the Annuity, or
(b) if the Annuity initially is co-owned, but thereafter the Owner who is not
the Annuitant is removed as Owner. We permit changes of Beneficiary
designations under this benefit. However, if the Beneficiary is changed, the
benefit may not be eligible to be continued upon the death of the first
designated life. If the designated lives divorce, Spousal Highest Daily
Lifetime Income v2.1 may not be divided as part of the divorce settlement or
judgment. Nor may the divorcing spouse who retains ownership of the Annuity
appoint a new designated life upon re-marriage. A change in designated lives
will result in cancellation of Spousal Highest Daily Lifetime Income v2.1.
Spousal Highest Daily Lifetime Income v2.1 can be elected at the time that you
purchase your Annuity or after the Issue Date, subject to its availability,
and our eligibility rules and restrictions. If you elect Spousal Highest Daily
Lifetime Income v2.1 and terminate it, you can re-elect it, subject to our
current rules and availability. See "Termination of Existing Benefits and
Election of New Benefits" in the prospectus for information pertaining to
elections, termination and re-election of benefits. Please note that if you
terminate a living benefit and elect Spousal Highest Daily Lifetime Income
v2.1, you lose the guarantees that you had accumulated under your existing
benefit, and your guarantees under Spousal Highest Daily Lifetime Income v2.1
will be based on your Unadjusted Account Value on the effective date of
Spousal Highest Daily Lifetime Income v2.1. You and your Financial
Professional should carefully consider whether terminating your existing
benefit and electing Spousal Highest Daily Lifetime Income v2.1 is appropriate
for you. We reserve the right to waive, change and/or further limit the
election frequency in the future for new elections of this benefit.
If you wish to elect this benefit and you are currently participating in a
Systematic Withdrawal program, amounts withdrawn under the program must be
taken on a pro rata basis from your Annuity's Sub-accounts (i.e., in direct
proportion to the proportion that each such Sub-account bears to your total
Account Value) in order for you to be eligible for the benefit. Thus, you may
not elect Spousal Highest Daily Lifetime Income v2.1 so long as you
participate in a Systematic Withdrawal program in which withdrawals are not
taken pro rata.
Termination of the Benefit
You may terminate the benefit at any time by notifying us. If you terminate
the benefit, any guarantee provided by the benefit will terminate as of the
date the termination is effective, and certain restrictions on re-election may
apply.
The benefit automatically terminates upon the first to occur of the following:
(i) upon our receipt of Due Proof of Death of the first designated life, if
the surviving spouse opts to take the death benefit under the Annuity
(rather than continue the Annuity) or if the surviving spouse is not an
eligible designated life;
(ii)upon the death of the second designated life;
(iii)your termination of the benefit;
(iv)your surrender of the Annuity;
(v) your election to begin receiving annuity payments (although if you have
elected to take annuity payments in the form of the Annual Income Amount,
we will continue to pay the Annual Income Amount);
(vi)both the Unadjusted Account Value and Annual Income Amount equal zero due
to a withdrawal of Excess income;
(vii)you allocate or transfer any portion of your Account Value to any
Sub-account(s) to which you are not permitted to electively allocate or
transfer Account Value (may vary by state);* or
(viii)you cease to meet our requirements as described in "Election of and
Designations under the Benefit".
* Prior to terminating a benefit, we will send you written notice and provide
you with an opportunity to reallocate to permitted investment options
applicable to your benefit.
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"Due Proof of Death" is satisfied when we receive all of the following in Good
Order: (a) a death certificate or similar documentation acceptable to us;
(b) all representations we require or which are mandated by applicable law or
regulation in relation to the death claim and the payment of death proceeds
(representations may include, but are not limited to, trust or estate
paperwork (if needed); consent forms (if applicable); and claim forms from at
least one beneficiary); and (c) any applicable election of the method of
payment of the death benefit, if not previously elected by the Owner, by at
least one Beneficiary.
Upon termination of Spousal Highest Daily Lifetime Income v2.1 other than upon
the death of the second Designated Life or Annuitization, we impose any
accrued fee for the benefit (i.e., the fee for the pro-rated portion of the
year since the fee was last assessed), and thereafter we cease deducting the
charge for the benefit. This final charge will be deducted even if it results
in the Unadjusted Account Value falling below the Account Value Floor.
However, if the amount in the Sub-accounts is not enough to pay the charge, we
will reduce the fee to no more than the amount in the Sub-accounts. With
regard to your investment allocations, upon termination we will: (i) leave
intact amounts that are held in the Permitted Sub-accounts, and (ii) unless
you are participating in an asset allocation program (i.e., Static
Re-balancing Program, or 6 or 12 Month DCA Program for which we are providing
administrative support), transfer all amounts held in the AST Investment Grade
Bond Sub-account to your variable Investment Options, pro rata (i.e. in the
same proportion as the current balances in your variable Investment Options).
If, prior to the transfer from the AST Investment Grade Bond Sub-account, the
Unadjusted Account Value in the variable Investment Options is zero, we will
transfer such amounts to the AST Money Market Sub-account.
How Spousal Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account
Value Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account
See "How Highest Daily Lifetime Income v2.1 Transfers Unadjusted Account Value
Between Your Permitted Sub-accounts and the AST Investment Grade Bond
Sub-account" in the discussion of Highest Daily Lifetime Income v2.1 above for
information regarding this component of the benefit.
Additional Tax Considerations
Please see the Additional Tax Considerations section under Highest Daily
Lifetime Income v2.1 above.
THIS SUPPLEMENT SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
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