AS FILED WITH THE SEC ON ____________________. REGISTRATION NO. 2-80513
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-6
POST-EFFECTIVE AMENDMENT NO. 25
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
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PRUCO LIFE
VARIABLE INSURANCE ACCOUNT
(Exact Name of Trust)
PRUCO LIFE INSURANCE COMPANY
(Name of Depositor)
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(800) 437-4016
(Address and telephone number of principal executive offices)
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THOMAS C. CASTANO
ASSISTANT SECRETARY
PRUCO LIFE INSURANCE COMPANY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(Name and address of agent for service)
Copy to:
JEFFREY C. MARTIN
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036
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It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1998 pursuant to paragraph (b) of Rule 485
-----------
(date)
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on pursuant to paragraph (a) of Rule 485
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(date)
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY FORM N-8B-2)
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
1. Cover Page
2. Cover Page
3. Not Applicable
4. Sale of the Contract and Sales Commissions
5. Pruco Life Variable Insurance Account
6. Pruco Life Variable Insurance Account
7. Not Applicable
8. Not Applicable
9. Litigation
10. Brief Description of the Contract; Short-Term
Cancellation Right, or "Free Look"; Premiums; Premium
Adjustment; Allocation of Premiums; Transfers; Charges
and Expenses; How a Contract's Death Benefit Will
Vary; How a Contract's Cash Value Will Vary;
Withdrawal of a Portion of a Contract's Net Cash Value;
Surrender of a Contract for its Net Cash Value; When
Proceeds are Paid; Right to Exchange a Contract for a
Fixed-Benefit Whole-Life Policy; Lapse and
Reinstatement; Options on Lapse; Riders; Other General
Contract Provisions; Voting Rights; Substitution of
Series Fund Shares
11. Brief Description of the Contract; Pruco Life Variable
Insurance Account
12. Cover Page; Brief Description of the Contract; The
Prudential Series Fund, Inc.; Sale of the Contract and
Sales Commissions
13. Brief Description of the Contract; The Prudential
Series Fund, Inc.; Charges and Expenses; Sale of the
Contract and Sales Commissions
14. Brief Description of the Contract; Requirements for
Issuance of a Contract
15. Brief Description of the Contract; Allocation of
Premiums; Transfers
16. Brief Description of the Contract; Detailed Information
for Prospective Contract Owners
17. When Proceeds are Paid
18. Pruco Life Variable Insurance Account
19. Reports to Contract Owners
20. Not Applicable
21. Contract Loans
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
25. Pruco Life Insurance Company
26. Brief Description of the Contract; The Prudential
Series Fund, Inc.; Charges and Expenses
27. Pruco Life Insurance Company; The Prudential Series
Fund, Inc.
28. Pruco Life Insurance Company; Directors and Officers
29. Pruco Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Pruco Life Insurance Company
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions
39. Sale of the Contract and Sales Commissions
40. Not Applicable
41. Sale of the Contract and Sales Commissions
42. Not Applicable
43. Not Applicable
44. Brief Description of the Contract; The Prudential
Series Fund, Inc.; How a Contract's Death Benefit Will
Vary; How a Contract's Cash Value Will Vary
45. Not Applicable
46. Brief Description of the Contract; Pruco Life Variable
Insurance Account; The Prudential Series Fund, Inc.
47. Pruco Life Variable Insurance Account; The Prudential
Series Fund, Inc.
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Series Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
59. Financial Statements; Financial Statements of Pruco
Life Variable Insurance Account; Consolidated Financial
Statements of Pruco Life Insurance Company and
Subsidiaries
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
VARIABLE LIFE INSURANCE
PROSPECTUS
THE PRUCO LIFE
VARIABLE INSURANCE ACCOUNT
MAY 1, 1998
PRUCO LIFE INSURANCE COMPANY
<PAGE>
PROSPECTUS
MAY 1, 1998
PRUCO LIFE INSURANCE COMPANY
VARIABLE INSURANCE ACCOUNT
VARIABLE
LIFE INSURANCE
CONTRACTS
This prospectus describes a variable life insurance contract (the "Contract")
issued by Pruco Life Insurance Company ("Pruco Life"), a stock life insurance
company that is a wholly-owned subsidiary of The Prudential Insurance Company of
America ("Prudential"). As of January 1, 1992, these Contracts are no longer
available for sale. These Contracts provide whole-life insurance protection.
That is, they provide lifetime insurance coverage, as long as premiums are paid.
They also provide a cash value for the owner if the Contract is terminated
during the insured's lifetime. A Contract's death benefit varies monthly with
the investment performance of the subaccounts of the Pruco Life Variable
Insurance Account (the "Account") to which the owner allocates the net premiums.
Whatever the investment performance, however, it will not cause the death
benefit to be less than a guaranteed minimum amount (generally the face amount
specified in the Contract). The cash value of a Contract generally increases
with the payment of each premium, but it also varies daily with investment
performance. There is no guaranteed minimum cash value.
A Contract's net premiums and earnings on those premiums will be held in one or
more of the investment subaccounts of the Account or, pursuant to a real estate
investment option, in the Pruco Life Variable Contract Real Property Account
(the "Real Property Account"). The assets of each subaccount will be invested in
a corresponding portfolio of The Prudential Series Fund, Inc. (the "Series
Fund"). The attached prospectus for the Series Fund and its statement of
additional information describe the investment objectives of the thirteen
portfolios of the Series Fund in which net premiums under the Contracts may
currently be invested--the MONEY MARKET PORTFOLIO, the DIVERSIFIED BOND
PORTFOLIO, the GOVERNMENT INCOME PORTFOLIO, the CONSERVATIVE BALANCED PORTFOLIO,
the FLEXIBLE MANAGED PORTFOLIO, the HIGH YIELD BOND PORTFOLIO, the STOCK INDEX
PORTFOLIO, the EQUITY INCOME PORTFOLIO, the EQUITY PORTFOLIO, the PRUDENTIAL
JENNISON PORTFOLIO, the SMALL CAPITALIZATION STOCK PORTFOLIO, the GLOBAL
PORTFOLIO, and the NATURAL RESOURCES PORTFOLIO. Other subaccounts and portfolios
may be added in the future. The REAL PROPERTY ACCOUNT, through a partnership,
invests primarily in income-producing real property. The Real Property Account
is described in a prospectus that is attached to this one. This prospectus
describes the Contract generally and the Pruco Life Variable Insurance Account.
THE REPLACEMENT OF LIFE INSURANCE IS GENERALLY NOT IN THE INTEREST OF THE
CUSTOMER. IN MOST CASES, WHEN A CUSTOMER REQUIRES ADDITIONAL COVERAGE,
SUPPLEMENTING THE EXISTING POLICY BY PURCHASING ADDITIONAL INSURANCE OR A NEW
POLICY SHOULD BE REQUESTED, THEREBY PROTECTING THE BENEFITS OF THE ORIGINAL
POLICY. IF YOU ARE CONSIDERING REPLACING A POLICY, YOU SHOULD COMPARE THE
BENEFITS AND COSTS OF SUPPLEMENTING YOUR EXISTING POLICY WITH THE BENEFITS AND
COSTS OF PURCHASING THE CONTRACT DESCRIBED IN THIS PROSPECTUS AND YOU SHOULD
CONSULT WITH A QUALIFIED TAX ADVISOR.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ATTACHED TO
A CURRENT PROSPECTUS FOR THE PRUDENTIAL SERIES FUND, INC. AND A CURRENT
PROSPECTUS FOR THE PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 437-4016
<PAGE>
PROSPECTUS CONTENTS
PAGE
----
BRIEF DESCRIPTION OF THE CONTRACT........................................... 1
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, PRUCO LIFE
VARIABLE INSURANCE ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS
AVAILABLE UNDER THE CONTRACT.............................................. 2
PRUCO LIFE INSURANCE COMPANY.............................................. 2
PRUCO LIFE VARIABLE INSURANCE ACCOUNT..................................... 3
THE PRUDENTIAL SERIES FUND, INC........................................... 3
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT........................ 4
WHICH INVESTMENT OPTION SHOULD BE SELECTED................................ 4
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS........................ 5
REQUIREMENTS FOR ISSUANCE OF A CONTRACT................................... 5
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK".............................. 5
PREMIUMS.................................................................. 5
PREMIUM ADJUSTMENT........................................................ 6
ALLOCATION OF PREMIUMS.................................................... 6
CHARGES AND EXPENSES...................................................... 6
TRANSFERS................................................................. 8
HOW A CONTRACT'S DEATH BENEFIT WILL VARY.................................. 8
HOW A CONTRACT'S CASH VALUE WILL VARY..................................... 10
SURRENDER OF A CONTRACT FOR ITS NET CASH VALUE............................ 12
WITHDRAWAL OF A PORTION OF A CONTRACT'S NET CASH VALUE.................... 12
WHEN PROCEEDS ARE PAID.................................................... 13
LIVING NEEDS BENEFIT...................................................... 13
ILLUSTRATIONS OF CASH VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS.... 14
CONTRACT LOANS............................................................ 15
RIGHT TO EXCHANGE A CONTRACT FOR A FIXED-BENEFIT WHOLE-LIFE POLICY........ 16
SALE OF THE CONTRACT AND SALES COMMISSIONS................................ 16
TAX TREATMENT OF CONTRACT BENEFITS........................................ 16
LAPSE AND REINSTATEMENT................................................... 18
OPTIONS ON LAPSE.......................................................... 18
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS....... 20
OTHER GENERAL CONTRACT PROVISIONS......................................... 20
RIDERS.................................................................... 20
VOTING RIGHTS............................................................. 20
SUBSTITUTION OF SERIES FUND SHARES........................................ 21
REPORTS TO CONTRACT OWNERS................................................ 21
STATE REGULATION.......................................................... 21
EXPERTS................................................................... 21
LITIGATION................................................................ 22
YEAR 2000 COMPLIANCE...................................................... 22
ADDITIONAL INFORMATION.................................................... 22
FINANCIAL STATEMENTS...................................................... 22
DIRECTORS AND OFFICERS...................................................... 23
FINANCIAL STATEMENTS OF PRUCO LIFE VARIABLE INSURANCE ACCOUNT............... A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY
AND SUBSIDIARIES.......................................................... B1
ADDITIONAL ILLUSTRATIONS OF CASH VALUES, DEATH BENEFITS, AND
ACCUMULATED PREMIUMS...................................................... C1
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FOR THE
SERIES FUND, AND THE PROSPECTUS FOR THE REAL PROPERTY ACCOUNT.
<PAGE>
BRIEF DESCRIPTION OF THE CONTRACT
This variable life insurance contract (the "Contract") being offered by Pruco
Life Insurance Company ("Pruco Life") is in many respects similar to traditional
"fixed-benefit" whole-life insurance. In other respects it is quite different.
As with fixed-benefit whole-life insurance, the owner pays level premiums for a
Contract that provides lifetime insurance coverage on the named insured. Like
fixed-benefit whole-life insurance, a Contract has a cash value that the owner
may obtain by terminating the Contract. Also like fixed-benefit whole-life
insurance, a variety of optional benefits and riders may be added and may
require an additional premium. Finally, like fixed-benefit whole-life insurance,
the cash value of a Contract during the early years will be substantially lower
than the sum of the premiums paid. Under a fixed-benefit contract, there are a
fixed guaranteed death benefit and a cash value that increases at a guaranteed
rate as additional premiums are paid; in some such contracts, the insurer may
refund some of the premium as a dividend if its experience is better than the
assumptions upon which it made its guarantees. The variable life insurance
Contract described here also has a schedule of cash values and a guaranteed
minimum death benefit. The distinctive feature of this Contract is that the
premiums, after certain deductions are made, are placed in one or more separate
investment subaccounts of Pruco Life's Variable Insurance Account, and the death
benefit and cash value may increase or decrease, depending on the investment
performance of the selected subaccount[s]. There is no minimum cash value. But,
as long as no premium is in default and there is no loan on the Contract, the
death benefit will not be less than a guaranteed minimum amount (the face amount
specified in the Contract, unless the Contract owner has withdrawn part of the
Contract's cash value). See WITHDRAWAL OF A PORTION OF A CONTRACT'S NET CASH
VALUE, page 12. The smallest Contract has a face amount of $25,000. As of
January 1, 1992, these Contracts are no longer available for sale.
The owner of a Contract chooses the subaccount[s] of the Pruco Life Variable
Insurance Account (the "Account") into which the net premiums will be placed. At
present there are thirteen subaccounts, each of which is invested in a
corresponding portfolio of The Prudential Series Fund, Inc. (the "Series Fund"),
a series mutual fund to which The Prudential Insurance Company of America
("Prudential") acts as investment advisor. The MONEY MARKET PORTFOLIO is
invested in short-term debt obligations similar to those purchased by money
market funds; the DIVERSIFIED BOND PORTFOLIO is invested primarily in high
quality medium-term corporate and government debt securities; the GOVERNMENT
INCOME PORTFOLIO is invested primarily in US Government securities including
intermediate and long-term US Treasury securities and debt obligations issued by
agencies of or instrumentalities established, sponsored or guaranteed by the
U.S. Government; the CONSERVATIVE BALANCED PORTFOLIO is invested in a mix of
money market instruments, fixed income securities and common stock in
proportions believed by the investment manager to be appropriate for an investor
who desires diversification of investment who prefers a relatively lower risk of
loss and correspondingly reduced chance of high appreciation; the FLEXIBLE
MANAGED PORTFOLIO is invested in a mix of money market instruments, fixed income
securities and common stocks, in proportions believed by the investment manager
to be appropriate for an investor desiring diversification of investment who is
willing to accept a relatively high level of loss in an effort to achieve
greater appreciation; the HIGH YIELD BOND PORTFOLIO is invested primarily in
high yield fixed-income securities of medium to lower quality, also known as
high risk bonds; the STOCK INDEX PORTFOLIO is invested in common stocks selected
to duplicate the price and yield performance of the Standard & Poor's 500
Composite Stock Price Index; the EQUITY INCOME PORTFOLIO is invested primarily
in common stocks and convertible securities that provide favorable prospects for
investment income returns above those of the Standard & Poor's 500 Stock Index
or the NYSE Composite Index; the EQUITY PORTFOLIO is invested primarily in
common stocks; the PRUDENTIAL JENNISON PORTFOLIO is invested primarily in equity
securities of established companies with above-average growth prospects; the
SMALL CAPITALIZATION STOCK PORTFOLIO is invested in equity securities of
publicly-traded companies with small market capitalization; the GLOBAL PORTFOLIO
is invested primarily in common stocks and common stock equivalents (such as
convertible debt securities) of foreign and domestic issuers; the NATURAL
RESOURCES PORTFOLIO is invested primarily in common stocks and convertible
securities of natural resource companies, and in securities (typically debt
securities or preferred stock) the terms of which are related to the market
value of a natural resource. Further information about the Series Fund
portfolios can be found under THE PRUDENTIAL SERIES FUND, INC. on page 3.
The Contract owner may also invest a portion of his or her net premiums in the
Pruco Life Variable Contract Real Property Account (the "Real Property
Account"), which, through a partnership, invests primarily in income-producing
real property. If a Contract owner elects to invest a portion of his or her net
premiums in the Real Property Account, the assets will be maintained in a
subaccount of the Real Property Account related to the Contract that provides
the mechanism and maintains the records whereby the various Contract charges are
made. The investment objectives of the Real Property Account and the partnership
are described briefly under PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
on page 4.
Because the assets that relate to the Contract may be invested in these various
investment options, the Contract offers an opportunity for the cash value to
appreciate more rapidly than it would under comparable fixed-benefit
1
<PAGE>
whole-life insurance. But the owner must accept the risk that if investment
performance is unfavorable the cash value may not appreciate as rapidly and,
indeed, may decrease in value.
Pruco Life deducts certain charges from each premium payment and from the
amounts held in the designated investment options. All these charges, which are
largely designed to cover insurance costs and risks as well as sales and
administrative expenses, are fully described under CHARGES AND EXPENSES on page
6. In brief, and subject to that fuller description, the following charges may
be made: (1) an annual administrative charge of $30 if premiums are paid
annually, $32 if paid semi-annually, $36 if paid quarterly, and $48 if paid
monthly; (2) a one-time first-year administrative charge upon each premium of up
to $5 for each $1,000 of face amount if premiums are paid annually, $2.52 if
paid semi-annually, $1.27 if paid quarterly, and $0.43 if paid monthly; (3)
sales load charges of not more than 30% of the basic premium in the first
Contract year, not more than 10% of the basic premium in the second year, and
not more than 9% of the sum of the basic premiums to be paid in the first 20
years; (4) a premium tax charge of 2% is deducted from each basic premium; (5) a
guaranteed minimum death benefit risk charge of not more than 1.2% of each basic
premium; (6) each month, a charge for anticipated mortality based on the 1980
CSO Tables is deducted; (7) a daily charge equivalent to an annual rate of 0.35%
is deducted from the assets of the subaccounts for mortality and expense risks;
(8) if the Contract includes riders, a deduction from each premium payment will
be made for charges applicable to those riders; and (9) certain fees and
expenses are deducted from the assets of the Series Fund and Real Property
Account. Because of these charges, prospective purchasers should purchase a
Contract only if they intend and have the financial capability to keep it in
force for a substantial period. The death benefit increases or decreases monthly
(but not below the guaranteed minimum amount) depending on the investment
results of the subaccount[s] and/or the Real Property Account in which the
Contract participates. It does not change simply because a premium is paid. The
cash value also changes at a rate that depends upon the investment results, but
these changes take place daily rather than monthly. Each premium payment has the
effect of adding to the cash value. For more detailed information about how the
death benefit and cash value change, see HOW A CONTRACT'S DEATH BENEFIT WILL
VARY, page 8 and HOW A CONTRACT'S CASH VALUE WILL VARY, page 10.
For a limited time, a Contract may be returned for a refund in accordance with
the terms of its "free look" provision. See SHORT-TERM CANCELLATION RIGHT OR
"FREE LOOK", page 5.
Each owner should retain a copy of the Contract document. That document,
together with the attached application, constitutes the entire agreement between
the owner and Pruco Life.
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE
COMPANY, PRUCO LIFE VARIABLE INSURANCE ACCOUNT,
AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE
UNDER THE CONTRACT
PRUCO LIFE INSURANCE COMPANY
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 Prudential, a mutual insurance
company founded in 1875 under the laws of the State of New Jersey. Prudential is
currently considering reorganizing itself into a stock company. This form of
reorganization, known as demutualization, is a complex process that may take two
or more years to complete. No plan of demutualization has been adopted yet by
the Company's Board of Directors. Adoption of a plan of demutualization would
occur only after enactment of appropriate legislation in New Jersey and would
have to be approved by Company policyholders and appropriate state insurance
regulators. Throughout the process, there will be a continuing evaluation by the
Board of Directors and management of the Company as to the desirability of
demutualization. The Board of Directors, in its discretion, may choose not to
demutualize or to delay demutualization for a time.
Should Prudential convert to a stock company, the allocation of stock, cash or
other benefits to policyholders and Contract owners would be made in accordance
with procedures set forth in the plan of demutualization. In recent
demutualizations, policyholders and contract owners of the converting mutual
insurer have been eligible to receive consideration while policyholders and
contract owners of the insurer's stock subsidiaries have not. It has not yet
been determined whether any exceptions to that general approach will be made
with respect to policyholders and Contract owners of Prudential's subsidiaries,
including the Pruco Life insurance companies.
As of December 31, 1997, Prudential has invested over $442 million in Pruco Life
in connection with Pruco Life's organization and operation. Prudential may from
time to time make additional capital contributions to Pruco Life as needed to
enable it to meet its reserve requirements and expenses in connection with its
business. Prudential
2
<PAGE>
is under no obligation to make such contributions and its assets do not back the
benefits payable under the Contract. Pruco Life's consolidated financial
statements begin on page B1 and should be considered only as bearing upon Pruco
Life's ability to meet its obligations under the Contracts.
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
The Pruco Life Variable Insurance Account (the "Account") was established on
November 10, 1982 under Arizona law as a separate investment account. The
Account meets the definition of a "separate account" under the federal
securities laws. The Account holds assets that are segregated from all of Pruco
Life's other assets.
The obligations to Contract owners and beneficiaries arising under the Contract
are general corporate obligations of Pruco Life. Pruco Life is also the legal
owner of the assets in the Account. Pruco Life will maintain assets in the
Account with a total market value at least equal to the reserve and other
liabilities relating to the variable benefits attributable to the Account. These
assets may not be charged with liabilities which arise from any other business
Pruco Life conducts. In addition to these assets, the Account's assets may
include funds contributed by Pruco Life to commence operation of the Account and
may include accumulations of the charges Pruco Life makes against the Account.
From time to time these additional assets will be transferred to Pruco Life's
general account. Before making any such transfer, Pruco Life will consider any
possible adverse impact the transfer might have on the Account.
The Account is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 ("1940 Act") as a unit investment
trust, which is a type of investment company. This does not involve any
supervision by the SEC of the management or investment policies or practices of
the Account. For state law purposes, the Account is treated as a part or
division of Pruco Life. There are currently thirteen subaccounts within the
Account, each of which invests in a single corresponding portfolio of the Series
Fund. Additional subaccounts may be added in the future. The Account's financial
statements begin on page A1.
THE PRUDENTIAL SERIES FUND, INC.
The Prudential Series Fund, Inc. (the "Series Fund") is registered under the
1940 Act as an open-end diversified management investment company. Its shares
are currently sold only to separate accounts of Prudential and certain other
insurers that offer variable life insurance and variable annuity contracts. On
October 31, 1986, the Pruco Life Series Fund, Inc., an open-end, diversified
management investment company which sold its shares only to separate accounts of
Pruco Life and Pruco Life Insurance Company of New Jersey, was merged into the
Series Fund. Prior to that date, the Account invested only in shares of the
Pruco Life Series Fund, Inc. The Account will purchase and redeem shares from
the Series Fund at net asset value. Shares will be redeemed to the extent
necessary for Pruco Life to provide benefits under the Contract and to transfer
assets from one subaccount to another, as requested by Contract owners. Any
dividend or capital gain distribution received from a portfolio of the Series
Fund will be reinvested immediately at net asset value in shares of that
portfolio and retained as assets of the corresponding subaccount.
Prudential is the investment advisor for the assets of each of the portfolios of
the Series Fund. Prudential's principal business address is 751 Broad Street,
Newark, New Jersey 07102-3777. Prudential has a Service Agreement with its
wholly-owned subsidiary The Prudential Investment Corporation ("PIC"), which
provides that, subject to Prudential's supervision, PIC will furnish investment
advisory services in connection with the management of the Series Fund. In
addition, Prudential has entered into a Subadvisory Agreement with its
wholly-owned subsidiary Jennison Associates Capital Corp. ("Jennison"), under
which Jennison furnishes investment advisory services in connection with the
management of the Prudential Jennison Portfolio. Further detail is provided in
the prospectus and statement of additional information for the Series Fund.
Prudential, PIC, and Jennison are registered as investment advisors under the
Investment Advisers Act of 1940.
As an investment advisor, Prudential charges the Series Fund a daily investment
management fee as compensation for its services. In addition to the investment
management fee, each portfolio incurs certain expenses, such as accounting and
custodian fees. See CHARGES AND EXPENSES, page 6.
It is conceivable that in the future it may become disadvantageous for both
variable life insurance and variable annuity contract separate accounts to
invest in the same underlying mutual fund. Although neither the companies which
invest in the Series Fund, nor the Series Fund currently foresees any such
disadvantage, the Series Fund's Board of Directors intends to monitor events in
order to identify any material conflict between variable life insurance and
variable annuity contract owners and to determine what action, if any, should be
taken in response thereto. Material conflicts could result from such things as:
(1) changes in state insurance law; (2) changes in federal income tax law; (3)
changes in the investment management of any portfolio of the Series Fund; or (4)
differences between voting instructions given by variable life insurance and
variable annuity contract owners.
3
<PAGE>
A FULL DESCRIPTION OF THE SERIES FUND, ITS INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, AND RESTRICTIONS, ITS EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN--INCLUDING ANY RISKS ASSOCIATED WITH INVESTMENT IN THE HIGH YIELD BOND
PORTFOLIO, AND ALL OTHER ASPECTS OF ITS OPERATION IS CONTAINED IN THE ATTACHED
PROSPECTUS FOR THE SERIES FUND AND IN ITS STATEMENT OF ADDITIONAL INFORMATION,
WHICH SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS. THERE IS NO ASSURANCE
THAT THE INVESTMENT OBJECTIVES WILL BE MET.
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
The Pruco Life Variable Contract Real Property Account (the "Real Property
Account") is a separate account of Pruco Life that, through a general
partnership formed by Prudential and two of its subsidiaries, invests primarily
in income-producing real property such as office buildings, shopping centers,
agricultural land, hotels, apartments or industrial properties. It also invests
in mortgage loans and other real estate-related investments, including
sale-leaseback transactions. The objectives of the Real Property Account and the
partnership are to preserve and protect capital, provide for compounding of
income as a result of reinvestment of cash flow from investments, and provide
for increases over time in the amount of such income through appreciation in the
value of assets.
The partnership has entered into an investment management agreement with
Prudential, under which Prudential selects the properties and other investments
held by the partnership. Prudential charges the partnership a daily fee for
investment management which amounts to 1.25% per year of the average daily gross
assets of the partnership.
A FULL DESCRIPTION OF THE REAL PROPERTY ACCOUNT, ITS MANAGEMENT, POLICIES, AND
RESTRICTIONS, ITS CHARGES AND EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN, THE PARTNERSHIP'S INVESTMENT OBJECTIVES, AND ALL OTHER ASPECTS OF THE
REAL PROPERTY ACCOUNT'S AND THE PARTNERSHIP'S OPERATIONS IS CONTAINED IN THE
ATTACHED PROSPECTUS FOR THE REAL PROPERTY ACCOUNT, WHICH SHOULD BE READ TOGETHER
WITH THIS PROSPECTUS BY ANY CONTRACT OWNER CONSIDERING THE REAL ESTATE
INVESTMENT OPTION. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVES WILL BE
MET.
WHICH INVESTMENT OPTION SHOULD BE SELECTED?
A broad objective of the Contract is to provide benefits that will increase in
value if favorable investment results are achieved. Contract owners have a large
number of options as to how the amounts credited to their Contracts will be
invested. Historically, for investments held over relatively long periods, the
investment performance of common stocks has generally been superior to that of
short or long-term debt securities, even though common stocks have been subject
to much more dramatic changes in value over short periods of time. Accordingly,
the Stock Index, Equity Income, Equity, Prudential Jennison, Small
Capitalization Stock, Global, or Natural Resources Portfolios may be desirable
options for Contract owners who are willing to accept such volatility in their
Contract values. Each of these equity portfolios involves somewhat different
investment risks, policies, and programs.
Some Contract owners may prefer the somewhat greater protection against loss of
principal (and reduced chance of high total return) provided by the Government
Income or Diversified Bond Portfolios, while others, who desire even greater
safety of principal, may prefer the Money Market Portfolio, recognizing that the
level of short-term rates may change rather rapidly. Contract owners not
interested in common stocks but willing to take risks and seeking the
possibility of a high total return may prefer the High Yield Bond Portfolio,
recognizing that with higher yielding, lower quality bonds the risks are
greater. Some Contract owners may wish to divide their funds among two or more
of the portfolios. Some may wish to obtain diversification by relying on
Prudential's judgment for an appropriate asset mix by choosing one of the
Balanced Portfolios. The Real Property Account permits a Contract owner to
diversify his or her investment under the Contract to include an interest in a
pool of income-producing real property, and real estate is often considered to
be a hedge against inflation.
Each Contract owner must make his or her own choice that takes into account how
willing he or she is to accept investment risks, the manner in which his or her
other assets are invested, and his or her own predictions about what investment
results are likely to be in the future. Prudential recommends against frequent
transfers among the several options as experience generally indicates that
"market timing" investing, particularly by non-professional investors, is likely
to prove unsuccessful. See TRANSFERS, page 8.
4
<PAGE>
DETAILED INFORMATION FOR PROSPECTIVE
CONTRACT OWNERS
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
As of January 1, 1992, these Contracts are no longer available for sale. The
minimum initial guaranteed death benefit that can be applied for is $25,000. The
Contract generally is issued on insureds below the age of 76. Before issuing any
Contract, Pruco Life requires evidence of insurability which may include a
medical examination. Non-smokers who meet preferred underwriting requirements
are offered the most favorable premium rate. A higher premium is charged if an
extra mortality risk is involved. These are the current underwriting
requirements. The Company reserves the right to change them on a
non-discriminatory basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, a Contract may be returned for a refund within 10 days after it is
received by the Contract owner, within 45 days after Part I of the application
for insurance is signed or within 10 days after Pruco Life mails or delivers a
Notice of Withdrawal Right, whichever is latest. Some states allow a longer
period of time during which a Contract may be returned for a refund. A refund
can be requested by mailing or delivering the Contract to the representative who
sold it or to the Home Office specified in the Contract. A Contract returned
according to this provision shall be deemed void from the beginning. The
Contract owner will then receive a refund of all premium payments made, plus or
minus any change due to investment experience. However, if applicable law so
requires, the Contract owner who exercises his or her short-term cancellation
right will receive a refund of all premium payments made, with no adjustment for
investment experience.
PREMIUMS
Premiums on the Contract are level, fixed, and payable in advance during the
insured's lifetime on an annual, semi-annual, quarterly or monthly basis. If
paid more often than annually, an extra fee will be charged to compensate Pruco
Life for the additional processing costs (see CHARGES AND EXPENSES, page 6) and
for the loss of interest (computed generally at an annual rate of 8%) incurred
because premiums are paid throughout rather than at the beginning of each
Contract year. The premium amount depends on the Contract's face amount, the
insured's sex (except where unisex rates apply) and age at issue, and the
insured's risk classification. Contract owners who pay premiums other than on a
monthly basis will receive notice that a premium is due about 3 weeks before
each due date. Contract owners who pay premiums monthly will receive each year a
book with twelve coupons that will serve as a reminder. With Pruco Life's
consent, an owner may change the frequency of premium payments.
A Contract owner may elect to have monthly premiums paid automatically under the
"Pru-Matic Premium Plan" by pre-authorized transfers from a bank checking
account. Some Contract owners may also be eligible to have monthly premiums paid
by pre-authorized deductions from an employer's payroll.
The following table shows representative standard and preferred annual premium
amounts for various face amounts:
- --------------------------------------------------------------------------
| $25,000 FACE | $100,000 FACE
| AMOUNT | AMOUNT
|--------------------------|-----------------------------
| Preferred | Standard | Preferred | Standard
- -----------------|-------------|------------|--------------|--------------
Male, age 25 | $270.00 | $283.25 | $ 990.00 | $1,043.00
at issue | | | |
- -----------------|-------------|------------|--------------|--------------
Female, age 35 | $333.75 | $342.75 | $1,245.00 | $1,281.00
at issue | | | |
- -----------------|-------------|------------|--------------|--------------
Male, age 40 | $449.00 | $484.50 | $1,706.00 | $1,848.00
at issue | | | |
- --------------------------------------------------------------------------
The following table compares annual and monthly premiums for insureds who are
standard risks. Note that in these examples the sum of 12 monthly premiums for a
particular Contract is approximately 105% to 110% of the annual premium for that
Contract.
5
<PAGE>
- --------------------------------------------------------------------------
| $25,000 FACE | $100,000 FACE
| AMOUNT | AMOUNT
|--------------------------|-----------------------------
| Monthly | Annual | Monthly | Annual
- -----------------|-------------|------------|-------------|---------------
Male, age 25 | $26.00 | $283.25 | $ 92.00 | $1,043.00
at issue | | | |
- -----------------|-------------|------------|-------------|---------------
Female, age 35 | $31.00 | $342.75 | $112.00 | $1,281.00
at issue | | | |
- -----------------|-------------|------------|-------------|---------------
Male, age 40 | $43.25 | $484.50 | $161.00 | $1,848.00
at issue | | | |
- --------------------------------------------------------------------------
There is a grace period of 31 days for each premium except the first one. During
the grace period, the Contract will continue in effect. A Contract will lapse if
a premium has not been paid by the end of the grace period. Upon lapse, the
Contract owner will have several options. These may include continuing the
amount of insurance coverage in effect on the due date of the unpaid premium,
less any Contract debt, for a fixed period, continuing a lesser amount of
insurance for the lifetime of the insured, or surrender of the Contract for its
net cash value. See OPTIONS ON LAPSE, page 18.
PREMIUM ADJUSTMENT
If the insured dies during the grace period before the premium is paid, the
portion of the unpaid premium that covers the period from the due date to the
date of death will be deducted from the death benefit. If the insured dies while
no premium is in default, Pruco Life will increase the death benefit by the
portion of the last premium that covers the period subsequent to the date of
death.
ALLOCATION OF PREMIUMS
Net premium payments--that is, the amount of the premiums less the deductions
described below in items 1 through 5 under Charges and Expenses--will be placed
as of the end of the valuation period when due (not when received) in one or
more subaccounts of the Account and/or the Real Property Account, as directed by
the Contract owner. Any premium payments received prior to the due date will be
held in Pruco Life's general account, and the net premium will not be credited
to the investment option selected by a Contract owner until the due date.
Provided the Contract is not in default, the Contract owner may change the way
in which subsequent premiums are allocated by giving written notice to a Home
Office or by telephoning that Home Office, provided the Contract owner is
enrolled to use the Telephone Transfer System. There is no charge for
reallocating future net premiums. If any portion of a net premium is allocated
to a particular investment option, that portion must be at least 10% on the date
the allocation takes effect. All percentage allocations must be in whole
numbers. For example, 33% can be selected but 33 1/3% cannot.
CHARGES AND EXPENSES
The deductions and charges made by Pruco Life that are described below,
excluding those fees and expenses relating to the Series Fund portfolios, will
not be increased with respect to any Contract in effect, regardless of any
changes in longevity or increases in expenses; Series Fund portfolio charges
will vary from year to year.
1. If premiums are paid annually, there is an annual administrative
charge of $30 for administrative expenses incurred, among other
things, for billing, collecting premiums, processing claims, paying
cash values, making Contract changes, keeping records, and
communicating with Contract owners. If premiums are paid more
frequently, the annual administrative charge will be higher to reflect
the additional expense incurred in collecting and processing more
frequent premiums. The charge will be $32 if premiums are paid
semi-annually, $36 if premiums are paid quarterly, and $48 if premiums
are paid monthly. During 1997, 1996, and 1995, Pruco Life received a
total of approximately $3,438,597, $3,627,668, and $3,804,569,
respectively, in annual administrative charges.
2. There is a charge to compensate Pruco Life for the cost of selling the
Contract. This cost includes sales commissions, advertising, and the
printing of prospectuses and sales literature. This charge is
generally called the "sales load." It is not more than 30% of the
basic premium (defined below) in the first Contract year, not more
than 10% of the basic premium in the second year, and not more than 9%
of the sum of the basic premiums to be paid in the first 20 years.
Also, in any year it is never more than in a prior year. The basic
premium is what the gross annual premium for the Contract, less the
annual administrative charge, would be if the insured were in the
standard rating class and if the Contract had no optional insurance
benefits. During
6
<PAGE>
1997, 1996, and 1995, Pruco Life received a total of approximately
$3,191,485, $3,382,821, and $3,612,789, respectively, in sales load
charges.
3. There is a charge of 2% of each basic premium for state and local
premium-based taxes. The applicable statutory tax rules differ from
state to state, and in some states by locality. Pruco Life may collect
more or less for this charge than it actually pays for premium taxes.
To the extent that the 2% rate is insufficient to pay taxes in all
jurisdictions, the difference will be borne by Pruco Life. During
1997, 1996, and 1995, Pruco Life received a total of approximately
$638,962, $678,538, and $723,689, respectively, in charges for payment
of state premium taxes.
4. There is a charge of not more than 1.2% of each basic premium to
compensate Pruco Life for the risk that an insured may die at a time
when the death benefit exceeds the benefit that would have been
payable in the absence of a minimum guarantee. During 1997, 1996, and
1995, Pruco Life received a total of approximately $383,377, $407,123,
and $434,213, respectively, for this risk charge. When premiums are
paid more frequently than annually, these charges will be deducted
proportionately from each premium payment. If there is an extra
premium for optional insurance benefits or for an extra mortality
risk, or if there is a premium discount because the insured is in the
preferred rating class, the amount allocated to the separate account
will be equal to the amount that would have been allocated if the
insured had been in the standard rating class and there were no
optional insurance benefits.
5. Apart from the deductions from gross premiums just described, the
amounts held in the Account and/or the Real Property Account
attributable to each Contract are subject to a mortality charge and
are reduced once a month to compensate Pruco Life for the anticipated
cost of paying death benefits to the beneficiaries of those persons
who die during that period. The amount of this reduction is based on
the 1980 Commissioner's Standard Ordinary Mortality Table (the "1980
CSO Table").
6. There is also a daily charge to the Account and/or the Real Property
Account for the mortality and expense risks that Pruco Life assumes.
This charge is made daily at an effective annual rate of 0.35% of the
value of the Account's and/or the Real Property Account's assets. The
mortality risk assumed is that insureds may live for a shorter period
of time than that predicted by the 1980 CSO Table. The expense risk
assumed is that expenses incurred in issuing and administering the
Contracts will be greater than Pruco Life estimated. During 1997,
1996, and 1995, Pruco Life received a total of approximately
$1,281,999, $1,107,590, and $952,424, respectively, in mortality and
expense risk charges.
7. If the Contract includes riders, a deduction from each premium payment
will be made for charges applicable to those riders.
8. An investment advisory fee is deducted daily from each portfolio at a
rate, on an annualized basis, from 0.35% for the Stock Index Portfolio
to 0.75% for the Global Portfolio. The expenses incurred in conducting
the investment operations of the portfolios (such as custodian fees
and preparation and distribution of annual reports) are paid out of
the portfolio's income.
The total expenses of each portfolio for the year 1997 expressed as a
percentage of the average assets during the year are shown below:
- --------------------------------------------------------------------------------
| | OTHER | TOTAL
| INVESTMENT | EXPENSES | EXPENSES
PORTFOLIO | ADVISORY | (AFTER EXPENSE | (AFTER EXPENSE
| FEE | REIMBURSEMENT)* | REIMBURSEMENT)*
- ----------------------------|--------------|-----------------|------------------
MONEY MARKET | 0.40% | 0.00%* | 0.40%*
DIVERSIFIED BOND | 0.40% | 0.00%* | 0.40%*
GOVERNMENT INCOME | 0.40% | 0.04% | 0.44%
CONSERVATIVE BALANCED | 0.55% | 0.00%* | 0.40%*
FLEXIBLE MANAGED | 0.60% | 0.00%* | 0.40%*
HIGH YIELD BOND | 0.55% | 0.02% | 0.57%
STOCK INDEX | 0.35% | 0.02% | 0.37%
EQUITY INCOME | 0.40% | 0.01% | 0.41%
EQUITY | 0.45% | 0.00%* | 0.40%*
PRUDENTIAL JENNISON | 0.60% | 0.04% | 0.64%
SMALL CAPITALIZATION STOCK | 0.40% | 0.10% | 0.50%
GLOBAL | 0.75% | 0.10% | 0.85%
NATURAL RESOURCES | 0.45% | 0.09% | 0.54%
- --------------------------------------------------------------------------------
7
<PAGE>
* Some investment management fees and expenses charged to the Series Fund may
be higher than those that were previously charged to the Pruco Life Series
Fund, Inc. (0.4%), in which the Account previously invested. For the Money
Market, Diversified Bond, Conservative Balanced, Flexible Managed, and
Equity Portfolios, Pruco Life will make daily adjustments that will offset
the effect on Contract owners of any higher investment management fees and
expenses charged against the Series Fund. Without such adjustments the
portfolio expenses indirectly borne by a Contract owner, expressed as a
percentage of the average daily net assets by portfolio, would have been
0.43% for the Money Market Portfolio, 0.43% for the Diversified Bond
Portfolio, 0.56% for the Conservative Balanced Portfolio, 0.62% for the
Flexible Managed Portfolio and 0.46% for the Equity Portfolio. No such
offset will be made with respect to the remaining portfolios, which had no
counterparts in the Pruco Life Series Fund, Inc.
The earnings of the Account are taxed as part of the operations of Pruco Life.
No charge is being made currently to the Account for Company federal income
taxes. Pruco Life will review the question of a charge to the Account for
Company federal income taxes periodically. Such a charge may be made in future
years for any federal income taxes that would be attributable to the Contracts.
Under current laws Pruco Life may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant
and they are not charged against the Contracts or the Account. If there is a
material change in applicable state or local tax laws, the imposition of any
such taxes upon Pruco Life that are attributable to the Account may result in a
corresponding charge against the Account.
More detailed information is contained in the attached prospectus for the Series
Fund and its statement of additional information.
TRANSFERS
Provided no premium is overdue or if the Contract is in force as variable
reduced paid-up insurance (see OPTIONS ON LAPSE, page 18), the owner may, up to
four times in each Contract year, transfer amounts from one subaccount to
another subaccount or to the Real Property Account. Currently, Contract owners
may make additional transfers with our consent. There is no charge. All or a
portion of the amount credited to a subaccount may be transferred. Transfers to
and from the Real Property Account are subject to restrictions described in the
prospectus for that investment option.
Transfers among subaccounts or to the Real Property Account will take effect as
of the end of the valuation period in which a proper transfer request is
received at a Home Office. The "valuation period" means the period of time from
one determination of the value of the amount invested in a subaccount to the
next. Such determinations are made when the net asset values of the portfolios
of the Series Fund are calculated, which is generally at 4:15 p.m. New York City
time on each day during which the New York Stock Exchange is open. The request
may be in terms of dollars, such as a request to transfer $10,000 from one
subaccount to another, or may be in terms of a percentage reallocation among
subaccounts. In the latter case, as with premium reallocations, the percentages
must be in whole numbers. The Contract owner may transfer amounts by proper
written notice to a Home Office or by telephone, provided the Contract owner is
enrolled to use the Telephone Transfer System. Contract owners will
automatically be enrolled to use the Telephone Transfer System unless the
Contract is jointly owned or the Contract owner elects not to have this
privilege. Telephone transfers may not be available on policies that are
assigned, see ASSIGNMENT, page 20, depending on the terms of the assignment.
Pruco Life has adopted procedures designed to ensure that requests by telephone
are genuine. The Company will not be held liable for following telephone
instructions that it reasonably believes to be genuine. Pruco Life cannot
guarantee that owners will be able to get through to complete a telephone
transfer during peak periods such as periods of drastic economic or market
change.
The Contract was not designed for professional market timing organizations,
other organizations, or individuals using programmed, large, or frequent
transfers. A pattern of exchanges that coincides with a "market timing" strategy
may be disruptive to the subaccounts and will be discouraged. If such a pattern
were to be found, we may be required to modify the transfer procedures,
including but not limited to, not accepting transfer requests of an agent under
a power of attorney on behalf of more than one Contract owner.
HOW A CONTRACT'S DEATH BENEFIT WILL VARY
Although a Contract's death benefit can never be less than the Contract's
guaranteed minimum amount (assuming no outstanding Contract debt or premium in
default), it will change on the first day of each Contract month after the first
month by an amount that depends on the investment performance of the subaccounts
and/or the Real Property Account in which the Contract participates. The first
Contract month starts on the Contract date. When the first premium is paid with
the application, the Contract date is ordinarily the later of the date of the
application or the date of any medical examination. If the first premium is not
paid with the application, the Contract date is ordinarily 2 or 3 days after the
application is approved by Pruco Life so that it either coincides with or is
prior to
8
<PAGE>
the date on which the first premium is paid. For the purpose of calculating
benefits, the initial net premium is deemed to be placed in the Account on the
Contract date. Each succeeding Contract month starts on the same date in the
month as the Contract date. The first day of each Contract month is called the
"Monthly date."
To simplify the following discussion, it is assumed that all of the net premiums
under a Contract have been allocated to a single subaccount. If the value of the
assets relating to the Contract held in the subaccount has increased due to
investment performance during the Contract month at greater than a 4% annual
rate, the Contract's death benefit will increase on the first day of the next
Contract month; if the value of these assets decreases or increases at less than
a 4% annual rate, the death benefit will decrease (but not below the guaranteed
minimum amount). The reason the assets of the subaccount relating to a Contract
must increase from one Monthly date to the next at a rate of more than 4% a year
in order for the death benefit to increase is that Pruco Life, in determining
the premiums for the Contract, has assumed that the value of the assets will
increase due to investment performance at a rate of 4% a year.
The exact amount by which the death benefit changes is determined by an
actuarial computation that is based, among other things, upon the age and sex
(except where unisex rates apply) of the insured, the size of the Contract, and
the number of years it has been in effect, as well as by the investment results
of the subaccount in which the Contract participates. In general, a change in
the dollar value of a subaccount's assets due to investment results will produce
a larger change in the death benefit for a younger insured than for an older
insured and a slightly larger change for a female insured than for a male.
Because the assets relating to a Contract tend to grow as net premiums are paid,
the dollar change in the death benefit will tend to be greater for a Contract
that has been in effect for a long time than for one that has been in effect for
a short time, despite the fact that the insured is older.
Illustrations of how the death benefit for representative Contracts will vary
over extended periods, assuming several different uniform investment results,
are included in tables on pages T1 and T2 and on pages C1 and C2 of this
prospectus. The examples set forth below illustrate death benefits. These
examples also assume a total Series Fund expense ratio of 0.49% (taking into
account the offsets described under CHARGES AND EXPENSES on page 6).
The following two examples show, for the same Contracts, how the death benefit
will vary over a selected year for two hypothetical investment results that are
different from those shown in the tables and thus provide additional
comparisons.
Example No. 1. Contract with $50,000 guaranteed death benefit and annual
premiums in effect for 18 years, during which the value of the assets in the
subaccount increased due to investment performance at a uniform rate of 7.16%
per year. In the 19th year the value of the assets increase at a uniform rate of
8.16%. (These percentages correspond to gross annual investment returns in the
corresponding Series Fund portfolio of 8% and 9% per year, respectively.)
-------------------------------------------------------
| DEATH BENEFIT | DEATH BENEFIT
INSURED | END OF YEAR 18 | END OF YEAR 19
----------------|--------------------|-----------------
Male, age 25 | $59,477 | $60,958
at issue | |
----------------|--------------------|-----------------
Male, age 40 | $60,613 | $62,239
at issue | |
--------------------------------------------------------
Example No. 2. Same assumptions as in Example No. 1 except that the value of the
assets increases by 1.16% in the 19th year. (This percentage corresponds to a
gross annual investment return in the corresponding Series Fund portfolio of
2%.)
-------------------------------------------------------
| DEATH BENEFIT | DEATH BENEFIT
INSURED | END OF YEAR 18 | END OF YEAR 19
---------------|---------------------|-----------------
Male, age 25 | $59,477 | $58,466
at issue | |
---------------|---------------------|-----------------
Male, age 40 | $60,613 | $59,503
at issue | |
-------------------------------------------------------
9
<PAGE>
In these examples the changes are slightly greater for the Contract issued on
the older insured because the premiums for a $50,000 Contract issued at age 40
are greater than those for one issued at age 25, and the dollar amount of the
increase resulting from a 7.16% compounded return upon the assets in the Account
relating to the Contract on the older insured is therefore larger. The changes
in the death benefit are greater even though the increase or decrease in the
death benefit resulting from a $1 change in the assets relating to the Contract
is greater for a younger insured.
Example No. 3. This example and the one following provide information for a
Contract with an $800 annual premium, in effect for 18 years, during which the
value of the assets in the subaccount increased due to investment performance at
a uniform rate of 7.16% per year. In the 19th year the value of the assets
increases at a uniform rate of 8.16%. (These percentages correspond to gross
annual investment returns in the corresponding Series Fund portfolio of 8% and
9% per year, respectively.)
- --------------------------------------------------------------------------------
| GUARANTEED | Death Benefit | Death Benefit
INSURED | DEATH BENEFIT | End of Year 18 | End of Year 19
- ------------------|-------------------|---------------------|-------------------
Male, age 25 | $76,012 | $90,420 | $92,671
at issue | | |
- ------------------|-------------------|---------------------|-------------------
Male, age 40 | $42,354 | $51,344 | $52,722
at issue | | |
- --------------------------------------------------------------------------------
Example No. 4. Same assumptions as Example No. 3 except that the value of the
assets increases by 1.16% in the 19th year. (This percentage corresponds to a
gross annual investment return in the corresponding Series Fund portfolio of
2%.)
- --------------------------------------------------------------------------------
| GUARANTEED | Death Benefit | Death Benefit
INSURED | DEATH BENEFIT | End of Year 18 | End of Year 19
- ------------------|--------------------|---------------------|------------------
Male, age 25 | $76,012 | $90,420 | $88,883
at issue | | |
- ------------------|--------------------|---------------------|------------------
Male, age 40 | $42,354 | $51,344 | $50,404
at issue | | |
- --------------------------------------------------------------------------------
These examples show how the same investment results affect the death benefit
more significantly for a younger insured.
If the assets in the subaccount in which the Contract participates have earned
less than 4%, and the death benefit accordingly equals the guaranteed minimum
amount, Pruco Life will keep a record of what the death benefit would have been
had there not been a guaranteed minimum. If later investment results are
favorable, that is if the value of the assets in the subaccount later increases
at a rate greater than 4% a year, the death benefit will not become more than
the guaranteed minimum amount until the earlier unfavorable investment results
have been offset. For example, suppose for the first 3 years the value of the
assets in the subaccount increases due to investment performance at only a rate
of 2% per year. The death benefit will nevertheless remain at the guaranteed
minimum amount. If the value of the assets increases at a rate of 8% in the
fourth year, this might not be enough to offset the earlier unfavorable
investment results. If so, the death benefit will not increase.
For further information, see the tables on pages T1 and T2. They show for
various insureds how a Contract's death benefit and cash value will change if
the gross investment return in the selected Series Fund portfolio[s] is 0%, 4%
or 8%. In addition, the tables on pages C1 and C2 show, for various insureds,
how a Contract's death benefit and cash value will change if the gross
investment return is 0%, 6% or 12%. The registration statement of the Account on
file with the SEC contains a full and precise description of how the death
benefit and cash value of a Contract are determined.
HOW A CONTRACT'S CASH VALUE WILL VARY
A variable life insurance Contract has a net cash value which the owner may get
by surrender of the Contract while the insured is living. Unlike traditional
fixed-benefit whole-life insurance, however, a Contract's cash value is not
known in advance even if it is assumed that premiums are paid when due, because
it varies daily with the investment performance of the subaccount[s] and/or the
Real Property Account in which the Contract participates.
10
<PAGE>
A Contract's value upon surrender is its "net cash value," which is the cash
value less any outstanding Contract debt. See CONTRACT LOANS, page 15. The
following discussion of cash values assumes that there is no Contract debt, that
no premium is in default, and that the net premiums have all been allocated to a
single subaccount.
During the early months of the first Contract year, the cash value will be very
small or zero because of the charges made in connection with issuance of the
Contract. On the Contract date the cash value is equal to the first net premium,
unless, as may be the case throughout the first Contract year, there are unpaid
issue charge installments which reduce the cash value. Thereafter, the cash
value on every Monthly date will be equal to the cash value on the preceding
Monthly date increased or decreased by the change in the value of the assets
relating to the Contract, less the amount Pruco Life needs to provide for the
death benefit for the period between the two dates. If a premium is due and paid
on a Monthly date, the cash value on that date is further increased by the
amount of the net premium. The cash value between Monthly dates is computed in a
similar way.
While the death benefit increases if the value of the assets in the subaccount
increases at a rate of more than 4% a year, the investment performance needed to
produce an increase in the cash value cannot be stated in advance. It is
different for insureds of different age and sex (except where unisex rates
apply) at issue. It is also different for Contracts on comparable insureds if
those Contracts have been in effect for different lengths of time. Moreover, the
crediting of the net premium on the due date (even if it has not yet been paid)
does not result in any change in the death benefit, while the cash value is
assumed to increase by exactly the amount of the net premium. But if the net
premium is not paid before the end of the grace period, or if the Contract is
surrendered before then, the cash value is adjusted downward to take into
account the failure to pay the premium on the due date.
The tables on pages T1 and T2 and on pages C1 and C2 of this prospectus
illustrate what the cash values would be for representative Contracts over
extended periods, assuming uniform investment results, together with information
about the aggregate premiums paid under these Contracts. The examples set forth
below assume a total Series Fund expense ratio of 0.49% (taking into account the
offsets described under CHARGES AND EXPENSES on page 6).
The following two examples show, for the same Contracts, how the cash values
will vary over a selected year for two hypothetical investment results that are
different from those shown in the tables.
Example No. 1. Contract with $50,000 guaranteed death benefit and annual
premiums in effect for 18 years, during which the value of the assets in the
subaccount increased due to investment performance at a uniform rate of 7.16%
per year. In the 19th year the value of the assets increases at a uniform rate
of 8.16%. (These percentages correspond to gross annual investment returns in
the corresponding Series Fund portfolio of 8% and 9% per year, respectively.)
----------------------------------------------------------
| CASH VALUE | CASH VALUE
INSURED | END OF YEAR 18 | END OF YEAR 19
----------------|----------------------|------------------
Male, age 25 | $11,860 | $13,117
at issue | |
----------------|----------------------|------------------
Male, age 40 | $20,110 | $22,094
at issue | |
----------------------------------------------------------
Example No. 2. Same assumptions as in Example No. 1 except that the value of the
assets increases by 1.16% in the 19th year. (This percentage corresponds to a
gross annual investment return in the corresponding Series Fund portfolio of
2%.)
----------------------------------------------------------
| CASH VALUE | CASH VALUE
INSURED | END OF YEAR 18 | END OF YEAR 19
----------------|----------------------|------------------
Male, age 25 | $11,860 | $12,264
at issue | |
----------------|----------------------|------------------
Male, age 40 | $20,110 | $20,652
at issue | |
----------------------------------------------------------
The changes are greater for the older insured because the premiums (and hence
the assets in the Account relating to the Contract on that insured) are greater
and the same rate of increase therefore produces a greater dollar amount.
11
<PAGE>
Example No. 3. This example and the one following provide information for a
Contract with an $800 annual premium, in effect for 18 years, during which time
the value of the assets in the subaccount increased due to investment
performance at a uniform rate of 7.16% per year. In the 19th year the value of
the assets increases at a uniform rate of 8.16%. (These percentages correspond
to gross annual investment returns in the corresponding Series Fund portfolio of
8% and 9% per year, respectively.)
------------------------------------------------------------
| Cash Value | Cash Value
INSURED | End of Year 18 | End of Year 19
----------------|---------------------|---------------------
Male, age 25 | $18,030 | $19,941
at issue | |
----------------|---------------------|---------------------
Male, age 40 | $17,035 | $18,716
at issue | |
------------------------------------------------------------
Example No. 4. Same assumptions as in Example No. 3 except that the value of the
assets increases by 1.16% in the 19th year. (This percentage corresponds to a
gross annual investment return in the corresponding Series Fund portfolio of
2%.)
------------------------------------------------------------
| Cash Value | Cash Value
INSURED | End of Year 18 | End of Year 19
----------------|---------------------|---------------------
Male, age 25 | $18,030 | $18,644
at issue | |
----------------|---------------------|---------------------
Male, age 40 | $17,035 | $17,494
at issue | |
------------------------------------------------------------
The last two examples might be compared with Examples No. 3 and 4 on pages 9 and
10. Note that while the same premium results in a larger death benefit for the
younger insured, the cash values for the younger and older insureds are quite
similar. Note also that while the death benefit decreases if the investment
return is 1.16% per year, the cash value increases.
Because a substantial part of each premium is used to provide life insurance
protection, the cash values cannot meaningfully be compared with the amounts
that would have been available had the gross premiums been invested without
obtaining life insurance protection.
SURRENDER OF A CONTRACT FOR ITS NET CASH VALUE
A Contract may be surrendered in whole or in part for its net cash value while
the insured is living. Surrendering a Contract in part involves splitting the
Contract into two Contracts. One is surrendered for its net cash value; the
other is continued in force on the same terms as the original Contract except
that premiums and values will be appropriately reduced. The Contract continued
must have a face amount of at least $25,000, and its premium will be based on
the new face amount. Surrender of all or part of a Contract may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 16.
To surrender a Contract in whole or in part, the owner must deliver or mail it,
together with a written request in a form that meets Pruco Life's needs, to a
Home Office. The net cash value of a surrendered Contract will be determined as
of the valuation period such notice is received in a Home Office.
WITHDRAWAL OF A PORTION OF A CONTRACT'S NET CASH VALUE
Pruco Life will permit a Contract owner to withdraw a portion of the Contract's
net cash value (generally that resulting from investment performance in excess
of 4% a year) without surrendering the Contract, provided that the death benefit
is reduced by the amount of paid-up whole life insurance that the cash value
withdrawn would have purchased for that Contract owner, and that the guaranteed
minimum death benefit is reduced so that the difference between the death
benefit and the guaranteed minimum death benefit is the same percentage of cash
value after the withdrawal as before. The right to withdraw such excess net cash
value may be usefully compared with a partial surrender. As noted above, a
partial surrender essentially involves splitting an existing Contract into two
Contracts and surrendering one for its net cash value; the death benefit, the
guaranteed minimum death benefit, and the cash value of the continuing Contract
will all be proportionately reduced and a new lower scheduled premium will
henceforth be payable. If a Contract owner elects to withdraw excess cash value,
the scheduled premium is not reduced. The cash value is, of course, reduced by
exactly the amount of the withdrawal.
12
<PAGE>
Both the death benefit and the guaranteed minimum death benefit are also reduced
but by a lesser amount than they would be under a partial surrender. It is
important to note, however, that a death benefit decrease may under certain
circumstances cause the Contract to become a Modified Endowment Contract. For a
brief discussion of the potential tax consequences of a Contract owner's
withdrawal of the excess cash value, see TAX TREATMENT OF CONTRACT BENEFITS,
page 16.
Upon request, Pruco Life will tell a Contract owner the amount of the net cash
value that may be withdrawn in this manner and the amount of the corresponding
reductions in the death benefit and guaranteed minimum death benefit for that or
any lesser amount of cash value withdrawn. A Contract owner is able to exercise
the right to withdraw a portion of the Contract's cash value either on an
isolated or occasional basis or automatically every year, to the extent
investment performance warrants, for the purpose of applying partial cash value
withdrawals toward the payment of premiums on the Contract. To exercise this
right, a Contract owner must deliver or mail a written request in a form that
meets Pruco Life's needs to a Home Office.
WHEN PROCEEDS ARE PAID
Pruco Life will generally pay any death benefit, cash value or loan proceeds
within 7 days after receipt at a Home Office of all the documents required for
such a payment. Other than the death benefit, which is determined as of the date
of death, the amount will be determined as of the end of the valuation period in
which the necessary documents are received at a Home Office. However, Pruco Life
may delay payment of proceeds from the subaccount[s] and the variable portion of
the death benefit due under the Contract if the disposal or valuation of the
Account's assets is not reasonably practicable because the New York Stock
Exchange is closed for other than a regular holiday or weekend, trading is
restricted by the SEC or the SEC declares that an emergency exists.
With respect to a Contract in force as extended term or fixed reduced paid-up
insurance, Pruco Life expects to pay any cash value promptly upon request.
However, Pruco Life has the right to delay payment of such cash value for up to
6 months (or a shorter period if required by applicable law). Pruco Life will
pay interest of at least 3% a year if it delays such a payment for 30 days or
more (or a shorter period if required by applicable law).
LIVING NEEDS BENEFIT
Contract applicants may elect to add the LIVING NEEDS BENEFIT(sm) to their
Contracts at issue. The benefit may vary state-by-state. It can generally be
added only to Contracts of $50,000 or more or when the aggregate face amounts of
the insured's eligible contracts equal $50,000 or more.
Subject to state regulatory approval, the LIVING NEEDS BENEFIT allows the
Contract owner to elect to receive an accelerated payment of all or part of the
Contract's death benefit, adjusted to reflect current value, at a time when
certain special needs exist. The adjusted death benefit will always be less than
the death benefit, but will generally be greater than the Contract's cash
surrender value. One or both of the following options may be available. A Pruco
Life representative should be consulted as to whether additional options may be
available.
Terminal Illness Option. This option is available if the insured is diagnosed as
terminally ill with a life expectancy of 6 months or less. When satisfactory
evidence is provided, Pruco Life will provide an accelerated payment of the
portion of the death benefit selected by the Contract owner as a LIVING NEEDS
BENEFIT. The Contract owner may (1) elect to receive the benefit in a single sum
or (2) receive equal monthly payments for 6 months. If the insured dies before
all of the payments have been made, the present value of the remaining payments
will be paid to the beneficiary designated in the Living Needs Benefit claim
form in a single sum.
Nursing Home Option. This option is available after the insured has been
confined to an eligible nursing home for 6 months or more. When satisfactory
evidence is provided, including certification by a licensed physician, that the
insured is expected to remain in the nursing home until death, Pruco Life will
provide an accelerated payment of the portion of the death benefit selected by
the Contract owner as a LIVING NEEDS BENEFIT. The Contract owner may (1) elect
to receive the benefits in a single sum or (2) receive equal monthly payments
for a specified number of years (not more than 10 nor less than 2), depending
upon the age of the insured. If the insured dies before all of the payments have
been made, the present value of the remaining payments will be paid to the
beneficiary designated in the Living Needs Benefit claim form in a single sum.
All or part of the Contract's death benefit may be accelerated under the LIVING
NEEDS BENEFIT. If the benefit is only partially accelerated, a death benefit of
at least $25,000 must remain under the Contract. Pruco Life reserves the right
to determine the minimum amount that may be accelerated.
The LIVING NEEDS BENEFIT is available only to the extent regulatory approval has
been obtained. If desired by a Contract owner, the benefit must be requested on
the Contract's application. There is no charge for adding the benefit to the
Contract. However, an administrative charge (not to exceed $150) will be made at
the time the LIVING NEEDS BENEFIT is paid.
13
<PAGE>
No benefit will be payable if the Contract owner is required to elect it in
order to meet the claims of creditors or to obtain a government benefit. Pruco
Life can furnish details about the amount of LIVING NEEDS BENEFIT that is
available to an eligible Contract owner under a particular Contract, and the
adjusted premium payments that would be in effect if less than the entire death
benefit is accelerated.
The Contract owner should consider whether adding this settlement option is
appropriate in his or her given situation. Adding the LIVING NEEDS BENEFIT to
the Contract has no adverse consequences; however, electing to use it could.
With the exception of certain business-related policies, the Health Insurance
Portability and Accountability Act of 1996 excludes from income the LIVING NEEDS
BENEFIT if the insured is terminally ill or chronically ill as defined by the
tax law (although the exclusion in the latter case may be limited). Contract
owners should consult a qualified tax advisor before electing to receive this
benefit. Receipt of a LIVING NEEDS BENEFIT payment may also affect a Contract
owner's eligibility for certain government benefits or entitlements.
ILLUSTRATIONS OF CASH VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS
The following tables have been prepared to help show how values under the
Contract change with investment performance of the Account. The tables assume
that no portion of the Contract's cash value is allocated to the Real Property
Account. The tables illustrate how cash values and death benefits of Contracts
with a given premium and face amount issued on an insured of a given age would
vary over time if the return on the assets held in the selected Series Fund
portfolios were a uniform, gross, after-tax, annual rate of 0%, 4% or 8%. The
death benefits and cash values would be different from those shown if the
returns averaged 0%, 4%, and 8% but fluctuated over and under those averages
throughout the years.
The amounts shown for the death benefit and cash value as of each Contract year
reflect the fact that the net investment return on the assets held in the
subaccounts is lower than the gross, after-tax return of the portfolios. This is
because the tables assume a total Series Fund expense ratio of 0.49% (taking
into account the offsets described under CHARGES AND EXPENSES on page 6), and
also reflect a daily mortality and expense risk charge to the Account equal to
an effective annual charge of 0.35%. The actual fees and expenses of the
portfolios associated with a particular Contract may be more or less than 0.49%
and will depend on which subaccounts are selected. Based on the above
assumptions, gross annual rates of return of 0%, 4%, and 8% correspond to
approximate net annual rates of return of -0.84%, 3.16%, and 7.16%.
The tables reflect the fact that no charges for federal or state income taxes
are currently made against the Account. If such a charge is made in the future,
it will take a higher gross rate of return to produce after-tax returns of 0%,
4% or 8% than it does now.
The second column of each table shows what results would be achieved if an
amount equal to the total annual premium were invested to earn 4% interest
compounded annually.
Upon request, Pruco Life will furnish a comparable illustration based on the
proposed insured's age and sex (except where unisex rates apply) and on the face
amount or premium amount requested. Such an illustration will assume that the
insured is a standard (or, on request, a preferred) risk and that the premium
will be paid on an annual basis.
Additional illustrations that assume the gross annual investment return is 0%,
6%, and 12% can be found on pages C1 and C2. These percentages correspond to
approximate net annual rates of return of -0.84%, 5.16%, and 11.16%,
respectively.
14
<PAGE>
<TABLE>
ILLUSTRATIONS
-------------
VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 25
$50,000 GUARANTEED DEATH BENEFIT
$536.50 ANNUAL PREMIUM FOR STANDARD UNDERWRITING RISK (1)
<CAPTION>
Death Benefit (2) Cash Value (2)
---------------------------------------------- ----------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------- ----------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 0% Gross 4% Gross 8% Gross
Year Per Year (-0.84% Net) (3.16% Net) (7.16% Net) (-0.84% Net) (3.16% Net) (7.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 558 $50,000 $50,000 $ 50,012 $ 22 $ 25 $ 28
2 $ 1,138 $50,000 $50,000 $ 50,081 $ 376 $ 396 $ 416
3 $ 1,742 $50,000 $50,000 $ 50,208 $ 729 $ 781 $ 834
4 $ 2,369 $50,000 $50,000 $ 50,394 $1,080 $ 1,178 $ 1,282
5 $ 3,022 $50,000 $50,000 $ 50,641 $1,438 $ 1,598 $ 1,772
6 $ 3,701 $50,000 $50,000 $ 50,948 $1,791 $ 2,029 $ 2,295
7 $ 4,407 $50,000 $50,000 $ 51,316 $2,141 $ 2,473 $ 2,854
8 $ 5,141 $50,000 $50,000 $ 51,746 $2,486 $ 2,929 $ 3,449
9 $ 5,905 $50,000 $50,000 $ 52,237 $2,827 $ 3,396 $ 4,083
10 $ 6,699 $50,000 $50,000 $ 52,790 $3,162 $ 3,874 $ 4,759
15 $11,172 $50,000 $50,000 $ 56,492 $4,734 $ 6,419 $ 8,811
20 $16,615 $50,000 $50,000 $ 61,794 $6,094 $ 9,173 $14,195
25 $23,237 $50,000 $50,000 $ 68,772 $7,231 $12,113 $21,291
30 $31,293 $50,000 $50,000 $ 77,552 $8,121 $15,179 $30,528
40 (Age 65) $53,020 $50,000 $50,000 $101,225 $9,039 $21,248 $57,143
- ----------------
(1) If premiums are paid more frequently than annually, the payments would be $274.50 semi-annually, $139.50 quarterly or $48
monthly. The death benefits and cash values would be slightly different for a Contract with more frequent premium payments.
(2) Assumes no Contract loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES,
AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES
OF RETURN AVERAGED 0%, 4%, AND 8% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
T1
<PAGE>
<TABLE>
VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 40
$50,000 GUARANTEED DEATH BENEFIT
$939 ANNUAL PREMIUM FOR STANDARD UNDERWRITING RISK (1)
<CAPTION>
Death Benefit (2) Cash Value (2)
---------------------------------------------- ----------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------- ----------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 0% Gross 4% Gross 8% Gross
Year Per Year (-0.84% Net) (3.16% Net) (7.16% Net) (-0.84% Net) (3.16% Net) (7.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 977 $50,000 $50,000 $50,029 $ 197 $ 208 $ 219
2 $ 1,992 $50,000 $50,000 $50,121 $ 815 $ 863 $ 912
3 $ 3,048 $50,000 $50,000 $50,275 $ 1,417 $ 1,527 $ 1,642
4 $ 4,147 $50,000 $50,000 $50,491 $ 2,002 $ 2,199 $ 2,411
5 $ 5,289 $50,000 $50,000 $50,776 $ 2,642 $ 2,955 $ 3,298
6 $ 6,477 $50,000 $50,000 $51,127 $ 3,265 $ 3,721 $ 4,234
7 $ 7,713 $50,000 $50,000 $51,546 $ 3,871 $ 4,498 $ 5,221
8 $ 8,998 $50,000 $50,000 $52,032 $ 4,459 $ 5,284 $ 6,262
9 $10,335 $50,000 $50,000 $52,586 $ 5,031 $ 6,081 $ 7,360
10 $11,725 $50,000 $50,000 $53,207 $ 5,584 $ 6,888 $ 8,517
15 $19,554 $50,000 $50,000 $57,324 $ 8,051 $11,012 $15,247
20 $29,080 $50,000 $50,000 $63,155 $ 9,969 $15,178 $23,749
25 (Age 65) $40,670 $50,000 $50,000 $70,776 $11,330 $19,268 $34,348
- ----------------
(1) If premiums are paid more frequently than annually, the payments would be $479.50 semi-annually, $243 quarterly or $82.50
monthly. The death benefits and cash values would be slightly different for a Contract with more frequent premium payments.
(2) Assumes no Contract loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES,
AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES
OF RETURN AVERAGED 0%, 4%, AND 8% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
T2
<PAGE>
CONTRACT LOANS
After the first Contract year, the owner may borrow from Pruco Life using the
Contract as the only security for the loan. During the first Contract year, no
loans are permitted. Except as provided in the following paragraph, after the
first Contract year a Contract owner may borrow up to 75% of the Contract's cash
value. The minimum amount that may be borrowed at any one time is $500, unless
the loan is used to pay premiums on the Contract. The owner who is paying
premiums other than monthly may elect in advance to have Pruco Life
automatically make a loan against the Contract, if the net cash value is large
enough, in order to pay a premium that has not been paid at the end of a grace
period. In some states this automatic premium loan may be available to owners
who pay premiums monthly.
Under one of the loan provisions available under this Contract, interest on a
loan accrues daily at a fixed effective annual rate of 5.5% (6% for Contracts
issued to Texas residents). However, if a Contract owner so desires, and if
Pruco Life has received any required approvals from the regulatory officials in
the state or other jurisdiction in which the Contract is to be issued, the
Contract owner may elect at the time of issuance of the Contract to have a
different loan provision in the Contract under which the interest rate will vary
from time to time. Under this variable loan interest rate provision, a Contract
owner may borrow up to 90% of the Contract's cash value after the first Contract
year.
If an owner elects the variable loan interest rate provision, interest on any
loan will accrue daily at an effective annual rate Pruco Life determines at the
start of each Contract year (instead of at the fixed 5.5% rate). This interest
rate will not exceed the greatest of: (1) the "Published Monthly Average" for
the calendar month ending 2 months before the calendar month of the Contract
anniversary; (2) 5%, which is the assumed rate of return for the Contract plus
1%; and (3) any rate required by law in the state of issue of the Contract. The
"Published Monthly Average" means Moody's Corporate Bond Yield Average--Monthly
Average Corporates, as published by Moody's Investors Service, Inc. or any
successor to that service, or if that average is no longer published, a
substantially similar average established by the insurance regulator where the
Contract is issued. For example, the Published Monthly Average in 1997 ranged
from 7.03% to 7.99%.
Interest payments on any loan are due at the end of each Contract year. If
interest is not paid when due, it is added to the amount of the loan. If the sum
of all outstanding loans plus accrued interest exceeds what the net cash value
would be if there were no Contract debt, Pruco Life will notify the Contract
owner of its intent to terminate the Contract in 31 days, within which time the
owner may repay all or enough of the loan to obtain a positive net cash value
and thus keep the Contract in force. If you fail to keep the Contract in force,
the amount of unpaid Contract debt will be treated as a distribution which may
be taxable. See TAX TREATMENT OF CONTRACT BENEFITS -- Pre-Death Distributions,
page 17, and LAPSE AND REINSTATEMENT, page 18.
When a loan is made, an amount equal to the loan proceeds will be transferred
out of the Account and the Real Property Account, as applicable. The reduction
will generally be made in the same proportions as the value in each subaccount
and Real Property Account bears to the total value of the Contract. While a
fixed-rate loan is outstanding, the amount that was so transferred will be
credited with the assumed investment return of 4% rather than with the actual
rate of return of the subaccount[s] and/or the Real Property Account. While a
loan made pursuant to the variable loan interest rate provision is outstanding,
the amount that was so transferred will be credited with a rate which is 1% less
than the loan interest rate for the Contract year (instead of 4%), rather than
with the actual rate of return of the subaccount[s] and/or the Real Property
Account.
A loan will not affect the amount of the premiums due. Should the death benefit
become payable while a loan is outstanding, or should the Contract be
surrendered, the amount of the Contract debt will be deducted from the death
benefit or the cash value otherwise payable.
A loan will have a permanent effect on a Contract's death benefit and cash value
because the investment results of the subaccount[s] and/or the Real Property
Account will apply only to the amount remaining in the subaccount[s] and/or the
Real Property Account. The longer the loan is outstanding, the greater the
effect is likely to be. The effect could be favorable or unfavorable. If
investment results are favorable while the loan is outstanding, the death
benefit and cash value will not increase as rapidly as they would have if no
loan had been made. If investment results are unfavorable, the death benefit and
the cash value will not be as adversely affected as they would have been had no
loan been made. Of course, a loan that is repaid will not have any effect upon
the guaranteed minimum death benefit.
The tax treatment of Contract loans depends upon whether the Contract is
classified as a Modified Endowment Contract for federal tax purposes. See TAX
TREATMENT OF CONTRACT BENEFITS, page 16.
Consider the Contract issued on a 25 year old insured illustrated in the table
on page T1 with an 8% gross investment return. Assume a $2,500 (5.5%) fixed-rate
loan was made at the end of Contract year 8 and repaid at the end of Contract
year 9. Upon repayment, the death benefit would be $51,924.31 and the cash value
$4,006.00. These amounts are lower than the death benefit and cash value shown
on that page for the end of
15
<PAGE>
Contract year 9 because the loan amount was credited with the 4% assumed
investment return rather than the 8% gross rate of return for the selected
subaccounts.
RIGHT TO EXCHANGE A CONTRACT FOR A FIXED-BENEFIT WHOLE-LIFE POLICY
At any time during the first 24 months after a Contract is issued, so long as no
premium due remains unpaid, the owner may exchange it for a fixed benefit
whole-life policy on the insured's life. No evidence of insurability will be
required to make an exchange. The new policy's death benefit will be the same as
the guaranteed minimum amount of the Contract. The new policy will also have the
same issue date and risk classification for the insured as the Contract, but it
will be issued by Prudential and will be a participating (potentially
dividend-paying) policy. Premiums for the new policy will be based on
Prudential's rates in effect on the original issue date for the same class of
risk which are currently higher than premiums under the Contract. The new
policy's cash value will be the same as it would have been had the new policy
been purchased at the outset. There will be an equitable cash adjustment on the
exchange equal to the difference between the premiums on the new policy and the
premiums on the Contract for the period between the Contract date and the date
of the exchange, reduced by the amount, if any, by which the cash value of the
Contract on the date of the exchange exceeds what the cash value would have been
had the subaccounts and/or the Real Property Account in which the Contract
participated uniformly earned the assumed investment return of 4%. A further
adjustment will be made for any differences in premiums for any optional
benefits carried over to the new policy.
The exchange will be effective when Pruco Life receives a written request in a
form that meets its needs, and receives the Contract and payment of any
adjustment due on the exchange. Any outstanding Contract debt must be repaid on
or before the effective date of the exchange.
The Contract owner may also exchange the Contract for a fixed-benefit life
insurance policy according to procedures meeting applicable state insurance law
requirements if the Series Fund or one of its portfolios has a material change
in its investment policy. Pruco Life, in conjunction with the Arizona Director
of Insurance, will determine if a change in investment policy is material. The
Contract owner will be able to exchange within 60 days of receipt of notice of
such a material change or of the effective date of the change, whichever is
later. Upon such an exchange, there will be a cash adjustment based on any
difference in net cash value between the Contract and the new policy.
SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
Prudential, acts as the principal underwriter of the Contract. Prusec, organized
in 1971 under New Jersey law, is registered as a broker and dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. Prusec's principal business address is 751 Broad
Street, Newark, New Jersey, 07102-3777. The Contract is sold by registered
representatives of Prusec who are also authorized by state insurance departments
to do so. The Contract may also be sold through other broker-dealers authorized
by Prusec and applicable law to do so. Registered representatives of such other
broker-dealers may be paid on a different basis than described below. Where the
insured is less than 58 years of age, the representative will generally receive
a commission of no more than 50% of the premiums for the first year, no more
than 11% of the premiums for the second, third, and fourth years, no more than
3% of the premiums for the fifth through tenth years, and no more than 2% of the
premiums thereafter. For insureds over 58 years of age, the commission will be
lower. The representative may be required to return all or part of the first
year commission if the Contract is not continued through the second year.
Representatives with less than 3 years of service may be paid on a different
basis. Representatives who meet certain productivity, profitability and
persistency standards with regard to the sale of the Contract will be eligible
for additional compensation.
Sales expenses in any year are not equal to the deduction for sales load in that
year. Pruco Life expects to recover its total sales expenses over the periods
the Contracts are in effect. To the extent that the sales charges are
insufficient to cover total sales expenses, the sales expenses will be recovered
from Pruco Life's surplus, which may include the amounts derived from the risk
charge and the mortality and expense risk charge, described in items 5 and 7
under CHARGES AND EXPENSES, page 6.
TAX TREATMENT OF CONTRACT BENEFITS
Each prospective purchaser is urged to consult a qualified tax advisor. The
following discussion is not intended as tax advice, and it is not a complete
statement of what the effect of federal income taxes will be under all
circumstances. Rather, it provides information about how Pruco Life believes the
current tax laws apply in the most commonly occurring circumstances. There is no
guarantee, however, that the current federal income tax laws and regulations or
interpretations will not change.
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Treatment as Life Insurance. The Contract will be treated as "life insurance,"
as long as it satisfies certain definitional tests set forth in Sections 7702 of
the Internal Revenue Code (the "Code") and as long as the underlying investments
for the Contract satisfy diversification requirements. (See DIVIDENDS,
DISTRIBUTIONS, AND TAXES in the attached prospectus for the Series Fund.)
Pruco Life believes that the Contract meets these definitional and
diversification requirements and accordingly will be treated as life insurance
for tax purposes. This means that: (1) except as noted below, the Contract owner
should not be taxed on any part of the Contract's cash value, including
additions attributable to interest, dividends or appreciation until amounts are
distributed under the Contract; and (2) the death benefit should be excludible
from the gross income of the beneficiary under Section 101(a) of the Code.
However, Section 7702 of the Code which defines life insurance for tax purposes
gives the Secretary of the Treasury authority to prescribe regulations to carry
out the purposes of the Section. In this regard, proposed regulations governing
mortality charges were issued in 1991 and proposed regulations relating to the
definition of life insurance were issued in 1992. None of these proposed
regulations has yet been finalized. Additional regulations under Section 7702
may also be promulgated in the future. Moreover, in connection with the issuance
of temporary regulations under Section 817(h), the Treasury Department announced
that such regulations do not provide guidance concerning the extent to which
Contract owners may direct their investments to particular divisions of a
separate account. Such guidance will be included in regulations or rulings under
Section 817(d) relating to the definition of a variable contract.
Pruco Life intends to comply with final regulations issued under sections 7702
and 817. Therefore, it reserves the right to make such changes as it deems
necessary to assure that the Contract continues to qualify as life insurance for
tax purposes. Any such changes will apply uniformly to affected Contract owners
and will be made only after advance written notice to affected Contract owners.
Pre-Death Distributions. The taxation of pre-death distributions depends on
whether the Contract is classified as a Modified Endowment Contract. The
following discussion first deals with distributions under Contracts not so
classified, and then with Modified Endowment Contracts.
1. A surrender or lapse of the Contract may have tax consequences. Upon
surrender, the owner will not be taxed on the net cash value except for the
amount, if any, that exceeds the gross premiums paid less the untaxed
portion of any prior withdrawals. The amount of any unpaid Contract debt
will, upon surrender or lapse, be added to the net cash value and treated,
for this purpose, as if it had been received. Any loss incurred upon
surrender is generally not deductible. The tax consequences of a surrender
may differ if the proceeds are received under any income payment settlement
option.
A withdrawal (or partial surrender) generally is not taxable unless it
exceeds total premiums paid to the date of withdrawal less the untaxed
portion of any prior withdrawals. However, under certain limited
circumstances, in the first 15 Contract years all or a portion of a
withdrawal may be taxable if the Contract's cash value exceeds the total
premiums paid less the untaxed portions of any prior withdrawals, even if
total withdrawals do not exceed total premiums paid to date.
Extra premiums for optional benefits and riders generally do not count in
computing gross premiums paid, which in turn determines the extent to which
a withdrawal might be taxed.
Loans received under the Contract will ordinarily be treated as
indebtedness of the owner and will not be considered to be distributions
subject to tax.
2. Some of the above rules are changed if the Contract is classified as a
Modified Endowment Contract under Section 7702A of the Code. In general,
this Contract should not become a Modified Endowment Contract. However,
certain actions may cause the Contract to become a Modified Endowment
Contract. These actions may include partial surrenders or withdrawals, the
deletion of certain riders or the selection of certain options upon the
lapse of the Contract. Contract owners contemplating any of these steps
should first consult a qualified tax advisor and their Pruco Life
representative.
If the Contract is classified as a Modified Endowment Contract, then
pre-death distributions, including loans and withdrawals, are includible in
income to the extent that the Contract's cash value prior to surrender
charges exceeds the gross premiums paid for the Contract increased by the
amount of any loans previously includible in income and reduced by any
untaxed amounts previously received other than the amount of any loans
excludible from income. These rules may also apply to pre-death
distributions, including loans, made during the 2 year period prior to the
Contract becoming a Modified Endowment Contract.
In addition, pre-death distributions from such Contracts (including full
surrenders) will be subject to a penalty of 10 per cent of the amount
includible in income unless the amount is distributed on or after age
59 1/2, on account of the taxpayer's disability or as a life annuity. It is
presently unclear how the penalty tax provisions apply to Contracts owned
by nonnatural persons such as corporations.
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Under certain circumstances, Modified Endowment Contracts issued during any
calendar year will be treated as a single contract for purposes of applying
the above rules.
Withholding. The taxable portion of any amounts received under the Contract will
be subject to withholding to meet federal income tax obligations if the Contract
owner fails to elect that no taxes be withheld or in certain other
circumstances. Contract owners who do not provide a social security number or
other taxpayer identification number will not be permitted to elect out of
withholding. All recipients may be subject to penalties under the estimated tax
payment rules if withholding and estimated tax payments are not sufficient.
Other Tax Considerations. Transfer of the Contract to a new owner or assignment
of the Contract may have gift, estate and/or income tax consequences depending
on the circumstances. In the case of a transfer of the Contract for a valuable
consideration, the death benefit may be subject to federal income taxes under
Section 101(a)(2) of the Code. In addition, a transfer of the Contract to or the
designation of a beneficiary who is either 37 1/2 years younger than the
Contract owner or a grandchild of the Contract owner may have Generation
Skipping Transfer tax consequences under Section 2601 of the Code.
In certain circumstances, deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied under Section 163 of the Code as personal interest or
under Section 264 of the Code. Contract owners should consult a tax advisor
regarding the application of these provisions to their circumstances.
Business-owned life insurance is subject to additional rules. Section 264(a)(1)
of the Code generally precludes business Contract owners from deducting premium
payments. The Health Insurance Portability and Accountability Act of 1996
generally disallows tax deductions for interest on Contract debt on a
business-owned insurance policy effective (with certain transitional rules) for
interest paid or accrued after October 13, 1995. An exception permits the
deduction of interest on policy loans on Contracts for up to 20 key persons. The
interest deduction for Contract debt on such loans is limited to a prescribed
interest rate and a maximum aggregate loan amount of $50,000 per key insured
person. The Code also imposes an indirect tax upon additions to the Contract's
cash value or the receipt of death benefits under business-owned life insurance
policies under certain circumstances by way of the corporate alternative minimum
tax.
The individual situation of each Contract owner or beneficiary will determine
the federal estate taxes and the state and local estate, inheritance and other
taxes due if the owner or insured dies.
LAPSE AND REINSTATEMENT
This Contract ensures that as long as premiums are paid, insurance protection
remains in effect. However, if a premium is not paid on or before each due date,
or within the 31 day grace period after each due date, the Contract will lapse.
A Contract that lapses with an outstanding Contract loan may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS on page 16.
A Contract that has lapsed may be reinstated within 3 years after the date of
default unless the Contract has been surrendered for its cash value. To
reinstate a lapsed Contract, Pruco Life requires renewed evidence of
insurability, and submission of certain payments due under the Contract.
If a Contract does lapse, it may still provide some benefits. Those benefits are
described below under OPTIONS ON LAPSE.
OPTIONS ON LAPSE
If a Contract lapses because the premium has not been paid before the end of the
grace period, some life insurance coverage may continue in effect or the owner
may choose to surrender the Contract for its net cash value. A lapse of a
Contract with a Contract loan may have tax consequences. See TAX TREATMENT OF
CONTRACT BENEFITS, page 16.
1. Extended Term Insurance. With one exception explained below, if the owner
does not communicate at all with Pruco Life, life insurance coverage will
continue for a length of time that depends on the net cash value on the due date
of the first unpaid premium, the amount of insurance, and the age and sex
(except where unisex rates apply) of the insured. The insurance amount will be
what it would have been on the due date of the unpaid premium, taking into
account any Contract debt on that date. The amount will not change while the
insurance stays in force. This benefit is known as extended term insurance. The
owner will be told in writing how long the insurance will be in effect. Extended
term insurance has a cash value but no loan value.
Contracts issued on the lives of certain insureds in high risk rating classes
will include a statement that extended term insurance will not be provided. In
that case, variable reduced paid-up insurance (as described in item 3 below)
will be the automatic benefit provided on lapse for Contracts issued in
jurisdictions where required approvals have been obtained from regulatory
authorities. Such approvals have been received in all jurisdictions except the
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District of Columbia and Texas. The automatic benefit provided on lapse for
these insureds under Contracts issued in these two remaining jurisdictions will
be fixed reduced paid-up insurance (as described in item 2 below) until such
time as approvals for variable reduced paid-up insurance are obtained.
2. Fixed Reduced Paid-Up Insurance. The owner may choose to have insurance
coverage provided for the lifetime of the insured. The amount will be lower than
what extended term insurance would provide. This is known as fixed reduced
paid-up insurance. The insurance amount will depend on the net cash value on the
due date of the first premium in default, and the age and sex (except where
unisex rates apply) of the insured. The amount will not change thereafter unless
a loan is taken against the fixed reduced paid-up insurance. Pruco Life will, if
asked, tell the owner what the amount will be. Apart from the case described
above in which fixed reduced paid-up insurance is the automatic benefit provided
on lapse, the owner who wants fixed reduced paid-up insurance must ask for it in
writing, in a form that meets Pruco Life's needs, within 3 months of the due
date of the first unpaid premium. Fixed reduced paid-up insurance has a cash
value and a loan value. It is possible for this Contract to be classified as a
Modified Endowment Contract if this option is exercised. See TAX TREATMENT OF
CONTRACT BENEFITS, page 16.
3. Variable Reduced Paid-Up Insurance. Variable reduced paid-up insurance
provides insurance coverage for the lifetime of the insured. The initial
insurance amount will depend upon the net cash value on the due date of the
first premium in default and the age and sex (except where unisex rates apply)
of the insured. This will be a new guaranteed minimum death benefit. Aside from
this guarantee, the cash value and the amount of insurance will vary with
investment performance in the same manner as a Contract in force on a premium
paying basis (see HOW A CONTRACT'S DEATH BENEFIT WILL VARY, page 8 and HOW A
CONTRACT'S CASH VALUE WILL VARY, page 10). Variable reduced paid-up insurance
has a loan privilege identical to that available on premium paying Contracts
(see CONTRACT LOANS, page 15). The availability of variable reduced paid-up
insurance is subject to the receipt of required state regulatory approvals. It
is possible for this Contract to be classified as a Modified Endowment Contract
if this option is exercised. See TAX TREATMENT OF CONTRACT BENEFITS, page 16.
As explained in item 1 above, variable reduced paid-up insurance is the
automatic benefit on lapse for Contracts issued on certain insureds in those
jurisdictions where regulatory approval has been obtained for such insurance.
Owners of other Contracts who want variable reduced paid-up insurance must ask
for it in writing, in a form that meets Pruco Life's needs, within 3 months of
the date of default; it will be available to such owners only if the initial
amount of variable reduced paid-up insurance would be at least $5,000. This
minimum is not applicable to Contracts for which variable reduced paid-up
insurance is the automatic benefit upon lapse.
4. Payment of Net Cash Value. The owner can receive the net cash value by
surrendering the Contract and making a written request in a form that meets
Pruco Life's needs. If Pruco Life receives the request within the days of grace
of a premium in default, the net cash value will be the net cash value as of the
due date of that premium, adjusted for any loan made or repaid during the days
of grace, plus or minus an amount that depends upon the investment performance
between the due date and the date Pruco Life receives the request. Whether the
net cash value as of the due date of the unpaid premium is increased or
decreased by subsequent investment performance depends upon whether or not the
assets relating to the Contract have increased at more than 4% a year. If Pruco
Life receives the request after the grace period expires, the net cash value
will be the net value of any extended term insurance then in force, or the net
value of any reduced paid-up insurance then in force (either fixed or variable),
less any Contract debt. Surrender of the Contract may have tax consequences. See
TAX TREATMENT OF CONTRACT BENEFITS, page 16.
The following table shows, the cash value, extended term insurance, and both
fixed and variable reduced paid-up insurance for two representative Contracts,
each with a guaranteed death benefit of $50,000, which lapse at the end of 8
years after a uniform gross annual investment return of 8%. The tables assume a
total Series Fund expense ratio of 0.49% (taking into account the offsets
described under CHARGES AND EXPENSES on page 6).
- --------------------------------------------------------------------------------
| | EXTENDED | REDUCED
INSURED | CASH VALUE | TERM INSURANCE | PAID-UP INSURANCE
- ----------------|------------------|---------------------|----------------------
Male, age 25 | $3,449 | $51,746 | $14,399
at issue | | for 19.84 years | for life
- ----------------|------------------|---------------------|----------------------
Male, age 40 | $6,262 | $52,032 | $16,194
at issue | | for 12.72 years | for life
- --------------------------------------------------------------------------------
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LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS
The Contract generally employs mortality tables that distinguish between males
and females. Thus, premiums and benefits under Contracts issued on males and
females of the same age will generally differ. However, in those states that
have adopted regulations prohibiting sex-distinct insurance rates, premiums and
cost of insurance charges will be based on male mortality tables whether the
insured is male or female. In addition, employers and employee organizations
considering purchase of a Contract should consult their legal advisors to
determine whether purchase of a Contract based on sex-distinct actuarial tables
is consistent with Title VII of the Civil Rights Act of 1964 or other applicable
law. Pruco Life may offer the Contract with unisex mortality rates to such
prospective purchasers.
OTHER GENERAL CONTRACT PROVISIONS
BENEFICIARY. The beneficiary is designated and named in the application by the
Contract owner. Thereafter, the owner may change the beneficiary, provided it is
in accordance with the terms of the Contract. Should the insured die with no
surviving beneficiary, the insured's estate will become the beneficiary.
INCONTESTABILITY. After the Contract has been in force during the insured's
lifetime for 2 years from the Contract date, Pruco Life will not contest its
liability under the Contract in accordance with its terms.
MISSTATEMENT OF AGE OR SEX. If the insured's stated age or sex (except where
unisex rates apply) or both are incorrect in the Contract, Pruco Life will
adjust the benefits payable, as required by law, to reflect what the premium
would have purchased for the correct age and sex.
SUICIDE EXCLUSION. Generally, if the insured, whether sane or insane, dies by
suicide within 2 years from the Contract date, Pruco Life will pay no more under
the Contract than the sum of the premiums paid.
ASSIGNMENT. This Contract may not be assigned if such assignment would violate
any federal, state or local law or regulation. Pruco Life assumes no
responsibility for the validity or sufficiency of any assignment, and it will
not be obligated to comply with any assignment unless it has received a copy at
one of its Home Offices.
SETTLEMENT OPTIONS. The Contract grants to most owners, or to the beneficiary, a
wide variety of optional ways of receiving Contract proceeds, other than in a
lump sum. Any Pruco Life representative authorized to sell this Contract can
explain these options upon request.
RIDERS
The Contract owner may be able to obtain extra fixed benefits, which may require
an additional premium. These benefits will be described in what is known as a
"rider" to the Contract. For example, one benefit pays an additional amount if
the insured dies in an accident. Others waive certain premiums if the insured is
disabled within the meaning of the provision (or, in the case of a Contract
issued on an insured under the age of 15, if the applicant dies or becomes
disabled within the meaning of the provision). Others pay an additional amount
if the insured dies within a stated number of years after issue; similar
benefits may be available if the insured's spouse or child should die. The
amounts of these benefits are fully guaranteed at issue; they do not depend on
the performance of the Account. Certain restrictions may apply; they are clearly
described in the applicable rider. Any Pruco Life representative authorized to
sell the Contract can explain these extra benefits further. Samples of the
provisions are available from Pruco Life upon written request.
VOTING RIGHTS
As stated above, all of the assets held in the subaccounts of the Account will
be invested in shares of the corresponding portfolios of the Series Fund. Pruco
Life is the legal owner of those shares and as such has the right to vote on any
matter voted on at Series Fund shareholders meetings. However, Pruco Life will,
as required by law, vote the shares of the Series Fund at any regular and
special shareholders meetings it is required to hold in accordance with voting
instructions received from Contract owners. The Series Fund will not hold annual
shareholders meetings when not required to do so under Maryland law or the
Investment Company Act of 1940. Series Fund shares for which no timely
instructions from Contract owners are received, and any shares attributable to
general account investments of Pruco Life will be voted in the same proportion
as shares in the respective portfolios for which instructions are received.
Should the applicable federal securities laws or regulations, or their current
interpretation, change so as to permit Pruco Life to vote shares of the Series
Fund in its own right, it may elect to do so.
Matters on which Contract owners may give voting instructions include the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's selected subaccount[s]; (4) any change in
the fundamental investment policy of a portfolio corresponding to the Contract
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owner's selected subaccount[s]; and (5) any other matter requiring a vote of the
shareholders of the Series Fund. With respect to approval of the investment
advisory agreement or any change in a portfolio's fundamental investment policy,
Contract owners participating in such portfolios will vote separately on the
matter, pursuant to the requirements of Rule 18f-2 under the 1940 Act.
The number of Series Fund shares for which instructions may be given by a
Contract owner is determined by dividing the portion of the value of the
Contract derived from participation in a subaccount, by the value of one share
in the corresponding portfolio of the Series Fund. The number of votes for which
each Contract owner may give Pruco Life instructions will be determined as of
the record date chosen by the Board of Directors of the Series Fund. Pruco Life
will furnish Contract owners with proper forms and proxies to enable them to
give these instructions. Pruco Life reserves the right to modify the manner in
which the weight to be given voting instructions is calculated where such a
change is necessary to comply with current federal regulations or
interpretations of those regulations.
Pruco Life may, if required by state insurance regulations, disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the sub-classification or investment objectives of one or more
of the Series Fund's portfolios, or to approve or disapprove an investment
advisory contract for the Series Fund. In addition, Pruco Life itself may
disregard voting instructions that would require changes in the investment
policy or investment advisor of one or more of the Series Fund's portfolios,
provided that Pruco Life reasonably disapproves such changes in accordance with
applicable federal regulations. If Pruco Life does disregard voting
instructions, it will advise Contract owners of that action and its reasons for
such action in the next annual or semi-annual report to Contract owners.
SUBSTITUTION OF SERIES FUND SHARES
Although Pruco Life believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Series Fund may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes or the unavailability of shares for investment. In that
event, Pruco Life may seek to substitute the shares of another portfolio or of
an entirely different mutual fund. Before this can be done, the approval of the
SEC, and possibly one or more state insurance departments, will be required.
Contract owners will be notified of such substitution.
REPORTS TO CONTRACT OWNERS
Once each Contract year (except where the Contract is in force as fixed extended
term insurance or fixed reduced paid-up insurance), Contract owners will be sent
statements that provide certain information pertinent to their own Contract.
These statements detail values and transactions made and specific Contract data
that apply only to each particular Contract. On request, a Contract owner will
be sent a current statement in a form similar to that of the annual statement
described above, but Pruco Life may limit the number of such requests or impose
a reasonable charge if such requests are made too frequently.
Contract owners will also be sent annual and semi-annual reports of the Series
Fund showing the financial condition of the portfolios and the investments held
in each.
STATE REGULATION
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
EXPERTS
The financial statements included in this prospectus for the years ended
December 31, 1997 and December 31, 1996 have been audited by Price Waterhouse
LLP, independent accountants, as stated in their reports appearing herein, and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing. Price Waterhouse LLP's
principal business address is 1177 Avenue of the Americas, New York, New York
10036.
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The financial statements included in this prospectus for the year ended December
31, 1995 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing. Deloitte & Touche LLP's principal business address is Two Hilton
Court, Parsippany, New Jersey 07054-0319.
On March 12, 1996, Deloitte & Touche LLP was replaced as the independent
accountants of Pruco Life. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make reference to
the matter in their reports.
Actuarial matters included in this prospectus have been examined by Nancy D.
Davis, FSA, MAAA, Vice President and Actuary of Prudential whose opinion is
filed as an exhibit to the registration statement.
LITIGATION
Several actions have been brought against Pruco Life alleging that Pruco Life
and its agents engaged in improper life insurance sales practices. Prudential
has agreed to indemnify Pruco Life for losses, if any, resulting from such
litigation. No other significant litigation is being brought against Pruco Life
that would have a material effect on its financial position.
YEAR 2000 COMPLIANCE
The services provided to the Contract owners by Pruco Life and Prusec depend on
the smooth functioning of their respective computer systems. The year 2000,
however, holds the potential for a significant disruption in the operation of
these systems. Many computer programs cannot distinguish the year 2000 from the
year 1900 because of the way in which dates are encoded. Left uncorrected, the
year "00" could cause systems to perform date comparisons and calculations
incorrectly that in turn could compromise the integrity of business records and
lead to serious interruption of business processes.
Prudential, Pruco Life and Prusec's ultimate corporate parent, identified this
issue as a critical priority in 1995 and has established quality assurance
procedures including a certification process to monitor and evaluate enterprise-
wide conversion and upgrading of systems for "Year 2000" compliance. Prudential
has also initiated an analysis of potential exposure that could result from the
failure of major service providers such as suppliers, custodians and brokers, to
achieve Year 2000 compliance. Prudential expects to complete its adaptation,
testing and certification of software for Year 2000 compliance by December 31,
1998. During 1999, Prudential plans to conduct additional internal testing, to
participate in securities industry-wide test efforts and to complete major
service provider analysis and contingency planning.
The expenses of Prudential's Year 2000 compliance are allocated across its
various businesses, including those businesses not engaged in providing services
to Contract owners. Accordingly, while the expense is substantial in the
aggregate, it is not expected to have a material impact on Pruco Life's
abilities to meet its contractual commitments to Contract owners.
Prudential believes that it is well positioned to achieve the necessary
modifications and mitigate Year 2000 risks. However, if such efforts are not
completed on a timely basis, the Year 2000 issue could have a material adverse
impact on Prudential's operations, those of its subsidiary and affiliate
companies and/or the Account. Moreover, there can be no assurance that the
measures taken by Prudential's external service providers will be sufficient to
avoid any material adverse impact on Prudential's operations or those of its
subsidiary and affiliate companies.
ADDITIONAL INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933, relating to the offering described in this prospectus. This prospectus
does not include all of the information set forth in the registration statement.
Certain portions have been omitted pursuant to the rules and regulations of the
SEC. The omitted information may, however, be obtained from the SEC's principal
office in Washington, D.C., upon payment of a prescribed fee.
Further information may also be obtained from Pruco Life's office. The address
and telephone number are set forth on the cover of this prospectus.
FINANCIAL STATEMENTS
The consolidated financial statements of Pruco Life and subsidiaries included
herein should be distinguished from the financial statements of the Account, and
should be considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
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DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life, listed with their principal
occupations during the past 5 years, are shown below.
DIRECTORS OF PRUCO LIFE
JAMES J. AVERY, JR., Chairman and Director. -- Senior Vice President and Chief
Actuary, Prudential Individual Insurance Group since 1997; 1995 to 1997:
President of Prudential Select; Prior to 1995: Chief Operating Officer of
Prudential Select.
WILLIAM M. BETHKE, Director. -- Chief Investment Officer since 1997; Prior to
1997: President, Prudential Capital Markets Group.
IRA J. KLEINMAN, Director. -- Executive Vice President, Prudential International
Insurance Group since 1997; 1995 to 1997: Chief Marketing and Product
Development Officer, Prudential Individual Insurance Group; Prior to 1995:
President, Prudential Select.
MENDEL A. MELZER, Director. -- Chief Investment Officer, Mutual Funds and
Annuities, Prudential Investments since 1996; 1995 to 1996: Chief Financial
Officer of the Money Management Group of Prudential; Prior to 1995: Senior Vice
President and Chief Financial Officer of Prudential Preferred Financial
Services.
ESTHER H. MILNES, President and Director. -- Vice President and Actuary,
Prudential Individual Insurance Group since 1996; Prior to 1996: Senior Vice
President and Chief Actuary, Prudential Insurance and Financial Services.
I. EDWARD PRICE, Vice Chairman and Director. -- Senior Vice President and
Actuary, Prudential Individual Insurance Group since 1995; Prior to 1995: Chief
Executive Officer, Prudential International Insurance.
KIYOFUMI SAKAGUCHI, Director. -- President, Prudential International Insurance
Group since 1995; Prior to 1995: Chairman and Chief Executive Officer, The
Prudential Life Insurance Co., Ltd.
OFFICERS WHO ARE NOT DIRECTORS
SUSAN L. BLOUNT, Secretary.--Vice President and Secretary of Prudential since
1995; Prior to 1995: Assistant General Counsel for Prudential Residential
Services Company.
C. EDWARD CHAPLIN, Treasurer. -- Vice President and Treasurer of Prudential
since 1995; Prior to 1995: Managing Director and Assistant Treasurer of
Prudential.
JAMES C. DROZANOWSKI, Senior Vice President. -- Vice President and Operations
Executive, Prudential Individual Insurance Group since 1996; 1995 to 1996:
President and Chief Executive Officer of Chase Manhattan Bank; Prior to 1995:
Vice President, North America Customer Services, Chase Manhattan Bank.
CLIFFORD E. KIRSCH, Chief Legal Officer. -- Chief Counsel, Variable Products,
Law Department of Prudential since 1995; Prior to 1995: Associate General
Counsel with Paine Webber.
FRANK P. MARINO, Senior Vice President. -- Vice President, Policyowner Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services.
EDWARD A. MINOGUE, Senior Vice President. -- Vice President, Annuity Services,
Prudential Investments since 1997; Prior to 1997: Director, Merrill Lynch.
JAMES M. SCHLOMANN, Vice President, Comptroller & Chief Accounting Officer. --
Vice President & Associate Comptroller, Prudential since 1997; Prior to 1997:
Senior Executive Vice President & CFO, USLife Corp.
SHIRLEY H. SHAO, Senior Vice President and Chief Actuary. -- Vice President and
Associate Actuary, Prudential.
JAMES A. TIGNANELLI, Senior Vice President. -- Vice President, Compliance,
Prudential Individual Insurance since 1996; Prior to 1996: Vice President Field
Operations.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.
Pruco Life directors and officers are elected annually.
23
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF NET ASSETS
December 31,1997
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series Fund, Inc.
Portfolios at net asset value [Note 3] ............... $ 15,842,376 $ 22,252,943 $147,655,466 $133,182,713 $ 42,313,650
Receivable from Pruco Life Insurance Company [Note 2] . 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Net Assets ........................................... $ 15,842,376 $ 22,252,943 $147,655,466 $133,182,713 $ 42,313,650
============ ============ ============ ============ ============
NET ASSETS, representing:
Equity of Contract owners ............................. $ 15,807,532 $ 22,227,264 $147,607,122 $133,141,983 $ 42,309,165
Equity of Pruco Life Insurance Company ................ 34,844 25,679 48,344 40,730 4,485
------------ ------------ ------------ ------------ ------------
$ 15,842,376 $ 22,252,943 $147,655,466 $133,182,713 $ 42,313,650
============ ============ ============ ============ ============
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received ...................... $ 836,324 $ 1,601,924 $ 3,187,180 $ 3,834,599 $ 1,888,751
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A] ........... 55,267 76,182 483,733 443,641 142,257
Reimbursement for excess expenses [Note 5B] .......... (3,473) (5,282) (107,340) (287,241) (66,633)
------------ ------------ ------------ ------------ ------------
NET EXPENSES ........................................... 51,794 70,900 376,393 156,400 75,624
------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ........................... 784,530 1,531,024 2,810,787 3,678,199 1,813,127
------------ ------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ................. 0 256,143 7,940,023 19,922,569 4,545,796
Realized gain on shares redeemed
[average cost basis] ................................ 0 66,809 2,949,502 1,255,186 266,426
Net change in unrealized gain (loss)
on investments ...................................... 0 (146,333) 15,968,968 (4,223,520) (1,618,876)
------------ ------------ ------------ ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS ......................... 0 176,619 26,858,493 16,954,235 3,193,346
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................ $ 784,530 $ 1,707,643 $ 29,669,280 $ 20,632,434 $ 5,006,473
============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A14
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
SMALL
HIGH YIELD STOCK EQUITY NATURAL GOVERNMENT PRUDENTIAL CAPITALIZATION
BOND INDEX INCOME RESOURCES GLOBAL INCOME JENNISON STOCK
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 2,245,817 $ 8,556,990 $ 4,284,748 $ 1,909,557 $ 1,093,831 $ 528,710 $ 1,144,788 $ 749,765
0 29,144 3,195 0 0 0 0 10,284
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------
$ 2,245,817 $ 8,586,134 $ 4,287,943 $ 1,909,557 $ 1,093,831 $ 528,710 $ 1,144,788 $ 760,049
============ ============ ============ ============ ============ ============ ============ ==========
$ 2,243,729 $ 8,586,134 $ 4,287,943 $ 1,901,644 $ 1,090,052 $ 527,574 $ 1,142,713 $ 760,049
2,088 0 0 7,913 3,779 1,136 2,075 0
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------
$ 2,245,817 $ 8,586,134 $ 4,287,943 $ 1,909,557 $ 1,093,831 $ 528,710 $ 1,144,788 $ 760,049
============ ============ ============ ============ ============ ============ ============ ==========
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
SMALL
HIGH YIELD STOCK EQUITY NATURAL GOVERNMENT PRUDENTIAL CAPITALIZATION
BOND INDEX INCOME RESOURCES GLOBAL INCOME JENNISON STOCK
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 203,212 $ 113,569 $ 94,263 $ 11,074 $ 13,090 $ 33,731 $ 1,979 $ 3,695
7,466 26,197 12,518 7,715 3,694 1,768 2,889 1,939
0 0 0 0 0 0 0 0
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
7,466 26,197 12,518 7,715 3,694 1,768 2,889 1,939
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
195,746 87,372 81,745 3,359 9,396 31,963 (910) 1,756
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
0 237,151 382,984 239,014 51,660 0 63,600 50,803
2,954 199,378 33,336 40,949 6,455 237 8,562 3,430
70,466 1,512,588 591,189 (534,111) (9,784) 14,012 133,987 63,710
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
73,420 1,949,117 1,007,509 (254,148) 48,331 14,249 206,149 117,943
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 269,166 $ 2,036,489 $ 1,089,254 $ (250,789) $ 57,727 $ 46,212 $ 205,239 $ 119,699
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A14
A2
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------------
DIVERSIFIED
MONEY MARKET BOND
-------------------------------------------- -----------------------------------------
1997 1996 1995 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) ............ $ 784,530 $ 759,781 $ 836,141 $ 1,531,024 $ 1,301,738 $ 1,300,825
Capital gains distributions received .... 0 0 0 256,143 0 46,988
Realized gain (loss) on shares redeemed
[average cost basis] ................... 0 0 0 66,809 43,347 25,897
Net change in unrealized gain (loss) on
investments ............................ 0 0 0 (146,333) (485,901) 2,288,395
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS .............................. 784,530 759,781 836,141 1,707,643 859,184 3,662,105
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7] ................................ (859,637) (774,685) (251,391) (1,077,204) (747,162) (215,375)
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
EQUITY TRANSFERS
[Note 8] ................................ 26,431 (40,679) 13,580 20,104 (1,424) (15,824)
----------- ----------- ----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS .................................. (48,676) (55,583) 598,330 650,543 110,598 3,430,906
NET ASSETS:
Beginning of year ....................... 15,891,052 15,946,635 15,348,305 21,602,400 21,491,802 18,060,896
----------- ----------- ----------- ----------- ----------- -----------
End of year ............................. $15,842,376 $15,891,052 $15,946,635 $22,252,943 $21,602,400 $21,491,802
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A14
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
EQUITY MANAGED BALANCED
- ------------------------------------------- -------------------------------------------- ---------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2,810,787 $ 2,554,460 $ 1,821,687 $ 3,678,199 $ 3,328,814 $ 3,006,879 $ 1,813,127 $ 1,450,582 $ 1,301,886
7,940,023 11,007,423 3,775,598 19,922,569 11,065,352 4,387,819 4,545,796 2,350,211 1,170,397
2,949,502 1,192,928 592,148 1,255,186 549,342 234,407 266,426 104,292 31,524
15,968,968 4,650,911 19,423,426 (4,223,520) (803,121) 12,905,968 (1,618,876) 402,663 2,509,581
- ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- -----------
29,669,280 19,405,722 25,612,859 20,632,434 14,140,387 20,535,073 5,006,473 4,307,748 5,013,388
- ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- -----------
(6,457,147) (2,590,623) (966,669) (5,180,609) (1,978,785) (777,608) (1,230,865) (204,807) 374,732
- ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- -----------
12,540 (9,294) 1,701 (58,991) 24,234 (110,202) (23,512) (70,175) 9,314
- ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- -----------
23,224,673 16,805,805 24,647,891 15,392,834 12,185,836 19,647,263 3,752,096 4,032,766 5,397,434
124,430,793 107,624,988 82,977,097 117,789,879 105,604,043 85,956,780 38,561,554 34,528,788 29,131,354
- ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- -----------
$147,655,466 $124,430,793 $107,624,988 $133,182,713 $117,789,879 $105,604,043 $42,313,650 $38,561,554 $34,528,788
============ ============ ============ ============ ============ ============ =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A14
A4
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31,1997, 1996 and 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------
HIGH
YIELD STOCK
BOND INDEX
-------------------------------------- --------------------------------------
1997 1996 1995 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) ............... $ 195,746 $ 186,203 $ 175,531 $ 87,372 $ 81,004 $ 70,991
Capital gains distributions received ....... 0 0 0 237,151 69,432 32,489
Realized gain (loss) on shares redeemed
[average cost basis] ...................... 2,954 (255) (933) 199,378 26,711 16,334
Net change in unrealized gain (loss) on
investments ............................... 70,466 15,911 95,010 1,512,588 891,077 1,052,064
---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ................................. 269,166 201,859 269,608 2,036,489 1,068,224 1,171,878
---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7] ................................... (48,754) (8,482) (24,810) 441,335 494,766 291,051
---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
EQUITY TRANSFERS
[Note 8] ................................... (1,780) (655) (217) (6,993) (16,223) (9,754)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ..................................... 218,632 192,722 244,581 2,470,831 1,546,767 1,453,175
NET ASSETS:
Beginning of year .......................... 2,027,185 1,834,463 1,589,882 6,115,303 4,568,536 3,115,361
---------- ---------- ---------- ---------- ---------- ----------
End of year ................................ $2,245,817 $2,027,185 $1,834,463 $8,586,134 $6,115,303 $4,568,536
========== ========== ========== ========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A14
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
EQUITY NATURAL
INCOME RESOURCES GLOBAL
- ------------------------------------------- ----------------------------------------- -----------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 81,745 $ 82,533 $ 73,400 $ 3,359 $ 6,382 $ 12,839 $ 9,396 $ 16,653 $ 6,731
382,984 92,133 96,854 239,014 249,205 69,644 51,660 13,744 10,665
33,336 10,132 7,871 40,949 25,407 2,181 6,455 3,662 823
591,189 325,992 203,709 (534,111) 196,158 233,804 (9,784) 96,458 53,463
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,089,254 510,790 381,834 (250,789) 477,152 318,468 57,727 130,517 71,682
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
257,144 129,405 239,675 3,642 147,039 80,100 123,644 225,265 161,379
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(4,432) (14,464) 18,454 5,073 (14,433) 13,605 (4,949) (18,747) 12,250
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,341,966 625,731 639,963 (242,074) 609,758 412,173 176,422 337,035 245,311
2,945,977 2,320,246 1,680,283 2,151,631 1,541,873 1,129,700 917,409 580,374 335,063
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 4,287,943 $ 2,945,977 $ 2,320,246 $ 1,909,557 $ 2,151,631 $ 1,541,873 $ 1,093,831 $ 917,409 $ 580,374
============= =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A14
A6
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31,1997, 1996, and 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------
GOVERNMENT PRUDENTIAL
INCOME JENNISON*
-------------------------------------- --------------------------------------
1997 1996 1995 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) ................ $ 31,963 $ 29,656 $ 27,273 $ (910) $ (206) $ (74)
Capital gains distributions received ........ 0 0 0 63,600 0 0
Realized gain (loss) on shares redeemed
[average cost basis] ....................... 237 520 8,064 8,562 635 506
Net change in unrealized gain (loss) on
investments ................................ 14,012 (19,539) 43,870 133,987 40,175 3,478
---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS .................................. 46,212 10,637 79,207 205,239 40,604 3,910
---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7] .................................... (16,804) 22,080 2,911 389,469 423,154 77,699
---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
EQUITY TRANSFERS
[Note 8] .................................... 571 (2,408) (38,380) (11,580) 7,912 8,381
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ...................................... 29,979 30,309 43,738 583,128 471,670 89,990
NET ASSETS:
Beginning of year ........................... 498,731 468,422 424,684 561,660 89,990 0
---------- ---------- ---------- ---------- ---------- ----------
End of year ................................. $ 528,710 $ 498,731 $ 468,422 $1,144,788 $ 561,660 $ 89,990
========== ========== ========== ========== ========== ==========
</TABLE>
* Commenced Business on 5/1/95
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A14
A7
<PAGE>
SUBACCOUNTS (CONTINUED)
- -----------------------------------
SMALL
CAPITALIZATION
STOCK*
- -----------------------------------
1997 1996 1995
- --------- --------- ---------
$ 1,756 $ 1,291 $ 147
50,803 6,557 628
3,430 344 60
63,710 28,167 3,161
- --------- --------- ---------
119,699 36,359 3,996
- --------- --------- ---------
258,740 280,751 60,180
- --------- --------- ---------
(1,517) (7,047) 8,888
- --------- --------- ---------
376,922 310,063 73,064
383,127 73,064 0
- --------- --------- ---------
$ 760,049 $ 383,127 $ 73,064
========= ========= =========
* Commenced Business on 5/1/95
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A14
A8
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 1: GENERAL
Pruco Life Variable Insurance Account ("the Account") was established
on November 10, 1982 under Arizona law as a separate investment
account of Pruco Life Insurance Company ("Pruco Life") which is a
wholly-owned subsidiary of The Prudential Insurance Company of America
("Prudential"). The assets of the Account are segregated from Pruco
Life's other assets.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. There are thirteen subaccounts
within the Account, each of which invests only in a corresponding
portfolio of The Prudential Series Fund, Inc. (the "Series Fund"). The
Series Fund is a diversified open-end management investment company,
and is managed by Prudential.
New sales of the Pruco Life Variable Life product which invested in
the Account were discontinued as of January 1, 1992. However, premium
payments made by Contract owners existing at that date will continue
to be received by the Account.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in conformity with generally
accepted accounting principles (GAAP). The preparation of the
financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates.
Investments--The investments in shares of the Series Fund are stated
at the net asset value of the respective portfolio.
Security Transactions--Realized gains and losses on security
transactions are reported on an average cost basis. Purchase and sale
transactions are recorded as of the trade date of the security being
purchased or sold.
Distributions Received--Dividend and capital gain distributions
received are reinvested in additional shares of the Series Fund and
are recorded on the ex-dividend date.
Equity of Pruco Life Insurance Company--Pruco Life maintains a
position in the Account for liquidity purposes including unit
purchases and redemptions, fund share transactions, and expense
processing. Pruco Life monitors the balance daily and transfers funds
based upon anticipated activity. At times, Pruco Life may owe an
amount to the Account which is reflected in the Account's Statements
of Net Assets as a receivable from Pruco Life. The receivable does not
have an effect on the Contract owner's account or the related unit
value.
A9
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
The net asset value per share for each portfolio of the Series Fund,
the number of shares of each portfolio held by the subaccounts of the
Account and the aggregate cost of investments in such shares at
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
---------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Number of Shares: 1,584,238 2,018,984 4,752,488 7,707,204 2,826,522
Net asset value per share: $ 10.00000 $ 11.02185 $ 31.06909 $ 17.28029 $ 14.97022
Cost: $ 15,842,376 $ 21,495,566 $ 91,050,746 $ 119,833,443 $ 39,759,900
<CAPTION>
PORTFOLIOS (CONTINUED)
---------------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Number of Shares: 275,745 283,161 191,391 125,264 61,028
Net asset value per share: $ 8.14453 $ 30.21956 $ 22.38737 $ 15.24426 $ 17.92348
Cost: $ 2,193,991 $ 4,670,596 $ 3,143,812 $ 1,948,770 $ 969,243
<CAPTION>
PORTFOLIOS (CONTINUED)
---------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
--------------- --------------- ---------------
<S> <C> <C> <C>
Number of Shares: 45,884 64,562 47,063
Net asset value per share: $ 11.52286 $ 17.73151 $ 15.93104
Cost: $ 520,427 $ 967,148 $ 654,726
</TABLE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding Contract owner units, unit values and total value of
Contract owner equity at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units
Outstanding................. 6,552,860.841 5,966,986.793 18,174,210.667 24,080,444.672 9,737,863.190
Unit Value ................. $ 2.41231 $ 3.72504 $ 8.12179 $ 5.52905 $ 4.34481
-------------- --------------- --------------- --------------- ---------------
TOTAL CONTRACT OWNER EQUITY $ 15,807,532 $ 22,227,264 $ 147,607,122 $ 133,141,983 $ 42,309,165
=============== =============== =============== =============== ===============
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
-------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units
Outstanding ................ 887,652.832 2,064,153.249 964,492.916 706,628.765 764,621.517
Unit Value ................. $ 2.52771 $ 4.15964 $ 4.44580 $ 2.69115 $ 1.42561
-------------- --------------- --------------- --------------- ---------------
TOTAL CONTRACT OWNER EQUITY $ 2,243,729 $ 8,586,134 $ 4,287,943 $ 1,901,644 $ 1,090,052
=============== =============== =============== =============== ===============
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
-------------- --------------- ---------------
<S> <C> <C> <C>
Contract Owner Units
Outstanding ................ 260,623.105 609,824.160 426,643.947
Unit Value ................. $ 2.02428 $ 1.87384 $ 1.78146
-------------- --------------- ---------------
TOTAL CONTRACT OWNER EQUITY $ 527,574 $ 1,142,713 $ 760,049
============== =============== ===============
</TABLE>
A10
<PAGE>
NOTE 5: CHARGES AND EXPENSES
A. Mortality Risk and Expense Risk Charges
The mortality risk and expense risk charges at an effective
annual rate of 0.35% are applied daily against the net assets
representing equity of Contract owners held in each subaccount.
Mortality risk is that Contract owners may not live as long as
estimated and expense risk is that the cost of issuing and
administering the policies may exceed the estimated expenses. For
1997, the amount of these charges paid to Pruco Life is
$1,265,266.
B. Expense Reimbursement
Pursuant to a prior merger agreement, the Account is reimbursed
by Pruco Life for expenses in excess of 0.40% of the average
daily net assets incurred by the Money Market, Diversified Bond,
Equity, Flexible Managed, and Conservative Balanced Portfolios of
the Series Fund. For 1997, the amount of these reimbursements
totaled $469,969.
C. Cost of Insurance Charges
Contract owner contributions to the Account are subject to the
following charges: administrative charges, death benefit risk
charges, premium taxes, and sales loads. During 1997, Pruco Life
received from Contract owners $3,379,797, $376,821, $628,036, and
$3,136,911, respectively, for these charges.
NOTE 6: TAXES
Pruco Life is taxed as a "life insurance company" as defined by the
Internal Revenue Code and the results of operations of the Account
form a part of Pruco Life's consolidated federal tax return. Under
current federal law, no federal income taxes are payable by the
Account. As such, no provision for tax liability has been recorded in
these financial statements.
A11
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
The following amounts represent components of Contract owner activity
for the year ended December 31, 1997:
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Contract Owner Net Payments ................ $ 1,445,070 $ 1,747,896 $ 7,487,495 $ 9,052,222 $ 3,550,385
Policy Loans ............................... $ (212,946) $ (349,385) $(2,897,273) $(2,485,575) $ (721,192)
Policy Loan Repayments and Interest ........ $ 248,612 $ 298,282 $ 1,978,021 $ 1,644,384 $ 516,697
Surrenders, Withdrawals, and Death Benefits $(1,353,770) $(1,454,231) $(9,674,305) $(8,842,066) $(2,814,526)
Net Transfers From (To) Other Subaccounts or
Fixed Rate Options ....................... $ (461,651) $ (629,526) $ 325,798 $ (691,350) $ (281,644)
Administrative and Other Charges ........... $ (524,952) $ (690,240) $(3,676,883) $(3,858,224) $(1,480,585)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Contract Owner Net Payments ................ $ 208,258 $ 615,209 $ 267,363 $ 214,991
Policy Loans ............................... $ (37,680) $ (231,311) $ (100,894) $ (67,912)
Policy Loan Repayments and Interest ........ $ 28,120 $ 71,414 $ 45,929 $ 54,198
Surrenders, Withdrawals, and Death Benefits $ (160,755) $ (445,663) $ (216,492) $ (172,949)
Net Transfers From (To) Other Subaccounts or
Fixed Rate Options ....................... $ (9,028) $ 679,608 $ 375,391 $ 52,919
Administrative and Other Charges ........... $ (77,669) $ (247,922) $ (114,153) $ (77,605)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
GLOBAL INCOME JENNISON STOCK
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Contract Owner Net Payments ............... $ 89,572 $ 54,786 $ 63,200 $ 43,640
Policy Loans .............................. $ (27,984) $ (10,764) $ (22,782) $ (13,567)
Policy Loan Repayments and Interest ....... $ 13,484 $ 7,568 $ 12,220 $ 9,008
Surrenders, Withdrawals, and Death Benefits $ (82,874) $ (27,869) $ (38,944) $ (36,946)
Net Transfers From (To) Other Subaccounts or
Fixed Rate Options ...................... $ 161,137 $ (20,796) $ 397,341 $ 271,858
Administrative and Other Charges .......... $ (29,691) $ (19,729) $ (21,566) $ (15,253)
</TABLE>
NOTE 8: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM EQUITY TRANSFERS
The increase (decrease) in net assets resulting from equity transfers
represents the net contributions (withdrawals) of Pruco Life to the
Account.
A12
<PAGE>
NOTE 9: UNIT ACTIVITY
Transactions in units (including tranfers among subaccounts) for the
years ended December 31,1997 and 1996 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
------------------------------------- -------------------------------------
1997 1996 1997 1996
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 1,004,793.451 1,030,442.209 603,015.628 746,053.428
Contract Owner Redemptions: (1,370,459.678) (1,377,953.802) (905,660.237) (972,541.044)
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
FLEXIBLE
EQUITY MANAGED
------------------------------------- -------------------------------------
1997 1996 1997 1996
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 1,545,087.389 2,115,422.788 2,270,423.257 2,801,879.413
Contract Owner Redemptions: (2,411,779.832) (2,545,555.957) (3,271,427.216) (3,253,817.888)
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
HIGH
CONSERVATIVE YIELD
BALANCED BOND
------------------------------------- -------------------------------------
1997 1996 1997 1996
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 1,112,426.169 1,329,879.254 135,173.405 178,674.418
Contract Owner Redemptions: (1,410,161.024) (1,387,010.702) (155,168.188) (181,912.311)
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
STOCK
INDEX EQUITY INCOME
------------------------------------- -------------------------------------
1997 1996 1997 1996
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 458,877.302 473,039.375 201,160.523 207,203.812
Contract Owner Redemptions: (338,842.932) (295,729.538) (136,671.017) (161,396.371)
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
NATURAL
RESOURCES GLOBAL
------------------------------------- -------------------------------------
1997 1996 1997 1996
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 161,106.459 185,741.755 223,118.541 272,484.637
Contract Owner Redemptions: (158,127.173) (133,534.069) (136,413.002) (88,899.804)
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
GOVERNMENT PRUDENTIAL
INCOME JENNISON
------------------------------------- -------------------------------------
1997 1996 1997 1996
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 39,198.326 53,827.127 319,764.307 380,827.375
Contract Owner Redemptions: (47,931.233) (40,948.295) (93,797.550) (61,380.639)
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
SMALL
CAPITALIZATION
STOCK
-------------------------------------
1997 1996
------------------ -----------------
<S> <C> <C>
Contract Owner Contributions: 224,200.349 240,646.185
Contract Owner Redemptions: (64,522.242) (26,691.754)
</TABLE>
A13
<PAGE>
NOTE 10: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of
investments in the Series Fund were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
--------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Purchases ........................... $ 573,000 $ 200,000 $ 593,000 $ 571,000 $ 482,000
Sales ............................... $ (1,458,000) $ (1,328,000) $ (7,414,000) $ (5,967,000) $ (1,812,000)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
--------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Purchases ........................... $ 49,000 $ 813,000 $ 350,000 $ 181,000 $ 149,000
Sales ............................... $ (107,000) $ (434,000) $ (113,000) $ (180,000) $ (34,000)
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
--------------- -------------- ----------------
For the year ended December 31, 1997
Purchases ........................... $ 27,000 $ 425,000 $ 263,000
Sales ............................... $ (45,000) $ (50,000) $ (18,000)
</TABLE>
A14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the
Pruco Life Variable Insurance Account
and the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the Money Market, Diversified Bond,
Equity, Flexible Managed, Conservative Balanced, High Yield Bond, Stock Index,
Equity Income, Natural Resources, Global, Government Income, Prudential Jennison
and Small Capitalization Stock Subaccounts of the Pruco Life Variable Insurance
Account at December 31, 1997, the results of each of their operations for the
year then ended and the changes in each of their net assets for each of the two
years in the period then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Pruco Life
Insurance Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of shares owned in The Prudential Series Fund, Inc. at December 31,
1997, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
March 20, 1998
A15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Contract Owners of
Pruco Life Variable Insurance
Account and the Board of Directors
of Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying statements of changes in net assets of Pruco
Life Variable Insurance Account of Pruco Life Insurance Company (comprising,
respectively, the Money Market, Diversified Bond, Equity, Flexible Managed,
Conservative Balanced, High Yield Bond, Stock Index, Equity Income, Natural
Resources, Global, Government Income, Prudential Jennison, and Small
Capitalization Stock subaccounts) for the periods presented in the year ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the changes in net assets of each of the respective subaccounts
constituting the Pruco Life Variable Insurance Account for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 15, 1996
A16
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1997 AND 1996 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1997: $2,526,554;
1996: $2,210,150) $ 2,563,852 $ 2,236,817
Held to maturity, at amortized cost (fair value, 1997: $350,056; 1996:
$416,102) 338,848 405,731
Equity securities - available for sale, at fair value (cost, 1997: $1,289;
1996: $3,626) 1,982 3,748
Mortgage loans on real estate 22,787 46,915
Policy loans 703,955 639,782
Short-term investments 316,355 169,830
Other long-term investments 1,317 4,528
----------------- -----------------
Total investments 3,949,096 3,507,351
Cash 71,358 73,766
Deferred policy acquisition costs 655,242 633,159
Accrued investment income 67,000 62,110
Income taxes receivable - 7,191
Reinsurance recoverable on unpaid losses 25,882 27,014
Other assets 60,810 62,924
Separate Account assets 8,022,079 5,336,851
----------------- -----------------
TOTAL ASSETS $12,851,467 $9,710,366
================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances $ 2,282,191 $ 2,188,862
Future policy benefits and other policyholder liabilities 570,729 557,351
Cash collateral for loaned securities 143,421 -
Income taxes payable 71,703 -
Deferred income tax liability 138,483 148,960
Payable to affiliate 70,375 49,828
Other liabilities 120,260 88,930
Separate Account liabilities 7,948,788 5,277,454
----------------- -----------------
TOTAL LIABILITIES 11,345,950 8,311,385
----------------- -----------------
CONTINGENCIES - (SEE NOTE 10)
STOCKHOLDER'S EQUITY
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
December 31, 1997 and 1996 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,050,871 944,497
Net unrealized investment gains 17,129 14,104
Foreign currency translation adjustments (4,565) (1,702)
----------------- -----------------
TOTAL STOCKHOLDER'S EQUITY 1,505,517 1,398,981
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $12,851,467 $9,710,366
================= =================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-1
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES
Premiums $ 49,496 $ 51,525 $ 42,089
Policy charges and fee income 330,292 324,976 319,012
Net investment income 259,634 247,328 246,618
Realized investment gains, net 10,974 10,835 13,200
Other income 33,801 20,818 26,986
----------------- ----------------- -----------------
TOTAL REVENUES 684,197 655,482 647,905
----------------- ----------------- -----------------
BENEFITS AND EXPENSES
Policyholders' benefits 179,419 186,873 153,987
Interest credited to policyholders' account balances 110,815 118,246 126,926
General, administrative and other expenses 225,721 122,006 134,790
----------------- ----------------- -----------------
TOTAL BENEFITS AND EXPENSES 515,955 427,125 415,703
----------------- ----------------- -----------------
Income from operations before income taxes 168,242 228,357 232,202
----------------- ----------------- -----------------
Income taxes
Current 73,326 60,196 67,014
Deferred (11,458) 18,939 12,544
----------------- ----------------- -----------------
Total income taxes 61,868 79,135 79,558
----------------- ----------------- -----------------
NET INCOME $ 106,374 $ 149,222 $ 152,644
================= ================= =================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-2
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
NET FOREIGN
UNREALIZED CURRENCY TOTAL
COMMON PAID-IN- RETAINED INVESTMENT TRANSLATION STOCKHOLDER'S
STOCK CAPITAL EARNINGS GAINS ADJUSTMENTS EQUITY
------------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 2,500 $ 439,582 $ 642,631 $(41,761) $ 650 $1,043,602
Net income -- -- 152,644 -- -- 152,644
Change in foreign
currency translation
adjustments -- -- -- -- (1,870) (1,870)
Change in net
unrealized
investment gains -- -- -- 73,817 -- 73,817
------------- ------------- ------------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1995 2,500 439,582 795,275 32,056 (1,220) 1,268,193
Net income -- -- 149,222 -- -- 149,222
Change in foreign
currency translation
adjustments -- -- -- -- (482) (482)
Change in net
unrealized
investment gains -- -- -- (17,952) -- (17,952)
------------- ------------- ------------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1996 2,500 439,582 944,497 14,104 (1,702) 1,398,981
Net income -- -- 106,374 -- -- 106,374
Change in foreign
currency translation
adjustments -- -- -- -- (2,863) (2,863)
Change in net
unrealized
investment gains -- -- -- 3,025 -- 3,025
------------- ------------- ------------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1997 $ 2,500 $ 439,582 $1,050,871 $ 17,129 $ (4,565) $1,505,517
============= ============= ============= ============= =========== =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-3
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 106,374 $ 149,222 $ 152,644
Adjustments to reconcile net income to net cash provided by
operating activities:
Policy charges and fee income (40,783) (50,286) (56,637)
Interest credited to policyholders' account balances 110,815 118,246 126,926
Net increase in Separate Accounts (13,894) (38,025) (3,520)
Realized investment gains, net (10,974) (10,835) (13,200)
Amortization and other non-cash items (5,525) 26,709 (8,106)
Change in:
Future policy benefits and other policyholders' liabilities 13,378 56,151 22,877
Accrued investment income (4,890) (2,248) (480)
Payable to affiliate 20,547 16,519 10,569
Policy loans (64,173) (70,509) (75,411)
Deferred policy acquisition costs (22,083) (66,183) 31,318
Income taxes payable/receivable 78,894 (816) 12,031
Reinsurance recoverable on unpaid losses 1,132 900 750
Deferred income tax liability (10,477) 7,912 30,779
Other, net 34,094 7,564 (76,702)
--------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES 192,435 144,321 153,838
--------------- -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 2,828,665 3,886,254 1,886,687
Held to maturity 138,626 138,127 144,898
Equity securities 6,939 7,527 5,557
Mortgage loans on real estate 24,925 19,226 7,395
Other long-term investments 3,276 288 1,559
Investment real estate -- 4,488 2,926
Payments for the purchase of:
Fixed maturities:
Available for sale (3,141,785) (4,008,810) (1,741,139)
Held to maturity (70,532) (114,494) (135,092)
Equity securities (4,594) (4,697) (4,279)
Other long-term investments (51) (657) (1,674)
Cash collateral for loaned securities, net 143,421 -- --
Short-term investments, net (147,030) 58,186 (36,482)
--------------- -------------- ------------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES (218,140) (14,562) 130,356
--------------- -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 2,099,600 536,370 95,039
Withdrawals (2,076,303) (633,798) (365,578)
--------------- -------------- ------------
CASH FLOWS FROM (USED IN)FINANCING ACTIVITIES 23,297 (97,428) (270,539)
--------------- -------------- ------------
Net (decrease) increase in Cash (2,408) 32,331 13,655
Cash, beginning of year 73,766 41,435 27,780
--------------- -------------- ------------
CASH, END OF YEAR $ 71,358 $ 73,766 $ 41,435
=============== ============== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes (received) paid $ (7,904) $ 61,760 $ 53,107
=============== ============== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-4
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS
Pruco Life Insurance Company (the Company) is a stock life insurance company,
organized in 1971 under the laws of the state of Arizona. The Company markets
individual life insurance, variable life insurance, variable life insurance,
variable annuities, and deferred annuities (the Contracts) in all states except
New York, the District of Columbia and Guam. In addition, the Company markets
individual life insurance through its branch office in Taiwan. The Company has
two subsidiaries, Pruco Life Insurance Company of New Jersey (PLNJ) and The
Prudential Life Insurance company of Arizona (PLICA). PLNJ is a stock life
insurance company organized in 1982 under the laws of the state of New Jersey.
It is licenced to sell individual life insurance and deferred annuities only in
the states of New Jersey and New York. PLICA is a stock life insurance company
organized in 1988 under the laws of the state of Arizona. PLICA had no new
business sales in 1977 and at this time will not be issuing new business.
The only reportable industry segment of the Company is "Life Insurance."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company, a
stock life insurance company, and its subsidiaries. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP"). All significant intercompany balances and transactions have
been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
INVESTMENTS
FIXED MATURITIES classified as "available for sale" are carried at estimated
fair value. Fixed maturities that the Company has both the positive intent and
ability to hold to maturity are stated at amortized cost and classified as "held
to maturity". The amortized cost of fixed maturities are written down to
estimated fair value when considered impaired and the decline in value is
considered to be other than temporary. Unrealized gains and losses on fixed
maturities "available for sale", net of income tax, the effect on deferred
policy acquisition costs and participating annuity contracts that would result
from the realization of unrealized gains and losses are included in a separate
component of equity, "Net unrealized investment gains."
EQUITY SECURITIES, available for sale, comprised of common and non-redeemable
preferred stock, are carried at estimated fair value. The associated unrealized
gains and losses, net of income tax, the effect on deferred policy acquisition
costs and participating annuity contracts that would result from the realization
of unrealized gains and losses, are included in separate component of equity,
"Net unrealized investment gains."
MORTGAGE LOANS ON REAL ESTATE are stated primarily at unpaid principal balances,
net of unamortized discounts
POLICY LOANS are carried at unpaid principal balances.
SHORT-TERM INVESTMENTS, including highly liquid debt instruments purchased with
an original maturity of twelve months or less, are carried at amortized cost,
which approximates fair value.
OTHER LONG-TERM INVESTMENTS primarily represent the Company's investments in
joint ventures and partnerships in which the Company does not have control.
These investments are recorded using the equity method of accounting, reduced
for other than temporary declines in value.
REALIZED INVESTMENT GAINS, NET are computed using the specific identification
method. Costs of fixed maturity and equity securities are adjusted for
impairments considered to be other than temporary.
CASH
Cash includes cash on hand, amounts due from banks, and money market
instruments.
DEFERRED POLICY ACQUISITION COSTS
The costs which vary with and that are related primarily to the production of
new insurance business are deferred to the extent such costs are deemed
recoverable from future profits. Such costs include certain commissions, costs
of policy issuance and underwriting, and certain variable field office expenses.
Deferred policy acquisition costs are subject to recoverability testing at the
time of policy issue and loss recognition testing at the end of each accounting
period. Deferred policy acquisition costs are
B-5
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
adjusted for the impact of unrealized gains or losses on investments as if these
gains or losses had been realized, with corresponding credits or charges
included in equity.
Acquisition costs related to interest-sensitive life products and
investment-type contracts are deferred and amortized in proportion to total
estimated gross profits arising principally from investment results, mortality
and expense margins and surrender charges based on historical and anticipated
future experience. Amortization periods range from 15 to 30 years. Amortization
of deferred policy acquisition costs was $149,851 thousand, $9,309 thousand, and
$54,371 thousand for the years ended December 31, 1997, 1996, and 1995,
respectively. Deferred policy acquisition costs are analyzed to determine if
they are recoverable from future income, including investment income. If such
costs are determined to be unrecoverable, they are expensed at the time of
determination. The effect of revisions to estimated gross profits on unamortized
deferred acquisition costs is reflected in earnings in the period such estimated
gross profits are revised.
FUTURE POLICY BENEFITS AND POLICYHOLDERS' ACCOUNT BALANCES
Future policy benefits includes reserves for annuities in payout status as well
as reserves for riders and supplemental benefits. Reserves for annuities in
payout status are generally calculated as the present value of estimated future
benefit payments and related expenses, using interest rates ranging from 6.5% to
11.0%. The mortality assumption is generally the 1983 Individual Annuity
Mortality Table. Reserves for riders and supplemental benefits are calculated
using interest rates ranging from 2.5% to 7.25% and various mortality and
morbidity tables derived from company or industry experience. Reserves for
business in the Company's Taiwan branch are generally calculated using interest
rates ranging from 6.25% to 7.5% and the 1989 Taiwan Standard Ordinary
Experience Mortality table with modifications.
For the above categories, premium deficiency reserves are established, if
necessary, when the liabilities for future policy benefits plus the present
value of expected future gross premiums are insufficient to provide for expected
future policy benefits and expenses.
Policyholders' account balances for interest-sensitive life and investment-type
contracts are equal to the policy account values. The policy account values
represent an accumulation of gross premium payments plus credited interest, less
expense and mortality charges and withdrawals. Interest crediting rates on life
insurance products range from 4.2% to 6.5% and on investment-type products range
from 3.15% to 7.9%.
SECURITIES LOANED are recorded at the amount of cash received as collateral. The
Company obtains collateral in an amount equal to 102% of the fair value of the
domestic securities. The Company monitors the market value of securities loaned
on a daily basis with additional collateral obtained as necessary. Non-cash
collateral received is not reflected in the consolidated statements of financial
position. Substantially, all of the Company's securities loaned are with large
brokerage firms.
These transactions are used to generate net investment income and facilitate
trading activity. These instruments are short-term in nature (usually 30 days or
less) and are collateralized principally by U.S. Government and mortgage-backed
securities. The carrying amounts of these instruments approximate fair value
because of the relatively short period of time between the origination of the
instruments and their expected realization.
SEPARATE ACCOUNT ASSETS AND LIABILITIES
Separate Account assets and liabilities are reported at estimated fair value and
represent segregated funds which are invested for certain policyholders, pension
funds and other customers. The assets consist of common stocks, fixed
maturities, real estate related securities, and short-term investments. The
assets of each account are legally segregated and are not subject to claims that
arise out of any other business of the Company. Investment risks associated with
market value changes are generally borne by the customers, except to the extent
of minimum guarantees made by the Company with respect to certain accounts. The
investment income and gains or losses for Separate Accounts generally accrue to
the policyholders and are not included in the Consolidated Statement of
Operations. Mortality, policy administration and surrender charges on the
accounts are included in "Policy charges and fee income."
Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life Modified Guaranteed Annuity
Account. The Pruco Life Modified Guaranteed Annuity Account is a non-unitized
separate account, which funds the Modified Guaranteed Annuity Contract and the
Market Value Adjustment Annuity Contract. Owners of the Pruco Life Modified
Guaranteed Annuity and the Market Value Adjustment Annuity Contracts do not
participate in the investment gain or loss from assets relating to such
accounts. Such gain or loss is borne, in total, by the Company.
B-6
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INSURANCE REVENUE AND EXPENSE RECOGNITION
Amounts received as payment for interest-sensitive life, investment contracts
and deferred annuities are reported as deposits to "Policyholders' account
balances." Revenues from these contracts are reflected as "Policy charges and
fee income" and consist primarily of fees assessed during the period against the
policyholders' account balances for mortality charges, policy administration
charges, surrender charges, and interest earned from the investment of these
account balances. Benefits and expenses for these products include claims in
excess of related account balances, expenses of contract administration,
interest credited and amortization of deferred policy acquisition costs.
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Assets and liabilities of the Taiwan branch reported in other than U.S. dollars
are translated at the exchange rate in effect at the end of the period.
Revenues, benefits and other expenses are translated at the average rate
prevailing during the period. Translation adjustments arising from the use of
differing exchange rates from period to period are charged or credited directly
to equity. The cumulative effect of changes in foreign exchange rates are
included in "Foreign currency translation adjustments."
DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives include futures subject to market risk, all of which are used by the
Company in other than trading activities. Income and expenses related to
derivatives used to hedge are recorded on the accrual basis on the Statements of
Financial Position. Gains and losses relating to derivatives used to hedge the
risks associated with anticipated transactions are realized in "Realized
investment gains, net." If it is determined that the transaction will not close,
such gains and losses are included in "Realized investment gains, net."
Derivatives held for purposes other than trading are primarily used to hedge or
reduce exposure to interest rate and foreign currency risks associated with
assets held or expected to be purchased or sold, and liabilities incurred or
expected to be incurred. Additionally, other than trading derivatives are used
to change the characteristics of the Company's asset/liability mix consistent
with the Company's risk management activities.
INCOME TAXES
The Company and its subsidiaries are members of a group of affiliated companies
which join in filing a consolidated federal income tax return in addition to
separate company state and local tax returns. Pursuant to the tax allocation
arrangement, total federal income tax expense is determined on a separate
company basis. Members with losses record tax benefits to the extent such losses
are recognized in the consolidated federal tax provision. Deferred income taxes
are generally recognized, based on enacted rates, when assets and liabilities
have different values for financial statement and tax reporting purposes. A
valuation allowance is recorded to reduce a deferred tax asset to that portion
which management believes is more likely than not to be realized.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 125"). The statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
and provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. SFAS 125
became effective January 1, 1997 and is to be applied prospectively. Subsequent
to June 1996, FASB issued SFAS No. 127 "Deferral of the Effective Date of
Certain Provisions of SFAS 125" ("SFAS 127"). SFAS 127 delays the implementation
of SFAS 125 for one year for certain provisions, including repurchase
agreements, dollar rolls, securities lending and similar transactions. The
Company will delay implementation with respect to those affected provisions.
Adoption of SFAS 125 has not, and will not have a material impact on the
Company's results of operations, financial condition and liquidity.
In June of 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for years beginning after December 15, 1997. This statement
defines comprehensive income as "the change in equity of a business enterprise
during a
B-7
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
period from transactions and other events and circumstances from non-owner
sources, excluding investments by owners and distributions to owners" and
establishes standards for reporting and displaying comprehensive income and its
components in financial statements. The statement requires that the Company
classify items of other comprehensive income by their nature and display the
accumulated balance of other comprehensive income separately from retained
earnings in the equity section of the Statement of Financial Position. In
addition, reclassification of financial statements for earlier periods must be
provided for comparative purposes.
RECLASSIFICATIONS
Certain amounts in the prior years have been reclassified to conform to current
year presentation.
B-8
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES:
The following tables provide additional information relating to fixed maturities
and equity securities as of December 31,:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
------------------ ---------------- ------------- ----------------
(In Thousands)
<S> <C> <C> <C> <C>
FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 177,691 $ 1,231 $ 20 $ 178,902
Foreign government bonds 83,889 1,118 19 84,988
Corporate securities 2,263,898 36,857 2,017 2,298,738
Mortgage-backed securities 1,076 180 32 1,224
------------------ ---------------- ------------- ----------------
Total fixed maturities available for sale $2,526,554 $ 39,386 $ 2,088 $2,563,852
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
EQUITY SECURITIES AVAILABLE FOR SALE $ 1,289 $ 802 $ 109 $ 1,982
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
FIXED MATURITIES HELD TO MATURITY
Corporate securities $ 338,848 $ 11,427 $ 219 $ 350,056
------------------ ---------------- ------------- ----------------
Total fixed maturities held to maturity $ 338,848 $ 11,427 $ 219 $ 350,056
================== ================= ============== ===============
1996
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
------------------ ---------------- ------------- ----------------
(In Thousands)
FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 32,055 $ 30 $ 174 $ 31,911
Foreign government bonds 90,447 857 205 91,099
Corporate securities 2,087,250 30,365 4,206 2,113,409
Mortgage-backed securities 398 -- -- 398
------------------ ---------------- ------------- ----------------
Total fixed maturities available for sale $2,210,150 $ 31,252 $ 4,585 $2,236,817
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
EQUITY SECURITIES AVAILABLE FOR SALE $ 3,626 $ 819 $ 697 $ 3,748
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
FIXED MATURITIES HELD TO MATURITY
Corporate securities $ 405,731 $ 10,947 $ 576 $ 416,102
------------------ ---------------- ------------- ----------------
Total fixed maturities held to maturity $ 405,731 $ 10,947 $ 576 $ 416,102
================== ================= ============== ===============
</TABLE>
B-9
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of fixed maturities, categorized by
contractual maturities at December 31, 1997, are shown below:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
---------------------------------- -----------------------------------
ESTIMATED ESTIMATED
FAIR FAIR
AMORTIZED COST VALUE AMORTIZED COST VALUE
----------------- ---------------- ----------------- -----------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 29,759 $ 29,731 $ 13,736 $ 13,838
Due after one year through five years 1,738,532 1,758,946 204,298 212,050
Due after five years through ten years 555,194 567,928 98,192 101,143
Due after ten years 201,993 206,023 22,622 23,025
Mortgage-backed securities 1,076 1,224 -- --
----------------- ---------------- ----------------- -----------------
Total $2,526,554 $2,563,852 $ 338,848 $ 350,056
================= ================ ================= =================
</TABLE>
Actual maturities will differ from contractual maturities because issuers have
the right to call or prepay obligations.
Proceeds from the sale of fixed maturities available for sale during 1997, 1996,
and 1995 were $2,796,306 thousand, $3,667,062 thousand, and $1,807,584 thousand,
respectively. Gross gains of $18,635 thousand, $22,078 thousand, and $25,909
thousand and gross losses of $7,990 thousand, $17,718 thousand, and $13,907
thousand were realized on those sales during 1997, 1996, and 1995, respectively.
Proceeds from the maturity of fixed maturities available for sale during 1997,
1996, and 1995 were $32,359 thousand, $219,192 thousand, and $79,103 thousand,
respectively. During the years ended December 31, 1997, 1996 and 1995, there
were no securities classified as held to maturity that were sold.
The following table describes the amortized cost and estimated fair value of
fixed maturity securities by rating agency equivalent as of December 31, 1997:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
-------------------------------- -------------------------------
AMORTIZED ESTIMATED FAIR AMORTIZED ESTIMATED FAIR
COST VALUE COST VALUE
--------------- ---------------- --------------- ---------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
AAA/AA/A $ 1,319,527 $ 1,334,823 $ 187,692 $ 194,797
BBB 1,047,203 1,062,641 128,481 131,820
BB 80,136 83,293 20,540 21,264
B 73,717 76,781 2,132 2,172
CCC or lower 5,943 6,288 -- --
In or near default 28 26 3 3
--------------- ---------------- --------------- ---------------
Total $ 2,526,554 $ 2,563,852 $ 338,848 $ 350,056
=============== ================ =============== ===============
</TABLE>
The NAIC rates certain public and private placement securities as "in or near
default" if they are currently non-performing or believed subject to default in
the near term. The Company's holdings of these securities, in the aggregate,
comprised less than 1% of total invested assets at December 31, 1997 and 1996.
B-10
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
MORTGAGE LOANS ON REAL ESTATE
The Company's mortgage loans were collateralized by the following property types
at December 31,
1997 1996
---------------------- -----------------------
(In Thousands)
Office buildings $ 4,607 20% $ 18,497 39%
Retail stores 8,090 35% 8,731 19%
Apartment complexes 6,080 27% 11,771 25%
Industrial buildings 4,010 18% 7,916 17%
---------------------- -----------------------
Net carrying value $ 22,787 100% $ 46,915 100%
====================== =======================
The mortgage loans are geographically dispersed throughout the United States
with the largest concentrations in Washington (29%) and Pennsylvania (27%).
SPECIAL DEPOSITS
Fixed maturities of $8,302 thousand and $8,744 thousand at December 31, 1997 and
1996, respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws.
OTHER LONG-TERM INVESTMENTS
The Company's "Other long-term investments" of $1,317 thousand and $4,528
thousand as of December 31, 1997 and 1996, respectively, are comprised of
non-real estate related interests. The Company's share of net income from these
entities is $2,158 thousand, $1,434 thousand and $345 thousand for the years
ended December 31, 1997, 1996 and 1995, respectively, and is reported in "Net
investment income."
B-11
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
INVESTMENT INCOME AND INVESTMENT GAINS AND LOSSES
NET INVESTMENT INCOME arose from the following sources for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale $ 161,140 $ 152,445 $ 160,740
Fixed maturities - held to maturity 26,936 33,419 33,458
Equity securities 76 44 104
Mortgage loans on real estate 2,585 5,669 7,757
Investment real estate - 613 647
Policy loans 37,398 33,449 29,775
Short-term investments 22,011 16,780 15,092
Other 14,920 9,438 3,949
----------------- ----------------- -----------------
Gross investment income 265,066 251,857 251,522
Less: investment expenses (5,432) (4,529) (4,904)
----------------- ----------------- -----------------
Net investment income $ 259,634 $ 247,328 $ 246,618
================= ================= =================
</TABLE>
REALIZED INVESTMENT GAINS ,NET including charges for other than temporary
reductions in value, for the years ended December 31, were from the following
sources:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale $ 9,039 $ 9,036 $ 11,359
Fixed maturities - held to maturity 821 - -
Equity securities 8 781 2,020
Mortgage loans on real estate 797 1,677 (90)
Investment real estate - 487 (99)
Other 309 (1,146) 10
----------------- ----------------- -----------------
Realized investment gains, net $ 10,974 $ 10,835 $ 13,200
================= ================= =================
</TABLE>
NET UNREALIZED INVESTMENT GAINS on securities available for sale are included in
the consolidated statement of financial position as a component of equity, net
of tax. Changes in these amounts for the years ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 14,104 $ 32,056 $ (41,761)
Changes in unrealized investment gains
(losses) attributable to:
Fixed maturities 10,631 (43,853) 110,932
Equity securities 571 1,403 68
Participating group annuity contracts 1,292 (3,855) 5,092
Deferred policy acquisition costs (8,412) 17,321 (25,214)
Deferred federal income taxes (1,057) 11,032 (17,061)
----------------- ----------------- -----------------
Balance, end of year $ 17,129 $ 14,104 $ 32,056
================= ================= =================
</TABLE>
B-12
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INCOME TAXES
The components of income taxes for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
(In Thousands)
<S> <C> <C> <C>
Current tax expense:
U.S. $71,989 $59,489 $65,131
State and local 1,337 703 1,876
Foreign -- 4 7
--------------------- --------------------- ---------------------
Total 73,326 60,196 67,014
--------------------- --------------------- ---------------------
Deferred tax (benefit) expense:
U.S. (11,458) 18,413 12,196
State and local -- 526 348
--------------------- --------------------- ---------------------
Total (11,458) 18,939 12,544
--------------------- --------------------- ---------------------
Total income tax expense $61,868 $79,135 $79,558
===================== ===================== =====================
</TABLE>
The Company's income tax expense for the years ended December 31, differs from
the amount computed by applying the expected federal income tax rate of 35% to
income from operations before income taxes for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- --------------------
(In Thousands)
<S> <C> <C> <C>
Expected federal income tax expense $58,885 $79,925 $81,271
State income taxes 869 1,229 2,224
Other 2,114 (2,019) (3,937)
--------------------- --------------------- ---------------------
Total income tax expense $61,868 $79,135 $79,558
===================== ===================== ====================
</TABLE>
B-13
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
(In Thousands)
<S> <C> <C>
Deferred income tax assets
Insurance reserves $ 40,896 $ 38,532
-------------------- --------------------
Total deferred income tax assets 40,896 38,532
-------------------- --------------------
Deferred income tax liabilities
Deferred acquisition costs 168,702 173,785
Net investment gains 8,161 12,502
Other 2,516 1,205
-------------------- --------------------
Total deferred income tax liabilities 179,379 187,492
-------------------- --------------------
Deferred federal income tax liabilities $ 138,483 $ 148,960
==================== ====================
</TABLE>
Management believes that based on its historical pattern of taxable income, the
Company will produce sufficient income in the future to realize its deferred tax
assets after valuation allowance. Adjustments to the valuation allowance will be
made if there is a change in management's assessment of the amount of the
deferred tax assets that are realizable.
The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns through 1989. The Service has examined
the years 1990 through 1992. Discussions are being held with the Service with
respect to proposed adjustments. However, management believes there are adequate
defenses against, or sufficient reserves to provide for, such adjustments. The
Service has begun their examination of the years 1993 through 1995.
5. REINSURANCE
The Company assumes and cedes reinsurance with Prudential and other companies.
The effect of reinsurance for the years ended December 31, is summarized as
follows:
1997 1996 1995
----------- ----------- -----------
Life insurance premiums
Gross Amount $ 51,851 $ 53,776 $ 44,357
Ceded to other companies (3,724) (3,379) (2,268)
Assumed from other companies 1,369 1,128 --
----------- ----------- -----------
Net amount $ 49,496 $ 51,525 $ 42,089
=========== =========== ===========
1997 1996 1995
----------- ----------- -----------
Life insurance in force
Gross Amount $47,328,495 $47,430,580 $47,822,892
Ceded to other companies (1,292,395) (1,172,449) (822,619)
----------- ----------- -----------
Net amount $46,036,100 $46,258,131 $47,000,273
=========== =========== ===========
B-14
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. EQUITY
RECONCILIATION OF STATUTORY SURPLUS AND NET INCOME
Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following table
reconciles the Company's statutory net income and surplus as of and for the
years ended December 31, determined in accordance with accounting practices
prescribed or permitted by the Arizona Department of Banking and Insurance with
net income and equity determined using GAAP.
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
(In Thousands)
<S> <C> <C> <C>
STATUTORY NET INCOME $ 12,778 $ 48,846 $ 113,565
Adjustments to reconcile to net income on a GAAP basis:
Statutory income of subsidiaries 18,553 25,001 44,186
Deferred acquisition costs 38,003 48,862 (6,103)
Deferred premium 1,144 1,295 (743)
Insurance liabilities 26,517 28,662 32,665
Deferred taxes 11,458 (7,780) (27,669)
Valuation of investments 506 365 5,480
Other, net (2,585) 3,971 (8,737)
------------------ ------------------ ------------------
GAAP NET INCOME $ 106,374 $ 149,222 $ 152,644
================== ================== ==================
<CAPTION>
1997 1996
-------------------- --------------------
(In Thousands)
<S> <C> <C>
STATUTORY SURPLUS $ 853,130 $ 901,645
Adjustments to reconcile to equity on a GAAP basis:
Valuation of investments 97,787 95,411
Deferred acquisition costs 655,242 633,159
Deferred premium (14,817) (11,859)
Insurance liabilities (107,525) (124,781)
Deferred taxes (113,461) (124,823)
Other, net 135,161 30,229
-------------------- --------------------
GAAP STOCKHOLDER'S EQUITY $ 1,505,517 $ 1,398,981
==================== ====================
</TABLE>
The New York State Insurance Department ("Department") recognizes only statutory
accounting for determining and reporting the financial condition of an insurance
company, for determining its solvency under the New York Insurance Law and for
determining whether its financial condition warrants the payment of a dividend
to its stockholders. No consideration is given by the Department to financial
statements prepared in accordance with GAAP in making such determinations.
B-15
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values presented below have been determined using available information
and valuation methodologies. Considerable judgment is applied in interpreting
data to develop the estimates of fair value. Accordingly, such estimates
presented may not be realized in a current market exchange. The use of different
market assumptions and/or estimation methodologies could have a material effect
on the estimated fair values. The following methods and assumptions were used in
calculating the fair values (for all other financial instruments presented in
the table, the carrying value approximates fair value.)
FIXED MATURITIES AND EQUITY SECURITIES
Fair values for fixed maturities and equity securities, other than private
placement securities, are based on quoted market prices or estimates from
independent pricing services. Fair values for private placement securities are
estimated using a discounted cash flow model which considers the current market
spreads between the U.S. Treasury yield curve and corporate bond yield curve,
adjusted for the type of issue, its current credit quality and its remaining
average life. The estimated fair value of certain non-performing private
placement securities is based on amounts estimated by management.
MORTGAGE LOANS ON REAL ESTATE
The fair value of the mortgage loan portfolio is primarily based upon the
present value of the scheduled future cash flows discounted at the appropriate
U.S. Treasury rate, adjusted for the current market spread for a similar quality
mortgage.
POLICY LOANS
The estimated fair value of policy loans is calculated using a discounted cash
flow model based upon current U.S. Treasury rates and historical loan
repayments.
DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of futures is estimated based on market quotes for a transactions
with similar terms.
The following table discloses the carrying amounts and estimated fair values of
the Company's financial instruments at December 31,:
<TABLE>
<CAPTION>
1997 1996
------------------------------------- --------------------------------------
ESTIMATED ESTIMATED
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
------------------ ------------------ ------------------ -------------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities:
Available for sale $ 2,563,852 $ 2,563,852 $ 2,236,817 $ 2,236,817
Held to maturity 338,848 350,056 405,731 416,102
Equity securities 1,982 1,982 3,748 3,748
Mortgage loans 22,787 24,994 46,915 46,692
Policy loans 703,955 703,605 639,782 623,218
Short-term investments 316,355 316,355 169,830 169,830
Cash 71,358 71,358 73,766 73,766
Separate Account assets 8,022,079 8,022,079 5,336,851 5,336,851
Financial Liabilities:
Policyholders'
account balances $ 2,282,191 $ 2,282,191 $ 2,188,862 $ 2,188,862
Cash collateral for loaned
securities 143,421 143,421 -- --
Separate Account liabilities 7,948,788 7,948,788 5,277,454 5,277,454
Derivatives 653 653 -- --
</TABLE>
B-16
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. DERIVATIVE INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of liability positions in future instruments, which represents
the Company's current exposure to credit loss from other parties'
non-performance, was $653 thousand at December 31, 1997. This includes the
estimated fair values of outstanding derivative positions only and does not
include the fair values of associated financial and non-financial assets and
liabilities, which generally offset derivative notional amounts. The fair value
amounts presented also do not reflect the netting of amounts pursuant to right
of setoff, qualifying master netting agreements with counterparties or
collateral arrangements.
9. RELATED PARTY TRANSACTIONS
SERVICE AGREEMENTS
Prudential, and Pruco Securities Corporation, an indirect wholly-owned
subsidiary of Prudential, operate under service and lease agreements whereby
services of officers and employees (except for those agents employed by the
Company in Taiwan), supplies, use of equipment and office space are provided.
The net cost of these services allocated to the Company were $139,489 thousand,
$101,662 thousand and $98,119 thousand for the years ended December 31, 1997,
1996, and 1995, respectively.
REINSURANCE
The Company currently has three reinsurance agreements in place with Prudential
(the reinsurer). Specifically a reinsurance Group Annuity Contract, whereby the
reinsurer, in consideration for a single premium payment by the Company,
provides reinsurance equal to 100% of all payments due under the contract, and
two yearly renewable term agreements in which the Company may offer and the
reinsurer may accept reinsurance on any life in excess of the Company's maximum
limit of retention. The Company is not relieved of its primary obligation to the
policyholder as a result of these reinsurance transactions. These agreements had
no material effect on net income for the years ended December 31, 1997, 1996,
and 1995.
10. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and the
Company. Prudential has agreed to indemnify the Company for any and all losses
resulting from such litigation.
In the normal course of business, the Company is subject to various claims and
assessments. Management believes the settlement of these matters would not have
a material effect on the financial position or results of operations of the
Company.
11. DIVIDENDS
The Company is subject to Arizona law which limits the amount of dividends that
insurance companies can pay to stockholders. The maximum dividend which may be
paid in any twelve month period without notification or approval is limited to
the lesser of 10% of statutory surplus as of December 31 of the preceding year
or the net gain from operations of the preceding calendar year. Cash dividends
may only be paid out of surplus derived from realized net profits. Based on
these limitations and the Company's surplus position at December 31, 1997, the
Company would be permitted a maximum of $15,260 thousand in dividend
distribution in 1998, all of which could be paid in cash, without approval from
The State of Arizona Department of Insurance.
B-17
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of operations, of changes in
stockholder's equity and of cash flows present fairly, in all material respects,
the financial position of Pruco Life Insurance Company and its subsidiaries at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
managememt; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
New York, New York
March 23, 1998
B-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors of
Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying consolidated statement of operations, changes
in stockholder's equity, and cash flows of Pruco Life Insurance Company and
subsidiaries for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated statements of operations, changes in
stockholder's equity, and cash flows present fairly, in all material respects,
the results of operations and cash flows of Pruco Life Insurance Company and
subsidiaries for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Parsippany, NJ
December 19, 1996
B-19
<PAGE>
<TABLE>
ADDITIONAL ILLUSTRATIONS OF
CASH VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS
-----------------------------------------------------
VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 25
$50,000 GUARANTEED DEATH BENEFIT
$536.50 ANNUAL PREMIUM FOR STANDARD UNDERWRITING RISK (1)
<CAPTION>
Death Benefit (2) Cash Value (2)
---------------------------------------------- ----------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------- ----------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-0.84% Net) (5.16% Net) (11.16% Net) (-0.84% Net) (5.16% Net) (11.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 558 $50,000 $50,004 $ 50,026 $ 22 $ 26 $ 31
2 $ 1,138 $50,000 $50,030 $ 50,184 $ 376 $ 406 $ 437
3 $ 1,742 $50,000 $50,076 $ 50,480 $ 729 $ 807 $ 890
4 $ 2,369 $50,000 $50,143 $ 50,921 $1,080 $ 1,229 $ 1,393
5 $ 3,022 $50,000 $50,230 $ 51,516 $1,438 $ 1,683 $ 1,962
6 $ 3,701 $50,000 $50,339 $ 52,272 $1,791 $ 2,158 $ 2,592
7 $ 4,407 $50,000 $50,467 $ 53,198 $2,141 $ 2,657 $ 3,290
8 $ 5,141 $50,000 $50,615 $ 54,301 $2,486 $ 3,178 $ 4,061
9 $ 5,905 $50,000 $50,783 $ 55,589 $2,827 $ 3,723 $ 4,914
10 $ 6,699 $50,000 $50,969 $ 57,073 $3,162 $ 4,293 $ 5,855
15 $11,172 $50,000 $52,176 $ 67,787 $4,734 $ 7,510 $ 12,215
20 $16,615 $50,000 $53,805 $ 85,192 $6,094 $11,376 $ 22,453
25 $23,237 $50,000 $55,816 $111,492 $7,231 $15,974 $ 38,826
30 $31,293 $50,000 $58,179 $149,847 $8,121 $21,355 $ 64,762
40 (Age 65) $53,020 $50,000 $63,871 $282,392 $9,039 $34,363 $167,630
- ----------------
(1) If premiums are paid more frequently than annually, the payments would be $274.50 semi-annually, $139.50 quarterly or $48
monthly. The death benefits and cash values would be slightly different for a Contract with more frequent premium payments.
(2) Assumes no Contract loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES,
AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES
OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
C1
<PAGE>
<TABLE>
VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 40
$50,000 GUARANTEED DEATH BENEFIT
$939 ANNUAL PREMIUM FOR STANDARD UNDERWRITING RISK (1)
<CAPTION>
Death Benefit (2) Cash Value (2)
---------------------------------------------- ----------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------- ----------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-0.84% Net) (5.16% Net) (11.16% Net) (-0.84% Net) (5.16% Net) (11.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 977 $50,000 $50,011 $ 50,066 $ 197 $ 214 $ 231
2 $ 1,992 $50,000 $50,044 $ 50,276 $ 815 $ 888 $ 962
3 $ 3,048 $50,000 $50,100 $ 50,637 $ 1,417 $ 1,584 $ 1,762
4 $ 4,147 $50,000 $50,177 $ 51,152 $ 2,002 $ 2,303 $ 2,637
5 $ 5,289 $50,000 $50,278 $ 51,841 $ 2,642 $ 3,123 $ 3,674
6 $ 6,477 $50,000 $50,402 $ 52,712 $ 3,265 $ 3,970 $ 4,810
7 $ 7,713 $50,000 $50,547 $ 53,770 $ 3,871 $ 4,846 $ 6,056
8 $ 8,998 $50,000 $50,715 $ 55,025 $ 4,459 $ 5,752 $ 7,419
9 $10,335 $50,000 $50,903 $ 56,486 $ 5,031 $ 6,689 $ 8,914
10 $11,725 $50,000 $51,112 $ 58,161 $ 5,584 $ 7,657 $10,550
15 $19,554 $50,000 $52,450 $ 70,153 $ 8,051 $12,940 $21,322
20 $29,080 $50,000 $54,234 $ 89,463 $ 9,969 $18,928 $37,968
25 (Age 65) $40,670 $50,000 $56,418 $118,493 $11,330 $25,592 $63,448
- ----------------
(1) If premiums are paid more frequently than annually, the payments would be $479.50 semi-annually, $243 quarterly or $82.50
monthly. The death benefits and cash values would be slightly different for a Contract with more frequent premium payments.
(2) Assumes no Contract loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES,
AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES
OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
C2
<PAGE>
VARIABLE LIFE
INSURANCE
[LOGO] PRUDENTIAL
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone: 800 437-4016
VLI-1 Ed. 5/98 CAT# 646964K
<PAGE>
PART II
OTHER INFORMATION
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION WITH RESPECT TO CHARGES
Pruco Life Insurance Company represents that the fees and charges deducted under
the variable life insurance contracts registered by this registration statement,
in the aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by Pruco Life Insurance
Company.
UNDERTAKING WITH RESPECT TO INDEMNIFICATION
The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.
Arizona, being the state of organization of Pruco Life Insurance Company
("Pruco"), permits entities organized under its jurisdiction to indemnify
directors and officers with certain limitations. The relevant provisions of
Arizona law permitting indemnification can be found in Section 10-850 et seq. of
the Arizona Statutes Annotated. The text of Pruco's By-law, Article VIII, which
relates to indemnification of officers and directors, is incorporated by
reference to Exhibit 3(ii) to its Form 10-Q, SEC File No. 33-37587, filed August
15, 1997.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 66 pages.
The undertaking to file reports.
The representation with respect to charges.
The undertaking with respect to indemnification.
The signatures.
Written consents of the following persons:
1. Deloitte & Touche LLP, independent auditors.
2. Price Waterhouse LLP, independent accountants.
3. Clifford E. Kirsch, Esq.
4. Nancy D. Davis, FSA, MAAA
The following exhibits:
1. The following exhibits correspond to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of Board of Directors of Pruco Life Insurance
Company establishing the Pruco Life Variable Insurance
Account. (Note 6)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities
Corporation and Pruco Life Insurance Company, as
amended June 1, 1984. (Note 6)
(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the
Sale of the Contracts. (Note 6)
(c) Schedules of Sales Commissions. (Note 6)
(4) Not Applicable.
(5) (a) Variable Life Insurance Contract. (Note 6)
(b) Illustrative Tabular Cash Values. (Note 6)
(c) Copy of Colorado and North Dakota VL-83 Endorsement to
the Variable Life Insurance Contract. (Note 6)
(d) Copy of the Oklahoma VL-83 Endorsement to the Variable
Life Insurance Contract. (Note 6)
(e) Copy of South Carolina VL-83 Endorsement to the
Variable Life Insurance Contract. (Note 6)
(f) Copy of Alternate Copy face page for Pennsylvania and
Maryland to the Variable Life Insurance Contract.
(Note 6)
(g) Copy of Illinois Notice PLI 3 to the Variable Life
Insurance Contract. (Note 6)
(h) Copy of North Carolina Endorsement PLI 16 to the
Variable Life Insurance Contract. (Note 6)
(i) Copy of North Carolina Endorsement PLI 17 to the
Variable Life Insurance Contract. (Note 6)
(j) Copy of Missouri Endorsement PLI 18 to the Variable
Life Insurance Contract. (Note 6)
(k) Copy of Texas Endorsement PLI 21 to the Variable Life
Insurance Contract. (Note 6)
(l) Copy of Florida Endorsement PLI 35 to the Variable Life
Insurance Contract. (Note 6)
(m) Copy of Rhode Island Endorsement PLI-47 to the Variable
Life Insurance Contract. (Note 6)
II-2
<PAGE>
(n) Copy of Maryland Endorsement PLI 48 to the Variable
Life Insurance Contract. (Note 6)
(o) Copy of Minnesota Endorsement PLI 50 to the Variable
Life Insurance Contract. (Note 6)
(p) Copy of Endorsement PLI 28 to the Variable Life
Insurance Contract used in all states except New York
and New Jersey. (Note 6)
(q) Copy of Endorsement PLI 73 to the Variable Life
Insurance Contract used in all states except New York
and New Jersey. (Note 6)
(r) Copy of Pennsylvania Endorsement PLI 86 to the Variable
Life Insurance Contract. (Note 6)
(s) Copy of Texas Endorsement PLI 90 to the Variable Life
Insurance Contract. (Note 6)
(t) Copy of Iowa Endorsement PLI 97 to the Variable Life
Insurance Contract. (Note 6)
(u) Copy of Endorsement PLI 99 to the Variable Life
Insurance Contract used in all states except New York
and New Jersey. (Note 6)
(v) Copy of Virginia jacket to the Variable Life Insurance
Contract. (Note 6)
(w) Copy of page 9 to the Variable Life Insurance
Contract--Virginia Issues. (Note 6)
(x) Copy of page 11 to the Variable Life Insurance
Contract--West Virginia Issues. (Note 6)
(y) Copy of page 13 to the Variable Life Insurance
Contract--Virginia Issues. (Note 6)
(z) Copy of page 13 to the Variable Life Insurance Contract
for use with variable loan interest rate
provision--Kentucky Issues. (Note 6)
(aa) Copy of Endorsement PLI 25 to the Variable Life
Insurance Contract for use in all states except New
York and New Jersey. (Note 6)
(bb) Copy of Endorsement PLI 104 to the Variable Life
Insurance Contract for use in Pennsylvania. (Note 6)
(cc) Copy of Endorsement PLI 134 to the Variable Life
Insurance Contract for use in all states except New
York and New Jersey. (Note 6)
(dd) Notice of Consumer Information for use in Illinois.
(Note 6)
(ee) Complaint Procedure Notice for use in Texas. (Note 6)
(ff) Certification of right to convert Variable Life
Insurance Contract for use in Pennsylvania. (Note 6)
(gg) Copy of Endorsement PLI 168-85 to the Variable Life
Insurance Contract for use in all states except New
York and New Jersey (Note 6)
(6) (a) Articles of Incorporation of Pruco Life Insurance
Company, as amended October 19, 1993. (Note 4)
(b) By-laws of Pruco Life Insurance Company, as amended May
6, 1997. (Note 7)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form for Variable Life Insurance Contract.
(Note 6)
(b) Supplement to the Application for Variable Life
Insurance Contract. (Note 6)
(c) Application Form for Variable Life Insurance
Contract--Maryland issues. (Note 6)
(d) Application Form for Variable Life Insurance
Contract--Connecticut issues. (Note 6)
(e) Application Form for Variable Life Insurance
Contract--Missouri issues. (Note 6)
(f) Application Form for Variable Life Insurance
Contracts--Pennsylvania and South Carolina issues.
(Note 6)
(11) Form of Notice of Withdrawal Right. (Note 6)
(12) Memorandum describing Pruco Life's issuance, transfer, and
redemption procedures for the Contracts pursuant to Rule
6e-2(b) (12)(ii) and method of computing cash adjustment
upon exercise of right to exchange for fixed-benefit
insurance pursuant to Rule 6e-2(b)(13) (v)(B). (Note 6)
(13) Available Contract Riders.
(a) Rider for Insured's Waiver of Premium Benefit. (Note 6)
(b) Rider for Insured's Accidental Death Benefit. (Note 6)
(c) Rider for Term Insurance Benefit on Life of
Insured-Decreasing Amount. (Note 6)
(d) Rider for Option to Purchase Additional Insurance on
Life of Insured. (Note 6)
(e) Rider for Interim Term Insurance Benefit. (Note 6)
II-3
<PAGE>
(f) Rider for Term Insurance Benefit on Life of Insured
Spouse-Decreasing Amount. (Note 6)
(g) Rider for Level Term Insurance Benefit on Dependent
Children. (Note 6)
(h) Rider for Impaired Eyesight. (Note 6)
(i) Rider for Insured's Waiver of Premium Benefit. (Note 6)
(j) Rider for Insured's Accidental Death Benefit. (Note 6)
(k) Rider for Aviation Risk Exclusion. (Note 6)
(l) Rider for Aviation Risk Exclusion. (Note 6)
(m) Rider for Military Aviation Risk Exclusion. (Note 6)
(n) Rider for Military Aviation Risk Exclusion. (Note 6)
(o) Rider for Level Term Insurance Benefit on Dependent
Children. (Note 6)
(p) Rider for Insured's Waiver of Premium Benefit. (Note 6)
(q) Rider for Insured's Waiver of Premium Benefit. (Note 6)
(r) Rider for Insured's Accidental Death Benefit. (Note 6)
(s) Rider for Insured's Accidental Death Benefit. (Note 6)
(t) Rider for Insured's Accidental Death Benefit. (Note 6)
(u) Rider for Level Term Insurance Benefit on Dependent
Children. (Note 6)
(v) Rider for Level Term Insurance Benefit on Dependent
Children. (Note 6)
(w) Rider for Reduced Paid-Up Insurance. (Note 6)
(x) Rider for Exempting Child from Reinstatement. (Note 6)
(y) Rider Defining Incontestable Period. (Note 6)
(z) Rider for Modification of Insured's Waiver of Premium
Benefit Provision. (Note 6)
(aa) Rider for Termination of Benefit. (Note 6)
(bb) Rider for Aviation Risk Exclusion. (Note 6)
(cc) Rider for Military Aviation Risk Exclusion. (Note 6)
(dd) Rider for War Risk Exclusion. (Note 6)
(ee) Rider Defining Incontestable Period. (Note 6)
(ff) Rider for Suicide Provision. (Note 6)
(gg) Rider Defining Incontestable Period. (Note 6)
(hh) Rider for Aviation Risk Exclusion. (Note 6)
(ii) Rider for Military Aviation Risk Exclusion. (Note 6)
(jj) Rider for Level Term Benefit on Dependent Children.
(Note 6)
(kk) Rider for Insured's Waiver of Premium Benefit. (Note 6)
(ll) Rider for Insured's Accidental Death Benefit. (Note 6)
(mm) Rider for Ownership and Control. (Note 6)
(nn) Rider for Ownership and Control. (Note 6)
(oo) Rider for Applicant's Waiver of Premium Benefit. (Note
6)
(pp) Rider for Applicant's Waiver of Premium Benefit. (Note
6)
(qq) Rider for Applicant's Waiver of Premium Benefit. (Note
6)
(rr) Rider for Applicant's Waiver of Premium Benefit. (Note
6)
(ss) Rider for Applicant's Waiver of Premium Benefit. (Note
6)
(tt) Rider for Applicant's Waiver of Premium Benefit. (Note
6)
(uu) Rider for Level Term Benefit on Insured for use in West
Virginia. (Note 6)
(vv) Rider for Level Term Benefit on Insured for use in all
states except West Virginia. (Note 6)
(ww) Rider permitting Special Premium Remittance Plan for
use in all states except New York, New Jersey, and
Pennsylvania. (Note 6)
(xx) Rider for Variable Loan Interest Rate for use in all
states except New York, New Jersey, and Michigan. (Note
6)
(yy) Rider for Variable Loan Interest Rate for use in
Michigan. (Note 6)
(zz) Rider permitting Special Premium Remittance Plan for
use in Pennsylvania. (Note 6)
(aaa) Rider for Decreasing Term Insurance Benefit for use in
West Virginia. (Note 6)
(bbb) Rider for Decreasing Term Insurance Benefit for use in
all states except New York, New Jersey and West
Virginia. (Note 6)
(ccc) Rider for Decreasing Term Insurance Benefit on life of
Insured Spouse for use in all states except New York,
New Jersey, South Carolina and West Virginia. (Note 6)
(ddd) Rider for Decreasing Term Insurance Benefit on life of
Insured Spouse for use in South Carolina. (Note 6)
II-4
<PAGE>
(eee) Rider for Decreasing Term Insurance Benefit on life of
Insured Spouse for use in West Virginia. (Note 6)
(fff) Rider for Variable Loan Interest Rate for use in
Michigan. (Note 6)
(ggg) Rider for Variable Loan Interest Rate for use in South
Carolina. (Note 6)
(hhh) Rider for Variable Loan Interest Rate for use in all
states except New York, New Jersey, Michigan and South
Carolina. (Note 6)
(iii) Rider providing Options on Lapse for use in all states
except New York and New Jersey. (Note 6)
(jjj) Rider for Variable Reduced Paid-Up Insurance for use
in all states except New York and New Jersey. (Note 6)
(kkk) Living Needs Benefit Rider for use in Florida. (Note
4)
(lll) Living Needs Benefit Rider for use in all approved
jurisdictions except Florida. (Note 4) 2. See
Exhibit 1.A.(5).
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of
the securities being registered. (Note 1)
4. None.
5. Not Applicable.
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as to actuarial
matters pertaining to the securities being registered. (Note 1)
7. Powers of Attorney.
(a) William M. Bethke, Ira J. Kleinman, Mendel A. Melzer,
Esther H. Milnes, I. Edward Price (Note 2)
(b) Kiyofumi Sakaguchi (Note 3)
(c) James J. Avery, Jr. (Note 8)
(d) James M. Schlomann (Note 5)
27. Financial Data Schedule (Note 1)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Form 10-K, Registration No. 33-08698,
filed March 31, 1997 on behalf of the Pruco Life Variable Contract Real
Property Account.
(Note 3) Incorporated by reference to Post-Effective Amendment No. 8 to Form
S-6, Registration No. 33-49994, filed April 28, 1997 on behalf of the
Pruco Life PRUvider Variable Appreciable Account.
(Note 4) Incorporated by reference to Form S-6, Registration No. 333-07451,
filed July 2, 1996 on behalf of the Pruco Life Variable Appreciable
Account.
(Note 5) Incorporated by reference to Post-Effective Amendment No. 4 to Form
S-1, Registration No. 33-86780, filed April 9, 1998 on behalf of the
Pruco Life Variable Contract Real Property Account.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 24 to this
Registration Statement, filed April 30, 1997.
(Note 7) Incorporated by reference to Form 10-Q, Registration No. 33-37587,
filed August 15, 1997 on behalf of the Pruco Life Insurance Company.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 2 to Form
S-6, Registration No. 333-07451, filed June 25, 1997 on behalf of the
Pruco Life Variable Appreciable Account.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life Variable Insurance Account, certifies that this Amendment is filed
solely for one or more of the purposes specified in Rule 485(b)(1) under the
Securities Act of 1933 and that no material event requiring disclosure in the
prospectus, other than one listed in Rule 485(b)(1), has occurred since the
effective date of the most recent Post-Effective Amendment to the Registration
Statement which included a prospectus and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized and its seal hereunto affixed and attested, all in the city of Newark
and the State of New Jersey, on this 24th day of April, 1998.
(Seal)
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
(Registrant)
By: PRUCO LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/ THOMAS C. CASTANO By: /s/ ESTHER H. MILNES
----------------------------- --------------------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 25 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 24th day of April, 1998.
SIGNATURE AND TITLE
-------------------
/s/ *
- --------------------------------
Esther H. Milnes
President and Director
/s/ *
- --------------------------------
James M. Schlomann
Chief Accounting Officer and
Comptroller
/s/ *
- --------------------------------
James J. Avery, Jr.
Director
/s/ * * By: /s/ THOMAS C. CASTANO
- -------------------------------- --------------------------------
William M. Bethke Thomas C. Castano
Director (Attorney-in-Fact)
/s/ *
- --------------------------------
Ira J. Kleinman
Director
/s/ *
- --------------------------------
Mendel A. Melzer
Director
/s/ *
- --------------------------------
I. Edward Price
Director
/s/ *
- --------------------------------
Kiyofumi Sakaguchi
Director
II-6
<PAGE>
EXHIBIT INDEX
Consent of Deloitte & Touche LLP, independent auditors. Page II-8
Consent of Price Waterhouse LLP, independent accountants. Page II-9
3. Opinion and Consent of Clifford E. Kirsch, Esq., as to the
legality of the securities being registered. Page II-10
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as to
actuarial matters pertaining to the securities being
registered. Page II-11
27. Financial Data Schedule. Page II-12
II-7
Exhibit 99.c1(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 25 to Registration
Statement No. 2-80513 on Form S-6 of Pruco Life Variable Insurance Account of
Pruco Life Insurance Company (1) of our report dated February 15, 1996, relating
to the financial statement of Pruco Life Variable Insurance Account, and (2) of
our report dated December 19, 1996, relating to the consolidated financial
statement of Pruco Life Insurance Company and subsidiaries appearing in the
Prospectus, which is part of such Registration Statement, and (3) to the
reference to us under the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE, LLP
---------------------------
Deloitte & Touche, LLP
Parsippany, New Jersey
April 24, 1998
II-8
Exhibit 99.c1(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 25 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated March 20, 1998, relating to the
financial statements of the Pruco Life Variable Insurance Account, which appears
in such Prospectus.
We also consent to the use in the Prospectus constituting part of this
Registration Statement of our report dated March 23, 1998, relating to the
consolidated financial statements of Pruco Life Insurance Company and
Subsidiaries, which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in the
Prospectus.
/s/ PRICE WATERHOUSE LLP
-------------------------
Price Waterhouse LLP
New York, New York
April 24, 1998
II-9
Exhibit 3
April 24, 1998
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
Gentlemen:
In my capacity as Chief Counsel of Pruco Life Insurance Company ("Pruco Life"),
I have reviewed the establishment of Pruco Life Variable Insurance Account (the
"Account") on November 10, 1982 by the Executive Committee of the Board of
Directors of Pruco Life as a separate account for assets applicable to certain
variable life insurance contracts, pursuant to the provisions of Section 20-651
of the Arizona Insurance Code. I was responsible for oversight of the
preparation and review of the Registration Statement on Form S-6, as amended,
filed by Pruco Life with the Securities and Exchange Commission (Registration
No. 2-80513) under the Securities Act of 1933 for the registration of certain
variable life insurance contracts issued with respect to the Account.
I am of the following opinion:
(1) Pruco Life was duly organized under the laws of Arizona and is a
validly existing corporation.
(2) The Account has been duly created and is validly existing as a
separate account pursuant to the aforesaid provisions of Arizona law.
(3) The portion of the assets held in the Account equal to the reserve and
other liabilities for variable benefits under the variable life
insurance contracts is not chargeable with liabilities arising out of
any other business Pruco Life may conduct.
(4) The variable life insurance contracts are legal and binding
obligations of Pruco Life in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/
- -----------------------------
Clifford E. Kirsch
II-10
Exhibit 6
April 24, 1998
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
To Pruco Life Insurance Company:
This opinion is furnished in connection with the registration by Pruco Life
Insurance Company of variable life insurance contracts ("Contracts") under the
Securities Act of 1933. The prospectus included in Post-Effective Amendment No.
25 to Registration Statement No. 2-80513 on Form S-6 describes the Contracts. I
have reviewed the Contract form and I have participated in the preparation and
review of the Registration Statement and Exhibits thereto. In my opinion:
(1) The illustrations of death benefits included in the prospectus section
entitled "How a Contract's Death Benefit Will Vary", based on the
assumptions stated in the illustrations, are consistent with the
provisions of the Contract.
(2) The illustrations of cash values included in the prospectus section
entitled "How a Contract's Cash Value Will Vary", based on the
assumptions stated in the illustrations, are consistent with the
provisions of the Contract.
(3) The illustrations of cash values and death benefits included in the
section entitled "Illustrations" and in the Appendix of the
prospectus, based on the assumptions stated in the illustrations, are
consistent with the provisions of the Contract. The rate structure of
the Contract has not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear
more favorable to a prospective purchaser of a Contract for male age
25 or male age 40, than to prospective purchasers of Contracts on
males of other ages or on females.
(4) The illustrations of the effect of a Contract loan on the death
benefit and cash value included in the prospectus section entitled
"Contract Loans", based on the assumptions stated in the illustration,
is consistent with the provisions of the Contract.
(5) The illustrations (with respect to a lapsed Contract) of cash values,
extended term insurance and reduced paid-up insurance which are
included in the prospectus section entitled "Options on Lapse", based
on the assumptions stated in the illustrations, are consistent with
the Contract.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Very truly yours,
/s/ NANCY D. DAVIS
- --------------------------------------------
Nancy D. Davis, FSA, MAAA
Vice President and Assistant Actuary
The Prudential Insurance Company of America
II-11
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Exhibit 27
FINANCIAL DATA SCHEDULE
ARTICLE 6 OF REGULATION S-X
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
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