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. 26
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) 778-2255
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(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, 1999 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)
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<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
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
------------------ --------
21. Contract Loans
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions
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
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
------------------ --------
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
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, 1999
PRUCO LIFE INSURANCE COMPANY
<PAGE>
PROSPECTUS
MAY 1, 1999
PRUCO LIFE INSURANCE COMPANY
VARIABLE INSURANCE ACCOUNT
VARIABLE------------------------------------------------------------------------
LIFE INSURANCE
CONTRACTS
This prospectus describes a variable life insurance contract (the "Contract")
offered by Pruco Life Insurance Company ("Pruco Life", "us", or "we") under the
name Variable Life Insurance. Pruco Life, a stock life insurance company, is a
wholly-owned subsidiary of The Prudential Insurance Company of America
("Prudential"). This form of Contract provides a death benefit that varies
monthly with the investment performance of the subaccounts of the Pruco Life
Variable Insurance Account (the "Account"). However, investment performance
cannot cause the death benefit to be less than a guaranteed minimum amount
(generally the face amount specified in the Contract). The Contract also
provides a cash value which generally increases with the payment of each premium
and varies daily with investment performance. There is no guaranteed minimum
cash value.
AS OF JANUARY 1, 1992, THESE CONTRACTS WERE NO LONGER AVAILABLE FOR SALE.
You, as the Contract owner, may choose to invest your Contract's premiums and
their earnings in one or more of the following ways:
o Invest in one or more of 13 available subaccounts of the Pruco Life Variable
Insurance Account, each of which invests in a corresponding portfolio of The
Prudential Series Fund, Inc.:
MONEY MARKET HIGH YIELD BOND PRUDENTIAL JENNISON
DIVERSIFIED BOND STOCK INDEX SMALL CAPITALIZATION STOCK
GOVERNMENT INCOME EQUITY INCOME GLOBAL
CONSERVATIVE BALANCED EQUITY NATURAL RESOURCES
FLEXIBLE MANAGED
o Invest in the Pruco Life Variable Contract Real Property Account (the "REAL
PROPERTY ACCOUNT"), described in a prospectus attached to this one.
This prospectus describes the Contract generally and the Pruco Life Variable
Insurance Account. The attached prospectus for the Series Fund, and the Series
Fund's statement of additional information describe the investment objectives
and the risks of investing in the portfolios. Pruco Life may add additional
investment options in the future.
You should retain this prospectus, together with the Contract for future
reference.
The Securities and Exchange Commission ("SEC") maintains a Web site
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding registrants that file electronically with the SEC.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 778-2255
<PAGE>
PROSPECTUS CONTENTS
PAGE
INTRODUCTION AND SUMMARY......................................................1
BRIEF DESCRIPTION OF THE CONTRACT...........................................1
INVESTMENT OPTIONS: THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS.............1
ADDITIONAL INVESTMENT OPTION................................................2
EFFECT OF INVESTMENT PERFORMANCE ON THE CONTRACT'S CASH VALUE...............2
CHARGES.....................................................................2
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, PRUCO LIFE VARIABLE
INSURANCE ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER THE
CONTRACT......................................................................4
PRUCO LIFE INSURANCE COMPANY................................................4
PRUCO LIFE VARIABLE INSURANCE ACCOUNT.......................................4
THE PRUDENTIAL SERIES FUND, INC.............................................5
THE PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT......................5
WHICH INVESTMENT OPTION SHOULD BE SELECTED?.................................6
DETAILED INFORMATION FOR CONTRACT OWNERS......................................6
REQUIREMENTS FOR ISSUANCE OF A CONTRACT.....................................6
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"................................6
PREMIUMS....................................................................6
PREMIUM ADJUSTMENT..........................................................7
ALLOCATION OF PREMIUMS......................................................7
CHARGES AND EXPENSES........................................................8
TRANSFERS..................................................................10
HOW A CONTRACT'S DEATH BENEFIT WILL VARY...................................10
HOW A CONTRACT'S CASH VALUE WILL VARY......................................12
SURRENDER OF A CONTRACT....................................................14
WITHDRAWAL OF A PORTION OF A CONTRACT'S NET CASH VALUE.....................14
WHEN PROCEEDS ARE PAID.....................................................15
LIVING NEEDS BENEFIT.......................................................15
ILLUSTRATIONS OF CASH VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS.....16
CONTRACT LOANS.............................................................16
RIGHT TO EXCHANGE A CONTRACT FOR A FIXED-BENEFIT WHOLE-LIFE POLICY.........18
SALE OF THE CONTRACT AND SALES COMMISSIONS.................................18
TAX TREATMENT OF CONTRACT BENEFITS.........................................18
LAPSE AND REINSTATEMENT....................................................20
OPTIONS ON LAPSE...........................................................20
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS........22
OTHER GENERAL CONTRACT PROVISIONS..........................................22
RIDERS.....................................................................22
VOTING RIGHTS..............................................................22
SUBSTITUTION OF SERIES FUND SHARES.........................................23
REPORTS TO CONTRACT OWNERS.................................................23
STATE REGULATION...........................................................23
EXPERTS....................................................................24
LITIGATION.................................................................24
YEAR 2000 COMPLIANCE.......................................................24
ADDITIONAL INFORMATION.....................................................25
FINANCIAL STATEMENTS.......................................................25
DIRECTORS AND OFFICERS.......................................................26
FINANCIAL STATEMENTS OF PRUCO LIFE VARIABLE INSURANCE ACCOUNT................A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY
AND SUBSIDIARIES...........................................................B1
<PAGE>
INTRODUCTION AND SUMMARY
THIS SUMMARY PROVIDES A BRIEF OVERVIEW OF THE MORE SIGNIFICANT ASPECTS OF THE
CONTRACT. WE PROVIDE FURTHER DETAIL IN THE SUBSEQUENT SECTIONS OF THIS
PROSPECTUS AND IN THE CONTRACT. THE CONTRACT, INCLUDING THE APPLICATION ATTACHED
TO IT, CONSTITUTES THE ENTIRE AGREEMENT BETWEEN YOU AND PRUCO LIFE AND YOU
SHOULD RETAIN THESE DOCUMENTS.
BRIEF DESCRIPTION OF THE CONTRACT
AS OF JANUARY 1, 1992, PRUCO LIFE NO LONGER OFFERS THESE CONTRACTS FOR SALE.
As you read this prospectus you should keep in mind that this is a variable life
insurance contract. Variable life insurance has significant investment aspects
and requires you to make investment decisions, and therefore, it is also a
"security." Securities that are offered to the public must be registered with
the Securities and Exchange Commission. Because the Contract provides whole-life
permanent insurance, it also serves a second important objective. It may provide
an increasing cash value that can be used during your lifetime.
The Contract is first and foremost life insurance. It provides insurance
protection for the entire lifetime of the insured. But the Contract also has
significant and useful investment features. The Contract owner decides in which
investment option[s] premium payments, less applicable charges, will be
invested. The death benefit of the Contract will increase with favorable
investment experience and decrease with unfavorable investment experience;
however, it will never be less than the guaranteed minimum death benefit. The
Contract owner will be able, from time to time, to reallocate and transfer
invested amounts among the various subaccounts and the Real Property Account.
You may invest premiums in one or more of the 13 available subaccounts, or the
Pruco Life Variable Contract Real Property Account. Your Contract's death
benefit changes monthly, but your Contract's cash value will change every day
depending upon the change in value of the particular investment options that you
have selected.
INVESTMENT OPTIONS: THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
You may invest in one or more of the 13 available subaccounts of Pruco Life's
Variable Insurance Account (the "Account"). Each is currently invested in a
corresponding portfolio of The Prudential Series Fund, Inc. (the "Series Fund").
The Prudential Insurance Company of America ("Prudential") acts as investment
adviser to the Series Fund.
o MONEY MARKET PORTFOLIO - The investment objective is maximum current income
consistent with the stability of capital and the maintenance of liquidity.
The Portfolio invests in high quality short-term debt obligations that mature
in 13 months or less.
o DIVERSIFIED BOND PORTFOLIO - The investment objective is a high level of
income over a longer term while providing reasonable safety of capital. The
Portfolio invests primarily in higher grade debt obligations and high quality
money market investments.
o GOVERNMENT INCOME PORTFOLIO - The investment objective is a high level of
income over the longer term consistent with the preservation of capital. The
Portfolio invests primarily in U.S. Government securities, including
intermediate and long-term U.S. Treasury securities and debt obligations
issued by agencies or instrumentalities established by the U.S. Government.
o CONSERVATIVE BALANCED PORTFOLIO - The investment objective is a total
investment return consistent with a conservatively managed diversified
portfolio. The Portfolio invests in a mix of equity securities, debt
obligations, and money market instruments.
o FLEXIBLE MANAGED PORTFOLIO - The investment objective is a total investment
return consistent with an aggressively managed diversified portfolio. The
Portfolio invests in a mix of equity securities, debt obligations, and money
market instruments.
o HIGH YIELD BOND PORTFOLIO - The investment objective is a high total return.
The Portfolio invests primarily in high yield/high risk debt securities.
1
<PAGE>
o STOCK INDEX PORTFOLIO - The investment objective is investment results that
correspond to the performance of publicly-traded common stocks generally. The
Portfolio attempts to duplicate the price and yield performance of Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500 Index").
o EQUITY INCOME PORTFOLIO - The investment objective is both current income and
capital appreciation. The Portfolio invests primarily in common stocks and
convertible securities that provide good prospects for returns above those of
the S&P 500 Index or the NYSE Composite Index.
o EQUITY PORTFOLIO - The investment objective is capital appreciation. The
Portfolio invests primarily in common stocks of major established
corporations as well as smaller companies that offer attractive prospects of
appreciation.
o PRUDENTIAL JENNISON PORTFOLIO - The investment objective is to achieve
long-term growth of capital. The Portfolio invests primarily in equity
securities of major established corporations that offer above average growth
prospects.
o SMALL CAPITALIZATION STOCK PORTFOLIO - The investment objective is long-term
growth of capital. The Portfolio invests primarily in equity securities of
publicly-traded companies with small market capitalization.
o GLOBAL PORTFOLIO - The investment objective is long-term growth of capital.
The Portfolio invests primarily in common stocks (and their equivalents) of
foreign and U.S. companies.
o NATURAL RESOURCES PORTFOLIO - The investment objective is long-term growth of
capital. The Portfolio invests primarily in common stocks and convertible
securities of natural resource companies and securities that are related to
the market value of some natural resource.
Further information about the Series Fund portfolios can be found under THE
PRUDENTIAL SERIES FUND, INC. on page 5.
ADDITIONAL INVESTMENT OPTION
The REAL PROPERTY OPTION is regulated differently from the other 13 because it
is not an investment company registered under the Investment Company Act of
1940. It invests primarily in income-producing real property and it is described
in a separate prospectus attached to this one.
EFFECT OF INVESTMENT PERFORMANCE ON THE CONTRACT'S CASH VALUE
Your Contract's cash value changes every day depending upon the change in the
value of the particular portfolios and the additional investment option that you
have selected for the investment of your Contract's premium payments.
Although the Contract's cash value will increase if there is favorable
investment performance, there is a risk that investment performance will be
unfavorable and that your Contract's cash value will decrease. The risk will be
different, depending upon which investment options you choose. See WHICH
INVESTMENT OPTION SHOULD BE SELECTED?, page 6.
CHARGES
We deduct 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 8. In brief, Pruco Life
may make the following charges:
2
<PAGE>
--------------------------------------------------
PREMIUM PAYMENT
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o less a 2% charge for taxes attributable to premiums
o an annual administrative charge of up to $48
o We charge a sales charge of up to 9% of the sum of the basic
premiums to be paid in the first 20 years.
o We charge a guaranteed minimum death benefit risk charge of not
more than 1.2% of each basic premium.
o If the Contract includes riders, we deduct rider charges from
the Contract's premiums.
o If the rating class of the insured results in an extra charge,
we will deduct that charge from the Contract's premiums.
----------------------------------------------------------------------
----------------------------------------------------------------------
NET PREMIUM AMOUNT
o To be invested in one or a combination of:
o The investment portfolios of the Series Fund
o The Real Property Account
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DAILY CHARGES
o We deduct management fees and expenses from the assets of the
Series Fund and, if applicable, from the Real Property Account
assets. See THE PRUDENTIAL SERIES FUND, INC., page 5, and PRUCO
LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT, page 5.
o We charge a mortality and expense risk charge, equivalent to an
annual rate of 0.35%, from the variable investment options assets.
----------------------------------------------------------------------
----------------------------------------------------------------------
MONTHLY CHARGES
o We charge a charge for anticipated mortality, with the maximum
charge based on the 1980 CSO Tables.
----------------------------------------------------------------------
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 10 and HOW A CONTRACT'S CASH
VALUE WILL VARY, page 12.
You should retain a copy of your Contract. That document, together with the
attached application, constitutes the entire agreement between you and Pruco
Life.
THE REPLACEMENT OF LIFE INSURANCE IS GENERALLY NOT IN YOUR BEST INTEREST. IN
MOST CASES, IF YOU REQUIRE ADDITIONAL COVERAGE, THE BENEFITS OF YOUR EXISTING
CONTRACT CAN BE PROTECTED BY PURCHASING ADDITIONAL INSURANCE OR A SUPPLEMENTAL
CONTRACT. IF YOU ARE CONSIDERING REPLACING A CONTRACT, YOU SHOULD COMPARE THE
BENEFITS AND COSTS OF SUPPLEMENTING YOUR EXISTING CONTRACT WITH THE BENEFITS AND
COSTS OF PURCHASING ANOTHER CONTRACT AND YOU SHOULD CONSULT A QUALIFIED TAX
ADVISER.
THIS PROSPECTUS WAS ONLY OFFERED IN JURISDICTIONS IN WHICH THE OFFERING WAS
LAWFUL. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE PRUDENTIAL
SERIES FUND PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION, AND THE
PROSPECTUS FOR THE REAL PROPERTY ACCOUNT.
3
<PAGE>
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", "us", or "we") 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 publicly traded stock company through a process known as
"demutualization." On February 10, 1998, the Company's Board of Directors
authorized management to take the preliminary steps necessary to allow the
Company to demutualize. On July 1, 1998, legislation was enacted in New Jersey
that would permit this conversion to occur and that specified the process for
conversion. Demutualization is a complex process involving development of a plan
of reorganization, adoption of a plan by the Company's Board of Directors, a
public hearing, voting by qualified policyholders and regulatory approval, all
of which could take two or more years to complete. Prudential's management and
Board of Directors have not yet determined to demutualize and it is possible
that, after careful review, Prudential could decide not to go public.
The plan of reorganization, which hasn't been developed and approved, would
provide the criteria for determining eligibility and the methodology for
allocating shares or other consideration to those who would be eligible.
Generally, the amount of shares or other consideration eligible customers would
receive would be based on a number of factors, including the types, amounts and
issue years of their policies. As a general rule, owners of Prudential-issued
insurance policies and annuity contracts would be eligible, while mutual fund
customers and customers of the Company's subsidiaries, such as the Pruco Life
insurance companies, would not be. It has not yet been determined whether any
exceptions to that general rule will be made with respect to policyholders and
contract owners of Prudential's subsidiaries.
As of December 31, 1998, Prudential has invested over $442 million in Pruco Life
in connection with Pruco Life's organization and operation. Prudential may make
additional capital contributions to Pruco Life as needed to enable it to meet
its reserve requirements and expenses. Prudential 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
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 a unit investment trust, which is a type of investment company.
It is registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940 ("1940 Act"). This does not involve any
supervision by the SEC of the management, investment policies, or practices of
the Account. For state law purposes, the Account is treated as a part or
division of Pruco Life. Currently, you may invest in one or a combination of 13
subaccounts within the Account, each of which invests in a single corresponding
portfolio of the Series Fund. Pruco Life may add additional subaccounts in the
future. The Account's financial statements begin on page A1.
4
<PAGE>
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-ended, 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 adviser 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"). The
Service Agreement 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 LLC ("Jennison"). Jennison
furnishes investment advisory services for 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 advisers under the 1940 Act.
As an investment adviser, 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 8.
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. Neither the companies that 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. Material conflicts could result
from such things as: (1) changes in state insurance law; (2) changes in federal
income tax law; (3) changes in the investment management of any portfolio of the
Series Fund; or (4) differences between voting instructions given by variable
life insurance and variable annuity contract owners.
A FULL DESCRIPTION OF THE SERIES FUND, ITS INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, RESTRICTIONS, EXPENSES, INVESTMENT RISKS, 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 OF THE
SERIES FUND WILL BE MET.
THE 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. This account, 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
asset value.
The Partnership has entered into an investment management agreement with
Prudential. 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,
RESTRICTIONS, CHARGES AND EXPENSES, INVESTMENT RISKS, 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. IT 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 OF THE REAL PROPERTY ACCOUNT WILL BE MET.
5
<PAGE>
WHICH INVESTMENT OPTION SHOULD BE SELECTED?
Historically, for investments held over relatively long periods, the investment
performance of common stocks has generally been superior to that of short or
long-term debt securities, even though common stocks have been subject to much
more dramatic changes in value over short periods of time. Accordingly, the
Stock Index, Equity Income, Equity, Prudential Jennison, Small Capitalization
Stock, Global, or Natural Resources Portfolios may be desirable options for
Contract owners who are willing to accept such volatility in their Contract
values. Each of these equity portfolios involves different investment risks,
policies, and programs.
You may prefer the somewhat greater protection against loss of principal (and
reduced chance of high total return) provided by the Government Income or
Diversified Bond Portfolios. Or, you may want even greater safety of principal
and may prefer the Money Market Portfolio, recognizing that the level of
short-term rates may change rather rapidly. If you are willing to take risks and
possibly achieve a higher total return, you may prefer the High Yield Bond
Portfolio, recognizing that the risks are greater for lower quality bonds with
normally higher yields. You may wish to divide your invested premium among two
or more of the portfolios. You may wish to obtain diversification by relying on
Prudential's judgment for an appropriate asset mix by choosing one of the
Balanced Portfolios. The Real Property Account permits diversification to your
investment under the Contract to include an interest in a pool of
income-producing real property, and real estate is often considered to be a
hedge against inflation.
Your choice should take into account how willing you are to accept investment
risks, how your other assets are invested, and what investment results you may
experience in the future. You should consult your Pruco Life representative from
time to time about choices available to you under the Contract. Pruco Life
recommends against frequent transfers among the several options. Experience
generally indicates that "market timing" investing, particularly by
non-professional investors, is likely to prove unsuccessful.
DETAILED INFORMATION FOR CONTRACT
OWNERS
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
As of January 1, 1992, these Contracts were no longer available for sale. The
minimum initial guaranteed death benefit was $25,000. The Contract generally was
issued on insureds below the age of 76. Before issuing any Contract, Pruco Life
required evidence of insurability which may have included a medical examination.
Non-smokers who met preferred underwriting requirements were offered the most
favorable premium rate. Pruco Life charges a higher premium if an extra
mortality risk is involved. These are the current underwriting requirements. We
reserve 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 you
pay premiums more often than annually, the aggregate annual premium will be
higher to compensate Pruco Life for the additional processing costs (see CHARGES
AND EXPENSES, page 8) 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 initial death benefit and the insured's age at issue, sex (except
where unisex rates apply), and risk classification. If you pay premiums other
than monthly, we will notify you about three weeks before each due date, that a
premium is due. If
6
<PAGE>
you pay premiums monthly, we will send to you each year a book with 12 coupons
that will serve as a reminder. You may change the frequency of premium payments
with Pruco Life's consent.
You may elect to have monthly premiums paid automatically under the "Pru-Matic
Premium Plan" by pre-authorized transfers from a bank checking account. You 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 $333.75 $342.75 $1,245.00 $1,281.00
35 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.
--------------- -------------------------- --------------------------
$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 $31.00 $342.75 $112.00 $1,281.00
35 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. 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, you will have several
options. You may continue the amount of insurance coverage in effect on the due
date of the unpaid premium, less any Contract debt, for a fixed period or you
may continue a lesser amount of insurance for the lifetime of the insured, or
you may surrender the Contract for its net cash value. See OPTIONS ON LAPSE,
page 20.
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, we 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
The initial premium, after we deduct applicable charges, is allocated among the
subaccounts and/or the Real Property Account, according to the desired
allocation specified on the application. The invested portion of all subsequent
7
<PAGE>
premiums are placed in the selected investment option[s] as of the end of the
valuation period when due (not when received) in accordance with the allocation
you previously designated. 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. Eastern time
on each day during which the New York Stock Exchange is open. 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 your selected investment
option until the due date. Provided the Contract is not in default, you may
change the way in which subsequent premiums are allocated by giving written
notice to a Home Office, or by telephoning a Home Office, provided you are
enrolled to use the Telephone Transfer System. There is no charge for
reallocating future net premiums among the investment options. If any portion of
a net premium is allocated to a particular subaccount or to the Real Property
Account, 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% cannot. Of course, the total allocation of all selected
investment options must equal 100%.
CHARGES AND EXPENSES
This section provides a more detailed description of each charge that is
described briefly in the chart on page 3.
All of the charges made by Pruco Life, whether deducted from premiums or from
the Contract's assets, are set forth below.
1. If premiums are paid annually, we charge an annual administrative charge of
$30 for administrative expenses, billing, collecting premiums, processing
claims, paying cash values, making Contract changes, keeping records, and
communicating with Contract owners. If premiums are paid more frequently,
we will charge a higher charge 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 1998, 1997, and 1996, Pruco Life
received a total of approximately $3,253,223, $3,438,597, and $3,627,668,
respectively, in annual administrative charges.
2. We charge for sales expenses. This charge, often called a "sales load",
compensates us for the costs of selling the Contracts, including sales
commissions, advertising, and the printing and distribution of prospectuses
and sales literature. It is 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 1998, 1997, and 1996, Pruco Life
received a total of approximately $3,038,319, $3,191,485, and $3,382,821,
respectively, in sales load charges.
3. We charge 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. The amount charged may be more than Pruco Life actually
pays for premium-based 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 1998, 1997, and 1996, Pruco Life received a
total of approximately $607,637, $638,962, and $678,538, respectively, in
charges for payment of state premium taxes.
4. We charge up to 1.2% of each basic premium for assuming a guaranteed
minimum death benefit risk. This charge compensates 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 1998, 1997, and 1996, Pruco Life received a total of approximately
$364,582, $383,377, and $407,123, respectively, for this risk charge. When
premiums are paid more frequently than annually, we will deduct this charge
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. Each month, we reduce the amounts held in the Account and/or the Real
Property Account for anticipated mortality charges attributable to each
Contract. This charge compensates 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. We reduce 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
8
<PAGE>
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 1998, 1997, and 1996, Pruco Life received a total of approximately
$1,410,859, $1,281,999, and $1,107,590, respectively, in mortality and
expense risk charges.
7. If the Contract includes riders, we make a deduction from each premium
payment for charges applicable to those riders. A deduction will also be
made if the rating class of the insured results in an extra charge.
8. Pruco Life deducts an investment advisory fee 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. These expenses also vary from portfolio to portfolio.
The total expenses of each portfolio for the year 1998, expressed as a
percentage of the average assets during the year, are shown below:
--------------------------------------------------------------------------
INVESTMENT OTHER EXPENSES TOTAL EXPENSES
PORTFOLIO ADVISORY FEE (AFTER EXPENSE (AFTER EXPENSE
REIMBURSEMENT)* REIMBURSEMENT)*
--------------------------------------------------------------------------
--------------------------------------------------------------------------
MONEY MARKET 0.40% 0.00%* 0.40%*
DIVERSIFIED BOND 0.40% 0.00%* 0.40%*
GOVERNMENT INCOME 0.40% 0.03% 0.43%
CONSERVATIVE BALANCED 0.55% 0.00%* 0.40%*
FLEXIBLE MANAGED 0.60% 0.00%* 0.40%*
HIGH YIELD BOND 0.55% 0.03% 0.58%
STOCK INDEX 0.35% 0.02% 0.37%
EQUITY INCOME 0.40% 0.02% 0.42%
EQUITY 0.45% 0.00%* 0.40%*
PRUDENTIAL JENNISON 0.60% 0.03% 0.63%
SMALL CAPITALIZATION STOCK 0.40% 0.07% 0.47%
GLOBAL 0.75% 0.11% 0.86%
NATURAL RESOURCES 0.45% 0.04% 0.49%
--------------------------------------------------------------------------
* 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. Pruco
Life currently makes payments to the following five subaccounts so that the
portfolio expenses indirectly borne by a Contract owner investing in the
Money Market, Diversified Bond, Conservative Balanced, Flexible Managed,
and Equity Portfolios will not exceed 0.4%. No such offset will be made
with respect to the remaining portfolios, which had no counterparts in the
Pruco Life Series Fund, Inc. 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:
(1) 0.41% for the Money Market Portfolio;
(2) 0.42% for the Diversified Bond Portfolio;
(3) 0.57% for the Conservative Balanced Portfolio;
(4) 0.61% for the Flexible Managed Portfolio; and
(5) 0.47% for the Equity Portfolio.
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 reviews 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.
9
<PAGE>
The investment management fee and other expenses charged against the Real
Property Account are described in the attached prospectus for that investment
option.
TRANSFERS
You may, up to four times in each Contract year, transfer amounts from one
subaccount to another subaccount or to the Real Property Account. You may make
such transfers provided the Contract is not in default or is inforce as variable
reduced paid-up insurance (see OPTIONS ON LAPSE, page 20). Currently, you may
make additional transfers, with our consent, without 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 will take effect as of the end of the valuation
period in which a proper transfer request is received at a Home Office. The
request may be in terms of dollars, such as a request to transfer $10,000 from
one subaccount to another, or may be in terms of a percentage reallocation among
subaccounts. In the latter case, as with premium reallocations, the percentages
must be in whole numbers. You may transfer amounts by proper written notice to a
Home Office or by telephone, provided you are enrolled to use the Telephone
Transfer System. You will automatically be enrolled to use the Telephone
Transfer System unless the Contract is jointly owned or you elect not to have
this privilege. Telephone transfers may not be available on Contracts that are
assigned, see Assignment, page 22, depending on the terms of the assignment.
We will use reasonable procedures, such as asking you to provide certain
personal information provided on your application for insurance, to confirm that
instructions given by telephone are genuine. We will not be held liable for
following telephone instructions that we reasonably believe to be genuine. Pruco
Life cannot guarantee that you will be able to get through to complete a
telephone transfer during peak periods such as periods of drastic economic or
market change.
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 refusing 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
Your Contract's death benefit will change on the first day of each Contract
month by an amount that depends on the investment performance of your chosen
subaccounts and/or the Real Property Account. However, your Contract's death
benefit can never be less than the Contract's guaranteed minimum amount
(assuming there is no outstanding Contract debt or premium in default).
Generally, if the first premium was paid with the application, the Contract Date
is the later of the date of the application or the date of a medical
examination. If the first premium was not paid with the application, the
Contract Date is ordinarily two or three days after the application is approved
by Pruco Life so that it either coincides with or is prior to the date on which
the first premium was 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."
In the following discussion, we assume that all of the net premiums under a
Contract are 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). In determining the premiums for the Contract, we assume that
the value of the assets increase due to investment performance at a rate of 4% a
year. Therefore, the assets of the subaccount relating to a Contract must
increase at an annual rate greater than 4% in order for the death benefit to
increase.
The exact amount of death benefit changes is determined by an actuarial
computation. The computation is based upon: (1) the age and sex (except where
unisex rates apply) of the insured; (2) the size of the Contract; (3) the number
of years it has been in effect; and (4) the investment results of the subaccount
in which the Contract participates. Generally, 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.
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<PAGE>
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 inforce for a long time than for one that has been inforce 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 through T4 of this prospectus. The examples
set forth below illustrate death benefits. These examples also assume a total
Series Fund expense ratio of 0.48% (taking into account the offsets described
under CHARGES AND EXPENSES on page 8).
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 7.17%
per year. In the 19th year the value of the assets increase at a uniform rate of
8.17%. (These percentages correspond to gross annual investment returns in the
corresponding Series Fund portfolio of 8% and 9% per year, respectively.)
---------------------------------------
DEATH DEATH
INSURED BENEFIT BENEFIT
END OF END OF
YEAR 18 YEAR 19
---------------------------------------
Male, age 25 $59,512 $60,999
at issue
---------------------------------------
Male, age 40 $60,653 $62,285
at issue
---------------------------------------
EXAMPLE NO. 2. Same assumptions as in Example No. 1 except that the value of the
assets increases by 1.17% in the 19th year. (This percentage corresponds to a
gross annual investment return in the corresponding Series Fund portfolio of
2%.)
--------------------------------------
DEATH DEATH
INSURED BENEFIT BENEFIT
END OF END OF
YEAR 18 YEAR 19
--------------------------------------
Male, age 25 $59,512 $58,504
at issue
--------------------------------------
Male, age 40 $60,653 $59,545
at issue
--------------------------------------
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 7.17% 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 7.17% per year. In the 19th year the value of the assets
increases at a uniform rate of 8.17%. (These percentages correspond to gross
annual investment returns in the corresponding Series Fund portfolio of 8% and
9% per year, respectively.)
11
<PAGE>
--------------------------------------------------
GUARANTEED DEATH DEATH
INSURED DEATH BENEFIT BENEFIT BENEFIT
END OF END OF
YEAR 18 YEAR 19
--------------------------------------------------
Male, age 25 $76,012 $90,474 $92,733
at issue
--------------------------------------------------
Male, age 40 $42,354 $51,378 $52,761
at issue
--------------------------------------------------
EXAMPLE NO. 4. Same assumptions as Example No. 3 except that the value of the
assets increases by 1.17% in the 19th year. (This percentage corresponds to a
gross annual investment return in the corresponding Series Fund portfolio of
2%.)
--------------------------------------------------
GUARANTEED DEATH DEATH
INSURED DEATH BENEFIT BENEFIT BENEFIT
END OF END OF
YEAR 18 YEAR 19
--------------------------------------------------
Male, age 25 $76,012 $90,474 $88,940
at issue
--------------------------------------------------
Male, age 40 $42,354 $51,378 $50,440
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 applicable subaccount have earned less than 4%, and the
death benefit accordingly equals the guaranteed minimum amount, we will keep a
record of what the death benefit would have been had there not been a guaranteed
minimum. If investment results become favorable and the value of the assets in
the subaccount increase at a rate greater than 4% a year, the death benefit will
not be more than the guaranteed minimum amount until the earlier unfavorable
investment results have been offset. For example, suppose for the first three
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 remain at the
guaranteed minimum amount. If the value of the assets increases at a rate of 8%
in the fourth year, it 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 T3 and T4 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%.
HOW A CONTRACT'S CASH VALUE WILL VARY
Your Contract has a cash value which may be obtained while the insured is living
by surrender of the Contract. However, your 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 your chosen subaccount[s] and/or
the Real Property Account.
A Contract's value upon surrender is its "net cash value." The net cash value
equals the cash value less any outstanding Contract debt. See CONTRACT LOANS,
page 17. 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.
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 we need to provide for the
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<PAGE>
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. If the net premium
is not paid before the end of the grace period, or if the Contract is
surrendered before then, we will lower the cash value to take into account the
failure to pay the premium on the due date.
The tables on pages T1 through T4 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 0.48% (taking into account the offsets described
under CHARGES AND EXPENSES on page 8).
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 7.17%
per year. In the 19th year the value of the assets increases at a uniform rate
of 8.17%. (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 END OF
YEAR 18 YEAR 19
- ----------------------------------------
Male, age 25 $11,871 $13,131
at issue
- ----------------------------------------
Male, age 40 $20,131 $22,118
at issue
- ----------------------------------------
EXAMPLE NO. 2. Same assumptions as in Example No. 1 except that the value of the
assets increases by 1.17% 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 END OF
YEAR 18 YEAR 19
- ----------------------------------------
Male, age 25 $11,871 $12,277
at issue
- ----------------------------------------
Male, age 40 $20,131 $20,675
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.
Therefore, the same rate of increase produces a greater dollar amount.
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
13
<PAGE>
performance at a uniform rate of 7.17% per year. In the 19th year the value of
the assets increases at a uniform rate of 8.17%. (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 END OF
YEAR 18 YEAR 19
- ----------------------------------------
Male, age 25 $18,048 $19,962
at issue
- ----------------------------------------
Male, age 40 $17,053 $18,736
at issue
- ----------------------------------------
EXAMPLE NO. 4. Same assumptions as in Example No. 3 except that the value of the
assets increases by 1.17% 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 END OF
YEAR 18 YEAR 19
- ----------------------------------------
Male, age 25 $18,048 $18,664
at issue
- ----------------------------------------
Male, age 40 $17,053 $17,513
at issue
- ----------------------------------------
The last two examples might be compared with Examples No. 3 and 4 on pages 11
and 12. 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 1.17% 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
You may surrender your Contract, in whole or in part, for its net cash value
while the insured is living. A partial surrender essentially involves splitting
an existing Contract into two Contracts. One is surrendered for its net cash
value; the other is continued inforce on the same terms as the original
Contract, except that 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 Premium will be payable. The face amount immediately
after the partial surrender must be at least equal to the minimum face amount
applicable to the insured's Contract.
To surrender a Contract, in whole or in part, you must deliver or mail the
Contract with a written request in a form that meets Pruco Life's needs, to a
Home Office. The net cash value of a surrendered or partially surrendered
Contract will be determined as of the date such request is received in a Home
Office. Surrender of all or part of a Contract may have tax consequences.
See TAX TREATMENT OF CONTRACT BENEFITS, page 18.
WITHDRAWAL OF A PORTION OF A CONTRACT'S NET CASH VALUE
An alternative to surrender or partial surrender of a Contract is a partial
withdrawal of net cash value. You are permitted to withdraw a portion of your
Contract's net cash value generally, the portion resulting from investment
performance exceeding 4% a year without surrendering the Contract. This avoids
splitting the Contract into two Contracts. We will reduce the death benefit by
the amount of paid-up whole life insurance that the cash value
14
<PAGE>
withdrawn would have purchased for that Contract owner. We will reduce the
guaranteed minimum death benefit so that the difference between the death
benefit and the guaranteed minimum death benefit will be the same percentage of
cash value as before the withdrawal. The right to withdraw such excess net cash
value may be usefully compared with a partial surrender. If you elect to
withdraw excess cash value, the Premium is not reduced. The cash value is
reduced by exactly the amount of the withdrawal. 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
if the face amount is decreased, the Contract might be classified as a Modified
Endowment Contract. For a brief discussion of the potential tax consequences of
the withdrawal of your excess cash value, see TAX TREATMENT OF CONTRACT
BENEFITS, page 18.
Upon request, we will tell you the amount of the net cash value that you may
withdraw 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. You may withdraw a portion of the Contract's cash value to pay
premiums on the Contract. This can be done once, occasionally, or automatically
every year, to the extent investment performance warrants it. To exercise this
right, you must deliver or mail a written request in a form that meets our needs
to a Home Office.
WHEN PROCEEDS ARE PAID
We generally pay any death benefit, cash value or loan proceeds within seven
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 is determined as of the end of the valuation period in which
the necessary documents are received at a Home Office. However, we 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: (1) the New York Stock Exchange is
closed for other than a regular holiday or weekend; (2) trading is restricted by
the SEC; or (3) the SEC declares that an emergency exists.
With respect to a Contract inforce as extended term or fixed reduced paid-up
insurance, we expect to pay any cash value promptly upon request. However, we
have the right to delay payment of such cash value for up to six months (or a
shorter period if required by applicable law). We will pay interest of at least
3% a year if we delay such a payment for 30 days or more (or a shorter period if
required by applicable law).
LIVING NEEDS BENEFIT
The LIVING NEEDS BENEFIT is available under the Contract. It may be added to
Contracts at issue and 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.
The LIVING NEEDS BENEFIT allows you to elect to receive an accelerated payment
of all or part of the Contract's death benefit, adjusted to reflect current
value, at a time when certain special needs exist. The adjusted death benefit
will always be less than the death benefit, but will generally be greater than
the Contract's cash surrender value. One or both of the following options may be
available. You should consult with a Pruco Life representative 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 six 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 six 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.
NURSING HOME OPTION. This option is available after the insured has been
confined to an eligible nursing home for six 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 benefit in a single sum or (2) receive equal monthly payments for
a specified number of years (not more than 10 nor less than two), 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.
15
<PAGE>
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.
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.
You should consider whether adding this settlement option is appropriate in your
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 LIVING NEEDS BENEFIT is excluded from income 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). You should consult a
qualified tax adviser before electing to receive this benefit. Receipt of a
LIVING NEEDS BENEFIT payment may also affect your eligibility for certain
government benefits or entitlements.
ILLUSTRATIONS OF CASH VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS
The following four tables show how a Contract's death benefit and cash surrender
values change with the investment performance of the Account. They are
"hypothetical" because they are based, in part, upon several assumptions which
are described below. All four tables assume the following:
o a Contract with a face amount of $50,000 bought by a male of a given age,
with no extra risks or substandard ratings, and no extra benefit riders added
to the Contract.
o the premium is paid on each Contract anniversary and no loans are taken.
o the Contract fund has been invested in equal amounts in each of the 13
available portfolios of the Series Fund and no portion of the Contract Fund
has been allocated to the Real Property Account.
The first and third tables (pages T1 and T3) assume a Contract purchased by a 25
year old male and the second and fourth tables (pages T2 and T4) assume a
Contract purchased by a 40 year old male. All four tables assume the current
charges will continue for the indefinite future.
Finally, there are five assumptions, shown separately, about the average
investment performance of the portfolios. The first is that there will be a
uniform 0% gross rate of return with the average value of the Contract Fund
uniformly adversely affected by very unfavorable investment performance. The
other four assumptions are that investment performance will be at a uniform
gross annual rate of 4%, 6%, 8% and 12%. Actual returns will fluctuate from year
to year. In addition, death benefits and cash surrender values would be
different from those shown if investment returns averaged 0%, 4%, 6%, 8% and 12%
but fluctuated from those averages throughout the years. Nevertheless, these
assumptions help show how the Contract values change with investment experience.
The first two tables (pages T1 and T2) assume uniform gross annual rates of 0%,
4%, and 8%. The third and fourth tables (pages T3 and T4) assume uniform gross
annual rates of 0%, 6% and 12%.
The first column in the following four tables (pages T1 through T4) shows the
Contract year. The second column, to provide context, shows what the aggregate
amount would be if the premiums had been invested to earn interest, after taxes,
at 4% compounded annually. The next three columns show the death benefit payable
in each of the years shown for the three different assumed investment returns.
The last three columns show the cash surrender value payable in each of the
years shown for the three different assumed investment returns.
A gross return (as well as the net return) is shown at the top of each column.
The gross return represents the combined effect of investment income and capital
gains and losses, realized or unrealized, of the portfolios before any reduction
is made for investment advisory fees or other Series Fund expenses. The net
return reflects average total annual expenses of the 13 portfolios of 0.48%, and
the daily deduction from the Contract Fund of 0.35% per year. Thus, based on the
above assumptions, gross investment returns of 0%, 4%, 6%, 8% and 12% are the
equivalent of net investment returns of -0.83%, 3.17%, 5.17%, 7.17% and 11.17%,
respectively. The actual fees and expenses of the portfolios associated with a
particular Contract may be more or less than 0.48% and will depend on which
subaccounts are selected. The death benefits and cash surrender values shown
reflect the deduction of all expenses and charges both from the Series Fund and
under the Contract.
Your Pruco Life representative can provide you with a hypothetical illustration
for your own age, sex and rating class.
16
<PAGE>
ILLUSTRATIONS
-------------
VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 25
$50,000 GUARANTEED DEATH BENEFIT
$536.50 ANNUAL PREMIUM FOR STANDARD UNDERWRITING RISK (1)
<TABLE>
<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 (-0.83% Net) (3.17% Net) (7.17% Net) (-0.83% Net) (3.17% Net) (7.17% 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 $ 50,209 $ 730 $ 781 $ 834
4 $ 2,369 $50,000 $50,000 $ 50,396 $1,080 $ 1,178 $ 1,283
5 $ 3,022 $50,000 $50,000 $ 50,643 $1,438 $ 1,598 $ 1,772
6 $ 3,701 $50,000 $50,000 $ 50,951 $1,792 $ 2,030 $ 2,296
7 $ 4,407 $50,000 $50,000 $ 51,320 $2,142 $ 2,474 $ 2,855
8 $ 5,141 $50,000 $50,000 $ 51,751 $2,487 $ 2,930 $ 3,451
9 $ 5,905 $50,000 $50,000 $ 52,244 $2,828 $ 3,397 $ 4,085
10 $ 6,699 $50,000 $50,000 $ 52,799 $3,163 $ 3,876 $ 4,761
15 $11,172 $50,000 $50,000 $ 56,516 $4,737 $ 6,424 $ 8,818
20 $16,615 $50,000 $50,000 $ 61,838 $6,100 $ 9,183 $14,211
25 $23,237 $50,000 $50,000 $ 68,847 $7,240 $12,129 $21,322
30 $31,293 $50,000 $50,000 $ 77,669 $8,133 $15,204 $30,584
40 (Age 65) $53,020 $50,000 $50,000 $101,469 $9,057 $21,298 $57,292
</TABLE>
(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.
T1
<PAGE>
VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 40
$50,000 GUARANTEED DEATH BENEFIT
$939 ANNUAL PREMIUM FOR STANDARD UNDERWRITING RISK (1)
<TABLE>
<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 (-0.83% Net) (3.17% Net) (7.17% Net) (-0.83% Net) (3.17% Net) (7.17% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 977 $50,000 $50,000 $50,029 $ 197 $ 208 $ 220
2 $ 1,992 $50,000 $50,000 $50,121 $ 815 $ 863 $ 912
3 $ 3,048 $50,000 $50,000 $50,276 $ 1,417 $ 1,528 $ 1,643
4 $ 4,147 $50,000 $50,000 $50,493 $ 2,003 $ 2,200 $ 2,411
5 $ 5,289 $50,000 $50,000 $50,778 $ 2,643 $ 2,956 $ 3,299
6 $ 6,477 $50,000 $50,000 $51,131 $ 3,266 $ 3,722 $ 4,235
7 $ 7,713 $50,000 $50,000 $51,551 $ 3,873 $ 4,499 $ 5,223
8 $ 8,998 $50,000 $50,000 $52,039 $ 4,461 $ 5,286 $ 6,265
9 $10,335 $50,000 $50,000 $52,595 $ 5,033 $ 6,084 $ 7,363
10 $11,725 $50,000 $50,000 $53,218 $ 5,587 $ 6,892 $ 8,521
15 $19,554 $50,000 $50,000 $57,350 $ 8,057 $11,021 $15,260
20 $29,080 $50,000 $50,000 $63,205 $ 9,979 $15,194 $23,776
25 (Age 65) $40,670 $50,000 $50,000 $70,860 $11,344 $19,294 $34,399
</TABLE>
(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.
T2
<PAGE>
VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 25
$50,000 GUARANTEED DEATH BENEFIT
$536.50 ANNUAL PREMIUM FOR STANDARD UNDERWRITING RISK (1)
<TABLE>
<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 (-0.83% Net) (5.17% Net) (11.17% Net) (-0.83% Net) (5.17% Net) (11.17% 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 $ 50,185 $ 376 $ 406 $ 437
3 $ 1,742 $50,000 $50,076 $ 50,481 $ 730 $ 808 $ 890
4 $ 2,369 $50,000 $50,144 $ 50,922 $1,080 $ 1,230 $ 1,393
5 $ 3,022 $50,000 $50,232 $ 51,518 $1,438 $ 1,683 $ 1,962
6 $ 3,701 $50,000 $50,341 $ 52,276 $1,792 $ 2,159 $ 2,593
7 $ 4,407 $50,000 $50,471 $ 53,203 $2,142 $ 2,658 $ 3,291
8 $ 5,141 $50,000 $50,620 $ 54,307 $2,487 $ 3,180 $ 4,063
9 $ 5,905 $50,000 $50,789 $ 55,599 $2,828 $ 3,725 $ 4,916
10 $ 6,699 $50,000 $50,978 $ 57,085 $3,163 $ 4,295 $ 5,858
15 $11,172 $50,000 $52,196 $ 67,821 $4,737 $ 7,515 $ 12,225
20 $16,615 $50,000 $53,840 $ 85,266 $6,100 $11,388 $ 22,479
25 $23,237 $50,000 $55,871 $111,637 $7,240 $15,996 $ 38,886
30 $31,293 $50,000 $58,258 $150,112 $8,133 $21,392 $ 64,887
40 (Age 65) $53,020 $50,000 $64,011 $283,153 $9,057 $34,448 $168,094
</TABLE>
(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.
T3
<PAGE>
VARIABLE LIFE INSURANCE CONTRACT
MALE ISSUE AGE 40
$50,000 GUARANTEED DEATH BENEFIT
$939 ANNUAL PREMIUM FOR STANDARD UNDERWRITING RISK (1)
<TABLE>
<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 (-0.83% Net) (5.17% Net) (11.17% Net) (-0.83% Net) (5.17% Net) (11.17% 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 $50,045 $ 50,277 $ 815 $ 888 $ 962
3 $ 3,048 $50,000 $50,101 $ 50,638 $ 1,417 $ 1,584 $ 1,763
4 $ 4,147 $50,000 $50,179 $ 51,154 $ 2,003 $ 2,304 $ 2,637
5 $ 5,289 $50,000 $50,281 $ 51,844 $ 2,643 $ 3,124 $ 3,675
6 $ 6,477 $50,000 $50,405 $ 52,716 $ 3,266 $ 3,971 $ 4,812
7 $ 7,713 $50,000 $50,552 $ 53,776 $ 3,873 $ 4,848 $ 6,058
8 $ 8,998 $50,000 $50,721 $ 55,034 $ 4,461 $ 5,755 $ 7,422
9 $10,335 $50,000 $50,911 $ 56,497 $ 5,033 $ 6,693 $ 8,918
10 $11,725 $50,000 $51,122 $ 58,175 $ 5,587 $ 7,661 $10,556
15 $19,554 $50,000 $52,472 $ 70,192 $ 8,057 $12,950 $21,341
20 $29,080 $50,000 $54,273 $ 89,547 $ 9,979 $18,949 $38,013
25 (Age 65) $40,670 $50,000 $56,479 $118,657 $11,344 $25,629 $63,548
</TABLE>
(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.
T4
<PAGE>
CONTRACT LOANS
You may borrow from Pruco Life an amount up to the current loan value of your
Contract using the Contract as the only security for the loan. Generally, the
loan value of a Contract is 75% of its 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. If you pay premiums other than monthly, you 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 Contract owners who pay premiums monthly.
If you request a loan, you may choose one of two interest rate options. You may
elect to have interest charges accrue daily at a fixed effective annual rate of
5.5% (6% for Contracts issued to Texas residents). Alternatively, you may elect
a variable interest rate that changes from time to time. You may switch from the
fixed to the variable interest loan provision, or vice-versa, with Pruco Life's
consent.
If you elect the variable loan interest rate provision, you may borrow up to 90%
of the Contract's cash value and interest on any loan will accrue daily at an
annual rate Pruco Life determines at the start of each Contract year (instead of
at the fixed 5.5% rate). The interest rate will not exceed the greatest of (1)
the "Published Monthly Average" for the calendar month ending two months before
the calendar month of the Contract anniversary; (2) 5%; or (3) the rate
permitted by law in the state of issue of the Contract. The "Published Monthly
Average" means Moody's Corporate Bond Yield Average-Monthly Average Corporates,
as published by Moody's Investors Service, Inc. or any successor to that service
or, if that average is no longer published, a substantially similar average
established by the insurance regulator where the Contract is issued. For
example, the Published Monthly Average in 1998 ranged from 6.72% to 7.00%.
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. The
Contract debt is the amount of all outstanding loans plus any interest accrued
but not yet due. If at any time the Contract debt exceeds what the net cash
value would be if there were no Contract debt, Pruco Life will notify you of its
intent to terminate the Contract in 31 days, within which time you may repay all
or enough of the loan to keep the Contract inforce. If you fail to keep the
Contract inforce, 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 19, and LAPSE AND REINSTATEMENT, page 20.
When a loan is made, an amount equal to the loan proceeds is transferred out of
the applicable investment options. The reduction is generally made in the same
proportions as the value that each investment option bears to the total value of
the Contract. While a fixed-rate loan is outstanding, the amount that was so
transferred will continue to be treated as part of the Contract's assets, but
will be credited with the assumed rate of return of 4% rather than with the
actual rate of return of the applicable investment option[s]. While a loan made
pursuant to the variable loan interest rate provision is outstanding, the amount
that was transferred is credited with a rate which is 1% less than the loan
interest rate for the Contract year, rather than with the actual rate of return
of the subaccount[s] and/or the Real Property Account. Currently, we credit such
amounts at a rate that is 1% less than the loan interest rate for the Contract
year. If a loan remains outstanding at a time when Pruco Life fixes a new rate,
the new interest rate applies.
If the death benefit becomes payable while a loan is outstanding, or if the
Contract is surrendered, any Contract debt is deducted from the proceeds
otherwise payable.
A loan will have a permanent effect on a Contract's death benefit and cash value
because the investment results of the selected investment options will apply
only to the amount remaining in those investment options. The longer the loan is
outstanding, the greater the effect is likely to be. The effect could be
favorable or unfavorable. If investment results are greater than the rate being
credited upon the amount of the loan 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 below that rate, the death benefit
and the cash value will not be as adversely affected as they would have been had
no loan been made. Loan repayments are allocated to the investment options
proportionately based on their balances at the time of the loan repayment.
Loans from Modified Endowment Contracts may be treated for tax purposes as
distributions of income. See TAX TREATMENT OF CONTRACT BENEFITS, page 18.
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 eight and repaid at the end of
Contract year nine. Upon repayment, the death benefit would be $51,930.76 and
the cash value $4,007.59. These amounts are lower than the death benefit and
cash value shown on that page for the end of Contract year nine
17
<PAGE>
because the loan amount was credited with the 4% assumed investment return
rather than the 8% gross rate of return for the selected investment options.
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.
You may 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. You 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 was sold by registered
representatives of Prusec who were also authorized by state insurance
departments to do so. The Contract may also have been 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. Representatives with less than
three years of service may be paid on a different basis. Representatives who met
certain productivity, profitability, and persistency standards with regard to
the sale of the Contract may 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 8.
TAX TREATMENT OF CONTRACT BENEFITS
This summary provides general information on the federal income tax treatment of
the Contract. It is not a complete statement of what the federal income taxes
will be in all circumstances. It is based on current law and interpretations,
which may change. It does not cover state taxes or other taxes. It is not
intended as tax advice. You should consult your own qualified tax adviser for
complete information and advice.
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TREATMENT AS LIFE INSURANCE. The Contract must meet certain requirements to
qualify as life insurance for tax purposes. These requirements include certain
definitional tests and rules for diversification of the Contract's investments.
For further information on the diversification requirements, see DIVIDENDS,
DISTRIBUTIONS AND TAXES in the prospectus for the Series Fund.
We believe we have taken adequate steps to ensure that the Contract qualifies as
life insurance for tax purposes. Generally speaking, this means that:
o you will not be taxed on the growth of the funds in the Contract,
unless you receive a distribution from the Contract,
o the Contract's death benefit will be tax free to your beneficiary.
Although we believe that the Contract should qualify as life insurance for tax
purposes, there are some uncertainties, particularly because the Secretary of
Treasury has not yet issued permanent regulations that bear on this question.
Accordingly, we reserve the right to make changes -- which will be applied
uniformly to all Contract owners after advance written notice -- that we deem
necessary to ensure that the Contract will qualify as life insurance.
PRE-DEATH DISTRIBUTIONS. The tax treatment of any distribution you receive
before the insured's death depends on whether the Contract is classified as a
Modified Endowment Contract.
CONTRACTS NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
o If you surrender the Contract or allow it to lapse, you will be taxed
on the amount you receive in excess of the premiums you paid less the
untaxed portion of any prior withdrawals. For this purpose, you will
be treated as receiving any portion of the cash surrender value used
to repay Contract debt. The tax consequences of a surrender may differ
if you take the proceeds under an income payment settlement option.
o Generally, you will be taxed on a withdrawal to the extent the amount
you receive exceeds the premiums you paid for the Contract less the
untaxed portion of any prior withdrawals. However, under some limited
circumstances, in the first 15 Contract years, all or a portion of a
withdrawal may be taxed if the Contract Fund exceeds the total
premiums paid less the untaxed portions of any prior withdrawals, even
if total withdrawals do not exceed total premiums paid.
o Extra premiums for optional benefits and riders generally do not count
in computing the premiums paid for the Contract for the purposes of
determining whether a withdrawal is taxable.
o Loans you take against the Contract are ordinarily treated as debt and
are not considered distributions subject to tax.
MODIFIED ENDOWMENT CONTRACTS.
o The rules change if the Contract is classified as a Modified Endowment
Contract. The Contract could be classified as a Modified Endowment
Contract if a decrease in the face amount of insurance is made (or a
rider removed). The addition of a rider may also cause the Contract to
be classified as a Modified Endowment Contract. You should first
consult a qualified tax adviser and your Pruco Life representative if
you are contemplating any of these steps.
o If the Contract is classified as a Modified Endowment Contract, then
amounts you receive under the Contract before the insured's death,
including loans and withdrawals, are included in income to the extent
that the cash value exceeds the premiums paid for the Contract
increased by the amount of any loans previously included in income and
reduced by any untaxed amounts previously received other than the
amount of any loans excludible from income. An assignment of a
Modified Endowment Contract is taxable in the same way. These rules
also apply to pre-death distributions, including loans, made during
the two-year period before the time that the Contract became a
Modified Endowment Contract.
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o Any taxable income on pre-death distributions (including full
surrenders) is subject to a penalty of 10% unless the amount is
received on or after age 59 1/2, on account of your becoming disabled
or as a life annuity. It is presently unclear how the penalty tax
provisions apply to Contracts owned by businesses.
o All Modified Endowment Contracts issued by us to you during the same
calendar year are treated as a single Contract for purposes of
applying these rules.
WITHHOLDING. You must affirmatively elect that no taxes be withheld from a
pre-death distribution. Otherwise, the taxable portion of any amounts you
receive will be subject to withholding. You are not permitted to elect out of
withholding if you do not provide a social security number or other taxpayer
identification number. You may be subject to penalties under the estimated tax
payment rules if your withholding and estimated tax payments are insufficient to
cover the tax due.
OTHER TAX CONSIDERATIONS. If you transfer or assign the Contract to someone
else, there may be gift, estate and/or income tax consequences. If you transfer
the Contract to a person two or more generations younger than you (or designate
such a younger person as a beneficiary), there may be Generation Skipping
Transfer tax consequences. 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. Your individual situation or that of your beneficiary
will determine the federal estate taxes and the state and local estate,
inheritance and other taxes due if you or the insured dies.
BUSINESS-OWNED LIFE INSURANCE. If a business, rather than an individual, is the
owner of the Contract, there are some additional rules. Business Contract owners
generally cannot deduct premium payments. Business Contract owners generally
cannot take tax deductions for interest on Contract debt 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 these loans is limited to a prescribed interest rate and a maximum aggregate
loan amount of $50,000 per key insured person. The corporate alternative minimum
tax also applies to business-owned life insurance. This is an indirect tax on
additions to the Contract Fund or death benefits received under business-owned
life insurance policies.
LAPSE AND REINSTATEMENT
This Contract ensures that insurance protection remains in effect as long as
premiums are paid. 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 18.
A Contract that lapses may be reinstated within three years after the date of
default unless the Contract has been surrendered for its cash value. We require
renewed evidence of insurability and submission of certain payments due under
the Contract to reinstate a lapsed 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 your Contract does lapse, it will still provide some benefits. You can
receive the cash surrender value by making a request of Pruco Life prior to the
end of the 31 day grace period. You may also choose one of the three forms of
insurance described below for which no further premiums are payable.
1. EXTENDED TERM INSURANCE. With one exception explained below, if you do not
communicate at all with Pruco Life, life insurance coverage will continue for a
length of time that depends on: (1) the net cash value on the due date of the
first unpaid premium; (2) the amount of insurance; and (3) 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 inforce. This benefit is known as extended term insurance. We
will tell you 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
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obtained from regulatory authorities. Pruco Life has received such approvals in
all jurisdictions except the 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).
2. FIXED REDUCED PAID-UP INSURANCE. You 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. We will tell you 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 Contract owner
who wants fixed reduced paid-up insurance must ask for it in writing, in a form
that meets Pruco Life's needs, within three 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 18.
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 inforce on a premium
paying basis (see HOW A CONTRACT'S DEATH BENEFIT WILL VARY, page 10 and HOW A
CONTRACT'S CASH VALUE WILL VARY, page 12). Variable reduced paid-up insurance
has a loan privilege identical to that available on premium paying Contracts
(see CONTRACT LOANS, page 17). 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 18.
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 our needs, within three months of the date of default; it will be
available to such Contract 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. You can receive the net cash value by surrendering
the Contract and making a written request in a form that meets our needs. If we
receive the request within the grace period 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 grace period, plus or minus an
amount that depends upon the investment performance between the due date and the
date we receive 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 we receive the request after the grace
period expires, the net cash value will be the net value of any extended term
insurance then inforce, or the net value of any reduced paid-up insurance then
inforce (either fixed or variable), less any Contract debt. Surrender of the
Contract may have tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page
18.
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 eight
years after a uniform gross annual investment return of 8%. The tables assume a
total Series Fund expense ratio of 0.48% (taking into account the offsets
described under CHARGES AND EXPENSES on page 8).
--------------------------------------------------------------
EXTENDED REDUCED
INSURED CASH VALUE TERM PAID-UP
INSURANCE INSURANCE
--------------------------------------------------------------
Male, age 25 $3,451 $51,751 $14,405
at issue for 19.84 for life
years
--------------------------------------------------------------
Male, age 40 $6,265 $52,039 $16,201
at issue for 12.73 for life
years
---------------------------------------------------------------
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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 differ under Contracts issued on males
and females of the same age. 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 who purchased
a Contract should consult their legal advisers to determine whether a Contract
based on sex-distinct actuarial tables is consistent with Title VII of the Civil
Rights Act of 1964 or other applicable law.
OTHER GENERAL CONTRACT PROVISIONS
ASSIGNMENT. This Contract may not be assigned if the assignment would violate
any federal, state or local law or regulation. Generally, the Contract may not
be assigned to another insurance company or to an employee benefit plan without
Pruco Life's consent. Pruco Life assumes no responsibility for the validity or
sufficiency of any assignment. We will not be obligated to comply with any
assignment unless we receive a copy at a Home Office.
BENEFICIARY. You designate and name your beneficiary in the application.
Thereafter, you 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. We will not contest the Contract after it has been inforce
during the insured's lifetime for two years from the issue date except when any
change is made in the Contract that requires Pruco Life's approval and would
increase our liability. We will not contest such change after it has been in
effect for two years during the lifetime of the insured.
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 death benefits payable, as required by law, to reflect the correct
age and sex. Any such benefit will be based on what the premium would have
provided at the correct age and sex.
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
Contract owners may be able to obtain extra fixed benefits, which may require an
additional premium. These optional insurance benefits will be described in what
is known as a "rider" to the Contract. Charges applicable to the riders will be
deducted from the premiums.
One rider pays additional death benefit 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 certain premiums into the Contract if the insured dies
within a stated number of years after issue; similar term insurance riders may
be available for the insured's spouse or child. The amounts of these benefits
are fully guaranteed at issue and 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 described earlier, all of the assets held in the subaccounts will be invested
in shares of the corresponding portfolios of the Series Fund. Pruco Life is the
legal owner of those shares and 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 in accordance with voting instructions
received from Contract owners at any regular and special shareholders meetings.
The Series Fund may 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. If 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.
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Matters on which Contract owners may give voting instructions include the
following:
(1) election of the Board of Directors of the Series Fund;
(2) ratification of the independent accountant of the Series Fund;
(3) approval of the investment advisory agreement for a portfolio of the
Series Fund corresponding to the Contract owner's selected subaccount[s];
(4) any change in the fundamental investment policy of a portfolio
corresponding to the Contract owner's selected subaccount[s]; and
(5) any other matter requiring a vote of the shareholders of the Series
Fund.
Contract owners participating in a portfolio will vote separately on the
investment advisory agreement or any change in the portfolio's fundamental
investment policy, pursuant to the requirements of Rule 18f-2 under the
Investment Company Act of 1940.
The number of Series Fund shares for which a Contract owner may give
instructions 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 they 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
adviser 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 any such substitution.
REPORTS TO CONTRACT OWNERS
Once each Contract year (except where the Contract is inforce as fixed extended
term insurance or fixed reduced paid-up insurance), Pruco Life will send you a
statement that provides certain information pertinent to your own Contract. This
statement will detail values and transactions made and specific Contract data
that apply only to your particular Contract. On request, you 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.
You 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
portfolio.
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.
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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 consolidated financial statements of Pruco Life and Subsidiaries as of
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998 and the financial statements of the Account as of December 31,
1998 and for each of the three years in the period then ended included in this
prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting. PricewaterhouseCoopers LLP's
principal business address is 1177 Avenue of the Americas, New York, New York
10036.
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 you as a purchaser of a Variable Life Insurance
Contract depend on the smooth functioning of numerous computer systems. Many
computer systems in use today are programmed to recognize only the last two
digits of a date as the year. As a result, any systems using this kind of
programming can not distinguish a date using "00" and may treat it as "1900"
instead of "2000." This problem may impact computer systems that store business
information, but it could also affect other equipment used in our business like
telephone, fax machines and elevators. If this problem is not corrected, the
"Year 2000" issue could affect the accuracy and integrity of business records.
Prudential's regular business operations could be interrupted as well as those
of other companies that deal with us.
In addition, the operations of the mutual funds associated with the Variable
Life Insurance Contract could experience problems resulting from the Year 2000
issue. Please refer to the respective mutual fund's prospectus for information
regarding their approach to Year 2000 concerns. The following describes
Prudential's effort to address Year 2000 concerns.
To address this potential problem Prudential, as the parent company of Pruco
Life, organized its Year 2000 efforts around the following three areas:
o BUSINESS SYSTEMS - Computer programs directly used to support our business;
o INFRASTRUCTURE - Computers and other business equipment like telephones and
fax machines; and
o BUSINESS PARTNERS - Year 2000 readiness of essential business partners.
BUSINESS SYSTEMS. The business systems component includes a wide range of
computer programs that directly support Prudential's business operations
including systems for: insurance product processing, securities trading,
personnel record keeping and general accounting systems. All business systems
were analyzed to determine whether each computer program with a Year 2000
problem should be retired, replaced or renovated. The majority of this work has
been completed. A few remaining programs are currently being tested and
completion of this process is expected by June 1999.
INFRASTRUCTURE. As with business applications, we established a specific
methodology and process for addressing infrastructure issues. The infrastructure
effort includes mainframe computer system hardware and operating system
software, mid-range systems and servers, telecommunications equipment and
systems, buildings and facilities systems, personal computers, and vendor
hardware and software. Other than desktop systems, substantially all other
infrastructure systems have been tested. Presently a small number of midrange
computers, and building and facility systems are still in the testing phase. We
expect to have the infrastructure implementation process completed by June 1999.
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BUSINESS PARTNERS. Prudential recognizes the importance of determining the Year
2000 readiness of external business relationships especially those that involve
electronic data transfer products and services, and products that impact our
essential business processes. Prudential first classified each business partner
as "highly critical" or "less critical" to our business and then began to
develop risk assessment and contingency plans to address the potential that a
business partner could experience a Year 2000 failure. All highly critical
business partner relationships have been assessed and contingency planning is
completed. Risk assessment and contingency planning continues for less critical
business partners, and the target completion date for these relationships is
June 1999.
Prudential believes that the Business Systems, Infrastructure and Business
Partners components of the Year 2000 project are substantially on schedule. A
small number of the projects may not meet their targeted completion date.
However, Prudential expects that these projects will be completed by September,
1999. If there are any delays, they should not have a significant impact on the
timing of the project as a whole.
THE COST OF YEAR 2000 READINESS
Prudential is funding the Year 2000 program from internal operating budgets, and
estimates that its total costs to address the Year 2000 issue will total
approximately $220 million. Because these expenses were part of the operating
budget, they did not impact the management of Variable Life Insurance Contracts.
During the course of the Year 2000 program, some optional computer projects have
been delayed, but these delays have not had any material effect on Variable Life
Insurance Contracts.
YEAR 2000 RISKS AND CONTINGENCY PLANNING
Prudential believes that it is well positioned to lessen the impact of the Year
2000 problem. However, given the nature of this issue, we can not be 100%
certain that we are completely prepared, particularly because we can not be
certain of Year 2000 readiness of third parties. As a result, we are unable to
determine at this time whether the consequences of Year 2000 failures may have a
material adverse effect on the results of Prudential's operations, liquidity or
financial condition. In the worst case, it is possible that a Year 2000
technology failure, whether internal or external, could have a material impact
on Prudential's results of operations, liquidity, or financial position. If
Prudential is unable to address the Year 2000 problem, we may have difficulty in
responding to your incoming phone calls, calculating your unit values or
processing withdrawals and purchase payments. It is also possible that the
mutual funds associated with the Variable Life Insurance Contract will be unable
to value their securities, in turn creating difficulties in purchasing or
selling shares of the respective mutual fund and calculating corresponding unit
asset values. The objective of Prudential's Year 2000 program has been to reduce
these risks as much as possible.
Most of the operations of the Variable Life Insurance Contract involve such a
large number of individual transactions that they can only be handled with the
help of computers. As a result, our current contingency plans include responses
to the failure of specific business programs or infrastructure components.
However, our contingency responses are now being reviewed and we expect to
finalize them by June, 1999 to ensure that they are workable under the special
conditions of a Year 2000 failure. Prudential believes that with the completion
of its Year 2000 program as scheduled, the possibility of significant
interruptions of normal operations will be reduced.
ADDITIONAL INFORMATION
Pruco Life has filed a registration statement 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. Its address and
telephone number are set forth on the inside front cover of this prospectus.
FINANCIAL STATEMENTS
The financial statements of the Account should be distinguished from the
consolidated financial statements of Pruco Life and Subsidiaries, which should
be considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
25
<PAGE>
DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life, listed with their principal
occupations during the past five 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.
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
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 AND SECRETARY. -- 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.
HIROSHI NAKAJIMA, SENIOR VICE PRESIDENT. -- President & Chief Executive Officer,
Pruco Life Insurance Company, Taiwan Branch since 1997; Prior to 1997: Senior
Managing Director, Prudential Life Insurance Co., Ltd.
IMANTS SAKSONS, SENIOR VICE PRESIDENT. -- Vice President, Compliance, Prudential
Individual Financial Services since 1998; Prior to 1998: Vice President, Market
Conduct, U.S. Operations, Manulife Financial.
SHIRLEY H. SHAO, SENIOR VICE PRESIDENT AND CHIEF ACTUARY. -- Vice President and
Associate Actuary, Prudential.
DENNIS G. SULLIVAN, VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER. -- Vice
President and Deputy Controller, Prudential since 1998; 1997 to 1998, Vice
President and Controller, ContiFinancial Corporation; Prior to 1997, Director,
Saloman Brothers.
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.
26
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF NET ASSETS
December 31,1998
SUBACCOUNTS
-----------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in The Prudential Series Fund, Inc.
Portfolios at net asset value [Note 3]............ $ 15,970,080 $ 22,871,360 $ 153,498,595 $ 141,351,413 $ 46,056,902
------------- ------------- ------------- ------------- -------------
Net Assets $ 15,970,080 $ 22,871,360 $ 153,498,595 $ 141,351,413 $ 46,056,902
============= ============= ============= ============= =============
NET ASSETS, representing:
Equity of contract owners........................... $ 15,970,080 $ 22,871,360 $ 153,498,595 $ 141,351,413 $ 46,056,902
------------- ------------- ------------- ------------- -------------
$ 15,970,080 $ 22,871,360 $ 153,498,595 $ 141,351,413 $ 46,056,902
============= ============= ============= ============= =============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A22
A1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
SMALL
HIGH YIELD STOCK EQUITY NATURAL GOVERNMENT PRUDENTIAL CAPITALIZATION
BOND INDEX INCOME RESOURCES GLOBAL INCOME JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 2,140,219 $ 11,235,538 $ 4,663,728 $ 1,435,024 $ 1,382,636 $ 626,659 $ 2,461,159 $ 1,056,762
- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 2,140,219 $ 11,235,538 $ 4,663,728 $ 1,435,024 $ 1,382,636 $ 626,659 $ 2,461,159 $ 1,056,762
============== ============== ============== ============== ============== ============== ============== ==============
$ 2,140,219 $ 11,235,538 $ 4,663,728 $ 1,435,024 $ 1,382,636 $ 626,659 $ 2,461,159 $ 1,056,762
- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 2,140,219 $ 11,235,538 $ 4,663,728 $ 1,435,024 $ 1,382,636 $ 626,659 $ 2,461,159 $ 1,056,762
============== ============== ============== ============== ============== ============== ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A22
A2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
SUBACCOUNTS
-----------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
------------------------------------- -------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income.................................. $ 835,102 $ 836,324 $ 808,417 $ 1,391,536 $ 1,601,924 $ 1,365,153
----------- ----------- ----------- ----------- ----------- ------------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A]....... 55,810 55,267 55,366 79,178 76,182 73,783
Reimbursement for excess expenses [Note 5B] ..... (2,476) (3,473) (6,730) (5,487) (5,282) (10,368)
----------- ----------- ----------- ----------- ----------- ------------
NET EXPENSES....................................... 53,334 51,794 48,636 73,691 70,900 63,415
----------- ----------- ----------- ----------- ----------- ------------
NET INVESTMENT INCOME (LOSS)....................... 781,768 784,530 759,781 1,317,845 1,531,024 1,301,738
----------- ----------- ----------- ----------- ----------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ........... 0 0 0 82,393 256,143 0
Realized gain (loss) on shares redeemed ........ 0 0 0 60,094 66,809 43,347
Net change in unrealized gain (loss)
on investments................................ 0 0 0 22,976 (146,333) (485,901)
----------- ----------- ----------- ----------- ----------- ------------
NET GAIN (LOSS) ON INVESTMENTS..................... 0 0 0 165,463 176,619 (442,554)
----------- ----------- ----------- ----------- ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........................ $ 781,768 $ 784,530 $ 759,781 $ 1,483,308 $ 1,707,643 $ 859,184
=========== ========== =========== =========== =========== ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A22
A3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------- -------------------------------------------- --------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------- ------------- ------------ ------------- ------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2,814,411 $ 3,187,180 $ 2,829,543 $ 4,501,410 $ 3,834,599 $ 3,436,833 $ 1,886,966 $ 1,888,751 $ 1,504,600
- ------------- ------------- ------------ ------------- ------------ ------------- ----------- ----------- -----------
539,855 483,733 401,534 483,278 443,641 387,082 155,272 142,257 126,668
(134,660) (107,340) (126,451) (314,445) (287,241) (279,063) (76,645) (66,633) (72,650)
- ------------- ------------- ------------ ------------- ------------ ------------- ----------- ----------- -----------
405,195 376,393 275,083 168,833 156,400 108,019 78,627 75,624 54,018
- ------------- ------------- ------------ ------------- ------------ ------------- ----------- ----------- -----------
2,409,216 2,810,787 2,554,460 4,332,577 3,678,199 3,328,814 1,808,339 1,813,127 1,450,582
- ------------- ------------- ------------ ------------- ------------ ------------- ----------- ----------- -----------
16,795,689 7,940,023 11,007,423 14,260,580 19,922,569 11,065,352 2,695,586 4,545,796 2,350,211
3,408,087 2,949,502 1,192,928 712,514 1,255,186 549,342 161,339 266,426 104,292
(9,387,276) 15,968,968 4,650,911 (6,089,816) (4,223,520) (803,121) 163,231 (1,618,876) 402,663
- ------------- ------------- ------------ ------------- ------------ ------------- ----------- ----------- -----------
10,816,500 26,858,493 16,851,262 8,883,278 16,954,235 10,811,573 3,020,156 3,193,346 2,857,166
- ------------- ------------- ------------ ------------- ------------ ------------- ----------- ----------- -----------
$ 13,225,716 $ 29,669,280 $ 19,405,722 $ 13,215,855 $ 20,632,434 $ 14,140,387 $ 4,828,495 $ 5,006,473 $ 4,307,748
============= ============ ============ ============= ============ ============= =========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A22
A4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
SUBACCOUNTS
--------------------------------------------------------------------------------
HIGH YIELD STOCK
BOND INDEX
PORTFOLIO PORTFOLIO
--------------------------------------- ---------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income............................... $ 211,661 $ 203,212 $ 193,067 $ 121,318 $ 113,569 $ 99,546
------------ ------------ ------------ ------------ ----------- ------------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A].... 7,816 7,466 6,864 34,188 26,197 18,542
Reimbursement for excess expenses [Note 5B] .. 0 0 0 0 0 0
------------ ------------ ------------ ------------ ----------- ------------
NET EXPENSES.................................... 7,816 7,466 6,864 34,188 26,197 18,542
------------ ------------ ------------ ------------ ----------- ------------
NET INVESTMENT INCOME (LOSS).................... 203,845 195,746 186,203 87,130 87,372 81,004
------------ ------------ ------------ ------------ ----------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ........ 0 0 0 171,765 237,151 69,432
Realized gain (loss) on shares redeemed ..... 5,099 2,954 (255) 264,889 199,378 26,711
Net change in unrealized gain (loss)
on investments............................. (265,563) 70,466 15,911 1,894,964 1,512,588 891,077
------------ ------------ ------------ ------------ ----------- ------------
NET GAIN (LOSS) ON INVESTMENTS.................. (260,464) 73,420 15,656 2,331,618 1,949,117 987,220
------------ ------------ ------------ ------------ ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS..................... $ (56,619) $ 269,166 $ 201,859 $ 2,418,748 $ 2,036,489 $ 1,068,224
============ ============ ============ ============ =========== ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A22
A5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY NATURAL
INCOME RESOURCES GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------- ------------------------------------------- ------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------ ----------- ----------- ------------ ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 125,396 $ 94,263 $ 91,474 $ 14,132 $ 11,074 $ 12,990 $ 16,927 $ 13,090 $ 19,171
- ------------ ----------- ----------- ------------ ----------- ------------ ------------ ----------- ------------
16,528 12,518 8,941 5,972 7,715 6,608 4,264 3,694 2,518
0 0 0 0 0 0 0 0 0
- ------------ ----------- ----------- ------------ ----------- ------------ ------------ ----------- ------------
16,528 12,518 8,941 5,972 7,715 6,608 4,264 3,694 2,518
- ------------ ----------- ----------- ------------ ----------- ------------ ------------ ----------- ------------
108,868 81,745 82,533 8,160 3,359 6,382 12,663 9,396 16,653
- ------------ ----------- ----------- ------------ ----------- ------------ ------------ ----------- ------------
280,645 382,984 92,133 92,057 239,014 249,205 57,458 51,660 13,744
62,840 33,336 10,132 (33,638) 40,949 25,407 25,387 6,455 3,662
(626,566) 591,189 325,992 (381,691) (534,111) 196,158 173,653 (9,784) 96,458
- ------------ ----------- ----------- ------------ ----------- ------------ ------------ ----------- ------------
(283,081) 1,007,509 428,257 (323,272) (254,148) 470,770 256,498 48,331 113,864
- ------------ ----------- ----------- ------------ ----------- ------------ ------------ ----------- ------------
$ (174,213) $ 1,089,254 $ 510,790 $ (315,112) $ (250,789) $ 477,152 $ 269,161 $ 57,727 $ 130,517
============ =========== =========== ============ =========== ============ ============ =========== ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A22
A6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
SUBACCOUNTS
--------------------------------------------------------------------------------
GOVERNMENT PRUDENTIAL
INCOME JENNISON
PORTFOLIO PORTFOLIO
--------------------------------------- ---------------------------------------
1998 1997 1996 1998 1997 1996
------------ ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income............................... $ 32,527 $ 33,731 $ 31,327 $ 3,759 $ 1,979 $ 860
------------ ----------- ------------ ------------ ----------- ------------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A].... 1,966 1,768 1,671 6,023 2,889 1,066
Reimbursement for excess expenses [Note 5B] .. 0 0 0 0 0 0
------------ ----------- ------------ ------------ ----------- ------------
NET EXPENSES.................................... 1,966 1,768 1,671 6,023 2,889 1,066
------------ ----------- ------------ ------------ ----------- ------------
NET INVESTMENT INCOME (LOSS).................... 30,561 31,963 29,656 (2,264) (910) (206)
------------ ----------- ------------ ------------ ----------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ........ 0 0 0 35,756 63,600 0
Realized gain (loss) on shares redeemed ..... 1,778 237 520 11,517 8,562 635
Net change in unrealized gain (loss)
on investments............................. 13,989 14,012 (19,539) 516,075 133,987 40,175
------------ ----------- ------------ ------------ ----------- ------------
NET GAIN (LOSS) ON INVESTMENTS.................. 15,767 14,249 (19,019) 563,348 206,149 40,810
------------ ----------- ------------ ------------ ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS..................... $ 46,328 $ 46,212 $ 10,637 $ 561,084 $ 205,239 $ 40,604
============ =========== ============ ============ =========== ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A22
A7
</TABLE>
<PAGE>
SUBACCOUNTS (CONTINUED)
- -------------------------------------------------
SMALL
CAPITALIZATION STOCK
PORTFOLIO
- -------------------------------------------------
1998 1997 1996
- -------------- ------------- -------------
$ 5,594 $ 3,695 $ 1,994
- -------------- ------------- -------------
3,153 1,939 703
0 0 0
- -------------- ------------- -------------
3,153 1,939 703
- -------------- ------------- -------------
2,441 1,756 1,291
- -------------- ------------- -------------
63,147 50,803 6,557
802 3,430 344
(79,246) 63,710 28,167
- -------------- ------------- -------------
(15,297) 117,943 35,068
- -------------- ------------- -------------
$ (12,856) $ 119,699 $ 36,359
============== ============= =============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A22
A8
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998, 1997 and 1996
SUBACCOUNTS
-------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
------------------------------------------ -----------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss)............... $ 781,768 $ 784,530 $ 759,781 $ 1,317,845 $ 1,531,024 $ 1,301,738
Capital gains distributions received....... 0 0 0 82,393 256,143 0
Realized gain (loss) on shares redeemed.... 0 0 0 60,094 66,809 43,347
Net change in unrealized gain (loss) on
investments.............................. 0 0 0 22,976 (146,333) (485,901)
------------ ------------ ------------ ------------ ------------- ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS................................. 781,768 784,530 759,781 1,483,308 1,707,643 859,184
------------ ------------ ------------ ------------ ------------- ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7]................................... (619,008) (859,637) (774,685) (842,262) (1,077,204) (747,162)
------------ ------------ ------------ ------------ ------------- ------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 8]................................... (35,056) 26,431 (40,679) (22,629) 20,104 (1,424)
------------ ------------ ------------ ------------ ------------- ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS..................................... 127,704 (48,676) (55,583) 618,417 650,543 110,598
NET ASSETS
Beginning of year.......................... 15,842,376 15,891,052 15,946,635 22,252,943 21,602,400 21,491,802
------------ ------------ ------------ ------------ ------------- ------------
End of year................................ $ 15,970,080 $ 15,842,376 $ 15,891,052 $ 22,871,360 $ 22,252,943 $ 21,602,400
============ ============ ============ ============ ============= ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A22
A9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------- ------------------------------------------- -----------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2,409,216 $ 2,810,787 $ 2,554,460 $ 4,332,577 $ 3,678,199 $ 3,328,814 $ 1,808,339 $ 1,813,127 $ 1,450,582
16,795,689 7,940,023 11,007,423 14,260,580 19,922,569 11,065,352 2,695,586 4,545,796 2,350,211
3,408,087 2,949,502 1,192,928 712,514 1,255,186 549,342 161,339 266,426 104,292
(9,387,276) 15,968,968 4,650,911 (6,089,816) (4,223,520) (803,121) 163,231 (1,618,876) 402,663
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
13,225,716 29,669,280 19,405,722 13,215,855 20,632,434 14,140,387 4,828,495 5,006,473 4,307,748
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(7,322,315) (6,457,147) (2,590,623) (4,988,725) (5,180,609) (1,978,785) (1,079,531) (1,230,865) (204,807)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(60,272) 12,540 (9,294) (58,430) (58,991) 24,234 (5,712) (23,512) (70,175)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
5,843,129 23,224,673 16,805,805 8,168,700 15,392,834 12,185,836 3,743,252 3,752,096 4,032,766
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
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$153,498,595 $147,655,466 $124,430,793 $141,351,413 $133,182,713 $117,789,879 $ 46,056,902 $ 42,313,650 $ 38,561,554
============ ============ ============ ============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A22
A10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31,1998, 1997 and 1996
SUBACCOUNTS
------------------------------------------------------------------------------------
HIGH
YIELD STOCK
BOND INDEX
PORTFOLIO PORTFOLIO
----------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss)............... $ 203,845 $ 195,746 $ 186,203 $ 87,130 $ 87,372 $ 81,004
Capital gains distributions received....... 0 0 0 171,765 237,151 69,432
Realized gain (loss) on shares redeemed.... 5,099 2,954 (255) 264,889 199,378 26,711
Net change in unrealized gain (loss) on
investments.............................. (265,563) 70,466 15,911 1,894,964 1,512,588 891,077
------------ ------------ ------------ ------------ ------------ -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS................................. (56,619) 269,166 201,859 2,418,748 2,036,489 1,068,224
------------ ------------ ------------ ------------ ------------ -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7]................................... (46,873) (48,754) (8,482) 229,280 441,335 494,766
------------ ------------ ------------ ------------ ------------ -----------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 8]................................... (2,106) (1,780) (655) 1,376 (6,993) (16,223)
------------ ------------ ------------ ------------ ------------ -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS..................................... (105,598) 218,632 192,722 2,649,404 2,470,831 1,546,767
NET ASSETS
Beginning of year.......................... 2,245,817 2,027,185 1,834,463 8,586,134 6,115,303 4,568,536
------------ ------------ ------------ ------------ ------------ -----------
End of year................................ $ 2,140,219 $ 2,245,817 $ 2,027,185 $ 11,235,538 $ 8,586,134 $ 6,115,303
============ ============ ============ ============ ============ ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A22
A11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
EQUITY NATURAL
INCOME RESOURCES GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- -------------------------------------- -------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 108,868 $ 81,745 $ 82,533 $ 8,160 $ 3,359 $ 6,382 $ 12,663 $ 9,396 $ 16,653
280,645 382,984 92,133 92,057 239,014 249,205 57,458 51,660 13,744
62,840 33,336 10,132 (33,638) 40,949 25,407 25,387 6,455 3,662
(626,566) 591,189 325,992 (381,691) (534,111) 196,158 173,653 (9,784) 96,458
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
(174,213) 1,089,254 510,790 (315,112) (250,789) 477,152 269,161 57,727 130,517
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
548,059 257,144 129,405 (152,537) 3,642 147,039 24,818 123,644 225,265
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
1,939 (4,432) (14,464) (6,884) 5,073 (14,433) (5,174) (4,949) (18,747)
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
375,785 1,341,966 625,731 (474,533) (242,074) 609,758 288,805 176,422 337,035
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
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
$ 4,663,728 $ 4,287,943 $ 2,945,977 $ 1,435,024 $ 1,909,557 $ 2,151,631 $ 1,382,636 $ 1,093,831 $ 917,409
============ =========== =========== =========== =========== =========== =========== =========== ==========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A22
A12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31,1998, 1997 and 1996
SUBACCOUNTS
---------------------------------------------------------------------------------
GOVERNMENT PRUDENTIAL
INCOME JENNISON
PORTFOLIO PORTFOLIO
-------------------------------- ------------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss).................. $ 30,561 $ 31,963 $ 29,656 $ (2,264) $ (910) $ (206)
Capital gains distributions received.......... 0 0 0 35,756 63,600 0
Realized gain (loss) on shares redeemed....... 1,778 237 520 11,517 8,562 635
Net change in unrealized gain (loss) on
investments................................. 13,989 14,012 (19,539) 516,075 133,987 40,175
--------- --------- --------- ----------- ----------- ---------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................................... 46,328 46,212 10,637 561,084 205,239 40,604
--------- --------- --------- ----------- ----------- ---------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7]...................................... 52,673 (16,804) 22,080 752,667 389,469 423,154
--------- --------- --------- ----------- ----------- ---------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 8]...................................... (1,052) 571 (2,408) 2,620 (11,580) 7,912
--------- --------- --------- ----------- ----------- ---------
TOTAL INCREASE (DECREASE) IN NET
ASSETS........................................ 97,949 29,979 30,309 1,316,371 583,128 471,670
NET ASSETS
Beginning of year............................. 528,710 498,731 468,422 1,144,788 561,660 89,990
--------- --------- --------- ----------- ----------- ---------
End of year................................... $ 626,659 $ 528,710 $ 498,731 $ 2,461,159 $ 1,144,788 $ 561,660
========= ========= ========= =========== =========== =========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A22
A13
</TABLE>
<PAGE>
SUBACCOUNTS (CONTINUED)
- --------------------------------------------------
SMALL
CAPITALIZATION
STOCK
PORTFOLIO
- --------------------------------------------------
1998 1997 1996
- --------------- --------------- ---------------
$ 2,441 $ 1,756 $ 1,291
63,147 50,803 6,557
802 3,430 344
(79,246) 63,710 28,167
- --------------- --------------- ---------------
(12,856) 119,699 36,359
- --------------- --------------- ---------------
309,725 258,740 280,751
- --------------- --------------- ---------------
(156) (1,517) (7,047)
- --------------- --------------- ---------------
296,713 376,922 310,063
760,049 383,127 73,064
- --------------- --------------- ---------------
$ 1,056,762 $ 760,049 $ 383,127
=============== =============== ===============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A22
A14
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
DECEMBER 31, 1998
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 product which invests 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 accompanying 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.
A15
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
The net asset value per share (rounded) 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, 1998 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
--------------------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------------- ----------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Number of shares: 1,597,008 2,067,716 5,179,324 8,535,322 3,054,058
Net asset value per share
(rounded): $ 10.00 $ 11.06 $ 29.64 $ 16.56 $ 15.08
Cost: $ 15,970,080 $ 22,091,007 $ 106,281,151 $ 134,091,959 $ 43,339,921
<CAPTION>
PORTFOLIOS (CONTINUED)
--------------------------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
------------------ ------------------ ------------------ ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Number of shares: 296,927 297,709 232,808 119,750 65,352
Net asset value per share
(rounded): $ 7.21 $ 37.74 $ 20.03 $ 11.98 $ 21.16
Cost: $ 2,353,956 $ 5,454,180 $ 4,149,358 $ 1,855,928 $ 1,084,395
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
------------------ ------------------ ------------------
<S> <C> <C> <C>
Number of shares: 52,791 102,948 71,837
Net asset value per share
(rounded): $ 11.87 $ 23.91 $ 14.71
Cost: $ 604,387 $ 1,767,444 $ 1,040,969
</TABLE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units, unit values and total value of
contract owner equity at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding... 6,302,445 5,748,031 17,329,788 23,221,203 9,504,283
Unit Value......................... $ 2.53395 $ 3.97899 $ 8.85750 $ 6.08717 $ 4.84591
--------------- ---------------- ---------------- ----------------- -----------------
TOTAL CONTRACT OWNER EQUITY ....... $ 15,970,080 $ 22,871,360 $ 153,498,595 $ 141,351,413 $ 46,056,902
=============== ================ ================ ================= =================
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding... 870,192 2,110,618 1,078,378 645,500 778,051
Unit Value ........................ $ 2.45948 $ 5.32334 $ 4.32476 $ 2.22312 $ 1.77705
-------------- --------------- --------------- ---------------- ----------------
TOTAL CONTRACT OWNER EQUITY ....... $ 2,140,219 $ 11,235,538 $ 4,663,728 $ 1,435,024 $ 1,382,636
============== =============== =============== ================ ================
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ----------------- -----------------
<S> <C> <C> <C>
Contract Owner Units Outstanding... 284,778 958,716 599,888
Unit Value ........................ $ 2.20052 $ 2.56714 $ 1.76160
---------------- ----------------- -----------------
TOTAL CONTRACT OWNER EQUITY ....... $ 626,659 $ 2,461,159 $ 1,056,762
================ ================= =================
</TABLE>
A16
<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 related charges by Pruco Life.
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.
C. Cost of Insurance Charges
Contract owner contributions are subject to certain deductions prior
to being invested in the Account. The deductions are for (1) state
premium taxes; (2) sales charges which are deducted in order to
compensate Pruco Life for the cost of selling the contract. Contracts
are also subject to charges for the costs of administering the
contract and to compensate Pruco Life for the guaranteed minimum
death benefit risk.
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 Prudential'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.
A17
<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 years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------
MONEY MARKET PORTFOLIO
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
Contract Owner Net Payments ................................ $ 1,322,618 $ 1,445,070
Policy Loans ............................................... (313,132) (212,946)
Policy Loan Repayments and Interest ........................ 234,656 248,612
Surrenders, Withdrawals and Death Benefits ................. (936,683) (1,353,770)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options .............................................. (418,669) (461,651)
Administrative and Other Charges ........................... (507,791) (524,952)
V ----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers .................... $ (619,008) $ (859,637)
=========== ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------
DIVERSIFIED BOND PORTFOLIO
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Contract Owner Net Payments................................. $ 1,595,070 $ 1,747,896
Policy Loans................................................ (282,862) (349,385)
Policy Loan Repayments and Interest......................... 297,831 298,282
Surrenders, Withdrawals and Death Benefits.................. (1,351,070) (1,454,231)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options............................................... (430,103) (629,526)
Administrative and Other Charges............................ (671,128) (690,240)
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers..................... $ (842,262) $(1,077,204)
=========== ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------
EQUITY PORTFOLIO
----------------------------
1998 1997
------------ -----------
<S> <C> <C>
Contract Owner Net Payments.................................. $ 7,360,756 $ 7,487,495
Policy Loans................................................. (3,636,114) (2,897,273)
Policy Loan Repayments and Interest.......................... 2,141,237 1,978,021
Surrenders, Withdrawals and Death Benefits................... (9,043,143) (9,674,305)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options................................................ (282,441) 325,798
Administrative and Other Charges............................. (3,862,610) (3,676,883)
------------ -----------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers...................... $ (7,322,315) $(6,457,147)
============ ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------
FLEXIBLE MANAGED PORTFOLIO
----------------------------
1998 1997
------------ -----------
<S> <C> <C>
Contract Owner Net Payments.................................. $ 8,612,537 $ 9,052,222
Policy Loans................................................. (2,701,248) (2,485,575)
Policy Loan Repayments and Interest.......................... 1,800,055 1,644,384
Surrenders, Withdrawals and Death Benefits................... (7,981,571) (8,842,066)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options................................................ (777,960) (691,350)
Administrative and Other Charges............................. (3,940,538) (3,858,224)
------------ -----------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers...................... $ (4,988,725) $(5,180,609)
============ ===========
</TABLE>
A18
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------
CONSERVATIVE
BALANCED PORTFOLIO
-------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
Contract Owner Net Payments.................................................... $ 3,347,001 $ 3,550,385
Policy Loans................................................................... (878,487) (721,192)
Policy Loan Repayments and Interest............................................ 535,439 516,697
Surrenders, Withdrawals and Death Benefits..................................... (2,313,629) (2,814,526)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options.................................................................. (281,256) (281,644)
Administrative and Other Charges............................................... (1,488,599) (1,480,585)
----------------- ----------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers........................................ $ (1,079,531) $ (1,230,865)
================= ================
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------
HIGH YIELD BOND PORTFOLIO
-------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
Contract Owner Net Payments.................................................... $ 188,863 $ 208,258
Policy Loans................................................................... (45,239) (37,680)
Policy Loan Repayments and Interest............................................ 30,384 28,120
Surrenders, Withdrawals and Death Benefits..................................... (127,952) (160,755)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options.................................................................. (17,026) (9,028)
Administrative and Other Charges............................................... (75,903) (77,669)
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers........................................ $ (46,873) $ (48,754)
================= ================
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------
STOCK INDEX PORTFOLIO
-------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
Contract Owner Net Payments.................................................... $ 573,084 $ 615,209
Policy Loans................................................................... (259,669) (231,311)
Policy Loan Repayments and Interest............................................ 144,171 71,414
Surrenders, Withdrawals and Death Benefits..................................... (651,120) (445,663)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options.................................................................. 705,081 679,608
Administrative and Other Charges............................................... (282,267) (247,922)
----------------- ----------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers........................................ $ 229,280 $ 441,335
================= ================
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------
EQUITY INCOME PORTFOLIO
-------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
Contract Owner Net Payments.................................................... $ 302,805 $ 267,363
Policy Loans................................................................... (128,223) (100,894)
Policy Loan Repayments and Interest............................................ 80,336 45,929
Surrenders, Withdrawals and Death Benefits..................................... (217,914) (216,492)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options.................................................................. 651,002 375,391
Administrative and Other Charges............................................... (139,947) (114,153)
----------------- ----------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers............................... $ 548,059 $ 257,144
================= ================
</TABLE>
A19
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------
NATURAL RESOURCES PORTFOLIO
-------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
Contract Owner Net Payments.................................................... $ 198,505 $ 214,991
Policy Loans................................................................... (40,230) (67,912)
Policy Loan Repayments and Interest............................................ 29,651 54,198
Surrenders, Withdrawals and Death Benefits..................................... (85,717) (172,949)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options.................................................................. (194,436) 52,919
Administrative and Other Charges............................................... (60,311) (77,605)
----------------- ----------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers........................................ $ (152,537) $ 3,642
================= ================
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------
GLOBAL PORTFOLIO
-------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
Contract Owner Net Payments.................................................... $ 89,117 $ 89,572
Policy Loans................................................................... (35,881) (27,984)
Policy Loan Repayments and Interest............................................ 32,407 13,484
Surrenders, Withdrawals and Death Benefits..................................... (66,249) (82,874)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options.................................................................. 37,982 161,137
Administrative and Other Charges............................................... (32,558) (29,691)
----------------- ----------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers........................................ $ 24,818 $ 123,644
================= ================
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------
GOVERNMENT INCOME PORTFOLIO
-------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
Contract Owner Net Payments.................................................... $ 51,091 $ 54,786
Policy Loans................................................................... (8,302) (10,764)
Policy Loan Repayments and Interest............................................ 19,533 7,568
Surrenders, Withdrawals and Death Benefits..................................... (39,281) (27,869)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options.................................................................. 49,902 (20,796)
Administrative and Other Charges............................................... (20,270) (19,729)
----------------- ----------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers........................................ $ 52,673 $ (16,804)
================= ================
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------
PRUDENTIAL JENNISON PORTFOLIO
-------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
Contract Owner Net Payments.................................................... $ 106,024 $ 63,200
Policy Loans................................................................... (35,322) (22,782)
Policy Loan Repayments and Interest............................................ 30,770 12,220
Surrenders, Withdrawals and Death Benefits..................................... (92,530) (38,944)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options.................................................................. 785,646 397,341
Administrative and Other Charges............................................... (41,921) (21,566)
----------------- ----------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers........................................ $ 752,667 $ 389,469
================= ================
</TABLE>
A20
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------
SMALL CAPITALIZATION
STOCK PORTFOLIO
-------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
Contract Owner Net Payments.................................................... $ 60,847 $ 43,640
Policy Loans................................................................... (23,135) (13,567)
Policy Loan Repayments and Interest............................................ 21,527 9,008
Surrenders, Withdrawals and Death Benefits..................................... (29,449) (36,946)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options.................................................................. 303,098 271,858
Administrative and Other Charges............................................... (23,163) (15,253)
----------------- ----------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers........................................ $ 309,725 $ 258,740
================= ================
</TABLE>
NOTE 8: NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE ACCOUNT
The increase (decrease) in net assets retained in the Account represents
the net contributions (withdrawals) of Pruco Life to the Account.
Effective October 13, 1998, Pruco Life no longer maintains a position in
the Account. Previously, Pruco Life maintained a position in the Account
for liquidity purposes including unit purchases and redemptions, fund
share transactions and expense processing.
NOTE 9: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) for the
years ended December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET PORTFOLIO BOND PORTFOLIO
-------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 807,373 1,004,793 1,030,442 535,292 603,016 746,053
Contract Owner Redemptions: (1,057,789) (1,370,460) (1,377,954) (754,248) (905,660) (972,541)
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------
FLEXIBLE
EQUITY PORTFOLIO MANAGED PORTFOLIO
--------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 1,249,204 1,545,087 2,115,423 1,918,701 2,270,423 2,801,879
Contract Owner Redemptions: (2,093,627) (2,411,780) (2,545,556) (2,777,943) (3,271,427) (3,253,818)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------
CONSERVATIVE HIGH YIELD
BALANCED PORTFOLIO BOND PORTFOLIO
--------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 928,518 1,112,426 1,329,879 126,043 135,173 178,674
Contract Owner Redemptions: (1,162,098) (1,410,161) (1,387,011) (143,504) (155,168) (181,912)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------
STOCK EQUITY
INDEX PORTFOLIO INCOME PORTFOLIO
--------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 356,345 458,877 473,039 255,364 201,161 207,204
Contract Owner Redemptions: (309,880) (338,843) (295,730) (141,479) (136,671) (161,396)
</TABLE>
A21
<PAGE>
NOTE 9: UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------
NATURAL
RESOURCES PORTFOLIO GLOBAL PORTFOLIO
--------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 118,576 161,106 185,742 164,588 223,119 272,485
Contract Owner Redemptions: (179,705) (158,127) (133,534) (151,159) (136,413) (88,900)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------
GOVERNMENT PRUDENTIAL
INCOME PORTFOLIO JENNISON PORTFOLIO
--------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 74,374 39,198 53,827 449,361 319,764 380,827
Contract Owner Redemptions: (50,219) (47,931) (40,948) (100,469) (93,798) (61,381)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------
SMALL
CAPITALIZATION
STOCK PORTFOLIO
---------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Contract Owner Contributions: 258,139 224,200 240,646
Contract Owner Redemptions: (84,895) (64,522) (26,692)
</TABLE>
NOTE 10: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments
in the Series Fund for the year ended December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
PORTFOLIOS
----------------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------------- ----------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Purchases .............. $ 515,286 $ 416,197 $ 566,864 $ 656,563 $ 629,683
Sales .................. $ (1,222,685) $ (1,354,779) $ (8,354,646) $ (5,872,550) $ (1,793,553)
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
----------------- ----------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Purchases .............. $ 144,054 $ 773,769 $ 827,789 $ 93,950 $ 154,337
Sales .................. $ (200,850) $ (548,156) $ (291,125) $ (259,343) $ (138,956)
<CAPTION>
PORTFOLIOS (CONTINUED)
-------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
----------------- ----------------- -------------------
<S> <C> <C> <C>
Purchases .............. $ 108,933 $ 818,394 $ 359,593
Sales .................. $ (59,279) $ (69,131) $ (42,892)
</TABLE>
A22
<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 subaccounts (Money Market
Portfolio, Diversified Bond Portfolio, Equity Portfolio, Flexible Managed
Portfolio, Conservative Balanced Portfolio, High Yield Bond Portfolio, Stock
Index Portfolio, Equity Income Portfolio, Natural Resources Portfolio, Global
Portfolio, Government Income Portfolio, Prudential Jennison Portfolio and Small
Capitalization Stock Portfolio) of the Pruco Life Variable Insurance Account at
December 31, 1998, the results of each of their operations and the changes in
each of their net assets for each of the three 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 fund shares owned at
December 31, 1998, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 19, 1999
A23
<PAGE>
<TABLE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Financial Position
December 31, 1998 and 1997 (In Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1998: $2,738,654;
1997: $2,526,554) $ 2,763,926 $ 2,563,852
Held to maturity, at amortized cost (fair value, 1998: $421,845; 1997:
$350,056) 410,558 338,848
Equity securities - available for sale, at fair value (cost, 1998: $2,951; 2,847 1,982
1997: $1,289)
Mortgage loans on real estate 17,354 22,787
Policy loans 766,917 703,955
Short-term investments 240,727 316,355
Other long-term investments 1,047 1,317
------------ ------------
Total investments 4,203,376 3,949,096
Cash 89,679 71,358
Deferred policy acquisition costs 861,713 655,242
Accrued investment income 61,114 67,000
Other assets 65,145 86,692
Separate Account assets 11,531,754 8,022,079
------------ ------------
TOTAL ASSETS $ 16,812,781 $ 12,851,467
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 2,696,191 $ 2,380,460
Future policy benefits and other policyholder liabilities 534,599 472,460
Cash collateral for loaned securities 73,336 143,421
Securities sold under agreement to repurchase 49,708 --
Income taxes payable 44,524 71,703
Net deferred income tax liability 148,834 138,483
Payable to affiliate 66,568 70,375
Other liabilities 55,038 120,260
Separate Account liabilities 11,490,751 7,948,788
------------ ------------
Total liabilities 15,159,549 11,345,950
------------ ------------
Contingencies (See Note 11)
Stockholder's Equity
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
December 31, 1998 and 1997 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,202,833 1,050,871
Accumulated other comprehensive income
Net unrealized investment gains 9,902 17,129
Foreign currency translation adjustments (1,585) (4,565)
------------ ------------
Accumulated other comprehensive income 8,317 12,564
------------ ------------
Total stockholder's equity 1,653,232 1,505,517
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 16,812,781 $ 12,851,467
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
B-1
<PAGE>
<TABLE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31, 1998, 1997 and 1996 (In Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
--------- --------- ---------
REVENUES
<S> <C> <C> <C>
Premiums $ 57,467 $ 49,496 $ 51,525
Policy charges and fee income 364,719 330,292 324,976
Net investment income 261,430 259,634 247,328
Realized investment gains, net 44,841 10,974 10,835
Other income 41,267 33,801 20,818
--------- --------- ---------
Total revenues 769,724 684,197 655,482
--------- --------- ---------
BENEFITS AND EXPENSES
Policyholders' benefits 186,527 179,419 186,873
Interest credited to policyholders' account balances 118,935 110,815 118,246
General, administrative and other expenses 228,067 225,721 122,006
--------- --------- ---------
Total benefits and expenses 533,529 515,955 427,125
--------- --------- ---------
Income from operations before income taxes 236,195 168,242 228,357
--------- --------- ---------
Income taxes
Current 69,768 73,326 60,196
Deferred 14,465 (11,458) 18,939
--------- --------- ---------
Total income taxes 84,233 61,868 79,135
--------- --------- ---------
NET INCOME 151,962 106,374 149,222
--------- --------- ---------
Other comprehensive income, net of tax:
Unrealized gains on securities, net of
reclassification adjustment (7,227) 3,025 (17,952)
Foreign currency translation adjustments 2,980 (2,863) (482)
--------- --------- ---------
Other comprehensive income (4,247) 162 (18,434)
--------- --------- ---------
TOTAL COMPREHENSIVE INCOME $ 147,715 $ 106,536 $ 130,788
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
B-2
<PAGE>
<TABLE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years Ended December 31, 1998, 1997, and 1996 (In Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
Accumulated
other Total
Common Paid-in- Retained comprehensive stockholder's
stock capital earnings income equity
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $ 2,500 $ 439,582 $ 795,275 $ 30,836 $ 1,268,193
Net income -- -- 149,222 -- 149,222
Change in foreign currency
translation adjustments -- -- -- (482) (482)
Change in net unrealized
investment gains, net of
reclassification adjustment -- -- -- (17,952) (17,952)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 2,500 439,582 944,497 12,402 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, net of
reclassification adjustment -- -- -- 3,025 3,025
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 2,500 439,582 1,050,871 12,564 1,505,517
Net income -- -- 151,962 -- 151,962
Change in foreign currency
translation adjustments -- -- -- 2,980 2,980
Change in net unrealized
investment gains, net of
reclassification adjustment -- -- -- (7,227) (7,227)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 $ 2,500 $ 439,582 $ 1,202,833 $ 8,317 $ 1,653,232
=========== =========== =========== =========== ============
</TABLE>
See Notes to Consolidated Financial Statements
B-3
<PAGE>
<TABLE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997, and 1996 (In Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 151,962 $ 106,374 $ 149,222
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Policy charges and fee income (47,230) (40,783) (50,286)
Interest credited to policyholders' account balances 118,935 110,815 118,246
Realized investment gains, net (44,841) (10,974) (10,835)
Amortization and other non-cash items 18,611 (31,181) 29,334
Change in:
Future policy benefits and other policyholders' liabilities 62,139 39,683 54,176
Accrued investment income 5,886 (4,890) (2,248)
Separate Accounts 32,288 (13,894) (38,025)
Payable to affiliate (3,807) 20,547 16,519
Policy loans (62,962) (64,173) (70,509)
Deferred policy acquisition costs (206,471) (22,083) (66,183)
Income taxes payable (27,179) 78,894 (816)
Deferred income tax liability 10,351 (10,477) 7,912
Other, net (43,675) 34,577 7,814
----------- ----------- -----------
Cash Flows (Used In) From Operating Activities (35,993) 192,435 144,321
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 5,429,396 2,828,665 3,886,254
Held to maturity 74,767 138,626 138,127
Equity securities 4,101 6,939 7,527
Mortgage loans on real estate 5,433 24,925 19,226
Other long-term investments 1,140 3,276 288
Investment real estate -- -- 4,488
Payments for the purchase of:
Fixed maturities:
Available for sale (5,617,208) (3,141,785) (4,008,810)
Held to maturity (145,919) (70,532) (114,494)
Equity securities (2,274) (4,594) (4,697)
Other long-term investments (409) (51) (657)
Cash collateral for loaned securities, net (70,085) 143,421 -
Securities sold under agreement to repurchase, net 49,708 - -
Short-term investments, net 75,771 (147,030) 58,186
----------- ----------- -----------
Cash Flows Used In Investing Activities (195,579) (218,140) (14,562)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 3,098,721 2,099,600 536,370
Withdrawals (2,848,828) (2,076,303) (633,798)
----------- ----------- -----------
Cash Flows From (Used in) Financing Activities 249,893 23,297 (97,428)
----------- ----------- -----------
Net increase (decrease) in Cash 18,321 (2,408) 32,331
Cash, beginning of year 71,358 73,766 41,435
----------- ----------- -----------
CASH, END OF PERIOD $ 89,679 $ 71,358 $ 73,766
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid (received) $ 99,810 $ (7,904) $ 61,760
=========== =========== ===========
</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 annuities, fixed
annuities, and a group annuity program (the Contracts) in all states and
territories except the District of Columbia and Guam. In addition, the Company
markets individual life insurance through its branch office in Taiwan. The
Company has two wholly owned 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 licensed to sell individual life insurance, variable life
insurance, fixed annuities, and variable 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 1997
or 1998 and at this time will not be issuing new business.
The Company is a wholly owned subsidiary of The Prudential Insurance Company of
America (Prudential), a mutual insurance company founded in 1875 under the laws
of the state of New Jersey. Prudential intends to make additional capital
contributions to the Company, as needed, to enable it to comply with its reserve
requirements and fund expenses in connection with its business. Generally,
Prudential is under no obligation to make such contributions and its assets do
not back the benefits payable under the Contracts.
The Company is engaged in a business that is highly competitive because of the
large number of stock and mutual life insurance companies and other entities
engaged in marketing insurance products, and individual and group annuities.
There are approximately 1,620 stock, mutual and other types of insurers in the
life insurance business in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
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 intent and ability to
hold to maturity are stated at amortized cost and classified as "held to
maturity". The amortized cost of fixed maturities is written down to estimated
fair value if a decline in value is considered to be other than temporary.
Unrealized gains and losses on fixed maturities "available for sale", including
the effect on deferred policy acquisition costs and participating annuity
contracts that would result from the realization of unrealized gains and losses,
net of income taxes, are included in a separate component of equity,
"Accumulated other comprehensive income."
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 effects on deferred policy acquisition
costs and on participating annuity contracts that would result from the
realization of unrealized gains and losses, are included in a separate component
of equity, "Accumulated other comprehensive income."
Mortgage loans on real estate are stated primarily at unpaid principal balances,
net of unamortized discounts and allowance for losses. The allowance for losses
is based upon a loan specific review and management's consideration of past
results, current trends, the estimated value of the underlying collateral,
composition of the loan portfolio, current economic conditions and other
relevant factors. Impaired loans are identified by management as loans in which
a probability exists that all amounts due according to the contractual terms of
the loan agreement will not be collected.
B-5
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impaired loans are measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate, or the fair value of the
collateral if the loan is collateral dependent.
Interest received on impaired loans, including loans that were previously
modified in a troubled debt restructuring, is either applied against the
principal or reported as revenue, according to management's judgment as to the
collectibility of principal. Management discontinues the accrual of interest on
impaired loans after the loans are 90 days delinquent as to principal or
interest, or earlier when management has serious doubts about collectibility.
When a loan is recognized as impaired, any accrued but unpaid interest
previously recorded on such loan is reversed against interest income of the
current period. Generally, a loan is restored to accrual status only after all
delinquent interest and principal are brought current and, in the case of loans
where interest has been interrupted for a substantial period, a regular payment
performance has been established.
Policy loans are carried at unpaid principal balances.
Short-term investments, consists primarily of highly liquid debt instruments
purchased with an original maturity of twelve months or less and 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 that they 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 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 "Accumulated other
comprehensive income."
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. For
participating life insurance, deferred policy acquisition costs are amortized
over the expected life of the contracts in proportion to estimated gross margins
based on historical and anticipated future experience, which is updated
periodically. 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.
Securities loaned
Securities loaned are treated as financing arrangements and 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 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.
B-6
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are treated as financing
arrangements and are carried at the amounts at which the securities will be
subsequently reacquired, including accrued interest, as specified in the
respective agreements. The Company's policy is to take possession of securities
purchased under agreements to resell. The market value of securities to be
repurchased is monitored and additional collateral is requested, where
appropriate, to protect against credit exposure.
Securities lending and securities repurchase agreements are used to generate net
investment income and facilitate trading activity. These instruments are
short-term in nature (usually 30 days or less). Securities loaned are
collateralized principally by U.S. Government and mortgage-backed securities.
Securities sold under repurchase agreements are collateralized principally by
cash. 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 and
other customers. Separate Account assets include 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 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.
Insurance Revenue and Expense Recognition
Premiums from insurance policies are generally recognized when due. Benefits are
recorded as an expense when they are incurred. For traditional life insurance
contracts, a liability for future policy benefits is recorded using the net
level premium method. For individual annuities in payout status, a liability for
future policy benefits is recorded for the present value of expected future
payments based on historical experience.
Premiums from non-participating group annuities with life contingencies are
generally recognized when due. For single premium immediate annuities, premiums
are recognized when due with any excess profit deferred and recognized in a
constant relationship to insurance in-force or, for annuities, the amount of
expected future benefit payments.
Amounts received as payment for interest-sensitive life, individual annuities,
and guaranteed investment contracts are reported as deposits to "Policyholders'
account balances." Revenues from these contracts reflected as "Policy charges
and fee income" consist primarily of fees assessed during the period against the
policyholders' account balances for mortality charges, policy administration
charges and surrender charges. In addition, interest earned from the investment
of these account balances is reflected in "Net investment income." 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 are translated to U.S. dollars 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.
Cumulative translation adjustments arising from the use of differing exchange
rates from period to period are charged or credited directly to "Other
comprehensive income." The cumulative effect of changes in foreign exchange
rates are included in "Accumulated other comprehensive income."
B-7
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Other Income
Other income consists primarily of asset management fees which are received by
the Company from Prudential for services Prudential provides to the Prudential
Series Fund, an underlying investment option of the Separate Accounts.
Derivative Financial Instruments
Derivatives are financial instruments whose values are derived from interest
rates, foreign exchange rates, various financial indices, or the value of
securities or commodities. Derivative financial instruments used by the Company
include futures, currency swaps, and options contracts and can be
exchange-traded or contracted in the over-the-counter market. The Company uses
derivative financial instruments to hedge market risk from changes in interest
rates or foreign currency exchange rates, and to alter interest rate or currency
exposures arising from mismatches between assets and liabilities. All
derivatives used by the Company are for other than trading purposes.
To qualify as a hedge, derivatives must be designated as hedges for existing
assets, liabilities, firm commitments, or anticipated transactions which are
identified and probable to occur, and effective in reducing the market risk to
which the Company is exposed. The effectiveness of the derivatives must be
evaluated at the inception of the hedge and throughout the hedge period.
When derivatives qualify as hedges, the changes in the fair value or cash flows
of the derivatives and the hedged items are recognized in earnings in the same
period. If the Company's use of other than trading derivatives does not meet the
criteria to apply hedge accounting, the derivatives are recorded at fair value
in "Other liabilities" in the Consolidated Statements of Financial Position, and
changes in their fair value are recognized in earnings in "Realized investment
gains, net" without considering changes in the hedged assets or liabilities.
Cash flows from other than trading derivative assets and liabilities are
reported in the operating activities section in the Consolidated Statements of
Cash Flows.
Income Taxes
The Company and its subsidiaries are members of the consolidated federal income
tax return of Prudential and files separate company state and local tax returns.
Pursuant to the tax allocation arrangement with Prudential, 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 that is expected 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 transactions, including repurchase
agreements, dollar rolls, securities lending and similar transactions. Adoption
of SFAS 125 did not have a material impact on the Company's results of
operations, financial position and liquidity.
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
which was issued by the FASB in June 1997. This statement defines comprehensive
income 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.
Application of this statement did not change recognition or measurement of net
income and, therefore, did not affect the Company's financial position or
results of operations.
B-8
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
On January 1, 1999, the Company adopted the American Institute of Certified
Public Accountants ("AICPA") Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" ("SOP 97-3").
This statement provides guidance for determining when an insurance company or
other enterprise should recognize a liability for guaranty-fund assessments as
well as guidance for measuring the liability. The adoption of SOP 97-3 is not
expected to have a material effect on the Company's financial position or
results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS No. 133 provides, if certain conditions
are met, that a derivative may be specifically designated as (1) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment (fair value hedge), (2) a hedge of the exposure to
variable cash flows of a forecasted transaction (cash flow hedge), or (3) a
hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security or a
foreign-currency-denominated forecasted transaction (foreign currency hedge).
SFAS No. 133 does not apply to most traditional insurance contracts. However,
certain hybrid contracts that contain features which can affect settlement
amounts similarly to derivatives may require separate accounting for the "host
contract" and the underlying "embedded derivative" provisions. The latter
provisions would be accounted for as derivatives as specified by the statement.
Under SFAS No. 133, the accounting for changes in fair value of a derivative
depends on its intended use and designation. For a fair value hedge, the gain or
loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item. For a cash flow hedge, the effective
portion of the derivative's gain or loss is initially reported as a component of
other comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings. For a foreign currency hedge, the gain
or loss is reported in other comprehensive income as part of the foreign
currency translation adjustment. For all other derivatives not designated as
hedging instruments, the gain or loss is recognized in earnings in the period of
change. The Company is required to adopt this Statement no later than January 1,
2000 and is currently assessing the effect of the new standard.
In October, 1998, the AICPA issued Statement of Position 98-7, "Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk," ("SOP 98-7"). This statement provides guidance on how
to account for insurance and reinsurance contracts that do not transfer
insurance risk. SOP 98-7 is effective for fiscal years beginning after June 15,
1999. The adoption of this statement is not expected to have a material effect
on the Company's financial position or results of operations.
Reclassifications
Certain amounts in the prior years have been reclassified to conform to current
year presentation.
B-9
<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>
1998
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair 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 110,294 864 318 110,840
Foreign government bonds 87,112 2,003 696 88,419
Corporate securities 2,540,498 30,160 6,897 2,563,761
Mortgage-backed securities 750 156 -- 906
---------- ---------- ---------- ----------
Total fixed maturities available for sale $2,738,654 $ 33,183 $ 7,911 $2,763,926
========== ========== ========== ==========
Equity securities available for sale $ 2,951 $ 168 $ 272 $ 2,847
========== ========== ========== ==========
Fixed maturities held to maturity
Corporate securities $ 410,558 $ 11,287 $ -- $ 421,845
---------- ---------- ---------- ----------
Total fixed maturities held to maturity $ 410,558 $ 11,287 $ -- $ 421,845
========== ========== ========== ==========
1997
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
(In Thousands)
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
========== ========== ========== ==========
</TABLE>
B-10
<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, 1998 are shown below:
<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>
Due in one year or less $ 72,931 $ 73,254 $ 3,036 $ 3,064
Due after one year through five years 1,050,981 1,059,389 193,749 201,136
Due after five years through ten years 1,142,507 1,156,664 155,568 158,801
Due after ten years 471,485 473,713 58,205 58,844
Mortgage-backed securities 750 906 -- --
---------- ---------- ---------- ----------
Total $2,738,654 $2,763,926 $ 410,558 $ 421,845
========== ========== ========== ==========
</TABLE>
Actual maturities will differ from contractual maturities because, in certain
circumstances, issuers have the right to call or prepay obligations.
Proceeds from the sale of fixed maturities available for sale during 1998, 1997,
and 1996 were $5,327.3 million, $2,796.3 million, and $3,667.1 million,
respectively. Gross gains of $46.3 million, $18.6 million, and $22.1 million and
gross losses of $14.1 million, $7.9 million, and $17.6 million were realized on
those sales during 1998, 1997, and 1996, respectively.
Proceeds from the maturity of fixed maturities available for sale during 1998,
1997, and 1996 were $102.1 million, $32.4 million, and $219.2 million,
respectively. During the years ended December 31, 1998, 1997, and 1996, there
were no securities classified as held to maturity that were sold.
Writedowns for impairments of fixed maturities which were deemed to be other
than temporary were $2.8 million, $.1 million and $.1 million for the years
1998, 1997 and 1996, respectively.
B-11
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The following table describes the credit quality of the fixed maturity
portfolio, based on ratings assigned by the National Association of Insurance
Commissioners ("NAIC") or Standard & Poor's Corporation, an independent rating
agency as of December 31, 1998:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------ -------------------------------------
Amortized Estimated Fair Amortized Estimated Fair
Cost Value Cost Value
---------- -------------- ---------- --------------
(In Thousands) (In Thousands)
NAIC Standard & Poor's
<S> <C> <C> <C> <C>
1 AAA to AA- $1,195,301 $1,211,995 $ 180,070 $ 186,683
2 BBB+ to BBB- 1,254,522 1,263,656 182,298 185,417
3 BB+ to BB- 201,033 204,278 39,346 40,654
4 B+ to B- 59,799 57,695 8,821 9,068
5 CCC or lower 27,552 26,061 -- --
6 In or near default 447 241 23 23
---------- ---------- ---------- ----------
Total $2,738,654 $2,763,926 $ 410,558 $ 421,845
========== ========== ========== ==========
</TABLE>
The fixed maturity portfolio consists largely of investment grade assets (rated
"1" or "2" by the NAIC), with such investments accounting for 89% and 94% of the
portfolio at December 31, 1998 and 1997, respectively, based on fair value. As
of both of those dates, less than 1% of the fixed maturities portfolio was rated
"6" by the NAIC, defined as public and private placement securities which are
currently non-performing or believed subject to default in the near-term.
The Company continually reviews fixed maturities and identifies potential
problem assets which require additional monitoring. The Company defines
"problem" fixed maturities as those for which principal and/or interest payments
are in default. The Company defines "potential problem" fixed maturities as
assets which are believed to present default risk associated with future debt
service obligations and therefore require more active management. At December
31, 1998 management identified $264.0 thousand of fixed maturity investments as
problem or potential problem. An immaterial amount of problem or potential
problem fixed maturities were identified in 1997.
Mortgage Loans on Real Estate
The Company's mortgage loans were collateralized by the following property types
at December 31, 1998 and 1997.
1998 1997
------------------ -------------------
(In Thousands)
Office buildings $ -- -- $ 4,607 20%
Retail stores 7,356 42% 8,090 35%
Apartment complexes 5,988 35% 6,080 27%
Industrial buildings 4,010 23% 4,010 18%
------------------ ------------------
Net carrying value $17,354 100% $22,787 100%
================== ==================
B-12
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The largest concentration of mortgage loans are in the states of Pennsylvania
(35%), Washington (34%), and New Jersey (23%).
Special Deposits
Fixed maturities of $8.6 million and $8.3 million at December 31, 1998 and 1997,
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 $1.0 million and $1.3 million as
of December 31, 1998 and 1997, respectively, are comprised of joint ventures and
limited parterships. The Company's share of net income from these entities was
$.1 million, $2.2 million and $1.4 million for the years ended December 31,
1998, 1997 and 1996, respectively, and is reported in "Net investment income."
Investment Income and Investment Gains and Losses
Net investment income arose from the following sources for the years ended
December 31:
1998 1997 1996
--------- --------- ---------
(In Thousands)
Fixed maturities - available for sale $ 179,184 $ 161,140 $ 152,445
Fixed maturities - held to maturity 26,128 26,936 33,419
Equity securities 14 76 44
Mortgage loans on real estate 1,818 2,585 5,669
Policy loans 40,928 37,398 33,449
Short-term investments 23,110 22,011 16,780
Other 6,886 14,920 10,051
--------- --------- ---------
Gross investment income 278,068 265,066 251,857
Less: investment expenses (16,638) (5,432) (4,529)
--------- --------- ---------
Net investment income $ 261,430 $ 259,634 $ 247,328
========= ========= =========
Realized investment gains ,net including charges for other than temporary
reductions in value, for the years ended December 31, were from the following
sources:
1998 1997 1996
--------- --------- ---------
(In Thousands)
Fixed maturities - available for sale $ 29,330 $ 9,039 $ 9,036
Fixed maturities - held to maturity 487 821 --
Equity securities 3,489 8 781
Mortgage loans on real estate -- 797 1,677
Derivative instruments 12,414 -- --
Other (879) 309 (659)
--------- --------- ---------
Realized investment gains, net $ 44,841 $ 10,974 $ 10,835
========= ========= =========
B-13
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
Net Unrealized Investment Gains
Net unrealized investment gains on securities available for sale are included in
the Consolidated Statement of Financial Position as a component of "Accumulated
other comprehensive income." Changes in these amounts include reclassification
adjustments to avoid double-counting in "Comprehensive income," items that are
included as part of "Net income" for a period that also have been part of "Other
comprehensive income" in earlier periods. The amounts for the years ended
December 31, net of tax, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Net unrealized investment gains, beginning of year $ 17,129 $ 14,104 $ 32,056
Changes in net unrealized investment gains attributable to:
Investments:
Net unrealized gains on investments arising during the period 14,593 13,880 (20,405)
Reclassification adjustment for gains included in net income 22,799 6,680 6,165
-------- -------- --------
Change in net unrealized gains on investments, net of adjustments (8,206) 7,200 (26,570)
Impact of net unrealized investment gains on:
Policyholder's account balances (1,063) 1,293 (2,467)
Deferred policy acquisition costs 2,042 (5,468) 11,085
-------- -------- --------
Change in net unrealized investment gains (7,227) 3,025 (17,952)
-------- -------- --------
Net unrealized investment gains, end of year $ 9,902 $ 17,129 $ 14,104
======== ======== ========
</TABLE>
Unrealized gains (losses) on investments arising during the periods reported in
the above table are net of income tax (benefit) expense of $(8.2) million,
$(7.6) million and $12.1 million for the years ended December 31, 1998, 1997 and
1996, respectively.
Reclassification adjustments reported in the above table for the years ended
December 31, 1998, 1997 and 1996 are net of income tax expense of $12.8 million,
$3.6 million and $3.8 million, respectively.
Policyholder's account balances reported in the above table are net of income
tax (benefit) expense of $(.2) million, $.0 million and $1.4 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
Deferred policy acquisition costs in the above tables for the years ended
December 31, 1998, 1997 and 1996 are net of income tax (benefit) expense of
$(1.1) million, $2.9 million and $(6.2) million, respectively.
4. POLICYHOLDERS' LIABILITIES
Future policy benefits and other policyholder liabilities at December 31 are as
follows:
1998 1997
-------- --------
(In Thousands)
Life insurance $506,249 $444,737
Annuities 28,350 27,723
-------- --------
$534,599 $472,460
======== ========
B-14
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
4. POLICYHOLDERS' LIABILITIES (continued)
Life insurance liabilities include reserves for death benefits. Annuity
liabilities include reserves for immediate annuities.
The following table highlights the key assumptions generally utilized in
calculating these reserves:
<TABLE>
<CAPTION>
Product Mortality Interest Rate Estimation Method
- ------------------------------ ------------------------- ------------- -----------------------
<S> <C> <C> <C>
Life insurance - Domestic Generally rates 2.5% to 7.5% Net level premium based
guaranteed in on non-forfeiture
calculating cash interest rate
surrender values
Life insurance - International Generally rates 6.25% to 6.5% Net level premium based
guaranteed in on the expected
calculating cash investment return
surrender values
Individual immediate annuities 1983 Individual Annuity 6.25% to 11.0% Present value of
Mortality Table with expected future payment
certain modifications based on historical
experience
</TABLE>
Policyholders' account balances at December 31, are as follows:
1998 1997
---------- ----------
(In Thousands)
Interest-sensitive life contracts $1,386,829 $1,345,089
Individual annuities 1,077,996 1,035,371
Guaranteed investment contracts 231,366 --
---------- ----------
$2,696,191 $2,380,460
========== ==========
Policyholders' account balances for interest-sensitive life, individual
annuities, and guaranteed investment contracts are equal to policy account
values plus unearned premiums. The policy account values represent an
accumulation of gross premium payments plus credited interest less withdrawals,
expenses, mortality charges.
Certain contract provisions that determine the policyholder account balances are
as follows:
<TABLE>
<CAPTION>
Product Interest Rate Withdrawal / Surrender Charges
- --------------------------------- -------------- ----------------------------------
<S> <C> <C>
Interest sensitive life contracts 4.0% to 6.5% Various up to 10 years
Individual annuities 3.0% to 5.6% 0% to 8% for up to 8 years
Guaranteed investment contracts 5.02% to 6.23% Subject to market value withdrawal
provisions for any funds withdrawn
other than for benefit responsive
and contractual payments
</TABLE>
B-15
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
5. REINSURANCE
The Company participates in reinsurance, with Prudential and other companies, in
order to provide greater diversification of business, provide additional
capacity for future growth and limit the maximum net loss potential arising from
large risks. Reinsurance ceded arrangements do not discharge the Company or the
insurance subsidiaries as the primary insurer, except for cases involving a
novation. Ceded balances would represent a liability to the Company in the event
the reinsurers were unable to meet their obligations to the Company under the
terms of the reinsurance agreements. The likelihood of a material reinsurance
liability reassumed by the Company is considered to be remote.
Reinsurance amounts included in the Consolidated Statement of Operations for the
year ended December 31 are below.
1998 1997 1996
-------- -------- --------
(In Thousands)
Direct Premiums $ 65,423 $ 51,851 $ 53.776
Reinsurance assumed 1,395 1,369 1,128
Reinsurance ceded - affiliated (6,532) (686) (254)
Reinsurance ceded - unaffiliated (2,819) (3,038) (3,125)
-------- -------- --------
Premiums $ 57,467 $ 49,496 $ 51,525
======== ======== ========
Policyholders' benefits ceded $ 27,991 $ 25,704 $ 26,796
======== ======== ========
Reinsurance recoverables, included in "Other assets" in the Company's
Consolidated Statements of Financial Position, at December 31 include amounts
recoverable on unpaid and paid losses and were as follows:
1998 1997
------- -------
(In Thousands)
Life insurance - affiliated $ 6,481 $ 2,618
Other reinsurance - affiliated 21,650 23,243
------- -------
$28,131 $25,861
======= =======
B-16
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
6. EMPLOYEE BENEFIT PLANS
Pension and Other Postretirement Plans
The Company has a non-contributory defined benefit pension plan which covers
substantially all of its Taiwanese employees. This plan was established as of
September 30, 1997 and the projected benefit obligation and related expenses at
September 30, 1998 was not material to the Consolidated Statements of Financial
Position or results of operations for the years presented. All other employee
benefit costs are allocated to the Company from Prudential in accordance with
the service agreement described in Note 13.
7. INCOME TAXES
The components of income taxes for the years ended December 31, are as follows:
1998 1997 1996
-------- -------- --------
(In Thousands)
Current tax expense (benefit):
U.S $ 67,272 $ 71,989 $ 59,489
State and local 2,496 1,337 703
Foreign -- -- 4
-------- -------- --------
Total 69,768 73,326 60,196
-------- -------- --------
Deferred tax expense (benefit):
U.S 14,059 (11,458) 18,413
State and local 406 -- 526
-------- -------- --------
Total 14,465 (11,458) 18,939
-------- -------- --------
Total income tax expense $ 84,233 $ 61,868 $ 79,135
======== ======== ========
The 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:
1998 1997 1996
-------- -------- --------
(In Thousands)
Expected federal income tax expense $ 82,668 $ 58,885 $ 79,925
State and local income taxes 1,886 869 799
Other (321) 2,114 (1,589)
-------- -------- --------
Total income tax expense $ 84,233 $ 61,868 $ 79,135
======== ======== ========
B-17
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
7. INCOME TAXES (continued)
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
1998 1997
-------- --------
(In Thousands)
Deferred tax assets
Insurance reserves $ 93,564 $ 52,144
-------- --------
Deferred tax assets 93,564 52,144
-------- --------
Deferred tax liabilities
Deferred acquisition costs 224,179 167,128
Net investment gains 12,241 16,068
Other 5,978 7,431
-------- --------
Deferred tax liabilities 242,398 190,627
-------- --------
Net deferred tax liability $148,834 $138,483
======== ========
Management believes that based on its historical pattern of taxable income, the
Company and its subsidiaries 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 asset that is realizable. At December 31, 1998
and 1997, respectively, the Company and its subsidiaries had no federal or state
operating loss carryforwards for tax purposes.
The Internal Revenue Service (the "Service") has completed examinations of all
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.
B-18
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. 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 and New Jersey Departments of Banking and
Insurance with net income and equity determined using GAAP.
1998 1997 1996
--------- --------- ---------
(In Thousands)
Statutory net income $ (33,097) $ 12,778 $ 48,846
Adjustments to reconcile to net
income on a GAAP basis:
Statutory income of subsidiaries 18,953 18,553 25,001
Deferred acquisition costs 202,375 38,003 48,862
Deferred premium 2,625 1,144 1,295
Insurance liabilities (24,942) 26,517 28,662
Deferred taxes (14,465) 11,458 (18,939)
Valuation of investments 20,077 506 365
Other, net (19,564) (2,585) 15,130
--------- --------- ---------
GAAP net income $ 151,962 $ 106,374 $ 149,222
========= ========= =========
1998 1997
----------- -----------
(In Thousands)
Statutory surplus $ 931,164 $ 853,130
Adjustments to reconcile to equity
on a GAAP basis:
Valuation of investments 117,254 97,787
Deferred acquisition costs 861,713 655,242
Deferred premium (15,625) (14,817)
Insurance liabilities (133,811) (107,525)
Deferred taxes (148,834) (138,483)
Other, net 41,371 160,183
----------- -----------
GAAP stockholder's equity $ 1,653,232 $ 1,505,517
=========== ===========
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated 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 estimated fair values (for all other
financial instruments presented in the table, the carrying value approximates
estimated fair value).
B-19
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
9. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Fixed maturities and Equity securities
Estimated 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 estimated 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.
Policyholders' account balances
Estimated fair values of policyholders' account balances are derived by using
discounted projected cash flows, based on interest rates being offered for
similar contracts, with maturities consistent with those remaining for the
contracts being valued.
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>
1998 1997
------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----------- ----------- ------------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities:
Available for sale $ 2,763,926 $ 2,763,926 $ 2,563,852 $ 2,563,852
Held to maturity 410,558 421,845 338,848 350,056
Equity securities 2,847 2,847 1,982 1,982
Mortgage loans 17,354 19,465 22,787 24,994
Policy loans 766,917 806,099 703,955 703,605
Short-term investments 240,727 240,727 316,355 316,355
Cash 89,679 89,679 71,358 71,358
Separate Account assets 11,531,754 11,531,754 8,022,079 8,022,079
Financial Liabilities:
Policyholders'
account balances $ 2,696,191 $ 2,703,725 $ 2,380,460 $ 2,374,040
Cash collateral for loaned
securities 123,044 123,044 143,421 143,421
Separate Account liabilities 11,490,751 11,490,751 7,948,788 7,948,788
Derivatives 1,723 2,374 653 653
</TABLE>
B-20
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
Futures & Options
The Company uses exchange-traded Treasury futures and options to reduce market
risks from changes in interest rates, to alter mismatches between the duration
of assets in a portfolio and the duration of liabilities supported by those
assets, and to hedge against changes in the value of securities it owns or
anticipates acquiring. The Company enters into exchange-traded futures and
options with regulated futures commissions merchants who are members of a
trading exchange. The fair value of futures and options is estimated based on
market quotes for a transaction with similar terms.
Under exchange-traded futures, the Company agrees to purchase a specified number
of contracts with other parties and to post variation margin on a daily basis in
an amount equal to the difference in the daily market values of those contracts.
Futures are typically used to hedge duration mismatches between assets and
liabilities by replicating Treasury performance. Treasury futures move
substantially in value as interest rates change and can be used to either
generate new or hedge existing interest rate risk. This strategy protects
against the risk that cash flow requirements may necessitate liquidation of
investments at unfavorable prices resulting from increases in interest rates.
This strategy can be a more cost effective way of temporarily reducing the
Company's exposure to a market decline than selling fixed income securities and
purchasing a similar portfolio when such a decline is believed to be over.
For futures that meet hedge accounting criteria, changes in their fair value are
deferred and recognized as an adjustment to the carrying value of the hedged
item. Deferred gains or losses from the hedges for interest-bearing financial
instruments are amortized as a yield adjustment over the remaining lives of the
hedged item. Futures that do not qualify as hedges are carried at fair value
with changes in value reported in current period earnings. The notional value of
futures contracts was $40.8 million and $115.7 million at December 31, 1998 and
1997, respectively. The fair value of futures contracts was immaterial at
December 31, 1998 and 1997.
When the Company anticipates a significant decline in the stock market which
will correspondingly affect its diversified portfolio, it may purchase put index
options where the basket of securities in the index is appropriate to provide a
hedge against a decrease in the value of the equity portfolio or a portion
thereof. This strategy effects an orderly sale of hedged securities. When the
Company has large cash flows which it has allocated for investment in equity
securities, it may purchase call index options as a temporary hedge against an
increase in the price of the securities it intends to purchase. This hedge
permits such investment transactions to be executed with the least possible
adverse market impact.
Option premium paid or received is reported as an asset or liability and
amortized into income over the life of the option. If options meet the criteria
for hedge accounting, changes in their fair value are deferred and recognized as
an adjustment to the hedged item. Deferred gains or losses from the hedges for
interest-bearing financial instruments are recognized as an adjustment to
interest income or expense of the hedged item. If the options do not meet the
criteria for hedge accounting, they are fair valued, with changes in fair value
reported in current period earnings. The fair value of options was immaterial at
December 31, 1998, and there were no options in 1997.
Currency Derivatives
The Company uses currency swaps to reduce market risks from changes in currency
values of investments denominated in foreign currencies that the Company either
holds or intends to acquire and to alter the currency exposures arising from
mismatches between such foreign currencies and the US Dollar.
Under currency swaps, the Company agrees with other parties to exchange, at
specified intervals, the difference between one currency and another at a
forward exchange rate and calculated by reference to an agreed principal amount.
Generally, the principal amount of each currency is exchanged at the beginning
and termination of the currency swap by each party. These transactions are
entered into pursuant to master agreements that provide for a single net payment
to be made by one counterparty for payments made in the same currency at each
due date.
If currency derivatives are effective as hedges of foreign currency translation
and transaction exposures, gains or losses are recorded in "Foreign currency
translation adjustments". If currency derivatives do not meet hedge accounting
criteria, gains or losses from those derivatives are recognized in current
period earnings.
As of December 31, 1998, the notional value of the swaps was $40.5 million with
a fair value of ($2.3) million. There were no currency swaps at year end 1997.
B-21
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (continued)
Credit Risk
The current credit exposure of the Company's derivative contracts is limited to
the fair value at the reporting date. Credit risk is managed by entering into
transactions with creditworthy counterparties and obtaining collateral where
appropriate and customary. The Company also attempts to minimize its exposure to
credit risk through the use of various credit monitoring techniques. As of
December 31, 1998, 47% of notional consisted of interest rate derivatives, 47%
of notional consisted of foreign currency derivatives, and 6% of notional
consisted of equity derivatives.
11. 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.
12. 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, 1998, the
Company would not be permitted a dividend distribution in 1998.
13. RELATED PARTY TRANSACTIONS
Service Agreements
Prudential and Pruco Life 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 by
Prudential. The net cost of these services allocated to the Company were $269.9
million, $139.5 million and $101.7 million for the years ended December 31,
1998, 1997, and 1996, respectively. These costs are treated in a manner
consistent with the Company's policy on deferred acquisition costs.
Prudential and Pruco Life have an agreement with respect to administrative
services for the Prudential Series Fund. The Company invests in the various
portfolios of the Series Fund through the Separate Accounts. Under this
agreement, Prudential pays compensation to Pruco Life in the amount equal to a
portion of the gross investment advisory fees paid by the Prudential Series
Fund. The Company received from Prudential its allocable share of such
compensation in the amount of $40.1 million, $29.4 million and $19.1 million
during 1998, 1997 and 1996, respectively, recorded in other income.
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, 1998, 1997,
and 1996.
B-22
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS (continued)
Debt Agreements
In July 1998, the Company established a revolving line of credit facility of up
to $300 million with Prudential Funding Corporation, a wholly owned subsidiary
of Prudential. There is no outstanding debt relating to this credit facility as
of December 31, 1998.
B-23
<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, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. 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 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.
PricewaterhouseCoopers LLP
New York, New York
February 26, 1999
B-24
<PAGE>
Variable Life
Insurance
Variable Life Insurance was issued
by Pruco Life Insurance Company,
213 Washington Street, Newark, NJ
07102-2992 and offered through
Pruco Securities Corporation, 751
Broad Street, Newark, NJ
07102-3777, both subsidiaries of
The Prudential Insurance Company of
America, 751 Broad Street, Newark,
NJ 07102-3777.
[PRUDENTIAL LOGO]
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone: 800 778-2255
VLI-1 Ed. 5/99 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 81 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. PricewaterhouseCoopers LLP, independent accountants.
2. Clifford E. Kirsch, Esq.
3. 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)
(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)
II-3
<PAGE>
(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) Ride 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)
(eee) Rider for Decreasing Term Insurance Benefit on life of
Insured Spouse for use in West Virginia. (Note 6)
(fff) Rider for Variable Loan Interes Rat 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)
II-4
<PAGE>
(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,
Esther H. Milnes, I. Edward Price (Note 2)
(b) Kiyofumi Sakaguchi (Note 3)
(c) James J. Avery, Jr.(Note 8)
(d) Dennis G. Sullivan (Note 5)
(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. 6 to Form
S-1, Registration No. 33-86780, filed April 16, 1999 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.
<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 23rd day of April, 1999.
(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. 26 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 23rd day of April, 1999.
SIGNATURE AND TITLE
-------------------
/s*
- -----------------------------------------
Esther H. Milnes
President and Director
/s/*
- ----------------------------------------
Dennis G. Sullivan
Vice President and Chief Accounting
Officer
/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/*
- ----------------------------------------
I. Edward Price
Director
/s/*
- ----------------------------------------
Kiyofumi Sakaguchi
Director
II-6
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 26 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated March 19, 1999, 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 February 26, 1999, 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.
PricewaterhouseCoopers LLP
New York, New York
April 23, 1999
II-7
<PAGE>
EXHIBIT INDEX
Consent of PricewaterhouseCoopers LLP, Page independent
accountants. Page II-7
3. Opinion and Consent of Clifford E. Kirsch, Esq., as
to the legality of the securities being registered. Page II-9
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA,
as to actuarial matters pertaining to the securities
being registered. Page II-10
II-8
Exhibit 3
April 23, 1999
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-9
Exhibit 6
April 23, 1999
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.
26 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, FSA, MAAA
Vice President and Actuary
The Prudential Insurance Company of America
II-10
