<PAGE>
As filed with the SEC on ____________________. Registration No. 2-80513
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-6
Post-Effective Amendment No. 27
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
----------------------
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
(Address and telephone number of principal executive offices)
----------------------
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
----------------------
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, 2000 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
(date)
<PAGE>
CROSS REFERENCE SHEET
(as required by Form N-8B-2)
N-8B-2 Item Number Location
- ------------------ --------
1. Cover Page
2. Cover Page
3. Not Applicable
4. Sale of the Contract and Sales Commissions
5. Pruco Life Variable Insurance Account
6. Pruco Life Variable Insurance Account
7. Not Applicable
8. Not Applicable
9. Litigation
10. Brief Description of the Contract; Short-
Term Cancellation Right, or "Free Look";
Premiums; Premium Adjustment; Allocation
of Premiums; Transfers; Charges and
Expenses; How a Contract's Death Benefit
Will Vary; How a Contract's Cash Value
Will Vary; Withdrawal of a Portion of a
Contract's Net Cash Value; Surrender of a
Contract for its Net Cash Value; When
Proceeds are Paid; Right to Exchange a
Contract for a Fixed-Benefit Whole-Life
Policy; Lapse and Reinstatement; Options
on Lapse; Riders; Other General Contract
Provisions; Voting Rights; Substitution of
Series Fund Shares
11. Brief Description of the Contract; Pruco
Life Variable Insurance Account
12. Cover Page; Brief Description of the
Contract; The Prudential Series Fund,
Inc.; Sale of the Contract and Sales
Commissions
13. Brief Description of the Contract; The
Prudential Series Fund, Inc.; Charges and
Expenses; Sale of the Contract and Sales
Commissions
14. Brief Description of the Contract;
Requirements for Issuance of a Contract
15. Brief Description of the Contract;
Allocation of Premiums; Transfers
16. Brief Description of the Contract;
Detailed Information for Prospective
Contract Owners
17. When Proceeds are Paid
18. Pruco Life Variable Insurance Account
<PAGE>
N-8B-2 Item Number Location
- ------------------ --------
19. Reports to Contract Owners
20. Not Applicable
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
<PAGE>
N-8B-2 Item Number Location
- ------------------ --------
46. Brief Description of the Contract; Pruco
Life Variable Insurance Account; The
Prudential Series Fund, Inc.
47. Pruco Life Variable Insurance Account; The
Prudential Series Fund, Inc.
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Series Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
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, 2000
Pruco Life Insurance Company
<PAGE>
PROSPECTUS
May 1, 2000
PRUCO LIFE INSURANCE COMPANY
VARIABLE INSURANCE ACCOUNT
VARIABLE==================================================================
LIFE INSURANCE
CONTRACTS
This prospectus describes an individual variable life insurance contract (the
"Contract") offered by Pruco Life Insurance Company ("Pruco Life", "us", "we",
or "our") 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").
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:
. Invest in one or more of 13 available subaccounts of the Pruco Life Variable
Insurance Account (the "Account"), each of which invests in a corresponding
portfolio of The Prudential Series Fund, Inc. (the "Series Fund"):
Money Market High Yield Bond Prudential Jennison
Diversified Bond Stock Index Small Capitalization
Government Income Equity Income Global
Conservative Balanced Equity Natural Resources
Flexible Managed
. 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 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
Series Fund portfolios. Pruco Life may add additional investment options in the
future. Please read this prospectus and keep it 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
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION AND SUMMARY..............................................................................1
Brief Description of the Contract..................................................................1
Charges............................................................................................1
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, PRUCO LIFE VARIABLE INSURANCE ACCOUNT,
AND THE VARIABLE INVESTMENT OPTIONS
AVAILABLE UNDER THE CONTRACT..........................................................................3
Pruco Life Insurance Company.......................................................................3
Pruco Life Variable Insurance Account..............................................................3
The Prudential Series Fund, Inc....................................................................4
Voting Rights......................................................................................5
The Pruco Life Variable Contract Real Property Account.............................................5
Which Investment Option Should Be Selected?........................................................6
DETAILED INFORMATION FOR CONTRACT OWNERS..............................................................6
Charges and Expenses...............................................................................6
Requirements for Issuance of a Contract............................................................8
Short-Term Cancellation Right or "Free-Look".......................................................8
Premiums...........................................................................................9
Premium Adjustment................................................................................10
Allocation of Premiums............................................................................10
Transfers.........................................................................................10
How a Contract's Death Benefit Will Vary..........................................................10
How a Contract's Cash Value Will Vary.............................................................11
Surrender of a Contract...........................................................................12
Withdrawal of a Portion of a Contract's Net Cash Value............................................12
When Proceeds Are Paid............................................................................12
Living Needs Benefit..............................................................................13
Illustrations of Cash Values, Death Benefits, and Accumulated Premiums............................13
Contract Loans....................................................................................15
Right to Exchange a Contract for a Fixed-Benefit Whole-Life Policy................................15
Tax Treatment of Contract Benefits................................................................16
Lapse and Reinstatement...........................................................................18
Options on Lapse..................................................................................18
Legal Considerations Relating to Sex-Distinct Premiums and Benefits...............................19
Other General Contract Provisions.................................................................19
Riders............................................................................................19
Substitution of Series Fund Shares................................................................20
Reports to Contract Owners........................................................................20
Sale of the Contract and Sales Commissions........................................................20
State Regulation..................................................................................20
Experts...........................................................................................21
Litigation and Regulatory Proceedings.............................................................21
Additional Information............................................................................21
Financial Statements..............................................................................22
DIRECTORS AND OFFICERS...............................................................................23
FINANCIAL STATEMENTS OF PRUCO LIFE VARIABLE INSURANCE ACCOUNT........................................A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY
AND SUBSIDIARIES.....................................................................................B1
</TABLE>
<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.
Brief Description of the Contract
As of January 1, 1992, Pruco Life no longer offers these Contracts for sale.
The Variable Life Insurance Contract (the "Contract") is issued by Pruco Life
Insurance Company ("Pruco Life", "we", "us", or "our"). The Contract is a form
of variable life insurance. The value of your Contract changes every day. The
value is the total amount credited to a specific Contract. On any date it is
equal to the sum of the amounts invested in the subaccounts, and the principal
amount of any Contract debt plus any interest earned thereon. Contract debt is
the principal amount of all outstanding loans plus any interest accrued.
A broad objective of the Contract is to provide benefits that will increase in
value if favorable investment results are achieved. You may invest premiums in
one or more of the 13 available subaccounts or the 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.
Although the value of your Contract will increase if there is favorable
investment performance in the investment options you select, investment returns
in the subaccounts are NOT guaranteed. There is a risk that investment
performance will be unfavorable and that the value of your Contract will
decrease. The risk will be different, depending upon which investment options
you choose. See Which Investment Option Should Be Selected?, page 2.
Variable life insurance contracts are unsuitable as short-term savings vehicles.
Loans may negate any guarantees against lapse (see Lapse and Reinstatement, page
2) and possibly may result in adverse tax consequences. See Tax Treatment of
Contract Benefits, page 2.
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 2. In brief,
and subject to that fuller description, the following diagram outlines the
maximum charges which Pruco Life may make:
---------------
Premium Payment
---------------
----------------------------------------------------------
. less a 2% charge for taxes attributable to premiums
. an annual administrative charge of up to $48
. We charge a sales charge of up to 9% of the sum of
the basic premiums to be paid in the first 20 years.
. We charge a guaranteed minimum death benefit risk
charge of not more than 1.2% of each basic premium.
. If the Contract includes riders, we deduct rider
charges from the Contract's premiums.
. 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
. To be invested in one or a combination of:
. The investment portfolios of the Series Fund
. The Real Property Account
----------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
Daily Charges
. We deduct management fees and expenses from the assets of the Series Fund
and, if applicable, from the Real Property Account assets. See Underlying
Portfolio Expenses chart, below, and Pruco Life Variable Contract Real
Property Account, page 2.
. We charge a mortality and expense risk charge, equivalent to an annual rate
of 0.35%, from the assets in the variable investment options.
- --------------------------------------------------------------------------------
Monthly Charges
. We charge a charge for anticipated mortality, with the maximum charge based
on the 1980 CSO Tables.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Underlying Portfolio Expenses
- ----------------------------------------------------------------------------------------------------------------------
Total
Investment Other Contractual Total Actual
Portfolio Advisory Fee Expenses Expenses Expenses*
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market 0.40% 0.02% 0.42% 0.40%
Diversified Bond 0.40% 0.03% 0.43% 0.40%
Government Income 0.40% 0.04% 0.44% 0.44%
Conservative Balanced 0.55% 0.02% 0.57% 0.40%
Flexible Managed 0.60% 0.02% 0.62% 0.40%
High Yield Bond 0.55% 0.05% 0.60% 0.60%
Stock Index 0.35% 0.04% 0.39% 0.39%
Equity Income 0.40% 0.02% 0.42% 0.42%
Equity 0.45% 0.02% 0.47% 0.40%
Prudential Jennison 0.60% 0.03% 0.63% 0.63%
Small Capitalization Stock 0.40% 0.05% 0.45% 0.45%
Global 0.75% 0.09% 0.84% 0.84%
Natural Resources 0.45% 0.12% 0.57% 0.57%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
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 2 and How a
Contract's Cash Value Will Vary, page 2.
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.
2
<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", "we", or "our") is a stock
life insurance company, organized in 1971 under the laws of the State of
Arizona. It is licensed to sell life insurance and annuities in the District of
Columbia, Guam, and in all states except New York.
Pruco Life is a wholly-owned subsidiary of The Prudential Insurance Company of
America ("Prudential"), a 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, Prudential's Board of Directors
authorized management to take preliminary steps necessary to allow Prudential 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 Prudential's Board of Directors, a public
hearing, voting by qualified policyholders, and regulatory approval. Prudential
is working toward completing this process in 2001 and currently expects adoption
by the Board of Directors to take place in the latter part of 2000. However,
there is no certainty that the demutualization will be completed in this
timeframe or that the necessary approvals will be obtained. Also it is possible
that after careful review, Prudential could decide not to demutualize or could
decide to delay its plans.
The plan of reorganization, which has not been fully 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 types, amounts, and
issue years of the policies. As a general rule, owners of Prudential-issued
insurance policies and annuity contracts would be eligible, provided that their
policies were in force on the date Prudential's Board of Directors adopted a
plan of reorganization, while mutual fund customers and customers of
Prudential'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 contractholders of Prudential's
subsidiaries. This does not constitute a proposal, offer, solicitation or
recommendation regarding any plan of reorganization that may be proposed or a
recommendation regarding the ownership of any stock that could be issued in
connection with any such demutualization.
Pruco Life Variable Insurance Account
We have established a separate account, the Pruco Life Variable Insurance
Account (the "Account") to hold the assets that are associated with the
Contracts. The Account was established on November 10, 1982 under Arizona law
and is registered with the Securities and Exchange Commission("SEC") under the
Investment Company Act of 1940 ("1940 Act") as a unit investment trust, which is
a type of investment company. 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.
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. Pruco Life will consider any
possible adverse impact the transfer might have on the Account before making any
such transfer.
The obligations to Contract owners and beneficiaries arising under the Contract
are general corporate obligations of Pruco Life.
3
<PAGE>
Currently, you may invest in one or a combination of 13 subaccounts. When you
choose a subaccount, we purchase shares of the Series Fund which are held as an
investment for that option. We hold these shares in the Account. We may add
additional subaccounts in the future. The Account's financial statements begin
on page A1.
The Prudential Series Fund, Inc.
The Prudential Series Fund, Inc. (the "Series Fund") is registered under the
1940 Act as an open-end diversified management investment company. Its shares
are currently sold only to separate accounts of Prudential and certain other
insurers that offer variable life insurance and variable annuity contracts. On
October 31, 1986, the Pruco Life Series Fund, Inc., an open-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.
The Series Fund has a separate prospectus that is provided with this prospectus.
You should read the Series Fund prospectus before you decide to allocate assets
to the Series Fund subaccounts. There is no assurance that the investment
objectives of the Series Fund will be met.
Listed below are the available portfolios of the Series Fund and their
investment objectives:
. 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.
. 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.
. 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.
. 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.
. 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.
. High Yield Bond Portfolio - The investment objective is a high total return.
The Portfolio invests primarily in high yield/high risk debt securities.
. Stock Index Portfolio - The investment objective is investment results that
generally 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 Stock Index (the "S&P 500").
. 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 or the NYSE Composite Index.
. 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.
4
<PAGE>
. 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.
. 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.
. 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.
. 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.
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 2.
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.
Voting Rights
We are the legal owner of the shares of the Series Fund associated with the
subaccounts. However, we vote the shares in the Series Fund according to voting
instructions we receive from Contract owners. We will mail you a proxy, which
is a form you need to complete and return to us to tell us how you wish us to
vote. When we receive those instructions, we will vote all of the shares we own
on your behalf in accordance with those instructions. We will vote the shares
for which we do not receive instructions and shares that we own, in the same
proportion as the shares for which instructions are received. We may change the
way your voting instructions are calculated if it is required by federal
regulation. Should the applicable federal securities laws or regulations, or
their current interpretation, change so as to permit Pruco Life to vote shares
of the Series Fund in its own right, it may elect to do so.
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 wholly-owned
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.
5
<PAGE>
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.
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
Charges and Expenses
This section provides a more detailed description of each charge that is
described briefly in the chart on page 2.
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 1999, 1998, and 1997, Pruco Life
received a total of approximately $3,065,000, $3,253,223, and $3,438,597,
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 1999, 1998, and 1997, Pruco Life
received a total of approximately $1,251,000, $3,038,319, and $3,191,485,
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
6
<PAGE>
jurisdictions, the difference will be borne by Pruco Life. During 1999,
1998, and 1997, Pruco Life received a total of approximately $250,000,
$607,637, and $638,962, 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 1999, 1998, and 1997, Pruco Life received a total of approximately
$150,000, $364,582, and $383,377, 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
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 1999, 1998, and 1997, Pruco Life received a total of approximately
$1,452,000, $1,410,859, and $1,281,999, 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 1999, expressed as a
percentage of the average assets during the year, are shown below:
7
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Total Portfolio Expenses
- --------------------------------------------------------------------------------------------------------
Total
Investment Other Contractual Total Actual
Portfolio Advisory Fee Expenses Expenses Expenses*
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market 0.40% 0.02% 0.42% 0.40%
Diversified Bond 0.40% 0.03% 0.43% 0.40%
Government Income 0.40% 0.04% 0.44% 0.44%
Conservative Balanced 0.55% 0.02% 0.57% 0.40%
Flexible Managed 0.60% 0.02% 0.62% 0.40%
High Yield Bond 0.55% 0.05% 0.60% 0.60%
Stock Index 0.35% 0.04% 0.39% 0.39%
Equity Income 0.40% 0.02% 0.42% 0.42%
Equity 0.45% 0.02% 0.47% 0.40%
Prudential Jennison 0.60% 0.03% 0.63% 0.63%
Small Capitalization Stock 0.40% 0.05% 0.45% 0.45%
Global 0.75% 0.09% 0.84% 0.84%
Natural Resources 0.45% 0.12% 0.57% 0.57%
- --------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
The earnings of the Account are taxed as part of the operations of Pruco Life.
Currently, no charge is being made to the Account for Pruco Life's federal
income taxes. We will review the question of a charge to the Account for Pruco
Life's federal income taxes periodically. Such a charge may be made in the
future 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.
The investment management fee and other expenses charged against the Real
Property Account are described in the attached prospectus for that investment
option.
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.
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.
8
<PAGE>
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 2) 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 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:
<TABLE>
<CAPTION>
$25,000 Face $100,000 Face
Amount Amount
------------------------------------------------------------------------
Preferred Standard Preferred Standard
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Male, age 25 $270.00 $283.25 $ 990.00 $1,043.00
at issue
- ----------------------------------------------------------------------------------------
Female, age 35 $333.75 $342.75 $1,245.00 $1,281.00
at issue
- ----------------------------------------------------------------------------------------
Male, age 40 $449.00 $484.50 $1,706.00 $1,848.00
at issue
- ----------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
$25,000 Face $100,000 Face
Amount Amount
------------------------------------------------------------------------
Monthly Annual Monthly Annual
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Male, age 25 $26.00 $283.25 $ 92.00 $1,043.00
at issue
- ----------------------------------------------------------------------------------------
Female, age 35 $31.00 $342.75 $112.00 $1,281.00
at issue
- ----------------------------------------------------------------------------------------
Male, age 40 $43.25 $484.50 $161.00 $1,848.00
at issue
- ----------------------------------------------------------------------------------------
</TABLE>
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 2.
9
<PAGE>
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
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 4:00 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%.
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 2). 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 2, 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
10
<PAGE>
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.
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.
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 2. 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
death benefit for the period between the two dates. If a premium is due and paid
on a Monthly date, the cash value on
11
<PAGE>
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.
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 2.
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 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 2.
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
12
<PAGE>
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.
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:
13
<PAGE>
. 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.
. the premium is paid on each Contract anniversary and no loans are taken.
. the Contract value has been invested in equal amounts in each of the 13
available portfolios of the Series Fund and no portion of the Contract value
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 Contract value 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 0.49%, and
the daily deduction from the Contract value 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 -0.84%, 3.16%, 5.16%, 7.16% and
11.16%, respectively. The actual fees and expenses of the portfolios associated
with a particular Contract may be more or less than 0.49% and will depend on
which subaccounts are selected. 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.
14
<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 (-0.84% Net) (3.16% Net) (7.16% Net) (-0.84% Net) (3.16% Net) (7.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 558 $50,000 $50,000 $ 50,012 $ 22 $ 25 $ 28
2 $ 1,138 $50,000 $50,000 $ 50,081 $ 376 $ 396 $ 416
3 $ 1,742 $50,000 $50,000 $ 50,208 $ 729 $ 781 $ 834
4 $ 2,369 $50,000 $50,000 $ 50,394 $1,080 $ 1,178 $ 1,282
5 $ 3,022 $50,000 $50,000 $ 50,641 $1,438 $ 1,598 $ 1,772
6 $ 3,701 $50,000 $50,000 $ 50,948 $1,791 $ 2,029 $ 2,295
7 $ 4,407 $50,000 $50,000 $ 51,316 $2,141 $ 2,473 $ 2,854
8 $ 5,141 $50,000 $50,000 $ 51,746 $2,486 $ 2,929 $ 3,449
9 $ 5,905 $50,000 $50,000 $ 52,237 $2,827 $ 3,396 $ 4,083
10 $ 6,699 $50,000 $50,000 $ 52,790 $3,162 $ 3,874 $ 4,759
15 $11,172 $50,000 $50,000 $ 56,492 $4,734 $ 6,419 $ 8,811
20 $16,615 $50,000 $50,000 $ 61,794 $6,094 $ 9,173 $14,195
25 $23,237 $50,000 $50,000 $ 68,772 $7,231 $12,113 $21,291
30 $31,293 $50,000 $50,000 $ 77,552 $8,121 $15,179 $30,528
40 (Age 65) $53,020 $50,000 $50,000 $101,225 $9,039 $21,248 $57,143
</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 (-0.84% Net) (3.16% Net) (7.16% Net) (-0.84% Net) (3.16% Net) (7.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 977 $50,000 $50,000 $50,029 $ 197 $ 208 $ 219
2 $ 1,992 $50,000 $50,000 $50,121 $ 815 $ 863 $ 912
3 $ 3,048 $50,000 $50,000 $50,275 $ 1,417 $ 1,527 $ 1,642
4 $ 4,147 $50,000 $50,000 $50,491 $ 2,002 $ 2,199 $ 2,411
5 $ 5,289 $50,000 $50,000 $50,776 $ 2,642 $ 2,955 $ 3,298
6 $ 6,477 $50,000 $50,000 $51,127 $ 3,265 $ 3,721 $ 4,234
7 $ 7,713 $50,000 $50,000 $51,546 $ 3,871 $ 4,498 $ 5,221
8 $ 8,998 $50,000 $50,000 $52,032 $ 4,459 $ 5,284 $ 6,262
9 $10,335 $50,000 $50,000 $52,586 $ 5,031 $ 6,081 $ 7,360
10 $11,725 $50,000 $50,000 $53,207 $ 5,584 $ 6,888 $ 8,517
15 $19,554 $50,000 $50,000 $57,324 $ 8,051 $11,012 $15,247
20 $29,080 $50,000 $50,000 $63,155 $ 9,969 $15,178 $23,749
25 (Age 65) $40,670 $50,000 $50,000 $70,776 $11,330 $19,268 $34,348
</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 (-0.84% Net) (5.16% Net) (11.16% Net) (-0.84% Net) (5.16% Net) (11.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 558 $50,000 $50,004 $ 50,026 $ 22 $ 26 $ 31
2 $ 1,138 $50,000 $50,030 $ 50,184 $ 376 $ 406 $ 437
3 $ 1,742 $50,000 $50,076 $ 50,480 $ 729 $ 807 $ 890
4 $ 2,369 $50,000 $50,143 $ 50,921 $1,080 $ 1,229 $ 1,393
5 $ 3,022 $50,000 $50,230 $ 51,516 $1,438 $ 1,683 $ 1,962
6 $ 3,701 $50,000 $50,339 $ 52,272 $1,791 $ 2,158 $ 2,592
7 $ 4,407 $50,000 $50,467 $ 53,198 $2,141 $ 2,657 $ 3,290
8 $ 5,141 $50,000 $50,615 $ 54,301 $2,486 $ 3,178 $ 4,061
9 $ 5,905 $50,000 $50,783 $ 55,589 $2,827 $ 3,723 $ 4,914
10 $ 6,699 $50,000 $50,969 $ 57,073 $3,162 $ 4,293 $ 5,855
15 $11,172 $50,000 $52,176 $ 67,787 $4,734 $ 7,510 $ 12,215
20 $16,615 $50,000 $53,805 $ 85,192 $6,094 $11,376 $ 22,453
25 $23,237 $50,000 $55,816 $111,492 $7,231 $15,974 $ 38,826
30 $31,293 $50,000 $58,179 $149,847 $8,121 $21,355 $ 64,762
40 (Age 65) $53,020 $50,000 $63,871 $282,392 $9,039 $34,363 $167,630
</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 (-0.84% Net) (5.16% Net) (11.16% Net) (-0.84% Net) (5.16% Net) (11.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 977 $50,000 $50,011 $ 50,066 $ 197 $ 214 $ 231
2 $ 1,992 $50,000 $50,044 $ 50,276 $ 815 $ 888 $ 962
3 $ 3,048 $50,000 $50,100 $ 50,637 $ 1,417 $ 1,584 $ 1,762
4 $ 4,147 $50,000 $50,177 $ 51,152 $ 2,002 $ 2,303 $ 2,637
5 $ 5,289 $50,000 $50,278 $ 51,841 $ 2,642 $ 3,123 $ 3,674
6 $ 6,477 $50,000 $50,402 $ 52,712 $ 3,265 $ 3,970 $ 4,810
7 $ 7,713 $50,000 $50,547 $ 53,770 $ 3,871 $ 4,846 $ 6,056
8 $ 8,998 $50,000 $50,715 $ 55,025 $ 4,459 $ 5,752 $ 7,419
9 $10,335 $50,000 $50,903 $ 56,486 $ 5,031 $ 6,689 $ 8,914
10 $11,725 $50,000 $51,112 $ 58,161 $ 5,584 $ 7,657 $10,550
15 $19,554 $50,000 $52,450 $ 70,153 $ 8,051 $12,940 $21,322
20 $29,080 $50,000 $54,234 $ 89,463 $ 9,969 $18,928 $37,968
25 (Age 65) $40,670 $50,000 $56,418 $118,493 $11,330 $25,592 $63,448
</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 1999 ranged from 6.76% to 7.93%.
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
thereon. 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 2, and Lapse and Reinstatement, page 2.
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 2.
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
15
<PAGE>
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.
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.
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 Taxation of the
Fund 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:
. you will not be taxed on the growth of the funds in the Contract, unless
you receive a distribution from the Contract,
. the Contract's death benefit will be income 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.
. 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.
16
<PAGE>
. 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 value exceeds the total premiums paid less the untaxed
portions of any prior withdrawals, even if total withdrawals do not exceed
total premiums paid.
. 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.
. Loans you take against the Contract are ordinarily treated as debt and are
not considered distributions subject to tax.
Modified Endowment Contracts.
. 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.
. 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 excludable 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 and
assignments, made during the two-year period before the time that the
Contract became a Modified Endowment Contract.
. 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.
. 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 values or death benefits received
under business-owned life insurance policies.
17
<PAGE>
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 2.
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 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 2.
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 2 and How a
Contract's Cash Value Will Vary, page 2). Variable reduced paid-up insurance
has a loan privilege identical to that available on premium paying Contracts
(see Contract Loans, page 2). 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 2.
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
18
<PAGE>
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 2.
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.
19
<PAGE>
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, 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.
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 2.
State Regulation
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
20
<PAGE>
Experts
The consolidated financial statements of Pruco Life and its subsidiaries as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999 and the financial statements of the Account as of December 31,
1999 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 and Regulatory Proceedings
We are subject to legal and regulatory actions in the ordinary course of our
businesses, including class actions. Pending legal regulatory actions include
proceedings specific to our practices and proceedings generally applicable to
business practices in the industries in which we operate. In certain of these
lawsuits, large and/or indeterminate amounts are sought, including punitive or
exemplary damages.
In particular, Pruco Life and Prudential have been subject to substantial
regulatory actions and civil litigation involving individual life insurance
sales practices. In 1996, Prudential, on behalf of itself and many of its life
insurance subsidiaries including Pruco Life, entered into settlement agreements
with relevant insurance regulatory authorities and plaintiffs in the principal
life insurance sales practices class action lawsuit covering policyholders of
individual permanent life insurance policies issued in the United States from
1982 to 1995. Pursuant to the settlements, the companies agreed to various
changes to their sales and business practices controls and a series of fines,
and are in the process of distributing final remediation relief to eligible
class members. In many instances, claimants have the right to "appeal" the
decision to an independent reviewer. The bulk of such appeals were resolved in
1999, and the balance is expected to be addressed in 2000. As of January 31,
2000, Prudential and/or Pruco Life remained a party to two putative class
actions and approximately 158 individual actions relating to permanent life
insurance policies issued in the United States between 1982 and 1995.
Additional suits may be filed by individuals who opted out of the settlements.
While the approval of the class action settlement is now final, Prudential and
Pruco Life remain subject to oversight and review by insurance regulators and
other regulatory authorities with respect to their sales practices and the
conduct of the remediation program. The U.S. District Court has also retained
jurisdiction as to all matters relating to the administration, consummation,
enforcement and interpretation of the settlements.
Prudential has indemnified Pruco Life for any liabilities incurred in connection
with sales practices litigation covering policyholders of individual permanent
life insurance policies issued in the United States from 1982 to 1995.
In 1999, 1998, 1997 and 1996, Prudential recorded provision in its Consolidated
Statements of Operations of $100 million, $1,150 million, $2,030 million and
$1,125 million, respectively, to provide for estimated remediation costs, and
additional sales practices costs including related administrative costs,
regulatory fines, penalties and related payments, litigation costs and
settlements, including settlements associated with the resolution of claims of
deceptive sales practices asserted by policyholders who elected to "opt-out" of
the class action settlement and litigate their claims against Prudential
separately, and other fees and expenses associated with the resolution of sales
practices issues.
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 Public Reference Section at 450 Fifth Street, N.W., Washington, D.C.
20549, or by telephoning (800) SEC-0330, 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.
21
<PAGE>
Financial Statements
The financial statements of the Account should be distinguished from the
consolidated financial statements of Pruco Life and its subsidiaries, which
should be considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
22
<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 - President, Prudential Individual
Life Insurance since 1998; 1997 to 1998: Senior Vice President, Chief Actuary
and CFO, Prudential Individual Insurance Group; 1995 to 1997: President,
Prudential Select.
WILLIAM M. BETHKE, Director - Chief Investment Officer, Prudential 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.
ESTHER H. MILNES, President and Director - Vice President and Chief Actuary,
Prudential Individual Life Insurance since 1999; prior to 1999: Vice President
and Actuary, Prudential Individual Insurance Group.
DAVID R. ODENATH, JR., Director - President, Prudential Investments since 1999;
prior to 1999: Senior Vice President and Director of Sales, Investment
Consulting Group, PaineWebber.
I. EDWARD PRICE, Vice Chairman and Director - Senior Vice President and
Actuary, Prudential Individual Life Insurance since 1998; 1995 to 1998: Senior
Vice President and Actuary, Prudential Individual Insurance Group.
KIYOFUMI SAKAGUCHI, Director - President and CEO, Prudential International
Insurance Group since 1995.
OFFICERS WHO ARE NOT DIRECTORS
C. EDWARD CHAPLIN, Treasurer - Vice President and Treasurer, Prudential since
1995.
JAMES C. DROZANOWSKI, Senior Vice President - Vice President, Operations and
Systems, Prudential Individual Financial Services since 1998; 1996 to 1998: Vice
President and Operations Executive, Prudential Individual Insurance Group; 1995
to 1996: President, Credit Card Division, Chase Manhattan Bank.
CLIFFORD E. KIRSCH, Chief Legal Officer and Secretary - Chief Counsel, Variable
Products, Prudential Law Department since 1995.
HIROSHI NAKAJIMA, Senior Vice President - President and CEO, Pruco Life
Insurance Company Taiwan Branch since 1997; prior to 1997: Senior Managing
Director, Prudential Life Insurance Co., Ltd.
SHIRLEY H. SHAO, Senior Vice President and Chief Actuary - Vice President and
Associate Actuary, Prudential since 1996; prior to 1996: Vice President and
Assistant Actuary, Prudential Corporate Risk Management.
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,
Salomon 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.
23
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1999
<TABLE>
<CAPTION>
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] .... $ 15,778,117 $ 21,009,192 $ 158,874,301 $ 140,913,624 $ 45,886,703
Receivable from (Payable to)
Pruco Life Insurance Company [Note 2] ...... $ 115 $ (5,540) $ (27,971) $ (41,789) $ (3,484)
------------- ------------- ------------- ------------- -------------
Net Assets ................................... $ 15,778,232 $ 21,003,652 $ 158,846,330 $ 140,871,835 $ 45,883,219
============= ============= ============= ============= =============
NET ASSETS, representing:
Equity of contract owners [Note 4] ........... $ 15,778,232 $ 21,003,652 $ 158,846,330 $ 140,871,835 $ 45,883,219
------------- ------------- ------------- ------------- -------------
$ 15,778,232 $ 21,003,652 $ 158,846,330 $ 140,871,835 $ 45,883,219
============= ============= ============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A18
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------------
HIGH SMALL
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>
$ 2,050,500 $ 14,383,739 $ 4,876,854 $ 2,099,662 $ 2,161,420 $ 576,752 $ 6,297,125 $ 1,220,255
$ 117 $ 6,436 $ (1,645) $ (1,070) $ 5,499 $ (463) $ 197 $ 24
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 2,050,617 $ 14,390,175 $ 4,875,209 $ 2,098,592 $ 2,166,919 $ 576,289 $ 6,297,322 $ 1,220,279
============= ============= ============= ============= ============= ============= ============= =============
$ 2,050,617 $ 14,390,175 $ 4,875,209 $ 2,098,592 $ 2,166,919 $ 576,289 $ 6,297,322 $ 1,220,279
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 2,050,617 $ 14,390,175 $ 4,875,209 $ 2,098,592 $ 2,166,919 $ 576,289 $ 6,297,322 $ 1,220,279
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A18
A2
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
--------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income $ 773,452 $ 835,102 $ 836,324 $ 0 $ 1,391,536 $ 1,601,924
---------- ---------- ---------- ------------ ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk
[Note 5A] 55,476 55,810 55,267 76,065 79,178 76,182
Reimbursement for excess expenses
[Note 5B] (3,875) (2,476) (3,473) (5,718) (5,487) (5,282)
---------- ---------- ---------- ------------ ----------- -----------
NET EXPENSES 51,601 53,334 51,794 70,347 73,691 70,900
---------- ---------- ---------- ------------ ----------- -----------
NET INVESTMENT INCOME (LOSS) 721,851 781,768 784,530 (70,347) 1,317,845 1,531,024
---------- ---------- ---------- ------------ ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received 0 0 0 61,188 82,393 256,143
Realized gain (loss) on shares redeemed 0 0 0 43,189 60,094 66,809
Net change in unrealized gain (loss)
on investments 0 0 0 (278,483) 22,976 (146,333)
---------- ---------- ---------- ------------ ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS 0 0 0 (174,106) 165,463 176,619
---------- ---------- ---------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ 721,851 $ 781,768 $ 784,530 $ (244,453) $ 1,483,308 $ 1,707,643
========== ========== ========== ============ =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A18
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------- ------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
----------- ----------- ----------- -------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2,667,897 $ 2,814,411 $ 3,187,180 $ 6,384 $ 4,501,410 $ 3,834,599 $ 1,859,236 $ 1,886,966 $ 1,888,751
----------- ----------- ----------- -------- ----------- ----------- ----------- ----------- -----------
551,008 539,855 483,733 491,946 483,278 443,641 159,486 155,272 142,257
(130,040) (134,660) (107,340) (329,489) (314,445) (287,241) (81,906) (76,645) (66,633)
----------- ----------- ----------- -------- ----------- ----------- ----------- ----------- -----------
420,968 405,195 376,393 162,457 168,833 156,400 77,580 78,627 75,624
----------- ----------- ----------- -------- ----------- ----------- ----------- ----------- -----------
2,246,929 2,409,216 2,810,787 (156,073) 4,332,577 3,678,199 1,781,656 1,808,339 1,813,127
----------- ----------- ----------- -------- ----------- ----------- ----------- ----------- -----------
18,723,020 16,795,689 7,940,023 1,619,768 14,260,580 19,922,569 258,906 2,695,586 4,545,796
4,548,126 3,408,087 2,949,502 884,995 712,514 1,255,186 225,411 161,339 266,426
(7,270,651) (9,387,276) 15,968,968 8,061,424 (6,089,816) (4,233,520) 623,595 163,231 (1,618,876)
----------- ----------- ----------- -------- ----------- ----------- ----------- ----------- -----------
16,000,495 10,816,500 26,858,493 10,566,187 8,883,278 16,954,235 1,107,912 3,020,156 3,193,346
----------- ----------- ----------- -------- ----------- ----------- ----------- ----------- -----------
$ 18,247,424 $ 13,225,716 $ 29,669,280 $ 10,410,114 $ 13,215,855 $ 20,632,434 $ 2,889,568 $ 4,828,495 $ 5,006,473
============ ============ ============ ============ ============ ============ =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A18
A4
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------
HIGH YIELD STOCK
BOND INDEX
PORTFOLIO PORTFOLIO
-------------------------------------- ------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ....................... $ 5,859 $ 211,661 $ 203,212 $ 137,026 $ 121,318 $ 113,569
---------- ---------- ---------- ---------- ---------- ----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk
[Note 5A] ........................... 7,331 7,816 7,466 44,282 34,188 26,197
Reimbursement for excess expenses
[Note 5B] ........................... 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ----------
NET EXPENSES ............................ 7,331 7,816 7,466 44,282 34,188 26,197
---------- ---------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME (LOSS) ............ (1,472) 203,845 195,746 92,744 87,130 87,372
---------- ---------- ---------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received .. 0 0 0 168,471 171,765 237,151
Realized gain (loss) on shares redeemed (19,910) 5,099 2,954 338,883 264,889 199,378
Net change in unrealized gain (loss)
on investments ...................... 109,845 (265,563) 70,466 1,754,110 1,894,964 1,512,588
---------- ---------- ---------- ---------- ---------- ----------
NET GAIN (LOSS) ON INVESTMENTS .......... 89,935 (260,464) 73,420 2,261,464 2,331,618 1,949,117
---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................ $ 88,463 $ (56,619) $ 269,166 $2,354,208 $2,418,748 $2,036,489
========== ========== ========== ========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A18
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------------
EQUITY NATURAL
INCOME RESOURCES GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------- -------------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 112,510 $ 125,396 $ 94,263 $ 12,224 $ 14,132 $ 11,074 $ 6,718 $ 16,927 $ 13,090
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
17,000 16,528 12,518 6,092 5,972 7,715 5,511 4,264 3,694
0 0 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
17,000 16,528 12,518 6,092 5,972 7,715 5,511 4,264 3,694
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
95,510 108,868 81,745 6,132 8,160 3,359 1,207 12,663 9,396
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
545,521 280,645 382,984 0 92,057 239,014 11,781 57,458 51,660
91,922 62,840 33,336 (13,382) (33,638) 40,949 69,517 25,387 6,455
(177,509) (626,566) 591,189 645,398 (381,691) (534,111) 598,146 173,653 (9,784)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
459,934 (283,081) 1,007,509 632,016 (323,272) (254,148) 679,444 256,498 48,331
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 555,444 $ (174,213) $1,089,254 $ 638,148 $ (315,112) $ (250,789) $ 680,651 $ 269,161 $ 57,727
========== ========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A18
A6
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------------
GOVERNMENT PRUDENTIAL
INCOME JENNISON
PORTFOLIO PORTFOLIO
---------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ......................... $ 0 $ 32,527 $ 33,731 $ 7,105 $ 3,759 $ 1,979
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk
[Note 5A] ............................. 2,115 1,966 1,768 14,128 6,023 2,889
Reimbursement for excess expenses
[Note 5B] ............................. 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES .............................. 2,115 1,966 1,768 14,128 6,023 2,889
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) .............. (2,115) 30,561 31,963 (7,023) (2,264) (910)
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received .. 0 0 0 243,205 35,756 63,600
Realized gain (loss) on shares redeemed 1,482 1,778 237 38,967 11,517 8,562
Net change in unrealized gain (loss)
on investments ...................... (18,263) 13,989 14,012 1,296,672 516,075 133,987
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ............ (16,781) 15,767 14,249 1,578,844 563,348 206,149
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS .............................. $ (18,896) $ 46,328 $ 46,212 $ 1,571,821 $ 561,084 $ 205,239
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A18
A7
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------
SMALL
CAPITALIZATION STOCK
PORTFOLIO
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C>
$ 0 $ 5,594 $ 3,695
----------- ----------- -----------
3,735 3,153 1,939
0 0 0
----------- ----------- -----------
3,735 3,153 1,939
----------- ----------- -----------
(3,735) 2,441 1,756
----------- ----------- -----------
19,739 63,147 50,803
(573) 802 3,430
119,257 (79,246) 63,710
----------- ----------- -----------
138,423 (15,297) 117,943
----------- ----------- -----------
$ 134,688 $ (12,856) $ 119,699
=========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A18
A8
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
----------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) ............. $ 721,851 $ 781,768 $ 784,530 $ (70,347) $ 1,317,845 $ 1,531,024
Capital gains distributions received ..... 0 0 0 61,188 82,393 256,143
Realized gain (loss) on shares redeemed .. 0 0 0 43,189 60,094 66,809
Net change in unrealized gain (loss) on
investments ............................ 0 0 0 (278,483) 22,976 (146,333)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ............................... 721,851 781,768 784,530 (244,453) 1,483,308 1,707,643
------------ ------------ ------------ ------------ ------------ ------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments .............. 670,317 1,322,618 1,445,070 615,361 1,595,070 1,747,896
Policy Loans ............................. (215,570) (313,132) (212,946) (309,595) (282,862) (349,385)
Policy Loan Repayments and Interest ...... 317,492 234,656 248,612 490,645 297,831 298,282
Surrenders, Withdrawals and Death
Benefits ............................... (997,899) (936,683) (1,353,770) (1,419,225) (1,351,070) (1,454,231)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Option........ (201,221) (418,669) (461,651) (366,327) (430,103) (629,526)
Administrative and Other Charges ......... (486,818) (507,798) (524,952) (634,114) (671,128) (690,240)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ................................ (913,699) (619,008) (859,637) (1,623,255) (842,262) (1,077,204)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7] ......................... 0 (35,056) 26,431 0 (22,629) 20,104
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ................................... (191,848) 127,704 (48,676) (1,867,708) 618,417 650,543
NET ASSETS
Beginning of year ........................ 15,970,080 15,842,376 15,891,052 22,871,360 22,252,943 21,602,400
------------ ------------ ------------ ------------ ------------ ------------
End of year .............................. $ 15,778,232 $ 15,970,080 $ 15,842,376 $ 21,003,652 $ 22,871,360 $ 22,252,943
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A18
A9
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------- ----------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------ ------------ ------------ -------------------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2,246,929 $ 2,409,216 $ 2,810,787 $ (156,073) $ 4,332,577 $ 3,678,199 $ 1,781,656 $ 1,808,339 $ 1,813,127
18,723,020 16,795,689 7,940,023 1,619,768 14,260,580 19,922,569 258,906 2,695,586 4,545,796
4,548,126 3,408,087 2,949,502 884,995 712,514 1,255,186 225,411 161,339 266,426
(7,270,651) (9,387,276) 15,968,968 8,061,424 (6,089,816) (4,223,520) 623,595 163,231 (1,618,876)
- ------------ ------------ ------------ -------------------------- -------------- ------------ ------------ ------------
18,247,424 13,225,716 29,669,280 10,410,114 13,215,855 20,632,434 2,889,568 4,828,495 5,006,473
- ------------ ------------ ------------ -------------------------- -------------- ------------ ------------ ------------
2,550,981 7,360,756 7,487,495 3,363,908 8,612,537 9,052,222 1,691,127 3,347,001 3,550,385
(2,649,580) (3,636,114) (2,897,273) (1,939,865) (2,701,248) (2,485,575) (625,263) (878,487) (721,192)
2,864,285 2,141,237 1,978,021 2,492,099 1,800,055 1,644,384 777,720 535,439 516,697
(10,001,176) (9,043,143) (9,674,305) (9,380,151) (7,981,571) (8,842,066) (3,035,704) (2,313,629) (2,814,526)
(1,811,454) (282,441) 325,798 (1,556,402) (777,960) (691,350) (398,801) (281,256) (281,644)
(3,852,745) (3,862,610) (3,676,883) (3,869,281) (3,940,538) (3,858,224) (1,472,330) (1,488,599) (1,480,585)
- ------------ ------------ ------------ -------------------------- -------------- ------------ ------------ ------------
(12,899,689) (7,322,315) (6,457,147) (10,889,692) (4,988,725) (5,180,609) (3,063,251) (1,079,531) (1,230,865)
- ------------ ------------ ------------ -------------------------- -------------- ------------ ------------ ------------
0 (60,272) 12,540 0 (58,430) (58,991) 0 (5,712) (23,512)
- ------------ ------------ ------------ -------------------------- -------------- ------------ ------------ ------------
5,347,735 5,843,129 23,224,673 (479,578) 8,168,700 15,392,834 (173,683) 3,743,252 3,752,096
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
- ------------ ------------ ------------ -------------------------- -------------- ------------ ------------ ------------
$158,846,330 $153,498,595 $147,655,466 $140,871,835 $141,351,413 $ 133,182,713 $ 45,883,219 $ 46,056,902 $ 42,313,650
============ ============ ============ ========================== ============== ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A18
A10
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------------
HIGH
YIELD STOCK
BOND INDEX
PORTFOLIO PORTFOLIO
---------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) ............. $ (1,472) $ 203,845 $ 195,746 $ 92,744 $ 87,130 $ 87,372
Capital gains distributions received ..... 0 0 0 168,471 171,765 237,151
Realized gain (loss) on shares redeemed .. (19,910) 5,099 2,954 338,883 264,889 199,378
Net change in unrealized gain (loss) on
investments ............................ 109,845 (265,563) 70,466 1,754,110 1,894,964 1,512,588
----------- ----------- ----------- ------------ ------------ -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ............................... 88,463 (56,619) 269,166 2,354,208 2,418,748 2,036,489
----------- ----------- ----------- ------------ ------------ -----------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments .............. 56,034 188,863 208,258 303,030 573,084 615,209
Policy Loans ............................. (32,135) (45,239) (37,680) (277,635) (259,669) (231,311)
Policy Loan Repayments and Interest ...... 35,086 30,384 28,120 214,181 144,171 71,414
Surrenders, Withdrawals and Death
Benefits ............................... (121,963) (127,952) (160,755) (746,299) (651,120) (445,663)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Option ....... (46,277) (17,026) (9,028) 1,640,642 705,081 679,608
Administrative and Other Charges ......... (68,810) (75,903) (77,669) (333,490) (282,267) (247,922)
----------- ----------- ----------- ------------ ------------ -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ................................ (178,065) (46,873) (48,754) 800,429 229,280 441,335
----------- ----------- ----------- ------------ ------------ -----------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7] ......................... 0 (2,106) (1,780) 0 1,376 (6,993)
----------- ----------- ----------- ------------ ------------ -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ................................... (89,602) (105,598) 218,632 3,154,637 2,649,404 2,470,831
NET ASSETS
Beginning of year ........................ 2,140,219 2,245,817 2,027,185 11,235,538 8,586,134 6,115,303
----------- ----------- ----------- ------------ ------------ -----------
End of year .............................. $ 2,050,617 $ 2,140,219 $ 2,245,817 $ 14,390,175 $ 11,235,538 $ 8,586,134
=========== =========== =========== ============ ============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A18
A11
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
- --------------------------------------------------------------------------------------------------------------------------------
EQUITY NATURAL
INCOME RESOURCES GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- ---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 95,510 $ 108,868 $ 81,745 $ 6,132 $ 8,160 $ 3,359 $ 1,207 $ 12,663 $ 9,396
545,521 280,645 382,984 0 92,057 239,014 11,781 57,458 51,660
91,922 62,840 33,336 (13,382) (33,638) 40,949 69,517 25,387 6,455
(177,509) (626,566) 591,189 645,398 (381,691) (534,111) 598,146 173,653 (9,784)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
555,444 (174,213) 1,089,254 638,148 (315,112) (250,789) 680,651 269,161 57,727
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
162,960 302,805 267,363 113,894 198,505 214,991 35,357 89,117 89,572
(59,589) (128,223) (100,894) (26,213) (40,230) (67,912) (28,513) (35,881) (27,984)
117,215 80,336 45,929 49,397 29,651 54,198 35,672 32,407 13,484
(365,295) (217,914) (216,492) (128,582) (85,717) (172,949) (147,573) (66,249) (82,874)
(61,488) 651,002 375,391 73,424 (194,435) 52,919 247,347 37,982 161,137
(137,766) (139,947) (114,153) (56,500) (60,311) (77,605) (38,658) (32,558) (29,691)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(343,963) 548,059 257,144 25,420 (152,537) 3,642 103,632 24,818 123,644
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
0 1,939 (4,432) 0 (6,884) 5,073 0 (5,174) (4,949)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
211,481 375,785 1,341,966 663,568 (474,533) (242,074) 784,283 288,805 176,422
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
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 4,875,209 $ 4,663,728 $ 4,287,943 $ 2,098,592 $ 1,435,024 $ 1,909,557 $ 2,166,919 $ 1,382,636 $ 1,093,831
=========== =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A18
A12
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------
GOVERNMENT PRUDENTIAL
INCOME JENNISON
PORTFOLIO PORTFOLIO
---------- ---------- ---------- ----------- ----------- -----------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) .............. $ (2,115) $ 30,561 $ 31,963 $ (7,023) $ (2,264) $ (910)
Capital gains distributions received ...... 0 0 0 243,205 35,756 63,600
Realized gain (loss) on shares redeemed ... 1,482 1,778 237 38,967 11,517 8,562
Net change in unrealized gain (loss) on
investments ............................. (18,263) 13,989 14,012 1,296,672 516,075 133,987
---------- ---------- ---------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ................................ (18,896) 46,328 46,212 1,571,821 561,084 205,239
---------- ---------- ---------- ----------- ----------- -----------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ............... 35,255 51,091 54,786 110,415 106,024 63,200
Policy Loans .............................. (12,416) (8,302) (10,764) (100,927) (35,322) (22,782)
Policy Loan Repayments and Interest ....... 8,081 19,533 7,568 109,281 30,770 12,220
Surrenders, Withdrawals and Death
Benefits ................................ (43,539) (39,281) (27,869) (262,380) (92,530) (38,944)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Option ........ 2,582 49,902 (20,796) 2,499,393 785,646 397,341
Administrative and Other Charges .......... (21,437) (20,270) (19,729) (91,440) (41,921) (21,566)
---------- ---------- ---------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ................................. (31,474) 52,673 (16,804) 2,264,342 752,667 389,469
---------- ---------- ---------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7] .......................... 0 (1,052) 571 0 2,620 (11,580)
---------- ---------- ---------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS .................................... (50,370) 97,949 29,979 3,836,163 1,316,371 583,128
NET ASSETS
Beginning of year ......................... 626,659 528,710 498,731 2,461,159 1,144,788 561,660
---------- ---------- ---------- ----------- ----------- -----------
End of year ............................... $ 576,289 $ 626,659 $ 528,710 $ 6,297,322 $ 2,461,159 $ 1,144,788
========== ========== ========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A18
A13
<PAGE>
SUBACCOUNTS (CONTINUED)
- ----------------------------------------
SMALL
CAPITALIZATION
STOCK
PORTFOLIO
- ----------- ----------- ----------
1999 1998 1997
- ----------- ----------- ----------
$ (3,735) $ 2,441 $ 1,756
19,739 63,147 50,803
(573) 802 3,430
119,257 (79,246) 63,710
- ----------- ----------- ----------
134,688 (12,856) 119,699
- ----------- ----------- ----------
33,063 60,847 43,640
(23,226) (23,135) (13,567)
16,924 21,527 9,008
(38,493) (29,449) (36,946)
66,674 303,098 271,858
(26,113) (23,163) (15,253)
- ----------- ----------- ----------
28,829 309,725 258,740
- ----------- ----------- ----------
0 (156) (1,517)
- ----------- ----------- ----------
163,517 296,713 376,922
1,056,762 760,049 383,127
- ----------- ----------- ----------
$ 1,220,279 $ 1,056,762 $ 760,049
=========== =========== ==========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A18
A14
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE INSURANCE ACCOUNT
DECEMBER 31, 1999
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
accounting principles generally accepted in the United States ("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.
Receivable from (Payable to) Pruco Life Insurance Company--At times,
Pruco Life may owe an amount to or expect to receive an amount from the
Account primarily related to processing contract owner payments,
surrenders, withdrawals and death benefits. This amount is reflected in
the Account's Statements of Net Assets as either a receivable from or
payable to Pruco Life. The receivable and or payable does not have an
effect on the Contract owner's account or the related unit value.
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
The net asset value per share for each portfolio of the Series Fund,
the number of shares (rounded) of each portfolio held by the
subaccounts of the Account and the aggregate cost of investments in
such shares at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
----------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of shares (rounded): 1,577,812 1,918,648 5,497,381 7,988,300 2,987,416
Net asset value per share: $ 10.00 $ 10.95 $ 28.90 $ 17.64 $ 15.36
Cost: $15,778,117 $20,507,322 $118,927,508 $125,592,746 $42,546,127
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of shares (rounded): 272,673 323,594 249,839 120,809 69,768
Net asset value per share: $ 7.52 $ 44.45 $ 19.52 $ 17.38 $ 30.98
Cost: $ 2,154,392 $ 6,848,271 $ 4,539,993 $ 1,875,168 $ 1,265,033
</TABLE>
A15
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
(CONTINUED)
PORTFOLIOS (CONTINUED)
------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
----------- ---------- ----------
Number of shares (rounded): 49,935 194,416 75,093
Net asset value per share: $ 11.55 $ 32.39 $ 16.25
Cost: $ 572,743 $4,306,738 $1,085,205
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units (rounded), unit values and total value
of contract owner equity at December 31, 1999 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
(rounded) .......................... 5,950,727 5,334,762 15,986,032 21,497,501 8,888,703
Unit Value ........................... $ 2.65148 $ 3.93713 $ 9.93657 $ 6.55294 $ 5.16197
------------ ------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY .......... $ 15,778,232 $ 21,003,652 $158,846,330 $140,871,835 $ 45,883,219
============ ============ ============ ============ ============
<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
(rounded) .......................... 799,689 2,250,262 1,005,318 648,859 825,311
Unit Value ........................... $ 2.56427 $ 6.39489 $ 4.84942 $ 3.23428 $ 2.62558
------------ ------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY .......... $ 2,050,617 $ 14,390,175 $ 4,875,209 $ 2,098,592 $ 2,166,919
============ ============ ============ ============ ============
<CAPTION>
SUBACCOUNTS (Continued)
---------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
Contract Owner Units Outstanding
(rounded) .......................... 270,095 1,730,842 616,892
Unit Value ........................... $ 2.13365 $ 3.63830 $ 1.97811
------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY .......... $ 576,289 $ 6,297,322 $ 1,220,279
============ ============ ============
</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 the
Conservative Balanced Portfolios of the Series Fund.
C. Cost of Insurance and Other Related 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.
NOTE 7: 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 8: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) for the
years ended December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET PORTFOLIO BOND PORTFOLIO
----------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 388,851 807,373 1,004,793 354,862 535,292 603,016
Contract Owner Redemptions: (740,569) (1,057,789) (1,370,460) (768,131) (754,248) (905,660)
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------------
FLEXIBLE
EQUITY PORTFOLIO MANAGED PORTFOLIO
----------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 751,976 1,249,204 1,545,087 1,039,026 1,918,701 2,270,423
Contract Owner Redemptions: (2,095,732) (2,093,627) (2,411,780) (2,762,728) (2,777,943) (3,271,427)
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------------
CONSERVATIVE HIGH YIELD
BALANCED PORTFOLIO BOND PORTFOLIO
----------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 551,037 928,518 1,112,426 61,303 126,043 135,173
Contract Owner Redemptions: (1,166,617) (1,162,098) (1,410,161) (131,806) (143,504) (155,168)
</TABLE>
A17
<PAGE>
NOTE 8: UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------
STOCK EQUITY
INDEX PORTFOLIO INCOME PORTFOLIO
--------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 459,790 356,345 458,877 131,848 255,364 201,161
Contract Owner Redemptions: (320,146) (309,880) (338,843) (204,908) (141,479) (136,671)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------
NATURAL
RESOURCES PORTFOLIO GLOBAL PORTFOLIO
--------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 148,112 118,576 161,106 219,581 164,588 223,119
Contract Owner Redemptions: (144,753) (179,705) (158,127) (172,321) (151,159) (136,413)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------
GOVERNMENT PRUDENTIAL
INCOME PORTFOLIO JENNISON PORTFOLIO
--------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 39,120 74,374 39,198 1,089,053 449,361 319,764
Contract Owner Redemptions: (53,803) (50,219) (47,931) (316,927) (100,469) (93,798)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------
SMALL
CAPITALIZATION
STOCK PORTFOLIO
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Contract Owner Contributions: 147,064 258,139 224,200
Contract Owner Redemptions: (130,060) (84,895) (64,522)
</TABLE>
NOTE 9: 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, 1999
were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
----------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases ...... $ 620,841 $ 282,163 $ 349,920 $ 468,967 $ 349,210
Sales .......... $ (1,585,895) $ (1,970,226) $(13,642,607) $(11,479,326) $ (3,486,557)
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases ...... $ 108,460 $ 1,417,969 $ 257,802 $ 244,932 $ 365,738
Sales .......... $ (293,973) $ (668,258) $ (617,120) $ (224,534) $ (273,116)
<CAPTION>
PORTFOLIOS (CONTINUED)
---------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
------------ ------------ ------------
<S> <C> <C> <C>
Purchases ...... $ 66,696 $ 2,418,096 $ 188,396
Sales .......... $ (99,823) $ (168,079) $ (163,327)
</TABLE>
A18
<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, 1999, 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 accounting principles generally accepted in the United
States. 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 auditing standards generally accepted in
the United States 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, 1999,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 17, 2000
A19
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Financial Position
December 31, 1999 and 1998 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1999: $3,084,057; $2,998,362 $2,763,926
1998: $2,738,654)
Held to maturity, at amortized cost (fair value, 1999: $377,822; 1998: 388,990 410,558
$421,845)
Equity securities - available for sale, at fair value (cost, 1999: $3,238; 4,532 2,847
1998: $2,951)
Mortgage loans on real estate 10,509 17,354
Policy loans 792,352 766,917
Short-term investments 207,219 240,727
Other long-term investments 77,769 42,050
----------------- -----------------
Total investments 4,479,733 4,244,379
Cash 76,396 89,679
Deferred policy acquisition costs 1,062,785 861,713
Accrued investment income 68,917 61,114
Receivables from affiliate 23,329 -
Other assets 48,228 65,145
Separate Account assets 16,032,449 11,490,751
----------------- -----------------
TOTAL ASSETS $21,791,837 $16,812,781
================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $3,116,261 $2,702,011
Future policy benefits and other policyholder liabilities 635,978 528,779
Cash collateral for loaned securities 87,336 73,336
Securities sold under agreement to repurchase 21,151 49,708
Income taxes payable 145,600 193,358
Payables to affiliate - 66,568
Other liabilities 83,243 55,038
Separate Account liabilities 16,032,449 11,490,751
----------------- -----------------
Total liabilities 20,122,018 15,159,549
----------------- -----------------
Contingencies (See Footnote 12)
Stockholder's Equity
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,258,428 1,202,833
Accumulated other comprehensive (loss) income
Net unrealized investment (losses) gains (28,364) 9,902
Foreign currency translation adjustments (2,327) (1,585)
----------------- -----------------
Accumulated other comprehensive (loss) income (30,691) 8,317
----------------- -----------------
Total stockholder's equity 1,669,819 1,653,232
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 21,791,837 $16,812,781
================= =================
</TABLE>
See Notes to Consolidated Financial Statements
B1
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
Years Ended December 31, 1999, 1998 and 1997 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
REVENUES
Premiums $ 98,976 $ 82,139 $ 69,614
Policy charges and fee income 414,425 350,569 332,132
Net investment income 276,821 261,430 259,634
Realized investment (losses) gains, net (32,545) 44,841 10,974
Asset management fees 60,392 40,200 33,310
Other income 1,397 1,067 491
-------------- --------------- ---------------
Total revenues 819,466 780,246 706,155
-------------- --------------- ---------------
BENEFITS AND EXPENSES
Policyholders' benefits 205,042 193,739 199,537
Interest credited to policyholders' account balances 136,852 118,992 110,815
General, administrative and other expenses 392,041 231,320 227,561
-------------- --------------- ---------------
Total benefits and expenses 733,935 544,051 537,913
-------------- --------------- ---------------
Income from operations before income taxes 85,531 236,195 168,242
-------------- --------------- ---------------
Income tax provision 29,936 84,233 61,868
-------------- --------------- ---------------
NET INCOME 55,595 151,962 106,374
-------------- --------------- ---------------
Other comprehensive (loss) income, net of tax:
Unrealized gains (losses) on securities, net of
reclassification adjustment (38,266) (7,227) 3,025
Foreign currency translation adjustments (742) 2,980 (2,863)
-------------- --------------- ---------------
Other comprehensive (loss) income (39,008) (4,247) 162
-------------- --------------- ---------------
TOTAL COMPREHENSIVE INCOME $ 16,587 $147,715 $106,536
============== =============== ===============
</TABLE>
See Notes to Consolidated Financial Statements
B2
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years Ended December 31, 1999, 1998, and 1997 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
other Total
Common Paid-in- Retained comprehensive stockholder's
stock capital earnings income (loss) equity
------------- ------------ ---------------- ---------------- -------------------
------------- ------------ ---------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 2,500 $ 439,582 $944,497 $12,402 $1,398,981
Net income - - 106,374 - 106,374
Change in foreign currency - - - (2,863) (2,863)
translation adjustments,
net of taxes
Change in net unrealized
investment gains, net of - - - 3,025 3,025
reclassification
adjustment and taxes
------------- ------------ ---------------- ---------------- -------------------
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
net of taxes
Change in net unrealized
investment losses, net of - - - (7,227) (7,227)
reclassification
adjustment and taxes
------------- ------------ ---------------- ---------------- -------------------
Balance, December 31, 1998 2,500 439,582 1,202,833 8,317 1,653,232
Net income - - 55,595 - 55,595
Change in foreign currency
translation adjustments, - - - (742) (742)
net of taxes
Change in net unrealized
investment losses, net of - - - (38,266) (38,266)
reclassification
adjustment and taxes
------------- ------------ ---------------- ---------------- -------------------
Balance, December 31, 1999 $ 2,500 $ 439,582 $ 1,258,428 $ (30,691) $1,669,819
============= ============================= ================ ===================
</TABLE>
See Notes to Consolidated Financial Statements
B3
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998, and 1997 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ------------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 55,595 $ 151,962 $ 106,374
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Policy charges and fee income (83,961) (29,827) (40,783)
Interest credited to policyholders' account balances 136,852 118,992 110,815
Realized investment (gains) losses, net 32,545 (44,841) (10,974)
Amortization and other non-cash items 75,037 19,655 (26,405)
Change in:
Future policy benefits and other policyholders'
liabilities 107,199 61,095 34,907
Accrued investment income (7,803) 5,886 (4,890)
Payable to affiliate (89,897) (3,807) 20,547
Policy loans (25,435) (62,962) (64,173)
Deferred policy acquisition costs (201,072) (206,471) (22,083)
Income taxes payable (47,758) (16,828) 68,417
Other, net 45,122 (43,675) 34,577
----------------- ------------------- ---------------
Cash Flows (Used In) From Operating Activities (3,576) (50,821) 206,329
----------------- ------------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 3,076,848 5,429,396 2,828,665
Held to maturity 45,841 74,767 138,626
Equity securities 5,209 4,101 6,939
Mortgage loans on real estate 6,845 5,433 24,925
Other long-term investments 385 33,428 (10,618)
Payments for the purchase of:
Fixed maturities:
Available for sale (3,452,289) (5,617,208) (3,141,785)
Held to maturity (24,170) (145,919) (70,532)
Equity securities (5,110) (2,274) (4,594)
Other long-term investments (39,094) (409) (51)
Cash collateral for loaned securities, net 14,000 (70,085) 143,421
Securities sold under agreement to repurchase, net (28,557) 49,708 --
Short-term investments, net 33,580 75,771 (147,030)
----------------- ------------------- ---------------
Cash Flows Used In Investing Activities (366,512) (163,291) (232,034)
----------------- ------------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 3,448,370 3,098,764 2,099,600
Withdrawals (3,091,565) (2,866,331) (2,076,303)
----------------- ------------------- ---------------
Cash Flows From (Used in) Financing Activities 356,805 232,433 23,297
----------------- ------------------- ---------------
Net increase (decrease) in Cash (13,283) 18,321 (2,408)
Cash, beginning of year 89,679 71,358 73,766
----------------- ------------------- ---------------
CASH, END OF PERIOD $ 76,396 $ 89,679 $ 71,358
================= =================== ===============
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid (received) $ 55,144 $ 99,810 $ (7,904)
================= =================== ===============
</TABLE>
See Notes to Consolidated Financial Statements
B4
<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 is
licensed to sell individual life insurance, variable life insurance, variable
annuities, fixed annuities, and a group annuity program ("the Contracts") in the
District of Columbia, Guam and in all states and territories except New York. 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, 1998 or 1999 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 is currently considering
reorganizing itself into a publicly traded stock company through a process known
as "demutualization." On February 10, 1998, Prudential's Board of Directors
authorized management to take the preliminary steps necessary to allow
Prudential 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 Prudential's Board of Directors, a
public hearing and review and approval by two-thirds of the qualified
policyholders who vote on the plan, review and approved by the New Jersey
Department of Banking and Insurance. Prudential's management is in the process
of developing a proposed plan of demutualization, although there can be no
assurance that Prudential's Board of Directors will approve such a plan.
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. ("GAAP"). The
Company has extensive transactions and relationships with Prudential and other
affiliates, as more fully described in Footnote 14. Due to these relationships,
it is possible that the terms of these transactions are not the same as those
that would result from transactions among wholly unrelated parties. All
significant intercompany transactions and balances have been eliminated in
consolidation.
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, in particular deferred policy acquisition costs ("DAC")
and future policy benefits, 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 policyholders' account
balances 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."
B5
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 policyholders' account balances 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 an allowance for losses. The allowance for
losses includes a loan specific reserve for impaired loans and a portfolio
reserve for incurred but not specifically identified losses. Impaired loans
include those loans for which a probability exists that all amounts due
according to the contractual terms of the loan agreement will not be collected.
Impaired loans are measured at the present value of expected future cash flows
discounted at the loan's effective interest rate, or at 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 accruing 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 uncollectible interest 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 the payment of interest has been interrupted for a substantial period, a
regular payment performance has been established. The portfolio reserve for
incurred but not specifically identified losses considers the Company's past
loan loss experience, the current credit composition of the portfolio,
historical credit migration, property type diversification, default and loss
severity statistics and other relevant factors.
Policy loans are carried at unpaid principal balances.
Short-term investments, including highly liquid debt instruments purchased with
an original maturity of twelve months or less, are carried at amortized cost,
which approximates fair value.
Other long-term investments 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. The Company's investment in the Separate
Accounts are included on this line.
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".
Policy acquisition costs related to interest-sensitive products and certain
investment-type products are deferred and amortized over the expected life of
the contracts (periods ranging from 15 to 30 years) in proportion to estimated
gross profits arising principally from investment results, mortality and expense
margins, and surrender charges based on historical and anticipated future
experience, which is updated periodically. The effect of changes to estimated
gross profits on unamortized deferred acquisition costs is reflected in "General
and administrative expenses" in the period such estimated gross profits are
revised.
B6
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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% and 105% of the fair value of the domestic and foreign
securities, respectively. 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 because the debtor typically has the right to redeem the
collateral on short notice. Substantially all of the Company's securities loaned
are with large brokerage firms.
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. Assets to be repurchased are the same, or substantially
the same, as the assets transferred and the transferor, through right of
substitution, maintains the right and ability to redeem the collateral on short
notice. The market value of securities to be repurchased is monitored and
additional collateral is obtained, 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 Statements 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.
B7
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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".
Asset Management Fees
The Company receives asset management fee income from policyholder account
balances invested in The Prudential Series Fund ("PSF"), which are a portfolio
of mutual fund investments related to the Company's Separate Account products.
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 seek to reduce 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 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 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.
B8
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("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 does not apply to most traditional
insurance contracts. However, certain hybrid contracts that contain features
which may 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.
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).
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, as amended, as of
January 1, 2001 and is currently assessing the effect of the new standard.
In October 1998, the American Institute of Certified Public Accountants
("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.
B9
<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>
1999
--------------------------------------------------------------
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 $ 113,172 $ 2 $ 2,052 $ 111,122
Foreign government bonds 92,725 1,718 1,455 92,988
Corporate securities 2,876,602 8,013 92,075 2,792,540
Mortgage-backed securities 1,558 157 3 1,712
---------- ---------- ---------- ----------
Total fixed maturities available for sale $3,084,057 $ 9,890 $ 95,585 $2,998,362
========== ========== ========== ==========
Fixed maturities held to maturity
Corporate securities $ 388,990 $ 1,832 $ 13,000 $ 377,822
---------- ---------- ---------- ----------
Total fixed maturities held to maturity $ 388,990 $ 1,832 $ 13,000 $ 377,822
========== ========== ========== ==========
Equity securities available for sale $ 3,238 $ 1,373 $ 79 $ 4,532
========== ========== ========== ==========
</TABLE>
<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 corporation and agencies $ 110,294 $ 864 $ 319 $ 110,839
Foreign government bonds 87,112 2,003 696 88,419
Corporate securities 2,540,498 30,160 6,896 2,563,762
Mortgage-backed securities 750 156 -- 906
---------- ---------- ---------- ----------
Total fixed maturities available for sale $2,738,654 $ 33,183 $ 7,911 $2,763,926
========== ========== ========== ==========
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
========== ========== ========== ==========
Equity securities available for sale $ 2,951 $ 168 $ 272 $ 2,847
========== ========== ========== ==========
</TABLE>
B10
<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, 1999 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 $ 178,298 $ 175,638 $ 18,369 $ 18,296
Due after one year through five 1,144,552 1,118,150 178,893 178,624
years
Due after five years through ten 1,326,637 1,283,515 175,549 165,341
years
Due after ten years 433,012 419,347 16,179 15,561
Mortgage-backed securities 1,558 1,712 - -
---------------- ------------------- ----------------- ------------------
Total $3,084,057 $2,998,362 $ 388,990 $ 377,822
================ =================== ================= ==================
</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 1999, 1998,
and 1997 were $2,950.4 million, $5,327.3 million, and $2,796.3 million,
respectively. Gross gains of $13.1 million, $46.3 million, and $18.6 million and
gross losses of $31.1 million, $14.1 million, and $7.9 million were realized on
those sales during 1999, 1998, and 1997, respectively. During the years ended
December 31, 1999, 1998, and 1997, there were no securities classified as held
to maturity that were sold.
Proceeds from the maturity of fixed maturities available for sale during 1999,
1998, and 1997 were $126.5 million, $102.1 million, and $32.4 million,
respectively
Writedowns for impairments of fixed maturities which were deemed to be other
than temporary were $11.2 million, $2.8 million and $0.1 million for the years
1999, 1998 and 1997, respectively.
Mortgage Loans on Real Estate
The Company's mortgage loans were collateralized by the following property types
at December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
---------------------------- ---------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Retail stores $ 6,518 62.0% $ 7,356 42.4%
Apartment complexes - - 5,988 34.5%
Industrial buildings 3,991 38.0% 4,010 23.1%
---------------------------- ---------------------------
Net carrying value $10,509 100.0% $17,354 100.0%
============================ ===========================
</TABLE>
The largest concentration of mortgage loans are in the states of Washington
(51%), New Jersey (38%), and North Dakota (11%).
Special Deposits and Restricted Assets
Fixed maturities of $8.2 million and $8.6 million at December 31, 1999 and 1998,
respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws. Equity securities restricted as to sale were
$.3 million and $2.5 million at December 31, 1999 and 1998, respectively.
B11
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
Other Long-Term Investments
The Company's "Other long-term investments" of $77.8 million and $42.0 million
as of December 31, 1999 and 1998, respectively, are comprised of joint ventures,
limited partnerships, and the Company's investment in the Separate Accounts.
Joint ventures, limited partnerships and other totaled $32.8 million and $1.0
million at December 31, 1999 and 1998, respectively. The Company's share of net
income from the joint ventures was $0.3 million, $0.1 million and $2.2 million
for the years ended December 31, 1999, 1998 and 1997, respectively, and is
reported in "Net investment income." The Company's investment in the Separate
Accounts was $45.0 million and $41.0 million at December 31, 1999 and 1998,
respectively.
Investment Income and Investment Gains and Losses
Net investment income arose from the following sources for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale $188,236 $179,184 $ 161,140
Fixed maturities - held to maturity 29,245 26,128 26,936
Equity securities - 14 76
Mortgage loans on real estate 2,825 1,818 2,585
Policy loans 42,422 40,928 37,398
Short-term investments 19,208 23,110 22,011
Other 4,432 6,886 14,920
---------------- ----------------- -----------------
Gross investment income 286,368 278,068 265,066
Less: investment expenses (9,547) (16,638) (5,432)
---------------- ----------------- -----------------
Net investment income $276,821 $261,430 $ 259,634
================ ================= =================
</TABLE>
Realized investment gains (losses), net including charges for other than
temporary reductions in value, for the years ended December 31, were from the
following sources:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale $ (29,192) $29,330 $9,039
Fixed maturities - held to maturity 102 487 821
Equity securities 392 3,489 8
Mortgage loans on real estate - - 797
Derivative instruments (1,557) 12,414 -
Other (2,290) (879) 309
---------------- ----------------- -----------------
Realized investment (losses) gains, net $ (32,545) $44,841 $10,974
================ ================= =================
</TABLE>
B12
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Net Unrealized Investment Gains (Losses)
Net unrealized investment gains (losses) on securities available for sale are
included in the Consolidated Statements of Financial Position as a component of
"Accumulated other comprehensive income". Changes in these amounts include
reclassification adjustments to avoid including in "Other Comprehensive income
(loss)", those items that are included as part of "Net income" for a period that
also had been part of "Other Comprehensive income (loss)" in earlier periods.
The amounts for the years ended December 31, net of tax, are as follows:
<TABLE>
<CAPTION>
Accumulated
other
comprehensive
income (loss)
Deferred Deferred related to net
Unrealized policy Policyholders' income tax unrealized
gains(losses) acquisition Account (liability) investment
investments costs Balances benefit gains(losses)
--------- --------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 26,930 $ (7,893) $ 2,451 $ (7,384) $ 14,104
Net investment gains (losses) on
investments arising during the period 21,338 -- -- (7,445) 13,893
Reclassifications adjustment for
gains included in net income (10,277) -- -- 3,585 (6,692)
Impact of net unrealized investment
gains on deferred policy acquisition
costs -- (8,412) -- 2,944 (5,468)
Impact of net unrealized investment
gains on policyholders' account
balances -- -- 1,292 -- 1,292
--------- --------- --------- --------- ---------
Balance, December 31, 1997 37,991 (16,305) 3,743 (8,300) 17,129
Net investment gains (losses) on
investments arising during the period 22,801 -- -- (7,588) 15,213
Reclassifications adjustment for
gains included in net income (35,623) -- -- 11,855 (23,768)
Impact of net unrealized investment
gains on deferred policy acquisition
costs -- 3,190 -- (1,048) 2,142
Impact of net unrealized investment
gains on policyholders' account
balances -- -- (1,063) 249 (814)
--------- --------- --------- --------- ---------
Balance, December 31, 1998 25,169 (13,115) 2,680 (4,832) 9,902
Net investment gains (losses) on
investments arising during the period (138,268) -- -- 47,785 (90,483)
Reclassifications adjustment for
gains included in net income 28,698 -- -- (9,970) 18,728
Impact of net unrealized investment
gains on deferred policy acquisition -- 53,407 -- (16,283) 37,124
costs
Impact of net unrealized investment
gains on policyholders' account -- -- (5,712) 2,077 (3,635)
balances
--------- --------- --------- --------- ---------
Balance, December 31, 1999 $ (84,401) $ 40,292 $ (3,032) $ 18,777 $ (28,364)
========= ========= ========= ========= =========
</TABLE>
B13
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
4. DEFERRED POLICY ACQUISITION COSTS
The balances of and changes in deferred policy acquisition costs for the year
ended December 31, 1999, are as follows:
<TABLE>
<CAPTION>
1999
-----------------
(In Thousands)
<S> <C>
Balance, beginning of year $ 861,713
Capitalization on commissions, sales and issue expenses 242,373
Amortization (96,451)
Change in unrealized investment gains 53,407
Foreign currency translation 1,743
-----------------
Balance, end of year $1,062,785
=================
</TABLE>
5. POLICYHOLDERS' LIABILITIES
Future policy benefits and other policyholder liabilities at December 31 are as
follows:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
(In Thousands)
<S> <C> <C>
Life insurance $ 587,162 $ 500,429
Annuities 48,816 28,350
------------------- -------------------
$ 635,978 $ 528,779
=================== ===================
</TABLE>
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 guaranteed 2.5% to 7.5% Net level premium based
in calculating cash on the non-forfeiture interest
surrender values rate
Life insurance - International Generally rates guaranteed 2.5% to 7.5% Net level premium based
in calculating cash on the expected investment
surrender values return
Individual immediate annuities 1983 Individual Annuity 3.5% to 11.0% Present value of
Mortality Table with expected future payment
certain modifications based on historical
experience
</TABLE>
B14
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
5. POLICYHOLDERS' LIABILITIES (continued)
Policyholders' account balances at December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
(In Thousands)
<S> <C> <C>
Interest-sensitive life contracts $1,383,795 $1,392,649
Individual annuities 1,147,722 1,077,996
Guaranteed investment contracts 584,744 231,366
------------------- -------------------
$3,116,261 $2,702,011
=================== ===================
</TABLE>
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 and 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 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 7.32% Subject to market value withdrawal
provisions for any funds withdrawn
other than for benefit responsive
and contractual payments
</TABLE>
6. 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 of 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.
B15
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
6. REINSURANCE (continued)
Reinsurance amounts included in the Consolidated Statements of Operations for
the year ended December 31 are below.
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Reinsurance premiums assumed 1,778 1,395 1,369
Reinsurance premiums ceded - affiliated (6,882) (6,532) (686)
Reinsurance premiums ceded - unaffiliated (1,744) (2,819) (3,038)
================ ================ ================
Policyholders' benefits ceded $4,228 $4,044 $3,912
================ ================ ================
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998
------------------- -----------------
(In Thousands)
<S> <C> <C>
Life insurance - affiliated $ 6,653 $ 4,155
Life insurance - unaffiliated 2,625 2,326
Other reinsurance - affiliated 15,600 21,650
------------------- -----------------
$24,878 $28,131
=================== =================
</TABLE>
7. 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, 1998 and the projected benefit obligation and related expenses at
December 31, 1999 were 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 by Prudential in accordance with the
service agreement described in Footnote 14.
B16
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. INCOME TAXES
The components of income taxes for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Current tax expense (benefit):
U.S. $ (14,093) $67,272 $71,989
State and local 378 2,496 1,337
Foreign 15 - -
---------------- ----------------- -----------------
Total (13,700) 69,768 73,326
---------------- ----------------- -----------------
Deferred tax expense (benefit):
U.S. 42,320 14,059 (11,458)
State and local 1,316 406 -
---------------- ----------------- -----------------
Total 43,636 14,465 (11,458)
---------------- ----------------- -----------------
Total income tax expense $29,936 $84,233 $61,868
================ ================= =================
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Expected federal income tax expense $29,936 $82,668 $58,885
State and local income taxes 1,101 1,886 869
Dividends received deduction (1,010) (199) -
Other (91) (122) 2,114
---------------- ----------------- -----------------
Total income tax expense $29,936 $84,233 $61,868
================ ================= =================
</TABLE>
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
<TABLE>
<CAPTION>
1999 1998
------------------ -------------------
(In Thousands)
<S> <C> <C>
Deferred tax assets
Insurance reserves $ 93,949 $ 93,564
Net unrealized (gains) losses on
securities 31,132 (9,061)
Other 2,502 -
------------------ -------------------
Deferred tax assets 127,583 84,503
------------------ -------------------
Deferred tax liabilities
Deferred acquisition costs 299,683 224,179
Net investment gains 110 3,180
Other - 5,978
------------------ -------------------
Deferred tax liabilities 299,793 233,337
------------------ -------------------
Net deferred tax liability $172,210 $148,834
================== ===================
</TABLE>
B17
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. INCOME TAXES (continued)
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, 1999
and 1998, 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 all examinations of
the consolidated federal income tax returns through 1992. The Service has begun
their examination of the years 1993 through 1995.
9. EQUITY
Reconciliation of Statutory Surplus and Net Income
Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following table
reconciles the Company's statutory net income and surplus as of and for the
years ended December 31, determined in accordance with accounting practices
prescribed or permitted by the Arizona Department of Insurance and the New
Jersey Department of Banking and Insurance with net income and equity determined
using GAAP.
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Statutory net (loss) income $ (82,291) $ (33,097) $ 12,778
Adjustments to reconcile to net income on a GAAP basis:
Statutory income of subsidiaries 20,221 18,953 18,553
Amortization and capitalization of deferred
acquisition costs 145,921 202,375 38,003
Deferred premium 639 2,625 1,144
Insurance revenue and expenses 45,915 (24,942) 26,517
Income taxes (43,644) (21,805) 11,956
Valuation of investments (24,908) 20,077 506
Asset management fees (13,503) - -
Other, net 7,245 (12,224) (3,083)
---------------- ---------------- ----------------
GAAP net income $ 55,595 $151,962 $106,374
================ ================ ================
1999 1998
----------------- -----------------
(In Thousands)
Statutory surplus $889,186 $931,164
Adjustments to reconcile to equity on a GAAP basis:
Valuation of investments (38,258) 117,254
Deferred acquisition costs 1,062,785 861,713
Deferred premium (16,539) (15,625)
Insurance liabilities (54,927) (133,811)
Income taxes (150,957) (123,343)
Asset management fees (13,503) -
Other, net (7,968) 15,880
----------------- -----------------
GAAP stockholder's equity $1,669,819 $1,653,232
================= =================
</TABLE>
B18
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. 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).
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.
Investment contracts
For guaranteed investment contracts, estimated fair values 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. Estimated fair values for individual deferred annuities
are derived using the policyholder's account balance.
Derivative financial instruments
The fair value of futures is estimated based on market quotes for 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>
1999 1998
---------------------------------- --------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------------- ---------------- --------------- ----------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities: Available for sale $2,998,362 $2,998,362 $2,763,926 $2,763,926
Fixed maturities: Held to maturity 388,990 377,822 410,558 421,845
Equity securities 4,532 4,532 2,847 2,847
Mortgage loans on real estate 10,509 11,550 17,354 19,465
Policy loans 792,352 761,232 766,917 806,099
Short-term investments 207,219 207,219 240,727 240,727
Cash 76,396 76,396 89,679 89,679
Separate Account assets 16,032,449 16,032,449 11,490,751 11,490,751
Derivatives 38 38 - -
Financial Liabilities:
Investment contracts $1,282,964 $1,277,317 $ 835,034 $ 839,105
Cash collateral for loaned securities 87,336 87,336 73,336 73,336
Securities sold under repurchase
agreements 21,151 21,151 49,708 49,708
Separate Account liabilities 16,032,449 16,032,449 11,490,751 11,490,751
Derivatives 5,012 5,243 1,723 2,374
</TABLE>
B19
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
11. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
Futures & Options
The Company uses exchange-traded Treasury futures and options to reduce market
risk from changes in interest rates and to manage the duration of assets and the
duration of liabilities supported by those assets. 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.
Treasury futures move substantially in value as interest rates change and can be
used to either modify 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.
If futures 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 $122.1 million and $40.8 million at December 31, 1999 and
1998, respectively. The fair value of futures contracts was $(2.0) million at
December 31, 1999 and immaterial at December 31, 1998.
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, 1999 and 1998.
Currency Derivatives
The Company uses currency swaps to reduce market risk from changes in currency
values of investments denominated in foreign currencies that the Company either
holds or intends to acquire and to manage 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 swaps are effective as hedges of foreign currency translation and
transaction exposures, gains or losses are recorded in "Accumulated Other
Comprehensive Income". If currency swaps do not meet hedge accounting criteria,
gains or losses from those derivatives are recognized in current period
earnings.
The notional value and fair value of the currency swaps $31.0 million and $(3.2)
million and $40.5 million and $(2.3) million, respectively, at December 31, 1999
and 1998.
B20
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
11. 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. All of the
net credit exposure for the Company from derivative contracts are with
investment grade counterparties. As of December 31, 1999, 80% of notional
consisted of interest rate derivatives, and 20% of notional consisted of foreign
currency derivatives.
12. CONTINGENCIES
Various lawsuits against the Company have arisen in the course of the Company's
business. In certain of these matters, large and/or indeterminate amounts are
sought.
On October 28, 1996, the Company entered into a Stipulation of Settlement with
attorneys for the plaintiffs in a consolidated class action lawsuit pending in a
Multi-District Litigation proceeding in the U.S. District Court for the District
of New Jersey. The class action suit involved alleged improprieties in
connection with the sale, servicing and operation of permanent life insurance
policies from 1982 through 1995. Pursuant to the settlement, the Company has
participated in a remediation program pursuant to which relief was offered to
policyowners who were misled when they purchased permanent life insurance
policies in the United States from 1982 to 1995. Prudential has agreed to
indemnify the Company for any liability incurred in connection with that
litigation.
The balance of the Company's litigation is subject to many uncertainties, and
given the complexity and scope, the outcomes cannot be predicted with precision.
Management believes that any ultimate liability which could result from such
litigation would not have a material adverse effect on the Company's financial
position.
13. 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, 1999, the
Company would not be permitted a non-extraordinary dividend distribution in
2000.
14. RELATED PARTY TRANSACTIONS
Service Agreements
Prudential and the Company operate under service and lease agreements whereby
services of officers and employees (except for those agents employed directly by
the Company in Taiwan), supplies, use of equipment and office space are provided
by Prudential. Prudential periodically reviews its methods for determining the
level of administrative expenses charged to the Company. Late in 1998,
Prudential revised its allocation methodology to more closely align allocations
based on business processes, resulting in increased allocations from 1998
levels. Management believes that the updated methodology is reasonable and
better reflects actual costs incurred by Prudential to process transactions on
behalf of the Company. The net cost of these services allocated to the Company
were $317.4 million, $269.9 million and $139.5 million for the years ended
December 31, 1999, 1998, and 1997, respectively.
In addition, the Company received allocated distribution expenses from
Prudential's retail agency network. Beginning in 1999, market based distribution
transfer pricing was the basis for allocating costs to each product line that
distributes products through Prudential's retail agency channels. A majority of
these distribution expenses have been capitalized by the Company as deferred
policy acquisition costs ("DAC").
The Company receives asset management fee income from policyholder account
balances invested in the Prudential Series Fund ("PSF"). These amounts are shown
as asset management fees on the statement of operations. The Company also
collects these fees on behalf of Prudential. The amounts due to Prudential
related to PSF fees were $0.1 million and $22.6 million at December 31, 1999 and
December 31, 1998, respectively.
B21
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
14. RELATED PARTY TRANSACTIONS (continued)
The Company pays an asset management fee to Prudential Global Asset Management
("PGAM") for managing the Separate Account investment portfolio. The expense for
the year was $25.9 million, which is shown in general, administrative and other
expenses.
The Company has sold three Corporate Owned Life Insurance ("COLI") policies to
Prudential. The cash surrender value included in Separate Accounts was $725.3
million and $362.3 million at December 31, 1999, and 1998, respectively. The
fees received in 1999 related to the COLI policies were $4.0 million.
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, 1999, 1998,
and 1997.
Debt Agreements
In July 1998, the Company established a revolving line of credit facility of up
to $500 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, 1999.
B22
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholder 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 (a
wholly-owned subsidiary of the Prudential Insurance Company of America) and
its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. 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 auditing standards
generally accepted in the United States 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
March 21, 2000
B23
<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.
[LOGO OF PRUDENTIAL APPEARS HERE]
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone: 800 778-2255
VLI-1 Ed. 5/2000 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 ("Pruco Life") 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.
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, permits entities
organized under its jurisdiction to indemnify directors and officers with
certain limitations. The relevant provisions of Arizona law permitting
indemnification can be found in Section 10-850 et seq. of the Arizona Statutes
Annotated. The text of Pruco Life's By-law, Article VIII, which relates to
indemnification of officers and directors, is incorporated by reference to
Exhibit 3(ii) to its Form 10-Q, 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 73 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)
II-2
<PAGE>
(m) Copy of Rhode Island Endorsement PLI-47 to the Variable Life
Insurance Contract. (Note 6)
(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)
II-3
<PAGE>
(g) Rider for Level Term Insurance Benefit on Dependent
Children. (Note 6)
(h) Rider for Impaired Eyesight. (Note 6)
(i) Rider for Insured's Waiver of Premium Benefit. (Note 6)
(j) Rider for Insured's Accidental Death Benefit. (Note 6)
(k) Rider for Aviation Risk Exclusion. (Note 6)
(l) Rider for Aviation Risk Exclusion. (Note 6)
(m) Rider for Military Aviation Risk Exclusion. (Note 6)
(n) Rider for Military Aviation Risk Exclusion. (Note 6)
(o) Rider for Level Term Insurance Benefit on Dependent
Children. (Note 6)
(p) Rider for Insured's Waiver of Premium Benefit. (Note 6)
(q) Rider for Insured's Waiver of Premium Benefit. (Note 6)
(r) Rider for Insured's Accidental Death Benefit. (Note 6)
(s) Rider for Insured's Accidental Death Benefit. (Note 6)
(t) Rider for Insured's Accidental Death Benefit. (Note 6)
(u) Rider for Level Term Insurance Benefit on Dependent
Children. (Note 6)
(v) Rider for Level Term Insurance Benefit on Dependent
Children. (Note 6)
(w) Rider for Reduced Paid-Up Insurance. (Note 6)
(x) Rider for Exempting Child from Reinstatement. (Note 6)
(y) Rider Defining Incontestable Period. (Note 6)
(z) Rider for Modification of Insured's Waiver of Premium
Benefit Provision. (Note 6)
(aa) Rider for Termination of Benefit. (Note 6)
(bb) Rider for Aviation Risk Exclusion. (Note 6)
(cc) Rider for Military Aviation Risk Exclusion. (Note 6)
(dd) Rider for War Risk Exclusion. (Note 6)
(ee) Rider Defining Incontestable Period. (Note 6)
(ff) Rider for Suicide Provision. (Note 6)
(gg) Rider Defining Incontestable Period. (Note 6)
(hh) Rider for Aviation Risk Exclusion. (Note 6)
(ii) Rider for Military Aviation Risk Exclusion. (Note 6)
(jj) Rider for Level Term Benefit on Dependent Children.
(Note 6)
(kk) Rider for Insured's Waiver of Premium Benefit. (Note 6)
(ll) Rider for Insured's Accidental Death Benefit. (Note 6)
(mm) Rider for Ownership and Control. (Note 6)
(nn) Rider for Ownership and Control. (Note 6)
(oo) Rider for Applicant's Waiver of Premium Benefit. (Note 6)
(pp) Rider for Applicant's Waiver of Premium Benefit. (Note 6)
(qq) Rider for Applicant's Waiver of Premium Benefit. (Note 6)
(rr) Rider for Applicant's Waiver of Premium Benefit. (Note 6)
(ss) Rider for Applicant's Waiver of Premium Benefit. (Note 6)
(tt) Rider for Applicant's Waiver of Premium Benefit. (Note 6)
(uu) Rider for Level Term Benefit on Insured for use in West
Virginia. (Note 6)
(vv) Rider for Level Term Benefit on Insured for use in all
states except West Virginia. (Note 6)
(ww) Rider permitting Special Premium Remittance Plan for use in
all states except New York, New Jersey, and Pennsylvania.
(Note 6)
(xx) Rider for Variable Loan Interest Rate for use in all states
except New York, New Jersey, and Michigan. (Note 6)
(yy) Rider for Variable Loan Interest Rate for use in Michigan.
(Note 6)
(zz) Rider permitting Special Premium Remittance Plan for use in
Pennsylvania. (Note 6)
(aaa) Rider for Decreasing Term Insurance Benefit for use in West
Virginia. (Note 6)
(bbb) Rider for Decreasing Term Insurance Benefit for use in all
states except New York, New Jersey and West Virginia.
(Note 6)
(ccc) Rider for Decreasing Term Insurance Benefit on life of
Insured Spouse for use in all states except New York, New
Jersey, South Carolina and West Virginia. (Note 6)
(ddd) Rider for Decreasing Term Insurance Benefit on life of
Insured Spouse for use in South Carolina. (Note 6)
(eee) Rider for Decreasing Term Insurance Benefit on life of
Insured Spouse for use in West Virginia. (Note 6)
(fff) Rider for Variable Loan Interest Rate for use in Michigan.
(Note 6)
(ggg) Rider for Variable Loan Interest Rate for use in South
Carolina. (Note 6)
II-4
<PAGE>
(hhh) Rider for Variable Loan Interest Rate for use in all states
except New York, New Jersey, Michigan and South Carolina.
(Note 6)
(iii) Rider providing Options on Lapse for use in all states
except New York and New Jersey. (Note 6)
(jjj) Rider for Variable Reduced Paid-Up Insurance for use in all
states except New York and New Jersey. (Note 6)
(kkk) Living Needs Benefit Rider for use in Florida. (Note 4)
(lll) Living Needs Benefit Rider for use in all approved
jurisdictions except Florida.
(Note 4)
2. See Exhibit 1.A.(5).
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of the
securities being registered. (Note 1)
4. None.
5. Not Applicable.
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as to actuarial matters
pertaining to the securities being registered. (Note 1)
7. Powers of Attorney.
(a) William M. Bethke, Ira J. Kleinman,
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)
(e) David R. Odenath, Jr. (Note 9)
-------------------------------------
(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.
(Note 9) Incorporated by reference to Post-Effective Amendment No. 7 to Form
S-1, Registration No. 33-86780, filed April 12, 2000 on behalf of the
Pruco Life Variable Contract Real Property Account.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life Variable Insurance Account, certifies that this Amendment is filed
solely for one or more of the purposes specified in Rule 485(b)(1) under the
Securities Act of 1933 and that no material event requiring disclosure in the
prospectus, other than one listed in Rule 485(b)(1), has occurred since the
effective date of the most recent Post-Effective Amendment to the Registration
Statement which included a prospectus and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized and its seal hereunto affixed and attested, all in the city of Newark
and the State of New Jersey, on this 26th day of April, 2000.
(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. 27 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 26th day of April,
2000.
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/ *
- -------------------------------------------
David R. Odenath, Jr.
- ---------------------
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. 27 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated March 17, 2000, relating to the
financial statements of the Pruco Life Variable Insurance Account, which appears
in such Prospectus.
We also consent to the use in the Prospectus constituting part of this
Registration Statement of our report dated March 21, 2000, relating to the
consolidated financial statements of Pruco Life Insurance Company and its
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 24, 2000
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
Consent of PricewaterhouseCoopers LLP, independent accountants. Page II-7
3. Opinion and Consent of Clifford E. Kirsch, Esq., as to the legality of Page II-9
the securities being registered.
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as to actuarial Page II-10
matters pertaining to the securities being registered.
</TABLE>
II-8
<PAGE>
EXHIBIT 99.3
April 24, 2000
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
<PAGE>
EXHIBIT 99.6
April 24, 2000
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 (the "Contracts") under
the Securities Act of 1933. The prospectus included in Post-Effective Amendment
No. 27 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 cash values and death benefits included in the
section entitled "Illustrations of Cash Values, Death Benefits, and
Accumulated Premiums," 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.
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
