AS FILED WITH THE SEC ON________________. REGISTRATION NO. 2-89558
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 25
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
---------------
PRUCO LIFE
VARIABLE APPRECIABLE ACCOUNT
(Exact Name of Trust)
PRUCO LIFE INSURANCE COMPANY
(Name of Depositor)
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(800) 437-4016, EXT. 46
(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
---------------
Variable Appreciable Life Insurance Contracts--The Registrant has registered an
indefinite amount of securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Rule 24f-2 notice for fiscal year 1995 was filed on
February 29, 1996.
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, 1996 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 Appreciable Account
6. Pruco Life Variable Appreciable Account
7. Not Applicable
8. Not Applicable
9. Litigation
10. Brief Description of the Contract; Short-Term
Cancellation Right, or "Free Look"; Contract
Forms; Transfers; How a Contract's Cash Surrender
Value Will Vary; How a Contract's Death Benefit
Will Vary; Surrender of a Contract; Withdrawal of
Excess Cash Surrender Value; When Proceeds are
Paid; Contract Loans; Lapse and Reinstatement;
Options on Lapse; Right to Exchange a Contract for
a Fixed-Benefit Insurance Policy; Contracts Issued
In Connection With Tax-Qualified Pension Plans;
The Fixed-Rate Option; Voting Rights; Substitution
of Series Fund Shares; Increases in Face Amount;
Decreases in Face Amount
11. Brief Description of the Contract; Pruco Life
Variable Appreciable 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.; Premiums; Allocation
of Premiums; Charges and Expenses; Reductions of
Charges for Concurrent Sales to Several
Individuals; Sale of the Contract and Sales
Commissions
14. Brief Description of the Contract; Detailed
Information for Prospective Contract Owners
15. Brief Description of the Contract; Premiums;
Allocation of Premiums; Transfers; The Fixed Rate
Option
16. Brief Description of the Contract; Detailed
Information for Prospective Contract Owners
17. Surrender of a Contract; Withdrawal of Excess
Cash Surrender Value; When Proceeds are Paid
18. Pruco Life Variable Appreciable Account; How a
Contract's Cash Surrender Value Will Vary
19. Reports to Contract Owners
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
20. Not Applicable
21. Contract Loans
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions; The
Prudential Series Fund, Inc.
25. Pruco Life Insurance Company; The Prudential
Series Fund, Inc.
26. Brief Description of the Contract; The
Prudential Series Fund, Inc.; Charges and Expenses
27. Pruco Life Insurance Company
Pruco Life Insurance Company; Directors and
28. 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
Cash Surrender Value Will Vary; How a Contract's
Death Benefit Will Vary
45. Not Applicable
46. Brief Description of the Contract; Pruco Life
Variable Appreciable Account; The Prudential
Series Fund, Inc.
47. Pruco Life Variable Appreciable Account
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Series Fund Shares
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
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 Appreciable Account;
Consolidated Financial Statements of Pruco Life
Insurance Company and Subsidiaries
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
PROSPECTUS
May 1, 1996
PRUCO LIFE INSURANCE COMPANY
VARIABLE APPRECIABLE ACCOUNT
Variable
APPRECIABLE
LIFE(R)---------------------
INSURANCE CONTRACTS
This prospectus describes certain variable life insurance contracts issued by
Pruco Life Insurance Company ("Pruco Life"), a stock life insurance company that
is a wholly-owned subsidiary of The Prudential Insurance Company of America
("The Prudential"). Pruco Life calls these contracts its Variable APPRECIABLE
LIFE(R) Insurance Contracts* (the "Contract"). As of May 1, 1992, these
Contracts are no longer available for sale. These Contracts provide whole-life
insurance protection. That is, they provide lifetime insurance coverage, as long
as scheduled premiums are paid or charges are provided for by favorable
investment experience. They also generally provide a cash surrender value for
the owner if the Contract is terminated during the insured's lifetime. A
purchaser may choose one form of this Contract which provides a death benefit
that remains fixed in the amount initially selected (unless it is increased by
Pruco Life to ensure that the Contract maintains its status as life insurance
under the Internal Revenue Code) or a second form which provides a death benefit
that varies daily with the investment performance of the subaccounts of the
Pruco Life Variable Appreciable Account (the "Account") to which the owner
allocates the invested portion of the premiums. Even under the second form of
Contract, however, investment performance cannot cause the death benefit to be
less than a guaranteed minimum amount (the face amount specified in the
Contract). The cash surrender value of a Contract generally increases with the
payment of each premium, and it also varies daily with investment performance.
The cash surrender value also decreases to reflect the imposition of charges.
There is no guaranteed minimum cash surrender value.
A portion of the Contract's premiums and the earnings on those premiums will be
held in one or more of the following ways. They can be invested in one or more
of thirteen current subaccounts of the Account. They can be allocated to a
FIXED-RATE OPTION. Or, they can be invested in the Pruco Life Variable Contract
Real Property Account (the "REAL PROPERTY ACCOUNT") which is described in a
prospectus that is attached to this one. If one or more of the subaccounts is
chosen, the assets of each subaccount will be invested in a corresponding
portfolio of The Prudential Series Fund, Inc. (the "Series Fund"). The attached
prospectus for the Series Fund and its statement of additional information
describe the investment objectives of and the risks of investing in the thirteen
portfolios of the Series Fund currently available to Contract owners: the MONEY
MARKET PORTFOLIO, the DIVERSIFIED BOND PORTFOLIO, the GOVERNMENT INCOME
PORTFOLIO, the CONSERVATIVE BALANCED PORTFOLIO, the FLEXIBLE MANAGED PORTFOLIO,
the HIGH YIELD BOND PORTFOLIO, the STOCK INDEX PORTFOLIO, the EQUITY INCOME
PORTFOLIO, the EQUITY PORTFOLIO, the PRUDENTIAL JENNISON PORTFOLIO, the SMALL
CAPITALIZATION STOCK PORTFOLIO, the GLOBAL PORTFOLIO, and the NATURAL RESOURCES
PORTFOLIO. Other subaccounts and portfolios may be added in the future. Interest
is credited daily upon any portion of the premium payment allocated to the
fixed-rate option at rates periodically declared by Pruco Life in its sole
discretion but never less than 4%. This prospectus describes the Contracts
generally and the Pruco Life Variable Appreciable Account.
REPLACING EXISTING LIFE INSURANCE WITH A CONTRACT DESCRIBED IN THIS PROSPECTUS
MAY NOT BE TO YOUR ADVANTAGE. IF YOU CURRENTLY OWN A LIFE INSURANCE CONTRACT,
THE BENEFITS AND COSTS OF PURCHASING ADDITIONAL INSURANCE UNDER THE EXISTING
POLICY SHOULD BE COMPARED WITH THE BENEFITS AND COSTS OF PURCHASING THE CONTRACT
DESCRIBED IN THIS PROSPECTUS. IN MAKING THIS COMPARISON, YOU SHOULD CONSULT WITH
A QUALIFIED TAX ADVISOR.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ATTACHED TO
A CURRENT PROSPECTUS FOR THE PRUDENTIAL SERIES FUND, INC. AND A CURRENT
PROSPECTUS FOR THE PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 437-4016, Ext. 46
*APPRECIABLE LIFE is a registered mark of The Prudential.
VAL-1 Ed 5-96 Catalog #64696EO
<PAGE>
PROSPECTUS CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
BRIEF DESCRIPTION OF THE CONTRACT........................................................................................... 1
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, PRUCO LIFE VARIABLE
APPRECIABLE ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER THE
CONTRACT........................................................................................................... 4
PRUCO LIFE INSURANCE COMPANY....................................................................................... 4
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT............................................................................ 4
THE PRUDENTIAL SERIES FUND, INC.................................................................................... 4
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT................................................................. 5
WHICH INVESTMENT OPTION SHOULD BE SELECTED......................................................................... 6
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS........................................................................ 6
REQUIREMENTS FOR ISSUANCE OF A CONTRACT............................................................................ 6
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"....................................................................... 6
CONTRACT FORMS..................................................................................................... 7
PREMIUMS .......................................................................................................... 8
CONTRACT DATE...................................................................................................... 9
ALLOCATION OF PREMIUMS............................................................................................. 9
TRANSFERS.......................................................................................................... 10
CHARGES AND EXPENSES............................................................................................... 11
REDUCTION OF CHARGES FOR CONCURRENT SALES TO SEVERAL INDIVIDUALS................................................... 14
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY.................................................................... 14
HOW A CONTRACT'S DEATH BENEFIT WILL VARY........................................................................... 15
WHEN A CONTRACT BECOMES PAID-UP.................................................................................... 16
FLEXIBILITY AS TO PAYMENT OF PREMIUMS.............................................................................. 16
SURRENDER OF A CONTRACT............................................................................................ 17
WITHDRAWAL OF EXCESS CASH SURRENDER VALUE.......................................................................... 17
INCREASES IN FACE AMOUNT........................................................................................... 18
DECREASES IN FACE AMOUNT........................................................................................... 19
LAPSE AND REINSTATEMENT............................................................................................ 19
WHEN PROCEEDS ARE PAID............................................................................................. 20
LIVING NEEDS BENEFIT............................................................................................... 20
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS................................... 21
CONTRACT LOANS..................................................................................................... 23
REPORTS TO CONTRACT OWNERS......................................................................................... 24
OPTIONS ON LAPSE................................................................................................... 24
RIGHT TO EXCHANGE A CONTRACT FOR A FIXED-BENEFIT INSURANCE POLICY.................................................. 24
SALE OF THE CONTRACT AND SALES COMMISSIONS......................................................................... 25
TAX TREATMENT OF CONTRACT BENEFITS................................................................................. 25
WITHHOLDING........................................................................................................ 26
CONTRACTS ISSUED IN CONNECTION WITH TAX-QUALIFIED PENSION PLANS.................................................... 27
THE FIXED-RATE OPTION.............................................................................................. 27
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS................................................ 28
OTHER GENERAL CONTRACT PROVISIONS.................................................................................. 28
RIDERS .......................................................................................................... 28
VOTING RIGHTS...................................................................................................... 29
SUBSTITUTION OF SERIES FUND SHARES................................................................................. 29
STATE REGULATION................................................................................................... 29
EXPERTS .......................................................................................................... 30
LITIGATION......................................................................................................... 30
ADDITIONAL INFORMATION............................................................................................. 30
FINANCIAL STATEMENTS............................................................................................... 30
DIRECTORS AND OFFICERS...................................................................................................... 31
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
FINANCIAL STATEMENTS OF PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT............................................................. A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY
AND SUBSIDIARIES................................................................................................... B1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FOR THE
SERIES FUND, AND THE PROSPECTUS FOR THE REAL PROPERTY ACCOUNT.
<PAGE>
BRIEF DESCRIPTION OF THE CONTRACT
The Variable APPRECIABLE LIFE Insurance Contracts (the "Contract") described in
this prospectus are in many respects similar to conventional "fixed-benefit"
whole-life insurance. Like conventional whole-life insurance, the Contracts
provide a guaranteed death benefit for the insured's lifetime if scheduled
premiums are paid; due to the pooling of mortality risks, this death benefit is
many times the scheduled annual premium. The Contracts also have similarities to
what have become generally known as "universal life" insurance policies. Like
universal life insurance policies, the Contracts permit an owner considerable
flexibility in paying premiums and adjusting the face amount of insurance. To a
significant extent the Contracts provide features and choices for the Contract
owner that differ from those provided by either of those types of life insurance
policies. As of May 1, 1992, these Contracts are no longer available for sale.
The Contracts are first and foremost life insurance. They provide insurance
protection for the entire lifetime of the insured. But the Contracts also have
significant and useful investment features. The Contract owner decides in which
investment option[s] the amounts held under the Contract--derived from the
payment of premiums and the earnings thereon--will be invested, and the cash
surrender value of the Contract will increase with favorable investment
experience and decrease with unfavorable investment experience. The cash
surrender value of a Contract also reflects the imposition of the various
Contract charges. The Contract owner will be able, from time to time, to
reallocate and transfer amounts invested under the Contract among the various
subaccounts, the fixed-rate option, and the Real Property Account.
The owner may choose either of two Contract Forms. Under Contract Form A, the
death benefit remains fixed in amount (unless the Contract becomes paid-up or,
under a newer version of the Contract that first began to be sold in most
jurisdictions in September of 1986, unless the death benefit is increased to
ensure that the Contract continues to satisfy the Internal Revenue Code's
definition of life insurance) and only the cash surrender value will vary with
investment experience. Under Contract Form B, both the death benefit and the
cash surrender value will vary with investment experience, but the death benefit
will never be less than the face amount regardless of investment experience.
There is no minimum cash surrender value under either form of the Contract.
(Throughout this prospectus, unless we specifically state otherwise, all
descriptions of and references to the "Contract" apply to both old and new Form
A and Form B Contracts.)
There is a special feature applicable to Contracts issued on insureds who are 14
years of age or less. Under such Contracts, the face amount increases to 150% of
the initial face amount on the first Contract anniversary after the insured
reaches the age of 21, provided the Contract is not then in default. This new
face amount becomes the new guaranteed minimum death benefit. In addition, in
those states where it is approved, a Contract owner may have the right under
certain conditions to increase or decrease the face amount of insurance. In the
case of an increase in face amount, one of the conditions is the provision of
evidence of insurability satisfactory to Pruco Life Insurance Company ("Pruco
Life"). See INCREASES IN FACE AMOUNT, page 18 and DECREASES IN FACE AMOUNT,
page 19.
One significant feature of the Contract is the flexibility it provides the
Contract owner with respect to the payment of premiums. Each Contract has a
scheduled premium payable annually, semi-annually, quarterly or monthly. But the
Contract owner is generally permitted, within very broad limits, to pay greater
than scheduled premiums and the net portion of such payments will promptly be
invested in the manner previously selected by the owner. Cash surrender values
will generally be increased whenever premiums are paid; and unless earlier
unfavorable investment experience must first be offset, the amount payable upon
death under Contract Form B will also generally be increased by the payment of
premiums. Subsequent values under the Contract will increase or decrease with
subsequent investment experience to reflect the amounts invested under the
Contract.
As long as scheduled premiums are paid on or before the due dates (or within a
61-day grace period after the scheduled due date) and missed premiums are made
up later with interest, the Contract will not lapse, even if investment
experience is unfavorable. Thus, the payment of scheduled premiums guarantees
insurance protection at least equal to the face amount of the Contract.
However, the failure to pay a minimum scheduled premium will not necessarily
result in lapse of the Contract. If the net investment experience has been
greater than the 4% assumed net rate of return used by Pruco Life's actuaries in
designing this Contract, with a consequent increase in the amount invested under
the Contract, and the Contract owner then fails to pay premiums when due, Pruco
Life will use the "excess" amount to pay the charges due under the Contract and
thus keep the Contract in force. See LAPSE AND REINSTATEMENT, page 19. In this
case, so long as the excess amount is sufficient, the Contract will not lapse
despite the owner's failure to pay scheduled premiums.
The amount of the scheduled premium, for a specific face amount of insurance,
depends upon the insured's sex (except where unisex rates apply), age at issue,
and risk classification. The scheduled premium cannot be
1
<PAGE>
increased until the Contract anniversary after the insured's 65th birthday or,
if later, 10 years from the date the Contract is issued. A new, higher scheduled
premium, called the "second premium amount," is payable after this period. The
second premium amount will be stated in each Contract. It is calculated on the
assumptions that only scheduled premiums have been paid, and they have been paid
when due, that maximum mortality charges (covering the cost of insurance for the
period in question) and expense charges have been deducted, and that the net
investment return upon the amount invested under the Contract has been equal to
the 4% assumed net rate of return. If the amount invested under the Contract is
higher than would be the case if the above conservative assumptions are borne
out by experience, which currently appears to be a reasonable expectation,
premiums after the insured's 65th birthday (or at 10 years after the issue date,
if later) will be lower than the second premium amount stated in the Contract
(and may or may not be higher than the initial scheduled premium).
In some cases the payment of greater than scheduled premiums or favorable
investment experience may result in the Contract becoming paid-up so that no
further premium payments will be necessary. If this happens, Pruco Life may
refuse to accept any further premium payments. If a Contract becomes paid-up,
the death benefit then in force becomes the guaranteed minimum death benefit;
apart from this guarantee, the death benefit and the cash surrender value of the
paid-up Contract will thereafter vary daily to reflect the investment experience
of amounts invested under the Contract. Contracts sold beginning in September of
1986 in jurisdictions where all necessary approvals have been obtained will no
longer become paid-up. Instead, the death benefit will be increased so that it
is always at least as great as the Contract fund divided by the net single
premium for the insured's attained age at such time. See HOW A CONTRACT'S DEATH
BENEFIT WILL VARY, page 15. The term "Contract fund" refers generally to the
total amount invested under the Contract and is defined under CHARGES AND
EXPENSES on page 11. The term "net single premium," the factor which determines
how much the death benefit will increase for a given increase in the Contract
fund, is defined and illustrated under item 2 of HOW A CONTRACT'S DEATH BENEFIT
WILL VARY on page 15. Whenever the death benefit is determined in this way,
Pruco Life reserves the right to refuse to accept further premium payments,
although in practice the payment of the lesser of 2 years' scheduled premiums or
the average of all premiums paid over the last 5 years will generally be
allowed.
There are circumstances, such as the payment of premiums substantially in excess
of scheduled premiums, under which the Contract may become a Modified Endowment
Contract under federal tax law. If it does, loans and other pre-death
distributions are includible in gross income on an income-first basis. A 10%
penalty tax may be imposed on income distributed before the insured attains age
59 1/2. Prospective purchasers and Contract owners are advised to consult a
qualified tax advisor before taking steps that may affect whether the Contract
becomes a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS,
page 25.
The owner of a Contract chooses the investment subaccount[s] of Pruco Life's
Variable Appreciable Account (the "Account") in which the assets related to the
Contract will be held. At present there are thirteen subaccounts. Each is
currently invested in a corresponding portfolio of The Prudential Series Fund,
Inc. (the "Series Fund"), a series mutual fund to which The Prudential Insurance
Company of America ("The Prudential") acts as investment advisor. The MONEY
MARKET PORTFOLIO is invested in short-term debt obligations similar to those
purchased by money market funds; the DIVERSIFIED BOND PORTFOLIO (formerly the
Bond Portfolio) is invested primarily in high quality medium-term corporate and
government debt securities; the GOVERNMENT INCOME PORTFOLIO (formerly the
Government Securities Portfolio) is invested primarily in U.S. Government
securities including intermediate and long-term U.S. Treasury securities and
debt obligations issued by agencies of or instrumentalities established,
sponsored or guaranteed by the U.S. Government; the CONSERVATIVE BALANCED
PORTFOLIO (formerly the Conservatively Managed Flexible Portfolio) is invested
in a mix of money market instruments, fixed income securities, and common
stocks, in proportions believed by the investment manager to be appropriate for
an investor who desires diversification of investment who prefers a relatively
lower risk of loss and a correspondingly reduced chance of high appreciation;
the FLEXIBLE MANAGED PORTFOLIO (formerly the Aggressively Managed Flexible
Portfolio) is invested in a mix of money market instruments, fixed income
securities, and common stocks, in proportions believed by the investment manager
to be appropriate for an investor desiring diversification of investment who is
willing to accept a relatively high level of loss in an effort to achieve
greater appreciation; the HIGH YIELD BOND PORTFOLIO is invested primarily in
high yield fixed income securities of medium to lower quality, also known as
high risk bonds; the STOCK INDEX PORTFOLIO is invested in common stocks selected
to duplicate the price and yield performance of the Standard & Poor's 500
Composite Stock Price Index; the EQUITY INCOME PORTFOLIO (formerly the High
Dividend Stock Portfolio) is invested primarily in common stocks and convertible
securities that provide favorable prospects for investment income returns above
those of the Standard & Poor's 500 Stock Index or the NYSE Composite Index; the
EQUITY PORTFOLIO (formerly the Common Stock Portfolio) is invested primarily in
common stocks; the PRUDENTIAL JENNISON PORTFOLIO (formerly the Growth Stock
Portfolio) is invested primarily in equity securities of established companies
with above-average growth prospects; the SMALL CAPITALIZATION STOCK PORTFOLIO is
invested primarily in equity securities of publicly-traded companies with small
market capitalization; the GLOBAL PORTFOLIO (formerly the Global Equity
Portfolio) is invested in common stocks and common stock equivalents (such as
convertible debt securities) of foreign and domestic issuers; and the NATURAL
RESOURCES PORTFOLIO is invested primarily in common stocks and convertible
securities of natural resource companies, and in securities (typically debt
securities or preferred stock)
2
<PAGE>
the terms of which are related to the market value of a natural resource;
Further information about the Series Fund portfolios can be found under THE
PRUDENTIAL SERIES FUND, Inc. on page 4.
The Contract owner may also choose to invest part of his or her net premiums in
the Pruco Life Variable Contract Real Property Account (the "Real Property
Account"), which, through a partnership, invests primarily in income-producing
real property. If a Contract owner elects to invest a portion of his or her net
premiums in the Real Property Account, the assets will be maintained in a
subaccount of the Real Property Account related to the Contract that provides
the mechanism and maintains the records whereby the various Contract charges are
made. The investment objectives of the Real Property Account and the partnership
are described briefly under PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
on page 5.
Because the assets that relate to the Contract are invested in these ways, the
Contract offers an opportunity for the cash surrender value to appreciate more
rapidly than it would under comparable fixed-benefit whole-life insurance. But
the owner must accept the risk that if investment performance of the chosen
option[s] is unfavorable the cash surrender value may not appreciate as rapidly
and, indeed, may decrease in value. Contract owners who prefer at any time to
accept a periodically declared fixed rate of return and avoid this risk may
choose a fixed-rate option. See THE FIXED-RATE OPTION, page 27.
Pruco Life deducts certain charges from each premium payment and from the
amounts held in the designated investment options. In addition, Pruco Life makes
certain additional charges if a Contract lapses or is surrendered during the
first 10 Contract years. All these charges, which are largely designed to cover
insurance costs and sales and administrative expenses, are fully described under
CHARGES AND EXPENSES on page 11. In brief, and subject to that fuller
description, the following charges may be made: (1) $2 is deducted from each
premium payment to cover premium collection and processing costs; (2) a sales
charge is deducted from each premium received in an amount up to 5% of the
portion of the premium remaining after the $2 processing charge has been
deducted (on a non-guaranteed basis, this charge is waived for premiums paid
after total premiums paid under the Contract exceed 5 years of scheduled
premiums on an annual basis); in addition, if the Contract lapses or is
surrendered during the first 10 years, a deferred sales charge is assessed; the
maximum deferred sales charge is 25% of the first year's scheduled premium and
5% of the scheduled premiums for the next 4 Contract years; beginning in the
eighth month of year 6 this charge is reduced monthly until it disappears after
year 10; (3) a premium tax charge (equal to 2.5% of the premium remaining after
the $2 processing charge has been deducted) is deducted from each premium
payment; (4) each month, the Contract fund is reduced by an administrative
charge of $2.50 per Contract and up to $0.02 per $1,000 of face amount of
insurance; (5) each month, the Contract fund is reduced by a guaranteed minimum
death benefit risk charge of not more than $0.01 per $1,000 of face amount of
insurance; (6) each month, a charge for anticipated mortality is deducted, with
the maximum charge based on the 1980 Commissioners Standard Ordinary Mortality
Table ("1980 CSO Table"); (7) a daily charge equivalent to an annual rate of
0.6% is deducted from the assets of the subaccounts for mortality and expense
risks; (8) if a Contract lapses or is surrendered during the first 10 years, a
contingent deferred administrative charge is assessed; during the first 5 years,
this charge equals $5 per $1,000 of face amount, and it begins to decline
monthly after the fifth Contract year, so that it disappears on the tenth
Contract anniversary; (9) an administrative processing charge equal to the
lesser of $15 or 2% of the amount withdrawn will be made in connection with each
withdrawal of excess cash surrender value; (10) if the Contract includes riders,
a monthly deduction from the Contract fund will be made for charges applicable
to those riders; and (11) certain fees and expenses are deducted from the assets
of the Series Fund and Real Property Account. Because of these charges, and in
particular because of the significant charges deducted upon early surrender or
lapse, prospective purchasers should purchase a Contract only if they intend and
have the financial capability to keep it in force for a substantial period.
For a limited time, a Contract may be returned for a refund in accordance with
the terms of its "free look" provision. See SHORT-TERM CANCELLATION RIGHT OR
"FREE LOOK," page 6.
This Summary is intended to provide only a brief overview of the more
significant aspects of the Contract. Further detail is provided in this
prospectus and in the Contract document. That document, together with the
application attached to it, constitutes the entire agreement between the owner
and Pruco Life and should be retained.
3
<PAGE>
GENERAL INFORMATION ABOUT PRUCO LIFE
INSURANCE COMPANY, PRUCO LIFE VARIABLE
APPRECIABLE ACCOUNT, AND THE VARIABLE
INVESTMENT OPTIONS AVAILABLE UNDER THE
CONTRACT
PRUCO LIFE INSURANCE COMPANY
Pruco Life Insurance Company ("Pruco Life") is a stock life insurance company,
organized in 1971 under the laws of the State of Arizona. It is licensed to sell
life insurance and annuities in the District of Columbia, Guam, and in all
states except New York.
Pruco Life is a wholly-owned subsidiary of The Prudential, a mutual insurance
company founded in 1875 under the laws of the State of New Jersey. As of
December 31, 1995, it has invested over $442 million in Pruco Life in connection
with Pruco Life's organization and operation. The Prudential intends from time
to time to make additional capital contributions to Pruco Life as needed to
enable it to meet its reserve requirements and expenses in connection with its
business. The Prudential is under no obligation to make such contributions and
its assets do not back the benefits payable under the Contract. Pruco Life's
consolidated financial statements begin on page B1 and should be considered only
as bearing upon Pruco Life's ability to meet its obligations under the
Contracts.
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
The Pruco Life Variable Appreciable Account (the "Account") was established on
January 13, 1984 under Arizona law as a separate investment account. The Account
meets the definition of a "separate account" under the federal securities laws.
The Account holds assets that are segregated from all of Pruco Life's other
assets.
The obligations to Contract owners and beneficiaries arising under the Contracts
are general corporate obligations of Pruco Life. Pruco Life is also the legal
owner of the assets in the Account. Pruco Life will at all times maintain assets
in the Account with a total market value at least equal to the reserve and other
liabilities relating to the variable benefits attributable to the Account. These
assets may not be charged with liabilities which arise from any other business
Pruco Life conducts. In addition to these assets, the Account's assets may
include funds contributed by Pruco Life to commence operation of the Account and
may include accumulations of the charges Pruco Life makes against the Account.
From time to time these additional assets will be transferred to Pruco Life's
general account. Before making any such transfer, Pruco Life will consider any
possible adverse impact the transfer might have on the Account.
The Account is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 ("1940 Act") as a unit investment
trust, which is a type of investment company. This does not involve any
supervision by the SEC of the management or investment policies or practices of
the Account. For state law purposes, the Account is treated as a part or
division of Pruco Life. There are currently thirteen subaccounts within the
Account, each of which invests in a single corresponding portfolio of the Series
Fund. Additional subaccounts may be added in the future. The Account's financial
statements begin on page A1.
THE PRUDENTIAL SERIES FUND, INC.
The Prudential Series Fund, Inc. (the "Series Fund") is registered under the
1940 Act as an open-end diversified management investment company. Its shares
are currently sold only to separate accounts of The Prudential and certain other
insurers that offer variable life insurance and variable annuity contracts. On
October 31, 1986, the Pruco Life Series Fund, Inc., an open-end diversified
management investment company which sold its shares only to separate accounts of
Pruco Life and Pruco Life Insurance Company of New Jersey, was merged into the
Series Fund. Prior to that date, the Account invested only in shares of 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 Contracts 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 Prudential is the investment advisor for the assets of each of the
portfolios of the Series Fund. The Prudential's principal business address is
Prudential Plaza, Newark, New Jersey 07102-3777. The Prudential has a Service
Agreement with its wholly-owned subsidiary The Prudential Investment Corporation
("PIC"), which provides that, subject to The Prudential's supervision, PIC will
furnish investment advisory services in connection with the management of the
Series Fund. In addition, The Prudential has entered into a Subadvisory
Agreement with its wholly-owned subsidiary Jennison Associates Capital
Corporation ("Jennison"), under which Jennison furnishes
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investment advisory services in connection with the management of the Prudential
Jennison Portfolio. Further detail is provided in the prospectus and statement
of additional information for the Series Fund. The Prudential, PIC, and Jennison
are registered as investment advisors under the Investment Advisers Act of 1940.
As an investment advisor, The Prudential charges the Series Fund a daily
investment management fee as compensation for its services. The following table
shows the investment management fee charged for each portfolio of the Series
Fund available for investment by Contract owners.
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ANNUAL INVESTMENT
PORTFOLIO MANAGEMENT FEE AS
A PERCENTAGE OF AVERAGE
DAILY NET ASSETS
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MONEY MARKET PORTFOLIO 0.40%
DIVERSIFIED BOND PORTFOLIO 0.40%
GOVERNMENT INCOME PORTFOLIO 0.40%
CONSERVATIVE BALANCED PORTFOLIO 0.55%
FLEXIBLE MANAGED PORTFOLIO 0.60%
HIGH YIELD BOND PORTFOLIO 0.55%
STOCK INDEX PORTFOLIO 0.35%
EQUITY INCOME PORTFOLIO 0.40%
EQUITY PORTFOLIO 0.45%
PRUDENTIAL JENNISON PORTFOLIO 0.60%
SMALL CAPITALIZATION STOCK PORTFOLIO 0.40%
GLOBAL PORTFOLIO 0.75%
NATURAL RESOURCES PORTFOLIO 0.45%
- --------------------------------------------------------------------------------
Some investment management fees and expenses charged to the Series Fund may be
higher than those that were previously charged to the Pruco Life Series Fund,
Inc. (0.4%), in which the Account previously invested. For the Money Market,
Diversified Bond, Equity, Conservative Balanced, and Flexible Managed
Portfolios, Pruco Life will make daily adjustments that will offset the effect
on Contract owners of any higher investment management fees and expenses charged
against the Series Fund. No such offset will be made with respect to the
remaining portfolios, which had no counterparts in the Pruco Life Series Fund,
Inc.
It is conceivable that in the future it may become disadvantageous for both
variable life insurance and variable annuity contract separate accounts to
invest in the same underlying mutual fund. Although neither the companies which
invest in the Series Fund, nor the Series Fund currently foresees any such
disadvantage, the Series Fund's Board of Directors intends to monitor events in
order to identify any material conflict between variable life insurance and
variable annuity contract owners and to determine what action, if any, should be
taken in response thereto. Material conflicts could result from such things as:
(1) changes in state insurance law; (2) changes in federal income tax law; (3)
changes in the investment management of any portfolio of the Series Fund; or (4)
differences between voting instructions given by variable life insurance and
variable annuity contract owners.
A FULL DESCRIPTION OF THE SERIES FUND, ITS INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, AND RESTRICTIONS, ITS EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN-INCLUDING ANY RISKS ASSOCIATED WITH INVESTMENT IN THE HIGH YIELD BOND
PORTFOLIO, AND ALL OTHER ASPECTS OF ITS OPERATION IS CONTAINED IN THE ATTACHED
PROSPECTUS FOR THE SERIES FUND AND IN ITS STATEMENT OF ADDITIONAL INFORMATION,
WHICH SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS. THERE IS NO ASSURANCE
THAT THE INVESTMENT OBJECTIVES WILL BE MET.
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
The Pruco Life Variable Contract Real Property Account (the "Real Property
Account") is a separate account of Pruco Life that, through a general
partnership formed by The Prudential and two of its subsidiaries, invests
primarily in income-producing real property such as office buildings, shopping
centers, agricultural land, hotels, apartments or industrial properties. It also
invests in mortgage loans and other real estate-related investments, including
sale-leaseback transactions. The objectives of the Real Property Account and the
partnership are to preserve and protect capital, provide for compounding of
income as a result of reinvestment of cash flow from investments, and provide
for increases over time in the amount of such income through appreciation in the
value of its assets.
The partnership has entered into an investment management agreement with The
Prudential, under which The Prudential selects the properties and other
investments held by the partnership. The 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.
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A FULL DESCRIPTION OF THE REAL PROPERTY ACCOUNT, ITS MANAGEMENT, POLICIES, AND
RESTRICTIONS, ITS CHARGES AND EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN, THE PARTNERSHIP'S INVESTMENT OBJECTIVES, AND ALL OTHER ASPECTS OF THE
REAL PROPERTY ACCOUNT'S AND THE PARTNERSHIP'S OPERATIONS IS CONTAINED IN THE
ATTACHED PROSPECTUS FOR THE REAL PROPERTY ACCOUNT, WHICH SHOULD BE READ TOGETHER
WITH THIS PROSPECTUS BY ANY CONTRACT OWNER CONSIDERING THE REAL ESTATE
INVESTMENT OPTION. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVES WILL BE
MET.
WHICH INVESTMENT OPTION SHOULD BE SELECTED
A broad objective of the Contract is to provide benefits that will increase in
value if favorable investment results are achieved. Contract owners have a large
number of options as to how the amounts credited to their Contracts will be
invested. Historically, for investments held over relatively long periods, the
investment performance of common stocks has generally been superior to that of
short or long-term debt securities, even though common stocks have been subject
to much more dramatic changes in value over short periods of time. Accordingly,
the Stock Index, Equity Income, the Equity, Prudential Jennison, Small
Capitalization Stock, Global or Natural Resources Portfolios, may be desirable
options for Contract owners who are willing to accept such volatility in their
Contract values. Each of these equity portfolios involves somewhat different
investment risks, policies, and programs.
Some Contract owners may prefer the somewhat greater protection against loss of
principal (and reduced chance of high total return) provided by the Government
Income or Diversified Bond Portfolios, while others, who desire even greater
safety of principal, may prefer the Money Market Portfolio or the fixed-rate
option, recognizing that the level of short-term rates may change rather
rapidly. Contract owners not interested in common stocks but willing to take
risks and seeking the possibility of a high total return may prefer the High
Yield Bond Portfolio, recognizing that with higher yielding, lower quality bonds
the risks are greater. Some Contract owners may wish to divide their funds among
two or more of the portfolios. Some may wish to obtain diversification by
relying on The Prudential's judgment for an appropriate asset mix by choosing
one of the Balanced Portfolios. The Real Property Account permits a Contract
owner to diversify his or her investment under the Contract to include an
interest in a pool of income-producing real property, and real estate is often
considered to be a hedge against inflation.
Each Contract owner must make his or her own choice that takes into account how
willing he or she is to accept investment risks, the manner in which his or her
other assets are invested, and his or her own predictions about what investment
results are likely to be in the future. The Prudential recommends against
frequent transfers among the several options as experience generally indicates
that "market timing" investing, particularly by non-professional investors, is
likely to prove unsuccessful.
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT
OWNERS
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
As of May 1, 1992, these Contracts are no longer available for sale. Generally,
the minimum initial guaranteed death benefit that can be applied for is $60,000.
However higher minimums apply to insureds over the age of 75. Insureds 14 years
of age or less may apply for a minimum initial guaranteed death benefit of
$40,000. The Contract may generally be issued on insureds below the age of 81.
Before issuing any Contract, Pruco Life requires evidence of insurability which
may include a medical examination. Non-smokers who meet preferred underwriting
requirements are offered the most favorable premium rate. A higher premium is
charged if an extra mortality risk is involved. Certain classes of Contracts,
for example a Contract issued in connection with a tax-qualified pension plan,
may be issued on a "guaranteed issue" basis and may have a lower minimum initial
death benefit than a Contract which is individually underwritten. These are the
current underwriting requirements. The Company reserves the right to change them
on a non-discriminatory basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, a Contract may be returned for a refund within 10 days after it is
received by the Contract owner, within 45 days after Part I of the application
for insurance is signed or within 10 days after Pruco Life mails or delivers a
Notice of Withdrawal Right, whichever is latest. Some states allow a longer
period of time during which a Contract may be returned for a refund. A refund
can be requested by mailing or delivering the Contract to the representative who
sold it or to the Pruco Life 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 in the value of the invested
portion of the premiums, calculated as if no charges had been made against the
Account or the Series Fund. 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.
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CONTRACT FORMS
A purchaser may select either of two forms of the Contract. The scheduled
premium for the Contract will be the same for a given insured, regardless of
which Contract Form is chosen. Contract Form A has a death benefit equal to the
initial face amount of insurance. The death benefit of a Form A Contract does
not vary with the investment performance of the investment options selected by
the owner, unless the Contract becomes paid-up or, under a revised version of
the Contract, unless the death benefit is increased to ensure that the Contract
meets the Internal Revenue Code's definition of life insurance. See HOW A
CONTRACT'S DEATH BENEFIT WILL VARY, page 15. Favorable investment results on the
assets related to the Contract and greater than scheduled premiums will
generally result in increases in the cash surrender value. See HOW A CONTRACT'S
CASH SURRENDER VALUE WILL VARY, page 14.
Contract Form B also has an initial face amount of insurance but favorable
investment performance and greater than scheduled premiums generally result in
an increase in the death benefit and, over time, in a lesser increase in the
cash surrender value than under the Form A Contract. See HOW A CONTRACT'S CASH
SURRENDER VALUE WILL VARY, page 14 and HOW A CONTRACT'S DEATH BENEFIT WILL VARY,
page 15. Unfavorable investment performance will result in decreases in the
death benefit (but never below the face amount stated in the Contract) and in
the cash surrender value.
Both Form A and Form B Contracts covering insureds of 14 years of age or less
contain a special provision providing that the face amount of insurance will
automatically be increased, on the Contract anniversary after the insured's 21st
birthday, to 150% of the initial face amount, so long as the Contract is not
then in default. The death benefit will also usually increase, at the same time,
by the same dollar amount. In certain circumstances, however, it may increase by
a smaller amount. See WHEN A CONTRACT BECOMES PAID-UP, page 16 and HOW A
CONTRACT'S DEATH BENEFIT WILL VARY, page 15. This increase in death benefit will
also generally increase the net amount at risk under the Contract, thus
increasing the mortality charge deducted each month from amounts invested under
the Contract. See item 6 under CHARGES AND EXPENSES, page 11. The automatic
increase in the face amount of insurance may affect future premium payments if
the Contract owner wants to avoid the Contract being classified as a Modified
Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 25. A Contract
owner should consult his or her own tax advisor and Pruco Life representative
before making unscheduled premium payments.
Purchasers should select the Contract Form that best meets their needs and
objectives. All whole-life insurance provides both protection for beneficiaries
in the event of early death and the opportunity to accumulate savings for
possible use in later years--for such things as college tuition or supplementary
retirement income--when the need for insurance protection may be reduced. Pruco
Life's Variable APPRECIABLE LIFE Contract provides more flexible investment
opportunities than do more conventional life insurance policies because it
permits the owner to decide how the assets held under the Contract will be
invested, because it permits considerable flexibility in determining the amount
and timing of premium payments, because it permits adjustment of the face amount
of insurance (subject, in the case of an increase, to evidence of insurability),
and because favorable investment returns result in an increase in Contract
values. Purchasers who prefer to have favorable investment results and greater
than scheduled premiums emerge partly in the form of an increased death benefit
should choose Contract Form B. Purchasers who are satisfied with the amount of
their insurance coverage and wish to have favorable investment results and
additional premiums reflected to the maximum extent in increasing cash surrender
values should choose Contract Form A. See HOW A CONTRACT'S CASH SURRENDER VALUE
WILL VARY, page 14.
In choosing a Contract Form, purchasers should also consider whether they intend
to use the withdrawal feature. Purchasers of Form A Contracts should note that a
withdrawal may result in a portion of the surrender charge being deducted from
the Contract fund. Furthermore, a purchaser of a minimum face amount Form A
Contract cannot make withdrawals. Purchasers of Form B Contracts will not incur
a surrender charge for a withdrawal and are not restricted if they purchase a
minimum size Contract. See WITHDRAWAL OF EXCESS CASH SURRENDER VALUE, page 17.
Under the original versions of these Contracts, there are other distinctions
between the Contract Forms that may influence a purchaser's selection. Thus,
Contract Form A will become paid-up more rapidly than a comparable Form B
Contract. But owners of Form A Contracts should be aware that since premium
payments and favorable investment experience do not increase the death benefit
unless the Contract has become paid-up, the beneficiary will not benefit from
the possibility that the Contract will have a large cash surrender value at the
time of the insured's death.
Under a revised version of the Contract that was made available beginning in
September of 1986 in jurisdictions where it is approved, the Contract will never
become paid-up. Instead, the death benefit under these revised Contracts is
always at least as great as the Contract fund divided by the net single premium.
See HOW A CONTRACT'S DEATH BENEFIT WILL VARY, page 15. Thus, instead of becoming
paid-up, the Contract's death benefit will always be large enough to meet the
Internal Revenue Code's definition of life insurance. Whenever the death benefit
is determined in this way, Pruco Life reserves the right to refuse to accept
further premium payments, although in practice the payment of at least scheduled
premiums will be allowed.
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PREMIUMS
Scheduled premiums on the Contract are payable during the insured's lifetime on
an annual, semi-annual, quarterly or monthly basis on due dates set forth in the
Contract. If paid more often than annually, the aggregate annual premium will be
higher to compensate Pruco Life both for the additional processing costs (see
item 1 under CHARGES AND EXPENSES, page 11) 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. Contract
owners who pay premiums other than on a monthly basis will be notified, about 3
weeks before each due date, that a premium is due. Contract owners who pay
premiums monthly will receive each year a book with twelve coupons that will
serve as a reminder. With Pruco Life's consent, an owner may change the
frequency of premium payments.
A Contract owner may elect to have monthly premiums paid automatically under the
"Pru-Matic Premium Plan" by pre-authorized transfers from a bank checking
account. Currently, Contract owners selecting the Pru-Matic Premium Plan on
Contracts issued after June 1, 1987 will have reduced current monthly expense
charges. See item 4 under CHARGES AND EXPENSES, page 11. Some Contract owners
may also be eligible to have monthly premiums paid by pre-authorized deductions
from an employer's payroll.
Each Contract sets forth two premium amounts. The initial premium amount is
payable on the Contract date (the date the Contract is issued, as noted in each
individual Contract) and on each subsequent due date until the Contract's
anniversary immediately following the insured's 65th birthday (or until the
Contract's tenth anniversary, if that is later). The second and higher premium
amount set forth in the Contract is payable on and after that anniversary (the
"premium change date"). However, if the amount invested under the Contract, net
of any excess premiums, is higher than it would have been had only scheduled
premiums been paid, had maximum contractual charges been deducted, and had only
an average net rate of return of 4% been earned, then the second premium amount
will be lower than the maximum amount stated in the Contract. Indeed, under the
original versions of these Contracts, if investment experience has been
favorable enough, the Contract may become paid-up before or by the premium
change date. Pruco Life reserves the right not to accept any further premium
payments on a paid-up Contract. Contract owners will be told what the amount of
the second premium will be.
Pruco Life designed the Contracts to include a premium change date, with
scheduled premiums potentially increasing after that date to a second premium
amount, in order to provide Contract owners with both the flexibility to pay
lower initial scheduled premiums and a guarantee of lifetime insurance coverage
if all scheduled premiums are paid. The tables on pages T1 through T4 show how
the second premium amount compares with the first premium amount under Contracts
and for different hypothetical investment results.
The following table shows, for two face amounts, representative initial
preferred rating and standard rating annual premium amounts under either Form A
or Form B Contracts issued on insureds who are not substandard risks:
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$60,000 FACE AMOUNT $100,000 FACE AMOUNT
-------------------------------------------------------------
PREFERRED STANDARD PREFERRED STANDARD
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MALE, AGE $ 554.80 $ 669.40 $ 902.00 $1,093.00
35
AT ISSUE
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FEMALE, $ 698.80 $ 787.60 $1,142.00 $1,290.00
AGE 45
AT ISSUE
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MALE, AGE $1,556.20 $1,832.20 $2,571.00 $3,031.00
55
AT ISSUE
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The following table compares annual and monthly premiums for insureds who are in
the preferred rating class. Note that in these examples the sum of 12 monthly
premiums for a particular Contract is approximately 105% to 109% of the annual
premium for that Contract.
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$60,000 FACE AMOUNT $100,000 FACE AMOUNT
-----------------------------------------------------------
MONTHLY ANNUAL MONTHLY ANNUAL--
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MALE, AGE $ 50.00 $ 554.80 $ 80.00 $ 902.00
35
AT ISSUE
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FEMALE, $ 62.60 $ 698.80 $101.00 $1,142.00
AGE 45
AT ISSUE
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MALE, AGE $136.40 $1,556.20 $224.00 $2,571.00
55
AT ISSUE
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If a Contract owner wishes, he or she may select a higher contemplated premium
than the scheduled premium. Pruco Life will bill the owner for the chosen
premium. In general, the regular payment of higher premiums will result in
higher cash surrender values and, at least under Form B, in higher death
benefits. Under the original versions of the Contracts, such payments may also
provide a means of obtaining a paid-up Contract earlier than if only scheduled
premiums are paid.
The payment of premiums substantially in excess of scheduled premiums may cause
the Contract to be classified as a Modified Endowment Contract for federal
income tax purposes. See TAX TREATMENT OF CONTRACT BENEFITS, page 25.
CONTRACT DATE
When the first premium payment is paid with the application for a Contract, the
Contract date will ordinarily be the later of the date of the application or the
date of any medical examination. In most cases no medical examination will be
necessary. If the first premium is not paid with the application, the Contract
date will ordinarily be 2 or 3 days after the application is approved by Pruco
Life so that it will coincide with or be shortly prior to the date on which the
first premium is paid. However, Pruco Life will under certain circumstances
permit a Contract to be back-dated but only to a date not earlier than six
months prior to the date of the application. It may be advantageous for a
Contract owner to have an earlier Contract date if that will result in the use
by Pruco Life of a lower attained age in determining the amount of the scheduled
premium. Pruco Life will require the payment of all premiums that would have
been due had the application date coincided with the back-dated Contract date.
The death benefit and cash surrender value under the Contract will be equal to
what they would have been had the Contract been issued on the Contract date, all
scheduled premiums been received on their due dates, and all Contract charges
been made. See CHARGES AND EXPENSES, page 11.
ALLOCATION OF PREMIUMS
On the Contract date a $2 processing charge is deducted from the initial premium
and up to 7.5% of the amount remaining is deducted to cover certain charges
(described in detail below), and the first monthly deductions are made (also
described below). The remainder of the initial scheduled premium will be
allocated among the subaccounts, the fixed-rate option or the Real Property
Account on the Contract date according to the desired allocation specified in
the application form. The invested portion of any part of the first premium in
excess of the scheduled initial premium, as well as the invested portion of all
subsequent premiums, are placed in the selected investment option[s] on the date
of receipt, but not earlier than the Contract date. Thus, to the extent that the
receipt of the first premium precedes the Contract date, there will be a period
during which the Contract owner's initial premium will not be invested. The $2
per payment charge and up to 7.5% deduction also apply to all subsequent premium
payments; the remainder will be placed when received by Pruco Life in the
subaccount[s], the fixed-rate option or the Real Property Account in accordance
with the allocation previously designated by the Contract owner. Provided the
Contract is not in default, the Contract owner may change the way in which
subsequent premiums are allocated by giving written notice to the Pruco Life
Home Office stated in the Contract. Contract owners may also change subsequent
premium allocations by telephoning their Pruco Life Home Office, provided the
Contract owner is enrolled to use the Telephone Transfer System. There is no
charge for reallocating future premiums among the investment options. If any
portion of a premium is allocated to a particular subaccount, to the fixed-rate
option 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 1/3% cannot. Of course, the
total allocation of all selected investment options must equal 100%.
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Additionally, a feature called Dollar Cost Averaging ("DCA") is available to
Contract owners. Under this feature, premiums may be allocated to the portion of
the Money Market subaccount used for this feature (the "DCA account"), and
designated dollar amounts will be transferred monthly from the DCA account to
other investment options available under the Contract, excluding the Money
Market subaccount and the fixed-rate option, but including the Real Property
Account. Automatic monthly transfers must be at least 3% of the amount allocated
to the DCA account (that is, if $5,000 is designated, the minimum monthly
transfer is $150), with a minimum of $20 transferred into any one investment
option. These amounts are subject to change at Pruco Life's discretion. The
minimum transfer amount will only be recalculated if the amount designated for
transfer is increased.
Currently, the amount initially designated to DCA must be at least $2,000. This
minimum is subject to change at Pruco Life's discretion. After DCA has been
established and as long as the DCA account has a positive balance, Contract
owners may allocate or transfer amounts to the DCA account, subject to the
limitations on premium payments and transfers generally. In addition, if
premiums are paid on an annual or semi-annual basis, and the Contract owner has
already established DCA, the premium allocation instructions may include an
allocation of all or a portion of all your premium payments to the DCA account.
Each automatic monthly transfer will take effect as of the end of the valuation
period on the Monthly Date (i.e. the Contract Date and the same date in each
subsequent month), provided the New York Stock Exchange ("NYSE") is open on that
date. If the NYSE is not open on the Monthly Date, the transfer will take effect
as of the end of the valuation period on the next day that the NYSE is open. If
the Monthly Date does not occur in a particular month (e.g., February 30), the
transfer will take effect as of the end of the valuation period on the last day
of that month that the NYSE is open. Automatic monthly transfers will continue
until the balance in the DCA account reaches zero, or until the Contract owner
gives notification of a change in allocation or cancellation of the feature. If
the Contract has outstanding premium allocation to the DCA account, but the DCA
option has previously been canceled, premiums allocated to the DCA account will
be allocated to the Money Market subaccount. Currently, there is no charge for
using the DCA feature.
TRANSFERS
Provided the Contract is not in default or is in force as variable reduced
paid-up insurance (see OPTIONS ON LAPSE, page 24), the owner may, up to four
times in each Contract year, transfer amounts from one subaccount to another
subaccount, to the fixed-rate option or to the Real Property Account. All or a
portion of the amount credited to a subaccount may be transferred.
In addition, the entire amount of the Contract fund (described in detail below)
may be transferred to the fixed-rate option at any time during the first 2
Contract years. A Contract owner who wishes to convert his or her variable
contract to a fixed-benefit contract in this manner must request a complete
transfer of funds to the fixed-rate option and should also change his or her
allocation instructions regarding any future premiums.
Transfers among subaccounts will take effect as of the end of the valuation
period in which a proper transfer request is received at a Pruco Life Home
Office. The "valuation period" means the period of time from one determination
of the value of the amount invested in a subaccount to the next. Such
determinations are made when the net asset values of the portfolios of the
Series Fund are calculated, which is generally at 4:15 p.m. New York City time
on each day during which the New York Stock Exchange is open. The request may be
in terms of dollars, such as a request to transfer $10,000 from one subaccount
to another, or may be in terms of a percentage reallocation among subaccounts.
In the latter case, as with premium reallocations, the percentages must be in
whole numbers. The Contract owner may transfer amounts by proper written notice
to a Pruco Life Home Office or by telephone, provided the Contract owner is
enrolled to use the Telephone Transfer System. A Contract owner will
automatically be enrolled to use the Telephone Transfer System unless the
Contract owner elects not to have the privilege. Pruco Life has adopted
procedures designed to ensure that requests by telephone are genuine. Pruco Life
will not be held liable for following telephone instructions that it reasonably
believes to be genuine. Pruco Life cannot guarantee that owners will be able to
get through to complete a telephone transfer during peak periods such as periods
of drastic economic or market change.
Transfers from the fixed-rate option to other investment options are currently
permitted once each Contract year and only during the 30-day period beginning on
the Contract anniversary. The maximum amount which may currently be transferred
out of the fixed-rate option each year is the greater of: (a) 25% of the amount
in the fixed-rate option, or (b) $2,000. Such transfer requests received prior
to the Contract anniversary will be effected on the Contract anniversary.
Transfer requests received within the 30-day period beginning on the Contract
anniversary will be effected as of the end of the valuation period in which a
proper transfer request is received at a Pruco Life Home Office. These limits
are subject to change in the future. Transfers to and from the Real Property
Account are subject to restrictions described in the attached prospectus for the
Real Property Account.
Pruco Life may, on a non-discriminatory basis, permit the owner of an
APPRECIABLE LIFE insurance policy issued by Pruco Life (this fixed-benefit
policy is briefly described under RIGHT TO EXCHANGE A CONTRACT FOR A
FIXED-BENEFIT
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INSURANCE POLICY on page 24) to exchange his or her policy for a comparable
Variable APPRECIABLE LIFE Contract with the same Contract date, scheduled
premiums, and Contract fund. No charge will be made for the exchange. There is
no new "free look" right when an APPRECIABLE LIFE contract owner elects to
exchange his or her policy for a comparable Variable Appreciable Life Contract.
Although Pruco Life does not give tax advice, Pruco Life does believe, based on
its understanding of federal income tax laws as currently interpreted, that the
original date exchange of an APPRECIABLE LIFE contract for a Variable
APPRECIABLE LIFE Contract should be considered to be a tax-free exchange under
the Internal Revenue Code of 1986, as amended. It should be noted, however, that
the exchange of an APPRECIABLE LIFE contract for a Variable APPRECIABLE LIFE
Contract may impact the status of the Contract as a Modified Endowment Contract.
See TAX TREATMENT OF CONTRACT BENEFITS, page 25. A contract owner should consult
with his or her tax advisor and Pruco Life representative before making an
exchange.
CHARGES AND EXPENSES
The amount relating to the Contract held in the Account is determined by the
amount of premium payments, charges deducted from premiums before they are
placed in the Account, deductions made from the Account, including any
deductions made for a Contract loan (see CONTRACT LOANS, page 23), and the
investment results of the selected subaccount[s]. The total amount invested
under the Contract (the "Contract fund") consists of the amount related to the
Contract held in the Account, any amount allocated to the fixed-rate option, any
amount invested in the Real Property Account, and the principal amount of any
Contract loan and interest credited thereon.
All of the charges made by Pruco Life, whether deducted from premiums or from
the Contract fund, are set forth below.
1. A charge of $2 is deducted from each premium payment to cover the cost of
collecting and processing premiums. Thus, Contract owners who pay premiums
annually will incur lower aggregate processing charges than those who pay
premiums more frequently. During 1995 and 1994, Pruco Life received a
total of approximately $4,715,000 and $5,034,000, respectively, in
processing charges.
2. There is a charge to compensate Pruco Life for the cost of selling the
Contract. This cost includes sales commissions, advertising, and the
printing of the prospectuses and sales literature. This charge is called
the "sales load." The maximum sales load that will be charged will be 30%
of the first year's scheduled premium, 10% of the scheduled premium for
the second, third, fourth, and fifth years and 5% of each additional
premium, whether scheduled or unscheduled. Part of this sales load will be
deducted from each premium received in an amount up to 5% of the portion
of the premium remaining after the $2 processing charge has been deducted.
The remainder of the sales load will be deducted only if the Contract is
surrendered or stays in default past its days of grace. This second part
is called the deferred sales charge. The deferred sales charge will not be
deducted at all, however, for Contracts that lapse or are surrendered on
or after the Contract's tenth anniversary and it will be reduced for
Contracts that lapse or are surrendered sometime between the eighth month
of year 6 and the tenth anniversary. No deferred sales charge is
applicable to the death benefit, no matter when that may become payable.
For Contracts under which premiums are payable annually, the maximum
deferred sales charge (equal to 25% of the scheduled premium for the first
Contract year and 5% of the scheduled premium for the next 4 Contract
years) will be made under Contracts that lapse or are surrendered during
the fifth Contract year and the first 7 months of the sixth Contract year.
Thereafter the sales charge will be the maximum charge reduced uniformly
until it becomes zero at the end of the tenth Contract year. More
precisely, the deferred sales charge will be the maximum charge reduced by
a factor equal to the number of complete months that have elapsed between
the end of the sixth month in the Contract's sixth year and the date of
surrender or lapse, divided by 54 (since there are 54 months between that
date and the Contract's tenth anniversary). The following table shows
illustrative deferred sales load charges that will be made when such
Contracts are surrendered or lapse.
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- --------------------------------------------------------------------------------
THE DEFERRED SALES WHICH IS EQUAL TO THE
FOR CONTRACTS CHARGE WILL FOLLOWING PERCENTAGE
SURRENDERED DURING BE THE FOLLOWING OF THE SCHEDULED
PERCENTAGE PREMIUMS DUE TO DATE
OF ONE SCHEDULED OF SURRENDER
ANNUAL PREMIUM
- --------------------------------------------------------------------------------
Entire Year 1 25% 25.00%
Entire Year 2 30% 15.00%
Entire Year 3 35% 11.67%
Entire Year 4 40% 10.00%
Entire Year 5 45% 9.00%
First 7 Months of Year 6 45% 7.50%
First Month of Year 7 40% 5.71%
First Month of Year 8 30% 3.75%
First Month of Year 9 20% 2.22%
First Month of Year 10 10% 1.00%
First Month of Year 11
and Thereafter 0% 0.00%
- --------------------------------------------------------------------------------
For Contracts under which premiums are payable more frequently than
annually, the deferred sales charge will be 25% of the first year's
scheduled premiums due on or before the date of surrender or lapse and 5%
of the scheduled premiums for the second through fifth Contract years due
on or before the date of surrender or lapse. Thus, for such Contracts the
maximum deferred sales charge will also be equal to 9% of the total
scheduled premiums for the first 5 Contract years. This amount will be
higher in dollar amount than it would have been had premiums been paid
annually because the total of the scheduled premiums is higher. See
PREMIUMS, page 8. To compensate for this, the reduction in the deferred
sales charge will start slightly earlier for Contracts under which
premiums are paid semi-annually, still earlier if premiums are paid
quarterly and even earlier if premiums are paid monthly. The reductions
are graded smoothly so that the dollar amount of the deferred sales charge
for two persons of the same age, sex, contract size, and Contract date,
will be identical beginning in the seventh month of the sixth Contract
year without regard to the frequency at which premiums were paid.
For purposes of determining the deferred sales charge, the scheduled
premium is the premium payable for an insured in the preferred rating
class, even if the insured is in a higher rated risk class. Moreover, if
premiums have been paid in excess of the scheduled premiums, the charge is
based upon the scheduled premiums. If a Contract is surrendered when less
than the aggregate amount of the scheduled premiums due on or before the
date of surrender has been paid, the deferred sales charge percentages
(25% for the first year and 5% for years 2 through 5) will be applied to
the premium payments due on or before the fifth anniversary date that were
actually paid, whether timely or not, before surrender. During 1995 and
1994, Pruco Life received a total of approximately $871,000 and
$1,408,000, respectively, in sales load charges.
Pruco Life has determined to waive the portion of the sales load deducted
from each premium (5% of the portion of the premium remaining after the $2
processing charge has been deducted) for premiums paid after total
premiums paid under the Contract exceed 5 years of scheduled premiums on
an annual basis. Thus, with respect to a premium paid after that total is
reached, only the 2.5% premium tax charge and the $2 processing charge is
deducted before the premium is allocated to the Account, fixed-rate option
or the Real Property Account according to the owner's instructions. This
concession is not contractually guaranteed and may be withdrawn or
modified by Pruco Life on a uniform basis, although it does not currently
intend to do so. If an owner elects to increase the face amount of his or
her Contract, the rules governing the non-guaranteed waiver of the 5%
front-end sales load will apply separately to the base Contract and the
increase, as explained under INCREASES IN FACE AMOUNT on page 18.
3. There is a premium tax charge equal to 2.5% of the premium remaining after
the $2 processing charge has been deducted. This charge is made to
compensate Pruco Life for paying state and local premium taxes. (The 7.5%
deduction referred to on page 9 is made up of the 5% sales load charge and
the 2.5% premium tax charge.) State premium tax rates vary from
jurisdiction to jurisdiction and generally range from 0.75% to 5%. Pruco
Life may collect more for this charge than it actually pays for premium
taxes. During 1995 and 1994, Pruco Life received a total of approximately
$6,031,000 and $6,598,000, respectively, in charges for payment of state
and local premium taxes.
4. On each Monthly date, the Contract fund is reduced by an expense charge of
$2.50 per Contract and up to $0.02 per $1,000 of face amount (excluding
the automatic increase under Contracts issued on insureds of 14 years of
age or less), except that currently this $0.02 per $1,000 charge will not
be greater than $2 per
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<PAGE>
month and for Contracts issued after June 1, 1987 on a Pru-Matic Plan
basis, this $0.02 per $1,000 charge will currently be waived. Thus, for a
Contract with the minimum face amount of $60,000, not issued on a
Pru-Matic Plan basis, the aggregate amount deducted each year will be
$44.40. This charge is to compensate Pruco Life for administrative
expenses incurred, among other things, for processing claims, paying cash
surrender values, making Contract changes, keeping records, and
communicating with Contract owners. This charge will not be made if the
Contract has become paid-up or has been continued in force, after lapse,
as variable reduced paid-up insurance. During 1995 and 1994, Pruco Life
received a total of approximately $14,375,000 and $15,116,000,
respectively, in monthly administrative charges.
5. On each Monthly date the Contract fund is reduced by a charge of $0.01 per
$1,000 of face amount (excluding the automatic increase under Contracts
issued on insureds of 14 years of age or less) to compensate Pruco Life
for the risk it assumes by guaranteeing that, no matter how unfavorable
investment experience may be, the death benefit will never be less than
the face amount provided scheduled premiums are paid on or before the due
date or during the grace period. This charge is not made after a Contract
becomes paid-up or has been continued in force, after lapse, as variable
reduced paid-up insurance. During 1995 and 1994, Pruco Life received a
total of approximately $2,648,000 and $2,785,000, respectively, for this
risk charge.
6. Pruco Life deducts a mortality charge from the Contract fund on each
Monthly date to cover anticipated mortality costs. When an insured dies,
the amount paid to the beneficiary is larger than the Contract fund and
significantly larger if the insured dies in the early years of a Contract.
The mortality charges are designed to enable Pruco Life to pay this larger
death benefit. The charge is determined by multiplying the "net amount at
risk" under a Contract (the amount by which the Contract's death benefit,
computed as if there were neither riders nor Contract debt, exceeds the
Contract fund) by a rate based upon the insured's sex (except where unisex
rates apply) and current attained age, and the anticipated mortality for
that class of persons. The maximum rate that Pruco Life may charge is
based upon the 1980 CSO Tables. Pruco Life may determine that a lesser
amount than that called for by these mortality tables will be adequate to
defray anticipated mortality costs for insureds of particular ages and may
thus make a lower mortality charge for such persons. Pruco Life, however,
reserves the right to charge full mortality charges based on the
applicable 1980 CSO Table, and any lower current mortality charges are not
applicable to Contracts in force pursuant to an option on lapse. See
OPTIONS ON LAPSE, page 24. In addition, if a Contract has a face amount of
at least $100,000 and the insured under the Contract has met strict
underwriting requirements so that the Contract is in force on a "Select
Rating" basis for the particular risk classification, current mortality
charges for all ages may be lower still.
Certain Contracts, for example Contracts issued in connection with
tax-qualified pension plans, may be issued on a "guaranteed issue" basis
and may have current mortality charges which are different from those
mortality charges for Contracts which are individually underwritten. These
Contracts with different current mortality charges may be offered to
categories of individuals meeting eligibility guidelines determined by
Pruco Life.
7. A charge is made to compensate Pruco Life for assuming mortality and
expense risks. This is done by deducting daily, from the assets of each of
the subaccounts of the Account and/or from the subaccount of the Real
Property Account relating to this Contract, a percentage of those assets
equivalent to an effective annual rate of 0.6% (this amounts to a daily
charge of approximately 0.001639%). The mortality risk assumed is that
insureds may live for a shorter period of time than Pruco Life estimated.
The expense risk assumed is that expenses incurred in issuing and
administering the Contract will be greater than Pruco Life estimated.
Pruco Life will realize a gain from this charge to the extent it is not
needed to provide benefits and pay expenses under the Contracts. During
1995 and 1994, Pruco Life received a total of approximately $13,208,000
and $11,999,000, respectively, in mortality and expense risk charges. This
charge is not assessed against amounts allocated to the fixed-rate option.
8. There is an administrative charge of $5 for each $1,000 of face amount of
insurance (excluding the automatic increase under Contracts issued on
insureds of 14 years of age or less) to compensate Pruco Life for expenses
incurred in connection with the issuance of the Contract, other than sales
expenses. This charge is made to cover the costs of processing
applications, conducting medical examinations, determining insurability
and the insured's risk class, and establishing records relating to the
Contract. However, this charge will not be assessed upon issuance of the
Contract, nor will it ever be deducted from any death benefit payable
under the Contract. Rather, it will be deducted only if the Contract is
surrendered or lapses when it is in default past its days of grace, and
even then it will not be deducted at all for Contracts that stay in force
through the end of the Contract's tenth year. And the charge will be
reduced for Contracts that lapse or are surrendered before then but after
the Contract's fifth anniversary. Specifically, the charge of $5 per
$1,000 will be assessed upon surrenders or lapses occurring on or before
the Contract's fifth anniversary. For each additional full month that the
Contract stays in force on a premium paying basis, this charge is reduced
by $0.0833 per $1,000 of initial face amount, so that it disappears on the
tenth anniversary. During 1995 and
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1994, Pruco Life received a total of approximately $5,134,000 and
$7,980,000, respectively, from surrendered or lapsed Contracts.
Additionally, if a Contract has a face amount of at least $100,000 and was
issued on other than a Select Rating basis (see item 6, above), the owner
may request that the Contract be reclassified to a Select Rating basis.
Requests for reclassification to a Select Rating basis may be subject to
an underwriting fee of up to $250, but Pruco Life currently intends to
waive that charge if the reclassification is effected concurrently with an
increase in face amount.
9. A charge of $15 will be made in connection with each partial withdrawal of
the cash surrender value of a Contract. See WITHDRAWAL OF EXCESS CASH
SURRENDER VALUE, page 17.
In several instances Pruco Life uses the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, is the highest charge that
Pruco Life is entitled to make under the Contract. The "current charge" is the
lower amount that Pruco Life is now charging. However, if circumstances change,
Pruco Life reserves the right to increase each current charge, up to but no more
than the maximum charge, without giving any advance notice.
The earnings of the Account are taxed as part of the operations of Pruco Life.
No charge is being made currently to the Account for Company federal income
taxes. Pruco Life will review the question of a charge to the Account for
Company federal income taxes periodically. Such a charge may be made in future
years for any federal income taxes that would be attributable to the Contracts.
Under current laws Pruco Life may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant
and they are not charged against the Contracts or the Account. If there is a
material change in applicable state or local tax laws, the imposition of any
such taxes upon Pruco Life that are attributable to the Account may result in a
corresponding charge against the Account.
The Account purchases shares of the Series Fund at net asset value. The net
asset value of those shares reflects management fees and expenses already
deducted from the assets of the Series Fund. The fees and expenses for the
Series Fund are briefly described under THE PRUDENTIAL SERIES FUND, INC. on page
4 in connection with a general description of the Series Fund. More detailed
information is contained in the attached prospectus for the Series Fund. The
investment management fee and other expenses charged against the Real Property
Account are described in the attached prospectus for that investment option.
REDUCTION OF CHARGES FOR CONCURRENT SALES TO SEVERAL INDIVIDUALS
Pruco Life may reduce the sales charges and/or other charges on individual
Contracts sold to members of a class of associated individuals, or to a trustee,
employer or other entity representing a class, where it is expected that such
multiple sales will result in savings of sales or administrative expenses. Pruco
Life determines both the eligibility for such reduced charges, as well as the
amount of such reductions, by considering the following factors: (1) the number
of individuals; (2) the total amount of premium payments expected to be received
from these Contracts; (3) the nature of the association between these
individuals, and the expected persistency of the individual Contracts; (4) the
purpose for which the individual Contracts are purchased and whether that
purpose makes it likely that expenses will be reduced; and (5) any other
circumstances which Pruco Life believes to be relevant in determining whether
reduced sales or administrative expenses may be expected. Some of the reductions
in charges for these sales may be contractually guaranteed; other reductions may
be withdrawn or modified by Pruco Life on a uniform basis. Pruco Life's
reductions in charges for these sales will not be unfairly discriminatory to the
interests of any individual Contract owners.
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY
A Contract has a cash surrender value which the owner may get while the insured
is living by surrender of the Contract. Unlike traditional fixed-benefit
whole-life insurance, however, a Contract's cash surrender value is not known in
advance, even if it is assumed that only scheduled premiums will be paid,
because it varies daily with the investment performance of the subaccount[s]
and/or Real Property Account in which the Contract participates.
On the Contract date, the Contract fund value is the invested portion of the
initial premium less the first monthly deductions. This amount is placed in the
investment option[s] designated by the owner. Thereafter the Contract fund value
changes daily, reflecting increases or decreases in the value of the securities
in which the assets of the subaccount[s] have been invested, the investment
performance of the Real Property Account if that option has been selected,
interest credited on amounts allocated to the fixed-rate option, as well as the
daily asset charge for mortality and expense risk equal to 0.001639% of the
assets of the subaccount[s] of the Account and the subaccount of the Real
Property Account relating to this Contract. The Contract fund value also changes
to reflect the receipt of additional premium payments and the monthly deductions
described in the preceding section.
A Contract's cash surrender value on any date will be the Contract fund value
reduced by the deferred sales and administrative charges, if any, and any
Contract debt. Upon request, Pruco Life will tell a Contract owner the cash
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surrender value of his or her Contract. It is possible that the cash surrender
value of a Contract could decline to zero because of unfavorable investment
experience, even if a Contract owner continues to pay scheduled premiums when
due.
If the net investment return in the selected investment option[s] is greater
than 4%, the Contract fund and cash surrender value for a Form B Contract can be
expected to be less than the Contract fund and cash surrender value for a Form A
Contract with identical premiums and investment experience. This is because the
monthly mortality charges under the Form B Contract will be higher to compensate
for the higher amount of insurance.
The tables on pages T1 through T4 of this prospectus illustrate what the cash
surrender values would be for representative Contracts, assuming uniform
hypothetical investment results in the selected Series Fund portfolio[s], and
also provide information about the aggregate scheduled premiums payable under
those Contracts. Illustrated also is what the death benefit would be under Form
B Contracts given the stated assumptions. The tables also show the premium
amount that would be required on the premium change date to guarantee the
Contract against lapse regardless of investment performance for each illustrated
Contract under each of the assumed investment returns.
HOW A CONTRACT'S DEATH BENEFIT WILL VARY
As noted above, there are two forms of the Contract, Form A and Form B.
Moreover, in September 1986 Pruco Life began issuing revised versions of both
Form A and Form B Contracts. The primary difference between the original
Contract and the revised Contract is that the original Contract may become
paid-up, while the death benefit under the revised Contract operates differently
and accordingly such Contract will not become paid-up.
1. ORIGINAL CONTRACTS. If a Form A Contract is chosen, the death benefit will
not vary (except for Contracts issued on insureds of age 14 or less, see
REQUIREMENTS FOR ISSUANCE OF A CONTRACT on page 6) regardless of the payment of
additional premiums or the investment results of the selected investment options
unless the Contract becomes paid-up. See WHEN A CONTRACT BECOMES PAID-UP, page
16. The death benefit does reflect a deduction for the amount of any Contract
debt. See CONTRACT LOANS, page 23.
If a Form B Contract is chosen, the death benefit will vary with investment
experience and premium payments. Assuming no Contract debt, the death benefit
under a Form B Contract will, on any day, be equal to the face amount of
insurance plus the amount (if any) by which the Contract fund value exceeds the
applicable "tabular Contract fund value" for the Contract. The "tabular Contract
fund value" for each Contract year is an amount that is slightly less than the
Contract fund value that would result as of the end of such year if only
scheduled premiums were paid, they were paid when due, the selected investment
options earned a net return at a uniform rate of 4% per year, full mortality
charges based upon the 1980 CSO Table were deducted, maximum sales load and
expense charges were deducted, and there was no Contract debt. Each Contract
contains a table that sets forth the tabular Contract fund value as of the end
of each of the first 20 years of the Contract. Tabular Contract fund values
between Contract anniversaries are determined by interpolation.
Thus, under a Form B Contract with no Contract debt, the death benefit will
equal the face amount if the Contract fund equals the tabular Contract fund
value. If, due to investment results greater than a net return of 4%, or to
greater than scheduled premiums, or to smaller than maximum charges, the
Contract fund value is a given amount greater than the tabular Contract fund
value, the death benefit will be the face amount plus that excess amount. If,
due to investment results less favorable than a net return of 4%, the Contract
fund value is less than the tabular Contract fund value, and the Contract
nevertheless remains in force because scheduled premiums have been paid, the
death benefit will not fall below the initial face amount stated in the
Contract; however, this unfavorable investment experience must subsequently be
offset before favorable investment results or greater than scheduled premiums
will increase the death benefit. The death benefit will also reflect a deduction
for the amount of any Contract debt. See CONTRACT LOANS, page 23.
A Contract owner may also increase or decrease the face amount of his or her
Contract, subject to certain conditions. See INCREASES IN FACE AMOUNT, page 18
and DECREASES IN FACE AMOUNT, page 19.
2. REVISED CONTRACTS. Under the revised Contracts issued since September of 1986
in jurisdictions where all necessary approvals have been obtained, the death
benefit will be calculated as follows. Under a Form A Contract, the death
benefit will be the greater of (1) the face amount; or (2) the Contract fund
divided by the net single premium per $1 of death benefit at the insured's
attained age on that date. In other words, the second alternative ensures that
the death benefit will not be less than the amount of life insurance that could
be provided for an invested single premium amount equal to the amount of the
Contract fund. Under a Form B Contract, the death benefit will be the greater of
(1) the face amount plus the excess, if any, of the Contract fund over the
tabular Contract fund value; or (2) the Contract fund divided by the net single
premium per $1 of death benefit at the insured's attained age on that date.
Thus, under the revised Contracts, the death benefit may be increased based on
the size of the Contract fund and the insured's attained age and sex. This
ensures that the Contract will satisfy
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the Internal Revenue Code's definition of life insurance. The net single premium
is used only in the calculation of the death benefit, not for premium payment
purposes. The following is a table of illustrative net single premiums for $1 of
death benefit.
- ------------------------------------ -------------------------------------
INCREASE IN INCREASE IN
INSURANCE INSURANCE
MALE NET AMOUNT PER FEMALE NET AMOUNT PER
ATTAINED SINGLE $1 INCREASE ATTAINED SINGLE $1 INCREASE
AGE PREMIUM IN CONTRACT AGE PREMIUM IN CONTRACT
FUND FUND
- ------------------------------------ -------------------------------------
5 .09884 $10.12 5 .08198 $12.20
25 .18455 $ 5.42 25 .15687 $ 6.37
35 .25596 $ 3.91 35 .21874 $ 4.57
55 .47352 $ 2.11 55 .40746 $ 2.45
65 .60986 $ 1.64 65 .54017 $ 1.85
- ------------------------------------ -------------------------------------
Whenever the death benefit is determined in this way, Pruco Life reserves the
right to refuse to accept further premium payments, although in practice the
payment of the lesser of 2 years' scheduled premiums or the average of all
premiums paid over the last 5 years will generally be allowed.
A Contract owner may also increase or decrease the face amount of his or her
Contract, subject to certain conditions. See Increases in Face Amount, page 18
and DECREASES IN FACE AMOUNT, page 19.
WHEN A CONTRACT BECOMES PAID-UP
Under the original Contracts, it is possible that favorable investment
experience, either alone or in conjunction with greater than scheduled premium
payments, will cause the Contract fund to increase to the point where no further
payment of premiums is necessary to provide for the then existing death benefit
for the remaining life of the insured. If this should occur, Pruco Life will
notify the owner that no further premium payments need be paid. Pruco Life
reserves the right to refuse to accept further premiums after the Contract
becomes paid-up. The purchase of an additional fixed benefit rider may, in some
cases, affect the point at which the Contract becomes paid-up. See RIDERS, page
28. The revised Contracts will not become paid-up.
Once a Contract becomes paid-up, Pruco Life guarantees that the death benefit
then in force will not be reduced by the investment experience of the investment
options in which the Contract participates. The cash surrender value of a
paid-up Contract continues to vary daily to reflect investment experience and
monthly to reflect continuing mortality charges, but the other monthly
deductions (see items 4 and 5 under CHARGES AND EXPENSES, page 11) will not be
made. The death benefit of a paid-up Contract on any day (whether the Contract
originally was Form A or Form B) will be equal to the amount of paid-up
insurance that can be purchased with the Contract fund on that day, but never
less than the guaranteed minimum amount.
As noted earlier, Contracts issued on insureds of 14 years of age or less
include a special provision under which the face amount of insurance increases
automatically to 150% of the initial face amount on the Contract anniversary
after the insured reaches the age of 21. If a Contract would have been paid-up
prior to that anniversary, Pruco Life, in anticipation of the increase in the
face amount to 150% of the initial face amount, will, instead of declaring the
Contract to be paid-up, increase the death benefit by the amount necessary to
keep the Contract in force as a premium paying Contract. If this should occur,
the increase in the death benefit on the Contract anniversary after the insured
reaches the age of 21 will be smaller, in dollar amount, than the increase in
the face amount of insurance.
FLEXIBILITY AS TO PAYMENT OF PREMIUMS
A significant feature of this Contract is that it permits the owner to pay
greater than scheduled premiums. Conversely, payment of a scheduled premium need
not be made if the Contract fund is sufficiently large to enable the charges due
under the Contract to be made without causing the Contract to lapse. See LAPSE
AND REINSTATEMENT, page 19. In general, Pruco Life will accept any premium
payment if the payment is at least $25. Pruco Life does reserve the right,
however, to limit unscheduled premiums to a total of $10,000 in any Contract
year; to refuse to accept premiums once a Contract becomes paid-up; and to
refuse to accept premiums that would immediately result in more than a
dollar-for-dollar increase in the death benefit. The flexibility of premium
payments provides Contract owners with different opportunities under the two
forms of Contract. Greater than scheduled payments under an original version
Form A Contract increase the Contract fund and make it more likely that the
Contract will become paid-up. Greater than scheduled payments under an original
version Form B Contract increase both the Contract fund and the death benefit,
but it is less likely to become paid-up than a Form A Contract on
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<PAGE>
which the same premiums are paid. For all Contracts, the privilege of making
large or additional premium payments offers a way of investing amounts which
accumulate without current income taxation. There may, however, be a
disadvantage if substantial premiums are made. The federal income tax laws,
discussed more fully under TAX TREATMENT OF CONTRACT BENEFITS, page 25, may
impose an income tax, as well as a penalty tax, upon distributions to contract
owners under life insurance contracts that are classified as Modified Endowment
Contracts. This contract should not be so classified if the initial scheduled
premiums are paid or even if additional premiums are paid that are not
substantially higher, assuming no changes in benefits under the contract. It is
possible, however, to make premium payments that are high enough to cause the
Contract to fall into that classification. A Contract owner should consult with
his or her own tax advisor and Pruco Life representative before making a large
premium payment.
SURRENDER OF A CONTRACT
A Contract may be surrendered in whole or in part for its cash surrender value
while the insured is living. Partial surrender involves splitting the Contract
into two Contracts. One is surrendered for its cash surrender value; the other
is continued in force on the same terms as the original Contract except that
premiums and cash surrender values will be proportionately reduced based upon
the reduction in the face amount of insurance. The Contract continued must have
a face amount of insurance at least equal to the minimum face amount applicable
to the insured's Contract. See REQUIREMENTS FOR ISSUANCE OF A CONTRACT, page 6.
To surrender a Contract in whole or in part, the owner must deliver or mail it,
together with a written request in a form that meets Pruco Life's needs, to a
Pruco Life Home Office. The cash surrender value of a surrendered or partially
surrendered Contract (taking into account the deferred sales and administrative
charges, if any) will be determined as of the date such request is received in
the Service Office. Surrender of all or part of a Contract may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 25.
WITHDRAWAL OF EXCESS CASH SURRENDER VALUE
An alternative to surrender or partial surrender of a Contract, available only
before such Contracts become paid up, is a partial withdrawal of cash surrender
value without splitting the Contract into two Contracts. A partial withdrawal
may be made only if the following conditions are satisfied. The basic limiting
condition is that a withdrawal may be made only to the extent that the cash
surrender value plus any Contract loan exceeds the applicable tabular cash
surrender value. (The "tabular cash surrender value" refers to the tabular
Contract fund value minus any applicable surrender charges.) But because this
excess over the applicable tabular cash surrender value may be made up in part
by an outstanding Contract loan, there is a further condition that the amount
withdrawn may not be larger than an amount sufficient to reduce the cash
surrender value to zero. The amount withdrawn must be at least $2,000 under a
Form A Contract and at least $500 under a Form B Contract. An owner may make no
more than four such withdrawals in a Contract year, and there is a fee of $15
for each such withdrawal. An amount withdrawn may not be repaid except as a
scheduled or unscheduled premium subject to the Contract charges. Upon request,
Pruco Life will tell a Contract owner how much he or she may withdraw.
Withdrawal of part of the cash surrender value may have tax consequences. See
TAX TREATMENT OF CONTRACT BENEFITS, page 25.
Whenever a partial withdrawal is made, the death benefit payable will
immediately be reduced, generally by the amount of the withdrawal. This will not
change the guaranteed minimum amount of insurance under a Form B Contract (i.e.,
the face amount) or the amount of the scheduled premium that will be payable
thereafter on such a Contract. Under a Form A Contract, however, the guaranteed
minimum amount of insurance will be reduced by the amount of the partial
withdrawal, and no partial withdrawal will be permitted under a Form A Contract
if it would result in a new face amount of less than the minimum face amount
applicable to the insured's Contract. See REQUIREMENTS FOR ISSUANCE OF A
CONTRACT, page 6. It is important to note, however, that if the face amount is
decreased at any time during the first 7 Contract years, there is a danger that
the Contract might be classified as a Modified Endowment Contract. See TAX
TREATMENT OF CONTRACT BENEFITS, page 25. Before making any withdrawal which
causes a decrease in face amount a Contract owner should consult with his or her
Pruco Life representative. In addition, the amount of the scheduled premiums due
thereafter under a Form A Contract will be reduced to reflect the lower face
amount of insurance. Since a withdrawal under a Form A Contract results in a
decrease in the face amount of insurance, the Contract fund may be reduced, not
only by the amount withdrawn but also by a proportionate part of any surrender
charges then applicable, based upon the percentage reduction in face amount.
Contract owners of a Form A Contract who make a partial withdrawal will be sent
replacement Contract pages showing the new face amount, new tabular values and,
if applicable, a new table of surrender charges.
Withdrawal of part of the cash surrender value increases the risk that the
Contract fund may be insufficient to provide for benefits under the Contract. If
such a withdrawal is followed by unfavorable investment experience, the Contract
may lapse even if scheduled premiums continue to be paid when due. This is
because, for purposes of determining whether a lapse has occurred, Pruco Life
treats withdrawals as a return of premium.
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<PAGE>
INCREASES IN FACE AMOUNT
An attractive feature of this Contract is that an owner who wishes to increase
the amount of his or her insurance may do so by increasing the face amount of
the Contract (which is also the guaranteed minimum death benefit), subject to
state approval and underwriting requirements determined by Pruco Life. An
increase in face amount is in many ways similar to the purchase of a second
Contract, but it differs in the following respects: the minimum permissible
increase is $25,000 while the minimum for a new Contract is $60,000; monthly
fees are lower because only a single $2.50 per month administrative charge is
made rather than two; a combined premium payment results in deduction of a
single $2 per premium processing charge while separate premium payments for
separate Contracts would involve two charges; the monthly expense charge of
$0.02 per $1,000 of face amount may be lower if the increase is to a face amount
greater than $100,000; and, the Contract will lapse or become paid-up as a unit,
unlike the case if two separate Contracts are purchased. These differences
aside, the decision to increase face amount is comparable to the purchase of a
second Contract in that it involves a commitment to higher scheduled premiums in
exchange for greater insurance benefits.
A Contract owner may elect to increase the face amount of his or her Contract no
earlier than the first anniversary of the Contract. The following conditions
must be met: (1) The owner must ask for the increase in writing on an
appropriate form meeting Pruco Life's needs. (2) The amount of the increase in
face amount must be at least $25,000. (3) The insured must supply evidence of
insurability for the increase satisfactory to Pruco Life. (4) If Pruco Life
requests, the owner must send in the Contract to be suitably endorsed. (5) The
Contract must be neither paid-up nor in default on the date the increase takes
effect. (6) The owner must pay an appropriate premium at the time of the
increase. (7) Pruco Life has the right to deny more than one increase in a
Contract year. (8) If Pruco Life has, between the Contract date and the date
that any requested increase in face amount will take effect, changed any of the
bases on which benefits and charges are calculated under newly issued Contracts,
Pruco Life has the right to deny the increase. An increase in face amount
resulting in a total face amount under the Contract of at least $100,000 may,
subject to strict underwriting requirements, render the Contract eligible for a
Select Rating basis, which provides lower current cost of insurance rates.
Upon an increase in face amount, Pruco Life will recompute the Contract's
scheduled premiums, deferred sales and administrative charges, tabular values,
and monthly deductions from the Contract fund. The Contract owner has a choice,
limited only by applicable state law, as to whether the recomputation will be
made as of the prior or next Contract anniversary. There will be a payment
required on the date of increase; the amount of the payment will depend, in
part, on which Contract anniversary the Contract owner selects for the
recomputation. Pruco Life will tell the owner the amount of the required
payment. It should also be noted that an increase in face amount may impact the
status of the Contract as a Modified Endowment Contract. See TAX TREATMENT OF
CONTRACT BENEFITS, page 25. Therefore, before increasing the face amount, a
Contract owner should consult with his or her own tax advisor and Pruco Life
representative.
The effective date of the increase in the amount of insurance will be determined
by the same rules that apply when a new Contract is purchased. Generally
speaking, an increase will take effect on the latest of the date the owner
applies for it, the date satisfactory evidence of insurability is provided to
Pruco Life or the date designated by the Contract owner, provided the necessary
payment is made on or before that date.
Pruco Life will supply the Contract owner with pages which show the increased
face amount, the effective date of the increase, and the recomputed items
described two paragraphs above. The pages will also describe how the increase in
face amount affects the various provisions of the Contract, including a
statement that, for the amount of the increase in face amount, the period stated
in the Incontestability and Suicide provisions (see OTHER GENERAL CONTRACT
PROVISIONS, page 28) will run from the effective date of the increase.
There will be assessed upon lapse or surrender following an increase in face
amount the sum of (a) the deferred sales and administrative charges that would
have been assessed if the initial base Contract had not been amended and had
lapsed or been surrendered; and (b) the deferred sales and administrative
charges that would have been assessed if the increase in death benefit had been
achieved by the issuance of a new Contract, and that Contract had lapsed or been
surrendered. All premiums paid after the increase will, for purposes of
determining the deferred sales charge applicable in the event of surrender or
lapse, be deemed to have been made partially under the base Contract, and
partially in payment of the increase, in the same proportion as that of the
original scheduled premium and the increase in scheduled premiums. Because an
increase in face amount triggers new contingent deferred sales and
administrative charges, a Contract owner contemplating a total or partial
surrender or a decrease in the face amount of insurance should not elect to
increase the face amount of his or her Contract.
An increase in face amount will be treated comparably to the issuance of a new
Contract for purposes of the non-guaranteed waiver of the 5% front-end sales
load, described under item 2 of CHARGES AND EXPENSES on page 11. Thus, premiums
paid after the increase will, for purposes of determining whether the 5%
front-end sales load will be waived, be allocated to the base Contract and to
the increase based on the proportional premium allocation rule just described.
The waiver will apply with respect to the premiums paid after the increase only
after the
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<PAGE>
premiums so allocated exceed five scheduled annual premiums for the increase.
Thus, an owner considering an increase in face amount should be aware that such
an increase will entail sales charges comparable to the purchase of a new
Contract.
Each Contract owner who elects to increase the face amount of his or her
Contract will receive a "free-look" right and a right to convert to a
fixed-benefit contract, which rights will apply only to the increase in face
amount, not the entire Contract. These rights are comparable to the rights
afforded to a purchaser of a new Contract. See SHORT-TERM CANCELLATION RIGHT OR
"FREE LOOK", page 6 and RIGHT TO EXCHANGE A CONTRACT FOR A FIXED-BENEFIT
INSURANCE POLICY, page 24. The "free-look" right would have to be exercised no
later than 45 days after execution of the application for the increase or, if
later, within 10 days after either receipt of the Contract as increased or
receipt of the withdrawal right notice by the owner. Upon exercise of the
"free-look" right, the owner will receive a refund in the amount of the
aggregate premiums paid since the increase was requested and attributable to the
increase, not the base Contract, as determined pursuant to the proportional
premium allocation rule described above. There will be no adjustment for
investment experience. Moreover, charges deducted since the increase will be
recomputed as though no increase had been effected. The right to convert the
increase in face amount to a fixed-benefit policy will exist for 24 months after
the increase is issued and the form of exchange right will be the same as that
available under the base Contract purchased. There may be a cash payment
required upon the exchange. See RIGHT TO EXCHANGE A CONTRACT FOR A FIXED-BENEFIT
INSURANCE POLICY, page 24.
DECREASES IN FACE AMOUNT
As explained earlier, a Contract owner may effect a partial surrender of a
Contract (see SURRENDER OF A CONTRACT, page 17) or a partial withdrawal of
excess cash surrender value (see WITHDRAWAL OF EXCESS CASH SURRENDER VALUE, page
17). A Contract owner also has the additional option of decreasing the face
amount (which is also the guaranteed minimum death benefit) of his or her
Contract without withdrawing any cash surrender value. Contract owners who
conclude that, because of changed circumstances, the amount of insurance is
greater than needed will thus be able to decrease their amount of insurance
protection without decreasing their current cash surrender value. This will
result in a decrease in the amount of future scheduled premiums and in the
monthly deductions for the cost of insurance. The cash surrender value of the
Contract on the date of the decrease will not change, except that an
administrative processing fee of $15 may be deducted from that value (unless
that fee is separately paid at the time the decrease in face amount is
requested). The Contract's Contract fund value, however, will be reduced by
deduction of a proportionate part of the then applicable contingent deferred
sales and administrative charges, if any. Scheduled premiums for the Contract
will also be proportionately reduced. The Contracts of owners who exercise the
right to reduce face amount will be amended to show the new face amount, tabular
values, scheduled premiums, monthly charges, and if applicable, the remaining
contingent deferred sales and administrative charges.
The minimum permissible decrease is $10,000. No decrease will be permitted that
causes the face amount of the Contract to drop below the minimum face amount
applicable to the insured's Contract. See REQUIREMENTS FOR ISSUANCE OF A
CONTRACT, page 6. No reduction will be permitted to the extent that it would
cause the Contract to fail to qualify as "life insurance" for purposes of
section 7702 of the Internal Revenue Code. If the face amount of a Contract in
force on a Select Rating basis is reduced below $100,000, it is no longer
eligible for the Select Rating. A decrease in face amount will be effected as of
the Monthly date immediately preceding receipt of a proper request to decrease
face amount. Monthly charges previously deducted on that date and attributed to
the decreased portion of the face amount will be credited to the Contract fund
as of that date.
It is important to note, however, that if the face amount is decreased at any
time during the first 7 Contract years, there is a danger that the Contract
might be classified as a Modified Endowment Contract. See TAX TREATMENT OF
CONTRACT BENEFITS, page 25. Before making any withdrawal which causes a decrease
in face amount, a Contract owner should consult with his or her own tax advisor
and Pruco Life representative.
LAPSE AND REINSTATEMENT
The Contract has an advantageous feature that is not typically found in similar
types of life insurance contracts. If scheduled premiums are paid on or before
each due date or within the grace period after each due date, (or missed
premiums are paid later with interest) and there are no withdrawals, a Contract
will remain in force even if the investment results of that Contract's variable
investment option[s] have been so unfavorable that the Contract fund has
decreased to zero or less. Therefore, unlike most similar types of life
insurance contracts that lapse when the cash surrender value decreases to zero
even if premiums are paid, this Contract ensures that as long as scheduled
premiums are paid, insurance protection remains in effect.
In fact, even if a scheduled premium is not paid, the Contract will remain in
force as long as the Contract fund on any Monthly date is equal to or greater
than the tabular Contract fund value on the next Monthly date. This could
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occur because of such factors as favorable investment experience, deduction of
less than the maximum permissible charges, or the previous payment of greater
than scheduled premiums.
However, if a scheduled premium is not paid, and the Contract fund is
insufficient to keep the Contract in force, the Contract will go into default.
Should this happen, Pruco Life will send the Contract owner a notice of default
setting forth the payment necessary to keep the Contract in force on a premium
paying basis. This payment must be received at a Pruco Life Home Office within
the 61 day grace period after the notice of default is mailed or 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 25.
A Contract that has lapsed may be reinstated within 3 years after the date of
default unless the Contract has been surrendered for its cash surrender value.
To reinstate a lapsed Contract, Pruco Life requires renewed evidence of
insurability, and submission of certain payments due under the Contract.
If a Contract does lapse, it may still provide some benefits. Those benefits are
described under OPTIONS ON LAPSE, page 24.
WHEN PROCEEDS ARE PAID
Pruco Life will generally pay any death benefit, cash surrender value, loan
proceeds or partial withdrawal within 7 days after receipt at a Pruco Life Home
Office of all the documents required for such a payment. Other than the death
benefit, which is determined as of the date of death, the amount will be
determined as of the end of the valuation period in which the necessary
documents are received. However, Pruco Life may delay payment of proceeds from
the subaccount[s] and the variable portion of the death benefit due under the
Contract if the disposal or valuation of the Account's assets is not reasonably
practicable because the New York Stock Exchange is closed for other than a
regular holiday or weekend, trading is restricted by the SEC or the SEC declares
that an emergency exists.
With respect to the amount of any cash surrender value allocated to the
fixed-rate option, and with respect to a Contract in force as extended term
insurance, Pruco Life expects to pay the cash surrender value promptly upon
request. However, Pruco Life has the right to delay payment of such cash
surrender value for up to 6 months (or a shorter period if required by
applicable law). Pruco Life will pay interest of at least 3% a year if it delays
such a payment for more than 30 days (or a shorter period if required by
applicable law).
LIVING NEEDS BENEFIT
Contract applicants may elect to add the LIVING NEEDS BENEFIT(SM) to their
Contracts at issue, subject to Pruco Life's receipt of satisfactory evidence of
insurability. The benefit may vary state-by-state. It can generally be added
only to Contracts of $50,000 or more.
The LIVING NEEDS BENEFIT allows the Contract owner to elect to receive an
accelerated payment of all or part of the Contract's death benefit, adjusted to
reflect current value, at a time when certain special needs exist. The adjusted
death benefit will always be less than the death benefit, but will generally be
greater than the Contract's cash surrender value. Depending upon state
regulatory approval, one or both of the following options may be available. A
Pruco Life representative should be consulted as to whether additional options
may be available.
TERMINAL ILLNESS OPTION. This option is available if the insured is diagnosed as
terminally ill with a life expectancy of 6 months or less. When satisfactory
evidence is provided, Pruco Life will provide an accelerated payment of the
portion of the death benefit selected by the Contract owner as a LIVING NEEDS
BENEFIT. The Contract owner may (1) elect to receive the benefit in a single sum
or (2) receive equal monthly payments for 6 months. If the insured dies before
all of the payments have been made, the present value of the remaining payments
will be paid to the beneficiary designated in the LIVING NEEDS BENEFIT claim
form in a single sum.
NURSING HOME OPTION. This option is available after the insured has been
confined to an eligible nursing home for 6 months or more. When satisfactory
evidence is provided, including certification by a licensed physician, that the
insured is expected to remain in the nursing home until death, Pruco Life will
provide an accelerated payment of the portion of the death benefit selected by
the Contract owner as a LIVING NEEDS BENEFIT. The Contract owner may (1) elect
to receive the benefit in a single sum or (2) receive equal monthly payments for
a specified number of years (not more than 10 nor less than 2), depending upon
the age of the insured. If the insured dies before all of the payments have been
made, the present value of the remaining payments will be paid to the
beneficiary designated in the LIVING NEEDS BENEFIT claim form in a single sum.
All or part of the Contract's death benefit may be accelerated under the LIVING
NEEDS BENEFIT. If the benefit is only partially accelerated, a death benefit of
at least $25,000 must remain under the Contract. Pruco Life reserves the right
to determine the minimum amount that may be accelerated.
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The LIVING NEEDS BENEFIT is available only to the extent regulatory approval has
been obtained. If desired by a Contract owner, the benefit must be requested on
the Contract's application. There is no charge for adding the benefit to the
Contract. However, an administrative charge (not to exceed $150) will be made at
the time the LIVING NEEDS BENEFIT is paid.
No benefit will be payable if the Contract owner is required to elect it in
order to meet the claims of creditors or to obtain a government benefit. Pruco
Life can furnish details about the amount of LIVING NEEDS BENEFIT that is
available to an eligible Contract owner under a particular Contract, and the
adjusted premium payments that would be in effect if less than the entire death
benefit is accelerated.
The Contract owner should consider whether adding this settlement option is
appropriate in his or her given situation. Adding the LIVING NEEDS BENEFIT to
the Contract has no adverse consequences; however, electing to use it could.
Contract owners should consult a qualified tax advisor before electing to
receive this benefit. Unlike a death benefit received by a beneficiary after the
death of an insured, receipt of a LIVING NEEDS BENEFIT payment may give rise to
a federal or state income tax. Receipt of a LIVING NEEDS BENEFIT payment may
also affect a Contract owner's eligibility for certain government benefits or
entitlements.
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED
PREMIUMS
The following tables have been prepared to help show how values under the
Contract change with investment performance of the Account. The tables assume
that no portion of the Contract fund is allocated to the fixed-rate option or
the Real Property Account. The tables illustrate how cash surrender values
(reflecting the deduction of deferred sales load and administrative charges, if
any) and death benefits of Contracts with the minimum scheduled premium issued
on an insured of a given age would vary over time if the return on the assets
held in the selected Series Fund portfolios were a uniform, gross, after tax,
annual rate of 0%, 4%, 8% and 12%. The death benefits and cash surrender values
would be different from those shown if the returns averaged 0%, 4%, 8% and 12%
but fluctuated over and under those averages throughout the years. The tables
also provide information about the premiums payable on and after the premium
change date. These tables reflect values under the revised Contracts. These
values are also applicable to the original Contracts except where the death
benefit has been increased to the Contract fund divided by the net single
premium, in which case the cash surrender value and death benefit figures shown
on the table are not applicable to the original Contracts. Footnotes to the
tables indicate when the values cease to be applicable to the original Contracts
and when the original Contracts would become paid-up for a given return.
The death benefits and cash surrender values shown in the first two tables on
pages T1 and T2 reflect Pruco Life's current charges. As explained earlier,
Pruco Life makes monthly mortality charges that are lower than those based on
the 1980 CSO Table when the insured is a male aged 36 or more or a female aged
41 or more. The values shown in the tables are calculated upon the assumption
that Pruco Life will continue to use the mortality rates that it is currently
using, even though it is permitted under the Contract to use the higher
mortality charges specified in the 1980 CSO Table. Moreover, those tables
reflect Pruco Life's current practice of waiving the front-end sales load of 5%
after total premiums paid exceeds five scheduled annual premiums. See item 2
under CHARGES AND EXPENSES, page 11. The tables also reflect Pruco Life's
current practice of increasing the Contract fund on a percentage basis based on
the attained age of the insured. While Pruco Life does not currently intend to
withdraw or modify these reductions in charges or additions to the Contract
fund, it reserves the right to do so. The tables are not applicable to Contracts
issued on a guaranteed issue basis or to Contracts where the risk classification
is on a multiple life basis.
The death benefits and cash surrender values shown in the next two tables on
pages T3 and T4 are calculated upon the assumption that the maximum mortality
charges specified by the 1980 CSO Table are made throughout the life of the
Contract, and reflect neither the waiver of the front-end sales load nor the
monthly additions to the Contract fund that further reduce the cost of insurance
charge.
The amounts shown for the death benefit and cash surrender value as of each
Contract year reflect the fact that the net investment return on the assets held
in the subaccounts is lower than the gross return of the portfolios. This is
because the tables assume a total Series Fund expense ratio of 0.52% (taking
into account the offsets described on page 5), and also reflect a daily
mortality and expense risk charge to the Account equal to an effective annual
charge of 0.6%. The actual fees and expenses of the portfolios associated with a
particular Contract may be more or less than 0.52% and will depend on which
subaccounts are selected. Based on the above assumptions, gross annual rates of
return of 0%, 4%, 8% and 12% thus correspond to approximate net annual rates of
return of -1.12%, 2.88%, 6.88% and 10.88% and this fact is reflected in the
column headings. The tables also reflect the fact that no charges for federal or
state income taxes are currently made against the Account. If such a charge is
made in the future, it will take a higher gross rate of return to produce net
after-tax returns of -1.12%, 2.88%, 6.88% or 10.88% than it does now.
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Upon request, Pruco Life will furnish a comparable illustration based on the
proposed insured's age and sex (except where unisex rates apply) and on the
guaranteed minimum death benefit or premium amount requested. Such an
illustration will assume that the insured is in the preferred rating class (or,
on request, a different rating class) and that the premium will be paid at the
frequency chosen.
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<TABLE>
ILLUSTRATIONS
-------------
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
FORM A -- FIXED DEATH BENEFIT
MALE PREFERRED ISSUE AGE 35
$60,000 GUARANTEED DEATH BENEFIT
$554.80 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3)
USING CURRENT SCHEDULE OF CHARGES
<CAPTION>
DEATH BENEFIT (2) CASH SURRENDER 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 12% GROSS 0% GROSS 4% GROSS 8% GROSS 12% GROSS
YEAR PER YEAR (3) (-1.12% NET) (2.88% NET) (6.88% NET) (10.88% NET) (-1.12% NET) (2.88% NET) (6.88% NET) (10.88% NET)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 577 $60,000 $60,000 $ 60,000 $ 60,000 $ 0 $ 0 $ 0 $ 0
2 $ 1,177 $60,000 $60,000 $ 60,000 $ 60,000 $ 187 $ 234 $ 282 $ 331
3 $ 1,801 $60,000 $60,000 $ 60,000 $ 60,000 $ 468 $ 559 $ 654 $ 755
4 $ 2,450 $60,000 $60,000 $ 60,000 $ 60,000 $ 740 $ 887 $ 1,047 $ 1,221
5 $ 3,125 $60,000 $60,000 $ 60,000 $ 60,000 $ 999 $ 1,217 $ 1,461 $ 1,733
6 $ 3,827 $60,000 $60,000 $ 60,000 $ 60,000 $ 1,386 $ 1,690 $ 2,038 $ 2,437
7 $ 4,557 $60,000 $60,000 $ 60,000 $ 60,000 $ 1,787 $ 2,190 $ 2,666 $ 3,227
8 $ 5,317 $60,000 $60,000 $ 60,000 $ 60,000 $ 2,175 $ 2,693 $ 3,320 $ 4,081
9 $ 6,106 $60,000 $60,000 $ 60,000 $ 60,000 $ 2,550 $ 3,196 $ 4,003 $ 5,007
10 $ 6,927 $60,000 $60,000 $ 60,000 $ 60,000 $ 2,912 $ 3,702 $ 4,716 $ 6,015
15 $ 11,553 $60,000 $60,000 $ 60,000 $ 60,000 $ 4,074 $ 5,870 $ 8,537 $ 12,498
20 $ 17,182 $60,000 $60,000 $ 60,000 $ 60,000 $ 4,744 $ 8,005 $13,673 $ 23,543
25 $ 24,029 $60,000 $60,000 $ 60,000 $ 78,722 $ 4,620 $ 9,828 $20,599 $ 42,546
30 (Age 65) $ 32,361 $60,000 $60,000 $ 60,000 $121,289 $ 3,233 $10,889 $30,166 $ 73,969
35 $ 52,388 $60,000 $60,000 $ 64,669 $184,454 $14,693 $20,487 $43,895 $125,200
40 $ 76,754 $60,000 $60,000 $ 84,098 $279,131 $24,803 $30,971 $62,586 $207,729
45 $106,400 $60,000 $60,000 $108,676 $422,991 $33,491 $43,231 $87,087 $338,960
</TABLE>
(1) If premiums are paid more frequently than annually, the initial payments
would be $284.80 semi-annually, $145.40 quarterly or $50 monthly. The
ultimate payments would be $1,775.20 semi-annually, $897.80 quarterly or
$302.60 monthly. The death benefits and cash surrender values would be
slightly different for a Contract with more frequent premium payments.
(2) Assumes no Contract loan has been made.
(3) Values shown in the table are applicable to both the original Contracts (the
"1984 Contracts") and the revised Contracts that first began to be issued in
September of 1986 (the "1986 Contracts"), except where the death benefit has
been increased to the Contract fund divided by the net single premium, in
which case the cash surrender value and death benefit figures shown are
applicable only to the 1986 Contracts. This first occurs at the time when
the 1984 Contracts would become paid-up. For a hypothetical gross investment
return of 0%, the second Scheduled Premium will be $3,477.40. For a gross
return of 4%, the second Scheduled Premium will be $2,310.74. For a gross
return of 8%, the second Scheduled Premium will be $554.80. For a gross
return of 12%, the second Scheduled Premium will be $554.80. The premiums
accumulated at 4% interest in column 2 are those payable if the gross
investment return is 4%. For an explanation of why the scheduled premium may
increase on the premium change date, see Premiums.
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 SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 4%, 8%,
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.
T1
<PAGE>
<TABLE>
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
FORM B -- VARIABLE DEATH BENEFIT
MALE PREFERRED ISSUE AGE 35
$60,000 GUARANTEED DEATH BENEFIT
$554.80 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3)
USING CURRENT SCHEDULE OF CHARGES
<CAPTION>
DEATH BENEFIT (2) CASH SURRENDER 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 12% GROSS 0% GROSS 4% GROSS 8% GROSS 12% GROSS
YEAR PER YEAR (3) (-1.12% NET) (2.88% NET) (6.88% NET) (10.88% NET) (-1.12% NET) (2.88% NET) (6.88% NET) (10.88% NET)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 577 $60,000 $60,000 $60,013 $ 60,030 $ 0 $ 0 $ 0 $ 0
2 $ 1,177 $60,000 $60,000 $60,039 $ 60,088 $ 186 $ 232 $ 280 $ 330
3 $ 1,801 $60,000 $60,000 $60,080 $ 60,181 $ 467 $ 557 $ 652 $ 752
4 $ 2,450 $60,000 $60,000 $60,138 $ 60,311 $ 738 $ 884 $ 1,043 $ 1,217
5 $ 3,125 $60,000 $60,000 $60,215 $ 60,485 $ 997 $ 1,214 $ 1,456 $ 1,726
6 $ 3,827 $60,000 $60,000 $60,341 $ 60,737 $ 1,384 $ 1,685 $ 2,031 $ 2,427
7 $ 4,557 $60,000 $60,020 $60,492 $ 61,047 $ 1,785 $ 2,185 $ 2,656 $ 3,212
8 $ 5,317 $60,000 $60,048 $60,670 $ 61,421 $ 2,172 $ 2,686 $ 3,307 $ 4,059
9 $ 6,106 $60,000 $60,080 $60,877 $ 61,868 $ 2,547 $ 3,188 $ 3,985 $ 4,976
10 $ 6,927 $60,000 $60,118 $61,117 $ 62,396 $ 2,909 $ 3,692 $ 4,692 $ 5,971
15 $ 11,553 $60,000 $60,627 $63,236 $ 67,099 $ 4,088 $ 5,868 $ 8,477 $ 12,340
20 $ 17,182 $60,000 $61,532 $66,988 $ 76,437 $ 4,780 $ 7,993 $13,449 $ 22,898
25 $ 24,029 $60,000 $63,141 $73,205 $ 93,813 $ 4,680 $ 9,730 $19,793 $ 40,402
30 (Age 65) $ 32,361 $60,000 $65,958 $83,047 $124,927 $ 3,317 $10,458 $27,547 $ 69,427
35 $ 53,941 $60,363 $66,410 $82,644 $173,620 $14,665 $20,712 $36,946 $117,846
40 $ 80,197 $60,822 $67,861 $85,282 $264,168 $24,432 $31,471 $48,892 $196,593
45 $112,141 $60,658 $70,823 $92,492 $402,323 $32,397 $42,561 $64,231 $322,398
</TABLE>
(1) If premiums are paid more frequently than annually, the initial payments
would be $284.80 semi-annually, $145.40 quarterly or $50 monthly. The
ultimate payments would be $1,775.20 semi-annually, $897.80 quarterly or
$302.60 monthly. The death benefits and cash surrender values would be
slightly different for a Contract with more frequent premium payments.
(2) Assumes no Contract loan has been made.
(3) Values shown in the table are applicable to both the original Contracts (the
"1984 Contracts") and the revised Contracts that first began to be issued in
September of 1986 (the "1986 Contracts"), except where the death benefit has
been increased to the Contract fund divided by the net single premium, in
which case the cash surrender value and death benefit figures shown are
applicable only to the 1986 Contracts. This first occurs at the time when
the 1984 Contracts would become paid-up. For a hypothetical gross investment
return of 0%, the second Scheduled Premium will be $3,477.40. For a gross
return of 4%, the second Scheduled Premium will be $2,586.43. For a gross
return of 8%, the second Scheduled Premium will be $554.80. For a gross
return of 12%, the second Scheduled Premium will be $554.80. The premiums
accumulated at 4% interest in column 2 are those payable if the gross
investment return is 4%. For an explanation of why the scheduled premium may
increase on the premium change date, see Premiums.
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 SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 4%, 8%,
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.
T2
<PAGE>
<TABLE>
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
FORM A -- FIXED DEATH BENEFIT
MALE PREFERRED ISSUE AGE 35
$60,000 GUARANTEED DEATH BENEFIT
$554.80 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3)
USING MAXIMUM CONTRACTUAL CHARGES
<CAPTION>
DEATH BENEFIT (2) CASH SURRENDER 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 12% GROSS 0% GROSS 4% GROSS 8% GROSS 12% GROSS
YEAR PER YEAR (3) (-1.12% NET) (2.88% NET) (6.88% NET) (10.88% NET) (-1.12% NET) (2.88% NET) (6.88% NET) (10.88% NET)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 577 $60,000 $60,000 $60,000 $ 60,000 $ 0 $ 0 $ 0 $ 0
2 $ 1,177 $60,000 $60,000 $60,000 $ 60,000 $ 184 $ 231 $ 279 $ 328
3 $ 1,801 $60,000 $60,000 $60,000 $ 60,000 $ 460 $ 550 $ 645 $ 745
4 $ 2,450 $60,000 $60,000 $60,000 $ 60,000 $ 722 $ 868 $ 1,027 $ 1,200
5 $ 3,125 $60,000 $60,000 $60,000 $ 60,000 $ 968 $ 1,184 $ 1,426 $ 1,696
6 $ 3,827 $60,000 $60,000 $60,000 $ 60,000 $1,310 $ 1,609 $ 1,952 $ 2,346
7 $ 4,557 $60,000 $60,000 $60,000 $ 60,000 $1,661 $ 2,055 $ 2,520 $ 3,070
8 $ 5,317 $60,000 $60,000 $60,000 $ 60,000 $1,992 $ 2,494 $ 3,104 $ 3,846
9 $ 6,106 $60,000 $60,000 $60,000 $ 60,000 $2,305 $ 2,926 $ 3,704 $ 4,678
10 $ 6,927 $60,000 $60,000 $60,000 $ 60,000 $2,596 $ 3,348 $ 4,320 $ 5,571
15 $ 11,553 $60,000 $60,000 $60,000 $ 60,000 $3,140 $ 4,714 $ 7,086 $ 10,658
20 $ 17,182 $60,000 $60,000 $60,000 $ 60,000 $2,872 $ 5,488 $10,187 $ 18,576
25 $ 24,029 $60,000 $60,000 $60,000 $ 60,000 $1,265 $ 5,025 $13,342 $ 31,308
30 (Age 65) $ 32,361 $60,000 $60,000 $60,000 $ 84,811 $ 0 $ 2,228 $16,069 $ 51,723
35 $ 58,960 $60,000 $60,000 $60,000 $121,413 $3,929 $11,043 $27,864 $ 82,410
40 $ 91,322 $60,000 $60,000 $60,000 $171,657 $6,058 $18,303 $44,398 $127,747
45 $130,695 $60,000 $60,000 $83,080 $241,219 $ 0 $22,167 $66,575 $193,298
</TABLE>
(1) If premiums are paid more frequently than annually, the payments would be
$284.80 semi-annually, $145.40 quarterly or $50 monthly. The death benefits
and cash surrender values would be slightly different for a Contract with
more frequent premium payments.
(2) Assumes no Contract loan has been made.
(3) Values shown in the table are applicable to both the original Contracts (the
"1984 Contracts") and the revised Contracts that first began to be issued in
September of 1986 (the "1986 Contracts"), except where the death benefit has
been increased to the Contract fund divided by the net single premium, in
which case the cash surrender value and death benefit figures shown are
applicable only to the 1986 Contracts. This first occurs at the time when
the 1984 Contracts would become paid-up. For a hypothetical gross investment
return of 0%, the second Scheduled Premium will be $3,477.40; for a gross
return of 4% the second Scheduled Premium will be $3,477.40; for a gross
return of 8% the second Scheduled Premium will be $2,244.41; for a gross
return of 12% the second Scheduled Premium will be $554.80. The premiums
accumulated at 4% interest in column 2 are those payable if the gross
investment return is 4%. For an explanation of why the scheduled premium may
increase on the premium change date, see Premiums.
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 SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 4%, 8%,
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>
<TABLE>
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
FORM B -- VARIABLE DEATH BENEFIT
MALE PREFERRED ISSUE AGE 35
$60,000 GUARANTEED DEATH BENEFIT
$554.80 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3)
USING MAXIMUM CONTRACTUAL CHARGES
<CAPTION>
DEATH BENEFIT (2) CASH SURRENDER 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 12% GROSS 0% GROSS 4% GROSS 8% GROSS 12% GROSS
YEAR PER YEAR (3) (-1.12% NET) (2.88% NET) (6.88% NET) (10.88% NET) (-1.12% NET) (2.88% NET) (6.88% NET) (10.88% NET)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 577 $60,000 $60,000 $60,013 $ 60,030 $ 0 $ 0 $ 0 $ 0
2 $ 1,177 $60,000 $60,000 $60,036 $ 60,085 $ 183 $ 229 $ 277 $ 327
3 $ 1,801 $60,000 $60,000 $60,071 $ 60,171 $ 458 $ 548 $ 642 $ 743
4 $ 2,450 $60,000 $60,000 $60,118 $ 60,291 $ 720 $ 865 $ 1,024 $ 1,196
5 $ 3,125 $60,000 $60,000 $60,180 $ 60,448 $ 966 $ 1,181 $ 1,421 $ 1,689
6 $ 3,827 $60,000 $60,000 $60,255 $ 60,646 $1,308 $ 1,605 $ 1,945 $ 2,336
7 $ 4,557 $60,000 $60,000 $60,346 $ 60,890 $1,658 $ 2,050 $ 2,511 $ 3,055
8 $ 5,317 $60,000 $60,000 $60,454 $ 61,186 $1,990 $ 2,488 $ 3,091 $ 3,824
9 $ 6,106 $60,000 $60,000 $60,579 $ 61,538 $2,302 $ 2,919 $ 3,687 $ 4,646
10 $ 6,927 $60,000 $60,000 $60,723 $ 61,952 $2,594 $ 3,341 $ 4,298 $ 5,527
15 $ 11,553 $60,000 $60,000 $61,765 $ 65,209 $3,138 $ 4,704 $ 7,006 $ 10,450
20 $ 17,182 $60,000 $60,000 $63,467 $ 71,302 $2,869 $ 5,477 $ 9,927 $ 17,763
25 $ 24,029 $60,000 $60,000 $65,976 $ 81,851 $1,263 $ 5,011 $12,564 $ 28,440
30 (Age 65) $ 32,361 $60,000 $60,000 $69,383 $ 99,252 $ 0 $ 2,210 $13,883 $ 43,752
35 $ 58,960 $60,000 $60,000 $72,024 $116,464 $3,927 $11,003 $26,326 $ 70,767
40 $ 91,322 $60,000 $60,000 $77,428 $151,913 $6,055 $18,244 $41,038 $113,054
45 $130,695 $60,000 $60,000 $86,698 $219,326 $ 0 $22,065 $58,437 $175,755
</TABLE>
(1) If premiums are paid more frequently than annually, the payments would be
$284.80 semi-annually, $145.40 quarterly or $50 monthly. The death benefits
and cash surrender values would be slightly different for a Contract with
more frequent premium payments.
(2) Assumes no Contract loan has been made.
(3) Values shown in the table are applicable to both the original Contracts (the
"1984 Contracts") and the revised Contracts that first began to be issued in
September of 1986 (the "1986 Contracts"), except where the death benefit has
been increased to the Contract fund divided by the net single premium, in
which case the cash surrender value and death benefit figures shown are
applicable only to the 1986 Contracts. This first occurs at the time when
the 1984 Contracts would become paid-up. For a hypothetical gross investment
return of 0%, the second Scheduled Premium will be $3,477.40; for a gross
return of 4% the second Scheduled Premium will be $3,477.40; for a gross
return of 8% the second Scheduled Premium will be $2,954.83; for a gross
return of 12% the second Scheduled Premium will be $1,291.34. The premiums
accumulated at 4% interest in column 2 are those payable if the gross
investment return is 4%. For an explanation of why the scheduled premium may
increase on the premium change date, see Premiums.
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 SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 4%, 8%,
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
The Contract owner may borrow from Pruco Life up to the "loan value" of the
Contract, using the Contract as the only security for the loan. The loan value
of a Contract is 90% of an amount equal to its Contract fund, reduced by any
charges due upon surrender. However, Pruco Life will, on a non-contractual basis
(contractual in Texas), increase the loan value by permitting a Contract owner
to borrow up to 100% of the portion of the Contract fund attributable to the
fixed-rate option (or any portion of the Contract fund attributable to a prior
loan supported by the fixed-rate option), reduced by any charges due upon
surrender. The minimum amount that may be borrowed at any one time is $500
unless the loan is used to pay premiums.
Under one of the loan provisions available under this Contract, interest charged
on a loan accrues daily at a fixed effective annual rate of 5.5%. However, if a
Contract owner so desires, and if Pruco Life has received any required approvals
from the regulatory officials in the state or other jurisdiction in which the
Contract is to be issued, the Contract owner may elect at the time of issuance
of the Contract to have a different loan provision in the Contract under which
the interest rate will vary from time to time.
If an owner elects the variable loan interest rate provision, interest charged
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). This 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) any rate required by law in the state of issue of
the Contract. The "Published Monthly Average" means Moody's Corporate Bond Yield
Average-Monthly Average Corporates, as published by Moody's Investors Service,
Inc. or any successor to that service, or if that average is no longer
published, a substantially similar average established by the insurance
regulator where the Contract is issued. For example, the Published Monthly
Average in 1995 ranged from 7.11% to 8.71%.
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 principal amount of the loan.
The term "Contract debt" means the amount of all outstanding loans plus any
interest accrued but not yet due. If at any time the Contract debt exceeds the
cash surrender value, Pruco Life will notify the Contract owner of its intent to
terminate the Contract in 61 days, within which time the owner may repay all or
enough of the loan to keep the Contract in force for a limited time. If the
Contract owner fails to keep the Contract in force, the amount of unpaid
Contract debt will be treated as a distribution which may be taxable. See LAPSE
AND REINSTATEMENT, page 19 and TAX TREATMENT OF CONTRACT BENEFITS - PRE-DEATH
DISTRIBUTIONS, page 26.
When a loan is made, an amount equal to the loan proceeds will be transferred
out of the applicable investment option[s]. The reduction will generally be made
in the same proportions as the value in 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 fund
but it 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 less than the loan
interest rate for the Contract year by no more than 1.5%, rather than with the
actual rate of return of the subaccount[s], the fixed-rate option or the Real
Property Account. Currently, Pruco Life credits such amounts with 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
will apply.
A loan will not affect the amount of the premiums due. Should the death benefit
become payable while a loan is outstanding, or should the Contract be
surrendered, any Contract debt will be deducted from the death benefit or the
cash surrender value otherwise payable. Loans from Modified Endowment Contracts
may be treated for tax purposes as distributions of income. See TAX TREATMENT OF
CONTRACT BENEFITS, page 25.
A loan will have a permanent effect on a Contract's cash surrender value and may
have a permanent effect on the death benefit 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, Contract values will not increase as rapidly as
they would have if no loan had been made. If investment results are below that
rate, Contract values will be higher than they would have been had no loan been
made. A loan that is repaid will not have any effect upon the guaranteed minimum
death benefit.
Consider the Form A Contract issued on a 35 year old male insured illustrated in
the table on page T1 with an 8% gross investment return. Assume a $2,000 (5.5%)
fixed-rate loan was made under this Contract at the end of Contract year 8 and
repaid at the end of Contract year 10 and loan interest was paid when due. Upon
repayment, the cash surrender value would be $4,579.39. This amount is lower
than the cash surrender value shown on that page for the end of Contract year 10
because the loan amount was credited with the 4% assumed rate of return
23
<PAGE>
rather than the 6.88% net return for the designated subaccount[s] resulting from
the 8% gross return in the underlying Series Fund.
REPORTS TO CONTRACT OWNERS
Once each Contract year (except where the Contract is in force as fixed extended
term insurance), Contract owners will be sent statements that provide certain
information pertinent to their own Contract. These statements detail values and
transactions made and specific Contract data that apply only to each particular
Contract. On request, a Contract owner will be sent a current statement in a
form similar to that of the annual statement described above, but Pruco Life may
limit the number of such requests or impose a reasonable charge if such requests
are made too frequently.
Each Contract owner will be sent an annual report for the Account. Contract
owners will also be sent annual and semi-annual reports of the Series Fund
showing the financial condition of the portfolios and the investments held in
each.
OPTIONS ON LAPSE
If a Contract lapses because the necessary premium has not been paid before the
end of the grace period, some life insurance coverage may continue in effect or
the owner may choose to surrender the Contract for its cash surrender value.
1. FIXED EXTENDED TERM INSURANCE. With two exceptions explained below, if the
owner does not communicate at all with Pruco Life, life insurance coverage will
continue for a length of time that depends on the cash surrender value on the
date of default (which reflects the deduction of the deferred sales load,
administrative charges, and Contract debt, if any), the amount of insurance, and
the age and sex (except where unisex rates apply) of the insured. The insurance
amount will be what it would have been on the date of default taking into
account any Contract debt on that date. The amount will not change while the
insurance stays in force. This benefit is known as extended term insurance. If
the owner requests, he or she will be told in writing how long the insurance
will be in effect. Extended term insurance has a cash surrender value, but no
loan value.
Contracts issued on the lives of certain insureds in high risk rating classes
and Contracts issued in connection with tax qualified pension plans will include
a statement that extended term insurance will not be provided. In those cases,
variable reduced paid-up insurance will be the automatic benefit provided on
lapse.
2. 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 cash surrender value on the date of
default (which reflects the deduction of the deferred sales load, administrative
charges, and Contract debt, if any), and the age and sex of the insured. This
will be a new guaranteed minimum death benefit. Aside from this guarantee, the
cash surrender value and the amount of insurance will vary with investment
performance in the same manner as the paid-up Contract described earlier. See
WHEN A CONTRACT BECOMES PAID-UP, page 16. Variable reduced paid-up insurance has
a loan privilege identical to that available on premium paying Contracts. See
CONTRACT LOANS, page 23. Acquisition of reduced paid-up insurance within the
first 7 Contract years may result in the Contract becoming a Modified Endowment
Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 25.
As explained above, variable reduced paid-up insurance is the automatic benefit
on lapse for Contracts issued on certain insureds. Owners of other Contracts who
want variable reduced paid-up insurance must ask for it in writing, in a form
that meets Pruco Life's needs, within three months of the date of default; it
will be available to such owners only if the initial amount of variable reduced
paid-up insurance would be at least $5,000. This minimum is not applicable to
Contracts for which variable reduced paid-up insurance is the automatic benefit
upon lapse.
3. PAYMENT OF CASH SURRENDER VALUE. The owner can receive the cash surrender
value by surrendering the Contract and making a written request in a form that
meets Pruco Life's needs. If Pruco Life receives the request after the 61-day
grace period has expired, the cash surrender value will be the net value of any
extended term insurance then in force, or the net value of any reduced paid-up
insurance then in force, less any Contract debt. Surrender of the Contract may
have tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 25.
RIGHT TO EXCHANGE A CONTRACT FOR A FIXED-BENEFIT INSURANCE POLICY
1. ORIGINAL CONTRACTS. At any time during the first 24 months after a Contract
is issued, so long as the Contract is not in default, the owner may exchange it
for an APPRECIABLE LIFE insurance policy on the insured's life issued by Pruco
Life. This is a general account, universal-life type policy with guaranteed
minimum values. No evidence of insurability will be required to make an
exchange. The new policy's premium and death benefit will be the same as the
original Contract's on the date of exchange. The new policy will also have the
same issue date and risk classification for the insured as the original
Contract. If the Contract fund value under the original Contract is
24
<PAGE>
greater than the tabular Contract fund value under the new policy, the
difference will be credited to the Contract owner and carried over to the new
policy. If the Contract fund value under the original Contract is less than the
tabular Contract fund value under the new policy, a cash payment will be
required from the exchanging owner.
The exchange will be effective when Pruco Life receives a written request in a
form that meets its needs. Any outstanding Contract debt must be repaid on or
before the effective date of the exchange.
The Contract owner may also exchange the Contract for an APPRECIABLE LIFE 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. The Company, in conjunction with the Arizona Director of Insurance, will
determine if a change in investment policy is material. The Contract owner will
be able to exchange within 60 days of receipt of notice of such a material
change or of the effective date of the change, whichever is later.
2. REVISED CONTRACTS. Under the revised Contracts, the only right to exchange
the Contract for a fixed-benefit contract is provided by allowing Contract
owners to transfer their entire Contract fund to the fixed-rate option at any
time within the first 2 years from issue (or within 2 years of any increase in
face amount with respect to the amount of the increase) without regard to the
otherwise applicable limit of four transfers per year. See TRANSFERS, page 10.
This conversion right will also be provided if the Series Fund or one of its
portfolios has a material change in its investment policy, as explained above.
There is no right to exchange for an APPRECIABLE LIFE contract.
SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
The 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
1111 Durham Avenue, South Plainfield, New Jersey 07080. The Contract is sold by
registered representatives of Prusec who are also authorized by state insurance
departments to do so. The Contract may also be sold through other broker-dealers
authorized by Prusec and applicable law to do so. Registered representatives of
such other broker-dealers may be paid on a different basis than described below.
Where the insured is less than 60 years of age, the representative will
generally receive a commission of no more than 50% of the scheduled premiums for
the first year, no more than 12% of the scheduled premiums for the second,
third, and fourth years, no more than 3% of the scheduled premiums for the fifth
through tenth years, and no more than 2% of the scheduled premiums thereafter.
For insureds over 59 years of age, the commission will be lower. The
representative may be required to return all or part of the first year
commission if the Contract is not continued through the second year.
Representatives with less than 3 years of service may be paid on a different
basis. Representatives who meet certain productivity, profitability, and
persistency standards with regard to the sale of the Contract will be eligible
for additional compensation.
Sales expenses in any year are not equal to the deduction for sales load in that
year. Pruco Life expects to recover its total sales expenses over the periods
the Contracts are in effect. To the extent that the sales charges are
insufficient to cover total sales expenses, the sales expenses will be recovered
from Pruco Life's surplus, which may include amounts derived from the mortality
and expense risk charge and the guaranteed minimum death benefit risk charge
described in items 5 and 7 under CHARGES AND EXPENSES, page 11.
TAX TREATMENT OF CONTRACT BENEFITS
Each prospective purchaser is urged to consult a qualified tax advisor. The
following discussion is not intended as tax advice, and it is not a complete
statement of what the effect of federal income taxes will be under all
circumstances. Rather, it provides information about how Pruco Life believes the
tax laws apply in the most commonly occurring circumstances. There is no
guarantee, however, that the current federal income tax laws and regulations or
interpretations will not change.
TREATMENT AS LIFE INSURANCE. The Contract will be treated as "life insurance,"
as long as it satisfies certain definitional tests set forth in sections 7702 of
the Internal Revenue Code (the "Code") and as long as the underlying investments
for the Contract satisfy diversification requirements under section 817(h) of
the Code. (For further detail on diversification requirements, see DIVIDENDS,
DISTRIBUTIONS, AND TAXES in the attached prospectus for the Series Fund.)
Pruco Life believes that it has taken adequate steps to cause the Contract to be
treated as life insurance for tax purposes. This means that: (1) except as noted
below, the Contract owner should not be taxed on any part of the Contract fund,
including additions attributable to interest, dividends or appreciation; and (2)
the death benefit should be excludible from the gross income of the beneficiary
under section 101(a) of the Code.
However, section 7702 of the Code which defines life insurance for tax purposes
gives the Secretary of the Treasury authority to prescribe regulations to carry
out the purposes of the section. In this regard, proposed regulations governing
mortality charges were issued in 1991 and proposed regulations under sections
101, 7702
25
<PAGE>
and 7702A governing the treatment of life insurance policies that provide
accelerated death benefits were issued in 1992. None of these proposed
regulations has yet been finalized. Additional regulations under section 7702
may also be promulgated in the future. Moreover, in connection with the issuance
of temporary regulations under section 817(h), the Treasury Department announced
that such regulations do not provide guidance concerning the extent to which
Contract owners may direct their investments to particular divisions of a
separate account. Such guidance will be included in regulations or rulings under
section 817(d) relating to the definition of a variable contract.
Pruco Life intends to comply with final regulations issued under sections 7702
and 817. Therefore, it reserves the right to make such changes as it deems
necessary to assure that the Contract continues to qualify as life insurance for
tax purposes. Any such changes will apply uniformly to affected Contract owners
and will be made only after advance written notice to affected Contract owners.
PRE-DEATH DISTRIBUTIONS. The taxation of pre-death distributions depends on
whether the Contract is classified as a Modified Endowment Contract. The
following discussion first deals with distributions under Contracts not so
classified, and then with Modified Endowment Contracts.
1. A surrender or lapse of the Contract may have tax consequences. Upon
surrender, the owner will not be taxed on the cash surrender value except
for the amount, if any, that exceeds the gross premiums paid less the
untaxed portion of any prior withdrawals. The amount of any unpaid
Contract debt will, upon surrender or lapse, be added to the cash
surrender value and treated, for this purpose, as if it had been received.
Any loss incurred upon surrender is generally not deductible. The tax
consequences of a surrender may differ if the proceeds are received under
any income payment settlement option.
A withdrawal (or partial surrender) generally is not taxable unless it
exceeds total premiums paid to the date of withdrawal less the untaxed
portion of any prior withdrawals. However, under certain limited
circumstances, in the first 15 Contract years all or a portion of a
withdrawal may be taxable if the Contract fund exceeds the total premiums
paid less the untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums paid to date.
Extra premiums for optional benefits and riders generally do not count in
computing gross premiums paid, which in turn determines the extent to
which a withdrawal might be taxed.
Loans received under the Contract will ordinarily be treated as
indebtedness of the owner and will not be considered to be distributions
subject to tax.
2. Some of the above rules are changed if the Contract is classified as a
Modified Endowment Contract under section 7702A of the Code. It is
possible for this Contract to be classified as a Modified Endowment
Contract under at least two circumstances: premiums in excess of scheduled
premiums are paid; or a decrease in the face amount of insurance is made
(or a rider removed) during the first 7 Contract years. Moreover, the
addition of a rider or the increase in the face amount of insurance after
the Contract date may have an impact on the Contract's status as a
Modified Endowment Contract. Contract owners contemplating any of these
steps should first consult a qualified tax advisor and their Pruco Life
representative.
If the Contract is classified as a Modified Endowment Contract, then
pre-death distributions, including loans and withdrawals, are includible
in income to the extent that the Contract fund prior to surrender charges
exceeds the gross premiums paid for the Contract increased by the amount
of any loans previously includible in income and reduced by any untaxed
amounts previously received other than the amount of any loans excludible
from income. These rules may also apply to pre-death distributions,
including loans, made during the 2-year period prior to the Contract
becoming a Modified Endowment Contract.
In addition, pre-death distributions from such Contracts (including full
surrenders) will be subject to a penalty of 10 percent of the amount
includible in income unless the amount is distributed on or after age 59
1/2, on account of the taxpayer's disability or as a life annuity. It is
presently unclear how the penalty tax provisions apply to Contracts owned
by nonnatural persons such as corporations.
Under certain circumstances, the Code requires two or more Modified
Endowment Contracts issued during a calendar year period to be treated as
a single contract for purposes of applying the above rules.
WITHHOLDING
The taxable portion of any amounts received under the Contract will be subject
to withholding to meet federal income tax obligations if the Contract owner
fails to elect that no taxes be withheld or in certain other circumstances.
Contract owners who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding. All
recipients may be subject to penalties under the estimated tax payment rules if
withholding and estimated tax payments of such amount are not sufficient.
26
<PAGE>
OTHER TAX CONSIDERATIONS. Transfer of the Contract to a new owner or assignment
of the Contract may have tax consequences depending on the circumstances. In the
case of a transfer of the Contract for a valuable consideration, the death
benefit may be subject to federal income taxes under section 101(a)(2) of the
Code. In addition, a transfer of the Contract to or the designation of a
beneficiary who is either 37 1/2 years younger than the Contract owner or a
grandchild of the Contract owner may have Generation Skipping Transfer tax
consequences under section 2601 of the Code.
In certain circumstances, deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied under section 163 of the Code as personal interest or
under section 264 of the Code. Contract owners should consult his or her own tax
advisor and Pruco Life representative regarding the application of these
provisions to their circumstances.
Business-owned life insurance is subject to additional rules. Section 264(a)(1)
of the Code generally precludes business Contract owners from deducting premium
payments. Under section 264(a)(4) of the Code, a deduction is not allowed for
any interest paid or accrued on any Contract debt on an insurance policy to the
extent the indebtedness exceeds $50,000 per officer, employee or financially
interested person. The Congress is also considering legislation to deny interest
deductions generally for loans on business-owned policies. The Code also imposes
an indirect tax upon additions to the Contract fund or the receipt of death
benefits under business-owned life insurance policies under certain
circumstances by way of the corporate alternative minimum tax.
The individual situation of each Contract owner or beneficiary will determine
the federal estate taxes and the state and local estate, inheritance and other
taxes due if the owner or insured dies.
CONTRACTS ISSUED IN CONNECTION WITH TAX-QUALIFIED PENSION PLANS
The Contracts may be acquired in connection with the funding of retirement plans
satisfying the qualification requirements of section 401 of the Internal Revenue
Code. Such Contracts may be issued with a minimum face amount of $25,000, and
increases and decreases in face amount may be effected in minimum increments of
$10,000. The monthly charge for anticipated mortality costs and the scheduled
premiums under such Contracts will be the same for male and female insureds of a
particular age and underwriting classification. Illustrations reflecting such
premiums and charges will be given to purchasers of Contracts issued in
connection with qualified plans. Only certain of the riders normally available
with the Contracts are available to Contracts issued in connection with
qualified plans. See RIDERS, page 28. Moreover, variable reduced paid-up
insurance and payment of cash surrender value are the only options on lapse
available to Contracts issued in connection with qualified plans. See OPTIONS ON
LAPSE, page 24. Finally, Contracts issued in connection with qualified plans may
not invest in the Real Property Account.
Prior to purchase of a Contract in connection with a qualified plan, the
provisions of the Code relating to such plans and life insurance thereunder
should be examined.
THE FIXED-RATE OPTION
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED-RATE
OPTION UNDER THE CONTRACT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND THE GENERAL ACCOUNT HAS NOT BEEN REGISTERED AS AN INVESTMENT COMPANY
UNDER THE INVESTMENT COMPANY ACT OF 1940. ACCORDINGLY, INTERESTS IN THE
FIXED-RATE OPTION ARE NOT SUBJECT TO THE PROVISIONS OF THESE ACTS, AND PRUCO
LIFE HAS BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED-RATE
OPTION. DISCLOSURE REGARDING THE FIXED-RATE OPTION MAY, HOWEVER, BE SUBJECT TO
CERTAIN GENERALLY APPLICABLE PROVISIONS OF FEDERAL SECURITIES LAWS RELATING TO
THE ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES.
As explained earlier, a Contract owner may elect to allocate, either initially
or by transfer, all or part of the amount credited under the Contract to a
fixed-rate option, and the amount so allocated or transferred becomes part of
Pruco Life's general assets. Sometimes this is referred to as Pruco Life's
general account, which consists of all assets owned by Pruco Life other than
those in the Account and in other separate accounts that have been or may be
established by Pruco Life. Subject to applicable law, Pruco Life has sole
discretion over the investment of the assets of the general account, and
Contract owners do not share in the investment experience of those assets.
Instead, Pruco Life guarantees that the part of the Contract fund allocated to
the fixed-rate option will accrue interest daily at an effective annual rate
that Pruco Life declares periodically, but not less than an effective annual
rate of 4%. Currently, declared interest rates remain in effect from the date
money is allocated to the fixed-rate option until the Monthly date in the same
month in the following year. Thereafter, a new crediting rate will be declared
each year and will remain in effect for the calendar year. Pruco Life reserves
the right to change this practice. Pruco Life is not obligated to credit
interest at a higher rate than 4%, although in its sole discretion it may do so.
Different crediting rates may be declared for different portions of the Contract
fund allocated to the fixed-rate option. On request, a Contract owner will be
advised of the interest rates that currently apply to his or her Contract.
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<PAGE>
Transfers from the fixed-rate option are subject to strict limits. (See
TRANSFERS, page 10). The payment of any cash surrender value attributable to the
fixed-rate option may be delayed up to 6 months (see WHEN PROCEEDS ARE PAID,
page 20).
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS
The Contract generally employs mortality tables that distinguish between males
and females. Thus, premiums and benefits under Contracts issued on males and
females of the same age will generally differ. However, in those states that
have adopted regulations prohibiting sex-distinct insurance rates, premiums and
cost of insurance charges will be based on a blended unisex rate whether the
insured is male or female. In addition, employers and employee organizations
considering purchase of a Contract should consult their legal advisors to
determine whether purchase of a Contract based on sex-distinct actuarial tables
is consistent with Title VII of the Civil Rights Act of 1964 or other applicable
law. Pruco Life may offer the Contract with unisex mortality rates to such
prospective purchasers.
OTHER GENERAL CONTRACT PROVISIONS
BENEFICIARY. The beneficiary is designated and named in the application by the
Contract owner. Thereafter, the owner may change the beneficiary, provided it is
in accordance with the terms of the Contract. Should the insured die with no
surviving beneficiary, the insured's estate will become the beneficiary.
INCONTESTABILITY. After the Contract has been in force during the insured's
lifetime for 2 years from the Contract date or, with respect to any change in
the Contract that requires Pruco Life's approval and could increase its
liability, after the change has been in effect during the insured's lifetime for
2 years from the effective date of the change, Pruco Life will not contest its
liability under the Contract in accordance with its terms.
MISSTATEMENT OF AGE OR SEX. If the insured's stated age or sex (except where
unisex rates apply) or both are incorrect in the Contract, Pruco Life will
adjust the death benefits payable, as required by law, to reflect the correct
age and sex. Any death benefit will be based on what the most recent charge for
mortality would have provided at the correct age and sex.
SUICIDE EXCLUSION. Generally, if the insured, whether sane or insane, dies by
suicide within 2 years from the Contract date, Pruco Life will pay no more under
the Contract than the sum of the premiums paid.
If the insured, whether sane or insane, dies by suicide within 2 years from the
effective date of an increase in the face amount of insurance, Pruco Life will
pay, with respect to the amount of the increase, no more than the sum of the
scheduled premiums attributable to the increase.
ASSIGNMENT. This Contract may not be assigned if such assignment would violate
any federal, state or local law or regulation. Pruco Life assumes no
responsibility for the validity or sufficiency of any assignment, and it will
not be obligated to comply with any assignment unless it has received a copy at
one of its Home Offices.
SETTLEMENT OPTIONS. The Contract grants to most owners, or to the beneficiary, a
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 benefits will be described in what is known as a
"rider" to the Contract. Charges for riders will be taken out of the Contract's
Contract fund on each Monthly date. One rider pays an additional amount if the
insured dies in an accident. Others waive certain premiums if the insured is
disabled within the meaning of the provision (or, in the case of a Contract
issued on an insured under the age of 15, if the applicant dies or becomes
disabled within the meaning of the provision). Others pay an additional amount
if the insured dies within a stated number of years after issue; similar term
insurance riders may be available for the insured's spouse or child. The amounts
of these benefits are fully guaranteed at issue; they do not depend on the
performance of the Account. Certain restrictions may apply; they are clearly
described in the applicable rider. Any Pruco Life representative authorized to
sell the Contract can explain these riders further. Samples of the provisions
are available from Pruco Life upon written request.
Under one form of rider, which provides monthly renewable term life insurance,
the amount payable upon the death of the insured may be substantially increased.
If this rider is purchased, even the original Contract will not become paid-up,
although, if the Contract fund becomes sufficiently large, a time may come when
Pruco Life will have the right to refuse to accept further premiums. See WHEN A
CONTRACT BECOMES PAID-UP, page 16.
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<PAGE>
Under another form of rider that is purchased for a single premium, businesses
that own a Contract covering certain employees may be able to change the insured
person from one key employee to another if certain requirements are met.
VOTING RIGHTS
As stated above, all of the assets held in the subaccounts of the Account will
be invested in shares of the corresponding portfolios of the Series Fund. Pruco
Life is the legal owner of those shares and as such has the right to vote on any
matter voted on at Series Fund shareholders meetings. However, Pruco Life will,
as required by law, vote the shares of the Series Fund at any regular and
special shareholders meetings it is required to hold in accordance with voting
instructions received from Contract owners. The Series Fund will not hold annual
shareholders meetings when not required to do so under Maryland law or the
Investment Company Act of 1940. Series Fund shares for which no timely
instructions from Contract owners are received, and any shares attributable to
general account investments of Pruco Life will be voted in the same proportion
as shares in the respective portfolios for which instructions are received.
Should the applicable federal securities laws or regulations, or their current
interpretation, change so as to permit Pruco Life to vote shares of the Series
Fund in its own right, it may elect to do so.
Matters on which Contract owners may give voting instructions include the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's selected subaccount[s]; (4) any change in
the fundamental investment policy of a portfolio corresponding to the Contract
owner's selected subaccount[s]; and (5) any other matter requiring a vote of the
shareholders of the Series Fund. With respect to approval of the investment
advisory agreement or any change in a portfolio's fundamental investment policy,
Contract owners participating in such portfolios will vote separately on the
matter, pursuant to the requirements of Rule 18f-2 under the 1940 Act.
The number of Series Fund shares for which instructions may be given by a
Contract owner is determined by dividing the portion of the value of the
Contract derived from participation in a subaccount, by the value of one share
in the corresponding portfolio of the Series Fund. The number of votes for which
each Contract owner may give Pruco Life instructions will be determined as of
the record date chosen by the Board of Directors of the Series Fund. Pruco Life
will furnish Contract owners with proper forms and proxies to enable them to
give these instructions. Pruco Life reserves the right to modify the manner in
which the weight to be given voting instructions is calculated where such a
change is necessary to comply with current federal regulations or
interpretations of those regulations.
Pruco Life may, if required by state insurance regulations, disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the sub-classification or investment objectives of one or more
of the Series Fund's portfolios, or to approve or disapprove an investment
advisory contract for the Series Fund. In addition, Pruco Life itself may
disregard voting instructions that would require changes in the investment
policy or investment advisor of one or more of the Series Fund's portfolios,
provided that Pruco Life reasonably disapproves such changes in accordance with
applicable federal regulations. If Pruco Life does disregard voting
instructions, it will advise Contract owners of that action and its reasons for
such action in the next annual or semi-annual report to Contract owners.
SUBSTITUTION OF SERIES FUND SHARES
Although Pruco Life believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Series Fund may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, Pruco Life may seek to substitute the shares of another portfolio or
of an entirely different mutual fund. Before this can be done, the approval of
the SEC, and possibly one or more state insurance departments, will be required.
Contract owners will be notified of such substitution.
STATE REGULATION
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
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<PAGE>
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
EXPERTS
The financial statements included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein, and are included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing. Deloitte &
Touche LLP's principal business address is Two Hilton Court, Parsippany, New
Jersey 07054-0319. Actuarial matters included in this prospectus have been
examined by Nancy D. Davis, FSA, MAAA, whose opinion is filed as an exhibit to
the registration statement.
On March 12, 1996, Deloitte & Touche LLP was dismissed as the independent
accountants of Pruco Life. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make reference to
the matter in their reports.
LITIGATION
Several actions have been brought against Pruco Life on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by The Prudential, Pruco Life and agents appointed by The Prudential
and Pruco Life. The Prudential has agreed to indemnify Pruco Life for any and
all losses resulting from such litigation.
ADDITIONAL INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933, relating to the offering described in this prospectus. This prospectus
does not include all the information set forth in the registration statement.
Certain portions have been omitted pursuant to the rules and regulations of the
SEC. The omitted information may, however, be obtained from the SEC's principal
office in Washington, D.C., upon payment of a prescribed fee.
Further information may also be obtained from Pruco Life's office. The address
and telephone number are set forth on the cover of this prospectus.
FINANCIAL STATEMENTS
The consolidated financial statements of Pruco Life and subsidiaries included
herein should be distinguished from the financial statements of the Account, and
should be considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
30
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DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life, listed with their principal
occupations during the past 5 years, are shown below.
DIRECTORS OF PRUCO LIFE
E. MICHAEL CAULFIELD, Director. -- Chief Executive Officer, Prudential Money
Management Group since 1995; 1993 to 1995: President, Prudential Preferred
Financial Services; 1992 to 1993: President, Prudential Property and Casualty
Insurance Company*; Prior to 1992: President of Investment Services of The
Prudential.
GARNETT L. KEITH, JR., Director. -- Vice Chairman of The Prudential.
IRA J. KLEINMAN, Director. -- Chief Marketing and Product Development Officer,
Prudential Individual Insurance Group since 1995; 1993 to 1995: President,
Prudential Select; Prior to 1993: Senior Vice President of The Prudential.
ESTHER H. MILNES, President and Director. -- Vice President and Actuary,
Prudential Individual Insurance Group since 1996; 1993 to 1996: Senior Vice
President and Chief Actuary, Prudential Insurance and Financial Services; Prior
to 1993: Vice President and Associate Actuary of The Prudential.
I. EDWARD PRICE, Vice Chairman and Director. -- Senior Vice President and
Actuary, Prudential Individual Insurance Group since 1995; 1994 to 1995: Chief
Executive Officer, Prudential International Insurance; 1993 to 1994: President,
Prudential International Insurance; Prior to 1993: Senior Vice President and
Company Actuary of The Prudential.
WILLIAM F. YELVERTON, Director. -- Chief Executive Officer, Prudential
Individual Insurance Group since 1995; Prior to 1995: Chief Executive Officer,
New York Life Worldwide.
OFFICERS WHO ARE NOT DIRECTORS
BEVERLY R. BARNEY, Senior Vice President. -- Vice President and Re-Engineering
Officer, Prudential Individual Insurance Group since 1995; 1993 to 1995: Senior
Vice President and Associate Actuary, Prudential Direct; Prior to 1993: Senior
Vice President and Actuary of Pruco Life.
SUSAN L. BLOUNT, Secretary.-- Vice President and Secretary of The Prudential
since 1995; Prior to 1995: Assistant General Counsel for Prudential Residential
Services Company.
C. EDWARD CHAPLIN, Treasurer. -- Vice President and Treasurer of The Prudential
since 1995; 1993 to 1995: Managing Director and Assistant Treasurer of The
Prudential; 1992 to 1993: Vice President and Assistant Treasurer, Banking and
Cash Management for The Prudential; Prior to 1992: Regional Vice President of
Prudential Mortgage Capital Company.
CLIFFORD E. KIRSCH, Chief Legal Officer. -- Chief Counsel, Variable Products,
Law Department of The Prudential since 1995; 1994 to 1995: Associate General
Counsel with Paine Webber; Prior to 1994: Assistant Director in the Division of
Investment Management with the Securities and Exchange Commission.
RICHARD F. LAMBERT, Senior Vice President and Chief Actuary. -- Vice President
and Actuary, Prudential Individual Insurance Group since 1996; 1994 to 1996:
Vice President and Chief Actuary, Prudential Preferred Financial Services; 1993
to 1994: Vice President and Actuary, Prudential Preferred Financial Services;
Prior to 1993: Vice President and Associate Actuary of The Prudential.
FRANK MARINO, Senior Vice President. -- Vice President, Policyholder Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services.
MICHAEL R. SHAPIRO, Senior Vice President. -- Vice President, Marketing and
Product Development, Prudential Individual Insurance Group since 1996; Prior to
1996: Senior Vice President, Prudential Select Brokerage.
STEPHEN P. TOOLEY, Vice President, Comptroller and Chief Accounting Officer. --
Vice President, Product Performance, Prudential Individual Insurance Group since
1996; 1993 to 1996: Vice President and Comptroller, Prudential Insurance and
Financial Services; Prior to 1993: Director, Financial Analysis for The
Prudential.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.
* SUBSIDIARY OF THE PRUDENTIAL
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FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE
TOTAL MARKET BOND EQUITY MANAGED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 2]........ $2,338,161,133 $ 50,551,909 $ 65,994,277 $ 587,120,867 $ 936,362,366
Receivable from Related Separate Account........ 189,760 0 25,089 0 87,287
-------------- -------------- -------------- -------------- --------------
Total Assets.................................. $2,338,350,893 $ 50,551,909 $ 66,019,366 $ 587,120,867 $ 936,449,653
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
LIABILITIES
Payable to Related Separate Account............. 51,937 0 0 0 0
-------------- -------------- -------------- -------------- --------------
NET ASSETS........................................ $2,338,298,956 $ 50,551,909 $ 66,019,366 $ 587,120,867 $ 936,449,653
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners....................... $2,336,888,154 $ 50,480,561 $ 66,019,366 $ 586,849,058 $ 936,449,653
Equity of Pruco Life Insurance Company.......... 1,410,802 71,348 0 271,809 0
-------------- -------------- -------------- -------------- --------------
$2,338,298,956 $ 50,551,909 $ 66,019,366 $ 587,120,867 $ 936,449,653
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE
TOTAL MARKET BOND EQUITY MANAGED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 73,331,012 $ 2,905,044 $ 4,197,858 $ 11,181,319 $ 27,717,778
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 3A]..... 12,759,803 305,694 364,799 3,087,956 5,122,999
Reimbursement for excess expenses [Note 3D]..... (3,608,020) (20,926) (27,814) (509,077) (2,140,124)
-------------- -------------- -------------- -------------- --------------
NET EXPENSES...................................... 9,151,783 284,768 336,985 2,578,879 2,982,875
-------------- -------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 64,179,229 2,620,276 3,860,873 8,602,440 24,734,903
-------------- -------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 80,637,058 0 144,746 20,556,916 39,033,998
Realized gain (loss) on shares redeemed
[average cost basis].......................... 11,484,902 0 75,353 1,265,358 5,763,771
Net unrealized gain on investments.............. 288,108,821 0 7,114,539 105,422,478 113,356,027
-------------- -------------- -------------- -------------- --------------
NET GAIN ON INVESTMENTS........................... 380,230,781 0 7,334,638 127,244,752 158,153,796
-------------- -------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 444,410,010 $ 2,620,276 $ 11,195,511 $ 135,847,192 $ 182,888,699
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 AND A10.
A1
<PAGE>
STATEMENTS OF NET ASSETS (CONTINUED)
December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
HIGH
CONSERVATIVE YIELD STOCK EQUITY NATURAL
BALANCED BOND INDEX INCOME RESOURCES
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 2]........ $ 500,079,187 $ 33,704,369 $ 64,120,828 $ 50,618,929 $ 21,200,884
Receivable from Related Separate Account........ 77,384 0 0 0 0
-------------- -------------- -------------- -------------- --------------
Total Assets.................................. $ 500,156,571 $ 33,704,369 $ 64,120,828 $ 50,618,929 $ 21,200,884
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
LIABILITIES
Payable to Related Separate Account............. 0 0 0 0 0
-------------- -------------- -------------- -------------- --------------
NET ASSETS........................................ $ 500,156,571 $ 33,704,369 $ 64,120,828 $ 50,618,929 $ 21,200,884
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners....................... $ 500,156,571 $ 33,682,387 $ 63,859,589 $ 50,531,821 $ 21,039,780
Equity of Pruco Life Insurance Company.......... 0 21,982 261,239 87,108 161,104
-------------- -------------- -------------- -------------- --------------
$ 500,156,571 $ 33,704,369 $ 64,120,828 $ 50,618,929 $ 21,200,884
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
<CAPTION>
GOVERNMENT PRUDENTIAL
GLOBAL INCOME JENNISON
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 2]........ $ 14,007,755 $ 10,271,086 $ 1,712,257
Receivable from Related Separate Account........ 0 0 0
-------------- -------------- --------------
Total Assets.................................. $ 14,007,755 $ 10,271,086 $ 1,712,257
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES
Payable to Related Separate Account............. 0 0 0
-------------- -------------- --------------
NET ASSETS........................................ $ 14,007,755 $ 10,271,086 $ 1,712,257
-------------- -------------- --------------
-------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners....................... $ 13,888,590 $ 10,215,089 $ 1,611,325
Equity of Pruco Life Insurance Company.......... 119,165 55,997 100,932
-------------- -------------- --------------
$ 14,007,755 $ 10,271,086 $ 1,712,257
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
STATEMENTS OF OPERATIONS (CONTINUED)
For the year ended December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
HIGH
CONSERVATIVE YIELD STOCK EQUITY NATURAL
BALANCED BOND INDEX INCOME RESOURCES
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 19,879,380 $ 3,378,049 $ 1,200,040 $ 1,772,217 $ 245,695
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 3A]..... 2,833,080 192,173 329,217 273,139 114,049
Reimbursement for excess expenses [Note 3D]..... (910,079) 0 0 0 0
-------------- -------------- -------------- -------------- --------------
NET EXPENSES...................................... 1,923,001 192,173 329,217 273,139 114,049
-------------- -------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 17,956,379 3,185,876 870,823 1,499,078 131,646
-------------- -------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 17,065,189 0 454,847 2,122,385 969,854
Realized gain (loss) on shares redeemed
[average cost basis].......................... 2,716,236 (44,447) 1,387,759 107,006 135,295
Net unrealized gain on investments.............. 35,828,712 1,861,218 14,103,114 4,726,822 3,207,434
-------------- -------------- -------------- -------------- --------------
NET GAIN ON INVESTMENTS........................... 55,610,137 1,816,771 15,945,720 6,956,213 4,312,583
-------------- -------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 73,566,516 $ 5,002,647 $ 16,816,543 $ 8,455,291 $ 4,444,229
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
<CAPTION>
GOVERNMENT PRUDENTIAL
GLOBAL INCOME JENNISON*
-------------- -------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 212,903 $ 634,427 $ 80
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 3A]..... 74,956 56,044 2,563
Reimbursement for excess expenses [Note 3D]..... 0 0 0
-------------- -------------- --------------
NET EXPENSES...................................... 74,956 56,044 2,563
-------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 137,947 578,383 (2,483)
-------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 270,758 0 0
Realized gain (loss) on shares redeemed
[average cost basis].......................... 60,621 10,838 3,407
Net unrealized gain on investments.............. 1,314,446 1,064,134 59,770
-------------- -------------- --------------
NET GAIN ON INVESTMENTS........................... 1,645,825 1,074,972 63,177
-------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 1,783,772 $ 1,653,355 $ 60,694
-------------- -------------- --------------
-------------- -------------- --------------
*Commenced
Business
on 5/1/95
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 AND A10.
A2
<PAGE>
STATEMENTS OF NET ASSETS (CONTINUED)
December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------
SMALL
CAPITALIZATION
STOCK
--------------
<S> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 2]........ $ 2,416,419
Receivable from Related Separate Account........ 0
--------------
Total Assets.................................. $ 2,416,419
--------------
--------------
LIABILITIES
Payable to Related Separate Account............. 51,937
--------------
NET ASSETS........................................ $ 2,364,482
--------------
--------------
NET ASSETS, representing:
Equity of Contract owners....................... $ 2,104,364
Equity of Pruco Life Insurance Company.......... 260,118
--------------
$ 2,364,482
--------------
--------------
</TABLE>
STATEMENTS OF OPERATIONS (CONTINUED)
For the year ended December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------
SMALL
CAPITALIZATION
STOCK*
--------------
<S> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 6,222
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 3A]..... 3,134
Reimbursement for excess expenses [Note 3D]..... 0
--------------
NET EXPENSES...................................... 3,134
--------------
NET INVESTMENT INCOME (LOSS)...................... 3,088
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 18,365
Realized gain (loss) on shares redeemed
[average cost basis].......................... 3,705
Net unrealized gain on investments.............. 50,127
--------------
NET GAIN ON INVESTMENTS........................... 72,197
--------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 75,285
--------------
--------------
*Commenced
Business
on 5/1/95
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 AND A10.
A3
<PAGE>
(This page intentionally left blank.)
A4
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------
MONEY DIVERSIFIED
TOTAL MARKET BOND
------------------------------ ------------------------------ ------------------------------
1995 1994 1995 1994 1995 1994
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 64,179,229 $ 51,505,420 $ 2,620,276 $ 1,649,101 $ 3,860,873 $ 3,400,785
Capital gains distributions
received....................... 80,637,058 48,097,769 0 0 144,746 133,233
Realized gain (loss) on shares
redeemed [average cost basis].. 11,484,902 5,046,869 0 0 75,353 (39,688)
Net unrealized gain (loss) on
investments.................... 288,108,821 (133,473,081) 0 0 7,114,539 (5,814,428)
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS....................... 444,410,010 (28,823,023) 2,620,276 1,649,101 11,195,511 (2,320,098)
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS........................ (30,803,649) (753,582) (740,753) 174,399 (1,432,720) (3,900,361)
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM SURPLUS
TRANSFERS........................ (2,850,015) 952,628 (89,480) (486,387) (94,534) 24,099
-------------- -------------- -------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 410,756,346 (28,623,977) 1,790,043 1,337,113 9,668,257 (6,196,360)
NET ASSETS:
Beginning of year................ 1,927,542,610 1,956,166,587 48,761,866 47,424,753 56,351,109 62,547,469
-------------- -------------- -------------- -------------- -------------- --------------
End of year...................... $2,338,298,956 $1,927,542,610 $ 50,551,909 $ 48,761,866 $ 66,019,366 $ 56,351,109
-------------- -------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 AND A10.
A5
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
FLEXIBLE
EQUITY MANAGED
------------------------------ ------------------------------
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 8,602,440 $ 7,817,827 $ 24,734,903 $ 19,391,523
Capital gains distributions
received....................... 20,556,916 18,199,834 39,033,998 22,635,794
Realized gain (loss) on shares
redeemed [average cost basis].. 1,265,358 1,432,168 5,763,771 2,045,045
Net unrealized gain (loss) on
investments.................... 105,422,478 (17,636,131) 113,356,027 (73,072,549)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS....................... 135,847,192 9,813,698 182,888,699 (29,000,187)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS........................ 13,327,159 1,930,473 (31,598,849) (15,011,537)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM SURPLUS
TRANSFERS........................ 153,934 (486,070) (1,895,990) 1,559,318
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 149,328,285 11,258,101 149,393,860 (42,452,406)
NET ASSETS:
Beginning of year................ 437,792,582 426,534,481 787,055,793 829,508,199
-------------- -------------- -------------- --------------
End of year...................... $ 587,120,867 $ 437,792,582 $ 936,449,653 $ 787,055,793
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
<CAPTION>
HIGH
CONSERVATIVE YIELD
BALANCED BOND
------------------------------ ------------------------------
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 17,956,379 $ 13,772,420 $ 3,185,876 $ 2,882,389
Capital gains distributions
received....................... 17,065,189 4,752,103 0 23
Realized gain (loss) on shares
redeemed [average cost basis].. 2,716,236 925,009 (44,447) (41,868)
Net unrealized gain (loss) on
investments.................... 35,828,712 (25,603,121) 1,861,218 (3,901,821)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS....................... 73,566,516 (6,153,589) 5,002,647 (1,061,277)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS........................ (18,484,820) (3,697,057) (1,077,084) (1,682,842)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM SURPLUS
TRANSFERS........................ (806,795) 172,937 5,385 (94,816)
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 54,274,901 (9,677,709) 3,930,948 (2,838,935)
NET ASSETS:
Beginning of year................ 445,881,670 455,559,379 29,773,421 32,612,356
-------------- -------------- -------------- --------------
End of year...................... $ 500,156,571 $ 445,881,670 $ 33,704,369 $ 29,773,421
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 AND A10.
A6
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------------
STOCK EQUITY NATURAL
INDEX INCOME RESOURCES
------------------------------ ------------------------------ ------------------------------
1995 1994 1995 1994 1995 1994
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 870,823 $ 843,636 $ 1,499,078 $ 1,108,691 $ 131,646 $ 65,158
Capital gains distributions
received....................... 454,847 68,595 2,122,385 1,981,250 969,854 323,593
Realized gain (loss) on shares
redeemed [average cost basis].. 1,387,759 574,991 107,006 76,758 135,295 107,035
Net unrealized gain (loss) on
investments.................... 14,103,114 (1,293,204) 4,726,822 (3,029,605) 3,207,434 (1,353,754)
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS....................... 16,816,543 194,018 8,455,291 137,094 4,444,229 (857,968)
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS........................ 623,288 (263,376) 3,721,237 8,440,504 464,376 3,393,256
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM SURPLUS
TRANSFERS........................ 132,045 92,281 75,709 (464,805) 23,471 (74,840)
-------------- -------------- -------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 17,571,876 22,923 12,252,237 8,112,793 4,932,076 2,460,448
NET ASSETS:
Beginning of year................ 46,548,952 46,526,029 38,366,692 30,253,899 16,268,808 13,808,360
-------------- -------------- -------------- -------------- -------------- --------------
End of year...................... $ 64,120,828 $ 46,548,952 $ 50,618,929 $ 38,366,692 $ 21,200,884 $ 16,268,808
-------------- -------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 AND A10.
A7
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
GLOBAL** INCOME JENNISON* STOCK*
------------------------------ ------------------------------ -------------- --------------
1995 1994 1995 1994 1995 1995
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..... $ 137,947 $ (5,689) $ 578,383 $ 579,579 $ (2,483) $ 3,088
Capital gains distributions
received....................... 270,758 3,344 0 0 0 18,365
Realized gain (loss) on shares
redeemed [average cost basis].. 60,621 0 10,838 (32,581) 3,407 3,705
Net unrealized gain (loss) on
investments.................... 1,314,446 (559,095) 1,064,134 (1,209,373) 59,770 50,127
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS....................... 1,783,772 (561,440) 1,653,355 (662,375) 60,694 75,285
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS........................ 1,377,627 11,335,055 (557,802) (1,472,096) 1,554,794 2,019,898
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM SURPLUS
TRANSFERS........................ (539,673) 612,414 (180,155) 98,497 96,769 269,299
-------------- -------------- -------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS.................... 2,621,726 11,386,029 915,398 (2,035,974) 1,712,257 2,364,482
NET ASSETS:
Beginning of year................ 11,386,029 0 9,355,688 11,391,662 0 0
-------------- -------------- -------------- -------------- -------------- --------------
End of year...................... $ 14,007,755 $ 11,386,029 $ 10,271,086 $ 9,355,688 $ 1,712,257 $ 2,364,482
-------------- -------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- -------------- --------------
**Commenced *Commenced
Business Business
on 5/1/94 on 5/1/95
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 AND A10.
A8
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
NOTE 1: GENERAL
Pruco Life Variable Appreciable Account (the "Account") was
established on January 13, 1984 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 ("The 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 The Prudential.
New sales of the product which invests in the Account were
discontinued as of May 1, 1992. However, premium payments made by
current Contract owners will continue to be received by the Account.
NOTE 2: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
The net asset value per share for each portfolio of the Series Fund,
the number of shares of each portfolio held by the subaccounts of the
Account and the aggregate cost of investments in such shares at
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
----------------------------------------------------------------------------
PORTFOLIO MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
INFORMATION MARKET BOND EQUITY MANAGED BALANCED
- -------------------------- ------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of shares: 5,055,191 5,833,429 22,898,764 52,429,900 32,666,211
Net asset value per share: $ 10.0000 $ 11.3131 $ 25.6399 $ 17.8593 $ 15.3088
Cost: $ 50,551,909 $ 62,391,184 $ 405,791,796 $ 768,009,196 $ 437,544,421
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
------------------------------------------------------------
HIGH
PORTFOLIO YIELD STOCK EQUITY NATURAL
INFORMATION BOND INDEX INCOME RESOURCES
- -------------------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Number of shares: 4,320,851 3,213,099 3,111,010 1,227,486
Net asset value per share: $ 7.8004 $ 19.9561 $ 16.2709 $ 17.2718
Cost: $ 35,150,118 $ 43,167,942 $ 45,362,389 $ 17,165,976
<CAPTION>
PORTFOLIOS (CONTINUED)
------------------------------------------------------------
SMALL
PORTFOLIO GOVERNMENT PRUDENTIAL CAPITALIZATION
INFORMATION GLOBAL INCOME JENNISON STOCK
- -------------------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Number of shares: 901,795 876,454 136,470 204,203
Net asset value per share: $ 15.5332 $ 11.7189 $ 12.5468 $ 11.8334
Cost: $ 13,252,405 $ 9,832,227 $ 1,652,487 $ 2,366,292
</TABLE>
NOTE 3: CHARGES AND EXPENSES
A. Mortality Risk and Expense Risk Charges
The mortality risk and expense risk charges at an effective
annual rate of 0.60% are applied daily against the net assets
representing equity of Contract owners held in each subaccount.
B. Deferred Sales Charge
A deferred sales charge is imposed upon the surrender of certain
variable life insurance contracts to compensate Pruco Life for
sales and other marketing expenses. The amount of any sales
charge will depend on the number of years that have elapsed since
the Contract was issued. No sales charge will be imposed after
the tenth year of the Contract. No sales charge will be imposed
on death benefits.
A9
<PAGE>
C. Partial Withdrawal Charge
A $15 charge is imposed in connection with partial withdrawals of
the cash surrender value from certain variable life insurance
contracts.
D. 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.
NOTE 4: TAXES
The operations of the subaccounts form a part of, and are taxed with,
the operations of Pruco Life. Under the Internal Revenue Code, all
ordinary income and capital gains allocated to the Contract owners are
not taxed to Pruco Life. As a result, the net asset values of the
subaccounts are not affected by federal income taxes on distributions
received by the subaccounts.
NOTE 5: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The increase (decrease) in net assets resulting from surplus transfers
represents the net contributions (withdrawals) of Pruco Life to the
Account.
A10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Contract Owners of
Pruco Life Variable Appreciable
Account and the Board of Directors
of Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying statements of net assets of Pruco Life Variable
Appreciable Account of Pruco Life Insurance Company (comprising, respectively,
the Money Market, Diversified Bond, Equity, Flexible Managed, Conservative
Balanced, High Yield Bond, Stock Index, Equity Income, Natural Resources,
Global, Government Income, Prudential Jennison, and Small Capitalization Stock
subaccounts) as of December 31, 1995, the related statements of operations for
the periods presented in the year then ended, and the statements of changes in
net assets for each of the periods presented in the two years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of each of the respective subaccounts
constituting the Pruco Life Variable Appreciable Account as of December 31,
1995, the results of their operations, and the changes in their net assets for
the respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 15, 1996
A11
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31,
-----------------------------
1995 1994
-------- -------
($000'S)
ASSETS
Fixed maturities (market value $2,598,439
and $2,596,172)....................... $2,510,783 $2,647,315
Equity securities (cost $5,317 and $5,434) 4,009 3,326
Mortgage loans........................... 64,464 71,919
Investment in real estate................ 4,059 7,189
Policy loans............................. 569,273 493,862
Other long-term investments.............. 4,159 4,044
Short-term investments................... 228,016 191,455
---------- ----------
Total Investments..................... 3,384,763 3,419,110
Cash..................................... 41,435 27,780
Accrued investment income................ 59,862 59,382
Premiums due and deferred................ 19,521 16,821
Receivable from affiliates............... 8,275 7,517
Federal income taxes--from affiliate..... 8,875 23,306
Other assets............................. 9,436 25,102
Assets held in Separate Accounts......... 4,285,269 3,511,784
---------- ----------
TOTAL ASSETS............................. $7,817,436 $7,090,802
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Policy liabilities and insurance reserves:
Future policy benefits and claims...... $2,606,856 $2,767,552
Other policy claims and benefits payable 13,822 15,184
Interest Maintenance Reserve (IMR)..... 27,282 21,802
Payable to affiliates.................... 41,584 30,257
Other liabilities........................ 52,865 131,695
Asset Valuation Reserve (AVR)............ 37,268 23,690
Liabilities related to Separate Accounts 4,208,737 3,424,535
---------- ----------
TOTAL LIABILITIES ........................ 6,988,414 6,414,715
---------- ----------
STOCKHOLDER'S EQUITY:
Common Stock, $10 par value; authorized,
1,000,000 shares; issued and outstanding,
250,000 shares......................... 2,500 2,500
Paid-in capital.......................... 439,582 439,582
Unassigned surplus....................... 386,940 234,005
---------- ----------
TOTAL STOCKHOLDER'S EQUITY................ 829,022 676,087
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY. $7,817,436 $7,090,802
========== ==========
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
($000'S)
REVENUE
Premiums and annuity considerations....... $570,440 $611,820 $563,900
Net investment income..................... 250,386 245,977 260,939
Net realized investment gains/(losses).... 3,952 (21,215) 8,878
Other income.............................. 40,987 13,259 18,882
-------- -------- --------
TOTAL REVENUE.............................. 865,765 849,841 852,599
-------- -------- --------
BENEFITS AND EXPENSES
Current and future benefits and claims.... 512,988 559,658 534,354
Commission expenses....................... 25,755 30,169 28,386
General, administrative and other expenses 118,808 119,309 129,171
-------- -------- --------
TOTAL BENEFITS AND EXPENSES................ 657,551 709,136 691,911
-------- -------- --------
Income before provision in lieu of federal
income tax............................... 208,214 140,705 160,688
Provision in lieu of federal
income tax............................... (50,013) (87,750) (83,640)
-------- -------- --------
NET INCOME................................. $158,201 $ 52,955 $ 77,048
======== ======== ========
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-1
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------- -------- -------
($000'S)
COMMON STOCK
Balance, beginning of year................. $ 2,500 $ 2,500 $ 2,500
Issued during year......................... - - -
-------- -------- --------
Balance, end of year....................... 2,500 2,500 2,500
-------- -------- --------
PAID-IN CAPITAL
Balance, beginning of year................. 439,582 439,582 439,582
Paid-in during year........................ - - -
-------- -------- --------
Balance, end of year ...................... 439,582 439,582 439,582
-------- -------- --------
UNASSIGNED SURPLUS
Balance, beginning of year................. 234,005 176,711 162,530
Net income................................. 158,201 52,955 77,048
Net unrealized investment gains/(losses)... 8,761 5,814 (9,351)
(Increase) decrease in non-admitted assets. (449) (477) 575
(Increase) decrease in AVR................. (13,578) (998) 5,909
Dividends to stockholder................... - - (60,000)
-------- -------- --------
Balance, end of year....................... 386,940 234,005 176,711
-------- -------- --------
TOTAL STOCKHOLDER'S EQUITY.................. $829,022 $676,087 $618,793
======== ======== ========
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------- -------- ------
($000'S)
CASH FLOW FROM OPERATING ACTIVITIES
Net income............................... $ 158,201 $ 52,955 $ 77,048
Adjustments to reconcile net income
to net cash from operations:
Increase/(decrease) in policy
liabilities and insurance reserves..... (162,058) (143,153) (124,602)
Net decrease in Separate Accounts....... 10,717 5,674 12,173
Net realized investment (gains)/losses.. (3,952) 21,215 (8,878)
Depreciation, amortization and
other non-cash items................... (2,854) 314 1,907
(Increase)/decrease in operating assets:
Policy loans........................... (75,411) (73,591) (71,472)
Notes receivable from affiliates....... - 50,000 9,000
Interest receivable from affiliates.... - 23 420
Accrued investment income.............. (480) (2,597) 880
Premiums due and deferred.............. (2,700) (252) (880)
Receivable from affiliates............. (758) (637) 1,970
Federal income taxes--from affiliate... 14,467 (19,155) 6,879
Other assets........................... 15,666 (9,273) (9,481)
Increase/(decrease) in operating
liabilities:
Payable to affiliates.................. 11,327 (24,029) 13,260
Federal income taxes--to affiliate..... (36) - -
Other liabilities...................... (78,830) 27,710 34,632
--------- --------- ---------
CASH FLOW FROM (USED FOR) OPERATING
ACTIVITIES ............................ (116,701) (114,796) (57,144)
--------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from the sale/maturity of:
Fixed maturities....................... 2,031,587 2,710,424 1,687,992
Equity securities...................... 5,557 1,909 4,032
Mortgage loans......................... 7,395 10,821 21,691
Other long-term investments............ 1,559 607 520
Investment in real estate.............. 2,925 8,676 -
Payments for the purchase of:
Fixed maturities....................... (1,876,232) (2,561,081) (1,483,234)
Equity securities...................... (4,279) (2,436) (3,068)
Mortgage loans......................... - (35,276) (918)
Other long-term investments............ (1,674) (1,584) (84)
Investment in real estate.............. - - (20)
Net proceeds/(payments) of short-term
investments............................ (36,482) 9,845 (116,735)
--------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES...... 130,356 141,905 110,176
--------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid......................... - - (60,000)
--------- ---------- -----------
Net increase/(decrease) in Cash........ 13,655 27,109 (6,968)
Cash, beginning of year................ 27,780 671 7,639
--------- ---------- ----------
CASH, END OF YEAR....................... $ 41,435 $ 27,780 $ 671
========= ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Non-cash financing:
Investment in real estate from
foreclosed mortgage loans.......... $ - $ 4,139 $ 7,300
========= ========== ==========
Cash paid in lieu of income taxes.... $ 53,107 $ 73,903 $ 76,760
========= ========== ==========
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-2
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPLES
A. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Pruco Life Insurance Company (Pruco Life), a stock life insurance company,
and its subsidiaries (collectively, the Company). Pruco Life is a
wholly-owned subsidiary of The Prudential Insurance Company of America
(The Prudential), a mutual life insurance company. The Company markets
individual life insurance and single pay deferred annuities primarily
through The Prudential's sales force. All significant intercompany
balances and transactions have been eliminated in consolidation.
B. BASIS OF PRESENTATION
The consolidated financial statements are presented in conformity with
generally accepted accounting principles ("GAAP"), which for mutual life
insurance companies and their insurance subsidiaries are statutory
accounting practices prescribed or permitted by the National Association
of Insurance Commissioners ("NAIC") and their respective domiciliary home
state insurance departments. Prescribed statutory accounting practices
include publications of the NAIC, state laws, regulations and general
administrative rules. Permitted statutory accounting practices encompass
all accounting practices not so prescribed.
The Company, with permission from the Arizona Department of Insurance
("the Department"), prepares an Annual Report that differs from the Annual
Statement filed with the Department in that subsidiaries are consolidated
and certain financial statement captions are presented differently.
Certain reclassifications have been made to the 1994 and 1993 financial
statements and footnotes to conform to the 1995 presentation. Included in
the Statement of Operations are certain items which, under statutory
accounting practices, are charged or credited directly to surplus.
Management has used estimates and assumptions in the preparation of the
financial statements that affect the reported amounts of assets,
liabilities, revenue and expenses. Actual results could differ from those
estimates.
The following is a reconciliation of Pruco Life's Statutory Net Income
with net income per the consolidated financial statements.
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
-------- -------- -------
($000'S)
Pruco Life Statutory Net Income including net
gains and losses on sales of investments....... $113,565 $ 49,374 $ 79,405
Adjustments to reconcile to net income
as follows:
Dividends from subsidiary...................... - - (26,000)
Change in General Account Reserve due to
changes in valuation basis................... 8,990 10,853 (2,331)
Provision for future assessments............... 367 377 588
Net gain from operations in Separate Accounts.. (9,775) 8,880 5,114
Gain/(Loss) due to income tax applicable to
other than current year...................... 19,752 (33,001) -
Other.......................................... (510) (13) 67
Subsidiaries' Statutory Net Income............. 25,812 16,485 20,205
-------- -------- --------
Consolidated Net Income.......................... $158,201 $ 52,955 $ 77,048
======== ======== ========
C. FUTURE APPLICATION OF ACCOUNT STANDARDS
The Financial Accounting Standards Board (the "FASB") issued
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises," which, as
amended, is effective for fiscal years beginning after December 15, 1995.
Interpretation No. 40 changes the current practice of
B-3
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
mutual life insurance companies, with respect to utilizing statutory basis
financial statements for general purposes, in not allowing such financial
statements to be referred to as having been prepared in accordance with
GAAP. Interpretation No. 40 requires GAAP financial statements of mutual
life insurance companies to apply all GAAP pronouncements, unless
specifically exempted. Implementation of Interpretation No. 40 will
require significant effort and judgement. The company is assessing the
impact of Interpretation No. 40 on its consolidated financial statements,
such effort has not been completed and management currently believes
surplus will increase significantly.
D. SELECTED FINANCIAL DATA OF PRUCO LIFE
Pruco Life markets the Future Value Annuity Contract, and individual
deferred annuity contract. Only assets of Pruco Life, shown below, are
available to meet the guarantees under this annuity contract. The
following is the selected financial data of Pruco Life:
DECEMBER 31,
------------------------------
1995 1994
---------- ----------
($000'S)
Assets:
Investments other than subsidiaries........ $2,736,259 $2,758,088
Investment in subsidiaries................. 198,601 169,816
Other assets............................... 132,185 135,778
Assets held in Separate Accounts........... 3,495,841 2,869,734
---------- ----------
Total Assets............................... $6,562,886 $5,933,416
========== ==========
Liabilities:
Policy liabilities and insurance reserves.. $2,187,632 $2,296,987
Other liabilities.......................... 115,115 163,322
Liabilities related to Separate Accounts... 3,431,117 2,797,020
---------- ----------
Total Liabilities.......................... $5,733,864 $5,257,329
========== ==========
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
--------- --------- ---------
($000'S)
Revenues........................... $717,990 $698,685 $716,402
Benefits, expenses and taxes....... 588,812 659,237 633,277
-------- -------- --------
Net Income......................... $129,178 $ 39,448 $ 83,125
======== ======== ========
E. INVESTMENTS
Fixed maturities, which include long-term bonds and redeemable preferred
stock, are stated primarily at amortized cost. Certain investments in this
category were non-income producing at December 31, 1995 and 1994. These
investments amounted to $29 million and $13 million, respectively.
Equity securities, which consist primarily of common stock, are carried at
market value which is based on quoted market prices, where available, or
prices provided by the National Association of Insurance Commissioners'
(NAIC) Securities Valuation Office (SVO).
Mortgage loans are carried at the lower of the fair value of the
underlying property or unpaid principal balance. At December 31, 1995, two
loans were in foreclosure in the amount of $8 million. At December 31,
1994, one loan was in foreclosure in the amount of $6 million.
Policy loans are stated primarily at unpaid principal balances.
B-4
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
All the Company's real estate investments were acquired through
foreclosure during 1995 and 1994. These properties are carried at the
lower of cost of fair value less disposition costs. Fair value is
considered to be the amount that could reasonably be expected in a current
transaction between willing parties, other than in forced or liquidation
sale. Depreciation on these properties for the years ended December 31,
1995 and 1994 was $106 thousand and $456 thousand, respectively.
Other long-term investments, which consist solely of limited partnerships,
are valued at the aggregate net equity in the partnerships. Certain
investments in this category were non-income producing at December 31,
1995. These investments amounted to $300 thousand. There were no
non-income producing investments at December 31, 1994.
Short-term investments are stated at amortized cost, which approximates
fair value.
Realized investment gains and losses are reported based on specific
identification of the investments sold.
F. FUTURE POLICY BENEFITS, LOSSES AND CLAIMS
Reserves for individual life insurance are calculated using various
methods, interest rates and mortality tables which produce reserves that
meet the aggregate requirements of state laws and regulations.
Approximately 7% of individual life insurance reserves are determined
using the net level premium method, or by using the greater of a net level
premium reserve or the policy cash value. About 93% of individual life
insurance reserves are calculated according to the Commissioner's Reserve
Valuation Method ("CRVM"), or methods which compare CRVM reserves to
policy cash values.
Reserves for deferred individual annuity contracts are determined using
the Commissioner's Annuity Reserve Valuation Method.
For life insurance and annuities, unpaid claims include estimates of both
the death benefits on reported claims and those which are incurred but not
reported.
Reserves for other deposit funds or other liabilities with life
contingencies reflect the contract deposit account or experience
accumulation for the contract and any purchased annuity reserves.
G. REVENUE RECOGNITION AND RELATED EXPENSES
Premium revenues are recognized as income over the premium paying period
of the related policies. Annuity considerations are recognized as revenue
when received. Expenses, including new business acquisition costs such as
commissions, are charged to operations as incurred.
H. ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE
The Asset Valuation Reserve (AVR) and the Interest Maintenance Reserve
(IMR) are required for life insurance companies under NAIC regulations.
The AVR is calculated based on a statutory formula and designed to
mitigate the effect of valuation and credit-related losses on unassigned
surplus.
The components of AVR at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
($000'S)
FIXED EQUITY REAL ESTATE
MATURITIES MORTGAGES SECURITIES & OTHER INV. TOTAL
---------- --------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Beginning of Year 1994 -- AVR ................ $ 18,294 $ 3,699 $ 699 $ 0 $ 22,692
Additions .................................... 12,062 2,166 348 2,047 16,623
Deductions ................................... (10,454) (4,355) (314) (502) (15,625)
-------- ------- ------- ------ --------
End of Year 1994 -- AVR ...................... $ 19,902 $ 1,510 $ 733 $1,545 $ 23,690
======== ======= ======= ====== ========
Beginning of Year 1995 -- AVR ................ $ 19,902 $ 1,510 $ 733 $1,545 $ 23,690
Additions .................................... 14,540 1,007 2,764 272 18,583
Deductions ................................... (1,832) (39) (2,627) (507) (5,005)
-------- ------- ------- ------ --------
End of Year 1995-- AVR ....................... $ 32,610 $ 2,478 $ 870 $1,310 $ 37,268
========= ======= ======= ====== ========
</TABLE>
B-5
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The IMR captures net realized capital gains and losses resulting from
changes in the general level of interest rates. These gains and losses are
amortized into investment income over the expected remaining life of the
investment sold. The IMR balance was $27.3 million and $21.8 million at
December 31, 1995 and 1994, respectively. "Net realized investment
gains/(losses)" of $9.2 million and $(19.9) million were deferred in 1995
and 1994, respectively. Amortized into "Net investment income" were $3.8
million and $4.8 million of IMR for the year ended December 31, 1995 and
1994, respectively.
I. FEDERAL INCOME TAXES
The Company is a member of a group of affiliated companies which join in
filing a consolidated federal tax return. Pursuant to a tax allocation
agreement, current tax liabilities are determined for individual companies
based upon their separate return basis taxable income. Members with
taxable income incur an amount in lieu of the separate return basis
federal tax. Members with a loss for tax purposes recognize a current
benefit in proportion to the amount of their losses utilized in computing
consolidated taxable income. Differences between estimated liabilities and
actual payments are included in the current year's operations as an
adjustment to the provision in lieu of income taxes. For the year 1993,
the Company was allocated a portion of the consolidated income tax
liability attributable to Section 809 of the Internal Revenue Code
(commonly referred to as "Equity Tax"). Since 1994, the Company has no
longer been allocated this Equity Tax.
Taxes on the Company are calculated under the Internal Revenue Code of
1986 which provides that life insurance companies be taxed on their gain
from operations after dividends to policyholders. In calculating this tax,
the Code requires the capitalization and amortization of policy
acquisition expenses.
J. SEPARATE ACCOUNTS
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 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 Pruco Life. Assets are carried at market value. Deposits to
such accounts are included in revenues with a corresponding liability
increase included in benefits and expenses. The assets of each account are
legally segregated and are not subject to claims that arise out of any
other business of the Company. Consequently, management believes that it
is appropriate to combine Separate Account policyholder net investment
income and net realized and unrealized capital gains/(losses) along with
benefit payments and change in reserves in "Current and future benefits
and claims". Policyholder net investment income and net realized and
unrealized gains/(losses) for the years ended December 31, 1995, 1994 and
1993 were $805 million, ($28) million and $443 million, respectively.
B-6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
2. FEDERAL INCOME TAXES
The following is a reconciliation of the Company's federal tax provision
as computed at the federal tax rate with that computed at the Company's
effective tax rate. The below amounts include federal income tax
applicable to prior years, where appropriate.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
-------- -------- -------
($000'S)
<S> <C> <C> <C>
Income before provision in lieu of
federal income taxes.................... $208,214 $140,705 $160,688
Statutory tax rate........................ 35% 35% 35%
--------- -------- --------
Expected federal income taxes............. $ 72,875 $ 49,247 $ 56,241
Tax effect of:
Statutory/tax policy reserve
difference............................ (14,524) 19,949 14,577
Timing differences in tax/book income
recognition on investments............ (6,980) 11,608 4,055
Timing differences in tax/book income
Recognition--other.................... (7,173) (6,816) (415)
Decrease/(Increase) in life insurance
premiums deferred and uncollected..... (953) (88) (308)
Capitalization of policy acquisition
expenses.............................. 6,768 13,850 7,374
Allocated equity tax.................... - - 2,116
-------- -------- --------
Federal income taxes...................... $ 50,013 $ 87,750 $ 83,640
======== ======== ========
Effective tax rate........................ 24% 62% 52%
======== ======== ========
</TABLE>
3. NET INVESTMENT INCOME
Net investment income consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
---------- ---------- --------
($000'S)
<S> <C> <C> <C>
Gross investment income
Fixed maturities......................... $194,198 $196,909 $216,660
Equity securities......................... 104 14 22
Mortgage loans............................ 7,757 4,041 6,359
Investment in real estate................. 647 2,146 2,066
Policy loans.............................. 29,775 25,692 21,741
Short-term investments.................... 15,092 12,676 9,031
Other..................................... 3,949 5,075 3,945
-------- -------- --------
251,522 246,553 259,824
Investment expenses......................... (4,904) (5,421) (5,570)
-------- -------- --------
Net investment income before IMR............ 246,618 241,132 254,254
Amortization of Interest Maintenance Reserve 3,768 4,845 6,685
-------- -------- --------
Net investment income....................... $250,386 $245,977 $260,939
======== ======== ========
</TABLE>
B-7
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
4. INVESTMENT AND INVESTMENT GAINS (LOSSES)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
---------- ---------- --------
($000'S)
<S> <C> <C> <C>
Realized Gains (Losses)
Fixed maturities.......................... $ 11,359 $(38,180) $ 32,471
Equity securities......................... 2,020 503 607
Mortgage loans............................ (90) (4,581) (2,592)
Investment in real estate................. (99) 1,184 (2,004)
Other..................................... 10 (1) (411)
Tax effected amounts transferred to Interest
Maintenance Reserve....................... (9,248) 19,860 (19,193)
-------- -------- --------
Net realized investment gains............... $ 3,952 $(21,215) $ 8,878
======== ======== ========
Unrealized Gains (Losses)
Fixed maturities.......................... 9,192 5,430 (9,380)
Equity securities......................... 799 (490) 260
Other..................................... (1,229) 874 (231)
-------- -------- --------
Net unrealized investment gains (losses) 8,762 5,814 (9,351)
Balance beginning of year................... (12,352) (18,166) (8,815)
-------- -------- --------
Balance end of year......................... $ (3,590) $(12,352) $(18,166)
======== ======== ========
</TABLE>
EQUITY SECURITIES AT DECEMBER 31,
($000'S)
GROSS UNREALIZED
-----------------------------------------------------
FAIR
MARKET
COST GAINS LOSSES VALUE
------- ------- -------- -------
1995 ........... $5,317 $581 $1,889 $4,009
1994 ........... 5,434 386 2,493 3,327
1993 ........... 4,405 742 2,359 2,788
FIXED MATURIES
--------------------------------
($000'S)
INCREASE (DECREASE)
AT DECEMBER 31, IN DIFFERENCE BETWEEN
-------------------------------- MARKET VALUE
AMORTIZED MARKET AND AMORTIZED COST
COST VALUE DURING THE YEAR
---------- ---------- ------------------
1995 .... $2,510,782 $2,598,439 $ 138,800
1994 .... 2,647,315 2,596,172 (167,494)
1993 .... 2,835,251 2,951,602 10,453
B-8
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The amortized cost and estimated market value of fixed maturities at December
31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995
--------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
($000's) ($000's) ($000's) ($000's)
----------- -------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of
U.S. government corporations
and agencies ........................ $ 324,854 $ 6,829 $ 61 $ 331,622
Obligations of U.S. and
political subdivisions .............. - - - -
Debt securities issued by foreign
governments and
their agencies ...................... 73,042 3,055 - 76,097
Corporate securities .................. 1,943,696 73,489 3,974 2,013,211
Mortgage backed securities ............ 169,190 8,717 398 177,509
---------- -------- ------- ----------
Total ................................. $2,510,782 $ 92,090 $ 4,433 $2,598,439
========== ======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
($000'S) ($000'S) ($000'S) ($000'S)
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of
U.S. government corporations
and agencies $ 409,678 $ 224 $ 20,259 $ 389,643
Obligations of U.S. and
political subdivisions ............. - - - -
Debt securities issued by
foreign governments and
their agencies ..................... 86,026 2,075 2,310 85,791
Corporate securities ................. 1,960,296 17,005 43,521 1,933,780
Mortgage-backed securities ........... 191,315 1,429 5,786 186,958
---------- -------- -------- ----------
Total ................................ $2,647,315 $ 20,733 $ 71,876 $2,596,172
========== ======== ======== ==========
</TABLE>
The amortized cost and estimated market value of fixed maturities at December
31, 1995 by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
ESTIMATED
AMORTIZED MARKET
COST VALUE
($000's) ($000's)
---------- ----------
Due in one year or less ................... $ 161,693 $ 163,629
Due after one year through five years ..... 1,500,204 1,549,264
Due after five years through ten years .... 529,845 556,294
Due after ten years ....................... 149,850 151,743
---------- ----------
2,341,592 2,420,930
Mortgage-backed securities ................ 169,190 177,509
---------- ----------
Total ..................................... $2,510,782 $2,598,439
========== ==========
Proceeds from the sale/maturity of fixed maturities during 1995, 1994, and
1993 were $2.0 billion, $2.7 billion and $1.7 billion, respectively. Gross
gains of $28.8 million, $16.8 million and $44.5 million and gross losses
of $17.5 million, $49.8 million and $12.0 million were realized on those
sales during 1995, 1994, and 1993, respectively.
The Company invests in both investment grade and non-investment grade
securities. The SVO of the NAIC rates fixed maturities held by insurers
(SVO rated securities accounted for approximately 87.2% and 93.6% of the
Company's total fixed maturities balances at both December 31, 1995 and
1994) for regulatory purposes and
B-9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
groups investments into six categories ranging from highest quality bonds
to those in or near default. The lowest three NAIC categories represent,
for the most part, high-yield securities and are defined by the NAIC as
including any security with a public agency rating of B+ or B1 or less.
Included in "fixed maturities" are securities that are classified by the
NAIC as being in the lowest three rating categories. These approximated
1.0% and 1.5% of the Company's assets at December 31, 1995 and 1994,
respectively. The amount by which the market value of these securities
exceeded the carrying value was approximately $1.8 million and $(0.9)
million at December 31, 1995 and 1994, respectively.
5. RELATED PARTY TRANSACTIONS
A. SERVICE AGREEMENTS
The Company, The Prudential, Pruco Life of New Jersey and Pruco Securities
Corporation, an indirect wholly-owned subsidiary of The Prudential,
operate under service and lease agreements whereby services of officers
and employees, supplies, use of equipment and office space are provided.
The net cost of these services allocated to the Company were $98 million,
$78 million, and $98 million for the years ended December 31, 1995, 1994,
and 1993, respectively.
In a reorganization of the parent's Individual Insurance Department,
effective January 1, 1993, the corporate staff of the Company was absorbed
by the parent. The costs associated with these employees, which were
previously borne by the Company, are now charged to the Company under the
service and lease agreements with the parent.
B. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company is a wholly-owned subsidiary of The Prudential which sponsors
several defined benefit pension plans that cover substanially all of its
employees. Benefits are generally based on career average earnings and
credited length of service. The Prudential's funding policy is to
contribute annually the amount necessary to satisfy the Internal Revenue
Service contribution guidelines.
No pension expense for contributions to the plan was allocated to the
Company in 1995, 1994 or 1993 because the plan was subject to the full
funding limitation under the Internal Revenue Code.
POSTRETIREMENT LIFE AND HEALTH BENEFITS
The Prudential also sponsors certain life insurance and health care
benefits for its retired employees. Substantially all employees may become
eligible to receive a benefit if they retire after age 55 with at least 10
years of service. Postretirement benefits, with respect to The Prudential,
are recognized in accordance with the prescribed NAIC policy. The
Prudential elected to amortize its obligation over twenty years. A
provision for contributions to the postretirement fund is included in the
net cost of services allocated to the Company discussed above for the
years ended December 31, 1995, 1994, and 1993.
C. REINSURANCE
The Company currently has three reinsurance agreements in place with The
Prudential (the reinsurer). Specifically: reinsurance of a 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 contact; and, two Yearly Renewable Term agreement 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 ($2.5 million).
These agreements had no material effect on net income for the years ended
December 1995, 1994, and 1993.
D. OTHER TRANSACTIONS
The Company has issued approximately 375 variable universal life contracts
to The Prudential for the purpose of funding non-qualified pension
benefits for certain employees. Included in insurance premiums and annuity
considerations for the years ended December 31, 1995, 1994 and 1993 are
respectively, $12 million, $12 million and $12 million, which are
attributable to these contracts.
B-10
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
6. 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 12 month period without notification or approval
is limited to the lesser of 10% of 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, 1995, the Company would be permitted a maximum of $83
million in dividend distributions in 1996, all of which could be paid in
cash, without approval from The State of Arizona Department of Insurance.
7. FAIR VALUE INFORMATION
The fair value amounts have been determined by the Company using available
information and reasonable valuation methodologies for only those accounts
for which fair value disclosures are required. Considerable judgement is
necessarily applied in interpreting data to develop the estimates of fair
value. Accordingly, the estimates presented may not be realized in a
current market exchange. The use of different market assumptions and/or
estimation methodologies could have a material effect on the estimated
fair values.
The following methods and assumptions were used in calculating the fair
values. For all other financial instruments presented in the table, the
carrying value is a reasonable estimate of fair value.
FIXED MATURITIES. Fair values for fixed maturities, 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 quality and
its remaining average life. The fair value of certain non-performing
private placement securities is based on amounts provided by state
regulatory authorities.
EQUITY SECURITIES. Fair value is based on quoted market prices, where
available, or prices provided by state regulatory authorities.
MORTGAGE LOANS. The fair value of the commercial mortgage and agricultural
loan portfolio is primarily based upon the present value of the scheduled
cash flows discounted at the appropriate U.S. Treasury rate, adjusted for
the current market spread for a similar quality mortgage. For certain
non-performing and other loans, fair value is based upon the value of the
underlying collateral.
POLICY LOANS. The estimated fair value is calculated using a discounted
cash flow model based upon current U.S. Treasury rates and historical loan
repayments.
INVESTMENT-TYPE INSURANCE CONTRACT LIABILITIES. Fair values for the
Company's investment-type insurance contract liabilities are estimated
using a discounted cash flow model, based on interest rates currently
being offered for similar contracts.
B-11
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The following table discloses the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1995 and
1994.
<TABLE>
<CAPTION>
(000's) (000's)
1995 1994
----------------------- --------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities ............. $2,510,782 $2,598,438 $ 2,647,315 $ 2,596,172
Equity securities ............ 4,009 4,036 3,326 3,326
Mortgage Loans ............... 64,464 63,635 71,919 71,805
Policy Loans ................. 569,273 577,975 493,862 448,617
Other Long term investments .. 4,159 4,159 4,044 4,044
Short term investments ....... 228,016 228,016 191,455 191,455
Financial Liabilities:
Investment type
insurance contracts ........ $ 536,963 $ 537,241 $ 794,691 $ 761,324
</TABLE>
8. CONTINGENCIES
Several actions have been brought against the Company on behalf of
those persons who purchased life insurance policies based on complaints
about sales practices engaged in by The Prudential, the Company and agents
appointed by The Prudential and the Company. The Prudential has agreed to
indemnify the Company for any and all losses resulting from such
litigation.
B-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying consolidated statements of financial position
of Pruco Life Insurance Company and Subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholder's
equity, and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Pruco Life Insurance Company and
subsidiaries as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
March 15, 1996
B-13
<PAGE>
VARIABLE
APPRECIABLE
LIFE(R)------------
INSURANCE CONTRACTS
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 437-4016, Ext. 46
<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.
UNDERTAKING WITH RESPECT TO INDEMNIFICATION
The Prudential Directors' and Officers' Liability and Corporation Reimbursement
Insurance Program, purchased by The Prudential from Aetna Casualty & Surety
Company, CNA Insurance Companies, Lloyds of London, Great American Insurance
Company, Reliance Insurance Company, Corporate Officers & Directors Assurance
Ltd., A.C.E. Insurance Company, Ltd., XL Insurance Company, Ltd., and
Zurich-American Insurance Company, provides reimbursement for "Loss" (as defined
in the policies) which the Company pays as indemnification to its directors or
officers resulting from any claim for any actual or alleged act, error,
misstatement, misleading statement, omission, or breach of duty by persons in
the discharge of their duties in their capacities as directors or officers of
The Prudential, any of its subsidiaries, or certain investment companies
affiliated with The Prudential. Coverage is also provided to the individual
directors or officers for such Loss, for which they shall not be indemnified.
Loss essentially is the legal liability on claims against a director or officer,
including adjudicated damages, settlements and reasonable and necessary legal
fees and expenses incurred in defense of adjudicatory proceedings and appeals
therefrom. Loss does not include punitive or exemplary damages or the multiplied
portion of any multiplied damage award, criminal or civil fines or penalties
imposed by law, taxes or wages, or matters which are uninsurable under the law
pursuant to which the policies are construed.
There are a number of exclusions from coverage. Among the matters excluded are
Losses arising as the result of (1) claims brought about or contributed to by
the criminal or fraudulent acts or omissions or the willful violation of any law
by a director or officer, (2) claims based on or attributable to directors or
officers gaining personal profit or advantage to which they were not legally
entitled, and (3) claims arising from actual or alleged performance of, or
failure to perform, services as, or in any capacity similar to, an investment
adviser, investment banker, underwriter, broker or dealer, as those terms are
defined in the Securities Act of 1933, the Securities Exchange Act of 1934, the
Investment Advisers Act of 1940, the Investment Company Act of 1940, any rules
or regulations thereunder, or any similar federal, state or local statute, rule
or regulation.
The limit of coverage under the Program for both individual and corporate
reimbursement coverage is $150,000,000. The retention for corporate
reimbursement coverage is $10,000,000 per loss.
The relevant provisions of New Jersey law permitting or requiring
indemnification, New Jersey being the state of organization of The Prudential,
can be found in Section 14A:3-5 of the New Jersey Statutes Annotated. The
relevant provisions of Arizona law, Arizona being the state of organization of
Pruco Life, can be found in Section 10-005 of the Arizona Statutes Annotated.
The text of The Prudential's by-law 26, which relates to indemnification of
officers and directors, is incorporated by reference to Exhibit 1.A.(6)(b) of
Post-Effective Amendment No. 1 to Form S-6, Registration No. 33-61079, filed
April 25, 1996, on behalf of The Prudential Variable Appreciable Account. The
text of Pruco Life's by-laws, Article VIII, which relates to indemnification of
officers and directors, is incorporated by reference to Exhibit 1.A.(6)(b) to
this Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 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 64 pages.
The undertaking to file reports.
The undertaking with respect to indemnification.
The signatures.
Written consents of the following persons:
1. Deloitte & Touche LLP, independent auditors.
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 Appreciable
Account. (Note 2)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities
Corporation and Pruco Life Insurance Company. (Note 2)
(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the
Sale of the Contracts. (Note 5)
(c) Schedules of Sales Commissions. (Note 14)
(4) Not Applicable.
(5) Variable Appreciable Life Insurance Contracts.
(a) With fixed death benefit. (Note 5)
(b) With variable death benefit. (Note 5)
(c) Complaint Notice for use in Texas with Variable
Appreciable Life Insurance Contracts. (Note 5)
(d) Notice giving Information for Consumers for use in
Illinois with Variable Appreciable Life Insurance
Contracts. (Note 6)
(e) Endorsement for Misstatement of Age and/or Sex for use
in Pennsylvania with Variable Appreciable Life
Insurance Contracts. (Note 9)
(f) Revised Contract with fixed death benefit. (Note 10)
(g) Revised Contract with variable death benefit. (Note 10)
(6) (a) Articles of Incorporation of Pruco Life Insurance
Company, as amended July 25, 1972. (Note 3)
(b) By-laws of Pruco Life Insurance Company, as amended
June 14, 1983. (Note 15)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form for Variable Appreciable Life
Insurance Contract. (Note 2)
(b) Supplement to the Application for Variable Appreciable
Life Insurance Contract. (Note 4)
(11) Form of Notice of Withdrawal Right. (Note 4)
(12) Memorandum describing Pruco Life Insurance Company's
issuance, transfer, and redemption procedures for the
Contracts pursuant to Rule 6e-2(b)(12)(ii) and method
of computing cash
II-2
<PAGE>
adjustment upon exercise of right to exchange for
fixed-benefit insurance pursuant to Rule
6e-2(b)(13)(v)(B). (Note 1)
(13) Available Contract Riders.
(a) Rider for Insured's Waiver of Premium Benefit. (Note 6)
(b) Rider for Applicant's Waiver of Premium Benefit. (Note
6)
(c) Rider for Insured's Accidental Death Benefit. (Note 6)
(d) Rider for Level Term Insurance Benefit on Life of
Insured. (Note 6)
(e) Rider for Decreasing Term Insurance Benefit on Life of
Insured. (Note 6)
(f) Rider for Interim Term Insurance Benefit. (Note 6)
(g) Rider for Option to Purchase Additional Insurance on
Life of Insured. (Note 6)
(h) Rider for Decreasing Term Insurance Benefit on Life of
Insured Spouse. (Note 6)
(i) Rider for Level Term Insurance Benefit on Dependent
Children. (Note 6)
(j) Rider for Level Term Insurance Benefit on Dependent
Children-from Term Conversions. (Note 6)
(k) Rider for Level Term Insurance Benefit on Dependent
Children-from Term Conversions or Attained Age Change.
(Note 6)
(l) Rider defining Insured Spouse. (Note 6)
(m) Rider covering lack of Evidence of Insurability on a
Child. (Note 6)
(n) Rider modifying Waiver of Premium Benefit. (Note 6)
(o) Rider to terminate a Supplementary Benefit. (Note 6)
(p) Rider providing for election of Variable Reduced
Paid-up Insurance. (Note 6)
(q) Rider to provide for exclusion of Aviation Risk. (Note
6)
(r) Rider to provide for exclusion of Military Aviation
Risk. (Note 6)
(s) Rider to provide for exclusion for War Risk. (Note 6)
(t) Endorsement for Contractual Conversion of a Term
Policy. (Note 6)
(u) Endorsement for Conversion of a Dependent Child. (Note
6)
(v) Endorsement for Conversion of Level Term Insurance
Benefit on a Child. (Note 6)
(w) Endorsement providing for Variable Loan Interest Rate.
(Note 6)
(x) Rider for Automatic Premium Loan for use in Maryland
and Rhode Island. (Note 6)
(y) Certification guaranteeing Right to Convert for use in
Virginia. (Note 6)
(z) Endorsement for Increase in Face Amount. (Note 7)
(aa) Supplementary Monthly Renewable Non-Convertible One
Month Term Insurance
(i) for use with fixed death benefit Contract.
(Note 8)
(ii) for use with variable death benefit Contract.
(Note 8)
(bb) Rider for Term Insurance Benefit on Life of
Insured-Decreasing Amount After Three Years. (Note 9)
(cc) Rider for Term Insurance Benefit on Life of Insured
Spouse-Decreasing Amount After Three Years. (Note 9)
(dd) Endorsement for Contracts issued in connection with
tax-qualified pension plans. (Note 11)
(ee) Appreciable Plus Rider. (Note 12)
(ff) Living Needs Benefit Rider
(i) for use in Florida. (Note 16)
(ii)for use in all approved jurisdictions except
Florida. (Note 16)
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) E. Michael Caulfield, Garnett L. Keith, Jr.,
II-3
<PAGE>
Ira J. Kleinman, Esther H. Milnes, I. Edward Price,
Stephen P. Tooley (Note 17)
(b) William F. Yelverton (Note 18)
27. Financial Data Schedule (Note 1)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Registrant's Form S-6, filed
February 21, 1984.
(Note 3) Incorporated by reference to Exhibit 1.A.(6)(a), Form N-8B-2
Registration No. 2-80513, filed November 22, 1982, on behalf
of the Pruco Life Variable Insurance Account.
(Note 4) Incorporated by reference to Pre-Effective Amendment No. 1 to
this Registration Statement, filed June 12, 1984.
(Note 5) Incorporated by reference to Pre-Effective Amendment No. 2 to
this Registration Statement, filed October 9, 1984.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 1
to this Registration Statement, filed April 30, 1985.
(Note 7) Incorporated by reference to Post-Effective Amendment No. 2
to this Registration Statement, filed September 13, 1985.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 3
to this Registration Statement, filed April 4, 1986.
(Note 9) Incorporated by reference to Post-Effective Amendment No. 4
to this Registration Statement, filed April 30, 1986.
(Note 10) Incorporated by reference to Post-Effective Amendment No. 5
to this Registration Statement, filed July 10, 1986.
(Note 11) Incorporated by reference to Post-Effective Amendment No. 6
to this Registration Statement, filed September 8, 1986.
(Note 12) Incorporated by reference to Post-Effective Amendment No. 7
to this Registration Statement, filed October 23, 1986.
(Note 13) Incorporated by reference to Post-Effective Amendment No. 8
to this Registration Statement, filed February 27, 1987.
(Note 14) Incorporated by reference to Post-Effective Amendment No. 9
to this Registration Statement, filed April 27, 1987.
(Note 15) Incorporated by reference to Post-Effective Amendment No. 13
to this Registration Statement, filed March 2, 1989.
(Note 16) Incorporated by reference to Post-Effective Amendment No. 16
to this Registration Statement, filed April 26, 1990.
(Note 17) Incorporated by reference to Form N-4, Registration No.
33-61125, filed July 19, 1995, on behalf of the Pruco Life
Flexible Premium Variable Annuity Account.
(Note 18) Incorporated by reference to Pre-Effective Amendment No. 1 to
Form N-4, Registration No. 33-61125, filed November 17, 1995
on behalf of the Pruco Life Flexible Premium Variable Annuity
Account.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life Variable Appreciable 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 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 25th day of April, 1996.
(Seal) PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
(Registrant)
By: PRUCO LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/ THOMAS C. CASTANO By: /s/ ESTHER H. MILNES
-------------------------- -----------------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 25 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 25th day of April, 1996.
SIGNATURE AND TITLE
-------------------
/s/ *
- -----------------------------------------
Esther H. Milnes
President and Director
/s/ *
- -----------------------------------------
Stephen P. Tooley
Chief Accounting Officer and Comptroller
/s/ *
- -----------------------------------------
E. Michael Caulfield
Director
/s/ * *By: /s/ THOMAS C. CASTANO
- ----------------------------------------- ----------------------------
Garnett L. Keith, Jr. Thomas C. Castano
Director (Attorney-in-Fact)
/s/ *
- -----------------------------------------
Ira J. Kleinman
Director
/s/ *
- -----------------------------------------
I. Edward Price
Director
/s/ *
- -----------------------------------------
William F. Yelverton
Director
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C> <C>
Consent of Deloitte & Touche LLP, independent auditors. Page II-6
1.A.(12) Memorandum describing Pruco Life Insurance Company's Page II-8
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).
3. Opinion and Consent of Clifford E. Kirsch, Esq., as to the Page II-19
legality of the securities being registered.
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as Page II-20
to actuarial matters pertaining to the securities being
registered.
27. Financial Data Schedule. Page II-21
</TABLE>
II-7
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 25 to Registration
Statement No. 2-89558 on Form S-6 of Pruco Life Variable Appreciable Account of
Pruco Life Insurance Company of our report dated February 15, 1996, relating to
the financial statements of Pruco Life Variable Appreciable Account, and of our
report dated March 15, 1996 relating to the consolidated financial statements of
Pruco Life Insurance Company and subsidiaries appearing in the Prospectus, which
is part of such Registration Statement, and to the reference to us under the
heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
April 25, 1996
II-6
Exhibit A(12)
Description of Pruco Life's Issuance, Transfer and redemption procedures for
Variable Appreciable Life Insurance Contracts pursuant to Rule 6e-2(b)(l2)(ii)
and
Method of Computing Adjustments in payments and Cash surrender values Upon
conversion to Fixed Benefit policies pursuant to Rule 6e-2(b)(l3)(v)(B)
This document sets forth the administrative procedures that will be followed by
Pruco Life Insurance Company ("Pruco Life") in connection with the issuance of
its Variable Appreciable Life Insurance Contract ("Contract"), the transfer of
assets held thereunder, and the redemption by contract owners of their interests
in said contracts. The document also explains the method that Pruco Life will
follow in making a cash adjustment when a Contract is exchanged for a fixed
benefit insurance policy pursuant to Rule 6e-2(b)(13)(v)(B).
I. Procedures Relating to Issuance and Purchase of the Contracts
A. Premiums Schedules and Underwriting Standards
Premiums for the contract will not be the same for all
owners. Insurance is based on the principle of pooling and
distribution of mortality risks, which assumes that each
owner pays a premium commensurate with the Insured's
mortality risk as actuarially determined utilizing factors.
such as age, sex, health and occupation. A uniform premium
for all Insureds would discriminate unfairly in favor of
those Insureds representing greater risks. However, for a
given face amount of insurance, contracts issued on insureds
of the same age and sex who are non-smokers will have the
same scheduled premium. Contracts issued on insureds who
smoke, or who for reasons of health, occupation or avocation
present higher risks, will have a correspondingly higher
scheduled premium.
The underwriting standards and premium processing practices
followed by Pruco Life are similar to those followed in
connection with the offer and sale of fixed-benefit life
insurance, modified where necessary to meet the requirements
of the federal securities laws. The prospectus specifies
scheduled premiums for illustrative ages. In addition, the
scheduled premiums to be paid by each owner will be
specified in his or her Contract. If they are paid on time,
Pruco Life guarantees to keep the Contract in force and to
provide at least the guaranteed minimum death benefit (i.e.,
the face amount specified in each contract), regardless of
investment performance, unless there is an outstanding
contract debt or the guaranteed amount has been changed or
affected because of some action taken by the owner, pursuant
to the Contract, such as a partial withdrawal or surrender.
The owner will have the option of paying more than the
scheduled premiums, thereby increasing Contract values
beyond what they would be if only the scheduled premiums
were paid. If favorable investment experience,
less-than-maximum mortality charges by Pruco Life, or
higher-than-scheduled premiums paid in the past have
produced greater-than-tabular values in the Contract, the
owner will have the further option of paying
less-than-scheduled premiums and still keeping the Contract
in force. But unless the owner has paid premiums which,
accumulated at 4% interest are at least equal to
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<PAGE>
scheduled premiums accumulated at the same rate, there is a
risk that future unfavorable investment performance will
cause the contract to go into default.
Scheduled premiums on the Contract are payable during the
insured's lifetime on an annual, semi-annual, quarterly or
monthly basis on due dates set forth in the Contract. If
paid more often than annually, the aggregate annual premium
will be higher to compensate Pruco Life for the additional
processing costs (reflected in a charge of $2 per payment)
and for the loss of interest incurred because premiums are
paid throughout rather than at the beginning of each
contract year.
B. Application and Initial Premium Processing
Upon receipt of a completed application form from a
prospective owner, Pruco Life will follow certain insurance
underwriting (i.e., evaluation of risk) procedures designed
to determine whether the proposed Insured is insurable. In
the majority of cases this will involve only evaluation of
the answers to the questions on the application and will not
include a medical examination. In other cases, the process
may involve such verification procedures as medical
examinations and may require that further information be
provided by the proposed Insured before a determination can
be made. A contract cannot be issued, i.e., physically
issued through Pruco Life's computerized issue system, until
this underwriting procedure has been completed.
These processing procedures are designed to provide
immediate benefits to every prospective owner who pays the
initial scheduled premium at the time the application is
submitted, without diluting any benefit payable to any
existing owner. Although a Contract cannot be issued until
after the underwriting process has been completed, such a
proposed Insured will receive immediate insurance coverage
for the face amount of the Contract, if he or she proves to
be insurable and the owner has paid the first scheduled
premium.
The Contract Date marks the date on which benefits begin to
vary in accordance with the investment performance of the
selected investment option(s). It is also the date as of
which the insurance age of the proposed Insured is
determined. It represents the first day of the Contract year
and therefore determines the Contract anniversary and also
the Monthly Dates. It also represents the commencement of
the suicide and contestable periods for purposes of the
Contract.
If the initial scheduled premium is paid with the
application and no medical examination is required (so that
Part 2 of the application is not completed) the Contract
Date will ordinarily be the date of the application. If an
unusual delay is encountered (for example, if a request for
further information is not met promptly), the Contract Date
will be 21 days prior to the date on which the Contract is
physically issued. If a medical examination is required, the
Contract Date will ordinarily be the date on which Part 2 of
the application (the medical report) is completed, subject
to the same qualification as that noted above.
If the first scheduled premium is not paid with the
application, the Contract Date will be the Contract Date
stated in the Contract, which will generally be about 3 days
after the date of physical issue (to permit time for
delivery), provided the Owner pays the necessary scheduled
premium.
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<PAGE>
There are two principal variations from the foregoing
procedure. First, if the owner wishes permanent insurance
protection and variability of benefits to commence at a
future date, he or she can designate that date and purchase
term insurance in a fixed amount for the intervening period.
The maximum length of initial term insurance available
varies from state to state.
Second, if permitted by the insurance laws of the state in
who the Contract is issued, the Contract may be back dated
up to six months, provided that all past due scheduled
premiums are paid and that the backdating results in a lower
insurance age for the Insured. Pruco Life will require the
payment of all scheduled premiums that would have been due
had the application date coincided with the backdated
Contract Date. The values under the Contract and the
amount(s) deposited into the selected investment option(s)
will be calculated upon the assumptions that the Contract
had been issued on the Contract Date and all scheduled
premiums had been received on their due dates. If the
initial premium paid is in excess of the aggregate of the
scheduled premiums due since the Contract Date, the excess
(after the front-end deductions) will be credited to the
Contract and placed in the selected investment option(s) on
the date of receipt.
Pruco Life will transfer the appropriate amounts to the
selected investment option(s) on the date the Contract is
approved unless, as noted above, the owner selects a period
of preliminary term insurance in which case the invested
portion of the first scheduled premium will be transferred
to the selected investment option(s) on the Contract Date.
The variable benefits under all Contracts will be calculated
on the assumption that the invested portion of the first
scheduled premium was transferred to the Selected investment
option(s) on the Contract Date. Any portion of the first
premium payment in excess of the first scheduled premium
will be credited (after deduction of up to 7-1/2% thereof)
as of the date of receipt. If the first premium is received
before the Contract Date, the entire invested portion will
be credited as of the Contract Date.
C. Premium Processing
Whenever a premium after the first is received, unless the
Contract is in default past its days of grace, Pruco Life
will subtract $2 and up to 7-1/2% of the rest of the
premium. What is left will be invested in the selected
investment option(s) on the date received (or, if that is
not a business day, on the next business day). There is an
exception if the Contract is in default within its days of
grace. Then to the extent necessary to end the default,
premiums will be credited as of the date of the default or
the Monthly Date after default, and premiums greater than
this amount will be credited when received. The Contract
provides a grace period of 61 days from the date Pruco Life
mails the Contract owner a notice of default. As an
administrative practice, Pruco Life extends the grace period
by seven days to minimize manual processing required when
premium payments are processed shortly after the 61st day.
D. Reinstatement
The Contract may be reinstated within three years after
default (this period will be longer if required by state
law) unless the Contract has been surrendered for its cash
surrender value. A Contract will be reinstated upon receipt
by Pruco Life of a written application for reinstatement,
production of evidence of insurability satisfactory to Pruco
Life and payment of at least the amount required to bring
the premium account up to zero on the
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<PAGE>
first Monthly date on which a scheduled premium is due after
the date of reinstatement. The premium account is the sum of
the premiums paid, with interest at 4%, less the sum of the
scheduled premiums due, with interest at the same rate. It
is a measure of whether, on a time-weighted basis, the owner
has paid enough premiums to keep the Contract with its
minimum death benefit guarantee in effect. The Contract
cannot go into default if the premium account is above zero.
Pruco Life will treat the amount paid upon reinstatement as
a premium. It will deduct $2, plus up to 7-1/2% of the
remaining payment, plus any charges with interest for any
extra benefits, plus any expense charges with interest. The
Contract fund of the reinstated Contract will, immediately
upon reinstatement, be equal to this net premium payment,
plus the cash surrender value of the Contract immediately
before reinstatement, plus a refund of that part of the
deferred sales and administrative charges which would be
charged if the Contract were surrendered immediately after
reinstatement. This last addition to the Contract Fund is
designed to avoid duplicative surrender charges. The
original Contract Date still controls for purposes of
calculating any contingent deferred sales and administrative
charges.
The reinstatement will take effect as of the date the
required proof of insurability and payment of the
reinstatement amount have been received by Pruco Life at its
Service Office.
There is an alternative to this reinstatement procedure that
applies only if reinstatement is requested within a 30-day
period following the end of the 61-day grace period. In such
a case evidence of insurability will not be required and the
amount of the required payment will be the lesser of the
unpaid scheduled premiums and the amount necessary to make
the Contract Fund equal to the tabular Contract Fund on the
third Monthly Date following the date on which the Contract
went into default.
E. Repayment of Loan
A loan made under the Contract may be repaid with an amount
equal to the monies borrowed plus interest which accrues
daily, either at a fixed annual rate of 5-1/2% (6% for
Contracts issued to Texas residents) or, if a Contract Owner
has elected to have a variable loan interest rate applicable
to loans made under the Contract, at the variable loan
interest rate then applicable to the loan.
When a loan is made, Pruco Life will transfer an amount
equal to the Contract debt from the investment option(s).
Under the fixed-rate contract loan provision, the amount of
Contract Fund attributable to the outstanding Contract loan
will be credited with interest at an annual rate of 4%, and
Pruco Life thus will realize the difference between that
rate and the fixed loan interest rate, which will be used to
cover the loan investment expenses, income taxes, if any,
and processing costs. If an owner so desires, and if Pruco
Life has received any required approvals from the state or
other jurisdiction in which the Contract is to be issued,
the Owner may elect, when the Contract is issued, to have a
variable loan interest rate apply to the Contract loans, if
any, that he or she may make. If this election is made:
1. Interest on the loan will accrue daily at an
annual rate Pruco Life determines at the start of each
Contract year (instead of at a fixed rate). This interest
rate will not exceed the greatest of (1) the "Published
Monthly Average" for the calendar month ending two
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<PAGE>
months before the calendar month of the Contract
anniversary; (2) 5%; or (3) any rate required by law in the
state of issue of the Contract. The "Published Monthly
Average" means Moody's Corporate Bond Yield Average -
Monthly Average Corporates, as published by Moody's
Investors Service, Inc. or any successor to that service, or
if that average is no longer published, a substantially
similar average established by the insurance regulator where
the Contract is delivered.
2. While a loan is outstanding, the amount of the
Contract Fund attributable to the outstanding Contract loan
will be credited with interest at a rate which is less than
the loan interest rate for the Contract year by no more than
1 1/2% (instead of 4%). Currently, Pruco Life credits such
amounts with a rate that is 1% less than the loan interest
rate for the Contract year.
Upon repayment of Contract debt, the payment will be added
to the investment option(s) and allocated among the
investment option(s) in proportion to the amounts in each
investment option attributable to the Contract as of the
date of repayment.
II. Transfers
The Pruco Life Variable Appreciable Account ("Account")
currently has seven subaccounts, each of which is invested
in shares of a corresponding portfolio of the Pruco Life
Series Fund, Inc. ("Fund"), which is registered under the
1940 Act as an open-end diversified management investment
company. In addition, a fixed-rate option and Real Property
Account are available for investment by Contract Owners.
Provided the Contract is not in default or is in force as
variable reduced paid-up insurance, the Owner may, up to
four times in each Contract year, transfer amounts from one
subaccount to another subaccount, to the fixed-rate option,
or to the Real Property Account without charge. All or a
portion of the amount credited to a subaccount may be
transferred.
In addition, the entire amount of the Contract Fund may be
transferred to the fixed-rate option at any time during the
first two Contract years. A Contract Owner who wishes to
convert his or her variable Contract to a fixed-benefit
Contract in this manner must request a complete transfer of
funds to the fixed-rate option and should also change his or
her allocation instructions regarding any future premiums.
Transfers amount subaccounts will take effect on the day a
proper written request or authorized telephone request is
received at a Pruco Life Service Office. The request may be
in terms of dollars such as a request to transfer $10,000
from one account 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.
Transfers from the fixed-rate option to other investment
options are currently permitted once each Contract year and
only during the thirty-day period beginning on the Contract
anniversary. The maximum amount which may currently be
transferred out of the fixed-rate option each year is the
greater of: (a) -25% of the amount in the fixed-rate option,
or (b) $1,000. The maximum amount which may currently be
transferred out of the Real Property Account each year is
the greater of: (a) 50% of the amount in the Real Property
Account, or (b) $10,000. Such transfer requests received
prior to the Contract anniversary will be effected on the
Contract anniversary. Transfer requests received within the
thirty-day period beginning on the Contract anniversary will
be effected as of the end
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of the business day on which the request is received. These
limits are subject to change in the future.
III. "Redemption" Procedures: Surrender and Related Transactions
A. Surrender for Cash Surrender Value
If the insured party under a Contract is alive, Pruco Life
will pay, within seven days, the Contract's net cash value
as of the date of receipt at its Service Office of the
Contract and a signed request for surrender. The Contract's
net cash value (i.e., its cash surrender value) is computed
as follows:
1. If the Contract is not in default: The net cash value or
cash surrender value at any time in the first ten Contract
years is the contract fund, minus a surrender charge,
consisting of a deferred sales charge and a deferred
administrative charge, minus contract debt. The net cash
value on surrender at the end of the 10th Contract year or
later is the Contract Fund minus Contract debt.
In no event will the deferred sales charge upon the
surrender be greater than 25% of scheduled premiums due in
Contract year 1, plus 5% of the scheduled premiums due in
Contract years 2 through 5. For the purpose of computing
this limit Pruco Life uses the lesser of premiums due and
premiums paid. For this purpose scheduled premium means what
an insured in the non-smoker rating class would pay if the
Contract had no extra benefits. The maximum deferred sales
charge in Contract years 6 through 10 is the maximum charge
at the end of the fifth Contract year, reduced for
persistency as explained in the prospectus and each
Contract. The deferred administrative charge is $5 per
$1,000 of face amount for surrenders in Contract years 1
through 5; this charge is reduced by 1/60 for each completed
month since the fifth Contract anniversary. After ten full
Contract years the deferred sales charge and the deferred
administrative charge are zero. The deferred administrative
charge is designed to recover, as far as possible, the
administrative expenses, such as underwriting expenses,
incurred in connection with issuance of a Contract. As a
result, in the early months after issue, there may be no net
cash value if only scheduled premiums are paid.
For a paid-up Contract that includes extra benefits, the
cash surrender value is the amount described above, plus the
cash value of any extra benefits, which are paid from the
general account.
2. If the Contract is in default during its days of grace,
Pruco Life will compute the net cash value as of the date
the Contract went into default. It will adjust this value
for any loan the owner took out or paid back or premium
payments or withdrawals made in the days of grace.
3. If the Contract is in default beyond its days of grace,
the net cash value as of any date will be either the value
on the date of any extended insurance benefit then in force,
or the value on that date of any variable reduced paid-up
insurance benefit then in force, less any Contract debt.
In lieu of the payment of the net cash value in a single sum
upon surrender of a Contract, an election may be made by the
owner to apply all or a portion of the proceeds under one
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<PAGE>
of the fixed benefit settlement options described in the
Contract or, with the approval of Pruco Life, a combination
of options. An option is available only if the proceeds to
be applied are $1,000 or more or would result in periodic
payments of at least $20.00. The fixed benefit settlement
options are subject to the restrictions and limitations set
forth in the Contract.
B. Partial Surrenders and Withdrawal of Excess Cash
Surrender Value
An owner may surrender a Contract in part. Partial surrender
involves splitting the Contract into two Contracts. One is
surrendered for its cash surrender value; the other is
continued in force on the same terms as the original
Contract except that future scheduled premiums are reduced
based upon the continued Contract's face amount and all
values under the Contract are proportionately reduced based
upon the reduction in the face amount of insurance. The
Contract continued must have a face amount of insurance of
at least $50,000. An alternative to surrender or partial
surrender of a Contract, available only before such
Contracts become paid-up, is a partial withdrawal of cash
surrender value without splitting the Contract into two
Contracts. A partial withdrawal may be made only if the
following conditions are satisfied. First, the amount
withdrawn, plus the net cash value after withdrawal, may not
be more than the net cash value before withdrawal. Second,
the Contract Fund after withdrawal must not be less than the
amount that will grow to the tabular Contract Fund as of the
next Monthly Date, assuming no premium payments, no
withdrawals, no loan or repayments of loan, a net investment
return in the investment options equal to the assumed rate
of return of 4%, and the deduction of all Contract charges.
Third, the amount withdrawn must be at least $500 under a
Form B Contract and at least $2,000 under a Form A Contract.
An owner may make no more than four such withdrawals in a
Contract year, and there is a fee of $15 for each such
withdrawal. An amount withdrawn may not be repaid except as
a scheduled or unscheduled premium subject to the Contract
charges.
Whenever a partial withdrawal is made, the death benefit
payable will immediately be reduced by the amount of the
withdrawal. This will not change the guaranteed minimum
amount of insurance under a Form a Contract (i.e., the face
amount) nor the amount of the scheduled premium that will be
payable thereafter on such a Contract. Under a Form A
Contract, however, the reduction in death benefit also means
the same reduction in face amount. No partial withdrawal
will be permitted under a Form A Contract if it would result
in a new face amount of less than $50,000. Furthermore, any
applicable backload payable upon future lapse or surrender
(i.e., any applicable deferred administrative and sales
charges) is reduced in proportion to the reduction in face
amount. The Contract Fund is reduced by the sum of the cash
withdrawn and the reduction in the backload. An amount equal
to the reduction in the Contract Fund will be withdrawn from
the investment options. In addition, the amount of the
scheduled premiums due thereafter under a Form A Contract
will be reduced to reflect the lower face amount of
insurance.
C. Death Claims
Pruco Life will pay a death benefit to the beneficiary
within seven days after receipt at its Service Office of due
proof of death of the Insured, and all other requirements
necessary to make payment. (*1)The following describes the
death benefit if the Contract is not in default past its
days of grace.
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<PAGE>
(*1) State Insurance laws impose various requirements, such
as receipt of a tax waiver, before payment of the death
benefit may be made. In addition, payment of the death
benefit is subject to the provisions of the Contract
regarding suicide and incontestability. In the event Pruco
Life should contest the validity of a death claim, an amount
up to the Contract's investment base will be withdrawn, if
appropriate, from the Account and/or the Real Property
Account and held in Pruco Life's general account.
The death benefit under a Form A Contract is the face amount
less Contract debt. The death benefit under a Form B
Contract is the face amount, plus any excess of the Contract
Fund over the tabular Contract Fund, less any contract debt.
There may be an additional amount payable from an extra
benefit added to the Contract by rider. Tabular Contract
Funds on Contract anniversaries are shown in the contract
data pages. Tabular Contract Funds at other times can be
obtained by interpolation.
If the Contract Fund less the present value of all future
charges for any extra benefits of either a Form A or a Form
B Contract grows to exceed the net single premium at the
insured's attained age for the death benefit described
above, the death benefit will be the Contract Fund, divided
by such net single premium. The death benefit will be
adjusted for any Contract debt and any extra benefits.
The proceeds payable on death also will include interest (at
a rate determined by Pruco Life from time to time) from the
date that the death benefit is computed (the date of death)
until the date of payment.
Pruco Life will make payment of the death benefit out of its
general account, and will transfer assets, if appropriate,
from the Account and/or the Real Property Account to the
general account in an amount up to the Contract Fund.
In lieu of payment of the death benefit in a single sum, an
election may be made to apply all or a portion of the
proceeds under one of the fixed benefit settlement options
described in the Contract or, with the approval of Pruco
Life, a combination of options. The election may be made by
the owner during the Insured's lifetime, or, at death, by
the beneficiary. An option in effect at death may not be
changed to another form of benefit after death. An option is
available only if the proceeds to be applied are $1,000 or
more or would result in periodic payments of at least
$20.00. The fixed benefit settlement options are subject to
the restrictions and limitations set forth in the Contract.
D. Default and Options on Lapse
The Contract is in default on any Monthly Date on which the
premium account is less than zero and the Contract Fund is
less than an amount which will grow at the assumed net rate
of return to the tabular Contract Fund applicable on the
next Monthly Date. Monthly Dates occur on the Contract Date
and in each later month on the same day in the month as the
Contract Date. The Contract provides for a 61-day grace
period, commencing with the mailing-date of the notice of
default, in which to remedy the default. The insurance
coverage continues in force during the grace period, but if
the Insured dies during the grace period, any charges due
during the grace period are deducted from the amount payable
to the beneficiary. Except for Contracts issued on certain
insureds in high risk rating classes, a lapsed Contract will
provide extended term insurance at expiration of the grace
period. The death benefit of the extended term insurance is
equal to the death benefit of the
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Contract (excluding riders) as of the date of default, less
any Contract debt. The extended term insurance will continue
for a length of time that depends on the net cash value on
the date of default, the amount of insurance, and the age
and sex of the insured. However, extended term insurance may
be exchanged, if the Contract Owner so elects, for variable
reduced paid-up insurance within three months of the date of
default. The face amount of the variable reduced paid-up
insurance will depend on the net cash value on the date of
default, and the age and sex of the insured.
Contracts issued on the above-mentioned high risk insureds
will be converted to variable reduced paid-up whole-life
insurance at expiration of the grace period.
E. Loans
The Contract provides that an owner, if the Contract is not
in default beyond the grace period(*2), may take out a loan
at any time a loan value is available. The owner may borrow
money on completion of a form satisfactory to Pruco Life.
The Contract is the only security for the loan. Disbursement
of the amount of the loan will be made within seven days of
receipt of the form at Pruco Life's Service Office. The
investment options will be debited in the amount of the loan
on the day the form is received. The percentage of the loan
withdrawn from each investment option will be equal to the
percentage of the value of such assets held in the
investment option. An owner may borrow up to the Contract's
full loan value. During the first contract year, the loan
value is zero. After the first Contract year, the loan value
is 90% of an amount equal to the Contract Fund reduced by
any charges due upon surrender. The loan provisions have
previously been described. See pp. 9-10.
(*2) The Contract also provides for a loan value if the
Contract is in effect under the Contract value option for
variable reduced paid-up insurance, but not if it is in
effect as extended term insurance.
A loan does not affect the amount of scheduled premiums due.
When a loan is made, the Contract fund is not reduced but
the value of the assets relating to the Contract held in the
investment option(s) is reduced. Accordingly, the daily
changes in the net cash value will be different from what
they would have been had no loan been taken. Cash surrender
values (and the death benefit under a Form a Contract) are
thus permanently affected by any Contract debt, whether or
not repaid. The guaranteed minimum death benefit is not
affected by Contract debt if premiums are duly paid.
However, on settlement the amount of any Contract debt is
subtracted from the insurance proceeds. If Contract debt
ever becomes equal to or more than what the net cash value
would be if there were no Contract debt, all the Contract's
benefits will end 61 days after notice is mailed to the
owner and any known assignee, unless repayment of an amount
sufficient to end the default is made within that period.
F. Key Employee Rider
Many life insurance companies offer fixed-benefit "person"
insurance policies. Those policies enable an employer to
purchase life insurance payable to the employer upon the
death of an important or "key" employee whose death would
constitute a financial disadvantage to the employer. Such
policies often permit the owner the right to change the
person insured under the policy, aright often exercised when
the original insured terminates
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his or her employment with the company and is replaced by
another person.
If permitted by the insurance laws of the state in which the
Contract is issued, a rider to the Contract is available,
referred to herein as the "key person" rider, that allows
the owner the option to continue the Contract in force on
the life of a different insured, subject to certain
conditions. This rider is primarily offered to corporate and
non-corporate employers who own or may purchase a Contract
issued on the life of a key employee. The rider may be
included at the time the original contract is issued or
added after issue. If the Contract includes this rider, the
owner will be able to continue the Contract in force on the
life of a different key employee. Thus, the rider provides
employers with a way to purchase the Contract on the life of
a key employee that may continue in force in an
appropriately modified form on the life of a new employee
when the original insured leaves the owner's employment. The
revised Contract will have a new scheduled premium and
certain other revised specifications, which will be set
forth in a new Contract document. An Owner's exercise of the
option provided by the key person rider could be viewed as
an exchange of the existing Contract for a new contract. The
Contract prior to the owner's exercise of the option to
change insureds will be referred to as the "original
Contract". The Contract in force after the exchange is
effected will be referred to as the "new Contract."
An owner's exercise of the right granted by the key person
rider is subject to several conditions. These conditions
include but are not limited to the following: (i) the new
insured must have been alive as of the original Contract
Date (i.e., the date the Contract was issued) and must be
less than 70 years old as of the date of the proposed change
of insureds; (ii) the new insured must satisfy Pruco Life's
underwriting requirements; (iii) the owner of the new
Contract must remain the same as the owner of the original
Contract and that owner must have an insurable interest in
the new insured's life; and (iv) Pruco Life must not be
waiving any premiums under the Contract pursuant to a rider
that waives premiums in the event of disability.
The specifications of the new Contract will be determined as
follows. The Contract Date will remain the same as that of
the original Contract. The face amount of the new Contract
will generally be the amount requested by the owner in the
application to effect the change of insureds, except that it
cannot be more than the face amount of the original
Contract. The contract fund of the original Contract will
become the initial Contract Fund of the new Contract. The
scheduled premium for the new Contract will be based on
Pruco Life's rates in force on the date of the change for
the new insured's rating class. The old Contract's premium
account will become the premium account of the new Contract.
If the Contract Fund and premium account are such that the
new Contract would be in default on the date that the new
Contract is to go in effect, Pruco Life will require payment
of a premium sufficient to bring the Contract out of
default. If the original Contract has Contract debt due to
an outstanding loan, the Contract debt may be transferred to
the new Contract unless that debt would exceed the new
Contract's loan value, in which case the excess Contract
debt must be paid off.
Upon the exchange of the original Contract for the new
Contract, neither the contingent deferred sales charge nor
the contingent deferred administrative charge is assessed.
If the new Contract is subsequently surrendered, however,
the Contract's cash surrender value will be determined by
using the greater of the surrender charges that would apply
under the original or the new Contract. Thus, with respect
to the contingent deferred administrative charge, the amount
of this charge upon surrender of the new Contract will be
determined
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on the basis of the face amount of the original Contract
since the face amount cannot be increased upon exercise of
the right to change insureds. The original Contract Date,
however, will govern for purposes of determining whether
this charge will be reduced or eliminated for persistency.
With respect to the contingent deferred sales load, the
amount of this charge can be increased following exercise of
the option granted by the key person rider because the
scheduled premiums on the new Contract can be higher than
the scheduled premiums on the original Contract due to the
replacement of the original insured with an insured of an
older issue age. If this is so, the contingent deferred
sales load will be calculated as if the Contract had
originally been issued on the life of the new insured. Thus,
in that event, the deferred sales charge will be 25% of the
first year's scheduled premium (calculated as if the
Contract had originally been issued on the new insured) and
5% of the scheduled premiums (calculated as if the Contract
had originally been issued on the new insured) for the
second through fifth Contract years due on or before the
date of surrender or lapse, and these percentages will be
applied only to premiums actually paid, whether timely or
not, prior to surrender or lapse. The original Contract Date
will control for purposes of calculating the reduction in
the contingent deferred sales charge for persistency.
IV. Cash Adjustment Upon Exchange of Contract
At any time during the first 24 months after a Contract is
issued, so long as the Contract is not in default, the Owner
may exchange it for an Appreciable Life insurance policy on
the insured's life issued by Pruco Life. This is a general
account, universal-life type policy with guaranteed minimum
values. No evidence of insurability will be required to make
an exchange. The new policy's premium and death benefit will
be the same as the original Contract's on the date of
exchange. The new policy will also have the same issue date
and risk classification for the insured as the original
Contract. Any outstanding Contract debt must be repaid.
If the Contract Fund of the old Contract is at or above the
tabular Contract Fund, the Contract Fund of the new policy
will be the same as that of the old one. If the Contract
Fund of the old contract is less than the tabular Contract
Fund, the difference must be paid in cash at the time of the
exchange. Then the Contract Fund of the new policy will be
the tabular Contract Fund.
At the time of the exchange, Pruco Life will transfer
assets, if appropriate, from the Account and/or the Real
Property Account to the general account in an amount up to
the applicable reserve.
II-18
Exhibit 3
April 25, 1996
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
Gentlemen:
In my capacity as Chief Legal Officer of Pruco Life Insurance Company ("Pruco
Life"), I have reviewed the establishment on January 13, 1984 of Pruco Life
Variable Appreciable Account (the "Account") 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 am 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. 2-89558) under the Securities Act of 1933 for the registration of certain
variable appreciable 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 appreciable life insurance contracts is not
chargeable with liabilities arising out of any other business
Pruco Life may conduct.
(4) The variable appreciable 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,
Clifford E. Kirsch
II-19
Exhibit 6
April 25, 1996
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 appreciable life insurance contracts ("Contracts")
under the Securities Act of 1933. The prospectus included in Post-Effective
Amendment No. 24 to Registration Statement No. 2-89558 on Form S-6 describes the
Contracts. I have reviewed the two Contract forms and I have participated in the
preparation and review of the Registration Statement and Exhibits thereto. In my
opinion:
(1) The illustrations of cash surrender values and death benefits
included in the section of the prospectus entitled
"Illustrations", based on the assumptions stated in the
illustrations, are consistent with the provisions of the
respective forms of the Contracts. The rate structure of the
Contracts 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 35 than to prospective purchasers of Contracts on
males of other ages or on females.
(2) The illustration of the effect of a Contract loan on the cash
surrender value included in the section entitled "Contract
Loans", based on the assumptions stated in the illustration,
is consistent with the provisions of the Form A Contract.
(3) The illustrations of the effect of an increase in the Contract
fund on the increase in insurance amount shown in the section
entitled "Revised Contracts" (How a Contract's Death Benefit
will Vary") are consistent with the provisions of the Revised
Form A and Form B Contracts.
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,
Nancy D. Davis, FSA, MAAA
Vice President and Assistant Actuary
The Prudential Insurance Company of America
II-20
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