AS FILED WITH THE SEC ON _________________.
REGISTRATION NO. 333-07451
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-6
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 Universal Life Insurance Contracts--Pursuant to Rule 24f-2 under the
Investment Company Act of 1940, the Registrant elects to register an indefinite
amount of securities. The filing fee is $500. (Title and amount of securities
being registered; proposed maximum aggregate offering price; amount of filing
fee).
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date as may be
necessary to delay its effective date until the Registrant shall file a further
amendment which specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, action pursuant to said Section 8(a), may determine.
This filing is being made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940.
Registrant elects to be governed by Rules 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940 with respect to the Contract described in this
Registration Statement.
<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. The Pruco Life Variable Appreciable Account
6. The 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"; Type of Death
Benefit; Changing the Type of Death Benefit; Premiums;
Contract Date; Allocation of Premiums; Transfers; Dollar
Cost Averaging, Auto-Rebalancing; Charges and
Expenses; How a Contract's Cash Surrender Value Will
Vary; How a Type A (Fixed) Contract's Death Benefit
Will Vary; How a Type B (Variable) Contract's Death
Benefit Will Vary; Surrender of a Contract; Withdrawals;
Increases in Basic Insurance Amount; Decreases in Basic
Insurance Amount; Lapse and Reinstatement; When
Proceeds are Paid; Riders; Other General Contract
Provisions; Voting Rights; Substitution of Series Fund
Shares
11. Brief Description of the Contract; The 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.; Charges and Expenses; Sale of the Contract
and Sales Commissions
14. Brief Description of the Contract; Requirements for
Issuance of a Contract
15. Brief Description of the Contract; Allocation of
Premiums; Transfers; Dollar Cost Averaging, Auto-
Rebalancing; The Fixed-Rate Option
16. Brief Description of the Contract; Detailed Information
for Prospective Contract Owners
17. When Proceeds are Paid
18. The Pruco Life Variable Appreciable Account
19. Reports to Contract Owners
20. Not Applicable
21. Contract Loans
<PAGE>
N-8B-2 Item Number Location
- ------------------ --------
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions
25. Pruco Life Insurance Company
26. Brief Description of the Contract; The Prudential Series
Fund, Inc.; Charges and Expenses
27. Pruco Life Insurance Company; The Prudential Series
Fund, Inc.
28. Pruco Life Insurance Company; Directors and Officers
29. Pruco Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Pruco Life Insurance Company
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions
39. Sale of the Contract and Sales Commissions
40. Not Applicable
41. Sale of the Contract and Sales Commissions
42. Not Applicable
43. Not Applicable
44. Brief Description of the Contract; The Prudential Series
Fund, Inc.; How a Contract's Cash Surrender Value Will
Vary; How a Type A (Fixed) Contract's Death Benefit
Will Vary; How a Type B (Variable) Contract's Death
Benefit Will Vary
45. Not Applicable
46. Brief Description of the Contract; The Pruco Life
Variable Appreciable Account; The Prudential Series
Fund, Inc.
47. The Pruco Life Variable Appreciable Account; The
Prudential Series Fund, Inc.
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Series Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
55. Not Applicable
<PAGE>
N-8B-2 Item Number Location
- ------------------ --------
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements; Financial Statements of the Pruco
Life Variable Appreciable Account; Consolidated
Financial Statements of Pruco Life Insurance Company
and Subsidiaries
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
[LOGO]
Variable Universal Life is issued by Pruco Life Insurance Company and offered
through Pruco Securities Corporation, both subsidiaries of The Prudential
Insurance Company of America.
VARIABLE UNIVERSAL LIFE
VARIABLE UNIVERSAL LIFE PROSPECTUS
DECEMBER __, 1996
PRUCO LIFE
VARIABLE APPRECIABLE
ACCOUNT
<PAGE>
PROSPECTUS
_____________, 1996
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
VARIABLE UNIVERSAL LIFE
This prospectus describes a flexible premium variable universal life insurance
contract (the "Contract") offered by Pruco Life Insurance Company ("Pruco
Life"). The Contract provides life insurance coverage with flexible premium
payments and a variety of investment options. Subject to an initial premium, you
can pay premium amounts as desired, so long as sufficient money is in the
Contract Fund to cover all charges. If there is insufficient money in the
Contract Fund, the Contract may lapse without value.
There are two types of death benefit available. One type generally remains fixed
in the amount initially selected, the other will vary daily with the investment
performance of the investment options you select. For each type, there are
generally two death benefit guarantees, each of which can be secured by a
certain level of premium payments.
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 10 available subaccounts of the Pruco Life Variable Appreciable Account:
O MONEY MARKET O HIGH YIELD BOND O EQUITY
O DIVERSIFIED BOND O STOCK INDEX O PRUDENTIAL JENNISON
O CONSERVATIVE BALANCED O EQUITY INCOME O GLOBAL
O FLEXIBLE MANAGED
each of which invests in a corresponding portfolio of The Prudential Series
Fund, Inc. (the "Series Fund") or they can be allocated to a FIXED-RATE OPTION.
Additional investment options may be added in the future. The attached
prospectus for the Series Fund, and the Series Fund's statement of additional
information describe the investment objectives of and the risks of investing in
the portfolios. Interest is credited daily upon any portion of the premium
payment allocated to the fixed-rate option at rates periodically declared by
Pruco Life Insurance Company in its sole discretion but never less than an
effective annual rate of 4%. This prospectus describes the Contract generally
and the Pruco Life Variable Appreciable Account.
REPLACING EXISTING 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.
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
VUL-1 Ed __-96 Catalog # 64M9743
<PAGE>
PROSPECTUS CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS...........................................................................1
BRIEF DESCRIPTION OF THE CONTRACT..............................................................................................2
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, THE PRUCO LIFE VARIABLE
APPRECIABLE ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER THE
CONTRACT..................................................................................................................5
Pruco Life Insurance Company..............................................................................................5
The Pruco Life Variable Appreciable Account...............................................................................5
The Prudential Series Fund, Inc...........................................................................................5
The Fixed-Rate Option.....................................................................................................6
Which Investment Option Should Be Selected?...............................................................................7
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS...........................................................................7
Requirements for Issuance of a Contract...................................................................................7
Short-Term Cancellation Right or "Free Look"..............................................................................7
Type of Death Benefit.....................................................................................................7
Changing the Type of Death Benefit........................................................................................8
Premiums..................................................................................................................8
Death Benefit Guarantee...................................................................................................9
Contract Date............................................................................................................11
Allocation of Premiums...................................................................................................11
Transfers................................................................................................................11
Dollar Cost Averaging....................................................................................................12
Auto-Rebalancing.........................................................................................................12
Charges and Expenses.....................................................................................................12
How a Contract's Cash Surrender Value Will Vary..........................................................................15
How a Type A (Fixed) Contract's Death Benefit Will Vary..................................................................15
How a Type B (Variable) Contract's Death Benefit Will Vary...............................................................16
Surrender of a Contract..................................................................................................17
Withdrawals..............................................................................................................17
Increases in Basic Insurance Amount......................................................................................18
Decreases in Basic Insurance Amount......................................................................................18
When Proceeds Are Paid...................................................................................................19
Living Needs Benefit.....................................................................................................19
Illustrations of Cash Surrender Values, Death Benefits, and Accumulated Premiums.........................................20
Contract Loans...........................................................................................................22
Sale of the Contract and Sales Commissions...............................................................................22
Tax Treatment of Contract Benefits.......................................................................................23
Withholding..............................................................................................................24
Lapse and Reinstatement..................................................................................................25
Legal Considerations Relating to Sex-Distinct Premiums and Benefits......................................................25
Other General Contract Provisions........................................................................................25
Riders...................................................................................................................26
Voting Rights............................................................................................................26
Substitution of Series Fund Shares.......................................................................................27
Reports to Contract Owners...............................................................................................27
State Regulation.........................................................................................................27
Experts..................................................................................................................27
Litigation...............................................................................................................28
Additional Information...................................................................................................28
Financial Statements.....................................................................................................28
DIRECTORS AND OFFICERS........................................................................................................29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
FINANCIAL STATEMENTS OF THE 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 AND THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FOR
THE SERIES FUND.
<PAGE>
DEFINITIONS OF SPECIAL TERMS
USED IN THIS PROSPECTUS
ACCUMULATED NET PAYMENTS--The actual premium payments you make accumulated at an
effective annual rate of 4% less any withdrawals you make accumulated at an
effective annual rate of 4%.
ATTAINED AGE--The insured's age on the Contract date plus the number of years
since then.
BASIC INSURANCE AMOUNT--The amount of life insurance as shown in the Contract.
CASH SURRENDER VALUE--The amount payable to the Contract owner upon surrender of
the Contract. It is equal to the Contract Fund minus any Contract debt and,
during the first 10 Contract years, minus the applicable surrender charge.
CONTRACT--The variable universal life insurance policy described in this
prospectus.
CONTRACT ANNIVERSARY--The same date as the Contract date in each later year.
CONTRACT DATE--The date the Contract is effective, as specified in the Contract.
CONTRACT DEBT--The principal amount of all outstanding loans plus any interest
we have charged that is not yet due and that we have not yet added to the loan.
CONTRACT FUND--The total amount credited to a specific Contract. On any date it
is equal to the sum of the amounts in all the subaccounts, the amount invested
under the fixed-rate option, and the principal amount of any Contract debt.
CONTRACT OWNER--You. Unless a different owner is named in the application, the
owner of the Contract is the insured.
CONTRACT YEAR--A year that starts on the Contract date or on a Contract
anniversary.
DEATH BENEFIT--The amount we will pay upon the death of the insured before
reduction by any Contract debt and amounts needed to pay charges through the
date of death.
FACE AMOUNT--The same as the "basic insurance amount".
FIXED-RATE OPTION--An investment option under which interest is accrued daily at
a rate that Pruco Life declares periodically, but not less than an effective
annual rate of 4%.
LIFETIME DEATH BENEFIT GUARANTEE PERIOD--The lifetime of the Contract, during
which time the Lifetime Death Benefit Guarantee is available if sufficient
premiums are paid. See DEATH BENEFIT GUARANTEE, page 9.
LIMITED DEATH BENEFIT GUARANTEE PERIOD--A period which is determined on a
case-by-case basis, during which time the Limited Death Benefit Guarantee is
available if sufficient premiums are paid. See DEATH BENEFIT GUARANTEE, page 9.
The period applicable to your Contract is shown on the Contract data pages.
MONTHLY DATE--The Contract date and the same date in each subsequent month.
PRUCO LIFE INSURANCE COMPANY--Us, we, Pruco Life. The company offering the
Contract.
THE PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT (THE "ACCOUNT")--A separate account
of Pruco Life registered as a unit investment trust under the Investment Company
Act of 1940.
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND")--A mutual fund with
separate portfolios. One or more of the available Series Fund portfolios may be
chosen as an underlying investment for the Contract.
SUBACCOUNT--An investment division of the Account, the assets of which are
invested in the shares of the corresponding portfolio of the Series Fund.
VALUATION PERIOD--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.
VARIABLE INVESTMENT OPTIONS--The subaccounts.
WE--Pruco Life Insurance Company.
YOU--The owner of the Contract.
1
<PAGE>
BRIEF DESCRIPTION OF THE CONTRACT
As you read this prospectus you should keep in mind that you are considering the
purchase of a life insurance contract. Because it is VARIABLE LIFE INSURANCE,
and variable life insurance has significant investment aspects and requires you
to make investment decisions, it is also a "security." That is why you have been
given this prospectus. Securities which are offered to the public must be
registered with the Securities and Exchange Commission, and the prospectus that
is a part of the registration statement must be given to all prospective buyers.
But because a substantial part of the premium pays for life insurance that will
pay to the beneficiary, in the event of the insured's death, an amount which
generally far exceeds your total premium payments, you should not buy this
Contract unless a major reason for the purchase is to provide life insurance
protection.
The Contract is a form of variable universal life insurance. It is built around
a Contract Fund, the value of which changes every business day. The chart on
page 3 describes how the value of your Contract Fund changes.
You may choose to have premiums, after the deduction of certain charges,
invested into any one or more of the 10 available subaccounts of the Account or
in the fixed-rate option.
The money allocated to each subaccount is immediately invested in a
corresponding portfolio of The Prudential Series Fund, Inc. (the "Series Fund"),
a series mutual fund to which The Prudential Insurance Company of America
("Prudential") acts as investment advisor. The MONEY MARKET PORTFOLIO is
invested in short-term debt obligations similar to those purchased by money
market funds; the DIVERSIFIED BOND PORTFOLIO is invested primarily in high
quality medium-term corporate and government debt securities; the CONSERVATIVE
BALANCED 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 and prefers a relatively lower risk of loss and a correspondingly
reduced chance of high appreciation; the FLEXIBLE MANAGED PORTFOLIO is invested
in a mix of money market instruments, fixed income securities, and common
stocks, in proportions believed by the investment manager to be appropriate for
an investor desiring diversification of investment who is willing to accept a
relatively high level of loss in an effort to achieve greater appreciation; the
HIGH YIELD BOND PORTFOLIO is invested primarily in high yield fixed income
securities of medium to lower quality, also known as high risk bonds; the STOCK
INDEX PORTFOLIO is invested in common stocks selected to duplicate the price and
yield performance of the Standard & Poor's 500 Composite Stock Price Index; the
EQUITY INCOME PORTFOLIO is invested primarily in common stocks and convertible
securities that provide favorable prospects for investment income returns above
those of the Standard & Poor's 500 Stock Index or the NYSE Composite Index; the
EQUITY PORTFOLIO is invested primarily in common stocks; the PRUDENTIAL JENNISON
PORTFOLIO is invested primarily in equity securities of established companies
with above-average growth prospects; and the GLOBAL PORTFOLIO is invested in
common stocks and common stock equivalents (such as convertible debt securities)
of foreign and domestic issuers. Further information about the Series Fund
portfolios can be found under THE PRUDENTIAL SERIES FUND, INC. on page 5.
You have an additional option which is regulated differently from the other 10
because it is not a security registered under the Securities Act of 1933 nor is
it issued by an investment company registered under the Investment Company Act
of 1940. It is a FIXED-RATE OPTION that increases the portion of your Contract
Fund allocated to this option at a declared rate or rates of interest, which are
guaranteed never to be lower than an effective annual rate of 4%.
Thus your Contract Fund value changes every day depending upon the change in the
value of the particular investment options that you have selected for the
investment of your Contract Fund.
Although the selection of any of the subaccounts offers the possibility that
your Contract Fund value will increase if there is favorable investment
performance, you are subject to the risk that investment performance will be
unfavorable and that the value of your Contract Fund will decrease. The risk
will be different, depending upon which investment options you choose. See WHICH
INVESTMENT OPTION SHOULD BE SELECTED?, page 7. If you select the fixed-rate
option, you are credited with a declared rate or rates of interest but you
assume the risk that the rate may change, although it will never be lower than
an effective annual rate of 4%.
The following chart outlines the components of your Contract Fund and the
adjustments which may be made including the maximum charges which may be
deducted from each premium payment and from the amounts held in the designated
investment options. These charges are largely designed to cover insurance costs
and risks as
2
<PAGE>
well as sales and administrative expenses. The maximum charges shown in the
chart, as well as the lower charges that we are currently making, are fully
described under CHARGES AND EXPENSES, on page 12.
- --------------------------------------------------------------------------------
PREMIUM PAYMENT
o less a charge of up to 7.5% of the
premiums paid for taxes attributable to
premiums
o less a charge for sales expenses of up to
4% of the premiums paid
INVESTED PREMIUM AMOUNT
o To be invested in one or a combination of:
o The 10 available investment portfolios of the Series Fund
o The fixed-rate option
CONTRACT FUND
On the Contract Date, the Contract Fund is equal to the invested premium amount
minus any of the charges described below which may be due on that date.
Thereafter, the value of the Contract Fund changes daily.
ADJUSTMENTS MADE TO CONTRACT FUND AS APPLICABLE FOR:
o Addition of any new invested premium amounts.
o Addition of any increase due to investment results of the chosen variable
investment options.
o Addition of guaranteed interest at an effective annual rate of 4% (plus any
excess interest if applicable) on the portion of the Contract Fund allocated
to the fixed-rate option.
o Addition of guaranteed interest at an effective annual rate of 4% on the
amount of any Contract loan. (Separately, interest charged on the loan accrues
at an effective annual rate of 4.5% or 5%. See CONTRACT LOANS, page 22.)
o Subtraction of any decrease due to investment results of the chosen variable
investment options.
o Subtraction of any amount withdrawn.
o Subtraction of the charges listed below, as applicable.
DAILY CHARGES
o Management fees and expenses are deducted from the assets of the Series Fund.
o A daily charge equivalent to an annual rate of up to 0.9% is deducted from the
assets of the variable investment options for mortality and expense risks.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
MONTHLY CHARGES
o The Contract Fund is reduced by a monthly administrative charge of up to $10
plus $0.07 per $1,000 of the basic insurance amount; for Contract years after
the first, the $0.07 per $1,000 portion of the charge is reduced to $0.01 per
$1,000 of the basic insurance amount.
o A cost of insurance ("COI") charge is deducted.
o The Contract Fund is reduced by a Death Benefit Guarantee risk charge of $0.01
per $1,000 of the basic insurance amount.
o If the Contract includes riders, a deduction from the Contract Fund will be
made for charges applicable to those riders.
o If the rating class of an insured results in an extra charge, that charge will
be deducted from the Contract Fund.
POSSIBLE ADDITIONAL CHARGES
o If during the first 10 Contract years the Contract lapses or is surrendered or
if the basic insurance amount is decreased (including as a result of a
withdrawal), a contingent deferred sales charge is assessed. For insureds age
76 or less at issue, the maximum contingent deferred sales charge is 26% of
the target level premium (see PREMIUMS, page 8) for the Contract. For insureds
age 77 or greater at issue, the maximum charge will be a smaller percentage of
the target level premium for the Contract. The charge is level for six years
and then declines monthly to zero at the end of the 10th Contract year.
o If during the first 10 Contract years the Contract lapses or is surrendered or
if the basic insurance amount is decreased (including as a result of a
withdrawal), a contingent deferred administrative charge is assessed. This
charge equals the lesser of: (a) $5 per $1,000 of basic insurance amount; and
(b) $500. It is level for six years and then declines monthly until it reaches
zero at the end of the 10th Contract year.
o An administrative charge of up to $25 is made in connection with any
withdrawals.
o An administrative charge of up to $25 is made for any change in basic
insurance amount.
o An administrative charge of up to $25 is made for each transfer exceeding
twelve in any Contract year.
- --------------------------------------------------------------------------------
There are two types of death benefit available. You may choose a Contract with a
Type A (fixed) death benefit under which the cash surrender value varies daily
with investment experience, and the death benefit generally stays at the basic
insurance amount chosen by you at the outset. However, the Contract Fund may
grow to a point where the death benefit may increase and vary with investment
experience. If you choose a Contract with a Type B (variable) death benefit, the
cash surrender value and the death benefit both vary with investment experience.
For either type of death benefit, as long as the Contract is in force, the death
benefit will never be less than the basic insurance amount shown in your
Contract. See TYPE OF DEATH BENEFIT, page 7.
The Contract is a flexible premium contract--there are no scheduled premiums.
Except for the minimum initial premium, and subject to a minimum of $25 per
subsequent payment, the timing and amount of premium payments are discretionary.
The Contract will remain in force provided that the Contract Fund less any
applicable surrender charges is greater than zero and more than any Contract
debt. However, if the premiums you pay on an accumulated basis are high enough,
and Contract debt does not equal or exceed the Contract Fund less any applicable
surrender charges, Pruco Life guarantees that your Contract will not lapse even
if investment experience is very unfavorable and the Contract Fund drops below
zero. Each Contract generally provides two guarantees, one that lasts for the
lifetime of the Contract and another that lasts for a stated, generally lengthy
period. The guarantee for the life of the Contract requires higher premium
payments. See PREMIUMS, page 8, DEATH BENEFIT GUARANTEE, page 9 and LAPSE AND
REINSTATEMENT, page 25.
While you decide when to make premium payments and, subject to a $25 minimum, in
what amounts, we do offer and suggest regular billing of premiums. When applying
for the Contract, you should discuss with your Pruco Life representative if you
would like to be billed, how frequently and for what amount. See PREMIUMS,
page 8.
4
<PAGE>
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 7.
This Summary provides only a brief overview of the more significant aspects of
the Contract. Further detail is provided in the subsequent sections of this
prospectus and in the Contract. The Contract, including the application attached
to it, constitutes the entire agreement between you and Pruco Life and should be
retained.
For the DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, see page 1.
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE
COMPANY, THE 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 Prudential, a mutual insurance
company founded in 1875 under the laws of the State of New Jersey. As of
December 31, 1995, Prudential has invested over $442 million in Pruco Life in
connection with Pruco Life's organization and operation. Prudential may from
time to time make additional capital contributions to Pruco Life as needed to
enable it to meet its reserve requirements and expenses in connection with its
business. Prudential 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.
THE 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 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 10 available subaccounts within the
Account, each of which invests in a single corresponding portfolio of the Series
Fund. Additional subaccounts may be added in the future. The Account's financial
statements begin on page A1.
THE PRUDENTIAL SERIES FUND, INC.
The Prudential Series Fund, Inc. (the "Series Fund") is registered under the
1940 Act as an open-end diversified management investment company. Its shares
are currently sold only to separate accounts of Prudential and certain
subsidiary insurers that offer variable life insurance and variable annuity
contracts. The Account will purchase and redeem shares from the Series Fund at
net asset value. Shares will be redeemed to the extent necessary for Pruco Life
to provide benefits under the Contract and to transfer assets from one
subaccount to another, as requested by Contract owners. Any dividend or capital
gain distribution received from a portfolio of the Series Fund will be
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reinvested immediately at net asset value in shares of that portfolio and
retained as assets of the corresponding subaccount.
Prudential is the investment advisor for the assets of each of the portfolios of
the Series Fund. Prudential's principal business address is Prudential Plaza,
Newark, New Jersey 07102-3777. Prudential has a Service Agreement with its
wholly-owned subsidiary The Prudential Investment Corporation ("PIC"), which
provides that, subject to Prudential's supervision, PIC will furnish investment
advisory services in connection with the management of the Series Fund. In
addition, Prudential has entered into a Subadvisory Agreement with its
wholly-owned subsidiary Jennison Associates Capital Corporation ("Jennison"),
under which Jennison furnishes investment advisory services in connection with
the management of the Prudential Jennison Portfolio. Further detail is provided
in the prospectus and statement of additional information for the Series Fund.
Prudential, PIC, and Jennison are registered as investment advisors under the
Investment Advisers Act of 1940.
As an investment advisor, Prudential charges the Series Fund a daily investment
management fee as compensation for its services. In addition to the investment
management fee, each portfolio incurs certain expenses, such as accounting and
custodian fees. See DEDUCTIONS FROM PORTFOLIOS, page 13.
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.
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.
You 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
first day of the same month in the following year. At that time a new crediting
rate will apply to that money until the first day of the same month in the next
year. Then a new declared crediting rate will apply to that money for the
remainder of that calendar year. Thereafter a new crediting rate will be
declared each year for that money and it will remain in effect for the entire
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, you will be advised of the interest rates that currently apply to your
Contract.
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Transfers from the fixed-rate option are subject to strict limits, see
TRANSFERS, page 11. The payment of any cash surrender value attributable to the
fixed-rate option may be delayed up to six months, see WHEN PROCEEDS ARE PAID,
page 19.
WHICH INVESTMENT OPTION SHOULD BE SELECTED?
Historically, for investments held over relatively long periods, the investment
performance of common stocks has generally been superior to that of short or
long-term debt securities, even though common stocks have been subject to much
more dramatic changes in value over short periods of time. Accordingly, the
Stock Index, Equity Income, Equity, Prudential Jennison or Global Portfolios may
be desirable options if you are willing to accept such volatility in your
Contract values. Each of these equity portfolios involves somewhat different
policies and investment risks.
You may prefer the somewhat greater protection against loss of principal (and
reduced chance of high total return) provided by the Diversified Bond Portfolio.
There may be times when you desire even greater safety of principal and may then
prefer the Money Market Portfolio or the fixed-rate option, recognizing that the
level of short-term rates may change rather rapidly. If you are willing to take
risks and possibly achieve a higher total return, you may prefer the High Yield
Bond Portfolio, recognizing that with higher yielding, lower quality bonds the
risks are greater. You may wish to divide your invested premium among two or
more of the portfolios. You may wish to obtain diversification by relying on
Prudential's judgment for an appropriate asset mix by choosing the Conservative
Balanced or Flexible Managed Portfolio.
You should make a choice that takes into account how willing you are to accept
investment risks, the manner in which your other assets are invested, and your
own predictions about what investment results are likely to be in the future.
Pruco Life does recommend 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
The Contract may generally be issued on insureds below the age of 81. Currently,
the minimum basic insurance amount that can be applied for is $250,000. Before
issuing any Contract, Pruco Life requires evidence of insurability which may
include a medical examination. Non-smokers are offered the most favorable cost
of insurance rates. A higher cost of insurance rate and/or additional charge is
charged if an extra mortality risk is involved. These are the current
underwriting requirements. We reserve the right to change them on a
non-discriminatory basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, you may return the Contract for a refund within 10 days after you
receive it, 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. You will
then receive a refund of all premium payments made, plus or minus any change due
to investment experience. However, if applicable law so requires and you
exercise your short-term cancellation right, you will receive a refund of all
premium payments made with no adjustment for investment experience.
TYPE OF DEATH BENEFIT
You may select either of two types of death benefit. Generally, a Contract with
a Type A (fixed) death benefit has a death benefit equal to the basic insurance
amount. The death benefit of this type does not vary with the investment
performance of the investment options selected by you, except in certain
circumstances. See HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY, page
15. Favorable investment results of the variable investment options to which the
assets related to the Contract are allocated and payment of additional premiums
will generally result in increases in the cash surrender value. See HOW A
CONTRACT'S CASH SURRENDER VALUE WILL VARY, page 15.
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A Contract with a Type B (variable) death benefit has a death benefit which will
generally equal the basic insurance amount plus the Contract Fund. Since the
Contract Fund is a component of the death benefit, favorable investment
performance and payment of additional premiums generally result in an increase
in the death benefit as well as in the cash surrender value. Over time, however,
the increase in the cash surrender value will be less than under a Type A
(fixed) Contract. This is because, given two Contracts with the same basic
insurance amount and equal Contract Funds, generally the cost of insurance
charge for a Type B (variable) Contract will be greater. See HOW A CONTRACT'S
CASH SURRENDER VALUE WILL VARY, page 15 and HOW A TYPE B (VARIABLE) CONTRACT'S
DEATH BENEFIT WILL VARY, page 16. Unfavorable investment performance will result
in decreases in the death benefit and in the cash surrender value. But, as long
as the Contract is not in default, the death benefit may not fall below the
basic insurance amount stated in the Contract.
In choosing a death benefit type, you should also consider whether you intend to
use the withdrawal feature. Purchasers of Type A (fixed) Contracts should note
that any withdrawal may result in a reduction of the basic insurance amount and
the deduction of any applicable surrender charges. In addition, we will not
allow you to make a withdrawal that will decrease the basic insurance amount
below the minimum basic insurance amount. See WITHDRAWALS, page 17.
CHANGING THE TYPE OF DEATH BENEFIT
On or after the first Contract anniversary and subject to Pruco Life's approval,
you may change the type of death benefit. We will increase or decrease the basic
insurance amount so that the death benefit immediately after the change matches
the death benefit immediately before the change. You should consult your Pruco
Life representative from time to time about the choices available to you under
the Contract.
If you are changing your Contract's type of death benefit from Type A (fixed) to
Type B (variable), we will reduce the basic insurance amount by the amount in
your Contract Fund on the date the change takes place. The basic insurance
amount after the change may not be lower than the minimum basic insurance amount
applicable to the Contract. If you are changing from a Type B (variable) to a
Type A (fixed) death benefit, we will increase the basic insurance amount by the
amount in your Contract Fund on the date the change takes place. This is
illustrated in the following chart.
----------------------------------------------------
Changing the Death Changing the Death
Benefit from Benefit from
Type A -- Type B Type B -- Type A
(Fixed) (Variable) (Variable) (Fixed)
- --------------------------------------------------------------------------------
BASIC INSURANCE
AMOUNT $300,000 -- $250,000 $250,000 -- $300,000
CONTRACT FUND $50,000 = $50,000 $50,000 = $50,000
DEATH BENEFIT $300,000 = $300,000 $300,000 = $300,000
- --------------------------------------------------------------------------------
Changing your Contract's type of death benefit from Type A (fixed) to Type B
(variable) during the first 10 Contract years may result in the assessment of
surrender charges. In addition, although we do not currently do so, we reserve
the right to make an administrative processing charge of up to $25 for any
change in basic insurance amount. See CHARGES AND EXPENSES, page 12.
To request a change, fill out an application for change which can be obtained
from your Pruco Life representative or any of our offices. If the change is
approved, we will recompute the Contract's charges and appropriate tables and
send you new Contract data pages. We may require you to send us your Contract
before making the change.
PREMIUMS
The Contract is a flexible premium contract. The minimum initial premium is due
on or before the Contract date. Thereafter, you decide when to make premium
payments and, subject to a $25 minimum, in what amounts. We reserve the right to
refuse to accept any payment that increases the death benefit by more than it
increases the Contract Fund. See HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT
WILL VARY, page 15 and HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL
VARY, page 16. There are circumstances under which the payment of
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premiums in amounts that are too large may cause the Contract to be
characterized, under the Internal Revenue Code, as a Modified Endowment
Contract, which could be significantly disadvantageous. See TAX TREATMENT OF
CONTRACT BENEFITS, page 23.
There are several types of "premiums" under the Contract, described below.
Understanding them will help you understand how the Contract works.
MINIMUM INITIAL PREMIUM -- the premium needed to start the Contract. There
is no insurance under this Contract unless the minimum initial premium is
paid.
GUIDELINE PREMIUMS -- the premiums that, if paid at the beginning of each
Contract year, will keep the Contract in force for the lifetime of the
insured regardless of investment performance, assuming no loans or
withdrawals. These guideline premiums will be higher for a Type B
(variable) Contract than for a Type A (fixed) Contract. For a Contract with
no riders or extra risk charges, these premiums will be level. If certain
riders are included, the guideline premium may increase each year. Payment
of guideline premiums at the beginning of each Contract year is one way to
achieve the Lifetime Death Benefit Guarantee Values shown on the Contract
data pages. See DEATH BENEFIT GUARANTEE, below. When you purchase a
Contract, your Pruco Life representative can tell you the amount[s] of the
guideline premium.
TARGET PREMIUMS -- the premiums that, if paid at the beginning of each
Contract year, will keep the Contract in force during the Limited Death
Benefit Guarantee period regardless of investment performance, assuming no
loans or withdrawals. As is the case with the guideline premium, for a
Contract with no riders or extra risk charges, these premiums will be
level. If certain riders are included, the target premium may increase each
year. Payment of target premiums at the beginning of each Contract year is
one way to achieve the Limited Death Benefit Guarantee Values shown on the
Contract data pages. At the end of the Limited Death Benefit Guarantee
period, continuation of the Contract will depend on the Contract Fund
having sufficient money to cover all charges or meeting the conditions of
the Lifetime Death Benefit Guarantee. See DEATH BENEFIT GUARANTEE, below.
When you purchase a Contract, your Pruco Life representative can tell you
the amount[s] of the target premium.
TARGET LEVEL PREMIUM -- the target premium at issue minus any premiums
associated with riders or with aviation, avocation, occupational or
temporary extra insurance charges. We use the target level premium in
calculating the sales load portion of surrender charges. See CHARGES AND
EXPENSES, page 12.
We can bill you for the amount you select annually, semi-annually, quarterly or
monthly. Because the Contract is a flexible premium contract, there are no
scheduled premium due dates. When you receive a premium notice, you are not
required to pay this amount. The Contract will remain in force if either the
Contract Fund less any applicable surrender charges is greater than zero and
more than any Contract debt or if you have paid sufficient premiums on an
accumulated basis to meet the conditions of the Death Benefit Guarantee and
Contract debt is not equal to or greater than the Contract Fund less any
applicable surrender charges. You may also pay premiums automatically through
pre-authorized transfers from a bank checking account. If you elect to use this
feature, you choose the frequency (monthly, quarterly, semi-annually or
annually) and the amount of premiums paid.
When you apply for the Contract, you should discuss with your Pruco Life
representative how frequently you would like to be billed (if at all) and for
what amount.
DEATH BENEFIT GUARANTEE
Although you decide what premium amounts you wish to pay, payment of sufficient
premium, on an accumulated basis, will guarantee that your policy will not lapse
and a death benefit will be paid upon the death of the insured. This will be
true even if, because of unfavorable investment experience, your Contract Fund
value drops to zero. However, the guarantee is contingent upon Contract debt not
being equal to or greater than the Contract Fund less any applicable surrender
charges. See CONTRACT LOANS, page 22. You should consider the importance of the
Death Benefit Guarantee to you when deciding on what amounts of premiums to pay
into the Contract.
For purposes of determining this guarantee, we generally calculate, and show in
the Contract data pages, two sets of amounts -- the Lifetime Death Benefit
Guarantee Values and Limited Death Benefit Guarantee Values. These are not cash
values that you can realize by surrendering the Contract, nor are they death
benefits payable. They are values used solely to determine if a Death Benefit
Guarantee is in effect. The Lifetime Death Benefit Guarantee
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Values are shown for the lifetime of the Contract. The Limited Death Benefit
Guarantee Values are lower, but only apply for the length of the Limited Death
Benefit Guarantee period.
The length of the Limited Death Benefit Guarantee period is determined on a case
by case basis depending on things like the insured's age, sex (except where
unisex rates apply), smoker/non-smoker status, death benefit type and extra
rating class, if any. The length of the Limited Death Benefit Guarantee period
applicable to your particular Contract is shown on the Contract data pages. For
certain insureds, generally those who are older and/or in a substandard risk
classification, the Limited Death Benefit Guarantee period may be of short
duration or unavailable.
At the Contract date, and on each Monthly date, we calculate your Contract's
"Accumulated Net Payments" as of that date. Accumulated Net Payments equal the
premiums you paid, accumulated at an effective annual rate of 4%, less
withdrawals also accumulated at 4%.
At each Monthly date within the Limited Death Benefit Guarantee period, we will
compare your Accumulated Net Payments to the Limited Death Benefit Guarantee
Value as of that date. At each Monthly date after the Limited Death Benefit
Guarantee period, we will compare your Accumulated Net Payments to the Lifetime
Death Benefit Guarantee Value as of that date. If your Accumulated Net Payments
equal or exceed the applicable (Lifetime or Limited) Death Benefit Guarantee
Value and Contract debt does not equal or exceed the Contract Fund less any
applicable surrender charges, then the Contract is kept in force, regardless of
the amount in the Contract Fund.
The Contract data pages show Lifetime Death Benefit Guarantee Values and Limited
Death Benefit Guarantee Values as of Contract anniversaries. Values for
non-anniversary Monthly dates will reflect the number of months elapsed between
Contract anniversaries.
Guideline and target premiums are premium levels that, if paid at the start of
each Contract year, correspond to the Lifetime and Limited Death Benefit
Guarantee Values, respectively (assuming no withdrawals or loans). See PREMIUMS,
page 8. They are one way of reaching the Death Benefit Guarantee Values; they
are certainly not the only way.
Here is a table of typical guideline and target premiums along with
corresponding Limited Death Benefit Guarantee periods. The examples assume the
insured is a male, non-smoker, with no extra risk or substandard ratings, and no
extra benefit riders added to the Contract.
<TABLE>
- -----------------------------------------------------------------------------------------------------
BASIC INSURANCE AMOUNT -- $250,000
ILLUSTRATIVE ANNUAL PREMIUMS
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Target Premium
Type of Guideline Premium corresponding to the
Age of Death corresponding to Limited Death Benefit
insured Benefit the Lifetime Death Guarantee Values and
at issue Chosen Benefit Guarantee number of years of
Values guarantee
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
35 Type A (fixed) $ 3,532.50 $2,007.50 for 35 years
35 Type B (variable) $ 12,037.50 $2,007.50 for 33 years
45 Type A (fixed) $ 5,462.50 $2,977.50 for 25 years
45 Type B (variable) $ 17,147.50 $2,977.50 for 23 years
55 Type A (fixed) $ 8,897.50 $5,770.00 for 20 years
55 Type B (variable) $ 25,607.50 $5,770.00 for 18 years
- -----------------------------------------------------------------------------------------------------
</TABLE>
The Death Benefit Guarantee allows considerable flexibility as to the timing of
premium payments. Your Pruco Life representative can supply sample illustrations
of various premium amount and frequency combinations that correspond to the
Death Benefit Guarantee Values.
You should consider carefully the value of maintaining the guarantee. It may be
preferable for you to pay generally higher premiums in all years, rather than
trying to make such payments on an as needed basis if the death benefit
guarantee is desired for lifetime protection. For example, if you pay only
enough premium to meet
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the Limited Death Benefit Guarantee Values, a substantial amount may be required
to meet the Lifetime Death Benefit Guarantee Values in order to continue the
guarantee at the end of the Limited Death Benefit Guarantee period. In addition,
it is possible that the payment required to continue the guarantee after the
Limited Death Benefit Guarantee period could cause the Contract to become a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 23.
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 the medical examination. If the first premium is not paid with the
application, the Contract date will be the date on which the first premium is
paid and the Contract is delivered. Under certain circumstances, we may allow
the Contract to be backdated for the purpose of lowering the insured's issue
age, but only to a date not earlier than six months prior to the date of the
application. This may be advantageous for some Contract owners as a lower issue
age may result in lower current charges. For a Contract that is backdated, we
will credit the initial premium as of the date of receipt and will deduct any
charges due on or before that date.
ALLOCATION OF PREMIUMS
On the Contract date, the charge for sales expenses and the charge for taxes
attributable to premiums are deducted from the initial premium. The remainder of
the initial premium will be allocated on the Contract date among the subaccounts
and/or the fixed-rate option according to your desired allocation as specified
in the application form and the first monthly deductions are made. 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.
See CHARGES AND EXPENSES, page 12.
The charge for sales expenses and the charge for taxes attributable to premiums
also apply to all subsequent premium payments. The remainder will be placed when
received by Pruco Life in the subaccount[s] or the fixed-rate option, in
accordance with the allocation you previously designated. Provided the Contract
is not in default, you may change the way in which subsequent premiums are
allocated by giving written notice to a Pruco Life Home Office or by telephoning
that Home Office, unless you ask that transfers by telephone not be made. There
is no charge for reallocating future premiums. All percentage allocations must
be in whole numbers. For example, 33% can be selected but 33 1/3% cannot. Of
course, the total allocation to all selected investment options must equal 100%.
TRANSFERS
You may, up to twelve times each Contract year, transfer amounts from one
subaccount to another subaccount or to the fixed-rate option without charge.
There is an administrative charge of up to $25 for each transfer made exceeding
twelve in any Contract year. All or a portion of the amount credited to a
subaccount may be transferred.
Transfers 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 request may
be in terms of dollars, such as a request to transfer $5,000 from one subaccount
to another, or may be in terms of a percentage reallocation among subaccounts.
In the latter case, as with premium reallocations, the percentages must be in
whole numbers. You may transfer amounts by proper written notice to a Pruco Life
Home Office, or by telephone, provided you are enrolled to use the Telephone
Transfer System.
You will automatically be enrolled to use the Telephone Transfer System unless
you elect not to have this privilege. We will use reasonable procedures, such as
asking you to provide certain personal information provided on your application
for insurance, to confirm that instructions given by telephone are genuine. We
will not be held liable for following telephone instructions that we reasonably
believe to be genuine. Pruco Life cannot guarantee that you will be able to get
through to complete a telephone transfer during peak periods such as periods of
drastic economic or market change.
Only one transfer from the fixed-rate option will be permitted during each
Contract year and the maximum amount which may be transferred out of the
fixed-rate option each year is the greater of (a) 25% of the amount in the
fixed-rate option; and (b) $2,000. These limits are subject to change in the
future. We may waive these restrictions for limited periods of time in a
non-discriminatory way, (e.g., when interest rates are declining).
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DOLLAR COST AVERAGING
As an administrative practice, we are currently offering a feature called Dollar
Cost Averaging ("DCA"). Under this feature, either fixed dollar amounts or a
percentage of the amount designated for use under the DCA option will be
transferred periodically from the Money Market Subaccount into other subaccounts
available under the Contract, excluding the fixed-rate option. You may choose to
have periodic transfers made monthly, quarterly, semi-annually or annually.
Each automatic transfer will take effect as of the end of the valuation period
on the date coinciding with the periodic timing you designate provided the New
York Stock Exchange is open on that date. If the New York Stock Exchange is not
open on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. Automatic transfers will continue until: (1) $50
or less remains of the amount designated for Dollar Cost Averaging, at which
time the remaining amount will be transferred; or (2) you give us notification
of a change in DCA allocation or cancellation of the feature. Currently, a
transfer that occurs under the DCA feature is not counted towards the twelve
free transfers permitted each Contract year. We reserve the right to change this
practice, modify the requirements or discontinue the feature.
AUTO-REBALANCING
As an administrative practice, we are currently offering a feature called
Auto-Rebalancing. This feature allows you to automatically rebalance subaccount
assets at specified intervals based on percentage allocations that you choose.
For example, suppose your initial investment allocation of variable investment
options X and Y is split 40% and 60%, respectively. Then, due to investment
results, that split changes. You may instruct that those assets be rebalanced to
your original or different allocation percentages.
Auto-Rebalancing can be performed on a monthly, quarterly, semi-annual or annual
basis. Each rebalance will take effect as of the end of the valuation period on
the date coinciding with the periodic timing you designate provided the New York
Stock Exchange is open on that date. If the New York Stock Exchange is not open
on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. The fixed-rate option cannot participate in this
administrative procedure. Currently, a transfer that occurs under the
Auto-Rebalancing feature is not counted towards the twelve free transfers
permitted each Contract year. We reserve the right to change this practice,
modify the requirements or discontinue the feature.
CHARGES AND EXPENSES
This section provides a detailed description of each charge that is described
briefly in the chart on page 3, and an explanation of the purpose of the charge.
In several instances we will use 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 to no
more than the maximum charge, without giving any advance notice.
DEDUCTIONS FROM PREMIUM PAYMENTS
(a) A charge of up to 7.5% is deducted from each premium for taxes attributable
to premiums. For these purposes, "taxes attributable to premiums" shall
include any federal, state or local income, premium, excise, business or
any other type of tax (or component thereof) measured by or based upon the
amount of premium received by Pruco Life. That charge is made up of two
parts which currently equal a total of 3.75% of the premiums received. The
first part is a charge for state and local premium taxes. The current
amount for this first part is 2.5% of the 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 state and
local premium taxes. The second part is for federal income taxes measured
by premiums and it is currently equal to 1.25% of the premium. Pruco Life
believes that this charge is a reasonable estimate of an increase in its
federal income taxes resulting from a 1990 change in the Internal Revenue
Code. It is intended to recover this increased tax.
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(b) A charge of up to 4% is deducted from each premium payment for sales
expenses. This charge, often called a sales load, is deducted to
compensate us for things like the costs Pruco Life incurs in selling the
Contracts, including commissions, advertising and the printing and
distribution of prospectuses and sales literature.
Currently, the charge is equal to 4% of premiums paid in each Contract
year up to the amount of the target premium (see PREMIUMS, page 8) and 0%
of premiums paid in excess of this amount. Consequently, paying more than
this amount in any Contract year could reduce your total sales load. For
example, assume that a Contract with no riders or extra insurance charges
has a target premium of $2,007.50 and the Contract owner would like to pay
10 target premiums. If the Contract owner paid $4,015 (two times the
amount of the target premium in every other policy year up to the ninth
year (i.e. in years 1, 3, 5, 7, 9), the sales load charge would be
$401.50. If the Contract owner paid $2,007.50 in each of the first 10
policy years, the total sales load would be $803.
Attempting to structure the timing and amount of premium payments to
reduce the potential sales load may increase the risk that your Contract
will lapse without value. Delaying the payment of target premium amounts
to later years will adversely affect the Death Benefit Guarantee if the
accumulated premium payments do not reach the accumulated values shown
under your Contract's Limited Death Benefit Guarantee Values. See DEATH
BENEFIT GUARANTEE, page 9. In addition, there are circumstances where
payment of premiums that are too large may cause the Contract to be
characterized as a Modified Endowment Contract, which could be
significantly disadvantageous. See TAX TREATMENT OF CONTRACT BENEFITS,
page 23.
DEDUCTIONS FROM PORTFOLIOS
An investment advisory fee is deducted daily from each portfolio of the Series
Fund at a rate, on an annualized basis, from 0.35% for the Stock Index Portfolio
to 0.75% for the Global Portfolio. The expenses incurred in conducting the
investment operations of the portfolios (such as custodian fees and preparation
and distribution of annual reports) are paid out of the portfolio's income.
These expenses also vary from portfolio to portfolio.
The total expenses of each portfolio for the year 1995 expressed as a percentage
of the average assets during the year are shown below:
- --------------------------------------------------------------------------------
Investment Other Total
Portfolio Advisory Expenses Expenses
Fee
- --------------------------------------------------------------------------------
MONEY MARKET 0.40% 0.04% 0.44%
DIVERSIFIED BOND 0.40% 0.04% 0.44%
CONSERVATIVE BALANCED 0.55% 0.03% 0.58%
FLEXIBLE MANAGED 0.60% 0.03% 0.63%
HIGH YIELD BOND 0.55% 0.06% 0.61%
STOCK INDEX 0.35% 0.03% 0.38%
EQUITY INCOME 0.40% 0.03% 0.43%
EQUITY 0.45% 0.03% 0.48%
PRUDENTIAL JENNISON 0.60% 0.19% 0.79%
GLOBAL 0.75% 0.31% 1.06%
- --------------------------------------------------------------------------------
DAILY DEDUCTION FROM THE CONTRACT FUND
Each day a charge is deducted from the assets of each of the subaccounts (the
"variable investment options") in an amount equivalent to an effective annual
rate of up to 0.9%. Currently, we intend to charge 0.6%. This charge is intended
to compensate Pruco Life for assuming mortality and expense risks under the
Contract. The mortality risk assumed is that insureds may live for shorter
periods of time than Pruco Life estimated when it determined what mortality
charge to make. The expense risk assumed is that expenses incurred in issuing
and administering the Contract will be greater than Pruco Life estimated in
fixing its administrative charges. This charge is not assessed against amounts
allocated to the fixed-rate option.
13
<PAGE>
MONTHLY DEDUCTIONS FROM CONTRACT FUND
The following monthly charges are deducted proportionately from the dollar
amounts held in each of the chosen investment option[s].
a) An administrative charge based on the basic insurance amount is deducted.
The charge is intended to compensate us for things like processing claims,
keeping records and communicating with Contract owners. Currently, the
charge is equal to $10 per Contract plus $0.07 per $1,000 of basic
insurance amount in the first Contract year and $5 per Contract plus $0.01
per $1,000 of basic insurance amount in all subsequent years. Pruco Life
reserves the right, however to charge up to $10 per Contract plus $0.07
per $1,000 of basic insurance amount in the first Contract year and $10
per Contract plus $0.01 per $1,000 of basic insurance amount in all
subsequent years.
For example, a Contract with a basic insurance amount of $250,000 would
currently have a charge equal to $10 plus $17.50 for a total of $27.50 per
month for the first Contract year and $5 plus $2.50 for a total of $7.50
per month in all later years. The maximum charge for this same Contract
would be $10 plus $17.50 for a total of $27.50 per month during the first
Contract year. In later years, the maximum charge would be $10 plus $2.50
for a total of $12.50 per month.
b) A cost of insurance ("COI") charge is deducted. When an insured dies, the
amount payable to the beneficiary (assuming there is no Contract debt) is
larger than the Contract Fund--significantly larger if the insured dies in
the early years of a Contract. The cost of insurance charges collected from
all Contract owners enables Pruco Life to pay this larger death benefit.
The maximum COI charge is determined by multiplying the "net amount at
risk" under a Contract (the amount by which the Contract's death benefit
exceeds the Contract Fund) by maximum COI rates. The maximum COI rates are
based upon the 1980 Commissioners Standard Ordinary ("CSO") Tables and an
insured's current attained age, sex (except where unisex rates apply),
smoker/non-smoker status, and extra rating class, if any. At most ages,
Pruco Life's current COI rates are lower than the maximum rates.
c) A charge of $0.01 per $1,000 of basic insurance amount is made to
compensate Pruco Life for the risk we assume by providing the Death Benefit
Guarantee feature. See DEATH BENEFIT GUARANTEE, page 9.
d) You may add one or more of several riders to the Contract. Some riders are
charged for separately. If you add such a rider to the basic Contract,
additional charges will be deducted.
e) If an insured is in a substandard risk classification (for example, a
person in a hazardous occupation), additional charges will be deducted.
SURRENDER CHARGES
(a) An additional sales load is charged if during the first 10 Contract years
the Contract lapses or is surrendered or if the basic insurance amount is
decreased. It is not deducted from the death benefit if the insured should
die during this period. Upon lapse or surrender, for issue ages 76 or less,
this contingent deferred charge will be 26% of the lesser of the target
level premium for the Contract and the actual premiums paid. The rate used
in the calculation of this contingent deferred charge will be 22% for issue
ages 77-79, 16% for issue ages 80-83 and 13% for issue ages 84-85. The rate
used in the calculation of this contingent deferred charge will remain
level for six years. After six years, this charge will reduce monthly at a
constant rate until it reaches zero at the end of the 10th year. If during
the first 10 Contract years the basic insurance amount is decreased
[including as a result of a withdrawal or a change in the type of death
benefit from Type A (fixed) to Type B (variable)], we will deduct a
proportionate amount of the charge from the Contract Fund. The proportion
we use will be the amount by which the new basic insurance amount is less
than the basic insurance amount at issue (but not greater than the amount
of the decrease) divided by the basic insurance amount at issue.
(b) If during the first 10 Contract years the Contract lapses or is surrendered
or if the basic insurance amount is decreased, an administrative charge is
deducted to cover the cost of processing applications, conducting medical
examinations, determining insurability and the insured's rating class, and
establishing records. The charge is equal to the lesser of: (a) $5 per
$1,000 of basic insurance amount; and (b) $500. This charge
14
<PAGE>
is level for six years. After six years, this charge will reduce monthly
at a constant rate until it reaches zero at the end of the 10th year. If
the basic insurance amount is decreased [including as a result of a
withdrawal or a change in the type of death benefit from Type A (fixed) to
Type B (variable)] during the first 10 Contract years, we will deduct a
proportionate amount of the charge from the Contract Fund. The proportion
we use will be the amount by which the new basic insurance amount is less
than the basic insurance amount at issue (but not greater than the amount
of the decrease) divided by the basic insurance amount at issue.
TRANSACTION CHARGES
(a) An administrative processing charge of $10 is made in connection with each
withdrawal. We reserve the right to increase this charge up to $25 for each
withdrawal.
(b) No administrative processing charge is currently being made in connection
with a change in basic insurance amount. We reserve the right to make such
a charge in an amount of up to $25 for any change in basic insurance
amount.
(c) An administrative processing charge of up to $25 is made for each transfer
exceeding 12 in any Contract year.
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY
You may surrender the Contract for its cash surrender value (referred to as net
cash value in the Contract). The Contract's cash surrender value on any date
will be the Contract Fund less any applicable surrender charges and less any
Contract debt. See CONTRACT LOANS, page 22. The Contract Fund value changes
daily, reflecting increases or decreases in the value of the Series Fund
portfolios in which the assets of the subaccount[s] have been invested, interest
credited on any amounts allocated to the fixed-rate option, interest credited on
any loan, and by the daily asset charge for mortality and expense risks assessed
against the variable investment options. The Contract Fund value also changes to
reflect the receipt of premium payments and the monthly deductions described
under CHARGES AND EXPENSES. Upon request, Pruco Life will tell you the cash
surrender value of your Contract. It is possible for the cash surrender value of
a Contract to decline to zero because of unfavorable investment performance or
outstanding Contract debt.
The tables on pages T1 through T4 of this prospectus illustrate approximately
what the cash surrender values would be for representative Contracts paying
target premium amounts (see PREMIUMS, page 8), assuming hypothetical uniform
investment results in the Series Fund portfolios. Two of the tables assume
current charges will be made throughout the lifetime of the Contract and two
tables assume maximum charges will be made. See ILLUSTRATIONS OF CASH SURRENDER
VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS, page 20.
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY
As noted above, there are two types of death benefit available under the
Contract: Type A, a generally fixed death benefit and Type B, a variable death
benefit. A Type B (variable) death benefit varies with investment performance
while a Type A (fixed) death benefit does not, unless it must be increased to
comply with the Internal Revenue Code's definition of life insurance.
Under a Type A (fixed) Contract, the death benefit is generally equal to the
basic insurance amount. See CONTRACT LOANS, page 22. If the Contract is kept in
force for several years, depending on how much premium you pay, and/or if
investment performance is reasonably favorable, the Contract Fund may grow to
the point where Pruco Life will increase the death benefit in order to ensure
that the Contract will satisfy the Internal Revenue Code's definition of life
insurance. Thus, the death benefit under a Type A (fixed) Contract will always
be the greater of: (1) the basic insurance amount; and (2) the Contract Fund
before the deduction of any monthly charges due on that date, multiplied by the
attained age factor that applies. A listing of attained age factors can be found
on the data pages of your Contract. The latter provision ensures that the
Contract will always have a death benefit large enough so that the Contract will
be treated as life insurance for tax purposes under current law.
15
<PAGE>
The following table illustrates at different ages how the attained age factor
affects the death benefit for different Contract Fund amounts. The table assumes
a $250,000 Type A (fixed) Contract was issued when the insured was age 35.
<TABLE>
- -------------------------------------------------------------------------------------------------------------
TYPE A (FIXED) DEATH BENEFIT
<CAPTION>
IF THEN
- -------------------------------------------------------------------------------------------------------------
the the Contract
the and the attained Fund and the
insured Contract age multiplied by Death
is age Fund is factor the attained Benefit is
is age factor is
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
40 $ 25,000 3.64 91,000 $250,000
40 $ 75,000 3.64 273,000 $273,000*
40 $100,000 3.64 364,000 $364,000*
- -------------------------------------------------------------------------------------------------------------
60 $ 75,000 1.96 147,000 $250,000
60 $125,000 1.96 245,000 $250,000
60 $150,000 1.96 294,000 $294,000*
- -------------------------------------------------------------------------------------------------------------
80 $150,000 1.28 192,000 $250,000
80 $200,000 1.28 256,000 $256,000*
80 $225,000 1.28 288,000 $288,000*
- -------------------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
This means, for example, that if the insured has reached the age of 60, and the
Contract Fund is $150,000, the death benefit will be $294,000, even though the
original basic insurance amount was $250,000. In this situation, for every $1
increase in the Contract Fund, the death benefit will be increased by $1.96. We
reserve the right to refuse to accept any premium payment that increases the
death benefit by more than it increases the Contract Fund. If we exercise this
right, it may in certain situations result in the loss of the death benefit
guarantee.
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY
Under a Type B (variable) Contract, while the Contract is in force, the death
benefit will never be less than the basic insurance amount, but will also vary,
immediately after it is issued, with the investment results of the selected
investment options. The death benefit may be further increased to ensure that
the Contract will satisfy the Internal Revenue Code's definition of life
insurance. Thus, the death benefit will always be the greater of: (1) the basic
insurance amount plus the Contract Fund; and (2) the Contract Fund before the
deduction of any monthly charges due on that date, multiplied by the attained
age factor that applies. For purposes of computing the death benefit, if the
Contract Fund is less than zero we will consider it to be zero. A listing of
attained age factors can be found on the data pages of your Contract. The latter
provision ensures that the Contract will always have a death benefit large
enough so that the Contract will be treated as life insurance for tax purposes
under current law.
16
<PAGE>
The following table illustrates various attained age factors and Contract Funds
and the corresponding death benefits. The table assumes a $250,000 Type B
(variable) Contract was issued when the insured was age 35.
<TABLE>
- -------------------------------------------------------------------------------------------------------------
TYPE B (VARIABLE) DEATH BENEFIT
<CAPTION>
IF THEN
- -------------------------------------------------------------------------------------------------------------
the the Contract
the and the attained Fund and the
insured Contract age multiplied by Death
is age Fund is factor the attained Benefit is
is age factor is
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
40 $ 25,000 3.64 91,000 $275,000
40 $ 75,000 3.64 273,000 $325,000
40 $100,000 3.64 364,000 $364,000*
- -------------------------------------------------------------------------------------------------------------
60 $ 75,000 1.96 147,000 $325,000
60 $125,000 1.96 245,000 $375,000
60 $150,000 1.96 294,000 $400,000
- -------------------------------------------------------------------------------------------------------------
80 $150,000 1.28 192,000 $400,000
80 $200,000 1.28 256,000 $450,000
80 $225,000 1.28 288,000 $475,000
- -------------------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
This means, for example, that if the insured has reached the age of 40, and the
Contract Fund is $100,000, the death benefit will be $364,000, even though the
original basic insurance amount was $250,000. In this situation, for every $1
increase in the Contract Fund, the death benefit will be increased by $3.64. We
reserve the right to refuse to accept any premium payment that increases the
death benefit by more than it increases the Contract Fund. If we exercise this
right, it may in certain situations result in the loss of the death benefit
guarantee.
SURRENDER OF A CONTRACT
A Contract may be surrendered for its cash surrender value while the insured is
living. To surrender a Contract, we may require you to deliver or mail the
Contract with a written request to a Pruco Life Home Office. The cash surrender
value of a surrendered Contract will be determined as of the end of the
valuation period in which such a request is received in the Home Office.
Surrender of a Contract may have tax consequences. See TAX TREATMENT OF CONTRACT
BENEFITS, page 23.
WITHDRAWALS
Under certain circumstances, you may withdraw a portion of the Contract's cash
surrender value without surrendering the Contract. The amount that you may
withdraw is limited by the requirement that the cash surrender value after the
withdrawal may not be zero or less than zero after deducting any charges
associated with the withdrawal. The amount withdrawn must be at least $500.
There is an administrative processing fee of $10 for each withdrawal. Pruco
Life, however, reserves the right to charge up to $25. An amount withdrawn may
not be repaid except as a premium subject to the applicable charges. Upon
request, we will tell you how much you may withdraw. Withdrawal of the cash
surrender value may have tax consequences. See TAX TREATMENT OF CONTRACT
BENEFITS, page 23.
Whenever a withdrawal is made, the death benefit will immediately be reduced by
at least the amount of the withdrawal. For a Type B (variable) Contract, this
will not change the basic insurance amount. However, under a Type A (fixed)
Contract, the resulting reduction in death benefit usually requires a reduction
in the basic insurance amount. If the basic insurance amount is decreased to an
amount less than the basic insurance amount at issue, a surrender charge may be
deducted. See CHARGES AND EXPENSES, page 12. No withdrawal will be permitted
under a Type A (fixed) Contract if it would result in a basic insurance amount
of less than the
17
<PAGE>
minimum basic insurance amount. It is important to note, however, that if the
basic insurance amount is decreased at any time during the life of the Contract,
there is a possibility that the Contract might be classified as a Modified
Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 23. Before
making any withdrawal which causes a decrease in basic insurance amount, you
should consult with your tax advisor and your Pruco Life representative.
When a withdrawal is made, the Contract Fund is reduced by the sum of the cash
withdrawn and the fee for the withdrawal. An amount equal to the reduction in
the Contract Fund will be withdrawn proportionally from the investment options
unless you direct otherwise.
Withdrawal 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 go
into default. Withdrawals may also affect whether a Contract is kept in force
under the Death Benefit Guarantee, since withdrawals decrease the accumulated
net payments. See DEATH BENEFIT GUARANTEE, page 9.
INCREASES IN BASIC INSURANCE AMOUNT
Subject to state approval and subject to the underwriting requirements
determined by Pruco Life, on or after the first Contract anniversary, you may
increase the amount of insurance by increasing the basic insurance amount of the
Contract. The following conditions must be met: (1) you must ask for the change
in a form that meets our needs; (2) the amount of the increase must be at least
equal to the minimum increase in basic insurance amount shown under CONTRACT
LIMITATIONS in the data pages of the Contract; (3) you must prove to us that the
insured is insurable for any increase; (4) the Contract must not be in default;
(5) we must not be paying premiums into the Contract as a result of the
insured's total disability; and (6) if we ask you to do so, you must send us the
Contract to be endorsed.
If we approve the change, we will send you new Contract data pages showing the
amount and effective date of the change and the recomputed charges, values and
limitations. If the insured is not living on the effective date, the change will
not take effect. No administrative processing charge is currently being made in
connection with an increase in basic insurance amount, but we reserve the right
to make such a charge in an amount of up to $25.
Each Contract owner who elects to increase the basic insurance amount of his or
her Contract will receive a "free-look" right which will apply only to the
increase in basic insurance amount, not the entire Contract. This right is
comparable to the right afforded to a purchaser of a new Contract. See
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK". 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.
An increase in basic insurance amount may impact the status of the Contract as a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 23.
Therefore, before increasing the basic insurance amount, you should consult with
your tax advisor and your Pruco Life representative.
DECREASES IN BASIC INSURANCE AMOUNT
As explained earlier, you may make a withdrawal (see WITHDRAWALS, page 17). On
or after the first Contract anniversary, you also have the option of decreasing
the basic insurance amount of your 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, and the monthly deductions for
the cost of insurance. An administrative processing fee of up to $25 may be
deducted. The basic insurance amount after the decrease must be at least equal
to the minimum basic insurance amount shown under CONTRACT LIMITATIONS in the
data pages of your Contract. If the basic insurance amount is decreased to an
amount less than the basic insurance amount at issue, a surrender charge may be
deducted. No administrative processing charge is currently being made in
connection with a decrease in basic insurance amount, but we reserve the right
to make such a charge in an amount of up to $25. See CHARGES AND EXPENSES, page
12. If we ask you to, you must send us your Contract to be endorsed. The
Contract will be amended to show the new basic insurance amount, charges, values
in the appropriate tables and the effective date of the decrease.
18
<PAGE>
We may decline a reduction if we determine it would cause the Contract to fail
to qualify as "life insurance" for purposes of Section 7702 of the Internal
Revenue Code. A decrease will not take effect if the insured is not living on
the effective date.
It is important to note, however, that if the basic insurance amount is
decreased, there is a possibility that the Contract might be classified as a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 23.
Before requesting any decrease in basic insurance amount, you should consult
with your tax advisor and your Pruco Life representative.
WHEN PROCEEDS ARE PAID
Pruco Life will generally pay any death benefit, cash surrender value, loan
proceeds or 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, 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 six 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
You may elect to add the LIVING NEEDS BENEFIT(SM) to your Contract at issue,
subject to Pruco Life's receipt of satisfactory evidence of insurability. The
benefit may vary by state. There is no charge for adding the benefit to the
Contract. However, an administrative charge (not to exceed $150) will be made at
the time the LIVING NEEDS BENEFIT is paid.
The LIVING NEEDS BENEFIT allows you to elect to receive an accelerated payment
of all or part of the Contract's death benefit, adjusted to reflect current
value, at a time when certain special needs exist. The adjusted death benefit
will always be less than the death benefit, but will generally be greater than
the Contract's cash surrender value. 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 six months or less. When satisfactory
evidence is provided, Pruco Life will provide an accelerated payment of the
portion of the death benefit selected by you as a LIVING NEEDS BENEFIT. You may
(1) elect to receive the benefit in a single sum or (2) receive equal monthly
payments for six months. If the insured dies before all 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 six months or more. When satisfactory
evidence is provided, including certification by a licensed physician, that the
insured is expected to remain in the nursing home until death, Pruco Life will
provide an accelerated payment of the portion of the death benefit selected by
the Contract owner as a LIVING NEEDS BENEFIT. You 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.
Subject to state approval, all or part of the Contract's death benefit may be
accelerated under the LIVING NEEDS BENEFIT. If the benefit is only partially
accelerated, a death benefit of at least $25,000 must remain under the Contract.
Pruco Life reserves the right to determine the minimum amount that may be
accelerated.
No benefit will be payable if you are 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
19
<PAGE>
to an eligible Contract owner under a particular Contract, and the effect on the
Contract if less than the entire death benefit is accelerated.
You should consider whether adding this settlement option is appropriate in your
given situation. Adding the LIVING NEEDS BENEFIT to the Contract has no adverse
consequences; however, electing to use it could. The recently enacted Health
Insurance Portability and Accountability Act of 1996 excludes from income,
effective January 1, 1997, the LIVING NEEDS BENEFIT if the insured is (1)
terminally ill or (2) chronically ill (although the exclusion in the latter case
may be limited). You should consult a qualified tax advisor before electing to
receive this benefit. Receipt of a LIVING NEEDS BENEFIT payment may also affect
your eligibility for certain government benefits or entitlements.
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED
PREMIUMS
The four tables that follow show how the death benefit and cash surrender values
change with the investment experience of the Account. They are "hypothetical"
because they are based, in part, upon several assumptions, each of which is
described below. All four tables assume that a Contract with a basic insurance
amount of $250,000 has been bought by a 35 year old male, non-smoker, with no
extra risks or substandard ratings, and no extra benefit riders added to the
Contract. It is assumed that the target premium amount (see PREMIUMS, page 8) is
paid on each Contract anniversary and that no loans are taken. The first table
(page T1) assumes that a Type A (fixed) Contract has been purchased and the
second table (page T2) assumes that a Type B (variable) Contract has been
purchased. Both assume that the current charges will continue for the indefinite
future. The third and fourth tables (pages T3 and T4) are based upon the same
assumptions except that it is assumed that the maximum contractual charges have
been made from the beginning. See CHARGES AND EXPENSES, page 12.
Another assumption is that the Contract Fund has been invested in equal amounts
in each of the 10 available portfolios of the Series Fund and no portion of the
Contract Fund has been allocated to the fixed-rate option. Finally, there are
four assumptions, shown separately, about the average investment performance of
the portfolios. The first is that there will be a uniform 0% gross rate of
return, that is, that the average value of the Contract Fund will uniformly be
adversely affected by very unfavorable investment performance. The other three
assumptions are that investment performance will be at a uniform gross annual
rate of 4%, 8% and 12%. These, of course, are unrealistic assumptions since
actual returns will fluctuate from year to year. Nevertheless, these assumptions
help show how the Contract values will change with investment experience.
The first column in the following tables shows the Contract year. The second
column, to provide context, shows what the aggregate amount would be if the
premiums had been invested in a savings account paying 4% compounded interest.
Of course, if that were done, there would be no life insurance protection. The
next four columns show the death benefit payable in each of the years shown for
the four different assumed investment returns. Note that a gross return (as well
as the net return) is shown at the top of each column. The gross return
represents the combined effect of income and capital appreciation of the
portfolios before any reduction is made for investment advisory fees or other
Series Fund expenses. The net return reflects average total annual expenses of
the 10 portfolios of 0.58%, and the daily deduction from the Contract Fund of
0.6% per year for the tables based on current charges and 0.9% per year for the
tables based on maximum charges. Thus, assuming current charges, gross returns
of 0%, 4%, 8% and 12% are the equivalent of net returns of -1.18%, 2.82%, 6.82%
and 10.82% respectively. Assuming maximum charges, gross returns of 0%, 4%, 8%
and 12% are the equivalent of net returns of -1.48%, 2.52%, 6.52% and 10.52%
respectively. The death benefits and cash surrender values shown reflect the
deduction of all expenses and charges both from the Series Fund and under the
Contract.
Note that under the Type B (variable) Contract the death benefit changes to
reflect investment returns, while under the Type A (fixed) Contract the death
benefit increases only if the Contract Fund becomes sufficiently large that an
increase in the death benefit is necessary in order to ensure that the Contract
will satisfy the Internal Revenue Code's definition of life insurance. See TYPE
OF DEATH BENEFIT, page 7.
Following these illustrations are two pages (pages T5 and T6) showing internal
rates of return (commonly referred to as IRRs) associated with the cash values
and death benefits shown on the preceding four pages. IRRs are often employed by
insurance companies to provide some indication of the rate of return that may be
thought of as earned upon your "investment" in the Contract (the aggregate
premiums paid) if the Contract were surrendered or if the insured was to die.
The IRR on the death benefit is equivalent to an interest rate (without
considering taxes) at which an amount equal to the premiums illustrated on the
preceding pages could have been
20
<PAGE>
invested to arrive at the death benefit of the Contract. The IRR on the cash
surrender value is equivalent to an interest rate (without considering taxes) at
which an amount equal to the illustrated premiums could have been invested to
arrive at the cash surrender value of the Contract. The IRRs on page T5 are
based on the Contract values shown on pages T1 and T2. The IRRs on page T6 are
based on the Contract values shown on pages T3 and T4.
If you are considering the purchase of a variable life insurance contract from
another insurance company, you should not rely upon these tables for comparison
purposes. A comparison between two tables, each showing values for a 35 year old
man, may be useful for a 35 year old man but would be inaccurate if made for
insureds of other ages or sex. Your Pruco Life representative can provide you
with a hypothetical illustration for your own age, sex, and rating class. You
can obtain an illustration using premium amounts and payment patterns that you
wish to follow. You may use assumed gross returns different than those shown in
the tables, although currently they may not be higher than 12%.
21
<PAGE>
<TABLE>
VARIABLE UNIVERSAL LIFE
TYPE A (FIXED) DEATH BENEFIT
MALE NON-SMOKER AGE 35
$250,000 BASIC INSURANCE AMOUNT
$2,007.50 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
---------------------------------------------------- ----------------------------------------------------
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 (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net) (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,088 $250,000 $250,000 $ 250,000 $ 250,000 $ 103 $ 162 $ 221 $ 280
2 $ 4,259 $250,000 $250,000 $ 250,000 $ 250,000 $ 1,451 $ 1,620 $ 1,795 $ 1,974
3 $ 6,517 $250,000 $250,000 $ 250,000 $ 250,000 $ 2,777 $ 3,114 $ 3,471 $ 3,847
4 $ 8,866 $250,000 $250,000 $ 250,000 $ 250,000 $ 4,080 $ 4,643 $ 5,253 $ 5,914
5 $ 11,308 $250,000 $250,000 $ 250,000 $ 250,000 $ 5,357 $ 6,204 $ 7,148 $ 8,196
6 $ 13,848 $250,000 $250,000 $ 250,000 $ 250,000 $ 6,609 $ 7,800 $ 9,162 $ 10,717
7 $ 16,490 $250,000 $250,000 $ 250,000 $ 250,000 $ 8,087 $ 9,682 $ 11,555 $ 13,752
8 $ 19,237 $250,000 $250,000 $ 250,000 $ 250,000 $ 9,533 $11,593 $ 14,079 $ 17,074
9 $ 22,095 $250,000 $250,000 $ 250,000 $ 250,000 $10,944 $13,531 $ 16,738 $ 20,709
10 $ 25,066 $250,000 $250,000 $ 250,000 $ 250,000 $12,318 $15,492 $ 19,539 $ 24,691
15 $ 41,805 $250,000 $250,000 $ 250,000 $ 250,000 $17,231 $24,289 $ 34,654 $ 49,903
20 $ 62,171 $250,000 $250,000 $ 250,000 $ 250,000 $21,468 $34,029 $ 55,409 $ 92,025
25 $ 86,948 $250,000 $250,000 $ 250,000 $ 326,174 $24,516 $44,392 $ 83,790 $ 162,275
30 $117,094 $250,000 $250,000 $ 250,000 $ 485,077 $24,383 $53,525 $121,571 $ 275,612
35 $153,771 $250,000 $250,000 $ 271,971 $ 718,071 $19,774 $60,220 $173,230 $ 457,370
40 $198,394 $250,000 $250,000 $ 339,978 $1,048,914 $ 5,541 $59,888 $241,119 $ 743,910
45 $252,685 $ 0(2) $250,000 $ 426,277 $1,546,094 $ 0(2) $44,622 $327,905 $1,189,303
50 $318,738 $ 0 $ 0(2) $ 533,862 $2,286,813 $ 0 $ 0(2) $437,592 $1,874,437
55 $399,102 $ 0 $ 0 $ 665,288 $3,377,637 $ 0 $ 0 $573,524 $2,911,756
60 $496,877 $ 0 $ 0 $ 822,999 $4,965,883 $ 0 $ 0 $741,440 $4,473,769
65 $615,835 $ 0 $ 0 $1,024,910 $7,366,316 $ 0 $ 0 $976,105 $7,015,539
- ------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in year 42.
Based on a gross return of 4%, the Contract would go into default in year 50.
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 RATE OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 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.
</TABLE>
T1
<PAGE>
<TABLE>
VARIABLE UNIVERSAL LIFE
TYPE B (VARIABLE) DEATH BENEFIT
MALE NON-SMOKER AGE 35
$250,000 BASIC INSURANCE AMOUNT
$2,007.50 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
---------------------------------------------------- ----------------------------------------------------
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 (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net) (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,088 $251,123 $251,182 $251,241 $ 251,300 $ 101 $ 160 $ 219 $ 278
2 $ 4,259 $252,467 $252,636 $252,810 $ 252,989 $ 1,445 $ 1,614 $ 1,788 $ 1,967
3 $ 6,517 $253,787 $254,123 $254,478 $ 254,853 $ 2,765 $ 3,101 $ 3,456 $ 3,831
4 $ 8,866 $255,082 $255,642 $256,250 $ 256,908 $ 4,060 $ 4,620 $ 5,228 $ 5,886
5 $ 11,308 $256,349 $257,192 $258,130 $ 259,173 $ 5,327 $ 6,170 $ 7,108 $ 8,151
6 $ 13,848 $257,589 $258,772 $260,125 $ 261,669 $ 6,567 $ 7,750 $ 9,103 $ 10,647
7 $ 16,490 $258,797 $260,379 $262,238 $ 264,417 $ 8,030 $ 9,613 $ 11,472 $ 13,650
8 $ 19,237 $259,971 $262,012 $264,475 $ 267,441 $ 9,460 $11,501 $ 13,964 $ 16,930
9 $ 22,095 $261,106 $263,665 $266,838 $ 270,766 $10,850 $13,410 $ 16,582 $ 20,510
10 $ 25,066 $262,200 $265,337 $269,334 $ 274,422 $12,200 $15,337 $ 19,334 $ 24,422
15 $ 41,805 $266,934 $273,842 $283,978 $ 298,882 $16,934 $23,842 $ 33,978 $ 48,882
20 $ 62,171 $270,910 $283,065 $303,724 $ 339,066 $20,910 $33,065 $ 53,724 $ 89,066
25 $ 86,948 $273,551 $292,482 $329,923 $ 404,882 $23,551 $42,482 $ 79,923 $ 154,882
30 $117,094 $272,663 $299,588 $362,278 $ 510,414 $22,663 $49,588 $112,278 $ 260,414
35 $153,771 $266,957 $302,426 $401,453 $ 680,461 $16,957 $52,426 $151,453 $ 430,461
40 $198,394 $251,604 $294,757 $443,989 $ 987,697 $ 1,604 $44,757 $193,989 $ 700,494
45 $252,685 $ 0(2) $267,812 $483,297 $1,456,736 $ 0(2) $17,812 $233,297 $1,120,566
50 $318,738 $ 0 $ 0(2) $507,314 $2,155,451 $ 0 $ 0(2) $257,314 $1,766,763
55 $399,102 $ 0 $ 0 $490,792 $3,184,371 $ 0 $ 0 $240,792 $2,745,148
60 $496,877 $ 0 $ 0 $392,509 $4,682,458 $ 0 $ 0 $142,509 $4,218,430
65 $615,835 $ 0 $ 0 $ 0(2) $6,946,575 $ 0 $ 0 $ 0(2) $6,615,786
- ------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in year 41.
Based on a gross return of 4%, the Contract would go into default in year 47.
Based on a gross return of 8%, the Contract would go into default in year 64.
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 RATE OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 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.
</TABLE>
T2
<PAGE>
<TABLE>
VARIABLE UNIVERSAL LIFE
TYPE A (FIXED) DEATH BENEFIT
MALE NON-SMOKER AGE 35
$250,000 BASIC INSURANCE AMOUNT
$2,007.50 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
---------------------------------------------------- ----------------------------------------------------
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 (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net) (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,088 $250,000 $250,000 $250,000 $ 250,000 $ 0 $ 0 $ 54 $ 109
2 $ 4,259 $250,000 $250,000 $250,000 $ 250,000 $ 1,058 $ 1,210 $ 1,366 $ 1,527
3 $ 6,517 $250,000 $250,000 $250,000 $ 250,000 $ 2,126 $ 2,422 $ 2,736 $ 3,067
4 $ 8,866 $250,000 $250,000 $250,000 $ 250,000 $ 3,149 $ 3,636 $ 4,165 $ 4,739
5 $ 11,308 $250,000 $250,000 $250,000 $ 250,000 $ 4,125 $ 4,847 $ 5,654 $ 6,554
6 $ 13,848 $250,000 $250,000 $250,000 $ 250,000 $ 5,048 $ 6,051 $ 7,203 $ 8,522
7 $ 16,490 $250,000 $250,000 $250,000 $ 250,000 $ 6,171 $ 7,499 $ 9,067 $ 10,912
8 $ 19,237 $250,000 $250,000 $250,000 $ 250,000 $ 7,239 $ 8,935 $10,993 $ 13,486
9 $ 22,095 $250,000 $250,000 $250,000 $ 250,000 $ 8,246 $10,352 $12,982 $ 16,258
10 $ 25,066 $250,000 $250,000 $250,000 $ 250,000 $ 9,190 $11,747 $15,034 $ 19,248
15 $ 41,805 $250,000 $250,000 $250,000 $ 250,000 $11,505 $16,886 $24,925 $ 36,924
20 $ 62,171 $250,000 $250,000 $250,000 $ 250,000 $11,206 $20,177 $36,012 $ 63,913
25 $ 86,948 $250,000 $250,000 $250,000 $ 250,000 $ 6,432 $19,318 $47,018 $ 105,704
30 $117,094 $250,000 $250,000 $250,000 $ 302,883 $ 0 $10,172 $55,359 $ 172,093
35 $153,771 $250,000 $250,000 $250,000 $ 424,937 $ 0 $ 0 $55,023 $ 270,661
40 $198,394 $ 0(2) $ 0(2) $250,000 $ 581,208 $ 0(2) $ 0(2) $31,666 $ 412,204
45 $252,685 $ 0 $ 0 $ 0(2) $ 791,776 $ 0 $ 0 $ 0(2) $ 609,059
50 $318,738 $ 0 $ 0 $ 0 $1,072,379 $ 0 $ 0 $ 0 $ 878,999
55 $399,102 $ 0 $ 0 $ 0 $1,441,446 $ 0 $ 0 $ 0 $1,242,626
60 $496,877 $ 0 $ 0 $ 0 $1,938,882 $ 0 $ 0 $ 0 $1,746,741
65 $615,835 $ 0 $ 0 $ 0 $2,508,261 $ 0 $ 0 $ 0 $2,388,820
- ------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract fund would go to zero in year 29, but because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee Period of 35 years. The contract would be in default
at the beginning of year 36.
Based on a gross return of 4% the Contract fund would go to zero in year 33, but because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee Period of 35 years. The contract would be in default
at the beginning of year 36.
Based on a gross return of 8%, the Contract would go into default in year 43.
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 RATE OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 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.
</TABLE>
T3
<PAGE>
<TABLE>
VARIABLE UNIVERSAL LIFE
TYPE B (VARIABLE) DEATH BENEFIT
MALE NON-SMOKER AGE 35
$250,000 BASIC INSURANCE AMOUNT
$2,007.50 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
---------------------------------------------------- ----------------------------------------------------
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 (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net) (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,088 $250,966 $251,020 $251,074 $251,128 $ 0 $ 0 $ 52 $ 106
2 $ 4,259 $252,073 $252,225 $252,381 $252,541 $ 1,051 $ 1,203 $ 1,359 $ 1,519
3 $ 6,517 $253,135 $253,430 $253,742 $254,072 $ 2,113 $ 2,408 $ 2,720 $ 3,050
4 $ 8,866 $254,149 $254,632 $255,158 $255,729 $ 3,127 $ 3,610 $ 4,136 $ 4,707
5 $ 11,308 $255,113 $255,830 $256,631 $257,523 $ 4,091 $ 4,808 $ 5,609 $ 6,501
6 $ 13,848 $256,021 $257,015 $258,155 $259,462 $ 4,999 $ 5,993 $ 7,133 $ 8,440
7 $ 16,490 $256,871 $258,184 $259,733 $261,557 $ 6,104 $ 7,417 $ 8,967 $ 10,791
8 $ 19,237 $257,661 $259,335 $261,365 $263,823 $ 7,150 $ 8,824 $10,854 $ 13,312
9 $ 22,095 $258,388 $260,461 $263,049 $266,271 $ 8,132 $10,206 $12,793 $ 16,016
10 $ 25,066 $259,047 $261,558 $264,783 $268,917 $ 9,047 $11,558 $14,783 $ 18,917
15 $ 41,805 $261,147 $266,340 $274,090 $285,650 $11,147 $16,340 $24,090 $ 35,650
20 $ 62,171 $260,498 $268,909 $283,735 $309,827 $10,498 $18,909 $33,735 $ 59,827
25 $ 86,948 $255,289 $266,759 $291,410 $343,608 $ 5,289 $16,759 $41,410 $ 93,608
30 $117,094 $250,000 $255,842 $292,643 $389,145 $ 0 $ 5,842 $42,643 $139,145
35 $153,771 $ 0(2) $ 0(2) $278,483 $446,881 $ 0(2) $ 0(2) $28,483 $196,881
40 $198,394 $ 0 $ 0 $ 0(2) $513,443 $ 0 $ 0 $ 0(2) $263,443
45 $252,685 $ 0 $ 0 $ 0 $575,801 $ 0 $ 0 $ 0 $325,801
50 $318,738 $ 0 $ 0 $ 0 $609,526 $ 0 $ 0 $ 0 $359,526
55 $399,102 $ 0 $ 0 $ 0 $561,934 $ 0 $ 0 $ 0 $311,934
60 $496,877 $ 0 $ 0 $ 0 $353,721 $ 0 $ 0 $ 0 $103,721
62 $ 0 $ 0 $ 0 $ 0 $ 0(2) $ 0 $ 0 $ 0 $ 0(2)
- ------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract fund would go to zero in year 28, but because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee Period of 33 years. The contract would be in default
at the beginning of year 34.
Based on a gross return of 4% the Contract fund would go to zero in year 32, but because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee Period of 33 years. The contract would be in default
at the beginning of year 34.
Based on a gross return of 8%, the Contract would go into default in year 39.
Based on a gross return of 12%, the Contract would go into default in year 62.
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 RATE OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 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.
</TABLE>
T4
<PAGE>
<TABLE>
VARIABLE UNIVERSAL LIFE
MALE NON-SMOKER AGE 35
$250,000 BASIC INSURANCE AMOUNT
$2,007.50 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
<CAPTION>
TYPE A (FIXED) DEATH BENEFIT
Internal Rates of Return on Death (1) Internal Rates of Return on Surrender (1)
---------------------------------------------------- ------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
End of ---------------------------------------------------- ------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net) (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net)
- ------ ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 135.66% 135.66% 135.66% 135.66% -20.24% -15.63% -11.11% -6.68%
10 44.34% 44.34% 44.34% 44.34% -9.12% -4.77% -0.49% 3.73%
15 23.96% 23.96% 23.96% 23.96% -7.37% -2.74% 1.74% 6.09%
20 15.44% 15.44% 15.44% 15.44% -6.44% -1.60% 2.98% 7.37%
25 10.88% 10.88% 10.88% 12.52% -6.09% -0.96% 3.74% 8.15%
30 8.09% 8.09% 8.09% 11.45% -6.73% -0.77% 4.21% 8.59%
35 6.24% 6.24% 6.61% 10.76% -8.89% -0.88% 4.56% 8.87%
40 4.93% 4.93% 6.12% 10.25% -26.59% -1.49% 4.78% 9.02%
45 (2) 3.96% 5.80% 9.92% (2) -3.45% 4.91% 9.10%
50 (2) 5.57% 9.68% (2) 4.97% 9.14%
55 5.39% 9.50% 4.99% 9.13%
60 5.24% 9.34% 4.99% 9.11%
65 5.14% 9.23% 5.03% 9.13%
- ------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy year 42.
Based on a gross return of 4% the Contract would go into default in policy year 50.
<CAPTION>
TYPE B (VARIABLE) DEATH BENEFIT
Internal Rates of Return on Death (1) Internal Rates of Return on Surrender (1)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
End of ---------------------------------------------------- ----------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net) (-1.18% Net) (2.82% Net) (6.82% Net) (10.82% Net)
- ------ ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 137.03% 137.21% 137.41% 137.63% -20.42% -15.80% -11.29% -6.86%
10 45.20% 45.42% 45.69% 46.03% -9.30% -4.96% -0.69% 3.53%
15 24.67% 24.94% 25.34% 25.89% -7.61% -2.98% 1.49% 5.85%
20 16.06% 16.41% 16.96% 17.81% -6.73% -1.89% 2.70% 7.10%
25 11.44% 11.85% 12.59% 13.83% -6.48% -1.31% 3.41% 7.85%
30 8.54% 9.02% 9.99% 11.70% -7.38% -1.29% 3.76% 8.30%
35 6.53% 7.08% 8.31% 10.54% -10.38% -1.69% 3.93% 8.61%
40 4.95% 5.57% 7.13% 10.04% -55.59% -3.13% 3.91% 8.81%
45 (2) 4.21% 6.22% 9.73% (2) -10.05% 3.71% 8.92%
50 (2) 5.42% 9.52% (2) 3.32% 8.97%
55 4.57% 9.35% 2.54% 8.99%
60 3.40% 9.21% 0.54% 8.98%
65 (2) 9.12% (2) 9.02%
- ------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy year 41.
Based on a gross return of 4% the Contract would go into default in policy year 47.
Based on a gross return of 8% the Contract would go into default in policy year 64.
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 RATE OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 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.
</TABLE>
T5
<PAGE>
<TABLE>
VARIABLE UNIVERSAL LIFE
MALE NON-SMOKER AGE 35
$250,000 BASIC INSURANCE AMOUNT
$2,007.50 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
<CAPTION>
TYPE A (FIXED) DEATH BENEFIT
Internal Rates of Return on Death (1) Internal Rates of Return on Surrender (1)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
End of ---------------------------------------------------- ----------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net) (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net)
- ------ ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 135.66% 135.66% 135.66% 135.66% -28.28% -23.34% -18.55% -13.89%
10 44.34% 44.34% 44.34% 44.34% -14.88% -10.03% -5.34% -0.77%
15 23.96% 23.96% 23.96% 23.96% -13.36% -7.65% -2.40% 2.51%
20 15.44% 15.44% 15.44% 15.44% -14.65% -7.14% -1.05% 4.24%
25 10.88% 10.88% 10.88% 10.88% -23.77% -8.47% -0.51% 5.33%
30 8.09% 8.09% 9.08% -16.42% -0.55% 6.12%
35 6.24% 8.55% -1.41% 6.59%
40 (2) (2) 4.93% 8.13% (2) (2) -5.33% 6.85%
45 (2) 7.82% (2) 6.98%
50 7.58% 7.02%
55 7.39% 7.01%
60 7.24% 7.00%
65 7.04% 6.94%
- ------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy year 36.
Based on a gross return of 4% the Contract would go into default in policy year 36.
Based on a gross return of 8% the Contract would go into default in policy year 43.
<CAPTION>
TYPE B (VARIABLE) DEATH BENEFIT
Internal Rates of Return on Death (1) Internal Rates of Return on Surrender (1)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
End of ---------------------------------------------------- ----------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net) (-1.48% Net) (2.52% Net) (6.52% Net) (10.52% Net)
- ------ ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 136.77% 136.92% 137.09% 137.28% -28.53% -23.60% -18.81% -14.14%
10 44.98% 45.16% 45.38% 45.66% -15.20% -10.35% -5.65% -1.08%
15 24.43% 24.64% 24.95% 25.40% -13.86% -8.12% -2.84% 2.08%
20 15.76% 16.01% 16.43% 17.11% -15.60% -7.89% -1.69% 3.66%
25 11.01% 11.28% 11.83% 12.83% -27.51% -10.01% -1.51% 4.51%
30 8.21% 8.90% 10.35% -25.57% -2.33% 4.96%
35 (2) (2) 6.72% 8.77% (2) (2) -5.82% 5.15%
40 (2) 7.67% (2) 5.13%
45 6.79% 4.89%
50 5.96% 4.37%
55 4.94% 3.30%
60 3.13% -0.50%
65 (2) (2)
- ------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy year 34.
Based on a gross return of 4% the Contract would go into default in policy year 34.
Based on a gross return of 8% the Contract would go into default in policy year 39.
Based on a gross return of 12% the Contract would go into default in policy year 62.
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 RATE OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 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.
</TABLE>
T6
<PAGE>
CONTRACT LOANS
You may borrow from Pruco Life an amount up to the current loan value of your
Contract less any existing Contract debt using the Contract as the only security
for the loan. The loan value at any time is equal to the sum of (1) 90% of the
portion of the cash value attributable to the variable investment options, and
(2) the balance of the cash value. The cash value is equal to the Contract Fund
less any surrender charge. A Contract in default has no loan value.
Interest charged on a loan accrues daily. Interest is due on each Contract
anniversary or when the loan is paid back, whichever comes first. If interest is
not paid when due, it becomes part of the loan and we will charge interest on
it, too. Except in the case of preferred loans, we charge interest at an
effective annual rate of 5%.
A portion of any amount you borrow on or after the tenth Contract anniversary
may be considered a preferred loan. The maximum preferred loan amount is the
total amount you may borrow minus the total net premiums paid (net premiums
equal premiums paid less total withdrawals, if any). If the net premium amount
is less than zero, we will, for purposes of this calculation, consider it to be
zero. Only new loans borrowed after the 10th Contract anniversary may be
considered preferred loans; standard loans will not automatically be converted
into preferred loans. Preferred loans are charged interest at an effective
annual rate of 4.5%.
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 equals or
exceeds the Contract Fund less any applicable surrender charges, the Contract
will go into default. See LAPSE AND REINSTATEMENT, page 25. If the Contract debt
equals or exceeds the Contract Fund less any applicable surrender charges and
you fail to keep the Contract in force, the amount of unpaid Contract debt will
be treated as a distribution which may be taxable. See TAX TREATMENT OF CONTRACT
BENEFITS, page 23.
When a loan is made, an amount equal to the loan proceeds will be transferred
out of the Account and/or the fixed-rate option, as applicable. Unless you ask
us to take the loan amount from specific investment options and we agree, the
reduction will be made in the same proportions as the value in each subaccount
and the fixed-rate option bears to the total value of the Contract. While a loan
is outstanding, the amount that was so transferred will continue to be treated
as part of the Contract Fund. It will be credited with an effective annual rate
of return of 4%. On each Monthly date, we will increase the portion of the
Contract Fund in the investment options by interest credits accrued on the loan
since the last Monthly date. The net cost of a standard loan is 1% and the net
cost of a preferred loan is 1/2%.
As long as Contract debt does not equal or exceed the Contract Fund less any
applicable surrender charges, a loan will not affect the Death Benefit
Guarantee. Loans from Modified Endowment Contracts may be treated for tax
purposes as distributions of income. See TAX TREATMENT OF CONTRACT BENEFITS,
page 23.
Any Contract debt will directly reduce a Contract's cash surrender value and
will be subtracted from the death benefit to determine the amount payable. In
addition, even if the loan is fully repaid, it may have an effect on future
death benefits because the investment results of the selected investment options
will apply only to the amount remaining invested under those 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 on the amount of the loan while the loan is outstanding,
values under the Contract 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.
When you repay all or part of a loan, we will increase the portion of the
Contract Fund in the investment options by the amount of the loan you repay
using the investment allocation for future premium payments on file as of the
loan payment date, plus interest credits accrued on the loan since the last
transaction date. We will not increase the portion of the Contract Fund
allocated to the investment options by loan interest that you pay before we make
it part of the loan. We reserve the right to change the manner in which we
allocate loan repayments.
SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
Prudential, acts as the principal underwriter of the Contract. Prusec, organized
in 1971 under New Jersey law, is registered as a broker and dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities
22
<PAGE>
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.
Generally, representatives will receive a commission of no more than 50% of the
premiums received in the first year on premiums up to the target premium (see
PREMIUMS, page 8), no more than 5% of premiums received in years two through 10
on premiums up to the target premium, and no more than 3% on premiums received
in the first 10 years in excess of the target premium or received after 10
years. If the basic insurance amount is increased, representatives will
generally receive a commission of no more than 10% of the premiums received up
to the target premium for the increase for the first 10 years of the increase,
and no more than 3% on other premiums received for the increase. Moreover, trail
commissions of up to 0.025% of the Contract Fund as of the end of each calendar
quarter may be paid. Representatives with less than 4 years of service may
receive compensation on a different basis. Representatives who meet certain
productivity or persistency standards may be eligible for additional
compensation.
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 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 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 or rulings 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
23
<PAGE>
surrender or lapse, be added to the cash surrender value and treated,
for this purpose, as if it had been received. The tax consequences of
a surrender may differ if the proceeds are received under any income
payment settlement option.
A withdrawal generally is not taxable unless it exceeds total gross
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. However, there is some risk the Internal Revenue Service
might assert the preferred loan should be treated as a distribution for
tax purposes because of the relatively low differential between the loan
interest rate and Contract's crediting rate. Were the Internal Revenue
Service to take this position, Pruco Life would take reasonable steps to
avoid this result, including modifying the Contract's loan provisions.
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 the
7-pay premiums allowed under Section 7702A are paid or a decrease in the
basic insurance amount is made (or a rider removed). Moreover, the
addition of a rider or the increase in the basic insurance amount 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, particularly a withdrawal that would reduce the basic insurance
amount, 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, assignment and pledges 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 two 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% 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, multiple Modified Endowment Contracts
issued during any calendar year will be treated as a single contract for
purposes of applying the above rules.
WITHHOLDING
The taxable portion of any amounts received under the Contract will be subject
to withholding to meet federal income tax obligations, if the Contract owner
fails to elect that no taxes be withheld. Pruco Life will provide the Contract
owner with forms and instructions concerning the right to elect that no taxes be
withheld from the taxable portion of any payment. All recipients may be subject
to penalties under the estimated tax payment rules if withholding and estimated
tax payments are not sufficient. Contract owners who do not provide a social
security number or other taxpayer identification number will not be permitted to
elect out of withholding. Special withholding rules apply to payments to
non-resident aliens.
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
24
<PAGE>
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 Sections 163 of the Code as personal interest or
under Section 264 of the Code. Contract owners should consult a tax advisor
regarding the application of these provisions to their circumstances.
Business-owned life insurance is subject to additional rules. Section 264(a)(1)
of the Code generally precludes business Contract owners from deducting premium
payments. Interest on Contract debt on a business-owned insurance policy is
generally not tax-deductible. An exemption permits the deduction of interest on
policy loans on contracts for up to 20 key persons. The interest deduction for
contract debt on such loans is limited to a prescribed interest rate and a
maximum aggregate loan amount of $50,000 per insured key person. The Code also
imposes an indirect tax upon additions to the Contract Fund or the receipt of
death benefits under businessowned life insurance policies under certain
circumstances by way of the corporate alternative minimum tax.
The individual situation of each Contract owner or beneficiary will determine
the federal estate taxes and the state and local estate, inheritance and other
taxes due if the owner or insured dies.
LAPSE AND REINSTATEMENT
On each Monthly date, we will determine the value of the Contract Fund. If the
Contract Fund less any applicable surrender charges is zero or less, the
Contract is in default unless it remains in force under the Death Benefit
Guarantee. See DEATH BENEFIT GUARANTEE, page 9. If the Contract debt ever grows
to be equal to or more than the Contract Fund less any applicable surrender
charges, the Contract will be in default. Should this happen, Pruco Life will
send you a notice of default setting forth the payment which we estimate will
keep the Contract in force for three months from the date of default. 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 end and have
no value. A Contract that lapses and ends without value with an outstanding
Contract loan may have tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS,
page 23.
A Contract that ended in default may be reinstated within 5 years after the date
of default if the following conditions are met: (1) renewed evidence of
insurability is provided on the insured; (2) submission of certain payments
sufficient to bring the Contract up to date plus a premium that we estimate will
cover all charges and deductions for the next three months; and (3) any Contract
debt with interest to date must be restored (if the debt with interest would
exceed the loan value of the reinstated Contract, the excess must be paid to us
before reinstatement) or paid back. The date of reinstatement will be the
Monthly date that coincides with or next follows the date we approve your
request. All required charges will be deducted from your payment and the balance
will be placed into your Contract Fund. If we approve the reinstatement, we will
credit the Contract Fund with an amount equal to the surrender charge applicable
as of the date of reinstatement.
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS
The Contract generally employs mortality tables that distinguish between males
and females. Thus, premiums and benefits under Contracts issued on males and
females of the same age will generally differ. However, in those states that
have adopted regulations prohibiting sex-distinct insurance rates, premiums and
cost of insurance charges will be based on male rates whether the insureds are
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 male mortality rates to such prospective purchasers.
OTHER GENERAL CONTRACT PROVISIONS
ASSIGNMENT. This Contract may not be assigned if such assignment would violate
any federal, state or local law or regulation prohibiting sex distinct rates for
insurance. Generally, the Contract may not be assigned to an employee benefit
plan or program without Pruco Life's consent. Pruco Life assumes no
responsibility for the validity or sufficiency of any assignment, and we will
not be obligated to comply with any assignment unless we received a copy at one
of our Home Offices.
25
<PAGE>
BENEFICIARY. The beneficiary is designated and named in the application by the
Contract owner. Thereafter, you may change the beneficiary, provided it is in
accordance with the terms of the Contract. Should the insured die with no
surviving beneficiary, the insured's estate will become the beneficiary.
INCONTESTABILITY. After the Contract has been in force during the lifetime of
the insured for two 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
two years from the effective date of the change, assuming enough premium has
been paid to cover the required charges, 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 or both are
incorrect in the Contract, Pruco Life will adjust each benefit and any amount to
be paid, as required by law, to reflect the correct age and sex. Any such
benefit will be based on what the most recent deductions from the Contract Fund
would have provided at the insured's correct age and sex.
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.
SUICIDE EXCLUSION. Generally, if the insured, whether sane or insane, dies by
suicide within two years from the Contract date, the Contract will end and Pruco
Life will return the premiums paid, less any Contract debt, and less any
withdrawals. Generally, if the insured, whether sane or insane dies by suicide
after two years from the issue date, but within two years of the effective date
of an increase in the basic insurance amount, we will pay, as to the increase in
amount, no more than the sum of the premiums paid on and after the effective
date of an increase.
RIDERS
Contract owners may be able to obtain extra fixed benefits which may require an
additional premium. These optional insurance benefits will be described in what
is known as a "rider" to the Contract. Charges applicable to the riders will be
deducted from the Contract Fund on each Monthly date.
One rider pays certain premiums into the Contract if the insured is totally
disabled within the meaning of the provision. Others pay an additional amount if
the insured dies within a stated number of years after issue; similar benefits
may be available if the insured's spouse or child should die. The amounts of
these benefits are fully guaranteed at issue; they do not depend on the
performance of the Account, although they will no longer be available if the
Contract should lapse. Certain restrictions may apply; they are clearly
described in the applicable rider.
Any Pruco Life representative authorized to sell the Contract can explain these
extra benefits further. Samples of the provisions are available from Pruco Life
upon written request.
VOTING RIGHTS
As stated above, all of the assets held in the subaccounts of the Account will
be invested in shares of the corresponding portfolios of the Series Fund. Pruco
Life is the legal owner of those shares and as such has the right to vote on any
matter voted on at Series Fund shareholders meetings. However, Pruco Life will,
as required by law, vote the shares of the Series Fund at any regular and
special shareholders meetings it is required to hold in accordance with voting
instructions received from Contract owners. The Series Fund will not hold annual
shareholders meetings when not required to do so under Maryland law or the
Investment Company Act of 1940. Series Fund shares for which no timely
instructions from Contract owners are received, and any shares attributable to
general account investments of Pruco Life will be voted in the same proportion
as shares in the respective portfolios for which instructions are received.
Should the applicable federal securities laws or regulations, or their current
interpretation, change so as to permit Pruco Life to vote shares of the Series
Fund in its own right, it may elect to do so.
Matters on which Contract owners may give voting instructions include the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's
26
<PAGE>
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, may be required.
Contract owners will be notified of such substitution.
REPORTS TO CONTRACT OWNERS
Once each year you will be sent a statement that provides certain information
pertinent to your own Contract. This statement will detail values and
transactions made and specific Contract data that apply only to your particular
Contract. Currently we intend to provide three quarterly reports (in addition to
the year-end statement) which provide abbreviated information pertinent to your
own Contract.
You will also be sent annual and semi-annual reports of the Series Fund showing
the financial condition of the portfolios and the investments held in each.
State Regulation
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
Experts
The audited 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
27
<PAGE>
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 Prudential, Pruco Life and agents appointed by Prudential and
Pruco Life. 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.
28
<PAGE>
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
WILLIAM M. BETHKE, Director. -- Chairman and Director, Prudential Investment
Advisory Company, Ltd.
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 Prudential.
MENDEL A. MELZER, Director. -- Chief Investment Officer of Prudential Mutual
Funds since 1996; 1995 to 1996: Chief Financial Officer of the Money Management
Group of Prudential; 1993 to 1995: Senior Vice President and Chief Financial
Officer of Prudential Preferred Financial Services; Prior to 1993: Managing
Director, Prudential Investment Corporation.
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 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 Prudential.
KIYOFUMI SAKAGUCHI, Director. -- President, Prudential International Insurance
since 1995; 1994 to 1995: Chairman and Chief Executive Officer, The Prudential
Life Insurance Co., Ltd.; Prior to 1994: President and Chief Executive Officer,
Asia Pacific Region-Prudential International Insurance, and President, The
Prudential Life Insurance Co., Ltd.
WILLIAM F. YELVERTON, Chairman of the Board and 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 Prudential since
1995; Prior to 1995: Assistant General Counsel for Prudential Residential
Services Company.
C. EDWARD CHAPLIN, Treasurer. -- Vice President and Treasurer of Prudential
since 1995; 1993 to 1995: Managing Director and Assistant Treasurer of
Prudential; 1992 to 1993: Vice President and Assistant Treasurer, Banking and
Cash Management for Prudential; Prior to 1992: Regional Vice President of
Prudential Mortgage Capital Company.
LINDA S. DOUGHERTY, Vice President, Comptroller and Chief Accounting Officer. --
Vice President, Accounting for Prudential.
CLIFFORD E. KIRSCH, Chief Legal Officer. -- Chief Counsel, Variable Products,
Law Department of 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.
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.
SHIRLEY H. SHAO, Senior Vice President and Chief Actuary. -- Vice President and
Assistant Actuary, Prudential and Executive Vice President and Chief Financial
Officer, Prudential of Taiwan.
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.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.
* SUBSIDIARY OF PRUDENTIAL
29
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF THE VARIABLE UNIVERSAL
LIFE SUBACCOUNTS OF THE
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF NET ASSETS (UNAUDITED)
September 30, 1996
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------
Money Diversified Flexible Conservative
Market Bond Equity Managed Balanced
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential
Series Fund, Inc. Portfolios at net
asset value (Note 2] .......................... $50,605,583 $68,738,058 $633,451,851 $986,070,677 $516,526,164
Receivable from Related Separate Account ........ 0 0 0 0 0
----------- ----------- ------------ ------------ ------------
Total Assets ................................. $50,605,583 $68,738,058 $633,451,851 $986,070,677 $516,526,164
=========== =========== ============ ============ ============
NET ASSETS, representing:
Equity of Contract owners ....................... $49,183,815 $68,306,949 $632,655,110 $984,121,227 $514,522,198
Equity of Pruco Life Insurance Company .......... 1,421,768 431,109 796,741 1,949,450 2,003,966
----------- ----------- ------------ ------------ ------------
$50,605,583 $68,738,058 $633,451,851 $986,070,677 $516,526,164
=========== =========== ============ ============ ============
STATEMENTS OF OPERATIONS (UNAUDITED)
For the period ended September 30, 1996
SUBACCOUNTS
--------------------------------------------------------------------------
Money Diversified Flexible Conservative
Market Bond Equity Managed Balanced
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received ................. $ 1,897,674 $ 1,883,733 $ 5,837,649 $ 11,753,975 $ 8,156,360
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 3A] ..... 220,402 296,973 2,757,756 4,266,471 2,278,929
Reimbursement for excess expenses [Note 3D] ..... (16,220) (21,815) (458,497) (1,691,627) (721,799)
----------- ----------- ------------ ------------ ------------
NET EXPENSES ...................................... 204,182 275,158 2,299,259 2,574,844 1,557,130
----------- ----------- ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ...................... 1,693,492 1,608,575 3,538,390 9,179,131 6,599,230
----------- ----------- ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ............ 0 0 15,991,282 18,863,607 4,079,242
Realized gain (loss) on shares redeemed
[average cost basis] .......................... 0 51,547 2,551,489 5,606,978 2,598,894
Net unrealized gain (loss) on investments ....... 0 (1,425,499) 28,098,564 41,236,751 18,656,481
----------- ----------- ------------ ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS .................... 0 (1,373,952) 46,641,335 65,707,336 25,334,617
----------- ----------- ------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ....................... $ 1,693,492 $ 234,623 $ 50,179,725 $ 74,886,467 $ 31,933,847
=========== =========== ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A6 AND A7.
</TABLE>
A-1
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF THE VARIABLE UNIVERSAL
LIFE SUBACCOUNTS OF THE
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF NET ASSETS (UNAUDITED)--(Continued)
September 30, 1996
<CAPTION>
SUBACCOUNTS (Continued)
--------------------------------------------------------------------------
High
Yield Stock Equity Prudential
Bond Index Income Global Jennison
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential
Series Fund, Inc. Portfolios at net
asset value (Note 2] .......................... $35,928,200 $78,679,882 $ 54,977,814 $ 19,222,820 $ 8,243,401
Receivable from Related Separate Account ........ 0 122,005 0 53,019 0
----------- ----------- ------------ ------------ ------------
Total Assets ................................. $35,928,200 $78,801,887 $ 54,977,814 $ 19,275,839 $ 8,243,401
=========== =========== ============ ============ ============
NET ASSETS, representing:
Equity of Contract owners ....................... $35,751,499 $78,801,887 $ 54,608,527 $ 19,275,839 $ 8,239,732
Equity of Pruco Life Insurance Company .......... 176,701 0 369,287 0 3,669
----------- ----------- ------------ ------------ ------------
$35,982,200 $78,801,887 $ 54,977,814 $ 19,275,839 $ 8,243,401
=========== =========== ============ ============ ============
STATEMENTS OF OPERATIONS (UNAUDITED) (Continued)
For the period ended September 30, 1996
SUBACCOUNTS (Continued)
--------------------------------------------------------------------------
High
Yield Stock Equity Prudential
Bond Index Income Global Jennison
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received ................. $ 1,614,269 $ 566,534 $ 728,990 $ 488,012 $ 6,787
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 3A] ..... 154,648 318,615 236,533 75,863 20,985
Reimbursement for excess expenses [Note 3D] ..... 0 0 0 0 0
----------- ----------- ------------ ------------ ------------
NET EXPENSES ...................................... 154,648 318,615 236,533 75,863 20,985
----------- ----------- ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ...................... 1,459,621 247,919 492,457 412,149 (14,198)
----------- ----------- ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ............ 0 182,170 617,944 0 0
Realized gain (loss) on shares redeemed
[average cost basis] .......................... (29,791) 515,477 229,680 34,323 23,802
Net unrealized gain (loss) on investments ....... 1,595,353 7,568,874 3,462,271 1,479,729 526,556
----------- ----------- ------------ ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS .................... 1,565,562 8,266,521 4,309,895 1,514,052 550,358
----------- ----------- ------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ....................... $ 3,025,183 $ 8,514,440 $ 4,802,352 $ 1,926,201 $ 536,160
=========== =========== ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A6 AND A7.
</TABLE>
A-2
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF THE VARIABLE UNIVERSAL
LIFE SUBACCOUNTS OF THE
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended September 30, 1996 and December 31, 1995
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------------
Money Diversified
Market Bond Equity
-------------------------- -------------------------- ---------------------------
01/01/96 01/01/96 01/01/96
to 01/01/95 to 01/01/95 to 05/01/95
09/30/96 to 09/30/96 to 09/30/96 to
(Unaudited) 12/31/95 (Unaudited) 12/31/95 (Unaudited) 12/31/95
----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .............. $ 1,693,492 $ 2,620,276 $ 1,608,575 $ 3,860,873 $ 3,538,390 $ 8,602,440
Capital gains distributions received ...... 0 0 0 144,746 15,991,282 20,556,916
Realized gain (loss) on shares redeemed
[average cost basis] .................... 0 0 51,547 75,353 2,551,489 1,265,358
Net unrealized gain (loss) on investments.. 0 0 (1,425,499 7,114,539 28,098,564 105,422,478
----------- ----------- ----------- ----------- ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................. 1,693,492 2,620,276 234,623 11,195,511 50,179,725 135,847,192
----------- ----------- ----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS ............. (2,964,319) (740,753) 2,065,752 (1,432,720) (4,412,597) 13,327,159
----------- ----------- ----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM SURPLUS TRANSFERS .......... 1,324,501 (89,480) 418,317 (94,534) 563,856 153,934
----------- ----------- ----------- ----------- ------------ ------------
TOTAL INCREASE IN NET ASSETS ................ 53,674 1,790,043 2,718,692 9,668,257 46,330,984 149,328,285
NET ASSETS:
Beginning of period ....................... 50,551,909 48,761,866 66,019,366 56,351,109 587,120,867 437,792,582
----------- ----------- ----------- ----------- ------------ ------------
End of period ............................. $50,605,583 $50,551,909 $68,738,058 $66,019,366 $633,451,851 $587,120,867
=========== =========== =========== =========== ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A6 AND A7.
</TABLE>
A-3
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF THE VARIABLE UNIVERSAL
LIFE SUBACCOUNTS OF THE
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
For the periods ended September 30, 1996 and December 31, 1995
<CAPTION>
SUBACCOUNTS (Continued
---------------------------------------------------------------------------------------------------------
High
Flexible Conservative Yield Stock
Manager Balance Bond Index
------------------------- ------------------------- ------------------------ ------------------------
01/01/96 01/01/96 01/01/96 01/01/96
to 01/01/95 to 01/01/95 to 01/01/95 to 01/01/95
09/30/96 to 09/30/96 to 09/30/96 to 09/30/96 to
(Unaudited) 12/31/95 (Unaudited) 12/31/95 (Unaudited) 12/31/95 (Unaudited) 12/31/95
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) ............... $ 9,179,131 $ 24,734,903 $ 6,599,230 $ 17,956,379 $ 1,459,621 $ 3,185,876 $ 247,919 $ 870,823
Capital gains
distributions
received ............. 18,863,607 39,033,998 4,079,242 17,065,189 0 0 182,170 454,847
Realized gain (loss)
on shares redeemed
[average cost basis] . 5,606,978 5,763,771 2,598,894 2,716,236 (29,791) (44,447) 515,477 1,387,759
Net unrealized
gain (loss) on
investments .......... 41,236,751 113,356,027 18,656,481 35,828,712 1,595,353 1,861,218 7,568,874 14,103,114
------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
NET INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS ........ 74,886,467 182,888,699 31,933,847 73,566,516 3,025,183 5,002,647 8,514,440 16,816,543
------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM PREMIUM PAYMENTS
AND OTHER OPERATING
TRANSFERS .............. (27,159,359) (31,598,849) (17,521,915) (18,484,820) (955,966) (1,077,084) 6,430,263 623,288
------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM SURPLUS TRANSFERS . 1,893,916 (1,895,990) 1,957,661 (806,795) 154,614 5,385 (263,644) 132,045
------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
TOTAL INCREASE IN NET
ASSETS ................ 49,621,024 149,393,860 16,369,593 54,274,901 2,223,831 3,930,948 14,681,059 17,571,876
NET ASSETS:
Beginning of period .... 936,449,653 787,055,793 500,156,571 445,881,670 33,704,369 29,773,421 64,120,828 46,548,952
------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
End of period .......... $986,070,677 $936,449,653 $516,526,164 $500,156,571 $35,928,200 $33,704,369 $78,801,887 $64,120,828
============ ============ ============ ============ =========== =========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A6 AND A7.
</TABLE>
A-4
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF THE VARIABLE UNIVERSAL
LIFE SUBACCOUNTS OF THE
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended September 30, 1996 and December 31, 1995
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------
Equity Prudential
Income Global Jennison
-------------------------- -------------------------- -------------------------
01/01/96 01/01/96 01/01/96
to 01/01/95 to 01/01/95 to 05/01/95*
09/30/96 to 09/30/96 to 09/30/96 to
(Unaudited) 12/31/95 (Unaudited) 12/31/95 (Unaudited) 12/31/95
----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .............. $ 492,457 $ 1,499,078 $ 412,149 $ 137,947 $ (14,198) $ (2,483)
Capital gains distributions received ...... 617,944 2,122,385 0 270,758 0 0
Realized gain (loss) on shares redeemed
[average cost basis] .................... 229,680 107,006 34,323 60,621 23,802 3,407
Net unrealized gain (loss) on investments.. 3,462,271 4,726,822 1,479,729 1,314,446 526,556 59,770
----------- ----------- ----------- ----------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................. 4,802,352 8,455,291 1,926,201 1,783,772 536,160 60,694
----------- ----------- ----------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS ............. (728,579) 3,721,237 3,465,186 1,377,627 6,180,379 1,554,794
----------- ----------- ----------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM SURPLUS TRANSFERS .......... 285,112 75,709 (123,303) (539,673) (185,395) 96,769
----------- ----------- ----------- ----------- ---------- ----------
TOTAL INCREASE IN NET ASSETS ................ 4,358,885 12,252,237 5,268,084 2,621,726 6,531,144 1,712,257
NET ASSETS:
Beginning of period ....................... 50,618,929 38,366,692 14,007,755 11,386,029 1,712,257 0
----------- ----------- ----------- ----------- ---------- ----------
End of period ............................. $54,977,814 $50,618,929 $19,275,839 $14,007,755 $8,243,401 $1,712,257
=========== =========== =========== =========== ========== ==========
* Commencoment
of Business
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A6 AND A7.
</TABLE>
A-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
THE PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
For the Periods Ended September 30, 1996 (unaudited) and December 31, 1995
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 Prudential Insurance Company of America ("Prudential").
The assets of the Account are segregated from Pruco Life's other assets.
Currently only Pruco Life's Variable Appreciable Life ("VAL") Contracts
invest in the Account. Pruco Life's Variable Universal Life ("VUL")
Contracts will also invest in the Account once the product becomes
available to the Contract owner.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. There are 13 subaccounts within the
Account, each of which invests only in a corresponding portfolio of the
Prudential Series Fund, Inc. (the "Series Fund"). The Series Fund is a
diversified open-end management investment company, and is managed by
Prudential. VUL will invest in the 10 Prudential Series Fund subaccounts
shown in Note 2.
New sales of the VAL product which invests in the Account were
discontinued as of May 1, 1992. However, premium payments made by
Contract owners will continue to be received by the Account. All sales
and premiums for the VUL product will 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 Prudential
Series Fund that is available under VUL Contracts, the number of shares
of each portfolio held by the subaccounts of the Account that are
available under VUL Contracts, and the aggregate cost of investments in
such shares at September 30, 1996 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: 5,060,558 6,209,551 23,484,830 52,599,020 32,366,431
Net asset value per share: $ 10.0000 $ 11.0697 $ 26.9728 $ 18.7469 $ 15.9587
Cost: $50,605,583 $66,560,464 $424,024,216 $776,480,755 $435,334,916
<CAPTION>
PORTFOLIOS (Continued)
--------------------------------------------------------------------------
High
PORTFOLIO Equity Yield Stock Prudential
INFORMATION Income Bond Index Global Jennison
-------------------------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of shares: 3,150,371 4,409,732 3,517,435 1,125,430 598,388
Net asset value per share: $ 17.4512 $ 8.1475 $ 22.3685 $ 17.0804 $ 13.7760
Cost: $46,259,003 $35,778,595 $ 50,158,122 $ 16,987,741 $ 7,657,075
</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 VAL Contract owners held in each subaccount.
The mortality risk and expense risk charges at an effective annual
rate of up to 0.90% are applied against the net assets representing
equity of VUL Contract owners held in each subaccount. Currently
Pruco Life intends to charge 0.60%.
A6
<PAGE>
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.
C. Withdrawal Charges
A $15 administrative processing charge is imposed in connection with
each partial withdrawal of the cash surrender value from VAL
Contracts.
A $10 administrative processing charge is imposed in connection with
any withdrawal of the cash surrender value from VUL Contracts. Pruco
Ufe reserves the right to increase this charge up to $25 for each
withdrawal for VUL 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 of VAL Contracts incurred by the Money Market, Diversified
Bond, Equity, Flexible Managed and the Conservative Balanced
Portfolios of the Series Fund.
VUL Contracts do not receive any expense reimbursement.
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 Ufe to the
Account.
A7
<PAGE>
(This page intentionally left blank.)
A8
<PAGE>
FINANCIAL STATEMENTS OF THE VARIABLE UNIVERSAL
LIFE SUBACCOUNTS OF THE
PRUCO LlFE VARIABLE APPRECIABLE ACCOUNT
<TABLE>
STATEMENTS OF NET ASSETS
December 31, 1995
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------
Money Diversified Flexible Conservative
Market Bond Equity Managed Balanced
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series Fund, Inc.
Pontfolios at net asset value [Note 2] ................ $50,551,909 $65,994,277 $587,120,867 $936,362,366 $500,079,187
Receivable from Related Separate Account ................ 0 25,089 0 87,287 77,384
----------- ----------- ------------ ------------ ------------
Total Assets .......................................... $50,551,909 $66,019,366 $587,120,867 $936,449,653 $500,156,571
=========== =========== ============ ============ ============
LIABILITIES
Payable to Related Separate Account ..................... 0 0 0 0 0
----------- ----------- ------------ ------------ ------------
NET ASSETS ................................................ $50,551,909 $66,019,366 $587,120,867 $936,449,653 $500,156,571
=========== =========== ============ ============ ============
NET ASSETS, representing:
Equity of Contract owners ............................... $50,480,561 $66,019,366 $586,849,058 $936,449,653 $500,156,571
Equity of Pruco Life Insurance Company .................. 71,348 0 271,809 0 0
----------- ----------- ------------ ------------ ------------
$50,551,909 $66,019,366 $587,120,867 $936,449,653 $500,156,571
=========== =========== ============ ============ ============
STATEMENTS OF OPERATIONS
For the year ended December 31,1995
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------
Money Diversified Flexible Conservative
Market Bond Equity Managed Balanced
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received ......................... $ 2,905,044 $ 4,197,858 $ 11,181,319 $ 27,717,778 $ 19,879,380
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 3A] ............. 305,694 364,799 3,087,956 5,122,999 2,833,080
Reimbursement for excess expenses (Note 3D] (20,926) (27,814) (509.077) (2,140,124) (910,079)
----------- ----------- ------------ ------------ ------------
NET EXPENSES .............................................. 284,768 336,985 2,578,879 2,982,875 1,923,001
----------- ----------- ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) .............................. 2,620,276 3,860,873 8,602,440 24,734,903 17,956,379
----------- ----------- ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received .................... 0 144,746 20,556,916 39,033,998 17,065,189
Realized gain (loss) on shares redeemed
[average cost basis] .................................. 0 75,353 1,265,358 5,763,771 2,716,236
Net unrealized gain on investments ...................... 0 7,114,539 105,422,478 113,356,027 35,828,712
----------- ----------- ------------ ------------ ------------
NET GAIN ON INVESTMENTS ................................... 0 7,334,638 127,244,752 158,153,796 55,610,137
----------- ----------- ------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............................... $ 2,620,276 $11,195,511 $135,847,192 $182,888,699 $ 73,566,516
=========== =========== ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A14 AND A15
A9
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
- ------------------------------------------------------------------
High
Yield Stock Equity Prudential
Bond Index Income Global Jennison*
- ----------- ----------- ----------- ----------- ----------
<C> <C> <C> <C> <C>
$33,704,369 $64,120,828 $50,618,929 $14,007,755 $1,712,257
0 0 0 0 0
- ----------- ----------- ----------- ----------- ----------
$33,704,369 $64,120,828 $50,618,929 $14,007,755 $1,712,257
=========== =========== =========== =========== ==========
0 0 0 0 0
- ----------- ----------- ----------- ----------- ----------
$33,704,369 $64,120,828 $50,618,929 $14,007,755 $1,712,257
=========== =========== =========== =========== ==========
$33,682,387 $63,859,589 $50,531,821 $13,888,590 $1,611,325
21,982 261,239 87,108 119,165 100,932
- ----------- ----------- ----------- ----------- ----------
$33,704,369 $64,120,828 $50,618,929 $14,007,755 $1,712,257
=========== =========== =========== =========== ==========
<CAPTION>
SUBACCOUNTS (Continued)
- ------------------------------------------------------------------
Yield Stock Equity Prudential
Bond Index Income Global Jennison*
- ----------- ----------- ----------- ----------- ----------
<C> <C> <C> <C> <C>
$ 3,378,049 $ 1,200,040 $ 1,772,217 $ 212,903 $ 80
192,173 329,217 273,139 74,956 2,563
0 0 0 0 0
- ----------- ----------- ----------- ----------- ----------
192,173 329,217 273,139 74,956 2,563
- ----------- ----------- ----------- ----------- ----------
3,185,876 870,823 1,499,078 137,947 (2,483)
- ----------- ----------- ----------- ----------- ----------
0 454,847 2,122,385 270,758 0
(44,447) 1,387,759 107,006 60,621 3,407
1,861,218 14,103,114 4,726,822 1,314,446 59,770
- ----------- ----------- ----------- ----------- ----------
1,816,771 15,945,720 6,956,213 1,645,825 63,177
- ----------- ----------- ----------- ----------- ----------
$ 5,002,647 $16,816,543 $ 8,455,291 $ 1,783,772 $ 60,694
=========== =========== =========== =========== ==========
*Commenced
Business
on 5/1/95
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A14 AND A15.
</TABLE>
A10
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF THE VARIABLE UNIVERSAL
LIFE SUBACCOUNTS OF THE
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31,1995 and 1994
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------
Money Diversified
Market Bond Equity
------------------------- ------------------------- ---------------------------
1995 1994 1995 1994 1995 1994
----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ............... $ 2,620,276 $ 1,649,101 $ 3,860,873 $ 3,400,785 $ 8,602,440 $ 7,817,827
Capital gains distributions received ....... 0 0 144,746 133,233 20,556,916 18,199,834
Realized gain (loss) on shares redeemed
[average cost basis] ...................... 0 0 75,353 (39,688) 1,265,358 1,432,168
Net unrealized gain (loss) on investments .. 0 0 7,114,539 (5,814,428) 105,422,478 (17,636,131)
----------- ----------- ----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................... 2,620,276 1,649,101 11,195,511 (2,320,098) 135,847,192 9,813,698
----------- ----------- ----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS ............... (740,753) 174,399 (1,432,720) (3,900,361) 13,327,159 1,930,473
----------- ----------- ----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM SURPLUS TRANSFERS ............ (89,480) (486,387) (94,534) 24,099 153,934 (486,070)
----------- ----------- ----------- ----------- ------------ ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS ............................... 1,790,043 1,337,113 9,668,257 (6,196,360) 149,328,285 11,258,101
NET ASSETS:
Beginning of year ........................... 48,761,866 47,424,753 56,351,109 62,547,469 437,792,582 426,534,481
----------- ----------- ----------- ----------- ------------ ------------
End of year ................................. $50,551,909 $48,761,866 $66,019,366 $56,351,109 $587,120,867 $437,792,582
=========== =========== =========== =========== ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A14 AND A15.
All
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
- ------------------------------------------------------------------------------------------------------------------------
High
Flexible Conservative Yield Stock
Managed Balanced Bond Index
- ---------------------------- ---------------------------- -------------------------- --------------------------
1995 1994 1995 1994 1995 1994 1995 1994
- ------------ ------------ ------------ ------------ ----------- ----------- ----------- -------------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 24,734,903 $ 19,391,523 $ 17,956,379 $ 13,772,420 $ 3,185,876 $ 2,882,389 $ 870,823 $ 843,636
39,033,998 22,635,794 17,065,189 4,752,103 0 23 454,847 68,595
5,763,771 2,045,045 2,716,236 925,009 (44,447) (41,868) 1,387,759 574,991
113,356,027 (73,072,549) 35,828,712 (25,603,121) 1,861,218 (3,901,821) 14,103,114 (1,293,204)
- ------------ ------------ ------------ ------------ ----------- ----------- ----------- -------------
182,888,699 (29,000,187) 73,566,516 (6,153,589) 5,002,647 (1,061,277) 16,816,543 194,018
- ------------ ------------ ------------ ------------ ----------- ----------- ----------- -------------
(31,598,849) (15,011,537) (18,484,820) (3,697,057) (1,077,084) (1,682,842) 623,286 (263,376)
- ------------ ------------ ------------ ------------ ----------- ----------- ----------- -------------
(1,895,990) 1,559,318 (806,795) 172,937 5,385 (94,816) 132,045 92,281
- ------------ ------------ ------------ ------------ ----------- ----------- ----------- -------------
149,393,860 (42,452,406) 54,274,901 (9,677,709) 3,930,948 (2,838,935) 17,571,876 22,923
787,055,793 829,508,199 445,881,670 455,559,379 29,773,421 32,612,356 46,548,952 46,526,029
- ------------ ------------ ------------ ------------ ----------- ----------- ----------- -------------
$936,449,653 $787,055,793 $500,156,571 $445,881,670 $33,704,369 $29,773,421 $64,120,828 $ 46,548,952
============ ============ ============ ============ =========== =========== =========== =============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A14 AND A15.
A12
</TABLE>
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
For the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------
Equity Prudential
Income Global** Jennison*
--------------------------- ---------------------------- ------------
1995 1994 1995 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ...................... $ 1,499,078 $ 1,108,691 $ 137,947 $ (5,689) $ (2,483)
Capital gains distributions received .............. 2,122,385 1,981,250 270,758 3,344 0
Realized gain (loss) on shares redeemed
[average cost basis] ............................. 107,006 76,758 60,621 0 3,407
Net unrealized gain (loss) on investments ......... 4,726,822 (3,029,605) 1,314,446 (559,095) 59,770
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ......................... 8,455,291 137,094 1,783,772 (561,440) 60,694
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS ..................... 3,721,237 8,440,504 1,377,627 11,335,055 1,554,794
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM SURPLUS TRANSFERS .................. 75,709 (464,805) (539,673) 612,414 96,769
------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS ..................................... 12,252,237 8,112,793 2,621,726 11,386,029 1,712,257
NET ASSETS:
Beginning of year ................................. 38,366,692 30,253,899 11,386,029 0 0
------------ ------------ ------------ ------------ ------------
End of year ....................................... $ 50,618,929 $ 38,366,692 $ 14,007,755 $ 11,386,029 $ 1,712,257
============ ============ ============ ============ ============
**Commenced *Commenced
Business Business
on 511/94 on 5/1/95
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES Al4 AND A15.
A13
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
THE PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
FOR THE PERIODS 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
("Prudential"). The assets of the Account are segregated from Pruco
Life's other assets. Currently only Pruco Life's Variable Appreciable
Life ("VAL") Contracts invest in the Account. Pruco Life's Variable
Universal Life ("VUL") Contracts will also invest in the Account once
the product becomes available to the Contract owner.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. There are 13 subaccounts within the
Account, each of which invests only in a corresponding portfolio of The
Prudential Series Fund, Inc. (the "Series Fund"). The Series Fund is a
diversified open-end management investment company, and is managed by
Prudential. VUL will invest in the 10 Prudential Series Fund subaccounts
shown in Note 2.
New sales of the VAL product which invests in the Account were
discontinued as of May 1, 1992. However, premium payments made by
Contract owners will continue to be received by the Account. All sales
and premiums for the VUL product will 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 Prudential
Series Fund that is available under VUL Contracts, the number of shares
of each portfolio held by the subaccounts of the Account that are
available under VUL Contracts, 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
<CAPTION>
PORTFOLIOS (Continued)
------------------------------------------------------------------------------
High
PORTFOLIO Equity Yield Stock Prudential
INFORMATION Income Bond Index Global Jennison
----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of shares: 3,111,010 4,320,851 3,213,099 901,795 136,470
Net asset value per share: $ 16.2709 $ 7.8004 $ 19.9561 $ 15.5332 $ 12.5468
Cost: $45,362,389 $35,150,118 $ 43,167,942 $ 13,252,405 $ 1,652,487
</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 VAL Contract owners held in each subaccount.
The mortality risk and expense risk charges at an effective annual
rate of up to 0.90% are applied against the net assets representing
equity of VUL Contract owners held in each subaccount. Currently
Pruco Life intends to charge 0.60%.
A14
<PAGE>
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.
C. Withdrawal Charges
A $15 administrative processing charge is imposed in connection with
each partial withdrawal of the cash surrender value from VAL
Contracts.
A $10 administrative processing charge is imposed in connection with
any withdrawal of the cash surrender value from VUL Contracts. Pruco
Life reserves the right to increase this charge up to $25 for each
withdrawal for VUL 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 of VAL Contracts incurred by the Money Market, Diversified
Bond, Equity, Flexible Managed and the Conservative Balanced
Portfolios of the Series Fund.
VUL Contracts do not receive any expense reimbursement.
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.
A15
<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, Global and Prudential
Jennison) 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
A16
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENTS OF FINANCIAL POSITION
(Statutory Basis)
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1996 December 31, 1995
------------------ -----------------
(000's)
<S> <C> <C>
ASSETS
Fixed maturities (Market $2,519,991 and $2,598,439) ........ $2,507,810 $2,510,783
Equity securities (cost $ 3,596 and $ 5,317) ............... 5,072 4,009
Mortgage loans ............................................. 54,524 64,464
Investment real estate ..................................... -- 4,059
Policy loans ............................................... 620,841 569,273
Other long term investments ................................ 4,635 4,159
Short term investments ..................................... 275,112 228,016
---------- ----------
Total Investments ............................. 3,467,994 3,384,763
---------- ----------
Cash ....................................................... 57,953 41,435
Accrued investment income .................................. 59,724 59,862
Premiums due and deferred .................................. 20,015 19,521
Receivable from affiliates ................................. 8,756 8,275
Federal income taxes - from affiliates ..................... -- 8,875
Other Assets ............................................... 9,358 9,436
Assets held in Separate Accounts ........................... 4,855,024 4,285,269
---------- ----------
TOTAL ASSETS ................................................. $8,478,824 $7,817,436
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Policy liabilities and insurance reserves:
Future policy benefits and claims ........................ $2,625,000 $2,606,856
Other policy claims and benefits ......................... 15,188 13,822
Interest maintenance reserve (IMR) ....................... 27,243 27,282
Payable to affiliates ...................................... 47,124 41,584
Federal income taxes - to affiliates ....................... 13,912 --
Other liabilities .......................................... 48,100 52,865
Asset valuation reserve (AVR) .............................. 39,909 37,268
Liabilities related to Separate Accounts ................... 4,763,220 4,208,737
---------- ----------
Total Liabilities ............................................ 7,579,696 6,988,414
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock, $10 par value; authorized,
1,000,000 shares; issued & outstanding
250,000 shares ........................................... 2,500 2,500
Paid in capital ............................................ 439,582 439,582
Unassigned surplus ......................................... 457,046 386,940
---------- ----------
TOTAL STOCKHOLDERS' EQUITY ................................... 899,128 829,022
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ....................................... $8,478,824 $7,817,436
========== ==========
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-1
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (UNAUDITED)
(Statutory Basis)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
-------- -------- -------- --------
(000's)
<S> <C> <C> <C> <C>
REVENUE
Premiums and annuity considerations ........... $670,930 $431,428 $247,566 $157,336
Net investment income ......................... 185,029 188,646 60,092 62,977
Net realized investment gains/(losses) ........ 3,019 3,470 1,439 4,661
Other income .................................. 15,099 32,100 7,292 4,797
-------- -------- -------- --------
TOTAL REVENUE ................................... 874,077 655,644 316,389 229,771
-------- -------- -------- --------
BENEFITS AND EXPENSES
Current and future benefits and claims ........ 639,682 385,932 237,558 133,706
Commission expenses ........................... 25,642 19,160 10,091 6,651
General, administrative and other expenses .... 77,852 87,898 23,741 28,699
-------- -------- -------- --------
TOTAL BENEFITS AND EXPENSES ..................... 743,176 492,990 271,390 169,056
-------- -------- -------- --------
Income before income tax provision ............ 130,901 162,654 44,999 60,715
Income tax provision .......................... 60,887 54,142 24,374 21,226
-------- -------- -------- --------
NET INCOME ...................................... $ 70,014 $108,512 $ 20,625 $ 39,489
======== ======== ======== ========
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-2
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Unaudited)
(Statutory Basis)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
----------- -----------
(000's)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................... $ 70,014 $ 108,512
Adjustments to reconcile net income to net cash flows from
operating activities ........................................... (28,601) (232,588)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES ............................. 41,413 (124,076)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities ............................................... 3,192,970 1,521,429
Equity securities .............................................. 3,498 4,236
Mortgage loans ................................................. 9,940 7,104
Other long term investments .................................... 21 193
Investment real estate ......................................... 4,829 2,925
Payments for the purchase of:
Fixed maturities ............................................... (3,185,012) (1,380,346)
Equity securities .............................................. (3,207) (3,947)
Mortgage loans ................................................. -- --
Other long term investments .................................... (497) (626)
Investment real estate ......................................... (341) --
Net proceeds/(payments) of short term investments .............. (47,096) (17,533)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES ............................... (24,895) 133,435
Net increase/(decrease) in Cash .................................. 16,518 9,359
Cash, beginning of period ........................................ 41,435 27,780
----------- -----------
CASH, END OF PERIOD ................................................ $ 57,953 $ 37,139
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid in lieu of income taxes ................................ $ 45,044 $ 29,896
=========== ===========
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-3
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
For The Periods Ended September 30, 1996 and 1995 (Unaudited)
(Statutory Basis)
1. General
Pruco Life Insurance Company consists of Pruco Life Insurance Company
(Pruco Life), Pruco Life Insurance Company of New Jersey and The Prudential
Life Insurance Company of Arizona (collectively, the Company). Pruco Life
is a wholly owned subsidiary of The Prudential Insurance Company of America
(Prudential), a mutual life insurance company. The accompanying unaudited
financial statements have been prepared in accordance with the statutory
accounting practices prescribed or permitted by the National Association of
Insurance Commissioners and the respective domiciliary state insurance
departments.
Certain financial information which is normally included in financial
statements, prepared in accordance with statutory accounting practices, but
which is not required for interim reporting purposes, has been omitted. The
financial statements for the nine months ended September 30, 1996 and 1995
include all adjustments (consisting of only normal recurring accruals)
which, in the opinion of management, are necessary for fair presentation of
results for that interim period. The results for the nine months ended
September 30, 1996 and 1995, are not necessarily indicative of the results
for a full year. These statements should be read in conjunction with the
consolidated financial statements and notes thereto included on Form 10-K
for the fiscal year ended December 31,1995
2. Related Party
Several actions have been brought against the Company on behalf of those
persons who purchased life insurance policies based on complaints about
sales practices engaged in by Prudential, the Company and agents appointed
be Prudential and the Company. Prudential has agreed to indemnify the
Company for any and all losses resulting from such litigation.
B-4
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
(GAAP BASIS)
September 30, 1996 December 31, 1995
------------------ -----------------
(000's)
ASSETS
Fixed maturities
Held to maturity ...................... $ 423,250 $ 437,727
Available for sale .................... 2,096,741 2,144,854
Mortgage loans .......................... 54,524 64,464
Policy loans ............................ 620,842 569,273
Equity securities ....................... 5,072 4,036
Investment real estate .................. -- 4,059
Other long term investments ............. 4,635 4,159
Short term investments .................. 275,112 228,016
---------- ----------
Total Invested Assets ................. 3,480,176 3,456,588
---------- ----------
Cash .................................... 57,953 41,435
Deferred policy acquisition costs ....... 617,464 566,976
Premiums due ............................ 7,954 6,367
Accrued investment income ............... 59,724 59,862
Receivable from affiliates .............. 8,756 8,275
Other assets ............................ 12,617 12,578
Federal income tax receivable ........... -- 6,375
Reinsurance recoverable on paid losses .. 27,914 27,914
Assets held in Separate Accounts ........ 4,855,024 4,285,268
---------- ----------
TOTAL ASSETS .............................. $9,127,582 $8,471,638
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Future policy benefits and claims ....... $2,717,289 $2,705,708
Other policy claims and benefits ........ 15,188 13,822
Other liabilities ....................... 29,016 37,387
Federal income tax payable .............. 16,412 --
Deferred federal income tax payable ..... 130,255 138,123
Payable to affiliate .................... 47,124 41,584
Separate Account liabilities ............ 4,805,282 4,263,896
---------- ----------
TOTAL LIABILITIES ......................... 7,760,566 7,200,520
---------- ----------
CONTINGENCIES--NOTE 11
STOCKHOLDERS' EQUITY
Common Stock, $10 par value; authorized,
1,000,000 shares; issued & outstanding
250,000 shares ........................ 2,500 2,500
Paid in capital ......................... 439,582 439,582
Unrealized gains (net of tax of $1,811
& $17,078) ............................ 7,860 33,342
Unassigned equity ....................... 917,074 795,694
---------- ----------
TOTAL STOCKHOLDERS' EQUITY ................ 1,367,016 1,271,118
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .................................. $9,127,582 $8,471,638
========== ==========
- ------------
(1) The unaudited financial information for the periods ending September 30,
1996 and December 31, 1995 have been prepared in accordance with Generally
Accepted Accounting Principles ("GAAP") as set forth in the Financial
Accounting Standards Board's Interpretation No. 4, "Applicability of
Generally Accepted Accounting Principles to Mutual Life Insurance and Other
Enterprises." Interpretation No. 40 changes the current practice of the
Company with respect to utilizing statutory basis financial statements for
general purposes in that it would not allow such financial statements to be
referred to as having been prepared in accordance with GAAP pronouncements,
unless specifically exempted.
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-5
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(UNAUDITED)
(GAAP BASIS)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(000's)
<S> <C> <C> <C> <C>
REVENUE
Premiums ............................................ $ 35,318 $ 30,817 $ 11,021 $ 3,663
Net investment income ............................... 180,756 185,790 58,552 61,438
Realized capital gains/(losses) ..................... 7,252 8,393 2,329 8,002
Policy fee income ................................... 229,515 242,964 72,894 88,675
Other income ........................................ 15,099 32,100 7,292 4,797
-------- -------- -------- --------
TOTAL REVENUE ....................................... 467,940 500,064 152,088 166,575
-------- -------- -------- --------
BENEFITS AND EXPENSES
Interest credited to policyholders' account
balances .......................................... 92,627 97,731 31,719 32,285
Policyholders' benefits ............................. 115,895 119,587 38,669 38,899
Other operating costs and expenses .................. 72,680 107,867 (2,294) 39,135
-------- -------- -------- --------
TOTAL BENEFITS AND EXPENSES ......................... 281,202 325,185 68,094 110,319
-------- -------- -------- --------
Income before income tax provision .................. 186,738 174,879 83,994 56,256
Income tax provision
Current .......................................... 57,959 55,610 30,478 21,077
Deferred ......................................... 7,399 5,597 (1,081) (3,264)
-------- -------- -------- --------
NET INCOME $121,380 $113,672 $ 54,597 $ 38,443
======== ======== ======== ========
</TABLE>
- ------------
(1) The unaudited financial information for the periods ending September 30,
1996 and December 31, 1995 have been prepared in accordance with Generally
Accepted Accounting Principles ("GAAP") as set forth in the Financial
Accounting Standards Board's Interpretation No. 4, "Applicability of
Generally Accepted Accounting Principles to Mutual Life Insurance and Other
Enterprises." Interpretation No. 40 changes the current practice of the
Company with respect to utilizing statutory basis financial statements for
general purposes in that it would not allow such financial statements to be
referred to as having been prepared in accordance with GAAP pronouncements,
unless specifically exempted.
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-6
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(GAAP BASIS)
Nine Months Twelve Months
Ended Ended
September 30, December 31,
1996 1995
------------- -------------
(000's)
COMMON STOCK
Balance, beginning of period .............. $ 2,500 $ 2,500
Issued during period ...................... -- --
---------- ----------
Balance, end of period .................... 2,500 2,500
---------- ----------
PAID IN CAPITAL
Balance, beginning of period .............. 439,582 439,582
Paid in during period ..................... -- --
---------- ----------
Balance, end of period .................... 439,582 439,582
---------- ----------
UNASSIGNED EQUITY
Balance, beginning of period .............. 795,694 641,282
Net income ................................ 121,380 154,412
---------- ----------
Balance, end of period .................... 917,074 795,694
---------- ----------
UNREALIZED CAPITAL GAINS
Balance, beginning of period .............. 33,342 --
Net change in unrealized gains/(losses) ... (35,899) 46,422
Other adjustments (a) ..................... 10,417 (13,080)
---------- ----------
Balance, end of period .................... 7,860 33,342
---------- ----------
TOTAL STOCKHOLDERS' EQUITY ................ $1,367,016 $1,271,118
========== ==========
- ------------
(1) The unaudited financial information for the periods ending September 30,
1996 and December 31, 1995 have been prepared in accordance with Generally
Accepted Accounting Principles ("GAAP") as set forth in the Financial
Accounting Standards Board's Interpretation No. 4, "Applicability of
Generally Accepted Accounting Principles to Mutual Life Insurance and Other
Enterprises." Interpretation No. 40 changes the current practice of the
Company with respect to utilizing statutory basis financial statements for
general purposes in that it would not allow such financial statements to be
referred to as having been prepared in accordance with GAAP pronouncements,
unless specifically exempted.
(a) Other adjustments consist of deferred policy acquisition costs and related
deferred income taxes.
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-7
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(GAAP BASIS)
Nine Months Ended
September 30,
-------------------------
1996 1995
---------- ----------
(000's)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $ 121,380 $ 113,672
Adjustments to reconcile net income to
net cash flows from operating activities ....... (138,194) (191,343)
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES ............. (16,814) (77,671)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities ............................... 3,193,909 1,523,310
Equity securities .............................. 3,498 4,236
Mortgage loans ................................. 9,940 7,104
Other long term investments .................... 21 193
Investment real estate ......................... 4,829 2,925
Other .......................................... 59,266 (44,320)
Payments for the purchase of:
Fixed maturities ............................... (3,185,012) (1,380,346)
Equity securities .............................. (4,560) (7,914)
Mortgage loans ................................. -- --
Other long term investments .................... (497) (626)
Investment real estate ......................... (341) --
Net proceeds/(payments) of short
term investments ............................... (47,721) (17,532)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES ............... 33,332 87,030
---------- ----------
Net increase/(decrease) in Cash .................. 16,518 9,359
Cash, beginning of period ........................ 41,435 27,780
---------- ----------
CASH, END OF PERIOD ................................ $ 57,953 $ 37,139
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid in lieu of income taxes ................ $ 45,044 $ --
========== ==========
- ------------
(1) The unaudited financial information for the periods ending September 30,
1996 and December 31, 1995 have been prepared in accordance with Generally
Accepted Accounting Principles ("GAAP") as set forth in the Financial
Accounting Standards Board's Interpretation No. 4, "Applicability of
Generally Accepted Accounting Principles to Mutual Life Insurance and Other
Enterprises." Interpretation No. 40 changes the current practice of the
Company with respect to utilizing statutory basis financial statements for
general purposes in that it would not allow such financial statements to be
referred to as having been prepared in accordance with GAAP pronouncements,
unless specifically exempted.
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-8
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
(UNAUDITED)
(GAAP BASIS)
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
(Prudential), a mutual life insurance company. The Company markets
individual life insurance and single pay deferred annuities primarily
through Prudential's sales force. All significant intercompany balances
and transactions have been eliminated in consolidation.
B. BASIS OF PRESENTATION
The Financial Accounting Standards Board (FASB) issued Interpretation No.
40 "Applicability of Generally Accepted Accounting Principles to Mutual
Life Insurance and Other Enterprises," as amended by Statement of
Financial Accounting Standards (SFAS) No. 120 "Accounting and Reporting by
Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts", effective for fiscal years
beginning after December 15, 1995.
Interpretation No. 40 changed the practice of mutual life insurance
companies with respect to utilizing statutory basis financial statements
for general purposes in that such financial statements are no longer
allowed to be referred to as having been prepared in accordance with
Generally Accepted Accounting Principles (GAAP). As a result of
Interpretation No. 40, the Company has prepared the 1996 consolidated
financial statements in accordance with all applicable GAAP
pronouncements. The Company has restated the 1995 and 1994 consolidated
financial statements in accordance with GAAP. These financial statements
were previously prepared based on statutory accounting practices
prescribed or permitted by regulatory authorities in the domiciliary
states. See Note 9 for the Company's statutory net income and surplus
determined in accordance with accounting practices prescribed or permitted
by regulatory authorities in domiciliary states.
C. INVESTMENTS
FIXED MATURITIES--Securities held to maturity are those that the Company
has the positive intent and ability to hold to maturity and are
principally reported at amortized cost. Amortized cost is adjusted to
estimated fair value for impairments which are deemed to be other than
temporary.
Where the Company may not have the positive intent to hold fixed
maturities until maturity, the securities are classified as "Available for
Sale." These securities are reported at market value based principally on
their quoted market prices. The associated unrealized gains and losses,
net of income taxes and deferred policy acquisition costs, are included as
a component of equity or if deemed to be other than temporary, are
included as a realized loss.
EQUITY SECURITIES consist primarily of common and preferred stocks.
Marketable equity securities are classified as "Available for Sale" and
are reported at market value based principally on their quoted market
prices. Non-marketable equity securities are reported at historical cost
adjusted for other than temporary impairments. The associated unrealized
gains and losses are included as a component of equity. $4.0 million and
$3.6 million of joint venture equity securities are included in "Other
Long Term Investments" as of September 30, 1996 and December 31, 1995,
respectively.
MORTGAGE LOANS AND POLICY LOANS are stated primarily at unpaid principal
balances, net of unamortized discounts and valuation allowances for
impaired loans. Impaired loans are those for which management believes
that they will be unable to collect all amounts due according to the
contractual terms of the loan agreement. A valuation allowance is recorded
for the difference between the present value of expected future cash flows
discounted at the loan's effective interest rate or the fair value of the
underlying collateral, and the carrying value of the loan. Interest income
on non-impaired loans is recognized as net investment income earned.
B-9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES (Continued)
(UNAUDITED)
(GAAP BASIS)
INVESTMENT REAL ESTATE was acquired through foreclosure during 1994. This
property was valued at its fair value at the time of foreclosure. 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 this property for the period ended
September 30, 1996 and the year ended December 31, 1995 was $164 thousand
and $106 thousand, respectively. As of September 30, 1996 the Company had
no investment real estate holdings. The last property was sold during the
third quarter of 1996.
OTHER LONG TERM INVESTMENTS, which consist of limited partnerships, are
valued at the aggregate net equity in the partnerships. Certain
investments in this category were non-income producing at September 30,
1996 and December 31, 1995. These investments were $244 thousand at
September 30, 1996 and $316 thousand at December 31, 1995.
Partnership and joint venture interests in which the Company does not have
control and a majority economic interest are reported on the equity basis
of accounting. $4.6 million and $4.1 million of non real estate related
interests are included in other long term investments, as of September 30,
1996 and December 31, 1995, respectively. The Company's share of net
income from such entities was $1.2 million and $0.5 million for the
periods ended September 30, 1996 and 1995, respectively and is reported in
investment income.
D. OTHER ASSETS
Property and equipment is carried at cost less accumulated depreciation.
When applicable, cost includes interest and real estate taxes incurred
during construction as well as other construction related costs.
Depreciation is calculated primarily on the straight line method based on
the estimated useful lives of the assets. Accumulated depreciation was
$2.3 million and $2.0 million as of September 30, 1996 and December 31,
1995, respectively.
E. REVENUE RECOGNITION AND RELATED EXPENSES
UNIVERSAL LIFE AND INVESTMENT-TYPE CONTRACTS. Universal life contracts are
long duration life insurance contracts that involve significant mortality
and morbidity risk with both fixed and guaranteed terms. Investment
contracts are long duration contracts that do not subject the insurance
enterprise to risks arising from contractholder mortality or morbidity.
Amounts received as payments for these contracts are reported as deposits
to contractholders' account balances. Revenues from these contracts
consist primarily of amounts assessed during the period against
contractholders' account balances for mortality charges, policy
administration and surrender charges. Policy benefits and claims that are
charged to expenses include benefit claims incurred in the period in
excess of related contractholders' account balances.
F. DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions and other costs which vary with
and are primarily related to the production or acquisition of new
business. Acquisition costs related to universal life products and
investment-type contracts are deferred and amortized in proportion to
total estimated gross profits arising principally from investment results,
mortality, expense margins and surrender charges based on historical and
anticipated future experience. Deferred acquisition costs are reviewed to
determine if they are recoverable from future income, including investment
income. If such costs are determined to be unrecoverable, they are
expensed at the time of determination. The effect on the deferred policy
acquisition asset that would result from realization of unrealized
gains/(losses) is recognized with an offset to unrealized gains/(losses)
in consolidated stockholders' equity as of the balance sheet date.
B-10
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES (Continued)
(UNAUDITED)
(GAAP BASIS)
G. FUTURE POLICY BENEFITS AND CONTRACTHOLDERS' FUNDS
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus credited
interest less expense and mortality charges and withdrawals.
Benefit liabilities for annuities during the accumulation period are equal
to the accumulated contractholders' fund balances and after annuitization
are equal to the present value of expected future payments.
Interest crediting rates on these life insurance products range from 3.35%
to 7%.
When liabilities for future policy benefits plus the present value of
expected future gross premiums are insufficient to provide expected future
policy benefits and expenses, unrecoverable deferred policy acquisition
costs are written off and thereafter, if required, a premium deficiency
reserve is established as a charge to earnings.
H. 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 Guaranteed Annuity and the
Market Value Adjustment Annuity Contracts do not participate in the
investment gain or loss from assets relating to such accounts. Such gain
or loss is borne, in total, by the Company. Assets are carried at market
value. Deposits to all Separate Accounts are reported as increases in
Separate Account liabilities. Charges assessed against contractholders'
account balances for mortality, policy administration and surrender
charges are included in revenues. Mortality and expense risk charges
applied against net assets represent contractholder funds and are also a
component of revenue. The assets are legally segregated and are not
subject to claims that arise out of any other business of the Company.
I. ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
B-11
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES (Continued)
(UNAUDITED)
(GAAP BASIS)
2. FIXED MATURITIES AND EQUITY SECURITIES
Gross unrealized gains and losses for securities classified as Held to
Maturity and Available for Sale, by major security type, are as follows:
<TABLE>
<CAPTION>
For The Period Ended
September 30, 1996
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
(000's)
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Treasury securities and obligations of
U.S. government corporations and agencies .... $ -- $ -- $ -- $ --
Foreign government bonds ....................... -- -- -- --
Corporate securities ........................... 423,250 8,433 1,319 430,364
Mortgage-backed securities ..................... -- -- -- --
Other fixed maturities ......................... -- -- -- --
---------- ------- ------ ----------
Total ........................................ $ 423,250 $ 8,433 $1,319 $ 430,364
========== ======= ====== ==========
<CAPTION>
For The Period Ended
September 30, 1996
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
(000's)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities and obligations of
U.S. government corporations and agencies .... $ 81,841 $ 178 $ 43 $ 81,976
Foreign government bonds ....................... 83,524 346 498 83,372
Corporate securities ........................... 1,919,375 20,528 9,040 1,930,863
Mortgage-backed securities ..................... 517 13 -- 530
Other fixed maturities ......................... -- -- -- --
---------- ------- ------ ----------
Total ........................................ $2,085,257 $21,065 $9,581 $2,096,741
========== ======= ====== ==========
</TABLE>
B-12
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES (Continued)
(UNAUDITED)
(GAAP BASIS)
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1995
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
(000's)
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Treasury securities and obligations of
U.S. government corporations and agencies ..... $ -- $ -- $ -- $ --
Foreign government bonds ........................ -- -- -- --
Corporate securities ............................ 437,727 18,629 1,805 454,551
Mortgage-backed securities ...................... -- -- -- --
Other fixed maturities .......................... -- -- -- --
---------- ---------- ---------- ----------
Total ......................................... $ 437,727 $ 18,629 $ 1,805 $ 454,551
========== ========== ========== ==========
<CAPTION>
For the Year Ended
December 31, 1995
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
(000's)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities and obligations of
U.S. government corporations and agencies ..... $ 324,854 $ 6,830 $ 61 $ 331,623
Foreign government bonds ........................ 73,042 3,055 -- 76,097
Corporate securities ............................ 1,506,934 54,859 2,168 1,559,625
Mortgage-backed securities ...................... 169,190 8,717 398 177,509
Other fixed maturities .......................... -- -- -- --
---------- ---------- ---------- ----------
Total ......................................... $2,074,020 $ 73,461 $ 2,627 $2,144,854
========== ========== ========== ==========
</TABLE>
B-13
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES (Continued)
(UNAUDITED)
(GAAP BASIS)
The amortized cost and estimated fair value of fixed maturities at September
30, 1996 and December 31, 1995, categorized by contractual maturity, are
shown below. Actual maturities will differ from contractual maturities
because borrowers may prepay obligations with or without call or prepayment
penalties. Fixed maturities not due at a single maturity date have been
included in the table.
As Of September 30, 1996
---------------------------
Estimated
Amortized Fair
Cost Value
---------- ----------
(000's)
HELD TO MATURITY
Due in one year or less ....................... $ 32,561 $ 32,768
Due after one year through five years ......... 177,491 179,177
Due after five years through ten years ........ 183,238 188,600
Due after ten years ........................... 29,960 29,818
Mortgage-backed securities .................... -- --
---------- ----------
Total ....................................... $ 423,250 $ 430,364
========== ==========
As Of September 30, 1996
---------------------------
Estimated
Amortized Fair
Cost Value
---------- ----------
(000's)
AVAILABLE FOR SALE
Due in one year or less ....................... $ 107,594 $ 108,914
Due after one year through five years ......... 1,553,606 1,560,357
Due after five years through ten years ........ 328,896 331,740
Due after ten years ........................... 94,644 95,200
Mortgage-backed securities .................... 517 530
---------- ----------
Total ....................................... $2,085,257 $2,096,741
========== ==========
B-14
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES (Continued)
(UNAUDITED)
(GAAP BASIS)
As of December 31, 1995
---------------------------
Estimated
Amortized Fair
Cost Value
---------- ----------
(000's)
HELD TO MATURITY
Due in one year or less ...................... $ 25,982 $ 26,325
Due after one year through five years ........ 184,288 189,354
Due after five years through ten years ....... 194,543 206,331
Due after ten years .......................... 32,914 32,541
Mortgage-backed securities ................... -- --
---------- ----------
Total ...................................... $ 437,727 $ 454,551
========== ==========
As of December 31, 1995
---------------------------
Estimated
Amortized Fair
Cost Value
---------- ----------
(000's)
AVAILABLE FOR SALE
Due in one year or less ...................... $ 135,710 $ 137,304
Due after one year through five years ........ 1,316,881 1,360,878
Due after five years through ten years ....... 335,302 349,961
Due after ten years .......................... 116,937 119,202
Mortgage-backed securities ................... 169,190 177,509
---------- ----------
Total ...................................... $2,074,020 $2,144,854
========== ==========
Proceeds from the sale/maturity of fixed maturities during the period ended
September 30, 1996 and the year ended December 31, 1995 were $3.2 billion and
$2.0 billion, respectively. Gross gains of $23.3 million and $28.9 million and
gross losses of $16.8 million and $17.3 million were realized on those sales
during the period ended September 30, 1996 and the year ended December 31, 1995,
respectively.
B-15
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES (Continued)
(UNAUDITED)
(GAAP BASIS)
3. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------- ---------------------
1996 1995 1996 1995
-------- -------- --------- --------
(000's) (000's)
<S> <C> <C> <C> <C>
Net investment income consisted of:
Gross investment income
Fixed maturities ..................... $138,564 $147,217 $ 46,605 $ 48,385
Equity securities .................... 44 96 44 128
Mortgage loans ....................... 4,321 6,164 2,008 1,605
Investment real estate ............... 613 437 125 124
Policy loans ......................... 24,694 21,701 8,734 7,520
Short term investments ............... 11,272 9,208 2,678 3,455
Other ................................ 6,486 4,689 1,738 1,424
-------- -------- -------- --------
185,994 189,512 61,932 62,641
Investment expenses .................... 5,238 3,722 3,380 1,203
-------- -------- -------- --------
Net investment income .................. $180,756 $185,790 $ 58,552 $ 61,438
======== ======== ======== ========
</TABLE>
4. INVESTMENT GAINS/(LOSSES)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------- -------------------
1996 1995 1996 1995
-------- -------- ------- --------
(000's) (000's)
<S> <C> <C> <C> <C>
Realized gains/(losses)
Fixed maturities ....................... $ 6,157 $ 6,700 $ 1,214 $ 6,328
Equity securities ...................... 589 1,752 629 1,682
Mortgage loans ......................... -- -- -- --
Investment real estate ................. 487 (69) 487 --
Other .................................. 19 10 (1) (8)
-------- ------- ------- -------
Realized investment gains/(losses) ..... $ 7,252 $ 8,393 $ 2,329 $ 8,002
======== ======= ======= =======
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------- -------------------
1996 1995 1996 1995
-------- -------- ------- --------
(000's) (000's)
<S> <C> <C> <C> <C>
Unrealized gains/(losses)
Fixed maturities - Available for sale ........ $(56,749) $ 45,320 $ 304 $ (7,364)
Equity securities ............................ (27) 9 -- (44)
-------- -------- ------- --------
(56,776) 45,329 304 (7,408)
-------- -------- ------- --------
Other adjustments (a) .......................... 16,026 (30,888) (368) (16,328)
Federal income tax provision/(benefit) ......... 15,268 (2,636) (723) 9,270
-------- -------- ------- --------
Net change in unrealized gains/(losses) ........ (25,482) 11,805 (787) (14,466)
Net unrealized gains/(losses), beg of period ... 33,342 -- -- --
-------- -------- ------- --------
Net unrealized gains/(losses) .................. $ 7,860 $ 11,805 $ (787) $(14,466)
======== ======== ======= ========
</TABLE>
(a) Other adjustments consist of deferred policy acquisition costs.
B-16
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES (Continued)
(UNAUDITED)
(GAAP BASIS)
5. MORTGAGE LOANS
Mortgage loans at September 30, 1996 and December 31, 1995 are as follows:
September 30, December 31,
1996 1995
------------- ------------
(000's)
Commercial loans .................. $51,482 $59,659
Agricultural loans ................ 3,042 4,805
------- -------
Total mortgage loans .............. $54,524 $64,464
======= =======
6. 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 judgment is
applied, as necessary, 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.
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.
7. INSURANCE
The benefit reserve liabilities for single premium universal life contracts
and investment-type contracts such as deferred annuities are the
contractholders' funds.
The benefit reserve liabilities for payout annuities such as matured
deferred annuities and supplementary contracts are the present values of
estimated future benefits payments and related expenses. Present values for
these contracts are computed using interest rates ranging from 6.5% to 11%.
The mortality assumption for these contracts is the 83 IAM tables. Reserves
for supplementary benefits are stated at interest rates that vary from 4%
to 6.5% using mortality and morbidity assumptions either from company
experience or various actuarial tables.
B-17
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES (Continued)
(UNAUDITED)
(GAAP BASIS)
8. 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 a loss
for tax purposes recognize a current benefit in proportion to the amount of
their losses utilized in computing consolidated taxable income.
The Company has not established a valuation allowance for its deferred tax
assets. Management believes that based on its historical pattern of taxable
income, the Company will produce sufficient income in the future to realize
its deferred tax asset.
Net unrealized gains and losses are presented in equity net of deferred
taxes. The tax provision attributable to these items amounted to $1,811
thousand and $17,078 thousand at September 30, 1996 and December 31, 1995,
respectively.
The Internal Revenue Service (the "Service") has conducted examinations of
the federal income tax returns of the Company through 1992. Discussions are
being held with the Service with respect to proposed adjustments. However,
management believes there are adequate defenses against, or sufficient
reserves to provide for, such challenges.
The components of the income tax provisions are as follows:
Nine Months Ended Nine Months Ended
September 30, September 30,
1996 1995
------------------ -------------------
(000's)
Current U.S. income tax ....... $57,959 $55,610
Deferred U.S. income tax ...... 7,399 5,597
------- -------
Total income taxes ............ $65,358 $61,607
======= =======
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are presented below.
September 30, December 31,
1996 1995
------------- ------------
(000's)
DEFERRED TAX ASSETS
Insurance reserves ................... $ 40,334 $ 42,601
Other ................................ 1,932 -
-------- --------
Total deferred tax assets ............ $ 42,226 $ 42,601
======== ========
DEFERRED TAX LIABILITIES
Deferred acquisition costs ........... $166,285 $153,526
Net capital gains .................... 6,235 27,102
Other ................................ -- 96
-------- --------
Total deferred tax liabilities ....... $172,521 $180,724
-------- --------
Net deferred liability ................. $130,255 $138,123
======== ========
The differences between the U.S. statutory federal income tax and the
effective income tax as reflected in the accompanying statement of income
are:
Nine Months Ended Nine Months Ended
September 30, September 30,
1996 1995
----------------- -----------------
(000's)
Tax at statutory rate ......... $65,358 $61,208
True-up ....................... -- --
Other items, net .............. -- (1)
------- -------
Total tax provision ........... $65,358 $61,207
======= =======
B-18
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES (Continued)
(UNAUDITED)
(GAAP BASIS)
9. STOCKHOLDERS' EQUITY
The amounts of statutory net income for the periods ended, and surplus as
of September 30, 1996 and 1995 were as follows:
Nine Months Ended Nine Months Ended
September 30, September 30,
1996 1995
------------------ -----------------
(000's)
Net income ............. $ 69,875 $108,091
As of As of
September 30, December 31,
1996 1995
------------- ------------
(000's)
Surplus ................ $899,128 $829,021
10. RELATED PARTY TRANSACTIONS
A. SERVICE AGREEMENTS
The Company, Prudential, Pruco Life of New Jersey and Pruco Securities
Corporation, an indirect wholly-owned subsidiary of 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 $72.7 million as of September 30, 1996
and $98 million for the year ended December 31, 1995.
B. PENSION PLANS
The Company is a wholly-owned subsidiary of Prudential which sponsors several
defined benefit pension plans that cover substantially all of its employees.
Benefits are generally based on career average earnings and credited length of
service. 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
1996 or 1995 because the plan was subject to the full funding limitation under
the Internal Revenue Code.
C. POSTRETIREMENT LIFE AND HEALTH BENEFITS
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.
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 period ended September 30, 1996
and the year ended December 31, 1995.
D. REINSURANCE
The Company currently has three reinsurance agreements in place with Prudential
(the reinsurer). Specifically: reinsurance Group Annuity Contract, whereby the
reinsurer, in consideration for a single premium payment by the Company,
provides reinsurance equal to 100% of all payments due under the contract, and
two yearly renewable term agreements in which the Company may offer and the
reinsurer may accept reinsurance on any life in excess of the Company's maximum
limit of retention. These agreements had no material effect on net income for
the periods ended September 30, 1996 and 1995.
11. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and the
Company. Prudential has agreed to indemnify the Company for any and all losses
resulting from such litigation.
12. DIVIDENDS
The Company is subject to Arizona law which limits the amount of dividends that
insurance companies can pay to stockholders. The maximum dividend which may be
paid in any 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 distribution in 1996, all of
which could be paid in cash, without approval from The State of Arizona
Department of Insurance.
B-19
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Statutory Basis)
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
(Statutory Basis)
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-20
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Statutory Basis)
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
(Statutory Basis)
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-21
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Statutory Basis)
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
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 ACCOUNTING 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
B-22
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Statutory Basis)
amended, is effective for fiscal years beginning after December 15, 1995.
Interpretation No. 40 changes the current practice of 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. See Note 9 of the Notes to Consolidated Financial Statements on
page B-31 for the impact of Interpretation No. 40 on the Company's Total
Stockholders' Equity.
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
---------- ----------
Liabilities:
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-23
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Statutory Basis)
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-24
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Statutory Basis)
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-25
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Statutory Basis)
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-26
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Statutory Basis)
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 and
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-27
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Statutory Basis)
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.
B-28
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Statutory Basis)
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 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.
B-29
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Statutory Basis)
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.
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-30
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Statutory Basis)
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.
9. SUBSEQUENT EVENT
As required by Interpretaion No. 40, in the first quarter of 1996, the
Company changed its basis of accounting from statutory accounting
practices to Generally Accepted Accounting Principles ("GAAP") (see Note
1). The effect of this change to Total Stockholders' Equity at December
31, 1995 was an increase of $433 million (unaudited).
B-31
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying statements of financial position--statutory
basis of Pruco Life Insurance Company and Subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations, stockholders'
equity and cash flows--statutory basis 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 these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Notes 1 and 9, as of the first quarter of 1996, the Company has
changed its accounting policies to conform to all generally accepted accounting
principles pronouncements. Therefore, these financial statements, which were
prepared in conformity with the accounting practices prescribed or permitted by
the Insurance Department of the State of Arizona (statutory basis), which is a
comprehensive basis of accounting, are no longer in accordance with generally
accepted accounting principles. The effects on such financial statements of the
differences between the statutory basis of accounting and generally accepted
accounting principles are also described in Note 9.
In our opinion, because of the effects of the differences between the two bases
of accounting referred to in the preceding paragraph, such financial statements
do not 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.
However, in our opinion, the accompanying statutory basis 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 its operations and its cash flows for each of the three years in the
period ended December 31, 1995, on the basis of accounting described in Note 1.
Deloitte & Touche LLP
Parsippany, New Jersey
March 15, 1996, except for Note 9
as to which the date is September 11, 1996
B-32
<PAGE>
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 437-4016, Ext. 46
VUL-1 Ed. __/96
Cat # 64M9743
<PAGE>
PART II
OTHER INFORMATION
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION WITH RESPECT TO CHARGES
The fees and charges deducted under the contract, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by the insurance company.
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 88 pages.
The undertaking to file reports.
The undertaking with respect to indemnification.
The signatures.
Written consents of the following persons:
1. Deloitte & Touche LLP.
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 5)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities Corporation and
Pruco Life Insurance Company. (Note 5)
(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 1)
(4) Not Applicable.
(5) Variable Universal Life Insurance Contract: (Note 5)
(6) (a) Articles of Incorporation of Pruco Life Insurance Company, as
amended June 14, 1983. (Note 5)
(b) By-laws of Pruco Life Insurance Company, as amended June 14,
1983. (Note 5)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form. (Note 5)
(b) Supplement to the Application. (Note 4)
(11) Form of Notice of Withdrawal Right. (Note 1)
(12) Memorandum describing The Prudential's issuance, transfer, and
redemption procedures for the Contracts pursuant to Rule
6e-3(T)(b)(12)(iii) and method of computing adjustments in payments
and cash surrender values upon conversion to fixed-benefit policies
pursuant to Rule 6e-3(T)(b)(13)(v)(B). (Note 5)
(13) Available Contract Riders and Endorsements:
(a) Rider for Payment of Premium Benefit Upon Insured's Total
Disability. (Note 5)
(b) 10 Year Level Premium Term Rider on Insured. (Note 1)
(c) 10 Year Level Premium Term Rider on Spouse. (Note 1)
(d) Annually Renewable Term Rider on Insured. (Note 1)
(e) Children's Rider. (Note 1)
(f) Living Needs Benefit Rider
(i) for use in Florida. (Note 5)
(ii) for use in all approved jurisdictions except Florida.
(Note 5)
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)
II-2
<PAGE>
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) Ira J. Kleinman, Esther H. Milnes, I. Edward Price (Note 2)
(b) William F. Yelverton (Note 3)
(c) Linda S. Dougherty, Mendel A. Melzer (Note 5)
(d) William M. Bethke, Kiyofumi Sakaguchi (Note 6)
27. Financial Data Schedule. (Note 1)
(Note 1) Filed herewith.
(Note 2) 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 3) 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.
(Note 4) Incorporated by reference to Form S-6, Registration No. 33-61079, filed
July 17, 1995 on behalf of The Prudential Variable Appreciable Account.
(Note 5) Incorporated by reference to Registrant's Form S-6, filed July 2, 1996.
(Note 6) Incorporated by reference to Pre-Effective Amendment No. 1 to Form N-4,
Registration No. 333-06701, filed September 12, 1996 on behalf of the
Pruco Life Flexible Premium Variable Annuity Account.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life Variable Appreciable Account, has duly caused this Pre-Effective
Amendment No. 1 to the 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 November, 1996.
(Seal) The 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 Pre-Effective
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 25th day of November,
1996.
Signature and Title
-------------------
/s/ *
- -----------------------------------------
Esther H. Milnes
President and Director
/s/ *
- -----------------------------------------
Linda S. Dougherty
Chief Accounting Officer and Comptroller
/s/ *
- -----------------------------------------
William M. Bethke
Director
/s/ * *By: /s/ THOMAS C. CASTANO
- ----------------------------------------- ------------------------------
Ira J. Kleinman Thomas C. Castano
Director (Attorney-in-Fact)
/s/ *
- -----------------------------------------
Mendel A. Melzer
Director
/s/ *
- -----------------------------------------
I. Edward Price
Director
/s/ *
- -----------------------------------------
Kiyofumi Sakaguchi
Director
/s/ *
- -----------------------------------------
William F. Yelverton
Director
II-4
<PAGE>
EXHIBIT INDEX
Consent of Deloitte & Touche LLP, independent
auditors. Page II-6
1.A.(3)(c) Schedules of Sales Commissions. Page II-7
1.A.(11) Form of Notice of Withdrawal Right Page II-8
1.A.(13)(b) 10 Year Level Premium Term Rider on Insured. Page II-10
1.A.(13)(c) 10 Year Level Premium Term Rider on Spouse. Page II-13
1.A.(13)(d) Annually Renewable Term Rider on Insured. Page II-17
1.A.(13)(e) Children's Rider. Page II-20
3. Opinion and Consent of Clifford E. Kirsch,
Esq. as to the legality of the securities being
registered. Page II-23
6. Opinion and Consent of Nancy D. Davis, FSA,
MAAA, as to actuarial matters pertaining to the
securities being registered. Page II-24
27. Financial Data Schedule. Page II-25
II-5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 333-07451 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, except for Note 9 as to which the date is
September 11, 1996, relating to the 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
November 25, 1996
II-6
EXHIBIT 1.A.(3)(C)
COMMISSION SCHEDULE FOR
VARIABLE UNIVERSAL LIFE INSURANCE CONTRACTS
I.) COMMISSIONS
FIRST YEAR COMMISSION - rate will be 50% of the
Modified Commissionable Target Premiums (MCTP). The Modified
Commissionable Target Premium will be the least of (a) the
Commissionable Target Premium (b) the annual planned premium
payment for the first two policy years, as specified on the
application (i.e. billed premium); and (c) the premium
actually received in the First policy year. The
Commissionable Target Premium (CTP) is the target premium
amount excluding aviation, avocation, occupational and
temporary extras on the base policy and any riders.
As premiums are received in the first contract year,
commissions will be paid at a rate of 50% until the total
premium received reaches the MCTP amount. Any premiums
received above the MCTP in year 1 will generate a 3% excess
commission.
If we issue a policy with an issue age in excess of
80, we may reduce the first year commissions.
Agents in their first 4 years in Prudential Preferred
Financial Services ( PPFS) or the first 2 years in
Prudential Insurance and Financial Services ( PI&FS) may be
paid on a different basis.
RENEWAL COMMISSIONS, SERVICE COMMISSIONS AND DROP-INS,
the commission rate on renewal premiums in policy years 2
through 10 is 5% on the amount up to the CTP and it is 3% on
the excess . Commissions on renewal/drop-in premiums
received in year 11 or later will be paid at 3%or less.
II.) COMMISSION RECAPTURES
In PPFS, if a case lapses or is surrendered before
the end of the sixth month, 100% of the commission paid will
be withdrawn. If the case lapses or is surrendered after
being in force 7 months but within the first 24 months, a
portion of the commission will be withdrawn.
III.) OTHER BROKER-DEALERS
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 that stated above.
II-7
EXHIBIT 1.A.(11)
THE PRUDENTIAL [LOGO]
Prudential
P.O. Box 1287
Minneapolis, MN 55440-1287
[800-778-5510
NOTICE OF WITHDRAWAL RIGHT
[Ed McCrossin/Trustee] [Variable Universal Life]*
[The Walton Trust] Insured: [David Walton]
[6252 Spruce Street] Policy: [xxxxxxxx] Contract Date:[03/04/1994]
[Philadelphia, Pa. 19139] Basic Insurance Amount: $[xx,xxx,xxx.xx]
[October 30, 1996]
- -------------------------------------------------------------------------------
In order to comply with the laws administered by the Securities and Exchange
Commission, we are sending you this notice. Please read it carefully and keep it
with your records.
You have recently purchased a Variable Universal Life insurance contract from
Pruco Life Insurance Company. The benefits of this contract depend on the
investment experience of the subaccounts of the variable insurance account.
These subaccounts are described in the Prospectus that was given to you at the
time of the sale.
You have the right to examine and cancel this contract. Upon its return, you are
entitled to either: a) a full refund of all premiums paid; or b) the value of
the contract fund on the date you return the contract plus any charges we have
made in accord with this contract. State law will determine if you receive a) or
b). The cancellation deadline is the latest of:
1. 10 days after you have received the contract
2. 45 days from the date you completed PART 1 of the application
3. 10 days from the date of delivery of this notice.
In determining whether or not to cancel your contract, you should consider,
along with other factors such as the needs and other reasons which motivated you
to purchase this contract, the projected cost and your ability to make premium
payments into your contract. Please consult and review the Prospectus you have
received. The Prospectus describes the deductions from payments before amounts
are allocated to the above mentioned subaccounts.
If you decide to cancel your contract, complete the enclosed form and return it
along with your contract. The postmark of the returned contract must be on or
before the deadline described above.
II-8
<PAGE>
INSTRUCTIONS
Please read carefully
If after reading the enclosed Notice, you decide to return your contract for
cancellation, you must:
1. Sign and date the bottom portion of this form.
2. Mail this Notice together with your contract to:
Prudential
P.O. Box 1287
Minneapolis, MN 55440-1287
3. Make certain that the postmark on the envelope is on or before the
latest date permitted for cancellation as described in the enclosed
notice.
4. Check the box at the bottom if you have not yet received your contrac
when mailing this form.
TO BE FILLED OUT BY OWNER
To: Pruco Life Insurance Company
Pursuant to the terms of the notice previously furnished me by Pruco Life
Insurance Company, I hereby return the contract numbered below for cancellation
and will receive either: a) a full refund of all premiums paid; or b) the value
of the contract fund on the date the contract is returned plus any charges you
have made in accord with this contract. State law will determine if you receive
a) or b). I release Pruco Life Insurance Company from any claims in connection
with the sale or issuance of this contract, and acknowledge that Pruco Life
Insurance Company's only liability is the refund of the premiums paid for the
contract.
- ----------------------- --------------------------------------------------
Date Signature of Contract Owner
---------------------------------------------
Policy Number
---------------------------------------------
Name of Insured, if other than owner
____ I have not yet received the contract and should it be received, I will
return it to Pruco Life Insurance Company.
II-9
EXHIBIT 1.A.(13)(b)
RIDER FOR LEVEL TERM INSURANCE BENEFIT ON LIFE OF
INSURED
This benefit is a part of this contract only if it is
listed on a contract data page.
BENEFIT We will pay an amount under this benefit if we
receive due proof that the Insured died: (1) in the
term period for the benefit; and (2) while this
contract is in force and not in default past the last
day of the grace period. But our payment is subject
to all the provisions of this rider and of the rest
of this contract.
We show the amount of term insurance under this
benefit on a contract data page. We also show the
term period for the benefit there. The term period
starts on the contract date. The anniversary at the
end of the term period is part of that period.
BENEFIT The monthly charge for this benefit is deducted on
CHARGES each monthly date from the contract fund. The amount
of that charge is shown under Adjustments to the
Contract Fund. Monthly charges for this benefit stop
on the anniversary at the end of the term period.
CONVERSION TO ANOTHER PLAN OF INSURANCE
RIGHT TO You may convert this benefit to a new contract of
CONVERT life insurance on the Insured's life. You will not
have to prove that the Insured is insurable.
CONDITIONS You must ask for the conversion in a form that meets
our needs, while this contract is in force and not
in default past the last day of the grace period, and
on or before the fifth contract anniversary. We may
require you to send us this contract.
The new contract will not take effect unless the
premium for it is paid while the Insured is living
and within 31 days after its contract date. If the
premium is paid as we state, it will be deemed that
the new contract took effect on its contract date and
that this benefit ended just before that date.
PREMIUM Upon conversion to a new contract with scheduled
CREDIT premiums, we will allow a credit, as described below,
on each premium that is due or scheduled for payment
during the first year of the new contract. Upon
conversion to a new contract without scheduled
premiums, we will allow a credit as of the contract
date provided you pay any required minimum initial
premium for the new contract.
If this benefit has been in force for at least one
year on the contract date of the new contract, we
will allow the full credit described below. If this
benefit has been in force for less than one year as
of that date, the credit will be reduced on a
pro-rata basis taking into consideration the portion
of a year for which this benefit has then been in
force.
The full credit is equal to the monthly charges
deducted from the contract fund for the benefits
being converted under this rider during the twelve
months preceding the date of the new contract. Extra
charges for extra risks or extra benefits other than
a waiver benefit are not considered in determining
this credit.
If the new contract has scheduled premiums, we will
reduce each premium due or scheduled for payment in
the first year of the new contract to consider either
the full or reduced credit, as appropriate. If more
than one premium is due or scheduled for payment, we
will apportion any credit between them. If the new
contract does not have scheduled premiums, we will
pay either
II-10
<PAGE>
the full or reduced credit, as appropriate, into the
new contract as of the contract date provided you pay
any required minimum initial premium for the new
contract.
CONTRACT If this contract is not in default, you may choose
DATE any contract date for the new contract that is not
more than 31 days after nor more than 31 days before
the date we receive your request, and not later than
the fifth contract anniversary. If this contract is
in default but not past the last day of the grace
period, the contract date for the new contract will
be the date on which this contract went into default.
CONTRACT The new contract will be in the same rating class as
SPECIFICATIONS this contract. We will set the issue age, premiums
and charges for the new contract in accordance with
our regular rules in use on its contract date.
Except as we state in the next sentence, the new
contract may be any life or endowment policy we or
our parent company, The Prudential Insurance Company
of America, regularly issue on its contract date for
the same rating class, amount, issue age and sex. It
may not be: a single-premium contract; one that
insures anyone in addition to the Insured; one that
includes or provides for term insurance, other than
extended insurance; one with premiums that increase
after a stated time, if its first premium is less
than 80% of any later premium; or one with any
benefit other than the basic insurance benefit and
the waiver benefit we refer to below. A waiver
benefit may either waive or pay premiums in the event
of the Insured's total disability.
The basic amount of the new contract may be any
amount you ask for as long as it is at least $10,000
and not more than the amount of term insurance for
this benefit. If the amount you want is smaller than
the smallest amount we would regularly issue on the
plan you want, we will issue a new contract for as
low as $10,000 on the Life Paid Up at Age 85 plan if
you ask us to.
If this contract has a benefit for paying premiums in
the event of the Insured's total disability, we will
include a waiver benefit in the new contract if its
premium period runs to at least the Insured's
attained age 85 and if we would include a waiver
benefit in other contracts like the new one.
We will not deny a waiver benefit that we would have
allowed under this contract, and that we would
otherwise allow under the new contract, just because
total disability started before the contract date of
the new contract. Any premium to be waived or paid
for total disability under the new contract must be
on the monthly mode. We will not waive or pay any
premium under the new contract unless it has a waiver
benefit, even if we have paid premiums into this
contract due to the Insured's total disability.
Any waiver benefit in the new contract will be the
same one, with the same provisions, that we put in
other contracts like it on its contract date. In any
of these paragraphs, when we refer to other
contracts, we mean contracts we would regularly issue
on the same plan as the new contract and for the same
rating class, amount, issue age and sex.
CHANGES You may be able to have this benefit changed to a new
contract of life insurance other than in accordance
with the requirements for conversion that we state
above. But any change may be made only if we consent,
and will be subject to conditions and charges that
are then determined.
II-11
<PAGE>
TERMINATION OF BENEFIT
This benefit will end on the earliest of:
1. The end of its term period;
2. the end of the last day of the grace period if the
contract is in default;
3. the end of the last day before the contract date
of any other contract to which the benefit is
converted or changed;
4. the date the contract is surrendered for its net
cash value; and
5. the date the contract ends for any other reason.
Further, if you ask us in a form that meets our
needs, we will cancel the benefit as of the first
monthly date on or after the date we receive your
request. Monthly charges due then and later will be
reduced accordingly.
THIS SUPPLEMENTARY BENEFIT RIDER ATTACHED TO THIS
CONTRACT ON THE CONTRACT DATE
Pruco Life Insurance Company,
By A B C
Secretary
II-12
Exhibit 1.A.(13)(c)
RIDER FOR TERM INSURANCE BENEFIT ON LIFE OF
INSURED SPOUSE
This benefit is a part of this contract only if it is
listed on a contract data page.
BENEFIT We will pay an amount under this benefit if we
receive due proof that the insured spouse died: (1)
in the term period for the benefit; and (2) while
this contract is in force and not in default past the
last day of the grace period. But our payment is
subject to all the provisions of this rider and of
the rest of this contract. The phrase insured spouse
means the Insured's spouse named in the application
for this contract.
We show the amount of this benefit on a contract data
page. We also show the term period for the benefit
there. The term period starts on the contract date.
The anniversary at the end of the period is part of
that period.
BENEFIT The monthly charge for this benefit is deducted on
CHARGES each monthly date from the contract fund. The
amount of that charge is shown under Adjustments to
the Contract Fund.
Monthly charges for this benefit stop on the earliest
of: (1) the death of the Insured, (2) the death of
the insured spouse, and (3) the anniversary at the
end of the term period.
PAID-UP INSURANCE
PAID-UP If the Insured dies in the term period for this
INSURANCE ON benefit while this contract is in force and not in
LIFE OF INSURED default past the last day of the grace period and
while the insured spouse is living, the insurance on
the life of the insured spouse under the benefit will
become paid-up term insurance. While the paid-up
insurance is in effect, the contract will remain in
force until the end of the term period for this
benefit. The paid-up insurance will have cash values
but no loan value.
If this benefit becomes paid-up, it may be
surrendered for its net cash value. This will be the
net value on the date of surrender of the paid-up
insurance. But, within 30 days after a contract
anniversary, the net cash value will not be less than
it was on that anniversary. We base this net cash
value on the insured spouse's age and sex. The
insured spouse's age at any time will be his or her
age last birthday on the contract date plus the
length of time since that date. We use the
Commissioners 1980 Standard Ordinary Mortality Table.
We use continuous functions based on age last
birthday. We use an effective interest rate of 4% a
year.
We will usually pay any cash value promptly. But we
have the right to postpone paying it for up to six
months. If we do so for more than 30 days, we will
pay interest at the rate of 3% a year.
CONVERSION TO ANOTHER PLAN OF INSURANCE
Right to While the Insured is living, you may convert this
Convert benefit to a new contract of life insurance on the
Conditions life of the insured spouse. You will not have to
prove that the insured spouse is insurable.
You must ask for the conversion in a form that meets
our needs, while this contract is in force and not in
default past the last day of the grace period, and on
or before the fifth contract anniversary. We may
require you to send us the contract.
The new contract will not take effect unless the
premium for it is paid while the insured spouse is
living and within 31 days after its contract date. If
the premium is paid as we state, it will be deemed
that the new contract took effect on its contract
date and that this benefit ended just before that
date.
II-13
<PAGE>
PREMIUM Upon conversion to a new contract with scheduled
CREDIT premiums, we will allow a credit, as described below,
on each premium that is due or scheduled for payment
during the first year of the new contract. Upon
conversion to a new contract without scheduled
premiums, we will allow a credit as of the contract
date provided you pay any required minimum initial
premium for the new contract.
If this benefit has been in force for at least one
year on the contract date of the new contract, we
will allow the full credit described below. If this
benefit has been in force for less than one year as
of that date, the credit will be reduced on a
pro-rata basis taking into consideration the portion
of a year for which this benefit has then been in
force.
The full credit is equal to the monthly charges
deducted from the contract fund for the benefits
being converted under this rider during the twelve
months preceding the date of the new contract. Extra
charges for extra risks or extra benefits other than
a waiver benefit are not considered in determining
this credit.
If the new contract has scheduled premiums, we will
reduce each premium due or scheduled for payment in
the first year of the new contract to consider either
the full or reduced credit, as appropriate. If more
than one premium is due or scheduled for payment, we
will apportion any credit between them. If the new
contract does not have scheduled premiums, we will
pay either the full or reduced credit, as
appropriate, into the new contract as of the contract
date provided you pay any required minimum initial
premium for the new contract.
CONTRACT If this contract is not in default, you may choose
DATE any contract date for the new contract that is not
more than 31 days after nor more than 31 days before
the date we receive your request, and not later than
the fifth contract anniversary. If this contract is
in default but not past the last day of the grace
period, the contract date for the new contract will
be the date on which this contract went into default.
CONTRACT The new contract will be in the rating class we show
SPECIFICATIONS for this benefit on a contract data page. We will set
the issue age, premiums and charges for the new
contract in accordance with our regular rules in use
on its contract date.
Except as we state in the next sentence, the new
contract may be any life or endowment policy we or
our parent company, The Prudential Insurance Company
of America, regularly issue on its contract date for
the same rating class, amount, issue age and sex. It
may not be: a single-premium contract; one that
insures anyone in addition to the Insured; one that
includes or provides for term insurance, other than
extended insurance; one with premiums that increase
after a stated time, if its first premium is less
than 80% of any later premium; or one with any
benefit other than the basic insurance benefit and
the waiver benefit we refer to below. A waiver
benefit may either waive or pay premiums in the event
of the Insured's total disability.
The basic amount of the new contract may be any
amount you ask for as long as it is at least $10,000
and not more than the amount of term insurance for
this benefit. If the amount you want is smaller than
the smallest amount we would regularly issue on the
plan you want, we will issue a new contract for as
low as $10,000 on the Life Paid Up at Age 85 plan if
you ask us to.
Even though this contract does not have a waiver
benefit on the life of an insured spouse, we will
include a waiver benefit in the new contract if its
premium period runs to at least the Insured's
attained age 85 and if we would include a waiver
benefit in other contracts like the new one.
We will not waive or pay any premium under the new
contract unless it has a waiver benefit, even if we
have paid premiums into this contract due to the
Insured's total disability. And we will not waive or
pay any premium under the new contract unless the
total disability started on or after its contract
date.
Any waiver benefit in the new contract will be the
same one, with the same provisions, that we put in
other contracts like it on its contract date. In any
of these paragraphs, when we refer to
II-14
<PAGE>
other contracts, we mean contracts we would regularly
issue on the same plan as the new contract and for
the same rating class, amount, issue age and sex.
MISCELLANEOUS
CHANGES You may be able to have this benefit changed to a new
contract of life insurance other than in accordance
with the requirements for conversion that we state
above. But any change may be made only if we consent,
and will be subject to conditions and charges that
are then determined.
OWNERSHIP While any insurance under this benefit is in force
after the Insured's death, the insured spouse will be
the owner of the contract and will be entitled to any
contract benefit and value and the exercise of any
right and privilege granted by the contract or by us.
But any insurance payable upon the Insured's death
will be payable to the beneficiary for that
insurance.
BENEFICIARY The word beneficiary where we use it in this contract
without qualification means the beneficiary for
insurance payable upon the death of the Insured.
On the contract date, unless we issue the contract
with an endorsement that states otherwise, the
beneficiary for insurance payable upon the death of
the insured spouse will be the Insured if living,
otherwise the estate of the insured spouse.
You may change the beneficiary for insurance payable
upon the death of the insured spouse. The request
must be in a form that meets our needs. It will take
effect only when we file it; this will be after you
send us the contract, if we require it to issue an
endorsement. Then any previous beneficiary's interest
in such insurance will end as of the date of the
request. It will end then even if the insured spouse
is not living when we file the request. Any
beneficiary's interest is subject to the rights of
any assignee we know of.
When a beneficiary is designated, any relationship
shown is to the Insured, unless otherwise stated.
MISSTATEMENT If the insured spouse's stated age or sex or both are
OF AGE OR SEX not correct, we will change each benefit and any
amount payable to what the charges for this benefit
would have provided at the insured spouse's correct
age and sex.
The charges for this benefit may change or stop on a
certain date. We may have used that date because the
insured spouse would attain a certain age on that
date. If we find that the issue age for the insured
spouse was wrong, we will correct that date.
SUICIDE If the insured spouse, whether sane or insane, dies
EXCLUSION by suicide within the period which we state in the
Suicide Exclusion under Death Benefits provision, we
will not pay the amount we describe under Benefit
above. Instead, we will pay no more than the charges
deducted from the contract fund for this benefit. We
will make that payment in one sum.
REINSTATEMENT If this contract is reinstated, it will not include
the insurance that we provide under this benefit on
the life of the insured spouse unless you prove to us
that the insured spouse is insurable for the benefit.
INCONTESTABILITY Except for non-payment of premium, we will not
contest this benefit after it has been in force
during the insured spouse's lifetime for two years
from the issue date.
II-15
<PAGE>
TERMINATION OF BENEFIT
This benefit will end on the earliest of:
1. the end of the last day of the grace period if the
contract is in default;
2. the end of the last day before the contract date
of any other contract to which the benefit is
converted or changed;
3. the date the contract is surrendered for its net
cash value, or the paid-up insurance, if any,
under the benefit is surrendered;
4. the end of its term period; and
5. the date the contract ends for any other reason.
Further, if you ask us in a form that meets our
needs, we will cancel the benefit as of the first
monthly date on or after the date we receive your
request. Monthly charges due then and later will be
reduced accordingly.
THIS SUPPLEMENTARY BENEFIT RIDER ATTACHED TO THIS
CONTRACT ON THE CONTRACT DATE
Pruco Life Insurance Company,
By A B C
Secretary
II-16
Exhibit 1.A.(13)(d)
RIDER FOR LEVEL TERM INSURANCE BENEFIT ON LIFE
OF INSURED--CHARGES INCREASE ANNUALLY
This benefit is a part of this contract only if it is
listed on a contract data page.
BENEFIT We will pay an amount under this benefit if we
receive due proof that the Insured died: (1) in the
term period for the benefit; and (2) while this
contract is in force and not in default past the last
day of the grace period. But our payment is subject
to all the provisions of this rider and of the rest
of this contract.
We show the amount of term insurance under this
benefit on a contract data page. We also show the
term period for the benefit there. The term period
starts on the contract date. The anniversary at the
end of the term period is part of that period.
BENEFIT The monthly charge for this benefit is deducted on
CHARGES each monthly date from the contract fund. The amount
of that charge is shown under Adjustments to the
Contract Fund. Monthly charges for this benefit stop
on the anniversary at the end of the term period.
CONVERSION TO ANOTHER PLAN OF INSURANCE
RIGHT TO You may convert this benefit to a new contract of
CONVERT life insurance on the Insured's life. You will not
have to prove that the Insured is insurable.
CONDITIONS You must ask for the conversion in a form that meets
our needs, while this contract is in force and not in
default past the last day of the grace period, and on
or before the fifth contract anniversary. We may
require you to send us this contract.
The new contract will not take effect unless the
premium for it is paid while the Insured is living
and within 31 days after its contract date. If the
premium is paid as we state, it will be deemed that
the new contract took effect on its contract date and
that this benefit ended just before that date.
PREMIUM Upon conversion to a new contract with scheduled
CREDIT premiums, we will allow a credit, as described below,
on each premium that is due or scheduled for payment
during the first year of the new contract. Upon
conversion to a new contract without scheduled
premiums, we will allow a credit as of the contract
date provided you pay any required minimum initial
premium for the new contract.
If this benefit has been in force for at least one
year on the contract date of the new contract, we
will allow the full credit described below. If this
benefit has been in force for less than one year as
of that date, the credit will be reduced on a
pro-rata basis taking into consideration the portion
of a year for which this benefit has then been in
force.
The full credit is equal to the monthly charges
deducted from the contract fund for the benefits
being converted under this rider during the twelve
months preceding the date of the new contract. Extra
charges for extra risks or extra benefits other than
a waiver benefit are not considered in determining
this credit.
If the new contract has scheduled premiums, we will
reduce each premium due or scheduled for payment in
the first year of the new contract to consider either
the full or reduced credit, as appropriate. If more
than one premium is due or scheduled for payment, we
will apportion any credit between them. If the new
contract does not have scheduled premiums, we will
pay either
II-17
<PAGE>
the full or reduced credit, as appropriate, into the
new contract as of the contract date provided you pay
any required minimum initial premium for the new
contract.
CONTRACT If this contract is not in default, you may choose
DATE any contract date for the new contract that is not
more than 31 days after nor more than 31 days before
the date we receive your request, and not later than
the fifth contract anniversary. If this contract is
in default but not past the last day of the grace
period, the contract date for the new contract will
be the date on which this contract went into default.
CONTRACT The new contract will be in the same rating class as
SPECIFICATIONS this contract. We will set the issue age, premiums
and charges for the new contract in accordance with
our regular rules in use on its contract date.
Except as we state in the next sentence, the new
contract may be any life or endowment policy we or
our parent company, The Prudential Insurance Company
of America, regularly issue on its contract date for
the same rating class, amount, issue age and sex. It
may not be: a single-premium contract; one that
insures anyone in addition to the Insured; one that
includes or provides for term insurance, other than
extended insurance; one with premiums that increase
after a stated time, if its first premium is less
than 80% of any later premium; or one with any
benefit other than the basic insurance benefit and
the waiver benefit we refer to below. A waiver
benefit may either waive or pay premiums in the event
of the Insured's total disability.
The basic amount of the new contract may be any
amount you ask for as long as it is at least $10,000
and not more than the amount of term insurance for
this benefit. If the amount you want is smaller than
the smallest amount we would regularly issue on the
plan you want, we will issue a new contract for as
low as $10,000 on the Life Paid Up at Age 85 plan if
you ask us to.
If this contract has a benefit for paying premiums in
the event of the Insured's total disability, we will
include a waiver benefit in the new contract if its
premium period runs to at least the Insured's
attained age 85 and if we would include a waiver
benefit in other contracts like the new one.
We will not deny a waiver benefit that we would have
allowed under this contract, and that we would
otherwise allow under the new contract, just because
total disability started before the contract date of
the new contract. Any premium to be waived or paid
for total disability under the new contract must be
on the monthly mode. We will not waive or pay any
premium under the new contract unless it has a waiver
benefit, even if we have paid premiums into this
contract due to the Insured's total disability.
Any waiver benefit in the new contract will be the
same one, with the same provisions, that we put in
other contracts like it on its contract date. In any
of these paragraphs, when we refer to other
contracts, we mean contracts we would regularly issue
on the same plan as the new contract and for the same
rating class, amount, issue age and sex.
Changes You may be able to have this benefit changed to a new
contract of life insurance other than in accordance
with the requirements for conversion that we state
above. But any change may be made only if we consent,
and will be subject to conditions and charges that
are then determined.
II-18
<PAGE>
TERMINATION OF BENEFIT
This benefit will end on the earliest of:
1. The end of its term period;
2. the end of the last day of the grace period if the
contract is in default;
3. the end of the last day before the contract date
of any other contract to which the benefit is
converted or changed;
4. the date the contract is surrendered for its net
cash value; and
5. the date the contract ends for any other reason.
Further, if you ask us in a form that meets our
needs, we will cancel the benefit as of the first
monthly date on or after the date we receive your
request. Monthly charges due then and later will be
reduced accordingly.
THIS SUPPLEMENTARY BENEFIT RIDER ATTACHED TO THIS
CONTRACT ON THE CONTRACT DATE
Pruco Life Insurance Company,
By A B C
Secretary
II-19
Exhibit 1.A.(13)(e)
RIDER FOR LEVEL TERM INSURANCE BENEFIT ON
DEPENDENT CHILDREN
This benefit is a part of this contract only if it is
listed on a contract data page.
BENEFIT We will pay the amount of term insurance under this
benefit if we receive due proof that a dependent
child died while this contract is in force and not in
default past the last day of the grace period and
before the term insurance provided by the benefit on
his or her life ends. But our payment is subject to
all the provisions of this rider and of the rest of
this contract.
The phrase dependent child means the Insured's child,
stepchild, or legally adopted child who: (1) has
reached the 14th day after his or her date of birth;
and (2) has not reached the first contract
anniversary after his or her 25th birthday; and
either (3) is named in the application for this
contract and on the date of the application has not
reached his or her 18th birthday; or (4) becomes the
child of the Insured by birth, marriage or adoption
after the date of the application but before the
child's 18th birthday.
We show the amount of term insurance under this
benefit on a contract data page. The insurance on
each dependent child's life will end on the earlier
of: (1) the end of the day before the first contract
anniversary after the child's 25th birthday; and (2)
the end of the day before the first contract
anniversary after the Insured's 75th birthday.
BENEFIT The monthly charge for this benefit is deducted each
CHARGES month from the contract fund. The amount of that
charge is shown under Adjustments to the Contract
Fund. Monthly charges for this benefit stop on the
earlier of the date of the Insured's death and the
first anniversary after the Insured's 75th birthday.
PAID-UP INSURANCE
PAID-UP If the Insured dies while this contract is in force
INSURANCE and not in default past the last day of the grace
ON A DEPENDENT period, any term insurance provided by this benefit
CHILD on a dependent child's life will become paid-up term
insurance. While this paid-up insurance is in effect,
the contract will remain in force. The paid-up
insurance will have cash values but no loan value.
If this benefit becomes paid-up, it may be
surrendered for its net cash value. This will be the
net value on the date of surrender of the paid-up
insurance. But, within 30 days after a contract
anniversary, the net cash value will not be less than
it was on that anniversary. To compute this net cash
value, we use the Commissioners 1980 Standard
Ordinary Mortality Table. We use continuous functions
based on age last birthday. We use an effective
interest rate of 4% a year.
We will usually pay any cash value promptly. But we
have the right to postpone paying it for up to six
months. If we do so for more than 30 days, we will
pay interest at the rate of 3% a year.
CONVERSION OF INSURANCE ON A DEPENDENT CHILD
RIGHT TO If the insurance on a dependent child ends as we
CONVERT state in the last paragraph under Benefit above, that
child may convert to a new contract of life insurance
on his or her life. It will not be necessary to prove
that the child is insurable.
CONDITIONS The right to convert to a new contract is subject to
these conditions: (1) The insurance on the child must
end while this contract is in force and not in
default past the last day of the grace
II-20
<PAGE>
period. (2) The amount of the new contract must meet
the minimum as we describe under Contract
Specifications. (3) We must receive a written
application for the new contract no later than the
date the insurance on the child ends.
The new contract will not take effect unless the
premium for it is paid while the child is living and
within 31 days after its contract date. If the
premium is paid as we state, it will be deemed that
the insurance under the new contract took effect on
its contract date.
CONTRACT Date The date of the new contract will be the day
after the date the insurance on the dependent child
ends.
CONTRACT The new contract will be in the standard rating
SPECIFICATIONS class. We will set the issue age and the premiums for
the new contract in accordance with our regular rules
in use on its contract date.
Except as we state in the next sentence, the new
contract may be any life or endowment policy we or
our parent company, The Prudential Insurance Company
of America, regularly issue on its contract date for
the same rating class, amount, issue age, and sex. It
may not be; a single-premium contract; one that
insures anyone in addition to the child; one that
includes or provides for term insurance, other than
extended insurance; one with premiums that increase
after a stated time, if its first premium is less
than 80% of any later premium; or one with any
benefit other than the basic insurance benefit and
the waiver benefit we refer to below. A waiver
benefit may either waive or pay premiums in the event
of the Insured's total disability.
The basic amount of the new contract may be any
amount you ask for as long as it is at least $10,000
and not more than five times the amount of insurance
on the child's life under this benefit. If the amount
you want is smaller than the smallest amount we would
regularly issue on the plan you want, we will issue a
new contract for as low as $10,000 on the Life Paid
Up at Age 85 plan (Life Paid Up at Age 65 plan if the
issue age for the new contract is less than 15 years)
if you ask us to.
If the new contract provides for premium payment to
at least age 85, or age 65 if the issue age for it is
less than 15 years, we will include a waiver benefit
in the event of the total disability of the person
insured if we would include a waiver benefit in other
contracts like the new one.
We will not waive or pay any premium under the new
contract unless the total disability started on or
after its contract date. And we will not waive or pay
any premium under the new contract unless it has a
waiver benefit, even if we have paid premiums into
this contract due to the Insured's total disability.
Any waiver benefit in the new contract will be the
same one, with the same provisions, that we put in
other contracts like it on its contract date. In any
of these paragraphs, when we refer to other
contracts, we mean contracts we would regularly issue
on the same plan as the new contract and for the same
rating class, amount, issue age and sex.
MISCELLANEOUS PROVISIONS
CHANGES If the insurance on a dependent child ends as we
state in the last paragraph under Benefit above, that
child may be able to obtain a new contract of life
insurance other than in accordance with the
requirements we state in this form. But this kind of
change may be made only if we consent, and will be
subject to conditions and charges that are then
determined.
BENEFICIARY The word beneficiary where we use it in this contract
without qualification means the beneficiary for
insurance payable upon the death of the Insured.
II-21
<PAGE>
On the contract date, the following two statements
apply, unless we issue the contract with an
endorsement that states otherwise: (1) The
beneficiary for insurance payable upon the death of a
dependent child will be the Insured if living,
otherwise the beneficiary for this insurance named in
the application. (2) If no such beneficiary is living
when insurance under this benefit becomes payable, we
will make the payment in one sum to the estate of the
later to die of the Insured and such beneficiary.
You may change the beneficiary for insurance payable
upon the death of a dependent child. The request must
be in a form that meets our needs. It will take
effect only when we file it; this will be after you
send the contract to us to be endorsed, if we ask you
for it. Then any previous beneficiary's interest in
such insurance will end as of the date of the
request. It will end then even if the child is not
living when we file the request. Any beneficiary's
interest is subject to the rights of any assignee we
know of. When a beneficiary is designated, any
relationship shown is to the Insured, unless
otherwise stated.
REINSTATEMENT If this contract is reinstated, it will not include
the insurance that we provide under this benefit on
the dependent children unless you prove to us that
each child who is to be insured on or within 15 days
after the date of reinstatement is insurable for the
benefit. If you do not submit such proof for any
child, the benefit may be reinstated if all the other
conditions are met to reinstate the contract, but any
child for whom proof is not submitted will not be
insured under the reinstated benefit. In this case,
you may be required to send the contract to us for
endorsement.
INCONTESTABILITY Except for non-payment of premium, we will not
contest this benefit with respect to the insurance on
any dependent child's life after it has been in force
during the child's lifetime for two years from the
issue date.
TERMINATION OF BENEFIT
This benefit will end on the earliest of:
1. the end the last day of the grace period if the
contract is in default;
2. the end of the day before the first contract
anniversary after the Insured's 75th birthday;
3. the date the contract is surrendered for its net
cash value, if it has any, or the paid-up
insurance, if any, under the benefit is
surrendered; and
4. the date the contract ends for any other reason.
Further, if you ask us in a form that meets our
needs, we will cancel the benefit as of the first
monthly date on or after we receive your request.
Monthly charges due then and later will be reduced
accordingly.
THIS SUPPLEMENTARY BENEFIT RIDER ATTACHED TO THIS
CONTRACT ON THE CONTRACT DATE
Pruco Life Insurance Company,
By A B C
Secretary
II-22
Exhibit 3
November 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. 333-07451) under the Securities Act of 1933 for the registration of certain
variable universal 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 universal 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-23
Exhibit 6
November 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 its Variable Universal Life Contract ("Contract") under the
Securities Act of 1933. The prospectus included in Pre-Effective Amendment No. 1
to Registration Statement No. 333-07451 on Form S-6 describes the Contract. I
have reviewed the Contract 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 of Cash Surrender Values,
Death Benefits, and Accumulated Premiums," based on
the assumptions stated in the illustrations, are
consistent with the provisions of the Contracts. The
rate structure of the Contract has not been designed
so as to make the relationship between premiums and
benefits, as shown in the illustrations, appear more
favorable to a prospective purchaser of a Contract
for male age 35 than to prospective purchasers of
Contracts on males of other ages or on females.
(2) The examples shown in the section of the prospectus
entitled "Changing the Type of Death Benefit" are
consistent with the provisions of the Contract.
(3) The examples shown in the section of the prospectus
entitled "Death Benefit Guarantee" are consistent
with the provisions of the Contract.
(4) The charts included in the sections of the prospectus
"How a Type A (Fixed) Contract's Death Benefit Will
Vary" and "How a Type B (Variable) Contract's Death
Benefit Will Vary" are consistent with the provisions
of the Contract.
(5) The deduction in an amount equal to 1.25% of each
premium is a reasonable charge in relation to the
additional income tax burden imposed upon The
Prudential Insurance Company of America as the result
of the enactment of Section 848 of the internal
Revenue Code. In reaching that conclusion, a number
of factors were taken into account that, in my
opinion, were appropriate and which resulted in a
project after-tax rate of return that is a reasonable
rate to use in discounting the tax benefit of the
deductions allowed in Section 848 in taxable years
subsequent to the year in which the premiums are
received.
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-24
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