AS FILED WITH THE SEC ON _____________. REGISTRATION NO. 333-07451
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
POST-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--The Registrant has registered an
indefinite amount of securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Rule 24f-2 notice for fiscal year 1996 was filed on
February 28, 1997.
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997 pursuant to paragraph (b) of Rule 485
------------
(date)
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on pursuant to paragraph (a) of Rule 485
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(date)
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<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
(AS REQUIRED BY FORM N-8B-2)
N-8B-2 ITEM NUMBER LOCATION
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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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-8B-2 ITEM NUMBER LOCATION
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<S> <C>
20. Not Applicable
21. Contract Loans
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions
25. Pruco Life Insurance Company
26. Brief Description of the Contract; The Prudential Series
Fund, Inc.; Charges and Expenses
27. Pruco Life Insurance Company; The Prudential Series
Fund, Inc.
28. Pruco Life Insurance Company; Directors and Officers
29. Pruco Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Pruco Life Insurance Company
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions
39. Sale of the Contract and Sales Commissions
40. Not Applicable
41. Sale of the Contract and Sales Commissions
42. Not Applicable
43. Not Applicable
44. Brief Description of the Contract; The Prudential Series
Fund, Inc.; How a Contract's 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-8B-2 ITEM NUMBER LOCATION
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<S> <C>
51. Not Applicable
52. Substitution of Series Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements; Financial Statements of the Pruco
Life Variable Appreciable Account; Consolidated
Financial Statements of Pruco Life Insurance Company
and Subsidiaries
</TABLE>
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
PROSPECTUS
MAY 1, 1997
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.
o They may be invested in one or more of 10 available subaccounts of the
Pruco Life Variable Appreciable Account, each of which invests in a
corresponding portfolio of:
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND")
Money Market High Yield Bond Equity
Diversified Bond Stock Index Prudential Jennison
Conservative Balanced Equity Income Global
Flexible Managed
o They may be allocated to a fixed-rate option which guarantees a stipulated
rate of interest. 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.
The attached prospectus for the Series Fund and the related statement of
additional information describe the investment objectives and the risks of
investing in the portfolios. Additional investment options may be added in the
future.
THE REPLACEMENT OF LIFE INSURANCE IS GENERALLY NOT IN THE INTEREST OF THE
CUSTOMER. IN MOST CASES, WHEN A CUSTOMER REQUIRES ADDITIONAL COVERAGE, A NEW
POLICY SUPPLEMENTING THE EXISTING POLICY SHOULD BE REQUESTED, THEREBY PROTECTING
THE BENEFITS OF THE ORIGINAL POLICY. IF YOU ARE CONSIDERING REPLACING A POLICY,
YOU SHOULD COMPARE THE BENEFITS AND COSTS OF SUPPLEMENTING YOUR EXISTING POLICY
WITH THE BENEFITS AND COSTS OF PURCHASING THE CONTRACT DESCRIBED IN THIS
PROSPECTUS AND YOU SHOULD CONSULT WITH A QUALIFIED TAX ADVISOR.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ATTACHED TO
A CURRENT PROSPECTUS FOR THE SERIES FUND.
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 5-97 Catalog # 64M9743
<PAGE>
<TABLE>
<CAPTION>
PROSPECTUS CONTENTS
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........................................................................................................4
PRUCO LIFE INSURANCE COMPANY..............................................................................................4
THE PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT...............................................................................4
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND") ....................................................................5
THE FIXED-RATE OPTION.....................................................................................................6
WHICH INVESTMENT OPTION SHOULD BE SELECTED?...............................................................................6
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............................................................................................................10
ALLOCATION OF PREMIUMS ..................................................................................................11
TRANSFERS................................................................................................................11
DOLLAR COST AVERAGING....................................................................................................11
AUTO-REBALANCING.........................................................................................................12
CHARGES AND EXPENSES.....................................................................................................12
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY..........................................................................14
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
<PAGE>
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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 2 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 or in the
fixed-rate option. 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 6. 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 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. In Oregon this is called a
premium based administrative charge.
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 10 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.
- -------------------------------------------------------------------------------
2
<PAGE>
- -------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
3
<PAGE>
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.
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, 1996, 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.
4
<PAGE>
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 "SERIES FUND")
The following is a list of the portfolios' investment objectives and investment
advisor:
o MONEY MARKET PORTFOLIO: The maximum current income that is consistent with
stability of capital and maintenance of liquidity through investment in
high-quality short-term debt obligations. There are no assurances that this
portfolio will maintain a stable net asset value.
o DIVERSIFIED BOND PORTFOLIO: A high level of income over the longer term
while providing reasonable safety of capital through investment primarily
in readily marketable intermediate and long-term fixed income securities
that provide attractive yields but do not involve substantial risk of loss
of capital through default.
o CONSERVATIVE BALANCED PORTFOLIO: Achievement of a favorable total
investment return consistent with a portfolio having a conservatively
managed 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
prefers a relatively lower risk of loss than that associated with the
Flexible Managed Portfolio while recognizing that this reduces the chances
of greater appreciation.
o FLEXIBLE MANAGED PORTFOLIO: Achievement of a high total return consistent
with a portfolio having an aggressively managed 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.
o HIGH YIELD BOND PORTFOLIO: Achievement of a high total return through
investment in high yield/high risk fixed income securities in the medium to
lower quality ranges.
o STOCK INDEX PORTFOLIO: Achievement of investment results that correspond to
the price and yield performance of publicly traded common stocks in the
aggregate by following a policy of attempting to duplicate the price and
yield performance of the Standard & Poor's 500 Composite Stock Price Index.
o EQUITY INCOME PORTFOLIO: Both current income and capital appreciation
through investment primarily in common stocks and convertible securities
that provide favorable prospects for investment income returns above those
of the Standard & Poor's 500 Composite Stock Price Index or the New York
Stock Exchange Composite Index.
o EQUITY PORTFOLIO: Capital appreciation through investment primarily in
common stocks of companies, including major established corporations as
well as smaller capitalization companies, that appear to offer attractive
prospects of price appreciation that are superior to broadly-based stock
indices. Current income, if any, is incidental.
o PRUDENTIAL JENNISON PORTFOLIO: Long-term growth of capital through
investment primarily in equity securities of established companies with
above-average growth prospects. Current income, if any, is incidental.
o GLOBAL PORTFOLIO: Long-term growth of capital through investment primarily
in common stock and common stock equivalents of foreign and domestic
issuers. Current income, if any, is incidental.
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.
5
<PAGE>
Further information about the available portfolios can be found in the attached
prospectus for the Series Fund and its statement of additional information.
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 section, 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.
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,
portfolios such as the Stock Index, Equity Income, Equity, Prudential Jennison
or Global 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.
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<PAGE>
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 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 14.
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 14 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.
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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 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
8
<PAGE>
(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 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
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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>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
BASIC INSURANCE AMOUNT -- $250,000
ILLUSTRATIVE ANNUAL PREMIUMS
- ----------------------------------------------------------------------------------------------------
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> <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 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.
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ALLOCATION OF PREMIUMS
On the Contract date, the charge for sales expenses and the charge for taxes
attributable to premiums (in Oregon this is called a premium based
administrative charge) 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
(in Oregon this is called a premium based administrative charge) also apply to
all subsequent premium payments. The remainder will be invested as of the end of
the valuation period in which it is received at a Home Office 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 Home Office or by telephoning that Home Office,
provided you are enrolled to use the Telephone Transfer System. There is no
charge for reallocating future premiums. All percentage allocations must be in
whole numbers. For example, 33% can be selected but 331/3% 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 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 Home Office or
by telephone, provided you are enrolled to use the Telephone Transfer System.
You will automatically be enrolled to use the Telephone Transfer System unless
the Contract is jointly owned or you elect not to have this privilege. Telephone
transfers may not be available on policies that are assigned (see ASSIGNMENT,
page 25), depending on the terms of the assignment.
We will use reasonable procedures, such as asking you to provide certain
personal information provided on your application for insurance, to confirm that
instructions given by telephone are genuine. We will not be held liable for
following telephone instructions that we reasonably believe to be genuine. Pruco
Life cannot guarantee that you will be able to get through to complete a
telephone transfer during peak periods such as periods of drastic economic or
market change.
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).
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
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<PAGE>
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 2, 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 (in Oregon, this is called a premium based administrative
charge). 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.
(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
12
<PAGE>
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 1996 expressed as a percentage
of the average assets during the year are shown below:
- --------------------------------------------------------------------------------
INVESTMENT OTHER TOTAL
PORTFOLIO ADVISORY EXPENSES EXPENSES
FEE
- --------------------------------------------------------------------------------
Series Fund
Money Market 0.40% 0.04% 0.44%
Diversified Bond 0.40% 0.05% 0.45%
Conservative Balanced 0.55% 0.04% 0.59%
Flexible Managed 0.60% 0.04% 0.64%
High Yield Bond 0.55% 0.08% 0.63%
Stock Index 0.35% 0.05% 0.40%
Equity Income 0.40% 0.05% 0.45%
Equity 0.45% 0.05% 0.50%
Prudential Jennison 0.60% 0.06% 0.66%
Global 0.75% 0.17% 0.92%
- --------------------------------------------------------------------------------
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.
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.
13
<PAGE>
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 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
14
<PAGE>
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, page 12. 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
- -----------------------------------------------------------------------------------------------------------
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> <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>
<CAPTION>
TYPE B (VARIABLE) DEATH BENEFIT
- -----------------------------------------------------------------------------------------------------------
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 in a form that meets our needs, to a 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", page 7. 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 Home Office of all the
documents required for such a payment. Other than the death benefit, which is
determined as of the date of death, the amount will be determined as of the end
of the valuation period in which the necessary documents are received at a Home
Office. However, Pruco Life may delay payment of proceeds from the subaccount[s]
and the variable portion of the death benefit due under the Contract if the
disposal or valuation of the Account's assets is not reasonably practicable
because the New York Stock Exchange is closed for other than a regular holiday
or weekend, trading is restricted by the SEC or the SEC declares that an
emergency exists.
With respect to 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. 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.
Subject to state regulatory approval, the LIVING NEEDS BENEFIT allows you to
elect to receive an accelerated payment of all or part of the Contract's death
benefit, adjusted to reflect current value, at a time when certain special needs
exist. The adjusted death benefit will always be less than the death benefit,
but will generally be greater than the Contract's cash surrender value. One or
both of the following options may be available. 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 to an
eligible Contract owner under a particular Contract, and the effect on the
Contract if less than the entire death benefit is accelerated.
19
<PAGE>
You should consider whether adding this settlement option is appropriate in your
given situation. Adding the Living Needs Benefit to the Contract has no adverse
consequences; however, electing to use it could. With the exception of certain
business-related policies, the recently enacted Health Insurance Portability and
Accountability Act of 1996 excludes from income the LIVING NEEDS BENEFIT if the
insured is terminally ill or chronically ill as defined in the tax law (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 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 mare for investment advisory fees or other
Series Fund expenses. The net return reflects average total annual expenses of
the 10 portfolios of 0.57%, 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 -1.17%, 2.83%, 6.83%
and 10.83% respectively. Assuming maximum charges, gross returns of 0%, 4%, 8%
and 12% are the equivalent of net returns of -1.47%, 2.53%, 6.53% and 10.53%
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 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
20
<PAGE>
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>
<CAPTION>
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)
--------------------------------------------------- -----------------------------------------------------
Premiums Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Accumulated Annual Investment Return of Annual Investment Return of
End of at 4% --------------------------------------------------- -----------------------------------------------------
Policy Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.17% Net) (2.83% Net) (6.83% Net) (10.83% Net) (-1.17% Net) (2.83% Net) (6.83% Net) (10.83% Net)
- ------ ---------- ------------ ----------- ----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,088 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 104 $ 162 $ 221 $ 280
2 $ 4,259 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 1,451 $ 1,621 $ 1,795 $ 1,975
3 $ 6,517 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 2,778 $ 3,115 $ 3,471 $ 3,848
4 $ 8,866 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 4,081 $ 4,644 $ 5,255 $ 5,916
5 $ 11,308 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 5,359 $ 6,206 $ 7,150 $ 8,199
6 $ 13,848 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 6,612 $ 7,803 $ 9,166 $ 10,721
7 $ 16,490 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 8,090 $ 9,686 $ 11,561 $ 13,758
8 $ 19,237 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 9,538 $ 11,599 $ 14,086 $ 17,082
9 $ 22,095 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 10,950 $ 13,538 $ 16,747 $ 20,720
10 $ 25,066 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 12,325 $ 15,501 $ 19,550 $ 24,705
15 $ 41,805 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 17,246 $ 24,310 $ 34,685 $ 49,949
20 $ 62,171 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 21,492 $ 34,070 $ 55,479 $ 92,143
25 $ 86,948 $ 250,000 $ 250,000 $ 250,000 $ 326,713 $ 24,551 $ 44,461 $ 83,928 $ 162,544
30 $ 117,094 $ 250,000 $ 250,000 $ 250,000 $ 486,060 $ 24,430 $ 53,633 $ 121,825 $ 276,171
35 $ 153,771 $ 250,000 $ 250,000 $ 272,666 $ 719,811 $ 19,832 $ 60,381 $ 173,673 $ 458,479
40 $ 198,394 $ 250,000 $ 250,000 $ 340,966 $ 1,051,888 $ 5,609 $ 60,126 $ 241,820 $ 746,020
45 $ 252,685 $ 0(2) $ 250,000 $ 427,675 $ 1,551,133 $ 0(2) $ 44,975 $ 328,981 $ 1,193,179
50 $ 318,738 $ 0 $ 0(2) $ 535,821 $ 2,295,253 $ 0 $ 0(2) $ 439,198 $ 1,881,355
55 $ 399,102 $ 0 $ 0 $ 667,996 $ 3,391,582 $ 0 $ 0 $ 575,859 $ 2,923,778
60 $ 496,877 $ 0 $ 0 $ 826,689 $ 4,988,583 $ 0 $ 0 $ 744,765 $ 4,494,219
65 $ 615,835 $ 0 $ 0 $ 1,029,938 $ 7,403,270 $ 0 $ 0 $ 980,893 $ 7,050,734
(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)
------------------------------------------------------ ----------------------------------------------------
Premiums Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Accumulated Annual Investment Return of Annual Investment Return of
End of at 4% ------------------------------------------------------ ----------------------------------------------------
Policy Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.17% Net) (2.83% Net) (6.83% Net) (10.83% Net) (-1.17% Net) (2.83% Net) (6.83% Net) (10.83% 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 $ 252,990 $ 1,445 $ 1,614 $ 1,788 $ 1,968
3 $ 6,517 $ 253,788 $ 254,124 $ 254,479 $ 254,854 $ 2,766 $ 3,102 $ 3,457 $ 3,832
4 $ 8,866 $ 255,083 $ 255,644 $ 256,252 $ 256,910 $ 4,061 $ 4,622 $ 5,230 $ 5,888
5 $ 11,308 $ 256,351 $ 257,194 $ 258,132 $ 259,175 $ 5,329 $ 6,172 $ 7,110 $ 8,153
6 $ 13,848 $ 257,592 $ 258,775 $ 260,129 $ 261,673 $ 6,570 $ 7,753 $ 9,107 $ 10,651
7 $ 16,490 $ 258,800 $ 260,384 $ 262,243 $ 264,423 $ 8,034 $ 9,617 $ 11,477 $ 13,656
8 $ 19,237 $ 259,975 $ 262,018 $ 264,481 $ 267,449 $ 9,464 $ 11,507 $ 13,970 $ 16,938
9 $ 22,095 $ 261,112 $ 263,672 $ 266,847 $ 270,777 $ 10,856 $ 13,417 $ 16,591 $ 20,521
10 $ 25,066 $ 262,207 $ 265,346 $ 269,345 $ 274,436 $ 12,207 $ 15,346 $ 19,345 $ 24,436
15 $ 41,805 $ 266,948 $ 273,862 $ 284,009 $ 298,928 $ 16,948 $ 23,862 $ 34,009 $ 48,928
20 $ 62,171 $ 270,933 $ 283,104 $ 303,791 $ 339,181 $ 20,933 $ 33,104 $ 53,791 $ 89,181
25 $ 86,948 $ 273,585 $ 292,547 $ 330,053 $ 405,144 $ 23,585 $ 42,547 $ 80,053 $ 155,144
30 $ 117,094 $ 272,706 $ 299,688 $ 362,512 $ 510,969 $ 22,706 $ 49,688 $ 112,512 $ 260,969
35 $ 153,771 $ 267,009 $ 302,568 $ 401,851 $ 681,585 $ 17,009 $ 52,568 $ 151,851 $ 431,585
40 $ 198,394 $ 251,657 $ 294,947 $ 444,639 $ 990,713 $ 1,657 $ 44,947 $ 194,639 $ 702,633
45 $ 252,685 $ 0(2) $ 268,047 $ 484,320 $ 1,461,795 $ 0(2) $ 18,047 $ 234,320 $ 1,124,457
50 $ 318,738 $ 0 $ 0(2) $ 508,876 $ 2,163,862 $ 0 $ 0(2) $ 258,876 $ 1,773,657
55 $ 399,102 $ 0 $ 0 $ 493,110 $ 3,198,186 $ 0 $ 0 $ 243,110 $ 2,757,057
60 $ 496,877 $ 0 $ 0 $ 395,854 $ 4,704,837 $ 0 $ 0 $ 145,854 $ 4,238,592
65 $ 615,835 $ 0 $ 0 $ 0(2) $ 6,982,866 $ 0 $ 0 $ 0(2) $ 6,650,349
(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>
T-2
<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)
--------------------------------------------------- -------------------------------------------------------
Premiums Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Accumulated Annual Investment Return of Annual Investment Return of
End of at 4% ---------------------------------------------------- -------------------------------------------------------
Policy Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.47% Net) (2.53% Net) (6.53% Net) (10.53% Net) (-1.47% Net) (2.53% Net) (6.53% Net) (10.53% 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 $ 1,367 $ 1,528
3 $ 6,517 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 2,127 $ 2,423 $ 2,737 $ 3,068
4 $ 8,866 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 3,150 $ 3,637 $ 4,166 $ 4,740
5 $ 11,308 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 4,127 $ 4,849 $ 5,657 $ 6,556
6 $ 13,848 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 5,050 $ 6,054 $ 7,206 $ 8,525
7 $ 16,490 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 6,174 $ 7,503 $ 9,071 $ 10,917
8 $ 19,237 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 7,242 $ 8,939 $ 10,999 $ 13,492
9 $ 22,095 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 8,251 $ 10,358 $ 12,989 $ 16,267
10 $ 25,066 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 9,196 $ 11,755 $ 15,043 $ 19,260
15 $ 41,805 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 11,516 $ 16,903 $ 24,949 $ 36,961
20 $ 62,171 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 11,223 $ 20,206 $ 36,064 $ 64,004
25 $ 86,948 $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 6,453 $ 19,365 $ 47,116 $ 105,912
30 $ 117,094 $ 250,000 $ 250,000 $ 250,000 $ 303,621 $ 0 $ 10,239 $ 55,536 $ 172,512
35 $ 153,771 $ 250,000 $ 250,000 $ 250,000 $ 426,123 $ 0 $ 0 $ 55,335 $ 271,416
40 $ 198,394 $ 0(2) $ 0(2) $ 250,000 $ 583,051 $ 0(2) $ 0(2) $ 32,233 $ 413,511
45 $ 252,685 $ 0 $ 0 $ 0(2) $ 794,603 $ 0 $ 0 $ 0(2) $ 611,233
50 $ 318,738 $ 0 $ 0 $ 0 $ 1,076,649 $ 0 $ 0 $ 0 $ 882,499
55 $ 399,102 $ 0 $ 0 $ 0 $ 1,447,793 $ 0 $ 0 $ 0 $ 1,248,097
60 $ 496,877 $ 0 $ 0 $ 0 $ 1,948,251 $ 0 $ 0 $ 0 $ 1,755,181
65 $ 615,835 $ 0 $ 0 $ 0 $ 2,521,470 $ 0 $ 0 $ 0 $ 2,401,400
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the cash surrender value would go to zero in
year 1 and in year 29 and later, 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 cash surrender
value would go to zero in year 1 and in year 33 and later, 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>
T-3
<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)
----------------------------------------------------- -----------------------------------------------------
Premiums Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Accumulated Annual Investment Return of Annual Investment Return of
End of at 4% ----------------------------------------------------- -----------------------------------------------------
Policy Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.47% Net) (2.53% Net) (6.53% Net) (10.53% Net) (-1.47% Net) (2.53% Net) (6.53% Net) (10.53% 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 $ 252,074 $ 252,225 $ 252,381 $ 252,542 $ 1,052 $ 1,203 $ 1,359 $ 1,520
3 $ 6,517 $ 253,136 $ 253,430 $ 253,743 $ 254,072 $ 2,114 $ 2,409 $ 2,721 $ 3,050
4 $ 8,866 $ 254,150 $ 254,634 $ 255,159 $ 255,730 $ 3,128 $ 3,612 $ 4,137 $ 4,708
5 $ 11,308 $ 255,115 $ 255,832 $ 256,633 $ 257,525 $ 4,093 $ 4,810 $ 5,611 $ 6,503
6 $ 13,848 $ 256,023 $ 257,017 $ 258,158 $ 259,465 $ 5,001 $ 5,995 $ 7,136 $ 8,443
7 $ 16,490 $ 256,874 $ 258,187 $ 259,737 $ 261,562 $ 6,107 $ 7,421 $ 8,971 $ 10,795
8 $ 19,237 $ 257,665 $ 259,339 $ 261,370 $ 263,829 $ 7,154 $ 8,828 $ 10,859 $ 13,318
9 $ 22,095 $ 258,392 $ 260,467 $ 263,056 $ 266,280 $ 8,137 $ 10,211 $ 12,800 $ 16,025
10 $ 25,066 $ 259,053 $ 261,565 $ 264,792 $ 268,929 $ 9,053 $ 11,565 $ 14,792 $ 18,929
15 $ 41,805 $ 261,158 $ 266,356 $ 274,114 $ 285,685 $ 11,158 $ 16,356 $ 24,114 $ 35,685
20 $ 62,171 $ 260,514 $ 268,936 $ 283,783 $ 309,912 $ 10,514 $ 18,936 $ 33,783 $ 59,912
25 $ 86,948 $ 255,308 $ 266,800 $ 291,498 $ 343,793 $ 5,308 $ 16,800 $ 41,498 $ 93,793
30 $ 117,094 $ 250,000 $ 255,895 $ 292,787 $ 389,517 $ 0 $ 5,895 $ 42,787 $ 139,517
35 $ 153,771 $ 0(2) $ 0(2) $ 278,702 $ 447,592 $ 0(2) $ 0(2) $ 28,702 $ 197,592
40 $ 198,394 $ 0 $ 0 $ 0(2) $ 514,749 $ 0 $ 0 $ 0(2) $ 264,749
45 $ 252,685 $ 0 $ 0 $ 0 $ 578,131 $ 0 $ 0 $ 0 $ 328,131
50 $ 318,738 $ 0 $ 0 $ 0 $ 613,580 $ 0 $ 0 $ 0 $ 363,580
55 $ 399,102 $ 0 $ 0 $ 0 $ 568,845 $ 0 $ 0 $ 0 $ 318,845
60 $ 496,877 $ 0 $ 0 $ 0 $ 365,309 $ 0 $ 0 $ 0 $ 115,309
65 $ 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 cash surrender value would go to zero in
year 1 and in year 28 and later, 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 cash surrender
value would go to zero in year 1 and in year 32 and later, 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>
T-4
<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
FIXED DEATH BENEFIT
<CAPTION>
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 (-1.17% Net) (2.83% Net) (6.83% Net) (10.83% Net) (-1.17% Net) (2.83% Net) (6.83% Net) (10.83% Net)
- ------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 135.66% 135.66% 135.66% 135.66% -20.23% -15.62% -11.10% -6.67%
10 44.34% 44.34% 44.34% 44.34% -9.11% -4.76% -0.48% 3.74%
15 23.96% 23.96% 23.96% 23.96% -7.36% -2.73% 1.75% 6.10%
20 15.44% 15.44% 15.44% 15.44% -6.42% -1.59% 2.99% 7.38%
25 10.88% 10.88% 10.88% 12.53% -6.08% -0.95% 3.75% 8.16%
30 8.09% 8.09% 8.09% 11.46% -6.71% -0.76% 4.22% 8.61%
35 6.24% 6.24% 6.62% 10.77% -8.87% -0.86% 4.57% 8.88%
40 4.93% 4.93% 6.13% 10.26% -26.36% -1.47% 4.80% 9.03%
45 (2) 3.96% 5.81% 9.93% (2) -3.40% 4.92% 9.11%
50 (2) 5.58% 9.69% (2) 4.99% 9.15%
55 5.40% 9.51% 5.00% 9.14%
60 5.25% 9.35% 5.00% 9.12%
65 5.15% 9.24% 5.04% 9.15%
(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.
VARIABLE DEATH BENEFIT
<CAPTION>
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 (-1.17% Net) (2.83% Net) (6.83% Net) (10.83% Net) (-1.17% Net) (2.83% Net) (6.83% Net) (10.83% Net)
- ------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 137.03% 137.21% 137.41% 137.63% -20.41% -15.79% -11.28% -6.85%
10 45.20% 45.42% 45.69% 46.03% -9.29% -4.95% -0.67% 3.54%
15 24.67% 24.95% 25.34% 25.89% -7.60% -2.97% 1.51% 5.86%
20 16.07% 16.41% 16.96% 17.82% -6.72% -1.88% 2.71% 7.11%
25 11.44% 11.85% 12.59% 13.84% -6.46% -1.30% 3.42% 7.86%
30 8.54% 9.02% 9.99% 11.70% -7.37% -1.27% 3.77% 8.31%
35 6.53% 7.08% 8.31% 10.54% -10.35% -1.68% 3.94% 8.62%
40 4.95% 5.57% 7.14% 10.05% -54.78% -3.10% 3.92% 8.82%
45 (2) 4.21% 6.22% 9.74% (2) -9.93% 3.73% 8.93%
50 (2) 5.43% 9.53% (2) 3.34% 8.98%
55 4.58% 9.36% 2.57% 9.00%
60 3.42% 9.22% 0.61% 8.99%
65 (2) 9.13% (2) 9.03%
(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>
T-5
<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
FIXED DEATH BENEFIT
<CAPTION>
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 (-1.47% Net) ( 2.53% Net) (6.53% Net) (10.53% Net) (-1.47% Net) (2.53% Net) (6.53% Net) (10.53% Net)
- ------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 135.66% 135.66% 135.66% 135.66% -28.27% -23.33% -18.54% -13.87%
10 44.34% 44.34% 44.34% 44.34% -14.87% -10.02% -5.32% -0.76%
15 23.96% 23.96% 23.96% 23.96% -13.34% -7.64% -2.39% 2.52%
20 15.44% 15.44% 15.44% 15.44% -14.63% -7.12% -1.03% 4.26%
25 10.88% 10.88% 10.88% 10.88% -23.71% -8.45% -0.49% 5.35%
30 8.09% 8.09% 9.09% -16.33% -0.53% 6.14%
35 6.24% 8.56% -1.37% 6.60%
40 (2) (2) 4.93% 8.14% (2) (2) -5.21% 6.86%
45 (2) 7.83% (2) 6.99%
50 7.59% 7.03%
55 7.40% 7.02%
60 7.25% 7.01%
65 7.05% 6.95%
(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.
VARIABLE DEATH BENEFIT
<CAPTION>
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 (-1.47% Net) (2.53% Net) (6.53% Net) (10.53% Net) (-1.47% Net) (2.53% Net) (6.53% Net) (10.53% Net)
- ------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
5 136.77% 136.92% 137.09% 137.28% -28.52% -23.58% -18.80% -14.13%
10 44.98% 45.16% 45.38% 45.66% -15.18% -10.34% -5.64% -1.07%
15 24.43% 24.65% 24.96% 25.40% -13.84% -8.10% -2.83% 2.09%
20 15.76% 16.01% 16.43% 17.11% -15.57% -7.87% -1.68% 3.67%
25 11.01% 11.28% 11.83% 12.84% -27.43% -9.98% -1.50% 4.52%
30 8.21% 8.90% 10.35% -25.40% -2.31% 4.98%
35 (2) (2) 6.72% 8.77% (2) (2) -5.77% 5.17%
40 (2) 7.68% (2) 5.15%
45 6.80% 4.91%
50 5.98% 4.41%
55 4.97% 3.36%
60 3.21% -0.14%
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>
T-6
<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 Dealers, Inc. Prusec's principal business address is 213 Washington
Street, Newark, New Jersey 07102-2992. 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
22
<PAGE>
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, dividends or appreciation until
amounts are distributed under the Contract; and (2) the death benefit should be
excludible from the gross income of the beneficiary under Section 101(a) of the
Code.
However, Section 7702 of the Code which defines life insurance for tax purposes
gives the Secretary of the Treasury authority to prescribe regulations to carry
out the purposes of the Section. In this regard, proposed regulations governing
mortality charges were issued in 1991 and proposed regulations relating to the
definition of life insurance were issued in 1992. None of these proposed
regulations has yet been finalized. Additional regulations under Section 7702
may also be promulgated in the future. Moreover, in connection with the issuance
of temporary regulations under Section 817(h), the Treasury Department announced
that such regulations do not provide guidance concerning the extent to which
Contract owners may direct their investments to particular divisions of a
separate account. Such guidance will be included in regulations or rulings under
Section 817(d) relating to the definition of a variable contract.
Pruco Life intends to comply with final regulations 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 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
23
<PAGE>
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 or in certain other circumstances.
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 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
24
<PAGE>
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
business- owned life insurance policies under certain circumstances by way of
the corporate alternative minimum tax.
The individual situation of each Contract owner or beneficiary will determine
the federal estate taxes and the state and local estate, inheritance and other
taxes due if the owner or insured dies.
LAPSE AND REINSTATEMENT
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 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.
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
25
<PAGE>
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 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.
26
<PAGE>
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 financial statements included in this prospectus for year ended December 31,
1996, have been audited by Price Waterhouse LLP, independent accountants, as
stated in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing. Price Waterhouse LLP's principal business address is 1177 Avenue of
the Americas, New York, New York 10036.
The financial statements included in this prospectus for years ended December
31, 1995 and December 31, 1994, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing. Deloitte & Touche LLP's principal business
address is Two Hilton Court, Parsippany, New Jersey 07054-0319.
On March 12, 1996, Deloitte & Touche LLP was 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.
Actuarial matters included in this prospectus have been examined by Ching-Meei
Chang, MAAA, FSA, Actuarial Director of Prudential whose opinion is filed as an
exhibit to the registration statement.
27
<PAGE>
LITIGATION
Several actions have been brought against Pruco Life alleging that Pruco Life
and its agents engaged in improper life insurance sales practices. Prudential
has agreed to indemnify Pruco Life for losses, if any, resulting from such
litigation. No other significant litigation is being brought against Pruco Life
that would have a material effect on its financial position.
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 inside front 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. -- President, Prudential Capital Markets Group
since 1992.
IRA J. KLEINMAN, Director. -- Executive Vice President, Prudential International
Insurance Group since 1997; 1995 to 1997: Chief Marketing and Product
Development Officer, Prudential Individual Insurance Group; 1993 to 1995:
President, Prudential Select; Prior to 1993: Senior Vice President of
Prudential.
MENDEL A. MELZER, Director. -- Chief Investment Officer, Mutual Funds and
Annuities, Prudential Investments since 1996; 1995 to 1996: Chief Financial
Officer of the Money Management Group of Prudential; 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
Group 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 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
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.
LINDA S. DOUGHERTY, Vice President, Comptroller and Chief Accounting Officer. --
Vice President and Comptroller, Prudential Individual Insurance Group since
1997; Prior to 1997: Vice President, Accounting, Prudential.
JAMES C. DROZANOWSKI, Senior Vice President. -- Vice President and Operations
Executive, Prudential Individual Insurance Group since 1996; 1995 to 1996:
President and Chief Executive Officer of Chase Manhattan Bank; 1993 to 1995:
Vice President, North America Customer Services, Chase Manhattan Bank; Prior to
1993: Operations Executive, Global Securities Services, Chase Manhattan Bank.
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 P. MARINO, Senior Vice President. -- Vice President, Policyowner Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services.
MARIO A. MOSSE, Senior Vice President. -- Vice President, Annuity Services,
Prudential Investments since 1996; Prior to 1996: Vice President, Chase
Manhattan Bank.
SHIRLEY H. SHAO, Senior Vice President and Chief Actuary. -- Vice President and
Associate Actuary, Prudential.
29
<PAGE>
KAREN L. SHAPIRO, Senior Vice President. -- Vice President, Prudential
Individual Insurance Group since 1996; Vice President and Associate General
Counsel, Prudential Securities Incorporated 1993 to 1996; Prior to 1993: Senior
Associate with Shaw, Pittman, Potts and Trowbridge.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.
* SUBSIDIARY OF PRUDENTIAL
30
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc. Portfolios at net asset value [Note
3]............................................ $ 48,602,527 $ 69,864,663 $ 678,148,975 $1,017,291,397 $ 534,344,865
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners....................... $ 48,479,537 $ 69,810,275 $ 677,939,121 $1,016,601,979 $ 534,039,090
Equity of Pruco Life Insurance Company.......... 122,990 54,388 209,854 689,418 305,775
-------------- -------------- -------------- -------------- --------------
$ 48,602,527 $ 69,864,663 $ 678,148,975 $1,017,291,397 $ 534,344,865
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 2,545,618 $ 4,422,147 $ 15,452,502 $ 29,870,591 $ 21,071,449
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A]..... 295,628 403,154 3,759,455 5,804,428 3,078,977
Reimbursement for excess expenses [Note 5D]..... (20,990) (33,127) (691,285) (2,442,468) (1,030,139)
-------------- -------------- -------------- -------------- --------------
NET EXPENSES...................................... 274,638 370,027 3,068,170 3,361,960 2,048,838
-------------- -------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 2,270,980 4,052,120 12,384,332 26,508,631 19,022,611
-------------- -------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 0 0 60,055,192 95,799,304 32,702,701
Realized gain (loss) on shares redeemed
[average cost basis].......................... 0 133,542 6,145,351 9,236,814 4,364,767
Net unrealized gain (loss) on investments....... 0 (1,490,302) 25,824,063 (10,204,679) 3,618,761
-------------- -------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS.................... 0 (1,356,760) 92,024,606 94,831,439 40,686,229
-------------- -------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 2,270,980 $ 2,695,360 $ 104,408,938 $ 121,340,070 $ 59,708,840
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A11.
A1
<PAGE>
<TABLE>
<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
3] $ 36,136,216 $ 90,276,629 $ 60,001,150 $ 22,767,801 $ 11,272,061
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners $ 36,121,047 $ 89,628,480 $ 59,976,124 $ 22,620,834 $ 10,997,199
Equity of Pruco Life Insurance Company 15,169 648,149 25,026 146,967 274,862
-------------- -------------- -------------- -------------- --------------
$ 36,136,216 $ 90,276,629 $ 60,001,150 $ 22,767,801 $ 11,272,061
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
HIGH
YIELD STOCK EQUITY
BOND INDEX INCOME GLOBAL
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 3,403,479 $ 1,433,253 $ 1,891,825 $ 488,012
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A] 209,077 450,089 323,322 107,629
Reimbursement for excess expenses [Note 5D] 0 0 0 0
-------------- -------------- -------------- --------------
NET EXPENSES 209,077 450,089 323,322 107,629
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) 3,194,402 983,164 1,568,503 380,383
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received 0 1,013,015 1,879,859 347,618
Realized gain (loss) on shares redeemed
[average cost basis] (26,717) 515,477 417,132 36,315
Net unrealized gain (loss) on investments 386,086 12,527,056 6,642,405 2,363,101
-------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS 359,369 14,055,548 8,939,396 2,747,034
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 3,553,771 $ 15,038,712 $ 10,507,899 $ 3,127,417
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
<CAPTION>
PRUDENTIAL
JENNISON
--------------
<S> <C>
INVESTMENT INCOME
Dividend distributions received $ 16,655
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A] 35,885
Reimbursement for excess expenses [Note 5D] 0
--------------
NET EXPENSES 35,885
--------------
NET INVESTMENT INCOME (LOSS) (19,230)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received 0
Realized gain (loss) on shares redeemed
[average cost basis] 32,821
Net unrealized gain (loss) on investments 870,328
--------------
NET GAIN (LOSS) ON INVESTMENTS 903,149
--------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 883,919
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A11.
A2
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
---------------------------------------------- ----------------------------------------------
1996 1995 1994 1996 1995 1994
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).... $ 2,270,980 $ 2,620,276 $ 1,649,101 $ 4,052,120 $ 3,860,873 $ 3,400,785
Capital gains distributions
received...................... 0 0 0 0 144,746 133,233
Realized gain (loss) on shares
redeemed
[average cost basis].......... 0 0 0 133,542 75,353 (39,688)
Net unrealized gain (loss) on
investments................... 0 0 0 (1,490,302) 7,114,539 (5,814,428)
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS....... 2,270,980 2,620,276 1,649,101 2,695,360 11,195,511 (2,320,098)
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[NOTE 7]........................ (4,243,121) (740,753) 174,399 1,116,168 (1,432,720) (3,900,361)
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8]........................ 22,759 (89,480) (486,387) 33,769 (94,534) 24,099
-------------- -------------- -------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS.......................... (1,949,382) 1,790,043 1,337,113 3,845,297 9,668,257 (6,196,360)
NET ASSETS:
Beginning of year............... 50,551,909 48,761,866 47,424,753 66,019,366 56,351,109 62,547,469
-------------- -------------- -------------- -------------- -------------- --------------
End of year..................... $ 48,602,527 $ 50,551,909 $ 48,761,866 $ 69,864,663 $ 66,019,366 $ 56,351,109
-------------- -------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A11.
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
FLEXIBLE
EQUITY MANAGED
---------------------------------------------- --------------
1996 1995 1994 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 12,384,332 $ 8,602,440 $ 7,817,827 $ 26,508,631
Capital gains distributions
received 60,055,192 20,556,916 18,199,834 95,799,304
Realized gain (loss) on shares
redeemed
[average cost basis] 6,145,351 1,265,358 1,432,168 9,236,814
Net unrealized gain (loss) on
investments 25,824,063 105,422,478 (17,636,131) (10,204,679)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS 104,408,938 135,847,192 9,813,698 121,340,070
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[NOTE 7] (13,252,943) 13,327,159 1,930,473 (41,031,839)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8] (127,887) 153,934 (486,070) 533,513
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 91,028,108 149,328,285 11,258,101 80,841,744
NET ASSETS:
Beginning of year 587,120,867 437,792,582 426,534,481 936,449,653
-------------- -------------- -------------- --------------
End of year $ 678,148,975 $ 587,120,867 $ 437,792,582 $1,017,291,397
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
<CAPTION>
CONSERVATIVE
BALANCED
----------------------------------------------
1995 1994 1996 1995 1994
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 24,734,903 $ 19,391,523 $ 19,022,611 $ 17,956,379 $ 13,772,420
Capital gains distributions
received 39,033,998 22,635,794 32,702,701 17,065,189 4,752,103
Realized gain (loss) on shares
redeemed
[average cost basis] 5,763,771 2,045,045 4,364,767 2,716,236 925,009
Net unrealized gain (loss) on
investments 113,356,027 (73,072,549) 3,618,761 35,828,712 (25,603,121)
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS 182,888,699 (29,000,187) 59,708,840 73,566,516 (6,153,589)
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[NOTE 7] (31,598,849) (15,011,537) (25,728,075) (18,484,820) (3,697,057)
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8] (1,895,990) 1,559,318 207,529 (806,795) 172,937
-------------- -------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 149,393,860 (42,452,406) 34,188,294 54,274,901 (9,677,709)
NET ASSETS:
Beginning of year 787,055,793 829,508,199 500,156,571 445,881,670 455,559,379
-------------- -------------- -------------- -------------- --------------
End of year $ 936,449,653 $ 787,055,793 $ 534,344,865 $ 500,156,571 $ 445,881,670
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A11.
A4
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------------
HIGH
YIELD STOCK
BOND INDEX
---------------------------------------------- ----------------------------------------------
1996 1995 1994 1996 1995 1994
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)...$ 3,194,402 $ 3,185,876 $ 2,882,389 $ 983,164 $ 870,823 $ 843,636
Capital gains distributions
received..................... 0 0 23 1,013,015 454,847 68,595
Realized gain (loss) on shares
redeemed
[average cost basis]......... (26,717) (44,447) (41,868) 515,477 1,387,759 574,991
Net unrealized gain (loss) on
investments.................. 386,086 1,861,218 (3,901,821) 12,527,056 14,103,114 (1,293,204)
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS...... 3,553,771 5,002,647 (1,061,277) 15,038,712 16,816,543 194,018
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[NOTE 7]....................... (1,115,027) (1,077,084) (1,682,842) 10,720,960 623,288 (263,376)
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8]....................... (6,897) 5,385 (94,816) 396,129 132,045 92,281
-------------- -------------- -------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS......................... 2,431,847 3,930,948 (2,838,935) 26,155,801 17,571,876 22,923
NET ASSETS:
Beginning of year.............. 33,704,369 29,773,421 32,612,356 64,120,828 46,548,952 46,526,029
-------------- -------------- -------------- -------------- -------------- --------------
End of year....................$ 36,136,216 $ 33,704,369 $ 29,773,421 $ 90,276,629 $ 64,120,828 $ 46,548,952
-------------- -------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A11.
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
EQUITY
INCOME GLOBAL*
---------------------------------------------- --------------
1996 1995 1994 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 1,568,503 $ 1,499,078 $ 1,108,691 $ 380,383
Capital gains distributions
received 1,879,859 2,122,385 1,981,250 347,618
Realized gain (loss) on shares
redeemed
[average cost basis] 417,132 107,006 76,758 36,315
Net unrealized gain (loss) on
investments 6,642,405 4,726,822 (3,029,605) 2,363,101
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS 10,507,899 8,455,291 137,094 3,127,417
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[NOTE 7] (1,064,633) 3,721,237 8,440,504 5,614,035
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8] (61,045) 75,709 (464,805) 18,594
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 9,382,221 12,252,237 8,112,793 8,760,046
NET ASSETS:
Beginning of year 50,618,929 38,366,692 30,253,899 14,007,755
-------------- -------------- -------------- --------------
End of year $ 60,001,150 $ 50,618,929 $ 38,366,692 $ 22,767,801
-------------- -------------- --------------
-------------- -------------- --------------
--------------
--------------
*Commenced
Business
on 5/1/94
<CAPTION>
PRUDENTIAL
JENNISON**
------------------------------
1995 1994 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 137,947 $ (5,689) $ (19,230) $ (2,483)
Capital gains distributions
received 270,758 3,344 0 0
Realized gain (loss) on shares
redeemed
[average cost basis] 60,621 0 32,821 3,407
Net unrealized gain (loss) on
investments 1,314,446 (559,095) 870,328 59,770
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS 1,783,772 (561,440) 883,919 60,694
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[NOTE 7] 1,377,627 11,335,055 8,604,081 1,554,794
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8] (539,673) 612,414 71,804 96,769
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 2,621,726 11,386,029 9,559,804 1,712,257
NET ASSETS:
Beginning of year 11,386,029 0 1,712,257 0
-------------- -------------- -------------- --------------
End of year $ 14,007,755 $ 11,386,029 $ 11,272,061 $ 1,712,257
-------------- --------------
-------------- -------------- -------------- --------------
-------------- --------------
**Commenced
Business
on 5/1/95
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A11.
A6
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1996
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 begin investing in the
Account on January 24, 1997.
The Account is registered under the Investment Company Act of 1940, as amended,
as a unit investment trust. There are ten subaccounts within the Account
available to Contract holders of VUL. Each of the subaccounts invests only in a
corresponding portfolio of The Prudential Series Fund, Inc. (the "Series Fund").
The Series Fund is a diversified open-end management investment company, and is
managed by Prudential.
New sales of the VAL product which invests in the Account were discontinued as
of May 1, 1992. However, premium payments made by current VAL Contract owners
will continue to be received by the Account. All premium payments for the VUL
product will be received by the Account.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in conformity with generally
accepted accounting principles (GAAP). The preparation of the financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates.
Investments--The investments in shares of the Series Fund are stated at the net
asset value of the respective portfolio.
Security Transactions--Realized gains and losses on security transactions are
reported on an average cost basis. Purchase and sale transactions are recorded
as of the trade date of the security being purchased or sold.
Distributions Received--Dividend and capital gain distributions received are
reinvested in additional shares of the Series Fund and are recorded on
ex-dividend date.
Equity of Pruco Life Insurance Company--Pruco Life maintains a position in the
Account for the purpose of administering activity in the Account. The activity
includes unit transactions, fund share transactions, and expense processing.
Pruco Life monitors the balance daily and transfers funds based upon anticipated
activity. At times, Pruco Life may owe an amount to the Account, which is
reflected in Pruco Life's equity as a negative balance. The position does not
have an effect on the Contract owner's account or the related unit value.
A7
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
The net asset value per share for each portfolio of the Series Fund, the number
of shares of each portfolio held by the subaccounts of the Account and the
aggregate cost of investments in such shares at December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
PORTFOLIOS
----------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of shares: 4,860,253 6,313,778 25,149,332 57,190,947 34,435,961
Net asset value
per share: $ 10.00000 $ 11.06543 $ 26.96489 $ 17.78763 $ 15.51706
Cost: $ 48,602,527 $ 67,751,873 $ 470,995,841 $ 859,142,904 $ 468,191,337
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of shares: 4,593,106 3,801,968 3,241,585 1,275,168 786,980
Net asset value
per share: $ 7.86749 $ 23.74471 $ 18.50982 $ 17.85474 $ 14.32319
Cost: $ 37,195,879 $ 56,796,687 $ 48,102,205 $ 19,649,350 $ 10,341,963
</TABLE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding Contract owner units, unit values and total Contract owner equity
for the year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Units Outstanding
(VAL):........... 27,635,005.343 26,475,879.397 126,934,924.340 276,125,230.858 172,284,568.110
Unit value
(VAL):.......... $ 1.75428 $ 2.63675 $ 5.34084 $ 3.68167 $ 3.09975
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Equity (VAL):... $ 48,479,537 $ 69,810,275 $ 677,939,121 $ 1,016,601,979 $ 534,039,090
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Units
Outstanding
(VUL):.......... -- -- -- -- --
Unit value
(VUL):.......... -- -- -- -- --
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Equity (VUL):... -- -- -- -- --
----------------- ----------------- ----------------- ----------------- -----------------
TOTAL CONTRACT
OWNER EQUITY:..... $ 48,479,537 $ 69,810,275 $ 677,939,121 $ 1,016,601,979 $ 534,039,090
----------------- ----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- ----------------- -----------------
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Units Outstanding
(VAL):........... 16,605,774.477 29,188,289.443 18,772,398.676 17,029,016.012 7,721,125.596
Unit value
(VAL):.......... $ 2.17521 $ 3.07070 $ 3.19491 $ 1.32837 $ 1.42430
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Equity (VAL):... $ 36,121,047 $ 89,628,480 $ 59,976,124 $ 22,620,834 $ 10,997,199
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Units
Outstanding
(VUL):.......... -- -- -- -- --
Unit value
(VUL):.......... -- -- -- -- --
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Equity (VUL):... -- -- -- -- --
----------------- ----------------- ----------------- ----------------- -----------------
TOTAL CONTRACT
OWNER EQUITY:..... $ 36,121,047 $ 89,628,480 $ 59,976,124 $ 22,620,834 $ 10,997,199
----------------- ----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- ----------------- -----------------
</TABLE>
A8
<PAGE>
NOTE 5: CHARGES AND EXPENSES
A. Mortality Risk and Expense Risk Charges
The mortality risk and expense risk charges at an effective annual rate of
0.60% are applied against the net assets representing equity of VAL and VUL
Contract owners held in each subaccount. Mortality risk is that Contract
holders may not live as long as estimated and expense risk is that the cost
of issuing and administering the policies may exceed the estimated expenses.
For 1996, the amount of these charges paid to Pruco Life for the VAL product
was $14,713,391.
B. Deferred Sales Charge
Subsequent to a Contract owner redemption, 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. For
1996, the amount of these charges paid to Pruco Life for VAL was $3,439,306.
C. Partial Withdrawal Charge
A charge is imposed by Pruco Life on partial withdrawals of the cash
surrender value from VAL Contracts. For 1996, the amount of these charges
paid to Pruco Life for VAL was $69,170.
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 VAL product's average daily net
assets incurred by the Money Market, Diversified Bond, Equity, Flexible
Managed, and the Conservative Balanced Portfolios of the Series Fund. For
1996, the amount of these reimbursements totaled $4,218,009.
E. Cost of Insurance Charges
Contract holder contributions are applied to the Account net of the
following charges: transaction costs, premium taxes, sales loads, monthly
administration charges, and death benefit risk charges. During 1996, for
VAL, Pruco Life received from Contract owners $4,272,094, $5,444,940,
$393,203, $13,244,265 and $2,484,809, respectively for these charges.
NOTE 6: TAXES
Pruco Life is taxed as a "life insurance company" under the Internal Revenue
Code and the operations of the Account form a part of and are taxed with those
of Pruco Life. Under current federal law, no federal income taxes are payable by
the Account. As such, no provision for tax liability has been recorded.
A9
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract owner activity in the subaccounts of the Account, for the year ended
December 31, 1996, was as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Contributions,
net: $ 31,416,670 $ 12,684,816 $ 85,325,629 $ 115,822,666 $ 64,449,174
Contract Owner
Redemptions: $ (33,618,199) $ (14,081,345) $ (106,876,645) $ (146,140,657) $ (80,582,263)
Net Transfers
from(to) other
subaccounts or
fixed rate
option: $ (2,041,592) $ 2,512,697 $ 8,298,073 $ (10,713,848) $ (9,594,986)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
-------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Contributions,
net: $ 9,385,513 $ 16,779,382 $ 13,424,627 $ 6,463,503 $ 5,516,854
Contract Owner
Redemptions: $ (10,226,859) $ (17,552,325) $ (14,639,865) $ (6,683,555) $ (5,254,510)
Net Transfers
from(to) other
subaccounts or
fixed rate
option: $ (273,681) $ 11,493,903 $ 150,605 $ 5,834,087 $ 8,341,737
</TABLE>
NOTE 8: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM EQUITY TRANSFERS
The increase (decrease) in net assets resulting from equity transfers represents
the net contributions (withdrawals) of Pruco Life to (from) the Account.
NOTE 9: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts), for the year
ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 18,317,198.320 6,032,489.291 19,318,824.308 33,929,159.280 22,253,843.498
Contract Owner
Redemptions: (20,797,006.538) (5,568,937.715) (21,974,064.812) (45,839,478.729) (31,093,009.761)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 4,533,364.255 10,183,057.448 4,799,710.141 10,050,734.228 10,385,284.939
Contract Owner
Redemptions: (5,073,116.794) (6,331,551.426) (5,166,776.253) (5,504,422.378) (3,950,760.606)
</TABLE>
A10
<PAGE>
NOTE 10: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments in the
Series Fund, Inc. were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
--------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1996
Purchases......... $ 7,103,000 $ 4,249,000 $ 1,489,000 $ 226,000 $ 180,000
Sales............. $ (11,598,000) $ (3,444,000) $ (17,938,000) $ (43,999,000) $ (27,672,000)
<CAPTION>
PORTFOLIOS (CONTINUED)
--------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
-------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1996
Purchases......... $ 1,698,000 $ 12,097,000 $ 1,158,000 $ 5,968,000 $ 9,767,000
Sales............. $ (3,029,000) $ (1,430,000) $ (2,607,000) $ (443,000) $ (1,127,000)
</TABLE>
A11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
Variable Universal Life Subaccounts of
Pruco Life Variable Appreciable Account
and the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of Money Market Subaccount,
Diversified Bond Subaccount, Equity Subaccount, Flexible Managed Subaccount,
Conservative Balanced Subaccount, High Yield Bond Subaccount, Stock Index
Subaccount, Equity Income Subaccount, Global Subaccount and Prudential Jennison
Subaccount of Pruco Life Variable Appreciable Account at December 31, 1996, and
the results of each of their operations and the changes in each of their net
assets for the year then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Pruco Life
Insurance Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of shares owned in The Prudential Series Fund, Inc. at December 31,
1996, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
New York, New York
March 31, 1997
A12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Contract Owners of
the Variable Universal Life subaccounts 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 changes in net assets of the
Variable Universal Life subaccounts 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 subaccounts)
for the periods presented for each of the two years ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the changes in net assets of each of the respective subaccounts
constituting the Pruco Life Variable Universal Account for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 15, 1996
A13
<PAGE>
<TABLE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<CAPTION>
DECEMBER 31,
1996 1995
----------- ------------
(000'S)
ASSETS
<S> <C> <C>
Fixed maturities
Held to maturity $ 405,731 $ 437,727
Available for sale 2,236,817 2,144,854
Equity securities 3,748 4,036
Mortgage loans 46,915 64,464
Investment real estate - 4,059
Policy loans 639,782 569,273
Other long term investments 4,528 4,159
Short term investments 169,830 228,016
----------- ------------
Total invested assets 3,507,351 3,456,588
----------- ------------
Cash 73,766 41,435
Deferred policy acquisition costs 633,159 566,976
Premiums due 9,084 6,367
Accrued investment income 62,110 59,862
Receivable from affiliates 1,901 8,275
Federal income tax receivable 7,191 6,375
Reinsurance recoverable on unpaid losses 27,014 27,914
Other assets 20,000 12,578
Separate Account assets 5,336,851 4,285,268
----------- ------------
TOTAL ASSETS $9,678,427 $8,471,638
=========== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Future policy benefits and other policyholders'
liabilities $ 557,351 $ 501,200
Policyholders' account balances 2,188,862 2,218,330
Deferred federal income tax payable 148,960 141,048
Payable to affiliate 51,729 41,584
Other liabilities 55,090 37,387
Separate Account liabilities 5,277,454 4,263,896
----------- ------------
Total Liabilities 8,279,446 7,203,445
----------- ------------
Contingencies - Note 9
Stockholder's Equity
Common Stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
December 31, 1996 and 1995 2,500 2,500
Paid-in-capital 439,582 439,582
Net unrealized investment gains (less deferred
income tax) 12,402 30,836
Retained earnings 944,497 795,275
----------- ------------
Total Stockholder's Equity 1,398,981 1,268,193
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $9,678,427 $8,471,638
=========== ============
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-1
<PAGE>
<TABLE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-----------------------------------
(000'S)
REVENUES
<S> <C> <C> <C>
Premiums $ 51,525 $ 42,089 $ 22,689
Policy charges and fee income 324,976 319,012 308,753
Net investment income 247,328 246,618 241,132
Realized investment gains (losses) 10,835 13,200 (41,074)
Other income 20,818 26,986 13,259
-----------------------------------
Total Revenues 655,482 647,905 544,759
-----------------------------------
BENEFITS AND EXPENSES
Policyholders' benefits 186,873 153,987 121,949
Interest credited to policyholders' account
balances 118,246 126,926 113,711
Other operating costs and expenses 122,006 134,790 179,173
-----------------------------------
Total Benefits and Expenses 427,125 415,703 414,833
-----------------------------------
Income before income tax provision 228,357 232,202 129,926
-----------------------------------
Income tax provision 79,135 79,558 48,031
-----------------------------------
NET INCOME $ 149,222 $ 152,644 $ 81,895
===================================
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-2
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-----------------------------------
(000'S)
Common Stock
<S> <C> <C> <C>
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
-----------------------------------
Net Unrealized Investment Gains (Losses)
(Less Deferred Income Tax)
Balance, beginning of year 30,836 (1,349) -
Adoption of SFAS 115 - (39,762) -
Net change in unrealized investment
gains (losses) (18,434) 71,947 (1,349)
-----------------------------------
Balance, end of year 12,402 30,836 (1,349)
-----------------------------------
RETAINED EARNINGS
Balance, beginning of year 795,275 642,631 560,736
Net income 149,222 152,644 81,895
-----------------------------------
Balance, end of year 944,497 795,275 642,631
-----------------------------------
TOTAL STOCKHOLDER'S EQUITY $1,398,981 $1,268,193 $1,083,364
===================================
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-3
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
------------------------------------------
(000'S)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 149,222 $ 152,644 $ 81,895
Adjustments to reconcile net income to net cash from
operating activities:
Increase in future policy benefits and other policyholders'
liabilities 56,151 22,877 31,932
General account policy fee income (50,286) (56,637) (48,401)
Interest credited to policyholders' account balances 118,246 126,926 113,711
Net decrease (increase) in Separate Accounts (38,025) (3,520) (4,121)
Net realized investment (gains) losses (10,835) (13,200) 41,074
Amortization and other non-cash items 26,709 (8,106) 6,228
Change in:
Accrued investment income (2,248) (480) (2,597)
Premiums due (2,717) (1,957) (1,374)
Receivable from affiliates 6,374 (758) (637)
Note receivable from affiliate -- -- 50,000
Deferred policy acquisition costs (66,183) 31,318 34,124
Federal income tax receivable (816) 12,031 (28,908)
Other assets (6,522) (12,689) (11,121)
Payable to affiliate 10,145 11,327 (24,029)
Deferred federal income tax payable 7,912 30,779 --
Other liabilities 17,703 (61,306) (5,293)
-----------------------------------------
Cash Flows From Operating Activities 214,830 229,249 232,483
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Held to maturity 138,127 144,898 2,710,423
Available for sale 3,886,254 1,886,687 --
Equity securities 7,527 5,557 1,910
Mortgage loans 19,226 7,395 10,821
Other long term investments 288 1,559 607
Investment real estate 4,488 2,926 8,677
Payments for the purchase of:
Fixed maturities:
Held to maturity (114,494) (135,092) (2,561,082)
Available for sale (4,008,810) (1,741,139) --
Equity securities (4,697) (4,279) (2,436)
Mortgage loans -- -- (35,276)
Other long term investments (657) (1,674) (1,584)
Policy loans (70,509) (75,411) (73,591)
Net proceeds (payments) of short term investments 58,186 (36,482) 9,845
-----------------------------------------
Cash Flows From Investing Activities (85,071) 54,945 68,314
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 536,370 95,039 114,105
Withdrawals (net of transfers to/from separate accounts) (633,798) (365,578) (387,793)
-----------------------------------------
Cash Flows From Financing Activities (97,428) (270,539) (273,688)
-----------------------------------------
Net increase in Cash 32,331 13,655 27,109
Cash, beginning of year 41,435 27,780 671
-----------------------------------------
CASH, END OF YEAR $ 73,766 $ 41,435 $ 27,780
=========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid $ 61,760 $ 53,107 $ 56,089
=========================================
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-4
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
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 deferred annuities primarily through
Prudential's sales force in the United States, and in Taiwan. 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. Financial statements of mutual life insurance companies,
and their wholly owned stock life insurance subsidiaries, for periods
beginning after December 15, 1995 which are prepared on the basis of
statutory accounting practices will no longer be characterized as in
conformity with generally accepted accounting principles (GAAP). As a
result, the Company has prepared its 1996 consolidated financial statements
in accordance with all applicable GAAP pronouncements. The 1995 and 1994
consolidated financial statements, which were previously prepared on the
statutory basis of accounting, have been restated in accordance with GAAP.
The cumulative effect of adopting GAAP as of January 1, 1994 was an increase
in retained earnings of $378.3 million. See Note 7 for a reconciliation of
the Company's surplus and net income determined in accordance with statutory
accounting practices with equity and net income determined on a GAAP basis.
On January 1, 1995, the Company adopted SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," which expanded the use of fair
value accounting for those securities that a company does not have positive
intent and ability to hold to maturity. Implementation of this statement
decreased stockholder's equity by $39.8 million net of deferred income tax
benefit of $21.4 million. In 1994 prior to the adoption of SFAS 115, all
fixed maturities were carried at amortized cost.
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 reported at market value based principally
on their quoted market prices. Cost basis of the equity securities is $3.9
million and $5.3 million as of December 31, 1996 and 1995, respectively. The
associated unrealized gains and losses are included as a component of
equity.
Mortgage Loans and Policy Loans are stated primarily at unpaid principal
balances, net of unamortized discounts. Interest income is recognized as net
investment income earned.
B-5
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
Investment Real Estate acquired through foreclosure during 1994 was sold in
1996 for $4.5 million.
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 December 31, 1995. These
investments were $.3 million at December 31, 1995. There were no non-income
producing investments at December 31, 1996 and 1994.
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. Non real estate related interests of $4.5 million and $4.1
million are included in other long term investments, at December 31, 1996
and 1995, respectively. The Company's share of net income from such entities
was $1.4 million, $.3 million, and $1.9 million for the years ended December
31, 1996, 1995, and 1994, respectively, and is reported in net investment
income.
Realized investment gains and losses are reported based on specific
identification of the investments sold.
Short-term investments are fixed maturities that mature within one year, and
are reported at estimated fair value.
D. Revenue Recognition and Related Expenses
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 policyholder
mortality or morbidity. Amounts received as payments for these contracts are
reported as deposits to policyholders' account balances. Revenues from these
contracts consist primarily of amounts assessed during the period against
policyholders' account balances for mortality charges, policy administration
fees and surrender charges. Policy benefits and claims that are charged to
expenses include benefit claims incurred in the period in excess of related
policyholders' account balances.
Premiums, policy benefits and claims from traditional life and annuity
policies, generally are recognized in operations when due.
E. 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. Amortization of deferred policy acquisition costs was $9.3
million, $54.4 million, and $76.0 million for the years ended December 31,
1996, 1995, and 1994, respectively. Deferred policy acquisition costs are
analyzed to determine if they are recoverable from future income, including
investment income. If such costs are determined to be unrecoverable, they
are expensed at the time of determination. The effect on the deferred policy
acquisition asset that would result from realization of unrealized
investment gains (losses) is recognized with an offset to unrealized
investment gains (losses) in consolidated stockholder's equity.
B-6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
F. Future Policy Benefits and Policyholders' Account Balances
Benefit reserve liabilities for payout annuities such as matured deferred
annuities and supplementary contracts represent 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.
When liabilities for future policy benefits plus the present value of
expected future gross deposits 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 income.
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 deposits plus interest credited less
expense and mortality charges and withdrawals.
Interest crediting rates on life insurance products range from 3.35% to 7%.
G. 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.
All Separate Account assets are carried at market value. Deposits to all
Separate Accounts are reported as increases in Separate Account liabilities,
which equal the Separate Account policy account fund values. Charges
assessed against Policyholders' account balances for mortality, policy
administration and surrender charges are included in policy charges and fee
income. Mortality and expense risk charges are applied against the
Policyholders' account balance. The Separate Account assets are legally
segregated and are not subject to claims that arise out of any other
business of the Company.
H. Estimates
The preparation of financial statements 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-7
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
2. FIXED MATURITIES
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>
DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(000's) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
<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 405,731 10,947 576 416,102
Mortgage-backed securities - - - -
Other fixed maturities - - - -
- ---------------------------------------------------------------------------------------------------
Total $ 405,731 $ 10,947 $ 576 $ 416,102
- ---------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(000's) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available For Sale
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 32,055 $ 30 $ 174 $ 31,911
Foreign government bonds 90,447 857 205 91,099
Corporate securities 2,087,250 30,365 4,206 2,113,409
Mortgage-backed securities 398 - - 398
Other fixed maturities - - - -
- ---------------------------------------------------------------------------------------------------
Total $ 2,210,150 $ 31,252 $ 4,585 $ 2,236,817
- ---------------------------------------------------------------------------------------------------
</TABLE>
B-8
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(000's) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
<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>
DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(000's) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
<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 1,507,248 54,545 2,168 1,559,625
Mortgage-backed securities 169,190 8,717 398 177,509
Other fixed maturities - - - -
- ---------------------------------------------------------------------------------------------------
Total $ 2,074,334 $ 73,147 $ 2,627 $ 2,144,854
- ---------------------------------------------------------------------------------------------------
</TABLE>
B-9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
The amortized cost and estimated fair value of fixed maturities at December 31,
1996, 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.
DECEMBER 31, 1996
- ------------------------------------------------------------------------------
Estimated
Amortized Fair
(000's) Cost Value
- ------------------------------------------------------------------------------
Held to Maturity
Due in one year or less $ 28,653 $ 28,762
Due after one year through five years 156,013 158,183
Due after five years through ten years 194,765 202,766
Due after ten years 26,300 26,391
Mortgage-backed securities -- --
- ------------------------------------------------------------------------------
Total $ 405,731 $ 416,102
- ------------------------------------------------------------------------------
DECEMBER 31, 1996
- ------------------------------------------------------------------------------
Estimated
Amortized Fair
(000's) Cost Value
- ------------------------------------------------------------------------------
Available For Sale
Due in one year or less $ 130,400 $ 131,301
Due after one year through five years 1,561,854 1,578,979
Due after five years through ten years 398,090 404,920
Due after ten years 119,408 121,219
Mortgage-backed securities 398 398
- ------------------------------------------------------------------------------
Total $2,210,150 $2,236,817
- ------------------------------------------------------------------------------
Proceeds from the sale of fixed maturities during 1996, 1995, and 1994 were $3.8
billion, $1.8 billion, and $2.6 billion, respectively. Gross gains of $28.7
million, $28.8 million, and $16.8 million and gross losses of $19.7 million,
$17.5 million, and $49.8 million were realized on those sales during 1996, 1995,
and 1994, respectively.
B-10
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
3. Net Investment Income YEAR ENDED
DECEMBER 31,
1996 1995 1994
-------------------------------------------
(000'S)
<S> <C> <C> <C>
Net investment income consists of:
Gross investment income
Fixed maturities
Held to maturity $ 33,419 $ 33,458 $ 196,909
Available for sale 152,445 160,740 --
Equity securities 44 104 14
Mortgage loans 5,669 7,757 4,041
Investment real estate 613 647 2,146
Policy loans 33,449 29,775 25,692
Short term investments 16,780 15,092 12,676
Other 9,438 3,949 5,075
-------------------------------------------
251,857 251,522 246,553
Investment expenses (4,529) (4,904) (5,421)
===========================================
Net investment income $ 247,328 $ 246,618 $ 241,132
===========================================
4. Investment Gains (Losses)
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-------------------------------------------
(000'S)
<S> <C> <C> <C>
Realized investment gains (losses)
Fixed maturities - Available for sale $ 9,036 $ 11,359 $ (38,180)
Equity securities 781 2,020 503
Mortgage loans 1,677 (90) (4,581)
Investment real estate 487 (99) 1,184
Other (1,146) 10 --
-------------------------------------------
Realized investment gains (losses) $ 10,835 $ 13,200 $ (41,074)
===========================================
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-------------------------------------------
(000'S)
<S> <C> <C> <C>
Net unrealized investment gains
(losses), beginning of period $ 30,836 $ (1,349) $ --
Net unrealized investment gains (losses)
Fixed maturities - Available for sale (43,853) 131,712 --
Equity securities 1,403 827 (2,108)
-------------------------------------------
(42,450) 132,539 (2,108)
Deferred income tax benefit (provision) 15,398 (47,714) 759
Deferred policy acquisition costs
(net of deferred income taxes) 8,618 (12,878) --
-------------------------------------------
Net change in unrealized
investment gains (losses) (18,434) 71,947 (1,349)
Adoption of SFAS 115 -- (39,762) --
-------------------------------------------
Net unrealized investment gains
(losses), end of period $ 12,402 $ 30,836 (1,349)
===========================================
</TABLE>
B-11
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
5. Fair Value Information
The fair value amounts have been determined by the Company using available
information and reasonable valuation methodologies. 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.
Equity Securities - Fair value is based on quoted market prices.
Mortgage Loans - The fair value of the mortgage 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.
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.
Policyholders' Account Balances - Fair values for policyholders' account
balances are equal to the policy account values.
Short-term Investments - Fair values for short-term investments are based on
quoted market prices or estimates from independent pricing services.
The following table discloses the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ---------- -------------- ----------
(000'S)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities:
Held to maturity $ 405,731 $ 416,102 $ 437,727 $ 454,551
Available for sale 2,236,817 2,236,817 2,144,854 2,144,854
Mortgage loans 46,915 46,692 64,464 63,635
Policy loans 639,782 623,218 569,273 577,975
Equity securities 3,748 3,748 4,036 4,036
Short-term investments 169,830 169,830 228,016 228,016
Financial Liabilities:
Policyholders'
account balances $ 2,188,862 $ 2,188,862 $ 2,218,330 $ 2,218,330
</TABLE>
B-12
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
6. Income Taxes
The Company is a member of a group of affiliated companies which join in filing
a consolidated federal income tax return in addition to separate company state
and local tax returns. The Internal Revenue Code limits the amount of nonlife
insurance losses that may offset life insurance company taxable income.
Companies operating outside the United States are taxed under applicable foreign
statutes.
Pursuant to the tax allocation arrangement, total federal income tax expense is
determined on a separate company basis. Members with losses record tax benefits
to the extent such losses are recognized in the consolidated federal tax
provision. The Company has a net receivable from Prudential of $7.2 million and
$6.4 million as of December 31, 1996 and 1995, respectively.
Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes.
The components of income taxes are as follows:
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-------------------------------------
(000'S)
Current income tax provision:
Federal income tax $ 59,489 $ 65,131 $ 59,641
State and local income tax 703 1,876 3,036
Foreign income tax 4 7 7
-------------------------------------
Total current income tax 60,196 67,014 62,684
Deferred income tax provision
(benefit):
Federal income tax 18,413 12,196 (14,246)
State and local income tax 526 348 (407)
-------------------------------------
Total deferred income tax 18,939 12,544 (14,653)
-------------------------------------
Total income tax provision $ 79,135 $ 79,558 $ 48,031
=====================================
The income tax provision is different from the amount computed using the
expected federal income tax rate of 35% for the following reasons:
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-------------------------------------
(000'S)
Expected federal income tax expense $ 79,926 $ 81,271 $ 45,474
State income taxes 1,229 2,224 2,629
Other (2,020) (3,937) (72)
=====================================
Total income tax provision $ 79,135 $ 79,558 $ 48,031
=====================================
B-13
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
The components of net deferred income taxes payable are as follows:
YEAR ENDED
DECEMBER 31,
1996 1995
------------------------------
(000'S)
Deferred Income Tax Assets
Insurance liabilities $ 38,532 $ 40,732
Other -- --
------------------------------
Total deferred income tax assets $ 38,532 $ 40,732
==============================
Deferred Income Tax Liabilities
Deferred acquisition costs $ 173,785 $ 153,526
Net investment gains 12,502 28,157
Other 1,205 97
------------------------------
Total deferred income tax liabilities 187,492 181,780
------------------------------
Deferred federal income tax payable $ 148,960 $ 141,048
==============================
The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns through 1989. The Service is examining
the years 1990 through 1992. Discussions are being held with the Service with
respect to proposed adjustments. However, management believes there are adequate
defenses against, or sufficient reserves to provide for, such adjustments.
B-14
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
7. Stockholder's Equity Reconciliation
The reconciliation of statutory net income to GAAP net income, and statutory
surplus to GAAP equity as of December 31, 1996, 1995, and 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------
(000'S)
<S> <C> <C> <C>
Statutory net income $ 73,847 $ 157,751 $ 52,955
Deferred acquisition costs 48,862 (6,103) (34,124)
Deferred premium 1,295 (743) 1,122
Insurance liabilities 10,211 22,890 31,780
Income taxes (7,780) (27,669) 42,755
Interest maintenance reserve 365 5,480 (24,704)
Separate accounts and other 22,422 1,038 12,111
---------------------------------------------------------
GAAP net income $ 149,222 $ 152,644 $ 81,895
=========================================================
Statutory surplus $ 901,645 $ 829,022 $ 676,087
Investment valuation 26,678 70,776 -
Deferred acquisition costs 633,159 566,976 598,294
Deferred premium (11,859) (13,154) (12,412)
Insurance liabilities (124,781) (153,995) (71,076)
Income taxes (124,823) (128,070) (82,167)
Asset valuation reserve and interest
maintenance reserve 68,733 64,551 23,690
Other 30,229 32,087 (49,052)
---------------------------------------------------------
GAAP stockholder's equity $ 1,398,981 $ 1,268,193 $ 1,083,364
=========================================================
</TABLE>
The New York State Insurance Department ("Department") recognizes only
statutory accounting for determining and reporting the financial condition
and results of operations of an insurance company, for determining its
solvency under the New York Insurance Law, and for determining whether its
financial condition warrants the payment of a dividend to its stockholders.
No consideration is given by the Department to financial statements prepared
in accordance with generally accepted accounting principles in making such
determinations.
B-15
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
8. Related Party Transactions
A. Service Agreements
The Company, Prudential, 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 $102 million, $98 million and $78 million for
the years ended December 31, 1996, 1995, and 1994, respectively.
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, 1995, or 1994 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 years
ended December 31, 1996, 1995, and 1994.
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. The Company is not
relieved of its primary obligation to the policyholder as a result of these
reinsurance transactions. These agreements had no material effect on net
income for the years ended December 31, 1996, 1995, and 1994.
9. 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.
10. Dividends
The Company is subject to Arizona law which limits the amount of dividends
that insurance companies can pay to stockholders. The maximum dividend which
may be paid in any twelve month period without notification or approval is
limited to the lesser of 10% of 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, 1996, the Company would be permitted a maximum of $48 million in
dividend distribution in 1997, all of which could be paid in cash, without
approval from The State of Arizona Department of Insurance.
B-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying consolidated statement of financial position
and the related consolidated statements of operations, of stockholder's equity
and of cash flows present fairly, in all material respects, the financial
position of Pruco Life Insurance Company and its subsidiaries at December 31,
1996, and the results of their operations and their cash flows for the year in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
- --------------------------
PRICE WATERHOUSE LLP
New York, New York
March 21, 1997
B-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors of
Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying consolidated statement of financial position of
Pruco Life Insurance Company and subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, stockholder's equity and cash
flows for the years ended December 31, 1995 and 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying financial statements presents fairly, in all
material respects, the consolidated financial position of Pruco Life Insurance
Company and subsidiaries as of December 31, 1995, and the consolidated results
of operations and cash flows for the years ended December 31, 1995 and 1994 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company has
retroactively adopted all applicable generally accepted accounting principles
relating to stock life insurance subsidiaries of mutual life insurance companies
and has changed, as of January 1, 1995, the method of accounting for fixed
maturity investments.
/s/ DELOITTE & TOUCHE LLP
Parsippany, N.J.
December 19, 1996
B-18
<PAGE>
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 437-4016, Ext. 46
Vul-1 Ed. 5/97
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
Pruco Life Insurance Company represents that the fees and charges deducted under
the Variable Universal Life Insurance Contracts registered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by the
depositor.
UNDERTAKING WITH RESPECT TO INDEMNIFICATION
Prudential Directors' and Officers' Liability and Corporation Reimbursement
Insurance program, purchased by 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 Prudential, any of
its subsidiaries, or certain investment companies affiliated with 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, dishonest 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 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 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
II-1
<PAGE>
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-2
<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 71 pages.
The undertaking to file reports.
The representation with respect to charges.
The undertaking with respect to indemnification.
The signatures.
Written consents of the following persons:
1. Price Waterhouse LLP
2. Deloitte & Touche LLP
3. Clifford E. Kirsch, Esq.
4. Ching-Meei Chang, MAAA, FSA
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 3)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities
Corporation and Pruco Life Insurance Company.
(Note 3)
(b) Proposed form of Agreement between Pruco
Securities Corporation and independent brokers
with respect to the Sale of the Contracts.
(Note 3)
(c) Schedules of Sales Commissions. (Note 5)
(4) Not Applicable.
(5) Variable Universal Life Insurance Contract: (Note 3)
(6) (a) Articles of Incorporation of Pruco Life
Insurance Company, as amended October 19, 1993.
(Note 3)
(b) By-laws of Pruco Life Insurance Company, as
amended June 18, 1996. (Note 7)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form. (Note 3)
(b) Supplement to the Application. (Note 2)
(11) Form of Notice of Withdrawal Right. (Note 5)
(12) Memorandum describing 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 3)
(13) Available Contract Riders and Endorsements:
(a) Rider for Payment of Premium Benefit Upon
Insured's Total Disability. (Note 3)
(b) 10 Year Level Premium Term Rider on Insured.
(Note 5)
(c) 10 Year Level Premium Term Rider on Spouse.
(Note 5)
(d) Annually Renewable Term Rider on Insured. (Note
5)
(e) Children's Rider. (Note 5)
(f) Living Needs Benefit Rider
(i) for use in Florida. (Note 3)
II-3
<PAGE>
(ii) for use in all approved jurisdictions
except Florida. (Note 3)
2. See Exhibit 1.A.(5).
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of
the securities being registered. (Note 1)
4. None.
5. Not Applicable.
6. Opinion and Consent of Ching-Meei Chang, MAAA, FSA, as to actuarial
matters pertaining to the securities being registered. (Note 1)
7. Powers of Attorney:
(a) William M. Bethke, Ira J. Kleinman, Mendel A. Melzer, Esther
H. Milnes, I. Edward Price, William F. Yelverton (Note 6)
(b) Linda S. Dougherty (Note 7)
(c) Kiyofumi Sakaguchi (Note 4)
27. Financial Data Schedule. (Note 1)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Form S-6, Registration No.
33-61079, filed July 17, 1995 on behalf of The Prudential
Variable Appreciable Account.
(Note 3) Incorporated by reference to Registrant's Form S-6, filed
July 2, 1996.
(Note 4) Incorporated by reference to Post-Effective Amendment No. 8
to Form S-6, Registration No. 33-49994, filed on or about
April 25, 1997 on behalf of the Pruco Life PRUvider Variable
Appreciable Account.
(Note 5) Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Form S-6, filed November 25, 1996 on behalf of
the Pruco Life Variable Appreciable Account.
(Note 6) Incorporated by reference to Form 10-K, Registration No.
33-08698, filed March 31, 1997 on behalf of the Pruco Life
Variable Contract Real Property Account.
(Note 7) Incorporated by reference to Post-Effective Amendment No. 3
to Form S-1, Registration No. 33- 86780, filed April 9, 1997
on behalf of the Pruco Life Variable Contract Real Property
Account.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life Variable Appreciable Account, certifies that this Amendment is filed
solely for one or more of the purposes specified in Rule 485(b)(1) under the
Securities Act of 1933 and that no material event requiring disclosure in the
prospectus, other than one listed in Rule 485(b)(1), has occurred since the
effective date of the most recent Pre-Effective Amendment to the Registration
Statement which included a prospectus, and has caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal hereunto affixed and attested, all in the city of
Newark and the State of New Jersey, on this 25th day of April, 1997.
(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 Post-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 April, 1997.
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-5
<PAGE>
EXHIBIT INDEX
Consent of Price Waterhouse LLP, independent accountants. Page II-7
Consent of Deloitte & Touche LLP, independent auditors. Page II-8
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the Page II-9
legality of the securities being registered.
6. Opinion and Consent of Ching-Meei Chang, MAAA, FSA, as Page II-10
to actuarial matters pertaining to the securities being
registered.
27. Financial Data Schedule. Page II-11
II-6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 1 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated March 31, 1997, relating to the
financial statements of Pruco Life Variable Appreciable Account, which appears
in such Prospectus.
We also consent to the use in the Prospectus constituting part of this
Registration Statement of our report dated March 21, 1997, relating to the
consolidated financial statements of Pruco Life Insurance Company and
Subsidiaries, which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in the
Prospectus.
/s/ PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 24, 1997
II-7
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-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 December 19, 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
April 25, 1997
II-8
Exhibit 3
April 25, 1997
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,
/s/
- -----------------------------
Clifford E. Kirsch
II-9
Exhibit 6
April 25, 1997
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 Post-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,
/s/
- -----------------------------
Ching-Meei Chang, FSA, MAAA
Actuarial Director
The Prudential Insurance Company of America
II-10
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<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,086,771
<INVESTMENTS-AT-VALUE> 2,568,706
<RECEIVABLES> 0
<ASSETS-OTHER> 0
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<SHARES-COMMON-STOCK> 141,649
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<NET-ASSETS> 2,568,706
<DIVIDEND-INCOME> 80,596
<INTEREST-INCOME> 0
<OTHER-INCOME> 191,798
<EXPENSES-NET> 10,250
<NET-INVESTMENT-INCOME> 70,346
<REALIZED-GAINS-CURRENT> 20,856
<APPREC-INCREASE-CURRENT> 40,537
<NET-CHANGE-FROM-OPS> 323,536
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 264,244
<ACCUMULATED-NII-PRIOR> 0
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