<PAGE>
AS FILED WITH THE SEC ON REGISTRATION NO. 333-07451
-----------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
POST-EFFECTIVE AMENDMENT NO. 3 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
(Address and telephone number of principal executive offices)
----------------------
THOMAS C. CASTANO
ASSISTANT SECRETARY
PRUCO LIFE INSURANCE COMPANY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(Name and address of agent for service)
Copy to:
JEFFREY C. MARTIN
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036
----------------------
It is proposed that this filing will become effective (check appropriate space):
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1998 pursuant to paragraph (b) of Rule 485
--------------------------
(date)
[_] 60 days after filing pursuant to paragraph (a) of Rule 485
[_] on pursuant to paragraph (a) of Rule 485
---------------------------------
(date)
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY FORM N-8B-2)
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
1. Cover Page
2. Cover Page
3. Not Applicable
4. Sale of the Contract and Sales Commissions
5. The Pruco Life Variable Appreciable
Account
6. The Pruco Life Variable Appreciable
Account
7. Not Applicable
8. Not Applicable
9. Litigation
10. Introduction and Summary; 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 Fund Shares
11. Introduction and Summary; The Pruco Life
Variable Appreciable Account
12. Cover Page; Introduction and Summary; The
Funds; Sale of the Contract and Sales
Commissions
13. Introduction and Summary; The Funds;
Charges and Expenses; Sale of the Contract
and Sales Commissions
14. Introduction and Summary; Requirements for
Issuance of a Contract
15. Introduction and Summary; Allocation of
Premiums; Transfers; Dollar Cost
Averaging, Auto-Rebalancing; The Fixed-
Rate Option
16. Introduction and Summary; Detailed
Information for Prospective Contract
Owners
17. When Proceeds are Paid
18. The Pruco Life Variable Appreciable
Account
19. Reports to Contract Owners
20. Not Applicable
21. Contract Loans
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions
25. Pruco Life Insurance Company
26. Introduction and Summary; The Funds; Charges
and Expenses
27. Pruco Life Insurance Company; The Funds
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. Introduction and Summary; The Funds; 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. Introduction and Summary; The Pruco Life
Variable Appreciable Account; The Funds
47. The Pruco Life Variable Appreciable Account;
The Funds
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
55. Not Applicable
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements; Financial Statements of
the Pruco Life Variable Appreciable Account;
Consolidated Financial Statements of Pruco Life
Insurance Company and Subsidiaries
<PAGE>
Variable Universal Life
Insurance
PROSPECTUS
Pruco Life
Variable Appreciable Account
May 1, 1998
PRUCO LIFE INSURANCE COMPANY
<PAGE>
PROSPECTUS
MAY 1, 1998
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
VARIABLE UNIVERSAL LIFE
This prospectus describes a flexible premium variable universal life insurance
contract (the "Contract") offered by Pruco Life Insurance Company ("Pruco
Life"). The Contract provides life insurance coverage with flexible premium
payments and a variety of investment options. Subject to an initial premium,
you can pay premium amounts as desired, so long as sufficient money is in the
Contract Fund to cover all charges. If there is insufficient money in the
Contract Fund, the Contract may lapse without value.
There are two types of death benefit available. One type generally remains
fixed in the amount initially selected, the other will vary daily with the
investment performance of the investment options you select. For each type,
there are generally two death benefit guarantees, each of which can be secured
by a certain level of premium payments.
A portion of the Contract's premiums and the earnings on those premiums will be
held in one or more of the following ways.
.They may be invested in one or more of 15 available subaccounts of the Pruco
Life Variable Appreciable Account, each of which invests in a corresponding
portfolio of the Funds:
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
AIM VARIABLE INSURANCE FUNDS, INC. AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
AIM V.I. Value Fund American Century VP Value Fund
JANUS ASPEN SERIES MFS VARIABLE INSURANCE TRUST
Growth Portfolio Emerging Growth Series
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio
. 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 prospectuses for the Funds and their related statements 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,
SUPPLEMENTING THE EXISTING POLICY BY PURCHASING ADDITIONAL INSURANCE OR A NEW
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.
<PAGE>
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ATTACHED TO
CURRENT PROSPECTUSES FOR THE FUNDS.
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
<PAGE>
<TABLE>
<CAPTION>
PROSPECTUS CONTENTS
Page
<S> <C>
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS.....................................................1
INTRODUCTION AND SUMMARY.................................................................................2
Brief Description of the Contract...............................................................2
Charges.........................................................................................2
Types of Death Benefit..........................................................................4
Premiums........................................................................................5
Refund..........................................................................................5
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, THE PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT, AND
THE VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACT.............................................6
Pruco Life Insurance Company....................................................................6
The Pruco Life Variable Appreciable Account.....................................................6
The Funds.......................................................................................7
The Fixed-Rate Option...........................................................................9
Which Investment Option Should Be Selected?.....................................................9
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS....................................................10
Requirements for Issuance of a Contract........................................................10
Short-Term Cancellation Right or "Free Look"...................................................10
Type of Death Benefit..........................................................................10
Changing the Type of Death Benefit.............................................................10
Premiums.......................................................................................11
Death Benefit Guarantee........................................................................12
Contract Date..................................................................................13
Allocation of Premiums.........................................................................13
Transfers......................................................................................14
Dollar Cost Averaging..........................................................................14
Auto-Rebalancing...............................................................................14
Charges and Expenses...........................................................................15
How a Contract's Cash Surrender Value Will Vary................................................18
How a Type A (Fixed) Contract's Death Benefit Will Vary........................................18
How a Type B (Variable) Contract's Death Benefit Will Vary.....................................19
Surrender of a Contract........................................................................20
Withdrawals....................................................................................20
Increases in Basic Insurance Amount............................................................21
Decreases in Basic Insurance Amount............................................................21
When Proceeds Are Paid.........................................................................22
Living Needs Benefit...........................................................................22
Illustrations of Cash Surrender Values, Death Benefits, and Accumulated Premiums...............23
Contract Loans.................................................................................25
Sale of the Contract and Sales Commissions.....................................................25
Tax Treatment of Contract Benefits.............................................................26
Withholding....................................................................................27
Lapse and Reinstatement........................................................................28
Legal Considerations Relating to Sex-Distinct Premiums and Benefits............................28
Other General Contract Provisions..............................................................28
Riders.........................................................................................29
Voting Rights..................................................................................29
Substitution of Fund Shares....................................................................30
Reports to Contract Owners.....................................................................30
State Regulation...............................................................................30
Experts........................................................................................30
Litigation.....................................................................................30
Year 2000 Compliance...........................................................................31
Additional Information.........................................................................31
Financial Statements...........................................................................31
</TABLE>
<PAGE>
<TABLE>
<S> <C>
DIRECTORS AND OFFICERS...................................................................32
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 IN THE PROSPECTUSES AND THE STATEMENTS OF ADDITIONAL
INFORMATION FOR THE FUNDS.
<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. For any portion of a contract representing an increase (see page
21), "Contract year" is a year that starts on the effective date of the
increase.
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%.
FUNDS--Mutual funds with separate portfolios. One or more of the available Fund
portfolios may be chosen as an underlying investment for the Contract.
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 12.
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
12. 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.
SUBACCOUNT--An investment division of the Account, the assets of which are
invested in the shares of the corresponding portfolio of the Funds.
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 Funds 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>
INTRODUCTION AND SUMMARY
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.
As you read this prospectus you should keep in mind that this is a life
insurance contract. VARIABLE LIFE INSURANCE has significant investment aspects
and requires you to make investment decisions and therefore it is also a
"security." Securities that are offered to the public must be registered with
the Securities and Exchange Commission, and the prospectus that is a part of the
registration statement must be given to all prospective purchasers. 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 the total premium payments, you should not buy this Contract unless the
major reason for the purchase is to provide life insurance protection.
Brief Description of the Contract
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
below 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 15 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 9. 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%.
Charges
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 current lower charges, are fully described
under CHARGES AND EXPENSES, page 15.
2
<PAGE>
PREMIUM PAYMENT
. 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.
. less a charge for sales expenses of up to 4% of the
premiums pai d
INVESTED PREMIUM AMOUNT
. To be invested in one or a combination of:
. 15 investment portfolios of the Funds
. The fixed-rate option
CONTRACT FUND
On the Contract Date, the Contract Fund is equal to the invested premium
amount minus any of the charges described below which may be due on that
date. Thereafter, the value of the Contract Fund changes daily.
ADJUSTMENTS MADE TO CONTRACT FUND AS APPLICABLE FOR:
. Addition of any new invested premium amounts.
. Addition of any increase due to investment results of the chosen
variable investment options.
. 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.
. 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
25.)
. Subtraction of any decrease due to investment results of the chosen variable
investment options.
. Subtraction of any amount withdrawn.
. Subtraction of the charges listed below, as applicable.
DAILY CHARGES
. Management fees and expenses are deducted from the assets of the Funds.
. A daily charge equivalent to an annual rate of up to 0.9% is deducted from
the assets of the variable investment options for mortality and expense
risks.
3
<PAGE>
MONTHLY CHARGES
. 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.
. A cost of insurance ("COI") charge is deducted.
. The Contract Fund is reduced by a Death Benefit Guarantee risk charge of
$0.01 per $1,000 of the basic insurance amount.
. If the Contract includes riders, a deduction from the Contract Fund will be
made for charges applicable to those riders.
. If the rating class of an insured results in an extra charge, that charge
will be deducted from the Contract Fund.
POSSIBLE ADDITIONAL CHARGES
. 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 11) 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.
. 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.
. An administrative charge of up to $25 is made in connection with any
withdrawals.
. An administrative charge of up to $25 is made for any change in basic
insurance amount.
. An administrative charge of up to $25 is made for each transfer exceeding
twelve in any Contract year.
Types of Death Benefit
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 remains 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 10.
4
<PAGE>
PREMIUMS
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 11, DEATH BENEFIT GUARANTEE, page 12 and LAPSE AND
REINSTATEMENT, page 28.
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 your billing options with your
Pruco Life representative. See PREMIUMS, page 11.
REFUND
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 10.
For the DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, see page 1.
5
<PAGE>
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. Prudential
is currently considering reorganizing itself into a stock company. This form of
reorganization, known as demutualization, is a complex process that may take two
or more years to complete. No plan of demutualization has been adopted yet by
the Company's Board of Directors. Adoption of a plan of demutualization would
occur only after enactment of appropriate legislation in New Jersey and would
have to be approved by Company policyholders and appropriate state insurance
regulators. Throughout the process, there will be a continuing evaluation by
the Board of Directors and management of the Company as to the desirability of
demutualization. The Board of Directors, in its discretion, may choose not to
demutualize or to delay demutualization for a time.
Should Prudential convert to a stock company, the allocation of stock, cash or
other benefits to policyholders and Contract owners would be made in accordance
with procedures set forth in the plan of demutualization. In recent
demutualizations, policyholders and contract owners of the converting mutual
insurer have been eligible to receive consideration while policyholders and
contract owners of the insurer's stock subsidiaries have not. It has not yet
been determined whether any exceptions to that general approach will be made
with respect to policyholders and Contract owners of Prudential's subsidiaries,
including the Pruco Life insurance companies.
As of December 31, 1997, Prudential has invested over $442 million in Pruco Life
in connection with Pruco Life's organization and operation. Prudential may from
time to time make additional capital contributions to Pruco Life as needed to
enable it to meet its reserve requirements and expenses in connection with its
business. Prudential is under no obligation to make such contributions and its
assets do not back the benefits payable under the Contract. Pruco Life's
consolidated financial statements begin on page B1 and should be considered only
as bearing upon Pruco Life's ability to meet its obligations under the
Contracts.
THE PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
The Pruco Life Variable Appreciable Account (the "Account") was established on
January 13, 1984 under Arizona law as a separate investment account. The
Account meets the definition of a "separate account" under the federal
securities laws. The Account holds assets that are segregated from all of Pruco
Life's other assets.
The obligations to Contract owners and beneficiaries arising under the Contracts
are general corporate obligations of Pruco Life. Pruco Life is also the legal
owner of the assets in the Account. Pruco Life will maintain assets in the
Account with a total market value at least equal to the reserve and other
liabilities relating to the variable benefits attributable to the Account.
These assets may not be charged with liabilities which arise from any other
business Pruco Life conducts. In addition to these assets, the Account's assets
may include funds contributed by Pruco Life to commence operation of the Account
and may include accumulations of the charges Pruco Life makes against the
Account. From time to time these additional assets will be transferred to Pruco
Life's general account. Before making any such transfer, Pruco Life will
consider any possible adverse impact the transfer might have on the Account.
The Account is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 ("1940 Act") as a unit investment
trust, which is a type of investment company. This does not involve any
supervision by the SEC of the management or investment policies or practices of
the Account. For state law purposes, the Account is treated as a part or
division of Pruco Life. There are currently 15 available subaccounts within the
Account, each of which invests in a single corresponding portfolio of the Funds.
Additional subaccounts may be added in the future. The Account's financial
statements begin on page A1.
6
<PAGE>
THE FUNDS
The following is a list of the Funds, the portfolios' investment objectives and
investment advisors:
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND"):
. 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.
. 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.
. 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.
. 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.
. 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.
. 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.
. 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.
. 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.
. 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.
. 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 751 Broad Street,
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.
AIM VARIABLE INSURANCE FUNDS, INC.:
. AIM V.I. VALUE FUND. To achieve long-term growth of capital by investing
primarily in equity securities judged by A I M Advisors, Inc. to be
undervalued relative to the current or projected earnings of the companies
issuing the securities, or relative market values of assets owned by the
companies issuing the securities or relative to the equity market generally.
Income is a secondary objective and would be satisfied principally from the
income (interest and dividends) generated by the common stocks, convertible
bonds and convertible preferred stocks that make up the Fund's portfolio.
A I M Advisors, Inc. ("AIM") is the investment advisor for this fund. The
principal business address for AIM is 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173.
7
<PAGE>
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.:
. AMERICAN CENTURY VP VALUE FUND. Seeks long-term capital growth with income
as a secondary objective. The fund seeks to achieve its objective by
investing primarily in equity securities of well-established companies with
intermediate-to-large market capitalizations that are believed by management
to be undervalued at the time of purchase.
American Century Investment Management, Inc. ("ACIM") is the investment advisor
for this fund. ACIM's principal business address is American Century Tower,
4500 Main Street, Kansas City, Missouri 64111. The Principal Underwriter of the
fund is American Century Services, Inc., located at 4500 Main Street, Kansas
City, Missouri 64111.
JANUS ASPEN SERIES:
. GROWTH PORTFOLIO. Seeks long-term growth of capital in a manner consistent
with the preservation of capital.
Janus Capital Corporation is the investment adviser and is responsible for the
day-to-day management of the portfolio and other business affairs of the
portfolio. Janus Capital Corporation's principal business address is 100
Fillmore Street, Denver, Colorado 80206-4928.
MFS VARIABLE INSURANCE TRUST:
. EMERGING GROWTH SERIES. Seeks to provide long-term growth of capital.
Dividend and interest income from portfolio securities, if any, is incidental
to the Series' investment objective of long-term growth of capital.
Massachusetts Financial Services Company, a Delaware corporation, is the
investment adviser to this MFS Series. The principal business address for the
Massachusetts Financial Services Company is 500 Boylston Street, Boston,
Massachusetts 02116.
T. ROWE PRICE INTERNATIONAL SERIES, INC.:
. INTERNATIONAL STOCK PORTFOLIO. Long-term growth of capital through
investments primarily in common stocks of established, non-U.S. companies.
Rowe Price-Fleming International, Inc. is the Investment Manager for this fund.
The principal business address for Rowe Price-Fleming International, Inc. is 100
East Pratt Street, Baltimore, Maryland 21202.
Further information about Fund portfolios can be found in the attached
prospectuses and their statements of additional information for each Fund.
The investment advisors with respect to the Funds charge a daily investment
management fee as compensation for their services, as set forth in the table in
the DEDUCTIONS FROM PORTFOLIOS section, page 15 and as more fully described in
the prospectus for each Fund.
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 funds. Although neither the companies
which invest in the Funds nor the Funds currently foresee any such disadvantage,
the Board of Directors for each Fund 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 Funds; or (4)
differences between voting instructions given by variable life insurance and
variable annuity contract owners.
Pruco Life may be compensated by an affiliate of each of the Funds (other than
those in the Prudential Series Fund) based upon an annual percentage of the
average assets held in the Fund by Pruco Life under the Contracts. These
percentages vary by Fund, and reflect administrative and other services provided
by Pruco Life.
A FULL DESCRIPTION OF THE FUNDS, THEIR INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, AND RESTRICTIONS, THEIR EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN--INCLUDING ANY RISKS ASSOCIATED WITH INVESTMENT IN THE HIGH YIELD BOND
PORTFOLIO, AND ALL OTHER ASPECTS OF THEIR OPERATION IS CONTAINED IN THE ATTACHED
PROSPECTUSES FOR EACH FUND AND IN THE RELATED STATEMENTS OF ADDITIONAL
INFORMATION, WHICH SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS. THERE IS
NO ASSURANCE THAT THE INVESTMENT OBJECTIVES WILL BE MET.
8
<PAGE>
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 14. 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 22.
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,
Global, AIM V.I. Value Fund, American Century VP Value Fund, Janus Growth, MFS
Emerging Growth Series or T. Rowe Price International Stock may be desirable
options if you are willing to accept such volatility in your Contract values.
Each of these equity portfolios involves somewhat different policies and
investment risks.
You may prefer the somewhat greater protection against loss of principal (and
reduced chance of high total return) provided by the Diversified Bond Portfolio.
There may be times when you desire even greater safety of principal and may then
prefer the Money Market Portfolio or the fixed-rate option, recognizing that the
level of short-term rates may change rather rapidly. If you are willing to take
risks and possibly achieve a higher total return, you may prefer the High Yield
Bond Portfolio, recognizing that with higher yielding, lower quality bonds the
risks are greater. You may wish to divide your invested premium among two or
more of the portfolios. You may wish to obtain diversification by relying on
Prudential's judgment for an appropriate asset mix by choosing the Conservative
Balanced or Flexible Managed Portfolio.
You should make a choice that takes into account how willing you are to accept
investment risks, the manner in which your other assets are invested, and your
own predictions about what investment results are likely to be in the future.
Pruco Life does recommend AGAINST frequent transfers among the several options
as experience generally indicates that "market timing" investing, particularly
by non-professional investors, is likely to prove unsuccessful.
9
<PAGE>
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. 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 18. 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 18.
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 18 and HOW A TYPE B (VARIABLE) CONTRACT'S
DEATH BENEFIT WILL VARY, page 19. Unfavorable investment performance will
result in decreases in the death benefit and in the cash surrender value. But,
as long as the Contract is not in default, the death benefit may not fall below
the basic insurance amount stated in the Contract.
In choosing a death benefit type, you should also consider whether you intend to
use the withdrawal feature. Purchasers of Type A (fixed) Contracts should note
that any withdrawal may result in a reduction of the basic insurance amount and
the deduction of any applicable surrender charges. In addition, we will not
allow you to make a withdrawal that will decrease the basic insurance amount
below the minimum basic insurance amount. See WITHDRAWALS, page 20.
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
10
<PAGE>
insurance amount by the amount in your Contract Fund on the date the change
takes place. This is illustrated in the following chart.
<TABLE>
<CAPTION>
CHANGING THE DEATH CHANGING THE DEATH
BENEFIT FROM BENEFIT FROM
TYPE A TYPE B TYPE B TYPE A
(FIXED) (VARIABLE) (VARIABLE) (FIXED)
- --------------------------------------------------------------------
<S> <C> <C>
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
- --------------------------------------------------------------------
</TABLE>
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 15.
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 18 and HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL
VARY, page 19. 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 26.
There are several types of "premiums" under the Contract, described below.
Understanding them will help you understand how the Contract works.
MINIMUM INITIAL PREMIUM -- the premium needed to start the Contract. There
is no insurance under this Contract unless the minimum initial premium is
paid.
GUIDELINE PREMIUMS -- the premiums that, if paid at the beginning of each
Contract year, will keep the Contract in force for the lifetime of the
insured regardless of investment performance, assuming no loans or
withdrawals. These guideline premiums will be higher for a Type B (variable)
Contract than for a Type A (fixed) Contract. For a Contract with no riders
or extra risk charges, these premiums will be level. If certain riders are
included, the guideline premium may increase each year. Payment of guideline
premiums at the beginning of each Contract year is one way to achieve the
Lifetime Death Benefit Guarantee Values shown on the Contract data pages.
See DEATH BENEFIT GUARANTEE, page 12. 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.
11
<PAGE>
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
contingent deferred sales charges. See CHARGES AND EXPENSES, page 15.
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 monthly transfers from a bank checking account. If you elect to
use this feature, you choose the day of the month on which premiums will be paid
and the amount of the 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 25. 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.
At the Contract date, and on each Monthly date, we calculate your Contract's
"Accumulated Net Payments" as of that date. Accumulated Net Payments equal the
premiums you paid, accumulated at an effective annual rate of 4%, less
withdrawals also accumulated at 4%.
At each Monthly date within the Limited Death Benefit Guarantee period, we will
compare your Accumulated Net Payments to the Limited Death Benefit Guarantee
Value as of that date. At each Monthly date after the Limited Death Benefit
Guarantee period, we will compare your Accumulated Net Payments to the Lifetime
Death Benefit Guarantee Value as of that date. If your Accumulated Net Payments
equal or exceed the applicable (Lifetime or Limited) Death Benefit Guarantee
Value and Contract debt does not equal or exceed the Contract Fund less any
applicable surrender charges, then the Contract is kept in force, regardless of
the amount in the Contract Fund.
The Contract data pages show Lifetime Death Benefit Guarantee Values and Limited
Death Benefit Guarantee Values as of Contract anniversaries. Values for non-
anniversary Monthly dates will reflect the number of months elapsed between
Contract anniversaries.
Guideline and target premiums are premium levels that, if paid at the start of
each Contract year, correspond to the Lifetime and Limited Death Benefit
Guarantee Values, respectively (assuming no withdrawals or loans). See
PREMIUMS, page 11. 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.
12
<PAGE>
BASIC INSURANCE AMOUNT -- $250,000
ILLUSTRATIVE ANNUAL PREMIUMS
<TABLE>
<CAPTION>
AGE OF TYPE OF GUIDELINE PREMIUM TARGET PREMIUM
INSURED DEATH CORRESPONDING TO CORRESPONDING TO THE
AT ISSUE BENEFIT THE LIFETIME DEATH LIMITED DEATH BENEFIT
CHOSEN BENEFIT GUARANTEE GUARANTEE VALUES AND
VALUES NUMBER OF YEARS OF
GUARANTEE
<S> <C> <C> <C>
35 Type A (fixed) $ 3,532.50 $ 2,007.50 for 35 years
35 Type B (variable) $ 12,037.50 $ 2,007.50 for 33 years
45 Type A (fixed) $ 5,462.50 $ 2,977.50 for 25 years
45 Type B (variable) $ 17,147.50 $ 2,977.50 for 23 years
55 Type A (fixed) $ 8,897.50 $ 5,770.00 for 20 years
55 Type B (variable) $ 25,607.50 $ 5,770.00 for 18 years
</TABLE>
The Death Benefit Guarantee allows considerable flexibility as to the timing of
premium payments. Your Pruco Life representative can supply sample
illustrations of various premium amount and frequency combinations that
correspond to the Death Benefit Guarantee Values.
You should consider carefully the value of maintaining the guarantee. It may be
preferable for you to pay generally higher premiums in all years, rather than
trying to make such payments on an as needed basis if the death benefit
guarantee is desired for lifetime protection. For example, if you pay only
enough premium to meet 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 26.
CONTRACT DATE
When the first premium payment is paid with the application for a Contract, the
Contract date will ordinarily be the later of the date of the application or the
date of the medical examination. If the first premium is not paid with the
application, the Contract date will be the date on which the first premium is
paid and the Contract is delivered. Under certain circumstances, we may allow
the Contract to be backdated for the purpose of lowering the insured's issue
age, but only to a date not earlier than six months prior to the date of the
application. This may be advantageous for some Contract owners as a lower issue
age may result in lower current charges. For a Contract that is backdated, we
will credit the initial premium as of the date of receipt and will deduct any
charges due on or before that date.
ALLOCATION OF PREMIUMS
On the Contract date, the charge for sales expenses and the charge for taxes
attributable to premiums (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 15.
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 33__% cannot. Of course,
the total allocation to all selected investment options must equal 100%.
13
<PAGE>
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 26), 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).
The Contract was not designed for professional market timing organizations,
other organizations, or individuals using programmed, large, or frequent
transfers. A pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to the subaccounts and will be discouraged. If such
a pattern were to be found, we may be required to modify the transfer
procedures, including but not limited to, not accepting transfer requests of an
agent under a power of attorney on behalf of more than one Contract owner.
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 DCA Money Market Subaccount into other
subaccounts available under the Contract, excluding the fixed-rate option. You
may choose to have periodic transfers made monthly, quarterly, semi-annually or
annually.
Each automatic transfer will take effect as of the end of the valuation period
on the date coinciding with the periodic timing you designate provided the New
York Stock Exchange is open on that date. If the New York Stock Exchange is not
open on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. Automatic transfers will continue until: (1) $50
or less remains of the amount designated for Dollar Cost Averaging, at which
time the remaining amount will be transferred; or (2) you give us notification
of a change in DCA allocation or cancellation of the feature. Currently, a
transfer that occurs under the DCA feature is not counted towards the twelve
free transfers permitted each Contract year. We reserve the right to change
this practice, modify the requirements or discontinue the feature.
AUTO-REBALANCING
As an administrative practice, we are currently offering a feature called Auto-
Rebalancing. This feature allows you to automatically rebalance subaccount
assets at specified intervals based on percentage allocations that you choose.
For example, suppose your initial investment allocation of variable investment
options X and Y is split 40% and 60%, respectively. Then, due to investment
results, that split changes. You may instruct that those assets be rebalanced
to your original or different allocation percentages.
Auto-Rebalancing can be performed on a monthly, quarterly, semi-annual or annual
basis. Each rebalance will take effect as of the end of the valuation period on
the date coinciding with the periodic timing you designate provided the New York
Stock Exchange is open on that date. If the New York Stock Exchange is not open
on
14
<PAGE>
that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. The fixed-rate option cannot participate in this
administrative procedure. Currently, a transfer that occurs under the Auto-
Rebalancing feature is not counted towards the twelve free transfers permitted
each Contract year. We reserve the right to change this practice, modify the
requirements or discontinue the feature.
CHARGES AND EXPENSES
This section provides a detailed description of each charge that is described
briefly in the chart on page 3, and an explanation of the purpose of the charge.
In several instances we will use the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, is the highest charge that
Pruco Life is entitled to make under the Contract. The "current charge" is the
lower amount that Pruco Life is now charging. However, if circumstances change,
Pruco Life reserves the right to increase each current charge, up to but to no
more than the maximum charge, without giving any advance notice.
DEDUCTIONS FROM PREMIUM PAYMENTS
(a) A charge of up to 7.5% is deducted from each premium for taxes attributable
to premiums (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. During 1997, Pruco Life deducted a total of
approximately $1,001,000 in taxes attributable to premiums.
(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 11) 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. For additional information, see INCREASES IN BASIC
INSURANCE AMOUNT, page 21.
Attempting to structure the timing and amount of premium payments to reduce
the potential sales load may increase the risk that your Contract will lapse
without value. Delaying the payment of target premium amounts to later years
will adversely affect the Death Benefit Guarantee if the accumulated premium
payments do not reach the accumulated values shown under your Contract's
Limited Death Benefit Guarantee Values. See DEATH BENEFIT GUARANTEE, page
12. 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 26. During 1997, Pruco Life received a total of
approximately $595,000 in sales charges.
DEDUCTIONS FROM PORTFOLIOS
An investment advisory fee is deducted daily from each portfolio of the Funds at
a rate, on an annualized basis, from 0.35% for the Stock Index Portfolio to
1.05% for the T. Rowe Price International Stock Portfolio. The expenses
incurred in conducting the investment operations of the portfolios (such as
custodian fees and
15
<PAGE>
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 1997 expressed as a percentage
of the average assets during the year are shown below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
INVESTMENT OTHER TOTAL
PORTFOLIO ADVISORY EXPENSES EXPENSES
FEE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
SERIES FUND
Money Market 0.40% 0.03% 0.43%
Diversified Bond 0.40% 0.03% 0.43%
Conservative Balanced 0.55% 0.01% 0.56%
Flexible Managed 0.60% 0.02% 0.62%
High Yield Bond 0.55% 0.02% 0.57%
Stock Index 0.35% 0.02% 0.37%
Equity Income 0.40% 0.01% 0.41%
Equity 0.45% 0.01% 0.46%
Prudential Jennison 0.60% 0.04% 0.64%
Global 0.75% 0.10% 0.85%
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Value Fund (4) 0.62% 0.08% 0.70%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Value Portfolio (1) 1.00% 0.00% 1.00%
JANUS ASPEN SERIES
Growth Portfolio (2) 0.65% 0.05% 0.70%
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series 0.75% 0.12% 0.87%
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio (3) 1.05% 0.00% 1.05%
- ---------------------------------------------------------------------------------
</TABLE>
(1) Fees are all-inclusive.
(2) The fees and expenses in the table above are based on gross expenses of the
Portfolio before expense offset arrangements for the fiscal year ended
December 31, 1997. The information for the Portfolio is net of fee waivers
or reductions from Janus Capital. Fee reductions for the Portfolio reduce
the management fee to the level of the corresponding Janus retail fund.
Other waivers, if applicable, are first applied against the management fee
and then against other expenses. Without such waivers or reductions, the
Management Fee, Other Expenses and Total Operating Expenses for the
Portfolio would have been 0.74%, 0.04% and 0.78%, respectively. Janus
Capital may modify or terminate the waivers or reductions at any time upon
at least 90 days' notice to the Trustees.
(3) The investment management fee includes the ordinary expenses of operating
the Fund.
(4) AIM may from time to time voluntarily waive or reduce its respective fees.
Effective May 1, 1998, the Fund will reimburse AIM in an amount up to 0.25%
of the average net asset value of the Fund for expenses incurred in
providing, or assuring that participating insurance companies provide,
certain administrative services. The fee currently only applies to the
average net asset value of each Fund in excess of the net asset value of
each Fund as calculated on April 30, 1998.
THE EXPENSES RELATING TO THE FUNDS (OTHER THAN THOSE OF THE SERIES FUND) HAVE
BEEN PROVIDED TO PRUCO LIFE BY THE FUNDS, AND HAVE NOT BEEN INDEPENDENTLY
VERIFIED BY PRUCO LIFE.
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. During 1997, Pruco Life received a total of
approximately $40,000 in mortality and expense risk charges. This charge is not
assessed against amounts allocated to the fixed-rate option.
16
<PAGE>
MONTHLY DEDUCTIONS FROM CONTRACT FUND
The following monthly charges are deducted proportionately from the dollar
amounts held in each of the chosen investment option[s].
(a) An administrative charge based on the basic insurance amount is deducted.
The charge is intended to compensate us for things like processing claims,
keeping records and communicating with Contract owners. Currently, the
charge is equal to $10 per Contract plus $0.07 per $1,000 of basic insurance
amount in the first Contract year and $5 per Contract plus $0.01 per $1,000
of basic insurance amount in all subsequent years. Pruco Life reserves the
right, however to charge up to $10 per Contract plus $0.07 per $1,000 of
basic insurance amount in the first Contract year and $10 per Contract plus
$0.01 per $1,000 of basic insurance amount in all subsequent years.
For example, a Contract with a basic insurance amount of $250,000 would
currently have a charge equal to $10 plus $17.50 for a total of $27.50 per
month for the first Contract year and $5 plus $2.50 for a total of $7.50 per
month in all later years. The maximum charge for this same Contract would be
$10 plus $17.50 for a total of $27.50 per month during the first Contract
year. In later years, the maximum charge would be $10 plus $2.50 for a total
of $12.50 per month. During 1997, Pruco Life received a total of
approximately $324,000 in monthly administrative charges.
(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. For an increase
in basic insurance amount, maximum COI rates are based upon 1980 CSO Tables,
the age at the increase effective date and the number of years since then,
sex (except where unisex rates apply), smoker/nonsmoker status, and extra
rating class, if any. See INCREASES IN BASIC INSURANCE AMOUNT, page 21.
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 12. During 1997, Pruco Life
received a total of approximately $135,000 for this risk charge.
(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: (a) the target
level premium for the Contract; and (b) 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
17
<PAGE>
is level for six years. After six years, this charge will reduce monthly at
a constant rate until it reaches zero at the end of the 10th year. If the
basic insurance amount is decreased [including as a result of a withdrawal
or a change in the type of death benefit from Type A (fixed) to Type B
(variable)] during the first 10 Contract years, we will deduct a
proportionate amount of the charge from the Contract Fund. The proportion we
use will be the amount by which the new basic insurance amount is less than
the basic insurance amount at issue (but not greater than the amount of the
decrease) divided by the basic insurance amount at issue. During 1997, Pruco
Life received a total of approximately $3,000 from surrendered or lapsed
Contracts.
TRANSACTION CHARGES
(a) An administrative processing charge, which is the lesser of: (a) $25 and;
(b) 2% of the withdrawal amount, is made in connection with each
withdrawal.
(b) No administrative processing charge is currently being made in connection
with a change in basic insurance amount. We reserve the right to make such
a charge in an amount of up to $25 for any change in basic insurance amount.
(c) An administrative processing charge of up to $25 is made for each transfer
exceeding 12 in any Contract year.
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY
You may surrender the Contract for its cash surrender value (referred to as net
cash value in the Contract). The Contract's cash surrender value on any date
will be the Contract Fund less any applicable surrender charges and less any
Contract debt. See CONTRACT LOANS, page 25. The Contract Fund value changes
daily, reflecting increases or decreases in the value of the 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 15. 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 11), assuming hypothetical uniform
investment results in the 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 23.
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 25. 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.
18
<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>
<CAPTION>
TYPE A (FIXED) DEATH BENEFIT
- ------------------------------------------------------------------------------------------------------------
IF THEN
- ------------------------------------------------------------------------------------------------------------
THE AND THE THE THE CONTRACT
INSURED CONTRACT ATTAINED FUND AND THE
IS AGE FUND IS AGE MULTIPLIED BY DEATH
FACTOR IS THE ATTAINED BENEFIT IS
AGE FACTOR IS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
40 $ 25,000 3.64 91,000 $250,000
40 $ 75,000 3.64 273,000 $273,000*
40 $100,000 3.64 364,000 $364,000*
- ------------------------------------------------------------------------------------------------------------
60 $ 75,000 1.96 147,000 $250,000
60 $125,000 1.96 245,000 $250,000
60 $150,000 1.96 294,000 $294,000*
- ------------------------------------------------------------------------------------------------------------
80 $150,000 1.28 192,000 $250,000
80 $200,000 1.28 256,000 $256,000*
80 $225,000 1.28 288,000 $288,000*
- ------------------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal Revenue Code's definition of
life insurance.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
This means, for example, that if the insured has reached the age of 60, and the
Contract Fund is $150,000, the death benefit will be $294,000, even though the
original basic insurance amount was $250,000. In this situation, for every $1
increase in the Contract Fund, the death benefit will be increased by $1.96. We
reserve the right to refuse to accept any premium payment that increases the
death benefit by more than it increases the Contract Fund. If we exercise this
right, it may in certain situations result in the loss of the death benefit
guarantee.
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY
Under a Type B (variable) Contract, while the Contract is in force, the death
benefit will never be less than the basic insurance amount, but will also vary,
immediately after it is issued, with the investment results of the selected
investment options. The death benefit may be further increased to ensure that
the Contract will satisfy the Internal Revenue Code's definition of life
insurance. Thus, the death benefit will always be the greater of: (1) the basic
insurance amount plus the Contract Fund; and (2) the Contract Fund before the
deduction of any monthly charges due on that date, multiplied by the attained
age factor that applies. For purposes of computing the death benefit, if the
Contract Fund is less than zero we will consider it to be zero. A listing of
attained age factors can be found on the data pages of your Contract. The
latter provision ensures that the Contract will always have a death benefit
large enough so that the Contract will be treated as life insurance for tax
purposes under current law.
19
<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
- ----------------------------------------------------------------------------------------------
THE AND THE THE THE CONTRACT AND THE
INSURED CONTRACT ATTAINED FUND DEATH
IS AGE FUND IS AGE MULTIPLIED BY BENEFIT IS
FACTOR IS THE ATTAINED
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 26.
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 for each withdrawal which is the
lesser of: (a) $25 and; (b) 2% of the withdrawal amount. 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 26.
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 15. No withdrawal will be permitted
under a Type A (fixed) Contract if it would result in a basic insurance amount
of less than the
20
<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 26. 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 12.
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.
For sales load purposes, the target premiums are calculated separately for the
initial basic insurance amount and each increase in basic insurance amount.
Each target premium piece also includes the premium for extra insurance charges
associated to that piece of coverage. When premiums are paid, each payment is
allocated among the initial basic insurance amount and each increase in basic
insurance amount according to the target premiums. Currently, the sales load
charge for each piece is equal to 4% of the allocated premium paid in each
contract year up to the target premium and 0% of allocated premiums paid in
excess of the target premium. See the definition of contract year for an
increase in DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, page 1.
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 except that,
any cost of insurance charge for the increase in the basic insurance amount will
be returned to the contract fund instead of a refund of premium. See SHORT-TERM
CANCELLATION RIGHT OR "FREE LOOK", page 10. Generally, the "free-look" right
would have to be exercised no later than 10 days after receipt of the Contract
as increased.
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 26.
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 20). 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. 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
21
<PAGE>
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 15. 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.
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 26.
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 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.
22
<PAGE>
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 .
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 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 11)
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 15.
Another assumption is that the Contract Fund has been invested in equal amounts
in each of the 15 portfolios of the Funds and no portion of the Contract Fund
has been allocated to the fixed-rate option. Finally, there are four
assumptions, shown separately, about the average investment performance of the
portfolios. The first is that there will be a uniform 0% gross rate of return,
that is, that the average value of the Contract Fund will uniformly be adversely
affected by very unfavorable investment performance. The other three
assumptions are that investment performance will be at a uniform gross annual
rate of 4%, 8% and 12%. These, of course, are unrealistic assumptions since
actual returns will fluctuate from year to year. Nevertheless, these
assumptions help show how the Contract values will change with investment
experience.
The first column in the following tables shows the Contract year. The second
column, to provide context, shows what the aggregate amount would be if the
premiums had been invested in a savings account paying 4% compounded interest.
Of course, if that were done, there would be no life insurance protection. The
next four columns show the death benefit payable in each of the years shown for
the four different assumed investment returns. Note that a gross return (as
well as the net return) is shown at the top of each column. The gross return
represents the combined effect of income and capital appreciation of the
portfolios before any reduction is made for investment advisory fees or other
Fund expenses. The net return reflects average total annual expenses of the 15
portfolios of 0.64%, 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 -1.24%, 2.76%, 6.76% and
10.76%, respectively. Assuming maximum charges, gross returns of 0%, 4%, 8% and
12% are the equivalent of net returns of -1.54%, 2.46%, 6.46% and 10.46%,
respectively. The death benefits and cash surrender values shown reflect the
deduction of all expenses and charges both from the Funds 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 10.
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
23
<PAGE>
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 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%.
24
<PAGE>
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
<TABLE>
<CAPTION>
Death Benefit (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End of Accumulated -----------------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net)
------ -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1 $ 2,088 $ 250,000 $ 250,000 $ 250,000 $ 250,000
2 $ 4,259 $ 250,000 $ 250,000 $ 250,000 $ 250,000
3 $ 6,517 $ 250,000 $ 250,000 $ 250,000 $ 250,000
4 $ 8,866 $ 250,000 $ 250,000 $ 250,000 $ 250,000
5 $ 11,308 $ 250,000 $ 250,000 $ 250,000 $ 250,000
6 $ 13,848 $ 250,000 $ 250,000 $ 250,000 $ 250,000
7 $ 16,490 $ 250,000 $ 250,000 $ 250,000 $ 250,000
8 $ 19,237 $ 250,000 $ 250,000 $ 250,000 $ 250,000
9 $ 22,095 $ 250,000 $ 250,000 $ 250,000 $ 250,000
10 $ 25,066 $ 250,000 $ 250,000 $ 250,000 $ 250,000
15 $ 41,805 $ 250,000 $ 250,000 $ 250,000 $ 250,000
20 $ 62,171 $ 250,000 $ 250,000 $ 250,000 $ 250,000
25 $ 86,948 $ 250,000 $ 250,000 $ 250,000 $ 322,959
30 $ 117,094 $ 250,000 $ 250,000 $ 250,000 $ 479,220
35 $ 153,771 $ 250,000 $ 250,000 $ 267,837 $ 707,721
40 $ 198,394 $ 250,000 $ 250,000 $ 334,107 $ 1,031,251
45 $ 252,685 $ 0(2) $ 250,000 $ 417,984 $ 1,516,215
50 $ 318,738 $ 0 $ 0(2) $ 522,262 $ 2,236,837
55 $ 399,102 $ 0 $ 0 $ 649,272 $ 3,295,188
60 $ 496,877 $ 0 $ 0 $ 801,213 $ 4,831,881
65 $ 615,835 $ 0 $ 0 $ 995,275 $ 7,148,494
<CAPTION>
Cash Surrender Value (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of -----------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net)
- ------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
1 $ 103 $ 161 $ 220 $ 279
2 $ 1,448 $ 1,618 $ 1,792 $ 1,972
3 $ 2,772 $ 3,109 $ 3,465 $ 3,841
4 $ 4,071 $ 4,634 $ 5,244 $ 5,904
5 $ 5,345 $ 6,191 $ 7,133 $ 8,180
6 $ 6,592 $ 7,781 $ 9,140 $ 10,692
7 $ 8,065 $ 9,656 $ 11,525 $ 13,716
8 $ 9,505 $ 11,560 $ 14,038 $ 17,025
9 $ 10,910 $ 13,488 $ 16,684 $ 20,643
10 $ 12,276 $ 15,439 $ 19,470 $ 24,604
15 $ 17,145 $ 24,162 $ 34,467 $ 49,628
20 $ 21,325 $ 33,788 $ 54,997 $ 91,317
25 $ 24,307 $ 43,984 $ 82,976 $ 160,676
30 $ 24,104 $ 52,883 $ 120,060 $ 272,284
35 $ 19,426 $ 59,258 $ 170,597 $ 450,778
40 $ 5,138 $ 58,475 $ 236,955 $ 731,384
45 $ 0(2) $ 42,531 $ 321,526 $ 1,166,319
50 $ 0 $ 0(2) $ 428,083 $ 1,833,473
55 $ 0 $ 0 $ 559,717 $ 2,840,679
60 $ 0 $ 0 $ 721,814 $ 4,353,046
65 $ 0 $ 0 $ 947,881 $ 6,808,090
</TABLE>
(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 FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
T1
<PAGE>
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
<TABLE>
<CAPTION>
Death Benefit (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End of Accumulated -----------------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net)
------ -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1 $ 2,088 $ 251,122 $ 251,181 $ 251,240 $ 251,299
2 $ 4,259 $ 252,464 $ 252,633 $ 252,807 $ 252,986
3 $ 6,517 $ 253,782 $ 254,118 $ 254,473 $ 254,847
4 $ 8,866 $ 255,074 $ 255,634 $ 256,241 $ 256,898
5 $ 11,308 $ 256,337 $ 257,178 $ 258,115 $ 259,156
6 $ 13,848 $ 257,572 $ 258,753 $ 260,103 $ 261,644
7 $ 16,490 $ 258,775 $ 260,354 $ 262,208 $ 264,381
8 $ 19,237 $ 259,943 $ 261,978 $ 264,434 $ 267,392
9 $ 22,095 $ 261,071 $ 263,622 $ 266,785 $ 270,701
10 $ 25,066 $ 262,159 $ 265,284 $ 269,266 $ 274,336
15 $ 41,805 $ 266,849 $ 273,717 $ 283,796 $ 298,614
20 $ 62,171 $ 270,772 $ 282,832 $ 303,326 $ 338,383
25 $ 86,948 $ 273,353 $ 292,094 $ 329,150 $ 403,329
30 $ 117,094 $ 272,404 $ 298,996 $ 360,887 $ 507,117
35 $ 153,771 $ 266,653 $ 301,583 $ 399,088 $ 673,789
40 $ 198,394 $ 251,285 $ 293,633 $ 440,136 $ 969,784
45 $ 252,685 $ 0(2) $ 266,416 $ 477,239 $ 1,426,734
50 $ 318,738 $ 0 $ 0(2) $ 498,085 $ 2,105,652
55 $ 399,102 $ 0 $ 0 $ 477,128 $ 3,102,704
60 $ 496,877 $ 0 $ 0 $ 372,844 $ 4,550,365
65 $ 615,835 $ 0 $ 0 $ 0(2) $ 6,732,708
<CAPTION>
Cash Surrender Value (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of -----------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net)
- ------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
1 $ 100 $ 159 $ 218 $ 277
2 $ 1,442 $ 1,611 $ 1,785 $ 1,964
3 $ 2,760 $ 3,096 $ 3,451 $ 3,825
4 $ 4,052 $ 4,612 $ 5,219 $ 5,876
5 $ 5,315 $ 6,156 $ 7,093 $ 8,134
6 $ 6,550 $ 7,731 $ 9,081 $ 10,622
7 $ 8,008 $ 9,587 $ 11,441 $ 13,615
8 $ 9,432 $ 11,467 $ 13,923 $ 16,881
9 $ 10,816 $ 13,367 $ 16,530 $ 20,445
10 $ 12,159 $ 15,284 $ 19,266 $ 24,336
15 $ 16,849 $ 23,717 $ 33,796 $ 48,614
20 $ 20,772 $ 32,832 $ 53,326 $ 88,383
25 $ 23,353 $ 42,094 $ 79,150 $ 153,329
30 $ 22,404 $ 48,996 $ 110,887 $ 257,117
35 $ 16,653 $ 51,583 $ 149,088 $ 423,789
40 $ 1,285 $ 43,633 $ 190,136 $ 687,790
45 $ 0(2) $ 16,416 $ 227,239 $ 1,097,488
50 $ 0 $ 0(2) $ 248,085 $ 1,725,944
55 $ 0 $ 0 $ 227,128 $ 2,674,745
60 $ 0 $ 0 $ 122,844 $ 4,099,428
65 $ 0 $ 0 $ 0(2) $ 6,412,103
</TABLE>
(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 FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
T2
<PAGE>
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
<TABLE>
<CAPTION>
Death Benefit (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End of Accumulated -----------------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net)
------ -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1 $ 2,088 $ 250,000 $ 250,000 $ 250,000 $ 250,000
2 $ 4,259 $ 250,000 $ 250,000 $ 250,000 $ 250,000
3 $ 6,517 $ 250,000 $ 250,000 $ 250,000 $ 250,000
4 $ 8,866 $ 250,000 $ 250,000 $ 250,000 $ 250,000
5 $ 11,308 $ 250,000 $ 250,000 $ 250,000 $ 250,000
6 $ 13,848 $ 250,000 $ 250,000 $ 250,000 $ 250,000
7 $ 16,490 $ 250,000 $ 250,000 $ 250,000 $ 250,000
8 $ 19,237 $ 250,000 $ 250,000 $ 250,000 $ 250,000
9 $ 22,095 $ 250,000 $ 250,000 $ 250,000 $ 250,000
10 $ 25,066 $ 250,000 $ 250,000 $ 250,000 $ 250,000
15 $ 41,805 $ 250,000 $ 250,000 $ 250,000 $ 250,000
20 $ 62,171 $ 250,000 $ 250,000 $ 250,000 $ 250,000
25 $ 86,948 $ 250,000 $ 250,000 $ 250,000 $ 250,000
30 $ 117,094 $ 250,000 $ 250,000 $ 250,000 $ 298,484
35 $ 153,771 $ 250,000 $ 250,000 $ 250,000 $ 417,880
40 $ 198,394 $ 0(2) $ 0(2) $ 250,000 $ 570,258
45 $ 252,685 $ 0 $ 0 $ 0(2) $ 775,012
50 $ 318,738 $ 0 $ 0 $ 0 $ 1,047,096
55 $ 399,102 $ 0 $ 0 $ 0 $ 1,403,925
60 $ 496,877 $ 0 $ 0 $ 0 $ 1,883,587
65 $ 615,835 $ 0 $ 0 $ 0 $ 2,430,417
<CAPTION>
Cash Surrender Value (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of -----------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net)
------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
1 $ 0 $ 0 $ 53 $ 108
2 $ 1,056 $ 1,207 $ 1,364 $ 1,525
3 $ 2,122 $ 2,418 $ 2,731 $ 3,062
4 $ 3,142 $ 3,628 $ 4,156 $ 4,730
5 $ 4,115 $ 4,836 $ 5,642 $ 6,540
6 $ 5,034 $ 6,035 $ 7,184 $ 8,501
7 $ 6,153 $ 7,478 $ 9,041 $ 10,882
8 $ 7,216 $ 8,907 $ 10,959 $ 13,445
9 $ 8,218 $ 10,317 $ 12,938 $ 16,204
10 $ 9,156 $ 11,704 $ 14,978 $ 19,177
15 $ 11,439 $ 16,788 $ 24,779 $ 36,707
20 $ 11,106 $ 20,001 $ 35,702 $ 63,368
25 $ 6,305 $ 19,042 $ 46,429 $ 104,464
30 $ 0 $ 9,780 $ 54,305 $ 169,593
35 $ 0 $ 0 $ 53,166 $ 266,166
40 $ 0(2) $ 0(2) $ 28,298 $ 404,438
45 $ 0 $ 0 $ 0(2) $ 596,163
50 $ 0 $ 0 $ 0 $ 858,275
55 $ 0 $ 0 $ 0 $ 1,210,280
60 $ 0 $ 0 $ 0 $ 1,696,925
65 $ 0 $ 0 $ 0 $ 2,314,683
</TABLE>
(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 FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
T3
<PAGE>
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
<TABLE>
<CAPTION>
Death Benefit (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End of Accumulated -----------------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net)
------ -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1 $ 2,088 $ 250,965 $ 251,019 $ 251,073 $ 251,127
2 $ 4,259 $ 252,071 $ 252,222 $ 252,378 $ 252,539
3 $ 6,517 $ 253,131 $ 253,425 $ 253,737 $ 254,066
4 $ 8,866 $ 254,142 $ 254,625 $ 255,150 $ 255,720
5 $ 11,308 $ 255,103 $ 255,818 $ 256,618 $ 257,509
6 $ 13,848 $ 256,007 $ 256,999 $ 258,137 $ 259,441
7 $ 16,490 $ 256,853 $ 258,162 $ 259,708 $ 261,527
8 $ 19,237 $ 257,638 $ 259,307 $ 261,331 $ 263,782
9 $ 22,095 $ 258,360 $ 260,426 $ 263,005 $ 266,218
10 $ 25,066 $ 259,014 $ 261,516 $ 264,728 $ 268,848
15 $ 41,805 $ 261,084 $ 266,246 $ 273,949 $ 285,440
20 $ 62,171 $ 260,405 $ 268,744 $ 283,444 $ 309,317
25 $ 86,948 $ 255,176 $ 266,514 $ 290,886 $ 342,505
30 $ 117,094 $ 250,000 $ 255,524 $ 291,782 $ 386,929
35 $ 153,771 $ 0(2) $ 0(2) $ 277,178 $ 442,655
40 $ 198,394 $ 0 $ 0 $ 0(2) $ 505,686
45 $ 252,685 $ 0 $ 0 $ 0 $ 561,998
50 $ 318,738 $ 0 $ 0 $ 0 $ 585,569
55 $ 399,102 $ 0 $ 0 $ 0 $ 521,201
60 $ 496,877 $ 0 $ 0 $ 0 $ 285,625
65 $ 0 $ 0 $ 0 $ 0 $ 0(2)
<CAPTION>
Cash Surrender Value (1)
-----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of -----------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net)
------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
1 $ 0 $ 0 $ 51 $ 105
2 $ 1,049 $ 1,200 $ 1,356 $ 1,517
3 $ 2,109 $ 2,403 $ 2,715 $ 3,045
4 $ 3,120 $ 3,603 $ 4,128 $ 4,698
5 $ 4,081 $ 4,796 $ 5,596 $ 6,487
6 $ 4,985 $ 5,977 $ 7,115 $ 8,419
7 $ 6,086 $ 7,396 $ 8,941 $ 10,761
8 $ 7,127 $ 8,796 $ 10,820 $ 13,271
9 $ 8,105 $ 10,171 $ 12,750 $ 15,962
10 $ 9,014 $ 11,516 $ 14,728 $ 18,848
15 $ 11,084 $ 16,246 $ 23,949 $ 35,440
20 $ 10,405 $ 18,744 $ 33,444 $ 59,317
25 $ 5,176 $ 16,514 $ 40,886 $ 92,505
30 $ 0 $ 5,524 $ 41,782 $ 136,929
35 $ 0(2) $ 0(2) $ 27,178 $ 192,655
40 $ 0 $ 0 $ 0(2) $ 255,686
45 $ 0 $ 0 $ 0 $ 311,998
50 $ 0 $ 0 $ 0 $ 335,569
55 $ 0 $ 0 $ 0 $ 271,201
60 $ 0 $ 0 $ 0 $ 35,625
65 $ 0 $ 0 $ 0 $ 0(2)
</TABLE>
(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 61.
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 FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
T4
<PAGE>
VARIABLE UNIVERSAL LIFE
MALE NON-SMOKER AGE 35
$ 250,000 BASIC INSURANCE AMOUNT
$ 2,007.50 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
FIXED DEATH BENEFIT
Internal Rates of Return on Death (1)
------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of ------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net)
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
5 135.66% 135.66% 135.66% 135.66%
10 44.34% 44.34% 44.34% 44.34%
15 23.96% 23.96% 23.96% 23.96%
20 15.44% 15.44% 15.44% 15.44%
25 10.88% 10.88% 10.88% 12.46%
30 8.09% 8.09% 8.09% 11.38%
35 6.24% 6.24% 6.54% 10.70%
40 4.93% 4.93% 6.06% 10.19%
45 (2) 3.96% 5.73% 9.86%
50 (2) 5.50% 9.62%
55 5.33% 9.44%
60 5.17% 9.28%
65 5.07% 9.17%
<CAPTION>
Internal Rates of Return on Surrender (1)
------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of ------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net)
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
5 -20.31% -15.70% -11.18% -6.75%
10 -9.18% -4.84% -0.56% 3.67%
15 -7.44% -2.81% 1.67% 6.02%
20 -6.51% -1.67% 2.91% 7.31%
25 -6.17% -1.03% 3.67% 8.09%
30 -6.83% -0.85% 4.14% 8.53%
35 -9.06% -0.97% 4.49% 8.80%
40 -28.09% -1.62% 4.72% 8.96%
45 (2) -3.72% 4.84% 9.04%
50 (2) 4.91% 9.08%
55 4.93% 9.07%
60 4.92% 9.05%
65 4.97% 9.07%
</TABLE>
(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
<TABLE>
<CAPTION>
Internal Rates of Return on Death (1)
------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of ------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net)
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
5 137.03% 137.21% 137.41% 137.63%
10 45.20% 45.41% 45.68% 46.02%
15 24.66% 24.94% 25.33% 25.88%
20 16.06% 16.40% 16.95% 17.80%
25 11.43% 11.84% 12.57% 13.81%
30 8.54% 9.01% 9.97% 11.67%
35 6.52% 7.07% 8.28% 10.49%
40 4.95% 5.56% 7.10% 9.97%
45 (2) 4.19% 6.18% 9.67%
50 (2) 5.36% 9.46%
55 4.49% 9.29%
60 3.26% 9.15%
65 (2) 9.05%
<CAPTION>
Internal Rates of Return on Surrender (1)
------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of ------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24% Net) ( 2.76% Net) ( 6.76% Net) (10.76% Net)
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
5 -20.49% -15.87% -11.36% -6.93%
10 -9.37% -5.03% -0.75% 3.47%
15 -7.68% -3.05% 1.43% 5.78%
20 -6.81% -1.96% 2.63% 7.03%
25 -6.56% -1.38% 3.34% 7.79%
30 -7.49% -1.37% 3.69% 8.24%
35 -10.56% -1.79% 3.85% 8.54%
40 -60.97% -3.28% 3.83% 8.74%
45 (2) -10.84% 3.62% 8.85%
50 (2) 3.20% 8.91%
55 2.36% 8.93%
60 0.06% 8.92%
65 (2) 8.95%
</TABLE>
(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 FUNDS THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD
OF TIME.
T5
<PAGE>
VARIABLE UNIVERSAL LIFE
MALE NON-SMOKER AGE 35
$ 250,000 BASIC INSURANCE AMOUNT
$ 2,007.50 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
FIXED DEATH BENEFIT
Internal Rates of Return on Death (1)
------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of ------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net)
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
5 135.66% 135.66% 135.66% 135.66%
10 44.34% 44.34% 44.34% 44.34%
15 23.96% 23.96% 23.96% 23.96%
20 15.44% 15.44% 15.44% 15.44%
25 10.88% 10.88% 10.88% 10.88%
30 8.09% 8.09% 9.00%
35 6.24% 8.48%
40 (2) (2) 4.93% 8.06%
45 (2) 7.75%
50 7.52%
55 7.32%
60 7.17%
65 6.97%
<CAPTION>
Internal Rates of Return on Surrender (1)
------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of ------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net)
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
5 -28.35% -23.42% -18.62% -13.95%
10 -14.96% -10.10% -5.40% -0.83%
15 -13.45% -7.73% -2.48% 2.44%
20 -14.78% -7.24% -1.13% 4.17%
25 -24.13% -8.62% -0.60% 5.26%
30 -16.98% -0.68% 6.04%
35 -1.61% 6.52%
40 (2) (2) -6.13% 6.78%
45 (2) 6.91%
50 6.95%
55 6.94%
60 6.93%
65 6.87%
</TABLE>
(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.
<TABLE>
<CAPTION>
VARIABLE DEATH BENEFIT
Internal Rates of Return on Death (1)
------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of ------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net)
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
5 136.77% 136.92% 137.09% 137.28%
10 44.98% 45.15% 45.37% 45.65%
15 24.43% 24.64% 24.95% 25.39%
20 15.76% 16.00% 16.42% 17.10%
25 11.01% 11.27% 11.82% 12.82%
30 8.20% 8.89% 10.32%
35 (2) (2) 6.70% 8.73%
40 (2) 7.61%
45 6.71%
50 5.84%
55 4.74%
60 2.56%
65 (2)
<CAPTION>
Internal Rates of Return on Surrender (1)
------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of ------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.54% Net) ( 2.46% Net) ( 6.46% Net) (10.46% Net)
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
5 -28.61% -23.67% -18.88% -14.21%
10 -15.27% -10.42% -5.72% -1.15%
15 -13.95% -8.20% -2.92% 2.01%
20 -15.73% -7.99% -1.77% 3.58%
25 -27.94% -10.17% -1.62% 4.43%
30 -26.65% -2.48% 4.88%
35 (2) (2) -6.19% 5.06%
40 (2) 5.02%
45 4.74%
50 4.16%
55 2.89%
60 -5.12%
65 (2)
</TABLE>
(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 61.
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 FUNDS THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD
OF TIME.
T6
<PAGE>
CONTRACT LOANS
You may borrow from Pruco Life an amount up to the current loan value of your
Contract less any existing Contract debt using the Contract as the only security
for the loan. The loan value at any time is equal to the sum of (1) 90% of the
portion of the cash value attributable to the variable investment options, and
(2) the balance of the cash value. The cash value is equal to the Contract Fund
less any surrender charge. A Contract in default has no loan value. The
minimum loan amount you may borrow is $200.
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 28. 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 26.
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 26.
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
751 Broad Street, Newark, New Jersey 07102-3777. The Contract is sold by
registered representatives of Prusec who are also authorized by state insurance
departments to do so. The Contract may also be sold through other broker-
dealers authorized by Prusec and applicable law
25
<PAGE>
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 11), 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 25% of the premiums received up
to the target premium for the increase received in the first year, no more than
5% of the premiums received up to the target premium for years two through 10,
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 the
corresponding sections on Dividends, Distributions, and Taxes in the attached
prospectuses for the Funds.)
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
26
<PAGE>
circumstances, in the first 15 Contract years all or a portion of a
withdrawal may be taxable if the Contract Fund exceeds the total premiums
paid less the untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums paid to date.
Extra premiums for optional benefits and riders generally do not count in
computing gross premiums paid, which in turn determines the extent to which
a withdrawal might be taxed.
Loans received under the Contract will ordinarily be treated as
indebtedness of the owner and will not be considered to be distributions
subject to tax. However, there is some risk the Internal Revenue Service
might assert the preferred loan should be treated as a distribution for tax
purposes because of the relatively low differential between the loan
interest rate and Contract's crediting rate. Were the Internal Revenue
Service to take this position, Pruco Life would take reasonable steps to
avoid this result, including modifying the Contract's loan provisions.
2. Some of the above rules are changed if the Contract is classified as a
Modified Endowment Contract under Section 7702A of the Code. It is possible
for this Contract to be classified as a Modified Endowment Contract under
at lea st 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 gift, estate and/or income 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
27
<PAGE>
insurance policy is generally not tax-deductible. An exemption permits the
deduction of interest on policy loans on contracts for up to 20 key persons. The
interest deduction for contract debt on such loans is limited to a prescribed
interest rate and a maximum aggregate loan amount of $50,000 per insured key
person. The Code also imposes an indirect tax upon additions to the Contract
Fund or the receipt of death benefits under 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 12. 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 26.
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.
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
28
<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 Funds. Pruco Life
is the legal owner of those shares and as such has the right to vote on any
matter voted on at shareholders meetings of the Funds. However, Pruco Life
will, as required by law, vote the shares of the Funds at any regular and
special shareholders meetings held in accordance with voting instructions
received from Contract owners. A Fund may not hold annual shareholders meetings
when not required to do so under the laws of the state of its incorporation or
the Investment Company Act of 1940. 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 Funds in
its own right, it may elect to do so.
Generally, a Contract owner may give voting instructions on matters that would
result in changes in fundamental policies and any matter requiring a vote of the
shareholders of the Funds. 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 by portfolio on the
matter, pursuant to the requirements of Rule 18f-2 under the 1940 Act.
The number of 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 applicable 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 applicable Fund. Pruco
Life will furnish Contract owners with proper forms and proxies to enable them
to give these instructions. Pruco Life reserves the right to modify the manner
in which the weight to be given voting instructions is calculated where such a
change is necessary to comply with current federal regulations or
interpretations of those regulations.
Pruco Life may, if required by state insurance regulations, disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the sub-classification or investment objectives of one or more
of a Fund's portfolios, or to approve or disapprove an investment advisory
contract for a Fund. In addition, Pruco Life itself may disregard voting
instructions that would require changes in the investment policy or
29
<PAGE>
investment advisor of one or more of a 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 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 Funds 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.
You will also be sent annual and semi-annual reports of the Funds 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 the years ended
December 31, 1997 and 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 the year ended December
31, 1995 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 replaced 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.
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.
30
<PAGE>
Year 2000 Compliance
The services provided to the Contract owners by Pruco Life and Prusec depend on
the smooth functioning of their respective computer systems. The year 2000,
however, holds the potential for a significant disruption in the operation of
these systems. Many computer programs cannot distinguish the year 2000 from the
year 1900 because of the way in which dates are encoded. Left uncorrected, the
year "00" could cause systems to perform date comparisons and calculations
incorrectly that in turn could compromise the integrity of business records and
lead to serious interruption of business processes.
Prudential, Pruco Life and Prusec's ultimate corporate parent, identified this
issue as a critical priority in 1995 and has established quality assurance
procedures including a certification process to monitor and evaluate enterprise-
wide conversion and upgrading of systems for "Year 2000" compliance. Prudential
has also initiated an analysis of potential exposure that could result from the
failure of major service providers such as suppliers, custodians and brokers, to
achieve Year 2000 compliance. Prudential expects to complete its adaptation,
testing and certification of software for Year 2000 compliance by December 31,
1998. During 1999, Prudential plans to conduct additional internal testing, to
participate in securities industry-wide test efforts and to complete major
service provider analysis and contingency planning.
The expenses of Prudential's Year 2000 compliance are allocated across its
various businesses, including those businesses not engaged in providing services
to Contract owners. Accordingly, while the expense is substantial in the
aggregate, it is not expected to have a material impact on Pruco Life's
abilities to meet its contractual commitments to Contract owners.
Prudential believes that it is well positioned to achieve the necessary
modifications and mitigate Year 2000 risks. However, if such efforts are not
completed on a timely basis, the Year 2000 issue could have a material adverse
impact on Prudential's operations, those of its subsidiary and affiliate
companies and/or the Account. Moreover, there can be no assurance that the
measures taken by Prudential's external service providers will be sufficient to
avoid any material adverse impact on Prudential's operations or those of its
subsidiary and affiliate companies.
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.
31
<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
JAMES J. AVERY, JR., Chairman and Director. -- Senior Vice President and Chief
Actuary, Prudential Individual Insurance Group since 1997; 1995 to 1997:
President of Prudential Select; Prior to 1995: Chief Operating Officer of
Prudential Select.
WILLIAM M. BETHKE, Director. -- Chief Investment Officer since 1997; Prior to
1997: President, Prudential Capital Markets Group.
IRA J. KLEINMAN, Director. -- Executive Vice President, Prudential International
Insurance Group since 1997; 1995 to 1997: Chief Marketing and Product
Development Officer, Prudential Individual Insurance Group; Prior to 1995:
President, Prudential Select.
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; Prior to 1995: Senior Vice
President and Chief Financial Officer of Prudential Preferred Financial
Services.
ESTHER H. MILNES, President and Director. -- Vice President and Actuary,
Prudential Individual Insurance Group since 1996; Prior to 1996: Senior Vice
President and Chief Actuary, Prudential Insurance and Financial Services.
I. EDWARD PRICE, Vice Chairman and Director. -- Senior Vice President and
Actuary, Prudential Individual Insurance Group since 1995; Prior to 1995: Chief
Executive Officer, Prudential International Insurance.
KIYOFUMI SAKAGUCHI, Director. -- President, Prudential International Insurance
Group since 1995; Prior to 1995: Chairman and Chief Executive Officer, The
Prudential Life Insurance Co., Ltd.
OFFICERS WHO ARE NOT DIRECTORS
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; Prior to 1995: Managing Director and Assistant Treasurer of
Prudential.
JAMES C. DROZANOWSKI, Senior Vice President. -- Vice President and Operations
Executive, Prudential Individual Insurance Group since 1996; 1995 to 1996:
President and Chief Executive Officer of Chase Manhattan Bank; Prior to 1995:
Vice President, North America Customer Services, Chase Manhattan Bank.
CLIFFORD E. KIRSCH, Chief Legal Officer. -- Chief Counsel, Variable Products,
Law Department of Prudential since 1995; Prior to 1995: Associate General
Counsel with Paine Webber.
FRANK P. MARINO, Senior Vice President. -- Vice President, Policyowner Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services.
EDWARD A. MINOGUE, Senior Vice President. -- Vice President, Annuity Services,
Prudential Investments since 1997; Prior to 1997: Director, Merrill Lynch.
JAMES M. SCHLOMANN, Vice President, Comptroller & Chief Accounting Officer. --
Vice President & Associate Comptroller, Prudential since 1997; Prior to 1997:
Senior Executive Vice President & CFO, USLife Corp.
SHIRLEY H. SHAO, Senior Vice President and Chief Actuary. -- Vice President and
Associate Actuary, Prudential.
JAMES A. TIGNANELLI, Senior Vice President. -- Vice President, Compliance,
Prudential Individual Insurance since 1996; Prior to 1996: Vice President Field
Operations.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.
Pruco Life directors and officers are elected annually.
32
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------
PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED PRUDENTIAL
MARKET BOND EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Investment in the Prudential Series Fund, Inc.
portfolios and non-Prudential administered funds at
net asset value
[Note 3] ........................................................... $ 48,803,647 $ 70,891,889 $815,332,832
Receivable from Pruco Life Insurance Company [Note 2] ............... 0 8,800 0
------------ ------------ ------------
Net Assets .......................................................... $ 48,803,647 $ 70,900,689 $815,332,832
============ ============ ============
NET ASSETS, representing:
Equity of Contract owners ........................................... $ 47,134,860 $ 70,900,689 $815,139,674
Equity of Pruco Life Insurance Company .............................. 1,668,787 0 193,158
------------ ------------ ------------
$ 48,803,647 $ 70,900,689 $815,332,832
============ ============ ============
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
SUBACCOUNTS
----------------------------------------------------
PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED PRUDENTIAL
MARKET BOND EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received ..................................... $ 2,458,119 $ 5,128,836 $ 17,535,990
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A] ......................... 276,535 417,937 4,548,952
Reimbursement for excess expenses [Note 5D] ......................... (10,194) (16,936) (588,463)
------------ ------------ ------------
NET EXPENSES ........................................................... 266,341 401,001 3,960,489
------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ........................................... 2,191,778 4,727,835 13,575,501
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ................................ 0 819,446 43,792,759
Realized gain (loss) on shares redeemed
[average cost basis] .............................................. 0 216,418 12,144,753
Net change in unrealized gain (loss) on investments ................. 0 (456,475) 91,191,354
------------ ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS ......................................... 0 579,389 147,128,866
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ........................................... $ 2,191,778 $ 5,307,224 $160,704,367
============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A16
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
FLEXIBLE CONSERVATIVE HIGH YIELD STOCK EQUITY
MANAGED BALANCED BOND INDEX INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 1,135,464,709 $ 572,401,588 $ 39,938,592 $ 134,341,215 $ 91,567,534
0 119,717 0 0 0
--------------- -------------- -------------- -------------- --------------
$ 1,135,464,709 $ 572,521,305 $ 39,938,592 $ 134,341,215 $ 91,567,534
=============== ============== ============== ============== ==============
$ 1,135,308,440 $ 572,521,305 $ 39,907,073 $ 134,279,750 $ 91,345,449
156,269 0 31,519 61,465 222,085
--------------- -------------- -------------- -------------- --------------
$ 1,135,464,709 $ 572,521,305 $ 39,938,592 $ 134,341,215 $ 91,567,534
=============== ============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
FLEXIBLE CONSERVATIVE HIGH YIELD STOCK EQUITY
MANAGED BALANCED BOND INDEX INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 32,821,189 $ 25,761,286 $ 3,606,406 $ 1,739,314 $ 1,948,909
6,514,308 3,334,597 226,827 677,531 441,648
(2,462,808) (912,152) 0 0 0
--------------- -------------- -------------- -------------- --------------
4,051,500 2,422,445 226,827 677,531 441,648
--------------- -------------- -------------- -------------- --------------
28,769,689 23,338,841 3,379,579 1,061,783 1,507,261
--------------- -------------- -------------- -------------- --------------
170,075,692 61,582,374 0 3,715,259 8,147,416
13,389,631 5,214,424 19,344 2,487,203 256,502
(37,601,198) (22,803,360) 1,276,625 23,073,809 12,255,558
--------------- -------------- -------------- -------------- --------------
145,864,125 43,993,438 1,295,969 29,276,271 20,659,476
--------------- -------------- -------------- -------------- --------------
$ 174,633,814 $ 67,332,279 $ 4,675,548 $ 30,338,054 $ 22,166,737
=============== ============== ============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A16
A2
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------
PRUDENTIAL PRUDENTIAL T. ROWE PRICE
GLOBAL JENNISON INTERNATIONAL STOCK
PORTFOLIO PORTFOLIO PORTFOLIO*
------------ ------------ -------------------
<S> <C> <C> <C>
ASSETS
Investment in the Prudential Series Fund, Inc.
portfolios and non-Prudential administered funds at
net asset value
[Note 3] ............................................................ $ 27,235,367 $ 24,960,065 $ 330,192
Receivable from Pruco Life Insurance Company [Note 2] ............... 1,853 0 78,311
------------ ------------ ------------
Net Assets .......................................................... $ 27,237,220 $ 24,960,065 $ 408,503
============ ============ ============
NET ASSETS, representing:
Equity of Contract owners ........................................... $ 27,237,220 $ 24,681,581 $ 408,503
------------ ------------ ------------
Equity of Pruco Life Insurance Company .............................. 0 278,484 0
------------ ------------ ------------
$ 27,237,220 $ 24,960,065 $ 408,503
============ ============ ============
<CAPTION>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
SUBACCOUNTS
---------------------------------------------------
PRUDENTIAL PRUDENTIAL T. ROWE PRICE
GLOBAL JENNISON INTERNATIONAL STOCK
PORTFOLIO PORTFOLIO PORTFOLIO*
------------ ------------ -------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received ..................................... $ 328,183 $ 40,345 $ 2,930
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A] ......................... 158,801 100,484 472
Reimbursement for excess expenses [Note 5D] ......................... 0 0 0
------------ ------------ ------------
NET EXPENSES ........................................................... 158,801 100,484 472
------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ........................................... 169,382 (60,139) 2,458
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ................................ 1,296,459 1,372,676 4,151
Realized gain (loss) on shares redeemed
[average cost basis] .............................................. 251,779 167,648 367
Net change in unrealized gain (loss) on investments ................. (363,854) 2,544,336 (7,256)
------------ ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS ......................................... 1,184,384 4,084,660 (2,738)
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ........................................... $ 1,353,766 $ 4,024,521 $ (280)
============ ============ ============
*Commenced Business on 6/30/97
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A16
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------------------
AIM V.I. MFS
VALUE JANUS ASPEN EMERGING GROWTH AMERICAN CENTURY
FUND GROWTH PORTFOLIO SERIES V.P. VALUE FUND
--------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
$ 548,050 $ 0 $1,666,940 $ 315,263
0 347,999 450,476 0
--------- ---------- ---------- ----------
$ 548,050 $ 347,999 $2,117,416 $ 315,263
========= ========== ========== ==========
$ 525,034 $ 347,999 $2,117,416 $ 304,509
23,016 0 0 10,754
--------- ---------- ---------- ----------
$ 548,050 $ 347,999 $2,117,416 $ 315,263
========= ========== ========== ==========
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------------------
AIM V.I. MFS
VALUE JANUS ASPEN EMERGING GROWTH AMERICAN CENTURY
FUND* GROWTH PORTFOLIO* SERIES* V.P. VALUE FUND*
--------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
$ 3,293 $ 0 $ 0 $ 0
424 553 483 371
0 0 0 0
---------- ---------- ---------- ----------
424 553 483 371
---------- ---------- ---------- ----------
2,869 (553) (483) (371)
---------- ---------- ---------- ----------
10,111 0 0 0
649 (43,819) (8,124) 0
(12,003) 0 55,064 4,263
---------- ---------- ---------- ----------
(1,243) (43,819) 46,940 4,263
---------- ---------- ---------- ----------
$ 1,626 $ (44,372) $ 46,457 $ 3,892
========== ========== ========== ==========
</TABLE>
*Commenced Business on 6/30/97
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A16
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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
------------------------------------------ -------------------------------------------
1997 1996 1995 1997 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......... $ 2,191,778 $ 2,270,980 $ 2,620,276 $ 4,727,835 $ 4,052,120 $ 3,860,873
Capital gains distributions received .. 0 0 0 819,446 0 144,746
Realized gain (loss) on shares redeemed
[average cost basis] ................ 0 0 0 216,418 133,542 75,353
Net change in unrealized gain (loss)
on investments .................. 0 0 0 (456,475) (1,490,302) 7,114,539
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............. 2,191,778 2,270,980 2,620,276 5,307,224 2,695,360 11,195,511
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7] .............................. (3,523,207) (4,243,121) (740,753) (4,202,208) 1,116,168 (1,432,720)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 8] .............................. 1,532,549 22,759 (89,480) (68,990) 33,769 (94,534)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .. 201,120 (1,949,382 1,790,043 1,036,026 3,845,297 9,668,257
NET ASSETS:
Beginning of year ..................... 48,602,527 50,551,909 48,761,866 69,864,663 66,019,366 56,351,109
------------ ------------ ------------ ------------ ------------ ------------
End of year ........................... $ 48,803,647 $ 48,602,527 $ 50,551,909 $ 70,900,689 $ 69,864,663 $ 66,019,366
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A16
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
PRUDENTIAL FLEXIBLE CONSERVATIVE
EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------ -------------------------------------------- -----------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
------------ ------------ ------------ -------------- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$13,575,501 $12,384,332 $8,602,440 $28,769,689 $26,508,631 $24,734,903 $23,338,841 $ 19,022,61 $17,956,379
43,792,759 60,055,192 20,556,916 170,075,692 95,799,304 39,033,998 61,582,374 32,702,701 17,065,189
12,144,753 6,145,351 1,265,358 13,389,631 9,236,814 5,763,771 5,214,424 4,364,767 2,716,236
91,191,354 25,824,063 105,422,478 (37,601,198) (10,204,679) 113,356,027 (22,803,360) 3,618,761 35,828,712
------------ ------------ ------------ -------------- -------------- ------------ ------------ ------------ ------------
160,704,367 104,408,938 135,847,192 174,633,814 121,340,070 182,888,699 67,332,279 59,708,840 73,566,516
------------ ------------ ------------ -------------- -------------- ------------ ------------ ------------ ------------
(23,411,697) (13,252,943) 13,327,159 (55,522,303) (41,031,839) (31,598,849) (28,732,033) (25,728,075) (18,484,820)
------------ ------------ ------------ -------------- -------------- ------------ ------------ ------------ ------------
(108,813) (127,887) 153,934 (938,199) 533,513 (1,895,990) (423,806) 207,529 (806,795)
------------ ------------ ------------ -------------- -------------- ------------ ------------ ------------ ------------
137,183,857 91,028,108 149,328,285 118,173,312 80,841,744 149,393,860 38,176,440 34,188,294 54,274,901
678,148,975 587,120,867 437,792,582 1,017,291,397 936,449,653 787,055,793 534,344,865 500,156,571 445,881,670
------------ ------------ ------------ -------------- -------------- ------------ ------------ ------------ ------------
$815,332,832 $678,148,975 $587,120,867 $1,135,464,709 $1,017,291,397 $936,449,653 $572,521,305 $534,344,865 $500,156,571
============ ============ ============ ============== ============== ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A16
A6
<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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------
PRUDENTIAL
HIGH YIELD PRUDENTIAL
BOND STOCK INDEX
PORTFOLIO PORTFOLIO
----------------------------------------- --------------------------------------------
1997 1996 1995 1997 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......... $ 3,379,579 $ 3,194,402 $ 3,185,876 $ 1,061,783 $ 983,164 $ 870,823
Capital gains distributions received .. 0 0 0 3,715,259 1,013,015 454,847
Realized gain (loss) on shares redeemed
[average cost basis] ................ 19,344 (26,717) (44,447) 2,487,203 515,477 1,387,759
Net change in unrealized gain (loss) on
investments .................... 1,276,625 386,086 1,861,218 23,073,809 12,527,056 14,103,114
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............. 4,675,548 3,553,771 5,002,647 30,338,054 15,038,712 16,816,543
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7] .............................. (896,939) (1,115,027) (1,077,084) 14,261,548 10,720,960 623,288
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 8] .............................. 23,767 (6,897) 5,385 (535,016) 396,129 132,045
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .. 3,802,376 2,431,847 3,930,948 44,064,586 26,155,801 17,571,876
NET ASSETS:
Beginning of year ..................... 36,136,216 33,704,369 29,773,421 90,276,629 64,120,828 46,548,952
------------ ------------ ------------ ------------ ------------ ------------
End of year ........................... $ 39,938,592 $ 36,136,216 $ 33,704,369 $134,341,215 $ 90,276,629 $ 64,120,828
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A16
A7
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL
EQUITY PRUDENTIAL PRUDENTIAL
INCOME GLOBAL JENNISON*
PORTFOLIO PORTFOLIO PORTFOLIO
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,507,261 $ 1,568,503 $ 1,499,078 $ 169,382 $ 380,383 $ 137,947 $ (60,139) $ (19,230) $ (2,483)
8,147,416 1,879,859 2,122,385 1,296,459 347,618 270,758 1,372,676 0 0
256,502 417,132 107,006 251,779 36,315 60,621 167,648 32,821 3,407
12,255,558 6,642,405 4,726,822 (363,854) 2,363,101 1,314,446 2,544,336 870,328 59,770
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
22,166,737 10,507,899 8,455,291 1,353,766 3,127,417 1,783,772 4,024,521 883,919 60,694
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
9,173,359 (1,064,633) 3,721,237 3,236,611 5,614,035 1,377,627 9,693,699 8,604,081 1,554,794
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
226,288 (61,045) 75,709 (120,958) 18,594 (539,673) (30,216) 71,804 96,769
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
31,566,384 9,382,221 12,252,237 4,469,419 8,760,046 2,621,726 13,688,004 9,559,804 1,712,257
60,001,150 50,618,929 38,366,692 22,767,801 14,007,755 11,386,029 11,272,061 1,712,257 0
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 91,567,534 $ 60,001,150 $ 50,618,929 $ 27,237,220 $ 22,767,801 $ 14,007,755 $ 24,960,065 $ 11,272,061 $ 1,712,257
============ ============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
* Commenced Business on 5/1/95
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A16
A8
<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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------
T. ROWE PRICE AMERICAN
INTERNATIONAL AIM V.I. JANUS ASPEN MFS CENTURY
STOCK VALUE GROWTH EMERGING V.P.
PORTFOLIO** FUND** PORTFOLIO** GROWTH SERIES** VALUE FUND**
------------- ------------ ------------ --------------- --------------
1997 1997 1997 1997 1997
------------- ------------ ------------ --------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................... $ 2,458 $ 2,869 $ (553) $ (483) $ (371)
Capital gains distributions received ............ 4,151 10,111 0 0 0
Realized gain (loss) on shares redeemed
[average cost basis] .......................... 367 649 (43,819) (8,124) 0
Net change in unrealized gain (loss) on
investments ................................ (7,256) (12,003) 0 55,064 4,263
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ....................... (280) 1,626 (44,372) 46,457 3,892
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7] ........................................ 437,325 527,237 351,260 2,103,269 301,205
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 8] ........................................ (28,542) 19,187 41,111 (32,310) 10,166
----------- ----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS ............ 408,503 548,050 347,999 2,117,416 315,263
NET ASSETS:
Beginning of year ............................... 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
End of year ..................................... $ 408,503 $ 548,050 $ 347,999 $ 2,117,416 $ 315,263
=========== =========== =========== =========== ===========
</TABLE>
** Commenced Business on 6/30/97
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A10 THROUGH A16
A9
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1997
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. Proceeds from the purchases of Pruco Life's
Variable Appreciable Life ("VAL") Contracts and Pruco Life's Variable
Universal Life ("VUL") Contracts are invested in the Account.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. There are eighteen subaccounts
within the Account. VUL contracts offer the option to invest in fifteen
of these subaccounts within the Account, each of which invests in either
a corresponding portfolio of The Prudential Series Fund, Inc. (the
"Series Fund"), or any of the non-Prudential administered funds shown in
Note 3. 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.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The 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 or non-
-----------
Prudential administered subaccounts 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 or non-Prudential
administered subaccounts and are recorded on the ex-dividend date.
Equity of Pruco Life Insurance Company--Pruco Life maintains a position
--------------------------------------
in the Account for liquidity purposes including unit purchases and
redemptions, 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 the Account's Statements of Net Assets as a receivable
from Pruco Life. The receivable does not have an effect on the Contract
owner's account or the related unit value.
A10
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
The net asset value per share for each portfolio of the Series Fund or
non-Prudential administered variable 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, 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED PRUDENTIAL FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of Shares: 4,880,365 6,431,941 26,242,572 65,708,659 38,236,016
Net asset value per share: $ 10.00000 $ 11.02185 $ 31.06909 $ 17.28029 $ 14.97022
Cost: $ 48,803,647 $ 69,235,573 $ 516,988,344 $1,014,917,415 $ 529,051,421
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
HIGH YIELD STOCK EQUITY PRUDENTIAL PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of Shares: 4,903,732 4,445,505 4,090,143 1,519,536 1,407,667
Net asset value per share: $ 8.14453 $ 30.21956 $ 22.38737 $ 17.92348 $ 17.73151
Cost: $ 39,721,629 $ 77,787,464 $ 67,413,031 $ 24,480,770 $ 21,485,631
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------
T. ROWE PRICE MFS AMERICAN
INTERNATIONAL AIM V.I. JANUS EMERGING CENTURY
STOCK VALUE ASPEN GROWTH GROWTH V.P. VALUE
PORTFOLIO FUND PORTFOLIO SERIES FUND
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of Shares: 25,918 26,311 0 103,280 45,492
Net asset value per share: $ 12.74000 $ 20.83000 $ 18.48000 $ 16.14000 $ 6.93000
Cost: $ 337,448 $ 560,054 $ 0 $ 1,611,876 $ 311,000
</TABLE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding Contract owner units, unit values and total value of Contract
owner equity at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED PRUDENTIAL FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units
Outstanding (VAL) ............ 23,928,441.301 24,698,546.988 122,651,564.119 261,987,162.588 163,178,356.109
Unit Value (VAL) ............... $ 1.83897 $ 2.84637 $ 6.62333 $ 4.32695 $ 3.50133
---------------- ---------------- ---------------- ---------------- ----------------
Contract Owner Equity
(VAL) ........................ $ 44,003,686 $ 70,301,203 $ 812,361,784 $ 1,133,605,353 $ 571,341,273
---------------- ---------------- ---------------- ---------------- ----------------
Contract Owner Units
Outstanding (VUL) ............ 2,980,254.141 556,418.836 2,220,216.004 1,449,780.951 1,039,684.536
Unit Value (VUL) ............... $ 1.05064 $ 1.07740 $ 1.25118 $ 1.17472 $ 1.13499
---------------- ---------------- ---------------- ---------------- ----------------
Contract Owner Equity
(VUL) ........................ $ 3,131,174 $ 599,486 $ 2,777,890 $ 1,703.087 $ 1,180,032
---------------- ---------------- ---------------- ---------------- ----------------
TOTAL CONTRACT OWNER
EQUITY ....................... $ 47,134,860 $ 70,900,689 $ 815,139,674 $ 1,135,308,440 $ 572,521,305
================ ================ ================ ================ ================
</TABLE>
A11
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
HIGH YIELD STOCK EQUITY PRUDENTIAL PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units
Outstanding (VAL) ............ 15,988,165.351 31,945,525.610 20,599,042.714 18,745,150.343 12,190,230.602
Unit Value (VAL) ............... $ 2.46035 $ 4.05453 $ 4.33858 $ 1.41253 $ 1.86484
---------------- ---------------- ---------------- ---------------- ----------------
Contract Owner Equity
(VAL) ........................ $ 39,336,483 $ 129,524,092 $ 89,370,595 $ 26,478,087 $ 22,732,830
---------------- ---------------- ---------------- ---------------- ----------------
Contract Owner Units
Outstanding (VUL) ............ 501,701.742 3,594,004.128 1,418,655.757 698,663.847 1,509,150.440
Unit Value (VUL) ............... $ 1.13731 $ 1.32322 $ 1.39206 $ 1.08655 $ 1.29129
---------------- ---------------- ---------------- ---------------- ----------------
Contract Owner Equity
(VUL) ........................ $ 570,590 $ 4,755,658 $ 1,974,854 $ 759,133 $ 1,948,751
---------------- ---------------- ---------------- ---------------- ----------------
TOTAL CONTRACT OWNER
EQUITY ....................... $ 39,907,073 $ 134,279,750 $ 91,345,449 $ 27,237,220 $ 24,681,581
================ ================ ================ ================ ================
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------
T. ROWE PRICE MFS AMERICAN
INTERNATIONAL AIM V.I. JANUS EMERGING CENTURY
STOCK VALUE ASPEN GROWTH GROWTH V.P. VALUE
PORTFOLIO FUND PORTFOLIO SERIES FUND
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units
Outstanding (VAL) ............ N/A N/A N/A N/A N/A
Unit Value (VAL) ............... N/A N/A N/A N/A N/A
------------- ------------- ------------- --------------- -------------
Contract Owner Equity
(VAL) ........................ $ N/A $ N/A $ N/A $ N/A $ N/A
------------- ------------- ------------- --------------- -------------
Contract Owner Units
Outstanding (VUL) ............ 446,008.133 495,432.174 323,236.016 1,929,062.478 275,900.766
Unit Value (VUL) ............... $ 0.91591 $ 1.05975 $ 1.07661 $ 1.09764 $ 1.10369
------------- ------------- ------------- --------------- -------------
Contract Owner Equity
(VUL) ........................ $ 408,503 $ 525,034 $ 347,999 $ 2,117,416 $ 304,509
------------- ------------- ------------- --------------- -------------
TOTAL CONTRACT OWNER
EQUITY ....................... $ 408,503 $ 525,034 $ 347,999 $ 2,117,416 $ 304,509
============= ============= ============= =============== =============
</TABLE>
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 daily against the net assets representing
equity of VAL and VUL Contract owners held in each subaccount.
Mortality risk is that Contract owners may not live as long as
estimated and expense risk is that the cost of issuing and
administering the policies may exceed the estimated expenses. For
1997, the amount of these charges, pertaining to the eighteen
subaccounts within the Account, paid to Pruco Life for the VAL product
was $16,980,651 and for the VUL product was $39,613.
B. Deferred Sales Charge
A deferred sales charge is imposed upon the surrender of certain
variable life insurance contracts to compensate Pruco Life for sales
and other marketing expenses. The amount of any sales charge will
depend on the number of years that have elapsed since the Contract was
issued. No sales charge will be imposed after the tenth year of the
Contract. No sales charge will be imposed on death benefits. For 1997,
the amount of these charges, pertaining to the eighteen subaccounts
within the Account, paid to Pruco Life for VAL was $1,674,794 and VUL
was $3,467.
A12
<PAGE>
C. Partial Withdrawal Charge
A charge is imposed by Pruco Life on partial withdrawals of the cash
surrender value. For 1997, the amount of these charges, pertaining to
the eighteen subaccounts within the Account, paid to Pruco Life for
VAL was $98,552 and VUL was $0.
D. Expense Reimbursement
Pursuant to a prior merger agreement, the Account is reimbursed by
Pruco Life for expenses in excess of 0.40% of VAL'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 1997, the amount of these reimbursements totaled
$3,990,553.
E. Cost of Insurance Charges
Contract owner contributions to the eighteen subaccounts within the
Account are subject to the following charges: transaction costs,
premium taxes, sales loads, monthly administration charges, and death
benefit risk charges. During 1997, Pruco Life received from VAL
Contract owners $4,003,862, $4,917,024, $249,754, $12,780,360 and
$2,433,146, respectively, and from VUL Contract owners $0, $1,000,900,
$595,381, $323,638, and $135,362, respectively.
NOTE 6: TAXES
Pruco Life is taxed as a "life insurance company" as defined by the
Internal Revenue Code and the results of operations of the Account
form a part of Pruco Life's consolidated federal tax return. Under
current federal law, no federal income taxes are payable by the
Account. As such, no provision for tax liability has been recorded in
these financial statements.
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
The following amounts represent Contract owner activity components for
the year ended December 31, 1997:
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
PRUDENTIAL PRUDENTIAL PRUDENTIAL FLEXIBLE CONSERVATIVE
MONEY MARKET DIVERSIFIED BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract Owner Net
Payments ......................... $ 11,064,582 $ 5,585,180 $ 45,437,359 $ 71,851,051 $ 37,767,948
Policy Loans ........................ $ (1,916,044) $ (2,089,744) $(25,646,232) $(34,658,782) $(14,693,056)
Policy Loan Repayments
and Interest ...................... $ 1,011,194 $ 1,615,960 $ 15,784,614 $ 24,227,411 $ 10,942,826
Surrenders, Withdrawals,
and Death Benefits ................ $ (3,863,779) $ (3,778,210) $(38,595,315) $(59,613,280) $(30,175,056)
Net Transfers From (To)
Other Subaccounts or
Fixed Rate Options ................ $ (7,633,294) $ (2,617,340) $ 6,718,514 $(13,344,352) $ (9,474,946)
Administrative and
Other Charges ..................... $ (2,185,866) $ (2,918,054) $(27,110,637) $(43,984,351) $(23,099,749)
<CAPTION>
SUB ACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
HIGH YIELD PRUDENTIAL EQUITY PRUDENTIAL PRUDENTIAL
BOND STOCK INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract Owner Net
Payments ......................... $ 3,024,941 $ 11,823,208 $ 6,514,479 $ 2,426,347 $ 3,275,515
Policy Loans ........................ $ (1,149,056) $ (4,047,578) $ (2,378,404) $ (665,649) $ (615,994)
Policy Loan Repayments
and Interest ...................... $ 751,249 $ 3,296,705 $ 1,466,470 $ 410,448 $ 403,472
Surrenders, Withdrawals,
and Death Benefits ................ $ (1,898,223) $ (8,511,446) $ (3,616,294) $ (1,030,134) $ (663,449)
Net Transfers From(To)
Other Subaccounts or
Fixed Rate Options ................ $ (3,054) $ 16,075,177 $ 9,926,365 $ 3,018,892 $ 8,134,626
Administrative and
Other Charges ..................... $ (1,622,796) $ (4,374,518) $ (2,739,257) $ (923,293) $ (840,471)
</TABLE>
A13
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------------
T. ROWE PRICE JANUS MFS AMERICAN
INTERNATIONAL AIM V.I. ASPEN EMERGING CENTURY
STOCK VALUE GROWTH GROWTH V.P. VALUE
PORTFOLIO FUND PORTFOLIO SERIES FUND
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract Owner Net
Payments ......................... $ 249,422 $ 328,696 $ 167,622 $ 425,641 $ 168,974
Policy Loans ........................ $ -- $ -- $ -- $ -- $ --
Policy Loan Repayments
and Interest ...................... $ -- $ -- $ -- $ -- $ --
Surrenders, Withdrawals,
and Death Benefits ................ $ -- $ -- $ -- $ -- $ --
Net Transfers From (To)
Other Subaccounts or
Fixed Rate Options ................ $ 209,865 $ 234,653 $ 207,117 $ 1,719,780 $ 151,959
Administrative and
Other Charges ..................... $ (21,962) $ (36,112) $ (23,479) $ (42,152) $ (19,728)
</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
years ended December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------
PRUDENTIAL
PRUDENTIAL DIVERSIFIED
MONEY MARKET BOND
PORTFOLIO PORTFOLIO
------------------------------------- -----------------------------------
1997 1996 1997 1996
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 29,773,082.917 18,317,198.320 3,976,684.244 6,032,489.291
Contract Owner Redemptions: (30,489,424.759) (20,797,006.538) (5,177,102.200) (5,568,937.715)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------
PRUDENTIAL
PRUDENTIAL FLEXIBLE
EQUITY MANAGED
PORTFOLIO PORTFOLIO
------------------------------------- -----------------------------------
1997 1996 1997 1996
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 16,279,304.555 19,318,824.308 28,250,560.741 33,929,159.280
Contract Owner Redemptions: (18,324,621.964) (21,974,064.812) (40,903,218.632) (45,839,478.729)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
CONSERVATIVE HIGH YIELD
BALANCED BOND
PORTFOLIO PORTFOLIO
------------------------------------- -----------------------------------
1997 1996 1997 1996
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 18,585,298.689 22,253,843.498 4,131,802.258 4,533,364.255
Contract Owner Redemptions: (26,481,933.900) (31,093,009.761) (4,240,015.394) (5,073,116.794)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
STOCK EQUITY
INDEX INCOME
PORTFOLIO PORTFOLIO
------------------------------------- -----------------------------------
1997 1996 1997 1996
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 13,730,033.346 10,183,057.448 8,191,054.641 4,799,710.141
Contract Owner Redemptions: (7,373,719.208) (6,331,551.426) (4,945,055.787) (5,166,776.253)
</TABLE>
A14
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
GLOBAL JENNISON
PORTFOLIO PORTFOLIO
------------------------------------- -----------------------------------
1997 1996 1997 1996
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 6,841,694.027 10,050,734.228 9,601,165.316 10,385,284.939
Contract Owner Redemptions: (4,372,292.431) (5,504,422.378) (3,617,613.590) (3,950,760.606)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------
T. ROWE PRICE AIM V.I.
INTERNATIONAL STOCK VALUE
PORTFOLIO FUND
------------------------------------- -----------------------------------
1997 1996 1997 1996
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 2,496,937.464 N/A 535,143.318 N/A
Contract Owner Redemptions: (2,048,705.092) N/A (39,711.143) N/A
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------
MFS
JANUS EMERGING
ASPEN GROWTH GROWTH
PORTFOLIO SERIES
------------------------------------- -----------------------------------
1997 1996 1997 1996
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 1,778,210.586 N/A 8,307,259.891 N/A
Contract Owner Redemptions: (1,452,995.812) N/A (6,378,197.412) N/A
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------
AMERICAN
CENTURY
V.P. VALUE
FUND
--------------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Contract Owner Contributions: 295,650.690 N/A
Contract Owner Redemptions: (19,749.921) N/A
</TABLE>
A15
<PAGE>
NOTE 10: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of
investments in the Series Fund and non-Prudential administered funds
were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
PRUDENTIAL DIVERSIFIED PRUDENTIAL FLEXIBLE CONSERVATIVE
MONEY MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1997
Purchases ........................... $ 17,484,000 $ 828,000 $ 4,634,000 $ 1,148,000 $ 70,000
Sales ............................... $(19,741,000) $ (5,509,000) $(32,115,000) $(61,660,000) $(31,768,000)
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
HIGH YIELD STOCK EQUITY PRUDENTIAL PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1997
Purchases ........................... $ 3,446,000 $ 19,176,000 $ 11,743,000 $ 4,652,000 $ 11,089,000
Sales ............................... $ (4,546,000) $ (6,127,000) $ (2,785,000) $ (1,697,000) $ (1,526,000)
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------------
T. ROWE PRICE MFS AMERICAN
INTERNATIONAL AIM V.I. JANUS EMERGING CENTURY
STOCK VALUE ASPEN GROWTH GROWTH V.P. VALUE
PORTFOLIO FUND PORTFOLIO SERIES FUND
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1997
Purchases ........................... $ 1,543,000 $ 574,000 $ 1,847,000 $ 5,156,000 $ 311,000
Sales ............................... $ (1,213,000) $ (28,000) $ (1,835,000) $ (3,536,000) $ 0
</TABLE>
A16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the
Variable Universal Life Subaccounts of the
Pruco Life Variable Appreciable Account
and the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the subaccounts (Prudential Money
Market Portfolio, Prudential Diversified Bond Portfolio, Prudential Equity
Portfolio, Prudential Flexible Managed Portfolio, Prudential Conservative
Balanced Portfolio, Prudential High Yield Bond Portfolio, Prudential Stock Index
Portfolio, Prudential Equity Income Portfolio, Prudential Global Portfolio,
Prudential Jennison Portfolio, T. Rowe Price International Stock Portfolio, AIM
V.I. Value Fund, Janus Aspen Growth Portfolio, MFS Emerging Growth Series, and
American Century V.P. Value Fund) of the Pruco Life Variable Appreciable Account
at December 31, 1997, the results of each of their operations for the year then
ended (for the period June 30, 1997 through December 31, 1997 for T. Rowe Price
International Stock Portfolio, AIM V.I. Value Fund, Janus Aspen Growth
Portfolio, MFS Emerging Growth Series, and American Century V.P. Value Fund) and
the changes in each of their net assets for each of the two years in the period
then ended (for the period June 30, 1997 through December 31, 1997 for T. Rowe
Price International Stock Portfolio, AIM V.I. Value Fund, Janus Aspen Growth
Portfolio, MFS Emerging Growth Series, and American Century V.P. Value Fund), in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Pruco Life Insurance Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of fund shares owned at
December 31, 1997, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
March 20, 1998
A17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Contract Owners of
Pruco Life Variable Appreciable
Account and the Board of Directors
of Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying statements of changes in net assets of Pruco
Life Variable Appreciable Account of Pruco Life Insurance Company (comprising,
respectively, the Money Market, Diversified Bond, Equity, Flexible Managed,
Conservative Balanced, High Yield Bond, Stock Index, Equity Income, Global and
Prudential Jennison subaccounts) for the periods presented in the year 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 Appreciable Account for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 15, 1996
A18
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1997 AND 1996 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1997: $2,526,554;
1996: $2,210,150) $ 2,563,852 $ 2,236,817
Held to maturity, at amortized cost (fair value, 1997: $350,056; 1996:
$416,102) 338,848 405,731
Equity securities - available for sale, at fair value (cost, 1997: $1,289;
1996: $3,626) 1,982 3,748
Mortgage loans on real estate 22,787 46,915
Policy loans 703,955 639,782
Short-term investments 316,355 169,830
Other long-term investments 1,317 4,528
----------------- -----------------
Total investments 3,949,096 3,507,351
Cash 71,358 73,766
Deferred policy acquisition costs 655,242 633,159
Accrued investment income 67,000 62,110
Income taxes receivable - 7,191
Reinsurance recoverable on unpaid losses 25,882 27,014
Other assets 60,810 62,924
Separate Account assets 8,022,079 5,336,851
----------------- -----------------
TOTAL ASSETS $12,851,467 $9,710,366
================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances $ 2,282,191 $ 2,188,862
Future policy benefits and other policyholder liabilities 570,729 557,351
Cash collateral for loaned securities 143,421 -
Income taxes payable 71,703 -
Deferred income tax liability 138,483 148,960
Payable to affiliate 70,375 49,828
Other liabilities 120,260 88,930
Separate Account liabilities 7,948,788 5,277,454
----------------- -----------------
TOTAL LIABILITIES 11,345,950 8,311,385
----------------- -----------------
CONTINGENCIES - (SEE NOTE 10)
STOCKHOLDER'S EQUITY
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
December 31, 1997 and 1996 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,050,871 944,497
Net unrealized investment gains 17,129 14,104
Foreign currency translation adjustments (4,565) (1,702)
----------------- -----------------
TOTAL STOCKHOLDER'S EQUITY 1,505,517 1,398,981
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $12,851,467 $9,710,366
================= =================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-1
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES
Premiums $ 49,496 $ 51,525 $ 42,089
Policy charges and fee income 330,292 324,976 319,012
Net investment income 259,634 247,328 246,618
Realized investment gains, net 10,974 10,835 13,200
Other income 33,801 20,818 26,986
----------------- ----------------- -----------------
TOTAL REVENUES 684,197 655,482 647,905
----------------- ----------------- -----------------
BENEFITS AND EXPENSES
Policyholders' benefits 179,419 186,873 153,987
Interest credited to policyholders' account balances 110,815 118,246 126,926
General, administrative and other expenses 225,721 122,006 134,790
----------------- ----------------- -----------------
TOTAL BENEFITS AND EXPENSES 515,955 427,125 415,703
----------------- ----------------- -----------------
Income from operations before income taxes 168,242 228,357 232,202
----------------- ----------------- -----------------
Income taxes
Current 73,326 60,196 67,014
Deferred (11,458) 18,939 12,544
----------------- ----------------- -----------------
Total income taxes 61,868 79,135 79,558
----------------- ----------------- -----------------
NET INCOME $ 106,374 $ 149,222 $ 152,644
================= ================= =================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-2
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
NET FOREIGN
UNREALIZED CURRENCY TOTAL
COMMON PAID-IN- RETAINED INVESTMENT TRANSLATION STOCKHOLDER'S
STOCK CAPITAL EARNINGS GAINS ADJUSTMENTS EQUITY
------------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 2,500 $ 439,582 $ 642,631 $(41,761) $ 650 $1,043,602
Net income -- -- 152,644 -- -- 152,644
Change in foreign
currency translation
adjustments -- -- -- -- (1,870) (1,870)
Change in net
unrealized
investment gains -- -- -- 73,817 -- 73,817
------------- ------------- ------------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1995 2,500 439,582 795,275 32,056 (1,220) 1,268,193
Net income -- -- 149,222 -- -- 149,222
Change in foreign
currency translation
adjustments -- -- -- -- (482) (482)
Change in net
unrealized
investment gains -- -- -- (17,952) -- (17,952)
------------- ------------- ------------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1996 2,500 439,582 944,497 14,104 (1,702) 1,398,981
Net income -- -- 106,374 -- -- 106,374
Change in foreign
currency translation
adjustments -- -- -- -- (2,863) (2,863)
Change in net
unrealized
investment gains -- -- -- 3,025 -- 3,025
------------- ------------- ------------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1997 $ 2,500 $ 439,582 $1,050,871 $ 17,129 $ (4,565) $1,505,517
============= ============= ============= ============= =========== =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-3
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 106,374 $ 149,222 $ 152,644
Adjustments to reconcile net income to net cash provided by
operating activities:
Policy charges and fee income (40,783) (50,286) (56,637)
Interest credited to policyholders' account balances 110,815 118,246 126,926
Net increase in Separate Accounts (13,894) (38,025) (3,520)
Realized investment gains, net (10,974) (10,835) (13,200)
Amortization and other non-cash items (5,525) 26,709 (8,106)
Change in:
Future policy benefits and other policyholders' liabilities 13,378 56,151 22,877
Accrued investment income (4,890) (2,248) (480)
Payable to affiliate 20,547 16,519 10,569
Policy loans (64,173) (70,509) (75,411)
Deferred policy acquisition costs (22,083) (66,183) 31,318
Income taxes payable/receivable 78,894 (816) 12,031
Reinsurance recoverable on unpaid losses 1,132 900 750
Deferred income tax liability (10,477) 7,912 30,779
Other, net 34,094 7,564 (76,702)
--------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES 192,435 144,321 153,838
--------------- -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 2,828,665 3,886,254 1,886,687
Held to maturity 138,626 138,127 144,898
Equity securities 6,939 7,527 5,557
Mortgage loans on real estate 24,925 19,226 7,395
Other long-term investments 3,276 288 1,559
Investment real estate -- 4,488 2,926
Payments for the purchase of:
Fixed maturities:
Available for sale (3,141,785) (4,008,810) (1,741,139)
Held to maturity (70,532) (114,494) (135,092)
Equity securities (4,594) (4,697) (4,279)
Other long-term investments (51) (657) (1,674)
Cash collateral for loaned securities, net 143,421 -- --
Short-term investments, net (147,030) 58,186 (36,482)
--------------- -------------- ------------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES (218,140) (14,562) 130,356
--------------- -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 2,099,600 536,370 95,039
Withdrawals (2,076,303) (633,798) (365,578)
--------------- -------------- ------------
CASH FLOWS FROM (USED IN)FINANCING ACTIVITIES 23,297 (97,428) (270,539)
--------------- -------------- ------------
Net (decrease) increase in Cash (2,408) 32,331 13,655
Cash, beginning of year 73,766 41,435 27,780
--------------- -------------- ------------
CASH, END OF YEAR $ 71,358 $ 73,766 $ 41,435
=============== ============== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes (received) paid $ (7,904) $ 61,760 $ 53,107
=============== ============== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-4
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS
Pruco Life Insurance Company (the Company) is a stock life insurance company,
organized in 1971 under the laws of the state of Arizona. The Company markets
individual life insurance, variable life insurance, variable life insurance,
variable annuities, and deferred annuities (the Contracts) in all states except
New York, the District of Columbia and Guam. In addition, the Company markets
individual life insurance through its branch office in Taiwan. The Company has
two subsidiaries, Pruco Life Insurance Company of New Jersey (PLNJ) and The
Prudential Life Insurance company of Arizona (PLICA). PLNJ is a stock life
insurance company organized in 1982 under the laws of the state of New Jersey.
It is licenced to sell individual life insurance and deferred annuities only in
the states of New Jersey and New York. PLICA is a stock life insurance company
organized in 1988 under the laws of the state of Arizona. PLICA had no new
business sales in 1977 and at this time will not be issuing new business.
The only reportable industry segment of the Company is "Life Insurance."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company, a
stock life insurance company, and its subsidiaries. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP"). All significant intercompany balances and transactions have
been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
INVESTMENTS
FIXED MATURITIES classified as "available for sale" are carried at estimated
fair value. Fixed maturities that the Company has both the positive intent and
ability to hold to maturity are stated at amortized cost and classified as "held
to maturity". The amortized cost of fixed maturities are written down to
estimated fair value when considered impaired and the decline in value is
considered to be other than temporary. Unrealized gains and losses on fixed
maturities "available for sale", net of income tax, the effect on deferred
policy acquisition costs and participating annuity contracts that would result
from the realization of unrealized gains and losses are included in a separate
component of equity, "Net unrealized investment gains."
EQUITY SECURITIES, available for sale, comprised of common and non-redeemable
preferred stock, are carried at estimated fair value. The associated unrealized
gains and losses, net of income tax, the effect on deferred policy acquisition
costs and participating annuity contracts that would result from the realization
of unrealized gains and losses, are included in separate component of equity,
"Net unrealized investment gains."
MORTGAGE LOANS ON REAL ESTATE are stated primarily at unpaid principal balances,
net of unamortized discounts
POLICY LOANS are carried at unpaid principal balances.
SHORT-TERM INVESTMENTS, including highly liquid debt instruments purchased with
an original maturity of twelve months or less, are carried at amortized cost,
which approximates fair value.
OTHER LONG-TERM INVESTMENTS primarily represent the Company's investments in
joint ventures and partnerships in which the Company does not have control.
These investments are recorded using the equity method of accounting, reduced
for other than temporary declines in value.
REALIZED INVESTMENT GAINS, NET are computed using the specific identification
method. Costs of fixed maturity and equity securities are adjusted for
impairments considered to be other than temporary.
CASH
Cash includes cash on hand, amounts due from banks, and money market
instruments.
DEFERRED POLICY ACQUISITION COSTS
The costs which vary with and that are related primarily to the production of
new insurance business are deferred to the extent such costs are deemed
recoverable from future profits. Such costs include certain commissions, costs
of policy issuance and underwriting, and certain variable field office expenses.
Deferred policy acquisition costs are subject to recoverability testing at the
time of policy issue and loss recognition testing at the end of each accounting
period. Deferred policy acquisition costs are
B-5
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
adjusted for the impact of unrealized gains or losses on investments as if these
gains or losses had been realized, with corresponding credits or charges
included in equity.
Acquisition costs related to interest-sensitive life products and
investment-type contracts are deferred and amortized in proportion to total
estimated gross profits arising principally from investment results, mortality
and expense margins and surrender charges based on historical and anticipated
future experience. Amortization periods range from 15 to 30 years. Amortization
of deferred policy acquisition costs was $149,851 thousand, $9,309 thousand, and
$54,371 thousand for the years ended December 31, 1997, 1996, and 1995,
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 of revisions to estimated gross profits on unamortized
deferred acquisition costs is reflected in earnings in the period such estimated
gross profits are revised.
FUTURE POLICY BENEFITS AND POLICYHOLDERS' ACCOUNT BALANCES
Future policy benefits includes reserves for annuities in payout status as well
as reserves for riders and supplemental benefits. Reserves for annuities in
payout status are generally calculated as the present value of estimated future
benefit payments and related expenses, using interest rates ranging from 6.5% to
11.0%. The mortality assumption is generally the 1983 Individual Annuity
Mortality Table. Reserves for riders and supplemental benefits are calculated
using interest rates ranging from 2.5% to 7.25% and various mortality and
morbidity tables derived from company or industry experience. Reserves for
business in the Company's Taiwan branch are generally calculated using interest
rates ranging from 6.25% to 7.5% and the 1989 Taiwan Standard Ordinary
Experience Mortality table with modifications.
For the above categories, premium deficiency reserves are established, if
necessary, when the liabilities for future policy benefits plus the present
value of expected future gross premiums are insufficient to provide for expected
future policy benefits and expenses.
Policyholders' account balances for interest-sensitive life and investment-type
contracts are equal to the policy account values. The policy account values
represent an accumulation of gross premium payments plus credited interest, less
expense and mortality charges and withdrawals. Interest crediting rates on life
insurance products range from 4.2% to 6.5% and on investment-type products range
from 3.15% to 7.9%.
SECURITIES LOANED are recorded at the amount of cash received as collateral. The
Company obtains collateral in an amount equal to 102% of the fair value of the
domestic securities. The Company monitors the market value of securities loaned
on a daily basis with additional collateral obtained as necessary. Non-cash
collateral received is not reflected in the consolidated statements of financial
position. Substantially, all of the Company's securities loaned are with large
brokerage firms.
These transactions are used to generate net investment income and facilitate
trading activity. These instruments are short-term in nature (usually 30 days or
less) and are collateralized principally by U.S. Government and mortgage-backed
securities. The carrying amounts of these instruments approximate fair value
because of the relatively short period of time between the origination of the
instruments and their expected realization.
SEPARATE ACCOUNT ASSETS AND LIABILITIES
Separate Account assets and liabilities are reported at estimated fair value and
represent segregated funds which are invested for certain policyholders, pension
funds and other customers. The assets consist of common stocks, fixed
maturities, real estate related securities, and short-term investments. The
assets of each account are legally segregated and are not subject to claims that
arise out of any other business of the Company. Investment risks associated with
market value changes are generally borne by the customers, except to the extent
of minimum guarantees made by the Company with respect to certain accounts. The
investment income and gains or losses for Separate Accounts generally accrue to
the policyholders and are not included in the Consolidated Statement of
Operations. Mortality, policy administration and surrender charges on the
accounts are included in "Policy charges and fee income."
Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life Modified Guaranteed Annuity
Account. The Pruco Life Modified Guaranteed Annuity Account is a non-unitized
separate account, which funds the Modified Guaranteed Annuity Contract and the
Market Value Adjustment Annuity Contract. Owners of the Pruco Life Modified
Guaranteed Annuity and the Market Value Adjustment Annuity Contracts do not
participate in the investment gain or loss from assets relating to such
accounts. Such gain or loss is borne, in total, by the Company.
B-6
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INSURANCE REVENUE AND EXPENSE RECOGNITION
Amounts received as payment for interest-sensitive life, investment contracts
and deferred annuities are reported as deposits to "Policyholders' account
balances." Revenues from these contracts are reflected as "Policy charges and
fee income" and consist primarily of fees assessed during the period against the
policyholders' account balances for mortality charges, policy administration
charges, surrender charges, and interest earned from the investment of these
account balances. Benefits and expenses for these products include claims in
excess of related account balances, expenses of contract administration,
interest credited and amortization of deferred policy acquisition costs.
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Assets and liabilities of the Taiwan branch reported in other than U.S. dollars
are translated at the exchange rate in effect at the end of the period.
Revenues, benefits and other expenses are translated at the average rate
prevailing during the period. Translation adjustments arising from the use of
differing exchange rates from period to period are charged or credited directly
to equity. The cumulative effect of changes in foreign exchange rates are
included in "Foreign currency translation adjustments."
DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives include futures subject to market risk, all of which are used by the
Company in other than trading activities. Income and expenses related to
derivatives used to hedge are recorded on the accrual basis on the Statements of
Financial Position. Gains and losses relating to derivatives used to hedge the
risks associated with anticipated transactions are realized in "Realized
investment gains, net." If it is determined that the transaction will not close,
such gains and losses are included in "Realized investment gains, net."
Derivatives held for purposes other than trading are primarily used to hedge or
reduce exposure to interest rate and foreign currency risks associated with
assets held or expected to be purchased or sold, and liabilities incurred or
expected to be incurred. Additionally, other than trading derivatives are used
to change the characteristics of the Company's asset/liability mix consistent
with the Company's risk management activities.
INCOME TAXES
The Company and its subsidiaries are members 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. 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. Deferred income taxes
are generally recognized, based on enacted rates, when assets and liabilities
have different values for financial statement and tax reporting purposes. A
valuation allowance is recorded to reduce a deferred tax asset to that portion
which management believes is more likely than not to be realized.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 125"). The statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
and provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. SFAS 125
became effective January 1, 1997 and is to be applied prospectively. Subsequent
to June 1996, FASB issued SFAS No. 127 "Deferral of the Effective Date of
Certain Provisions of SFAS 125" ("SFAS 127"). SFAS 127 delays the implementation
of SFAS 125 for one year for certain provisions, including repurchase
agreements, dollar rolls, securities lending and similar transactions. The
Company will delay implementation with respect to those affected provisions.
Adoption of SFAS 125 has not, and will not have a material impact on the
Company's results of operations, financial condition and liquidity.
In June of 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for years beginning after December 15, 1997. This statement
defines comprehensive income as "the change in equity of a business enterprise
during a
B-7
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
period from transactions and other events and circumstances from non-owner
sources, excluding investments by owners and distributions to owners" and
establishes standards for reporting and displaying comprehensive income and its
components in financial statements. The statement requires that the Company
classify items of other comprehensive income by their nature and display the
accumulated balance of other comprehensive income separately from retained
earnings in the equity section of the Statement of Financial Position. In
addition, reclassification of financial statements for earlier periods must be
provided for comparative purposes.
RECLASSIFICATIONS
Certain amounts in the prior years have been reclassified to conform to current
year presentation.
B-8
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES:
The following tables provide additional information relating to fixed maturities
and equity securities as of December 31,:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
------------------ ---------------- ------------- ----------------
(In Thousands)
<S> <C> <C> <C> <C>
FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 177,691 $ 1,231 $ 20 $ 178,902
Foreign government bonds 83,889 1,118 19 84,988
Corporate securities 2,263,898 36,857 2,017 2,298,738
Mortgage-backed securities 1,076 180 32 1,224
------------------ ---------------- ------------- ----------------
Total fixed maturities available for sale $2,526,554 $ 39,386 $ 2,088 $2,563,852
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
EQUITY SECURITIES AVAILABLE FOR SALE $ 1,289 $ 802 $ 109 $ 1,982
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
FIXED MATURITIES HELD TO MATURITY
Corporate securities $ 338,848 $ 11,427 $ 219 $ 350,056
------------------ ---------------- ------------- ----------------
Total fixed maturities held to maturity $ 338,848 $ 11,427 $ 219 $ 350,056
================== ================= ============== ===============
1996
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
------------------ ---------------- ------------- ----------------
(In Thousands)
FIXED MATURITIES 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
------------------ ---------------- ------------- ----------------
Total fixed maturities available for sale $2,210,150 $ 31,252 $ 4,585 $2,236,817
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
EQUITY SECURITIES AVAILABLE FOR SALE $ 3,626 $ 819 $ 697 $ 3,748
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
FIXED MATURITIES HELD TO MATURITY
Corporate securities $ 405,731 $ 10,947 $ 576 $ 416,102
------------------ ---------------- ------------- ----------------
Total fixed maturities held to maturity $ 405,731 $ 10,947 $ 576 $ 416,102
================== ================= ============== ===============
</TABLE>
B-9
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of fixed maturities, categorized by
contractual maturities at December 31, 1997, are shown below:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
---------------------------------- -----------------------------------
ESTIMATED ESTIMATED
FAIR FAIR
AMORTIZED COST VALUE AMORTIZED COST VALUE
----------------- ---------------- ----------------- -----------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 29,759 $ 29,731 $ 13,736 $ 13,838
Due after one year through five years 1,738,532 1,758,946 204,298 212,050
Due after five years through ten years 555,194 567,928 98,192 101,143
Due after ten years 201,993 206,023 22,622 23,025
Mortgage-backed securities 1,076 1,224 -- --
----------------- ---------------- ----------------- -----------------
Total $2,526,554 $2,563,852 $ 338,848 $ 350,056
================= ================ ================= =================
</TABLE>
Actual maturities will differ from contractual maturities because issuers have
the right to call or prepay obligations.
Proceeds from the sale of fixed maturities available for sale during 1997, 1996,
and 1995 were $2,796,306 thousand, $3,667,062 thousand, and $1,807,584 thousand,
respectively. Gross gains of $18,635 thousand, $22,078 thousand, and $25,909
thousand and gross losses of $7,990 thousand, $17,718 thousand, and $13,907
thousand were realized on those sales during 1997, 1996, and 1995, respectively.
Proceeds from the maturity of fixed maturities available for sale during 1997,
1996, and 1995 were $32,359 thousand, $219,192 thousand, and $79,103 thousand,
respectively. During the years ended December 31, 1997, 1996 and 1995, there
were no securities classified as held to maturity that were sold.
The following table describes the amortized cost and estimated fair value of
fixed maturity securities by rating agency equivalent as of December 31, 1997:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
-------------------------------- -------------------------------
AMORTIZED ESTIMATED FAIR AMORTIZED ESTIMATED FAIR
COST VALUE COST VALUE
--------------- ---------------- --------------- ---------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
AAA/AA/A $ 1,319,527 $ 1,334,823 $ 187,692 $ 194,797
BBB 1,047,203 1,062,641 128,481 131,820
BB 80,136 83,293 20,540 21,264
B 73,717 76,781 2,132 2,172
CCC or lower 5,943 6,288 -- --
In or near default 28 26 3 3
--------------- ---------------- --------------- ---------------
Total $ 2,526,554 $ 2,563,852 $ 338,848 $ 350,056
=============== ================ =============== ===============
</TABLE>
The NAIC rates certain public and private placement securities as "in or near
default" if they are currently non-performing or believed subject to default in
the near term. The Company's holdings of these securities, in the aggregate,
comprised less than 1% of total invested assets at December 31, 1997 and 1996.
B-10
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
MORTGAGE LOANS ON REAL ESTATE
The Company's mortgage loans were collateralized by the following property types
at December 31,
1997 1996
---------------------- -----------------------
(In Thousands)
Office buildings $ 4,607 20% $ 18,497 39%
Retail stores 8,090 35% 8,731 19%
Apartment complexes 6,080 27% 11,771 25%
Industrial buildings 4,010 18% 7,916 17%
---------------------- -----------------------
Net carrying value $ 22,787 100% $ 46,915 100%
====================== =======================
The mortgage loans are geographically dispersed throughout the United States
with the largest concentrations in Washington (29%) and Pennsylvania (27%).
SPECIAL DEPOSITS
Fixed maturities of $8,302 thousand and $8,744 thousand at December 31, 1997 and
1996, respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws.
OTHER LONG-TERM INVESTMENTS
The Company's "Other long-term investments" of $1,317 thousand and $4,528
thousand as of December 31, 1997 and 1996, respectively, are comprised of
non-real estate related interests. The Company's share of net income from these
entities is $2,158 thousand, $1,434 thousand and $345 thousand for the years
ended December 31, 1997, 1996 and 1995, respectively, and is reported in "Net
investment income."
B-11
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
INVESTMENT INCOME AND INVESTMENT GAINS AND LOSSES
NET INVESTMENT INCOME arose from the following sources for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale $ 161,140 $ 152,445 $ 160,740
Fixed maturities - held to maturity 26,936 33,419 33,458
Equity securities 76 44 104
Mortgage loans on real estate 2,585 5,669 7,757
Investment real estate - 613 647
Policy loans 37,398 33,449 29,775
Short-term investments 22,011 16,780 15,092
Other 14,920 9,438 3,949
----------------- ----------------- -----------------
Gross investment income 265,066 251,857 251,522
Less: investment expenses (5,432) (4,529) (4,904)
----------------- ----------------- -----------------
Net investment income $ 259,634 $ 247,328 $ 246,618
================= ================= =================
</TABLE>
REALIZED INVESTMENT GAINS ,NET including charges for other than temporary
reductions in value, for the years ended December 31, were from the following
sources:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale $ 9,039 $ 9,036 $ 11,359
Fixed maturities - held to maturity 821 - -
Equity securities 8 781 2,020
Mortgage loans on real estate 797 1,677 (90)
Investment real estate - 487 (99)
Other 309 (1,146) 10
----------------- ----------------- -----------------
Realized investment gains, net $ 10,974 $ 10,835 $ 13,200
================= ================= =================
</TABLE>
NET UNREALIZED INVESTMENT GAINS on securities available for sale are included in
the consolidated statement of financial position as a component of equity, net
of tax. Changes in these amounts for the years ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 14,104 $ 32,056 $ (41,761)
Changes in unrealized investment gains
(losses) attributable to:
Fixed maturities 10,631 (43,853) 110,932
Equity securities 571 1,403 68
Participating group annuity contracts 1,292 (3,855) 5,092
Deferred policy acquisition costs (8,412) 17,321 (25,214)
Deferred federal income taxes (1,057) 11,032 (17,061)
----------------- ----------------- -----------------
Balance, end of year $ 17,129 $ 14,104 $ 32,056
================= ================= =================
</TABLE>
B-12
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INCOME TAXES
The components of income taxes for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
(In Thousands)
<S> <C> <C> <C>
Current tax expense:
U.S. $71,989 $59,489 $65,131
State and local 1,337 703 1,876
Foreign -- 4 7
--------------------- --------------------- ---------------------
Total 73,326 60,196 67,014
--------------------- --------------------- ---------------------
Deferred tax (benefit) expense:
U.S. (11,458) 18,413 12,196
State and local -- 526 348
--------------------- --------------------- ---------------------
Total (11,458) 18,939 12,544
--------------------- --------------------- ---------------------
Total income tax expense $61,868 $79,135 $79,558
===================== ===================== =====================
</TABLE>
The Company's income tax expense for the years ended December 31, differs from
the amount computed by applying the expected federal income tax rate of 35% to
income from operations before income taxes for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- --------------------
(In Thousands)
<S> <C> <C> <C>
Expected federal income tax expense $58,885 $79,925 $81,271
State income taxes 869 1,229 2,224
Other 2,114 (2,019) (3,937)
--------------------- --------------------- ---------------------
Total income tax expense $61,868 $79,135 $79,558
===================== ===================== ====================
</TABLE>
B-13
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
(In Thousands)
<S> <C> <C>
Deferred income tax assets
Insurance reserves $ 40,896 $ 38,532
-------------------- --------------------
Total deferred income tax assets 40,896 38,532
-------------------- --------------------
Deferred income tax liabilities
Deferred acquisition costs 168,702 173,785
Net investment gains 8,161 12,502
Other 2,516 1,205
-------------------- --------------------
Total deferred income tax liabilities 179,379 187,492
-------------------- --------------------
Deferred federal income tax liabilities $ 138,483 $ 148,960
==================== ====================
</TABLE>
Management believes that based on its historical pattern of taxable income, the
Company will produce sufficient income in the future to realize its deferred tax
assets after valuation allowance. Adjustments to the valuation allowance will be
made if there is a change in management's assessment of the amount of the
deferred tax assets that are realizable.
The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns through 1989. The Service has examined
the years 1990 through 1992. Discussions are being held with the Service with
respect to proposed adjustments. However, management believes there are adequate
defenses against, or sufficient reserves to provide for, such adjustments. The
Service has begun their examination of the years 1993 through 1995.
5. REINSURANCE
The Company assumes and cedes reinsurance with Prudential and other companies.
The effect of reinsurance for the years ended December 31, is summarized as
follows:
1997 1996 1995
----------- ----------- -----------
Life insurance premiums
Gross Amount $ 51,851 $ 53,776 $ 44,357
Ceded to other companies (3,724) (3,379) (2,268)
Assumed from other companies 1,369 1,128 --
----------- ----------- -----------
Net amount $ 49,496 $ 51,525 $ 42,089
=========== =========== ===========
1997 1996 1995
----------- ----------- -----------
Life insurance in force
Gross Amount $47,328,495 $47,430,580 $47,822,892
Ceded to other companies (1,292,395) (1,172,449) (822,619)
----------- ----------- -----------
Net amount $46,036,100 $46,258,131 $47,000,273
=========== =========== ===========
B-14
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. EQUITY
RECONCILIATION OF STATUTORY SURPLUS AND NET INCOME
Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following table
reconciles the Company's statutory net income and surplus as of and for the
years ended December 31, determined in accordance with accounting practices
prescribed or permitted by the Arizona Department of Banking and Insurance with
net income and equity determined using GAAP.
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
(In Thousands)
<S> <C> <C> <C>
STATUTORY NET INCOME $ 12,778 $ 48,846 $ 113,565
Adjustments to reconcile to net income on a GAAP basis:
Statutory income of subsidiaries 18,553 25,001 44,186
Deferred acquisition costs 38,003 48,862 (6,103)
Deferred premium 1,144 1,295 (743)
Insurance liabilities 26,517 28,662 32,665
Deferred taxes 11,458 (7,780) (27,669)
Valuation of investments 506 365 5,480
Other, net (2,585) 3,971 (8,737)
------------------ ------------------ ------------------
GAAP NET INCOME $ 106,374 $ 149,222 $ 152,644
================== ================== ==================
<CAPTION>
1997 1996
-------------------- --------------------
(In Thousands)
<S> <C> <C>
STATUTORY SURPLUS $ 853,130 $ 901,645
Adjustments to reconcile to equity on a GAAP basis:
Valuation of investments 97,787 95,411
Deferred acquisition costs 655,242 633,159
Deferred premium (14,817) (11,859)
Insurance liabilities (107,525) (124,781)
Deferred taxes (113,461) (124,823)
Other, net 135,161 30,229
-------------------- --------------------
GAAP STOCKHOLDER'S EQUITY $ 1,505,517 $ 1,398,981
==================== ====================
</TABLE>
The New York State Insurance Department ("Department") recognizes only statutory
accounting for determining and reporting the financial condition 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 GAAP in making such determinations.
B-15
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values presented below have been determined using available information
and valuation methodologies. Considerable judgment is applied in interpreting
data to develop the estimates of fair value. Accordingly, such estimates
presented may not be realized in a current market exchange. The use of different
market assumptions and/or estimation methodologies could have a material effect
on the estimated fair values. The following methods and assumptions were used in
calculating the fair values (for all other financial instruments presented in
the table, the carrying value approximates fair value.)
FIXED MATURITIES AND EQUITY SECURITIES
Fair values for fixed maturities and equity securities, other than private
placement securities, are based on quoted market prices or estimates from
independent pricing services. Fair values for private placement securities are
estimated using a discounted cash flow model which considers the current market
spreads between the U.S. Treasury yield curve and corporate bond yield curve,
adjusted for the type of issue, its current credit quality and its remaining
average life. The estimated fair value of certain non-performing private
placement securities is based on amounts estimated by management.
MORTGAGE LOANS ON REAL ESTATE
The fair value of the mortgage loan portfolio is primarily based upon the
present value of the scheduled future cash flows discounted at the appropriate
U.S. Treasury rate, adjusted for the current market spread for a similar quality
mortgage.
POLICY LOANS
The estimated fair value of policy loans is calculated using a discounted cash
flow model based upon current U.S. Treasury rates and historical loan
repayments.
DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of futures is estimated based on market quotes for a transactions
with similar terms.
The following table discloses the carrying amounts and estimated fair values of
the Company's financial instruments at December 31,:
<TABLE>
<CAPTION>
1997 1996
------------------------------------- --------------------------------------
ESTIMATED ESTIMATED
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
------------------ ------------------ ------------------ -------------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities:
Available for sale $ 2,563,852 $ 2,563,852 $ 2,236,817 $ 2,236,817
Held to maturity 338,848 350,056 405,731 416,102
Equity securities 1,982 1,982 3,748 3,748
Mortgage loans 22,787 24,994 46,915 46,692
Policy loans 703,955 703,605 639,782 623,218
Short-term investments 316,355 316,355 169,830 169,830
Cash 71,358 71,358 73,766 73,766
Separate Account assets 8,022,079 8,022,079 5,336,851 5,336,851
Financial Liabilities:
Policyholders'
account balances $ 2,282,191 $ 2,282,191 $ 2,188,862 $ 2,188,862
Cash collateral for loaned
securities 143,421 143,421 -- --
Separate Account liabilities 7,948,788 7,948,788 5,277,454 5,277,454
Derivatives 653 653 -- --
</TABLE>
B-16
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. DERIVATIVE INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of liability positions in future instruments, which represents
the Company's current exposure to credit loss from other parties'
non-performance, was $653 thousand at December 31, 1997. This includes the
estimated fair values of outstanding derivative positions only and does not
include the fair values of associated financial and non-financial assets and
liabilities, which generally offset derivative notional amounts. The fair value
amounts presented also do not reflect the netting of amounts pursuant to right
of setoff, qualifying master netting agreements with counterparties or
collateral arrangements.
9. RELATED PARTY TRANSACTIONS
SERVICE AGREEMENTS
Prudential, and Pruco Securities Corporation, an indirect wholly-owned
subsidiary of Prudential, operate under service and lease agreements whereby
services of officers and employees (except for those agents employed by the
Company in Taiwan), supplies, use of equipment and office space are provided.
The net cost of these services allocated to the Company were $139,489 thousand,
$101,662 thousand and $98,119 thousand for the years ended December 31, 1997,
1996, and 1995, respectively.
REINSURANCE
The Company currently has three reinsurance agreements in place with Prudential
(the reinsurer). Specifically a reinsurance Group Annuity Contract, whereby the
reinsurer, in consideration for a single premium payment by the Company,
provides reinsurance equal to 100% of all payments due under the contract, and
two yearly renewable term agreements in which the Company may offer and the
reinsurer may accept reinsurance on any life in excess of the Company's maximum
limit of retention. The Company is not relieved of its primary obligation to the
policyholder as a result of these reinsurance transactions. These agreements had
no material effect on net income for the years ended December 31, 1997, 1996,
and 1995.
10. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and the
Company. Prudential has agreed to indemnify the Company for any and all losses
resulting from such litigation.
In the normal course of business, the Company is subject to various claims and
assessments. Management believes the settlement of these matters would not have
a material effect on the financial position or results of operations of the
Company.
11. DIVIDENDS
The Company is subject to Arizona law which limits the amount of dividends that
insurance companies can pay to stockholders. The maximum dividend which may be
paid in any twelve month period without notification or approval is limited to
the lesser of 10% of statutory surplus as of December 31 of the preceding year
or the net gain from operations of the preceding calendar year. Cash dividends
may only be paid out of surplus derived from realized net profits. Based on
these limitations and the Company's surplus position at December 31, 1997, the
Company would be permitted a maximum of $15,260 thousand in dividend
distribution in 1998, all of which could be paid in cash, without approval from
The State of Arizona Department of Insurance.
B-17
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of operations, of changes in
stockholder's equity and of cash flows present fairly, in all material respects,
the financial position of Pruco Life Insurance Company and its subsidiaries at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
managememt; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
New York, New York
March 23, 1998
B-18
<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 operations, changes
in stockholder's equity, and cash flows of Pruco Life Insurance Company and
subsidiaries for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated statements of operations, changes in
stockholder's equity, and cash flows present fairly, in all material respects,
the results of operations and cash flows of Pruco Life Insurance Company and
subsidiaries for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Parsippany, NJ
December 19, 1996
B-19
<PAGE>
Variable Universal Life
Insurance
[LOGO] PRUDENTIAL
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone 800 437-4016
VUL-1 Ed. 5/98 CAT# 64M9743
<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
The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.
Arizona, being the state of organization of Pruco Life Insurance Company
("Pruco"), permits entities organized under its jurisdiction to indemnify
directors and officers with certain limitations. The relevant provisions of
Arizona law permitting indemnification can be found in Section 10-850 et seq. of
the Arizona Statutes Annotated. The text of Pruco's By-law, Article VIII, which
relates to indemnification of officers and directors, is incorporated by
reference to Exhibit 3(ii) to its Form 10-Q, SEC File No. 33-37587, filed August
15, 1997.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
- -------------------------------------------------------------------------
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 81 pages.
The undertaking to file reports.
The representation with respect to charges.
The undertaking with respect to indemnification.
The signatures.
Written consents of the following persons:
1. 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) (a) Resolution of Board of Directors of Pruco Life Insurance
Company establishing the Pruco Life Variable Appreciable
Account. (Note 3)
(b) Amendment of Separate Account Resolution. (Note 8)
(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)
(d) Participation Agreements.
(i) AIM Variable Insurance Funds, Inc., AIM V.I. Value
Fund. (Note 8)
(ii) American Century Variable Portfolios, Inc., VP Value
Portfolio. (Note 8)
(iii) Janus Aspen Series, Growth Portfolio. (Note 8)
(iv) MFS Variable Insurance Trust, Emerging Growth Series.
(Note 8)
(v) T. Rowe Price International Series, Inc., International
Stock Portfolio. (Note 8)
(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 May 6,
1997. (Note 9)
(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
II-2
<PAGE>
6e-3(T)(b)(13)(v)(B). (Note 1 )
(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) 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 (Note 6)
(b) James M. Schlomann (Note 7)
(c) Kiyofumi Sakaguchi (Note 4)
(d) James J. Avery, Jr. (Note 8)
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 April 28, 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. 4 to Form S-
1, Registration No. 33-86780, filed April 9, 1998 on behalf of the
Pruco Life Variable Contract Real Property Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 2 to this
Registration Statement, filed June 25, 1997.
(Note 9) Incorporated by reference to Form 10-Q, Registration No. 033-37587,
filed August 15, 1997 on behalf of the Pruco Life Insurance Company.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life Variable Appreciable Account, certifies that this Amendment is filed
solely for one or more of the purposes specified in Rule 485(b)(1) under the
Securities Act of 1933 and that no material event requiring disclosure in the
prospectus, other than one listed in Rule 485(b)(1), has occurred since the
effective date of the most recent Post-Effective Amendment to the Registration
Statement which included a prospectus, and has caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal hereunto affixed and attested, all in the city of
Newark and the State of New Jersey, on this 24th day of April, 1998.
(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. 3 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 24th day of April,
1998.
SIGNATURE AND TITLE
-------------------
/s/ *
- ------------------------------------------
Esther H. Milnes
President and Director
/s/ *
- ------------------------------------------
James M. Schlomann
Chief Accounting Officer and Comptroller
/s/ *
- ------------------------------------------
James J. Avery, Jr.
Director
/s/ * *By: /s/ Thomas C. Castano
- ------------------------------------------ ------------------------
William M. Bethke Thomas C. Castano
Director (Attorney-in-Fact)
/s/ *
- ------------------------------------------
Ira J. Kleinman
Director
/s/ *
- ------------------------------------------
Mendel A. Melzer
Director
/s/ *
- ------------------------------------------
I. Edward Price
Director
/s/ *
- ------------------------------------------
Kiyofumi Sakaguchi
Director
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
Consent of Price Waterhouse LLP, independent accountants. Page II-6
Consent of Deloitte & Touche LLP, independent auditors. Page II-7
1.A.(12) Memorandum describing Prudential's issuance, transfer, and Page II-8
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).
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the Page II-18
legality of the securities being registered.
6. Opinion and Consent of Ching-Meei Chang, MAAA, FSA, as to actuarial Page II-19
matters pertaining to the securities being registered.
27. Financial Data Schedule. Page II-20
</TABLE>
II-5
<PAGE>
Exhibit 99.c1(a)
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this Post-
Effective Amendment No. 3 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated March 20, 1998, relating to the
financial statements of the Variable Universal Life Subaccounts of the 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 23, 1998, 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
New York, New York
April 24, 1998
II-6
<PAGE>
EXHIBIT 99.c1(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 3 to Registration
Statement No 333-07451 on Form S-6 of Pruco Life Variable Appreciable Account of
Pruco Life Insurance Company (1) of our report dated February 15, 1996, relating
to the financial statements of the Variable Universal Life Subaccounts of Pruco
Life Variable Appreciable Account, and (2) of our report dated December 19,
1996, relating to the consolidated financial statements of Pruco Life Insurance
Company and subsidiaries appearing in the Prospectus, which is part of such
Registration Statement, and (3) to the reference to us under the heading
"Experts" in such Prospectus.
/s/ Deloitte & Touche, LLP
Parsippany, New Jersey
April 24, 1998
II-7
<PAGE>
Exhibit 1.A.(12)
Description of Pruco Life's Issuance, Increases
in or Addition of Insurance Benefits,
Transfer and Redemption Procedures for
Variable Universal Life Insurance 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)
-------------------------------------
This document sets forth the administrative procedures that will be followed by
Pruco Life Insurance Company ("Pruco Life") in connection with the issuance of
its Variable Universal Life Insurance Contract ("Contract"), the increase in or
addition of benefits, the transfer of assets held thereunder, and the redemption
by Contract owners of their interests in said Contracts. The document also
explains the method that Pruco Life will follow in making a cash adjustment when
a Contract is exchanged for a fixed benefit insurance Contract pursuant to Rule
6e-3(T)(b)(13)(v)(B).
I. Procedures Relating to Issuance and Purchase of the Contracts and to the
------------------------------------------------------------------------
Increase in or Addition of Benefits
-----------------------------------
A. Premium Schedules and Underwriting Standards
--------------------------------------------
The Contract has Flexible Premiums - no premiums are required to be paid by a
certain date except for the minimum initial premium required to start the
Contract. The minimum initial premium for the Contract, and the charges from
the Contract Fund to reflect the cost of insurance, will not be the same for all
owners. Insurance is based on the principle of pooling and distribution of
mortality risks, which assumes that each owner is charged a cost commensurate
with the Insured's mortality risk as actuarially determined utilizing factors
such as age, sex (in most cases), smoking status, health and occupation. Uniform
premiums or charges for all Insureds would discriminate unfairly in favor of
those Insureds representing greater risks. However, for a given face amount of
insurance, Contracts issued on
II-8
<PAGE>
insureds in a given risk classification will have the same minimum initial
premium and charges.
The underwriting standards and premium processing practices followed by Pruco
Life are similar to those followed in connection with the offer and sale of
fixed-benefit life insurance, modified where necessary to meet the requirements
of the federal securities laws.
B. Application and Initial Premium Processing
------------------------------- ----------
Upon receipt of a completed application form from a prospective owner, Pruco
Life will follow certain insurance underwriting (i.e., evaluation of risk)
-----
procedures designed to determine whether the proposed Insured is insurable. The
process may involve such verification procedures as medical examinations and may
require that further information be provided by the proposed Insured before a
determination can be made. A Contract cannot be issued, i.e., physically issued
----
through Pruco Life's computerized issue system, until this underwriting
procedure has been completed.
These processing procedures are designed to provide immediate benefits to every
prospective owner who pays the minimum initial premium at the time the
application is submitted. Since a Contract cannot be issued until after the
underwriting process has been completed, we will provide immediate insurance
coverage through use of a Limited Insurance Agreement. This coverage is for the
total death benefit applied for, up to the maximum described by the Limited
Insurance Agreement.
The Contract Date is the date as of which the insurance age of the proposed
Insured is determined. It represents the first day of the Contract year and
therefore determines the Contract anniversary and also the Monthly dates. It
also represents the commencement of the suicide and contestable periods for
purposes of the Basic Insurance Amount.
Benefits begin to vary in accordance with the investment performance of the
selected investment option(s) on the later of the Contract Date and the date the
minimum initial premium is paid.
If the minimum initial premium is paid with the application and no medical
examination is required, the Contract Date will ordinarily be the date of the
application. If an unusual delay is encountered (for example, if a request for
further information is not met promptly), the Contract Date will be 21 days
prior to the date on which the Contract is physically issued. If an
II-9
<PAGE>
examination is required, the Contract Date will ordinarily be the date the
examination is completed, subject to the same qualification as that noted above.
If the premium paid with the application is less than the minimum initial
premium, the Contract Date will be determined as described above. Upon receipt
of the balance of the minimum initial premium, the total premiums received will
be applied as of the date that the minimum initial premium was satisfied.
If no premium is paid with the application, the Contract Date will be the
Contract Date stated in the Contract, which will generally be the date the
minimum initial premium is received from the owner and the Contract is
delivered.
There is one principal variation from the foregoing procedure.
If permitted by the insurance laws of the state in which the Contract is issued,
the Contract may be back dated up to six months, provided that the backdating
results in a lower insurance age for the Insured. In any event, the Contract
may not be backdated before the product introduction date.
In situations where the Contract Date precedes the date that the minimum initial
premium is received, charges due prior to the initial premium receipt date will
be deducted from the initial premium.
C. Premium Processing
------------------
Whenever a premium is received, Pruco Life will subtract the front-end charges.
What is left will be invested in the selected investment option(s). Premiums
other than those received prior to the Contract Date, will be invested (less
front-end charges) as of the date received (or, if that is not a business day,
as of the next business day).
D. Reinstatement
-------------
The Contract may be reinstated within five years after default (this period will
be longer if required by state law). The Contract will not be reinstated if it
was surrendered for its cash surrender value. A Contract will be reinstated
upon receipt by Pruco Life of a written application for reinstatement,
production of evidence of insurability satisfactory to Pruco Life and payment of
at least (a) any amount required to bring the cash value to zero on the date the
Contract went into default, plus (b) the deductions from the Contract Fund
during the grace period following the date of default, plus (c) a premium that
would be
II-10
<PAGE>
sufficient, after front-end charges, to cover the deductions from the Contract
Fund for three Monthly dates starting on the date of reinstatement. In addition,
any Contract debt (with interest to date) must be restored or paid back. If debt
with interest exceeds the value of a loan that we would otherwise permit on the
reinstated Contract, the excess must be paid back to Pruco Life at the time of
reinstatement.
Except for any such loan repayments, Pruco Life will treat the amount paid upon
reinstatement as a premium. It will deduct the front-end charges plus any
amount required to bring the cash value to zero on the date the Contract went
into default plus any deductions from the Contract Fund that would have been
made during the grace period. The Contract Fund of the reinstated Contract
will, immediately upon reinstatement, be equal to this net premium payment plus
the part of any surrender charge (consisting of a deferred sales charge and a
deferred administrative charge) deducted at the time of default which would have
been charged if the Contract were surrendered immediately after reinstatement.
The reinstatement will take effect as of the Monthly date that coincides with or
next follows the date Pruco Life approves the request for reinstatement.
There is an alternative to this reinstatement procedure that applies only if
reinstatement is requested within three months after the Contract went into
default. In such a case evidence of insurability may not be required and the
amount of the required payment will be an amount Pruco Life estimates will keep
the Contract inforce for three months from the date of default.
E. Repayment of Loan
-----------------
A loan made under the Contract may be repaid with an amount equal to the monies
borrowed plus interest which accrues daily at a fixed annual rate which depends
on whether the loan is a "regular loan" or "preferred loan." A regular loan is
available at any time and can equal up to the loan value (90% of the portion of
the cash value attributable to the variable investment options and 100% of the
balance of the cash value). The effective annual rate that we charge on regular
loans is 5%. A preferred loan is available starting on the tenth Contract
anniversary, and can equal up to the maximum amount that may still be borrowed
(loan value less existing loans) less cost basis (subject to a minimum of zero,
premiums paid less total withdrawals). The effective annual rate that we charge
on preferred loans is 4.5%. A regular loan remains a regular loan - it will not
automatically rollover when a preferred loan is available. However, any
capitalization
II-11
<PAGE>
of interest on a regular loan will be treated as a preferred loan IF the
conditions for a preferred loan are met.
When a loan is made, Pruco Life will transfer an amount equal to the loan from
the investment option(s). While a loan is outstanding, the amount of Contract
Fund attributable to the outstanding loans, whether they are regular loans or
preferred loans, will be credited with interest at an annual rate 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. Pruco Life thus will realize the difference between that rate and
the fixed loan interest rate(s), which will be used to cover the loan investment
expenses, income taxes, if any, and processing costs.
Upon repayment of Contract debt, the loan portion of the payment (i.e., not the
portion of the payment for accrued interest which has not yet been made part of
the loan) will be added to the investment option(s) using the investment
allocation currently in effect for premium payments, as selected by the Contract
owner. Pruco Life reserves the right to change the manner in which it allocates
loan repayments.
F. Increases in or Addition of Insurance Benefits
----------------------------------------------
After issue, Pruco Life may permit Owners to increase or add to the existing
insurance amounts in a way similar to our new business procedures outlined above
and in the prospectus.
II. Transfers
---------
Currently, fifteen subaccounts are available for investment by Contract owners
of Pruco Life Variable Appreciable Account ("Account"), each of which is
invested in shares of a corresponding portfolio of The Prudential Series Fund,
Inc. or other such funds which we specify ("Funds"). The Funds are registered
under the 1940 Act as open-end diversified management investment companies. In
addition, a fixed-rate option is available.
Provided the Contract is not in default, the owner may, up to twelve times in
each Contract year, transfer amounts from one subaccount to another subaccount
or to the fixed-rate option without charge. Additional transfers are subject to
an administrative charge deducted from the Contract Fund of up to $25. Pruco
Life currently charges $25. All or a portion of the amount credited to a
subaccount may be transferred.
II-12
<PAGE>
In addition, the entire amount of the Contract Fund may be transferred to the
fixed-rate option during the first two Contract years, or at any time
thereafter. Contract owners who wish to convert their variable contract to a
fixed-benefit contract in this manner must request a complete transfer of funds
to the fixed-rate option and should also change their allocation instructions
regarding any future premiums.
Transfers among subaccounts will take effect at the end of the valuation period
in which a proper transfer request is received
at a Pruco Life Home Office. The request may be in terms of dollars, such as a
request to transfer $5,000 from one subaccount to another, or may be in terms of
a percentage reallocation among subaccounts. In the latter case, as with
premium reallocations, the percentages must be in whole numbers.
Only one transfer from the fixed-rate option will be permitted during the
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. Pruco
Life may waive these restrictions for limited periods of time in a non-
discriminatory way.
III. "Redemption" Procedures: Surrender and Related Transactions
-----------------------------------------------------------
A. Surrender for Cash Surrender Value
----------------------------------
If the insured under a Contract is alive, Pruco Life will pay, within seven
days, the Contract's cash surrender value as of the date of receipt at its Home
Office of the Contract, a signed request for surrender, and any tax withholding
information required under federal or state law. Pruco Life reserves the right
to postpone paying that part of the cash surrender value that is to come from
any variable investment option (provided by a separate account registered under
the Investment Company Act of 1940) if; (1) the New York Stock Exchange is
closed; or (2) the SEC requires that trading be restricted or declares an
emergency. Pruco Life reserves the right to postpone paying the remainder for up
to six months. If this is done for more than thirty days, Pruco Life will pay
interest at the rate of 3% a year.
The Contract's cash surrender value is the Contract Fund, minus any surrender
charge, consisting of a deferred sales charge and a deferred administrative
charge, minus any Contract debt.
The deferred sales charge and deferred administrative charge are described in
the prospectus. The deferred administrative charge is designed to recover the
administrative expenses, such as
II-13
<PAGE>
underwriting expenses, incurred in connection with the issuance of a Contract.
As a result, in the early months after issue, there may be no cash surrender
value.
In lieu of the payment of the cash surrender value in a single sum upon
surrender of a Contract, an election may be made by the owner to apply all or a
portion of the proceeds under one of the fixed benefit settlement options
described in the Contract. The fixed benefit settlement options are subject to
the restrictions and limitations set forth in the Contract.
B. Withdrawals from the Contract Fund
----------------------------------
A withdrawal from the Contract may be made only if the following conditions are
satisfied. First, Pruco Life must receive a request for the withdrawal in a
form that meets its need. Second, the cash surrender value after withdrawal may
not be less than or equal to zero after deducting any charges associated with
the withdrawal. Third, the amount withdrawn must be at least $500. Fourth, the
basic insurance amount after withdrawal must be at least equal to the minimum
basic insurance amount shown in the Contract. There is a fee of up to $25 for
each withdrawal. We currently charge $10 for each withdrawal. An amount
withdrawn may not be repaid except as a premium subject to the Contract charges.
Whenever a withdrawal is made, the death benefit payable will immediately be
reduced by at least the amount of the withdrawal. This will not change the Basic
Insurance Amount (minimum face amount specified in the Contract) under a Type B
(variable) Contract. However, under a Type A (fixed) Contract, the resulting
reduction in death benefit usually requires a reduction in the Basic Insurance
Amount. No withdrawal will be permitted under a Type A (fixed) Contract if it
would result in a Basic Insurance Amount less than the minimum Basic Insurance
Amount of $250,000.
The Contract Fund is reduced by the sum of the cash withdrawn, any surrender
charge resulting from the withdrawal, and the fee for the withdrawal. An amount
equal to the reduction in the Contract Fund will be withdrawn from the
investment options.
C. Death Claims
------------
Pruco Life will pay a death benefit to the beneficiary at the insured's death if
the Contract is in force at the time of that death. The proceeds will be paid
within seven days after receipt at Pruco Life's Home Office of proof of death of
the Insured and
II-14
<PAGE>
all other requirements necessary to make payment. State insurance laws impose
various requirements, such as receipt of a tax waiver, before payment of the
death benefit may be made.
Pruco Life reserves the right to postpone payment of that part of the proceeds
that is to come from any variable investment option (provided by a separate
account registered under the Investment Company Act of 1940) if; (1) the New
York Stock Exchange is closed; or (2) the SEC requires that trading be
restricted or declares an emergency. Pruco Life reserves the right to postpone
paying the remainder for up to six months.
In addition, payment of the death benefit is subject to the provisions of the
Contract regarding suicide and incontestability. In the event Pruco Life should
contest the
validity of a death claim, an amount up to the portion of the Contract Fund in
the variable investment options will be withdrawn, if appropriate, and held in
Pruco Life's
general account.
If the Contract is not in default, the amount Pruco Life will pay will be the
death benefit determined as of the date of the Insured's death reduced by any
Contract debt.
There may be an additional amount payable from an extra benefit added to the
Contract by rider.
No death benefit is payable if the insured's death occurs past the grace period.
On any date, the death benefit under a Type A (fixed) Contract is the greater of
(1) the Basic Insurance Amount, and (2) the Contract Fund before deduction of
any monthly charges due on that date, multiplied by attained age factors. These
factors vary by the insured's attained age and are shown in the Contract.
On any date, the death benefit under a Type B (variable) Contract is the greater
of (1) the Basic Insurance Amount plus the Contract Fund before deduction of any
monthly charges due on that date, and (2) the Contract Fund before deduction of
any monthly charges due on that date, multiplied by attained age factors. These
factors vary by the insured's attained age and are shown in the Contract. For
the purposes of this calculation, the Contract Fund will be considered to be
zero if it is less than zero.
The proceeds payable on death also will generally include interest (at a rate
determined by Pruco Life) from the date of death until the date of payment.
However, state insurance laws may impose additional or different requirements.
II-15
<PAGE>
Pruco Life will make payment of the death benefit out of its general account,
and will transfer assets, if appropriate, from the Account to the general
account in an amount up to the Contract Fund.
In lieu of payment of the death benefit in a single sum, an election may be made
to apply all or a portion of the proceeds under one of the fixed benefit
settlement options described in the Contract or, with the approval of Pruco
Life, a combination of options. The election may be made by the owner during
the Insured's lifetime, or, at death, by the beneficiary. An option in effect at
death may not be changed to another form of benefit after death. The fixed
benefit settlement options are subject to the restrictions and limitations set
forth in the Contract.
D. Default and Options on Lapse
----------------------------
The Contract can go into default if either (1) the Contract debt ever grows to
be equal to or more than the cash value, or (2) on any Monthly date, the cash
value is equal to or less than zero UNLESS it remains in force under the Death
Benefit Guarantee. Monthly dates occur on the Contract Date and in each later
month on the same day of the month as the Contract Date. The Death Benefit
Guarantee will hold if the Contract has no excess Contract debt and if premiums
accumulated at 4% less withdrawals accumulated at 4% are greater than or equal
to values shown in the Contract (Limited Death Benefit Guarantee Values and
Lifetime Death Benefit Guarantee Values).
The Contract provides for a grace period extending 61 days after the mailing
date of the notice of default. The insurance coverage continues in force during
the grace period, but if the Insured dies during the grace period, any charges
due to the date of the death are deducted from the amount payable to the
beneficiary.
E. Loans
-----
The Contract provides that an owner may take out a loan at any time a loan value
is available providing (1) the Contract is assigned to Pruco Life as the only
security for the loan, (2) the Insured must be living, and (3) the resulting
Contract debt must not be more than the loan value (90% of the portion of the
cash value attributable to the variable investment options and 100% of the
balance of the cash value).
The investment options will be debited in the amount of the loan on the date the
loan is approved. The percentage of the loan
II-16
<PAGE>
withdrawn from each investment option will normally be equal to the percentage
of the value of such assets held in the investment option unless otherwise
requested and Pruco Life agreed. An owner may borrow up to the Contract's full
loan value. The loan provision is described in the Contract and in the
prospectus.
A loan does not affect charges. When a loan is made, the Contract Fund is not
reduced, but the value of the assets relating to the Contract held in the
investment option(s) is reduced. Accordingly, the daily changes in the cash
surrender value will be different from what they would have been had no loan
been taken. Cash surrender values, and possibly death benefits, are thus
permanently affected by any Contract debt, whether or not repaid.
The guaranteed minimum death benefit is not affected by Contract debt. However,
on settlement the amount of any Contract debt is subtracted from the insurance
proceeds. If Contract debt ever
becomes equal to or more than the cash value, all the Contract's benefits will
end 61 days after notice is mailed to the owner and any known assignee, unless
payment of an amount sufficient to end the default is made within that period.
IV. Cash Adjustment Upon Exchange of Contract
-----------------------------------------
As described previously, so long as the Contract is not in default, the Owner
may transfer all amounts in the variable investment options into the fixed-rate
option. This option is provided in lieu of the option to exchange to a
comparable fixed benefit life insurance contract.
This option is also available following any increase in or addition of benefits
under the Contract.
II-17
<PAGE>
EXHIBIT 3
April 24, 1998
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-18
<PAGE>
EXHIBIT 99.6
April 24, 1998
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.
3 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-19
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