AS FILED WITH THE SEC ON _______________. REGISTRATION NO. 2-89558
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-6
POST-EFFECTIVE AMENDMENT NO. 27
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
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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)
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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
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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. Pruco Life Variable Appreciable Account
6. Pruco Life Variable Appreciable Account
7. Not Applicable
8. Not Applicable
9. Litigation
10. Brief Description of the Contract; Short-Term
Cancellation Right, or "Free Look"; Contract Forms;
Transfers; How a Contract's Cash Surrender Value Will
Vary; How a Contract's Death Benefit Will Vary;
Surrender of a Contract; Withdrawal of Excess Cash
Surrender Value; When Proceeds are Paid; Contract
Loans; Lapse and Reinstatement; Options on Lapse;
Right to Exchange a Contract for a Fixed-Benefit
Insurance Policy; Contracts Issued In Connection With
Tax-Qualified Pension Plans; The Fixed-Rate Option;
Voting Rights; Substitution of Series Fund Shares;
Increases in Face Amount; Decreases in Face Amount
11. Brief Description of the Contract; Pruco Life Variable
Appreciable Account
12. Cover Page; Brief Description of the Contract; The
Prudential Series Fund Inc.; Sale of the Contract and
Sales Commissions
13. Brief Description of the Contract; The Prudential Series
Fund, Inc.; Premiums; Allocation of Premiums; Charges
and Expenses; Reductions of Charges for Concurrent Sales
to Several Individuals; Sale of the Contract and Sales
Commissions
14. Brief Description of the Contract; Detailed Information
for Prospective Contract Owners
15. Brief Description of the Contract; Premiums; Allocation
of Premiums; Transfers; The Fixed Rate Option
16. Brief Description of the Contract; Detailed Information
for Prospective Contract Owners
17. Surrender of a Contract; Withdrawal of Excess Cash
Surrender Value; When Proceeds are Paid
18. Pruco Life Variable Appreciable Account; How a
Contract's Cash Surrender Value Will Vary
19. Reports to Contract Owners
20. Not Applicable
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
21. Contract Loans
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions; The Prudential Series
Fund, Inc.
25. Pruco Life Insurance Company; The Prudential Series
Fund, Inc.
26. Brief Description of the Contract; The Prudential Series
Fund, Inc.; Charges and Expenses
27. Pruco Life Insurance Company
28. Pruco Life Insurance Company; Directors and Officers
29. Pruco Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Pruco Life Insurance Company
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions
39. Sale of the Contract and Sales Commissions
40. Not Applicable
41. Sale of the Contract and Sales Commissions
42. Not Applicable
43. Not Applicable
44. Brief Description of the Contract; The Prudential Series
Fund, Inc.; How a Contract's Cash Surrender Value Will
Vary; How a Contract's Death Benefit Will Vary
45. Not Applicable
46. Brief Description of the Contract; Pruco Life Variable
Appreciable Account; The Prudential Series Fund, Inc.
47. Pruco Life Variable Appreciable Account
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Series Fund Shares
53. Tax Treatment of Contract Benefits
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements; Financial Statements of Pruco Life
Variable Appreciable Account; Consolidated Financial
Statements of Pruco Life Insurance Company and
Subsidiaries
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
PRUCO LIFE'S
VARIABLE APPRECIABLE LIFE (R)
INSURANCE
PROSPECTUS
THE PRUCO LIFE
VARIABLE APPRECIABLE
ACCOUNT
MAY 1, 1998
PRUCO LIFE INSURANCE COMPANY
<PAGE>
PROSPECTUS
MAY 1, 1998
PRUCO LIFE INSURANCE COMPANY
VARIABLE APPRECIABLE ACCOUNT
VARIABLE
APPRECIABLE
LIFE(R)=============
INSURANCE CONTRACTS
This prospectus describes certain variable life insurance contracts issued by
Pruco Life Insurance Company ("Pruco Life"), a stock life insurance company that
is a wholly-owned subsidiary of The Prudential Insurance Company of America
("Prudential"). Pruco Life calls these contracts its Variable APPRECIABLE
LIFE(R) Insurance Contracts* (the "Contract"). As of May 1, 1992, these
Contracts are no longer available for sale. These Contracts provide whole-life
insurance protection. That is, they provide lifetime insurance coverage, as long
as scheduled premiums are paid or charges are provided for by favorable
investment experience. They also generally provide a cash surrender value for
the owner if the Contract is terminated during the insured's lifetime. A
purchaser may choose one form of this Contract which provides a death benefit
that remains fixed in the amount initially selected (unless it is increased by
Pruco Life to ensure that the Contract maintains its status as life insurance
under the Internal Revenue Code) or a second form which provides a death benefit
that varies daily with the investment performance of the subaccounts of the
Pruco Life Variable Appreciable Account (the "Account") to which the owner
allocates the invested portion of the premiums. Even under the second form of
Contract, however, investment performance cannot cause the death benefit to be
less than a guaranteed minimum amount (the face amount specified in the
Contract). The cash surrender value of a Contract generally increases with the
payment of each premium, and it also varies daily with investment performance.
The cash surrender value also decreases to reflect the imposition of charges.
There is no guaranteed minimum cash surrender value.
A portion of the Contract's premiums and the earnings on those premiums will be
held in one or more of the following ways. They can be invested in one or more
of thirteen current subaccounts of the Account. They can be allocated to a
FIXED-RATE OPTION. Or, they can be invested in the Pruco Life Variable Contract
Real Property Account (the "REAL PROPERTY ACCOUNT") which is described in a
prospectus that is attached to this one. If one or more of the subaccounts is
chosen, the assets of each subaccount will be invested in a corresponding
portfolio of The Prudential Series Fund, Inc. (the "Series Fund"). The attached
prospectus for the Series Fund and its statement of additional information
describe the investment objectives of and the risks of investing in the thirteen
portfolios of the Series Fund currently available to Contract owners: the MONEY
MARKET PORTFOLIO, the DIVERSIFIED BOND PORTFOLIO, the GOVERNMENT INCOME
PORTFOLIO, the CONSERVATIVE BALANCED PORTFOLIO, the FLEXIBLE MANAGED PORTFOLIO,
the HIGH YIELD BOND PORTFOLIO, the STOCK INDEX PORTFOLIO, the EQUITY INCOME
PORTFOLIO, the EQUITY PORTFOLIO, the PRUDENTIAL JENNISON PORTFOLIO, the SMALL
CAPITALIZATION STOCK PORTFOLIO, the GLOBAL PORTFOLIO, and the NATURAL RESOURCES
PORTFOLIO. Other subaccounts and portfolios may be added in the future. Interest
is credited daily upon any portion of the premium payment allocated to the
fixed-rate option at rates periodically declared by Pruco Life in its sole
discretion but never less than 4%. This prospectus describes the Contracts
generally and the Pruco Life Variable Appreciable Account.
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.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ATTACHED TO
A CURRENT PROSPECTUS FOR THE PRUDENTIAL SERIES FUND, INC. AND A CURRENT
PROSPECTUS FOR THE PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 437-4016
*APPRECIABLE LIFE is a registered mark of Prudential.
<PAGE>
PROSPECTUS CONTENTS
PAGE
----
BRIEF DESCRIPTION OF THE CONTRACT........................................... 1
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, PRUCO LIFE
VARIABLE APPRECIABLE ACCOUNT, AND THE VARIABLE INVESTMENT
OPTIONS AVAILABLE UNDER THE CONTRACT...................................... 4
PRUCO LIFE INSURANCE COMPANY.............................................. 4
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT................................... 4
THE PRUDENTIAL SERIES FUND, INC........................................... 4
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT........................ 5
WHICH INVESTMENT OPTION SHOULD BE SELECTED................................ 5
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS........................ 6
REQUIREMENTS FOR ISSUANCE OF A CONTRACT................................... 6
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK".............................. 6
CONTRACT FORMS............................................................ 6
PREMIUMS ................................................................. 7
CONTRACT DATE............................................................. 9
ALLOCATION OF PREMIUMS.................................................... 9
TRANSFERS................................................................. 10
CHARGES AND EXPENSES...................................................... 11
REDUCTION OF CHARGES FOR CONCURRENT SALES TO SEVERAL INDIVIDUALS.......... 15
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY........................... 15
HOW A CONTRACT'S DEATH BENEFIT WILL VARY.................................. 15
WHEN A CONTRACT BECOMES PAID-UP........................................... 17
FLEXIBILITY AS TO PAYMENT OF PREMIUMS..................................... 17
SURRENDER OF A CONTRACT................................................... 17
WITHDRAWAL OF EXCESS CASH SURRENDER VALUE................................. 18
INCREASES IN FACE AMOUNT.................................................. 18
DECREASES IN FACE AMOUNT.................................................. 20
LAPSE AND REINSTATEMENT................................................... 20
WHEN PROCEEDS ARE PAID.................................................... 20
LIVING NEEDS BENEFIT...................................................... 21
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND
ACCUMULATED PREMIUMS.................................................... 21
CONTRACT LOANS............................................................ 23
REPORTS TO CONTRACT OWNERS................................................ 24
OPTIONS ON LAPSE.......................................................... 24
RIGHT TO EXCHANGE A CONTRACT FOR A FIXED-BENEFIT INSURANCE POLICY......... 24
SALE OF THE CONTRACT AND SALES COMMISSIONS................................ 25
TAX TREATMENT OF CONTRACT BENEFITS........................................ 25
WITHHOLDING............................................................... 26
CONTRACTS ISSUED IN CONNECTION WITH TAX-QUALIFIED PENSION PLANS........... 27
THE FIXED-RATE OPTION..................................................... 27
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS....... 28
OTHER GENERAL CONTRACT PROVISIONS......................................... 28
RIDERS ................................................................. 28
VOTING RIGHTS............................................................. 29
SUBSTITUTION OF SERIES FUND SHARES........................................ 29
STATE REGULATION.......................................................... 29
EXPERTS ................................................................. 30
LITIGATION................................................................ 30
YEAR 2000 COMPLIANCE...................................................... 30
ADDITIONAL INFORMATION.................................................... 30
FINANCIAL STATEMENTS...................................................... 31
DIRECTORS AND OFFICERS...................................................... 32
<PAGE>
PAGE
----
FINANCIAL STATEMENTS OF PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT............. A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY
AND SUBSIDIARIES.......................................................... B1
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FOR THE
SERIES FUND, AND THE PROSPECTUS FOR THE REAL PROPERTY ACCOUNT.
<PAGE>
BRIEF DESCRIPTION OF THE CONTRACT
The Variable APPRECIABLE LIFE Insurance Contracts (the "Contract") described in
this prospectus are in many respects similar to conventional "fixed-benefit"
whole-life insurance. Like conventional whole-life insurance, the Contracts
provide a guaranteed death benefit for the insured's lifetime if scheduled
premiums are paid; due to the pooling of mortality risks, this death benefit is
many times the scheduled annual premium. The Contracts also have similarities to
what have become generally known as "universal life" insurance policies. Like
universal life insurance policies, the Contracts permit an owner considerable
flexibility in paying premiums and adjusting the face amount of insurance. To a
significant extent the Contracts provide features and choices for the Contract
owner that differ from those provided by either of those types of life insurance
policies. As of May 1, 1992, these Contracts are no longer available for sale.
The Contracts are first and foremost life insurance. They provide insurance
protection for the entire lifetime of the insured. But the Contracts also have
significant and useful investment features. The Contract owner decides in which
investment option[s] the amounts held under the Contract--derived from the
payment of premiums and the earnings thereon--will be invested, and the cash
surrender value of the Contract will increase with favorable investment
experience and decrease with unfavorable investment experience. The cash
surrender value of a Contract also reflects the imposition of the various
Contract charges. The Contract owner will be able, from time to time, to
reallocate and transfer amounts invested under the Contract among the various
subaccounts, the fixed-rate option, and the Real Property Account.
The owner may choose either of two Contract Forms. Under Contract Form A, the
death benefit remains fixed in amount (unless the Contract becomes paid-up or,
under a newer version of the Contract that first began to be sold in most
jurisdictions in September of 1986, unless the death benefit is increased to
ensure that the Contract continues to satisfy the Internal Revenue Code's
definition of life insurance) and only the cash surrender value will vary with
investment experience. Under Contract Form B, both the death benefit and the
cash surrender value will vary with investment experience, but the death benefit
will never be less than the face amount regardless of investment experience.
There is no minimum cash surrender value under either form of the Contract.
(Throughout this prospectus, unless we specifically state otherwise, all
descriptions of and references to the "Contract" apply to both old and new Form
A and Form B Contracts.)
There is a special feature applicable to Contracts issued on insureds who are 14
years of age or less. Under such Contracts, the face amount increases to 150% of
the initial face amount on the first Contract anniversary after the insured
reaches the age of 21, provided the Contract is not then in default. This new
face amount becomes the new guaranteed minimum death benefit. In addition, in
those states where it is approved, a Contract owner may have the right under
certain conditions to increase or decrease the face amount of insurance. In the
case of an increase in face amount, one of the conditions is the provision of
evidence of insurability satisfactory to Pruco Life Insurance Company ("Pruco
Life"). See INCREASES IN FACE AMOUNT, page 18 and DECREASES IN FACE AMOUNT, page
20.
One significant feature of the Contract is the flexibility it provides the
Contract owner with respect to the payment of premiums. Each Contract has a
scheduled premium payable annually, semi-annually, quarterly or monthly. But the
Contract owner is generally permitted, within very broad limits, to pay greater
than scheduled premiums and the net portion of such payments will promptly be
invested in the manner previously selected by the owner. Cash surrender values
will generally be increased whenever premiums are paid; and unless earlier
unfavorable investment experience must first be offset, the amount payable upon
death under Contract Form B will also generally be increased by the payment of
premiums. Subsequent values under the Contract will increase or decrease with
subsequent investment experience to reflect the amounts invested under the
Contract.
As long as scheduled premiums are paid on or before the due dates (or within a
61-day grace period after the scheduled due date) and missed premiums are made
up later with interest, the Contract will not lapse, even if investment
experience is unfavorable. Thus, the payment of scheduled premiums guarantees
insurance protection at least equal to the face amount of the Contract.
However, the failure to pay a minimum scheduled premium will not necessarily
result in lapse of the Contract. If the net investment experience has been
greater than the 4% assumed net rate of return used by Pruco Life's actuaries in
designing this Contract, with a consequent increase in the amount invested under
the Contract, and the Contract owner then fails to pay premiums when due, Pruco
Life will use the "excess" amount to pay the charges due under the Contract and
thus keep the Contract in force. See LAPSE AND REINSTATEMENT, page 20. In this
case, so long as the excess amount is sufficient, the Contract will not lapse
despite the owner's failure to pay scheduled premiums.
The amount of the scheduled premium, for a specific face amount of insurance,
depends upon the insured's sex (except where unisex rates apply), age at issue,
and risk classification. The scheduled premium cannot be
1
<PAGE>
increased until the Contract anniversary after the insured's 65th birthday or,
if later, 10 years from the date the Contract is issued. A new, higher scheduled
premium, called the "second premium amount," is payable after this period. The
second premium amount will be stated in each Contract. It is calculated on the
assumptions that only scheduled premiums have been paid, and they have been paid
when due, that maximum mortality charges (covering the cost of insurance for the
period in question) and expense charges have been deducted, and that the net
investment return upon the amount invested under the Contract has been equal to
the 4% assumed net rate of return. If the amount invested under the Contract is
higher than would be the case if the above conservative assumptions are borne
out by experience, which currently appears to be a reasonable expectation,
premiums after the insured's 65th birthday (or at 10 years after the issue date,
if later) will be lower than the second premium amount stated in the Contract
(and may or may not be higher than the initial scheduled premium).
In some cases the payment of greater than scheduled premiums or favorable
investment experience may result in the Contract becoming paid-up so that no
further premium payments will be necessary. If this happens, Pruco Life may
refuse to accept any further premium payments. If a Contract becomes paid-up,
the death benefit then in force becomes the guaranteed minimum death benefit;
apart from this guarantee, the death benefit and the cash surrender value of the
paid-up Contract will thereafter vary daily to reflect the investment experience
of amounts invested under the Contract. Contracts sold beginning in September of
1986 in jurisdictions where all necessary approvals have been obtained will no
longer become paid-up. Instead, the death benefit will be increased so that it
is always at least as great as the Contract fund divided by the net single
premium for the insured's attained age at such time. See HOW A CONTRACT'S DEATH
BENEFIT WILL VARY, page 15. The term "Contract fund" refers generally to the
total amount invested under the Contract and is defined under CHARGES AND
EXPENSES on page 11. The term "net single premium," the factor which determines
how much the death benefit will increase for a given increase in the Contract
fund, is defined and illustrated under item 2 of HOW A CONTRACT'S DEATH BENEFIT
WILL VARY on page 15. Whenever the death benefit is determined in this way,
Pruco Life reserves the right to refuse to accept further premium payments,
although in practice the payment of the lesser of 2 years' scheduled premiums or
the average of all premiums paid over the last 5 years will generally be
allowed.
There are circumstances, such as the payment of premiums substantially in excess
of scheduled premiums, under which the Contract may become a Modified Endowment
Contract under federal tax law. If it does, loans and other pre-death
distributions are includible in gross income on an income-first basis. A 10%
penalty tax may be imposed on income distributed before the insured attains age
59 1/2. Prospective purchasers and Contract owners are advised to consult a
qualified tax advisor before taking steps that may affect whether the Contract
becomes a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS,
page 25.
The owner of a Contract chooses the investment subaccount[s] of Pruco Life's
Variable Appreciable Account (the "Account") in which the assets related to the
Contract will be held. At present there are thirteen subaccounts. Each is
currently invested in a corresponding portfolio of The Prudential Series Fund,
Inc. (the "Series Fund"), a series mutual fund to which The Prudential Insurance
Company of America ("Prudential") acts as investment advisor. The MONEY MARKET
PORTFOLIO is invested in short-term debt obligations similar to those purchased
by money market funds; the DIVERSIFIED BOND PORTFOLIO is invested primarily in
high quality medium-term corporate and government debt securities; the
GOVERNMENT INCOME PORTFOLIO is invested primarily in U.S. Government securities
including intermediate and long-term U.S. Treasury securities and debt
obligations issued by agencies of or instrumentalities established, sponsored or
guaranteed by the U.S. Government; the CONSERVATIVE BALANCED PORTFOLIO is
invested in a mix of money market instruments, fixed income securities, and
common stocks, in proportions believed by the investment manager to be
appropriate for an investor who desires diversification of investment who
prefers a relatively lower risk of loss and a correspondingly reduced chance of
high appreciation; the FLEXIBLE MANAGED PORTFOLIO is invested in a mix of money
market instruments, fixed income securities, and common stocks, in proportions
believed by the investment manager to be appropriate for an investor desiring
diversification of investment who is willing to accept a relatively high level
of loss in an effort to achieve greater appreciation; the HIGH YIELD BOND
PORTFOLIO is invested primarily in high yield fixed income securities of medium
to lower quality, also known as high risk bonds; the STOCK INDEX PORTFOLIO is
invested in common stocks selected to duplicate the price and yield performance
of the Standard & Poor's 500 Composite Stock Price Index; the EQUITY INCOME
PORTFOLIO is invested primarily in common stocks and convertible securities that
provide favorable prospects for investment income returns above those of the
Standard & Poor's 500 Stock Index or the NYSE Composite Index; the EQUITY
PORTFOLIO is invested primarily in common stocks; the PRUDENTIAL JENNISON
PORTFOLIO is invested primarily in equity securities of established companies
with above-average growth prospects; the SMALL CAPITALIZATION STOCK PORTFOLIO is
invested primarily in equity securities of publicly-traded companies with small
market capitalization; the GLOBAL PORTFOLIO is invested in common stocks and
common stock equivalents (such as convertible debt securities) of foreign and
domestic issuers; and the NATURAL RESOURCES PORTFOLIO is invested primarily in
common stocks and convertible securities of natural resource companies, and in
securities (typically debt securities or preferred stock) the terms of which are
related to the market value of a natural resource; Further information about the
Series Fund portfolios can be found under THE PRUDENTIAL SERIES FUND, INC. on
page 4.
2
<PAGE>
The Contract owner may also choose to invest part of his or her net premiums in
the Pruco Life Variable Contract Real Property Account (the "Real Property
Account"), which, through a partnership, invests primarily in income-producing
real property. If a Contract owner elects to invest a portion of his or her net
premiums in the Real Property Account, the assets will be maintained in a
subaccount of the Real Property Account related to the Contract that provides
the mechanism and maintains the records whereby the various Contract charges are
made. The investment objectives of the Real Property Account and the partnership
are described briefly under PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
on page 5.
Because the assets that relate to the Contract are invested in these ways, the
Contract offers an opportunity for the cash surrender value to appreciate more
rapidly than it would under comparable fixed-benefit whole-life insurance. But
the owner must accept the risk that if investment performance of the chosen
option[s] is unfavorable the cash surrender value may not appreciate as rapidly
and, indeed, may decrease in value. Contract owners who prefer at any time to
accept a periodically declared fixed rate of return and avoid this risk may
choose a fixed-rate option. See THE FIXED-RATE OPTION, page 27.
Pruco Life deducts certain charges from each premium payment and from the
amounts held in the designated investment options. In addition, Pruco Life makes
certain additional charges if a Contract lapses or is surrendered during the
first 10 Contract years. All these charges, which are largely designed to cover
insurance costs and sales and administrative expenses, are fully described under
CHARGES AND EXPENSES on page 11. In brief, and subject to that fuller
description, the following charges may be made: (1) $2 is deducted from each
premium payment to cover premium collection and processing costs; (2) a sales
charge is deducted from each premium received in an amount up to 5% of the
portion of the premium remaining after the $2 processing charge has been
deducted (on a non-guaranteed basis, this charge is waived for premiums paid
after total premiums paid under the Contract exceed 5 years of scheduled
premiums on an annual basis); in addition, if the Contract lapses or is
surrendered during the first 10 years, a deferred sales charge is assessed; the
maximum deferred sales charge is 25% of the first year's scheduled premium and
5% of the scheduled premiums for the next 4 Contract years; beginning in the
eighth month of year 6 this charge is reduced monthly until it disappears after
year 10; (3) a premium tax charge (equal to 2.5% of the premium remaining after
the $2 processing charge has been deducted) is deducted from each premium
payment; (4) each month, the Contract fund is reduced by an administrative
charge of $2.50 per Contract and up to $0.02 per $1,000 of face amount of
insurance; (5) each month, the Contract fund is reduced by a guaranteed minimum
death benefit risk charge of not more than $0.01 per $1,000 of face amount of
insurance; (6) each month, a charge for anticipated mortality is deducted, with
the maximum charge based on the 1980 Commissioners Standard Ordinary Mortality
Table ("1980 CSO Table"); (7) a daily charge equivalent to an annual rate of
0.6% is deducted from the assets of the subaccounts for mortality and expense
risks; (8) if a Contract lapses or is surrendered during the first 10 years, a
contingent deferred administrative charge is assessed; during the first 5 years,
this charge equals $5 per $1,000 of face amount, and it begins to decline
monthly after the fifth Contract year, so that it disappears on the tenth
Contract anniversary; (9) an administrative processing charge equal to the
lesser of $15 or 2% of the amount withdrawn will be made in connection with each
withdrawal of excess cash surrender value; (10) if the Contract includes riders,
a monthly deduction from the Contract fund will be made for charges applicable
to those riders; a deduction will also be made if the rating class of the
insured results in an extra charge; and (11) certain fees and expenses are
deducted from the assets of the Series Fund and Real Property Account. Because
of these charges, and in particular because of the significant charges deducted
upon early surrender or lapse, prospective purchasers should purchase a Contract
only if they intend and have the financial capability to keep it in force for a
substantial period.
For a limited time, a Contract may be returned for a refund in accordance with
the terms of its "free look" provision. See SHORT-TERM CANCELLATION RIGHT OR
"FREE LOOK," page 6.
This Summary is intended to provide only a brief overview of the more
significant aspects of the Contract. Further detail is provided in this
prospectus and in the Contract document. That document, together with the
application attached to it, constitutes the entire agreement between the owner
and Pruco Life and should be retained.
3
<PAGE>
GENERAL INFORMATION ABOUT PRUCO LIFE
INSURANCE COMPANY, PRUCO LIFE VARIABLE
APPRECIABLE ACCOUNT, AND THE VARIABLE
INVESTMENT OPTIONS AVAILABLE UNDER THE
CONTRACT
PRUCO LIFE INSURANCE COMPANY
Pruco Life Insurance Company ("Pruco Life") is a stock life insurance company,
organized in 1971 under the laws of the State of Arizona. It is licensed to sell
life insurance and annuities in the District of Columbia, Guam, and in all
states except New York.
Pruco Life is a wholly-owned subsidiary of 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.
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 thirteen subaccounts within the
Account, each of which invests in a single corresponding portfolio of the Series
Fund. Additional subaccounts may be added in the future. The Account's financial
statements begin on page A1.
THE PRUDENTIAL SERIES FUND, INC.
The Prudential Series Fund, Inc. (the "Series Fund") is registered under the
1940 Act as an open-end diversified management investment company. Its shares
are currently sold only to separate accounts of Prudential and certain other
insurers that offer variable life insurance and variable annuity contracts. On
October 31, 1986, the Pruco
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Life Series Fund, Inc., an open-end diversified management investment company
which sold its shares only to separate accounts of Pruco Life and Pruco Life
Insurance Company of New Jersey, was merged into the Series Fund. Prior to that
date, the Account invested only in shares of Pruco Life Series Fund, Inc. The
Account will purchase and redeem shares from the Series Fund at net asset value.
Shares will be redeemed to the extent necessary for Pruco Life to provide
benefits under the Contracts and to transfer assets from one subaccount to
another, as requested by Contract owners. Any dividend or capital gain
distribution received from a portfolio of the Series Fund will be reinvested
immediately at net asset value in shares of that portfolio and retained as
assets of the corresponding subaccount.
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. Further detail is provided
in the prospectus and statement of additional information for the Series Fund.
Prudential, PIC, and Jennison are registered as investment advisors under the
Investment Advisers Act of 1940.
As an investment advisor, Prudential charges the Series Fund a daily investment
management fee as compensation for its services. In addition to the investment
management fee, each portfolio incurs certain expenses, such as accounting and
custodian fees. See CHARGES AND EXPENSES, page 11.
It is conceivable that in the future it may become disadvantageous for both
variable life insurance and variable annuity contract separate accounts to
invest in the same underlying mutual fund. Although neither the companies which
invest in the Series Fund, nor the Series Fund currently foresees any such
disadvantage, the Series Fund's Board of Directors intends to monitor events in
order to identify any material conflict between variable life insurance and
variable annuity contract owners and to determine what action, if any, should be
taken in response thereto. Material conflicts could result from such things as:
(1) changes in state insurance law; (2) changes in federal income tax law; (3)
changes in the investment management of any portfolio of the Series Fund; or (4)
differences between voting instructions given by variable life insurance and
variable annuity contract owners.
A FULL DESCRIPTION OF THE SERIES FUND, ITS INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, AND RESTRICTIONS, ITS EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN-INCLUDING ANY RISKS ASSOCIATED WITH INVESTMENT IN THE HIGH YIELD BOND
PORTFOLIO, AND ALL OTHER ASPECTS OF ITS OPERATION IS CONTAINED IN THE ATTACHED
PROSPECTUS FOR THE SERIES FUND AND IN ITS STATEMENT OF ADDITIONAL INFORMATION,
WHICH SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS. THERE IS NO ASSURANCE
THAT THE INVESTMENT OBJECTIVES WILL BE MET.
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
The Pruco Life Variable Contract Real Property Account (the "Real Property
Account") is a separate account of Pruco Life that, through a general
partnership formed by Prudential and two of its subsidiaries, invests primarily
in income-producing real property such as office buildings, shopping centers,
agricultural land, hotels, apartments or industrial properties. It also invests
in mortgage loans and other real estate-related investments, including
sale-leaseback transactions. The objectives of the Real Property Account and the
partnership are to preserve and protect capital, provide for compounding of
income as a result of reinvestment of cash flow from investments, and provide
for increases over time in the amount of such income through appreciation in the
value of its assets.
The partnership has entered into an investment management agreement with
Prudential, under which Prudential selects the properties and other investments
held by the partnership. Prudential charges the partnership a daily fee for
investment management which amounts to 1.25% per year of the average daily gross
assets of the partnership.
A FULL DESCRIPTION OF THE REAL PROPERTY ACCOUNT, ITS MANAGEMENT, POLICIES, AND
RESTRICTIONS, ITS CHARGES AND EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN, THE PARTNERSHIP'S INVESTMENT OBJECTIVES, AND ALL OTHER ASPECTS OF THE
REAL PROPERTY ACCOUNT'S AND THE PARTNERSHIP'S OPERATIONS IS CONTAINED IN THE
ATTACHED PROSPECTUS FOR THE REAL PROPERTY ACCOUNT, WHICH SHOULD BE READ TOGETHER
WITH THIS PROSPECTUS BY ANY CONTRACT OWNER CONSIDERING THE REAL ESTATE
INVESTMENT OPTION. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVES WILL BE
MET.
WHICH INVESTMENT OPTION SHOULD BE SELECTED
A broad objective of the Contract is to provide benefits that will increase in
value if favorable investment results are achieved. Contract owners have a large
number of options as to how the amounts credited to their Contracts will be
invested. Historically, for investments held over relatively long periods, the
investment performance of common stocks has generally been superior to that of
short or long-term debt securities, even though common
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stocks have been subject to much more dramatic changes in value over short
periods of time. Accordingly, the Stock Index, Equity Income, the Equity,
Prudential Jennison, Small Capitalization Stock, Global or Natural Resources
Portfolios, may be desirable options for Contract owners who are willing to
accept such volatility in their Contract values. Each of these equity portfolios
involves somewhat different investment risks, policies, and programs.
Some Contract owners may prefer the somewhat greater protection against loss of
principal (and reduced chance of high total return) provided by the Government
Income or Diversified Bond Portfolios, while others, who desire even greater
safety of principal, may prefer the Money Market Portfolio or the fixed-rate
option, recognizing that the level of short-term rates may change rather
rapidly. Contract owners not interested in common stocks but willing to take
risks and seeking the possibility of a high total return may prefer the High
Yield Bond Portfolio, recognizing that with higher yielding, lower quality bonds
the risks are greater. Some Contract owners may wish to divide their funds among
two or more of the portfolios. Some may wish to obtain diversification by
relying on Prudential's judgment for an appropriate asset mix by choosing one of
the Balanced Portfolios. The Real Property Account permits a Contract owner to
diversify his or her investment under the Contract to include an interest in a
pool of income-producing real property, and real estate is often considered to
be a hedge against inflation.
Each Contract owner must make his or her own choice that takes into account how
willing he or she is to accept investment risks, the manner in which his or her
other assets are invested, and his or her own predictions about what investment
results are likely to be in the future. Prudential recommends against frequent
transfers among the several options as experience generally indicates that
"market timing" investing, particularly by non-professional investors, is likely
to prove unsuccessful.
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT
OWNERS
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
As of May 1, 1992, these Contracts are no longer available for sale. Generally,
the minimum initial guaranteed death benefit that can be applied for is $60,000.
However higher minimums apply to insureds over the age of 75. Insureds 14 years
of age or less may apply for a minimum initial guaranteed death benefit of
$40,000. The Contract may generally be issued on insureds below the age of 81.
Before issuing any Contract, Pruco Life requires evidence of insurability which
may include a medical examination. Non-smokers who meet preferred underwriting
requirements are offered the most favorable premium rate. A higher premium is
charged if an extra mortality risk is involved. Certain classes of Contracts,
for example a Contract issued in connection with a tax-qualified pension plan,
may be issued on a "guaranteed issue" basis and may have a lower minimum initial
death benefit than a Contract which is individually underwritten. These are the
current underwriting requirements. The Company reserves the right to change them
on a non-discriminatory basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, a Contract may be returned for a refund within 10 days after it is
received by the Contract owner, within 45 days after Part I of the application
for insurance is signed or within 10 days after Pruco Life mails or delivers a
Notice of Withdrawal Right, whichever is latest. Some states allow a longer
period of time during which a Contract may be returned for a refund. A refund
can be requested by mailing or delivering the Contract to the representative who
sold it or to the Home Office specified in the Contract. A Contract returned
according to this provision shall be deemed void from the beginning. The
Contract owner will then receive a refund of all premium payments made, plus or
minus any change due to investment experience. However, if applicable law so
requires, the Contract owner who exercises his or her short-term cancellation
right will receive a refund of all premium payments made, with no adjustment for
investment experience.
CONTRACT FORMS
A purchaser may select either of two forms of the Contract. The scheduled
premium for the Contract will be the same for a given insured, regardless of
which Contract Form is chosen. Contract Form A has a death benefit equal to the
initial face amount of insurance. The death benefit of a Form A Contract does
not vary with the investment performance of the investment options selected by
the owner, unless the Contract becomes paid-up or, under a revised version of
the Contract, unless the death benefit is increased to ensure that the Contract
meets the Internal Revenue Code's definition of life insurance. See HOW A
CONTRACT'S DEATH BENEFIT WILL VARY, page 15. Favorable investment results on the
assets related to the Contract and greater than scheduled premiums will
generally result in increases in the cash surrender value. See HOW A CONTRACT'S
CASH SURRENDER VALUE WILL VARY, page 15.
Contract Form B also has an initial face amount of insurance but favorable
investment performance and greater than scheduled premiums generally result in
an increase in the death benefit and, over time, in a lesser increase
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in the cash surrender value than under the Form A Contract. See HOW A CONTRACT'S
CASH SURRENDER VALUE WILL VARY, page 15 and HOW A CONTRACT'S DEATH BENEFIT WILL
VARY, page 15. Unfavorable investment performance will result in decreases in
the death benefit (but never below the face amount stated in the Contract) and
in the cash surrender value.
Both Form A and Form B Contracts covering insureds of 14 years of age or less
contain a special provision providing that the face amount of insurance will
automatically be increased, on the Contract anniversary after the insured's 21st
birthday, to 150% of the initial face amount, so long as the Contract is not
then in default. The death benefit will also usually increase, at the same time,
by the same dollar amount. In certain circumstances, however, it may increase by
a smaller amount. See WHEN A CONTRACT BECOMES PAID-UP, page 17 and HOW A
CONTRACT'S DEATH BENEFIT WILL VARY, page 15. This increase in death benefit will
also generally increase the net amount at risk under the Contract, thus
increasing the mortality charge deducted each month from amounts invested under
the Contract. See item 6 under CHARGES AND EXPENSES, page 11. The automatic
increase in the face amount of insurance may affect future premium payments if
the Contract owner wants to avoid the Contract being classified as a Modified
Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 25. A Contract
owner should consult his or her own tax advisor and Pruco Life representative
before making unscheduled premium payments.
Purchasers should select the Contract Form that best meets their needs and
objectives. All whole-life insurance provides both protection for beneficiaries
in the event of early death and the opportunity to accumulate savings for
possible use in later years--for such things as college tuition or supplementary
retirement income--when the need for insurance protection may be reduced. Pruco
Life's Variable APPRECIABLE LIFE Contract provides more flexible investment
opportunities than do more conventional life insurance policies because it
permits the owner to decide how the assets held under the Contract will be
invested, because it permits considerable flexibility in determining the amount
and timing of premium payments, because it permits adjustment of the face amount
of insurance (subject, in the case of an increase, to evidence of insurability),
and because favorable investment returns result in an increase in Contract
values. Purchasers who prefer to have favorable investment results and greater
than scheduled premiums emerge partly in the form of an increased death benefit
should choose Contract Form B. Purchasers who are satisfied with the amount of
their insurance coverage and wish to have favorable investment results and
additional premiums reflected to the maximum extent in increasing cash surrender
values should choose Contract Form A. See HOW A CONTRACT'S CASH SURRENDER VALUE
WILL VARY, page 15.
In choosing a Contract Form, purchasers should also consider whether they intend
to use the withdrawal feature. Purchasers of Form A Contracts should note that a
withdrawal may result in a portion of the surrender charge being deducted from
the Contract fund. Furthermore, a purchaser of a minimum face amount Form A
Contract cannot make withdrawals. Purchasers of Form B Contracts will not incur
a surrender charge for a withdrawal and are not restricted if they purchase a
minimum size Contract. See WITHDRAWAL OF EXCESS CASH SURRENDER VALUE, page 18.
Under the original versions of these Contracts, there are other distinctions
between the Contract Forms that may influence a purchaser's selection. Thus,
Contract Form A will become paid-up more rapidly than a comparable Form B
Contract. But owners of Form A Contracts should be aware that since premium
payments and favorable investment experience do not increase the death benefit
unless the Contract has become paid-up, the beneficiary will not benefit from
the possibility that the Contract will have a large cash surrender value at the
time of the insured's death.
Under a revised version of the Contract that was made available beginning in
September of 1986 in jurisdictions where it is approved, the Contract will never
become paid-up. Instead, the death benefit under these revised Contracts is
always at least as great as the Contract fund divided by the net single premium.
See HOW A CONTRACT'S DEATH BENEFIT WILL VARY, page 15. Thus, instead of becoming
paid-up, the Contract's death benefit will always be large enough to meet the
Internal Revenue Code's definition of life insurance. Whenever the death benefit
is determined in this way, Pruco Life reserves the right to refuse to accept
further premium payments, although in practice the payment of at least scheduled
premiums will be allowed.
PREMIUMS
Scheduled premiums on the Contract are payable during the insured's lifetime on
an annual, semi-annual, quarterly or monthly basis on due dates set forth in the
Contract. If paid more often than annually, the aggregate annual premium will be
higher to compensate Pruco Life both for the additional processing costs (see
item 1 under CHARGES AND EXPENSES, page 11) and for the loss of interest
(computed generally at an annual rate of 8%) incurred because premiums are paid
throughout rather than at the beginning of each Contract year. The premium
amount depends on the Contract's initial death benefit and the insured's age at
issue, sex (except where unisex rates apply), and risk classification. Contract
owners who pay premiums other than on a monthly basis will be notified, about 3
weeks before each due date, that a premium is due. Contract owners who pay
premiums monthly will receive each
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year a book with twelve coupons that will serve as a reminder. With Pruco Life's
consent, an owner may change the frequency of premium payments.
A Contract owner may elect to have monthly premiums paid automatically under the
"Pru-Matic Premium Plan" by pre-authorized transfers from a bank checking
account. Currently, Contract owners selecting the Pru-Matic Premium Plan on
Contracts issued after June 1, 1987 will have reduced current monthly expense
charges. See item 4 under CHARGES AND EXPENSES, page 11. Some Contract owners
may also be eligible to have monthly premiums paid by pre-authorized deductions
from an employer's payroll.
Each Contract sets forth two premium amounts. The initial premium amount is
payable on the Contract date (the date the Contract is issued, as noted in each
individual Contract) and on each subsequent due date until the Contract's
anniversary immediately following the insured's 65th birthday (or until the
Contract's tenth anniversary, if that is later). The second and higher premium
amount set forth in the Contract is payable on and after that anniversary (the
"premium change date"). However, if the amount invested under the Contract, net
of any excess premiums, is higher than it would have been had only scheduled
premiums been paid, had maximum contractual charges been deducted, and had only
an average net rate of return of 4% been earned, then the second premium amount
will be lower than the maximum amount stated in the Contract. Indeed, under the
original versions of these Contracts, if investment experience has been
favorable enough, the Contract may become paid-up before or by the premium
change date. Pruco Life reserves the right not to accept any further premium
payments on a paid-up Contract. Contract owners will be told what the amount of
the second premium will be.
Pruco Life designed the Contracts to include a premium change date, with
scheduled premiums potentially increasing after that date to a second premium
amount, in order to provide Contract owners with both the flexibility to pay
lower initial scheduled premiums and a guarantee of lifetime insurance coverage
if all scheduled premiums are paid. The tables on pages T1 through T4 show how
the second premium amount compares with the first premium amount under Contracts
and for different hypothetical investment results.
The following table shows, for two face amounts, representative initial
preferred rating and standard rating annual premium amounts under either Form A
or Form B Contracts issued on insureds who are not substandard risks:
- -----------------------------------------------------------------------------
| $60,000 FACE AMOUNT | $100,000 FACE AMOUNT
|-----------------------------|------------------------------
| PREFERRED | STANDARD | PREFERRED | STANDARD
- ----------------|--------------|--------------|--------------|---------------
MALE, AGE | | | |
35 | $ 554.80 | $ 669.40 | $ 902.00 | $1,093.00
AT ISSUE | | | |
- ----------------|--------------|--------------|--------------|---------------
FEMALE, | | | |
AGE 45 | $ 698.80 | $ 787.60 | $1,142.00 | $1,290.00
AT ISSUE | | | |
- ----------------|--------------|--------------|--------------|---------------
MALE, AGE | | | |
55 | $1,556.20 | $1,832.20 | $2,571.00 | $3,031.00
AT ISSUE | | | |
- -----------------------------------------------------------------------------
The following table compares annual and monthly premiums for insureds who are in
the preferred rating class. Note that in these examples the sum of 12 monthly
premiums for a particular Contract is approximately 105% to 109% of the annual
premium for that Contract.
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- ----------------------------------------------------------------------------
| $60,000 FACE AMOUNT | $100,000 FACE AMOUNT
|-----------------------------|----------------------------
| MONTHLY | ANNUAL | MONTHLY | ANNUAL
- -----------------|-------------|---------------|-------------|--------------
MALE, AGE | | | |
35 | $ 50.00 | $ 554.80 | $ 80.00 | $ 902.00
AT ISSUE | | | |
- -----------------|-------------|---------------|-------------|--------------
FEMALE, | | | |
AGE 45 | $ 62.60 | $ 698.80 | $101.00 | $1,142.00
AT ISSUE | | | |
- -----------------|-------------|---------------|-------------|--------------
MALE, AGE | | | |
55 | $136.40 | $1,556.20 | $224.00 | $2,571.00
AT ISSUE | | | |
- ----------------------------------------------------------------------------
If a Contract owner wishes, he or she may select a higher contemplated premium
than the scheduled premium. Pruco Life will bill the owner for the chosen
premium. In general, the regular payment of higher premiums will result in
higher cash surrender values and, at least under Form B, in higher death
benefits. Under the original versions of the Contracts, such payments may also
provide a means of obtaining a paid-up Contract earlier than if only scheduled
premiums are paid.
The payment of premiums substantially in excess of scheduled premiums may cause
the Contract to be classified as a Modified Endowment Contract for federal
income tax purposes. If this happens, loans and other distributions which would
otherwise not be taxable events may be subject to federal income taxation. See
TAX TREATMENT OF CONTRACT BENEFITS, page 25.
CONTRACT DATE
When the first premium payment is paid with the application for a Contract, the
Contract date will ordinarily be the later of the date of the application or the
date of any medical examination. In most cases no medical examination will be
necessary. If the first premium is not paid with the application, the Contract
date will ordinarily be 2 or 3 days after the application is approved by Pruco
Life so that it will coincide with or be shortly prior to the date on which the
first premium is paid. However, Pruco Life will under certain circumstances
permit a Contract to be back-dated but only to a date not earlier than six
months prior to the date of the application. It may be advantageous for a
Contract owner to have an earlier Contract date if that will result in the use
by Pruco Life of a lower attained age in determining the amount of the scheduled
premium. Pruco Life will require the payment of all premiums that would have
been due had the application date coincided with the back-dated Contract date.
The death benefit and cash surrender value under the Contract will be equal to
what they would have been had the Contract been issued on the Contract date, all
scheduled premiums been received on their due dates, and all Contract charges
been made. See CHARGES AND EXPENSES, page 11.
ALLOCATION OF PREMIUMS
On the Contract date a $2 processing charge is deducted from the initial premium
and up to 7.5% of the amount remaining is deducted to cover certain charges
(described in detail below), and the first monthly deductions are made (also
described below). The remainder of the initial scheduled premium will be
allocated among the subaccounts, the fixed-rate option or the Real Property
Account on the Contract date according to the desired allocation specified in
the application form. The invested portion of any part of the first premium in
excess of the scheduled initial premium, as well as the invested portion of all
subsequent premiums, are placed in the selected investment option[s] on the date
of receipt at a Home Office, but not earlier than the Contract date. Thus, to
the extent that the receipt of the first premium precedes the Contract date,
there will be a period during which the Contract owner's initial premium will
not be invested. The $2 per payment charge and up to 7.5% deduction also apply
to all subsequent premium payments; the remainder will be invested as of the end
of the valuation period in which it is received at a Home Office in accordance
with the allocation previously designated by the Contract owner. The "valuation
period" means the period of time from one determination of the value of the
amount invested in a subaccount to the next. Such determinations are made when
the net asset values of the portfolios of the Series Fund are calculated, which
is generally at 4:15 p.m. New York City time on each day during which the New
York Stock Exchange is open. Provided the Contract is not in default, the
Contract owner may change the way in which subsequent premiums are allocated by
giving written notice to a Home Office or by telephoning that Home Office,
provided the Contract owner is enrolled to use the Telephone Transfer System.
There is no charge for reallocating future premiums among the investment
options. If any portion of a premium is allocated to a particular subaccount, to
the fixed-rate option or to the Real Property Account, that portion must be at
least
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10% on the date the allocation takes effect. All percentage allocations must be
in whole numbers. For example, 33% can be selected but 33 1/3% cannot. Of
course, the total allocation of all selected investment options must equal 100%.
Additionally, a feature called Dollar Cost Averaging ("DCA") is available to
Contract owners. Under this feature, premiums may be allocated to the portion of
the Money Market subaccount used for this feature (the "DCA account"), and
designated dollar amounts will be transferred monthly from the DCA account to
other investment options available under the Contract, excluding the Money
Market subaccount and the fixed-rate option, but including the Real Property
Account. Automatic monthly transfers must be at least 3% of the amount allocated
to the DCA account (that is, if $5,000 is designated, the minimum monthly
transfer is $150), with a minimum of $20 transferred into any one investment
option. These amounts are subject to change at Pruco Life's discretion. The
minimum transfer amount will only be recalculated if the amount designated for
transfer is increased.
Currently, the amount initially designated to DCA must be at least $2,000. This
minimum is subject to change at Pruco Life's discretion. After DCA has been
established and as long as the DCA account has a positive balance, Contract
owners may allocate or transfer amounts to the DCA account, subject to the
limitations on premium payments and transfers generally. In addition, if
premiums are paid on an annual or semi-annual basis, and the Contract owner has
already established DCA, the premium allocation instructions may include an
allocation of all or a portion of all your premium payments to the DCA account.
Each automatic monthly transfer will take effect as of the end of the valuation
period on the Monthly Date (i.e. the Contract Date and the same date in each
subsequent month), provided the New York Stock Exchange ("NYSE") is open on that
date. If the NYSE is not open on the Monthly Date, the transfer will take effect
as of the end of the valuation period on the next day that the NYSE is open. If
the Monthly Date does not occur in a particular month (e.g., February 30), the
transfer will take effect as of the end of the valuation period on the last day
of that month that the NYSE is open. Automatic monthly transfers will continue
until the balance in the DCA account reaches zero, or until the Contract owner
gives notification of a change in allocation or cancellation of the feature. If
the Contract has outstanding premium allocation to the DCA account, but the DCA
option has previously been canceled, premiums allocated to the DCA account will
be allocated to the Money Market subaccount. Currently, there is no charge for
using the DCA feature.
TRANSFERS
Provided the Contract is not in default or is in force as variable reduced
paid-up insurance (see OPTIONS ON LAPSE, page 24), the owner may, up to four
times in each Contract year, transfer amounts from one subaccount to another
subaccount, to the fixed-rate option or to the Real Property Account. Currently,
you may make additional transfers with our consent. There is no charge. All or a
portion of the amount credited to a subaccount may be transferred.
In addition, the entire amount of the Contract fund (described in detail below)
may be transferred to the fixed-rate option at any time during the first 2
Contract years. A Contract owner who wishes to convert his or her variable
contract to a fixed-benefit contract in this manner must request a complete
transfer of funds to the fixed-rate option and should also change his or her
allocation instructions regarding any future premiums.
Transfers among subaccounts will take effect as of the end of the valuation
period in which a proper transfer request is received at a Home Office. The
request may be in terms of dollars, such as a request to transfer $10,000 from
one subaccount to another, or may be in terms of a percentage reallocation among
subaccounts. In the latter case, as with premium reallocations, the percentages
must be in whole numbers. The Contract owner may transfer amounts by proper
written notice to a Home Office or by telephone, provided the Contract owner is
enrolled to use the Telephone Transfer System. A Contract owner will
automatically be enrolled to use the Telephone Transfer System unless the
Contract is jointly owned or the Contract owner elects not to have this
privilege. Telephone transfers may not be available on policies that are
assigned, see ASSIGNMENT, page 28, depending on the terms of the assignment.
Pruco Life has adopted procedures designed to ensure that requests by telephone
are genuine. Pruco Life will not be held liable for following telephone
instructions that it reasonably believes to be genuine. Pruco Life cannot
guarantee that owners will be able to get through to complete a telephone
transfer during peak periods such as periods of drastic economic or market
change.
Transfers from the fixed-rate option to other investment options are currently
permitted once each Contract year and only during the 30-day period beginning on
the Contract anniversary. The maximum amount which may currently be transferred
out of the fixed-rate option each year is the greater of: (a) 25% of the amount
in the fixed-rate option, or (b) $2,000. Such transfer requests received prior
to the Contract anniversary will be effected on the Contract anniversary.
Transfer requests received within the 30-day period beginning on the Contract
anniversary will be effected as of the end of the valuation period in which a
proper transfer request is received at a Home Office. These limits are subject
to change in the future. Transfers to and from the Real Property Account are
subject to restrictions described in the attached prospectus for the Real
Property Account.
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<PAGE>
Pruco Life may, on a non-discriminatory basis, permit the owner of an
APPRECIABLE LIFE insurance policy issued by Pruco Life (this fixed-benefit
policy is briefly described under RIGHT TO EXCHANGE A CONTRACT FOR A
FIXED-BENEFIT INSURANCE POLICY on page 24) to exchange his or her policy for a
comparable Variable APPRECIABLE LIFE Contract with the same Contract date,
scheduled premiums, and Contract fund. No charge will be made for the exchange.
There is no new "free look" right when an APPRECIABLE LIFE contract owner elects
to exchange his or her policy for a comparable Variable APPRECIABLE LIFE
Contract.
Although Pruco Life does not give tax advice, Pruco Life does believe, based on
its understanding of federal income tax laws as currently interpreted, that the
original date exchange of an APPRECIABLE LIFE contract for a Variable
APPRECIABLE LIFE Contract should be considered to be a tax-free exchange under
the Internal Revenue Code of 1986, as amended. It should be noted, however, that
the exchange of an APPRECIABLE LIFE contract for a Variable APPRECIABLE LIFE
Contract may impact the status of the Contract as a Modified Endowment Contract.
See TAX TREATMENT OF CONTRACT BENEFITS, page 25. A contract owner should consult
with his or her tax advisor and Pruco Life representative before making an
exchange.
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.
CHARGES AND EXPENSES
The amount relating to the Contract held in the Account is determined by the
amount of premium payments, charges deducted from premiums before they are
placed in the Account, deductions made from the Account, including any
deductions made for a Contract loan (see CONTRACT LOANS, page 23), and the
investment results of the selected subaccount[s]. The total amount invested
under the Contract (the "Contract fund") consists of the amount related to the
Contract held in the Account, any amount allocated to the fixed-rate option, any
amount invested in the Real Property Account, and the principal amount of any
Contract loan and interest credited thereon.
All of the charges made by Pruco Life, whether deducted from premiums or from
the Contract fund, are set forth below.
1. A charge of $2 is deducted from each premium payment to cover the cost
of collecting and processing premiums. Thus, Contract owners who pay
premiums annually will incur lower aggregate processing charges than
those who pay premiums more frequently. During 1997, 1996 and 1995,
Pruco Life received a total of approximately $4,104,000, $4,422,000
and $4,715,000, respectively, in processing charges.
2. There is a charge to compensate Pruco Life for the cost of selling the
Contract. This cost includes sales commissions, advertising, and the
printing of the prospectuses and sales literature. This charge is
called the "sales load." The maximum sales load that will be charged
will be 30% of the first year's scheduled premium, 10% of the
scheduled premium for the second, third, fourth, and fifth years and
5% of each additional premium, whether scheduled or unscheduled. Part
of this sales load will be deducted from each premium received in an
amount up to 5% of the portion of the premium remaining after the $2
processing charge has been deducted. The remainder of the sales load
will be deducted only if the Contract is surrendered or stays in
default past its days of grace. This second part is called the
deferred sales charge. The deferred sales charge will not be deducted
at all, however, for Contracts that lapse or are surrendered on or
after the Contract's tenth anniversary and it will be reduced for
Contracts that lapse or are surrendered sometime between the eighth
month of year 6 and the tenth anniversary. No deferred sales charge is
applicable to the death benefit, no matter when that may become
payable.
For Contracts under which premiums are payable annually, the maximum
deferred sales charge (equal to 25% of the scheduled premium for the
first Contract year and 5% of the scheduled premium for the next 4
Contract years) will be made under Contracts that lapse or are
surrendered during the fifth Contract year and the first 7 months of
the sixth Contract year. Thereafter the sales charge will be the
maximum charge reduced uniformly until it becomes zero at the end of
the tenth Contract year. More precisely, the deferred sales charge
will be the maximum charge reduced by a factor equal to the number of
complete months that have elapsed between the end of the sixth month
in the Contract's sixth year and the date of surrender or lapse,
divided by 54 (since there are 54 months between that date and the
Contract's tenth anniversary). The following table shows illustrative
deferred sales load charges that will be made when such Contracts are
surrendered or lapse.
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<PAGE>
------------------------------------------------------------------------
| THE DEFERRED SALES | WHICH IS EQUAL TO THE
FOR CONTRACTS | CHARGE WILL | FOLLOWING PERCENTAGE
SURRENDERED DURING | BE THE FOLLOWING | OF THE SCHEDULED
| PERCENTAGE | PREMIUMS DUE TO DATE
| OF ONE SCHEDULED | OF SURRENDER
| ANNUAL PREMIUM |
--------------------------|---------------------|-----------------------
Entire Year 1 | 25% | 25.00%
Entire Year 2 | 30% | 15.00%
Entire Year 3 | 35% | 11.67%
Entire Year 4 | 40% | 10.00%
Entire Year 5 | 45% | 9.00%
First 7 Months of Year 6 | 45% | 7.50%
First Month of Year 7 | 40% | 5.71%
First Month of Year 8 | 30% | 3.75%
First Month of Year 9 | 20% | 2.22%
First Month of Year 10 | 10% | 1.00%
First Month of Year 11 | |
and Thereafter | 0% | 0.00%
------------------------------------------------------------------------
For Contracts under which premiums are payable more frequently than
annually, the deferred sales charge will be 25% of the first year's
scheduled premiums due on or before the date of surrender or lapse and 5%
of the scheduled premiums for the second through fifth Contract years due
on or before the date of surrender or lapse. Thus, for such Contracts the
maximum deferred sales charge will also be equal to 9% of the total
scheduled premiums for the first 5 Contract years. This amount will be
higher in dollar amount than it would have been had premiums been paid
annually because the total of the scheduled premiums is higher. See
PREMIUMS, page 7. To compensate for this, the reduction in the deferred
sales charge will start slightly earlier for Contracts under which premiums
are paid semi-annually, still earlier if premiums are paid quarterly and
even earlier if premiums are paid monthly. The reductions are graded
smoothly so that the dollar amount of the deferred sales charge for two
persons of the same age, sex, contract size, and Contract date, will be
identical beginning in the seventh month of the sixth Contract year without
regard to the frequency at which premiums were paid.
For purposes of determining the deferred sales charge, the scheduled
premium is the premium payable for an insured in the preferred rating
class, even if the insured is in a higher rated risk class. Moreover, if
premiums have been paid in excess of the scheduled premiums, the charge is
based upon the scheduled premiums. If a Contract is surrendered when less
than the aggregate amount of the scheduled premiums due on or before the
date of surrender has been paid, the deferred sales charge percentages (25%
for the first year and 5% for years 2 through 5) will be applied to the
premium payments due on or before the fifth anniversary date that were
actually paid, whether timely or not, before surrender. During 1997, 1996
and 1995, Pruco Life received a total of approximately $256,000, $407,000
and $871,000, respectively, in sales load charges.
Pruco Life has determined to waive the portion of the sales load deducted
from each premium (5% of the portion of the premium remaining after the $2
processing charge has been deducted) for premiums paid after total premiums
paid under the Contract exceed 5 years of scheduled premiums on an annual
basis. Thus, with respect to a premium paid after that total is reached,
only the 2.5% premium tax charge and the $2 processing charge is deducted
before the premium is allocated to the Account, fixed-rate option or the
Real Property Account according to the owner's instructions. This
concession is not contractually guaranteed and may be withdrawn or modified
by Pruco Life on a uniform basis, although it does not currently intend to
do so. If an owner elects to increase the face amount of his or her
Contract, the rules governing the non-guaranteed waiver of the 5% front-end
sales load will apply separately to the base Contract and the increase, as
explained under INCREASES IN FACE AMOUNT on page 18.
3. There is a premium tax charge equal to 2.5% of the premium remaining after
the $2 processing charge has been deducted. This charge is made to
compensate Pruco Life for paying state and local premium taxes. (The 7.5%
deduction referred to on page 9 is made up of the 5% sales load charge and
the 2.5% premium tax charge.) State premium tax rates vary from
jurisdiction to jurisdiction and generally range from 0.75% to 5%. Pruco
Life may collect more for this charge than it actually pays for premium
taxes. During 1997, 1996 and 1995, Pruco Life received a total of
approximately $5,040,000, $5,636,000 and $6,031,000, respectively, in
charges for payment of state and local premium taxes.
4. On each Monthly date, the Contract fund is reduced by an expense charge of
$2.50 per Contract and up to $0.02 per $1,000 of face amount (excluding the
automatic increase under Contracts issued on insureds of 14 years of age or
less), except that currently this $0.02 per $1,000 charge will not be
greater than $2 per
12
<PAGE>
month and for Contracts issued after June 1, 1987 on a Pru-Matic Plan
basis, this $0.02 per $1,000 charge will currently be waived. Thus, for a
Contract with the minimum face amount of $60,000, not issued on a
Pru-Matic Plan basis, the aggregate amount deducted each year will be
$44.40. This charge is to compensate Pruco Life for administrative
expenses incurred, among other things, for processing claims, paying cash
surrender values, making Contract changes, keeping records, and
communicating with Contract owners. This charge will not be made if the
Contract has become paid-up or has been continued in force, after lapse,
as variable reduced paid-up insurance. During 1997, 1996 and 1995, Pruco
Life received a total of approximately $13,100,000, $13,709,000 and
$14,375,000, respectively, in monthly administrative charges.
5. On each Monthly date the Contract fund is reduced by a charge of $0.01 per
$1,000 of face amount (excluding the automatic increase under Contracts
issued on insureds of 14 years of age or less) to compensate Pruco Life for
the risk it assumes by guaranteeing that, no matter how unfavorable
investment experience may be, the death benefit will never be less than the
face amount provided scheduled premiums are paid on or before the due date
or during the grace period. This charge is not made after a Contract
becomes paid-up or has been continued in force, after lapse, as variable
reduced paid-up insurance. During 1997, 1996 and 1995, Pruco Life received
a total of approximately $2,494,000, $2,572,000 and $2,648,000,
respectively, for this risk charge.
6. Pruco Life deducts a mortality charge from the Contract fund on each
Monthly date to cover anticipated mortality costs. When an insured dies,
the amount paid to the beneficiary is larger than the Contract fund and
significantly larger if the insured dies in the early years of a Contract.
The mortality charges are designed to enable Pruco Life to pay this larger
death benefit. The charge is determined by multiplying the "net amount at
risk" under a Contract (the amount by which the Contract's death benefit,
computed as if there were neither riders nor Contract debt, exceeds the
Contract fund) by a rate based upon the insured's sex (except where unisex
rates apply) and current attained age, and the anticipated mortality for
that class of persons. The maximum rate that Pruco Life may charge is based
upon the 1980 CSO Tables. Pruco Life may determine that a lesser amount
than that called for by these mortality tables will be adequate to defray
anticipated mortality costs for insureds of particular ages and may thus
make a lower mortality charge for such persons. Pruco Life, however,
reserves the right to charge full mortality charges based on the applicable
1980 CSO Table, and any lower current mortality charges are not applicable
to Contracts in force pursuant to an option on lapse. See OPTIONS ON LAPSE,
page 24. In addition, if a Contract has a face amount of at least $100,000
and the insured under the Contract has met strict underwriting requirements
so that the Contract is in force on a "Select Rating" basis for the
particular risk classification, current mortality charges for all ages may
be lower still.
Certain Contracts, for example Contracts issued in connection with
tax-qualified pension plans, may be issued on a "guaranteed issue" basis
and may have current mortality charges which are different from those
mortality charges for Contracts which are individually underwritten. These
Contracts with different current mortality charges may be offered to
categories of individuals meeting eligibility guidelines determined by
Pruco Life.
7. A charge is made to compensate Pruco Life for assuming mortality and
expense risks. This is done by deducting daily, from the assets of each of
the subaccounts of the Account and/or from the subaccount of the Real
Property Account relating to this Contract, a percentage of those assets
equivalent to an effective annual rate of 0.6% (this amounts to a daily
charge of approximately 0.001639%). The mortality risk assumed is that
insureds may live for a shorter period of time than Pruco Life estimated.
The expense risk assumed is that expenses incurred in issuing and
administering the Contract will be greater than Pruco Life estimated.
During 1997, 1996 and 1995, Pruco Life received a total of approximately
$16,981,000, $15,162,000 and $13,208,000, respectively, in mortality and
expense risk charges. This charge is not assessed against amounts allocated
to the fixed-rate option.
8. There is an administrative charge of $5 for each $1,000 of face amount of
insurance (excluding the automatic increase under Contracts issued on
insureds of 14 years of age or less) to compensate Pruco Life for expenses
incurred in connection with the issuance of the Contract, other than sales
expenses. This charge is made to cover the costs of processing
applications, conducting medical examinations, determining insurability and
the insured's risk class, and establishing records relating to the
Contract. However, this charge will not be assessed upon issuance of the
Contract, nor will it ever be deducted from any death benefit payable under
the Contract. Rather, it will be deducted only if the Contract is
surrendered or lapses when it is in default past its days of grace, and
even then it will not be deducted at all for Contracts that stay in force
through the end of the Contract's tenth year. And the charge will be
reduced for Contracts that lapse or are surrendered before then but after
the Contract's fifth anniversary. Specifically, the charge of $5 per $1,000
will be assessed upon surrenders or lapses occurring on or before the
Contract's fifth anniversary. For each additional full month that the
Contract stays in force on a premium paying basis, this charge is reduced
by $0.0833 per $1,000 of initial face amount, so that it disappears on the
tenth anniversary. During 1997,
13
<PAGE>
1996 and 1995, Pruco Life received a total of approximately $1,740,000,
$3,580,000 and $5,134,000, respectively, from surrendered or lapsed
Contracts. Additionally, if a Contract has a face amount of at least
$100,000 and was issued on other than a Select Rating basis (see item 6,
above), the owner may request that the Contract be reclassified to a Select
Rating basis. Requests for reclassification to a Select Rating basis may be
subject to an underwriting fee of up to $250, but Pruco Life currently
intends to waive that charge if the reclassification is effected
concurrently with an increase in face amount.
9. A charge equal to the lesser of $15 or 2% will be made in connection with
each partial withdrawal of the cash surrender value of a Contract. See
WITHDRAWAL OF EXCESS CASH SURRENDER VALUE, page 18.
10. If the Contract includes riders, a monthly deduction from the Contract fund
will be made for charges applicable to those riders. A deduction will also
be made if the rating class of the insured results in an extra charge.
11. An investment advisory fee is deducted daily from each portfolio at a rate,
on an annualized basis, from 0.35% for the Stock Index Portfolio to 0.75%
for the Global Portfolio. The expenses incurred in conducting the
investment operations of the portfolios (such as custodian fees and
preparation and distribution of annual reports) are paid out of the
portfolio's income. These expenses also vary from portfolio to portfolio.
The total expenses of each portfolio for the year 1997 expressed as a
percentage of the average assets during the year are shown below:
- ------------------------------------------------------------------------------
| | OTHER | TOTAL
| INVESTMENT | EXPENSES | EXPENSES
PORTFOLIO | ADVISORY | (AFTER EXPENSE | (AFTER EXPENSE
| FEE | REIMBURSEMENT)* | REIMBURSEMENT)*
- -----------------------------|------------|------------------|----------------
MONEY MARKET | 0.40% | 0.00%* | 0.40%*
DIVERSIFIED BOND | 0.40% | 0.00%* | 0.40%*
GOVERNMENT INCOME | 0.40% | 0.04% | 0.44%
CONSERVATIVE BALANCED | 0.55% | 0.00%* | 0.40%*
FLEXIBLE MANAGED | 0.60% | 0.00%* | 0.40%*
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% | 0.00%* | 0.40%*
PRUDENTIAL JENNISON | 0.60% | 0.04% | 0.64%
SMALL CAPITALIZATION STOCK | 0.40% | 0.10% | 0.50%
GLOBAL | 0.75% | 0.10% | 0.85%
NATURAL RESOURCES | 0.45% | 0.09% | 0.54%
- ------------------------------------------------------------------------------
* Some investment management fees and expenses charged to the Series Fund may
be higher than those that were previously charged to the Pruco Life Series
Fund, Inc. (0.4%), in which the Account previously invested. For the Money
Market, Diversified Bond, Equity, Conservative Balanced, and Flexible
Managed Portfolios, Pruco Life will make daily adjustments that will offset
the effect on Contract owners of any higher investment management fees and
expenses charged against the Series Fund. Without such adjustments the
portfolio expenses indirectly borne by a Contract owner, expressed as a
percentage of the average daily net assets by portfolio, would have been
0.43% for the Money Market Portfolio, 0.43% for the Diversified Bond
Portfolio, 0.56% for the Conservative Balanced Portfolio, 0.62% for the
Flexible Managed Portfolio and 0.46% for the Equity Portfolio. No such
offset will be made with respect to the remaining portfolios, which had no
counterparts in the Pruco Life Series Fund, Inc.
In several instances Pruco Life uses the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, is the highest charge that
Pruco Life is entitled to make under the Contract. The "current charge" is the
lower amount that Pruco Life is now charging. However, if circumstances change,
Pruco Life reserves the right to increase each current charge, up to but no more
than the maximum charge, without giving any advance notice.
The earnings of the Account are taxed as part of the operations of Pruco Life.
No charge is being made currently to the Account for Company federal income
taxes. Pruco Life will review the question of a charge to the Account for
Company federal income taxes periodically. Such a charge may be made in future
years for any federal income taxes that would be attributable to the Contracts.
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<PAGE>
Under current laws Pruco Life may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant
and they are not charged against the Contracts or the Account. If there is a
material change in applicable state or local tax laws, the imposition of any
such taxes upon Pruco Life that are attributable to the Account may result in a
corresponding charge against the Account.
The investment management fee and other expenses charged against the Real
Property Account are described in the attached prospectus for that investment
option.
REDUCTION OF CHARGES FOR CONCURRENT SALES TO SEVERAL INDIVIDUALS
Pruco Life may reduce the sales charges and/or other charges on individual
Contracts sold to members of a class of associated individuals, or to a trustee,
employer or other entity representing a class, where it is expected that such
multiple sales will result in savings of sales or administrative expenses. Pruco
Life determines both the eligibility for such reduced charges, as well as the
amount of such reductions, by considering the following factors: (1) the number
of individuals; (2) the total amount of premium payments expected to be received
from these Contracts; (3) the nature of the association between these
individuals, and the expected persistency of the individual Contracts; (4) the
purpose for which the individual Contracts are purchased and whether that
purpose makes it likely that expenses will be reduced; and (5) any other
circumstances which Pruco Life believes to be relevant in determining whether
reduced sales or administrative expenses may be expected. Some of the reductions
in charges for these sales may be contractually guaranteed; other reductions may
be withdrawn or modified by Pruco Life on a uniform basis. Pruco Life's
reductions in charges for these sales will not be unfairly discriminatory to the
interests of any individual Contract owners.
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY
A Contract has a cash surrender value which the owner may get while the insured
is living by surrender of the Contract. Unlike traditional fixed-benefit
whole-life insurance, however, a Contract's cash surrender value is not known in
advance, even if it is assumed that only scheduled premiums will be paid,
because it varies daily with the investment performance of the subaccount[s]
and/or Real Property Account in which the Contract participates.
On the Contract date, the Contract fund value is the invested portion of the
initial premium less the first monthly deductions. This amount is placed in the
investment option[s] designated by the owner. Thereafter the Contract fund value
changes daily, reflecting increases or decreases in the value of the securities
in which the assets of the subaccount[s] have been invested, the investment
performance of the Real Property Account if that option has been selected,
interest credited on amounts allocated to the fixed-rate option, as well as the
daily asset charge for mortality and expense risk equal to 0.001639% of the
assets of the subaccount[s] of the Account and the subaccount of the Real
Property Account relating to this Contract. The Contract fund value also changes
to reflect the receipt of additional premium payments and the monthly deductions
described in the preceding section.
A Contract's cash surrender value on any date will be the Contract fund value
reduced by the deferred sales and administrative charges, if any, and any
Contract debt. Upon request, Pruco Life will tell a Contract owner the cash
surrender value of his or her Contract. It is possible that the cash surrender
value of a Contract could decline to zero because of unfavorable investment
experience, even if a Contract owner continues to pay scheduled premiums when
due.
If the net investment return in the selected investment option[s] is greater
than 4%, the Contract fund and cash surrender value for a Form B Contract can be
expected to be less than the Contract fund and cash surrender value for a Form A
Contract with identical premiums and investment experience. This is because the
monthly mortality charges under the Form B Contract will be higher to compensate
for the higher amount of insurance.
The tables on pages T1 through T4 of this prospectus illustrate what the cash
surrender values would be for representative Contracts, assuming uniform
hypothetical investment results in the selected Series Fund portfolio[s], and
also provide information about the aggregate scheduled premiums payable under
those Contracts. Illustrated also is what the death benefit would be under Form
B Contracts given the stated assumptions. The tables also show the premium
amount that would be required on the premium change date to guarantee the
Contract against lapse regardless of investment performance for each illustrated
Contract under each of the assumed investment returns.
HOW A CONTRACT'S DEATH BENEFIT WILL VARY
As noted above, there are two forms of the Contract, Form A and Form B.
Moreover, in September 1986 Pruco Life began issuing revised versions of both
Form A and Form B Contracts. The primary difference between the original
Contract and the revised Contract is that the original Contract may become
paid-up, while the death benefit under the revised Contract operates differently
and accordingly such Contract will not become paid-up.
15
<PAGE>
1. ORIGINAL CONTRACTS. If a Form A Contract is chosen, the death benefit will
not vary (except for Contracts issued on insureds of age 14 or less, see
REQUIREMENTS FOR ISSUANCE OF A CONTRACT on page 6) regardless of the payment of
additional premiums or the investment results of the selected investment options
unless the Contract becomes paid-up. See WHEN A CONTRACT BECOMES PAID-UP, page
17. The death benefit does reflect a deduction for the amount of any Contract
debt. See CONTRACT LOANS, page 23.
If a Form B Contract is chosen, the death benefit will vary with investment
experience and premium payments. Assuming no Contract debt, the death benefit
under a Form B Contract will, on any day, be equal to the face amount of
insurance plus the amount (if any) by which the Contract fund value exceeds the
applicable "tabular Contract fund value" for the Contract. The "tabular Contract
fund value" for each Contract year is an amount that is slightly less than the
Contract fund value that would result as of the end of such year if only
scheduled premiums were paid, they were paid when due, the selected investment
options earned a net return at a uniform rate of 4% per year, full mortality
charges based upon the 1980 CSO Table were deducted, maximum sales load and
expense charges were deducted, and there was no Contract debt. Each Contract
contains a table that sets forth the tabular Contract fund value as of the end
of each of the first 20 years of the Contract. Tabular Contract fund values
between Contract anniversaries are determined by interpolation.
Thus, under a Form B Contract with no Contract debt, the death benefit will
equal the face amount if the Contract fund equals the tabular Contract fund
value. If, due to investment results greater than a net return of 4%, or to
greater than scheduled premiums, or to smaller than maximum charges, the
Contract fund value is a given amount greater than the tabular Contract fund
value, the death benefit will be the face amount plus that excess amount.
If, due to investment results less favorable than a net return of 4%, the
Contract fund value is less than the tabular Contract fund value, and the
Contract nevertheless remains in force because scheduled premiums have been
paid, the death benefit will not fall below the initial face amount stated in
the Contract; however, this unfavorable investment experience must subsequently
be offset before favorable investment results or greater than scheduled premiums
will increase the death benefit. The death benefit will also reflect a deduction
for the amount of any Contract debt. See CONTRACT LOANS, page 23.
A Contract owner may also increase or decrease the face amount of his or her
Contract, subject to certain conditions. See INCREASES IN FACE AMOUNT, page 18
and DECREASES IN FACE AMOUNT, page 20.
2. REVISED CONTRACTS. Under the revised Contracts issued since September of 1986
in jurisdictions where all necessary approvals have been obtained, the death
benefit will be calculated as follows. Under a Form A Contract, the death
benefit will be the greater of (1) the face amount; or (2) the Contract fund
divided by the net single premium per $1 of death benefit at the insured's
attained age on that date. In other words, the second alternative ensures that
the death benefit will not be less than the amount of life insurance that could
be provided for an invested single premium amount equal to the amount of the
Contract fund. Under a Form B Contract, the death benefit will be the greater of
(1) the face amount plus the excess, if any, of the Contract fund over the
tabular Contract fund value; or (2) the Contract fund divided by the net single
premium per $1 of death benefit at the insured's attained age on that date.
Thus, under the revised Contracts, the death benefit may be increased based on
the size of the Contract fund and the insured's attained age and sex. This
ensures that the Contract will satisfy the Internal Revenue Code's definition of
life insurance. The net single premium is used only in the calculation of the
death benefit, not for premium payment purposes. The following is a table of
illustrative net single premiums for $1 of death benefit.
- ------------------------------------ ------------------------------------
| | | INCREASE IN | | | | INCREASE IN |
| | | INSURANCE | | | | INSURANCE |
| MALE | NET | AMOUNT PER | | FEMALE | NET | AMOUNT PER |
| ATTAINED | SINGLE | $1 INCREASE | | ATTAINED | SINGLE | $1 INCREASE |
| AGE | PREMIUM | IN CONTRACT | | AGE | PREMIUM | IN CONTRACT |
| | | FUND | | | | FUND |
|----------|---------|-------------| |----------|---------|-------------|
| 5 | .09884 | $10.12 | | 5 | .08198 | $12.20 |
| 25 | .18455 | $ 5.42 | | 25 | .15687 | $ 6.37 |
| 35 | .25596 | $ 3.91 | | 35 | .21874 | $ 4.57 |
| 55 | .47352 | $ 2.11 | | 55 | .40746 | $ 2.45 |
| 65 | .60986 | $ 1.64 | | 65 | .54017 | $ 1.85 |
- ------------------------------------ ------------------------------------
Whenever the death benefit is determined in this way, Pruco Life reserves the
right to refuse to accept further premium payments, although in practice the
payment of the average of all premiums paid over the last 5 years will generally
be allowed.
A Contract owner may also increase or decrease the face amount of his or her
Contract, subject to certain conditions. See INCREASES IN FACE AMOUNT, page 18
and DECREASES IN FACE AMOUNT, page 20.
16
<PAGE>
WHEN A CONTRACT BECOMES PAID-UP
Under the original Contracts, it is possible that favorable investment
experience, either alone or in conjunction with greater than scheduled premium
payments, will cause the Contract fund to increase to the point where no further
payment of premiums is necessary to provide for the then existing death benefit
for the remaining life of the insured. If this should occur, Pruco Life will
notify the owner that no further premium payments need be paid. Pruco Life
reserves the right to refuse to accept further premiums after the Contract
becomes paid-up. The purchase of an additional fixed benefit rider may, in some
cases, affect the point at which the Contract becomes paid-up. See RIDERS, page
29. The revised Contracts will not become paid-up.
Once a Contract becomes paid-up, Pruco Life guarantees that the death benefit
then in force will not be reduced by the investment experience of the investment
options in which the Contract participates. The cash surrender value of a
paid-up Contract continues to vary daily to reflect investment experience and
monthly to reflect continuing mortality charges, but the other monthly
deductions (see items 4 and 5 under CHARGES AND EXPENSES, page 11) will not be
made. The death benefit of a paid-up Contract on any day (whether the Contract
originally was Form A or Form B) will be equal to the amount of paid-up
insurance that can be purchased with the Contract fund on that day, but never
less than the guaranteed minimum amount.
As noted earlier, Contracts issued on insureds of 14 years of age or less
include a special provision under which the face amount of insurance increases
automatically to 150% of the initial face amount on the Contract anniversary
after the insured reaches the age of 21. If a Contract would have been paid-up
prior to that anniversary, Pruco Life, in anticipation of the increase in the
face amount to 150% of the initial face amount, will, instead of declaring the
Contract to be paid-up, increase the death benefit by the amount necessary to
keep the Contract in force as a premium paying Contract. If this should occur,
the increase in the death benefit on the Contract anniversary after the insured
reaches the age of 21 will be smaller, in dollar amount, than the increase in
the face amount of insurance.
FLEXIBILITY AS TO PAYMENT OF PREMIUMS
A significant feature of this Contract is that it permits the owner to pay
greater than scheduled premiums. Conversely, payment of a scheduled premium need
not be made if the Contract fund is sufficiently large to enable the charges due
under the Contract to be made without causing the Contract to lapse. See LAPSE
AND REINSTATEMENT, page 20. In general, Pruco Life will accept any premium
payment if the payment is at least $25. Pruco Life does reserve the right,
however, to limit unscheduled premiums to a total of $10,000 in any Contract
year; to refuse to accept premiums once a Contract becomes paid-up; and to
refuse to accept premiums that would immediately result in more than a
dollar-for-dollar increase in the death benefit. The flexibility of premium
payments provides Contract owners with different opportunities under the two
forms of Contract. Greater than scheduled payments under an original version
Form A Contract increase the Contract fund and make it more likely that the
Contract will become paid-up. Greater than scheduled payments under an original
version Form B Contract increase both the Contract fund and the death benefit,
but it is less likely to become paid-up than a Form A Contract on which the same
premiums are paid. For all Contracts, the privilege of making large or
additional premium payments offers a way of investing amounts which accumulate
without current income taxation. There may, however, be a disadvantage if
substantial premiums are made. The federal income tax laws, discussed more fully
under TAX TREATMENT OF CONTRACT BENEFITS, page 25, may impose an income tax, as
well as a penalty tax, upon distributions to contract owners under life
insurance contracts that are classified as Modified Endowment Contracts. This
contract should not be so classified if the initial scheduled premiums are paid
or even if additional premiums are paid that are not substantially higher,
assuming no changes in benefits under the contract. It is possible, however, to
make premium payments that are high enough to cause the Contract to fall into
that classification. A Contract owner should consult with his or her own tax
advisor and Pruco Life representative before making a large premium payment.
SURRENDER OF A CONTRACT
A Contract may be surrendered in whole or in part for its cash surrender value
while the insured is living. Partial surrender involves splitting the Contract
into two Contracts. One is surrendered for its cash surrender value; the other
is continued in force on the same terms as the original Contract except that
premiums and cash surrender values will be proportionately reduced based upon
the reduction in the face amount of insurance. The Contract continued must have
a face amount of insurance at least equal to the minimum face amount applicable
to the insured's Contract. See REQUIREMENTS FOR ISSUANCE OF A CONTRACT, page 6.
For paid-up Contracts, both the death benefit and the guaranteed minimum death
benefit will be reduced. The death benefit immediately after the partial
withdrawal must be at least equal to the minimum face amount applicable to the
insured's Contract.
To surrender a Contract in whole or in part, the owner must deliver or mail it,
together with a written request in a form that meets Pruco Life's needs, to a
Home Office. The cash surrender value of a surrendered or partially
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<PAGE>
surrendered Contract (taking into account the deferred sales and administrative
charges, if any) will be determined as of the date such request is received in
the Service Office. Surrender of all or part of a Contract may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 25.
WITHDRAWAL OF EXCESS CASH SURRENDER VALUE
An alternative to surrender or partial surrender of a Contract, available only
before such Contracts become paid up, is a partial withdrawal of cash surrender
value without splitting the Contract into two Contracts. A partial withdrawal
may be made only if the following conditions are satisfied. The basic limiting
condition is that a withdrawal may be made only to the extent that the cash
surrender value plus any Contract loan exceeds the applicable tabular cash
surrender value. (The "tabular cash surrender value" refers to the tabular
Contract fund value minus any applicable surrender charges.) But because this
excess over the applicable tabular cash surrender value may be made up in part
by an outstanding Contract loan, there is a further condition that the amount
withdrawn may not be larger than an amount sufficient to reduce the cash
surrender value to zero. The amount withdrawn must be at least $2,000 under a
Form A Contract and at least $500 under a Form B Contract. An owner may make no
more than four such withdrawals in a Contract year, and there is a fee equal to
the lesser of $15 or 2% for each such withdrawal. An amount withdrawn may not be
repaid except as a scheduled or unscheduled premium subject to the Contract
charges. Upon request, Pruco Life will tell a Contract owner how much he or she
may withdraw. Withdrawal of part of the cash surrender value may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 25.
Whenever a partial withdrawal is made, the death benefit payable will
immediately be reduced, generally by the amount of the withdrawal. This will not
change the guaranteed minimum amount of insurance under a Form B Contract (i.e.,
the face amount) or the amount of the scheduled premium that will be payable
thereafter on such a Contract. Under a Form A Contract, however, the guaranteed
minimum amount of insurance will be reduced by the amount of the partial
withdrawal, and no partial withdrawal will be permitted under a Form A Contract
if it would result in a new face amount of less than the minimum face amount
applicable to the insured's Contract. See REQUIREMENTS FOR ISSUANCE OF A
CONTRACT, page 6. It is important to note, however, that if the face amount is
decreased at any time during the first 7 Contract years, there is a danger that
the Contract might be classified as a Modified Endowment Contract. See TAX
TREATMENT OF CONTRACT BENEFITS, page 25. Before making any withdrawal which
causes a decrease in face amount a Contract owner should consult with his or her
Pruco Life representative. In addition, the amount of the scheduled premiums due
thereafter under a Form A Contract will be reduced to reflect the lower face
amount of insurance. Since a withdrawal under a Form A Contract results in a
decrease in the face amount of insurance, the Contract fund may be reduced, not
only by the amount withdrawn but also by a proportionate part of any surrender
charges then applicable, based upon the percentage reduction in face amount.
Contract owners of a Form A Contract who make a partial withdrawal will be sent
replacement Contract pages showing the new face amount, new tabular values and,
if applicable, a new table of surrender charges.
Withdrawal of part of the cash surrender value increases the risk that the
Contract fund may be insufficient to provide for benefits under the Contract. If
such a withdrawal is followed by unfavorable investment experience, the Contract
may lapse even if scheduled premiums continue to be paid when due. This is
because, for purposes of determining whether a lapse has occurred, Pruco Life
treats withdrawals as a return of premium.
INCREASES IN FACE AMOUNT
An attractive feature of this Contract is that an owner who wishes to increase
the amount of his or her insurance may do so by increasing the face amount of
the Contract (which is also the guaranteed minimum death benefit), subject to
state approval and underwriting requirements determined by Pruco Life. An
increase in face amount is in many ways similar to the purchase of a second
Contract, but it differs in the following respects: the minimum permissible
increase is $25,000 while the minimum for a new Contract is $60,000; monthly
fees are lower because only a single $2.50 per month administrative charge is
made rather than two; a combined premium payment results in deduction of a
single $2 per premium processing charge while separate premium payments for
separate Contracts would involve two charges; the monthly expense charge of
$0.02 per $1,000 of face amount may be lower if the increase is to a face amount
greater than $100,000; and, the Contract will lapse or become paid-up as a unit,
unlike the case if two separate Contracts are purchased. These differences
aside, the decision to increase face amount is comparable to the purchase of a
second Contract in that it involves a commitment to higher scheduled premiums in
exchange for greater insurance benefits.
A Contract owner may elect to increase the face amount of his or her Contract no
earlier than the first anniversary of the Contract. The following conditions
must be met: (1) The owner must ask for the increase in writing on an
appropriate form meeting Pruco Life's needs. (2) The amount of the increase in
face amount must be at least $25,000. (3) The insured must supply evidence of
insurability for the increase satisfactory to Pruco Life. (4) If Pruco Life
requests, the owner must send in the Contract to be suitably endorsed. (5) The
Contract must be neither
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paid-up nor in default on the date the increase takes effect. (6) The owner must
pay an appropriate premium at the time of the increase. (7) Pruco Life has the
right to deny more than one increase in a Contract year. (8) If Pruco Life has,
between the Contract date and the date that any requested increase in face
amount will take effect, changed any of the bases on which benefits and charges
are calculated under newly issued Contracts, Pruco Life has the right to deny
the increase. An increase in face amount resulting in a total face amount under
the Contract of at least $100,000 may, subject to strict underwriting
requirements, render the Contract eligible for a Select Rating for a non-smoker,
which provides lower current cost of insurance rates.
Upon an increase in face amount, Pruco Life will recompute the Contract's
scheduled premiums, deferred sales and administrative charges, tabular values,
and monthly deductions from the Contract fund. The Contract owner has a choice,
limited only by applicable state law, as to whether the recomputation will be
made as of the prior or next Contract anniversary. There will be a payment
required on the date of increase; the amount of the payment will depend, in
part, on which Contract anniversary the Contract owner selects for the
recomputation. Pruco Life will tell the owner the amount of the required
payment. It should also be noted that an increase in face amount may impact the
status of the Contract as a Modified Endowment Contract. See TAX TREATMENT OF
CONTRACT BENEFITS, page 25. Therefore, before increasing the face amount, a
Contract owner should consult with his or her own tax advisor and Pruco Life
representative.
Provided the increase is approved, the new insurance will take effect once the
proper forms, any medical evidence necessary to underwrite the additional
insurance and any amount needed by the company have been received.
Pruco Life will supply the Contract owner with pages which show the increased
face amount, the effective date of the increase, and the recomputed items
described two paragraphs above. The pages will also describe how the increase in
face amount affects the various provisions of the Contract, including a
statement that, for the amount of the increase in face amount, the period stated
in the Incontestability and Suicide provisions (see OTHER GENERAL CONTRACT
PROVISIONS, page 28) will run from the effective date of the increase.
There will be assessed upon lapse or surrender following an increase in face
amount the sum of (a) the deferred sales and administrative charges that would
have been assessed if the initial base Contract had not been amended and had
lapsed or been surrendered; and (b) the deferred sales and administrative
charges that would have been assessed if the increase in death benefit had been
achieved by the issuance of a new Contract, and that Contract had lapsed or been
surrendered. All premiums paid after the increase will, for purposes of
determining the deferred sales charge applicable in the event of surrender or
lapse, be deemed to have been made partially under the base Contract, and
partially in payment of the increase, in the same proportion as that of the
original scheduled premium and the increase in scheduled premiums. Because an
increase in face amount triggers new contingent deferred sales and
administrative charges, a Contract owner contemplating a total or partial
surrender or a decrease in the face amount of insurance should not elect to
increase the face amount of his or her Contract.
An increase in face amount will be treated comparably to the issuance of a new
Contract for purposes of the non-guaranteed waiver of the 5% front-end sales
load, described under item 2 of CHARGES AND EXPENSES on page 11. Thus, premiums
paid after the increase will, for purposes of determining whether the 5%
front-end sales load will be waived, be allocated to the base Contract and to
the increase based on the proportional premium allocation rule just described.
The waiver will apply with respect to the premiums paid after the increase only
after the premiums so allocated exceed five scheduled annual premiums for the
increase. Thus, an owner considering an increase in face amount should be aware
that such an increase will entail sales charges comparable to the purchase of a
new Contract.
Each Contract owner who elects to increase the face amount of his or her
Contract will receive a "free-look" right and a right to convert to a
fixed-benefit contract, which rights will apply only to the increase in face
amount, not the entire Contract. These rights are comparable to the rights
afforded to a purchaser of a new Contract. See SHORT-TERM CANCELLATION RIGHT OR
"FREE LOOK", page 6 and RIGHT TO EXCHANGE A CONTRACT FOR A FIXED-BENEFIT
INSURANCE POLICY, page 24. The "free-look" right would have to be exercised no
later than 45 days after execution of the application for the increase or, if
later, within 10 days after either receipt of the Contract as increased or
receipt of the withdrawal right notice by the owner. Upon exercise of the
"free-look" right, the owner will receive a refund in the amount of the
aggregate premiums paid since the increase was requested and attributable to the
increase, not the base Contract, as determined pursuant to the proportional
premium allocation rule described above. There will be no adjustment for
investment experience. Moreover, charges deducted since the increase will be
recomputed as though no increase had been effected. The right to convert the
increase in face amount to a fixed-benefit policy will exist for 24 months after
the increase is issued and the form of exchange right will be the same as that
available under the base Contract purchased. There may be a cash payment
required upon the exchange. See RIGHT TO EXCHANGE A CONTRACT FOR A FIXED-BENEFIT
INSURANCE POLICY, page 24.
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DECREASES IN FACE AMOUNT
As explained earlier, a Contract owner may effect a partial surrender of a
Contract (see SURRENDER OF A CONTRACT, page 17) or a partial withdrawal of
excess cash surrender value (see WITHDRAWAL OF EXCESS CASH SURRENDER VALUE, page
18). A Contract owner also has the additional option of decreasing the face
amount (which is also the guaranteed minimum death benefit) of his or her
Contract without withdrawing any cash surrender value. Contract owners who
conclude that, because of changed circumstances, the amount of insurance is
greater than needed will thus be able to decrease their amount of insurance
protection without decreasing their current cash surrender value. This will
result in a decrease in the amount of future scheduled premiums and in the
monthly deductions for the cost of insurance. The cash surrender value of the
Contract on the date of the decrease will not change, except that an
administrative processing fee of $15 may be deducted from that value (unless
that fee is separately paid at the time the decrease in face amount is
requested). The Contract's Contract fund value, however, will be reduced by
deduction of a proportionate part of the then applicable contingent deferred
sales and administrative charges, if any. Scheduled premiums for the Contract
will also be proportionately reduced. The Contracts of owners who exercise the
right to reduce face amount will be amended to show the new face amount, tabular
values, scheduled premiums, monthly charges, and if applicable, the remaining
contingent deferred sales and administrative charges.
The minimum permissible decrease is $10,000. No decrease will be permitted that
causes the face amount of the Contract to drop below the minimum face amount
applicable to the insured's Contract. See REQUIREMENTS FOR ISSUANCE OF A
CONTRACT, page 6. No reduction will be permitted to the extent that it would
cause the Contract to fail to qualify as "life insurance" for purposes of
section 7702 of the Internal Revenue Code. If the face amount of a Contract in
force on a Select Rating basis is reduced below $100,000, it is no longer
eligible for the Select Rating.
It is important to note, however, that if the face amount is decreased there is
a danger that the Contract might be classified as a Modified Endowment Contract.
See TAX TREATMENT OF CONTRACT BENEFITS, page 25. Before making any withdrawal
which causes a decrease in face amount, a Contract owner should consult with his
or her own tax advisor and Pruco Life representative.
LAPSE AND REINSTATEMENT
The Contract has an advantageous feature that is not typically found in similar
types of life insurance contracts. If scheduled premiums are paid on or before
each due date or within the grace period after each due date, (or missed
premiums are paid later with interest) and there are no withdrawals, a Contract
will remain in force even if the investment results of that Contract's variable
investment option[s] have been so unfavorable that the Contract fund has
decreased to zero or less. Therefore, unlike most similar types of life
insurance contracts that lapse when the cash surrender value decreases to zero
even if premiums are paid, this Contract ensures that as long as scheduled
premiums are paid, insurance protection remains in effect.
In fact, even if a scheduled premium is not paid, the Contract will remain in
force as long as the Contract fund on any Monthly date is equal to or greater
than the tabular Contract fund value on the next Monthly date. This could occur
because of such factors as favorable investment experience, deduction of less
than the maximum permissible charges, or the previous payment of greater than
scheduled premiums.
However, if a scheduled premium is not paid, and the Contract fund is
insufficient to keep the Contract in force, the Contract will go into default.
Should this happen, Pruco Life will send the Contract owner a notice of default
setting forth the payment necessary to keep the Contract in force on a premium
paying basis. This payment must be received at a Home Office within the 61 day
grace period after the notice of default is mailed or the Contract will lapse. A
Contract that lapses with an outstanding Contract loan may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS on page 25.
A Contract that has lapsed may be reinstated within 3 years after the date of
default unless the Contract has been surrendered for its cash surrender value.
To reinstate a lapsed Contract, Pruco Life requires renewed evidence of
insurability, and submission of certain payments due under the Contract.
If a Contract does lapse, it may still provide some benefits. Those benefits are
described under OPTIONS ON LAPSE, page 24.
WHEN PROCEEDS ARE PAID
Pruco Life will generally pay any death benefit, cash surrender value, loan
proceeds or partial withdrawal within 7 days after receipt at a 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
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disposal or valuation of the Account's assets is not reasonably practicable
because the New York Stock Exchange is closed for other than a regular holiday
or weekend, trading is restricted by the SEC or the SEC declares that an
emergency exists.
With respect to the amount of any cash surrender value allocated to the
fixed-rate option, and with respect to a Contract in force as extended term
insurance, Pruco Life expects to pay the cash surrender value promptly upon
request. However, Pruco Life has the right to delay payment of such cash
surrender value for up to 6 months (or a shorter period if required by
applicable law). Pruco Life will pay interest of at least 3% a year if it delays
such a payment for more than 30 days (or a shorter period if required by
applicable law).
LIVING NEEDS BENEFIT
Contract applicants may elect to add the LIVING NEEDS BENEFIT(sm) to their
Contracts at issue. The benefit may vary state-by-state. It can generally be
added only to Contracts of $50,000 or more.
Subject to state regulatory approval, the LIVING NEEDS BENEFIT allows the
Contract owner to elect to receive an accelerated payment of all or part of the
Contract's death benefit, adjusted to reflect current value, at a time when
certain special needs exist. The adjusted death benefit will always be less than
the death benefit, but will generally be greater than the Contract's cash
surrender value. One or both of the following options may be available. A Pruco
Life representative should be consulted as to whether additional options may be
available.
TERMINAL ILLNESS OPTION. This option is available if the insured is diagnosed as
terminally ill with a life expectancy of 6 months or less. When satisfactory
evidence is provided, Pruco Life will provide an accelerated payment of the
portion of the death benefit selected by the Contract owner as a LIVING NEEDS
BENEFIT. The Contract owner may (1) elect to receive the benefit in a single sum
or (2) receive equal monthly payments for 6 months. If the insured dies before
all of the payments have been made, the present value of the remaining payments
will be paid to the beneficiary designated in the LIVING NEEDS BENEFIT claim
form in a single sum.
NURSING HOME OPTION. This option is available after the insured has been
confined to an eligible nursing home for 6 months or more. When satisfactory
evidence is provided, including certification by a licensed physician, that the
insured is expected to remain in the nursing home until death, Pruco Life will
provide an accelerated payment of the portion of the death benefit selected by
the Contract owner as a LIVING NEEDS BENEFIT. The Contract owner may (1) elect
to receive the benefit in a single sum or (2) receive equal monthly payments for
a specified number of years (not more than 10 nor less than 2), depending upon
the age of the insured. If the insured dies before all of the payments have been
made, the present value of the remaining payments will be paid to the
beneficiary designated in the LIVING NEEDS BENEFIT claim form in a single sum.
All or part of the Contract's death benefit may be accelerated under the LIVING
NEEDS BENEFIT. If the benefit is only partially accelerated, a death benefit of
at least $25,000 must remain under the Contract. Pruco Life reserves the right
to determine the minimum amount that may be accelerated.
The LIVING NEEDS BENEFIT is available only to the extent regulatory approval has
been obtained. If desired by a Contract owner, the benefit must be requested on
the Contract's application. There is no charge for adding the benefit to the
Contract. However, an administrative charge (not to exceed $150) will be made at
the time the LIVING NEEDS BENEFIT is paid.
No benefit will be payable if the Contract owner is required to elect it in
order to meet the claims of creditors or to obtain a government benefit. Pruco
Life can furnish details about the amount of LIVING NEEDS BENEFIT that is
available to an eligible Contract owner under a particular Contract, and the
adjusted premium payments that would be in effect if less than the entire death
benefit is accelerated.
The Contract owner should consider whether adding this settlement option is
appropriate in his or her given situation. Adding the LIVING NEEDS BENEFIT to
the Contract has no adverse consequences; however, electing to use it could.
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). Contract
owners should consult a qualified tax advisor before electing to receive this
benefit. Receipt of a LIVING NEEDS BENEFIT payment may also affect a Contract
owner's eligibility for certain government benefits or entitlements.
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED
PREMIUMS
The following tables have been prepared to help show how values under the
Contract change with investment performance of the Account. The tables assume
that no portion of the Contract fund is allocated to the fixed-rate option or
the Real Property Account. The tables illustrate how cash surrender values
(reflecting the deduction of deferred sales load and administrative charges, if
any) and death benefits of Contracts with the minimum scheduled
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premium issued on an insured of a given age would vary over time if the return
on the assets held in the selected Series Fund portfolios were a uniform, gross,
after tax, annual rate of 0%, 4%, 8% and 12%. The death benefits and cash
surrender values would be different from those shown if the returns averaged 0%,
4%, 8% and 12% but fluctuated over and under those averages throughout the
years. The tables also provide information about the premiums payable on and
after the premium change date. These tables reflect values under the revised
Contracts. These values are also applicable to the original Contracts except
where the death benefit has been increased to the Contract fund divided by the
net single premium, in which case the cash surrender value and death benefit
figures shown on the table are not applicable to the original Contracts.
Footnotes to the tables indicate when the values cease to be applicable to the
original Contracts and when the original Contracts would become paid-up for a
given return.
The death benefits and cash surrender values shown in the first two tables on
pages T1 and T2 reflect Pruco Life's current charges. As explained earlier,
Pruco Life makes monthly mortality charges that are generally lower than those
based on the 1980 CSO Table. The values shown in the tables are calculated upon
the assumption that Pruco Life will continue to use the mortality rates that it
is currently using, even though it is permitted under the Contract to use the
higher mortality charges specified in the 1980 CSO Table. Moreover, those tables
reflect Pruco Life's current practice of waiving the front-end sales load of 5%
after total premiums paid exceeds five scheduled annual premiums. See item 2
under CHARGES AND EXPENSES, page 11. The tables also reflect Pruco Life's
current practice of increasing the Contract fund on a percentage basis based on
the attained age of the insured. While Pruco Life does not currently intend to
withdraw or modify these reductions in charges or additions to the Contract
fund, it reserves the right to do so. The tables are not applicable to Contracts
issued on a guaranteed issue basis or to Contracts where the risk classification
is on a multiple life basis.
The death benefits and cash surrender values shown in the next two tables on
pages T3 and T4 are calculated upon the assumption that the maximum mortality
charges specified by the 1980 CSO Table are made throughout the life of the
Contract, and reflect neither the waiver of the front-end sales load nor the
monthly additions to the Contract fund that further reduce the cost of insurance
charge.
The amounts shown for the death benefit and cash surrender value as of each
Contract year reflect the fact that the net investment return on the assets held
in the subaccounts is lower than the gross return of the portfolios. This is
because the tables assume a total Series Fund expense ratio of 0.49% (taking
into account the offsets described on page 5), and also reflect a daily
mortality and expense risk charge to the Account equal to an effective annual
charge of 0.6%. The actual fees and expenses of the portfolios associated with a
particular Contract may be more or less than 0.49% and will depend on which
subaccounts are selected. Based on the above assumptions, gross annual rates of
return of 0%, 4%, 8% and 12% thus correspond to approximate net annual rates of
return of -1.09%, 2.91%, 6.91% and 10.91% and this fact is reflected in the
column headings. The tables also reflect the fact that no charges for federal or
state income taxes are currently made against the Account. If such a charge is
made in the future, it will take a higher gross rate of return to produce net
after-tax returns of -1.09%, 2.91%, 6.91% or 10.91% than it does now.
Upon request, Pruco Life will furnish a comparable illustration based on the
proposed insured's age and sex (except where unisex rates apply) and on the
guaranteed minimum death benefit or premium amount requested. Such an
illustration will assume that the insured is in the preferred rating class (or,
on request, a different rating class) and that the premium will be paid at the
frequency chosen.
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<TABLE>
ILLUSTRATIONS
-------------
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
FORM A -- FIXED DEATH BENEFIT
MALE PREFERRED ISSUE AGE 35
$60,000 GUARANTEED DEATH BENEFIT
$554.80 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3)
USING CURRENT SCHEDULE OF CHARGES
<CAPTION>
Death Benefit (2) Cash Surrender Value (2)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (3) (-1.09% Net) (2.91% Net) (6.91% Net) (10.91% Net) (-1.09% Net) (2.91% Net) (6.91% Net) (10.91% Net)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 577 $60,000 $60,000 $ 60,000 $ 60,000 $ 0 $ 0 $ 0 $ 0
2 $ 1,177 $60,000 $60,000 $ 60,000 $ 60,000 $ 226 $ 274 $ 323 $ 375
3 $ 1,801 $60,000 $60,000 $ 60,000 $ 60,000 $ 527 $ 621 $ 720 $ 825
4 $ 2,450 $60,000 $60,000 $ 60,000 $ 60,000 $ 820 $ 974 $ 1,141 $ 1,322
5 $ 3,125 $60,000 $60,000 $ 60,000 $ 60,000 $ 1,102 $ 1,330 $ 1,586 $ 1,870
6 $ 3,827 $60,000 $60,000 $ 60,000 $ 60,000 $ 1,513 $ 1,832 $ 2,197 $ 2,616
7 $ 4,557 $60,000 $60,000 $ 60,000 $ 60,000 $ 1,939 $ 2,363 $ 2,864 $ 3,453
8 $ 5,317 $60,000 $60,000 $ 60,000 $ 60,000 $ 2,353 $ 2,899 $ 3,561 $ 4,361
9 $ 6,106 $60,000 $60,000 $ 60,000 $ 60,000 $ 2,755 $ 3,439 $ 4,291 $ 5,350
10 $ 6,927 $60,000 $60,000 $ 60,000 $ 60,000 $ 3,147 $ 3,984 $ 5,057 $ 6,428
15 $11,553 $60,000 $60,000 $ 60,000 $ 60,000 $ 4,494 $ 6,416 $ 9,258 $ 13,465
20 $17,182 $60,000 $60,000 $ 60,000 $ 60,000 $ 5,426 $ 8,952 $ 15,035 $ 25,565
25 $24,029 $60,000 $60,000 $ 60,000 $ 85,622 $ 5,694 $11,400 $ 23,034 $ 46,275
30 (Age 65) $32,361 $60,000 $60,000 $ 60,000 $132,557 $ 4,924 $13,455 $ 34,384 $ 80,841
35 $49,748 $60,000 $60,000 $ 74,482 $203,082 $16,904 $21,925 $ 50,556 $137,844
40 $70,902 $60,000 $60,000 $ 97,318 $310,266 $27,908 $31,137 $ 72,424 $230,900
45 $96,639 $60,000 $60,000 $126,761 $475,643 $38,160 $41,626 $101,578 $381,151
- ----------------
(1) If premiums are paid more frequently than annually, the initial payments would be $284.80 semi-annually, $145.40 quarterly or
$50 monthly. The ultimate payments would be $1,775.20 semi-annually, $897.80 quarterly or $302.60 monthly. The death benefits
and cash surrender values would be slightly different for a Contract with more frequent premium payments.
(2) Assumes no Contract loan has been made.
(3) Values shown in the table are applicable to both the original Contracts (the "1984 Contracts") and the revised Contracts that
first began to be issued in September of 1986 (the "1986 Contracts"), except where the death benefit has been increased to the
Contract fund divided by the net single premium, in which case the cash surrender value and death benefit figures shown are
applicable only to the 1986 Contracts. This first occurs at the time when the 1984 Contracts would become paid-up. For a
hypothetical gross investment return of 0%, the second Scheduled Premium will be $3,399.91. For a gross return of 4%, the
second Scheduled Premium will be $1,842.04. For a gross return of 8%, the second Scheduled Premium will be $554.80. For a gross
return of 12%, the second Scheduled Premium will be $554.80. The premiums accumulated at 4% interest in column 2 are those
payable if the gross investment return is 4%. For an explanation of why the scheduled premium may increase on the premium
change date, see Premiums.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES
OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT
YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
T1
<PAGE>
<TABLE>
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
FORM B -- VARIABLE DEATH BENEFIT
MALE PREFERRED ISSUE AGE 35
$60,000 GUARANTEED DEATH BENEFIT
$554.80 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3)
USING CURRENT SCHEDULE OF CHARGES
<CAPTION>
Death Benefit (2) Cash Surrender Value (2)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (3) (-1.09% Net) (2.91% Net) (6.91% Net) (10.91% Net) (-1.09% Net) (2.91% Net) (6.91% Net) (10.91% Net)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 577 $60,000 $60,016 $ 60,033 $ 60,050 $ 0 $ 0 $ 0 $ 0
2 $ 1,177 $60,000 $60,031 $ 60,081 $ 60,132 $ 225 $ 273 $ 322 $ 373
3 $ 1,801 $60,000 $60,048 $ 60,147 $ 60,251 $ 526 $ 619 $ 718 $ 823
4 $ 2,450 $60,000 $60,066 $ 60,232 $ 60,413 $ 818 $ 971 $ 1,138 $ 1,318
5 $ 3,125 $60,000 $60,086 $ 60,340 $ 60,622 $ 1,100 $ 1,327 $ 1,581 $ 1,863
6 $ 3,827 $60,000 $60,137 $ 60,500 $ 60,916 $ 1,511 $ 1,827 $ 2,190 $ 2,606
7 $ 4,557 $60,000 $60,193 $ 60,689 $ 61,273 $ 1,936 $ 2,357 $ 2,854 $ 3,438
8 $ 5,317 $60,000 $60,254 $ 60,910 $ 61,702 $ 2,350 $ 2,892 $ 3,547 $ 4,340
9 $ 6,106 $60,000 $60,322 $ 61,164 $ 62,211 $ 2,752 $ 3,430 $ 4,272 $ 5,319
10 $ 6,927 $60,000 $60,398 $ 61,457 $ 62,810 $ 3,143 $ 3,972 $ 5,032 $ 6,385
15 $ 11,553 $60,000 $61,166 $ 63,956 $ 68,075 $ 4,509 $ 6,407 $ 9,197 $ 13,316
20 $ 17,182 $60,000 $62,460 $ 68,351 $ 78,503 $ 5,465 $ 8,921 $14,812 $ 24,964
25 $ 24,029 $60,000 $64,663 $ 75,649 $ 97,961 $ 5,761 $11,252 $22,238 $ 44,549
30 (Age 65) $ 32,361 $60,510 $68,399 $ 87,302 $133,008 $ 5,010 $12,899 $31,802 $ 77,508
35 $ 51,884 $62,448 $68,227 $ 89,837 $195,651 $16,750 $22,529 $44,139 $132,800
40 $ 75,637 $63,521 $69,177 $ 97,040 $300,408 $27,131 $32,787 $60,650 $223,563
45 $104,537 $64,227 $71,826 $111,244 $462,718 $35,966 $43,564 $82,982 $370,794
- ----------------
(1) If premiums are paid more frequently than annually, the initial payments would be $284.80 semi-annually, $145.40 quarterly or
$50 monthly. The ultimate payments would be $1,775.20 semi-annually, $897.80 quarterly or $302.60 monthly. The death benefits
and cash surrender values would be slightly different for a Contract with more frequent premium payments.
(2) Assumes no Contract loan has been made.
(3) Values shown in the table are applicable to both the original Contracts (the "1984 Contracts") and the revised Contracts that
first began to be issued in September of 1986 (the "1986 Contracts"), except where the death benefit has been increased to the
Contract fund divided by the net single premium, in which case the cash surrender value and death benefit figures shown are
applicable only to the 1986 Contracts. This first occurs at the time when the 1984 Contracts would become paid-up. For a
hypothetical gross investment return of 0%, the second Scheduled Premium will be $3,401.07. For a gross return of 4%, the
second Scheduled Premium will be $2,221.30. For a gross return of 8%, the second Scheduled Premium will be $554.80. For a gross
return of 12%, the second Scheduled Premium will be $554.80. The premiums accumulated at 4% interest in column 2 are those
payable if the gross investment return is 4%. For an explanation of why the scheduled premium may increase on the premium
change date, see Premiums.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES
OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT
YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
T2
<PAGE>
<TABLE>
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
FORM A -- FIXED DEATH BENEFIT
MALE PREFERRED ISSUE AGE 35
$60,000 GUARANTEED DEATH BENEFIT
$554.80 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3)
USING MAXIMUM CONTRACTUAL CHARGES
<CAPTION>
Death Benefit (2) Cash Surrender Value (2)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (3) (-1.09% Net) (2.91% Net) (6.91% Net) (10.91% Net) (-1.09% Net) (2.91% Net) (6.91% Net) (10.91% Net)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 577 $60,000 $60,000 $60,000 $ 60,000 $ 0 $ 0 $ 0 $ 0
2 $ 1,177 $60,000 $60,000 $60,000 $ 60,000 $ 184 $ 231 $ 279 $ 328
3 $ 1,801 $60,000 $60,000 $60,000 $ 60,000 $ 460 $ 550 $ 645 $ 746
4 $ 2,450 $60,000 $60,000 $60,000 $ 60,000 $ 723 $ 869 $ 1,028 $ 1,202
5 $ 3,125 $60,000 $60,000 $60,000 $ 60,000 $ 970 $ 1,186 $ 1,428 $ 1,698
6 $ 3,827 $60,000 $60,000 $60,000 $ 60,000 $1,312 $ 1,611 $ 1,955 $ 2,350
7 $ 4,557 $60,000 $60,000 $60,000 $ 60,000 $1,664 $ 2,058 $ 2,524 $ 3,075
8 $ 5,317 $60,000 $60,000 $60,000 $ 60,000 $1,996 $ 2,498 $ 3,109 $ 3,852
9 $ 6,106 $60,000 $60,000 $60,000 $ 60,000 $2,309 $ 2,931 $ 3,711 $ 4,686
10 $ 6,927 $60,000 $60,000 $60,000 $ 60,000 $2,601 $ 3,355 $ 4,328 $ 5,582
15 $ 11,553 $60,000 $60,000 $60,000 $ 60,000 $3,150 $ 4,728 $ 7,108 $ 10,690
20 $ 17,182 $60,000 $60,000 $60,000 $ 60,000 $2,886 $ 5,514 $10,234 $ 18,658
25 $ 24,029 $60,000 $60,000 $60,000 $ 60,000 $1,284 $ 5,066 $13,432 $ 31,500
30 (Age 65) $ 32,361 $60,000 $60,000 $60,000 $ 85,420 $ 0 $ 2,288 $16,235 $ 52,094
35 $ 58,960 $60,000 $60,000 $60,000 $122,416 $3,958 $11,137 $28,064 $ 83,091
40 $ 91,322 $60,000 $60,000 $60,075 $173,275 $6,104 $18,472 $44,708 $128,951
45 $130,695 $60,000 $60,000 $83,553 $243,785 $ 0 $22,502 $66,954 $195,355
(1) If premiums are paid more frequently than annually, the payments would be $284.80 semi-annually, $145.40 quarterly or $50
monthly. The death benefits and cash surrender values would be slightly different for a Contract with more frequent premium
payments.
(2) Assumes no Contract loan has been made.
(3) Values shown in the table are applicable to both the original Contracts (the "1984 Contracts") and the revised Contracts that
first began to be issued in September of 1986 (the "1986 Contracts"), except where the death benefit has been increased to the
Contract fund divided by the net single premium, in which case the cash surrender value and death benefit figures shown are
applicable only to the 1986 Contracts. This first occurs at the time when the 1984 Contracts would become paid-up. For a
hypothetical gross investment return of 0%, the premium after age 65 will be $3,477.40; for a gross return of 4% the premium
after age 65 will be $3,477.40; for a gross return of 8% the premium after age 65 will be $2,226.73; for a gross return of 12%
the premium after age 65 will be $554.80. The premiums accumulated at 4% interest in column 2 are those payable if the gross
investment return is 4%. For an explanation of why the scheduled premium may increase on the premium change date, see Premiums.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES
OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT
YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
T3
<PAGE>
<TABLE>
VARIABLE APPRECIABLE LIFE INSURANCE CONTRACT
FORM B -- VARIABLE DEATH BENEFIT
MALE PREFERRED ISSUE AGE 35
$60,000 GUARANTEED DEATH BENEFIT
$554.80 MINIMUM INITIAL SCHEDULED PREMIUM (1) (3)
USING MAXIMUM CONTRACTUAL CHARGES
<CAPTION>
Death Benefit (2) Cash Surrender Value (2)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (3) (-1.09% Net) (2.91% Net) (6.91% Net) (10.91% Net) (-1.09% Net) (2.91% Net) (6.91% Net) (10.91% Net)
------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 577 $60,000 $60,000 $60,013 $ 60,030 $ 0 $ 0 $ 0 $ 0
2 $ 1,177 $60,000 $60,000 $60,036 $ 60,085 $ 183 $ 230 $ 278 $ 327
3 $ 1,801 $60,000 $60,000 $60,072 $ 60,172 $ 459 $ 548 $ 643 $ 743
4 $ 2,450 $60,000 $60,000 $60,120 $ 60,292 $ 721 $ 866 $ 1,025 $ 1,197
5 $ 3,125 $60,000 $60,000 $60,182 $ 60,450 $ 967 $ 1,182 $ 1,423 $ 1,691
6 $ 3,827 $60,000 $60,000 $60,258 $ 60,649 $1,310 $ 1,607 $ 1,948 $ 2,339
7 $ 4,557 $60,000 $60,000 $60,350 $ 60,895 $1,661 $ 2,053 $ 2,515 $ 3,060
8 $ 5,317 $60,000 $60,000 $60,459 $ 61,192 $1,993 $ 2,492 $ 3,096 $ 3,830
9 $ 6,106 $60,000 $60,000 $60,585 $ 61,546 $2,306 $ 2,924 $ 3,693 $ 4,654
10 $ 6,927 $60,000 $60,000 $60,731 $ 61,963 $2,599 $ 3,348 $ 4,306 $ 5,538
15 $ 11,553 $60,000 $60,000 $61,786 $ 65,240 $3,148 $ 4,719 $ 7,027 $ 10,481
20 $ 17,182 $60,000 $60,000 $63,510 $ 71,379 $2,884 $ 5,503 $ 9,971 $ 17,840
25 $ 24,029 $60,000 $60,000 $66,056 $ 82,021 $1,281 $ 5,052 $12,644 $ 28,609
30 (Age 65) $ 32,361 $60,000 $60,000 $69,517 $ 99,598 $ 0 $ 2,269 $14,017 $ 44,098
35 $ 58,960 $60,000 $60,000 $72,204 $117,021 $3,955 $11,094 $26,506 $ 71,324
40 $ 91,322 $60,000 $60,000 $77,694 $153,188 $6,101 $18,408 $41,304 $114,002
45 $130,695 $60,000 $60,000 $87,111 $221,243 $ 0 $22,391 $58,849 $177,291
- ----------------
(1) If premiums are paid more frequently than annually, the payments would be $284.80 semi-annually, $145.40 quarterly or $50
monthly. The death benefits and cash surrender values would be slightly different for a Contract with more frequent premium
payments.
(2) Assumes no Contract loan has been made.
(3) Values shown in the table are applicable to both the original Contracts (the "1984 Contracts") and the revised Contracts that
first began to be issued in September of 1986 (the "1986 Contracts"), except where the death benefit has been increased to the
Contract fund divided by the net single premium, in which case the cash surrender value and death benefit figures shown are
applicable only to the 1986 Contracts. This first occurs at the time when the 1984 Contracts would become paid-up. For a
hypothetical gross investment return of 0%, the premium after age 65 will be $3,477.40; for a gross return of 4% the premium
after age 65 will be $3,477.40; for a gross return of 8% the premium after age 65 will be $2,947.35; for a gross return of 12%
the premium after age 65 will be $1,272.04. The premiums accumulated at 4% interest in column 2 are those payable if the gross
investment return is 4%. For an explanation of why the scheduled premium may increase on the premium change date, see Premiums.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATES
OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT
YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
T4
<PAGE>
CONTRACT LOANS
The Contract owner may borrow from Pruco Life up to the "loan value" of the
Contract, using the Contract as the only security for the loan. The loan value
of a Contract is 90% of an amount equal to its Contract fund, reduced by any
charges due upon surrender. However, Pruco Life will, on a non-contractual basis
(contractual in Texas), increase the loan value by permitting a Contract owner
to borrow up to 100% of the portion of the Contract fund attributable to the
fixed-rate option (or any portion of the Contract fund attributable to a prior
loan supported by the fixed-rate option), reduced by any charges due upon
surrender. The minimum amount that may be borrowed at any one time is $500
unless the loan is used to pay premiums on the Contract.
Under one of the loan provisions available under this Contract, interest charged
on a loan accrues daily at a fixed effective annual rate of 5.5%. However, if a
Contract owner so desires, and if Pruco Life has received any required approvals
from the regulatory officials in the state or other jurisdiction in which the
Contract is to be issued, the Contract owner may elect at the time of issuance
of the Contract to have a different loan provision in the Contract under which
the interest rate will vary from time to time.
If an owner elects the variable loan interest rate provision, interest charged
on any loan will accrue daily at an annual rate Pruco Life determines at the
start of each Contract year (instead of at the fixed 5.5% rate). This interest
rate will not exceed the greatest of (1) the "Published Monthly Average" for the
calendar month ending two months before the calendar month of the Contract
anniversary; (2) 5%; or (3) any rate required by law in the state of issue of
the Contract. The "Published Monthly Average" means Moody's Corporate Bond Yield
Average-Monthly Average Corporates, as published by Moody's Investors Service,
Inc. or any successor to that service, or if that average is no longer
published, a substantially similar average established by the insurance
regulator where the Contract is issued. For example, the Published Monthly
Average in 1997 ranged from 7.03% to 7.99%.
Interest payments on any loan are due at the end of each Contract year. If
interest is not paid when due, it is added to the principal amount of the loan.
The term "Contract debt" means the amount of all outstanding loans plus any
interest accrued but not yet due. If at any time the Contract debt exceeds the
cash surrender value, Pruco Life will notify the Contract owner of its intent to
terminate the Contract in 61 days, within which time the owner may repay all or
enough of the loan to keep the Contract in force for a limited time. If the
Contract owner fails to keep the Contract in force, the amount of unpaid
Contract debt will be treated as a distribution which may be taxable. See LAPSE
AND REINSTATEMENT, page 20 and TAX TREATMENT OF CONTRACT BENEFITS - PRE-DEATH
DISTRIBUTIONS, page 26.
When a loan is made, an amount equal to the loan proceeds will be transferred
out of the applicable investment option[s]. The reduction will generally be made
in the same proportions as the value in each investment option bears to the
total value of the Contract. While a fixed-rate loan is outstanding, the amount
that was so transferred will continue to be treated as part of the Contract fund
but it will be credited with the assumed rate of return of 4% rather than with
the actual rate of return of the applicable investment option[s]. While a loan
made pursuant to the variable loan interest rate provision is outstanding, the
amount that was transferred is credited with a rate which is less than the loan
interest rate for the Contract year by no more than 1.5%, rather than with the
actual rate of return of the subaccount[s], the fixed-rate option or the Real
Property Account. Currently, Pruco Life credits such amounts with a rate that is
1% less than the loan interest rate for the Contract year. If a loan remains
outstanding at a time when Pruco Life fixes a new rate, the new interest rate
will apply.
A loan will not affect the amount of the premiums due. Should the death benefit
become payable while a loan is outstanding, or should the Contract be
surrendered, any Contract debt will be deducted from the death benefit or the
cash surrender value otherwise payable. Loans from Modified Endowment Contracts
may be treated for tax purposes as distributions of income. See TAX TREATMENT OF
CONTRACT BENEFITS, page 25.
A loan will have a permanent effect on a Contract's cash surrender value and may
have a permanent effect on the death benefit because the investment results of
the selected investment options will apply only to the amount remaining in those
investment options. The longer the loan is outstanding, the greater the effect
is likely to be. The effect could be favorable or unfavorable. If investment
results are greater than the rate being credited upon the amount of the loan
while the loan is outstanding, Contract values will not increase as rapidly as
they would have if no loan had been made. If investment results are below that
rate, Contract values will be higher than they would have been had no loan been
made. A loan that is repaid will not have any effect upon the guaranteed minimum
death benefit.
Consider the Form A Contract issued on a 35 year old male insured illustrated in
the table on page T1 with an 8% gross investment return. Assume a $2,000 (5.5%)
fixed-rate loan was made under this Contract at the end of Contract year 8 and
repaid at the end of Contract year 10 and loan interest was paid when due. Upon
repayment, the cash surrender value would be $4,918.80. This amount is lower
than the cash surrender value shown on that page for the end of Contract year 10
because the loan amount was credited with the 4% assumed rate of return
23
<PAGE>
rather than the 6.91% net return for the designated subaccount[s] resulting from
the 8% gross return in the underlying Series Fund.
REPORTS TO CONTRACT OWNERS
Once each Contract year (except where the Contract is in force as fixed extended
term insurance), Contract owners will be sent statements that provide certain
information pertinent to their own Contract. These statements detail values and
transactions made and specific Contract data that apply only to each particular
Contract. On request, a Contract owner will be sent a current statement in a
form similar to that of the annual statement described above, but Pruco Life may
limit the number of such requests or impose a reasonable charge if such requests
are made too frequently.
Contract owners will also be sent annual and semi-annual reports of the Series
Fund showing the financial condition of the portfolios and the investments held
in each.
OPTIONS ON LAPSE
If a Contract lapses because the necessary premium has not been paid before the
end of the grace period, some life insurance coverage may continue in effect or
the owner may choose to surrender the Contract for its cash surrender value.
1. FIXED EXTENDED TERM INSURANCE. With two exceptions explained below, if the
owner does not communicate at all with Pruco Life, life insurance coverage will
continue for a length of time that depends on the cash surrender value on the
date of default (which reflects the deduction of the deferred sales load,
administrative charges, and Contract debt, if any), the amount of insurance, and
the age and sex (except where unisex rates apply) of the insured. The insurance
amount will be what it would have been on the date of default taking into
account any Contract debt on that date. The amount will not change while the
insurance stays in force. This benefit is known as extended term insurance. If
the owner requests, he or she will be told in writing how long the insurance
will be in effect. Extended term insurance has a cash surrender value, but no
loan value.
Contracts issued on the lives of certain insureds in high risk rating classes
and Contracts issued in connection with tax qualified pension plans will include
a statement that extended term insurance will not be provided. In those cases,
variable reduced paid-up insurance will be the automatic benefit provided on
lapse.
2. VARIABLE REDUCED PAID-UP INSURANCE. Variable reduced paid-up insurance
provides insurance coverage for the lifetime of the insured. The initial
insurance amount will depend upon the cash surrender value on the date of
default (which reflects the deduction of the deferred sales load, administrative
charges, and Contract debt, if any), and the age and sex of the insured. This
will be a new guaranteed minimum death benefit. Aside from this guarantee, the
cash surrender value and the amount of insurance will vary with investment
performance in the same manner as the paid-up Contract described earlier. See
WHEN A CONTRACT BECOMES PAID-UP, page 17. Variable reduced paid-up insurance has
a loan privilege identical to that available on premium paying Contracts. See
CONTRACT LOANS, page 23. Acquisition of reduced paid-up insurance may result in
the Contract becoming a Modified Endowment Contract. See TAX TREATMENT OF
CONTRACT BENEFITS, page 25.
As explained above, variable reduced paid-up insurance is the automatic benefit
on lapse for Contracts issued on certain insureds. Owners of other Contracts who
want variable reduced paid-up insurance must ask for it in writing, in a form
that meets Pruco Life's needs, within three months of the date of default; it
will be available to such owners only if the initial amount of variable reduced
paid-up insurance would be at least $5,000. This minimum is not applicable to
Contracts for which variable reduced paid-up insurance is the automatic benefit
upon lapse.
3. PAYMENT OF CASH SURRENDER VALUE. The owner can receive the cash surrender
value by surrendering the Contract and making a written request in a form that
meets Pruco Life's needs. If Pruco Life receives the request after the 61-day
grace period has expired, the cash surrender value will be the net value of any
extended term insurance then in force, or the net value of any reduced paid-up
insurance then in force, less any Contract debt. Surrender of the Contract may
have tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 25.
RIGHT TO EXCHANGE A CONTRACT FOR A FIXED-BENEFIT INSURANCE POLICY
1. ORIGINAL CONTRACTS. At any time during the first 24 months after a Contract
is issued, so long as the Contract is not in default, the owner may exchange it
for an APPRECIABLE LIFE insurance policy on the insured's life issued by Pruco
Life. This is a general account, universal-life type policy with guaranteed
minimum values. No evidence of insurability will be required to make an
exchange. The new policy's premium and death benefit will be the same as the
original Contract's on the date of exchange. The new policy will also have the
same issue date and risk classification for the insured as the original
Contract. If the Contract fund value under the original Contract is greater than
the tabular Contract fund value under the new policy, the difference will be
credited to the Contract
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owner and carried over to the new policy. If the Contract fund value under the
original Contract is less than the tabular Contract fund value under the new
policy, a cash payment will be required from the exchanging owner.
The exchange will be effective when Pruco Life receives a written request in a
form that meets its needs. Any outstanding Contract debt must be repaid on or
before the effective date of the exchange.
The Contract owner may also exchange the Contract for an APPRECIABLE LIFE policy
according to procedures meeting applicable state insurance law requirements if
the Series Fund or one of its portfolios has a material change in its investment
policy. The Company, in conjunction with the Arizona Director of Insurance, will
determine if a change in investment policy is material. The Contract owner will
be able to exchange within 60 days of receipt of notice of such a material
change or of the effective date of the change, whichever is later.
2. REVISED CONTRACTS. Under the revised Contracts, the only right to exchange
the Contract for a fixed-benefit contract is provided by allowing Contract
owners to transfer their entire Contract fund to the fixed-rate option at any
time within the first 2 years from issue (or within 2 years of any increase in
face amount with respect to the amount of the increase) without regard to the
otherwise applicable limit of four transfers per year. See TRANSFERS, page 10.
This conversion right will also be provided if the Series Fund or one of its
portfolios has a material change in its investment policy, as explained above.
Generally, there is no right to exchange for an APPRECIABLE LIFE contract.
SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
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 to do so. Registered representatives of such other
broker-dealers may be paid on a different basis than described below. Where the
insured is less than 60 years of age, the representative will generally receive
a commission of no more than 50% of the scheduled premiums for the first year,
no more than 12% of the scheduled premiums for the second, third, and fourth
years, no more than 3% of the scheduled premiums for the fifth through tenth
years, and no more than 2% of the scheduled premiums thereafter. For insureds
over 59 years of age, the commission will be lower. The representative may be
required to return all or part of the first year commission if the Contract is
not continued through the second year. Representatives with less than 3 years of
service may be paid on a different basis. Representatives who meet certain
productivity, profitability, and persistency standards with regard to the sale
of the Contract will be eligible for additional compensation.
Sales expenses in any year are not equal to the deduction for sales load in that
year. Pruco Life expects to recover its total sales expenses over the periods
the Contracts are in effect. To the extent that the sales charges are
insufficient to cover total sales expenses, the sales expenses will be recovered
from Pruco Life's surplus, which may include amounts derived from the mortality
and expense risk charge and the guaranteed minimum death benefit risk charge
described in items 5 and 7 under CHARGES AND EXPENSES, page 11.
TAX TREATMENT OF CONTRACT BENEFITS
Each prospective purchaser is urged to consult a qualified tax advisor. The
following discussion is not intended as tax advice, and it is not a complete
statement of what the effect of federal income taxes will be under all
circumstances. Rather, it provides information about how Pruco Life believes the
tax laws apply in the most commonly occurring circumstances. There is no
guarantee, however, that the current federal income tax laws and regulations or
interpretations will not change.
TREATMENT AS LIFE INSURANCE. The Contract will be treated as "life insurance,"
as long as it satisfies certain definitional tests set forth in sections 7702 of
the Internal Revenue Code (the "Code") and as long as the underlying investments
for the Contract satisfy diversification requirements under section 817(h) of
the Code. (For further detail on diversification requirements, see DIVIDENDS,
DISTRIBUTIONS, AND TAXES in the attached prospectus for the Series Fund.)
Pruco Life believes that it has taken adequate steps to cause the Contract to be
treated as life insurance for tax purposes. This means that: (1) except as noted
below, the Contract owner should not be taxed on any part of the Contract fund,
including additions attributable to interest, dividends or appreciation 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
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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 issued under sections 7702
and 817. Therefore, it reserves the right to make such changes as it deems
necessary to assure that the Contract continues to qualify as life insurance for
tax purposes. Any such changes will apply uniformly to affected Contract owners
and will be made only after advance written notice to affected Contract owners.
PRE-DEATH DISTRIBUTIONS. The taxation of pre-death distributions depends on
whether the Contract is classified as a Modified Endowment Contract. The
following discussion first deals with distributions under Contracts not so
classified, and then with Modified Endowment Contracts.
1. A surrender or lapse of the Contract may have tax consequences. Upon
surrender, the owner will not be taxed on the cash surrender value except
for the amount, if any, that exceeds the gross premiums paid less the
untaxed portion of any prior withdrawals. The amount of any unpaid Contract
debt will, upon surrender or lapse, be added to the cash surrender value
and treated, for this purpose, as if it had been received. Any loss
incurred upon surrender is generally not deductible. The tax consequences
of a surrender may differ if the proceeds are received under any income
payment settlement option.
A withdrawal (or partial surrender) generally is not taxable unless it
exceeds total premiums paid to the date of withdrawal less the untaxed
portion of any prior withdrawals. However, under certain limited
circumstances, in the first 15 Contract years all or a portion of a
withdrawal may be taxable if the Contract fund exceeds the total premiums
paid less the untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums paid to date.
Extra premiums for optional benefits and riders generally do not count in
computing gross premiums paid, which in turn determines the extent to which
a withdrawal might be taxed.
Loans received under the Contract will ordinarily be treated as
indebtedness of the owner and will not be considered to be distributions
subject to tax.
2. Some of the above rules are changed if the Contract is classified as a
Modified Endowment Contract under section 7702A of the Code. It is possible
for this Contract to be classified as a Modified Endowment Contract under
at least two circumstances: premiums in excess of scheduled premiums are
paid or a decrease in the face amount of insurance is made (or a rider
removed). Moreover, the addition of a rider or the increase in the face
amount of insurance after the Contract date may have an impact on the
Contract's status as a Modified Endowment Contract. Contract owners
contemplating any of these steps should first consult a qualified tax
advisor and their Pruco Life representative.
If the Contract is classified as a Modified Endowment Contract, then
pre-death distributions, including loans and withdrawals, are includible in
income to the extent that the Contract fund prior to surrender charges
exceeds the gross premiums paid for the Contract increased by the amount of
any loans previously includible in income and reduced by any untaxed
amounts previously received other than the amount of any loans excludible
from income. These rules may also apply to pre-death distributions,
including loans, made during the 2-year period prior to the Contract
becoming a Modified Endowment Contract.
In addition, pre-death distributions from such Contracts (including full
surrenders) will be subject to a penalty of 10 percent of the amount
includible in income unless the amount is distributed on or after age
59 1/2, on account of the taxpayer's disability or as a life annuity. It is
presently unclear how the penalty tax provisions apply to Contracts owned
by nonnatural persons such as corporations.
Under certain circumstances, the Code requires two or more Modified
Endowment Contracts issued during a calendar year period to be treated as a
single contract for purposes of applying the above rules.
WITHHOLDING
The taxable portion of any amounts received under the Contract will be subject
to withholding to meet federal income tax obligations if the Contract owner
fails to elect that no taxes be withheld or in certain other circumstances.
Contract owners who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding. All
recipients may be subject to penalties under the estimated tax payment rules if
withholding and estimated tax payments of such amount are not sufficient.
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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 section 163 of the Code as personal interest or
under section 264 of the Code. Contract owners should consult his or her own tax
advisor 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. The Health Insurance Portability and Accountability Act of 1996
generally disallows tax deductions for interest on Contract debt on a
business-owned insurance policy effective (with certain transitional rules) for
interest paid or accrued after October 13, 1995. An exception permits the
deduction of interest on policy loans on Contracts for up to 20 key persons. The
interest deduction for Contract debt on such loans is limited to a prescribed
interest rate and a maximum aggregate loan amount of $50,000 per key insured
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.
CONTRACTS ISSUED IN CONNECTION WITH TAX-QUALIFIED PENSION PLANS
The Contracts may be acquired in connection with the funding of retirement plans
satisfying the qualification requirements of section 401 of the Internal Revenue
Code. Such Contracts may be issued with a minimum face amount of $25,000, and
increases and decreases in face amount may be effected in minimum increments of
$10,000. The monthly charge for anticipated mortality costs and the scheduled
premiums under such Contracts will be the same for male and female insureds of a
particular age and underwriting classification. Illustrations reflecting such
premiums and charges will be given to purchasers of Contracts issued in
connection with qualified plans. Only certain of the riders normally available
with the Contracts are available to Contracts issued in connection with
qualified plans. See RIDERS, page 29. Moreover, variable reduced paid-up
insurance and payment of cash surrender value are the only options on lapse
available to Contracts issued in connection with qualified plans. See OPTIONS ON
LAPSE, page 24. Finally, Contracts issued in connection with qualified plans may
not invest in the Real Property Account.
Prior to purchase of a Contract in connection with a qualified plan, the
applicable tax rules relating to such plans and life insurance thereunder should
be examined in consultation with a qualified tax advisor.
THE FIXED-RATE OPTION
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED-RATE
OPTION UNDER THE CONTRACT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND THE GENERAL ACCOUNT HAS NOT BEEN REGISTERED AS AN INVESTMENT COMPANY
UNDER THE INVESTMENT COMPANY ACT OF 1940. ACCORDINGLY, INTERESTS IN THE
FIXED-RATE OPTION ARE NOT SUBJECT TO THE PROVISIONS OF THESE ACTS, AND PRUCO
LIFE HAS BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED-RATE
OPTION. DISCLOSURE REGARDING THE FIXED-RATE OPTION MAY, HOWEVER, BE SUBJECT TO
CERTAIN GENERALLY APPLICABLE PROVISIONS OF FEDERAL SECURITIES LAWS RELATING TO
THE ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES.
As explained earlier, a Contract owner may elect to allocate, either initially
or by transfer, all or part of the amount credited under the Contract to a
fixed-rate option, and the amount so allocated or transferred becomes part of
Pruco Life's general assets. Sometimes this is referred to as Pruco Life's
general account, which consists of all assets owned by Pruco Life other than
those in the Account and in other separate accounts that have been or may be
established by Pruco Life. Subject to applicable law, Pruco Life has sole
discretion over the investment of the assets of the general account, and
Contract owners do not share in the investment experience of those assets.
Instead, Pruco Life guarantees that the part of the Contract fund allocated to
the fixed-rate option will accrue interest daily at an effective annual rate
that Pruco Life declares periodically, but not less than an effective annual
rate of 4%. Currently, declared interest rates remain in effect from the date
money is allocated to the fixed-rate option until the Monthly date in the same
month in the following year. Thereafter, a new crediting rate will be declared
each year and will remain in effect for the calendar year. Pruco Life reserves
the right to change this practice. Pruco Life is not obligated to credit
interest at a higher rate than 4%, although in its sole discretion it may do so.
Different crediting rates may be declared for different portions of the Contract
fund allocated to the
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fixed-rate option. On request, a Contract owner will be advised of the interest
rates that currently apply to his or her Contract.
Transfers from the fixed-rate option are subject to strict limits. (See
TRANSFERS, page 10). The payment of any cash surrender value attributable to the
fixed-rate option may be delayed up to 6 months (see WHEN PROCEEDS ARE PAID,
page 20).
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS
The Contract generally employs mortality tables that distinguish between males
and females. Thus, premiums and benefits under Contracts issued on males and
females of the same age will generally differ. However, in those states that
have adopted regulations prohibiting sex-distinct insurance rates, premiums and
cost of insurance charges will be based on a blended unisex rate whether the
insured is male or female. In addition, employers and employee organizations
considering purchase of a Contract should consult their legal advisors to
determine whether purchase of a Contract based on sex-distinct actuarial tables
is consistent with Title VII of the Civil Rights Act of 1964 or other applicable
law. Pruco Life may offer the Contract with unisex mortality rates to such
prospective purchasers.
OTHER GENERAL CONTRACT PROVISIONS
BENEFICIARY. The beneficiary is designated and named in the application by the
Contract owner. Thereafter, the owner may change the beneficiary, provided it is
in accordance with the terms of the Contract. Should the insured die with no
surviving beneficiary, the insured's estate will become the beneficiary.
INCONTESTABILITY. After the Contract has been in force during the insured's
lifetime for 2 years from the Contract date or, with respect to any change in
the Contract that requires Pruco Life's approval and could increase its
liability, after the change has been in effect during the insured's lifetime for
2 years from the effective date of the change, Pruco Life will not contest its
liability under the Contract in accordance with its terms.
MISSTATEMENT OF AGE OR SEX. If the insured's stated age or sex (except where
unisex rates apply) or both are incorrect in the Contract, Pruco Life will
adjust the death benefits payable, as required by law, to reflect the correct
age and sex. Any death benefit will be based on what the most recent charge for
mortality would have provided at the correct age and sex.
SUICIDE EXCLUSION. Generally, if the insured, whether sane or insane, dies by
suicide within 2 years from the Contract date, Pruco Life will pay no more under
the Contract than the sum of the premiums paid.
If the insured, whether sane or insane, dies by suicide within 2 years from the
effective date of an increase in the face amount of insurance, Pruco Life will
pay, with respect to the amount of the increase, no more than the sum of the
scheduled premiums attributable to the increase.
ASSIGNMENT. This Contract may not be assigned if such assignment would violate
any federal, state or local law or regulation. Pruco Life assumes no
responsibility for the validity or sufficiency of any assignment, and it will
not be obligated to comply with any assignment unless it has received a copy at
one of its Home Offices.
SETTLEMENT OPTIONS. The Contract grants to most owners, or to the beneficiary, a
variety of optional ways of receiving Contract proceeds, other than in a lump
sum. Any Pruco Life representative authorized to sell this Contract can explain
these options upon request.
RIDERS
Contract owners may be able to obtain extra fixed benefits which may require an
additional premium. These benefits will be described in what is known as a
"rider" to the Contract. Charges for riders will be taken out of the Contract's
Contract fund on each Monthly date. One rider pays an additional amount if the
insured dies in an accident. Others waive certain premiums if the insured is
disabled within the meaning of the provision (or, in the case of a Contract
issued on an insured under the age of 15, if the applicant dies or becomes
disabled within the meaning of the provision). Others pay an additional amount
if the insured dies within a stated number of years after issue; similar term
insurance riders may be available for the insured's spouse or child. The amounts
of these benefits are fully guaranteed at issue; they do not depend on the
performance of the Account. Certain restrictions may apply; they are clearly
described in the applicable rider. Any Pruco Life representative authorized to
sell the Contract can explain these riders further. Samples of the provisions
are available from Pruco Life upon written request.
Under one form of rider, which provides monthly renewable term life insurance,
the amount payable upon the death of the insured may be substantially increased.
If this rider is purchased, even the original Contract will not become paid-up,
although, if the Contract fund becomes sufficiently large, a time may come when
Pruco Life will have the right to refuse to accept further premiums. See WHEN A
CONTRACT BECOMES PAID-UP, page 17.
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Under another form of rider that is purchased for a single premium, businesses
that own a Contract covering certain employees may be able to change the insured
person from one key employee to another if certain requirements are met.
VOTING RIGHTS
As stated above, all of the assets held in the subaccounts of the Account will
be invested in shares of the corresponding portfolios of the Series Fund. Pruco
Life is the legal owner of those shares and as such has the right to vote on any
matter voted on at Series Fund shareholders meetings. However, Pruco Life will,
as required by law, vote the shares of the Series Fund at any regular and
special shareholders meetings it is required to hold in accordance with voting
instructions received from Contract owners. The Series Fund will not hold annual
shareholders meetings when not required to do so under Maryland law or the
Investment Company Act of 1940. Series Fund shares for which no timely
instructions from Contract owners are received, and any shares attributable to
general account investments of Pruco Life will be voted in the same proportion
as shares in the respective portfolios for which instructions are received.
Should the applicable federal securities laws or regulations, or their current
interpretation, change so as to permit Pruco Life to vote shares of the Series
Fund in its own right, it may elect to do so.
Matters on which Contract owners may give voting instructions include the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's selected subaccount[s]; (4) any change in
the fundamental investment policy of a portfolio corresponding to the Contract
owner's selected subaccount[s]; and (5) any other matter requiring a vote of the
shareholders of the Series Fund. With respect to approval of the investment
advisory agreement or any change in a portfolio's fundamental investment policy,
Contract owners participating in such portfolios will vote separately on the
matter, pursuant to the requirements of Rule 18f-2 under the 1940 Act.
The number of Series Fund shares for which instructions may be given by a
Contract owner is determined by dividing the portion of the value of the
Contract derived from participation in a subaccount, by the value of one share
in the corresponding portfolio of the Series Fund. The number of votes for which
each Contract owner may give Pruco Life instructions will be determined as of
the record date chosen by the Board of Directors of the Series Fund. Pruco Life
will furnish Contract owners with proper forms and proxies to enable them to
give these instructions. Pruco Life reserves the right to modify the manner in
which the weight to be given voting instructions is calculated where such a
change is necessary to comply with current federal regulations or
interpretations of those regulations.
Pruco Life may, if required by state insurance regulations, disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the sub-classification or investment objectives of one or more
of the Series Fund's portfolios, or to approve or disapprove an investment
advisory contract for the Series Fund. In addition, Pruco Life itself may
disregard voting instructions that would require changes in the investment
policy or investment advisor of one or more of the Series Fund's portfolios,
provided that Pruco Life reasonably disapproves such changes in accordance with
applicable federal regulations. If Pruco Life does disregard voting
instructions, it will advise Contract owners of that action and its reasons for
such action in the next annual or semi-annual report to Contract owners.
SUBSTITUTION OF SERIES FUND SHARES
Although Pruco Life believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Series Fund may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, Pruco Life may seek to substitute the shares of another portfolio or
of an entirely different mutual fund. Before this can be done, the approval of
the SEC, and possibly one or more state insurance departments, will be required.
Contract owners will be notified of such substitution.
STATE REGULATION
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
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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 Pamela A.
Schiz, FSA, MAAA, 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.
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
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information may, however, be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
Further information may also be obtained from Pruco Life's office. The address
and telephone number are set forth on the cover of this prospectus.
FINANCIAL STATEMENTS
The consolidated financial statements of Pruco Life and subsidiaries included
herein should be distinguished from the financial statements of the Account, and
should be considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
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DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life, listed with their principal
occupations during the past 5 years, are shown below.
DIRECTORS OF PRUCO LIFE
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 APPRECIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 3]......... $ 48,803,647 $ 70,891,889 $ 815,332,832 $ 1,135,464,709 $ 572,401,588
Receivable from Pruco Life Insurance Company
[Note 2]......................................... 0 8,800 0 0 119,717
------------- ------------- ------------- --------------- -------------
Net Assets...................................... $ 48,803,647 $ 70,900,689 $ 815,332,832 $ 1,135,464,709 $ 572,521,305
============= ============= ============= =============== =============
NET ASSETS, representing:
Equity of Contract owners........................ $ 47,134,860 $ 70,900,689 $ 815,139,674 $ 1,135,308,440 $ 572,521,305
Equity of Pruco Life Insurance Company........... 1,668,787 0 193,158 156,269 0
------------- ------------- ------------- --------------- -------------
$ 48,803,647 $ 70,900,689 $ 815,332,832 $ 1,135,464,709 $ 572,521,305
============= ============= ============= =============== =============
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................... $ 2,458,119 $ 5,128,836 $ 17,535,990 $ 32,821,189 $ 25,761,286
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A]........ 276,535 417,937 4,548,952 6,514,308 3,334,597
Reimbursement for excess expenses [Note 5D]....... (10,194) (16,936) (588,463) (2,462,808) (912,152)
------------- ------------- ------------- ------------- ------------
NET EXPENSES........................................ 266,341 401,001 3,960,489 4,051,500 2,422,445
------------- ------------- ------------- ------------- ------------
NET INVESTMENT INCOME (LOSS)........................ 2,191,778 4,727,835 13,575,501 28,769,689 23,338,841
------------- ------------- ------------- ------------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............. 0 819,446 43,792,759 170,075,692 61,582,374
Realized gain on shares redeemed
[average cost basis]........................... 0 216,418 12,144,753 13,389,631 5,214,424
Net change in unrealized gain (loss)
on investments................................. 0 (456,475) 91,191,354 (37,601,198) (22,803,360)
------------- ------------- ------------- ------------- ------------
NET GAIN (LOSS) ON INVESTMENTS...................... 0 579,389 147,128,866 145,864,125 43,993,438
------------- ------------- ------------- ------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........................ $ 2,191,778 $ 5,307,224 $ 160,704,367 $ 174,633,814 $ 67,332,279
============= ============= ============= ============= ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A15
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------
HIGH SMALL
YIELD STOCK EQUITY NATURAL GOVERNMENT PRUDENTIAL CAPITALIZATION
BOND INDEX INCOME RESOURCES GLOBAL INCOME JENNISON STOCK
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 39,938,592 $ 134,341,215 $ 91,567,534 $ 26,548,192 $ 27,235,367 $ 8,532,951 $ 24,960,065 $ 18,871,733
0 0 0 0 1,853 0 0 0
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 39,938,592 $ 134,341,215 $ 91,567,534 $ 26,548,192 $ 27,237,220 $ 8,532,951 $ 24,960,065 $ 18,871,733
============= ============= ============= ============= ============= ============= ============= =============
$ 134,279,750 $ 91,345,449 $ 26,520,196 $ 27,237,220 $ 8,522,551 $ 24,681,581 $ 18,739,445 $ 39,907,073
31,519 61,465 222,085 27,996 0 10,400 278,484 132,288
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 39,938,592 $ 134,341,215 $ 91,567,534 $ 26,548,192 $ 27,237,220 $ 8,532,951 $ 24,960,065 $ 18,871,733
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------------
HIGH SMALL
YIELD STOCK EQUITY NATURAL GOVERNMENT PRUDENTIAL CAPITALIZATION
BOND INDEX INCOME RESOURCES GLOBAL INCOME JENNISON STOCK
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,606,406 $ 1,739,314 $ 1,948,909 $ 159,612 $ 328,183 $ 556,385 $ 40,345 $ 88,794
226,827 677,531 441,648 189,874 158,801 51,887 100,484 78,580
0 0 0 0 0 0 0 0
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
226,827 677,531 441,648 189,874 158,801 51,887 100,484 78,580
============= ============= ============= ============= ============= ============= ============= =============
3,379,579 1,061,783 1,507,261 (30,262) 169,382 504,498 (60,139) 10,214
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
0 3,715,259 8,147,416 3,387,934 1,296,459 0 1,372,676 1,269,194
19,344 2,487,203 256,502 608,721 251,779 22,866 167,648 38,103
1,276,625 23,073,809 12,255,558 (7,614,863) (363,854) 214,791 2,544,336 1,411,982
- ------------- ------------- ------------- -------------- ------------- ------------- ------------- -------------
1,295,969 29,276,271 20,659,476 (3,618,208) 1,184,384 237,657 4,084,660 2,719,279
- ------------- ------------- ------------- -------------- ------------- ------------- ------------- -------------
$ 4,675,548 $ 30,338,054 $ 22,166,737 $ (3,648,470) $ 1,353,766 $ 742,155 $ 4,024,521 $ 2,729,493
============= ============= ============= ============== ============= ============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A15
A2
<PAGE>
FINANCIAL STATEMENTS OF THE VARIABLE APPRECIABLE 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
---------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
------------------------------------------ ------------------------------------------
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.................... 8,602,527 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 A9 THROUGH A15
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
EQUITY MANAGED BALANCED
- ---------------------------------------- --------------------------------------------- -----------------------------------------
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 $ 19,022,611 $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 A9 THROUGH A15
A4
<PAGE>
FINANCIAL STATEMENTS OF THE VARIABLE APPRECIABLE 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
--------------------------------------------------------------------------------------
HIGH
YIELD STOCK
BOND INDEX
------------------------------------------ ----------------------------------------
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 A9 THROUGH A15
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------------
EQUITY NATURAL
INCOME RESOURCES GLOBAL
- ---------------------------------------- ----------------------------------------- -----------------------------------------
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 $ (30,262) $ 28,985 $ 131,646 $ 169,382 $ 380,383 $ 137,947
8,147,416 1,879,859 2,122,385 3,387,934 3,633,842 969,854 1,296,459 347,618 270,758
256,502 417,132 107,006 608,721 267,338 135,295 251,779 36,315 60,621
12,255,558 6,642,405 4,726,822 (7,614,863) 2,559,541 3,207,434 (363,854) 2,363,101 1,314,446
- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ------------ -----------
22,166,737 10,507,899 8,455,291 (3,648,470) 6,489,706 4,444,229 1,353,766 3,127,417 1,783,772
- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ------------ -----------
9,173,359 (1,064,633) 3,721,237 (1,004,770) 3,651,574 464,376 3,236,611 5,614,035 1,377,627
- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
226,288 (61,045) 75,709 (181,355) 40,623 23,471 (120,958) 18,594 (539,673)
- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- -----------
31,566,384 9,382,221 12,252,237 (4,834,595) 10,181,903 4,932,076 4,469,419 8,760,046 2,621,726
60,001,150 50,618,929 38,366,692 31,382,787 21,200,884 16,268,808 22,767,801 14,007,755 11,386,029
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$91,567,534 $60,001,150 $50,618,929 $26,548,192 $31,382,787 $21,200,884 $27,237,220 $22,767,801 $14,007,755
=========== =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A15
A6
<PAGE>
FINANCIAL STATEMENTS OF THE VARIABLE APPRECIABLE 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
------------------------------------------------------------------------------------
GOVERNMENT PRUDENTIAL
INCOME JENNISON*
--------------------------------------- -----------------------------------------
1997 1996 1995 1997 1996 1995
---------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss)........... $ 504,498 $ 563,115 $ 578,383 $ (60,139) $ (19,230) $ (2,483)
Capital gains distributions received... 0 0 0 1,372,676 0 0
Realized gain (loss) on shares redeemed
[average cost basis].................. 22,866 19,619 10,838 167,648 32,821 3,407
Net change in unrealized gain (loss) on
investments........................... 214,791 (439,977) 1,064,134 2,544,336 870,328 59,770
---------- ---------- ----------- ----------- ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.............. 742,155 142,757 1,653,355 4,024,521 883,919 60,694
---------- ---------- ----------- ----------- ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS AND
OTHER OPERATING TRANSFERS
[Note 7]............................... (1,750,183) (808,931) (557,802) 9,693,699 8,604,081 1,554,794
---------- ---------- ----------- ----------- ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS
[Note 8]............................... (19,930) (44,003) (180,155) (30,216) 71,804 96,769
---------- ---------- ----------- ----------- ----------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS.. (1,027,958) (710,177) 915,398 13,688,004 9,559,804 1,712,257
NET ASSETS:
Beginning of year...................... 9,560,909 10,271,086 9,355,688 11,272,061 1,712,257 0
---------- ---------- ----------- ----------- ----------- ----------
End of year............................ $8,532,951 $9,560,909 $10,271,086 $24,960,065 $11,272,061 $1,712,257
========== ========== =========== =========== =========== ==========
</TABLE>
* Commenced Business on 5/1/95
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A15
A7
<PAGE>
SUBACCOUNTS (CONTINUED)
- --------------------------------------------
SMALL
CAPITALIZATION
STOCK*
- --------------------------------------------
1997 1996 1995
- ----------- ----------- ------------
$ 10,214 $ 15,850 $ 3,088
1,269,194 147,641 18,365
38,103 132,894 3,705
1,411,982 626,371 50,127
- ----------- ----------- ------------
2,729,493 922,756 75,285
- ----------- ----------- ------------
7,549,100 5,434,938 2,019,898
- ----------- ----------- ------------
(23,520) (105,516) 269,299
- ----------- ----------- ------------
10,255,073 6,252,178 2,364,482
8,616,660 2,364,482 0
- ----------- ----------- ------------
$18,871,733 $ 8,616,660 $ 2,364,482
=========== =========== ============
* Commenced Business on 5/1/95
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A9 THROUGH A15
A8
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF THE VARIABLE APPRECIABLE 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 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. VAL contracts offer the option to
invest in thirteen of these subaccounts within the Account, each of
which invests only in a corresponding portfolio of The Prudential
Series Fund, Inc. (the "Series Fund"). The Series Fund is a
diversified open-end management investment company, and is managed
by Prudential.
New sales of the 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 accompanying financial statements are prepared in conformity
with generally accepted accounting principles (GAAP). The
preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts and disclosures. Actual results could differ
from those estimates.
Investments--The investments in shares of the Series Fund are stated
-----------
at the net asset value of the respective portfolio.
Security Transactions -- Realized gains and losses on security
---------------------
transactions are reported on an average cost basis. Purchase and
sale transactions are recorded as of the trade date of the security
being purchased or sold.
Distributions Received--Dividend and capital gain distributions
----------------------
received are reinvested in additional shares of the Series Fund and
are recorded on 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.
A9
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC.
PORTFOLIOS
The net asset value per share for each portfolio of the Series Fund,
the number of shares of each portfolio held by the subaccounts of
the Account and the aggregate cost of investments in such shares at
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
-------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of Shares: 4,880,365 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
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
-------------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of Shares: 4,903,732 4,445,505 4,090,143 1,741,521 1,519,536
Net asset value per share: $ 8.14453 $ 30.21956 $ 22.38737 $ 15.24426 $ 17.92348
Cost: $ 39,721,629 $ 77,787,464 $ 67,413,031 $ 27,568,606 $ 24,480,770
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
--------------------------------------------------
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
------------ ------------ ------------
<S> <C> <C> <C>
Number of Shares: 740,524 1,407,667 1,184,589
Net asset value per share: $ 11.52286 $ 17.73151 $ 15.93104
Cost: $ 8,319,277 $ 21,485,631 $ 16,783,253
</TABLE>
A10
<PAGE>
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
--------------------------------------------------------------------------------------------------------------------
PORTFOLIO MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
INFORMATION MARKET BOND EQUITY MANAGED BALANCED
----------------------------- -------------- -------------- --------------- --------------- ---------------
<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>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------
HIGHYIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
-------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units
Outstanding (VAL)........... 15,988,165.351 31,945,525.610 20,599,042.714 10,094,164.307 18,745,150.343
Unit Value (VAL).............. $ 2.46035 $ 4.05453 $ 4.33858 $ 2.62728 $ 1.41253
-------------- -------------- --------------- -------------- --------------
Contract Owner Equity
(VAL)....................... $ 39,336,483 $ 129,524,092 $ 89,370,595 $ 26,520,196 $ 26,478,087
-------------- -------------- --------------- -------------- --------------
Contract Owner Units
Outstanding (VUL)........... 501,701.742 3,594,004.128 1,418,655.757 N/A 698,663.847
Unit Value (VUL).............. 1.13731 1.32322 1.39206 N/A 1.08655
-------------- -------------- --------------- -------------- --------------
Contract Owner Equity
(VUL)....................... $ 570,590 $ 4,755,658 $ 1,974,854 $ N/A $ 759,133
-------------- -------------- --------------- -------------- --------------
TOTAL CONTRACT OWNER
EQUITY...................... $ 39,907,073 $ 134,279,750 $ 91,345,449 $ 26,520,196 $ 27,237,220
============== ============== =============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
------------- -------------- ---------------
<S> <C> <C> <C>
Contract Owner Units
Outstanding (VAL)........... 4,302,254.334 12,190,230.602 10,589,350.925
Unit Value (VAL).............. $ 1.98095 $ 1.86484 $ 1.76965
------------- -------------- ---------------
Contract Owner Equity
(VAL)....................... $ 8,522,551 $ 22,732,830 $ 18,739,445
------------- -------------- ---------------
Contract Owner Units
Outstanding (VUL)........... N/A 1,509,150.440 N/A
Unit Value (VUL).............. N/A 1.29129 N/A
------------- -------------- ---------------
Contract Owner Equity
(VUL)....................... $ N/A $ 1,948,751 $ N/A
------------- -------------- ---------------
TOTAL CONTRACT OWNER
EQUITY...................... $ 8,522,551 $ 24,681,581 $ 18,739,445
============= ============== ===============
</TABLE>
A11
<PAGE>
NOTE 5: CHARGES AND EXPENSES
A. Mortality Risk and Expense Risk Charges
The mortality risk and expense risk charges at an effective
annual rate of 0.60% are applied 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.
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 statement.
A12
<PAGE>
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
----------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------- ----------- ------------ ------------ ------------
<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)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
------------ ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Contract Owner Net Payments............ $ 3,024,941 $ 11,823,208 $ 6,514,479 $ 2,473,751 $ 2,426,347
Policy Loans........................... $ (1,149,056) $ (4,047,578) $ (2,378,404) $(1,028,672) $ (665,649)
Policy Loan Repayments and Interest.... $ 751,249 $ 3,296,705 $ 1,466,470 $ 706,018 $ 410,448
Surrenders, Withdrawals, and Death
Benefits.............................. $ (1,898,223) $ (8,511,446) $ (3,616,294) $(1,567,494) $ (1,030,134)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options..... $ (3,054) $ 16,075,177 $ 9,926,365 $ (345,448) $ 3,018,892
Administrative and Other Charges....... $ (1,622,796) $ (4,374,518) $ (2,739,257) $(1,242,925) $ (923,293)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
------------- ------------- --------------
<S> <C> <C> <C>
Contract Owner Net Payments............ $ 716,666 $ 3,275,515 $ 966,611
Policy Loans........................... $ (343,550) $ (615,994) $ (416,759)
Policy Loan Repayments and Interest.... $ 170,059 $ 403,472 $ 230,529
Surrenders, Withdrawals, and Death
Benefits.............................. $ (727,111) $ (663,449) $ (419,040)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options..... $ (1,189,722) $ 8,134,626 $ 7,568,665
Administrative and Other Charges....... $ (376,525) $ (840,471) $ (380,906)
</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.
A13
<PAGE>
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
------------------------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND EQUITY
--------------------------------- ------------------------------ ----------------------------------
1997 1996 1997 1996 1997 1996
--------------- -------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 29,773,082.917 18,317,198.320 3,976,684.244 6,032,489.291 16,279,304.555 19,318,824.308
Contract Owner
Redemptions: (30,489,424.759) (20,797,006.538) (5,177,102.200) (5,568,937.715) (18,324,621.964) (21,974,064.812)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE HIGH YIELD
MANAGED BALANCED BOND
-------------------------------- ------------------------------- -------------------------------
1997 1996 1997 1996 1997 1996
-------------- -------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 28,250,560.741 33,929,159.280 18,585,298.689 22,253,843.498 4,131,802.258 4,533,364.255
Contract Owner
Redemptions: (40,903,218.632) (45,839,478.729) (26,481,933.900) (31,093,009.761) (4,240,015.394) (5,073,116.794)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------------
STOCK EQUITY NATURAL
INDEX INCOME RESOURCES
------------------------------- ------------------------------ -------------------------------
1997 1996 1997 1996 1997 1996
-------------- -------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 13,730,033.346 10,183,057.448 8,191,054.641 4,799,710.141 2,890,658.374 4,624,377.287
Contract Owner
Redemptions: (7,373,719.208) (6,331,551.426) (4,945,055.787) (5,166,776.253) (3,222,181.719) (3,352,624.583)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------------------------------
GOVERNMENT PRUDENTIAL
GLOBAL INCOME JENNISON
------------------------------- ------------------------------- -------------------------------
1997 1996 1997 1996 1997 1996
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 6,841,694.027 10,050,734.228 795,614.997 1,390,565.397 9,601,165.316 10,385,284.939
Contract Owner
Redemptions: (4,372,292.431) (5,504,422.378) (1,744,126.452) (1,851,584.892) (3,617,613.590) (3,950,760.606)
</TABLE>
SUBACCOUNTS (CONTINUED)
----------------------------------
SMALL CAPITALIZATION
STOCK
----------------------------------
1997 1996
----------------- --------------
Contract Owner
Contributions: 6,514,104.384 8,735,019.776
Contract Owner
Redemptions: (1,866,969.690) (4,551,837.745)
A14
<PAGE>
NOTE 10: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments in the
Series Fund were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
--------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31,
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)
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
-----------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
-------------- ------------ ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
For the year ended December 31,
1997
Purchases......................... $ 3,446,000 $ 19,176,000 $ 11,743,000 $ 1,934,000 $ 4,652,000
Sales............................. $ (4,546,000) $ (6,127,000) $ (2,785,000) $ (3,310,000) $ (1,697,000)
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
-------------- ------------ ------------
<S> <C> <C> <C>
For the year ended December 31,
1997
Purchases......................... $ 207,000 $ 11,089,000 $ 7,702,000
Sales............................. $ (2,029,000) $ (1,526,000) $ (255,000)
</TABLE>
A15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the
Variable Appreciable Life Subaccounts of the
Pruco Life Variable Appreciable Account
and the Board of Directors of Pruco Life Insurance Company
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the subaccounts (Money Market,
Diversified Bond, Equity, Flexible Managed, Conservative Balanced, High Yield
Bond, Stock Index, Equity Income, Natural Resources, Global, Government Income,
Prudential Jennison and Small Capitalization Stock) of the Pruco Life Variable
Appreciable Account at December 31, 1997, the results of each of their
operations for the year then ended and the changes in each of their net assets
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Pruco Life Insurance Company's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of shares owned in The Prudential Series
Fund, Inc. at December 31, 1997, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
New York, New York
March 20, 1998
A16
<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, Natural
Resources, Global, Government Income, Prudential Jennison, and Small
Capitalization Stock 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
A17
<PAGE>
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
APPRECIABLE
LIFE(R)
INSURANCE
[logo] PRUDENTIAL
PRUCO LIFE INSURANCE COMPANY
213 Washington Street, Newark, NJ 07102-2992
Telephone 800 437-4016
VAL-1 Ed. 5/98 CAT #64696EO
<PAGE>
PART II
OTHER INFORMATION
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION WITH RESPECT TO CHARGES
Pruco Life Insurance Company represents that the fees and charges deducted under
the variable Appreciable Life insurance contracts registered by this
registration statement, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by Pruco Life Insurance Company.
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 79 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. Deloitte & Touche LLP, independent auditors.
2. Price Waterhouse LLP, independent accountants.
3. Clifford E. Kirsch, Esq.
4. Pamela A. Schiz, FSA, MAAA.
The following exhibits:
1. The following exhibits correspond to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of Board of Directors of Pruco Life Insurance
Company establishing the Pruco Life Variable Appreciable
Account. (Note 6)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities
Corporation and Pruco Life Insurance Company. (Note 9)
(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the
Sale of the Contracts. (Note 9)
(c) Schedules of Sales Commissions. (Note 9)
(4) Not Applicable.
(5) Variable Appreciable Life Insurance Contracts.
(a) With fixed death benefit. (Note 9)
(b) With variable death benefit. (Note 9)
(c) Complaint Notice for use in Texas with Variable
Appreciable Life Insurance Contracts. (Note 9)
(d) Notice giving Information for Consumers for use in
Illinois with Variable Appreciable Life Insurance
Contracts. (Note 9)
(e) Endorsement for Misstatement of Age and/or Sex for use
in Pennsylvania with Variable Appreciable Life
Insurance Contracts. (Note 9)
(f) Revised Contract with fixed death benefit. (Note 9)
(g) Revised Contract with variable death benefit. (Note 9)
(6) (a) Articles of Incorporation of Pruco Life Insurance
Company, as amended October 19, 1993. (Note 6)
(b) By-laws of Pruco Life Insurance Company, as amended May
6, 1997. (Note 4)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form for Variable Appreciable Life
Insurance Contract. (Note 9)
(b) Supplement to the Application for Variable Appreciable
Life Insurance Contract. (Note 9)
(11) Form of Notice of Withdrawal Right. (Note 9)
(12) Memorandum describing Pruco Life Insurance Company's
issuance, transfer, and redemption procedures for the
Contracts pursuant to Rule 6e-2(b)(12)(ii) and method of
computing cash adjustment upon exercise of right to exchange
for fixed-benefit insurance pursuant to Rule
II-2
<PAGE>
6e-2(b)(13)(v)(B). (Note 8)
(13) Available Contract Riders.
(a) Rider for Insured's Waiver of Premium Benefit. (Note 9)
(b) Rider for Applicant's Waiver of Premium Benefit. (Note
9)
(c) Rider for Insured's Accidental Death Benefit. (Note 9)
(d) Rider for Level Term Insurance Benefit on Life of
Insured. (Note 9)
(e) Rider for Decreasing Term Insurance Benefit on Life of
Insured. (Note 9)
(f) Rider for Interim Term Insurance Benefit. (Note 9)
(g) Rider for Option to Purchase Additional Insurance on
Life of Insured. (Note 9)
(h) Rider for Decreasing Term Insurance Benefit on Life of
Insured Spouse. (Note 9)
(i) Rider for Level Term Insurance Benefit on Dependent
Children. (Note 9)
(j) Rider for Level Term Insurance Benefit on Dependent
Children-from Term Conversions. (Note 9)
(k) Rider for Level Term Insurance Benefit on Dependent
Children-from Term Conversions or Attained Age Change.
(Note 9)
(l) Rider defining Insured Spouse. (Note 3)
(m) Rider covering lack of Evidence of Insurability on a
Child. (Note 3)
(n) Rider modifying Waiver of Premium Benefit. (Note 3)
(o) Rider to terminate a Supplementary Benefit. (Note 3)
(p) Rider providing for election of Variable Reduced
Paid-up Insurance. (Note 9)
(q) Rider to provide for exclusion of Aviation Risk. (Note
9)
(r) Rider to provide for exclusion of Military Aviation
Risk. (Note 9)
(s) Rider to provide for exclusion for War Risk. (Note 9)
(t) Endorsement for Contractual Conversion of a Term
Policy. (Note 3)
(u) Endorsement for Conversion of a Dependent Child. (Note
3)
(v) Endorsement for Conversion of Level Term Insurance
Benefit on a Child. (Note 3)
(w) Endorsement providing for Variable Loan Interest Rate.
(Note 9)
(x) Rider for Automatic Premium Loan for use in Maryland
and Rhode Island. (Note 9)
(y) Certification guaranteeing Right to Convert for use in
Virginia. (Note 3)
(z) Endorsement for Increase in Face Amount. (Note 9)
(aa) Supplementary Monthly Renewable Non-Convertible One
Month Term Insurance
(i) for use with fixed death benefit Contract.
(Note 9)
(ii) for use with variable death benefit Contract.
(Note 9)
(bb) Rider for Term Insurance Benefit on Life of
Insured-Decreasing Amount After Three Years. (Note 9)
(cc) Rider for Term Insurance Benefit on Life of Insured
Spouse-Decreasing Amount After Three Years. (Note 9)
(dd) Endorsement for Contracts issued in connection with
tax-qualified pension plans. (Note 9)
(ee) Appreciable Plus Rider. (Note 9)
(ff) Living Needs Benefit Rider
(i) for use in Florida. (Note 6)
(ii) for use in all approved jurisdictions except
Florida. (Note 6)
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 Pamela A. Schiz, FSA, MAAA, as to actuarial
matters pertaining to the securities being registered. (Note 1)
7. Powers of Attorney:
(a) William M. Bethke, Ira J. Kleinman, Mendel A. Melzer,
Esther H. Milnes, I. Edward Price (Note 2)
(b) Kiyofumi Sakaguchi (Note 7)
(c) James J. Avery, Jr. (Note 10)
(d) James M. Schlomann (Note 5)
II-3
<PAGE>
27. Financial Data Schedule (Note 1)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Form 10-K, Registration No. 33-08698,
filed March 31, 1997 on behalf of the Pruco Life Variable Contract
Real Property Account.
(Note 3) Incorporated by reference to Post-Effective Amendment No. 24 to
Form S-6, Registration No. 2-80513, filed April 30, 1997 on behalf of
the Pruco Life Variable Insurance Account.
(Note 4) Incorporated by reference to Form 10-Q, Registration No. 33-37587,
filed August 15, 1997 on behalf of the Pruco Life Insurance Company.
(Note 5) 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 6) Incorporated by reference to Form S-6, Registration No. 333-07451,
filed July 2, 1996, on behalf of the Pruco Life Variable Appreciable
Account.
(Note 7) Incorporated by reference to Post-Effective Amendment No. 8 to Form
S-6, Registration No. 33-49994, filed April 28, 1997 on behalf of the
Pruco Life PRUvider Variable Appreciable Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 25 to
this Registration Statement, filed April 25, 1996.
(Note 9) Incorporated by reference to Post-Effective Amendment No. 26 to
this Registration Statement, filed April 29, 1997.
(Note 10) Incorporated by reference to Post-Effective Amendment No. 2 to
Form S-6, Registration No. 333-07451, filed June 25, 1997 on behalf
of the Pruco Life Variable Appreciable Account.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life Variable Appreciable Account, certifies that this Amendment is filed
solely for one or more of the purposes specified in Rule 485(b)(1) under the
Securities Act of 1933 and that no material event requiring disclosure in the
prospectus, other than one listed in Rule 485(b)(1), has occurred since the
effective date of the most recent Post-Effective Amendment to the Registration
Statement which included a prospectus and has caused this Registration Statement
to be signed on its behalf by the undersigned thereunto duly authorized, and its
seal hereunto affixed and attested, all in the city of Newark and the State of
New Jersey, on this 24th day of April, 1998.
(Seal)
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
(Registrant)
By: PRUCO LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/ THOMAS C. CASTANO By: /s/ ESTHER H. MILNES
--------------------------- ----------------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 27 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-5
<PAGE>
EXHIBIT INDEX
Consent of Deloitte & Touche LLP, independent auditors. Page II-7
Consent of Price Waterhouse LLP, independent accountants. Page II-8
3. Opinion and Consent of Clifford E. Kirsch, Esq., as
to the legality of the securities being registered. Page II-9
6. Opinion and Consent of Pam A. Schiz, FSA, MAAA, as to
actuarial matters pertaining to the securities being
registered. Page II-10
27. Financial Data Schedule. Page II-11
II-6
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 27 to Registration
Statement No. 2-89558 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 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
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 27 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated March 20, 1998, relating to the
financial statements of the Variable Appreciable 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-8
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. 2-89558) under the Securities Act of 1933 for the registration of certain
variable appreciable life insurance contracts issued with respect to the
Account.
I am of the following opinion:
(1) Pruco Life was duly organized under the laws of Arizona and is a
validly existing corporation.
(2) The Account has been duly created and is validly existing as a
separate account pursuant to the aforesaid provisions of Arizona law.
(3) The portion of the assets held in the Account equal to the reserve and
other liabilities for variable benefits under the variable appreciable
life insurance contracts is not chargeable with liabilities arising
out of any other business Pruco Life may conduct.
(4) The variable appreciable life insurance contracts are legal and
binding obligations of Pruco Life in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/
Clifford E. Kirsch
II-9
Exhibit 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 variable appreciable life insurance contracts ("Contracts")
under the Securities Act of 1933. The prospectus included in Post-Effective
Amendment No. 27 to Registration Statement No. 2-89558 on Form S-6 describes the
Contracts. I have reviewed the two Contract forms and I have participated in the
preparation and review of the Registration Statement and Exhibits thereto. In my
opinion:
(1) The illustrations of cash surrender values and death benefits included
in the section of the prospectus entitled "Illustrations", based on
the assumptions stated in the illustrations, are consistent with the
provisions of the respective forms of the Contracts. The rate
structure of the Contracts has not been designed so as to make the
relationship between premiums and benefits, as shown in the
illustrations, appear more favorable to a prospective purchaser of a
Contract for male age 35 than to prospective purchasers of Contracts
on males of other ages or on females.
(2) The illustration of the effect of a Contract loan on the cash
surrender value included in the section entitled "Contract Loans",
based on the assumptions stated in the illustration, is consistent
with the provisions of the Form A Contract.
(3) The illustrations of the effect of an increase in the Contract fund on
the increase in insurance amount shown in the section entitled
"Revised Contracts" (How a Contract's Death Benefit will Vary") are
consistent with the provisions of the Revised Form A and Form B
Contracts.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Very truly yours,
/s/
Pamela A. Schiz, FSA, MAAA
Actuarial Director
The Prudential Insurance Company of America
II-10
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Exhibit 27
FINANCIAL DATA SCHEDULE
ARTICLE 6 OF REGULATION S-X
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,462,556
<INVESTMENTS-AT-VALUE> 3,014,890
<RECEIVABLES> 130
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,015,020
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 161,533
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,015,020
<DIVIDEND-INCOME> 92,173
<INTEREST-INCOME> 0
<OTHER-INCOME> 295,459
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<APPREC-INCREASE-CURRENT> 63,129
<NET-CHANGE-FROM-OPS> 472,551
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
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<NET-CHANGE-IN-ASSETS> 396,754
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<INTEREST-EXPENSE> 0
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<EXPENSE-RATIO> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
