AS FILED WITH THE SEC ON ______________. REGISTRATION NO. 2-89558
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 28
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
---------------
PRUCO LIFE
VARIABLE APPRECIABLE ACCOUNT
(Exact Name of Trust)
PRUCO LIFE INSURANCE COMPANY
(Name of Depositor)
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(800) 778-2255
(Address and telephone number of principal executive offices)
---------------
THOMAS C. CASTANO
ASSISTANT SECRETARY
PRUCO LIFE INSURANCE COMPANY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(Name and address of agent for service)
Copy to:
JEFFREY C. MARTIN
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036
---------------
It is proposed that this filing will become effective (check appropriate space):
|_| immediately upon filing pursuant to paragraph (b) of Rule 485
|X| on May 1, 1999 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. Introduction and Summary; Short-Term Cancellation Right,
or "Free Look"; Contract Forms; Contract Date; Premiums;
Allocation of Premiums; Transfers; Charges and Expenses;
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;
Tax-Qualified Pension Plans; The Fixed-Rate Option;
Other General Contract Provisions; Voting Rights;
Substitution of Series Fund Shares; Increases in Face
Amount; Decreases in Face Amount; The Prudential Series
Fund, Inc.
11. Introduction and Summary; Pruco Life Variable
Appreciable Account
12. Cover Page; Introduction and Summary; The Prudential
Series Fund, Inc.; Sale of the Contract and Sales
Commissions
13. Introduction and Summary; 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. Introduction and Summary; Requirements for Issuance of
a Contract
15. Introduction and Summary; Premiums; Allocation of
Premiums; Dollar Cost Averaging; Transfers; The Fixed
Rate Option
16. Introduction and Summary; Detailed Information for
Contract Owners
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
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
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. Introduction and Summary; The Prudential Series Fund,
Inc.; Charges and Expenses
27. Pruco Life Insurance Company; The Prudential Series
Fund, Inc.
28. Pruco Life Insurance Company; Directors and Officers
29. Pruco Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Pruco Life Insurance Company
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions
39. Sale of the Contract and Sales Commissions
40. Not Applicable
41. Sale of the Contract and Sales Commissions
42. Not Applicable
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
43. Not Applicable
44. Introduction and Summary; 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. Introduction and Summary; Pruco Life Variable
Appreciable Account; The Prudential Series Fund, Inc.
47. Pruco Life Variable Appreciable
Account; The Prudential Series
Fund, Inc.
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Series Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
55. Not Applicable
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>
PURCO LIFE'S
VARIABLE APPRECIABLE LIFE(R)
INSURANCE
PROSPECTUS
THE PRUCO LIFE
VARIABLE APPRECIABLE
ACCOUNT
MAY 1, 1999
PURCO LIFE INSURANCE COMPANY
<PAGE>
PROSPECTUS
MAY 1, 1999
PRUCO LIFE INSURANCE COMPANY
VARIABLE APPRECIABLE ACCOUNT
VARIABLE
APPRECIABLE
LIFE(R)
INSURANCE CONTRACTS
This prospectus describes two forms of a variable life insurance contract (the
"Contract") offered by Pruco Life Insurance Company ("Pruco Life", "us", or
"we") under the name Variable APPRECIABLE LIFE(R) Insurance. Pruco Life, a stock
life insurance company, is a wholly-owned subsidiary of The Prudential Insurance
Company of America ("Prudential"). 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. The first form of the Contract provides a death benefit that
generally remains fixed in an amount you, as the Contract owner, choose and cash
surrender values that vary daily. The second form also provides cash surrender
values that vary daily and a death benefit that will also vary daily. Under both
forms of contract, the death benefit will never be less than the "face amount"
of insurance you choose. There is no guaranteed minimum cash surrender value.
AS OF MAY 1, 1992, PRUCO LIFE NO LONGER OFFERED THESE CONTRACTS FOR SALE.
You may choose to invest your Contract's premiums and its earnings in one or
more of the following ways:
o Invest in one or more of 13 available subaccounts of the Pruco Life
Variable Appreciable Account, each of which invests in a corresponding
portfolio of The Prudential Series Fund, Inc.:
MONEY MARKET HIGH YIELD BOND PRUDENTIAL JENNISON
DIVERSIFIED BOND STOCK INDEX SMALL CAPITALIZATION STOCK
GOVERNMENT INCOME EQUITY INCOME GLOBAL
CONSERVATIVE BALANCED EQUITY NATURAL RESOURCES
FLEXIBLE MANAGED
o Invest in the FIXED-RATE OPTION, which pays a guaranteed interest rate.
Pruco Life will credit interest daily on any portion of the premium
payment that you have allocated to the fixed-rate option at rates
periodically declared by Pruco Life, in its sole discretion. Any such
interest rate will never be less than an effective annual rate of 4%.
o Invest in the Pruco Life Variable Contract Real Property Account (the
"REAL PROPERTY ACCOUNT"), described in a prospectus attached to this one.
You have considerable flexibility as to when and in what amounts you may pay
premiums. Although it is to your advantage to pay a Scheduled Premium amount on
the dates due, which are at least once a year but may be more often.
This prospectus describes the Contract generally and the Pruco Life Variable
Appreciable Account. The attached prospectus for the Series Fund, and the Series
Fund's statement of additional information describe the investment objectives
and the risks of investing in the portfolios. Pruco Life may add additional
investment options in the future.
You should retain this prospectus, together with the Contract for future
reference.
The Securities and Exchange Commission ("SEC") maintains a Web site
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding registrants that file electronically with the SEC.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 778-2255
APPRECIABLE LIFE is a registered mark of Prudential.
<PAGE>
PROSPECTUS CONTENTS
PAGE
INTRODUCTION AND SUMMARY.......................................................1
BRIEF DESCRIPTION OF THE CONTRACT............................................1
INVESTMENT OPTIONS: THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS..............1
ADDITIONAL INVESTMENT OPTIONS................................................2
EFFECT OF INVESTMENT PERFORMANCE ON THE CONTRACT FUND........................2
CHARGES......................................................................2
TYPES OF DEATH BENEFIT.......................................................4
PREMIUMS.....................................................................4
LAPSE AND GUARANTEE AGAINST LAPSE............................................4
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, PRUCO LIFE
VARIABLE APPRECIABLE ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS
AVAILABLE UNDER THE CONTRACT.................................................5
THE PRUCO LIFE INSURANCE COMPANY.............................................5
THE PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT..................................5
THE PRUDENTIAL SERIES FUND, INC..............................................5
THE PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT.......................6
WHICH INVESTMENT OPTION SHOULD BE SELECTED?..................................6
DETAILED INFORMATION FOR CONTRACT OWNERS.......................................7
REQUIREMENTS FOR ISSUANCE OF A CONTRACT......................................7
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK".................................7
CONTRACT FORMS...............................................................7
CONTRACT DATE................................................................8
PREMIUMS.....................................................................8
ALLOCATION OF PREMIUMS......................................................10
DOLLAR COST AVERAGING.......................................................10
TRANSFERS...................................................................11
CHARGES AND EXPENSES........................................................11
REDUCTION OF CHARGES FOR CONCURRENT SALES TO SEVERAL INDIVIDUALS............15
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY.............................16
HOW A CONTRACT'S DEATH BENEFIT WILL VARY....................................16
WHEN A CONTRACT BECOMES PAID-UP.............................................18
FLEXIBILITY AS TO PAYMENT OF PREMIUMS.......................................18
SURRENDER OF A CONTRACT.....................................................18
WITHDRAWAL OF EXCESS CASH SURRENDER VALUE...................................19
INCREASES IN FACE AMOUNT....................................................19
DECREASES IN FACE AMOUNT....................................................21
LAPSE AND REINSTATEMENT.....................................................21
WHEN PROCEEDS ARE PAID......................................................22
LIVING NEEDS BENEFIT........................................................22
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED
PREMIUMS..................................................................23
CONTRACT LOANS..............................................................25
REPORTS TO CONTRACT OWNERS..................................................26
OPTIONS ON LAPSE............................................................26
RIGHT TO EXCHANGE A CONTRACT FOR A FIXED-BENEFIT INSURANCE POLICY...........27
SALE OF THE CONTRACT AND SALES COMMISSIONS..................................27
TAX TREATMENT OF CONTRACT BENEFITS..........................................27
TAX-QUALIFIED PENSION PLANS.................................................29
THE FIXED-RATE OPTION.......................................................29
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS.........30
OTHER GENERAL CONTRACT PROVISIONS...........................................30
RIDERS......................................................................30
VOTING RIGHTS...............................................................31
SUBSTITUTION OF SERIES FUND SHARES..........................................31
STATE REGULATION............................................................32
<PAGE>
EXPERTS.....................................................................32
LITIGATION..................................................................32
YEAR 2000 COMPLIANCE........................................................32
ADDITIONAL INFORMATION......................................................33
FINANCIAL STATEMENTS........................................................34
DIRECTORS AND OFFICERS........................................................35
FINANCIAL STATEMENTS OF THE VARIABLE APPRECIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT.......................................A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY
AND SUBSIDIARIES..............................................................B1
<PAGE>
INTRODUCTION AND SUMMARY
THIS SUMMARY PROVIDES A BRIEF OVERVIEW OF THE MORE SIGNIFICANT ASPECTS OF THE
CONTRACT. WE PROVIDE FURTHER DETAIL IN THE SUBSEQUENT SECTIONS OF THIS
PROSPECTUS AND IN THE CONTRACT. THE CONTRACT, INCLUDING THE APPLICATION ATTACHED
TO IT, CONSTITUTES THE ENTIRE AGREEMENT BETWEEN YOU AND PRUCO LIFE AND YOU
SHOULD RETAIN THESE DOCUMENTS.
BRIEF DESCRIPTION OF THE CONTRACT
AS OF MAY 1, 1992, PRUCO LIFE NO LONGER OFFERED THESE CONTRACTS FOR SALE.
As you read this prospectus you should keep in mind that this is a variable life
insurance contract. Variable life insurance has significant investment aspects
and requires you to make investment decisions, and therefore, it is also a
"security." Securities that are offered to the public must be registered with
the Securities and Exchange Commission. Because the contract provides whole-life
permanent insurance, it also serves a second important objective. It may provide
an increasing cash surrender value that can be used during your lifetime.
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] premium payments, less applicable charges, will be
invested. The cash surrender value of the Contract will increase with favorable
investment experience and decrease with unfavorable investment experience. The
Contract's cash surrender value also reflects various Contract charges. The
Contract owner will be able, from time to time, to reallocate and transfer
invested amounts among the various subaccounts, the fixed-rate option, and the
Real Property Account.
You may invest premiums in one or more of the 13 available subaccounts, the
Pruco Life Variable Contract Real Property Account, or the fixed-rate option.
Your Contract Fund value changes every day depending upon Contract charges,
described in the chart below, and upon the change in value of the particular
investment options that you have selected.
Although the value of your Contract Fund will increase if there is favorable
investment performance in the subaccounts you select, there is a risk that
investment performance will be unfavorable and that the value of your Contract
Fund will decrease. The risk will be different, depending the investment options
you choose.
INVESTMENT OPTIONS: THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
You may invest in one or more of the 13 available investment subaccounts of
Pruco Life's Variable Appreciable Account (the "Account"). Each is currently
invested in a corresponding portfolio of The Prudential Series Fund, Inc. (the
"Series Fund"). The Prudential Insurance Company of America ("Prudential") acts
as investment adviser to the Series Fund.
o MONEY MARKET PORTFOLIO - The investment objective is maximum current
income consistent with the stability of capital and the maintenance of
liquidity. The Portfolio invests in high quality short-term debt
obligations that mature in 13 months or less.
o DIVERSIFIED BOND PORTFOLIO - The investment objective is a high level of
income over a longer term while providing reasonable safety of capital.
The Portfolio invests primarily in higher grade debt obligations and high
quality money market investments.
o GOVERNMENT INCOME PORTFOLIO - The investment objective is a high level of
income over the longer term consistent with the preservation of capital.
The Portfolio invests primarily in U.S. Government securities, including
intermediate and long-term U.S. Treasury securities and debt obligations
issued by agencies or instrumentalities established by the U.S.
Government.
o CONSERVATIVE BALANCED PORTFOLIO - The investment objective is a total
investment return consistent with a conservatively managed diversified
portfolio. The Portfolio invests in a mix of equity securities, debt
obligations and money market instruments.
o FLEXIBLE MANAGED PORTFOLIO - The investment objective is a total
investment return consistent with an aggressively managed diversified
portfolio. The Portfolio invests in a mix of equity securities, debt
obligations and money market instruments.
1
<PAGE>
o HIGH YIELD BOND PORTFOLIO - The investment objective is a high total
return. The Portfolio invests primarily in high yield/high risk debt
securities.
o STOCK INDEX PORTFOLIO - The investment objective is investment results
that generally correspond to the performance of publicly-traded common
stocks generally. The Portfolio attempts to duplicate the price and yield
performance of Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index").
o EQUITY INCOME PORTFOLIO - The investment objective is both current income
and capital appreciation. The Portfolio invests primarily in common stocks
and convertible securities that provide good prospects for returns above
those of the S&P 500 Index or the NYSE Composite Index.
o EQUITY PORTFOLIO - The investment objective is capital appreciation. The
Portfolio invests primarily in common stocks of major established
corporations as well as smaller companies that offer attractive prospects
of appreciation.
o PRUDENTIAL JENNISON PORTFOLIO - The investment objective is to achieve
long-term growth of capital. The Portfolio invests primarily in equity
securities of major established corporations that offer above average
growth prospects.
o SMALL CAPITALIZATION STOCK PORTFOLIO - The investment objective is
long-term growth of capital. The Portfolio invests primarily in equity
securities of publicly-traded companies with small market capitalization.
o GLOBAL PORTFOLIO - The investment objective is long-term growth of
capital. The Portfolio invests primarily in common stocks (and their
equivalents) of foreign and U.S. companies.
o NATURAL RESOURCES PORTFOLIO - The investment objective is long-term growth
of capital. The Portfolio invests primarily in common stocks and
convertible securities of natural resource companies and securities that
are related to the market value of some natural resource.
Further information about the Series Fund portfolios can be found under THE
PRUDENTIAL SERIES FUND, INC. on page 5.
ADDITIONAL INVESTMENT OPTIONS
The two additional options, that are regulated differently from the other 13
because neither one is an investment company registered under the Investment
Company Act of 1940, are:
o The FIXED-RATE OPTION increases the portion of your Contract Fund
allocated to this option at a guaranteed rate of interest. Refer to THE
FIXED-RATE OPTION on page 29 for more information.
o The REAL PROPERTY OPTION invests primarily in income-producing real
property. It is described in a separate prospectus that is attached to
this one.
EFFECT OF INVESTMENT PERFORMANCE ON THE CONTRACT FUND
Your Contract Fund value changes every day depending upon the change in the
value of the particular portfolios and the two additional investment options
that you have selected for the investment of your Contract Fund.
Although the value of your Contract Fund will increase if there is favorable
investment performance, there is a risk that investment performance will be
unfavorable and that the value of your Contract Fund will decrease. The risk
will be different, depending upon which investment options you choose. See WHICH
INVESTMENT OPTION SHOULD BE SELECTED?, page 6. If you select the fixed-rate
option, Pruco Life credits your account with a stated rate of interest but you
assume the risk that this rate may change in later years, although it will never
be lower than an effective annual rate of 4%.
CHARGES
We deduct certain charges from each premium payment and from the amounts held in
the designated investment options. In addition, Pruco Life makes 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 risks as well as sales and administrative expenses, are fully described
under CHARGES AND EXPENSES on page 11. In brief, Pruco Life may make the
following charges:
2
<PAGE>
---------------------------------------------
PREMIUM PAYMENT
---------------------------------------------
---------------------------------------------
o less a charge for taxes attributable to
premiums
o less $2 processing fee
o We deduct a sales charge from the
Contract Fund of up to 5% of the
portion of the premium remaining after
deducting the $2 processing fee
---------------------------------------------
- --------------------------------------------------------------------------------
NET PREMIUM AMOUNT
o To be invested in one or a combination of:
o The invested portfolios of the Series Fund
o The fixed-rate option
o The Real Property Account
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DAILY CHARGES
o We deduct management fees and expenses from the Series Fund and, if
applicable, from the Real Property assets. See THE PRUDENTIAL SERIES FUND,
Inc., page 5, and PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT, page
6.
o We deduct a daily mortality and expense risk charge, equivalent to an
annual rate of up to 0.6% from the variable investment options assets.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONTHLY CHARGES
o We reduce the Contract Fund by a guaranteed minimum death benefit risk
charge of not more than $0.01 per $1,000 of the face amount of insurance.
o We reduce the Contract Fund by an administrative charge of up to $2.50 per
Contract and up to $0.02 per $1,000 of face amount of insurance.
o We deduct a charge for anticipated mortality, with the maximum charge
based on 1980 CSO Tables.
o If the Contract includes riders, we deduct rider charges from the Contract
Fund.
o If the rating class of the insured results in an extra charge, we will
deduct that charge from the Contract Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
POSSIBLE CHARGES
o During the first 10 years, if the Contract lapses or is surrendered, we
assess a contingent deferred sales charge. The maximum contingent deferred
sales charges are reduced for Contracts that have been inforce for more
than five years.
o During the first 10 years, if the Contract lapses or is surrendered, we
assess a contingent deferred administrative charge; this charge begins to
decline uniformly after the fifth Contract year so that it disappears on
the 10th Contract anniversary.
o We assess an administrative processing charge equal to the lesser of $15
or 2% for each withdrawal of excess cash surrender value.
- --------------------------------------------------------------------------------
3
<PAGE>
TYPES OF DEATH BENEFIT
You choose either of two Contract Forms. Under Contract Form A, the death
benefit remains fixed in amount (unless the Contract becomes paid-up) and only
the cash surrender value will vary with investment experience. Under a newer
version, sold in most jurisdictions beginning in September 1986, the death
benefit may be increased to ensure that the Contract continues to satisfy the
Internal Revenue Code's definition of life insurance. Under Contract Form B,
both the death benefit and the cash surrender value will vary with investment
experience. However, 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. (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.)
PREMIUMS
You have flexibility with respect to the payment of premiums. The Contract sets
forth Scheduled Premiums payable annually, semi-annually, quarterly or monthly.
But you are generally permitted, within very broad limits, to pay greater than
Scheduled Premiums. However, the payment of premiums in excess of Scheduled
Premiums may cause the Contract to be classified as a Modified Endowment
Contract for federal income tax purposes. See PREMIUMS, page 8 and TAX TREATMENT
OF CONTRACT BENEFITS, page 27. The net portion of such payments will promptly be
invested in the manner you previously selected. Cash surrender values will
generally be increased whenever premiums are paid, 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.
LAPSE AND GUARANTEE AGAINST LAPSE
As long as you pay Scheduled Premiums 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 inforce. See LAPSE AND REINSTATEMENT, page 21. 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 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).
THE REPLACEMENT OF LIFE INSURANCE IS GENERALLY NOT IN YOUR BEST INTEREST. IN
MOST CASES, IF YOU REQUIRE ADDITIONAL COVERAGE, THE BENEFITS OF YOUR EXISTING
CONTRACT CAN BE PROTECTED BY PURCHASING ADDITIONAL INSURANCE OR A SUPPLEMENTAL
CONTRACT. IF YOU ARE CONSIDERING REPLACING A CONTRACT, YOU SHOULD COMPARE THE
BENEFITS AND COSTS OF SUPPLEMENTING YOUR EXISTING CONTRACT WITH THE BENEFITS AND
COSTS OF PURCHASING ANOTHER CONTRACT AND YOU SHOULD CONSULT A QUALIFIED TAX
ADVISER.
THIS PROSPECTUS WAS ONLY OFFERED IN JURISDICTIONS IN WHICH THE OFFERING WAS
LAWFUL. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE PRUDENTIAL
SERIES FUND PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION, AND THE
PROSPECTUS FOR THE REAL PROPERTY ACCOUNT.
4
<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", "us", or "we") 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 publicly traded stock company through a process known as
"demutualization." On February 10, 1998, the Company's Board of Directors
authorized management to take the preliminary steps necessary to allow the
Company to demutualize. On July 1, 1998, legislation was enacted in New Jersey
that would permit this conversion to occur and that specified the process for
conversion. Demutualization is a complex process involving development of a plan
of reorganization, adoption of a plan by the Company's Board of Directors, a
public hearing, voting by qualified policyholders and regulatory approval, all
of which could take two or more years to complete. Prudential's management and
Board of Directors have not yet determined to demutualize and it is possible
that, after careful review, Prudential could decide not to go public.
The plan of reorganization, which hasn't been developed and approved, would
provide the criteria for determining eligibility and the methodology for
allocating shares or other consideration to those who would be eligible.
Generally, the amount of shares or other consideration eligible customers would
receive would be based on a number of factors, including the types, amounts and
issue years of their policies. As a general rule, owners of Prudential-issued
insurance policies and annuity contracts would be eligible, while mutual fund
customers and customers of the Company's subsidiaries, such as the Pruco Life
insurance companies, would not be. It has not yet been determined whether any
exceptions to that general rule will be made with respect to policyholders and
contract owners of Prudential's subsidiaries.
As of December 31, 1998, Prudential has invested over $442 million in Pruco Life
in connection with Pruco Life's organization and operation. Prudential may make
additional capital contributions to Pruco Life as needed to enable it to meet
its reserve requirements and expenses. 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
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 a unit investment trust, which is a type of investment company.
It is registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940 ("1940 Act"). This does not involve any
supervision by the SEC of the management, investment policies, or practices of
the Account. For state law purposes, the Account is treated as a part or
division of Pruco Life. Currently, you may invest in one or a combination of 13
subaccounts within the Account, each of which invests in a single corresponding
portfolio of the Series Fund. We may add additional subaccounts 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
5
<PAGE>
other insurers that offer variable life insurance and variable annuity
contracts. On October 31, 1986, the Pruco Life Series Fund, Inc., an open-end
diversified management investment company, which sold its shares only to
separate accounts of Pruco Life and Pruco Life Insurance Company of New Jersey,
was merged into the Series Fund. Prior to that date, the Account invested only
in shares of Pruco Life Series Fund, Inc. The Account will purchase and redeem
shares from the Series Fund at net asset value. Shares will be redeemed to the
extent necessary for Pruco Life to provide benefits under the Contracts and to
transfer assets from one subaccount to another, as requested by Contract owners.
Any dividend or capital gain distribution received from a portfolio of the
Series Fund will be reinvested immediately at net asset value in shares of that
portfolio and retained as assets of the corresponding subaccount.
Prudential is the investment adviser 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"). The
Service Agreement 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 LLC ("Jennison"). Jennison
furnishes investment advisory services for 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 advisers under the 1940 Act.
As an investment adviser, 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.
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. Neither the companies that 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. 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, RESTRICTIONS, EXPENSES, INVESTMENT RISKS, 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 OF THE
SERIES FUND WILL BE MET.
THE 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. This account, through a general
partnership formed by Prudential and two of its subsidiaries, Pruco Life and
Pruco Life of New Jersey, 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 asset value.
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,
RESTRICTIONS, CHARGES AND EXPENSES, INVESTMENT RISKS, 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. IT 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 OF THE REAL PROPERTY ACCOUNT WILL BE MET.
WHICH INVESTMENT OPTION SHOULD BE SELECTED?
Historically, for investments held over relatively long periods, the investment
performance of common stocks has generally been superior to that of short or
long-term debt securities, even though common stocks have been subject to
6
<PAGE>
much more dramatic changes in value over short periods of time. Accordingly, the
Stock Index, Equity Income, 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 different investment risks,
policies, and programs.
You 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. Or, you may want even greater safety of principal
and may prefer the Money Market Portfolio or the fixed-rate option, recognizing
that the level of short-term rates may change rather rapidly. If you are willing
to take risks and possibly achieve a higher total return, you may prefer the
High Yield Bond Portfolio, recognizing that the risks are greater for lower
quality bonds with normally higher yields. You may wish to divide your invested
premium among two or more of the portfolios. You may wish to obtain
diversification by relying on Prudential's judgement for an appropriate asset
mix by choosing one of the Balanced Portfolios. The Real Property Account
permits diversification to your 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.
Your choice should take into account how willing you are to accept investment
risks, how your other assets are invested, and what investment results you may
experience in the future. You should consult your Pruco Life representative from
time to time about choices available to you under the Contract. Pruco Life
recommends AGAINST frequent transfers among the several options. Experience
generally indicates that "market timing" investing, particularly by
non-professional investors, is likely to prove unsuccessful.
DETAILED INFORMATION FOR CONTRACT OWNERS
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
As of May 1, 1992, Pruco Life no longer offered these Contracts for sale.
Generally, the minimum initial guaranteed death benefit was $60,000. However,
higher minimums are applied to insureds over the age of 75. Insureds 14 years of
age or less could apply for a minimum initial guaranteed death benefit of
$40,000. The Contract was generally issued on insureds below the age of 81.
Before issuing any Contract, Pruco Life required evidence of insurability which
may have included a medical examination. Non-smokers who met preferred
underwriting requirements were 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 have been issued on a "guaranteed issue" basis and may have a
lower minimum initial death benefit than a Contract which was individually
underwritten. These are the current underwriting requirements. We reserve the
right to change them on a non-discriminatory basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, 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
Two forms of the Contract were available. The Scheduled Premium for the Contract
was the same for a given insured, regardless of which Contract Form you chose.
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 you selected, 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 16. 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 16.
Contract Form B also has an initial face amount of insurance but favorable
investment performance and greater than Scheduled Premiums generally result in
an increase in the death benefit and, over time, in a lesser increase in the
cash surrender value than under the Form A Contract. See HOW A CONTRACT'S CASH
SURRENDER VALUE WILL VARY,
7
<PAGE>
page 16 and HOW A CONTRACT'S DEATH BENEFIT WILL VARY, page 16. 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. This new face amount becomes the new guaranteed minimum death
benefit. 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 18 and HOW A
CONTRACT'S DEATH BENEFIT WILL VARY, page 16. 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 the level of future premium
payments you can make without causing the Contract to be classified as a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
You should consult your tax adviser and Pruco Life representative before making
unscheduled premium payments.
Contract owners 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 Contract owner with a minimum face amount Form A Contract cannot
make withdrawals. Contract owners of Form B Contracts will not incur a surrender
charge for a withdrawal and are not restricted if they purchased a minimum size
Contract. See WITHDRAWAL OF EXCESS CASH SURRENDER VALUE, page 19.
Under the original versions of these Contracts, there are other distinctions
between the Contract Forms. Contract Form A will become paid-up more rapidly
than a comparable Form B Contract. But Contract 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 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 16. 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.
CONTRACT DATE
The Contract Date will ordinarily be the later of the application date and the
medical examination date. Under certain circumstances, we allowed the Contract
to be back-dated, but only to a date not earlier than six months prior to the
date of the application. It was advantageous for a Contract owner to have an
earlier Contract Date if it resulted in the use by Pruco Life of a lower
attained age in determining the amount of the Scheduled Premium. Pruco Life
required 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.
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 you pay premiums 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. If you pay premiums other than monthly, we will notify you about
three weeks before each due date, that a premium is due. If you pay premiums
monthly, we will send to you each year a book with 12 coupons that will serve as
a reminder. You may change the frequency of premium payments with Pruco Life's
consent.
You 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
8
<PAGE>
Contracts issued after June 1, 1987 will have reduced current monthly expense
charges. See item 4 under CHARGES AND EXPENSES, page 11. You 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 was 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. Under the original
version of the Contracts, if investment experience has been favorable enough,
the Contract may become paid-up before or by the premium change date. We reserve
the right not to accept any further premium payments on a paid-up Contract. We
will tell you what the amount of your second premium will be.
The Contracts include a premium change date, with Scheduled Premiums potentially
increasing after that date to a second premium amount. Thus, you are provided
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
AT ISSUE $554.80 $669.40 $902.00 $1,093.00
- ----------------------------------------------------------------------
FEMALE, AGE 45
AT ISSUE $698.80 $787.60 $1,142.00 $1,290.00
- ----------------------------------------------------------------------
MALE, AGE 55
AT ISSUE $1,556.20 $1,832.20 $2,571.00 $3,031.00
- ----------------------------------------------------------------------
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.
- ----------------------------------------------------------------------
$60,000 FACE AMOUNT $100,000 FACE AMOUNT
------------------------------------------------------
MONTHLY ANNUAL MONTHLY ANNUAL
- ----------------------------------------------------------------------
MALE, AGE 35
AT ISSUE $50.00 $554.80 $80.00 $902.00
- ----------------------------------------------------------------------
FEMALE, AGE 45
AT ISSUE $62.60 $698.80 $101.00 $1,142.00
- ----------------------------------------------------------------------
MALE, AGE 55
AT ISSUE $136.40 $1,556.20 $224.00 $2,571.00
- ----------------------------------------------------------------------
9
<PAGE>
You may select a higher contemplated premium than the Scheduled Premium. We will
bill you 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 version of the Contracts, such
payments may also provide a means of obtaining a paid-up Contract earlier than
if only Scheduled Premiums are paid.
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 inforce 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
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 16. 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 16. 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 two years' Scheduled Premiums
or the average of all premiums paid over the last five years will generally be
allowed.
The payment of premiums substantially in excess of Scheduled Premiums may cause
the Contract to be classified as a Modified Endowment Contract. If this happens,
loans and other distributions which otherwise would not be taxable events may be
subject to federal income taxation. See TAX TREATMENT OF CONTRACT BENEFITS, page
27.
ALLOCATION OF PREMIUMS
The initial premium, after we deduct applicable charges, is 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 all subsequent premiums, are placed in the selected
investment option[s] on the date of receipt at a Home Office. A $2 per payment
processing charge and a deduction of up to 7.5% to cover certain charges apply
to all subsequent premium payments. The remainder will be invested as of the end
of the valuation period in which it is received at a Home Office in accordance
with the allocation you previously designated. 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. Eastern time on each day during which the New York Stock Exchange is open.
Provided the Contract is not in default, you may change the way in which
subsequent premiums are allocated by giving written notice to a Home Office or
by telephoning a Home Office, provided you are enrolled to use the Telephone
Transfer System. There is no charge for reallocating future premiums among the
investment options. If any portion of a premium is allocated to a particular
subaccount, to the fixed-rate option or to the Real Property Account, that
portion must be at least 10% on the date the allocation takes effect. All
percentage allocations must be in whole numbers. For example, 33% can be
selected but 33 1/3% cannot. Of course, the total allocation of all selected
investment options must equal 100%.
DOLLAR COST AVERAGING
Under the Dollar Cost Averaging ("DCA") feature, either fixed dollar amounts or
a percentage of the amount you designate under the DCA option will be
transferred periodically from the DCA Money Market Subaccount into other
subaccounts 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
and must be 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. Subject to the
limitations on premium payments and transfers, you may allocate or transfer
amounts to the DCA account after DCA has been established and as long as the DCA
account has a positive balance. In addition, if you pay premiums on an annual or
semi-annual basis and you have 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
10
<PAGE>
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
If the Contract is not in default, or if the Contract is inforce as variable
reduced paid-up insurance (see OPTIONS ON LAPSE, page 26), you 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 without charge. All or a
portion of the amount credited to a subaccount may be transferred.
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. You may transfer amounts by proper written notice to a
Home Office or by telephone, provided you are enrolled to use the Telephone
Transfer System. You will automatically be enrolled to use the Telephone
Transfer System unless the Contract is jointly owned or if you elect not to have
this privilege. Telephone transfers may not be available on Contracts that are
assigned, see ASSIGNMENT, page 30, depending on the terms of the assignment.
We will use reasonable procedures, such as asking you to provide certain
personal information provided on your application for insurance, to confirm that
instructions given by telephone are genuine. We will not be held liable for
following telephone instructions that we reasonably believe to be genuine. Pruco
Life cannot guarantee that you will be able to get through to complete a
telephone transfer during peak periods such as periods of drastic economic or
market change.
Only one transfer from the fixed-rate option will be permitted during each
Contract year and only during the 30-day period beginning on the Contract
anniversary. The maximum amount which may be transferred out of the fixed-rate
option each year is the greater of: (a) 25% of the amount in the fixed-rate
option, and (b) $2,000. 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. Pruco Life may change these limits 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.
We 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 27) to exchange his or her policy for a comparable Variable
APPRECIABLE LIFE Contract with the same Contract Date, Scheduled Premiums, and
Contract Fund without charge.
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 refusing transfer requests of an agent under a
power of attorney on behalf of more than one Contract owner.
CHARGES AND EXPENSES
This section provides a more detailed description of each charge that is
described briefly in the chart on page 3.
In several instances we use the terms "maximum charge" and "current charge." The
"maximum charge," in each instance, is the highest charge that Pruco Life is
entitled to make under the Contract. The "current charge" is the lower amount
that Pruco Life is now charging. If circumstances change, Pruco Life reserves
the right to increase each current charge, up to the maximum charge, without
giving any advance notice.
11
<PAGE>
All of the charges we make, whether deducted from premiums or from the Contract
Fund, are described below:
1. We deduct a charge of $2 from each premium payment to cover the cost of
collecting and processing premiums. Thus, if you pay premiums annually,
you will incur lower aggregate processing charges than those who pay
premiums more frequently. During 1998, 1997, and 1996, Pruco Life received
a total of approximately $3,796,000, $4,104,000, and $4,422,000,
respectively, in processing charges.
2. We deduct a charge of up to 5% from each premium payment for sales
expenses. This charge, often called a "sales load", is deducted to
compensate us for the costs of selling the Contracts, including
commissions, advertising, and the printing and distribution of
prospectuses and sales literature. We will deduct part of this sales load
from each premium received in an amount up to 5% of the portion of the
premium remaining after the $2 administrative charge has been deducted. We
also deduct 5% of each additional premium, whether scheduled or
unscheduled. We will deduct the remainder of the sales load only if the
Contract is surrendered or stays in default past its days of grace. This
second part is called the deferred sales charge. However, we will not
deduct the deferred sales charge for Contracts that lapse or are
surrendered on or after the Contract's tenth anniversary. The deferred
sales charge will be reduced for Contracts that lapse or are surrendered
sometime between the eighth month of the sixth year and the 10th
anniversary. No deferred sales charge is applicable to the death benefit,
no matter when that becomes payable.
For Contracts under which premiums are payable annually, we will charge
the maximum deferred sales charge if the Contract lapses or is
surrendered, until the seventh month 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 10th anniversary). The following table shows
illustrative deferred sales load charges that will be made when such
Contracts are surrendered or lapse.
- --------------------------------------------------------------------------------
FOR THE DEFERRED SALES CHARGE WHICH IS EQUAL TO THE
CONTRACTS WILL BE THE FOLLOWING FOLLOWING PERCENTAGE OF
SURRENDERED PERCENTAGE OF ONE SCHEDULED THE SCHEDULED PREMIUMS DUE
DURING ANNUAL PREMIUM TO DATE OF SURRENDER
- --------------------------------------------------------------------------------
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 five Contract years. This amount will be
higher in dollar amount than it would have been had premiums been paid
annually because the total of the Scheduled Premiums is higher. See
PREMIUMS, page 8. To compensate for this, the reduction in the deferred
sales charge will start slightly earlier for Contracts under which
premiums are paid semi-annually, still earlier if premiums are paid
quarterly and even earlier if premiums are paid monthly. The reductions
are graded smoothly so that the dollar amount of the deferred sales charge
for two persons of the same age, sex, contract size, and Contract Date,
will be identical beginning in the seventh month of the sixth Contract
year without regard to the frequency at which premiums were paid.
12
<PAGE>
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
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 1998, 1997, and 1996, Pruco Life received a total of
approximately $48,000, $256,000, and $407,000, respectively, in sales load
charges.
We 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 five 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 your instructions. We may, on a uniform and
non-contractual basis, withdraw or modify this concession, although we do
not currently intend to do so. If you elect to increase the face amount of
your 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 19.
3. We deduct a charge from each premium payment for state and local
premium-based taxes. This charge is equal to 2.5% of the premium remaining
after the $2 processing charge has been deducted. (The 7.5% deduction
referred to on page 11 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% (but in some instances
may exceed 5%). Pruco Life may collect more for this charge than it
actually pays for premium taxes. During 1998, 1997, and 1996, Pruco Life
received a total of approximately $4,694,000, $5,040,000, and $5,636,000,
respectively, in charges for payment of state and local premium taxes.
4. On each Monthly date, we reduce the Contract Fund 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). Currently, this $0.02 per $1,000 charge will not be greater
than $2 per month. We currently waive this $0.02 per $1,000 charge for
Contracts issued after June 1, 1987 on a Pru-Matic Plan basis. 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. We will not make this charge if your
Contract becomes paid-up or has been continued inforce, after lapse, as
variable reduced paid-up insurance. During 1998, 1997, and 1996, Pruco
Life received a total of approximately $12,474,000, $13,100,000, and
$13,709,000, respectively, in monthly administrative charges.
5. On each Monthly date, we reduce the Contract Fund 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). We deduct this charge for
the risk we assume 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. We do not make this charge if your
Contract becomes paid-up or has been continued inforce, after lapse, as
variable reduced paid-up insurance. During 1998, 1997, and 1996, Pruco
Life received a total of approximately $1,649,000, $2,494,000, and
$2,572,000, respectively, for this risk charge.
6. On each Monthly date, we deduct a mortality charge from the Contract Fund
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 enable Pruco Life to pay this larger death benefit. We determine
the charge 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: (1)the insured's sex (except where unisex rates apply); (2)
current attained age; and (3) the anticipated mortality for that class of
persons. The maximum rate that Pruco Life may charge is based upon the
1980 CSO Tables. We 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. If this occurs, we may
make a lower mortality charge for such persons. We reserve 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
inforce pursuant to an option on lapse. See OPTIONS ON LAPSE, page 26. If
a Contract has a face amount of at least $100,000 and the insured has met
strict underwriting requirements so that the Contract is inforce on a
"Select Rating" basis for the particular risk classification, current
mortality charges for all ages may be lower still.
13
<PAGE>
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. We deduct a charge for assuming mortality and expense risks. We deduct
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%. 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 1998, 1997, and 1996, Pruco
Life received a total of approximately $19,159,000, $16,981,000, and
$15,162,000, respectively, in mortality and expense risk charges. This
charge is not assessed against amounts allocated to the fixed-rate option.
8. We deduct 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) upon lapse or surrender of the
Contract. This charge is made to cover the costs of: (1) processing
applications; (2) conducting medical examinations; (3) determining
insurability and the insured's risk class; and (4) 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 inforce through the end of the Contract's 10th anniversary (later if
additional insurance is added after issue). 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 inforce 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
10th anniversary. During 1998, 1997, and 1996, Pruco Life received a total
of approximately $684,000, $1,740,000, and $3,580,000, 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 we currently intend to waive that charge if the reclassification is
effected concurrently with an increase in face amount.
9. We deduct an administrative processing charge, in connection with each
withdrawal of cash surrender value, which is the lesser of: (a) $15; and
(b) 2% of each withdrawal amount. See WITHDRAWAL OF EXCESS CASH SURRENDER
VALUE, page 19.
10. If the Contract includes riders, we make monthly deductions from the
Contract Fund 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 1998, expressed as a
percentage of the average assets during the year, are shown below:
14
<PAGE>
- --------------------------------------------------------------------------------
TOTAL
INVESTMENT OTHER EXPENSES EXPENSES
ADVISORY (AFTER EXPENSE (AFTER EXPENSE
PORTFOLIO FEE REIMBURSEMENT)* REIMBURSEMENT)*
- --------------------------------------------------------------------------------
MONEY MARKET 0.40% 0.00%* 0.40%*
DIVERSIFIED BOND 0.40% 0.00%* 0.40%*
GOVERNMENT INCOME 0.40% 0.03% 0.43%
CONSERVATIVE BALANCED 0.55% 0.00%* 0.40%*
FLEXIBLE MANAGED 0.60% 0.00%* 0.40%*
HIGH YIELD BOND 0.55% 0.03% 0.58%
STOCK INDEX 0.35% 0.02% 0.37%
EQUITY INCOME 0.40% 0.02% 0.42%
EQUITY 0.45% 0.00%* 0.40%*
PRUDENTIAL JENNISON 0.60% 0.03% 0.63%
SMALL CAPITALIZATION STOCK 0.40% 0.07% 0.47%
GLOBAL 0.75% 0.11% 0.86%
NATURAL RESOURCES 0.45% 0.04% 0.49%
- --------------------------------------------------------------------------------
* 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. Pruco
Life currently makes payments to the following five subaccounts so that
the portfolio expenses indirectly borne by a Contract owner investing in
the Money Market, Diversified Bond, Conservative Balanced, Flexible
Managed, and Equity Portfolios will not exceed 0.4%. 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:
(1) 0.41% for the Money Market Portfolio;
(2) 0.42% for the Diversified Bond Portfolio;
(3) 0.57% for the Conservative Balanced Portfolio;
(4) 0.61% for the Flexible Managed Portfolio; and
(5) 0.47% 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.
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 reviews the question of a charge to the Account for Company
federal income taxes periodically. Such a charge may be made in future years for
any federal income taxes that would be attributable to the Contracts.
Under current laws, Pruco Life may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant
and they are not charged against the Contracts or the Account. If there is a
material change in applicable state or local tax laws, the imposition of any
such taxes upon Pruco Life that are attributable to the Account may result in a
corresponding charge against the Account.
The 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
We 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 we believe 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.
15
<PAGE>
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY
Your Contract has a cash surrender value which may be obtained 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 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:
(1) the value of the securities in which the assets of the subaccount[s] have
been invested;
(2) the investment performance of the Real Property Account if that option has
been selected;
(3) interest credited on amounts allocated to the fixed-rate option;
(4) the daily asset charge for mortality and expense risk equal to 0.001639%
of the assets of the subaccount[s] of the Account; and
(5) 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. Also illustrated 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 described earlier, 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 will not become paid-up.
1. ORIGINAL CONTRACTS:
(A) 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 7) 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 18. The death benefit does reflect a deduction for the amount of any
Contract debt. See CONTRACT LOANS, page 25.
(B) 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: (1) you paid only Scheduled
Premiums; (2) you paid Scheduled Premiums when due; (3) your selected
16
<PAGE>
investment options earned a net return at a uniform rate of 4% per year;
(4) we deducted full mortality charges based upon the 1980 CSO Table; (5)
we deducted maximum sales load and expense charges; and (6) 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 lesser 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 inforce because
Scheduled Premiums have been paid, the death benefit will not fall below
the initial face amount stated in the Contract. The death benefit will
also reflect a deduction for the amount of any Contract debt. See CONTRACT
LOANS, page 25. Any unfavorable investment experience must subsequently be
offset before favorable investment results or greater than Scheduled
Premiums will increase the death benefit.
You may also increase or decrease the face amount of your Contract, subject to
certain conditions. See INCREASES IN FACE AMOUNT, page 19 and DECREASES IN FACE
AMOUNT, page 21.
2. REVISED CONTRACTS:
Under the revised Contracts issued since September 1986 in approved
jurisdictions, the death benefit will be calculated as follows:
(A) 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.
(B) 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
AMOUNT PER AMOUNT PER
$1 $1
MALE NET INCREASE FEMALE NET INCREASE
ATTAINED SINGLE IN CONTRACT ATTAINED SINGLE IN CONTRACT
AGE PREMIUM FUND AGE PREMIUM 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 five years will
generally be allowed.
You may also increase or decrease the face amount of your Contract, subject to
certain conditions. See INCREASES IN FACE AMOUNT, page 19 and DECREASES IN FACE
AMOUNT, page 21.
17
<PAGE>
WHEN A CONTRACT BECOMES PAID-UP
Under the original Contracts, it is possible that favorable investment
experience, either alone or with greater than Scheduled Premium payments, will
cause the Contract Fund to increase. The Contract Fund may increase to the point
where no further premium payments are 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 are needed. We
reserve 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
30. The revised Contracts will not become paid-up.
We guarantee that the death benefit of a paid-up Contract then inforce 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 becomes paid-up prior to
that anniversary, Pruco Life will, instead of declaring the Contract to be
paid-up, increase the death benefit by the amount necessary to keep the Contract
inforce 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 large enough to pay the charges due under
the Contract without causing the Contract to lapse. See LAPSE AND REINSTATEMENT,
page 21. In general, we 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 you make premium payments substantially
in excess of Scheduled Premiums. Such payments may cause the Contract to be
classified as a Modified Endowment Contract. The federal income tax laws,
discussed more fully under TAX TREATMENT OF CONTRACT BENEFITS, page 27, 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. You should consult your own tax adviser and Pruco Life representative
before making a large premium payment.
SURRENDER OF A CONTRACT
You may surrender your Contract, in whole or in part, for its cash surrender
value or a fixed reduced paid-up insurance benefit 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 inforce on the
same terms as the original Contract except that premiums and cash surrender
values will be proportionately reduced. The reduction is based upon the face
amount of insurance. The Contract's face amount of insurance must be at least
equal to the minimum face amount applicable to the insured's Contract. See
REQUIREMENTS FOR ISSUANCE OF A CONTRACT, page 7. 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.
18
<PAGE>
To surrender a Contract, in whole or in part, you must deliver or mail the
Contract 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 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 a Home
Office. Surrender of all or part of a Contract may have tax consequences. See
TAX TREATMENT OF CONTRACT BENEFITS, page 27.
WITHDRAWAL OF EXCESS CASH SURRENDER VALUE
You may surrender your Contract, in whole or in part, for its cash surrender
value. This is available only before the Contract becomes paid up and avoids
splitting the Contract into two Contracts. You may make a partial withdrawal
only if the following conditions are satisfied. The basic limiting condition is
that you may make a withdrawal 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. You may make no more than four withdrawals in a
Contract year, and there is a fee equal to the lesser of $15 or 2% for each
withdrawal. You may only repay an amount withdrawn as a scheduled or unscheduled
premium, which is subject to the Contract charges. Upon request, we will tell
you how much you may withdraw. Withdrawal of part of the cash surrender value
may have tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
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. A partial withdrawal will not be permitted under a Form A Contract
if it would result in a new face amount less than the minimum face amount
applicable to the insured's Contract. See REQUIREMENTS FOR ISSUANCE OF A
CONTRACT, page 7. It is important to note, however, that if the face amount is
decreased, the Contract might be classified as a Modified Endowment Contract.
See TAX TREATMENT OF CONTRACT BENEFITS, page 27. Before making any withdrawal
which causes a decrease in face amount, you should consult your tax adviser and
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 applicable
surrender charges, based upon the percentage reduction in face amount. We will
send replacement Contract pages showing the new face amount, new tabular values
and, if applicable, a new table of surrender charges to owners of a Form A
Contract who make a partial withdrawal.
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, Pruco Life treats withdrawals as a return of premium for purposes of
determining whether a lapse has occurred. Withdrawals from paid up Contracts may
result in an increased mortality charge.
INCREASES IN FACE AMOUNT
You may increase the amount of your insurance 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. It differs in the following respects:
(1) the minimum permissible increase is $25,000, while the minimum for a new
Contract was $60,000;
(2) monthly fees are lower because only a single $2.50 per month
administrative charge is made rather than two;
(3) 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;
(4) 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
(5) the Contract will lapse or become paid-up as a unit, unlike the case if
two separate Contracts are purchased.
Despite these differences, 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.
19
<PAGE>
You may elect to increase the face amount of your Contract no earlier than the
first anniversary of the Contract. The following conditions must be met:
(1) You must ask for the increase in writing on an appropriate form;
(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, you must send in the Contract to be suitably
endorsed;
(5) The Contract must be neither paid-up nor in default on the date the
increase takes effect;
(6) You 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; and
(8) If between the Contract Date and the date that your requested increase in
face amount would take effect, Pruco Life has changed any of the bases on
which benefits and charges are calculated for newly issued Contracts, then
we have 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. You have 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 you select for the recomputation. We will tell you the amount of the
required payment. You should also note that an increase in face amount could
cause the Contract to be classified as a Modified Endowment Contract. See TAX
TREATMENT OF CONTRACT BENEFITS, page 27. Therefore, before increasing the face
amount, you should consult your own tax adviser and Pruco Life representative.
Provided the increase is approved, the new insurance will take effect once Pruco
Life receives the proper forms, any medical evidence necessary to underwrite the
additional insurance and any amount needed by the company.
We will supply you with pages showing the increased face amount, the effective
date of the increase, and the recomputed items described earlier. The pages will
also describe how the face amount increase 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 30) will run from the effective date of
the increase.
Pruco Life will assess, 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, you should not elect to increase the face amount of your
Contract if you are contemplating a total or partial surrender or a decrease in
the face amount of insurance.
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 to the premiums paid after the increase only after the
premiums so allocated exceed five scheduled annual premiums for the increase.
Thus, a Contract 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.
If you elect to increase the face amount of your Contract, you will receive a
"free-look" right and a right to convert to a fixed-benefit contract, which will
apply only to the increase in face amount, not the entire Contract. These rights
are comparable to the rights afforded to the purchaser of a new Contract. See
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK", page 7 and RIGHT TO EXCHANGE A
CONTRACT FOR A FIXED-BENEFIT INSURANCE POLICY, page 27.
20
<PAGE>
The "free-look" right allows a Contract to 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.
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 27.
DECREASES IN FACE AMOUNT
As explained earlier, you may effect a partial surrender of a Contract (see
SURRENDER OF A CONTRACT, page 18) or a partial withdrawal of excess cash
surrender value (see WITHDRAWAL OF EXCESS CASH SURRENDER VALUE, page 19). You
also have the option of decreasing the face amount (which is also the guaranteed
minimum death benefit) of your Contract without withdrawing any cash surrender
value. Contract owners who conclude that, because of changed circumstances, the
amount of insurance is greater than needed will 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). Your Contract Fund value, however, will be reduced by deduction of a
proportionate part of the 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. A decrease will not be permitted if
it 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 7. A reduction will not be permitted if it causes the Contract to
fail to qualify as "life insurance" for purposes of section 7702 of the Internal
Revenue Code. A Contract is no longer eligible for the Select Rating if the face
amount is reduced below $100,000.
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 27. Before making any withdrawal
which causes a decrease in face amount, you should consult your own tax adviser
and Pruco Life representative.
LAPSE AND REINSTATEMENT
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 inforce 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.
In addition, even if a Scheduled Premium is not paid, the Contract will remain
inforce 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 inforce, 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 inforce 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 27.
21
<PAGE>
A Contract that has lapsed may be reinstated within three 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 26.
WHEN PROCEEDS ARE PAID
We will generally pay any death benefit, cash surrender value, loan proceeds or
partial withdrawal within seven 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, we may delay payment of proceeds from the subaccount[s] and the
variable portion of the death benefit due under the Contract if the disposal or
valuation of the Account's assets is not reasonably practicable because: (1) the
New York Stock Exchange is closed for other than a regular holiday or weekend;
(2) trading is restricted by the SEC; or (3) 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 inforce as extended term
insurance, we expect to pay the cash surrender value promptly upon request.
However, we have the right to delay payment of such cash surrender value for up
to six months (or a shorter period if required by applicable law). We will pay
interest of at least 3% a year if we delay such a payment for more than 30 days
(or a shorter period if required by applicable law).
LIVING NEEDS BENEFIT
The LIVING NEEDS BENEFIT(SM) is available under the Contract. It may be added to
Contracts at issue and there is no charge for adding the benefit to a Contract.
However, an administrative charge (not to exceed $150) will be made at the time
the LIVING NEEDS BENEFIT is paid.
The LIVING NEEDS BENEFIT allows you to elect to receive an accelerated payment
of all or part of the Contract's death benefit, adjusted to reflect current
value, at a time when certain special needs exist. The adjusted death benefit
will always be less than the death benefit, but will generally be greater than
the Contract's cash surrender value. One or both of the following options may be
available. You should consult with a Pruco Life representative as to whether
additional options may be available.
TERMINAL ILLNESS OPTION. This option is available if the insured is diagnosed as
terminally ill with a life expectancy of six months or less. When satisfactory
evidence is provided, Pruco Life will provide an accelerated payment of the
portion of the death benefit selected by 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 six 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.
NURSING HOME OPTION. This option is available after the insured has been
confined to an eligible nursing home for six months or more. When satisfactory
evidence is provided, including certification by a licensed physician, that the
insured is expected to remain in the nursing home until death, Pruco Life will
provide an accelerated payment of the portion of the death benefit selected by
the Contract owner as a LIVING NEEDS BENEFIT. 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 two), 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.
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.
22
<PAGE>
You should consider whether adding this settlement option is appropriate in your
given situation. Adding the LIVING NEEDS BENEFIT to the Contract has no adverse
consequences; however, electing to use it could. With the exception of certain
business-related policies, the LIVING NEEDS BENEFIT is excluded from income if
the insured is terminally ill or chronically ill as defined in the tax law
(although the exclusion in the latter case may be limited). You should consult a
qualified tax adviser before electing to receive this benefit. Receipt of a
LIVING NEEDS BENEFIT payment may also affect your eligibility for certain
government benefits or entitlements.
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS
The following four tables show how a Contract's death benefit and cash surrender
values change with the investment performance of the Account. They are
"hypothetical" because they are based, in part, upon several assumptions which
are described below. All four tables assume the following:
o a Contract with a face amount of $60,000 bought by a 35 year old male,
non-smoker, with no extra risks or substandard ratings, and no extra
benefit riders added to the Contract.
o the Scheduled Premium of $554.80 is paid on each Contract anniversary and
no loans are taken.
o the Contract fund has been invested in equal amounts in each of the 13
available portfolios of the Series Fund and no portion of the Contract
Fund has been allocated to the fixed-rate option or the Real Property
Account.
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 tables reflect values applicable to both revised and original Contracts.
However, these values are not applicable to the original Contracts where the
death benefit has been increased to the Contract Fund divided by the net single
premium.
The first table (page T1) assumes a Form A Contract has been purchased and the
second table (page T2) assumes a Form B Contract has been purchased. Both assume
the current charges will continue for the indefinite future. Moreover, these
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
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 we do not currently intend to withdraw or
modify these reductions in charges or additions to the Contract Fund, we reserve
the right to do so.
The third and fourth tables (pages T3 and T4) assume that Form A and Form B
Contracts have been purchased, respectively, and the maximum contractual charges
have been made from the beginning. Neither reflect the waiver of the front-end
sales load nor the monthly additions to the Contract Fund that further reduce
the cost of insurance charge.
Finally, there are four assumptions, shown separately, about the average
investment performance of the portfolios. The first is that there will be a
uniform 0% gross rate of return with the average value of the Contract Fund
uniformly adversely affected by very unfavorable investment performance. The
other three assumptions are that investment performance will be at a uniform
gross annual rate of 4%, 8% and 12%. Actual returns will fluctuate from year to
year. In addition, death benefits and cash surrender values would be different
from those shown if investment returns averaged 0%, 4%, 8% and 12% but
fluctuated from those averages throughout the years. Nevertheless, these
assumptions help show how the Contract values change with investment experience.
The first column in the following four tables (pages T1 through T4) shows the
Contract year. The second column, to provide context, shows what the aggregate
amount would be if the Scheduled Premiums had been invested to earn interest,
after taxes, at 4% compounded annually. The next four columns show the death
benefit payable in each of the years shown for the four different assumed
investment returns. The last four columns show the cash surrender value payable
in each of the years shown for the four different assumed investment returns.
The cash surrender values in the first 10 years reflect the surrender charges
that would be deducted if the Contract were surrendered in those years.
23
<PAGE>
A gross return (as well as the net return) is shown at the top of each column.
The gross return represents the combined effect of investment income and capital
gains and losses, realized or unrealized, of the portfolios before any reduction
is made for investment advisory fees or other Series Fund expenses. The net
return reflects average total annual expenses of the 13 portfolios of 0.48%, and
the daily deduction from the Contract Fund of 0.6% per year. Thus, based on the
above assumptions, gross investment returns of 0%, 4%, 8% and 12% are the
equivalent of net investment returns of -1.08%, 2.92%, 6.92% and 10.92%,
respectively. The actual fees and expenses of the portfolios associated with a
particular Contract may be more or less than 0.48% and will depend on which
subaccounts are selected. The death benefits and cash surrender values shown
reflect the deduction of all expenses and charges both from the Series Fund and
under the Contract.
Your Pruco Life representative can provide you with a hypothetical illustration
for your own age, sex and rating class.
24
<PAGE>
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) (4)
USING CURRENT SCHEDULE OF CHARGES
Death Benefit (2)(3)
----------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End of Accumulated ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (4) (-1.08% Net) (2.92% Net) (6.92% Net) (10.92% Net)
------ -------------- ------------ ----------- ----------- ------------
1 $ 577 $60,000 $60,000 $ 60,000 $ 60,000
2 $ 1,177 $60,000 $60,000 $ 60,000 $ 60,000
3 $ 1,801 $60,000 $60,000 $ 60,000 $ 60,000
4 $ 2,450 $60,000 $60,000 $ 60,000 $ 60,000
5 $ 3,125 $60,000 $60,000 $ 60,000 $ 60,000
6 $ 3,827 $60,000 $60,000 $ 60,000 $ 60,000
7 $ 4,557 $60,000 $60,000 $ 60,000 $ 60,000
8 $ 5,317 $60,000 $60,000 $ 60,000 $ 60,000
9 $ 6,106 $60,000 $60,000 $ 60,000 $ 60,000
10 $ 6,927 $60,000 $60,000 $ 60,000 $ 60,000
15 $11,553 $60,000 $60,000 $ 60,000 $ 60,000
20 $17,182 $60,000 $60,000 $ 60,000 $ 60,000
25 $24,029 $60,000 $60,000 $ 60,000 $ 85,766
30 (Age 65) $32,361 $60,000 $60,000 $ 60,000 $132,830
35 $49,714 $60,000 $60,000 $ 74,682 $203,582
40 $70,827 $60,000 $60,000 $ 97,614 $311,157
45 $96,515 $60,000 $60,000 $127,193 $477,211
Cash Surrender Value (2)(3)
----------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of ----------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.08% Net) (2.92% Net) (6.92% Net) (10.92% Net)
------ ------------ ----------- ----------- ------------
1 $ 0 $ 0 $ 0 $ 0
2 $ 226 $ 274 $ 324 $ 375
3 $ 528 $ 622 $ 721 $ 826
4 $ 820 $ 974 $ 1,141 $ 1,323
5 $ 1,103 $ 1,331 $ 1,586 $ 1,871
6 $ 1,514 $ 1,833 $ 2,198 $ 2,617
7 $ 1,940 $ 2,365 $ 2,865 $ 3,454
8 $ 2,354 $ 2,901 $ 3,563 $ 4,363
9 $ 2,757 $ 3,441 $ 4,293 $ 5,353
10 $ 3,148 $ 3,987 $ 5,060 $ 6,432
15 $ 4,498 $ 6,422 $ 9,267 $ 13,477
20 $ 5,432 $ 8,964 $ 15,054 $ 25,599
25 $ 5,704 $11,420 $ 23,075 $ 46,353
30 (Age 65) $ 4,937 $13,488 $ 34,463 $ 81,008
35 $16,913 $21,944 $ 50,691 $138,183
40 $27,918 $31,143 $ 72,644 $231,563
45 $38,178 $41,619 $101,925 $382,409
(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.
(4) For a hypothetical gross investment return of 0%, the second Scheduled
Premium will be $3,397.52. For a gross return of 4%, the second Scheduled
Premium will be $1,836.06. For a gross return of 8%, the second Scheduled
Premium will be $554.80. For a gross return of 12%, the second Scheduled
Premium will be $554.80. The premiums accumulated at 4% interest in column
2 are those payable if the gross investment return is 4%. For an
explanation of why the scheduled premium may increase on the premium
change date, see Premiums.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 4%, 8%,
and 12% over a period of years but also fluctuated above or below those averages
for individual contract years. No representations can be made by Pruco Life or
the Series Fund that these hypothetical rates of return can be achieved for any
one year or sustained over any period of time.
T1
<PAGE>
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) (4)
USING CURRENT SCHEDULE OF CHARGES
Death Benefit (2)(3)
----------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End of Accumulated ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (4) (-1.08% Net) (2.92% Net) (6.92% Net) (10.92% Net)
------ -------------- ------------ ----------- ----------- ------------
1 $ 577 $60,000 $60,016 $ 60,033 $ 60,050
2 $ 1,177 $60,000 $60,031 $ 60,081 $ 60,132
3 $ 1,801 $60,000 $60,048 $ 60,147 $ 60,252
4 $ 2,450 $60,000 $60,066 $ 60,233 $ 60,413
5 $ 3,125 $60,000 $60,087 $ 60,340 $ 60,623
6 $ 3,827 $60,000 $60,138 $ 60,501 $ 60,917
7 $ 4,557 $60,000 $60,194 $ 60,690 $ 61,275
8 $ 5,317 $60,000 $60,256 $ 60,911 $ 61,704
9 $ 6,106 $60,000 $60,324 $ 61,167 $ 62,214
10 $ 6,927 $60,000 $60,400 $ 61,460 $ 62,814
15 $ 11,553 $60,000 $61,172 $ 63,964 $ 68,087
20 $ 17,182 $60,000 $62,472 $ 68,370 $ 78,536
25 $ 24,029 $60,000 $64,682 $ 75,687 $ 98,038
30 (Age 65) $ 32,361 $60,523 $68,429 $ 87,374 $133,180
35 $ 51,859 $62,457 $68,249 $ 89,963 $196,165
40 $ 75,582 $63,534 $69,194 $ 97,254 $301,320
45 $104,444 $64,247 $71,843 $111,596 $464,320
Cash Surrender Value (2)(3)
----------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of ----------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.08% Net) (2.92% Net) (6.92% Net) (10.92% Net)
------ ------------ ----------- ----------- ------------
1 $ 0 $ 0 $ 0 $ 0
2 $ 225 $ 273 $ 322 $ 373
3 $ 526 $ 620 $ 719 $ 823
4 $ 818 $ 972 $ 1,138 $ 1,319
5 $ 1,100 $ 1,328 $ 1,581 $ 1,864
6 $ 1,511 $ 1,828 $ 2,191 $ 2,607
7 $ 1,937 $ 2,359 $ 2,855 $ 3,439
8 $ 2,351 $ 2,893 $ 3,549 $ 4,342
9 $ 2,754 $ 3,432 $ 4,275 $ 5,322
10 $ 3,145 $ 3,975 $ 5,035 $ 6,388
15 $ 4,513 $ 6,413 $ 9,205 $ 13,328
20 $ 5,471 $ 8,932 $14,831 $ 24,996
25 $ 5,771 $11,271 $22,276 $ 44,627
30 (Age 65) $ 5,023 $12,929 $31,874 $ 77,680
35 $16,759 $22,551 $44,265 $133,149
40 $27,144 $32,804 $60,863 $224,243
45 $35,985 $43,581 $83,334 $372,078
(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.
(4) For a hypothetical gross investment return of 0%, the second Scheduled
Premium will be $3,399.12. For a gross return of 4%, the second Scheduled
Premium will be $2,216.85. For a gross return of 8%, the second Scheduled
Premium will be $554.80. For a gross return of 12%, the second Scheduled
Premium will be $554.80. The premiums accumulated at 4% interest in column
2 are those payable if the gross investment return is 4%. For an
explanation of why the scheduled premium may increase on the premium
change date, see Premiums.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 4%, 8%,
and 12% over a period of years but also fluctuated above or below those averages
for individual contract years. No representations can be made by Pruco Life or
the Series Fund that these hypothetical rates of return can be achieved for any
one year or sustained over any period of time.
T2
<PAGE>
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) (4)
USING MAXIMUM CONTRACTUAL CHARGES
Death Benefit (2)(3)
----------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End of Accumulated ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (4) (-1.08% Net) (2.92% Net) (6.92% Net) (10.92% Net)
------ -------------- ------------ ----------- ----------- ------------
1 $ 577 $60,000 $60,000 $60,000 $ 60,000
2 $ 1,177 $60,000 $60,000 $60,000 $ 60,000
3 $ 1,801 $60,000 $60,000 $60,000 $ 60,000
4 $ 2,450 $60,000 $60,000 $60,000 $ 60,000
5 $ 3,125 $60,000 $60,000 $60,000 $ 60,000
6 $ 3,827 $60,000 $60,000 $60,000 $ 60,000
7 $ 4,557 $60,000 $60,000 $60,000 $ 60,000
8 $ 5,317 $60,000 $60,000 $60,000 $ 60,000
9 $ 6,106 $60,000 $60,000 $60,000 $ 60,000
10 $ 6,927 $60,000 $60,000 $60,000 $ 60,000
15 $ 11,553 $60,000 $60,000 $60,000 $ 60,000
20 $ 17,182 $60,000 $60,000 $60,000 $ 60,000
25 $ 24,029 $60,000 $60,000 $60,000 $ 60,000
30 (Age 65) $ 32,361 $60,000 $60,000 $60,000 $ 85,626
35 $ 58,960 $60,000 $60,000 $60,000 $122,755
40 $ 91,322 $60,000 $60,000 $60,213 $173,821
45 $130,695 $60,000 $60,000 $83,711 $244,651
Cash Surrender Value (2)(3)
----------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of ----------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.08% Net) (2.92% Net) (6.92% Net) (10.92% Net)
------ ------------ ----------- ----------- ------------
1 $ 0 $ 0 $ 0 $ 0
2 $ 185 $ 231 $ 279 $ 329
3 $ 461 $ 550 $ 646 $ 746
4 $ 723 $ 869 $ 1,029 $ 1,202
5 $ 970 $ 1,186 $ 1,428 $ 1,699
6 $1,313 $ 1,612 $ 1,956 $ 2,351
7 $1,664 $ 2,059 $ 2,526 $ 3,077
8 $1,997 $ 2,499 $ 3,111 $ 3,854
9 $2,310 $ 2,932 $ 3,713 $ 4,689
10 $2,603 $ 3,357 $ 4,331 $ 5,586
15 $3,153 $ 4,733 $ 7,116 $ 10,701
20 $2,891 $ 5,523 $10,249 $ 18,686
25 $1,290 $ 5,080 $13,462 $ 31,565
30 (Age 65) $ 0 $ 2,307 $16,290 $ 52,220
35 $3,967 $11,168 $28,131 $ 83,321
40 $6,120 $18,529 $44,811 $129,357
45 $ 0 $22,614 $67,081 $196,049
(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.
(4) 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
$2,220.83; 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.
T3
<PAGE>
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) (4)
USING MAXIMUM CONTRACTUAL CHARGES
Death Benefit (2)(3)
----------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End of Accumulated ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (4) (-1.08% Net) (2.92% Net) (6.92% Net) (10.92% Net)
------ -------------- ------------ ----------- ----------- ------------
1 $ 577 $60,000 $60,000 $60,013 $ 60,030
2 $ 1,177 $60,000 $60,000 $60,036 $ 60,085
3 $ 1,801 $60,000 $60,000 $60,072 $ 60,172
4 $ 2,450 $60,000 $60,000 $60,120 $ 60,292
5 $ 3,125 $60,000 $60,000 $60,182 $ 60,450
6 $ 3,827 $60,000 $60,000 $60,259 $ 60,650
7 $ 4,557 $60,000 $60,000 $60,351 $ 60,896
8 $ 5,317 $60,000 $60,000 $60,460 $ 61,194
9 $ 6,106 $60,000 $60,000 $60,588 $ 61,549
10 $ 6,927 $60,000 $60,000 $60,734 $ 61,966
15 $ 11,553 $60,000 $60,000 $61,793 $ 65,251
20 $ 17,182 $60,000 $60,000 $63,525 $ 71,404
25 $ 24,029 $60,000 $60,000 $66,083 $ 82,077
30 (Age 65) $ 32,361 $60,000 $60,000 $69,563 $ 99,713
35 $ 58,960 $60,000 $60,000 $72,265 $117,207
40 $ 91,322 $60,000 $60,000 $77,784 $153,613
45 $130,695 $60,000 $60,000 $87,250 $221,884
Cash Surrender Value (2)(3)
----------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of ----------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.08% Net) (2.92% Net) (6.92% Net) (10.92% Net)
------ ------------ ----------- ----------- ------------
1 $ 0 $ 0 $ 0 $ 0
2 $ 184 $ 230 $ 278 $ 327
3 $ 459 $ 549 $ 643 $ 744
4 $ 721 $ 867 $ 1,025 $ 1,198
5 $ 968 $ 1,183 $ 1,423 $ 1,691
6 $1,311 $ 1,608 $ 1,949 $ 2,340
7 $1,662 $ 2,054 $ 2,516 $ 3,061
8 $1,994 $ 2,493 $ 3,098 $ 3,832
9 $2,308 $ 2,926 $ 3,696 $ 4,657
10 $2,600 $ 3,350 $ 4,309 $ 5,541
15 $3,151 $ 4,723 $ 7,034 $ 10,492
20 $2,889 $ 5,511 $ 9,986 $ 17,865
25 $1,287 $ 5,066 $12,672 $ 28,665
30 (Age 65) $ 0 $ 2,289 $14,063 $ 44,213
35 $3,964 $11,124 $26,567 $ 71,509
40 $6,116 $18,462 $41,394 $114,319
45 $ 0 $22,499 $58,989 $177,804
(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.
(4) 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
$2,944.81; for a gross return of 12% the premium after age 65 will be
$1,265.64. The premiums accumulated at 4% interest in column 2 are those
payable if the gross investment return is 4%. For an explanation of why
the scheduled premium may increase on the premium change date, see
Premiums.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 4%, 8%,
and 12% over a period of years but also fluctuated above or below those averages
for individual contract years. No representations can be made by Pruco Life or
the Series Fund that these hypothetical rates of return can be achieved for any
one year or sustained over any period of time.
T4
<PAGE>
CONTRACT LOANS
You may borrow from Pruco Life an amount up to the current loan value of your
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, we will, on a non-contractual basis
(contractual in Texas), increase the loan value by permitting you 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. A Contract in default has no loan
value.
If you request a loan you may choose one of two interest rates. You may elect to
have interest charges accrued daily at a fixed effective annual rate of 5.5%.
Alternatively, you may elect a variable interest rate that changes from time to
time. You may switch from the fixed to variable interest loan provision, or
vice-versa, with Pruco Life's consent.
If you elect 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) the rate permitted 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 1998 ranged from 6.72% to 7.00%.
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 Contract debt is the amount of all outstanding loans plus any interest
accrued but not yet due. If at any time your Contract debt exceeds your Contract
Fund, Pruco Life will notify you of its intent to terminate the Contract in 61
days, within which time you may repay all or enough of the loan to keep the
Contract inforce. If you fail to keep the Contract inforce, the amount of unpaid
Contract debt will be treated as a distribution which may be taxable. See LAPSE
AND REINSTATEMENT, page 21 and TAX TREATMENT OF CONTRACT BENEFITS - PRE-DEATH
DISTRIBUTIONS, page 28.
When a loan is made, an amount equal to the loan proceeds is transferred out of
the applicable investment options. The reduction is generally made in the same
proportions as the value that 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, we credit such amounts at 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 applies.
A loan will not affect the amount of the premiums due. If the death benefit
becomes 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.
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. Loan repayments are allocated to the investment options proportionately
based on their balances at the time of the loan repayment.
Loans from Modified Endowment Contracts may be treated for tax purposes as
distributions of income. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
25
<PAGE>
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 $4,921.38. 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 rather
than the 6.92% 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 inforce as fixed extended
term insurance), Pruco Life will send you a statement that provides certain
information pertinent to your own Contract. This statement will detail values
and transactions made and specific Contract data that apply only to your
particular Contract. On request, you 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.
You will also be sent annual and semi-annual reports of the Series Fund showing
the financial condition of the portfolios and the investments held in each
portfolio.
OPTIONS ON LAPSE
If your Contract does lapse, it will still provide some benefits. You can
receive the cash surrender value by making a request of Pruco Life prior to the
end of the 61 day grace period. You may also choose one of the three forms of
insurance described below for which no further premiums are payable.
1. FIXED EXTENDED TERM INSURANCE. With two exceptions explained below, if you do
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
inforce. This benefit is known as extended term insurance. If you request, we
will tell you 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 18. Variable reduced paid-up insurance has
a loan privilege identical to that available on premium paying Contracts. See
CONTRACT LOANS, page 25. Acquisition of reduced paid-up insurance may result in
your Contract becoming a Modified Endowment Contract. See TAX TREATMENT OF
CONTRACT BENEFITS, page 27.
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 Contract 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. You 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 we receive 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 inforce, or the net value of any reduced paid-up insurance then
inforce, less any Contract debt. Surrender of your Contract may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
26
<PAGE>
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 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.
You may 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 two years of any increase in face amount with respect to the amount
of the increase. This is done without regard to the otherwise applicable limit
of four transfers per year. See TRANSFERS, page 11. 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 was sold by registered
representatives of Prusec who are also authorized by state insurance departments
to do so. The Contract may also have been 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 10th 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 three years of service may be paid on a different
basis. Representatives who met certain productivity, profitability, and
persistency standards with regard to the sale of the Contract may 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
This summary provides general information on the federal income tax treatment of
the Contract. It is not a complete statement of what the federal income taxes
will be in all circumstances. It is based on current law and interpretations,
which may change. It does not cover state taxes or other taxes. It is not
intended as tax advice. You should consult your own qualified tax adviser for
complete information and advice.
27
<PAGE>
TREATMENT AS LIFE INSURANCE. The Contract must meet certain requirements to
qualify as life insurance for tax purposes. These requirements include certain
definitional tests and rules for diversification of the Contract's investments.
For further information on the diversification requirements, see DIVIDENDS,
DISTRIBUTIONS AND TAXES in the prospectus for the Series Fund.
We believe we have taken adequate steps to ensure that the Contract qualifies as
life insurance for tax purposes. Generally speaking, this means that:
o you will not be taxed on the growth of the funds in the Contract,
unless you receive a distribution from the Contract,
o the Contract's death benefit will be tax free to your beneficiary.
Although we believe that the Contract should qualify as life insurance for tax
purposes, there are some uncertainties, particularly because the Secretary of
Treasury has not yet issued permanent regulations that bear on this question.
Accordingly, we reserve the right to make changes -- which will be applied
uniformly to all Contract owners after advance written notice -- that we deem
necessary to ensure that the Contract will qualify as life insurance.
PRE-DEATH DISTRIBUTIONS. The tax treatment of any distribution you receive
before the insured's death depends on whether the Contract is classified as a
Modified Endowment Contract.
CONTRACTS NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
o If you surrender the Contract or allow it to lapse, you will be
taxed on the amount you receive in excess of the premiums you paid
less the untaxed portion of any prior withdrawals. For this purpose,
you will be treated as receiving any portion of the cash surrender
value used to repay Contract debt. The tax consequences of a
surrender may differ if you take the proceeds under an income
payment settlement option.
o Generally, you will be taxed on a withdrawal to the extent the
amount you receive exceeds the premiums you paid for the Contract
less the untaxed portion of any prior withdrawals. However, under
some limited circumstances, in the first 15 Contract years, all or a
portion of a withdrawal may be taxed 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.
o Extra premiums for optional benefits and riders generally do not
count in computing the premiums paid for the Contract for the
purposes of determining whether a withdrawal is taxable.
o Loans you take against the Contract are ordinarily treated as debt
and are not considered distributions subject to tax.
MODIFIED ENDOWMENT CONTRACTS.
o The rules change if the Contract is classified as a Modified
Endowment Contract. The Contract could be classified as a Modified
Endowment Contract if premiums substantially in excess of Scheduled
Premiums are paid or a decrease in the face amount of insurance is
made (or a rider removed). The addition of a rider or an increase in
the face amount of insurance may also cause the Contract to be
classified as a Modified Endowment Contract. You should first
consult a qualified tax adviser and your Pruco Life representative
if you are contemplating any of these steps.
o If the Contract is classified as a Modified Endowment Contract, then
amounts you receive under the Contract before the insured's death,
including loans and withdrawals, are included in income to the
extent that the Contract Fund before surrender charges exceeds the
premiums paid for the Contract increased by the amount of any loans
previously included in income and reduced by any untaxed amounts
previously received other than the amount of any loans excludible
from income. An assignment of a Modified Endowment Contract is
taxable in the same way. These rules also apply to pre-death
distributions, including loans, made during the two-year period
before the time that the Contract became a Modified Endowment
Contract.
28
<PAGE>
o Any taxable income on pre-death distributions (including full
surrenders) is subject to a penalty of 10 percent unless the amount
is received on or after age 59 1/2, on account of your becoming
disabled or as a life annuity. It is presently unclear how the
penalty tax provisions apply to Contracts owned by businesses.
o All Modified Endowment Contracts issued by us to you during the same
calendar year are treated as a single Contract for purposes of
applying these rules.
WITHHOLDING. You must affirmatively elect that no taxes be withheld from a
pre-death distribution. Otherwise, the taxable portion of any amounts you
receive will be subject to withholding. You are not permitted to elect out of
withholding if you do not provide a social security number or other taxpayer
identification number. You may be subject to penalties under the estimated tax
payment rules if your withholding and estimated tax payments are insufficient to
cover the tax due.
OTHER TAX CONSIDERATIONS. If you transfer or assign the Contract to someone
else, there may be gift, estate and/or income tax consequences. If you transfer
the Contract to a person two or more generations younger than you (or designate
such a younger person as a beneficiary), there may be Generation Skipping
Transfer tax consequences. 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. Your individual situation or that of your beneficiary
will determine the federal estate taxes and the state and local estate,
inheritance and other taxes due if you or the insured dies.
BUSINESS-OWNED LIFE INSURANCE. If a business, rather than an individual, is the
owner of the Contract, there are some additional rules. Business Contract owners
generally cannot deduct premium payments. Business Contract owners generally
cannot take tax deductions for interest on Contract debt 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 these loans is limited to a prescribed interest rate and a maximum aggregate
loan amount of $50,000 per key insured person. The corporate alternative minimum
tax also applies to business-owned life insurance. This is an indirect tax on
additions to the Contract Fund or death benefits received under business-owned
life insurance policies.
TAX-QUALIFIED PENSION PLANS
You may acquire the Contract to fund a retirement plan that qualifies for tax
favored treatment under the Internal Revenue Code. We will issue such a Contract
with a minimum face amount of $10,000, and with increases and decreases in face
amount in minimum increments of $10,000. The monthly charge for anticipated
mortality costs and the Scheduled Premiums will be the same for male and female
insureds of a particular age and underwriting classification. We will give
illustrations showing premiums and charges if you wish to fund a tax-qualified
pension plan. Only certain riders are available for a Contract issued in
connection with a tax-qualified pension plan. Fixed reduced paid-up insurance
and payment of the cash surrender value are the only options on lapse available
for a Contract issued in connection with a tax-qualified pension plan. See LAPSE
AND REINSTATEMENT, page 21. Finally, a Contract issued in connection with a
tax-qualified pension plan may not invest in the Real Property Account.
You should consult a qualified tax adviser before purchasing a Contract in
connection with a tax-qualified pension plan.
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 SEC HAS NOT REVIEWED THE DISCLOSURE
IN THIS PROSPECTUS RELATING TO THE FIXED-RATE OPTION. ANY INACCURATE OR
MISLEADING DISCLOSURE REGARDING THE FIXED-RATE OPTION MAY, HOWEVER, BE SUBJECT
TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF FEDERAL SECURITIES LAWS.
You may choose to allocate, either initially or by transfer, all or part of your
Contract Fund to a fixed-rate option. This amount becomes part of Pruco Life's
general account. The general account 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 general account assets. 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%.
29
<PAGE>
Transfers from the fixed-rate option are subject to strict limits. See
TRANSFERS, page 11. The payment of any cash surrender value attributable to the
fixed-rate option may be delayed up to six months. See WHEN PROCEEDS ARE PAID,
page 22.
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 differ under Contracts issued on males
and females of the same age. 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 who purchased
a Contract should consult their legal advisers to determine whether a Contract
based on sex-distinct actuarial tables is consistent with Title VII of the Civil
Rights Act of 1964 or other applicable law.
OTHER GENERAL CONTRACT PROVISIONS
ASSIGNMENT. This Contract may not be assigned if the assignment would violate
any federal, state or local law or regulation. Generally, the Contract may not
be assigned to another insurance company or to an employee benefit plan without
Pruco Life's consent. Pruco Life assumes no responsibility for the validity or
sufficiency of any assignment. We will not be obligated to comply with any
assignment unless we receive a copy at a Home Office.
BENEFICIARY. You designate and name your beneficiary in the application.
Thereafter, you may change the beneficiary, provided it is in accordance with
the terms of the Contract. Should the insured die with no surviving beneficiary,
the insured's estate will become the beneficiary.
INCONTESTABILITY. We will not contest the Contract after it has been inforce
during the insured's lifetime for two years from the issue date except when any
change is made in the Contract that requires Pruco Life's approval and would
increase our liability. We will not contest such change after it has been in
effect for two years during the lifetime of the insured.
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 such benefit will be based on what the most recent charge for
mortality would have provided at the correct age and sex.
SETTLEMENT OPTIONS. The Contract grants to most owners, or to the beneficiary, a
variety of optional ways of receiving Contract proceeds, other than in a lump
sum. Any Pruco Life representative authorized to sell this Contract can explain
these options upon request.
SUICIDE EXCLUSION. If the insured dies by suicide within two years from the
effective date of an increase in the face amount of insurance, we will pay, as
to the increase in amount, no more than the sum of the Scheduled Premiums
attributable to the increase.
RIDERS
Contract owners may be able to obtain extra fixed benefits, which may require an
additional premium. These optional insurance benefits will be described in what
is known as a "rider" to the Contract. Charges applicable to the riders will be
deducted from the Contract Fund on each Monthly date.
One rider pays certain premiums into the Contract if the insured 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 certain premiums into the Contract 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 and 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 extra benefits further. Samples of the provisions are
available from Pruco Life upon written request.
30
<PAGE>
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 18.
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 described earlier, all of the assets held in the subaccounts 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 in accordance with voting
instructions received from Contract owners at any regular and special
shareholders meetings. The Series Fund may 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. If 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.
Contract owners participating in a portfolio will vote separately on the
investment advisory agreement or any change in the portfolio's fundamental
investment policy, pursuant to the requirements of Rule 18f-2 under the
Investment Company Act of 1940.
The number of Series Fund shares for which a Contract owner may give
instructions 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 they 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
adviser 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
Judgement 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.
31
<PAGE>
STATE REGULATION
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
EXPERTS
The financial statements of Pruco Life as of December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998 and the financial
statements of the Account as of December 31, 1998 and for each of the three
years in the period then ended included in this prospectus have been so included
in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting. PricewaterhouseCoopers LLP's principal business address is 1177
Avenue of the Americas, New York, New York 10036.
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 you as a purchaser of a Variable Appreciable Life
Insurance Contract depend on the smooth functioning of numerous computer
systems. Many computer systems in use today are programmed to recognize only the
last two digits of a date as the year. As a result, any systems using this kind
of programming can not distinguish a date using "00" and may treat it as "1900"
instead of "2000." This problem may impact computer systems that store business
information, but it could also affect other equipment used in our business like
telephone, fax machines and elevators. If this problem is not corrected, the
"Year 2000" issue could affect the accuracy and integrity of business records.
Prudential's regular business operations could be interrupted as well as those
of other companies that deal with us.
In addition, the operations of the mutual funds associated with the Variable
Appreciable Life Insurance Contract could experience problems resulting from the
Year 2000 issue. Please refer to the respective mutual fund's prospectus for
information regarding their approach to Year 2000 concerns. The following
describes Prudential's effort to address Year 2000 concerns.
To address this potential problem Prudential, as the parent company of Pruco
Life, organized its Year 2000 efforts around the following three areas:
o BUSINESS SYSTEMS - Computer programs directly used to support our
business;
o INFRASTRUCTURE - Computers and other business equipment like telephones
and fax machines; and
o BUSINESS PARTNERS - Year 2000 readiness of essential business partners.
BUSINESS SYSTEMS. The business systems component includes a wide range of
computer programs that directly support Prudential's business operations
including systems for: insurance product processing, securities trading,
personnel record keeping and general accounting systems. All business systems
were analyzed to determine whether each computer program with a Year 2000
problem should be retired, replaced or renovated. The majority of this work has
been completed. A few remaining programs are currently being tested and
completion of this process is expected by June 1999.
32
<PAGE>
INFRASTRUCTURE. As with business applications, we established a specific
methodology and process for addressing infrastructure issues. The infrastructure
effort includes mainframe computer system hardware and operating system
software, mid-range systems and servers, telecommunications equipment and
systems, buildings and facilities systems, personal computers, and vendor
hardware and software. Other than desktop systems, substantially all other
infrastructure systems have been tested. Presently a small number of midrange
computers, and building and facility systems are still in the testing phase. We
expect to have the infrastructure implementation process completed by June 1999.
BUSINESS PARTNERS. Prudential recognizes the importance of determining the Year
2000 readiness of external business relationships especially those that involve
electronic data transfer products and services, and products that impact our
essential business processes. Prudential first classified each business partner
as "highly critical" or "less critical" to our business and then began to
develop risk assessment and contingency plans to address the potential that a
business partner could experience a Year 2000 failure. All highly critical
business partner relationships have been assessed and contingency planning is
completed. Risk assessment and contingency planning continues for less critical
business partners, and the target completion date for these relationships is
June 1999.
Prudential believes that the Business Systems, Infrastructure and Business
Partners components of the Year 2000 project are substantially on schedule. A
small number of the projects may not meet their targeted completion date.
However, Prudential expects that these projects will be completed by September,
1999. If there are any delays, they should not have a significant impact on the
timing of the project as a whole.
THE COST OF YEAR 2000 READINESS
Prudential is funding the Year 2000 program from internal operating budgets, and
estimates that its total costs to address the Year 2000 issue will total
approximately $220 million. Because these expenses were part of the operating
budget, they did not impact the management of Variable Appreciable Life
Insurance Contracts. During the course of the Year 2000 program, some optional
computer projects have been delayed, but these delays have not had any material
effect on Variable Appreciable Life Insurance Contracts.
YEAR 2000 RISKS AND CONTINGENCY PLANNING
Prudential believes that it is well positioned to lessen the impact of the Year
2000 problem. However, given the nature of this issue, we can not be 100%
certain that we are completely prepared, particularly because we can not be
certain of Year 2000 readiness of third parties. As a result, we are unable to
determine at this time whether the consequences of Year 2000 failures may have a
material adverse effect on the results of Prudential's operations, liquidity or
financial condition. In the worst case, it is possible that a Year 2000
technology failure, whether internal or external, could have a material impact
on Prudential's results of operations, liquidity, or financial position. If
Prudential is unable to address the Year 2000 problem, we may have difficulty in
responding to your incoming phone calls, calculating your unit values or
processing withdrawals and purchase payments. It is also possible that the
mutual funds associated with the Variable Appreciable Life Insurance Contract
will be unable to value their securities, in turn creating difficulties in
purchasing or selling shares of the respective mutual fund and calculating
corresponding unit asset values. The objective of Prudential's Year 2000 program
has been to reduce these risks as much as possible.
Most of the operations of the Variable Appreciable Life Insurance Contract
involve such a large number of individual transactions that they can only be
handled with the help of computers. As a result, our current contingency plans
include responses to the failure of specific business programs or infrastructure
components. However, our contingency responses are now being reviewed and we
expect to finalize them by June, 1999 to ensure that they are workable under the
special conditions of a Year 2000 failure. Prudential believes that with the
completion of its Year 2000 program as scheduled, the possibility of significant
interruptions of normal operations will be reduced.
ADDITIONAL INFORMATION
Pruco Life has filed a registration statement with the SEC under the Securities
Act of 1933, relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. Certain portions have been omitted pursuant to the rules and
regulations of the SEC. The omitted information may, however, be obtained from
the SEC's principal office in Washington, D.C., upon payment of a prescribed
fee.
Further information may also be obtained from Pruco Life. Its address and
telephone number are set forth on the inside front cover of this prospectus.
33
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Account should be distinguished from the
consolidated financial statements of Pruco Life and subsidiaries which should be
considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
34
<PAGE>
DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life, listed with their principal
occupations during the past five 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.
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
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 AND SECRETARY. -- 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.
HIROSHI NAKAJIMA, SENIOR VICE PRESIDENT. -- President & Chief Executive Officer,
Pruco Life Insurance Company, Taiwan Branch since 1997; Prior to 1997: Senior
Managing Director, Prudential Life Insurance Co., Ltd.
IMANTS SAKSONS, SENIOR VICE PRESIDENT. -- Vice President, Compliance, Prudential
Individual Financial Services since 1998; Prior to 1998: Vice President, Market
Conduct, U.S. Operations, Manulife Financial.
SHIRLEY H. SHAO, SENIOR VICE PRESIDENT AND CHIEF ACTUARY. -- Vice President and
Associate Actuary, Prudential.
DENNIS G. SULLIVAN, VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER. -- Vice
President and Deputy Controller, Prudential since 1998; 1997 to 1998, Vice
President and Controller, ContiFinancial Corporation; Prior to 1997, Director,
Saloman Brothers.
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.
35
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE APPRECIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in The Prudential Series Fund, Inc.
Portfolios at net asset value [Note 3]............. $128,928,942 $76,889,589 $842,000,159 $1,186,637,163 $609,598,948
------------ ----------- ------------ -------------- ------------
Net Assets........................................... $128,928,942 $76,889,589 $842,000,159 $1,186,637,163 $609,598,948
============ =========== ============ ============== ============
NET ASSETS, representing:
Equity of contract owners............................ $128,928,942 $76,889,589 $842,000,159 $1,186,637,163 $609,598,948
------------ ----------- ------------ -------------- ------------
$128,928,942 $76,889,589 $842,000,159 $1,186,637,163 $609,598,948
============ =========== ============ ============== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A24
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH SMALL
YIELD STOCK EQUITY NATURAL GOVERNMENT PRUDENTIAL CAPITALIZATION
BOND INDEX INCOME RESOURCES GLOBAL INCOME JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 79,509,786 $255,310,081 $ 99,016,976 $ 17,873,489 $ 84,283,413 $ 10,142,467 $ 62,803,264 $ 20,787,058
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 79,509,786 $255,310,081 $ 99,016,976 $ 17,873,489 $ 84,283,413 $ 10,142,467 $ 62,803,264 $ 20,787,058
============ ============ ============ ============ ============ ============ ============ ============
$ 79,509,786 $255,310,081 $ 99,016,976 $ 17,873,489 $ 84,283,413 $ 10,142,467 $ 62,803,264 $ 20,787,058
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 79,509,786 $255,310,081 $ 99,016,976 $ 17,873,489 $ 84,283,413 $ 10,142,467 $ 62,803,264 $ 20,787,058
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A24
A2
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE APPRECIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------
MONEY
MARKET
PORTFOLIO
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income ................................... $ 7,321,694 $ 2,458,119 $ 2,545,618
----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] ...... 832,314 276,535 295,628
Reimbursement for excess expenses [Note 5D] ....... (6,522) (10,194) (20,990)
----------- ----------- -----------
NET EXPENSES ......................................... 825,792 266,341 274,638
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ......................... 6,495,902 2,191,778 2,270,980
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received .............. 0 0 0
Realized gain (loss) on shares redeemed ........... 0 0 0
Net change in unrealized gain (loss) on investments 0 0 0
----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ...................... 0 0 0
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ........................ $ 6,495,902 $ 2,191,778 $ 2,270,980
=========== =========== ===========
<CAPTION>
SUBACCOUNTS
---------------------------------------------
DIVERSIFIED
BOND
PORTFOLIO
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income ................................... $ 4,540,659 $ 5,128,836 $ 4,422,147
----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] ...... 440,438 417,937 403,154
Reimbursement for excess expenses [Note 5D] ....... (17,331) (16,936) (33,127)
----------- ----------- -----------
NET EXPENSES ......................................... 423,107 401,001 370,027
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ......................... 4,117,552 4,727,835 4,052,120
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received .............. 262,836 819,446 0
Realized gain (loss) on shares redeemed ........... 174,627 216,418 133,542
Net change in unrealized gain (loss) on investments 73,088 (456,475) (1,490,302)
----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ....................... 510,551 579,389 (1,356,760)
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ......................... $ 4,628,103 $ 5,307,224 $ 2,695,360
=========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A24
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- --------------------------------------------------------------------------------------------------
FLEXIBLE
EQUITY MANAGED
PORTFOLIO PORTFOLIO
- ----------------------------------------------- ----------------------------------------------
1998 1997 1996 1998 1997 1996
- ------------ ------------ ------------- ------------ ------------ ------------
<S><C> <C> <C> <C> <C> <C>
$ 15,582,045 $ 17,535,990 $ 15,452,502 $ 38,101,728 $ 32,821,189 $ 29,870,591
- ------------ ------------ ------------ ------------ ------------ ------------
5,123,051 4,548,952 3,759,455 7,013,282 6,514,308 5,804,428
(740,855) (588,463) (691,285) (2,657,281) (2,462,808) (2,442,468)
- ------------ ------------ ------------ ------------ ------------ ------------
4,382,196 3,960,489 3,068,170 4,356,001 4,051,500 3,361,960
- ------------ ------------ ------------ ------------ ------------ ------------
11,199,849 13,575,501 12,384,332 33,745,727 28,769,689 26,508,631
- ------------ ------------ ------------ ------------ ------------ ------------
92,257,856 43,792,759 60,055,192 120,086,729 170,075,692 95,799,304
22,299,396 12,144,753 6,145,351 8,717,338 13,389,631 9,236,814
(55,442,702) 91,191,354 25,824,063 (53,221,275) (37,601,198) (10,204,679)
- ------------ ------------ ------------ ------------ ------------ ------------
59,114,550 147,128,866 92,024,606 75,582,792 145,864,125 94,831,439
- ------------ ------------ ------------ ------------ ------------ ------------
$ 70,314,399 $160,704,367 $104,408,938 $109,328,519 $174,633,814 $121,340,070
============ ============ ============ ============ ============ ============
<CAPTION>
-----------------------------------------------
CONSERVATIVE
BALANCED
PORTFOLIO
----------------------------------------------
1998 1997 1996
------------ ------------ ------------
<C> <C> <C>
$ 25,145,187 $ 25,761,286 $ 21,071,449
------------ ------------ ------------
3,550,351 3,334,597 3,078,977
(1,018,563) (912,152) (1,030,139)
------------ ------------ ------------
2,531,788 2,422,445 2,048,838
------------ ------------ ------------
22,613,399 23,338,841 19,022,611
------------ ------------ ------------
35,735,484 61,582,374 32,702,701
3,601,498 5,214,424 4,364,767
1,172,190 (22,803,360) 3,618,761
------------ ------------ ------------
40,509,172 43,993,438 40,686,229
------------ ------------ ------------
$ 63,122,571 $ 67,332,279 $ 59,708,840
============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A24
A4
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE APPRECIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------
HIGH
YIELD
BOND
PORTFOLIO
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income ................................... $ 5,833,057 $ 3,606,406 $ 3,403,479
----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] ...... 313,600 226,827 209,077
Reimbursement for excess expenses [Note 5D] ....... 0 0 0
----------- ----------- -----------
NET EXPENSES ......................................... 313,600 226,827 209,077
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ......................... 5,519,457 3,379,579 3,194,402
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received .............. 0 0 0
Realized gain (loss) on shares redeemed ........... (184,781) 19,344 (26,717)
Net change in unrealized gain (loss) on investments (5,663,620) 1,276,625 386,086
----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ....................... (5,848,401) 1,295,969 359,369
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ......................... $ (328,944) $ 4,675,548 $ 3,553,771
=========== =========== ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------
STOCK
INDEX
PORTFOLIO
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income ................................... $ 2,391,120 $ 1,739,314 $ 1,433,253
----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] ...... 1,080,631 677,531 450,089
Reimbursement for excess expenses [Note 5D] ....... 0 0 0
----------- ----------- -----------
NET EXPENSES ......................................... 1,080,631 677,531 450,089
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ......................... 1,310,489 1,061,783 983,164
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received .............. 3,715,956 3,715,259 1,013,015
Realized gain (loss) on shares redeemed ........... 5,816,280 2,487,203 515,477
Net change in unrealized gain (loss) on investments 39,830,579 23,073,809 12,527,056
----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ....................... 49,362,815 29,276,271 14,055,548
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ......................... $50,673,304 $30,338,054 $15,038,712
=========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A24
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ----------------------------------------------
EQUITY
INCOME
PORTFOLIO
- --------------------------------------------
1998 1997 1996
- ----------- ----------- -----------
<S> <C> <C>
$ 2,687,713 $ 1,948,909 $ 1,891,825
- ----------- ----------- -----------
607,915 441,648 323,322
0 0 0
- ----------- ----------- -----------
607,915 441,648 323,322
- ----------- ----------- -----------
2,079,798 1,507,261 1,568,503
- ----------- ----------- -----------
5,974,930 8,147,416 1,879,859
997,898 256,502 417,132
(13,181,479) 12,255,558 6,642,405
- ----------- ----------- -----------
(6,208,651) 20,659,476 8,939,396
- ----------- ----------- -----------
$(4,128,853) $22,166,737 $10,507,899
=========== =========== ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------
NATURAL
RESOURCES
PORTFOLIO
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C>
$ 184,247 $ 159,612 $ 185,182
----------- ----------- -----------
134,251 189,874 156,197
0 0 0
----------- ----------- -----------
134,251 189,874 156,197
----------- ----------- -----------
49,996 (30,262) 28,985
----------- ----------- -----------
1,227,683 3,387,934 3,633,842
(665,119) 608,721 267,338
(4,684,698) (7,614,863) 2,559,541
----------- ----------- -----------
(4,122,134) (3,618,208) 6,460,721
----------- ----------- -----------
$(4,072,138) $(3,648,470) $ 6,489,706
=========== =========== ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ----------------------------------------------
GLOBAL
PORTFOLIO
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C>
$ 767,006 $ 328,183 $ 488,012
----------- ----------- -----------
282,944 158,801 107,629
0 0 0
----------- ----------- -----------
282,944 158,801 107,629
----------- ----------- -----------
484,062 169,382 380,383
----------- ----------- -----------
3,473,934 1,296,459 347,618
651,742 251,779 36,315
6,143,980 (363,854) 2,363,101
----------- ----------- -----------
10,269,656 1,184,384 2,747,034
----------- ----------- -----------
$10,753,718 $ 1,353,766 $ 3,127,417
=========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A24
A6
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE APPRECIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------
GOVERNMENT
INCOME
PORTFOLIO
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income ................................... $ 540,324 $ 556,385 $ 622,180
----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] ...... 55,646 51,887 59,065
Reimbursement for excess expenses [Note 5D] ....... 0 0 0
----------- ----------- -----------
NET EXPENSES ......................................... 55,646 51,887 59,065
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ......................... 484,678 504,498 563,115
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received .............. 0 0 0
Realized gain (loss) on shares redeemed ........... 34,945 22,866 19,619
Net change in unrealized gain (loss) on investments 222,594 214,791 (439,977)
----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ....................... 257,539 237,657 (420,358)
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ......................... $ 742,217 $ 742,155 $ 142,757
=========== =========== ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------
PRUDENTIAL
JENNISON
PORTFOLIO
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income ................................... $ 94,006 $ 40,345 $ 16,655
----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] ...... 252,490 100,484 35,885
Reimbursement for excess expenses [Note 5D] ....... 0 0 0
----------- ----------- -----------
NET EXPENSES ......................................... 252,490 100,484 35,885
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ......................... (158,484) (60,139) (19,230)
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received .............. 971,435 1,372,676 0
Realized gain (loss) on shares redeemed ........... 1,799,613 167,648 32,821
Net change in unrealized gain (loss) on investments 11,054,729 2,544,336 870,328
----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ....................... 13,825,777 4,084,660 903,149
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ......................... $13,667,293 $ 4,024,521 $ 883,919
=========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A24
A7
<PAGE>
SUBACCOUNTS (CONTINUED)
- --------------------------------------------
SMALL
CAPITALIZATION
STOCK
PORTFOLIO
- --------------------------------------------
1998 1997 1996
- ----------- ----------- -----------
$ 119,884 $ 88,794 $ 46,335
- ----------- ----------- -----------
120,693 78,580 30,485
0 0 0
- ----------- ----------- -----------
120,693 78,580 30,485
- ----------- ----------- -----------
(809) 10,214 15,850
- ----------- ----------- -----------
1,284,066 1,269,194 147,641
(6,855) 38,103 132,894
(1,835,474) 1,411,982 626,371
- ----------- ----------- -----------
(558,263) 2,719,279 906,906
- ----------- ----------- -----------
$ (559,072) $ 2,729,493 $ 922,756
=========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A24
A8
<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, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------
MONEY
MARKET
PORTFOLIO
---------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss) ................ $ 6,495,902 $ 2,191,778 $ 2,270,980
Capital Gains Distributions Received ........ 0 0 0
Realized gain (loss) on share
redeemed .................................. 0 0 0
Net change in unrealized gain (loss) on
investments ............................... 0 0 0
------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ............................. 6,495,902 2,191,778 2,270,980
------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS AND
OTHER OPERATING TRANSFERS
[Note 7] .................................... 75,326,397 (3,523,207) (4,243,121)
------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 8] .................................... (1,697,004) 1,532,549 22,759
------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ..................................... 80,125,295 201,120 (1,949,382)
NET ASSETS
Beginning of year ........................... 48,803,647 48,602,527 50,551,909
------------- ------------- -------------
End of year ................................. $ 128,928,942 $ 48,803,647 $ 48,602,527
============= ============= =============
<CAPTION>
SUBACCOUNTS
--------------------------------------------------
DIVERSIFIED
BOND
PORTFOLIO
--------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss) ................ $ 4,117,552 $ 4,727,835 $ 4,052,120
Capital Gains Distributions Received ........ 262,836 819,446 0
Realized gain (loss) on share
redeemed .................................. 174,627 216,418 133,542
Net change in unrealized gain (loss) on
investments ............................... 73,088 (456,475) (1,490,302)
------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .................. 4,628,103 5,307,224 2,695,360
------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS AND
OTHER OPERATING TRANSFERS
[Note 7] .................................... 1,356,919 (4,202,208) 1,116,168
------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 8] .................................... 3,878 (68,990) 33,769
------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS .................................. 5,988,900 1,036,026 3,845,297
NET ASSETS
Beginning of year ........................... 70,900,689 69,864,663 66,019,366
------------- ------------- -------------
End of year ................................. $ 76,889,589 $ 70,900,689 $ 69,864,663
============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A24
A9
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- ---------------------------------------------- -----------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------ ------------ ------------ -------------- -------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 11,199,849 $ 13,575,501 $ 12,384,332 $ 33,745,727 $ 28,769,689 $ 26,508,631 $ 22,613,399 $ 23,338,841 $ 19,022,611
92,257,856 43,792,759 60,055,192 120,086,729 170,075,692 95,799,304 35,735,484 61,582,374 32,702,701
22,299,396 12,144,753 6,145,351 8,717,338 13,389,631 9,236,814 3,601,498 5,214,424 4,364,767
(55,442,702) 91,191,354 25,824,063 (53,221,275) (37,601,198) (10,204,679) 1,172,190 (22,803,360) 3,618,761
- ------------ ------------ ------------ -------------- -------------- -------------- ------------ ------------ ------------
70,314,399 160,704,367 104,408,938 109,328,519 174,633,814 121,340,070 63,122,571 67,332,279 59,708,840
- ------------ ------------ ------------ -------------- -------------- -------------- ------------ ------------ ------------
(43,486,241) (23,411,697) (13,252,943) (57,756,969) (55,522,303) (41,031,839) (25,901,655) (28,732,033) (25,728,075)
- ------------ ------------ ------------ -------------- -------------- -------------- ------------ ------------ ------------
(160,831) (108,813) (127,887) (399,096) (938,199) 533,513 (143,273) (423,806) 207,529
- ------------ ------------ ------------ -------------- -------------- -------------- ------------ ------------ ------------
26,667,327 137,183,857 91,028,108 51,172,454 118,173,312 80,841,744 37,077,643 38,176,440 34,188,294
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
- ------------ ------------ ------------ -------------- -------------- -------------- ------------ ------------ ------------
$842,000,159 $815,332,832 $678,148,975 $1,186,637,163 $1,135,464,709 $1,017,291,397 $609,598,948 $572,521,305 $534,344,865
============ ============ ============ ============== ============== ============== ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A24
A10
<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, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------
HIGH
YIELD STOCK
BOND INDEX
PORTFOLIO PORTFOLIO
------------------------------------- -------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ------------ ------------ -----------
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) ..................... $ 5,519,457 $ 3,379,579 $ 3,194,402 $ 1,310,489 $ 1,061,783 $ 983,164
Capital gains distributions received ............. 0 0 0 3,715,956 3,715,259 1,013,015
Realized gain (loss) on shares
redeemed ....................................... (184,781) 19,344 (26,717) 5,816,280 2,487,203 515,477
Net change in unrealized gain (loss) on
investments .................................... (5,663,620) 1,276,625 386,086 39,830,579 23,073,809 12,527,056
----------- ----------- ----------- ------------ ------------ -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS ................. (328,944) 4,675,548 3,553,771 50,673,304 30,338,054 15,038,712
----------- ----------- ----------- ------------ ------------ -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS AND
OTHER OPERATING TRANSFERS
[Note 7] ......................................... 39,979,999 (896,939) (1,115,027) 69,504,900 14,261,548 10,720,960
----------- ----------- ----------- ------------ ------------ -----------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 8] ......................................... (79,861) 23,767 (6,897) 790,662 (535,016) 396,129
----------- ----------- ----------- ------------ ------------ -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ........................................... 39,571,194 3,802,376 2,431,847 120,968,866 44,064,586 26,155,801
NET ASSETS
Beginning of year ................................ 39,938,592 36,136,216 33,704,369 134,341,215 90,276,629 64,120,828
----------- ----------- ----------- ------------ ------------ -----------
End of year ...................................... $79,509,786 $39,938,592 $36,136,216 $255,310,081 $134,341,215 $90,276,629
=========== =========== =========== ============ ============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A24
A11
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------
EQUITY NATURAL
INCOME RESOURCES GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- ----------------------------------------- -----------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------ ----------- ------------ ------------ ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2,079,798 $ 1,507,261 $ 1,568,503 $ 49,996 $ (30,262) $ 28,985 $ 484,062 $ 169,382 $ 380,383
5,974,930 8,147,416 1,879,859 1,227,683 3,387,934 3,633,842 3,473,934 1,296,459 347,618
997,898 256,502 417,132 (665,119) 608,721 267,338 651,742 251,779 36,315
(13,181,479) 12,255,558 6,642,405 (4,684,698) (7,614,863) 2,559,541 6,143,980 (363,854) 2,363,101
- ------------ ----------- ------------ ------------ ------------ ----------- ------------ ------------ -----------
(4,128,853) 22,166,737 10,507,899 (4,072,138) (3,648,470) 6,489,706 10,753,718 1,353,766 3,127,417
- ------------ ----------- ------------ ------------ ------------ ----------- ------------ ------------ -----------
11,784,390 9,173,359 (1,064,633) (4,609,380) (1,004,770) 3,651,574 46,610,297 3,236,611 5,614,035
- ------------ ----------- ------------ ------------ ------------ ----------- ------------ ------------ -----------
(206,095) 226,288 (61,045) 6,815 (181,355) 40,623 (317,822) (120,958) 18,594
- ------------ ----------- ------------ ------------ ------------ ----------- ------------ ------------ -----------
7,449,442 31,566,384 9,382,221 (8,674,703) (4,834,595) 10,181,903 57,046,193 4,469,419 8,760,046
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
- ------------ ----------- ------------ ------------ ------------ ----------- ------------ ------------ -----------
$ 99,016,976 $91,567,534 $ 60,001,150 $ 17,873,489 $ 26,548,192 $31,382,787 $ 84,283,413 $ 27,237,220 $22,767,801
============ =========== ============ ============ ============ =========== ============ ============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A24
A12
<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, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
GOVERNMENT PRUDENTIAL
INCOME JENNISON
PORTFOLIO PORTFOLIO
--------------------------------------- --------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ------------ ------------ ------------ ------------
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) ..................... $ 484,678 $ 504,498 $ 563,115 $ (158,484) $ (60,139) $ (19,230)
Capital gains distributions received ............. 0 0 0 971,435 1,372,676 0
Realized gain (loss) on shares
redeemed ....................................... 34,945 22,866 19,619 1,799,613 167,648 32,821
Net change in unrealized gain (loss) on
investments .................................... 222,594 214,791 (439,977) 11,054,729 2,544,336 870,328
----------- ---------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS ................. 742,217 742,155 142,757 13,667,293 4,024,521 883,919
----------- ---------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS AND
OTHER OPERATING TRANSFERS
[Note 7] ......................................... 879,761 (1,750,183) (808,931) 23,887,642 9,693,699 8,604,081
----------- ---------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 8] ......................................... (12,462) (19,930) (44,003) 288,264 (30,216) 71,804
----------- ---------- ----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ........................................... 1,609,516 (1,027,958) (710,177) 37,843,199 13,688,004 9,559,804
NET ASSETS
Beginning of year ................................ 8,532,951 9,560,909 10,271,086 24,960,065 11,272,061 1,712,257
----------- ---------- ----------- ----------- ----------- -----------
End of year ...................................... $10,142,467 $8,532,951 $ 9,560,909 $62,803,264 $24,960,065 $11,272,061
=========== ========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A24
A13
<PAGE>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------
SMALL
CAPITALIZATION
STOCK
PORTFOLIO
- ------------------------------------------
1998 1997 1996
- ------------ ------------ -----------
$ (809) $ 10,214 $ 15,850
1,284,066 1,269,194 147,641
(6,855) 38,103 132,894
(1,835,474) 1,411,982 626,371
- ------------ ------------ -----------
(559,072) 2,729,493 922,756
- ------------ ------------ -----------
2,598,516 7,549,100 5,434,938
- ------------ ------------ -----------
(124,119) (23,520) (105,516)
- ------------ ------------ -----------
1,915,325 10,255,073 6,252,178
18,871,733 8,616,660 2,364,482
- ------------ ------------ -----------
$ 20,787,058 $ 18,871,733 $ 8,616,660
============ ============ ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A24
A14
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE VARIABLE APPRECIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
December 31, 1998
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 Variable Appreciable Life ("VAL") contracts and
Pruco Life Variable Universal Life ("VUL") contracts are invested
in the Account as directed by the contract owners.
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 the 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.
A15
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC.
PORTFOLIOS
The net asset value per share (rounded) for each portfolio of the
Series Fund, the number of shares of each portfolio held by the
subaccounts and the aggregate cost of investments in such shares
at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
----------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Number of shares: 12,892,894 6,951,307 28,410,630 71,653,546 40,422,833
Net asset value per share (rounded): $ 10.00 $ 11.06 $ 29.64 $ 16.56 $ 15.08
Cost: $128,928,942 $75,160,185 $599,098,373 $1,119,311,144 $565,076,591
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Number of shares: 11,030,923 6,764,973 4,942,812 1,491,513 3,983,734
Net asset value per share (rounded): $ 7.21 $ 37.74 $ 20.03 $ 11.98 $ 21.16
Cost: $84,956,443 $158,925,751 $88,043,952 $23,578,601 $75,384,836
<CAPTION>
PORTFOLIOS (CONTINUED)
-----------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
-----------------------------------------
<S> <C> <C> <C>
Number of shares: 854,418 2,626,998 1,413,065
Net asset value per share (rounded): $ 11.87 $ 23.91 $ 14.71
Cost: $9,706,199 $48,274,101 $20,534,052
</TABLE>
A16
<PAGE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units, unit values and total value of
contract owner equity at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units
Outstanding (VAL) 20,354,630 24,173,198 115,387,971 248,499,052 155,025,842
Unit Value (VAL).................... $ 1.92666 $ 3.03285 $ 7.20523 $ 4.75185 $ 3.89530
------------ ----------- ------------ -------------- ------------
Contract Owner Equity
(VAL)............................. $ 39,216,451 $73,313,683 $831,396,874 $1,180,830,221 $603,872,161
------------ ----------- ------------ -------------- ------------
Contract Owner Units
Outstanding (VUL) ................ 81,482,735 3,115,715 7,796,533 4,511,753 4,543,086
Unit Value (VUL).................... $ 1.10100 $ 1.14770 $ 1.36000 $ 1.28707 $ 1.26055
------------ ----------- ------------ -------------- ------------
Contract Owner Equity (VUL) ........ $ 89,712,491 $ 3,575,906 $ 10,603,285 $ 5,806,942 $ 5,726,787
------------ ----------- ------------ -------------- ------------
TOTAL CONTRACT OWNER
EQUITY ........................... $128,928,942 $76,889,589 $842,000,159 $1,186,637,163 $609,598,948
============ =========== ============ ============== ============
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL
BOND INDEX INCOME RESOURCES GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Contract Owner Units ...............
Outstanding (VAL) ................ 15,999,046 34,635,875 21,549,657 8,255,691 18,163,408
Unit Value (VAL) ................... $ 2.38788 $ 5.17604 $ 4.21000 $ 2.16499 $ 1.75630
Contract Owner Equity ----------- ------------ ------------ ----------- -----------
(VAL) ............................ $38,203,801 $179,276,673 $ 90,724,055 $17,873,489 $31,900,393
----------- ------------ ------------ ----------- -----------
Contract Owner Units
Outstanding (VUL) ................ 37,419,926 45,015,753 6,139,221 N/A 38,773,516
Unit Value (VUL) ................... $ 1.10385 $ 1.68904 $ 1.35081 $ N/A $ 1.35100
----------- ------------ ------------ ----------- -----------
Contract Owner Equity
(VUL) ............................ $41,305,985 $ 76,033,408 $ 8,292,921 $ N/A $52,383,020
----------- ------------ ------------ ----------- -----------
TOTAL CONTRACT OWNER
EQUITY ........................... $ 79,509,786 $255,310,081 $99,016,976 $17,873,489 $84,283,413
============ ============ =========== =========== ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- -----------
Contract Owner Units
Outstanding (VAL)............... 4,721,797 19,841,093 11,907,782
Unit Value (VAL).................. $ 2.14801 $ 2.54836 $ 1.74567
----------- ----------- -----------
Contract Owner Equity
(VAL)........................... $10,142,467 $50,562,247 $20,787,058
----------- ----------- -----------
Contract Owner Units
Outstanding (VUL)............... N/A 6,937,032 N/A
Unit Value (VUL).................. $ N/A $ 1.76459 $ N/A
----------- ----------- -----------
Contract Owner Equity
(VUL)........................... $ N/A $12,241,017 $ N/A
----------- ----------- -----------
TOTAL CONTRACT OWNER
EQUITY.......................... $10,142,467 $62,803,264 $20,787,058
=========== =========== ===========
</TABLE>
A17
<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 related charges by Pruco Life.
B. Deferred Sales Charge
A deferred sales charge is imposed upon the surrender of certain
variable life insurance contracts to compensate Pruco Life for sales
and other marketing expenses. The amount of any sales charge will
depend on the number of years that have elapsed since the contract
was issued. No sales charge will be imposed after the tenth year of
the contract. No sales charge will be imposed on death benefits.
C. Partial Withdrawal Charge
A charge is imposed by Pruco Life on partial withdrawals of the cash
surrender value. 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.
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.
E. Cost of Insurance Charges
Contract owner contributions are subject to certain deductions prior
to being invested in the Account. The deductions are for (1)
transaction costs which are deducted from each premium payment to
cover premium collection and processing costs; (2) state premium
taxes; (3) sales charges which are deducted in order to compensate
Pruco Life for the cost of selling the contract. Contracts are also
subject to monthly charges for the costs of administering the
contract and to compensate Pruco Life for the guaranteed minimum
death benefit risk.
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 Prudential's consolidated federal tax return. Under current
federal law, no federal income taxes are payable by the Account. As
such, no provision for tax liability has been recorded in these
financial statements.
A18
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING TRANSFERS
<TABLE>
The following amounts represent contract owner activity components for
the years ended December 31, 1998 and 1997:
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
------------------------------ --------------------------
1998 1997 1998 1997
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
Contract Owner Net Payments.......................... $ 230,584,983 $ 11,064,582 $ 6,525,706 $ 5,585,180
Policy Loans......................................... (2,667,911) (1,916,044) (1,912,675) (2,089,744)
Policy Loan Repayments and Interest.................. 1,177,559 1,011,194 1,564,318 1,615,960
Surrenders, Withdrawals and Death Benefits........... (10,685,261) (3,863,779) (3,620,023) (3,778,210)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Options.............................. (139,236,713) (7,633,294) 1,555,360 (2,617,340)
Administrative and Other Charges..................... (3,846,260) (2,185,866) (2,755,767) (2,918,054)
------------ ------------ ------------ -----------
Net Increase (Decrease) In Net Assets Resulting
from Premium Payment and other Operating
Transfers.......................................... $ 75,326,397 $ (3,523,207) $ 1,356,919 $(4,202,208)
============ ============ =========== ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------
EQUITY FLEXIBLE MANAGED
PORTFOLIO PORTFOLIO
------------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Contract Owner Net Payments........................... $ 46,913,467 $ 45,437,359 $ 64,854,058 $ 71,851,051
Policy Loans.......................................... (27,628,665) (25,646,232) (34,421,241) (34,658,782)
Policy Loan Repayments and Interest................... 19,108,549 15,784,614 24,491,018 24,227,411
Surrenders, Withdrawals and Death Benefits............ (52,901,596) 38,595,315) (56,024,536) (59,613,280)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Options............................... (3,542,834) 6,718,514 (17,651,111) (13,344,352)
Administrative and Other Charges...................... (25,435,162) (27,110,637) (39,005,157) (43,984,351)
------------ ------------ ------------ -----------
Net Increase (Decrease) In Net Assets Resulting
from Premium Payment and other Operating
Transfers........................................... $(43,486,241) $(23,411,697) $(57,756,969) $(55,522,303)
============ ============ ============ ============
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------
CONSERVATIVE BALANCED HIGH YIELD BOND
PORTFOLIO PORTFOLIO
----------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Contract Owner Net Payments............................ $ 35,878,600 $ 37,767,948 $ 4,510,013 $ 3,024,941
Policy Loans........................................... (14,672,747) (14,693,056) (1,009,491) (1,149,056)
Policy Loan Repayments and Interest.................... 11,720,294 10,942,826 832,922 751,249
Surrenders, Withdrawals and Death Benefits............. (29,207,186) (30,175,056) (1,848,918) (1,898,223)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Options................................ (8,889,136) (9,474,946) 39,327,603 (3,054)
Administrative and Other Charges....................... (20,731,480) (23,099,749) (1,832,130) (1,622,796)
Net Increase (Decrease) In Net Assets Resulting ------------ ------------ ----------- -----------
from Premium Payment and other Operating
Transfers............................................ $(25,901,655) $(28,732,033) $39,979,999 $ (896,939)
============ ============ =========== ===========
</TABLE>
A19
<PAGE>
<TABLE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING TRANSFERS (CONTINUED)
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------
STOCK INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO
----------------------------- ------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Contract Owner Net Payments......................... $22,254,412 $11,823,208 $12,000,153 $ 6,514,479
Policy Loans........................................ (4,951,084) (4,047,578) (3,291,047) (2,378,404)
Policy Loan Repayments and Interest................. 5,657,189 3,296,705 1,845,415 1,466,470
Surrenders, Withdrawals and Death Benefits.......... (9,039,306) (8,511,446) (4,700,423) (3,616,294)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Options............................. 62,958,405 16,075,177 9,923,725 9,926,365
Administrative and Other Charges.................... (7,374,716) (4,374,518) (3,993,433) (2,739,257)
----------- ----------- ----------- -----------
Net Increase (Decrease) In Net Assets Resulting
from Premium Payment and other Operating
Transfers......................................... $69,504,900 $14,261,548 $11,784,390 $ 9,173,359
=========== =========== =========== ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------
NATURAL RESOURCES GLOBAL
PORTFOLIO PORTFOLIO
----------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Contract Owner Net Payments......................... $ 1,957,889 $ 2,473,751 $ 3,547,480 $ 2,426,347
Policy Loans........................................ (764,531) (1,028,672) (1,153,101) (665,649)
Policy Loan Repayments and Interest................. 585,062 706,018 577,417 410,448
Surrenders, Withdrawals and Death Benefits.......... (1,294,331) (1,567,494) (1,106,969) (1,030,134)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Options............................. (4,279,014) (345,448) 46,088,034 3,018,892
Administrative and Other Charges.................... (814,455) (1,242,925) (1,342,564) (923,293)
----------- ----------- ----------- -----------
Net Increase (Decrease) In Net Assets Resulting
from Premium Payment and other Operating
Transfers......................................... $(4,609,380) $(1,004,770) $46,610,297 $(3,236,611)
=========== =========== =========== ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------
GOVERNMENT INCOME PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO
---------------------------- -----------------------------
1998 1997 1998 1997
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Contract Owner Net Payments......................... $ 542,296 $ 716,666 $10,395,819 $3,275,515
Policy Loans........................................ (315,738) (343,550) (1,342,282) (615,994)
Policy Loan Repayments and Interest................. 228,598 170,059 802,423 403,472
Surrenders, Withdrawals and Death Benefits.......... (423,954) (727,111) (8,014,188) (663,449)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Options............................. 1,172,653 (1,189,722) 24,792,645 8,134,626
Administrative and Other Charges.................... (324,094) (376,525) (2,746,775) (840,471)
---------- ----------- ----------- ----------
Net Increase (Decrease) In Net Assets Resulting
from Premium Payment and other Operating
Transfers......................................... $ 879,761 $(1,750,183) $23,887,642 $9,693,699
========== =========== =========== ==========
</TABLE>
A20
<PAGE>
<TABLE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING TRANSFERS (CONTINUED)
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------
SMALL CAPITALIZATION
STOCK
PORTFOLIO
----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Contract Owner Net Payments............................ $1,292,334 $ 966,611
Policy Loans........................................... (779,533) (416,759)
Policy Loan Repayments and Interest.................... 427,135 230,529
Surrenders, Withdrawals and Death Benefits............. (756,255) (419,040)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Options................................ 2,952,908 7,568,665
Administrative and Other Charges....................... (538,073) (380,906)
---------- ----------
Net Increase (Decrease) In Net Assets Resulting
from Premium Payment and other Operating
Transfers............................................ $2,598,516 $7,549,100
========== ==========
</TABLE>
NOTE 8: NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE ACCOUNT
The increase (decrease) in net assets retained in the account represents
the net contributions (withdrawals) of Pruco Life to (from) the Account.
Effective October 13, 1998, Pruco Life no longer maintains a position in
the Account. Previously, Pruco Life maintained a position in the Account
for liquidity purposes including unit purchases and redemptions, fund
share transactions and expense processing.
A21
<PAGE>
NOTE 9: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) for the
years ended December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
---------------------------------------------- ---------------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 498,180,793 29,773,083 18,317,198 9,113,632 3,976,684 6,032,489
Contract Owner
Redemptions: (423,252,123) (30,489,425) (20,797,007) (7,079,685) (5,177,102) (5,568,938)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------------------
FLEXIBLE
EQUITY MANAGED
PORTFOLIO PORTFOLIO
---------------------------------------------- ---------------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 18,406,117 16,279,305 19,318,824 25,741,091 28,250,561 33,929,159
Contract Owner
Redemptions: (20,093,393) (18,324,622) (21,974,065) (36,167,230) (40,903,219) (45,839,479)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------------
CONSERVATIVE HIGH YIELD
BALANCE BOND
---------------------------------------------- ---------------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 18,420,856 18,585,299 22,253,843 44,158,742 4,131,802 4,533,364
Contract Owner
Redemptions: (23,069,969) (26,481,934) (31,093,010) (7,229,637) (4,240,015) (5,073,117)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------------------
STOCK EQUITY
INDEX INCOME
PORTFOLIO PORTFOLIO
---------------------------------------------- ---------------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 120,829,432 13,730,033 10,183,057 14,537,433 8,191,055 4,799,710
Contract Owner
Redemptions: (76,717,334) (7,373,719) (6,331,551) (8,866,254) (4,945,056) (5,166,776)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------------------
NATURAL
RESOURCES GLOBAL
PORTFOLIO PORTFOLIO
---------------------------------------------- ---------------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 1,587,696 2,890,658 4,624,377 43,728,816 6,841,694 10,050,734
Contract Owner
Redemptions: (3,426,169) (3,222,182) (3,352,625) (6,235,706) (4,372,292) (5,504,422)
</TABLE>
A22
<PAGE>
<TABLE>
NOTE 9: UNIT ACTIVITY (CONTINUED)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------------------
GOVERNMENT PRUDENTIAL
INCOME JENNISON
PORTFOLIO PORTFOLIO
---------------------------------------------- ---------------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 1,515,342 795,615 1,390,565 132,450,542 9,601,165 10,385,285
Contract Owner
Redemptions: (1,095,799) (1,744,126) (1,851,585) (119,371,798) (3,617,614) (3,950,761)
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------
SMALL CAPITALIZATION
STOCK
PORTFOLIO
----------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Contract Owner
Contributions: 5,118,771 6,514,104 8,735,020
Contract Owner
Redemptions: (3,800,340) (1,866,970) (4,551,838)
</TABLE>
A23
<PAGE>
NOTE 10: PURCHASES AND SALES OF INVESTMENTS
<TABLE>
The aggregate costs of purchases and proceeds from sales of investments in the Series Fund were as follows:
<CAPTION>
PORTFOLIOS
-------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases.................... $ 339,409,910 $ 6,726,340 $ 10,544,735 $ 5,851,666 $ 5,987,329
Sales........................ $(266,606,309) $ (5,779,851) $(58,574,003) $(68,363,731) $(34,444,328)
------------- ------------ ------------ ------------ ------------
<CAPTION>
PORTFOLIOS (CONTINUED)
-------------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY NATURAL PRUDENTIAL
BOND INDEX INCOME RESOURCES GLOBAL
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases.................... $46,913,105 $142,204,807 $ 21,915,666 $ 115,570 $ 50,728,832
Sales........................ $(7,326,567) $(72,989,876) $(10,945,287) $(4,852,386) $ (4,718,352)
<CAPTION>
PORTFOLIOS (CONTINUED)
-------------------------------------------------
SMALL
GOVERNMENT PRUDENTIAL CAPITALIZATION
INCOME JENNISON STOCK
------------- ------------ ------------
<S> <C> <C> <C>
Purchases.................... $1,652,617 $ 168,924,240 $ 4,661,473
Sales........................ $ (840,963) $(145,000,824) $ (2,307,769)
</TABLE>
A24
<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 statements of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the !Money Market Portfolio,
Diversified Bond Portfolio, Equity Portfolio, Flexible Managed Portfolio,
Conservative Balanced Portfolio, High Yield Bond Portfolio, Stock Index
Portfolio, Equity Income Portfolio, Natural Resources Portfolio, Global
Portfolio, Government Income Portfolio, Prudential Jennison Portfolio and Small
Capitalization Stock Portfolio! of the Variable Appreciable Life Subaccounts of
the Pruco Life Variable Appreciable Account at December 31, 1998, the results of
each of their operations and the changes in each of their net assets for each of
the three 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 fund shares owned at December 31, 1998,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 19, 1999
A25
<PAGE>
<TABLE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Financial Position
December 31, 1998 and 1997 (In Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1998: $2,738,654;
1997: $2,526,554) $ 2,763,926 $ 2,563,852
Held to maturity, at amortized cost (fair value, 1998: $421,845; 1997:
$350,056) 410,558 338,848
Equity securities - available for sale, at fair value (cost, 1998: $2,951; 2,847 1,982
1997: $1,289)
Mortgage loans on real estate 17,354 22,787
Policy loans 766,917 703,955
Short-term investments 240,727 316,355
Other long-term investments 1,047 1,317
------------ ------------
Total investments 4,203,376 3,949,096
Cash 89,679 71,358
Deferred policy acquisition costs 861,713 655,242
Accrued investment income 61,114 67,000
Other assets 65,145 86,692
Separate Account assets 11,531,754 8,022,079
------------ ------------
TOTAL ASSETS $ 16,812,781 $ 12,851,467
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 2,696,191 $ 2,380,460
Future policy benefits and other policyholder liabilities 534,599 472,460
Cash collateral for loaned securities 73,336 143,421
Securities sold under agreement to repurchase 49,708 --
Income taxes payable 44,524 71,703
Net deferred income tax liability 148,834 138,483
Payable to affiliate 66,568 70,375
Other liabilities 55,038 120,260
Separate Account liabilities 11,490,751 7,948,788
------------ ------------
Total liabilities 15,159,549 11,345,950
------------ ------------
Contingencies (See Note 11)
Stockholder's Equity
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
December 31, 1998 and 1997 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,202,833 1,050,871
Accumulated other comprehensive income
Net unrealized investment gains 9,902 17,129
Foreign currency translation adjustments (1,585) (4,565)
------------ ------------
Accumulated other comprehensive income 8,317 12,564
------------ ------------
Total stockholder's equity 1,653,232 1,505,517
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 16,812,781 $ 12,851,467
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
B-1
<PAGE>
<TABLE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31, 1998, 1997 and 1996 (In Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
--------- --------- ---------
REVENUES
<S> <C> <C> <C>
Premiums $ 57,467 $ 49,496 $ 51,525
Policy charges and fee income 364,719 330,292 324,976
Net investment income 261,430 259,634 247,328
Realized investment gains, net 44,841 10,974 10,835
Other income 41,267 33,801 20,818
--------- --------- ---------
Total revenues 769,724 684,197 655,482
--------- --------- ---------
BENEFITS AND EXPENSES
Policyholders' benefits 186,527 179,419 186,873
Interest credited to policyholders' account balances 118,935 110,815 118,246
General, administrative and other expenses 228,067 225,721 122,006
--------- --------- ---------
Total benefits and expenses 533,529 515,955 427,125
--------- --------- ---------
Income from operations before income taxes 236,195 168,242 228,357
--------- --------- ---------
Income taxes
Current 69,768 73,326 60,196
Deferred 14,465 (11,458) 18,939
--------- --------- ---------
Total income taxes 84,233 61,868 79,135
--------- --------- ---------
NET INCOME 151,962 106,374 149,222
--------- --------- ---------
Other comprehensive income, net of tax:
Unrealized gains on securities, net of
reclassification adjustment (7,227) 3,025 (17,952)
Foreign currency translation adjustments 2,980 (2,863) (482)
--------- --------- ---------
Other comprehensive income (4,247) 162 (18,434)
--------- --------- ---------
TOTAL COMPREHENSIVE INCOME $ 147,715 $ 106,536 $ 130,788
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
B-2
<PAGE>
<TABLE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years Ended December 31, 1998, 1997, and 1996 (In Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
Accumulated
other Total
Common Paid-in- Retained comprehensive stockholder's
stock capital earnings income equity
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $ 2,500 $ 439,582 $ 795,275 $ 30,836 $ 1,268,193
Net income -- -- 149,222 -- 149,222
Change in foreign currency
translation adjustments -- -- -- (482) (482)
Change in net unrealized
investment gains, net of
reclassification adjustment -- -- -- (17,952) (17,952)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 2,500 439,582 944,497 12,402 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, net of
reclassification adjustment -- -- -- 3,025 3,025
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 2,500 439,582 1,050,871 12,564 1,505,517
Net income -- -- 151,962 -- 151,962
Change in foreign currency
translation adjustments -- -- -- 2,980 2,980
Change in net unrealized
investment gains, net of
reclassification adjustment -- -- -- (7,227) (7,227)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 $ 2,500 $ 439,582 $ 1,202,833 $ 8,317 $ 1,653,232
=========== =========== =========== =========== ============
</TABLE>
See Notes to Consolidated Financial Statements
B-3
<PAGE>
<TABLE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997, and 1996 (In Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 151,962 $ 106,374 $ 149,222
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Policy charges and fee income (47,230) (40,783) (50,286)
Interest credited to policyholders' account balances 118,935 110,815 118,246
Realized investment gains, net (44,841) (10,974) (10,835)
Amortization and other non-cash items 18,611 (31,181) 29,334
Change in:
Future policy benefits and other policyholders' liabilities 62,139 39,683 54,176
Accrued investment income 5,886 (4,890) (2,248)
Separate Accounts 32,288 (13,894) (38,025)
Payable to affiliate (3,807) 20,547 16,519
Policy loans (62,962) (64,173) (70,509)
Deferred policy acquisition costs (206,471) (22,083) (66,183)
Income taxes payable (27,179) 78,894 (816)
Deferred income tax liability 10,351 (10,477) 7,912
Other, net (43,675) 34,577 7,814
----------- ----------- -----------
Cash Flows (Used In) From Operating Activities (35,993) 192,435 144,321
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 5,429,396 2,828,665 3,886,254
Held to maturity 74,767 138,626 138,127
Equity securities 4,101 6,939 7,527
Mortgage loans on real estate 5,433 24,925 19,226
Other long-term investments 1,140 3,276 288
Investment real estate -- -- 4,488
Payments for the purchase of:
Fixed maturities:
Available for sale (5,617,208) (3,141,785) (4,008,810)
Held to maturity (145,919) (70,532) (114,494)
Equity securities (2,274) (4,594) (4,697)
Other long-term investments (409) (51) (657)
Cash collateral for loaned securities, net (70,085) 143,421 -
Securities sold under agreement to repurchase, net 49,708 - -
Short-term investments, net 75,771 (147,030) 58,186
----------- ----------- -----------
Cash Flows Used In Investing Activities (195,579) (218,140) (14,562)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 3,098,721 2,099,600 536,370
Withdrawals (2,848,828) (2,076,303) (633,798)
----------- ----------- -----------
Cash Flows From (Used in) Financing Activities 249,893 23,297 (97,428)
----------- ----------- -----------
Net increase (decrease) in Cash 18,321 (2,408) 32,331
Cash, beginning of year 71,358 73,766 41,435
----------- ----------- -----------
CASH, END OF PERIOD $ 89,679 $ 71,358 $ 73,766
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid (received) $ 99,810 $ (7,904) $ 61,760
=========== =========== ===========
</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 annuities, fixed
annuities, and a group annuity program (the Contracts) in all states and
territories except the District of Columbia and Guam. In addition, the Company
markets individual life insurance through its branch office in Taiwan. The
Company has two wholly owned 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 licensed to sell individual life insurance, variable life
insurance, fixed annuities, and variable 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 1997
or 1998 and at this time will not be issuing new business.
The Company is a wholly owned subsidiary of The Prudential Insurance Company of
America (Prudential), a mutual insurance company founded in 1875 under the laws
of the state of New Jersey. Prudential intends to make additional capital
contributions to the Company, as needed, to enable it to comply with its reserve
requirements and fund expenses in connection with its business. Generally,
Prudential is under no obligation to make such contributions and its assets do
not back the benefits payable under the Contracts.
The Company is engaged in a business that is highly competitive because of the
large number of stock and mutual life insurance companies and other entities
engaged in marketing insurance products, and individual and group annuities.
There are approximately 1,620 stock, mutual and other types of insurers in the
life insurance business in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
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 intent and ability to
hold to maturity are stated at amortized cost and classified as "held to
maturity". The amortized cost of fixed maturities is written down to estimated
fair value if a decline in value is considered to be other than temporary.
Unrealized gains and losses on fixed maturities "available for sale", including
the effect on deferred policy acquisition costs and participating annuity
contracts that would result from the realization of unrealized gains and losses,
net of income taxes, are included in a separate component of equity,
"Accumulated other comprehensive income."
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 effects on deferred policy acquisition
costs and on participating annuity contracts that would result from the
realization of unrealized gains and losses, are included in a separate component
of equity, "Accumulated other comprehensive income."
Mortgage loans on real estate are stated primarily at unpaid principal balances,
net of unamortized discounts and allowance for losses. The allowance for losses
is based upon a loan specific review and management's consideration of past
results, current trends, the estimated value of the underlying collateral,
composition of the loan portfolio, current economic conditions and other
relevant factors. Impaired loans are identified by management as loans in which
a probability exists that all amounts due according to the contractual terms of
the loan agreement will not be collected.
B-5
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impaired loans are measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate, or the fair value of the
collateral if the loan is collateral dependent.
Interest received on impaired loans, including loans that were previously
modified in a troubled debt restructuring, is either applied against the
principal or reported as revenue, according to management's judgment as to the
collectibility of principal. Management discontinues the accrual of interest on
impaired loans after the loans are 90 days delinquent as to principal or
interest, or earlier when management has serious doubts about collectibility.
When a loan is recognized as impaired, any accrued but unpaid interest
previously recorded on such loan is reversed against interest income of the
current period. Generally, a loan is restored to accrual status only after all
delinquent interest and principal are brought current and, in the case of loans
where interest has been interrupted for a substantial period, a regular payment
performance has been established.
Policy loans are carried at unpaid principal balances.
Short-term investments, consists primarily of highly liquid debt instruments
purchased with an original maturity of twelve months or less and 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 that they 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 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 "Accumulated other
comprehensive income."
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. For
participating life insurance, deferred policy acquisition costs are amortized
over the expected life of the contracts in proportion to estimated gross margins
based on historical and anticipated future experience, which is updated
periodically. 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.
Securities loaned
Securities loaned are treated as financing arrangements and 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 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.
B-6
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are treated as financing
arrangements and are carried at the amounts at which the securities will be
subsequently reacquired, including accrued interest, as specified in the
respective agreements. The Company's policy is to take possession of securities
purchased under agreements to resell. The market value of securities to be
repurchased is monitored and additional collateral is requested, where
appropriate, to protect against credit exposure.
Securities lending and securities repurchase agreements are used to generate net
investment income and facilitate trading activity. These instruments are
short-term in nature (usually 30 days or less). Securities loaned are
collateralized principally by U.S. Government and mortgage-backed securities.
Securities sold under repurchase agreements are collateralized principally by
cash. 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 and
other customers. Separate Account assets include 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 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.
Insurance Revenue and Expense Recognition
Premiums from insurance policies are generally recognized when due. Benefits are
recorded as an expense when they are incurred. For traditional life insurance
contracts, a liability for future policy benefits is recorded using the net
level premium method. For individual annuities in payout status, a liability for
future policy benefits is recorded for the present value of expected future
payments based on historical experience.
Premiums from non-participating group annuities with life contingencies are
generally recognized when due. For single premium immediate annuities, premiums
are recognized when due with any excess profit deferred and recognized in a
constant relationship to insurance in-force or, for annuities, the amount of
expected future benefit payments.
Amounts received as payment for interest-sensitive life, individual annuities,
and guaranteed investment contracts are reported as deposits to "Policyholders'
account balances." Revenues from these contracts reflected as "Policy charges
and fee income" consist primarily of fees assessed during the period against the
policyholders' account balances for mortality charges, policy administration
charges and surrender charges. In addition, interest earned from the investment
of these account balances is reflected in "Net investment income." 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 are translated to U.S. dollars 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.
Cumulative translation adjustments arising from the use of differing exchange
rates from period to period are charged or credited directly to "Other
comprehensive income." The cumulative effect of changes in foreign exchange
rates are included in "Accumulated other comprehensive income."
B-7
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Other Income
Other income consists primarily of asset management fees which are received by
the Company from Prudential for services Prudential provides to the Prudential
Series Fund, an underlying investment option of the Separate Accounts.
Derivative Financial Instruments
Derivatives are financial instruments whose values are derived from interest
rates, foreign exchange rates, various financial indices, or the value of
securities or commodities. Derivative financial instruments used by the Company
include futures, currency swaps, and options contracts and can be
exchange-traded or contracted in the over-the-counter market. The Company uses
derivative financial instruments to hedge market risk from changes in interest
rates or foreign currency exchange rates, and to alter interest rate or currency
exposures arising from mismatches between assets and liabilities. All
derivatives used by the Company are for other than trading purposes.
To qualify as a hedge, derivatives must be designated as hedges for existing
assets, liabilities, firm commitments, or anticipated transactions which are
identified and probable to occur, and effective in reducing the market risk to
which the Company is exposed. The effectiveness of the derivatives must be
evaluated at the inception of the hedge and throughout the hedge period.
When derivatives qualify as hedges, the changes in the fair value or cash flows
of the derivatives and the hedged items are recognized in earnings in the same
period. If the Company's use of other than trading derivatives does not meet the
criteria to apply hedge accounting, the derivatives are recorded at fair value
in "Other liabilities" in the Consolidated Statements of Financial Position, and
changes in their fair value are recognized in earnings in "Realized investment
gains, net" without considering changes in the hedged assets or liabilities.
Cash flows from other than trading derivative assets and liabilities are
reported in the operating activities section in the Consolidated Statements of
Cash Flows.
Income Taxes
The Company and its subsidiaries are members of the consolidated federal income
tax return of Prudential and files separate company state and local tax returns.
Pursuant to the tax allocation arrangement with Prudential, 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 that is expected 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 transactions, including repurchase
agreements, dollar rolls, securities lending and similar transactions. Adoption
of SFAS 125 did not have a material impact on the Company's results of
operations, financial position and liquidity.
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
which was issued by the FASB in June 1997. This statement defines comprehensive
income 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.
Application of this statement did not change recognition or measurement of net
income and, therefore, did not affect the Company's financial position or
results of operations.
B-8
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
On January 1, 1999, the Company adopted the American Institute of Certified
Public Accountants ("AICPA") Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" ("SOP 97-3").
This statement provides guidance for determining when an insurance company or
other enterprise should recognize a liability for guaranty-fund assessments as
well as guidance for measuring the liability. The adoption of SOP 97-3 is not
expected to have a material effect on the Company's financial position or
results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS No. 133 provides, if certain conditions
are met, that a derivative may be specifically designated as (1) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment (fair value hedge), (2) a hedge of the exposure to
variable cash flows of a forecasted transaction (cash flow hedge), or (3) a
hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security or a
foreign-currency-denominated forecasted transaction (foreign currency hedge).
SFAS No. 133 does not apply to most traditional insurance contracts. However,
certain hybrid contracts that contain features which can affect settlement
amounts similarly to derivatives may require separate accounting for the "host
contract" and the underlying "embedded derivative" provisions. The latter
provisions would be accounted for as derivatives as specified by the statement.
Under SFAS No. 133, the accounting for changes in fair value of a derivative
depends on its intended use and designation. For a fair value hedge, the gain or
loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item. For a cash flow hedge, the effective
portion of the derivative's gain or loss is initially reported as a component of
other comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings. For a foreign currency hedge, the gain
or loss is reported in other comprehensive income as part of the foreign
currency translation adjustment. For all other derivatives not designated as
hedging instruments, the gain or loss is recognized in earnings in the period of
change. The Company is required to adopt this Statement no later than January 1,
2000 and is currently assessing the effect of the new standard.
In October, 1998, the AICPA issued Statement of Position 98-7, "Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk," ("SOP 98-7"). This statement provides guidance on how
to account for insurance and reinsurance contracts that do not transfer
insurance risk. SOP 98-7 is effective for fiscal years beginning after June 15,
1999. The adoption of this statement is not expected to have a material effect
on the Company's financial position or results of operations.
Reclassifications
Certain amounts in the prior years have been reclassified to conform to current
year presentation.
B-9
<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>
1998
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair 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 110,294 864 318 110,840
Foreign government bonds 87,112 2,003 696 88,419
Corporate securities 2,540,498 30,160 6,897 2,563,761
Mortgage-backed securities 750 156 -- 906
---------- ---------- ---------- ----------
Total fixed maturities available for sale $2,738,654 $ 33,183 $ 7,911 $2,763,926
========== ========== ========== ==========
Equity securities available for sale $ 2,951 $ 168 $ 272 $ 2,847
========== ========== ========== ==========
Fixed maturities held to maturity
Corporate securities $ 410,558 $ 11,287 $ -- $ 421,845
---------- ---------- ---------- ----------
Total fixed maturities held to maturity $ 410,558 $ 11,287 $ -- $ 421,845
========== ========== ========== ==========
1997
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
(In Thousands)
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
========== ========== ========== ==========
</TABLE>
B-10
<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, 1998 are shown below:
<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>
Due in one year or less $ 72,931 $ 73,254 $ 3,036 $ 3,064
Due after one year through five years 1,050,981 1,059,389 193,749 201,136
Due after five years through ten years 1,142,507 1,156,664 155,568 158,801
Due after ten years 471,485 473,713 58,205 58,844
Mortgage-backed securities 750 906 -- --
---------- ---------- ---------- ----------
Total $2,738,654 $2,763,926 $ 410,558 $ 421,845
========== ========== ========== ==========
</TABLE>
Actual maturities will differ from contractual maturities because, in certain
circumstances, issuers have the right to call or prepay obligations.
Proceeds from the sale of fixed maturities available for sale during 1998, 1997,
and 1996 were $5,327.3 million, $2,796.3 million, and $3,667.1 million,
respectively. Gross gains of $46.3 million, $18.6 million, and $22.1 million and
gross losses of $14.1 million, $7.9 million, and $17.6 million were realized on
those sales during 1998, 1997, and 1996, respectively.
Proceeds from the maturity of fixed maturities available for sale during 1998,
1997, and 1996 were $102.1 million, $32.4 million, and $219.2 million,
respectively. During the years ended December 31, 1998, 1997, and 1996, there
were no securities classified as held to maturity that were sold.
Writedowns for impairments of fixed maturities which were deemed to be other
than temporary were $2.8 million, $.1 million and $.1 million for the years
1998, 1997 and 1996, respectively.
B-11
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The following table describes the credit quality of the fixed maturity
portfolio, based on ratings assigned by the National Association of Insurance
Commissioners ("NAIC") or Standard & Poor's Corporation, an independent rating
agency as of December 31, 1998:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------ -------------------------------------
Amortized Estimated Fair Amortized Estimated Fair
Cost Value Cost Value
---------- -------------- ---------- --------------
(In Thousands) (In Thousands)
NAIC Standard & Poor's
<S> <C> <C> <C> <C>
1 AAA to AA- $1,195,301 $1,211,995 $ 180,070 $ 186,683
2 BBB+ to BBB- 1,254,522 1,263,656 182,298 185,417
3 BB+ to BB- 201,033 204,278 39,346 40,654
4 B+ to B- 59,799 57,695 8,821 9,068
5 CCC or lower 27,552 26,061 -- --
6 In or near default 447 241 23 23
---------- ---------- ---------- ----------
Total $2,738,654 $2,763,926 $ 410,558 $ 421,845
========== ========== ========== ==========
</TABLE>
The fixed maturity portfolio consists largely of investment grade assets (rated
"1" or "2" by the NAIC), with such investments accounting for 89% and 94% of the
portfolio at December 31, 1998 and 1997, respectively, based on fair value. As
of both of those dates, less than 1% of the fixed maturities portfolio was rated
"6" by the NAIC, defined as public and private placement securities which are
currently non-performing or believed subject to default in the near-term.
The Company continually reviews fixed maturities and identifies potential
problem assets which require additional monitoring. The Company defines
"problem" fixed maturities as those for which principal and/or interest payments
are in default. The Company defines "potential problem" fixed maturities as
assets which are believed to present default risk associated with future debt
service obligations and therefore require more active management. At December
31, 1998 management identified $264.0 thousand of fixed maturity investments as
problem or potential problem. An immaterial amount of problem or potential
problem fixed maturities were identified in 1997.
Mortgage Loans on Real Estate
The Company's mortgage loans were collateralized by the following property types
at December 31, 1998 and 1997.
1998 1997
------------------ -------------------
(In Thousands)
Office buildings $ -- -- $ 4,607 20%
Retail stores 7,356 42% 8,090 35%
Apartment complexes 5,988 35% 6,080 27%
Industrial buildings 4,010 23% 4,010 18%
------------------ ------------------
Net carrying value $17,354 100% $22,787 100%
================== ==================
B-12
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The largest concentration of mortgage loans are in the states of Pennsylvania
(35%), Washington (34%), and New Jersey (23%).
Special Deposits
Fixed maturities of $8.6 million and $8.3 million at December 31, 1998 and 1997,
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 $1.0 million and $1.3 million as
of December 31, 1998 and 1997, respectively, are comprised of joint ventures and
limited parterships. The Company's share of net income from these entities was
$.1 million, $2.2 million and $1.4 million for the years ended December 31,
1998, 1997 and 1996, respectively, and is reported in "Net investment income."
Investment Income and Investment Gains and Losses
Net investment income arose from the following sources for the years ended
December 31:
1998 1997 1996
--------- --------- ---------
(In Thousands)
Fixed maturities - available for sale $ 179,184 $ 161,140 $ 152,445
Fixed maturities - held to maturity 26,128 26,936 33,419
Equity securities 14 76 44
Mortgage loans on real estate 1,818 2,585 5,669
Policy loans 40,928 37,398 33,449
Short-term investments 23,110 22,011 16,780
Other 6,886 14,920 10,051
--------- --------- ---------
Gross investment income 278,068 265,066 251,857
Less: investment expenses (16,638) (5,432) (4,529)
--------- --------- ---------
Net investment income $ 261,430 $ 259,634 $ 247,328
========= ========= =========
Realized investment gains ,net including charges for other than temporary
reductions in value, for the years ended December 31, were from the following
sources:
1998 1997 1996
--------- --------- ---------
(In Thousands)
Fixed maturities - available for sale $ 29,330 $ 9,039 $ 9,036
Fixed maturities - held to maturity 487 821 --
Equity securities 3,489 8 781
Mortgage loans on real estate -- 797 1,677
Derivative instruments 12,414 -- --
Other (879) 309 (659)
--------- --------- ---------
Realized investment gains, net $ 44,841 $ 10,974 $ 10,835
========= ========= =========
B-13
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
Net Unrealized Investment Gains
Net unrealized investment gains on securities available for sale are included in
the Consolidated Statement of Financial Position as a component of "Accumulated
other comprehensive income." Changes in these amounts include reclassification
adjustments to avoid double-counting in "Comprehensive income," items that are
included as part of "Net income" for a period that also have been part of "Other
comprehensive income" in earlier periods. The amounts for the years ended
December 31, net of tax, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Net unrealized investment gains, beginning of year $ 17,129 $ 14,104 $ 32,056
Changes in net unrealized investment gains attributable to:
Investments:
Net unrealized gains on investments arising during the period 14,593 13,880 (20,405)
Reclassification adjustment for gains included in net income 22,799 6,680 6,165
-------- -------- --------
Change in net unrealized gains on investments, net of adjustments (8,206) 7,200 (26,570)
Impact of net unrealized investment gains on:
Policyholder's account balances (1,063) 1,293 (2,467)
Deferred policy acquisition costs 2,042 (5,468) 11,085
-------- -------- --------
Change in net unrealized investment gains (7,227) 3,025 (17,952)
-------- -------- --------
Net unrealized investment gains, end of year $ 9,902 $ 17,129 $ 14,104
======== ======== ========
</TABLE>
Unrealized gains (losses) on investments arising during the periods reported in
the above table are net of income tax (benefit) expense of $(8.2) million,
$(7.6) million and $12.1 million for the years ended December 31, 1998, 1997 and
1996, respectively.
Reclassification adjustments reported in the above table for the years ended
December 31, 1998, 1997 and 1996 are net of income tax expense of $12.8 million,
$3.6 million and $3.8 million, respectively.
Policyholder's account balances reported in the above table are net of income
tax (benefit) expense of $(.2) million, $.0 million and $1.4 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
Deferred policy acquisition costs in the above tables for the years ended
December 31, 1998, 1997 and 1996 are net of income tax (benefit) expense of
$(1.1) million, $2.9 million and $(6.2) million, respectively.
4. POLICYHOLDERS' LIABILITIES
Future policy benefits and other policyholder liabilities at December 31 are as
follows:
1998 1997
-------- --------
(In Thousands)
Life insurance $506,249 $444,737
Annuities 28,350 27,723
-------- --------
$534,599 $472,460
======== ========
B-14
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
4. POLICYHOLDERS' LIABILITIES (continued)
Life insurance liabilities include reserves for death benefits. Annuity
liabilities include reserves for immediate annuities.
The following table highlights the key assumptions generally utilized in
calculating these reserves:
<TABLE>
<CAPTION>
Product Mortality Interest Rate Estimation Method
- ------------------------------ ------------------------- ------------- -----------------------
<S> <C> <C> <C>
Life insurance - Domestic Generally rates 2.5% to 7.5% Net level premium based
guaranteed in on non-forfeiture
calculating cash interest rate
surrender values
Life insurance - International Generally rates 6.25% to 6.5% Net level premium based
guaranteed in on the expected
calculating cash investment return
surrender values
Individual immediate annuities 1983 Individual Annuity 6.25% to 11.0% Present value of
Mortality Table with expected future payment
certain modifications based on historical
experience
</TABLE>
Policyholders' account balances at December 31, are as follows:
1998 1997
---------- ----------
(In Thousands)
Interest-sensitive life contracts $1,386,829 $1,345,089
Individual annuities 1,077,996 1,035,371
Guaranteed investment contracts 231,366 --
---------- ----------
$2,696,191 $2,380,460
========== ==========
Policyholders' account balances for interest-sensitive life, individual
annuities, and guaranteed investment contracts are equal to policy account
values plus unearned premiums. The policy account values represent an
accumulation of gross premium payments plus credited interest less withdrawals,
expenses, mortality charges.
Certain contract provisions that determine the policyholder account balances are
as follows:
<TABLE>
<CAPTION>
Product Interest Rate Withdrawal / Surrender Charges
- --------------------------------- -------------- ----------------------------------
<S> <C> <C>
Interest sensitive life contracts 4.0% to 6.5% Various up to 10 years
Individual annuities 3.0% to 5.6% 0% to 8% for up to 8 years
Guaranteed investment contracts 5.02% to 6.23% Subject to market value withdrawal
provisions for any funds withdrawn
other than for benefit responsive
and contractual payments
</TABLE>
B-15
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
5. REINSURANCE
The Company participates in reinsurance, with Prudential and other companies, in
order to provide greater diversification of business, provide additional
capacity for future growth and limit the maximum net loss potential arising from
large risks. Reinsurance ceded arrangements do not discharge the Company or the
insurance subsidiaries as the primary insurer, except for cases involving a
novation. Ceded balances would represent a liability to the Company in the event
the reinsurers were unable to meet their obligations to the Company under the
terms of the reinsurance agreements. The likelihood of a material reinsurance
liability reassumed by the Company is considered to be remote.
Reinsurance amounts included in the Consolidated Statement of Operations for the
year ended December 31 are below.
1998 1997 1996
-------- -------- --------
(In Thousands)
Direct Premiums $ 65,423 $ 51,851 $ 53.776
Reinsurance assumed 1,395 1,369 1,128
Reinsurance ceded - affiliated (6,532) (686) (254)
Reinsurance ceded - unaffiliated (2,819) (3,038) (3,125)
-------- -------- --------
Premiums $ 57,467 $ 49,496 $ 51,525
======== ======== ========
Policyholders' benefits ceded $ 27,991 $ 25,704 $ 26,796
======== ======== ========
Reinsurance recoverables, included in "Other assets" in the Company's
Consolidated Statements of Financial Position, at December 31 include amounts
recoverable on unpaid and paid losses and were as follows:
1998 1997
------- -------
(In Thousands)
Life insurance - affiliated $ 6,481 $ 2,618
Other reinsurance - affiliated 21,650 23,243
------- -------
$28,131 $25,861
======= =======
B-16
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
6. EMPLOYEE BENEFIT PLANS
Pension and Other Postretirement Plans
The Company has a non-contributory defined benefit pension plan which covers
substantially all of its Taiwanese employees. This plan was established as of
September 30, 1997 and the projected benefit obligation and related expenses at
September 30, 1998 was not material to the Consolidated Statements of Financial
Position or results of operations for the years presented. All other employee
benefit costs are allocated to the Company from Prudential in accordance with
the service agreement described in Note 13.
7. INCOME TAXES
The components of income taxes for the years ended December 31, are as follows:
1998 1997 1996
-------- -------- --------
(In Thousands)
Current tax expense (benefit):
U.S $ 67,272 $ 71,989 $ 59,489
State and local 2,496 1,337 703
Foreign -- -- 4
-------- -------- --------
Total 69,768 73,326 60,196
-------- -------- --------
Deferred tax expense (benefit):
U.S 14,059 (11,458) 18,413
State and local 406 -- 526
-------- -------- --------
Total 14,465 (11,458) 18,939
-------- -------- --------
Total income tax expense $ 84,233 $ 61,868 $ 79,135
======== ======== ========
The 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:
1998 1997 1996
-------- -------- --------
(In Thousands)
Expected federal income tax expense $ 82,668 $ 58,885 $ 79,925
State and local income taxes 1,886 869 799
Other (321) 2,114 (1,589)
-------- -------- --------
Total income tax expense $ 84,233 $ 61,868 $ 79,135
======== ======== ========
B-17
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
7. INCOME TAXES (continued)
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
1998 1997
-------- --------
(In Thousands)
Deferred tax assets
Insurance reserves $ 93,564 $ 52,144
-------- --------
Deferred tax assets 93,564 52,144
-------- --------
Deferred tax liabilities
Deferred acquisition costs 224,179 167,128
Net investment gains 12,241 16,068
Other 5,978 7,431
-------- --------
Deferred tax liabilities 242,398 190,627
-------- --------
Net deferred tax liability $148,834 $138,483
======== ========
Management believes that based on its historical pattern of taxable income, the
Company and its subsidiaries 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 asset that is realizable. At December 31, 1998
and 1997, respectively, the Company and its subsidiaries had no federal or state
operating loss carryforwards for tax purposes.
The Internal Revenue Service (the "Service") has completed examinations of all
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.
B-18
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. 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 and New Jersey Departments of Banking and
Insurance with net income and equity determined using GAAP.
1998 1997 1996
--------- --------- ---------
(In Thousands)
Statutory net income $ (33,097) $ 12,778 $ 48,846
Adjustments to reconcile to net
income on a GAAP basis:
Statutory income of subsidiaries 18,953 18,553 25,001
Deferred acquisition costs 202,375 38,003 48,862
Deferred premium 2,625 1,144 1,295
Insurance liabilities (24,942) 26,517 28,662
Deferred taxes (14,465) 11,458 (18,939)
Valuation of investments 20,077 506 365
Other, net (19,564) (2,585) 15,130
--------- --------- ---------
GAAP net income $ 151,962 $ 106,374 $ 149,222
========= ========= =========
1998 1997
----------- -----------
(In Thousands)
Statutory surplus $ 931,164 $ 853,130
Adjustments to reconcile to equity
on a GAAP basis:
Valuation of investments 117,254 97,787
Deferred acquisition costs 861,713 655,242
Deferred premium (15,625) (14,817)
Insurance liabilities (133,811) (107,525)
Deferred taxes (148,834) (138,483)
Other, net 41,371 160,183
----------- -----------
GAAP stockholder's equity $ 1,653,232 $ 1,505,517
=========== ===========
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated 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 estimated fair values (for all other
financial instruments presented in the table, the carrying value approximates
estimated fair value).
B-19
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
9. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Fixed maturities and Equity securities
Estimated 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 estimated 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.
Policyholders' account balances
Estimated fair values of policyholders' account balances are derived by using
discounted projected cash flows, based on interest rates being offered for
similar contracts, with maturities consistent with those remaining for the
contracts being valued.
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>
1998 1997
------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----------- ----------- ------------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities:
Available for sale $ 2,763,926 $ 2,763,926 $ 2,563,852 $ 2,563,852
Held to maturity 410,558 421,845 338,848 350,056
Equity securities 2,847 2,847 1,982 1,982
Mortgage loans 17,354 19,465 22,787 24,994
Policy loans 766,917 806,099 703,955 703,605
Short-term investments 240,727 240,727 316,355 316,355
Cash 89,679 89,679 71,358 71,358
Separate Account assets 11,531,754 11,531,754 8,022,079 8,022,079
Financial Liabilities:
Policyholders'
account balances $ 2,696,191 $ 2,703,725 $ 2,380,460 $ 2,374,040
Cash collateral for loaned
securities 123,044 123,044 143,421 143,421
Separate Account liabilities 11,490,751 11,490,751 7,948,788 7,948,788
Derivatives 1,723 2,374 653 653
</TABLE>
B-20
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
Futures & Options
The Company uses exchange-traded Treasury futures and options to reduce market
risks from changes in interest rates, to alter mismatches between the duration
of assets in a portfolio and the duration of liabilities supported by those
assets, and to hedge against changes in the value of securities it owns or
anticipates acquiring. The Company enters into exchange-traded futures and
options with regulated futures commissions merchants who are members of a
trading exchange. The fair value of futures and options is estimated based on
market quotes for a transaction with similar terms.
Under exchange-traded futures, the Company agrees to purchase a specified number
of contracts with other parties and to post variation margin on a daily basis in
an amount equal to the difference in the daily market values of those contracts.
Futures are typically used to hedge duration mismatches between assets and
liabilities by replicating Treasury performance. Treasury futures move
substantially in value as interest rates change and can be used to either
generate new or hedge existing interest rate risk. This strategy protects
against the risk that cash flow requirements may necessitate liquidation of
investments at unfavorable prices resulting from increases in interest rates.
This strategy can be a more cost effective way of temporarily reducing the
Company's exposure to a market decline than selling fixed income securities and
purchasing a similar portfolio when such a decline is believed to be over.
For futures that meet hedge accounting criteria, changes in their fair value are
deferred and recognized as an adjustment to the carrying value of the hedged
item. Deferred gains or losses from the hedges for interest-bearing financial
instruments are amortized as a yield adjustment over the remaining lives of the
hedged item. Futures that do not qualify as hedges are carried at fair value
with changes in value reported in current period earnings. The notional value of
futures contracts was $40.8 million and $115.7 million at December 31, 1998 and
1997, respectively. The fair value of futures contracts was immaterial at
December 31, 1998 and 1997.
When the Company anticipates a significant decline in the stock market which
will correspondingly affect its diversified portfolio, it may purchase put index
options where the basket of securities in the index is appropriate to provide a
hedge against a decrease in the value of the equity portfolio or a portion
thereof. This strategy effects an orderly sale of hedged securities. When the
Company has large cash flows which it has allocated for investment in equity
securities, it may purchase call index options as a temporary hedge against an
increase in the price of the securities it intends to purchase. This hedge
permits such investment transactions to be executed with the least possible
adverse market impact.
Option premium paid or received is reported as an asset or liability and
amortized into income over the life of the option. If options meet the criteria
for hedge accounting, changes in their fair value are deferred and recognized as
an adjustment to the hedged item. Deferred gains or losses from the hedges for
interest-bearing financial instruments are recognized as an adjustment to
interest income or expense of the hedged item. If the options do not meet the
criteria for hedge accounting, they are fair valued, with changes in fair value
reported in current period earnings. The fair value of options was immaterial at
December 31, 1998, and there were no options in 1997.
Currency Derivatives
The Company uses currency swaps to reduce market risks from changes in currency
values of investments denominated in foreign currencies that the Company either
holds or intends to acquire and to alter the currency exposures arising from
mismatches between such foreign currencies and the US Dollar.
Under currency swaps, the Company agrees with other parties to exchange, at
specified intervals, the difference between one currency and another at a
forward exchange rate and calculated by reference to an agreed principal amount.
Generally, the principal amount of each currency is exchanged at the beginning
and termination of the currency swap by each party. These transactions are
entered into pursuant to master agreements that provide for a single net payment
to be made by one counterparty for payments made in the same currency at each
due date.
If currency derivatives are effective as hedges of foreign currency translation
and transaction exposures, gains or losses are recorded in "Foreign currency
translation adjustments". If currency derivatives do not meet hedge accounting
criteria, gains or losses from those derivatives are recognized in current
period earnings.
As of December 31, 1998, the notional value of the swaps was $40.5 million with
a fair value of ($2.3) million. There were no currency swaps at year end 1997.
B-21
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (continued)
Credit Risk
The current credit exposure of the Company's derivative contracts is limited to
the fair value at the reporting date. Credit risk is managed by entering into
transactions with creditworthy counterparties and obtaining collateral where
appropriate and customary. The Company also attempts to minimize its exposure to
credit risk through the use of various credit monitoring techniques. As of
December 31, 1998, 47% of notional consisted of interest rate derivatives, 47%
of notional consisted of foreign currency derivatives, and 6% of notional
consisted of equity derivatives.
11. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and the
Company. Prudential has agreed to indemnify the Company for any and all losses
resulting from such litigation.
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.
12. DIVIDENDS
The Company is subject to Arizona law which limits the amount of dividends that
insurance companies can pay to stockholders. The maximum dividend which may be
paid in any 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, 1998, the
Company would not be permitted a dividend distribution in 1998.
13. RELATED PARTY TRANSACTIONS
Service Agreements
Prudential and Pruco Life 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 by
Prudential. The net cost of these services allocated to the Company were $269.9
million, $139.5 million and $101.7 million for the years ended December 31,
1998, 1997, and 1996, respectively. These costs are treated in a manner
consistent with the Company's policy on deferred acquisition costs.
Prudential and Pruco Life have an agreement with respect to administrative
services for the Prudential Series Fund. The Company invests in the various
portfolios of the Series Fund through the Separate Accounts. Under this
agreement, Prudential pays compensation to Pruco Life in the amount equal to a
portion of the gross investment advisory fees paid by the Prudential Series
Fund. The Company received from Prudential its allocable share of such
compensation in the amount of $40.1 million, $29.4 million and $19.1 million
during 1998, 1997 and 1996, respectively, recorded in other income.
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, 1998, 1997,
and 1996.
B-22
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS (continued)
Debt Agreements
In July 1998, the Company established a revolving line of credit facility of up
to $300 million with Prudential Funding Corporation, a wholly owned subsidiary
of Prudential. There is no outstanding debt relating to this credit facility as
of December 31, 1998.
B-23
<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, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our 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.
PricewaterhouseCoopers LLP
New York, New York
February 26, 1999
B-24
<PAGE>
VARIABLE
APPRECIABLE
LIFE(R)
INSURANCE
Variable APPRECIABLE LIFE(R) was issued by Pruco Life Insurance Company,
213 Washington Street, Newark, NJ 07102-2992 and offered through Pruco
Securities Corporation, 751 Broad Street, Newark, NJ 07102-3777, both
subsidiaries of The Prudential Insurance Company of America, 751 Broad
Street, Newark, NJ 07102-3777. APPRECIABLE LIFE is a registered mark of
Prudential.
[LOGO] PURDENTIAL
PRUCO LIFE INSURANCE COMPANY
213 Washington Street, Newark, NJ 07102-2992
Telephone 800 778-2255
VAL-1 Ed. 5/99 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 94 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. PricewaterhouseCoopers LLP, independent accountants.
2. Clifford E. Kirsch, Esq.
3. 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)
II-2
<PAGE>
(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 6e-2(b)(13)(v)(B).
(Note 1)
(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)
II-3
<PAGE>
7. Powers of Attorney:
(a) William M. Bethke, Ira J. Kleinman, Esther H. Milnes, I.
Edward Price (Note 2)
(b) Kiyofumi Sakaguchi (Note 7)
(c) James J. Avery, Jr. (Note 10)
(d) Dennis G. Sullivan (Note 5)
(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. 6 to
Form S-1, Registration No. 33-86780, filed April 16, 1999 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 13th day of April, 1999.
(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. 28 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 13th day of April, 1999.
SIGNATURE AND TITLE
/s/ *
- -------------------------------------------
Esther H. Milnes
President and Director
/s/ *
- -------------------------------------------
Dennis G. Sullivan
Vice President and Chief Accounting Officer
/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/ *
- -------------------------------------------
I. Edward Price
Director
/s/ *
- -------------------------------------------
Kiyofumi Sakaguchi
Director
II-5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 28 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated March 19, 1999, 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 February 26, 1999, 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.
PricewaterhouseCoopers LLP
New York, New York
April 23, 1999
II-6
<PAGE>
EXHIBIT INDEX
Consent of PricewaterhouseCoopers LLP, independent
accountants. Page II-6
1.A.(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
6e-2(b)(13)(v)(B). Page II-8
3. Opinion and Consent of Clifford E. Kirsch, Esq., as to
the legality of the securities being registered. Page II-21
6. Opinion and Consent of Pam A. Schiz, FSA, MAAA, as to
actuarial matters pertaining to the securities being
registered. Page II-22
II-7
Exhibit A(12)
Description of Pruco Life's Issuance, Transfer and redemption procedures for
Variable Appreciable Life Insurance Contracts pursuant to Rule 6e-2(b)(l2)(ii)
and
Method of Computing Adjustments in payments and Cash surrender values Upon
conversion to Fixed Benefit policies pursuant to Rule 6e-2(b)(l3)(v)(B)
This document sets forth the administrative procedures that will be followed by
Pruco Life Insurance Company ("Pruco Life") in connection with the issuance of
its Variable Appreciable Life Insurance Contract ("Contract"), the transfer of
assets held thereunder, and the redemption by contract owners of their interests
in said contracts. The document also explains the method that Pruco Life will
follow in making a cash adjustment when a Contract is exchanged for a fixed
benefit insurance policy pursuant to Rule 6e-2(b) (13) (v) (B).
I. Procedures Relating to Issuance and Purchase of the Contracts
A. Premiums Schedules and Underwriting Standards
Premiums for the contract will not be the same for all owners. Insurance
is based on the principle of pooling and distribution of mortality risks,
which assumes that each owner pays a premium commensurate with the
Insured's mortality risk as actuarially determined utilizing factors. such
as age, sex, health and occupation. A uniform premium for all Insureds
would discriminate unfairly in favor of those Insureds representing
greater risks. However, for a given face amount of insurance, contracts
issued on insureds of the same age and sex who are non-smokers will have
the same scheduled premium. Contracts issued on insureds who smoke, or who
for reasons of health, occupation or avocation present higher risks, will
have a correspondingly higher scheduled premium.
The underwriting standards and premium processing practices followed by
Pruco Life are similar to those followed in connection with the offer and
sale of fixed-benefit life insurance, modified where necessary to meet the
requirements of the federal securities laws. The prospectus specifies
scheduled premiums for illustrative ages. In addition, the scheduled
premiums to be paid by each owner will be specified in his or her
Contract. If they are paid on time, Pruco Life guarantees to keep the
Contract in force and to provide at least the guaranteed minimum death
benefit (i.e., the face amount specified in each contract), regardless of
investment performance, unless there is an outstanding contract debt or
the guaranteed amount has been changed or affected because of some action
taken by the owner, pursuant to the Contract, such as a partial withdrawal
or surrender. The owner will have the option of paying more than the
scheduled premiums, thereby increasing Contract values beyond what they
would be if only the scheduled premiums
II-8
<PAGE>
were paid. If favorable investment experience, less-than-maximum mortality
charges by Pruco Life, or higher-than-scheduled premiums paid in the past
have produced greater-than-tabular values in the Contract, the owner will
have the further option of paying less-than-scheduled premiums and still
keeping the Contract in force. But unless the owner has paid premiums
which, accumulated at 4% interest are at least equal to scheduled premiums
accumulated at the same rate, there is a risk that future unfavorable
investment performance will cause the contract to go into default.
Scheduled premiums on the Contract are payable during the insured's
lifetime on an annual, semi-annual, quarterly or monthly basis on due
dates set forth in the Contract. If paid more often than annually, the
aggregate annual premium will be higher to compensate Pruco Life for the
additional processing costs (reflected in a charge of $2 per payment) and
for the loss of interest incurred because premiums are paid throughout
rather than at the beginning of each contract year.
B. Application and Initial Premium Processing
Upon receipt of a completed application form from a prospective owner,
Pruco Life will follow certain insurance underwriting (i.e., evaluation of
risk) procedures designed to determine whether the proposed Insured is
insurable. In the majority of cases this will involve only evaluation of
the answers to the questions on the application and will not include a
medical examination. In other cases, the process may involve such
verification procedures as medical examinations and may require that
further information be provided by the proposed Insured before a
determination can be made. A contract cannot be issued, i.e., physically
issued through Pruco Life's computerized issue system, until this
underwriting procedure has been completed.
These processing procedures are designed to provide immediate benefits to
every prospective owner who pays the initial scheduled premium at the time
the application is submitted, without diluting any benefit payable to any
existing owner. Although a Contract cannot be issued until after the
underwriting process has been completed, such a proposed Insured will
receive immediate insurance coverage for the face amount of the Contract,
if he or she proves to be insurable and the owner has paid `the first
scheduled premium.
The Contract Date marks the date on which benefits begin to vary in
accordance with the investment performance of the selected investment
option(s). It is also the date as of which the insurance age of the
proposed Insured is determined. It represents the first day of the
Contract year and therefore determines the Contract anniversary and also
the Monthly Dates. It also represents the commencement of the suicide and
contestable periods for purposes of the Contract.
If the initial scheduled premium is paid with the application and no
medical examination is required (so that Part 2 of the application is not
completed) the Contract Date will ordinarily be the date of the
application. If an unusual delay is encountered (for
II-9
<PAGE>
example,if a request for further information is not met promptly), the
Contract Date will be 21 days prior to the date on which the Contract is
physically issued. If a medical examination is required, the Contract Date
will ordinarily be the date on which Part 2 of the application (the
medical report) is completed, subject to the same qualification as that
noted above.
If the first scheduled premium is not paid with the application, the
Contract Date will be the Contract Date stated in the Contract, which will
generally be about 3 days after the date of physical issue (to permit time
for delivery), provided the Owner pays the necessary scheduled premium.
There are two principal variations from the foregoing procedure. First, if
the owner wishes permanent insurance protection and variability of
benefits to commence at a future date, he or she can designate that date
and purchase term insurance in a fixed amount for the intervening period.
The maximum length of initial term insurance available varies from state
to state.
Second, if permitted by the insurance laws of the state in who the
Contract is issued, the Contract may be back dated up to six months,
provided that all past due scheduled premiums are paid and that the
backdating results in a lower insurance age for the Insured. Pruco Life
will require the payment of all scheduled premiums that would have been
due had the application date coincided with the backdated Contract Date.
The values under the Contract and the amount(s) deposited into the
selected investment option(s) will be calculated upon the assumptions that
the Contract had been issued on the Contract Date and all scheduled
premiums had been received on their due dates. If the initial premium paid
is in excess of the aggregate of the scheduled premiums due since the
Contract Date, the excess (after the front-end deductions) will be
credited to the Contract and placed in the selected investment option(s)
on the date of receipt.
Pruco Life will transfer the appropriate amounts to the selected
investment option(s) on the date the Contract is approved unless, as noted
above, the owner selects a period of preliminary term insurance in which
case the invested portion of the first scheduled premium will be
transferred to the selected investment option(s) on the Contract Date. The
variable benefits under all Contracts will be calculated on the assumption
that the invested portion of the first scheduled premium was transferred
to the Selected investment option(s) on the Contract Date. Any portion of
the first premium payment in excess of the first scheduled premium will be
credited (after deduction of up to 7-1/2% thereof) as of the date of
receipt. If the first premium is received before the Contract Date, the
entire invested portion will be credited as of the Contract Date.
C. Premium Processing
Whenever a premium after the first is received, unless the Contract is in
default past its days of grace, Pruco Life will subtract $2 and up to
7-1/2% of the rest of the premium. What is left will be invested in the
selected investment option(s) on the date received (or,
II-10
<PAGE>
if that is not a business day, on the next business day). There is an
exception if the Contract is in default within its days of grace. Then to
the extent necessary to end the default, premiums will be credited as of
the date of the default or the Monthly Date after default, and premiums
greater than this amount will be credited when received. The Contract
provides a grace period of 61 days from the date Pruco Life mails the
Contract owner a notice of default. As an administrative practice, Pruco
Life extends the grace period by seven days to minimize manual processing
required when premium payments are processed shortly after the 61st day.
D. Reinstatement
The Contract may be reinstated within three years after default (this
period will be longer if required by state law) unless the Contract has
been surrendered for its cash surrender value. A Contract will be
reinstated upon receipt by Pruco Life of a written application for
reinstatement, production of evidence of insurability satisfactory to
Pruco Life and payment of at least the amount required to bring the
premium account up to zero on the first Monthly date on which a scheduled
premium is due after the date of reinstatement. The premium account is the
sum of the premiums paid, with interest at 4%, less the sum of the
scheduled premiums due, with interest at the same rate. It is a measure of
whether, on a time-weighted basis, the owner has paid enough premiums to
keep the Contract with its minimum death benefit guarantee in effect. The
Contract cannot go into default if the premium account is above zero.
Pruco Life will treat the amount paid upon reinstatement as a premium. It
will deduct $2, plus up to 7-1/2% of the remaining payment, plus any
charges with interest for any extra benefits, plus any expense charges
with interest. The Contract Fund of the reinstated Contract will,
immediately upon reinstatement, be equal to this net premium payment, plus
the cash surrender value of the Contract immediately before reinstatement,
plus a refund of that part of the deferred sales and administrative
charges which would be charged if the Contract were surrendered
immediately after reinstatement. This last addition to the Contract Fund
is designed to avoid duplicative surrender charges. The original Contract
Date still controls for purposes of calculating any contingent deferred
sales and administrative charges.
The reinstatement will take effect as of the date the required proof of
insurability and payment of the reinstatement amount have been received by
Pruco Life at its Service Office.
There is an alternative to this reinstatement procedure that applies only
if reinstatement is requested within a 30-day period following the end of
the 61-day grace period. In such a case evidence of insurability will not
be required and the amount of the required payment will be the lesser of
the unpaid scheduled premiums and the amount necessary to make the
Contract Fund equal to the tabular Contract Fund on the third Monthly Date
following the date on which the Contract went into default.
II-11
<PAGE>
E. Repayment of Loan
A loan made under the Contract may be repaid with an amount equal to the
monies borrowed plus interest which accrues daily, either at a fixed
annual rate of 5-1/2% (6% for Contracts issued to Texas residents) or, if
a Contract Owner has elected to have a variable loan interest rate
applicable to loans made under the Contract, at the variable loan interest
rate then applicable to the loan.
When a loan is made, Pruco Life will transfer an amount equal to the
Contract debt from the investment option(s). Under the fixed-rate contract
loan provision, the amount of Contract Fund attributable to the
outstanding Contract loan will be credited with interest at an annual rate
of 4%, and Pruco Life thus will realize the difference between that rate
and the fixed loan interest rate, which will be used to cover the loan
investment expenses, income taxes, if any, and processing costs. If an
owner so desires, and if Pruco Life has received any required approvals
from the state or other jurisdiction in which the Contract is to be
issued, the Owner may elect, when the Contract is issued, to have a
variable loan interest rate apply to the Contract loans, if any, that he
or she may make. If this election is made:
1. Interest on the loan will accrue daily at an annual rate Pruco
Life determines at the start of each Contract year (instead of at a fixed
rate). This interest rate will not exceed the greatest of (1) the
"Published Monthly Average" for the calendar month ending two months
before the calendar month of the Contract anniversary; (2) 5%; or (3) any
rate required by law in the state-of issue of the Contract. The "Published
Monthly Average" means Moody's Corporate Bond Yield Average - Monthly
Average Corporates, as published by Moody's Investors Service, Inc. or any
successor to that service, or if that average is no longer published, a
substantially similar average established by the insurance regulator where
the Contract is delivered.
2. While a loan is outstanding, the amount of the Contract Fund
attributable to the outstanding Contract loan will be credited with
interest at a rate which is less than the loan interest rate for the
Contract year by no more than 1 1/2% (instead of 4%). Currently, Pruco
Life credits such amounts with a rate that is 1% less than the loan
interest rate for the Contract year.
Upon repayment of Contract debt, the payment will be added to the
investment option(s) and allocated among the investment option(s) in
proportion to the amounts in each investment option attributable to the
Contract as of the date of repayment.
II. Transfers
The Pruco Life Variable Appreciable Account ("Account") currently has
seven subaccounts, each of which is invested in shares of a corresponding
portfolio of the Pruco Life Series Fund, Inc. ("Fund"), which is
registered under the 1940 Act as an open-end diversified management
investment company. In addition, a fixed-rate option and Real Property
Account are available for investment by Contract Owners. Provided the
II-12
<PAGE>
Contract is not in default or is in force as variable reduced paid-up
insurance, the Owner may, up to four times in each Contract year, transfer
amounts from one subaccount to another subaccount, to the fixed-rate
option, or to the Real Property Account without charge. All or a portion
of the amount credited to a subaccount may be transferred.
In addition, the entire amount of the Contract Fund may be transferred to
the fixed-rate option at any time during the first two Contract years. A
Contract Owner who wishes to convert his or her variable Contract to a
fixed-benefit Contract in this manner must request a complete transfer of
funds to the fixed-rate option and should also change his or her
allocation instructions regarding any future premiums.
Transfers amount subaccounts will take effect on the day a proper written
request or authorized telephone request is received at a Pruco Life
Service Office. The request may be in terms of dollars such as a request
to transfer $10,000 from one account to another, or may be in terms of a
percentage reallocation among subaccounts. In the latter case, as with
premium reallocations, the percentages must be in whole numbers.
Transfers from the fixed-rate option to other investment options are
currently permitted once each Contract year and only during the thirty-day
period beginning on the Contract anniversary. The maximum amount which may
currently be transferred out of the fixed-rate option each year is the
greater of: (a) 25% of the amount in the fixed-rate option, or (b) $1,000.
The maximum amount which may currently be transferred out of the Real
Property Account each year is the greater of: (a) 50% of the amount in the
Real Property Account, or (b) $10,000. Such transfer requests received
prior to the Contract anniversary will be effected on the Contract
anniversary. Transfer requests received within the thirty-day period
beginning on the Contract anniversary will be effected as of the end of
the business day on which the request is received. These limits are
subject to change in the future.
III. "Redemption" Procedures: Surrender and Related Transactions
A. Surrender for Cash Surrender Value
If the insured party under a Contract is alive, Pruco Life will pay,
within seven days, the Contract's net cash value as of the date of receipt
at its Service Office of the Contract and a signed request for surrender.
The Contract's net cash value (i.e., its cash surrender value) is computed
as follows:
1. If the Contract is not in default: The net cash value or cash surrender
value at any time in the first ten Contract years is the Contract Fund,
minus a surrender charge, consisting of a deferred sales charge and a
deferred administrative charge, minus contract debt. The net cash value on
surrender at the end of the 10th Contract year or later is the Contract
Fund minus Contract debt.
In no event will the deferred sales charge upon the surrender be greater
than 25% of
II-13
<PAGE>
scheduled premiums due in Contract year 1, plus 5% of the scheduled
premiums due in Contract years 2 through 5. For the purpose of computing
this limit Pruco Life uses the lesser of premiums due and premiums paid.
For this purpose scheduled premium means what an insured in the non-smoker
rating class would pay if the Contract had no extra benefits. The maximum
deferred sales charge in Contract years 6 through 10 is the maximum charge
at the end of the fifth Contract year, reduced for persistency as
explained in the prospectus and each Contract. The deferred administrative
charge is $5 per $1000 of face amount for surrenders in Contract years 1
through 5; this charge is reduced by 1/60 for each completed month since
the fifth Contract anniversary. After ten full Contract years the deferred
sales charge and the deferred administrative charge are zero. The deferred
administrative charge is designed to recover, as far as possible, the
administrative expenses, such as underwriting expenses, incurred in
connection with issuance of a Contract. As a result, in the early months
after issue, there may be no net cash value if only scheduled premiums are
paid.
For a paid-up Contract that includes extra benefits, the cash surrender
value is the amount described above, plus the cash value of any extra
benefits, which are paid from the general account.
2. If the Contract is in default during its days of grace, Pruco Life will
compute the net cash value as of the date the Contract went into default.
It will adjust this value for any loan the owner took out or paid back or
premium payments or withdrawals made in the days of grace.
3. If the Contract is in default beyond its days of grace, the net cash
value as of any date will be either the value on the date of any extended
insurance benefit then in force, or the value on that date of any variable
reduced paid-up insurance benefit then in force, less any Contract debt.
In lieu of the payment of the net cash value in a single sum upon
surrender of a Contract, an election may be made by the owner to apply all
or a portion of the proceeds under one of the fixed benefit settlement
options described in the Contract or, with the approval of Pruco Life, a
combination of options. An option is available only if the proceeds to be
applied are $1,000 or more or would result in periodic payments of at
least $20.00. The fixed benefit settlement options are subject to the
restrictions and limitations set forth in the Contract.
B. Partial Surrenders and Withdrawal of Excess Cash Surrender Value
An owner may surrender a Contract in part. Partial surrender involves
splitting the Contract into two Contracts. One is surrendered for its cash
surrender value; the other is continued in force on the same terms as the
original Contract except that future scheduled premiums are reduced based
upon the continued Contract's face amount and all values under the
Contract are proportionately reduced based upon the reduction in the face
amount of insurance. The Contract continued must have a face amount of
insurance of at
II-14
<PAGE>
least $50,000. An alternative to surrender or partial surrender of a
Contract, available only before such Contracts become paid-up, is a
partial withdrawal of cash surrender value without splitting the Contract
into two Contracts. A partial withdrawal may be made only if the following
conditions are satisfied. First, the amount withdrawn, plus the net cash
value after withdrawal, may not be more than the net cash value before
withdrawal. Second, the Contract Fund after withdrawal must not be less
than the amount that will grow to the tabular Contract Fund as of the next
Monthly Date, assuming no premium payments, no withdrawals, no loan or
repayments of loan, a net investment return in the investment options
equal to the assumed rate of return of 4%, and the deduction of all
Contract charges. Third, the amount withdrawn must be at least $500 under
a Form B Contract and at least $2000 under a Form A Contract. An owner may
make no more than four such withdrawals in a Contract year, and there is a
fee of $15 for each such withdrawal. An amount withdrawn may not be repaid
except as a scheduled or unscheduled premium subject to the Contract
charges.
Whenever a partial withdrawal is made, the death benefit payable will
immediately be reduced by the amount of the withdrawal. This will not
change the guaranteed minimum amount of insurance under a Form a Contract
(i.e., the face amount) nor the amount of the scheduled premium that will
be payable thereafter on such a Contract. Under a Form A Contract,
however, the reduction in death benefit also means the same reduction in
face amount. No partial withdrawal will be permitted under a Form A
Contract if it would result in a new face amount of less than $50,000.
Furthermore, any applicable backload payable upon future lapse or
surrender (i.e., any applicable deferred administrative and sales charges)
is reduced in proportion to the reduction in face amount. The Contract
Fund is reduced by the sum of the cash withdrawn and the reduction in the
backload. An amount equal to the reduction in the Contract Fund will be
withdrawn from the investment options. In addition, the amount of the
scheduled premiums due thereafter under a Form A Contract will be reduced
to reflect the lower face amount of insurance.
C. Death Claims
Pruco Life will pay a death benefit to the beneficiary within seven days
after receipt at its Service Office of due proof of death of the Insured,
and all other requirements necessary to make payment. (*1)The following
describes the death benefit if the Contract is not in default past its
days of grace.
(*1) State Insurance laws impose various requirements, such as receipt of
a tax waiver, before payment of the death benefit may be made. In
addition, payment of the death benefit is subject to the provisions of the
Contract regarding suicide and incontestability. In the event Pruco Life
should contest the validity of a death claim, an amount up to the
Contract's investment base will be withdrawn, if appropriate, from the
Account and/or the Real Property Account and held in Pruco Life's general
account.
II-15
<PAGE>
The death benefit under a Form A Contract is the face amount less Contract
debt. The death benefit under a Form B Contract is the face amount, plus
any excess of the Contract Fund over the tabular Contract Fund, less any
contract debt. There may be an additional amount payable from an extra
benefit added to the Contract by rider. Tabular Contract Funds on Contract
anniversaries are shown in the contract data pages. Tabular Contract Funds
at other times can be obtained by interpolation.
If the Contract Fund less the present value of all future charges for any
extra benefits of either a Form A or a Form B Contract grows to exceed the
net single premium at the insured's attained age for the death benefit
described above, the death benefit will be the Contract Fund, divided by
such net single premium. The death benefit will be adjusted for any
Contract debt and any extra benefits.
The proceeds payable on death also will include interest (at a rate
determined by Pruco Life from time to time) from the date that the death
benefit is computed (the date of death) until the date of payment.
Pruco Life will make payment of the death benefit out of its general
account, and will transfer assets, if appropriate, from the Account and/or
the Real Property Account to the general account in an amount up to the
Contract Fund.
In lieu of payment of the death benefit in a single sum, an -election may
be made to apply all or a portion of the proceeds under one of the fixed
benefit settlement options described in the Contract or, with the approval
of Pruco Life, a combination of options. The election may be made by the
owner during the Insured's lifetime, or, at death, by the beneficiary. An
option in effect at death may not be changed to another form of benefit
after death. An option is available only if the proceeds to be applied are
$1,000 or more or would result in periodic payments of at least $20.00.
The fixed benefit settlement options are subject to the restrictions and
limitations set forth in the Contract.
D. Default and Options on Lapse
The Contract is in default on any Monthly Date on which the premium
account is less than zero and the Contract Fund is less than an amount
which will grow at the assumed net rate of return to the tabular Contract
Fund applicable on the next Monthly Date. Monthly Dates occur on the
Contract Date and in each later month on the same day in the month as the
Contract Date. The Contract provides for a 61-day grace period, commencing
with the mailing-date of the notice of default, in which to remedy the
default. The insurance coverage continues in force during the grace
period, but if the Insured dies during the grace period, any charges due
during the grace period are deducted from the amount payable to the
beneficiary. Except for Contracts issued on certain insureds in high risk
rating classes, a lapsed Contract will provide extended term insurance at
expiration of the grace period. The death benefit of the extended term
insurance is equal to the death benefit of the Contract (excluding riders)
as of the date of default, less any Contract debt. The extended term
insurance will continue for a length of
II-16
<PAGE>
time that depends on the net cash value on the date of default, the amount
of insurance, and the age and sex of the insured. However, extended term
insurance may be exchanged, if the Contract Owner so elects, for variable
reduced paid-up insurance within three months of the date of default. The
face amount of the variable reduced paid-up insurance will depend on the
net cash value on the date of default, and the age and sex of the insured.
Contracts issued on the above-mentioned high risk insureds will be
converted to variable reduced paid-up whole-life insurance at expiration
of the grace period.
E. Loans
The Contract provides that an owner, if the Contract is not in default
beyond the grace period(*2), may take out a loan at any time a loan value
is available. The owner may borrow money on completion of a form
satisfactory to Pruco Life. The Contract is the only security for the
loan. Disbursement of the amount of the loan will be made within seven
days of receipt of the form at Pruco Life's Service Office. The investment
options will be debited in the amount of the loan on the day the form is
received. The percentage of the loan withdrawn from each investment option
will be equal to the percentage of the value of such assets held in the
investment option. An owner may borrow up to the Contract's full loan
value. During the first contract year, the loan value is zero. After the
first Contract year, the loan value is 90% of an amount equal to the
Contract Fund reduced by any charges due upon surrender. The loan
provisions have previously been described. See pp. 9-10.
(*2) The Contract also provides for a loan value if the Contract is in
effect under the Contract value option for variable reduced paid-up
insurance, but not if it is in effect as extended term insurance.
A loan does not affect the amount of scheduled premiums due. When a loan
is made, the ContractFfund is not reduced but the value of the assets
relating to the Contract held in the investment option(s) is reduced.
Accordingly, the daily changes in the net cash value will be different
from what they would have been had no loan been taken. Cash surrender
values (and the death benefit under -a Form a Contract) are thus
permanently affected by any Contract debt, whether or not repaid. The
guaranteed minimum death benefit is not affected by Contract debt if
premiums are duly paid. However, on settlement the amount of any Contract
- debt is subtracted from the insurance proceeds. If Contract. debt ever
becomes equal to or more -than what the net cash value would be if there
were no Contract debt, all the Contract's benefits will end 61 days after
notice is mailed to the owner and any known assignee, unless repayment of
an amount sufficient to end the default is made within that period.
F. Key Employee Rider
Many life insurance companies offer fixed-benefit "person" insurance
policies. Those
II-17
<PAGE>
policies enable an employer to purchase life insurance payable to the
employer upon the death of an important or "key" employee whose death
would constitute a financial disadvantage to the employer. Such policies
often permit the owner the right to change the person insured under the
policy, aright often exercised when the original insured terminates his or
her employment with the company and is replaced by another person.
If permitted by the insurance laws of the state in which the Contract is
issued, a rider to the Contract is available, referred to herein as the
"key person" rider, that allows the owner the option to continue the
Contract in force on the life of a different insured, subject to certain
conditions. This rider is primarily offered to corporate and non-corporate
employers who own or may purchase a Contract issued on the life of a key
employee. The rider may be included at the time the original contract is
issued or added after issue. If the Contract includes this rider, the
owner will be able to continue the Contract in force on the life of a
different key employee. Thus, the rider provides employers with a way to
purchase the Contract on the life of a key employee that may continue in
force in an appropriately modified form on the life of a new employee when
the original insured leaves the owner's employment. The revised Contract
will have a new scheduled premium and certain other revised
specifications, which will be set forth in a new Contract document. An
Owner's exercise of the option provided by the key person rider could be
viewed as an exchange of the existing Contract for a new contract. The
Contract prior to the owner's exercise of the option to change insureds
will be referred to as the "original Contract". The Contract in force
after the exchange is effected will be referred to as the "new Contract."
An owner's exercise of the right granted-by the key person rider is
subject to several conditions. These conditions include but are not
limited to thefollowing: (i) the new insured must have been alive as of
the original Contract Date (i.e., the date the Contract was issued) and
must be less than 70 years old as of the date of the proposed change of
insureds; (ii) the new insured must satisfy Pruco Life's underwriting
requirements; (iii) the owner of the new Contract must remain the same as
the owner of the original Contract and that owner must have an insurable
interest in the new insured's life; and (iv) Pruco Life must not be
waiving any premiums under the Contract pursuant to a rider that waives
premiums in the event of disability.
The specifications of the new Contract will be determined as follows. The
Contract Date will remain the same as that of the original Contract. The
face amount of the new Contract will generally be the amount requested by
the owner in the application to effect the change of insureds, except that
it cannot be more than the face amount of the original Contract. The
Contract Fund of the original Contract will become the initial Contract
Fund of the new Contract. The scheduled premium for the new Contract will
be based on Pruco Life's rates in force on the date of the change for the
new insured's rating class. The old Contract's premium account will become
the premium account of the new Contract. If the Contract Fund and premium
account are such that the new Contract would be in default on the date
that the new Contract is to go in effect, Pruco Life will require payment
of a premium sufficient to bring the Contract out of default. If the
II-18
<PAGE>
original Contract has Contract debt due to an outstanding loan, the
Contract debt may be transferred to the new Contract unless that debt
would exceed the new Contract's loan value, in which case the excess
Contract debt must be paid off.
Upon the exchange of the original Contract for the new Contract, neither
the contingent deferred sales charge nor the contingent deferred
administrative charge is assessed. If the new Contract is subsequently
surrendered, however, the Contract's cash surrender value will be
determined by using the greater of the surrender charges that would apply
under the original or the new Contract. Thus, with respect to the
contingent deferred administrative charge, the amount of this charge upon
surrender of the new Contract will be determined on the basis of the face
amount of the original Contract since the face amount cannot be increased
upon exercise of the right to change insureds. The original Contract Date,
however, will govern for purposes of determining whether this charge will
be reduced or eliminated for persistency. With respect to the contingent
deferred sales load, the amount of this charge can be increased following
exercise of the option granted by the key person rider because the
scheduled premiums on the new Contract can be higher than the scheduled
premiums on the original Contract due to the replacement of the original
insured with an insured of an older issue age. If this is so, the
contingent deferred sales load will be calculated as if the Contract had
originally been issued on the life of the new insured. Thus, in that
event, the deferred sales charge will be 25% of the first year's scheduled
premium (calculated as if the Contract had originally been issued on the
new insured) and 5% of the scheduled premiums (calculated as if the
Contract had originally been issued on the new insured) for the second
through fifth Contract years due on or before the date of surrender or
lapse, and these percentages will be applied only to premiums actually
paid, whether timely or not, prior to surrender or lapse. The original
Contract Date will control for purposes of calculating the reduction in
the contingent deferred sales charge for persistency.
IV. Cash Adjustment Upon Exchange of Contract
At any time during the first 24 months after a Contract is issued, so long
as the Contract is not in default, the Owner may exchange it for an
Appreciable Life insurance policy on the insured's life issued by Pruco
Life. This is a general account, universal-life type policy with
guaranteed minimum values. No evidence of insurability will be required to
make an exchange. The new policy's premium and death benefit will be the
same as the original Contract's on the date of exchange. The new policy
will also have the same issue date and risk classification for the insured
as the original Contract. Any outstanding Contract debt must be repaid.
If the Contract Fund of the old Contract is at or above the tabular
Contract Fund, the Contract Fund of the new policy will be the same as
that of the old one. If the Contract Fund of the old contract is less than
the tabular Contract Fund, the difference must be paid in cash at the time
of the exchange. Then the Contract Fund of the new policy will be the
tabular Contract Fund.
II-19
<PAGE>
At the time of the exchange, Pruco Life will transfer assets, if
appropriate, from the Account and/or the Real Property Account to the
general account in an amount up to the applicable reserve.
II-20
Exhibit 3
April 23, 1999
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-21
Exhibit 6
April 23, 1999
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. 28 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-22
