<PAGE>
As filed with the SEC on ________________. Registration No. 333-07451
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Post-Effective Amendment No. 4 to
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
----------------------
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
(Exact Name of Trust)
PRUCO LIFE INSURANCE COMPANY
(Name of Depositor)
213 Washington Street
Newark, New Jersey 07102-2992
(800) 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
[ ] on April 30, 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. The Pruco Life Variable Appreciable Account
6. The Pruco Life Variable Appreciable Account
7. Not Applicable
8. Not Applicable
9. Litigation
10. Introduction and Summary; Short-Term Cancellation
Right, or "Free Look"; Type of Death Benefit;
Changing the Type of Death Benefit; Premiums;
Contract Date; Allocation of Premiums; Transfers;
Dollar Cost Averaging, Auto-Rebalancing; Charges
and Expenses; How a Contract's Cash Surrender Value
Will Vary; How a Type A (Fixed) Contract's Death
Benefit Will Vary; How a Type B (Variable)
Contract's Death Benefit Will Vary; Surrender of a
Contract; Withdrawals; Increases in Basic Insurance
Amount; Decreases in Basic Insurance Amount; Lapse
and Reinstatement; When Proceeds are Paid; Riders;
Other General Contract Provisions; Voting Rights;
Substitution of Fund Shares
11. Introduction and Summary; The Pruco Life Variable
Appreciable Account
12. Cover Page; Introduction and Summary; The Funds;
Sale of the Contract and Sales Commissions
13. Introduction and Summary; The Funds; Charges and
Expenses; Sale of the Contract and Sales
Commissions
14. Introduction and Summary; Requirements for
Issuance of a Contract
15. Introduction and Summary; Allocation of Premiums;
Transfers; Dollar Cost Averaging, Auto-Rebalancing;
The Fixed-Rate Option
16. Introduction and Summary; Detailed Information for
Prospective Contract Owners
17. When Proceeds are Paid
18. The Pruco Life Variable Appreciable Account
19. Reports to Contract Owners
20. Not Applicable
21. Contract Loans
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions
<PAGE>
N-8B-2 Item Number Location
------------------ --------
25. Pruco Life Insurance Company
26. Introduction and Summary; The Funds; Charges and
Expenses
27. Pruco Life Insurance Company; The Funds
28. Pruco Life Insurance Company; Directors and
Officers
29. Pruco Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Pruco Life Insurance Company
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions
39. Sale of the Contract and Sales Commissions
40. Not Applicable
41. Sale of the Contract and Sales Commissions
42. Not Applicable
43. Not Applicable
44. Introduction and Summary; The Funds; How a
Contract's Cash Surrender Value Will Vary; How a
Type A (Fixed) Contract's Death Benefit Will Vary;
How a Type B (Variable) Contract's Death Benefit
Will Vary
45. Not Applicable
46. Introduction and Summary; The Pruco Life Variable
Appreciable Account; The Funds
47. The Pruco Life Variable Appreciable Account; The
Funds
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements; Financial Statements of the
Pruco Life Variable Appreciable Account;
Consolidated Financial Statements of Pruco Life
Insurance Company and Subsidiaries
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
VARIABLE UNIVERSAL LIFE
INSURANCE
PROSPECTUS
PRUCO LIFE
VARIABLE APPRECIABLE ACCOUNT
MAY 1, 1999
PRUCO LIFE INSURANCE COMPANY
<PAGE>
PROSPECTUS
MAY 1, 1999
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
VARIABLE UNIVERSAL LIFE
This prospectus describes a flexible premium variable universal life insurance
contract (the "Contract") offered by Pruco Life Insurance Company ("Pruco
Life"). The Contract provides life insurance coverage with flexible premium
payments and a variety of investment options. You must pay an initial premium,
after which you can pay premium amounts as desired, as long as sufficient money
is in the Contract Fund to cover all charges. Your Contract may lapse without
value if your Contract Fund has insufficient value. You may select either of
two death benefit types, a fixed death benefit or a variable death benefit. The
variable death benefit will vary with the performance of the investment options
you select. For each type, there are generally two death benefit guarantees,
each of which can be secured by a certain level of premium payments.
You may choose to invest your Contract's premiums and its earnings in the
following ways:
. Invest in one or more of 15 available subaccounts of The Pruco Life Variable
Appreciable Account, each of which invests in a corresponding portfolio of
the Funds indicated below:
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND")
<TABLE>
<S> <C> <C>
Money Market High Yield Bond Equity
Diversified Bond Stock Index Prudential Jennison
Conservative Balanced Equity Income Global
Flexible Managed
</TABLE>
<TABLE>
<S> <C>
AIM VARIABLE INSURANCE FUNDS, INC. AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
AIM V.I. Value Fund American Century VP Value Fund
JANUS ASPEN SERIES MFS(R) VARIABLE INSURANCE TRUST /SM/
Growth Portfolio Emerging Growth Series
</TABLE>
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio
. 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%.
This prospectus describes the Contract generally and the Pruco Life Variable
Appreciable Account. The attached prospectuses for the Funds and their related
statements of additional information describe the investment objectives and the
risks of investing in the portfolios. Pruco Life may add additional investment
options in the future. Please read this prospectus and keep it 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
<PAGE>
PROSPECTUS CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS...........................1
INTRODUCTION AND SUMMARY.......................................................2
BRIEF DESCRIPTION OF THE CONTRACT.............................................2
CHARGES.......................................................................2
TYPES OF DEATH BENEFIT........................................................4
PREMIUM PAYMENTS..............................................................5
REFUND........................................................................5
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, THE PRUCO LIFE
VARIABLE APPRECIABLE ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE
UNDER THE CONTRACT.............................................................6
PRUCO LIFE INSURANCE COMPANY..................................................6
THE PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT...................................6
THE FUNDS.....................................................................7
THE FIXED-RATE OPTION.........................................................9
WHICH INVESTMENT OPTION SHOULD BE SELECTED?...................................9
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS..........................10
REQUIREMENTS FOR ISSUANCE OF A CONTRACT......................................10
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK".................................10
TYPE OF DEATH BENEFIT........................................................10
CHANGING THE TYPE OF DEATH BENEFIT...........................................11
PREMIUMS.....................................................................11
DEATH BENEFIT GUARANTEE......................................................12
CONTRACT DATE................................................................14
ALLOCATION OF PREMIUMS.......................................................14
TRANSFERS....................................................................14
DOLLAR COST AVERAGING........................................................15
AUTO-REBALANCING.............................................................15
CHARGES AND EXPENSES.........................................................15
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY..............................19
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY......................19
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY...................20
SURRENDER OF A CONTRACT......................................................20
WITHDRAWALS..................................................................21
INCREASES IN BASIC INSURANCE AMOUNT..........................................21
DECREASES IN BASIC INSURANCE AMOUNT..........................................22
WHEN PROCEEDS ARE PAID.......................................................22
LIVING NEEDS BENEFIT.........................................................23
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED
PREMIUMS.....................................................................24
CONTRACT LOANS...............................................................26
SALE OF THE CONTRACT AND SALES COMMISSIONS...................................27
TAX TREATMENT OF CONTRACT BENEFITS...........................................27
LAPSE AND REINSTATEMENT......................................................29
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS..........29
OTHER GENERAL CONTRACT PROVISIONS............................................29
RIDERS.......................................................................30
VOTING RIGHTS................................................................30
SUBSTITUTION OF FUND SHARES..................................................31
REPORTS TO CONTRACT OWNERS...................................................31
STATE REGULATION.............................................................31
EXPERTS......................................................................31
LITIGATION...................................................................32
</TABLE>
<PAGE>
<TABLE>
<S> <C>
YEAR 2000 COMPLIANCE.........................................................32
ADDITIONAL INFORMATION.......................................................33
FINANCIAL STATEMENTS.........................................................33
DIRECTORS AND OFFICERS........................................................34
FINANCIAL STATEMENTS OF THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF THE
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT....................................A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY AND
SUBSIDIARIES.................................................................B1
</TABLE>
<PAGE>
DEFINITIONS OF SPECIAL TERMS USED IN THIS
PROSPECTUS
ACCUMULATED NET PAYMENTS -- The actual premium payments you make accumulated at
an effective annual rate of 4%, less any withdrawals you make, accumulated at an
effective annual rate of 4%.
ATTAINED AGE -- The insured's age on the Contract date plus the number of years
since then.
BASIC INSURANCE AMOUNT -- The amount of life insurance as shown in the Contract.
CASH SURRENDER VALUE -- The amount payable to the Contract owner upon surrender
of the Contract. It is equal to the Contract Fund minus any Contract debt and,
during the first 10 Contract years, minus the applicable surrender charge.
CONTRACT -- The variable universal life insurance policy described in this
prospectus.
CONTRACT ANNIVERSARY -- The same date as the Contract date in each later year.
CONTRACT DATE -- The date the Contract is effective, as specified in the
Contract.
CONTRACT DEBT -- The principal amount of all outstanding loans plus any interest
we have charged that is not yet due and that we have not yet added to the loan.
CONTRACT FUND -- The total amount credited to a specific Contract. On any date
it is equal to the sum of the amounts in all the subaccounts, the amount
invested under the fixed-rate option, and the principal amount of any Contract
debt.
CONTRACT OWNER -- You. Unless a different owner is named in the application, the
owner of the Contract is the insured.
CONTRACT YEAR -- A year that starts on the Contract date or on a Contract
anniversary. For any portion of a Contract representing an increase (see
page 21), "Contract year" is a year that starts on the effective date of the
increase.
DEATH BENEFIT -- The amount we will pay upon the death of the insured before
reduction of any Contract debt and amounts needed to pay charges through the
date of death.
FACE AMOUNT -- The same as the "basic insurance amount."
FIXED-RATE OPTION -- An investment option under which interest is accrued daily
at a rate that Pruco Life declares periodically, but not less than an effective
annual rate of 4%.
FUNDS -- Mutual funds with separate portfolios. One or more of the available
Fund portfolios may be chosen as an underlying investment for the Contract.
LIFETIME DEATH BENEFIT GUARANTEE PERIOD -- The lifetime of the Contract, during
which time the Lifetime Death Benefit Guarantee is available if sufficient
premiums are paid. Lifetime Death Benefit Guarantee not available in
Massachusetts. See DEATH BENEFIT GUARANTEE, page 12.
LIMITED DEATH BENEFIT GUARANTEE PERIOD -- A period which is determined on a
case-by-case basis, during which time the Limited Death Benefit Guarantee is
available if sufficient premiums are paid. See DEATH BENEFIT GUARANTEE, page 12.
The period applicable to your Contract is shown on the Contract data pages.
MONTHLY DATE -- The Contract date and the same date in each subsequent month.
PRUCO LIFE INSURANCE COMPANY -- Us, we, Pruco Life. The company offering the
Contract.
THE PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT (THE "ACCOUNT") -- A separate
account of Pruco Life registered as a unit investment trust under the Investment
Company Act of 1940.
SUBACCOUNT -- An investment division of the Account, the assets of which are
invested in the shares of the corresponding portfolio of the Funds.
VALUATION PERIOD -- The period of time from one determination of the value of
the amount invested in a subaccount to the next. Such determinations are made
when the net asset values of the portfolios of the Funds are calculated, which
is generally at 4:15 p.m. Eastern time on each day during which the New York
Stock Exchange is open.
US, WE -- Pruco Life Insurance Company.
YOU -- The owner of the Contract.
1
<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.
As you read this prospectus you should keep in mind that this is a life
insurance contract. VARIABLE LIFE INSURANCE has significant investment aspects
and requires you to make investment decisions, and therefore it is also a
"security." Securities that are offered to the public must be registered with
the Securities and Exchange Commission. The prospectus that is a part of the
registration statement must be given to all prospective purchasers. A
substantial part of the premium pays for life insurance that will pay a benefit
to the beneficiary, in the event of the insured's death. This death benefit
generally far exceeds the total premium payments. Therefore, you should not buy
this Contract unless the major reason for the purchase is to provide life
insurance protection.
BRIEF DESCRIPTION OF THE CONTRACT
The Contract is a form of variable universal life insurance. It is based on a
Contract Fund, the value of which changes every business day. The chart below
describes how the value of your Contract Fund changes.
You may invest premiums in one or more of the 15 available subaccounts or in the
fixed-rate option. Your Contract Fund value changes every day depending upon the
change in the value of the particular investment options that you have selected.
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 upon which investment
options you choose. See WHICH INVESTMENT OPTION SHOULD BE SELECTED?, page 9.
If you select the fixed-rate option, Pruco Life credits your account with a
declared rate or rates of interest but you assume the risk that the rate may
change, although it will never be lower than an effective annual rate of
4%.
CHARGES
The following chart outlines the components of your Contract Fund and the
adjustments which may be made including the maximum charges which may be
deducted from each premium payment and from the amounts held in the designated
investment options. These charges are largely designed to cover insurance costs
and risks as well as sales and administrative expenses. The maximum charges
shown in the chart, as well as the current lower charges, are fully described
under CHARGES AND EXPENSES, page 15.
2
<PAGE>
--------------------------------------------------
PREMIUM PAYMENT
--------------------------------------------------
----------------------------------------------
. less a charge of up to 7.5% of the
premiums paid for taxes attributable to
premiums. In Oregon this is called a
premium based administrative charge.
. less a charge for sales expenses of up to
4% of the premiums paid.
----------------------------------------------
- --------------------------------------------------------------------------------
INVESTED PREMIUM AMOUNT
To be invested in one or a combination of:
. 15 investment portfolios of the Funds
. The fixed-rate option
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRACT FUND
On the Contract Date, the Contract Fund is equal to the invested premium amount
minus any of the charges described below which may be due on that date.
Thereafter, the value of the Contract Fund changes daily.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRUCO LIFE ADJUSTS THE CONTRACT FUND FOR:
. Addition of any new invested premium amounts.
. Addition of any increase due to investment results of the chosen
subaccounts.
. Addition of guaranteed interest at an effective annual rate of 4% (plus any
excess interest if applicable) on the portion of the Contract Fund allocated
to the fixed-rate option.
. Addition of guaranteed interest at an effective annual rate of 4% on the
amount of any Contract loan. (Separately, interest charged on the loan
accrues at an effective annual rate of 4.5% or 5%. See CONTRACT LOANS, page
26.)
. Subtraction of any decrease due to investment results of the chosen
subaccounts.
. Subtraction of any amount withdrawn.
. Subtraction of the charges listed below, as applicable.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DAILY CHARGES
. Management fees and expenses are deducted from the Fund assets.
. We deduct a daily mortality and expense risk charge, equivalent to an annual
rate of up to 0.9%, from the subaccount assets.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
MONTHLY CHARGES
. We reduce the Contract Fund by a monthly administrative charge of up to $10
plus $0.07 per $1,000 ($10 plus $0.08 per $1,000 in Massachusetts) of the
basic insurance amount; after the first Contract year, the $0.07 per $1,000
($0.08 per $1,000 in Massachusetts) portion of the charge is reduced to $0.01
per $1,000 ($0.02 per $1,000 in Massachusetts) of the basic insurance amount.
. We deduct a cost of insurance ("COI") charge.
. We reduce the Contract Fund by a Death Benefit Guarantee risk charge of $0.01
per $1,000 of the basic insurance amount (not applicable in Massachusetts).
. If the Contract includes riders, we deduct rider charges from the Contract
Fund.
. If the rating class of an insured results in an extra charge, we will deduct
that charge from the Contract Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
POSSIBLE ADDITIONAL CHARGES
. During the first 10 Contract years, we will assess a contingent deferred
sales charge if the Contract lapses, is surrendered, or the basic insurance
amount is decreased (including as a result of a withdrawal or a death benefit
type change). For insureds age 76 or less at issue, the maximum contingent
deferred sales charge is 26% of the lesser of the target level premium or the
actual premiums paid (see Premiums, page 11) for the Contract. The charge is
level for six years and then declines monthly to zero at the end of the 10th
Contract year. For insureds age 77 or over at issue, the maximum charge will
be a lesser percentage of the target level premium for the Contract or the
actual premiums paid.
. During the first 10 Contract years, we will assess a contingent deferred
administrative charge if the Contract lapses, is surrendered or the basic
insurance amount is decreased (including as a result of a withdrawal or a
death benefit type change). This charge equals the lesser of: (a) $5 per
$1,000 of basic insurance amount; and (b) $500. It is level for six years and
then declines monthly until it reaches zero at the end of the 10th Contract
year.
. We assess an administrative charge of up to $25 for any withdrawals.
. We may assess an administrative charge of up to $25 for any change in basic
insurance amount.
. We assess an administrative charge of up to $25 for each transfer exceeding
12 in any Contract year.
- --------------------------------------------------------------------------------
TYPES OF DEATH BENEFIT
There are two types of death benefit available. You may choose a Contract with
a Type A (fixed) death benefit under which the cash surrender value varies daily
with investment experience, and the death benefit generally remains at the basic
insurance amount you initially chose. However, the Contract Fund may grow to a
point where the death benefit may increase and vary with investment experience.
If you choose a Contract with a Type B (variable) death benefit, the cash
surrender value and the death benefit both vary with investment experience. For
either type of death benefit,
4
<PAGE>
as long as the Contract is inforce, the death benefit will never be less than
the basic insurance amount shown in your Contract. See TYPE OF DEATH BENEFIT,
page 10.
PREMIUM PAYMENTS
The Contract is a flexible premium contract - there are no scheduled premiums.
Except for the minimum initial premium, and subject to a minimum of $25 per
subsequent payment, you choose the timing and amount of premium payments. The
Contract will remain inforce if the Contract Fund less any applicable surrender
charges is greater than zero and more than any Contract debt. However, if the
accumulated premiums you pay are high enough, and Contract debt does not equal
or exceed the Contract Fund less any applicable surrender charges, Pruco Life
guarantees that your Contract will not lapse even if investment experience is
very unfavorable and the Contract Fund drops below zero. Each Contract
generally provides two guarantees, one that lasts for the lifetime of the
Contract and another that lasts for a stated, reasonably lengthy period. The
guarantee for the life of the Contract requires higher premium payments. In
Massachusetts, only one death benefit guarantee is available. The length of
this death benefit guarantee is generally five Contract years, however, for some
Contracts, it may be shorter. See PREMIUMS, page 11, DEATH BENEFIT GUARANTEE,
page 12 and LAPSE AND REINSTATEMENT, page 29.
We offer and suggest regular billing of premiums even though you decide when to
make premium payments and, subject to a $25 minimum, in what amounts. You
should discuss your billing options with your Pruco Life representative when you
apply for the Contract. See PREMIUMS, page 11.
REFUND
For a limited time, you may return your Contract for a refund in accordance with
the terms of its "free look" provision. See SHORT-TERM CANCELLATION RIGHT OR
"FREE LOOK," page 10.
For the DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, see page 1.
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 THE CONTRACT DESCRIBED IN THIS PROSPECTUS AND YOU SHOULD
CONSULT WITH A QUALIFIED TAX ADVISER.
THIS PROSPECTUS MAY ONLY BE OFFERED IN JURISDICTIONS IN WHICH THE OFFERING IS
LAWFUL. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION FOR THE FUNDS.
5
<PAGE>
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE
COMPANY, THE PRUCO LIFE VARIABLE APPRECIABLE
ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS
AVAILABLE UNDER THE CONTRACT
PRUCO LIFE INSURANCE COMPANY
Pruco Life Insurance Company ("Pruco Life") is a stock life insurance company,
organized in 1971 under the laws of the State of Arizona. It is licensed to
sell life insurance and annuities in the District of Columbia, Guam, and in all
states except New York.
Pruco Life is a wholly-owned subsidiary of The Prudential Insurance Company of
America, 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.
THE PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
The Pruco Life Variable Appreciable Account (the "Account") was established on
January 13, 1984 under Arizona law as a separate investment account. The
Account meets the definition of a "separate account" under the federal
securities laws. The Account holds assets that are segregated from all of Pruco
Life's other assets.
The obligations to Contract owners and beneficiaries arising under the Contracts
are general corporate obligations of Pruco Life. Pruco Life is also the legal
owner of the assets in the Account. Pruco Life will maintain assets in the
Account with a total market value at least equal to the reserve and other
liabilities relating to the variable benefits attributable to the Account.
These assets may not be charged with liabilities which arise from any other
business Pruco Life conducts. In addition to these assets, the Account's assets
may include funds contributed by Pruco Life to commence operation of the Account
and may include accumulations of the charges Pruco Life makes against the
Account. From time to time these additional assets will be transferred to Pruco
Life's general account. Pruco Life will consider any possible adverse impact the
transfer might have on the Account before making any such transfer.
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 15
6
<PAGE>
available subaccounts within the Account, each of which invests in a single
corresponding portfolio of the Funds. Pruco Life may add additional subaccounts
in the future. The Account's financial statements begin on page A1.
THE FUNDS
The following is a list of the Funds, the portfolios' investment objectives and
investment advisers:
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND"):
. 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.
. 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.
. 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.
. 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.
. HIGH YIELD BOND PORTFOLIO: The investment objective is a high total return.
The Portfolio invests primarily in high yield/high risk debt securities.
. STOCK INDEX PORTFOLIO: The investment objective is investment results that
generally correspond to the performance of publicly-traded common stocks. The
Portfolio attempts to duplicate the price and yield performance of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index").
. 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.
. 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.
. 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.
. 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.
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"), under
which Jennison furnishes investment advisory services in connection with the
management of the Prudential Jennison Portfolio.
7
<PAGE>
AIM VARIABLE INSURANCE FUNDS, INC.:
. AIM V.I. VALUE FUND. Seeks to achieve long-term growth of capital by investing
primarily in equity securities judged by the fund's investment adviser to be
undervalued relative to the investment adviser's appraisal of the current or
projected earnings of the companies issuing the securities, or relative to
current market values of assets owned by the companies issuing the securities
or relative to the equity market generally. Income is a secondary
objective.
A I M Advisors, Inc. ("AIM") is the investment adviser for this fund. The
principal business address for AIM is 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.:
. AMERICAN CENTURY VP VALUE FUND. Seeks long-term capital growth with income as
a secondary objective. The fund seeks to achieve its objective by investing
primarily in equity securities of well-established companies with
intermediate-to-large market capitalizations that are believed by management
to be undervalued at the time of purchase.
American Century Investment Management, Inc. ("ACIM") is the investment adviser
for this fund. ACIM's principal business address is American Century Tower,
4500 Main Street, Kansas City, Missouri 64111. The Principal Underwriter of the
fund is American Century Services, Inc., located at 4500 Main Street, Kansas
City, Missouri 64111.
JANUS ASPEN SERIES:
. GROWTH PORTFOLIO. Seeks long-term growth of capital in a manner consistent
with the preservation of capital.
Janus Capital Corporation is the investment adviser and is responsible for the
day-to-day management of the portfolio and other business affairs of the
portfolio. Janus Capital Corporation's principal business address is 100
Fillmore Street, Denver, Colorado 80206-4928.
MFS(R) Variable Insurance Trust/SM/:
. EMERGING GROWTH SERIES. Seeks to provide long-term growth of capital.
Dividend and interest income from portfolio securities, if any, is incidental
to the Series' investment objective of long-term growth of capital.
Massachusetts Financial Services Company, a Delaware corporation, is the
investment adviser to this MFS Series. The principal business address for the
Massachusetts Financial Services Company is 500 Boylston Street, Boston,
Massachusetts 02116.
T. ROWE PRICE INTERNATIONAL SERIES, INC.:
. INTERNATIONAL STOCK PORTFOLIO. Long-term growth of capital through
investments primarily in common stocks of established, non-U.S. companies.
Rowe Price-Fleming International, Inc. is the investment manager for this fund.
The principal business address for Rowe Price-Fleming International, Inc. is 100
East Pratt Street, Baltimore, Maryland 21202.
Further information about Fund portfolios can be found in the attached
prospectuses and their statements of additional information for each Fund.
The investment advisers for the Funds charge a daily investment management fee
as compensation for their services. These fees are described in the table under
DEDUCTIONS FROM PORTFOLIOS in the CHARGES AND EXPENSES section, see page 15, and
are more fully described in the prospectus for each Fund.
In the future it may become disadvantageous for both variable life insurance and
variable annuity contract separate accounts to invest in the same underlying
mutual funds. Although neither of the companies that invest in the Funds nor
the Funds currently foresee any such disadvantage, the Board of Directors for
each Fund intends to monitor
8
<PAGE>
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 Funds; or (4)
differences between voting instructions given by variable life insurance and
variable annuity contract owners.
Pruco Life may be compensated by an affiliate of each of the Funds (other than
the Prudential Series Fund) based upon an annual percentage of the average
assets held in the Fund by Pruco Life under the Contracts. These percentages
vary by Fund, and reflect administrative and other services provided by Pruco
Life.
A FULL DESCRIPTION OF THE FUNDS, THEIR INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, RESTRICTIONS, EXPENSES, INVESTMENT RISKS, AND ALL OTHER ASPECTS OF
THEIR OPERATION IS CONTAINED IN THE ATTACHED PROSPECTUSES FOR EACH FUND AND IN
THE RELATED STATEMENTS OF ADDITIONAL INFORMATION, WHICH SHOULD BE READ IN
CONJUNCTION WITH THIS PROSPECTUS. THERE IS NO ASSURANCE THAT THE INVESTMENT
OBJECTIVES OF THE FUNDS WILL BE MET.
THE FIXED-RATE OPTION
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED-RATE
OPTION UNDER THE CONTRACT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND THE GENERAL ACCOUNT HAS NOT BEEN REGISTERED AS AN INVESTMENT COMPANY
UNDER THE INVESTMENT COMPANY ACT OF 1940. ACCORDINGLY, INTERESTS IN THE FIXED-
RATE OPTION ARE NOT SUBJECT TO THE PROVISIONS OF THESE ACTS, AND PRUCO LIFE HAS
BEEN ADVISED THAT THE STAFF OF THE 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%.
Currently, the following steps are taken for crediting interest rates: (1)
declared interest rates remain in effect from the date money is allocated to the
fixed-rate option until the first day of the same month in the following year;
(2) a new crediting rate will apply to that money until the first day of the
same month in the next year; (3) a new declared crediting rate will apply to
that money for the remainder of that calendar year; (4) a new crediting rate
will be declared each year for that money and it will remain in effect for the
entire calendar year. Pruco Life reserves the right to change this practice.
Pruco Life is not obligated to credit interest at a higher rate than 4%,
although it may do so. Different crediting rates may be declared for different
portions of the Contract Fund allocated to the fixed-rate option. On request,
you will be advised of the interest rates that currently apply to your
Contract.
Transfers from the fixed-rate option are subject to strict limits, see
TRANSFERS, page 14. The payment of any cash surrender value attributable to the
fixed-rate option may be delayed up to six months. See WHEN PROCEEDS ARE PAID,
page 22.
WHICH INVESTMENT OPTION SHOULD BE SELECTED?
Historically, for investments held over relatively long periods, the investment
performance of common stocks has generally been superior to that of short or
long-term debt securities, even though common stocks have been subject to much
more dramatic changes in value over short periods of time. Accordingly,
portfolios such as the Stock Index, Equity Income, Equity, Prudential Jennison,
Global, AIM V.I. Value Fund, American Century VP Value Fund, Janus Growth, MFS
Emerging Growth Series or T. Rowe Price International Stock may be desirable
options if you are willing to accept such volatility in your Contract values.
Each of these equity portfolios involves different policies and investment
risks.
You may prefer the somewhat greater protection against loss of principal (and
reduced chance of high total return) provided by the Diversified Bond Portfolio.
You may want even greater safety of principal and may prefer the Money
9
<PAGE>
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 judgment for an appropriate asset mix by choosing the Conservative
Balanced or Flexible Managed Portfolio.
Your choice should take into account your willingness 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 the 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
PROSPECTIVE CONTRACT OWNERS
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
The Contract may generally be issued on insureds below the age of 81.
Currently, the minimum basic insurance amount that can be applied for is
$100,000. Pruco Life requires evidence of insurability, which may include a
medical examination, before issuing any Contract. Non-smokers are offered the
most favorable cost of insurance rates. We charge a higher cost of insurance
rate and/or an additional amount if an extra mortality risk is involved. These
are the current underwriting requirements. We reserve the right to change them
on a non-discriminatory basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, you may return the Contract for a refund within 10 days after you
receive it. Some states allow a longer period of time during which a Contract
may be returned for a refund. You can request a refund by mailing or delivering
the Contract to the representative who sold it or to the Home Office specified
in the Contract. A Contract returned according to this provision shall be
deemed void from the beginning. You will then receive a refund of all premium
payments made, plus or minus any change due to investment experience. However,
if applicable law so requires and you exercise your short-term cancellation
right, you will receive a refund of all premium payments made, with no
adjustment for investment experience.
TYPE OF DEATH BENEFIT
You may select either of two types of death benefit. Generally, a Contract with
a Type A (fixed) death benefit has a death benefit equal to the basic insurance
amount. This type of death benefit does not vary with the investment
performance of the investment options you selected, except in certain
circumstances. See HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY,
page 19. The payment of additional premiums and favorable investment results of
the subaccounts to which the assets are allocated will generally increase the
cash surrender value. See HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY, page
19.
A Contract with a Type B (variable) death benefit has a death benefit which will
generally equal the basic insurance amount plus the Contract Fund. Since the
Contract Fund is a part of the death benefit, favorable investment performance
and payment of additional premiums generally result in an increase in the death
benefit as well as in the cash surrender value. Over time, however, the
increase in the cash surrender value will be less than under a Type A (fixed)
Contract. This is because, given two Contracts with the same basic insurance
amount and equal Contract Funds, generally the cost of insurance charge for a
Type B (variable) Contract will be greater. See HOW A CONTRACT'S CASH SURRENDER
VALUE WILL VARY, page 19 and HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT
WILL VARY, page 20. Unfavorable investment performance will result in decreases
in the death benefit and in the cash surrender value. But, as long as the
Contract is not in default, the death benefit may not fall below the basic
insurance amount stated in the Contract.
In choosing a death benefit type, you should also consider whether you intend to
use the withdrawal feature. Contract owners of Type A (fixed) Contracts should
note that any withdrawal may result in a reduction of the basic insurance amount
and the deduction of any applicable surrender charges. In addition, we will not
allow you to make a withdrawal
10
<PAGE>
that will decrease the basic insurance amount below the minimum basic insurance
amount. See WITHDRAWALS, page 21.
CHANGING THE TYPE OF DEATH BENEFIT
You may change the type of death benefit on or after the first Contract
anniversary and subject to Pruco Life's approval. We will increase or decrease
the basic insurance amount so that the death benefit immediately after the
change matches the death benefit immediately before the change.
If you are changing your Contract's type of death benefit from Type A (fixed) to
Type B (variable), we will reduce the basic insurance amount by the amount in
your Contract Fund on the date the change takes place. The basic insurance
amount after the change may not be lower than the minimum basic insurance amount
applicable to the Contract. If you are changing from a Type B (variable) to a
Type A (fixed) death benefit, we will increase the basic insurance amount by the
amount in your Contract Fund on the date the change takes place. This is
illustrated in the following chart.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
CHANGING THE DEATH BENEFIT FROM CHANGING THE DEATH BENEFIT FROM
TYPE A TYPE B TYPE B TYPE A
(right arrow) (right arrow)
(FIXED) (VARIABLE) (VARIABLE) (FIXED)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC INSURANCE AMOUNT $300,000 (right arrow) $250,000 $250,000 (right arrow) $300,000
CONTRACT FUND $50,000 (right arrow) $50,000 $50,000 (right arrow) $50,000
DEATH BENEFIT $300,000 (right arrow) $300,000 $300,000 (right arrow) $300,000
- -----------------------------------------------------------------------------------------------------
</TABLE>
Changing your Contract's type of death benefit from Type A (fixed) to Type B
(variable) during the first 10 Contract years may result in the assessment of
surrender charges. In addition, we reserve the right to make an administrative
processing charge of up to $25 for any change in basic insurance amount,
although we do not currently do so. See CHARGES AND EXPENSES, page 15.
To request a change, fill out an application for change which can be obtained
from your Pruco Life representative or a Home Office. If the change is
approved, we will recompute the Contract's charges and appropriate tables and
send you new Contract data pages. We may require you to send us your Contract
before making the change.
PREMIUMS
The Contract is a flexible premium contract. The minimum initial premium is due
on or before the Contract date. Thereafter, you decide when to make premium
payments and, subject to a $25 minimum, in what amounts. We reserve the right
to refuse to accept any payment that increases the death benefit by more than it
increases the Contract Fund. See HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT
WILL VARY, page 19 and HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL
VARY, page 20. There are circumstances under which the payment of premiums in
amounts that are too large may cause the Contract to be characterized as a
Modified Endowment Contract, which could be significantly disadvantageous. See
TAX TREATMENT OF CONTRACT BENEFITS, page 27.
The Contract has several types of "premiums" which are described below.
Understanding them will help you understand how the Contract works.
MINIMUM INITIAL PREMIUM -- the premium needed to start the Contract. There is
no insurance under the Contract unless the minimum initial premium is
paid.
GUIDELINE PREMIUMS (not applicable in Massachusetts) -- the premiums that, if
paid at the beginning of each Contract year, will keep the Contract inforce
for the lifetime of the insured regardless of investment performance,
assuming no loans or withdrawals. These guideline premiums will be higher for
a Type B (variable) Contract than for a Type A (fixed) Contract. For a
Contract with no riders or extra risk charges, these premiums will be level.
If
11
<PAGE>
certain riders are included, the guideline premium may increase each year.
Payment of guideline premiums at the beginning of each Contract year is one
way to achieve the Lifetime Death Benefit Guarantee Values shown on the
Contract data pages. See DEATH BENEFIT GUARANTEE, below. When you purchase
a Contract, your Pruco Life representative can tell you the amount[s] of the
guideline premium.
TARGET PREMIUMS -- the premiums that, if paid at the beginning of each
Contract year, will keep the Contract inforce during the Limited Death
Benefit Guarantee period regardless of investment performance, assuming no
loans or withdrawals. As is the case with the guideline premium, for a
Contract with no riders or extra risk charges, these premiums will be level.
If certain riders are included, the target premium may increase each year.
Payment of target premiums at the beginning of each Contract year is one way
to achieve the Limited Death Benefit Guarantee Values shown on the Contract
data pages. At the end of the Limited Death Benefit Guarantee period,
continuation of the Contract will depend on the Contract Fund having
sufficient money to cover all charges or meeting the conditions of the
Lifetime Death Benefit Guarantee. See DEATH BENEFIT GUARANTEE, below. When
you purchase a Contract, your Pruco Life representative can tell you the
amount[s] of the target premium.
TARGET LEVEL PREMIUM -- the target premium at issue minus any premiums
associated with riders or with aviation, avocation, occupational or temporary
extra insurance charges. We use the target level premium in calculating the
contingent deferred sales charges. See CHARGES AND EXPENSES, page 15.
We can bill you for the amount you select annually, semi-annually, quarterly or
monthly. Because the Contract is a flexible premium contract, there are no
scheduled premium due dates. When you receive a premium notice, you are not
required to pay this amount. The Contract will remain inforce if: (1) the
Contract Fund, less any applicable surrender charges, is greater than zero and
more than any Contract debt or (2) you have paid sufficient premiums, on an
accumulated basis, to meet the Death Benefit Guarantee conditions and Contract
debt is not equal to or greater than the Contract Fund, less any applicable
surrender charges. You may also pay premiums automatically through pre-
authorized monthly transfers from a bank checking account. If you elect to use
this feature, you choose the day of the month on which premiums will be paid and
the amount of the premiums paid.
When you apply for the Contract, you should discuss with your Pruco Life
representative how frequently you would like to be billed (if at all) and for
what amount.
DEATH BENEFIT GUARANTEE
Although you decide what premium amounts you wish to pay, sufficient premium
payments, on an accumulated basis, will guarantee that your Contract will not
lapse and a death benefit will be paid upon the death of the insured. This will
be true even if, because of unfavorable investment experience, your Contract
Fund value drops to zero. However, the guarantee is contingent upon Contract
debt not being equal to or greater than the Contract Fund less any applicable
surrender charges. See CONTRACT LOANS, page 26. You should consider the
importance of the Death Benefit Guarantee to you when deciding what amounts of
premiums to pay into the Contract.
For purposes of determining this guarantee, we generally calculate, and show in
the Contract data pages, two sets of amounts the Lifetime Death Benefit
Guarantee Values (not applicable in Massachusetts) and Limited Death Benefit
Guarantee Values. These are not cash values that you can realize by
---
surrendering the Contract, nor are they payable death benefits. They are values
used solely to determine if a Death Benefit Guarantee is in effect. The
Lifetime Death Benefit Guarantee Values are shown for the lifetime of the
Contract and are the end-of-year accumulations of Guideline Premiums at 4%
annual interest assuming premiums are paid at the beginning of each Contract
year. The Limited Death Benefit Guarantee Values are lower, but only apply for
the length of the Limited Death Benefit Guarantee period. They are the end-of-
year accumulations of Target Premiums at 4% annual interest assuming premiums
are paid at the beginning of each Contract year.
The length of the Limited Death Benefit Guarantee period is determined on a case
by case basis depending on things like the insured's age, sex (except where
unisex rates apply), smoker/non-smoker status, death benefit type and extra
rating class, if any. In Massachusetts, the length of the Limited Death Benefit
Guarantee period is generally five years. The length of the Limited Death
Benefit Guarantee period applicable to your particular Contract is shown on the
Contract data pages. For certain insureds, generally those who are older and/or
in a substandard risk classification, the Limited Death Benefit Guarantee period
may be of shorter duration.
12
<PAGE>
At the Contract date, and on each Monthly date, we calculate your Contract's
"Accumulated Net Payments" as of that date. Accumulated Net Payments equal the
premiums you paid, accumulated at an effective annual rate of 4%, less
withdrawals also accumulated at 4%.
At each Monthly date within the Limited Death Benefit Guarantee period, we will
compare your Accumulated Net Payments to the Limited Death Benefit Guarantee
Value as of that date. At each Monthly date after the Limited Death Benefit
Guarantee period, we will compare your Accumulated Net Payments to the Lifetime
Death Benefit Guarantee Value as of that date (not applicable in Massachusetts).
If your Accumulated Net Payments equal or exceed the applicable (Lifetime or
Limited) Death Benefit Guarantee Value and Contract debt does not equal or
exceed the Contract Fund less any applicable surrender charges, then the
Contract is kept inforce, regardless of the amount in the Contract Fund.
The Contract data pages show Lifetime Death Benefit Guarantee Values and Limited
Death Benefit Guarantee Values as of Contract anniversaries. Values for non-
anniversary Monthly dates will reflect the number of months elapsed between
Contract anniversaries.
Guideline and target premiums are premium levels that, if paid at the start of
each Contract year, correspond to the Lifetime and Limited Death Benefit
Guarantee Values, respectively (assuming no withdrawals or loans). See
PREMIUMS, page 11. They are one way of reaching the Death Benefit Guarantee
Values; they are certainly not the only way.
Here is a table of typical guideline and target premiums along with
corresponding Limited Death Benefit Guarantee periods. The examples assume the
insured is a male, non-smoker, with no extra risk or substandard ratings, and no
extra benefit riders added to the Contract.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
BASIC INSURANCE AMOUNT -- $100,000
ILLUSTRATIVE ANNUAL PREMIUMS
- ------------------------------------------------------------------------------------------------------------
AGE OF TYPE OF DEATH GUIDELINE PREMIUM TARGET PREMIUM
INSURED AT BENEFIT CHOSEN CORRESPONDING TO THE CORRESPONDING TO THE
ISSUE LIFETIME DEATH LIMITED DEATH BENEFIT
BENEFIT GUARANTEE GUARANTEE VALUES AND
VALUES* NUMBER OF YEARS OF
GUARANTEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
35 Type A (fixed) $ 1,494 $ 884 for 35 years**
35 Type B (variable) $ 4,896 $ 884 for 33 years**
45 Type A (fixed) $ 2,266 $ 1,272 for 25 years**
45 Type B (variable) $ 6,940 $ 1,272 for 23 years**
55 Type A (fixed) $ 3,640 $ 2,389 for 20 years**
55 Type B (variable) $ 10,324 $ 2,389 for 18 years**
- ------------------------------------------------------------------------------------------------------------
* not applicable in Massachusetts
** for 5 years in Massachusetts
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The Death Benefit Guarantee allows considerable flexibility as to the timing of
premium payments. Your Pruco Life representative can supply sample
illustrations of various premium amount and frequency combinations that
correspond to the Death Benefit Guarantee Values.
You should consider carefully the value of maintaining the guarantee. If you
desire the death benefit guarantee for lifetime protection, you may prefer to
pay generally higher premiums in all years, rather than trying to make such
payments on an as needed basis. For example, if you pay only enough premium to
meet the Limited Death Benefit Guarantee Values, a substantial amount may be
required to meet the Lifetime Death Benefit Guarantee Values in order to
continue the guarantee at the end of the Limited Death Benefit Guarantee period
(not applicable in Massachusetts). In addition, it is possible that the payment
required to continue the guarantee after the Limited Death Benefit Guarantee
period could cause the Contract to become a Modified Endowment Contract. See
TAX TREATMENT OF CONTRACT BENEFITS, page 27.
13
<PAGE>
CONTRACT DATE
When the first premium payment is paid with the application for a Contract, the
Contract date will ordinarily be the later of the application date or the
medical examination date. If the first premium is not paid with the
application, the Contract date will be the date on which the first premium is
paid and the Contract is delivered. Under certain circumstances, we may allow
the Contract to be backdated for the purpose of lowering the insured's issue
age, but only to a date not earlier than six months prior to the application
date. This may be advantageous for some Contract owners as a lower issue age
may result in lower current charges. For a Contract that is backdated, we will
credit the initial premium as of the date of receipt and will deduct any charges
due on or before that date.
ALLOCATION OF PREMIUMS
On the Contract date, we deduct the charge for sales expenses and the charge for
taxes attributable to premiums (in Oregon this is called a premium based
administrative charge) from the initial premium. The remainder of the initial
premium will be allocated on the Contract date among the subaccounts and/or the
fixed-rate option according to your desired allocation as specified in the
application form and the first monthly deductions are made. If the first
premium is received before the Contract date, there will be a period during
which the Contract owner's initial premium will not be invested. See CHARGES
AND EXPENSES, page 15.
The charge for sales expenses and the charge for taxes attributable to premiums
(in Oregon this is called a premium based administrative charge) also apply to
all subsequent premium payments. The remainder will be invested as of the end
of the valuation period in which it is received at a Home Office, in accordance
with the allocation you previously designated. Provided the Contract is not in
default, you may change the way in which subsequent premiums are allocated by
giving written notice to a Home Office or by telephoning a Home Office, provided
you are enrolled to use the Telephone Transfer System. There is no charge for
reallocating future premiums. All percentage allocations must be in whole
numbers. For example, 33% can be selected but 33-1/3% cannot. Of course, the
total allocation to all selected investment options must equal 100%.
TRANSFERS
You may, up to 12 times each Contract year, transfer amounts from one subaccount
to another subaccount or to the fixed-rate option without charge. There is an
administrative charge of up to $25 for each transfer made exceeding 12 in any
Contract year. All or a portion of the amount credited to a subaccount may be
transferred.
Transfers will take effect as of the end of the valuation period in which a
proper transfer request is received at a Home Office. The request may be in
terms of dollars, such as a request to transfer $5,000 from one subaccount to
another, or may be in terms of a percentage reallocation among subaccounts. In
the latter case, as with premium reallocations, the percentages must be in whole
numbers. You may transfer amounts by proper written notice to a Home Office or
by telephone, provided you are enrolled to use the Telephone Transfer System.
You will automatically be enrolled to use the Telephone Transfer System unless
the Contract is jointly owned or you elect not to have this privilege. Telephone
transfers may not be available on Contracts that are assigned (see ASSIGNMENT,
page 29), 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. 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. Pruco Life may change these limits in the future.
We may waive these restrictions for limited periods of time in a non-
discriminatory way, (e.g., when interest rates are declining).
The Contract was not designed for professional market timing organizations,
other organizations, or individuals using programmed, large, or frequent
transfers. A pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to the investment option or to the disadvantage of
other contract owners. If such a pattern were to be found, we may modify your
right to make transfers by restricting the number, timing and amount of
transfers. We also
14
<PAGE>
reserve the right to prohibit transfer requests made by an individual acting
under a power of attorney on behalf of more than one contract owner.
DOLLAR COST AVERAGING
As an administrative practice, we are currently offering a feature called Dollar
Cost Averaging ("DCA"). Under this feature, either fixed dollar amounts or a
percentage of the amount designated for use under the DCA option will be
transferred periodically from the DCA Money Market Subaccount into other
subaccounts available under the Contract, excluding the fixed-rate option. You
may choose to have periodic transfers made monthly, quarterly, semi-annually or
annually.
Each automatic transfer will take effect as of the end of the valuation period
on the date coinciding with the periodic timing you designate provided the New
York Stock Exchange is open on that date. If the New York Stock Exchange is not
open on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. Automatic transfers will continue until: (1) $50
or less remains of the amount designated for Dollar Cost Averaging, at which
time the remaining amount will be transferred; or (2) you give us notification
of a change in DCA allocation or cancellation of the feature. Currently, a
transfer that occurs under the DCA feature is not counted towards the 12 free
transfers permitted each Contract year. We reserve the right to change this
practice, modify the requirements or discontinue the feature.
AUTO-REBALANCING
As an administrative practice, we are currently offering a feature called Auto-
Rebalancing. This feature allows you to automatically rebalance subaccount
assets at specified intervals based on percentage allocations that you choose.
For example, suppose your initial investment allocation of subaccounts X and Y
is split 40% and 60%, respectively. Then, due to investment results, that split
changes. You may instruct that those assets be rebalanced to your original or
different allocation percentages.
Auto-Rebalancing can be performed on a monthly, quarterly, semi-annual or annual
basis. Each rebalance will take effect as of the end of the valuation period on
the date coinciding with the periodic timing you designate provided the New York
Stock Exchange is open on that date. If the New York Stock Exchange is not open
on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. The fixed-rate option cannot participate in this
administrative procedure. Currently, a transfer that occurs under the Auto-
Rebalancing feature is not counted towards the 12 free transfers permitted each
Contract year. We reserve the right to change this practice, modify the
requirements or discontinue the feature.
CHARGES AND EXPENSES
This section provides a more detailed description of each charge that is
described briefly in the chart on page 3.
In several instances we will use the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, is the highest charge that
Pruco Life is entitled to make under the Contract. The "current charge" is the
lower amount that Pruco Life is now charging. If circumstances change, we
reserve the right to increase each current charge, up to the maximum charge,
without giving any advance notice.
DEDUCTIONS FROM PREMIUM PAYMENTS
(a) We charge up to 7.5% for taxes attributable to premiums (in Oregon this is
called a premium based administrative charge). For these purposes, "taxes
attributable to premiums" shall include any federal, state or local income,
premium, excise, business or any other type of tax (or component thereof)
measured by or based upon the amount of premium received by Pruco Life.
That charge is made up of two parts which currently equal a total of 3.75%
of the premiums received. The first part is a charge for state and local
premium taxes. The current amount for this first part is 2.5% of the
premium. Tax rates vary from jurisdiction to jurisdiction and generally
range from 0.75% to 5%. Pruco Life may collect more for this charge than it
actually pays for state and local premium taxes. The second part is for
federal income taxes measured by premiums, and it is currently equal to
1.25% of premiums. We believe that this charge is a reasonable estimate of
an increase in its federal income taxes resulting from a 1990 change in the
Internal Revenue Code. It is intended to recover this increased tax.
15
<PAGE>
During 1998 and 1997, Pruco Life deducted a total of approximately
$10,924,000 and $1,001,000, respectively, in taxes attributable to
premiums.
(b) We charge up to 4% 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.
Currently, the charge is equal to 4% of premiums paid in each Contract year
up to the amount of the target premium (see PREMIUMS, page 11) and 0% of
premiums paid in excess of this amount. Consequently, paying more than this
amount in any Contract year could reduce your total sales load. For example,
assume that a Contract with no riders or extra insurance charges has a target
premium of $884 and the Contract owner would like to pay 10 target premiums.
If the Contract owner paid $1,768 (two times the amount of the target
premium) in every other Contract year up to the ninth year (i.e. in years 1,
3, 5, 7, 9), the sales load charge would be $176.80. If the Contract owner
paid $884 in each of the first 10 Contract years, the total sales load would
be $353.60. For additional information, see INCREASES IN BASIC INSURANCE
AMOUNT, page 21.
Attempting to structure the timing and amount of premium payments to reduce
the potential sales load may increase the risk that your Contract will lapse
without value. Delaying the payment of target premium amounts to later years
will adversely affect the Death Benefit Guarantee if the accumulated premium
payments do not reach the accumulated values shown under your Contract's
Limited Death Benefit Guarantee Values. See DEATH BENEFIT GUARANTEE, page 12.
In addition, there are circumstances where payment of premiums that are too
large may cause the Contract to be characterized as a Modified Endowment
Contract, which could be significantly disadvantageous. See TAX TREATMENT OF
CONTRACT BENEFITS, page 27. During 1998 and 1997, Pruco Life received a total
of approximately $2,268,000 and $595,000, respectively, in sales
charges.
DEDUCTIONS FROM PORTFOLIOS
We deduct an investment advisory fee daily from each portfolio of the Funds at a
rate, on an annualized basis, ranging from 0.35% for the Stock Index Portfolio
to 1.05% for the T. Rowe Price International Stock Portfolio. The expenses
incurred in conducting the investment operations of the portfolios (such as
custodian fees and 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:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
INVESTMENT OTHER EXPENSES TOTAL EXPENSES
PORTFOLIO ADVISORY FEE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SERIES FUND
Money Market 0.40% 0.01% 0.41%
Diversified Bond 0.40% 0.02% 0.42%
Conservative Balanced 0.55% 0.02% 0.57%
Flexible Managed 0.60% 0.01% 0.61%
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% 0.02% 0.47%
Prudential Jennison 0.60% 0.03% 0.63%
Global 0.75% 0.11% 0.86%
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Value Fund (4) 0.61% 0.05% 0.66%
AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC.
VP Value Portfolio (1) 1.00% 0.00% 1.00%
JANUS ASPEN SERIES
Growth Portfolio (2) 0.65% 0.03% 0.68%
MFS(R) VARIABLE INSURANCE TRUST /SM/
Emerging Growth Series 0.75% 0.10% 0.85%
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio (3) 1.05% 0.00% 1.05%
- ------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
(1) Fees are all-inclusive.
(2) The fees and expenses in the table above are based on gross expenses of the
Portfolio before expense offset arrangements for the fiscal year ended
December 31, 1998. The information for the Portfolio is net of fee waivers
or reductions from Janus Capital. Fee reductions for the Portfolio reduce
the management fee to the level of the corresponding Janus retail fund.
Other waivers, if applicable, are first applied against the management fee
and then against other expenses. Without such waivers or reductions, the
management fee, other expenses and total operating expenses for the
Portfolio would have been 0.72%, 0.03% and 0.75%, respectively. Janus
Capital may modify or terminate the waivers or reductions at any time upon
at least 90 days' notice to the Trustees.
(3) The investment management fee includes the ordinary expenses of operating
the Fund.
(4) AIM may from time to time voluntarily waive or reduce its respective fees.
Effective May 1, 1999, the Fund will reimburse AIM in an amount up to 0.25%
of the average net asset value of the Fund for expenses incurred in
providing, or assuring that participating insurance companies provide,
certain administrative services. Currently, the fee only applies to the
average net asset value of each Fund in excess of the net asset value of
each Fund as calculated on April 30, 1999.
THE EXPENSES RELATING TO THE FUNDS (OTHER THAN THOSE OF THE SERIES FUND) HAVE
BEEN PROVIDED TO PRUCO LIFE BY THE FUNDS. PRUCO LIFE HAS NOT INDEPENDENTLY
VERIFIED THEM.
DAILY DEDUCTION FROM THE CONTRACT FUND
Each day we deduct a charge from the assets of each of the subaccounts in an
amount equivalent to an effective annual rate of up to 0.9%. Currently, we
intend to charge 0.6%. This charge is intended to compensate Pruco Life for
assuming mortality and expense risks under the Contract. The mortality risk
assumed is that insureds may live for shorter periods of time than Pruco Life
estimated when it determined what mortality charge to make. The expense risk
assumed is that expenses incurred in issuing and administering the Contract will
be greater than Pruco Life estimated in fixing its administrative charges.
During 1998 and 1997, Pruco Life received a total of approximately $1,150,000
and $40,000, respectively, in mortality and expense risk charges. This charge is
not assessed against amounts allocated to the fixed-rate option.
MONTHLY DEDUCTIONS FROM THE CONTRACT FUND
Pruco Life deducts the following monthly charges proportionately from the dollar
amounts held in each of the chosen investment option[s].
(a) An administrative charge based on the basic insurance amount is deducted.
The charge is intended to compensate us for things like processing claims,
keeping records and communicating with Contract owners. Currently, the
charge is equal to $10 per Contract plus $0.07 per $1,000 ($10 per Contract
plus $0.08 per $1,000 in Massachusetts) of basic insurance amount in the
first Contract year and $5 per Contract plus $0.01 per $1,000 ($5 per
Contract plus $0.02 per $1,000 in Massachusetts) of basic insurance amount
in all subsequent years. Pruco Life reserves the right, however to charge
up to $10 per Contract plus $0.07 per $1,000 ($10 per Contract plus $0.08
per $1,000 in Massachusetts) of basic insurance amount in the first
Contract year and $10 per Contract plus $0.01 per $1,000 ($10 per Contract
plus $0.02 per $1,000 in Massachusetts) of basic insurance amount in all
subsequent years.
For example, a Contract with a basic insurance amount of $100,000 would
currently have a charge equal to $10 plus $7 for a total of $17 ($10 plus
$8 for a total of $18 in Massachusetts) per month for the first Contract
year and $5 plus $1 for a total of $6 ($5 plus $2 for a total of $7 in
Massachusetts) per month in all later years. The maximum charge for this
same Contract would be $10 plus $7 for a total of $17 ($10 plus $8 for a
total of $18 in Massachusetts) per month during the first Contract year. In
later years, the maximum charge would be $10 plus $1 for a total of $11
($10 plus $2 for a total of $12 in Massachusetts) per month. During 1998
and 1997, Pruco Life received a total of approximately $1,993,000 and
$324,000, respectively, in monthly administrative charges.
17
<PAGE>
(b) A cost of insurance ("COI") charge is deducted. When an insured dies, the
amount payable to the beneficiary (assuming there is no Contract debt) is
larger than the Contract Fund - significantly larger if the insured dies in
the early years of a Contract. The cost of insurance charges collected
from all Contract owners enables Pruco Life to pay this larger death
benefit. The maximum COI charge is determined by multiplying the "net
amount at risk" under a Contract (the amount by which the Contract's death
benefit exceeds the Contract Fund) by maximum COI rates. The maximum COI
rates are based upon the 1980 Commissioners Standard Ordinary ("CSO")
Tables and an insured's current attained age, sex (except where unisex
rates apply), smoker/non-smoker status, and extra rating class, if any. At
most ages, Pruco Life's current COI rates are lower than the maximum rates.
For additional information, see INCREASES IN BASIC INSURANCE AMOUNT, page
21.
(c) A charge of $0.01 per $1,000 of basic insurance amount is made to
compensate Pruco Life for the risk we assume by providing the Death Benefit
Guarantee feature (not applicable in Massachusetts). See DEATH BENEFIT
GUARANTEE, page 12. During 1998 and 1997, Pruco Life received a total of
approximately $844,000 and $135,000, respectively, for this risk
charge.
(d) You may add one or more of several riders to the Contract. Some riders are
charged for separately. If you add such a rider to the basic Contract,
additional charges will be deducted.
(e) If an insured is in a substandard risk classification (for example, a
person in a hazardous occupation), additional charges will be deducted.
SURRENDER CHARGES
(a) An additional sales load is charged if during the first 10 Contract years
the Contract lapses, is surrendered or if the basic insurance amount is
decreased. It is not deducted from the death benefit if the insured should
die during this period. For issue ages 76 or less, this contingent
deferred charge will be 26% of the lesser of: (a) the target level premium
for the Contract; and (b) the actual premiums paid. The rate used in the
calculation of this contingent deferred charge will be 22% for issue ages
77-79, 16% for issue ages 80-83 and 13% for issue ages 84-85. The rate
used in the calculation of this contingent deferred charge will remain
level for six years. After six years, this charge will reduce monthly at a
constant rate until it reaches zero at the end of the 10th year.
(b) If during the first 10 Contract years the Contract lapses, is surrendered
or if the basic insurance amount is decreased, an administrative charge is
deducted to cover the cost of processing applications, conducting medical
examinations, determining insurability and the insured's rating class, and
establishing records. The charge is equal to the lesser of: (a) $5 per
$1,000 of basic insurance amount; and (b) $500. This charge is level for
six years. After six years, this charge will be reduced monthly at a
constant rate until it reaches zero at the end of the 10th year.
We will show a surrender charge threshold amount in the Contract data pages.
This threshold amount is the lowest basic insurance amount since issue. If
during the first 10 Contract years, the basic insurance amount is decreased
[including as a result of a withdrawal or a change in type of death benefit from
Type A (fixed) to Type B (variable)], and the new basic insurance amount is
below the threshold, we will deduct a percentage of the surrender charge. The
percentage will be the amount by which the new basic insurance amount is less
than the threshold, divided by the threshold. After this transaction, the
threshold will be updated and a corresponding new surrender charge schedule will
also be determined to reflect that portion of surrender charges deducted in the
past. During 1998 and 1997, Pruco Life received a total of approximately
$123,000 and $3,000 respectively, from surrendered or lapsed Contracts.
TRANSACTION CHARGES
(a) We currently charge an administrative processing fee equal to the lesser of
$25 or 2% of the withdrawal amount in connection with each withdrawal.
(b) We currently do not charge an administrative processing fee in connection
with a change in basic insurance amount. We reserve the right to make such
a charge in an amount of up to $25 for any change in basic insurance
amount.
(c) We will charge an administrative processing fee of up to $25 for each
transfer exceeding 12 in any Contract year.
18
<PAGE>
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY
You may surrender the Contract for its cash surrender value (referred to as net
cash value in the Contract). The Contract's cash surrender value on any date
will be the Contract Fund less any applicable surrender charges and less any
Contract debt. See CONTRACT LOANS, page 26. The Contract Fund value changes
daily, reflecting: (1) increases or decreases in the value of the Fund
portfolios in which the assets of the subaccount[s] have been invested; (2)
interest credited on any amounts allocated to the fixed-rate option; (3)
interest credited on any loan; and (4) the daily asset charge for mortality and
expense risks assessed against the subaccounts. The Contract Fund value also
changes to reflect the receipt of premium payments and the monthly deductions
described under CHARGES AND EXPENSES, page 15. Upon request, Pruco Life will
tell you the cash surrender value of your Contract. It is possible for the cash
surrender value of a Contract to decline to zero because of unfavorable
investment performance or outstanding Contract debt.
The tables on pages T1 through T4 (M1 through M4 in Massachusetts) of this
prospectus illustrate approximately what the cash surrender values would be for
representative Contracts paying target premium amounts (see Premiums, page 11),
assuming hypothetical uniform investment results in the Fund portfolios. Two of
the tables assume current charges will be made throughout the lifetime of the
Contract and two tables assume maximum charges will be made. See ILLUSTRATIONS
OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS, page
24.
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY
As described earlier, there are two types of death benefit available under the
Contract: Type A, a generally fixed death benefit and Type B, a variable death
benefit. A Type B (variable) death benefit varies with investment performance
while a Type A (fixed) death benefit does not, unless it must be increased to
comply with the Internal Revenue Code's definition of life insurance.
Under a Type A (fixed) Contract, the death benefit is generally equal to the
basic insurance amount. See CONTRACT LOANS, page 26. If the Contract is kept
inforce for several years, depending on how much premium you pay, and/or if
investment performance is reasonably favorable, the Contract Fund may grow to
the point where Pruco Life will increase the death benefit in order to ensure
that the Contract will satisfy the Internal Revenue Code's definition of life
insurance. Thus, the death benefit under a Type A (fixed) Contract will always
be the greater of: (1) the basic insurance amount; and (2) the Contract Fund
before the deduction of any monthly charges due on that date, multiplied by the
attained age factor that applies. A listing of attained age factors can be
found on the data pages of your Contract. The latter provision ensures that the
Contract will always have a death benefit large enough so that the Contract will
be treated as life insurance for tax purposes under current law.
The following table illustrates at different ages how the attained age factor
affects the death benefit for different Contract Fund amounts. The table
assumes a $100,000 Type A (fixed) Contract was issued when the insured was a
male nonsmoker, age 35.
<TABLE>
<CAPTION>
TYPE A (FIXED) DEATH BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------------
IF THEN
====================================================================================================================================
THE INSURED IS AGE AND THE CONTRACT FUND THE ATTAINED AGE FACTOR THE CONTRACT FUND MULTIPLIED BY THE AND THE DEATH
IS IS ATTAINED AGE FACTOR IS BENEFIT IS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
40 $10,000 3.64 $ 36,400 $100,000
40 $30,000 3.64 $109,200 $109,200*
40 $50,000 3.64 $182,000 $182,000*
- ------------------------------------------------------------------------------------------------------------------------------------
60 $30,000 1.96 $ 58,800 $100,000
60 $50,000 1.96 $ 98,000 $100,000
60 $70,000 1.96 $137,200 $137,200*
- ------------------------------------------------------------------------------------------------------------------------------------
80 $50,000 1.28 $ 64,000 $100,000
80 $80,000 1.28 $102,400 $102,400*
80 $90,000 1.28 $115,200 $115,200*
- ------------------------------------------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal Revenue Code's definition of life insurance.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
This means, for example, that if the insured has reached the age of 60, and the
Contract Fund is $70,000, the death benefit will be $137,200, even though the
original basic insurance amount was $100,000. In this situation, for every $1
increase in the Contract Fund, the death benefit will be increased by $1.96. We
reserve the right to refuse to accept any premium payment that increases the
death benefit by more than it increases the Contract Fund. If we exercise this
right, it may in certain situations result in the loss of the death benefit
guarantee.
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY
Under a Type B (variable) Contract, while the Contract is inforce, the death
benefit will never be less than the basic insurance amount, but will also vary,
immediately after it is issued, with the investment results of the selected
investment options. The death benefit may be further increased to ensure that
the Contract will satisfy the Internal Revenue Code's definition of life
insurance. Thus, the death benefit will always be the greater of: (1) the basic
insurance amount plus the Contract Fund before the deduction of any monthly
charges due on that date; and (2) the Contract Fund before the deduction of any
monthly charges due on that date, multiplied by the attained age factor that
applies. For purposes of computing the death benefit, if the Contract Fund is
less than zero we will consider it to be zero. A listing of attained age
factors can be found on the data pages of your Contract. The latter provision
ensures that the Contract will always have a death benefit large enough so that
the Contract will be treated as life insurance for tax purposes under current
law.
The following table illustrates various attained age factors and Contract Funds
and the corresponding death benefits. The table assumes a $100,000 Type B
(variable) Contract was issued when the insured was a male nonsmoker, age
35.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TYPE B (VARIABLE) DEATH BENEFIT
IF THEN
====================================================================================================================================
THE INSURED IS AGE AND THE CONTRACT FUND THE ATTAINED AGE FACTOR THE CONTRACT FUND MULTIPLIED BY THE AND THE DEATH
IS IS ATTAINED AGE FACTOR IS BENEFIT IS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
40 $10,000 3.64 $ 36,400 $110,000
40 $30,000 3.64 $109,200 $130,000
40 $50,000 3.64 $182,000 $182,000*
- ------------------------------------------------------------------------------------------------------------------------------------
60 $30,000 1.96 $ 58,800 $130,000
60 $50,000 1.96 $ 98,800 $150,000
60 $70,000 1.96 $137,200 $170,000
- ------------------------------------------------------------------------------------------------------------------------------------
80 $50,000 1.28 $ 64,000 $150,000
80 $80,000 1.28 $102,400 $180,000
80 $90,000 1.28 $115,200 $190,000
- ------------------------------------------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal Revenue Code's definition of life insurance.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This means, for example, that if the insured has reached the age of 40, and the
Contract Fund is $50,000, the death benefit will be $182,000, even though the
original basic insurance amount was $100,000. In this situation, for every $1
increase in the Contract Fund, the death benefit will be increased by $3.64. We
reserve the right to refuse to accept any premium payment that increases the
death benefit by more than it increases the Contract Fund. If we exercise this
right, it may in certain situations result in the loss of the death benefit
guarantee.
SURRENDER OF A CONTRACT
A Contract may be surrendered for its cash surrender value while the insured is
living. To surrender a Contract, we may require you to deliver or mail the
Contract with a written request in a form that meets Pruco Life's needs, to a
Home Office. The cash surrender value of a surrendered Contract will be
determined as of the end of the valuation period in which such a request is
received in a Home Office. Surrender of a Contract may have tax consequences.
See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
20
<PAGE>
WITHDRAWALS
Under certain circumstances, you may withdraw a portion of the Contract's cash
surrender value without surrendering the Contract. The withdrawal amount is
limited by the requirement that the cash surrender value after the withdrawal
may not be zero or less than zero after deducting the withdrawal charges. The
amount withdrawn must be at least $500. There is an administrative processing
fee for each withdrawal which is the lesser of: (a) $25 and; (b) 2% of the
withdrawal amount. An amount withdrawn may not be repaid except as a premium
subject to the applicable charges. Upon request, we will tell you how much you
may withdraw. Withdrawal of the cash surrender value may have tax consequences.
See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
Whenever a withdrawal is made, the death benefit will immediately be reduced by
at least the amount of the withdrawal. For a Type B (variable) Contract, this
will not change the basic insurance amount. However, under a Type A (fixed)
Contract, the resulting reduction in death benefit usually requires a reduction
in the basic insurance amount. If the basic insurance amount is decreased to an
amount less than the basic insurance amount at issue, a surrender charge may be
deducted. See CHARGES AND EXPENSES, page 15. No withdrawal will be permitted
under a Type A (fixed) Contract if it would result in a basic insurance amount
of less than the minimum basic insurance amount. It is important to note,
however, that if the basic insurance amount is decreased, there is a possibility
that the Contract might be classified as a Modified Endowment Contract. See TAX
TREATMENT OF CONTRACT BENEFITS, page 27. Before making any withdrawal which
causes a decrease in basic insurance amount, you should consult with your tax
adviser and your Pruco Life representative.
When a withdrawal is made, the Contract Fund is reduced by the sum of the cash
withdrawn and the withdrawal fee. An amount equal to the reduction in the
Contract Fund will be withdrawn proportionally from the investment options
unless you direct otherwise.
Withdrawal of the cash surrender value increases the risk that the Contract Fund
may be insufficient to provide Contract benefits. If such a withdrawal is
followed by unfavorable investment experience, the Contract may go into default.
Withdrawals may also affect whether a Contract is kept inforce under the Death
Benefit Guarantee, since withdrawals decrease the accumulated net payments. See
DEATH BENEFIT GUARANTEE, page 12.
INCREASES IN BASIC INSURANCE AMOUNT
Subject to state approval and subject to the underwriting requirements
determined by Pruco Life, on or after the first Contract anniversary, you may
increase the amount of insurance by increasing the basic insurance amount of the
Contract. The following conditions must be met: (1) you must ask for the change
in a form that meets Pruco Life's needs; (2) the amount of the increase must be
at least equal to the minimum increase in basic insurance amount shown under
CONTRACT LIMITATIONS in the data pages of the Contract; (3) you must prove to us
that the insured is insurable for any increase; (4) the Contract must not be in
default; (5) we must not be paying premiums into the Contract as a result of the
insured's total disability; and (6) if we ask you to do so, you must send us the
Contract to be endorsed.
If we approve the change, we will send you new Contract data pages showing the
amount and effective date of the change and the recomputed charges, values and
limitations. If the insured is not living on the effective date, the change
will not take effect. No administrative processing charge is currently being
made in connection with an increase in basic insurance amount. We reserve the
right to make such a charge in an amount of up to $25.
For sales load purposes, the target premium is calculated separately for each
basic insurance amount segment. The target premium for each segment also
includes the premium for extra insurance charges associated to that segment.
When premiums are paid, each payment is allocated to each basic insurance amount
segment based on the proportion of the target premium in each segment to the
total target premiums of all segments. Currently, the sales load charge for
each segment is equal to 4% of the allocated premium paid in each Contract year
up to the target premium and 0% of allocated premiums paid in excess of the
target premium. See the definition of Contract year for an increase in basic
insurance amount in DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, page
1.
21
<PAGE>
The COI rates for an increase in basic insurance amount are based upon 1980 CSO
Tables, the age at the increase effective date and the number of years since
then, sex (except where unisex rates apply); smoker/nonsmoker status, and extra
rating class, if any. The net amount at risk for the whole contract (the death
benefit minus the contract fund) is allocated to each basic insurance amount
segment based on the proportion of its basic insurance amount to the total of
all basic insurance amount segments. In addition, the attained age factor for a
Contract with an increase in basic insurance amount is based on the Insured's
attained age for the initial basic insurance amount segment. For a description
of attained age factor, see HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL
VARY, page 19 and HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY,
page 20.
Each Contract owner who elects to increase the basic insurance amount of his or
her Contract will receive a "free-look" right which will apply only to the
increase in basic insurance amount, not the entire Contract. This right is
comparable to the right afforded to a purchaser of a new Contract except that,
any cost of insurance charge for the increase in the basic insurance amount will
be returned to the Contract Fund instead of a refund of premium. See SHORT-TERM
CANCELLATION RIGHT OR "FREE LOOK", page 10. Generally, the "free-look" right
would have to be exercised no later than 10 days after receipt of the Contract
as increased.
An increase in basic insurance amount may cause the Contract to be classified as
a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
Therefore, before increasing the basic insurance amount, you should consult with
your tax adviser and your Pruco Life representative.
DECREASES IN BASIC INSURANCE AMOUNT
As explained earlier, you may make a withdrawal (see WITHDRAWALS, page 21). On
or after the first Contract anniversary, you also have the option of decreasing
the basic insurance amount of your Contract without withdrawing any cash
surrender value. Contract owners who conclude that, because of changed
circumstances, the amount of insurance is greater than needed will be able to
decrease their amount of insurance protection, and the monthly deductions for
the cost of insurance. The amount of the decrease must be at least equal to the
minimum decrease in basic insurance amount shown under CONTRACT LIMITATIONS in
the data pages of your Contract. In addition, the basic insurance amount after
the decrease must be at least equal to the minimum basic insurance amount shown
under CONTRACT LIMITATIONS in the data pages of your Contract. If the basic
insurance amount is decreased to an amount less than the lowest basic insurance
amount since issue, a surrender charge may be deducted. No administrative
processing charge is currently being made in connection with a decrease in basic
insurance amount. We reserve the right to make such a charge in an amount of up
to $25. See CHARGES AND EXPENSES, page 15. If we ask you to, you must send us
your Contract to be endorsed. The Contract will be amended to show the new
basic insurance amount, charges, values in the appropriate tables and the
effective date of the decrease.
We may decline a reduction if we determine it would cause the Contract to fail
to qualify as "life insurance" for purposes of Section 7702 of the Internal
Revenue Code. A decrease will not take effect if the insured is not living on
the effective date.
It is important to note, however, that if the basic insurance amount is
decreased, there is a possibility that the Contract might be classified as a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
Before requesting any decrease in basic insurance amount, you should consult
with your tax adviser and your Pruco Life representative.
WHEN PROCEEDS ARE PAID
Pruco Life will generally pay any death benefit, cash surrender value, loan
proceeds or withdrawal within seven days after all the documents required for
such a payment are received at a Home Office. Other than the death benefit,
which is determined as of the date of death, the amount will be determined as of
the end of the valuation period in which the necessary documents are received at
a Home Office. However, Pruco Life may delay payment of proceeds from the
subaccount[s] and the variable portion of the death benefit due under the
Contract if the disposal or valuation of the Account's assets is not reasonably
practicable because the New York Stock Exchange is closed for other than a
regular holiday or weekend, trading is restricted by the SEC, or the SEC
declares that an emergency exists.
22
<PAGE>
With respect to the amount of any cash surrender value allocated to the fixed-
rate option, Pruco Life expects to pay the cash surrender value promptly upon
request. However, Pruco Life has the right to delay payment of such cash
surrender value for up to six months (or a shorter period if required by
applicable law). Pruco Life will pay interest of at least 3% a year if it
delays such a payment for 30 days or more (or a shorter period if required by
applicable law).
LIVING NEEDS BENEFIT
You may elect to add the LIVING NEEDS BENEFIT/SM/ to your Contract at issue. The
benefit may vary by state. There is no charge for adding the benefit to the
Contract. However, an administrative charge (not to exceed $150) will be made at
the time the LIVING NEEDS BENEFIT is paid.
Subject to state regulatory approval, the LIVING NEEDS BENEFIT allows you to
elect to receive an accelerated payment of all or part of the Contract's death
benefit, adjusted to reflect current value, at a time when certain special needs
exist. The adjusted death benefit will always be less than the death benefit,
but will generally be greater than the Contract's cash surrender value. One or
both of the following options may be available. A Pruco Life representative
should be consulted as to whether additional options may be available.
TERMINAL ILLNESS OPTION. This option is available if the insured is diagnosed
as terminally ill with a life expectancy of six months or less. When
satisfactory evidence is provided, Pruco Life will provide an accelerated
payment of the portion of the death benefit selected by 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 the payments have been made, the present value of the
remaining payments will be paid to the beneficiary designated in the LIVING
NEEDS BENEFIT claim form in a single sum.
NURSING HOME OPTION. This option is available after the insured has been
confined to an eligible nursing home for six months or more. When satisfactory
evidence is provided, including certification by a licensed physician, that the
insured is expected to remain in the nursing home until death, Pruco Life will
provide an accelerated payment of the portion of the death benefit selected by
the Contract owner as a LIVING NEEDS BENEFIT. The Contract owner may (1) elect
to receive the benefit in a single sum or (2) receive equal monthly payments for
a specified number of years (not more than 10 nor less than 2), depending upon
the age of the insured. If the insured dies before all of the payments have
been made, the present value of the remaining payments will be paid to the
beneficiary designated in the LIVING NEEDS BENEFIT claim form in a single
sum.
Subject to state approval, all or part of the Contract's death benefit may be
accelerated under the LIVING NEEDS BENEFIT. If the benefit is only partially
accelerated, a death benefit of at least $25,000 must remain under the Contract.
Pruco Life reserves the right to determine the minimum amount that may be
accelerated.
No benefit will be payable if you are required to elect it in order to meet the
claims of creditors or to obtain a government benefit. Pruco Life can furnish
details about the amount of LIVING NEEDS BENEFIT that is available to an
eligible Contract owner, and the effect on the Contract if less than the entire
death benefit is accelerated.
You should consider whether adding this settlement option is appropriate in your
given situation. Adding the LIVING NEEDS BENEFIT to the Contract has no adverse
consequences; however, electing to use it could. With the exception of certain
business-related Contracts, 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.
23
<PAGE>
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS
The following six tables (pages T1 through T6; M1 through M6 in Massachusetts)
show how a Contract's death benefit and cash surrender values change with the
investment experience of the Account. They are "hypothetical" because they are
based, in part, upon several assumptions, which are described below. All six
tables assume the following:
. a Contract with a basic insurance amount of $100,000 bought by a 35 year old
male, select, non-smoker, with no extra risks or substandard ratings, and no
extra benefit riders added to the Contract.
. the target premium amount (see Premiums, page 11) is paid on each Contract
anniversary and no loans are taken.
. the Contract Fund has been invested in equal amounts in each of the 15
portfolios of the Funds and no portion of the Contract Fund has been allocated
to the fixed-rate option.
The first table (page T1; M1 in Massachusetts) assumes a Type A (fixed) Contract
has been purchased and the second table (page T2; M2 in Massachusetts) assumes a
Type B (variable) Contract has been purchased. Both assume the current charges
will continue for the indefinite future. The third and fourth tables (pages T3
and T4; M3 and M4 in Massachusetts) are based upon the same assumptions except
it is assumed the maximum contractual charges have been made from the beginning.
See CHARGES AND EXPENSES, page 15.
Under the Type B (variable) Contract the death benefit changes to reflect
investment returns. Under the Type A (fixed) Contract, the death benefit
increases only if the Contract Fund becomes large enough that an increase in the
death benefit is necessary for the Contract to satisfy the Internal Revenue
Code's definition of life insurance. See TYPE OF DEATH BENEFIT, page 10.
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 will change with investment
experience.
The first column in the following illustrations (pages T1 through T4; M1 through
M4 in Massachusetts) shows the Contract year. The second column, to provide
context, shows what the aggregate amount would be if the 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.
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 Fund expenses. The net return
reflects average total annual expenses of the 15 portfolios of 0.64%, and the
daily deduction from the Contract Fund of 0.6% per year for the tables based on
current charges and 0.9% per year for the tables based on maximum charges.
Thus, assuming current charges, gross returns of 0%, 4%, 8% and 12% are the
equivalent of net returns of -1.24%, 2.76%, 6.76% and 10.76%, respectively.
Assuming maximum charges, gross returns of 0%, 4%, 8% and 12% are the equivalent
of net returns of -1.54%, 2.46%, 6.46% and 10.46%, respectively. The actual
fees and expenses of the portfolios associated with a particular Contract may be
more or less than 0.64% 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 Funds and under the Contract.
Following these illustrations are two pages (pages T5 and T6; M5 and M6 in
Massachusetts) showing internal rates of return (commonly referred to as IRRs)
associated with the cash values and death benefits shown on the preceding four
pages. IRRs are often used by insurance companies to provide some indication of
the rate of return your "investment"
24
<PAGE>
in the Contract (the aggregate premiums paid) may have earned if the Contract
were surrendered or if the insured were to die. The IRR on the death benefit is
equivalent to an interest rate (without considering taxes) at which an amount
equal to the premiums illustrated on the preceding pages could have been
invested to arrive at the death benefit of the Contract. The IRR on the cash
surrender value is equivalent to an interest rate (without considering taxes) at
which an amount equal to the illustrated premiums could have been invested to
arrive at the cash surrender value of the Contract. The IRRs on page T5 (M5 in
Massachusetts) are based on the Contract values shown on pages T1 and T2 (M1 and
M2 in Massachusetts). The IRRs on page T6 (M6 in Massachusetts) are based on the
Contract values shown on pages T3 and T4 (M3 and M4 in Massachusetts).
If you are considering the purchase of a variable life insurance contract from
another insurance company, you should not rely upon these tables for comparison
purposes. A comparison between two tables, each showing values for a 35 year
old man, may be useful for a 35 year old man but would be inaccurate if made for
insureds of other ages or sex. Your Pruco Life representative can provide you
with a hypothetical illustration for your own age, sex, and rating class.
25
<PAGE>
VARIABLE UNIVERSAL LIFE
TYPE A (FIXED) DEATH BENEFIT
MALE NON-SMOKER SELECT AGE 35
$100,000.00 BASIC INSURANCE AMOUNT
$884.00 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
---------------------------------------------------- -----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- -----------------------------------------------------
Policy at 4% 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.24 Net) (2.76 Net) (6.76 Net) (10.76% Net) (-1.24 Net) (2.76 Net) (6.76 Net) (10.76% Net)
- --------- ---------- ---------- ------------ ----------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 919 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 0 $ 0 $ 0(2) $ 0(2)
2 1,875 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 270 $ 341 $ 413 $ 488
3 2,870 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 823 $ 963 $ 1,111 $ 1,267
4 3,904 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 1,366 $ 1,600 $ 1,853 $ 2,127
5 4,980 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 1,899 $ 2,250 $ 2,642 $ 3,077
6 6,098 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 2,419 $ 2,914 $ 3,479 $ 4,124
7 7,261 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 3,110 $ 3,771 $ 4,549 $ 5,461
8 8,471 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 3,786 $ 4,641 $ 5,672 $ 6,915
9 9,729 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 4,447 $ 5,520 $ 6,851 $ 8,499
10 11,038 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 5,092 $ 6,409 $ 8,087 $ 10,225
15 18,409 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 7,109 $10,033 $ 14,328 $ 20,647
20 27,377 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 8,822 $14,015 $ 22,859 $ 38,009
25 38,288 $ 100,000 $ 100,000 $ 100,000 $ 134,495 $10,102 $18,300 $ 34,560 $ 66,913
30 51,562 $ 100,000 $ 100,000 $ 100,000 $ 199,548 $10,115 $22,125 $ 50,171 $ 113,379
35 67,713 $ 100,000 $ 100,000 $ 112,163 $ 294,537 $ 8,294 $24,970 $ 71,441 $ 187,603
40 87,363 $ 100,000 $ 100,000 $ 139,800 $ 428,757 $ 2,531 $24,984 $ 99,149 $ 304,083
45 111,270 $ 0(2)$ 100,000 $ 174,678 $ 629,494 $ 0(2) $18,976 $134,368 $ 484,226
50 140,356 $ 0 $ 0(2) $ 217,906 $ 927,025 $ 0 $ 0(2) $178,611 $ 759,857
55 175,744 $ 0 $ 0 $ 270,353 $1,362,665 $ 0 $ 0 $233,063 $1,174,711
60 218,799 $ 0 $ 0 $ 332,846 $1,993,169 $ 0 $ 0 $299,861 $1,795,648
65 271,182 $ 0 $ 0 $ 412,751 $2,943,238 $ 0 $ 0 $393,097 $2,803,084
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0% the cash surrender value would go to zero in
year 1 and in year 42 and later. Because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee
Period of 35 years. The contract would be in default at the beginning of
year 42.
Based on a gross return of 4% the cash surrender value would go to zero in
year 1 and in year 50 and later. Because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee
Period of 35 years. The contract would be in default at the beginning of
year 50.
Based on a gross return of 8% the cash surrender value would go to zero in
year 1. Because the Target Premium is being paid, the Contract is kept
inforce through the Limited Death Benefit Guarantee Period of 35 years.
Based on a gross return of 12% the cash surrender value would go to zero in
year 1. Because the Target Premium is being paid, the Contract is kept
inforce through the Limited Death Benefit Guarantee Period of 35 years.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rate of
inflation. The Death Benefit and Cash Surrender Value for a contract would be
different from those shown if the actual rates of return average 0%, 4%, 8%, and
12% over a period of years but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
funds that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
T1
<PAGE>
VARIABLE UNIVERSAL LIFE
TYPE B (VARIABLE) DEATH BENEFIT
MALE NON-SMOKER SELECT AGE 35
$100,000.00 BASIC INSURANCE AMOUNT
$884.00 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit Value (1) Cash Surrender Value (1)
---------------------------------------------------- -----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- -----------------------------------------------------
Policy at 4% 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.24 Net) (2.76 Net) (6.76 Net) (10.76% (-1.24 Net) (2.76 Net) (6.76 Net) (10.76%
- --------- ---------- ---------- ------------ ----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 919 $100,437 $100,462 $100,487 $ 100,512 $ 0 $ 0 $ 0 $ 0(2)
2 1,875 $100,998 $101,068 $101,140 $ 101,215 $ 268 $ 338 $ 410 $ 485
3 2,870 $101,548 $101,687 $101,834 $ 101,990 $ 818 $ 957 $ 1,105 $ 1,260
4 3,904 $102,087 $102,320 $102,572 $ 102,845 $1,357 $ 1,590 $ 1,842 $ 2,115
5 4,980 $102,615 $102,964 $103,354 $ 103,786 $1,885 $ 2,235 $ 2,624 $ 3,056
6 6,098 $103,130 $103,621 $104,182 $ 104,822 $2,400 $ 2,891 $ 3,452 $ 4,093
7 7,261 $103,631 $104,288 $105,058 $ 105,962 $3,084 $ 3,740 $ 4,511 $ 5,414
8 8,471 $104,117 $104,963 $105,984 $ 107,214 $3,752 $ 4,599 $ 5,620 $ 6,849
9 9,729 $104,587 $105,648 $106,963 $ 108,591 $4,405 $ 5,465 $ 6,780 $ 8,409
10 11,038 $105,038 $106,338 $107,994 $ 110,102 $5,038 $ 6,338 $ 7,994 $ 10,102
15 18,409 $106,974 $109,830 $114,021 $ 120,183 $6,974 $ 9,830 $ 14,021 $ 20,183
20 27,377 $108,568 $113,576 $122,091 $ 136,662 $8,568 $13,576 $ 22,091 $ 36,662
25 38,288 $109,673 $117,449 $132,835 $ 163,651 $9,673 $17,449 $ 32,835 $ 63,651
30 51,562 $109,366 $120,409 $146,115 $ 206,867 $9,366 $20,409 $ 46,115 $ 106,867
35 67,713 $107,078 $121,612 $162,141 $ 276,791 $7,078 $21,612 $ 62,141 $ 176,300
40 87,363 $100,824 $118,495 $179,454 $ 403,248 $ 824 $18,495 $ 79,454 $ 285,991
45 111,270 $ 0(2) $107,466 $195,301 $ 592,418 $ 0(2) $ 7,466 $ 95,301 $ 455,706
50 140,356 $ 0 $ 0(2) $204,680 $ 872,772 $ 0 $ 0(2) $104,680 $ 715,387
55 175,744 $ 0 $ 0 $197,157 $1,283,241 $ 0 $ 0 $ 97,157 $1,106,242
60 218,799 $ 0 $ 0 $155,760 $1,877,304 $ 0 $ 0 $ 55,760 $1,691,265
65 271,182 $ 0 $ 0 $ 0(2) $2,772,441 $ 0 $ 0 $ 0(2) $2,640,420
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0% the cash surrender value would go to zero in
year 1 and in year 41 and later. Because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee
Period of 33 years. The contract would be in default at the beginning of
year 41.
Based on a gross return of 4% the cash surrender value would go to zero in
year 1 and in year 47 and later. Because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee
Period of 33 years. The contract would be in default at the beginning of
year 47.
Based on a gross return of 8% the cash surrender value would go to zero in
year 1 and in year 64 and later. Because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee
Period of 33 years. The contract would be in default at the beginning of
year 64.
Based on a gross return of 12% the cash surrender value would go to zero in
year 1. Because the Target Premium is being paid, the Contract is kept
inforce through the Limited Death Benefit Guarantee Period of 33 years.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rate of
inflation. The Death Benefit and Cash Surrender Value for a contract would be
different from those shown if the actual rates of return average 0%, 4%, 8%, and
12% over a period of years but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
funds that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
T2
<PAGE>
VARIABLE UNIVERSAL LIFE
TYPE A (FIXED) DEATH BENEFIT
MALE NON-SMOKER SELECT AGE 35
$100,000.00 BASIC INSURANCE AMOUNT
$884.00 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit Value (1) Cash Surrender Value (1)
---------------------------------------------------- -----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- -----------------------------------------------------
Policy at 4% 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.54 Net) (2.46 Net) (6.46 Net) (10.46%) (-1.54 Net) (2.46 Net) (6.46 Net) (10.46%)
- --------- ---------- ---------- ------------ ----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 919 $100,000 $100,000 $100,000 $100,000 $ 0 $ 0 $ 0 $ 0(2)
2 1,875 $100,000 $100,000 $100,000 $100,000 $ 100 $ 163 $ 228 $ 296
3 2,870 $100,000 $100,000 $100,000 $100,000 $ 525 $ 648 $ 777 $ 915
4 3,904 $100,000 $100,000 $100,000 $100,000 $ 933 $1,132 $ 1,350 $ 1,586
5 4,980 $100,000 $100,000 $100,000 $100,000 $1,321 $1,616 $ 1,946 $ 2,315
6 6,098 $100,000 $100,000 $100,000 $100,000 $1,688 $2,097 $ 2,566 $ 3,105
7 7,261 $100,000 $100,000 $100,000 $100,000 $2,215 $2,755 $ 3,392 $ 4,144
8 8,471 $100,000 $100,000 $100,000 $100,000 $2,720 $3,407 $ 4,242 $ 5,256
9 9,729 $100,000 $100,000 $100,000 $100,000 $3,201 $4,052 $ 5,117 $ 6,447
10 11,038 $100,000 $100,000 $100,000 $100,000 $3,655 $4,688 $ 6,017 $ 7,725
15 18,409 $100,000 $100,000 $100,000 $100,000 $4,566 $6,726 $ 9,959 $ 14,794
20 27,377 $100,000 $100,000 $100,000 $100,000 $4,430 $8,017 $14,360 $ 25,557
25 38,288 $100,000 $100,000 $100,000 $100,000 $2,507 $7,641 $18,698 $ 42,170
30 51,562 $100,000 $100,000 $100,000 $120,539 $ 0 $3,947 $21,923 $ 68,488
35 67,713 $100,000 $100,000 $100,000 $168,717 $ 0 $ 0 $21,599 $107,463
40 87,363 $ 0(2) $ 0(2) $100,000 $230,205 $ 0(2) $ 0(2) $11,912 $163,266
45 111,270 $ 0 $ 0 $ 0(2) $312,830 $ 0 $ 0 $ 0(2) $240,639
50 140,356 $ 0 $ 0 $ 0 $422,627 $ 0 $ 0 $ 0 $346,415
55 175,744 $ 0 $ 0 $ 0 $566,621 $ 0 $ 0 $ 0 $488,467
60 218,799 $ 0 $ 0 $ 0 $760,185 $ 0 $ 0 $ 0 $684,851
65 271,182 $ 0 $ 0 $ 0 $980,851 $ 0 $ 0 $ 0 $934,144
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0% the cash surrender value would go to zero in
year 1 and in year 29 and later, but because the Target Premium is being
paid, the Contract is kept inforce through the Limited Death Benefit
Guarantee Period of 35 years. The contract would be in default at the
beginning of year 36.
Based on a gross return of 4% the cash surrender value would go to zero in
year 1 and in year 33 and later, but because the Target Premium is being
paid, the Contract is kept inforce through the Limited Death Benefit
Guarantee Period of 35 years. The contract would be in default at the
beginning of year 36.
Based on a gross return of 8% the cash surrender value would go to zero in
year 1 and in year 43 and later. Because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee
Period of 35 years. The contract would be in default at the beginning of
year 43.
Based on a gross return of 12% the cash surrender value would go to zero in
year 1. Because the Target Premium is being paid, the Contract is kept
inforce through the Limited Death Benefit Guarantee Period of 35 years.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rate of
inflation. The Death Benefit and Cash Surrender Value for a contract would be
different from those shown if the actual rates of return average 0%, 4%, 8%, and
12% over a period of years but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
funds that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
T3
<PAGE>
VARIABLE UNIVERSAL LIFE
TYPE B (VARIABLE) DEATH BENEFIT
MALE NON-SMOKER SELECT AGE 35
$100,000.00 BASIC INSURANCE AMOUNT
$884.00 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
---------------------------------------------------- -----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- -----------------------------------------------------
Policy at 4% 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.54 Net) (2.46 Net) (6.46 Net) (10.46% Net) (-1.54 Net) (2.46 Net) (6.46 Net) (10.46% Net)
- --------- ---------- ---------- ------------ ----------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 919 $100,385 $100,408 $100,431 $100,454 $ 0 $ 0 $ 0 $ 0
2 1,875 $100,827 $100,890 $100,955 $101,022 $ 97 $ 160 $ 225 $ 292
3 2,870 $101,250 $101,372 $101,501 $101,637 $ 520 $ 642 $ 771 $ 907
4 3,904 $101,654 $101,852 $102,068 $102,303 $ 924 $1,122 $ 1,338 $ 1,573
5 4,980 $102,037 $102,330 $102,657 $103,023 $1,307 $1,600 $ 1,928 $ 2,293
6 6,098 $102,398 $102,803 $103,268 $103,801 $1,668 $2,073 $ 2,538 $ 3,071
7 7,261 $102,736 $103,269 $103,899 $104,641 $2,188 $2,721 $ 3,351 $ 4,094
8 8,471 $103,049 $103,727 $104,551 $105,550 $2,684 $3,362 $ 4,186 $ 5,185
9 9,729 $103,337 $104,175 $105,223 $106,531 $3,155 $3,993 $ 5,041 $ 6,348
10 11,038 $103,598 $104,612 $105,916 $107,590 $3,598 $4,612 $ 5,916 $ 7,590
15 18,409 $104,423 $106,507 $109,624 $114,280 $4,423 $6,507 $ 9,624 $ 14,280
20 27,377 $104,148 $107,510 $113,448 $123,917 $4,148 $7,510 $13,448 $ 23,917
25 38,288 $102,054 $106,622 $116,461 $137,335 $2,054 $6,622 $16,461 $ 37,335
30 51,562 $100,000 $102,231 $116,869 $155,339 $ 0 $2,231 $16,869 $ 55,339
35 67,713 $ 0(2) $ 0(2) $111,096 $178,015 $ 0(2) $ 0(2) $11,096 $ 78,015
40 87,363 $ 0 $ 0 $ 0(2) $203,863 $ 0 $ 0 $ 0(2) $103,863
45 111,270 $ 0 $ 0 $ 0 $227,434 $ 0 $ 0 $ 0 $127,434
50 140,356 $ 0 $ 0 $ 0 $238,588 $ 0 $ 0 $ 0 $138,588
55 175,744 $ 0 $ 0 $ 0 $215,692 $ 0 $ 0 $ 0 $115,692
60 218,799 $ 0 $ 0 $ 0 $126,181 $ 0 $ 0 $ 0 $ 26,181
65 271,182 $ 0 $ 0 $ 0 $ 0(2) $ 0 $ 0 $ 0 $ 0(2)
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0% the cash surrender value would go to zero in
year 1 and in year 28 and later, but because the Target Premium is being
paid, the Contract is kept inforce through the Limited Death Benefit
Guarantee Period of 33 years. The contract would be in default at the
beginning of year 34.
Based on a gross return of 4% the cash surrender value would go to zero in
year 1 and in year 32 and later, but because the Target Premium is being
paid, the Contract is kept inforce through the Limited Death Benefit
Guarantee Period of 33 years. The contract would be in default at the
beginning of year 34.
Based on a gross return of 8% the cash surrender value would go to zero in
year 1 and in year 39 and later. Because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee
Period of 33 years. The contract would be in default at the beginning of
year 39.
Based on a gross return of 12% the cash surrender value would go to zero in
year 1 and in year 61 and later. Because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee
Period of 33 years. The contract would be in default at the beginning of
year 61.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rate of
inflation. The Death Benefit and Cash Surrender Value for a contract would be
different from those shown if the actual rates of return average 0%, 4%, 8%, and
12% over a period of years but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
funds that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
T4
<PAGE>
VARIABLE UNIVERSAL LIFE
MALE NON-SMOKER SELECT AGE 35
$100,000.00 BASIC INSURANCE AMOUNT
$884.00 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
FIXED DEATH BENEFIT
Internal Rates of Return on Death (1) Internal Rates of Return on Surrender (1)
--------------------------------------------------------- ---------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
--------------------------------------------------------- ---------------------------------------------------------
End of
Policy 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24 Net) (2.76 Net) (6.76 Net) (10.76% Net) (-1.24 Net) (2.76 Net) (6.76 Net) (10.76% Net)
- --------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 130.48% 130.48% 130.48% 130.48% -26.94% -21.71% -16.69% -11.84%
10 42.61% 42.61% 42.61% 42.61% -10.34% -5.95% -1.62% 2.63%
15 22.92% 22.92% 22.92% 22.92% -8.29% -3.57% 0.96% 5.36%
20 14.68% 14.68% 14.68% 14.68% -7.22% -2.27% 2.39% 6.83%
25 10.28% 10.28% 10.28% 12.11% -6.73% -1.49% 3.28% 7.73%
30 7.59% 7.59% 7.59% 11.11% -7.26% -1.20% 3.84% 8.24%
35 5.80% 5.80% 6.32% 10.46% -9.35% -1.23% 4.25% 8.56%
40 4.55% 4.55% 5.86% 9.99% -25.88% -1.78% 4.51% 8.75%
45 (2) 3.62% 5.56% 9.68% (2) -3.64% 4.66% 8.86%
50 (2) 5.34% 9.46% (2) 4.74% 8.91%
55 5.18% 9.28% 4.78% 8.92%
60 5.03% 9.14% 4.78% 8.91%
65 4.94% 9.04% 4.83% 8.94%
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0%, the Contract would go into default in year
42
Based on a gross return of 4%, the Contract would go into default in year
50
VARIABLE DEATH BENEFIT
<TABLE>
<CAPTION>
Internal Rates of Return on Death (1) Internal Rates of Return on Surrender (1)
--------------------------------------------------------- ---------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
--------------------------------------------------------- ---------------------------------------------------------
End of
Policy 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24 Net) (2.76 Net) (6.76 Net) (10.76% Net) (-1.24 Net) (2.76 Net) (6.76 Net) (10.76% Net)
- --------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 131.87% 132.05% 132.25% 132.48% -27.15% -21.93% -16.91% -12.06%
10 43.50% 43.72% 44.00% 44.34% -10.55% -6.15% -1.84% 2.41%
15 23.65% 23.93% 24.34% 24.91% -8.56% -3.85% 0.69% 5.09%
20 15.33% 15.68% 16.25% 17.13% -7.56% -2.59% 2.08% 6.53%
25 10.85% 11.28% 12.04% 13.31% -7.16% -1.87% 2.92% 7.40%
30 8.06% 8.55% 9.54% 11.29% -7.97% -1.75% 3.36% 7.94%
35 6.11% 6.68% 7.94% 10.20% -10.93% -2.10% 3.59% 8.30%
40 4.58% 5.22% 6.81% 9.77% -51.76% -3.51% 3.61% 8.53%
45 (2) 3.88% 5.93% 9.49% (2) -10.52% 3.44% 8.67%
50 (2) 5.16% 9.29% (2) 3.06% 8.74%
55 4.32% 9.14% 2.27% 8.77%
60 3.13% 9.00% 0.16% 8.77%
65 (2) 8.92% (2) 8.82%
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0%, the Contract would go into default in year
41
Based on a gross return of 4%, the Contract would go into default in year
47
Based on a gross return of 8%, the Contract would go into default in year
64
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rate of
inflation. The Death Benefit and Cash Surrender Value for a contract would be
different from those shown if the actual rates of return average 0%, 4%, 8%, and
12% over a period of years but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
funds that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
T5
<PAGE>
VARIABLE UNIVERSAL LIFE
MALE NON-SMOKER SELECT AGE 35
$100,000.00 BASIC INSURANCE AMOUNT
$884.00 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
FIXED DEATH BENEFIT
Internal Rates of Return on Death (1) Internal Rates of Return on Surrender (1)
--------------------------------------------------------- ---------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
--------------------------------------------------------- ---------------------------------------------------------
End of
Policy 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.54 Net) (2.46 Net) (6.46 Net) (10.46% Net) (-1.54 Net) (2.46 Net) (6.46 Net) (10.46% Net)
- --------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 130.48% 130.48% 130.48% 130.48% -37.76% -31.80% -26.18% -20.83%
10 42.61% 42.61% 42.61% 42.61% -16.95% -11.95% -7.14% -2.47%
15 22.92% 22.92% 22.92% 22.92% -15.02% -9.09% -3.67% 1.36%
20 14.68% 14.68% 14.68% 14.68% -16.23% -8.33% -2.03% 3.39%
25 10.28% 10.28% 10.28% 10.28% -26.06% -9.62% -1.31% 4.66%
30 7.59% 7.59% 7.59% 8.56% -18.26% -1.26% 5.57%
35 5.80% 5.80% 5.80% 8.11% -2.10% 6.13%
40 (2) (2) 4.55% 7.74% (2) (2) -6.46% 6.45%
45 (2) 7.47% (2) 6.62%
50 7.27% 6.70%
55 7.10% 6.72%
60 6.97% 6.73%
65 6.79% 6.69%
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0%, the Contract would go into default in year 36
Based on a gross return of 4%, the Contract would go into default in year 36
Based on a gross return of 8%, the Contract would go into default in year 43
VARIABLE DEATH BENEFIT
<TABLE>
<CAPTION>
Internal Rates of Return on Death (1) Internal Rates of Return on Surrender (1)
--------------------------------------------------------- ---------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
--------------------------------------------------------- ---------------------------------------------------------
End of
Policy 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.54 Net) (2.46 Net) (6.46 Net) (10.46% Net) (-1.54 Net) (2.46 Net) (6.46 Net) (10.46% Net)
- --------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 131.56% 131.72% 131.89% 132.08% -38.07% -32.10% -26.47% -21.12%
10 43.25% 43.42% 43.65% 43.93% -17.27% -12.28% -7.46% -2.79%
15 23.39% 23.60% 23.91% 24.36% -15.54% -9.57% -4.13% 0.92%
20 15.00% 15.25% 15.67% 16.36% -17.24% -9.12% -2.69% 2.80%
25 10.41% 10.68% 11.23% 12.24% -30.09% -11.25% -2.35% 3.82%
30 7.59% 7.71% 8.40% 9.85% -28.38% -3.11% 4.40%
35 (2) (2) 6.28% 8.34% (2) (2) -6.79% 4.67%
40 (2) 7.29% (2) 4.70%
45 6.44% 4.48%
50 5.61% 3.96%
55 4.57% 2.80%
60 2.56% -2.62%
65 (2) (2)
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0%, the Contract would go into default in year 34
Based on a gross return of 4%, the Contract would go into default in year 34
Based on a gross return of 8%, the Contract would go into default in year 39
Based on a gross return of 12%, the Contract would go into default in year
61
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rate of
inflation. The Death Benefit and Cash Surrender Value for a contract would be
different from those shown if the actual rates of return average 0%, 4%, 8%, and
12% over a period of years but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
funds that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
T6
<PAGE>
FOR MASSACHUSETTS ONLY
VARIABLE UNIVERSAL LIFE
TYPE A (FIXED) DEATH BENEFIT
MALE NON-SMOKER SELECT AGE 35
$100,000.00 BASIC INSURANCE AMOUNT
$884.00 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1)
-----------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End of Accumulated -----------------------------------------------------------------
Policy at 4% 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.24 Net) (2.76 Net) (6.76 Net) (10.76% Net)
------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1 919 $ 100,000 $ 100,000 $ 100,000 $ 100,000
2 1,875 $ 100,000 $ 100,000 $ 100,000 $ 100,000
3 2,870 $ 100,000 $ 100,000 $ 100,000 $ 100,000
4 3,904 $ 100,000 $ 100,000 $ 100,000 $ 100,000
5 4,980 $ 100,000 $ 100,000 $ 100,000 $ 100,000
6 6,098 $ 100,000 $ 100,000 $ 100,000 $ 100,000
7 7,261 $ 100,000 $ 100,000 $ 100,000 $ 100,000
8 8,471 $ 100,000 $ 100,000 $ 100,000 $ 100,000
9 9,729 $ 100,000 $ 100,000 $ 100,000 $ 100,000
10 11,038 $ 100,000 $ 100,000 $ 100,000 $ 100,000
15 18,409 $ 100,000 $ 100,000 $ 100,000 $ 100,000
20 27,377 $ 100,000 $ 100,000 $ 100,000 $ 100,000
25 38,288 $ 100,000 $ 100,000 $ 100,000 $ 134,495
30 51,562 $ 100,000 $ 100,000 $ 100,000 $ 199,548
35 67,713 $ 100,000 $ 100,000 $ 112,163 $ 294,537
40 87,363 $ 100,000 $ 100,000 $ 139,800 $ 428,757
45 111,270 $ 0(2) $ 100,000 $ 174,678 $ 629,494
50 140,356 $ 0 $ 0(2) $ 217,906 $ 927,025
55 175,744 $ 0 $ 0 $ 270,353 $ 1,362,665
60 218,799 $ 0 $ 0 $ 332,846 $ 1,993,169
65 271,182 $ 0 $ 0 $ 412,751 $ 2,943,238
<CAPTION>
Cash Surrender Value (1)
----------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of ----------------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24 Net) (2.76 Net) (6.76 Net) (10.76% Net)
------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
1 $ 0 $ 0 $ 0(2) $ 0(2)
2 $ 270 $ 341 $ 413 $ 488
3 $ 823 $ 963 $ 1,111 $ 1,267
4 $ 1,366 $ 1,600 $ 1,853 $ 2,127
5 $ 1,899 $ 2,250 $ 2,642 $ 3,077
6 $ 2,419 $ 2,914 $ 3,479 $ 4,124
7 $ 3,110 $ 3,771 $ 4,549 $ 5,461
8 $ 3,786 $ 4,641 $ 5,672 $ 6,915
9 $ 4,447 $ 5,520 $ 6,851 $ 8,499
10 $ 5,092 $ 6,409 $ 8,087 $ 10,225
15 $ 7,109 $ 10,033 $ 14,328 $ 20,647
20 $ 8,822 $ 14,015 $ 22,859 $ 38,009
25 $ 10,102 $ 18,300 $ 34,560 $ 66,913
30 $ 10,115 $ 22,125 $ 50,171 $ 113,379
35 $ 8,294 $ 24,970 $ 71,441 $ 187,603
40 $ 2,531 $ 24,984 $ 99,149 $ 304,083
45 $ 0(2) $ 18,976 $ 134,368 $ 484,226
50 $ 0 $ 0(2) $ 178,611 $ 759,857
55 $ 0 $ 0 $ 233,063 $ 1,174,711
60 $ 0 $ 0 $ 299,861 $ 1,795,648
65 $ 0 $ 0 $ 393,097 $ 2,803,084
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0% the cash surrender value would go to zero in
year 1 and in year 42 and later. Because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee
Period of 5 years. The contract would be in default at the beginning of
year 42. Based on a gross return of 4% the cash surrender value would go to
zero in year 1 and in year 50 and later. Because the Target Premium is
being paid, the Contract is kept inforce through the Limited Death Benefit
Guarantee Period of 5 years. The contract would be in default at the
beginning of year 50. Based on a gross return of 8% the cash surrender
value would go to zero in year 1. Because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee
Period of 5 years. Based on a gross return of 12% the cash surrender value
would go to zero in year 1. Because the Target Premium is being paid, the
Contract is kept inforce through the Limited Death Benefit Guarantee Period
of 5 years.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rate of
inflation. The Death Benefit and Cash Surrender Value for a contract would be
different from those shown if the actual rates of return average 0%, 4%, 8%, and
12% over a period of years but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
funds that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
M1
<PAGE>
FOR MASSACHUSETTS ONLY
VARIABLE UNIVERSAL LIFE
TYPE B (VARIABLE) DEATH BENEFIT
MALE NON-SMOKER SELECT AGE 35
$100,000.00 BASIC INSURANCE AMOUNT
$884.00 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1)
---------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
---------------------------------------------------------
Premiums
End of Accumulated
Policy at 4% 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.24 Net) (2.76 Net) (6.76 Net) (10.76% Net)
---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 919 $ 100,437 $ 100,462 $ 100,487 $ 100,512
2 1,875 $ 100,998 $ 101,068 $ 101,140 $ 101,215
3 2,870 $ 101,548 $ 101,687 $ 101,834 $ 101,990
4 3,904 $ 102,087 $ 102,320 $ 102,572 $ 102,845
5 4,980 $ 102,615 $ 102,964 $ 103,354 $ 103,786
6 6,098 $ 103,130 $ 103,621 $ 104,182 $ 104,822
7 7,261 $ 103,631 $ 104,288 $ 105,058 $ 105,962
8 8,471 $ 104,117 $ 104,963 $ 105,984 $ 107,214
9 9,729 $ 104,587 $ 105,648 $ 106,963 $ 108,591
10 11,038 $ 105,038 $ 106,338 $ 107,994 $ 110,102
15 18,409 $ 106,974 $ 109,830 $ 114,021 $ 120,183
20 27,377 $ 108,568 $ 113,576 $ 122,091 $ 136,662
25 38,288 $ 109,673 $ 117,449 $ 132,835 $ 163,651
30 51,562 $ 109,366 $ 120,409 $ 146,115 $ 206,867
35 67,713 $ 107,078 $ 121,612 $ 162,141 $ 276,791
40 87,363 $ 100,824 $ 118,495 $ 179,454 $ 403,248
45 111,270 $ 0(2) $ 107,466 $ 195,301 $ 592,418
50 140,356 $ 0 $ 0(2) $ 204,680 $ 872,772
55 175,744 $ 0 $ 0 $ 197,157 $1,283,241
60 218,799 $ 0 $ 0 $ 155,760 $1,877,304
65 271,182 $ 0 $ 0 $ 0(2) $2,772,441
<CAPTION>
Cash Surrender Value (1)
-----------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of -----------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24 Net) (2.76 Net) (6.76 Net) (10.76% Net)
--------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
1 $ 0 $ 0 $ 0 $ 0(2)
2 $ 268 $ 338 $ 410 $ 485
3 $ 818 $ 957 $ 1,105 $ 1,260
4 $ 1,357 $ 1,590 $ 1,842 $ 2,115
5 $ 1,885 $ 2,235 $ 2,624 $ 3,056
6 $ 2,400 $ 2,891 $ 3,452 $ 4,093
7 $ 3,084 $ 3,740 $ 4,511 $ 5,414
8 $ 3,752 $ 4,599 $ 5,620 $ 6,849
9 $ 4,405 $ 5,465 $ 6,780 $ 8,409
10 $ 5,038 $ 6,338 $ 7,994 $ 10,102
15 $ 6,974 $ 9,830 $ 14,021 $ 20,183
20 $ 8,568 $ 13,576 $ 22,091 $ 36,662
25 $ 9,673 $ 17,449 $ 32,835 $ 63,651
30 $ 9,366 $ 20,409 $ 46,115 $ 106,867
35 $ 7,078 $ 21,612 $ 62,141 $ 176,300
40 $ 824 $ 18,495 $ 79,454 $ 285,991
45 $ 0(2) $ 7,466 $ 95,301 $ 455,706
50 $ 0 $ 0(2) $ 104,680 $ 715,387
55 $ 0 $ 0 $ 97,157 $1,106,242
60 $ 0 $ 0 $ 55,760 $1,691,265
65 $ 0 $ 0 $ 0(2) $2,640,420
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0% the cash surrender value would go to zero in
year 1 and in year 41 and later. Because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee
Period of 5 years. The contract would be in default at the beginning of
year 41. Based on a gross return of 4% the cash surrender value would go to
zero in year 1 and in year 47 and later. Because the Target Premium is
being paid, the Contract is kept inforce through the Limited Death Benefit
Guarantee Period of 5 years. The contract would be in default at the
beginning of year 47. Based on a gross return of 8% the cash surrender
value would go to zero in year 1 and in year 64 and later. Because the
Target Premium is being paid, the Contract is kept inforce through the
Limited Death Benefit Guarantee Period of 5 years. The contract would be in
default at the beginning of year 64. Based on a gross return of 12% the
cash surrender value would go to zero in year 1. Because the Target Premium
is being paid, the Contract is kept inforce through the Limited Death
Benefit Guarantee Period of 5 years.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rate of
inflation. The Death Benefit and Cash Surrender Value for a contract would be
different from those shown if the actual rates of return average 0%, 4%, 8%, and
12% over a period of years but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
funds that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
M2
<PAGE>
FOR MASSACHUSETTS ONLY
VARIABLE UNIVERSAL LIFE
TYPE A (FIXED) DEATH BENEFIT
MALE NON-SMOKER SELECT AGE 35
$100,000.00 BASIC INSURANCE AMOUNT
$884.00 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1)
---------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
---------------------------------------------------------
Premiums
End of Accumulated
Policy at 4% 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.54 Net) (2.46 Net) (6.46 Net) (10.46% Net)
---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 919 $ 100,000 $ 100,000 $ 100,000 $100,000
2 1,875 $ 100,000 $ 100,000 $ 100,000 $100,000
3 2,870 $ 100,000 $ 100,000 $ 100,000 $100,000
4 3,904 $ 100,000 $ 100,000 $ 100,000 $100,000
5 4,980 $ 100,000 $ 100,000 $ 100,000 $100,000
6 6,098 $ 100,000 $ 100,000 $ 100,000 $100,000
7 7,261 $ 100,000 $ 100,000 $ 100,000 $100,000
8 8,471 $ 100,000 $ 100,000 $ 100,000 $100,000
9 9,729 $ 100,000 $ 100,000 $ 100,000 $100,000
10 11,038 $ 100,000 $ 100,000 $ 100,000 $100,000
15 18,409 $ 100,000 $ 100,000 $ 100,000 $100,000
20 27,377 $ 100,000 $ 100,000 $ 100,000 $100,000
25 38,288 $ 100,000 $ 100,000 $ 100,000 $100,000
30 51,562 $ 0(2) $ 100,000 $ 100,000 $120,539
35 67,713 $ 0 $ 0(2) $ 100,000 $168,717
40 87,363 $ 0 $ 0 $ 100,000 $230,205
45 111,270 $ 0 $ 0 $ 0(2) $312,830
50 140,356 $ 0 $ 0 $ 0 $422,627
55 175,744 $ 0 $ 0 $ 0 $566,621
60 218,799 $ 0 $ 0 $ 0 $760,185
65 271,182 $ 0 $ 0 $ 0 $980,851
<CAPTION>
Cash Surrender Value (1)
-----------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of -----------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.54 Net) (2.46 Net) (6.46 Net) (10.46% Net)
--------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
1 $ 0 $ 0 $ 0 $ 0(2)
2 $ 100 $ 163 $ 228 $ 296
3 $ 525 $ 648 $ 777 $ 915
4 $ 933 $ 1,132 $ 1,350 $ 1,586
5 $ 1,321 $ 1,616 $ 1,946 $ 2,315
6 $ 1,688 $ 2,097 $ 2,566 $ 3,105
7 $ 2,215 $ 2,755 $ 3,392 $ 4,144
8 $ 2,720 $ 3,407 $ 4,242 $ 5,256
9 $ 3,201 $ 4,052 $ 5,117 $ 6,447
10 $ 3,655 $ 4,688 $ 6,017 $ 7,725
15 $ 4,566 $ 6,726 $ 9,959 $ 14,794
20 $ 4,430 $ 8,017 $ 14,360 $ 25,557
25 $ 2,507 $ 7,641 $ 18,698 $ 42,170
30 $ 0(2) $ 3,947 $ 21,923 $ 68,488
35 $ 0 $ 0(2) $ 21,599 $ 107,463
40 $ 0 $ 0 $ 11,912 $ 163,266
45 $ 0 $ 0 $ 0(2) $ 240,639
50 $ 0 $ 0 $ 0 $ 346,415
55 $ 0 $ 0 $ 0 $ 488,467
60 $ 0 $ 0 $ 0 $ 684,851
65 $ 0 $ 0 $ 0 $ 934,144
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0% the cash surrender value would go to zero in
year 1 and in year 29 and later. Because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee
Period of 5 years. The contract would be in default at the beginning of year
29. Based on a gross return of 4% the cash surrender value would go to zero
in year 1 and in year 33 and later. Because the Target Premium is being
paid, the Contract is kept inforce through the Limited Death Benefit
Guarantee Period of 5 years. The contract would be in default at the
beginning of year 33. Based on a gross return of 8% the cash surrender value
would go to zero in year 1 and in year 43. Because the Target Premium is
being paid, the Contract is kept inforce through the Limited Death Benefit
Guarantee Period of 5 years. The contract would be in default at the
beginning of year 43. Based on a gross return of 12% the cash surrender
value would go to zero in year 1. Because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee
Period of 5 years.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rate of
inflation. The Death Benefit and Cash Surrender Value for a contract would be
different from those shown if the actual rates of return average 0%, 4%, 8%, and
12% over a period of years but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
funds that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
M3
<PAGE>
FOR MASSACHUSETTS ONLY
VARIABLE UNIVERSAL LIFE
TYPE B (VARIABLE) DEATH BENEFIT
MALE NON-SMOKER SELECT AGE 35
$100,000.00 BASIC INSURANCE AMOUNT
$884.00 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1)
---------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
---------------------------------------------------------
Premiums
End of Accumulated
Policy at 4% 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.54 Net) (2.46 Net) (6.46 Net) (10.46% Net)
---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 919 $ 100,385 $ 100,408 $ 100,431 $ 100,454
2 1,875 $ 100,827 $ 100,890 $ 100,955 $ 101,022
3 2,870 $ 101,250 $ 101,372 $ 101,501 $ 101,637
4 3,904 $ 101,654 $ 101,852 $ 102,068 $ 102,303
5 4,980 $ 102,037 $ 102,330 $ 102,657 $ 103,023
6 6,098 $ 102,398 $ 102,803 $ 103,268 $ 103,801
7 7,261 $ 102,736 $ 103,269 $ 103,899 $ 104,641
8 8,471 $ 103,049 $ 103,727 $ 104,551 $ 105,550
9 9,729 $ 103,337 $ 104,175 $ 105,223 $ 106,531
10 11,038 $ 103,598 $ 104,612 $ 105,916 $ 107,590
15 18,409 $ 104,423 $ 106,507 $ 109,624 $ 114,280
20 27,377 $ 104,148 $ 107,510 $ 113,448 $ 123,917
25 38,288 $ 102,054 $ 106,622 $ 116,461 $ 137,335
30 51,562 $ 0(2) $ 102,231 $ 116,869 $ 155,339
35 67,713 $ 0 $ 0(2) $ 111,096 $ 178,015
40 87,363 $ 0 $ 0 $ 0(2) $ 203,863
45 111,270 $ 0 $ 0 $ 0 $ 227,434
50 140,356 $ 0 $ 0 $ 0 $ 238,588
55 175,744 $ 0 $ 0 $ 0 $ 215,692
60 218,799 $ 0 $ 0 $ 0 $ 126,181
65 271,182 $ 0 $ 0 $ 0 $ 0(2)
<CAPTION>
Cash Surrender Value (1)
------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End of ------------------------------------------------------
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.54 Net) (2.46 Net) (6.46 Net) (10.46% Net)
--------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
1 $ 0 $ 0 $ 0 $ 0
2 $ 97 $ 160 $ 225 $ 292
3 $ 520 $ 642 $ 771 $ 907
4 $ 924 $ 1,122 $ 1,338 $ 1,573
5 $ 1,307 $ 1,600 $ 1,928 $ 2,293
6 $ 1,668 $ 2,073 $ 2,538 $ 3,071
7 $ 2,188 $ 2,721 $ 3,351 $ 4,094
8 $ 2,684 $ 3,362 $ 4,186 $ 5,185
9 $ 3,155 $ 3,993 $ 5,041 $ 6,348
10 $ 3,598 $ 4,612 $ 5,916 $ 7,590
15 $ 4,423 $ 6,507 $ 9,624 $ 14,280
20 $ 4,148 $ 7,510 $ 13,448 $ 23,917
25 $ 2,054 $ 6,622 $ 16,461 $ 37,335
30 $ 0(2) $ 2,231 $ 16,869 $ 55,339
35 $ 0 $ 0(2) $ 11,096 $ 78,015
40 $ 0 $ 0 $ 0(2) $ 103,863
45 $ 0 $ 0 $ 0 $ 127,434
50 $ 0 $ 0 $ 0 $ 138,588
55 $ 0 $ 0 $ 0 $ 115,692
60 $ 0 $ 0 $ 0 $ 26,181
65 $ 0 $ 0 $ 0 $ 0(2)
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0% the cash surrender value would go to zero in
year 1 and in year 28 and later. Because the Target Premium is being paid,
the Contract is kept inforce through the Limited Death Benefit Guarantee
Period of 5 years. The contract would be in default at the beginning of
year 28. Based on a gross return of 4% the cash surrender value would go to
zero in year 1 and in year 32 and later. Because the Target Premium is
being paid, the Contract is kept inforce through the Limited Death Benefit
Guarantee Period of 5 years. The contract would be in default at the
beginning of year 32. Based on a gross return of 8% the cash surrender
value would go to zero in year 1 and in year 39 and later. Because the
Target Premium is being paid, the Contract is kept inforce through the
Limited Death Benefit Guarantee Period of 5 years. The contract would be in
default at the beginning of year 39. Based on a gross return of 12% the
cash surrender value would go to zero in year 1 and in year 61 and later.
Because the Target Premium is being paid, the Contract is kept inforce
through the Limited Death Benefit Guarantee Period of 5 years. The contract
would be in default at the beginning of year 61.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rate of
inflation. The Death Benefit and Cash Surrender Value for a contract would be
different from those shown if the actual rates of return average 0%, 4%, 8%, and
12% over a period of years but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
funds that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
M4
<PAGE>
FOR MASSACHUSETTS ONLY
VARIABLE UNIVERSAL LIFE
MALE NON-SMOKER SELECT AGE 35
$100,000.00 BASIC INSURANCE AMOUNT
$884.00 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
FIXED DEATH BENEFIT Internal Rates of Return on Death (1)
----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
----------------------------------------------------------
End of
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24 Net) (2.76 Net) (6.76 Net) (10.76% Net)
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
5 130.48% 130.48% 130.48% 130.48%
10 42.61% 42.61% 42.61% 42.61%
15 22.92% 22.92% 22.92% 22.92%
20 14.68% 14.68% 14.68% 14.68%
25 10.28% 10.28% 10.28% 12.11%
30 7.59% 7.59% 7.59% 11.11%
35 5.80% 5.80% 6.32% 10.46%
40 4.55% 4.55% 5.86% 9.99%
45 (2) 3.62% 5.56% 9.68%
50 (2) 5.34% 9.46%
55 5.18% 9.28%
60 5.03% 9.14%
65 4.94% 9.04%
<CAPTION>
Internal Rates of Return on Surrender (1)
---------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
---------------------------------------------------------
End of
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24 Net) (2.76 Net) (6.76 Net) (10.76% Net)
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
5 -26.94% -21.71% -16.69% -11.84%
10 -10.34% -5.95% -1.62% 2.63%
15 -8.29% -3.57% 0.96% 5.36%
20 -7.22% -2.27% 2.39% 6.83%
25 -6.73% -1.49% 3.28% 7.73%
30 -7.26% -1.20% 3.84% 8.24%
35 -9.35% -1.23% 4.25% 8.56%
40 -25.88% -1.78% 4.51% 8.75%
45 (2) -3.64% 4.66% 8.86%
50 (2) 4.74% 8.91%
55 4.78% 8.92%
60 4.78% 8.91%
65 4.83% 8.94%
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0%, the Contract would go into default in year
42
Based on a gross return of 4%, the Contract would go into default in
year 50
<TABLE>
<CAPTION>
VARIABLE DEATH BENEFIT Internal Rates of Return on Death (1)
---------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
---------------------------------------------------------
End of
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24 Net) (2.76 Net) (6.76 Net) (10.76% Net)
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
5 131.87% 132.05% 132.25% 132.48%
10 43.50% 43.72% 44.00% 44.34%
15 23.65% 23.93% 24.34% 24.91%
20 15.33% 15.68% 16.25% 17.13%
25 10.85% 11.28% 12.04% 13.31%
30 8.06% 8.55% 9.54% 11.29%
35 6.11% 6.68% 7.94% 10.20%
40 4.58% 5.22% 6.81% 9.77%
45 (2) 3.88% 5.93% 9.49%
50 (2) 5.16% 9.29%
55 4.32% 9.14%
60 3.13% 9.00%
65 (2) 8.92%
<CAPTION>
Internal Rates of Return on Surrender (1)
---------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
---------------------------------------------------------
End of
Policy 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.24 Net) (2.76 Net) (6.76 Net) (10.76% Net)
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
5 -27.15% -21.93% -16.91% -12.06%
10 -10.55% -6.15% -1.84% 2.41%
15 -8.56% -3.85% 0.69% 5.09%
20 -7.56% -2.59% 2.08% 6.53%
25 -7.16% -1.87% 2.92% 7.40%
30 -7.97% -1.75% 3.36% 7.94%
35 -10.93% -2.10% 3.59% 8.30%
40 -51.76% -3.51% 3.61% 8.53%
45 (2) -10.52% 3.44% 8.67%
50 (2) 3.06% 8.74%
55 2.27% 8.77%
60 0.16% 8.77%
65 (2) 8.82%
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0%, the Contract would go into default in year
41
Based on a gross return of 4%, the Contract would go into default in year
47
Based on a gross return of 8%, the Contract would go into default in year
64
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rate of
inflation. The Death Benefit and Cash Surrender Value for a contract would be
different from those shown if the actual rates of return average 0%, 4%, 8%, and
12% over a period of years but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
funds that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
M5
<PAGE>
FOR MASSACHUSETTS ONLY
VARIABLE UNIVERSAL LIFE
MALE NON-SMOKER SELECT AGE 35
$100,000.00 BASIC INSURANCE AMOUNT
$884.00 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
FIXED DEATH BENEFIT
Internal Rates of Return on Death (1) Internal Rates of Return on Surrender (1)
--------------------------------------------------------- ---------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
--------------------------------------------------------- ---------------------------------------------------------
End of
Policy 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.54 Net) (2.46 Net) (6.46 Net) (10.46% Net) (-1.54 Net) (2.46 Net) (6.46 Net) (10.46% Net)
- --------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 130.48% 130.48% 130.48% 130.48% -37.76% -31.80% -26.18% -20.83%
10 42.61% 42.61% 42.61% 42.61% -16.95% -11.95% -7.14% -2.47%
15 22.92% 22.92% 22.92% 22.92% -15.02% -9.09% -3.67% 1.36%
20 14.68% 14.68% 14.68% 14.68% -16.23% -8.33% -2.03% 3.39%
25 10.28% 10.28% 10.28% 10.28% -26.06% -9.62% -1.31% 4.66%
30 (2) 7.59% 7.59% 8.56% (2) -18.26% -1.26% 5.57%
35 (2) 5.80% 8.11% (2) -2.10% 6.13%
40 4.55% 7.74% -6.46% 6.45%
45 (2) 7.47% (2) 6.62%
50 7.27% 6.70%
55 7.10% 6.72%
60 6.97% 6.73%
65 6.79% 6.69%
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0%, the Contract would go into default in year
29
Based on a gross return of 4%, the Contract would go into default in year
33
Based on a gross return of 8%, the Contract would go into default in year
43
<TABLE>
<CAPTION>
VARIABLE DEATH BENEFIT
Internal Rates of Return on Death (1) Internal Rates of Return on Surrender (1)
--------------------------------------------------------- ---------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
--------------------------------------------------------- ---------------------------------------------------------
End of
Policy 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year (-1.54 Net) (2.46 Net) (6.46 Net) (10.46% Net) (-1.54 Net) (2.46 Net) (6.46 Net) (10.46% Net)
- --------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 131.56% 131.72% 131.89% 132.08% -38.07% -32.10% -26.47% -21.12%
10 43.25% 43.42% 43.65% 43.93% -17.27% -12.28% -7.46% -2.79%
15 23.39% 23.60% 23.91% 24.36% -15.54% -9.57% -4.13% 0.92%
20 15.00% 15.25% 15.67% 16.36% -17.24% -9.12% -2.69% 2.80%
25 10.41% 10.68% 11.23% 12.24% -30.09% -11.25% -2.35% 3.82%
30 (2) 7.71% 8.40% 9.85% (2) -28.38% -3.11% 4.40%
35 (2) 6.28% 8.34% (2) -6.79% 4.67%
40 (2) 7.29% (2) 4.70%
45 6.44% 4.48%
50 5.61% 3.96%
55 4.57% 2.80%
60 2.56% -2.62%
65 (2) (2)
</TABLE>
(1) Assumes no Contract loan has been made
(2) Based on a gross return of 0%, the Contract would go into default in year
28
Based on a gross return of 4%, the Contract would go into default in year
32
Based on a gross return of 8%, the Contract would go into default in year
39
Based on a gross return of 12%, the Contract would go into default in year
61
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rate of
inflation. The Death Benefit and Cash Surrender Value for a contract would be
different from those shown if the actual rates of return average 0%, 4%, 8%, and
12% over a period of years but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
funds that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
M6
<PAGE>
CONTRACT LOANS
You may borrow from Pruco Life an amount up to the current loan value of your
Contract less any existing Contract debt using the Contract as the only security
for the loan. The loan value at any time is equal to the sum of (1) 90% of the
portion of the cash value attributable to the subaccounts, and (2) the balance
of the cash value. The cash value is equal to the Contract Fund less any
surrender charge. A Contract in default has no loan value. The minimum loan
amount you may borrow is $200.
Interest charged on a loan accrues daily. Interest is due on each Contract
anniversary or when the loan is paid back, whichever comes first. If interest
is not paid when due, it becomes part of the loan and we will charge interest on
it, too. Except in the case of preferred loans, we charge interest at an
effective annual rate of 5%.
A portion of any amount you borrow on or after the 10th Contract anniversary may
be considered a preferred loan. The maximum preferred loan amount is the total
amount you may borrow minus the total net premiums paid (net premiums equal
premiums paid less total withdrawals, if any). If the net premium amount is
less than zero, we will, for purposes of this calculation, consider it to be
zero. Only new loans borrowed after the 10th Contract anniversary may be
considered preferred loans. Standard loans will not automatically be converted
into preferred loans. Preferred loans are charged interest at an effective
annual rate of 4.5%.
The Contract debt is the amount of all outstanding loans plus any interest
accrued but not yet due. If at any time the Contract debt equals or exceeds the
Contract Fund less any applicable surrender charges, the Contract will go into
default. See LAPSE AND REINSTATEMENT, page 29. If the Contract debt equals or
exceeds the Contract Fund less any applicable surrender charges and you fail to
keep the Contract inforce, the amount of unpaid Contract debt will be treated as
a distribution which may be taxable. See TAX TREATMENT OF CONTRACT BENEFITS,
page 27.
When a loan is made, an amount equal to the loan proceeds is transferred out of
the Account and/or the fixed-rate option, as applicable. Unless you ask us to
take the loan amount from specific investment options and we agree, the
reduction will be made in the same proportions as the value in each subaccount
and the fixed-rate option bears to the total value of the Contract. While a
loan is outstanding, the amount that was so transferred will continue to be
treated as part of the Contract Fund. It will be credited with an effective
annual rate of return of 4%. On each Monthly date, we will increase the portion
of the Contract Fund in the investment options by interest credits accrued on
the loan since the last Monthly date. The net cost of a standard loan is 1% and
the net cost of a preferred loan is 1/2%.
A loan will not affect the Death Benefit Guarantee as long as Contract debt does
not equal or exceed the Contract Fund, less any applicable surrender charges.
Loans from Modified Endowment Contracts may be treated for tax purposes as
distributions of income. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
Any Contract debt will directly reduce a Contract's cash surrender value and
will be subtracted from the death benefit to determine the amount payable. In
addition, even if the loan is fully repaid, it may have an effect on future
death benefits because the investment results of the selected investment options
will apply only to the amount remaining invested under those options. The
longer the loan is outstanding, the greater the effect is likely to be. The
effect could be favorable or unfavorable. If investment results are greater
than the rate being credited on the amount of the loan while the loan is
outstanding, values under the Contract will not increase as rapidly as they
would have if no loan had been made. If investment results are below that rate,
Contract values will be higher than they would have been had no loan been made.
When you repay all or part of a loan, we will increase the portion of the
Contract Fund in the investment options by the amount of the loan you repay
using the investment allocation for future premium payments as of the loan
payment date, plus interest credits accrued on the loan since the last
transaction date. If loan interest is paid when due, it will not change the
portion of the Contract Fund allocated to the investment options. We reserve
the right to change the manner in which we allocate loan repayments.
26
<PAGE>
SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
Prudential, acts as the principal underwriter of the Contract. Prusec,
organized in 1971 under New Jersey law, is registered as a broker and dealer
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. Prusec's principal business address is
751 Broad Street, Newark, New Jersey 07102-3777. The Contract is sold by
registered representatives of Prusec who are also authorized by state insurance
departments to do so. The Contract may also be sold through other broker-
dealers authorized by Prusec and applicable law to do so. Registered
representatives of such other broker-dealers may be paid on a different basis
than described below.
Generally, representatives will receive a commission of no more than: (1) 50% of
the premiums received in the first year on premiums up to the target premium
(see Premiums, page 11); (2) 5% of premiums received in years two through 10 on
premiums up to the target premium; and (3) 3% on premiums received in the first
10 years in excess of the target premium or received after 10 years. If the
basic insurance amount is increased, representatives will generally receive a
commission of no more than: (1) 25% of the premiums received up to the target
premium for the increase received in the first year; (2) 5% of the premiums
received up to the target premium for years two through 10; and (3) 3% on other
premiums received for the increase. Moreover, trail commissions of up to 0.025%
of the Contract Fund as of the end of each calendar quarter may be paid.
Representatives with less than 4 years of service may receive compensation on a
different basis. Representatives who meet certain productivity or persistency
standards may be eligible for additional compensation.
TAX TREATMENT OF CONTRACT BENEFITS
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.
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 TAXATION OF THE
FUND in the statement of additional information for the Series Fund.
We believe we have taken adequate steps to insure that the Contract qualifies as
life insurance for tax purposes. Generally speaking, this means that:
. you will not be taxed on the growth of the funds in the Contract, unless you
receive a distribution from the Contract,
. 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 insure 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.
. 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.
27
<PAGE>
. 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.
. 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.
. Loans you take against the Contract are ordinarily treated as debt and are
not considered distributions subject to tax. However, there is some risk
the Internal Revenue Service might assert that the preferred loan should be
treated as a distribution for tax purposes because of the relatively low
differential between the loan interest rate and Contract's crediting rate.
Were the Internal Revenue Service to take this position, Pruco Life would
take reasonable steps to avoid this result, including modifying the
Contract's loan provisions.
MODIFIED ENDOWMENT CONTRACTS.
. 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.
. 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.
. 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.
. 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.
28
<PAGE>
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.
LAPSE AND REINSTATEMENT
Pruco Life will determine the value of the Contract Fund on each Monthly date.
If the Contract Fund less any applicable surrender charges is zero or less, the
Contract is in default unless it remains inforce under the Death Benefit
Guarantee. See DEATH BENEFIT GUARANTEE, page 12. If the Contract debt ever
grows to be equal to or more than the Contract Fund less any applicable
surrender charges, the Contract will be in default. Should this happen, Pruco
Life will send you a notice of default setting forth the payment which we
estimate will keep the Contract inforce for three months from the date of
default. This payment must be received at a Home Office within the 61-day grace
period after the notice of default is mailed or the Contract will end and have
no value. A Contract that lapses with an outstanding Contract loan may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
A Contract that ended in default may be reinstated within 5 years after the date
of default if the following conditions are met: (1) renewed evidence of
insurability is provided on the insured; (2) submission of certain payments
sufficient to bring the Contract up to date plus a premium that we estimate will
cover all charges and deductions for the next three months; and (3) any Contract
debt with interest to date must be restored (if the debt with interest would
exceed the loan value of the reinstated Contract, the excess must be paid to us
before reinstatement) or paid back. The reinstatement date will be the Monthly
date that coincides with or next follows the date we approve your request. We
will deduct all required charges from your payment and the balance will be
placed into your Contract Fund. If we approve the reinstatement, we will credit
the Contract Fund with an amount equal to the surrender charge applicable as of
the date of reinstatement.
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS
The Contract generally employs mortality tables that distinguish between males
and females. Thus, premiums and benefits 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 male rates, whether the insureds are male or
female. In addition, employers and employee organizations considering purchase
of a Contract should consult their legal advisers to determine whether purchase
of a Contract based on sex-distinct actuarial tables is consistent with Title
VII of the Civil Rights Act of 1964 or other applicable law.
OTHER GENERAL CONTRACT PROVISIONS
ASSIGNMENT. This Contract may not be assigned if the assignment would violate
any federal, state or local law or regulation prohibiting sex distinct rates for
insurance. Generally, the Contract may not be assigned to an employee benefit
plan or program without Pruco Life's consent. Pruco Life assumes no
responsibility for the validity or sufficiency of any assignment. 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.
29
<PAGE>
MISSTATEMENT OF AGE OR SEX. If the insured's stated age or sex or both are
incorrect in the Contract, Pruco Life will adjust the death benefits payable and
any amount to be paid, as required by law, to reflect the correct age and sex.
Any such benefit will be based on what the most recent deductions from the
Contract Fund would have provided at the insured's correct age and sex.
SETTLEMENT OPTIONS. The Contract grants to most owners, or to the beneficiary,
a variety of optional ways of receiving Contract proceeds, other than in a lump
sum. Any Pruco Life representative authorized to sell this Contract can explain
these options upon request.
SUICIDE EXCLUSION. Generally, if the insured, whether sane or insane, dies by
suicide within two years from the Contract date, the Contract will end and Pruco
Life will return the premiums paid, less any Contract debt, and less any
withdrawals. Generally, if the insured, whether sane or insane, dies by suicide
after two years from the issue date, but within two years of the effective date
of an increase in the basic insurance amount, we will pay, as to the increase in
amount, no more than the sum of the premiums paid on and after the effective
date of an increase.
RIDERS
Contract owners may be able to obtain extra fixed benefits which may require an
additional premium. These optional insurance benefits will be described in what
is known as a "rider" to the Contract. Charges applicable to the riders will be
deducted from the Contract Fund on each Monthly date.
One rider pays certain premiums into the Contract if the insured is totally
disabled within the meaning of the provision. Others pay an additional amount if
the insured dies within a stated number of years after issue; similar benefits
may be available if the insured's spouse or child should die. The amounts of
these benefits are fully guaranteed at issue; they do not depend on the
performance of the Account, although they will no longer be available if the
Contract lapses. Certain restrictions may apply; they are clearly described in
the applicable rider.
Any Pruco Life representative authorized to sell the Contract can explain these
extra benefits further. Samples of the provisions are available from Pruco Life
upon written request.
VOTING RIGHTS
As described earlier, all of the assets held in the subaccounts will be invested
in shares of the corresponding portfolios of the Funds. Pruco Life is the legal
owner of those shares and as such has the right to vote on any matter voted on
at shareholders meetings of the Funds. However, Pruco Life will, as required by
law, vote the shares of the Funds in accordance with voting instructions
received from Contract owners at any regular and special shareholders meetings.
A Fund may not hold annual shareholders meetings when not required to do so
under the laws of the state of its incorporation or the Investment Company Act
of 1940. Fund shares for which no timely instructions from Contract owners are
received, and any shares attributable to general account investments of Pruco
Life will be voted in the same proportion as shares in the respective portfolios
for which instructions are received. Should the applicable federal securities
laws or regulations, or their current interpretation, change so as to permit
Pruco Life to vote shares of the Funds in its own right, it may elect to do
so.
Matters on which Contract owners may give voting instructions include the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's selected subaccount[s]; (4) any change in
the fundamental investment policy of a portfolio corresponding to the Contract
owner's selected subaccount[s]; and (5) any other matter requiring a vote of the
shareholders of the Series Fund. With respect to approval of the investment
advisory agreement or any change in a portfolio's fundamental investment policy,
Contract owners participating in such portfolios will vote separately on the
matter, pursuant to the requirements of Rule 18f-2 under the Investment Company
Act of 1940.
The number of 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 applicable Fund. The number of votes for which each Contract
owner may give Pruco Life instructions will be determined as of the record date
chosen by the Board of Directors of the applicable Fund. Pruco Life will furnish
Contract owners with proper forms and proxies to enable them to give these
instructions. Pruco Life reserves the right to modify the manner in which the
weight to be given voting instructions is calculated where such a change is
30
<PAGE>
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 a Fund's
portfolios, or to approve or disapprove an investment advisory contract for a
Fund. In addition, Pruco Life itself may disregard voting instructions that
would require changes in the investment policy or investment adviser of one or
more of a Fund's portfolios, provided that Pruco Life reasonably disapproves
such changes in accordance with applicable federal regulations. If Pruco Life
does disregard voting instructions, it will advise Contract owners of that
action and its reasons for such action in the next annual or semi-annual report
to Contract owners.
SUBSTITUTION OF FUND SHARES
Although Pruco Life believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Funds may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, Pruco Life may seek to substitute the shares of another portfolio or
of an entirely different mutual fund. Before this can be done, the approval of
the SEC, and possibly one or more state insurance departments, may be required.
Contract owners will be notified of any such substitution.
REPORTS TO CONTRACT OWNERS
Once each year, 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. Currently we intend to provide three quarterly reports (in
addition to the year-end statement) which provide abbreviated information
pertinent to your own Contract.
You will also be sent annual and semi-annual reports of the Funds showing the
financial condition of the portfolios and the investments held in each
portfolio.
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 consolidated financial statements of Pruco Life and Subsidiaries 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 Ching-Meei
Chang, MAAA, FSA, Actuarial Director of Prudential, whose opinion is filed as an
exhibit to the registration statement.
31
<PAGE>
LITIGATION
Several actions have been brought against Pruco Life alleging that Pruco Life
and its agents engaged in improper life insurance sales practices. Prudential
has agreed to indemnify Pruco Life for losses, if any, resulting from such
litigation. No other significant litigation is being brought against Pruco Life
that would have a material effect on its financial position.
YEAR 2000 COMPLIANCE
The services provided to you as a purchaser of a Variable Universal 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
Universal 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:
. BUSINESS SYSTEMS - Computer programs directly used to support our
----------------
business;
. INFRASTRUCTURE - Computers and other business equipment like telephones and
--------------
fax machines; and
. 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.
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.
32
<PAGE>
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 Universal 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 Universal 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 Universal 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 Universal 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.
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.
33
<PAGE>
DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life, listed with their principal
occupations during the past 5 years, are shown below.
DIRECTORS OF PRUCO LIFE
JAMES J. AVERY, JR., CHAIRMAN AND DIRECTOR. -- Senior Vice President and Chief
Actuary, Prudential Individual Insurance Group since 1997; 1995 to 1997:
President of Prudential Select; Prior to 1995: Chief Operating Officer of
Prudential Select.
WILLIAM M. BETHKE, DIRECTOR. -- Chief Investment Officer since 1997; Prior to
1997: President, Prudential Capital Markets Group.
IRA J. KLEINMAN, DIRECTOR. -- Executive Vice President, Prudential International
Insurance Group since 1997; 1995 to 1997: Chief Marketing and Product
Development Officer, Prudential Individual Insurance Group; Prior to 1995:
President, Prudential Select.
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.
34
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED PRUDENTIAL FLEXIBLE CONSERVATIVE HIGH
MARKET BOND EQUITY MANAGED BALANCED YIELD
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in The Prudential Series
Fund, Inc.
Portfolios and non-Prudential
administered funds, at net asset
value [Note 3]......................... $128,928,942 $76,889,589 $842,000,159 $1,186,637,163 $609,598,948 $79,509,786
------------ ----------- ------------ -------------- ------------ -----------
Net Assets.............................. $128,928,942 $76,889,589 $842,000,159 $1,186,637,163 $609,598,948 $79,509,786
============ =========== ============ ============== ============ ===========
NET ASSETS, representing:
Equity of contract owners .............. $128,928,942 $76,889,589 $842,000,159 $1,186,637,163 $609,598,948 $79,509,786
------------ ----------- ------------ -------------- ------------ -----------
$128,928,942 $76,889,589 $842,000,159 $1,186,637,163 $609,598,948 $79,509,786
============ =========== ============ ============== ============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A23
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL T. ROWE PRICE MFS
STOCK EQUITY PRUDENTIAL PRUDENTIAL INTERNATIONAL AIM V.I. JANUS ASPEN EMERGING AMERICAN
INDEX INCOME GLOBAL JENNISON STOCK VALUE GROWTH GROWTH CENTURY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO FUND PORTFOLIO SERIES V.P. VALUE
- ----------------------------- ------------- -------------- -------------- ------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$255,310,081 $99,016,976 $84,283,413 $62,803,264 $2,032,181 $3,262,528 $3,298,433 $4,494,423 $1,549,058
- ------------ ----------- ----------- ----------- ---------- ---------- ---------- ---------- ----------
$255,310,081 $99,016,976 $84,283,413 $62,803,264 $2,032,181 $3,262,528 $3,298,433 $4,494,423 $1,549,058
============ =========== =========== =========== ========== ========== ========== ========== ==========
$255,310,081 $99,016,976 $84,283,413 $62,803,264 $2,032,181 $3,262,528 $3,298,433 $4,494,423 $1,549,058
- ------------ ----------- ----------- ----------- ---------- ---------- ---------- ---------- ----------
$255,310,081 $99,016,976 $84,283,413 $62,803,264 $2,032,181 $3,262,528 $3,298,433 $4,494,423 $1,549,058
============ =========== =========== =========== ========== ========== ========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A23
A2
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
--------------------------------------- ---------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income................................ $7,321,694 $2,458,119 $2,545,618 $4,540,659 $5,128,836 $ 4,422,147
---------- ---------- ---------- ---------- ---------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A].... 832,314 276,535 295,628 440,438 417,937 403,154
Reimbursement for excess expenses [Note 5D].... (6,522) (10,194) (20,990) (17,331) (16,936) (33,127)
---------- ---------- ---------- ---------- ---------- -----------
NET EXPENSES...................................... 825,792 266,341 274,638 423,107 401,001 370,027
---------- ---------- ---------- ---------- ---------- -----------
NET INVESTMENT INCOME (LOSS)...................... 6,495,902 2,191,778 2,270,980 4,117,552 4,727,835 4,052,120
---------- ---------- ---------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received........... 0 0 0 262,836 819,446 0
Realized gain (loss) on shares redeemed........ 0 0 0 174,627 216,418 133,542
Net change in unrealized gain (loss)
on investments............................... 0 0 0 73,088 (456,475) (1,490,302)
---------- ---------- ---------- ---------- ---------- ----------
NET GAIN (LOSS) ON INVESTMENTS.................... 0 0 0 510,551 579,389 (1,356,760)
---------- ---------- ---------- ---------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS...................... $6,495,902 $2,191,778 $2,270,980 $4,628,103 $5,307,224 $ 2,695,360
========== ========== ========== ========== ========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A23
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
PRUDENTIAL 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>
$ 15,582,045 $ 17,535,990 $ 15,452,502 $ 38,101,728 $ 32,821,189 $ 29,870,591 $ 25,145,187 $25,761,286 $21,071,449
- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------
5,123,051 4,548,952 3,759,455 7,013,282 6,514,308 5,804,428 3,550,351 3,334,597 3,078,977
(740,855) (588,463) (691,285) (2,657,281) (2,462,808) (2,442,468) (1,018,563) (912,152) (1,030,139)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------- -----------
4,382,196 3,960,489 3,068,170 4,356,001 4,051,500 3,361,960 2,531,788 2,422,445 2,048,838
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------- -----------
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
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------- -----------
59,114,550 147,128,866 92,024,606 75,582,792 145,864,125 94,831,439 40,509,172 43,993,438 40,686,229
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------- -----------
$ 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
============ ============ ============ ============ ============ ============ ============ =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A23
A4
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
HIGH YIELD STOCK
BOND INDEX
PORTFOLIO PORTFOLIO
--------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
------------ ---------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ........................... $ 5,833,057 $ 3,606,406 $ 3,403,479 $ 2,391,120 $ 1,739,314 $ 1,433,253
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk
[Note 5A]............................... 313,600 226,827 209,077 1,080,631 677,531 450,089
Reimbursement for excess expenses
[Note 5D]............................... 0 0 0 0 0 0
----------- ------------ ----------- ----------- ----------- -----------
NET EXPENSES ................................. 313,600 226,827 209,077 1,080,631 677,531 450,089
----------- ------------ ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ................. 5,519,457 3,379,579 3,194,402 1,310,489 1,061,783 983,164
----------- ------------ ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
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 GAIN (LOSS) ON INVESTMENTS .............. (5,848,401) 1,295,969 359,369 49,362,815 29,276,271 14,055,548
----------- ----------- ----------- ----------- ----------- -----------
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
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A23
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
- ----------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL
EQUITY PRUDENTIAL PRUDENTIAL
INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------- ---------------------------------------- ---------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------- ------------- ----------- ----------- ---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2,687,713 $ 1,948,909 $ 1,891,825 $ 767,006 $ 328,183 $ 488,012 $ 94,006 $ 40,345 $ 16,655
- ------------ ----------- ----------- ----------- ---------- ---------- ----------- ---------- ---------
607,915 441,648 323,322 282,944 158,801 107,629 252,490 100,484 35,885
0 0 0 0 0 0 0 0 0
- ------------ ----------- ----------- ----------- ---------- ---------- ----------- ---------- ---------
607,915 441,648 323,322 282,944 158,801 107,629 252,490 100,484 35,885
- ------------ ----------- ----------- ----------- ---------- ---------- ----------- ---------- ---------
2,079,798 1,507,261 1,568,503 484,062 169,382 380,383 (158,484) (60,139) (19,230)
- ------------ ----------- ----------- ----------- ---------- ---------- ----------- ---------- ---------
5,974,930 8,147,416 1,879,859 3,473,934 1,296,459 347,618 971,435 1,372,676 0
997,898 256,502 417,132 651,742 251,779 36,315 1,799,613 167,648 32,821
(13,181,479) 12,255,558 6,642,405 6,143,980 (363,854) 2,363,101 11,054,729 2,544,336 870,328
- ------------ ----------- ----------- ----------- ---------- ---------- ----------- ---------- ---------
(6,208,651) 20,659,476 8,939,396 10,269,656 1,184,384 2,747,034 13,825,777 4,084,660 903,149
- ------------ ----------- ----------- ----------- ---------- ---------- ----------- ---------- ---------
$ (4,128,853) $22,166,737 $10,507,899 $10,753,718 $1,353,766 $3,127,417 $13,667,293 $4,024,521 $ 883,919
============ =========== =========== =========== ========== ========== =========== ========== =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A23
A6
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------
T. ROWE PRICE AIM V.I.
INTERNATIONAL STOCK VALUE
PORTFOLIO * FUND*
-------------------- -------------------
1998 1997 1998 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ........................... $ 65,861 $ 2,930 $ 14,397 $ 3,293
-------- -------- -------- --------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk
[Note 5A]................................ 13,588 472 9,772 424
Reimbursement for excess expenses
[Note 5D]................................ 0 0 0 0
-------- -------- -------- --------
NET EXPENSES ................................. 13,588 472 9,772 424
-------- -------- -------- --------
NET INVESTMENT INCOME (LOSS) ................. 52,273 2,458 4,625 2,869
-------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ..... 23,244 4,151 127,325 10,111
Realized gain (loss) on shares redeemed .. 268,182 367 2,503 649
Net change in unrealized gain (loss)
on investments .......................... 72,884 (7,256) 384,848 (12,003)
-------- -------- -------- --------
NET GAIN (LOSS) ON INVESTMENTS .............. 364,310 (2,738) 514,676 (1,243)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................. $416,583 $ (280) $519,301 $ 1,626
======== ======== ======== ========
</TABLE>
* Commenced Operations on 6/30/97
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A23
A7
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
- -------------------------------------------------------------------------------------
MFS
JANUS ASPEN EMERGING GROWTH AMERICAN CENTURY
GROWTH PORTFOLIO* SERIES* V.P. VALUE*
- ------------------------- -------------------------- --------------------------
1998 1997 1998 1997 1998 1997
- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 45,081 $ 0 $ 0 $ 0 $ 3,101 $ 0
- ----------- ----------- ----------- ----------- ----------- -----------
7,904 553 16,723 483 5,036 371
0 0 0 0 0 0
- ----------- ----------- ----------- ----------- ----------- -----------
7,904 553 16,723 483 5,036 371
- ----------- ----------- ----------- ----------- ----------- -----------
37,177 (553) (16,723) (483) (1,935) (371)
- ----------- ----------- ----------- ----------- ----------- -----------
35,736 0 57,356 0 37,021 0
82,695 (43,819) 705,856 (8,124) (4,083) 0
455,645 0 329,413 55,064 (3,206) 4,263
- ----------- ----------- ----------- ----------- ----------- -----------
574,076 (43,819) 1,092,625 46,940 29,732 4,263
- ----------- ----------- ----------- ----------- ----------- -----------
$ 611,253 $ (44,372) $ 1,075,902 $ 46,457 $ 27,797 $ 3,892
=========== =========== =========== =========== =========== ===========
</TABLE>
* Commenced Operations on 6/30/97
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A23
A8
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) .......... $ 6,495,902 $ 2,191,778 $ 2,270,980 $ 4,117,552 $ 4,727,835 $ 4,052,120
Capital gains distributions
received ............................. 0 0 0 262,836 819,446 0
Realized gain (loss) on shares
redeemed ............................. 0 0 0 174,627 216,418 133,542
Net change in unrealized gain loss) on
investments .......................... 0 0 0 73,088 (456,475) (1,490,302)
------------ ----------- ----------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............. 6,495,902 2,191,778 2,270,980 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] .............................. 75,326,397 (3,523,207) (4,243,121) 1,356,919 (4,202,208) 1,116,168
------------ ----------- ----------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [Note 8] ...... (1,697,004) 1,532,549 22,759 3,878 (68,990) 33,769
------------ ----------- ----------- ------------ ----------- -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ................................ 80,125,295 201,120 (1,949,382) 5,988,900 1,036,026 3,845,297
NET ASSETS
Beginning of year ..................... 48,803,647 48,602,527 50,551,909 70,900,689 69,864,663 66,019,366
------------ ----------- ----------- ------------ ----------- -----------
End of year ........................... $128,928,942 $48,803,647 $48,602,527 $76,889,589 $70,900,689 $69,864,663
============ =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A23
A9
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
- ---------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
PRUDENTIAL 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 A23
A10
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------
PRUDENTIAL
HIGH YIELD PRUDENTIAL
BOND STOCK INDEX
PORTFOLIO PORTFOLIO
------------------------------------------- -------------------------------------------
1998 1997 1996 1998 1997 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
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 A23
A11
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
- ----------------------------------------------------------------------------------------------------------------------
PRUDENTIAL
EQUITY PRUDENTIAL PRUDENTIAL
INCOME GLOBAL JENNISON
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 $ 484,062 $ 169,382 $ 380,383 $ (158,484) $ (60,139) $ (19,230)
5,974,930 8,147,416 1,879,859 3,473,934 1,296,459 347,618 971,435 1,372,676 0
997,898 256,502 417,132 651,742 251,779 36,315 1,799,613 167,648 32,821
(13,181,479) 12,255,558 6,642,405 6,143,980 (363,854) 2,363,101 11,054,729 2,544,336 870,328
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(4,128,853) 22,166,737 10,507,899 10,753,718 1,353,766 3,127,417 13,667,293 4,024,521 883,919
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
11,784,390 9,173,359 (1,064,633) 46,610,297 3,236,611 5,614,035 23,887,642 9,693,699 8,604,081
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(206,095) 226,288 (61,045) (317,822) (120,958) 18,594 288,264 (30,216) 71,804
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
7,449,442 31,566,384 9,382,221 57,046,193 4,469,419 8,760,046 37,843,199 13,688,004 9,559,804
91,567,534 60,001,150 50,618,929 27,237,220 22,767,801 14,007,755 24,960,065 11,272,061 1,712,257
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 99,016,976 $91,567,534 $60,001,150 $84,283,413 $27,237,220 $22,767,801 $62,803,264 $24,960,065 $11,272,061
============ =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A23
A12
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------
T. ROWE PRICE AIM V.I.
INTERNATIONAL VALUE
STOCK PORTFOLIO* FUND*
----------------------- ------------------------
1998 1997 1998 1997
------------ --------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss)........................................... $ 52,273 $ 2,458 $ 4,625 $ 2,869
Capital gains distributions received................................... 23,244 4,151 127,325 10,111
Realized gain (loss) on shares redeemed................................ 268,182 367 2,503 649
Net change in unrealized gain (loss) on investments.................... 72,884 (7,256) 384,848 (12,003)
---------- -------- ---------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.............................................. 416,583 (280) 519,301 1,626
---------- -------- ---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7]............................................................... 967,420 437,325 2,194,927 527,237
---------- -------- ---------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT
[Note 8]............................................................... 239,675 (28,542) 250 19,187
---------- -------- ---------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS................................... 1,623,678 408,503 2,714,478 548,050
NET ASSETS
Beginning of year...................................................... 408,503 0 548,050 0
---------- -------- ---------- ---------
End of year............................................................ $2,032,181 $408,503 $3,262,528 $ 548,050
========== ======== ========== =========
</TABLE>
* Commenced Operations on 6/30/97
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A23
A13
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
- ------------------------------------------------------------------------------
AMERICAN
JANUS ASPEN MFS CENTURY
GROWTH EMERGING V.P.
PORTFOLIO* GROWTH SERIES* VALUE*
- ----------------------- ------------------------ -----------------------
1998 1997 1998 1997 1998 1997
- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 37,177 $ (553) $ (16,723) $ (483) $ (1,935) $ (371)
35,736 0 57,356 0 37,021 0
82,695 (43,819) 705,856 (8,124) (4,083) 0
455,645 0 329,413 55,064 (3,206) 4,263
- ---------- ---------- ---------- ---------- ---------- ----------
611,253 (44,372) 1,075,902 46,457 27,797 3,892
- ---------- ---------- ---------- ---------- ---------- ----------
2,382,152 351,260 1,072,189 2,103,269 1,210,096 301,205
- ---------- ---------- ---------- ---------- ---------- ----------
(42,971) 41,111 228,916 (32,310) (4,098) 10,166
- ---------- ---------- ---------- ---------- ---------- ----------
2,950,434 347,999 2,377,007 2,117,416 1,233,795 315,263
347,999 0 2,117,416 0 315,263 0
- ---------- ---------- ---------- ---------- ---------- ----------
$3,298,433 $ 347,999 $4,494,423 $2,117,416 $1,549,058 $ 315,263
========== ========== ========== ========== ========== ==========
</TABLE>
* Commenced Operations on 6/30/97
A14
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL 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 the
purchases of Pruco Life's Variable Appreciable Life ("VAL") contracts
and Pruco Life's Variable Universal Life ("VUL") contracts are
invested in the Account 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. VUL contracts offer the option to
invest in fifteen of these subaccounts within the Account, each of
which invests in either a corresponding portfolio of The Prudential
Series Fund, Inc. (the "Series Fund"), or any of the non-Prudential
administered funds shown in Note 3. The Series Fund is a diversified
open-end management investment company, and is managed by Prudential.
New sales of the VAL product which invests in the Account were
discontinued as of May 1, 1992. However, premium payments made by
current VAL contract owners will continue to be received by the
Account.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The 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 or the
-----------
non-Prudential administered funds are stated at the net asset value
of the respective portfolio.
Security Transactions--Realized gains and losses on security
---------------------
transactions are reported on an average cost basis. Purchase and sale
transactions are recorded as of the trade date of the security being
purchased or sold.
Distributions Received--Dividend and capital gain distributions
----------------------
received are reinvested in additional shares of the Series Fund or
the non-Prudential administered funds and are recorded on the
ex-dividend date.
A15
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC.
PORTFOLIOS AND THE NON-PRUDENTIAL ADMINISTERED FUNDS
The net asset value per share (rounded) for each portfolio of the
Series Fund or the non-Prudential administered funds, the number of
shares of each portfolio held by the Variable Universal Life
subaccounts and the aggregate cost of investments in such shares at
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
---------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED PRUDENTIAL FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Number of shares: ........ 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)
---------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
HIGH YIELD STOCK EQUITY PRUDENTIAL PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Number of shares: ........ 11,030,923 6,764,973 4,942,812 3,983,734 2,626,998
Net asset value per share:
(rounded): ............ $ 7.21 $ 37.74 $ 20.03 $ 21.16 $ 23.91
Cost: .................... $ 84,956,443 $ 158,925,751 $ 88,043,952 $ 75,384,836 $ 48,274,101
<CAPTION>
PORTFOLIOS (continued)
--------------------------------------------------------------------------------------
INTERNATIONAL AIM V.I. JANUS EMERGING AMERICAN
STOCK VALUE ASPEN GROWTH GROWTH CENTURY
PORTFOLIO FUND PORTFOLIO SERIES V.P. VALUE
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Number of shares: ........ 139,957 124,287 140,122 209,335 230,172
Net asset value per share:
(rounded): ............ $ 14.52 $ 26.25 $ 23.54 $ 21.47 $ 6.73
Cost: .................... $ 1,966,553 $ 2,889,684 $ 2,842,788 $ 4,109,946 $ 1,548,001
</TABLE>
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
--------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED PRUDENTIAL FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units
Outstanding (VAL)...... 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
=============== =============== =============== =============== ===============
</TABLE>
A16
<PAGE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (continued)
----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
HIGH YIELD STOCK EQUITY PRUDENTIAL PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units
Outstanding (VAL)..... 15,999,046 34,635,875 21,549,657 18,163,408 19,841,093
Unit Value (VAL)........ $ 2.38788 $ 5.17604 $ 4.21000 $ 1.75630 $ 2.54836
--------------- --------------- --------------- --------------- ---------------
Contract Owner Equity
(VAL)................. $ 38,203,801 $ 179,276,673 $ 90,724,055 $ 31,900,393 $ 50,562,247
--------------- --------------- --------------- --------------- ---------------
Contract Owner Units
Outstanding (VUL)..... 37,419,926 45,015,753 6,139,221 38,773,516 6,937,032
Unit Value (VUL)........ $ 1.10385 $ 1.68904 $ 1.35081 $ 1.35100 $ 1.76459
--------------- --------------- --------------- --------------- ---------------
Contract Owner Equity
(VUL)................. $ 41,305,985 $ 76,033,408 $ 8,292,921 $ 52,383,020 $ 12,241,017
--------------- --------------- --------------- --------------- ---------------
TOTAL CONTRACT OWNER
EQUITY................ $ 79,509,786 $ 255,310,081 $ 99,016,976 $ 84,283,413 $ 62,803,264
=============== =============== =============== =============== ===============
<CAPTION>
SUBACCOUNTS (Continued)
---------------------------------------------------------------------------------------
T. ROWE PRICE JANUS MFS
INTERNATIONAL AIM V.I. ASPEN EMERGING AMERICAN
STOCK VALUE GROWTH GROWTH CENTURY
PORTFOLIO FUND PORTFOLIO SERIES V.P. VALUE
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units
Outstanding (VAL)..... N/A N/A N/A N/A N/A
Unit Value (VAL)........ $ N/A $ N/A $ N/A $ N/A $ N/A
--------------- --------------- --------------- --------------- ---------------
Contract Owner Equity
(VAL)................. $ N/A $ N/A $ N/A $ N/A $ N/A
--------------- --------------- --------------- --------------- ---------------
Contract Owner Units
Outstanding (VUL)..... 1,926,639 2,339,115 2,272,023 3,070,464 1,347,194
Unit Value (VUL)........ $ 1.05478 $ 1.39477 $ 1.45176 $ 1.46376 $ 1.14984
--------------- --------------- --------------- --------------- ---------------
Contract Owner Equity
(VUL)................. $ 2,032,181 $ 3,262,528 $ 3,298,433 $ 4,494,423 $ 1,549,058
--------------- --------------- --------------- --------------- ---------------
TOTAL CONTRACT OWNER
EQUITY................ $ 2,032,181 $ 3,262,528 $ 3,298,433 $ 4,494,423 $ 1,549,058
=============== =============== =============== =============== ===============
</TABLE>
NOTE 5: CHARGES AND EXPENSEs
A. Mortality Risk and Expense Risk Charges
The mortality risk and expense risk charges at an effective
annual rate of 0.60% are applied daily against the net assets
representing equity of VAL and VUL contract owners held in each
subaccount. Mortality risk is that contract owners may not live
as long as estimated and expense risk is that the cost of issuing
and administering the policies may exceed 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.
A17
<PAGE>
NOTE 5: CHARGES AND EXPENSES (CONTINUED)
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 $25 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) state premium taxes; ( 2) 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.
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
The following amounts represent components of contract owner activity
for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
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 Payments and Other Operating Transfers... $ 75,326,397 $ (3,523,207) $ 1,356,919 $ (4,202,208)
============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (Continued)
--------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
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 Payments and Other Operating Transfers....... $ (43,486,241) $ (23,411,697) $ (57,756,969) $ (55,522,303)
============== ============== ============== ==============
</TABLE>
A18
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
----------------------------------------------------------
PRUDENTIAL PRUDENTIAL
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 Payments and Other Operating Transfers...... $ (25,901,655) $ (28,732,033) $ 39,979,999 $ (896,939)
============= ============= ============= =============
<CAPTION>
SUBACCOUNTS (Continued)
----------------------------------------------------------
PRUDENTIAL PRUDENTIAL
STOCK INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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 Payments and Other Operating Transfers...... $ 69,504,900 $ 14,261,548 $ 11,784,390 $ 9,173,359
============= ============= ============= =============
<CAPTION>
SUBACCOUNTS (Continued)
-----------------------------------------------------------
PRUDENTIAL PRUDENTIAL
GLOBAL JENNISON
PORTFOLIO PORTFOLIO
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Contract Owner Net Payments.............................. $ 3,547,480 $ 2,426,347 $ 10,395,819 $ 3,275,515
Policy Loans............................................. (1,153,101) (665,649) (1,342,282) (615,994)
Policy Loan Repayments and Interest...................... 577,417 410,448 802,423 403,472
Surrenders, Withdrawals and Death Benefits............... (1,106,969) (1,030,134) (8,014,188) (663,449)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options............................................ 46,088,034 3,018,892 24,792,645 8,134,626
Administrative and Other Charges......................... (1,342,564) (923,293) (2,746,775) (840,471)
------------- ------------- ------------- -------------
Net Increase (Decrease) in Net Assets Resulting from
Premium Payments and Other Operating Transfers.......... $ 46,610,297 $ 3,236,611 $ 23,887,642 $ 9,693,699
============= ============= ============= =============
<CAPTION>
SUBACCOUNTS (Continued)
----------------------------------------------------------
T. ROWE PRICE AIM V.I.
INTERNATIONAL STOCK VALUE
PORTFOLIO FUND
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Contract Owner Net Payments............................... $ 1,654,002 $ 249,422 $ 2,440,911 $ 328,696
Policy Loans.............................................. (890) -- (4,704) --
Policy Loan Repayments and Interest....................... 88 -- 26 --
Surrenders, Withdrawals and Death Benefits................ (7,222) -- (7,602) --
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options............................................. (380,435) 209,865 165,072 234,653
Administrative and Other Charges.......................... (298,123) (21,962) (398,776) (36,112)
------------- ------------- ------------- -------------
Net Increase (Decrease) in Net Assets Resulting from
Premium Payments and Other Operating Transfers........... $ 967,420 $ 437,325 $ 2,194,927 $ 527,237
============= ============= ============= =============
</TABLE>
A19
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
-----------------------------------------------------------
JANUS ASPEN MFS EMERGING
GROWTH GROWTH
PORTFOLIO SERIES
----------------------------- ----------------------------
1998 1997 1998 1997
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Contract Owner Net Payments............................... $ 2,418,661 $ 167,622 $ 2,884,035 $ 425,641
Policy Loans.............................................. (2,766) -- (10,637) --
Policy Loan Repayments and Interest....................... 14 -- 2,886 --
Surrenders, Withdrawals and Death Benefits................ (4,272) -- (1,472,154) --
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options............................................. 340,962 207,117 217,538 1,719,780
Administrative and Other Charges.......................... (370,444) (23,479) (549,479) (42,152)
------------- -------------- ------------- -------------
Net Increase (Decrease) in Net Assets Resulting
from Premium Payments and Other Operating Transfers...... $ 2,382,152 $ 351,260 $ 1,072,189 $ 2,103,269
============= ============== ============= =============
<CAPTION>
SUBACCOUNTS (Continued)
----------------------------
AMERICAN CENTURY
V.P. VALUE
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Contract Owner Net Payments............................... $ 1,278,357 $ 168,974
Policy Loans.............................................. (3,346) --
Policy Loan Repayments and Interest....................... 106 --
Surrenders, Withdrawals and Death Benefits................ (2,912) --
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options............................................. 155,288 151,959
Administrative and Other Charges.......................... (217,397) (19,728)
------------- -------------
Net Increase (Decrease) in Net Assets Resulting from
Premium Payments and Other Operating Transfers........... $ 1,210,096 $ 301,205
============= =============
</TABLE>
Note 8: 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.
A20
<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
----------------------------------------------------------------------------------------------
PRUDENTIAL
PRUDENTIAL DIVERSIFIED
MONEY 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)
----------------------------------------------------------------------------------------------
PRUDENTIAL
PRUDENTIAL 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)
----------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
CONSERVATIVE HIGH YIELD
BALANCED BOND
PORTFOLIO PORTFOLIO
---------------------------------------------- ----------------------------------------------
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)
----------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
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)
----------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
GLOBAL JENNISON
PORTFOLIO PORTFOLIO
---------------------------------------------- ----------------------------------------------
1998 1997 1996 1998 1997 1996
--------------- --------------- ------------ ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 43,728,816 6,841,694 10,050,734 132,450,542 9,601,165 10,385,285
Contract Owner
Redemptions: (6,235,706) (4,372,292) (5,504,422) (119,371,798) (3,617,614) (3,950,761)
</TABLE>
A21
<PAGE>
NOTE 9: UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
-----------------------------------------------------------------------------------------------
T. ROWE PRICE AIM V.I. JANUS
INTERNATIONAL STOCK VALUE ASPEN GROWTH
PORTFOLIO* FUND* PORTFOLIO*
-------------------------------- ------------------------------ -----------------------------
1998 1997 1998 1997 1998 1997
--------------- --------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 171,490,487 2,496,937 2,310,710 535,143 3,889,309 1,778,211
Contract Owner
Redemptions: (170,009,856) (2,048,705) (467,027) (39,711) (1,940,522) (1,452,996)
<CAPTION>
SUBACCOUNTS (Continued)
----------------------------------------------------------------
MFS
EMERGING AMERICAN
GROWTH CENTURY
SERIES* V.P. VALUE*
-------------------------------- ------------------------------
1998 1997 1998 1997
--------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Contract Owner
Contributions: 127,030,308 8,307,260 1,359,801 295,651
Contract Owner
Redemptions: (125,888,906) (6,378,197) (288,508) (19,750)
</TABLE>
* Commenced operations on 6/30/97.
A22
<PAGE>
NOTE 10: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of
investments in the Series Fund and the non-Prudential administered
funds for the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
---------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
PRUDENTIAL DIVERSIFIED PRUDENTIAL FLEXIBLE CONSERVATIVE
MONEY MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
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)
---------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
HIGH YIELD STOCK EQUITY PRUDENTIAL PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Purchases.............. $ 46,913,105 $ 142,204,807 $ 21,915,666 $ 50,728,832 $ 168,924,240
Sales.................. $ (7,326,567) $ (72,989,876) $ (10,945,287) $ (4,718,352) $ (145,000,824)
<CAPTION>
PORTFOLIOS (Continued)
---------------------------------------------------------------------------------------
T. ROWE PRICE MFS
INTERNATIONAL AIM V.I. JANUS EMERGING AMERICAN
STOCK VALUE ASPEN GROWTH GROWTH CENTURY
PORTFOLIO FUND PORTFOLIO SERIES V.P. VALUE
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Purchases.............. $ 117,157,165 $ 2,796,487 $ 4,399,366 $ 72,630,679 $ 1,256,423
Sales.................. $ (115,885,348) $ (611,081) $ (1,688,184) $ (70,895,821) $ (55,462)
</TABLE>
A23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the
Variable Universal Life Subaccounts of the
Pruco Life Variable Appreciable Account
and the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the Prudential Money Market
Portfolio, Prudential Diversified Bond Portfolio, Prudential Equity Portfolio,
Prudential Flexible Managed Portfolio, Prudential Conservative Balanced
Portfolio, Prudential High Yield Bond Portfolio, Prudential Stock Index
Portfolio, Prudential Equity Income Portfolio, Prudential Global Portfolio,
Prudential Jennison Portfolio, T. Rowe Price International Stock Portfolio, AIM
V.I. Value Fund, Janus Aspen Growth Portfolio, MFS Emerging Growth Series and
American Century V.P. Value of the Variable Universal 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 (for the year ended December 31, 1998
and for the period June 30, 1997 through December 31, 1997 for T. Rowe Price
International Stock Portfolio, AIM V.I. Value Fund, Janus Aspen Growth
Portfolio, MFS Emerging Growth Series, and American Century V.P. Value), 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
A24
<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 UNIVERSAL LIFE
INSURANCE
Variable Universal Life is 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.
[LOGO] Prudential
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone 800 778-2255
VUL-1 Ed. 5/99 CAT# 64M9743
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION WITH RESPECT TO CHARGES
Pruco Life Insurance Company represents that the fees and charges deducted under
the Variable Universal Life Insurance Contracts registered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by the
depositor.
UNDERTAKING WITH RESPECT TO INDEMNIFICATION
The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.
Arizona, being the state of organization of Pruco Life Insurance Company
("Pruco"), permits entities organized under its jurisdiction to indemnify
directors and officers with certain limitations. The relevant provisions of
Arizona law permitting indemnification can be found in Section 10-850 et seq. of
the Arizona Statutes Annotated. The text of Pruco's By-law, Article VIII, which
relates to indemnification of officers and directors, is incorporated by
reference to Exhibit 3(ii) to its Form 10-Q, SEC File No. 33-37587, filed August
15, 1997.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
- -------------------------------------------------------------------------
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 97 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
2. Clifford E. Kirsch, Esq.
3. Ching-Meei Chang, MAAA, FSA
The following exhibits:
- -----------------------
1. The following exhibits correspond to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
<TABLE>
<C> <C> <S> <C>
A. (1) (a) Resolution of Board of Directors of Pruco Life Insurance Company establishing the Pruco
Life Variable Appreciable Account. (Note 3)
(b) Amendment of Separate Account Resolution. (Note 8)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities Corporation and Pruco Life Insurance
Company. (Note 3)
(b) Proposed form of Agreement between Pruco
Securities Corporation and independent brokers
with respect to the Sale of the Contracts.
(Note 3)
(c) Schedules of Sales Commissions. (Note 5)
(d) Participation Agreements.
(i) AIM Variable Insurance Funds, Inc., AIM V.I. Value Fund. (Note 8)
(ii) American Century Variable Portfolios, Inc., VP Value Portfolio. (Note 8)
(iii) Janus Aspen Series, Growth Portfolio. (Note 8)
(iv) MFS Variable Insurance Trust, Emerging Growth Series. (Note 8)
(v) T. Rowe Price International Series, Inc., International Stock Portfolio. (Note 8)
(4) Not Applicable.
(5) Variable Universal Life Insurance Contract: (Note 3)
(6) (a) Articles of Incorporation of Pruco Life Insurance Company, as amended October 19, 1993.
(Note 3)
(b) By-laws of Pruco Life Insurance Company, as amended May 6, 1997. (Note 9)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form. (Note 3)
(b) Supplement to the Application. (Note 2)
(11) Form of Notice of Withdrawal Right. (Note 5)
(12) Memorandum describing Prudential's issuance, transfer,
and redemption procedures for the Contracts pursuant to
Rule 6e-3(T)(b)(12)(iii) and method of computing
adjustments in payments and cash surrender values upon
conversion to fixed-benefit policies pursuant to Rule
6e- 3(T)(b)(13)(v)(B). (Note 10)
(13) Available Contract Riders and Endorsements:
(a) Rider for Payment of Premium Benefit Upon Insured's Total Disability. (Note 3)
(b) 10 Year Level Premium Term Rider on Insured. (Note 5)
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C> <C>
(c) 10 Year Level Premium Term Rider on Spouse. (Note 5)
(d) Annually Renewable Term Rider on Insured. (Note 5)
(e) Children's Rider. (Note 5)
(f) Living Needs Benefit Rider
(i) for use in Florida. (Note 3)
(ii) for use in all approved jurisdictions
except Florida. (Note 3)
2. See Exhibit 1.A.(5).
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of
the securities being registered. (Note 1)
4. None.
5. Not Applicable.
6. Opinion and Consent of Ching-Meei Chang, MAAA, FSA, as to actuarial
matters pertaining to the securities being registered. (Note 1)
7. Powers of Attorney:
(a) William M. Bethke, Ira J. Kleinman, Esther H. Milnes, I. Edward Price (Note 6)
(b) Kiyofumi Sakaguchi (Note 4)
(c) James J. Avery, Jr. (Note 8)
(d) Dennis G. Sullivan (Note 7)
</TABLE>
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Post-Effective Amendment No. 11
to Form S-6, Registration No. 33-38271, filed on April 28,
1998 on behalf of the Pruco Life Variable Universal
Account.
(Note 3) Incorporated by reference to Registrant's Form S-6, filed
July 2, 1996.
(Note 4) Incorporated by reference to Post-Effective Amendment No. 8
to Form S-6, Registration No. 33-49994, filed on April 28,
1997 on behalf of the Pruco Life PRUvider Variable
Appreciable Account.
(Note 5) Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Form S-6, filed November 25, 1996.
(Note 6) Incorporated by reference to Form 10-K, Registration No. 33-
08698, filed March 31, 1997 on behalf of the Pruco Life
Variable Contract Real Property Account.
(Note 7) Incorporated by reference to Post-Effective Amendment No. 5
to Form S-1, Registration No. 33-86780, filed April 12, 1999
on behalf of the Pruco Life Variable Contract Real Property
Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 2
to this Registration Statement, filed June 25, 1997.
(Note 9) Incorporated by reference to Form 10-Q, Registration No. 033-
37587, filed August 15, 1997 on behalf of the Pruco Life
Insurance Company.
(Note 10) Incorporated by reference to Post-Effective Amendment No. 3
to Registrant's Form S-6, filed on April 29, 1998.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life Variable Appreciable Account, certifies that this Amendment is filed
solely for one or more of the purposes specified in Rule 485(b)(1) under the
Securities Act of 1933 and that no material event requiring disclosure in the
prospectus, other than one listed in Rule 485(b)(1), has occurred since the
effective date of the most recent Post-Effective Amendment to the Registration
Statement which included a prospectus, and has caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal hereunto affixed and attested, all in the city of
Newark and the State of New Jersey, on this 26th day of April, 1999.
(Seal) The Pruco Life Variable Appreciable Account
(Registrant)
By: Pruco Life Insurance Company
(Depositor)
Attest: /s/ Thomas C. Castano By: /s/ Esther H. Milnes
--------------------------- -----------------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 4 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 26th 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 ---------------------------------
Director Thomas C. Castano
/s/ *
- ------------------------------
Ira J. Kleinman
Director
/s/ *
- ------------------------------
I. Edward Price
Director
/s/ *
- ------------------------------
Kiyofumi Sakaguchi
Director
II-4
<PAGE>
EXHIBIT INDEX
1. Consent of PricewaterhouseCoopers Page II-6
LLP, independent accountants.
2. Opinion and Consent of Clifford Page II-7
E. Kirsch, Esq. as to the legality
of the securities being registered.
3. Opinion and Consent of Ching-Meei Chang, Page II-8
MAAA, FSA, as to actuarial matters
pertaining to the securities being
registered.
II-5
<PAGE>
Exhibit 3
April 26, 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. 333-07451) under the Securities Act of 1933 for the registration of certain
variable universal life insurance contracts issued with respect to the Account.
I am of the following opinion:
(1) Pruco Life was duly organized under the laws of Arizona and is a
validly existing corporation.
(2) The Account has been duly created and is validly existing as a
separate account pursuant to the aforesaid provisions of Arizona law.
(3) The portion of the assets held in the Account equal to the reserve and
other liabilities for variable benefits under the variable appreciable
life insurance contracts is not chargeable with liabilities arising
out of any other business Pruco Life may conduct.
(4) The variable universal life insurance contracts are legal and binding
obligations of Pruco Life in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/S/
- -------------------------------
Clifford E. Kirsch
II-7
<PAGE>
Exhibit 6
April 26, 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 its Variable Universal Life Contract ("Contract") under the
Securities Act of 1933. The prospectus included in Post-Effective Amendment No.
4 to Registration Statement No. 333-07451 on Form S-6 describes the Contract. I
have reviewed the Contract and I have participated in the preparation and review
of the Registration Statement and Exhibits thereto. In my opinion:
(1) The illustrations of cash surrender values and death benefits included
in the section of the prospectus entitled "Illustrations of Cash
Surrender Values, Death Benefits, and Accumulated Premiums," based on
the assumptions stated in the illustrations, are consistent with the
provisions of the Contracts. The rate structure of the Contract has
not been designed so as to make the relationship between premiums and
benefits, as shown in the illustrations, appear more favorable to a
prospective purchaser of a Contract for male age 35 than to
prospective purchasers of Contracts on males of other ages or on
females.
(2) The examples shown in the section of the prospectus entitled "Changing
the Type of Death Benefit" are consistent with the provisions of the
Contract.
(3) The examples shown in the section of the prospectus entitled "Death
Benefit Guarantee" are consistent with the provisions of the Contract.
(4) The charts included in the sections of the prospectus "How a Type A
(Fixed) Contract's Death Benefit Will Vary" and "How a Type B
(Variable) Contract's Death Benefit Will Vary" are consistent with the
provisions of the Contract.
(5) The deduction in an amount equal to 1.25% of each premium is a
reasonable charge in relation to the additional income tax burden
imposed upon The Prudential Insurance Company of America as the result
of the enactment of Section 848 of the internal Revenue Code. In
reaching that conclusion, a number of factors were taken into account
that, in my opinion, were appropriate and which resulted in a project
after-tax rate of return that is a reasonable rate to use in
discounting the tax benefit of the deductions allowed in Section 848
in taxable years subsequent to the year in which the premiums are
received.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Very truly yours,
/S/
- -------------------------------------------
Ching-Meei Chang, FSA, MAAA
Actuarial Director
The Prudential Insurance Company of America
II-8
