AS FILED WITH THE SEC ON __________________. REGISTRATION NO. 33-38271
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-6
POST-EFFECTIVE AMENDMENT NO. 11
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
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PRUCO LIFE
VARIABLE UNIVERSAL ACCOUNT
(Exact Name of Trust)
PRUCO LIFE INSURANCE COMPANY
(Name of Depositor)
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(800) 286-7754
(Address and telephone number of principal executive offices)
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THOMAS C. CASTANO
ASSISTANT SECRETARY
PRUCO LIFE INSURANCE COMPANY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(Name and address of agent for service)
Copy to:
JEFFREY C. MARTIN
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036
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It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1998 pursuant to paragraph (b) of Rule 485
------------
(date)
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on pursuant to paragraph (a) of Rule 485
------------
(date)
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY FORM N-8B-2)
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
1. Cover Page
2. Cover Page
3. Not Applicable
4. Sale of the Contract and Sales Commissions
5. Pruco Life Variable Universal Account
6. Pruco Life Variable Universal Account
7. Not Applicable
8. Not Applicable
9. Litigation
10. Brief Description of the Contract; Short Term
Cancellation Right or "Free Look"; Transfers; Refund of
Sales Charges; Reduction of Charges; Cash Surrender
Value; Death Benefit; Partial Withdrawal of Cash
Surrender Value; When Proceeds are Paid; Contract
Loans; Exchange Right Available in Some States;
Reduced Paid-Up Insurance Option Available in Some
States; Voting Rights; Substitution of Series Fund
Shares; Increases in Face Amount; Decreases in Face
Amount; Lapse and Reinstatement
11. Brief Description of the Contract; Pruco Life Variable
Universal Account
12. Cover Page; Brief Description of the Contract; The
Prudential Series Fund, Inc.; Sale of the Contract and
Sales Commissions
13. Brief Description of the Contract; The Prudential Series
Fund, Inc.; Premiums; Allocation of Premiums; Charges
and Expenses; Refund of Sales Charges; Reduction of
Charges; Sale of the Contract and Sales Commissions
14. Brief Description of the Contract; Detailed Information
for Prospective Contract Owners
15. Brief Description of the Contract; Premiums; Allocation
of Premiums; Transfers
16. Brief Description of the Contract; Detailed Information
for Prospective Contract Owners
17. Partial Withdrawal of Cash Surrender Value; When
Proceeds are Paid
18. Pruco Life Variable Universal Account; Cash Surrender
Value
19. Reports to Contract Owners
20. Not Applicable
21. Contract Loans
22. Not Applicable
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
23. Not Applicable
24. Other General Contract Provisions; The Prudential Series
Fund, Inc.
25. Pruco Life Insurance Company; The Prudential Series
Fund, Inc.
26. Brief Description of the Contract; The Prudential Series
Fund, Inc.; Charges and Expenses
27. Pruco Life Insurance Company
28. Pruco Life Insurance Company; Directors and Officers
29. Pruco Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Pruco Life Insurance Company
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions
39. Sale of the Contract and Sales Commissions
40. Not Applicable
41. Sale of the Contract and Sales Commissions
42. Not Applicable
43. Not Applicable
44. Brief Description of the Contract; The Prudential Series
Fund, Inc; Cash Surrender Value; Death Benefit
45. Not Applicable
46. Brief Description of the Contract; Pruco Life Variable
Universal Account; The Prudential Series Fund, Inc.
47. Pruco Life Variable Universal Account
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Series Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
55. Not Applicable
56. Not Applicable
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
57. Not Applicable
58. Not Applicable
59. Financial Statements: Financial Statements of Pruco Life
Variable Universal Account; Consolidated Financial
Statements of Pruco Life Insurance Company and
Subsidiaries
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
PRUSELECT(sm) II
PROSPECTUS
PRUCO LIFE
VARIABLE UNIVERSAL ACCOUNT
May 1, 1998
PRUCO LIFE INSURANCE COMPANY
<PAGE>
PROSPECTUS
May 1, 1998
PRUCO LIFE INSURANCE COMPANY
VARIABLE UNIVERSAL ACCOUNT
PRUSELECT(sm) II
VARIABLE LIFE
INSURANCE CONTRACTS
This prospectus describes certain individual flexible premium variable universal
life insurance contracts issued by Pruco Life Insurance Company ("Pruco Life"),
a stock life insurance company that is a wholly-owned subsidiary of The
Prudential Insurance Company of America ("Prudential"). Pruco Life calls these
contracts its PRUSELECT(sm) II Variable Life Insurance Contracts* (the
"Contract"). These Contracts provide individual universal life insurance
coverage with flexible premium payments and a variety of investment options. The
Contracts are available on a multiple life basis where the insureds share a
common employment or business relationship, and may be owned individually or by
a corporation, trust, association or similar entity. The Contract owner will
have all rights and privileges under the Contract. The Contracts may be used for
such purposes as funding non-qualified executive deferred compensation or salary
continuation plans, retiree medical benefits, or other purposes.
The Contracts provide a choice of death benefit plans. Under the first plan, the
death benefit generally remains fixed in the amount or amounts scheduled at the
outset of the Contract (the "face amount"). Under the second plan, the death
benefit varies daily with the investment performance of the chosen investment
options. Under either plan, the death benefit will never be less than the face
amount, regardless of investment experience, as long as the Contract remains in
force. The Contracts also have a cash surrender value which generally increases
with the payment of each premium, decreases to reflect charges made by Pruco
Life, and varies with the investment performance of the chosen investment
options. There is no guaranteed minimum cash surrender value.
The Contracts provide a variety of investment options. The invested portion of
premiums may be invested in one or more of the fifteen current investment
subaccounts of the Pruco Life Variable Universal Account (the "Account"). The
assets of each subaccount of the Account are invested in a corresponding
portfolio of The Prudential Series Fund, Inc. (the "Series Fund"). The attached
prospectus for the Series Fund and the Series Fund's statement of additional
information describe the investment objectives of and the risks of investing in
the fifteen portfolios of the Series Fund currently available under the
Contracts: the MONEY MARKET PORTFOLIO, the DIVERSIFIED BOND PORTFOLIO, the
GOVERNMENT INCOME PORTFOLIO, two ZERO COUPON BOND PORTFOLIOS with different
liquidation dates--2000 and 2005, the CONSERVATIVE BALANCED PORTFOLIO, the
FLEXIBLE MANAGED PORTFOLIO, the HIGH YIELD BOND PORTFOLIO, the STOCK INDEX
PORTFOLIO, the EQUITY INCOME PORTFOLIO, the EQUITY PORTFOLIO, the PRUDENTIAL
JENNISON PORTFOLIO, the SMALL CAPITALIZATION STOCK PORTFOLIO, the GLOBAL
PORTFOLIO, and the NATURAL RESOURCES PORTFOLIO. Other subaccounts and portfolios
may be offered in the future.
THE REPLACEMENT OF LIFE INSURANCE IS GENERALLY NOT IN THE INTEREST OF THE
CUSTOMER. IN MOST CASES, WHEN A CUSTOMER REQUIRES ADDITIONAL COVERAGE,
SUPPLEMENTING THE EXISTING POLICY BY PURCHASING ADDITIONAL INSURANCE OR A NEW
POLICY SHOULD BE REQUESTED, THEREBY PROTECTING THE BENEFITS OF THE ORIGINAL
POLICY. IF YOU ARE CONSIDERING REPLACING A POLICY, YOU SHOULD COMPARE THE
BENEFITS AND COSTS OF SUPPLEMENTING YOUR EXISTING POLICY WITH THE BENEFITS AND
COSTS OF PURCHASING THE CONTRACT DESCRIBED IN THIS PROSPECTUS AND YOU SHOULD
CONSULT WITH A QUALIFIED TAX ADVISOR.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ATTACHED TO
A CURRENT PROSPECTUS FOR THE PRUDENTIAL SERIES FUND, INC.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 286-7754
*PRUSELECT is a service mark of Prudential.
<PAGE>
PROSPECTUS CONTENTS
PAGE
----
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS........................ 1
BRIEF DESCRIPTION OF THE CONTRACT........................................... 2
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, PRUCO LIFE
VARIABLE UNIVERSAL ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS
AVAILABLE UNDER THE CONTRACT.............................................. 4
Pruco Life Insurance Company.............................................. 4
Pruco Life Variable Universal Account..................................... 4
The Prudential Series Fund, Inc........................................... 4
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS........................ 5
Requirements for Issuance of a Contract................................... 5
Short-Term Cancellation Right or "Free Look".............................. 5
Premiums ................................................................. 6
Allocation of Premiums.................................................... 6
Transfers................................................................. 6
Charges and Expenses...................................................... 7
Refunds of Sales Charges.................................................. 9
Reduction of Charges...................................................... 9
Cash Surrender Value...................................................... 10
Death Benefit............................................................. 10
Partial Withdrawal of Cash Surrender Value................................ 10
Increases in Face Amount.................................................. 11
Decreases in Face Amount.................................................. 11
Illustrations of Cash Surrender Values, Death Benefits, and
Accumulated Premiums.................................................... 11
Contract Loans............................................................ 13
When Proceeds Are Paid.................................................... 13
Tax Treatment of Contract Benefits........................................ 13
Withholding............................................................... 15
Other Tax Considerations.................................................. 15
Lapse and Reinstatement................................................... 15
Legal Considerations Relating to Sex-Distinct Premiums and Benefits....... 16
Exchange Right Available in Some States................................... 16
Reduced Paid-Up Insurance Option Available in Some States................. 16
Other General Contract Provisions......................................... 16
Voting Rights............................................................. 16
Substitution of Series Fund Shares........................................ 17
Reports to Contract Owners................................................ 17
Sale of the Contract and Sales Commissions................................ 17
State Regulation.......................................................... 18
Experts ................................................................. 18
Litigation................................................................ 18
Year 2000 Compliance...................................................... 18
Additional Information.................................................... 19
Financial Statements...................................................... 19
DIRECTORS AND OFFICERS...................................................... 20
FINANCIAL STATEMENTS OF PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT.............. A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY AND
SUBSIDIARIES.............................................................. B1
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FOR
THE SERIES FUND.
<PAGE>
DEFINITIONS OF SPECIAL TERMS
USED IN THIS PROSPECTUS
ATTAINED AGE--The insured's age on the ISSUE AGE--The insured's age as of the
Contract date plus the number of Contract date.
Contract years since then.
LOAN VALUE--The maximum amount that a
CASH SURRENDER VALUE--The amount Contract owner may borrow.
payable to the Contract owner upon
surrender of his or her Contract. The MONTHLY DATE--The Contract date and
cash surrender value is equal to the the same date in each subsequent
Contract fund plus any refund of sales month.
charges due and minus any Contract
debt. NET AMOUNT AT RISK--The amount by
which the death benefit exceeds the
CONTRACT ANNIVERSARY--The same date as Contract fund.
the Contract date in each later year.
THE PRUDENTIAL SERIES FUND, INC. (THE
CONTRACT DATE--The date the Contract "SERIES FUND")--A mutual fund with
is issued, as specified in the separate portfolios, one or more of
Contract. which may be chosen as an underlying
investment for the Contract.
CONTRACT DEBT--The principal amount of
all outstanding loans plus any PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
interest accrued thereon. (THE "ACCOUNT")--A separate account of
Pruco Life registered as a unit
CONTRACT FUND--The total amount at any investment trust under the Investment
time credited to the Contract. Company Act of 1940.
CONTRACT OWNER--The individual or SUBACCOUNT--An investment division of
entity that purchases the Contract. the Account, the assets of which are
invested in the shares of the
CONTRACT YEAR--A year that starts on corresponding portfolio of the Series
the Contract date or on a Contract Fund.
anniversary.
VALUATION PERIOD--The period of time
DEATH BENEFIT--The amount payable upon from one determination of the value of
the death of the insured before the the amount invested in a subaccount to
deduction of any outstanding Contract the next. Such determinations are made
debt. when the net asset values of the
portfolios of the Series Fund are
FACE AMOUNT--The amount[s] of life calculated, which is generally at 4:15
insurance as shown in the Contract's p.m. New York City time on each day
schedule of face amounts. during which the New York Stock
Exchange is open.
1
<PAGE>
- --------------------------------------------------------------------------------
BRIEF DESCRIPTION OF THE CONTRACT
This prospectus describes individual flexible premium variable universal life
insurance contracts (the "Contract") that are offered by Pruco Life Insurance
Company ("Pruco Life"). The Contracts are available on a multiple life basis
where the insureds share a common employment or business relationship, and may
be owned individually or by a corporation, trust, association or similar entity.
The Contract owner will have all rights and privileges under the Contract. The
Contracts may be used for such purposes as funding non-qualified executive
deferred compensation or salary continuation plans, retiree medical benefits, or
other purposes.
The Contracts provide a choice of either fixed or variable death benefit plans.
Under the fixed death benefit plan, the death benefit generally remains fixed in
amount unless it is increased to ensure that the Contract continues to satisfy
the Internal Revenue Code's definition of life insurance, and only the cash
surrender value will vary with investment experience. Under the variable death
benefit plan, both the death benefit and cash surrender value will vary with
investment experience, but the death benefit of an in-force Contract will never
be less than the face amount regardless of investment experience. There is no
minimum cash surrender value under either death benefit plan.
The Contract provides flexibility with respect to the payment of premiums. A
minimum initial premium must be paid for the Contract to be issued. Thereafter,
the Contract owner may generally select the amount and timing of premium
payments.
Payment of any specific premium level is not required to ensure that the
Contract remains in force. Rather, the Contract will remain in force as long as
the Contract fund is sufficient to pay the monthly charges. Conversely, the
payment of any specified premium level does not guarantee that the Contract will
not lapse. See LAPSE AND REINSTATEMENT, page 15.
There are circumstances, such as the payment of aggregate premiums in excess of
the sum of the annual "7-pay" premiums as defined by the Internal Revenue Code,
under which the Contract may become a Modified Endowment Contract under federal
tax law. If it does, loans and other pre-death distributions are includible in
gross income on an income-first basis. Under a Modified Endowment Contract, a
10% penalty tax may be imposed on distributions of income under certain
circumstances.
Prospective and current Contract owners are advised to consult a qualified tax
advisor before taking steps that may affect whether the Contract becomes a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 13.
The Contract owner may choose to have the premiums (after deduction of a $2
administrative charge, any applicable taxes attributable to premiums, and a
sales load) invested in one or more of fifteen subaccounts of the Pruco Life
Variable Universal Account (the "Account"). Each subaccount is invested in a
corresponding portfolio of The Prudential Series Fund, Inc. (the "Series Fund"),
a series mutual fund to which The Prudential Insurance Company of America
("Prudential") acts as the investment advisor. Information about the Series Fund
portfolios can be found under THE PRUDENTIAL SERIES FUND, INC. on page 4 and in
the attached prospectus for the Series Fund.
Because the assets that relate to the Contract may be invested in these various
investment options, the Contract offers an opportunity for the cash surrender
value to appreciate more rapidly than it would under comparable fixed-benefit
life insurance. But the owner must accept the risk that, if investment
performance is unfavorable, the cash surrender value may not appreciate as
rapidly and, indeed, may decrease in value.
Pruco Life deducts certain charges from each premium payment and from the
amounts held in the designated investment option[s]. All these charges, which
are largely designed to cover insurance costs and risks as well as sales and
administrative expenses, are fully described under
2
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Charges and Expenses, page 7. In brief, and subject to that fuller description,
the following diagram outlines the charges which may be made:
---------------------------------------------------
PREMIUM PAYMENT
---------------------------------------------------
|
|
--------------------------------------
o less charge for taxes attributable
to premiums
o less $2 processing fee
--------------------------------------
|
|
---------------------------------------------------
o less a front-end sales load of not more than 8%
---------------------------------------------------
|
|
- --------------------------------------------------------------------------------
INVESTED PREMIUM AMOUNT
o To be invested in one or a combination of the fifteen available portfolios of
The Prudential Series Fund, Inc.
- --------------------------------------------------------------------------------
|
|
- --------------------------------------------------------------------------------
DAILY CHARGES
o A daily charge equivalent to an annual rate of up to 0.9% is deducted from the
assets of each of the variable investment options for mortality and expense
risks. Currently, Pruco Life intends to charge only 0.6% on these Contracts,
but reserves the right to make the full charge.
o Management fees and expenses are deducted from the assets of the Series Fund.
See THE PRUDENTIAL SERIES FUND, INC., page 4.
- --------------------------------------------------------------------------------
|
|
- --------------------------------------------------------------------------------
MONTHLY CHARGES
o An administrative charge of up to $4 plus up to $0.04 per $1,000 of face
amount of insurance is deducted from the Contract fund.
o A charge for anticipated mortality (the "cost of insurance charge") is
deducted, with the maximum charge based on 100% of the 1980 Commissioners
Standard Ordinary Mortality Tables ("1980 CSO Tables"), with appropriate
adjustments for substandard rating classes.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
POSSIBLE ADDITIONAL CHARGES
o An administrative processing charge of up to $15 will be made in connection
with each partial withdrawal of excess cash surrender value.
o An administrative processing charge of up to $15 will be made in connection
with each decrease in face amount.
- --------------------------------------------------------------------------------
Under certain circumstances, Contract owners may receive a refund of a portion
of the sales charge. See REFUNDS OF SALES CHARGES, page 9.
For a limited time, a Contract may be returned in accordance with the terms of
the "free-look" provision. See SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK",
page 5.
This summary provides only a brief overview of the more significant aspects of
the Contract. Further detail is provided in the subsequent sections of this
prospectus and in the Contract. That document, together with the application
attached to it, constitutes the entire agreement between the owner and Pruco
Life and should be retained.
For DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, see page 1.
3
- --------------------------------------------------------------------------------
<PAGE>
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE
COMPANY, PRUCO LIFE VARIABLE UNIVERSAL 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. These Contracts are not offered in any state in which
the necessary approvals have not been obtained. Pruco Life is a wholly-owned
subsidiary of Prudential, a mutual insurance company founded in 1875 under the
laws of the State of New Jersey. Prudential is currently considering
reorganizing itself into a stock company. This form of reorganization, known as
demutualization, is a complex process that may take two or more years to
complete. No plan of demutualization has been adopted yet by the Company's Board
of Directors. Adoption of a plan of demutualization would occur only after
enactment of appropriate legislation in New Jersey and would have to be approved
by Company policyholders and appropriate state insurance regulators. Throughout
the process, there will be a continuing evaluation by the Board of Directors and
management of the Company as to the desirability of demutualization. The Board
of Directors, in its discretion, may choose not to demutualize or to delay
demutualization for a time.
Should Prudential convert to a stock company, the allocation of stock, cash or
other benefits to policyholders and Contract owners would be made in accordance
with procedures set forth in the plan of demutualization. In recent
demutualizations, policyholders and contract owners of the converting mutual
insurer have been eligible to receive consideration while policyholders and
contract owners of the insurer's stock subsidiaries have not. It has not yet
been determined whether any exceptions to that general approach will be made
with respect to policyholders and Contract owners of Prudential's subsidiaries,
including the Pruco Life insurance companies.
As of December 31, 1997, Prudential has invested over $442 million in Pruco Life
in connection with Pruco Life's organization and operation. Prudential may from
time to time make additional capital contributions to Pruco Life as needed to
enable it to meet its reserve requirements and expenses in connection with its
business. Prudential is under no obligation to make such contributions and its
assets do not back the benefits payable under the Contract. Pruco Life's
consolidated financial statements begin on page B1 and should be considered only
as bearing upon Pruco Life's ability to meet its obligations under the
Contracts.
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
The Pruco Life Variable Universal Account (the "Account") was established on
April 17, 1989 under Arizona law as a separate investment account. The Account
meets the definition of a "separate account" under the federal securities laws.
The Account holds assets that are segregated from all of Pruco Life's other
assets.
The obligations to Contract owners and beneficiaries arising under the Contracts
are general corporate obligations of Pruco Life. Pruco Life is also the legal
owner of the assets in the Account. Pruco Life will maintain assets in the
Account with a total market value at least equal to the reserve and other
liabilities relating to the variable benefits attributable to the Account. These
assets may not be charged with liabilities which arise from any other business
Pruco Life conducts. In addition to these assets, the Account's assets may
include funds contributed by Pruco Life to commence operation of the Account and
may include accumulations of the charges Pruco Life makes against the Account.
From time to time these additional assets will be transferred to Pruco Life's
general account. Before making any such transfer, Pruco Life will consider any
possible adverse impact the transfer might have on the Account.
The Account is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 ("1940 Act") as a unit investment
trust, which is a type of investment company. This does not involve any
supervision by the SEC of the management or investment policies or practices of
the Account. For state law purposes, the Account is treated as a part or
division of Pruco Life. There are currently fifteen subaccounts within the
Account, each of which invests in a single corresponding portfolio of the Series
Fund. Additional subaccounts may be added in the future. The Account's financial
statements begin on page A1.
THE PRUDENTIAL SERIES FUND, INC.
The Prudential Series Fund, Inc. (the "Series Fund") is registered under the
1940 Act as an open-end diversified management investment company. Its shares
are currently sold only to separate accounts of Prudential and certain other
insurers that offer variable life insurance and variable annuity contracts. The
Account will purchase and redeem shares from the Series Fund at net asset value.
Shares will be redeemed to the extent necessary for Pruco
4
<PAGE>
Life to provide benefits under the Contract and to transfer assets from one
subaccount to another, as requested by Contract owners. Any dividend or capital
gain distribution received from a portfolio of the Series Fund will be
reinvested immediately at net asset value in shares of that portfolio and
retained as assets of the corresponding subaccount.
Prudential is the investment advisor for the assets of each of the portfolios of
the Series Fund. Prudential's principal business address is 751 Broad Street,
Newark, New Jersey 07102-3777. Prudential has a Service Agreement with its
wholly-owned subsidiary The Prudential Investment Corporation ("PIC"), which
provides that, subject to Prudential's supervision, PIC will furnish investment
advisory services in connection with the management of the Series Fund. In
addition, Prudential has entered into a Subadvisory Agreement with its
wholly-owned subsidiary Jennison Associates Capital Corporation ("Jennison"),
under which Jennison furnishes investment advisory services in connection with
the management of the Prudential Jennison Portfolio. Further detail is provided
in the prospectus and statement of additional information for the Series Fund.
Prudential, PIC, and Jennison are registered as investment advisors under the
Investment Advisers Act of 1940.
As an investment advisor, Prudential charges the Series Fund a daily investment
management fee as compensation for its services. In addition to the investment
management fee, each portfolio incurs certain expenses, such as accounting and
custodian fees. See CHARGES AND EXPENSES, page 7.
It is conceivable that in the future it may become disadvantageous for both
variable life insurance and variable annuity contract separate accounts to
invest in the same underlying mutual fund. Although neither the companies which
invest in the Series Fund, nor the Series Fund currently foresees any such
disadvantage, the Series Fund's Board of Directors intends to monitor events in
order to identify any material conflict between variable life insurance and
variable annuity contract owners and to determine what action, if any, should be
taken in response thereto. Material conflicts could result from such things as:
(1) changes in state insurance law; (2) changes in federal income tax law; (3)
changes in the investment management of any portfolio of the Series Fund; or (4)
differences between voting instructions given by variable life insurance and
variable annuity contract owners.
A FULL DESCRIPTION OF THE SERIES FUND, ITS INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, AND RESTRICTIONS, ITS EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN INCLUDING ANY RISKS ASSOCIATED WITH INVESTMENT IN THE HIGH YIELD BOND
PORTFOLIO, AND ALL OTHER ASPECTS OF ITS OPERATION IS CONTAINED IN THE ATTACHED
PROSPECTUS FOR THE SERIES FUND AND IN ITS STATEMENT OF ADDITIONAL INFORMATION,
WHICH SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS. THERE IS NO ASSURANCE
THAT THE INVESTMENT OBJECTIVES WILL BE MET.
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT
OWNERS
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
Pruco Life offers the Contract on a regular underwriting, a simplified
underwriting, and a guaranteed issue basis. Underwritten Contracts require
individualized evidence of the insured's insurability and rating class.
Guaranteed issue Contracts do not require evidence of insurability and rating
class, but may only be issued in certain circumstances on associated
individuals, such as those employees of a company who meet criteria established
by Pruco Life. Pruco Life will set from time to time minimum face amounts that
it will offer. The minimum face amount offered may depend on whether the
Contract is issued on an underwritten or guaranteed issue basis. The minimum
face amounts currently offered are $50,000 for Contracts issued on a guaranteed
basis and $100,000 for Contracts issued on an underwritten basis, although Pruco
Life may in its discretion reduce the minimum face amounts of the Contracts it
will issue. A Contract owner may establish a schedule of face amounts under
which the face amount will change on designated dates.
The Contract may generally be issued on insureds between the ages of 20 and 75
for regular underwriting Contracts and between the ages of 20 and 64 for
simplified underwriting and guaranteed issue Contracts. In its discretion, Pruco
Life may issue the Contract on insureds of other ages.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, a Contract may be returned for a refund within 10 days after it is
received by the Contract owner. Some states allow a longer period of time during
which a Contract may be returned for a refund. A refund can be requested by
mailing or delivering the Contract to the representative who sold it or to the
Home Office specified in the Contract. A Contract returned according to this
provision shall be deemed void from the beginning. The Contract owner will then
receive a refund of all premium payments made, plus or minus any change due to
investment experience. However, if applicable law so requires, the Contract
owner who exercises his or her short-term cancellation right will receive a
refund of all premium payments made, with no adjustment for investment
experience.
5
<PAGE>
PREMIUMS
Pruco Life will set a minimum initial premium for issuance of a Contract.
Within certain maximum and minimum limitations, premiums may generally be paid
in any desired frequency or amount. The minimum premium Pruco Life will accept
is $25 and Pruco Life reserves the right to limit premiums in any year to
$10,000. There are circumstances, however, under which the payment of premiums
in amounts that are too large may cause the Contract to be characterized, under
the Internal Revenue Code, as a Modified Endowment Contract, which could be
significantly disadvantageous. See TAX TREATMENT OF CONTRACT BENEFITS, page 13.
Moreover, Pruco Life may refuse to accept a premium that will increase the death
benefit by more than the Contract fund. See DEATH BENEFIT, page 10.
ALLOCATION OF PREMIUMS
The following rules govern allocation of premiums by Contract owners. On the
Contract date (the date the Contract is issued, as specified in the Contract),
any applicable charge for taxes attributable to premiums, the $2 processing
charge, and the front-end sales charge are deducted from the initial premium,
and the first monthly deductions are made. See CHARGES AND EXPENSES, page 7.
Except as provided below, the remainder of the initial premium will be allocated
among the subaccounts according to the allocation specified by the Contract
owner. In states which require a return of premium with no adjustment for
investment experience to a Contract owner who exercises his or her short-term
cancellation right, the initial premium remaining after deduction of the charges
described above will be allocated to the Money Market Subaccount until the end
of the "free-look" period. Thus, to the extent that the receipt of the first
premium precedes the Contract date, there will be a period during which the
Contract owner's initial premium will not be invested.
The charge for taxes attributable to premiums, the $2 per payment charge, and
the front-end sales load also apply to all subsequent premium payments. (The
front-end sales load on premiums after the first year is generally reduced to
5%, but Pruco Life reserves the contractual right to charge not more than 8%.)
The remainder of such subsequent premiums will be invested in accordance with
the investment allocation previously designated. The invested portion of all
subsequent premiums is invested in the selected investment option[s] as of the
end of the valuation period in which the premium is received at the Home Office
stated in the Contract. Provided the Contract is not in default, the Contract
owner may change the way in which subsequent premiums are allocated by giving
written notice to a Home Office or by telephoning that Home Office, provided the
Contract owner is enrolled to use the Telephone Transfer System. There is no
charge for reallocating future premiums. The percentage of the invested premium
that may be allocated to a particular investment option must be at least 10% on
the date the allocation takes effect. All percentage allocations must be in
whole numbers. For example, 33% can be selected but 33 1/3% cannot. Of course,
the total allocation to all selected investment option[s] must equal 100%.
TRANSFERS
If the Contract is not in default, the Contract owner may, up to four times in
each Contract year, transfer amounts from one subaccount to another subaccount.
Currently, you may make additional transfers with our consent. There is no
charge. All or a portion of the amount credited to a subaccount may be
transferred. The minimum transfer is the lesser of $250 or the amount the
Contract owner has invested in a particular subaccount.
Transfers among subaccounts will take effect as of the end of the valuation
period in which a proper transfer request is received at a Home Office. The
request may be in terms of dollars, such as a request to transfer $10,000 from
one subaccount to another, or may be in terms of a percentage reallocation among
subaccounts. In the latter case, as with premium reallocations, the percentages
must be in whole numbers. The Contract owner may transfer amounts by proper
written notice to a Home Office or by telephone, provided the Contract owner is
enrolled to use the Telephone Transfer System. Contract owners will
automatically be enrolled to use the Telephone Transfer System unless the
Contract is jointly owned or the Contract owner elects not to have this
privilege. Telephone transfers may not be available on policies that are
assigned, see ASSIGNMENT, page 16, depending on the terms of the assignment.
Pruco Life has adopted procedures designed to ensure that requests by telephone
are genuine. Pruco Life will not be held liable for following telephone
instructions that it reasonably believes to be genuine. Pruco Life cannot
guarantee that owners will be able to get through to complete a telephone
transfer during peak periods such as periods of drastic economic or market
change.
On the liquidation date of a Zero Coupon Bond Subaccount, all the shares held by
it in the corresponding portfolio of the Series Fund will be redeemed and the
proceeds of the redemption applicable to each Contract will be transferred to
the Money Market Subaccount unless the Contract owner directs that it be
transferred to another subaccount. A transfer that occurs upon the liquidation
of a Zero Coupon Bond Subaccount will not be counted as one of the four
permissible transfers in a Contract year.
Unless otherwise restricted, a transfer will take effect on the date that proper
notice is received at a Home Office.
6
<PAGE>
The Contract was not designed for professional market timing organizations,
other organizations, or individuals using programmed, large, or frequent
transfers. A pattern of exchanges that coincides with a "market timing" strategy
may be disruptive to the subaccounts and will be discouraged. If such a pattern
were to be found, we may be required to modify the transfer procedures,
including but not limited to, not accepting transfer requests of an agent under
a power of attorney on behalf of more than one Contract owner.
CHARGES AND EXPENSES
The total amount invested at any time under the Contract (the "Contract fund")
consists of the amount relating to the Contract held in the Account and the
principal amount of any Contract loan plus the amount of interest credited upon
the loan to the Contract owner.
All charges made by Pruco Life, whether deducted from premiums or from the
Contract fund, are set forth below.
1. A charge is deducted from each premium payment for taxes attributable
to premiums. For these purposes, "taxes attributable to premiums"
includes any federal, state or local income, premium, excise, business
or any other type of tax measured by or based upon the amount of
premiums received by Pruco Life. Currently, two such charges are made.
The first is a charge for state and local premium-based taxes. These
taxes vary by state, and in some states by locality, with the most
common level being 2% of premiums. The tax rates generally range from
0.75% to 5% (but in some instances it may exceed 5%). The second
charge is for federal income taxes measured by premiums and is equal
to 1.25% of premiums. Pruco Life believes that this charge is a
reasonable estimate of an increase in its federal income taxes
resulting from a 1990 change in the Internal Revenue Code. It is
intended to recover this increased tax. During 1997, 1996 and 1995,
Pruco Life received a total of approximately $2,221,646, $2,213,536
and $2,023,142, respectively, in charges for payment of taxes
attributable to premiums.
2. A charge of $2 is deducted from each premium payment to cover the cost
of collecting and processing premiums. During 1997, 1996 and 1995,
Pruco Life received a total of approximately $6,491, $9,339 and
$14,104, respectively, in processing charges.
3. There is a charge to compensate Pruco Life for the cost of selling the
Contract. This cost includes sales commissions, advertising, and the
printing of prospectuses and sales literature. This charge is called
the "sales load" and consists of a deduction of a percentage of the
premium remaining after the charge for taxes attributable to premiums
and the $2 premium processing charge have been deducted. This
percentage is not more than 8%. This is to ensure compliance with a
requirement of the Investment Company Act of 1940 that sales load may
not exceed 9% of premium. On a non-guaranteed basis, Pruco Life
intends to charge a 7% sales load on first year payments and only a 5%
sales load on subsequent payments. A portion of the sales load may be
refunded if the Contract is surrendered during the first 3 Contract
years. Under certain circumstances, Pruco Life may, on a
non-guaranteed basis, reduce or refund sales and certain other
expenses. See REFUNDS OF SALES CHARGES, page 9 and REDUCTION OF
CHARGES, page 9. During 1997, 1996 and 1995, Pruco Life received a
total of approximately $3,112,516, $3,398,250 and $3,004,189,
respectively, in sales load charges.
4. On each Monthly date, (i.e., the Contract date and the same day of
each succeeding month), the Contract fund is reduced by an
administrative charge of up to $4 plus up to $0.04 per $1,000 of face
amount of insurance (but currently on a non-guaranteed basis of not
more than $8 per month). This charge is to compensate Pruco Life for
administrative expenses incurred, among other things, in issuing the
Contract, processing claims, paying cash surrender values and death
benefits, keeping records, and communicating with Contract owners.
During 1997, 1996 and 1995, Pruco Life received a total of
approximately $262,737, $265,639 and $245,225, respectively, in
monthly administrative charges.
5. Pruco Life deducts a mortality charge (also referred to as a "cost of
insurance charge") from the Contract fund on each Monthly date to
cover anticipated mortality costs. When an insured dies, the amount of
the death benefit paid to the beneficiary is larger than the Contract
fund. The mortality charges are designed to enable Pruco Life to pay
this larger death benefit. The charge is determined by multiplying the
applicable "net amount at risk" (the amount by which the death
benefit, computed as if there were no Contract debt, exceeds the
Contract fund) by a mortality rate based upon the insured's sex, issue
age and current attained age, and the anticipated mortality for that
class of persons. The maximum rate that Pruco Life may charge for
underwritten and simplified issue Contracts which are not in a
substandard risk class is 100% of the applicable rates of the
non-smoker/smoker 1980 CSO Tables. The maximum rate that Pruco Life
may charge under Contracts issued on a guaranteed issue basis which
are not in a substandard risk class is 100% of the applicable rates of
the composite 1980 CSO Tables. Higher rates apply if the insured is
determined to be in a substandard risk class. Current cost of
insurance rates are typically lower than the maximum rates.
6. An extra risk charge may be deducted monthly for aviation,
occupational or temporary extra risks.
7
<PAGE>
7. A charge is made to compensate Pruco Life for assuming mortality and
expense risks. This is done by deducting daily, from the assets of
each of the subaccounts, a percentage of those assets up to an
effective annual rate of 0.9%. Pruco Life currently intends to charge
only 0.6% on these Contracts, but reserves the right to make the full
0.9% charge. The mortality risk assumed is that insureds may live for
a shorter period of time than Pruco Life estimated when it determined
what mortality charges to make. The expense risk assumed is that
expenses will be greater than Pruco Life estimated in fixing its
administrative charges. During 1997, 1996 and 1995, Pruco Life
received a total of approximately $1,558,648, $1,049,292 and $685,283,
respectively, in mortality and expense risk charges.
8. An administrative processing charge equal to the lesser of $15 or 2%
of the amount withdrawn will be made in connection with each partial
withdrawal of cash surrender value. See PARTIAL WITHDRAWAL OF CASH
SURRENDER VALUE, page 10.
9. An administrative processing charge of up to $15 will be made in
connection with each decrease in face amount. See DECREASES IN FACE
AMOUNT, page 11.
10. The Account purchases shares of the Series Fund at net asset value.
The net asset value of those shares reflects investment management
fees and expenses already deducted from the assets of the Series Fund.
More detailed information is contained in the attached prospectus for
the Series Fund.
The total expenses of each portfolio for the year 1997 expressed as a
percentage of the average assets during the year are shown below:
- --------------------------------------------------------------------------------
| | OTHER | TOTAL
| INVESTMENT | EXPENSES | EXPENSES
PORTFOLIO | ADVISORY | (AFTER EXPENSE | (AFTER EXPENSE
| FEE | REIMBURSEMENT)* | REIMBURSEMENT)*
- -------------------------------|------------|-----------------|-----------------
MONEY MARKET | 0.40% | 0.03% | 0.43%
DIVERSIFIED BOND | 0.40% | 0.03% | 0.43%
GOVERNMENT INCOME | 0.40% | 0.04% | 0.44%
ZERO COUPON BOND 2000 | 0.40% | 0.00%* | 0.40%*
ZERO COUPON BOND 2005 | 0.40% | 0.00%* | 0.40%*
CONSERVATIVE BALANCED | 0.55% | 0.01% | 0.56%
FLEXIBLE MANAGED | 0.60% | 0.02% | 0.62%
HIGH YIELD BOND | 0.55% | 0.02% | 0.57%
STOCK INDEX | 0.35% | 0.02% | 0.37%
EQUITY INCOME | 0.40% | 0.01% | 0.41%
EQUITY | 0.45% | 0.01% | 0.46%
PRUDENTIAL JENNISON | 0.60% | 0.04% | 0.64%
SMALL CAPITALIZATION STOCK | 0.40% | 0.10% | 0.50%
GLOBAL | 0.75% | 0.10% | 0.85%
NATURAL RESOURCES | 0.45% | 0.09% | 0.54%
- --------------------------------------------------------------------------------
* For some of the portfolios, the actual expenses were higher than those
shown in the second and third columns. Pruco Life, on a non-guaranteed
basis, makes daily adjustments that will offset the effect on Contract
owners of some of these expenses incurred by certain portfolios. Pruco Life
currently makes such adjustments to ensure that the portfolio expenses
indirectly borne by a Contract owner investing in: (1) the Zero Coupon Bond
Portfolios will not exceed the investment management fee; (2) the Stock
Index Portfolio will not exceed the investment management fee plus 0.05% of
the average daily net assets of the portfolio; and (3) the High Yield Bond,
Equity Income and Natural Resources Portfolios will not exceed the
investment management fee plus 0.1% of the average daily net assets of the
portfolio.
Without such adjustments the portfolio expenses indirectly borne by a
Contract owner, expressed as a percentage of the average daily net assets
by portfolio, would have been 0.66% for the Zero Coupon Bond Portfolio 2000
and 0.74% for the Zero Coupon Bond Portfolio 2005 during 1997. No such
adjustments were necessary for the High Yield Bond, Stock Index, Equity
Income and Natural Resources Portfolios in 1997. Pruco Life does not intend
to discontinue these adjustments in the future, although it retains the
right to do so.
8
<PAGE>
11. Although the Account is registered as a unit investment trust, it is
not a separate taxpayer for purposes of the Code. The earnings of the
Account are taxed as part of the operations of Pruco Life. No charge
is currently being made to the Account for company federal income
taxes. Pruco Life will review the question of a charge to the Account
for company federal income taxes periodically. Such a charge may be
made in future years for any company federal income taxes that would
be attributable to the Account. Under current law, Pruco Life may
incur state and local taxes (in addition to premium taxes) in several
states. At present, these taxes are not significant and they are not
charged against the Account. If there is a material change in the
applicable state or local tax laws, the imposition of any such taxes
upon Pruco Life that are attributable to the Account may result in a
corresponding charge against the Account.
In several instances Pruco Life uses the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, is the highest charge that
Pruco Life is entitled to make under the Contract. The "current charge" is the
lower amount that Pruco Life is now charging. However, if circumstances change,
Pruco Life reserves the right to increase each current charge, up to but to no
more than the maximum charge, without giving any advance notice.
The Contract owner may specify the investment option[s] from which the monthly
deductions are made. If the amount held in a designated investment option is
insufficient or if no selection is made by the owner, the monthly charges will
be deducted based on the portions of the Contract fund invested in each of the
selected investment option[s].
REFUNDS OF SALES CHARGES
If the Contract is not in default, Pruco Life will, upon full surrender of the
Contract within the first 3 Contract years, return any sales charges deducted
from premiums paid within the 365 days prior to the date Pruco Life receives the
surrender request at a Home Office.
Furthermore, Pruco Life's sales expenses may be reduced if a number of Contracts
are purchased with aggregate first year premiums exceeding $5 million by an
employer or by employees affiliated with a common employer. On a non-guaranteed
basis, this may result in refunds of a portion of the sales load. Thus,
currently, at the end of the first Contract year, Pruco Life intends to refund a
portion of the sales load for such Contracts. It will do so by adding an amount
equal to 3% of the aggregate first year premiums between $5 million to $10
million and 6% of the premiums in excess of $10 million, plus such interest
thereon as Pruco Life in its discretion determines, to the Contract fund after
the end of the first Contract year.
Any such refund will be generated only by that portion of the aggregate first
year premiums over $5 million that 1) does not exceed the "7-pay" premium amount
as defined under section 7702A of the Internal Revenue Code, and 2) is received
within 11 months of the first Contract date for that employer. Each Contract's
portion of the total refund will be proportional to that Contract's contribution
to the total aggregate first year premiums eligible for the refund.
Beginning with Contracts sold on or after March 21, 1997, a portion of the sales
load may be refunded on a non-guaranteed basis if aggregate premiums paid
within the first 11 months of the Contract date, under all Contracts purchased
by an employer or by employees affiliated with a common employer (a) exceed two
times the "7-pay" premium amount, as defined under section 7702A of the Internal
Revenue Code, and (b) exceed $5 million. Currently, at the end of the first
Contract year, Pruco Life will refund, by adding to the Contract fund, an amount
equal to 4% of the aggregate premiums paid within the first 11 months of the
Contract date in excess of the 7-pay limit.
Additional non-guaranteed refunds of sales load may be made based on such
factors as total aggregate premiums of a certain amount over a given period of
time and the persistency of the Contracts.
REDUCTION OF CHARGES
In addition to the refund of sales charges noted above, Pruco Life reserves the
right to reduce the sales charges and/or other charges on certain multiple life
sales, where it is expected that the amount or nature of such multiple sales
will result in savings of sales, administrative or other costs. Pruco Life
determines both the eligibility for such reduced charges, as well as the amount
of such reductions, by considering the following factors: (1) the number of
individuals; (2) the total amount of premium payments expected to be received
from these Contracts; (3) the nature of the association between these
individuals, and the expected persistency of the individual Contracts; (4) the
purpose for which the individual Contracts are purchased and whether that
purpose makes it likely that costs will be reduced; and (5) any other
circumstances which Pruco Life believes to be relevant in determining whether
reduced costs will be expected. Some of the reductions in charges for these
sales may be contractually guaranteed; other reductions may be withdrawn or
modified by Pruco Life on a uniform basis. Pruco Life's reductions in charges
for these Contracts will not be unfairly discriminatory to the interests of any
Contract owners.
9
<PAGE>
CASH SURRENDER VALUE
The Contract has a cash surrender value which the owner may obtain while the
insured is living by surrendering the Contract. Surrendering the Contract may
have tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 13. Unlike
traditional fixed-benefit life insurance, however, a Contract's cash surrender
value is not known in advance because it varies daily with the investment
performance of the selected investment option[s]. It also varies with the amount
of invested premiums and the charges deducted from the Account. The cash
surrender value equals the Contract fund plus any refund of sales charges due
minus any Contract debt arising from any outstanding loan. The owner may
withdraw part of the cash surrender value under certain conditions. See PARTIAL
WITHDRAWAL OF CASH SURRENDER VALUE, below, and TAX TREATMENT OF CONTRACT
BENEFITS, page 13.
There is no minimum cash surrender value. If the Contract fund is insufficient
to pay monthly charges, the Contract will lapse in 61 days unless a payment
sufficient to keep the Contract in force is received. See LAPSE AND
REINSTATEMENT, page 15.
The tables on pages T1 through T8 illustrate what the cash surrender values
would be for representative Contracts, assuming certain uniform hypothetical
investment results in the selected Series Fund portfolio[s].
DEATH BENEFIT
The Contracts provide a choice of either fixed or variable death benefit plans.
Under the fixed death benefit plan, the death benefit on any date is equal to
the greater of: (1) the current Contract face amount; and (2) the Contract fund
before deduction of any monthly charges due on that date, plus a return of any
sales charges due upon surrender, multiplied by the "attained age factor" (a
list of applicable attained age factors is included in the Contract). Under the
variable death benefit plan, the death benefit on any date is equal to the
greater of: (1) the Contract face amount plus the Contract fund before deduction
of any monthly charges due on that date (but not less than the Contract face
amount); and (2) the Contract fund before deduction of any monthly charges, plus
a return of any sales charges due upon surrender, multiplied by the attained age
factor. Both death benefit plans assume that there is no Contract debt and that
the Contract is not in default. Death benefit proceeds will be reduced to
reflect any Contract debt. Under either plan, if the death benefit is determined
by applying the attained age factor, Pruco Life reserves the right to refuse to
accept further premium payments.
If the Contract is in default and the insured dies in the 61-day grace period,
the death benefit less any overdue charges is payable. If the insured dies after
the grace period, no death benefit is payable. See LAPSE AND REINSTATEMENT, page
15.
With Pruco Life's consent, a Contract owner may be able to increase or decrease
the face amount of the Contract. Such action, however, may cause the Contract to
be treated as a Modified Endowment Contract and may have tax consequences. See
INCREASES IN FACE AMOUNT, page 11, DECREASES IN FACE AMOUNT, page 11, and TAX
TREATMENT OF CONTRACT BENEFITS, page 13.
PARTIAL WITHDRAWAL OF CASH SURRENDER VALUE
Contract owners may make withdrawals from the Contract fund. Such withdrawals
may have tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 13. A
Contract owner may make up to four withdrawals per year, subject to certain
requirements. The amount withdrawn must be at least $2,000 for Contracts with a
fixed death benefit and $500 for Contracts with a variable death benefit, and
there is an administrative processing fee equal to the lesser of $15 or 2% of
the amount withdrawn. A Contract owner may not designate the investment
option[s] from which a withdrawal is to be taken. The amount withdrawn plus the
administrative processing fee equal to the lesser of $15 or 2% of the amount
withdrawn will be taken proportionately from the Contract fund based on the
portion of the total Contract fund in a particular investment option. An amount
withdrawn may not be repaid except as a premium subject to the applicable
charges. All requests for withdrawals must be made in writing. Upon request,
Pruco Life will tell a Contract owner how much may be withdrawn. Whenever a
withdrawal is made, the face amount may be reduced in order to prevent the net
amount at risk from increasing.
No partial withdrawal will be permitted if it would result in a new current face
amount of less than $100,000 under an underwritten Contract or less than $50,000
under a guaranteed issue Contract. It is important to note, however, that if the
face amount is decreased there is a danger that the Contract might be classified
as a Modified Endowment Contract. Before making any withdrawal which causes a
decrease in face amount, a Contract owner should consult with his or her tax
advisor and Pruco Life representative. See TAX TREATMENT OF CONTRACT BENEFITS,
page 13. Contract owners who make a partial withdrawal will be sent replacement
Contract pages showing the new face amount. A withdrawal may affect target
premiums and monthly deductions.
10
<PAGE>
INCREASES IN FACE AMOUNT
A Contract owner may elect to increase the face amount[s] of the Contract no
earlier than the first Contract anniversary. The following conditions must be
met: (1) the owner must ask for the increase in writing on an appropriate form;
(2) the amount of the increase in face amount must be at least $25,000; (3) if
more than one face amount is shown in the Contract, each must be increased by
the same amount unless Pruco Life consents otherwise; (4) the insured must
supply evidence of insurability for the increase that is satisfactory to Pruco
Life; (5) if Pruco Life requests, the owner must send in the Contract to be
suitably endorsed; (6) the Contract must not be in default on the date the
increase takes effect; (7) if Pruco Life has, between the Contract date and the
date that any requested increase in face amount will take effect, changed any of
the bases on which benefits and charges are calculated under newly issued
Contracts, Pruco Life has the right to deny the increase; (8) the owner must
make any required payment at the time of the increase; and (9) Pruco Life has
the right to deny more than one increase in a Contract year.
Increases in a Contract's face amount may also affect whether the Contract is a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 13.
Pruco Life will supply the Contract owner with pages which show the increased
face amount[s], the effective date of the increase, and the recomputed charges.
If the insured is not living on the effective date of the increase, the increase
will not take effect.
DECREASES IN FACE AMOUNT
Pruco Life may permit a Contract owner to decrease the Contract's face amount[s]
without withdrawing a portion of the Contract fund. This can be done to reduce
monthly charges. There is an administrative processing charge of up to $15 for
each decrease. Decreases in face amount may be combined with cash withdrawals.
A Contract owner may elect to decrease the Contract's face amount[s] no earlier
than the first Contract anniversary. The following conditions must be met: (1)
the owner must ask for the decrease in writing on an appropriate form; (2) the
amount of the decrease in face amount must be at least $10,000; (3) if more than
one face amount is shown in the Contract, each must be decreased by the same
amount unless Pruco Life consents otherwise; and (4) if Pruco Life requests, the
owner must send in the Contract to be suitably endorsed. Pruco Life reserves the
right to refuse to reduce the Contract's face amount[s] to the extent that this
would cause the Contract to fail to qualify as "life insurance" for purposes of
section 7702 of the Internal Revenue Code.
Pruco Life will supply the Contract owner with pages which show the decreased
face amount[s], the effective date of the decrease, and the recomputed charges.
If the insured is not living on the effective date of the decrease, the decrease
will not take effect.
Contract owners should carefully consider the tax consequences before requesting
a decrease in face amount; if a decrease is effected the Contract may become a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 13.
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND
ACCUMULATED PREMIUMS
The following eight tables have been prepared to show how certain values under a
Contract change with investment performance of the Account over an extended
period of time. The tables assume that there is no Contract debt. The tables
illustrate how cash surrender values and death benefits of a Contract issued on
an insured of a given age would vary over time if the return on assets in the
selected Series Fund portfolios were a uniform, after-tax, annual rate of 0%,
6%, and 12%. The death benefits and cash surrender values would be different
from those shown if the returns averaged 0%, 6%,and 12% but fluctuated over and
under those averages throughout the years. The first four tables assume certain
target premiums were paid annually for all years, and the remaining tables
assume payment of certain higher annual premiums (the 7-pay premiums, i.e., the
maximum annual premiums that may be paid in the first 7 years without the
Contract becoming a Modified Endowment Contract under federal tax law) for 7
years. The tables also show the values of the premiums accumulated at 4%
interest.
The tables reflect the fact that the net return on the assets held in the
subaccounts is lower than the gross after-tax return of the Series Fund's
portfolios. This is because these tables assume an investment management fee and
other estimated Series Fund expenses totaling 0.51%. The 0.51% figure is based
on an average of the current management fees and expenses of the available
fifteen portfolios, taking into account any applicable expense caps or expense
reimbursement arrangements. Actual fees and expenses of the portfolios
associated with a Contract may be more or less than 0.51%, will vary from year
to year, and will depend on how the Contract fund is allocated.
11
<PAGE>
The tables also reflect the daily charge to the Account for assuming mortality
and expense risks, the monthly administrative charge, and the monthly mortality
charge. As their headings indicate, the following tables alternate between
tables reflecting Pruco Life's current charges and tables reflecting the
deduction of the maximum contractual charges. They reflect the refund of the
prior year's sales charges applicable to surrenders in the first 3 Contract
years, but no other refunds of sales charges such as that based on aggregate
first year premiums in excess of $5 million. All tables assume a charge of 3.25%
for taxes attributable to premiums and reflect the fact that no charges against
the Account are currently made for other federal, state or local taxes
attributable to the Contract. The tables relate to regularly underwritten
contracts on preferred risk insureds.
Upon request, Pruco Life will furnish a comparable illustration based on a
proposed Contract's specific circumstances.
12
<PAGE>
<TABLE>
ILLUSTRATIONS
-------------
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $1,447.03 ANNUAL PREMIUMS FOR ALL YEARS
USING CURRENT CHARGES
<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% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.11% Net) (4.89% Net) (10.89% Net) (-1.11% Net) (4.89% Net) (10.89% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,505 $100,000 $100,000 $ 100,000 $ 1,188 $ 1,260 $ 1,332
2 $ 3,070 $100,000 $100,000 $ 100,000 $ 2,263 $ 2,477 $ 2,700
3 $ 4,698 $100,000 $100,000 $ 100,000 $ 3,352 $ 3,782 $ 4,247
4 $ 6,391 $100,000 $100,000 $ 100,000 $ 4,356 $ 5,077 $ 5,890
5 $ 8,151 $100,000 $100,000 $ 100,000 $ 5,414 $ 6,506 $ 7,786
6 $ 9,982 $100,000 $100,000 $ 100,000 $ 6,457 $ 8,002 $ 9,887
7 $ 11,886 $100,000 $100,000 $ 100,000 $ 7,486 $ 9,569 $ 12,215
8 $ 13,867 $100,000 $100,000 $ 100,000 $ 8,501 $ 11,211 $ 14,796
9 $ 15,926 $100,000 $100,000 $ 100,000 $ 9,503 $ 12,932 $ 17,659
10 $ 18,068 $100,000 $100,000 $ 100,000 $10,488 $ 14,733 $ 20,832
15 $ 30,134 $100,000 $100,000 $ 110,040 $15,164 $ 25,085 $ 42,681
20 $ 44,813 $100,000 $100,000 $ 174,185 $19,285 $ 38,021 $ 78,747
25 $ 62,673 $100,000 $105,767 $ 268,786 $23,080 $ 55,178 $ 140,225
30 (Age 65) $ 84,403 $100,000 $129,447 $ 408,543 $25,931 $ 76,979 $ 242,950
35 $110,840 $100,000 $156,406 $ 620,217 $27,387 $104,422 $ 414,079
40 $143,005 $100,000 $187,578 $ 943,468 $25,849 $138,227 $ 695,245
45 $182,138 $100,000(2) $225,008 $1,446,430 $18,711(2) $179,435 $1,153,471
- ----------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy year 51, unless an additional premium payment
was made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES,
AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
T1
<PAGE>
<TABLE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $1,447.03 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<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% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.41% Net) (4.59% Net) (10.59% Net) (-1.41% Net) (4.59% Net) (10.59% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,505 $100,000 $100,000 $100,000 $ 1,115 $ 1,184 $ 1,253
2 $ 3,070 $100,000 $100,000 $100,000 $ 2,097 $ 2,298 $ 2,507
3 $ 4,698 $100,000 $100,000 $100,000 $ 3,056 $ 3,453 $ 3,885
4 $ 6,391 $100,000 $100,000 $100,000 $ 3,879 $ 4,540 $ 5,286
5 $ 8,151 $100,000 $100,000 $100,000 $ 4,789 $ 5,782 $ 6,949
6 $ 9,982 $100,000 $100,000 $100,000 $ 5,672 $ 7,068 $ 8,777
7 $ 11,886 $100,000 $100,000 $100,000 $ 6,528 $ 8,399 $ 10,785
8 $ 13,867 $100,000 $100,000 $100,000 $ 7,357 $ 9,777 $ 12,994
9 $ 15,926 $100,000 $100,000 $100,000 $ 8,158 $ 11,204 $ 15,425
10 $ 18,068 $100,000 $100,000 $100,000 $ 8,929 $ 12,680 $ 18,101
15 $ 30,134 $100,000 $100,000 $100,000 $12,283 $ 20,836 $ 36,197
20 $ 44,813 $100,000 $100,000 $144,424 $14,570 $ 30,364 $ 65,292
25 $ 62,673 $100,000 $100,000 $211,506 $15,186 $ 41,291 $110,342
30 (Age 65) $ 84,403 $100,000 $100,000 $300,845 $13,089 $ 53,780 $178,905
35 $110,840 $100,000 $102,220 $421,032 $ 6,060 $ 68,246 $281,097
40 $143,005 $ 0(2) $114,095 $584,021 $ 0(2) $ 84,077 $430,367
45 $182,138 $ 0 $125,841 $806,880 $ 0 $100,353 $643,455
- ----------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy year 38, unless an additional premium payment
was made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES,
AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
T2
<PAGE>
<TABLE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $3,670.28 ANNUAL PREMIUMS FOR ALL YEARS
USING CURRENT CHARGES
<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% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.11% Net) (4.89% Net) (10.89% Net) (-1.11% Net) (4.89% Net) (10.89% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,817 $100,000 $100,000 $100,000 $ 3,086 $ 3,270 $ 3,455
2 $ 7,787 $100,000 $100,000 $100,000 $ 5,869 $ 6,422 $ 6,998
3 $ 11,915 $100,000 $100,000 $100,000 $ 8,671 $ 9,784 $ 10,989
4 $ 16,209 $100,000 $100,000 $100,000 $11,245 $ 13,116 $ 15,224
5 $ 20,675 $100,000 $100,000 $100,000 $13,942 $ 16,780 $ 20,108
6 $ 25,319 $100,000 $100,000 $100,000 $16,587 $ 20,608 $ 25,520
7 $ 30,149 $100,000 $100,000 $100,000 $19,177 $ 24,610 $ 31,526
8 $ 35,172 $100,000 $100,000 $100,000 $21,736 $ 28,821 $ 38,221
9 $ 40,395 $100,000 $100,000 $100,000 $24,266 $ 33,255 $ 45,693
10 (Age 65) $ 45,828 $100,000 $100,000 $100,000 $26,768 $ 37,931 $ 54,042
15 $ 76,432 $100,000 $100,000 $167,212 $38,657 $ 65,396 $111,637
20 $113,666 $100,000 $135,787 $279,162 $48,713 $100,062 $205,715
25 $158,966 $100,000(2) $180,274 $453,661 $56,624(2) $143,762 $361,777
- ----------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy year 44, unless an additional premium payment
was made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES,
AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
T3
<PAGE>
<TABLE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $3,670.28 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<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% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.41% Net) (4.59% Net) (10.59% Net) (-1.41% Net) (4.59% Net) (10.59% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,817 $100,000 $100,000 $100,000 $ 2,616 $ 2,784 $ 2,952
2 $ 7,787 $100,000 $100,000 $100,000 $ 4,856 $ 5,339 $ 5,844
3 $ 11,915 $100,000 $100,000 $100,000 $ 7,001 $ 7,951 $ 8,985
4 $ 16,209 $100,000 $100,000 $100,000 $ 8,765 $10,336 $ 12,117
5 $ 20,675 $100,000 $100,000 $100,000 $10,708 $13,059 $ 15,836
6 $ 25,319 $100,000 $100,000 $100,000 $12,539 $15,834 $ 19,894
7 $ 30,149 $100,000 $100,000 $100,000 $14,252 $18,661 $ 24,329
8 $ 35,172 $100,000 $100,000 $100,000 $15,834 $21,532 $ 29,185
9 $ 40,395 $100,000 $100,000 $100,000 $17,272 $24,445 $ 34,515
10 (Age 65) $ 45,828 $100,000 $100,000 $100,000 $18,555 $27,397 $ 40,388
15 $ 76,432 $100,000 $100,000 $120,965 $22,244 $42,877 $ 80,761
20 $113,666 $100,000 $100,000 $192,443 $18,978 $60,040 $141,812
25 $158,966 $100,000(2) $102,198 $288,012 $ 1,201(2) $81,499 $229,679
- ----------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy year 26, unless an additional premium payment
was made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES,
AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
T4
<PAGE>
<TABLE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $3,897 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<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% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.11% Net) (4.89% Net) (10.89% Net) (-1.11% Net) (4.89% Net) (10.89% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,053 $100,000 $100,000 $ 100,000 $ 3,536 $ 3,740 $ 3,945
2 $ 8,268 $100,000 $100,000 $ 100,000 $ 6,771 $ 7,391 $ 8,035
3 $ 12,651 $100,000 $100,000 $ 100,000 $10,046 $ 11,300 $ 12,656
4 $ 17,210 $100,000 $100,000 $ 100,000 $13,094 $ 15,212 $ 17,593
5 $ 21,952 $100,000 $100,000 $ 100,000 $16,295 $ 19,514 $ 23,279
6 $ 26,883 $100,000 $100,000 $ 102,077 $19,460 $ 24,027 $ 29,588
7 $ 32,011 $100,000 $100,000 $ 122,045 $22,591 $ 28,764 $ 36,566
8 $ 33,291 $100,000 $100,000 $ 130,230 $22,143 $ 29,977 $ 40,324
9 $ 34,623 $100,000 $100,000 $ 139,029 $21,697 $ 31,247 $ 44,482
10 $ 36,008 $100,000 $100,000 $ 148,473 $21,248 $ 32,576 $ 49,078
15 $ 43,809 $100,000 $103,638 $ 207,364 $18,970 $ 40,198 $ 80,430
20 $ 53,300 $100,000 $109,742 $ 291,750 $16,457 $ 49,613 $ 131,897
25 $ 64,848 $100,000 $119,407 $ 421,680 $13,722 $ 62,294 $ 219,989
30 (Age 65) $ 78,898 $100,000 $131,702 $ 617,437 $ 9,906 $ 78,320 $ 367,174
35 $ 95,991 $100,000 $147,477 $ 917,174 $ 4,195 $ 98,461 $ 612,339
40 $116,788 $ 0(2) $167,071 $1,377,376 $ 0(2) $123,115 $1,014,993
45 $142,090 $ 0 $191,856 $2,095,460 $ 0 $152,998 $1,671,047
- ----------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy year 38, unless an additional premium payment
was made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES,
AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
T5
<PAGE>
<TABLE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $3,897 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<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% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.41% Net) (4.59% Net) (10.59% Net) (-1.41% Net) (4.59% Net) (10.59% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,053 $100,000 $100,000 $ 100,000 $ 3,459 $ 3,658 $ 3,858
2 $ 8,268 $100,000 $100,000 $ 100,000 $ 6,568 $ 7,166 $ 7,789
3 $ 12,651 $100,000 $100,000 $ 100,000 $ 9,629 $10,831 $ 12,133
4 $ 17,210 $100,000 $100,000 $ 100,000 $12,339 $14,359 $ 16,634
5 $ 21,952 $100,000 $100,000 $ 100,000 $15,303 $18,361 $ 21,944
6 $ 26,883 $100,000 $100,000 $ 100,000 $18,218 $22,542 $ 27,816
7 $ 32,011 $100,000 $100,000 $ 114,424 $21,084 $26,911 $ 34,283
8 $ 33,291 $100,000 $100,000 $ 121,350 $20,476 $27,844 $ 37,575
9 $ 34,623 $100,000 $100,000 $ 128,725 $19,858 $28,806 $ 41,185
10 $ 36,008 $100,000 $100,000 $ 136,577 $19,229 $29,799 $ 45,145
15 $ 43,809 $100,000 $100,000 $ 184,114 $15,831 $35,230 $ 71,412
20 $ 53,300 $100,000 $100,000 $ 248,999 $11,693 $41,422 $112,569
25 $ 64,848 $100,000 $100,000 $ 337,445 $ 6,006 $48,224 $176,044
30 (Age 65) $ 78,898 $ 0(2) $100,000 $ 457,990 $ 0(2) $55,416 $272,355
35 $ 95,991 $ 0 $100,000 $ 622,401 $ 0 $62,591 $415,538
40 $116,788 $ 0 $100,000 $ 847,164 $ 0 $69,222 $624,278
45 $142,090 $ 0 $100,000(2) $1,155,911 $ 0 $74,363(2) $921,794
- ----------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy year 29, unless an additional premium payment
was made. Based on a gross return of 6%, the Contract would go into default in policy year 61 unless an additional premium
payment was made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES,
AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
T6
<PAGE>
<TABLE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $7,633 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<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% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.11% Net) (4.89% Net) (10.89% Net) (-1.11% Net) (4.89% Net) (10.89% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,938 $100,000 $100,000 $100,000 $ 6,893 $ 7,292 $ 7,692
2 $ 16,194 $100,000 $100,000 $100,000 $13,192 $ 14,404 $ 15,664
3 $ 24,780 $100,000 $100,000 $100,000 $19,568 $ 22,024 $ 24,681
4 $ 33,710 $100,000 $100,000 $100,000 $25,509 $ 29,663 $ 34,337
5 $ 42,997 $100,000 $100,000 $100,000 $31,758 $ 38,085 $ 45,494
6 $ 52,655 $100,000 $100,000 $108,004 $37,951 $ 46,953 $ 57,905
7 $ 62,699 $100,000 $102,222 $130,045 $44,093 $ 56,293 $ 71,615
8 $ 65,207 $100,000 $103,900 $139,795 $43,214 $ 58,738 $ 79,031
9 $ 67,815 $100,000 $105,702 $150,421 $42,326 $ 61,308 $ 87,245
10 (Age 65) $ 70,528 $100,000 $107,637 $162,017 $41,428 $ 64,009 $ 96,347
15 $ 85,808 $100,000 $119,105 $237,431 $36,434 $ 79,519 $158,518
20 $104,399 $100,000 $133,521 $352,593 $29,047 $ 98,392 $259,827
25 $127,017 $100,000(2) $153,475 $536,815 $15,680(2) $122,390 $428,089
- ----------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy year 29, unless an additional premium payment
was made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES,
AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
T7
<PAGE>
<TABLE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $7,633 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<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% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.41% Net) (4.59% Net) (10.59% Net) (-1.41% Net) (4.59% Net) (10.59% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,938 $100,000 $100,000 $100,000 $ 6,429 $ 6,810 $ 7,192
2 $ 16,194 $100,000 $100,000 $100,000 $12,160 $13,294 $ 14,476
3 $ 24,780 $100,000 $100,000 $100,000 $17,788 $20,063 $ 22,530
4 $ 33,710 $100,000 $100,000 $100,000 $22,726 $26,548 $ 30,861
5 $ 42,997 $100,000 $100,000 $100,000 $28,158 $33,954 $ 40,764
6 $ 52,655 $100,000 $100,000 $100,000 $33,497 $41,719 $ 51,782
7 $ 62,699 $100,000 $100,000 $116,002 $38,747 $49,876 $ 63,882
8 $ 65,207 $100,000 $100,000 $123,185 $37,107 $51,243 $ 69,641
9 $ 67,815 $100,000 $100,000 $130,831 $35,349 $52,607 $ 75,883
10 (Age 65) $ 70,528 $100,000 $100,000 $138,970 $33,453 $53,964 $ 82,642
15 $ 85,808 $100,000 $100,000 $188,231 $21,078 $60,508 $125,670
20 $104,399 $ 0(2) $100,000 $255,643 $ 0(2) $65,951 $188,384
25 $127,017 $ 0 $100,000(2) $348,295 $ 0 $68,407(2) $277,752
- ----------------
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy year 20, unless an additional premium payment
was made. Based on a gross return of 6%, the Contract would go into default in policy year 37 unless an additional premium
payment was made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES,
AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE SERIES FUND THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
T8
<PAGE>
CONTRACT LOANS
The Contract owner may borrow from Pruco Life up to the "loan value" of the
Contract, using the Contract as the only security for the loan. The loan value
of a Contract is equal to 90% of the Contract fund if the Contract is not in
default. The minimum amount that may be borrowed at any one time is $500 unless
the loan is used to pay premiums on a life insurance policy issued by Pruco Life
or its affiliates.
The Contract provides a choice of fixed or variable loan interest rates. Under
the fixed loan interest rate provision, interest charged on a loan accrues daily
at a fixed effective annual rate of 5.5%. Under the variable loan interest rate
provision, interest charged on any loan will accrue daily at an annual rate
Pruco Life determines at the start of each Contract year (instead of at the
fixed 5.5% rate). The interest rate will not exceed any rate required by state
law and will not exceed the greater of 5% and the "Published Monthly Average"
for the calendar month ending 2 months before the calendar month of the Contract
anniversary. The "Published Monthly Average" means Moody's Corporate Bond Yield
Average-Monthly Average Corporates, as published by Moody's Investors Service,
Inc. or any successor to that service, or if that average is no longer
published, a substantially similar average established by the insurance
regulator where the Contract is issued. For example, the Published Monthly
Average in 1997 ranged from 7.03% to 7.99%.
Interest payments on any loan are due at the end of each Contract year. If
interest is not paid when due, it is added to the principal amount of the loan.
The term "Contract debt" means the amount of all outstanding loans plus any
interest accrued but not yet due. If at any time the Contract debt exceeds the
Contract fund, Pruco Life will notify the Contract owner of its intent to
terminate the Contract in 61 days, within which time the owner may provide funds
sufficient to keep the Contract in force. If the Contract owner fails to keep
the Contract in force, the amount of unpaid Contract debt will be treated as a
distribution which may be taxable. See TAX TREATMENT OF CONTRACT BENEFITS --
Pre-Death Distributions, page 14, and LAPSE AND REINSTATEMENT, page 15.
When a loan is made, an amount equal to the loan proceeds will be transferred
out of the applicable subaccount[s]. The reduction will generally be made in the
same proportions as the value in each subaccount bears to the total value of the
Contract. While a fixed-rate loan is outstanding, the amount that was so
transferred will continue to be treated as part of the Contract fund but it will
be credited with the assumed effective annual rate of return of 4% rather than
with the actual rate of return of the applicable investment option[s]. While a
loan made pursuant to the variable loan interest rate provision is outstanding,
the amount that was so transferred is credited with an effective annual rate of
4% or an effective annual rate that is 1% less than the loan interest rate for
the Contract year, whichever is greater. If a loan remains outstanding at a time
when Pruco Life fixes a new rate, the new interest rate will apply.
Should the death benefit become payable while a loan is outstanding, or should
the Contract be surrendered, any Contract debt will be deducted from the
proceeds otherwise payable.
A loan will have a permanent effect on a Contract's cash surrender value and may
have a permanent effect on the death benefit because the investment results of
the selected investment option[s] will apply only to the amount remaining in
those investment options. The longer the loan is outstanding, the greater the
effect is likely to be. The effect could be favorable or unfavorable. If
investment results are greater than the rate being credited upon the amount of
the loan while the loan is outstanding, Contract values will not increase as
rapidly as they would have if no loan had been made. If investment results are
below that rate, Contract values will be higher than they would have been had no
loan been made. Loan repayments are allocated to the available investment
options proportionately based on their balances at the time of the loan
repayment.
The tax treatment of Contract loans depends on whether the Contract is
classified as a Modified Endowment Contract for federal tax purposes. See TAX
TREATMENT OF CONTRACT BENEFITS, page 13.
WHEN PROCEEDS ARE PAID
Pruco Life will generally pay any death benefit, cash surrender value,
withdrawal or loan proceeds within 7 days after receipt at a Home Office of all
the documents required of such a payment. Other than the death benefit, which is
determined as of the date of death, the amount will be determined as of the end
of the valuation period in which the necessary documents are received at a Home
Office. However, Pruco Life may delay payment of proceeds from the subaccount[s]
and the variable portion of the death benefit due under the Contract if the
disposal or valuation of the Account's assets is not reasonably practicable
because the New York Stock Exchange is closed for other than a regular holiday
or weekend, trading is restricted by the SEC or the SEC declares that an
emergency exists.
TAX TREATMENT OF CONTRACT BENEFITS
Each prospective purchaser is urged to consult a qualified tax advisor. The
following discussion is not intended as tax advice, and it is not a complete
statement of what the effect of federal income taxes will be under all
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<PAGE>
circumstances. Rather, it provides information about how Pruco Life believes the
tax laws apply in the most commonly occurring circumstances. There is no
guarantee, however, that the current federal income tax laws and regulations or
interpretations will not change.
Treatment as Life Insurance. Under current law, the Contract will be treated as
"life insurance," as long as it satisfies certain definitional tests set forth
in section 7702 of the Internal Revenue Code (the "Code") and as long as the
underlying investments for the Contract satisfy diversification requirements
under section 817(h) of the Code. (For further detail on diversification
requirements, see DIVIDENDS, DISTRIBUTIONS, AND TAXES in the attached prospectus
for the Series Fund.)
Pruco Life believes that it has taken adequate steps to cause the Contract to be
treated as life insurance for tax purposes. This means that: (1) except as noted
below, the Contract owner should not be taxed on any part of the Contract fund,
including additions attributable to interest, dividends or appreciation until
amounts are distributed under the Contract; and (2) the death benefit should be
excludible from the gross income of the beneficiary under section 101(a) of the
Code.
However, section 7702 of the Code which defines life insurance for tax purposes
gives the Secretary of the Treasury authority to prescribe regulations to carry
out the purposes of the section. In this regard, proposed regulations governing
mortality charges were issued under section 7702 in 1991 but have not yet been
finalized. The mortality charges for substandard risks under the Contract do not
comply with the proposed regulations. Consequently, if such regulations are
finalized in their current form, the Contract insuring a substandard risk may
not qualify as life insurance for federal tax purposes or may be classified as a
Modified Endowment Contract.
Additional regulations under section 7702 may be promulgated in the future. It
is unclear whether such regulations will have any impact on the Contract.
Moreover, in connection with the issuance of temporary regulations under section
817(h), the Treasury Department announced that such regulations do not provide
guidance concerning the extent to which Contract owners may direct their
investments to particular divisions of a separate account. Such guidance will be
included in regulations or rulings under section 817(d) relating to the
definition of a variable contract.
Pruco Life intends to comply with final regulations issued under sections 7702
and 817, and therefore reserves the right to make such changes as it deems
necessary to assure such compliance. Any such changes will apply uniformly to
affected Contract owners and will be made only after advance written notice to
Contract owners.
Pre-Death Distributions. The taxation of pre-death distributions depends on
whether the Contract is classified as a Modified Endowment Contract. The
following discussion first deals with distributions under Contracts not so
classified, and then with Modified Endowment Contracts.
1. A surrender or lapse of the Contract may have tax consequences. Upon
surrender, the owner will not be taxed on the cash surrender value
except for the amount, if any, that exceeds the gross premiums paid
less the untaxed portion of any prior withdrawals. The amount of any
unpaid Contract debt will, upon surrender, be added to the cash
surrender value and treated, for this purpose, as if it had been
received. Any loss incurred upon surrender may not be deductible. The
tax consequences of a surrender may differ if the proceeds are
received under any income payment settlement option.
Extra premiums for optional benefits and riders generally do not count
in computing total premiums paid, which in turn determines the extent
to which withdrawals or surrenders might be taxed.
A withdrawal generally is not taxable unless it exceeds total premiums
paid to the date of withdrawal, less the untaxed portion of any prior
withdrawals. However, under certain limited circumstances, in the
first 15 Contract years all or a portion of a withdrawal may be
taxable if the cash surrender value plus any unpaid Contract debt
exceeds the total premiums paid less the untaxed portion of any prior
withdrawals, even if total withdrawals do not exceed total premiums
paid to date.
Loans received under the Contract will ordinarily be treated as
indebtedness of the owner and will not be considered to be
distributions subject to tax.
2. Some of the above rules are changed if the Contract is classified as a
Modified Endowment Contract under section 7702A of the Code. This
Contract could be classified as a Modified Endowment Contract under at
least two circumstances: if aggregate premiums in excess of the sum of
the annual "7-pay" premiums as defined by the Code are paid or if a
decrease in the face amount of insurance is made. Moreover, the
addition of a rider or increases in the face amount of insurance after
the Contract date may have an impact on the Contract's status as a
Modified Endowment Contract. Contract owners contemplating any of
these steps should first consult a qualified tax advisor and their
Pruco Life representative.
If the Contract is classified as a Modified Endowment Contract, then
pre-death distributions, including loans, withdrawals and surrenders
are includible in income to the extent that the Contract's cash
surrender value
14
<PAGE>
plus any unpaid contract debt exceeds the gross premiums paid for the
Contract increased by the amount of any loans previously includible in
income and reduced by any untaxed amounts previously received other
than the amount of any loans excludible from income. These rules may
also apply to pre-death distributions, including loans, made during
the 2 year period prior to the Contract becoming a Modified Endowment
Contract.
In addition, pre-death distributions from such Contracts (including
full surrenders) will be subject to a penalty of 10 per cent of the
amount includible in income unless the amount is distributed on or
after age 59 1/2, on account of the taxpayer's disability or as a life
annuity. It is presently unclear how the penalty tax provisions apply
to Contracts owned by non-natural persons such as corporations.
Under certain circumstances, the Code requires two or more Modified
Endowment Contracts issued during a calendar year period to be treated
as a single contract for purposes of applying the above rules.
WITHHOLDING
The taxable portion of any amounts received under the Contract will be subject
to withholding to meet federal income tax obligations if the Contract owner
fails to elect that no taxes be withheld or in certain other circumstances.
Contract owners who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding. All
recipients of such amounts may be subject to penalties under the estimated tax
payment rules if withholding and estimated tax payments are not sufficient.
OTHER TAX CONSIDERATIONS
Transfer of the Contract to a new owner, assignment of the Contract, or change
of insureds under the Contract may have gift, estate and/or income tax
consequences depending on the circumstances. In the case of a transfer of the
Contract for a valuable consideration, the death benefit may be subject to
federal income taxes under section 101(a)(2) of the Code. In addition, a
transfer of the Contract to or the designation of a beneficiary who is either
371/2 years younger than the Contract owner or a grandchild of the Contract
owner may have Generation Skipping Transfer tax consequences under section 2601
of the Code.
In certain circumstances, deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied under section 163 of the Code or under section 264 of the
Code. Contract owners should consult a tax advisor regarding the application of
these provisions to their circumstances.
Business-owned life insurance is subject to additional rules. Section 264(a)(1)
of the Code generally precludes business Contract owners from deducting premium
payments. The Health Insurance Portability and Accountability Act of 1996
generally disallows tax deductions for interest on Contract debt on a
business-owned insurance policy effective (with certain transitional rules) for
interest paid or accrued after October 13, 1995. An exception permits the
deduction of interest on policy loans on Contracts for up to 20 key persons. The
interest deduction for Contract debt on such loans is limited to a prescribed
interest rate and a maximum aggregate loan amount of $50,000 per key insured
person. The Code also imposes an indirect tax upon additions to the Contract
fund or the receipt of death benefits under business-owned life insurance
policies under certain circumstances by way of the corporate alternative minimum
tax.
The individual situation of each Contract owner or beneficiary will determine
the federal estate taxes and the state and local estate, inheritance, and other
taxes due if the owner or insured dies.
LAPSE AND REINSTATEMENT
If the Contract fund on any Monthly date has decreased to zero or less, or if a
Contract's debt should exceed its Contract fund, the Contract fund will go into
default.
Should this happen, Pruco Life will send the Contract owner a notice of default
setting forth the payment necessary to keep the Contract in force. This payment
must be received at a Home Office within the 61 day grace period after the
notice of default is mailed or the Contract will lapse. A Contract that lapses
with an outstanding Contract loan may have tax consequences. See TAX TREATMENT
OF CONTRACT BENEFITS, page 13.
A Contract that has lapsed may be reinstated within 5 years after the date of
default unless the Contract has been surrendered for its cash surrender value.
To reinstate a lapsed Contract, Pruco Life requires renewed evidence of
insurability, and submission of certain payments due under the Contract.
A Contract that has lapsed has no value and provides no benefits. Such a
Contract may become a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT
BENEFITS, page 13.
15
<PAGE>
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS
The Contracts employ mortality tables that distinguish between males and
females. Thus, benefits under Contracts issued on males and females of the same
age will differ. The Contract is not available in those states that have adopted
regulations prohibiting sex-distinct insurance rates. Moreover, the Contract may
not be assigned if to do so would violate regulations or laws relating to
sex-distinct insurance rates.
EXCHANGE RIGHT AVAILABLE IN SOME STATES
In some states the owner may have the right within the first 2 Contract years
after a Contract is issued, so long as the Contract is not in default, to
exchange the Contract for a Life Paid Up at Age 85 plan on the insured's life
issued by The Prudential Insurance Company of America. This is a general account
policy with guaranteed minimum values. No evidence of insurability will be
required to make an exchange. The new policy will have the same issue date and
risk classification for the insured as the original Contract. The exchange may
be subject to an equitable adjustment in premiums and values, and a payment may
be required. Before effecting such an exchange, an owner may wish to obtain tax
advice.
REDUCED PAID-UP INSURANCE OPTION AVAILABLE IN SOME STATES
In some states, Contract owners will have the right to take the cash surrender
value and use it to acquire fixed reduced paid-up insurance, which provides
insurance coverage for the lifetime of the insured. The insurance amount depends
on the cash surrender value and the age, sex, and rating class of the insured.
Fixed reduced paid-up insurance has a cash surrender value and a loan value. It
is possible for this Contract to be classified as a Modified Endowment Contract
if this option is exercised. See TAX TREATMENT OF CONTRACT BENEFITS, page 13.
OTHER GENERAL CONTRACT PROVISIONS
BENEFICIARY. The beneficiary is designated and named in the application by the
Contract owner. Thereafter, the owner may change the beneficiary, provided it is
in accordance with the terms of the Contract.
INCONTESTABILITY. After the Contract has been in force during the insured's
lifetime for 2 years from the Contract date or, with respect to any change in
the Contract that requires Pruco Life's approval and could increase its
liability, after the change has been in effect during the insured's lifetime for
2 years from the effective date of the change, Pruco Life will not contest its
liability under the Contract in accordance with its terms.
MISSTATEMENT OF AGE OR SEX. If the insured's stated age or sex (except where
unisex rates apply) or both are incorrect in the Contract, Pruco Life will
adjust the death benefits payable, as required by law, to reflect the correct
age and sex. Any death benefit will be based on what the most recent charge for
mortality would have provided at the correct age and sex.
SUICIDE EXCLUSION. Generally, if the insured, whether sane or insane, dies by
suicide within 2 years from the Contract date, Pruco Life will pay no more under
the Contract than the sum of the premiums paid.
If the insured, whether sane or insane, dies by suicide within 2 years from the
effective date of an increase in the face amount of insurance that was requested
after issue and required Company approval, Pruco Life will pay, with respect to
the amount of the increase, no more than the sum of the monthly charges
attributable to the increase.
ASSIGNMENT. This Contract may not be assigned if such assignment would violate
any federal, state or local law or regulation. Generally, the Contract may not
be assigned to another insurance company or to an employee benefit plan without
Pruco Life's consent. Pruco Life assumes no responsibility for the validity or
sufficiency of any assignment, and it will not be obligated to comply with any
assignment unless it has received a copy at one of its Home offices.
SETTLEMENT OPTIONS. The Contract grants to most owners, or to the beneficiary, a
wide 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.
VOTING RIGHTS
As stated above, all of the assets held in the subaccounts of the Account will
be invested in shares of the corresponding portfolios of the Series Fund. Pruco
Life is the legal owner of those shares and as such has the right to vote on any
matter voted on at Series Fund shareholders meetings. However, Pruco Life will,
as required by law, vote the shares of the Series Fund at any regular and
special shareholders meetings it is required to hold in accordance with voting
instructions received from Contract owners. The Series Fund will not hold annual
shareholders meetings when not required to do so under Maryland law or the
Investment Company Act of 1940. Series Fund shares for which no timely
instructions from Contract owners are received, and any shares attributable to
general account investments of Pruco Life will be voted in the same proportion
as shares in the respective
16
<PAGE>
portfolios for which instructions are received. Should the applicable federal
securities laws or regulations, or their current interpretation, change so as to
permit Pruco Life to vote shares of the Series Fund in its own right, it may
elect to do so.
Matters on which Contract owners may give voting instructions include the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's selected subaccount[s]; (4) any change in
the fundamental investment policy of a portfolio corresponding to the Contract
owner's selected subaccount[s]; and (5) any other matter requiring a vote of the
shareholders of the Series Fund. With respect to approval of the investment
advisory agreement or any change in a portfolio's fundamental investment policy,
Contract owners participating in such portfolios will vote separately on the
matter, pursuant to the requirements of Rule 18f-2 under the 1940 Act.
The number of Series Fund shares for which instructions may be given by a
Contract owner is determined by dividing the portion of the value of the
Contract derived from participation in a subaccount, by the value of one share
in the corresponding portfolio of the Series Fund. The number of votes for which
each Contract owner may give Pruco Life instructions will be determined as of
the record date chosen by the Board of Directors of the Series Fund. Pruco Life
will furnish Contract owners with proper forms and proxies to enable them to
give these instructions. Pruco Life reserves the right to modify the manner in
which the weight to be given voting instructions is calculated where such a
change is necessary to comply with current federal regulations or
interpretations of those regulations.
Pruco Life may, if required by state insurance regulations, disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the sub-classification or investment objectives of one or more
of the Series Fund's portfolios, or to approve or disapprove an investment
advisory contract for the Series Fund. In addition, Pruco Life itself may
disregard voting instructions that would require changes in the investment
policy or investment advisor of one or more of the Series Fund's portfolios,
provided that Pruco Life reasonably disapproves such changes in accordance with
applicable federal regulations. If Pruco Life does disregard voting
instructions, it will advise Contract owners of that action and its reasons for
such action in the next annual or semi-annual report to Contract owners.
SUBSTITUTION OF SERIES FUND SHARES
Although Pruco Life believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Series Fund may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes or the unavailability of shares for investment. In that
event, Pruco Life may seek to substitute the shares of another portfolio or of
an entirely different mutual fund. Before this can be done, the approval of the
SEC, and possibly one or more state insurance departments, will be required.
Contract owners will be notified of such substitution.
REPORTS TO CONTRACT OWNERS
Once each Contract year (except where the Contract is in force as fixed reduced
paid-up insurance), Contract owners will be sent statements that provide certain
information pertinent to their own Contract. These statements detail values and
transactions made and specific Contract data that apply only to each particular
Contract. On request, a Contract owner will be sent a current statement in a
form similar to that of the annual statement described above, but Pruco Life may
limit the number of such requests or impose a reasonable charge if such requests
are made too frequently.
Contract owners will also be sent annual and semi-annual reports of the Series
Fund showing the financial condition of the portfolios and the investments held
in each.
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. The
maximum commission that will be paid to the representative is 14 1/2% of
premiums received in the first year up to certain limits. Additional first year
premiums and premiums in later years may generate up to 4% commission. Moreover,
trail commissions of up to 0.2% of the Contract fund as of the Contract's
anniversary may be paid. The representative may be required to return all or
part of the first year commission if the Contract
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<PAGE>
is not continued through the second year. Representatives who meet certain
productivity, profitability, and persistency standards with regard to the sale
of the Contract may be eligible for additional compensation.
Sales expenses in any year are not equal to the deduction for sales load in that
year. Pruco Life expects to recover its total sales expenses over the periods
the Contracts are in effect. To the extent that the sales charges are
insufficient to cover total sales expenses, the sales expenses will be recovered
from Pruco Life's surplus which may include the amounts derived from the
mortality and expense risk charge described in item 7 under CHARGES AND
EXPENSES, page 7.
STATE REGULATION
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
EXPERTS
The financial statements included in this prospectus for the years ended
December 31, 1997 and December 31, 1996 have been audited by Price Waterhouse
LLP, independent accountants, as stated in their reports appearing herein, and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing. Price Waterhouse LLP's
principal business address is 1177 Avenue of the Americas, New York, New York
10036.
The financial statements included in this prospectus for the year ended December
31, 1995 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing. Deloitte & Touche LLP's principal business address is Two Hilton
Court, Parsippany, New Jersey 07054-0319.
On March 12, 1996, Deloitte & Touche LLP was replaced as the independent
accountants of Pruco Life. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statements disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make a reference
to the matter in their reports.
Actuarial matters included in this prospectus have been examined by Nancy D.
Davis, FSA, MAAA, Vice President and Actuary of Prudential whose opinion is
filed as an exhibit to the registration statement.
LITIGATION
Several actions have been brought against Pruco Life alleging that Pruco Life
and its agents engaged in improper life insurance sales practices. Prudential
has agreed to indemnify Pruco Life for losses, if any, resulting from such
litigation. No other significant litigation is being brought against Pruco Life
that would have a material effect on its financial position.
YEAR 2000 COMPLIANCE
The services provided to the Contract owners by Pruco Life and Prusec depend on
the smooth functioning of their respective computer systems. The year 2000,
however, holds the potential for a significant disruption in the operation of
these systems. Many computer programs cannot distinguish the year 2000 from the
year 1900 because of the way in which dates are encoded. Left uncorrected, the
year "00" could cause systems to perform date comparisons and calculations
incorrectly that in turn could compromise the integrity of business records and
lead to serious interruption of business processes.
Prudential, Pruco Life and Prusec's ultimate corporate parent, identified this
issue as a critical priority in 1995 and has established quality assurance
procedures including a certification process to monitor and evaluate enterprise-
wide conversion and upgrading of systems for "Year 2000" compliance. Prudential
has also initiated an analysis of potential exposure that could result from the
failure of major service providers such as suppliers, custodians and brokers, to
achieve Year 2000 compliance. Prudential expects to complete its adaptation,
testing and certification of software for Year 2000 compliance by December 31,
1998. During 1999, Prudential plans to conduct additional
18
<PAGE>
internal testing, to participate in securities industry-wide test efforts and to
complete major service provider analysis and contingency planning.
The expenses of Prudential's Year 2000 compliance are allocated across its
various businesses, including those businesses not engaged in providing services
to Contract owners. Accordingly, while the expense is substantial in the
aggregate, it is not expected to have a material impact on Pruco Life's
abilities to meet its contractual commitments to Contract owners.
Prudential believes that it is well positioned to achieve the necessary
modifications and mitigate Year 2000 risks. However, if such efforts are not
completed on a timely basis, the Year 2000 issue could have a material adverse
impact on Prudential's operations, those of its subsidiary and affiliate
companies and/or the Account. Moreover, there can be no assurance that the
measures taken by Prudential's external service providers will be sufficient to
avoid any material adverse impact on Prudential's operations or those of its
subsidiary and affiliate companies.
ADDITIONAL INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933, relating to the offering described in this prospectus. This prospectus
does not include all the information set forth in the registration statement.
Certain portions have been omitted pursuant to the rules and regulations of the
SEC. The omitted information may, however, be obtained from the SEC's principal
office in Washington, D.C., upon payment of a prescribed fee.
Further information may also be obtained from Pruco Life's office. The address
and telephone number are set forth on the cover of this prospectus.
FINANCIAL STATEMENTS
The consolidated financial statements of Pruco Life and subsidiaries included
herein should be distinguished from the financial statements of the Account, and
should be considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
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DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life, listed with their principal
occupations during the past 5 years, are shown below.
DIRECTORS OF PRUCO LIFE
JAMES J. AVERY, JR., Chairman and Director. -- Senior Vice President and Chief
Actuary, Prudential Individual Insurance Group since 1997; 1995 to 1997:
President of Prudential Select; Prior to 1995: Chief Operating Officer of
Prudential Select.
WILLIAM M. BETHKE, Director. -- Chief Investment Officer since 1997; Prior to
1997: President, Prudential Capital Markets Group.
IRA J. KLEINMAN, Director. -- Executive Vice President, Prudential International
Insurance Group since 1997; 1995 to 1997: Chief Marketing and Product
Development Officer, Prudential Individual Insurance Group; Prior to 1995:
President, Prudential Select.
MENDEL A. MELZER, Director. -- Chief Investment Officer, Mutual Funds and
Annuities, Prudential Investments since 1996; 1995 to 1996: Chief Financial
Officer of the Money Management Group of Prudential; Prior to 1995: Senior Vice
President and Chief Financial Officer of Prudential Preferred Financial
Services.
ESTHER H. MILNES, President and Director. -- Vice President and Actuary,
Prudential Individual Insurance Group since 1996; Prior to 1996: Senior Vice
President and Chief Actuary, Prudential Insurance and Financial Services.
I. EDWARD PRICE, Vice Chairman and Director. -- Senior Vice President and
Actuary, Prudential Individual Insurance Group since 1995; Prior to 1995: Chief
Executive Officer, Prudential International Insurance.
KIYOFUMI SAKAGUCHI, Director. -- President, Prudential International Insurance
Group since 1995; Prior to 1995: Chairman and Chief Executive Officer, The
Prudential Life Insurance Co., Ltd.
OFFICERS WHO ARE NOT DIRECTORS
SUSAN L. BLOUNT, Secretary. -- Vice President and Secretary of Prudential since
1995; Prior to 1995: Assistant General Counsel for Prudential Residential
Services Company.
C. EDWARD CHAPLIN, Treasurer. -- Vice President and Treasurer of Prudential
since 1995; Prior to 1995: Managing Director and Assistant Treasurer of
Prudential.
JAMES C. DROZANOWSKI, Senior Vice President. -- Vice President and Operations
Executive, Prudential Individual Insurance Group since 1996; 1995 to 1996:
President and Chief Executive Officer of Chase Manhattan Bank; Prior to 1995:
Vice President, North America Customer Services, Chase Manhattan Bank.
CLIFFORD E. KIRSCH, Chief Legal Officer. -- Chief Counsel, Variable Products,
Law Department of Prudential since 1995; Prior to 1995: Associate General
Counsel with Paine Webber.
FRANK P. MARINO, Senior Vice President. -- Vice President, Policyowner Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services.
EDWARD A. MINOGUE, Senior Vice President. -- Vice President, Annuity Services,
Prudential Investments since 1997; Prior to 1997: Director, Merrill Lynch.
JAMES M. SCHLOMANN, Vice President, Comptroller & Chief Accounting Officer. --
Vice President & Associate Comptroller, Prudential since 1997; Prior to 1997:
Senior Executive Vice President & CFO, USLife Corp.
SHIRLEY H. SHAO, Senior Vice President and Chief Actuary. -- Vice President and
Associate Actuary, Prudential.
JAMES A. TIGNANELLI, Senior Vice President. -- Vice President, Compliance,
Prudential Individual Insurance since 1996; Prior to 1996: Vice President Field
Operations.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.
Pruco Life directors and officers are elected annually.
20
<PAGE>
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<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc. ............................................
Portfolios at net asset value [Note 3] ............... $ 9,057,166 $36,536,192 $53,602,182 $37,455,493 $47,361,225
Receivable from Pruco Life Insurance Company
[Note 2] ............................................. 309,987 83,538 171,996 23,892 160,685
----------- ----------- ----------- ----------- -----------
Net Assets ......................................... $ 9,367,153 $36,619,730 $53,774,178 $37,479,385 $47,521,910
=========== =========== =========== =========== ===========
NET ASSETS, representing:
Equity of Contract owners ............................. $ 9,367,153 $36,619,730 $53,774,178 $37,479,385 $47,521,910
Equity of Pruco Life Insurance Company ................ 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
$ 9,367,153 $36,619,730 $53,774,178 $37,479,385 $47,521,910
=========== =========== =========== =========== ===========
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received ....................... $ 461,061 $ 2,574,631 $ 1,108,812 $ 1,050,936 $ 2,025,296
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A] ............ 50,651 205,292 286,301 206,248 256,921
Reimbursement for excess expenses [Note 5C] ........... 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
NET EXPENSES ............................................ 50,651 205,292 286,301 206,248 256,921
----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ............................ 410,410 2,369,339 822,511 844,688 1,768,375
----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ................. 0 408,037 2,827,131 5,545,715 5,037,552
Realized gain (loss) on shares redeemed
[average cost basis] ............................... 0 94,146 1,774,816 605,368 200,066
Net change in unrealized gain (loss)
on investments ..................................... 0 (288,588) 4,476,157 (1,682,924) (1,945,306)
----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS .......................... 0 213,595 9,078,104 4,468,159 3,292,312
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................. $ 410,410 $ 2,582,934 $ 9,900,615 $ 5,312,847 $ 5,060,687
=========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
ZERO COUPON HIGH
BOND YIELD STOCK EQUITY NATURAL GOVERNMENT
2000 BOND INDEX INCOME RESOURCES GLOBAL INCOME
- ------------- ------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 18,472,034 $ 2,090,959 $ 110,283,582 $ 15,693,129 $ 1,016,447 $ 10,727,208 $ 3,433,155
0 0 119,648 0 0 0 0
- ------------- ------------- -------------- -------------- -------------- -------------- -------------
$ 18,472,034 $ 2,090,959 $ 110,403,230 $ 15,693,129 $ 1,016,447 $ 10,727,208 $ 3,433,155
============= ============= ============== ============== ============== ============== =============
$ 18,444,106 $ 2,086,946 $ 110,403,230 $ 15,686,834 $ 1,010,567 $ 10,671,085 $ 3,423,623
27,928 4,013 0 6,295 5,880 56,123 9,532
- ------------- ------------- -------------- -------------- -------------- -------------- -------------
$ 18,472,034 $ 2,090,959 $ 110,403,230 $ 15,693,129 $ 1,016,447 $ 10,727,208 $ 3,433,155
============= ============= ============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
ZERO COUPON HIGH
BOND YIELD STOCK EQUITY NATURAL GOVERNMENT
2000 BOND INDEX INCOME RESOURCES GLOBAL INCOME
- ------------- ------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 745,017 $ 197,684 $ 1,326,042 $ 370,792 $ 8,087 $ 149,254 $ 257,272
101,616 12,354 502,161 85,229 9,335 80,250 23,144
(42,117) 0 0 0 0 0 0
- -------------- ------------- -------------- -------------- -------------- -------------- ------------
59,499 12,354 502,161 85,229 9,335 80,250 23,144
- -------------- ------------- -------------- -------------- -------------- -------------- ------------
685,518 185,330 823,881 285,563 (1,248) 69,004 234,128
- -------------- ------------- -------------- -------------- -------------- -------------- ------------
690,332 0 2,997,271 1,414,553 136,346 504,462 0
(94,913) 16,526 2,754,626 481,377 24,931 1,501,595 17,410
(355,649) 59,640 15,534,339 2,177,083 (299,786) (871,934) 86,634
- -------------- ------------- -------------- -------------- -------------- -------------- ------------
239,770 76,166 21,286,236 4,073,013 (138,509) 1,134,123 104,044
- -------------- ------------- -------------- -------------- -------------- -------------- ------------
$ 925,288 $ 261,496 $ 22,110,117 $ 4,358,576 $ (139,757) $ 1,203,127 $ 338,172
============== ============= ============== ============== ============== ============== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A2
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF NET ASSETS
December 31,1997
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------
ZERO COUPON SMALL
BOND PRUDENTIAL CAPITALIZATION
2005 JENNISON STOCK
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Investment in shares of the Prudential Series
Fund, Inc
Portfolios at net asset value [Note 3] ..... $6,327,635 $ 884,922 $5,852,198
Receivable from Pruco Life Insurance Company
[Note 2] ................................... 0 0 103,338
---------- ---------- ----------
Net Assets ............................... $6,327,635 $ 884,922 $5,955,536
========== ========== ==========
NET ASSETS, representing:
Equity of Contract owners ................... $6,238,139 $ 880,670 $5,955,536
Equity of Pruco Life Insurance Company ...... 89,496 4,252 0
---------- ---------- ----------
$6,327,635 $ 884,922 $5,955,536
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
SUBACCOUNTS
------------------------------------------
ZERO COUPON SMALL
BOND PRUDENTIAL CAPITALIZATION
2005 JENNISON STOCK
---------- ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received ............. $ 485,431 $ 1,751 $ 39,052
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A] .. 42,708 4,217 34,205
Reimbursement for excess expenses [Note 5C] . (23,762) 0 0
---------- ---------- ----------
NET EXPENSES .................................. 18,946 4,217 34,205
---------- ---------- ----------
NET INVESTMENT INCOME (LOSS) .................. 466,485 (2,466) 4,847
---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ....... 124,816 50,105 381,206
Realized gain (loss) on shares redeemed
[average cost basis] ..................... 225,279 43,121 703,647
Net change in unrealized gain (loss)
on investments ........................... 215,644 73,161 238,634
---------- ---------- ----------
NET GAIN (LOSS) ON INVESTMENTS ................ 565,739 166,387 1,323,487
---------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................... $1,032,224 $ 163,921 $1,328,334
========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A3
<PAGE>
(This page intentionally left blank.)
A4
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
------------------------------------------ ------------------------------------------
1997 1996 1995 1997 1996 1995
----------- ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) .......... $ 410,410 $ 330,167 $ 469,134 $ 2,369,339 $ 1,960,688 $ 1,810,053
Capital gains distributions received .. 0 0 0 408,037 0 75,332
Realized gain (loss) on shares redeemed
[average cost basis] ................. 0 0 0 94,146 296,104 28,004
Net change in unrealized gain (loss) on
investments .......................... 0 0 0 (288,588) (852,759) 2,492,319
----------- ----------- ------------ ----------- ------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
OPERATIONS ............................ 410,410 330,167 469,134 2,582,934 1,404,033 4,405,708
----------- ----------- ------------ ----------- ------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7] .............................. (2,071,596) 4,126,018 (6,161,870) 2,394,859 (5,205,030) 12,271,219
----------- ----------- ------------ ----------- ------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
EQUITY TRANSFERS
[Note 8] .............................. (115,766) (2,181,943) 1,824,330 (86,028) (35,291) 7,946
----------- ----------- ------------ ----------- ------------ -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ................................ (1,776,952) 2,274,242 (3,868,406) 4,891,765 (3,836,288) 16,684,873
NET ASSETS:
Beginning of year ..................... 11,144,105 8,869,863 12,738,269 31,727,965 35,564,253 18,879,380
----------- ----------- ------------ ----------- ------------ -----------
End of year ........................... $ 9,367,153 $11,144,105 $ 8,869,863 $36,619,730 $ 31,727,965 $35,564,253
=========== =========== ============ =========== ============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
EQUITY MANAGED BALANCED
- ---------------------------------------- ------------------------------------------ --------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 822,511 $ 694,391 $ 413,265 $ 844,688 $ 664,545 $ 466,846 $ 1,768,375 $ 1,247,231 $ 1,122,788
2,827,131 3,585,387 1,044,826 5,545,715 2,731,323 853,956 5,037,552 2,164,504 1,136,745
1,774,816 633,352 73,478 605,368 75,275 570,360 200,066 464,539 252,185
4,476,157 759,941 4,223,477 (1,682,924) (331,513) 1,861,363 (1,945,306) 108,733 2,076,040
- ----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------ -----------
9,900,615 5,673,071 5,755,046 5,312,847 3,139,630 3,752,525 5,060,687 3,985,007 4,587,758
- ----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------ -----------
1,756,237 5,017,735 10,673,446 2,797,186 4,354,486 5,268,603 5,232,756 (1,853,576) 6,371,894
- ----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------ -----------
2,060 (6,721) 118,454 (1,047) 16,614 108,448 1,650,849 (1,583,656) (10,793)
- ----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------ -----------
11,658,912 10,684,085 16,546,946 8,108,986 7,510,730 9,129,576 11,944,292 547,775 10,948,859
42,115,266 31,431,181 14,884,235 29,370,399 21,859,669 12,730,093 35,577,618 35,029,843 24,080,984
- ----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------ -----------
$53,774,178 $42,115,266 $31,431,181 $37,479,385 $29,370,399 $ 21,859,669 $ 47,521,910 $ 35,577,618 $35,029,843
=========== =========== =========== =========== =========== ============ ============ ============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A6
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------
ZERO COUPON HIGH
BOND YIELD
2000 BOND
----------------------------------------- ------------------------------------------
1997 1996 1995 1997 1996 1995
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) .......... $ 685,518 $ 446,118 $ 34,920 $ 185,330 $ 125,028 $ 86,052
Capital gains distributions received .. 690,332 0 32,030 0 0 0
Realized gain (loss) on shares redeemed
[average cost basis] ................. (94,913) 81,019 (6,499) 16,526 3,467 14,691
Net change in unrealized gain (loss) on
investments .......................... (355,649) (17,112) 3,706 59,640 (3,313) 33,141
----------- ----------- ----------- ----------- ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
OPERATIONS ............................ 925,288 510,025 64,157 261,496 125,182 133,884
----------- ----------- ----------- ----------- ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7] .............................. (3,375,043) 20,209,923 26,150 261,186 594,373 306,768
----------- ----------- ----------- ----------- ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
EQUITY TRANSFERS
[Note 8] .............................. (325,458) (9,441) 344,989 (7,832) (9,051) 8,247
----------- ----------- ----------- ----------- ----------- ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ................................ (2,775,213) 20,710,507 435,296 514,850 710,504 448,899
NET ASSETS:
Beginning of year ..................... 21,247,247 536,740 101,444 1,576,109 865,605 416,706
----------- ----------- ----------- ----------- ----------- ------------
End of year ........................... $18,472,034 $21,247,247 $ 536,740 $ 2,090,959 $ 1,576,109 $ 865,605
=========== =========== =========== =========== =========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A7
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
- ----------------------------------------------------------------------------------------------------------------------------------
STOCK EQUITY NATURAL
INDEX INCOME RESOURCES
- ----------------------------------------- ----------------------------------------- ------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ------------ ----------- ----------- ----------- ----------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 823,881 $ 639,792 $ 437,582 $ 285,563 $ 380,320 $ 468,252 $ (1,248) $ 1,568 $ 6,054
2,997,271 673,354 232,361 1,414,553 485,860 680,332 136,346 172,185 35,173
2,754,626 413,888 228,489 481,377 908,956 11,573 24,931 33,275 53,167
15,534,339 7,149,445 6,328,106 2,177,083 1,098,444 1,305,180 (299,786) 88,415 118,192
- ------------ ----------- ----------- ----------- ----------- ----------- ---------- ------------ ------------
22,110,117 8,876,479 7,226,538 4,358,576 2,873,580 2,465,337 (139,757) 295,443 212,586
- ------------ ----------- ----------- ----------- ----------- ----------- ---------- ------------ ------------
27,253,947 17,931,933 10,570,564 (669,845) (7,025,151) 3,428,318 (321,997) 425,963 (355,647)
- ------------ ----------- ----------- ----------- ----------- ----------- ---------- ------------ ------------
(7,138) 62,929 25,718 (64,926) (214,892) (20,008) (11,668) 3,239 (4,104)
- ------------ ----------- ----------- ----------- ----------- ----------- ---------- ------------ ------------
49,356,926 26,871,341 17,822,820 3,623,805 (4,366,463) 5,873,647 (473,422) 724,645 (147,165)
61,046,304 34,174,963 16,352,143 12,069,324 16,435,787 10,562,140 1,489,869 765,224 912,389
- ------------ ----------- ----------- ----------- ----------- ----------- ---------- ------------ ------------
$110,403,230 $61,046,304 $34,174,963 $15,693,129 $12,069,324 $16,435,787 $1,016,447 $ 1,489,869 $ 765,224
============ =========== =========== =========== =========== =========== ========== ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A8
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------
GOVERNMENT
GLOBAL INCOME
------------------------------------------ -----------------------------------------
1997 1996 1995 1997 1996 1995
----------- ------------ ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) .......... $ 69,004 $ 244,627 $ 82,453 $ 234,128 $ 197,575 $ 139,648
Capital gains distributions received .. 504,462 240,786 147,906 0 0 0
Realized gain (loss) on shares redeemed
[average cost basis] ................. 1,501,595 155,802 4,237 17,410 553 11,506
Net change in unrealized gain (loss) on
investments .......................... (871,934) 1,328,007 433,961 86,634 (117,230) 220,405
----------- ------------ ----------- ------------ ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
OPERATIONS ............................ 1,203,127 1,969,222 668,557 338,172 80,898 371,559
----------- ------------ ----------- ------------ ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
PREMIUM PAYMENTS AND
OTHER OPERATING TRANSFERS
[Note 7] .............................. (6,012,623) 5,591,186 4,563,976 (371,160) ,069,544 575,758
----------- ------------ ----------- ------------ ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY
TRANSFERS
[Note 8] .............................. (140,126) 72,239 (15,748) (104,696) 75,388 40,705
----------- ------------ ----------- ------------ ----------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS . (4,949,622) 7,632,647 5,216,785 (137,684) ,225,830 988,022
NET ASSETS:
Beginning of year ..................... 15,676,830 8,044,183 2,827,398 3,570,839 ,345,009 1,356,987
----------- ------------ ----------- ------------ ----------- ----------
End of year ........................... $10,727,208 $ 15,676,830 $ 8,044,183 $ 3,433,155 $ ,570,839 $2,345,009
=========== ============ =========== ============ =========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A9
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
ZERO COUPON SMALL
BOND PRUDENTIAL CAPITALIZATION
2005 JENNISON* STOCK*
- ----------------------------------------- ------------------------------------------ ------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ----------- ------------ ----------- ------------ ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 466,485 $ 44,490 $ 26,758 $ (2,466) $ (487) $ (8) $ 4,847 $ 13,270 $ (55)
124,816 10,654 18,081 50,105 0 0 381,206 76,737 95
225,279 93 718 43,121 (693) 1,471 703,647 2,225 1,098
215,644 (61,956) 68,079 73,161 14,438 1,016 238,634 219,537 3,091
- ----------- ------------ ----------- ------------ ----------- ----------- ----------- ------------ -----------
1,032,224 (6,719) 113,636 163,921 13,258 2,479 1,328,334 311,769 4,229
- ----------- ------------ ----------- ------------ ----------- ----------- ----------- ------------ -----------
4,188,328 95,281 733,842 445,411 229,628 13,987 334,626 3,553,224 424,320
- ----------- ------------ ----------- ------------ ----------- ----------- ----------- ------------ -----------
119,618 6,971 6,511 806 770 14,662 18,918 (50,657) 30,773
- ----------- ------------ ----------- ------------ ----------- ----------- ----------- ------------ -----------
5,340,170 95,533 853,989 610,138 243,656 31,128 1,681,878 3,814,336 459,322
987,465 891,932 37,943 274,784 31,128 0 4,273,658 459,322 0
- ----------- ------------ ----------- ------------ ----------- ----------- ----------- ------------ -----------
$ 6,327,635 $ 987,465 $ 891,932 $ 884,922 $ 274,784 $ 31,128 $ 5,955,536 $ 4,273,658 $ 459,322
=========== ============ =========== ============ =========== =========== =========== ============ ===========
</TABLE>
* Commenced Business on 5/1/95
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A10
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1997
Note 1: General
Pruco Life Variable Universal Account ("the Account") was established
on April 17, 1989 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 sales of the Pruselect I and
Pruselect II Variable Universal Life products 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 fifteen subaccounts
within the Account, each of which invests only in a corresponding
portfolio of The Prudential Series Fund, Inc. (the "Series Fund"). The
Series Fund is a diversified open-end management investment company,
and is managed by Prudential.
Note 2: Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles (GAAP). The preparation of
the financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates.
Investments--The investments in shares of the Series Fund are stated
at the net asset value of the respective portfolio.
Security Transactions--Realized gains and losses on security
transactions are reported on an average cost basis. Purchase and sale
transactions are recorded as of the trade date of the security being
purchased or sold.
Distributions Received--Dividend and capital gain distributions
received are reinvested in additional shares of the Series Fund and
are recorded on the ex-dividend date.
Equity of Pruco Life Insurance Company--Pruco Life maintains a
position in the Account for liquidity purposes including unit
purchases and redemptions, fund share transactions, and expense
processing. Pruco Life monitors the balance daily and transfers funds
based upon anticipated activity. At times, Pruco Life may owe an
amount to the Account, which is reflected in the Account's Statements
of Net Assets as a receivable from Pruco Life. The receivable does not
have an effect on the Contract owner's account or the related unit
value.
A11
<PAGE>
Note 3: Investment Information for The Prudential Series Fund, Inc. Portfolios
The net asset value per share for each portfolio of the Series Fund,
the number of shares of each portfolio held by the subaccounts of the
Account and the aggregate cost of investments in such shares at
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
--------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Number of Shares: 905,717 3,314,887 1,725,258 2,167,527 3,163,696
Net asset value per share: $ 10.00000 $ 11.02185 $ 31.06909 $ 17.28029 $ 14.97022
Cost: $ 9,057,166 $ 36,491,445 $ 44,568,730 $ 38,454,251 $ 47,693,412
<CAPTION>
PORTFOLIOS (Continued)
ZERO
COUPON HIGH
BOND YIELD STOCK EQUITY NATURAL
2000 BOND INDEX INCOME RESOURCES
--------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Number of Shares: 1,465,237 256,732 3,649,411 700,981 66,677
Net asset value per share: $ 12.60686 $ 8.14453 $ 30.21956 $ 22.38737 $ 15.24426
Cost: $ 18,853,564 $ 2,032,139 $ 80,394,017 $ 11,961,021 $ 1,167,916
<CAPTION>
PORTFOLIOS (Continued)
------------------------------------------------------------------------------------
ZERO
COUPON SMALL
GOVERNMENT BOND PRUDENTIAL CAPITALIZATION
GLOBAL INCOME 2005 JENNISON STOCK
--------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Number of Shares: 598,500 297,943 502,354 49,907 367,346
Net asset value per share: $ 17.92348 $ 11.52286 $ 12.59597 $ 17.73151 $ 15.93104
Cost: $ 10,008,815 $ 3,345,108 $ 6,108,757 $ 796,307 $ 5,390,935
</TABLE>
Note 4: Contract Owner Unit Information
Outstanding Contract owner units, unit values and total value of
Contract owner equity at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Pruselect I) .......................... 1,102,936.059 4,412,888.148 686,583.548 2,858,960.718 8,550,453.902
Unit Value (Pruselect I) ................. $ 1.46519 $ 1.93715 $ 3.19611 $ 2.49462 $ 2.18713
-------------- -------------- --------------- --------------- ---------------
Contract Owner Equity (Pruselect I) ...... $ 1,616,011 $ 8,548,427 $ 2,194,397 $ 7,132,020 $ 18,700,954
============== ============== =============== =============== ===============
Contract Owner Units Outstanding
(Pruselect II) ......................... 5,290,195.879 4,491,032.443 16,138,299.801 12,165,125.243 13,177,522.919
Unit Value (Pruselect II) ................ $ 1.46519 $ 1.93715 $ 3.19611 $ 2.49462 $ 2.18713
-------------- -------------- --------------- --------------- ---------------
Contract Owner Equity (Pruselect II) ..... $ 7,751,142 $ 28,071,303 $ 51,579,781 $ 30,347,365 $ 28,820,956
============== ============== =============== =============== ===============
Total Contract OwnerEquity ............... $ 9,367,153 $ 36,619,730 $ 53,774,178 $ 37,479,385 $ 47,521,910
============== ============== =============== =============== ===============
</TABLE>
A12
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
-----------------------------------------------------------------------------------------
ZERO
COUPON HIGH
BOND YIELD STOCK EQUITY NATURAL
2000 BOND INDEX INCOME RESOURCES
------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Pruselect I) ................... -- 26,520.370 7,118,981.544 271,557.830 248,139.470
Unit Value (Pruselect I) ........... -- $ 2.23846 $ 3.18418 $ 3.19670 $ 1.97472
------------- -------------- -------------- -------------- --------------
Contract Owner Equity (Pruselect I) -- $ 59,365 $ 22,668,119 $ 868,089 $ 490,004
============= ============== ============== ============== ==============
Contract Owner Units Outstanding
(Pruselect II) ................... 9,242,803.161 905,793.039 7,553,439.561 4,635,638.369 263,613.576
Unit Value (Pruselect II) .......... $ 1.99551 $ 2.23846 $ 3.18418 $ 3.19670 $ 1.97472
------------- -------------- -------------- -------------- --------------
Contract Owner Equity (Pruselect II) $ 18,444,106 $ 2,027,581 $ 87,735,111 $ 14,818,745 $ 520,563
============= ============== ============== ============== ==============
Total Contract Owner
Equity ........................... $ 18,444,106 $ 2,086,946 $ 110,403,230 $ 15,686,834 $ 1,010,567
============= ============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (Continued)
---------------------------------------------------------------------------------
ZERO
COUPON SMALL
GOVERNMENT BOND PRUDENTIAL CAPITALIZATION
GLOBAL INCOME 2005 JENNISON STOCK
-------------- -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding (Pruselect I) -- 182,044.107 -- -- --
Unit Value (Pruselect I) ...................... -- $ 1.84433 -- -- --
-------------- -------------- -------------- ------------ --------------
Contract Owner Equity (Pruselect I) ........... -- $ 335,749 -- -- --
============== ============== ============== ============ ==============
Contract Owner Units Outstanding (Pruselect II) 7,554,590.146 1,674,252.084 2,768,126.415 473,175.810 3,365,375.264
Unit Value (Pruselect II) ..................... $ 1.41253 $ 1.84433 $ 2.25356 $ 1.86119 $ 1.76965
-------------- -------------- -------------- ------------ --------------
Contract Owner Equity (Pruselect II) ......... $ 10,671,085 $ 3,087,874 $ 6,238,139 $ 880,670 $ 5,955,536
============== ============== ============== ============ ==============
Total Contract Owner
Equity ...................................... $ 10,671,085 $ 3,423,623 $ 6,238,139 $ 880,670 $ 5,955,536
============== ============== ============== ============ ==============
</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 0.90% are applied daily against the net assets representing
equity of Contract owners held in each subaccount. Mortality risk is
that Contract holders may not live as long as estimated and expense
risk is that the cost of issuing and administering the policies may
exceed the estimated expenses. Pruco Life currently intends to charge
only 0.60% on these Contracts, but reserves the right to make the full
0.90% charge. For 1997, the amount of these charges paid to Pruco Life
was $1,900,632.
B. Partial Withdrawal Charge
A charge is imposed by Pruco Life on partial withdrawals of the cash
surrender value. For 1997, the amount of these charges paid to Pruco
Life was $390.
C. Expense Reimbursement
The Account is reimbursed by Pruco Life, on a non-guaranteed basis,
for expenses incurred by the Series Fund in excess of the effective
rate of 0.40% for all Zero Coupon Bond Portfolios and for the Stock
Index Portfolio, 0.50% for the High Dividend Stock Portfolio, 0.55%
for the Natural Resources Portfolio, and 0.65% for the High Yield Bond
Portfolio of the average daily net assets of these portfolios. For
1997, the amounts of these reimbursements totaled $65,879.
A13
<PAGE>
D. Cost of Insurance Charges
Contract owner contributions are applied to the Account net of the
following charges: transaction costs, administrative charges, premium
taxes, and sales loads. During 1997, Pruco Life received a total of
$7,280, $298,198, $2,282,878 and $3,317,575, respectively.
Note 6: Taxes
Pruco Life is taxed as a "life insurance company" as defined by the
Internal Revenue Code and the results of operations of the Account form a
part of Pruco Life's consolidated federal tax return. Under current federal
law, no federal income taxes are payable by the Account. As such, no
provision for tax liability has been recorded, in these financial
statements.
Note 7: Net Increase (Decrease) in Net Assets Resulting from Premium Payments
and Other Operating Transfers
The following amounts represent components of Contract owner activity for
the year ended December 31, 1997:
<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract Owner Net Payments............ $ 16,018,494 $ 5,573,222 $ 8,187,661 $ 4,391,711 $ 2,723,156
Policy Loans........................... $ (45,968) $ 0 $ (2,354) $ (101,032) $ (114,831)
Policy Loan Repayments and Interest.... $ 44,362 $ 449,595 $ 6,595 $ 109,493 $ 1,296,181
Surrenders, Withdrawals, and Death
Benefits........................... $ (447,841) $ (3,109,854) $ (3,056,522) $ (3,330,740) $ (871,239)
Net Transfers From/To Other
Subaccounts
or Fixed Rate Options.............. $(17,376,103) $ 146,922 $ (2,416,623) $ 2,115,451 $ 2,899,464
Administrative and Other Charges....... $ (264,540) $ (665,026) $ (962,520) $ (387,697) $ (699,975)
<CAPTION>
SUBACCOUNTS (Continued)
-------------------------------------------------------------------------
ZERO
COUPON HIGH
BOND YIELD STOCK EQUITY NATURAL
2000 BOND INDEX INCOME RESOURCES
------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract Owner Net Payments............ $ 2,096,958 $ 330,357 $ 14,400,181 $ 857,548 $ 343,362
Policy Loans........................... $ 0 $ 0 $ (15,209) $ 0 $ 0
Policy Loan Repayments and Interest.... $ 0 $ 0 $ 25,713 $ 0 $ 0
Surrenders, Withdrawals, and Death
Benefits........................... $ (99,448) $ (298,998) $ (3,907,071) $ (802,616) $ (674,237)
Net Transfers From/To Other
Subaccounts
or Fixed Rate Options.............. $ (5,246,708) $ 297,454 $ 17,853,467 $ (358,547) $ 47,378
Administrative and Other Charges....... $ (125,845) $ (67,627) $ (1,103,134) $ (366,230) $ (38,500)
</TABLE>
A14
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
-------------------------------------------------------------------------
ZERO
COUPON SMALL
GOVERNMENT BOND PRUDENTIAL CAPITALIZATION
GLOBAL INCOME 2005 JENNISON STOCK
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract Owner Net Payments............ $ 2,622,189 $ 425,284 $ 962,033 $ 238,539 $ 2,981,948
Policy Loans........................... $ (67,171) $ 0 $ 0 $ 0 $ 0
Policy Loan Repayments and Interest.... $ 67,209 $ 0 $ 0 $ 0 $ 0
Surrenders, Withdrawals, and Death
Benefits........................... $ (4,072,024) $ (1,472,671) $ (26,502) $ (293,084) $ (4,293,128)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options.. $ (4,363,304) $ 763,266 $ 3,302,946 $ 508,875 $ 1,826,062
Administrative and Other Charges....... $ (199,522) $ (87,039) $ (50,149) $ (8,919) $ (180,256)
</TABLE>
Note 8: Net Increase (Decrease) in Net Assets Resulting from Equity Transfers
The increase (decrease) in net assets resulting from equity transfers
represents the net contributions (withdrawals) of Pruco Life to (from) the
Account.
Note 9: Unit Activity
Transactions in units (including transfers among subaccounts) for the year
ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND EQUITY
----------------------------------- ---------------------------------- ---------------------------------
1997 1996 1997 1996 1997 1996
--------------- --------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 15,281,942.176 20,647,285.964 4,556,759.761 7,359,670.236 4,465,526.524 7,684,190.757
Contract Owner
Redemptions: (16,788,123.030) (17,694,761.491) (3,288,084.929) (10,274,180.721) (3,935,074.015) (5,707,765.375)
<CAPTION>
SUBACCOUNTS (Continued)
----------------------------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE ZERO COUPON
MANAGED BALANCED BOND 2000
----------------------------------- ---------------------------------- ---------------------------------
1997 1996 1997 1996 1997 1996
--------------- --------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 4,476,619.574 7,183,433.288 5,516,348.666 8,974,255.110 11,968,206.972 14,921,286.301
Contract Owner
Redemptions: (3,255,025.198) (4,966,689.021) (2,950,236.500) (10,034,514.954) (13,929,611.473) (3,798,030.241)
<CAPTION>
SUBACCOUNTS (Continued)
----------------------------------------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY
BOND INDEX INCOME
----------------------------------- ---------------------------------- ---------------------------------
1997 1996 1997 1996 1997 1996
--------------- --------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner 1,021,708.474 1,571,263.548 20,876,570.943 16,298,797.181 679,346.399 2,219,957.320
Contributions:
Contract Owner
Redemptions: (879,848.727) (1,254,509.408) (11,486,568.171) (8,266,289.229) (873,681.564) (5,553,498.457)
</TABLE>
A15
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (Continued)
---------------------------------------------------------------------------------------------------------
NATURAL GOVERNMENT
RESOURCES GLOBAL INCOME
----------------------------- ---------------------------------- ---------------------------------
1997 1996 1997 1996 1997 1996
------------ ------------ --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 237,684.462 601,006.759 10,705,192.681 10,357,717.745 3,049,722.668 4,777,803.530
Contract Owner
Redemptions: (378,670.722) (380,046.556) (14,887,427.575) (5,813,881.205) (3,251,976.746) (4,123,117.602)
<CAPTION>
SUBACCOUNTS (Continued)
---------------------------------------------------------------------------------------------------------
ZERO SMALL
COUPON PRUDENTIAL CAPITALIZATION
BOND 2005 JENNISON STOCK
----------------------------- ------------------------------- ---------------------------------
1997 1996 1997 1996 1997 1996
------------- ----------- ------------ ----------- -------------- -------------
Contract Owner
Contributions: 9,228,779.311 78,742.069 589,921.061 202,257.810 3,529,906.547 2,812,163.248
Contract Owner
Redemptions: (6,935,186.525) (28,992.975) (302,689.627) (28,028.317) (3,181,968.127) (182,921.460)
</TABLE>
Note 10: Purchases and Sales of Investments
The aggregate costs of purchases and proceeds from sales of investments in
the Series Fund were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
-------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Purchases......................... $ 14,743,000 $ 6,615,000 $ 10,423,000 $ 8,975,000 $ 9,219,000
Sales............................. $ (17,291,000) $ (4,595,000) $ (9,123,000) $ (6,409,000) $ (2,753,000)
<CAPTION>
PORTFOLIOS (Continued)
-------------------------------------------------------------------------------
ZERO COUPON HIGH YIELD STOCK EQUITY NATURAL
BOND 2000 BOND INDEX INCOME RESOURCES
-------------- ------------ ------------ -------------- -------------
For the year ended December 31, 1997
<S> <C> <C> <C> <C> <C>
Purchases......................... $ 14,644,000 $ 645,000 $ 37,720,000 $ 1,012,000 $ 438,000
Sales............................. $ (18,404,000) $ (404,000) $(11,095,000) $ (1,832,000) $ (781,000)
<CAPTION>
PORTFOLIOS (Continued)
-------------------------------------------------------------------------------
SMALL
GOVERNMENT ZERO COUPON PRUDENTIAL CAPITALIZATION
GLOBAL INCOME BOND 2005 JENNISON STOCK
-------------- ------------ ------------ -------------- -------------
For the year ended December 31, 1997
<S> <C> <C> <C> <C> <C>
Purchases......................... $ 3,457,000 $ 1,061,000 $ 14,149,000 $ 734,000 $ 4,489,000
Sales............................. $ (9,690,000) $ (1,560,000) $ (9,860,000) $ (292,000) $ (4,273,000)
</TABLE>
A16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the
Pruco Life Variable Universal Account
and the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the Money Market, Diversified Bond,
Equity, Flexible Managed, Conservative Balanced, Zero Coupon Bond 2000, High
Yield Bond, Stock Index, Equity Income, Natural Resources, Global, Government
Income, Zero Coupon Bond 2005, Prudential Jennison and Small Capitalization
Stock Subaccounts of the Pruco Life Variable Universal Account at December 31,
1997, the results of each of their operations for the year then ended and the
changes in each of their net assets for each of the two years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of Pruco Life Insurance Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of shares owned in The Prudential Series Fund, Inc. at December 31,
1997, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
March 20, 1998
A17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Contract Owners of
Pruco Life Variable Universal
Account and the Board of Directors
of Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying statements of changes in net assets of Pruco
Life Variable Universal Account of Pruco Life Insurance Company (comprising,
respectively, the Money Market, Diversified Bond, Equity, Flexible Managed,
Conservative Balanced, Zero Coupon Bond 2000, High Yield Bond, Stock Index,
Equity Income, Natural Resources, Global, Government Income, Zero Coupon Bond
2005, Prudential Jennison, and Small Capitalization Stock subaccounts) for the
periods presented in the year ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the changes in net assets of each of the respective subaccounts
constituting the Pruco Life Variable Universal Account for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 15, 1996
A18
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1997 AND 1996 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1997: $2,526,554;
1996: $2,210,150) $ 2,563,852 $ 2,236,817
Held to maturity, at amortized cost (fair value, 1997: $350,056; 1996:
$416,102) 338,848 405,731
Equity securities - available for sale, at fair value (cost, 1997: $1,289;
1996: $3,626) 1,982 3,748
Mortgage loans on real estate 22,787 46,915
Policy loans 703,955 639,782
Short-term investments 316,355 169,830
Other long-term investments 1,317 4,528
----------------- -----------------
Total investments 3,949,096 3,507,351
Cash 71,358 73,766
Deferred policy acquisition costs 655,242 633,159
Accrued investment income 67,000 62,110
Income taxes receivable - 7,191
Reinsurance recoverable on unpaid losses 25,882 27,014
Other assets 60,810 62,924
Separate Account assets 8,022,079 5,336,851
----------------- -----------------
TOTAL ASSETS $12,851,467 $9,710,366
================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances $ 2,282,191 $ 2,188,862
Future policy benefits and other policyholder liabilities 570,729 557,351
Cash collateral for loaned securities 143,421 -
Income taxes payable 71,703 -
Deferred income tax liability 138,483 148,960
Payable to affiliate 70,375 49,828
Other liabilities 120,260 88,930
Separate Account liabilities 7,948,788 5,277,454
----------------- -----------------
TOTAL LIABILITIES 11,345,950 8,311,385
----------------- -----------------
CONTINGENCIES - (SEE NOTE 10)
STOCKHOLDER'S EQUITY
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
December 31, 1997 and 1996 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,050,871 944,497
Net unrealized investment gains 17,129 14,104
Foreign currency translation adjustments (4,565) (1,702)
----------------- -----------------
TOTAL STOCKHOLDER'S EQUITY 1,505,517 1,398,981
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $12,851,467 $9,710,366
================= =================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-1
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES
Premiums $ 49,496 $ 51,525 $ 42,089
Policy charges and fee income 330,292 324,976 319,012
Net investment income 259,634 247,328 246,618
Realized investment gains, net 10,974 10,835 13,200
Other income 33,801 20,818 26,986
----------------- ----------------- -----------------
TOTAL REVENUES 684,197 655,482 647,905
----------------- ----------------- -----------------
BENEFITS AND EXPENSES
Policyholders' benefits 179,419 186,873 153,987
Interest credited to policyholders' account balances 110,815 118,246 126,926
General, administrative and other expenses 225,721 122,006 134,790
----------------- ----------------- -----------------
TOTAL BENEFITS AND EXPENSES 515,955 427,125 415,703
----------------- ----------------- -----------------
Income from operations before income taxes 168,242 228,357 232,202
----------------- ----------------- -----------------
Income taxes
Current 73,326 60,196 67,014
Deferred (11,458) 18,939 12,544
----------------- ----------------- -----------------
Total income taxes 61,868 79,135 79,558
----------------- ----------------- -----------------
NET INCOME $ 106,374 $ 149,222 $ 152,644
================= ================= =================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-2
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
NET FOREIGN
UNREALIZED CURRENCY TOTAL
COMMON PAID-IN- RETAINED INVESTMENT TRANSLATION STOCKHOLDER'S
STOCK CAPITAL EARNINGS GAINS ADJUSTMENTS EQUITY
------------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 2,500 $ 439,582 $ 642,631 $(41,761) $ 650 $1,043,602
Net income -- -- 152,644 -- -- 152,644
Change in foreign
currency translation
adjustments -- -- -- -- (1,870) (1,870)
Change in net
unrealized
investment gains -- -- -- 73,817 -- 73,817
------------- ------------- ------------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1995 2,500 439,582 795,275 32,056 (1,220) 1,268,193
Net income -- -- 149,222 -- -- 149,222
Change in foreign
currency translation
adjustments -- -- -- -- (482) (482)
Change in net
unrealized
investment gains -- -- -- (17,952) -- (17,952)
------------- ------------- ------------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1996 2,500 439,582 944,497 14,104 (1,702) 1,398,981
Net income -- -- 106,374 -- -- 106,374
Change in foreign
currency translation
adjustments -- -- -- -- (2,863) (2,863)
Change in net
unrealized
investment gains -- -- -- 3,025 -- 3,025
------------- ------------- ------------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1997 $ 2,500 $ 439,582 $1,050,871 $ 17,129 $ (4,565) $1,505,517
============= ============= ============= ============= =========== =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-3
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 106,374 $ 149,222 $ 152,644
Adjustments to reconcile net income to net cash provided by
operating activities:
Policy charges and fee income (40,783) (50,286) (56,637)
Interest credited to policyholders' account balances 110,815 118,246 126,926
Net increase in Separate Accounts (13,894) (38,025) (3,520)
Realized investment gains, net (10,974) (10,835) (13,200)
Amortization and other non-cash items (5,525) 26,709 (8,106)
Change in:
Future policy benefits and other policyholders' liabilities 13,378 56,151 22,877
Accrued investment income (4,890) (2,248) (480)
Payable to affiliate 20,547 16,519 10,569
Policy loans (64,173) (70,509) (75,411)
Deferred policy acquisition costs (22,083) (66,183) 31,318
Income taxes payable/receivable 78,894 (816) 12,031
Reinsurance recoverable on unpaid losses 1,132 900 750
Deferred income tax liability (10,477) 7,912 30,779
Other, net 34,094 7,564 (76,702)
--------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES 192,435 144,321 153,838
--------------- -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 2,828,665 3,886,254 1,886,687
Held to maturity 138,626 138,127 144,898
Equity securities 6,939 7,527 5,557
Mortgage loans on real estate 24,925 19,226 7,395
Other long-term investments 3,276 288 1,559
Investment real estate -- 4,488 2,926
Payments for the purchase of:
Fixed maturities:
Available for sale (3,141,785) (4,008,810) (1,741,139)
Held to maturity (70,532) (114,494) (135,092)
Equity securities (4,594) (4,697) (4,279)
Other long-term investments (51) (657) (1,674)
Cash collateral for loaned securities, net 143,421 -- --
Short-term investments, net (147,030) 58,186 (36,482)
--------------- -------------- ------------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES (218,140) (14,562) 130,356
--------------- -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 2,099,600 536,370 95,039
Withdrawals (2,076,303) (633,798) (365,578)
--------------- -------------- ------------
CASH FLOWS FROM (USED IN)FINANCING ACTIVITIES 23,297 (97,428) (270,539)
--------------- -------------- ------------
Net (decrease) increase in Cash (2,408) 32,331 13,655
Cash, beginning of year 73,766 41,435 27,780
--------------- -------------- ------------
CASH, END OF YEAR $ 71,358 $ 73,766 $ 41,435
=============== ============== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes (received) paid $ (7,904) $ 61,760 $ 53,107
=============== ============== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-4
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS
Pruco Life Insurance Company (the Company) is a stock life insurance company,
organized in 1971 under the laws of the state of Arizona. The Company markets
individual life insurance, variable life insurance, variable life insurance,
variable annuities, and deferred annuities (the Contracts) in all states except
New York, the District of Columbia and Guam. In addition, the Company markets
individual life insurance through its branch office in Taiwan. The Company has
two subsidiaries, Pruco Life Insurance Company of New Jersey (PLNJ) and The
Prudential Life Insurance company of Arizona (PLICA). PLNJ is a stock life
insurance company organized in 1982 under the laws of the state of New Jersey.
It is licenced to sell individual life insurance and deferred annuities only in
the states of New Jersey and New York. PLICA is a stock life insurance company
organized in 1988 under the laws of the state of Arizona. PLICA had no new
business sales in 1977 and at this time will not be issuing new business.
The only reportable industry segment of the Company is "Life Insurance."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company, a
stock life insurance company, and its subsidiaries. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP"). All significant intercompany balances and transactions have
been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
INVESTMENTS
FIXED MATURITIES classified as "available for sale" are carried at estimated
fair value. Fixed maturities that the Company has both the positive intent and
ability to hold to maturity are stated at amortized cost and classified as "held
to maturity". The amortized cost of fixed maturities are written down to
estimated fair value when considered impaired and the decline in value is
considered to be other than temporary. Unrealized gains and losses on fixed
maturities "available for sale", net of income tax, the effect on deferred
policy acquisition costs and participating annuity contracts that would result
from the realization of unrealized gains and losses are included in a separate
component of equity, "Net unrealized investment gains."
EQUITY SECURITIES, available for sale, comprised of common and non-redeemable
preferred stock, are carried at estimated fair value. The associated unrealized
gains and losses, net of income tax, the effect on deferred policy acquisition
costs and participating annuity contracts that would result from the realization
of unrealized gains and losses, are included in separate component of equity,
"Net unrealized investment gains."
MORTGAGE LOANS ON REAL ESTATE are stated primarily at unpaid principal balances,
net of unamortized discounts
POLICY LOANS are carried at unpaid principal balances.
SHORT-TERM INVESTMENTS, including highly liquid debt instruments purchased with
an original maturity of twelve months or less, are carried at amortized cost,
which approximates fair value.
OTHER LONG-TERM INVESTMENTS primarily represent the Company's investments in
joint ventures and partnerships in which the Company does not have control.
These investments are recorded using the equity method of accounting, reduced
for other than temporary declines in value.
REALIZED INVESTMENT GAINS, NET are computed using the specific identification
method. Costs of fixed maturity and equity securities are adjusted for
impairments considered to be other than temporary.
CASH
Cash includes cash on hand, amounts due from banks, and money market
instruments.
DEFERRED POLICY ACQUISITION COSTS
The costs which vary with and that are related primarily to the production of
new insurance business are deferred to the extent such costs are deemed
recoverable from future profits. Such costs include certain commissions, costs
of policy issuance and underwriting, and certain variable field office expenses.
Deferred policy acquisition costs are subject to recoverability testing at the
time of policy issue and loss recognition testing at the end of each accounting
period. Deferred policy acquisition costs are
B-5
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
adjusted for the impact of unrealized gains or losses on investments as if these
gains or losses had been realized, with corresponding credits or charges
included in equity.
Acquisition costs related to interest-sensitive life products and
investment-type contracts are deferred and amortized in proportion to total
estimated gross profits arising principally from investment results, mortality
and expense margins and surrender charges based on historical and anticipated
future experience. Amortization periods range from 15 to 30 years. Amortization
of deferred policy acquisition costs was $149,851 thousand, $9,309 thousand, and
$54,371 thousand for the years ended December 31, 1997, 1996, and 1995,
respectively. Deferred policy acquisition costs are analyzed to determine if
they are recoverable from future income, including investment income. If such
costs are determined to be unrecoverable, they are expensed at the time of
determination. The effect of revisions to estimated gross profits on unamortized
deferred acquisition costs is reflected in earnings in the period such estimated
gross profits are revised.
FUTURE POLICY BENEFITS AND POLICYHOLDERS' ACCOUNT BALANCES
Future policy benefits includes reserves for annuities in payout status as well
as reserves for riders and supplemental benefits. Reserves for annuities in
payout status are generally calculated as the present value of estimated future
benefit payments and related expenses, using interest rates ranging from 6.5% to
11.0%. The mortality assumption is generally the 1983 Individual Annuity
Mortality Table. Reserves for riders and supplemental benefits are calculated
using interest rates ranging from 2.5% to 7.25% and various mortality and
morbidity tables derived from company or industry experience. Reserves for
business in the Company's Taiwan branch are generally calculated using interest
rates ranging from 6.25% to 7.5% and the 1989 Taiwan Standard Ordinary
Experience Mortality table with modifications.
For the above categories, premium deficiency reserves are established, if
necessary, when the liabilities for future policy benefits plus the present
value of expected future gross premiums are insufficient to provide for expected
future policy benefits and expenses.
Policyholders' account balances for interest-sensitive life and investment-type
contracts are equal to the policy account values. The policy account values
represent an accumulation of gross premium payments plus credited interest, less
expense and mortality charges and withdrawals. Interest crediting rates on life
insurance products range from 4.2% to 6.5% and on investment-type products range
from 3.15% to 7.9%.
SECURITIES LOANED are recorded at the amount of cash received as collateral. The
Company obtains collateral in an amount equal to 102% of the fair value of the
domestic securities. The Company monitors the market value of securities loaned
on a daily basis with additional collateral obtained as necessary. Non-cash
collateral received is not reflected in the consolidated statements of financial
position. Substantially, all of the Company's securities loaned are with large
brokerage firms.
These transactions are used to generate net investment income and facilitate
trading activity. These instruments are short-term in nature (usually 30 days or
less) and are collateralized principally by U.S. Government and mortgage-backed
securities. The carrying amounts of these instruments approximate fair value
because of the relatively short period of time between the origination of the
instruments and their expected realization.
SEPARATE ACCOUNT ASSETS AND LIABILITIES
Separate Account assets and liabilities are reported at estimated fair value and
represent segregated funds which are invested for certain policyholders, pension
funds and other customers. The assets consist of common stocks, fixed
maturities, real estate related securities, and short-term investments. The
assets of each account are legally segregated and are not subject to claims that
arise out of any other business of the Company. Investment risks associated with
market value changes are generally borne by the customers, except to the extent
of minimum guarantees made by the Company with respect to certain accounts. The
investment income and gains or losses for Separate Accounts generally accrue to
the policyholders and are not included in the Consolidated Statement of
Operations. Mortality, policy administration and surrender charges on the
accounts are included in "Policy charges and fee income."
Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life Modified Guaranteed Annuity
Account. The Pruco Life Modified Guaranteed Annuity Account is a non-unitized
separate account, which funds the Modified Guaranteed Annuity Contract and the
Market Value Adjustment Annuity Contract. Owners of the Pruco Life Modified
Guaranteed Annuity and the Market Value Adjustment Annuity Contracts do not
participate in the investment gain or loss from assets relating to such
accounts. Such gain or loss is borne, in total, by the Company.
B-6
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INSURANCE REVENUE AND EXPENSE RECOGNITION
Amounts received as payment for interest-sensitive life, investment contracts
and deferred annuities are reported as deposits to "Policyholders' account
balances." Revenues from these contracts are reflected as "Policy charges and
fee income" and consist primarily of fees assessed during the period against the
policyholders' account balances for mortality charges, policy administration
charges, surrender charges, and interest earned from the investment of these
account balances. Benefits and expenses for these products include claims in
excess of related account balances, expenses of contract administration,
interest credited and amortization of deferred policy acquisition costs.
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Assets and liabilities of the Taiwan branch reported in other than U.S. dollars
are translated at the exchange rate in effect at the end of the period.
Revenues, benefits and other expenses are translated at the average rate
prevailing during the period. Translation adjustments arising from the use of
differing exchange rates from period to period are charged or credited directly
to equity. The cumulative effect of changes in foreign exchange rates are
included in "Foreign currency translation adjustments."
DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives include futures subject to market risk, all of which are used by the
Company in other than trading activities. Income and expenses related to
derivatives used to hedge are recorded on the accrual basis on the Statements of
Financial Position. Gains and losses relating to derivatives used to hedge the
risks associated with anticipated transactions are realized in "Realized
investment gains, net." If it is determined that the transaction will not close,
such gains and losses are included in "Realized investment gains, net."
Derivatives held for purposes other than trading are primarily used to hedge or
reduce exposure to interest rate and foreign currency risks associated with
assets held or expected to be purchased or sold, and liabilities incurred or
expected to be incurred. Additionally, other than trading derivatives are used
to change the characteristics of the Company's asset/liability mix consistent
with the Company's risk management activities.
INCOME TAXES
The Company and its subsidiaries are members of a group of affiliated companies
which join in filing a consolidated federal income tax return in addition to
separate company state and local tax returns. Pursuant to the tax allocation
arrangement, total federal income tax expense is determined on a separate
company basis. Members with losses record tax benefits to the extent such losses
are recognized in the consolidated federal tax provision. Deferred income taxes
are generally recognized, based on enacted rates, when assets and liabilities
have different values for financial statement and tax reporting purposes. A
valuation allowance is recorded to reduce a deferred tax asset to that portion
which management believes is more likely than not to be realized.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 125"). The statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
and provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. SFAS 125
became effective January 1, 1997 and is to be applied prospectively. Subsequent
to June 1996, FASB issued SFAS No. 127 "Deferral of the Effective Date of
Certain Provisions of SFAS 125" ("SFAS 127"). SFAS 127 delays the implementation
of SFAS 125 for one year for certain provisions, including repurchase
agreements, dollar rolls, securities lending and similar transactions. The
Company will delay implementation with respect to those affected provisions.
Adoption of SFAS 125 has not, and will not have a material impact on the
Company's results of operations, financial condition and liquidity.
In June of 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for years beginning after December 15, 1997. This statement
defines comprehensive income as "the change in equity of a business enterprise
during a
B-7
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
period from transactions and other events and circumstances from non-owner
sources, excluding investments by owners and distributions to owners" and
establishes standards for reporting and displaying comprehensive income and its
components in financial statements. The statement requires that the Company
classify items of other comprehensive income by their nature and display the
accumulated balance of other comprehensive income separately from retained
earnings in the equity section of the Statement of Financial Position. In
addition, reclassification of financial statements for earlier periods must be
provided for comparative purposes.
RECLASSIFICATIONS
Certain amounts in the prior years have been reclassified to conform to current
year presentation.
B-8
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES:
The following tables provide additional information relating to fixed maturities
and equity securities as of December 31,:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
------------------ ---------------- ------------- ----------------
(In Thousands)
<S> <C> <C> <C> <C>
FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 177,691 $ 1,231 $ 20 $ 178,902
Foreign government bonds 83,889 1,118 19 84,988
Corporate securities 2,263,898 36,857 2,017 2,298,738
Mortgage-backed securities 1,076 180 32 1,224
------------------ ---------------- ------------- ----------------
Total fixed maturities available for sale $2,526,554 $ 39,386 $ 2,088 $2,563,852
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
EQUITY SECURITIES AVAILABLE FOR SALE $ 1,289 $ 802 $ 109 $ 1,982
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
FIXED MATURITIES HELD TO MATURITY
Corporate securities $ 338,848 $ 11,427 $ 219 $ 350,056
------------------ ---------------- ------------- ----------------
Total fixed maturities held to maturity $ 338,848 $ 11,427 $ 219 $ 350,056
================== ================= ============== ===============
1996
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
------------------ ---------------- ------------- ----------------
(In Thousands)
FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 32,055 $ 30 $ 174 $ 31,911
Foreign government bonds 90,447 857 205 91,099
Corporate securities 2,087,250 30,365 4,206 2,113,409
Mortgage-backed securities 398 -- -- 398
------------------ ---------------- ------------- ----------------
Total fixed maturities available for sale $2,210,150 $ 31,252 $ 4,585 $2,236,817
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
EQUITY SECURITIES AVAILABLE FOR SALE $ 3,626 $ 819 $ 697 $ 3,748
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
FIXED MATURITIES HELD TO MATURITY
Corporate securities $ 405,731 $ 10,947 $ 576 $ 416,102
------------------ ---------------- ------------- ----------------
Total fixed maturities held to maturity $ 405,731 $ 10,947 $ 576 $ 416,102
================== ================= ============== ===============
</TABLE>
B-9
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of fixed maturities, categorized by
contractual maturities at December 31, 1997, are shown below:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
---------------------------------- -----------------------------------
ESTIMATED ESTIMATED
FAIR FAIR
AMORTIZED COST VALUE AMORTIZED COST VALUE
----------------- ---------------- ----------------- -----------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 29,759 $ 29,731 $ 13,736 $ 13,838
Due after one year through five years 1,738,532 1,758,946 204,298 212,050
Due after five years through ten years 555,194 567,928 98,192 101,143
Due after ten years 201,993 206,023 22,622 23,025
Mortgage-backed securities 1,076 1,224 -- --
----------------- ---------------- ----------------- -----------------
Total $2,526,554 $2,563,852 $ 338,848 $ 350,056
================= ================ ================= =================
</TABLE>
Actual maturities will differ from contractual maturities because issuers have
the right to call or prepay obligations.
Proceeds from the sale of fixed maturities available for sale during 1997, 1996,
and 1995 were $2,796,306 thousand, $3,667,062 thousand, and $1,807,584 thousand,
respectively. Gross gains of $18,635 thousand, $22,078 thousand, and $25,909
thousand and gross losses of $7,990 thousand, $17,718 thousand, and $13,907
thousand were realized on those sales during 1997, 1996, and 1995, respectively.
Proceeds from the maturity of fixed maturities available for sale during 1997,
1996, and 1995 were $32,359 thousand, $219,192 thousand, and $79,103 thousand,
respectively. During the years ended December 31, 1997, 1996 and 1995, there
were no securities classified as held to maturity that were sold.
The following table describes the amortized cost and estimated fair value of
fixed maturity securities by rating agency equivalent as of December 31, 1997:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
-------------------------------- -------------------------------
AMORTIZED ESTIMATED FAIR AMORTIZED ESTIMATED FAIR
COST VALUE COST VALUE
--------------- ---------------- --------------- ---------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
AAA/AA/A $ 1,319,527 $ 1,334,823 $ 187,692 $ 194,797
BBB 1,047,203 1,062,641 128,481 131,820
BB 80,136 83,293 20,540 21,264
B 73,717 76,781 2,132 2,172
CCC or lower 5,943 6,288 -- --
In or near default 28 26 3 3
--------------- ---------------- --------------- ---------------
Total $ 2,526,554 $ 2,563,852 $ 338,848 $ 350,056
=============== ================ =============== ===============
</TABLE>
The NAIC rates certain public and private placement securities as "in or near
default" if they are currently non-performing or believed subject to default in
the near term. The Company's holdings of these securities, in the aggregate,
comprised less than 1% of total invested assets at December 31, 1997 and 1996.
B-10
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
MORTGAGE LOANS ON REAL ESTATE
The Company's mortgage loans were collateralized by the following property types
at December 31,
1997 1996
---------------------- -----------------------
(In Thousands)
Office buildings $ 4,607 20% $ 18,497 39%
Retail stores 8,090 35% 8,731 19%
Apartment complexes 6,080 27% 11,771 25%
Industrial buildings 4,010 18% 7,916 17%
---------------------- -----------------------
Net carrying value $ 22,787 100% $ 46,915 100%
====================== =======================
The mortgage loans are geographically dispersed throughout the United States
with the largest concentrations in Washington (29%) and Pennsylvania (27%).
SPECIAL DEPOSITS
Fixed maturities of $8,302 thousand and $8,744 thousand at December 31, 1997 and
1996, respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws.
OTHER LONG-TERM INVESTMENTS
The Company's "Other long-term investments" of $1,317 thousand and $4,528
thousand as of December 31, 1997 and 1996, respectively, are comprised of
non-real estate related interests. The Company's share of net income from these
entities is $2,158 thousand, $1,434 thousand and $345 thousand for the years
ended December 31, 1997, 1996 and 1995, respectively, and is reported in "Net
investment income."
B-11
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
INVESTMENT INCOME AND INVESTMENT GAINS AND LOSSES
NET INVESTMENT INCOME arose from the following sources for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale $ 161,140 $ 152,445 $ 160,740
Fixed maturities - held to maturity 26,936 33,419 33,458
Equity securities 76 44 104
Mortgage loans on real estate 2,585 5,669 7,757
Investment real estate - 613 647
Policy loans 37,398 33,449 29,775
Short-term investments 22,011 16,780 15,092
Other 14,920 9,438 3,949
----------------- ----------------- -----------------
Gross investment income 265,066 251,857 251,522
Less: investment expenses (5,432) (4,529) (4,904)
----------------- ----------------- -----------------
Net investment income $ 259,634 $ 247,328 $ 246,618
================= ================= =================
</TABLE>
REALIZED INVESTMENT GAINS ,NET including charges for other than temporary
reductions in value, for the years ended December 31, were from the following
sources:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale $ 9,039 $ 9,036 $ 11,359
Fixed maturities - held to maturity 821 - -
Equity securities 8 781 2,020
Mortgage loans on real estate 797 1,677 (90)
Investment real estate - 487 (99)
Other 309 (1,146) 10
----------------- ----------------- -----------------
Realized investment gains, net $ 10,974 $ 10,835 $ 13,200
================= ================= =================
</TABLE>
NET UNREALIZED INVESTMENT GAINS on securities available for sale are included in
the consolidated statement of financial position as a component of equity, net
of tax. Changes in these amounts for the years ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 14,104 $ 32,056 $ (41,761)
Changes in unrealized investment gains
(losses) attributable to:
Fixed maturities 10,631 (43,853) 110,932
Equity securities 571 1,403 68
Participating group annuity contracts 1,292 (3,855) 5,092
Deferred policy acquisition costs (8,412) 17,321 (25,214)
Deferred federal income taxes (1,057) 11,032 (17,061)
----------------- ----------------- -----------------
Balance, end of year $ 17,129 $ 14,104 $ 32,056
================= ================= =================
</TABLE>
B-12
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INCOME TAXES
The components of income taxes for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
(In Thousands)
<S> <C> <C> <C>
Current tax expense:
U.S. $71,989 $59,489 $65,131
State and local 1,337 703 1,876
Foreign -- 4 7
--------------------- --------------------- ---------------------
Total 73,326 60,196 67,014
--------------------- --------------------- ---------------------
Deferred tax (benefit) expense:
U.S. (11,458) 18,413 12,196
State and local -- 526 348
--------------------- --------------------- ---------------------
Total (11,458) 18,939 12,544
--------------------- --------------------- ---------------------
Total income tax expense $61,868 $79,135 $79,558
===================== ===================== =====================
</TABLE>
The Company's income tax expense for the years ended December 31, differs from
the amount computed by applying the expected federal income tax rate of 35% to
income from operations before income taxes for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- --------------------
(In Thousands)
<S> <C> <C> <C>
Expected federal income tax expense $58,885 $79,925 $81,271
State income taxes 869 1,229 2,224
Other 2,114 (2,019) (3,937)
--------------------- --------------------- ---------------------
Total income tax expense $61,868 $79,135 $79,558
===================== ===================== ====================
</TABLE>
B-13
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
(In Thousands)
<S> <C> <C>
Deferred income tax assets
Insurance reserves $ 40,896 $ 38,532
-------------------- --------------------
Total deferred income tax assets 40,896 38,532
-------------------- --------------------
Deferred income tax liabilities
Deferred acquisition costs 168,702 173,785
Net investment gains 8,161 12,502
Other 2,516 1,205
-------------------- --------------------
Total deferred income tax liabilities 179,379 187,492
-------------------- --------------------
Deferred federal income tax liabilities $ 138,483 $ 148,960
==================== ====================
</TABLE>
Management believes that based on its historical pattern of taxable income, the
Company will produce sufficient income in the future to realize its deferred tax
assets after valuation allowance. Adjustments to the valuation allowance will be
made if there is a change in management's assessment of the amount of the
deferred tax assets that are realizable.
The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns through 1989. The Service has examined
the years 1990 through 1992. Discussions are being held with the Service with
respect to proposed adjustments. However, management believes there are adequate
defenses against, or sufficient reserves to provide for, such adjustments. The
Service has begun their examination of the years 1993 through 1995.
5. REINSURANCE
The Company assumes and cedes reinsurance with Prudential and other companies.
The effect of reinsurance for the years ended December 31, is summarized as
follows:
1997 1996 1995
----------- ----------- -----------
Life insurance premiums
Gross Amount $ 51,851 $ 53,776 $ 44,357
Ceded to other companies (3,724) (3,379) (2,268)
Assumed from other companies 1,369 1,128 --
----------- ----------- -----------
Net amount $ 49,496 $ 51,525 $ 42,089
=========== =========== ===========
1997 1996 1995
----------- ----------- -----------
Life insurance in force
Gross Amount $47,328,495 $47,430,580 $47,822,892
Ceded to other companies (1,292,395) (1,172,449) (822,619)
----------- ----------- -----------
Net amount $46,036,100 $46,258,131 $47,000,273
=========== =========== ===========
B-14
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. EQUITY
RECONCILIATION OF STATUTORY SURPLUS AND NET INCOME
Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following table
reconciles the Company's statutory net income and surplus as of and for the
years ended December 31, determined in accordance with accounting practices
prescribed or permitted by the Arizona Department of Banking and Insurance with
net income and equity determined using GAAP.
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
(In Thousands)
<S> <C> <C> <C>
STATUTORY NET INCOME $ 12,778 $ 48,846 $ 113,565
Adjustments to reconcile to net income on a GAAP basis:
Statutory income of subsidiaries 18,553 25,001 44,186
Deferred acquisition costs 38,003 48,862 (6,103)
Deferred premium 1,144 1,295 (743)
Insurance liabilities 26,517 28,662 32,665
Deferred taxes 11,458 (7,780) (27,669)
Valuation of investments 506 365 5,480
Other, net (2,585) 3,971 (8,737)
------------------ ------------------ ------------------
GAAP NET INCOME $ 106,374 $ 149,222 $ 152,644
================== ================== ==================
<CAPTION>
1997 1996
-------------------- --------------------
(In Thousands)
<S> <C> <C>
STATUTORY SURPLUS $ 853,130 $ 901,645
Adjustments to reconcile to equity on a GAAP basis:
Valuation of investments 97,787 95,411
Deferred acquisition costs 655,242 633,159
Deferred premium (14,817) (11,859)
Insurance liabilities (107,525) (124,781)
Deferred taxes (113,461) (124,823)
Other, net 135,161 30,229
-------------------- --------------------
GAAP STOCKHOLDER'S EQUITY $ 1,505,517 $ 1,398,981
==================== ====================
</TABLE>
The New York State Insurance Department ("Department") recognizes only statutory
accounting for determining and reporting the financial condition of an insurance
company, for determining its solvency under the New York Insurance Law and for
determining whether its financial condition warrants the payment of a dividend
to its stockholders. No consideration is given by the Department to financial
statements prepared in accordance with GAAP in making such determinations.
B-15
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values presented below have been determined using available information
and valuation methodologies. Considerable judgment is applied in interpreting
data to develop the estimates of fair value. Accordingly, such estimates
presented may not be realized in a current market exchange. The use of different
market assumptions and/or estimation methodologies could have a material effect
on the estimated fair values. The following methods and assumptions were used in
calculating the fair values (for all other financial instruments presented in
the table, the carrying value approximates fair value.)
FIXED MATURITIES AND EQUITY SECURITIES
Fair values for fixed maturities and equity securities, other than private
placement securities, are based on quoted market prices or estimates from
independent pricing services. Fair values for private placement securities are
estimated using a discounted cash flow model which considers the current market
spreads between the U.S. Treasury yield curve and corporate bond yield curve,
adjusted for the type of issue, its current credit quality and its remaining
average life. The estimated fair value of certain non-performing private
placement securities is based on amounts estimated by management.
MORTGAGE LOANS ON REAL ESTATE
The fair value of the mortgage loan portfolio is primarily based upon the
present value of the scheduled future cash flows discounted at the appropriate
U.S. Treasury rate, adjusted for the current market spread for a similar quality
mortgage.
POLICY LOANS
The estimated fair value of policy loans is calculated using a discounted cash
flow model based upon current U.S. Treasury rates and historical loan
repayments.
DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of futures is estimated based on market quotes for a transactions
with similar terms.
The following table discloses the carrying amounts and estimated fair values of
the Company's financial instruments at December 31,:
<TABLE>
<CAPTION>
1997 1996
------------------------------------- --------------------------------------
ESTIMATED ESTIMATED
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
------------------ ------------------ ------------------ -------------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities:
Available for sale $ 2,563,852 $ 2,563,852 $ 2,236,817 $ 2,236,817
Held to maturity 338,848 350,056 405,731 416,102
Equity securities 1,982 1,982 3,748 3,748
Mortgage loans 22,787 24,994 46,915 46,692
Policy loans 703,955 703,605 639,782 623,218
Short-term investments 316,355 316,355 169,830 169,830
Cash 71,358 71,358 73,766 73,766
Separate Account assets 8,022,079 8,022,079 5,336,851 5,336,851
Financial Liabilities:
Policyholders'
account balances $ 2,282,191 $ 2,282,191 $ 2,188,862 $ 2,188,862
Cash collateral for loaned
securities 143,421 143,421 -- --
Separate Account liabilities 7,948,788 7,948,788 5,277,454 5,277,454
Derivatives 653 653 -- --
</TABLE>
B-16
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. DERIVATIVE INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of liability positions in future instruments, which represents
the Company's current exposure to credit loss from other parties'
non-performance, was $653 thousand at December 31, 1997. This includes the
estimated fair values of outstanding derivative positions only and does not
include the fair values of associated financial and non-financial assets and
liabilities, which generally offset derivative notional amounts. The fair value
amounts presented also do not reflect the netting of amounts pursuant to right
of setoff, qualifying master netting agreements with counterparties or
collateral arrangements.
9. RELATED PARTY TRANSACTIONS
SERVICE AGREEMENTS
Prudential, and Pruco Securities Corporation, an indirect wholly-owned
subsidiary of Prudential, operate under service and lease agreements whereby
services of officers and employees (except for those agents employed by the
Company in Taiwan), supplies, use of equipment and office space are provided.
The net cost of these services allocated to the Company were $139,489 thousand,
$101,662 thousand and $98,119 thousand for the years ended December 31, 1997,
1996, and 1995, respectively.
REINSURANCE
The Company currently has three reinsurance agreements in place with Prudential
(the reinsurer). Specifically a reinsurance Group Annuity Contract, whereby the
reinsurer, in consideration for a single premium payment by the Company,
provides reinsurance equal to 100% of all payments due under the contract, and
two yearly renewable term agreements in which the Company may offer and the
reinsurer may accept reinsurance on any life in excess of the Company's maximum
limit of retention. The Company is not relieved of its primary obligation to the
policyholder as a result of these reinsurance transactions. These agreements had
no material effect on net income for the years ended December 31, 1997, 1996,
and 1995.
10. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and the
Company. Prudential has agreed to indemnify the Company for any and all losses
resulting from such litigation.
In the normal course of business, the Company is subject to various claims and
assessments. Management believes the settlement of these matters would not have
a material effect on the financial position or results of operations of the
Company.
11. DIVIDENDS
The Company is subject to Arizona law which limits the amount of dividends that
insurance companies can pay to stockholders. The maximum dividend which may be
paid in any twelve month period without notification or approval is limited to
the lesser of 10% of statutory surplus as of December 31 of the preceding year
or the net gain from operations of the preceding calendar year. Cash dividends
may only be paid out of surplus derived from realized net profits. Based on
these limitations and the Company's surplus position at December 31, 1997, the
Company would be permitted a maximum of $15,260 thousand in dividend
distribution in 1998, all of which could be paid in cash, without approval from
The State of Arizona Department of Insurance.
B-17
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of operations, of changes in
stockholder's equity and of cash flows present fairly, in all material respects,
the financial position of Pruco Life Insurance Company and its subsidiaries at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
managememt; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
New York, New York
March 23, 1998
B-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors of
Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying consolidated statement of operations, changes
in stockholder's equity, and cash flows of Pruco Life Insurance Company and
subsidiaries for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated statements of operations, changes in
stockholder's equity, and cash flows present fairly, in all material respects,
the results of operations and cash flows of Pruco Life Insurance Company and
subsidiaries for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Parsippany, NJ
December 19, 1996
B-19
<PAGE>
PRUSELECT(sm) II
VARIABLE LIFE
INSURANCE
[LOGO] PRUDENTIAL
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone: 800 286-7754
CVUL-2 Ed. 5/98
<PAGE>
PART II
OTHER INFORMATION
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION WITH RESPECT TO CHARGES
Pruco Life Insurance Company represents that the fees and charges deducted under
the variable universal life insurance contracts registered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by Pruco
Life Insurance Company.
UNDERTAKING WITH RESPECT TO INDEMNIFICATION
The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.
Arizona, being the state of organization of Pruco Life Insurance Company
("Pruco"), permits entities organized under its jurisdiction to indemnify
directors and officers with certain limitations. The relevant provisions of
Arizona law permitting indemnification can be found in Section 10-850 et seq. of
the Arizona Statutes Annotated. The text of Pruco's By-law, Article VIII, which
relates to indemnification of officers and directors, is incorporated by
reference to Exhibit 3(ii) to its Form 10-Q, SEC File No. 33-37587, filed August
15, 1997.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
The 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 70 pages.
The undertaking to file reports.
The representation with respect to charges.
The signatures.
Written consents of the following persons:
1. Price Waterhouse LLP, independent accountants.
2. Deloitte & Touche LLP, independent auditors.
3. Clifford E. Kirsch, Esq.
4. Nancy D. Davis, FSA, MAAA
The following exhibits:
1. The following exhibits correspond to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of Board of Directors of Pruco Life Insurance
Company establishing the Pruco Life Variable Universal
Account. (Note 3)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities
Corporation and Pruco Life Insurance Company. (Note 3)
(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the
Sale of the Contracts. (Note 3)
(c) Schedule of Sales Commissions. (Note 10)
(4) Not Applicable.
(5) Variable Universal Life Insurance Contracts. (Note 10)
(a) With the fixed-rate option. Note: this version was
never sold and is no longer available for sale.
(b) Without the fixed-rate option.
(6) (a) Articles of Incorporation of Pruco Life Insurance
Company, as amended October 19, 1993. (Note 7)
(b) By-Laws of Pruco Life Insurance Company, as amended May
6, 1997. (Note 2)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form for Variable Universal Life Insurance
Contract. (Note 7)
(b) Supplement to the Application for Variable Universal
Life Insurance Contract. (Note 1)
(11) Memorandum describing Pruco Life Insurance Company's
issuance, transfer, and redemption procedures for the
Contracts pursuant to Rule 6e-3(T)(b)(12)(iii). (Note 9)
(12) Rider for Interim Term Insurance Benefit. (Note 10)
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.
II-2
<PAGE>
5. Not Applicable.
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as to actuarial
matters pertaining to the securities being registered. (Note 1)
7. Powers of Attorney.
(a) William M. Bethke, Ira J. Kleinman, Mendel A. Melzer,
Esther H. Milnes, I. Edward Price (Note 4)
(b) Kiyofumi Sakaguchi (Note 8)
(c) James J. Avery, Jr. (Note 5)
(d) James M. Schlomann (Note 6)
27. Financial Data Schedule (Note 1).
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Form 10-Q, Registration No. 33-37587,
filed August 15, 1997 on behalf of the Pruco Life Insurance Company.
(Note 3) Incorporated by reference to Form S-6, Registration No. 33-29181,
filed April 28, 1997 on behalf of the Pruco Life Variable Universal
Account.
(Note 4) 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 5) Incorporated by reference to Post-Effective Amendment No. 2 to Form
S-6, Registration No. 333-07451, filed June 25, 1997 on behalf of the
Pruco Life Variable Appreciable Account.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 4 to Form
S-1, Registration No. 33-86780, filed April 9, 1998 on behalf of the
Pruco Life Variable Contract Real Property Account.
(Note 7) Incorporated by reference to Form S-6, Registration No. 333-07451,
filed July 2, 1996 on behalf of the Pruco Life Variable Appreciable
Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 8 to Form
S-6, Registration No. 33-49994, filed April 28, 1997 on behalf of the
Pruco Life PRUvider Variable Appreciable Account.
(Note 9) Incorporated by reference to Post-Effective Amendment No. 9 to this
Registration Statement, filed April 25, 1996.
(Note 10) Incorporated by reference to Post-Effective Amendment No. 10 to this
Registration Statement, filed April 28, 1997.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life Variable Universal 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 duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized and its seal hereunto affixed and attested, all in the city of Newark
and the State of New Jersey, on this 24th day of April, 1998.
(Seal)
PRUCO LIFE VARIABLE UNIVERSAL 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. 11 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 24th day of April, 1998.
SIGNATURE AND TITLE
-------------------
/s/ *
- -------------------------------
Esther H. Milnes
President and Director
/s/ *
- -------------------------------
James M. Schlomann
Chief Accounting Officer and
Comptroller
/s/ * *By: /s/ THOMAS C. CASTANO
- ------------------------------- -------------------------------
James J. Avery, Jr. Thomas C. Castano
Director (Attorney-in-Fact)
/s/ *
- -------------------------------
William M. Bethke
Director
/s/ *
- -------------------------------
Ira J. Kleinman
Director
/s/ *
- -------------------------------
Mendel A. Melzer
Director
/s/ *
- -------------------------------
I. Edward Price
Director
/s/ *
- -------------------------------
Kiyofumi Sakaguchi
Director
II-4
<PAGE>
EXHIBIT INDEX
Consent of Deloitte & Touche LLP, independent auditors. Page II-6
Consent of Price Waterhouse LLP, independent accountants. Page II-7
1.A.(10)(b) Supplement to the Application for Variable Universal
Life Insurance Contracts. Page II-8
3. Opinion and Consent of Clifford E. Kirsch, Esq., as
to the legality of the securities being registered. Page II-9
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as
to actuarial matters pertaining to the securities
being registered. Page II-10
27. Financial Data Schedule. Page II-11
II-5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 11 to Registration
Statement No. 33-38271 on Form S-6 of Pruco Life Variable Universal Account of
Pruco Life Insurance Company (1) of our report dated February 15, 1996, relating
to the financial statements of Pruco Life Variable Universal Account, and (2) of
our report dated December 19, 1996, relating to the consolidated financial
statements of Pruco Life Insurance Company and subsidiaries appearing in the
Prospectus, which is part of such Registration Statement, and (3) to the
reference to us under the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
April 24, 1998
II-6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 11 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated March 20, 1998, relating to the
financial statements of the Pruco Life Variable Universal Account, which appears
in such Prospectus.
We also consent to the use in the Prospectus constituting part of this
Registration Statement of our report dated March 23, 1998, relating to the
consolidated financial statements of Pruco Life Insurance Company and
Subsidiaries, which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in the
Prospectus.
/s/ PRICE WATERHOUSE LLP
New York, New York
April 24, 1998
II-7
EXHIBIT 1.A.(10)(B)
SUPPLEMENT TO THE APPLICATION
_
[_] The Prudential Insurance Company of America
_
[_] Pruco Life Insurance Company
A Subsidiary of The Prudential Insurance Company of America
|
| No.
|________________________________________________
A Supplement to the Application for a variable contract in which _______________
______________________________________________ is named as the proposed Insured.
================================================================================
I BELIEVE THIS CONTRACT MEETS MY INSURANCE NEEDS AND FINANCIAL OBJECTIVES. I
ACKNOWLEDGE RECEIPT OF A CURRENT PROSPECTUS FOR THE CONTRACT. I UNDERSTAND THAT
THE CONTRACT'S VALUE AND DEATH BENEFIT MAY VARY DEPENDING ON THE CONTRACT'S
INVESTMENT EXPERIENCE .................................... YES [ ] NO [ ]
An illustration of values is available upon request.
| |
| Date | Signature of Applicant
| |
| ,19 |
|_______________________________ |_____________________________________________
- -------------
ORD 86218--90
- -------------
II-8
Exhibit 3
April 24, 1998
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
Gentlemen:
In my capacity as Chief Legal Officer and Assistant Secretary of Pruco Life
Insurance Company ("Pruco Life"), I have reviewed the establishment on April 17,
1989 of Pruco Life Variable Universal 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. 33-29181 and 33-38271) 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 universal
life insurance contracts is not chargeable with liabilities arising
out of any other business Pruco Life may conduct.
(4) The variable universal life insurance contracts are legal and binding
obligations of Pruco Life in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/
CLIFFORD E. KIRSCH
II-9
Exhibit 6
April 24, 1998
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
To Pruco Life Insurance Company:
This opinion is furnished in connection with the registration by Pruco Life
Insurance Company of variable universal life insurance contracts ("Contracts")
under the Securities Act of 1933. The prospectus included in Post-Effective
Amendment No. 11 to Registration Statement No. 33-38271 on Form S-6 describes
the Contracts. I have reviewed the Contract form 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 prospectus section entitled "Illustrations" based on the
assumptions stated in the illustrations, are consistent with the
provisions of the Contract. 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 or male age 55,
than to prospective purchasers of Contracts on males of other ages or
on females.
(2) The explanation of the effect of an increase in the Contract fund on
the increase in insurance amount shown in the section entitled "Death
Benefit" is consistent with the provisions of the Contract.
(3) 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 Pruco Life and its parent company, 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 projected 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/
NANCY D. DAVIS, FSA, MAAA
Vice President and Assistant Actuary
The Prudential Insurance Company of America
II-10
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 316,324
<INVESTMENTS-AT-VALUE> 358,794
<RECEIVABLES> 973
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 359,767
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 19,232
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 359,767
<DIVIDEND-INCOME> 10,801
<INTEREST-INCOME> 0
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</TABLE>
