As filed with the SEC on . Registration No. 33-29181
-----------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Post-Effective Amendment No. 11 FORM S-6
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)
Pruco Life Insurance Company
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
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(date)
[_] 60 days after filing pursuant to paragraph (a) of Rule 485
[_] on pursuant to paragraph (a) of Rule 485
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(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;
Changes in Face Amount
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
23. Not Applicable
<PAGE>
N-8B-2 Item Number Location
- ------------------ --------
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>
PROSPECTUS
MAY 1, 1998
PRUCO LIFE INSURANCE COMPANY
VARIABLE UNIVERSAL ACCOUNT
PRUSELECT(SM) I
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"), to employers, trusts,
associations or similar entities for the purpose of providing insurance on the
lives of selected employees. Pruco Life calls these contracts its PRUSELECT(sm)
I Variable Life Insurance Contracts* (the "Contract"). As of January 1, 1992,
these Contracts are no longer available for sale. These Contracts provide
individual universal life insurance coverage with flexible premium payments and
variable investment options. In general, the owner, not the insured employee,
makes all the premium payments and receives the benefits under the Contracts.
The Contracts may be used for such purposes as funding the owner's liabilities
for retiree medical benefits or other non-qualified employee benefits.
The Contracts provide a death benefit and cash surrender value. The cash
surrender value generally increases with the payment of each premium, decreases
to reflect charges made by Pruco Life, and varies daily with investment
performance of the chosen investment options. There is no guaranteed minimum
cash surrender value. The death benefit generally remains fixed in the amount or
amounts scheduled at the outset of the Contract (the "face amount"), unless it
is increased by Pruco Life to maintain the Contract's status as life insurance
under the Internal Revenue Code.
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.
CVUL-1 Ed 5-98
<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..................................................................3
PRUCO LIFE INSURANCE COMPANY................................................3
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT.......................................3
THE PRUDENTIAL SERIES FUND, INC.............................................4
DETAILED INFORMATION FOR CONTRACT OWNERS.......................................4
REQUIREMENTS FOR ISSUANCE OF A CONTRACT.....................................4
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"................................4
PREMIUMS....................................................................5
ALLOCATION OF PREMIUMS......................................................5
TRANSFERS...................................................................5
CHARGES AND EXPENSES........................................................6
REFUNDS OF SALES CHARGES....................................................8
REDUCTION OF CHARGES........................................................8
CASH SURRENDER VALUE........................................................8
DEATH BENEFIT...............................................................9
PARTIAL WITHDRAWAL OF CASH SURRENDER VALUE..................................9
CHANGES IN FACE AMOUNT.....................................................10
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND
ACCUMULATED PREMIUMS.....................................................10
CONTRACT LOANS.............................................................11
WHEN PROCEEDS ARE PAID.....................................................11
TAX TREATMENT OF CONTRACT BENEFITS.........................................12
WITHHOLDING................................................................13
OTHER TAX CONSIDERATIONS...................................................13
LAPSE AND REINSTATEMENT....................................................13
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS........14
EXCHANGE RIGHT AVAILABLE IN SOME STATES....................................14
REDUCED PAID-UP INSURANCE OPTION AVAILABLE IN SOME STATES..................14
OTHER GENERAL CONTRACT PROVISIONS..........................................14
VOTING RIGHTS..............................................................14
SUBSTITUTION OF SERIES FUND SHARES.........................................15
REPORTS TO CONTRACT OWNERS.................................................15
SALE OF THE CONTRACT AND SALES COMMISSIONS.................................15
STATE REGULATION...........................................................16
EXPERTS....................................................................16
LITIGATION.................................................................16
YEAR 2000 COMPLIANCE.......................................................16
ADDITIONAL INFORMATION.....................................................17
FINANCIAL STATEMENTS.......................................................17
DIRECTORS AND OFFICERS........................................................18
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 Contract date plus the number of Contract
years since then.
CASH SURRENDER VALUE--The amount payable to the Contract owner upon surrender of
his or her Contract. The cash surrender value is equal to the Contract fund plus
any refund of sales charges due and minus any Contract debt.
CONTRACT ANNIVERSARY--The same date as the Contract date in each later year.
CONTRACT DATE--The date the Contract is issued, as specified in the Contract.
CONTRACT DEBT--The principal amount of all outstanding loans plus any interest
accrued thereon.
CONTRACT FUND--The total amount at any time credited to the Contract.
CONTRACT OWNER--The entity, typically an employer, trust or association, that
purchases the Contract.
CONTRACT YEAR--A year that starts on the Contract date or on a Contract
anniversary.
DEATH BENEFIT--The amount payable upon the death of the insured before the
deduction of any outstanding Contract debt.
FACE AMOUNT--The amount[s] of life insurance as shown in the Contract's schedule
of face amounts.
ISSUE AGE--The insured's age as of the Contract date.
LOAN VALUE--The maximum amount that a Contract owner may borrow.
MONTHLY DATE--The Contract date and the same date in each subsequent month.
NET AMOUNT AT RISK--The amount by which the death benefit exceeds the Contract
fund.
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND")--A mutual fund with
separate portfolios, one or more of which may be chosen as an underlying
investment for the Contract.
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT (THE "ACCOUNT")--A separate account of
Pruco Life registered as a unit investment trust under the Investment Company
Act of 1940.
SUBACCOUNT--An investment division of the Account, the assets of which are
invested in the shares of the corresponding portfolio of the Series Fund.
VALUATION PERIOD--The period of time from one determination of the value of the
amount invested in a subaccount to the next. Such determinations are made when
the net asset values of the portfolios of the Series Fund are calculated, which
is generally at 4:15 p.m. New York City time on each day during which the New
York Stock Exchange is open.
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") to employers, trusts, associations or similar entities
and that provide insurance on the lives of covered employees or other insured
individuals. As of January 1, 1992, these Contracts are no longer available for
sale. In general the owner, and not the insured, makes the premium payments and
receives the benefits under the Contracts; the original owner may, however, be
able to assign certain of the Contract rights.
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. The Contract will typically set forth a schedule of annual target
premiums that the owner may pay, but the owner need not adhere to that schedule
and instead may vary the timing and amount of premiums. See PREMIUMS, page 5.
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 13.
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 12.
The Contract owner may choose to have the premiums (after deduction of a $2
administrative charge, the applicable premium tax charge, and a sales load of up
to 7%) 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
insurance. But the owner must accept the risk that, if investment performance of
the chosen option[s] is unfavorable, the cash surrender value may not appreciate
as rapidly and, indeed, may decrease in value.
Pruco Life deducts certain charges from each premium payment and from the
amounts held in the designated investment options. All these charges, which are
largely designed to cover insurance costs and risks as well as sales and
administrative expenses, are fully described under CHARGES AND EXPENSES on page
6. In brief, and subject to that fuller description, the following charges may
be made: (1) a charge for premium taxes (the most common level is 2% of the
premium) is deducted from each premium payment; (2) a $2 charge is deducted from
each premium payment to cover premium collection and processing costs; (3) a
front-end sales load of up to 7% of the remaining premium is deducted after the
above two charges have been deducted; (4) a monthly administrative charge of up
to $3 plus up to $0.04 per $1,000 of face amount of insurance is deducted from
the Contract fund; (5) a monthly 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; (6) a daily charge
equivalent to an annual rate of up to 0.9% is deducted from the assets of the
subaccounts for mortality and expense risks; (7) an administrative processing
charge of up to $15 will be made in connection with each partial withdrawal of
cash surrender value; (8) an administrative processing charge of $15 will be
made in connection with each decrease in face amount; and (9) certain fees and
expenses are deducted from the assets of the Series Fund. Under certain
circumstances, Contract owners may receive a refund of a portion of the sales
charge. See REFUNDS OF SALES CHARGES, page 8.
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 4.
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
2
<PAGE>
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.
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. 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.
3
<PAGE>
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 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 6.
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 CONTRACT OWNERS
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
As of January 1, 1992, these Contracts are no longer available for sale. Pruco
Life offers the Contracts on both an individually underwritten basis and a
guaranteed issue basis. Underwritten Contracts require individualized evidence
of the insured's insurability and rating class. Guaranteed issue Contracts may
be issued in certain circumstances on certain associated individuals, such as
those employees of a company who meet certain criteria established by Pruco
Life. Pruco Life will set from time to time certain 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 face amount is the
minimum death benefit, absent Contract debt or default). The minimum face
amounts currently offered are $100,000 for an underwritten Contract and $50,000
for a Contract issued on a guaranteed issue 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 underwritten Contracts, and between ages 20 and 64 for 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
4
<PAGE>
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.
PREMIUMS
Pruco Life will set a minimum initial premium for issuance of a Contract.
Moreover, a Contract will typically contain a schedule of annual target premiums
that the owner may pay. However, the Contract owner need not follow that
schedule and has considerable flexibility with respect to the timing and amount
of payments. The minimum premium Pruco Life will accept is $25 and Pruco Life
reserves the right to limit premiums over the target amount in any year to
$10,000. Moreover, Pruco Life may refuse to accept a premium that will
immediately result in an increase in the death benefit. See DEATH BENEFIT, page
9. The amount of premium payments made by the owner will affect the size of the
Contract's cash surrender value and the likelihood of lapse and may affect the
size of the death benefit. Payment of premiums in excess of certain amounts will
cause the Contract to become a Modified Endowment Contract, which affects the
tax treatment of pre-death distributions under the Contract. See TAX TREATMENT
OF CONTRACT BENEFITS, page 12.
ALLOCATION OF PREMIUMS
The following rules govern the allocation of premiums by Contract owners. On the
Contract date (the date the Contract is issued, as specified in the Contract),
the applicable premium tax charge (most frequently 2%), the $2 processing
charge, and the front-end sales charge of up to 7% of the remaining premium are
deducted from the initial premium, and the first monthly deductions are made.
See CHARGES AND EXPENSES, page 6. 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 premium tax charge, 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 up to 7%.) 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 subaccount[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 subaccount 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 331/3% cannot. Of course, the
total allocation to all selected subaccount[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 the particular investment option.
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 14, 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
5
<PAGE>
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.
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 to compensate Pruco Life
for paying premium taxes. These taxes vary by state and in some states by
locality. The most common level of premium taxes is 2% of the premium. The
tax rates generally range from 0.75% to 5% (but in some instances it may
exceed 5%). During 1997, 1996 and 1995, Pruco Life received a total of
approximately $61,232, $93,083 and $40,772 respectively, in charges for
payment of premium taxes.
2. An administrative 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 $790, $1,004 and
$262, 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 up to 7% of the premium
remaining after the premium tax charge and the $2 premium processing
charge have been deducted. On a non-guaranteed basis, Pruco Life intends
to charge the 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 or if
aggregate premiums under all Contracts of this type purchased by the owner
exceed an amount determined by Pruco Life (currently $5 million). See
REFUNDS OF SALES CHARGES, page 8. During 1997, 1996 and 1995, Pruco Life
received a total of approximately $205,059, $151,540 and $173,507,
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 $3 plus up to $0.04 per $1,000 of face amount of insurance
(but currently on a non-guaranteed basis of not more than $6 per month).
This charge is to compensate Pruco Life for administrative expenses
incurred, among other things, in issuing the Contracts, 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 $35,000, $35,000 and $35,000,
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 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
<PAGE>
6. 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 $341,984,
$273,293 and $227,525, respectively, in mortality and expense risk
charges.
7. 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 9.
8. An administrative processing charge of up to $15 will be made in
connection with each decrease in face amount. See CHANGES IN FACE AMOUNT,
page 10.
9. 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:
<TABLE>
<CAPTION>
OTHER TOTAL
INVESTMENT EXPENSES EXPENSES
ADVISORY (AFTER EXPENSE (AFTER EXPENSE
PORTFOLIO FEE REIMBURSEMENT)* REIMBURSEMENT)*
--------- --------- --------------- ---------------
<S> <C> <C> <C>
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%
</TABLE>
* 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.
10. 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 being
made currently to the Account for company federal income taxes. Pruco
Life will review the question of a charge to the Account for company
federal income taxes periodically. Such a charge may be made in future
7
<PAGE>
years for any federal income taxes that would be attributable to the
Contracts. Under current laws, Pruco Life may incur state and local taxes
(in addition to premium taxes) in several states. At present, these taxes
are not significant and they are not charged against the Contracts or the
Account. If there is a material change in 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.
11.An extra risk charge may be deducted monthly for aviation, occupational or
temporary extra risks.
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 subaccount[s] from which the monthly
deductions are made. If the amount held in a selected subaccount 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
subaccount[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 lower if an owner pays more than
$5 million (or some alternative amount set by Pruco Life) in aggregate first
year premiums on all Pruco Life Contracts of this type that the owner purchased.
Reductions in sales expenses may, on a non-guaranteed basis, lead to 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.
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 may be expected. Some of the reductions in charges for these sales
may be contractually guaranteed; other reductions may be withdrawn or modified
by Pruco Life on a uniform basis. Pruco Life's reductions in charges for these
Contracts will not be unfairly discriminatory to the interests of any Contract
owners.
CASH SURRENDER VALUE
A Contract has a cash surrender value which the owner may obtain while the
insured is living by surrender of the Contract. Surrender of a Contract may have
tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 12. Unlike
traditional fixed-benefit insurance, however, a Contract's cash surrender value
is not known in advance because it varies daily with the investment performance
of the selected subaccount[s]. It also varies with the amount of invested
premiums and 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, page 9 and TAX TREATMENT OF CONTRACT BENEFITS, page 12.
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 13.
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].
8
<PAGE>
DEATH BENEFIT
At issue, the Contract will specify a face amount or perhaps a series of face
amounts applicable at different times. Assuming that there is no Contract debt
and that the Contract is not in default, the death benefit on any date is equal
to the greater of: (1) the current 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 during the first 3 Contract years, divided by the net
single premium per $1 at the insured's attained age. This second alternative
ensures that the death benefit will not be less than the amount of life
insurance that could be provided for an invested single premium amount equal to
the Contract fund plus any refund of sales charges due on surrender. The death
benefit proceeds will be reduced to reflect any Contract debt.
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 past
the grace period, no death benefit is payable. See LAPSE AND REINSTATEMENT, page
13.
Under the second alternative described above, the death benefit may be increased
based on the size of the Contract fund and the insured's attained age. Such an
increase ensures that the Contract will satisfy the Internal Revenue Code's
definition of life insurance. The death benefit may thereafter vary based on the
size of the Contract fund and the insured's attained age, but will not decrease
below the face amount. The net single premium is used only in the calculation of
the death benefit, not for premium payment purposes. The following is a table of
illustrative net single premiums for $1 of death benefit.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
REGULAR ISSUE PREFERRED
- ------------------------------------------------------------------------------------------------------------------------
INCREASE IN INCREASE IN
INSURANCE INSURANCE
MALE NET AMOUNT PER FEMALE NET AMOUNT PER
ATTAINED SINGLE $1 INCREASE ATTAINED SINGLE $1 INCREASE
AGE PREMIUM IN CONTRACT AGE PREMIUM IN CONTRACT
FUND FUND
- ----------------- ---------------- ----------------------- ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
25 .17000 $ 5.88 25 .15112 $ 6.62
35 .23700 $ 4.22 35 .21127 $ 4.73
55 .45209 $ 2.21 55 .40090 $ 2.49
65 .59468 $ 1.68 65 .53639 $ 1.86
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
GUARANTEED ISSUE
- ------------------------------------------------------------------------------------------------------------------------
INCREASE IN INCREASE IN
INSURANCE INSURANCE
MALE NET AMOUNT PER FEMALE NET AMOUNT PER
ATTAINED SINGLE $1 INCREASE ATTAINED SINGLE $1 INCREASE
AGE PREMIUM IN CONTRACT AGE PREMIUM IN CONTRACT
FUND FUND
- ----------------- ---------------- ----------------------- ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
25 .18455 $ 5.42 25 .15687 $ 6.37
35 .25596 $ 3.91 35 .21874 $ 4.57
55 .47352 $ 2.11 55 .40746 $ 2.45
65 .60986 $ 1.64 65 .54017 $ 1.85
</TABLE>
Whenever the death benefit is determined in this way, Pruco Life reserves the
right to refuse to accept further premium payments.
With Pruco Life's consent, a Contract owner may be able to decrease the face
amount of the Contract. Any such decrease, however, may cause the Contract to
become a Modified Endowment Contract and have tax consequences. See CHANGES IN
FACE AMOUNT, below, and TAX TREATMENT OF CONTRACT BENEFITS, page 12.
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 12. A
Contract owner may make up to four withdrawals per year, subject to certain
requirements. The amount withdrawn must be at least $2,000 (in some states the
minimum
9
<PAGE>
withdrawal amount may be lower), and there is an administrative processing fee
equal to the lesser of $15 or 2% of the amount withdrawn. 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 subaccount. A Contract
owner may not designate the subaccount[s] from which a withdrawal is to be
taken, although Contract owners may make up to four transfers each Contract
year. See TRANSFERS, page 5. 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 $50,000 under a
Contract issued on a guaranteed issue basis. 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 12. 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.
CHANGES IN FACE AMOUNT
Although there is no contractual right to do so, Pruco Life may permit a
Contract owner to decrease the Contract's face amount without withdrawing a
portion of the Contract fund. This can be done to reduce monthly charges. There
is an administrative processing fee of up to $15 for such a decrease. 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 12. No
decrease will be allowed if it will cause the face amount to fall below the
minimum face amounts. Decreases in face amount may also be combined with cash
withdrawals. Furthermore, Pruco Life may in its discretion allow an owner to
increase a Contract's face amount based on such factors as changes in the
insured's salary.
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 12.
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 return of the Series Fund's portfolios. This
is because these tables assume an investment management fee and other estimated
Series Fund expenses totalling 0.51%. The 0.51% figure is based on an average of
the current management fees and expenses of the 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.
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 premium tax
charge of 2% and reflect the fact that no charges for Federal or state income
taxes are currently made against the Account. The tables relate to underwritten
contracts on preferred risk insureds.
Upon request, Pruco Life will furnish a comparable illustration based on a
proposed Contract's specific circumstances.
10
<PAGE>
ILLUSTRATIONS
-------------
PRUSELECT I VARIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $1,402.04 ANNUAL PREMIUMS FOR ALL YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT (1) CASH SURRENDER VALUE (1)
---------------------------------------------- ----------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ACCUMULATED ---------------------------------------------- ----------------------------------------------
POLICY AT 4% 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 $ 1,458 $100,000 $100,000 $ 100,000 $ 1,151 $ 1,221 $ 1,291
2 $ 2,975 $100,000 $100,000 $ 100,000 $ 2,189 $ 2,397 $ 2,613
3 $ 4,552 $100,000 $100,000 $ 100,000 $ 3,235 $ 3,652 $ 4,103
4 $ 6,192 $100,000 $100,000 $ 100,000 $ 4,193 $ 4,893 $ 5,681
5 $ 7,898 $100,000 $100,000 $ 100,000 $ 5,201 $ 6,258 $ 7,498
6 $ 9,672 $100,000 $100,000 $ 100,000 $ 6,185 $ 7,678 $ 9,502
7 $ 11,517 $100,000 $100,000 $ 100,000 $ 7,148 $ 9,159 $ 11,717
8 $ 13,435 $100,000 $100,000 $ 100,000 $ 8,091 $ 10,704 $ 14,166
9 $ 15,431 $100,000 $100,000 $ 100,000 $ 9,013 $ 12,315 $ 16,876
10 $ 17,506 $100,000 $100,000 $ 100,000 $ 9,914 $ 13,996 $ 19,875
15 $ 29,197 $100,000 $100,000 $ 104,463 $14,113 $ 23,600 $ 40,518
20 $ 43,420 $100,000 $100,000 $ 164,528 $17,628 $ 35,474 $ 74,382
25 $ 60,725 $100,000 $100,000 $ 251,735 $20,638 $ 51,106 $ 131,330
30 (Age 65) $ 81,779 $100,000 $118,682 $ 376,747 $22,189 $ 70,578 $ 224,044
35 $107,394 $100,000 $141,086 $ 559,997 $21,288 $ 94,195 $ 373,876
40 $138,559 $100,000 $166,700 $ 835,434 $16,526 $122,843 $ 615,640
45 $176,476 $100,000(2) $197,236 $1,258,035 $ 4,079(2) $157,290 $1,003,245
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 47, 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.
T1
<PAGE>
PRUSELECT I VARIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $1,402.04 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT (1) CASH SURRENDER VALUE (1)
---------------------------------------------- ----------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ACCUMULATED ---------------------------------------------- ----------------------------------------------
POLICY AT 4% 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 $ 1,458 $100,000 $100,000 $100,000 $ 1,101 $ 1,170 $ 1,238
2 $ 2,975 $100,000 $100,000 $100,000 $ 2,085 $ 2,285 $ 2,494
3 $ 4,552 $100,000 $100,000 $100,000 $ 3,046 $ 3,443 $ 3,873
4 $ 6,192 $100,000 $100,000 $100,000 $ 3,886 $ 4,547 $ 5,293
5 $ 7,898 $100,000 $100,000 $100,000 $ 4,798 $ 5,791 $ 6,958
6 $ 9,672 $100,000 $100,000 $100,000 $ 5,683 $ 7,079 $ 8,788
7 $ 11,517 $100,000 $100,000 $100,000 $ 6,541 $ 8,412 $ 10,799
8 $ 13,435 $100,000 $100,000 $100,000 $ 7,371 $ 9,793 $ 13,011
9 $ 15,431 $100,000 $100,000 $100,000 $ 8,173 $ 11,222 $ 15,445
10 $ 17,506 $100,000 $100,000 $100,000 $ 8,946 $ 12,700 $ 18,125
15 $ 29,197 $100,000 $100,000 $100,000 $12,309 $ 20,871 $ 36,245
20 $ 43,420 $100,000 $100,000 $144,610 $14,604 $ 30,418 $ 65,377
25 $ 60,725 $100,000 $100,000 $211,776 $15,228 $ 41,371 $110,483
30 (Age 65) $ 81,779 $100,000 $100,000 $301,225 $13,140 $ 53,897 $179,133
35 $107,394 $100,000 $102,472 $421,566 $ 6,124 $ 68,414 $281,454
40 $138,559 $ 0(2) $114,368 $584,758 $ 0(2) $ 84,279 $430,914
45 $176,476 $ 0 $126,134 $807,899 $ 0 $100,588 $644,275
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 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.
T2
<PAGE>
PRUSELECT I VARIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $3,573.47 ANNUAL PREMIUMS FOR ALL YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT (1) CASH SURRENDER VALUE (1)
---------------------------------------------- ----------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ACCUMULATED ---------------------------------------------- ----------------------------------------------
POLICY AT 4% 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 $ 3,716 $100,000 $100,000 $100,000 $ 2,890 $ 3,067 $ 3,244
2 $ 7,581 $100,000 $100,000 $100,000 $ 5,476 $ 6,002 $ 6,551
3 $ 11,601 $100,000 $100,000 $100,000 $ 8,076 $ 9,130 $ 10,273
4 $ 15,782 $100,000 $100,000 $100,000 $10,442 $ 12,209 $ 14,203
5 $ 20,129 $100,000 $100,000 $100,000 $12,925 $ 15,598 $ 18,739
6 $ 24,651 $100,000 $100,000 $100,000 $15,347 $ 19,127 $ 23,754
7 $ 29,353 $100,000 $100,000 $100,000 $17,707 $ 22,806 $ 29,310
8 $ 34,244 $100,000 $100,000 $100,000 $20,005 $ 26,645 $ 35,474
9 $ 39,330 $100,000 $100,000 $100,000 $22,237 $ 30,652 $ 42,326
10 (Age 65) $ 44,620 $100,000 $100,000 $100,000 $24,403 $ 34,843 $ 49,957
15 $ 74,416 $100,000 $100,000 $153,336 $34,169 $ 59,127 $102,374
20 $110,668 $100,000 $123,989 $256,417 $41,984 $ 91,368 $188,956
25 $154,773 $100,000(2) $164,045 $412,424 $46,145(2) $130,821 $328,896
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 41, 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.
T3
<PAGE>
PRUSELECT I VARIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $3,573.47 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT (1) CASH SURRENDER VALUE (1)
---------------------------------------------- ----------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ACCUMULATED ---------------------------------------------- ----------------------------------------------
POLICY AT 4% 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 $ 3,716 $100,000 $100,000 $100,000 $ 2,579 $ 2,747 $ 2,915
2 $ 7,581 $100,000 $100,000 $100,000 $ 4,821 $ 5,304 $ 5,808
3 $ 11,601 $100,000 $100,000 $100,000 $ 6,968 $ 7,918 $ 8,951
4 $ 15,782 $100,000 $100,000 $100,000 $ 8,772 $10,344 $ 12,123
5 $ 20,129 $100,000 $100,000 $100,000 $10,717 $13,069 $ 15,845
6 $ 24,651 $100,000 $100,000 $100,000 $12,550 $15,846 $ 19,905
7 $ 29,353 $100,000 $100,000 $100,000 $14,265 $18,675 $ 24,343
8 $ 34,244 $100,000 $100,000 $100,000 $15,849 $21,549 $ 29,203
9 $ 39,330 $100,000 $100,000 $100,000 $17,289 $24,464 $ 34,537
10 (Age 65) $ 44,620 $100,000 $100,000 $100,000 $18,574 $27,420 $ 40,414
15 $ 74,416 $100,000 $100,000 $121,045 $22,274 $42,919 $ 80,814
20 $110,668 $100,000 $100,000 $192,564 $19,022 $60,116 $141,903
25 $154,773 $100,000(2) $102,361 $288,190 $ 1,271(2) $81,630 $229,823
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 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.
T4
<PAGE>
PRUSELECT I VARIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $3,897 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT (1) CASH SURRENDER VALUE (1)
---------------------------------------------- ----------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ACCUMULATED ---------------------------------------------- ----------------------------------------------
POLICY AT 4% 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 $ 3,574 $ 3,780 $ 3,987
2 $ 8,268 $100,000 $100,000 $ 100,000 $ 6,841 $ 7,468 $ 8,119
3 $ 12,651 $100,000 $100,000 $ 100,000 $10,144 $ 11,413 $ 12,784
4 $ 17,210 $100,000 $100,000 $ 100,000 $13,217 $ 15,359 $ 17,767
5 $ 21,952 $100,000 $100,000 $ 100,000 $16,441 $ 19,695 $ 23,504
6 $ 26,883 $100,000 $100,000 $ 103,029 $19,623 $ 24,240 $ 29,864
7 $ 32,011 $100,000 $100,000 $ 123,101 $22,765 $ 29,007 $ 36,882
8 $ 33,291 $100,000 $100,000 $ 131,195 $22,276 $ 30,197 $ 40,623
9 $ 34,623 $100,000 $100,000 $ 139,859 $21,781 $ 31,438 $ 44,748
10 $ 36,008 $100,000 $100,000 $ 149,131 $21,279 $ 32,732 $ 49,295
15 $ 43,809 $100,000 $103,393 $ 206,509 $18,657 $ 40,103 $ 80,099
20 $ 53,300 $100,000 $108,573 $ 287,704 $15,629 $ 49,085 $ 130,068
25 $ 64,848 $100,000 $116,942 $ 411,058 $12,173 $ 61,008 $ 214,449
30 (Age 65) $ 78,898 $100,000 $126,880 $ 591,365 $ 7,074 $ 75,453 $ 351,673
35 $ 95,991 $ 0(2) $139,010 $ 858,662 $ 0(2) $ 92,809 $ 573,277
40 $116,788 $ 0 $154,361 $1,263,031 $ 0 $113,750 $ 930,740
45 $142,090 $ 0 $174,047 $1,885,601 $ 0 $138,797 $1,503,710
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 35, 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.
T5
<PAGE>
PRUSELECT I VARIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $3,897 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT (1) CASH SURRENDER VALUE (1)
---------------------------------------------- ----------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ACCUMULATED ---------------------------------------------- ----------------------------------------------
POLICY AT 4% 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 $ 3,518 $ 3,723 $ 3,928
2 $ 8,268 $100,000 $100,000 $ 100,000 $ 6,720 $ 7,335 $ 7,975
3 $ 12,651 $100,000 $100,000 $ 100,000 $ 9,873 $11,109 $ 12,448
4 $ 17,210 $100,000 $100,000 $ 100,000 $12,708 $14,786 $ 17,125
5 $ 21,952 $100,000 $100,000 $ 100,000 $15,761 $18,907 $ 22,593
6 $ 26,883 $100,000 $100,000 $ 100,000 $18,765 $23,214 $ 28,640
7 $ 32,011 $100,000 $100,000 $ 117,796 $21,719 $27,715 $ 35,293
8 $ 33,291 $100,000 $100,000 $ 124,975 $21,115 $28,699 $ 38,697
9 $ 34,623 $100,000 $100,000 $ 132,620 $20,502 $29,716 $ 42,432
10 $ 36,008 $100,000 $100,000 $ 140,756 $19,877 $30,766 $ 46,527
15 $ 43,809 $100,000 $100,000 $ 189,995 $16,506 $36,533 $ 73,693
20 $ 53,300 $100,000 $100,000 $ 257,165 $12,400 $43,173 $116,262
25 $ 64,848 $100,000 $100,000 $ 348,696 $ 6,758 $50,597 $181,915
30 (Age 65) $ 78,898 $ 0(2) $100,000 $ 473,419 $ 0(2) $58,711 $281,533
35 $ 95,991 $ 0 $100,899 $ 643,515 $ 0 $67,364 $429,636
40 $116,788 $ 0 $103,399 $ 876,030 $ 0 $76,196 $645,555
45 $142,090 $ 0 $106,255 $1,195,416 $ 0 $84,735 $953,308
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 30, 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.
T6
<PAGE>
PRUSELECT I VARIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $7,633 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT (1) CASH SURRENDER VALUE (1)
---------------------------------------------- ----------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ACCUMULATED ---------------------------------------------- ----------------------------------------------
POLICY AT 4% 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 $ 6,846 $ 7,246 $ 7,647
2 $ 16,194 $100,000 $100,000 $100,000 $13,091 $ 14,303 $ 15,564
3 $ 24,780 $100,000 $100,000 $100,000 $19,414 $ 21,867 $ 24,522
4 $ 33,710 $100,000 $100,000 $100,000 $25,294 $ 29,439 $ 34,106
5 $ 42,997 $100,000 $100,000 $100,000 $31,482 $ 37,793 $ 45,189
6 $ 52,655 $100,000 $100,000 $107,268 $37,607 $ 46,585 $ 57,511
7 $ 62,699 $100,000 $101,403 $129,051 $43,676 $ 55,843 $ 71,068
8 $ 65,207 $100,000 $102,735 $138,266 $42,606 $ 58,080 $ 78,167
9 $ 67,815 $100,000 $104,144 $148,230 $41,495 $ 60,405 $ 85,975
10 (Age 65) $ 70,528 $100,000 $105,636 $159,013 $40,336 $ 62,820 $ 94,562
15 $ 85,808 $100,000 $114,381 $227,883 $33,538 $ 76,366 $152,144
20 $104,399 $100,000 $127,378 $335,955 $23,672 $ 93,866 $247,568
25 $127,017 $100,000(2) $144,263 $503,663 $ 5,667(2) $115,046 $401,656
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 27, 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.
T7
<PAGE>
PRUSELECT I VARIABLE LIFE INSURANCE CONTRACT
MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $7,633 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT (1) CASH SURRENDER VALUE (1)
---------------------------------------------- ----------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ACCUMULATED ---------------------------------------------- ----------------------------------------------
POLICY AT 4% 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 $ 6,536 $ 6,927 $ 7,319
2 $ 16,194 $100,000 $100,000 $100,000 $12,439 $13,605 $ 14,819
3 $ 24,780 $100,000 $100,000 $100,000 $18,239 $20,579 $ 23,115
4 $ 33,710 $100,000 $100,000 $100,000 $23,417 $27,349 $ 31,785
5 $ 42,997 $100,000 $100,000 $100,000 $29,021 $34,986 $ 41,994
6 $ 52,655 $100,000 $100,000 $100,000 $34,534 $42,997 $ 53,355
7 $ 62,699 $100,000 $100,000 $119,467 $39,960 $51,418 $ 65,790
8 $ 65,207 $100,000 $100,000 $126,892 $38,334 $52,895 $ 71,737
9 $ 67,815 $100,000 $100,000 $134,795 $36,592 $54,379 $ 78,182
10 (Age 65) $ 70,528 $100,000 $100,000 $143,206 $34,716 $55,866 $ 85,162
15 $ 85,808 $100,000 $100,000 $194,110 $22,489 $63,310 $129,596
20 $104,399 $100,000 $100,000 $263,752 $ 1,215 $70,427 $194,362
25 $127,017 $ 0(2) $100,000(2) $359,460 $ 0(2) $76,639(2) $286,658
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 21, unless an additional premium payment was made. Based on a
gross return of 6%, the Contract would go into default in policy year 45
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.
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 90% of its 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 repay all or
enough of the loan 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 12, and LAPSE AND REINSTATEMENT, page 13.
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 subaccount[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 subaccount[s] will apply only to the amount remaining in those
subaccount[s]. The longer the loan is outstanding, the greater the effect is
likely to be. The effect could be favorable or unfavorable. If investment
results are greater than the rate being credited upon the amount of the loan
while the loan is outstanding, Contract values will not increase as rapidly as
they would have if no loan had been made. If investment results are below that
rate, Contract values will be higher than they would have been had no loan been
made. Loan repayments are allocated to the investment options proportionately
based on their balances at the time of the loan repayment.
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 12.
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.
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TAX TREATMENT OF CONTRACT BENEFITS
Each prospective purchaser is urged to consult a qualified tax advisor. The
following discussion is not intended as tax advice, and it is not a complete
statement of what the effect of federal income taxes will be under all
circumstances. Rather, it provides information about how Pruco Life believes the
tax laws apply in the most commonly occurring circumstances. There is no
guarantee, however, that the current federal income tax laws and regulations or
interpretations will not change.
Treatment as Life Insurance. 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 gross premiums paid, which in turn determine what part of
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, increases in a Contract's face
amount after the Contract date may also affect whether the Contract is a
Modified
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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 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 37
1/2 years younger than the Contract owner or a grandchild of the Contract owner
may have Generation Skipping Transfer tax consequences under section 2601 of the
Code.
In certain circumstances, deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied under section 163 of the Code 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.
In the event of the assignment of Contract benefits to natural persons, estate
or inheritance taxes may be due under certain circumstances. This depends on
individual circumstances.
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 12.
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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 12.
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 12.
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.
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
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shareholders meetings when not required to do so under Maryland law or the
Investment Company Act of 1940. Series Fund shares for which no timely
instructions from Contract owners are received, and any shares attributable to
general account investments of Pruco Life will be voted in the same proportion
as shares in the respective portfolios for which instructions are received.
Should the applicable federal securities laws or regulations, or their current
interpretation, change so as to permit Pruco Life to vote shares of the Series
Fund in its own right, it may elect to do so.
Matters on which Contract owners may give voting instructions include the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's selected subaccount[s]; (4) any change in
the fundamental investment policy of a portfolio corresponding to the Contract
owner's selected subaccount[s]; and (5) any other matter requiring a vote of the
shareholders of the Series Fund. With respect to approval of the investment
advisory agreement or any change in a portfolio's fundamental investment policy,
Contract owners participating in such portfolios will vote separately on the
matter, pursuant to the requirements of Rule 18f-2 under the 1940 Act.
The number of Series Fund shares for which instructions may be given by a
Contract owner is determined by dividing the portion of the value of the
Contract derived from participation in a subaccount, by the value of one share
in the corresponding portfolio of the Series Fund. The number of votes for which
each Contract owner may give Pruco Life instructions will be determined as of
the record date chosen by the Board of Directors of the Series Fund. Pruco Life
will furnish Contract owners with proper forms and proxies to enable them to
give these instructions. Pruco Life reserves the right to modify the manner in
which the weight to be given voting instructions is calculated where such a
change is necessary to comply with current federal regulations or
interpretations of those regulations.
Pruco Life may, if required by state insurance regulations, disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the sub-classification or investment objectives of one or more
of the Series Fund's portfolios, or to approve or disapprove an investment
advisory contract for the Series Fund. In addition, Pruco Life itself may
disregard voting instructions that would require changes in the investment
policy or investment advisor of one or more of the Series Fund's portfolios,
provided that Pruco Life reasonably disapproves such changes in accordance with
applicable federal regulations. If Pruco Life does disregard voting
instructions, it will advise Contract owners of that action and its reasons for
such action in the next annual or semi-annual report to Contract owners.
SUBSTITUTION OF SERIES FUND SHARES
Although Pruco Life believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Series Fund may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, Pruco Life may seek to substitute the shares of another portfolio or
of an entirely different mutual fund. Before this can be done, the approval of
the SEC, and possibly one or more state insurance departments, will be required.
Contract owners will be notified of such substitution.
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 12% of premiums
received in the first year up to
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certain limits. Additional first year premiums and premiums in later years may
generate up to a 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 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 6.
STATE REGULATION
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
EXPERTS
The financial statements included in this prospectus for the years ended
December 31, 1997 and December 31, 1996 have been audited by Price Waterhouse
LLP, independent accountants, as stated in their reports appearing herein, and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing. Price Waterhouse LLP's
principal business address is 1177 Avenue of the Americas, New York, New York
10036.
The financial statements included in this prospectus for the year ended December
31, 1995 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing. Deloitte & Touche LLP's principal business address is Two Hilton
Court, Parsippany, New Jersey 07054-0319.
On March 12, 1996, Deloitte & Touche LLP was replaced as the independent
accountants of Pruco Life. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make reference to
the matter in their reports.
Actuarial matters included in this prospectus have been examined by 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
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brokers, to achieve Year 2000 compliance. Prudential expects to complete its
adaptation, testing and certification of software for Year 2000 compliance by
December 31, 1998. During 1999, Prudential plans to conduct additional internal
testing, to participate in securities industry-wide test efforts and to complete
major service provider analysis and contingency planning.
The expenses of Prudential's Year 2000 compliance are allocated across its
various businesses, including those businesses not engaged in providing services
to Contract owners. Accordingly, while the expense is substantial in the
aggregate, it is not expected to have a material impact on Pruco Life's
abilities to meet its contractual commitments to Contract owners.
Prudential believes that it is well positioned to achieve the necessary
modifications and mitigate Year 2000 risks. However, if such efforts are not
completed on a timely basis, the Year 2000 issue could have a material adverse
impact on Prudential's operations, those of its subsidiary and affiliate
companies and/or the Account. Moreover, there can be no assurance that the
measures taken by Prudential's external service providers will be sufficient to
avoid any material adverse impact on Prudential's operations or those of its
subsidiary and affiliate companies.
ADDITIONAL INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933, relating to the offering described in this prospectus. This prospectus
does not include all the information set forth in the registration statement.
Certain portions have been omitted pursuant to the rules and regulations of the
SEC. The omitted information may, however, be obtained from the SEC's principal
office in Washington, D.C., upon payment of a prescribed fee.
Further information may also be obtained from Pruco Life's office. The address
and telephone number are set forth on the 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.
18
<PAGE>
(This page intentionally left blank.)
<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>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
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) 1,069,544 575,758
------------ ------------ ------------ ------------ ------------ -----------
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) 1,225,830 988,022
NET ASSETS:
Beginning of year ........................ 15,676,830 8,044,183 2,827,398 3,570,839 2,345,009 1,356,987
------------ ------------ ------------ ------------ ------------ -----------
End of year .............................. $ 10,727,208 $ 15,676,830 $ 8,044,183 $ 3,433,155 $ 3,570,839 $ 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
</TABLE>
<TABLE>
<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
</TABLE>
<TABLE>
<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 14,491,032.443 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 OWNER EQUITY................. $ 9,367,153 $ 36,619,730 $ 53,774,178 $ 37,479,385 $ 47,521,910
============== ============== ============== ============== ==============
</TABLE>
A12
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------
ZERO HIGH
COUPON YIELD STOCK EQUITY NATURAL
BOND BOND INDEX INCOME RESOURCES
2000
---------------------------------------------------------------------------------
<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 27,553,439.561 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
============= ============ ============== ============= ============
</TABLE>
<TABLE>
<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 -- -- --
============= ============== ============== =========== =============
- ---------------------------------------------- 7,554,590.146 1,674,252.084 2,768,126.415 473,175.810 3,365,375.264
Contract Owner Units Outstanding (Pruselect II)
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 and are taxed with those 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)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------
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)
</TABLE>
<TABLE>
<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)
</TABLE>
<TABLE>
<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)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------------------
ZERO SMALL
COUPON PRUDENTIAL CAPITALIZATION
BOND 2005 JENNISON STOCK
--------------------------------- -------------------------------- -------------------------------
1997 1996 1997 1996 1997 1996
--------------- ---------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner 9,228,779.311 78,742.069 589,921.061 202,257.810 3,529,906.547 2,812,163.248
Contributions:
Contract Owner (6,935,186.525) (28,992.975) (302,689.627) (28,028.317) (3,181,968.127) (182,921.460)
Redemptions:
</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)
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
--------------------------------------------------------------------------------
ZERO COUPON HIGH YIELD STOCK EQUITY NATURAL
BOND 2000 BOND INDEX INCOME RESOURCES
--------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31,
1997
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)
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
--------------------------------------------------------------------------------
SMALL
GOVERNMENT ZERO COUPON PRUDENTIAL CAPITALIZATION
GLOBAL INCOME BOND 2005 JENNISON STOCK
--------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31,
1997
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 the
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)/ I
Variable Life
Insurance
[LOGO] Prudential
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone: 800 286-7754
CVUL-1 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
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 67 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 8)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities
Corporation and Pruco Life Insurance Company.
(Note 8)
(b) Proposed form of Agreement between Pruco
Securities Corporation and independent brokers
with respect to the Sale of the Contracts.
(Note 8)
(c) Schedule of Sales Commissions. (Note 8)
(4) Not Applicable.
(5) Variable Universal Life Insurance Contract. (Note 8)
(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 9)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form for Variable Universal Life
Insurance Contract. (Note 8)
(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
6)
2. See Exhibit 1.A.(5).
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of
the securities being registered. (Note 1)
4. None.
5. Not Applicable.
6. Opinion and Consent of 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 2)
(b) Kiyofumi Sakaguchi (Note 5)
II-2
<PAGE>
(c) James J. Avery, Jr. (Note 3)
(d) James M. Schlomann (Note 4)
27. Financial Data Schedule. (Note 1)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Form 10-K, Registration No. 33-08698,
filed March 31, 1997 on behalf of the Pruco Life Variable Contract Real
Property Account.
(Note 3) Incorporated by reference to Post-Effective Amendment No. 2 to Form
S-6, Registration No. 333- 07451, filed June 25, 1997 on behalf of the
Pruco Life Variable Appreciable Account.
(Note 4) 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 5) 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 6) Incorporated by reference to Post-Effective Amendment No. 9 to this
Registration Statement, filed April 25, 1996.
(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. 10 to this
Registration Statement, filed April 28, 1997.
(Note 9) Incorporated by reference to Form 10-Q, Registration No. 33-37587,
filed August 15, 1997 on behalf of the Pruco Life Insurance Company.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life Variable 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/ *
- ----------------------------------------
James J. Avery, Jr.
Director
/s/ *
- ----------------------------------------
William M. Bethke
Director
*By: /s/ Thomas C. Castano
- ----------------------------------------
Thomas C. Castano
(Attorney-in-Fact)
/s/ *
- ----------------------------------------
Ira J. Kleinman
Director
/s/ *
- ----------------------------------------
Mendel A. Melzer
Director
/s/ *
- ----------------------------------------
I. Edward Price
Director
/s/ *
- ----------------------------------------
Kiyofumi Sakaguchi
Director
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C> <C>
Consent of Deloitte and 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
</TABLE>
II-5
INDEPENDENT AUDITORS CONSENT
We consent to the use in this Post-Effective Amendment No. 11 to Registration
Statement No. 33-29181 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. 33-29181 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 illustrations 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.
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
<OTHER-INCOME> 20,118
<EXPENSES-NET> 1,835
<NET-INVESTMENT-INCOME> 8,966
<REALIZED-GAINS-CURRENT> 8,348
<APPREC-INCREASE-CURRENT> 17,417
<NET-CHANGE-FROM-OPS> 54,849
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 87,619
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
