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AS FILED WITH THE SEC ON _______________. REGISTRATION NO. 33-38271
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-6
POST-EFFECTIVE AMENDMENT NO. 13
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
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PRUCO LIFE
VARIABLE UNIVERSAL ACCOUNT
--------------------------
(Exact Name of Trust)
PRUCO LIFE INSURANCE COMPANY
----------------------------
(Name of Depositor)
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(800) 286-7754
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(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 June 3, 1999 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)
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<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY FORM N-8B-2)
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
1. Cover Page
2. Cover Page
3. Not Applicable
4. Sale of the Contract and Sales Commissions
5. Pruco Life Variable Universal Account
6. Pruco Life Variable Universal Account
7. Not Applicable
8. Not Applicable
9. Litigation
10. Brief Description of the Contract; Short Term
Cancellation Right or "Free Look"; Transfers;
Refund of Sales Charges; Reduction of Charges; Cash
Surrender Value; Death Benefit; Partial Withdrawal
of Cash Surrender Value; When Proceeds are Paid;
Contract Loans; Exchange Right Available in Some
States; Reduced Paid-Up Insurance Option Available
in Some States; Voting Rights; Substitution of
Series Fund Shares; Increases in Face Amount;
Decreases in Face Amount; Lapse and Reinstatement
11. Brief Description of the Contract; Pruco Life
Variable Universal Account
12. Cover Page; Brief Description of the Contract; The
Prudential Series Fund, Inc.; Sale of the Contract
and Sales Commissions
13. Brief Description of the Contract; The Prudential
Series Fund, Inc.; Premiums; Allocation of
Premiums; Charges and Expenses; Refund of Sales
Charges; Reduction of Charges; Sale of the Contract
and Sales Commissions
14. Brief Description of the Contract; Detailed
Information for Prospective Contract Owners
15. Brief Description of the Contract; Premiums;
Allocation of Premiums; Transfers
16. Brief Description of the Contract; Detailed
Information for Prospective Contract Owners
17. Partial Withdrawal of Cash Surrender Value; When
Proceeds are Paid
18. Pruco Life Variable Universal Account; Cash
Surrender Value
19. Reports to Contract Owners
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
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20. Not Applicable
21. Contract Loans
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions; The Prudential
Series Fund, Inc.
25. Pruco Life Insurance Company; The Prudential Series
Fund, Inc.
26. 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.
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
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
57. Not Applicable
58. Not Applicable
59. Financial Statements: Financial Statements of Pruco
Life Variable Universal Account; Consolidated
Financial Statements of Pruco Life Insurance
Company and Subsidiaries
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
PRUSELECT(SM) II
Variable Life Insurance
PROSPECTUS
Pruco Life
Variable Universal Account
June 7, 1999
PRUCO LIFE INSURANCE COMPANY
<PAGE>
PROSPECTUS
JUNE 7, 1999
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
PRUSELECT(SM) II
This prospectus describes certain individual flexible premium variable universal
life insurance contracts, PRUSELECT(SM) II Variable Life Insurance Contracts*
(the "Contract"), issued by Pruco Life Insurance Company ("Pruco Life", "us", or
"we"), a stock life insurance company. Pruco Life is a wholly-owned subsidiary
of The Prudential Insurance Company of America ("Prudential"). These Contracts
provide individual universal life insurance coverage with flexible premium
payments and variable investment options. The Contracts may be owned
individually or by a corporation, trust, association or similar entity. The
Contracts are available on a multiple life basis where the insureds share a
common employment or business relationship. The Contract owner will have all
rights and privileges under the Contract. The Contracts may be used for funding
non-qualified executive deferred compensation or salary continuation plans,
retiree medical benefits, or other purposes.
You have a choice of death benefit plans. Under the first plan, the death
benefit generally remains fixed in the amount or amounts scheduled at the outset
of the Contract (the "face amount"). Under the second plan, the death benefit
varies daily with the investment performance of the chosen subaccounts. Under
either plan, your death benefit will never be less than the face amount,
regardless of investment experience, as long as the Contract remains inforce.
The Contracts also have a cash surrender value which generally increases with
the payment of each premium, decreases to reflect charges made by Pruco Life,
and varies daily with investment performance of the chosen subaccounts. There is
no guaranteed minimum cash surrender value.
You may choose to invest your Contract's premiums in one or more of 20 available
subaccounts of the Pruco Life Variable Universal Account (the "Account"), each
of which invests in a corresponding portfolio of the Funds indicated below:
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND")
Money Market Conservative Balanced Equity
Diversified Bond Flexible Managed Prudential Jennison
Government Income High Yield Bond Small Capitalization Stock
Zero Coupon Bond 2000 Stock Index Global
Zero Coupon Bond 2005 Equity Income Natural Resources
AIM VARIABLE INSURANCE FUNDS, INC. AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
AIM V.I. Value Fund American Century VP Value Fund
JANUS ASPEN SERIES MFS(R) VARIABLE INSURANCE TRUST(SM)
Growth Portfolio Emerging Growth Series
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio
This prospectus describes the Contract generally and the Pruco Life Variable
Universal Account. The attached prospectuses for the Funds and their related
statements of additional information describe the investment objectives and the
risks of investing in the portfolios. Pruco Life may add additional investment
options in the future. Please read this prospectus and keep it for future
reference.
The Securities and Exchange Commission ("SEC") maintains a Web site
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding registrants that file electronically with the SEC.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 286-7754
*PRUSELECT is a service mark of Prudential.
<PAGE>
PROSPECTUS CONTENTS
PAGE
----
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS........................ 1
INTRODUCTION AND SUMMARY.................................................... 2
BRIEF DESCRIPTION OF THE CONTRACT......................................... 2
PREMIUMS.................................................................. 2
CHARGES................................................................... 2
DEATH BENEFITS............................................................ 3
REFUND.................................................................... 4
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY,
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT, AND THE VARIABLE
INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACT .......................... 5
PRUCO LIFE INSURANCE COMPANY.............................................. 5
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT..................................... 5
THE FUNDS................................................................. 6
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS........................ 8
REQUIREMENTS FOR ISSUANCE OF A CONTRACT................................... 8
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK".............................. 8
PREMIUMS.................................................................. 9
ALLOCATION OF PREMIUMS.................................................... 9
TRANSFERS................................................................. 9
CHARGES AND EXPENSES...................................................... 10
REFUNDS OF SALES CHARGES.................................................. 13
REDUCTION OF CHARGES...................................................... 13
CASH SURRENDER VALUE...................................................... 14
DEATH BENEFIT............................................................. 14
PARTIAL WITHDRAWAL OF CASH SURRENDER VALUE................................ 14
INCREASES IN FACE AMOUNT.................................................. 15
DECREASES IN FACE AMOUNT.................................................. 15
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS,
AND ACCUMULATED PREMIUMS................................................ 16
CONTRACT LOANS............................................................ 17
WHEN PROCEEDS ARE PAID.................................................... 17
TAX TREATMENT OF CONTRACT BENEFITS........................................ 18
LAPSE AND REINSTATEMENT................................................... 19
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS....... 19
EXCHANGE RIGHT AVAILABLE IN SOME STATES................................... 20
REDUCED PAID-UP INSURANCE OPTION AVAILABLE IN SOME STATES................. 20
OTHER GENERAL CONTRACT PROVISIONS......................................... 20
VOTING RIGHTS............................................................. 20
SUBSTITUTION OF FUND SHARES............................................... 21
REPORTS TO CONTRACT OWNERS................................................ 21
SALE OF THE CONTRACT AND SALES COMMISSIONS................................ 21
STATE REGULATION.......................................................... 22
EXPERTS................................................................... 22
LITIGATION................................................................ 22
YEAR 2000 COMPLIANCE...................................................... 22
ADDITIONAL INFORMATION.................................................... 24
FINANCIAL STATEMENTS...................................................... 24
DIRECTORS AND OFFICERS...................................................... 25
FINANCIAL STATEMENTS OF PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT .............. A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY
AND SUBSIDIARIES ......................................................... B1
<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
the Contract. It is equal to the Contract Fund plus any refund of sales charges
due, minus any Contract debt and applicable charges.
CONTRACT--Pruco Life Pruselect( Variable Life Insurance Policy, an individual
flexible premium variable universal life insurance contract.
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
we have charged that is not yet due and that we have not yet added to the loan.
CONTRACT FUND--The total amount at any time credited to the Contract.
CONTRACT OWNER--The individual or entity 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.
FUNDS--Mutual funds with separate portfolios. One or more of the available Fund
portfolios may be chosen as an underlying investment for the Contract.
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.
PRUCO LIFE INSURANCE COMPANY ( Us, we, Pruco Life. The company offering 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 Funds.
US, WE--Pruco Life Insurance Company ("Pruco Life").
VALUATION PERIOD--The period of time from one determination of the value of the
amount invested in a subaccount to the next. Such determinations are made when
the net asset values of the portfolios of the Funds are calculated, which is
generally at 4:15 p.m. Eastern time on each day during which the New York Stock
Exchange is open.
YOU--The owner of the Contract.
1
<PAGE>
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INTRODUCTION AND SUMMARY
THIS SUMMARY PROVIDES A BRIEF OVERVIEW OF THE MORE SIGNIFICANT ASPECTS OF THE
CONTRACT. WE PROVIDE FURTHER DETAIL IN THE SUBSEQUENT SECTIONS OF THIS
PROSPECTUS AND IN THE CONTRACT. THE CONTRACT, INCLUDING THE APPLICATION ATTACHED
TO IT, CONSTITUTES THE ENTIRE AGREEMENT BETWEEN YOU AND PRUCO LIFE AND YOU
SHOULD RETAIN THESE DOCUMENTS.
As you read this prospectus you should keep in mind that this is a variable life
insurance contract. VARIABLE LIFE INSURANCE has significant investment aspects
and requires you to make investment decisions and therefore it is also a
"security." Securities that are offered to the public must be registered with
the Securities and Exchange Commission. The prospectus that is a part of the
registration statement must be given to all prospective purchasers.
BRIEF DESCRIPTION OF THE CONTRACT
The Contract is an individual flexible premium variable universal life insurance
contract that is offered by Pruco Life Insurance Company ("Pruco Life", "us", or
"we"). The Contracts are available on a multiple life basis where the insureds
share a common employment or business relationship. The Contracts may be owned
individually or by a corporation, trust, association or similar entity. The
Contract owner will have all rights and privileges under the Contract. The
Contracts may be used for such purposes as funding non-qualified executive
deferred compensation or salary continuation plans, retiree medical benefits, or
other purposes.
The Contract is a form of variable universal life insurance. It is based on a
Contract Fund, the value of which changes every business day. You may invest
premiums in one or more of the 20 available subaccounts. Your Contract Fund
value changes every day depending upon Contract charges, described in the chart
below, and upon the change in the value of the particular subaccounts that you
have selected.
Although the value of your Contract Fund will increase if there is favorable
investment performance in the subaccounts you select, there is a risk that
investment performance will be unfavorable and that the value of your Contract
Fund will decrease. The risk will be different, depending upon the subaccounts
you choose.
PREMIUMS
You have flexibility with respect to the payment of premiums. You must pay an
initial premium for the Contract to be issued. Thereafter, you may generally
select the amount and timing of premium payments.
You are not required to pay any specific premium level to ensure that the
Contract remains inforce. The Contract will not lapse as long as the Contract
Fund is sufficient to pay the monthly charges. The payment of any specified
premium level does not guarantee that the Contract will remain inforce. See
LAPSE AND REINSTATEMENT, page 19.
You may choose to have the premiums (after deduction of a $2 administrative
charge, any applicable taxes attributable to premiums, and a sales load)
invested in one or more of 20 subaccounts. Each subaccount is invested in a
corresponding portfolio of a mutual fund (a "Fund"). Information about the Fund
portfolios can be found under The Funds, on page 6 and in the prospectuses for
the Funds. Because you may invest premiums in these various subaccounts, the
Contract offers an opportunity for the cash surrender value to appreciate more
rapidly than it would under comparable fixed-benefit life insurance. You must
accept the risk that, if investment performance is unfavorable, the cash
surrender value may not appreciate as rapidly or may decrease in value.
CHARGES
We deduct certain charges from each premium payment and from the amounts held in
the designated subaccount[s]. All these charges, which are largely designed to
cover insurance costs and risks as well as sales and administrative expenses,
are fully described under CHARGES AND EXPENSES, page 10. In brief, Pruco Life
may make the following charges:
2
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<PAGE>
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PREMIUM PAYMENT
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|
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o less charge for taxes
attributable to premiums
o less $2 processing fee
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|
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o less a front-end sales load of not more than 8%
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|
- -------------------------------------------------------------------------------
INVESTED PREMIUM AMOUNT
o To be invested in one or a combination of the 20 available portfolios of
the Funds.
- -------------------------------------------------------------------------------
|
- -------------------------------------------------------------------------------
DAILY CHARGES
o We deduct a daily mortality and expense risk charge, equivalent to an
annual rate of up to 0.9%, from the subaccount assets.
o We deduct management fees and expenses from the Fund assets.
- -------------------------------------------------------------------------------
|
- -------------------------------------------------------------------------------
MONTHLY CHARGES
o We deduct an administrative charge of up to $4 plus up to $0.04 per $1,000
of face amount of insurance from the Contract Fund.
o We deduct a charge for anticipated mortality (the "cost of insurance
charge") with the maximum charge based on 100% of the 1980 Commissioners
Standard Ordinary Mortality Tables ("1980 CSO Tables"), with appropriate
adjustments for substandard rating classes.
- -------------------------------------------------------------------------------
|
- -------------------------------------------------------------------------------
POSSIBLE ADDITIONAL CHARGES
o We deduct an administrative processing charge of up to $15 in connection
with each partial withdrawal of excess cash surrender value.
o We deduct an administrative processing charge of up to $15 in connection
with each decrease in face amount.
- -------------------------------------------------------------------------------
Under certain circumstances, Contract owners may receive a refund of a portion
of the sales charge. See REFUNDS OF SALES CHARGES, page 13.
DEATH BENEFITS
You have a choice of either fixed or variable death benefit plans. Under the
fixed death benefit plan, the death benefit generally remains fixed in amount,
unless it is increased to ensure that the Contract continues to satisfy the
Internal Revenue Code's definition of life insurance, and only the cash
surrender value will vary with investment experience. Under the variable death
benefit plan, both your death benefit and cash surrender value will vary with
investment experience.
However, the death benefit of an inforce Contract will never be less than the
face amount regardless of investment experience. There is no minimum cash
surrender value under either death benefit plan.
3
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<PAGE>
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REFUND
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 8.
For DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, see page 1.
Further information may also be obtained from Pruco Life. The address and
telephone number are set forth on the cover of this prospectus.
--------------------
THE REPLACEMENT OF LIFE INSURANCE IS GENERALLY NOT IN YOUR BEST INTEREST. IN
MOST CASES, IF YOU REQUIRE ADDITIONAL COVERAGE, THE BENEFITS OF YOUR EXISTING
CONTRACT CAN BE PROTECTED BY PURCHASING ADDITIONAL INSURANCE OR A SUPPLEMENTAL
CONTRACT. IF YOU ARE CONSIDERING REPLACING A CONTRACT, YOU SHOULD COMPARE THE
BENEFITS AND COSTS OF SUPPLEMENTING YOUR EXISTING CONTRACT WITH THE BENEFITS AND
COSTS OF PURCHASING ANOTHER CONTRACT AND YOU SHOULD CONSULT A QUALIFIED TAX
ADVISER.
THIS PROSPECTUS MAY ONLY BE OFFERED IN JURISDICTIONS IN WHICH THE OFFERING IS
LAWFUL. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION FOR THE FUNDS.
4
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<PAGE>
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE
COMPANY, PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT,
AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE
UNDER THE CONTRACT
PRUCO LIFE INSURANCE COMPANY
Pruco Life is a stock life insurance company, organized in 1971 under the laws
of the State of Arizona. It is licensed to sell life insurance and annuities in
the District of Columbia, Guam, and in all states except New York. These
Contracts are not offered in any state in which the necessary approvals have not
been obtained. Pruco Life is a wholly-owned subsidiary of Prudential, a mutual
insurance company founded in 1875 under the laws of the State of New Jersey.
Prudential (the "Company") is currently considering reorganizing itself into a
publicly traded stock company through a process known as "demutualization." On
February 10, 1998, the Company's Board of Directors authorized management to
take the preliminary steps necessary to allow the Company to demutualize. On
July 1, 1998, legislation was enacted in New Jersey that would permit this
conversion to occur and that specified the process for conversion.
Demutualization is a complex process involving development of a plan of
reorganization, adoption of a plan by the Company's Board of Directors, a public
hearing, voting by qualified policyholders and regulatory approval, all of which
could take two or more years to complete. Prudential's management and Board of
Directors have not yet determined to demutualize and it is possible that, after
careful review, Prudential could decide not to go public.
The plan of reorganization, which hasn't been developed and approved, would
provide the criteria for determining eligibility and the methodology for
allocating shares or other consideration to those who would be eligible.
Generally, the amount of shares or other consideration eligible customers would
receive would be based on a number of factors, including the types, amounts and
issue years of their policies. As a general rule, owners of Prudential-issued
insurance policies and annuity contracts would be eligible, while mutual fund
customers and customers of the Company's subsidiaries, such as the Pruco Life
insurance companies, would not be. It has not yet been determined whether any
exceptions to that general rule will be made with respect to policyholders and
contract owners of Prudential's subsidiaries.
As of December 31, 1998, Prudential has invested over $442 million in Pruco Life
in connection with Pruco Life's organization and operation. Prudential may make
additional capital contributions to Pruco Life as needed to enable it to meet
its reserve requirements and expenses 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
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 a unit investment trust, which is a type of investment company.
It is registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940 ("1940 Act"). 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.
Currently, you may invest in one or a combination of 20 available subaccounts
within the Account, each of which invests in a single corresponding portfolio of
the Funds. Pruco Life may add There are currently fifteen subaccounts within the
Account, each of which invests in a single corresponding portfolio of the Series
Fund. additional subaccounts in the future. The Account's financial statements
begin on page A1.
5
<PAGE>
THE FUNDS
The following is a list of the Funds, the portfolios' investment objectives and
investment advisers:
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND"):
o MONEY MARKET PORTFOLIO: The investment objective is maximum current income
consistent with the stability of capital and the maintenance of liquidity.
The Portfolio invests in high quality short-term debt obligations that mature
in 13 months or less.
o DIVERSIFIED BOND PORTFOLIO: The investment objective is a high level of
income over a longer term while providing reasonable safety of capital. The
Portfolio invests primarily in higher grade debt obligations and high quality
money market investments.
o GOVERNMENT INCOME PORTFOLIO: The investment objective is maximum current
income consistent with the stability of capital and the maintenance of
liquidity. The Portfolio invests in high-quality short-term money market
instruments issued by the U.S. government or its agencies, as well as by
corporations and banks, both domestic and foreign.
o ZERO COUPON BOND PORTFOLIOS - 2000 AND 2005: The investment objectives are
the highest predictable compound investment for a specific period of time,
consistent with the safety of invested capital. The Portfolios invest in debt
obligations of the United States Treasury and corporations that have been
issued without interest coupons, or have been stripped of their interest
coupons, or have interest coupons that have been stripped from the debt
obligation.
o CONSERVATIVE BALANCED PORTFOLIO: The investment objective is a total
investment return consistent with a conservatively managed diversified
portfolio. The Portfolio invests in a mix of equity securities, debt
obligations and money market instruments.
o FLEXIBLE MANAGED PORTFOLIO: The investment objective is a total investment
return consistent with an aggressively managed diversified portfolio. The
Portfolio invests in a mix of equity securities, debt obligations and money
market instruments.
o HIGH YIELD BOND PORTFOLIO: The investment objective is a high total return.
The Portfolio invests primarily in high yield/high risk debt securities.
o STOCK INDEX PORTFOLIO: The investment objective is investment results that
generally correspond to the performance of publicly-traded common stocks. The
Portfolio attempts to duplicate the price and yield performance of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index").
o EQUITY INCOME PORTFOLIO: The investment objective is both current income and
capital appreciation. The Portfolio invests primarily in common stocks and
convertible securities that provide good prospects for returns above those of
the S&P 500 Index or the NYSE Composite Index.
o EQUITY PORTFOLIO: The investment objective is capital appreciation. The
Portfolio invests primarily in common stocks of major established
corporations as well as smaller companies that offer attractive prospects of
appreciation.
o PRUDENTIAL JENNISON PORTFOLIO: The investment objective is to achieve
long-term growth of capital. The Portfolio invests primarily in equity
securities of major established corporations that offer above-average growth
prospects.
o SMALL CAPITALIZATION STOCK PORTFOLIO: The investment objective is to achieve
long-term growth of capital. The Portfolio attempts to duplicate the price
and yield performance of the Standard & Poor's Small Capitalization Index
(the S&P SmallCap Index).
o GLOBAL PORTFOLIO: The investment objective is long-term growth of capital.
The Portfolio invests primarily in common stocks (and their equivalents) of
foreign and U.S. companies.
6
<PAGE>
o NATURAL RESOURCES PORTFOLIO: The investment objective is to achieve long-term
growth of capital. The Portfolio invests primarily in common stocks and
convertible securities of natural resource companies and securities that are
related to the market value of some natural resource.
Prudential is the investment adviser for the assets of each of the portfolios of
the Series Fund. Prudential's principal business address is 751 Broad Street,
Newark, New Jersey 07102-3777. Prudential has a Service Agreement with its
wholly-owned subsidiary The Prudential Investment Corporation ("PIC"). The
Service Agreement provides that, subject to Prudential's supervision, PIC will
furnish investment advisory services in connection with the management of the
Series Fund. In addition, Prudential has entered into a Subadvisory Agreement
with its wholly-owned subsidiary Jennison Associates LLC ("Jennison"), under
which Jennison furnishes investment advisory services in connection with the
management of the Prudential Jennison Portfolio.
AIM VARIABLE INSURANCE FUNDS, INC.:
o AIM V.I. VALUE FUND. Seeks to achieve long-term growth of capital by
investing primarily in equity securities judged by the fund's investment
adviser to be undervalued relative to the investment adviser's appraisal of
the current or projected earnings of the companies issuing the securities, or
relative to current market values of assets owned by the companies issuing
the securities or relative to the equity market generally. Income is a
secondary objective.
A I M Advisors, Inc. ("AIM") is the investment adviser for this Fund. The
principal business address for AIM is 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.:
o AMERICAN CENTURY VP VALUE FUND. Seeks long-term capital growth with income as
a secondary objective. The fund seeks to achieve its objective by investing
primarily in equity securities of well-established companies with
intermediate-to-large market capitalizations that are believed by management
to be undervalued at the time of purchase.
American Century Investment Management, Inc. ("ACIM") is the investment adviser
for this Fund. ACIM's principal business address is American Century Tower, 4500
Main Street, Kansas City, Missouri 64111. The Principal Underwriter of the fund
is American Century Services, Inc., located at 4500 Main Street, Kansas City,
Missouri 64111.
JANUS ASPEN SERIES:
o GROWTH PORTFOLIO. Seeks long-term growth of capital in a manner consistent
with the preservation of capital.
Janus Capital Corporation is the investment adviser and is responsible for the
day-to-day management of the portfolio and other business affairs of the
portfolio. Janus Capital Corporation's principal business address is 100
Fillmore Street, Denver, Colorado 80206-4928.
MFS(R) VARIABLE INSURANCE TRUST(SM):
o EMERGING GROWTH SERIES. Seeks to provide long-term growth of capital.
Dividend and interest income from portfolio securities, if any, is incidental
to the Series' investment objective of long-term growth of capital.
Massachusetts Financial Services Company, a Delaware corporation, is the
investment adviser to this MFS Series. The principal business address for the
Massachusetts Financial Services Company is 500 Boylston Street, Boston,
Massachusetts 02116.
T. ROWE PRICE INTERNATIONAL SERIES, INC.:
o INTERNATIONAL STOCK PORTFOLIO. Long-term growth of capital through
investments primarily in common stocks of established, non-U.S. companies.
Rowe Price-Fleming International, Inc. is the investment manager for this Fund.
The principal business address for Rowe Price-Fleming International, Inc. is 100
East Pratt Street, Baltimore, Maryland 21202.
7
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Further information about Fund portfolios can be found in the attached
prospectuses and their statements of additional information for each Fund.
The investment advisers for the Funds charge a daily investment management fee
as compensation for their services. These fees are described in the table under
DEDUCTIONS FROM PORTFOLIOS in the CHARGES AND EXPENSES section, see page 10, and
are more fully described in the prospectus for each Fund.
In the future it may become disadvantageous for both variable life insurance and
variable annuity contract separate accounts to invest in the same underlying
mutual funds. Although neither the companies that invest in the Funds nor the
Funds currently foresee any such disadvantage, the Board of Directors for each
Fund intends to monitor events in order to identify any material conflict
between variable life insurance and variable annuity contract owners and to
determine what action, if any, should be taken. Material conflicts could result
from such things as: (1) changes in state insurance law; (2) changes in federal
income tax law; (3) changes in the investment management of any portfolio of the
Funds; or (4) differences between voting instructions given by variable life
insurance and variable annuity contract owners.
Pruco Life may be compensated by an affiliate of each of the Funds (other than
the Prudential Series Fund) based upon an annual percentage of the average
assets held in the Fund by Pruco Life under the Contracts. These percentages
vary by Fund, and reflect administrative and other services provided by Pruco
Life.
A full description of the Funds, their investment objectives, management,
policies, restrictions, expenses, investment risks, and all other aspects of
their operation is contained in the attached prospectuses for each Fund and in
the related statements of additional information, which should be read in
conjunction with this prospectus. There is no assurance that the investment
objectives of the Funds will be met.
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT
OWNERS
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
Pruco Life offers the Contract on a regular underwriting, a simplified
underwriting, and a guaranteed issue basis. Underwritten Contracts require
individualized evidence of the insured's insurability and rating class.
Guaranteed issue Contracts do not require evidence of insurability and rating
class, but may only be issued in certain circumstances on associated
individuals, such as those employees of a company who meet criteria established
by Pruco Life. Pruco Life sets minimum face amounts that it offers. The minimum
face amount offered may depend on whether the Contract is issued on an
underwritten or guaranteed issue basis. The minimum face amounts currently
offered are $50,000 for Contracts issued on a guaranteed basis and $100,000 for
Contracts issued on an underwritten basis. Pruco Life may 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 changes on designated
dates.
Generally, the Contract may be issued on insureds between the ages of 20 and 75
for regular underwriting Contracts and between the ages of 20 and 64 for
simplified underwriting and guaranteed issue Contracts. In its discretion, Pruco
Life may issue the Contract on insureds of other ages.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, you may return the Contract for a refund within 10 days after you
receive it. Some states allow a longer period of time during which a Contract
may be returned for a refund. You can request a refund by mailing or delivering
the Contract to the representative who sold it or to the Home Office specified
in the Contract. A Contract returned according to this provision shall be deemed
void from the beginning. You will then receive a refund of all premium payments
made, plus or minus any change due to investment experience. However, if
applicable law so requires and you exercise your short-term cancellation right,
you will receive a refund of all premium payments made, with no adjustment for
investment experience.
8
<PAGE>
PREMIUMS
Pruco Life sets a minimum initial premium for issuance of a Contract. Within
certain maximum and minimum limitations, premiums may generally be paid in any
desired frequency or amount. The minimum premium Pruco Life will accept is $25
and Pruco Life reserves the right to limit premiums in any year to $10,000.
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 18. Pruco Life may refuse to accept a premium that will increase
the death benefit by more than the Contract Fund. See DEATH BENEFIT, page 14.
ALLOCATION OF PREMIUMS
On the Contract date, Pruco Life deducts any applicable charge for taxes
attributable to premiums, the $2 processing charge, and the front-end sales
charge from the initial premium, and the first monthly charges are made. See
CHARGES AND EXPENSES, page 10. Except as provided below, the remainder of the
initial premium is allocated among the subaccounts according to your specified
allocation. In certain states, any Contract owner who exercises his or her
short-term cancellation ("free-look") right receives a return of premium with no
adjustment for investment experience. For those Contract owners, the initial
premium remaining after deduction of the charges described above is allocated to
the Money Market Subaccount until the end of the free-look period. If receipt of
the first premium precedes the Contract date, there will be a period during
which the Contract owner's initial premium will not be invested.
The charge for taxes attributable to premiums, the $2 processing charge, and the
front-end sales charge also apply to all subsequent premium payments. (The
front-end sales charge on premiums after the first year is generally reduced to
5%, but Pruco Life reserves the contractual right to charge up to 8%.) The
remainder is invested as of the end of the valuation period in which it is
received at a Home Office in accordance with the allocation you previously
designated. Provided the Contract is not in default, you may change the way in
which subsequent premiums are allocated by giving written notice to a Home
Office, or by telephoning a Home Office, provided you are enrolled to use the
Telephone Transfer System. There is no charge for reallocating future premiums.
The percentage of the invested premium that you may allocate 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 33(% cannot. Of course, the total allocation to all selected
subaccount[s] must equal 100%.
TRANSFERS
If the Contract is not in default, you 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 and without 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 invested in a particular
subaccount.
Transfers among subaccounts will take effect as of the end of the valuation
period in which a proper transfer request is received at a Home Office. The
request may be in terms of dollars, such as a request to transfer $10,000 from
one subaccount to another, or may be in terms of a percentage reallocation among
subaccounts. In the latter case, as with premium reallocations, the percentages
must be in whole numbers. You may transfer amounts by proper written notice to a
Home Office, or by telephone, provided you are enrolled to use the Telephone
Transfer System. You will automatically be enrolled to use the Telephone
Transfer System unless the Contract is jointly owned or the Contract owner
elects not to have this privilege. Telephone transfers may not be available on
Contracts that are assigned, see ASSIGNMENT, page 20, depending on the terms of
the assignment. We will use reasonable procedures, such as asking you to provide
certain personal information provided on your application for insurance, to
confirm that instructions given by telephone are genuine. We will not be held
liable for following telephone instructions that we believe to be genuine. Pruco
Life cannot guarantee that you will be able to get through to complete a
telephone transfer during peak periods such as periods of drastic economic or
market change.
On the liquidation date of a Zero Coupon Bond Subaccount, all its shares held in
the corresponding portfolio of the Series Fund will be redeemed. The proceeds of
the redemption applicable to each Contract will be transferred to the Money
Market Subaccount unless the Contract owner directs that it be transferred to
another subaccount. A transfer that occurs upon the liquidation of a Zero Coupon
Bond Subaccount will not be counted as one of the four permissible transfers in
a Contract year.
Unless otherwise restricted, a transfer takes effect on the date that proper
notice is received at a Home Office.
9
<PAGE>
The Contract was not designed for professional market timing organizations,
other organizations, or individuals using programmed, large, or frequent
transfers. A pattern of exchanges that coincides with a "market timing" strategy
may be disruptive to the subaccounts and will be discouraged. If such a pattern
were to be found, we may be required to modify the transfer procedures,
including but not limited to refusing transfer requests of an agent under a
power of attorney on behalf of more than one Contract owner.
CHARGES AND EXPENSES
This section provides a more detailed description of each charge that is
described briefly in the chart on page 3.
In several instances we use the terms "maximum charge" and "current charge." The
"maximum charge," in each instance, is the highest charge that Pruco Life is
entitled to make under the Contract. The "current charge" is the lower amount
that Pruco Life is now charging. We reserve the right to increase each current
charge, up to the maximum charge, without giving any advance notice.
All charges made by Pruco Life, whether deducted from premiums or from the
Contract Fund, are set forth below.
1. We deduct a charge from each premium payment for taxes attributable to
premiums. For these purposes, "taxes attributable to premiums" includes any
federal, state or local income, premium, excise, business or any other type
of tax measured by or based upon the amount of premium received by Pruco
Life. Currently, two such charges are made. The first is a charge for state
and local premium-based taxes. These taxes vary by state, and in some states
by locality. The tax rates generally range from 0.75% to 5% (but in some
instances it may exceed 5%) with the most common level being 2% of premiums.
The second charge is for federal income taxes measured by premiums and is
equal to 1.25% of premiums. Pruco Life believes that this charge is a
reasonable estimate of an increase in its federal income taxes resulting
from a 1990 change in the Internal Revenue Code. It is intended to recover
this increased tax. During 1998, 1997, and 1996, Pruco Life received a total
of approximately $1,907,082, $2,221,646, and $2,213,536, respectively, in
charges for payment of taxes attributable to premiums.
2. We deduct an administrative charge of $2 from each premium payment to cover
the cost of collecting and processing premiums. During 1998, 1997, and 1996,
Pruco Life received a total of approximately $4,881, $6,491, and $9,339,
respectively, in processing charges.
3. We deduct a charge from each premium payment for sales expenses. This
charge, often called a "sales load", is deducted to compensate us for the
costs of selling the Contracts, including commissions, advertising, and the
printing and distribution of prospectuses and sales literature. This charge
consists of a deduction of up to 8% of the premium remaining after the
charge for taxes attributable to premiums and the $2 administrative charge
have been deducted. On a non-guaranteed basis, Pruco Life intends to charge
a 7% sales load on first year payments and only a 5% sales load on
subsequent payments. A portion of the sales load may be refunded to you if
the Contract is surrendered during the first three Contract years. Under
certain circumstances, Pruco Life may, on a non-guaranteed basis, reduce or
refund sales and certain other expenses. See REFUNDS OF SALES CHARGES, page
13 and REDUCTION OF CHARGES, page 13. During 1998, 1997, and 1996, Pruco
Life received a total of approximately $2,873,299, $3,112,516, and
$3,398,250, respectively, in sales load charges.
4. On each Monthly date, (i.e., the Contract date and the same day of each
succeeding month), we reduce the Contract Fund by an administrative charge
of up to $4 plus up to $0.04 per $1,000 of face amount of insurance.
Currently, this charge is not more than $8 per month on a non-guaranteed
basis. This charge compensates Pruco Life for administrative expenses
incurred, among other things, in issuing the Contract, processing claims,
paying cash surrender values and death benefits, keeping records, and
communicating with Contract owners. During 1998, 1997, and 1996, Pruco Life
received a total of approximately $140,287, $262,737, and $265,639,
respectively, in monthly administrative charges.
5. We deduct a mortality charge (also referred to as a "cost of insurance
charge") from the Contract Fund on each Monthly date to cover anticipated
mortality costs. When an insured dies, the amount of the death benefit paid
to the beneficiary is larger than the Contract Fund. The mortality charges
are designed to enable Pruco Life to pay this larger death benefit. The
charge is determined by multiplying the applicable "net amount at risk" (the
amount by which the death benefit, computed as if there were no Contract
debt, exceeds the Contract Fund) by a mortality rate based upon the
insured's sex, issue age and current attained age, and the anticipated
mortality for that class of persons. The maximum rate that Pruco Life may
charge for underwritten and simplified issue Contracts which are not in a
substandard risk class is 100% of the applicable rates of the
non-smoker/smoker 1980 CSO Tables. The
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<PAGE>
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. We may deduct an extra monthly risk charge for aviation, occupational or
temporary extra risks.
7. We deduct a charge 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 1998, 1997, and 1996, Pruco Life received a
total of approximately $1,913,030, $1,558,648, and $1,049,292, respectively,
in mortality and expense risk charges.
8. In connection with each partial withdrawal of cash surrender value, we
deduct an administrative processing charge, which is the lesser of: (a) $15
or; (b) 2% of each withdrawal. See PARTIAL WITHDRAWAL OF CASH SURRENDER
VALUE, page 14.
9. We deduct an administrative processing charge of up to $15 in connection
with each decrease in face amount. See DECREASES IN FACE AMOUNT, page 15.
10. The Account purchases shares of the Funds at net asset value. The net asset
value of those shares reflects investment management fees and expenses
already deducted from the assets of the Funds. More detailed information is
contained in the attached prospectus for the Funds.
The total expenses of each portfolio for the year 1998, expressed as a
percentage of the average assets during the year, are shown below:
11
<PAGE>
<TABLE>
<CAPTION>
==================================== ============ ================ ================
INVESTMENT OTHER EXPENSES TOTAL EXPENSES
PORTFOLIO ADVISORY (AFTER EXPENSE (AFTER EXPENSE
FEE REIMBURSEMENT) REIMBURSEMENT)
- ------------------------------------ ------------ ---------------- ----------------
<S> <C> <C> <C>
SERIES FUND
MONEY MARKET 0.40% 0.01% 0.41%
DIVERSIFIED BOND 0.40% 0.02% 0.42%
GOVERNMENT INCOME 0.40% 0.03% 0.43%
ZERO COUPON BOND 2000 (1) 0.40% 0.00% 0.40%
ZERO COUPON BOND 2005 (1) 0.40% 0.00% 0.40%
CONSERVATIVE BALANCED 0.55% 0.02% 0.57%
FLEXIBLE MANAGED 0.60% 0.01% 0.61%
HIGH YIELD BOND (1) 0.55% 0.03% 0.58%
STOCK INDEX (1) 0.35% 0.02% 0.37%
EQUITY INCOME (1) 0.40% 0.02% 0.42%
EQUITY 0.45% 0.02% 0.47%
PRUDENTIAL JENNISON 0.60% 0.03% 0.63%
SMALL CAPITALIZATION STOCK 0.40% 0.07% 0.47%
GLOBAL 0.75% 0.11% 0.86%
NATURAL RESOURCES (1) 0.45% 0.04% 0.49%
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. VALUE FUND (2) 0.61% 0.05% 0.66%
AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC.
VP VALUE PORTFOLIO (3) 1.00% 0.00% 1.00%
JANUS ASPEN SERIES
GROWTH PORTFOLIO (4) 0.65% 0.03% 0.68%
MFS(R)VARIABLE INSURANCE TRUST(SM)
EMERGING GROWTH SERIES 0.75% 0.10% 0.85%
T. ROWE PRICE INTERNATIONAL
SERIES,INC.
INTERNATIONAL STOCK PORTFOLIO (5) 1.05% 0.00% 1.05%
==================================== ============ ================ ===============
</TABLE>
- ----------
(1) 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 offset the effect of some of the 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:
o the Zero Coupon Bond Portfolios will not exceed the investment management
fee;
o 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); and
o 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 0.62% for the Zero Coupon Bond Portfolio 2000 and
0.61% for the Zero Coupon Bond Portfolio 2005 during 1998. No such
adjustments were necessary for the High Yield Bond, Stock Index, Equity
Income, and Natural Resources Portfolios in 1998. Pruco Life does not
intend Pruco Life intends to continue these adjustments in the future,
although we retain the right to discontinue them.
(2) AIM may from time to time voluntarily waive or reduce its respective fees.
Effective May 1, 1999, the Fund will reimburse AIM in an amount up to 0.25%
of the average net asset value of the Fund for expenses incurred in
providing, or assuring that participating insurance companies provide,
certain administrative services. Currently, the fee only applies to the
average net asset value of each Fund in excess of the net asset value of
each Fund as calculated on April 30, 1999.
(3) Fees are all-inclusive.
(4) The fees and expenses in the table above are based on gross expenses of the
Portfolio before expense offset arrangements for the fiscal year ended
December 31, 1998. The information for the Portfolio is net of fee waivers
or reductions from Janus Capital. Fee reductions for the Portfolio reduce
the management fee to the level of the corresponding Janus retail fund.
Other waivers, if applicable, are first applied against the management fee
and then against other expenses. Without such waivers or reductions, the
management fee,
12
<PAGE>
other expenses and total operating expenses for the Portfolio would have
been 0.72%, 0.03% and 0.75%, respectively. Janus Capital may modify or
terminate the waivers or reductions at any time upon at least 90 days'
notice to the Trustees.
(5) The investment management fee includes the ordinary expenses of operating
the Portfolio.
THE EXPENSES RELATING TO THE FUNDS (OTHER THAN THOSE OF THE SERIES FUND)
HAVE BEEN PROVIDED TO PRUCO LIFE BY THE FUNDS. PRUCO LIFE HAS NOT
INDEPENDENTLY VERIFIED THEM.
11. Although the Account is registered as a unit investment trust, it is not a
separate taxpayer for purposes of the Code. The earnings of the Account are
taxed as part of the operations of Pruco Life. No charge is currently being
made to the Account for company federal income taxes. Pruco Life will review
the question of a charge to the Account for company federal income taxes
periodically. Such a charge may be made in future years for any company
federal income taxes that would be attributable to the Account. Under
current law, Pruco Life may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not
significant and they are not charged against the Account. If there is a
material change in the applicable state or local tax laws, the imposition of
any such taxes upon Pruco Life that are attributable to the Account may
result in a corresponding charge against the Account.
You may specify the subaccount[s] from which the monthly deductions are made. If
the amount held in a designated subaccount is insufficient or if no selection is
made by the Contract 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 surrendered within the first three Contract years, and it's
not in default, Pruco Life will 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.
Pruco Life's sales expenses may be reduced if a number of Contracts with
aggregate first-year premiums exceeding $5 million are purchased by one
employer, or by employees affiliated with a common employer. On a non-guaranteed
basis, we may refund a portion of the sales load collected on such Contracts.
Currently, Pruco Life intends to 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 interest as determined by Pruco Life, to
the Contract Fund of such Contracts at the end of the first Contract year.
Any such refund will be generated only by that portion of the aggregate first
year premiums over $5 million that 1) does not exceed the "7-pay" premium amount
as defined under section 7702A of the Internal Revenue Code, and 2) is received
within 11 months of the first Contract date for that employer. Each Contract's
portion of the total refund will be proportional to that Contract's contribution
to the total aggregate first year premiums eligible for the refund.
Beginning with Contracts sold on or after March 21, 1997, a portion of the sales
load may be refunded on a non-guaranteed basis if aggregate premiums paid within
the first 11 months of the Contract date, under all Contracts purchased by an
employer or by employees affiliated with a common employer (a) exceed two times
the "7-pay" premium amount, as defined under section 7702A of the Internal
Revenue Code, and (b) exceed $5 million. Currently, Pruco Life is doing so by
adding an amount, equal to 4% of the aggregate premiums paid within the first 11
months of the Contract date in excess of the 7-pay limit, to the Contract Fund
at 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:
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<PAGE>
(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. Pruco Life may withdraw or modify other reductions 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
The Contract has a cash surrender value which the owner may obtain while the
insured is living by surrendering the Contract. Surrendering the Contract may
have tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 18. Unlike
traditional fixed-benefit life insurance, however, a Contract's cash surrender
value is not known in advance because it varies daily with the investment
performance of the selected subaccount[s]. It also varies with the amount of
invested premiums and the charges deducted from the Account. The cash surrender
value equals the Contract Fund plus any refund of sales charges due minus any
Contract debt from any outstanding loan. The Contract owner may withdraw part of
the cash surrender value under certain conditions. See PARTIAL WITHDRAWAL OF
CASH SURRENDER VALUE, page 14, and TAX TREATMENT OF CONTRACT BENEFITS, page 18.
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 inforce is received. See LAPSE AND
REINSTATEMENT, page 19.
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 Fund portfolio[s].
DEATH BENEFIT
The Contracts provide a choice of either fixed or variable death benefit plans.
Under the fixed death benefit plan, the death benefit on any date is equal to
the greater of: (1) the current Contract face amount; and (2) the Contract Fund
before deduction of any monthly charges due on that date, plus a return of any
sales charges due upon surrender, multiplied by the "attained age factor" (a
list of applicable attained age factors is included in the Contract). Under the
variable death benefit plan, the death benefit on any date is equal to the
greater of: (1) the Contract face amount plus the Contract Fund before deduction
of any monthly charges due on that date (but not less than the Contract face
amount); and (2) the Contract Fund before deduction of any monthly charges, plus
a return of any sales charges due upon surrender, multiplied by the attained age
factor. Both death benefit plans assume there is no Contract debt and the
Contract is not in default. Death benefit proceeds will be reduced to reflect
any Contract debt. Under either plan, if the death benefit is determined by
applying the attained age factor, Pruco Life reserves the right to refuse to
accept further premium payments.
If the Contract is in default and the insured dies in the 61-day grace period,
the death benefit less any overdue charges is payable. If the insured dies after
the grace period, no death benefit is payable. See LAPSE AND REINSTATEMENT, page
19.
You may be able to increase or decrease the face amount of the Contract with
Pruco Life's consent. The Contract may become a Modified Endowment Contract and
may have tax consequences if the face amount is increased or decreased. See
INCREASES IN FACE AMOUNT, below, DECREASES IN FACE AMOUNT, page 15, and TAX
TREATMENT OF CONTRACT BENEFITS, page 18.
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 18. You
may make up to four withdrawals per year, subject to certain requirements. The
amount withdrawn must be at least $2,000 for Contracts with a fixed death
benefit and $500 for Contracts with a variable death benefit. Also, there is an
administrative processing fee equal to the lesser of $15 or
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<PAGE>
2% of the amount withdrawn. A Contract owner may not designate the subaccounts
from which a withdrawal is to be taken. The amount withdrawn plus the
administrative processing fee will be taken proportionately from the Contract
Fund based on the portion of the total Contract Fund in a particular subaccount.
An amount withdrawn may not be repaid except as a premium subject to the
applicable charges. You must make all requests for withdrawals in writing. Upon
request, we will tell you 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 is permitted if it would result in a new current face
amount of less than $100,000 under an underwritten Contract or less than $50,000
under a guaranteed issue Contract. It is important to note that if the face
amount is decreased there is a danger that the Contract might be classified as a
Modified Endowment Contract. A withdrawal may affect target premiums and monthly
deductions. You should consult your tax adviser and Pruco Life representative
before making any withdrawal which causes a decrease in face amount. See TAX
TREATMENT OF CONTRACT BENEFITS, page 18. Contract owners who make a partial
withdrawal will be sent replacement Contract pages showing the new face amount.
INCREASES IN FACE AMOUNT
You may elect to increase the face amount[s] of the Contract after the first
Contract anniversary. The following conditions must be met:
(1) you must ask for the increase in writing on an appropriate form;
(2) the amount of the increase in face amount must be at least $25,000;
(3) if more than one face amount is shown in the Contract, each must be
increased by the same amount unless we consent otherwise;
(4) the insured must supply evidence of insurability for the increase that is
satisfactory to Pruco Life;
(5) if we request, you must send in the Contract to be suitably endorsed;
(6) the Contract must not be in default on the date the increase takes effect;
(7) if Pruco Life, between the Contract date and the date that your requested
increase in face amount would take effect, has changed any of the bases on
which benefits and charges are calculated for newly issued Contracts, then
we have the right to deny the increase;
(8) you must make any required payment at the time of the increase; and
(9) we have the right to deny more than one increase in a Contract year.
Increases in a Contract's face amount may also affect whether the Contract is a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 18.
Pruco Life will supply you with pages which show the increased face amount[s],
the effective date of the increase, and the recomputed charges. If the insured
is not living on the effective date of the requested increase, the increase will
not take effect.
DECREASES IN FACE AMOUNT
You may be permitted to decrease the Contract's face amount[s] without
withdrawing a portion of the Contract Fund. This can be done to reduce monthly
charges. There is an administrative processing charge of up to $15 for each
decrease. Decreases in face amount may be combined with cash withdrawals.
You may elect to decrease the Contract's face amount[s] no earlier than the
first Contract anniversary. The following conditions must be met:
(1) you must ask for the decrease in writing on an appropriate form;
(2) the amount of the decrease in face amount must be at least $10,000;
(3) if more than one face amount is shown in the Contract, each must be
decreased by the same amount unless we consent otherwise; and
(4) if we request, you must send in the Contract to be suitably endorsed.
Pruco Life reserves the right to refuse to reduce the Contract's face amount[s]
to the extent that this would cause the Contract to fail to qualify as "life
insurance" for purposes of section 7702 of the Internal Revenue Code.
15
<PAGE>
Pruco Life will supply you with pages which show the decreased face amount[s],
the effective date of the decrease, and the recomputed charges. If the insured
is not living on the effective date of the decrease, the decrease will not take
effect.
You 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 18.
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED
PREMIUMS
The following eight tables show how a Contract's death benefit and cash
surrender values change with the investment performance of the Account. They are
"hypothetical" because they are based, in part, upon several assumptions which
are described below. All eight tables assume the following:
o a Contract with a face amount of $100,000 bought by a male, non-smoker of a
given age, with no extra risks or substandard ratings, and no extra benefit
riders added to the Contract.
o the given premium is paid on each Contract anniversary, the deduction for
taxes attributable to premiums is 3.25% and no loans are taken.
o the Contract Fund has been invested in equal amounts in each of the 20
available portfolios of the Funds.
The first four tables (pages T1 through T4) assume target premiums are paid
annually for all years, and the remaining four tables (pages T5 through T8)
assume payment of the 7-pay premiums for seven years. These are the maximum
annual premiums that may be paid in the first seven years without the Contract's
becoming a Modified Endowment Contract under federal tax law. See TAX TREATMENT
OF CONTRACT BENEFITS, page 18. Furthermore, as their headings indicate, the
following eight tables alternate between tables assuming the current charges
will continue for the indefinite future and tables assuming the maximum
contractual charges have been made from the beginning.
Finally, there are three assumptions, shown separately, about the average
investment performance of the portfolios. The first is that there will be a
uniform 0% gross rate of return with the average value of the Contract Fund
uniformly adversely affected by very unfavorable investment performance. The
other two assumptions are that investment performance will be at a uniform gross
annual rate of 6% and 12%. Actual returns will fluctuate from year to year. In
addition, death benefits and cash surrender values would be different from those
shown if investment returns averaged 0%, 6% and 12% but fluctuated from those
averages throughout the years. Nevertheless, these assumptions help show how the
Contract values change with investment experience.
The first column in the following eight tables (pages T1 through T8) shows the
Contract year. The second column, to provide context, shows what the aggregate
amount would be if the premiums had been invested to earn interest, after taxes,
at 4% compounded annually. The next three columns show the death benefit payable
in each of the years shown for the three different assumed investment returns.
The last three columns show the cash surrender value payable in each of the
years shown for the three different assumed investment returns. The cash
surrender values in the first three years reflect the refund of the prior year's
sales charges applicable to surrenders.
A gross return (as well as the net return) is shown at the top of each column.
The gross return represents the combined effect of investment income and capital
gains and losses, realized or unrealized, of the portfolios before any reduction
is made for investment advisory fees or other Fund expenses. The net return
reflects average total annual expenses of the 20 portfolios of 0.59%, and the
daily deduction from the Contract Fund of 0.6% per year for the tables based on
current charges and 0.9% per year for the tables based on maximum charges. Thus,
assuming current charges, gross investment returns of 0%, 6% and 12% are the
equivalent of net investment returns of -1.19%, 4.81% and 10.81%, respectively.
Assuming maximum charges, gross investment returns of 0%, 6% and 12% are the
equivalent of net investment returns of -1.49%, 4.51% and 10.51%, respectively.
The actual fees and expenses of the portfolios associated with a particular
Contract may be more or less than 0.59% and will depend on which subaccounts are
selected. The death benefits and cash surrender values shown reflect the
deduction of all expenses and charges both from the Funds and under the
Contract.
If you are considering the purchase of a variable life insurance contract from
another insurance company, you should not rely upon these tables for comparison
purposes. A comparison between two tables, each showing values for a 35 year old
man, may be useful for a 35 year old man but would be inaccurate if made for
insureds of other ages or sex.
Your Pruco Life representative can provide you with a hypothetical illustration
for your own age, sex, and rating class.
16
<PAGE>
ILLUSTRATIONS
-------------
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $1,447.03 ANNUAL PREMIUMS FOR ALL YEARS
USING CURRENT CHARGES
<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 (-1.19% Net) (4.81% Net) (10.81% Net) (-1.19% Net) (4.81% Net) (10.81% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,505 $100,000 $100,000 $ 100,000 $ 1,187 $ 1,259 $ 1,331
2 $ 3,070 $100,000 $100,000 $ 100,000 $ 2,260 $ 2,474 $ 2,697
3 $ 4,698 $100,000 $100,000 $ 100,000 $ 3,347 $ 3,776 $ 4,241
4 $ 6,391 $100,000 $100,000 $ 100,000 $ 4,347 $ 5,067 $ 5,878
5 $ 8,151 $100,000 $100,000 $ 100,000 $ 5,401 $ 6,490 $ 7,768
6 $ 9,982 $100,000 $100,000 $ 100,000 $ 6,438 $ 7,979 $ 9,859
7 $ 11,886 $100,000 $100,000 $ 100,000 $ 7,461 $ 9,537 $ 12,175
8 $ 13,867 $100,000 $100,000 $ 100,000 $ 8,470 $ 11,169 $ 14,742
9 $ 15,926 $100,000 $100,000 $ 100,000 $ 9,464 $ 12,879 $ 17,586
10 $ 18,068 $100,000 $100,000 $ 100,000 $10,441 $ 14,665 $ 20,735
15 $ 30,134 $100,000 $100,000 $ 109,250 $15,066 $ 24,913 $ 42,375
20 $ 44,813 $100,000 $100,000 $ 172,469 $19,121 $ 37,662 $ 77,971
25 $ 62,673 $100,000 $104,487 $ 265,361 $22,832 $ 54,511 $ 138,438
30 (Age 65) $ 84,403 $100,000 $127,555 $ 402,082 $25,581 $ 75,854 $ 239,109
35 $110,840 $100,000 $153,704 $ 608,427 $26,917 $102,618 $ 406,209
40 $143,005 $100,000 $183,814 $ 922,432 $25,232 $135,453 $ 679,743
45 $182,138 $100,000(2) $219,843 $1,409,335 $17,899(2) $175,316 $1,123,889
</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 50, 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 II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $1,447.03 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<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 (-1.49% Net) (4.51% Net) (10.51% Net) (-1.49% Net) (4.51% Net) (10.51% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,505 $100,000 $100,000 $100,000 $ 1,114 $ 1,183 $ 1,252
2 $ 3,070 $100,000 $100,000 $100,000 $ 2,095 $ 2,295 $ 2,504
3 $ 4,698 $100,000 $100,000 $100,000 $ 3,051 $ 3,448 $ 3,879
4 $ 6,391 $100,000 $100,000 $100,000 $ 3,870 $ 4,530 $ 5,276
5 $ 8,151 $100,000 $100,000 $100,000 $ 4,777 $ 5,768 $ 6,933
6 $ 9,982 $100,000 $100,000 $100,000 $ 5,655 $ 7,047 $ 8,752
7 $ 11,886 $100,000 $100,000 $100,000 $ 6,506 $ 8,371 $ 10,749
8 $ 13,867 $100,000 $100,000 $100,000 $ 7,329 $ 9,741 $ 12,945
9 $ 15,926 $100,000 $100,000 $100,000 $ 8,123 $11,157 $ 15,359
10 $ 18,068 $100,000 $100,000 $100,000 $ 8,887 $12,620 $ 18,015
15 $ 30,134 $100,000 $100,000 $100,000 $12,200 $20,686 $ 35,928
20 $ 44,813 $100,000 $100,000 $142,974 $14,434 $30,058 $ 64,637
25 $ 62,673 $100,000 $100,000 $208,798 $14,991 $40,732 $108,929
30 (Age 65) $ 84,403 $100,000 $100,000 $296,104 $12,830 $52,809 $176,086
35 $110,840 $100,000 $100,000 $413,099 $ 5,740 $66,644 $275,800
40 $143,005 $ 0(2) $111,209 $571,155 $ 0(2) $81,950 $420,886
45 $182,138 $ 0 $122,401 $786,476 $ 0 $97,610 $627,184
</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 II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $3,670.28 ANNUAL PREMIUMS FOR ALL YEARS
USING CURRENT CHARGES
<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 (-1.19% Net) (4.81% Net) (10.81% Net) (-1.19% Net) (4.81% Net) (10.81% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,817 $100,000 $100,000 $100,000 $ 3,083 $ 3,268 $ 3,453
2 $ 7,787 $100,000 $100,000 $100,000 $ 5,862 $ 6,414 $ 6,990
3 $ 11,915 $100,000 $100,000 $100,000 $ 8,657 $ 9,768 $ 10,972
4 $ 16,209 $100,000 $100,000 $100,000 $11,221 $ 13,089 $ 15,194
5 $ 20,675 $100,000 $100,000 $100,000 $13,908 $ 16,739 $ 20,060
6 $ 25,319 $100,000 $100,000 $100,000 $16,539 $ 20,549 $ 25,448
7 $ 30,149 $100,000 $100,000 $100,000 $19,114 $ 24,529 $ 31,422
8 $ 35,172 $100,000 $100,000 $100,000 $21,655 $ 28,713 $ 38,077
9 $ 40,395 $100,000 $100,000 $100,000 $24,165 $ 33,115 $ 45,499
10 (Age 65) $ 45,828 $100,000 $100,000 $100,000 $26,645 $ 37,754 $ 53,787
15 $ 76,432 $100,000 $100,000 $166,018 $38,395 $ 64,927 $110,840
20 $113,666 $100,000 $134,519 $276,425 $48,253 $ 99,128 $203,698
25 $158,966 $100,000(2) $178,163 $447,904 $55,863(2) $142,078 $357,186
</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 44, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, and
12% over a period of years, but also fluctuated above or below those averages
for individual contract years. No representations can be made by Pruco Life or
the Series Fund that these hypothetical rates of return can be achieved for any
one year or sustained over any period of time.
T3
<PAGE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $3,670.28 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<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 (-1.49% Net) (4.51% Net) (10.51% Net) (-1.49% Net) (4.51% Net) (10.51% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,817 $100,000 $100,000 $100,000 $ 2,614 $ 2,782 $ 2,950
2 $ 7,787 $100,000 $100,000 $100,000 $ 4,849 $ 5,332 $ 5,837
3 $ 11,915 $100,000 $100,000 $100,000 $ 6,989 $ 7,938 $ 8,970
4 $ 16,209 $100,000 $100,000 $100,000 $ 8,745 $10,314 $ 12,091
5 $ 20,675 $100,000 $100,000 $100,000 $10,679 $13,025 $ 15,796
6 $ 25,319 $100,000 $100,000 $100,000 $12,500 $15,786 $ 19,834
7 $ 30,149 $100,000 $100,000 $100,000 $14,200 $18,594 $ 24,243
8 $ 35,172 $100,000 $100,000 $100,000 $15,768 $21,445 $ 29,067
9 $ 40,395 $100,000 $100,000 $100,000 $17,192 $24,332 $ 34,358
10 (Age 65) $ 45,828 $100,000 $100,000 $100,000 $18,458 $27,255 $ 40,180
15 $ 76,432 $100,000 $100,000 $120,019 $22,048 $42,507 $ 80,129
20 $113,666 $100,000 $100,000 $190,500 $18,648 $59,208 $140,380
25 $158,966 $100,000(2) $100,060 $284,362 $ 691(2) $79,794 $226,768
</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 II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $3,897 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<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 (-1.19% Net) (4.81% Net) (10.81% Net) (-1.19% Net) (4.81% Net) (10.81% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,053 $100,000 $100,000 $ 100,000 $ 3,533 $ 3,738 $ 3,942
2 $ 8,268 $100,000 $100,000 $ 100,000 $ 6,763 $ 7,382 $ 8,026
3 $ 12,651 $100,000 $100,000 $ 100,000 $10,029 $ 11,282 $ 12,637
4 $ 17,210 $100,000 $100,000 $ 100,000 $13,068 $ 15,182 $ 17,559
5 $ 21,952 $100,000 $100,000 $ 100,000 $16,256 $ 19,467 $ 23,225
6 $ 26,883 $100,000 $100,000 $ 101,796 $19,405 $ 23,960 $ 29,507
7 $ 32,011 $100,000 $100,000 $ 121,657 $22,518 $ 28,672 $ 36,450
8 $ 33,291 $100,000 $100,000 $ 129,722 $22,053 $ 29,857 $ 40,167
9 $ 34,623 $100,000 $100,000 $ 138,384 $21,590 $ 31,097 $ 44,276
10 $ 36,008 $100,000 $100,000 $ 147,676 $21,125 $ 32,394 $ 48,814
15 $ 43,809 $100,000 $102,649 $ 205,497 $18,774 $ 39,814 $ 79,706
20 $ 53,300 $100,000 $108,268 $ 288,068 $16,200 $ 48,947 $ 130,232
25 $ 64,848 $100,000 $117,339 $ 414,841 $13,409 $ 61,215 $ 216,422
30 (Age 65) $ 78,898 $100,000 $128,911 $ 605,217 $ 9,547 $ 76,660 $ 359,907
35 $ 95,991 $100,000 $143,783 $ 895,763 $ 3,798 $ 95,995 $ 598,045
40 $116,788 $ 0(2) $162,247 $1,340,356 $ 0(2) $119,560 $ 987,713
45 $142,090 $ 0 $185,586 $2,031,772 $ 0 $147,997 $1,620,259
</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.
T5
<PAGE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $3,897 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<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 (-1.49% Net) (4.51% Net) (10.51% Net) (-1.49% Net) (4.51% Net) (10.51% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,053 $100,000 $100,000 $ 100,000 $ 3,456 $ 3,656 $ 3,855
2 $ 8,268 $100,000 $100,000 $ 100,000 $ 6,560 $ 7,158 $ 7,781
3 $ 12,651 $100,000 $100,000 $ 100,000 $ 9,613 $10,815 $ 12,115
4 $ 17,210 $100,000 $100,000 $ 100,000 $12,314 $14,331 $ 16,602
5 $ 21,952 $100,000 $100,000 $ 100,000 $15,265 $18,317 $ 21,892
6 $ 26,883 $100,000 $100,000 $ 100,000 $18,166 $22,478 $ 27,738
7 $ 32,011 $100,000 $100,000 $ 114,058 $21,016 $26,824 $ 34,173
8 $ 33,291 $100,000 $100,000 $ 120,872 $20,392 $27,731 $ 37,427
9 $ 34,623 $100,000 $100,000 $ 128,125 $19,758 $28,665 $ 40,993
10 $ 36,008 $100,000 $100,000 $ 135,840 $19,114 $29,629 $ 44,902
15 $ 43,809 $100,000 $100,000 $ 182,448 $15,654 $34,874 $ 70,766
20 $ 53,300 $100,000 $100,000 $ 245,841 $11,468 $40,798 $111,142
25 $ 64,848 $100,000 $100,000 $ 331,945 $ 5,750 $47,209 $173,175
30 (Age 65) $ 78,898 $ 0(2) $100,000 $ 448,879 $ 0(2) $53,811 $266,937
35 $ 95,991 $ 0 $100,000 $ 607,797 $ 0 $60,026 $405,788
40 $116,788 $ 0 $100,000 $ 824,279 $ 0 $64,891 $607,414
45 $142,090 $ 0 $100,000(2) $1,120,602 $ 0 $66,130(2) $893,636
</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 29, unless an additional premium payment was made. Based on a gross
return of 6%, the Contract would go into default in policy year 56 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 II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $7,633 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<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 (-1.19% Net) (4.81% Net) (10.81% Net) (-1.19% Net) (4.81% Net) (10.81% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,938 $100,000 $100,000 $100,000 $ 6,888 $ 7,287 $ 7,686
2 $ 16,194 $100,000 $100,000 $100,000 $13,176 $ 14,387 $ 15,647
3 $ 24,780 $100,000 $100,000 $100,000 $19,536 $ 21,990 $ 24,645
4 $ 33,710 $100,000 $100,000 $100,000 $25,457 $ 29,604 $ 34,271
5 $ 42,997 $100,000 $100,000 $100,000 $31,680 $ 37,994 $ 45,388
6 $ 52,655 $100,000 $100,000 $107,707 $37,842 $ 46,821 $ 57,746
7 $ 62,699 $100,000 $101,894 $129,632 $43,949 $ 56,113 $ 71,388
8 $ 65,207 $100,000 $103,486 $139,250 $43,036 $ 58,504 $ 78,723
9 $ 67,815 $100,000 $105,200 $149,725 $42,114 $ 61,017 $ 86,842
10 (Age 65) $ 70,528 $100,000 $107,044 $161,150 $41,183 $ 63,657 $ 95,832
15 $ 85,808 $100,000 $117,991 $235,304 $36,031 $ 78,775 $157,097
20 $104,399 $100,000 $131,761 $348,166 $28,493 $ 97,095 $256,565
25 $127,017 $100,000(2) $150,865 $528,154 $14,947(2) $120,309 $421,183
</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 29, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, and
12% over a period of years, but also fluctuated above or below those averages
for individual contract years. No representations can be made by Pruco Life or
the Series Fund that these hypothetical rates of return can be achieved for any
one year or sustained over any period of time.
T7
<PAGE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $7,633 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<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 (-1.49% Net) (4.51% Net) (10.51% Net) (-1.49% Net) (4.51% Net) (10.51% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,938 $100,000 $100,000 $100,000 $ 6,424 $ 6,805 $ 7,187
2 $ 16,194 $100,000 $100,000 $100,000 $12,145 $13,279 $ 14,460
3 $ 24,780 $100,000 $100,000 $100,000 $17,759 $20,032 $ 22,495
4 $ 33,710 $100,000 $100,000 $100,000 $22,678 $26,494 $ 30,800
5 $ 42,997 $100,000 $100,000 $100,000 $28,087 $33,871 $ 40,666
6 $ 52,655 $100,000 $100,000 $100,000 $33,398 $41,598 $ 51,635
7 $ 62,699 $100,000 $100,000 $115,625 $38,617 $49,709 $ 63,675
8 $ 65,207 $100,000 $100,000 $122,696 $36,945 $51,026 $ 69,364
9 $ 67,815 $100,000 $100,000 $130,216 $35,157 $52,335 $ 75,526
10 (Age 65) $ 70,528 $100,000 $100,000 $138,215 $33,233 $53,631 $ 82,193
15 $ 85,808 $100,000 $100,000 $186,527 $20,728 $59,770 $124,532
20 $104,399 $ 0(2) $100,000 $252,405 $ 0(2) $64,490 $185,998
25 $127,017 $ 0 $100,000(2) $342,631 $ 0 $65,402(2) $273,235
</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 20, unless an additional premium payment was made. Based on a gross
return of 6%, the Contract would go into default in policy year 36 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
You may borrow from Pruco Life an amount 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 two 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. If that average is no longer
published, a substantially similar average established by the insurance
regulator where the Contract is issued, will be used. For example, the Published
Monthly Average in 1998 ranged from 6.72% to 7.00%.
Interest payments on any loan are due at the end of each Contract year. If
interest is not paid when due, it is added to the principal amount of the loan.
The "Contract debt" is the amount of all outstanding loans plus any interest
accrued but not yet due. If at any time your Contract debt exceeds your Contract
Fund, Pruco Life will notify you of its intent to terminate the Contract in 61
days, within which time you may repay all or enough of the loan to keep the
Contract inforce. If you fail to keep the Contract inforce, the amount of unpaid
Contract debt will be treated as a distribution which may be taxable. See TAX
TREATMENT OF CONTRACT BENEFITS -- PRE-DEATH DISTRIBUTIONS, page 18, and LAPSE
AND REINSTATEMENT, page 19.
When a loan is made, an amount equal to the loan proceeds is transferred out of
the applicable subaccount[s]. The reduction is generally made in the same
proportions as the value that each subaccount bears to the total value of the
Contract. While a fixed-rate loan is outstanding, the amount that was
transferred continues to be treated as part of the Contract Fund, but it is
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 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 applies.
If the death benefit becomes payable while a loan is outstanding, or if the
Contract is 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
subaccounts. 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 subaccounts 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. See TAX TREATMENT OF CONTRACT
BENEFITS, page 18.
WHEN PROCEEDS ARE PAID
We will generally pay any death benefit, cash surrender value, withdrawal, or
loan proceeds within seven days after all the documents required for such a
payment are received at a Home Office. The amount is determined as of the end of
the valuation period in which the necessary documents are received at a Home
Office, except the death benefit is determined as of the date of death.
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: (1) the
17
<PAGE>
New York Stock Exchange is closed for other than a regular holiday or weekend;
or (2) trading is restricted by the SEC; or (3) the SEC declares that an
emergency exists.
TAX TREATMENT OF CONTRACT BENEFITS
This summary provides general information on the federal income tax treatment of
the Contract. It is not a complete statement of what the federal income taxes
will be in all circumstances. It is based on current law and interpretations,
which may change. It does not cover state taxes or other taxes. It is not
intended as tax advice. You should consult your own qualified tax adviser for
complete information and advice.
TREATMENT AS LIFE INSURANCE. The Contract must meet certain requirements to
qualify as life insurance for tax purposes. These requirements include certain
definitional tests and rules for diversification of the Contract's investments.
For further information on the diversification requirements, see TAXATION OF THE
FUND in the statement of additional information for the Series Fund. We believe
we have taken adequate steps to ensure that the Contract qualifies as life
insurance for tax purposes. Generally speaking, this means that:
o you will not be taxed on the growth of the funds in the Contract,
unless you receive a distribution from the Contract,
o the Contract's death benefit will be tax free to your beneficiary.
Although we believe that the Contract should qualify as life insurance for tax
purposes, there are some uncertainties, particularly because the Secretary of
Treasury has not yet issued permanent regulations that bear on this question.
Accordingly, we reserve the right to make changes -- which will be applied
uniformly to all Contract owners after advance written notice -- that we deem
necessary to ensure that the Contract will qualify as life insurance.
PRE-DEATH DISTRIBUTIONS. The tax treatment of any distribution you receive
before the insured's death depends on whether the Contract is classified as a
Modified Endowment Contract.
CONTRACTS NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
o If you surrender the Contract or allow it to lapse, you will be taxed
on the amount you receive in excess of the premiums you paid less the
untaxed portion of any prior withdrawals. For this purpose, you will
be treated as receiving any portion of the cash surrender value used
to repay Contract debt. The tax consequences of a surrender may differ
if you take the proceeds under an income payment settlement option.
o Generally, you will be taxed on a withdrawal to the extent the amount
you receive exceeds the premiums you paid for the Contract less the
untaxed portion of any prior withdrawals. However, under some limited
circumstances, in the first 15 Contract years, all or a portion of a
withdrawal may be taxed if the Contract Fund exceeds the total
premiums paid less the untaxed portions of any prior withdrawals, even
if total withdrawals do not exceed total premiums paid.
o Extra premiums for optional benefits and riders generally do not count
in computing the premiums paid for the Contract for the purposes of
determining whether a withdrawal is taxable.
o Loans you take against the Contract are ordinarily treated as debt and
are not considered distributions subject to tax.
MODIFIED ENDOWMENT CONTRACTS.
o The rules change if the Contract is classified as a Modified Endowment
Contract. The Contract could be classified as a Modified Endowment
Contract if a decrease in the face amount of insurance is made (or a
rider removed). The addition of a rider or an increase in the face
amount of insurance may also cause the Contract to be classified as a
Modified Endowment Contract. You should first consult a qualified tax
adviser and your Pruco Life representative if you are contemplating
any of these steps.
o If the Contract is classified as a Modified Endowment Contract, then
amounts you receive under the Contract before the insured's death,
including loans and withdrawals, are included in income to the extent
that the
18
<PAGE>
Contract Fund exceeds the premiums paid for the Contract increased by
the amount of any loans previously included in income and reduced by
any untaxed amounts previously received other than the amount of any
loans excludible from income. An assignment of a Modified Endowment
Contract is taxable in the same way. These rules also apply to
pre-death distributions, including loans, made during the two-year
period before the time that the Contract became a Modified Endowment
Contract.
o Any taxable income on pre-death distributions (including full
surrenders) is subject to a penalty of 10 percent unless the amount is
received on or after age 592, on account of your becoming disabled or
as a life annuity. It is presently unclear how the penalty tax
provisions apply to Contracts owned by businesses.
o All Modified Endowment Contracts issued by us to you during the same
calendar year are treated as a single Contract for purposes of
applying these rules.
WITHHOLDING. You must affirmatively elect that no taxes be withheld from a
pre-death distribution. Otherwise, the taxable portion of any amounts you
receive will be subject to withholding. You are not permitted to elect out of
withholding if you do not provide a social security number or other taxpayer
identification number. You may be subject to penalties under the estimated tax
payment rules if your withholding and estimated tax payments are insufficient to
cover the tax due.
OTHER TAX CONSIDERATIONS. If you transfer or assign the Contract to someone
else, there may be gift, estate and/or income tax consequences. If you transfer
the Contract to a person two or more generations younger than you (or designate
such a younger person as a beneficiary), there may be Generation Skipping
Transfer tax consequences. Deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied. Your individual situation or that of your beneficiary
will determine the federal estate taxes and the state and local estate,
inheritance and other taxes due if you or the insured dies.
BUSINESS-OWNED LIFE INSURANCE. If a business, rather than an individual, is the
owner of the Contract, there are some additional rules. Business Contract owners
generally cannot deduct premium payments. Business Contract owners generally
cannot take tax deductions for interest on Contract debt paid or accrued after
October 13, 1995. An exception permits the deduction of interest on policy loans
on Contracts for up to 20 key persons. The interest deduction for Contract debt
on these loans is limited to a prescribed interest rate and a maximum aggregate
loan amount of $50,000 per key insured person. The corporate alternative minimum
tax also applies to business-owned life insurance. This is an indirect tax on
additions to the Contract Fund or death benefits received under business-owned
life insurance policies.
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 will go into
default.
Should this happen, Pruco Life will send you a notice of default setting forth
the payment necessary to keep the Contract inforce. 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 18.
A Contract that has lapsed may be reinstated within five 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. It is possible
for a lapsed Contract to be classified as a Modified Endowment Contract if
reinstated after lapsing. See TAX TREATMENT OF CONTRACT BENEFITS, page 18.
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS
The Contracts employ mortality tables that distinguish between males and
females. Thus, premiums and benefits differ under Contracts issued on males and
females of the same age. The Contract is not available in those states that have
adopted regulations prohibiting sex-distinct insurance rates. The Contract may
not be assigned if to do so would violate regulations or laws relating to
sex-distinct insurance rates.
19
<PAGE>
EXCHANGE RIGHT AVAILABLE IN SOME STATES
In some states, you may have the right 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. Such an exchange may be permitted within the first two
Contract years after a Contract is issued, so long as the Contract is not in
default. 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. You may wish to obtain tax
advice before effecting such an exchange.
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 purchase fixed reduced paid-up insurance. Fixed reduced
paid-up insurance provides 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. A Contract may be classified as a Modified
Endowment Contract if this option is exercised. See TAX TREATMENT OF CONTRACT
BENEFITS, page 18.
OTHER GENERAL CONTRACT PROVISIONS
ASSIGNMENT. This Contract may not be assigned if the assignment would violate
any federal, state or local law or regulation. Generally, the Contract may not
be assigned to another insurance company or to an employee benefit plan without
Pruco Life's consent. Pruco Life assumes no responsibility for the validity or
sufficiency of any assignment. We will not be obligated to comply with any
assignment unless we receive a copy at a Home office.
BENEFICIARY. You designate and name your beneficiary in the application.
Thereafter, you may change the beneficiary, provided it is in accordance with
the terms of the Contract.
INCONTESTABILITY. We will not contest the Contract after it has been inforce
during the insured's lifetime for two years from the issue date except when any
change is made in the Contract that requires Pruco Life's approval and would
increase our liability. We will not contest such change after it has been in
effect for two years during the lifetime of the insured.
MISSTATEMENT OF AGE OR SEX. If the insured's stated age or sex 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.
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.
SUICIDE EXCLUSION. Generally, Pruco Life will pay no more under the Contract
than the sum of the premiums paid if the insured, whether sane or insane, dies
by suicide within two years from the Contract date.
Generally, if the insured, whether sane or insane, dies by suicide within two
years from the effective date of an increase in the face amount of insurance
that was requested after issue and required Company approval, Pruco Life will
pay, with respect to the amount of the increase, no more than the sum of the
monthly charges attributable to the increase.
VOTING RIGHTS
As described earlier, all of the assets held in the subaccounts will be invested
in shares of the corresponding portfolios of the Funds. Pruco Life is the legal
owner of those shares and has the right to vote on any matter voted on at
shareholders meetings of the Funds. However, Pruco Life will, as required by
law, vote the shares of the Funds in accordance with voting instructions
received from Contract owners at any regular and special shareholders meetings.
A Fund will not hold annual shareholders meetings when not required to do so
under the laws of the state of its incorporation or the Investment Company Act
of 1940. Fund shares for which no timely instructions from Contract owners are
received, and any shares attributable to general account investments of Pruco
Life will be voted in the same proportion as shares in the respective portfolios
for which instructions are received. If the applicable federal
20
<PAGE>
securities laws or regulations, or their current interpretation, change so as to
permit Pruco Life to vote shares of the Funds in its own right, it may elect to
do so.
Matters on which Contract owners may give voting instructions include the
following:
(1) election of the Board of Directors of the Funds;
(2) ratification of the independent accountant of the Funds;
(3) approval of the investment advisory agreement for a portfolio of the Funds
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 Funds.
Contract owners participating in such portfolios will vote separately on the
investment advisory agreement or any change in a portfolio's fundamental
investment policy, pursuant to the requirements of Rule 18f-2 under the
Investment Company Act of 1940.
The number of Fund shares for which a Contract owner may give instructions is
determined by dividing the portion of the value of the Contract derived from
participation in a subaccount, by the value of one share in the corresponding
portfolio of the Funds. The number of votes for which each Contract owner may
give Pruco Life instructions will be determined as of the record date chosen by
the Board of Directors of the applicable Fund. Pruco Life will furnish Contract
owners with proper forms and proxies to enable them to give these instructions.
Pruco Life reserves the right to modify the manner in which the weight to be
given voting instructions is calculated where such a change is necessary to
comply with current federal regulations or interpretations of those regulations.
Pruco Life may, if required by state insurance regulations, disregard voting
instructions if they would require shares to be voted so as to cause a change in
the sub-classification or investment objectives of one or more of the Fund's
portfolios, or to approve or disapprove an investment advisory contract for a
Fund. In addition, Pruco Life itself may disregard voting instructions that
would require changes in the investment policy or investment adviser of one or
more of the Fund's portfolios, provided that Pruco Life reasonably disapproves
such changes in accordance with applicable federal regulations. If Pruco Life
does disregard voting instructions, it will advise Contract owners of that
action and its reasons for such action in the next annual or semi-annual report
to Contract owners.
SUBSTITUTION OF FUND SHARES
Although Pruco Life believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Funds may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, Pruco Life may seek to substitute the shares of another portfolio or
of an entirely different mutual fund. The approval of the SEC, and possibly one
or more state insurance departments, will be required before this can be done.
Contract owners will be notified of any such substitution.
REPORTS TO CONTRACT OWNERS
Once each Contract year (except where the Contract is inforce as fixed reduced
paid-up insurance), Pruco Life will send you statements providing certain
information pertinent to your 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.
You will also be sent annual and semi-annual reports of the Funds showing the
financial condition of the portfolios and the investments held in each
portfolio.
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
21
<PAGE>
may also be sold through other broker-dealers authorized by Prusec and
applicable law to do so. Registered representatives of such other broker-dealers
may be paid on a different basis than described below. The maximum commission
that will be paid to the representative is 14 1/2% of premiums received in the
first year up to certain limits. Additional first year premiums and premiums in
later years may generate up to 4% commission. Moreover, trail commissions of up
to 0.2% of the Contract Fund as of the Contract's anniversary may be paid. The
representative may be required to return all or part of the first year
commission if the Contract 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. This may include the amounts derived from the
mortality and expense risk charge described in item 7 under CHARGES AND
EXPENSES, page 10.
STATE REGULATION
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
EXPERTS
The consolidated financial statements of Pruco Life and its subsidiaries as of
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998 and the financial statements of the Account as of December 31,
1998 and for each of the three years in the period then ended included in this
prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting. PricewaterhouseCoopers LLP's
principal business address is 1177 Avenue of the Americas, New York, New York
10036.
Actuarial matters included in this prospectus have been examined by 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 you as a purchaser of a Variable Universal Life
Insurance Contract depend on the smooth functioning of numerous computer
systems. Many computer systems in use today are programmed to recognize only the
last two digits of a date as the year. As a result, any systems using this kind
of programming can not distinguish a date using "00" and may treat it as "1900"
instead of "2000." This problem may impact computer systems that store business
information, but it could also affect other equipment used in our business like
telephone, fax machines and elevators. If this problem is not corrected, the
"Year 2000" issue could affect the accuracy and integrity of business records.
Prudential's regular business operations could be interrupted as well as those
of other companies that deal with us.
22
<PAGE>
In addition, the operations of the mutual funds associated with the Variable
Universal Life Insurance Contract could experience problems resulting from the
Year 2000 issue. Please refer to the respective mutual fund's prospectus for
information regarding their approach to Year 2000 concerns. The following
describes Prudential's effort to address Year 2000 concerns.
To address this potential problem Prudential, as the parent company of Pruco
Life, organized its Year 2000 efforts around the following three areas:
o BUSINESS SYSTEMS - Computer programs directly used to support our business;
o INFRASTRUCTURE - Computers and other business equipment like telephones and
fax machines; and
o BUSINESS PARTNERS - Year 2000 readiness of essential business partners.
BUSINESS SYSTEMS. The business systems component includes a wide range of
computer programs that directly support Prudential's business operations
including systems for: insurance product processing, securities trading,
personnel record keeping and general accounting systems. All business systems
were analyzed to determine whether each computer program with a Year 2000
problem should be retired, replaced or renovated. The majority of this work has
been completed. A few remaining programs are currently being tested and
completion of this process is expected by June 1999.
INFRASTRUCTURE. As with business applications, we established a specific
methodology and process for addressing infrastructure issues. The infrastructure
effort includes mainframe computer system hardware and operating system
software, mid-range systems and servers, telecommunications equipment and
systems, buildings and facilities systems, personal computers, and vendor
hardware and software. Other than desktop systems, substantially all other
infrastructure systems have been tested. Presently a small number of midrange
computers, and building and facility systems are still in the testing phase. We
expect to have the infrastructure implementation process completed by June 1999.
BUSINESS PARTNERS. Prudential recognizes the importance of determining the Year
2000 readiness of external business relationships especially those that involve
electronic data transfer products and services, and products that impact our
essential business processes. Prudential first classified each business partner
as "highly critical" or "less critical" to our business and then began to
develop risk assessment and contingency plans to address the potential that a
business partner could experience a Year 2000 failure. All highly critical
business partner relationships have been assessed and contingency planning is
completed. Risk assessment and contingency planning continues for less critical
business partners, and the target completion date for these relationships is
June 1999.
Prudential believes that the Business Systems, Infrastructure and Business
Partners components of the Year 2000 project are substantially on schedule. A
small number of the projects may not meet their targeted completion date.
However, Prudential expects that these projects will be completed by September,
mid 1999. If there are any delays, they should not have a significant impact on
the timing of the project as a whole.
THE COST OF YEAR 2000 READINESS
Prudential is funding the Year 2000 program from internal operating budgets, and
estimates that its total costs to address the Year 2000 issue will total
approximately $220 million. Because these expenses were part of the operating
budget, they did not impact the management of Variable Universal Life Insurance
Contracts. During the course of the Year 2000 program, some optional computer
projects have been delayed, but these delays have not had any material effect on
Variable Universal Life Insurance Contracts.
YEAR 2000 RISKS AND CONTINGENCY PLANNING
Prudential believes that it is well positioned to lessen the impact of the Year
2000 problem. However, given the nature of this issue, we can not be 100%
certain that we are completely prepared, particularly because we can not be
certain of Year 2000 readiness of third parties. As a result, we are unable to
determine at this time whether the consequences of Year 2000 failures may have a
material adverse effect on the results of Prudential's operations, liquidity or
financial condition. In the worst case, it is possible that a Year 2000
technology failure, whether internal or external, could have a material impact
on Prudential's results of operations, liquidity, or financial position. If
Prudential is unable to address the Year 2000 problem, we may have difficulty in
responding to your incoming phone calls, calculating your unit values or
processing withdrawals and purchase payments. It is also possible that the
mutual funds associated with the
23
<PAGE>
Variable Universal Life Insurance Contract will be unable to value their
securities, in turn creating difficulties in purchasing or selling shares of the
respective mutual fund and calculating corresponding unit asset values. The
objective of Prudential's Year 2000 program has been to reduce these risks as
much as possible.
Most of the operations of the Variable Universal Life Insurance Contract involve
such a large number of individual transactions that they can only be handled
with the help of computers. As a result, our current contingency plans include
responses to the failure of specific business programs or infrastructure
components. However, our contingency responses are now being reviewed and we
expect to finalize them by June, 1999 to ensure that they are workable under the
special conditions of a Year 2000 failure. Prudential believes that with the
completion of its Year 2000 program as scheduled, the possibility of significant
interruptions of normal operations will be reduced.
ADDITIONAL INFORMATION
Pruco Life has filed a registration statement with the SEC under the Securities
Act of 1933, relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. Certain portions have been omitted pursuant to the rules and
regulations of the SEC. The omitted information may, however, be obtained from
the SEC's principal office in Washington, D.C., upon payment of a prescribed
fee.
FINANCIAL STATEMENTS
The financial statements of the Account should be distinguished from the
consolidated financial statements of Pruco Life and its subsidiaries, which
should be considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
24
<PAGE>
DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life, listed with their principal
occupations during the past five years, are shown below.
DIRECTORS OF PRUCO LIFE
JAMES J. AVERY, JR., CHAIRMAN AND DIRECTOR. -- Senior Vice President and Chief
Actuary, Prudential Individual Insurance Group since 1997; 1995 to 1997:
President of Prudential Select; Prior to 1995: Chief Operating Officer of
Prudential Select.
WILLIAM M. BETHKE, DIRECTOR. -- Chief Investment Officer since 1997; Prior to
1997: President, Prudential Capital Markets Group.
IRA J. KLEINMAN, DIRECTOR. -- Executive Vice President, Prudential International
Insurance Group since 1997; 1995 to 1997: Chief Marketing and Product
Development Officer, Prudential Individual Insurance Group; Prior to 1995:
President, Prudential Select.
ESTHER H. MILNES, PRESIDENT AND DIRECTOR. -- Vice President and Actuary,
Prudential Individual Insurance Group since 1996; Prior to 1996: Senior Vice
President and Chief Actuary, Prudential Insurance and Financial Services.
I. EDWARD PRICE, VICE CHAIRMAN AND DIRECTOR. -- Senior Vice President and
Actuary, Prudential Individual Insurance Group since 1995; Prior to 1995: Chief
Executive Officer, Prudential International Insurance.
KIYOFUMI SAKAGUCHI, DIRECTOR. -- President, Prudential International Insurance
Group since 1995; Prior to 1995: Chairman and Chief Executive Officer, The
Prudential Life Insurance Co., Ltd.
OFFICERS WHO ARE NOT DIRECTORS
C. EDWARD CHAPLIN, TREASURER. -- Vice President and Treasurer of Prudential
since 1995; Prior to 1995: Managing Director and Assistant Treasurer of
Prudential.
JAMES C. DROZANOWSKI, SENIOR VICE PRESIDENT. -- Vice President and Operations
Executive, Prudential Individual Insurance Group since 1996; 1995 to 1996:
President and Chief Executive Officer of Chase Manhattan Bank; Prior to 1995:
Vice President, North America Customer Services, Chase Manhattan Bank.
CLIFFORD E. KIRSCH, CHIEF LEGAL OFFICER AND SECRETARY. -- Chief Counsel,
Variable Products, Law Department of Prudential since 1995; Prior to 1995:
Associate General Counsel with Paine Webber.
FRANK P. MARINO, SENIOR VICE PRESIDENT. -- Vice President, Policyowner Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services.
EDWARD A. MINOGUE, SENIOR VICE PRESIDENT. -- Vice President, Annuity Services,
Prudential Investments since 1997; Prior to 1997: Director, Merrill Lynch.
HIROSHI NAKAJIMA, SENIOR VICE PRESIDENT. -- President & Chief Executive Officer,
Pruco Life Insurance Company, Taiwan Branch since 1997; Prior to 1997: Senior
Managing Director, Prudential Life Insurance Co., Ltd.
IMANTS SAKSONS, SENIOR VICE PRESIDENT. -- Vice President, Compliance, Prudential
Individual Financial Services since 1998; Prior to 1998: Vice President, Market
Conduct, U.S. Operations, Manulife Financial.
SHIRLEY H. SHAO, SENIOR VICE PRESIDENT AND CHIEF ACTUARY. -- Vice President and
Associate Actuary, Prudential.
DENNIS G. SULLIVAN, VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER. -- Vice
President and Deputy Controller, Prudential since 1998; 1997 to 1998, Vice
President and Controller, ContiFinancial Corporation; Prior to 1997, Director,
Saloman Brothers.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.
Pruco Life directors and officers are elected annually.
25
<PAGE>
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<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF NET ASSETS (UNAUDITED)
MARCH 31, 1999
SUBACCOUNTS
---------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------- -----------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Investment in The Prudential Series Fund, Inc.
Portfolios at net asset value [Note 3] .... $19,609,651 $42,031,090 $45,297,365 $33,403,623 $47,379,878
----------- ----------- ----------- ----------- -----------
Net Assets ................................... $19,609,651 $42,031,090 $45,297,365 $33,403,623 $47,379,878
=========== =========== =========== =========== ===========
NET ASSETS, representing:
Equity of contract owners .................... $19,609,651 $42,031,090 $45,297,365 $33,403,623 $47,379,878
----------- ----------- ----------- ----------- -----------
$19,609,651 $42,031,090 $45,297,365 $33,403,623 $47,379,878
=========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A16 THROUGH A21
A1
<PAGE>
<TABLE>
SUBACCOUNTS (CONTINUED)
- -------------------------------------------------------------------------------------------------------
ZERO COUPON HIGH
BOND YIELD STOCK EQUITY NATURAL GOVERNMENT
2000 BOND INDEX INCOME RESOURCES GLOBAL INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 17,431,308 $ 2,988,677 $173,693,440 $ 14,500,611 $ 940,287 $ 14,086,716 $ 8,657,238
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 17,431,308 $ 2,988,677 $173,693,440 $ 14,500,611 $ 940,287 $ 14,086,716 $ 8,657,238
============ ============ ============ ============ ============ ============ ============
$ 17,431,308 $ 2,988,677 $173,693,440 $ 14,500,611 $ 940,287 $ 14,086,716 $ 8,657,238
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 17,431,308 $ 2,988,677 $173,693,440 $ 14,500,611 $ 940,287 $ 14,086,716 $ 8,657,238
============ ============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A16 THROUGH A21
A2
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF NET ASSETS (UNAUDITED)
MARCH 31, 1999
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------
ZERO COUPON SMALL
BOND PRUDENTIAL CAPITALIZATION
2005 JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Investment in The Prudential Series Fund, Inc.
Portfolios at net asset value [Note 3] .... $16,321,258 $ 4,386,074 $10,412,507
----------- ----------- -----------
Net Assets ................................... $16,321,258 $ 4,386,074 $10,412,507
=========== =========== ===========
NET ASSETS, representing:
Equity of contract owners .................... $16,321,258 $ 4,386,074 $10,412,507
----------- ----------- -----------
$16,321,258 $ 4,386,074 $10,412,507
=========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A16 THROUGH A21
A3
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the three months ended March 31, 1999 and the years ended December 31, 1998 and 1997
SUBACCOUNTS
---------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C> <C>
Dividend income ............................ $ 162,811 $ 461,945 $ 461,061 $ 0 $ 2,359,120 $ 2,574,631
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 20,701 53,117 50,651 59,784 229,634 205,292
Reimbursement for excess expenses [Note 5C] 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES .................................. 20,701 53,117 50,651 59,784 229,634 205,292
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) .................. 142,110 408,828 410,410 (59,784) 2,129,486 2,369,339
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ..... 0 0 0 0 128,093 408,037
Realized gain (loss) on shares redeemed .. 0 0 0 1,731 173,161 94,146
Net change in unrealized gain (loss)
on investments .......................... 0 0 0 (168,005) (29,348) (288,588)
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ................ 0 0 0 (166,274) 271,906 213,595
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .................. $ 142,110 $ 408,828 $ 410,410 $ (226,058) $ 2,401,392 $ 2,582,934
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A16 THROUGH A21
A4
<PAGE>
<TABLE>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------- ----------------------------------------- -------------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO TO TO TO
3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED) (UNAUDITED)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 860,120 $ 1,108,812 $ 0 $ 1,147,432 $ 1,050,936 $ 0 $ 1,965,960 $ 2,025,296
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
66,647 284,011 286,301 47,182 209,364 206,248 67,656 271,618 256,921
0 0 0 0 0 0 0 0 0
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
66,647 284,011 286,301 47,182 209,364 206,248 67,656 271,618 256,921
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(66,647) 576,109 822,511 (47,182) 938,068 844,688 (67,656) 1,694,342 1,768,375
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
0 5,026,484 2,827,131 0 3,419,770 5,545,715 0 2,703,038 5,037,552
263,128 4,779,486 1,774,816 (54,205) 353,509 605,368 (9,343) 935,553 200,066
17,025 (5,230,122) 4,476,157 542,462 (1,305,317) (1,682,924) 690,367 (276,688) (1,945,306)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
280,153 4,575,848 9,078,104 488,257 2,467,962 4,468,159 681,024 3,361,903 3,292,312
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 213,506 $ 5,151,957 $ 9,900,615 $ 441,075 $ 3,406,030 $ 5,312,847 $ 613,368 $ 5,056,245 $ 5,060,687
=========== =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A16 THROUGH A21
A5
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the three months ended March 31, 1999 and the years ended December 31, 1998 and 1997
SUBACCOUNTS
---------------------------------------------------------------------------------
ZERO COUPON HIGH
BOND YIELD
2000 BOND
PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C> <C>
Dividend income ............................ $ 0 $ 821,929 $ 745,017 $ 0 $ 261,439 $ 197,684
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 24,820 101,177 101,616 4,555 15,665 12,354
Reimbursement for excess expenses [Note 5C] (8,832) (37,196) (42,117) 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES .................................. 15,988 63,981 59,499 4,555 15,665 12,354
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) .................. (15,988) 757,948 685,518 (4,555) 245,774 185,330
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ..... 0 227,825 690,332 0 0 0
Realized gain (loss) on shares redeemed .. (348) (52,050) (94,913) (36,419) (4,633) 16,526
Net change in unrealized gain (loss)
on investments .......................... 32,187 217,606 (355,649) 106,301 (334,049) 59,640
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ................ 31,839 393,381 239,770 69,882 (338,682) 76,166
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .................. $ 15,851 $ 1,151,329 $ 925,288 $ 65,327 $ (92,908) $ 261,496
=========== =========== =========== =========== =========== ===========
</TABLE>
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A6
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------------
STOCK EQUITY NATURAL
INDEX INCOME RESOURCES
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- ------------------------------------------ -----------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO TO TO TO
3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED) (UNAUDITED)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 1,729,752 $ 1,326,042 $ 0 $ 365,234 $ 370,792 $ 0 $ 8,084 $ 8,087
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
244,136 820,541 502,161 20,719 90,144 85,229 1,278 5,828 9,335
0 0 0 0 0 0 (3) 0 0
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
244,136 820,541 502,161 20,719 90,144 85,229 1,275 5,828 9,335
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(244,136) 909,211 823,881 (20,719) 275,090 285,563 (1,275) 2,256 (1,248)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
0 2,499,196 2,997,271 0 797,222 1,414,553 0 50,250 136,346
1,427,705 5,771,729 2,754,626 1,653 2,673,910 481,377 (13,809) (28,695) 24,931
6,581,142 24,590,569 15,534,339 500,743 (4,107,342) 2,177,083 73,458 (210,866) (299,786)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
8,008,847 32,861,494 21,286,236 502,396 (636,210) 4,073,013 59,649 (189,311) (138,509)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 7,764,711 $33,770,705 $22,110,117 $ 481,677 $ (361,120) $ 4,358,576 $ 58,374 $ (187,055) $ (139,757)
=========== =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
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A7
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the three months ended March 31, 1999 and the years ended December 31, 1998 and 1997
SUBACCOUNTS
--------------------------------------------------------------------------------
GOVERNMENT
GLOBAL INCOME
PORTFOLIO PORTFOLIO
-------------------------------------- --------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
-------------------------------------- ---------------------------------------
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C> <C>
Dividend income ............................ $ 0 $ 160,959 $ 149,254 $ 0 $ 402,330 $ 257,272
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 19,239 70,813 80,250 12,199 38,968 23,144
Reimbursement for excess expenses [Note 5C] 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES .................................. 19,239 70,813 80,250 12,199 38,968 23,144
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) .................. (19,239) 90,146 69,004 (12,199) 363,362 234,128
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ..... 0 536,310 504,462 0 0 0
Realized gain (loss) on shares redeemed .. 40,178 235,100 1,501,595 3,471 8,247 17,410
Net change in unrealized gain (loss)
on investments .......................... 234,592 1,531,076 (871,934) (126,900) 205,452 86,634
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ................ 274,770 2,302,486 1,134,123 (123,429) 213,699 104,044
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .................. $ 255,531 $ 2,392,632 $ 1,203,127 $ (135,628) $ 577,061 $ 338,172
=========== =========== =========== =========== =========== ===========
</TABLE>
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A8
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
ZERO COUPON SMALL
BOND PRUDENTIAL CAPITALIZATION
2005 JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------- ----------------------------------------- ------------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO TO TO TO
3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED) (UNAUDITED)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 650,198 $ 485,431 $ 0 $ 3,905 $ 1,751 $ 0 $ 49,149 $ 39,052
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
23,550 67,532 42,708 4,574 11,315 4,217 15,016 43,679 34,205
(7,501) (22,824) (23,762) 0 0 0 0 0 0
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
16,049 44,708 18,946 4,574 11,315 4,217 15,016 43,679 34,205
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(16,049) 605,490 466,485 (4,574) (7,410) (2,466) (15,016) 5,470 4,847
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
0 7,803 124,816 0 37,636 50,105 0 604,937 381,206
1,207 12,587 225,279 26,682 22,375 43,121 (8,676) (29,549) 703,647
(503,083) 773,486 215,644 320,784 478,204 73,161 (976,199) (95,776) 238,634
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(501,876) 793,876 565,739 347,466 538,215 166,387 (984,875) 479,612 1,323,487
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ (517,925) $ 1,399,366 $ 1,032,224 $ 342,892 $ 530,805 $ 163,921 $ (999,891) $ 485,082 $ 1,328,334
=========== =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
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A9
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the three months ended March 31, 1999 and the years ended December 31, 1998 and 1997
SUBACCOUNTS
----------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------ ------------
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) .................. $ 142,110 $ 408,828 $ 410,410 $ (59,784) $ 2,129,486 $ 2,369,339
Capital gains distributions received .......... 0 0 0 0 128,093 408,037
Realized gain (loss) on shares redeemed ....... 0 0 0 1,731 173,161 94,146
Net change in unrealized gain (loss)
on investments ............................... 0 0 0 (168,005) (29,348) (288,588)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ..................... 142,110 408,828 410,410 (226,058) 2,401,392 2,582,934
------------ ------------ ------------ ------------ ------------ ------------
PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ................. 4,820,171 8,459,179 16,018,494 1,173,544 4,026,378 5,573,222
Policy Loans ................................ 0 0 (45,968) (153) (10,790) 0
Policy Loan Repayment and Interest .......... 0 0 44,362 103 85 449,595
Surrenders, Withdrawals and Death Benefits .. (40,508) 48,094 (447,841) (108,348) (5,421,341) (3,109,854)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Options ..................... 1,824,070 (5,068,699) (17,376,103) 170,804 4,043,371 146,922
Administrative and Other Charges ............ (90,378) (258,516) (264,540) (114,121) (491,540) (665,026)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS ........................... 6,513,355 3,180,058 (2,071,596) 1,121,829 2,146,163 2,394,859
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [Note 7] .............. (131) (1,722) (115,766) 3,789 (35,755) (86,028)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ........................................ 6,655,334 3,587,164 (1,776,952) 899,560 4,511,800 4,891,765
NET ASSETS
Beginning of year ............................. 12,954,317 9,367,153 11,144,105 41,131,530 36,619,730 31,727,965
------------ ------------ ------------ ------------ ------------ ------------
End of year ................................... $ 19,609,651 $ 12,954,317 $ 9,367,153 $ 42,031,090 $ 41,131,530 $ 36,619,730
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A16 THROUGH A21
A10
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------- ------------------------------------------ ------------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO TO TO TO
3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED) (UNAUDITED)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (66,647) $ 576,109 $ 822,511 $ (47,182) $ 938,068 $ 844,688 $ (67,656) $ 1,694,342 $ 1,768,375
0 5,026,484 2,827,131 0 3,419,770 5,545,715 0 2,703,038 5,037,552
263,128 4,779,486 1,774,816 (54,205) 353,509 605,368 (9,343) 935,553 200,066
17,025 (5,230,122) 4,476,157 542,462 (1,305,317) (1,682,924) 690,367 (276,688) (1,945,306)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
213,506 5,151,957 9,900,615 441,075 3,406,030 5,312,847 613,368 5,056,245 5,060,687
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,712,690 5,974,743 8,187,661 452,245 2,727,720 4,391,711 286,232 6,161,137 2,723,156
(235) (16,155) (2,354) (200) (13,509) (101,032) 0 (15) (114,831)
258 2,348 6,595 225 2,543 109,493 0 976 1,296,181
(479,829) (11,366,743) (3,056,522) (225,852) (1,109,742) (3,330,740) (1,362,582) (41,543) (871,239)
(2,147,207) (6,233,542) (2,416,623) (44,917) (9,445,233) 2,115,451 970,963 (11,038,745) 2,899,464
(157,634) (750,093) (962,520) (64,785) (300,968) (387,697) (154,838) (628,277) (699,975)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(1,071,957) (12,389,442) 1,756,237 116,716 (8,139,189) 2,797,186 (260,225) (5,546,467) 5,232,756
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(2,538) (378,339) 2,060 591 99,015 (1,047) 1,759 (6,712) 1,650,849
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(860,989) (7,615,824) 11,658,912 558,382 (4,634,144) 8,108,986 354,902 (496,934) 11,944,292
46,158,354 53,774,178 42,115,266 32,845,241 37,479,385 29,370,399 47,024,976 47,521,910 35,577,618
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 45,297,365 $ 46,158,354 $ 53,774,178 $ 33,403,623 $ 32,845,241 $ 37,479,385 $ 47,379,878 $ 47,024,976 $ 47,521,910
============ ============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A16 THROUGH A21
A11
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the three months ended March 31, 1999 and the years ended December 31, 1998 and 1997
SUBACCOUNTS
----------------------------------------------------------------------------------
ZERO COUPON HIGH YIELD
BOND 2000 BOND
PORTFOLIO PORTFOLIO
----------------------------------------- --------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------ ----------
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) .................. $ (15,988) $ 757,948 $ 685,518 $ (4,555) $ 245,774 $ 185,330
Capital gains distributions received .......... 0 227,825 690,332 0 0 0
Realized gain (loss) on shares redeemed ....... (348) (52,050) (94,913) (36,419) (4,633) 16,526
Net change in unrealized gain (loss)
on investments .............................. 32,187 217,606 (355,649) 106,301 (334,049) 59,640
------------ ------------ ------------ ----------- ------------ -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS .............. 15,851 1,151,329 925,288 65,327 (92,908) 261,496
------------ ------------ ------------ ----------- ------------ -----------
PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ................. 0 2,718,006 2,096,958 231,299 637,224 330,357
Policy Loans ................................ 0 0 0 0 0 0
Policy Loan Repayment and Interest .......... 0 0 0 0 0 0
Surrenders, Withdrawals and Death Benefits .. 0 (5) (99,448) (197,615) (1,826) (298,998)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Options ..................... 0 (4,790,386) (5,246,708) (212,602) 556,432 297,454
Administrative and Other Charges ............ (17,747) (84,639) (125,845) (17,998) (67,806) (67,627)
------------ ------------ ------------ ----------- ------------ -----------
TOTAL PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS ........................... (17,747) (2,157,024) (3,375,043) (196,916) 1,124,024 261,186
------------ ------------ ------------ ----------- ------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [Note 7] .............. 244 (33,379) (325,458) 27 (1,836) (7,832)
------------ ------------ ------------ ----------- ------------ -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ........................................ (1,652) (1,039,074) (2,775,213) (131,562) 1,029,280 514,850
NET ASSETS
Beginning of year ............................. 17,432,960 18,472,034 21,247,247 3,120,239 2,090,959 1,576,109
------------ ------------ ------------ ----------- ------------ -----------
End of year ................................... $ 17,431,308 $ 17,432,960 $ 18,472,034 $ 2,988,677 $ 3,120,239 $ 2,090,959
============ ============ ============ =========== ============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A16 THROUGH A21
A12
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY NATURAL
STOCK INDEX INCOME RESOURCES
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------- ------------------------------------------ -----------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO TO TO TO
3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED) (UNAUDITED)
- ------------- ------------- ------------- ------------ ------------ ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (244,136) $ 909,211 $ 823,881 $ (20,719) $ 275,090 $ 285,563 $ (1,275) $ 2,256 $ (1,248)
0 2,499,196 2,997,271 0 797,222 1,414,553 0 50,250 136,346
1,427,705 5,771,729 2,754,626 1,653 2,673,910 481,377 (13,809) (28,695) 24,931
6,581,142 24,590,569 15,534,339 500,743 (4,107,342) 2,177,083 73,458 (210,866) (299,786)
- ------------- ------------- ------------- ------------ ------------ ------------ --------- ----------- -----------
7,764,711 33,770,705 22,110,117 481,677 (361,120) 4,358,576 58,374 (187,055) (139,757)
- ------------- ------------- ------------- ------------ ------------ ------------ --------- ----------- -----------
1,873,570 13,077,570 14,400,181 169,428 260,870 857,548 304 48,993 343,362
(295) (19,574) (15,209) 0 0 0 0 0 0
202 144 25,713 0 0 0 0 0 0
(377,100) (432,906) (3,907,071) (102,136) (8,141,933) (802,616) 0 0 (674,237)
(2,217,613) 11,664,940 17,853,467 (428,213) 7,241,853 (358,547) 16,083 22,258 47,378
(404,384) (1,454,112) (1,103,134) (48,664) (248,861) (366,230) (5,524) (23,922) (38,500)
- ------------- ------------- ------------- ------------ ------------ ------------ --------- ----------- -----------
(1,125,620) 22,836,062 27,253,947 (409,585) (888,071) (669,845) 10,863 47,329 (321,997)
- ------------- ------------- ------------- ------------ ------------ ------------ --------- ----------- -----------
2,013 42,339 (7,138) (371) (15,048) (64,926) (36) (5,635) (11,668)
- ------------- ------------- ------------- ------------ ------------ ------------ --------- ----------- -----------
6,641,104 56,649,106 49,356,926 71,721 (1,264,239) 3,623,805 69,201 (145,361) (473,422)
167,052,336 110,403,230 61,046,304 14,428,890 15,693,129 12,069,324 871,086 1,016,447 1,489,869
- ------------- ------------- ------------- ------------ ------------ ------------ --------- ----------- -----------
$ 173,693,440 $ 167,052,336 $ 110,403,230 $ 14,500,611 $ 14,428,890 $ 15,693,129 $ 940,287 $ 871,086 $ 1,016,447
============= ============= ============= ============ ============ ============ ========= =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A16 THROUGH A21
A13
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the three months ended March 31, 1999 and the years ended December 31, 1998 and 1997
SUBACCOUNTS
--------------------------------------------------------------------------------
GOVERNMENT
GLOBAL INCOME
PORTFOLIO PORTFOLIO
--------------------------------------- --------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ----------- ----------- -----------
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) .................. $ (19,239) $ 90,146 $ 69,004 $ (12,199) $ 363,362 $ 234,128
Capital gains distributions received .......... 0 536,310 504,462 0 0 0
Realized gain (loss) on shares redeemed ....... 40,178 235,100 1,501,595 3,471 8,247 17,410
Net change in unrealized gain
(loss) on investments ........................ 234,592 1,531,076 (871,934) (126,900) 205,452 86,634
------------ ------------ ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS .............. 255,531 2,392,632 1,203,127 (135,628) 577,061 338,172
------------ ------------ ------------ ----------- ----------- -----------
PREMIUM PAYMENTS AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ................. 442,552 1,832,043 2,622,189 8,004 139,842 425,284
Policy Loans ................................ 0 0 (67,171) 0 0 0
Policy Loan Repayment and Interest .......... 0 0 67,209 0 0 0
Surrenders, Withdrawals and Death Benefits .. 0 (16,418) (4,072,024) (120) 120 (1,472,671)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Options ..................... 380,623 (1,739,609) (4,363,304) 343,717 4,402,000 763,266
Administrative and Other Charges ............ (33,917) (128,121) (199,522) (24,582) (84,070) (87,039)
------------ ------------ ------------ ----------- ----------- -----------
TOTAL PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS ............................ 789,258 (52,105) (6,012,623) 327,019 4,457,892 (371,160)
------------ ------------ ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [Note 7] .............. 1,356 (27,164) (140,126) (120) (2,141) (104,696)
------------ ------------ ------------ ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ........................................ 1,046,145 2,313,363 (4,949,622) 191,271 5,032,812 (137,684)
NET ASSETS
Beginning of year ............................. 13,040,571 10,727,208 15,676,830 8,465,967 3,433,155 3,570,839
------------ ------------ ------------ ----------- ----------- -----------
End of year ................................... $ 14,086,716 $ 13,040,571 $ 10,727,208 $ 8,657,238 $ 8,465,967 $ 3,433,155
============ ============ ============ =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A16 THROUGH A21
A14
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
ZERO COUPON SMALL
BOND PRUDENTIAL CAPITALIZATION
2005 JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------- --------------------------------------- -------------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO TO TO TO
3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97 3/31/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED) (UNAUDITED)
- ------------ ------------ ----------- ----------- ----------- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (16,049) $ 605,490 $ 466,485 $ (4,574) $ (7,410) $ (2,466) $ (15,016) $ 5,470 $ 4,847
0 7,803 124,816 0 37,636 50,105 0 604,937 381,206
1,207 12,587 225,279 26,682 22,375 43,121 (8,676) (29,549) 703,647
(503,083) 773,486 215,644 320,784 478,204 73,161 (976,199) (95,776) 238,634
- ------------ ------------ ----------- ----------- ----------- --------- ------------ ------------ -----------
(517,925) 1,399,366 1,032,224 342,892 530,805 163,921 (999,891) 485,082 1,328,334
- ------------ ------------ ----------- ----------- ----------- --------- ------------ ------------ -----------
7,870 2,768,957 962,033 112,734 75,139 238,539 832,782 1,531,442 2,981,948
0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0
(1) 25,615 (26,502) 0 0 (293,084) (75) (19,451) (4,293,128)
65,691 6,405,234 3,302,946 1,196,322 1,234,490 508,875 82,279 2,745,637 1,826,062
(16,586) (52,935) (50,149) (9,559) (22,311) (8,919) (36,989) (129,979) (180,256)
- ------------ ------------ ----------- ----------- ----------- --------- ------------ ------------ -----------
56,974 9,146,871 4,188,328 1,299,497 1,287,318 445,411 877,997 4,127,649 334,626
- ------------ ------------ ----------- ----------- ----------- --------- ------------ ------------ -----------
120 (91,783) 119,618 8,106 32,534 806 (8,967) (24,899) 18,918
- ------------ ------------ ----------- ----------- ----------- --------- ------------ ------------ -----------
(460,831) 10,454,454 5,340,170 1,650,495 1,850,657 610,138 (130,861) 4,587,832 1,681,878
16,782,089 6,327,635 987,465 2,735,579 884,922 274,784 10,543,368 5,955,536 4,273,658
- ------------ ------------ ----------- ----------- ----------- --------- ------------ ------------ -----------
$ 16,321,258 $ 16,782,089 $ 6,327,635 $ 4,386,074 $ 2,735,579 $ 884,922 $ 10,412,507 $ 10,543,368 $ 5,955,536
============ ============ =========== =========== =========== ========= ============ ============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A16 THROUGH A21
A15
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
MARCH 31, 1999 (UNAUDITED)
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. Beginning June 7, 1999, the following five
additional non-Prudential administered subaccounts will be available to
contract owners: AIM V.I. Value Fund; American Century VP Value Fund;
Janus Growth Portfolio; MFS Emerging Growth Series; and the T. Rowe
International Stock Portfolio.
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.
A16
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
The net asset value per share (rounded) for each portfolio of the Series
Fund, the number of shares of each portfolio held by the subaccounts of
the Account and the aggregate cost of investments in such shares at
March 31, 1999 were as follows: (unaudited)
<TABLE>
<CAPTION>
PORTFOLIOS
--------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Number of shares: 1,960,965 3,814,074 1,520,046 1,987,128 3,096,724
Net asset value per share (rounded): $ 10.00 $ 11.02 $ 29.80 $ 16.81 $ 15.30
Cost $19,609,651 $42,183,696 $41,477,010 $35,165,236 $47,298,386
<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: 1,366,090 404,970 4,391,743 699,162 73,575
Net asset value per share (rounded): $ 12.76 $ 7.38 $ 39.55 $ 20.74 $ 12.78
Cost: $17,563,045 $3,157,605 $112,632,164 $14,375,101 $1,229,164
<CAPTION>
PORTFOLIOS (CONTINUED)
--------------------------------------------------------------------
ZERO
COUPON SMALL
GOVERNMENT BOND PRUDENTIAL CAPITALIZATION
GLOBAL INCOME 2005 JENNISON STOCK
----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Number of shares: 651,861 739,935 1,251,630 166,139 777,053
Net asset value per share (rounded): $ 21.61 $ 11.70 $ 13.04 $ 26.40 $ 13.40
Cost: $11,602,655 $8,490,639 $15,831,977 $3,498,471 $11,023,219
</TABLE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units, unit values and total value of
contract owner equity at March 31, 1999 were as follows: (unaudited)
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding (Pruselect I) 297,188 4,899,575 718,944 821,549 5,407,410
Unit Value (Pruselect I) ..................... $ 1.54975 $ 2.05300 $ 3.48794 $ 2.77050 $ 2.46091
----------- -------------- ------------- -------------- ------------
Contract Owner Equity (Pruselect I) .......... $ 460,567 $ 10,058,828 $ 2,507,633 $ 2,276,101 $ 13,307,151
----------- -------------- ------------- -------------- ------------
Contract Owner Units Outstanding
(Pruselect II) ............................ 12,356,241 15,573,435 12,267,910 11,235,345 13,845,580
Unit Value (Pruselect II) .................... $ 1.54975 $ 2.05300 $ 3.48794 $ 2.77050 $ 2.46091
----------- -------------- ------------- -------------- ------------
Contract Owner Equity (Pruselect II) ......... $19,149,084 $ 31,972,262 $ 42,789,732 $ 31,127,522 $ 34,072,727
----------- -------------- ------------- -------------- ------------
TOTAL CONTRACT OWNER EQUITY .................. $19,609,651 $ 42,031,090 $ 45,297,365 $ 33,403,623 $ 47,379,878
=========== ============== ============== ============== ============
</TABLE>
A17
<PAGE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------
ZERO
COUPON HIGH YIELD STOCK EQUITY NATURAL
BOND 2000 BOND INDEX INCOME RESOURCES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ---------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding (Pruselect I) -- 29,598 8,347,889 1,226,037 249,323
Unit Value (Pruselect I) ...................... $ -- $ 2.22115 $ 4.25426 $ 3.20691 $ 1.73302
----------- ---------- ------------- ------------ ---------
Contract Owner Equity (Pruselect I) ........... $ -- $ 65,742 $ 35,514,090 $ 3,931,792 $ 432,082
----------- ---------- ------------- ------------ ---------
Contract Owner Units Outstanding (Pruselect II) 8,144,063 1,315,956 32,480,232 3,295,639 293,248
Unit Value (Pruselect II) ..................... $ 2.14037 $ 2.22115 $ 4.25426 $ 3.20691 $ 1.73302
----------- ---------- ------------- ------------ ---------
Contract Owner Equity (Pruselect II) .......... $17,431,308 $2,922,935 $ 138,179,350 $ 10,568,819 $ 508,205
----------- ---------- ------------- ------------ ---------
TOTAL CONTRACT OWNER EQUITY ................... $17,431,308 $2,988,677 $ 173,693,440 $ 14,500,611 $ 940,287
=========== ========== ============= ============ =========
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------
ZERO SMALL
GOVERNMENT COUPON PRUDENTIAL CAPITALIZATION
GLOBAL INCOME BOND 2005 JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding (Pruselect I) -- 1,556,080 25,852 269,286 --
Unit Value (Pruselect I) ...................... $ -- $ 1.96815 $ 2.44489 $ 2.80457 $ --
----------- ------------- -------------- ------------ ------------
Contract Owner Equity (Pruselect I) ........... $ -- $ 3,062,599 $ 63,206 $ 755,230 $ --
----------- ------------- -------------- ------------ ------------
Contract Owner Units Outstanding (Pruselect II) 7,863,699 2,842,588 6,649,809 1,294,617 6,557,407
Unit Value (Pruselect II) ..................... $ 1.79136 $ 1.96815 $ 2.44489 $ 2.80457 $ 1.58790
----------- ------------- -------------- ------------ ------------
Contract Owner Equity (Pruselect II) .......... $14,086,716 $ 5,594,639 $ 16,258,052 $ 3,630,844 $ 10,412,507
----------- ------------- -------------- ------------ ------------
TOTAL CONTRACT OWNER EQUITY ................... $14,086,716 $ 8,657,238 $ 16,321,258 $ 4,386,074 $ 10,412,507
=========== ============= ============== ============ ============
</TABLE>
NOTE 5: CHARGES AND EXPENSES (UNAUDITED)
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 related charges by Pruco Life. Pruco Life currently intends to
charge only 0.60% on these contracts, but reserves the right to make
the full 0.90% charge.
B. Partial Withdrawal Charge
A charge is imposed by Pruco Life on partial withdrawals of the cash
surrender value. A charge equal to the lesser of $15 or 2% will be
made in connection with each partial withdrawal of the cash surrender
value of a contract.
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.
A18
<PAGE>
NOTE 5: CHARGES AND EXPENSES (CONTINUED)
D. Cost of Insurance Charges
Contract owner contributions are subject to certain deductions prior
to being invested in the Account. The deductions are for (1)
transaction costs which are deducted from each premium payment to
cover premium collection and processing costs; (2) state premium
taxes; (3) sales charges which are deducted in order to compensate
Pruco Life for the cost of selling the contract. Contracts are also
subject to monthly charges for the costs of administering the
contract.
NOTE 6: TAXES
Pruco Life is taxed as a "life insurance company" as defined by the
Internal Revenue Code and the results of operations of the Account form
a part of Prudential's consolidated federal tax return. Under current
federal law, no federal income taxes are payable by the Account. As
such, no provision for tax liability has been recorded, in these
financial statements.
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE ACCOUNT
The increase (decrease) in net assets retained in the Account represents
the net contributions (withdrawals) of Pruco Life to (from) the Account.
Effective October 13, 1998, Pruco Life no longer maintains a position in
the Account. Previously, Pruco Life maintained a position in the Account
for liquidity purposes including unit purchases and redemptions, fund
share transactions and expense processing.
NOTE 8: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) for the
three months ended March 31, 1999, and the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------
1/1/99 1/1/99
TO 1/1/98 1/1/97 TO 1/1/98 1/1/97
3/31/99 TO TO 3/31/99 TO TO
(UNAUDITED) 12/13/98 12/31/97 (UNAUDITED) 12/13/98 12/31/97
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 5,180,929 11,769,929 15,281,942 2,072,745 5,686,444 4,556,760
Contract Owner Redemptions: (968,829) (9,721,732) 16,788,123) (1,531,858) (4,658,242) (3,288,085)
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------------------
EQUITY FLEXIBLE MANAGED
PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------
1/1/99 1/1/99
TO 1/1/98 1/1/97 TO 1/1/98 1/1/97
3/31/99 TO TO 3/31/99 TO TO
(UNAUDITED) 12/13/98 12/31/97 (UNAUDITED) 12/13/98 12/31/97
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 1,031,422 2,885,417 4,465,527 1,730,484 8,590,002 4,476,620
Contract Owner Redemptions: (1,332,251) (6,422,617) (3,935,074) (1,690,156) (11,597,522) (3,255,025)
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------------------
CONSERVATIVE BALANCED ZERO COUPON BOND 2000
PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------
1/1/99 1/1/99
TO 1/1/98 1/1/97 TO 1/1/98 1/1/97
3/31/99 TO TO 3/31/99 TO TO
(UNAUDITED) 12/13/98 12/31/97 (UNAUDITED) 12/13/98 12/31/97
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 802,397 12,272,439 5,516,349 -- 3,053,595 11,968,207
Contract Owner Redemptions: (908,658) (14,641,165) 2,950,237) (8,313) (4,144,022) (13,929,611)
</TABLE>
A19
<PAGE>
NOTE 8: UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------------
HIGH YIELD BOND STOCK INDEX
PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------
1/1/99 1/1/99
TO 1/1/98 1/1/97 TO 1/1/98 1/1/97
3/31/99 TO TO 3/31/99 TO TO
(UNAUDITED) 12/13/98 12/31/97 (UNAUDITED) 12/13/98 12/31/97
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 196,151 621,628 1,021,708 3,186,939 12,075,930 20,876,571
Contract Owner Redemptions: (286,821) (117,717) (879,849) (3,457,339) (5,649,830) (11,486,568)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------------
EQUITY INCOME NATURAL RESOURCES
PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------
1/1/99 1/1/99
TO 1/1/98 1/1/97 TO 1/1/98 1/1/97
3/31/99 TO TO 3/31/99 TO TO
(UNAUDITED) 12/13/98 12/31/97 (UNAUDITED) 12/13/98 12/31/97
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 1,858,410 3,556,140 679,346 25,952 89,639 237,684
Contract Owner Redemptions: (1,988,244) (3,811,832) (873,682) (18,660) (66,113) (378,671)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------------
GLOBAL GOVERNMENT INCOME
PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------
1/1/99 1/1/99
TO 1/1/98 1/1/97 TO 1/1/98 1/1/97
3/31/99 TO TO 3/31/99 TO TO
(UNAUDITED) 12/13/98 12/31/97 (UNAUDITED) 12/13/98 12/31/97
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 794,299 2,263,591 0,705,193 2,612,877 3,917,010 3,049,723
Contract Owner Redemptions: (355,625) 2,393,156) 4,887,428) (2,447,765) 1,539,750) (3,251,977)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------------
ZERO COUPON BOND 2005 PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------
1/1/99 1/1/99
TO 1/1/98 1/1/97 TO 1/1/98 1/1/97
3/31/99 TO TO 3/31/99 TO TO
(UNAUDITED) 12/13/98 12/31/97 (UNAUDITED) 12/13/98 12/31/97
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 29,214 3,960,131 9,228,779 957,400 1,126,502 589,921
Contract Owner Redemptions: (6,697) (75,113) (6,935,187) (469,077) (524,101) (302,690)
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------
SMALL CAPITALIZATION STOCK
PORTFOLIO
----------------------------------------------
1/1/99
TO 1/1/98 1/1/97
3/31/99 TO TO
(UNAUDITED) 12/13/98 12/31/97
----------------------------------------------
<S> <C> <C> <C>
Contract Owner Contributions: 760,303 3,950,209 3,529,907
Contract Owner Redemptions: (242,621) (1,275,859) (3,181,968)
</TABLE>
A20
<PAGE>
NOTE 9: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments
in the Series Fund for the three months ended March 31, 1999 were as
follows: (unaudited)
<TABLE>
<CAPTION>
PORTFOLIOS
--------------------------------------------------------------------
DIVERSIFIED FLEXIBLE CONSERVATIVE
MONEY MARKET BOND EQUITY MANAGED BALANCED
---------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Purchases.. $7,238,814 $1,543,002 $ 1,786,840 $ 834,368 $ 1,265,409
Sales...... $ (746,290) $ (477,170) $(2,927,982) $(764,241) $(1,591,531)
<CAPTION>
PORTFOLIOS (CONTINUED)
--------------------------------------------------------------------
ZERO COUPON HIGH YIELD STOCK EQUITY NATURAL
BOND 2000 BOND INDEX INCOME RESOURCES
---------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Purchases.. $ -- $ 296,419 $ 2,875,728 $ 165,301 $ 43,905
Sales...... $(33,491) $(497,863) $(4,243,472) $(595,975) $(34,353)
<CAPTION>
PORTFOLIOS (CONTINUED)
--------------------------------------------------------------------
SMALL
GOVERNMENT ZERO COUPON PRUDENTIAL CAPITALIZATION
GLOBAL INCOME BOND 2005 JENNISON STOCK
---------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Purchases.. $1,022,457 $ 440,751 $ 67,545 $1,402,976 $1,001,213
Sales...... $ (251,083) $(126,052) $(26,500) $ (99,946) $ (147,199)
</TABLE>
A21
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in The Prudential Series Fund, Inc.
Portfolios at net asset value [Note 3] ............ $12,954,317 $41,131,530 $46,158,354 $32,845,241 $47,024,976
----------- ----------- ----------- ----------- -----------
Net Assets ........................................... $12,954,317 $41,131,530 $46,158,354 $32,845,241 $47,024,976
=========== =========== =========== =========== ===========
NET ASSETS, representing:
Equity of contract owners ............................ $12,954,317 $41,131,530 $46,158,354 $32,845,241 $47,024,976
----------- ----------- ----------- ----------- -----------
$12,954,317 $41,131,530 $46,158,354 $32,845,241 $47,024,976
=========== =========== =========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A37 THROUGH A44
A22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------------
ZERO COUPON HIGH
BOND YIELD STOCK EQUITY NATURAL GOVERNMENT
2000 BOND INDEX INCOME RESOURCES GLOBAL INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ---------- ------------ ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
$17,432,960 $3,120,239 $167,052,336 $14,428,890 $871,086 $13,040,571 $8,465,967
----------- ---------- ------------ ----------- -------- ----------- ----------
$17,432,960 $3,120,239 $167,052,336 $14,428,890 $871,086 $13,040,571 $8,465,967
=========== ========== ============ =========== ======== =========== ==========
$17,432,960 $3,120,239 $167,052,336 $14,428,890 $871,086 $13,040,571 $8,465,967
----------- ---------- ------------ ----------- -------- ----------- ----------
$17,432,960 $3,120,239 $167,052,336 $14,428,890 $871,086 $13,040,571 $8,465,967
=========== ========== ============ =========== ======== =========== ==========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A37 THROUGH A44
</TABLE>
A23
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------
ZERO COUPON SMALL
BOND PRUDENTIAL CAPITALIZATION
2005 JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Investment in The Prudential Series Fund, Inc.
Portfolios at net asset value [Note 3] .... $16,782,089 $ 2,735,579 $10,543,368
----------- ----------- -----------
Net Assets ................................... $16,782,089 $ 2,735,579 $10,543,368
=========== =========== ===========
NET ASSETS, representing:
Equity of contract owners .................... $16,782,089 $ 2,735,579 $10,543,368
----------- ----------- -----------
$16,782,089 $ 2,735,579 $10,543,368
=========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A37 THROUGH A44
A24
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
-------------------------------------- -----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ........................... $ 461,945 $ 461,061 $ 370,956 $ 2,359,120 $ 2,574,631 $ 2,171,278
---------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 53,117 50,651 40,789 229,634 205,292 210,590
Reimbursement for excess expenses [Note 5C] 0 0 0 0 0 0
---------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES ................................. 53,117 50,651 40,789 229,634 205,292 210,590
---------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ................. 408,828 410,410 330,167 2,129,486 2,369,339 1,960,688
---------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ..... 0 0 0 128,093 408,037 0
Realized gain (loss) on shares redeemed .. 0 0 0 173,161 94,146 296,104
Net change in unrealized gain (loss)
on investments ......................... 0 0 0 (29,348) (288,588) (852,759)
---------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ............... 0 0 0 271,906 213,595 (556,655)
---------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................. $ 408,828 $ 410,410 $ 330,167 $ 2,401,392 $ 2,582,934 $ 1,404,033
========== =========== =========== =========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A37 THROUGH A44
</TABLE>
A25
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- ----------------------------------------- ------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 860,120 $ 1,108,812 $ 897,405 $ 1,147,432 $ 1,050,936 $ 810,334 $ 1,965,960 $ 2,025,296 $ 1,460,883
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
284,011 286,301 203,014 209,364 206,248 145,789 271,618 256,921 213,652
0 0 0 0 0 0 0 0 0
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
284,011 286,301 203,014 209,364 206,248 145,789 271,618 256,921 213,652
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
576,109 822,511 694,391 938,068 844,688 664,545 1,694,342 1,768,375 1,247,231
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
5,026,484 2,827,131 3,585,387 3,419,770 5,545,715 2,731,323 2,703,038 5,037,552 2,164,504
4,779,486 1,774,816 633,352 353,509 605,368 75,275 935,553 200,066 464,539
(5,230,122) 4,476,157 759,941 (1,305,317) (1,682,924) (331,513) (276,688) (1,945,306) 108,733
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
4,575,848 9,078,104 4,978,680 2,467,962 4,468,159 2,475,085 3,361,903 3,292,312 2,737,776
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 5,151,957 $ 9,900,615 $ 5,673,071 $ 3,406,030 $ 5,312,847 $ 3,139,630 $ 5,056,245 $ 5,060,687 $ 3,985,007
=========== =========== =========== =========== =========== =========== =========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A37 THROUGH A44
</TABLE>
A26
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------
ZERO COUPON HIGH
BOND YIELD
2000 BOND
PORTFOLIO PORTFOLIO
----------------------------------------- -------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ........................... $ 821,929 $ 745,017 $ 472,600 $ 261,439 $ 197,684 $ 132,351
----------- ----------- ----------- ---------- ---------- ----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 101,177 101,616 34,875 15,665 12,354 7,323
Reimbursement for excess expenses [Note 5C] (37,196) (42,117) (8,393) 0 0 0
----------- ----------- ----------- ---------- ---------- ----------
NET EXPENSES ................................. 63,981 59,499 26,482 15,665 12,354 7,323
----------- ----------- ----------- ---------- ---------- ----------
NET INVESTMENT INCOME (LOSS) ................. 757,948 685,518 446,118 245,774 185,330 125,028
----------- ----------- ----------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ..... 227,825 690,332 0 0 0 0
Realized gain (loss) on shares redeemed .. (52,050) (94,913) 81,019 (4,633) 16,526 3,467
Net change in unrealized gain (loss)
on investments ......................... 217,606 (355,649) (17,112) (334,049) 59,640 (3,313)
----------- ----------- ----------- ---------- ---------- ----------
NET GAIN (LOSS) ON INVESTMENTS ............... 393,381 239,770 63,907 (338,682) 76,166 154
----------- ----------- ----------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................. $ 1,151,329 $ 925,288 $ 510,025 $ (92,908) $ 261,496 $ 125,182
=========== =========== =========== ========== ========== ==========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A37 THROUGH A44
</TABLE>
A27
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
STOCK EQUITY NATURAL
INDEX INCOME RESOURCES
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- ---------------------------------------- --------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------ ----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,729,752 $ 1,326,042 $ 900,654 $ 365,234 $ 370,792 $ 475,277 $ 8,084 $ 8,087 $ 8,770
- ------------ ----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
820,541 502,161 260,862 90,144 85,229 94,957 5,828 9,335 7,362
0 0 0 0 0 0 0 0 (160)
- ------------ ----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
820,541 502,161 260,862 90,144 85,229 94,957 5,828 9,335 7,202
- ------------ ----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
909,211 823,881 639,792 275,090 285,563 380,320 2,256 (1,248) 1,568
- ------------ ----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
2,499,196 2,997,271 673,354 797,222 1,414,553 485,860 50,250 136,346 172,185
5,771,729 2,754,626 413,888 2,673,910 481,377 908,956 (28,695) 24,931 33,275
24,590,569 15,534,339 7,149,445 (4,107,342) 2,177,083 1,098,444 (210,866) (299,786) 88,415
- ------------ ----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
32,861,494 21,286,236 8,236,687 (636,210) 4,073,013 2,493,260 (189,311) (138,509) 293,875
- ------------ ----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
$ 33,770,705 $22,110,117 $ 8,876,479 $ (361,120) $ 4,358,576 $ 2,873,580 $ (187,055) $ (139,757) $ 295,443
============ =========== =========== =========== =========== =========== ========== ========== ==========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A37 THROUGH A44
</TABLE>
A28
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------
GOVERNMENT
GLOBAL INCOME
PORTFOLIO PORTFOLIO
---------------------------------------- ---------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ........................... $ 160,959 $ 149,254 $ 312,052 $ 402,330 $ 257,272 $ 215,507
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 70,813 80,250 67,425 38,968 23,144 17,932
Reimbursement for excess expenses [Note 5C] 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES ................................. 70,813 80,250 67,425 38,968 23,144 17,932
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ................. 90,146 69,004 244,627 363,362 234,128 197,575
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ..... 536,310 504,462 240,786 0 0 0
Realized gain (loss) on shares redeemed .. 235,100 1,501,595 155,802 8,247 17,410 553
Net change in unrealized gain (loss)
on investments ......................... 1,531,076 (871,934) 1,328,007 205,452 86,634 (117,230)
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ............... 2,302,486 1,134,123 1,724,595 213,699 104,044 (116,677)
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................. $ 2,392,632 $ 1,203,127 $ 1,969,222 $ 577,061 $ 338,172 $ 80,898
=========== =========== =========== =========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A37 THROUGH A44
</TABLE>
A29
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
ZERO COUPON SMALL
BOND PRUDENTIAL CAPITALIZATION
2005 JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------- ----------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 650,198 $ 485,431 $ 48,741 $ 3,905 $ 1,751 $ 547 $ 49,149 $ 39,052 $ 24,838
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
67,532 42,708 5,414 11,315 4,217 1,034 43,679 34,205 11,568
(22,824) (23,762) (1,163) 0 0 0 0 0 0
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
44,708 18,946 4,251 11,315 4,217 1,034 43,679 34,205 11,568
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
605,490 466,485 44,490 (7,410) (2,466) (487) 5,470 4,847 13,270
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
7,803 124,816 10,654 37,636 50,105 0 604,937 381,206 76,737
12,587 225,279 93 22,375 43,121 (693) (29,549) 703,647 2,225
773,486 215,644 (61,956) 478,204 73,161 14,438 (95,776) 238,634 219,537
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
793,876 565,739 (51,209) 538,215 166,387 13,745 479,612 1,323,487 298,499
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 1,399,366 $ 1,032,224 $ (6,719) $ 530,805 $ 163,921 $ 13,258 $ 485,082 $ 1,328,334 $ 311,769
============= =========== =========== =========== =========== =========== =========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A37 THROUGH A44
</TABLE>
A30
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998, 1997 and 1996
<CAPTION>
SUBACCOUNTS
----------------------------------------------
MONEY
MARKET
PORTFOLIO
----------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss) .............................. $ 408,828 $ 410,410 $ 330,167
Capital gains distributions received ...................... 0 0 0
Realized gain (loss) on shares redeemed ................... 0 0 0
Net change in unrealized gain (loss) on investments ....... 0 0 0
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ................................................ 408,828 410,410 330,167
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7] .................................................. 3,180,058 (2,071,596) 4,126,018
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE ACCOUNT
[Note 8] .................................................. (1,722) (115,766) (2,181,943)
------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS .................................................... 3,587,164 (1,776,952) 2,274,242
NET ASSETS
Beginning of year ......................................... 9,367,153 11,144,105 8,869,863
------------ ------------ ------------
End of year ............................................... $ 12,954,317 $ 9,367,153 $ 11,144,105
============ ============ ============
<CAPTION>
SUBACCOUNTS
----------------------------------------------
DIVERSIFIED
BOND
PORTFOLIO
----------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss) .............................. $ 2,129,486 $ 2,369,339 $ 1,960,688
Capital gains distributions received ...................... 128,093 408,037 0
Realized gain (loss) on shares redeemed ................... 173,161 94,146 296,104
Net change in unrealized gain (loss) on investments ....... (29,348) (288,588) (852,759)
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ................................................ 2,401,392 2,582,934 1,404,033
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7] .................................................. 2,146,163 2,394,859 (5,205,030)
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE ACCOUNT
[Note 8] .................................................. (35,755) (86,028) (35,291)
------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS .................................................... 4,511,800 4,891,765 (3,836,288)
NET ASSETS
Beginning of year ......................................... 36,619,730 31,727,965 35,564,253
------------ ------------ ------------
End of year ............................................... $ 41,131,530 $ 36,619,730 $ 31,727,965
============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A37 THROUGH A44
</TABLE>
A31
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FLEXIBLE CONSERVATIVE
EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------- ------------------------------------------ -------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 576,109 $ 822,511 $ 694,391 $ 938,068 $ 844,688 $ 664,545 $ 1,694,342 $ 1,768,375 $ 1,247,231
5,026,484 2,827,131 3,585,387 3,419,770 5,545,715 2,731,323 2,703,038 5,037,552 2,164,504
4,779,486 1,774,816 633,352 353,509 605,368 75,275 935,553 200,066 464,539
(5,230,122) 4,476,157 759,941 (1,305,317) (1,682,924) (331,513) (276,688) (1,945,306) 108,733
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
5,151,957 9,900,615 5,673,071 3,406,030 5,312,847 3,139,630 5,056,245 5,060,687 3,985,007
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(12,389,442) 1,756,237 5,017,735 (8,139,189) 2,797,186 4,354,486 (5,546,467) 5,232,756 (1,853,576)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(378,339) 2,060 (6,721) 99,015 (1,047) 16,614 (6,712) 1,650,849 (1,583,656)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(7,615,824) 11,658,912 10,684,085 (4,634,144) 8,108,986 7,510,730 (496,934) 11,944,292 547,775
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
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 46,158,354 $ 53,774,178 $ 42,115,266 $ 32,845,241 $ 37,479,385 $ 29,370,399 $ 47,024,976 $ 47,521,910 $ 35,577,618
============ ============ ============ ============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A37 THROUGH A44
</TABLE>
A32
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998, 1997 and 1996
<CAPTION>
SUBACCOUNTS
--------------------------------------------
ZERO COUPON
BOND
2000
PORTFOLIO
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss) ...................... $ 757,948 $ 685,518 $ 446,118
Capital gains distributions received .............. 227,825 690,332 0
Realized gain (loss) on shares redeemed ........... (52,050) (94,913) 81,019
Net change in unrealized gain (loss) on investments 217,606 (355,649) (17,112)
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
OPERATIONS ......................................... 1,151,329 925,288 510,025
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7] ........................................... (2,157,024) (3,375,043) 20,209,923
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT
[Note 8] ........................................... (33,379) (325,458) (9,441)
------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ............................................ (1,039,074) (2,775,213) 20,710,507
NET ASSETS
Beginning of year ................................. 18,472,034 21,247,247 536,740
------------ ------------ ------------
End of year ....................................... $ 17,432,960 $ 18,472,034 $ 21,247,247
============ ============ ============
<CAPTION>
SUBACCOUNTS
--------------------------------------------
HIGH
YIELD
BOND
PORTFOLIO
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss) ...................... $ 245,774 $ 185,330 $ 125,028
Capital gains distributions received .............. 0 0 0
Realized gain (loss) on shares redeemed ........... (4,633) 16,526 3,467
Net change in unrealized gain (loss) on investments (334,049) 59,640 (3,313)
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
OPERATIONS ......................................... (92,908) 261,496 125,182
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7] ........................................... 1,124,024 261,186 594,373
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT
[Note 8] ........................................... (1,836) (7,832) (9,051)
------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ............................................ 1,029,280 514,850 710,504
NET ASSETS
Beginning of year ................................. 2,090,959 1,576,109 865,605
------------ ------------ ------------
End of year ....................................... $ 3,120,239 $ 2,090,959 $ 1,576,109
============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A37 THROUGH A44
</TABLE>
A33
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY NATURAL
STOCK INDEX INCOME RESOURCES
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------- ------------------------------------------ ------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 909,211 $ 823,881 $ 639,792 $ 275,090 $ 285,563 $ 380,320 $ 2,256 $ (1,248) $ 1,568
2,499,196 2,997,271 673,354 797,222 1,414,553 485,860 50,250 136,346 172,185
5,771,729 2,754,626 413,888 2,673,910 481,377 908,956 (28,695) 24,931 33,275
24,590,569 15,534,339 7,149,445 (4,107,342) 2,177,083 1,098,444 (210,866) (299,786) 88,415
- ------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
33,770,705 22,110,117 8,876,479 (361,120) 4,358,576 2,873,580 (187,055) (139,757) 295,443
- ------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
22,836,062 27,253,947 17,931,933 (888,071) (669,845) (7,025,151) 47,329 (321,997) 425,963
- ------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
42,339 (7,138) 62,929 (15,048) (64,926) (214,892) (5,635) (11,668) 3,239
- ------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
56,649,106 49,356,926 26,871,341 (1,264,239) 3,623,805 (4,366,463) (145,361) (473,422) 724,645
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
- ------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 167,052,336 $ 110,403,230 $ 61,046,304 $ 14,428,890 $ 15,693,129 $ 12,069,324 $ 871,086 $ 1,016,447 $ 1,489,869
============= ============= ============ ============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A37 THROUGH A44
</TABLE>
A34
<PAGE>
<TABLE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998, 1997 and 1996
<CAPTION>
SUBACCOUNTS
-----------------------------------------------
GLOBAL
PORTFOLIO
----------------------------------------------
1998 1997 1996
--------------- ------------------------------
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss) ...................... $ 90,146 $ 69,004 $ 244,627
Capital gains distributions received .............. 536,310 504,462 240,786
Realized gain (loss) on shares redeemed ........... 235,100 1,501,595 155,802
Net change in unrealized gain (loss) on investments 1,531,076 (871,934) 1,328,007
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
OPERATIONS ........................................ 2,392,632 1,203,127 1,969,222
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7] .......................................... (52,105) (6,012,623) 5,591,186
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT
[Note 8] .......................................... (27,164) (140,126) 72,239
------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ........................................... 2,313,363 (4,949,622) 7,632,647
NET ASSETS
Beginning of year ................................ 10,727,208 15,676,830 8,044,183
------------ ------------ ------------
End of year ...................................... $ 13,040,571 $ 10,727,208 $ 15,676,830
============ ============ ============
<CAPTION>
SUBACCOUNTS
-----------------------------------------------
GOVERNMENT
INCOME
PORTFOLIO
----------------------------------------------
1998 1997 1996
--------------- ------------------------------
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss) ...................... $ 363,362 $ 234,128 $ 197,575
Capital gains distributions received .............. 0 0 0
Realized gain (loss) on shares redeemed ........... 8,247 17,410 553
Net change in unrealized gain (loss) on investments 205,452 86,634 (117,230)
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
OPERATIONS ........................................ 577,061 338,172 80,898
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[Note 7] .......................................... 4,457,892 (371,160) 1,069,544
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT
[Note 8] .......................................... (2,141) (104,696) 75,388
------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ........................................... 5,032,812 (137,684) 1,225,830
NET ASSETS
Beginning of year ................................ 3,433,155 3,570,839 2,345,009
------------ ------------ ------------
End of year ...................................... $ 8,465,967 $ 3,433,155 $ 3,570,839
============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A37 THROUGH A44
</TABLE>
A35
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
ZERO COUPON SMALL
BOND PRUDENTIAL CAPITALIZATION
2005 JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- ----------------------------------------- -------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------ ----------- ---------- ----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 605,490 $ 466,485 $ 44,490 $ (7,410) $ (2,466) $ (487) $ 5,470 $ 4,847 $ 13,270
7,803 124,816 10,654 37,636 50,105 0 604,937 381,206 76,737
12,587 225,279 93 22,375 43,121 (693) (29,549) 703,647 2,225
773,486 215,644 (61,956) 478,204 73,161 14,438 (95,776) 238,634 219,537
- ------------ ----------- ---------- ----------- ----------- ----------- ------------ ------------ ------------
1,399,366 1,032,224 (6,719) 530,805 163,921 13,258 485,082 1,328,334 311,769
- ------------ ----------- ---------- ----------- ----------- ----------- ------------ ------------ ------------
9,146,871 4,188,328 95,281 1,287,318 445,411 229,628 4,127,649 334,626 3,553,224
- ------------ ----------- ---------- ----------- ----------- ----------- ------------ ------------ ------------
(91,783) 119,618 6,971 32,534 806 770 (24,899) 18,918 (50,657)
- ------------ ----------- ---------- ----------- ----------- ----------- ------------ ------------ ------------
10,454,454 5,340,170 95,533 1,850,657 610,138 243,656 4,587,832 1,681,878 3,814,336
6,327,635 987,465 891,932 884,922 274,784 31,128 5,955,536 4,273,658 459,322
- ------------ ----------- ---------- ----------- ----------- ----------- ------------ ------------ ------------
$ 16,782,089 $ 6,327,635 $ 987,465 $ 2,735,579 $ 884,922 $ 274,784 $ 10,543,368 $ 5,955,536 $ 4,273,658
============ =========== ========== =========== =========== =========== ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A37 THROUGH A44
</TABLE>
A36
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
December 31, 1998
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.
A37
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC.
PORTFOLIOS
The net asset value per share (rounded) for each portfolio of the
Series Fund, the number of shares of each portfolio held by the
subaccounts of the Account and the aggregate cost of investments
in such shares at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
-------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of shares: 1,295,432 3,718,551 1,557,468 1,983,317 3,118,251
Net asset value per share (rounded): $ 10.00 $ 11.06 $ 29.64 $ 16.56 $ 15.08
Cost $12,954,317 $41,116,131 $42,355,024 $35,149,316 $47,633,851
<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: 1,368,722 432,892 4,426,400 720,273 72,691
Net asset value per share (rounded): $ 12.74 $ 7.21 $ 37.74 $ 20.03 $ 11.98
Cost: $ 17,596,884 $ 3,395,468 $112,572,202 $ 14,804,123 $ 1,233,421
<CAPTION>
PORTFOLIOS (CONTINUED)
-------------------------------------------------------------------------------
ZERO
COUPON SMALL
GOVERNMENT BOND PRUDENTIAL CAPITALIZATION
GLOBAL INCOME 2005 JENNISON STOCK
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of shares: 616,375 713,187 1,248,613 114,427 716,718
Net asset value per share (rounded): $ 21.16 $ 11.87 $ 13.44 $ 23.91 $ 14.71
Cost: $10,791,102 $ 8,172,468 $15,789,725 $ 2,168,760 $10,177,881
</TABLE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units, unit values and total value of
contract owner equity at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Pruselect I) ................................ 284,050 4,967,427 751,308 925,294 5,454,469
Unit Value (Pruselect I) ......................... $ 1.53463 $ 2.06358 $ 3.47377 $ 2.73333 $ 2.42907
------------ ------------ ----------- ------------- -------------
Contract Owner Equity (Pruselect I) .............. $ 435,911 $ 10,250,682 $ 2,609,870 $ 2,529,134 $ 13,249,288
------------ ------------ ----------- ------------- -------------
Contract Owner Units Outstanding
(Pruselect II) ............................... 8,157,279 14,964,696 12,536,375 11,091,272 13,904,782
Unit Value (Pruselect II) ........................ $ 1.53463 $ 2.06358 $ 3.47377 $ 2.73333 $ 2.42907
------------ ------------- ----------- ------------- -------------
Contract Owner Equity (Pruselect II) ............. $ 12,518,406 $ 30,880,848 $43,548,484 $ 30,316,107 33,775,688
------------ ------------- ----------- ------------- ----------
TOTAL CONTRACT OWNER EQUITY ...................... $ 12,954,317 $ 41,131,530 $46,158,354 $ 32,845,241 $ 47,024,976
============ ============= =========== ============= =============
</TABLE>
A38
<PAGE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------
ZERO
COUPON HIGH YIELD STOCK EQUITY NATURAL
BOND 2000 BOND INDEX INCOME RESOURCES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Pruselect I)........................ -- 25,757 8,398,687 1,262,488 241,112
Unit Value (Pruselect I).............. $ -- $ 2.17253 $ 4.06468 $ 3.10198 $ 1.62735
------------ ----------- ------------- ------------- ----------
Contract Owner Equity (Pruselect I)... $ -- $ 55,957 $ 34,137,973 $ 3,916,212 $ 392,374
------------ ----------- ------------- ------------- ----------
Contract Owner Units Outstanding
(Pruselect II)....................... 8,152,376 1,410,467 32,699,834 3,389,022 294,167
Unit Value (Pruselect II)............. $ 2.13839 $ 2.17253 $ 4.06468 $ 3.10198 $ 1.62735
------------ ----------- ------------- ------------- ----------
Contract Owner Equity (Pruselect II).. $ 17,432,960 $ 3,064,282 $ 132,914,363 $ 10,512,678 $ 478,712
------------ ----------- ------------- ------------- ----------
TOTAL CONTRACT OWNER EQUITY........... $ 17,432,960 $ 3,120,239 $ 167,052,336 $ 14,428,890 $ 871,086
============ =========== ============= ============= ==========
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------
ZERO SMALL
GOVERNMENT COUPON PRUDENTIAL CAPITALIZATION
GLOBAL INCOME BOND 2005 JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Pruselect I)........................ -- 1,504,348 -- 209,554 --
Unit Value (Pruselect I).............. $ -- $ 1.99973 $ -- $ 2.54336 $ --
------------- ------------ ------------- ------------ -------------
Contract Owner Equity (Pruselect I)... $ -- $ 3,008,289 $ -- $ 532,971 $ --
------------- ------------ ------------- ------------ -------------
Contract Owner Units Outstanding
(Pruselect II)....................... 7,425,025 2,729,208 6,653,144 866,023 6,039,725
Unit Value (Pruselect II)............. $ 1.75630 $ 1.99973 $ 2.52243 $ 2.54336 $ 1.74567
------------- ------------ ------------- ------------ -------------
Contract Owner Equity (Pruselect II).. $ 13,040,571 $ 5,457,678 $ 16,782,089 $ 2,202,608 $ 10,543,368
------------- ------------ ------------- ------------ -------------
TOTAL CONTRACT OWNER EQUITY........... $ 13,040,571 $ 8,465,967 $ 16,782,089 $ 2,735,579 $ 10,543,368
============= ============ ============= ============ =============
</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
related charges by Pruco Life. Pruco Life currently intends to charge
only 0.60% on these contracts, but reserves the right to make the full
0.90% charge.
B. Partial Withdrawal Charge
A charge is imposed by Pruco Life on partial withdrawals of the cash
surrender value. A charge equal to the lesser of $15 or 2% will be made
in connection with each partial withdrawal of the cash surrender value
of a contract.
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.
A39
<PAGE>
NOTE 5: CHARGES AND EXPENSES (CONTINUED)
D. Cost of Insurance Charges
Contract owner contributions are subject to certain deductions prior to
being invested in the Account. The deductions are for (1) transaction
costs which are deducted from each premium payment to cover premium
collection and processing costs; (2) state premium taxes; (3) sales
charges which are deducted in order to compensate Pruco Life for the
cost of selling the contract. Contracts are also subject to monthly
charges for the costs of administering the contract.
NOTE 6: TAXES
Pruco Life is taxed as a "life insurance company" as defined by the
Internal Revenue Code and the results of operations of the Account form
a part of Prudential's consolidated federal tax return. Under current
federal law, no federal income taxes are payable by the Account. As
such, no provision for tax liability has been recorded, in these
financial statements.
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
The following amounts represent components of contract owner activity
for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contract Owner Net Payments ........................................ $ 8,459,179 $ 16,018,494 $ 4,026,378 $ 5,573,222
Policy Loans ....................................................... 0 (45,968) (10,790) 0
Policy Loan Repayment and Interest ................................. 0 44,362 85 449,595
Surrenders, Withdrawals and Death Benefits ......................... 48,094 (447,841) (5,421,341) (3,109,854)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options ...................................................... (5,068,699) (17,376,103) 4,043,371 146,922
Administrative and Other Charges ................................... (258,516) (264,540) (491,540) (665,026)
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers ............................ $ 3,180,058 $ (2,071,596) $ 2,146,163 $ 2,394,859
============ ============ ============ ============
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------
EQUITY FLEXIBLE MANAGED
PORTFOLIO PORTFOLIO
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contract Owner Net Payments ........................................ $ 5,974,743 $ 8,187,661 $ 2,727,720 $ 4,391,711
Policy Loans ....................................................... (16,155) (2,354) (13,509) (101,032)
Policy Loan Repayment and Interest ................................. 2,348 6,595 2,543 109,493
Surrenders, Withdrawals and Death Benefits ......................... (11,366,743) (3,056,522) (1,109,742) (3,330,740)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options ...................................................... (6,233,542) (2,416,623) (9,445,233) 2,115,451
Administrative and Other Charges ................................... (750,093) (962,520) (300,968) (387,697)
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers ............................ $(12,389,442) $ 1,756,237 $ (8,139,189) $ 2,797,186
============ ============ ============ ============
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------
EQUITY FLEXIBLE MANAGED
PORTFOLIO PORTFOLIO
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contract Owner Net Payments ........................................ $ 6,161,137 $ 2,723,156 $ 2,718,006 $ 2,096,958
Policy Loans ....................................................... (15) (114,831) 0 0
Policy Loan Repayment and Interest ................................. 976 1,296,181 0 0
Surrenders, Withdrawals and Death Benefits ......................... (41,543) (871,239) (5) (99,448)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options ...................................................... (11,038,745) 2,899,464 (4,790,386) (5,246,708)
Administrative and Other Charges ................................... (628,277) (699,975) (84,639) (125,845)
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers ........................... $ (5,546,467) $ 5,232,756 $ (2,157,024) $ (3,375,043)
============ ============ ============ ============
</TABLE>
A40
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS (continued)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------
HIGH YIELD BOND STOCK INDEX
PORTFOLIO PORTFOLIO
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contract Owner Net Payments ........................................ $ 637,224 $ 330,357 $ 13,077,570 $ 14,400,181
Policy Loans ....................................................... 0 0 (19,574) (15,209)
Policy Loan Repayment and Interest ................................. 0 0 144 25,713
Surrenders, Withdrawals and Death Benefits ......................... (1,826) (298,998) (432,906) (3,907,071)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options .................................................... 556,432 297,454 11,664,940 17,853,467
Administrative and Other Charges ................................... (67,806) (67,627) (1,454,112) (1,103,134)
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers .......................... $ 1,124,024 $ 261,186 $ 22,836,062 $ 27,253,947
============ ============ ============ ============
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------
EQUITY INCOME NATURAL RESOURCES
PORTFOLIO PORTFOLIO
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contract Owner Net Payments ........................................ $ 260,870 $ 857,548 $ 48,993 $ 343,362
Policy Loans ....................................................... 0 0 0 0
Policy Loan Repayment and Interest ................................. 0 0 0 0
Surrenders, Withdrawals and Death Benefits ......................... (8,141,933) (802,616) 0 (674,237)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options .................................................... 7,241,853 (358,547) 22,258 47,378
Administrative and Other Charges ................................... (248,861) (366,230) (23,922) (38,500)
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers .......................... $ (888,071) $ (669,845) $ 47,329 $ (321,997)
============ ============ ============ ============
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------
GLOBAL GOVERNMENT INCOME
PORTFOLIO PORTFOLIO
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contract Owner Net Payments ........................................ $ 1,832,043 $ 2,622,189 $ 139,842 $ 425,284
Policy Loans ....................................................... 0 (67,171) 0 0
Policy Loan Repayment and Interest ................................. 0 67,209 0 0
Surrenders, Withdrawals and Death Benefits ......................... (16,418) (4,072,024) 120 (1,472,671)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options .................................................... (1,739,609) (4,363,304) 4,402,000 763,266
Administrative and Other Charges ................................... (128,121) (199,522) (84,070) (87,039)
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers .......................... $ (52,105) $ (6,012,623) $ 4,457,892 $ (371,160)
============ ============ ============ ============
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------
ZERO COUPON BOND 2005 PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contract Owner Net Payments ........................................ $ 2,768,957 $ 962,033 $ 75,139 $ 238,539
Policy Loans ....................................................... 0 0 0 0
Policy Loan Repayment and Interest ................................. 0 0 0 0
Surrenders, Withdrawals and Death Benefits ......................... 25,615 (26,502) 0 (293,084)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options ..................................................... 6,405,234 3,302,946 1,234,490 508,875
Administrative and Other Charges ................................... (52,935) (50,149) (22,311) (8,919)
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers ........................... $ 9,146,871 $ 4,188,328 $ 1,287,318 $ 445,411
============ ============ ============ ============
</TABLE>
A41
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS (continued)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------
SMALL CAPITALIZATION STOCK
PORTFOLIO
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Contract Owner Net Payments ....................................... $ 1,531,442 $ 2,981,948
Policy Loans ...................................................... 0 0
Policy Loan Repayment and Interest ................................ 0 0
Surrenders, Withdrawals and Death Benefits ........................ (19,451) (4,293,128)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options ................................................... 2,745,637 1,826,062
Administrative and Other Charges .................................. (129,979) (180,256)
----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers ........................... $ 4,127,649 $ 334,626
=========== ===========
</TABLE>
NOTE 8: NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE ACCOUNT
The increase (decrease) in net assets retained in the Account represents
the net contributions (withdrawals) of Pruco Life to (from) the Account.
Effective October 13, 1998, Pruco Life no longer maintains a position in
the Account. Previously, Pruco Life maintained a position in the Account
for liquidity purposes including unit purchases and redemptions, fund
share transactions and expense processing.
NOTE 9: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) for the
years ended December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------------
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 11,769,929 15,281,942 20,647,286 5,686,444 4,556,760 7,359,670
Contract Owner Redemptions: (9,721,732) (16,788,123) (17,694,761) (4,658,242) (3,288,085) (10,274,181)
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------
EQUITY FLEXIBLE MANAGED
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 2,885,417 4,465,527 7,684,191 8,590,002 4,476,620 7,183,433
Contract Owner Redemptions: (6,422,617) (3,935,074) (5,707,765) (11,597,522) (3,255,025) (4,966,689)
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------
CONSERVATIVE BALANCED ZERO COUPON BOND 2000
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 12,272,439 5,516,349 8,974,255 3,053,595 11,968,207 14,921,286
Contract Owner Redemptions: (14,641,165) (2,950,237) (10,034,515) (4,144,022) (13,929,611) (3,798,030)
</TABLE>
A42
<PAGE>
NOTE 9: UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------
HIGH YIELD BOND STOCK INDEX
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 621,628 1,021,708 1,571,264 12,075,930 20,876,571 16,298,797
Contract Owner Redemptions: (117,717) (879,849) (1,254,509) (5,649,830) (11,486,568) (8,266,289)
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------
EQUITY INCOME NATURAL RESOURCES
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 3,556,140 679,346 2,219,957 89,639 237,684 601,007
Contract Owner Redemptions: (3,811,832) (873,682) (5,553,498) (66,113) (378,671) (380,047)
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------
GLOBAL GOVERNMENT INCOME
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 2,263,591 10,705,193 10,357,718 3,917,010 3,049,723 4,777,804
Contract Owner Redemptions: (2,393,156) (14,887,428) (5,813,881) (1,539,750) (3,251,977) (4,123,118)
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------
ZERO COUPON BOND 2005 PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 3,960,131 9,228,779 78,742 1,126,502 589,921 202,258
Contract Owner Redemptions: (75,113) (6,935,187) (28,993) (524,101) (302,690) (28,028)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------
SMALL CAPITALIZATION STOCK
PORTFOLIO
--------------------------------------------------------
1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C>
Contract Owner Contributions: 3,950,209 3,529,907 2,812,163
Contract Owner Redemptions: (1,275,859) (3,181,968) (182,921)
</TABLE>
A43
<PAGE>
Note 10: Purchases and Sales of Investments
The aggregate costs of purchases and proceeds from sales of
investments in the Series Fund for the year ended December 31, 1998
were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
------------------------------------------------------------------------------------------
DIVERSIFIED FLEXIBLE CONSERVATIVE
MONEY MARKET BOND EQUITY MANAGED BALANCED
----------------- ----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Purchases.................. $ 14,092,629 $ 10,641,312 $ 7,679,747 $ 10,851,762 $ 18,157,080
Sales...................... $ (10,657,424) $ (8,676,999) $ (20,559,544) $ (19,077,409) $ (23,821,192)
<CAPTION>
PORTFOLIOS (CONTINUED)
------------------------------------------------------------------------------------------
ZERO COUPON HIGH YIELD STOCK EQUITY NATURAL
BOND 2000 BOND INDEX INCOME RESOURCES
----------------- ----------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Purchases.................. $ 6,245,813 $ 1,277,486 $ 39,790,603 $ 11,692,035 $ 119,383
Sales...................... $ (8,500,198) $ (170,962) $ (17,613,097) $ (12,685,299) $ (83,518)
<CAPTION>
PORTFOLIOS (CONTINUED)
------------------------------------------------------------------------------------------
SMALL
GOVERNMENT ZERO COUPON PRUDENTIAL CAPITALIZATION
GLOBAL INCOME BOND 2005 JENNISON STOCK
----------------- ----------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Purchases.................. $ 2,396,129 $ 4,625,540 $ 9,253,074 $ 2,172,323 $ 4,637,315
Sales...................... $ (2,546,211) $ (208,757) $ (242,694) $ (863,785) $ (474,906)
</TABLE>
A44
<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 subaccounts (Money Market
Portfolio, Diversified Bond Portfolio, Equity Portfolio, Flexible Managed
Portfolio, Conservative Balanced Portfolio, Zero Coupon Bond 2000 Portfolio,
High Yield Bond Portfolio, Stock Index Portfolio, Equity Income Portfolio,
Natural Resources Portfolio, Global Portfolio, Government Income Portfolio, Zero
Coupon Bond 2005 Portfolio, Prudential Jennison Portfolio and Small
Capitalization Stock Portfolio) of the Pruco Life Variable Universal Account at
December 31, 1998, the results of each of their operations and the changes in
each of their net assets for each of the three years in the period then ended,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of Pruco Life Insurance Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of fund shares owned at
December 31, 1998, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 19, 1999
A45
<PAGE>
<TABLE>
<CAPTION>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
MARCH 31, 1999 AND DECEMBER 31, 1998 (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1999: $2,635,172; 1998: $2,738,654) $ 2,638,138 $ 2,763,926
Held to maturity, at amortized cost (fair value, 1999: $421,172; 1998: $421,845) 416,380 410,558
Equity securities - available for sale, at fair value (cost, 1999: $3,714; 1998: $2,951) 3,316 2,847
Mortgage loans on real estate 17,117 17,354
Policy loans 782,714 766,917
Short-term investments 295,639 240,727
Other long-term investments 1,046 1,047
------------ ------------
Total investments 4,154,350 4,203,376
Cash 108,198 89,679
Deferred policy acquisition costs 897,183 861,713
Accrued investment income 65,388 61,114
Other assets 68,275 65,145
Separate Account assets 12,239,534 11,531,754
------------ ------------
TOTAL ASSETS $ 17,532,928 $ 16,812,781
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances $ 2,723,256 $ 2,701,984
Future policy benefits and other policyholder liabilities 512,758 528,806
Cash collateral for loaned securities 128,635 73,336
Securities sold under agreement to repurchase 23,449 49,708
Income taxes payable 11,376 44,524
Net deferred income tax liability 155,058 148,834
Payable to affiliate 51,651 66,568
Other liabilities 67,983 55,038
Separate Account liabilities 12,195,943 11,490,751
------------ ------------
TOTAL LIABILITIES 15,870,109 15,159,549
------------ ------------
CONTINGENCIES (SEE NOTE 2)
STOCKHOLDER'S EQUITY
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
March 31, 1999 and December 31, 1998 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,222,401 1,202,833
Accumulated other comprehensive income
Net unrealized investment gains 32 9,902
Foreign currency translation adjustments (1,696) (1,585)
------------ ------------
Accumulated other comprehensive income (1,664) 8,317
------------
------------
TOTAL STOCKHOLDER'S EQUITY 1,662,819 1,653,232
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 17,532,928 $ 16,812,781
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B1
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (IN THOUSANDS)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------------ -----------
REVENUES
Premiums $ 13,708 $ 11,707
Policy charges and fee income 93,013 77,905
Net investment income 69,813 64,115
Realized investment (losses) gains, net (5,023) 5,439
Asset management fee income 11,209 9,410
Other income 1,279 813
--------- ---------
TOTAL REVENUES 183,999 169,389
--------- ---------
BENEFITS AND EXPENSES
Policyholders' benefits 52,910 40,911
Interest credited to policyholders' account balances 31,262 25,359
General, administrative and other expenses 68,980 50,921
--------- ---------
TOTAL BENEFITS AND EXPENSES 153,152 117,191
--------- ---------
Income before income taxes 30,847 52,198
--------- ---------
Income taxes 11,279 19,058
--------- ---------
NET INCOME $ 19,568 $33,140
--------- ---------
Other comprehensive income, net of tax:
Unrealized (losses) gains on securities, net of
reclassification adjustment (9,870) (4,784)
Foreign currency translation adjustments (111) (119)
--------- ---------
Other comprehensive income (9,981) (4,903)
--------- ---------
TOTAL COMPREHENSIVE INCOME $ 9,587 $ 28,237
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B2
<PAGE>
<TABLE>
<CAPTION>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------
ACCUMULATED
OTHER TOTAL
COMMON PAID-IN- RETAINED COMPREHENSIVE STOCKHOLDER'S
STOCK CAPITAL EARNINGS INCOME EQUITY
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $ 2,500 $ 439,582 $ 1,050,871 $ 12,564 $ 1,505,517
Net income -- -- 151,962 -- 151,962
Change in foreign currency
translation adjustments -- -- -- 2,980 2,980
Change in net unrealized
investment losses, net of -- -- -- (7,227) (7,227)
reclassification adjustment
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 $ 2,500 $ 439,582 $ 1,202,833 $ 8,317 $ 1,653,232
Net income -- -- 19,568 -- 19,568
Change in foreign currency
translation adjustments -- -- -- (111) (111)
Change in net unrealized
investment losses, net of -- -- -- (9,870) (9,870)
reclassification adjustment
=========== =========== =========== =========== ===========
BALANCE, MARCH 31, 1999 $ 2,500 $ 439,582 $ 1,222,401 $ (1,664) $ 1,662,819
=========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B3
<PAGE>
<TABLE>
<CAPTION>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (IN THOUSANDS)
- --------------------------------------------------------------------------------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,568 $ 33,140
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Policy charges and fee income (15,543) (13,365)
Interest credited to policyholders' account balances 31,262 25,359
Realized investment gains, net 5,023 (5,439)
Amortization and other non-cash items 12,611 2,029
Change in:
Future policy benefits and other policyholder liabilities (16,048) 6,881
Accrued investment income (4,274) 1,457
Separate Accounts (2,588) 3,093
Payable to affiliate (14,917) 8,822
Policy loans (15,797) (17,686)
Deferred policy acquisition costs (35,470) (32,252)
Income taxes payable (33,148) 16,295
Deferred income tax liability 6,224 (814)
Other, net 9,815 (2,252)
----------- -----------
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES (53,282) 25,268
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 1,299,549 1,398,316
Held to maturity 11,843 20,878
Equity securities 1 27
Mortgage loans on real estate 237 206
Other long-term investments 34 --
Payments for the purchase of:
Fixed maturities:
Available for sale (1,200,898) (1,266,223)
Held to maturity (17,670) (3,855)
Equity securities (764) (146)
Other long-term investments (33) (376)
Cash collateral for loaned securities, net 55,299 (65,959)
Securities sold under agreement to repurchase, net (26,259) --
Short-term investments, net (54,927) (101,614)
----------- -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES 66,412 (18,746)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 665,120 700,997
Withdrawals (659,731) (691,009)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES 5,389 9,988
----------- -----------
Net increase in Cash 18,519 16,510
Cash, beginning of year 89,679 71,358
----------- ===========
CASH, END OF PERIOD $ 108,198 $ 87,868
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B4
<PAGE>
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Pruco Life
Insurance Company (the Company) have been prepared in accordance with the
requirements of Form 10-Q and generally accepted accounting principles (GAAP)
for interim financial information. These statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 1998 included in the Company's Annual Report on Form
10-K for that year.
The accompanying consolidated financial statements have not been audited by
independent accountants in accordance with generally accepted auditing
standards, but in the opinion of management such financial statements include
all adjustments, consisting only of normal recurring accruals and elimination of
intercompany balances and transactions, necessary to summarize fairly the
Company's financial position and results of operations. The results of
operations for the three months ended March 31, 1999 may not be indicative of
the results that may be expected for the year ending December 31, 1999.
Certain amounts in the prior years have been reclassified to conform to current
year presentation.
2. 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.
3. RELATED PARTY TRANSACTIONS
Prudential and the Company have an agreement with respect to administrative
services for the Prudential Series Fund. The Company invests in the various
portfolios of the Series Fund through the Separate Accounts. Under this
agreement, Prudential pays compensation to the Company in the amount equal to a
portion of the gross investment advisory fees paid by the Prudential Series
Fund. This is recorded as "Asset management fee income" on the Statements of
Operations and Comprehensive Income.
B5
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1997 AND 1996 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1997: $2,526,554;
1996: $2,210,150) $ 2,563,852 $ 2,236,817
Held to maturity, at amortized cost (fair value, 1997: $350,056; 1996:
$416,102) 338,848 405,731
Equity securities - available for sale, at fair value (cost, 1997: $1,289;
1996: $3,626) 1,982 3,748
Mortgage loans on real estate 22,787 46,915
Policy loans 703,955 639,782
Short-term investments 316,355 169,830
Other long-term investments 1,317 4,528
----------------- -----------------
Total investments 3,949,096 3,507,351
Cash 71,358 73,766
Deferred policy acquisition costs 655,242 633,159
Accrued investment income 67,000 62,110
Income taxes receivable - 7,191
Reinsurance recoverable on unpaid losses 25,882 27,014
Other assets 60,810 62,924
Separate Account assets 8,022,079 5,336,851
----------------- -----------------
TOTAL ASSETS $12,851,467 $9,710,366
================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances $ 2,282,191 $ 2,188,862
Future policy benefits and other policyholder liabilities 570,729 557,351
Cash collateral for loaned securities 143,421 -
Income taxes payable 71,703 -
Deferred income tax liability 138,483 148,960
Payable to affiliate 70,375 49,828
Other liabilities 120,260 88,930
Separate Account liabilities 7,948,788 5,277,454
----------------- -----------------
TOTAL LIABILITIES 11,345,950 8,311,385
----------------- -----------------
CONTINGENCIES - (SEE NOTE 10)
STOCKHOLDER'S EQUITY
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
December 31, 1997 and 1996 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,050,871 944,497
Net unrealized investment gains 17,129 14,104
Foreign currency translation adjustments (4,565) (1,702)
----------------- -----------------
TOTAL STOCKHOLDER'S EQUITY 1,505,517 1,398,981
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $12,851,467 $9,710,366
================= =================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-1
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES
Premiums $ 49,496 $ 51,525 $ 42,089
Policy charges and fee income 330,292 324,976 319,012
Net investment income 259,634 247,328 246,618
Realized investment gains, net 10,974 10,835 13,200
Other income 33,801 20,818 26,986
----------------- ----------------- -----------------
TOTAL REVENUES 684,197 655,482 647,905
----------------- ----------------- -----------------
BENEFITS AND EXPENSES
Policyholders' benefits 179,419 186,873 153,987
Interest credited to policyholders' account balances 110,815 118,246 126,926
General, administrative and other expenses 225,721 122,006 134,790
----------------- ----------------- -----------------
TOTAL BENEFITS AND EXPENSES 515,955 427,125 415,703
----------------- ----------------- -----------------
Income from operations before income taxes 168,242 228,357 232,202
----------------- ----------------- -----------------
Income taxes
Current 73,326 60,196 67,014
Deferred (11,458) 18,939 12,544
----------------- ----------------- -----------------
Total income taxes 61,868 79,135 79,558
----------------- ----------------- -----------------
NET INCOME $ 106,374 $ 149,222 $ 152,644
================= ================= =================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-2
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
NET FOREIGN
UNREALIZED CURRENCY TOTAL
COMMON PAID-IN- RETAINED INVESTMENT TRANSLATION STOCKHOLDER'S
STOCK CAPITAL EARNINGS GAINS ADJUSTMENTS EQUITY
------------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 2,500 $ 439,582 $ 642,631 $(41,761) $ 650 $1,043,602
Net income -- -- 152,644 -- -- 152,644
Change in foreign
currency translation
adjustments -- -- -- -- (1,870) (1,870)
Change in net
unrealized
investment gains -- -- -- 73,817 -- 73,817
------------- ------------- ------------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1995 2,500 439,582 795,275 32,056 (1,220) 1,268,193
Net income -- -- 149,222 -- -- 149,222
Change in foreign
currency translation
adjustments -- -- -- -- (482) (482)
Change in net
unrealized
investment gains -- -- -- (17,952) -- (17,952)
------------- ------------- ------------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1996 2,500 439,582 944,497 14,104 (1,702) 1,398,981
Net income -- -- 106,374 -- -- 106,374
Change in foreign
currency translation
adjustments -- -- -- -- (2,863) (2,863)
Change in net
unrealized
investment gains -- -- -- 3,025 -- 3,025
------------- ------------- ------------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1997 $ 2,500 $ 439,582 $1,050,871 $ 17,129 $ (4,565) $1,505,517
============= ============= ============= ============= =========== =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-3
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 106,374 $ 149,222 $ 152,644
Adjustments to reconcile net income to net cash provided by
operating activities:
Policy charges and fee income (40,783) (50,286) (56,637)
Interest credited to policyholders' account balances 110,815 118,246 126,926
Net increase in Separate Accounts (13,894) (38,025) (3,520)
Realized investment gains, net (10,974) (10,835) (13,200)
Amortization and other non-cash items (5,525) 26,709 (8,106)
Change in:
Future policy benefits and other policyholders' liabilities 13,378 56,151 22,877
Accrued investment income (4,890) (2,248) (480)
Payable to affiliate 20,547 16,519 10,569
Policy loans (64,173) (70,509) (75,411)
Deferred policy acquisition costs (22,083) (66,183) 31,318
Income taxes payable/receivable 78,894 (816) 12,031
Reinsurance recoverable on unpaid losses 1,132 900 750
Deferred income tax liability (10,477) 7,912 30,779
Other, net 34,094 7,564 (76,702)
--------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES 192,435 144,321 153,838
--------------- -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 2,828,665 3,886,254 1,886,687
Held to maturity 138,626 138,127 144,898
Equity securities 6,939 7,527 5,557
Mortgage loans on real estate 24,925 19,226 7,395
Other long-term investments 3,276 288 1,559
Investment real estate -- 4,488 2,926
Payments for the purchase of:
Fixed maturities:
Available for sale (3,141,785) (4,008,810) (1,741,139)
Held to maturity (70,532) (114,494) (135,092)
Equity securities (4,594) (4,697) (4,279)
Other long-term investments (51) (657) (1,674)
Cash collateral for loaned securities, net 143,421 -- --
Short-term investments, net (147,030) 58,186 (36,482)
--------------- -------------- ------------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES (218,140) (14,562) 130,356
--------------- -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 2,099,600 536,370 95,039
Withdrawals (2,076,303) (633,798) (365,578)
--------------- -------------- ------------
CASH FLOWS FROM (USED IN)FINANCING ACTIVITIES 23,297 (97,428) (270,539)
--------------- -------------- ------------
Net (decrease) increase in Cash (2,408) 32,331 13,655
Cash, beginning of year 73,766 41,435 27,780
--------------- -------------- ------------
CASH, END OF YEAR $ 71,358 $ 73,766 $ 41,435
=============== ============== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes (received) paid $ (7,904) $ 61,760 $ 53,107
=============== ============== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-4
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS
Pruco Life Insurance Company (the Company) is a stock life insurance company,
organized in 1971 under the laws of the state of Arizona. The Company markets
individual life insurance, variable life insurance, variable life insurance,
variable annuities, and deferred annuities (the Contracts) in all states except
New York, the District of Columbia and Guam. In addition, the Company markets
individual life insurance through its branch office in Taiwan. The Company has
two subsidiaries, Pruco Life Insurance Company of New Jersey (PLNJ) and The
Prudential Life Insurance company of Arizona (PLICA). PLNJ is a stock life
insurance company organized in 1982 under the laws of the state of New Jersey.
It is licenced to sell individual life insurance and deferred annuities only in
the states of New Jersey and New York. PLICA is a stock life insurance company
organized in 1988 under the laws of the state of Arizona. PLICA had no new
business sales in 1977 and at this time will not be issuing new business.
The only reportable industry segment of the Company is "Life Insurance."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company, a
stock life insurance company, and its subsidiaries. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP"). All significant intercompany balances and transactions have
been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
INVESTMENTS
FIXED MATURITIES classified as "available for sale" are carried at estimated
fair value. Fixed maturities that the Company has both the positive intent and
ability to hold to maturity are stated at amortized cost and classified as "held
to maturity". The amortized cost of fixed maturities are written down to
estimated fair value when considered impaired and the decline in value is
considered to be other than temporary. Unrealized gains and losses on fixed
maturities "available for sale", net of income tax, the effect on deferred
policy acquisition costs and participating annuity contracts that would result
from the realization of unrealized gains and losses are included in a separate
component of equity, "Net unrealized investment gains."
EQUITY SECURITIES, available for sale, comprised of common and non-redeemable
preferred stock, are carried at estimated fair value. The associated unrealized
gains and losses, net of income tax, the effect on deferred policy acquisition
costs and participating annuity contracts that would result from the realization
of unrealized gains and losses, are included in separate component of equity,
"Net unrealized investment gains."
MORTGAGE LOANS ON REAL ESTATE are stated primarily at unpaid principal balances,
net of unamortized discounts
POLICY LOANS are carried at unpaid principal balances.
SHORT-TERM INVESTMENTS, including highly liquid debt instruments purchased with
an original maturity of twelve months or less, are carried at amortized cost,
which approximates fair value.
OTHER LONG-TERM INVESTMENTS primarily represent the Company's investments in
joint ventures and partnerships in which the Company does not have control.
These investments are recorded using the equity method of accounting, reduced
for other than temporary declines in value.
REALIZED INVESTMENT GAINS, NET are computed using the specific identification
method. Costs of fixed maturity and equity securities are adjusted for
impairments considered to be other than temporary.
CASH
Cash includes cash on hand, amounts due from banks, and money market
instruments.
DEFERRED POLICY ACQUISITION COSTS
The costs which vary with and that are related primarily to the production of
new insurance business are deferred to the extent such costs are deemed
recoverable from future profits. Such costs include certain commissions, costs
of policy issuance and underwriting, and certain variable field office expenses.
Deferred policy acquisition costs are subject to recoverability testing at the
time of policy issue and loss recognition testing at the end of each accounting
period. Deferred policy acquisition costs are
B-5
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
adjusted for the impact of unrealized gains or losses on investments as if these
gains or losses had been realized, with corresponding credits or charges
included in equity.
Acquisition costs related to interest-sensitive life products and
investment-type contracts are deferred and amortized in proportion to total
estimated gross profits arising principally from investment results, mortality
and expense margins and surrender charges based on historical and anticipated
future experience. Amortization periods range from 15 to 30 years. Amortization
of deferred policy acquisition costs was $149,851 thousand, $9,309 thousand, and
$54,371 thousand for the years ended December 31, 1997, 1996, and 1995,
respectively. Deferred policy acquisition costs are analyzed to determine if
they are recoverable from future income, including investment income. If such
costs are determined to be unrecoverable, they are expensed at the time of
determination. The effect of revisions to estimated gross profits on unamortized
deferred acquisition costs is reflected in earnings in the period such estimated
gross profits are revised.
FUTURE POLICY BENEFITS AND POLICYHOLDERS' ACCOUNT BALANCES
Future policy benefits includes reserves for annuities in payout status as well
as reserves for riders and supplemental benefits. Reserves for annuities in
payout status are generally calculated as the present value of estimated future
benefit payments and related expenses, using interest rates ranging from 6.5% to
11.0%. The mortality assumption is generally the 1983 Individual Annuity
Mortality Table. Reserves for riders and supplemental benefits are calculated
using interest rates ranging from 2.5% to 7.25% and various mortality and
morbidity tables derived from company or industry experience. Reserves for
business in the Company's Taiwan branch are generally calculated using interest
rates ranging from 6.25% to 7.5% and the 1989 Taiwan Standard Ordinary
Experience Mortality table with modifications.
For the above categories, premium deficiency reserves are established, if
necessary, when the liabilities for future policy benefits plus the present
value of expected future gross premiums are insufficient to provide for expected
future policy benefits and expenses.
Policyholders' account balances for interest-sensitive life and investment-type
contracts are equal to the policy account values. The policy account values
represent an accumulation of gross premium payments plus credited interest, less
expense and mortality charges and withdrawals. Interest crediting rates on life
insurance products range from 4.2% to 6.5% and on investment-type products range
from 3.15% to 7.9%.
SECURITIES LOANED are recorded at the amount of cash received as collateral. The
Company obtains collateral in an amount equal to 102% of the fair value of the
domestic securities. The Company monitors the market value of securities loaned
on a daily basis with additional collateral obtained as necessary. Non-cash
collateral received is not reflected in the consolidated statements of financial
position. Substantially, all of the Company's securities loaned are with large
brokerage firms.
These transactions are used to generate net investment income and facilitate
trading activity. These instruments are short-term in nature (usually 30 days or
less) and are collateralized principally by U.S. Government and mortgage-backed
securities. The carrying amounts of these instruments approximate fair value
because of the relatively short period of time between the origination of the
instruments and their expected realization.
SEPARATE ACCOUNT ASSETS AND LIABILITIES
Separate Account assets and liabilities are reported at estimated fair value and
represent segregated funds which are invested for certain policyholders, pension
funds and other customers. The assets consist of common stocks, fixed
maturities, real estate related securities, and short-term investments. The
assets of each account are legally segregated and are not subject to claims that
arise out of any other business of the Company. Investment risks associated with
market value changes are generally borne by the customers, except to the extent
of minimum guarantees made by the Company with respect to certain accounts. The
investment income and gains or losses for Separate Accounts generally accrue to
the policyholders and are not included in the Consolidated Statement of
Operations. Mortality, policy administration and surrender charges on the
accounts are included in "Policy charges and fee income."
Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life Modified Guaranteed Annuity
Account. The Pruco Life Modified Guaranteed Annuity Account is a non-unitized
separate account, which funds the Modified Guaranteed Annuity Contract and the
Market Value Adjustment Annuity Contract. Owners of the Pruco Life Modified
Guaranteed Annuity and the Market Value Adjustment Annuity Contracts do not
participate in the investment gain or loss from assets relating to such
accounts. Such gain or loss is borne, in total, by the Company.
B-6
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INSURANCE REVENUE AND EXPENSE RECOGNITION
Amounts received as payment for interest-sensitive life, investment contracts
and deferred annuities are reported as deposits to "Policyholders' account
balances." Revenues from these contracts are reflected as "Policy charges and
fee income" and consist primarily of fees assessed during the period against the
policyholders' account balances for mortality charges, policy administration
charges, surrender charges, and interest earned from the investment of these
account balances. Benefits and expenses for these products include claims in
excess of related account balances, expenses of contract administration,
interest credited and amortization of deferred policy acquisition costs.
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Assets and liabilities of the Taiwan branch reported in other than U.S. dollars
are translated at the exchange rate in effect at the end of the period.
Revenues, benefits and other expenses are translated at the average rate
prevailing during the period. Translation adjustments arising from the use of
differing exchange rates from period to period are charged or credited directly
to equity. The cumulative effect of changes in foreign exchange rates are
included in "Foreign currency translation adjustments."
DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives include futures subject to market risk, all of which are used by the
Company in other than trading activities. Income and expenses related to
derivatives used to hedge are recorded on the accrual basis on the Statements of
Financial Position. Gains and losses relating to derivatives used to hedge the
risks associated with anticipated transactions are realized in "Realized
investment gains, net." If it is determined that the transaction will not close,
such gains and losses are included in "Realized investment gains, net."
Derivatives held for purposes other than trading are primarily used to hedge or
reduce exposure to interest rate and foreign currency risks associated with
assets held or expected to be purchased or sold, and liabilities incurred or
expected to be incurred. Additionally, other than trading derivatives are used
to change the characteristics of the Company's asset/liability mix consistent
with the Company's risk management activities.
INCOME TAXES
The Company and its subsidiaries are members of a group of affiliated companies
which join in filing a consolidated federal income tax return in addition to
separate company state and local tax returns. Pursuant to the tax allocation
arrangement, total federal income tax expense is determined on a separate
company basis. Members with losses record tax benefits to the extent such losses
are recognized in the consolidated federal tax provision. Deferred income taxes
are generally recognized, based on enacted rates, when assets and liabilities
have different values for financial statement and tax reporting purposes. A
valuation allowance is recorded to reduce a deferred tax asset to that portion
which management believes is more likely than not to be realized.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 125"). The statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
and provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. SFAS 125
became effective January 1, 1997 and is to be applied prospectively. Subsequent
to June 1996, FASB issued SFAS No. 127 "Deferral of the Effective Date of
Certain Provisions of SFAS 125" ("SFAS 127"). SFAS 127 delays the implementation
of SFAS 125 for one year for certain provisions, including repurchase
agreements, dollar rolls, securities lending and similar transactions. The
Company will delay implementation with respect to those affected provisions.
Adoption of SFAS 125 has not, and will not have a material impact on the
Company's results of operations, financial condition and liquidity.
In June of 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for years beginning after December 15, 1997. This statement
defines comprehensive income as "the change in equity of a business enterprise
during a
B-7
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
period from transactions and other events and circumstances from non-owner
sources, excluding investments by owners and distributions to owners" and
establishes standards for reporting and displaying comprehensive income and its
components in financial statements. The statement requires that the Company
classify items of other comprehensive income by their nature and display the
accumulated balance of other comprehensive income separately from retained
earnings in the equity section of the Statement of Financial Position. In
addition, reclassification of financial statements for earlier periods must be
provided for comparative purposes.
RECLASSIFICATIONS
Certain amounts in the prior years have been reclassified to conform to current
year presentation.
B-8
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES:
The following tables provide additional information relating to fixed maturities
and equity securities as of December 31,:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
------------------ ---------------- ------------- ----------------
(In Thousands)
<S> <C> <C> <C> <C>
FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 177,691 $ 1,231 $ 20 $ 178,902
Foreign government bonds 83,889 1,118 19 84,988
Corporate securities 2,263,898 36,857 2,017 2,298,738
Mortgage-backed securities 1,076 180 32 1,224
------------------ ---------------- ------------- ----------------
Total fixed maturities available for sale $2,526,554 $ 39,386 $ 2,088 $2,563,852
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
EQUITY SECURITIES AVAILABLE FOR SALE $ 1,289 $ 802 $ 109 $ 1,982
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
FIXED MATURITIES HELD TO MATURITY
Corporate securities $ 338,848 $ 11,427 $ 219 $ 350,056
------------------ ---------------- ------------- ----------------
Total fixed maturities held to maturity $ 338,848 $ 11,427 $ 219 $ 350,056
================== ================= ============== ===============
1996
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
------------------ ---------------- ------------- ----------------
(In Thousands)
FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 32,055 $ 30 $ 174 $ 31,911
Foreign government bonds 90,447 857 205 91,099
Corporate securities 2,087,250 30,365 4,206 2,113,409
Mortgage-backed securities 398 -- -- 398
------------------ ---------------- ------------- ----------------
Total fixed maturities available for sale $2,210,150 $ 31,252 $ 4,585 $2,236,817
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
EQUITY SECURITIES AVAILABLE FOR SALE $ 3,626 $ 819 $ 697 $ 3,748
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
FIXED MATURITIES HELD TO MATURITY
Corporate securities $ 405,731 $ 10,947 $ 576 $ 416,102
------------------ ---------------- ------------- ----------------
Total fixed maturities held to maturity $ 405,731 $ 10,947 $ 576 $ 416,102
================== ================= ============== ===============
</TABLE>
B-9
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of fixed maturities, categorized by
contractual maturities at December 31, 1997, are shown below:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
---------------------------------- -----------------------------------
ESTIMATED ESTIMATED
FAIR FAIR
AMORTIZED COST VALUE AMORTIZED COST VALUE
----------------- ---------------- ----------------- -----------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 29,759 $ 29,731 $ 13,736 $ 13,838
Due after one year through five years 1,738,532 1,758,946 204,298 212,050
Due after five years through ten years 555,194 567,928 98,192 101,143
Due after ten years 201,993 206,023 22,622 23,025
Mortgage-backed securities 1,076 1,224 -- --
----------------- ---------------- ----------------- -----------------
Total $2,526,554 $2,563,852 $ 338,848 $ 350,056
================= ================ ================= =================
</TABLE>
Actual maturities will differ from contractual maturities because issuers have
the right to call or prepay obligations.
Proceeds from the sale of fixed maturities available for sale during 1997, 1996,
and 1995 were $2,796,306 thousand, $3,667,062 thousand, and $1,807,584 thousand,
respectively. Gross gains of $18,635 thousand, $22,078 thousand, and $25,909
thousand and gross losses of $7,990 thousand, $17,718 thousand, and $13,907
thousand were realized on those sales during 1997, 1996, and 1995, respectively.
Proceeds from the maturity of fixed maturities available for sale during 1997,
1996, and 1995 were $32,359 thousand, $219,192 thousand, and $79,103 thousand,
respectively. During the years ended December 31, 1997, 1996 and 1995, there
were no securities classified as held to maturity that were sold.
The following table describes the amortized cost and estimated fair value of
fixed maturity securities by rating agency equivalent as of December 31, 1997:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
-------------------------------- -------------------------------
AMORTIZED ESTIMATED FAIR AMORTIZED ESTIMATED FAIR
COST VALUE COST VALUE
--------------- ---------------- --------------- ---------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
AAA/AA/A $ 1,319,527 $ 1,334,823 $ 187,692 $ 194,797
BBB 1,047,203 1,062,641 128,481 131,820
BB 80,136 83,293 20,540 21,264
B 73,717 76,781 2,132 2,172
CCC or lower 5,943 6,288 -- --
In or near default 28 26 3 3
--------------- ---------------- --------------- ---------------
Total $ 2,526,554 $ 2,563,852 $ 338,848 $ 350,056
=============== ================ =============== ===============
</TABLE>
The NAIC rates certain public and private placement securities as "in or near
default" if they are currently non-performing or believed subject to default in
the near term. The Company's holdings of these securities, in the aggregate,
comprised less than 1% of total invested assets at December 31, 1997 and 1996.
B-10
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
MORTGAGE LOANS ON REAL ESTATE
The Company's mortgage loans were collateralized by the following property types
at December 31,
1997 1996
---------------------- -----------------------
(In Thousands)
Office buildings $ 4,607 20% $ 18,497 39%
Retail stores 8,090 35% 8,731 19%
Apartment complexes 6,080 27% 11,771 25%
Industrial buildings 4,010 18% 7,916 17%
---------------------- -----------------------
Net carrying value $ 22,787 100% $ 46,915 100%
====================== =======================
The mortgage loans are geographically dispersed throughout the United States
with the largest concentrations in Washington (29%) and Pennsylvania (27%).
SPECIAL DEPOSITS
Fixed maturities of $8,302 thousand and $8,744 thousand at December 31, 1997 and
1996, respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws.
OTHER LONG-TERM INVESTMENTS
The Company's "Other long-term investments" of $1,317 thousand and $4,528
thousand as of December 31, 1997 and 1996, respectively, are comprised of
non-real estate related interests. The Company's share of net income from these
entities is $2,158 thousand, $1,434 thousand and $345 thousand for the years
ended December 31, 1997, 1996 and 1995, respectively, and is reported in "Net
investment income."
B-11
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
INVESTMENT INCOME AND INVESTMENT GAINS AND LOSSES
NET INVESTMENT INCOME arose from the following sources for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale $ 161,140 $ 152,445 $ 160,740
Fixed maturities - held to maturity 26,936 33,419 33,458
Equity securities 76 44 104
Mortgage loans on real estate 2,585 5,669 7,757
Investment real estate - 613 647
Policy loans 37,398 33,449 29,775
Short-term investments 22,011 16,780 15,092
Other 14,920 9,438 3,949
----------------- ----------------- -----------------
Gross investment income 265,066 251,857 251,522
Less: investment expenses (5,432) (4,529) (4,904)
----------------- ----------------- -----------------
Net investment income $ 259,634 $ 247,328 $ 246,618
================= ================= =================
</TABLE>
REALIZED INVESTMENT GAINS ,NET including charges for other than temporary
reductions in value, for the years ended December 31, were from the following
sources:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale $ 9,039 $ 9,036 $ 11,359
Fixed maturities - held to maturity 821 - -
Equity securities 8 781 2,020
Mortgage loans on real estate 797 1,677 (90)
Investment real estate - 487 (99)
Other 309 (1,146) 10
----------------- ----------------- -----------------
Realized investment gains, net $ 10,974 $ 10,835 $ 13,200
================= ================= =================
</TABLE>
NET UNREALIZED INVESTMENT GAINS on securities available for sale are included in
the consolidated statement of financial position as a component of equity, net
of tax. Changes in these amounts for the years ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 14,104 $ 32,056 $ (41,761)
Changes in unrealized investment gains
(losses) attributable to:
Fixed maturities 10,631 (43,853) 110,932
Equity securities 571 1,403 68
Participating group annuity contracts 1,292 (3,855) 5,092
Deferred policy acquisition costs (8,412) 17,321 (25,214)
Deferred federal income taxes (1,057) 11,032 (17,061)
----------------- ----------------- -----------------
Balance, end of year $ 17,129 $ 14,104 $ 32,056
================= ================= =================
</TABLE>
B-12
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INCOME TAXES
The components of income taxes for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
(In Thousands)
<S> <C> <C> <C>
Current tax expense:
U.S. $71,989 $59,489 $65,131
State and local 1,337 703 1,876
Foreign -- 4 7
--------------------- --------------------- ---------------------
Total 73,326 60,196 67,014
--------------------- --------------------- ---------------------
Deferred tax (benefit) expense:
U.S. (11,458) 18,413 12,196
State and local -- 526 348
--------------------- --------------------- ---------------------
Total (11,458) 18,939 12,544
--------------------- --------------------- ---------------------
Total income tax expense $61,868 $79,135 $79,558
===================== ===================== =====================
</TABLE>
The Company's income tax expense for the years ended December 31, differs from
the amount computed by applying the expected federal income tax rate of 35% to
income from operations before income taxes for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- --------------------
(In Thousands)
<S> <C> <C> <C>
Expected federal income tax expense $58,885 $79,925 $81,271
State income taxes 869 1,229 2,224
Other 2,114 (2,019) (3,937)
--------------------- --------------------- ---------------------
Total income tax expense $61,868 $79,135 $79,558
===================== ===================== ====================
</TABLE>
B-13
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
(In Thousands)
<S> <C> <C>
Deferred income tax assets
Insurance reserves $ 40,896 $ 38,532
-------------------- --------------------
Total deferred income tax assets 40,896 38,532
-------------------- --------------------
Deferred income tax liabilities
Deferred acquisition costs 168,702 173,785
Net investment gains 8,161 12,502
Other 2,516 1,205
-------------------- --------------------
Total deferred income tax liabilities 179,379 187,492
-------------------- --------------------
Deferred federal income tax liabilities $ 138,483 $ 148,960
==================== ====================
</TABLE>
Management believes that based on its historical pattern of taxable income, the
Company will produce sufficient income in the future to realize its deferred tax
assets after valuation allowance. Adjustments to the valuation allowance will be
made if there is a change in management's assessment of the amount of the
deferred tax assets that are realizable.
The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns through 1989. The Service has examined
the years 1990 through 1992. Discussions are being held with the Service with
respect to proposed adjustments. However, management believes there are adequate
defenses against, or sufficient reserves to provide for, such adjustments. The
Service has begun their examination of the years 1993 through 1995.
5. REINSURANCE
The Company assumes and cedes reinsurance with Prudential and other companies.
The effect of reinsurance for the years ended December 31, is summarized as
follows:
1997 1996 1995
----------- ----------- -----------
Life insurance premiums
Gross Amount $ 51,851 $ 53,776 $ 44,357
Ceded to other companies (3,724) (3,379) (2,268)
Assumed from other companies 1,369 1,128 --
----------- ----------- -----------
Net amount $ 49,496 $ 51,525 $ 42,089
=========== =========== ===========
1997 1996 1995
----------- ----------- -----------
Life insurance in force
Gross Amount $47,328,495 $47,430,580 $47,822,892
Ceded to other companies (1,292,395) (1,172,449) (822,619)
----------- ----------- -----------
Net amount $46,036,100 $46,258,131 $47,000,273
=========== =========== ===========
B-14
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. EQUITY
RECONCILIATION OF STATUTORY SURPLUS AND NET INCOME
Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following table
reconciles the Company's statutory net income and surplus as of and for the
years ended December 31, determined in accordance with accounting practices
prescribed or permitted by the Arizona Department of Banking and Insurance with
net income and equity determined using GAAP.
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
(In Thousands)
<S> <C> <C> <C>
STATUTORY NET INCOME $ 12,778 $ 48,846 $ 113,565
Adjustments to reconcile to net income on a GAAP basis:
Statutory income of subsidiaries 18,553 25,001 44,186
Deferred acquisition costs 38,003 48,862 (6,103)
Deferred premium 1,144 1,295 (743)
Insurance liabilities 26,517 28,662 32,665
Deferred taxes 11,458 (7,780) (27,669)
Valuation of investments 506 365 5,480
Other, net (2,585) 3,971 (8,737)
------------------ ------------------ ------------------
GAAP NET INCOME $ 106,374 $ 149,222 $ 152,644
================== ================== ==================
<CAPTION>
1997 1996
-------------------- --------------------
(In Thousands)
<S> <C> <C>
STATUTORY SURPLUS $ 853,130 $ 901,645
Adjustments to reconcile to equity on a GAAP basis:
Valuation of investments 97,787 95,411
Deferred acquisition costs 655,242 633,159
Deferred premium (14,817) (11,859)
Insurance liabilities (107,525) (124,781)
Deferred taxes (113,461) (124,823)
Other, net 135,161 30,229
-------------------- --------------------
GAAP STOCKHOLDER'S EQUITY $ 1,505,517 $ 1,398,981
==================== ====================
</TABLE>
The New York State Insurance Department ("Department") recognizes only statutory
accounting for determining and reporting the financial condition of an insurance
company, for determining its solvency under the New York Insurance Law and for
determining whether its financial condition warrants the payment of a dividend
to its stockholders. No consideration is given by the Department to financial
statements prepared in accordance with GAAP in making such determinations.
B-15
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values presented below have been determined using available information
and valuation methodologies. Considerable judgment is applied in interpreting
data to develop the estimates of fair value. Accordingly, such estimates
presented may not be realized in a current market exchange. The use of different
market assumptions and/or estimation methodologies could have a material effect
on the estimated fair values. The following methods and assumptions were used in
calculating the fair values (for all other financial instruments presented in
the table, the carrying value approximates fair value.)
FIXED MATURITIES AND EQUITY SECURITIES
Fair values for fixed maturities and equity securities, other than private
placement securities, are based on quoted market prices or estimates from
independent pricing services. Fair values for private placement securities are
estimated using a discounted cash flow model which considers the current market
spreads between the U.S. Treasury yield curve and corporate bond yield curve,
adjusted for the type of issue, its current credit quality and its remaining
average life. The estimated fair value of certain non-performing private
placement securities is based on amounts estimated by management.
MORTGAGE LOANS ON REAL ESTATE
The fair value of the mortgage loan portfolio is primarily based upon the
present value of the scheduled future cash flows discounted at the appropriate
U.S. Treasury rate, adjusted for the current market spread for a similar quality
mortgage.
POLICY LOANS
The estimated fair value of policy loans is calculated using a discounted cash
flow model based upon current U.S. Treasury rates and historical loan
repayments.
DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of futures is estimated based on market quotes for a transactions
with similar terms.
The following table discloses the carrying amounts and estimated fair values of
the Company's financial instruments at December 31,:
<TABLE>
<CAPTION>
1997 1996
------------------------------------- --------------------------------------
ESTIMATED ESTIMATED
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
------------------ ------------------ ------------------ -------------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities:
Available for sale $ 2,563,852 $ 2,563,852 $ 2,236,817 $ 2,236,817
Held to maturity 338,848 350,056 405,731 416,102
Equity securities 1,982 1,982 3,748 3,748
Mortgage loans 22,787 24,994 46,915 46,692
Policy loans 703,955 703,605 639,782 623,218
Short-term investments 316,355 316,355 169,830 169,830
Cash 71,358 71,358 73,766 73,766
Separate Account assets 8,022,079 8,022,079 5,336,851 5,336,851
Financial Liabilities:
Policyholders'
account balances $ 2,282,191 $ 2,282,191 $ 2,188,862 $ 2,188,862
Cash collateral for loaned
securities 143,421 143,421 -- --
Separate Account liabilities 7,948,788 7,948,788 5,277,454 5,277,454
Derivatives 653 653 -- --
</TABLE>
B-16
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. DERIVATIVE INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of liability positions in future instruments, which represents
the Company's current exposure to credit loss from other parties'
non-performance, was $653 thousand at December 31, 1997. This includes the
estimated fair values of outstanding derivative positions only and does not
include the fair values of associated financial and non-financial assets and
liabilities, which generally offset derivative notional amounts. The fair value
amounts presented also do not reflect the netting of amounts pursuant to right
of setoff, qualifying master netting agreements with counterparties or
collateral arrangements.
9. RELATED PARTY TRANSACTIONS
SERVICE AGREEMENTS
Prudential, and Pruco Securities Corporation, an indirect wholly-owned
subsidiary of Prudential, operate under service and lease agreements whereby
services of officers and employees (except for those agents employed by the
Company in Taiwan), supplies, use of equipment and office space are provided.
The net cost of these services allocated to the Company were $139,489 thousand,
$101,662 thousand and $98,119 thousand for the years ended December 31, 1997,
1996, and 1995, respectively.
REINSURANCE
The Company currently has three reinsurance agreements in place with Prudential
(the reinsurer). Specifically a reinsurance Group Annuity Contract, whereby the
reinsurer, in consideration for a single premium payment by the Company,
provides reinsurance equal to 100% of all payments due under the contract, and
two yearly renewable term agreements in which the Company may offer and the
reinsurer may accept reinsurance on any life in excess of the Company's maximum
limit of retention. The Company is not relieved of its primary obligation to the
policyholder as a result of these reinsurance transactions. These agreements had
no material effect on net income for the years ended December 31, 1997, 1996,
and 1995.
10. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and the
Company. Prudential has agreed to indemnify the Company for any and all losses
resulting from such litigation.
In the normal course of business, the Company is subject to various claims and
assessments. Management believes the settlement of these matters would not have
a material effect on the financial position or results of operations of the
Company.
11. DIVIDENDS
The Company is subject to Arizona law which limits the amount of dividends that
insurance companies can pay to stockholders. The maximum dividend which may be
paid in any twelve month period without notification or approval is limited to
the lesser of 10% of statutory surplus as of December 31 of the preceding year
or the net gain from operations of the preceding calendar year. Cash dividends
may only be paid out of surplus derived from realized net profits. Based on
these limitations and the Company's surplus position at December 31, 1997, the
Company would be permitted a maximum of $15,260 thousand in dividend
distribution in 1998, all of which could be paid in cash, without approval from
The State of Arizona Department of Insurance.
B-17
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of operations, of changes in
stockholder's equity and of cash flows present fairly, in all material respects,
the financial position of Pruco Life Insurance Company and its subsidiaries at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
managememt; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
New York, New York
March 23, 1998
B-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors of
Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying consolidated statement of operations, changes
in stockholder's equity, and cash flows of Pruco Life Insurance Company and
subsidiaries for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated statements of operations, changes in
stockholder's equity, and cash flows present fairly, in all material respects,
the results of operations and cash flows of Pruco Life Insurance Company and
subsidiaries for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Parsippany, NJ
December 19, 1996
B-19
<PAGE>
PRUSELECT(SM) II
Variable Life
Insurance
[LOGO] PRUDENTIAL
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone: 800 286-7754
CVUL-2 Ed. 6/99
<PAGE>
PART II
OTHER INFORMATION
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION WITH RESPECT TO CHARGES
Pruco Life Insurance Company represents that the fees and charges deducted under
the variable universal life insurance contracts registered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by Pruco
Life Insurance Company.
UNDERTAKING WITH RESPECT TO INDEMNIFICATION
The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.
Arizona, being the state of organization of Pruco Life Insurance Company
("Pruco"), permits entities organized under its jurisdiction to indemnify
directors and officers with certain limitations. The relevant provisions of
Arizona law permitting indemnification can be found in Section 10-850 et seq. of
the Arizona Statutes Annotated. The text of Pruco's By-law, Article VIII, which
relates to indemnification of officers and directors, is incorporated by
reference to Exhibit 3(ii) to its Form 10-Q, SEC File No. 33-37587, filed August
15, 1997.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
The Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 112 pages.
The undertaking to file reports.
The representation with respect to charges.
The signatures.
Written consents of the following persons:
1. PricewaterhouseCoopers LLP, independent accountants.
2. Clifford E. Kirsch, Esq.
3. 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) (a) Resolution of Board of Directors of Pruco Life Insurance
Company establishing the Pruco Life Variable Universal Account.
(Note 3)
(b) Amendment of Separate Account Resolution. (Note 12)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities
Corporation and Pruco Life Insurance Company. (Note 3)
(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the
Sale of the Contracts. (Note 3)
(c) Schedule of Sales Commissions. (Note 10)
(d) Participation Agreements and Amendments:
(i)(a) AIM Variable Insurance Funds, Inc., AIM V.I.
Value Fund. (Note 5) (b)Amendment to the AIM
Variable Insurance Funds, Inc. Participation
Agreement. (Note 12)
(ii)(a)American Century Variable Portfolios, Inc.,
VP Value Portfolio. (Note 12)
(iii)(a) Janus Aspen Series, Growth Portfolio. (Note
5)
(b) Amendment to the Janus Aspen Series
Participation Agreement. (Note 12)
(iv)(a) MFS Variable Insurance Trust, Emerging
Growth Series. (Note 5)
(b)Amendment to the MFS Variable Insurance Trust
Participation Agreement. (Note 12)
(v)(a) T. Rowe Price International Series, Inc.,
International Stock Portfolio. (Note 5)
(b) Amendment to the T. Rowe Price International
Series, Inc. Participation Agreement. (Note
12)
(4) Not Applicable.
(5) Variable Universal Life Insurance Contracts. (Note 10) (a) With
the fixed-rate option. Note: this version was never sold and is
no longer available for sale. (b) Without the fixed-rate option.
(6) (a) Articles of Incorporation of Pruco Life Insurance Company, as
amended October 19, 1993. (Note 7) (b) By-Laws of Pruco Life
Insurance Company, as amended May 6, 1997. (Note 2)
(7) Not Applicable.
II-2
<PAGE>
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form for Variable Universal Life Insurance
Contract. (Note 7)
(b) Supplement to the Application for Variable Universal Life
Insurance Contract. (Note 11)
(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 1)
(12) Endorsement to modify List of Investment Options. (Note 12)
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,
Esther H. Milnes, I. Edward Price (Note 4)
(b) Kiyofumi Sakaguchi (Note 8)
(c) James J. Avery, Jr. (Note 5)
(d) Dennis G. Sullivan (Note 6)
<TABLE>
<CAPTION>
<S> <C> <C>
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Form 10-Q, Registration No. 33-37587, filed August 15, 1997 on behalf of the
Pruco Life Insurance Company.
(Note 3) Incorporated by reference to Form S-6, Registration No. 33-29181, filed April 28, 1997 on behalf of the
Pruco Life Variable Universal Account.
(Note 4) Incorporated by reference to Form 10-K, Registration No. 33-08698, filed March 31, 1997 on behalf of the
Pruco Life Variable Contract Real Property Account.
(Note 5) Incorporated by reference to Post-Effective Amendment No. 2 to Form S-6, Registration No. 333-07451,
filed June 25, 1997 on behalf of the Pruco Life Variable Appreciable Account.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 6 to Form S-1, Registration No. 33-86780,
filed April 16, 1999 on behalf of the Pruco Life Variable Contract Real Property Account.
(Note 7) Incorporated by reference to Form S-6, Registration No. 333-07451, filed July 2, 1996 on behalf of the
Pruco Life Variable Appreciable Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 8 to Form S-6, Registration No. 33-49994,
filed April 28, 1997 on behalf of the Pruco Life PRUvider Variable Appreciable Account.
(Note 9) Incorporated by reference to Post-Effective Amendment No. 9 to this Registration Statement, filed April
25, 1996.
(Note 10) Incorporated by reference to Post-Effective Amendment No. 10 to this Registration Statement, filed April
28, 1997.
(Note 11) Incorporated by reference to Post-Effective Amendment No. 11 to this Registration Statement, filed April
28, 1998.
(Note 12) Incorporated by reference to Post-Effective Amendment No. 13 to Form S-6, Registration No. 33-29181,
filed June 3, 1999 on behalf of the Pruco Life Variable Universal Account.
</TABLE>
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 3rd day of June, 1999.
(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. 13 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 3rd day of June, 1999.
SIGNATURE AND TITLE
/s/ *
----------------------
Esther H. Milnes
President and Director
/s/ *
----------------------
Dennis G. Sullivan
Vice President and Chief Accounting Officer
/s/ * *By: /s/ THOMAS C. CASTANO
---------------------- ------------------
James J. Avery, Jr. Thomas C. Castano
Director (Attorney-in-Fact)
/s/ *
----------------------
William M. Bethke
Director
/s/ *
----------------------
Ira J. Kleinman
Director
/s/ *
----------------------
I. Edward Price
Director
/s/ *
----------------------
Kiyofumi Sakaguchi
Director
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 13 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated March 19, 1999, relating to the
financial statements of the 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 February 26, 1999, relating to the
consolidated financial statements of Pruco Life Insurance Company and its
subsidiaries, which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in the
Prospectus.
PricewaterhouseCoopers LLP
New York, New York
May 28, 1999
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EXHIBIT INDEX
Consent of PricewaterhouseCoopers LLP, independent accountants. Page II-5
1.A.(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). Page II-7
3. Opinion and Consent of Clifford E. Kirsch, Esq., as to the
legality of the securities being registered. Page II-13
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as
to actuarial matters pertaining to the securities
being registered. Page II-14
II-6
Exhibit 1.A(11)
Description of Pruco Life's Issuance, Transfer
and Redemption Procedures for
Pruselect II Life Insurance Contracts
Pursuant to Rule 6e-3(T)(b)(12)(iii)
This document sets forth the administrative procedures that will be followed
by Pruco Life Insurance Company ("Pruco Life") in connection with the issuance
of its Pruselect II Life Insurance Contracts ("Contract",) the transfer of
assets held thereunder, and the redemption by contract owners of their interests
in said Contracts.
I. Procedures Relating to Issuance and Purchase of the Contracts
A. Premium Schedules and Underwriting Standards
Premiums for the Contract will not be the same for all owners.
Insurance is based on the principle of pooling and distribution of
mortality risks, which assumes that each owner pays a premium
commensurate with the Insured's mortality risk as actuarially
determined utilizing factors such as age, sex, smoking status,
health and occupation, and degree of underwriting. A uniform
premium for all Insureds would discriminate unfairly in favor of
those Insureds representing greater risks. However, for a given
face amount of insurance, Contracts issued on insureds in a given
risk classification will have the same scheduled or target premium.
The underwriting standards and premium processing practices
followed by Pruco Life are similar to those followed in connection
with the offer and sale of fixed-benefit life insurance, modified
where necessary to meet the requirements of the federal securities
laws.
B. Application and Initial Premium Processing
Upon receipt of a completed application form from a prospective
owner, Pruco Life will follow certain insurance underwriting (i.e.,
evaluation of risk) procedures designed to determine whether the
proposed Insured is insurable. This will involve evaluation of the
answers to the questions on the application and may include a
medical examination. The process may require that further
information be provided by the proposed Insured before a
determination can be made. Pruco Life may in certain circumstances
offer these contracts on a guaranteed issue basis on certain
associated individuals, such as employees of a company, who meet
certain criteria established by Pruco Life. In these cases the
underwriting will be simplified, i.e., no medical examination, and
a short question application form may be used. A Contract cannot be
issued, i.e., physically issued through Pruco Life's computerized
issue system, until this underwriting procedure has been completed.
These processing procedures are designed to provide immediate
benefits to every prospective owner who pays the minimum initial
premium at the time the application is submitted, without diluting
any
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benefit payable to any existing owner. Although a Contract cannot
be issued until after the underwriting process has been completed,
such a proposed Insured will receive immediate insurance coverage
for the face amount of the Contract, if he or she proves to be
insurable and the owner has paid the minimum initial premium. Under
certain circumstances Pruco Life may decline to accept a payment at
the time the application is submitted.
The Contract Date marks the date on which benefits begin to vary in
accordance with the investment performance of the selected
investment option(s). It is also the date as of which the insurance
age of the proposed Insured is determined. It represents the first
day of the Contract year and therefore determines the Contract
anniversary and also the Monthly Dates. It also represents the
commencement of the suicide and contestable periods for purposes of
the Contract.
If the minimum initial premium is paid with the application and the
underwriting is on a guaranteed issue basis the Contract Date will
ordinarily be the date of the application. If an unusual delay is
encountered (for example, if a request for further information is
not met promptly), the Contract Date will be 21 days prior to the
date on which the Contract is physically issued. If a medical
examination is required, the Contract Date will ordinarily be the
date on which Part 2 of the application (the medical report) is
completed, subject to the same qualification as that noted above.
If the minimum initial premium is not paid with the application,
the Contract Date will be the Contract Date stated in the Contract,
which will generally be about 3 days after the date of physical
issue (to permit time for delivery). Benefits will begin on that
date provided the Owner pays the minimum initial premium by that
date.
If permitted by the insurance laws of the state in which the
Contract is issued, the Contract may be back dated up to six
months, provided that the minimum initial premium is paid with the
application and that the backdating results in a lower insurance
age for the Insured. The values under the Contract and the
amount(s) deposited into the selected investment option(s) will be
calculated upon the assumptions that the Contract had been issued
on the Contract Date and the minimum initial premium had been
received on that date. If the initial premium paid is in excess of
the minimum initial premium, the excess (after the front-end
deductions) will be credited to the Contract and placed in the
selected investment option(s) on the date of receipt.
In certain situations with Pruco Life's consent, the owner may
select a common contract date for all contracts in advance of
actual underwriting, approval and issue of the contracts. Payment
of the minimum initial premium by the selected contract date is
required.
Pruco Life will transfer the appropriate amounts to the selected
investment option(s) on the date the Contract is approved. The
variable benefits under all Contracts will be calculated on the
assumption that the invested portion of the initial premium was
transferred to the selected investment option(s) on the Contract
Date. Any portion of the initial premium payment in excess of the
minimum initial premium will be credited (after the front-end
deductions) as of the date of receipt. If the initial premium is
received before the Contract Date, the entire invested portion will
be credited as of the Contract Date.
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C. Premium Processing
Whenever a premium after the first is received, unless the Contract
is in default past its days of grace, Pruco Life will subtract the
front-end deductions. What is left will be invested in the selected
investment option(s) on the date received (or, if that is not a
business day, on the next business day). There is an exception if
the Contract is in default within its days of grace. Then, to the
extent necessary to end the default, premiums will be credited as
of the date of the default or the Monthly Date after default, and
premiums greater than this amount will be credited when received.
The Contract provides a grace period of 61 days from the date Pruco
Life mails the Contract owner a notice of default. As an
administrative practice, Pruco Life extends the grace period by
seven days to minimize manual processing required when premium
payments are processed shortly after the 61st day.
D. Reinstatement
The Contract may be reinstated within five years after default
(this period will be longer if required by state law) unless the
Contract has been surrendered for its cash surrender value. A
Contract will be reinstated upon receipt by Pruco Life of a written
application for reinstatement, production of evidence of
insurability satisfactory to Pruco Life and payment of at least the
amount specified in the Contract. That amount is a charge equal to
the deductions from the Contract Fund during the grace period
following the date of default, plus interest at 6% a year, and a
premium which will result in an invested premium amount equal to
the charges for the first three monthly dates starting on or after
the date of reinstatement.
If reinstatement is requested within three months after the
contract went into default, evidence of insurability will not be
required.
E. Repayment of Loan
A loan made under the Contract may be repaid with an amount equal
to the monies borrowed plus interest which accrues daily, either at
a fixed annual rate of 5-1/2% or, if a contract owner has elected
to have a variable loan interest rate applicable to loans made
under the Contract, at the variable loan interest rate then
applicable to the loan.
When a loan is made, Pruco Life will transfer an amount equal to
the contract loan from the investment option(s). Under the
fixed-rate Contract Loan provision, the amount of Contract Fund
attributable to the outstanding contract loan will be credited with
interest at an annual rate of 4%, and Pruco Life thus will realize
the difference between that rate and the fixed loan interest rate,
which will be used to cover the loan investment expenses, income
taxes, if any, and processing costs. If an owner so desires, the
owner may elect to have a variable loan interest rate apply to the
contract loans, if any, that he or she may make. If this election
is made:
1. Interest on the loan will accrue daily at an annual rate Pruco
Life determines at the start of each contract year (instead of
at a fixed rate), as described in the prospectus.
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2. While a loan is outstanding, the amount of the Contract Fund
attributable to the outstanding contract loan will be credited
with interest at a rate which is less than the loan interest
rate for the contract year by 1% (instead of 4%).
Upon repayment of Contract debt, the loan portion of the payment
(i.e., not the interest) will be added to the investment option(s)
in proportion to the amounts in each variable investment option
attributable to the Contract as of the date of repayment.
II. Transfers
Pruco Life Variable Universal Account ("Account") currently has
twenty subaccounts, of these, fifteen are invested in shares of a
corresponding portfolio of The Prudential Series Fund, Inc., and
the remainder in other funds ("Fund"). All are registered under the
1940 Act as open-end diversified management investment companies.
Provided the Contract is not in default the owner may, up to four
times in each contract year, transfer amounts from one subaccount
to another subaccount, without charge. All or a portion of the
amount credited to a subaccount may be transferred.
Transfers among subaccounts will take effect at the end of the
valuation period during which a proper written request or
authorized telephone request is received at a Pruco Life 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.
III. "Redemption" Procedures: Surrender and Related Transactions
A. Surrender for Cash Surrender Value
If the insured party under a Contract is alive, Pruco Life will
pay, within seven days, the Contract's cash surrender value as of
the date of receipt at its Service Office of the Contract and a
signed request for surrender. The Contract's cash surrender value
is computed as follows:
1. If the Contract is not in default: The cash surrender value is
the Contract Fund, minus any Contract debt. If the Contract is
surrendered within the first three contract years, we will
also return sales charges deducted from premiums paid within
the 365 days prior to the date we receive the surrender
request at our Service Office.
2. If the Contract is in default, the cash surrender value is
zero. We will not return any sales charges as described above.
In lieu of the payment of the cash surrender value in a single sum
upon surrender of a Contract, an election may be made by certain
owners to apply all or a portion of the proceeds under one of the
fixed benefit-settlement options described in the Contract or, with
the approval of Pruco Life, a combination of options. An option is
available only if the proceeds to be applied are $1,000 or more
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or would result in periodic payments of at least $20.00. The
fixed-benefit settlement options are subject to the restrictions
and limitations set forth in the Contract.
B. Withdrawal of Cash Surrender Value
An owner may make a withdrawal of part of the cash surrender value.
The amount withdrawn must be at least $2,000. An owner may make no
more than four withdrawals in a Contract year, and there is a fee
of $15 for each such withdrawal. Any amount withdrawn may not be
repaid except as a premium subject to the Contract charges.
Whenever a withdrawal is made, the death benefit payable will
immediately be reduced by at least the amount of the withdrawal.
The resulting reduction in death benefit may require a reduction in
the face amount. No withdrawal will be permitted if it would result
in a new face amount less than the minimum face amount. The face
amounts scheduled in other years will be reduced by the same
amount, but in no event below the minimum face amount. The Contract
Fund is reduced by the sum of the cash withdrawn and the fee for
the withdrawal. An amount equal to the reduction in the Contract
Fund will be withdrawn from the investment options. In addition,
the amount of the scheduled or target premiums due thereafter will
be reduced to reflect the lower face amount of insurance.
C. Death Claims
Pruco Life will pay a death benefit to the beneficiary within seven
days after receipt at its Service Office of due proof of death of
the Insured and all other requirements necessary to make payment.
State insurance laws impose various requirements, such as receipt
of a tax waiver, before payment of the death benefit may be made.
In addition, payment of the death benefit is subject to the
provisions of the Contract regarding suicide and incontestability.
In the event Pruco Life should contest the validity of a death
claim, an amount up to the portion of the Contract Fund in the
variable investment options with be withdrawn, if appropriate, and
held in Pruco Life's general account.
The following describes the death benefit if the Contract is not in
default past its days of grace. The death benefit is the face
amount less any Contract debt, unless it is increased due to growth
in the Contract Fund as described below.
If the Contract Fund plus any returnable sales charge times the
interpolated attained age factor (Facotrs for the insured's
attained ages are shown in the contract data pages) exceeds the
death benefit described above calculated without regard to any
contract debt, the death benefit will be the Contract Fund plus
such returnable sales charge, multiplied by the interpolated
attained age factor. The death benefit will be adjusted for any
Contact debt.
The proceeds payable on death also will include interest (at a rate
determined by Pruco Life from time to time) from the date that the
death benefit is computed (the date of death) until the date of
payment.
Pruco Life will make payment of the death benefit out of its
general account, and will transfer assets, if appropriate, from the
Account to the general account in an amount up to the Contract
Fund.
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In lieu of payment of the death benefit in a single sum, an
election may be made to apply all or a portion of the proceeds
under one of the fixed-benefit settlement options described in the
Contract, or with the approval of Pruco Life, a combination of
options. The election may be made by the owner during the Insured's
lifetime, or, at death, by the beneficiary. An option in effect at
death may not be changed to another form of benefit after death. An
option is available only if the proceeds to be applied are $1,000
or more or would result in periodic payments of at least $20.00.
The fixed benefit settlement options are subject to the
restrictions and limitations set forth in the Contract and are not
available to non-natural payees unless Pruco Life agrees otherwise.
D. Default
The Contract is in default on any Monthly Date on which the
Contract Fund is less than zero. Monthly Dates occur on the
Contract Date and in each later month on the same day of the month
as The Contract Date. The Contract provides for a grace period
commencing on the Monthly Date on which the Contract goes into
default and extending at least 61 days after the mailing date of
the notice of default. The insurance coverage continues in force
during the grace period, but if the Insured dies during the grace
period, any charges due during the grace period are deducted from
the amount payable to the beneficiary.
E. Loans
The Contract provides that if the Contract is not in default, the
owner may take out a loan at any time a loan value is available.
The owner may borrow money on completion of a form satisfactory to
Pruco Life. The Contract is the only security for the loan.
Disbursement of the amount of the loan will be made within seven
days of receipt of the form at Pruco Life's Service Office. The
investment options will be debited in the amount of the loan on the
date the form is received. The percentage of the loan withdrawn
from each investment option will normally be equal to the
percentage of the value of such assets held in the investment
option. An owner may borrow up to the Contract's full loan value.
The loan provision is described in the prospectus.
When a loan is made, the Contract Fund is not reduced, but the
value of the assets relating to the Contract held in the investment
option(s) is reduced. Accordingly, the daily changes in the cash
surrender value will be different from what they would have been
had no loan been taken. Cash surrender values are thus permanently
affected by any Contract debt, whether or not repaid.
On settlement the amount of any Contract debt is subtracted from
the insurance proceeds. If Contract debt ever becomes equal to or
more than what the cash surrender value would be if there was no
Contract debt, all the Contract's benefit will end 61 days after
notice is mailed to the owner and any known assignee, unless
payment of an amount sufficient to end the default is made within
that period.
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Exhibit 3
June 3, 1999
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/
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Clifford E. Kirsch
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Exhibit 6
June 3, 1999
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
To Pruco Life Insurance Company:
This opinion is furnished in connection with the registration be 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. 13 to Registration Statement No. 33-38271 on Form S-6 describes
the Contracts. I have reviewed the Contract form and I have participated in the
preparation and review of the Registration Statement and Exhibits thereto. In my
opinion:
(1) The illustrations of cash surrender values and death benefits included
in the prospectus section entitled "Illustrations" based on the
assumptions stated in the illustrations, are consistent with the
provisions of the Contract. The rate structure of the Contract has not
been designed so as to make the relationship between premiums and
benefits, as shown in the illustrations, appear more favorable to a
prospective purchaser of a Contract for male age 35 or male age 55,
than to prospective purchasers of Contracts on males of other ages or
on females.
(2) The explanation of the effect of an increase in the Contract fund on
the increase in insurance amount shown in the section entitled "Death
Benefit" is consistent with the provisions of the Contract.
(3) The deduction in an amount equal to 1.25% of each premium is a
reasonable charge in relation to the additional income tax burden
imposed upon Pruco Life and its parent company, The Prudential
Insurance Company of America, as the result of the enactment of
Section 848 of the Internal Revenue Code. In reaching that conclusion
a number of factors were taken into account that, in my opinion, were
appropriate and which resulted in a projected after-tax rate of return
that is a reasonable rate to use in discounting the tax benefit of the
deductions allowed in Section 848 in taxable years subsequent to the
year in which the premiums are received.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Very truly yours,
/s/
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Nancy D. Davis, FSA, MAAA
Vice President and Actuary
The Prudential Insurance Company of America
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