AS FILED WITH THE SEC ON ______________. REGISTRATION NO. 333-85115
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
PRUCO LIFE
VARIABLE UNIVERSAL ACCOUNT
(Exact Name of Trust)
PRUCO LIFE INSURANCE COMPANY
(Name of Depositor)
PRUCO LIFE INSURANCE COMPANY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(800) 286-7754
(Address and telephone number of principal executive offices)
-----------------
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
-----------------
Variable Universal Life Insurance Contracts--The Registrant hereby elects to
register an indefinite amount of securities pursuant to Rule 24f-2 under the
Investment Company Act of 1940.
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
This filing is being made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940.
<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 and Regulatory Proceedings
10. Introduction and Summary; Charges and Expenses; Short-Term
Cancellation Right or "Free Look"; Types of Death Benefit;
Changing the Type of Death Benefit; Riders; Premiums;
Allocation of Premiums; Transfers; Dollar Cost Averaging;
Auto-Rebalancing; How a Contract's Surrender Value Will Vary;
How a Type A (Fixed) Contract's Death Benefit Will Vary; How
a Type B (Variable) Contract's Death Benefit Will Vary; How a
Type C (Return of Premium) Contract's Death Benefit Will
Vary; Surrender of a Contract; Withdrawals; Lapse and
Reinstatement; Increases in Basic Insurance Amount; Decreases
in Basic Insurance Amount; When Proceeds are Paid; Contract
Loans; Other General Contract Provisions; Voting Rights;
Substitution of Fund Shares
11. Introduction and Summary; Pruco Life Variable Universal
Account
12. Cover Page; Introduction and Summary; The Funds; Sale of the
Contract and Sales Commissions
13. Introduction and Summary; The Funds; Charges and Expenses;
Premiums; Allocation of Premiums; Sale of the Contract and
Sales Commissions
14. Introduction and Summary; Detailed Information for
Prospective Contract Owners
15. Introduction and Summary; Premiums; Allocation of Premiums;
Transfers; Dollar Cost Averaging; Auto-Rebalancing
16. Introduction and Summary; Detailed Information for
Prospective Contract Owners
17. When Proceeds are Paid
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
18. Pruco Life Variable Universal Account
19. Reports to Contract Owners
20. Not Applicable
21. Contract Loans
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions
25. Pruco Life Insurance Company
26. Introduction and Summary; The Funds; Charges and Expenses
27. Pruco Life Insurance Company; The Funds
28. Pruco Life Insurance Company; Directors and Officers
29. Pruco Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Pruco Life Insurance Company
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions
39. Sale of the Contract and Sales Commissions
40. Not Applicable
41. Sale of the Contract and Sales Commissions
42. Not Applicable
43. Not Applicable
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
44. Introduction and Summary; The Funds; How a Contract's Cash
Surrender Value Will Vary; How a Type A (Fixed) Contract's
Death Benefit Will Vary; How a Type B (Variable) Contract's
Death Benefit Will Vary; How a Type C (Return of Premium)
Contract's Death Benefit Will Vary
45. Not Applicable
46. Introduction and Summary; Pruco Life Variable Universal
Account; The Funds
47. Pruco Life Variable Universal Account; The Funds
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements: Financial Statements of the PruSelect
III Variable Life Subaccounts of the 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) III
VARIABLE LIFE INSURANCE
PROSPECTUS
Pruco Life
Variable Universal Account
November 10, 1999
PRUCO LIFE INSURANCE COMPANY
<PAGE>
PROSPECTUS
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
PRUSELECT(SM) III
VARIABLE LIFE INSURANCE CONTRACTS
This prospectus describes certain individual flexible premium variable universal
life insurance contracts, PRUSELECT(SM) III Variable Life Insurance Contracts
(the "Contract"), issued by Pruco Life Insurance Company ("Pruco Life"), a stock
life insurance company. Pruco Life is a wholly-owned subsidiary of The
Prudential Insurance Company of America. These Contracts provide individual
variable universal life insurance coverage with flexible premium payments, a
variety of investment options, and three types of death benefit options. These
Contracts may be issued with a Target Term Rider that could have a significant
effect on the performance of your Contract. For the factors to consider when
adding a Target Term Rider to your Contract, see RIDERS, page 15. 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 may choose to invest your Contract's premiums and its earnings in the
following ways:
o Invest in one or more of 15 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 High Yield Bond Equity
Diversified Bond Stock Index Prudential Jennison
Conservative Balanced Equity Income Global
Flexible Managed
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 Fund 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>
<TABLE>
<CAPTION>
PROSPECTUS CONTENTS
Page
<S> <C>
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS..................................1
INTRODUCTION AND SUMMARY..............................................................2
BRIEF DESCRIPTION OF THE CONTRACT..................................................2
CHARGES............................................................................2
TYPES OF DEATH BENEFIT.............................................................5
LIFE INSURANCE DEFINITIONAL TESTS..................................................5
PREMIUM PAYMENTS...................................................................5
REFUND.............................................................................5
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, THE PRUCO LIFE VARIABLE
UNIVERSAL ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACT...6
PRUCO LIFE INSURANCE COMPANY.......................................................6
THE PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT..........................................6
THE FUNDS..........................................................................7
WHICH INVESTMENT OPTION SHOULD BE SELECTED?........................................9
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS.................................10
CHARGES AND EXPENSES..............................................................10
REQUIREMENTS FOR ISSUANCE OF A CONTRACT...........................................12
SHORT-TERM CANCELLATION RIGHT OR "FREE-LOOK"......................................13
TYPES OF DEATH BENEFIT............................................................13
CHANGING THE TYPE OF DEATH BENEFIT................................................14
RIDERS............................................................................15
PREMIUMS..........................................................................16
ALLOCATION OF PREMIUMS............................................................16
TRANSFERS.........................................................................17
DOLLAR COST AVERAGING.............................................................17
AUTO-REBALANCING..................................................................17
HOW A CONTRACT'S SURRENDER VALUE WILL VARY........................................18
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY...........................18
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY........................19
HOW A TYPE C (RETURN OF PREMIUM) CONTRACT'S DEATH BENEFIT WILL VARY...............20
SURRENDER OF A CONTRACT...........................................................21
WITHDRAWALS.......................................................................21
LAPSE AND REINSTATEMENT...........................................................22
INCREASES IN BASIC INSURANCE AMOUNT...............................................22
DECREASES IN BASIC INSURANCE AMOUNT...............................................23
WHEN PROCEEDS ARE PAID............................................................24
ILLUSTRATIONS OF SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS.......24
CONTRACT LOANS....................................................................26
SALE OF THE CONTRACT AND SALES COMMISSIONS........................................26
TAX TREATMENT OF CONTRACT BENEFITS................................................27
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS...............29
EXCHANGE RIGHT AVAILABLE IN SOME STATES...........................................29
OTHER GENERAL CONTRACT PROVISIONS.................................................29
VOTING RIGHTS.....................................................................30
SUBSTITUTION OF FUND SHARES.......................................................30
REPORTS TO CONTRACT OWNERS........................................................30
STATE REGULATION..................................................................31
EXPERTS...........................................................................31
LITIGATION AND REGULATORY PROCEEDINGS.............................................31
YEAR 2000 COMPLIANCE..............................................................34
ADDITIONAL INFORMATION............................................................35
</TABLE>
<PAGE>
<TABLE>
<S> <C>
FINANCIAL STATEMENTS..............................................................35
DIRECTORS AND OFFICERS...............................................................36
FINANCIAL STATEMENTS OF THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF THE PRUCO
LIFE VARIABLE UNIVERSAL ACCOUNT......................................................A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY AND
SUBSIDIARIES.........................................................................B1
</TABLE>
<PAGE>
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS
ATTAINED AGE -- The insured's age on the Contract date plus the number of years
since then. For any coverage segment effective after the Contract date, the
insured's attained age is the issue age of that segment plus the length of time
since its effective date.
BASIC INSURANCE AMOUNT -- The amount of life insurance as shown in the Contract.
CASH VALUE -- The same as the "Contract Fund."
CONTRACT -- The variable universal life insurance policy described in this
prospectus.
CONTRACT ANNIVERSARY -- The same date as the Contract date in each later year.
CONTRACT DATE -- The date the Contract is effective, as specified in the
Contract.
CONTRACT DEBT -- The principal amount of all outstanding loans plus any interest
we have charged that is not yet due and that we have not yet added to the loan.
CONTRACT FUND -- The total amount credited to a specific Contract. On any date
it is equal to the sum of the amounts in all the subaccounts and the principal
amount of any Contract debt.
CONTRACT OWNER -- You. Unless a different owner is named in the application, the
owner of the Contract is the insured.
CONTRACT YEAR -- A year that starts on the Contract date or on a Contract
anniversary. For any portion of a Contract representing an increase, "Contract
year" is a year that starts on the effective date of the increase. See INCREASES
IN BASIC INSURANCE AMOUNT, page 22.
COVERAGE SEGMENT -- The basic insurance amount at issue is the first coverage
segment. For each increase in basic insurance amount, a new coverage segment is
created for the amount of the increase. See Increases in Basic Insurance Amount,
page 22.
DEATH BENEFIT -- The amount we will pay upon the death of the insured before
reduction by any Contract debt and amounts needed to pay charges through the
date of death.
FACE AMOUNT -- The same as the "basic insurance amount." However, if the
Contract is issued with a Target Term Rider, the "basic insurance amount" plus
the rider coverage amount equals the "total face amount."
FUNDS -- Mutual funds with separate portfolios. One or more of the available
Fund portfolios may be chosen as an underlying investment for the Contract.
MONTHLY DATE -- The Contract date and the same date in each subsequent month.
NET CASH VALUE -- The Contract Fund minus any Contract debt.
PRUCO LIFE INSURANCE COMPANY -- Us, we, our, Pruco Life. The company offering
the Contract.
THE 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.
SEGMENT ALLOCATION AMOUNT -- The amount used to determine the charge for sales
expenses. It may also be referred to as the "Target Premium." See CHARGES AND
EXPENSES, page 10.
SUBACCOUNT -- An investment division of the Account, the assets of which are
invested in the shares of the corresponding portfolio of the Funds.
SURRENDER VALUE -- The amount payable to the Contract owner upon surrender of
the Contract. It is equal to the Contract Fund minus any Contract debt plus any
return of sales charges.
TARGET PREMIUM -- The same as "segment allocation amount." See Charges and
Expenses, page 10.
VALUATION PERIOD -- The period of time from one determination of the value of
the amount invested in a subaccount to the next. Such determinations are made
when the net asset values of the portfolios of the Funds are calculated, which
is generally at 4:15 p.m. Eastern time on each day during which the New York
Stock Exchange is open.
US, WE, OUR -- Pruco Life Insurance Company.
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 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. These Contracts may be
issued with a Target Term Rider that could have a significant effect on the
performance of your Contract. For the factors to consider when adding a Target
Term Rider to your Contract, see RIDERS, page 15. 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. The chart below
describes how the value of your Contract Fund changes.
You may invest premiums in one or more of the 15 available subaccounts. Your
Contract Fund value changes every day depending upon the change in the value of
the particular investment options that you have selected.
Although the value of your Contract Fund will increase if there is favorable
investment performance in the subaccounts you select, there is a risk that
investment performance will be unfavorable and that the value of your Contract
Fund will decrease. The risk will be different, depending upon which investment
options you choose. See WHICH INVESTMENT OPTION SHOULD BE SELECTED?, page 9.
CHARGES
The following chart outlines the components of your Contract Fund and the
adjustments which may be made including the maximum charges which may be
deducted from each premium payment and from the amounts held in the designated
investment options. These charges are largely designed to cover insurance costs
and risks, as well as sales and administrative expenses. The maximum charges
shown in the chart, as well as the current lower charges, are fully described
under CHARGES AND EXPENSES, page 10.
2
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<PAGE>
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PREMIUM PAYMENT
---------------------------------------------------------
--------------------------------------------------
o less a charge of up to 7.5% of the premiums
paid for taxes attributable to premiums. In
Oregon this is called a premium based
administrative charge.
o less a charge for sales expenses of up to 15%
of the premiums paid.
--------------------------------------------------
- --------------------------------------------------------------------------------
INVESTED PREMIUM AMOUNT
To be invested in one or a combination of 15 investment portfolios of the Funds.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRACT FUND
On the Contract Date, the Contract Fund is equal to the invested premium amount
minus any of the charges described below which may be due on that date.
Thereafter, the value of the Contract Fund changes daily.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRUCO LIFE ADJUSTS THE CONTRACT FUND FOR:
o Addition of any new invested premium amounts.
o Addition of any increase due to investment results of the chosen
subaccounts.
o Addition of guaranteed interest at an effective annual rate of 4% on the
amount of any Contract loan. (Separately, interest charged on the loan
accrues at an effective annual rate of 4.25% or 5%. See Contract Loans,
page 26.)
o Subtraction of any decrease due to investment results of the chosen
subaccounts.
o Subtraction of any amount withdrawn.
o Subtraction of the charges listed below, as applicable.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DAILY CHARGES
o Management fees and expenses are deducted from the Fund assets.
See Underlying Portfolio Expenses chart, below.
o We deduct a daily mortality and expense risk charge, equivalent to an
annual rate of up to 0.5%, from the subaccount assets.
- --------------------------------------------------------------------------------
MONTHLY CHARGES
o We reduce the Contract Fund by a monthly administrative charge of up to $10
plus $0.05 per $1,000 of the basic insurance amount.
o We deduct a cost of insurance ("COI") charge.
o If the Contract includes riders, we deduct rider charges from the Contract
Fund.
o If the rating class of an insured results in an extra charge, we will
deduct that charge from the Contract Fund.
- --------------------------------------------------------------------------------
3
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<PAGE>
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POSSIBLE ADDITIONAL CHARGES
o We assess an administrative charge of up to $25 for any withdrawals.
o We may assess an administrative charge of up to $25 for any change in basic
insurance amount.
o We may assess an administrative charge of up to $25 for any change in the
Target Term Rider coverage amount (see RIDERS, page 15).
o We assess an administrative charge of up to $25 for each transfer exceeding
12 in any Contract year.
<TABLE>
<CAPTION>
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UNDERLYING PORTFOLIO EXPENSES
(THE EXPENSE FIGURES FOR THE JANUS ASPEN SERIES GROWTH PORTFOLIO ARE
AFTER FEE WAIVERS OR REDUCTIONS.)
- ------------------------------------------------------------------------------------
INVESTMENT
ADVISORY OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
SERIES FUND
Money Market .................................. 0.40% 0.01% 0.41%
Diversified Bond .............................. 0.40% 0.02% 0.42%
Conservative Balanced ......................... 0.55% 0.02% 0.57%
Flexible Managed .............................. 0.60% 0.01% 0.61%
High Yield Bond ............................... 0.55% 0.03% 0.58%
Stock Index ................................... 0.35% 0.02% 0.37%
Equity Income ................................. 0.40% 0.02% 0.42%
Equity ........................................ 0.45% 0.02% 0.47%
Prudential Jennison ........................... 0.60% 0.03% 0.63%
Global ........................................ 0.75% 0.11% 0.86%
AIM VARIABLE INSURANCE FUNDS, INC ...................
AIM V.I. Value Fund ......................... 0.61% 0.05% 0.66%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC ...........
VP Value Portfolio (1) ...................... 1.00% 0.00% 1.00%
JANUS ASPEN SERIES
Growth Portfolio (2) ........................ 0.65% 0.03% 0.68%
MFS(R)VARIABLE INSURANCE TRUST(SM)
Emerging Growth Series ...................... 0.75% 0.10% 0.85%
T. ROWE PRICE INTERNATIONAL SERIES, INC .............
International Stock Portfolio (3) ............. 1.05% 0.00% 1.05%
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</TABLE>
(1) AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
Fees are all-inclusive.
(2) JANUS ASPEN SERIES
The fees and expenses shown above are based on net expenses of the
Portfolio after expense offset arrangements for the fiscal year ended
December 31, 1998. The information for the Portfolio is net of fee waivers
or reductions from Janus Capital. Fee reductions for the Portfolio reduce
the management fee to the level of the corresponding Janus retail fund.
Other waivers, if applicable, are first applied against the management fee
and then against other expenses. Without such waivers or reductions, the
management fee, other expenses and total operating expenses for the
Portfolio would have been 0.72%, 0.03% and 0.75%, respectively. Janus
Capital may modify or terminate the waivers or reductions at any time upon
at least 90 days' notice to the Trustees.
(3) T. ROWE PRICE INTERNATIONAL SERIES, INC.
The investment management fee includes the ordinary expenses of operating
the Fund.
4
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<PAGE>
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TYPES OF DEATH BENEFIT
There are three types of death benefit available. You may choose a Contract with
a Type A (fixed) death benefit under which the cash value varies daily with
investment experience, and the death benefit generally remains at the basic
insurance amount you initially chose. However, the Contract Fund may grow to a
point where the death benefit may increase and vary with investment experience.
If you choose a Contract with a Type B (variable) death benefit, the cash value
and the death benefit both vary with investment experience. If you choose a
Contract with a Type C (return of premium) death benefit, the death benefit is
increased by the amount of premiums paid into the Contract, less withdrawals,
plus interest at a rate between 0% and 8% (in 1/2% increments) chosen by the
Contract owner. For Type A and Type B death benefits, as long as the Contract is
inforce, the death benefit will never be less than the basic insurance amount
shown in your Contract. See TYPES OF DEATH BENEFIT, page 13.
LIFE INSURANCE DEFINITIONAL TESTS
In order to qualify as life insurance for Federal tax purposes, the Contract
must adhere to the definition of life insurance under Section 7702 of the
Internal Revenue Code. At issue, the Contract owner chooses one of the following
definition of life insurance tests: (1) Cash Value Accumulation Test or (2)
Guideline Premium Test. Under the Cash Value Accumulation Test, there is a
minimum death benefit to cash value ratio. Under the Guideline Premium Test,
there is a limit to the amount of premiums that can be paid into the Contract,
as well as a minimum death benefit to cash value ratio. For more information,
see TAX TREATMENT OF CONTRACT BENEFITS, page 27.
PREMIUM PAYMENTS
The Contract is a flexible premium contract - there are no scheduled premiums.
Except for the minimum initial premium, and subject to a minimum of $25 per
subsequent payment, you choose the timing and amount of premium payments. The
Contract will remain inforce if the Contract Fund is greater than zero and more
than any Contract debt. See PREMIUMS, page 15 and LAPSE AND REINSTATEMENT, page
22.
We offer and suggest regular billing of premiums even though you decide when to
make premium payments and, subject to a $25 minimum, in what amounts. You should
discuss your billing options with your Pruco Life representative when you apply
for the Contract. See PREMIUMS, page 15.
REFUND
For a limited time, you may return your Contract for a refund in accordance with
the terms of its "free-look" provision. See SHORT-TERM CANCELLATION RIGHT or
"FREE-LOOK," page 13.
For the DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, see page 1.
THE REPLACEMENT OF LIFE INSURANCE IS GENERALLY NOT IN YOUR BEST INTEREST. IN
MOST CASES, IF YOU REQUIRE ADDITIONAL COVERAGE, THE BENEFITS OF YOUR EXISTING
CONTRACT CAN BE PROTECTED BY PURCHASING ADDITIONAL INSURANCE OR A SUPPLEMENTAL
CONTRACT. IF YOU ARE CONSIDERING REPLACING A CONTRACT, YOU SHOULD COMPARE THE
BENEFITS AND COSTS OF SUPPLEMENTING YOUR EXISTING CONTRACT WITH THE BENEFITS AND
COSTS OF PURCHASING THE CONTRACT DESCRIBED IN THIS PROSPECTUS AND YOU SHOULD
CONSULT WITH A QUALIFIED TAX ADVISER.
THIS PROSPECTUS MAY ONLY BE OFFERED IN JURISDICTIONS IN WHICH THE OFFERING IS
LAWFUL. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION FOR THE FUNDS.
5
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<PAGE>
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE
COMPANY, THE PRUCO LIFE VARIABLE UNIVERSAL
ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS
AVAILABLE UNDER THE CONTRACT
PRUCO LIFE INSURANCE COMPANY
Pruco Life Insurance Company ("Pruco Life", "us", "we", or "our") 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 yet been
obtained.
Pruco Life is a wholly-owned subsidiary of The Prudential Insurance Company of
America ("Prudential"), a mutual insurance company founded in 1875 under the
laws of the State of New Jersey. Prudential is currently considering
reorganizing itself into a publicly traded stock company through a process known
as "demutualization." On February 10, 1998, Prudential's Board of Directors
authorized management to take the preliminary steps necessary to allow
Prudential 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 Prudential'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. Under
New Jersey's demutualization law, a policy would have to be in effect on the
date Prudential's Board of Directors adopted a plan of reorganization in order
to be considered for eligibility. 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
Prudential'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. This does not constitute a proposal, offer, solicitation or
recommendation regarding any plan of reorganization that may be proposed or a
recommendation regarding the ownership of any stock that could be issued in
connection with any such demutualization.
As of December 31, 1998, Prudential has invested over $442 million in Pruco Life
in connection with Pruco Life's organization and operation. Prudential is under
no obligation to make such contributions and its assets do not back the benefits
payable under the Contract. Pruco Life's consolidated financial statements begin
on page B1 and should be considered only as bearing upon Pruco Life's ability to
meet its obligations under the Contracts.
THE PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
The Pruco Life Variable Universal Account (the "Account") was established on
April 17, 1989 under Arizona law as a separate investment account. The Account
meets the definition of a "separate account" under the federal securities laws.
The Account holds assets that are segregated from all of Pruco Life's other
assets.
The obligations to Contract owners and beneficiaries arising under the Contracts
are general corporate obligations of Pruco Life. Pruco Life is also the legal
owner of the assets in the Account. Pruco Life will maintain assets in the
Account with a total market value at least equal to the reserve and other
liabilities relating to the variable benefits attributable to the Account. These
assets may not be charged with liabilities which arise from any other business
Pruco Life conducts. In addition to these assets, the Account's assets may
include funds contributed by Pruco Life to commence operation of the Account and
may include accumulations of the charges Pruco Life makes against the Account.
From time to time these additional assets will be transferred to Pruco Life's
general account. Before making any such transfer, Pruco Life will consider any
possible adverse impact the transfer might have on the Account.
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The Account is a unit investment trust, which is a type of investment company.
It is registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940 ("1940 Act"). This does not involve any
supervision by the SEC of the management 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 15 available subaccounts
within the Account, each of which invests in a single corresponding portfolio of
the Funds. Additional subaccounts may be added in the future. The Account's
financial statements begin on page A1.
THE FUNDS
The following is a list of the Funds, the portfolios' investment objectives and
investment advisers:
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND"):
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 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 GLOBAL PORTFOLIO: The investment objective is long-term growth of capital.
The Portfolio invests primarily in common stocks (and their equivalents) of
foreign and U.S. companies.
Prudential is the investment adviser for the assets of each of the portfolios of
the Series Fund. Prudential's principal business address is 751 Broad Street,
Newark, New Jersey 07102-3777. Prudential has a Service Agreement with its
wholly-owned subsidiary, The Prudential Investment Corporation ("PIC"). The
Service Agreement provides that, subject to Prudential's supervision, PIC will
furnish investment advisory services in connection with the management of the
Series Fund. In addition, Prudential has entered into a Subadvisory Agreement
with its wholly-owned subsidiary, Jennison Associates LLC ("Jennison"), under
which Jennison furnishes investment advisory services in connection with the
management of the Prudential Jennison Portfolio.
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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.
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, page 11, and are
more fully described in the prospectus for each Fund.
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In the future it may become disadvantageous for both variable life insurance and
variable annuity contract separate accounts to invest in the same underlying
mutual funds. Although neither of the companies that invest in the Funds nor the
Funds currently foresee any such disadvantage, the Board of Directors for each
Fund intends to monitor 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.
WHICH INVESTMENT OPTION SHOULD BE SELECTED?
Historically, for investments held over relatively long periods, the investment
performance of common stocks has generally been superior to that of short or
long-term debt securities, even though common stocks have been subject to much
more dramatic changes in value over short periods of time. Accordingly,
portfolios such as the Stock Index, Equity Income, Equity, Prudential Jennison,
Global, AIM V.I. Value Fund, American Century VP Value Fund, Janus Growth, MFS
Emerging Growth Series or T. Rowe Price International Stock may be desirable
options if you are willing to accept such volatility in your Contract values.
Each of these equity portfolios involves different policies and investment
risks.
You may prefer the somewhat greater protection against loss of principal (and
reduced chance of high total return) provided by the Diversified Bond Portfolio.
You may want even greater safety of principal and may prefer the Money Market
Portfolio, recognizing that the level of short-term rates may change rather
rapidly. If you are willing to take risks and possibly achieve a higher total
return, you may prefer the High Yield Bond Portfolio, recognizing that the risks
are greater for lower quality bonds with normally higher yields. You may wish to
divide your invested premium among two or more of the portfolios. You may wish
to obtain diversification by relying on Prudential's judgment for an appropriate
asset mix by choosing the Conservative Balanced or Flexible Managed Portfolio.
Your choice should take into account your willingness to accept investment
risks, how your other assets are invested, and what investment results you may
experience in the future. You should consult your Pruco Life representative from
time to time about the choices available to you under the Contract. Pruco Life
recommends AGAINST frequent transfers among the several options. Experience
generally indicates that "market timing" investing, particularly by
non-professional investors, is likely to prove unsuccessful.
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DETAILED INFORMATION FOR
PROSPECTIVE CONTRACT OWNERS
CHARGES AND EXPENSES
This section provides a more detailed description of each charge that is
described briefly in the chart on page 3.
In several instances we will use the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, is the highest charge that
Pruco Life is entitled to make under the Contract. The "current charge" is the
lower amount that Pruco Life is now charging. If circumstances change, we
reserve the right to increase each current charge, up to the maximum charge,
without giving any advance notice.
DEDUCTIONS FROM PREMIUM PAYMENTS
(a) We charge up to 7.5% for taxes attributable to premiums (in Oregon this is
called a premium based administrative charge). For these purposes, "taxes
attributable to premiums" shall include any federal, state or local income,
premium, excise, business or any other type of tax (or component thereof)
measured by or based upon the amount of premium received by Pruco Life.
That charge is made up of two parts which currently equal a total of 3.75%
of the premiums received. The first part is a charge for state and local
premium taxes. The current amount for this first part is 2.5% of the
premium. Tax rates vary from jurisdiction to jurisdiction and generally
range from 0.75% to 5%. Pruco Life may collect more for this charge than it
actually pays for state and local premium taxes. The second part is for
federal income taxes measured by premiums, and it is currently equal to
1.25% of premiums. We believe that this charge is a reasonable estimate of
an increase in its federal income taxes resulting from a 1990 change in the
Internal Revenue Code. It is intended to recover this increased tax.
(b) We will deduct a charge for sales expenses. This charge, often called a
"sales load", is deducted to compensate us for the cost of selling the
Contracts, including commissions, advertising and the printing and
distribution of prospectuses and sales literature. A portion of the sales
load may be returned to you if the Contract is surrendered during the first
four Contract years. See RETURN OF SALES CHARGES, below.
The amount used to determine the charge for sales expenses is called the
"segment allocation amount" in your Contract. It may also be referred to as
the Target Premium. Target Premiums vary by the age, sex (except where
unisex rates apply), smoking status, and rating class of the insured and
will drop to zero after 10 years. Each coverage segment has its own Target
Premium. Target Premiums for each coverage segment are shown in the Segment
Table located in the data pages of your Contract.
For the first ten years of each coverage segment we charge up to 15% of
premiums received each year up to the Target Premium and up to 2% on any
excess. In years 11 and later of each coverage segment, we charge up to 2%
of premiums received. Currently, we charge 13 1/2% of premiums received up
to the Target Premium and 2% of any excess for the first 10 years of each
coverage segment. In years 11 and later of each coverage segment, we
currently charge 2% of premiums received. For information on determining
the sales expense charge if there are two or more coverage segments in
effect, see INCREASES IN BASIC INSURANCE AMOUNT, page 22.
Attempting to structure the timing and amount of premium payments to reduce
the potential sales load may increase the risk that your Contract will
lapse without value. In addition, there are circumstances where payment of
premiums that are too large may cause the Contract to be characterized as a
Modified Endowment Contract, which could be significantly disadvantageous.
See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
RETURN OF SALES CHARGES
If the Contract is fully surrendered within the first four Contract years and it
is not in default, Pruco Life will return 50% of any sales charges deducted from
premiums paid within 24 months prior to the date Pruco Life receives the
surrender request at a Home Office.
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DEDUCTIONS FROM PORTFOLIOS
We deduct an investment advisory fee daily from each portfolio of the Funds at a
rate, on an annualized basis, ranging from 0.35% for the Series Fund Stock Index
Portfolio to 1.05% for the T. Rowe Price International Stock Portfolio. The
expenses incurred in conducting the investment operations of the portfolios
(such as custodian fees and preparation and distribution of annual reports) are
paid out of the portfolio's income. These expenses also vary from portfolio to
portfolio.
The total expenses of each portfolio for the year ended December 31, 1998,
expressed as a percentage of the average assets during the year, are shown
below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
TOTAL PORTFOLIO EXPENSES
(THE EXPENSE FIGURES FOR THE JANUS ASPEN SERIES GROWTH PORTFOLIO ARE
AFTER FEE WAIVERS OR REDUCTIONS.)
- ------------------------------------------------------------------------------------
INVESTMENT
ADVISORY OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
SERIES FUND
Money Market .................................. 0.40% 0.01% 0.41%
Diversified Bond .............................. 0.40% 0.02% 0.42%
Conservative Balanced ......................... 0.55% 0.02% 0.57%
Flexible Managed .............................. 0.60% 0.01% 0.61%
High Yield Bond ............................... 0.55% 0.03% 0.58%
Stock Index ................................... 0.35% 0.02% 0.37%
Equity Income ................................. 0.40% 0.02% 0.42%
Equity ........................................ 0.45% 0.02% 0.47%
Prudential Jennison ........................... 0.60% 0.03% 0.63%
Global ........................................ 0.75% 0.11% 0.86%
AIM VARIABLE INSURANCE FUNDS, INC ...................
AIM V.I. Value Fund ......................... 0.61% 0.05% 0.66%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC ...........
VP Value Portfolio (1) ...................... 1.00% 0.00% 1.00%
JANUS ASPEN SERIES
Growth Portfolio (2) ........................ 0.65% 0.03% 0.68%
MFS(R)VARIABLE INSURANCE TRUST(SM)
Emerging Growth Series ...................... 0.75% 0.10% 0.85%
T. ROWE PRICE INTERNATIONAL SERIES, INC .............
International Stock Portfolio (3) ............. 1.05% 0.00% 1.05%
- ------------------------------------------------------------------------------------
</TABLE>
(1) AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
Fees are all-inclusive.
(2) JANUS ASPEN SERIES
The fees and expenses shown above are based on net expenses of the
Portfolio after expense offset arrangements for the fiscal year ended
December 31, 1998. The information for the Portfolio is net of fee waivers
or reductions from Janus Capital. Fee reductions for the Portfolio reduce
the management fee to the level of the corresponding Janus retail fund.
Other waivers, if applicable, are first applied against the management fee
and then against other expenses. Without such waivers or reductions, the
management fee, other expenses and total operating expenses for the
Portfolio would have been 0.72%, 0.03% and 0.75%, respectively. Janus
Capital may modify or terminate the waivers or reductions at any time upon
at least 90 days' notice to the Trustees.
(3) T. ROWE PRICE INTERNATIONAL SERIES, INC.
The investment management fee includes the ordinary expenses of operating
the Fund.
THE EXPENSES RELATING TO THE FUNDS (OTHER THAN THOSE OF THE SERIES FUND) HAVE
BEEN PROVIDED TO PRUCO LIFE BY THE FUNDS. PRUCO LIFE HAS NOT INDEPENDENTLY
VERIFIED THEM.
DAILY DEDUCTION FROM THE CONTRACT FUND
Each day we deduct a charge from the assets of each of the subaccounts in an
amount equivalent to an effective annual rate of up to 0.50%. Currently, we
intend to charge 0.20%. This charge is intended to compensate Pruco Life for
assuming mortality and expense risks under the Contract. The mortality risk
assumed is that insureds may live for
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shorter periods of time than Pruco Life estimated when it determined what
mortality charge to make. The expense risk assumed is that expenses incurred in
issuing and administering the Contract will be greater than Pruco Life estimated
in fixing its administrative charges.
MONTHLY DEDUCTIONS FROM THE CONTRACT FUND
Pruco Life deducts the following monthly charges proportionately from the dollar
amounts held in each of the chosen investment option[s].
(a) An administrative charge based on the basic insurance amount is deducted.
The charge is intended to compensate us for things like processing claims,
keeping records and communicating with Contract owners. Currently, the
charge is equal to $10 per month. Pruco Life reserves the right, however to
charge up to $10 per Contract plus $0.05 per $1,000 of basic insurance
amount each month.
For example, a Contract with a basic insurance amount of $100,000 would
currently have a charge equal to $10. The maximum charge for this same
Contract would be $10 plus $5 for a total of $15 per month.
(b) A cost of insurance ("COI") charge is deducted. When an insured dies, the
amount payable to the beneficiary (assuming there is no Contract debt) is
larger than the Contract Fund - significantly larger if the insured dies in
the early years of a Contract. The cost of insurance charges collected from
all Contract owners enables Pruco Life to pay this larger death benefit.
The maximum COI charge is determined by multiplying the "net amount at
risk" under a Contract (the amount by which the Contract's death benefit
exceeds the Contract Fund) by maximum COI rates. The maximum COI rates are
based upon the 1980 Commissioners Standard Ordinary ("CSO") Tables and an
insured's current attained age, sex (except where unisex rates apply),
smoker/non-smoker status, and extra rating class, if any. At most ages,
Pruco Life's current COI rates are lower than the maximum rates. For
additional information, see INCREASES IN BASIC INSURANCE AMOUNT, page 22.
(c) You may add a Target Term Rider to the Contract. If you add this rider to
the basic Contract, additional charges will be deducted.
(d) If an insured is in a substandard risk classification (for example, a
person in a hazardous occupation), additional charges will be deducted.
TRANSACTION CHARGES
(a) We currently charge an administrative processing fee equal to the lesser of
$25 or 2% of the withdrawal amount in connection with each withdrawal.
(b) We currently do not charge an administrative processing fee in connection
with a change in basic insurance amount. We reserve the right to make such
a charge in an amount of up to $25 for any change in basic insurance
amount.
(c) We will charge an administrative processing fee of up to $25 for each
transfer exceeding 12 in any Contract year.
(d) We may charge an administrative processing fee of up to $25 for any change
in the Target Term Rider coverage amount for Contracts with this rider.
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
Pruco Life offers the Contract on a fully underwritten, simplified issue, and
guaranteed issue basis. Fully underwritten Contracts require individualized
evidence of the insured's insurability and rating class. Simplified issue
Contracts reflect underwriting risk factors related to the issue of the Contract
as one of several Contracts requiring some medical underwriting of the proposed
insureds. Conversely, guaranteed issue Contracts are issued with minimal
underwriting but may only be issued in certain circumstances on associated
individuals, such as 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 a fully underwritten,
simplified issue or guaranteed issue basis. Currently, the minimum total face
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amount (basic insurance amount plus any Target Term Rider coverage amount
combined) that can be applied for is $100,000 for all three aforementioned
underwriting bases. If the Target Term Rider is added to the Contract, neither
the basic insurance amount nor the rider coverage amount can be less than
$5,000. See RIDERS, page 15. Pruco Life may reduce the minimum face amounts of
the Contracts it will issue. Furthermore, the Contract owner may establish a
schedule under which the basic insurance amount increases on designated Contract
anniversaries. See INCREASES IN BASIC INSURANCE AMOUNT, page 22.
Generally, the Contract may be issued on insureds between the ages of 20 and 75
for fully underwritten Contracts and between the ages of 20 and 64 for
simplified 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. For information on how premium payments are allocated
during the "free-look" period, see ALLOCATION OF PREMIUMS, page 16.
TYPES OF DEATH BENEFIT
You may select from three types of death benefits. Generally, a Contract with a
Type A (fixed) death benefit has a death benefit equal to the basic insurance
amount. This type of death benefit does not vary with the investment performance
of the investment options you selected, except in certain circumstances. See HOW
A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY, page 18. The payment of
additional premiums and favorable investment results of the subaccounts to which
the assets are allocated will generally increase the cash value. See HOW A
CONTRACT'S SURRENDER VALUE WILL VARY, page 18.
A Contract with a Type B (variable) death benefit has a death benefit which will
generally equal the basic insurance amount plus the Contract Fund. Since the
Contract Fund is a part of the death benefit, favorable investment performance
and payment of additional premiums generally result in an increase in the death
benefit as well as in the cash value. Over time, however, the increase in the
cash value will be less than under a Type A (fixed) Contract. This is because,
given two Contracts with the same basic insurance amount and equal Contract
Funds, generally the cost of insurance charge for a Type B (variable) Contract
will be greater. Unfavorable investment performance will result in decreases in
the death benefit and in the cash value. But, as long as the Contract is not in
default, the death benefit may not fall below the basic insurance amount stated
in the Contract. See HOW A CONTRACT'S SURRENDER VALUE WILL VARY, page 18 and HOW
A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY, page 19.
A Contract with a Type C (return of premium) death benefit has a death benefit
which will generally equal the basic insurance amount plus the total premiums
paid into the Contract less withdrawals, accumulated at an interest rate
(between 0% and 8%; in 1/2% increments) chosen by the Contract owner to the date
of death. This death benefit allows the Contract owner, in effect, to recover
the cost of the Contract, plus a predetermined rate of return, upon the death of
the insured. Under certain circumstances, it is possible for a Type C Contract's
death benefit to fall below the basic insurance amount. Favorable investment
performance and payment of additional premiums will generally increase the
Contract's cash value. Over time, however, the increase in cash value will be
less than under a Type A (fixed) Contract. See HOW A CONTRACT'S SURRENDER VALUE
WILL VARY, page 18 and HOW A TYPE C (RETURN OF PREMIUM) CONTRACT'S DEATH BENEFIT
WILL VARY, page 20.
In choosing a death benefit type, you should also consider whether you intend to
use the withdrawal feature. Contract owners of Type A (fixed) Contracts should
note that any withdrawal may result in a reduction of the basic insurance
amount. In addition, we will not allow you to make a withdrawal that will
decrease the basic insurance amount below the minimum basic insurance amount.
Furthermore, the sum of the basic insurance amount and the Target Term Rider
must equal or exceed $100,000. See REQUIREMENTS FOR ISSUANCE OF A CONTRACT, page
12. For Type B (variable) and Type C (return of premium) Contracts, withdrawals
will not change the basic insurance amount. See WITHDRAWALS, page 21.
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CHANGING THE TYPE OF DEATH BENEFIT
You may change the type of death benefit at any time and subject to Pruco Life's
approval. We will increase or decrease the basic insurance amount so that the
death benefit immediately after the change matches the death benefit immediately
before the change.
If you are changing your Contract's type of death benefit from a Type A (fixed)
to a Type B (variable) death benefit, we will reduce the basic insurance amount
by the amount in your Contract Fund on the date the change takes place.
If you are changing from a Type A (fixed) to a Type C (return of premium) death
benefit, we will change the basic insurance amount by subtracting the total
premiums paid on this Contract minus total withdrawals on the date the change
takes effect.
If you are changing from a Type B (variable) to a Type A (fixed) death benefit,
we will increase the basic insurance amount by the amount in your Contract Fund
on the date the change takes place.
If you are changing from a Type B (variable) to a Type C (return of premium)
death benefit, we first find the difference between: (1) the amount in your
Contract Fund and (2) the total premiums paid on this Contract minus total
withdrawals, determined on the date the change takes effect. If (1) is larger
than (2), we will increase the basic insurance amount by that difference. If (2)
is larger than (1), we will reduce the basic insurance amount by that
difference.
If you are changing from a Type C (return of premium) to a Type A (fixed) death
benefit, we will change the basic insurance amount by adding the total premiums
paid minus total withdrawals to this Contract both accumulated with interest at
the rate(s) chosen by the Contract owner on the date the change takes place.
If you are changing from a Type C (return of premium) to a Type B (variable)
death benefit, we first find the difference between: (1) the Contract Fund and
(2) the total premiums paid minus total withdrawals to this Contract both
accumulated with interest at the rate(s) chosen by the Contract owner as of the
date the change takes place. If (2) is larger than (1), we will increase the
basic insurance amount by that difference. If (1) is larger than (2), we will
reduce the basic insurance amount by that difference.
The basic insurance amount after a change may not be lower than the minimum
basic insurance amount applicable to the Contract. In addition, the sum of the
basic insurance amount and the Target Term Rider must equal or exceed $100,000.
See REQUIREMENTS FOR ISSUANCE OF A CONTRACT, page 12. We reserve the right to
make an administrative processing charge of up to $25 for any change in the
basic insurance amount, although we do not currently do so. See CHARGES AND
EXPENSES, page 10.
The following chart illustrates the changes in basic insurance amount with each
change of death benefit type described above. The chart assumes a $50,000
Contract Fund and a $300,000 death benefit. For changes to and from a Type C
death benefit, the chart assumes $40,000 in total premiums minus total
withdrawals and the rate chosen to accumulate premiums minus withdrawals is 0%.
--------------------------------------------------------------------
BASIC INSURANCE AMOUNT
--------------------------------------------------------------------
FROM TO
--------------------------------------------------------------------
Type A Type B Type C
$300,000 $250,000 $260,000
--------------------------------------------------------------------
Type B Type A Type C
$250,000 $300,000 $260,000
--------------------------------------------------------------------
Type C Type A Type B
$260,000 $300,000 $250,000
--------------------------------------------------------------------
14
<PAGE>
To request a change, fill out an application for change which can be obtained
from your Pruco Life representative or a Home Office. If the change is approved,
we will recompute the Contract's charges and appropriate tables and send you new
Contract data pages. We may require you to send us your Contract before making
the change.
RIDERS
Contract owners may be able to obtain extra benefits which may involve an extra
charge. These optional insurance benefits will be described in what is known as
a "rider" to the Contract. Charges applicable to riders will be deducted from
the Contract Fund on each Monthly date.
TARGET TERM RIDER
The Target Term Rider provides a flexible term insurance benefit to attained age
100 on the life of the insured. The Contract owner specifies the amount of term
rider coverage he or she desires. This amount is called the rider coverage
amount and is the maximum death benefit payable under the rider. The sum of the
base Contract's basic insurance amount and the rider coverage amount equals the
target coverage amount. The Rider death benefit fluctuates as the base
Contract's death benefit changes, as described below. See TAX TREATMENT OF
CONTRACT BENEFITS, page 27.
When the Contract Fund has not grown to the point where the base Contract's
death benefit is increased to satisfy the Internal Revenue Code's definition of
life insurance, the rider death benefit equals the rider coverage amount.
However, once the Contract Fund has grown to the point where the base Contract's
death benefit begins to vary as required by the Internal Revenue Code's
definition of life insurance, the rider's death benefit will decrease (or
increase) dollar for dollar as the base Contract's death benefit increases (or
decreases). It is possible for the Contract Fund and, consequently, the base
Contract's death benefit to grow to the point where the rider death benefit is
reduced to zero. As we state above, however, the rider death benefit will never
increase beyond the rider coverage amount. In addition, you may change the rider
coverage amount once each Contract year while the rider is inforce.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL]
Policy Year Base Policy Death Benefit Target Death Benefit
----------- ------------------------- --------------------
1 $ 500,000 $500,000
2 $ 500,000 $500,000
3 $ 500,000 $500,000
4 $ 500,000 $500,000
5 $ 500,000 $500,000
6 $ 500,000 $500,000
7 $ 500,000 $500,000
8 $ 500,000 $500,000
9 $ 500,000 $500,000
10 $ 550,000 $450,000
11 $ 605,000 $395,000
12 $ 665,500 $334,500
13 $ 732,050 $267,950
14 $ 805,255 $194,745
15 $ 885,781 $114,220
16 $1,000,000 $ --
17 $1,100,000 $ --
18 $1,210,000 $ --
19 $1,331,000 $ --
20 $1,464,100 $ --
The following factors should be considered when adding a Target Term Rider to
your Contract:
1. The sales expense charge for a Contract with a Target Term Rider is less
than that for an all base policy with the same death benefit. This is
because the sales expense charge is based on the Target Premium (referred
to as "segment allocation amount" in your Contract) of the Contract's basic
insurance amount (BIA) only. For example, consider two identical $1,000,000
policies; the first with a $1,000,000 BIA and the other with a $500,000 BIA
and $500,000 of rider coverage amount. The sales expense charge for the
first policy will be based on the Target Premium of a $1,000,000 BIA while
the sales expense charge for the second policy will be based on the Target
Premium of a $500,000 BIA only. See CHARGES AND EXPENSES, page 10.
2. The current Cost of Insurance (COI) is different for the basic insurance
amount and for the rider coverage amount. Cost of Insurance is determined
by multiplying the COI rates by the Contract's "net amount of risk." The
"net amount of risk" is the amount by which the Contract's death benefit
exceeds the Contract Fund. The COI rates for both the basic insurance
amount and the Target Term Rider will increase annually. However,
15
<PAGE>
current COI rates for the Target Term Rider are less than the current rates
for the basic insurance amount death benefit for the first ten years, but
are greater thereafter.
3. You may increase or decrease both your basic insurance amount and rider
coverage amount after issue subject to the underwriting requirements
determined by Pruco Life. See INCREASES IN BASIC INSURANCE AMOUNT, page 22
and DECREASES IN BASIC INSURANCE AMOUNT, page 23. Increasing your basic
insurance amount after issue increases your sales expense charges on any
premiums paid after the effective date of the increase for that portion of
the premium allocated to the new coverage segment.
4. The amount and timing of premium payments, loans, and withdrawals you make
under the Contract and your choice of definition of life insurance test
(see TAX TREATMENT OF CONTRACT BENEFITS, page 27) will all be factors in
determining the relative performance of a Contract with and without a
Target Term Rider.
5. Investment experience will be a factor in determining the relative
performance of a Contract with and without a Target Term Rider.
The five factors outlined above can have opposite effects on the financial
performance of a Contract, including the amount of the Contract's cash value and
death benefit. It is important that you ask your Pruco Life representative to
see illustrations based on different combinations of all of the above. You can
then discuss with your Pruco Life representative how these combinations may
address your objectives.
PREMIUMS
The Contract is a flexible premium contract. The minimum initial premium is due
on or before the Contract date. It is the premium needed to start the Contract.
There is no insurance under the Contract unless the minimum initial premium is
paid. Thereafter, you decide when to make premium payments and, subject to a $25
minimum, in what amounts. We reserve the right to refuse to accept any payment
that increases the death benefit by more than it increases the Contract Fund.
See HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY, page 18, HOW A TYPE
B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY, page 19 and HOW A TYPE C
(RETURN OF PREMIUM) CONTRACT'S DEATH BENEFIT WILL VARY, page 20. There are
circumstances under which the payment of premiums in amounts that are too large
may cause the Contract to be characterized as a Modified Endowment Contract,
which could be significantly disadvantageous. See TAX TREATMENT OF CONTRACT
BENEFITS, page 27.
We can bill you for the amount you select annually, semi-annually, quarterly or
monthly. Because the Contract is a flexible premium contract, there are no
premium due dates. When you receive a premium notice, you are not required to
pay this amount. The Contract will remain inforce if the Contract Fund is
greater than zero and more than any Contract debt. When you apply for the
Contract, you should discuss with your Pruco Life representative how frequently
you would like to be billed (if at all) and for what amount.
ALLOCATION OF PREMIUMS
On the Contract date, we deduct the charge for sales expenses and the charge for
taxes attributable to premiums (in Oregon this is called a premium based
administrative charge) from the initial premium. See CHARGES AND EXPENSES, page
10. Also on the Contract date, the remainder of the initial premium and any
other premium received during the short-term cancellation right ("free-look")
period, will be allocated to the Money Market Subaccount and the first monthly
deductions are made. At the end of the "free-look" period, these funds will be
allocated among the subaccounts according to your desired allocation, as
specified in the application form. See SHORT-TERM CANCELLATION RIGHT OR
"FREE-LOOK", page 13. If the first premium is received before the Contract date,
there will be a period during which the Contract owner's initial premium will
not be invested.
The charge for sales expenses and the charge for taxes attributable to premiums
(in Oregon this is called a premium based administrative charge) also apply to
all subsequent premium payments. The remainder of each subsequent premium
payment will be invested as of the end of the valuation period in which it is
received at a Home Office, in accordance with the allocation you previously
designated. Provided the Contract is not in default, you may change the way in
which subsequent premiums are allocated by giving written notice to a Home
Office or by telephoning a Home Office, provided you are enrolled to use the
Telephone Transfer System. There is no charge for reallocating future premiums.
All percentage allocations must be in whole numbers. For example, 33% can be
selected but 33-1/3% cannot. Of course, the total allocation to all selected
investment options must equal 100%.
16
<PAGE>
TRANSFERS
You may, up to 12 times each Contract year, transfer amounts from one subaccount
to another subaccount without charge. Additional transfers may be made during
each Contract year, but only with our consent. There is an administrative charge
of up to $25 for each transfer made exceeding 12 in any Contract year. All or a
portion of the amount credited to a subaccount may be transferred.
Transfers will take effect as of the end of the valuation period in which a
proper transfer request is received at a Home Office. The request may be in
terms of dollars, such as a request to transfer $5,000 from one subaccount to
another, or may be in terms of a percentage reallocation among subaccounts. In
the latter case, as with premium reallocations, the percentages must be in whole
numbers. You may transfer amounts by proper written notice to a Home Office or
by telephone, provided you are enrolled to use the Telephone Transfer System.
You will automatically be enrolled to use the Telephone Transfer System unless
the Contract is jointly owned or you elect not to have this privilege. Telephone
transfers may not be available on Contracts that are assigned (see ASSIGNMENT,
page 29), depending on the terms of the assignment.
We will use reasonable procedures, such as asking you to provide certain
personal information provided on your application for insurance, to confirm that
instructions given by telephone are genuine. We will not be held liable for
following telephone instructions that we reasonably believe to be genuine. Pruco
Life cannot guarantee that you will be able to get through to complete a
telephone transfer during peak periods such as periods of drastic economic or
market change.
The Contract was not designed for professional market timing organizations,
other organizations, or individuals using programmed, large, or frequent
transfers. A pattern of exchanges that coincides with a "market timing" strategy
may be disruptive to the investment option or to the disadvantage of other
contract owners. If such a pattern were to be found, we may modify your right to
make transfers by restricting the number, timing and amount of transfers. We
also reserve the right to prohibit transfer requests made by an individual
acting under a power of attorney on behalf of more than one contract owner.
DOLLAR COST AVERAGING
As an administrative practice, we are currently offering a feature called Dollar
Cost Averaging ("DCA"). Under this feature, either fixed dollar amounts or a
percentage of the amount designated for use under the DCA option will be
transferred periodically from the DCA Money Market Subaccount into other
subaccounts available under the Contract. You may choose to have periodic
transfers made monthly, quarterly, semi-annually or annually. DCA transfers will
not begin until the end of the "free-look" period. See SHORT-TERM CANCELLATION
RIGHT OR "FREE-LOOK", page 13.
Each automatic transfer will take effect as of the end of the valuation period
on the date coinciding with the periodic timing you designate provided the New
York Stock Exchange is open on that date. If the New York Stock Exchange is not
open on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. Automatic transfers will continue until: (1) $50
or less remains of the amount designated for Dollar Cost Averaging, at which
time the remaining amount will be transferred; or (2) you give us notification
of a change in DCA allocation or cancellation of the feature. Currently, a
transfer that occurs under the DCA feature is not counted towards the 12 free
transfers permitted each Contract year. We reserve the right to change this
practice, modify the requirements or discontinue the feature.
AUTO-REBALANCING
As an administrative practice, we are currently offering a feature called
Auto-Rebalancing. This feature allows you to automatically rebalance subaccount
assets at specified intervals based on percentage allocations that you choose.
For example, suppose your initial investment allocation of subaccounts X and Y
is split 40% and 60%, respectively. Then, due to investment results, that split
changes. You may instruct that those assets be rebalanced to your original or
different allocation percentages. Auto-Rebalancing is not available until the
end of the "free-look" period. See SHORT-TERM CANCELLATION RIGHT OR "FREE-LOOK",
page 13.
17
<PAGE>
Auto-Rebalancing can be performed on a monthly, quarterly, semi-annual or annual
basis. Each rebalance will take effect as of the end of the valuation period on
the date coinciding with the periodic timing you designate provided the New York
Stock Exchange is open on that date. If the New York Stock Exchange is not open
on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. Currently, a transfer that occurs under the
Auto-Rebalancing feature is not counted towards the 12 free transfers permitted
each Contract year. We reserve the right to change this practice, modify the
requirements or discontinue the feature.
HOW A CONTRACT'S SURRENDER VALUE WILL VARY
You may surrender the Contract for its surrender value. The Contract's surrender
value on any date will be the Contract Fund less any Contract debt plus any
return of sales charges. See CONTRACT LOANS, page 26 and RETURN OF SALES
CHARGES, page 10. The Contract Fund value changes daily, reflecting: (1)
increases or decreases in the value of the Fund portfolios in which the assets
of the subaccount[s] have been invested; (2) interest credited on any loan; and
(3) the daily asset charge for mortality and expense risks assessed against the
subaccounts. The Contract Fund value also changes to reflect the receipt of
premium payments and the monthly deductions described under CHARGES AND
EXPENSES, page 10. Upon request, Pruco Life will tell you the surrender value of
your Contract. It is possible for the surrender value of a Contract to decline
to zero because of unfavorable investment performance or outstanding Contract
debt.
The tables on pages T1 through T10 of this prospectus illustrate approximately
what the surrender values would be for representative Contracts, assuming
hypothetical uniform investment results in the Fund portfolios. See
ILLUSTRATIONS OF SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS,
page 24.
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY
As described earlier, there are three types of death benefit available under the
Contract: (1) Type A, a generally fixed death benefit; (2) Type B, a variable
death benefit and; (3) Type C, a return of premium death benefit. A Type B
(variable) death benefit varies with investment performance while Type A (fixed)
and Type C (return of premium) death benefits do not, unless they must be
increased to comply with the Internal Revenue Code's definition of life
insurance.
Under a Type A (fixed) Contract, the death benefit is generally equal to the
basic insurance amount. If the Contract is kept inforce for several years,
depending on how much premium you pay, and/or if investment performance is
reasonably favorable, the Contract Fund may grow to the point where Pruco Life
will increase the death benefit in order to ensure that the Contract will
satisfy the Internal Revenue Code's definition of life insurance.
The death benefit under a Type A (fixed) Contract will always be the greater of:
(1) the basic insurance amount; and
(2) the Contract Fund before the deduction of any monthly charges due on
that date plus any return of sales charges, multiplied by the attained
age factor that applies.
A listing of attained age factors can be found on the data pages of your
Contract. The second provision ensures that the Contract will always have a
death benefit large enough to be treated as life insurance for tax purposes
under current law. Before the Contract is issued, the Contract owner may choose
between two methods that we use to determine the tax treatment of the Contract.
See TAX TREATMENT OF CONTRACT BENEFITS, page 27, for a discussion of these
methods and the impact of each on the Contract's values, benefits and tax
status.
The following table illustrates at different ages how the attained age factor
affects the death benefit for different Contract Fund amounts. The table assumes
that a $250,000 Type A (fixed) Contract was issued when the insured was a male
nonsmoker, age 35.
18
<PAGE>
<TABLE>
<CAPTION>
TYPE A (FIXED) DEATH BENEFIT
- -------------------------------------------------------------------------------------------------------------------
IF THEN
- -------------------------------------------------------------------------------------------------------------------
THE AND THE CONTRACT THE ATTAINED AGE THE CONTRACT FUND AND THE DEATH
INSURED FUND IS FACTOR IS ** MULTIPLIED BY THE ATTAINED BENEFIT IS
IS AGE AGE FACTOR IS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
40 $ 25,000 3.57 89,250 $250,000
40 $ 75,000 3.57 267,750 $267,750*
40 $100,000 3.57 357,000 $357,000*
- -------------------------------------------------------------------------------------------------------------------
60 $ 75,000 1.92 144,000 $250,000
60 $125,000 1.92 240,000 $250,000
60 $150,000 1.92 288,000 $288,000*
- -------------------------------------------------------------------------------------------------------------------
80 $150,000 1.26 189,000 $250,000
80 $200,000 1.26 252,000 $252,000*
80 $225,000 1.26 283,500 $283,500*
- -------------------------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
** Assumes the Contract Owner selected the Cash Value Accumulation Test.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
This means, for example, that if the insured has reached the age of 60, and the
Contract Fund is $150,000, the death benefit will be $288,000, even though the
basic insurance amount is $250,000. In this situation, for every $1 increase in
the Contract Fund, the death benefit will be increased by $1.92. We reserve the
right to refuse to accept any premium payment that increases the death benefit
by more than it increases the Contract Fund.
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY
Under a Type B (variable) Contract, while the Contract is inforce, the death
benefit will never be less than the basic insurance amount, but will also vary,
immediately after it is issued, with the investment results of the selected
investment options. The death benefit may be further increased to ensure that
the Contract will satisfy the Internal Revenue Code's definition of life
insurance.
The death benefit under a Type B (variable) Contract will always be the greater
of:
(1) the basic insurance amount plus the Contract Fund before the deduction
of any monthly charges due on that date; and
(2) the Contract Fund before the deduction of any monthly charges due on
that date plus any return of sales charges, multiplied by the attained
age factor that applies.
For purposes of computing the death benefit, if the Contract Fund is less than
zero we will consider it to be zero. A listing of attained age factors can be
found on the data pages of your Contract. The latter provision ensures that the
Contract will always have a death benefit large enough to be treated as life
insurance for tax purposes under current law. Before the Contract is issued, the
Contract owner may choose between two methods that we use to determine the tax
treatment of the Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27, for
a discussion of these methods and the impact of each on the Contract's values,
benefits and tax status.
19
<PAGE>
The following table illustrates various attained age factors and Contract Funds
and the corresponding death benefits. The table assumes a $250,000 Type B
(variable) Contract was issued when the insured was a male nonsmoker, age 35.
<TABLE>
<CAPTION>
TYPE B (VARIABLE) DEATH BENEFIT
- -------------------------------------------------------------------------------------------------------------------
IF THEN
- -------------------------------------------------------------------------------------------------------------------
THE AND THE CONTRACT THE ATTAINED AGE THE CONTRACT FUND AND THE DEATH
INSURED IS AGE FUND IS FACTOR IS ** MULTIPLIED BY THE ATTAINED BENEFIT IS
AGE FACTOR IS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
40 $25,000 3.57 89,250 $275,000
40 $75,000 3.57 267,750 $325,000
40 $100,000 3.57 357,000 $357,000*
- -------------------------------------------------------------------------------------------------------------------
60 $ 75,000 1.92 144,000 $325,000
60 $125,000 1.92 240,000 $375,000
60 $150,000 1.92 288,000 $400,000
- -------------------------------------------------------------------------------------------------------------------
80 $150,000 1.26 189,000 $400,000
80 $200,000 1.26 252,000 $450,000
80 $225,000 1.26 283,500 $475,000
- -------------------------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
** Assumes the Contract Owner selected the Cash Value Accumulation Test.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
This means, for example, that if the insured has reached the age of 40, and the
Contract Fund is $100,000, the death benefit will be $357,000, even though the
basic insurance amount is $250,000. In this situation, for every $1 increase in
the Contract Fund, the death benefit will be increased by $3.57. We reserve the
right to refuse to accept any premium payment that increases the death benefit
by more than it increases the Contract Fund.
HOW A TYPE C (RETURN OF PREMIUM) CONTRACT'S DEATH BENEFIT WILL VARY
Under a Type C (return of premium) Contract, while the Contract is inforce, the
death benefit will be the greater of:
(1) the basic insurance amount plus the total premiums paid into the
Contract less any withdrawals, accumulated at an interest rate
(between 0% and 8%; in 1/2% increments) chosen by the Contract owner
to the date of death; and
(2) the Contract Fund before the deduction of monthly charges due on that
date plus any return of sales charges, multiplied by the attained age
factor that applies.
A listing of attained age factors can be found on the data pages of your
Contract. The latter provision ensures that the Contract will always have a
death benefit large enough so that the Contract will be treated as life
insurance for tax purposes under current law. Before the Contract is issued, the
Contract owner may choose between two methods that we use to determine the tax
treatment of the Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27, for
a discussion of these methods and the impact of each on the Contract's values,
benefits and tax status.
Unlike Type A and Type B Contracts, the death benefit of a Type C Contract may
be less than the basic insurance amount in the event total withdrawals plus
interest is greater than total premiums paid plus interest.
20
<PAGE>
The following table illustrates various attained age factors and Contract Funds
and the corresponding death benefits. The table assumes a $250,000 Type C
(return of premium) Contract was issued when the insured was a male nonsmoker,
age 35.
<TABLE>
<CAPTION>
TYPE C (RETURN OF PREMIUM) DEATH BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------------
IF THEN
- ------------------------------------------------------------------------------------------------------------------------------------
AND THE PREMIUMS PAID LESS THE CONTRACT FUND AND THE DEATH
THE AND THE CONTRACT ANY WITHDRAWALS WITH THE ATTAINED AGE MULTIPLIED BY THE BENEFIT IS
INSURED FUND IS INTEREST EQUALS FACTOR IS** ATTAINED AGE FACTOR IS
IS AGE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
40 $25,000 $15,000 3.57 89,250 $265,000
40 $75,000 $60,000 3.57 267,750 $310,000
40 $100,000 $80,000 3.57 357,000 $357,000*
- ------------------------------------------------------------------------------------------------------------------------------------
60 $75,000 $ 60,000 1.92 144,000 $310,000
60 $125,000 $100,000 1.92 240,000 $350,000
60 $150,000 $125,000 1.92 288,000 $375,000
- ------------------------------------------------------------------------------------------------------------------------------------
80 $150,000 $125,000 1.26 189,000 $375,000
80 $200,000 $150,000 1.26 252,000 $400,000
80 $225,000 $175,000 1.26 283,500 $425,000
- ------------------------------------------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
** Assumes the Contract owner selected the Cash Value Accumulation Test.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This means, for example, that if the insured has reached the age of 40, and the
premiums paid with interest less any withdrawals equals $80,000, the death
benefit will be $357,000, even though the basic insurance amount is $250,000. In
this situation, for every $1 increase in the Contract Fund, the death benefit
will be increased by $3.57. We reserve the right to refuse to accept any premium
payment that increases the death benefit by more than it increases the Contract
Fund.
SURRENDER OF A CONTRACT
A Contract may be surrendered for its net cash value while the insured is
living. To surrender a Contract, we may require you to deliver or mail the
Contract with a written request in a form that meets Pruco Life's needs, to a
Home Office. The surrender value of a surrendered Contract will be determined as
of the end of the valuation period in which such a request is received in a Home
Office. If the Contract is fully surrendered within the first four Contract
years, you may be entitled to a return of sales charges. See CHARGES AND
EXPENSES, page 10. Surrender of a Contract may have tax consequences. See TAX
TREATMENT OF CONTRACT BENEFITS, page 27.
WITHDRAWALS
Under certain circumstances, you may withdraw a portion of the Contract's net
cash value without surrendering the Contract. The withdrawal amount is limited
by the requirement that the net cash value after the withdrawal may not be zero
or less than zero. The amount withdrawn must be at least $500. There is an
administrative processing fee for each withdrawal which is the lesser of: (a)
$25 and; (b) 2% of the withdrawal amount. An amount withdrawn may not be repaid
except as a premium subject to the applicable charges. Upon request, we will
tell you how much you may withdraw. Withdrawal of the net cash value may have
tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
21
<PAGE>
Generally, whenever a withdrawal is made, the death benefit will be immediately
reduced by at least the amount of the withdrawal. Withdrawals under Type B
(variable) and Type C (return of premium) Contracts, will not change the basic
insurance amount. However, under a Type A (fixed) Contract, the withdrawal may
require a reduction in the basic insurance amount, unless you provide evidence
that the insured is insurable for the increase in net amount at risk. In
addition, no withdrawal will be permitted under a Type A (fixed) Contract if it
would result in a basic insurance amount of less than the minimum basic
insurance amount. Furthermore, the sum of the basic insurance amount and the
Target Term Rider must equal or exceed $100,000. See REQUIREMENTS FOR ISSUANCE
OF A CONTRACT, page 12. It is important to note, however, that if the basic
insurance amount is decreased, there is a possibility that the Contract might be
classified as a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT
BENEFITS, page 27. Before making any withdrawal which causes a decrease in basic
insurance amount, you should consult with your tax adviser and your Pruco Life
representative.
When a withdrawal is made, the Contract Fund is reduced by the sum of the cash
withdrawn and the withdrawal fee. An amount equal to the reduction in the
Contract Fund will be withdrawn proportionally from the investment options
unless you direct otherwise.
Withdrawals increase the risk that the Contract Fund may be insufficient to
provide Contract benefits. If such a withdrawal is followed by unfavorable
investment experience, the Contract may go into default.
LAPSE AND REINSTATEMENT
Pruco Life will determine the value of the Contract Fund on each Monthly date.
If the Contract Fund is zero or less, the Contract is in default. If the
Contract debt ever grows to be equal to or more than the Contract Fund, the
Contract will be in default. Should this happen, Pruco Life will send you a
notice of default setting forth the payment which we estimate will keep the
Contract inforce for three months from the date of default. This payment must be
received at a Home Office within the 61-day grace period after the notice of
default is mailed or the Contract will end and have no value. A Contract that
lapses with an outstanding Contract loan may have tax consequences. See TAX
TREATMENT OF CONTRACT BENEFITS, page 27.
A Contract that ended in default may be reinstated within 5 years after the date
of default if the following conditions are met: (1) renewed evidence of
insurability is provided on the insured; (2) submission of certain payments
sufficient to bring the Contract up to date plus a premium that we estimate will
cover all charges and deductions for the next three months; and (3) any Contract
debt with interest to date must be restored or paid back. If the Contract debt
is restored and the debt with interest would exceed the loan value of the
reinstated Contract, the excess must be paid to us before reinstatement. The
reinstatement date will be the Monthly date that coincides with or next follows
the date we approve your request. We will deduct all required charges from your
payment and the balance will be placed into your Contract Fund.
INCREASES IN BASIC INSURANCE AMOUNT
Subject to state approval and subject to the underwriting requirements
determined by Pruco Life, you may increase the amount of insurance by increasing
the basic insurance amount of the Contract. We will allow up to 98 increases
during the life of the Contract. The following conditions must be met: (1) you
must ask for the change in a form that meets Pruco Life's needs; (2) the amount
of the increase must be at least equal to the minimum increase in basic
insurance amount shown under CONTRACT LIMITATIONS in the data pages of the
Contract; (3) you must prove to us that the insured is insurable for any
increase; (4) the Contract must not be in default; and (5) if we ask you to do
so, you must send us the Contract to be endorsed.
If we approve the change, we will send you new Contract data pages showing the
amount and effective date of the change and the recomputed charges, values and
limitations. If the insured is not living on the effective date, the change will
not take effect. No administrative processing charge is currently being made in
connection with an increase in basic insurance amount. We reserve the right to
make such a charge in an amount of up to $25.
22
<PAGE>
Furthermore, you may establish a schedule under which the basic insurance amount
increases on designated Contract anniversaries. The schedule of increases must
meet the following conditions:
(1) The amount of each scheduled increase must be at least equal to the
minimum increase in basic insurance amount shown under CONTRACT
LIMITATIONS in the data pages of the Contract.
(2) The amount of each scheduled increase cannot exceed:
(a) 20% of the underwritten death benefit (at issue, the underwritten
death benefit is equal to the face amount on the Contract date)
for increases scheduled to take place at attained ages up to and
including 65; or
(b) 10% of the underwritten death benefit for increases scheduled to
take place at attained ages from 66 up to and including 70.
(3) Increases cannot be scheduled to take place after attained age 70.
(4) The total face amount including scheduled increases can never exceed 4
times the underwritten death benefit for fully underwritten Contracts
or 2 times the underwritten death benefit for Contracts issued on a
simplified issue or guaranteed issue basis.
These are our current guidelines. We reserve the right to change these
conditions.
For sales load purposes, the Target Premium (referred to as "segment allocation
amount" in your Contract) is calculated separately for each coverage segment.
When premiums are paid, each premium payment is allocated to each coverage
segment based on the proportion of its Target Premium to the total of all Target
Premiums currently in effect. Currently, the sales load charge for each segment
is equal to 13 1/2% of the allocated premium paid in each Contract year up to
the Target Premium and 2% on any excess. See CHARGES AND EXPENSES, page 10.
The COI rates for an increase in basic insurance amount are based upon 1980 CSO
Tables, the age at the increase effective date and the number of years since
then, sex (except where unisex rates apply), smoker/nonsmoker status, and extra
rating class, if any. The net amount at risk for the whole Contract (the death
benefit minus the Contract Fund) is allocated to each basic insurance amount
segment based on the proportion of its basic insurance amount to the total of
all basic insurance amount segments. In addition, the attained age factor for a
Contract with an increase in basic insurance amount is based on the Insured's
attained age for the initial basic insurance amount segment. For a description
of attained age factor, see HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL
VARY, page 18, HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY, page
19 and HOW A TYPE C (RETURN OF PREMIUM) CONTRACT'S DEATH BENEFIT WILL VARY, page
20.
Each Contract owner who elects to increase the basic insurance amount of his or
her Contract will receive a "free-look" right which will apply only to the
increase in basic insurance amount, not the entire Contract. This right is
comparable to the right afforded to a purchaser of a new Contract except that,
any cost of insurance charge for the increase in the basic insurance amount will
be returned to the Contract Fund instead of a refund of premium. See SHORT-TERM
CANCELLATION RIGHT OR "FREE-LOOK", page 13. Generally, the "free-look" right
would have to be exercised no later than 10 days after receipt of the Contract
as increased.
An increase in basic insurance amount may cause the Contract to be classified as
a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
Therefore, before increasing the basic insurance amount, you should consult with
your tax adviser and your Pruco Life representative.
DECREASES IN BASIC INSURANCE AMOUNT
As explained earlier, you may make a withdrawal. See WITHDRAWALS, page 21. You
also have the option of decreasing the basic insurance amount of your Contract
without withdrawing any cash value. Contract owners who conclude that, because
of changed circumstances, the amount of insurance is greater than needed will be
able to decrease their amount of insurance protection, and the monthly
deductions for the cost of insurance. The amount of the decrease must be at
least equal to the minimum decrease in basic insurance amount shown under
CONTRACT LIMITATIONS in the data pages of your Contract. In addition, the basic
insurance amount after the decrease must be at least equal to the minimum basic
insurance amount shown under CONTRACT LIMITATIONS in the data pages of your
Contract. No administrative processing charge is currently being made in
connection with a decrease in basic insurance amount. We reserve the right to
make such a charge in an amount of up to $25. See CHARGES AND EXPENSES, page 10.
If we ask you to, you must send us your Contract to be endorsed. The Contract
will be amended
23
<PAGE>
to show the new basic insurance amount, charges, values in the appropriate
tables and the effective date of the decrease.
We may decline a reduction if we determine it would cause the Contract to fail
to qualify as "life insurance" for purposes of Section 7702 of the Internal
Revenue Code. See TAX TREATMENT OF CONTRACT BENEFITS, page 27. Furthermore, a
decrease will not take effect if the insured is not living on the effective
date.
It is important to note, however, that if the basic insurance amount is
decreased, there is a possibility that the Contract might be classified as a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
Before requesting any decrease in basic insurance amount, you should consult
with your tax adviser and your Pruco Life representative.
WHEN PROCEEDS ARE PAID
Pruco Life will generally pay any death benefit, cash value, loan proceeds or
withdrawal within seven days after all the documents required for such a payment
are received at a Home Office. Other than the death benefit, which is determined
as of the date of death, the amount will be determined as of the end of the
valuation period in which the necessary documents are received at a Home Office.
However, Pruco Life may delay payment of proceeds from the subaccount[s] and the
variable portion of the death benefit due under the Contract if the disposal or
valuation of the Account's assets is not reasonably practicable because the New
York Stock Exchange is closed for other than a regular holiday or weekend,
trading is restricted by the SEC, or the SEC declares that an emergency exists.
ILLUSTRATIONS OF SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS
The following tables show how a Contract's death benefit and surrender values
change with the investment experience of the Account. They are "hypothetical"
because they are based, in part, upon several assumptions, which are described
below. All the tables assume the following:
o a Contract bought by a 45 year old male, select, non-smoker, with no extra
risks or substandard ratings, issued on a Guaranteed Issue basis.
o a given premium amount is paid on each Contract anniversary for seven years
and no loans are taken.
o the Contract Fund has been invested in equal amounts in each of the 15
portfolios of the Funds.
The first two tables (pages T1 and T2) assume: (1) a Type A (fixed) Contract has
been purchased, (2) a $1,000,000 basic insurance amount and no riders have been
added to the Contract, and (3) a Cash Value Accumulation Test has been elected
for definition of life insurance testing. See TAX TREATMENT OF CONTRACT
BENEFITS, page 27 and TYPES OF DEATH BENEFIT, page 13. The first table assumes
current charges will continue for the indefinite future while the second table
assumes maximum contractual charges have been made from the beginning. See
CHARGES AND EXPENSES, page 10.
The third and fourth tables (pages T3 and T4) assume: (1) a Type A (fixed)
Contract has been purchased, (2) a $5,000 basic insurance amount and a $995,000
Target Term Rider has been added to the Contract, and (3) a Cash Value
Accumulation Test has been elected for definition of life insurance testing. See
TAX TREATMENT OF CONTRACT BENEFITS, page 27 and TYPES OF DEATH BENEFIT, page 13.
The third table assumes current charges will continue for the indefinite future
while the fourth table assumes maximum contractual charges have been made from
the beginning. See CHARGES AND EXPENSES, page 10.
The next two tables (pages T5 and T6) assume: (1) a Type A (fixed) Contract has
been purchased, (2) a $1,000,000 basic insurance amount and no riders have been
added to the Contract, and (3) a Guideline Premium Test has been elected for
definition of life insurance testing. See TAX TREATMENT OF CONTRACT BENEFITS,
page 27 and TYPES OF DEATH BENEFIT, page 13. The fifth table assumes current
charges will continue for the indefinite future while the sixth table assumes
maximum contractual charges have been made from the beginning. See CHARGES AND
EXPENSES, page 10.
24
<PAGE>
The tables on pages T7 and T8 assume: (1) a Type B (variable) Contract has been
purchased, (2) a $1,000,000 basic insurance amount and no riders have been added
to the Contract, and (3) a Cash Value Accumulation Test has been elected for
definition of life insurance testing. See TAX TREATMENT OF CONTRACT BENEFITS,
page 27 and TYPES OF DEATH BENEFIT, page 13. The table on page T7 assumes
current charges will continue for the indefinite future while the table on page
T8 assumes maximum contractual charges have been made from the beginning. See
CHARGES AND EXPENSES, page 10.
The last two tables (pages T9 and T10) assume: (1) a Type C (return of premium)
Contract has been purchased with premiums accumulating at 6%, (2) a $1,000,000
basic insurance amount and no riders have been added to the Contract, and (3) a
Cash Value Accumulation Test has been elected for definition of life insurance
testing. See TAX TREATMENT OF CONTRACT BENEFITS, page 27 and TYPES OF DEATH
BENEFIT, page 13. The table on page T9 assumes current charges will continue for
the indefinite future while the table on page T10 assumes maximum contractual
charges have been made from the beginning. See CHARGES AND EXPENSES, page 10.
Finally, there are four assumptions, shown separately, about the average
investment performance of the portfolios. The first is that there will be a
uniform 0% gross rate of return with the average value of the Contract Fund
uniformly adversely affected by very unfavorable investment performance. The
other three assumptions are that investment performance will be at a uniform
gross annual rate of 4%, 8% and 12%. Actual returns will fluctuate from year to
year. In addition, death benefits and surrender values would be different from
those shown if investment returns averaged 0%, 4%, 8% and 12% but fluctuated
from those averages throughout the years. Nevertheless, these assumptions help
show how the Contract values will change with investment experience.
The first column in the following 10 tables (pages T1 through T10) shows the
Contract year. The second column, to provide context, shows what the aggregate
amount would be if the premiums had been invested to earn interest, after taxes,
at 4% compounded annually. The next four columns show the death benefit payable
in each of the years shown for the four different assumed investment returns.
The last four columns show the surrender value payable in each of the years
shown for the four different assumed investment returns.
A gross return (as well as the net return) is shown at the top of each column.
The gross return represents the combined effect of investment income and capital
gains and losses, realized or unrealized, of the portfolios before any reduction
is made for investment advisory fees or other Fund expenses. The net return
reflects average total annual expenses of the 15 portfolios of 0.64%, and the
daily deduction from the Contract Fund of 0.20% per year for the tables based on
current charges and 0.5% per year for the tables based on maximum charges. Thus,
assuming current charges, gross returns of 0%, 4%, 8% and 12% are the equivalent
of net returns of -0.84%, 3.16%, 7.16% and 11.16%, respectively. Assuming
maximum charges, gross returns of 0%, 4%, 8% and 12% are the equivalent of net
returns of -1.14%, 2.86%, 6.86% and 10.86%, respectively. The actual fees and
expenses of the portfolios associated with a particular Contract may be more or
less than 0.64% and will depend on which subaccounts are selected. The death
benefits and surrender values shown reflect the deduction of all expenses and
charges both from the Funds and under the Contract.
The Contract allows you to invest your net premium dollars in a variety of
professionally managed funds. Fluctuating investment returns in these funds,
together with the actual pattern of your premium payments, our Contract charges,
and any loans and withdrawals you may make will generate different Contract
values than those illustrated, even if the averages of the investment rates of
return over the years were to match those illustrated. Because of this, we
strongly recommend periodic Contract reviews with your Pruco Life
representative. Reviews are an excellent way to monitor the performance of the
policy against your expectations and to identify adjustments that may be
necessary.
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 45 year old
man, may be useful for a 45 year old man but would be inaccurate if made for
insureds of other ages or sex. Your Pruco Life representative can provide you
with a hypothetical illustration for your own age, sex, and rating class.
25
<PAGE>
ILLUSTRATIONS
-------------
PRUSELECT III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) 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 (-0.84% Net) (5.16% Net) (11.16% Net) (-0.84% Net) (5.16% Net) (11.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 56,919 $1,000,000 $1,000,000 $ 1,000,000 $ 48,483 $ 51,197 $ 53,910
2 $ 116,115 $1,000,000 $1,000,000 $ 1,000,000 $ 95,154 $ 103,370 $ 111,914
3 $ 177,679 $1,000,000 $1,000,000 $ 1,000,000 $137,682 $ 154,274 $ 172,219
4 $ 241,705 $1,000,000 $1,000,000 $ 1,000,000 $179,763 $ 207,734 $ 239,208
5 $ 308,293 $1,000,000 $1,000,000 $ 1,000,000 $214,014 $ 256,507 $ 306,267
6 $ 377,544 $1,000,000 $1,000,000 $ 1,003,751 $255,225 $ 315,532 $ 389,051
7 $ 449,565 $1,000,000 $1,000,000 $ 1,201,896 $296,007 $ 377,585 $ 480,759
8 $ 467,547 $1,000,000 $1,000,000 $ 1,292,874 $291,337 $ 395,092 $ 532,047
9 $ 486,249 $1,000,000 $1,000,000 $ 1,383,477 $286,474 $ 413,367 $ 588,713
10 $ 505,699 $1,000,000 $1,000,000 $ 1,484,991 $281,409 $ 432,459 $ 651,312
15 $ 615,260 $1,000,000 $1,071,214 $ 2,130,891 $251,845 $ 541,017 $ 1,076,207
20 (Age 65) $ 748,558 $1,000,000 $1,164,409 $ 3,058,594 $210,928 $ 673,069 $ 1,767,973
25 $ 910,735 $1,000,000 $1,286,999 $ 4,463,920 $156,236 $ 835,714 $ 2,898,649
30 $1,108,049 $1,000,000 $1,434,385 $ 6,569,066 $ 68,741 $1,031,932 $ 4,725,947
35 $1,348,111 $ 0(2) $1,615,068 $ 9,765,705 $ 0(2) $1,261,772 $ 7,629,457
40 $1,640,183 $ 0 $1,835,817 $14,655,228 $ 0 $1,529,847 $12,212,690
45 $1,995,533 $ 0 $2,096,742 $22,097,161 $ 0 $1,839,247 $19,383,474
</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 33, 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 III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) 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 (-1.14% Net) (4.86% Net) (10.86% Net) (-1.14% Net) (4.86% Net) (10.86% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 56,919 $1,000,000 $1,000,000 $ 1,000,000 $ 42,042 $ 44,461 $ 46,882
2 $ 116,115 $1,000,000 $1,000,000 $ 1,000,000 $ 83,525 $ 90,767 $ 98,305
3 $ 177,679 $1,000,000 $1,000,000 $ 1,000,000 $120,352 $134,915 $ 150,684
4 $ 241,705 $1,000,000 $1,000,000 $ 1,000,000 $156,629 $181,116 $ 208,704
5 $ 308,293 $1,000,000 $1,000,000 $ 1,000,000 $184,149 $221,277 $ 264,812
6 $ 377,544 $1,000,000 $1,000,000 $ 1,000,000 $219,323 $271,929 $ 336,158
7 $ 449,565 $1,000,000 $1,000,000 $ 1,038,310 $253,928 $324,989 $ 415,324
8 $ 467,547 $1,000,000 $1,000,000 $ 1,107,268 $245,762 $335,843 $ 455,666
9 $ 486,249 $1,000,000 $1,000,000 $ 1,174,597 $237,173 $346,876 $ 499,829
10 $ 505,699 $1,000,000 $1,000,000 $ 1,249,718 $228,098 $358,065 $ 548,122
15 $ 615,260 $1,000,000 $1,000,000 $ 1,712,552 $172,942 $415,573 $ 864,925
20 (Age 65) $ 748,558 $1,000,000 $1,000,000 $ 2,336,628 $ 90,452 $471,897 $1,350,652
25 $ 910,735 $ 0(2) $1,000,000 $ 3,201,319 $ 0(2) $517,437 $2,078,778
30 $1,108,049 $ 0 $1,000,000 $ 4,379,173 $ 0 $532,776 $3,150,484
35 $1,348,111 $ 0 $1,000,000 $ 5,997,667 $ 0 $465,369 $4,685,677
40 $1,640,183 $ 0 $1,000,000 $ 8,248,146 $ 0 $148,192 $6,873,455
45 $1,995,533 $ 0 $ 0(2) $11,378,593 $ 0 $ 0(2) $9,981,222
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 6%, the Contract would go into default in policy
year 42, unless an additional premium payment was made. Based on a gross
return of 0%, the Contract would go into default in policy year 24, 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 III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 TARGET COVERAGE AMOUNT($5,000 BASIC INSURANCE AMOUNT,
$995,000 TARGET TERM RIDER)
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) 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 (-0.84% Net) (5.16% Net) (11.16% Net) (-0.84% Net) (5.16% Net) (11.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 56,919 $1,000,000 $1,000,000 $ 1,000,000 $ 51,562 $ 54,651 $ 57,741
2 $ 116,115 $1,000,000 $1,000,000 $ 1,000,000 $101,390 $ 110,752 $ 120,486
3 $ 177,679 $1,000,000 $1,000,000 $ 1,000,000 $150,157 $ 169,080 $ 189,544
4 $ 241,705 $1,000,000 $1,000,000 $ 1,000,000 $198,425 $ 230,345 $ 266,254
5 $ 308,293 $1,000,000 $1,000,000 $ 1,000,000 $245,081 $ 293,589 $ 350,377
6 $ 377,544 $1,000,000 $1,000,000 $ 1,147,997 $292,387 $ 361,246 $ 444,960
7 $ 449,565 $1,000,000 $1,080,607 $ 1,373,982 $339,222 $ 432,243 $ 549,593
8 $ 467,547 $1,000,000 $1,099,624 $ 1,478,030 $334,368 $ 452,520 $ 608,243
9 $ 486,249 $1,000,000 $1,113,122 $ 1,581,651 $329,354 $ 473,669 $ 673,043
10 $ 505,699 $1,000,000 $1,130,248 $ 1,697,748 $324,170 $ 495,723 $ 744,626
15 $ 615,260 $1,000,000 $1,228,472 $ 2,436,409 $291,699 $ 620,440 $ 1,230,509
20 (Age 65) $ 748,558 $1,000,000 $1,335,518 $ 3,497,315 $245,586 $ 771,976 $ 2,021,569
25 $ 910,735 $1,000,000 $1,476,275 $ 5,104,392 $182,058 $ 958,620 $ 3,314,540
30 $1,108,049 $1,000,000 $1,645,473 $ 7,511,734 $ 76,656 $1,183,794 $ 5,404,125
35 $1,348,111 $ 0(2) $1,852,871 $11,167,235 $ 0(2) $1,447,556 $ 8,724,403
40 $1,640,183 $ 0 $2,106,240 $16,758,614 $ 0 $1,755,200 $13,965,511
45 $1,995,533 $ 0 $2,405,711 $25,268,771 $ 0 $2,110,273 $22,165,589
</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 33, 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 III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 TARGET COVERAGE AMOUNT($5,000 BASIC INSURANCE AMOUNT,
$995,000 TARGET TERM RIDER)
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) 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 (-1.14% Net) (4.86% Net) (10.86% Net) (-1.14% Net) (4.86% Net) (10.86% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 56,919 $1,000,000 $1,000,000 $ 1,000,000 $ 45,525 $ 48,371 $ 51,218
2 $ 116,115 $1,000,000 $1,000,000 $ 1,000,000 $ 90,440 $ 98,979 $ 107,866
3 $ 177,679 $1,000,000 $1,000,000 $ 1,000,000 $134,190 $ 151,389 $ 170,007
4 $ 241,705 $1,000,000 $1,000,000 $ 1,000,000 $177,348 $ 206,299 $ 238,905
5 $ 308,293 $1,000,000 $1,000,000 $ 1,000,000 $218,793 $ 262,725 $ 314,222
6 $ 377,544 $1,000,000 $1,000,000 $ 1,029,644 $260,782 $ 323,077 $ 399,087
7 $ 449,565 $1,000,000 $1,000,000 $ 1,231,001 $302,183 $ 386,390 $ 492,400
8 $ 467,547 $1,000,000 $1,000,000 $ 1,313,097 $293,761 $ 400,624 $ 540,369
9 $ 486,249 $1,000,000 $1,000,000 $ 1,393,272 $284,947 $ 415,266 $ 592,882
10 $ 505,699 $1,000,000 $1,000,000 $ 1,482,698 $275,681 $ 430,316 $ 650,306
15 $ 615,260 $1,000,000 $1,013,492 $ 2,033,504 $220,190 $ 511,864 $ 1,027,022
20 (Age 65) $ 748,558 $1,000,000 $1,043,508 $ 2,776,008 $138,897 $ 603,184 $ 1,604,629
25 $ 910,735 $1,000,000 $1,078,803 $ 3,804,597 $ 4,483 $ 700,522 $ 2,470,517
30 $1,108,049 $ 0(2) $1,113,542 $ 5,205,578 $ 0(2) $ 801,109 $ 3,745,020
35 $1,348,111 $ 0 $1,150,897 $ 7,130,562 $ 0 $ 899,138 $ 5,570,752
40 $1,640,183 $ 0 $1,194,559 $ 9,807,119 $ 0 $ 995,465 $ 8,172,599
45 $1,995,533 $ 0 $1,243,945 $13,530,182 $ 0 $1,091,180 $11,868,581
</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 III VARIABLE LIFE INSURANCE CONTRACT
GUIDELINE PREMIUM TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS (3)
USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) 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(3) (-0.84% Net) (5.16% Net) (11.16% Net) (-0.84% Net) (5.16% Net) (11.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 56,919 $1,000,000 $1,000,000 $ 1,000,000 $ 48,483 $ 51,197 $ 53,910
2 $ 116,115 $1,000,000 $1,000,000 $ 1,000,000 $ 95,154 $103,370 $ 111,914
3 $ 177,679 $1,000,000 $1,000,000 $ 1,000,000 $137,682 $154,274 $ 172,219
4 $ 241,705 $1,000,000 $1,000,000 $ 1,000,000 $179,763 $207,734 $ 239,208
5 $ 255,646 $1,000,000 $1,000,000 $ 1,000,000 $172,385 $212,359 $ 259,601
6 $ 265,872 $1,000,000 $1,000,000 $ 1,000,000 $168,828 $221,252 $ 286,585
7 $ 276,507 $1,000,000 $1,000,000 $ 1,000,000 $165,077 $230,421 $ 316,462
8 $ 287,567 $1,000,000 $1,000,000 $ 1,000,000 $161,123 $239,877 $ 349,572
9 $ 299,070 $1,000,000 $1,000,000 $ 1,000,000 $156,932 $249,610 $ 386,277
10 $ 311,032 $1,000,000 $1,000,000 $ 1,000,000 $152,495 $259,634 $ 427,011
15 $ 378,419 $1,000,000 $1,000,000 $ 1,000,000 $125,225 $313,804 $ 709,979
20 (Age 65) $ 460,404 $1,000,000 $1,000,000 $ 1,454,011 $ 84,602 $373,512 $ 1,191,812
25 $ 560,152 $1,000,000 $1,000,000 $ 2,322,243 $ 28,029 $441,561 $ 2,001,933
30 $ 681,510 $ 0(2) $1,000,000 $ 3,600,556 $ 0(2) $513,012 $ 3,365,005
35 $ 829,162 $ 0 $1,000,000 $ 5,951,349 $ 0 $577,792 $ 5,667,951
40 $1,008,802 $ 0 $1,000,000 $ 9,976,365 $ 0 $625,256 $ 9,501,300
45 $1,227,362 $ 0 $1,000,000(2) $16,592,333 $ 0 $624,317(2) $15,802,222
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 6%, the Contract would go into default in policy
year 54, unless an additional premium payment was made. Based on a gross
return of 0%, the Contract would go into default in policy year 27, unless
an additional premium payment was made.
(3) The Guideline Premium Test limits the premium payable in policy year 5 to
$4,108.12, and zero in years 6 and 7.
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 III VARIABLE LIFE INSURANCE CONTRACT
GUIDELINE PREMIUM TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS (3)
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) 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(3) (-1.14% Net) (4.86% Net) (10.86% Net) (-1.14% Net) (4.86% Net) (10.86% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 56,919 $1,000,000 $1,000,000 $1,000,000 $ 42,042 $ 44,461 $ 46,882
2 $ 116,115 $1,000,000 $1,000,000 $1,000,000 $ 83,525 $ 90,767 $ 98,305
3 $ 177,679 $1,000,000 $1,000,000 $1,000,000 $120,352 $134,915 $ 150,684
4 $ 241,705 $1,000,000 $1,000,000 $1,000,000 $156,629 $181,116 $ 208,704
5 $ 255,646 $1,000,000 $1,000,000 $1,000,000 $145,181 $179,943 $ 221,114
6 $ 265,872 $1,000,000 $1,000,000 $1,000,000 $138,453 $183,659 $ 240,201
7 $ 276,507 $1,000,000 $1,000,000 $1,000,000 $131,364 $187,182 $ 261,097
8 $ 287,567 $1,000,000 $1,000,000 $1,000,000 $123,849 $190,449 $ 283,978
9 $ 299,070 $1,000,000 $1,000,000 $1,000,000 $115,832 $193,381 $ 309,037
10 $ 311,032 $1,000,000 $1,000,000 $1,000,000 $107,244 $195,908 $ 336,512
15 $ 378,419 $1,000,000 $1,000,000 $1,000,000 $ 52,947 $199,407 $ 521,353
20 (Age 65) $ 460,404 $ 0(2) $1,000,000 $1,015,673 $ 0(2) $174,339 $ 832,518
25 $ 560,152 $ 0 $1,000,000 $1,573,520 $ 0 $ 84,903 $1,356,482
30 $ 681,510 $ 0 $ 0(2) $2,369,493 $ 0 $ 0(2) $2,214,480
35 $ 829,162 $ 0 $ 0 $3,820,857 $ 0 $ 0 $3,638,912
40 $1,008,802 $ 0 $ 0 $6,218,175 $ 0 $ 0 $5,922,071
45 $1,227,362 $ 0 $ 0 $9,971,753 $ 0 $ 0 $9,496,907
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 6%, the Contract would go into default in policy
year 28, unless an additional premium payment was made. Based on a gross
return of 0%, the Contract would go into default in policy year 19, unless
an additional premium payment was made.
(3) The Guideline Premium Test limits the premium payable in policy year 5 to
$4,108.12, and zero in years 6 and 7.
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 III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE B (VARIABLE) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) 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 (-0.84% Net) (5.16% Net) (11.16% Net) (-0.84% Net) (5.16% Net) (11.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 56,919 $1,044,789 $1,047,503 $ 1,050,216 $ 48,483 $ 51,197 $ 53,910
2 $ 116,115 $1,087,625 $1,095,828 $ 1,104,358 $ 95,014 $103,217 $ 111,747
3 $ 177,679 $1,129,923 $1,146,463 $ 1,164,352 $137,311 $153,852 $ 171,741
4 $ 241,705 $1,171,667 $1,199,507 $ 1,230,831 $179,056 $206,895 $ 238,220
5 $ 308,293 $1,212,843 $1,255,062 $ 1,304,498 $212,843 $255,062 $ 304,498
6 $ 377,544 $1,253,445 $1,313,250 $ 1,386,144 $253,445 $313,250 $ 386,144
7 $ 449,565 $1,293,449 $1,374,174 $ 1,476,627 $293,449 $374,174 $ 476,627
8 $ 467,547 $1,287,940 $1,390,340 $ 1,526,582 $287,940 $390,340 $ 526,582
9 $ 486,249 $1,282,170 $1,407,023 $ 1,581,785 $282,170 $407,023 $ 581,785
10 $ 505,699 $1,276,132 $1,424,240 $ 1,642,812 $276,132 $424,240 $ 642,812
15 $ 615,260 $1,240,481 $1,517,697 $ 2,096,714 $240,481 $517,697 $ 1,058,946
20 (Age 65) $ 748,558 $1,191,025 $1,620,344 $ 3,009,434 $191,025 $620,344 $ 1,739,557
25 $ 910,735 $1,126,927 $1,732,923 $ 4,392,153 $126,927 $732,923 $ 2,852,048
30 $1,108,049 $1,030,374 $1,837,937 $ 6,463,437 $ 30,374 $837,937 $ 4,649,955
35 $1,348,111 $ 0(2) $1,897,334 $ 9,608,659 $ 0(2) $897,334 $ 7,506,764
40 $1,640,183 $ 0 $1,856,842 $14,419,537 $ 0 $856,842 $12,016,281
45 $1,995,533 $ 0 $1,614,159(2) $21,741,771 $ 0 $614,159(2) $19,071,729
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 6%, the Contract would go into default in policy
year 51, unless an additional premium payment was made. Based on a gross
return of 0%, the Contract would go into default in policy year 32, 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 III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE B (VARIABLE) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) 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 (-1.14% Net) (4.86% Net) (10.86% Net) (-1.14% Net) (4.86% Net) (10.86% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 56,919 $1,037,800 $1,040,210 $ 1,042,623 $ 41,904 $ 44,315 $ 46,728
2 $ 116,115 $1,074,892 $1,082,089 $ 1,089,580 $ 83,101 $ 90,298 $ 97,790
3 $ 177,679 $1,111,264 $1,125,697 $ 1,141,322 $119,473 $133,906 $ 149,531
4 $ 241,705 $1,146,895 $1,171,087 $ 1,198,335 $155,105 $179,297 $ 206,545
5 $ 308,293 $1,181,765 $1,218,316 $ 1,261,162 $181,765 $218,316 $ 261,162
6 $ 377,544 $1,215,831 $1,267,422 $ 1,330,381 $215,831 $267,422 $ 330,381
7 $ 449,565 $1,249,045 $1,318,436 $ 1,406,623 $249,045 $318,436 $ 406,623
8 $ 467,547 $1,239,413 $1,326,899 $ 1,443,555 $239,413 $326,899 $ 443,555
9 $ 486,249 $1,229,277 $1,335,141 $ 1,483,847 $229,277 $335,141 $ 483,847
10 $ 505,699 $1,218,574 $1,343,079 $ 1,527,788 $218,574 $343,079 $ 527,788
15 $ 615,260 $1,154,197 $1,374,853 $ 1,814,671 $154,197 $374,853 $ 814,671
20 (Age 65) $ 748,558 $1,062,224 $1,379,373 $ 2,254,175 $ 62,224 $379,373 $1,254,175
25 $ 910,735 $ 0(2) $1,324,163 $ 2,957,206 $ 0(2) $324,163 $1,920,263
30 $1,108,049 $ 0 $1,153,072 $ 4,043,686 $ 0 $153,072 $2,909,127
35 $1,348,111 $ 0 $ 0(2) $ 5,537,753 $ 0 $ 0(2) $4,326,370
40 $1,640,183 $ 0 $ 0 $ 7,615,256 $ 0 $ 0 $6,346,047
45 $1,995,533 $ 0 $ 0 $10,505,118 $ 0 $ 0 $9,215,016
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 6%, the Contract would go into default in policy
year 33, unless an additional premium payment was made. Based on a gross
return of 0%, the Contract would go into default in policy year 23, 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>
PRUSELECT III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE C (RETURN OF PREMIUM AT 6%) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) 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 (-0.84% Net) (5.16% Net) (11.16% Net) (-0.84% Net) (5.16% Net) (11.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 56,919 $1,058,014 $1,058,014 $ 1,058,014 $ 48,483 $ 51,197 $ 53,910
2 $ 116,115 $1,119,508 $1,119,508 $ 1,119,508 $ 94,971 $103,181 $ 111,719
3 $ 177,679 $1,184,693 $1,184,693 $ 1,184,693 $137,186 $153,750 $ 171,668
4 $ 241,705 $1,253,788 $1,253,788 $ 1,253,788 $178,789 $206,686 $ 238,083
5 $ 308,293 $1,327,029 $1,327,029 $ 1,327,029 $212,357 $254,690 $ 304,280
6 $ 377,544 $1,404,665 $1,404,665 $ 1,404,665 $252,634 $312,644 $ 385,833
7 $ 449,565 $1,486,958 $1,486,958 $ 1,486,958 $292,175 $373,244 $ 476,224
8 $ 467,547 $1,516,176 $1,516,176 $ 1,516,176 $286,060 $389,000 $ 526,128
9 $ 486,249 $1,547,146 $1,547,146 $ 1,547,146 $279,507 $405,167 $ 581,351
10 $ 505,699 $1,579,975 $1,579,975 $ 1,579,975 $272,475 $421,740 $ 642,506
15 $ 615,260 $1,776,138 $1,776,138 $ 2,100,333 $226,786 $508,772 $ 1,060,774
20 (Age 65) $ 748,558 $2,038,647 $2,038,647 $ 3,014,713 $149,804 $593,128 $ 1,742,609
25 $ 910,735 $2,389,944 $2,389,944 $ 4,399,860 $ 24,905 $660,913 $ 2,857,052
30 $1,108,049 $ 0(2) $2,860,059 $ 6,474,781 $ 0(2) $645,653 $ 4,658,116
35 $1,348,111 $ 0 $3,489,179 $ 9,625,524 $ 0 $355,487 $ 7,519,940
40 $1,640,183 $ 0 $ 0(2) $14,444,848 $ 0 $ 0(2) $12,037,373
45 $1,995,533 $ 0 $ 0 $21,779,936 $ 0 $ 0 $19,105,207
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 6%, the Contract would go into default in policy
year 38, unless an additional premium payment was made. 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.
T9
<PAGE>
PRUSELECT III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE C (RETURN OF PREMIUM AT 6%) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) 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 (-1.14% Net) (4.86% Net) (10.86% Net) (-1.14% Net) (4.86% Net) (10.86% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 56,919 $1,058,014 $1,058,014 $ 1,058,014 $ 41,850 $ 44,262 $ 46,678
2 $ 116,115 $1,119,508 $1,119,508 $ 1,119,508 $ 82,906 $ 90,115 $ 97,621
3 $ 177,679 $1,184,693 $1,184,693 $ 1,184,693 $119,022 $133,491 $ 149,161
4 $ 241,705 $1,253,788 $1,253,788 $ 1,253,788 $154,243 $178,517 $ 205,876
5 $ 308,293 $1,327,029 $1,327,029 $ 1,327,029 $180,294 $217,005 $ 260,082
6 $ 377,544 $1,404,665 $1,404,665 $ 1,404,665 $213,495 $265,365 $ 328,762
7 $ 449,565 $1,486,958 $1,486,958 $ 1,486,958 $245,510 $315,359 $ 404,321
8 $ 467,547 $1,516,176 $1,516,176 $ 1,516,176 $234,337 $322,533 $ 440,487
9 $ 486,249 $1,547,146 $1,547,146 $ 1,547,146 $222,240 $329,147 $ 479,931
10 $ 505,699 $1,579,975 $1,579,975 $ 1,579,975 $209,064 $335,040 $ 522,953
15 $ 615,260 $1,776,138 $1,776,138 $ 1,776,138 $120,122 $346,058 $ 805,225
20 (Age 65) $ 748,558 $ 0(2) $2,038,647 $ 2,159,800 $ 0(2) $289,658 $1,248,440
25 $ 910,735 $ 0 $2,389,944 $ 2,958,528 $ 0 $ 54,663 $1,921,122
30 $1,108,049 $ 0 $ 0(2) $ 4,046,582 $ 0 $ 0(2) $2,911,210
35 $1,348,111 $ 0 $ 0 $ 5,541,723 $ 0 $ 0 $4,329,471
40 $1,640,183 $ 0 $ 0 $ 7,620,718 $ 0 $ 0 $6,350,599
45 $1,995,533 $ 0 $ 0 $10,512,657 $ 0 $ 0 $9,221,629
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 6%, the Contract would go into default in policy
year 26, unless an additional premium payment was made. Based on a gross
return of 0%, the Contract would go into default in policy year 20, 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.
T10
<PAGE>
CONTRACT LOANS
You may borrow from Pruco Life an amount up to the current loan value of your
Contract less any existing Contract debt using the Contract as the only security
for the loan. The loan value at any time is equal to 90% of the Contract Fund
value. A Contract in default has no loan value. The minimum loan amount you may
borrow is $200.
Interest charged on a loan accrues daily. Interest is due on each Contract
anniversary or when the loan is paid back, whichever comes first. If interest is
not paid when due, it becomes part of the loan and we will charge interest on
it, too. Except in the case of preferred loans, we charge interest at an
effective annual rate of 5%.
A portion of any amount you borrow on or after the 10th Contract anniversary may
be considered a preferred loan. The maximum preferred loan amount is the total
amount you may borrow minus the total net premiums paid (net premiums equal
premiums paid less total withdrawals, if any). If the net premium amount is less
than zero, we will, for purposes of this calculation, consider it to be zero.
Only new loans borrowed after the 10th Contract anniversary may be considered
preferred loans. Standard loans will not automatically be converted into
preferred loans. Preferred loans are charged interest at an effective annual
rate of 4.25%.
The Contract debt is the amount of all outstanding loans plus any interest
accrued but not yet due. If at any time the Contract debt equals or exceeds the
Contract Fund, the Contract will go into default. See LAPSE AND REINSTATEMENT,
page 22. If the Contract debt equals or exceeds the Contract Fund and you fail
to keep the Contract inforce, the amount of unpaid Contract debt will be treated
as a distribution which may be taxable. See TAX TREATMENT OF CONTRACT BENEFITS,
page 27.
When a loan is made, an amount equal to the loan proceeds is transferred out of
the Account. Unless you ask us to take the loan amount from specific investment
options and we agree, the reduction will be made in the same proportions as the
value in each subaccount bears to the total value of the Contract. While a loan
is outstanding, the amount that was so transferred will continue to be treated
as part of the Contract Fund. It will be credited with an effective annual rate
of return of 4%. On each Monthly date, we will increase the portion of the
Contract Fund in the investment options by interest credits accrued on the loan
since the last Monthly date. The net cost of a standard loan is 1% and the net
cost of a preferred loan is 1/4%.
Loans from Modified Endowment Contracts may be treated for tax purposes as
distributions of income. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
Any Contract debt will directly reduce a Contract's cash value and will be
subtracted from the death benefit to determine the amount payable. In addition,
even if the loan is fully repaid, it may have an effect on future death benefits
because the investment results of the selected investment options will apply
only to the amount remaining invested under those options. The longer the loan
is outstanding, the greater the effect is likely to be. The effect could be
favorable or unfavorable. If investment results are greater than the rate being
credited on the amount of the loan while the loan is outstanding, values under
the Contract will not increase as rapidly as they would have if no loan had been
made. If investment results are below that rate, Contract values will be higher
than they would have been had no loan been made.
When you repay all or part of a loan, we will increase the portion of the
Contract Fund in the investment options by the amount of the loan you repay
using the investment allocation for future premium payments as of the loan
payment date, plus interest credits accrued on the loan since the last
transaction date. If loan interest is paid when due, it will not change the
portion of the Contract Fund allocated to the investment options. We reserve the
right to change the manner in which we allocate loan repayments.
SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
Prudential, acts as the principal underwriter of the Contract. Prusec, organized
in 1971 under New Jersey law, is registered as a broker and dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. Prusec's principal business address is 751 Broad
Street, Newark, New Jersey 07102-3777. The Contract is sold by registered
representatives of Prusec who are also authorized by state insurance departments
to do so. The Contract may also be sold through other broker-dealers authorized
by Prusec and applicable law to do so. Registered representatives of such other
broker-dealers may be paid on a different basis than described below.
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Generally, representatives will receive a commission of no more than: (1) 20% of
the premiums received in the first year on premiums up to the Target Premium
(referred to as "segment allocation amount" in your Contract); (2) 12% of
premiums received in years two through 10 on premiums up to the Target Premium;
and (3) 2% on premiums received in the first 10 years in excess of the Target
Premium or received after 10 years. If the basic insurance amount is increased,
representatives will generally receive a commission of no more than: (1) 20% of
the premiums received up to the Target Premium for the increase received in the
first year; (2) 12% of the premiums received up to the Target Premium for years
two through 10; and (3) 2% on other premiums received for the increase.
Moreover, trail commissions of up to 0.05% of the Contract Fund may be paid as
of the end of each calendar quarter for years six through 20 and .025%
thereafter. Representatives with less than 4 years of service may receive
compensation on a different basis. Representatives who meet certain productivity
or persistency standards may be eligible for additional compensation.
TAX TREATMENT OF CONTRACT BENEFITS
This summary provides general information on the federal income tax treatment of
the Contract. It is not a complete statement of what the federal income taxes
will be in all circumstances. It is based on current law and interpretations,
which may change. It does not cover state taxes or other taxes. It is not
intended as tax advice. You should consult your own qualified tax adviser for
complete information and advice.
TREATMENT AS LIFE INSURANCE. The Contract must meet certain requirements to
qualify as life insurance for tax purposes. These requirements include certain
definitional tests and rules for diversification of the Contract's investments.
For further information on the diversification requirements, see TAXATION OF THE
FUND in the statement of additional information for the Series Fund.
In order to meet the definition of life insurance rules for federal income tax
purposes, the Contract must satisfy one of the two following tests: (1) Cash
Value Accumulation Test or (2) Guideline Premium Test. At issue, the Contract
owner chooses which of these two tests will apply to their Contract. This choice
cannot be changed thereafter.
Under the Cash Value Accumulation Test, the Contract must maintain a minimum
ratio of death benefit to cash value. Therefore, in order to ensure that the
Contract qualifies as life insurance, the Contract's basic insurance amount may
increase as the Contract Fund value increases. The death benefit, at all times,
must be at least equal to the Contract Fund multiplied by the applicable
attained age factor. A listing of attained age factors can be found on the data
pages of your Contract.
Under the Guideline Premium Test, there is a limit as to the amount of premium
that can be paid into the Contract in relation to the death benefit. In
addition, there is a minimum ratio of death benefit to cash value associated
with this test. This ratio, however, is less than the required ratio under the
Cash Value Accumulation test. Therefore, the death benefit required under this
test is generally lower than that of the Cash Value Accumulation test.
The selection of the definition of life insurance test most appropriate for you
is dependent on several factors, including the insured's age at issue, actual
Contract earnings, and whether or not the Contract is classified as a Modified
Endowment Contract. You should consult your own qualified tax adviser for
complete information and advice with respect to the selection of the definition
of life insurance test.
We believe we have taken adequate steps to insure 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, and
o the Contract's death benefit will be income tax free to your
beneficiary.
Although we believe that the Contract should qualify as life insurance for tax
purposes, there are some uncertainties, particularly because the Secretary of
Treasury has not yet issued permanent regulations that bear on this question.
Accordingly, we reserve the right to make changes -- which will be applied
uniformly to all Contract owners after advance written notice -- that we deem
necessary to insure that the Contract will qualify as life insurance.
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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
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 Loans you take against the Contract are ordinarily treated as
debt and are not considered distributions subject to tax.
However, there is some risk the Internal Revenue Service might
assert that the preferred loan should be treated as a
distribution for tax purposes because of the relatively low
differential between the loan interest rate and Contract's
crediting rate. Were the Internal Revenue Service to take this
position, Pruco Life would take reasonable steps to avoid this
result, including modifying the Contract's loan provisions.
MODIFIED ENDOWMENT CONTRACTS
o The rules change if the Contract is classified as a Modified
Endowment Contract. The Contract could be classified as a
Modified Endowment Contract if premiums in amounts that are too
large are paid or a decrease in the face amount of insurance is
made (or a rider removed). The addition of a rider or an increase
in the face amount of insurance may also cause the Contract to be
classified as a Modified Endowment Contract. You should first
consult a qualified tax adviser and your Pruco Life
representative if you are contemplating any of these steps.
o If the Contract is classified as a Modified Endowment Contract,
then amounts you receive under the Contract before the insured's
death, including loans and withdrawals, are included in income to
the extent that the Contract Fund 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 excludable 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 and assignments, 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 59 1/2, on account of your
becoming disabled or as a life annuity. It is presently unclear
how the penalty tax provisions apply to Contracts owned by
businesses.
o All Modified Endowment Contracts issued by us to you during the
same calendar year are treated as a single Contract for purposes
of applying these rules.
WITHHOLDING. You must affirmatively elect that no taxes be withheld from a
pre-death distribution. Otherwise, the taxable portion of any amounts you
receive will be subject to withholding. You are not permitted to elect out of
withholding if you do not provide a social security number or other taxpayer
identification number. You may be subject to penalties under the estimated tax
payment rules if your withholding and estimated tax payments are insufficient to
cover the tax due.
OTHER TAX CONSIDERATIONS. If you transfer or assign the Contract to someone
else, there may be gift, estate and/or income tax consequences. If you transfer
the Contract to a person two or more generations younger than you (or designate
such a younger person as a beneficiary), there may be Generation Skipping
Transfer tax consequences. Deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied. Your individual situation or that of your beneficiary
will determine the federal estate taxes and the state and local estate,
inheritance and other taxes due if you or the insured dies.
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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.
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS
The Contract generally employs mortality tables that distinguish between males
and females. Thus, premiums and benefits differ under Contracts issued on males
and females of the same age. However, in those states that have adopted
regulations prohibiting sex-distinct insurance rates, premiums and cost of
insurance charges will be based on male rates, whether the insureds are male or
female. In addition, employers and employee organizations considering the
purchase of a Contract should consult their legal advisers to determine whether
purchase of a Contract based on sex-distinct actuarial tables is consistent with
Title VII of the Civil Rights Act of 1964 or other applicable law.
EXCHANGE RIGHT AVAILABLE IN SOME STATES
In some states, you may have the right to exchange the Contract for a fixed
benefit insurance plan issued by The Prudential Insurance Company of America on
the insured's life. 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.
OTHER GENERAL CONTRACT PROVISIONS
ASSIGNMENT. This Contract may not be assigned if the assignment would violate
any federal, state or local law or regulation prohibiting sex distinct rates for
insurance. Generally, the Contract may not be assigned to an employee benefit
plan or program without Pruco Life's consent. Pruco Life assumes no
responsibility for the validity or sufficiency of any assignment. We will not be
obligated to comply with any assignment unless we receive a copy at a Home
Office.
BENEFICIARY. You designate and name your beneficiary in the application.
Thereafter, you may change the beneficiary, provided it is in accordance with
the terms of the Contract. Should the insured die with no surviving beneficiary,
the insured's estate will become the beneficiary.
INCONTESTABILITY. We will not contest the Contract after it has been inforce
during the insured's lifetime for two years from the issue date except when any
change is made in the Contract that requires Pruco Life's approval and would
increase our liability. We will not contest such change after it has been in
effect for two years during the lifetime of the insured.
MISSTATEMENT OF AGE OR SEX. If the insured's stated age or sex or both are
incorrect in the Contract, Pruco Life will adjust the death benefits payable and
any amount to be paid, as required by law, to reflect the correct age and sex.
Any such benefit will be based on what the most recent deductions from the
Contract Fund would have provided at the insured's correct age and sex.
SETTLEMENT OPTIONS. The Contract grants to most owners, or to the beneficiary, a
variety of optional ways of receiving Contract proceeds, other than in a lump
sum. Any Pruco Life representative authorized to sell this Contract can explain
these options upon request.
SUICIDE EXCLUSION. Generally, if the insured, whether sane or insane, dies by
suicide within two years from the Contract date, the Contract will end and Pruco
Life will return the premiums paid, less any Contract debt, and less any
withdrawals. Generally, if the insured, whether sane or insane, dies by suicide
after two years from the issue date, but within two years of the effective date
of an increase in the basic insurance amount, we will pay, as to the increase in
amount, no more than the sum of the premiums paid on and after the effective
date of an increase.
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VOTING RIGHTS
As described earlier, all of the assets held in the subaccounts will be invested
in shares of the corresponding portfolios of the Funds. Pruco Life is the legal
owner of those shares and as such, has the right to vote on any matter voted on
at shareholders meetings of the Funds. However, Pruco Life will, as required by
law, vote the shares of the Funds in accordance with voting instructions
received from Contract owners at any regular and special shareholders meetings.
A Fund may not hold annual shareholders meetings when not required to do so
under the laws of the state of its incorporation or the Investment Company Act
of 1940. Fund shares for which no timely instructions from Contract owners are
received, and any shares attributable to general account investments of Pruco
Life will be voted in the same proportion as shares in the respective portfolios
for which instructions are received. Should the applicable federal securities
laws or regulations, or their current interpretation, change so as to permit
Pruco Life to vote shares of the Funds in its own right, it may elect to do so.
Matters on which Contract owners may give voting instructions include the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's selected subaccount[s]; (4) any change in
the fundamental investment policy of a portfolio corresponding to the Contract
owner's selected subaccount[s]; and (5) any other matter requiring a vote of the
shareholders of the Series Fund. With respect to approval of the investment
advisory agreement or any change in a portfolio's fundamental investment policy,
Contract owners participating in such portfolios will vote separately on the
matter, pursuant to the requirements of Rule 18f-2 under the Investment Company
Act of 1940.
The number of Fund shares for which a Contract owner may give instructions is
determined by dividing the portion of the value of the Contract derived from
participation in a subaccount, by the value of one share in the corresponding
portfolio of the applicable Fund. The number of votes for which each Contract
owner may give Pruco Life instructions will be determined as of the record date
chosen by the Board of Directors of the applicable Fund. Pruco Life will furnish
Contract owners with proper forms and proxies to enable them to give these
instructions. Pruco Life reserves the right to modify the manner in which the
weight to be given voting instructions is calculated where such a change is
necessary to comply with current federal regulations or interpretations of those
regulations.
Pruco Life may, if required by state insurance regulations, disregard voting
instructions if they would require shares to be voted so as to cause a change in
the sub-classification or investment objectives of one or more of a Fund's
portfolios, or to approve or disapprove an investment advisory contract for a
Fund. In addition, Pruco Life itself may disregard voting instructions that
would require changes in the investment policy or investment adviser of one or
more of a Fund's portfolios, provided that Pruco Life reasonably disapproves
such changes in accordance with applicable federal regulations. If Pruco Life
does disregard voting instructions, it will advise Contract owners of that
action and its reasons for such action in the next annual or semi-annual report
to Contract owners.
SUBSTITUTION OF FUND SHARES
Although Pruco Life believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Funds may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, Pruco Life may seek to substitute the shares of another portfolio or
of an entirely different mutual fund. Before this can be done, the approval of
the SEC, and possibly one or more state insurance departments, may be required.
Contract owners will be notified of any such substitution.
REPORTS TO CONTRACT OWNERS
Once each year, Pruco Life will send you a statement that provides certain
information pertinent to your own Contract. This statement will detail values,
transactions made and specific Contract data that apply only to your particular
Contract. You will also be sent annual and semi-annual reports of the Funds
showing the financial condition of the portfolios and the investments held in
each portfolio.
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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 Davis,
FSA, MAAA, Vice President and Actuary of Prudential, whose opinion is filed as
an exhibit to the registration statement.
LITIGATION AND REGULATORY PROCEEDINGS
We are subject to legal and regulatory actions in the ordinary course of our
business, including class actions. Our pending legal and regulatory actions
include proceedings specific to us and proceedings generally applicable to
business practices in the industry in which we operate. In our insurance
operations, we are subject to class actions and individual suits involving a
variety of issues, including sales practices, claims payment and denial of
benefit matters and payment of service fees.
In certain of our pending legal and regulatory actions, large and/or
indeterminate amounts are sought, including punitive or exemplary damages. The
following is a summary of pending proceedings against us and/or our parent, The
Prudential Insurance Company of America ("Prudential"), which we currently
believe are significant. Unless otherwise indicated, when we use the terms "we,"
"us," or "our," in the following discussion, we are referring to both Prudential
and Pruco Life.
LIFE INSURANCE SALES PRACTICES ISSUES
We have been subject to substantial regulatory investigations and civil
litigation involving alleged deceptive life insurance sales practices engaged in
by us and our insurance agents in violation of state and federal laws. The sales
practices alleged to have occurred are contrary to our policy.
In April 1995, a Multi-State Life Insurance Task Force (the "Task Force"),
comprised of insurance regulators from 29 states and the District of Columbia,
was formed to conduct a review of sales and marketing practices throughout the
life insurance industry. Prudential was the initial focus of the Task Force
examination. In July 1996, the Task Force released its report on its activities
(the "Task Force Report"). The Task Force Report found that some sales of life
insurance policies, including life insurance policies issued by Pruco Life, had
been improper (principally relating to improper financed insurance sales,
improper representations in sales involving abbreviated payment plans and
insurance improperly sold primarily as an investment rather than as life
insurance) and that efforts to prevent such practices were not sufficiently
effective. Pruco Life was not named in the Task Force Report, but the report
covered the sales of Pruco Life policies. Based on these findings, the Task
Force recommended, and Prudential agreed to, various changes in our sales and
other business practices controls (including as to the training, supervision and
discipline of agents and field management) and a series of fines allocated to
all 50 states and the District of Columbia. In addition, the Task Force and
Prudential agreed upon a remediation program pursuant to which relief would be
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offered to policyholders who were misled when they purchased individual
permanent life insurance policies in the United States from 1982 through 1995.
By March 1997, Prudential had entered into consent orders with insurance
regulatory authorities in all 50 states and the District of Columbia in which
such authorities adopted the Task Force Report and agreed to accept this
remediation program as enhanced by the Class Action Settlement discussed below
(the "Remediation Program") and the payment of approximately $65 million in
fines, penalties and related payments to resolve with these authorities the
sales practices issues identified by the Task Force's examination (each such
agreement a "State Settlement").
Commencing in February 1995, a number of individual and alleged class civil
actions were filed against Prudential and Pruco Life alleging improprieties in
connection with the sale, servicing and operation of permanent individual life
insurance policies. These actions were consolidated and transferred by the
Judicial Panel on Multi-District Litigation to the United States District Court
for the District of New Jersey (the "District Court"). In September 1996, the
plaintiffs in the alleged class actions in the consolidated proceeding joined in
the filing of an amended consolidated class action against us (the "Class
Action") and the pending individual actions (the "Individual Actions") were
stayed. The principal allegations of the Class Action were that individual
permanent life insurance was improperly sold through alleged misrepresentations
concerning the use of an existing policy's value or dividend stream to purchase
or maintain another policy (i.e., financed insurance sales), alleged
misrepresentations relating to the number of out-of-pocket cash premiums
required to be paid for a policy or the realization of specified benefits (i.e.,
"vanishing premium" or abbreviated payment plans) and alleged misrepresentations
of the insurance product sold as an investment rather than a life insurance
policy.
In October 1996, we entered into a Stipulation of Settlement (the "Class Action
Settlement") in the Class Action covering all persons who own or owned at
termination of the policy, an individual permanent life insurance policy issued
in the United States by Prudential and Pruco Life during the period January 1,
1982 through December 31, 1995 (each a "Covered Policy") other than those opting
out of the Class Action Settlement, those who had previously settled with us who
were represented by counsel, the owners of certain corporate-owned life
insurance or trust-owned life insurance policies and a limited number of other
specified policyholders (the "Class Members"). The Class Action Settlement
proposed to settle the Class Action by adopting the Remediation Program
described in the Task Force Report and previously accepted in the initial State
Settlements plus specified enhancements and changes, including some additional
remedies. In addition, it was agreed in the Class Action Settlement that the
total pre-tax cost of remedies for the claims filed through the Alternative
Dispute Resolution ("ADR") process of the Remediation Program described below
would result in a minimum average cost per remedy of $2,364 for the first
330,000 claims remedied. It was also agreed that the ADR participants would be
provided with additional compensation to be determined by a formula that would
range in aggregate amount from $50 million to $300 million depending on the
total number of claims remedied, which would be distributed as determined by the
District Court at the end of the ADR claim evaluation process described below.
It was agreed in the Class Action Settlement that the aggregate amount of
pre-tax cost for remedies granted through the ADR process and the additional
compensation to be distributed at the end of the ADR process would in no event
be less than $410 million. The Class Action Settlement releases Prudential and
Pruco Life from all claims that have been asserted by Class Members and bars
Class Members from asserting any other claims with respect to the sales,
servicing or administration of the Covered Policies.
In October 1996, a notice of the Class Action and proposed Class Action
Settlement was provided to the owners of the approximately 10.7 million Covered
Policies, giving each owner the opportunity to opt out of the Class Action in
order to pursue alternative remedies. Owners of approximately 21,800 Covered
Policies elected to be excluded from the Class Action Settlement (the "Opt-Out
Policyholders"). In January 1997, the District Court sanctioned and fined
Prudential $1 million for failure to properly implement procedures for its
employees to retain documents in violation of the District Court's order that
required the parties to preserve all documents relevant to the resolution of the
Class Action and the Remediation Program. The District Court ordered Prudential
to implement a document retention policy and directed that an independent expert
be engaged to investigate the extent of document destruction and its impact on
the Remediation Program, so that claim evaluations would take into account any
failure to retain materials relevant to the claim. In March 1997, the District
Court issued an order certifying the class for settlement purposes only and
approving the amended Class Action Settlement as fair to Class Members. In July
1998, this order was affirmed on appeal by the U.S. Court of Appeals for the
Third Circuit, although the issue of class counsel's fees was sent back to the
District Court for review. In January 1999, the U.S. Supreme Court denied a writ
of certiorari filed by certain Class Members objecting to the Class Settlement.
The approval of the settlement is now final and unappealable, although the
District Court has retained jurisdiction over the administration, execution,
enforcement and interpretation of the settlement.
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The Remediation Program offered two alternative forms of relief: participation
in the ADR process or Basic Claim Relief. The ADR process was designed to permit
policyholders who believe they were misled regarding the sale of their policies
to submit claims for relief through a no-cost dispute resolution process with
certain specified safeguards to protect policyholders. The ADR process has
provided for an individual review of each claim with remedies tailored to the
type of claim and the available evidence concerning the claim, including any
evidence of document destruction by us. Remedies under the ADR process have
included, among other things: return of policy values improperly used;
cancellation of an unwanted policy and refund of some or all premiums paid
including interest; agreement that the policyholder need not make future
payments for some or all premiums due; or issuance of a substitute product. The
ADR process does not guarantee that there will be a determination in the
policyholder's favor providing for any relief or remedy. Basic Claim Relief has
provided a choice of specified remedies without a claim or showing that any
improper sales practices occurred. The Basic Claim Relief options have included
preferred rate premium loans and annuities, mutual fund shares or life insurance
policies with certain benefits or values that we will enhance.
Pursuant to the Class Action Settlement and the State Settlements, beginning in
February 1997, Remediation Program packages were mailed to Class Members (i.e.,
the owners of the 10.7 million Covered Policies, other than Opt-Out
Policyholders) informing them of their options under the Remediation Program.
The owners of approximately 1.16 million Covered Policies indicated an intent to
file an ADR claim and were provided an ADR claim form for completion and
submission. The ADR process generally has required that individual claim forms
and files be reviewed by Prudential and by one or more independent claim
evaluators. Approximately 649,000 claim forms were completed and returned by
policyholders and virtually all decision letters had been mailed to claimants as
of February 28, 1999. In many instances, claimants have the right to "appeal"
the decision to an independent reviewer. We believe that the bulk of such
appeals will be resolved in 1999. The owners of approximately 503,000 policies
indicated an interest in a Basic Claim Relief Remedy.
In a related matter, the NASD examined our individual life insurance
broker-dealer's (Pruco Securities Corporation) sales practices with respect to
SEC-registered variable life insurance products sold in the United States from
1983 through 1995, as well as the public. In July 1999, Pruco Securities
Corporation entered into a settlement agreement with the NASD that included
findings by the NASD of improper sales practices affecting the sale of some of
our variable life insurance products similar to those cited by the Task Force
and inadequate supervision. This settlement agreement censured Pruco Securities,
required the retention of an independent consultant to review Pruco Securities'
policies and procedures relevant to the NASD's findings, and levied a $20
million fine. This settlement did not change the Remediation Program or add to
our obligations to claimants in the Remediation Program or other policyholders.
On September 2, 1999, the Insurance Department of the State of New York formally
adopted a Report of Examination based on the Department's review, for the years
1996 and 1997, of Prudential's individual life insurance sales practices
controls and various company recordkeeping, reporting and filing requirements.
Significantly, the examination report did not identify problems with sales
practices controls or the steps taken to implement the recommendations contained
in the Task Force Report described above. However, the examiners did cite
violations relating to some of Prudential's advertisements and advertising
files, the use of unfiled policy forms in what is now a discontinued line of
business, various problems related to the back-office maintenance of new
business and complaint files, and the inability to produce all requested
documents and data in a timely manner. The Department also concluded that
Prudential failed to adequately facilitate its examination. These matters were
resolved by entry of a Stipulation in which Prudential agreed to pay a fine of
$1.5 million and agreed that the Auditing Committee of its Board of Directors
would provide semi-annual reports for a three year period to the New York
Department describing the status of steps taken to remedy the issues cited in
the Report of Examination Pruco Life does not do business in New York.
We remain subject to oversight and review by insurance regulators and other
regulatory authorities with respect to our sales practices and the conduct of
the Remediation Program. The releases granted by the state insurance regulatory
authorities pursuant to the State Settlements do not become final until the
Remediation Program has been completed without any material changes to which
those regulators have not agreed. The Class Action Settlement does not cover:
policies other than individual permanent life insurance policies issued in the
United States; any type of policy issued prior to 1982 or after 1995; the
Opt-Out Policyholders, some of whom are proceeding with their own individual or
putative class actions; and individual actions not barred by the Class Action
Settlement. Prudential agreed to indemnify Pruco Life for losses, if any,
resulting from claims arising from sales practice violations that occurred
between 1982 and 1995. We believe that no other litigation is being brought
against Pruco Life that would have a material effect on its financial position.
33
<PAGE>
In 1996, Prudential established a reserve to cover the cost of remedying
policyholder claims of $410 million, as agreed to in the Class Action
Settlement. Prudential had no better information available at that time upon
which to make a reasonable estimate of losses. Prudential also incurred charges
or reserves to cover administrative costs related to the ADR process, regulatory
fines, penalties and related payments, litigation costs and settlements, and
other fees and expenses associated with the resolution of sales practices issues
("Additional Sales Practices Costs") aggregating $715 million. In 1997, based on
additional information derived from claim sampling techniques, the terms of the
settlement and the number of claim forms received, management increased the
estimated liability for the cost of remedying policyholder claims in the ADR
process by $1.64 billion before taxes to approximately $2.05 billion before
taxes, of which $1.80 billion was funded in a settlement trust. Prudential also
incurred charges or additional reserves to cover Additional Sales Practices
Costs aggregating $390 million. Prudential expressly noted that additional cost
items were anticipated that could not be fully evaluated at that time. In 1998,
based on estimates derived from an analysis of claims actually remedied
(including interest) and a sample of claims still to be remedied (both estimates
included the additional liability associated with the results of the
investigation by the independent expert regarding the impact of document
destruction on the ADR program) and an estimate of additional liabilities
associated with a claimant's right to "appeal" the decision, the estimated
liability was increased for the cost of ADR remedies by $510 million before
taxes to a total of $2.56 billion before taxes, all of which has been funded in
the settlement trust. Prudential also incurred charges or established additional
reserves to cover Additional Sales Practices Costs aggregating $640 million.
While Prudential believes it has adequately reserved in all material respects
based on information currently available, the ultimate amount of the total cost
of remedying policyholder claims and related costs is dependent on complex and
varying factors, including the relief options to be chosen by claimants, the
dollar value of those options, and the number and type of claims that may
successfully be appealed. As with any litigation, the litigation by Opt-Out
Policyholders and the Individual Actions are subject to many uncertainties, and,
given the complexity and scope of these suits, their outcome cannot be predicted
with precision.
YEAR 2000 COMPLIANCE
The Year 2000 issue is best understood as a computer hardware and software
problem involving the way dates are stored and processed in computer systems.
The services provided to you as a purchaser of a PruSelect(SM) III Life
Insurance Contract depend on the smooth functioning of these 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 system 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 such
as telephones, fax machines and elevators. If this problem is not corrected, the
"Year 2000" issue could affect the accuracy and integrity of business records.
Prudential's regular business operations could be interrupted as well as those
of other companies that deal with us.
In addition, the operations of the mutual funds associated with the
PruSelect(SM) III Life Insurance Contract could experience problems resulting
from the Year 2000 issue. Please refer to the mutual fund prospectus for
information regarding their approach to Year 2000 concerns.
To address this potential problem Prudential, as the parent company of Pruco
Life, has organized its Year 2000 efforts around the following three areas:
o Business Applications - Computer programs directly used to support our
business.
o Infrastructure - Computers and other business equipment such as telephones
and fax machines.
o Business Partners - Year 2000 readiness of essential business partners.
Business Applications. The business applications component includes a wide range
of computer programs that directly support Prudential's business operations
including applications used for insurance product administration, securities
trading, personnel record keeping and general accounting systems. All business
applications have been analyzed to determine whether each computer program with
a Year 2000 problem should be retired, replaced or renovated. Renovation,
replacement, and retirement of business applications are now complete. Newly
developed or purchased programs were rigorously tested prior to their use.
Infrastructure. As with business applications, we have established a specific
methodology and process for addressing infrastructure issues. The infrastructure
effort includes mainframe computer system hardware and operating system
34
<PAGE>
software, mid-range systems and servers, telecommunications equipment and
systems, buildings and facilities systems, personal computers and vendor
hardware and software. With the exception of personal computers, which are
scheduled for completion by October 31, 1999, infrastructure systems are
substantially complete.
Business Partners. Early in the Year 2000 program, Prudential recognized the
importance of determining the Year 2000 readiness of external business
relationships, especially those that involve electronic data transfer services
and products that impact our essential business processes. We first classified
each business partner as a "priority" or "non-priority" to our business and then
began to develop risk assessment and contingency plans to address the
possibility that a business partner could experience a Year 2000 failure. All
priority and non-priority business partner relationships have been assessed and
contingency planning is complete. We will continue to assess our risk, review
and update our contingency planning and assess any new business partners until
2000 in an effort to minimize risk.
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 be
approximately $230 million. Because these expenses were part of the operating
budget, they do not impact the management of PruSelect(SM) III 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
PruSelect(SM) III 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 cannot be 100% 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 of on
Prudential's results of operations, liquidity, or financial position. If
Prudential is unable to achieve Year 2000 compliance on a timely basis, we may
have difficulty in responding to your incoming phone calls, calculating your
unit values or processing withdrawals and purchase payment. It is also possible
that the mutual funds associated with the PruSelect(SM) III Life Insurance
Contract will be unable to value their securities, in turn creating difficulties
in purchasing or selling shares of the mutual fund and calculating corresponding
unit asset values. The objective of Prudential's Year 2000 program is to reduce
these risks as much as possible.
Most of the operations of the PruSelect(SM) III 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 applications or infrastructure
components. Prudential will continue to review and update its contingency plans
until 2000 in an effort to reduce the level of uncertainty about the effect of
the Year 2000 issue and further minimize risk. Prudential believes that with the
completion of its Year 2000 program as scheduled, the possibility of significant
interruptions of normal operations will be reduced.
ADDITIONAL INFORMATION
Pruco Life has filed a registration statement with the SEC under the Securities
Act of 1933, relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. Certain portions have been omitted pursuant to the rules and
regulations of the SEC. The omitted information may, however, be obtained from
the SEC's principal office in Washington, D.C., upon payment of a prescribed
fee.
Further information may also be obtained from Pruco Life. Its address and
telephone number are set forth on the inside front cover of this prospectus.
FINANCIAL STATEMENTS
The financial statements of the Account should be distinguished from the
consolidated financial statements of Pruco Life and its subsidiaries, which
should be considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
35
<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.
36
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF NET ASSETS (UNAUDITED)
June 30, 1999
SUBACCOUNTS
---------------------------
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
------------ ------------
ASSETS
Investment in The Prudential Series Fund, Inc.
Portfolios at net asset value [Note 3] ....... $ 18,089,609 $ 41,339,802
------------ ------------
Net Assets ..................................... $ 18,089,609 $ 41,339,802
============ ============
NET ASSETS, representing:
Equity of contract owners ...................... $ 18,089,609 $ 41,339,802
------------ ------------
$ 18,089,609 $ 41,339,802
============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------
HIGH
FLEXIBLE CONSERVATIVE YIELD STOCK
EQUITY MANAGED BALANCED BOND INDEX
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] ......... $ 43,843,375 $ 9,168,848 $ 51,660,687 $ 2,692,959 $178,240,910
------------ ------------ ------------ ------------ ------------
Net Assets ................. $ 43,843,375 $ 9,168,848 $ 51,660,687 $ 2,692,959 $178,240,910
============ ============ ============ ============ ============
NET ASSETS, representing:
Equity of contract owners .. $ 43,843,375 $ 9,168,848 $ 51,660,687 $ 2,692,959 $178,240,910
------------ ------------ ------------ ------------ ------------
$ 43,843,375 $ 9,168,848 $ 51,660,687 $ 2,692,959 $178,240,910
============ ============ ============ ============ ============
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------
EQUITY PRUDENTIAL
INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Investment in The Prudential
Series Fund, Inc.
Portfolios at net asset
value [Note 3] ......... $ 15,381,102 $ 15,169,216 $ 5,287,607
------------ ------------ ------------
Net Assets ................. $ 15,381,102 $ 15,169,216 $ 5,287,607
============ ============ ============
NET ASSETS, representing:
Equity of contract owners .. $ 15,381,102 $ 15,169,216 $ 5,287,607
------------ ------------ ------------
$ 15,381,102 $ 15,169,216 $ 5,287,607
============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A2
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the six months ended June 30, 1999 and the years ended December 31, 1998,
and 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------
MONEY MARKET DIVERSIFIED 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
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ................. $ 369,416 $ 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] 47,644 53,117 50,651 122,132 229,634 205,292
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ...... 321,772 408,828 410,410 (122,132) 2,129,486 2,369,339
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions
received .................... 0 0 0 114,762 128,093 408,037
Realized gain (loss) on
shares redeemed ............. 0 0 0 (6,201) 173,161 94,146
Net change in unrealized
gain (loss) on investments .. 0 0 0 (812,409) (29,348) (288,588)
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS .... 0 0 0 (703,848) 271,906 213,595
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ...................... $ 321,772 $ 408,828 $ 410,410 $ (825,980) $ 2,401,392 $ 2,582,934
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------
EQUITY FLEXIBLE MANAGED
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
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ................. $ 163,896 $ 860,120 $ 1,108,812 $ 1,508 $ 1,147,432 $ 1,050,936
EXPENSES
Charges to contract owners
for assuming mortality
risk and expense risk [Note 5A] 137,345 284,011 286,301 83,807 209,364 206,248
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ...... 26,551 576,109 822,511 (82,299) 938,068 844,688
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions
received .................... 845,385 5,026,484 2,827,131 382,730 3,419,770 5,545,715
Realized gain (loss) on
shares redeemed ............. 1,867,637 4,779,486 1,774,816 (645,732) 353,509 605,368
Net change in unrealized
gain (loss) on investments .. 4,123,210 (5,230,122) 4,476,157 2,184,516 (1,305,317) (1,682,924)
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS .... 6,836,232 4,575,848 9,078,104 1,921,514 2,467,962 4,468,159
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ...................... $ 6,862,783 $ 5,151,957 $ 9,900,615 $ 1,839,215 $ 3,406,030 $ 5,312,847
=========== =========== =========== =========== =========== ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------
CONSERVATIVE BALANCED
PORTFOLIO
-----------------------------------------
1/1/99 1/1/98 1/1/97
TO TO TO
6/30/99 12/31/98 12/31/97
(UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income ................. $ 472,856 $ 1,965,960 $ 2,025,296
EXPENSES
Charges to contract owners
for assuming mortality
risk and expense risk [Note 5A] 139,276 271,618 256,921
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ...... 333,580 1,694,342 1,768,375
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions
received .................... 202,895 2,703,038 5,037,552
Realized gain (loss) on
shares redeemed ............. (5,969) 935,553 200,066
Net change in unrealized
gain (loss) on investments .. 1,294,574 (276,688) (1,945,306)
----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS .... 1,491,500 3,361,903 3,292,312
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ...................... $ 1,825,080 $ 5,056,245 $ 5,060,687
=========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A4
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the six months ended June 30, 1999 and the years ended December 31, 1998 and
1997
<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------------------------------------
HIGH YIELD BOND STOCK INDEX
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
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income .......................... $ 8,128 $ 261,439 $ 197,684 $ 417,068 $ 1,729,752 $ 1,326,042
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 8,890 15,665 12,354 507,058 820,541 502,161
------------ ------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ............... (762) 245,774 185,330 (89,990) 909,211 823,881
------------ ------------ ------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ... 0 0 0 665,546 2,499,196 2,997,271
Realized gain (loss) on shares
redeemed ............................. (52,595) (4,633) 16,526 5,350,239 5,771,729 2,754,626
Net change in unrealized gain (loss)
on investments ....................... 147,451 (334,049) 59,640 13,502,846 24,590,569 15,534,339
------------ ------------ ------------ ------------ ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS ............. 94,856 (338,682) 76,166 19,518,631 32,861,494 21,286,236
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................... $ 94,094 $ (92,908) $ 261,496 $ 19,428,641 $ 33,770,705 $ 22,110,117
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------
EQUITY INCOME GLOBAL
PORTFOLIO PORTFOLIO
---------------------------------------- -------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98
TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98
(UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income .......................... $ 91,530 $ 365,234 $ 370,792 $ 65,033 $ 160,959
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 44,575 90,144 85,229 40,321 70,813
----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ............... 46,955 275,090 285,563 24,712 90,146
----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ... 249,464 797,222 1,414,553 114,030 536,310
Realized gain (loss) on shares
redeemed ............................. 81,822 2,673,910 481,377 441,156 235,100
Net change in unrealized gain (loss)
on investments ....................... 2,126,234 (4,107,342) 2,177,083 704,462 1,531,076
----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ............. 2,457,520 (636,210) 4,073,013 1,259,648 2,302,486
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................... $ 2,504,475 $ (361,120) $ 4,358,576 $ 1,284,360 $ 2,392,632
=========== =========== =========== =========== ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------
GLOBAL PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO
----------- -----------------------------------------
1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO
12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income .......................... $ 149,254 $ 1,209 $ 3,905 $ 1,751
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 80,250 11,229 11,315 4,217
----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ............... 69,004 (10,020) (7,410) (2,466)
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ... 504,462 28,687 37,636 50,105
Realized gain (loss) on shares
redeemed ............................. 1,501,595 36,962 22,375 43,121
Net change in unrealized gain (loss)
on investments ....................... (871,934) 506,756 478,204 73,161
----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ............. 1,134,123 572,405 538,215 166,387
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................... $ 1,203,127 $ 562,385 $ 530,805 $ 163,921
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A6
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the years ended December 31, 1998 and
1997
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------------------
MONEY MARKET DIVERSIFIED 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
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . $ 321,772 $ 408,828 $ 410,410 $ (122,132) $ 2,129,486 $ 2,369,339
Capital gains distributions
received ................... 0 0 0 114,762 128,093 408,037
Realized gain (loss) on shares
redeemed ................... 0 0 0 (6,201) 173,161 94,146
Net change in unrealized
gain (loss) on investments . 0 0 0 (812,409) (29,348) (288,588)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ................... 321,772 408,828 410,410 (825,980) 2,401,392 2,582,934
------------ ------------ ------------ ------------ ------------ ------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments .. 5,865,400 8,459,179 16,018,494 1,178,135 4,026,378 5,573,222
Policy Loans ................. 0 0 (45,968) (153) (10,790) 0
Policy Loan Repayments and
Interest ................... 0 0 44,362 203 85 449,595
Surrenders, Withdrawals and
Death Benefits ............. (322,149) 48,094 (447,841) (432,577) (5,421,341) (3,109,854)
Net Transfers from (to)
Other Subaccounts or
Fixed Rate Option .......... (540,096) (5,068,699) (17,376,103) 510,647 4,043,371 146,922
Administrative and Other
Charges .................... (189,635) (258,516) (264,540) (222,003) (491,540) (665,026)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS .................... 4,813,520 3,180,058 (2,071,596) 1,034,252 2,146,163 2,394,859
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7] ............. 0 (1,722) (115,766) 0 (35,755) (86,028)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ....................... 5,135,292 3,587,164 (1,776,952) 208,272 4,511,800 4,891,765
NET ASSETS:
Beginning of period .......... 12,954,317 9,367,153 11,144,105 41,131,530 36,619,730 31,727,965
------------ ------------ ------------ ------------ ------------ ------------
End of period ................ $ 18,089,609 $ 12,954,317 $ 9,367,153 $ 41,339,802 $ 41,131,530 $ 36,619,730
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A7
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
EQUITY FLEXIBLE MANAGED
PORTFOLIO PORTFOLIO
-------------------------------------------- ----------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98
TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98
(UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . $ 26,551 $ 576,109 $ 822,511 $ (82,299) $ 938,068
Capital gains distributions
received ................... 845,385 5,026,484 2,827,131 382,730 3,419,770
Realized gain (loss) on shares
redeemed ................... 1,867,637 4,779,486 1,774,816 (645,732) 353,509
Net change in unrealized
gain (loss) on investments . 4,123,210 (5,230,122) 4,476,157 2,184,516 (1,305,317)
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ................... 6,862,783 5,151,957 9,900,615 1,839,215 3,406,030
------------ ------------ ------------ ------------ ------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments .. 2,074,443 5,974,743 8,187,661 634,058 2,727,720
Policy Loans ................. (235) (16,155) (2,354) (200) (13,509)
Policy Loan Repayments and
Interest ................... 743 2,348 6,595 627 2,543
Surrenders, Withdrawals and
Death Benefits ............. (4,790,216) (11,366,743) (3,056,522) (22,101,427) (1,109,742)
Net Transfers from (to)
Other Subaccounts or
Fixed Rate Option .......... (6,154,442) (6,233,542) (2,416,623) (3,931,274) (9,445,233)
Administrative and Other
Charges .................... (308,055) (750,093) (962,520) (117,392) (300,968)
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS .................... (9,177,762) (12,389,442) 1,756,237 (25,515,608) (8,139,189)
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7] ............. 0 (378,339) 2,060 0 99,015
------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ....................... (2,314,979) (7,615,824) 11,658,912 (23,676,393) (4,634,144)
NET ASSETS:
Beginning of period .......... 46,158,354 53,774,178 42,115,266 32,845,241 37,479,385
------------ ------------ ------------ ------------ ------------
End of period ................ $ 43,843,375 $ 46,158,354 $ 53,774,178 $ 9,168,848 $ 32,845,241
============ ============ ============ ============ ============
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
FLEXIBLE MANAGED CONSERVATIVE BALANCED
PORTFOLIO PORTFOLIO
---------------- --------------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99
TO TO TO TO
12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED)
---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . $ 844,688 $ 333,580 $ 1,694,342 $ 1,768,375
Capital gains distributions
received ................... 5,545,715 202,895 2,703,038 5,037,552
Realized gain (loss) on shares
redeemed ................... 605,368 (5,969) 935,553 200,066
Net change in unrealized
gain (loss) on investments . (1,682,924) 1,294,574 (276,688) (1,945,306)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ................... 5,312,847 1,825,080 5,056,245 5,060,687
------------ ------------ ------------ ------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments .. 4,391,711 324,921 6,161,137 2,723,156
Policy Loans ................. (101,032) 0 (15) (114,831)
Policy Loan Repayments and
Interest ................... 109,493 0 976 1,296,181
Surrenders, Withdrawals and
Death Benefits ............. (3,330,740) (2,669,031) (41,543) (871,239)
Net Transfers from (to)
Other Subaccounts or
Fixed Rate Option .......... 2,115,451 5,462,179 (11,038,745) 2,899,464
Administrative and Other
Charges .................... (387,697) (307,438) (628,277) (699,975)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS .................... 2,797,186 2,810,631 (5,546,467) 5,232,756
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7] ............. (1,047) 0 (6,712) 1,650,849
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ....................... 8,108,986 4,635,711 (496,934) 11,944,292
NET ASSETS:
Beginning of period .......... 29,370,399 47,024,976 47,521,910 35,577,618
------------ ------------ ------------ ------------
End of period ................ $ 37,479,385 $ 51,660,687 $ 47,024,976 $ 47,521,910
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A8
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the years ended December 31, 1998 and
1997
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------------------------
HIGH YIELD BOND STOCK INDEX
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
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (762) $ 245,774 $ 185,330 $ (89,990) $ 909,211 $ 823,881
Capital gains distributions
received .................. 0 0 0 665,546 2,499,196 2,997,271
Realized gain (loss) on
shares redeemed ........... (52,595) (4,633) 16,526 5,350,239 5,771,729 2,754,626
Net change in unrealized
gain (loss) on investments 147,451 (334,049) 59,640 13,502,846 24,590,569 15,534,339
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS .................. 94,094 (92,908) 261,496 19,428,641 33,770,705 22,110,117
------------- ------------- ------------- ------------- ------------- -------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments . 236,735 637,224 330,357 2,068,155 13,077,570 14,400,181
Policy Loans ................ 0 0 0 (295) (19,574) (15,209)
Policy Loan Repayments and
Interest .................. 0 0 0 410 144 25,713
Surrenders, Withdrawals and
Death Benefits ............ (305,534) (1,826) (298,998) (10,335,152) (432,906) (3,907,071)
Net Transfers from (to) Other
Subaccounts or Fixed
Rate Option ............... (418,736) 556,432 297,454 823,837 11,664,940 17,853,467
Administrative and Other
Charges ................... (33,839) (67,806) (67,627) (797,022) (1,454,112) (1,103,134)
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ................... (521,374) 1,124,024 261,186 (8,240,067) 22,836,062 27,253,947
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RETAINED IN THE
ACCOUNT [Note 7] ............ 0 (1,836) (7,832) 0 42,339 (7,138)
------------- ------------- ------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS .................. (427,280) 1,029,280 514,850 11,188,574 56,649,106 49,356,926
NET ASSETS:
Beginning of period ......... 3,120,239 2,090,959 1,576,109 167,052,336 110,403,230 61,046,304
------------- ------------- ------------- ------------- ------------- -------------
End of period ............... $ 2,692,959 $ 3,120,239 $ 2,090,959 $ 178,240,910 $ 167,052,336 $ 110,403,230
============= ============= ============= ============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A9
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------------------
EQUITY INCOME GLOBAL
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
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 46,955 $ 275,090 $ 285,563 $ 24,712 $ 90,146 $ 69,004
Capital gains distributions
received .................. 249,464 797,222 1,414,553 114,030 536,310 504,462
Realized gain (loss) on
shares redeemed ........... 81,822 2,673,910 481,377 441,156 235,100 1,501,595
Net change in unrealized
gain (loss) on investments 2,126,234 (4,107,342) 2,177,083 704,462 1,531,076 (871,934)
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS .................. 2,504,475 (361,120) 4,358,576 1,284,360 2,392,632 1,203,127
------------- ------------- ------------- ------------- ------------- -------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments . 244,975 260,870 857,548 511,116 1,832,043 2,622,189
Policy Loans ................ 0 0 0 0 0 (67,171)
Policy Loan Repayments and
Interest .................. 0 0 0 0 0 67,209
Surrenders, Withdrawals and
Death Benefits ............ (454,056) (8,141,933) (802,616) (1,963,644) (16,418) (4,072,024)
Net Transfers from (to) Other
Subaccounts or Fixed
Rate Option ............... (1,243,858) 7,241,853 (358,547) 2,360,003 (1,739,609) (4,363,304)
Administrative and Other
Charges ................... (99,324) (248,861) (366,230) (63,190) (128,121) (199,522)
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ................... (1,552,263) (888,071) (669,845) 844,285 (52,105) (6,012,623)
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RETAINED IN THE
ACCOUNT [Note 7] ............ 0 (15,048) (64,926) 0 (27,164) (140,126)
------------- ------------- ------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS .................. 952,212 (1,264,239) 3,623,805 2,128,645 2,313,363 (4,949,622)
NET ASSETS:
Beginning of period ......... 14,428,890 15,693,129 12,069,324 13,040,571 10,727,208 15,676,830
------------- ------------- ------------- ------------- ------------- -------------
End of period ............... $ 15,381,102 $ 14,428,890 $ 15,693,129 $ 15,169,216 $ 13,040,571 $ 10,727,208
============= ============= ============= ============= ============= =============
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------
PRUDENTIAL JENNISON
PORTFOLIO
---------------------------------------------
1/1/99 1/1/98 1/1/97
TO TO TO
6/30/99 12/31/98 12/31/97
(UNAUDITED)
------------- ------------- -------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (10,020) $ (7,410) $ (2,466)
Capital gains distributions
received .................. 28,687 37,636 50,105
Realized gain (loss) on
shares redeemed ........... 36,962 22,375 43,121
Net change in unrealized
gain (loss) on investments 506,756 478,204 73,161
------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS .................. 562,385 530,805 163,921
------------- ------------- -------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments . 114,963 75,139 238,539
Policy Loans ................ 0 0 0
Policy Loan Repayments and
Interest .................. 0 0 0
Surrenders, Withdrawals and
Death Benefits ............ 0 0 (293,084)
Net Transfers from (to) Other
Subaccounts or Fixed
Rate Option ............... 1,889,271 1,234,490 508,875
Administrative and Other
Charges ................... (14,591) (22,311) (8,919)
------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ................... 1,989,643 1,287,318 445,411
------------- ------------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RETAINED IN THE
ACCOUNT [Note 7] ............ 0 32,534 806
------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS .................. 2,552,028 1,850,657 610,138
NET ASSETS:
Beginning of period ......... 2,735,579 884,922 274,784
------------- ------------- -------------
End of period ............... $ 5,287,607 $ 2,735,579 $ 884,922
============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A10
<PAGE>
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
JUNE 30, 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, Pruselect II and effective November 10,
1999 Pruselect III 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 twenty subaccounts within
the Account, fifteen of which are available to Pruselect III contract
owners. Each subaccount 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 became available to contract
owners for Pruselect I and Pruselect II and beginning on November 10,
1999, as discussed above, they will become available for Pruselect III
contract owners: AIM V.I. Value Fund; American Century VP Value Fund;
Janus Growth Portfolio; MFS Emerging Growth Series; and the T. Rowe Price
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.
A11
<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 June
30, 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: ....... 1,808,961 3,810,120 1,308,758 525,435 3,339,411
Net asset value per share
(rounded): ............ $ 10.00 $ 10.85 $ 33.50 $ 17.45 $ 15.47
Cost: ................... $18,089,609 $42,136,812 $35,916,838 $ 9,288,407 $50,974,988
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of shares: ....... 361,957 4,239,793 663,264 661,545 193,190
Net asset value per share
(rounded): ............ $ 7.44 $ 42.04 $ 23.19 $ 22.93 $ 27.37
Cost: ................... $ 2,820,737 $110,257,930 $ 13,630,101 $ 12,215,285 $ 4,214,032
</TABLE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units, unit values and total value of contract
owner equity at June 30, 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) ............................... 295,038 4,898,338 727,752 70,715 6,295,755
Unit Value (Pruselect I) ...................... $ 1.56526 $ 2.02383 $ 3.99943 $ 2.90394 $ 2.51982
----------- ----------- ----------- ----------- -----------
Contract Owner Equity (Pruselect I) ........... $ 461,812 $ 9,913,403 $ 2,910,593 $ 205,351 $15,864,170
----------- ----------- ----------- ----------- -----------
Contract Owner Units Outstanding
(Pruselect II) .............................. 11,261,897 15,528,181 10,234,654 3,086,667 14,205,982
Unit Value (Pruselect II) ..................... $ 1.56526 $ 2.02383 $ 3.99943 $ 2.90394 $ 2.51982
----------- ----------- ----------- ----------- -----------
Contract Owner Equity (Pruselect II) .......... $17,627,797 $31,426,399 $40,932,782 $ 8,963,497 $35,796,517
----------- ----------- ----------- ----------- -----------
TOTAL CONTRACT OWNER EQUITY ................... $18,089,609 $41,339,802 $43,843,375 $ 9,168,848 $51,660,687
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Pruselect I) ............................... 29,384 8,238,275 1,069,750 0 396,334
Unit Value (Pruselect I) ...................... $ 2.24183 $ 4.54300 $ 3.65804 $ 0 $ 2.92325
------------ ------------ ------------ ------------ ------------
Contract Owner Equity (Pruselect I) ........... $ 65,873 $ 37,426,482 $ 3,913,187 $ 0 $ 1,158,583
------------ ------------ ------------ ------------ ------------
Contract Owner Units Outstanding
(Pruselect II) .............................. 1,171,849 30,995,912 3,134,989 7,893,110 1,412,477
Unit Value (Pruselect II) ..................... $ 2.24183 $ 4.54300 $ 3.65804 $ 1.92183 $ 2.92325
------------ ------------ ------------ ------------ ------------
Contract Owner Equity (Pruselect II) .......... $ 2,627,086 $140,814,428 $ 11,467,915 $ 15,169,216 $ 4,129,024
------------ ------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY ................... $ 2,692,959 $178,240,910 $ 15,381,102 $ 15,169,216 $ 5,287,607
============ ============ ============ ============ ============
</TABLE>
A12
<PAGE>
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% for Pruselect I and Pruselect II contracts, are
applied daily against the net assets representing equity of contract
owners held in each subaccount and at 0.20% for Pruselect III
contract owners. 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
Pruselect I and Pruselect II 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% and $25
or 2% will be made in connection with each partial withdrawal of the
cash surrender value of a Pruselect I and Pruselect II contract, and
Pruselect III contract, respectively.
C. Expense Reimbursement
The Account is reimbursed by Pruco Life for Pruselect I and
Pruselect II contracts, 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.
D. Cost of Insurance and Other Related Charges
Contract owner contributions are subject to certain deductions prior
to being invested in the Account. The deductions are for (1)
transaction cost 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 cost of administering the
contract.
NOTE 6: TAXES
Pruco Life is taxed as a "life insurance company" 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 six
months ended June 30, 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 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: ............. 6,284,321 11,769,929 15,281,942 3,492,334 5,686,444 4,556,760
Contract Owner
Redemptions: ............... (3,168,715) (9,721,732) (16,788,123) (2,997,938) (4,658,242) (3,288,085)
</TABLE>
A13
<PAGE>
NOTE 8: UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------------
EQUITY FLEXIBLE MANAGED
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
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: ............. 2,621,988 2,885,417 4,465,527 1,819,798 8,590,002 4,476,620
Contract Owner
Redemptions: ............... (4,947,265) (6,422,617) (3,935,074) (10,678,982) (11,597,522) (3,255,025)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------------
CONSERVATIVE BALANCED HIGH YIELD 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
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: ............. 3,021,396 12,272,439 5,516,349 211,645 621,628 1,021,708
Contract Owner
Redemptions: ............... (1,878,910) (14,641,165) (2,950,237) (446,636) (117,717) (879,849)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------------
STOCK INDEX EQUITY 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
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: ............. 6,314,060 12,075,930 20,876,571 3,487,049 3,556,140 679,346
Contract Owner
Redemptions: ............... (8,178,394) (5,649,830) (11,486,568) (3,933,820) (3,811,832) (873,682)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------------
GLOBAL PRUDENTIAL
PORTFOLIO JENNISON 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
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: ............. 2,010,187 2,263,591 10,705,193 1,754,234 1,126,502 589,921
Contract Owner
Redemptions: ............... (1,542,102) (2,393,156) (14,887,428) (1,021,000) (524,101) (302,690)
</TABLE>
A14
<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 six months ended June 30, 1999 were as follows:
(unaudited)
<TABLE>
<CAPTION>
PORTFOLIOS
------------------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases ................. $ 8,350,446 $ 1,902,913 $ 2,766,346 $ 962,411 $ 5,807,370
Sales ..................... $ (3,584,571) $ (990,793) $(12,081,450) $(26,561,827) $ (3,136,016)
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
------------------------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases ................. $ 330,755 $ 6,747,119 $ 243,414 $ 3,150,022 $ 2,136,480
Sales ..................... $ (861,019) $(15,494,245) $ (1,840,252) $ (2,346,056) $ (158,065)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A31
A15
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in The Prudential Series Fund, Inc.
Portfolios at net asset value [Note 3] .............. $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
=========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A31
A16
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
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] ............... $3,120,239 $167,052,336 $14,428,890 $13,040,571 $2,735,579
---------- ------------ ----------- ----------- ----------
Net Assets ............................................... $3,120,239 $167,052,336 $14,428,890 $13,040,571 $2,735,579
========== ============ =========== =========== ==========
NET ASSETS, representing:
Equity of contract owners ................................ $3,120,239 $167,052,336 $14,428,890 $13,040,571 $2,735,579
---------- ------------ ----------- ----------- ----------
$3,120,239 $167,052,336 $14,428,890 $13,040,571 $2,735,579
========== ============ =========== =========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A31
A17
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<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
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A31
A18
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------
FLEXIBLE
EQUITY MANAGED
PORTFOLIO PORTFOLIO
---------------------------------------- -----------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income .............. $ 860,120 $ 1,108,812 $ 897,405 $ 1,147,432 $ 1,050,936 $ 810,334
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for
assuming mortality risk and
expense risk [Note 5A] ..... 284,011 286,301 203,014 209,364 206,248 145,789
Reimbursement for excess
expenses [Note 5C] ......... 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES 284,011 286,301 203,014 209,364 206,248 145,789
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) 576,109 822,511 694,391 938,068 844,688 664,545
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Capital gains distributions
received ................. 5,026,484 2,827,131 3,585,387 3,419,770 5,545,715 2,731,323
Realized gain (loss) on
shares redeemed .......... 4,779,486 1,774,816 633,352 353,509 605,368 75,275
Net change in unrealized
gain (loss) on investments (5,230,122) 4,476,157 759,941 (1,305,317) (1,682,924) (331,513)
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS 4,575,848 9,078,104 4,978,680 2,467,962 4,468,159 2,475,085
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ................... $ 5,151,957 $ 9,900,615 $ 5,673,071 $ 3,406,030 $ 5,312,847 $ 3,139,630
=========== =========== =========== =========== =========== ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------
CONSERVATIVE
BALANCED
PORTFOLIO
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income .............. $ 1,965,960 $ 2,025,296 $ 1,460,883
----------- ----------- -----------
EXPENSES
Charges to contract owners for
assuming mortality risk and
expense risk [Note 5A] ..... 271,618 256,921 213,652
Reimbursement for excess
expenses [Note 5C] ......... 0 0 0
----------- ----------- -----------
NET EXPENSES 271,618 256,921 213,652
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ... 1,694,342 1,768,375 1,247,231
----------- ----------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Capital gains distributions
received ................. 2,703,038 5,037,552 2,164,504
Realized gain (loss) on
shares redeemed .......... 935,553 200,066 464,539
Net change in unrealized
gain (loss) on investments (276,688) (1,945,306) 108,733
----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS 3,361,903 3,292,312 2,737,776
----------- ----------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ................... $ 5,056,245 $ 5,060,687 $ 3,985,007
=========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A31
A19
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------
HIGH
YIELD STOCK
BOND INDEX
PORTFOLIO PORTFOLIO
------------------------------------------ -----------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ...................... $ 261,439 $ 197,684 $ 132,351 $ 1,729,752 $ 1,326,042 $ 900,654
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners
for assuming mortality risk
and expense risk [Note 5A] ......... 15,665 12,354 7,323 820,541 502,161 260,862
Reimbursement for excess
expenses [Note 5C] ................. 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES 15,665 12,354 7,323 820,541 502,161 260,862
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) 245,774 185,330 125,028 909,211 823,881 639,792
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Capital gains distributions
received ......................... 0 0 0 2,499,196 2,997,271 673,354
Realized gain (loss) on
shares redeemed .................. (4,633) 16,526 3,467 5,771,729 2,754,626 413,888
Net change in unrealized
gain (loss) on investments ....... (334,049) 59,640 (3,313) 24,590,569 15,534,339 7,149,445
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS (338,682) 76,166 154 32,861,494 21,286,236 8,236,687
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS ...................... $ (92,908) $ 261,496 $ 125,182 $33,770,705 $22,110,117 $ 8,876,479
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A31
A20
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------
EQUITY
INCOME GLOBAL
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income .............. $ 365,234 $ 370,792 $ 475,277 $ 160,959 $ 149,254 $ 312,052
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners
for assuming mortality risk
and expense risk [Note 5A] . 90,144 85,229 94,957 70,813 80,250 67,425
Reimbursement for excess
expenses [Note 5C] ......... 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES 90,144 85,229 94,957 70,813 80,250 67,425
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) 275,090 285,563 380,320 90,146 69,004 244,627
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Capital gains distributions
received ................. 797,222 1,414,553 485,860 536,310 504,462 240,786
Realized gain (loss) on
shares redeemed .......... 2,673,910 481,377 908,956 235,100 1,501,595 155,802
Net change in unrealized
gain (loss) on investments (4,107,342) 2,177,083 1,098,444 1,531,076 (871,934) 1,328,007
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS (636,210) 4,073,013 2,493,260 2,302,486 1,134,123 1,724,595
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ................... $ (361,120) $ 4,358,576 $ 2,873,580 $ 2,392,632 $ 1,203,127 $ 1,969,222
=========== =========== =========== =========== =========== ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------
PRUDENTIAL
JENNISON
PORTFOLIO
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income .............. $ 3,905 $ 1,751 $ 547
----------- ----------- -----------
EXPENSES
Charges to contract owners
for assuming mortality risk
and expense risk [Note 5A] . 11,315 4,217 1,034
Reimbursement for excess
expenses [Note 5C] ......... 0 0 0
----------- ----------- -----------
NET EXPENSES 11,315 4,217 1,034
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) (7,410) (2,466) (487)
----------- ----------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Capital gains distributions
received ................. 37,636 50,105 0
Realized gain (loss) on
shares redeemed .......... 22,375 43,121 (693)
Net change in unrealized
gain (loss) on investments 478,204 73,161 14,438
----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS 538,215 166,387 13,745
----------- ----------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ................... $ 530,805 $ 163,921 $ 13,258
=========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A31
A21
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
-------------------------------------------- --------------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) ..... $ 408,828 $ 410,410 $ 330,167 $ 2,129,486 $ 2,369,339 $ 1,960,688
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 INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ........ 408,828 410,410 330,167 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] ......................... 3,180,058 (2,071,596) 4,126,018 2,146,163 2,394,859 (5,205,030)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [Note 8] . (1,722) (115,766) (2,181,943) (35,755) (86,028) (35,291)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ........................... 3,587,164 (1,776,952) 2,274,242 4,511,800 4,891,765 (3,836,288)
NET ASSETS
Beginning of year ................ 9,367,153 11,144,105 8,869,863 36,619,730 31,727,965 35,564,253
------------ ------------ ------------ ------------ ------------ ------------
End of year ...................... $ 12,954,317 $ 9,367,153 $ 11,144,105 $ 41,131,530 $ 36,619,730 $ 31,727,965
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A31
A22
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------------
FLEXIBLE
EQUITY MANAGED
PORTFOLIO PORTFOLIO
------------------------------------------- --------------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS ......................
Net investment income (loss) . $ 576,109 $ 822,511 $ 694,391 $ 938,068 $ 844,688 $ 664,545
Capital gains distributions
received ................... 5,026,484 2,827,131 3,585,387 3,419,770 5,545,715 2,731,323
Realized gain (loss) on shares
redeemed ................... 4,779,486 1,774,816 633,352 353,509 605,368 75,275
Net change in unrealized gain
(loss) on investments ...... (5,230,122) 4,476,157 759,941 (1,305,317) (1,682,924) (331,513)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ................... 5,151,957 9,900,615 5,673,071 3,406,030 5,312,847 3,139,630
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS
[Note 7] ..................... (12,389,442) 1,756,237 5,017,735 (8,139,189) 2,797,186 4,354,486
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 8] ..................... (378,339) 2,060 (6,721) 99,015 (1,047) 16,614
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ....................... (7,615,824) 11,658,912 10,684,085 (4,634,144) 8,108,986 7,510,730
NET ASSETS
Beginning of year ............ 53,774,178 42,115,266 31,431,181 37,479,385 29,370,399 21,859,669
------------ ------------ ------------ ------------ ------------ ------------
End of year .................. $ 46,158,354 $ 53,774,178 $ 42,115,266 $ 32,845,241 $ 37,479,385 $ 29,370,399
============ ============ ============ ============ ============ ============
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------
CONSERVATIVE
BALANCED
PORTFOLIO
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATIONS ......................
Net investment income (loss) . $ 1,694,342 $ 1,768,375 $ 1,247,231
Capital gains distributions
received ................... 2,703,038 5,037,552 2,164,504
Realized gain (loss) on shares
redeemed ................... 935,553 200,066 464,539
Net change in unrealized gain
(loss) on investments ...... (276,688) (1,945,306) 108,733
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ................... 5,056,245 5,060,687 3,985,007
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS
[Note 7] ..................... (5,546,467) 5,232,756 (1,853,576)
---------- --------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 8] ..................... (6,712) 1,650,849 (1,583,656)
------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ....................... (496,934) 11,944,292 547,775
NET ASSETS
Beginning of year ............ 47,521,910 35,577,618 35,029,843
------------ ------------ ------------
End of year .................. $ 47,024,976 $ 47,521,910 $ 35,577,618
============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A31
A23
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------------------------------------------------
HIGH
YIELD
BOND STOCK INDEX
PORTFOLIO PORTFOLIO
----------------------------------------------- ----------------------------------------------
1998 1997 1996 1998 1997 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) . $ 245,774 $ 185,330 $ 125,028 $ 909,211 $ 823,881 $ 639,792
Capital gains distributions
received ................... 0 0 0 2,499,196 2,997,271 673,354
Realized gain (loss) on shares
redeemed ................... (4,633) 16,526 3,467 5,771,729 2,754,626 413,888
Net change in unrealized gain
(loss) on investments ...... (334,049) 59,640 (3,313) 24,590,569 15,534,339 7,149,445
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ................... (92,908) 261,496 125,182 33,770,705 22,110,117 8,876,479
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS AND
OTHER OPERATING TRANSFERS
[Note 7] ..................... 1,124,024 261,186 594,373 22,836,062 27,253,947 17,931,933
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 8] ..................... (1,836) (7,832) (9,051) 42,339 (7,138) 62,929
------------- ------------- ------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ....................... 1,029,280 514,850 710,504 56,649,106 49,356,926 26,871,341
NET ASSETS
Beginning of year ............ 2,090,959 1,576,109 865,605 110,403,230 61,046,304 34,174,963
------------- ------------- ------------- ------------- ------------- -------------
End of year .................. $ 3,120,239 $ 2,090,959 $ 1,576,109 $ 167,052,336 $ 110,403,230 $ 61,046,304
============= ============= ============= ============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A31
A24
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------------
EQUITY
INCOME GLOBAL
PORTFOLIO PORTFOLIO
-------------------------------------------- --------------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) . $ 275,090 $ 285,563 $ 380,320 $ 90,146 $ 69,004 $ 244,627
Capital gains distributions
received ................... 797,222 1,414,553 485,860 536,310 504,462 240,786
Realized gain (loss) on shares
redeemed ................... 2,673,910 481,377 908,956 235,100 1,501,595 155,802
Net change in unrealized gain
(loss) on investments ...... (4,107,342) 2,177,083 1,098,444 1,531,076 (871,934) 1,328,007
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ................... (361,120) 4,358,576 2,873,580 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] ..................... (888,071) (669,845) (7,025,151) (52,105) (6,012,623) 5,591,186
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 8] ..................... (15,048) (64,926) (214,892) (27,164) (140,126) 72,239
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ....................... (1,264,239) 3,623,805 (4,366,463) 2,313,363 (4,949,622) 7,632,647
Beginning of year ............ 15,693,129 12,069,324 16,435,787 10,727,208 15,676,830 8,044,183
------------ ------------ ------------ ------------ ------------ ------------
End of year .................. $ 14,428,890 $ 15,693,129 $ 12,069,324 $ 13,040,571 $ 10,727,208 $ 15,676,830
============ ============ ============ ============ ============ ============
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------
PRUDENTIAL
JENNISON
PORTFOLIO
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss) . $ (7,410) $ (2,466) $ (487)
Capital gains distributions
received ................... 37,636 50,105 0
Realized gain (loss) on shares
redeemed ................... 22,375 43,121 (693)
Net change in unrealized gain
(loss) on investments ...... 478,204 73,161 14,438
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ................... 530,805 163,921 13,258
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS
[Note 7] ..................... 1,287,318 445,411 229,628
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE ACCOUNT
[Note 8] ..................... 32,534 806 770
------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ....................... 1,850,657 610,138 243,656
Beginning of year ............ 884,922 274,784 31,128
------------ ------------ ------------
End of year .................. $ 2,735,579 $ 884,922 $ 274,784
============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A31
A25
<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.
A26
<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
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
--------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of shares: 432,892 4,426,400 720,273 616,375 114,427
Net asset value per share (rounded): $ 7.21 $ 37.74 $ 20.03 $ 21.16 $ 23.91
Cost: $ 3,395,468 $112,572,202 $ 14,804,123 $ 10,791,102 $ 2,168,760
</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>
A27
<PAGE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
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 -- 209,554
Unit Value (Pruselect I) ................................ $ 2.17253 $ 4.06468 $ 3.10198 $ -- $ 2.54336
------------ ------------ ------------ ------------ ------------
Contract Owner Equity (Pruselect I) ..................... $ 55,957 $ 34,137,973 $ 3,916,212 $ -- $ 532,971
------------ ------------ ------------ ------------ ------------
Contract Owner Units Outstanding (Pruselect II) ......... 1,410,467 32,699,834 3,389,022 7,425,025 866,023
Unit Value (Pruselect II) ............................... $ 2.17253 $ 4.06468 $ 3.10198 $ 1.75630 $ 2.54336
------------ ------------ ------------ ------------ ------------
Contract Owner Equity (Pruselect II) .................... $ 3,064,282 $132,914,363 $ 10,512,678 $ 13,040,571 $ 2,202,608
------------ ------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY ............................. $ 3,120,239 $167,052,336 $ 14,428,890 $ 13,040,571 $ 2,735,579
============ ============ ============ ============ ============
</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.
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.
A28
<PAGE>
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
============ ============ ============ ============
</TABLE>
<TABLE>
<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
============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------
CONSERVATIVE BALANCED HIGH YIELD BOND
PORTFOLIO PORTFOLIO
--------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Contract Owner Net Payments .......................................... $ 6,161,137 $ 2,723,156 $ 637,224 $ 330,357
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) (1,826) (298,998)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options ....................................................... (11,038,745) 2,899,464 556,432 297,454
Administrative and Other Charges ..................................... (628,277) (699,975) (67,806) (67,627)
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers ............................. $(5,546,467) $ 5,232,756 $ 1,124,024 $ 261,186
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------
STOCK INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contract Owner Net Payments ........................................ $ 13,077,570 $ 14,400,181 $ 260,870 $ 857,548
Policy Loans ....................................................... (19,574) (15,209) 0 0
Policy Loan Repayment and Interest ................................. 144 25,713 0 0
Surrenders, Withdrawals and Death Benefits ......................... (432,906) (3,907,071) (8,141,933) (802,616)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options ...................................................... 11,664,940 17,853,467 7,241,853 (358,547)
Administrative and Other Charges ................................... (1,454,112) (1,103,134) (248,861) (366,230)
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers ............................ $ 22,836,062 $ 27,253,947 $ (888,071) $ (669,845)
============ ============ ============ ============
</TABLE>
A29
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------
GLOBAL PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO
-------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Contract Owner Net Payments ......................................... $ 1,832,043 $ 2,622,189 $ 75,139 $ 238,539
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) 0 (293,084)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options ....................................................... (1,739,609) (4,363,304) 1,234,490 508,875
Administrative and Other Charges .................................... (128,121) (199,522) (22,311) (8,919)
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Premium
Payments and Other Operating Transfers ............................. $(52,105) $(6,012,623) $ 1,287,318 $ 445,411
======== =========== =========== ===========
</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)
</TABLE>
<TABLE>
<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)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------
CONSERVATIVE BALANCED HIGH YIELD BOND
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 12,272,439 5,516,349 8,974,255 621,628 1,021,708 1,571,264
Contract Owner Redemptions: (14,641,165) (2,950,237) (10,034,515) (117,717) (879,849) (1,254,509)
</TABLE>
A30
<PAGE>
NOTE 9: UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------
STOCK INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1998 1997 1996 1998 1997 1996
---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 12,075,930 20,876,571 16,298,797 3,556,140 679,346 2,219,957
Contract Owner Redemptions: (5,649,830) (11,486,568) (8,266,289) (3,811,832) (873,682) (5,553,498)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------
GLOBAL PRUDENTIAL JENNISON
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 1,126,502 589,921 202,258
Contract Owner Redemptions: (2,393,156) (14,887,428) (5,813,881) (524,101) (302,690) (28,028)
</TABLE>
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)
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
-------------------------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases ................. $ 1,277,486 $ 39,790,603 $ 11,692,035 $ 2,396,129 $ 2,172,323
Sales ..................... $ (170,962) $(17,613,097) $(12,685,299) $ (2,546,211) $ (863,785)
</TABLE>
A31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
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, High Yield Bond Portfolio, Stock
Index Portfolio, Equity Income Portfolio, Global Portfolio and Prudential
Jennison 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
A32
<PAGE>
PRUCO LIFE MODULE REFERENCE
- --------------------------------------------------------------------------------
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Financial Position (Unaudited)
June 30, 1999 and December 31, 1998 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1999: $2,619,551; $2,585,298 $2,763,926
1998: $2,738,654)
Held to maturity, at amortized cost (fair value, 1999: $409,171; 1998: 409,621 410,558
$421,845)
Equity securities - available for sale, at fair value (cost, 1999: $2,308; 3,223 2,847
1998: $2,951)
Mortgage loans on real estate 16,889 17,354
Policy loans 789,441 766,917
Short-term investments 359,538 240,727
Other long-term investments 761 1,047
----------------- -----------------
Total investments 4,164,771 4,203,376
Cash 101,130 89,679
Deferred policy acquisition costs 951,805 861,713
Accrued investment income 61,061 61,114
Other assets 61,035 65,145
Separate Account assets 14,024,610 11,531,754
----------------- -----------------
TOTAL ASSETS $19,364,412 $16,812,781
================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $2,793,676 $2,701,984
Future policy benefits and other policyholder liabilities 543,891 528,806
Cash collateral for loaned securities 34,135 73,336
Securities sold under agreement to repurchase 47,715 49,708
Income taxes payable 161,117 193,358
Payable to affiliate 68,051 66,568
Other liabilities 78,768 55,038
Separate Account liabilities 13,978,884 11,490,751
----------------- -----------------
Total liabilities 17,706,237 15,159,549
----------------- -----------------
Contingencies (See Note 3)
Stockholder's Equity
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
June 30, 1999 and December 31, 1998 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,226,744 1,202,833
Accumulated other comprehensive income
Net unrealized investment (losses) gains (9,596) 9,902
Foreign currency translation adjustments (1,055) (1,585)
----------------- -----------------
Accumulated other comprehensive income (10,651) 8,317
-----------------
-----------------
Total stockholder's equity 1,658,175 1,653,232
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $19,364,412 $16,812,781
================= =================
</TABLE>
See Notes to Consolidated Financial Statements
B-1
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
Six Months Ended June 30, 1999 and 1998 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
------------------- -------------------
<S> <C> <C>
REVENUES
Premiums $ 31,309 $ 25,684
Policy charges and fee income 206,366 168,642
Net investment income 137,597 129,967
Realized investment (losses) gains, net (13,800) 12,985
Asset management fee income 25,516 18,025
Other income 845 822
------------------- -------------------
Total revenues 387,833 356,125
------------------- -------------------
BENEFITS AND EXPENSES
Policyholders' benefits 97,140 72,360
Interest credited to policyholders' account balances 62,249 56,884
General, administrative and other expenses 191,658 149,340
------------------- -------------------
Total benefits and expenses 351,047 278,584
------------------- -------------------
Income before income taxes 36,786 77,541
------------------- -------------------
Income taxes 12,875 27,107
------------------- -------------------
NET INCOME $23,911 $50,434
------------------- -------------------
Other comprehensive income, net of tax:
Unrealized losses on securities, net of
reclassification adjustment (19,498) (5,607)
Foreign currency translation adjustments 530 (1,279)
------------------- -------------------
Other comprehensive income (18,968) (6,886)
------------------- -------------------
TOTAL COMPREHENSIVE INCOME $ 4,943 $ 43,548
=================== ===================
</TABLE>
See Notes to Consolidated Financial Statements
B-2
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity (Unaudited)
Six Months Ended June 30, 1999 and the Year Ended December 31, 1998
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
reclassification
adjustment - - - (7,227) (7,227)
------------- ----------------------------- ------------------------------------
Balance, December 31, 1998 $ 2,500 $ 439,582 $1,202,833 $ 8,317 $1,653,232
Net income - - 23,911 - 23,911
Change in foreign currency
translation adjustments - - - 530 530
Change in net unrealized
investment losses,
net of reclassification
adjustment - - - (19,498) (19,498)
============= ============================= ====================================
Balance, June 30, 1999 $ 2,500 $ 439,582 $1,226,744 $ (10,651) $1,658,175
============= ============================= ====================================
</TABLE>
See Notes to Consolidated Financial Statements
B-3
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1999 and 1998 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $23,911 $50,434
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Policy charges and fee income (39,520) (21,513)
Interest credited to policyholders' account balances 62,249 56,884
Realized investment losses (gains), net 13,800 (12,985)
Amortization and other non-cash items 38,830 (162)
Change in:
Future policy benefits and other policyholder liabilities 15,085 57,515
Accrued investment income 53 2,203
Separate Accounts (4,723) 17,248
Payable to affiliate 1,483 159,113
Policy loans (22,524) (34,059)
Deferred policy acquisition costs (90,092) (57,047)
Income taxes payable (32,241) (47,155)
Other, net 27,840 32,874
--------------- ---------------
Cash Flows (Used In) From Operating Activities (5,849) 203,350
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 2,095,979 2,285,192
Held to maturity 25,206 45,826
Equity securities 2,452 2,747
Mortgage loans on real estate 466 431
Other long-term investments 318 -
Payments for the purchase of:
Fixed maturities:
Available for sale (1,988,779) (2,371,163)
Held to maturity (24,170) (33,771)
Equity securities (1,989) (2,703)
Other long-term investments (33) (499)
Cash collateral for loaned securities, net (39,201) 53,274
Securities sold under agreement to repurchase, net (1,993) -
Short-term investments, net (118,819) (163,664)
--------------- ---------------
Cash Flows Used In Investing Activities (50,563) (184,330)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 1,671,054 1,578,895
Withdrawals (1,603,191) (1,575,394)
--------------- ---------------
Cash Flows From Financing Activities 67,863 3,501
--------------- ---------------
Net increase in Cash 11,451 22,521
Cash, beginning of year 89,679 71,358
--------------- ===============
CASH, END OF PERIOD $101,130 $93,879
=============== ===============
</TABLE>
See Notes to Consolidated Financial Statements
B-4
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Pruco Life
Insurance Company ("the Company"), a wholly owned subsidiary of The Prudential
Insurance Company of America ("Prudential"), 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 six months ended June 30, 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Realized investment gains, net, are computed using the specific identification
method. The carrying values of fixed maturity and equity securities are
adjusted for impairments considered to be other than temporary. During 1999,
the Company determined that for certain fixed maturities in the investment
portfolio there were declines in fair value considered to be other than
temporary. The Company wrote down the carrying value of these fixed maturities
and recorded a charge of $3.3 million in "realized investment gains, net," on
the Consolidated Statements of Operations and Comprehensive Income.
3. 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.
4. RELATED PARTY TRANSACTIONS
Prudential and the Company have an agreement with respect to administrative
services for the Prudential Series Fund ("Series Fund"), the portfolio of
mutual fund investments related to the Company's Separate Account products.
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
Series Fund. This is recorded as "Asset management fee income" on the
Consolidated Statements of Operations and Comprehensive Income.
Prudential and the Company operate under service and lease agreements whereby
services of officers and employees (except for those agents employed by the
Company in Taiwan), supplies, use of equipment and office space are provided
by Prudential. During the first six months of 1999, Prudential reviewed and
modified its methods for determining the level of administrative expenses
charged to the Company. As a result, the level of such expenses has increased
significantly over the 1998 levels.
B-5
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and
Hedging Activities". The new accounting treatment required by this statement
will not affect the Company's liquidity or the ultimate economic gain or loss
from its derivative positions. However, it may affect the way the Company
recognizes changes in value of some of its derivatives and derivative-like
contract features, and this could lead to more volatility in the Company's
reported income statement results, especially on a quarterly basis.
Under previous accounting standards, companies could defer recognizing changes
in the value of derivatives used to hedge various risks if certain conditions
were met. Under the new accounting standards, all derivatives must be reported
at fair value each quarter, but if special hedge accounting requirements are
met this change in fair value may be offset, entirely or partially, by also
recognizing the corresponding change in value of the hedged item. Since the
Company already marks most of its derivative positions to market each quarter,
the Company does not expect this new treatment to materially increase its net
income volatility assuming the Company continues its current derivative and
hedging strategies.
While the Statement does not apply to most traditional insurance contracts,
some contracts may contain features that can affect settlement amounts
similarly to derivatives. For these contracts, the new standards call for
separate accounting for the "host contract" and the "embedded derivative",
leading to mark-to-market for the "embedded derivative" features that was not
previously required. While the Company's economic results from these contracts
are also unaffected, this accounting could lead to increased volatility in the
quarterly income statement results it reports.
The Company has not yet completed its assessment of the impact of the
statement, and its effect on the Company depends, among other things, on its
derivative positions and hedging strategies after the date of adoption. The
Company is required to adopt this statement no later than January 1, 2001.
B-6
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Financial Position
December 31, 1998 and 1997 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1998: $2,738,654;
1997: $2,526,554) $ 2,763,926 $ 2,563,852
Held to maturity, at amortized cost (fair value, 1998: $421,845; 1997:
$350,056) 410,558 338,848
Equity securities - available for sale, at fair value (cost, 1998: $2,951; 2,847 1,982
1997: $1,289)
Mortgage loans on real estate 17,354 22,787
Policy loans 766,917 703,955
Short-term investments 240,727 316,355
Other long-term investments 1,047 1,317
------------ ------------
Total investments 4,203,376 3,949,096
Cash 89,679 71,358
Deferred policy acquisition costs 861,713 655,242
Accrued investment income 61,114 67,000
Other assets 65,145 86,692
Separate Account assets 11,531,754 8,022,079
------------ ------------
TOTAL ASSETS $ 16,812,781 $ 12,851,467
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 2,701,984 $ 2,380,460
Future policy benefits and other policyholder liabilities 528,806 472,460
Cash collateral for loaned securities 73,336 143,421
Securities sold under agreement to repurchase 49,708 --
Income taxes payable 193,358 210,186
Payable to affiliate 66,568 70,375
Other liabilities 55,038 120,260
Separate Account liabilities 11,490,751 7,948,788
------------ ------------
Total liabilities 15,159,549 11,345,950
------------ ------------
Contingencies (See Note 11)
Stockholder's Equity
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
December 31, 1998 and 1997 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,202,833 1,050,871
Accumulated other comprehensive income
Net unrealized investment gains 9,902 17,129
Foreign currency translation adjustments (1,585) (4,565)
------------ ------------
Accumulated other comprehensive income 8,317 12,564
------------ ------------
Total stockholder's equity 1,653,232 1,505,517
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 16,812,781 $ 12,851,467
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
B-7
<PAGE>
<TABLE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31, 1998, 1997 and 1996 (In Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
--------- --------- ---------
REVENUES
<S> <C> <C> <C>
Premiums $ 57,467 $ 49,496 $ 51,525
Policy charges and fee income 364,719 330,292 324,976
Net investment income 261,430 259,634 247,328
Realized investment gains, net 44,841 10,974 10,835
Other income 41,267 33,801 20,818
--------- --------- ---------
Total revenues 769,724 684,197 655,482
--------- --------- ---------
BENEFITS AND EXPENSES
Policyholders' benefits 186,527 179,419 186,873
Interest credited to policyholders' account balances 118,935 110,815 118,246
General, administrative and other expenses 228,067 225,721 122,006
--------- --------- ---------
Total benefits and expenses 533,529 515,955 427,125
--------- --------- ---------
Income from operations before income taxes 236,195 168,242 228,357
--------- --------- ---------
Income taxes
Current 69,768 73,326 60,196
Deferred 14,465 (11,458) 18,939
--------- --------- ---------
Total income taxes 84,233 61,868 79,135
--------- --------- ---------
NET INCOME 151,962 106,374 149,222
--------- --------- ---------
Other comprehensive income, net of tax:
Unrealized gains on securities, net of
reclassification adjustment (7,227) 3,025 (17,952)
Foreign currency translation adjustments 2,980 (2,863) (482)
--------- --------- ---------
Other comprehensive income (4,247) 162 (18,434)
--------- --------- ---------
TOTAL COMPREHENSIVE INCOME $ 147,715 $ 106,536 $ 130,788
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
B-8
<PAGE>
<TABLE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years Ended December 31, 1998, 1997, and 1996 (In Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
Accumulated
other Total
Common Paid-in- Retained comprehensive stockholder's
stock capital earnings income equity
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $ 2,500 $ 439,582 $ 795,275 $ 30,836 $ 1,268,193
Net income -- -- 149,222 -- 149,222
Change in foreign currency
translation adjustments -- -- -- (482) (482)
Change in net unrealized
investment gains, net of
reclassification adjustment -- -- -- (17,952) (17,952)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 2,500 439,582 944,497 12,402 1,398,981
Net income -- -- 106,374 -- 106,374
Change in foreign currency
translation adjustments -- -- -- (2,863) (2,863)
Change in net unrealized
investment gains, net of
reclassification adjustment -- -- -- 3,025 3,025
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 2,500 439,582 1,050,871 12,564 1,505,517
Net income -- -- 151,962 -- 151,962
Change in foreign currency
translation adjustments -- -- -- 2,980 2,980
Change in net unrealized
investment gains, net of
reclassification adjustment -- -- -- (7,227) (7,227)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 $ 2,500 $ 439,582 $ 1,202,833 $ 8,317 $ 1,653,232
=========== =========== =========== =========== ============
</TABLE>
See Notes to Consolidated Financial Statements
B-9
<PAGE>
<TABLE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997, and 1996 (In Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 151,962 $ 106,374 $ 149,222
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Policy charges and fee income (47,230) (40,783) (50,286)
Interest credited to policyholders' account balances 118,935 110,815 118,246
Realized investment gains, net (44,841) (10,974) (10,835)
Amortization and other non-cash items 18,611 (31,181) 29,334
Change in:
Future policy benefits and other policyholders' liabilities 62,139 39,683 54,176
Accrued investment income 5,886 (4,890) (2,248)
Separate Accounts 32,288 (13,894) (38,025)
Payable to affiliate (3,807) 20,547 16,519
Policy loans (62,962) (64,173) (70,509)
Deferred policy acquisition costs (206,471) (22,083) (66,183)
Income taxes payable (27,179) 78,894 (816)
Deferred income tax liability 10,351 (10,477) 7,912
Other, net (43,675) 34,577 7,814
----------- ----------- -----------
Cash Flows (Used In) From Operating Activities (35,993) 192,435 144,321
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 5,429,396 2,828,665 3,886,254
Held to maturity 74,767 138,626 138,127
Equity securities 4,101 6,939 7,527
Mortgage loans on real estate 5,433 24,925 19,226
Other long-term investments 1,140 3,276 288
Investment real estate -- -- 4,488
Payments for the purchase of:
Fixed maturities:
Available for sale (5,617,208) (3,141,785) (4,008,810)
Held to maturity (145,919) (70,532) (114,494)
Equity securities (2,274) (4,594) (4,697)
Other long-term investments (409) (51) (657)
Cash collateral for loaned securities, net (70,085) 143,421 -
Securities sold under agreement to repurchase, net 49,708 - -
Short-term investments, net 75,771 (147,030) 58,186
----------- ----------- -----------
Cash Flows Used In Investing Activities (195,579) (218,140) (14,562)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 3,098,721 2,099,600 536,370
Withdrawals (2,848,828) (2,076,303) (633,798)
----------- ----------- -----------
Cash Flows From (Used in) Financing Activities 249,893 23,297 (97,428)
----------- ----------- -----------
Net increase (decrease) in Cash 18,321 (2,408) 32,331
Cash, beginning of year 71,358 73,766 41,435
----------- ----------- -----------
CASH, END OF PERIOD $ 89,679 $ 71,358 $ 73,766
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid (received) $ 99,810 $ (7,904) $ 61,760
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
B-10
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. BUSINESS
Pruco Life Insurance Company (the Company) is a stock life insurance company,
organized in 1971 under the laws of the state of Arizona. The Company markets
individual life insurance, variable life insurance, variable annuities, fixed
annuities, and a group annuity program (the Contracts) in all states and
territories except the District of Columbia and Guam. In addition, the Company
markets individual life insurance through its branch office in Taiwan. The
Company has two wholly owned subsidiaries, Pruco Life Insurance Company of New
Jersey (PLNJ) and The Prudential Life Insurance Company of Arizona (PLICA).
PLNJ is a stock life insurance company organized in 1982 under the laws of the
state of New Jersey. It is licensed to sell individual life insurance,
variable life insurance, fixed annuities, and variable annuities only in the
states of New Jersey and New York. PLICA is a stock life insurance company
organized in 1988 under the laws of the state of Arizona. PLICA had no new
business sales in 1997 or 1998 and at this time will not be issuing new
business.
The Company is a wholly owned subsidiary of The Prudential Insurance Company
of America (Prudential), a mutual insurance company founded in 1875 under the
laws of the state of New Jersey. Prudential intends to make additional capital
contributions to the Company, as needed, to enable it to comply with its
reserve requirements and fund expenses in connection with its business.
Generally, Prudential is under no obligation to make such contributions and
its assets do not back the benefits payable under the Contracts.
The Company is engaged in a business that is highly competitive because of the
large number of stock and mutual life insurance companies and other entities
engaged in marketing insurance products, and individual and group annuities.
There are approximately 1,620 stock, mutual and other types of insurers in the
life insurance business in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP"). All significant
intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from those
estimates.
Investments
Fixed maturities classified as "available for sale" are carried at estimated
fair value. Fixed maturities that the Company has both the intent and ability
to hold to maturity are stated at amortized cost and classified as "held to
maturity". The amortized cost of fixed maturities is written down to estimated
fair value if a decline in value is considered to be other than temporary.
Unrealized gains and losses on fixed maturities "available for sale",
including the effect on deferred policy acquisition costs and participating
annuity contracts that would result from the realization of unrealized gains
and losses, net of income taxes, are included in a separate component of
equity, "Accumulated other comprehensive income."
Equity securities, available for sale, comprised of common and non-redeemable
preferred stock, are carried at estimated fair value. The associated
unrealized gains and losses, net of income tax, the effects on deferred policy
acquisition costs and on participating annuity contracts that would result
from the realization of unrealized gains and losses, are included in a
separate component of equity, "Accumulated other comprehensive income."
Mortgage loans on real estate are stated primarily at unpaid principal
balances, net of unamortized discounts and allowance for losses. The allowance
for losses is based upon a loan specific review and management's consideration
of past results, current trends, the estimated value of the underlying
collateral, composition of the loan portfolio, current economic conditions and
other relevant factors. Impaired loans are identified by management as loans
in which a probability exists that all amounts due according to the
contractual terms of the loan agreement will not be collected.
B-11
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impaired loans are measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate, or the fair value of
the collateral if the loan is collateral dependent.
Interest received on impaired loans, including loans that were previously
modified in a troubled debt restructuring, is either applied against the
principal or reported as revenue, according to management's judgment as to the
collectibility of principal. Management discontinues the accrual of interest
on impaired loans after the loans are 90 days delinquent as to principal or
interest, or earlier when management has serious doubts about collectibility.
When a loan is recognized as impaired, any accrued but unpaid interest
previously recorded on such loan is reversed against interest income of the
current period. Generally, a loan is restored to accrual status only after all
delinquent interest and principal are brought current and, in the case of
loans where interest has been interrupted for a substantial period, a regular
payment performance has been established.
Policy loans are carried at unpaid principal balances.
Short-term investments, consists primarily of highly liquid debt instruments
purchased with an original maturity of twelve months or less and are carried
at amortized cost, which approximates fair value.
Other long-term investments primarily represent the Company's investments in
joint ventures and partnerships in which the Company does not have control.
These investments are recorded using the equity method of accounting, reduced
for other than temporary declines in value.
Realized investment gains, net are computed using the specific identification
method. Costs of fixed maturity and equity securities are adjusted for
impairments considered to be other than temporary.
Cash
Cash includes cash on hand, amounts due from banks, and money market
instruments.
Deferred Policy Acquisition Costs
The costs which vary with and that are related primarily to the production of
new insurance business are deferred to the extent that they are deemed
recoverable from future profits. Such costs include certain commissions, costs
of policy issuance and underwriting, and certain variable field office
expenses. Deferred policy acquisition costs are subject to recoverability
testing at the time of policy issue and loss recognition testing at the end of
each accounting period. Deferred policy acquisition costs are adjusted for the
impact of unrealized gains or losses on investments as if these gains or
losses had been realized, with corresponding credits or charges included in
"Accumulated other comprehensive income."
Acquisition costs related to interest-sensitive life products and
investment-type contracts are deferred and amortized in proportion to total
estimated gross profits arising principally from investment results, mortality
and expense margins and surrender charges based on historical and anticipated
future experience. Amortization periods range from 15 to 30 years. For
participating life insurance, deferred policy acquisition costs are amortized
over the expected life of the contracts in proportion to estimated gross
margins based on historical and anticipated future experience, which is
updated periodically. Deferred policy acquisition costs are analyzed to
determine if they are recoverable from future income, including investment
income. If such costs are determined to be unrecoverable, they are expensed at
the time of determination. The effect of revisions to estimated gross profits
on unamortized deferred acquisition costs is reflected in earnings in the
period such estimated gross profits are revised.
Securities loaned
Securities loaned are treated as financing arrangements and are recorded at
the amount of cash received as collateral. The Company obtains collateral in
an amount equal to 102% of the fair value of the securities. The Company
monitors the market value of securities loaned on a daily basis with
additional collateral obtained as necessary. Non-cash collateral received is
not reflected in the consolidated statements of financial position.
Substantially all of the Company's securities loaned are with large brokerage
firms.
B-12
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Securities sold under agreements to repurchase
Securities sold under agreements to repurchase are treated as financing
arrangements and are carried at the amounts at which the securities will be
subsequently reacquired, including accrued interest, as specified in the
respective agreements. The Company's policy is to take possession of
securities purchased under agreements to resell. The market value of
securities to be repurchased is monitored and additional collateral is
requested, where appropriate, to protect against credit exposure.
Securities lending and securities repurchase agreements are used to generate
net investment income and facilitate trading activity. These instruments are
short-term in nature (usually 30 days or less). Securities loaned are
collateralized principally by U.S. Government and mortgage-backed securities.
Securities sold under repurchase agreements are collateralized principally by
cash. The carrying amounts of these instruments approximate fair value because
of the relatively short period of time between the origination of the
instruments and their expected realization.
Separate Account Assets and Liabilities
Separate Account assets and liabilities are reported at estimated fair value
and represent segregated funds which are invested for certain policyholders
and other customers. Separate Acount assets include common stocks, fixed
maturities, real estate related securities, and short-term investments. The
assets of each account are legally segregated and are not subject to claims
that arise out of any other business of the Company. Investment risks
associated with market value changes are borne by the customers, except to the
extent of minimum guarantees made by the Company with respect to certain
accounts. The investment income and gains or losses for Separate Accounts
generally accrue to the policyholders and are not included in the Consolidated
Statement of Operations. Mortality, policy administration and surrender
charges on the accounts are included in "Policy charges and fee income."
Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life Modified Guaranteed
Annuity Account. The Pruco Life Modified Guaranteed Annuity Account is a
non-unitized separate account, which funds the Modified Guaranteed Annuity
Contract and the Market Value Adjustment Annuity Contract. Owners of the Pruco
Life Modified Guaranteed Annuity and the Market Value Adjustment Annuity
Contracts do not participate in the investment gain or loss from assets
relating to such accounts. Such gain or loss is borne, in total, by the
Company.
Insurance Revenue and Expense Recognition
Premiums from insurance policies are generally recognized when due. Benefits
are recorded as an expense when they are incurred. For traditional life
insurance contracts, a liability for future policy benefits is recorded using
the net level premium method. For individual annuities in payout status, a
liability for future policy benefits is recorded for the present value of
expected future payments based on historical experience.
Premiums from non-participating group annuities with life contingencies are
generally recognized when due. For single premium immediate annuities,
premiums are recognized when due with any excess profit deferred and
recognized in a constant relationship to insurance in-force or, for annuities,
the amount of expected future benefit payments.
Amounts received as payment for interest-sensitive life, individual annuities,
and guaranteed investment contracts are reported as deposits to
"Policyholders' account balances." Revenues from these contracts reflected as
"Policy charges and fee income" consist primarily of fees assessed during the
period against the policyholders' account balances for mortality charges,
policy administration charges and surrender charges. In addition, interest
earned from the investment of these account balances is reflected in "Net
investment income." Benefits and expenses for these products include claims in
excess of related account balances, expenses of contract administration,
interest credited and amortization of deferred policy acquisition costs.
Foreign Currency Translation Adjustments
Assets and liabilities of the Taiwan branch are translated to U.S. dollars at
the exchange rate in effect at the end of the period. Revenues, benefits and
other expenses are translated at the average rate prevailing during the
period. Cumulative
B-13
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
translation adjustments arising from the use of differing exchange rates from
period to period are charged or credited directly to "Other comprehensive
income." The cumulative effect of changes in foreign exchange rates are
included in "Accumulated other comprehensive income."
Other Income
Other income consists primarily of asset management fees which are received by
the Company from Prudential for services Prudential provides to the Prudential
Series Fund, an underlying investment option of the Separate Accounts.
Derivative Financial Instruments
Derivatives are financial instruments whose values are derived from interest
rates, foreign exchange rates, various financial indices, or the value of
securities or commodities. Derivative financial instruments used by the
Company include futures, currency swaps, and options contracts and can be
exchange-traded or contracted in the over-the-counter market. The Company uses
derivative financial instruments to hedge market risk from changes in interest
rates or foreign currency exchange rates, and to alter interest rate or
currency exposures arising from mismatches between assets and liabilities. All
derivatives used by the Company are for other than trading purposes.
To qualify as a hedge, derivatives must be designated as hedges for existing
assets, liabilities, firm commitments, or anticipated transactions which are
identified and probable to occur, and effective in reducing the market risk to
which the Company is exposed. The effectiveness of the derivatives must be
evaluated at the inception of the hedge and throughout the hedge period.
When derivatives qualify as hedges, the changes in the fair value or cash
flows of the derivatives and the hedged items are recognized in earnings in
the same period. If the Company's use of other than trading derivatives does
not meet the criteria to apply hedge accounting, the derivatives are recorded
at fair value in "Other liabilities" in the Consolidated Statements of
Financial Position, and changes in their fair value are recognized in earnings
in "Realized investment gains, net" without considering changes in the hedged
assets or liabilities. Cash flows from other than trading derivative assets
and liabilities are reported in the operating activities section in the
Consolidated Statements of Cash Flows.
Income Taxes
The Company and its subsidiaries are members of the consolidated federal
income tax return of Prudential and files separate company state and local tax
returns. Pursuant to the tax allocation arrangement with Prudential, total
federal income tax expense is determined on a separate company basis. Members
with losses record tax benefits to the extent such losses are recognized in
the consolidated federal tax provision. Deferred income taxes are generally
recognized, based on enacted rates, when assets and liabilities have different
values for financial statement and tax reporting purposes. A valuation
allowance is recorded to reduce a deferred tax asset to that portion that is
expected to be realized.
New Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS 125"). The statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments
of liabilities and provides consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are secured borrowings.
SFAS 125 became effective January 1, 1997 and is to be applied prospectively.
Subsequent to June 1996, FASB issued SFAS No. 127 "Deferral of the Effective
Date of Certain Provisions of SFAS 125" ("SFAS 127"). SFAS 127 delays the
implementation of SFAS 125 for one year for certain transactions, including
repurchase agreements, dollar rolls, securities lending and similar
transactions. Adoption of SFAS 125 did not have a material impact on the
Company's results of operations, financial position and liquidity.
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which was issued by the FASB in June 1997. This statement defines
comprehensive income and establishes standards for reporting and displaying
comprehensive income and its components in financial statements. The statement
requires that the Company classify items of other comprehensive income by
their nature and display the accumulated balance of other comprehensive income
B-14
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
separately from retained earnings in the equity section of the Statement of
Financial Position. Application of this statement did not change recognition
or measurement of net income and, therefore, did not affect the Company's
financial position or results of operations.
On January 1, 1999, the Company adopted the American Institute of Certified
Public Accountants ("AICPA") Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" ("SOP
97-3"). This statement provides guidance for determining when an insurance
company or other enterprise should recognize a liability for guaranty-fund
assessments as well as guidance for measuring the liability. The adoption of
SOP 97-3 is not expected to have a material effect on the Company's financial
position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. SFAS No. 133 provides, if certain
conditions are met, that a derivative may be specifically designated as (1) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment (fair value hedge), (2) a hedge
of the exposure to variable cash flows of a forecasted transaction (cash flow
hedge), or (3) a hedge of the foreign currency exposure of a net investment in
a foreign operation, an unrecognized firm commitment, an available-for-sale
security or a foreign-currency-denominated forecasted transaction (foreign
currency hedge).
SFAS No. 133 does not apply to most traditional insurance contracts. However,
certain hybrid contracts that contain features which can affect settlement
amounts similarly to derivatives may require separate accounting for the "host
contract" and the underlying "embedded derivative" provisions. The latter
provisions would be accounted for as derivatives as specified by the
statement.
Under SFAS No. 133, the accounting for changes in fair value of a derivative
depends on its intended use and designation. For a fair value hedge, the gain
or loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item. For a cash flow hedge, the
effective portion of the derivative's gain or loss is initially reported as a
component of other comprehensive income and subsequently reclassified into
earnings when the forecasted transaction affects earnings. For a foreign
currency hedge, the gain or loss is reported in other comprehensive income as
part of the foreign currency translation adjustment. For all other derivatives
not designated as hedging instruments, the gain or loss is recognized in
earnings in the period of change. The Company is required to adopt this
Statement no later than January 1, 2000 and is currently assessing the effect
of the new standard.
In October, 1998, the AICPA issued Statement of Position 98-7, "Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk," ("SOP 98-7"). This statement provides guidance on
how to account for insurance and reinsurance contracts that do not transfer
insurance risk. SOP 98-7 is effective for fiscal years beginning after June
15, 1999. The adoption of this statement is not expected to have a material
effect on the Company's financial position or results of operations.
Reclassifications
Certain amounts in the prior years have been reclassified to conform to
current year presentation.
B-15
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS
Fixed Maturities and Equity Securities:
The following tables provide additional information relating to fixed maturities
and equity securities as of December 31,:
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturities available for sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies 110,294 864 318 110,840
Foreign government bonds 87,112 2,003 696 88,419
Corporate securities 2,540,498 30,160 6,897 2,563,761
Mortgage-backed securities 750 156 -- 906
---------- ---------- ---------- ----------
Total fixed maturities available for sale $2,738,654 $ 33,183 $ 7,911 $2,763,926
========== ========== ========== ==========
Equity securities available for sale $ 2,951 $ 168 $ 272 $ 2,847
========== ========== ========== ==========
Fixed maturities held to maturity
Corporate securities $ 410,558 $ 11,287 $ -- $ 421,845
---------- ---------- ---------- ----------
Total fixed maturities held to maturity $ 410,558 $ 11,287 $ -- $ 421,845
========== ========== ========== ==========
1997
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
(In Thousands)
Fixed maturities available for sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 177,691 $ 1,231 $ 20 $ 178,902
Foreign government bonds 83,889 1,118 19 84,988
Corporate securities 2,263,898 36,857 2,017 2,298,738
Mortgage-backed securities 1,076 180 32 1,224
---------- ---------- ---------- ----------
Total fixed maturities available for sale $2,526,554 $ 39,386 $ 2,088 $2,563,852
========== ========== ========== ==========
Equity securities available for sale $ 1,289 $ 802 $ 109 $ 1,982
========== ========== ========== ==========
Fixed maturities held to maturity
Corporate securities $ 338,848 $ 11,427 $ 219 $ 350,056
---------- ---------- ---------- ----------
Total fixed maturities held to maturity $ 338,848 $ 11,427 $ 219 $ 350,056
========== ========== ========== ==========
</TABLE>
B-16
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The amortized cost and estimated fair value of fixed maturities, categorized by
contractual maturities at December 31, 1998 are shown below:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
-------------------------------- ---------------------------------
Amortized Estimated Fair Amortized Estimated Fair
Cost Value Cost Value
--------- -------------- ---------- --------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 72,931 $ 73,254 $ 3,036 $ 3,064
Due after one year through five years 1,050,981 1,059,389 193,749 201,136
Due after five years through ten years 1,142,507 1,156,664 155,568 158,801
Due after ten years 471,485 473,713 58,205 58,844
Mortgage-backed securities 750 906 -- --
---------- ---------- ---------- ----------
Total $2,738,654 $2,763,926 $ 410,558 $ 421,845
========== ========== ========== ==========
</TABLE>
Actual maturities will differ from contractual maturities because, in certain
circumstances, issuers have the right to call or prepay obligations.
Proceeds from the sale of fixed maturities available for sale during 1998, 1997,
and 1996 were $5,327.3 million, $2,796.3 million, and $3,667.1 million,
respectively. Gross gains of $46.3 million, $18.6 million, and $22.1 million and
gross losses of $14.1 million, $7.9 million, and $17.6 million were realized on
those sales during 1998, 1997, and 1996, respectively.
Proceeds from the maturity of fixed maturities available for sale during 1998,
1997, and 1996 were $102.1 million, $32.4 million, and $219.2 million,
respectively. During the years ended December 31, 1998, 1997, and 1996, there
were no securities classified as held to maturity that were sold.
Writedowns for impairments of fixed maturities which were deemed to be other
than temporary were $2.8 million, $.1 million and $.1 million for the years
1998, 1997 and 1996, respectively.
B-17
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The following table describes the credit quality of the fixed maturity
portfolio, based on ratings assigned by the National Association of Insurance
Commissioners ("NAIC") or Standard & Poor's Corporation, an independent rating
agency as of December 31, 1998:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------ -------------------------------------
Amortized Estimated Fair Amortized Estimated Fair
Cost Value Cost Value
---------- -------------- ---------- --------------
(In Thousands) (In Thousands)
NAIC Standard & Poor's
<S> <C> <C> <C> <C>
1 AAA to AA- $1,195,301 $1,211,995 $ 180,070 $ 186,683
2 BBB+ to BBB- 1,254,522 1,263,656 182,298 185,417
3 BB+ to BB- 201,033 204,278 39,346 40,654
4 B+ to B- 59,799 57,695 8,821 9,068
5 CCC or lower 27,552 26,061 -- --
6 In or near default 447 241 23 23
---------- ---------- ---------- ----------
Total $2,738,654 $2,763,926 $ 410,558 $ 421,845
========== ========== ========== ==========
</TABLE>
The fixed maturity portfolio consists largely of investment grade assets (rated
"1" or "2" by the NAIC), with such investments accounting for 89% and 94% of the
portfolio at December 31, 1998 and 1997, respectively, based on fair value. As
of both of those dates, less than 1% of the fixed maturities portfolio was rated
"6" by the NAIC, defined as public and private placement securities which are
currently non-performing or believed subject to default in the near-term.
The Company continually reviews fixed maturities and identifies potential
problem assets which require additional monitoring. The Company defines
"problem" fixed maturities as those for which principal and/or interest payments
are in default. The Company defines "potential problem" fixed maturities as
assets which are believed to present default risk associated with future debt
service obligations and therefore require more active management. At December
31, 1998 management identified $264.0 thousand of fixed maturity investments as
problem or potential problem. An immaterial amount of problem or potential
problem fixed maturities were identified in 1997.
Mortgage Loans on Real Estate
The Company's mortgage loans were collateralized by the following property types
at December 31, 1998 and 1997.
1998 1997
------------------ -------------------
(In Thousands)
Office buildings $ -- -- $ 4,607 20%
Retail stores 7,356 42% 8,090 35%
Apartment complexes 5,988 35% 6,080 27%
Industrial buildings 4,010 23% 4,010 18%
------------------ ------------------
Net carrying value $17,354 100% $22,787 100%
================== ==================
B-18
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The largest concentration of mortgage loans are in the states of Pennsylvania
(35%), Washington (34%), and New Jersey (23%).
Special Deposits
Fixed maturities of $8.6 million and $8.3 million at December 31, 1998 and 1997,
respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws.
Other Long-Term Investments
The Company's "Other long-term investments" of $1.0 million and $1.3 million as
of December 31, 1998 and 1997, respectively, are comprised of joint ventures and
limited parterships. The Company's share of net income from these entities was
$.1 million, $2.2 million and $1.4 million for the years ended December 31,
1998, 1997 and 1996, respectively, and is reported in "Net investment income."
Investment Income and Investment Gains and Losses
Net investment income arose from the following sources for the years ended
December 31:
1998 1997 1996
--------- --------- ---------
(In Thousands)
Fixed maturities - available for sale $ 179,184 $ 161,140 $ 152,445
Fixed maturities - held to maturity 26,128 26,936 33,419
Equity securities 14 76 44
Mortgage loans on real estate 1,818 2,585 5,669
Policy loans 40,928 37,398 33,449
Short-term investments 23,110 22,011 16,780
Other 6,886 14,920 10,051
--------- --------- ---------
Gross investment income 278,068 265,066 251,857
Less: investment expenses (16,638) (5,432) (4,529)
--------- --------- ---------
Net investment income $ 261,430 $ 259,634 $ 247,328
========= ========= =========
Realized investment gains ,net including charges for other than temporary
reductions in value, for the years ended December 31, were from the following
sources:
1998 1997 1996
--------- --------- ---------
(In Thousands)
Fixed maturities - available for sale $ 29,330 $ 9,039 $ 9,036
Fixed maturities - held to maturity 487 821 --
Equity securities 3,489 8 781
Mortgage loans on real estate -- 797 1,677
Derivative instruments 12,414 -- --
Other (879) 309 (659)
--------- --------- ---------
Realized investment gains, net $ 44,841 $ 10,974 $ 10,835
========= ========= =========
B-19
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
Net Unrealized Investment Gains
Net unrealized investment gains on securities available for sale are included in
the Consolidated Statement of Financial Position as a component of "Accumulated
other comprehensive income." Changes in these amounts include reclassification
adjustments to avoid double-counting in "Comprehensive income," items that are
included as part of "Net income" for a period that also have been part of "Other
comprehensive income" in earlier periods. The amounts for the years ended
December 31, net of tax, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Net unrealized investment gains, beginning of year $ 17,129 $ 14,104 $ 32,056
Changes in net unrealized investment gains attributable to:
Investments:
Net unrealized gains on investments arising during the period 14,593 13,880 (20,405)
Reclassification adjustment for gains included in net income 22,799 6,680 6,165
-------- -------- --------
Change in net unrealized gains on investments, net of adjustments (8,206) 7,200 (26,570)
Impact of net unrealized investment gains on:
Policyholder's account balances (1,063) 1,293 (2,467)
Deferred policy acquisition costs 2,042 (5,468) 11,085
-------- -------- --------
Change in net unrealized investment gains (7,227) 3,025 (17,952)
-------- -------- --------
Net unrealized investment gains, end of year $ 9,902 $ 17,129 $ 14,104
======== ======== ========
</TABLE>
Unrealized gains (losses) on investments arising during the periods reported in
the above table are net of income tax (benefit) expense of $(8.2) million,
$(7.6) million and $12.1 million for the years ended December 31, 1998, 1997 and
1996, respectively.
Reclassification adjustments reported in the above table for the years ended
December 31, 1998, 1997 and 1996 are net of income tax expense of $12.8 million,
$3.6 million and $3.8 million, respectively.
Policyholder's account balances reported in the above table are net of income
tax (benefit) expense of $(.2) million, $.0 million and $1.4 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
Deferred policy acquisition costs in the above tables for the years ended
December 31, 1998, 1997 and 1996 are net of income tax (benefit) expense of
$(1.1) million, $2.9 million and $(6.2) million, respectively.
4. POLICYHOLDERS' LIABILITIES
Future policy benefits and other policyholder liabilities at December 31 are as
follows:
1998 1997
-------- --------
(In Thousands)
Life insurance $506,249 $444,737
Annuities 28,350 27,723
-------- --------
$534,599 $472,460
======== ========
B-20
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
4. POLICYHOLDERS' LIABILITIES (continued)
Life insurance liabilities include reserves for death benefits. Annuity
liabilities include reserves for immediate annuities.
The following table highlights the key assumptions generally utilized in
calculating these reserves:
<TABLE>
<CAPTION>
Product Mortality Interest Rate Estimation Method
- ------------------------------ ------------------------- ------------- -----------------------
<S> <C> <C> <C>
Life insurance - Domestic Generally rates 2.5% to 7.5% Net level premium based
guaranteed in on non-forfeiture
calculating cash interest rate
surrender values
Life insurance - International Generally rates 6.25% to 6.5% Net level premium based
guaranteed in on the expected
calculating cash investment return
surrender values
Individual immediate annuities 1983 Individual Annuity 6.25% to 11.0% Present value of
Mortality Table with expected future payment
certain modifications based on historical
experience
</TABLE>
Policyholders' account balances at December 31, are as follows:
1998 1997
---------- ----------
(In Thousands)
Interest-sensitive life contracts $1,386,829 $1,345,089
Individual annuities 1,077,996 1,035,371
Guaranteed investment contracts 231,366 --
---------- ----------
$2,696,191 $2,380,460
========== ==========
Policyholders' account balances for interest-sensitive life, individual
annuities, and guaranteed investment contracts are equal to policy account
values plus unearned premiums. The policy account values represent an
accumulation of gross premium payments plus credited interest less withdrawals,
expenses, mortality charges.
Certain contract provisions that determine the policyholder account balances are
as follows:
<TABLE>
<CAPTION>
Product Interest Rate Withdrawal / Surrender Charges
- --------------------------------- -------------- ----------------------------------
<S> <C> <C>
Interest sensitive life contracts 4.0% to 6.5% Various up to 10 years
Individual annuities 3.0% to 5.6% 0% to 8% for up to 8 years
Guaranteed investment contracts 5.02% to 6.23% Subject to market value withdrawal
provisions for any funds withdrawn
other than for benefit responsive
and contractual payments
</TABLE>
B-21
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
5. REINSURANCE
The Company participates in reinsurance, with Prudential and other companies, in
order to provide greater diversification of business, provide additional
capacity for future growth and limit the maximum net loss potential arising from
large risks. Reinsurance ceded arrangements do not discharge the Company or the
insurance subsidiaries as the primary insurer, except for cases involving a
novation. Ceded balances would represent a liability to the Company in the event
the reinsurers were unable to meet their obligations to the Company under the
terms of the reinsurance agreements. The likelihood of a material reinsurance
liability reassumed by the Company is considered to be remote.
Reinsurance amounts included in the Consolidated Statement of Operations for the
year ended December 31 are below.
1998 1997 1996
-------- -------- --------
(In Thousands)
Direct Premiums $ 65,423 $ 51,851 $ 53.776
Reinsurance assumed 1,395 1,369 1,128
Reinsurance ceded - affiliated (6,532) (686) (254)
Reinsurance ceded - unaffiliated (2,819) (3,038) (3,125)
-------- -------- --------
Premiums $ 57,467 $ 49,496 $ 51,525
======== ======== ========
Policyholders' benefits ceded $ 27,991 $ 25,704 $ 26,796
======== ======== ========
Reinsurance recoverables, included in "Other assets" in the Company's
Consolidated Statements of Financial Position, at December 31 include amounts
recoverable on unpaid and paid losses and were as follows:
1998 1997
------- -------
(In Thousands)
Life insurance - affiliated $ 6,481 $ 2,618
Other reinsurance - affiliated 21,650 23,243
------- -------
$28,131 $25,861
======= =======
B-22
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
6. EMPLOYEE BENEFIT PLANS
Pension and Other Postretirement Plans
The Company has a non-contributory defined benefit pension plan which covers
substantially all of its Taiwanese employees. This plan was established as of
September 30, 1997 and the projected benefit obligation and related expenses at
September 30, 1998 was not material to the Consolidated Statements of Financial
Position or results of operations for the years presented. All other employee
benefit costs are allocated to the Company from Prudential in accordance with
the service agreement described in Note 13.
7. INCOME TAXES
The components of income taxes for the years ended December 31, are as follows:
1998 1997 1996
-------- -------- --------
(In Thousands)
Current tax expense (benefit):
U.S $ 67,272 $ 71,989 $ 59,489
State and local 2,496 1,337 703
Foreign -- -- 4
-------- -------- --------
Total 69,768 73,326 60,196
-------- -------- --------
Deferred tax expense (benefit):
U.S 14,059 (11,458) 18,413
State and local 406 -- 526
-------- -------- --------
Total 14,465 (11,458) 18,939
-------- -------- --------
Total income tax expense $ 84,233 $ 61,868 $ 79,135
======== ======== ========
The income tax expense for the years ended December 31, differs from the amount
computed by applying the expected federal income tax rate of 35% to income from
operations before income taxes for the following reasons:
1998 1997 1996
-------- -------- --------
(In Thousands)
Expected federal income tax expense $ 82,668 $ 58,885 $ 79,925
State and local income taxes 1,886 869 799
Other (321) 2,114 (1,589)
-------- -------- --------
Total income tax expense $ 84,233 $ 61,868 $ 79,135
======== ======== ========
B-23
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
7. INCOME TAXES (continued)
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
1998 1997
-------- --------
(In Thousands)
Deferred tax assets
Insurance reserves $ 93,564 $ 52,144
-------- --------
Deferred tax assets 93,564 52,144
-------- --------
Deferred tax liabilities
Deferred acquisition costs 224,179 167,128
Net investment gains 12,241 16,068
Other 5,978 7,431
-------- --------
Deferred tax liabilities 242,398 190,627
-------- --------
Net deferred tax liability $148,834 $138,483
======== ========
Management believes that based on its historical pattern of taxable income, the
Company and its subsidiaries will produce sufficient income in the future to
realize its deferred tax assets after valuation allowance. Adjustments to the
valuation allowance will be made if there is a change in management's assessment
of the amount of the deferred tax asset that is realizable. At December 31, 1998
and 1997, respectively, the Company and its subsidiaries had no federal or state
operating loss carryforwards for tax purposes.
The Internal Revenue Service (the "Service") has completed examinations of all
consolidated federal income tax returns through 1989. The Service has examined
the years 1990 through 1992. Discussions are being held with the Service with
respect to proposed adjustments. However, management believes there are adequate
defenses against, or sufficient reserves to provide for, such adjustments. The
Service has begun their examination of the years 1993 through 1995.
B-24
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. EQUITY
Reconciliation of Statutory Surplus and Net Income
Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following table
reconciles the Company's statutory net income and surplus as of and for the
years ended December 31, determined in accordance with accounting practices
prescribed or permitted by the Arizona and New Jersey Departments of Banking and
Insurance with net income and equity determined using GAAP.
1998 1997 1996
--------- --------- ---------
(In Thousands)
Statutory net income $ (33,097) $ 12,778 $ 48,846
Adjustments to reconcile to net
income on a GAAP basis:
Statutory income of subsidiaries 18,953 18,553 25,001
Deferred acquisition costs 202,375 38,003 48,862
Deferred premium 2,625 1,144 1,295
Insurance liabilities (24,942) 26,517 28,662
Deferred taxes (14,465) 11,458 (18,939)
Valuation of investments 20,077 506 365
Other, net (19,564) (2,585) 15,130
--------- --------- ---------
GAAP net income $ 151,962 $ 106,374 $ 149,222
========= ========= =========
1998 1997
----------- -----------
(In Thousands)
Statutory surplus $ 931,164 $ 853,130
Adjustments to reconcile to equity
on a GAAP basis:
Valuation of investments 117,254 97,787
Deferred acquisition costs 861,713 655,242
Deferred premium (15,625) (14,817)
Insurance liabilities (133,811) (107,525)
Deferred taxes (148,834) (138,483)
Other, net 41,371 160,183
----------- -----------
GAAP stockholder's equity $ 1,653,232 $ 1,505,517
=========== ===========
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values presented below have been determined using available
information and valuation methodologies. Considerable judgment is applied in
interpreting data to develop the estimates of fair value. Accordingly, such
estimates presented may not be realized in a current market exchange. The use of
different market assumptions and/or estimation methodologies could have a
material effect on the estimated fair values. The following methods and
assumptions were used in calculating the estimated fair values (for all other
financial instruments presented in the table, the carrying value approximates
estimated fair value).
B-25
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
9. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Fixed maturities and Equity securities
Estimated fair values for fixed maturities and equity securities, other than
private placement securities, are based on quoted market prices or estimates
from independent pricing services. Fair values for private placement securities
are estimated using a discounted cash flow model which considers the current
market spreads between the U.S. Treasury yield curve and corporate bond yield
curve, adjusted for the type of issue, its current credit quality and its
remaining average life. The estimated fair value of certain non-performing
private placement securities is based on amounts estimated by management.
Mortgage loans on real estate
The estimated fair value of the mortgage loan portfolio is primarily based upon
the present value of the scheduled future cash flows discounted at the
appropriate U.S. Treasury rate, adjusted for the current market spread for a
similar quality mortgage.
Policy loans
The estimated fair value of policy loans is calculated using a discounted cash
flow model based upon current U.S. Treasury rates and historical loan
repayments.
Policyholders' account balances
Estimated fair values of policyholders' account balances are derived by using
discounted projected cash flows, based on interest rates being offered for
similar contracts, with maturities consistent with those remaining for the
contracts being valued.
Derivative financial instruments
The fair value of futures is estimated based on market quotes for a transactions
with similar terms.
The following table discloses the carrying amounts and estimated fair values of
the Company's financial instruments at December 31,:
<TABLE>
<CAPTION>
1998 1997
------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----------- ----------- ------------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities:
Available for sale $ 2,763,926 $ 2,763,926 $ 2,563,852 $ 2,563,852
Held to maturity 410,558 421,845 338,848 350,056
Equity securities 2,847 2,847 1,982 1,982
Mortgage loans 17,354 19,465 22,787 24,994
Policy loans 766,917 806,099 703,955 703,605
Short-term investments 240,727 240,727 316,355 316,355
Cash 89,679 89,679 71,358 71,358
Separate Account assets 11,531,754 11,531,754 8,022,079 8,022,079
Financial Liabilities:
Policyholders'
account balances $ 2,696,191 $ 2,703,725 $ 2,380,460 $ 2,374,040
Cash collateral for loaned
securities 123,044 123,044 143,421 143,421
Separate Account liabilities 11,490,751 11,490,751 7,948,788 7,948,788
Derivatives 1,723 2,374 653 653
</TABLE>
B-26
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
Futures & Options
The Company uses exchange-traded Treasury futures and options to reduce market
risks from changes in interest rates, to alter mismatches between the duration
of assets in a portfolio and the duration of liabilities supported by those
assets, and to hedge against changes in the value of securities it owns or
anticipates acquiring. The Company enters into exchange-traded futures and
options with regulated futures commissions merchants who are members of a
trading exchange. The fair value of futures and options is estimated based on
market quotes for a transaction with similar terms.
Under exchange-traded futures, the Company agrees to purchase a specified number
of contracts with other parties and to post variation margin on a daily basis in
an amount equal to the difference in the daily market values of those contracts.
Futures are typically used to hedge duration mismatches between assets and
liabilities by replicating Treasury performance. Treasury futures move
substantially in value as interest rates change and can be used to either
generate new or hedge existing interest rate risk. This strategy protects
against the risk that cash flow requirements may necessitate liquidation of
investments at unfavorable prices resulting from increases in interest rates.
This strategy can be a more cost effective way of temporarily reducing the
Company's exposure to a market decline than selling fixed income securities and
purchasing a similar portfolio when such a decline is believed to be over.
For futures that meet hedge accounting criteria, changes in their fair value are
deferred and recognized as an adjustment to the carrying value of the hedged
item. Deferred gains or losses from the hedges for interest-bearing financial
instruments are amortized as a yield adjustment over the remaining lives of the
hedged item. Futures that do not qualify as hedges are carried at fair value
with changes in value reported in current period earnings. The notional value of
futures contracts was $40.8 million and $115.7 million at December 31, 1998 and
1997, respectively. The fair value of futures contracts was immaterial at
December 31, 1998 and 1997.
When the Company anticipates a significant decline in the stock market which
will correspondingly affect its diversified portfolio, it may purchase put index
options where the basket of securities in the index is appropriate to provide a
hedge against a decrease in the value of the equity portfolio or a portion
thereof. This strategy effects an orderly sale of hedged securities. When the
Company has large cash flows which it has allocated for investment in equity
securities, it may purchase call index options as a temporary hedge against an
increase in the price of the securities it intends to purchase. This hedge
permits such investment transactions to be executed with the least possible
adverse market impact.
Option premium paid or received is reported as an asset or liability and
amortized into income over the life of the option. If options meet the criteria
for hedge accounting, changes in their fair value are deferred and recognized as
an adjustment to the hedged item. Deferred gains or losses from the hedges for
interest-bearing financial instruments are recognized as an adjustment to
interest income or expense of the hedged item. If the options do not meet the
criteria for hedge accounting, they are fair valued, with changes in fair value
reported in current period earnings. The fair value of options was immaterial at
December 31, 1998, and there were no options in 1997.
Currency Derivatives
The Company uses currency swaps to reduce market risks from changes in currency
values of investments denominated in foreign currencies that the Company either
holds or intends to acquire and to alter the currency exposures arising from
mismatches between such foreign currencies and the US Dollar.
Under currency swaps, the Company agrees with other parties to exchange, at
specified intervals, the difference between one currency and another at a
forward exchange rate and calculated by reference to an agreed principal amount.
Generally, the principal amount of each currency is exchanged at the beginning
and termination of the currency swap by each party. These transactions are
entered into pursuant to master agreements that provide for a single net payment
to be made by one counterparty for payments made in the same currency at each
due date.
If currency derivatives are effective as hedges of foreign currency translation
and transaction exposures, gains or losses are recorded in "Foreign currency
translation adjustments". If currency derivatives do not meet hedge accounting
criteria, gains or losses from those derivatives are recognized in current
period earnings.
As of December 31, 1998, the notional value of the swaps was $40.5 million with
a fair value of ($2.3) million. There were no currency swaps at year end 1997.
B-27
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (continued)
Credit Risk
The current credit exposure of the Company's derivative contracts is limited to
the fair value at the reporting date. Credit risk is managed by entering into
transactions with creditworthy counterparties and obtaining collateral where
appropriate and customary. The Company also attempts to minimize its exposure to
credit risk through the use of various credit monitoring techniques. As of
December 31, 1998, 47% of notional consisted of interest rate derivatives, 47%
of notional consisted of foreign currency derivatives, and 6% of notional
consisted of equity derivatives.
11. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and the
Company. Prudential has agreed to indemnify the Company for any and all losses
resulting from such litigation.
In the normal course of business, the Company is subject to various claims and
assessments. Management believes the settlement of these matters would not have
a material effect on the financial position or results of operations of the
Company.
12. DIVIDENDS
The Company is subject to Arizona law which limits the amount of dividends that
insurance companies can pay to stockholders. The maximum dividend which may be
paid in any twelve month period without notification or approval is limited to
the lesser of 10% of statutory surplus as of December 31 of the preceding year
or the net gain from operations of the preceding calendar year. Cash dividends
may only be paid out of surplus derived from realized net profits. Based on
these limitations and the Company's surplus position at December 31, 1998, the
Company would not be permitted a dividend distribution in 1998.
13. RELATED PARTY TRANSACTIONS
Service Agreements
Prudential and Pruco Life operate under service and lease agreements whereby
services of officers and employees (except for those agents employed by the
Company in Taiwan), supplies, use of equipment and office space are provided by
Prudential. The net cost of these services allocated to the Company were $269.9
million, $139.5 million and $101.7 million for the years ended December 31,
1998, 1997, and 1996, respectively. These costs are treated in a manner
consistent with the Company's policy on deferred acquisition costs.
Prudential and Pruco Life have an agreement with respect to administrative
services for the Prudential Series Fund. The Company invests in the various
portfolios of the Series Fund through the Separate Accounts. Under this
agreement, Prudential pays compensation to Pruco Life in the amount equal to a
portion of the gross investment advisory fees paid by the Prudential Series
Fund. The Company received from Prudential its allocable share of such
compensation in the amount of $40.1 million, $29.4 million and $19.1 million
during 1998, 1997 and 1996, respectively, recorded in other income.
Reinsurance
The Company currently has three reinsurance agreements in place with Prudential
(the reinsurer). Specifically a reinsurance Group Annuity Contract, whereby the
reinsurer, in consideration for a single premium payment by the Company,
provides reinsurance equal to 100% of all payments due under the contract, and
two yearly renewable term agreements in which the Company may offer and the
reinsurer may accept reinsurance on any life in excess of the Company's maximum
limit of retention. The Company is not relieved of its primary obligation to the
policyholder as a result of these reinsurance transactions. These agreements had
no material effect on net income for the years ended December 31, 1998, 1997,
and 1996.
B-28
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS (continued)
Debt Agreements
In July 1998, the Company established a revolving line of credit facility of up
to $300 million with Prudential Funding Corporation, a wholly owned subsidiary
of Prudential. There is no outstanding debt relating to this credit facility as
of December 31, 1998.
B-29
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of operations, of changes in
stockholder's equity and of cash flows present fairly, in all material respects,
the financial position of Pruco Life Insurance Company and its subsidiaries at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
February 26, 1999
B-30
<PAGE>
PRUSELECT(SM) III
Variable Life
Insurance
[LOGO] Prudential
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone 800 286-7754
CVUL - 3 Ed. 11/99
<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
Life"), 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 Life's By-law, Article VIII, which relates
to indemnification of officers and directors, is incorporated by reference to
Exhibit 3(ii) to its Form 10-Q, SEC File No. 33-37587, filed August 15, 1997.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 113 pages.
The undertaking to file reports.
The representation with respect to charges.
The signatures.
Written consents of the following persons:
1. PricewaterhouseCoopers, LLP
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 8)
(b) Amendment of Separate Account Resolution. (Note 11)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities
Corporation and Pruco Life Insurance Company. (Note 8)
(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the
Sale of the Contracts. (Note 8)
(c) Schedule of Sales Commissions. (Note 1)
(d) Participation Agreements and Amendments:
(i) (a) AIM Variable Insurance Funds, Inc., AIM V.I.
Value Fund. (Note 11)
(b) Amendment to the AIM Variable Insurance
Funds, Inc. Participation Agreement. (Note 1)
(ii) (a) American Century Variable Portfolios, Inc.,
VP Value Portfolio. (Note 11)
(iii) (a) Janus Aspen Series, Growth Portfolio. (Note
11)
(b) Amendment to the Janus Aspen Series
Participation Agreement. (Note 1)
(iv) (a) MFS Variable Insurance Trust, Emerging Growth
Series. (Note 11)
(b) Amendment to the MFS Variable Insurance Trust
Participation Agreement. (Note 1)
(v) (a) T. Rowe Price International Series, Inc.,
International Stock Portfolio. (Note 11)
(b) Amendment to the T. Rowe Price International
Series, Inc. Participation Agreement. (Note
1)
(4) Not Applicable.
(5) Variable Universal Life Insurance Contract. (Note 12)
(6) (a) Articles of Incorporation of Pruco Life Insurance
Company, as amended October 19, 1993. (Note 7)
(b) By-laws of Pruco Life Insurance Company, as amended May
6, 1997. (Note 9)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
II-2
<PAGE>
(10) (a) Application Form for Variable Universal Life Insurance
Contract. (Note 12)
(b) Supplement to the Application for Variable Universal
Life Insurance Contract. (Note 12)
(11) Not Applicable.
(12) 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 12)
(13) Rider for Flexible Term Insurance Benefit. (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 2)
(b) Kiyofumi Sakaguchi (Note 5)
(c) James J. Avery, Jr. (Note 3)
(d) Dennis G. Sullivan (Note 4)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Form 10-K, Registration No. 33-08698,
filed March 31, 1997 on behalf of the Pruco Life Variable Contract
Real Property Account.
(Note 3) Incorporated by reference to Post-Effective Amendment No. 2 to Form
S-6, Registration No. 333-07451, filed June 25, 1997 on behalf of the
Pruco Life Variable Appreciable Account.
(Note 4) Incorporated by reference to Post-Effective Amendment No. 6 for Form
S-1, Registration No. 33-86780, filed April 16, 1999 on behalf of the
Pruco Life Variable Contract Real Property Account.
(Note 5) Incorporated by reference to Post-Effective Amendment No. 8 to Form
S-6, Registration No. 33-49994, filed April 28, 1997 on behalf of the
Pruco Life PRUvider Variable Appreciable Account.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 9 to Form
S-6, Registration No. 33-29181, filed April 25, 1996 on behalf of the
Pruco Life Variable Universal 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. 10 to Form
S-6, Registration No. 33-29181, filed April 28, 1997 on behalf of the
Pruco Life Variable Universal Account.
(Note 9) Incorporated by reference to Form 10-Q, Registration No. 33-37587,
filed August 15, 1997 on behalf of the Pruco Life Insurance Company.
(Note 10) Incorporated by reference to Post-Effective Amendment No. 11 to Form
S-6, Registration No. 33-29181, filed April 28, 1998 on behalf of the
Pruco Life Variable Universal Account.
(Note 11) Incorporated by reference to Post-Effective Amendment No. 13 to Form
S-6, Registration No. 33-29181, filed June 4, 1999 on behalf of the
Pruco Life Variable Universal Account.
(Note 12) Incorporated by reference to Registrant's Form S-6, filed August 13,
1999.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life Variable Universal Account, 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 2nd day of November, 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 Registration
Statement has been signed below by the following persons in the capacities
indicated on this 2nd day of November, 1999.
SIGNATURE AND TITLE
/s/ *
- ---------------------------------------------
Esther H. Milnes
President and Director
/s/ *
- ---------------------------------------------
Dennis G. Sullivan
Vice President and Chief Accounting Officer
*By: /s/ Thomas C. Castano
-------------------------
/s/ * Thomas C. Castano
- --------------------------------------------- (Attorney-in-Fact)
James J. Avery, Jr.
Director
/s/ *
- ---------------------------------------------
William M. Bethke
Director
/s/ *
- ---------------------------------------------
Ira J. Kleinman
Director
/s/ *
- ---------------------------------------------
I. Edward Price
Director
/s/ *
- ---------------------------------------------
Kiyofumi Sakaguchi
Director
II-4
<PAGE>
EXHIBIT INDEX
Consent of PricewaterhouseCoopers LLP, independent
accountants
1.A (3)(c) Schedule of Sales Commissions
1.A (3)(d)(i)(b) Amendment to the AIM Variable Insurance Funds, Inc.
Participation Agreement
1.A (3)(d)(iii)(b) Amendment to the Janus Aspen Series Participation Agreement
1.A (3)(d)(iv)(b) Amendment to the MFS Variable Insurance Trust Participation
Agreement
1.A (3)(d)(v)(b) Amendment to the T. Rowe Price International Series, Inc.
Participation Agreement
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the
legality of the securities being registered
6. Opinion and Consent of Nancy D. Davis, MAAA, FSA, as to
actuarial matters pertaining to the securities being
registered
II-5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Pre-Effective Amendment No. 1 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated March 19, 1999, relating to the
financial statements of 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
November 2, 1999
COMMISSION SCHEDULE FOR PRUSELECT III
1) COMMISSIONS
o First Year Commissions - The rate will be 20% up to the target premium
and 2% in excess of the target premium.
o Renewal Commissions, Service Commissions and Drop-Ins - The rate will
be 12% up to the target premium and 2% in excess of the target premium
for years 2-10. After year 10, the rate will be 2% up to the target
premium and 2% in excess of the target premium.
Note that for coverage years 1-7 the commissions are vested and
payable to the writing producer only. After year 7, the commissions
are non-vested and payable to whomever services the policy.
o Trail Commissions - Contract years 6-20 will reflect a total trail of
.20% which is comprised of (1) .10% vested trails payable only to the
writing producer of the base policy and (2) .10% non-vested trails
payable to whomever services the policy. This is equal to a quarterly
trail of .05% for years 6-20. After contract year 20, the total trail
will be .10% which is comprised of (1) .05% vested trails payable only
to the writing producer of the base policy and (2) .05% non-vested
trails payable to whomever services the policy. This is equal to a
quarterly trail of .025% for years beyond 20. Note that trail
commissions are calculated as a percent of the mean asset value (MAV).
2) COMMISSION RECAPTURES
o Lapses - There is no commission charge back for lapses in any policy
year.
o Surrenders - If a PruSelect III policy is fully surrendered in the
first four policy years, 50% of commission on any premiums paid in the
previous twelve months ending on the surrender effective date,
starting on the following day in the previous year, will be
recaptured.
3) OTHER BROKER-DEALERS
The contract may also be sold through other broker-dealers authorized by
Prusec and applicable law to do so. Registered representatives of such
other broker-dealers may be paid on a different basis than that stated
above.
AMENDMENT NO. 3
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated September 21, 1996, by and
among AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M
Distributors, Inc., a Delaware corporation, Pruco Life Insurance Company, an
Arizona life insurance company and Pruco Securities Corporation, a New Jersey
corporation, is hereby amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced
with the following:
<TABLE>
<CAPTION>
SCHEDULE A
----------
<S> <C> <C>
FUNDS AVAILABLE UNDER SEPARATE ACCOUNTS POLICIES FUNDED BY THE
THE POLICIES UTILIZING THE FUNDS SEPARATE ACCOUNTS
AIM V.I. Growth and Income Fund Pruco Life Flexible Premium Discovery Select Annuity
AIM V.I. Value Fund Variable Annuity Account, Contract
established June 16,1995
Pruco Life Variable Variable Universal Life
Appreciable Account, Insurance Policy
established January 13, 1984
Pruco Life Variable PruSelect I Variable Universal
Universal Account, Life Policy
established April 17,1989
Pruco Life Variable PruSelect II Variable Universal
Universal Account, Life Policy
established April 17,1989
Pruco Life Variable PruSelect III Variable Universal
Universal Account, Life Policy
established April 17, 1989
</TABLE>
All other terms and provisions of the Agreement not amended herein shall
remain in full force and effect. Effective Date:
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ By: /s/
------------------------- -----------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title: Assistant Secretary Title: President
(SEAL)
A I M DISTRIBUTORS, INC.
Attest: /s/ By: /s/
------------------------- -----------------------
Name: Nancy L. Martin Name: Michael J. Cemo
Title: Assistant Secretary Title: President
(SEAL)
1 of 2
<PAGE>
PRUCO LIFE INSURANCE COMPANY
Attest: /s/ By: /s/
------------------------- ---------------------------------
Name: Thomas C. Castano Name: Dennis G. Sullivan
Title: Assistant Secretary Title: VP & Chief Accounting Officer
(SEAL)
PRUCO SECURITIES CORPORATION
Attest: /s/ By: /s/
------------------------- ---------------------------------
Name: Thomas C. Castano Name: Clifford Kirsch
Title: Assistant Secretary Title: Chief Legal Officer
(SEAL)
IN WITNESS WHEREOF, the undersigned parties hereby amend this Schedule A in
accordance with the Participation Agreement made and entered into as of the 12th
day of August, 1996. This amendment shall be effective as of the 15TH day of
August, 1999.
COMPANY: PRUCO LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/ Joel Kesner
----------------------------------------
Title: Vice President
Date: August 15, 1999
FUND: JANUS ASPEN SERIES
By its authorized officer,
By: /s/ Bonnie Howe
----------------------------------------
Title: Assistant Vice President
Date:
FUND: JANUS CAPITAL CORPORATION
By its authorized officer,
By: /s/ Bonnie Howe
----------------------------------------
Title: Assistant Vice President
Date:
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT
AND DATE ESTABLISHED BY CONTRACTS FUNDED BY
BOARD OF DIRECTORS SEPARATE ACCOUNT DESIGNATED PORTFOLIOS
<S> <C> <C>
Pruco Life Discovery Select Janus Aspen Series
Flexible Premium Annuity Contract - Growth Portfolio
Annuity Account - International Growth Portfolio
est. June 16, 1995
Pruco Life Variable Variable Universal Life Janus Aspen Series
Appreciable Account Insurance Contract - Growth Portfolio
est. January 13, 1984 - International Growth Portfolio
Pruco Life Variable Pruselect I Variable Janus Aspen Series
Universal Account Universal Life Contract - Growth Portfolio
est. April 17, 1989 - International Growth Portfolio
Pruselect II Variable Janus Aspen Series
Universal Life Contract - Growth Portfolio
- International Growth Portfolio
Pruco Life Variable Pruselect III Variable Janus Aspen Series
Universal Account Universal Life Policy - Growth Portfolio
est. April 17, 1989 - International Growth Portfolio
Pruco Life Discovery Choice Janus Aspen Series
Flexible Premium Annuity Contract - Growth Portfolio
Annuity Account - International Growth Portfolio
est. June 16, 1995
</TABLE>
AMENDMENT NO. 3 TO PARTICIPATION AGREEMENT
Pursuant to the Participation Agreement, made and entered into as of the
2nd day of July 1996, and as amended on May 1, 1997 and June 5, 1998, by and
among MFS(R) Variable Insurance Trust(SM), Pruco Life Insurance Company, and
Massachusetts Financial Services Company, the parties hereby agree to an amended
Schedule A as attached hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
the Participation Agreement to be executed in its name and on its behalf by its
duly authorized representative. The Amendment shall take effect on August 15,
1999.
PRUCO LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/ Joel Kesner
----------------------------------
Title: Vice President
Date: August 27, 1999
MFS(R) VARIABLE INSURANCE TRUST(SM)
By its authorized officer,
By: /s/
----------------------------------
James R. Bordewick, Jr.
Assistant Secretary
Date:
MASSACHUSETTS FINANCIAL SERVICES
COMPANY
By its authorized officer,
By: /s/
----------------------------------
Jeffrey L. Shames
Chairman & Chief Executive Officer
Date: 8/24/99
<PAGE>
As of August 15, 1999
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
<TABLE>
<CAPTION>
NAME OF SEPARATE POLICIES FUNDED PORTFOLIOS
ACCOUNT AND DATE BY SEPARATE ACCOUNT APPLICABLE TO POLICIES
ESTABLISHED BY BOARD OF DIRECTORS
<S> <C> <C>
The Pruco Life Flexible Premium Discovery Select Annuity Contract MFS Emerging Growth Series
Variable Annuity Account MFS Research Series
(Est. 6/16/95)
The Pruco Life Flexible Premium Discovery Choice Annuity Contract MFS Emerging Growth Series
Variable Annuity Account MFS Research Series
(Est. 6/16/95)
Pruco Life Variable Variable Universal MFS Emerging Growth Series
Appreciable Account Life Insurance MFS Research Series
(Est. 1/13/84) Policy
Pruco Life Variable Pruselect I Variable MFS Emerging Growth Series
Universal Account Universal Life Policy MFS Research Series
(Est. 4/17/89)
Pruco Life Variable Pruselect II Variable MFS Emerging Growth Series
Universal Account Universal Life Policy MFS Research Series
(Est. 4/17/89)
Pruco Life Variable Pruselect III Variable MFS Emerging Growth Series
Universal Account Universal Life Policy MFS Research Series
(Est. 4/17/89)
</TABLE>
IN WITNESS WHEREOF, Pruco Life Insurance Company, T. Rowe Price Investment
Services, Inc. and the undersigned funds hereby amend this Schedule A in
accordance with the Participation Agreement made and entered into as of the 8th
day of July, 1996.
COMPANY: PRUCO LIFE INSURANCE COMPANY
By its authorized officer
By: /s/ Joel Kesner
------------------------------------
Title: Vice President
Date:
FUNDS: T. ROWE PRICE EQUITY SERIES, INC.
By its authorized officer
By: /s/
------------------------------------
Title: Vice President
Date: September 21, 1999
T. ROWE PRICE INTERNATIONAL SERIES, INC.
By its authorized officer
By: /s/
------------------------------------
Title: Vice President
Date: September 21, 1999
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By: /s/
------------------------------------
Title: Vice President
Date: September 21, 1999
<PAGE>
SCHEDULE A
Effective as of September 21, 1999, this Schedule A is hereby amended as
follows:
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT
AND DATE ESTABLISHED BY CONTRACTS FUNDED BY
BOARD OF DIRECTORS SEPARATE ACCOUNT DESIGNATED PORTFOLIOS
<S> <C> <C>
Pruco Life Flexible Premium Discovery Select Annuity T. Rowe Price International Series, Inc.
Annuity Account Contract - T. Rowe Price International Stock
Established June 16, 1995 Portfolio
T. Rowe Price Equity Series, Inc.
- T. Rowe Price Equity Income
Portfolio
Pruco Life Flexible Premium Discovery Choice Annuity T. Rowe Price International Series, Inc.
Annuity Account Contract - T. Rowe Price International Stock
Established June 16, 1995 Portfolio
T. Rowe Price Equity Series, Inc.
- T. Rowe Price Equity Income
Portfolio
Pruco Life Variable Variable Universal Life T. Rowe Price International Series, Inc.
Appreciable Account Insurance Policy - T. Rowe Price International Stock
Established January 13, 1984 Portfolio
Pruco Life Variable Pruselect I Variable T. Rowe Price International Series, Inc.
Universal Account Universal Life Policy - T. Rowe Price International Stock
Established April 17, 1989 Portfolio
Pruco Life Variable Pruselect II Variable T. Rowe Price International Series, Inc.
Universal Account Universal Life Policy - T. Rowe Price International Stock
Established April 17, 1989 Portfolio
Pruco Life Variable Pruselect III Variable T. Rowe Price International Series, Inc.
Universal Account Universal Life Policy - T. Rowe Price International Stock
Established April 17, 1989 Portfolio
</TABLE>
Exhibit 3
November 2, 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.333-85115) under the Securities Act of 1933 for the
registration of certain variable universal life insurance contracts issued with
respect to the Account.
I am of the following opinion:
(1) Pruco Life was duly organized under the laws of Arizona and is a
validly existing corporation.
(2) The Account has been duly created and is validly existing as a
separate account pursuant to the aforesaid provisions of Arizona law.
(3) The portion of the assets held in the Account equal to the reserve and
other liabilities for variable benefits under the variable universal
life insurance contracts is not chargeable with liabilities arising
out of any other business Pruco Life may conduct.
(4) The variable universal life insurance contracts are legal and binding
obligations of Pruco Life in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/
- --------------------------------
Clifford E. Kirsch
Exhibit 6
November 2, 1999
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
To Pruco Life Insurance Company:
This opinion is furnished in connection with the registration by Pruco Life
Insurance Company ("Pruco Life") of variable universal life insurance contracts
("Contracts") under the Securities Act of 1933. The prospectus included in
Pre-Effective Amendment No. 1 to Registration Statement No. 333-85115 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 of Surrender Values,
Death Benefits, and Accumulated Premiums," 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 45, than to prospective purchasers of
Contracts on males of other ages or on females.
(2) The examples shown in the section of the prospectus entitled "Changing
the Type of Death Benefit" are consistent with the provisions of the
Contract.
(3) The chart included in the section of the prospectus entitled "Riders"
is consistent with the provisions of the Contract.
(4) The charts included in the sections of the prospectus entitled: "How a
Type A (Fixed) Contract's Death Benefit Will Vary," "How a Type B
(Variable) Contract's Death Benefit Will Vary," and "How a Type C
(Return of Premium) Contract's Death Benefit Will Vary," are
consistent with the provisions of the Contract.
(5) The deduction in an amount equal to 1.25% of each premium is a
reasonable charge in relation to the additional income tax burden
imposed upon Pruco Life and its parent company, The Prudential
Insurance Company of America, as the result of the enactment of
Section 848 of the Internal Revenue Code. In reaching that conclusion
a number of factors were taken into account that, in my opinion, were
appropriate and which resulted in a projected after-tax rate of return
that is a reasonable rate to use in discounting the tax benefit of the
deductions allowed in Section 848 in taxable years subsequent to the
year in which the premiums are received.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Very truly yours,
/s/
- --------------------------------------------------
Nancy D. Davis, FSA, MAAA
Vice President and Actuary
The Prudential Insurance Company of America
