<PAGE>
AS FILED WITH THE SEC ON ____________________. REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
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
______________________
Suvivorship Variable Universal Life Insurance Contracts Pursuant to Rule 24f-2
under the Investment Company Act of 1940, the Registrant elects to register an
indefinite amount of securities. (Title and amount of securities being
registered, and proposed maximum aggregate offering price).
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date as may be
necessary to delay its effective date until the Registrant shall file a further
amendment which specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
dates as the Commission, action pursuant to said Section 8(a), may determine.
This filing is being made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940.
Registrant elects to be governed by Rules 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940 with respect to the Contract described in this
Registration Statement.
<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; Voting Rights;
Charges and Expenses; Short-Term
Cancellation Right or "Free Look"; Types
of Death Benefit; Changing the Type of
Death Benefit; Premiums; Allocation of
Premiums; Transfers; Dollar Cost
Averaging; Auto-Rebalancing; How a
Contract's Cash Surrender Value Will Vary;
How a Type A (Fixed) Contract's Death
Benefit Will Vary; How a Type B (Variable)
Contract's Death Benefit Will Vary;
Surrender of a Contract; Withdrawals;
Decreases in Basic Insurance Amount; When
Proceeds are Paid; Contract Loans; Lapse
and Reinstatement; Other General Contract
Provisions; Riders; 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
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
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
------------------ --------
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 Survivorship Variable Universal
Life Subaccounts of the Pruco Life
Variable Universal Account; Consolidated
Financial Statements of Pruco Life
Insurance Company and its subsidiaries
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
Cornerstone Survivorship
Variable Universal Life Insurance
PROSPECTUS
May 1, 2000
Pruco Life Variable Universal Account
Survivorship
<PAGE>
PROSPECTUS
MAY 1, 2000
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
CORNERSTONE SURVIVORSHIP
This prospectus describes an individual flexible premium survivorship variable
universal life insurance contract, PRUCO LIFE CORNERSTONE SURVIVORSHIP, offered
by Pruco Life Insurance Company ("Pruco Life"). Pruco Life is a wholly-owned
subsidiary of The Prudential Insurance Company of America. The Contract
provides life insurance coverage on two insureds with a death benefit payable on
the second death.
INVESTMENT CHOICES
Cornerstone Survivorship offers a wide variety of investment choices, including
16 variable investment options that invest in mutual funds managed by these
leading asset managers:
THE PRUDENTIAL INVESTMENT CORPORATION
A I M ADVISORS, INC.
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
JANUS CAPITAL CORPORATION
MASSACHUSETTS FINANCIAL SERVICES COMPANY
FRANKLIN ADVISERS, INC.
ROWE PRICE-FLEMING INTERNATIONAL, INC.
This prospectus describes the Contract generally and the Pruco Life Variable
Universal Account. The attached prospectuses for the Funds, and their related
statements of additional information describe the investment objectives and the
risks of investing in the portfolios. Pruco Life may add additional investment
options in the future. Please read this prospectus and keep it for future
reference.
The Securities and Exchange Commission ("SEC") maintains a Web site
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding registrants that file electronically with the SEC.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 782-5356
<PAGE>
PROSPECTUS CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS...........................................................................1
INTRODUCTION AND SUMMARY.......................................................................................................3
BRIEF DESCRIPTION OF THE CONTRACT...........................................................................................3
CHARGES.....................................................................................................................3
TYPES OF DEATH BENEFIT......................................................................................................6
PREMIUM PAYMENTS............................................................................................................6
REFUND......................................................................................................................7
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT, AND THE VARIABLE
INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACT................................................................................8
PRUCO LIFE INSURANCE COMPANY................................................................................................8
THE PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT...................................................................................8
THE FUNDS...................................................................................................................9
VOTING RIGHTS..............................................................................................................11
THE FIXED-RATE OPTION......................................................................................................12
WHICH INVESTMENT OPTION SHOULD BE SELECTED?................................................................................13
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS..........................................................................13
CHARGES AND EXPENSES.......................................................................................................13
GENERAL DESCRIPTION OF THE CONTRACT........................................................................................16
REQUIREMENTS FOR ISSUANCE OF A CONTRACT....................................................................................16
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"...............................................................................16
TYPE OF DEATH BENEFIT......................................................................................................16
CHANGING THE TYPE OF DEATH BENEFIT.........................................................................................17
CONTRACT DATE..............................................................................................................18
PREMIUMS...................................................................................................................18
ALLOCATION OF PREMIUMS.....................................................................................................19
DEATH BENEFIT GUARANTEE....................................................................................................20
TRANSFERS..................................................................................................................21
DOLLAR COST AVERAGING......................................................................................................22
AUTO-REBALANCING...........................................................................................................23
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY............................................................................23
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY....................................................................23
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY.................................................................24
SURRENDER OF A CONTRACT....................................................................................................25
WITHDRAWALS................................................................................................................25
DECREASES IN BASIC INSURANCE AMOUNT........................................................................................26
WHEN PROCEEDS ARE PAID.....................................................................................................27
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS...........................................27
CONTRACT LOANS.............................................................................................................29
SALE OF THE CONTRACT AND SALES COMMISSIONS.................................................................................30
TAX TREATMENT OF CONTRACT BENEFITS.........................................................................................30
LAPSE AND REINSTATEMENT....................................................................................................32
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS........................................................33
OTHER GENERAL CONTRACT PROVISIONS..........................................................................................33
RIDERS.....................................................................................................................34
SUBSTITUTION OF FUND SHARES................................................................................................34
REPORTS TO CONTRACT OWNERS.................................................................................................34
STATE REGULATION...........................................................................................................34
</TABLE>
<PAGE>
<TABLE>
<S> <C>
EXPERTS....................................................................................................................35
LITIGATION AND REGULATORY PROCEEDINGS......................................................................................35
YEAR 2000 COMPLIANCE.......................................................................................................39
ADDITIONAL INFORMATION.....................................................................................................40
FINANCIAL STATEMENTS.......................................................................................................40
DIRECTORS AND OFFICERS........................................................................................................41
FINANCIAL STATEMENTS OF THE VARIABLE UNIVERSAL 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
ACCUMULATED NET PAYMENTS -- The actual premium payments you make accumulated at
an effective annual rate of 4%, less any withdrawals you make, accumulated at an
effective annual rate of 4%.
ATTAINED AGE -- An insured's age on the Contract date plus the number of years
since then.
BASIC INSURANCE AMOUNT -- The amount of life insurance as shown in the Contract.
Also referred to as "face amount."
CASH VALUE -- An amount equal to the Contract Fund minus surrender charges.
CASH SURRENDER VALUE -- The amount payable to the Contract owner upon surrender
of the Contract. It is equal to the Contract Fund minus any Contract debt and
minus surrender charges. Also referred to in the Contract as Net Cash Value.
CONTRACT -- The Pruco Life Cornerstone Survivorship 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
accrued thereon.
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 investment options, the amount
invested under the fixed-rate option, any Contract debt, plus any interest
earned on a loan.
CONTRACT MONTH -- A month that starts on the Monthly date.
CONTRACT OWNER[S] -- You. Unless a different owner is named in the application,
the owners of the Contract are the insureds jointly or the survivor of them. If
the Contract is owned jointly, the exercise of rights under the Contract must be
made by both jointly.
CONTRACT YEAR -- A year that starts on the Contract date or on a Contract
anniversary.
DEATH BENEFIT -- The amount we will pay upon the second death of two insureds
before reduction by any Contract debt and amounts needed to pay charges through
the date of death.
FIXED-RATE OPTION -- An investment option under which Pruco Life guarantees that
interest will be added to the amount invested at a rate declared periodically in
advance.
FUNDS -- Mutual funds with separate portfolios. One or more of the available
Fund portfolios may be chosen as an underlying investment for the Contract.
ISSUE AGE -- An insured's age as of the Contract date.
LIFETIME DEATH BENEFIT GUARANTEE PERIOD -- The lifetime of the Contract, during
which time the Lifetime Death Benefit Guarantee is available if sufficient
premiums are paid and there is no outstanding loan. The Lifetime Death Benefit
Guarantee is not available in Massachusetts. See DEATH BENEFIT GUARANTEE, page
20.
LIMITED DEATH BENEFIT GUARANTEE PERIOD -- the period until age 75 of the younger
insured or 10 years after issue, whichever comes later, during which time the
Limited Death Benefit Guarantee is available if sufficient premiums are paid and
there is no outstanding loan. The period applicable to your Contract is shown
on the Contract data pages. The Limited Death Benefit Guarantee is limited to
five years in Massachusetts. See DEATH BENEFIT GUARANTEE, page 20.
MONTHLY DATE -- The Contract date and the same date in each subsequent month.
PRUCO LIFE INSURANCE COMPANY -- Us, we, our, Pruco Life. The company offering
the Contract.
SEPARATE ACCOUNT -- Amounts under the Contract that are allocated to the
variable investment options held by us in a separate account called the Pruco
Life Variable Universal Account. The Separate Account is set up apart from all
of the general assets of Pruco Life Insurance Company.
1
<PAGE>
US, WE, OUR, PRUCO LIFE -- Pruco Life Insurance Company.
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.
VARIABLE INVESTMENT OPTION -- shares of a mutual fund you choose that we
purchase and hold in the Separate Account.
YOU --The owner[s] of the Contract.
2
<PAGE>
INTRODUCTION AND SUMMARY
THIS SUMMARY PROVIDES A BRIEF OVERVIEW OF THE MORE SIGNIFICANT ASPECTS OF THE
CONTRACT. WE PROVIDE FURTHER DETAIL IN THE SUBSEQUENT SECTIONS OF THIS
PROSPECTUS AND IN THE CONTRACT.
BRIEF DESCRIPTION OF THE CONTRACT
The PRUCO LIFE CORNERSTONE SURVIVORSHIP Contract is a flexible premium variable
universal life insurance policy. It is issued by Pruco Life Insurance Company.
The Contract provides life insurance coverage, with a death benefit payable upon
the second death of two insureds. If the Contract is not in default, the amount
we will pay will be the death benefit determined as of the date of the second
death reduced by any Contract debt. See CONTRACT LOANS, page 29. A significant
element of the Contract is the Contract Fund. The Contract Fund represents the
value of your Contract and changes every business day.
A broad objective of the Contract is to provide benefits that will increase in
value if favorable investment results are achieved. You may invest premiums in
one or more of the 16 available variable investment options or in the fixed-rate
option. Your Contract Fund value changes every day depending upon the change in
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 variable investment options you select, investment
returns in the variable investment options are NOT guaranteed. 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 13. If you select the fixed-rate option, Pruco Life credits your account
with a declared rate or rates of interest. You assume the risk that the rate
may change, although it will never be lower than an effective annual rate of 4%.
Variable life insurance contracts are unsuitable as short-term savings vehicles.
Loans will negate any guarantee against lapse and may result in adverse tax
consequences. See DEATH BENEFIT GUARANTEE, page 20, and TAX TREATMENT OF
CONTRACT BENEFITS, page 30.
CHARGES
Pruco Life deducts certain charges from each premium payment and from the
amounts held in the designated investment options. These charges, which are
largely designed to cover insurance costs and risks as well as sales and
administrative expenses, are fully described under CHARGES AND EXPENSES, on page
13. In brief, and subject to that fuller description, the following diagram
outlines the maximum charges which Pruco Life may make:
3
<PAGE>
----------------
PREMIUM PAYMENTS
----------------
----------------------------------------------------------------------
. less a charge of up to 7.5% for any taxes attributable to
premiums. In Oregon this is called a premium based administrative
charge.
. less a charge for sales expenses during the first five contract
years at a rate of up to 12%; after the fifth contract year, we
may charge up to 4%.
----------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTED PREMIUM AMOUNT
To be invested in one or a combination of:
. 16 investment portfolios of the Funds
. The fixed-rate option
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DAILY CHARGES
. We deduct management fees and expenses from the Fund assets. See UNDERLYING
PORTFOLIO EXPENSES chart, below.
. We deduct a daily mortality and expense risk charge, equivalent to an
effective annual rate of up to 0.9%, from assets in the variable investment
options.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONTHLY CHARGES
. During the first five years, we reduce the Contract Fund by a monthly
administrative charge of $10.00 per Contract plus up to $0.10 per $1,000 of
basic insurance amount; after the first five Contract years, we charge
$10.00 per Contract plus up to $0.05 per $1,000 of the basic insurance
amount.
. We deduct a cost of insurance ("COI") charge.
. If the Contract includes riders, we deduct rider charges from the Contract
Fund.
. If the rating class of an insured results in an extra charge, we will
deduct that charge from the Contract Fund.
- --------------------------------------------------------------------------------
4
<PAGE>
POSSIBLE ADDITIONAL CHARGES
. We will assess contingent deferred sales and administrative charges
(surrender charges) if the Contract is surrendered. We may charge up to $8
per $1,000 of basic insurance amount if you surrender your Contract. This
charge is level for the first five years and declines monthly until it
reaches zero at the end of the 10th Contract year.
. We assess an administrative processing charge of up to $25 for any
withdrawals.
. We reserve the right to charge up to $25 for each basic insurance amount
decrease, although no such charge is currently being made.
. We assess an administrative processing charge of up to $25 for each
transfer exceeding 12 in any Contract year.
UNDERLYING PORTFOLIO EXPENSES
(THE EXPENSE FIGURES FOR THE JANUS ASPEN SERIES GROWTH PORTFOLIO ARE AFTER FEE
WAIVERS OR REDUCTIONS.)
<TABLE>
- ----------------------------------------------------------------------------------------------------
INVESTMENT ADVISORY
PORTFOLIO FEE OTHER EXPENSES TOTAL 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 (1) 0.61% 0.05% 0.66%
AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC.
VP Value Portfolio (2) 1.00% 0.00% 1.00%
JANUS ASPEN SERIES
Growth Portfolio (3) 0.65% 0.03% 0.68%
MFS(R) VARIABLE INSURANCE TRUST/SM/
Emerging Growth Series 0.75% 0.10% 0.85%
TEMPLETON VARIABLE PRODUCTS SERIES
FUND
Franklin Small Cap Investments
Fund - 0.75% 1.25% 1.25%
Class 2 (4)
T. ROWE PRICE INTERNATIONAL
SERIES, INC. 1.05% 0.00% 1.05%
International Stock
Portfolio (5)
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) AIM may from time to time voluntarily waive or reduce its respective fees.
Effective May 1, 1999, the Fund will reimburse AIM in an amount up to 0.25%
of the average net asset value of the Fund for expenses incurred in
providing, or assuring that participating insurance companies provide,
certain administrative services. Currently, the fee only applies to the
average net asset value of each Fund in excess of the net asset value of
each Fund as calculated on April 30, 1999.
(2) Fees are all-inclusive.
5
<PAGE>
(3) The fees and expenses in the table above are based on gross expenses of the
Portfolio before expense offset arrangements for the fiscal year ended
December 31, 1998. The information for the Portfolio is net of fee waivers
or reductions from Janus Capital. Fee reductions for the Portfolio reduce
the management fee to the level of the corresponding Janus retail fund.
Other waivers, if applicable, are first applied against the management fee
and then against other expenses. Without such waivers or reductions, the
management fee, other expenses and total operating expenses for the
Portfolio would have been 0.72%, 0.03% and 0.75%, respectively. Janus
Capital may modify or terminate the waivers or reductions at any time upon
at least 90 days' notice to the Trustees.
(4) Figures reflect expenses from the Fund's inception on May 1, 1998 and are
annualized. The Manager agreed in advance to limit management fees and make
certain payments to reduce the Fund's expenses as necessary so that Total
Actual Expenses did not exceed 1.25% of the Fund's Class 2 net assets in
1998. The Manager is contractually obligated to continue this arrangement
through 1999.
(5) The investment management fee includes the ordinary expenses of operating
the Fund.
THE EXPENSES RELATING TO THE FUNDS (OTHER THAN THOSE OF THE PRUDENTIAL SERIES
FUND, INC. (THE "SERIES FUND")) HAVE BEEN PROVIDED TO PRUCO LIFE BY THE FUNDS.
PRUCO LIFE HAS NOT INDEPENDENTLY VERIFIED THEM.
TYPES OF DEATH BENEFIT
There are two types of death benefit available: Type A (fixed) death benefit and
Type B (variable) death benefit. You may choose a Type A death benefit under
which the cash surrender value varies daily with investment experience, and the
death benefit you initially chose does not change. However, the Contract Fund
may grow to a point where the death benefit may increase and vary with
investment experience. You may choose a Type B death benefit under which the
cash surrender value and the death benefit both vary with investment experience.
For either type of death benefit, as long as the Contract is inforce, the death
benefit will never be less than the basic insurance amount shown in your
Contract. See TYPE OF DEATH BENEFIT, page 20.
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 sufficient to cover the
charges, including surrender charges. Paying insufficient premiums, poor
investment results, or the taking of loans or withdrawals from the Contract will
increase the possibility that the Contract will lapse. However, if the
accumulated premiums you pay, less withdrawals, are high enough, and you have no
Contract debt, Pruco Life guarantees that your Contract will not lapse even if
investment experience is very unfavorable and the Contract Fund drops below
zero. There are two guarantees available, one that lasts for the lifetime of
the Contract and one that lasts for a stated, reasonably lengthy period. In
6
<PAGE>
Massachusetts, only one death benefit guarantee is available and the length of
this death benefit guarantee is five Contract years. The guarantee for the life
of the Contract requires higher premium payments. See PREMIUMS, page 18, DEATH
BENEFIT GUARANTEE, page 20 and LAPSE AND REINSTATEMENT, page 32. You should
discuss your billing options with your Pruco Life representative when you apply
for the Contract. See PREMIUMS, page 18.
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 16.
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.
7
<PAGE>
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, PRUCO LIFE VARIABLE
UNIVERSAL ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER THE
CONTRACT
PRUCO LIFE INSURANCE COMPANY
Pruco Life Insurance Company ("Pruco Life", "us", "we", or "our") is a stock
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 where the necessary approvals have not 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 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 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.
THE PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
We have established a separate account, the Pruco Life Variable Universal
Account (the "Account"), to hold the assets that are associated with the
Contracts. The Account was established on April 17, 1989 under Arizona law and
is registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940 as a unit investment trust, which is a type of
investment company. 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.
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
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other business Pruco Life conducts. In addition to these assets, the Account's
assets may include funds contributed by Prudential to commence operation of the
Account and may include accumulations of the charges Pruco Life makes against
the Account. From time to time these additional assets will be transferred to
Pruco Life's general account. Pruco Life will consider any possible adverse
impact the transfer might have on the Account before making any such transfer.
The obligations to Contract owners and beneficiaries arising under the Contract
are general corporate obligations of Pruco Life.
Currently, you may invest in one or a combination of 16 available variable
investment options. When you chose a variable investment option, we purchase
shares of a mutual fund which are held as an investment for that option. We
hold these shares in the Separate Account. The division of the Separate Account
of Pruco Life that invests in a particular mutual fund is referred to in your
Contract as the subaccount. Pruco Life may add additional variable investment
options in the future. The Account's financial statements begin on page A1.
THE FUNDS
Listed below are the mutual funds (the "Funds") in which the variable investment
options invest, the investment objectives, and investment advisers.
EACH OF THE FUNDS HAS A SEPARATE PROSPECTUS THAT IS PROVIDED WITH THIS
PROSPECTUS. YOU SHOULD READ THE FUND PROSPECTUS BEFORE YOU DECIDE TO ALLOCATE
ASSETS TO THE VARIABLE INVESTMENT OPTION USING THAT FUND. THERE IS NO ASSURANCE
THAT THE INVESTMENT OBJECTIVES OF THE FUNDS WILL BE MET.
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND"):
. MONEY MARKET PORTFOLIO: The investment objective is maximum current income
consistent with the stability of capital and the maintenance of liquidity.
The Portfolio invests in high quality short-term debt obligations that
mature in 13 months or less.
. DIVERSIFIED BOND PORTFOLIO: The investment objective is a high level of
income over a longer term while providing reasonable safety of capital. The
Portfolio invests primarily in higher grade debt obligations and high
quality money market investments.
. CONSERVATIVE BALANCED PORTFOLIO: The investment objective is a total
investment return consistent with a conservatively managed diversified
portfolio. The Portfolio invests in a mix of equity securities, debt
obligations and money market instruments.
. FLEXIBLE MANAGED PORTFOLIO: The investment objective is a total investment
return consistent with an aggressively managed diversified portfolio. The
Portfolio invests in a mix of equity securities, debt obligations and money
market instruments.
. HIGH YIELD BOND PORTFOLIO: The investment objective is a high total return.
The Portfolio invests primarily in high yield/high risk debt securities.
. STOCK INDEX PORTFOLIO: The investment objective is investment results that
generally correspond to the performance of publicly-traded common stocks.
The Portfolio attempts to duplicate the price and yield performance of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index").
. EQUITY INCOME PORTFOLIO: The investment objective is both current income
and capital appreciation. The Portfolio invests primarily in common stocks
and convertible securities that provide good prospects for returns above
those of the S&P 500 Index or the NYSE Composite Index.
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. EQUITY PORTFOLIO: The investment objective is capital appreciation. The
Portfolio invests primarily in common stocks of major established
corporations as well as smaller companies that offer attractive prospects
of appreciation.
. PRUDENTIAL JENNISON PORTFOLIO: The investment objective is to achieve
long-term growth of capital. The Portfolio invests primarily in equity
securities of major established corporations that offer above-average
growth prospects.
. GLOBAL PORTFOLIO: The investment objective is long-term growth of capital.
The Portfolio invests primarily in common stocks (and their equivalents) of
foreign and U.S. companies.
Prudential is the investment adviser for the assets of each of the portfolios of
the Series Fund. Prudential's principal business address is 751 Broad Street,
Newark, New Jersey 07102-3777. Prudential has a Service Agreement with its
wholly-owned subsidiary, The Prudential Investment Corporation ("PIC"). The
Service Agreement provides that, subject to Prudential's supervision, PIC will
furnish investment advisory services in connection with the management of the
Series Fund. In addition, Prudential has entered into a Subadvisory Agreement
with its wholly-owned subsidiary, Jennison Associates LLC ("Jennison"), under
which Jennison furnishes investment advisory services in connection with the
management of the Prudential Jennison Portfolio.
AIM VARIABLE INSURANCE FUNDS, INC.:
. AIM V.I. VALUE FUND. Seeks to achieve long-term growth of capital by
investing primarily in equity securities judged by the fund's investment
adviser to be undervalued relative to the investment adviser's appraisal of
the current or projected earnings of the companies issuing the securities,
or relative to current market values of assets owned by the companies
issuing the securities or relative to the equity market generally. Income
is a secondary objective.
AIM Advisors, Inc. ("AIM") is the investment adviser for this fund. The
principal business address for AIM is 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.:
. AMERICAN CENTURY VP VALUE FUND. Seeks long-term capital growth with income
as a secondary objective. The fund seeks to achieve its objective by
investing primarily in equity securities of well-established companies with
intermediate-to-large market capitalizations that are believed by
management to be undervalued at the time of purchase.
American Century Investment Management, Inc. ("ACIM") is the investment adviser
for this fund. ACIM's principal business address is American Century Tower,
4500 Main Street, Kansas City, Missouri 64111. The Principal Underwriter of the
fund is American Century Services, Inc., located at 4500 Main Street, Kansas
City, Missouri 64111.
JANUS ASPEN SERIES:
. GROWTH PORTFOLIO. Seeks long-term growth of capital in a manner consistent
with the preservation of capital.
Janus Capital Corporation is the investment adviser and is responsible for the
day-to-day management of the portfolio and other business affairs of the
portfolio. Janus Capital Corporation's principal business address is 100
Fillmore Street, Denver, Colorado 80206-4928.
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MFS(R) VARIABLE INSURANCE TRUST/SM/:
. EMERGING GROWTH SERIES. Seeks to provide long-term growth of capital.
Dividend and interest income from portfolio securities, if any, is
incidental to the Series' investment objective of long-term growth of
capital.
Massachusetts Financial Services Company, a Delaware corporation, is the
investment adviser to this MFS Series. The principal business address for the
Massachusetts Financial Services Company is 500 Boylston Street, Boston,
Massachusetts 02116.
TEMPLETON VARIABLE PRODUCTS SERIES FUND:
. FRANKLIN SMALL CAP INVESTMENTS FUND--CLASS 2. Seeks long-term capital
growth through investments primarily in equity securities of U.S. small
capitalization growth companies.
Franklin Advisers, Inc. (Advisers) is the fund's investment manager. The
principal business address for Franklin Advisers, Inc. is 777 Mariners Island
Boulevard, San Mateo, California 94403-7777.
T. ROWE PRICE INTERNATIONAL SERIES, INC.:
. INTERNATIONAL STOCK PORTFOLIO. Long-term growth of capital through
investments primarily in common stocks of established, non-U.S. companies.
Rowe Price-Fleming International, Inc. is the investment manager for this fund.
The principal business address for Rowe Price-Fleming International, Inc. is 100
East Pratt Street, Baltimore, Maryland 21202.
The investment advisers for the Funds charge a daily investment management fee
as compensation for their services. These fees are described in the table in the
INTRODUCTION AND SUMMARY section, see page 5, and are more fully described in
the prospectus for each Fund.
In the future it may become disadvantageous for both variable life insurance and
variable annuity contract separate accounts to invest in the same underlying
mutual funds. Although neither of the companies that invest in the Funds nor
the Funds currently foresee any such disadvantage, the Board of Directors for
each Fund intends to monitor 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 Funds by Pruco Life under the Contracts. These percentages
vary by Fund, and reflect administrative and other services provided by Pruco
Life.
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
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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 the Fund's portfolios, provided that Pruco Life reasonably disapproves
such changes in accordance with applicable federal regulations. If Pruco Life
does disregard voting instructions, it will advise Contract owners of that
action and its reasons for such action in the next annual or semi-annual report
to Contract owners.
THE FIXED-RATE OPTION
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED-RATE
OPTION UNDER THE CONTRACT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND THE GENERAL ACCOUNT HAS NOT BEEN REGISTERED AS AN INVESTMENT COMPANY
UNDER THE INVESTMENT COMPANY ACT OF 1940. ACCORDINGLY, INTERESTS IN THE FIXED-
RATE OPTION ARE NOT SUBJECT TO THE PROVISIONS OF THESE ACTS, AND PRUCO LIFE HAS
BEEN ADVISED THAT THE STAFF OF THE SEC HAS NOT REVIEWED THE DISCLOSURE IN THIS
PROSPECTUS RELATING TO THE FIXED-RATE OPTION. ANY INACCURATE OR MISLEADING
DISCLOSURE REGARDING THE FIXED-RATE OPTION MAY, HOWEVER, BE SUBJECT TO CERTAIN
GENERALLY APPLICABLE PROVISIONS OF FEDERAL SECURITIES LAWS.
You may choose to invest, either initially or by transfer, all or part of your
Contract Fund to a fixed-rate option. This amount becomes part of Pruco Life's
general account. The general account consists of all assets owned by Pruco Life
other than those in the Account and in other separate accounts that have been or
may be established by Pruco Life. Subject to applicable law, Pruco Life has
sole discretion over the investment of the general account assets, and Contract
owners do not share in the investment experience of those assets. Instead,
Pruco Life guarantees that the part of the Contract Fund allocated to the fixed-
rate option will accrue interest daily at an effective annual rate that Pruco
Life declares periodically,
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but not less than an effective annual rate of 4%. Pruco Life is not obligated to
credit interest at a rate higher than an effective annual rate of 4%, although
we may do so.
Transfers from the fixed-rate option may be subject to strict limits. (See
TRANSFERS, page 21). The payment of any cash surrender value attributable to the
fixed-rate option may be delayed up to six months (see WHEN PROCEEDS ARE PAID,
page 27).
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, the
Stock Index, Equity Income, Equity, Prudential Jennison, Global, AIM, American
Century, Janus, MFS, T. Rowe Price, or Templeton Portfolios may be desirable
options if you are willing to accept such volatility in your Contract values.
Each of these equity portfolios involves different investment risks, policies,
and programs.
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 or the fixed-rate option, recognizing that the level of short-term
rates may change rather rapidly. If you are willing to take risks and possibly
achieve a higher total return, you may prefer the High Yield Bond Portfolio,
recognizing that the risks are greater for lower quality bonds with normally
higher yields. You may wish to divide your invested premium among two or more
of the portfolios. You may wish to obtain diversification by relying on
Prudential's judgment for an appropriate asset mix by choosing the Conservative
Balanced or Flexible Managed Portfolios.
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 investment options.
Experience generally indicates that "market timing" investing, particularly by
non-professional investors, is likely to prove unsuccessful.
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS
CHARGES AND EXPENSES
The total amount invested at any time in the Contract Fund consists of the sum
of the amount credited to the variable investment options, the amount allocated
to the fixed-rate option, and the principal amount of any Contract loan plus the
amount of interest credited to the Contract upon that loan. See CONTRACT LOANS,
page 29. Most charges, although not all, are made by reducing the Contract Fund.
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. However, if circumstances change,
we reserve the right to increase each current charge, up to the maximum charge,
without giving any advance notice.
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DEDUCTIONS FROM PREMIUM PAYMENTS
(a) We charge up to 7.5% from each premium 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 currently 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-based taxes. The current charge for
this first part is 2.5% of the premium. This amount may be more than Pruco
Life actually pays. The second part is for federal income taxes measured by
premiums, and it is currently equal to 1.25% of the premium. We believe
that this charge is a reasonable estimate of an increase in Pruco Life's
federal income taxes resulting from a 1990 change in the Internal Revenue
Code. It is intended to recover this increased tax.
(b) We may deduct up to 12% of premiums paid in the first five Contract years
for sales expenses. This charge is reduced to 4% of premiums paid in
subsequent Contract years. This charge, often called a "sales load", is
deducted to compensate us for the costs of selling the Contracts, including
commissions, advertising and the printing and distribution of prospectuses
and sales literature. Part of those costs related to sales are also
recovered by surrender charges. See SURRENDER CHARGES, page 15.
Currently, we deduct 12% of premiums paid in the first five Contract years
up to the amount of the Lifetime Premium, excluding any premiums for riders
or extra risk charges, (see PREMIUMS, page 12) and 4% of premiums paid in
excess of this amount. We deduct 4% of the premiums paid in Contract years
six through 10, and 2% of premiums paid thereafter.
Attempting to structure the timing and amount of premium payments to reduce
the potential sales load may increase the risk that your Contract will
lapse without value. Delaying the payment of premium amounts to later years
will adversely affect the Death Benefit Guarantee if the accumulated
premium payments do not reach the accumulated values shown under your
Contract's Death Benefit Guarantee Values. See DEATH BENEFIT GUARANTEE,
page 20. 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 30.
DEDUCTIONS FROM PORTFOLIOS
We deduct an investment advisory fee daily from each portfolio at a rate, on an
annualized basis, ranging from 0.35% for the Stock Index Portfolio to 1.05% for
the T. Rowe Price International Stock Portfolio. The expenses incurred in
conducting the investment operations of the portfolios (such as custodian fees
and preparation and distribution of annual reports) are paid out of the
portfolio's income. These expenses also vary from portfolio to portfolio.
DAILY DEDUCTION FROM THE CONTRACT FUND
Each day we deduct a charge from the assets of each of the variable investment
options in an amount equivalent to an effective annual rate of 0.9%. This
charge is intended to compensate Pruco Life for assuming mortality and expense
risks under the Contract. The mortality risk assumed is that the insureds may
live for shorter periods of time than Pruco Life estimated when it determined
what mortality charge to make. The expense risk assumed is that expenses
incurred in issuing and administering the Contract will be greater than Pruco
Life estimated in fixing its administrative charges. This charge is not
assessed against amounts allocated to the fixed-rate option.
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MONTHLY DEDUCTIONS FROM 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, we
charge the following:
. generally, if the average issue age of the insureds is 40 or less in
the first five Contract years, we deduct $10 per Contract plus $0.07
per $1,000 of basic insurance amount;
. if the average issue age of the insureds is greater than 40 in the
first five Contract years, we deduct $10 per Contract plus $0.08 per
$1,000 of basic insurance amount;
. in all subsequent years, we deduct $10 per Contract plus $0.01 per
$1,000 of basic insurance amount.
Pruco Life reserves the right, however, to charge up to $10 per Contract
plus $0.10 per $1,000 of basic insurance amount in the first five Contract
years and $10 per Contract plus $0.05 per $1,000 of basic insurance amount
in subsequent years.
b) A cost of insurance ("COI") charge is deducted. Upon the second death of
two insureds, the amount payable to the beneficiary (assuming there is no
Contract debt) is larger than the Contract Fund - significantly larger if
both insureds died in the early years of the 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 both insureds' current attained
age, sex, smoking status, and extra rating class, if any.
c) You may add one or more of several riders to the Contract. Some riders are
charged for separately. If you add such a rider to the basic Contract,
additional charges will be deducted.
d) If an insured is in a substandard risk classification (for example, a
person in a hazardous occupation), additional charges will be deducted.
SURRENDER CHARGE
We will assess a surrender charge if, during the first 10 Contract years, the
Contract lapses, is surrendered, or in some instances, the basic insurance
amount is decreased (see DECREASES IN BASIC INSURANCE AMOUNT, page 26). This
charge is deducted to cover sales costs and administrative costs, such as: the
cost of processing applications, conducting examinations, determining
insurability and the insured's rating class, and establishing records. We may
charge up to $8 per $1,000 of basic insurance amount if you surrender your
Contract. Currently, we charge $5 per $1,000 of basic insurance amount. This
charge is level for the first five Contract years and declines monthly until it
reaches zero at the end of the 10th Contract year.
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.
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(b) We reserve the right to charge an administrative processing fee of up to
$25 made in connection with each decrease in basic insurance amount. We
currently do not make such a charge.
(c) We will charge an administrative processing fee of $25 for each transfer
exceeding 12 in any Contract year.
GENERAL DESCRIPTION OF THE CONTRACT
The PRUCO LIFE CORNERSTONE SURVIVORSHIP Contract is a flexible premium variable
universal life insurance policy. The Contract provides life insurance coverage,
with a death benefit payable upon the second death of two insureds.
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
You may apply for a minimum basic insurance amount of $250,000. The Contract
may be issued on two insureds each between the ages of 18 and 90. Pruco Life
requires evidence of insurability on each insured which may include a medical
examination before issuing any Contract. Non-smokers are offered more favorable
cost of insurance rates than smokers. Pruco Life charges a higher cost of
insurance rate and/or an additional amount if an extra mortality risk is
involved. These are the current underwriting requirements. We reserve the right
to change them on a non-discriminatory basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, you may return the Contract for a refund within 10 days after you
receive it. Some states allow a longer period of time during which a Contract
may be returned for a refund. You can request a refund by mailing or delivering
the Contract to the representative who sold it or to the Home Office specified
in the Contract. A Contract returned according to this provision shall be
deemed void from the beginning. You will then receive a refund of all premium
payments made, plus or minus any change due to investment experience. However,
if applicable law so requires, 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 19.
TYPE OF DEATH BENEFIT
You may select either a Type A (fixed) or a Type B (variable) death benefit.
Generally, a Contract with a Type A (fixed) death benefit has a death benefit
equal to the basic insurance amount. This type of death benefit does not vary
with the investment performance of the investment options you selected, except
in certain circumstances. See HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT
WILL VARY, page 23. The payment of additional premiums and favorable investment
results of the investment options to which the assets are allocated will
generally increase the cash surrender value. See HOW A CONTRACT'S CASH
SURRENDER VALUE WILL VARY, page 23.
A Contract with a Type B (variable) death benefit has a death benefit which will
generally equal the basic insurance amount plus the Contract Fund. Since the
Contract Fund is a part of the death benefit, favorable investment performance
and payment of additional premiums generally result in an increase in the death
benefit, as well as in the cash surrender value. Over time, however, the
increase in the cash surrender value will be less than under a Contract with a
fixed death benefit. This is because, given two Contracts with the same basic
insurance amount and equal Contract Funds, generally the cost of insurance
charge for a Contract with a Type B death benefit will be greater. See HOW A
CONTRACT'S CASH SURRENDER VALUE WILL VARY, page 23 and HOW A TYPE B (VARIABLE)
CONTRACT'S DEATH BENEFIT WILL VARY, page 24. Unfavorable investment performance
will result in
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decreases in the cash surrender value and may result in decreases in the death
benefit. As long as the Contract is not in default and there is no Contract
debt, the death benefit may not fall below the basic insurance amount stated in
the Contract.
In choosing a death benefit type, you should also consider whether you intend to
use the withdrawal feature. Contract owners with a Type A (fixed) death benefit
should note that any withdrawal may result in a reduction of the basic insurance
amount and possible surrender charges. In addition, we will not allow you to
make a withdrawal that will decrease the basic insurance amount below the
minimum basic insurance amount. See WITHDRAWALS, page 25.
The way in which the cash surrender values and death benefits will change
depends significantly upon the investment results that are actually achieved.
CHANGING THE TYPE OF DEATH BENEFIT
This Contract has two types of death benefit, Type A (fixed) or Type B
(variable). You may change the type of death benefit, subject to Pruco Life's
approval. Currently, Pruco Life does not require a medical examination. Except
as stated below, we will adjust the basic insurance amount so that the death
benefit immediately after the change will remain the same as the death benefit
immediately before the change.
If you are changing your Contract's death benefit from Type A to Type B, we will
reduce the basic insurance amount by the amount in your Contract Fund on the
date the change takes place. The basic insurance amount after the change may not
be lower than the minimum basic insurance amount applicable to the Contract. If
you are changing your Contract's death benefit from Type B to Type A, we will
increase the basic insurance amount by the amount in your Contract Fund on the
date the change takes place. This is illustrated in the following chart.
<TABLE>
<CAPTION>
CHANGING THE DEATH BENEFIT FROM CHANGING THE DEATH BENEFIT FROM
TYPE A TYPE B TYPE B TYPE A
(FIXED) (VARIABLE) (VARIABLE) (FIXED)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC INSURANCE AMOUNT $300,000 $250,000 $300,000 $350,000
CONTRACT FUND $50,000 $50,000 $50,000 $50,000
DEATH BENEFIT* $300,000 $300,000 $350,000 $350,000
* assuming there is no Contract debt
</TABLE>
Changing your Contract's type of death benefit from Type A to Type B during the
first 10 Contract years may result in the assessment of surrender charges. In
addition, we reserve the right to make an administrative processing charge of up
to $25 for any decrease in basic insurance amount, although we do not currently
do so. See CHARGES AND EXPENSES, page 13.
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 ask that you send us your Contract
before making the change. There may be circumstances under which a change in
the death benefit type may cause the Contract to be classified as a Modified
Endowment Contract, which could be significantly disadvantageous. See TAX
TREATMENT OF CONTRACT BENEFITS, page 30.
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CONTRACT DATE
When the first premium payment is paid with the application for a Contract, the
Contract date will ordinarily be the later of the application date or the
medical examination date. If the first premium is not paid with the
application, the Contract date will be the date on which the first premium is
paid and the Contract is delivered. Under certain circumstances, we may allow
the Contract to be backdated for the purpose of lowering one or both insureds'
issue ages, but only to a date not earlier than six months prior to the
application date. This may be advantageous for some Contract owners as a lower
issue age may result in lower current charges. For a Contract that is
backdated, we will credit the initial premium as of the date of receipt and will
deduct any charges due on or before that date.
PREMIUMS
The Contract is a flexible premium contract. The minimum initial premium is due
on or before the Contract date. Thereafter, you decide when you would like to
make premium payments and, subject to a $25 minimum, in what amounts. However,
the minimum premium payment is $15 for premiums made by electronic fund
transfer. We may require an additional premium if adjustments to premium
payments exceed the minimum initial premium or there are Contract Fund charges
due on or before the payment date. 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 23 and
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY, page 24. 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 30.
If we receive the first premium payment on or before the Contract date, we will
credit the invested premium amount to the Contract Fund on the Contract date.
If we receive the first premium payment after the Contract date, we will credit
the premium amount to the Contract Fund on the payment receipt date.
Once the minimum initial premium payment is made, there are no required
premiums. However, there are several types of "premiums" which are described
below. Understanding them may help you understand how the Contract works.
MINIMUM INITIAL PREMIUM - the premium needed to start the Contract. There is
no insurance under the Contract unless the minimum initial premium is paid.
TARGET PREMIUM - the premiums that, if paid at the beginning of each Contract
year, will keep the Contract inforce during the full Limited Death Benefit
Guarantee period regardless of investment performance, assuming no loans or
withdrawals. For a Contract with no riders or extra risk charges, these
premiums will be level. Payment of Target Premiums at the beginning of each
Contract year is one way to achieve the Limited Death Benefit Guarantee
Values shown on the Contract data pages. At the end of the Limited Death
Benefit Guarantee period, continuation of the Contract will depend on the
Contract Fund having sufficient money to cover all charges or meeting the
conditions of the Lifetime Death Benefit Guarantee. See DEATH BENEFIT
GUARANTEE, page 20. These Target Premiums will be higher for a Contract with
a Type B (variable) death benefit than for a Contract with a Type A (fixed)
death benefit. When you purchase a Contract, your Pruco Life representative
can tell you the amount[s] of the Target Premium.
It is possible, in some instances, to pay a lower premium (the "SHORT-TERM
PREMIUM") than the Target Premium. These Short-Term Premiums, if paid at the
beginning of each Contract year, will keep the Contract inforce only during
the first five years of the Limited Death Benefit Guarantee period regardless
of investment performance, and assuming no loans or withdrawals. As is the
case with the Target Premium, for a Contract with no riders or extra risk
charges, these premiums will be level.
18
<PAGE>
Payment of Short-Term Premiums at the beginning of each of the first five
Contract years is one way to achieve the Limited Death Benefit Guarantee
Values shown on the Contract data pages, but only for the first five Contract
years. A five year death benefit guarantee is the only death benefit
----
guarantee available in Massachusetts. At the end of the first five years,
continuation of the Contract will depend on the Contract Fund having
sufficient money to cover all charges or meeting the conditions of the
Lifetime Death Benefit Guarantee or the Limited Death Benefit Guarantee. See
DEATH BENEFIT GUARANTEE, page 20. When you purchase a Contract, your Pruco
Life representative can tell you the amount[s] of the Short-Term Premium.
This Contract may not be suitable for those who can afford to pay only the
Short-Term Premium.
LIFETIME PREMIUM (not applicable in Massachusetts) - the premiums that, if
paid at the beginning of each Contract year, will keep the Contract inforce
during the lifetime of the insureds regardless of investment performance,
assuming no loans or withdrawals. These Lifetime Premiums will be higher for
a Contract with a Type B (variable) death benefit than for a Contract with a
Type A (fixed) death benefit. As is the case with the Target Premium, for a
Contract with no riders or extra risk charges, these premiums will be level.
Payment of Lifetime Premiums at the beginning of each Contract year is one
way to achieve the Lifetime Death Benefit Guarantee Values shown on the
Contract data pages. See DEATH BENEFIT GUARANTEE, page 20. When you purchase
a Contract, your Pruco Life representative can tell you the amount[s] of the
Lifetime Premium.
We can bill you annually, semi-annually, or quarterly for an amount you select.
Because the Contract is a flexible premium contract, there are no scheduled
premium due dates. When you receive a premium notice, you are not required to
pay this amount. The Contract will remain inforce if: (1) the Contract Fund is
sufficient to pay monthly charges including surrender charges; or (2) you have
paid sufficient premiums on an accumulated basis to meet the Death Benefit
Guarantee conditions and there is no Contract debt. You may also pay premiums
automatically through pre-authorized monthly transfers from a bank checking
account. If you elect to use this feature, you choose the day of the month on
which premiums will be paid and the amount of the premiums paid. We will then
draft from your account the same amount on the same date each month.
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, Pruco Life deducts 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. 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 investment option and the first monthly deductions are made. At
the end of the "free-look" period, these funds will be transferred out of the
Money Market investment option and allocated among the variable investment
options and/or the fixed-rate option according to your most current allocation
request. See SHORT-TERM CANCELLATION RIGHT OR "FREE-LOOK", page 16. The
transfer from the Money Market investment option immediately following the
"free-look" period will not be counted as one of your 12 free transfers
described below. 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 will be invested as of the end of
the valuation period when 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
19
<PAGE>
reallocating future premiums. All percentage allocations must be in whole
numbers. For example, 33% can be selected but 33% cannot. Of course, the total
allocation to all selected investment options must equal 100%.
DEATH BENEFIT GUARANTEE
Although you decide what premium amounts you wish to pay, sufficient premium
payments, on an accumulated basis, will guarantee that your Contract will not
lapse and a death benefit will be paid upon the second death of two insureds.
This will be true even if, because of unfavorable investment experience, your
Contract Fund value drops to zero. Withdrawals may adversely affect the status
of the guarantee. A contract loan will negate any guarantee, regardless of the
value of your accumulated net payments. See WITHDRAWALS, page 25 and CONTRACT
LOANS, page 29. You should consider how important the Death Benefit Guarantee is
to you when deciding what premium amounts to pay into the Contract. We offer two
levels of death benefit guarantees: (1) Limited Death Benefit Guarantee, and (2)
Lifetime Death Benefit Guarantee. Lifetime Death Benefit Guarantees are not
available in Massachusetts, and Limited Death Benefit Guarantees are available
for no more than the first five years in Massachusetts.
For purposes of determining if a Death Benefit Guarantee is in effect, we
calculate two sets of values: (1) Limited Death Benefit Guarantee Values, and
(2) Lifetime Death Benefit Guarantee Values. These are values used solely to
determine if a Death Benefit Guarantee is in effect. They are not cash values
---
that you can realize by surrendering the Contract, nor are they payable death
benefits. The Limited Death Benefit Guarantee Values apply until age 75 of the
younger insured, or 10 years after issue, whichever is later. Correspondingly,
the Lifetime Death Benefit Guarantee Values are shown for the lifetime of the
Contract. In addition, the Contract data pages show Limited and Lifetime Death
Benefit Guarantee Values as of Contract anniversaries. Values for non-
anniversary Monthly dates will reflect the number of months elapsed between
Contract anniversaries.
The Limited Death Benefit Guarantee Values for the first five years are the end-
of-year accumulations of premiums at 4% annual interest assuming Short-Term
Premiums are paid at the beginning of each Contract year. A five year death
benefit guarantee is the only death benefit guarantee available in
----
Massachusetts. The Limited Death Benefit Guarantee Values after five years are
the end-of-year accumulations of premiums at 4% annual interest assuming Target
Premiums are paid at the beginning of each Contract year (including years one
through five). The Lifetime Death Benefit Guarantee Values are the end-of-year
accumulations of premiums at 4% annual interest assuming Lifetime Premiums are
paid at the beginning of each Contract year.
Short-Term, Target, and Lifetime Premiums are premium levels that, if paid at
the beginning of each Contract year, correspond to the Limited (first five years
only), Limited (all years of the Limited Death Benefit Guarantee period), and
Lifetime Death Benefit Guarantee Values, respectively (assuming no withdrawals
or loans). If you want a death benefit guarantee to last longer than five
years, you should expect to pay at least the Target Premium. See PREMIUMS, page
18. Paying the Short-Term, Target, or Lifetime Premiums at the start of each
Contract year is one way of reaching the Death Benefit Guarantee Values; they
are certainly not the only way.
At the Contract date, and on each Monthly date, we calculate your Contract's
"Accumulated Net Payments" as of that date. Accumulated Net Payments equal the
premiums you paid, accumulated at an effective annual rate of 4%, less
withdrawals also accumulated at 4%. If your Contract is in danger of lapsing,
we will compare your Accumulated Net Payments to the appropriate Death Benefit
Guarantee Value as of the Monthly date within each Death Benefit Guarantee
period. After the Limited Death Benefit Guarantee period, we will compare your
Accumulated Net Payments to the Lifetime Death Benefit Guarantee Value as of
that date. If your Accumulated Net Payments equal or exceed the applicable
(Limited or Lifetime) Death Benefit Guarantee Value and there is no Contract
debt, then the Contract is kept inforce, regardless of the amount in the
Contract Fund.
20
<PAGE>
Here is a table of Short-Term, Target, or Lifetime Premiums (to the nearest
dollar) for sample cases. The examples assume the insureds are a male and a
female, both the same age, both smokers, with no extra risk or substandard
ratings, and no riders added to the Contract. For those who qualify for more
favorable underwriting classes, the premiums may be lower than those shown on
the chart, and for those who are classified as substandard, the premiums may be
higher.
<TABLE>
<CAPTION>
BASIC INSURANCE AMOUNT - $250,000
ILLUSTRATIVE ANNUAL PREMIUMS
- -----------------------------------------------------------------------------------------------------------------------------------
AGE OF TYPE OF SHORT-TERM PREMIUM TARGET PREMIUM LIFETIME PREMIUM
BOTH DEATH BENEFIT CORRESPONDING TO THE CORRESPONDING TO THE CORRESPONDING TO THE
INSUREDS CHOSEN LIMITED DEATH BENEFIT LIMITED DEATH BENEFIT LIFETIME DEATH BENEFIT
AT ISSUE GUARANTEE VALUES GUARANTEE VALUES GUARANTEE VALUES
(FIRST FIVE YEARS ONLY) (not applicable in (not applicable in
Massachusetts) Massachusetts)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
40 Type A (Fixed) $ 1,137 $ 2,697 $ 3,447
40 Type B (Variable) $ 1,137 $ 3,456 $11,862
60 Type A (Fixed) $ 3,766 $ 6,358 $ 8,746
60 Type B (Variable) $ 3,766 $ 7,613 $27,694
80 Type A (Fixed) $21,803 $26,238 $28,887
80 Type B (Variable) $21,803 $33,321 $71,153
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
You should consider carefully the value of maintaining the Death Benefit
Guarantee. If you desire the Death Benefit Guarantee for the full Limited Death
Benefit Guarantee period, you may prefer to pay at least the Target Premium in
all years, rather than paying the lower Short-Term Premium in the first five
years. If you pay only enough premium to meet the Limited Death Benefit
Guarantee Values in the first five years, you will need to pay more than the
----
Target Premium at the beginning of the sixth year in order to continue the
guarantee after the first five years of the Limited Death Benefit Guarantee
period.
If you desire the Death Benefit Guarantee for lifetime protection, you may
prefer to pay generally higher premiums in all years, rather than trying to make
such payments on an as needed basis. For example, if you pay only enough
premium to meet the Limited Death Benefit Guarantee Values, a substantial amount
-----------
may be required to meet the Lifetime Death Benefit Guarantee Values in order to
continue the guarantee at the end of the Limited Death Benefit Guarantee period
(not applicable in Massachusetts). In addition, it is possible that the payment
required to continue the guarantee after the Limited Death Benefit Guarantee
period could exceed the premium payments allowed to be paid without causing the
Contract to become a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT
BENEFITS, page 30.
The Death Benefit Guarantee allows considerable flexibility as to the timing of
premium payments. Your Pruco Life representative can supply sample
illustrations of various premium amount and frequency combinations that
correspond to the Death Benefit Guarantee Values.
TRANSFERS
You may, up to 12 times in each Contract year, transfer amounts from one
variable investment option to another variable investment option or to the
fixed-rate option 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
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<PAGE>
for each transfer made exceeding 12 in any Contract year. All or a portion of
the amount credited to a variable investment option may be transferred.
Only one transfer from the fixed-rate option will be permitted during the
Contract year. The maximum amount which may be transferred out of the fixed-
rate option each year is the greater of (a) 25% of the amount in the fixed-rate
option; and (b) $2,000. Pruco Life may change these limits in the future. We
may waive these restrictions for limited periods of time in a non-discriminatory
way, (e.g., when interest rates are declining).
Transfers among variable investment options will take effect as of the end of
the valuation period in which a proper transfer request is received at a Home
Office. The request may be in terms of dollars, such as a request to transfer
$10,000 from one variable investment option to another, or may be in terms of a
percentage reallocation among variable investment options. 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 33), 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. We may restrict the number, timing, and amount of transfers in
accordance with our rules if your transfer activity is determined by us to be
disruptive to the variable investment option or to the disadvantage of other
Contract owners. We may prohibit transfer requests made by an individual acting
under a power of attorney on behalf of more than one Contract owner.
DOLLAR COST AVERAGING
We offer 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 Money Market
investment option into other investment options available under the Contract,
excluding the fixed-rate option. You may choose to have periodic transfers made
monthly or quarterly. DCA transfers will not begin until the end of the "free-
look" period. See SHORT-TERM CANCELLATION RIGHT OR "FREE-LOOK", page 16.
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, there
is no charge for using the Dollar Cost Averaging feature. We reserve the right
to change this practice, modify the requirements, or discontinue the feature.
22
<PAGE>
AUTO-REBALANCING
As an administrative practice, we are currently offering a feature called Auto-
Rebalancing. This feature allows you to automatically rebalance assets in the
variable investment options at specified intervals based on percentage
allocations that you choose. For example, suppose your initial investment
allocation of variable investment options X and Y is split 40% and 60%,
respectively. Then, due to investment results, the portion in each of the
investment options 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 16.
Auto-Rebalancing can be performed on a quarterly, semi-annual or annual basis.
Each rebalance will take effect as of the end of the valuation period on the
date coinciding with the periodic timing you designate provided the New York
Stock Exchange is open on that date. If the New York Stock Exchange is not open
on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. The fixed-rate option cannot participate in this
administrative procedure. Currently, a transfer that occurs under the Auto-
Rebalancing feature is not counted towards the 12 free transfers permitted each
Contract year. We reserve the right to change this practice, modify the
requirements, or discontinue the feature.
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY
You may surrender the Contract for its cash surrender value. The Contract's
cash surrender value on any date will be the Contract Fund value minus any
Contract debt and minus any applicable surrender charges. See CONTRACT LOANS,
page 29. The Contract Fund value changes daily, reflecting: (1) increases or
decreases in the value of the variable investment options; (2) interest credited
on any amounts allocated to the fixed-rate option; (3) interest credited on any
loan; and (4) by the daily asset charge for mortality and expense risks assessed
against the variable investment options. The Contract Fund value also changes
to reflect the receipt of premium payments and the monthly deductions described
under CHARGES AND EXPENSES, page 13. Upon request, Pruco Life will tell you the
cash surrender value of your Contract. It is possible for the cash surrender
value of a Contract to decline to zero because of unfavorable investment
performance.
The tables on pages T1 through T4 (M1 through M4 in Massachusetts) of this
prospectus illustrate approximately what the cash surrender values would be for
representative Contracts paying Target Premium amounts (see PREMIUMS, page 18),
assuming hypothetical uniform investment results in the Fund portfolios. Two of
the tables assume current charges will be made throughout the lifetime of the
Contract and two tables assume maximum charges will be made. See ILLUSTRATIONS
OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS, page 27.
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY
As described earlier, there are two types of death benefit available under the
Contract: Type A, a fixed death benefit and Type B, a variable death benefit.
The Type B death benefit varies according to changes in the Contract Fund while
the Type A death benefit does not, unless it must be increased to comply with
the Internal Revenue Code's definition of life insurance.
Under the Type A (fixed) Contract, the death benefit is generally equal to the
basic insurance amount, before any reduction of Contract debt. See CONTRACT
LOANS, page 29. If the Contract is kept inforce for several years, depending on
how much premium you pay, and/or if investment performance is reasonably
favorable, the Contract Fund may grow to the point where Pruco Life will
increase the death benefit in order to ensure that the Contract will satisfy the
Internal Revenue Code's definition of life insurance. Thus, assuming no
Contract debt, a Contract with the Type A death benefit 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
23
<PAGE>
that date, multiplied by the attained age factor that applies. A listing of
attained age factors can be found on the data pages of your Contract. The latter
provision ensures that the Contract will always have a death benefit large
enough to be treated as life insurance for tax purposes under current law.
The following table illustrates at different ages how the attained age factor
affects the death benefit for different Contract Fund amounts. The table
assumes a $1,000,000 Type A Contract was issued when the younger insured was age
35 and there is no Contract debt.
TYPE A (FIXED) DEATH BENEFIT
<TABLE>
<CAPTION>
IF THEN
- ----------------------------------------------------------------------------------------------------
THE CONTRACT FUND
THE YOUNGER AND THE CONTRACT THE ATTAINED AGE MULTIPLIED BY THE AND THE DEATH
INSURED IS AGE FUND IS FACTOR IS ATTAINED AGE FACTOR IS BENEFIT IS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
40 $100,000 5.7 570,000 $1,000,000
40 $200,000 5.7 1,140,000 $1,140,000*
40 $300,000 5.7 1,710,000 $1,710,000*
- ----------------------------------------------------------------------------------------------
60 $300,000 2.8 840,000 $1,000,000
60 $400,000 2.8 1,120,000 $1,120,000*
60 $600,000 2.8 1,680,000 $1,680,000*
- ----------------------------------------------------------------------------------------------
80 $600,000 1.5 900,000 $1,000,000
80 $700,000 1.5 1,050,000 $1,050,000*
80 $800,000 1.5 1,200,000 $1,200,000*
- ----------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal Revenue Code's
definition of life insurance. At this point, any additional premium payment will increase the
death benefit by more than it increases the Contract Fund.
- ----------------------------------------------------------------------------------------------------
</TABLE>
This means, for example, that if the younger insured has reached the age of 60,
and the Contract Fund is $400,000, the death benefit will be $1,120,000, even
though the basic insurance amount is $1,000,000. In this situation, for every
$1 increase in the Contract Fund, the death benefit will be increased by $2.80.
We reserve the right to refuse to accept any premium payment that increases the
death benefit by more than it increases the Contract Fund. IF WE EXERCISE THIS
RIGHT, IT MAY IN CERTAIN SITUATIONS RESULT IN THE LOSS OF THE DEATH BENEFIT
GUARANTEE.
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY
Under the Type B (variable) Contract, the death benefit will never be less than
the basic insurance amount, before any reduction of Contract debt, but will also
vary, immediately after it is issued, with the investment results of the
selected investment options. The death benefit may be further increased to
ensure that the Contract will satisfy the Internal Revenue Code's definition of
life insurance. Thus, assuming no Contract debt, the death benefit will always
be the greater of: (1) the basic insurance amount plus the Contract Fund before
the deduction of any monthly charges due on that date; and (2) the Contract Fund
before the deduction of any monthly charges due on that date, multiplied by the
attained age factor that applies. For purposes of determining 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
24
<PAGE>
ensures that the Contract will always have a death benefit large enough to be
treated as life insurance for tax purposes under current law.
The following table illustrates various attained age factors and Contract Funds
and the corresponding death benefits. The table assumes a $1,000,000 Type B
Contract was issued when the younger insured was age 35 and there is no Contract
debt.
TYPE B (VARIABLE) DEATH BENEFIT
<TABLE>
<CAPTION>
IF THEN
- ----------------------------------------------------------------------------------------------------
THE CONTRACT FUND
THE YOUNGER AND THE CONTRACT THE ATTAINED AGE MULTIPLIED BY THE AND THE DEATH
INSURED IS AGE FUND IS FACTOR IS ATTAINED AGE FACTOR IS BENEFIT IS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
40 $100,000 5.7 570,000 $1,100,000
40 $200,000 5.7 1,140,000 $1,200,000
40 $300,000 5.7 1,710,000 $1,710,000*
- ----------------------------------------------------------------------------------------------
60 $300,000 2.8 840,000 $1,300,000
60 $400,000 2.8 1,120,000 $1,400,000
60 $600,000 2.8 1,680,000 $1,680,000*
- ----------------------------------------------------------------------------------------------
80 $600,000 1.5 900,000 $1,600,000
80 $700,000 1.5 1,050,000 $1,700,000
80 $800,000 1.5 1,200,000 $1,800,000
- ----------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance. At this point, any additional
premium payment will increase the death benefit by more than it increases
the Contract Fund.
- ----------------------------------------------------------------------------------------------
</TABLE>
This means, for example, that if the younger insured has reached the age of 60,
and the Contract Fund is $600,000, the death benefit will be $1,680,000, even
though the basic insurance amount is $1,000,000. In this situation, for every
$1 increase in the Contract Fund, the death benefit will be increased by $2.80.
We reserve the right to refuse to accept any premium payment that increases the
death benefit by more than it increases the Contract Fund. IF WE EXERCISE THIS
RIGHT, IT MAY IN CERTAIN SITUATIONS RESULT IN THE LOSS OF THE DEATH BENEFIT
GUARANTEE.
SURRENDER OF A CONTRACT
A Contract may be surrendered for its cash surrender value while one or both of
the insureds is living. To surrender a Contract, you must deliver or mail it,
together with a written request in a form that meets Pruco Life's needs, to a
Home Office. The cash surrender value of a surrendered Contract will be
determined as of the end of the valuation period in which such a request is
received in the Home Office. Surrender of a Contract may have tax consequences.
See TAX TREATMENT OF CONTRACT BENEFITS, page 30.
WITHDRAWALS
Under certain circumstances, you may withdraw a portion of the Contract's cash
surrender value without surrendering the Contract. You must ask for a
withdrawal on a form that meets our needs. The cash surrender value after
withdrawal may not be less than or equal to zero after deducting: (a) any
charges
25
<PAGE>
associated with the withdrawal and (b) an amount sufficient to cover the
Contract Fund deductions for two monthly dates following the date of the
withdrawal. The amount withdrawn must be at least $500. There is an
administrative processing fee for each withdrawal equal to the lesser of $25 or
2% of the withdrawal amount. An amount withdrawn may not be repaid except as a
premium subject to the applicable charges. Upon request, we will tell you how
much you may withdraw. Withdrawal of the cash surrender value may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 30.
Whenever a withdrawal is made, the death benefit payable will immediately be
reduced by at least the amount of the withdrawal. For a Contract with a Type B
death benefit, this will not change the basic insurance amount. However, under a
Contract with a Type A death benefit, the resulting reduction in death benefit
usually requires a reduction in the basic insurance amount. We will send you new
Contract data pages showing these changes. We may also deduct a surrender charge
from the Contract Fund. See DECREASES IN BASIC INSURANCE AMOUNT, page 26. No
withdrawal will be permitted under a Contract with a fixed death benefit if it
would result in a basic insurance amount of less than the minimum basic
insurance amount. It is important to note, however, that if the basic insurance
amount is decreased at any time during the life of the Contract, there is a
possibility that the Contract might be classified as a Modified Endowment
Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 30. Before making any
withdrawal which causes a decrease in basic insurance amount, you should consult
with your Pruco Life representative.
When a withdrawal is made, the Contract Fund is reduced by the sum of the cash
withdrawn, the withdrawal fee, and any applicable surrender charge. An amount
equal to the reduction in the Contract Fund will be withdrawn proportionally
from the investment options unless you direct otherwise.
Withdrawal of the cash surrender value increases the risk that the Contract Fund
may be insufficient to provide Contract benefits. If such a withdrawal is
followed by unfavorable investment experience, the Contract may go into default.
Withdrawals may also affect whether a Contract is kept inforce under the Death
Benefit Guarantee. This is because, for purposes of determining whether a lapse
has occurred, Pruco Life treats withdrawals as a return of premium. Therefore,
withdrawals decrease the accumulated net payments. See DEATH BENEFIT GUARANTEE,
page 20.
DECREASES IN BASIC INSURANCE AMOUNT
As described earlier, you may make a withdrawal (see WITHDRAWALS, page 25). You
also have the additional option of decreasing the basic insurance amount of your
Contract without withdrawing any cash surrender value. Contract owners who
conclude that, because of changed circumstances, the amount of insurance is
greater than needed, will be able to decrease their amount of insurance
protection and the monthly deductions for the cost of insurance without
decreasing their current cash surrender value. The cash surrender value of the
Contract on the date of the decrease will not change, except that an
administrative processing fee of up to $25 and a surrender charge may be
deducted. If we ask you to, you must send us your Contract to be endorsed. The
Contract will be amended to show the new basic insurance amount, charges, values
in the appropriate tables and the effective date of the decrease.
If you decrease your basic insurance amount to an amount equal to or greater
than the Surrender Charge Threshold shown in your Contract, we will not impose a
surrender charge. The Surrender Charge Threshold is the lowest basic insurance
amount since issue. If you decrease your basic insurance amount below this
threshold, we will subtract the new basic insurance amount from the threshold
amount. We will then multiply the surrender charge (see SURRENDER CHARGE, page
15) by the lesser of this difference and the amount of the decrease and divide
by the threshold amount. The result is the maximum surrender charge we will
deduct from the Contract Fund as a result of this transaction.
The minimum permissible decrease for your Contract is shown under CONTRACT
LIMITATIONS in the data pages of your Contract. The basic insurance amount
after the decrease may not be lower than the minimum basic insurance amount. No
reduction will be permitted if it would cause the Contract to fail to
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qualify as "life insurance" for purposes of Section 7702 of the Internal Revenue
Code. The basic insurance amount cannot be restored to any greater amount once a
decrease has taken effect.
It is important to note, however, that if the basic insurance amount is
decreased at any time during the life of the Contract, there is a possibility
that the Contract might be classified as a Modified Endowment Contract. See TAX
TREATMENT OF CONTRACT BENEFITS, page 30. Before requesting any decrease in basic
insurance amount, you should consult with your Pruco Life representative.
WHEN PROCEEDS ARE PAID
Pruco Life will generally pay any death benefit, cash surrender value, loan
proceeds or withdrawal within seven days after all the documents required for
such a payment are received at a Home Office. Other than the death benefit,
which is determined as of the date of the second 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 variable investment options 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.
With respect to the amount of any cash surrender value allocated to the fixed-
rate option, Pruco Life expects to pay the cash surrender value promptly upon
request. However, Pruco Life has the right to delay payment of such cash value
for up to six months (or a shorter period if required by applicable law). Any
payable death benefit will be credited with interest from the date of death in
accordance with applicable law.
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS
(TO BE UPDATED PRIOR TO BECOMING EFFECTIVE)
The following four tables (pages T1 through T4: M1 through M4 in Massachusetts)
show how a Contract's death benefit and cash surrender values change with the
investment experience of the Account. They are "hypothetical" because they are
based, in part, upon several assumptions, which are described below. All four
tables assume the following:
. a Contract with a basic insurance amount of $1,000,000 bought by a 55 year
old male Preferred Non-Smoker and a 50 year old female Preferred Best, with
no extra risks and no extra benefit riders added to the Contract.
. the Target Premium amount (see PREMIUMS, page 18) is paid on each Contract
anniversary and no loans are taken.
. the Contract Fund has been invested in equal amounts in each of the 16
portfolios of the Funds and no portion of the Contract Fund has been
allocated to the fixed-rate option.
The first table (page T1; M1 in Massachusetts) assumes a Type A (fixed) Contract
has been purchased and the second table (page T2; M2 in Massachusetts) assumes a
Type B (variable) Contract has been purchased. Both assume the current charges
will continue indefinitely. The third and fourth tables (pages T3 and T4; M3
and M4 in Massachusetts) are based upon the same assumptions except it is
assumed the maximum contractual charges have been made from the beginning. See
CHARGES AND EXPENSES, page 13.
Under the Type B Contract the death benefit changes to reflect investment
returns. Under the Type A Contract, the death benefit increases only if the
Contract Fund becomes large enough that an increase in the death benefit is
necessary for the Contract to satisfy the Internal Revenue Code's definition of
life insurance. See TYPE OF DEATH BENEFIT, page 16.
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There are four assumptions, shown separately, about the average investment
performance of the portfolios. The first is that there will be a uniform 0%
gross rate of return with the average value of the Contract Fund uniformly
adversely affected by very unfavorable investment performance. The other three
assumptions are that investment performance will be at a uniform gross annual
rate of 4%, 8% and 12%. Actual returns will fluctuate from year to year. In
addition, death benefits and cash surrender values would be different from those
shown if investment returns averaged 0%, 4%, 8% and 12% but fluctuated from
those averages throughout the years. Nevertheless, these assumptions help show
how the Contract values will change with investment experience.
The first column in the following four tables (pages T1 through T4; pages M1
through M4 in Massachusetts) shows the Contract year. The second column, to
provide context, shows what the aggregate amount would be if the premiums had
been invested to earn interest, after taxes, at 4% compounded annually. The
next four columns show the death benefit payable in each of the years shown for
the four different assumed investment returns. The last four columns show the
cash surrender value payable in each of the years shown for the four different
assumed investment returns.
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 16 portfolios of 0.XX%, and the
daily deduction from the Contract Fund of 0.9% per year. Thus gross returns of
0%, 4%, 8% and 12% are the equivalent of net returns of -X.XX%, X.XX%, X.XX% and
XX.XX%, respectively. The actual fees and expenses of the portfolios associated
with a particular Contract may be more or less than 0.XX% and will depend on
which variable investment options are selected. The death benefits and cash
surrender values shown reflect the deduction of all expenses and charges both
from the Funds and under the Contract.
If you are considering the purchase of a variable life insurance contract from
another insurance company, you should not rely upon these tables for comparison
purposes. A comparison between two tables, each showing values for a 55 year
old man and a 50 year old woman, may be useful for a 55 year old man and a 50
year old woman 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.
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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 will equal the sum of (a) 90% of the
cash value attributable to the variable investment options, and (b) the balance
of the cash value, provided the Contract is not in default. A Contract in
default has no loan value. The minimum loan amount you may borrow is $500.
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%.
Unless you ask us otherwise, a portion of the amount you may borrow on or after
the 10th Contract anniversary will be considered a preferred loan up to an
amount equal to the maximum preferred loan amount. 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
cash value, the Contract will go into default. We will notify you of a 61-day
grace period, within which time you may repay all or enough of the loan to
obtain a positive cash surrender value and thus keep the Contract inforce for a
limited time. If the Contract debt equals or exceeds the cash value 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 30 and LAPSE AND REINSTATEMENT, page 32.
When a loan is made, an amount equal to the loan proceeds is transferred out of
the Account and/or the fixed-rate option, as applicable. Unless you ask us to
take the loan amount from specific investment options and we agree, the
reduction will be made in the same proportions as the loanable amount in each
subaccount and the fixed-rate option bears to the total loanable amount of the
Contract. When you take a loan, the amount of the loan continues to be a part
of the Contract Fund and is credited with interest at an effective annual rate
of 4%. Therefore, the net cost of a standard loan is 1% and the net cost of a
preferred loan is %.
Any Contract debt will be deducted from the death benefit should the death
benefit become payable while a loan is outstanding. Loans from Modified
Endowment Contracts may be treated for tax purposes as distributions of income.
See TAX TREATMENT OF CONTRACT BENEFITS, page 30.
Any Contract debt will be deducted from the cash value to calculate the cash
surrender value should the Contract be surrendered.
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 upon 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.
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When you repay all or part of a loan, we will increase the portion of the
Contract Fund in the variable investment options by the amount of that
repayment, plus the interest credits accrued on the loan since the last
transaction date. To do this, we will use your investment allocation for future
premium payments as of the loan payment date. We will also decrease the portion
of the Contract Fund on which we credit the guaranteed annual interest rate of
4% by the amount of loan you repay.
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.
Commissions are based on a premium value referred to as the commissionable
Target Premium. The commissionable Target Premium may vary from the Target
Premium, depending on the rating class of the insureds, any extra risk charges,
or additional riders. For contracts with unrated lives, the commissionable
Target Premium is equal to what the Target Premium would be if both lives were
in either the Nonsmoker or Smoker rating class, and there were no extra risk
charges or riders on the contracts. For contracts with unrated lives in more
favorable rating classes, the commissionable Target Premium will be greater than
the Target Premium, if there are no extra risk charges or riders on the
contracts. For contracts with substandard ratings, the commissionable Target
Premium will generally be less than the Target Premium.
Generally, representatives will receive a commission of no more than: (1) 50% of
the premiums received in the first year on premiums up to the commissionable
Target Premium amount (see PREMIUMS, page 18); (2) 4% commission on premiums
received in the first year in excess of the commissionable Target Premium
amount; (3) 4% of premiums received in years two through 10; and (4) 2% of
premiums received thereafter. Instead of receiving commissions expressed as a
percentage of premiums from year 11 and later, some representatives may be paid
a trail commission of up to 0.025% of the Contract Fund as of the end of each
calendar quarter starting with the second Contract year. Representatives with
less than four years of service may receive compensation on a different basis.
Representatives who meet certain productivity or persistency standards may be
eligible for additional compensation.
TAX TREATMENT OF CONTRACT BENEFITS
This summary provides general information on the federal income tax treatment of
the Contract. It is not a complete statement of what the federal income taxes
will be in all circumstances. It is based on current law and interpretations,
which may change. It does not cover state taxes or other taxes. It is not
intended as tax advice. You should consult your own qualified tax adviser for
complete information and advice.
TREATMENT AS LIFE INSURANCE. The Contract must meet certain requirements to
qualify as life insurance for tax purposes. These requirements include certain
definitional tests and rules for diversification of the Contract's investments.
For further information on the diversification requirements, see TAXATION OF THE
FUND in the statement of additional information for the Series Fund.
We believe we have taken adequate steps to insure that the Contract qualifies as
life insurance for tax purposes. Generally speaking, this means that:
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. you will not be taxed on the growth of the funds in the Contract,
unless you receive a distribution from the Contract,
. the Contract's death benefit will be tax free to your beneficiary.
Although we believe that the Contract should qualify as life insurance for tax
purposes, there are some uncertainties, particularly because the Secretary of
Treasury has not yet issued permanent regulations that bear on this question.
Accordingly, we reserve the right to make changes -- which will be applied
uniformly to all Contract owners after advance written notice -- that we deem
necessary to insure that the Contract will qualify as life insurance.
PRE-DEATH DISTRIBUTIONS. The tax treatment of any distribution you receive
before the insured's death depends on whether the Contract is classified as a
Modified Endowment Contract.
CONTRACTS NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
. If you surrender the Contract or allow it to lapse, you will be
taxed on the amount you receive in excess of the premiums you
paid less the untaxed portion of any prior withdrawals. For this
purpose, you will be treated as receiving any portion of the cash
surrender value used to repay Contract debt. The tax consequences
of a surrender may differ if you take the proceeds under an
income payment settlement option.
. Generally, you will be taxed on a withdrawal to the extent the
amount you receive exceeds the premiums you paid for the Contract
less the untaxed portion of any prior withdrawals. However, under
some limited circumstances, in the first 15 Contract years, all
or a portion of a withdrawal may be taxed if the Contract Fund
exceeds the total premiums paid less the untaxed portions of any
prior withdrawals, even if total withdrawals do not exceed total
premiums paid.
. Extra premiums for optional benefits and riders generally do not
count in computing the premiums paid for the Contract for the
purposes of determining whether a withdrawal is taxable.
. Loans you take against the Contract are ordinarily treated as
debt and are not considered distributions subject to tax.
However, there is some risk the Internal Revenue Service might
assert that the preferred loan should be treated as a
distribution for tax purposes because of the relatively low
differential between the loan interest rate and Contract's
crediting rate. Were the Internal Revenue Service to take this
position, Pruco Life would take reasonable steps to avoid this
result, including modifying the Contract's loan provisions.
MODIFIED ENDOWMENT CONTRACTS.
. The rules change if the Contract is classified as a Modified
Endowment Contract. The Contract could be classified as a
Modified Endowment Contract if premiums 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.
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. If the Contract is classified as a Modified Endowment Contract,
then amounts you receive under the Contract before the insured's
death, including loans and withdrawals, are included in income to
the extent that the Contract Fund before surrender charges
exceeds the premiums paid for the Contract increased by the
amount of any loans previously included in income and reduced by
any untaxed amounts previously received other than the amount of
any loans excludible from income. An assignment of a Modified
Endowment Contract is taxable in the same way. These rules also
apply to pre-death distributions, including loans, made during
the two-year period before the time that the Contract became a
Modified Endowment Contract.
. Any taxable income on pre-death distributions (including full
surrenders) is subject to a penalty of 10 percent unless the
amount is received on or after age 59 1/2, on account of your
becoming disabled or as a life annuity. It is presently unclear
how the penalty tax provisions apply to Contracts owned by
businesses.
. All Modified Endowment Contracts issued by us to you during the
same calendar year are treated as a single Contract for purposes
of applying these rules.
WITHHOLDING. You must affirmatively elect that no taxes be withheld from a pre-
death distribution. Otherwise, the taxable portion of any amounts you receive
will be subject to withholding. You are not permitted to elect out of
withholding if you do not provide a social security number or other taxpayer
identification number. You may be subject to penalties under the estimated tax
payment rules if your withholding and estimated tax payments are insufficient to
cover the tax due.
OTHER TAX CONSIDERATIONS. If you transfer or assign the Contract to someone
else, there may be gift, estate and/or income tax consequences. If you transfer
the Contract to a person two or more generations younger than you (or designate
such a younger person as a beneficiary), there may be Generation Skipping
Transfer tax consequences. Deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied. Your individual situation or that of your beneficiary
will determine the federal estate taxes and the state and local estate,
inheritance and other taxes due if you or the insured dies.
BUSINESS-OWNED LIFE INSURANCE. If a business, rather than an individual, is the
owner of the Contract, there are some additional rules. Business Contract
owners generally cannot deduct premium payments. Business Contract owners
generally cannot take tax deductions for interest on Contract debt paid or
accrued after October 13, 1995. An exception permits the deduction of interest
on policy loans on Contracts for up to 20 key persons. The interest deduction
for Contract debt on these loans is limited to a prescribed interest rate and a
maximum aggregate loan amount of $50,000 per key insured person. The corporate
alternative minimum tax also applies to business-owned life insurance. This is
an indirect tax on additions to the Contract Fund or death benefits received
under business-owned life insurance policies.
LAPSE AND REINSTATEMENT
Pruco Life will determine the value of the cash surrender value on each Monthly
date. If the cash surrender value is zero or less, the Contract is in default
unless it remains inforce under the Death Benefit Guarantee. See DEATH BENEFIT
GUARANTEE, page 20. If the Contract debt ever grows to be equal to or more than
the cash surrender value, 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. If the second death occurs past the grace period, no death benefit is
payable. A Contract that lapses with an outstanding Contract loan may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 30.
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A Contract that ended in default may be reinstated within five years after the
date of default if all the following conditions are met:
(1) both insureds are alive or one insured is alive and the Contract ended
without value after the death of the other insured;
(2) you must provide renewed evidence of insurability on any insured who was
living when the Contract went into default;
(3) submission of certain payments sufficient to bring the Contract up to date
and cover all charges and deductions for the next three months; and
(4) 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 date we approve your request. We will deduct
all required charges from your payment and the balance will be placed into your
Contract Fund. If we approve the reinstatement, we will credit the Contract
Fund with a refund of that part of any surrender charge deducted at the time of
default which would have been charged if the Contract were surrendered
immediately after reinstatement.
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS
The Contract generally employs mortality tables that distinguish between males
and females. Thus, premiums and benefits under Contracts issued on males and
females of the same age will generally differ. However, in those states that
have adopted regulations prohibiting sex-distinct insurance rates, premiums and
cost of insurance charges will be based on male rates, whether the insureds are
male or female. In addition, employers and employee organizations considering
purchase of a Contract should consult their legal advisers to determine whether
purchase of a Contract based on sex-distinct actuarial tables is consistent with
Title VII of the Civil Rights Act of 1964 or other applicable law.
OTHER GENERAL CONTRACT PROVISIONS
ASSIGNMENT. This Contract may not be assigned if the assignment would violate
any federal, state or local law or regulation prohibiting sex distinct rates for
insurance. Generally, the Contract may not be assigned to an employee benefit
plan or program without Pruco Life's consent. Pruco Life assumes no
responsibility for the validity or sufficiency of any assignment, and 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 second insured to die do so with no
surviving beneficiary, that insured's estate will become the beneficiary, unless
someone other than the insureds owned the Contract. In that case, we will make
the Contract owner or the Contract owner's estate the beneficiary.
INCONTESTABILITY. We will not contest the Contract after it has been inforce
during the lifetime of both insureds for two years from the issue date. The
exceptions are: (1) non-payment of enough premium to pay the required charges;
and (2) 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 at least one
insured. At the end of the second Contract year we will mail you a notice
requesting that you tell us if either insured has died. Failure to tell us of
the death of an insured will not avoid a contest, if we have a basis for one,
even if premium payments continue to be made.
MISSTATEMENT OF AGE OR SEX. If an insured's stated age or sex or both are
incorrect in the Contract, Pruco Life will adjust each benefit and any amount to
be paid, as required by law, to reflect the correct age and
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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.
SIMULTANEOUS DEATH. If both insureds die while the Contract is inforce and we
find there is lack of sufficient evidence that they died other than
simultaneously, we will assume that the older insured died first.
SUICIDE EXCLUSION. If either insured, whether sane or insane, dies by suicide
within two years from the issue date, the Contract will end and we will return
the premiums paid. If there is a surviving insured, we will make a new contract
available on the life of that insured. The issue age, Contract date, and the
insured's underwriting classification will be the same as they are in the
Contract. The amount of coverage will be the lesser of (1) the contract's basic
insurance amount, and (2) the maximum amount we allow on the Contract date for
single life contracts. The new contract will not take effect unless all
premiums due since the Contract date are paid within 31 days after we notify you
of the availability of the new contract.
RIDERS
Contract owners may be able to obtain extra fixed benefits which may require an
additional premium. These optional insurance benefits will be described in what
is known as a "rider" to the Contract. Charges applicable to the riders will be
deducted from the Contract Fund on each Monthly date.
One rider gives insureds the option to exchange the Contract for two new life
insurance contracts, one on the life of each insured, in the event of a divorce
or if certain changes in tax law occur. Exercise of this option may give rise
to taxable income. Another pays an additional amount if both insureds die
within a specified number of years. See TAX TREATMENT OF CONTRACT BENEFITS,
page 30. Certain restrictions may apply; they are clearly described in the
applicable rider. Any Pruco Life representative authorized to sell the Contract
can explain these extra benefits further. Samples of the provisions are
available from Pruco Life upon written request.
SUBSTITUTION OF FUND SHARES
Although Pruco Life believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Funds may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, Pruco Life may seek to substitute the shares of another portfolio or
of an entirely different mutual fund. Before this can be done, the approval of
the SEC, and possibly one or more state insurance departments, may be required.
Contract owners will be notified of any such substitution.
REPORTS TO CONTRACT OWNERS
Once each year, Pruco Life will send you a statement that provides certain
information pertinent to your own Contract. This statement will detail values
and transactions made and specific Contract data that apply only to your
particular Contract. Currently we intend to provide three quarterly reports (in
addition to the year-end statement) which provide abbreviated information
pertinent to your own Contract.
You will also be sent annual and semi-annual reports of the Funds showing the
financial condition of the portfolios and the investments held in each
portfolio.
STATE REGULATION
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Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
EXPERTS
The consolidated financial statements of Pruco Life and Subsidiaries as of
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998 and the financial statements of the Account as of December 31,
1998 and for each of the three years in the period then ended included in this
prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting. PricewaterhouseCoopers LLP's
principal business address is 1177 Avenue of the Americas, New York, New York
10036.
Actuarial matters included in this prospectus have been examined by Ching-Meei
Chang, MAAA, FSA, Actuarial Director of Prudential, whose opinion is filed as an
exhibit to the registration statement.
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
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<PAGE>
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 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 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
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<PAGE>
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.
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 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
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.
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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. No other litigation is being brought against Pruco Life
that would have a material effect on its financial position.
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
38
<PAGE>
uncertainties, and, given the complexity and scope of these suits, their outcome
cannot be predicted with precision.
YEAR 2000 COMPLIANCE
(TO BE UPDATED PRIOR TO BECOMING EFFECTIVE)
The services provided to you as a purchaser of a Cornerstone Survivorship
Contract depend on the smooth functioning of numerous computer systems. Many
computer systems in use today are programmed to recognize only the last two
digits of a date as the year. As a result, any systems using this kind of
programming can not distinguish a date using "00" and may treat it as "1900"
instead of "2000." This problem may impact computer systems that store business
information, but it could also affect other equipment used in our business like
telephone, fax machines and elevators. If this problem is not corrected, the
"Year 2000" issue could affect the accuracy and integrity of business records.
Prudential's regular business operations could be interrupted as well as those
--
of other companies that deal with us.
In addition, the operations of the mutual funds associated with the Cornerstone
Survivorship Contract could experience problems resulting from the Year 2000
issue. Please refer to the respective mutual fund's prospectus for information
regarding their approach to Year 2000 concerns. The following describes
Prudential's effort to address Year 2000 concerns.
To address this potential problem, Prudential, as the parent company of Pruco
Life, organized its Year 2000 efforts around the following three areas:
. BUSINESS SYSTEMS - Computer programs directly used to support our business;
----------------
. INFRASTRUCTURE - Computers and other business equipment like telephones and
--------------
fax machines; and
. BUSINESS PARTNERS - Year 2000 readiness of essential business partners.
-----------------
BUSINESS SYSTEMS. The business systems component includes a wide range of
- -----------------
computer programs that directly support Prudential's business operations
including systems for: insurance product processing, securities trading,
personnel record keeping and general accounting systems. All business systems
were analyzed to determine whether each computer program with a Year 2000
problem should be retired, replaced or renovated. The majority of this work has
been completed. A few remaining programs are currently being tested and
completion of this process is expected by June 1999.
INFRASTRUCTURE. As with business applications, we established a specific
- ---------------
methodology and process for addressing infrastructure issues. The
infrastructure effort includes mainframe computer system hardware and operating
system software, mid-range systems and servers, telecommunications equipment and
systems, buildings and facilities systems, personal computers, and vendor
hardware and software. Other than desktop systems, substantially all other
infrastructure systems have been tested. Presently a small number of midrange
computers, and building and facility systems are still in the testing phase. We
expect to have the infrastructure implementation process completed by June 1999.
BUSINESS PARTNERS. Prudential recognizes the importance of determining the Year
- ------------------
2000 readiness of external business relationships especially those that involve
electronic data transfer products and services, and products that impact our
essential business processes. Prudential first classified each business partner
as "highly critical" or "less critical" to our business and then began to
develop risk assessment and contingency plans to address the potential that a
business partner could experience a Year 2000 failure. All highly critical
business partner relationships have been assessed and contingency planning is
completed. Risk assessment and contingency planning continues for less critical
business partners, and the target completion date for these relationships is
June 1999.
Prudential believes that the Business Systems, Infrastructure and Business
Partners components of the Year 2000 project are substantially on schedule. A
small number of the projects may not meet their targeted completion date.
However, Prudential expects that these projects will be completed by
39
<PAGE>
September, 1999. If there are any delays, they should not have a significant
impact on the timing of the project as a whole.
THE COST OF YEAR 2000 READINESS
Prudential is funding the Year 2000 program from internal operating budgets, and
estimates that its total costs to address the Year 2000 issue will total
approximately $220 million. Because these expenses were part of the operating
budget, they did not impact the management of Cornerstone Survivorship
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
Cornerstone Survivorship Contracts.
YEAR 2000 RISKS AND CONTINGENCY PLANNING
Prudential believes that it is well positioned to lessen the impact of the Year
2000 problem. However, given the nature of this issue, we can not be 100%
certain that we are completely prepared, particularly because we can not be
certain of Year 2000 readiness of third parties. As a result, we are unable to
determine at this time whether the consequences of Year 2000 failures may have a
material adverse effect on the results of Prudential's operations, liquidity or
financial condition. In the worst case, it is possible that a Year 2000
technology failure, whether internal or external, could have a material impact
on Prudential's results of operations, liquidity, or financial position. If
Prudential is unable to address the Year 2000 problem, we may have difficulty in
responding to your incoming phone calls, calculating your unit values or
processing withdrawals and purchase payments. It is also possible that the
mutual funds associated with the Cornerstone Survivorship Contract will be
unable to value their securities, in turn creating difficulties in purchasing or
selling shares of the respective mutual fund and calculating corresponding unit
asset values. The objective of Prudential's Year 2000 program has been to reduce
these risks as much as possible.
Most of the operations of the Cornerstone Survivorship Contract involve such a
large number of individual transactions that they can only be handled with the
help of computers. As a result, our current contingency plans include responses
to the failure of specific business programs or infrastructure components.
However, our contingency responses are now being reviewed and we expect to
finalize them by June, 1999 to ensure that they are workable under the special
conditions of a Year 2000 failure. Prudential believes that with the completion
of its Year 2000 program as scheduled, the possibility of significant
interruptions of normal operations will be reduced.
ADDITIONAL INFORMATION
Pruco Life has filed a registration statement with the SEC under the Securities
Act of 1933, relating to the offering described in this prospectus. This
prospectus does not include all of 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. The address and
telephone number are set forth on the inside front cover of this prospectus.
FINANCIAL STATEMENTS
The financial statements of the Account should be distinguished from the
consolidated financial statements of Pruco Life and subsidiaries, which should
be considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
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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.
41
<PAGE>
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.
42
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CORNERSTONE SURVIVORSHIP
VARIABLE UNIVERSAL
LIFE INSURANCE
Cornerstone Survivorship is issued by Pruco Life Insurance Company, 213
Washington Street, Newark, NJ 07102-2992 and offered through Pruco
Securities Corporation, 751 Broad Street, Newark, NJ 07102-3777, both
subsidiaries of The Prudential Insurance Company of America, 751 Broad
Street, Newark, NJ 07102-3777.
[LOGO] PRUDENTIAL
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone: 800 782-5356
CSVUL-1 Ed. 5/2000
<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 Survivorship 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 48 pages.
The undertaking to file reports.
The representation with respect to charges.
The signatures.
Written consents of the following persons:
None.
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 1)
(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 13)
(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 13)
(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 13)
(iv) (a) MFS Variable Insurance Trust, Emerging Growth
Series. (Note 11)
(b) Amendment to the MFS Variable Insurance Trust
Participation Agreement. (Note 13)
(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 13)
(vi) (a) Templeton Variable Products Series, Franklin
Small Cap Investments Fund - Class 2. (Note 1)
(b) Amendment to the Templeton Variable Products
Series Participation Agreement. (Note 13)
(4) Not Applicable.
(5) Survivorship Variable Universal Life Insurance Contract. (Note 1)
(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)
II-2
<PAGE>
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form for Survivorship Variable Universal Life
Insurance Contract. (Note 12)
(b) Supplement to the Application for Survivorship 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 1)
(13) Available Contract Riders and Endorsements.
(a) Rider for Term Insurance Benefit on Life of Second Insured
to Die. (Note 13)
(b) Option to Exchange for Separate Contracts. (Note 13)
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 13)
4. None.
5. Not Applicable.
6. Opinion and Consent of Ching-Meei Chang, FSA, MAAA, as to actuarial matters
pertaining to the securities being registered. (Note 13)
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 onbehalf 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 Form S-6, Registration No. 333-85115,
filed on August 13, 1999 on behalf of the Pruco Life Variable
Universal Account.
(Note 13) To be filed by Pre-Effective Amendment.
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 5th day of January, 2000.
(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 5th day of January, 2000.
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
1.A.(1)(b) Amendment of Separate Account Resolution.
1.A.(3)(d)(vi)(a) Participation Agreement for Templeton Variable Products
Series, Franklin Small Cap Investments Fund - Class 2.
1.A.(5) Survivorship Variable Universal Life Insurance Contract.
1.A.(12) Memorandum describing Pruco Life Insurance Company's
issuance, transfer, and redemption procedures for the
Contract's pursuant to Rule 6e-3(T)(b)(12)(iii).
<PAGE>
Exhibit 1.A.(1)(b)
PRUCO LIFE INSURANCE COMPANY
Action by the Executive Committee of
Board of Directors by Unanimous Consent
Pursuant to Section 4.12 of Article IV of the By-Laws of Pruco Life
Insurance Company, an Arizona corporation, and pursuant to Section 10-0444 of
the Arizona General Corporation Law, the undersigned, being, or acting for all
the regular members of the Executive Committee of the Board of Directors of such
Company, hereby consent to and adopt the following resolution:
R-907 ESTABLISHMENT OF VUL SUBACCOUNTS
--------------------------------
RESOLVED, that the Resolution (R-447) establishing the Pruco Life Variable
Universal Account (the "Account"), adopted April 17, 1989, amended on September
3, 1998 is hereby amended additionally to allow for purchase payments received
in connection with the Company's individual variable life insurance contracts as
they may determine from time to time, and the dividends, interest and gains
produced thereby, to be invested and reinvested in shares of the various
portfolios of The Prudential Series Fund, Inc. and in any or all of the
following investment company portfolios at the net asset value of such shares at
the time of acquisition:
<TABLE>
<CAPTION>
FUND/SERIES PORTFOLIO
<S> <C>
AIM Variable Insurance Funds, Inc. AIM V.I. Value Fund
American Century VP Value Portfolios, Inc. American Century VP Value Fund
Janus Aspen Series Growth Portfolio
MFS Variable Insurance Trust Emerging Growth Series
T. Rowe Price International Series, Inc. International Stock Portfolio
Templeton Variable Products Franklin Small Cap Investments Fund - Class Two
</TABLE>
December 2, 1999
/S/
------------------------------
James J. Avery, Jr.
/S/
------------------------------
Esther H. Milnes
/S/
------------------------------
I. Edward Price
<PAGE>
EXHIBIT: 1.A. (3)(d)(vi)(a)
PARTICIPATION AGREEMENT
AMONG TEMPLETON VARIABLE PRODUCTS SERIES FUND,
FRANKLIN TEMPLETON DISTRIBUTORS, INC. AND
PRUCO LIFE INSURANCE COMPANY
THIS AGREEMENT made as of September 1, 1998, among Templeton Variable
Products Series Fund (the "Trust"), an open-end management investment company
organized as a business trust under Massachusetts law, Franklin Templeton
Distributors, Inc., a California corporation, the Trust's principal underwriter
("Underwriter"), and Pruco Life Insurance Company, a life insurance company
organized as a corporation under Arizona law (the "Company"), on its own behalf
and on behalf of each segregated asset account of the Company set forth in
Schedule A, as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
--------------------
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Underwriter desire that Trust shares be used as
an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets, and certain of those series, named in
Schedule B, (the "Portfolios") are to be made available for purchase by the
Company for the Accounts; and
WHEREAS, the Trust has received an order from the SEC, dated November 16,
1993 (File No. 812-8546), granting Participating Insurance Companies and their
separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act, and Rules 6e-2 (b)(15) and 6e-3 (T)(b)(15)
thereunder, to the extent necessary to permit shares of the Trust to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Shared Funding Exemptive Order");
<PAGE>
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised; and has registered
or will register certain variable annuity contracts and variable life insurance
policies, listed on Schedule C attached hereto, under which the portfolios are
to be made available as investment vehicles (the "Contracts") under the 1933 Act
unless such interests under the Contracts in the Accounts are exempt from
registration under the 1933 Act and the Trust has been so advised;
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such account on Schedule A hereto, to set aside
and invest assets attributable to one or more Contracts; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, each investment adviser listed on Schedule B (each, an "Adviser")
is duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended ("Advisers Act") and any applicable state securities laws;
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Contracts and the Underwriter
is authorized to sell such shares to unit investment trusts such as each Account
at net asset value;
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE 1.
PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
-------------------------------------------------
1.1. For purposes of this Article 1, the Company shall be the Trust's agent
for receipt of purchase orders and requests for redemption relating to each
Portfolio from each Account, provided that the Company notifies the Trust of
such purchase orders and requests for redemption by 9:00 a.m. Eastern time on
the next following Business Day, as defined in Section 1.3.
1.2. The Trust agrees to make shares of the Portfolios available to the
Accounts for purchase at the net asset value per share next computed after
receipt of a purchase order by the Trust (or its agent), as established in
accordance with the provisions of the then current prospectus of the Trust
2
<PAGE>
describing Portfolio purchase procedures on those days on which the Trust
calculates its net asset value pursuant to rules of the SEC, and the Trust shall
use its best efforts to calculate such net asset value on each day on which the
New York Stock Exchange ("NYSE") is open for trading. The Company will transmit
orders from time to time to the Trust for the purchase of shares of the
Portfolios. The Trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or if, in the sole discretion of the Trustees acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, such action is deemed in the best interests of the shareholders of
such Portfolio.
1.3 The Company shall submit payment for the purchase of shares of a
Portfolio on behalf of an Account no later than the close of business on the
next Business Day after the Trust receives the purchase order. Payment shall be
made in federal funds transmitted by wire to the Trust or its designated
custodian. Upon receipt by the Trust of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust for this purpose. "Business Day" shall mean any day
on which the NYSE is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the SEC.
1.4 The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust describing Portfolio redemption procedures.
The Trust shall make payment for such shares in the manner established from time
to time by the Trust. Redemption with respect to a Portfolio will normally be
paid to the Company for an Account in federal funds transmitted by wire to the
Company before the close of business on the next Business Day after the receipt
of the request for redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market conditions
exist, but in no event shall payment be delayed for a greater period than is
permitted by the 1940 Act.
1.5 Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 may be netted against one another on any
Business Day for the purpose of determining the amount of any wire transfer on
that Business Day.
1.6 Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the Account.
3
<PAGE>
Portfolio Shares purchased from the Trust will be recorded in the appropriate
title for each Account or the appropriate subaccount of each Account.
1.7 The Trust shall furnish, on or before the ex-dividend date, notice to
the Company of any income dividends or capital gain distributions payable on the
shares of any Portfolio of the Trust. The Company hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. The Trust shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.8 The Trust shall calculate the net asset value of each Portfolio on
each Business Day, as defined in Section 1.3. The Trust shall make the net asset
value per share for each Portfolio available to the Company or its designated
agent on a daily basis as soon as reasonably practical after the net asset value
per share is calculated (normally by 6:30 p.m. Eastern time) and shall use
reasonable efforts to make such net asset value per share available by 7:00 p.m.
Eastern time each Business Day.
1.9 The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Shared
Funding Exemptive Order. No shares of any Portfolio will be sold directly to
the general public. The Company agrees that it will use Trust shares only for
the purposes of funding the Contracts through the Accounts listed in Schedule A,
as amended from time to time.
1.10 The Company agrees that all net amounts available under the Contracts
shall be invested in the Trust, in such other Funds advised by an Adviser or its
affiliates as may be mutually agreed to in writing by the parties hereto, or in
the Company's general account, provided that such amounts may also be invested
in an investment company other than the Trust if: (a) such other investment
company, or series thereof, has investment objectives or policies that are
substantially different from the investment objectives and policies of the
Portfolios; or (b) the Company gives the Trust and the Underwriter 45 days
written notice of its intention to make such other investment company as a
funding vehicle for the Contracts; or (c) such other investment company is
available as a funding vehicle for the Contracts at the date of this Agreement
and the Company so informs the Trust and the Underwriter prior to their signing
this Agreement (a list of such investment companies appearing on Schedule D to
this Agreement); or (d) the Trust or Underwriter consents to the use of such
other investment company.
1.11 The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts
4
<PAGE>
of interest corresponding to those contained in Section 2.10 and Article IV of
this Agreement.
1.12 Each party to this Agreement shall have the right to rely on
information or confirmations provided by any other party (or by any affiliate of
any other party), and shall not be liable in the event that an error results
from any incorrect information or confirmations supplied by any other party. If
an error is made in reliance upon incorrect information or confirmations, any
amount required to make a Contract owner's account whole shall be borne by the
party who provided the incorrect information or confirmation.
ARTICLE II.
OBLIGATIONS OF THE PARTIES; FEES AND EXPENSES
---------------------------------------------
2.1 The Trust shall prepare and be responsible for filing with the SEC and
any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Trust.
The Trust shall bear the costs of registration and qualification of its shares
of the Portfolios, preparation and filing of the documents listed in this
Section 2.1 and all taxes to which an issuer is subject on the issuance and
transfer of its shares.
2.2 At the option of the Company, the Trust or the Underwriter shall either
(a) provide the Company with as many copies of portions of the Trust's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
pertaining specifically to the Portfolios as the Company shall reasonably
request; or (b) provide the Company with a camera ready copy of such documents
in a form suitable for printing and from which information relating to series of
the Trust other than the Portfolios has been deleted to the extent practicable.
The Trust or the Underwriter shall provide the Company with a copy of its
current statement of additional information, including any amendments or
supplements, in a form suitable for duplication by the Company. Expenses of
furnishing such documents for marketing purposes shall be borne by the Company
and expenses of furnishing such documents for current contract owners invested
in the Trust shall be borne by the Trust or the Underwriter.
2.3 The Trust (at its expense) shall provide the Company with copies of any
Trust-sponsored proxy materials in such quantity as the Company shall reasonably
require for distribution to Contract owners. The Company shall bear the costs of
distributing proxy materials (or similar materials such as voting solicitation
instructions), prospectuses and statements of additional information to Contract
owners. The Company assumes sole responsibility for ensuring that
5
<PAGE>
such materials are delivered to Contract owners in accordance with applicable
federal and state securities laws.
2.4 If and to the extent required by law, the Company shall: (i) solicit
voting instructions from Contract owners; (ii) vote the Trust shares in
accordance with the instructions received from Contract owners; and (iii) vote
Trust shares for which no instructions have been received in the same proportion
as Trust shares of such Portfolio for which instructions have been received; so
long and as to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The Company
reserves the right to vote Trust shares held in any segregated asset account in
its own right, to the extent permitted by law.
2.5 Except as provided in section 2.6, the Company shall not use any
designation comprised in whole or part of the names or marks "Franklin" or
"Templeton" or any other Trademark relating to the Trust or Underwriter without
prior written consent, and upon termination of this Agreement for any reason,
the Company shall cease all use of any such name or mark as soon as reasonably
practicable.
2.6 The Company shall furnish, or cause to be furnished to the Trust or
its designee, at least one complete copy of each registration statement,
prospectus, statement of additional information, retirement plan disclosure
information or other disclosure documents or similar information, as applicable
(collectively "disclosure documents"), as well as any report, solicitation for
voting instructions, sales literature and other promotional materials, and all
amendments to any of the above that relate to the Contracts or the Accounts
prior to its first use. The Company shall furnish, or shall cause to be
furnished, to the Trust or its designee each piece of sales literature or other
promotional material in which the Trust or an Adviser is named, at least 10
Business Days prior to its use. No such material shall be used if the Trust or
its designee reasonably objects to such use within five Business Days after
receipt of such material. For purposes of this paragraph, "sales literature or
other promotional material" includes, but is not limited to, portions of the
following that use any Trademark related to the Trust or Underwriter or refer to
the Trust or affiliates of the Trust: advertisements (such as material published
or designed for use in a newspaper, magazine or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures or electronic communication or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts or
any other advertisement, sales literature or published article or electronic
communication), educational or training materials or other communications
distributed or made generally
6
<PAGE>
available to some or all agents or employees, and disclosure documents,
shareholder reports and proxy materials.
2.7 The Company and its agents shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
the Underwriter or an Adviser in connection with the sale of the Contracts other
than information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
annual and semi-annual reports of the Trust, Trust-sponsored proxy statements,
or in sales literature or other promotional material approved by the Trust or
its designee, except as required by legal process or regulatory authorities or
with the written permission of the Trust or its designee.
2.8 The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and each
Adviser, in such form as the Company may reasonably require, as the Company
shall reasonably request in connection with the preparation of disclosure
documents and annual and semi-annual reports pertaining to the Contracts.
2.9 The Trust shall not give any information or make any representations
or statements on behalf of the Company or concerning the Company, the Accounts
or the Contracts other than information or representations contained in and
accurately derived from disclosure documents for the Contracts (as such
disclosure documents may be amended or supplemented from time to time), or in
materials approved by the Company for distribution including sales literature or
other promotional materials, except as required by legal process or regulatory
authorities or with the written permission of the Company.
2.10 So long as, and to the extent that, the SEC interprets the 1940 Act to
require pass-through voting privileges for Contract owners, the Company will
provide pass-through voting privileges to Contract owners whose Contract values
are invested, through the registered Accounts, in shares of one or more
Portfolios of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each registered
Account, the Company will vote shares of each Portfolio of the Trust held by a
registered Account and for which no timely voting instructions from Contract
owners are received in the same proportion as those shares held by that
registered Account for which voting instructions are received. The Company and
its agents will in no way recommend or oppose or interfere with the
solicitation of proxies for Portfolio shares held to fund the Contracts without
the prior written consent of the Trust, which consent may be withheld in the
Trust's sole discretion.
7
<PAGE>
2.11 The Trust and Underwriter shall pay no fee or other compensation to
the Company under this Agreement except as provided on Schedule E, if attached.
Nevertheless, the Trust or the Underwriter or an affiliate may make payments
(other than pursuant to a Rule 12b-1 Plan) to the Company or its affiliates or
to the Contracts' underwriter in amounts agreed to by the Underwriter in writing
and such payments may be made out of fees otherwise payable to the Underwriter
or its affiliates, profits of the Underwriter or its affiliates, or other
resources available to the Underwriter or its affiliates.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of its state of incorporation
and that it has legally and validly established each Account as a segregated
asset account under such law as of the date set forth in Schedule A.
3.2 The Company represents and warrants that, with respect to each
Account, (1) the Company has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated asset account for
the Contracts, or (2) if the Account is exempt from registration as an
investment company under Section 3(c) of the 1940 Act, the Company will make
every effort to maintain such exemption and will notify the Trust and the
Adviser immediately upon having a reasonable basis for believing that such
exemption no longer applies or might not apply in the future.
3.3 The Company represents and warrants that, with respect to each
Contract, (1) the Contract will be registered under the 1933 Act, or (2) if the
Contract is exempt from registration under Section 3 (a)(2) of the 1933Act or
under Section 4(2) and Regulation D of the 1933 Act, the Company will make every
effort to maintain such exemption and will notify the Trust and the Adviser
immediately upon having a reasonable basis for believing that such exemption no
longer applies or might not apply in the future. The Company further represents
and warrants that the Contracts will be sold by broker-dealers, or their
registered representatives, who are registered with the SEC under the 1934 Act
and who are members in good standing of the NASD; the Contracts will be issued
and sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
with state insurance suitability requirements.
For any unregistered Accounts which are exempt from registration under the
'40 Act in reliance upon Sections 3(c)(1) or 3(c)(7) thereof, the Company
represents and warrants that:
8
<PAGE>
(a) each Account and sub-account thereof has a principal underwriter which
is registered as a broker-dealer under the Securities Exchange Act of
1934, as amended;
(b) Trust shares are and will continue to be the only investment
securities held by the corresponding Account sub-accounts; and
(c) with regard to each Portfolio, the Company, on behalf of the
corresponding sub-account, will:
(1) seek instructions from all Contract owners with regard to the
voting of all proxies with respect to Trust shares and vote such
proxies only in accordance with such instructions or vote such
shares held by it in the same proportion as the vote of all other
holders of such shares; and
(2) refrain from substituting shares of another security for such
shares unless the SEC has approved such substitution in the
manner provided in Section 26 of the '40 Act.
3.4 The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Massachusetts and that it does
and will comply in all material respects with the 1940 Act and the rules and
regulations thereunder.
3.5 The Trust represents and warrants that the Portfolio shares offered
and sold pursuant to this Agreement will be registered under the 1933 Act and
the Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust or the
Underwriter.
3.6 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for variable
annuity, endowment or life insurance contracts set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended ("Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply and will
in that event
9
<PAGE>
3.5 The Trust represents and warrants that the portfolio shares ofered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust or the
Underwriter.
3.6 The trust represents and warrants that the investments of each
portfolio will comply with the diversification requirements for variable
annuity, endownmwnr or life insurance contracts set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended ("Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation 1.817-
5, and will notify the Company immediately upon having a reasonable basis for
believing any portfolio has ceased to comply or might not so comply and will in
that event immediately take all reasonable steps to adequately diversify the
portfolio to achieve compliance within the grace period afforded by Regulation
1.817.5.
3.7 The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it will make
every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
3.8 The Trust represents and warrants that should it ever desire to make
any payments to finance distribution expenses pursuant to Rule 12b-1 under the
1940 Act, the Trustees, including a majority who are not "interested persons" of
the Trust under the 1940 Act ("disinterested Trustees"), will formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
3.9 The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less that the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.10 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the trusts are and shall be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Trust, in an amount not less than $5 million. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. The Company agrees to make all reasonable efforts to see that
this bond or another bond containing these provisions is always in effect, and
agrees to notify the Trust and the Underwriter in the event that such coverage
no longer applies.
3.11 The Underwriter represents that each Adviser is duly organized and
validly existing under applicable corporate law and that it is registered and
will during the term of this Agreement remain registered as an investment
adviser under the Advisers Act.
3.12 The Trust currently intends for one or more Classes to make payments
to finance its distribution expenses, including service fees, pursuant to a Plan
adopted under Rule 12b-1 under the 1940 Act ("Rule 12b-1"), although it may
determine to discontinue such practice in the future. To the extent that any
Class of the Trust finances its distribution expenses pursuant to a Plan adopted
under Rule 12b-1, the Trust undertakes to comply with any then current SEC and
SEC staff interpretations concerning Rule 12b-1 or any successor provisions.
10
<PAGE>
ARTICLE IV.
POTENTIAL CONFLICTS
-------------------
4.1 The parties acknowledge that a Portfolio's shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. An irreconcilable material conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The trust shall promptly inform the Company of any determination by the
Trustees that an irreconcilable material conflict exists and of the implications
thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard Contract
owner voting instructions. All communications from the Company to the Trustees
may be made in care of the Trust.
4.3 If it is determined by a majority of the Trustees, or a majority of the
disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also
affected, at its own expense and to the extent reasonably practicable (as
determined by the Trustees) take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, which steps could include: (a)
withdrawing the assets allocable to some or all of the Accounts from the Trust
or any Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Trust, or submitting the
question of whether or not such withdrawal should be implemented to a vote of
all affected Contract owners and, as appropriate, withdrawal of the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of
11
<PAGE>
such withdrawal, or offering to the affected Contract owners the option of
making such a change; and (b) establishing a new registered management
investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with a
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Trust be required to establish a new funding medium for the Contracts. In
the event that the Trustees determine that any proposed action does not
adequately remedy any irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Shared
12
<PAGE>
Funding Exemptive Order, and said reports, materials and data shall be submitted
more frequently if reasonably deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
ARTICLE V.
INDEMNIFICATION
---------------
5.1 Indemnification By the Company
------------------------------
(a) The Company agrees to indemnify and hold harmless the Trust
and each of its Trustees, officers, employees and agents and each
person, if any, who controls the Trust within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" and
individually the "Indemnified Party" for purposes of this Article V)
against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company,
which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal
counsel fees incurred in connection therewith) (collectively,
"Losses"), to which the Indemnified Parties may become subject under
any statute or regulation, or at common law or otherwise, insofar as
such Losses are related to the sale or acquisition of Trust Shares or
the Contracts and
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
disclosure document for the Contracts or in the Contracts
themselves or in sales literature generated or approved by the
Company on behalf of the Contracts or Accounts (or any amendment
or supplement to any of the foregoing) (collectively, "Company
Documents" for the purposes of this Article V), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein
13
<PAGE>
not misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Company by or on
behalf of the Trust for use in Company Documents or otherwise for use
in connection with the sale of the Contracts or Trust shares; or
(ii) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Trust Documents as defined in Section 5.2 (a)(i)) or
wrongful conduct of the Company or persons under its control, with
respect to the sale or acquisition of the Contracts or Trust shares;
or
(iii) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust Documents as
defined in Section 5.2 (a)(i) or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately derived
from written information furnished to the Trust by or on behalf of the
Company; or
(iv) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company.
(b) The Company shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Trust or Underwriter, whichever is applicable. The Company shall also not
be liable under this indemnification provision with respect to any claim
made against an Indemnified Party unless such Indemnified Party shall have
notified the Company in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the
14
<PAGE>
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Company shall be entitled to
participate, at its own expense, in the defense of such action. The Company
also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the
Company to such party of the Company's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be liable to
such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
(c) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Trust shares or the Contracts or the
operation of the Trust.
5.2 Indemnification By The Underwriter
----------------------------------
(a) The Underwriter agrees to indemnify and hold harmless the Company, the
underwriter of the Contracts and each of its directors and officers and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" and individually an
"Indemnified Party" for purposes of this Section 5.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter, which consent shall not be unreasonably
withheld) or expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith) (collectively, "Losses") to
which the Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such Losses are related to the sale or acquisition
of the Trust's Shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement, prospectus or sales literature of the Trust (or any amendment or
supplement to any of the foregoing) (collectively,
15
<PAGE>
the "Trust Documents") or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission of such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Underwriter or Trust by or on behalf of the Company for
use in the Registration Statement or prospectus for the Trust or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the disclosure
documents or sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of the Trust,
Adviser or Underwriter or persons under their control, with respect to the
sale or distribution of the Contracts or Trust shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a disclosure document or sales literature
covering the Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Trust; or
(iv) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise,
to comply with the qualification representation specified in Section 3.7 of
this Agreement and the diversification requirements specified in Section
3.6 of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Underwriter; as limited by and in accordance with the provisions of
Sections 5.2(b) and 5.2(c) hereof.
(b) The Underwriter shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
16
<PAGE>
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to each Company or
the Account, whichever is applicable.
(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the expenses of any additional counsel retained by it, and the
Underwriter will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
5.3 Indemnification By The Trust
----------------------------
(a) The Trust agrees to indemnify and hold harmless the Company, and each
of its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 5.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Trust, which consent shall not be unreasonably withheld) or
litigation (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements result from the gross negligence, bad faith or willful
17
<PAGE>
misconduct of the Board or any member thereof, are related to the operations of
the Trust, and arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or arise out
of or result from any other material breach of this Agreement by the Trust; as
limited by and in accordance with the provisions of Section 5.3(b) and 5.3(c)
hereof. It is understood and expressly stipulated that neither the holders of
shares of the Trust nor any Trustee, officer, agent or employee of the Trust
shall be personally liable hereunder, nor shall any resort to be had to other
private property for the satisfaction of any claim or obligation hereunder, but
the Trust only shall be liable.
(b) The Trust shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation incurred or
assessed against any Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Trust, the Underwriter or each Account, whichever is applicable.
(c) The Trust shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Trust in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claims shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall not
relieve the Trust from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Trust will be entitled to participate, at its own
expense, in the defense thereof. The Trust also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Trust to such party of the Trust's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Trust will not be liable to such
party under this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof other than
reasonable costs of investigation.
(d) The Company and the Underwriter agree promptly to notify the Trust of
the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this
18
<PAGE>
Agreement, the issuance or sale of the Contracts, with respect to the
operation of either the Account, or the sale or acquisition of share of the
Trust.
ARTICLE VI.
TERMINATION
-----------
6.1 This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios or any reason by sixty (60) days advance
written notice delivered to the other parties, and shall terminate immediately
in the event of its assignment, as that term is used in the 1940 Act.
6.2 This Agreement may be terminated immediately by either the Trust or
the Underwriter following consultation with the Trustees upon written notice to
the Company if:
(a) the Company notifies the Trust or the Underwriter that the
exemption from registration under Section 3(c) of the 1940 Act no longer
applies, or might not apply in the future, to the unregistered Accounts, or
that the exemption from registration under Section 4(2) or Regulation D
promulgated under the 1933 Act no longer applies or might not apply in the
future, to interests under the unregistered Contracts; or
(b) either one or both of the Trust or the Underwriter
respectively, shall determine, in their sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its
business, operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity; or
(c) the Company gives the Trust and the Underwriter the written
notice specified in Section 1.10 hereof and at the same time such notice
was given there was no notice of termination outstanding under any other
provision of this Agreement; provided, however, that any termination under
this Section 6.2(c) shall be effective forty-five (45) days after the
notice specified in Section 1.10 was given.
6.3 If this Agreement is terminated for any reason, except under Article
IV (Potential Conflicts) above, the Trust shall, at the option of the Company,
continue to make available additional shares of any Portfolio and redeem shares
of any Portfolio pursuant to all of the terms and conditions of this Agreement
for all Contracts in effect on the effective
19
<PAGE>
date of termination of this Agreement. If this Agreement is terminated pursuant
to Article IV, the provisions of Article IV shall govern.
6.4 The provisions of Articles II (Representations and Warranties) and V
(indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 6.3, except that the Trust and the Underwriter shall
have no further obligation to sell Trust shares with respect to Contracts issued
after termination.
6.5 The Company shall not redeem Trust shares attributable to the Contracts
(as opposed to Trust shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Trust and the
Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Trust and the Underwriter) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Trust or the Underwriter 90 days notice of its intention to do so.
ARTICLE VII.
NOTICES.
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust or the Underwriter:
Templeton Variable Products Series Fund or
Franklin Templeton Distributors, Inc.
500 E. Broward Boulevard
Fort Lauderdale, FL 33394-3091
Attention: Barbara J. Green, Trust Secretary
20
<PAGE>
WITH A COPY TO
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404
Attention: Karen L. Skidmore, Senior Corporate Counsel
If to the Company:
Pruco Life Insurance Company
751 Broad Street
Newark, New Jersey 07102-2992
Attention: Kirk Montgomery, Esq.
ARTICLE VIII.
MISCELLANEOUS
-------------
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Florida. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the SEC granting
exemptive relief therefrom and the conditions of such orders. Copies of any such
orders shall be promptly forwarded by the Trust to the Company.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD, and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
21
<PAGE>
8.7 Each party hereto shall treat as confidential the names and addresses
of the Contract owners and all information reasonably identified as confidential
in writing by any other party hereto, and, except as permitted by this Agreement
or as required by legal process or regulatory authorities, shall not disclose,
disseminate, or utilize such names and addresses and other confidential
information until such time as they may come into the public domain, without the
express written consent of the affected party. Without limiting the foregoing,
no party hereto shall disclose any information that such party has been advised
is proprietary, except such information that such party is required to disclose
by any appropriate governmental authority (including, without limitation, the
SEC, the NASD, and state securities and insurance regulators).
8.8 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.9 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect, except as provided in Section
1.10.
8.10 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.11 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
22
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Participation Agreement as of the date and year first above
written.
The Company:
Pruco Life Insurance Company
----------------------------
By its authorized officer
By: /s/ Edward A. Minogue
----------------------
Name: Edward A. Minogue
Title: Senior Vice President
The Trust:
Templeton Variable Products Series Fund
---------------------------------------
By its authorized officer
By: /s/ Karen L. Skidmore
----------------------
Name: Karen L. Skidmore
Title: Assistant Vice President, Assistant Secretary
The Underwriter:
Franklin Templeton Distributors, Inc.
-------------------------------------
By its authorized officer
By: /s/ Deborah R. Gatzek
----------------------
Name: Deborah R. Gatzek
Title: Senior Vice President, Assistant Secretary
23
<PAGE>
SCHEDULES
SCHEDULE A
SEPARATE ACCOUNTS OF
--------------------
PRUCO INSURANCE COMPANY
-----------------------
Pruco Life Flexible Premium Variable Annuity Account
Date Established: June 16, 1995
SEC Registration Number: 333-06701
24
<PAGE>
SCHEDULE B
TRUST PORTFOLIOS AND CLASSES AVAILABLE
--------------------------------------
Templeton Variable Products Series Adviser
- ---------------------------------- -------
Franklin Small Cap Investments Fund Franklin Advisers, Inc.
-Class 2
25
<PAGE>
SCHEDULE C
VARIABLE ANNUITY CONTRACTS
ISSUED BY PRUCO LIFE INSURANCE COMPANY
--------------------------------------
DISCOVERY SELECT(SM) Annuity Contract
Form No. ORD 96639
26
<PAGE>
SCHEDULE D
OTHER PORTFOLIOS AVAILABLE UNDER THE CONTRACTS
----------------------------------------------
1. The Prudential Series Fund, Inc.
Money Market Portfolio
Diversified Bond Portfolio
High Yield Bond Portfolio
Stock Index Portfolio
Equity Income Portfolio
Equity Portfolio
Prudential Jennison Portfolio
Global Portfolio
2. AIM Variable Insurance Funds, Inc.
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
3. Janus Aspen Series
Growth Portfolio
International Growth Portfolio
4. MFS Variable Insurance Trust
Emerging Growth Series
Research Series
5. OCC Accumulation Trust
Managed Portfolio
Small Cap Portfolio
6. T. Rowe Price Equity Series, Inc.
Equity Income Portfolio
7. T. Rowe Price International Series, Inc.
International Stock Portfolio
8. Warburg Pincus Trust
Post-Venture Capital Portfolio
27
<PAGE>
SCHEDULE E
RULE 12B-1 PLANS
COMPENSATION SCHEDULE
---------------------
Each Portfolio named below shall pay the following amounts pursuant to the terms
and conditions referenced below under its Class 2 Rule 12b-1 Distribution Plan,
stated as a percentage per year of Class 2's average daily net assets
represented by shares of Class 2.
Portfolio Name Maximum Annual Payment Rate
- --------------------------------------------------------------------------------
Franklin Small Cap Investments Fund 0.25%
Agreement Provisions
--------------------
If the Company, on behalf of any Account, purchases Fund shares ("Eligible
Shares") which are subject to a Rule 12b-1 Plan adopted under the 1940 Act (the
"Plan"), the Company may participate in the Plan.
To the extent the Company or its affiliates, agents or designees
(collectively "you") you provide administrative and other services which assist
in the promotion and distribution of Eligible Shares or Variable Contracts
offering Eligible Shares, the Underwriter, the Trust or their affiliates
(collectively, "we") may pay you a Rule 12b-1 fee. "Administrative and other
services" may include, but are not limited to, furnishing personal services to
owners of Contracts which may invest in Eligible Shares ("Contract Owners"),
answering routine inquiries regarding a Portfolio, coordinating responses to
Contract Owner inquiries regarding the Portfolios, maintaining such accounts or
providing such other enhanced services as a Trust Portfolio or Contract may
require, maintaining customer accounts and records, or providing other services
eligible for service fees as defined under NASD rules. Your acceptance of such
compensation is your acknowledgement that eligible services have been rendered.
All Rule 12b-1 fees, shall be based on the value of Eligible Shares owned by the
Company on behalf of its Accounts, and shall be calculated on the basis and at
the rates set forth in the Compensation Schedule stated above. The aggregate
annual fees paid pursuant to each Plan shall not exceed the amounts stated as
the "annual maximums" in the Portfolio's prospectus, unless an increase is
approved by shareholders as provided in the Plan. These maximums shall be a
specified percent of the value of a Portfolio's net assets attributable to
Eligible Shares owned by the Company on behalf of
28
<PAGE>
its Accounts (determined in the same manner as the Portfolio uses to compute its
net assets as set forth in its effective Prospectus).
You shall furnish us with such information as shall reasonably be requested
by the Trust's Boards of Trustees ("Trustees") with respect to the Rule 12b-1
fees paid to you pursuant to the Plans. We shall furnish to the Trustees, for
their review on a quarterly basis, a written report of the amounts expended
under the Plans and the purposes for which such expenditures were made.
The Plans and provisions of any agreement relating to such Plans must be
approved annually by a vote of the Trustees, including the Trustees who are not
interested persons of the Trust and who have no financial interest in the Plans
or any related agreement ("Disinterested Trustees"). Each Plan may be terminated
at any time by the vote of a majority of the Disinterested Trustees, or by a
vote of a majority of the outstanding shares as provided in the Plan, on sixty
(60) days' written notice, without payment of any penalty. The Plans may also be
terminated by any act that terminates the Underwriting Agreement between the
Underwriter and the Trust, and/or the management or administration agreement
between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and the Trust. Continuation of the Plans is also conditioned on
Disinterested Trustees being ultimately responsible for selecting and nominating
any new Disinterested Trustees. Under Rule 12b-1, the Trustees have a duty to
request and evaluate, and persons who are party to any agreement related to
a Plan have a duty to furnish, such information as may reasonably be necessary
to an informed determination of whether the Plan or any agreement should be
implemented or continued. Under Rule 12b-1, the Trust is permitted to implement
or continue Plans or the provisions of any agreement relating to such Plans from
year-to-year only if, based on certain legal considerations, the Trustees are
able to conclude that the Plans will benefit each affected Trust Portfolio and
class. Absent such yearly determination, the Plans must be terminated as set
forth above. In the event of the termination of the Plans for any reason, the
provisions of this Schedule E relating to the Plans will also terminate.
Any obligation assumed by the Trust pursuant to this Agreement shall be limited
in all cases to the assets of the Trust and no person shall seek satisfaction
thereof from shareholders of the Trust. You agree to waive payment of any
amounts payable to you by Underwriter under a Plan until such time as the
Underwriter has received such fee from the Fund.
29
<PAGE>
The provisions of the Plans shall control over the provisions of the
Participation Agreement, including this Schedule E, in the event of any
inconsistency.
You agree to provide complete disclosure as required by all applicable statutes,
rules and regulations of all rule 12b-1 fees received from us in the prospectus
of the contracts.
30
<PAGE>
Exhibit 1.A.(5)
Flexible Premium Survivorship Variable Life Insurance Policy. Survivorship
insurance payable only upon death of second Insured to die. Cash values reflect
premium payments, investment results, and charges. Non-participating.
We will promptly pay the beneficiary the death benefit described under the Death
Benefit provision of this contract if we receive due proof that both Insureds
died (but proof of the first death must be given to us when it occurs). We make
this promise subject to all the provisions of this contract.
The amount and duration of the death benefit may be fixed or variable, depending
on the payment of premiums, the investment experience of the variable investment
options, any excess interest credited to the fixed investment options, and the
charges made.
The cash value may increase or decrease daily, depending on the payment of
premiums, the investment experience of the variable investment options, any
interest credited to the fixed investment options, and the charges made. There
is no guaranteed minimum cash value.
If there is ever a question about this contract, please see a Pruco Life
Insurance Company representative or contact one of our offices.
Right to Cancel Contract. You may return this contract to us within 10 days
after you receive it. All you have to do is take the contract or mail it to one
of our offices or to the representative who sold it to you. It will be canceled
and we will return your money in accordance with applicable law.
PLEASE READ YOUR POLICY CAREFULLY; it is a legal contract between you and Pruco
Life Insurance Company.
<PAGE>
GUIDE TO CONTENTS
Contract Data
Insured(s) Information; Rating Class; Basic Contract Information; Type of
Death Benefit; Survivorship Insurance; Minimum Initial Premium; Contract
Limitations; Adjustments to Premium Payments; Adjustments to the Contract
Fund; Schedule of Maximum Surrender Charges; Variable Investment Options;
Fixed Interest Rate Investment Option; Initial Allocation of Invested
Premium Amounts
Table Of Death Benefit Guarantee Values
Table Of Maximum Monthly Insurance Rates Per $1000
Table Of Attained Age Factors
Definitions
The Contract
Entire Contract; Contract Modifications;
Incontestability
Ownership
Death Benefit Provisions
Death Benefit; Additional Death Benefits; Method of Payment; Suicide Exclusion;
Interest on Death Benefit; Simultaneous Death
Decrease in Basic Insurance Amount
Changing The Type Of Death Benefit
Beneficiary
Premium Payment
Payment of Premiums; Invested Premium Amount; Crediting the Initial Premium
Payment; Allocations
Contract Fund
Cash Value; Net Cash Value; Coverage Amount
Default
Excess Contract Debt Default, Cash Value Default, Notice of Default
Death Benefit Guarantee
Death Benefit Guarantee; Guarantee Values
Reinstatement
Separate Account
Separate Account; Variable Investment Options; Separate Account Investments
Fixed Investments
(SVUL2000)2
<PAGE>
Transfers
Surrender
Withdrawals
Effect on Contract Fund; Effect on Basic Insurance Amount
Loans
Loan Value; Contract Debt; Loan Requirements; Interest Charge; Preferred
Loans; Maximum Preferred Loan Amount; Effect on Contract Fund
General Provisions
Annual Report; Payment of Death Claim; Currency; Misstatement of Age or
Sex; Assignment; Change in Plan; Factors Subject To Change; Non-
Participating; Applicable Tax Law
Basis of Computation
Mortality Basis and Interest Rate; Minimum Legal Values
Settlement Options
Options Described; Interest Rate
Settlement Options Tables
A copy of the application and any riders or endorsements can be found at the end
of the contract.
(SVUL2000)2A
<PAGE>
(SVUL2000)2B
<PAGE>
PROCESSING DATE: XXX XX, XXXX
CONTRACT DATA
INSURED(S) INFORMATION
(1) [JOHN DOE] [Male], [Issue Age 55]
(2) [MARY DOE] [Female], [Issue Age 52]
================================================================================
RATING CLASS
Insured (1) [Non-smoker]
Insured (2) [Non-smoker]
================================================================================
BASIC CONTRACT INFORMATION
Policy Number [xx xxx xx]
Contract Date [January 1, 2000]
Premium Period While either Insured is living
Beneficiary [See Beneficiary Provision attached]
Loan Interest Rate 5.00%
Preferred Loan Interest Rate 4.25%
================================================================================
TYPE OF DEATH BENEFIT (see Death Benefit Provisions)
Type [A]
================================================================================
SURVIVORSHIP INSURANCE
Basic Insurance Amount [$250,000.00]
================================================================================
MINIMUM INITIAL PREMIUM
The minimum initial premium due on the Contract Date is [$541.36].
================================================================================
CONTRACT LIMITATIONS
The minimum premium we will accept is $25.00.
CONTRACT DATA CONTINUED ON THE NEXT PAGE
Page 3 (2000)
<PAGE>
PROCESSING DATE: XXX XX, XXXX
POLICY NO. XX XXX XXX
CONTRACT DATA CONTINUED
The minimum Basic Insurance Amount is $250,000.00.
The minimum decrease in Basic Insurance Amount is $10,000.00.
The minimum amount you may withdraw is $500.00.
The minimum amount you may borrow is $500.00.
The surrender charge threshold is [$250,000.00].
================================================================================
ADJUSTMENTS TO PREMIUM PAYMENTS
From each premium paid we will:
subtract a charge of up to 7.5% for any taxes attributable to premiums. For
--------
purposes of this charge, the term "taxes attributable to premiums" shall
include: (a) any federal, state or local income tax, (b) any premium, excise,
or business tax, and (c) any other type of tax (or component thereof) measured
by or based upon the amount of premium received by us.
subtract a charge for sales expenses from premiums paid in the first five
--------
contract years at a rate of up to 12%.
subtract a charge for sales expenses from premiums paid after the fifth
--------
contract year at a rate of up to 4%.
The remainder of the premium is the invested premium amount.
================================================================================
ADJUSTMENTS TO THE CONTRACT FUND
On the Contract Date the contract fund is equal to the invested premium amount
credited on that date, minus any of the charges described below which may be
-----
due on that date.
CONTRACT DATA CONTINUED ON NEXT PAGE
Page 3A (2000)
<PAGE>
PROCESSING DATE: XXX XX, XXXX
POLICY NO. XX XXX XXX
CONTRACT DATA CONTINUED
On each day after the contract date, we will adjust the contract fund by:
adding any invested premium amounts.
------
adding any increase due to investment results of the variable investment
------
options.
adding guaranteed interest at an effective annual rate of 4% (0.01074598% a
------
day) on that portion of the contract fund that is not in a variable
investment option (see Fixed Investments and Loans).
adding any excess interest on that portion of the contract fund that is not
------
in a variable investment option.
subtracting any decrease due to investment results of the variable investment
-----------
options.
subtracting a charge against the variable investment options at an effective
-----------
annual rate of not more than 0.90% a year (.00245475% a day) for mortality and
expense risks that we assume.
subtracting any withdrawals.
-----------
subtracting an administrative charge of up to $25.00 for any withdrawals.
-----------
subtracting an administrative charge of up to $25.00 for any decrease in Basic
-----------
Insurance Amount.
subtracting an administrative charge of up to $25.00 for each transfer
-----------
exceeding twelve in any contract year.
subtracting any surrender charge that may result from a withdrawal, surrender,
-----------
or reduction in the Basic Insurance Amount.
And on each monthly date, we will adjust the contract fund by:
subtracting a monthly charge for administrative expenses during the first five
-----------
Contract Years of up to $0.10 per $1000 of the Basic Insurance Amount plus
$10.00.
subtracting a monthly charge for administrative expenses after the first five
-----------
Contract Years of up to $0.05 per $1000 of the Basic Insurance Amount plus
$10.00.
subtracting a monthly charge for the cost of insurance of up to the maximum
-----------
monthly rate (see Table of Maximum Monthly Insurance Rates) multiplied by the
coverage amount divided by $1000. The coverage amount is equal to the death
benefit (see Death Benefit) minus the contract fund.
================================================================================
CONTRACT DATA CONTINUED ON NEXT PAGE
Page 3B (2000)
<PAGE>
PROCESSING DATE: XXX XX, XXXX
POLICY NO. XX XXX XXX
CONTRACT DATA CONTINUED
SCHEDULE OF MAXIMUM SURRENDER CHARGES
For a full surrender at the beginning of the contract year indicated, the
maximum charge we will deduct from the contract fund is shown below. For a
full surrender at other times, the surrender charge will reflect the completed
contract months that have passed since the last anniversary.
For a Surrender Occurring
At the Start of The Maximum Surrender
Contract Year Charge is
- --------------------------------------------------------------------------------
1 [$2,000.00]
2 [$2,000.00]
3 [$2,000.00]
4 [$2,000.00]
5 [$2,000.00]
6 [$2,000.00]
7 [$1,600.00]
8 [$1,200.00]
9 [$800.00]
10 [$400.00]
11 and later [$0.00]
- --------------------------------------------------------------------------------
We may also deduct a surrender charge when you decrease the Basic Insurance
Amount or change the type of death benefit, and when you make a withdrawal.
(See Decrease in Basic Insurance Amount, Changing the Type of Death Benefit,
and Withdrawals.)
===============================================================================
CONTRACT DATA CONTINUED ON NEXT PAGE
Page 3C (2000)
<PAGE>
PROCESSING DATE: XXX XX, XXXX
POLICY NO. XX XXX XXX
CONTRACT DATA CONTINUED
VARIABLE INVESTMENT OPTIONS
THE PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
Each variable investment option of this account invests in a specific
portfolio of The Prudential Series Fund, Inc. and such other funds as we may
specify from time to time. We show the available variable investment options
of the account below. Unless we say otherwise, the variable investment
options invest in funds or fund portfolios with the same names. This account
is registered with the SEC under the Investment Company Act of 1940.
THE PRUDENTIAL SERIES FUND, INC.
Money Market Portfolio
Diversified Bond Portfolio
Conservative Balanced Portfolio
Flexible Managed Portfolio
High Yield Bond Portfolio
Stock Index Portfolio
Equity Income Portfolio
Equity Portfolio
Prudential Jennison Portfolio
Global Portfolio
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Value Fund
JANUS ASPEN SERIES
Janus Aspen Growth Portfolio
MFS VARIABLE INSURANCE TRUST
MFS Emerging Growth Series
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
CONTRACT DATA CONTINUED ON NEXT PAGE
Page 3D (2000)
<PAGE>
PROCESSING DATE: XXX XX, XXXX
POLICY NO. XX XXX XXX
CONTRACT DATA CONTINUED
AMERICAN CENTURY VARIABLE PORTFOLIO, INC.
American Century VP Value Fund
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Small Cap Investments Fund-Class 2
FIXED INTEREST RATE INVESTMENT OPTION
The fixed interest rate investment option is funded by the general account of
the Company. It is described in the Fixed Investments provision of this
contract.
===============================================================================
INITIAL ALLOCATION OF INVESTED PREMIUM AMOUNTS
[Fixed Interest Rate Investment Option] [40%]
[Flexible Managed Portfolio] [60%]
===============================================================================
END OF CONTRACT DATA
Page 3E (2000)
<PAGE>
PROCESSING DATE: XXX XX, XXXX
POLICY NO. XX XXX XXX
TABLE(S)
Table of Death Benefit Guarantee Values
These values are used to determine the death benefit guarantee as described
under Death Benefit Guarantee. The values on contract anniversaries are shown
below. On a date that falls between two anniversaries, the value will fall
between the values for those anniversaries considering the time that has passed
since the last anniversary.
The Limited Death Benefit Guarantee period is the first [23] contract years.
Limited Lifetime
Contract Death Benefit Death Benefit
Anniversary Guarantee Value Guarantee Value
- --------------------------------------------------------------------------------
Contract Date [$0.00] [$0.00]
1st [$1,571.29] [$5,528.22]
2nd [$3,205.44] [$11,277.57]
3rd [$4,904.95] [$17,256.90]
4th [$6,672.44] [$23,475.40]
5th [$8,510.63] [$29,942.64]
6th [$25,074.19] [$36,668.57]
7th [$29,857.39] [$43,663.54]
8th [$34,831.92] [$50,938.31]
9th [$40,005.43] [$58,504.07]
10th [$45,385.88] [$66,372.46]
11th [$50,981.55] [$74,555.58]
12th [$56,801.05] [$83,066.03]
13th [$62,853.33] [$91,916.90]
14th [$69,147.70] [$101,121.80]
15th [$75,693.84] [$110,694.90]
16th [$82,501.83] [$120,650.92]
17th [$89,582.14] [$131,005.18]
18th [$96,945.66] [$141,773.61]
19th [$104,603.72] [$152,972.78]
20th [$112,568.10] [$164,619.92]
21st [$120,851.06] [$176,732.94]
22nd [$129,465.34] [$189,330.48]
23rd [$138,424.19] [$202,431.92]
24th [$216,057.42]
25th [$230,227.94]
TABLE(S) CONTINUED ON NEXT PAGE
Page 4 (2000)
<PAGE>
PROCESSING DATE: XXX XX, XXXX
POLICY NO. XX XXX XXX
TABLE(S) CONTINUED
Limited Lifetime
Contract Death Benefit Death Benefit
Anniversary Guarantee Value Guarantee Value
- --------------------------------------------------------------------------------
26th [$244,965.28]
27th [$260,292.12]
28th [$276,232.03]
29th [$292,809.54]
30th [$310,050.15]
31st [$327,980.38]
32nd [$346,627.82]
33rd [$366,021.16]
34th [$386,190.23]
35th [$407,166.06]
36th [$428,980.93]
37th [$451,668.39]
38th [$475,263.35]
39th [$499,802.11]
40th [$525,322.42]
41st [$551,863.54]
42nd [$579,466.31]
43rd [$608,173.19]
44th [$638,028.34]
45th [$669,077.70]
46th [$701,369.03]
47th [$734,952.02]
48th [$769,878.32]
- --------------------------------------------------------------------------------
================================================================================
TABLE(S) CONTINUED ON NEXT PAGE
Page 4A (2000)
<PAGE>
PROCESSING DATE: XXX XX, XXXX
POLICY NO. XX XXX XXX
TABLE(S) CONTINUED
Table of Maximum Monthly Insurance Rates per $1,000
Contract Maximum Contract Maximum
Year Monthly Rate Year Monthly Rate
- --------------------------------------------------------------------------------
1 [0.00346] 26 [3.59752]
2 [0.01159] 27 [4.16392]
3 [0.02168] 28 [4.80287]
4 [0.03412] 29 [5.52620]
5 [0.04921] 30 [6.34146]
6 [0.06728] 31 [7.25393]
7 [0.08873] 32 [8.25881]
8 [0.11463] 33 [9.34439]
9 [0.14605] 34 [10.49932]
10 [0.18443] 35 [11.71790]
11 [0.23149] 36 [12.99841]
12 [0.28919] 37 [14.34320]
13 [0.35833] 38 [15.76527]
14 [0.44016] 39 [17.29274]
15 [0.53580] 40 [18.99353]
16 [0.64692] 41 [20.97260]
17 [0.77599] 42 [23.40832]
18 [0.92855] 43 [26.56868]
19 [1.11005] 44 [30.68652]
20 [1.32664] 45 [35.84659]
21 [1.58423] 46 [44.77000]
22 [1.88796] 47 [61.99667]
23 [2.23965] 48 [83.33333]
24 [2.64066]
25 [3.09213]
- --------------------------------------------------------------------------------
We may charge less than the maximum monthly rates. From time to time, we will
consider the need to change the rates we charge. We describe the factors we use
to determine such changes under General Provisions.
See the Basis of Computation for a description of the basis we use to compute
these rates.
================================================================================
TABLE(S) CONTINUED ON NEXT PAGE
Page 4B (2000)
<PAGE>
PROCESSING DATE: XXX XX, XXXX
POLICY NO. XX XXX XXX
TABLE(S) CONTINUED
Table of Attained Age Factors
These factors are used to determine your death benefit as described under Death
Benefit Provisions.
These factors apply during each contract year starting on the contract
anniversary when the younger insured's attained age is as shown.
Attained Age of Attained Age of
Younger Insured Factors Younger Insured Factors
- --------------------------------------------------------------------------------
52 [3.70] 76 [1.65]
53 [3.60] 77 [1.61]
54 [3.40] 78 [1.60]
55 [3.30] 79 [1.52]
56 [3.20] 80 [1.50]
57 [3.10] 81 [1.45]
58 [3.00] 82 [1.42]
59 [2.90] 83 [1.40]
60 [2.80] 84 [1.36]
61 [2.70] 85 [1.33]
62 [2.60] 86 [1.31]
63 [2.50] 87 [1.30]
64 [2.40] 88 [1.26]
65 [2.32] 89 [1.24]
66 [2.30] 90 [1.22]
67 [2.20] 91 [1.20]
68 [2.10] 92 [1.19]
69 [2.03] 93 [1.17]
70 [2.00] 94 [1.15]
71 [1.91] 95 [1.13]
72 [1.90] 96 [1.10]
73 [1.80] 97 [1.07]
74 [1.74] 98 [1.06]
75 [1.70] 99 [1.04]
- --------------------------------------------------------------------------------
================================================================================
END OF TABLE(S)
Page 4C (2000)
<PAGE>
DEFINITIONS
We, our, us and Pruco Life. Pruco Life Insurance Company.
You and Your. The owner(s) of the contract.
Insured. A person named as an Insured on the first page. He or she need not be
the owner.
SEC. The Securities and Exchange Commission.
Issue Date. The contract date shown on the first page.
Anniversary or contract anniversary. The same day and month as the contract
date in each later year.
Contract Year. A year that starts on the contract date or on an anniversary.
Monthly Date. The contract date and the same day as the contract date in each
later month.
Contract Month. A month that starts on a monthly date.
Attained Age. An Insured's attained age at any time is the issue age plus the
length of time since the contract date. You will find each Insured's issue age
near the top of page 3.
THE CONTRACT
ENTIRE CONTRACT
This policy and any attached copy of an application, including an application
requesting a change, form the entire contract. We assume that all statements in
an application are made to the best of the knowledge and belief of the person(s)
who make them; in the absence of fraud, they are deemed to be representations
and not warranties. We rely on those statements when we issue the contract and
when we change it. We will not use any statement, unless made in an
application, to try to void the contract, to contest a change, or to deny a
claim.
CONTRACT MODIFICATIONS
Only a Pruco Life officer with the rank or title of vice president may agree to
modify this contract, and then only in writing.
INCONTESTABILITY
Except as we state in the next sentence, we will not contest this contract after
it has been in force during the lifetime of both Insureds for two years from the
issue date. The exceptions are: (1)non-payment of enough premium to pay the
required charges; and (2)any change in the contract that requires our approval
and that would increase our liability. For any such change, we will not contest
the change after it has been in effect for two years during the lifetime of at
least one of the Insureds. At the end of the second contract year we will mail
you a notice requesting that you tell us if either Insured has died. Failure to
tell us of the death of an Insured will not avoid a contest, if we have a basis
for one, even if premium payments continue to be made.
(SVUL2000)5
<PAGE>
OWNERSHIP
Unless a different owner is named in the application, the owner(s) of the
contract are the Insureds jointly or the survivor of them. If a different owner
is named, we will show that owner in an endorsement to the contract. If this
contract is owned jointly, the exercise of rights under this contract must be
made by both jointly. This ownership arrangement will remain in effect unless
you ask us to change it.
You may change the ownership of the contract by sending us a request in a form
that meets our needs. We may ask you to send us the contract to be endorsed. If
we receive your request in a form that meets our needs, and the contract if we
ask for it, we will file and record the change, and it will take effect as of
the date you signed the request.
While either of the Insureds is living, the owner(s), with no one else's
consent, is entitled to any contract benefit and value, and to the exercise of
any right and privilege granted by the contract or by us.
DEATH BENEFIT PROVISIONS
We will pay a benefit to the beneficiary at the second death if this contract is
in force at the time of that death; that is, if it has not been surrendered and
it is not in default past the grace period.
If the contract is not in default, the amount we will pay will be the death
benefit determined as of the date of the second death reduced by any contract
debt (described under Loans).
If the contract is in default, and the second death occurs in the grace period
(described under Default), we will pay the death benefit reduced by any contract
debt and the amount needed to pay charges through the date of death.
If the second death occurs past the grace period, no death benefit is payable.
DEATH BENEFIT
This contract has a Type A, or Type B death benefit. We show the type of death
benefit that applies to this contract under Type of Death Benefit.
If this contract has a Type A death benefit, the death benefit on any date is
equal to the greater of: (1)the Basic Insurance Amount, and (2)the contract
fund before deduction of any monthly charges due on that date, multiplied by the
attained age factor that applies.
If this contract has a Type B death benefit, the death benefit on any date is
equal to the greater of: (1)the Basic Insurance Amount plus the contract fund
before deduction of any monthly charges due on that date, and (2)the contract
fund before deduction of any monthly charges due on that date, multiplied by the
attained age factor that applies.
For the purpose of computing the death benefit, if the contract fund is less
than zero we will consider it to be zero. Your Basic Insurance Amount and
attained age factors are shown in the contract data pages.
(SVUL2000)6
<PAGE>
ADDITIONAL DEATH BENEFITS
This contract may provide additional benefits, which may be payable on either
the first or second death. If it does, they will be listed on a contract data
page, and a form describing the benefit will be included in this contract. Any
such benefit will be payable only if the contract is not in default past the
grace period at the time of the death.
METHOD OF PAYMENT
You may choose to have any death benefit paid in a single sum or under one of
the optional modes of settlement shown in the Settlement Options provision.
SUICIDE EXCLUSION
If either Insured, whether sane or insane, dies by suicide within two years from
the Issue Date, this contract will end and we will return the premiums paid. If
there is a surviving Insured, we will make a new contract available on the life
of that Insured. The issue age, Contract Date and the Insured's underwriting
classification will be the same as they are in this contract. The amount of
coverage will be the lesser of (1) this contract's Basic Insurance Amount, and
(2) the maximum amount allowed by our rules in use on the Contract Date for
contracts covering a single life. The new contract will not take effect unless
all premiums due since the Contract Date are paid to us within 31 days after we
notify you of the availability of the new contract. We will set the premiums for
the new contract in accordance with our rules in use on the Contract Date.
INTEREST ON DEATH BENEFIT
Any death benefit described above will be credited with interest. The amount
will be the greater of: (1) interest calculated in accordance with applicable
laws, and (2) interest calculated from the date of death at a rate declared by
Pruco Life.
SIMULTANEOUS DEATH
If both Insureds die while this contract is in force and we find there is a lack
of sufficient evidence that they died other than simultaneously, we will assume
that the older Insured died first.
DECREASE IN BASIC INSURANCE AMOUNT
You may decrease the Basic Insurance Amount. You may do so subject to our
approval and all these conditions and the paragraph that follows:
You must ask for the decrease in a form that meets our needs.
The amount of the decrease must be at least equal to the minimum decrease in
Basic Insurance Amount shown under Contract Limitations in the contract data
pages.
The Basic Insurance Amount after the decrease must be at least equal to the
minimum Basic Insurance Amount shown under Contract Limitations in the contract
data pages.
If we ask you to do so, you must send us the contract to be endorsed.
The contract must not be in default.
We show under Contract Limitations a Surrender Charge Threshold. If you
decrease your Basic Insurance Amount to an amount equal to or greater than this
threshold, we will not impose a surrender charge. If you decrease your Basic
Insurance Amount below this threshold, we will subtract the new Basic Insurance
Amount from the threshold amount. We will then multiply the surrender charge
(see Schedule of Maximum Surrender Charges) by the lesser of this difference
and the amount of the decrease and divide by the threshold amount. The result
is the maximum surrender charge we will deduct from the contract fund as a
result of this transaction.
We may decline the decrease if we determine it would cause the contract to fail
to qualify as life insurance under the applicable tax law. A decrease will take
effect only if we approve your request for it at our Home Office and will take
effect on the date we approve it. If we approve the decrease, we will recompute
the contract's charges and values in the appropriate tables. A decrease in the
Basic Insurance Amount may also affect the amount of any extra benefits this
contract might have. We will send you new contract data pages showing the
amount and effective date of the decrease and the recomputed charges and values.
If neither Insured is living on the effective date, the decrease will not take
effect. We may deduct the administrative charge (shown under Adjustments to the
Contract Fund) for the decrease.
(SVUL2000)7
<PAGE>
CHANGING THE TYPE OF DEATH BENEFIT
This contract has a Type A or a Type B death benefit (see Death Benefit).
Subject to our approval, you may change the type of death benefit. We will
adjust the Basic Insurance Amount so that the death benefit immediately after
the change will remain the same as the death benefit immediately before the
change.
TYPE A TO B
If you are changing from a Type A to a Type B death benefit, we will reduce the
Basic Insurance Amount by the contract fund on the date the change takes effect.
TYPE B TO A
If you are changing from a Type B to a Type A death benefit, we will increase
the Basic Insurance Amount by the contract fund on the date the change takes
effect.
If the change in the type of death benefit results in a reduction in the Basic
Insurance Amount, the Basic Insurance Amount after the decrease must be at least
equal to the minimum Basic Insurance Amount, which we show under Contract
Limitations in the contract data pages. We may also deduct a surrender charge
and administrative charge as described in the Decrease In Basic Insurance Amount
provision.
A change in the type of death benefit will take effect only if we approve your
request at our Home Office. If we approve the change, we will recompute the
contract's charges, values and limitations shown in the contract data pages.
The change will take effect on the monthly date that coincides with or next
follows the date we approve your request. We will send you new contract data
pages showing the amount and effective date of the change in Basic Insurance
Amount and the recomputed charges, values and limitations.
Your request for a change must be in a form that meets our needs. We may
require you to send us this contract before we make the change.
(SVUL2000)8
<PAGE>
BENEFICIARY
You may designate or change a beneficiary by sending us a request in a form that
meets our needs. We may ask you to send us the contract to be endorsed. If we
receive your request, and the contract if we ask for it, we will file and record
the change and it will take effect as of the date you signed the request. But if
we make any payment(s) before we receive the request, we will not have to make
the payment(s) again. Any beneficiary's interest is subject to the rights of any
assignee we know of. If a beneficiary has not been designated, or no beneficiary
has survived the last Insured to die, the death benefit will be paid in one sum
to the owner of this contract.
Before we make a payment, we have the right to decide what proof we need of the
identity, age, or other facts about any persons designated as beneficiaries. If
beneficiaries are not designated by name and we make payment(s) based on that
proof, we will not have to make the payment(s) again.
(SVUL2000)9
<PAGE>
PREMIUM PAYMENT
PAYMENT OF PREMIUMS
The minimum initial premium shown in the contract data pages is due on or before
the contract date. There is no insurance under this contract until that premium
is paid. We may require an additional premium if adjustments to premium
payments plus any contract fund charges due on or before the payment date exceed
the minimum initial premium.
Subject to the limitations below, additional premiums may be paid at any time
during an Insured's lifetime as long as the contract is not in default beyond
the grace period. Premiums may be paid at one of our offices or to one of our
authorized representatives. We will give a signed receipt upon request. The
minimum premium we will accept is shown on a contract data page. We have the
right to refuse to accept a premium payment that would in our opinion cause this
contract to fail to qualify as life insurance under applicable tax law. We also
have the right to refuse to accept any payment that increases the death benefit
by more than it increases the contract fund.
INVESTED PREMIUM AMOUNT
The invested premium amount is the portion of each premium you pay that we add
to the contract fund. It is equal to the premium paid minus the adjustments to
premium payments shown on a contract data page.
CREDITING THE INITIAL PREMIUM PAYMENT
If we receive the first premium payment on or before the contract date, we will
credit the invested premium amount to the contract fund on the contract date.
If we receive the first premium payment after the contract date, we will credit
the premium amount to the contract fund on the payment date.
ALLOCATIONS
We will allocate 100% of any invested premium into the Money Market Investment
Option until the end of the Right to Cancel Contract period described on the
contract jacket. At the end of this period, unless you ask us otherwise, we will
re-allocate the amount in the Money Market Investment Option in accordance with
the Initial Allocation of Invested Premium Amounts shown in the contract data
pages.
You may allocate all or a part of your invested premium amount to one or more of
the investment options listed in the contract data pages. You may choose to
allocate nothing to a particular investment option. You may not choose a
fractional percentage.
The initial allocation of invested premium amounts is shown on a contract data
page. You may change the allocation for future invested premium amounts at any
time if the contract is not in default. To change your allocation, simply
notify us in a form that meets our needs. The change will take effect on the
date we receive your notice; we will send you a confirmation of the transaction.
CONTRACT FUND
When you make your first premium payment, the invested premium amount, less any
charges due on or before that day, becomes your contract fund. Amounts are
added and subtracted from the contract fund as shown under Adjustments to the
Contract Fund in the contract data pages. The contract fund is used to pay
charges under this contract and will determine, in part, whether this contract
will remain in force or go into default. The contract fund is also used to
determine your loan and surrender values, the amount you may withdraw, and the
death benefit.
CASH VALUE
The cash value at any time is the contract fund less any surrender charge. We
show the maximum surrender charge in the Schedule of Maximum Surrender Charges.
<PAGE>
NET CASH VALUE
The net cash value at any time is the cash value less any contract debt.
If the contract is in default, the net cash value is zero.
COVERAGE AMOUNT
The coverage amount is used to determine the cost of insurance as described
under Adjustments to the Contract Fund. It is equal to the death benefit (see
Death Benefit) minus the contract fund.
(SVUL2000)10
<PAGE>
DEFAULT
EXCESS CONTRACT DEBT DEFAULT
If contract debt ever grows to be equal to or more than the cash value, the
contract will have excess contract debt and will be in default.
CASH VALUE DEFAULT
On each monthly date, we will determine the cash value. If the cash value is
greater than zero and the contract has no excess contract debt, the contract
will remain in force until the next monthly date. If the cash value is zero or
less, the contract is in default unless it remains in force under the Death
Benefit Guarantee.
NOTICE OF DEFAULT
If the contract is in default, we will mail you a notice stating the amount we
will need to keep the contract in force. That amount will equal a premium which
we estimate will keep the contract in force for three months from the date of
default. We grant a 61-day grace period from the date we mail the notice to pay
this amount. The contract will remain in force during this period. If that
amount is not paid to us by the end of the 61-day grace period, the contract
will end and have no value.
DEATH BENEFIT GUARANTEE
DEATH BENEFIT GUARANTEE
On each monthly date while the contract is in force, we will:
Accumulate premium payments at 4% annual interest; and
Accumulate any withdrawal amounts at 4% annual interest.
We then subtract amount 2 from amount 1 and compare the result to the values
shown in or derived from the Table of Death Benefit Guarantee Values for such
monthly date. If the result is equal to or greater than the appropriate value
and the contract has no excess contract debt, the contract will remain in force
until the next monthly date. If the result is less than the appropriate value
and any of the events described under Default have occurred, the contract is in
default as described under Default.
The Table of Death Benefit Guarantee Values shows such values on contract
anniversaries. On a date that falls between two anniversaries, the value will
fall between the values for those anniversaries considering the time that has
passed since the last anniversary.
GUARANTEE VALUES
We show the Limited Death Benefit Guarantee Period under the Table of Death
Benefit Guarantee Values. When the monthly date occurs within this period, we
use the values shown in or derived from the Limited Death Benefit Guarantee
Value column to determine if the contract will remain in force until the next
monthly date. When the monthly date occurs after this period, we use the values
shown in or derived from the Lifetime Death Benefit Guarantee Value column to
determine if the contract will remain in force until the next monthly date.
(SVUL2000)11
<PAGE>
REINSTATEMENT
If this contract ends without value, as described under Default, you may
reinstate it if both Insureds are alive or if one Insured is alive and the
contract ended without value after the death of the other Insured. The
following conditions must be satisfied:
The contract must not have been in default for more than 5 years.
You must prove to us that any Insured who was living when the contract went into
default is insurable for the contract.
You must pay us a charge equal to: (a)an amount, if any, required to bring the
cash value to zero on the date the contract went into default, plus (b)the
deductions from the contract fund during the grace period following the date of
default, plus (c)a premium that will be sufficient after administrative charges
to cover the deductions from the contract fund for three monthly dates starting
on the date of reinstatement.
Any contract debt (with interest to date at the rate(s) we set for loans as we
state under Loans) must be restored or paid back. If that debt with interest
would exceed the loan value of the reinstated contract, the excess must be paid
to us before reinstatement.
The date of reinstatement will be the date we approve your request. We will
deduct all required charges from your payment and put the balance in your
contract fund. If we approve the reinstatement, we will credit the contract fund
with a refund of that part of any surrender charge deducted at the time of
default which would have been charged if the contract were surrendered
immediately after reinstatement.
(SVUL2000)12
<PAGE>
SEPARATE ACCOUNT
SEPARATE ACCOUNT
The words separate account, when we use them in this contract without
qualification, mean any separate account we establish to support variable life
insurance contracts like this one. We list the separate account(s) available to
you in the contract data pages. We may establish additional separate accounts.
We will notify you within one year if we do so.
VARIABLE INVESTMENT OPTIONS
A separate account may offer one or more variable investment options. We list
them in the contract data pages. We may establish additional variable
investment options. We will notify you within one year if we do so. We may
also eliminate existing variable investment options, but only with the consent
of the SEC and, where required, of the insurance regulator of our state of
domicile and/or where this contract is delivered.
Income and realized and unrealized gains and losses from assets in each variable
investment option are credited to, or charged against, that variable investment
option. This is without regard to income, gains, or losses in other variable
investment options.
SEPARATE ACCOUNT INVESTMENTS
We may invest the assets of different separate accounts in different ways. But
we will do so only with the consent of the SEC and, where required, of the
insurance regulator of our state of domicile and/or where this contract is
delivered.
The assets of the separate account shall be available to cover the liabilities
of the general account only to the extent that the assets exceed the liabilities
of the separate account arising under the variable life insurance policies
supported by the separate account.
We will determine the value of the assets in each separate account registered
with the SEC under the Investment Company Act of 1940 and any variable
investment option on each day the New York Stock Exchange is open for business.
FIXED INVESTMENTS
We may establish additional fixed investment options. We will notify you within
one year if we do so. You may allocate all or part of your invested premium
amount to an available fixed investment option. As stated under Adjustments to
the Contract Fund, we credit fixed investment options with guaranteed interest
and we may credit them with excess interest.
(SVUL2000)13
<PAGE>
TRANSFERS
You have the right to transfer amounts into or out of variable investment
options and into any fixed investment option up to twelve times in each contract
year without charge if the contract is not in default. Additional transfers may
be made during each contract year, but only with our consent. We may charge for
additional transfers as we state under Adjustments to the Contract Fund.
Transfers out of any fixed investment option may be made only with our consent.
We may restrict the number, timing and amount of transfers in accordance with
our rules if your transfer activity is determined by us to be disruptive to the
variable investment option or to the disadvantage of other contract owners. We
may prohibit transfer requests made by an individual acting under a power of
attorney on behalf of more than one contract owner.
To make a transfer, you must ask us in a form that meets our needs. Unless
otherwise restricted, the transfer will take effect on the date we receive your
notice at our Home Office.
SURRENDER
You may surrender this contract for its net cash value (see Contract Fund). To
do so, you must ask us in a form that meets our needs. We may require you to
send us the contract.
We will usually pay any net cash value within seven days after we receive your
request and the contract at our Home Office. But we have the right to postpone
paying you the part of the net cash value that is to come from any variable
investment option provided by a separate account registered under the Investment
Company Act of 1940 if: (1)the New York Stock Exchange is closed; or (2)the SEC
requires that trading be restricted or declares an emergency. We have the right
to postpone paying you the remainder for up to six months. If we do so for more
than thirty days, we will pay interest at the rate of 3% a year.
(SVUL2000)14
<PAGE>
WITHDRAWALS
You may make withdrawals from the contract subject to all these conditions and
the paragraphs that follow:
You must ask for the withdrawal in a form that meets our needs.
The net cash value after withdrawal may not be less than or equal to zero after
deducting (a)any charges associated with the withdrawal and (b)an amount that
will be sufficient to cover the contract fund deductions for two monthly dates
following the date of withdrawal.
You may not withdraw less than the minimum amount shown under Contract
Limitations.
The Basic Insurance Amount after withdrawals must be at least equal to the
minimum basic insurance amount shown under Contract Limitations.
Any amount withdrawn may not be repaid except as a premium subject to charges.
EFFECT ON CONTRACT FUND
We will reduce your contract fund on the date we approve your request by the
withdrawal amount and any charges listed under Adjustments to the Contract Fund.
Unless you request otherwise and we agree, we will take any withdrawal
proportionately from all investment options that apply to the contract.
We may charge an administrative fee as stated under Adjustments to the Contract
Fund.
EFFECT ON BASIC INSURANCE AMOUNT
If you have a Type B death benefit, withdrawals will not affect the Basic
Insurance Amount.
If you have a Type A death benefit and the withdrawal would cause the coverage
amount (see Contract Fund) to increase, we will reduce the Basic Insurance
Amount and, consequently, your death benefit to offset this increase. The
reduction in the Basic Insurance Amount will never be more than the withdrawal
amount. If we reduce the Basic Insurance Amount, we will recompute the
contract's charges, values and limitations. We will send you new contract data
pages showing these changes. We may also deduct a surrender charge from the
contract fund as described in the Decrease in Basic Insurance Amount provision.
We will usually pay any withdrawal amount within seven days after we receive
your request and the contract at our Home Office. But we have the right to
postpone paying you the part of the net cash value that is to come from any
variable investment option (provided by a separate account registered under the
Investment Company Act of 1940) if: (1)the New York Stock Exchange is closed;
or (2)the SEC requires that trading be restricted or declares an emergency. We
have the right to postpone paying you the remainder for up to six months. If we
do so for more than thirty days, we will pay interest at the rate of 3% a year.
(SVUL2000)15
<PAGE>
LOANS
Subject to the minimum loan requirement and the requirements of this provision,
you may at any time borrow any amount up to the current loan value less any
existing contract debt.
LOAN VALUE
If the contract is not in default, the loan value at any time is equal to the
sum of (a) 90% of the cash value attributable to the variable investment
options, and (b) the balance of the cash value.
If the contract is in default, it has no loan value.
CONTRACT DEBT
Contract debt at any time means the loan on the contract at that time, plus the
interest we have charged that is not yet due and that we have not yet added to
the loan.
LOAN REQUIREMENTS
For us to approve a loan, the following requirements must be met: you must
assign this contract to us as sole security for the loan; at least one of the
Insureds must be living; and the resulting contract debt must not be more than
the loan value.
If there is already contract debt when you borrow from us, we will add the new
amount you borrow to that debt.
INTEREST CHARGE
We will charge interest daily on any loan. 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. Then we start to charge
interest on it, too. Except as stated below, we charge interest at an effective
annual rate shown under Loan Interest Rate in the contract data pages.
PREFERRED LOANS
Unless you ask us otherwise, a portion of the amount you may borrow on or after
the 10th contract anniversary will be considered a Preferred Loan up to an
amount equal to the maximum preferred loan amount described below. Preferred
Loans are charged interest at an effective annual rate shown under Preferred
Loan Interest Rate in the contract data pages.
MAXIMUM PREFERRED LOAN AMOUNT
The maximum preferred loan amount available starting on the 10th contract
anniversary is (A) minus (B), where (A) is the total amount you may borrow, and
(B) is the total premiums paid less total withdrawals, if any. If (B) is less
than zero, we will consider it to be zero.
EFFECT ON CONTRACT FUND
When you take a loan, the amount of the loan continues to be a part of the
contract fund and is credited with interest at an effective rate of 4% a year.
We will reduce the portion of the contract fund allocated to the investment
options by the amount you borrow, and by loan interest that becomes part of the
loan if it is not paid when due.
We will take any loan proportionately from all investment options that apply to
the contract unless you ask us otherwise.
On each monthly date, if there is a contract loan outstanding, 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. 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 that repayment plus the interest credits accrued on the
loan since the last transaction date. To do this, we will use your investment
allocation for future premium payments on file as of the loan payment date. We
will also decrease the portion of the contract fund on which we credit the
guaranteed interest rate of 4% a year by the amount of loan you repay.
<PAGE>
We will not increase the portion of the contract fund allocated to the
investment options by loan interest that is paid before we make it part of the
loan. We reserve the right to change the manner in which we allocate loan
repayments. If we make such a change, we will do so for all contracts like this
one. We will send you notice of any change.
(SVUL2000)16
<PAGE>
GENERAL PROVISIONS
ANNUAL REPORT
Once each contract year we will send you a report. It will show: the current
death benefit; the amount of the contract fund in each investment option; the
cash surrender value; any contract debt and the interest rate we are charging;
premiums paid, investment results, charges deducted, and withdrawals taken since
the last report. The report may also show any other data that may be required
where this contract is delivered.
PAYMENT OF DEATH CLAIM
If we settle this contract in one sum as a death claim we will usually pay the
proceeds within seven days after we receive at our Home Office proof of death of
both insureds and any other information we need to pay the claim. But we have
the right to postpone paying the part of the proceeds that is to come from a
variable investment option if: (1)the New York Stock Exchange is closed; or
(2)the SEC requires that trading be restricted or declares an emergency. We
have the right to postpone paying the remainder for up to six months.
CURRENCY
Any money we pay, or that is paid to us, must be in United States currency. Any
amount we owe will be payable at our Corporate Office.
MISSTATEMENT OF AGE OR SEX
If an Insured's stated age or sex or both are not correct, we will change each
benefit and any amount to be paid to what the most recent deductions from the
contract fund would have provided at that Insured's correct age and sex.
ASSIGNMENT
We will not be deemed to know of an assignment unless we receive it, or a copy
of it, at our Home Office. We are not obliged to see that an assignment is
valid or sufficient. This contract may not be assigned to any employee benefit
plan or program without our consent. This contract may not be assigned if such
assignment would violate any federal, state, or local law or regulation
prohibiting sex distinct rates for insurance.
CHANGE IN PLAN
You may be able to have this contract changed to another plan of life insurance.
Any change may be made only if we consent, and will be subject to conditions and
charges that are then determined.
FACTORS SUBJECT TO CHANGE
Charges deducted from premium payments and the contract fund may change from
time to time, subject to the maximums shown in the contract data pages. In
deciding whether to change any of these charges, we will periodically consider
factors such as mortality, persistency, expenses, taxes and interest and/or
investment experience to see if a change in our assumptions is needed. Charges
for taxes attributable to premiums will be set at one rate for all contracts
like this one. Changes in other factors will be by class. All changes will be
determined only prospectively; that is, we will not recoup prior losses or
distribute prior gains by means of these changes.
NON-PARTICIPATING
This contract will not share in our profits or surplus earnings. We will pay no
dividends on it.
APPLICABLE TAX LAW
This contract has been designed to satisfy the definition of life insurance for
Federal income tax purposes under Section 7702 of the Internal Revenue Code of
1986, as amended. We reserve the right, however, to decline any change we
determine would cause this contract to fail to qualify as life insurance under
the applicable tax law. This includes changing the Basic Insurance Amount,
withdrawals, and changing the type of death benefit. We also have the right to
change this contract, to require additional premium payments, or to make
distributions from this contract to the extent necessary to continue to qualify
this contract as life insurance. Finally, we reserve the right to take whatever
action is necessary to prevent the contract from becoming a modified endowment
contract under Section 7702A of the Internal Revenue Code of 1986, as amended,
unless you have otherwise indicated to us in writing that you want a modified
endowment contract.
(SVUL2000)17
<PAGE>
BASIS OF COMPUTATION
MORTALITY BASIS AND INTEREST RATE
We compute maximum monthly insurance rates using:
the Commissioners 1980 Standard Ordinary Smoker and Nonsmoker Mortality Tables
without Ten Year Select Factors;
the issue ages, sexes, smoker and non-smoker status, and rating classes of the
Insureds and the length of time since the contract date;
age last birthday; and
an effective interest rate of 4% a year.
MINIMUM LEGAL VALUES
The cash surrender values provided by this contract are at least as large as
those set by law where it is delivered. Where required, we have given the
insurance regulator a detailed statement of how we compute values and benefits.
(SVUL2000)18
<PAGE>
SETTLEMENT OPTIONS
OPTIONS DESCRIBED
You may choose to have the proceeds (that is, any death benefit or any amount
payable upon surrender of the contract) paid in a single sum or under one of the
optional modes of settlement described below.
If the person who is to receive the proceeds of this contract wishes to take
advantage of one of these optional modes, we will furnish, on request, details
of the options we describe below or any others we may have available at the time
the proceeds become payable.
OPTION 1 (INSTALLMENTS FOR A FIXED PERIOD)
We will make equal payments for up to 25 years. The Option 1 Table shows the
minimum amounts we will pay.
OPTION 2 (LIFE INCOME)
We will make equal monthly payments for as long as the person on whose life the
settlement is based lives, with payments certain for 120 months. The Option 2
Table shows the minimum amounts we will pay. But, we must have proof of the
date of birth of the person on whose life the settlement is based.
OPTION 3 (INTEREST PAYMENT)
We will hold an amount at interest. We will pay the interest annually, semi-
annually, quarterly, or monthly.
OPTION 4 (INSTALLMENTS OF A FIXED AMOUNT)
We will make equal annual, semi-annual, quarterly, or monthly payments for as
long as the available proceeds provide.
OPTION 5 (NON-PARTICIPATING INCOME)
We will make payments like those of any annuity we then regularly issue that:
(1)is based on United States currency; (2)is bought by a single sum; (3)does not
provide for dividends; and (4)does not normally provide for deferral of the
first payment. Each payment will be at least equal to what we would pay under
that kind of annuity with its first payment due on its contract date. If a life
income is chosen, we must have proof of the date of birth of any person on whose
life the option is based. Option 5 cannot be chosen more than 30 days before
the due date of the first payment.
INTEREST RATE
Payments under Options 1, 3 and 4 will be calculated assuming an effective
interest rate of at least 3% a year. We may include more interest.
(SVUL2000)19
<PAGE>
SETTLEMENT OPTIONS TABLES
(SVUL2000)20
ENDORSEMENTS
(Only we can endorse this contract.)
Flexible Premium Survivorship Variable Life Insurance Policy. Survivorship
insurance payable only upon death of second Insured to die. Cash values reflect
premium payments, investment results, and charges. Non-participating.
SVUL2000
(SVUL2000)21
<PAGE>
Exhibit 1.A.(12)
Description of Pruco Life's Issuance, Increases
in or Addition of Insurance Benefits,
Transfer and Redemption Procedures for
Survivorship Variable Universal Life Insurance Contracts
Pursuant to Rule 6e-3(T)(b)(12)(iii)
This document sets forth the administrative procedures that will be followed by
Pruco Life Insurance Company ("Pruco Life") in connection with the issuance of
its Survivorship Variable Universal Life Insurance Contract ("Contract"), the
increase in or addition of benefits, the transfer of assets held thereunder,
and the redemption by Contract owners of their interests in said Contracts.
I. Procedures Relating to Issuance and Purchase of the Contracts and to the
------------------------------------------------------------------------
Increase in or Addition of Benefits
-----------------------------------
A. Premium Schedules and Underwriting Standards
--------------------------------------------
The Contract has Flexible Premiums - no premiums are required to be paid by a
certain date except for the minimum initial premium required to start the
Contract. The minimum initial premium for the Contract, and the charges from
the Contract Fund to reflect the cost of insurance, will not be the same for all
owners. Insurance is based on the principle of pooling and distribution of
mortality risks, which assumes that each owner is charged a cost commensurate
with the Insureds' mortality risk as actuarially determined utilizing factors
such as age, sex (in most cases), smoking status, health and occupation.
Uniform premiums or charges for all Insureds would discriminate unfairly in
favor of those Insureds representing greater risks. However, for a given face
amount of insurance, Contracts issued on a combination of two Insureds in a
given risk classification will have the same minimum initial premium and
charges.
The underwriting standards and premium processing practices followed by Pruco
Life are similar to those followed in connection with the offer and sale of
fixed-benefit life insurance, modified where necessary to meet the requirements
of the federal securities laws.
B. Application and Initial Premium Processing
------------------------------------------
Upon receipt of a completed application form from a prospective owner, Pruco
Life will follow certain insurance underwriting (i.e. evaluation of risk)
procedures designed to determine whether the proposed Insureds are insurable.
The process may involve such
1
<PAGE>
verification procedures as medical examinations and may require that further
information be provided by the proposed Insureds before a determination can be
made. A Contract cannot be issued (i.e. physically issued through Pruco Life's
computerized issue system), until this underwriting procedure has been
completed.
These processing procedures are designed to provide immediate benefits to every
prospective owner who pays the minimum initial premium at the time the
application is submitted. Since a Contract cannot be issued until after the
underwriting process has been completed, we will provide immediate insurance
coverage through use of a Limited Insurance Agreement. This coverage is for the
total death benefit applied for, up to the maximum described by the Limited
Insurance Agreement.
The Contract Date is the date as of which the insurance ages of the proposed
Insureds are determined. It represents the first day of the Contract year and
therefore determines the Contract anniversary and also the Monthly dates. It
also represents the commencement of the suicide and contestable periods for
purposes of the Contract.
If the minimum initial premium is paid with the application and no medical
examination is required, the Contract Date will ordinarily be the date of the
application. If an unusual delay is encountered (for example, if a request for
further information is not met promptly), the Contract Date will be 21 days
prior to the date on which the Contract is physically issued. If a medical
examination is required, the Contract Date will ordinarily be the date the
examination is completed, subject to the same qualification as that noted above.
If the premium paid with the application is less than the minimum initial
premium, the Contract Date will be determined as described above. Upon receipt
of the balance of the minimum initial premium, the initial payment will be
applied as of the later of its receipt date and the policy date, while the
second payment making up the minimum initial premium will be applied as of its
date of receipt.
If no premium is paid with the application, the Contract Date will be the
Contract Date stated in the Contract, which will generally be the date the
minimum initial premium is received from the owner and the Contract is
delivered.
There is one principal variation from the foregoing procedure. If permitted by
the insurance laws of the state in which the Contract is issued, the Contract
may be back dated up to six months. In any event, the Contract may not be
backdated before the product introduction date.
In situations where the Contract Date precedes the date that the minimum initial
premium is received, charges due prior to the initial premium receipt date will
be deducted from the initial premium.
In general, the invested portion of the minimum initial premium will be placed
in the Contract Fund (as described under Premium Processing below) as of the
later of (1) the Contract Date and (2) the date we receive the premium.
2
<PAGE>
C. Premium Processing
------------------
Whenever a premium is received, Pruco Life will subtract the front-end charges.
What is left will be invested in the selected investment option(s) after the
Right to Cancel Contract period has ended (see below). Premiums other than
those received prior to the Contract Date, will be invested (less front-end
charges) as of the date received or, if that is not a business day, as of the
next business day.
The Contract has a Right to Cancel Contract provision which gives the Owners the
right to cancel the contract within ten days of its delivery (some states allow
a longer period of time). During this period, the premium (less front-end
charges) is invested in the Money Market Investment Option. At the end of this
period the funds are re-allocated in accordance with the Owner's current
allocation instructions.
D. Reinstatement
-------------
The Contract may be reinstated within five years after default (this period will
be longer if required by state law) if both Insureds are alive or one Insured is
alive and the Contract ended without value after the death of the other Insured.
The Contract will not be reinstated if it was surrendered for its cash surrender
value.
A Contract will be reinstated upon receipt by Pruco Life of a written
application for reinstatement, production of evidence of insurability
satisfactory to Pruco Life and payment of at least: (a) any amount required to
bring the cash value to zero on the date the Contract went into default, plus
(b) the deductions from the Contract Fund during the grace period following the
date of default, plus (c) a premium that would be sufficient, after front-end
charges, to cover the deductions from the Contract Fund for three Monthly dates
starting on the date of reinstatement. In addition, any Contract debt (with
interest to date) must be restored or paid back. If debt with interest exceeds
the value of a loan that we would otherwise permit on the reinstated Contract,
the excess must be paid back to Pruco Life at the time of reinstatement.
Except for any such loan repayments, Pruco Life will treat the amount paid upon
reinstatement as a premium. It will deduct the front-end charges plus any amount
required to bring the cash value to zero on the date the Contract went into
default plus any deductions from the Contract Fund that would have been made
during the grace period. The Contract Fund of the reinstated Contract will,
immediately upon reinstatement, be equal to this net premium payment plus the
surrender charge which would have been taken if the Contract were surrendered
immediately after reinstatement.
The reinstatement will take effect on the date Pruco Life approves the request
for reinstatement.
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There is an alternative to this reinstatement procedure that applies only if
reinstatement is requested within three months after the Contract went into
default. In such a case evidence of insurability may not be required and the
amount of the required payment will be an amount Pruco Life estimates will keep
the Contract inforce for three months from the date of default.
E. Repayment of Loan
-----------------
A loan made under the Contract may be repaid with an amount equal to the monies
borrowed plus interest which accrues daily at a fixed annual rate which depends
on whether the loan is a "regular loan" or "preferred loan." A regular loan is
available at any time and can equal up to the loan value (90% of the portion of
the cash value attributable to the variable investment options and 100% of the
balance of the cash value). The effective annual rate that we charge on regular
loans is 5%. A preferred loan is available starting on the 10th Contract
anniversary, and can equal up to the maximum amount that may still be borrowed
(loan value less existing loans) less cost basis (subject to a minimum of zero,
premiums paid less total withdrawals). The effective annual rate that we charge
on preferred loans is 4.25%. A regular loan remains a regular loan - it will
not automatically rollover when a preferred loan is available. However, any
capitalization of interest on a regular loan will be treated as a preferred loan
IF the conditions for a preferred loan are met.
When a loan is made, Pruco Life will transfer an amount equal to the loan from
the investment option(s). While a loan is outstanding, the amount of Contract
Fund attributable to the outstanding loans, whether they are regular loans or
preferred loans, will be credited with interest at an annual rate 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. Pruco Life thus will realize the difference between that rate and
the fixed loan interest rate(s), which will be used to cover the loan investment
expenses, income taxes, if any, and processing costs.
Upon repayment of Contract debt, the loan portion of the payment (i.e. not the
portion of the payment for accrued interest which has not yet been made part of
the loan) will be added to the investment option(s) using the investment
allocation currently in effect for premium payments, as selected by the Contract
owner. Pruco Life reserves the right to change the manner in which it allocates
loan repayments.
F. Increases in or Addition of Insurance Benefits
----------------------------------------------
After issue, Pruco Life will not permit Owners to increase or add to the
existing insurance amounts.
II. Transfers
---------
Currently, sixteen subaccounts are available for investment by Contract owners
of Pruco Life Variable Universal Account ("Account"), each of which is invested
in shares of a corresponding portfolio of The Prudential Series Fund, Inc. or
other such funds
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which we specify ("Funds"). The Funds are registered under the 1940 Act as open-
end diversified management investment companies. In addition, a fixed-rate
option is available.
Provided the Contract is not in default, the owner may, up to twelve times in
each Contract year, transfer amounts from one subaccount to another subaccount
or to the fixed-rate option without charge. Additional transfers are subject to
an administrative charge deducted from the Contract Fund of up to $25. Pruco
Life currently charges $25. All or a portion of the amount credited to a
subaccount may be transferred.
In addition, we may restrict the number, timing, and amount of transfers in
accordance with our rules if we find the transfer activity to be disruptive to
the variable investment option or to the disadvantage of other Owners. We may
prohibit transfer requests made by an individual acting under a power of
attorney on behalf of more than one Owner.
Transfers among subaccounts will take effect at the end of the valuation period
in which a proper transfer request is received at a Pruco Life 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.
Only one transfer from the fixed-rate option will be permitted during the
Contract year and the maximum amount which may be transferred out of the fixed-
rate option each year is the greater of (a) 25% of the amount in the fixed-rate
option; and (b) $2,000. These limits are subject to change in the future. Pruco
Life may waive these restrictions for limited periods of time in a non-
discriminatory way.
III. "Redemption" Procedures: Surrender and Related Transactions
-----------------------------------------------------------
A. Surrender for Cash Surrender Value
----------------------------------
If either or both Insureds under a Contract are alive, Pruco Life will pay,
within seven days, the Contract's cash surrender value as of the date of receipt
at its Home Office of the Contract, a signed request for surrender, and any tax
withholding information required under federal or state law. Pruco Life
reserves the right to postpone paying that part of the cash surrender value that
is to come from any variable investment option (provided by a separate account
registered under the Investment Company Act of 1940) if; (1) the New York Stock
Exchange is closed; or (2) the SEC requires that trading be restricted or
declares an emergency. Pruco Life reserves the right to postpone paying the
remainder for up to six months. If this is done for more than thirty days,
Pruco Life will pay interest at the rate of 3% a year.
The Contract's cash surrender value is the Contract Fund, minus any surrender
charge, minus any Contract debt.
The surrender charge is described in the prospectus. It is designed to recover
sales and administrative expenses, such as commissions and underwriting
expenses, incurred in connection
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with the issuance of a Contract. As a result, in the early months after issue,
there may be no cash surrender value.
In lieu of the payment of the cash surrender value in a single sum upon
surrender of a Contract, an election may be made by the owner to apply all or a
portion of the proceeds under one of the fixed benefit settlement options
described in the Contract. The fixed benefit settlement options are subject to
the restrictions and limitations set forth in the Contract.
B. Withdrawals from the Contract Fund
----------------------------------
A withdrawal from the Contract may be made only if the following conditions are
satisfied. First, Pruco Life must receive a request for the withdrawal in a
form that meets its need. Second, the cash surrender value after withdrawal may
not be less than or equal to zero after deducting: (a) any charges associated
with the withdrawal and (b) an amount sufficient to cover the Contract Fund
deductions for two monthly dates following the date of the withdrawal. Third,
the amount withdrawn must be at least $500. Fourth, the basic insurance amount
after withdrawal must be at least equal to the minimum basic insurance amount
shown in the Contract. There is a fee of up to $25 for each withdrawal. We
currently charge the lesser of $25 and 2% of the withdrawal amount. An amount
withdrawn may not be repaid except as a premium subject to the Contract charges.
Whenever a withdrawal is made, the death benefit payable will immediately be
reduced by at least the amount of the withdrawal. This will not change the Basic
Insurance Amount (minimum face amount specified in the Contract) under a Type B
(variable) Contract. However, under a Type A (fixed) Contract, a withdrawal
usually requires a reduction in the Basic Insurance Amount. No withdrawal will
be permitted under a Type A (fixed) Contract if it would result in a Basic
Insurance Amount less than the minimum Basic Insurance Amount of $250,000.
The Contract Fund is reduced by the sum of the cash withdrawn, any surrender
charge resulting from the withdrawal, and the fee for the withdrawal. An amount
equal to the reduction in the Contract Fund will be withdrawn from the
investment options.
C. Death Claims
------------
Pruco Life will pay a death benefit to the beneficiary at the second death if
the Contract is in force at the time of that death. The proceeds will be paid
within seven days after receipt at Pruco Life's Home Office of proof of death of
both Insureds and all other requirements necessary to make payment. State
insurance laws impose various requirements, such as receipt of a tax waiver,
before payment of the death benefit may be made.
Pruco Life reserves the right to postpone payment of that part of the proceeds
that is to come from any variable investment option (provided by a separate
account registered under the Investment Company Act of 1940) if; (1) the New
York Stock Exchange is
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closed; or (2) the SEC requires that trading be restricted or declares an
emergency. Pruco Life reserves the right to postpone paying the remainder for up
to six months.
In addition, payment of the death benefit is subject to the provisions of the
Contract regarding suicide and incontestability. In the event Pruco Life should
contest the validity of a death claim, an amount up to the portion of the
Contract Fund in the variable investment options will be withdrawn, if
appropriate, and held in Pruco Life's general account.
If the Contract is not in default past its days of grace, the amount Pruco Life
will pay will be the death benefit determined as of the date of the second
Insured's death reduced by any Contract debt. There may be an additional amount
payable from an extra benefit added to the Contract by rider.
No death benefit is payable if the second Insured's death occurs past the grace
period.
On any date, the death benefit under a Type A (fixed) Contract is the greater of
(1) the Basic Insurance Amount, and (2) the Contract Fund before deduction of
any monthly charges due on that date, multiplied by attained age factors. These
factors vary by the younger Insured's attained age and are shown in the
Contract.
On any date, the death benefit under a Type B (variable) Contract is the greater
of (1) the Basic Insurance Amount plus the Contract Fund before deduction of any
monthly charges due on that date, and (2) the Contract Fund before deduction of
any monthly charges due on that date, multiplied by attained age factors. These
factors vary by the younger Insured's attained age and are shown in the
Contract. For the purposes of this calculation, the Contract Fund will be
considered to be zero if it is less than zero.
The proceeds payable on death also will generally include interest (at a rate
determined by Pruco Life) from the date of death until the date of payment.
However, state insurance laws may impose additional or different requirements.
Pruco Life will make payment of the death benefit out of its general account,
and will transfer assets, if appropriate, from the Account to the general
account in an amount up to the Contract Fund.
In lieu of payment of the death benefit in a single sum, an election may be made
to apply all or a portion of the proceeds under one of the fixed benefit
settlement options described in the Contract or, with the approval of Pruco
Life, a combination of options. The election may be made by the owner during the
lifetime of the Insured(s), or, at death, by the beneficiary. An option in
effect at death may not be changed to another form of benefit after death. The
fixed benefit settlement options are subject to the restrictions and limitations
set forth in the Contract.
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D. Default and Options on Lapse
----------------------------
The Contract can go into default if either (1) the Contract debt ever grows to
be equal to or more than the cash value, or (2) on any Monthly date, the cash
value is equal to or less than zero UNLESS it remains in force under the Death
Benefit Guarantee. Monthly dates occur on the Contract Date and in each later
month on the same day of the month as the Contract Date. The Death Benefit
Guarantee will hold if the Contract has no excess Contract debt and if premiums
accumulated at 4% less withdrawals accumulated at 4% are greater than or equal
to values shown in the Contract (Limited Death Benefit Guarantee Values and
Lifetime Death Benefit Guarantee Values).
The Contract provides for a grace period extending 61 days after the mailing
date of the notice of default. The insurance coverage continues in force during
the grace period, but if the second Insured dies during the grace period, any
charges due to the date of the death are deducted from the amount payable to the
beneficiary.
E. Loans
-----
The Contract provides that an owner may take out a loan at any time a loan value
is available providing (1) the Contract is assigned to Pruco Life as the only
security for the loan, (2) at least one of the Insureds must be living, (3) the
Contract must not be in default and (4) the resulting Contract debt must not be
more than the loan value (90% of the portion of the cash value attributable to
the variable investment options and 100% of the balance of the cash value).
The investment options will be debited in the amount of the loan on the date the
loan is approved. The percentage of the loan withdrawn from each investment
option will normally be equal to the percentage of the value of such assets held
in the investment option unless otherwise requested and Pruco Life agreed. An
owner may borrow up to the Contract's full loan value. The loan provision is
described in the Contract and in the prospectus.
A loan does not affect charges. When a loan is made, the Contract Fund is not
reduced, but the value of the assets relating to the Contract held in the
investment option(s) is reduced. Accordingly, the daily changes in the cash
surrender value will be different from what they would have been had no loan
been taken. Cash surrender values, and possibly death benefits, are thus
permanently affected by any Contract debt, whether or not repaid.
The guaranteed minimum death benefit is not affected by Contract debt. However,
on settlement the amount of any Contract debt is subtracted from the insurance
proceeds. If Contract debt ever becomes equal to or more than the cash value,
all the Contract's benefits will end 61 days after notice is mailed to the owner
and any known assignee (when required by law), unless payment of an amount
sufficient to end the default is made within that period.
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