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Prospectus -- May 1, 2000
Survivorship Variable
Universal Life
Pruco Life Variable Universal Account
Pruco Life Insurance Company
[LOGO OF PRUDENTIAL]
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PROSPECTUS
May 1, 2000
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
SURVIVORSHIP VARIABLE UNIVERSAL LIFE
This prospectus describes an individual flexible premium survivorship variable
universal life insurance contract (the "Contract"), offered by Pruco Life
Insurance Company ("Pruco Life," "us," "we," or "our"). 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
Survivorship Variable Universal Life 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.
. Franklin Advisers, Inc.
. Janus Capital Corporation
. Massachusetts Financial Services Company
. Rowe Price-Fleming International, Inc.
For a complete list of the 16 available variable investment options and their
investment objectives, see The Funds, page 7.
You may also choose to invest your Contract's premiums and its earnings in the
fixed-rate option which pays a guaranteed interest rate. See The Fixed-Rate
Option, page 10.
This prospectus describes the Contract generally and the Pruco Life Variable
Universal Account (the "Account"). The attached prospectuses for the Funds, and
their related statements of additional information describe the investment
objectives and the risks of investing in the Fund portfolios. Pruco Life may add
additional investment options in the future. Please read this prospectus and
keep it for future reference.
The Securities and Exchange Commission ("SEC") maintains a Web site
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding registrants that file electronically with the SEC.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
The Contract may be purchased through registered representatives located in
banks and other financial institutions. An investment in the Contract is not a
bank deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation ("FDIC") or any other governmental agency and may lose value. An
investment is also not a condition to the provision or term of any banking
service or activity. The participating bank is not a registered broker-dealer
and is not affiliated with Pruco Securities Corporation.
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 782-5356
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PROSPECTUS CONTENTS
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DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS...........................................................................1
INTRODUCTION AND SUMMARY......................................................................................................2
Brief Description of the Contract...........................................................................................2
Charges.....................................................................................................................2
Types of Death Benefit......................................................................................................5
Premium Payments............................................................................................................5
Refund......................................................................................................................5
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY,
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT, AND THE VARIABLE INVESTMENT
OPTIONS AVAILABLE UNDER THE CONTRACT...........................................................................................6
Pruco Life Insurance Company................................................................................................6
The Pruco Life Variable Universal Account...................................................................................6
The Funds...................................................................................................................7
Voting Rights...............................................................................................................9
The Fixed-Rate Option......................................................................................................10
Which Investment Option Should Be Selected?................................................................................11
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS..........................................................................11
Charges and Expenses.......................................................................................................11
Requirements for Issuance of a Contract....................................................................................15
Short-Term Cancellation Right or "Free-Look"...............................................................................15
Types of Death Benefit.....................................................................................................15
Changing the Type of Death Benefit.........................................................................................16
Contract Date..............................................................................................................17
Premiums...................................................................................................................17
Allocation of Premiums.....................................................................................................18
Death Benefit Guarantee....................................................................................................19
Transfers..................................................................................................................20
Dollar Cost Averaging......................................................................................................21
Auto-Rebalancing...........................................................................................................21
How a Contract's Cash Surrender Value Will Vary............................................................................22
How a Type A (Fixed) Contract's Death Benefit Will Vary....................................................................22
How a Type B (Variable) Contract's Death Benefit Will Vary.................................................................23
Surrender of a Contract....................................................................................................24
Withdrawals................................................................................................................24
Decreases in Basic Insurance Amount........................................................................................25
When Proceeds Are Paid.....................................................................................................26
Illustrations of Cash Surrender Values, Death Benefits, and Accumulated Premiums...........................................26
Contract Loans.............................................................................................................28
Sale of the Contract and Sales Commissions.................................................................................29
Tax Treatment of Contract Benefits.........................................................................................29
Lapse and Reinstatement....................................................................................................31
Legal Considerations Relating to Sex-Distinct Premiums and Benefits........................................................32
Other General Contract Provisions..........................................................................................32
Riders.....................................................................................................................33
Substitution of Fund Shares................................................................................................33
Reports to Contract Owners.................................................................................................33
State Regulation...........................................................................................................33
Experts....................................................................................................................34
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Litigation and Regulatory Proceedings......................................................................................34
Additional Information.....................................................................................................35
Financial Statements.......................................................................................................35
DIRECTORS AND OFFICERS........................................................................................................36
FINANCIAL STATEMENTS OF THE PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT.............................................................A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY
AND SUBSIDIARIES..............................................................................................................B1
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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 Survivorship Variable Universal Life 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 variable investment options and
the fixed-rate option, and the principal amount of any Contract debt plus any
interest earned thereon.
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 --"If the Contract is not in default, this is the amount we will
pay upon the second death of two insureds, assuming no Contract debt.
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. See Death Benefit Guarantee,
page 19.
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. See Death Benefit Guarantee, page 19.
Monthly date --"The Contract date and the same date in each subsequent month.
Pruco Life Insurance Company --"Pruco Life, us, we, our. 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.
valuation period --"The period of time from one determination of the value of
the amount invested in a variable investment option to the next. Such
determinations are made when the net asset values of the portfolios of the Funds
are calculated, which is generally at 4:00 p.m. Eastern time on each day during
which the New York Stock Exchange is open.
variable investment option --"the 16 mutual funds available under this Contract,
whose shares are held in the separate account.
you --"The owner[s] of the Contract.
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INTRODUCTION AND SUMMARY
This Summary provides a brief overview of the more significant aspects of the
Contract. We provide further detail in the subsequent sections of this
prospectus and in the Contract.
Brief Description of the Contract
The Pruco Life Survivorship Variable Universal Life 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
28. 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 11. 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 19, and Tax Treatment of
Contract Benefits, page 29.
Charges
The following chart outlines the components of your Contract Fund and the
adjustments which may be made including the maximum charges which may be
deducted from each premium payment and from the amounts held in the designated
investment options. These charges are largely designed to cover insurance costs
and risks as well as sales and administrative expenses.
The maximum charges shown in the chart, as well as the current lower charges,
are fully described under Charges and Expenses, page 11.
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Premium Payment
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. less a charge of up to 7.5% for any taxes attributable to premiums.
. 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%.
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Invested Premium Amount
To be invested in one or a combination of:
. 16 investment portfolios of the Funds
. The fixed-rate option
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Contract Fund
On the Contract Date, the Contract Fund is equal to the invested premium amount
minus any of the charges described below which may be due on that date.
Thereafter, the value of the Contract Fund changes daily.
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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.
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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.
. We reserve the right to deduct a charge to cover federal, state or local
taxes imposed upon the operations of the Account.
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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.
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Underlying Portfolio Expenses
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Investment Total Total Actual
Portfolio Advisory Fee Other Contractual Expenses*
Expenses Expenses
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Series Fund
Money Market 0.40% 0.02% 0.42% 0.42%
Diversified Bond 0.40% 0.03% 0.43% 0.43%
Conservative Balanced 0.55% 0.02% 0.57% 0.57%
Flexible Managed 0.60% 0.02% 0.62% 0.62%
High Yield Bond 0.55% 0.05% 0.60% 0.60%
Stock Index 0.35% 0.04% 0.39% 0.39%
Equity Income 0.40% 0.02% 0.42% 0.42%
Equity 0.45% 0.02% 0.47% 0.47%
Prudential Jennison 0.60% 0.03% 0.63% 0.63%
Global 0.75% 0.09% 0.84% 0.84%
AIM Variable Insurance Funds
AIM V.I. Value Fund 0.61% 0.15% 0.76% 0.76%
American Century Variable Portfolios, Inc. (1)
VP Value Fund 1.00% 0.00% 1.00% 1.00%
Franklin Templeton Variable Insurance Products
Trust (2)
Franklin Small Cap Fund - Class 2 0.55% 0.52% 1.07% 1.07%
Janus Aspen Series (3)
Growth Portfolio 0.65% 0.02% 0.67% 0.67%
MFS(R) Variable Insurance Trust SM (4)
Emerging Growth Series 0.75% 0.09% 0.84% 0.84%
T. Rowe Price International Series, Inc. (1)
International Stock Portfolio 1.05% 0.00% 1.05% 1.05%
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* Reflects fee waivers and reimbursement of expenses, if any.
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(1) American Century Variable Portfolios, Inc. / T. Rowe Price International
Series, Inc.
The Investment Advisory Fee includes the ordinary expenses of operating the
Fund.
(2) Franklin Templeton Variable Insurance Products Trust
The table reflects restated management fees and expenses based on a merger
that became effective on May 1, 2000. The formally adopted distribution
plan, or "12b-1 Plan," provides for a maximum annual fee of 0.35% of the
Fund's average daily net assets, however, the Fund's Board of Trustees has
set the current rate at 0.25%.
(3) Janus Aspen Series
The table reflects expenses based on expenses for the fiscal year ended
December 31, 1999, restated to reflect a reduction in the management fee.
(4) MFS(R) Variable Insurance Trust SM
The 0.09% in "Other Expenses" does not take into account a 0.01% expense
offset arrangement with the Fund's custodian and is therefore higher than
the actual expenses of the Series.
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.
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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 15.
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 ($15 for premiums made by electronic fund transfer), 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. The guarantee for the life
of the Contract requires higher premium payments. See Premiums, page 17, Death
Benefit Guarantee, page 19 and Lapse and Reinstatement, page 31. You should
discuss your billing options with your Pruco Life representative when you apply
for the Contract. See Premiums, page 17.
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 15.
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.
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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 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. Prudential
is working toward completing this process in 2001 and currently expects adoption
by the Board of Directors to take place in the latter part of 2000. However,
there is no certainty that the demutualization will be completed in this
timeframe or that the necessary approvals will be obtained. Also it is possible
that after careful review, Prudential could decide not to demutualize or could
decide to delay its plans.
The plan of reorganization, which has not been fully developed and approved,
would provide the criteria for determining eligibility and the methodology for
allocating shares or other consideration to those who would be eligible.
Generally the amount of shares or other consideration eligible customers would
receive would be based on a number of factors, including types, amounts and
issue years of the policies. As a general rule, owners of Prudential-issued
insurance policies and annuity contracts would be eligible, provided that their
policies were in force on the date Prudential's Board of Directors adopted a
plan of reorganization, while mutual fund customers and customers of
Prudential's subsidiaries (such as the Pruco Life insurance companies) would not
be. It has not yet been determined whether any exceptions to that general rule
will be made with respect to policyholders and contractholders 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 choose 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 Stock Index (the "S&P 500").
. 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 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:
. AIM V.I. Value Fund. Seeks to achieve long-term growth of capital. Income
is a secondary objective.
A I M Advisors, Inc. ("AIM") is the investment adviser for this fund. The
principal business address for AIM is 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173.
American Century Variable Portfolios, Inc.:
. 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.
Franklin Templeton Variable Insurance Products Trust:
. Franklin Small Cap Fund -- Class 2. Seeks long-term capital growth. The
Fund invests 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.
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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.
MFS(R) Variable Insurance Trust(SM):
. Emerging Growth Series. Seeks to provide long-term growth of capital.
Massachusetts Financial Services Company, a Delaware corporation, is the
investment adviser to this MFS Series. The principal business address for the
Massachusetts Financial Services Company is 500 Boylston Street, Boston,
Massachusetts 02116.
T. Rowe Price International Series, Inc.:
. International Stock Portfolio. Seeks 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 4, 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 variable investment options
will be invested in shares of the corresponding portfolios of the Funds. Pruco
Life is the legal owner of those shares and as such has the right to vote on any
matter voted on at shareholders meetings of the Funds. However, Pruco Life will,
as required by law, vote the shares of the Funds in accordance with voting
instructions received from Contract owners at any regular and special
shareholders meetings. A Fund may not hold annual shareholders meetings when not
required to do so under the laws of the state of its incorporation or the
Investment Company Act of 1940. Fund shares for which no timely instructions
from Contract owners are received, and any shares attributable to general
account investments of Pruco Life will be voted in the
9
<PAGE>
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 variable investment option[s];
(4) any change in the fundamental investment policy of a portfolio corresponding
to the Contract owner's selected variable investment option[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 variable investment option, 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, 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.
10
<PAGE>
Transfers from the fixed-rate option may be subject to strict limits. See
Transfers, page 20. 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 26.
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, Franklin Templeton, Janus, MFS, or T. Rowe Price 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 28. 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 2.
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.
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 and is Pruco Life's
estimate of the average burden of state taxes generally. The rate applies
uniformly to all policyholders without regard to state of residence. 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 14.
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 17) 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 19. 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 29.
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 Series Fund Stock Index Portfolio
to 1.05% for the T. Rowe Price International Stock Portfolio. The expenses
incurred in conducting the investment operations of the portfolios (such as
custodian fees and preparation and distribution of annual reports) are paid out
of the portfolio's income. These expenses also vary from portfolio to portfolio.
The total expenses of each portfolio for the year ended December 31, 1999,
expressed as a percentage of the average assets during the year, are shown
below:
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Total Portfolio Expenses
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Total Total
Portfolio Investment Other Expenses Contractual Actual
Advisory Fee Expenses Expenses*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series Fund
Money Market 0.40% 0.02% 0.42% 0.42%
Diversified Bond 0.40% 0.03% 0.43% 0.43%
Conservative Balanced 0.55% 0.02% 0.57% 0.57%
Flexible Managed 0.60% 0.02% 0.62% 0.62%
High Yield Bond 0.55% 0.05% 0.60% 0.60%
Stock Index 0.35% 0.04% 0.39% 0.39%
Equity Income 0.40% 0.02% 0.42% 0.42%
Equity 0.45% 0.02% 0.47% 0.47%
Prudential Jennison 0.60% 0.03% 0.63% 0.63%
Global 0.75% 0.09% 0.84% 0.84%
AIM Variable Insurance Funds
AIM V.I. Value Fund 0.61% 0.15% 0.76% 0.76%
American Century Variable Portfolios, Inc. (1)
VP Value Fund 1.00% 0.00% 1.00% 1.00%
Franklin Templeton Variable Insurance
Products Trust (2)
Franklin Small Cap Fund - Class 2 0.55% 0.52% 1.07% 1.07%
Janus Aspen Series (3)
Growth Portfolio 0.65% 0.02% 0.67% 0.67%
MFS(R)Variable Insurance Trust(SM) (4)
Emerging Growth Series 0.75% 0.09% 0.84% 0.84%
T. Rowe Price International Series, Inc. (1)
International Stock Portfolio 1.05% 0.00% 1.05% 1.05%
- ----------------------------------------------------------------------------------------------------------------------------------
* Reflects fee waivers and reimbursement of expenses, if any.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) American Century Variable Portfolios, Inc./ T. Rowe Price International
Series, Inc.
The Investment Advisory Fee includes the ordinary expenses of operating the
Fund.
(2) Franklin Templeton Variable Insurance Products Trust
The table reflects restated management fees and expenses based on a merger
that became effective on May 1, 2000. The formally adopted distribution
plan, or "12b-1 Plan," provides for a maximum annual fee of 0.35% of the
Fund's average daily net assets, however, the Fund's Board of Trustees has
set the current rate at 0.25%.
(3) Janus Aspen Series
The table reflects expenses based on expenses for the fiscal year ended
December 31, 1999, restated to reflect a reduction in the management fee.
(4) MFS(R) Variable Insurance Trust(SM)
The 0.09% in "Other Expenses" does not take into account a 0.01% expense
offset arrangement with the Fund's custodian and is therefore higher than
the actual expenses of the Series.
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
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<PAGE>
be greater than Pruco Life estimated in fixing its administrative charges. This
charge is not assessed against amounts allocated to the fixed-rate option.
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 less than 40 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 40 or greater 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.
PrucoLife 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.
e) A charge may be deducted to cover federal, state or local taxes (other than
"taxes attributable to premiums" described above) that are imposed upon the
operations of the Account. At present no such taxes are imposed and no
charge is made.
The earnings of the Account are taxed as part of the operations of Pruco
Life. Currently, no charge is being made to the Account for Pruco Life's
federal income taxes, other than the 1.25% charge for federal income taxes
measured by premiums. See Deductions from Premiums, page 12. Pruco Life
reviews the question of a charge to the Account for Company federal income
taxes periodically. We may make such a charge in the future for any federal
income taxes that would be attributable to the Contracts.
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 Changing the Type of Death Benefit, page 16,
Withdrawals, page 24, and Decreases in Basic Insurance Amount, page 25.
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<PAGE>
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.
(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 currently charge an administrative processing fee of $25 for each
transfer exceeding 12 in any Contract year.
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 18.
Types 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 22. 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 22.
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 22 and How a Type B (Variable)
Contract's Death Benefit Will Vary, page 23.
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<PAGE>
Unfavorable investment performance will result in 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 24.
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> <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 11.
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 29.
16
<PAGE>
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 22 and
How a Type B (Variable) Contract's Death Benefit Will Vary, page 23. 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 29.
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 19. 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. Payment of Short-Term
Premiums at the beginning of each of the first five Contract years is one
17
<PAGE>
way to achieve the Limited Death Benefit Guarantee Values shown on the
Contract data pages, but only for the first five Contract years. 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 19. 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 -- 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 19. 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 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 15.
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
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
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%.
18
<PAGE>
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 24 and Contract
Loans, page 28. 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.
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. 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 17.
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%.
At each Monthly date within the Limited Death Benefit Guarantee period
(including years one through five), we will compare your Accumulated Net
Payments to the Limited Death Benefit Guarantee Value as of that date. 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.
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.
19
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Basic Insurance Amount - $250,000
Illustrative Annual Premiums
- -----------------------------------------------------------------------------------------------------------------------------------
Short-Term Premium
corresponding to the Target Premium Lifetime Premium
Age of both Type of Limited Death Benefit corresponding to the corresponding to the
insureds Death Benefit Guarantee Values Limited Death Benefit Lifetime Death Benefit
at issue Chosen (first five years only) Guarantee Values Guarantee Values
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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.
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 29.
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 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).
20
<PAGE>
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 32), 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 15.
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.
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 15.
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
21
<PAGE>
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 28.
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 11. 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 of this prospectus illustrate approximately
what the cash surrender values would be for representative Contracts paying
Target Premium amounts (see Premiums, page 17), 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 26.
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 28. 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.
Assuming no Contract debt, the death benefit of a Type A (fixed) Contract will
always be the greater of:
(1) the basic insurance amount; and
(2) the Contract Fund before the deduction of any monthly charges due on
that date, multiplied by the attained age factor that applies.
A listing of attained age factors can be found on your Contract data pages. 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.
22
<PAGE>
<TABLE>
<CAPTION>
Type A (Fixed) Death Benefit
- --------------------------------------------------------------------------------------------------------------------
IF THEN
- --------------------------------------------------------------------------------------------------------------------
the Contract Fund
the younger insured and the Contract the attained age multiplied by the attained and the Death Benefit
is age Fund is factor is age factor is 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.
Assuming no Contract debt, the death benefit of a Type B (variable) Contract
will always be the greater of:
(1) the basic insurance amount plus the Contract Fund before the deduction
of any monthly charges due on that date; and
(2) the Contract Fund before the deduction of any monthly charges due on
that date, 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 your Contract data pages. 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.
23
<PAGE>
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.
<TABLE>
<CAPTION>
Type B (Variable) Death Benefit
- --------------------------------------------------------------------------------------------------------------------
IF THEN
- --------------------------------------------------------------------------------------------------------------------
the Contract Fund
the younger insured and the Contract the attained age multiplied by the and the Death
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 29.
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 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.
24
<PAGE>
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 29.
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 25. 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 29. 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 19.
Decreases in Basic Insurance Amount
As described earlier, you may make a withdrawal (see Withdrawals, page 24). 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
14) 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 your Contract data pages. 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 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.
25
<PAGE>
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 29. 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
The following four tables (pages T1 through T4) 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 17) 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) assumes a Type A (fixed) Contract has been purchased
and the second table (page T2) 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) 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 11.
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 15.
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%.
26
<PAGE>
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) 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 0.67%, and the
daily deduction from the Contract Fund of 0.90% per year. Thus gross returns of
0%, 4%, 8% and 12% are the equivalent of net returns of -1.57%, 2.43%, 6.43% and
10.43%, respectively. The actual fees and expenses of the portfolios associated
with a particular Contract may be more or less than 0.67% 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.
27
<PAGE>
ILLUSTRATIONS
-------------
SURVIVORSHIP VARIABLE UNIVERSAL LIFE
FIXED INSURANCE AMOUNT
MALE ISSUE AGE 55, PREFERRED NONSMOKER
FEMALE ISSUE AGE 50, PREFERRED BEST
$ 1,000,000 BASIC INSURANCE AMOUNT
$ 12,196.33 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
--------------------------------------------------------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated --------------------------------------------------------------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12%Gross
Year Per Year (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net) (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 12,684 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 4,039 $ 4,426 $ 4,814 $ 5,202
2 $ 25,876 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 12,923 $ 14,069 $ 15,247 $ 16,456
3 $ 39,595 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 21,650 $ 23,927 $ 26,330 $ 28,863
4 $ 53,863 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 30,213 $ 33,998 $ 38,099 $ 42,536
5 $ 68,702 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 38,608 $ 44,280 $ 50,592 $ 57,602
6 $ 84,134 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 49,626 $ 57,623 $ 66,755 $ 77,164
7 $ 100,183 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 60,441 $ 71,220 $ 83,847 $ 98,615
8 $ 116,875 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 71,041 $ 85,063 $ 101,914 $ 122,141
9 $ 134,234 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 81,409 $ 99,136 $ 120,999 $ 147,939
10 $ 152,288 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 91,532 $113,432 $ 141,153 $ 176,235
15 $ 253,983 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $134,358 $184,371 $ 256,744 $ 361,869
20 $ 377,711 $1,000,000 $1,000,000 $1,000,000 $ 1,346,486 $169,903 $260,453 $ 411,239 $ 663,294
25 $ 528,244 $1,000,000 $1,000,000 $1,078,805 $ 1,999,781 $197,178 $341,641 $ 620,003 $ 1,149,300
30 $ 711,392 $1,000,000 $1,000,000 $1,357,698 $ 2,913,934 $204,723 $419,524 $ 893,223 $ 1,917,062
35 $ 934,218 $1,000,000 $1,000,000 $1,691,788 $ 4,234,519 $176,823 $485,124 $1,243,962 $ 3,113,617
40 $1,205,321 $1,000,000 $1,000,000 $2,088,416 $ 6,131,788 $ 70,640 $518,013 $1,684,207 $ 4,944,991
45 $1,535,159 $ 0(2)$1,000,000 $2,512,538 $ 8,692,704 $ 0(2) $391,825 $2,184,815 $ 7,558,873
50 $1,936,457 $ 0 $ 0(2)$2,923,357 $11,958,321 $ 0 $ 0(2) $2,810,920 $11,498,386
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy
year 42. Based on a gross return of 4% the Contract would go into default
in policy year 49.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 4%, 8%,
and 12% over a period of years but also fluctuated above or below those averages
for individual contract years. No representations can be made by Pruco Life or
the Series Fund that these hypothetical rates of return can be achieved for any
one year or sustained over any period of time.
T1
<PAGE>
SURVIVORSHIP VARIABLE UNIVERSAL LIFE
VARIABLE INSURANCE AMOUNT
MALE ISSUE AGE 55, PREFERRED NONSMOKER
FEMALE ISSUE AGE 50, PREFERRED BEST
$ 1,000,000 BASIC INSURANCE AMOUNT
$ 14,567.25 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
--------------------------------------------------------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated --------------------------------------------------------------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net) (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,150 $1,011,005 $1,011,472 $1,011,940 $ 1,012,408 $ 6,005 $ 6,472 $ 6,940 $ 7,408
2 $ 30,906 $1,021,824 $1,023,211 $1,024,635 $ 1,026,097 $ 16,824 $ 18,211 $ 19,635 $ 21,097
3 $ 47,292 $1,032,454 $1,035,214 $1,038,125 $ 1,041,193 $ 27,454 $ 30,214 $ 33,125 $ 36,193
4 $ 64,334 $1,042,890 $1,047,481 $1,052,455 $ 1,057,834 $ 37,890 $ 42,481 $ 47,455 $ 52,834
5 $ 82,057 $1,053,127 $1,060,010 $1,067,669 $ 1,076,173 $ 48,127 $ 55,010 $ 62,669 $ 71,173
6 $ 100,489 $1,065,141 $1,074,846 $1,085,926 $ 1,098,554 $ 61,141 $ 70,846 $ 81,926 $ 94,554
7 $ 119,659 $1,076,915 $1,089,990 $1,105,305 $ 1,123,214 $ 73,915 $ 86,990 $ 102,305 $ 120,214
8 $ 139,595 $1,088,437 $1,105,433 $1,125,859 $ 1,150,376 $ 86,437 $103,433 $ 123,859 $ 148,376
9 $ 160,329 $1,099,687 $1,121,158 $1,147,640 $ 1,180,273 $ 98,687 $120,158 $ 146,640 $ 179,273
10 $ 181,892 $1,110,649 $1,137,151 $1,170,705 $ 1,213,170 $110,649 $137,151 $ 170,705 $ 213,170
15 $ 303,356 $1,162,135 $1,222,364 $1,309,530 $ 1,436,154 $162,135 $222,364 $ 309,530 $ 436,154
20 $ 451,136 $1,204,716 $1,312,932 $1,493,018 $ 1,795,629 $204,716 $312,932 $ 493,018 $ 795,629
25 $ 630,933 $1,236,791 $1,407,160 $1,735,027 $ 2,395,447 $236,791 $407,160 $ 735,027 $ 1,376,694
30 $ 849,683 $1,243,728 $1,488,590 $2,038,414 $ 3,490,455 $243,728 $488,590 $1,038,414 $ 2,296,352
35 $1,115,827 $1,207,097 $1,533,273 $2,401,230 $ 5,072,370 $207,097 $533,273 $1,401,230 $ 3,729,684
40 $1,439,631 $1,086,619 $1,489,309 $2,794,304 $ 7,345,085 $ 86,619 $489,309 $1,794,304 $ 5,923,455
45 $1,833,588 $ 0(2)$1,138,429 $3,005,379 $10,412,771 $ 0(2)$138,429 $2,005,379 $ 9,054,583
50 $2,312,897 $ 0 $ 0(2)$2,377,098 $14,390,078 $ 0 $ 0(2) $1,377,098 $13,390,078
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy
year 42. Based on a gross return of 4% the Contract would go into default
in policy year 46.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 4%, 8%,
and 12% over a period of years but also fluctuated above or below those averages
for individual contract years. No representations can be made by Pruco Life or
the Series Fund that these hypothetical rates of return can be achieved for any
one year or sustained over any period of time.
T2
<PAGE>
SURVIVORSHIP VARIABLE UNIVERSAL LIFE
FIXED INSURANCE AMOUNT
MALE ISSUE AGE 55, PREFERRED NONSMOKER
FEMALE ISSUE AGE 50, PREFERRED BEST
$ 1,000,000 BASIC INSURANCE AMOUNT
$ 12,196.33 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
--------------------------------------------------------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated --------------------------------------------------------------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net) (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 12,684 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 320 $ 684 $ 1,047 $ 1,412
2 $ 25,876 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 8,429 $ 9,496 $ 10,593 $ 11,719
3 $ 39,595 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 16,312 $ 18,421 $ 20,649 $ 22,997
4 $ 53,863 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 23,949 $ 27,440 $ 31,226 $ 35,323
5 $ 68,702 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 31,319 $ 36,529 $ 42,332 $ 48,783
6 $ 84,134 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 41,552 $ 48,867 $ 57,232 $ 66,778
7 $ 100,183 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 51,441 $ 61,257 $ 72,777 $ 86,274
8 $ 116,875 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 60,953 $ 73,663 $ 88,975 $ 107,396
9 $ 134,234 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 70,051 $ 86,044 $105,830 $ 130,280
10 $ 152,288 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 78,690 $ 98,350 $123,337 $ 155,071
15 $ 253,983 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $104,422 $147,975 $211,802 $ 305,498
20 $ 377,711 $1,000,000 $1,000,000 $1,000,000 $1,085,420 $102,746 $178,615 $309,435 $ 534,690
25 $ 528,244 $1,000,000 $1,000,000 $1,000,000 $1,500,950 $ 43,125 $158,172 $401,412 $ 862,615
30 $ 711,392 $ 0(2)$1,000,000 $1,000,000 $1,956,907 $ 0(2) $ 2,491 $453,341 $1,287,439
35 $ 934,218 $ 0 $ 0(2)$1,000,000 $2,457,065 $ 0 $ 0(2) $381,758 $1,806,665
40 $1,205,321 $ 0 $ 0 $ 0(2)$3,020,037 $ 0 $ 0 $ 0(2) $2,435,513
45 $1,535,159 $ 0 $ 0 $ 0 $3,724,642 $ 0 $ 0 $ 0 $3,238,819
50 $1,936,457 $ 0 $ 0 $ 0 $4,602,468 $ 0 $ 0 $ 0 $4,425,450
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy
year 27. Based on a gross return of 4% the Contract would go into default
in policy year 31. Based on a gross return of 8% the Contract would go into
default in policy year 40.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 4%, 8%,
and 12% over a period of years but also fluctuated above or below those averages
for individual contract years. No representations can be made by Pruco Life or
the Series Fund that these hypothetical rates of return can be achieved for any
one year or sustained over any period of time.
T3
<PAGE>
SURVIVORSHIP VARIABLE UNIVERSAL LIFE
VARIABLE INSURANCE AMOUNT
MALE ISSUE AGE 55, PREFERRED NONSMOKER
FEMALE ISSUE AGE 50, PREFERRED BEST
$ 1,000,000 BASIC INSURANCE AMOUNT
$ 14,567.25 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
--------------------------------------------------------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated --------------------------------------------------------------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net) (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,150 $1,010,199 $1,010,638 $1,011,078 $1,011,519 $ 2,199 $ 2,638 $ 3,078 $ 3,519
2 $ 30,906 $1,020,155 $1,021,451 $1,022,783 $1,024,151 $ 12,155 $ 13,451 $ 14,783 $ 16,151
3 $ 47,292 $1,029,852 $1,032,421 $1,035,133 $1,037,992 $ 21,852 $ 24,421 $ 27,133 $ 29,992
4 $ 64,334 $1,039,269 $1,043,528 $1,048,144 $1,053,140 $ 31,269 $ 35,528 $ 40,144 $ 45,140
5 $ 82,057 $1,048,382 $1,054,745 $1,061,830 $1,069,703 $ 40,382 $ 46,745 $ 53,830 $ 61,703
6 $ 100,489 $1,058,904 $1,067,842 $1,078,057 $1,089,710 $ 52,504 $ 61,442 $ 71,657 $ 83,310
7 $ 119,659 $1,069,033 $1,081,024 $1,095,091 $1,111,562 $ 64,233 $ 76,224 $ 90,291 $ 106,762
8 $ 139,595 $1,078,731 $1,094,249 $1,112,936 $1,135,404 $ 75,531 $ 91,049 $109,736 $ 132,204
9 $ 160,329 $1,087,955 $1,107,467 $1,131,592 $1,161,389 $ 86,355 $105,867 $129,992 $ 159,789
10 $ 181,892 $1,096,650 $1,120,613 $1,151,047 $1,189,677 $ 96,650 $120,613 $151,047 $ 189,677
15 $ 303,356 $1,129,196 $1,181,736 $1,258,547 $1,371,076 $129,196 $181,736 $258,547 $ 371,076
20 $ 451,136 $1,130,364 $1,219,077 $1,370,863 $1,631,349 $130,364 $219,077 $370,863 $ 631,349
25 $ 630,933 $1,069,758 $1,193,736 $1,450,563 $1,978,392 $ 69,758 $193,736 $450,563 $ 978,392
30 $ 849,683 $ 0(2)$1,029,094 $1,410,517 $2,385,831 $ 0(2) $ 29,094 $410,517 $1,385,831
35 $1,115,827 $ 0 $ 0(2)$1,101,179 $2,777,294 $ 0 $ 0(2) $101,179 $1,777,294
40 $1,439,631 $ 0 $ 0 $ 0(2)$2,999,124 $ 0 $ 0 $ 0(2) $1,999,124
45 $1,833,588 $ 0 $ 0 $ 0 $2,748,325 $ 0 $ 0 $ 0 $1,748,325
50 $2,312,897 $ 0 $ 0 $ 0 $ 0(2) $ 0 $ 0 $ 0 $ 0(2)
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy
year 28. Based on a gross return of 4% the Contract would go into default
in policy year 31. Based on a gross return of 8% the Contract would go into
default in policy year 36. Based on a gross return of 12% the Contract
would go into default in policy year 50.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 4%, 8%,
and 12% over a period of years but also fluctuated above or below those averages
for individual contract years. No representations can be made by Pruco Life or
the Series Fund that these hypothetical rates of return can be achieved for any
one year or sustained over any period of time.
T4
<PAGE>
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 29 and Lapse and Reinstatement, page 31.
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
variable investment option 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 1/4%.
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 29.
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.
28
<PAGE>
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 17); (2) 3% 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) a trail
commission of 0.0375% 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:
. 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 income tax free to your
beneficiary.
29
<PAGE>
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.
. 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
30
<PAGE>
Endowment Contract is taxable in the same way. These rules also
apply to pre-death distributions, including loans and
assignments, made during the two-year period before the time that
the Contract became a Modified Endowment Contract.
. 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 19. 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 29.
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;
31
<PAGE>
(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 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.
32
<PAGE>
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 29.
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,
transactions made, and specific Contract data that apply only to your particular
Contract.
You will also be sent annual and semi-annual reports of the Funds showing the
financial condition of the portfolios and the investments held in each
portfolio.
State Regulation
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
33
<PAGE>
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
Experts
The consolidated financial statements of Pruco Life and its subsidiaries as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999 and the financial statements of the Account as of December 31,
1999 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
businesses, including class actions. Pending legal regulatory actions include
proceedings specific to our practices and proceedings generally applicable to
business practices in the industries in which we operate. In certain of these
lawsuits, large and/or indeterminate amounts are sought, including punitive or
exemplary damages.
In particular, Pruco Life and Prudential have been subject to substantial
regulatory actions and civil litigation involving individual life insurance
sales practices. In 1996, Prudential, on behalf of itself and many of its life
insurance subsidiaries including Pruco Life, entered into settlement agreements
with relevant insurance regulatory authorities and plaintiffs in the principal
life insurance sales practices class action lawsuit covering policyholders of
individual permanent life insurance policies issued in the United States from
1982 to 1995. Pursuant to the settlements, the companies agreed to various
changes to their sales and business practices controls and a series of fines,
and are in the process of distributing final remediation relief to eligible
class members. In many instances, claimants have the right to "appeal" the
decision to an independent reviewer. The bulk of such appeals were resolved in
1999, and the balance is expected to be addressed in 2000. As of January 31,
2000, Prudential and/or Pruco Life remained a party to two putative class
actions and approximately 158 individual actions relating to permanent life
insurance policies issued in the United States between 1982 and 1995. Additional
suits may be filed by individuals who opted out of the settlements. While the
approval of the class action settlement is now final, Prudential and Pruco Life
remain subject to oversight and review by insurance regulators and other
regulatory authorities with respect to their sales practices and the conduct of
the remediation program. The U.S. District Court has also retained jurisdiction
as to all matters relating to the administration, consummation, enforcement and
interpretation of the settlements.
Prudential has indemnified Pruco Life for any liabilities incurred in connection
with sales practices litigation covering policyholders of individual permanent
life insurance policies issued in the United States from 1982 to 1995.
In 1999, 1998, 1997 and 1996, Prudential recorded provision in its Consolidated
Statements of Operations of $100 million, $1,150 million, $2,030 million and
$1,125 million, respectively, to provide for estimated remediation costs, and
additional sales practices costs including related administrative costs,
regulatory fines, penalties and related payments, litigation costs and
settlements, including settlements associated with the resolution of claims of
deceptive sales practices asserted by policyholders who elected to "opt-out" of
the class action settlement and litigate their claims against Prudential
separately, and other fees and expenses associated with the resolution of sales
practices issues.
34
<PAGE>
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 Public Reference Section at 450 Fifth Street, N.W., Washington, D.C.
20549, or by telephoning (800) SEC-0330, 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 its subsidiaries, which
should be considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
35
<PAGE>
DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life, listed with their principal
occupations during the past five years, are shown below.
DIRECTORS OF PRUCO LIFE
JAMES J. AVERY, JR., Chairman and Director - President, Prudential Individual
Life Insurance since 1998; 1997 to 1998: Senior Vice President, Chief Actuary
and CFO, Prudential Individual Insurance Group; 1995 to 1997: President,
Prudential Select.
WILLIAM M. BETHKE, Director - Chief Investment Officer, Prudential 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.
ESTHER H. MILNES, President and Director - Vice President and Chief Actuary,
Prudential Individual Life Insurance since 1999; prior to 1999: Vice President
and Actuary, Prudential Individual Insurance Group.
DAVID R. ODENATH, JR., Director - President, Prudential Investments since 1999;
prior to 1999: Senior Vice President and Director of Sales, Investment
Consulting Group, PaineWebber.
I. EDWARD PRICE, Vice Chairman and Director - Senior Vice President and Actuary,
Prudential Individual Life Insurance since 1998; 1995 to 1998: Senior Vice
President and Actuary, Prudential Individual Insurance Group.
KIYOFUMI SAKAGUCHI, Director - President and CEO, Prudential International
Insurance Group since 1995.
OFFICERS WHO ARE NOT DIRECTORS
C. EDWARD CHAPLIN, Treasurer - Vice President and Treasurer, Prudential since
1995.
JAMES C. DROZANOWSKI, Senior Vice President - Vice President, Operations and
Systems, Prudential Individual Financial Services since 1998; 1996 to 1998: Vice
President and Operations Executive, Prudential Individual Insurance Group; 1995
to 1996: President, Credit Card Division, Chase Manhattan Bank.
CLIFFORD E. KIRSCH, Chief Legal Officer and Secretary - Chief Counsel, Variable
Products, Prudential Law Department since 1995.
HIROSHI NAKAJIMA, Senior Vice President - President and CEO, Pruco Life
Insurance Company Taiwan Branch since 1997; prior to 1997: Senior Managing
Director, Prudential Life Insurance Co., Ltd.
SHIRLEY H. SHAO, Senior Vice President and Chief Actuary - Vice President and
Associate Actuary, Prudential since 1996; prior to 1996: Vice President and
Assistant Actuary, Prudential Corporate Risk Management.
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, Salomon
Brothers.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.
Pruco Life directors and officers are elected annually.
36
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF NET ASSETS
For the year ended December 31, 1999
SUBACCOUNTS
-----------------------------------------------------------------------------------
PRUDENTIAL
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL HIGH
MONEY DIVERSIFIED PRUDENTIAL FLEXIBLE CONSERVATIVE YIELD
MARKET BOND EQUITY MANAGED BALANCED BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in The Prudential Series
Fund, Inc. Portfolios and
non-Prudential administered
funds, at net asset value [Note 3] ..... $21,020,421 $45,254,760 $44,862,196 $ 9,406,730 $51,592,566 $ 2,653,932
Receivable from Pruco Life Insurance
Company [Note 2] ....................... 0 0 69,102 0 0 0
----------- ----------- ----------- ----------- ----------- ------------
Net Assets ............................... $21,020,421 $45,254,760 $44,931,298 $ 9,406,730 $51,592,566 $ 2,653,932
=========== =========== =========== =========== =========== ============
NET ASSETS, representing:
Equity of contract owners [Note 4] ....... $21,020,421 $45,254,760 $44,931,298 $ 9,406,730 $51,592,566 $ 2,653,932
- ----------- ----------- ----------- ----------- ----------- ------------
$21,020,421 $45,254,760 $44,931,298 $ 9,406,730 $51,592,566 $ 2,653,932
=========== =========== =========== =========== =========== ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
</TABLE>
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL T. ROWE PRICE JANUS MFS
STOCK EQUITY PRUDENTIAL PRUDENTIAL INTERNATIONAL AIM VI ASPEN EMERGING
INDEX INCOME GLOBAL JENNISON STOCK VALUE GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO FUND PORTFOLIO SERIES
------------ ----------- ----------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$208,864,409 $14,525,330 $22,276,540 $ 6,822,949 $ 18,814 $ 94,337 $ 22,400 $ 4,545
41,887 0 39,109 0 0 0 0 0
------------ ----------- ----------- ----------- -------- -------- -------- --------
$208,906,296 $14,525,330 $22,315,649 $ 6,822,949 $ 18,814 $ 94,337 $ 22,400 $ 4,545
============ =========== =========== =========== ======== ======== ======== ========
$208,906,296 $14,525,330 $22,315,649 $ 6,822,949 $ 18,814 $ 94,337 $ 22,400 $ 4,545
------------ ----------- ----------- ----------- -------- -------- -------- --------
$208,906,296 $14,525,330 $22,315,649 $ 6,822,949 $ 18,814 $ 94,337 $ 22,400 $ 4,545
============ =========== =========== =========== ======== ======== ======== ========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
</TABLE>
A2
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the periods ended December 31, 1999, 1998 and 1997
SUBACCOUNTS
------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
---------------------------------------- ---------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ........................... $ 835,985 $ 461,945 $ 461,061 $ 0 $ 2,359,120 $ 2,574,631
---------- ---------- ---------- ---------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk
[Note 5A] ................................. 102,057 53,117 50,651 253,044 229,634 205,292
Reimbursement for excess expenses
[Note 5C] ................................ 0 0 0 0 0 0
---------- ---------- ---------- ---------- ----------- -----------
NET EXPENSES ................................ 102,057 53,117 50,651 253,044 229,634 205,292
---------- ---------- ---------- ---------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ................ 733,928 408,828 410,410 (253,044) 2,129,486 2,369,339
---------- ---------- ---------- ---------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received .... 0 0 0 114,761 128,093 408,037
Realized gain (loss) on shares
redeemed .............................. 0 0 0 (24,825) 173,161 94,146
Net change in unrealized gain (loss)
on investments ........................ 0 0 0 (406,752) (29,348) (288,588)
---------- ---------- ---------- ---------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS .............. 0 0 0 (316,816) 271,906 213,595
---------- ---------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ................................ $ 733,928 $ 408,828 $ 410,410 $ (569,860) $ 2,401,392 $ 2,582,934
========== ========= ========= ============= =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
</TABLE>
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
EQUITY FLEXIBLE MANAGED CONSERVATIVE BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------- --------------------------------------- ---------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 716,887 $ 860,120 $1,108,812 $ 1,508 $1,147,432 $1,050,936 $2,010,476 $1,965,960 $ 2,025,296
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
263,130 284,011 286,301 111,448 209,364 206,248 289,895 271,618 256,921
0 0 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
263,130 284,011 286,301 111,448 209,364 206,248 289,895 271,618 256,921
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
453,757 576,109 822,511 (109,940) 938,068 844,688 1,720,581 1,694,342 1,768,375
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
5,076,635 5,026,484 2,827,131 382,730 3,419,770 5,545,715 270,329 2,703,038 5,037,552
1,953,344 4,779,486 1,774,816 (650,961) 353,509 605,368 (17,659) 935,553 200,066
(1,836,843) (5,230,122) 4,476,157 2,299,575 (1,305,317) (1,682,924) 959,440 (276,688) (1,945,306)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
5,193,136 4,575,848 9,078,104 2,031,344 2,467,962 4,468,159 1,212,110 3,361,903 3,292,312
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
$ 5,646,893 $ 5,151,957 $ 9,900,615 $ 1,921,404 $ 3,406,030 $ 5,312,847 $ 2,932,691 $ 5,056,245 $ 5,060,687
=========== =========== =========== =========== =========== =========== ============= =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
</TABLE>
A4
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the periods ended December 31, 1999, 1998 and 1997
SUBACCOUNTS
----------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
HIGH YIELD BOND STOCK INDEX
PORTFOLIO PORTFOLIO
-------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
--------- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ............................ $ 8,128 $ 261,439 $ 197,684 $ 1,908,245 $ 1,729,752 $ 1,326,042
--------- --------- --------- ----------- ------------ ------------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A].. 16,950 15,665 12,354 1,068,971 820,541 502,161
Reimbursement for excess expenses
[Note 5C] ................................. 0 0 0 0 0 0
--------- --------- --------- ----------- ------------ ------------
NET EXPENSES ................................. 16,950 15,665 12,354 1,068,971 820,541 502,161
--------- --------- --------- ----------- ------------ ------------
NET INVESTMENT INCOME (LOSS) ................. (8,822) 245,774 185,330 839,274 909,211 823,881
--------- --------- --------- ----------- ------------ ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ..... 0 0 0 2,384,852 2,499,196 2,997,271
Realized gain (loss) on shares
redeemed ............................... (58,390) (4,633) 16,526 5,878,374 5,771,729 2,754,626
Net change in unrealized gain (loss)
on investments ......................... 181,106 (334,049) 59,640 24,251,918 24,590,569 15,534,339
--------- --------- --------- ----------- ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS ............... 122,716 (338,682) 76,166 32,515,144 32,861,494 21,286,236
--------- --------- --------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ................................. $ 113,894 $ (92,908) $ 261,496 $33,354,418 $ 33,770,705 $ 22,110,117
========= ========= ========= =========== ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
</TABLE>
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME GLOBAL PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- ---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ----------- ---------- ----------- ----------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 334,015 $ 365,234 $ 370,792 $ 65,033 $ 160,959 $ 149,254 $ 8,827 $ 3,905 $ 1,751
- ----------- ---------- ----------- ----------- ----------- ----------- ----------- --------- ---------
87,421 90,144 85,229 93,204 70,813 80,250 28,413 11,315 4,217
0 0 0 0 0 0 0 0 0
- ----------- ---------- ----------- ----------- ----------- ----------- ----------- --------- ---------
87,421 90,144 85,229 93,204 70,813 80,250 28,413 11,315 4,217
- ----------- ---------- ----------- ----------- ----------- ----------- ----------- --------- ---------
246,594 275,090 285,563 (28,171) 90,146 69,004 (19,586) (7,410) (2,466)
- ----------- ---------- ----------- ----------- ----------- ----------- ----------- --------- ---------
1,617,066 797,222 1,414,553 114,030 536,310 504,462 273,783 37,636 50,105
87,899 2,673,910 481,377 472,274 235,100 1,501,595 65,721 22,375 43,121
(246,900) (4,107,342) 2,177,083 6,341,128 1,531,076 (871,934) 1,513,045 478,204 73,161
- ----------- ---------- ----------- ----------- ----------- ----------- ----------- --------- ---------
1,458,065 (636,210) 4,073,013 6,927,432 2,302,486 1,134,123 1,852,549 538,215 166,387
- ----------- ---------- ----------- ----------- ----------- ----------- ----------- --------- ---------
$ 1,704,659 $ (361,120) $ 4,358,576 $ 6,899,261 $ 2,392,632 $ 1,203,127 $ 1,832,963 $ 530,805 $ 163,921
=========== ========== =========== =========== =========== =========== =========== ========= =========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
</TABLE>
A6
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the periods ended December 31, 1999, 1998 and 1997
SUBACCOUNTS
-----------------------------------------------------
T. ROWE PRICE JANUS MFS
INTERNATIONAL AIM V.I. ASPEN EMERGING
STOCK VALUE GROWTH GROWTH
PORTFOLIO* FUND* PORTFOLIO* SERIES*
--------- --------- -------- --------
1999 1999 1999 1999
--------- --------- -------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ............................ $ 68 $ 141 $ 20 $ 0
--------- --------- -------- --------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A].. 33 60 30 2
Reimbursement for excess expenses
[Note 5C] ................................. 0 0 0 0
--------- --------- -------- --------
NET EXPENSES ................................. 33 60 30 2
--------- --------- -------- --------
NET INVESTMENT INCOME (LOSS) ................. 35 81 (10) (2)
--------- --------- -------- --------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ..... 214 738 0 0
Realized gain (loss) on shares
redeemed ............................... 0 (17) (28) (29)
Net change in unrealized gain (loss)
on investments ......................... 3,329 4,894 3,357 800
--------- --------- -------- --------
NET GAIN (LOSS) ON INVESTMENTS ............... 3,543 5,615 3,329 771
--------- --------- -------- --------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ................................. $ 3,578 $ 5,696 $ 3,319 $ 769
========= ========= ======== ========
* Became available on June 7, 1999 (Note 1)
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
</TABLE>
A7
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended December 31, 1999, 1998 and 1997
SUBACCOUNTS
-------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
----------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ............ $ 733,928 $ 408,828 $ 410,410 $ (253,044) $ 2,129,486 $ 2,369,339
Capital gains distributions received .... 0 0 0 114,761 128,093 408,037
Realized gain (loss) on shares redeemed . 0 0 0 (24,825) 173,161 94,146
Net change in unrealized gain (loss) on
investments ........................... 0 0 0 (406,752) (29,348) (288,588)
------------ ------------ ----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS .............................. 733,928 408,828 410,410 (569,860) 2,401,392 2,582,934
------------ ------------ ----------- ------------ ------------ ------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ............. 14,681,912 8,459,179 16,018,494 4,403,759 4,026,378 5,573,222
Policy Loans ............................ 0 0 (45,968) (153) (10,790) 0
Policy Loan Repayments and Interest ..... 0 0 44,362 399 85 449,595
Surrenders, Withdrawals and Death
Benefits .............................. (487,668) 48,094 (447,841) (525,927) (5,421,341) (3,109,854)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Option .................. (6,419,780) (5,068,699) (17,376,103) 1,276,029 4,043,371 146,922
Withdrawal and Other Charges ............ (442,288) (258,516) (264,540) (461,017) (491,540) (665,026)
------------ ------------ ----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ............................... 7,332,176 3,180,058 (2,071,596) 4,693,090 2,146,163 2,394,859
------------ ------------ ----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7] ........................ 0 (1,722) (115,766) 0 (35,755) (86,028)
------------ ------------ ----------- ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS .................................. 8,066,104 3,587,164 (1,776,952) 4,123,230 4,511,800 4,891,765
NET ASSETS:
Beginning of period ..................... 12,954,317 9,367,153 11,144,105 41,131,530 36,619,730 31,727,965
------------ ------------ ----------- ------------ ------------ ------------
End of period ........................... $ 21,020,421 $ 12,954,317 $ 9,367,153 $ 45,254,760 $ 41,131,530 $ 36,619,730
============ ============ =========== ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
</TABLE>
A8
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
EQUITY FLEXIBLE MANAGED CONSERVATIVE BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------- ---------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
------------ ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 453,757 $ 576,109 $ 822,511 $ (109,940) $ 938,068 $ 844,688 $ 1,720,581 $ 1,694,342 $ 1,768,375
5,076,635 5,026,484 2,827,131 382,730 3,419,770 5,545,715 270,329 2,703,038 5,037,552
1,953,344 4,779,486 1,774,816 (650,961) 353,509 605,368 (17,659) 935,553
(1,836,843) (5,230,122) 4,476,157 2,299,575 (1,305,317) (1,682,924) 959,440 (276,688) (1,945,306)
------------ ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------
5,646,893 5,151,957 9,900,615 1,921,404 3,406,030 5,312,847 2,932,691 5,056,245 5,060,687
------------ ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------
4,684,781 5,974,743 8,187,661 641,303 2,727,720 4,391,711 1,545,758 6,161,137 2,723,156
(6,740) (16,155) (2,354) (200) (13,509) (101,032) 0 (15) (114,831)
1,776 2,348 6,595 1,440 2,543 109,493 0 976 1,296,181
(4,842,312) (11,366,743) (3,056,522) (22,131,312) (1,109,742) (3,330,740) (2,737,605) (41,543) (871,239)
(6,140,793) (6,233,542) (2,416,623) (3,703,401) (9,445,233) 2,115,451 3,457,685 (11,038,745) 2,899,464
(570,661) (750,093) (962,520) (167,745) (300,968) (387,697) (630,939) (628,277) (699,975)
------------ ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------
(6,873,949) (12,389,442) 1,756,237 (25,359,915) (8,139,189) 2,797,186 1,634,899 (5,546,467) 5,232,756
------------ ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------
0 (378,339) 2,060 0 99,015 (1,047) 0 (6,712) 1,650,849
------------ ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------
(1,227,056) (7,615,824) 11,658,912 (23,438,511) (4,634,144) 8,108,986 4,567,590 (496,934) 11,944,292
46,158,354 53,774,178 42,115,266 32,845,241 37,479,385 29,370,399 47,024,976 47,521,910 35,577,618
------------ ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------
$ 44,931,298 $ 46,158,354 $ 53,774,178 $ 9,406,730 $ 32,845,241 $ 37,479,385 $ 51,592,566 $ 47,024,976 $ 47,521,910
============ ============ ============ =========== ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
</TABLE>
A9
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended December 31, 1999, 1998 and 1997
SUBACCOUNTS
------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
HIGH YIELD BOND STOCK INDEX
PORTFOLIO PORTFOLIO
---------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ............. $ (8,822) $ 245,774 $ 185,330 $ 839,274 $ 909,211 $ 823,881
Capital gains distributions received ..... 0 0 0 2,384,852 2,499,196 2,997,271
Realized gain (loss) on shares redeemed .. (58,390) (4,633) 16,526 5,878,374 5,771,729 2,754,626
Net change in unrealized gain (loss) on
investments ............................ 181,106 (334,049) 59,640 24,251,918 24,590,569 15,534,339
----------- ----------- ----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ............................... 113,894 (92,908) 261,496 33,354,418 33,770,705 22,110,117
----------- ----------- ----------- ------------ ------------ ------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments .............. 245,021 637,224 330,357 13,998,881 13,077,570 14,400,181
Policy Loans ............................. 0 0 0 (16,721) (19,574) (15,209)
Policy Loan Repayments and Interest ...... 0 0 0 1,041 144 25,713
Surrenders, Withdrawals and Death
Benefits ............................... (307,785) (1,826) (298,998) (10,598,966) (432,906) (3,907,071)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Option ................... (466,171) 556,432 297,454 6,749,174 11,664,940 17,853,467
Withdrawal and Other Charges ............. (51,266) (67,806) (67,627) (1,633,867) (1,454,112) (1,103,134
----------- ----------- ----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ................................ (580,201) 1,124,024 261,186 8,499,542 22,836,062 27,253,947
----------- ----------- ----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RETAINED IN THE
ACCOUNT [Note 7] ......................... 0 (1,836) (7,832) 0 42,339 (7,138)
----------- ----------- ----------- ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ............................... (466,307) 1,029,280 514,850 41,853,960 56,649,106 49,356,926
NET ASSETS:
Beginning of period ...................... 3,120,239 2,090,959 1,576,109 167,052,336 110,403,230 61,046,304
----------- ----------- ----------- ------------ ------------ ------------
End of period ............................ $ 2,653,932 $ 3,120,239 $ 2,090,959 $208,906,296 $167,052,336 $110,403,230
=========== =========== =========== ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
</TABLE>
A10
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
EQUITY INCOME GLOBAL PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------ ----------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 246,594 $ 275,090 $ 285,563 $ (28,171) $ 90,146 $ 69,004 $ (19,586) $ (7,410) $ (2,466)
1,617,066 797,222 1,414,553 114,030 536,310 504,462 273,783 37,636 50,105
87,899 2,673,910 481,377 472,274 235,100 1,501,595 65,721 22,375 43,121
(246,900) (4,107,342) 2,177,083 6,341,128 1,531,076 (871,934) 1,513,045 478,204 73,161
- ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------
1,704,659 (361,120) 4,358,576 6,899,261 2,392,632 1,203,127 1,832,963 530,805 163,921
- ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------
355,583 260,870 857,548 2,076,557 1,832,043 2,622,189 144,235 75,139 238,539
(12,069) 0 0 0 0 (67,171) 0 0 0
139 0 0 0 0 67,209 0 0 0
(497,594) (8,141,933) (802,616) (1,963,919) (16,418) (4,072,024) (13,816) 0 (293,084)
(1,279,058) 7,241,853 (358,547) 2,397,693 (1,739,609) (4,363,304) 2,170,749 1,234,490 508,875
(175,220) (248,861) (366,230) (134,514) (128,121) (199,522) (46,761) (22,311) (8,919)
- ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------
(1,608,219) (888,071) (669,845) 2,375,817 (52,105) (6,012,623) 2,254,407 1,287,318 445,411
- ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------
0 (15,048) (64,926) 0 (27,164) (140,126) 0 32,534 806
- ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------
96,440 (1,264,239) 3,623,805 9,275,078 2,313,363 (4,949,622) 4,087,370 1,850,657 610,138
14,428,890 15,693,129 12,069,324 13,040,571 10,727,208 15,676,830 2,735,579 884,922 274,784
- ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------
$ 14,525,330 $ 14,428,890 $ 15,693,129 $ 22,315,649 $ 13,040,571 $ 10,727,208 $ 6,822,949 $ 2,735,579 $ 884,922
============ ============ ============ ============ ============ ============ =========== =========== ==========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
</TABLE>
A11
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended December 31, 1999, 1998 and 1997
SUBACCOUNTS
-------------------------------------------------------
T. ROWE PRICE JANUS MFS
INTERNATIONAL AIM V.I. ASPEN EMERGING
STOCK VALUE GROWTH GROWTH
PORTFOLIO* FUND* PORTFOLIO* SERIES*
-------- -------- -------- -------
1999 1999 1999 1999
-------- -------- -------- -------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................... $ 35 $ 81 $ (10) $ (2)
Capital gains distributions received ............. 214 738 0 0
Realized gain (loss) on shares redeemed .......... 0 (17) (28) (29)
Net change in unrealized gain (loss) on
investments .................................... 3,329 4,894 3,357 800
-------- -------- -------- -------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ....................................... 3,578 5,696 3,319 769
-------- -------- -------- -------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ...................... 43 3,832 9,107 3,779
Policy Loans ..................................... 0 0 0 0
Policy Loan Repayments and Interest .............. 0 0 0 0
Surrenders, Withdrawals and Death
Benefits ....................................... 0 0 0 0
Net Transfers From (To) Other Subaccounts
or Fixed Rate Option ........................... 15,220 84,865 10,000 0
Withdrawal and Other Charges ..................... (27) (56) (26) (3)
-------- -------- -------- -------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ........................................ 15,236 88,641 19,081 3,776
-------- -------- -------- -------
NET INCREASE (DECREASE) IN
NET ASSETS RETAINED IN THE
ACCOUNT [Note 7] ................................. 0 0 0 0
-------- -------- -------- -------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ....................................... 18,814 94,337 22,400 4,545
NET ASSETS:
Beginning of period .............................. 0 0 0 0
-------- -------- -------- -------
End of period .................................... $ 18,814 $ 94,337 $ 22,400 $ 4,545
======== ======== ======== =======
* Became available on June 7, 1999 (Note 1)
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
</TABLE>
A12
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
DECEMBER 31, 1999
NOTE 1: GENERAL
Pruco Life Variable Universal Account (the "Account") was established
on April 17, 1989 under Arizona law as a separate investment account of
Pruco Life Insurance Company ("Pruco Life") which is a wholly-owned
subsidiary of The Prudential Insurance Company of America
("Prudential"). The assets of the Account are segregated from Pruco
Life's other assets. Proceeds from sales of the Pruselect I, Pruselect
II and effective November 10, 1999 Pruselect III Variable Universal
Life products are invested in the Account as directed by the contract
owners. In addition, effective May 1, 2000, purchases of Survivorship
Variable Universal Life contracts ("SVUL") may be invested in the
Account.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. There are twenty subaccounts
within the Account, fifteen of which are available to Pruselect III
contract owners. SVUL contracts offer the option to invest in 16
Subaccounts, 14 of which are presented in these financial statements as
well as two additional non-Prudential administered funds which will
become available effective May 1, 2000: American Century VP Value Fund
and Franklin Small Cap Fund. Each subaccount invests in a corresponding
portfolio of The Prudential Series Fund, Inc. (the "Series Fund") or
any of the non-Prudential administered funds shown in Note 3. The
Series Fund is a diversified open-end management investment company,
and is managed by Prudential.
Beginning June 7, 1999, the following five additional non-Prudential
administered subaccounts became available to contract owners for
Pruselect I and Pruselect II and beginning on November 10, 1999, as
discussed above, they became available for Pruselect III contract
owners: AIM V.I. Value Fund; American Century VP Value Fund; Janus
Aspen Growth Portfolio; MFS Emerging Growth Series; and the T. Rowe
Price International Stock Portfolio.
At December 31, 1999 there were no balances pertaining to SVUL in the
Subaccounts investing in the Series Fund or the non-Prudential
administered funds.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in conformity with
accounting principles generally accepted in the United States ("GAAP"). The
preparation of the financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts and disclosures. Actual results could differ from those estimates.
Investments--The investments in shares of the Series Fund or the
non-Prudential administered funds are stated at the net asset value of the
respective portfolio.
Security Transactions--Realized gains and losses on security transactions
are reported on an average cost basis. Purchase and sale transactions are
recorded as of the trade date of the security being purchased or sold.
Distributions Received--Dividend and capital gain distributions received
are reinvested in additional shares of the Series Fund or the
non-Prudential administered funds and are recorded on the ex-dividend date.
Receivable from Pruco Life Insurance Company--At times, Pruco Life may
expect to receive an amount from the Account primarily related to
processing contract owner payments, surrenders, withdrawals and death
benefits. This amount is reflected in the Account's Statements of Net
Assets as a receivable from Pruco Life. The receivable and or payable does
not have an effect on the Contract owner's account or the related unit
value.
A13
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
The net asset value per share for each portfolio of the Series Fund,
or the non-Prudential administered variable funds, the number of
shares (rounded) of each portfolio held by the Account and the
aggregate cost of investments in such shares at December 31, 1999 were
as follows:
<TABLE>
<CAPTION>
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED PRUDENTIAL FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of shares (rounded): 2,102,042 4,132,855 1,552,325 533,261 3,358,891
Net asset value per share : $ 10.00 $ 10.95 $ 28.90 $ 17.64 $ 15.36
Cost: $21,020,421 $45,646,113 $42,895,709 $ 9,411,230 $51,242,001
PRUDENTIAL
HIGH PRUDENTIAL PRUDENTIAL
YIELD STOCK EQUITY PRUDENTIAL PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------- -----------
Number of shares (rounded): 352,917 4,698,862 744,126 719,062 210,650
Net asset value per share: $ 7.53 $ 44.45 $ 19.52 $ 30.98 $ 32.39
Cost: $ 2,748,055 $130,132,357 $15,147,463 $13,685,943 $ 4,743,085
T. ROWE PRICE JANUS MFS
INTERNATIONAL AIM V.I. ASPEN EMERGING
STOCK VALUE GROWTH GROWTH
PORTFOLIO FUND PORTFOLIO SERIES
----------- ----------- ----------- -----------
Number of shares (rounded): 988 2,816 666 120
Net asset value per share : $ 19.04 $ 33.50 $ 33.65 $ 37.94
Cost: $ 15,485 $ 89,443 $ 19,043 $ 3,745
</TABLE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units (rounded), unit values and total
value of contract owner equity at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED PRUDENTIAL FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Pruselect I - rounded) 290,751 4,876,997 718,417 69,687 6,224,235
Unit Value (Pruselect I) $ 1.60147 $ 2.03632 $ 3.88421 $ 2.92824 $ 2.57655
------------- ------------- ------------- ------------- -------------
Contract Owner Equity (Pruselect I) $ 465,630 $ 9,931,127 $ 2,790,481 $ 204,061 $ 16,037,053
------------- ------------- ------------- ------------- -------------
Contract Owner Units Outstanding
(Pruselect II - rounded) 11,415,720 17,346,798 10,849,263 3,142,730 13,799,660
Unit Value (Pruselect II) $ 1.60147 $ 2.03632 $ 3.88421 $ 2.92824 $ 2.57655
------------- ------------- ------------- ------------- -------------
Contract Owner Equity (Pruselect II) $ 18,281,934 $ 35,323,633 $ 42,140,817 $ 9,202,669 $ 35,555,513
------------- ------------- ------------- ------------- -------------
Contract Owner Units Outstanding
(Pruselect III - rounded) 2,255,378 0 0 0 0
Unit Value (Pruselect III) $ 1.00775 $ .99424 $ 1.05287 $ 1.03671 $ 1.02714
------------- ------------- ------------- ------------- -------------
Contract Owner Equity (Pruselect III) $ 2,272,857 $ 0 $ 0 $ 0 $ 0
------------- ------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER EQUITY $ 21,020,421 $ 45,254,760 $ 44,931,298 $ 9,406,730 $ 51,592,566
============= ============= ============= ============= =============
</TABLE>
A14
<PAGE>
<TABLE>
<CAPTION>
NOTE 4: CONTRACT OWNER UNIT INFORMATION (CONTINUED)
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------
PRUDENTIAL
HIGH PRUDENTIAL PRUDENTIAL
YIELD STOCK EQUITY PRUDENTIAL PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Pruselect I - rounded) .............. 28,956 8,211,055 1,062,378 0 394,435
Unit Value (Pruselect I) ............... $ 2.25891 $ 4.87074 $ 3.46967 $ 2.58864 $ 3.59559
------------ ------------- ------------ -------------- -----------
Contract Owner Equity (Pruselect I) .... $ 65,409 $ 39,993,915 $ 3,686,102 $ 0 $ 1,418,226
------------ ------------- ------------ -------------- -----------
Contract Owner Units Outstanding
(Pruselect II - rounded) ............. 1,145,917 34,678,998 3,123,994 8,620,607 1,503,153
Unit Value (Pruselect II) .............. $ 2.25891 $ 4.87074 $ 3.46967 $ 2.58864 $ 3.59559
------------ ------------- ------------ -------------- -----------
Contract Owner Equity (Pruselect II) ... $ 2,588,523 $ 168,912,381 $ 10,839,228 $ 22,315,649 $ 5,404,723
------------ ------------- ------------ -------------- -----------
Contract Owner Units Outstanding
(Pruselect III - rounded) ............ 0 0 0 0 0
Unit Value (Pruselect III) ............. $ 1.02134 $ 1.07712 $ 1.07537 $ 1.20743 $ 1.16040
------------ ------------- ------------ -------------- -----------
Contract Owner Equity (Pruselect III) .. $ 0 $ 0 $ 0 $ 0 $ 0
------------ ------------- ------------ -------------- -----------
TOTAL CONTRACT OWNER EQUITY ............ $ 2,653,932 $ 208,906,296 $ 14,525,330 $ 22,315,649 $ 6,822,949
============ ============= ============ ============== ===========
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------
T. ROWE PRICE JANUS MFS
INTERNATIONAL AIM V.I. ASPEN EMERGING
STOCK VALUE GROWTH GROWTH
PORTFOLIO FUND PORTFOLIO SERIES
------------ ------------- ------------ --------------
Contract Owner Units Outstanding
(Pruselect I - rounded) .............. 0 0 0 0
Unit Value (Pruselect I) ............... $ 1.30529 $ 1.7702 $ 1.28732 $ 1.64532
------------ ------------- ------------ --------------
Contract Owner Equity (Pruselect I) .... $ 0 $ 0 $ 0 $ 0
------------ ------------- ------------ --------------
Contract Owner Units Outstanding
(Pruselect II - rounded) ............. 14,414 80,149 17,401 2,762
Unit Value (Pruselect II) .............. $ 1.30529 $ 1.17702 $ 1.28732 $ 1.64532
------------ ------------- ------------ --------------
Contract Owner Equity (Pruselect II) ... $ 18,814 $ 94,337 $ 22,400 $ 4,545
------------ ------------- ------------ --------------
Contract Owner Units Outstanding
(Pruselect III - rounded) ............ 0 0 0 0
Unit Value (Pruselect III) ............. $ 1.17859 $ 1.10318 $ 1.13634 $ 1.39445
------------ ------------- ------------ --------------
Contract Owner Equity (Pruselect III) .. $ 0 $ 0 $ 0 $ 0
------------ ------------- ------------ --------------
TOTAL CONTRACT OWNER EQUITY ............ $ 18,814 $ 94,337 $ 22,400 $ 4,545
============ ============= ============ ==============
</TABLE>
NOTE 5: CHARGES AND EXPENSES
A. Mortality Risk and Expense Risk Charges
The mortality risk and expense risk charges, at an effective
annual rate of 0.90% for Pruselect I and Pruselect II contracts,
are applied daily against the net assets representing equity of
contract owners held in each subaccount and at 0.20% for
Pruselect III contract owners. Mortality risk is that contract
holders may not live as long as estimated and expense risk is
that the cost of issuing and administering the policies may
exceed related charges by Pruco Life. Pruco Life currently
intends to charge only 0.60% on Pruselect I and Pruselect II
contracts, but reserves the right to make the full 0.90% charge.
B. Partial Withdrawal Charge
A charge is imposed by Pruco Life on partial withdrawals of the
cash surrender value. A charge equal to the lesser of $15 or 2%
and $25 or 2% will be made in connection with each partial
withdrawal of the cash surrender value of a Pruselect I and
Pruselect II contract, and Pruselect III contract, respectively.
C. Expense Reimbursement
The Account is reimbursed by Pruco Life for Pruselect I and
Pruselect II contracts, on a non-guaranteed basis, for expenses
incurred by the Series Fund in excess of the effective rate of
0.40% for all Zero Coupon
A15
<PAGE>
Bond Portfolios and for the Stock Index Portfolio, 0.50% for the
High Dividend Stock Portfolio, 0.55% for the Natural Resources
Portfolio, and 0.65% for the High Yield Bond Portfolio of the
average daily net assets of these portfolios.
D. Cost of Insurance and Other Related Charges
Contract owner contributions are subject to certain deductions
prior to being invested in the Account. The deductions are for
(1) transaction cost which are deducted from each premium payment
to cover premium collection and processing costs; (2) state
premium taxes; (3) sales charges which are deducted in order to
compensate Pruco Life for the cost of selling the contract.
Contracts are also subject to monthly charges for the cost of
administering the contract.
NOTE 6: TAXES
Pruco Life is taxed as a "life insurance company" defined by the
Internal Revenue Code and the results of operations of the Account form
a part of Prudential's consolidated federal tax return. Under current
federal law, no federal income taxes are payable by the Account. As
such, no provision for tax liability has been recorded in these
financial statements.
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE ACCOUNT
The increase (decrease) in net assets retained in the Account
represents the net contributions (withdrawals) of Pruco Life to (from)
the Account. Effective October 13, 1998 Pruco Life no longer maintains
a position in the Account. Previously, Pruco Life maintained a position
in the Account for liquidity purposes including unit purchases and
redemptions, fund share transactions and expense processing.
NOTE 8: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) for the
years ended December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 13,870,279 11,769,929 15,281,942 5,773,771 5,686,444 4,556,760
Contract Owner
Redemptions: (8,349,759) (9,721,732) (16,788,123) (3,482,099) (4,658,242) (3,288,085)
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
EQUITY FLEXIBLE MANAGED
PORTFOLIO PORTFOLIO
----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ----------- ---------- ---------- ----------
Contract Owner
Contributions: 3,528,860 2,885,417 4,465,527 1,991,070 8,590,002 4,476,620
Contract Owner
Redemptions: (5,248,863) (6,422,617) (3,935,074) (10,795,219) (11,597,522) (3,255,025)
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
CONSERVATIVE BALANCED HIGH YIELD BOND
PORTFOLIO PORTFOLIO
----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ----------- ---------- ---------- ----------
Contract Owner
Contributions: 3,818,833 12,272,439 5,516,349 232,862 621,628 1,021,708
Contract Owner
Redemptions: (3,154,189) (14,641,165) (2,950,237) (494,213) (117,717) (879,849)
</TABLE>
A16
<PAGE>
NOTE 8: UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
STOCK INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO
----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 10,380,525 12,075,930 20,876,571 3,603,113 3,556,140 679,346
Contract Owner
Redemptions: (8,588,993) (5,649,830) (11,486,568) (4,068,251) (3,811,832) (873,682)
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
GLOBAL PORTFOLIO JENNISON PORTFOLIO
----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ----------- ---------- ---------- ----------
Contract Owner
Contributions: 2,831,806 2,263,591 10,705,193 1,880,279 1,126,502 589,921
Contract Owner
Redemptions: (1,636,224) (2,393,156) (14,887,428) (1,058,268) (524,101) (302,690)
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------
T. ROWE PRICE JANUS MFS
INTERNATIONAL AIM V.I. ASPEN EMERGING
STOCK VALUE GROWTH GROWTH
PORTFOLIO* FUND* PORTFOLIO* SERIES*
---------- ---------- ----------- ----------
1999 1999 1999 1999
---------- ---------- ----------- ----------
Contract Owner
Contributions: 29,489 88,424 28,034 0
Contract Owner
Redemptions: (15,075) (8,275) (10,635) (2,762)
* Became available on June 7, 1999 (Note 1)
</TABLE>
NOTE 9: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments
in the Series Fund and the non-Prudential administered funds for the
year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED PRUDENTIAL FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Purchases $ 17,522,078 $ 6,484,012 $ 5,601,878 $ 1,266,462 $ 7,370,428
Sales $(10,291,958) $ (2,043,966) $(12,808,060) $(26,737,825) $(6,025,425)
PRUDENTIAL PRUDENTIAL PRUDENTIAL
HIGH YIELD STOCK EQUITY PRUDENTIAL PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ -----------
Purchases $ 375,340 $ 24,405,119 $ 410,034 $ 4,718,947 $ 2,501,921
Sales $ (972,491) $(17,016,436) $ (2,105,673) $ (2,475,443) $ (275,927)
T. ROWE PRICE JANUS MFS
INTERNATIONAL AIM V.I. ASPEN EMERGING
STOCK VALUE GROWTH GROWTH
PORTFOLIO* FUND* PORTFOLIO* SERIES*
------------ ------------ ------------ ------------
Purchases $ 16,260 $ 89,743 $ 20,158 $ 4,748
Sales $ (1,057) $ (1,161) $ (1,106) $ (974)
* Became available on June 7, 1999 (Note 1)
</TABLE>
A17
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Financial Position
December 31, 1999 and 1998 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1999: $3,084,057; $2,998,362 $2,763,926
1998: $2,738,654)
Held to maturity, at amortized cost (fair value, 1999: $377,822; 1998: 388,990 410,558
$421,845)
Equity securities - available for sale, at fair value (cost, 1999: $3,238; 4,532 2,847
1998: $2,951)
Mortgage loans on real estate 10,509 17,354
Policy loans 792,352 766,917
Short-term investments 207,219 240,727
Other long-term investments 77,769 42,050
----------------- -----------------
Total investments 4,479,733 4,244,379
Cash 76,396 89,679
Deferred policy acquisition costs 1,062,785 861,713
Accrued investment income 68,917 61,114
Receivables from affiliate 23,329 -
Other assets 48,228 65,145
Separate Account assets 16,032,449 11,490,751
----------------- -----------------
TOTAL ASSETS $21,791,837 $16,812,781
================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $3,116,261 $2,702,011
Future policy benefits and other policyholder liabilities 635,978 528,779
Cash collateral for loaned securities 87,336 73,336
Securities sold under agreement to repurchase 21,151 49,708
Income taxes payable 145,600 193,358
Payables to affiliate - 66,568
Other liabilities 83,243 55,038
Separate Account liabilities 16,032,449 11,490,751
----------------- -----------------
Total liabilities 20,122,018 15,159,549
----------------- -----------------
Contingencies (See Footnote 12)
Stockholder's Equity
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,258,428 1,202,833
Accumulated other comprehensive (loss) income
Net unrealized investment (losses) gains (28,364) 9,902
Foreign currency translation adjustments (2,327) (1,585)
----------------- -----------------
Accumulated other comprehensive (loss) income (30,691) 8,317
----------------- -----------------
Total stockholder's equity 1,669,819 1,653,232
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 21,791,837 $16,812,781
================= =================
</TABLE>
See Notes to Consolidated Financial Statements
B1
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
Years Ended December 31, 1999, 1998 and 1997 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
REVENUES
Premiums $ 98,976 $ 82,139 $ 69,614
Policy charges and fee income 414,425 350,569 332,132
Net investment income 276,821 261,430 259,634
Realized investment (losses) gains, net (32,545) 44,841 10,974
Asset management fees 60,392 40,200 33,310
Other income 1,397 1,067 491
-------------- --------------- ---------------
Total revenues 819,466 780,246 706,155
-------------- --------------- ---------------
BENEFITS AND EXPENSES
Policyholders' benefits 205,042 193,739 199,537
Interest credited to policyholders' account balances 136,852 118,992 110,815
General, administrative and other expenses 392,041 231,320 227,561
-------------- --------------- ---------------
Total benefits and expenses 733,935 544,051 537,913
-------------- --------------- ---------------
Income from operations before income taxes 85,531 236,195 168,242
-------------- --------------- ---------------
Income tax provision 29,936 84,233 61,868
-------------- --------------- ---------------
NET INCOME 55,595 151,962 106,374
-------------- --------------- ---------------
Other comprehensive (loss) income, net of tax:
Unrealized gains (losses) on securities, net of
reclassification adjustment (38,266) (7,227) 3,025
Foreign currency translation adjustments (742) 2,980 (2,863)
-------------- --------------- ---------------
Other comprehensive (loss) income (39,008) (4,247) 162
-------------- --------------- ---------------
TOTAL COMPREHENSIVE INCOME $ 16,587 $147,715 $106,536
============== =============== ===============
</TABLE>
See Notes to Consolidated Financial Statements
B2
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years Ended December 31, 1999, 1998, and 1997 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
other Total
Common Paid-in- Retained comprehensive stockholder's
stock capital earnings income (loss) equity
------------- ------------ ---------------- ---------------- -------------------
------------- ------------ ---------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 2,500 $ 439,582 $944,497 $12,402 $1,398,981
Net income - - 106,374 - 106,374
Change in foreign currency - - - (2,863) (2,863)
translation adjustments,
net of taxes
Change in net unrealized
investment gains, net of - - - 3,025 3,025
reclassification
adjustment and taxes
------------- ------------ ---------------- ---------------- -------------------
Balance, December 31, 1997 2,500 439,582 1,050,871 12,564 1,505,517
Net income - - 151,962 - 151,962
Change in foreign currency
translation adjustments, - - - 2,980 2,980
net of taxes
Change in net unrealized
investment losses, net of - - - (7,227) (7,227)
reclassification
adjustment and taxes
------------- ------------ ---------------- ---------------- -------------------
Balance, December 31, 1998 2,500 439,582 1,202,833 8,317 1,653,232
Net income - - 55,595 - 55,595
Change in foreign currency
translation adjustments, - - - (742) (742)
net of taxes
Change in net unrealized
investment losses, net of - - - (38,266) (38,266)
reclassification
adjustment and taxes
------------- ------------ ---------------- ---------------- -------------------
Balance, December 31, 1999 $ 2,500 $ 439,582 $ 1,258,428 $ (30,691) $1,669,819
============= ============================= ================ ===================
</TABLE>
See Notes to Consolidated Financial Statements
B3
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998, and 1997 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ------------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 55,595 $ 151,962 $ 106,374
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Policy charges and fee income (83,961) (29,827) (40,783)
Interest credited to policyholders' account balances 136,852 118,992 110,815
Realized investment (gains) losses, net 32,545 (44,841) (10,974)
Amortization and other non-cash items 75,037 19,655 (26,405)
Change in:
Future policy benefits and other policyholders'
liabilities 107,199 61,095 34,907
Accrued investment income (7,803) 5,886 (4,890)
Payable to affiliate (89,897) (3,807) 20,547
Policy loans (25,435) (62,962) (64,173)
Deferred policy acquisition costs (201,072) (206,471) (22,083)
Income taxes payable (47,758) (16,828) 68,417
Other, net 45,122 (43,675) 34,577
----------------- ------------------- ---------------
Cash Flows (Used In) From Operating Activities (3,576) (50,821) 206,329
----------------- ------------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 3,076,848 5,429,396 2,828,665
Held to maturity 45,841 74,767 138,626
Equity securities 5,209 4,101 6,939
Mortgage loans on real estate 6,845 5,433 24,925
Other long-term investments 385 33,428 (10,618)
Payments for the purchase of:
Fixed maturities:
Available for sale (3,452,289) (5,617,208) (3,141,785)
Held to maturity (24,170) (145,919) (70,532)
Equity securities (5,110) (2,274) (4,594)
Other long-term investments (39,094) (409) (51)
Cash collateral for loaned securities, net 14,000 (70,085) 143,421
Securities sold under agreement to repurchase, net (28,557) 49,708 --
Short-term investments, net 33,580 75,771 (147,030)
----------------- ------------------- ---------------
Cash Flows Used In Investing Activities (366,512) (163,291) (232,034)
----------------- ------------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 3,448,370 3,098,764 2,099,600
Withdrawals (3,091,565) (2,866,331) (2,076,303)
----------------- ------------------- ---------------
Cash Flows From (Used in) Financing Activities 356,805 232,433 23,297
----------------- ------------------- ---------------
Net increase (decrease) in Cash (13,283) 18,321 (2,408)
Cash, beginning of year 89,679 71,358 73,766
----------------- ------------------- ---------------
CASH, END OF PERIOD $ 76,396 $ 89,679 $ 71,358
================= =================== ===============
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid (received) $ 55,144 $ 99,810 $ (7,904)
================= =================== ===============
</TABLE>
See Notes to Consolidated Financial Statements
B4
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. BUSINESS
Pruco Life Insurance Company ("the Company") is a stock life insurance company,
organized in 1971 under the laws of the state of Arizona. The Company is
licensed to sell individual life insurance, variable life insurance, variable
annuities, fixed annuities, and a group annuity program ("the Contracts") in the
District of Columbia, Guam and in all states and territories except New York. In
addition, the Company markets individual life insurance through its branch
office in Taiwan. The Company has two wholly owned subsidiaries, Pruco Life
Insurance Company of New Jersey ("PLNJ") and The Prudential Life Insurance
Company of Arizona ("PLICA"). PLNJ is a stock life insurance company organized
in 1982 under the laws of the state of New Jersey. It is licensed to sell
individual life insurance, variable life insurance, fixed annuities, and
variable annuities only in the states of New Jersey and New York. PLICA is a
stock life insurance company organized in 1988 under the laws of the state of
Arizona. PLICA had no new business sales in 1997, 1998 or 1999 and at this time
will not be issuing new business.
The Company is a wholly owned subsidiary of The Prudential Insurance Company of
America ("Prudential"), a mutual insurance company founded in 1875 under the
laws of the state of New Jersey. Prudential 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 and review and approval by two-thirds of the qualified
policyholders who vote on the plan, review and approved by the New Jersey
Department of Banking and Insurance. Prudential's management is in the process
of developing a proposed plan of demutualization, although there can be no
assurance that Prudential's Board of Directors will approve such a plan.
Prudential intends to make additional capital contributions to the Company, as
needed, to enable it to comply with its reserve requirements and fund expenses
in connection with its business. Generally, Prudential is under no obligation to
make such contributions and its assets do not back the benefits payable under
the Contracts.
The Company is engaged in a business that is highly competitive because of the
large number of stock and mutual life insurance companies and other entities
engaged in marketing insurance products, and individual and group annuities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. ("GAAP"). The
Company has extensive transactions and relationships with Prudential and other
affiliates, as more fully described in Footnote 14. Due to these relationships,
it is possible that the terms of these transactions are not the same as those
that would result from transactions among wholly unrelated parties. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, in particular deferred policy acquisition costs ("DAC")
and future policy benefits, and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
Investments
Fixed maturities classified as "available for sale" are carried at estimated
fair value. Fixed maturities that the Company has both the intent and ability to
hold to maturity are stated at amortized cost and classified as "held to
maturity". The amortized cost of fixed maturities is written down to estimated
fair value if a decline in value is considered to be other than temporary.
Unrealized gains and losses on fixed maturities "available for sale", including
the effect on deferred policy acquisition costs and policyholders' account
balances that would result from the realization of unrealized gains and losses,
net of income taxes, are included in a separate component of equity,
"Accumulated other comprehensive income."
B5
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Equity securities, available for sale, comprised of common and non-redeemable
preferred stock, are carried at estimated fair value. The associated unrealized
gains and losses, net of income tax, the effects on deferred policy acquisition
costs and on policyholders' account balances that would result from the
realization of unrealized gains and losses, are included in a separate component
of equity, "Accumulated other comprehensive income."
Mortgage loans on real estate are stated primarily at unpaid principal balances,
net of unamortized discounts and an allowance for losses. The allowance for
losses includes a loan specific reserve for impaired loans and a portfolio
reserve for incurred but not specifically identified losses. Impaired loans
include those loans for which a probability exists that all amounts due
according to the contractual terms of the loan agreement will not be collected.
Impaired loans are measured at the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the fair value of the
collateral if the loan is collateral dependent. Interest received on impaired
loans, including loans that were previously modified in a troubled debt
restructuring, is either applied against the principal or reported as revenue,
according to management's judgment as to the collectibility of principal.
Management discontinues accruing interest on impaired loans after the loans are
90 days delinquent as to principal or interest, or earlier when management has
serious doubts about collectibility. When a loan is recognized as impaired, any
accrued but uncollectible interest is reversed against interest income of the
current period. Generally, a loan is restored to accrual status only after all
delinquent interest and principal are brought current and, in the case of loans
where the payment of interest has been interrupted for a substantial period, a
regular payment performance has been established. The portfolio reserve for
incurred but not specifically identified losses considers the Company's past
loan loss experience, the current credit composition of the portfolio,
historical credit migration, property type diversification, default and loss
severity statistics and other relevant factors.
Policy loans are carried at unpaid principal balances.
Short-term investments, including highly liquid debt instruments purchased with
an original maturity of twelve months or less, are carried at amortized cost,
which approximates fair value.
Other long-term investments represent the Company's investments in joint
ventures and partnerships in which the Company does not have control. These
investments are recorded using the equity method of accounting, reduced for
other than temporary declines in value. The Company's investment in the Separate
Accounts are included on this line.
Realized investment gains, net are computed using the specific identification
method. Costs of fixed maturity and equity securities are adjusted for
impairments considered to be other than temporary.
Cash
Cash includes cash on hand, amounts due from banks, and money market
instruments.
Deferred Policy Acquisition Costs
The costs which vary with and that are related primarily to the production of
new insurance business are deferred to the extent that they are deemed
recoverable from future profits. Such costs include certain commissions, costs
of policy issuance and underwriting, and certain variable field office expenses.
Deferred policy acquisition costs are subject to recoverability testing at the
time of policy issue and loss recognition testing at the end of each accounting
period. Deferred policy acquisition costs are adjusted for the impact of
unrealized gains or losses on investments as if these gains or losses had been
realized, with corresponding credits or charges included in "Accumulated other
comprehensive income".
Policy acquisition costs related to interest-sensitive products and certain
investment-type products are deferred and amortized over the expected life of
the contracts (periods ranging from 15 to 30 years) in proportion to estimated
gross profits arising principally from investment results, mortality and expense
margins, and surrender charges based on historical and anticipated future
experience, which is updated periodically. The effect of changes to estimated
gross profits on unamortized deferred acquisition costs is reflected in "General
and administrative expenses" in the period such estimated gross profits are
revised.
B6
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Securities loaned
Securities loaned are treated as financing arrangements and are recorded at the
amount of cash received as collateral. The Company obtains collateral in an
amount equal to 102% and 105% of the fair value of the domestic and foreign
securities, respectively. The Company monitors the market value of securities
loaned on a daily basis with additional collateral obtained as necessary.
Non-cash collateral received is not reflected in the consolidated statements of
financial position because the debtor typically has the right to redeem the
collateral on short notice. Substantially all of the Company's securities loaned
are with large brokerage firms.
Securities sold under agreements to repurchase
Securities sold under agreements to repurchase are treated as financing
arrangements and are carried at the amounts at which the securities will be
subsequently reacquired, including accrued interest, as specified in the
respective agreements. Assets to be repurchased are the same, or substantially
the same, as the assets transferred and the transferor, through right of
substitution, maintains the right and ability to redeem the collateral on short
notice. The market value of securities to be repurchased is monitored and
additional collateral is obtained, where appropriate, to protect against credit
exposure.
Securities lending and securities repurchase agreements are used to generate net
investment income and facilitate trading activity. These instruments are
short-term in nature (usually 30 days or less). Securities loaned are
collateralized principally by U.S. Government and mortgage-backed securities.
Securities sold under repurchase agreements are collateralized principally by
cash. The carrying amounts of these instruments approximate fair value because
of the relatively short period of time between the origination of the
instruments and their expected realization.
Separate Account Assets and Liabilities
Separate Account assets and liabilities are reported at estimated fair value and
represent segregated funds which are invested for certain policyholders and
other customers. Separate Account assets include common stocks, fixed
maturities, real estate related securities, and short-term investments. The
assets of each account are legally segregated and are not subject to claims that
arise out of any other business of the Company. Investment risks associated with
market value changes are borne by the customers, except to the extent of minimum
guarantees made by the Company with respect to certain accounts. The investment
income and gains or losses for Separate Accounts generally accrue to the
policyholders and are not included in the Consolidated Statements of Operations.
Mortality, policy administration and surrender charges on the accounts are
included in "Policy charges and fee income".
Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life Modified Guaranteed Annuity
Account. The Pruco Life Modified Guaranteed Annuity Account is a non-unitized
Separate Account, which funds the Modified Guaranteed Annuity Contract and the
Market Value Adjustment Annuity Contract. Owners of the Pruco Life Modified
Guaranteed Annuity and the Market Value Adjustment Annuity Contracts do not
participate in the investment gain or loss from assets relating to such
accounts. Such gain or loss is borne, in total, by the Company.
Insurance Revenue and Expense Recognition
Premiums from insurance policies are generally recognized when due. Benefits are
recorded as an expense when they are incurred. For traditional life insurance
contracts, a liability for future policy benefits is recorded using the net
level premium method. For individual annuities in payout status, a liability for
future policy benefits is recorded for the present value of expected future
payments based on historical experience.
Premiums from non-participating group annuities with life contingencies are
generally recognized when due. For single premium immediate annuities, premiums
are recognized when due with any excess profit deferred and recognized in a
constant relationship to insurance in-force or, for annuities, the amount of
expected future benefit payments.
B7
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Amounts received as payment for interest-sensitive life, individual annuities
and guaranteed investment contracts are reported as deposits to "Policyholders'
account balances". Revenues from these contracts reflected as "Policy charges
and fee income" consist primarily of fees assessed during the period against the
policyholders' account balances for mortality charges, policy administration
charges and surrender charges. In addition, interest earned from the investment
of these account balances is reflected in "Net investment income". Benefits and
expenses for these products include claims in excess of related account
balances, expenses of contract administration, interest credited and
amortization of deferred policy acquisition costs.
Foreign Currency Translation Adjustments
Assets and liabilities of the Taiwan branch are translated to U.S. dollars at
the exchange rate in effect at the end of the period. Revenues, benefits and
other expenses are translated at the average rate prevailing during the period.
Cumulative translation adjustments arising from the use of differing exchange
rates from period to period are charged or credited directly to "Other
comprehensive income". The cumulative effect of changes in foreign exchange
rates are included in "Accumulated other comprehensive income".
Asset Management Fees
The Company receives asset management fee income from policyholder account
balances invested in The Prudential Series Fund ("PSF"), which are a portfolio
of mutual fund investments related to the Company's Separate Account products.
Derivative Financial Instruments
Derivatives are financial instruments whose values are derived from interest
rates, foreign exchange rates, various financial indices or the value of
securities or commodities. Derivative financial instruments used by the Company
include futures, currency swaps and options contracts and can be exchange-traded
or contracted in the over-the-counter market. The Company uses derivative
financial instruments to seek to reduce market risk from changes in interest
rates or foreign currency exchange rates, and to alter interest rate or currency
exposures arising from mismatches between assets and liabilities. All
derivatives used by the Company are for other than trading purposes.
To qualify as a hedge, derivatives must be designated as hedges for existing
assets, liabilities, firm commitments or anticipated transactions which are
identified and probable to occur, and effective in reducing the market risk to
which the Company is exposed. The effectiveness of the derivatives must be
evaluated at the inception of the hedge and throughout the hedge period.
When derivatives qualify as hedges, the changes in the fair value or cash flows
of the derivatives and the hedged items are recognized in earnings in the same
period. If the Company's use of derivatives does not meet the criteria to apply
hedge accounting, the derivatives are recorded at fair value in "Other
liabilities" in the Consolidated Statements of Financial Position, and changes
in their fair value are recognized in earnings in "Realized investment gains,
net" without considering changes in the hedged assets or liabilities. Cash flows
from derivative assets and liabilities are reported in the operating activities
section in the Consolidated Statements of Cash Flows.
Income Taxes
The Company and its subsidiaries are members of the consolidated federal income
tax return of Prudential and files separate company state and local tax returns.
Pursuant to the tax allocation arrangement with Prudential, total federal income
tax expense is determined on a separate company basis. Members with losses
record tax benefits to the extent such losses are recognized in the consolidated
federal tax provision. Deferred income taxes are generally recognized, based on
enacted rates, when assets and liabilities have different values for financial
statement and tax reporting purposes. A valuation allowance is recorded to
reduce a deferred tax asset to that portion that is expected to be realized.
B8
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS No. 133 does not apply to most traditional
insurance contracts. However, certain hybrid contracts that contain features
which may affect settlement amounts similarly to derivatives may require
separate accounting for the "host contract" and the underlying "embedded
derivative" provisions. The latter provisions would be accounted for as
derivatives as specified by the statement.
SFAS No. 133 provides, if certain conditions are met, that a derivative may be
specifically designated as (1) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment
(fair value hedge), (2) a hedge of the exposure to variable cash flows of a
forecasted transaction (cash flow hedge), or (3) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security or a foreign-currency-denominated
forecasted transaction (foreign currency hedge).
Under SFAS No. 133, the accounting for changes in fair value of a derivative
depends on its intended use and designation. For a fair value hedge, the gain or
loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item. For a cash flow hedge, the effective
portion of the derivative's gain or loss is initially reported as a component of
other comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings. For a foreign currency hedge, the gain
or loss is reported in other comprehensive income as part of the foreign
currency translation adjustment. For all other derivatives not designated as
hedging instruments, the gain or loss is recognized in earnings in the period of
change. The Company is required to adopt this Statement, as amended, as of
January 1, 2001 and is currently assessing the effect of the new standard.
In October 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-7, "Deposit Accounting: Accounting for
Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk" ("SOP
98-7"). This statement provides guidance on how to account for insurance and
reinsurance contracts that do not transfer insurance risk. SOP 98-7 is effective
for fiscal years beginning after June 15, 1999. The adoption of this statement
is not expected to have a material effect on the Company's financial position or
results of operations.
Reclassifications
Certain amounts in the prior years have been reclassified to conform to current
year presentation.
B9
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS
Fixed Maturities and Equity Securities:
The following tables provide additional information relating to fixed maturities
and equity securities as of December 31,:
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturities available for sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 113,172 $ 2 $ 2,052 $ 111,122
Foreign government bonds 92,725 1,718 1,455 92,988
Corporate securities 2,876,602 8,013 92,075 2,792,540
Mortgage-backed securities 1,558 157 3 1,712
---------- ---------- ---------- ----------
Total fixed maturities available for sale $3,084,057 $ 9,890 $ 95,585 $2,998,362
========== ========== ========== ==========
Fixed maturities held to maturity
Corporate securities $ 388,990 $ 1,832 $ 13,000 $ 377,822
---------- ---------- ---------- ----------
Total fixed maturities held to maturity $ 388,990 $ 1,832 $ 13,000 $ 377,822
========== ========== ========== ==========
Equity securities available for sale $ 3,238 $ 1,373 $ 79 $ 4,532
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturities available for sale
U.S. Treasury securities and obligations of
U.S government corporation and agencies $ 110,294 $ 864 $ 319 $ 110,839
Foreign government bonds 87,112 2,003 696 88,419
Corporate securities 2,540,498 30,160 6,896 2,563,762
Mortgage-backed securities 750 156 -- 906
---------- ---------- ---------- ----------
Total fixed maturities available for sale $2,738,654 $ 33,183 $ 7,911 $2,763,926
========== ========== ========== ==========
Fixed maturities held to maturity
Corporate securities $ 410,558 $ 11,287 $ -- $ 421,845
---------- ---------- ---------- ----------
Total fixed maturities held to maturity $ 410,558 $ 11,287 $ -- $ 421,845
========== ========== ========== ==========
Equity securities available for sale $ 2,951 $ 168 $ 272 $ 2,847
========== ========== ========== ==========
</TABLE>
B10
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The amortized cost and estimated fair value of fixed maturities, categorized by
contractual maturities at December 31, 1999 are shown below:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------------ ------------------------------------
Amortized Estimated Fair Amortized Estimated Fair
Cost Value Cost Value
----------------- ------------------ ---------------- -------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 178,298 $ 175,638 $ 18,369 $ 18,296
Due after one year through five 1,144,552 1,118,150 178,893 178,624
years
Due after five years through ten 1,326,637 1,283,515 175,549 165,341
years
Due after ten years 433,012 419,347 16,179 15,561
Mortgage-backed securities 1,558 1,712 - -
---------------- ------------------- ----------------- ------------------
Total $3,084,057 $2,998,362 $ 388,990 $ 377,822
================ =================== ================= ==================
</TABLE>
Actual maturities will differ from contractual maturities because, in certain
circumstances, issuers have the right to call or prepay obligations.
Proceeds from the sale of fixed maturities available for sale during 1999, 1998,
and 1997 were $2,950.4 million, $5,327.3 million, and $2,796.3 million,
respectively. Gross gains of $13.1 million, $46.3 million, and $18.6 million and
gross losses of $31.1 million, $14.1 million, and $7.9 million were realized on
those sales during 1999, 1998, and 1997, respectively. During the years ended
December 31, 1999, 1998, and 1997, there were no securities classified as held
to maturity that were sold.
Proceeds from the maturity of fixed maturities available for sale during 1999,
1998, and 1997 were $126.5 million, $102.1 million, and $32.4 million,
respectively
Writedowns for impairments of fixed maturities which were deemed to be other
than temporary were $11.2 million, $2.8 million and $0.1 million for the years
1999, 1998 and 1997, respectively.
Mortgage Loans on Real Estate
The Company's mortgage loans were collateralized by the following property types
at December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
---------------------------- ---------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Retail stores $ 6,518 62.0% $ 7,356 42.4%
Apartment complexes - - 5,988 34.5%
Industrial buildings 3,991 38.0% 4,010 23.1%
---------------------------- ---------------------------
Net carrying value $10,509 100.0% $17,354 100.0%
============================ ===========================
</TABLE>
The largest concentration of mortgage loans are in the states of Washington
(51%), New Jersey (38%), and North Dakota (11%).
Special Deposits and Restricted Assets
Fixed maturities of $8.2 million and $8.6 million at December 31, 1999 and 1998,
respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws. Equity securities restricted as to sale were
$.3 million and $2.5 million at December 31, 1999 and 1998, respectively.
B11
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
Other Long-Term Investments
The Company's "Other long-term investments" of $77.8 million and $42.0 million
as of December 31, 1999 and 1998, respectively, are comprised of joint ventures,
limited partnerships, and the Company's investment in the Separate Accounts.
Joint ventures, limited partnerships and other totaled $32.8 million and $1.0
million at December 31, 1999 and 1998, respectively. The Company's share of net
income from the joint ventures was $0.3 million, $0.1 million and $2.2 million
for the years ended December 31, 1999, 1998 and 1997, respectively, and is
reported in "Net investment income." The Company's investment in the Separate
Accounts was $45.0 million and $41.0 million at December 31, 1999 and 1998,
respectively.
Investment Income and Investment Gains and Losses
Net investment income arose from the following sources for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale $188,236 $179,184 $ 161,140
Fixed maturities - held to maturity 29,245 26,128 26,936
Equity securities - 14 76
Mortgage loans on real estate 2,825 1,818 2,585
Policy loans 42,422 40,928 37,398
Short-term investments 19,208 23,110 22,011
Other 4,432 6,886 14,920
---------------- ----------------- -----------------
Gross investment income 286,368 278,068 265,066
Less: investment expenses (9,547) (16,638) (5,432)
---------------- ----------------- -----------------
Net investment income $276,821 $261,430 $ 259,634
================ ================= =================
</TABLE>
Realized investment gains (losses), net including charges for other than
temporary reductions in value, for the years ended December 31, were from the
following sources:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale $ (29,192) $29,330 $9,039
Fixed maturities - held to maturity 102 487 821
Equity securities 392 3,489 8
Mortgage loans on real estate - - 797
Derivative instruments (1,557) 12,414 -
Other (2,290) (879) 309
---------------- ----------------- -----------------
Realized investment (losses) gains, net $ (32,545) $44,841 $10,974
================ ================= =================
</TABLE>
B12
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Net Unrealized Investment Gains (Losses)
Net unrealized investment gains (losses) on securities available for sale are
included in the Consolidated Statements of Financial Position as a component of
"Accumulated other comprehensive income". Changes in these amounts include
reclassification adjustments to avoid including in "Other Comprehensive income
(loss)", those items that are included as part of "Net income" for a period that
also had been part of "Other Comprehensive income (loss)" in earlier periods.
The amounts for the years ended December 31, net of tax, are as follows:
<TABLE>
<CAPTION>
Accumulated
other
comprehensive
income (loss)
Deferred Deferred related to net
Unrealized policy Policyholders' income tax unrealized
gains(losses) acquisition Account (liability) investment
investments costs Balances benefit gains(losses)
--------- --------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 26,930 $ (7,893) $ 2,451 $ (7,384) $ 14,104
Net investment gains (losses) on
investments arising during the period 21,338 -- -- (7,445) 13,893
Reclassifications adjustment for
gains included in net income (10,277) -- -- 3,585 (6,692)
Impact of net unrealized investment
gains on deferred policy acquisition
costs -- (8,412) -- 2,944 (5,468)
Impact of net unrealized investment
gains on policyholders' account
balances -- -- 1,292 -- 1,292
--------- --------- --------- --------- ---------
Balance, December 31, 1997 37,991 (16,305) 3,743 (8,300) 17,129
Net investment gains (losses) on
investments arising during the period 22,801 -- -- (7,588) 15,213
Reclassifications adjustment for
gains included in net income (35,623) -- -- 11,855 (23,768)
Impact of net unrealized investment
gains on deferred policy acquisition
costs -- 3,190 -- (1,048) 2,142
Impact of net unrealized investment
gains on policyholders' account
balances -- -- (1,063) 249 (814)
--------- --------- --------- --------- ---------
Balance, December 31, 1998 25,169 (13,115) 2,680 (4,832) 9,902
Net investment gains (losses) on
investments arising during the period (138,268) -- -- 47,785 (90,483)
Reclassifications adjustment for
gains included in net income 28,698 -- -- (9,970) 18,728
Impact of net unrealized investment
gains on deferred policy acquisition -- 53,407 -- (16,283) 37,124
costs
Impact of net unrealized investment
gains on policyholders' account -- -- (5,712) 2,077 (3,635)
balances
--------- --------- --------- --------- ---------
Balance, December 31, 1999 $ (84,401) $ 40,292 $ (3,032) $ 18,777 $ (28,364)
========= ========= ========= ========= =========
</TABLE>
B13
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
4. DEFERRED POLICY ACQUISITION COSTS
The balances of and changes in deferred policy acquisition costs for the year
ended December 31, 1999, are as follows:
<TABLE>
<CAPTION>
1999
-----------------
(In Thousands)
<S> <C>
Balance, beginning of year $ 861,713
Capitalization on commissions, sales and issue expenses 242,373
Amortization (96,451)
Change in unrealized investment gains 53,407
Foreign currency translation 1,743
-----------------
Balance, end of year $1,062,785
=================
</TABLE>
5. POLICYHOLDERS' LIABILITIES
Future policy benefits and other policyholder liabilities at December 31 are as
follows:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
(In Thousands)
<S> <C> <C>
Life insurance $ 587,162 $ 500,429
Annuities 48,816 28,350
------------------- -------------------
$ 635,978 $ 528,779
=================== ===================
</TABLE>
Life insurance liabilities include reserves for death benefits. Annuity
liabilities include reserves for immediate annuities.
The following table highlights the key assumptions generally utilized in
calculating these reserves:
<TABLE>
<CAPTION>
Product Mortality Interest Rate Estimation Method
- ------------------------------- ------------------------- -------------------- -------------------------
<S> <C> <C> <C>
Life insurance - Domestic Generally rates guaranteed 2.5% to 7.5% Net level premium based
in calculating cash on the non-forfeiture interest
surrender values rate
Life insurance - International Generally rates guaranteed 2.5% to 7.5% Net level premium based
in calculating cash on the expected investment
surrender values return
Individual immediate annuities 1983 Individual Annuity 3.5% to 11.0% Present value of
Mortality Table with expected future payment
certain modifications based on historical
experience
</TABLE>
B14
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
5. POLICYHOLDERS' LIABILITIES (continued)
Policyholders' account balances at December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
(In Thousands)
<S> <C> <C>
Interest-sensitive life contracts $1,383,795 $1,392,649
Individual annuities 1,147,722 1,077,996
Guaranteed investment contracts 584,744 231,366
------------------- -------------------
$3,116,261 $2,702,011
=================== ===================
</TABLE>
Policyholders' account balances for interest-sensitive life, individual
annuities, and guaranteed investment contracts are equal to policy account
values plus unearned premiums. The policy account values represent an
accumulation of gross premium payments plus credited interest less withdrawals,
expenses and mortality charges.
Certain contract provisions that determine the policyholder account balances are
as follows:
<TABLE>
<CAPTION>
Product Interest Rate Withdrawal / Surrender Charges
- --------------------------------- ------------------------------------ ------------------------------------
<S> <C> <C>
Interest sensitive life 4.0% to 6.5 % Various up to 10 years
Individual annuities 3.0% to 5.6% 0% to 8% for up to 8 years
Guaranteed investment contracts 5.02% to 7.32% Subject to market value withdrawal
provisions for any funds withdrawn
other than for benefit responsive
and contractual payments
</TABLE>
6. REINSURANCE
The Company participates in reinsurance, with Prudential and other companies, in
order to provide greater diversification of business, provide additional
capacity for future growth and limit the maximum net loss potential arising from
large risks. Reinsurance ceded arrangements do not discharge the Company or the
insurance subsidiaries as the primary insurer, except for cases involving a
novation. Ceded balances would represent a liability of the Company in the event
the reinsurers were unable to meet their obligations to the Company under the
terms of the reinsurance agreements. The likelihood of a material reinsurance
liability reassumed by the Company is considered to be remote.
B15
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
6. REINSURANCE (continued)
Reinsurance amounts included in the Consolidated Statements of Operations for
the year ended December 31 are below.
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Reinsurance premiums assumed 1,778 1,395 1,369
Reinsurance premiums ceded - affiliated (6,882) (6,532) (686)
Reinsurance premiums ceded - unaffiliated (1,744) (2,819) (3,038)
================ ================ ================
Policyholders' benefits ceded $4,228 $4,044 $3,912
================ ================ ================
</TABLE>
Reinsurance recoverables, included in "Other assets" in the Company's
Consolidated Statements of Financial Position, at December 31 include amounts
recoverable on unpaid and paid losses and were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------- -----------------
(In Thousands)
<S> <C> <C>
Life insurance - affiliated $ 6,653 $ 4,155
Life insurance - unaffiliated 2,625 2,326
Other reinsurance - affiliated 15,600 21,650
------------------- -----------------
$24,878 $28,131
=================== =================
</TABLE>
7. EMPLOYEE BENEFIT PLANS
Pension and Other Postretirement Plans
The Company has a non-contributory defined benefit pension plan which covers
substantially all of its Taiwanese employees. This plan was established as of
September 30, 1998 and the projected benefit obligation and related expenses at
December 31, 1999 were not material to the Consolidated Statements of Financial
Position or results of operations for the years presented. All other employee
benefit costs are allocated to the Company by Prudential in accordance with the
service agreement described in Footnote 14.
B16
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. INCOME TAXES
The components of income taxes for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Current tax expense (benefit):
U.S. $ (14,093) $67,272 $71,989
State and local 378 2,496 1,337
Foreign 15 - -
---------------- ----------------- -----------------
Total (13,700) 69,768 73,326
---------------- ----------------- -----------------
Deferred tax expense (benefit):
U.S. 42,320 14,059 (11,458)
State and local 1,316 406 -
---------------- ----------------- -----------------
Total 43,636 14,465 (11,458)
---------------- ----------------- -----------------
Total income tax expense $29,936 $84,233 $61,868
================ ================= =================
</TABLE>
The income tax expense for the years ended December 31, differs from the amount
computed by applying the expected federal income tax rate of 35% to income from
operations before income taxes for the following reasons:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Expected federal income tax expense $29,936 $82,668 $58,885
State and local income taxes 1,101 1,886 869
Dividends received deduction (1,010) (199) -
Other (91) (122) 2,114
---------------- ----------------- -----------------
Total income tax expense $29,936 $84,233 $61,868
================ ================= =================
</TABLE>
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
<TABLE>
<CAPTION>
1999 1998
------------------ -------------------
(In Thousands)
<S> <C> <C>
Deferred tax assets
Insurance reserves $ 93,949 $ 93,564
Net unrealized (gains) losses on
securities 31,132 (9,061)
Other 2,502 -
------------------ -------------------
Deferred tax assets 127,583 84,503
------------------ -------------------
Deferred tax liabilities
Deferred acquisition costs 299,683 224,179
Net investment gains 110 3,180
Other - 5,978
------------------ -------------------
Deferred tax liabilities 299,793 233,337
------------------ -------------------
Net deferred tax liability $172,210 $148,834
================== ===================
</TABLE>
B17
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. INCOME TAXES (continued)
Management believes that based on its historical pattern of taxable income, the
Company and its subsidiaries will produce sufficient income in the future to
realize its deferred tax assets after valuation allowance. Adjustments to the
valuation allowance will be made if there is a change in management's assessment
of the amount of the deferred tax asset that is realizable. At December 31, 1999
and 1998, respectively, the Company and its subsidiaries had no federal or state
operating loss carryforwards for tax purposes.
The Internal Revenue Service (the "Service") has completed all examinations of
the consolidated federal income tax returns through 1992. The Service has begun
their examination of the years 1993 through 1995.
9. EQUITY
Reconciliation of Statutory Surplus and Net Income
Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following table
reconciles the Company's statutory net income and surplus as of and for the
years ended December 31, determined in accordance with accounting practices
prescribed or permitted by the Arizona Department of Insurance and the New
Jersey Department of Banking and Insurance with net income and equity determined
using GAAP.
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Statutory net (loss) income $ (82,291) $ (33,097) $ 12,778
Adjustments to reconcile to net income on a GAAP basis:
Statutory income of subsidiaries 20,221 18,953 18,553
Amortization and capitalization of deferred
acquisition costs 145,921 202,375 38,003
Deferred premium 639 2,625 1,144
Insurance revenue and expenses 45,915 (24,942) 26,517
Income taxes (43,644) (21,805) 11,956
Valuation of investments (24,908) 20,077 506
Asset management fees (13,503) - -
Other, net 7,245 (12,224) (3,083)
---------------- ---------------- ----------------
GAAP net income $ 55,595 $151,962 $106,374
================ ================ ================
1999 1998
----------------- -----------------
(In Thousands)
Statutory surplus $889,186 $931,164
Adjustments to reconcile to equity on a GAAP basis:
Valuation of investments (38,258) 117,254
Deferred acquisition costs 1,062,785 861,713
Deferred premium (16,539) (15,625)
Insurance liabilities (54,927) (133,811)
Income taxes (150,957) (123,343)
Asset management fees (13,503) -
Other, net (7,968) 15,880
----------------- -----------------
GAAP stockholder's equity $1,669,819 $1,653,232
================= =================
</TABLE>
B18
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values presented below have been determined using available
information and valuation methodologies. Considerable judgment is applied in
interpreting data to develop the estimates of fair value. Accordingly, such
estimates presented may not be realized in a current market exchange. The use of
different market assumptions and/or estimation methodologies could have a
material effect on the estimated fair values. The following methods and
assumptions were used in calculating the estimated fair values (for all other
financial instruments presented in the table, the carrying value approximates
estimated fair value).
Fixed maturities and Equity securities
Estimated fair values for fixed maturities and equity securities, other than
private placement securities, are based on quoted market prices or estimates
from independent pricing services. Fair values for private placement securities
are estimated using a discounted cash flow model which considers the current
market spreads between the U.S. Treasury yield curve and corporate bond yield
curve, adjusted for the type of issue, its current credit quality and its
remaining average life. The estimated fair value of certain non-performing
private placement securities is based on amounts estimated by management.
Mortgage loans on real estate
The estimated fair value of the mortgage loan portfolio is primarily based upon
the present value of the scheduled future cash flows discounted at the
appropriate U.S. Treasury rate, adjusted for the current market spread for a
similar quality mortgage.
Policy loans
The estimated fair value of policy loans is calculated using a discounted cash
flow model based upon current U.S. Treasury rates and historical loan
repayments.
Investment contracts
For guaranteed investment contracts, estimated fair values are derived by using
discounted projected cash flows based on interest rates being offered for
similar contracts, with maturities consistent with those remaining for the
contracts being valued. Estimated fair values for individual deferred annuities
are derived using the policyholder's account balance.
Derivative financial instruments
The fair value of futures is estimated based on market quotes for transactions
with similar terms.
The following table discloses the carrying amounts and estimated fair values of
the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1999 1998
---------------------------------- --------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------------- ---------------- --------------- ----------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities: Available for sale $2,998,362 $2,998,362 $2,763,926 $2,763,926
Fixed maturities: Held to maturity 388,990 377,822 410,558 421,845
Equity securities 4,532 4,532 2,847 2,847
Mortgage loans on real estate 10,509 11,550 17,354 19,465
Policy loans 792,352 761,232 766,917 806,099
Short-term investments 207,219 207,219 240,727 240,727
Cash 76,396 76,396 89,679 89,679
Separate Account assets 16,032,449 16,032,449 11,490,751 11,490,751
Derivatives 38 38 - -
Financial Liabilities:
Investment contracts $1,282,964 $1,277,317 $ 835,034 $ 839,105
Cash collateral for loaned securities 87,336 87,336 73,336 73,336
Securities sold under repurchase
agreements 21,151 21,151 49,708 49,708
Separate Account liabilities 16,032,449 16,032,449 11,490,751 11,490,751
Derivatives 5,012 5,243 1,723 2,374
</TABLE>
B19
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
11. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
Futures & Options
The Company uses exchange-traded Treasury futures and options to reduce market
risk from changes in interest rates and to manage the duration of assets and the
duration of liabilities supported by those assets. The Company enters into
exchange-traded futures and options with regulated futures commissions merchants
who are members of a trading exchange. The fair value of futures and options is
estimated based on market quotes for a transaction with similar terms.
Under exchange-traded futures, the Company agrees to purchase a specified number
of contracts with other parties and to post variation margin on a daily basis in
an amount equal to the difference in the daily market values of those contracts.
Treasury futures move substantially in value as interest rates change and can be
used to either modify or hedge existing interest rate risk. This strategy
protects against the risk that cash flow requirements may necessitate
liquidation of investments at unfavorable prices resulting from increases in
interest rates. This strategy can be a more cost effective way of temporarily
reducing the Company's exposure to a market decline than selling fixed income
securities and purchasing a similar portfolio when such a decline is believed to
be over.
If futures meet hedge accounting criteria, changes in their fair value are
deferred and recognized as an adjustment to the carrying value of the hedged
item. Deferred gains or losses from the hedges for interest-bearing financial
instruments are amortized as a yield adjustment over the remaining lives of the
hedged item. Futures that do not qualify as hedges are carried at fair value
with changes in value reported in current period earnings. The notional value of
futures contracts was $122.1 million and $40.8 million at December 31, 1999 and
1998, respectively. The fair value of futures contracts was $(2.0) million at
December 31, 1999 and immaterial at December 31, 1998.
When the Company anticipates a significant decline in the stock market which
will correspondingly affect its diversified portfolio, it may purchase put index
options where the basket of securities in the index is appropriate to provide a
hedge against a decrease in the value of the equity portfolio or a portion
thereof. This strategy effects an orderly sale of hedged securities. When the
Company has large cash flows which it has allocated for investment in equity
securities, it may purchase call index options as a temporary hedge against an
increase in the price of the securities it intends to purchase. This hedge
permits such investment transactions to be executed with the least possible
adverse market impact.
Option premium paid or received is reported as an asset or liability and
amortized into income over the life of the option. If options meet the criteria
for hedge accounting, changes in their fair value are deferred and recognized as
an adjustment to the hedged item. Deferred gains or losses from the hedges for
interest-bearing financial instruments are recognized as an adjustment to
interest income or expense of the hedged item. If the options do not meet the
criteria for hedge accounting, they are fair valued, with changes in fair value
reported in current period earnings. The fair value of options was immaterial at
December 31, 1999 and 1998.
Currency Derivatives
The Company uses currency swaps to reduce market risk from changes in currency
values of investments denominated in foreign currencies that the Company either
holds or intends to acquire and to manage the currency exposures arising from
mismatches between such foreign currencies and the US Dollar.
Under currency swaps, the Company agrees with other parties to exchange, at
specified intervals, the difference between one currency and another at a
forward exchange rate and calculated by reference to an agreed principal amount.
Generally, the principal amount of each currency is exchanged at the beginning
and termination of the currency swap by each party. These transactions are
entered into pursuant to master agreements that provide for a single net payment
to be made by one counterparty for payments made in the same currency at each
due date.
If currency swaps are effective as hedges of foreign currency translation and
transaction exposures, gains or losses are recorded in "Accumulated Other
Comprehensive Income". If currency swaps do not meet hedge accounting criteria,
gains or losses from those derivatives are recognized in current period
earnings.
The notional value and fair value of the currency swaps $31.0 million and $(3.2)
million and $40.5 million and $(2.3) million, respectively, at December 31, 1999
and 1998.
B20
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
11. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (continued)
Credit Risk
The current credit exposure of the Company's derivative contracts is limited to
the fair value at the reporting date. Credit risk is managed by entering into
transactions with creditworthy counterparties and obtaining collateral where
appropriate and customary. The Company also attempts to minimize its exposure to
credit risk through the use of various credit monitoring techniques. All of the
net credit exposure for the Company from derivative contracts are with
investment grade counterparties. As of December 31, 1999, 80% of notional
consisted of interest rate derivatives, and 20% of notional consisted of foreign
currency derivatives.
12. CONTINGENCIES
Various lawsuits against the Company have arisen in the course of the Company's
business. In certain of these matters, large and/or indeterminate amounts are
sought.
On October 28, 1996, the Company entered into a Stipulation of Settlement with
attorneys for the plaintiffs in a consolidated class action lawsuit pending in a
Multi-District Litigation proceeding in the U.S. District Court for the District
of New Jersey. The class action suit involved alleged improprieties in
connection with the sale, servicing and operation of permanent life insurance
policies from 1982 through 1995. Pursuant to the settlement, the Company has
participated in a remediation program pursuant to which relief was offered to
policyowners who were misled when they purchased permanent life insurance
policies in the United States from 1982 to 1995. Prudential has agreed to
indemnify the Company for any liability incurred in connection with that
litigation.
The balance of the Company's litigation is subject to many uncertainties, and
given the complexity and scope, the outcomes cannot be predicted with precision.
Management believes that any ultimate liability which could result from such
litigation would not have a material adverse effect on the Company's financial
position.
13. DIVIDENDS
The Company is subject to Arizona law which limits the amount of dividends that
insurance companies can pay to stockholders. The maximum dividend which may be
paid in any twelve month period without notification or approval is limited to
the lesser of 10% of statutory surplus as of December 31 of the preceding year
or the net gain from operations of the preceding calendar year. Cash dividends
may only be paid out of surplus derived from realized net profits. Based on
these limitations and the Company's surplus position at December 31, 1999, the
Company would not be permitted a non-extraordinary dividend distribution in
2000.
14. RELATED PARTY TRANSACTIONS
Service Agreements
Prudential and the Company operate under service and lease agreements whereby
services of officers and employees (except for those agents employed directly by
the Company in Taiwan), supplies, use of equipment and office space are provided
by Prudential. Prudential periodically reviews its methods for determining the
level of administrative expenses charged to the Company. Late in 1998,
Prudential revised its allocation methodology to more closely align allocations
based on business processes, resulting in increased allocations from 1998
levels. Management believes that the updated methodology is reasonable and
better reflects actual costs incurred by Prudential to process transactions on
behalf of the Company. The net cost of these services allocated to the Company
were $317.4 million, $269.9 million and $139.5 million for the years ended
December 31, 1999, 1998, and 1997, respectively.
In addition, the Company received allocated distribution expenses from
Prudential's retail agency network. Beginning in 1999, market based distribution
transfer pricing was the basis for allocating costs to each product line that
distributes products through Prudential's retail agency channels. A majority of
these distribution expenses have been capitalized by the Company as deferred
policy acquisition costs ("DAC").
The Company receives asset management fee income from policyholder account
balances invested in the Prudential Series Fund ("PSF"). These amounts are shown
as asset management fees on the statement of operations. The Company also
collects these fees on behalf of Prudential. The amounts due to Prudential
related to PSF fees were $0.1 million and $22.6 million at December 31, 1999 and
December 31, 1998, respectively.
B21
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
14. RELATED PARTY TRANSACTIONS (continued)
The Company pays an asset management fee to Prudential Global Asset Management
("PGAM") for managing the Separate Account investment portfolio. The expense for
the year was $25.9 million, which is shown in general, administrative and other
expenses.
The Company has sold three Corporate Owned Life Insurance ("COLI") policies to
Prudential. The cash surrender value included in Separate Accounts was $725.3
million and $362.3 million at December 31, 1999, and 1998, respectively. The
fees received in 1999 related to the COLI policies were $4.0 million.
Reinsurance
The Company currently has three reinsurance agreements in place with Prudential
(the reinsurer). Specifically a reinsurance Group Annuity Contract, whereby the
reinsurer, in consideration for a single premium payment by the Company,
provides reinsurance equal to 100% of all payments due under the contract, and
two yearly renewable term agreements in which the Company may offer and the
reinsurer may accept reinsurance on any life in excess of the Company's maximum
limit of retention. The Company is not relieved of its primary obligation to the
policyholder as a result of these reinsurance transactions. These agreements had
no material effect on net income for the years ended December 31, 1999, 1998,
and 1997.
Debt Agreements
In July 1998, the Company established a revolving line of credit facility of up
to $500 million with Prudential Funding Corporation, a wholly owned subsidiary
of Prudential. There is no outstanding debt relating to this credit facility as
of December 31, 1999.
B22
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholder of
Pruco Life Insurance Company
In our opinion, the accompanying consolidated statements of financial
position and the related consolidated statements of operations, of changes in
stockholder's equity and of cash flows present fairly, in all material
respects, the financial position of Pruco Life Insurance Company (a
wholly-owned subsidiary of the Prudential Insurance Company of America) and
its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 21, 2000
B23
<PAGE>
Survivorship Variable
Universal Life Insurance
Survivorship Variable Universal Life 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 OF PRUDENTIAL]
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone: 800 782-5356
SVUL-2 Ed. 5/2000
