<PAGE>
As filed with the SEC on ____________________. Registration No. 33-38271
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-6
Post-Effective Amendment No. 14
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
----------------------
PRUCO LIFE
VARIABLE UNIVERSAL ACCOUNT
(Exact Name of Trust)
PRUCO LIFE INSURANCE COMPANY
(Name of Depositor)
213 Washington Street
Newark, New Jersey 07102-2992
(800) 286-7754
(Address and telephone number of principal executive offices)
----------------------
Thomas C. Castano
Assistant Secretary
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
(Name and address of agent for service)
Copy to:
Jeffrey C. Martin
Shea & Gardner
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
----------------------
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on May 1, 2000 pursuant to paragraph (b) of Rule 485
(date)
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on ________________________________ pursuant to paragraph (a) of Rule 485
(date)
<PAGE>
CROSS REFERENCE SHEET
(as required by Form N-8B-2)
N-8B-2 Item Number Location
------------------ --------
1. Cover Page
2. Cover Page
3. Not Applicable
4. Sale of the Contract and Sales Commissions
5. Pruco Life Variable Universal Account
6. Pruco Life Variable Universal Account
7. Not Applicable
8. Not Applicable
9. Litigation
10. Brief Description of the Contract; Short
Term Cancellation Right or "Free Look";
Transfers; Refund of Sales Charges;
Reduction of Charges; Cash Surrender
Value; Death Benefit; Partial Withdrawal
of Cash Surrender Value; When Proceeds are
Paid; Contract Loans; Exchange Right
Available in Some States; Reduced Paid-Up
Insurance Option Available in Some States;
Voting Rights; Substitution of Series Fund
Shares; Increases in Face Amount;
Decreases in Face Amount; Lapse and
Reinstatement
11. Brief Description of the Contract; Pruco
Life Variable Universal Account
12. Cover Page; Brief Description of the
Contract; The Prudential Series Fund,
Inc.; Sale of the Contract and Sales
Commissions
13. Brief Description of the Contract; The
Prudential Series Fund, Inc.; Premiums;
Allocation of Premiums; Charges and
Expenses; Refund of Sales Charges;
Reduction of Charges; Sale of the Contract
and Sales Commissions
14. Brief Description of the Contract;
Detailed Information for Prospective
Contract Owners
15. Brief Description of the Contract;
Premiums; Allocation of Premiums;
Transfers
16. Brief Description of the Contract;
Detailed Information for Prospective
Contract Owners
17. Partial Withdrawal of Cash Surrender
Value; When Proceeds are Paid
18. Pruco Life Variable Universal Account;
Cash Surrender Value
<PAGE>
N-8B-2 Item Number Location
------------------ --------
19. Reports to Contract Owners
20. Not Applicable
21. Contract Loans
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions; The
Prudential Series Fund, Inc.
25. Pruco Life Insurance Company; The
Prudential Series Fund, Inc.
26. Brief Description of the Contract; The
Prudential Series Fund, Inc.; Charges and
Expenses
27. Pruco Life Insurance Company
28. Pruco Life Insurance Company; Directors
and Officers
29. Pruco Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Pruco Life Insurance Company
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions
39. Sale of the Contract and Sales Commissions
40. Not Applicable
41. Sale of the Contract and Sales Commissions
42. Not Applicable
43. Not Applicable
<PAGE>
N-8B-2 Item Number Location
------------------ --------
44. Brief Description of the Contract; The
Prudential Series Fund, Inc; Cash
Surrender Value; Death Benefit
45. Not Applicable
46. Brief Description of the Contract; Pruco
Life Variable Universal Account; The
Prudential Series Fund, Inc.
47. Pruco Life Variable Universal Account
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Series Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements: Financial Statements
of The Pruselect II Variable Life
Subaccounts of Pruco Life Variable
Universal Account; Consolidated Financial
Statements of Pruco Life Insurance Company
and Subsidiaries
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
PRUSELECT(SM) II
Variable Life Insurance
PROSPECTUS
Pruco Life
Variable Universal Account
May 1, 2000
Pruco Life Insurance Company
<PAGE>
PROSPECTUS
May 1, 2000
PRUCO LIFE INSURANCE COMPANY
VARIABLE UNIVERSAL ACCOUNT
PRUSELECT(SM) II
This prospectus describes certain individual flexible premium variable universal
life insurance contracts, PruselectSM II Variable Life Insurance Contract* (the
"Contract"), issued by Pruco Life Insurance Company ("Pruco Life", "us", "we",
or "our"), a stock life insurance company. Pruco Life is a wholly-owned
subsidiary of The Prudential Insurance Company of America ("Prudential"). These
Contracts provide individual universal life insurance coverage with flexible
premium payments and variable investment options. The Contracts may be owned
individually or by a corporation, trust, association or similar entity. The
Contracts are available on a multiple life basis where the insureds share a
common employment or business relationship. The Contract owner will have all
rights and privileges under the Contract. The Contracts may be used for funding
non-qualified executive deferred compensation or salary continuation plans,
retiree medical benefits, or other purposes.
You have a choice of death benefit plans. Under the first plan, the death
benefit generally remains fixed in the amount or amounts scheduled at the outset
of the Contract (the "face amount"). Under the second plan, the death benefit
varies daily with the investment performance of the chosen variable investment
options. Under either plan, your death benefit will never be less than the face
amount, regardless of investment experience, as long as the Contract remains
inforce. The Contracts also have a cash surrender value which generally
increases with the payment of each premium, decreases to reflect charges made by
Pruco Life, and varies daily with investment performance of the chosen variable
investment options. There is no guaranteed minimum cash surrender value.
Investment Choices:
Pruselect II offers a wide variety of investment choices, including 20 variable
investment options that invest in mutual funds managed by these leading asset
managers:
. The Prudential Investment Corporation
. A I M Advisors, Inc.
. American Century Investment Management, Inc.
. Janus Capital Corporation
. Massachusetts Financial Services Company
. Rowe Price-Fleming International, Inc.
For a complete list of the 20 available variable investment options and their
investment objectives, see The Funds, page 2.
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.
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 286-7754
*Pruselect is a service mark of Prudential.
<PAGE>
PROSPECTUS CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS................................ 1
INTRODUCTION AND SUMMARY............................................................ 2
Brief Description of the Contract................................................... 2
Premiums............................................................................ 2
Charges............................................................................ 2
Death Benefits..................................................................... 4
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
Pruco Life Variable Universal Account.............................................. 6
The Funds.......................................................................... 7
Voting Rights...................................................................... 9
Which Investment Option Should Be Selected?........................................ 9
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS................................ 10
Charges and Expenses............................................................... 10
Requirements for Issuance of a Contract............................................ 12
Short-Term Cancellation Right or "Free-Look"....................................... 12
Premiums........................................................................... 13
Allocation of Premiums.......................................................... ...13
Transfers.......................................................................... 13
Return of Sales Charge............................................................. 14
Reduction of Charges............................................................... 14
Cash Surrender Value............................................................... 15
Death Benefit...................................................................... 15
Partial Withdrawal of Cash Surrender Value......................................... 15
Increases in Face Amount........................................................... 16
Decreases in Face Amount........................................................... 16
Illustrations of Cash Surrender Values, Death Benefits, and Accumulated
Premiums............................................................................ 16
Contract Loans..................................................................... 18
When Proceeds Are Paid............................................................. 18
Tax Treatment of Contract Benefits................................................. 19
Lapse and Reinstatement............................................................ 20
Legal Considerations Relating to Sex-Distinct Premiums and Benefits................ 20
Exchange Right Available in Some States............................................ 21
Reduced Paid-Up Insurance Option Available in Some States.......................... 21
Other General Contract Provisions.................................................. 21
Substitution of Fund Shares........................................................ 21
Reports to Contract Owners......................................................... 22
Sale of the Contract and Sales Commissions......................................... 22
State Regulation................................................................... 22
Experts............................................................................ 22
Litigation and Regulatory Proceedings.............................................. 23
Additional Information............................................................. 23
Financial Statements............................................................... 23
DIRECTORS AND OFFICERS.............................................................. 24
FINANCIAL STATEMENTS OF THE PRUSELECT II VARIABLE LIFE SUBACCOUNTS OF PRUCO LIFE
VARIABLE UNIVERSAL ACCOUNT......................................................... A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY
AND ITS SUBSIDIARIES............................................................... B1
</TABLE>
<PAGE>
DEFINITIONS OF SPECIAL TERMS
USED IN THIS PROSPECTUS
attained age -- The insured's age on the Contract date plus the number of
Contract years since then.
cash surrender value The amount payable to the Contract owner upon surrender of
the Contract. It is equal to the Contract Fund plus any refund of sales charges
due, minus any Contract debt.
Contract anniversary -- The same date as the Contract date in each later year.
Contract date -- The date the Contract is issued, as specified in the Contract.
Contract debt -- The principal amount of all outstanding loans plus any interest
accrued thereon.
Contract Fund -- The total amount credited to a specific Contract. On any date
it is equal to the sum of the amounts invested in the variable investment
options and the principal amount of any Contract debt plus any interest earned
thereon.
Contract owner -- The individual or entity, typically an employer, trust or
association, that purchases the Contract.
Contract year -- A year that starts on the Contract date or on a Contract
anniversary.
death benefit -- If the Contract is not in default, this is the amount we will
pay upon the death of the insured, assuming no Contract debt.
face amount -- The amount[s] of life insurance as shown in the Contract's
schedule of face amounts.
Funds -- Mutual funds with separate portfolios. One or more of the available
Fund portfolios may be chosen as an underlying investment for the Contract.
issue age -- The insured's age as of the Contract date.
loan value -- The maximum amount that a Contract owner may borrow.
Monthly date -- The Contract date and the same date in each subsequent month.
net amount at risk -- The amount by which the death benefit exceeds the Contract
Fund.
Pruco Life Insurance Company Us, we, our, Pruco Life. The company offering the
Contract.
separate account -- Amounts under the Contract that are allocated to the
variable investment options are held by us in a separate account called the
Pruco Life Variable Universal Account. The Separate Account is set 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 -- 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 a subaccount.
You -- The owner of the Contract.
1
<PAGE>
INTRODUCTION AND SUMMARY
This Summary provides a brief overview of the more significant aspects of the
Contract. We provide further detail in the subsequent sections of this
prospectus and in the Contract.
Brief Description of the Contract
The Contract is an individual flexible premium variable universal life insurance
contract that is offered by Pruco Life Insurance Company ("Pruco Life", "us",
"we", or "our"). The Contracts are available on a multiple life basis where the
insureds share a common employment or business relationship. The Contracts may
be owned individually or by a corporation, trust, association or similar entity.
The Contract owner will have all rights and privileges under the Contract. The
Contracts may be used for such purposes as funding non-qualified executive
deferred compensation or salary continuation plans, retiree medical benefits, or
other purposes.
The Contract is a form of variable universal life insurance. It is based on a
Contract Fund, the value of which changes every day. The chart below describes
how the value of your Contract Fund changes.
You may invest premiums in one or more of the 20 available variable investment
options. Your Contract Fund value changes every day depending upon the change
in the value of the particular variable investment options 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
variable investment options you choose. See Which Investment Option Should Be
Selected?, page 9.
Variable life insurance contracts are unsuitable as short-term savings vehicles.
Withdrawals and loans m ay possibly result in adverse tax consequences. See Tax
Treatment of Contract Benefits, page 19.
Premiums
You have flexibility with respect to the payment of premiums. You generally
select the amount and timing of premium payments. The Contract typically sets
forth a schedule of annual target premiums that you may pay, but you need not
adhere to that schedule and instead may vary the timing and amount of premiums.
See Premiums, page 13.
You are not required to pay any specific premium level to ensure that the
Contract remains inforce. Rather, the Contract will not lapse as long as the
Contract Fund is sufficient to pay the monthly 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. The
payment of any specified premium level does not guarantee that the Contract will
remain inforce. See Lapse and Reinstatement, page 20.
You may choose to have the premiums (after deduction of a $2 administrative
charge, any applicable taxes attributable to premiums, and a sales load)
invested in one or more of 20 variable investment options. Each variable
investment option is invested in a corresponding portfolio of a mutual fund (a
"Fund"). Information about the Fund portfolios can be found under The Funds, on
page 2 and in the attached prospectuses for the Funds. Because you may invest
premiums in these various variable investment options, the Contract offers an
opportunity for the cash surrender value to appreciate more rapidly than it
would under comparable fixed-benefit life insurance. You must accept the risk
that, if investment performance is unfavorable, the cash surrender value may not
appreciate as rapidly or may decrease in value.
Charges
We deduct certain charges from each premium payment and from the amounts held in
the designated variable investment option[s]. All these charges, which are
largely designed to cover insurance costs and risks as well as sales and
administrative expenses, are fully described under Charges and Expenses, page 2.
In brief, and subject to that fuller description, the following diagram outlines
the maximum charges which Pruco Life may make:
2
<PAGE>
---------------------------------------------
Premium Payment
---------------------------------------------
---------------------------------------------
. less charge for taxes attributable to
premiums
. less $2 processing fee
---------------------------------------------
---------------------------------------------------
. less a front-end sales load of not more than 8%.
---------------------------------------------------
Invested Premium Amount
--------------------------------------------------------------
. To be invested in one or a combination of the 20 available
portfolios of the Funds.
--------------------------------------------------------------
Daily Charges
. We deduct a daily mortality and expense risk charge,
equivalent to an annual rate of up to 0.9%, from the assets
in the variable investment options. See Underlying Portfolio
Expenses chart, below.
. We deduct management fees and expenses from the Fund assets.
--------------------------------------------------------------
Monthly Charges
. We deduct an administrative charge of up to $4 plus up to
$0.04 per $1,000 of face amount of insurance from the Contract
Fund.
. We deduct a charge for anticipated mortality (the "cost of
insurance charge") with the maximum charge based on 100% of
the 1980 Commissioners Standard Ordinary Mortality Tables
("1980 CSO Tables"), with appropriate adjustments for
substandard rating classes.
--------------------------------------------------------------
Possible Additional Charges
. We deduct an administrative processing charge of up to $15 in
connection with each partial withdrawal of excess cash
surrender value.
. We deduct an administrative processing charge of up to $15 in
connection with each decrease in face amount.
--------------------------------------------------------------
3
<PAGE>
<TABLE>
<CAPTION>
Underlying Portfolio Expenses
- ----------------------------------------------------------------------------------------------------------------------
Investment Other Expenses Total Total Actual
Portfolio Advisory Fee Contractual 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%
Government Income 0.40% 0.04% 0.44% 0.44%
Zero Coupon Bond 2000 (1) 0.40% 0.18% 0.58% 0.40%
Zero Coupon Bond 2005 (1) 0.40% 0.19% 0.59% 0.40%
Conservative Balanced 0.55% 0.02% 0.57% 0.57%
Flexible Managed 0.60% 0.02% 0.62% 0.62%
High Yield Bond (1) 0.55% 0.05% 0.60% 0.60%
Stock Index (1) 0.35% 0.04% 0.39% 0.39%
Equity Income (1) 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%
Small Capitalization Stock 0.40% 0.05% 0.45% 0.45%
Global 0.75% 0.09% 0.84% 0.84%
Natural Resources (1) 0.45% 0.12% 0.57% 0.55%
AIM Variable Insurance Funds
AIM V.I. Value Fund 0.61% 0.15% 0.76% 0.76%
American Century Variable Portfolios,
Inc. (2) 1.00% 0.00% 1.00% 1.00%
VP Value Fund
Janus Aspen Series (3) 0.65% 0.02% 0.67% 0.67%
Growth Portfolio
MFS(R) Variable Insurance TrustSM (4) 0.75% 0.09% 0.84% 0.84%
Emerging Growth Series
T. Rowe Price International Series, Inc. (2) 1.05% 0.00% 1.05% 1.05%
International Stock Portfolio
- ----------------------------------------------------------------------------------------------------------------------
* Reflects fee waivers and reimbursement of expenses, if any.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pruco Life, on a non-guaranteed basis, makes daily adjustments that offset
the effect of some of the expenses incurred by certain portfolios. Pruco
Life currently makes such adjustments to ensure that the portfolio expenses
indirectly borne by a Contract owner investing in:
the Zero Coupon Bond Portfolios will not exceed the investment management
fee;
. the Stock Index Portfolio will not exceed the investment management fee plus
0.05% of the average daily net assets of the portfolio; and
. the High Yield Bond, Equity Income and Natural Resources Portfolios will not
exceed the investment management fee plus 0.1% of the average daily net
assets of the portfolio.
Pruco Life intends to continue these adjustments in the future, although we
retain the right to discontinue them.
(2) American Century Variable Portfolios, Inc. / T. Rowe Price International
Series, Inc.
The Investment Advisory Fee includes the ordinary expenses of operating the
Fund.
(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 Variable Insurance Trust (SM)
The 0.09% on "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.
Under certain circumstances, Contract owners may receive a refund of a portion
of the sales charge. See Refunds of Sales Charges, page 14.
Death Benefits
You have a choice of either fixed or variable death benefit plans. Under the
fixed death benefit plan, the death benefit generally remains fixed in amount,
unless it is increased to ensure that the Contract continues to satisfy the
Internal Revenue Code's definition of life insurance, and only the cash
surrender value will vary with investment experience.
4
<PAGE>
Under the variable death benefit plan, both your death benefit and cash
surrender value will vary with investment experience. However, the death benefit
of an inforce Contract will never be less than the face amount regardless of
investment experience. There is no minimum cash surrender value under either
death benefit plan.
Refund
For a limited time, a Contract may be returned in accordance with the terms of
the "free-look" provision. See Short-Term Cancellation Right or "Free-Look",
page 12.
For DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, see page 1.
Additional information may also be obtained from Pruco Life. The address and
telephone number are set forth on the cover of this prospectus.
--------------------
The replacement of life insurance is generally not in your best interest. In
most cases, if you require additional coverage, the benefits of your existing
contract can be protected by purchasing additional insurance or a supplemental
contract. If you are considering replacing a contract, you should compare the
benefits and costs of supplementing your existing contract with the benefits and
costs of purchasing another contract and you should consult a qualified tax
adviser.
This prospectus may only be offered in jurisdictions in which the offering is
lawful. No person is authorized to make any representations in connection with
this offering other than those contained in this prospectus and in the
prospectuses and statements of additional information for the Funds.
5
<PAGE>
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, PRUCO LIFE VARIABLE
UNIVERSAL ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER THE
CONTRACT
Pruco Life Insurance Company
Pruco Life Insurance Company ("Pruco Life", "us", "we", or "our") is a stock
life insurance company, organized in 1971 under the laws of the State of
Arizona. It is licensed to sell life insurance and annuities in the District of
Columbia, Guam, and in all states except New York.
Pruco Life is a wholly-owned subsidiary of 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.
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 other business Pruco Life conducts. In addition to these assets, the
Account's assets may include funds contributed by Pruco Life to commence
operation of the Account and may include accumulations of the charges Pruco Life
makes against the Account. From time to time these additional assets will be
transferred to Pruco Life's general account. Before making any such transfer,
Pruco Life will consider any possible adverse impact the transfer might have on
the Account.
The 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 20 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 Account. The division of the separate account of Pruco
Life that invests in a particular mutual fund is referred to in your contract as
a subaccount. Pruco Life may add additional variable investment options in the
future. The Account's financial statements begin on page A1.
6
<PAGE>
The Funds
Listed below are the mutual funds (the "Funds") in which the variable investment
options invest, the Funds' investment objectives, and investment advisers.
Each Fund 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.
. Government Income Portfolio: The investment objective is maximum current
income consistent with the stability of capital and the maintenance of
liquidity. The Portfolio invests in high-quality short-term money market
instruments issued by the U.S. government or its agencies, as well as by
corporations and banks, both domestic and foreign.
. Zero Coupon Bond Portfolios - 2000 and 2005: The investment objectives are the
highest predictable compound investment for a specific period of time,
consistent with the safety of invested capital. The Portfolios invest in debt
obligations of the United States Treasury and corporations that have been
issued without interest coupons, or have been stripped of their interest
coupons, or have interest coupons that have been stripped from the debt
obligation. On November 15, 2000, the liquidation date of the Zero Coupon Bond
2000 Portfolio, investment in that portfolio will be transferred to the Money
Market Portfolio.
. 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.
. 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.
. Small Capitalization Stock Portfolio: The investment objective is to achieve
long-term growth of capital. The Portfolio attempts to duplicate the price and
yield performance of the Standard & Poor's Small Capitalization Index (the S&P
SmallCap 600 Index).
7
<PAGE>
. 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.
. Natural Resources Portfolio: The investment objective is to achieve long-term
growth of capital. The Portfolio invests primarily in common stocks and
convertible securities of natural resource companies and securities that are
related to the market value of some natural resource.
Prudential is the investment adviser for the assets of each of the portfolios of
the Series Fund. Prudential's principal business address is 751 Broad Street,
Newark, New Jersey 07102-3777. Prudential has a Service Agreement with its
wholly-owned subsidiary The Prudential Investment Corporation ("PIC"). The
Service Agreement provides that, subject to Prudential's supervision, PIC will
furnish investment advisory services in connection with the management of the
Series Fund. In addition, Prudential has entered into a Subadvisory Agreement
with its wholly-owned subsidiary Jennison Associates LLC ("Jennison"), under
which Jennison furnishes investment advisory services in connection with the
management of the Prudential Jennison Portfolio.
A I M Variable Insurance Funds:
. A I M 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.
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. Long-term growth of capital through investments
primarily in common stocks of established, non-U.S. companies.
Rowe Price-Fleming International, Inc. is the investment manager for this Fund.
The principal business address for Rowe Price-Fleming International, Inc. is 100
East Pratt Street, Baltimore, Maryland 21202.
Further information about Fund portfolios can be found in the attached
prospectuses and their statements of additional information for each Fund.
8
<PAGE>
The investment advisers for the Funds charge a daily investment management fee
as compensation for their services. These fees are described in the table under
Deductions from Portfolios in the Charges and Expenses section, see page 2, and
are more fully described in the prospectus for each Fund.
In the future it may become disadvantageous for both variable life insurance and
variable annuity contract separate accounts to invest in the same underlying
mutual funds. Although neither the companies that invest in the Funds nor the
Funds currently foresee any such disadvantage, the Board of Directors for each
Fund intends to monitor events in order to identify any material conflict
between variable life insurance and variable annuity contract owners and to
determine what action, if any, should be taken. Material conflicts could result
from such things as:
(1) changes in state insurance law;
(2) changes in federal income tax law;
(3) changes in the investment management of any portfolio of the Funds;
or
(4) differences between voting instructions given by variable life
insurance and variable annuity contract owners.
Pruco Life may be compensated by an affiliate of each of the Funds (other than
the Prudential Series Fund) based upon an annual percentage of the average
assets held in the Fund by Pruco Life under the Contracts. These percentages
vary by Fund, and reflect administrative and other services provided by Pruco
Life.
Voting Rights
We are the legal owner of the shares of the Funds associated with the variable
investment options. However, we vote the shares in the Funds according to
voting instructions we receive from Contract owners. We will mail you a proxy,
which is a form you need to complete and return to us to tell us how you wish us
to vote. When we receive those instructions, we will vote all of the shares we
own on your behalf in accordance with those instructions. We will vote the
shares for which we do not receive instructions and shares that we own, in the
same proportion as the shares for which instructions are received. We may
change the way your voting instructions are calculated if it is required by
federal regulation. 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.
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, Small Capitalization
Stock, Global, Natural Resources, AIM V.I. Value Fund, American Century VP Value
Fund, Janus Growth, MFS Emerging Growth Series, or T. Rowe Price International
Stock may be desirable options if you are willing to accept such volatility in
your Contract values. Each of these equity portfolios involves different
policies and investment risks.
You may prefer the somewhat greater protection against loss of principal (and
reduced chance of high total return) provided by the Government Income or
Diversified Bond Portfolios. You may want even greater safety of principal and
may prefer the Money Market Portfolio, recognizing that the level of short-term
rates may change rather rapidly. Money invested in a Zero Coupon Bond Portfolio
and held to its liquidation date will realize a predictable return. Although the
portfolio's value may fluctuate significantly with changes in interest rates
prior to its liquidation date. 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 with 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 Pruco
Life'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 options.
Experience generally indicates that "market timing" investing, particularly by
non-professional investors, is likely to prove unsuccessful.
9
<PAGE>
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT
OWNERS
Charges and Expenses
This section provides a more detailed description of each charge that is
described briefly in the chart on page 2.
In several instances we use the terms "maximum charge" and "current charge."
The "maximum charge," in each instance, is the highest charge that Pruco Life is
entitled to make under the Contract. The "current charge" is the lower amount
that Pruco Life is now charging. We reserve the right to increase each current
charge, up to the maximum charge, without giving any advance notice.
All charges made by Pruco Life, whether deducted from premiums or from the
Contract Fund, are set forth below.
1. We deduct a charge from each premium payment for taxes attributable to
premiums. For these purposes, "taxes attributable to premiums" includes any
federal, state or local income, premium, excise, business, or any other type
of tax measured by or based upon the amount of premium received by Pruco
Life. Currently, two such charges are made. The first is a charge for state
and local premium-based taxes. These taxes vary by state, and in some states
by locality. The tax rates generally range from 0.75% to 5% (but in some
instances it may exceed 5%), with the most common level being 2% of
premiums. The second charge is for federal income taxes measured by premiums
and is equal to 1.25% of premiums. Pruco Life believes that this charge is a
reasonable estimate of an increase in its federal income taxes resulting
from a 1990 change in the Internal Revenue Code. It is intended to recover
this increased tax. During 1999, 1998, and 1997, Pruco Life received a total
of approximately $1,707,000, $1,907,082, and $2,221,646, respectively, in
charges for payment of taxes attributable to premiums.
2. We deduct an administrative charge of $2 from each premium payment to cover
the cost of collecting and processing premiums. During 1999, 1998, and 1997,
Pruco Life received a total of approximately $2,500, $4,881, and $6,491,
respectively, in processing charges.
3. We deduct a charge from each premium payment for sales expenses. This
charge, often called a "sales load", is deducted to compensate us for the
costs of selling the Contracts, including commissions, advertising, and the
printing and distribution of prospectuses and sales literature. This charge
consists of a deduction of up to 8% of the premium remaining after the
charge for taxes attributable to premiums and the $2 administrative charge
have been deducted. On a non-guaranteed basis, Pruco Life intends to charge
a 7% sales load on first year payments and only a 5% sales load on
subsequent payments. A portion of the sales load may be refunded to you if
the Contract is surrendered during the first three Contract years. Under
certain circumstances, Pruco Life may, on a non-guaranteed basis, reduce or
refund sales and certain other expenses. See Refunds of Sales Charges, page
2 and Reduction of Charges, page 2. During 1999, 1998, and 1997, Pruco Life
received a total of approximately $2,770,000, $2,873,299, and $3,112,516,
respectively, in sales load charges.
4. On each Monthly date, (i.e., the Contract date and the same day of each
succeeding month), we reduce the Contract Fund by an administrative charge
of up to $4 plus up to $0.04 per $1,000 of face amount of insurance.
Currently, this charge is not more than $8 per month on a non-guaranteed
basis. This charge compensates Pruco Life for administrative expenses
incurred, among other things, in issuing the Contracts, processing claims,
paying cash surrender values and death benefits, keeping records, and
communicating with Contract owners. During 1999, 1998, and 1997, Pruco Life
received a total of approximately $54,000, $140,287, and $262,737,
respectively, in monthly administrative charges.
5. We deduct a mortality charge (also referred to as a "cost of insurance
charge") from the Contract Fund on each Monthly date to cover anticipated
mortality costs. When an insured dies, the amount of the death benefit paid
to the beneficiary is larger than the Contract Fund. The mortality charges
are designed to enable Pruco Life to pay this larger death benefit. The
charge is determined by multiplying the applicable "net amount at risk" (the
amount by which the death benefit, computed as if there were no Contract
debt, exceeds the Contract Fund) by a mortality rate based upon the
insured's sex, issue age and current attained age, and the anticipated
mortality for that class of persons. The maximum rate that Pruco Life may
charge for underwritten and simplified issue Contracts which are not in a
substandard risk class is 100% of the applicable rates of the non-
smoker/smoker 1980 CSO Tables. The maximum rate that Pruco Life may charge
under Contracts issued on a guaranteed issue basis which are not in a
substandard risk class is 100% of the applicable rates of the composite 1980
CSO Tables. Higher rates apply if the insured is determined to be in a
substandard risk class. Current cost of insurance rates are typically lower
than the maximum rates.
10
<PAGE>
6. We may deduct an extra monthly risk charge for aviation, occupational or
temporary extra risks.
7. We deduct a charge for assuming mortality and expense risks. This is done
by deducting daily, from the assets of each of the variable investment
options, a percentage of those assets up to an effective annual rate of
0.9%. Pruco Life currently intends to charge only 0.6% on these Contracts,
but reserves the right to make the full 0.9% charge. The mortality risk
assumed is that insureds may live for a shorter period of time than Pruco
Life estimated when it determined what mortality charges to make. The
expense risk assumed is that expenses will be greater than Pruco Life
estimated in fixing its administrative charges. During 1999, 1998, and
1997, Pruco Life received a total of approximately $2,206,000, $1,913,030,
and $1,558,648, respectively, in mortality and expense risk charges.
8. In connection with each partial withdrawal of cash surrender value, we
deduct an administrative processing charge, which is the lesser of: (a)
$15 or; (b) 2% of each withdrawal. See Partial Withdrawal of Cash
Surrender Value, page 15.
9. We deduct an administrative processing charge of up to $15 in connection
with each decrease in face amount. See Decreases in Face Amount, page 16.
10. The Account purchases shares of the Funds at net asset value. The net asset
value of those shares reflects investment management fees and expenses
already deducted from the assets of the Funds. More detailed information is
contained in the attached prospectus for the Funds.
The total expenses of each portfolio for the year 1999, expressed as a
percentage of the average assets during the year, are shown below:
<TABLE>
<CAPTION>
Total Portfolio Expenses
- ---------------------------------------------------------------------------------------------------------------------
Investment Other Expenses Total Total Actual
Portfolio Advisory Fee Contractual 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%
Government Income 0.40% 0.04% 0.44% 0.44%
Zero Coupon Bond 2000 (1) 0.40% 0.18% 0.58% 0.40%
Zero Coupon Bond 2005 (1) 0.40% 0.19% 0.59% 0.40%
Conservative Balanced 0.55% 0.02% 0.57% 0.57%
Flexible Managed 0.60% 0.02% 0.62% 0.62%
High Yield Bond (1) 0.55% 0.05% 0.60% 0.60%
Stock Index (1) 0.35% 0.04% 0.39% 0.39%
Equity Income (1) 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%
Small Capitalization Stock 0.40% 0.05% 0.45% 0.45%
Global 0.75% 0.09% 0.84% 0.84%
Natural Resources (1) 0.45% 0.12% 0.57% 0.55%
AIM Variable Insurance Funds
AIM V.I. Value Fund 0.61% 0.15% 0.76% 0.76%
American Century Variable Portfolios, Inc. (2) 1.00% 0.00% 1.00% 1.00%
VP Value Fund
Janus Aspen Series (3) 0.65% 0.02% 0.67% 0.67%
Growth Portfolio
MFS(R) Variable Insurance TrustSM (4) 0.75% 0.09% 0.84% 0.84%
Emerging Growth Series
T. Rowe Price International Series, Inc. (2) 1.05% 0.00% 1.05% 1.05%
International Stock Portfolio
- ---------------------------------------------------------------------------------------------------------------------
* Reflects fee waivers and reimbursement of expenses, if any.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pruco Life, on a non-guaranteed basis, makes daily adjustments that offset
the effect of some of the expenses incurred by certain portfolios. Pruco
Life currently makes such adjustments to ensure that the portfolio
expenses indirectly borne by a Contract owner investing in:
11
<PAGE>
. the Zero Coupon Bond Portfolios will not exceed the investment management
fee;
. the Stock Index Portfolio will not exceed the investment management
fee plus 0.05% of the average daily net assets of the portfolio; and
. the High Yield Bond, Equity Income and Natural Resources Portfolios will
not exceed the investment management fee plus 0.1% of the average daily
net assets of the portfolio.
Pruco Life intends to continue these adjustments in the future, although we
retain the right to discontinue them.
(2) American Century Variable Portfolios, Inc. / T. Rowe Price International
Series, Inc.
The Investment Advisory Fee includes the ordinary expenses of operating
the Fund.
(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 Variable Insurance Trust
The 0.09% on "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 Series Fund) have
been provided to Pruco Life by the Funds. Pruco Life has not independently
verified them.
11. Although the Account is registered as a unit investment trust, it is not a
separate taxpayer for purposes of the Code. The earnings of the Account are
taxed as part of the operations of Pruco Life. Currently, no charge is
being made to the Account for Pruco Life's federal income taxes. We will
review the question of a charge to the Account for Pruco Life's federal
income taxes periodically. Such a charge may be made in the future for any
federal income taxes that would be attributable to the Account.
Under current law, Pruco Life may incur state and local taxes (in addition
to premium taxes) in several states. At present, these taxes are not
significant and they are not charged against the Account. If there is a
material change in the applicable state or local tax laws, the imposition
of any such taxes upon Pruco Life that are attributable to the Account may
result in a corresponding charge against the Account.
You may specify the variable investment option[s] from which the monthly
deductions are made. If the amount held in a designated variable investment
option is insufficient or if no selection is made by the Contract owner, the
monthly charges will be deducted based on the portions of the Contract Fund
invested in each of the selected variable investment option[s].
Requirements for Issuance of a Contract
Pruco Life offers the Contract on a regular underwriting, a simplified
underwriting, and a guaranteed issue basis. Underwritten Contracts require
individualized evidence of the insured's insurability and rating class.
Guaranteed issue Contracts do not require evidence of insurability and rating
class, but may only be issued in certain circumstances on associated
individuals, such as those employees of a company who meet criteria established
by Pruco Life. Pruco Life sets minimum face amounts that it offers. The
minimum face amount offered may depend on whether the Contract is issued on an
underwritten or guaranteed issue basis. The minimum face amounts currently
offered are $50,000 for Contracts issued on a guaranteed basis and $100,000 for
Contracts issued on an underwritten basis. Pruco Life may reduce the minimum
face amounts of the Contracts it will issue. A Contract owner may establish a
schedule of face amounts under which the face amount changes on designated
dates.
Generally, the Contract may be issued on insureds between the ages of 20 and 75
for regular underwriting Contracts and between the ages of 20 and 64 for
simplified underwriting and guaranteed issue Contracts. In its discretion,
Pruco Life may issue the Contract on insureds of other ages.
Short-Term Cancellation Right or "Free-Look"-
Generally, you may return the Contract for a refund within 10 days after you
receive it. Some states allow a longer period of time during which a Contract
may be returned for a refund. You can request a refund by mailing or delivering
the Contract to the representative who sold it or to the Home Office specified
in the Contract. A Contract returned according to this provision shall be
deemed void from the beginning. You will then receive a refund of all premium
payments made, plus or minus any change due to investment experience. However,
if applicable law so requires and you exercise your short-term cancellation
right, you will receive a refund of all premium payments made, with no
adjustment for investment experience.
12
<PAGE>
Premiums
Pruco Life sets a minimum initial premium for issuance of a Contract. A Contract
typically contains a schedule of annual target premiums that the owner may pay.
The Contract owner need not follow that schedule, however, and has considerable
flexibility with respect to the timing and amount of payments. The minimum
premium Pruco Life will accept is $25 and Pruco Life reserves the right to limit
premiums in any year to $10,000. Payment of premiums in excess of certain
amounts will cause the Contract to become a Modified Endowment Contract, which
affects the tax treatment of pre-death distributions under the Contract. See Tax
Treatment of Contract Benefits, page 19. Pruco Life may refuse to accept a
premium that will increase the death benefit by more than the Contract Fund. See
Death Benefit, page 15.
Allocation of Premiums
On the Contract date, Pruco Life deducts any applicable charge for taxes
attributable to premiums, the $2 processing charge, and the front-end sales
charge from the initial premium, and the first monthly charges are made. See
Charges and Expenses, page 2. Except as provided below, the remainder of the
initial premium is allocated among the variable investment options according to
your specified allocation. In certain states, any Contract owner who exercises
his or her short-term cancellation ("free-look") right receives a return of
premium with no adjustment for investment experience. For those Contract owners,
the initial premium remaining after deduction of the charges described above is
allocated to the Money Market investment option until the end of the free-look
period. If receipt of the first premium precedes the Contract date, there will
be a period during which the Contract owner's initial premium will not be
invested.
The charge for taxes attributable to premiums, the $2 processing charge, and the
front-end sales charge also apply to all subsequent premium payments. (The
front-end sales charge on premiums after the first year is generally reduced to
5%, but Pruco Life reserves the contractual right to charge up to 8%.) The
remainder is invested as of the end of the valuation period in which it is
received at a Home Office in accordance with the allocation you previously
designated. Provided the Contract is not in default, you may change the way in
which subsequent premiums are allocated by giving written notice to a Home
Office, or by telephoning a Home Office, provided you are enrolled to use the
Telephone Transfer System. There is no charge for reallocating future premiums.
The percentage of the invested premium that you may allocate to a particular
variable investment option must be at least 10% on the date the allocation takes
effect. All percentage allocations must be in whole numbers. For example, 33%
can be selected but 33% cannot. Of course, the total allocation to all selected
variable investment option[s] must equal 100%.
Transfers
If the Contract is not in default, you may, up to four times in each Contract
year, transfer amounts from one variable investment option to another variable
investment option. Currently, you may make additional transfers with our
consent and without charge. All or a portion of the amount credited to a
variable investment option may be transferred. The minimum transfer is the
lesser of $250 or the amount invested in a particular variable investment
option.
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 the Contract owner elects not to have this
privilege. Telephone transfers may not be available on Contracts that are
assigned, see Assignment, page 2, depending on the terms of the assignment. We
will use reasonable procedures, such as asking you to provide certain personal
information provided on your application for insurance, to confirm that
instructions given by telephone are genuine. We will not be held liable for
following telephone instructions that we believe to be genuine. Pruco Life
cannot guarantee that you will be able to get through to complete a telephone
transfer during peak periods such as periods of drastic economic or market
change.
All the shares held by the Zero Coupon Bond variable investment option in the
corresponding portfolio of the Series Fund will be redeemed on the liquidation
date of that variable investment option. The proceeds of the redemption
applicable to each Contract will be transferred to the Money Market investment
option unless the Contract owner directs that it be transferred to another
variable investment option. A transfer that occurs upon the liquidation of a
Zero Coupon Bond variable investment option will not be counted as one of the
four permissible transfers in a Contract
13
<PAGE>
year. The liquidation date of the Zero Coupon Bond 2000 variable investment
option is November 15, 2000, and the liquidation date of the Zero Coupon Bond
2005 variable investment option is November 15, 2005.
Unless otherwise restricted, a transfer takes effect on the date that proper
notice is received at a Home Office.
The Contract was not designed for professional market timing organizations,
other organizations, or individuals using programmed, large, or frequent
transfers. A pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to the variable investment options and will be
discouraged. If such a pattern were to be found, we may be required to modify
the transfer procedures, including but not limited to refusing transfer requests
of an agent under a power of attorney on behalf of more than one Contract owner.
Return of Sales Charge
If the Contract is surrendered within the first three Contract years, and it's
not in default, Pruco Life will return any sales charges deducted from premiums
paid within the 365 days prior to the date Pruco Life receives the surrender
request at a Home Office.
Pruco Life's sales expenses may be reduced if a number of Contracts with
aggregate first-year premiums exceeding $5 million are purchased by one
employer, or by employees affiliated with a common employer. On a non-guaranteed
basis, we may refund a portion of the sales load collected on such Contracts.
Currently, Pruco Life intends to do so by adding an amount equal to 3% of the
aggregate first year premiums between $5 million to $10 million, and 6% of the
premiums in excess of $10 million, plus interest as determined by Pruco Life, to
the Contract Fund of such Contracts at the end of the first Contract year.
Any such refund will be generated only by that portion of the aggregate first
year premiums over $5 million that 1) does not exceed the "7-pay" premium amount
as defined under section 7702A of the Internal Revenue Code, and 2) is received
within 11 months of the first Contract date for that employer. Each Contract's
portion of the total refund will be proportional to that Contract's contribution
to the total aggregate first year premiums eligible for the refund.
Beginning with Contracts sold on or after March 21, 1997, a portion of the sales
load may be refunded on a non-guaranteed basis if aggregate premiums paid within
the first 11 months of the Contract date, under all Contracts purchased by an
employer or by employees affiliated with a common employer (a) exceed two times
the "7-pay" premium amount, as defined under section 7702A of the Internal
Revenue Code, and (b) exceed $5 million. Currently, Pruco Life is doing so by
adding an amount, equal to 4% of the aggregate premiums paid within the first 11
months of the Contract date in excess of the 7-pay limit, to the Contract Fund
at the end of the first Contract year.
Additional non-guaranteed refunds of sales load may be made based on such
factors as total aggregate premiums of a certain amount over a given period of
time and the persistency of the Contracts.
Reduction of Charges
In addition to the refund of sales charges noted above, Pruco Life reserves the
right to reduce the sales charges and/or other charges on certain multiple life
sales, where it is expected that the amount or nature of such multiple sales
will result in savings of sales, administrative or other costs. Pruco Life
determines both the eligibility for such reduced charges, as well as the amount
of such reductions, by considering the following factors:
(1) the number of individuals;
(2) the total amount of premium payments expected to be received from these
Contracts;
(3) the nature of the association between these individuals, and the expected
persistency of the individual Contracts;
(4) the purpose for which the individual Contracts are purchased and whether
that purpose makes it likely that costs will be reduced; and
(5) any other circumstances which Pruco Life believes to be relevant in
determining whether reduced costs may be expected.
Some of the reductions in charges for these sales may be contractually
guaranteed. Pruco Life may withdraw or modify other reductions on a uniform
basis. Pruco Life's reductions in charges for these Contracts will not be
unfairly discriminatory to the interests of any Contract owners.
14
<PAGE>
Cash Surrender Value
The Contract has a cash surrender value which the owner may obtain while the
insured is living by surrendering the Contract. Surrendering the Contract may
have tax consequences. See Tax Treatment of Contract Benefits, page 2. Unlike
traditional fixed-benefit life insurance, however, a Contract's cash surrender
value is not known in advance because it varies daily with the investment
performance of the selected variable investment option[s]. It also varies with
the amount of invested premiums and the charges deducted from the Account. The
cash surrender value equals the Contract Fund plus any refund of sales charges
due minus any Contract debt from any outstanding loan. The Contract owner may
withdraw part of the cash surrender value under certain conditions. See Partial
Withdrawal of Cash Surrender Value, page 15, and Tax Treatment of Contract
Benefits, page 19.
There is no minimum cash surrender value. If the Contract Fund is insufficient
to pay monthly charges, the Contract will lapse in 61 days unless a payment
sufficient to keep the Contract inforce is received. See Lapse and
Reinstatement, page 2.
The tables on pages T1 through T8 illustrate what the cash surrender values
would be for representative Contracts, assuming certain uniform hypothetical
investment results in the selected Fund portfolio[s].
Death Benefit
The Contracts provide a choice of either fixed or variable death benefit plans.
Under the fixed death benefit plan, the death benefit on any date is equal to
the greater of: (1) the current Contract face amount; and (2) the Contract Fund
before deduction of any monthly charges due on that date, plus a return of any
sales charges due upon surrender, multiplied by the "attained age factor" (a
list of applicable attained age factors is included in the Contract).
Under the variable death benefit plan, the death benefit on any date is equal to
the greater of: (1) the Contract face amount plus the Contract Fund before
deduction of any monthly charges due on that date (but not less than the
Contract face amount); and (2) the Contract Fund before deduction of any monthly
charges, plus a return of any sales charges due upon surrender, multiplied by
the attained age factor.
Both death benefit plans assume there is no Contract debt and the Contract is
not in default. Death benefit proceeds will be reduced to reflect any Contract
debt. Under either plan, if the death benefit is determined by applying the
attained age factor, Pruco Life reserves the right to refuse to accept further
premium payments.
If the Contract is in default and the insured dies in the 61-day grace period,
the death benefit less any overdue charges is payable. If the insured dies
after the grace period, no death benefit is payable. See Lapse and
Reinstatement, page 20.
You may be able to increase or decrease the face amount of the Contract with
Pruco Life's consent. The Contract may become a Modified Endowment Contract and
may have tax consequences if the face amount is increased or decreased. See
Increases in Face Amount, below, Decreases in Face Amount, page 16, and Tax
Treatment of Contract Benefits, page 19.
Partial Withdrawal of Cash Surrender Value
Contract owners may make withdrawals from the Contract Fund. Such withdrawals
may have tax consequences. See Tax Treatment of Contract Benefits, page 2. You
may make up to four withdrawals per year, subject to certain requirements. The
amount withdrawn must be at least $2,000 for Contracts with a fixed death
benefit and $500 for Contracts with a variable death benefit. Also, there is an
administrative processing fee equal to the lesser of $15 or 2% of the amount
withdrawn. A Contract owner may not designate the variable investment option[s]
from which a withdrawal is to be taken. The amount withdrawn plus the
administrative processing fee will be taken proportionately from the Contract
Fund based on the portion of the total Contract Fund in a particular variable
investment option. An amount withdrawn may not be repaid except as a premium
subject to the applicable charges. You must make all requests for withdrawals
in writing. Upon request, we will tell you how much may be withdrawn. Whenever
a withdrawal is made, the face amount may be reduced in order to prevent the net
amount at risk from increasing.
No partial withdrawal is permitted if it would result in a new current face
amount of less than $100,000 under an underwritten Contract or less than $50,000
under a guaranteed issue Contract. It is important to note that if the face
amount is decreased there is a danger that the Contract might be classified as a
Modified Endowment Contract. A
15
<PAGE>
withdrawal may affect target premiums and monthly deductions. You should consult
your tax adviser and Pruco Life representative before making any withdrawal
which causes a decrease in face amount. See Tax Treatment of Contract Benefits,
page 2. Contract owners who make a partial withdrawal will be sent replacement
Contract pages showing the new face amount.
Increases in Face Amount
You may elect to increase the face amount[s] of the Contract after the first
Contract anniversary. The following conditions must be met:
(1) you must ask for the increase in writing on an appropriate form;
(2) the amount of the increase in face amount must be at least $25,000;
(3) if more than one face amount is shown in the Contract, each must be
increased by the same amount unless we consent otherwise;
(4) the insured must supply evidence of insurability for the increase that is
satisfactory to Pruco Life;
(5) if we request, you must send in the Contract to be suitably endorsed;
(6) the Contract must not be in default on the date the increase takes effect;
(7) if Pruco Life, between the Contract date and the date that your requested
increase in face amount would take effect, has changed any of the bases on
which benefits and charges are calculated for newly issued Contracts, then
we have the right to deny the increase;
(8) you must make any required payment at the time of the increase; and
(9) we have the right to deny more than one increase in a Contract year.
Increases in a Contract's face amount may also affect whether the Contract is a
Modified Endowment Contract. See Tax Treatment of Contract Benefits, page 19.
Pruco Life will supply you with pages which show the increased face amount[s],
the effective date of the increase, and the recomputed charges. If the insured
is not living on the effective date of the requested increase, the increase will
not take effect.
Decreases in Face Amount
You may be permitted to decrease the Contract's face amount[s] without
withdrawing a portion of the Contract Fund. This can be done to reduce monthly
charges. There is an administrative processing charge of up to $15 for each
decrease. Decreases in face amount may be combined with cash withdrawals.
You may elect to decrease the Contract's face amount[s] no earlier than the
first Contract anniversary. The following conditions must be met:
(1) you must ask for the decrease in writing on an appropriate form;
(2) the amount of the decrease in face amount must be at least $10,000;
(3) if more than one face amount is shown in the Contract, each must be
decreased by the same amount unless we consent otherwise; and
(4) if we request, you must send in the Contract to be suitably endorsed.
Pruco Life reserves the right to refuse to reduce the Contract's face amount[s]
to the extent that this would cause the Contract to fail to qualify as "life
insurance" for purposes of section 7702 of the Internal Revenue Code.
Pruco Life will supply you with pages which show the decreased face amount[s],
the effective date of the decrease, and the recomputed charges. If the insured
is not living on the effective date of the decrease, the decrease will not take
effect.
You should carefully consider the tax consequences before requesting a decrease
in face amount; if a decrease is effected, the Contract may become a Modified
Endowment Contract. See Tax Treatment of Contract Benefits, page 2.
Illustrations of Cash Surrender Values, Death Benefits, and
Accumulated Premiums
The following eight tables show how a Contract's death benefit and cash
surrender values change with the investment performance of the Account. They
are "hypothetical" because they are based, in part, upon several assumptions
which are described below. All eight tables assume the following:
16
<PAGE>
. a Contract with a face amount of $100,000 bought by a male, non-smoker of a
given age, with no extra risks or substandard ratings, and no extra benefit
riders added to the Contract.
. the given premium is paid on each Contract anniversary, the
deduction for taxes attributable to premiums is 3.25% and no loans are taken.
. the Contract Fund has been invested in equal amounts in each of the 20
available portfolios of the Funds.
The first four tables (pages T1 through T4) assume target premiums are paid
annually for all years, and the remaining four tables (pages T5 through T8)
assume payment of the 7-pay premiums for seven years. These are the maximum
annual premiums that may be paid in the first seven years without the Contract's
becoming a Modified Endowment Contract under federal tax law. See Tax Treatment
of Contract Benefits, page 2. Furthermore, as their headings indicate, the
following eight tables alternate between tables assuming the current charges
will continue for the indefinite future and tables assuming the maximum
contractual charges have been made from the beginning.
Finally, there are three assumptions, shown separately, about the average
investment performance of the portfolios. The first is that there will be a
uniform 0% gross rate of return with the average value of the Contract Fund
uniformly adversely affected by very unfavorable investment performance. The
other two assumptions are that investment performance will be at a uniform gross
annual rate of 6% and 12%. Actual returns will fluctuate from year to year.
In addition, death benefits and cash surrender values would be different from
those shown if investment returns averaged 0%, 6% and 12% but fluctuated from
those averages throughout the years. Nevertheless, these assumptions help show
how the Contract values change with investment experience.
The first column in the following eight tables (pages T1 through T8) shows the
Contract year. The second column, to provide context, shows what the aggregate
amount would be if the premiums had been invested to earn interest, after taxes,
at 4% compounded annually. The next three columns show the death benefit
payable in each of the years shown for the three different assumed investment
returns. The last three columns show the cash surrender value payable in each
of the years shown for the three different assumed investment returns. The cash
surrender values in the first three years reflect the refund of the prior year's
sales charges applicable to surrenders.
A gross return (as well as the net return) is shown at the top of each column.
The gross return represents the combined effect of investment income and capital
gains and losses, realized or unrealized, of the portfolios before any reduction
is made for investment advisory fees or other Fund expenses. The net return
reflects average total annual expenses of the 20 portfolios of 0.60%, and the
daily deduction from the Contract Fund of 0.60% per year for the tables based on
current charges and 0.90% per year for the tables based on maximum charges.
Thus, assuming current charges, gross investment returns of 0%, 6% and 12% are
the equivalent of net investment returns of -1.20%, 4.80% and 10.80%,
respectively. Assuming maximum charges, gross investment returns of 0%, 6% and
12% are the equivalent of net investment returns of -1.50%, 4.50% and 10.50%,
respectively. The actual fees and expenses of the portfolios associated with a
particular Contract may be more or less than 0.60% 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 35 year
old man, may be useful for a 35 year old man but would be inaccurate if made for
insureds of other ages or sex.
Your Pruco Life representative can provide you with a hypothetical illustration
for your own age, sex, and rating class.Contract Loans
17
<PAGE>
ILLUSTRATIONS
-------------
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $1,447.03 ANNUAL PREMIUMS FOR ALL YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
------------------------------------------ ------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
------------------------------------------ ------------------------------------------
End of Accmulated
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.20% Net) (4.80% Net) (10.80% Net) (-1.20% Net) (4.80% Net) (10.80% Net)
- ------- -------------- ----------- ------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,505 $100,000 $100,000 $ 100,000 $ 1,187 $ 1,259 $ 1,331
2 $ 3,070 $100,000 $100,000 $ 100,000 $ 2,260 $ 2,474 $ 2,697
3 $ 4,698 $100,000 $100,000 $ 100,000 $ 3,346 $ 3,775 $ 4,240
4 $ 6,391 $100,000 $100,000 $ 100,000 $ 4,346 $ 5,066 $ 5,877
5 $ 8,151 $100,000 $100,000 $ 100,000 $ 5,399 $ 6,488 $ 7,765
6 $ 9,982 $100,000 $100,000 $ 100,000 $ 6,436 $ 7,976 $ 9,855
7 $ 11,886 $100,000 $100,000 $ 100,000 $ 7,458 $ 9,534 $ 12,170
8 $ 13,867 $100,000 $100,000 $ 100,000 $ 8,466 $ 11,164 $ 14,735
9 $ 15,926 $100,000 $100,000 $ 100,000 $ 9,459 $ 12,872 $ 17,577
10 $ 18,068 $100,000 $100,000 $ 100,000 $10,435 $ 14,657 $ 20,723
15 $ 30,134 $100,000 $100,000 $ 109,152 $15,054 $ 24,891 $ 42,337
20 $ 44,813 $100,000 $100,000 $ 172,256 $19,101 $ 37,617 $ 77,875
25 $ 62,673 $100,000 $104,327 $ 264,936 $22,801 $ 54,427 $ 138,216
30 (Age 65) $ 84,403 $100,000 $127,319 $ 401,283 $25,538 $ 75,713 $ 238,633
35 $110,840 $100,000 $153,368 $ 606,971 $26,859 $102,394 $ 405,236
40 $143,005 $100,000 $183,348 $ 919,838 $25,155 $135,109 $ 677,832
45 $182,138 $100,000(2) $219,204 $1,404,768 $17,799(2) $174,807 $1,120,248
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy
year 50, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates
of inflation. The death benefit and cash surrender value for a contract would
be different from those shown if the actual rates of return averaged 0%, 6%,
and 12% over a period of years, but also fluctuated above or below those
averages for individual contract years. No representations can be made by
Pruco Life or the Series Fund that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
T1
<PAGE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $1,447.03 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
-------------------------------------------- -------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
-------------------------------------------- -------------------------------------------
Premiums
End of Acculated
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.50% Net) (4.50% Net) (10.50% Net) (-1.50% Net) (4.50% Net) (10.50% Net)
- ---------- ------------- ------------ ---------- ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,505 $100,000 $100,000 $100,000 $ 1,114 $ 1,183 $ 1,252
2 $ 3,070 $100,000 $100,000 $100,000 $ 2,094 $ 2,295 $ 2,504
3 $ 4,698 $100,000 $100,000 $100,000 $ 3,050 $ 3,447 $ 3,878
4 $ 6,391 $100,000 $100,000 $100,000 $ 3,869 $ 4,529 $ 5,274
5 $ 8,151 $100,000 $100,000 $100,000 $ 4,775 $ 5,766 $ 6,931
6 $ 9,982 $100,000 $100,000 $100,000 $ 5,653 $ 7,045 $ 8,748
7 $ 11,886 $100,000 $100,000 $100,000 $ 6,504 $ 8,368 $ 10,745
8 $ 13,867 $100,000 $100,000 $100,000 $ 7,326 $ 9,736 $ 12,939
9 $ 15,926 $100,000 $100,000 $100,000 $ 8,119 $11,151 $ 15,351
10 $ 18,068 $100,000 $100,000 $100,000 $ 8,882 $12,613 $ 18,005
15 $ 30,134 $100,000 $100,000 $100,000 $12,189 $20,668 $ 35,894
20 $ 44,813 $100,000 $100,000 $142,793 $14,417 $30,020 $ 64,555
25 $ 62,673 $100,000 $100,000 $208,460 $14,966 $40,662 $108,753
30 (Age 65) $ 84,403 $100,000 $100,000 $295,516 $12,798 $52,689 $175,736
35 $110,840 $100,000 $100,000 $412,116 $ 5,701 $66,437 $275,144
40 $143,005 $ 0(2) $110,840 $569,565 $ 0(2) $81,678 $419,714
45 $182,138 $ 0 $121,965 $783,959 $ 0 $97,262 $625,176
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy
year 38, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates
of inflation. The death benefit and cash surrender value for a contract would
be different from those shown if the actual rates of return averaged 0%, 6%,
and 12% over a period of years, but also fluctuated above or below those
averages for individual contract years. No representations can be made by
Pruco Life or the Series Fund that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
T2
<PAGE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $3,670.28 ANNUAL PREMIUMS FOR ALL YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
---------------------------------------------- -----------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
--------------------------------------------- ----------------------------------------
End of Accumulated
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.20% Net) (4.80% Net) (10.80% Net) (-1.20% Net) (4.80% Net) (10.80% Net)
- ------ -------------- ------------- ----------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,817 $100,000 $100,000 $100,000 $ 3,083 $ 3,267 $ 3,452
2 $ 7,787 $100,000 $100,000 $100,000 $ 5,861 $ 6,413 $ 6,989
3 $ 11,915 $100,000 $100,000 $100,000 $ 8,655 $ 9,766 $ 10,970
4 $ 16,209 $100,000 $100,000 $100,000 $11,218 $ 13,086 $ 15,191
5 $ 20,675 $100,000 $100,000 $100,000 $13,903 $ 16,734 $ 20,054
6 $ 25,319 $100,000 $100,000 $100,000 $16,533 $ 20,542 $ 25,439
7 $ 30,149 $100,000 $100,000 $100,000 $19,106 $ 24,519 $ 31,410
8 $ 35,172 $100,000 $100,000 $100,000 $21,645 $ 28,699 $ 38,059
9 $ 40,395 $100,000 $100,000 $100,000 $24,152 $ 33,098 $ 45,475
10 (Age 65) $ 45,828 $100,000 $100,000 $100,000 $26,630 $ 37,732 $ 53,755
15 $ 76,432 $100,000 $100,000 $165,869 $38,362 $ 64,869 $110,740
20 $113,666 $100,000 $134,362 $276,084 $48,196 $ 99,012 $203,448
25 $158,966 $100,000(2) $177,901 $447,190 $55,769(2) $141,869 $356,616
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy
year 44, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in
this prospectus are illustrative only and should not be deemed a
representation of past or future investment rates of return. Actual rates
of return may be more or less than those shown and will depend on a number
of factors including the investment allocations made by an owner,
prevailing interest rates, and rates of inflation. The death benefit and
cash surrender value for a contract would be different from those shown if
the actual rates of return averaged 0%, 6%, and 12% over a period of years,
but also fluctuated above or below those averages for individual contract
years. No representations can be made by Pruco Life or the Series Fund that
these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
T3
<PAGE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $3,670.28 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
-------------------------------------------- ----------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return of
-------------------------------------------- -----------------------------------------
Premiums
End of Accumulated
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.50% Net) (4.50% Net) (10.50% Net) (-1.50% Net) (4.50% Net) (10.50% Net)
- ------- -------------- ------------ ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,817 $100,000 $100,000 $100,000 $ 2,614 $ 2,782 $ 2,950
2 $ 7,787 $100,000 $100,000 $100,000 $ 4,849 $ 5,332 $ 5,836
3 $ 11,915 $100,000 $100,000 $100,000 $ 6,988 $ 7,937 $ 8,968
4 $ 16,209 $100,000 $100,000 $100,000 $ 8,743 $10,311 $ 12,088
5 $ 20,675 $100,000 $100,000 $100,000 $10,675 $13,021 $ 15,791
6 $ 25,319 $100,000 $100,000 $100,000 $12,495 $15,780 $ 19,826
7 $ 30,149 $100,000 $100,000 $100,000 $14,194 $18,586 $ 24,233
8 $ 35,172 $100,000 $100,000 $100,000 $15,760 $21,434 $ 29,053
9 $ 40,395 $100,000 $100,000 $100,000 $17,182 $24,318 $ 34,338
10 (Age 65) $ 45,828 $100,000 $100,000 $100,000 $18,446 $27,237 $ 40,154
15 $ 76,432 $100,000 $100,000 $119,901 $22,023 $42,461 $ 80,050
20 $113,666 $100,000 $100,000 $190,259 $18,607 $59,105 $140,202
25 $158,966 $100,000(2) $100,000 $283,909 $ 628(2) $79,561 $226,406
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy
year 26, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, and
12% over a period of years, but also fluctuated above or below those averages
for individual contract years. No representations can be made by Pruco Life or
the Series Fund that these hypothetical rates of return can be achieved for any
one year or sustained over any period of time.
T4
<PAGE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $3,897 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Assuming Investment Return of Annual Investment Return of
---------------------------------------- ---------------------------------------------
Premiums
End of Accumulated
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.20% Net) (4.80% Net) (10.80% Net) (-1.20% Net) (4.80% Net) (10.80% Net)
- ------- ------------- ------------ ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,053 $100,000 $100,000 $ 100,000 $ 3,533 $ 3,737 $ 3,941
2 $ 8,268 $100,000 $100,000 $ 100,000 $ 6,762 $ 7,381 $ 8,025
3 $ 12,651 $100,000 $100,000 $ 100,000 $10,027 $ 11,280 $ 12,635
4 $ 17,210 $100,000 $100,000 $ 100,000 $13,064 $ 15,178 $ 17,555
5 $ 21,952 $100,000 $100,000 $ 100,000 $16,251 $ 19,461 $ 23,218
6 $ 26,883 $100,000 $100,000 $ 101,761 $19,398 $ 23,952 $ 29,496
7 $ 32,011 $100,000 $100,000 $ 121,609 $22,509 $ 28,660 $ 36,435
8 $ 33,291 $100,000 $100,000 $ 129,658 $22,042 $ 29,842 $ 40,147
9 $ 34,623 $100,000 $100,000 $ 138,304 $21,577 $ 31,079 $ 44,250
10 $ 36,008 $100,000 $100,000 $ 147,577 $21,110 $ 32,371 $ 48,781
15 $ 43,809 $100,000 $102,527 $ 205,265 $18,750 $ 39,767 $ 79,616
20 $ 53,300 $100,000 $108,085 $ 287,610 $16,168 $ 48,864 $ 130,025
25 $ 64,848 $100,000 $117,083 $ 413,993 $13,371 $ 61,082 $ 215,979
30 (Age 65) $ 78,898 $100,000 $128,567 $ 603,705 $ 9,503 $ 76,455 $ 359,008
35 $ 95,991 $100,000 $143,328 $ 893,119 $ 3,749 $ 95,691 $ 596,279
40 $116,788 $ 0(2) $161,654 $1,335,794 $ 0(2) $119,123 $ 984,351
45 $142,090 $ 0 $184,816 $2,023,941 $ 0 $147,384 $1,614,014
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy
year 38, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates
of inflation. The death benefit and cash surrender value for a contract would
be different from those shown if the actual rates of return averaged 0%, 6%,
and 12% over a period of years, but also fluctuated above or below those
averages for individual contract years. No representations can be made by
Pruco Life or the Series Fund that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
T5
<PAGE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 35
ASSUME PAYMENT OF $3,897 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Annual Investment Return of Annual Investment Return
-------------------------------------------- -----------------------------------------------------
Premiums
End of Accumulated
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.50% Net) (4.50% Net) (10.50% Net) (-1.50% Net) (4.50% Net) (10.50% Net)
- ------ -------------- ------------- ----------- ------------- --------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 4,053 $100,000 $100,000 $ 100,000 $ 3,456 $ 3,655 $ 3,855
2 $ 8,268 $100,000 $100,000 $ 100,000 $ 6,559 $ 7,157 $ 7,780
3 $ 12,651 $100,000 $100,000 $ 100,000 $ 9,611 $10,813 $ 12,113
4 $ 17,210 $100,000 $100,000 $ 100,000 $12,311 $14,327 $ 16,598
5 $ 21,952 $100,000 $100,000 $ 100,000 $15,261 $18,311 $ 21,886
6 $ 26,883 $100,000 $100,000 $ 100,000 $18,159 $22,470 $ 27,728
7 $ 32,011 $100,000 $100,000 $ 114,012 $21,007 $26,813 $ 34,159
8 $ 33,291 $100,000 $100,000 $ 120,813 $20,381 $27,717 $ 37,408
9 $ 34,623 $100,000 $100,000 $ 128,050 $19,746 $28,648 $ 40,969
10 $ 36,008 $100,000 $100,000 $ 135,748 $19,100 $29,607 $ 44,871
15 $ 43,809 $100,000 $100,000 $ 182,240 $15,632 $34,829 $ 70,685
20 $ 53,300 $100,000 $100,000 $ 245,448 $11,440 $40,720 $110,964
25 $ 64,848 $100,000 $100,000 $ 331,263 $ 5,719 $47,083 $172,819
30 (Age 65) $ 78,898 $ 0(2) $100,000 $ 447,753 $ 0(2) $53,613 $266,267
35 $ 95,991 $ 0 $100,000 $ 605,995 $ 0 $59,710 $404,585
40 $116,788 $ 0 $100,000 $ 821,460 $ 0 $64,359 $605,337
45 $142,090 $ 0 $100,000(2) $1,116,262 $ 0 $65,122(2) $890,175
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy
year 29, unless an additional premium payment was made. Based on a gross
return of 6%, the Contract would go into default in policy year 56 unless
an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates
of inflation. The death benefit and cash surrender value for a contract would
be different from those shown if the actual rates of return averaged 0%, 6%,
and 12% over a period of years, but also fluctuated above or below those
averages for individual contract years. No representations can be made by
Pruco Life or the Series Fund that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
T6
<PAGE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $7,633 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) Cash SurrenderValue (1)
- ----------------------------------------------- -----------------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
- ----------------------------------------------- -----------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.20% Net) (4.80% Net) (10.80% Net) (-1.20% Net) (4.80% Net) (10.80% Net)
- ----- --------------- --------------- ---------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,938 $100,000 $100,000 $100,000 $ 6,887 $ 7,286 $ 7,686
2 $ 16,194 $100,000 $100,000 $100,000 $13,174 $ 14,385 $ 15,645
3 $ 24,780 $100,000 $100,000 $100,000 $19,533 $ 21,986 $ 24,640
4 $ 33,710 $100,000 $100,000 $100,000 $25,451 $ 29,597 $ 34,263
5 $ 42,997 $100,000 $100,000 $100,000 $31,670 $ 37,982 $ 45,374
6 $ 52,655 $100,000 $100,000 $107,670 $37,829 $ 46,804 $ 57,726
7 $ 62,699 $100,000 $101,852 $129,580 $43,931 $ 56,090 $ 71,359
8 $ 65,207 $100,000 $103,434 $139,181 $43,014 $ 58,475 $ 78,684
9 $ 67,815 $100,000 $105,137 $149,639 $42,088 $ 60,980 $ 86,791
10 (Age 65) $ 70,528 $100,000 $106,970 $161,042 $41,152 $ 63,612 $ 95,768
15 $ 85,808 $100,000 $117,852 $235,039 $35,981 $ 78,683 $156,921
20 $104,399 $100,000 $131,542 $347,616 $28,424 $ 96,934 $256,160
25 $127,017 $100,000(2) $150,541 $527,082 $14,857(2) $120,051 $420,327
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy
year 29, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates
of inflation. The death benefit and cash surrender value for a contract would
be different from those shown if the actual rates of return averaged 0%, 6%,
and 12% over a period of years, but also fluctuated above or below those
averages for individual contract years. No representations can be made by
Pruco Life or the Series Fund that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
T7
<PAGE>
PRUSELECT II VARIABLE LIFE INSURANCE CONTRACT
FIXED DEATH BENEFIT PLAN - MALE PREFERRED ISSUE AGE 55
ASSUME PAYMENT OF $7,633 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1) Cash Surrender Value (1)
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
- ---------------------------------------------- --------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.50% Net) (4.50% Net) (10.50% Net) (-1.50% Net) (4.50% Net) (10.50% Net)
- ------- --------------- ------------- ------------ ------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,938 $100,000 $100,000 $100,000 $ 6,424 $ 6,805 $ 7,186
2 $ 16,194 $100,000 $100,000 $100,000 $12,143 $13,277 $ 14,458
3 $ 24,780 $100,000 $100,000 $100,000 $17,755 $20,028 $ 22,491
4 $ 33,710 $100,000 $100,000 $100,000 $22,672 $26,487 $ 30,792
5 $ 42,997 $100,000 $100,000 $100,000 $28,078 $33,860 $ 40,654
6 $ 52,655 $100,000 $100,000 $100,000 $33,386 $41,583 $ 51,616
7 $ 62,699 $100,000 $100,000 $115,579 $38,600 $49,688 $ 63,649
8 $ 65,207 $100,000 $100,000 $122,635 $36,925 $50,999 $ 69,330
9 $ 67,815 $100,000 $100,000 $130,139 $35,133 $52,301 $ 75,482
10 (Age 65) $ 70,528 $100,000 $100,000 $138,121 $33,205 $53,590 $ 82,137
15 $ 85,808 $100,000 $100,000 $186,315 $20,684 $59,678 $124,391
20 $104,399 $ 0(2) $100,000 $252,003 $ 0(2) $64,308 $185,702
25 $127,017 $ 0 $100,000(2) $341,929 $ 0 $65,030(2) $272,675
</TABLE>
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy
year 20, unless an additional premium payment was made. Based on a gross
return of 6%, the Contract would go into default in policy year 36 unless
an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, and
12% over a period of years, but also fluctuated above or below those averages
for individual contract years. No representations can be made by Pruco Life or
the Series Fund that these hypothetical rates of return can be achieved for any
one year or sustained over any period of time.
T8
<PAGE>
Contract Loans
You may borrow from Pruco Life an amount up to the "loan value" of the Contract,
using the Contract as the only security for the loan. The loan value of a
Contract is 90% of its Contract Fund, if the Contract is not in default. The
minimum amount that may be borrowed at any one time is $500 unless the loan is
used to pay premiums on a life insurance policy issued by Pruco Life or its
affiliates.
The Contract provides a choice of fixed or variable loan interest rates. Under
the fixed loan interest rate provision, interest charged on a loan accrues daily
at a fixed effective annual rate of 5.5%. Under the variable loan interest rate
provision, interest charged on any loan will accrue daily at an annual rate
Pruco Life determines at the start of each Contract year (instead of at the
fixed 5.5% rate). The interest rate will not exceed any rate required by state
law and will not exceed the greater of 5% and the "Published Monthly Average"
for the calendar month ending two months before the calendar month of the
Contract anniversary. The "Published Monthly Average" means Moody's Corporate
Bond Yield Average-Monthly Average Corporates, as published by Moody's Investors
Service, Inc., or any successor to that service. If that average is no longer
published, a substantially similar average established by the insurance
regulator where the Contract is issued, will be used. For example, the
Published Monthly Average in 1999 ranged from 6.76% to 7.93%.
Interest payments on any loan are due at the end of each Contract year. If
interest is not paid when due, it is added to the principal amount of the loan.
The "Contract debt" is the amount of all outstanding loans plus any interest
accrued but not yet due. If at any time your Contract debt exceeds your
Contract Fund, Pruco Life will notify you of its intent to terminate the
Contract in 61 days, within which time you may repay all or enough of the loan
to keep the Contract inforce. If you fail to keep the Contract inforce, the
amount of unpaid Contract debt will be treated as a distribution which may be
taxable. See Tax Treatment of Contract Benefits -- Pre-Death Distributions,
page 2, and Lapse and Reinstatement, page 20.
When a loan is made, an amount equal to the loan proceeds is transferred out of
the applicable variable investment option[s]. The reduction is generally made in
the same proportions as the value that each variable investment option bears to
the total value of the Contract. While a fixed-rate loan is outstanding, the
amount that was transferred continues to be treated as part of the Contract
Fund, but it is credited with the assumed effective annual rate of return of 4%
rather than with the actual rate of return of the applicable variable investment
option[s]. While a loan made pursuant to the variable loan interest rate
provision is outstanding, the amount that was transferred is credited with an
effective annual rate of 4% or an effective annual rate that is 1% less than the
loan interest rate for the Contract year, whichever is greater. If a loan
remains outstanding at a time when Pruco Life fixes a new rate, the new interest
rate applies.
If the death benefit becomes payable while a loan is outstanding, or if the
Contract is surrendered, any Contract debt will be deducted from the proceeds
otherwise payable.
A loan will have a permanent effect on a Contract's cash surrender value and may
have a permanent effect on the death benefit because the investment results of
the selected variable investment option[s] will apply only to the amount
remaining in those variable investment 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, Contract
values will not increase as rapidly as they would have if no loan had been made.
If investment results are below that rate, Contract values will be higher than
they would have been had no loan been made. Loan repayments are allocated to
the variable investment options proportionately based on their balances at the
time of the loan repayment.
The tax treatment of Contract loans depends on whether the Contract is
classified as a Modified Endowment Contract. See Tax Treatment of Contract
Benefits, page 19.
When Proceeds Are Paid
We will generally pay any death benefit, cash surrender value, withdrawal, or
loan proceeds within seven days after all the documents required for such a
payment are received at a Home Office. The amount is determined as of the end
of the valuation period in which the necessary documents are received at a Home
Office, except the death benefit is determined as of the date of death.
Pruco Life may delay payment of proceeds from the variable investment option[s]
and the variable portion of the death benefit due under the Contract if the
disposal or valuation of the Account's assets is not reasonably practicable
18
<PAGE>
because: (1) the New York Stock Exchange is closed for other than a regular
holiday or weekend; or (2) the SEC restricts trading; or (3) the SEC declares
that an emergency exists.
Tax Treatment of Contract Benefits
This summary provides general information on the federal income tax treatment of
the Contract. It is not a complete statement of what the federal income taxes
will be in all circumstances. It is based on current law and interpretations,
which may change. It does not cover state taxes or other taxes. It is not
intended as tax advice. You should consult your own qualified tax adviser for
complete information and advice.
Treatment as Life Insurance. The Contract must meet certain requirements to
qualify as life insurance for tax purposes. These requirements include certain
definitional tests and rules for diversification of the Contract's investments.
For further information on the diversification requirements, see Taxation of the
Fund in the statement of additional information for the Series Fund.
We believe we have taken adequate steps to ensure that the Contract qualifies as
life insurance for tax purposes. Generally speaking, this means that:
. 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.
Although we believe that the Contract should qualify as life insurance for tax
purposes, there are some uncertainties, particularly because the Secretary of
Treasury has not yet issued permanent regulations that bear on this question.
Accordingly, we reserve the right to make changes -- which will be applied
uniformly to all Contract owners after advance written notice -- that we deem
necessary to ensure that the Contract will qualify as life insurance.
Pre-Death Distributions. The tax treatment of any distribution you receive
before the insured's death depends on whether the Contract is classified as a
Modified Endowment Contract.
Contracts Not Classified as Modified Endowment Contracts.
. 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.
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 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
19
<PAGE>
Contract Fund exceeds the premiums paid for the Contract increased by the
amount of any loans previously included in income and reduced by any untaxed
amounts previously received other than the amount of any loans excludable
from income. An assignment of a Modified Endowment Contract is taxable in the
same way. These rules also apply to pre-death distributions, including loans
and assignments, made during the two-year period before the time that the
Contract became a Modified Endowment Contract.
. 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 591/2, 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
If the Contract Fund on any Monthly date has decreased to zero or less, or if a
Contract's debt should exceed its Contract Fund, the Contract will go into
default.
Should this happen, Pruco Life will send you a notice of default setting forth
the payment necessary to keep the Contract inforce. This payment must be
received at a Home Office within the 61 day grace period after the notice of
default is mailed or the Contract will lapse. A Contract that lapses with an
outstanding Contract loan may have tax consequences. See Tax Treatment of
Contract Benefits, page 19.
A Contract that has lapsed may be reinstated within five years after the date of
default unless the Contract has been surrendered for its cash surrender value.
To reinstate a lapsed Contract, Pruco Life requires renewed evidence of
insurability, and submission of certain payments due under the Contract.
A Contract that has lapsed has no value and provides no benefits. It is
possible for a lapsed Contract to be classified as a Modified Endowment Contract
if reinstated after lapsing. See Tax Treatment of Contract Benefits, page 19.
Legal Considerations Relating to Sex-Distinct Premiums and Benefits
The Contracts employ mortality tables that distinguish between males and
females. Thus, premiums and benefits differ under Contracts issued on males and
females of the same age. The Contract is not available in those states that
have adopted regulations prohibiting sex-distinct insurance rates. The Contract
may not be assigned if to do so would violate regulations or laws relating to
sex-distinct insurance rates.
20
<PAGE>
Exchange Right Available in Some States
In some states, you may have the right to exchange the Contract for a Life Paid
Up at Age 85 plan on the insured's life issued by The Prudential Insurance
Company of America. Such an exchange may be permitted within the first two
Contract years after a Contract is issued, so long as the Contract is not in
default. This is a general account policy with guaranteed minimum values. No
evidence of insurability will be required to make an exchange. The new policy
will have the same issue date and risk classification for the insured as the
original Contract. The exchange may be subject to an equitable adjustment in
premiums and values, and a payment may be required. You may wish to obtain tax
advice before effecting such an exchange.
Reduced Paid-Up Insurance Option Available in Some States
In some states, Contract owners will have the right to take the cash surrender
value and use it to purchase fixed reduced paid-up insurance. Fixed reduced
paid-up insurance provides coverage for the lifetime of the insured. The
insurance amount depends on the cash surrender value and the age, sex, and
rating class of the insured. Fixed reduced paid-up insurance has a cash
surrender value and a loan value. A Contract may be classified as a Modified
Endowment Contract if this option is exercised. See Tax Treatment of Contract
Benefits, page 19.
Other General Contract Provisions
Assignment. This Contract may not be assigned if the assignment would violate
any federal, state or local law or regulation. Generally, the Contract may not
be assigned to another insurance company or to an employee benefit plan without
Pruco Life's consent. Pruco Life assumes no responsibility for the validity or
sufficiency of any assignment. We will not be obligated to comply with any
assignment unless we receive a copy at a Home Office.
Beneficiary. You designate and name your beneficiary in the application.
Thereafter, you may change the beneficiary, provided it is in accordance with
the terms of the Contract.
Incontestability. We will not contest the Contract after it has been inforce
during the insured's lifetime for two years from the issue date except when any
change is made in the Contract that requires Pruco Life's approval and would
increase our liability. We will not contest such change after it has been in
effect for two years during the lifetime of the insured.
Misstatement of Age or Sex. If the insured's stated age or sex or both are
incorrect in the Contract, Pruco Life will adjust the death benefits payable, as
required by law, to reflect the correct age and sex. Any death benefit will be
based on what the most recent charge for mortality would have provided at the
correct age and sex.
Settlement Options. The Contract grants to most owners, or to the beneficiary,
a wide variety of optional ways of receiving Contract proceeds, other than in a
lump sum. Any Pruco Life representative authorized to sell this Contract can
explain these options upon request.
Suicide Exclusion. Generally, Pruco Life will pay no more under the Contract
than the sum of the premiums paid if the insured, whether sane or insane, dies
by suicide within two years from the Contract date.
Generally, if the insured, whether sane or insane, dies by suicide within two
years from the effective date of an increase in the face amount of insurance
that was requested after issue and required Company approval, Pruco Life will
pay, with respect to the amount of the increase, no more than the sum of the
monthly charges attributable to the increase.
Substitution of Fund Shares
Although Pruco Life believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Funds may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, Pruco Life may seek to substitute the shares of another portfolio or
of an entirely different mutual fund. The approval of the SEC, and possibly one
or more state insurance departments, will be required before this can be done.
Contract owners will be notified of any such substitution.
21
<PAGE>
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.
Sale of the Contract and Sales Commissions
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
Prudential, acts as the principal underwriter of the Contract. Prusec,
organized in 1971 under New Jersey law, is registered as a broker and dealer
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. Prusec's principal business address is
751 Broad Street, Newark, New Jersey 07102-3777. The Contract is sold by
registered representatives of Prusec who are also authorized by state insurance
departments to do so. The Contract may also be sold through other broker-
dealers authorized by Prusec and applicable law to do so. Registered
representatives of such other broker-dealers may be paid on a different basis
than described below.
The maximum commission that will be paid to the representative is 14 1/2% of
premiums received in the first year up to certain limits. Additional first year
premiums and premiums in later years may generate up to 4% commission. Moreover,
trail commissions of up to 0.2% of the Contract Fund as of the Contract's
anniversary may be paid. The representative may be required to return all or
part of the first year commission if the Contract is not continued through the
second year. Representatives who meet certain productivity, profitability, and
persistency standards with regard to the sale of the Contract may be eligible
for additional compensation.
Sales expenses in any year are not equal to the deduction for sales load in that
year. Pruco Life expects to recover its total sales expenses over the periods
the Contracts are in effect. To the extent that the sales charges are
insufficient to cover total sales expenses, the sales expenses will be recovered
from Pruco Life's surplus. This may include the amounts derived from the
mortality and expense risk charge described in item 7 under Charges and
Expenses, page 10.
State Regulation
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
Experts
The consolidated financial statements of Pruco Life and its subsidiaries as of
December 31, 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 Nancy D.
Davis, FSA, MAAA, Vice President and Actuary of Prudential whose opinion is
filed as an exhibit to the registration statement.
22
<PAGE>
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.
Additional Information
Pruco Life has filed a registration statement with the SEC under the Securities
Act of 1933, relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. Certain portions have been omitted pursuant to the rules and
regulations of the SEC. The omitted information may, however, be obtained from
the SEC's 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.
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.
23
<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.
24
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE
PRUSELECT II VARIABLE LIFE SUBACCOUNTS
OF PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1999
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>
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
Receivable from
Pruco Life Insurance Company [Note 2] ...... 0 0 69,102 0 0
------------ ------------ ------------ ------------ ------------
Net Assets ................................... $ 21,020,421 $ 45,254,760 $ 44,931,298 $ 9,406,730 $ 51,592,566
============ ============ ============ ============ ============
NET ASSETS, representing:
Equity of contract owners [Note 4] ........... $ 21,020,421 $ 45,254,760 $ 44,931,298 $ 9,406,730 $ 51,592,566
------------ ------------ ------------ ------------ ------------
$ 21,020,421 $ 45,254,760 $ 44,931,298 $ 9,406,730 $ 51,592,566
============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
ZERO COUPON HIGH PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
BOND YIELD STOCK EQUITY NATURAL PRUDENTIAL GOVERNMENT
2000 BOND INDEX INCOME RESOURCES GLOBAL INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 20,140,787 $ 2,653,932 $208,864,409 $ 14,525,330 $ 1,299,349 $ 22,276,540 $ 9,115,688
8,927 0 41,887 0 0 39,109 0
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 20,149,714 $ 2,653,932 $208,906,296 $ 14,525,330 $ 1,299,349 $ 22,315,649 $ 9,115,688
============ ============ ============ ============ ============ ============ ============
$ 20,149,714 $ 2,653,932 $208,906,296 $ 14,525,330 $ 1,299,349 $ 22,315,649 $ 9,115,688
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 20,149,714 $ 2,653,932 $208,906,296 $ 14,525,330 $ 1,299,349 $ 22,315,649 $ 9,115,688
============ ============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A2
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE
PRUSELECT II VARIABLE LIFE SUBACCOUNTS
OF PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1999
SUBACCOUNTS
-------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
ZERO COUPON SMALL T. ROWE PRICE
BOND PRUDENTIAL CAPITALIZATION INTERNATIONAL AIM V.I.
2005 JENNISON STOCK STOCK VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO FUND
----------- ----------- --------------- ------------- -----------
<S> <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] ......... $18,245,173 $ 6,822,949 $13,425,006 $ 18,814 $ 94,337
Receivable from
Pruco Life Insurance Company [Note 2] ...... 8,887 0 0 0 0
----------- ----------- ----------- ----------- ---------
Net Assets ................................... $18,254,060 $ 6,822,949 $13,425,006 $ 18,814 $ 94,337
=========== =========== =========== =========== =========
NET ASSETS, representing:
Equity of contract owners [Note 4] ........... $18,254,060 $ 6,822,949 $13,425,006 $ 18,814 $ 94,337
----------- ----------- ----------- ----------- ---------
$18,254,060 $ 6,822,949 $13,425,006 $ 18,814 $ 94,337
=========== =========== =========== =========== =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A3
<PAGE>
SUBACCOUNTS (CONTINUED)
- --------------------------------
JANUS MFS
ASPEN EMERGING
GROWTH GROWTH
PORTFOLIO SERIES
- ---------- -----------
$ 22,400 $ 4,545
0 0
- ----------- -----------
$ 22,400 $ 4,545
=========== ===========
$ 22,400 $ 4,545
- ----------- -----------
$ 22,400 $ 4,545
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A4
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE
PRUSELECT II VARIABLE LIFE SUBACCOUNTS
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
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
PRUDENTIAL FLEXIBLE CONSERVATIVE
EQUITY MANAGED 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
=========== =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A6
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE
PRUSELECT II VARIABLE LIFE SUBACCOUNTS
OF PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the periods ended December 31, 1999, 1998, and 1997
SUBACCOUNTS
--------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
ZERO COUPON HIGH
BOND YIELD
2000 BOND
PORTFOLIO PORTFOLIO
----------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME Dividend income ..... $ 0 $ 821,929 $ 745,017 $ 8,128 $ 261,439 $ 197,684
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk
[Note 5A] ........................... 108,538 101,177 101,616 16,950 15,665 12,354
Reimbursement for excess expenses
[Note 5C] ........................... (33,065) (37,196) (42,117) 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES ............................ 75,473 63,981 59,499 16,950 15,665 12,354
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ............ (75,473) 757,948 685,518 (8,822) 245,774 185,330
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received 32,835 227,825 690,332 0 0 0
Realized gain (loss) on shares
redeemed .......................... (424) (52,050) (94,913) (58,390) (4,633) 16,526
Net change in unrealized gain (loss)
on investments .................... 369,335 217,606 (355,649) 181,106 (334,049) 59,640
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS .......... 401,746 393,381 239,770 122,716 (338,682) 76,166
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................ $ 326,273 $ 1,151,329 $ 925,288 $ 113,894 $ (92,908) $ 261,496
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A7
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
STOCK EQUITY NATURAL
INDEX INCOME RESOURCES
PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------- ----------------------------------------- ---------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,908,245 $ 1,729,752 $ 1,326,042 $ 334,015 $ 365,234 $ 370,792 $ 7,779 $ 8,084 $ 8,087
- ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------
1,068,971 820,541 502,161 87,421 90,144 85,229 6,660 5,828 9,335
0 0 0 0 0 0 0 0 0
- ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------
1,068,971 820,541 502,161 87,421 90,144 85,229 6,660 5,828 9,335
- ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------
839,274 909,211 823,881 246,594 275,090 285,563 1,119 2,256 (1,248)
- ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------
2,384,852 2,499,196 2,997,271 1,617,066 797,222 1,414,553 0 50,250 136,346
5,878,374 5,771,729 2,754,626 87,899 2,673,910 481,377 (16,748) (28,695) 24,931
24,251,918 24,590,569 15,534,339 (246,900) (4,107,342) 2,177,083 416,542 (210,866) (299,786)
- ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------
32,515,144 32,861,494 21,286,236 1,458,065 (636,210) 4,073,013 399,794 (189,311) (138,509)
- ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------
$33,354,418 $33,770,705 $22,110,117 $ 1,704,659 $ (361,120) $ 4,358,576 $ 400,913 $ (187,055) $ (139,757)
=========== =========== =========== =========== =========== =========== ========== =========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A8
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE
PRUSELECT II VARIABLE LIFE SUBACCOUNTS
OF PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the periods ended December 31, 1999, 1998, and 1997
SUBACCOUNTS
------------------------------------------------------------------------------------
PRUDENTIAL
PRUDENTIAL GOVERNMENT
GLOBAL INCOME
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ....................... $ 65,033 $ 160,959 $ 149,254 $ 0 $ 402,330 $ 257,272
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk
[Note 5A] ........................... 93,204 70,813 80,250 53,497 38,968 23,144
Reimbursement for excess expenses
[Note 5C] ............................ 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES ............................ 93,204 70,813 80,250 53,497 38,968 23,144
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ............ (28,171) 90,146 69,004 (53,497) 363,362 234,128
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received 114,030 536,310 504,462 0 0 0
Realized gain (loss) on shares
redeemed .......................... 472,274 235,100 1,501,595 7,916 8,247 17,410
Net change in unrealized gain (loss)
on investments .................... 6,341,128 1,531,076 (871,934) (235,875) 205,452 86,634
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS .......... 6,927,432 2,302,486 1,134,123 (227,959) 213,699 104,044
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................ $ 6,899,261 $ 2,392,632 $ 1,203,127 $ (281,456) $ 577,061 $ 338,172
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A9
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
ZERO COUPON SMALL
BOND PRUDENTIAL CAPITALIZATION
2005 JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------- ----------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 650,198 $ 485,431 $ 8,827 $ 3,905 $ 1,751 $ 0 $ 49,149 $ 39,052
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
100,526 67,532 42,708 28,413 11,315 4,217 63,208 43,679 34,205
(30,803) (22,824) (23,762) 0 0 0 0 0 0
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
69,723 44,708 18,946 28,413 11,315 4,217 63,208 43,679 34,205
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(69,723) 605,490 466,485 (19,586) (7,410) (2,466) (63,208) 5,470 4,847
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
0 7,803 124,816 273,783 37,636 50,105 212,536 604,937 381,206
2,368 12,587 225,279 65,721 22,375 43,121 46,013 (29,549) 703,647
(972,258) 773,486 215,644 1,513,045 478,204 73,161 1,237,638 (95,776) 238,634
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(969,890) 793,876 565,739 1,852,549 538,215 166,387 1,496,187 479,612 1,323,487
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$(1,039,613) $ 1,399,366 $ 1,032,224 $ 1,832,963 $ 530,805 $ 163,921 $ 1,432,979 $ 485,082 $ 1,328,334
=========== =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A10
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE
PRUSELECT II VARIABLE LIFE SUBACCOUNTS
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
============ ======= ========== =======
</TABLE>
* Became available on June 7, 1999 (Note 1)
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A11
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE
PRUSELECT II VARIABLE LIFE SUBACCOUNTS
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 DIVERSIFIED
MARKET 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
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A12
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
PRUDENTIAL FLEXIBLE CONSERVATIVE
EQUITY MANAGED 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) 935,553 200,066
(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)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
5,646,893 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
============ ============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A13
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE
PRUSELECT II VARIABLE LIFE SUBACCOUNTS
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
ZERO COUPON HIGH
BOND YIELD
2000 BOND
PORTFOLIO PORTFOLIO
---------------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) ............ $ (75,473) $ 757,948 $ 685,518 $ (8,822) $ 245,774 $ 185,330
Capital gains distributions received .... 32,835 227,825 690,332 0 0 0
Realized gain (loss) on shares redeemed . (424) (52,050) (94,913) (58,390) (4,633) 16,526
Net change in unrealized gain (loss) on
investments ........................... 369,335 217,606 (355,649) 181,106 (334,049) 59,640
------------ ------------ ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS .............................. 326,273 1,151,329 925,288 113,894 (92,908) 261,496
------------ ------------ ------------ ----------- ----------- -----------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ............. 2,430,047 2,718,006 2,096,958 245,021 637,224 330,357
Policy Loans ............................ 0 0 0 0 0 0
Policy Loan Repayments and Interest ..... 0 0 0 0 0 0
Surrenders, Withdrawals and Death
Benefits .............................. (4) (5) (99,448) (307,785) (1,826) (298,998)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Option .................. 44,509 (4,790,386) (5,246,708) (466,171) 556,432 297,454
Withdrawal and Other Charges ............ (84,071) (84,639) (125,845) (51,266) (67,806) (67,627)
------------ ------------ ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ............................... 2,390,481 (2,157,024) (3,375,043) (580,201) 1,124,024 261,186
------------ ------------ ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7] ........................ 0 (33,379) (325,458) 0 (1,836) (7,832)
------------ ------------ ------------ ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS .................................. 2,716,754 (1,039,074) (2,775,213) (466,307) 1,029,280 514,850
NET ASSETS
Beginning of period ..................... 17,432,960 18,472,034 21,247,247 3,120,239 2,090,959 1,576,109
------------ ------------ ------------ ----------- ----------- -----------
End of period ........................... $ 20,149,714 $ 17,432,960 $ 18,472,034 $ 2,653,932 $ 3,120,239 $ 2,090,959
============ ============ ============ =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A14
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
PRUDENTIAL EQUITY NATURAL
STOCK INDEX INCOME RESOURCES
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------- ---------------------------------------- ------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------- ------------- ------------- ------------ ------------ ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 839,274 $ 909,211 $ 823,881 $ 246,594 $ 275,090 $ 285,563 $ 1,119 $ 2,256 $ (1,248)
2,384,852 2,499,196 2,997,271 1,617,066 797,222 1,414,553 0 50,250 136,346
5,878,374 5,771,729 2,754,626 87,899 2,673,910 481,377 (16,748) (28,695) 24,931
24,251,918 24,590,569 15,534,339 (246,900) (4,107,342) 2,177,083 416,542 (210,866) (299,786)
- ------------- ------------- ------------- ------------ ------------ ------------ ----------- ---------- -----------
33,354,418 33,770,705 22,110,117 1,704,659 (361,120) 4,358,576 400,913 (187,055) (139,757)
- ------------- ------------- ------------- ------------ ------------ ------------ ----------- ---------- -----------
13,998,881 13,077,570 14,400,181 355,583 260,870 857,548 35,856 48,993 343,362
(16,721) (19,574) (15,209) (12,069) 0 0 0 0 0
1,041 144 25,713 139 0 0 0 0 0
(10,598,966) (432,906) (3,907,071) (497,594) (8,141,933) (802,616) (16) 0 (674,237)
6,749,174 11,664,940 17,853,467 (1,279,058) 7,241,853 (358,547) 17,250 22,258 47,378
(1,633,867) (1,454,112) (1,103,134) (175,220) (248,861) (366,230) (25,740) (23,922) (38,500)
- ------------- ------------- ------------- ------------ ------------ ------------ ----------- ---------- -----------
8,499,542 22,836,062 27,253,947 (1,608,219) (888,071) (669,845) 27,350 47,329 (321,997)
- ------------- ------------- ------------- ------------ ------------ ------------ ----------- ---------- -----------
0 42,339 (7,138) 0 (15,048) (64,926) 0 (5,635) (11,668)
- ------------- ------------- ------------- ------------ ------------ ------------ ----------- ---------- -----------
41,853,960 56,649,106 49,356,926 96,440 (1,264,239) 3,623,805 428,263 (145,361) (473,422)
167,052,336 110,403,230 61,046,304 14,428,890 15,693,129 12,069,324 871,086 1,016,447 1,489,869
- ------------- ------------- ------------- ------------ ------------ ------------ ----------- ---------- -----------
$ 208,906,296 $ 167,052,336 $ 110,403,230 $ 14,525,330 $ 14,428,890 $ 15,693,129 $ 1,299,349 $ 871,086 $ 1,016,447
============= ============= ============= ============ ============ ============ =========== ========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A15
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE
PRUSELECT II VARIABLE LIFE SUBACCOUNTS
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 GOVERNMENT
GLOBAL INCOME
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) ............ $ (28,171) $ 90,146 $ 69,004 $ (53,497) $ 363,362 $ 234,128
Capital gains distributions received .... 114,030 536,310 504,462 0 0 0
Realized gain (loss) on shares redeemed . 472,274 235,100 1,501,595 7,916 8,247 17,410
Net change in unrealized gain (loss) on
investments ........................... 6,341,128 1,531,076 (871,934) (235,875) 205,452 86,634
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS .............................. 6,899,261 2,392,632 1,203,127 (281,456) 577,061 338,172
------------ ------------ ------------ ------------ ------------ ------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ............. 2,076,557 1,832,043 2,622,189 34,648 139,842 425,284
Policy Loans ............................ 0 0 (67,171) 0 0 0
Policy Loan Repayments and Interest ..... 0 0 67,209 0 0 0
Surrenders, Withdrawals and Death
Benefits .............................. (1,963,919) (16,418) (4,072,024) (29,494) 120 (1,472,671)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Option .................. 2,397,693 (1,739,609) (4,363,304) 1,026,359 4,402,000 763,266
Withdrawal and Other Charges ............ (134,514) (128,121) (199,522) (100,336) (84,070) (87,039)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ............................... 2,375,817 (52,105) (6,012,623) 931,177 4,457,892 (371,160)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7] ........................ 0 (27,164) (140,126) 0 (2,141) (104,696)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS .................................. 9,275,078 2,313,363 (4,949,622) 649,721 5,032,812 (137,684)
NET ASSETS
Beginning of period ..................... 13,040,571 10,727,208 15,676,830 8,465,967 3,433,155 3,570,839
------------ ------------ ------------ ------------ ------------ ------------
End of period ........................... $ 22,315,649 $ 13,040,571 $ 10,727,208 $ 9,115,688 $ 8,465,967 $ 3,433,155
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A16
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
ZERO COUPON SMALL
BOND PRUDENTIAL CAPITALIZATION
2005 JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- ---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (69,723) $ 605,490 $ 466,485 $ (19,586) $ (7,410) $ (2,466) $ (63,208) $ 5,470 $ 4,847
0 7,803 124,816 273,783 37,636 50,105 212,536 604,937 381,206
2,368 12,587 225,279 65,721 22,375 43,121 46,013 (29,549) 703,647
(972,258) 773,486 215,644 1,513,045 478,204 73,161 1,237,638 (95,776) 238,634
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(1,039,613) 1,399,366 1,032,224 1,832,963 530,805 163,921 1,432,979 485,082 1,328,334
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
2,436,857 2,768,957 962,033 144,235 75,139 238,539 2,648,566 1,531,442 2,981,948
0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0
0 25,615 (26,502) (13,816) 0 (293,084) (1,666,822) (19,451) (4,293,128)
154,707 6,405,234 3,302,946 2,170,749 1,234,490 508,875 604,964 2,745,637 1,826,062
(79,980) (52,935) (50,149) (46,761) (22,311) (8,919) (138,049) (129,979) (180,256)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
2,511,584 9,146,871 4,188,328 2,254,407 1,287,318 445,411 1,448,659 4,127,649 334,626
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
0 (91,783) 119,618 0 32,534 806 0 (24,899) 18,918
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,471,971 10,454,454 5,340,170 4,087,370 1,850,657 610,138 2,881,638 4,587,832 1,681,878
16,782,089 6,327,635 987,465 2,735,579 884,922 274,784 10,543,368 5,955,536 4,273,658
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 18,254,060 $ 16,782,089 $ 6,327,635 $ 6,822,949 $ 2,735,579 $ 884,922 $ 13,425,006 $ 10,543,368 $ 5,955,536
============ ============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A17
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE
PRUSELECT II VARIABLE LIFE SUBACCOUNTS
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
============= ======== ========== ========
</TABLE>
* Became available on June 7, 1999 (Note 1)
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A19 THROUGH A26
A18
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF THE
PRUSELECT II VARIABLE LIFE SUBACCOUNTS
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.
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, each of which invests only in a corresponding
portfolio of The Prudential Series Fund, Inc. (the "Series Fund") or
any of the non-Prudential administered fund shown on 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 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
International Stock Portfolio.
At December 31, 1999 there were no balances pertaining to the VP Value
Portfolio in the Account.
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 does not have
an effect on the Contract owner's account or the related unit value.
A19
<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 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 PRUDENTIAL
ZERO HIGH PRUDENTIAL PRUDENTIAL PRUDENTIAL
COUPON YIELD STOCK EQUITY NATURAL
BOND 2000 BOND INDEX INCOME RESOURCES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Number of shares (rounded): 1,550,484 352,917 4,698,862 744,126 74,761
Net asset value per share: $ 12.99 $ 7.52 $ 44.45 $ 19.52 $ 17.38
Cost: $ 19,935,376 $ 2,748,055 $ 130,132,357 $ 15,147,463 $ 1,245,142
PRUDENTIAL PRUDENTIAL
PRUDENTIAL ZERO SMALL
PRUDENTIAL GOVERNMENT COUPON PRUDENTIAL CAPITALIZATION
GLOBAL INCOME BOND 2005 JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Number of shares (rounded): 719,062 789,237 1,438,894 210,650 826,154
Net asset value per share: $ 30.98 $ 11.55 $ 12.68 $ 32.39 $ 16.25
Cost: $ 13,685,943 $ 9,058,064 $ 18,225,067 $ 4,743,085 $ 11,821,881
T. ROWE PRICE JANUS MFS
INTERNATIONAL AIM V.I. ASPEN EMERGING
STOCK VALUE GROWTH GROWTH
PORTFOLIO FUND PORTFOLIO SERIES
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
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>
A20
<PAGE>
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
============= ============= ============== ============== ==============
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
ZERO HIGH PRUDENTIAL PRUDENTIAL PRUDENTIAL
COUPON YIELD STOCK EQUITY NATURAL
BOND 2000 BOND INDEX INCOME RESOURCES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Pruselect I-rounded) ............... 0 28,956 8,211,055 1,062,378 243,922
Unit Value (Pruselect I) .............. $ 2.17624 $ 2.25891 $ 4.87074 $ 3.46967 $ 2.36154
------------- ------------- -------------- -------------- --------------
Contract Owner Equity (Pruselect I) ... $ 0 $ 65,409 $ 39,993,915 $ 3,686,102 $ 576,032
------------- ------------- -------------- -------------- --------------
Contract Owner Units Outstanding
(Pruselect II-rounded) ................ 9,258,958 1,145,917 34,678,998 3,123,994 306,290
Unit Value (Pruselect II) ............. $ 2.17624 $ 2.25891 $ 4.87074 $ 3.46967 $ 2.36154
------------- ------------- -------------- -------------- --------------
Contract Owner Equity (Pruselect II) .. $ 20,149,714 $ 2,588,523 $ 168,912,381 $ 10,839,228 $ 723,317
------------- ------------- -------------- -------------- --------------
Contract Owner Units Outstanding
(Pruselect III-rounded) ............. N/A 0 0 0 N/A
Unit Value (Pruselect III) ............ $ N/A $ 1.02134 $ 1.07712 $ 1.07537 $ N/A
------------- ------------- -------------- -------------- --------------
Contract Owner Equity (Pruselect III) . $ N/A $ 0 $ 0 $ 0 $ N/A
------------- ------------- -------------- -------------- --------------
TOTAL CONTRACT OWNER EQUITY ........... $ 20,149,714 $ 2,653,932 $ 208,906,296 $ 14,525,330 $ 1,299,349
============= ============= ============== ============== ==============
</TABLE>
A21
<PAGE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
PRUDENTIAL ZERO SMALL
PRUDENTIAL GOVERNMENT COUPON PRUDENTIAL CAPITALIZATION
GLOBAL INCOME BOND 2005 JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Pruselect I-rounded) ............... 0 1,733,249 25,293 394,435 0
Unit Value (Pruselect I) .............. $ 2.58864 $ 1.93411 $ 2.36982 $ 3.59559 $ 1.95551
------------- ------------- -------------- -------------- --------------
Contract Owner Equity (Pruselect I) ... $ 0 $ 3,352,294 $ 59,940 $ 1,418,226 $ 0
------------- ------------- -------------- -------------- --------------
Contract Owner Units Outstanding
(Pruselect II-rounded) .............. 8,620,607 2,979,869 7,677,427 1,503,153 6,865,220
Unit Value (Pruselect II) ............. $ 2.58864 $ 1.93411 $ 2.36982 $ 3.59559 $ 1.95551
------------- ------------- -------------- -------------- --------------
Contract Owner Equity (Pruselect II) .. $ 22,315,649 $ 5,763,394 $ 18,194,120 $ 5,404,723 $ 13,425,006
------------- ------------- -------------- -------------- --------------
Contract Owner Units Outstanding
(Pruselect III-rounded) ............. 0 N/A N/A 0 N/A
Unit Value (Pruselect III) ............ $ 1.20743 $ N/A $ N/A $ 1.16040 $ N/A
------------- ------------- -------------- -------------- --------------
Contract Owner Equity (Pruselect III) . $ 0 $ N/A $ N/A $ 0 $ N/A
------------- ------------- -------------- -------------- --------------
TOTAL CONTRACT OWNER EQUITY ........... $ 22,315,649 $ 9,115,688 $ 18,254,060 $ 6,822,949 $ 13,425,006
============= ============= ============== ============== ==============
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------
T. ROWE PRICE AIM JANUS MFS
INTERNATIONAL V.I. ASPEN EMERGING
STOCK VALUE GROWTH GROWTH
PORTFOLIO FUND PORTFOLIO SERIES
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Pruselect I-rounded) ............... 0 0 0 0
Unit Value (Pruselect I) .............. $ 1.30529 $ 1.17702 $ 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>
A22
<PAGE>
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 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 costs which are deducted from each premium payment to
cover premium collection and processing costs; (2) state premium
taxes; (3) sales charges which are deducted in order to compensate
Pruco Life for the cost of selling the contract. Contracts are also
subject to monthly charges for the costs of administering the
contract.
NOTE 6: TAXES
Pruco Life is taxed as a "life insurance company" as defined by the
Internal Revenue Code and the results of operations of the Account
form a part of Prudential's consolidated federal tax return. Under
current federal law, no federal income taxes are payable by the
Account. As such, no provision for tax liability has been recorded, in
these financial statements.
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE ACCOUNT
The increase (decrease) in net assets retained in the Account
represents the net contributions (withdrawals) of Pruco Life to (from)
the Account. Effective October 13, 1998, Pruco Life no longer
maintains a position in the Account. Previously, Pruco Life maintained
a position in the Account for liquidity purposes including unit
purchases and redemptions, fund share transactions and expense
processing.
A23
<PAGE>
NOTE 8: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts), for the
periods 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)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
EQUITY FLEXIBLE MANAGED
PORTFOLIO PORTFOLIO
----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
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)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENITAL
CONSERVATIVE BALANCED ZERO COUPON 2000
PORTFOLIO PORTFOLIO
----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 3,818,833 12,272,439 5,516,349 1,146,913 3,053,595 11,968,207
Contract Owner
Redemptions: (3,154,189) (14,641,165) (2,950,237) (40,331) (4,144,022) (13,929,611)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
HIGH YIELD BOND STOCK INDEX
PORTFOLIO PORTFOLIO
----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 232,862 621,628 1,021,708 10,380,525 12,075,930 20,876,571
Contract Owner
Redemptions: (494,213) (117,717) (879,849) (8,588,993) (5,649,830) (11,486,568)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
EQUITY INCOME NATURAL RESOURCES
PORTFOLIO PORTFOLIO
----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 3,603,113 3,556,140 679,346 60,007 89,639 237,684
Contract Owner
Redemptions: (4,068,251) (3,811,832) (873,682) (45,074) (66,113) (378,671)
</TABLE>
A24
<PAGE>
NOTE 8: UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
GLOBAL GOVERNMENT INCOME
PORTFOLIO PORTFOLIO
----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 2,831,806 2,263,591 10,705,193 5,739,533 3,917,010 3,049,723
Contract Owner
Redemptions: (1,636,224) (2,393,156) (14,887,428) (5,259,971) (1,539,750) (3,251,977)
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
ZERO COUPON BOND 2005 PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO
----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 1,086,474 3,960,131 9,228,779 1,880,279 1,126,502 589,921
Contract Owner
Redemptions: (36,898) (75,113) (6,935,187) (1,058,268) (524,101) (302,690)
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
PRUDENTIAL T. ROWE PRICE AIM V.I. JANUS ASPEN
SMALL CAPITALIZATION STOCK INTERNATIONAL STOCK VALUE GROWTH
PORTFOLIO PORTFOLIO* FUND* PORTFOLIO*
----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1999 1999
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 2,442,573 3,950,209 3,529,907 29,489 88,424 28,034
Contract Owner
Redemptions: (1,617,078) (1,275,859) (3,181,968) (15,075) (8,275) (10,635)
</TABLE>
SUBACCOUNTS (CONTINUED)
----------
MFS EMERGING
GROWTH
SERIES*
----------
1999
----------
Contract Owner
Contributions: 2,762
Contract Owner
Redemptions: 0
* Became available on June 7, 1999 (Note 1)
A25
<PAGE>
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 period 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 PRUDENTIAL PRUDENTIAL
ZERO COUPON HIGH YIELD STOCK EQUITY NATURAL
BOND 2000 BOND INDEX INCOME RESOURCES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Purchases ............................ $ 2,451,612 $ 375,340 $ 24,405,119 $ 410,034 $ 117,146
Sales ................................ $ (145,531) $ (972,491) $(17,016,436) $ (2,105,673) $ (96,455)
PRUDENTIAL
PRUDENTIAL PRUDENTIAL SMALL
PRUDENTIAL GOVERNMENT ZERO COUPON PRUDENTIAL CAPITALIZATION
GLOBAL INCOME 2005 JENNISON STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Purchases ............................ $ 4,718,947 $ 1,289,684 $ 2,559,523 $ 2,501,921 $ 3,675,059
Sales ................................ $ (2,475,443) $ (412,004) $ (126,550) $ (275,927) $ (2,289,608)
T. ROWE PRICE
INTERNATIONAL AIM V.I. JANUS ASPEN MFS EMERGING
STOCK VALUE GROWTH GROWTH
PORTFOLIO* FUND* PORTFOLIO* SERIES*
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
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>
A26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the
Pruselect II Variable Life Subaccounts of
Pruco Life Variable Universal Account
and the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the subaccounts (Prudential Money
Market Portfolio, Prudential Diversified Bond Portfolio, Prudential Equity
Portfolio, Prudential Flexible Managed Portfolio, Prudential Conservative
Balanced Portfolio, Prudential Zero Coupon Bond 2000 Portfolio, Prudential High
Yield Bond Portfolio, Prudential Stock Index Portfolio, Prudential Equity Income
Portfolio, Prudential Natural Resources Portfolio, Prudential Global Portfolio,
Prudential Government Income Portfolio, Prudential Zero Coupon Bond 2005
Portfolio, Prudential Jennison Portfolio, Prudential Small Capitalization Stock
Portfolio, T. Rowe International Stock Portfolio, AIM V.I. Value Fund, Janus
Aspen Growth Fund Portfolio and MFS Emerging Growth Series) of the Pruco Life
Variable Universal Account at December 31, 1999, the results of each of their
operations and the changes in each of their net assets for each of the three
years in the period then ended (for the period June 7, 1999 through December 31,
1999 for T. Rowe International Stock Portfolio, AIM V.I. Value Fund, Janus Aspen
Growth Fund Portfolio and MFS Emerging Growth Series), in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of Pruco Life Insurance Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with 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, which included
confirmation of fund shares owned at December 31, 1999, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 17, 2000
A27
<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>
PRUSELECT(SM) II
Variable Life
Insurance
[LOGO] Prudential
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone: 800 286-7754
CVUL-2 Ed. 5/2000
<PAGE>
PART II
OTHER INFORMATION
<PAGE>
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION WITH RESPECT TO CHARGES
Pruco Life Insurance Company ("Pruco Life") represents that the fees and charges
deducted under the variable universal life insurance contracts registered by
this registration statement, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by Pruco Life.
UNDERTAKING WITH RESPECT TO INDEMNIFICATION
The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.
Arizona, being the state of organization of Pruco Life, permits entities
organized under its jurisdiction to indemnify directors and officers with
certain limitations. The relevant provisions of Arizona law permitting
indemnification can be found in Section 10-850 et seq. of the Arizona Statutes
Annotated. The text of Pruco Life's By-law, Article VIII, which relates to
indemnification of officers and directors, is incorporated by reference to
Exhibit 3(ii) to its Form 10-Q, SEC File No. 33-37587, filed August 15,
1997.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
The Registration Statement comprises the following papers and documents:
- ------------------------------------------------------------------------
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 86 pages.
The undertaking to file reports.
The representation with respect to charges.
The undertaking with respect to indemnification.
The signatures.
Written consents of the following persons:
1. PricewaterhouseCoopers LLP, independent accountants.
2. Clifford E. Kirsch, Esq.
3. Nancy D. Davis, FSA, MAAA
The following exhibits:
- -----------------------
1. The following exhibits correspond to those required by paragraph A of the
instructions as to exhibits in Form N-8B-2:
A. (1) (a) Resolution of Board of Directors of Pruco Life Insurance
Company establishing the Pruco Life Variable Universal
Account. (Note 3)
(b) Amendment of Separate Account Resolution. (Note 12)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities Corporation
and Pruco Life Insurance Company. (Note 3)
(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the Sale
of the Contracts. (Note 3)
(c) Schedule of Sales Commissions. (Note 10)
(d) Participation Agreements and Amendments:
(i)(a) AIM Variable Insurance Funds, Inc., AIM V.I. Value
Fund. (Note 5)
(b) Amendment to the AIM Variable Insurance Funds, Inc.
Participation Agreement. (Note 12)
(ii)(a) American Century Variable Portfolios, Inc., VP Value
Portfolio. (Note 12)
(iii)(a) Janus Aspen Series, Growth Portfolio. (Note 5)
(b) Amendment to the Janus Aspen Series Participation
Agreement. (Note 12)
(iv)(a) MFS Variable Insurance Trust, Emerging Growth Series.
(Note 5)
(b) Amendment to the MFS Variable Insurance Trust
Participation Agreement. (Note 12)
(v)(a) T. Rowe Price International Series, Inc.,
International Stock Portfolio. (Note 5)
(b) Amendment to the T. Rowe Price International Series,
Inc. Participation Agreement. (Note 12)
(4) Not Applicable.
(5) Variable Universal Life Insurance Contracts. (Note 10)
(a) With the fixed-rate option. Note: this version was
never sold and is no longer available for sale.
(b) Without the fixed-rate option.
II-2
<PAGE>
(6) (a) Articles of Incorporation of Pruco Life Insurance Company,
as amended October 19, 1993. (Note 7)
(b) By-Laws of Pruco Life Insurance Company, as amended May 6,
1997. (Note 2)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form for Variable Universal Life Insurance
Contract. (Note 7)
(b) Supplement to the Application for Variable Universal Life
Insurance Contract.
(Note 11)
(11) Memorandum describing Pruco Life Insurance Company's issuance,
transfer, and redemption procedures for the Contracts pursuant to
Rule 6e-3(T)(b)(12)(iii). (Note 13)
(12) Endorsement to modify List of Investment Options. (Note 12)
2. See Exhibit 1.A.(5).
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of the
securities being registered. (Note 1)
4. None.
5. Not Applicable.
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as to actuarial matters
pertaining to the securities being registered. (Note 1)
7. Powers of Attorney.
(a) William M. Bethke, Ira J. Kleinman,
Esther H. Milnes, I. Edward Price (Note 4)
(b) Kiyofumi Sakaguchi (Note 8)
(c) James J. Avery, Jr. (Note 5)
(d) Dennis G. Sullivan (Note 6)
(e) David R. Odenath, Jr. (Note 14)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Form 10-Q, Registration No. 33-37587,
filed August 15, 1997 on behalf of the Pruco Life Insurance Company.
(Note 3) Incorporated by reference to Form S-6, Registration No. 33-29181,
filed April 28, 1997 on behalf of the Pruco Life Variable Universal
Account.
(Note 4) Incorporated by reference to Form 10-K, Registration No. 33-08698,
filed March 31, 1997 on behalf of the Pruco Life Variable Contract
Real Property Account.
(Note 5) Incorporated by reference to Post-Effective Amendment No. 2 to
Form S-6, Registration No. 333-07451, filed June 25, 1997 on behalf
of the Pruco Life Variable Appreciable Account.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 6 to
Form S-1, Registration No. 33-86780, filed April 16, 1999 on behalf
of the Pruco Life Variable Contract Real Property Account.
(Note 7) Incorporated by reference to Form S-6, Registration No. 333-07451,
filed July 2, 1996 on behalf of the Pruco Life Variable Appreciable
Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 8 to
Form S-6, Registration No. 33-49994, filed April 28, 1997 on behalf
of the Pruco Life PRUvider Variable Appreciable Account.
(Note 9) Incorporated by reference to Post-Effective Amendment No. 9 to this
Registration Statement, filed April 25, 1996.
(Note 10) Incorporated by reference to Post-Effective Amendment No. 10 to this
Registration Statement, filed April 28, 1997.
(Note 11) Incorporated by reference to Post-Effective Amendment No. 11 to this
Registration Statement, filed April 28, 1998.
(Note 12) Incorporated by reference to Post-Effective Amendment No. 13 to Form
S-6, Registration No. 33-29181, filed June 4, 1999 on behalf of the
Pruco Life Variable Universal Account.
II-3
<PAGE>
(Note 13) Incorporated by reference to Post-Effective Amendment No. 13 to this
Registration Statement, filed June 4, 1999.
(Note 14) Incorporated by reference to Post-Effective Amendment No. 7 to Form
S-1, Registration No. 33-86780, filed April 12, 2000 on behalf of
the Pruco Life Variable Contract Real Property Account.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life Variable Universal Account, certifies that this Amendment is filed
solely for one or more of the purposes specified in Rule 485(b)(1) under the
Securities Act of 1933 and that no material event requiring disclosure in the
prospectus, other than one listed in Rule 485(b)(1), has occurred since the
effective date of the most recent Post-Effective Amendment to the Registration
Statement which included a prospectus and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized and its seal hereunto affixed and attested, all in the city of Newark
and the State of New Jersey, on this 26th day of April, 2000.
(Seal) Pruco Life Variable Universal Account
(Registrant)
By: Pruco Life Insurance Company
(Depositor)
Attest: /s/ Thomas C. Castano By: /s/ Esther H. Milnes
--------------------------- --------------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 14 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 26th day of April,
2000.
Signature and Title
- -------------------
/s/ *
- ------------------------------------------
Esther H. Milnes
President and Director
/s/ *
- ------------------------------------------
Dennis G. Sullivan
Vice President and Chief Accounting Officer
/s/ * *By: /s/ Thomas C. Castano
- ------------------------------------------ ----------------------
James J. Avery, Jr. Thomas C. Castano
Director (Attorney-in-Fact)
/s/ *
- -----------------------------------------
William M. Bethke
Director
/s/ *
- -----------------------------------------
Ira J. Kleinman
Director
/s/ *
- -----------------------------------------
David R. Odenath, Jr.
Director
- -----------------------------------------
/s/ *
- -----------------------------------------
I. Edward Price
Director
- -----------------------------------------
/s/ *
- -----------------------------------------
Kiyofumi Sakaguchi
Director
II-5
<PAGE>
Consent of Independent Accountants
We hereby consent to the use in the Prosepectus consituting part of this
Post-Effective Amendment No. 14 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated March 17, 2000, relating to the
financial statements of the Pruselect II Variable Life Subaccounts of Pruco
Life Variable Universal Account, which appears in such Prospectus.
We also consent to the use in the Prospectus constituting part of this
Registation Statement of our report dated March 21, 2000, relating to the
consolidated financial statements of Pruco Life Insurance Company and its
subsidiaries, which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in the
Prospectus.
PricewaterhouseCoopers LLP
New York, New York
April 24, 2000
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
Consent of PricewaterhouseCoopers LLP, independent Page II-6
accountants.
3. Opinion and Consent of Clifford E. Kirsch, Esq., as to the legality of Page II-8
the securities being registered.
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as to actuarial Page II-9
matters pertaining to the securities being registered.
</TABLE>
<PAGE>
Exhibit 3
April 10, 2000
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
Gentlemen:
In my capacity as Chief Legal Officer and Assistant Secretary of Pruco Life
Insurance Company ("Pruco Life"), I have reviewed the establishment on April 17,
1989 of Pruco Life Variable Universal Account (the "Account") by the Executive
Committee of the Board of Directors of Pruco Life as a separate account for
assets applicable to certain variable life insurance contracts, pursuant to the
provisions of Section 20-651 of the Arizona Insurance Code. I am responsible
for oversight of the preparation and review of the Registration Statement on
Form S-6, as amended, filed by Pruco Life with the Securities and Exchange
Commission (Registration Numbers: 33-29181, 33-38271, 333-85115, and 333-94117)
under the Securities Act of 1933 for the registration of certain variable
universal life insurance contracts issued with respect to the Account.
I am of the following opinion:
(1) Pruco Life was duly organized under the laws of Arizona and is a
validly existing corporation.
(2) The Account has been duly created and is validly existing as a
separate account pursuant to the aforesaid provisions of Arizona law.
(3) The portion of the assets held in the Account equal to the reserve and
other liabilities for variable benefits under the variable universal
life insurance contracts is not chargeable with liabilities arising
out of any other business Pruco Life may conduct.
(4) The variable universal life insurance contracts are legal and binding
obligations of Pruco Life in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/
- -----------------------
Clifford E. Kirsch
<PAGE>
Exhibit 6
April 24, 2000
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
To Pruco Life Insurance Company:
This opinion is furnished in connection with the registration be Pruco Life
Insurance Company of variable universal life insurance contracts (the
"Contracts") under the Securities Act of 1933. The prospectus included in Post-
Effective Amendment No. 14 to Registration Statement No. 33-38271 on Form S-6
describes the Contracts. I have reviewed the Contract form and I have
participated in the preparation and review of the Registration Statement and
Exhibits thereto. In my opinion:
(1) The illustrations of cash surrender values and death benefits included
in the prospectus section entitled "Illustrations" based on the
assumptions stated in the illustrations, are consistent with the
provisions of the Contract. The rate structure of the Contract has
not been designed so as to make the relationship between premiums and
benefits, as shown in the illustrations, appear more favorable to a
prospective purchaser of a Contract for male age 35 or male age 55,
than to prospective purchasers of Contracts on males of other ages or
on females.
(2) The deduction in an amount equal to 1.25% of each premium is a
reasonable charge in relation to the additional income tax burden
imposed upon Pruco Life and its parent company, The Prudential
Insurance Company of America, as the result of the enactment of
Section 848 of the Internal Revenue Code. In reaching that conclusion
a number of factors were taken into account that, in my opinion, were
appropriate and which resulted in a projected after-tax rate of return
that is a reasonable rate to use in discounting the tax benefit of the
deductions allowed in Section 848 in taxable years subsequent to the
year in which the premiums are received.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Very truly yours,
/s/
- ---------------------------------------
Nancy D. Davis, FSA, MAAA
Vice President and Actuary
The Prudential Insurance Company of America
II-9
