As filed with the SEC on . Registration No. 333-85115
--------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
Post-Effective Amendment No. 1 to
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
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PRUCO LIFE
VARIABLE UNIVERSAL ACCOUNT
(Exact Name of Trust)
PRUCO LIFE INSURANCE COMPANY
(Name of Depositor)
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(800) 286-7754
(Address and telephone number of principal executive offices)
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THOMAS C. CASTANO
ASSISTANT SECRETARY
PRUCO LIFE INSURANCE COMPANY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(Name and address of agent for service)
Copy to:
JEFFREY C. MARTIN
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036
It is proposed that this filing will become effective (check appropriate space):
o immediately upon filing pursuant to paragraph (b) of Rule 485
o on May 1, 2000 pursuant to paragraph (b) of Rule 485
-------------
(date)
o 60 days after filing pursuant to paragraph (a) of Rule 485
o 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 and Regulatory Proceedings
10. Introduction and Summary; Charges and
Expenses; Short-Term Cancellation Right or
"Free Look"; Types of Death Benefit; Changing
the Type of Death Benefit; Riders; Premiums;
Allocation of Premiums; Transfers; Dollar Cost
Averaging; Auto-Rebalancing; How a Contract's
Surrender Value Will Vary; How a Type A
(Fixed) Contract's Death Benefit Will Vary;
How a Type B (Variable) Contract's Death
Benefit Will Vary; How a Type C (Return of
Premium) Contract's Death Benefit Will Vary;
Surrender of a Contract; Withdrawals; Lapse
and Reinstatement; Increases in Basic
Insurance Amount; Decreases in Basic Insurance
Amount; When Proceeds are Paid; Contract
Loans; Other General Contract Provisions;
Voting Rights; Substitution of Fund Shares
11. Introduction and Summary; Pruco Life Variable
Universal Account
12. Cover Page; Introduction and Summary; The
Funds; Sale of the Contract and Sales
Commissions
13. Introduction and Summary; The Funds; Charges
and Expenses; Premiums; Allocation of
Premiums; Sale of the Contract and Sales
Commissions
14. Introduction and Summary; Detailed Information
for Prospective Contract Owners
15. Introduction and Summary; Premiums; Allocation
of Premiums; Transfers; Dollar Cost Averaging;
Auto-Rebalancing
16. Introduction and Summary; Detailed Information
for Prospective Contract Owners
17. When Proceeds are Paid
<PAGE>
N-8B-2 Item Number Location
- ------------------ --------
18. Pruco Life Variable Universal Account
19. Reports to Contract Owners
20. Not Applicable
21. Contract Loans
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions
25. Pruco Life Insurance Company
26. Introduction and Summary; The Funds; Charges
and Expenses
27. Pruco Life Insurance Company; The Funds
28. Pruco Life Insurance Company; Directors and
Officers
29. Pruco Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Pruco Life Insurance Company
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions
39. Sale of the Contract and Sales Commissions
40. Not Applicable
41. Sale of the Contract and Sales Commissions
42. Not Applicable
43. Not Applicable
<PAGE>
N-8B-2 Item Number Location
- ------------------ --------
44. Introduction and Summary; The Funds; How a
Contract's Cash Surrender Value Will Vary; How
a Type A (Fixed) Contract's Death Benefit Will
Vary; How a Type B (Variable) Contract's Death
Benefit Will Vary; How a Type C (Return of
Premium) Contract's Death Benefit Will Vary
45. Not Applicable
46. Introduction and Summary; Pruco Life Variable
Universal Account; The Funds
47. Pruco Life Variable Universal Account; The
Funds
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements: Financial Statements of
the PruSelect III Variable Life Subaccounts of
Pruco Life Variable Universal Account;
Consolidated Financial Statements of Pruco
Life Insurance Company and its subsidiaries
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
PRUSELECT(SM) III
Variable Life Insurance
PROSPECTUS
Pruco Life
Variable Universal Account
May 1, 2000
PRUCO LIFE INSURANCE COMPANY
<PAGE>
PROSPECTUS
May 1, 2000
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
PRUSELECT(SM) III
Variable Life Insurance Contracts
This prospectus describes certain individual flexible premium variable universal
life insurance contracts, PRUSELECT(SM) III Variable Life Insurance Contracts
(the "Contract"), issued by Pruco Life Insurance Company ("Pruco Life", "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 variable universal life insurance coverage with
flexible premium payments, a variety of investment options, and three types of
death benefit options. These Contracts may be issued with a Target Term Rider
that could have a significant effect on the performance of your Contract. For
the factors to consider when adding a Target Term Rider to your Contract, see
RIDERS, page 15. The Contracts may be owned individually or by a corporation,
trust, association or similar entity. The Contracts are available on a multiple
life basis where the insureds share a common employment or business
relationship. The Contract owner will have all rights and privileges under the
Contract. The Contracts may be used for funding non-qualified executive deferred
compensation or salary continuation plans, retiree medical benefits, or other
purposes.
INVESTMENT CHOICES:
PruSelect III offers a wide variety of investment choices, including 15 variable
investment options that invest in mutual funds managed by these leading asset
managers:
o THE PRUDENTIAL INVESTMENT CORPORATION
o A I M ADVISORS, INC.
o AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
o JANUS CAPITAL CORPORATION
o MASSACHUSETTS FINANCIAL SERVICES COMPANY
o ROWE PRICE-FLEMING INTERNATIONAL, INC.
For a complete list of the 15 available variable investment options and their
investment objectives, see The Funds, page 7.
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
CHARGES......................................................................................................................2
TYPES OF DEATH BENEFIT.......................................................................................................4
LIFE INSURANCE DEFINITIONAL TESTS............................................................................................5
PREMIUM PAYMENTS.............................................................................................................5
REFUND.......................................................................................................................5
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, THE PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT, AND THE VARIABLE INVESTMENT
OPTIONS AVAILABLE UNDER THE CONTRACT............................................................................................6
PRUCO LIFE INSURANCE COMPANY.................................................................................................6
THE PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT....................................................................................6
THE FUNDS....................................................................................................................7
VOTING RIGHTS................................................................................................................9
WHICH INVESTMENT OPTION SHOULD BE SELECTED?..................................................................................9
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS............................................................................9
CHARGES AND EXPENSES.........................................................................................................9
REDUCTION OF CHARGES........................................................................................................12
REQUIREMENTS FOR ISSUANCE OF A CONTRACT.....................................................................................13
SHORT-TERM CANCELLATION RIGHT OR "FREE-LOOK"................................................................................13
TYPES OF DEATH BENEFIT......................................................................................................13
CHANGING THE TYPE OF DEATH BENEFIT..........................................................................................14
RIDERS......................................................................................................................15
PREMIUMS....................................................................................................................16
ALLOCATION OF PREMIUMS......................................................................................................17
TRANSFERS...................................................................................................................17
DOLLAR COST AVERAGING.......................................................................................................18
AUTO-REBALANCING............................................................................................................18
HOW A CONTRACT'S SURRENDER VALUE WILL VARY..................................................................................18
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY.....................................................................18
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY..................................................................19
HOW A TYPE C (RETURN OF PREMIUM) CONTRACT'S DEATH BENEFIT WILL VARY.........................................................21
SURRENDER OF A CONTRACT.....................................................................................................22
WITHDRAWALS.................................................................................................................22
LAPSE AND REINSTATEMENT.....................................................................................................22
INCREASES IN BASIC INSURANCE AMOUNT.........................................................................................23
DECREASES IN BASIC INSURANCE AMOUNT.........................................................................................24
WHEN PROCEEDS ARE PAID......................................................................................................24
ILLUSTRATIONS OF SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS.................................................24
CONTRACT LOANS..............................................................................................................27
TAX TREATMENT OF CONTRACT BENEFITS..........................................................................................27
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS.........................................................29
EXCHANGE RIGHT AVAILABLE IN SOME STATES.....................................................................................30
OPTION TO EXCHANGE INSURED..................................................................................................30
OTHER GENERAL CONTRACT PROVISIONS...........................................................................................30
SUBSTITUTION OF FUND SHARES.................................................................................................30
REPORTS TO CONTRACT OWNERS..................................................................................................31
SALE OF THE CONTRACT AND SALES COMMISSIONS..................................................................................31
STATE REGULATION............................................................................................................31
EXPERTS.....................................................................................................................31
LITIGATION AND REGULATORY PROCEEDINGS.......................................................................................32
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ADDITIONAL INFORMATION......................................................................................................32
FINANCIAL STATEMENTS........................................................................................................32
DIRECTORS AND OFFICERS.........................................................................................................33
FINANCIAL STATEMENTS OF THE PRUSELECT III 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 years
since then. For any coverage segment effective after the Contract date, the
insured's attained age is the issue age of that segment plus the length of time
since its effective date.
BASIC INSURANCE AMOUNT -- The amount of life insurance as shown in the Contract.
Also referred to as "face amount."
CASH VALUE -- The same as the "Contract Fund."
CONTRACT -- The variable universal life insurance policy described in this
prospectus.
CONTRACT ANNIVERSARY -- The same date as the Contract date in each later year.
CONTRACT DATE -- The date the Contract is effective, as specified in the
Contract.
CONTRACT DEBT -- The principal amount of all outstanding loans plus any interest
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 -- You. Unless a different owner is named in the application, the
owner of the Contract is the insured.
CONTRACT YEAR -- A year that starts on the Contract date or on a Contract
anniversary. For any portion of a Contract representing an increase, "Contract
year" is a year that starts on the effective date of the increase. See INCREASES
IN BASIC INSURANCE AMOUNT, page 23.
COVERAGE SEGMENT -- The basic insurance amount at issue is the first coverage
segment. For each increase in basic insurance amount, a new coverage segment is
created for the amount of the increase. See INCREASES IN BASIC INSURANCE AMOUNT,
page 23.
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.
FUNDS -- Mutual funds with separate portfolios. One or more of the available
Fund portfolios may be chosen as an underlying investment for the Contract.
MONTHLY DATE -- The Contract date and the same date in each subsequent month.
NET CASH VALUE -- The Contract Fund minus any Contract debt.
PRUCO LIFE INSURANCE COMPANY -- Us, we, our, Pruco Life. The company offering
the Contract.
SEGMENT ALLOCATION AMOUNT -- The amount used to determine the charge for sales
expenses. It may also be referred to as the "Target Premium." See CHARGES AND
EXPENSES, page 9.
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.
SURRENDER VALUE -- The amount payable to the Contract owner upon surrender of
the Contract. It is equal to the Contract Fund minus any Contract debt plus any
return of sales charges.
TARGET PREMIUM -- The same as "segment allocation amount." See CHARGES AND
EXPENSES, page 9.
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 OPTIONS -- The 15 mutual funds available under this
Contract, whose shares are held in the separate account.
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. It is issued by Pruco Life Insurance Company ("Pruco Life", "us",
"we", or "our"). These Contracts may be issued with a Target Term Rider that
could have a significant effect on the performance of your Contract. For the
factors to consider when adding a Target Term Rider to your Contract, see
RIDERS, page 15. The Contracts are available on a multiple life basis where the
insureds share a common employment or business relationship. The Contracts may
be owned individually or by a corporation, trust, association or similar entity.
The Contract owner will have all rights and privileges under the Contract. The
Contracts may be used for such purposes as funding non-qualified executive
deferred compensation or salary continuation plans, retiree medical benefits, or
other purposes.
The Contract is a form of variable universal life insurance. It is based on a
Contract Fund, the value of which changes every day. The chart below describes
how the value of your Contract Fund changes.
You may invest premiums in one or more of the 15 available variable investment
options. Your Contract Fund value changes every day depending upon the change in
the value of the particular investment options that you have selected.
Although the value of your Contract Fund will increase if there is favorable
investment performance in the variable investment options you select, investment
returns in the variable investment options are NOT guaranteed. There is a risk
that investment performance will be unfavorable and that the value of your
Contract Fund will decrease. The risk will be different, depending upon which
investment options you choose. See WHICH INVESTMENT OPTION SHOULD BE SELECTED?,
page 9.
Variable life insurance contracts are unsuitable as short-term savings vehicles.
Withdrawals and loans may result in adverse tax consequences. See TAX TREATMENT
OF CONTRACT BENEFITS, page 27.
CHARGES
The following chart outlines the components of your Contract Fund and the
adjustments which may be made including the maximum charges which may be
deducted from each premium payment and from the amounts held in the designated
investment options. These charges, 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 9. In brief, and subject to that
fuller description, the following diagram outlines the maximum charges which
Pruco Life of New Jersey may make:
2
<PAGE>
----------------------------------------------------------
PREMIUM PAYMENT
----------------------------------------------------------
- --------------------------------------------------------------------------------
o less a charge of up to 7.5% of the premiums paid for taxes attributable to
premiums.
o less a charge for sales expenses of up to 15% of the premiums paid.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTED PREMIUM AMOUNT
To be invested in one or a combination of 15 investment portfolios of the Funds.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRACT FUND
On the Contract Date, the Contract Fund is equal to the invested premium amount
minus any of the charges described below which may be due on that date.
Thereafter, the value of the Contract Fund changes daily.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRUCO LIFE ADJUSTS THE CONTRACT FUND FOR:
o Addition of any new invested premium amounts.
o Addition of any increase due to investment results of the chosen variable
investment options.
o Addition of guaranteed interest at an effective annual rate of 4% on the
amount of any Contract loan. (Separately, interest charged on the loan
accrues at an effective annual rate of 4.25% or 5%. See CONTRACT LOANS,
page 27.)
o Subtraction of any decrease due to investment results of the chosen
variable investment options.
o Subtraction of any amount withdrawn.
o Subtraction of the charges listed below, as applicable.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DAILY CHARGES
o Management fees and expenses are deducted from the Fund assets. See
UNDERLYING PORTFOLIO EXPENSES chart, below.
o We deduct a daily mortality and expense risk charge, equivalent to an
annual rate of up to 0.5%, from assets of the variable investment options.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONTHLY CHARGES
o We reduce the Contract Fund by a monthly administrative charge of up to $10
plus $0.05 per $1,000 of the basic insurance amount.
o We deduct a cost of insurance ("COI") charge.
o If the Contract includes riders, we deduct rider charges from the Contract
Fund.
o If the rating class of an insured results in an extra charge, we will
deduct that charge from the Contract Fund.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
POSSIBLE ADDITIONAL CHARGES
o We assess an administrative charge of up to $25 for any withdrawals.
o We may assess an administrative charge of up to $25 for any change in basic
insurance amount.
o We may assess an administrative charge of up to $25 for any change in the
Target Term Rider coverage amount (see RIDERS, page 15).
o We assess an administrative charge of up to $25 for each transfer exceeding
12 in any Contract year.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
Underlying Portfolio Expenses
---------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
TOTAL
PORTFOLIO INVESTMENT OTHER CONTRACTUAL TOTAL ACTUAL
ADVISORY FEE EXPENSES EXPENSES EXPENSES*
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SERIES FUND
Money Market 0.40% 0.02% 0.42% 0.42%
Diversified Bond 0.40% 0.03% 0.43% 0.43%
Conservative Balanced 0.55% 0.02% 0.57% 0.57%
Flexible Managed 0.60% 0.02% 0.62% 0.62%
High Yield Bond 0.55% 0.05% 0.60% 0.60%
Stock Index 0.35% 0.04% 0.39% 0.39%
Equity Income 0.40% 0.02% 0.42% 0.42%
Equity 0.45% 0.02% 0.47% 0.47%
Prudential Jennison 0.60% 0.03% 0.63% 0.63%
Global 0.75% 0.09% 0.84% 0.84%
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Value Fund 0.61% 0.15% 0.76 % 0.76 %
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. (1) 1.00% 0.00% 1.00 % 1.00 %
VP Value Fund
JANUS ASPEN SERIES (2) 0.65% 0.02% 0.67 % 0.67 %
Growth Portfolio
MFS(R)VARIABLE INSURANCE TRUSTSM (3) 0.75% 0.09% 0.84 % 0.84 %
Emerging Growth Series
T. ROWE PRICE INTERNATIONAL SERIES, INC. (1) 1.05% 0.00% 1.05 % 1.05 %
International Stock Portfolio
- -----------------------------------------------------------------------------------------------------------------
* Reflects fee waivers and reimbursement of expenses, if any.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. / T. ROWE PRICE INTERNATIONAL
SERIES, INC. The Investment Advisory Fee includes the ordinary expenses of
operating the Fund.
(2) 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.
(3) MFS(R) 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.
TYPES OF DEATH BENEFIT
There are three types of death benefit available. You may choose a Contract with
a Type A (fixed) death benefit under which the cash value varies daily with
investment experience, and the death benefit generally remains at the basic
insurance amount you initially chose. However, the Contract Fund may grow to a
point where the death benefit may increase and vary with investment experience.
If you choose
4
<PAGE>
a Contract with a Type B (variable) death benefit, the cash value
and the death benefit both vary with investment experience. If you choose a
Contract with a Type C (return of premium) death benefit, the death benefit is
increased by the amount of premiums paid into the Contract, less withdrawals,
plus interest at a rate between 0% and 8% (in 1/2% increments) chosen by the
Contract owner. For Type A and Type B death benefits, as long as the Contract is
inforce, the death benefit will never be less than the basic insurance amount
shown in your Contract. See TYPES OF DEATH BENEFIT, page 13.
LIFE INSURANCE DEFINITIONAL TESTS
In order to qualify as life insurance for Federal tax purposes, the Contract
must adhere to the definition of life insurance under Section 7702 of the
Internal Revenue Code. At issue, the Contract owner chooses one of the following
definition of life insurance tests: (1) Cash Value Accumulation Test or (2)
Guideline Premium Test. Under the Cash Value Accumulation Test, there is a
minimum death benefit to cash value ratio. Under the Guideline Premium Test,
there is a limit to the amount of premiums that can be paid into the Contract,
as well as a minimum death benefit to cash value ratio. For more information,
SEE TAX TREATMENT OF CONTRACT BENEFITS, page 27.
PREMIUM PAYMENTS
The Contract is a flexible premium contract - there are no scheduled premiums.
Except for the minimum initial premium, and subject to a minimum of $25 per
subsequent payment, you choose the timing and amount of premium payments. Paying
insufficient premiums, poor investment results, or taking loans or withdrawals
from the Contract will increase the possibility that the Contract will lapse.
However, the Contract will remain inforce if the Contract Fund is greater than
zero and more than any Contract debt. See PREMIUMS, page 16 and LAPSE AND
REINSTATEMENT, page 22.
We offer and suggest regular billing of premiums even though you decide when to
make premium payments and, subject to a $25 minimum, in what amounts. You should
discuss your billing options with your Pruco Life representative when you apply
for the Contract. See PREMIUMS, page 16.
REFUND
For a limited time, you may return your Contract for a refund in accordance with
the terms of its "free-look" provision. See SHORT-TERM CANCELLATION RIGHT OR
"FREE-LOOK," page 13.
For the DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, see page 1.
THE REPLACEMENT OF LIFE INSURANCE IS GENERALLY NOT IN YOUR BEST INTEREST. IN
MOST CASES, IF YOU REQUIRE ADDITIONAL COVERAGE, THE BENEFITS OF YOUR EXISTING
CONTRACT CAN BE PROTECTED BY PURCHASING ADDITIONAL INSURANCE OR A SUPPLEMENTAL
CONTRACT. IF YOU ARE CONSIDERING REPLACING A CONTRACT, YOU SHOULD COMPARE THE
BENEFITS AND COSTS OF SUPPLEMENTING YOUR EXISTING CONTRACT WITH THE BENEFITS AND
COSTS OF PURCHASING THE CONTRACT DESCRIBED IN THIS PROSPECTUS AND YOU SHOULD
CONSULT WITH A QUALIFIED TAX ADVISER.
THIS PROSPECTUS MAY ONLY BE OFFERED IN JURISDICTIONS IN WHICH THE OFFERING IS
LAWFUL. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION FOR THE FUNDS.
5
<PAGE>
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE
COMPANY, THE PRUCO LIFE VARIABLE UNIVERSAL
ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS
AVAILABLE UNDER THE CONTRACT
PRUCO LIFE INSURANCE COMPANY
Pruco Life Insurance Company ("Pruco Life", "us", "we", or "our") is a stock
life insurance company, organized in 1971 under the laws of the State of
Arizona. It is licensed to sell life insurance and annuities in the District of
Columbia, Guam, and in all states except New York.
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 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 15 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
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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.
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"):
o MONEY MARKET PORTFOLIO: The investment objective is maximum current income
consistent with the stability of capital and the maintenance of liquidity.
The Portfolio invests in high quality short-term debt obligations that
mature in 13 months or less.
o DIVERSIFIED BOND PORTFOLIO: The investment objective is a high level of
income over a longer term while providing reasonable safety of capital. The
Portfolio invests primarily in higher grade debt obligations and high
quality money market investments.
o CONSERVATIVE BALANCED PORTFOLIO: The investment objective is a total
investment return consistent with a conservatively managed diversified
portfolio. The Portfolio invests in a mix of equity securities, debt
obligations and money market instruments.
o FLEXIBLE MANAGED PORTFOLIO: The investment objective is a total investment
return consistent with an aggressively managed diversified portfolio. The
Portfolio invests in a mix of equity securities, debt obligations and money
market instruments.
o HIGH YIELD BOND PORTFOLIO: The investment objective is a high total return.
The Portfolio invests primarily in high yield/high risk debt securities.
o STOCK INDEX PORTFOLIO: The investment objective is investment results that
generally correspond to the performance of publicly-traded common stocks.
The Portfolio attempts to duplicate the price and yield performance of the
Standard & Poor's 500 Stock Index (the "S&P 500").
o EQUITY INCOME PORTFOLIO: The investment objective is both current income
and capital appreciation. The Portfolio invests primarily in common stocks
and convertible securities that provide good prospects for returns above
those of the S&P 500 or the NYSE Composite Index.
o EQUITY PORTFOLIO: The investment objective is capital appreciation. The
Portfolio invests primarily in common stocks of major established
corporations as well as smaller companies that offer attractive prospects
of appreciation.
o PRUDENTIAL JENNISON PORTFOLIO: The investment objective is to achieve
long-term growth of capital. The Portfolio invests primarily in equity
securities of major established corporations that offer above-average
growth prospects.
o GLOBAL PORTFOLIO: The investment objective is long-term growth of capital.
The Portfolio invests primarily in common stocks (and their equivalents) of
foreign and U.S. companies.
Prudential is the investment adviser for the assets of each of the portfolios of
the Series Fund. Prudential's principal business address is 751 Broad Street,
Newark, New Jersey 07102-3777. Prudential has a Service Agreement with its
wholly-owned subsidiary, The Prudential Investment Corporation ("PIC"). The
Service Agreement provides that, subject to Prudential's supervision, PIC will
furnish investment advisory services in connection with the management of the
Series Fund. In addition, Prudential has entered into a Subadvisory Agreement
with its wholly-owned subsidiary, Jennison Associates LLC ("Jennison"), under
which Jennison furnishes investment advisory services in connection with the
management of the Prudential Jennison Portfolio.
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A I M VARIABLE INSURANCE FUNDS:
o 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.:
o AMERICAN CENTURY VP VALUE FUND. Seeks long-term capital growth with income
as a secondary objective. The fund seeks to achieve its objective by
investing primarily in equity securities of well-established companies with
intermediate-to-large market capitalizations that are believed by
management to be undervalued at the time of purchase.
American Century Investment Management, Inc. ("ACIM") is the investment adviser
for this fund. ACIM's principal business address is American Century Tower, 4500
Main Street, Kansas City, Missouri 64111. The principal underwriter of the fund
is American Century Services, Inc., located at 4500 Main Street, Kansas City,
Missouri 64111.
JANUS ASPEN SERIES:
o GROWTH PORTFOLIO. Seeks long-term growth of capital in a manner consistent
with the preservation of capital.
Janus Capital Corporation is the investment adviser and is responsible for the
day-to-day management of the portfolio and other business affairs of the
portfolio. Janus Capital Corporation's principal business address is 100
Fillmore Street, Denver, Colorado 80206-4928.
MFS(R) VARIABLE INSURANCE TRUSTSM:
o 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.:
o INTERNATIONAL STOCK PORTFOLIO. Seeks long-term growth of capital through
investments primarily in common stocks of established, non-U.S. companies.
Rowe Price-Fleming International, Inc. is the investment manager for this fund.
The principal business address for Rowe Price-Fleming International, Inc. is 100
East Pratt Street, Baltimore, Maryland 21202.
The investment advisers for the Funds charge a daily investment management fee
as compensation for their services. These fees are described in the table under
DEDUCTIONS FROM PORTFOLIOS in the CHARGES AND EXPENSES section, page 10, and are
more fully described in the prospectus for each Fund.
In the future it may become disadvantageous for both variable life insurance and
variable annuity contract separate accounts to invest in the same underlying
mutual funds. Although neither of the companies that invest in the Funds nor the
Funds currently foresee any such disadvantage, the Board of Directors for each
Fund intends to monitor events in order to identify any material conflict
between variable life insurance and variable annuity contract owners and to
determine what action, if any, should be taken. Material conflicts could result
from such things as:
(1) changes in state insurance law;
(2) changes in federal income tax law;
(3) changes in the investment management of any portfolio of the Funds; or
(4) differences between voting instructions given by variable life
insurance and variable annuity contract owners.
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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,
portfolios such as the Stock Index, Equity Income, Equity, Prudential Jennison,
Global, AIM V.I. Value Fund, American Century VP Value Fund, Janus Growth, MFS
Emerging Growth Series or T. Rowe Price International Stock may be desirable
options if you are willing to accept such volatility in your Contract values.
Each of these equity portfolios involves different policies and investment
risks.
You may prefer the somewhat greater protection against loss of principal (and
reduced chance of high total return) provided by the Diversified Bond Portfolio.
You may want even greater safety of principal and may prefer the Money Market
Portfolio, recognizing that the level of short-term rates may change rather
rapidly. If you are willing to take risks and possibly achieve a higher total
return, you may prefer the High Yield Bond Portfolio, recognizing that the risks
are greater for lower quality bonds with normally higher yields. You may wish to
divide your invested premium among two or more of the portfolios. You may wish
to obtain diversification by relying on Prudential's judgment for an appropriate
asset mix by choosing the Conservative Balanced or Flexible Managed Portfolio.
Your choice should take into account your willingness to accept investment
risks, how your other assets are invested, and what investment results you may
experience in the future. You should consult your Pruco Life representative from
time to time about the choices available to you under the Contract. Pruco Life
recommends AGAINST frequent transfers among the several options. Experience
generally indicates that "market timing" investing, particularly by
non-professional investors, is likely to prove unsuccessful.
DETAILED INFORMATION FOR
PROSPECTIVE CONTRACT OWNERS
CHARGES AND EXPENSES
This section provides a more detailed description of each charge that is
described briefly in the chart on page 3.
In several instances we will use the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, is the highest charge that
Pruco Life is entitled to make under the Contract. The "current charge" is the
lower amount that Pruco Life is now charging. If circumstances change, we
reserve the right to increase each current charge, up to the maximum charge,
without giving any advance notice.
DEDUCTIONS FROM PREMIUM PAYMENTS
(a) We charge up to 7.5% for taxes attributable to premiums. For these
purposes, "taxes attributable to premiums" shall include any federal, state
or local income, premium, excise, business or any other type of tax (or
component thereof) measured by or based upon the amount of premium received
by Pruco Life. That charge is made up of two parts which currently equal a
total of 3.75% of the premiums received. The first part is a charge for
state and
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local premium taxes. The current amount for this first part is 2.5% of the
premium and is Pruco Life's estimate of the average burden of state taxes
generally. Tax rates vary from jurisdiction to jurisdiction and generally
range from 0.75% to 5%. The rate applies uniformly to all Contract owners
without regard to state of residence. Pruco Life may collect more for this
charge than it actually pays for state and local premium taxes. The second
part is for federal income taxes measured by premiums, and it is currently
equal to 1.25% of premiums. We believe that this charge is a reasonable
estimate of an increase in its federal income taxes resulting from a 1990
change in the Internal Revenue Code. It is intended to recover this
increased tax. During 1999, Pruco Life received a total of approximately
$96,000 in taxes attributable to premiums.
(b) We will deduct a charge for sales expenses. This charge, often called a
"sales load", is deducted to compensate us for the cost of selling the
Contracts, including commissions, advertising and the printing and
distribution of prospectuses and sales literature. A portion of the sales
load may be returned to you if the Contract is surrendered during the first
four Contract years. See RETURN OF SALES CHARGES, below.
The amount used to determine the charge for sales expenses is called the
"segment allocation amount" in your Contract. It may also be referred to as
the Target Premium. Target Premiums vary by the age, sex (except where
unisex rates apply), smoking status, and rating class of the insured and
will drop to zero after 10 years. Each coverage segment has its own Target
Premium. Target Premiums for each coverage segment are shown in the Segment
Table located in your Contract data pages.
For the first ten years of each coverage segment we charge up to 15% of
premiums received each year up to the Target Premium and up to 2% on any
excess. In years 11 and later of each coverage segment, we charge up to 2%
of premiums received. Currently, we charge 13 1/2% of premiums received up
to the Target Premium and 2% of any excess for the first 10 years of each
coverage segment. In years 11 and later of each coverage segment, we
currently charge 2% of premiums received. For information on determining
the sales expense charge if there are two or more coverage segments in
effect, see INCREASES IN BASIC INSURANCE AMOUNT, page 23.
Attempting to structure the timing and amount of premium payments to reduce
the potential sales load may increase the risk that your Contract will
lapse without value. In addition, there are circumstances where payment of
premiums that are too large may cause the Contract to be characterized as a
Modified Endowment Contract, which could be significantly disadvantageous.
See TAX TREATMENT OF CONTRACT BENEFITS, page 27. During 1999, Pruco Life
received a total of approximately $210,000 in sales charges.
RETURN OF SALES CHARGES
If the Contract is fully surrendered within the first four Contract years and it
is not in default, Pruco Life will return 50% of any sales charges deducted from
premiums paid within 24 months prior to the date Pruco Life receives the
surrender request at a Home Office.
DEDUCTIONS FROM PORTFOLIOS
We deduct an investment advisory fee daily from each portfolio of the Funds at a
rate, on an annualized basis, ranging from 0.35% for the Series Fund Stock Index
Portfolio to 1.05% for the T. Rowe Price International Stock Portfolio. The
expenses incurred in conducting the investment operations of the portfolios
(such as custodian fees and preparation and distribution of annual reports) are
paid out of the portfolio's income. These expenses also vary from portfolio to
portfolio.
The total expenses of each portfolio for the year ended December 31, 1999,
expressed as a percentage of the average assets during the year, are shown
below:
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Total Portfolio Expenses
- -------------------------------------------------------------------------------------------------------------------
TOTAL
PORTFOLIO INVESTMENT OTHER CONTRACTUAL TOTAL ACTUAL
ADVISORY FEE EXPENSES EXPENSES EXPENSES*
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SERIES FUND
Money Market 0.40% 0.02% 0.42% 0.42%
Diversified Bond 0.40% 0.03% 0.43% 0.43%
Conservative Balanced 0.55% 0.02% 0.57% 0.57%
Flexible Managed 0.60% 0.02% 0.62% 0.62%
High Yield Bond 0.55% 0.05% 0.60% 0.60%
Stock Index 0.35% 0.04% 0.39% 0.39%
Equity Income 0.40% 0.02% 0.42% 0.42%
Equity 0.45% 0.02% 0.47% 0.47%
Prudential Jennison 0.60% 0.03% 0.63% 0.63%
Global 0.75% 0.09% 0.84% 0.84%
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Value Fund 0.61% 0.15% 0.76 % 0.76 %
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. (1)
VP Value Fund 1.00% 0.00% 1.00 % 1.00 %
JANUS ASPEN SERIES (2)
Growth Portfolio 0.65% 0.02% 0.67 % 0.67 %
MFS(R) VARIABLE INSURANCE TRUSTSM (3)
Emerging Growth Series 0.75% 0.09% 0.84 % 0.84 %
T. ROWE PRICE INTERNATIONAL SERIES, INC. (1)
International Stock Portfolio 1.05% 0.00% 1.05 % 1.05 %
- -------------------------------------------------------------------------------------------------------------------
* Reflects fee waivers and reimbursement of expenses, if any.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. / T. ROWE PRICE INTERNATIONAL
SERIES, INC. The Investment Advisory Fee includes the ordinary expenses of
operating the Fund.
(2) 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.
(3) MFS(R) 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.
THE EXPENSES RELATING TO THE FUNDS (OTHER THAN THOSE OF THE SERIES FUND) HAVE
BEEN PROVIDED TO PRUCO LIFE BY THE FUNDS. PRUCO LIFE HAS NOT INDEPENDENTLY
VERIFIED THEM.
DAILY DEDUCTION FROM THE CONTRACT FUND
Each day we deduct a charge from the assets of each of the variable investment
options in an amount equivalent to an effective annual rate of up to 0.50%.
Currently, we intend to charge 0.20%. This charge is intended to compensate
Pruco Life for assuming mortality and expense risks under the Contract. The
mortality risk assumed is that insureds may live for shorter periods of time
than Pruco Life estimated when it determined what mortality charge to make. The
expense risk assumed is that expenses incurred in issuing and administering the
Contract will be greater than Pruco Life estimated in fixing its administrative
charges. During 1999, Pruco Life received a total of approximately $0 in
mortality and expense risk charges.
MONTHLY DEDUCTIONS FROM THE CONTRACT FUND
Pruco Life deducts the following monthly charges proportionately from the dollar
amounts held in each of the chosen investment option[s].
(a) An administrative charge based on the basic insurance amount is deducted.
The charge is intended to compensate us for things like processing claims,
keeping records and communicating with Contract owners. Currently, the
charge is equal to $10 per month. Pruco Life reserves the right, however to
charge up to $10 per Contract plus $0.05 per $1,000 of basic insurance
amount each month.
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For example, a Contract with a basic insurance amount of $100,000 would
currently have a charge equal to $10. The maximum charge for this same
Contract would be $10 plus $5 for a total of $15 per month. During 1999,
Pruco Life received a total of approximately $1,000 in monthly
administrative charges.
(b) A cost of insurance ("COI") charge is deducted. When an insured dies, the
amount payable to the beneficiary (assuming there is no Contract debt) is
larger than the Contract Fund - significantly larger if the insured dies in
the early years of a Contract. The cost of insurance charges collected from
all Contract owners enables Pruco Life to pay this larger death benefit.
The maximum COI charge is determined by multiplying the "net amount at
risk" under a Contract (the amount by which the Contract's death benefit
exceeds the Contract Fund) by maximum COI rates. The maximum COI rates are
based upon the 1980 Commissioners Standard Ordinary ("CSO") Tables and an
insured's current attained age, sex (except where unisex rates apply),
smoker/non-smoker status, and extra rating class, if any. At most ages,
Pruco Life's current COI rates are lower than the maximum rates. For
additional information, see INCREASES IN BASIC INSURANCE AMOUNT, page 23.
(c) You may add a Target Term Rider to the Contract. If you add this rider to
the basic Contract, additional charges will be deducted.
(d) If an insured is in a substandard risk classification (for example, a
person in a hazardous occupation), additional charges will be deducted.
(e) 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.
TRANSACTION CHARGES
(a) We currently charge an administrative processing fee equal to the lesser of
$25 or 2% of the withdrawal amount in connection with each withdrawal.
(b) We currently do not charge an administrative processing fee in connection
with a change in basic insurance amount. We reserve the right to make such
a charge in an amount of up to $25 for any change in basic insurance
amount.
(c) We will charge an administrative processing fee of up to $25 for each
transfer exceeding 12 in any Contract year.
(d) We may charge an administrative processing fee of up to $25 for any change
in the Target Term Rider coverage amount for Contracts with this rider.
REDUCTION OF CHARGES
We reserve 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.
We determine 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
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(5) any other circumstances which we believe to be relevant in determining
whether reduced costs may be expected.
Some of the reductions in charges for these sales may be contractually
guaranteed. We may withdraw or modify other reductions on a uniform basis. Our
reductions in charges for these Contracts will not be unfairly discriminatory to
the interests of any Contract owners.
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
Pruco Life offers the Contract on a fully underwritten, simplified issue, and
guaranteed issue basis. Fully underwritten Contracts require individualized
evidence of the insured's insurability and rating class. Simplified issue
Contracts reflect underwriting risk factors related to the issue of the Contract
as one of several Contracts requiring some medical underwriting of the proposed
insureds. Conversely, guaranteed issue Contracts are issued with minimal
underwriting but may only be issued in certain circumstances on associated
individuals, such as employees of a company who meet criteria established by
Pruco Life.
Pruco Life sets minimum face amounts that it offers. The minimum face amount
offered may depend on whether the Contract is issued on a fully underwritten,
simplified issue or guaranteed issue basis. Currently, the minimum total face
amount (basic insurance amount plus any Target Term Rider coverage amount
combined) that can be applied for is $100,000 for all three aforementioned
underwriting bases. If the Target Term Rider is added to the Contract, neither
the basic insurance amount nor the rider coverage amount can be less than
$5,000. See RIDERS, page 15. Pruco Life may reduce the minimum face amounts of
the Contracts it will issue. Furthermore, the Contract owner may establish a
schedule under which the basic insurance amount increases on designated Contract
anniversaries. See INCREASES IN BASIC INSURANCE AMOUNT, page 23.
Generally, the Contract may be issued on insureds between the ages of 20 and 75
for fully underwritten Contracts and between the ages of 20 and 64 for
simplified and guaranteed issue Contracts. In its discretion, Pruco Life may
issue the Contract on insureds of other ages.
SHORT-TERM CANCELLATION RIGHT OR "FREE-LOOK"
Generally, you may return the Contract for a refund within 10 days after you
receive it. Some states allow a longer period of time during which a Contract
may be returned for a refund. You can request a refund by mailing or delivering
the Contract to the representative who sold it or to the Home Office specified
in the Contract. A Contract returned according to this provision shall be deemed
void from the beginning. You will then receive a refund of all premium payments
made, plus or minus any change due to investment experience. However, if
applicable law so requires and you exercise your short-term cancellation right,
you will receive a refund of all premium payments made, with no adjustment for
investment experience. For information on how premium payments are allocated
during the "free-look" period, see ALLOCATION OF PREMIUMS, page 17.
TYPES OF DEATH BENEFIT
You may select from three types of death benefits. Generally, a Contract with a
Type A (fixed) death benefit has a death benefit equal to the basic insurance
amount. This type of death benefit does not vary with the investment performance
of the investment options you selected, except in certain circumstances. See HOW
A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL Vary, page 18. The payment of
additional premiums and favorable investment results of the variable investment
options to which the assets are allocated will generally increase the cash
value. See HOW A CONTRACT'S SURRENDER VALUE WILL VARY, page 18.
A Contract with a Type B (variable) death benefit has a death benefit which will
generally equal the basic insurance amount plus the Contract Fund. Since the
Contract Fund is a part of the death benefit, favorable investment performance
and payment of additional premiums generally result in an increase in the death
benefit as well as in the cash value. Over time, however, the increase in the
cash value will be less than under a Type A (fixed) Contract. This is because,
given two Contracts with the same basic insurance amount and equal Contract
Funds, generally the cost of insurance charge for a Type B (variable) Contract
will be greater. Unfavorable investment performance will result in decreases in
the death benefit and in the cash value. But, as long as the Contract is not in
default, the death benefit may not fall below the basic insurance amount stated
in the Contract. See HOW A CONTRACT'S SURRENDER VALUE WILL VARY, page 18 and HOW
A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY, page 19.
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A Contract with a Type C (return of premium) death benefit has a death benefit
which will generally equal the basic insurance amount plus the total premiums
paid into the Contract less withdrawals, accumulated at an interest rate
(between 0% and 8%; in 1/2% increments) chosen by the Contract owner to the date
of death. This death benefit allows the Contract owner, in effect, to recover
the cost of the Contract, plus a predetermined rate of return, upon the death of
the insured. Under certain circumstances, it is possible for a Type C Contract's
death benefit to fall below the basic insurance amount. Favorable investment
performance and payment of additional premiums will generally increase the
Contract's cash value. Over time, however, the increase in cash value will be
less than under a Type A (fixed) Contract. See HOW A CONTRACT'S SURRENDER VALUE
WILL VARY, page 18 and HOW A TYPE C (RETURN OF PREMIUM) CONTRACT'S DEATH BENEFIT
WILL VARY, page 21.
In choosing a death benefit type, you should also consider whether you intend to
use the withdrawal feature. Contract owners of Type A (fixed) Contracts should
note that any withdrawal may result in a reduction of the basic insurance
amount. In addition, we will not allow you to make a withdrawal that will
decrease the basic insurance amount below the minimum basic insurance amount.
Furthermore, the sum of the basic insurance amount and the Target Term Rider
must equal or exceed $100,000. See REQUIREMENTS FOR ISSUANCE OF A CONTRACT, page
13. For Type B (variable) and Type C (return of premium) Contracts, withdrawals
will not change the basic insurance amount. See WITHDRAWALS, page 22.
CHANGING THE TYPE OF DEATH BENEFIT
You may change the type of death benefit at any time and subject to Pruco Life's
approval. We will increase or decrease the basic insurance amount so that the
death benefit immediately after the change matches the death benefit immediately
before the change.
If you are changing your Contract's type of death benefit from a Type A (fixed)
to a Type B (variable) death benefit, we will reduce the basic insurance amount
by the amount in your Contract Fund on the date the change takes place.
If you are changing from a Type A (fixed) to a Type C (return of premium) death
benefit, we will change the basic insurance amount by subtracting the total
premiums paid on this Contract minus total withdrawals on the date the change
takes effect.
If you are changing from a Type B (variable) to a Type A (fixed) death benefit,
we will increase the basic insurance amount by the amount in your Contract Fund
on the date the change takes place.
If you are changing from a Type B (variable) to a Type C (return of premium)
death benefit, we first find the difference between: (1) the amount in your
Contract Fund and (2) the total premiums paid on this Contract minus total
withdrawals, determined on the date the change takes effect. If (1) is larger
than (2), we will increase the basic insurance amount by that difference. If (2)
is larger than (1), we will reduce the basic insurance amount by that
difference.
If you are changing from a Type C (return of premium) to a Type A (fixed) death
benefit, we will change the basic insurance amount by adding the total premiums
paid minus total withdrawals to this Contract both accumulated with interest at
the rate(s) chosen by the Contract owner on the date the change takes place.
If you are changing from a Type C (return of premium) to a Type B (variable)
death benefit, we first find the difference between: (1) the Contract Fund and
(2) the total premiums paid minus total withdrawals to this Contract both
accumulated with interest at the rate(s) chosen by the Contract owner as of the
date the change takes place. If (2) is larger than (1), we will increase the
basic insurance amount by that difference. If (1) is larger than (2), we will
reduce the basic insurance amount by that difference.
The basic insurance amount after a change may not be lower than the minimum
basic insurance amount applicable to the Contract. In addition, the sum of the
basic insurance amount and the Target Term Rider must equal or exceed $100,000.
See REQUIREMENTS FOR ISSUANCE OF A CONTRACT, page 13. We reserve the right to
make an administrative processing charge of up to $25 for any change in the
basic insurance amount, although we do not currently do so. See CHARGES AND
EXPENSES, page 9.
14
<PAGE>
The following chart illustrates the changes in basic insurance amount with each
change of death benefit type described above. The chart assumes a $50,000
Contract Fund and a $300,000 death benefit. For changes to and from a Type C
death benefit, the chart assumes $40,000 in total premiums minus total
withdrawals and the rate chosen to accumulate premiums minus withdrawals is 0%.
-----------------------------------------------------------
BASIC INSURANCE AMOUNT
===========================================================
FROM TO
----------------- -----------------------------------------
TYPE A TYPE B TYPE C
$300,000 $250,000 $260,000
TYPE B TYPE A TYPE C
$250,000 $300,000 $260,000
TYPE C TYPE A TYPE B
$260,000 $300,000 $250,000
To request a change, fill out an application for change which can be obtained
from your Pruco Life representative or a Home Office. If the change is approved,
we will recompute the Contract's charges and appropriate tables and send you new
Contract data pages. We may require you to send us your Contract before making
the change.
RIDERS
Contract owners may be able to obtain extra benefits which may involve an extra
charge. These optional insurance benefits will be described in what is known as
a "rider" to the Contract. Charges applicable to riders will be deducted from
the Contract Fund on each Monthly date.
TARGET TERM RIDER
The Target Term Rider provides a flexible term insurance benefit to attained age
100 on the life of the insured. The Contract owner specifies the amount of term
rider coverage he or she desires. This amount is called the rider coverage
amount and is the maximum death benefit payable under the rider. The sum of the
base Contract's basic insurance amount and the rider coverage amount equals the
target coverage amount. The Rider death benefit fluctuates as the base
Contract's death benefit changes, as described below. See TAX TREATMENT OF
CONTRACT BENEFITS, page 27.
When the Contract Fund has not grown to the point where the base Contract's
death benefit is increased to satisfy the Internal Revenue Code's definition of
life insurance, the rider death benefit equals the rider coverage amount.
However, once the Contract Fund has grown to the point where the base Contract's
death benefit begins to vary as required by the Internal Revenue Code's
definition of life insurance, the rider's death benefit will decrease (or
increase) dollar for dollar as the base Contract's death benefit increases (or
decreases). It is possible for the Contract Fund and, consequently, the base
Contract's death benefit to grow to the point where the rider death benefit is
reduced to zero. As we state above, however, the rider death benefit will never
increase beyond the rider coverage amount. In addition, you may change the rider
coverage amount once each Contract year while the rider is inforce.
15
<PAGE>
<PLOT POINTS TO COME888888888888888888888888888888888888888**************>]
The following factors should be considered when adding a Target Term Rider to
your Contract:
1. The sales expense charge for a Contract with a Target Term Rider is
less than that for an all base policy with the same death benefit.
This is because the sales expense charge is based on the Target
Premium (referred to as "segment allocation amount" in your Contract)
of the Contract's basic insurance amount (BIA) only. For example,
consider two identical $1,000,000 policies; the first with a
$1,000,000 BIA and the other with a $500,000 BIA and $500,000 of rider
coverage amount. The sales expense charge for the first policy will be
based on the Target Premium of a $1,000,000 BIA while the sales
expense charge for the second policy will be based on the Target
Premium of a $500,000 BIA only. See CHARGES AND EXPENSES, page 9.
2. The current Cost of Insurance (COI) is different for the basic
insurance amount and for the rider coverage amount. Cost of Insurance
is determined by multiplying the COI rates by the Contract's "net
amount of risk." The "net amount of risk" is the amount by which the
Contract's death benefit exceeds the Contract Fund. The COI rates for
both the basic insurance amount and the Target Term Rider will
increase annually. However, current COI rates for the Target Term
Rider are less than the current rates for the basic insurance amount
death benefit for the first ten years, but are greater thereafter.
3. You may increase or decrease both your basic insurance amount and
rider coverage amount after issue subject to the underwriting
requirements determined by Pruco Life. See INCREASES IN BASIC
INSURANCE AMOUNT, page 23 and DECREASES IN BASIC INSURANCE AMOUNT,
page 24. Increasing your basic insurance amount after issue increases
your sales expense charges on any premiums paid after the effective
date of the increase for that portion of the premium allocated to the
new coverage segment.
4. The amount and timing of premium payments, loans, and withdrawals you
make under the Contract and your choice of definition of life
insurance test (see TAX TREATMENT OF CONTRACT BENEFITS, page 27) will
all be factors in determining the relative performance of a Contract
with and without a Target Term Rider.
5. Investment experience will be a factor in determining the relative
performance of a Contract with and without a Target Term Rider.
The five factors outlined above can have opposite effects on the financial
performance of a Contract, including the amount of the Contract's cash value and
death benefit. It is important that you ask your Pruco Life representative to
see illustrations based on different combinations of all of the above. You can
then discuss with your Pruco Life representative how these combinations may
address your objectives.
PREMIUMS
The Contract is a flexible premium contract. The minimum initial premium is due
on or before the Contract date. It is the premium needed to start the Contract.
There is no insurance under the Contract unless the minimum initial premium is
paid. Thereafter, you decide when to make premium payments and, subject to a $25
minimum, in what amounts. We reserve the right to refuse to accept any payment
that increases the death benefit by more than it increases the Contract Fund.
See HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY, page 18, HOW A
16
<PAGE>
TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY, page 19 and HOW A TYPE C
(RETURN OF PREMIUM) CONTRACT'S DEATH BENEFIT WILL VARY, page 21. There are
circumstances under which the payment of premiums in amounts that are too large
may cause the Contract to be characterized as a Modified Endowment Contract,
which could be significantly disadvantageous. See TAX TREATMENT OF CONTRACT
BENEFITS, page 27.
We can bill you for the amount you select annually, semi-annually, quarterly or
monthly. Because the Contract is a flexible premium contract, there are no
premium due dates. When you receive a premium notice, you are not required to
pay this amount. The Contract will remain inforce if the Contract Fund is
greater than zero and more than any Contract debt. When you apply for the
Contract, you should discuss with your Pruco Life representative how frequently
you would like to be billed (if at all) and for what amount.
ALLOCATION OF PREMIUMS
On the Contract date, we deduct the charge for sales expenses and the charge for
taxes attributable to premiums from the initial premium. See CHARGES AND
EXPENSES, page 9. Also on the Contract date, the remainder of the initial
premium and any other premium received during the short-term cancellation right
("free-look") period, will be allocated to the Money Market investment option
and the first monthly deductions are made. At the end of the "free-look" period,
these funds will be allocated among the variable investment options according to
your desired allocation, as specified in the application form. See SHORT-TERM
CANCELLATION RIGHT OR "FREE-LOOK", page 13. If the first premium is received
before the Contract date, there will be a period during which the Contract
owner's initial premium will not be invested.
The charge for sales expenses and the charge for taxes attributable to premiums
also apply to all subsequent premium payments. The remainder of each subsequent
premium payment will be invested as of the end of the valuation period in which
it is received at a Home Office, in accordance with the allocation you
previously designated. Provided the Contract is not in default, you may change
the way in which subsequent premiums are allocated by giving written notice to a
Home Office or by telephoning a Home Office, provided you are enrolled to use
the Telephone Transfer System. There is no charge for reallocating future
premiums. All percentage allocations must be in whole numbers. For example, 33%
can be selected but 331/3% cannot. Of course, the total allocation to all
selected investment options must equal 100%.
TRANSFERS
You may, up to 12 times each Contract year, transfer amounts from one variable
investment option to another variable investment option without charge.
Additional transfers may be made during each Contract year, but only with our
consent. There is an administrative charge of up to $25 for each transfer made
exceeding 12 in any Contract year. All or a portion of the amount credited to a
variable investment option may be transferred.
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
$5,000 from one variable investment option to another, or may be in terms of a
percentage reallocation among variable investment options. In the latter case,
as with premium reallocations, the percentages must be in whole numbers. You may
transfer amounts by proper written notice to a Home Office or by telephone,
provided you are enrolled to use the Telephone Transfer System. You will
automatically be enrolled to use the Telephone Transfer System unless the
Contract is jointly owned or you elect not to have this privilege. Telephone
transfers may not be available on Contracts that are assigned (see ASSIGNMENT,
page 30), depending on the terms of the assignment.
We will use reasonable procedures, such as asking you to provide certain
personal information provided on your application for insurance, to confirm that
instructions given by telephone are genuine. We will not be held liable for
following telephone instructions that we reasonably believe to be genuine. Pruco
Life cannot guarantee that you will be able to get through to complete a
telephone transfer during peak periods such as periods of drastic economic or
market change.
The Contract was not designed for professional market timing organizations,
other organizations, or individuals using programmed, large, or frequent
transfers. A pattern of exchanges that coincides with a "market timing" strategy
may be disruptive to the investment option or to the disadvantage of other
contract owners. If such a pattern were to be found, we may modify your right to
make transfers by restricting the number, timing and amount of transfers. We
also
17
<PAGE>
reserve the right to prohibit transfer requests made by an individual
acting under a power of attorney on behalf of more than one contract owner.
DOLLAR COST AVERAGING
We offer a feature called Dollar Cost Averaging ("DCA"). Under this feature,
either fixed dollar amounts or a percentage of the amount designated for use
under the DCA option will be transferred periodically from the DCA Money Market
investment option into variable investment options available under the Contract.
You may choose to have periodic transfers made monthly or quarterly. DCA
transfers will not begin until the end of the "free-look" period. See SHORT-TERM
CANCELLATION RIGHT OR "FREE-LOOK", page 13.
Each automatic transfer will take effect as of the end of the valuation period
on the date coinciding with the periodic timing you designate provided the New
York Stock Exchange is open on that date. If the New York Stock Exchange is not
open on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. Automatic transfers will continue until: (1) $50
or less remains of the amount designated for Dollar Cost Averaging, at which
time the remaining amount will be transferred; or (2) you give us notification
of a change in DCA allocation or cancellation of the feature. Currently, a
transfer that occurs under the DCA feature is not counted towards the 12 free
transfers permitted each Contract year. We reserve the right to change this
practice, modify the requirements, or discontinue the feature.
AUTO-REBALANCING
As an administrative practice, we are currently offering a feature called
Auto-Rebalancing. This feature allows you to automatically rebalance assets in
the variable investment options at specified intervals based on percentage
allocations that you choose. For example, suppose your initial investment
allocation of variable investment options X and Y is split 40% and 60%,
respectively. Then, due to investment results, that split changes. You may
instruct that those assets be rebalanced to your original or different
allocation percentages. Auto-Rebalancing is not available until the end of the
"free-look" period. See SHORT-TERM CANCELLATION RIGHT OR "FREE-LOOK", page 13.
Auto-Rebalancing can be performed on a quarterly, semi-annual, or annual basis.
Each rebalance will take effect as of the end of the valuation period on the
date coinciding with the periodic timing you designate provided the New York
Stock Exchange is open on that date. If the New York Stock Exchange is not open
on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. Currently, a transfer that occurs under the
Auto-Rebalancing feature is not counted towards the 12 free transfers permitted
each Contract year. We reserve the right to change this practice, modify the
requirements or discontinue the feature.
HOW A CONTRACT'S SURRENDER VALUE WILL VARY
You may surrender the Contract for its surrender value. The Contract's surrender
value on any date will be the Contract Fund less any Contract debt plus any
return of sales charges. See CONTRACT LOANS, page 27 and RETURN OF SALES
CHARGES, page 10. The Contract Fund value changes daily, reflecting: (1)
increases or decreases in the value of the variable investment option[s]; (2)
interest credited on any loan; and (3) the daily asset charge for mortality and
expense risks assessed against the variable investment options. The Contract
Fund value also changes to reflect the receipt of premium payments and the
monthly deductions described under CHARGES AND EXPENSES, page 9. Upon request,
Pruco Life will tell you the surrender value of your Contract. It is possible
for the surrender value of a Contract to decline to zero because of unfavorable
investment performance or outstanding Contract debt.
The tables on pages T1 through T10 of this prospectus illustrate approximately
what the surrender values would be for representative Contracts, assuming
hypothetical uniform investment results in the Fund portfolios. See
ILLUSTRATIONS OF SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS,
page 24.
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY
As described earlier, there are three types of death benefit available under the
Contract: (1) Type A, a generally fixed death benefit; (2) Type B, a variable
death benefit and; (3) Type C, a return of premium death benefit. A Type B
(variable) death benefit varies with investment performance while Type A (fixed)
and Type C (return of premium) death benefits do not, unless they must be
increased to comply with the Internal Revenue Code's definition of life
insurance.
18
<PAGE>
Under a Type A (fixed) Contract, the death benefit is generally equal to the
basic insurance amount. If the Contract is kept inforce for several years,
depending on how much premium you pay, and/or if investment performance is
reasonably favorable, the Contract Fund may grow to the point where Pruco Life
will increase the death benefit in order to ensure that the Contract will
satisfy the Internal Revenue Code's definition of life insurance.
The death benefit under a Type A (fixed) Contract will always be the greater of:
(1) the basic insurance amount; and
(2) the Contract Fund before the deduction of any monthly charges due on
that date plus any return of sales charges, multiplied by the attained
age factor that applies.
A listing of attained age factors can be found on your Contract data pages. The
second provision ensures that the Contract will always have a death benefit
large enough to be treated as life insurance for tax purposes under current law.
Before the Contract is issued, the Contract owner may choose between two methods
that we use to determine the tax treatment of the Contract. See TAX TREATMENT OF
CONTRACT BENEFITS, page 27, for a discussion of these methods and the impact of
each on the Contract's values, benefits and tax status.
The following table illustrates at different ages how the attained age factor
affects the death benefit for different Contract Fund amounts. The table assumes
that a $250,000 Type A (fixed) Contract was issued when the insured was a male
nonsmoker, age 35.
<TABLE>
<CAPTION>
TYPE A (FIXED) DEATH BENEFIT
- ----------------------------------------------------------------------------------------------
IF THEN
- ----------------------------------------------------------------------------------------------
THE THE CONTRACT FUND
INSURED AND THE CONTRACT THE ATTAINED AGE MULTIPLIED BY THE ATTAINED AND THE DEATH
IS AGE FUND IS FACTOR IS** AGE FACTOR IS BENEFIT IS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
40 $ 25,000 3.57 89,250 $250,000
40 $ 75,000 3.57 267,750 $267,750*
40 $100,000 3.57 357,000 $357,000*
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
60 $ 75,000 1.92 144,000 $250,000
60 $125,000 1.92 240,000 $250,000
60 $150,000 1.92 288,000 $288,000*
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
80 $150,000 1.26 189,000 $250,000
80 $200,000 1.26 252,000 $252,000*
80 $225,000 1.26 283,500 $283,500*
- ----------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
** Assumes the Contract Owner selected the Cash Value Accumulation Test.
- ----------------------------------------------------------------------------------------------
</TABLE>
This means, for example, that if the insured has reached the age of 60, and the
Contract Fund is $150,000, the death benefit will be $288,000, even though the
basic insurance amount is $250,000. In this situation, for every $1 increase in
the Contract Fund, the death benefit will be increased by $1.92. We reserve the
right to refuse to accept any premium payment that increases the death benefit
by more than it increases the Contract Fund.
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY
Under a Type B (variable) Contract, while the Contract is inforce, the death
benefit will never be less than the basic insurance amount, but will also vary,
immediately after it is issued, with the investment results of the selected
variable
19
<PAGE>
investment options. The death benefit may be further increased to
ensure that the Contract will satisfy the Internal Revenue Code's definition of
life insurance.
The death benefit under a Type B (variable) Contract will always be the greater
of:
(1) the basic insurance amount plus the Contract Fund before the deduction
of any monthly charges due on that date; and
(2) the Contract Fund before the deduction of any monthly charges due on
that date plus any return of sales charges, multiplied by the attained
age factor that applies.
For purposes of computing the death benefit, if the Contract Fund is less than
zero we will consider it to be zero. A listing of attained age factors can be
found on your Contract data pages. The latter provision ensures that the
Contract will always have a death benefit large enough to be treated as life
insurance for tax purposes under current law. Before the Contract is issued, the
Contract owner may choose between two methods that we use to determine the tax
treatment of the Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27, for
a discussion of these methods and the impact of each on the Contract's values,
benefits and tax status.
The following table illustrates various attained age factors and Contract Funds
and the corresponding death benefits. The table assumes a $250,000 Type B
(variable) Contract was issued when the insured was a male nonsmoker, age 35.
<TABLE>
<CAPTION>
TYPE B (VARIABLE) DEATH BENEFIT
- ------------------------------------------------------------------------------------------------------
IF THEN
- ------------------------------------------------------------------------------------------------------
THE THE CONTRACT FUND
INSURED AND THE CONTRACT THE ATTAINED AGE MULTIPLIED BY THE ATTAINED AND THE DEATH
IS AGE FUND IS FACTOR IS** AGE FACTOR IS BENEFIT IS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
40 $25,000 3.57 89,250 $275,000
40 $75,000 3.57 267,750 $325,000
40 $100,000 3.57 357,000 $357,000*
- ------------------------------------------------------------------------------------------------------
60 $ 75,000 1.92 144,000 $325,000
60 $125,000 1.92 240,000 $375,000
60 $150,000 1.92 288,000 $400,000
- ------------------------------------------------------------------------------------------------------
80 $150,000 1.26 189,000 $400,000
80 $200,000 1.26 252,000 $450,000
80 $225,000 1.26 283,500 $475,000
- ------------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
** Assumes the Contract Owner selected the Cash Value Accumulation Test.
- ------------------------------------------------------------------------------------------------------
</TABLE>
This means, for example, that if the insured has reached the age of 40, and the
Contract Fund is $100,000, the death benefit will be $357,000, even though the
basic insurance amount is $250,000. In this situation, for every $1 increase in
the Contract Fund, the death benefit will be increased by $3.57. We reserve the
right to refuse to accept any premium payment that increases the death benefit
by more than it increases the Contract Fund.
20
<PAGE>
HOW A TYPE C (RETURN OF PREMIUM) CONTRACT'S DEATH BENEFIT WILL VARY
Under a Type C (return of premium) Contract, while the Contract is inforce, the
death benefit will be the greater of:
(1) the basic insurance amount plus the total premiums paid into the
Contract less any withdrawals, accumulated at an interest rate
(between 0% and 8%; in 1/2% increments) chosen by the Contract owner
to the date of death; and
(2) the Contract Fund before the deduction of monthly charges due on that
date plus any return of sales charges, multiplied by the attained age
factor that applies.
A listing of attained age factors can be found on your Contract data pages. The
latter provision ensures that the Contract will always have a death benefit
large enough so that the Contract will be treated as life insurance for tax
purposes under current law. Before the Contract is issued, the Contract owner
may choose between two methods that we use to determine the tax treatment of the
Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27, for a discussion of
these methods and the impact of each on the Contract's values, benefits and tax
status.
Unlike Type A and Type B Contracts, the death benefit of a Type C Contract may
be less than the basic insurance amount in the event total withdrawals plus
interest is greater than total premiums paid plus interest.
The following table illustrates various attained age factors and Contract Funds
and the corresponding death benefits. The table assumes a $250,000 Type C
(return of premium) Contract was issued when the insured was a male nonsmoker,
age 35.
<TABLE>
<CAPTION>
TYPE C (RETURN OF PREMIUM) DEATH BENEFIT
- --------------------------------------------------------------------------------------------------------------------------
IF THEN
- --------------------------------------------------------------------------------------------------------------------------
THE AND THE PREMIUMS PAID LESS THE CONTRACT FUND
INSURED AND THE CONTRACT ANY WITHDRAWALS WITH THE ATTAINED AGE MULTIPLIED BY THE AND THE DEATH
IS AGE FUND IS INTEREST EQUALS FACTOR IS** ATTAINED AGE FACTOR IS BENEFIT IS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
40 $25,000 $15,000 3.57 89,250 $265,000
40 $75,000 $60,000 3.57 267,750 $310,000
40 $100,000 $80,000 3.57 357,000 $357,000*
- --------------------------------------------------------------------------------------------------------------------------
60 $75,000 $ 60,000 1.92 144,000 $310,000
60 $125,000 $100,000 1.92 240,000 $350,000
60 $150,000 $125,000 1.92 288,000 $375,000
- --------------------------------------------------------------------------------------------------------------------------
80 $150,000 $125,000 1.26 189,000 $375,000
80 $200,000 $150,000 1.26 252,000 $400,000
80 $225,000 $175,000 1.26 283,500 $425,000
- --------------------------------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
** Assumes the Contract owner selected the Cash Value Accumulation Test.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
This means, for example, that if the insured has reached the age of 40, and the
premiums paid with interest less any withdrawals equals $80,000, the death
benefit will be $357,000, even though the basic insurance amount is $250,000. In
this situation, for every $1 increase in the Contract Fund, the death benefit
will be increased by $3.57. We reserve the right to refuse to accept any premium
payment that increases the death benefit by more than it increases the Contract
Fund.
21
<PAGE>
SURRENDER OF A CONTRACT
A Contract may be surrendered for its net cash value while the insured is
living. To surrender a Contract, we may require you to deliver or mail the
Contract with a written request in a form that meets Pruco Life's needs, to a
Home Office. The surrender value of a surrendered Contract will be determined as
of the end of the valuation period in which such a request is received in a Home
Office. If the Contract is fully surrendered within the first four Contract
years, you may be entitled to a return of sales charges. See CHARGES AND
EXPENSES, page 9. Surrender of a Contract may have tax consequences. See TAX
TREATMENT OF CONTRACT BENEFITS, page 27.
WITHDRAWALS
Under certain circumstances, you may withdraw a portion of the Contract's net
cash value without surrendering the Contract. The withdrawal amount is limited
by the requirement that the net cash value after the withdrawal may not be zero
or less than zero. The amount withdrawn must be at least $500. There is an
administrative processing fee for each withdrawal which is the lesser of: (a)
$25 and; (b) 2% of the withdrawal amount. An amount withdrawn may not be repaid
except as a premium subject to the applicable charges. Upon request, we will
tell you how much you may withdraw. Withdrawals may have tax consequences. See
TAX TREATMENT OF CONTRACT BENEFITS, page 27.
Generally, whenever a withdrawal is made, the death benefit will be immediately
reduced by at least the amount of the withdrawal. Withdrawals under Type B
(variable) and Type C (return of premium) Contracts, will not change the basic
insurance amount. However, under a Type A (fixed) Contract, the withdrawal may
require a reduction in the basic insurance amount, unless you provide evidence
that the insured is insurable for the increase in net amount at risk. In
addition, no withdrawal will be permitted under a Type A (fixed) Contract if it
would result in a basic insurance amount of less than the minimum basic
insurance amount. Furthermore, the sum of the basic insurance amount and the
Target Term Rider must equal or exceed $100,000. See REQUIREMENTS FOR ISSUANCE
OF A CONTRACT, page 13. It is important to note, however, that if the basic
insurance amount is decreased, there is a possibility that the Contract might be
classified as a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT
BENEFITS, page 27. Before making any withdrawal which causes a decrease in basic
insurance amount, you should consult with your tax adviser and your Pruco Life
representative.
When a withdrawal is made, the Contract Fund is reduced by the sum of the cash
withdrawn and the withdrawal fee. An amount equal to the reduction in the
Contract Fund will be withdrawn proportionally from the investment options
unless you direct otherwise.
Withdrawals increase the risk that the Contract Fund may be insufficient to
provide Contract benefits. If such a withdrawal is followed by unfavorable
investment experience, the Contract may go into default.
LAPSE AND REINSTATEMENT
Pruco Life will determine the value of the Contract Fund on each Monthly date.
If the Contract Fund is zero or less, the Contract is in default. If the
Contract debt ever grows to be equal to or more than the Contract Fund, the
Contract will be in default. Should this happen, Pruco Life will send you a
notice of default setting forth the payment which we estimate will keep the
Contract inforce for three months from the date of default. This payment must be
received at a Home Office within the 61-day grace period after the notice of
default is mailed or the Contract will end and have no value. A Contract that
lapses with an outstanding Contract loan may have tax consequences. See TAX
TREATMENT OF CONTRACT BENEFITS, page 27.
A Contract that ended in default may be reinstated within 5 years after the date
of default if the following conditions are met: (1) renewed evidence of
insurability is provided on the insured; (2) submission of certain payments
sufficient to bring the Contract up to date plus a premium that we estimate will
cover all charges and deductions for the next three months; and (3) any Contract
debt with interest to date must be restored or paid back. If the Contract debt
is restored and the debt with interest would exceed the loan value of the
reinstated Contract, the excess must be paid to us before reinstatement. The
reinstatement date will be the Monthly date that coincides with or next follows
the date we approve your request. We will deduct all required charges from your
payment and the balance will be placed into your Contract Fund.
22
<PAGE>
INCREASES IN BASIC INSURANCE AMOUNT
Subject to state approval and subject to the underwriting requirements
determined by Pruco Life, you may increase the amount of insurance by increasing
the basic insurance amount of the Contract. We will allow up to 98 increases
during the life of the Contract. The following conditions must be met:
(1) you must ask for the change in a form that meets Pruco Life's needs;
(2) the amount of the increase must be at least equal to the minimum
increase in basic insurance amount shown under CONTRACT LIMITATIONS in
your Contract data pages;
(3) you must prove to us that the insured is insurable for any increase;
(4) the Contract must not be in default; and
(5) if we ask you to do so, you must send us the Contract to be endorsed.
If we approve the change, we will send you new Contract data pages showing the
amount and effective date of the change and the recomputed charges, values and
limitations. If the insured is not living on the effective date, the change will
not take effect. No administrative processing charge is currently being made in
connection with an increase in basic insurance amount. We reserve the right to
make such a charge in an amount of up to $25.
Furthermore, you may establish a schedule under which the basic insurance amount
increases on designated Contract anniversaries. The schedule of increases must
meet the following conditions:
(1) The amount of each scheduled increase must be at least equal to the
minimum increase in basic insurance amount shown under CONTRACT
LIMITATIONS in your Contract data pages.
(2) The amount of each scheduled increase cannot exceed:
(a) 20% of the underwritten death benefit (at issue, the underwritten
death benefit is equal to the face amount on the Contract date)
for increases scheduled to take place at attained ages up to and
including 65; or
(b) 10% of the underwritten death benefit for increases scheduled to
take place at attained ages from 66 up to and including 70.
(3) Increases cannot be scheduled to take place after attained age 70.
(4) The total face amount including scheduled increases can never exceed 4
times the underwritten death benefit for fully underwritten Contracts
or 2 times the underwritten death benefit for Contracts issued on a
simplified issue or guaranteed issue basis.
These are our current guidelines. We reserve the right to change these
conditions.
For sales load purposes, the Target Premium (referred to as "segment allocation
amount" in your Contract) is calculated separately for each coverage segment.
When premiums are paid, each premium payment is allocated to each coverage
segment based on the proportion of its Target Premium to the total of all Target
Premiums currently in effect. Currently, the sales load charge for each segment
is equal to 13 1/2% of the allocated premium paid in each Contract year up to
the Target Premium and 2% on any excess. See CHARGES AND EXPENSES, page 9.
The COI rates for an increase in basic insurance amount are based upon 1980 CSO
Tables, the age at the increase effective date and the number of years since
then, sex (except where unisex rates apply), smoker/nonsmoker status, and extra
rating class, if any. The net amount at risk for the whole Contract (the death
benefit minus the Contract Fund) is allocated to each basic insurance amount
segment based on the proportion of its basic insurance amount to the total of
all basic insurance amount segments. In addition, the attained age factor for a
Contract with an increase in basic insurance amount is based on the Insured's
attained age for the initial basic insurance amount segment. For a description
of attained age factor, see HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL
VARY, page 18, HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY, page
19 and HOW A TYPE C (RETURN OF PREMIUM) CONTRACT'S DEATH BENEFIT WILL VARY, page
21.
Each Contract owner who elects to increase the basic insurance amount of his or
her Contract will receive a "free-look" right which will apply only to the
increase in basic insurance amount, not the entire Contract. This right is
comparable to the right afforded to a purchaser of a new Contract except that,
any cost of insurance charge for the increase in the basic insurance amount will
be returned to the Contract Fund instead of a refund of premium. See SHORT-TERM
23
<PAGE>
CANCELLATION RIGHT OR "FREE-LOOK", page 13. Generally, the "free-look" right
would have to be exercised no later than 10 days after receipt of the Contract
as increased.
An increase in basic insurance amount may cause the Contract to be classified as
a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
Therefore, before increasing the basic insurance amount, you should consult with
your tax adviser and your Pruco Life representative.
DECREASES IN BASIC INSURANCE AMOUNT
As explained earlier, you may make a withdrawal. See WITHDRAWALS, page 22. You
also have the option of decreasing the basic insurance amount of your Contract
without withdrawing any cash value. Contract owners who conclude that, because
of changed circumstances, the amount of insurance is greater than needed will be
able to decrease their amount of insurance protection, and the monthly
deductions for the cost of insurance. The amount of the decrease must be at
least equal to the minimum decrease in basic insurance amount shown under
CONTRACT LIMITATIONS in your Contract data pages. In addition, the basic
insurance amount after the decrease must be at least equal to the minimum basic
insurance amount shown under CONTRACT LIMITATIONS in your Contract data pages.
No administrative processing charge is currently being made in connection with a
decrease in basic insurance amount. We reserve the right to make such a charge
in an amount of up to $25. See CHARGES AND EXPENSES, page 9. If we ask you to,
you must send us your Contract to be endorsed. The Contract will be amended to
show the new basic insurance amount, charges, values in the appropriate tables
and the effective date of the decrease.
We may decline a reduction if we determine it would cause the Contract to fail
to qualify as "life insurance" for purposes of Section 7702 of the Internal
Revenue Code. See TAX TREATMENT OF CONTRACT BENEFITS, page 27. Furthermore, a
decrease will not take effect if the insured is not living on the effective
date.
It is important to note, however, that if the basic insurance amount is
decreased, there is a possibility that the Contract might be classified as a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
Before requesting any decrease in basic insurance amount, you should consult
with your tax adviser and your Pruco Life representative.
WHEN PROCEEDS ARE PAID
Pruco Life will generally pay any death benefit, cash value, loan proceeds or
withdrawal within seven days after all the documents required for such a payment
are received at a Home Office. Other than the death benefit, which is determined
as of the date of death, the amount will be determined as of the end of the
valuation period in which the necessary documents are received at a Home Office.
However, Pruco Life may delay payment of proceeds from the 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 because the New York Stock Exchange is closed for other than a
regular holiday or weekend, trading is restricted by the SEC, or the SEC
declares that an emergency exists.
ILLUSTRATIONS OF SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS
The following tables show how a Contract's death benefit and surrender values
change with the investment experience of the Account. They are "hypothetical"
because they are based, in part, upon several assumptions, which are described
below. All the tables assume the following:
o a Contract bought by a 45 year old male, select, non-smoker, with no extra
risks or substandard ratings, issued on a Guaranteed Issue basis.
o a given premium amount is paid on each Contract anniversary for seven years
and no loans are taken.
o the Contract Fund has been invested in equal amounts in each of the 15
portfolios of the Funds.
The first two tables (pages T1 and T2) assume: (1) a Type A (fixed) Contract has
been purchased, (2) a $1,000,000 basic insurance amount and no riders have been
added to the Contract, and (3) a Cash Value Accumulation Test has been elected
for definition of life insurance testing. See TAX TREATMENT OF CONTRACT
BENEFITS, page 27 and TYPES OF
24
<PAGE>
DEATH BENEFIT, page 13. The first table assumes current charges will continue
for the indefinite future while the second table assumes maximum contractual
charges have been made from the beginning. See CHARGES AND EXPENSES, page 9.
The third and fourth tables (pages T3 and T4) assume: (1) a Type A (fixed)
Contract has been purchased, (2) a $5,000 basic insurance amount and a $995,000
Target Term Rider has been added to the Contract, and (3) a Cash Value
Accumulation Test has been elected for definition of life insurance testing. See
TAX TREATMENT OF CONTRACT BENEFITS, page 27 and TYPES OF DEATH BENEFIT, page 13.
The third table assumes current charges will continue for the indefinite future
while the fourth table assumes maximum contractual charges have been made from
the beginning. See CHARGES AND EXPENSES, page 9.
The next two tables (pages T5 and T6) assume: (1) a Type A (fixed) Contract has
been purchased, (2) a $1,000,000 basic insurance amount and no riders have been
added to the Contract, and (3) a Guideline Premium Test has been elected for
definition of life insurance testing. See TAX TREATMENT OF CONTRACT BENEFITS,
page 27 and TYPES OF DEATH BENEFIT, page 13. The fifth table assumes current
charges will continue for the indefinite future while the sixth table assumes
maximum contractual charges have been made from the beginning. See CHARGES AND
EXPENSES, page 9.
The tables on pages T7 and T8 assume: (1) a Type B (variable) Contract has been
purchased, (2) a $1,000,000 basic insurance amount and no riders have been added
to the Contract, and (3) a Cash Value Accumulation Test has been elected for
definition of life insurance testing. See TAX TREATMENT OF CONTRACT BENEFITS,
page 27 and TYPES OF DEATH BENEFIT, page 13. The table on page T7 assumes
current charges will continue for the indefinite future while the table on page
T8 assumes maximum contractual charges have been made from the beginning. See
CHARGES AND EXPENSES, page 9.
The last two tables (pages T9 and T10) assume: (1) a Type C (return of premium)
Contract has been purchased with premiums accumulating at 6%, (2) a $1,000,000
basic insurance amount and no riders have been added to the Contract, and (3) a
Cash Value Accumulation Test has been elected for definition of life insurance
testing. See TAX TREATMENT OF CONTRACT BENEFITS, page 27 and TYPES OF DEATH
BENEFIT, page 13. The table on page T9 assumes current charges will continue for
the indefinite future while the table on page T10 assumes maximum contractual
charges have been made from the beginning. See CHARGES AND EXPENSES, page 9.
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 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 will change with investment experience.
The first column in the following 10 tables (pages T1 through T10) shows the
Contract year. The second column, to provide context, shows what the aggregate
amount would be if the premiums had been invested to earn interest, after taxes,
at 4% compounded annually. The next 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 surrender value payable in each of the years
shown for the three different assumed investment returns.
A gross return (as well as the net return) is shown at the top of each column.
The gross return represents the combined effect of investment income and capital
gains and losses, realized or unrealized, of the portfolios before any reduction
is made for investment advisory fees or other Fund expenses. The net return
reflects average total annual expenses of the 15 portfolios of 0.65%, and the
daily deduction from the Contract Fund of 0.20% per year for the tables based on
current charges and 0.50% per year for the tables based on maximum charges.
Thus, assuming current charges, gross returns of 0%, 6%, and 12% are the
equivalent of net returns of -0.85%, 5.15%, and 11.15%, respectively. Assuming
maximum charges, gross returns of 0%, 6%, and 12% are the equivalent of net
returns of -1.15%, 4.85%, and 10.85%, respectively. The actual fees and expenses
of the portfolios associated with a particular Contract may be more or less than
0.65% and will depend on which variable investment options are selected. The
death benefits and surrender values shown reflect the deduction of all expenses
and charges both from the Funds and under the Contract.
25
<PAGE>
The Contract allows you to invest your net premium dollars in a variety of
professionally managed funds. Fluctuating investment returns in these funds,
together with the actual pattern of your premium payments, our Contract charges,
and any loans and withdrawals you may make will generate different Contract
values than those illustrated, even if the averages of the investment rates of
return over the years were to match those illustrated. Because of this, we
strongly recommend periodic Contract reviews with your Pruco Life
representative. Reviews are an excellent way to monitor the performance of the
policy against your expectations and to identify adjustments that may be
necessary.
If you are considering the purchase of a variable life insurance contract from
another insurance company, you should not rely upon these tables for comparison
purposes. A comparison between two tables, each showing values for a 45 year old
man, may be useful for a 45 year old man but would be inaccurate if made for
insureds of other ages or sex. Your Pruco Life representative can provide you
with a hypothetical illustration for your own age, sex, and rating class.
26
<PAGE>
ILLUSTRATIONS
-------------
PRUSELECT III LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit (1)
----------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End Of Accumulated ----------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross
Year Per Year (-0.85% Net) (5.15% Net) (11.15% Net)
- ------------ --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1 $ 56,919 $ 1,000,000 $ 1,000,000 $ 1,000,000
2 $ 116,115 $ 1,000,000 $ 1,000,000 $ 1,000,000
3 $ 177,679 $ 1,000,000 $ 1,000,000 $ 1,000,000
4 $ 241,705 $ 1,000,000 $ 1,000,000 $ 1,000,000
5 $ 308,293 $ 1,000,000 $ 1,000,000 $ 1,000,000
6 $ 377,544 $ 1,000,000 $ 1,000,000 $ 1,003,403
7 $ 449,565 $ 1,000,000 $ 1,000,000 $ 1,201,415
8 $ 467,547 $ 1,000,000 $ 1,000,000 $ 1,292,240
9 $ 486,249 $ 1,000,000 $ 1,000,000 $ 1,382,674
10 $ 505,699 $ 1,000,000 $ 1,000,000 $ 1,483,996
15 $ 615,260 $ 1,000,000 $ 1,069,935 $ 2,128,503
20 (Age 65) $ 748,558 $ 1,000,000 $ 1,162,463 $ 3,053,791
25 $ 910,735 $ 1,000,000 $ 1,284,236 $ 4,454,904
30 $ 1,108,049 $ 1,000,000 $ 1,430,623 $ 6,552,847
35 $ 1,348,111 $ 0(2) $ 1,610,064 $ 9,737,209
40 $ 1,640,183 $ 0 $ 1,829,256 $14,605,891
45 $ 1,995,533 $ 0 $ 2,088,252 $22,012,863
<CAPTION>
Surrender Value (1)
---------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End Of ---------------------------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-0.85% Net) (5.15% Net) (11.15% Net)
- ------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
1 $ 48,479 $ 51,192 $ 53,906
2 $ 95,141 $ 103,356 $ 111,899
3 $ 137,655 $ 154,245 $ 172,188
4 $ 179,720 $ 207,685 $ 239,153
5 $ 213,949 $ 256,430 $ 306,178
6 $ 255,134 $ 315,421 $ 388,916
7 $ 295,887 $ 377,432 $ 480,566
8 $ 291,188 $ 394,893 $ 531,786
9 $ 286,296 $ 413,118 $ 588,372
10 $ 281,204 $ 432,155 $ 650,875
15 $ 251,510 $ 540,371 $ 1,075001
20 (Age 65) $ 210,477 $ 671,944 $ 1,765,197
25 $ 155,685 $ 833,920 $ 2,892,795
30 $ 68,101 $ 1,029,225 $ 4,714,278
35 $ 0(2) $ 1,257,862 $ 7,607,195
40 $ 0 $ 1,524,380 $12,171,576
45 $ 0 $ 1,831,800 $19,309,529
</TABLE>
(1) Assumes no Contract Loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 33, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T1
<PAGE>
PRUSELECT III LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1)
-----------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End Of Accumulated -----------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross
Year Per Year (-1.15% Net) (4.85% Net) (10.85% Net)
- ------------ --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1 $ 56,919.20 $1,000,000 $1,000,000 $ 1,000,000
2 $ 116,115.17 $1,000,000 $1,000,000 $ 1,000,000
3 $ 177,678.97 $1,000,000 $1,000,000 $ 1,000,000
4 $ 241,705.33 $1,000,000 $1,000,000 $ 1,000,000
5 $ 308,292.75 $1,000,000 $1,000,000 $ 1,000,000
6 $ 377,543.66 $1,000,000 $1,000,000 $ 1,000,000
7 $ 449,564.60 $1,000,000 $1,000,000 $ 1,037,889
8 $ 467,547.19 $1,000,000 $1,000,000 $ 1,106,719
9 $ 486,249.07 $1,000,000 $1,000,000 $ 1,173,907
10 $ 505,699.04 $1,000,000 $1,000,000 $ 1,248,870
15 $ 615,260.20 $1,000,000 $1,000,000 $ 1,710,611
20 (Age 65) $ 748,558.11 $1,000,000 $1,000,000 $ 2,332,916
25 $ 910,735.40 $ 0(2) $1,000,000 $ 3,194,779
30 $ 1,108,048.87 $ 0 $1,000,000 $ 4,368,243
35 $ 1,348,110.87 $ 0 $1,000,000 $ 5,979,984
40 $ 1,640,183.00 $ 0 $1,000,000 $ 8,220,102
45 $ 1,995,533.41 $ 0 $ 0(2) $11,334,775
<CAPTION>
Surrender Value (1)
-----------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End Of ------------------------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-1.15% Net) (4.85% Net) (10.85% Net)
- ------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
1 $ 42,038 $ 44,457 $ 46,878
2 $ 83,513 $ 90,754 $ 98,292
3 $120,329 $134,890 $ 150,656
4 $156,591 $181,073 $ 208,655
5 $184,092 $221,210 $ 264,734
6 $219,244 $271,833 $ 336,040
7 $253,824 $324,856 $ 415,156
8 $245,633 $335,670 $ 455,440
9 $237,020 $346,660 $ 499,535
10 $227,922 $357,802 $ 547,750
15 $172,666 $415,010 $ 863,945
20 (Age 65) $ 90,100 $470,874 $1,348,506
25 $ 0(2) $515,663 $2,074,532
30 $ 0 $529,632 $3,142,621
35 $ 0 $459,230 $4,671,862
40 $ 0 $133,864 $6,850,085
45 $ 0 $ 0(2) $9,942,785
</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 24, unless an additional premium payment was made. Based
on a gross return of 6%, the Contract would go into default in policy
year 41, 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%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T2
<PAGE>
PRUSELECT III LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 TARGET COVERAGE AMOUNT($5,000 BASIC
INSURANCE AMOUNT, $995,000 TARGET TERM RIDER)
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit (1)
--------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End Of Accumulated --------------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross
Year Per Year (-0.85% Net) (5.15% Net) (11.15% Net)
- ------------ --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1 $ 56,919 $1,000,000 $1,000,000 $ 1,000,000
2 $ 116,115 $1,000,000 $1,000,000 $ 1,000,000
3 $ 177,679 $1,000,000 $1,000,000 $ 1,000,000
4 $ 241,705 $1,000,000 $1,000,000 $ 1,000,000
5 $ 308,293 $1,000,000 $1,000,000 $ 1,000,000
6 $ 377,544 $1,000,000 $1,000,000 $ 1,147,602
7 $ 449,565 $1,000,000 $1,080,172 $ 1,373,435
8 $ 467,547 $1,000,000 $1,099,077 $ 1,477,308
9 $ 486,249 $1,000,000 $1,112,463 $ 1,580,736
10 $ 505,699 $1,000,000 $1,129,471 $ 1,696,613
15 $ 615,260 $1,000,000 $1,227,043 $ 2,433,683
20 (Age 65) $ 748,558 $1,000,000 $1,333,329 $ 3,491,830
25 $ 910,735 $1,000,000 $1,473,152 $ 5,094,093
30 $1,108,049 $1,000,000 $1,641,210 $ 7,493,203
35 $1,348,111 $ 0(2) $1,847,190 $11,134,675
40 $1,640,183 $ 0 $2,098,781 $16,702,233
45 $1,995,533 $ 0 $2,396,049 $25,172,431
<CAPTION>
Surrender Value (1)
--------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End Of --------------------------------------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-0.85% Net) (5.15% Net) (11.15% Net)
- ------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
1 $ 51,557 $ 54,646 $ 57,735
2 $101,375 $ 110,736 $ 120,470
3 $150,127 $ 169,048 $ 189,508
4 $198,375 $ 230,288 $ 266,190
5 $245,006 $ 293,501 $ 350,274
6 $292,283 $ 361,120 $ 444,807
7 $339,084 $ 432,069 $ 549,374
8 $334,197 $ 452,295 $ 607,946
9 $329,152 $ 473,388 $ 672,654
10 $323,935 $ 495,382 $ 744,129
15 $291,310 $ 619,719 $ 1,229,133
20 (Age 65) $245,054 $ 770,710 $ 2,018,399
25 $181,396 $ 956,592 $ 3,307,852
30 $ 75,865 $ 1,180,726 $ 5,390,794
35 $ 0(2) $ 1,443,117 $ 8,698,965
40 $ 0 $ 1,748,984 $ 13,918,527
45 $ 0 $ 2,101,797 $ 22,081,079
</TABLE>
(1) Assumes no Contract Loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 33, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T3
<PAGE>
PRUSELECT III LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 TARGET COVERAGE AMOUNT($5,000 BASIC INSURANCE AMOUNT, $995,000
TARGET TERM RIDER) ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1)
-------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End Of Accumulated -------------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross
Year Per Year (-1.15% Net) (4.85% Net) (10.85% Net)
------------ --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1 $ 56,919.20 $1,000,000 $1,000,000 $ 1,000,000
2 $ 116,115.17 $1,000,000 $1,000,000 $ 1,000,000
3 $ 177,678.97 $1,000,000 $1,000,000 $ 1,000,000
4 $ 241,705.33 $1,000,000 $1,000,000 $ 1,000,000
5 $ 308,292.75 $1,000,000 $1,000,000 $ 1,000,000
6 $ 377,543.66 $1,000,000 $1,000,000 $ 1,029,285
7 $ 449,564.60 $1,000,000 $1,000,000 $ 1,230,507
8 $ 467,547.19 $1,000,000 $1,000,000 $ 1,312,451
9 $ 486,249.07 $1,000,000 $1,000,000 $ 1,392,460
10 $ 505,699.04 $1,000,000 $1,000,000 $ 1,481,699
15 $ 615,260.20 $1,000,000 $1,012,168 $ 2,031,210
20 (Age 65) $ 748,558.11 $1,000,000 $1,041,593 $ 2,771,616
25 $ 910,735.40 $1,000,000 $1,076,298 $ 3,796,851
30 $1,108,048.87 $ 0(2) $1,110,412 $ 5,192,624
35 $1,348,110.87 $ 0 $1,147,100 $ 7,109,596
40 $1,640,183.00 $ 0 $1,190,034 $ 9,773,856
45 $1,995,533.41 $ 0 $1,238,625 $ 13,478,193
<CAPTION>
Surrender Value (1)
--------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End Of ---------------------------------------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-1.15% Net) (4.85% Net) (10.85% Net)
------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
1 $ 45,521 $ 48,366 $ 51,214
2 $ 90,426 $ 98,965 $ 107,851
3 $ 134,163 $ 151,359 $ 169,975
4 $ 177,303 $ 206,248 $ 238,847
5 $ 218,725 $ 262,646 $ 314,129
6 $ 260,689 $ 322,963 $ 398,948
7 $ 302,060 $ 386,232 $ 492,203
8 $ 293,608 $ 400,419 $ 540,103
9 $ 284,765 $ 415,010 $ 592,536
10 $ 275,472 $ 430,004 $ 649,868
15 $ 219,857 $ 511,196 $ 1,025,864
20 (Age 65) $ 138,463 $ 602,077 $ 1,602,090
25 $ 3,972 $ 698,895 $ 2,465,488
30 $ 0(2) $ 798,857 $ 3,735,701
35 $ 0 $ 896,172 $ 5,554,371
40 $ 0 $ 991,695 $ 8,144,880
45 $ 0 $ 1,086,514 $ 11,822,976
</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%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T4
<PAGE>
PRUSELECT III LIFE INSURANCE CONTRACT
GUIDLINE PREMIUM TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS (3)
USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit (1)
-------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End Of Accumulated -------------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross
Year Per Year (-0.85% Net) (5.15% Net) (11.15% Net)
------------ --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1 $ 56,919 $1,000,000 $ 1,000,000 $ 1,000,000
2 $ 116,115 $1,000,000 $ 1,000,000 $ 1,000,000
3 $ 177,679 $1,000,000 $ 1,000,000 $ 1,000,000
4 $ 241,705 $1,000,000 $ 1,000,000 $ 1,000,000
5 $ 255,646 $1,000,000 $ 1,000,000 $ 1,000,000
6 $ 265,872 $1,000,000 $ 1,000,000 $ 1,000,000
7 $ 276,507 $1,000,000 $ 1,000,000 $ 1,000,000
8 $ 287,567 $1,000,000 $ 1,000,000 $ 1,000,000
9 $ 299,070 $1,000,000 $ 1,000,000 $ 1,000,000
10 $ 311,032 $1,000,000 $ 1,000,000 $ 1,000,000
15 $ 378,419 $1,000,000 $ 1,000,000 $ 1,000,000
20 (Age 65) $ 460,404 $1,000,000 $ 1,000,000 $ 1,451,451
25 $ 560,152 $1,000,000 $ 1,000,000 $ 2,317,111
30 $ 681,510 $ 0(2) $ 1,000,000 $ 3,590,981
35 $ 829,162 $ 0 $ 1,000,000 $ 5,932,852
40 $1,008,802 $ 0 $ 1,000,000 $ 9,940,882
45 $1,227,362 $ 0 $ 1,000,000(2) $16,525,881
<CAPTION>
Surrender Value (1)
--------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End Of ---------------------------------------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-0.85% Net) (5.15% Net) (11.15% Net)
------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
1 $ 48,479 $ 51,192 $ 53,906
2 $ 95,141 $ 103,356 $ 111,899
3 $137,655 $ 154,245 $ 172,188
4 $179,720 $ 207,685 $ 239,153
5 $172,324 $ 212,287 $ 259,515
6 $168,750 $ 221,155 $ 286,464
7 $164,983 $ 230,296 $ 316,299
8 $161,013 $ 239,723 $ 349,358
9 $156,807 $ 249,423 $ 386,004
10 $152,354 $ 259,412 $ 426,668
15 $125,017 $ 313,356 $ 709,056
20 (Age 65) $ 84,341 $ 372,724 $ 1,189,714
25 $ 27,736 $ 440,263 $ 1,997,509
30 $ 0(2) $ 510,910 $ 3,356,057
35 $ 0 $ 574,300 $ 5,650,335
40 $ 0 $ 619,036 $ 9,467,507
45 $ 0 $ 611,556(2) $15,738,934
</TABLE>
(1) Assumes no Contract Loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 27, unless an additional premium payment was made. Based
on a gross return of 6%, the Contract would go into default in policy
year 54, unless an additional premium payment was made.
(3) The Guideline Premium Test limits the premium payable in policy year 5
to $4,108.12, and zero in years 6 and 7.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T5
<PAGE>
PRUSELECT III LIFE INSURANCE CONTRACT
GUIDLINE PREMIUM TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS (3)
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1)
-------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End Of Accumulated -------------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross
Year Per Year (-1.15% Net) (4.85% Net) (10.85% Net)
------------ --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1 $ 56,919.20 $1,000,000 $1,000,000 $1,000,000
2 $ 116,115.17 $1,000,000 $1,000,000 $1,000,000
3 $ 177,678.97 $1,000,000 $1,000,000 $1,000,000
4 $ 241,705.33 $1,000,000 $1,000,000 $1,000,000
5 $ 255,645.99 $1,000,000 $1,000,000 $1,000,000
6 $ 265,871.83 $1,000,000 $1,000,000 $1,000,000
7 $ 276,506.70 $1,000,000 $1,000,000 $1,000,000
8 $ 287,566.97 $1,000,000 $1,000,000 $1,000,000
9 $ 299,069.65 $1,000,000 $1,000,000 $1,000,000
10 $ 311,032.44 $1,000,000 $1,000,000 $1,000,000
15 $ 378,418.52 $1,000,000 $1,000,000 $1,000,000
20 (Age 65) $ 460,403.99 $ 0(2) $1,000,000 $1,013,502
25 $ 560,151.85 $ 0 $1,000,000 $1,569,428
30 $ 681,510.37 $ 0 $ 0(2) $2,362,252
35 $ 829,161.57 $ 0 $ 0 $3,807,447
40 $1,008,801.83 $ 0 $ 0 $6,193,539
45 $1,227,361.68 $ 0 $ 0 $9,927,746
<CAPTION>
Surrender Value (1)
--------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End Of ---------------------------------------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-1.15% Net) (4.85% Net) (10.85% Net)
------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
1 $ 42,038 $ 44,457 $ 46,878
2 $ 83,513 $ 90,754 $ 98,292
3 $120,329 $134,890 $ 150,656
4 $156,591 $181,073 $ 208,655
5 $145,128 $179,880 $ 221,039
6 $138,386 $183,574 $ 240,096
7 $131,284 $187,075 $ 260,957
8 $123,756 $190,317 $ 283,795
9 $115,728 $193,224 $ 308,805
10 $107,129 $195,723 $ 336,222
15 $ 52,791 $199,051 $ 520,592
20 (Age 65) $ 0(2) $173,741 $ 830,739
25 $ 0 $ 83,954 $1,352,955
30 $ 0 $ 0(2) $2,207,712
35 $ 0 $ 0 $3,626,140
40 $ 0 $ 0 $5,898,608
45 $ 0 $ 0 $9,454,996
</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 19, unless an additional premium payment was made. Based
on a gross return of 6%, the Contract would go into default in policy
year 28, unless an additional premium payment was made.
(3) The Guideline Premium Test limits the premium payable in policy year 2
to $4,108.12, and zero in years 6 and 7.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T6
<PAGE>
PRUSELECT III LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE B (VARIABLE) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit (1)
-------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End Of Accumulated -------------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross
Year Per Year (-0.85% Net) (5.15% Net) (11.15% Net)
------------ --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1 $ 56,919 $1,044,785 $ 1,047,498 $ 1,050,212
2 $ 116,115 $1,087,612 $ 1,095,814 $ 1,104,344
3 $ 177,679 $1,129,896 $ 1,146,435 $ 1,164,321
4 $ 241,705 $1,171,623 $ 1,199,457 $ 1,230,776
5 $ 308,293 $1,212,778 $ 1,254,986 $ 1,304,409
6 $ 377,544 $1,253,355 $ 1,313,140 $ 1,386,010
7 $ 449,565 $1,293,330 $ 1,374,023 $ 1,476,436
8 $ 467,547 $1,287,793 $ 1,390,143 $ 1,526,321
9 $ 486,249 $1,281,996 $ 1,406,778 $ 1,581,443
10 $ 505,699 $1,275,931 $ 1,423,941 $ 1,642,374
15 $ 615,260 $1,240,160 $ 1,517,061 $ 2,094,289
20 (Age 65) $ 748,558 $1,190,611 $ 1,619,220 $ 3,004,593
25 $ 910,735 $1,126,451 $ 1,731,114 $ 4,383,115
30 $1,108,049 $1,029,878 $ 1,835,188 $ 6,447,233
35 $1,348,111 $ 0(2) $ 1,893,327 $ 9,580,256
40 $1,640,183 $ 0 $ 1,851,207 $14,370,445
45 $1,995,533 $ 0 $ 1,606,495(2) $21,658,003
<CAPTION>
Surrender Value (1)
--------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End Of ---------------------------------------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-0.85% Net) (5.15% Net) (11.15% Net)
------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
1 $ 48,479 $ 51,192 $ 53,906
2 $ 95,000 $ 103,203 $ 111,732
3 $137,285 $ 153,823 $ 171,710
4 $179,012 $ 206,846 $ 238,165
5 $212,778 $ 254,986 $ 304,409
6 $253,355 $ 313,140 $ 386,010
7 $293,330 $ 374,023 $ 476,436
8 $287,793 $ 390,143 $ 526,321
9 $281,996 $ 406,778 $ 581,443
10 $275,931 $ 423,941 $ 642,374
15 $240,160 $ 517,061 $ 1,057,722
20 (Age 65) $190,611 $ 619,220 $ 1,736,759
25 $126,451 $ 731,114 $ 2,846,178
30 $ 29,878 $ 835,188 $ 4,638,297
35 $ 0(2) $ 893,327 $ 7,484,575
40 $ 0 $ 851,207 $11,975,371
45 $ 0 $ 606,495(2) $18,998,248
</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 32, unless an additional premium payment was made. Based
on a gross return of 6%, the Contract would go into default in policy
year 51, 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%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T7
<PAGE>
PRUSELECT III LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE B (VARIABLE) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1)
-------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End Of Accumulated -------------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross
Year Per Year (-1.15% Net) (4.85% Net) (10.85% Net)
------------ --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1 $ 56,919.20 $1,037,796 $1,040,206 $ 1,042,619
2 $ 116,115.17 $1,074,880 $1,082,077 $ 1,089,568
3 $ 177,678.97 $1,111,241 $1,125,672 $ 1,141,295
4 $ 241,705.33 $1,146,858 $1,171,044 $ 1,198,287
5 $ 308,292.75 $1,181,709 $1,218,250 $ 1,261,085
6 $ 377,543.66 $1,215,754 $1,267,327 $ 1,330,265
7 $ 449,564.60 $1,248,943 $1,318,305 $ 1,406,458
8 $ 467,547.19 $1,239,288 $1,326,731 $ 1,443,332
9 $ 486,249.07 $1,229,130 $1,334,933 $ 1,483,555
10 $ 505,699.04 $1,218,405 $1,342,828 $ 1,527,417
15 $ 615,260.20 $1,153,946 $1,374,341 $ 1,813,667
20 (Age 65) $ 748,558.11 $1,061,933 $1,378,520 $ 2,251,905
25 $ 910,735.40 $ 0(2) $1,322,889 $ 2,950,004
30 $1,108,048.87 $ 0 $1,151,319 $ 4,031,836
35 $1,348,110.87 $ 0 $ 0(2) $ 5,519,017
40 $1,640,183.00 $ 0 $ 0 $ 7,586,050
45 $1,995,533.41 $ 0 $ 0 $10,460,089
<CAPTION>
Surrender Value (1)
--------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End Of ---------------------------------------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-1.15% Net) (4.85% Net) (10.85% Net)
------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
1 $ 41,900 $ 44,311 $ 46,724
2 $ 83,089 $ 90,286 $ 97,777
3 $119,450 $133,881 $ 149,504
4 $155,067 $179,254 $ 206,497
5 $181,709 $218,250 $ 261,085
6 $215,754 $267,327 $ 330,265
7 $248,943 $318,305 $ 406,458
8 $239,288 $326,731 $ 443,332
9 $229,130 $334,933 $ 483,555
10 $218,405 $342,828 $ 527,417
15 $153,946 $374,341 $ 813,667
20 (Age 65) $ 61,933 $378,520 $1,251,905
25 $ 0(2) $322,889 $1,915,587
30 $ 0 $151,319 $2,900,602
35 $ 0 $ 0(2) $4,311,732
40 $ 0 $ 0 $6,321,708
45 $ 0 $ 0 $9,175,517
</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 23, unless an additional premium payment was made. Based
on a gross return of 6%, the Contract would go into default in policy
year 33, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T8
<PAGE>
PRUSELECT III LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE C (RETURN OF PREMIUM AT 6%) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
<TABLE>
<CAPTION>
Death Benefit (1)
-------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End Of Accumulated -------------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross
Year Per Year (-0.85% Net) (5.15% Net) (11.15% Net)
------------ --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1 $ 56,919 $1,058,014 $1,058,014 $ 1,058,014
2 $ 116,115 $1,119,508 $1,119,508 $ 1,119,508
3 $ 177,679 $1,184,693 $1,184,693 $ 1,184,693
4 $ 241,705 $1,253,788 $1,253,788 $ 1,253,788
5 $ 308,293 $1,327,029 $1,327,029 $ 1,327,029
6 $ 377,544 $1,404,665 $1,404,665 $ 1,404,665
7 $ 449,565 $1,486,958 $1,486,958 $ 1,486,958
8 $ 467,547 $1,516,176 $1,516,176 $ 1,516,176
9 $ 486,249 $1,547,146 $1,547,146 $ 1,547,146
10 $ 505,699 $1,579,975 $1,579,975 $ 1,579,975
15 $ 615,260 $1,776,138 $1,776,138 $ 2,097,910
20 (Age 65) $ 748,558 $2,038,647 $2,038,647 $ 3,009,878
25 $ 910,735 $2,389,944 $2,389,944 $ 4,390,827
30 $ 1,108,049 $ 0(2) $2,860,059 $ 6,458,579
35 $ 1,348,111 $ 0 $3,489,179 $ 9,597,117
40 $ 1,640,183 $ 0 $ 0(2) $14,395,739
45 $ 1,995,533 $ 0 $ 0 $21,696,125
<CAPTION>
Surrender Value (1)
--------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End Of ---------------------------------------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-0.85% Net) (5.15% Net) (11.15% Net)
------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
1 $ 48,479 $ 51,192 $ 53,906
2 $ 94,958 $103,168 $ 111,705
3 $137,159 $153,722 $ 171,637
4 $178,745 $206,637 $ 238,027
5 $212,292 $254,614 $ 304,190
6 $252,544 $312,534 $ 385,699
7 $292,056 $373,092 $ 476,032
8 $285,912 $388,802 $ 525,866
9 $279,331 $404,920 $ 581,006
10 $272,273 $421,439 $ 642,063
15 $226,462 $508,122 $ 1,059,550
20 (Age 65) $149,384 $591,955 $ 1,739,814
25 $ 24,433 $658,968 $ 2,851,186
30 $ 0(2) $642,531 $ 4,646,460
35 $ 0 $350,457 $ 7,497,748
40 $ 0 $ 0(2) $11,996,449
45 $ 0 $ 0 $19,031,688
</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. Based
on a gross return of 6%, 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%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T9
<PAGE>
PRUSELECT III LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE C (RETURN OF PREMIUM AT 6%) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
Death Benefit (1)
-------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of
End Of Accumulated -------------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross
Year Per Year (-1.15% Net) (4.85% Net) (10.85% Net)
------------ --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1 $ 56,919.20 $1,058,014 $1,058,014 $ 1,058,014
2 $ 116,115.17 $1,119,508 $1,119,508 $ 1,119,508
3 $ 177,678.97 $1,184,693 $1,184,693 $ 1,184,693
4 $ 241,705.33 $1,253,788 $1,253,788 $ 1,253,788
5 $ 308,292.75 $1,327,029 $1,327,029 $ 1,327,029
6 $ 377,543.66 $1,404,665 $1,404,665 $ 1,404,665
7 $ 449,564.60 $1,486,958 $1,486,958 $ 1,486,958
8 $ 467,547.19 $1,516,176 $1,516,176 $ 1,516,176
9 $ 486,249.07 $1,547,146 $1,547,146 $ 1,547,146
10 $ 505,699.04 $1,579,975 $1,579,975 $ 1,579,975
15 $ 615,260.20 $1,776,138 $1,776,138 $ 1,776,138
20 (Age 65) $ 748,558.11 $ 0(2) $2,038,647 $ 2,155,605
25 $ 910,735.40 $ 0 $2,389,944 $ 2,951,435
30 $ 1,108,048.87 $ 0 $ 0(2) $ 4,035,044
35 $ 1,348,110.87 $ 0 $ 0 $ 5,523,412
40 $ 1,640,183.00 $ 0 $ 0 $ 7,592,095
45 $ 1,995,533.41 $ 0 $ 0 $10,468,428
<CAPTION>
Surrender Value (1)
--------------------------------------------------------------------
Assuming Hypothetical Gross (and Net)
Annual Investment Return of
End Of ---------------------------------------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-1.15% Net) (4.85% Net) (10.85% Net)
------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
1 $ 41,846 $ 44,258 $ 46,674
2 $ 82,894 $ 90,103 $ 97,608
3 $118,998 $133,465 $ 149,134
4 $154,205 $178,474 $ 205,827
5 $180,238 $216,939 $ 260,005
6 $213,417 $265,270 $ 328,646
7 $245,407 $315,227 $ 404,155
8 $234,211 $322,363 $ 440,261
9 $222,091 $328,937 $ 479,635
10 $208,894 $334,785 $ 522,575
15 $119,869 $345,528 $ 804,171
20 (Age 65) $ 0(2) $288,745 $1,246,015
25 $ 0 $ 53,221 $1,916,516
30 $ 0 $ 0(2) $2,902,909
35 $ 0 $ 0 $4,315,166
40 $ 0 $ 0 $6,326,746
45 $ 0 $ 0 $9,182,832
</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 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%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T10
<PAGE>
CONTRACT LOANS
You may borrow from Pruco Life an amount up to the current loan value of your
Contract less any existing Contract debt using the Contract as the only security
for the loan. The loan value at any time is equal to 90% of the Contract Fund
value. A Contract in default has no loan value. The minimum loan amount you may
borrow is $200.
Interest charged on a loan accrues daily. Interest is due on each Contract
anniversary or when the loan is paid back, whichever comes first. If interest is
not paid when due, it becomes part of the loan and we will charge interest on
it, too. Except in the case of preferred loans, we charge interest at an
effective annual rate of 5%.
A portion of any amount you borrow on or after the 10th Contract anniversary may
be considered a preferred loan. The maximum preferred loan amount is the total
amount you may borrow minus the total net premiums paid (net premiums equal
premiums paid less total withdrawals, if any). If the net premium amount is less
than zero, we will, for purposes of this calculation, consider it to be zero.
Only new loans borrowed after the 10th Contract anniversary may be considered
preferred loans. Standard loans will not automatically be converted into
preferred loans. Preferred loans are charged interest at an effective annual
rate of 4.25%.
The Contract debt is the amount of all outstanding loans plus any interest
accrued but not yet due. If at any time the Contract debt equals or exceeds the
Contract Fund, the Contract will go into default. See LAPSE AND REINSTATEMENT,
page 22. If the Contract debt equals or exceeds the Contract Fund and you fail
to keep the Contract inforce, the amount of unpaid Contract debt will be treated
as a distribution which may be taxable. See TAX TREATMENT OF CONTRACT BENEFITS,
page 27.
When a loan is made, an amount equal to the loan proceeds is transferred out of
the Account. Unless you ask us to take the loan amount from specific investment
options and we agree, the reduction will be made in the same proportions as the
value in each variable investment option bears to the total value of the
Contract. While a loan is outstanding, the amount that was so transferred will
continue to be treated as part of the Contract Fund. It will be credited with an
effective annual rate of return of 4%. On each Monthly date, we will increase
the portion of the Contract Fund in the investment options by interest credits
accrued on the loan since the last Monthly date. The net cost of a standard loan
is 1% and the net cost of a preferred loan is 1/4%.
Loans from Modified Endowment Contracts may be treated for tax purposes as
distributions of income. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
Any Contract debt will directly reduce a Contract's cash value and will be
subtracted from the death benefit to determine the amount payable. In addition,
even if the loan is fully repaid, it may have an effect on future death benefits
because the investment results of the selected investment options will apply
only to the amount remaining invested under those options. The longer the loan
is outstanding, the greater the effect is likely to be. The effect could be
favorable or unfavorable. If investment results are greater than the rate being
credited on the amount of the loan while the loan is outstanding, values under
the Contract will not increase as rapidly as they would have if no loan had been
made. If investment results are below that rate, Contract values will be higher
than they would have been had no loan been made.
When you repay all or part of a loan, we will increase the portion of the
Contract Fund in the investment options by the amount of the loan you repay
using the investment allocation for future premium payments as of the loan
payment date, plus interest credits accrued on the loan since the last
transaction date. If loan interest is paid when due, it will not change the
portion of the Contract Fund allocated to the investment options. We reserve the
right to change the manner in which we allocate loan repayments.
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
27
<PAGE>
investments. For further information on the diversification requirements, see
TAXATION OF THE FUND in the statement of additional information for the Series
Fund.
In order to meet the definition of life insurance rules for federal income tax
purposes, the Contract must satisfy one of the two following tests: (1) Cash
Value Accumulation Test or (2) Guideline Premium Test. At issue, the Contract
owner chooses which of these two tests will apply to their Contract. This choice
cannot be changed thereafter.
Under the Cash Value Accumulation Test, the Contract must maintain a minimum
ratio of death benefit to cash value. Therefore, in order to ensure that the
Contract qualifies as life insurance, the Contract's basic insurance amount may
increase as the Contract Fund value increases. The death benefit, at all times,
must be at least equal to the Contract Fund multiplied by the applicable
attained age factor. A listing of attained age factors can be found on your
Contract data pages.
Under the Guideline Premium Test, there is a limit as to the amount of premium
that can be paid into the Contract in relation to the death benefit. In
addition, there is a minimum ratio of death benefit to cash value associated
with this test. This ratio, however, is less than the required ratio under the
Cash Value Accumulation test. Therefore, the death benefit required under this
test is generally lower than that of the Cash Value Accumulation test.
The selection of the definition of life insurance test most appropriate for you
is dependent on several factors, including the insured's age at issue, actual
Contract earnings, and whether or not the Contract is classified as a Modified
Endowment Contract. You should consult your own qualified tax adviser for
complete information and advice with respect to the selection of the definition
of life insurance test.
We believe we have taken adequate steps to insure that the Contract qualifies as
life insurance for tax purposes. Generally speaking, this means that:
o you will not be taxed on the growth of the funds in the Contract,
unless you receive a distribution from the Contract, and
o the Contract's death benefit will be income tax free to your
beneficiary.
Although we believe that the Contract should qualify as life insurance for tax
purposes, there are some uncertainties, particularly because the Secretary of
Treasury has not yet issued permanent regulations that bear on this question.
Accordingly, we reserve the right to make changes -- which will be applied
uniformly to all Contract owners after advance written notice -- that we deem
necessary to insure that the Contract will qualify as life insurance.
PRE-DEATH DISTRIBUTIONS. The tax treatment of any distribution you receive
before the insured's death depends on whether the Contract is classified as a
Modified Endowment Contract.
CONTRACTS NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS
o If you surrender the Contract or allow it to lapse, you will be
taxed on the amount you receive in excess of the premiums you
paid less the untaxed portion of any prior withdrawals. For this
purpose, you will be treated as receiving any portion of the cash
value used to repay Contract debt. The tax consequences of a
surrender may differ if you take the proceeds under an income
payment settlement option.
o Generally, you will be taxed on a withdrawal to the extent the
amount you receive exceeds the premiums you paid for the Contract
less the untaxed portion of any prior withdrawals. However, under
some limited circumstances, in the first 15 Contract years, all
or a portion of a withdrawal may be taxed if the Contract Fund
exceeds the total premiums paid less the untaxed portions of any
prior withdrawals, even if total withdrawals do not exceed total
premiums paid.
o Loans you take against the Contract are ordinarily treated as
debt and are not considered distributions subject to tax.
However, there is some risk the Internal Revenue Service might
assert that the preferred loan should be treated as a
distribution for tax purposes because of the relatively low
differential between the loan interest rate and Contract's
crediting rate. Were the Internal Revenue Service to take this
position, Pruco Life would take reasonable steps to avoid this
result, including modifying the Contract's loan provisions.
28
<PAGE>
MODIFIED ENDOWMENT CONTRACTS
o The rules change if the Contract is classified as a Modified
Endowment Contract. The Contract could be classified as a
Modified Endowment Contract if premiums in amounts that are too
large are paid or a decrease in the face amount of insurance is
made (or a rider removed). The addition of a rider or an increase
in the face amount of insurance may also cause the Contract to be
classified as a Modified Endowment Contract. You should first
consult a qualified tax adviser and your Pruco Life
representative if you are contemplating any of these steps.
o If the Contract is classified as a Modified Endowment Contract,
then amounts you receive under the Contract before the insured's
death, including loans and withdrawals, are included in income to
the extent that the Contract Fund exceeds the premiums paid for
the Contract increased by the amount of any loans previously
included in income and reduced by any untaxed amounts previously
received other than the amount of any loans excludable from
income. An assignment of a Modified Endowment Contract is taxable
in the same way. These rules also apply to pre-death
distributions, including loans and assignments, made during the
two-year period before the time that the Contract became a
Modified Endowment Contract.
o Any taxable income on pre-death distributions (including full
surrenders) is subject to a penalty of 10 percent unless the
amount is received on or after age 59 1/2, on account of your
becoming disabled or as a life annuity. It is presently unclear
how the penalty tax provisions apply to Contracts owned by
businesses.
o All Modified Endowment Contracts issued by us to you during the
same calendar year are treated as a single Contract for purposes
of applying these rules.
WITHHOLDING. You must affirmatively elect that no taxes be withheld from a
pre-death distribution. Otherwise, the taxable portion of any amounts you
receive will be subject to withholding. You are not permitted to elect out of
withholding if you do not provide a social security number or other taxpayer
identification number. You may be subject to penalties under the estimated tax
payment rules if your withholding and estimated tax payments are insufficient to
cover the tax due.
OTHER TAX CONSIDERATIONS. If you transfer or assign the Contract to someone
else, there may be gift, estate and/or income tax consequences. If you transfer
the Contract to a person two or more generations younger than you (or designate
such a younger person as a beneficiary), there may be Generation Skipping
Transfer tax consequences. Deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied. Your individual situation or that of your beneficiary
will determine the federal estate taxes and the state and local estate,
inheritance and other taxes due if you or the insured dies.
BUSINESS-OWNED LIFE INSURANCE. If a business, rather than an individual, is the
owner of the Contract, there are some additional rules. Business Contract owners
generally cannot deduct premium payments. Business Contract owners generally
cannot take tax deductions for interest on Contract debt paid or accrued after
October 13, 1995. An exception permits the deduction of interest on policy loans
on Contracts for up to 20 key persons. The interest deduction for Contract debt
on these loans is limited to a prescribed interest rate and a maximum aggregate
loan amount of $50,000 per key insured person. The corporate alternative minimum
tax also applies to business-owned life insurance. This is an indirect tax on
additions to the Contract Fund or death benefits received under business-owned
life insurance policies.
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS
The Contract generally employs mortality tables that distinguish between males
and females. Thus, premiums and benefits differ under Contracts issued on males
and females of the same age. However, in those states that have adopted
regulations prohibiting sex-distinct insurance rates, premiums and cost of
insurance charges will be based on male rates, whether the insureds are male or
female. In addition, employers and employee organizations considering the
purchase of a Contract should consult their legal advisers to determine whether
purchase of a Contract based on sex-distinct actuarial tables is consistent with
Title VII of the Civil Rights Act of 1964 or other applicable law.
29
<PAGE>
EXCHANGE RIGHT AVAILABLE IN SOME STATES
In some states, you may have the right to exchange the Contract for a fixed
benefit insurance plan issued by The Prudential Insurance Company of America on
the insured's life. Such an exchange may be permitted within the first two
Contract years after a Contract is issued, so long as the Contract is not in
default. This is a general account policy with guaranteed minimum values. No
evidence of insurability will be required to make an exchange. The new policy
will have the same issue date and risk classification for the insured as the
original Contract. The exchange may be subject to an equitable adjustment in
premiums and values, and a payment may be required. You may wish to obtain tax
advice before effecting such an exchange.
OPTION TO EXCHANGE INSURED
Pruco Life will permit a Contract owner to exchange a contract for a new
contract on the life of a new insured. Upon the exchange, the original contract
is surrendered and the cash value is moved to the new contract without
subjecting it to new sales charges and the portion of the charge for taxes
attributable to premiums for state and local premium taxes. See CHARGES AND
EXPENSES, page 9. We will, however, report this as a taxable surrender of your
original Contract, which means that you will be subject to income tax to the
extent of any gain in the Contract and that we will withhold applicable federal
income taxes. Also, the cash value moved to the new Contract will be considered
new premium, which may cause your Contract to be classified as a Modified
Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
OTHER GENERAL CONTRACT PROVISIONS
ASSIGNMENT. This Contract may not be assigned if the assignment would violate
any federal, state or local law or regulation prohibiting sex distinct rates for
insurance. Generally, the Contract may not be assigned to an employee benefit
plan or program without Pruco Life's consent. Pruco Life assumes no
responsibility for the validity or sufficiency of any assignment. We will not be
obligated to comply with any assignment unless we receive a copy at a Home
Office.
BENEFICIARY. You designate and name your beneficiary in the application.
Thereafter, you may change the beneficiary, provided it is in accordance with
the terms of the Contract. Should the insured die with no surviving beneficiary,
the insured's estate will become the beneficiary.
INCONTESTABILITY. We will not contest the Contract after it has been inforce
during the insured's lifetime for two years from the issue date except when any
change is made in the Contract that requires Pruco Life's approval and would
increase our liability. We will not contest such change after it has been in
effect for two years during the lifetime of the insured.
MISSTATEMENT OF AGE OR SEX. If the insured's stated age or sex or both are
incorrect in the Contract, Pruco Life will adjust the death benefits payable and
any amount to be paid, as required by law, to reflect the correct age and sex.
Any such benefit will be based on what the most recent deductions from the
Contract Fund would have provided at the insured's correct age and sex.
SETTLEMENT OPTIONS. The Contract grants to most owners, or to the beneficiary, a
variety of optional ways of receiving Contract proceeds, other than in a lump
sum. Any Pruco Life representative authorized to sell this Contract can explain
these options upon request.
SUICIDE EXCLUSION. Generally, if the insured, whether sane or insane, dies by
suicide within two years from the Contract date, the Contract will end and Pruco
Life will return the premiums paid, less any Contract debt, and less any
withdrawals. Generally, if the insured, whether sane or insane, dies by suicide
after two years from the issue date, but within two years of the effective date
of an increase in the basic insurance amount, we will pay, as to the increase in
amount, no more than the sum of the premiums paid on and after the effective
date of an increase.
SUBSTITUTION OF FUND SHARES
Although Pruco Life believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Funds may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, Pruco Life may seek to substitute the shares of another portfolio or
of an entirely different mutual fund. Before this can be done, the approval
30
<PAGE>
of the SEC, and possibly one or more state insurance departments, may be
required. Contract owners will be notified of any such substitution.
REPORTS TO CONTRACT OWNERS
Once each year, Pruco Life will send you a statement that provides certain
information pertinent to your own Contract. This statement will detail values,
transactions made, and specific Contract data that apply only to your particular
Contract. You will also be sent annual and semi-annual reports of the Funds
showing the financial condition of the portfolios and the investments held in
each portfolio.
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.
Generally, representatives will receive a commission of no more than: (1) 20% of
the premiums received in the first year on premiums up to the Target Premium
(referred to as "segment allocation amount" in your Contract); (2) 12% of
premiums received in years two through 10 on premiums up to the Target Premium;
and (3) 2% on premiums received in the first 10 years in excess of the Target
Premium or received after 10 years. If the basic insurance amount is increased,
representatives will generally receive a commission of no more than: (1) 20% of
the premiums received up to the Target Premium for the increase received in the
first year; (2) 12% of the premiums received up to the Target Premium for years
two through 10; and (3) 2% on other premiums received for the increase.
Moreover, trail commissions of up to 0.05% of the Contract Fund may be paid as
of the end of each calendar quarter for years six through 20 and .025%
thereafter. Representatives with less than 4 years of service may receive
compensation on a different basis. Representatives who meet certain productivity
or persistency standards may be eligible for additional compensation.
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 Davis,
FSA, MAAA, Vice President and Actuary of Prudential, whose opinion is filed as
an exhibit to the registration statement.
31
<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.
Further information may also be obtained from Pruco Life. Its address and
telephone number are set forth on the inside front cover of this prospectus.
FINANCIAL STATEMENTS
The financial statements of the Account should be distinguished from the
consolidated financial statements of Pruco Life and its subsidiaries, which
should be considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
32
<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.
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.
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.
33
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF NET ASSETS
For the year ended December 31, 1999
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------
PRUDENTIAL
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL HIGH
MONEY DIVERSIFIED PRUDENTIAL FLEXIBLE CONSERVATIVE YIELD
MARKET BOND EQUITY MANAGED BALANCED BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in The Prudential Series Fund, Inc.
Portfolios and non-Prudential administered
funds, at net asset value [Note 3] ......... $21,020,421 $45,254,760 $44,862,196 $ 9,406,730 $51,592,566 $ 2,653,932
Receivable from Pruco Life Insurance
Company [Note 2] ........................... 0 0 69,102 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Net Assets ................................... $21,020,421 $45,254,760 $44,931,298 $ 9,406,730 $51,592,566 $ 2,653,932
=========== =========== =========== =========== =========== ===========
NET ASSETS, representing:
Equity of contract owners [Note 4] ........... $21,020,421 $45,254,760 $44,931,298 $ 9,406,730 $51,592,566 $ 2,653,932
----------- ----------- ----------- ----------- ----------- -----------
$21,020,421 $45,254,760 $44,931,298 $ 9,406,730 $51,592,566 $ 2,653,932
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL T. ROWE PRICE JANUS MFS
STOCK EQUITY PRUDENTIAL PRUDENTIAL INTERNATIONAL AIM VI ASPEN EMERGING
INDEX INCOME GLOBAL JENNISON STOCK VALUE GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO FUND PORTFOLIO SERIES
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$208,864,409 $ 14,525,330 $ 22,276,540 $ 6,822,949 $ 18,814 $ 94,337 $ 22,400 $ 4,545
41,887 0 39,109 0 0 0 0 0
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$208,906,296 $ 14,525,330 $ 22,315,649 $ 6,822,949 $ 18,814 $ 94,337 $ 22,400 $ 4,545
============ ============ ============ ============ ============ ============ ============ ============
$208,906,296 $ 14,525,330 $ 22,315,649 $ 6,822,949 $ 18,814 $ 94,337 $ 22,400 $ 4,545
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$208,906,296 $ 14,525,330 $ 22,315,649 $ 6,822,949 $ 18,814 $ 94,337 $ 22,400 $ 4,545
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
A2
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the periods ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
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 A13 THROUGH A17
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
EQUITY FLEXIBLE MANAGED CONSERVATIVE BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------- --------------------------------------- ---------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 716,887 $ 860,120 $ 1,108,812 $ 1,508 $ 1,147,432 $ 1,050,936 $ 2,010,476 $ 1,965,960 $ 2,025,296
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
263,130 284,011 286,301 111,448 209,364 206,248 289,895 271,618 256,921
0 0 0 0 0 0 0 0 0
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
263,130 284,011 286,301 111,448 209,364 206,248 289,895 271,618 256,921
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
453,757 576,109 822,511 (109,940) 938,068 844,688 1,720,581 1,694,342 1,768,375
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
5,076,635 5,026,484 2,827,131 382,730 3,419,770 5,545,715 270,329 2,703,038 5,037,552
1,953,344 4,779,486 1,774,816 (650,961) 353,509 605,368 (17,659) 935,553 200,066
(1,836,843) (5,230,122) 4,476,157 2,299,575 (1,305,317) (1,682,924) 959,440 (276,688) (1,945,306)
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
5,193,136 4,575,848 9,078,104 2,031,344 2,467,962 4,468,159 1,212,110 3,361,903 3,292,312
- ------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 5,646,893 $ 5,151,957 $ 9,900,615 $ 1,921,404 $ 3,406,030 $ 5,312,847 $ 2,932,691 $ 5,056,245 $ 5,060,687
============= =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
A4
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the periods ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
HIGH YIELD BOND STOCK INDEX
PORTFOLIO PORTFOLIO
--------------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ................................ $ 8,128 $ 261,439 $ 197,684 $ 1,908,245 $ 1,729,752 $ 1,326,042
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] ..... 16,950 15,665 12,354 1,068,971 820,541 502,161
Reimbursement for excess expenses
[Note 5C] ..................................... 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES ..................................... 16,950 15,665 12,354 1,068,971 820,541 502,161
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ..................... (8,822) 245,774 185,330 839,274 909,211 823,881
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ......... 0 0 0 2,384,852 2,499,196 2,997,271
Realized gain (loss) on shares
redeemed ................................... (58,390) (4,633) 16,526 5,878,374 5,771,729 2,754,626
Net change in unrealized gain (loss)
on investments ............................. 181,106 (334,049) 59,640 24,251,918 24,590,569 15,534,339
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ................... 122,716 (338,682) 76,166 32,515,144 32,861,494 21,286,236
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ..................................... $ 113,894 $ (92,908) $ 261,496 $33,354,418 $33,770,705 $22,110,117
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME GLOBAL PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------ -------------------------------------- ---------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- -------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 334,015 $ 365,234 $ 370,792 $ 65,033 $ 160,959 $ 149,254 $ 8,827 $ 3,905 $ 1,751
- -------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
87,421 90,144 85,229 93,204 70,813 80,250 28,413 11,315 4,217
0 0 0 0 0 0 0 0 0
- -------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
87,421 90,144 85,229 93,204 70,813 80,250 28,413 11,315 4,217
- -------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
246,594 275,090 285,563 (28,171) 90,146 69,004 (19,586) (7,410) (2,466)
- -------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,617,066 797,222 1,414,553 114,030 536,310 504,462 273,783 37,636 50,105
87,899 2,673,910 481,377 472,274 235,100 1,501,595 65,721 22,375 43,121
(246,900) (4,107,342) 2,177,083 6,341,128 1,531,076 (871,934) 1,513,045 478,204 73,161
- -------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,458,065 (636,210) 4,073,013 6,927,432 2,302,486 1,134,123 1,852,549 538,215 166,387
- -------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 1,704,659 $ (361,120) $ 4,358,576 $ 6,899,261 $ 2,392,632 $ 1,203,127 $ 1,832,963 $ 530,805 $ 163,921
============== =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
A6
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the periods ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
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 A13 THROUGH A17
A7
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUSELECT III 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
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
---------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..............$ 733,928 $ 408,828 $ 410,410 $ (253,044) $ 2,129,486 $ 2,369,339
Capital gains distributions received ...... 0 0 0 114,761 128,093 408,037
Realized gain (loss) on shares redeemed ... 0 0 0 (24,825) 173,161 94,146
Net change in unrealized gain (loss) on
investments ............................. 0 0 0 (406,752) (29,348) (288,588)
----------- ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ................................ 733,928 408,828 410,410 (569,860) 2,401,392 2,582,934
----------- ------------ ------------ ------------ ------------ ------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ............... 14,681,912 8,459,179 16,018,494 4,403,759 4,026,378 5,573,222
Policy Loans .............................. 0 0 (45,968) (153) (10,790) 0
Policy Loan Repayments and Interest ....... 0 0 44,362 399 85 449,595
Surrenders, Withdrawals and Death
Benefits ................................ (487,668) 48,094 (447,841) (525,927) (5,421,341) (3,109,854)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Option .................... (6,419,780) (5,068,699) (17,376,103) 1,276,029 4,043,371 146,922
Withdrawal and Other Charges .............. (442,288) (258,516) (264,540) (461,017) (491,540) (665,026)
----------- ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ................................. 7,332,176 3,180,058 (2,071,596) 4,693,090 2,146,163 2,394,859
----------- ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7] .......................... 0 (1,722) (115,766) 0 (35,755) (86,028)
----------- ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS .................................... 8,066,104 3,587,164 (1,776,952) 4,123,230 4,511,800 4,891,765
NET ASSETS:
Beginning of period ....................... 12,954,317 9,367,153 11,144,105 41,131,530 36,619,730 31,727,965
----------- ------------ ------------ ------------ ------------ ------------
End of period .............................$ 21,020,421 $ 12,954,317 $ 9,367,153 $ 45,254,760 $ 41,131,530 $ 36,619,730
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
A8
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
EQUITY FLEXIBLE MANAGED CONSERVATIVE BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- --------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------ ------------ ------------ ----------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 453,757 $ 576,109 $ 822,511 $ (109,940) $ 938,068 $ 844,688 $ 1,720,581 $ 1,694,342 $ 1,768,375
5,076,635 5,026,484 2,827,131 382,730 3,419,770 5,545,715 270,329 2,703,038 5,037,552
1,953,344 4,779,486 1,774,816 (650,961) 353,509 605,368 (17,659) 935,553 200,066
(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 A13 THROUGH A17
A9
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUSELECT III 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
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
HIGH YIELD BOND STOCK INDEX
PORTFOLIO PORTFOLIO
----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ............ $ (8,822) $ 245,774 $ 185,330 $ 839,274 $ 909,211 $ 823,881
Capital gains distributions received .... 0 0 0 2,384,852 2,499,196 2,997,271
Realized gain (loss) on shares redeemed . (58,390) (4,633) 16,526 5,878,374 5,771,729 2,754,626
Net change in unrealized gain (loss) on
investments ........................... 181,106 (334,049) 59,640 24,251,918 24,590,569 15,534,339
----------- ---------- ----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS .............................. 113,894 (92,908) 261,496 33,354,418 33,770,705 22,110,117
----------- ---------- ----------- ------------ ------------ ------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ............. 245,021 637,224 330,357 13,998,881 13,077,570 14,400,181
Policy Loans ............................ 0 0 0 (16,721) (19,574) (15,209)
Policy Loan Repayments and Interest ..... 0 0 0 1,041 144 25,713
Surrenders, Withdrawals and Death
Benefits .............................. (307,785) (1,826) (298,998) (10,598,966) (432,906) (3,907,071)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Option .................. (466,171) 556,432 297,454 6,749,174 11,664,940 17,853,467
Withdrawal and Other Charges ............ (51,266) (67,806) (67,627) (1,633,867) (1,454,112) (1,103,134)
----------- ---------- ----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ............................... (580,201) 1,124,024 261,186 8,499,542 22,836,062 27,253,947
----------- ---------- ----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RETAINED IN THE
ACCOUNT [Note 7] ........................ 0 (1,836) (7,832) 0 42,339 (7,138)
----------- ---------- ----------- ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS .............................. (466,307) 1,029,280 514,850 41,853,960 56,649,106 49,356,926
NET ASSETS:
Beginning of period ..................... 3,120,239 2,090,959 1,576,109 167,052,336 110,403,230 61,046,304
----------- ---------- ----------- ------------ ------------ ------------
End of period ........................... $ 2,653,932 $ 3,120,239 $ 2,090,959 $208,906,296 $167,052,336 $110,403,230
=========== =========== =========== ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
A10
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
EQUITY INCOME GLOBAL PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------- ---------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 246,594 $ 275,090 $ 285,563 $ (28,171) $ 90,146 $ 69,004 $ (19,586) $ (7,410) $ (2,466)
1,617,066 797,222 1,414,553 114,030 536,310 504,462 273,783 37,636 50,105
87,899 2,673,910 481,377 472,274 235,100 1,501,595 65,721 22,375 43,121
(246,900) (4,107,342) 2,177,083 6,341,128 1,531,076 (871,934) 1,513,045 478,204 73,161
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
1,704,659 (361,120) 4,358,576 6,899,261 2,392,632 1,203,127 1,832,963 530,805 163,921
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
355,583 260,870 857,548 2,076,557 1,832,043 2,622,189 144,235 75,139 238,539
(12,069) 0 0 0 0 (67,171) 0 0 0
139 0 0 0 0 67,209 0 0 0
(497,594) (8,141,933) (802,616) (1,963,919) (16,418) (4,072,024) (13,816) 0 (293,084)
(1,279,058) 7,241,853 (358,547) 2,397,693 (1,739,609) (4,363,304) 2,170,749 1,234,490 508,875
(175,220) (248,861) (366,230) (134,514) (128,121) (199,522) (46,761) (22,311) (8,919)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
(1,608,219) (888,071) (669,845) 2,375,817 (52,105) (6,012,623) 2,254,407 1,287,318 445,411
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
0 (15,048) (64,926) 0 (27,164) (140,126) 0 32,534 806
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
96,440 (1,264,239) 3,623,805 9,275,078 2,313,363 (4,949,622) 4,087,370 1,850,657 610,138
14,428,890 15,693,129 12,069,324 13,040,571 10,727,208 15,676,830 2,735,579 884,922 274,784
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
$14,525,330 $14,428,890 $15,693,129 $22,315,649 $13,040,571 $10,727,208 $ 6,822,949 $ 2,735,579 $ 884,922
=========== =========== =========== =========== =========== =========== =========== =========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A13 THROUGH A17
A11
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUSELECT III 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
<TABLE>
<CAPTION>
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 A13 THROUGH A17
A12
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE PRUSELECT III 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, fifteen of which are available to Pruselect III
contract owners. Each subaccount invests in a corresponding portfolio
of The Prudential Series Fund, Inc. (the "Series Fund") or any of the
non-Prudential administered funds shown in Note 3. The Series Fund is a
diversified open-end management investment company, and is managed by
Prudential.
Beginning June 7, 1999, the following five additional non-Prudential
administered subaccounts became available to contract owners for
Pruselect I and Pruselect II and beginning on November 10, 1999, as
discussed above, they became available for Pruselect III contract
owners: AIM V.I. Value Fund; American Century VP Value Fund; Janus
Aspen Growth Portfolio; MFS Emerging Growth Series; and the T. Rowe
Price International Stock Portfolio.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in conformity with
accounting principles generally accepted in the United States ("GAAP").
The preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts and disclosures. Actual results could differ from
those estimates.
Investments--The investments in shares of the Series Fund or the
non-Prudential administered funds are stated at the net asset value of
the respective portfolio.
Security Transactions--Realized gains and losses on security
transactions are reported on an average cost basis. Purchase and sale
transactions are recorded as of the trade date of the security being
purchased or sold.
Distributions Received--Dividend and capital gain distributions
received are reinvested in additional shares of the Series Fund or the
non-Prudential administered funds and are recorded on the ex-dividend
date.
Receivable from Pruco Life Insurance Company--At times, Pruco Life may
expect to receive an amount from the Account primarily related to
processing contract owner payments, surrenders, withdrawals and death
benefits. This amount is reflected in the Account's Statements of Net
Assets as a receivable from Pruco Life. The receivable and or payable
does not have an effect on the Contract owner's account or the related
unit value.
A13
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
The net asset value per share for each portfolio of the Series Fund, or
the non-Prudential administered variable funds, the number of shares
(rounded) of each portfolio held by the Account and the aggregate cost
of investments in such shares at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED PRUDENTIAL FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of shares (rounded): 2,102,042 4,132,855 1,552,325 533,261 3,358,891
Net asset value per share : $ 10.00 $ 10.95 $ 28.90 $ 17.64 $ 15.36
Cost: $21,020,421 $ 45,646,113 $42,895,709 $ 9,411,230 $51,242,001
<CAPTION>
PRUDENTIAL
HIGH PRUDENTIAL PRUDENTIAL
YIELD STOCK EQUITY PRUDENTIAL PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of shares (rounded): 352,917 4,698,862 744,126 719,062 210,650
Net asset value per share : $ 7.52 $ 44.45 $ 19.52 $ 30.98 $ 32.39
Cost: $ 2,748,055 $130,132,357 $15,147,463 $ 13,685,943 $ 4,743,085
<CAPTION>
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>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units (rounded), unit values and total value
of contract owner equity at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED PRUDENTIAL FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Pruselect I - rounded) ............. 290,751 4,876,997 718,417 69,687 6,224,235
Unit Value (Pruselect I) .............. $ 1.60147 $ 2.03632 $ 3.88421 $ 2.92824 $ 2.57655
------------ ------------ -------------- ----------- -----------
Contract Owner Equity (Pruselect I) ... $ 465,630 $ 9,931,127 $ 2,790,481 $ 204,061 $16,037,053
------------ ------------ -------------- ----------- -----------
Contract Owner Units Outstanding
(Pruselect II - rounded) ............ 11,415,720 17,346,798 10,849,263 3,142,730 13,799,660
Unit Value (Pruselect II) ............. $ 1.60147 $ 2.03632 $ 3.88421 $ 2.92824 $ 2.57655
------------ ------------ -------------- ----------- -----------
Contract Owner Equity (Pruselect II) .. $ 18,281,934 $ 35,323,633 $ 42,140,817 $ 9,202,669 $35,555,513
------------ ------------ -------------- ----------- -----------
Contract Owner Units Outstanding
(Pruselect III - rounded) ........... 2,255,378 0 0 0 0
Unit Value (Pruselect III) ............ $ 1.00775 $ .99424 $ 1.05287 $ 1.03671 $ 1.02714
------------ ------------ -------------- ----------- -----------
Contract Owner Equity (Pruselect III) . $ 2,272,857 $ 0 $ 0 $ 0 $ 0
------------ ------------ -------------- ----------- -----------
TOTAL CONTRACT OWNER EQUITY ........... $ 21,020,421 $ 45,254,760 $ 44,931,298 $ 9,406,730 $51,592,566
============ ============ ============== =========== ===========
</TABLE>
A14
<PAGE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
PRUDENTIAL
HIGH PRUDENTIAL PRUDENTIAL
YIELD STOCK EQUITY PRUDENTIAL PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Pruselect I - rounded) ............. 28,956 8,211,055 1,062,378 0 394,435
Unit Value (Pruselect I) .............. $ 2.25891 $ 4.87074 $ 3.46967 $ 2.58864 $ 3.59559
------------ ------------ ------------ ------------ -----------
Contract Owner Equity (Pruselect I) ... $ 65,409 $ 39,993,915 $ 3,686,102 $ 0 $ 1,418,226
------------ ------------ ------------ ------------ -----------
Contract Owner Units Outstanding
(Pruselect II - rounded) ............ 1,145,917 34,678,998 3,123,994 8,620,607 1,503,153
Unit Value (Pruselect II) ............. $ 2.25891 $ 4.87074 $ 3.46967 $ 2.58864 $ 3.59559
------------ ------------ ------------ ------------ -----------
Contract Owner Equity (Pruselect II) .. $ 2,588,523 $168,912,381 $ 10,839,228 $ 22,315,649 $ 5,404,723
------------ ------------ ------------ ------------ -----------
Contract Owner Units Outstanding
(Pruselect III - rounded) ........... 0 0 0 0 0
Unit Value (Pruselect III) ............ $ 1.02134 $ 1.07712 $ 1.07537 $ 1.20743 $ 1.16040
------------ ------------ ------------ ------------ -----------
Contract Owner Equity (Pruselect III) . $ 0 $ 0 $ 0 $ 0 $ 0
------------ ------------ ------------ ------------ -----------
TOTAL CONTRACT OWNER EQUITY ........... $ 2,653,932 $208,906,296 $ 14,525,330 $ 22,315,649 $ 6,822,949
============ ============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------
T. ROWE PRICE JANUS MFS
INTERNATIONAL AIM 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 $ 1.7702 $ 1.28732 $ 1.64532
------------ ------------ ------------ ------------
Contract Owner Equity (Pruselect I) ... $ 0 $ 0 $ 0 $ 0
------------ ------------ ------------ ------------
Contract Owner Units Outstanding
(Pruselect II - rounded) ........... $ 14,414 $ 80,149 $ 17,401 2,762
Unit Value (Pruselect II) ............. $ 1.30529 $ 1.17702 $ 1.28732 $ 1.64532
------------ ------------ ------------ ------------
Contract Owner Equity (Pruselect II) .. $ 18,814 $ 94,337 $ 22,400 $ $ 4,545
------------ ------------ ------------ ------------
Contract Owner Units Outstanding
(Pruselect III - rounded) ........... 0 0 0 0
Unit Value (Pruselect III) ............ $ 1.17859 $ 1.10318 $ 1.13634 $ 1.39445
------------ ------------ ------------ ------------
Contract Owner Equity (Pruselect III) . $ 0 $ 0 $ 0 $ 0
------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY ........... $ 18,814 $ 94,337 $ 22,400 $ 4,545
============ ============ ============ ============
</TABLE>
NOTE 5: CHARGES AND EXPENSES
A. Mortality Risk and Expense Risk Charges
The mortality risk and expense risk charges, at an effective annual
rate of 0.90% for Pruselect I and Pruselect II contracts, are
applied daily against the net assets representing equity of contract
owners held in each subaccount and at 0.20% for Pruselect III
contract owners. Mortality risk is that contract holders may not
live as long as estimated and expense risk is that the cost of
issuing and administering the policies may exceed related charges by
Pruco Life. Pruco Life currently intends to charge only 0.60% on
Pruselect I and Pruselect II contracts, but reserves the right to
make the full 0.90% charge.
B. Partial Withdrawal Charge
A charge is imposed by Pruco Life on partial withdrawals of the cash
surrender value. A charge equal to the lesser of $15 or 2% and $25
or 2% will be made in connection with each partial withdrawal of the
cash surrender value of a Pruselect I and Pruselect II contract, and
Pruselect III contract, respectively.
C. Expense Reimbursement
The Account is reimbursed by Pruco Life for Pruselect I and
Pruselect II contracts, on a non-guaranteed basis, for expenses
incurred by the Series Fund in excess of the effective rate of 0.40%
for all Zero Coupon
A15
<PAGE>
Bond Portfolios and for the Stock Index Portfolio, 0.50% for the
High Dividend Stock Portfolio, 0.55% for the Natural Resources
Portfolio, and 0.65% for the High Yield Bond Portfolio of the
average daily net assets of these portfolios.
D. Cost of Insurance and Other Related Charges
Contract owner contributions are subject to certain deductions prior
to being invested in the Account. The deductions are for (1)
transaction cost which are deducted from each premium payment to
cover premium collection and processing costs; (2) state premium
taxes; (3) sales charges which are deducted in order to compensate
Pruco Life for the cost of selling the contract. Contracts are also
subject to monthly charges for the cost of administering the
contract.
NOTE 6: TAXES
Pruco Life is taxed as a "life insurance company" defined by the
Internal Revenue Code and the results of operations of the Account form
a part of Prudential's consolidated federal tax return. Under current
federal law, no federal income taxes are payable by the Account. As
such, no provision for tax liability has been recorded in these
financial statements.
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE ACCOUNT
The increase (decrease) in net assets retained in the Account
represents the net contributions (withdrawals) of Pruco Life to (from)
the Account. Effective October 13, 1998 Pruco Life no longer maintains
a position in the Account. Previously, Pruco Life maintained a position
in the Account for liquidity purposes including unit purchases and
redemptions, fund share transactions and expense processing.
NOTE 8: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) for the
years ended December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
----------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 13,870,279 11,769,929 15,281,942 5,773,771 5,686,444 4,556,760
Contract Owner
Redemptions: (8,349,759) (9,721,732) (16,788,123) (3,482,099) (4,658,242) (3,288,085)
<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)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
CONSERVATIVE BALANCED HIGH YIELD BOND
PORTFOLIO PORTFOLIO
----------------------------------------- -------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 3,818,833 12,272,439 5,516,349 232,862 621,628 1,021,708
Contract Owner
Redemptions: (3,154,189) (14,641,165) (2,950,237) (494,213) (117,717) (879,849)
</TABLE>
A16
<PAGE>
NOTE 8: UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
STOCK INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO
----------------------------------------- -------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 10,380,525 12,075,930 20,876,571 3,603,113 3,556,140 679,346
Contract Owner
Redemptions: (8,588,993) (5,649,830) (11,486,568) (4,068,251) (3,811,832) (873,682)
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
GLOBAL PORTFOLIO JENNISON PORTFOLIO
----------------------------------------- -------------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 2,831,806 2,263,591 10,705,193 1,880,279 1,126,502 589,921
Contract Owner
Redemptions: (1,636,224) (2,393,156) (14,887,428) (1,058,268) (524,101) (302,690)
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------
T. ROWE PRICE JANUS MFS
INTERNATIONAL AIM V.I. ASPEN EMERGING
STOCK VALUE GROWTH GROWTH
PORTFOLIO* FUND* PORTFOLIO* SERIES*
---------- ---------- ---------- -----------
1999 1999 1999 1999
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Contract Owner
Contributions: 29,489 88,424 28,034 0
Contract Owner
Redemptions: (15,075) (8,275) (10,635) (2,762)
</TABLE>
* Became available on June 7, 1999 (Note 1)
NOTE 9: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments
in the Series Fund and the non-Prudential administered funds for the
year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED PRUDENTIAL FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases ............ $ 17,522,078 $ 6,484,012 $ 5,601,878 $ 1,266,462 $ 7,370,428
Sales ... ............ $(10,291,958) $ (2,043,966) $(12,808,060) $(26,737,825) $ (6,025,425)
<CAPTION>
PRUDENTIAL PRUDENTIAL PRUDENTIAL
HIGH YIELD STOCK EQUITY PRUDENTIAL PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases ............ $ 375,340 $ 24,405,119 $ 410,034 $ 4,718,947 $ 2,501,921
Sales ... ............ $ (972,491) $(17,016,436) $ (2,105,673) $ (2,475,443) $ (275,927)
<CAPTION>
T. ROWE PRICE JANUS MFS
INTERNATIONAL AIM V.I. ASPEN EMERGING
STOCK VALUE GROWTH GROWTH
PORTFOLIO* FUND* PORTFOLIO* SERIES*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases ............ $ 16,260 $ 89,743 $ 20,158 $ 4,748
Sales ................ $ (1,057) $ (1,161) $ (1,106) $ (974)
</TABLE>
* Became available on June 7, 1999 (Note 1)
A17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the
Pruselect III 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 High Yield Bond Portfolio, Prudential Stock Index
Portfolio, Prudential Equity Income Portfolio, Prudential Global Portfolio,
Prudential Jennison Portfolio, T. Rowe Price International Stock Portfolio, AIM
V.I. Value Fund, Janus Aspen Growth Portfolio and MFS Emerging Growth Series) of
the Pruselect III Variable Life Subaccounts of 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
Price International Stock Portfolio, AIM V.I. Value Fund, Janus Aspen Growth
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 gnerally 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
A18
<PAGE>
<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) III
Variable Life
Insurance
[LOGO] PRUDENTIAL
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone 800 286-7754
CVUL - 3 Ed. 5/2000
<PAGE>
PART II
OTHER INFORMATION
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION WITH RESPECT TO CHARGES
Pruco Life Insurance Company ("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
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 89 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
2. Clifford E. Kirsch, Esq.
3. Nancy D. Davis, FSA, MAAA
The following exhibits:
1. The following exhibits correspond to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
A. (1) (a) Resolution of Board of Directors of Pruco Life
Insurance Company establishing the Pruco Life Variable
Universal Account. (Note 8)
(b) Amendment of Separate Account Resolution. (Note 11)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities
Corporation and Pruco Life Insurance Company. (Note 8)
(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the
Sale of the Contracts. (Note 8)
(c) Schedule of Sales Commissions. (Note 13)
(d) Participation Agreements and Amendments:
(i) (a) AIM Variable Insurance Funds, Inc., AIM V.I.
Value Fund. (Note 11)
(b) Amendment to the AIM Variable Insurance Funds,
Inc. Participation Agreement. (Note 13)
(ii) (a)American Century Variable Portfolios, Inc., VP
Value Portfolio. (Note 11)
(iii)(a) Janus Aspen Series, Growth Portfolio. (Note
11)
(b) Amendment to the Janus Aspen Series
Participation Agreement. (Note 13)
(iv) (a)MFS Variable Insurance Trust, Emerging Growth
Series. (Note 11)
(b) Amendment to the MFS Variable Insurance Trust
Participation Agreement. (Note 13)
(v) (a) T. Rowe Price International Series, Inc.,
International Stock Portfolio. (Note 11)
(b) Amendment to the T. Rowe Price International
Series, Inc. Participation Agreement.
(Note 13)
(4) Not Applicable.
(5) Variable Universal Life Insurance Contract. (Note 12)
(6) (a) Articles of Incorporation of Pruco Life Insurance
Company, as amended October 19, 1993. (Note 7)
(b) By-laws of Pruco Life Insurance Company, as amended
May 6, 1997. (Note 9)
(7) Not Applicable.
(8) Not Applicable.
II-2
<PAGE>
(9) Not Applicable.
(10) (a) Application Form for Variable Universal Life Insurance
Contract. (Note 12)
(b) Supplement to the Application for Variable Universal
Life Insurance Contract. (Note 12)
(11) Not Applicable.
(12) Memorandum describing Pruco Life Insurance Company's
issuance, transfer, and redemption procedures for the
Contracts pursuant to Rule 6e-3(T)(b)(12)(iii). (Note 12)
(13) (a) Rider for Flexible Term Insurance Benefit. (Note 12)
(b) Endorsement for new PS III Contract issued as a result
of exchange of insureds. (Note 1)
(c) Endorsement for new PS III Contract issued as a result
of exchange of PS I or PS II Contracts. (Note 1)
2. See Exhibit 1.A.(5).
3. Opinion and Consent of Clifford E. Kirsch, Esq., as to the legality of
the securities being registered. (Note 1)
4. None.
5. Not Applicable.
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as to actuarial
matters pertaining to the securities being registered. (Note 1)
7. Powers of Attorney.
(a) William M. Bethke, Ira J. Kleinman,
Esther H. Milnes, I. Edward Price (Note 2)
(b) Kiyofumi Sakaguchi (Note 5)
(c) James J. Avery, Jr. (Note 3)
(d) Dennis G. Sullivan (Note 4)
(e) David R. Odenath, Jr. (Note 14)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Form 10-K, Registration No. 33-08698,
filed March 31, 1997 on behalf of the Pruco Life Variable Contract
Real Property Account.
(Note 3) Incorporated by reference to Post-Effective Amendment No. 2 to Form
S-6, Registration No. 333-07451, filed June 25, 1997 on behalf of the
Pruco Life Variable Appreciable Account.
(Note 4) Incorporated by reference to Post-Effective Amendment No. 6 for
Form S-1, Registration No. 33-86780, filed April 16, 1999 on behalf of
the Pruco Life Variable Contract Real Property Account.
(Note 5) Incorporated by reference to Post-Effective Amendment No. 8 to Form
S-6, Registration No. 33-49994, filed April 28, 1997 on behalf of the
Pruco Life PRUvider Variable Appreciable Account.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 9 to Form
S-6, Registration No. 33-29181, filed April 25, 1996 on behalf of the
Pruco Life Variable Universal Account.
(Note 7) Incorporated by reference to Form S-6, Registration No. 333-07451,
filed July 2, 1996 on behalf of the Pruco Life Variable Appreciable
Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 10 to
Form S-6, Registration No. 33-29181, filed April 28, 1997 on behalf of
the Pruco Life Variable Universal Account.
(Note 9) Incorporated by reference to Form 10-Q, Registration No. 33-37587,
filed August 15, 1997 on behalf of the Pruco Life Insurance Company.
(Note 10) Incorporated by reference to Post-Effective Amendment No. 11 to
Form S-6, Registration No. 33-29181, filed April 28, 1998 on behalf of
the Pruco Life Variable Universal Account.
(Note 11) Incorporated by reference to Post-Effective Amendment No. 13 to
Form S-6, Registration No. 33-29181, filed June 4, 1999 on behalf of
the Pruco Life Variable Universal Account.
(Note 12) Incorporated by reference to Registrant's Form S-6, filed August
13, 1999.
(Note 13) Incorporated by reference to Pre-Effective Amendment No. 1 to this
Registration Statement, filed November 3, 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life Variable Universal Account, certifies that this Amendment is filed
solely for one or more of the purposes specified in Rule 485(b)(1) under the
Securities Act of 1933 and that no material event requiring disclosure in the
prospectus, other than one listed in Rule 485(b)(1), has occurred since the
effective date of the most recent Pre-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 24th 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. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 24th 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. -----------------------
Director Thomas C. Castano
(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-4
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 1 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 III 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
Registration 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-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Consent of PricewaterhouseCoopers LLP, independent accountants. Page II-5
1.A.(13)(b) Endorsement for new PS III Contract issued as a result of Page II-7
exchange of insureds.
1.A.(13)(c) Endorsement for new PS III Contract issued as a result of Page II-8
exchange of existing PS I or PS II Contract.
3. Opinion and Consent of Clifford E. Kirsch, Esq., as to the Page II-9
legality of the securities being registered.
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as to actuarial Page II-10
matters pertaining to the securities being registered.
</TABLE>
ll-6
EXHIBIT 1.A.(13)(B)
ENDORSEMENTS
(Only we can endorse this contract.)
This endorsement is attached to and made part of this contract on the contract
date.
This contract is issued in exchange for another life insurance contract owned by
the same policyowner and issued by Pruco Life Insurance Company on the life of
another Insured. That portion of the initial premium representing the net cash
value from the exchanged contract is exempt from the charge for sales expenses
described in the Charge For Sales Expenses provision; it will not be considered
a premium when determining such charge for premium payments made during the
first contract year.
Pruco Life Insurance Company,
By /s/ Susan L. Blount SPECIMEN
Secretary
II-7
EXHIBIT 1.A.(13)(C)
ENDORSEMENTS
(Only we can endorse this contract.)
This endorsement is attached to and made part of this contract on the contract
date.
This contract is issued in exchange for another life insurance contract owned by
the same policyowner and issued by Pruco Life Insurance Company. That portion of
the initial premium representing the net cash value from the exchanged contract
is exempt from the charge for sales expenses described in the Charge For Sales
Expenses provision; it will not be considered a premium when determining such
charge for premium payments made during the first contract year.
The death benefit of this contract on the issue date may be greater than the
death benefit under the exchanged contract. If it is, the difference is the
increased death benefit for the purposes of the following paragraphs.
The Incontestability provision of this contract states that we may contest this
contract for up to two years after the issue date, subject to certain
exceptions. But, if more than two years has passed between (a) the later of the
issue date and reinstatement date of the exchanged contract and (b) the date we
contest this contract, we may contest only the increased death benefit and not
the entire contract.
The Suicide Exclusion provision of this contract states that if the Insured dies
by suicide within two years from the issue date, this contract will end. But, if
more than two years has passed between the issue date of the exchanged contract
and the date of the Insured's death, this contract will end only for the
increased death benefit. We will return to you any premiums paid on or after the
issue date of this contract and the contract fund will be reduced to reflect the
repayment of those premiums.
Pruco Life Insurance Company
By /s/ Susan L. Blount SPECIMEN
Secretary
II-8
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
II-9
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 by Pruco Life
Insurance Company ("Pruco Life") of variable universal life insurance contracts
(the "Contracts") under the Securities Act of 1933. The prospectus included in
Post-Effective Amendment No. 1 to Registration Statement No. 333-85115 on Form
S-6 describes the Contracts. I have reviewed the Contract form and I have
participated in the preparation and review of the Registration Statement and
Exhibits thereto. In my opinion:
(1) The illustrations of cash surrender values and death benefits included
in the prospectus section entitled "Illustrations of Surrender Values,
Death Benefits, and Accumulated Premiums," based on the assumptions
stated in the illustrations, are consistent with the provisions of the
Contract. The rate structure of the Contract has not been designed so
as to make the relationship between premiums and benefits, as shown in
the illustrations, appear more favorable to a prospective purchaser of
a Contract for male age 45, than to prospective purchasers of
Contracts on males of other ages or on females.
(2) The examples shown in the section of the prospectus entitled "Changing
the Type of Death Benefit" are consistent with the provisions of the
Contract.
(3) The chart included in the section of the prospectus entitled "Riders"
is consistent with the provisions of the Contract.
(4) The charts included in the sections of the prospectus entitled: "How a
Type A (Fixed) Contract's Death Benefit Will Vary," "How a Type B
(Variable) Contract's Death Benefit Will Vary," and "How a Type C
(Return of Premium) Contract's Death Benefit Will Vary," are
consistent with the provisions of the Contract.
(5) The deduction in an amount equal to 1.25% of each premium is a
reasonable charge in relation to the additional income tax burden
imposed upon Pruco Life and its parent company, The Prudential
Insurance Company of America, as the result of the enactment of
Section 848 of the Internal Revenue Code. In reaching that conclusion
a number of factors were taken into account that, in my opinion, were
appropriate and which resulted in a projected after-tax rate of return
that is a reasonable rate to use in discounting the tax benefit of the
deductions allowed in Section 848 in taxable years subsequent to the
year in which the premiums are received.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Very truly yours,
/s/
- --------------------------------
Nancy D. Davis, FSA, MAAA
Vice President and Actuary
The Prudential Insurance Company of America
II-10
