AS FILED WITH THE SEC ON ____________________. REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
______________________
PRUCO LIFE
VARIABLE UNIVERSAL ACCOUNT
(Exact Name of Trust)
PRUCO LIFE INSURANCE COMPANY
(Name of Depositor)
PRUCO LIFE INSURANCE COMPANY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(800) 286-7754
(Address and telephone number of principal executive offices)
______________________
THOMAS C. CASTANO
ASSISTANT SECRETARY
PRUCO LIFE INSURANCE COMPANY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(Name and address of agent for service)
Copy to:
JEFFREY C. MARTIN
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036
______________________
Suvivorship Variable Universal Life Insurance Contracts Pursuant to Rule 24f-2
under the Investment Company Act of 1940, the Registrant elects to register an
indefinite amount of securities. (Title and amount of securities being
registered, and proposed maximum aggregate offering price).
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date as may be
necessary to delay its effective date until the Registrant shall file a further
amendment which specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
dates as the Commission, action pursuant to said Section 8(a), may determine.
This filing is being made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940.
Registrant elects to be governed by Rules 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940 with respect to the Contract described in this
Registration Statement.
CROSS REFERENCE SHEET
(AS REQUIRED BY FORM N-8B-2)
N-8B-2 ITEM NUMBER LOCATION
------------------ --------
1. Cover Page
2. Cover Page
3. Not Applicable
4. Sale of the Contract and Sales Commissions
5. Pruco Life Variable Universal Account
6. Pruco Life Variable Universal Account
7. Not Applicable
8. Not Applicable
9. Litigation and Regulatory Proceedings
10. Introduction and Summary; Voting Rights;
Charges and Expenses; Short-Term
Cancellation Right or "Free Look"; Types
of Death Benefit; Changing the Type of
Death Benefit; Premiums; Allocation of
Premiums; Transfers; Dollar Cost
Averaging; Auto-Rebalancing; How a
Contract's Cash Surrender Value Will Vary;
How a Type A (Fixed) Contract's Death
Benefit Will Vary; How a Type B (Variable)
Contract's Death Benefit Will Vary;
Surrender of a Contract; Withdrawals;
Decreases in Basic Insurance Amount; When
Proceeds are Paid; Contract Loans; Lapse
and Reinstatement; Other General Contract
Provisions; Riders; Substitution of Fund
Shares
11. Introduction and Summary; Pruco Life
Variable Universal Account
12. Cover Page; Introduction and Summary; The
Funds; Sale of the Contract and Sales
Commissions
13. Introduction and Summary; The Funds;
Charges and Expenses; Premiums; Allocation
of Premiums; Sale of the Contract and
Sales Commissions
14. Introduction and Summary; Detailed
Information for Prospective Contract
Owners
15. Introduction and Summary; Premiums;
Allocation of Premiums; Transfers; Dollar
Cost Averaging; Auto-Rebalancing
16. Introduction and Summary; Detailed
Information for Prospective Contract
Owners
17. When Proceeds are Paid
N-8B-2 ITEM NUMBER LOCATION
------------------ --------
18. Pruco Life Variable Universal Account
19. Reports to Contract Owners
20. Not Applicable
21. Contract Loans
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions
25. Pruco Life Insurance Company
26. Introduction and Summary; The Funds;
Charges and Expenses
27. Pruco Life Insurance Company; The Funds
28. Pruco Life Insurance Company; Directors
and Officers
29. Pruco Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Pruco Life Insurance Company
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions
39. Sale of the Contract and Sales Commissions
40. Not Applicable
41. Sale of the Contract and Sales Commissions
42. Not Applicable
43. Not Applicable
44. Introduction and Summary; The Funds; How a
Contract's Cash Surrender Value Will Vary;
How a Type A (Fixed) Contract's Death
Benefit Will Vary; How a Type B (Variable)
Contract's Death Benefit Will Vary
N-8B-2 ITEM NUMBER LOCATION
------------------ --------
45. Not Applicable
46. Introduction and Summary; Pruco Life
Variable Universal Account; The Funds
47. Pruco Life Variable Universal Account; The
Funds
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements: Financial Statements
of the Survivorship Variable Universal
Life Subaccounts of the Pruco Life
Variable Universal Account; Consolidated
Financial Statements of Pruco Life
Insurance Company and its subsidiaries
PART I
INFORMATION REQUIRED IN PROSPECTUS
Cornerstone Survivorship
Variable Universal Life Insurance
PROSPECTUS
May 1, 2000
Pruco Life Variable Universal Account
Survivorship
PROSPECTUS
MAY 1, 2000
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
CORNERSTONE SURVIVORSHIP
This prospectus describes an individual flexible premium survivorship variable
universal life insurance contract, PRUCO LIFE CORNERSTONE SURVIVORSHIP, offered
by Pruco Life Insurance Company ("Pruco Life"). Pruco Life is a wholly-owned
subsidiary of The Prudential Insurance Company of America. The Contract
provides life insurance coverage on two insureds with a death benefit payable on
the second death.
INVESTMENT CHOICES
Cornerstone Survivorship offers a wide variety of investment choices, including
16 variable investment options that invest in mutual funds managed by these
leading asset managers:
THE PRUDENTIAL INVESTMENT CORPORATION
A I M ADVISORS, INC.
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
JANUS CAPITAL CORPORATION
MASSACHUSETTS FINANCIAL SERVICES COMPANY
FRANKLIN ADVISERS, INC.
ROWE PRICE-FLEMING INTERNATIONAL, INC.
This prospectus describes the Contract generally and the Pruco Life Variable
Universal Account. The attached prospectuses for the Funds, and their related
statements of additional information describe the investment objectives and the
risks of investing in the portfolios. Pruco Life may add additional investment
options in the future. Please read this prospectus and keep it for future
reference.
The Securities and Exchange Commission ("SEC") maintains a Web site
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding registrants that file electronically with the SEC.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 782-5356
PROSPECTUS CONTENTS
PAGE
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS...........................................................................1
INTRODUCTION AND SUMMARY.......................................................................................................3
BRIEF DESCRIPTION OF THE CONTRACT...........................................................................................3
CHARGES.....................................................................................................................3
TYPES OF DEATH BENEFIT......................................................................................................6
PREMIUM PAYMENTS............................................................................................................6
REFUND......................................................................................................................7
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT, AND THE VARIABLE
INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACT................................................................................8
PRUCO LIFE INSURANCE COMPANY................................................................................................8
THE PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT...................................................................................8
THE FUNDS...................................................................................................................9
VOTING RIGHTS..............................................................................................................11
THE FIXED-RATE OPTION......................................................................................................12
WHICH INVESTMENT OPTION SHOULD BE SELECTED?................................................................................13
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS..........................................................................13
CHARGES AND EXPENSES.......................................................................................................13
GENERAL DESCRIPTION OF THE CONTRACT........................................................................................16
REQUIREMENTS FOR ISSUANCE OF A CONTRACT....................................................................................16
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"...............................................................................16
TYPE OF DEATH BENEFIT......................................................................................................16
CHANGING THE TYPE OF DEATH BENEFIT.........................................................................................17
CONTRACT DATE..............................................................................................................18
PREMIUMS...................................................................................................................18
ALLOCATION OF PREMIUMS.....................................................................................................19
DEATH BENEFIT GUARANTEE....................................................................................................20
TRANSFERS..................................................................................................................21
DOLLAR COST AVERAGING......................................................................................................22
AUTO-REBALANCING...........................................................................................................23
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY............................................................................23
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY....................................................................23
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY.................................................................24
SURRENDER OF A CONTRACT....................................................................................................25
WITHDRAWALS................................................................................................................25
DECREASES IN BASIC INSURANCE AMOUNT........................................................................................26
WHEN PROCEEDS ARE PAID.....................................................................................................27
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS...........................................27
CONTRACT LOANS.............................................................................................................29
SALE OF THE CONTRACT AND SALES COMMISSIONS.................................................................................30
TAX TREATMENT OF CONTRACT BENEFITS.........................................................................................30
LAPSE AND REINSTATEMENT....................................................................................................32
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS........................................................33
OTHER GENERAL CONTRACT PROVISIONS..........................................................................................33
RIDERS.....................................................................................................................34
SUBSTITUTION OF FUND SHARES................................................................................................34
REPORTS TO CONTRACT OWNERS.................................................................................................34
STATE REGULATION...........................................................................................................34
EXPERTS....................................................................................................................35
LITIGATION AND REGULATORY PROCEEDINGS......................................................................................35
YEAR 2000 COMPLIANCE.......................................................................................................39
ADDITIONAL INFORMATION.....................................................................................................40
FINANCIAL STATEMENTS.......................................................................................................40
DIRECTORS AND OFFICERS........................................................................................................41
FINANCIAL STATEMENTS OF THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF THE PRUCO
LIFE VARIABLE UNIVERSAL ACCOUNT...............................................................................................A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY
AND SUBSIDIARIES..............................................................................................................B1
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS
ACCUMULATED NET PAYMENTS -- The actual premium payments you make accumulated at
an effective annual rate of 4%, less any withdrawals you make, accumulated at an
effective annual rate of 4%.
ATTAINED AGE -- An insured's age on the Contract date plus the number of years
since then.
BASIC INSURANCE AMOUNT -- The amount of life insurance as shown in the Contract.
Also referred to as "face amount."
CASH VALUE -- An amount equal to the Contract Fund minus surrender charges.
CASH SURRENDER VALUE -- The amount payable to the Contract owner upon surrender
of the Contract. It is equal to the Contract Fund minus any Contract debt and
minus surrender charges. Also referred to in the Contract as Net Cash Value.
CONTRACT -- The Pruco Life Cornerstone Survivorship policy described in this
prospectus.
CONTRACT ANNIVERSARY -- The same date as the Contract date in each later year.
CONTRACT DATE -- The date the Contract is effective, as specified in the
Contract.
CONTRACT DEBT -- The principal amount of all outstanding loans plus any interest
accrued thereon.
CONTRACT FUND -- The total amount credited to a specific Contract. On any date
it is equal to the sum of the amounts in all the investment options, the amount
invested under the fixed-rate option, any Contract debt, plus any interest
earned on a loan.
CONTRACT MONTH -- A month that starts on the Monthly date.
CONTRACT OWNER[S] -- You. Unless a different owner is named in the application,
the owners of the Contract are the insureds jointly or the survivor of them. If
the Contract is owned jointly, the exercise of rights under the Contract must be
made by both jointly.
CONTRACT YEAR -- A year that starts on the Contract date or on a Contract
anniversary.
DEATH BENEFIT -- The amount we will pay upon the second death of two insureds
before reduction by any Contract debt and amounts needed to pay charges through
the date of death.
FIXED-RATE OPTION -- An investment option under which Pruco Life guarantees that
interest will be added to the amount invested at a rate declared periodically in
advance.
FUNDS -- Mutual funds with separate portfolios. One or more of the available
Fund portfolios may be chosen as an underlying investment for the Contract.
ISSUE AGE -- An insured's age as of the Contract date.
LIFETIME DEATH BENEFIT GUARANTEE PERIOD -- The lifetime of the Contract, during
which time the Lifetime Death Benefit Guarantee is available if sufficient
premiums are paid and there is no outstanding loan. The Lifetime Death Benefit
Guarantee is not available in Massachusetts. See DEATH BENEFIT GUARANTEE, page
20.
LIMITED DEATH BENEFIT GUARANTEE PERIOD -- the period until age 75 of the younger
insured or 10 years after issue, whichever comes later, during which time the
Limited Death Benefit Guarantee is available if sufficient premiums are paid and
there is no outstanding loan. The period applicable to your Contract is shown
on the Contract data pages. The Limited Death Benefit Guarantee is limited to
five years in Massachusetts. See DEATH BENEFIT GUARANTEE, page 20.
MONTHLY DATE -- The Contract date and the same date in each subsequent month.
PRUCO LIFE INSURANCE COMPANY -- Us, we, our, Pruco Life. The company offering
the Contract.
SEPARATE ACCOUNT -- Amounts under the Contract that are allocated to the
variable investment options held by us in a separate account called the Pruco
Life Variable Universal Account. The Separate Account is set up apart from all
of the general assets of Pruco Life Insurance Company.
1
US, WE, OUR, PRUCO LIFE -- Pruco Life Insurance Company.
VALUATION PERIOD -- The period of time from one determination of the value of
the amount invested in a subaccount to the next. Such determinations are made
when the net asset values of the portfolios of the Funds are calculated, which
is generally at 4:15 p.m. Eastern time on each day during which the New York
Stock Exchange is open.
VARIABLE INVESTMENT OPTION -- shares of a mutual fund you choose that we
purchase and hold in the Separate Account.
YOU --The owner[s] of the Contract.
2
INTRODUCTION AND SUMMARY
THIS SUMMARY PROVIDES A BRIEF OVERVIEW OF THE MORE SIGNIFICANT ASPECTS OF THE
CONTRACT. WE PROVIDE FURTHER DETAIL IN THE SUBSEQUENT SECTIONS OF THIS
PROSPECTUS AND IN THE CONTRACT.
BRIEF DESCRIPTION OF THE CONTRACT
The PRUCO LIFE CORNERSTONE SURVIVORSHIP Contract is a flexible premium variable
universal life insurance policy. It is issued by Pruco Life Insurance Company.
The Contract provides life insurance coverage, with a death benefit payable upon
the second death of two insureds. If the Contract is not in default, the amount
we will pay will be the death benefit determined as of the date of the second
death reduced by any Contract debt. See CONTRACT LOANS, page 29. A significant
element of the Contract is the Contract Fund. The Contract Fund represents the
value of your Contract and changes every business day.
A broad objective of the Contract is to provide benefits that will increase in
value if favorable investment results are achieved. You may invest premiums in
one or more of the 16 available variable investment options or in the fixed-rate
option. Your Contract Fund value changes every day depending upon the change in
value of the particular investment options that you have selected.
Although the value of your Contract Fund will increase if there is favorable
investment performance in the variable investment options you select, investment
returns in the variable investment options are NOT guaranteed. There is a risk
that investment performance will be unfavorable and that the value of your
Contract Fund will decrease. The risk will be different, depending upon which
investment options you choose. See WHICH INVESTMENT OPTION SHOULD BE SELECTED?,
page 13. If you select the fixed-rate option, Pruco Life credits your account
with a declared rate or rates of interest. You assume the risk that the rate
may change, although it will never be lower than an effective annual rate of 4%.
Variable life insurance contracts are unsuitable as short-term savings vehicles.
Loans will negate any guarantee against lapse and may result in adverse tax
consequences. See DEATH BENEFIT GUARANTEE, page 20, and TAX TREATMENT OF
CONTRACT BENEFITS, page 30.
CHARGES
Pruco Life deducts certain charges from each premium payment and from the
amounts held in the designated investment options. These charges, which are
largely designed to cover insurance costs and risks as well as sales and
administrative expenses, are fully described under CHARGES AND EXPENSES, on page
13. In brief, and subject to that fuller description, the following diagram
outlines the maximum charges which Pruco Life may make:
3
----------------
PREMIUM PAYMENTS
----------------
----------------------------------------------------------------------
. less a charge of up to 7.5% for any taxes attributable to
premiums. In Oregon this is called a premium based administrative
charge.
. less a charge for sales expenses during the first five contract
years at a rate of up to 12%; after the fifth contract year, we
may charge up to 4%.
----------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTED PREMIUM AMOUNT
To be invested in one or a combination of:
. 16 investment portfolios of the Funds
. The fixed-rate option
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DAILY CHARGES
. We deduct management fees and expenses from the Fund assets. See UNDERLYING
PORTFOLIO EXPENSES chart, below.
. We deduct a daily mortality and expense risk charge, equivalent to an
effective annual rate of up to 0.9%, from assets in the variable investment
options.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONTHLY CHARGES
. During the first five years, we reduce the Contract Fund by a monthly
administrative charge of $10.00 per Contract plus up to $0.10 per $1,000 of
basic insurance amount; after the first five Contract years, we charge
$10.00 per Contract plus up to $0.05 per $1,000 of the basic insurance
amount.
. We deduct a cost of insurance ("COI") charge.
. If the Contract includes riders, we deduct rider charges from the Contract
Fund.
. If the rating class of an insured results in an extra charge, we will
deduct that charge from the Contract Fund.
- --------------------------------------------------------------------------------
4
POSSIBLE ADDITIONAL CHARGES
. We will assess contingent deferred sales and administrative charges
(surrender charges) if the Contract is surrendered. We may charge up to $8
per $1,000 of basic insurance amount if you surrender your Contract. This
charge is level for the first five years and declines monthly until it
reaches zero at the end of the 10th Contract year.
. We assess an administrative processing charge of up to $25 for any
withdrawals.
. We reserve the right to charge up to $25 for each basic insurance amount
decrease, although no such charge is currently being made.
. We assess an administrative processing charge of up to $25 for each
transfer exceeding 12 in any Contract year.
UNDERLYING PORTFOLIO EXPENSES
(THE EXPENSE FIGURES FOR THE JANUS ASPEN SERIES GROWTH PORTFOLIO ARE AFTER FEE
WAIVERS OR REDUCTIONS.)
- ----------------------------------------------------------------------------------------------------
INVESTMENT ADVISORY
PORTFOLIO FEE OTHER EXPENSES TOTAL EXPENSES
- ----------------------------------------------------------------------------------------------------
SERIES FUND
Money Market 0.40% 0.01% 0.41%
Diversified Bond 0.40% 0.02% 0.42%
Conservative Balanced 0.55% 0.02% 0.57%
Flexible Managed 0.60% 0.01% 0.61%
High Yield Bond 0.55% 0.03% 0.58%
Stock Index 0.35% 0.02% 0.37%
Equity Income 0.40% 0.02% 0.42%
Equity 0.45% 0.02% 0.47%
Prudential Jennison 0.60% 0.03% 0.63%
Global 0.75% 0.11% 0.86%
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Value Fund (1) 0.61% 0.05% 0.66%
AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC.
VP Value Portfolio (2) 1.00% 0.00% 1.00%
JANUS ASPEN SERIES
Growth Portfolio (3) 0.65% 0.03% 0.68%
MFS(R) VARIABLE INSURANCE TRUST/SM/
Emerging Growth Series 0.75% 0.10% 0.85%
TEMPLETON VARIABLE PRODUCTS SERIES
FUND
Franklin Small Cap Investments
Fund - 0.75% 1.25% 1.25%
Class 2 (4)
T. ROWE PRICE INTERNATIONAL
SERIES, INC. 1.05% 0.00% 1.05%
International Stock
Portfolio (5)
- ------------------------------------------------------------------------------------------------
(1) AIM may from time to time voluntarily waive or reduce its respective fees.
Effective May 1, 1999, the Fund will reimburse AIM in an amount up to 0.25%
of the average net asset value of the Fund for expenses incurred in
providing, or assuring that participating insurance companies provide,
certain administrative services. Currently, the fee only applies to the
average net asset value of each Fund in excess of the net asset value of
each Fund as calculated on April 30, 1999.
(2) Fees are all-inclusive.
5
(3) The fees and expenses in the table above are based on gross expenses of the
Portfolio before expense offset arrangements for the fiscal year ended
December 31, 1998. The information for the Portfolio is net of fee waivers
or reductions from Janus Capital. Fee reductions for the Portfolio reduce
the management fee to the level of the corresponding Janus retail fund.
Other waivers, if applicable, are first applied against the management fee
and then against other expenses. Without such waivers or reductions, the
management fee, other expenses and total operating expenses for the
Portfolio would have been 0.72%, 0.03% and 0.75%, respectively. Janus
Capital may modify or terminate the waivers or reductions at any time upon
at least 90 days' notice to the Trustees.
(4) Figures reflect expenses from the Fund's inception on May 1, 1998 and are
annualized. The Manager agreed in advance to limit management fees and make
certain payments to reduce the Fund's expenses as necessary so that Total
Actual Expenses did not exceed 1.25% of the Fund's Class 2 net assets in
1998. The Manager is contractually obligated to continue this arrangement
through 1999.
(5) The investment management fee includes the ordinary expenses of operating
the Fund.
THE EXPENSES RELATING TO THE FUNDS (OTHER THAN THOSE OF THE PRUDENTIAL SERIES
FUND, INC. (THE "SERIES FUND")) HAVE BEEN PROVIDED TO PRUCO LIFE BY THE FUNDS.
PRUCO LIFE HAS NOT INDEPENDENTLY VERIFIED THEM.
TYPES OF DEATH BENEFIT
There are two types of death benefit available: Type A (fixed) death benefit and
Type B (variable) death benefit. You may choose a Type A death benefit under
which the cash surrender value varies daily with investment experience, and the
death benefit you initially chose does not change. However, the Contract Fund
may grow to a point where the death benefit may increase and vary with
investment experience. You may choose a Type B death benefit under which the
cash surrender value and the death benefit both vary with investment experience.
For either type of death benefit, as long as the Contract is inforce, the death
benefit will never be less than the basic insurance amount shown in your
Contract. See TYPE OF DEATH BENEFIT, page 20.
PREMIUM PAYMENTS
The Contract is a flexible premium contract - there are no scheduled premiums.
Except for the minimum initial premium, and subject to a minimum of $25 per
subsequent payment, you choose the timing and amount of premium payments. The
Contract will remain inforce if the Contract Fund is sufficient to cover the
charges, including surrender charges. Paying insufficient premiums, poor
investment results, or the taking of loans or withdrawals from the Contract will
increase the possibility that the Contract will lapse. However, if the
accumulated premiums you pay, less withdrawals, are high enough, and you have no
Contract debt, Pruco Life guarantees that your Contract will not lapse even if
investment experience is very unfavorable and the Contract Fund drops below
zero. There are two guarantees available, one that lasts for the lifetime of
the Contract and one that lasts for a stated, reasonably lengthy period. In
6
Massachusetts, only one death benefit guarantee is available and the length of
this death benefit guarantee is five Contract years. The guarantee for the life
of the Contract requires higher premium payments. See PREMIUMS, page 18, DEATH
BENEFIT GUARANTEE, page 20 and LAPSE AND REINSTATEMENT, page 32. You should
discuss your billing options with your Pruco Life representative when you apply
for the Contract. See PREMIUMS, page 18.
REFUND
For a limited time, you may return your Contract for a refund in accordance with
the terms of its "free look" provision. See SHORT-TERM CANCELLATION RIGHT OR
"FREE LOOK," page 16.
For the DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, see page 1.
THE REPLACEMENT OF LIFE INSURANCE IS GENERALLY NOT IN YOUR BEST INTEREST. IN
MOST CASES, IF YOU REQUIRE ADDITIONAL COVERAGE, THE BENEFITS OF YOUR EXISTING
CONTRACT CAN BE PROTECTED BY PURCHASING ADDITIONAL INSURANCE OR A SUPPLEMENTAL
CONTRACT. IF YOU ARE CONSIDERING REPLACING A CONTRACT, YOU SHOULD COMPARE THE
BENEFITS AND COSTS OF SUPPLEMENTING YOUR EXISTING CONTRACT WITH THE BENEFITS AND
COSTS OF PURCHASING THE CONTRACT DESCRIBED IN THIS PROSPECTUS AND YOU SHOULD
CONSULT WITH A QUALIFIED TAX ADVISER.
THIS PROSPECTUS MAY ONLY BE OFFERED IN JURISDICTIONS IN WHICH THE OFFERING IS
LAWFUL. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION FOR THE FUNDS.
7
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, PRUCO LIFE VARIABLE
UNIVERSAL ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER THE
CONTRACT
PRUCO LIFE INSURANCE COMPANY
Pruco Life Insurance Company ("Pruco Life", "us", "we", or "our") is a stock
insurance company, organized in 1971 under the laws of the State of Arizona. It
is licensed to sell life insurance and annuities in the District of Columbia,
Guam, and in all states except New York. These Contracts are not offered in any
state where the necessary approvals have not been obtained.
Pruco Life is a wholly-owned subsidiary of The Prudential Insurance Company of
America ("Prudential"), a mutual insurance company founded in 1875 under the
laws of the state of New Jersey. Prudential is currently considering
reorganizing itself into a publicly traded stock company through a process known
as "demutualization." On February 10, 1998, Prudential's Board of Directors
authorized management to take the preliminary steps necessary to allow
Prudential to demutualize. On July 1, 1998, legislation was enacted in New
Jersey that would permit this conversion to occur and that specified the process
for conversion. Demutualization is a complex process involving development of a
plan of reorganization, adoption of a plan by Prudential's Board of Directors, a
public hearing, voting by qualified policyholders and regulatory approval, all
of which could take two or more years to complete. Prudential's management and
Board of Directors have not yet determined to demutualize and it is possible
that, after careful review, Prudential could decide not to go public.
The plan of reorganization, which hasn't been developed and approved, would
provide the criteria for determining eligibility and the methodology for
allocating shares or other consideration to those who would be eligible. Under
New Jersey's demutualization law, a policy would have to be in effect on the
date Prudential's Board of Directors adopted a plan of reorganization in order
to be considered for eligibility. Generally, the amount of shares or other
consideration eligible customers would receive would be based on a number of
factors, including the types, amounts and issue years of their policies. As a
general rule, owners of Prudential-issued insurance policies and annuity
contracts would be eligible, while mutual fund customers and customers of
Prudential's subsidiaries would not be. It has not yet been determined whether
any exceptions to that general rule will be made with respect to policyholders
and contract owners of Prudential's subsidiaries. This does not constitute a
proposal, offer, solicitation or recommendation regarding any plan of
reorganization that may be proposed or a recommendation regarding the ownership
of any stock that could be issued in connection with any such demutualization.
THE PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
We have established a separate account, the Pruco Life Variable Universal
Account (the "Account"), to hold the assets that are associated with the
Contracts. The Account was established on April 17, 1989 under Arizona law and
is registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940 as a unit investment trust, which is a type of
investment company. The Account meets the definition of a "separate account"
under the federal securities laws. The Account holds assets that are segregated
from all of Pruco Life's other assets.
Pruco Life is also the legal owner of the assets in the Account. Pruco Life
will maintain assets in the Account with a total market value at least equal to
the reserve and other liabilities relating to the variable benefits attributable
to the Account. These assets may not be charged with liabilities which arise
from any
8
other business Pruco Life conducts. In addition to these assets, the Account's
assets may include funds contributed by Prudential to commence operation of the
Account and may include accumulations of the charges Pruco Life makes against
the Account. From time to time these additional assets will be transferred to
Pruco Life's general account. Pruco Life will consider any possible adverse
impact the transfer might have on the Account before making any such transfer.
The obligations to Contract owners and beneficiaries arising under the Contract
are general corporate obligations of Pruco Life.
Currently, you may invest in one or a combination of 16 available variable
investment options. When you chose a variable investment option, we purchase
shares of a mutual fund which are held as an investment for that option. We
hold these shares in the Separate Account. The division of the Separate Account
of Pruco Life that invests in a particular mutual fund is referred to in your
Contract as the subaccount. Pruco Life may add additional variable investment
options in the future. The Account's financial statements begin on page A1.
THE FUNDS
Listed below are the mutual funds (the "Funds") in which the variable investment
options invest, the investment objectives, and investment advisers.
EACH OF THE FUNDS HAS A SEPARATE PROSPECTUS THAT IS PROVIDED WITH THIS
PROSPECTUS. YOU SHOULD READ THE FUND PROSPECTUS BEFORE YOU DECIDE TO ALLOCATE
ASSETS TO THE VARIABLE INVESTMENT OPTION USING THAT FUND. THERE IS NO ASSURANCE
THAT THE INVESTMENT OBJECTIVES OF THE FUNDS WILL BE MET.
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND"):
. MONEY MARKET PORTFOLIO: The investment objective is maximum current income
consistent with the stability of capital and the maintenance of liquidity.
The Portfolio invests in high quality short-term debt obligations that
mature in 13 months or less.
. DIVERSIFIED BOND PORTFOLIO: The investment objective is a high level of
income over a longer term while providing reasonable safety of capital. The
Portfolio invests primarily in higher grade debt obligations and high
quality money market investments.
. CONSERVATIVE BALANCED PORTFOLIO: The investment objective is a total
investment return consistent with a conservatively managed diversified
portfolio. The Portfolio invests in a mix of equity securities, debt
obligations and money market instruments.
. FLEXIBLE MANAGED PORTFOLIO: The investment objective is a total investment
return consistent with an aggressively managed diversified portfolio. The
Portfolio invests in a mix of equity securities, debt obligations and money
market instruments.
. HIGH YIELD BOND PORTFOLIO: The investment objective is a high total return.
The Portfolio invests primarily in high yield/high risk debt securities.
. STOCK INDEX PORTFOLIO: The investment objective is investment results that
generally correspond to the performance of publicly-traded common stocks.
The Portfolio attempts to duplicate the price and yield performance of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index").
. EQUITY INCOME PORTFOLIO: The investment objective is both current income
and capital appreciation. The Portfolio invests primarily in common stocks
and convertible securities that provide good prospects for returns above
those of the S&P 500 Index or the NYSE Composite Index.
9
. EQUITY PORTFOLIO: The investment objective is capital appreciation. The
Portfolio invests primarily in common stocks of major established
corporations as well as smaller companies that offer attractive prospects
of appreciation.
. PRUDENTIAL JENNISON PORTFOLIO: The investment objective is to achieve
long-term growth of capital. The Portfolio invests primarily in equity
securities of major established corporations that offer above-average
growth prospects.
. GLOBAL PORTFOLIO: The investment objective is long-term growth of capital.
The Portfolio invests primarily in common stocks (and their equivalents) of
foreign and U.S. companies.
Prudential is the investment adviser for the assets of each of the portfolios of
the Series Fund. Prudential's principal business address is 751 Broad Street,
Newark, New Jersey 07102-3777. Prudential has a Service Agreement with its
wholly-owned subsidiary, The Prudential Investment Corporation ("PIC"). The
Service Agreement provides that, subject to Prudential's supervision, PIC will
furnish investment advisory services in connection with the management of the
Series Fund. In addition, Prudential has entered into a Subadvisory Agreement
with its wholly-owned subsidiary, Jennison Associates LLC ("Jennison"), under
which Jennison furnishes investment advisory services in connection with the
management of the Prudential Jennison Portfolio.
AIM VARIABLE INSURANCE FUNDS, INC.:
. AIM V.I. VALUE FUND. Seeks to achieve long-term growth of capital by
investing primarily in equity securities judged by the fund's investment
adviser to be undervalued relative to the investment adviser's appraisal of
the current or projected earnings of the companies issuing the securities,
or relative to current market values of assets owned by the companies
issuing the securities or relative to the equity market generally. Income
is a secondary objective.
AIM Advisors, Inc. ("AIM") is the investment adviser for this fund. The
principal business address for AIM is 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.:
. AMERICAN CENTURY VP VALUE FUND. Seeks long-term capital growth with income
as a secondary objective. The fund seeks to achieve its objective by
investing primarily in equity securities of well-established companies with
intermediate-to-large market capitalizations that are believed by
management to be undervalued at the time of purchase.
American Century Investment Management, Inc. ("ACIM") is the investment adviser
for this fund. ACIM's principal business address is American Century Tower,
4500 Main Street, Kansas City, Missouri 64111. The Principal Underwriter of the
fund is American Century Services, Inc., located at 4500 Main Street, Kansas
City, Missouri 64111.
JANUS ASPEN SERIES:
. GROWTH PORTFOLIO. Seeks long-term growth of capital in a manner consistent
with the preservation of capital.
Janus Capital Corporation is the investment adviser and is responsible for the
day-to-day management of the portfolio and other business affairs of the
portfolio. Janus Capital Corporation's principal business address is 100
Fillmore Street, Denver, Colorado 80206-4928.
10
MFS(R) VARIABLE INSURANCE TRUST/SM/:
. EMERGING GROWTH SERIES. Seeks to provide long-term growth of capital.
Dividend and interest income from portfolio securities, if any, is
incidental to the Series' investment objective of long-term growth of
capital.
Massachusetts Financial Services Company, a Delaware corporation, is the
investment adviser to this MFS Series. The principal business address for the
Massachusetts Financial Services Company is 500 Boylston Street, Boston,
Massachusetts 02116.
TEMPLETON VARIABLE PRODUCTS SERIES FUND:
. FRANKLIN SMALL CAP INVESTMENTS FUND--CLASS 2. Seeks long-term capital
growth through investments primarily in equity securities of U.S. small
capitalization growth companies.
Franklin Advisers, Inc. (Advisers) is the fund's investment manager. The
principal business address for Franklin Advisers, Inc. is 777 Mariners Island
Boulevard, San Mateo, California 94403-7777.
T. ROWE PRICE INTERNATIONAL SERIES, INC.:
. INTERNATIONAL STOCK PORTFOLIO. Long-term growth of capital through
investments primarily in common stocks of established, non-U.S. companies.
Rowe Price-Fleming International, Inc. is the investment manager for this fund.
The principal business address for Rowe Price-Fleming International, Inc. is 100
East Pratt Street, Baltimore, Maryland 21202.
The investment advisers for the Funds charge a daily investment management fee
as compensation for their services. These fees are described in the table in the
INTRODUCTION AND SUMMARY section, see page 5, and are more fully described in
the prospectus for each Fund.
In the future it may become disadvantageous for both variable life insurance and
variable annuity contract separate accounts to invest in the same underlying
mutual funds. Although neither of the companies that invest in the Funds nor
the Funds currently foresee any such disadvantage, the Board of Directors for
each Fund intends to monitor events in order to identify any material conflict
between variable life insurance and variable annuity contract owners and to
determine what action, if any, should be taken. Material conflicts could result
from such things as: (1) changes in state insurance law; (2) changes in federal
income tax law; (3) changes in the investment management of any portfolio of the
Funds; or (4) differences between voting instructions given by variable life
insurance and variable annuity contract owners.
Pruco Life may be compensated by an affiliate of each of the Funds (other than
the Prudential Series Fund) based upon an annual percentage of the average
assets held in the Funds by Pruco Life under the Contracts. These percentages
vary by Fund, and reflect administrative and other services provided by Pruco
Life.
VOTING RIGHTS
As described earlier, all of the assets held in the subaccounts will be invested
in shares of the corresponding portfolios of the Funds. Pruco Life is the legal
owner of those shares and as such has the right to vote on any matter voted on
at shareholders meetings of the Funds. However, Pruco Life will, as required by
law, vote the shares of the Funds in accordance with voting instructions
received from Contract owners at any regular and special shareholders meetings.
A Fund may not hold annual shareholders meetings when not required to do so
under the laws of the state of its incorporation or the Investment
11
Company Act of 1940. Fund shares for which no timely instructions from Contract
owners are received, and any shares attributable to general account investments
of Pruco Life will be voted in the same proportion as shares in the respective
portfolios for which instructions are received. Should the applicable federal
securities laws or regulations, or their current interpretation, change so as to
permit Pruco Life to vote shares of the Funds in its own right, it may elect to
do so.
Matters on which Contract owners may give voting instructions include the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's selected subaccount[s]; (4) any change in
the fundamental investment policy of a portfolio corresponding to the Contract
owner's selected subaccount[s]; and (5) any other matter requiring a vote of the
shareholders of the Series Fund. With respect to approval of the investment
advisory agreement or any change in a portfolio's fundamental investment policy,
Contract owners participating in such portfolios will vote separately on the
matter, pursuant to the requirements of Rule 18f-2 under the Investment Company
Act of 1940.
The number of Fund shares for which a Contract owner may give instructions is
determined by dividing the portion of the value of the Contract derived from
participation in a subaccount, by the value of one share in the corresponding
portfolio of the applicable Fund. The number of votes for which each Contract
owner may give Pruco Life instructions will be determined as of the record date
chosen by the Board of Directors of the applicable Fund. Pruco Life will
furnish Contract owners with proper forms and proxies to enable them to give
these instructions. Pruco Life reserves the right to modify the manner in which
the weight to be given voting instructions is calculated where such a change is
necessary to comply with current federal regulations or interpretations of those
regulations.
Pruco Life may, if required by state insurance regulations, disregard voting
instructions if they would require shares to be voted so as to cause a change in
the sub-classification or investment objectives of one or more of a Fund's
portfolios, or to approve or disapprove an investment advisory contract for a
Fund. In addition, Pruco Life itself may disregard voting instructions that
would require changes in the investment policy or investment adviser of one or
more of the Fund's portfolios, provided that Pruco Life reasonably disapproves
such changes in accordance with applicable federal regulations. If Pruco Life
does disregard voting instructions, it will advise Contract owners of that
action and its reasons for such action in the next annual or semi-annual report
to Contract owners.
THE FIXED-RATE OPTION
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED-RATE
OPTION UNDER THE CONTRACT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND THE GENERAL ACCOUNT HAS NOT BEEN REGISTERED AS AN INVESTMENT COMPANY
UNDER THE INVESTMENT COMPANY ACT OF 1940. ACCORDINGLY, INTERESTS IN THE FIXED-
RATE OPTION ARE NOT SUBJECT TO THE PROVISIONS OF THESE ACTS, AND PRUCO LIFE HAS
BEEN ADVISED THAT THE STAFF OF THE SEC HAS NOT REVIEWED THE DISCLOSURE IN THIS
PROSPECTUS RELATING TO THE FIXED-RATE OPTION. ANY INACCURATE OR MISLEADING
DISCLOSURE REGARDING THE FIXED-RATE OPTION MAY, HOWEVER, BE SUBJECT TO CERTAIN
GENERALLY APPLICABLE PROVISIONS OF FEDERAL SECURITIES LAWS.
You may choose to invest, either initially or by transfer, all or part of your
Contract Fund to a fixed-rate option. This amount becomes part of Pruco Life's
general account. The general account consists of all assets owned by Pruco Life
other than those in the Account and in other separate accounts that have been or
may be established by Pruco Life. Subject to applicable law, Pruco Life has
sole discretion over the investment of the general account assets, and Contract
owners do not share in the investment experience of those assets. Instead,
Pruco Life guarantees that the part of the Contract Fund allocated to the fixed-
rate option will accrue interest daily at an effective annual rate that Pruco
Life declares periodically,
12
but not less than an effective annual rate of 4%. Pruco Life is not obligated to
credit interest at a rate higher than an effective annual rate of 4%, although
we may do so.
Transfers from the fixed-rate option may be subject to strict limits. (See
TRANSFERS, page 21). The payment of any cash surrender value attributable to the
fixed-rate option may be delayed up to six months (see WHEN PROCEEDS ARE PAID,
page 27).
WHICH INVESTMENT OPTION SHOULD BE SELECTED?
Historically, for investments held over relatively long periods, the investment
performance of common stocks has generally been superior to that of short or
long-term debt securities, even though common stocks have been subject to much
more dramatic changes in value over short periods of time. Accordingly, the
Stock Index, Equity Income, Equity, Prudential Jennison, Global, AIM, American
Century, Janus, MFS, T. Rowe Price, or Templeton Portfolios may be desirable
options if you are willing to accept such volatility in your Contract values.
Each of these equity portfolios involves different investment risks, policies,
and programs.
You may prefer the somewhat greater protection against loss of principal (and
reduced chance of high total return) provided by the Diversified Bond Portfolio.
You may want even greater safety of principal and may prefer the Money Market
Portfolio or the fixed-rate option, recognizing that the level of short-term
rates may change rather rapidly. If you are willing to take risks and possibly
achieve a higher total return, you may prefer the High Yield Bond Portfolio,
recognizing that the risks are greater for lower quality bonds with normally
higher yields. You may wish to divide your invested premium among two or more
of the portfolios. You may wish to obtain diversification by relying on
Prudential's judgment for an appropriate asset mix by choosing the Conservative
Balanced or Flexible Managed Portfolios.
Your choice should take into account your willingness to accept investment
risks, how your other assets are invested, and what investment results you may
experience in the future. You should consult your Pruco Life representative
from time to time about the choices available to you under the Contract. Pruco
Life recommends AGAINST frequent transfers among the several investment options.
Experience generally indicates that "market timing" investing, particularly by
non-professional investors, is likely to prove unsuccessful.
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS
CHARGES AND EXPENSES
The total amount invested at any time in the Contract Fund consists of the sum
of the amount credited to the variable investment options, the amount allocated
to the fixed-rate option, and the principal amount of any Contract loan plus the
amount of interest credited to the Contract upon that loan. See CONTRACT LOANS,
page 29. Most charges, although not all, are made by reducing the Contract Fund.
This section provides a more detailed description of each charge that is
described briefly in the chart on page 3.
In several instances we will use the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, is the highest charge that
Pruco Life is entitled to make under the Contract. The "current charge" is the
lower amount that Pruco Life is now charging. However, if circumstances change,
we reserve the right to increase each current charge, up to the maximum charge,
without giving any advance notice.
13
DEDUCTIONS FROM PREMIUM PAYMENTS
(a) We charge up to 7.5% from each premium for taxes attributable to premiums
(in Oregon this is called a premium based administrative charge). For these
purposes, "taxes attributable to premiums" shall include any federal, state
or local income, premium, excise, business or any other type of tax (or
component thereof) measured by or based upon the amount of premium received
by Pruco Life. That charge is currently made up of two parts, which
currently equal a total of 3.75% of the premiums received. The first part
is a charge for state and local premium-based taxes. The current charge for
this first part is 2.5% of the premium. This amount may be more than Pruco
Life actually pays. The second part is for federal income taxes measured by
premiums, and it is currently equal to 1.25% of the premium. We believe
that this charge is a reasonable estimate of an increase in Pruco Life's
federal income taxes resulting from a 1990 change in the Internal Revenue
Code. It is intended to recover this increased tax.
(b) We may deduct up to 12% of premiums paid in the first five Contract years
for sales expenses. This charge is reduced to 4% of premiums paid in
subsequent Contract years. This charge, often called a "sales load", is
deducted to compensate us for the costs of selling the Contracts, including
commissions, advertising and the printing and distribution of prospectuses
and sales literature. Part of those costs related to sales are also
recovered by surrender charges. See SURRENDER CHARGES, page 15.
Currently, we deduct 12% of premiums paid in the first five Contract years
up to the amount of the Lifetime Premium, excluding any premiums for riders
or extra risk charges, (see PREMIUMS, page 12) and 4% of premiums paid in
excess of this amount. We deduct 4% of the premiums paid in Contract years
six through 10, and 2% of premiums paid thereafter.
Attempting to structure the timing and amount of premium payments to reduce
the potential sales load may increase the risk that your Contract will
lapse without value. Delaying the payment of premium amounts to later years
will adversely affect the Death Benefit Guarantee if the accumulated
premium payments do not reach the accumulated values shown under your
Contract's Death Benefit Guarantee Values. See DEATH BENEFIT GUARANTEE,
page 20. In addition, there are circumstances where payment of premiums
that are too large may cause the Contract to be characterized as a Modified
Endowment Contract, which could be significantly disadvantageous. See TAX
TREATMENT OF CONTRACT BENEFITS, page 30.
DEDUCTIONS FROM PORTFOLIOS
We deduct an investment advisory fee daily from each portfolio at a rate, on an
annualized basis, ranging from 0.35% for the Stock Index Portfolio to 1.05% for
the T. Rowe Price International Stock Portfolio. The expenses incurred in
conducting the investment operations of the portfolios (such as custodian fees
and preparation and distribution of annual reports) are paid out of the
portfolio's income. These expenses also vary from portfolio to portfolio.
DAILY DEDUCTION FROM THE CONTRACT FUND
Each day we deduct a charge from the assets of each of the variable investment
options in an amount equivalent to an effective annual rate of 0.9%. This
charge is intended to compensate Pruco Life for assuming mortality and expense
risks under the Contract. The mortality risk assumed is that the insureds may
live for shorter periods of time than Pruco Life estimated when it determined
what mortality charge to make. The expense risk assumed is that expenses
incurred in issuing and administering the Contract will be greater than Pruco
Life estimated in fixing its administrative charges. This charge is not
assessed against amounts allocated to the fixed-rate option.
14
MONTHLY DEDUCTIONS FROM CONTRACT FUND
Pruco Life deducts the following monthly charges proportionately from the dollar
amounts held in each of the chosen investment option[s].
a) An administrative charge based on the basic insurance amount is deducted.
The charge is intended to compensate us for things like processing claims,
keeping records and communicating with Contract owners. Currently, we
charge the following:
. generally, if the average issue age of the insureds is 40 or less in
the first five Contract years, we deduct $10 per Contract plus $0.07
per $1,000 of basic insurance amount;
. if the average issue age of the insureds is greater than 40 in the
first five Contract years, we deduct $10 per Contract plus $0.08 per
$1,000 of basic insurance amount;
. in all subsequent years, we deduct $10 per Contract plus $0.01 per
$1,000 of basic insurance amount.
Pruco Life reserves the right, however, to charge up to $10 per Contract
plus $0.10 per $1,000 of basic insurance amount in the first five Contract
years and $10 per Contract plus $0.05 per $1,000 of basic insurance amount
in subsequent years.
b) A cost of insurance ("COI") charge is deducted. Upon the second death of
two insureds, the amount payable to the beneficiary (assuming there is no
Contract debt) is larger than the Contract Fund - significantly larger if
both insureds died in the early years of the Contract. The cost of
insurance charges collected from all Contract owners enables Pruco Life to
pay this larger death benefit. The maximum COI charge is determined by
multiplying the "net amount at risk" under a Contract (the amount by which
the Contract's death benefit exceeds the Contract Fund) by maximum COI
rates. The maximum COI rates are based upon both insureds' current attained
age, sex, smoking status, and extra rating class, if any.
c) You may add one or more of several riders to the Contract. Some riders are
charged for separately. If you add such a rider to the basic Contract,
additional charges will be deducted.
d) If an insured is in a substandard risk classification (for example, a
person in a hazardous occupation), additional charges will be deducted.
SURRENDER CHARGE
We will assess a surrender charge if, during the first 10 Contract years, the
Contract lapses, is surrendered, or in some instances, the basic insurance
amount is decreased (see DECREASES IN BASIC INSURANCE AMOUNT, page 26). This
charge is deducted to cover sales costs and administrative costs, such as: the
cost of processing applications, conducting examinations, determining
insurability and the insured's rating class, and establishing records. We may
charge up to $8 per $1,000 of basic insurance amount if you surrender your
Contract. Currently, we charge $5 per $1,000 of basic insurance amount. This
charge is level for the first five Contract years and declines monthly until it
reaches zero at the end of the 10th Contract year.
TRANSACTION CHARGES
(a) We currently charge an administrative processing fee equal to the lesser of
$25 or 2% of the withdrawal amount in connection with each withdrawal.
15
(b) We reserve the right to charge an administrative processing fee of up to
$25 made in connection with each decrease in basic insurance amount. We
currently do not make such a charge.
(c) We will charge an administrative processing fee of $25 for each transfer
exceeding 12 in any Contract year.
GENERAL DESCRIPTION OF THE CONTRACT
The PRUCO LIFE CORNERSTONE SURVIVORSHIP Contract is a flexible premium variable
universal life insurance policy. The Contract provides life insurance coverage,
with a death benefit payable upon the second death of two insureds.
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
You may apply for a minimum basic insurance amount of $250,000. The Contract
may be issued on two insureds each between the ages of 18 and 90. Pruco Life
requires evidence of insurability on each insured which may include a medical
examination before issuing any Contract. Non-smokers are offered more favorable
cost of insurance rates than smokers. Pruco Life charges a higher cost of
insurance rate and/or an additional amount if an extra mortality risk is
involved. These are the current underwriting requirements. We reserve the right
to change them on a non-discriminatory basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, you may return the Contract for a refund within 10 days after you
receive it. Some states allow a longer period of time during which a Contract
may be returned for a refund. You can request a refund by mailing or delivering
the Contract to the representative who sold it or to the Home Office specified
in the Contract. A Contract returned according to this provision shall be
deemed void from the beginning. You will then receive a refund of all premium
payments made, plus or minus any change due to investment experience. However,
if applicable law so requires, you will receive a refund of all premium payments
made with no adjustment for investment experience. For information on how
premium payments are allocated during the "free-look" period, see ALLOCATION OF
PREMIUMS, page 19.
TYPE OF DEATH BENEFIT
You may select either a Type A (fixed) or a Type B (variable) death benefit.
Generally, a Contract with a Type A (fixed) death benefit has a death benefit
equal to the basic insurance amount. This type of death benefit does not vary
with the investment performance of the investment options you selected, except
in certain circumstances. See HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT
WILL VARY, page 23. The payment of additional premiums and favorable investment
results of the investment options to which the assets are allocated will
generally increase the cash surrender value. See HOW A CONTRACT'S CASH
SURRENDER VALUE WILL VARY, page 23.
A Contract with a Type B (variable) death benefit has a death benefit which will
generally equal the basic insurance amount plus the Contract Fund. Since the
Contract Fund is a part of the death benefit, favorable investment performance
and payment of additional premiums generally result in an increase in the death
benefit, as well as in the cash surrender value. Over time, however, the
increase in the cash surrender value will be less than under a Contract with a
fixed death benefit. This is because, given two Contracts with the same basic
insurance amount and equal Contract Funds, generally the cost of insurance
charge for a Contract with a Type B death benefit will be greater. See HOW A
CONTRACT'S CASH SURRENDER VALUE WILL VARY, page 23 and HOW A TYPE B (VARIABLE)
CONTRACT'S DEATH BENEFIT WILL VARY, page 24. Unfavorable investment performance
will result in
16
decreases in the cash surrender value and may result in decreases in the death
benefit. As long as the Contract is not in default and there is no Contract
debt, the death benefit may not fall below the basic insurance amount stated in
the Contract.
In choosing a death benefit type, you should also consider whether you intend to
use the withdrawal feature. Contract owners with a Type A (fixed) death benefit
should note that any withdrawal may result in a reduction of the basic insurance
amount and possible surrender charges. In addition, we will not allow you to
make a withdrawal that will decrease the basic insurance amount below the
minimum basic insurance amount. See WITHDRAWALS, page 25.
The way in which the cash surrender values and death benefits will change
depends significantly upon the investment results that are actually achieved.
CHANGING THE TYPE OF DEATH BENEFIT
This Contract has two types of death benefit, Type A (fixed) or Type B
(variable). You may change the type of death benefit, subject to Pruco Life's
approval. Currently, Pruco Life does not require a medical examination. Except
as stated below, we will adjust the basic insurance amount so that the death
benefit immediately after the change will remain the same as the death benefit
immediately before the change.
If you are changing your Contract's death benefit from Type A to Type B, we will
reduce the basic insurance amount by the amount in your Contract Fund on the
date the change takes place. The basic insurance amount after the change may not
be lower than the minimum basic insurance amount applicable to the Contract. If
you are changing your Contract's death benefit from Type B to Type A, we will
increase the basic insurance amount by the amount in your Contract Fund on the
date the change takes place. This is illustrated in the following chart.
CHANGING THE DEATH BENEFIT FROM CHANGING THE DEATH BENEFIT FROM
TYPE A TYPE B TYPE B TYPE A
(FIXED) (VARIABLE) (VARIABLE) (FIXED)
- --------------------------------------------------------------------------------------------------------
BASIC INSURANCE AMOUNT $300,000 $250,000 $300,000 $350,000
CONTRACT FUND $50,000 $50,000 $50,000 $50,000
DEATH BENEFIT* $300,000 $300,000 $350,000 $350,000
* assuming there is no Contract debt
Changing your Contract's type of death benefit from Type A to Type B during the
first 10 Contract years may result in the assessment of surrender charges. In
addition, we reserve the right to make an administrative processing charge of up
to $25 for any decrease in basic insurance amount, although we do not currently
do so. See CHARGES AND EXPENSES, page 13.
To request a change, fill out an application for change which can be obtained
from your Pruco Life representative or a Home Office. If the change is
approved, we will recompute the Contract's charges and appropriate tables and
send you new Contract data pages. We may ask that you send us your Contract
before making the change. There may be circumstances under which a change in
the death benefit type may cause the Contract to be classified as a Modified
Endowment Contract, which could be significantly disadvantageous. See TAX
TREATMENT OF CONTRACT BENEFITS, page 30.
17
CONTRACT DATE
When the first premium payment is paid with the application for a Contract, the
Contract date will ordinarily be the later of the application date or the
medical examination date. If the first premium is not paid with the
application, the Contract date will be the date on which the first premium is
paid and the Contract is delivered. Under certain circumstances, we may allow
the Contract to be backdated for the purpose of lowering one or both insureds'
issue ages, but only to a date not earlier than six months prior to the
application date. This may be advantageous for some Contract owners as a lower
issue age may result in lower current charges. For a Contract that is
backdated, we will credit the initial premium as of the date of receipt and will
deduct any charges due on or before that date.
PREMIUMS
The Contract is a flexible premium contract. The minimum initial premium is due
on or before the Contract date. Thereafter, you decide when you would like to
make premium payments and, subject to a $25 minimum, in what amounts. However,
the minimum premium payment is $15 for premiums made by electronic fund
transfer. We may require an additional premium if adjustments to premium
payments exceed the minimum initial premium or there are Contract Fund charges
due on or before the payment date. We reserve the right to refuse to accept any
payment that increases the death benefit by more than it increases the Contract
Fund. See HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY, page 23 and
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY, page 24. There are
circumstances under which the payment of premiums in amounts that are too large
may cause the Contract to be characterized as a Modified Endowment Contract,
which could be significantly disadvantageous. See TAX TREATMENT OF CONTRACT
BENEFITS, page 30.
If we receive the first premium payment on or before the Contract date, we will
credit the invested premium amount to the Contract Fund on the Contract date.
If we receive the first premium payment after the Contract date, we will credit
the premium amount to the Contract Fund on the payment receipt date.
Once the minimum initial premium payment is made, there are no required
premiums. However, there are several types of "premiums" which are described
below. Understanding them may help you understand how the Contract works.
MINIMUM INITIAL PREMIUM - the premium needed to start the Contract. There is
no insurance under the Contract unless the minimum initial premium is paid.
TARGET PREMIUM - the premiums that, if paid at the beginning of each Contract
year, will keep the Contract inforce during the full Limited Death Benefit
Guarantee period regardless of investment performance, assuming no loans or
withdrawals. For a Contract with no riders or extra risk charges, these
premiums will be level. Payment of Target Premiums at the beginning of each
Contract year is one way to achieve the Limited Death Benefit Guarantee
Values shown on the Contract data pages. At the end of the Limited Death
Benefit Guarantee period, continuation of the Contract will depend on the
Contract Fund having sufficient money to cover all charges or meeting the
conditions of the Lifetime Death Benefit Guarantee. See DEATH BENEFIT
GUARANTEE, page 20. These Target Premiums will be higher for a Contract with
a Type B (variable) death benefit than for a Contract with a Type A (fixed)
death benefit. When you purchase a Contract, your Pruco Life representative
can tell you the amount[s] of the Target Premium.
It is possible, in some instances, to pay a lower premium (the "SHORT-TERM
PREMIUM") than the Target Premium. These Short-Term Premiums, if paid at the
beginning of each Contract year, will keep the Contract inforce only during
the first five years of the Limited Death Benefit Guarantee period regardless
of investment performance, and assuming no loans or withdrawals. As is the
case with the Target Premium, for a Contract with no riders or extra risk
charges, these premiums will be level.
18
Payment of Short-Term Premiums at the beginning of each of the first five
Contract years is one way to achieve the Limited Death Benefit Guarantee
Values shown on the Contract data pages, but only for the first five Contract
years. A five year death benefit guarantee is the only death benefit
----
guarantee available in Massachusetts. At the end of the first five years,
continuation of the Contract will depend on the Contract Fund having
sufficient money to cover all charges or meeting the conditions of the
Lifetime Death Benefit Guarantee or the Limited Death Benefit Guarantee. See
DEATH BENEFIT GUARANTEE, page 20. When you purchase a Contract, your Pruco
Life representative can tell you the amount[s] of the Short-Term Premium.
This Contract may not be suitable for those who can afford to pay only the
Short-Term Premium.
LIFETIME PREMIUM (not applicable in Massachusetts) - the premiums that, if
paid at the beginning of each Contract year, will keep the Contract inforce
during the lifetime of the insureds regardless of investment performance,
assuming no loans or withdrawals. These Lifetime Premiums will be higher for
a Contract with a Type B (variable) death benefit than for a Contract with a
Type A (fixed) death benefit. As is the case with the Target Premium, for a
Contract with no riders or extra risk charges, these premiums will be level.
Payment of Lifetime Premiums at the beginning of each Contract year is one
way to achieve the Lifetime Death Benefit Guarantee Values shown on the
Contract data pages. See DEATH BENEFIT GUARANTEE, page 20. When you purchase
a Contract, your Pruco Life representative can tell you the amount[s] of the
Lifetime Premium.
We can bill you annually, semi-annually, or quarterly for an amount you select.
Because the Contract is a flexible premium contract, there are no scheduled
premium due dates. When you receive a premium notice, you are not required to
pay this amount. The Contract will remain inforce if: (1) the Contract Fund is
sufficient to pay monthly charges including surrender charges; or (2) you have
paid sufficient premiums on an accumulated basis to meet the Death Benefit
Guarantee conditions and there is no Contract debt. You may also pay premiums
automatically through pre-authorized monthly transfers from a bank checking
account. If you elect to use this feature, you choose the day of the month on
which premiums will be paid and the amount of the premiums paid. We will then
draft from your account the same amount on the same date each month.
When you apply for the Contract, you should discuss with your Pruco Life
representative how frequently you would like to be billed (if at all) and for
what amount.
ALLOCATION OF PREMIUMS
On the Contract date, Pruco Life deducts the charge for sales expenses and the
charge for taxes attributable to premiums (in Oregon this is called a premium
based administrative charge) from the initial premium. Also on the Contract
date, the remainder of the initial premium and any other premium received during
the short-term cancellation right ("free-look") period, will be allocated to the
Money Market investment option and the first monthly deductions are made. At
the end of the "free-look" period, these funds will be transferred out of the
Money Market investment option and allocated among the variable investment
options and/or the fixed-rate option according to your most current allocation
request. See SHORT-TERM CANCELLATION RIGHT OR "FREE-LOOK", page 16. The
transfer from the Money Market investment option immediately following the
"free-look" period will not be counted as one of your 12 free transfers
described below. If the first premium is received before the Contract date,
there will be a period during which the Contract owner's initial premium will
not be invested.
The charge for sales expenses and the charge for taxes attributable to premiums
(in Oregon this is called a premium based administrative charge) also apply to
all subsequent premium payments; the remainder will be invested as of the end of
the valuation period when received at a Home Office in accordance with the
allocation you previously designated. Provided the Contract is not in default,
you may change the way in which subsequent premiums are allocated by giving
written notice to a Home Office or by telephoning a Home Office, provided you
are enrolled to use the Telephone Transfer System. There is no charge for
19
reallocating future premiums. All percentage allocations must be in whole
numbers. For example, 33% can be selected but 33% cannot. Of course, the total
allocation to all selected investment options must equal 100%.
DEATH BENEFIT GUARANTEE
Although you decide what premium amounts you wish to pay, sufficient premium
payments, on an accumulated basis, will guarantee that your Contract will not
lapse and a death benefit will be paid upon the second death of two insureds.
This will be true even if, because of unfavorable investment experience, your
Contract Fund value drops to zero. Withdrawals may adversely affect the status
of the guarantee. A contract loan will negate any guarantee, regardless of the
value of your accumulated net payments. See WITHDRAWALS, page 25 and CONTRACT
LOANS, page 29. You should consider how important the Death Benefit Guarantee is
to you when deciding what premium amounts to pay into the Contract. We offer two
levels of death benefit guarantees: (1) Limited Death Benefit Guarantee, and (2)
Lifetime Death Benefit Guarantee. Lifetime Death Benefit Guarantees are not
available in Massachusetts, and Limited Death Benefit Guarantees are available
for no more than the first five years in Massachusetts.
For purposes of determining if a Death Benefit Guarantee is in effect, we
calculate two sets of values: (1) Limited Death Benefit Guarantee Values, and
(2) Lifetime Death Benefit Guarantee Values. These are values used solely to
determine if a Death Benefit Guarantee is in effect. They are not cash values
---
that you can realize by surrendering the Contract, nor are they payable death
benefits. The Limited Death Benefit Guarantee Values apply until age 75 of the
younger insured, or 10 years after issue, whichever is later. Correspondingly,
the Lifetime Death Benefit Guarantee Values are shown for the lifetime of the
Contract. In addition, the Contract data pages show Limited and Lifetime Death
Benefit Guarantee Values as of Contract anniversaries. Values for non-
anniversary Monthly dates will reflect the number of months elapsed between
Contract anniversaries.
The Limited Death Benefit Guarantee Values for the first five years are the end-
of-year accumulations of premiums at 4% annual interest assuming Short-Term
Premiums are paid at the beginning of each Contract year. A five year death
benefit guarantee is the only death benefit guarantee available in
----
Massachusetts. The Limited Death Benefit Guarantee Values after five years are
the end-of-year accumulations of premiums at 4% annual interest assuming Target
Premiums are paid at the beginning of each Contract year (including years one
through five). The Lifetime Death Benefit Guarantee Values are the end-of-year
accumulations of premiums at 4% annual interest assuming Lifetime Premiums are
paid at the beginning of each Contract year.
Short-Term, Target, and Lifetime Premiums are premium levels that, if paid at
the beginning of each Contract year, correspond to the Limited (first five years
only), Limited (all years of the Limited Death Benefit Guarantee period), and
Lifetime Death Benefit Guarantee Values, respectively (assuming no withdrawals
or loans). If you want a death benefit guarantee to last longer than five
years, you should expect to pay at least the Target Premium. See PREMIUMS, page
18. Paying the Short-Term, Target, or Lifetime Premiums at the start of each
Contract year is one way of reaching the Death Benefit Guarantee Values; they
are certainly not the only way.
At the Contract date, and on each Monthly date, we calculate your Contract's
"Accumulated Net Payments" as of that date. Accumulated Net Payments equal the
premiums you paid, accumulated at an effective annual rate of 4%, less
withdrawals also accumulated at 4%. If your Contract is in danger of lapsing,
we will compare your Accumulated Net Payments to the appropriate Death Benefit
Guarantee Value as of the Monthly date within each Death Benefit Guarantee
period. After the Limited Death Benefit Guarantee period, we will compare your
Accumulated Net Payments to the Lifetime Death Benefit Guarantee Value as of
that date. If your Accumulated Net Payments equal or exceed the applicable
(Limited or Lifetime) Death Benefit Guarantee Value and there is no Contract
debt, then the Contract is kept inforce, regardless of the amount in the
Contract Fund.
20
Here is a table of Short-Term, Target, or Lifetime Premiums (to the nearest
dollar) for sample cases. The examples assume the insureds are a male and a
female, both the same age, both smokers, with no extra risk or substandard
ratings, and no riders added to the Contract. For those who qualify for more
favorable underwriting classes, the premiums may be lower than those shown on
the chart, and for those who are classified as substandard, the premiums may be
higher.
BASIC INSURANCE AMOUNT - $250,000
ILLUSTRATIVE ANNUAL PREMIUMS
- -----------------------------------------------------------------------------------------------------------------------------------
AGE OF TYPE OF SHORT-TERM PREMIUM TARGET PREMIUM LIFETIME PREMIUM
BOTH DEATH BENEFIT CORRESPONDING TO THE CORRESPONDING TO THE CORRESPONDING TO THE
INSUREDS CHOSEN LIMITED DEATH BENEFIT LIMITED DEATH BENEFIT LIFETIME DEATH BENEFIT
AT ISSUE GUARANTEE VALUES GUARANTEE VALUES GUARANTEE VALUES
(FIRST FIVE YEARS ONLY) (not applicable in (not applicable in
Massachusetts) Massachusetts)
- -----------------------------------------------------------------------------------------------------------------------------------
40 Type A (Fixed) $ 1,137 $ 2,697 $ 3,447
40 Type B (Variable) $ 1,137 $ 3,456 $11,862
60 Type A (Fixed) $ 3,766 $ 6,358 $ 8,746
60 Type B (Variable) $ 3,766 $ 7,613 $27,694
80 Type A (Fixed) $21,803 $26,238 $28,887
80 Type B (Variable) $21,803 $33,321 $71,153
- ----------------------------------------------------------------------------------------------------------------------------------
You should consider carefully the value of maintaining the Death Benefit
Guarantee. If you desire the Death Benefit Guarantee for the full Limited Death
Benefit Guarantee period, you may prefer to pay at least the Target Premium in
all years, rather than paying the lower Short-Term Premium in the first five
years. If you pay only enough premium to meet the Limited Death Benefit
Guarantee Values in the first five years, you will need to pay more than the
----
Target Premium at the beginning of the sixth year in order to continue the
guarantee after the first five years of the Limited Death Benefit Guarantee
period.
If you desire the Death Benefit Guarantee for lifetime protection, you may
prefer to pay generally higher premiums in all years, rather than trying to make
such payments on an as needed basis. For example, if you pay only enough
premium to meet the Limited Death Benefit Guarantee Values, a substantial amount
-----------
may be required to meet the Lifetime Death Benefit Guarantee Values in order to
continue the guarantee at the end of the Limited Death Benefit Guarantee period
(not applicable in Massachusetts). In addition, it is possible that the payment
required to continue the guarantee after the Limited Death Benefit Guarantee
period could exceed the premium payments allowed to be paid without causing the
Contract to become a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT
BENEFITS, page 30.
The Death Benefit Guarantee allows considerable flexibility as to the timing of
premium payments. Your Pruco Life representative can supply sample
illustrations of various premium amount and frequency combinations that
correspond to the Death Benefit Guarantee Values.
TRANSFERS
You may, up to 12 times in each Contract year, transfer amounts from one
variable investment option to another variable investment option or to the
fixed-rate option without charge. Additional transfers may be made during each
Contract year, but only with our consent. There is an administrative charge of
up to $25
21
for each transfer made exceeding 12 in any Contract year. All or a portion of
the amount credited to a variable investment option may be transferred.
Only one transfer from the fixed-rate option will be permitted during the
Contract year. The maximum amount which may be transferred out of the fixed-
rate option each year is the greater of (a) 25% of the amount in the fixed-rate
option; and (b) $2,000. Pruco Life may change these limits in the future. We
may waive these restrictions for limited periods of time in a non-discriminatory
way, (e.g., when interest rates are declining).
Transfers among variable investment options will take effect as of the end of
the valuation period in which a proper transfer request is received at a Home
Office. The request may be in terms of dollars, such as a request to transfer
$10,000 from one variable investment option to another, or may be in terms of a
percentage reallocation among variable investment options. In the latter case,
as with premium reallocations, the percentages must be in whole numbers. You may
transfer amounts by proper written notice to a Home Office or by telephone,
provided you are enrolled to use the Telephone Transfer System. You will
automatically be enrolled to use the Telephone Transfer System unless the
Contract is jointly owned or you elect not to have this privilege. Telephone
transfers may not be available on Contracts that are assigned (see ASSIGNMENT,
page 33), depending on the terms of the assignment.
We will use reasonable procedures, such as asking you to provide certain
personal information provided on your application for insurance, to confirm that
instructions given by telephone are genuine. We will not be held liable for
following telephone instructions that we reasonably believe to be genuine.
Pruco Life cannot guarantee that you will be able to get through to complete a
telephone transfer during peak periods such as periods of drastic economic or
market change.
The Contract was not designed for professional market timing organizations,
other organizations, or individuals using programmed, large, or frequent
transfers. We may restrict the number, timing, and amount of transfers in
accordance with our rules if your transfer activity is determined by us to be
disruptive to the variable investment option or to the disadvantage of other
Contract owners. We may prohibit transfer requests made by an individual acting
under a power of attorney on behalf of more than one Contract owner.
DOLLAR COST AVERAGING
We offer a feature called Dollar Cost Averaging ("DCA"). Under this feature,
either fixed dollar amounts or a percentage of the amount designated for use
under the DCA option will be transferred periodically from the Money Market
investment option into other investment options available under the Contract,
excluding the fixed-rate option. You may choose to have periodic transfers made
monthly or quarterly. DCA transfers will not begin until the end of the "free-
look" period. See SHORT-TERM CANCELLATION RIGHT OR "FREE-LOOK", page 16.
Each automatic transfer will take effect as of the end of the valuation period
on the date coinciding with the periodic timing you designate provided the New
York Stock Exchange is open on that date. If the New York Stock Exchange is not
open on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. Automatic transfers will continue until: (1) $50
or less remains of the amount designated for Dollar Cost Averaging, at which
time the remaining amount will be transferred; or (2) you give us notification
of a change in DCA allocation or cancellation of the feature. Currently, there
is no charge for using the Dollar Cost Averaging feature. We reserve the right
to change this practice, modify the requirements, or discontinue the feature.
22
AUTO-REBALANCING
As an administrative practice, we are currently offering a feature called Auto-
Rebalancing. This feature allows you to automatically rebalance assets in the
variable investment options at specified intervals based on percentage
allocations that you choose. For example, suppose your initial investment
allocation of variable investment options X and Y is split 40% and 60%,
respectively. Then, due to investment results, the portion in each of the
investment options changes. You may instruct that those assets be rebalanced to
your original or different allocation percentages. Auto-Rebalancing is not
available until the end of the "free-look" period. See SHORT-TERM CANCELLATION
RIGHT OR "FREE-LOOK", page 16.
Auto-Rebalancing can be performed on a quarterly, semi-annual or annual basis.
Each rebalance will take effect as of the end of the valuation period on the
date coinciding with the periodic timing you designate provided the New York
Stock Exchange is open on that date. If the New York Stock Exchange is not open
on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. The fixed-rate option cannot participate in this
administrative procedure. Currently, a transfer that occurs under the Auto-
Rebalancing feature is not counted towards the 12 free transfers permitted each
Contract year. We reserve the right to change this practice, modify the
requirements, or discontinue the feature.
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY
You may surrender the Contract for its cash surrender value. The Contract's
cash surrender value on any date will be the Contract Fund value minus any
Contract debt and minus any applicable surrender charges. See CONTRACT LOANS,
page 29. The Contract Fund value changes daily, reflecting: (1) increases or
decreases in the value of the variable investment options; (2) interest credited
on any amounts allocated to the fixed-rate option; (3) interest credited on any
loan; and (4) by the daily asset charge for mortality and expense risks assessed
against the variable investment options. The Contract Fund value also changes
to reflect the receipt of premium payments and the monthly deductions described
under CHARGES AND EXPENSES, page 13. Upon request, Pruco Life will tell you the
cash surrender value of your Contract. It is possible for the cash surrender
value of a Contract to decline to zero because of unfavorable investment
performance.
The tables on pages T1 through T4 (M1 through M4 in Massachusetts) of this
prospectus illustrate approximately what the cash surrender values would be for
representative Contracts paying Target Premium amounts (see PREMIUMS, page 18),
assuming hypothetical uniform investment results in the Fund portfolios. Two of
the tables assume current charges will be made throughout the lifetime of the
Contract and two tables assume maximum charges will be made. See ILLUSTRATIONS
OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS, page 27.
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY
As described earlier, there are two types of death benefit available under the
Contract: Type A, a fixed death benefit and Type B, a variable death benefit.
The Type B death benefit varies according to changes in the Contract Fund while
the Type A death benefit does not, unless it must be increased to comply with
the Internal Revenue Code's definition of life insurance.
Under the Type A (fixed) Contract, the death benefit is generally equal to the
basic insurance amount, before any reduction of Contract debt. See CONTRACT
LOANS, page 29. If the Contract is kept inforce for several years, depending on
how much premium you pay, and/or if investment performance is reasonably
favorable, the Contract Fund may grow to the point where Pruco Life will
increase the death benefit in order to ensure that the Contract will satisfy the
Internal Revenue Code's definition of life insurance. Thus, assuming no
Contract debt, a Contract with the Type A death benefit will always be the
greater of: (1) the basic insurance amount; and (2) the Contract Fund before the
deduction of any monthly charges due on
23
that date, multiplied by the attained age factor that applies. A listing of
attained age factors can be found on the data pages of your Contract. The latter
provision ensures that the Contract will always have a death benefit large
enough to be treated as life insurance for tax purposes under current law.
The following table illustrates at different ages how the attained age factor
affects the death benefit for different Contract Fund amounts. The table
assumes a $1,000,000 Type A Contract was issued when the younger insured was age
35 and there is no Contract debt.
TYPE A (FIXED) DEATH BENEFIT
IF THEN
- ----------------------------------------------------------------------------------------------------
THE CONTRACT FUND
THE YOUNGER AND THE CONTRACT THE ATTAINED AGE MULTIPLIED BY THE AND THE DEATH
INSURED IS AGE FUND IS FACTOR IS ATTAINED AGE FACTOR IS BENEFIT IS
- ----------------------------------------------------------------------------------------------------
40 $100,000 5.7 570,000 $1,000,000
40 $200,000 5.7 1,140,000 $1,140,000*
40 $300,000 5.7 1,710,000 $1,710,000*
- ----------------------------------------------------------------------------------------------
60 $300,000 2.8 840,000 $1,000,000
60 $400,000 2.8 1,120,000 $1,120,000*
60 $600,000 2.8 1,680,000 $1,680,000*
- ----------------------------------------------------------------------------------------------
80 $600,000 1.5 900,000 $1,000,000
80 $700,000 1.5 1,050,000 $1,050,000*
80 $800,000 1.5 1,200,000 $1,200,000*
- ----------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal Revenue Code's
definition of life insurance. At this point, any additional premium payment will increase the
death benefit by more than it increases the Contract Fund.
- ----------------------------------------------------------------------------------------------------
This means, for example, that if the younger insured has reached the age of 60,
and the Contract Fund is $400,000, the death benefit will be $1,120,000, even
though the basic insurance amount is $1,000,000. In this situation, for every
$1 increase in the Contract Fund, the death benefit will be increased by $2.80.
We reserve the right to refuse to accept any premium payment that increases the
death benefit by more than it increases the Contract Fund. IF WE EXERCISE THIS
RIGHT, IT MAY IN CERTAIN SITUATIONS RESULT IN THE LOSS OF THE DEATH BENEFIT
GUARANTEE.
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY
Under the Type B (variable) Contract, the death benefit will never be less than
the basic insurance amount, before any reduction of Contract debt, but will also
vary, immediately after it is issued, with the investment results of the
selected investment options. The death benefit may be further increased to
ensure that the Contract will satisfy the Internal Revenue Code's definition of
life insurance. Thus, assuming no Contract debt, the death benefit will always
be the greater of: (1) the basic insurance amount plus the Contract Fund before
the deduction of any monthly charges due on that date; and (2) the Contract Fund
before the deduction of any monthly charges due on that date, multiplied by the
attained age factor that applies. For purposes of determining the death
benefit, if the Contract Fund is less than zero, we will consider it to be zero.
A listing of attained age factors can be found on the data pages of your
Contract. The latter provision
24
ensures that the Contract will always have a death benefit large enough to be
treated as life insurance for tax purposes under current law.
The following table illustrates various attained age factors and Contract Funds
and the corresponding death benefits. The table assumes a $1,000,000 Type B
Contract was issued when the younger insured was age 35 and there is no Contract
debt.
TYPE B (VARIABLE) DEATH BENEFIT
IF THEN
- ----------------------------------------------------------------------------------------------------
THE CONTRACT FUND
THE YOUNGER AND THE CONTRACT THE ATTAINED AGE MULTIPLIED BY THE AND THE DEATH
INSURED IS AGE FUND IS FACTOR IS ATTAINED AGE FACTOR IS BENEFIT IS
- ----------------------------------------------------------------------------------------------------
40 $100,000 5.7 570,000 $1,100,000
40 $200,000 5.7 1,140,000 $1,200,000
40 $300,000 5.7 1,710,000 $1,710,000*
- ----------------------------------------------------------------------------------------------
60 $300,000 2.8 840,000 $1,300,000
60 $400,000 2.8 1,120,000 $1,400,000
60 $600,000 2.8 1,680,000 $1,680,000*
- ----------------------------------------------------------------------------------------------
80 $600,000 1.5 900,000 $1,600,000
80 $700,000 1.5 1,050,000 $1,700,000
80 $800,000 1.5 1,200,000 $1,800,000
- ----------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance. At this point, any additional
premium payment will increase the death benefit by more than it increases
the Contract Fund.
- ----------------------------------------------------------------------------------------------
This means, for example, that if the younger insured has reached the age of 60,
and the Contract Fund is $600,000, the death benefit will be $1,680,000, even
though the basic insurance amount is $1,000,000. In this situation, for every
$1 increase in the Contract Fund, the death benefit will be increased by $2.80.
We reserve the right to refuse to accept any premium payment that increases the
death benefit by more than it increases the Contract Fund. IF WE EXERCISE THIS
RIGHT, IT MAY IN CERTAIN SITUATIONS RESULT IN THE LOSS OF THE DEATH BENEFIT
GUARANTEE.
SURRENDER OF A CONTRACT
A Contract may be surrendered for its cash surrender value while one or both of
the insureds is living. To surrender a Contract, you must deliver or mail it,
together with a written request in a form that meets Pruco Life's needs, to a
Home Office. The cash surrender value of a surrendered Contract will be
determined as of the end of the valuation period in which such a request is
received in the Home Office. Surrender of a Contract may have tax consequences.
See TAX TREATMENT OF CONTRACT BENEFITS, page 30.
WITHDRAWALS
Under certain circumstances, you may withdraw a portion of the Contract's cash
surrender value without surrendering the Contract. You must ask for a
withdrawal on a form that meets our needs. The cash surrender value after
withdrawal may not be less than or equal to zero after deducting: (a) any
charges
25
associated with the withdrawal and (b) an amount sufficient to cover the
Contract Fund deductions for two monthly dates following the date of the
withdrawal. The amount withdrawn must be at least $500. There is an
administrative processing fee for each withdrawal equal to the lesser of $25 or
2% of the withdrawal amount. An amount withdrawn may not be repaid except as a
premium subject to the applicable charges. Upon request, we will tell you how
much you may withdraw. Withdrawal of the cash surrender value may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 30.
Whenever a withdrawal is made, the death benefit payable will immediately be
reduced by at least the amount of the withdrawal. For a Contract with a Type B
death benefit, this will not change the basic insurance amount. However, under a
Contract with a Type A death benefit, the resulting reduction in death benefit
usually requires a reduction in the basic insurance amount. We will send you new
Contract data pages showing these changes. We may also deduct a surrender charge
from the Contract Fund. See DECREASES IN BASIC INSURANCE AMOUNT, page 26. No
withdrawal will be permitted under a Contract with a fixed death benefit if it
would result in a basic insurance amount of less than the minimum basic
insurance amount. It is important to note, however, that if the basic insurance
amount is decreased at any time during the life of the Contract, there is a
possibility that the Contract might be classified as a Modified Endowment
Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 30. Before making any
withdrawal which causes a decrease in basic insurance amount, you should consult
with your Pruco Life representative.
When a withdrawal is made, the Contract Fund is reduced by the sum of the cash
withdrawn, the withdrawal fee, and any applicable surrender charge. An amount
equal to the reduction in the Contract Fund will be withdrawn proportionally
from the investment options unless you direct otherwise.
Withdrawal of the cash surrender value increases the risk that the Contract Fund
may be insufficient to provide Contract benefits. If such a withdrawal is
followed by unfavorable investment experience, the Contract may go into default.
Withdrawals may also affect whether a Contract is kept inforce under the Death
Benefit Guarantee. This is because, for purposes of determining whether a lapse
has occurred, Pruco Life treats withdrawals as a return of premium. Therefore,
withdrawals decrease the accumulated net payments. See DEATH BENEFIT GUARANTEE,
page 20.
DECREASES IN BASIC INSURANCE AMOUNT
As described earlier, you may make a withdrawal (see WITHDRAWALS, page 25). You
also have the additional option of decreasing the basic insurance amount of your
Contract without withdrawing any cash surrender value. Contract owners who
conclude that, because of changed circumstances, the amount of insurance is
greater than needed, will be able to decrease their amount of insurance
protection and the monthly deductions for the cost of insurance without
decreasing their current cash surrender value. The cash surrender value of the
Contract on the date of the decrease will not change, except that an
administrative processing fee of up to $25 and a surrender charge may be
deducted. If we ask you to, you must send us your Contract to be endorsed. The
Contract will be amended to show the new basic insurance amount, charges, values
in the appropriate tables and the effective date of the decrease.
If you decrease your basic insurance amount to an amount equal to or greater
than the Surrender Charge Threshold shown in your Contract, we will not impose a
surrender charge. The Surrender Charge Threshold is the lowest basic insurance
amount since issue. If you decrease your basic insurance amount below this
threshold, we will subtract the new basic insurance amount from the threshold
amount. We will then multiply the surrender charge (see SURRENDER CHARGE, page
15) by the lesser of this difference and the amount of the decrease and divide
by the threshold amount. The result is the maximum surrender charge we will
deduct from the Contract Fund as a result of this transaction.
The minimum permissible decrease for your Contract is shown under CONTRACT
LIMITATIONS in the data pages of your Contract. The basic insurance amount
after the decrease may not be lower than the minimum basic insurance amount. No
reduction will be permitted if it would cause the Contract to fail to
26
qualify as "life insurance" for purposes of Section 7702 of the Internal Revenue
Code. The basic insurance amount cannot be restored to any greater amount once a
decrease has taken effect.
It is important to note, however, that if the basic insurance amount is
decreased at any time during the life of the Contract, there is a possibility
that the Contract might be classified as a Modified Endowment Contract. See TAX
TREATMENT OF CONTRACT BENEFITS, page 30. Before requesting any decrease in basic
insurance amount, you should consult with your Pruco Life representative.
WHEN PROCEEDS ARE PAID
Pruco Life will generally pay any death benefit, cash surrender value, loan
proceeds or withdrawal within seven days after all the documents required for
such a payment are received at a Home Office. Other than the death benefit,
which is determined as of the date of the second death, the amount will be
determined as of the end of the valuation period in which the necessary
documents are received at a Home Office. However, Pruco Life may delay payment
of proceeds from the variable investment options and the variable portion of the
death benefit due under the Contract if the disposal or valuation of the
Account's assets is not reasonably practicable because the New York Stock
Exchange is closed for other than a regular holiday or weekend, trading is
restricted by the SEC, or the SEC declares that an emergency exists.
With respect to the amount of any cash surrender value allocated to the fixed-
rate option, Pruco Life expects to pay the cash surrender value promptly upon
request. However, Pruco Life has the right to delay payment of such cash value
for up to six months (or a shorter period if required by applicable law). Any
payable death benefit will be credited with interest from the date of death in
accordance with applicable law.
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS
(TO BE UPDATED PRIOR TO BECOMING EFFECTIVE)
The following four tables (pages T1 through T4: M1 through M4 in Massachusetts)
show how a Contract's death benefit and cash surrender values change with the
investment experience of the Account. They are "hypothetical" because they are
based, in part, upon several assumptions, which are described below. All four
tables assume the following:
. a Contract with a basic insurance amount of $1,000,000 bought by a 55 year
old male Preferred Non-Smoker and a 50 year old female Preferred Best, with
no extra risks and no extra benefit riders added to the Contract.
. the Target Premium amount (see PREMIUMS, page 18) is paid on each Contract
anniversary and no loans are taken.
. the Contract Fund has been invested in equal amounts in each of the 16
portfolios of the Funds and no portion of the Contract Fund has been
allocated to the fixed-rate option.
The first table (page T1; M1 in Massachusetts) assumes a Type A (fixed) Contract
has been purchased and the second table (page T2; M2 in Massachusetts) assumes a
Type B (variable) Contract has been purchased. Both assume the current charges
will continue indefinitely. The third and fourth tables (pages T3 and T4; M3
and M4 in Massachusetts) are based upon the same assumptions except it is
assumed the maximum contractual charges have been made from the beginning. See
CHARGES AND EXPENSES, page 13.
Under the Type B Contract the death benefit changes to reflect investment
returns. Under the Type A Contract, the death benefit increases only if the
Contract Fund becomes large enough that an increase in the death benefit is
necessary for the Contract to satisfy the Internal Revenue Code's definition of
life insurance. See TYPE OF DEATH BENEFIT, page 16.
27
There are four assumptions, shown separately, about the average investment
performance of the portfolios. The first is that there will be a uniform 0%
gross rate of return with the average value of the Contract Fund uniformly
adversely affected by very unfavorable investment performance. The other three
assumptions are that investment performance will be at a uniform gross annual
rate of 4%, 8% and 12%. Actual returns will fluctuate from year to year. In
addition, death benefits and cash surrender values would be different from those
shown if investment returns averaged 0%, 4%, 8% and 12% but fluctuated from
those averages throughout the years. Nevertheless, these assumptions help show
how the Contract values will change with investment experience.
The first column in the following four tables (pages T1 through T4; pages M1
through M4 in Massachusetts) shows the Contract year. The second column, to
provide context, shows what the aggregate amount would be if the premiums had
been invested to earn interest, after taxes, at 4% compounded annually. The
next four columns show the death benefit payable in each of the years shown for
the four different assumed investment returns. The last four columns show the
cash surrender value payable in each of the years shown for the four different
assumed investment returns.
A gross return (as well as the net return) is shown at the top of each column.
The gross return represents the combined effect of investment income and capital
gains and losses, realized or unrealized, of the portfolios before any reduction
is made for investment advisory fees or other Fund expenses. The net return
reflects average total annual expenses of the 16 portfolios of 0.XX%, and the
daily deduction from the Contract Fund of 0.9% per year. Thus gross returns of
0%, 4%, 8% and 12% are the equivalent of net returns of -X.XX%, X.XX%, X.XX% and
XX.XX%, respectively. The actual fees and expenses of the portfolios associated
with a particular Contract may be more or less than 0.XX% and will depend on
which variable investment options are selected. The death benefits and cash
surrender values shown reflect the deduction of all expenses and charges both
from the Funds and under the Contract.
If you are considering the purchase of a variable life insurance contract from
another insurance company, you should not rely upon these tables for comparison
purposes. A comparison between two tables, each showing values for a 55 year
old man and a 50 year old woman, may be useful for a 55 year old man and a 50
year old woman but would be inaccurate if made for insureds of other ages or
sex. Your Pruco Life representative can provide you with a hypothetical
illustration for your own age, sex, and rating class.
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CONTRACT LOANS
You may borrow from Pruco Life an amount up to the current "loan value" of your
Contract less any existing Contract debt using the Contract as the only security
for the loan. The loan value at any time will equal the sum of (a) 90% of the
cash value attributable to the variable investment options, and (b) the balance
of the cash value, provided the Contract is not in default. A Contract in
default has no loan value. The minimum loan amount you may borrow is $500.
Interest charged on a loan accrues daily. Interest is due on each Contract
anniversary or when the loan is paid back, whichever comes first. If interest
is not paid when due, it becomes part of the loan and we will charge interest on
it, too. Except in the case of preferred loans, we charge interest at an
effective annual rate of 5%.
Unless you ask us otherwise, a portion of the amount you may borrow on or after
the 10th Contract anniversary will be considered a preferred loan up to an
amount equal to the maximum preferred loan amount. The maximum preferred loan
amount is the total amount you may borrow minus the total net premiums paid (net
premiums equal premiums paid less total withdrawals, if any). If the net
premium amount is less than zero, we will, for purposes of this calculation,
consider it to be zero. Only new loans borrowed after the 10th Contract
anniversary may be considered preferred loans; standard loans will not
automatically be converted into preferred loans. Preferred loans are charged
interest at an effective annual rate of 4.25%.
The Contract debt is the amount of all outstanding loans plus any interest
accrued but not yet due. If at any time the Contract debt equals or exceeds the
cash value, the Contract will go into default. We will notify you of a 61-day
grace period, within which time you may repay all or enough of the loan to
obtain a positive cash surrender value and thus keep the Contract inforce for a
limited time. If the Contract debt equals or exceeds the cash value and you
fail to keep the Contract inforce, the amount of unpaid Contract debt will be
treated as a distribution which may be taxable. See TAX TREATMENT OF CONTRACT
BENEFITS, page 30 and LAPSE AND REINSTATEMENT, page 32.
When a loan is made, an amount equal to the loan proceeds is transferred out of
the Account and/or the fixed-rate option, as applicable. Unless you ask us to
take the loan amount from specific investment options and we agree, the
reduction will be made in the same proportions as the loanable amount in each
subaccount and the fixed-rate option bears to the total loanable amount of the
Contract. When you take a loan, the amount of the loan continues to be a part
of the Contract Fund and is credited with interest at an effective annual rate
of 4%. Therefore, the net cost of a standard loan is 1% and the net cost of a
preferred loan is %.
Any Contract debt will be deducted from the death benefit should the death
benefit become payable while a loan is outstanding. Loans from Modified
Endowment Contracts may be treated for tax purposes as distributions of income.
See TAX TREATMENT OF CONTRACT BENEFITS, page 30.
Any Contract debt will be deducted from the cash value to calculate the cash
surrender value should the Contract be surrendered.
In addition, even if the loan is fully repaid, it may have an effect on future
death benefits, because the investment results of the selected investment
options will apply only to the amount remaining invested under those options.
The longer the loan is outstanding, the greater the effect is likely to be. The
effect could be favorable or unfavorable. If investment results are greater
than the rate being credited upon the amount of the loan while the loan is
outstanding, values under the Contract will not increase as rapidly as they
would have if no loan had been made. If investment results are below that rate,
Contract values will be higher than they would have been had no loan been made.
29
When you repay all or part of a loan, we will increase the portion of the
Contract Fund in the variable investment options by the amount of that
repayment, plus the interest credits accrued on the loan since the last
transaction date. To do this, we will use your investment allocation for future
premium payments as of the loan payment date. We will also decrease the portion
of the Contract Fund on which we credit the guaranteed annual interest rate of
4% by the amount of loan you repay.
SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
Prudential, acts as the principal underwriter of the Contract. Prusec,
organized in 1971 under New Jersey law, is registered as a broker and dealer
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. Prusec's principal business address is
751 Broad Street, Newark, New Jersey 07102-3777. The Contract is sold by
registered representatives of Prusec who are also authorized by state insurance
departments to do so. The Contract may also be sold through other broker-
dealers authorized by Prusec and applicable law to do so. Registered
representatives of such other broker-dealers may be paid on a different basis
than described below.
Commissions are based on a premium value referred to as the commissionable
Target Premium. The commissionable Target Premium may vary from the Target
Premium, depending on the rating class of the insureds, any extra risk charges,
or additional riders. For contracts with unrated lives, the commissionable
Target Premium is equal to what the Target Premium would be if both lives were
in either the Nonsmoker or Smoker rating class, and there were no extra risk
charges or riders on the contracts. For contracts with unrated lives in more
favorable rating classes, the commissionable Target Premium will be greater than
the Target Premium, if there are no extra risk charges or riders on the
contracts. For contracts with substandard ratings, the commissionable Target
Premium will generally be less than the Target Premium.
Generally, representatives will receive a commission of no more than: (1) 50% of
the premiums received in the first year on premiums up to the commissionable
Target Premium amount (see PREMIUMS, page 18); (2) 4% commission on premiums
received in the first year in excess of the commissionable Target Premium
amount; (3) 4% of premiums received in years two through 10; and (4) 2% of
premiums received thereafter. Instead of receiving commissions expressed as a
percentage of premiums from year 11 and later, some representatives may be paid
a trail commission of up to 0.025% of the Contract Fund as of the end of each
calendar quarter starting with the second Contract year. Representatives with
less than four years of service may receive compensation on a different basis.
Representatives who meet certain productivity or persistency standards may be
eligible for additional compensation.
TAX TREATMENT OF CONTRACT BENEFITS
This summary provides general information on the federal income tax treatment of
the Contract. It is not a complete statement of what the federal income taxes
will be in all circumstances. It is based on current law and interpretations,
which may change. It does not cover state taxes or other taxes. It is not
intended as tax advice. You should consult your own qualified tax adviser for
complete information and advice.
TREATMENT AS LIFE INSURANCE. The Contract must meet certain requirements to
qualify as life insurance for tax purposes. These requirements include certain
definitional tests and rules for diversification of the Contract's investments.
For further information on the diversification requirements, see TAXATION OF THE
FUND in the statement of additional information for the Series Fund.
We believe we have taken adequate steps to insure that the Contract qualifies as
life insurance for tax purposes. Generally speaking, this means that:
30
. you will not be taxed on the growth of the funds in the Contract,
unless you receive a distribution from the Contract,
. the Contract's death benefit will be tax free to your beneficiary.
Although we believe that the Contract should qualify as life insurance for tax
purposes, there are some uncertainties, particularly because the Secretary of
Treasury has not yet issued permanent regulations that bear on this question.
Accordingly, we reserve the right to make changes -- which will be applied
uniformly to all Contract owners after advance written notice -- that we deem
necessary to insure that the Contract will qualify as life insurance.
PRE-DEATH DISTRIBUTIONS. The tax treatment of any distribution you receive
before the insured's death depends on whether the Contract is classified as a
Modified Endowment Contract.
CONTRACTS NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
. If you surrender the Contract or allow it to lapse, you will be
taxed on the amount you receive in excess of the premiums you
paid less the untaxed portion of any prior withdrawals. For this
purpose, you will be treated as receiving any portion of the cash
surrender value used to repay Contract debt. The tax consequences
of a surrender may differ if you take the proceeds under an
income payment settlement option.
. Generally, you will be taxed on a withdrawal to the extent the
amount you receive exceeds the premiums you paid for the Contract
less the untaxed portion of any prior withdrawals. However, under
some limited circumstances, in the first 15 Contract years, all
or a portion of a withdrawal may be taxed if the Contract Fund
exceeds the total premiums paid less the untaxed portions of any
prior withdrawals, even if total withdrawals do not exceed total
premiums paid.
. Extra premiums for optional benefits and riders generally do not
count in computing the premiums paid for the Contract for the
purposes of determining whether a withdrawal is taxable.
. Loans you take against the Contract are ordinarily treated as
debt and are not considered distributions subject to tax.
However, there is some risk the Internal Revenue Service might
assert that the preferred loan should be treated as a
distribution for tax purposes because of the relatively low
differential between the loan interest rate and Contract's
crediting rate. Were the Internal Revenue Service to take this
position, Pruco Life would take reasonable steps to avoid this
result, including modifying the Contract's loan provisions.
MODIFIED ENDOWMENT CONTRACTS.
. The rules change if the Contract is classified as a Modified
Endowment Contract. The Contract could be classified as a
Modified Endowment Contract if premiums in amounts that are too
large are paid or a decrease in the face amount of insurance is
made (or a rider removed). The addition of a rider or an increase
in the face amount of insurance may also cause the Contract to be
classified as a Modified Endowment Contract. You should first
consult a qualified tax adviser and your Pruco Life
representative if you are contemplating any of these steps.
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. If the Contract is classified as a Modified Endowment Contract,
then amounts you receive under the Contract before the insured's
death, including loans and withdrawals, are included in income to
the extent that the Contract Fund before surrender charges
exceeds the premiums paid for the Contract increased by the
amount of any loans previously included in income and reduced by
any untaxed amounts previously received other than the amount of
any loans excludible from income. An assignment of a Modified
Endowment Contract is taxable in the same way. These rules also
apply to pre-death distributions, including loans, made during
the two-year period before the time that the Contract became a
Modified Endowment Contract.
. Any taxable income on pre-death distributions (including full
surrenders) is subject to a penalty of 10 percent unless the
amount is received on or after age 59 1/2, on account of your
becoming disabled or as a life annuity. It is presently unclear
how the penalty tax provisions apply to Contracts owned by
businesses.
. All Modified Endowment Contracts issued by us to you during the
same calendar year are treated as a single Contract for purposes
of applying these rules.
WITHHOLDING. You must affirmatively elect that no taxes be withheld from a pre-
death distribution. Otherwise, the taxable portion of any amounts you receive
will be subject to withholding. You are not permitted to elect out of
withholding if you do not provide a social security number or other taxpayer
identification number. You may be subject to penalties under the estimated tax
payment rules if your withholding and estimated tax payments are insufficient to
cover the tax due.
OTHER TAX CONSIDERATIONS. If you transfer or assign the Contract to someone
else, there may be gift, estate and/or income tax consequences. If you transfer
the Contract to a person two or more generations younger than you (or designate
such a younger person as a beneficiary), there may be Generation Skipping
Transfer tax consequences. Deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied. Your individual situation or that of your beneficiary
will determine the federal estate taxes and the state and local estate,
inheritance and other taxes due if you or the insured dies.
BUSINESS-OWNED LIFE INSURANCE. If a business, rather than an individual, is the
owner of the Contract, there are some additional rules. Business Contract
owners generally cannot deduct premium payments. Business Contract owners
generally cannot take tax deductions for interest on Contract debt paid or
accrued after October 13, 1995. An exception permits the deduction of interest
on policy loans on Contracts for up to 20 key persons. The interest deduction
for Contract debt on these loans is limited to a prescribed interest rate and a
maximum aggregate loan amount of $50,000 per key insured person. The corporate
alternative minimum tax also applies to business-owned life insurance. This is
an indirect tax on additions to the Contract Fund or death benefits received
under business-owned life insurance policies.
LAPSE AND REINSTATEMENT
Pruco Life will determine the value of the cash surrender value on each Monthly
date. If the cash surrender value is zero or less, the Contract is in default
unless it remains inforce under the Death Benefit Guarantee. See DEATH BENEFIT
GUARANTEE, page 20. If the Contract debt ever grows to be equal to or more than
the cash surrender value, the Contract will be in default. Should this happen,
Pruco Life will send you a notice of default setting forth the payment which we
estimate will keep the Contract inforce for three months from the date of
default. This payment must be received at a Home Office within the 61-day grace
period after the notice of default is mailed or the Contract will end and have
no value. If the second death occurs past the grace period, no death benefit is
payable. A Contract that lapses with an outstanding Contract loan may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 30.
32
A Contract that ended in default may be reinstated within five years after the
date of default if all the following conditions are met:
(1) both insureds are alive or one insured is alive and the Contract ended
without value after the death of the other insured;
(2) you must provide renewed evidence of insurability on any insured who was
living when the Contract went into default;
(3) submission of certain payments sufficient to bring the Contract up to date
and cover all charges and deductions for the next three months; and
(4) any Contract debt with interest to date must be restored or paid back. If
the Contract debt is restored and the debt with interest would exceed the
loan value of the reinstated Contract, the excess must be paid to us before
reinstatement.
The reinstatement date will be the date we approve your request. We will deduct
all required charges from your payment and the balance will be placed into your
Contract Fund. If we approve the reinstatement, we will credit the Contract
Fund with a refund of that part of any surrender charge deducted at the time of
default which would have been charged if the Contract were surrendered
immediately after reinstatement.
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS
The Contract generally employs mortality tables that distinguish between males
and females. Thus, premiums and benefits under Contracts issued on males and
females of the same age will generally differ. However, in those states that
have adopted regulations prohibiting sex-distinct insurance rates, premiums and
cost of insurance charges will be based on male rates, whether the insureds are
male or female. In addition, employers and employee organizations considering
purchase of a Contract should consult their legal advisers to determine whether
purchase of a Contract based on sex-distinct actuarial tables is consistent with
Title VII of the Civil Rights Act of 1964 or other applicable law.
OTHER GENERAL CONTRACT PROVISIONS
ASSIGNMENT. This Contract may not be assigned if the assignment would violate
any federal, state or local law or regulation prohibiting sex distinct rates for
insurance. Generally, the Contract may not be assigned to an employee benefit
plan or program without Pruco Life's consent. Pruco Life assumes no
responsibility for the validity or sufficiency of any assignment, and we will
not be obligated to comply with any assignment unless we receive a copy at a
Home Office.
BENEFICIARY. You designate and name your beneficiary in the application.
Thereafter, you may change the beneficiary, provided it is in accordance with
the terms of the Contract. Should the second insured to die do so with no
surviving beneficiary, that insured's estate will become the beneficiary, unless
someone other than the insureds owned the Contract. In that case, we will make
the Contract owner or the Contract owner's estate the beneficiary.
INCONTESTABILITY. We will not contest the Contract after it has been inforce
during the lifetime of both insureds for two years from the issue date. The
exceptions are: (1) non-payment of enough premium to pay the required charges;
and (2) when any change is made in the Contract that requires Pruco Life's
approval and would increase our liability. We will not contest such change
after it has been in effect for two years during the lifetime of at least one
insured. At the end of the second Contract year we will mail you a notice
requesting that you tell us if either insured has died. Failure to tell us of
the death of an insured will not avoid a contest, if we have a basis for one,
even if premium payments continue to be made.
MISSTATEMENT OF AGE OR SEX. If an insured's stated age or sex or both are
incorrect in the Contract, Pruco Life will adjust each benefit and any amount to
be paid, as required by law, to reflect the correct age and
33
sex. Any such benefit will be based on what the most recent deductions from
the Contract Fund would have provided at the insured's correct age and sex.
SETTLEMENT OPTIONS. The Contract grants to most owners, or to the beneficiary,
a variety of optional ways of receiving Contract proceeds, other than in a lump
sum. Any Pruco Life representative authorized to sell this Contract can explain
these options upon request.
SIMULTANEOUS DEATH. If both insureds die while the Contract is inforce and we
find there is lack of sufficient evidence that they died other than
simultaneously, we will assume that the older insured died first.
SUICIDE EXCLUSION. If either insured, whether sane or insane, dies by suicide
within two years from the issue date, the Contract will end and we will return
the premiums paid. If there is a surviving insured, we will make a new contract
available on the life of that insured. The issue age, Contract date, and the
insured's underwriting classification will be the same as they are in the
Contract. The amount of coverage will be the lesser of (1) the contract's basic
insurance amount, and (2) the maximum amount we allow on the Contract date for
single life contracts. The new contract will not take effect unless all
premiums due since the Contract date are paid within 31 days after we notify you
of the availability of the new contract.
RIDERS
Contract owners may be able to obtain extra fixed benefits which may require an
additional premium. These optional insurance benefits will be described in what
is known as a "rider" to the Contract. Charges applicable to the riders will be
deducted from the Contract Fund on each Monthly date.
One rider gives insureds the option to exchange the Contract for two new life
insurance contracts, one on the life of each insured, in the event of a divorce
or if certain changes in tax law occur. Exercise of this option may give rise
to taxable income. Another pays an additional amount if both insureds die
within a specified number of years. See TAX TREATMENT OF CONTRACT BENEFITS,
page 30. Certain restrictions may apply; they are clearly described in the
applicable rider. Any Pruco Life representative authorized to sell the Contract
can explain these extra benefits further. Samples of the provisions are
available from Pruco Life upon written request.
SUBSTITUTION OF FUND SHARES
Although Pruco Life believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Funds may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, Pruco Life may seek to substitute the shares of another portfolio or
of an entirely different mutual fund. Before this can be done, the approval of
the SEC, and possibly one or more state insurance departments, may be required.
Contract owners will be notified of any such substitution.
REPORTS TO CONTRACT OWNERS
Once each year, Pruco Life will send you a statement that provides certain
information pertinent to your own Contract. This statement will detail values
and transactions made and specific Contract data that apply only to your
particular Contract. Currently we intend to provide three quarterly reports (in
addition to the year-end statement) which provide abbreviated information
pertinent to your own Contract.
You will also be sent annual and semi-annual reports of the Funds showing the
financial condition of the portfolios and the investments held in each
portfolio.
STATE REGULATION
34
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
EXPERTS
The consolidated financial statements of Pruco Life and Subsidiaries as of
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998 and the financial statements of the Account as of December 31,
1998 and for each of the three years in the period then ended included in this
prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting. PricewaterhouseCoopers LLP's
principal business address is 1177 Avenue of the Americas, New York, New York
10036.
Actuarial matters included in this prospectus have been examined by Ching-Meei
Chang, MAAA, FSA, Actuarial Director of Prudential, whose opinion is filed as an
exhibit to the registration statement.
LITIGATION AND REGULATORY PROCEEDINGS
We are subject to legal and regulatory actions in the ordinary course of our
business, including class actions. Our pending legal and regulatory actions
include proceedings specific to us and proceedings generally applicable to
business practices in the industry in which we operate. In our insurance
operations, we are subject to class actions and individual suits involving a
variety of issues, including sales practices, claims payment and denial of
benefit matters and payment of service fees.
In certain of our pending legal and regulatory actions, large and/or
indeterminate amounts are sought, including punitive or exemplary damages. The
following is a summary of pending proceedings against us and/or our parent, The
Prudential Insurance Company of America ("Prudential"), which we currently
believe are significant. Unless otherwise indicated, when we use the terms
"we", "us", or "our" in the following discussion, we are referring to both
Prudential and Pruco Life.
LIFE INSURANCE SALES PRACTICES ISSUES
We have been subject to substantial regulatory investigations and civil
litigation involving alleged deceptive life insurance sales practices engaged in
by us and our insurance agents in violation of state and federal laws. The
sales practices alleged to have occurred are contrary to our policy.
In April 1995, a Multi-State Life Insurance Task Force (the "Task Force"),
comprised of insurance regulators from 29 states and the District of Columbia,
was formed to conduct a review of sales and marketing practices throughout the
life insurance industry. Prudential was the initial focus of the Task Force
examination. In July 1996, the Task Force released its report on its activities
(the "Task Force Report"). The Task Force Report found that some sales of life
insurance policies, including life insurance policies issued by Pruco Life, had
been improper (principally relating to improper financed insurance sales,
improper representations in sales involving abbreviated payment plans and
insurance improperly sold primarily as an investment rather than as life
insurance) and that efforts to prevent such practices were not
35
sufficiently effective. Pruco Life was not named in the Task Force Report, but
the report covered the sales of Pruco Life policies. Based on these findings,
the Task Force recommended, and Prudential agreed to, various changes in our
sales and other business practices controls (including as to the training,
supervision and discipline of agents and field management) and a series of fines
allocated to all 50 states and the District of Columbia. In addition, the Task
Force and Prudential agreed upon a remediation program pursuant to which relief
would be offered to policyholders who were misled when they purchased individual
permanent life insurance policies in the United States from 1982 through 1995.
By March 1997, Prudential had entered into consent orders with insurance
regulatory authorities in all 50 states and the District of Columbia in which
such authorities adopted the Task Force Report and agreed to accept this
remediation program as enhanced by the Class Action Settlement discussed below
(the "Remediation Program") and the payment of approximately $65 million in
fines, penalties and related payments to resolve with these authorities the
sales practices issues identified by the Task Force's examination (each such
agreement a "State Settlement").
Commencing in February 1995, a number of individual and alleged class civil
actions were filed against Prudential and Pruco Life alleging improprieties in
connection with the sale, servicing and operation of permanent individual life
insurance policies. These actions were consolidated and transferred by the
Judicial Panel on Multi-District Litigation to the United States District Court
for the District of New Jersey (the "District Court"). In September 1996, the
plaintiffs in the alleged class actions in the consolidated proceeding joined in
the filing of an amended consolidated class action against us (the "Class
Action") and the pending individual actions (the "Individual Actions") were
stayed. The principal allegations of the Class Action were that individual
permanent life insurance was improperly sold through alleged misrepresentations
concerning the use of an existing policy's value or dividend stream to purchase
or maintain another policy (i.e., financed insurance sales), alleged
misrepresentations relating to the number of out-of-pocket cash premiums
required to be paid for a policy or the realization of specified benefits (i.e.,
"vanishing premium" or abbreviated payment plans) and alleged misrepresentations
of the insurance product sold as an investment rather than a life insurance
policy.
In October 1996, we entered into a Stipulation of Settlement (the "Class Action
Settlement") in the Class Action covering all persons who own or owned at
termination of the policy, an individual permanent life insurance policy issued
in the United States by Prudential, and Pruco Life during the period January 1,
1982 through December 31, 1995 (each a "Covered Policy") other than those opting
out of the Class Settlement, those who had previously settled with us who were
represented by counsel, the owners of certain corporate-owned life insurance or
trust-owned life insurance policies and a limited number of other specified
policyholders (the "Class Members"). The Class Action Settlement proposed to
settle the Class Action by adopting the Remediation Program described in the
Task Force Report and previously accepted in the initial State Settlements plus
specified enhancements and changes, including some additional remedies. In
addition, it was agreed in the Class Action Settlement that the total pre-tax
cost of remedies for the claims filed through the Alternative Dispute Resolution
("ADR") process of the Remediation Program described below would result in a
minimum average cost per remedy of $2,364 for the first 330,000 claims remedied.
It was also agreed that the ADR participants would be provided with additional
compensation to be determined by a formula that would range in aggregate amount
from $50 million to $300 million depending on the total number of claims
remedied, which would be distributed as determined by the District Court at the
end of the ADR claim evaluation process described below. It was agreed in the
Class Action Settlement that the aggregate amount of pre-tax cost for remedies
granted through the ADR process and the additional compensation to be
distributed at the end of the ADR process would in no event be less than $410
million. The Class Action Settlement releases Prudential and Pruco Life from
all claims that have been asserted by Class Members and bars Class Members from
asserting any other claims with respect to the sales, servicing or
administration of the Covered Policies.
In October 1996, a notice of the Class Action and proposed Class Action
Settlement was provided to the owners of the approximately 10.7 million Covered
Policies, giving each owner the opportunity to opt out of the Class Action in
order to pursue alternative remedies. Owners of approximately 21,800 Covered
Policies
36
elected to be excluded from the Class Action Settlement (the "Opt-Out
Policyholders"). In January 1997, the District Court sanctioned and fined
Prudential $1 million for failure to properly implement procedures for its
employees to retain documents in violation of the District Court's order that
required the parties to preserve all documents relevant to the resolution of the
Class Action and the Remediation Program. The District Court ordered Prudential
to implement a document retention policy and directed that an independent expert
be engaged to investigate the extent of document destruction and its impact on
the Remediation Program, so that claim evaluations would take into account any
failure to retain materials relevant to the claim. In March 1997, the District
Court issued an order certifying the class for settlement purposes only and
approving the amended Class Action Settlement as fair to Class Members. In July
1998, this order was affirmed on appeal by the U.S. Court of Appeals for the
Third circuit, although the issue of class counsel's fees was sent back to the
District court for review. In January 1999, the U.S. Supreme Court denied a writ
of certiorari filed by certain Class Members objecting to the Class Settlement.
The approval of the settlement is now final and unappealable, although the
District Court has retained jurisdiction over the administration, execution,
enforcement and interpretation of the settlement.
The Remediation Program offered two alternative forms of relief: participation
in the ADR process or Basic Claim Relief. The ADR process was designed to
permit policyholders who believe they were misled regarding the sale of their
policies to submit claims for relief through a no-cost dispute resolution
process with certain specified safeguards to protect policyholders. The ADR
process has provided individual review of each claim with remedies tailored to
the type of claim and the available evidence concerning the claim, including any
evidence of document destruction by us. Remedies under the ADR process have
included, among other things: return of policy values improperly used;
cancellation of an unwanted policy and refund of some or all premiums paid
including interest; agreement that the policyholder need not make future
payments for some or all premiums due; or issuance of a substitute product. The
ADR process does not guarantee that there will be a determination in the
policyholder's favor providing for any relief or remedy. Basic Claim Relief has
provided a choice of specified remedies without a claim or showing that any
improper sales practices occurred. The Basic Claim Relief options have included
preferred rate premium loans and annuities, mutual fund shares or life insurance
policies with certain benefits or values that we will enhance.
Pursuant to the Class Action Settlement and the State Settlements, beginning in
February 1997, Remediation Program packages were mailed to Class Members (i.e.,
the owners of the 10.7 million Covered Policies, other than Opt-Out
Policyholders) informing them of their options under the Remediation Program.
The owners of approximately 1.16 million Covered Policies indicated an intent to
file an ADR claim and were provided an ADR claim form for completion and
submission. The ADR process generally has required that individual claim forms
and files be reviewed by Prudential and by one or more independent claim
evaluators. Approximately 649,000 claim forms were completed and returned by
policyholders and virtually all decision letters had been mailed to claimants as
of February 28, 1999. In many instances, claimants have the right to "appeal"
the decision to an independent reviewer. We believe that the bulk of such
appeals will be resolved in 1999. The owners of approximately 503,000 policies
indicated an interest in a Basic Claim Relief Remedy.
In a related matter, the NASD examined our individual life insurance broker-
dealer's (Pruco Securities Corporation) sales practices with respect to SEC-
registered variable life insurance products sold in the United States from 1983
through 1995, as well as the public. In July 1999, Pruco Securities Corporation
entered into a settlement agreement with the NASD that included findings by the
NASD of improper sales practices affecting the sale of some of our variable life
products similar to those cited by the Task Force and inadequate supervision.
This settlement agreement censured Pruco Securities, required the retention of
an independent consultant to review Pruco Securities' policies and procedures
relevant to the NASD's findings, and levied a $20 million fine. This settlement
did not change the Remediation Program or add to our obligations to claimants in
the Remediation Program or other policyholders.
37
On September 2, 1999, the Insurance Department of the State of New York formally
adopted a Report of Examination based on the Department's review, for the years
1996 and 1997, of Prudential's individual life insurance sales practices
controls and various company recordkeeping, reporting and filing requirements.
Significantly, the examination report did not identify problems with sales
practices controls or the steps taken to implement the recommendations contained
in the Task Force Report described above. However, the examiners did cite
violations relating to some of Prudential's advertisements and advertising
files, the use of unfiled policy forms in what is now a discontinued line of
business, various problems related to the back-office maintenance of new
business and complaint files, and the inability to produce all requested
documents and data in a timely manner. The Department also concluded that
Prudential failed to adequately facilitate its examination. These matters were
resolved by entry of a Stipulation in which Prudential agreed to pay a fine of
$1.5 million and agreed that the Auditing Committee of its Board of Directors
would provide semi-annual reports for a three year period to the New York
Department describing the status of steps taken to remedy the issues cited in
the Report of Examination. Pruco Life does not do business in New York.
We remain subject to oversight and review by insurance regulators and other
regulatory authorities with respect to our sales practices and the conduct of
the Remediation Program. The releases granted by the state insurance regulatory
authorities pursuant to the State Settlements do not become final until the
Remediation Program has been completed without any material changes to which
those regulators have not agreed. The Class Action Settlement does not cover:
policies other than individual permanent life insurance policies issued in the
United States; any type of policy issued prior to 1982 or after 1995; the Opt-
Out Policyholders, some of whom are proceeding with their own individual or
putative class actions; and individual actions not barred by the Class Action
Settlement. Prudential agreed to indemnify Pruco Life for losses, if any,
resulting from claims arising from sales practice violations that occurred
between 1982 and 1995. No other litigation is being brought against Pruco Life
that would have a material effect on its financial position.
In 1996, Prudential established a reserve to cover the cost of remedying
policyholder claims of $410 million, as agreed to in the Class Action
Settlement. Prudential had no better information available at that time upon
which to make a reasonable estimate of losses. Prudential also incurred charges
or reserves to cover administrative costs related to the ADR process, regulatory
fines, penalties and related payments, litigation costs and settlements, and
other fees and expenses associated with the resolution of sales practices issues
("Additional Sales Practices Costs") aggregating $715 million. In 1997, based
on additional information derived from claim sampling techniques, the terms of
the settlement and the number of claim forms received, management increased the
estimated liability for the cost of remedying policyholder claims in the ADR
process by $1.64 billion before taxes to approximately $2.05 billion before
taxes, of which $1.80 billion was funded in a settlement trust. Prudential also
incurred charges or additional reserves to cover Additional Sales Practices
Costs aggregating $390 million. Prudential expressly noted that additional cost
items were anticipated that could not be fully evaluated at that time. In 1998,
based on estimates derived from an analysis of claims actually remedied
(including interest) and a sample of claims still to be remedied (both estimates
included the additional liability associated with the results of the
investigation by the independent expert regarding the impact of document
destruction on the ADR program) and an estimate of additional liabilities
associated with a claimant's right to "appeal" the decision, the estimated
liability was increased for the cost of ADR remedies by $510 million before
taxes to a total of $2.56 billion before taxes, all of which has been funded in
the settlement trust. Prudential also incurred charges or established
additional reserves to cover Additional Sales Practices Costs aggregating $640
million.
While Prudential believes it has adequately reserved in all material respects
based on information currently available, the ultimate amount of the total cost
of remedying policyholder claims and related costs is dependent on complex and
varying factors, including the relief options to be chosen by claimants, the
dollar value of those options, and the number and type of claims that may
successfully be appealed. As with any litigation, the litigation by Opt-Out
Policyholders and the Individual Actions are subject to many
38
uncertainties, and, given the complexity and scope of these suits, their outcome
cannot be predicted with precision.
YEAR 2000 COMPLIANCE
(TO BE UPDATED PRIOR TO BECOMING EFFECTIVE)
The services provided to you as a purchaser of a Cornerstone Survivorship
Contract depend on the smooth functioning of numerous computer systems. Many
computer systems in use today are programmed to recognize only the last two
digits of a date as the year. As a result, any systems using this kind of
programming can not distinguish a date using "00" and may treat it as "1900"
instead of "2000." This problem may impact computer systems that store business
information, but it could also affect other equipment used in our business like
telephone, fax machines and elevators. If this problem is not corrected, the
"Year 2000" issue could affect the accuracy and integrity of business records.
Prudential's regular business operations could be interrupted as well as those
--
of other companies that deal with us.
In addition, the operations of the mutual funds associated with the Cornerstone
Survivorship Contract could experience problems resulting from the Year 2000
issue. Please refer to the respective mutual fund's prospectus for information
regarding their approach to Year 2000 concerns. The following describes
Prudential's effort to address Year 2000 concerns.
To address this potential problem, Prudential, as the parent company of Pruco
Life, organized its Year 2000 efforts around the following three areas:
. BUSINESS SYSTEMS - Computer programs directly used to support our business;
----------------
. INFRASTRUCTURE - Computers and other business equipment like telephones and
--------------
fax machines; and
. BUSINESS PARTNERS - Year 2000 readiness of essential business partners.
-----------------
BUSINESS SYSTEMS. The business systems component includes a wide range of
- -----------------
computer programs that directly support Prudential's business operations
including systems for: insurance product processing, securities trading,
personnel record keeping and general accounting systems. All business systems
were analyzed to determine whether each computer program with a Year 2000
problem should be retired, replaced or renovated. The majority of this work has
been completed. A few remaining programs are currently being tested and
completion of this process is expected by June 1999.
INFRASTRUCTURE. As with business applications, we established a specific
- ---------------
methodology and process for addressing infrastructure issues. The
infrastructure effort includes mainframe computer system hardware and operating
system software, mid-range systems and servers, telecommunications equipment and
systems, buildings and facilities systems, personal computers, and vendor
hardware and software. Other than desktop systems, substantially all other
infrastructure systems have been tested. Presently a small number of midrange
computers, and building and facility systems are still in the testing phase. We
expect to have the infrastructure implementation process completed by June 1999.
BUSINESS PARTNERS. Prudential recognizes the importance of determining the Year
- ------------------
2000 readiness of external business relationships especially those that involve
electronic data transfer products and services, and products that impact our
essential business processes. Prudential first classified each business partner
as "highly critical" or "less critical" to our business and then began to
develop risk assessment and contingency plans to address the potential that a
business partner could experience a Year 2000 failure. All highly critical
business partner relationships have been assessed and contingency planning is
completed. Risk assessment and contingency planning continues for less critical
business partners, and the target completion date for these relationships is
June 1999.
Prudential believes that the Business Systems, Infrastructure and Business
Partners components of the Year 2000 project are substantially on schedule. A
small number of the projects may not meet their targeted completion date.
However, Prudential expects that these projects will be completed by
39
September, 1999. If there are any delays, they should not have a significant
impact on the timing of the project as a whole.
THE COST OF YEAR 2000 READINESS
Prudential is funding the Year 2000 program from internal operating budgets, and
estimates that its total costs to address the Year 2000 issue will total
approximately $220 million. Because these expenses were part of the operating
budget, they did not impact the management of Cornerstone Survivorship
Contracts. During the course of the Year 2000 program, some optional computer
projects have been delayed, but these delays have not had any material effect on
Cornerstone Survivorship Contracts.
YEAR 2000 RISKS AND CONTINGENCY PLANNING
Prudential believes that it is well positioned to lessen the impact of the Year
2000 problem. However, given the nature of this issue, we can not be 100%
certain that we are completely prepared, particularly because we can not be
certain of Year 2000 readiness of third parties. As a result, we are unable to
determine at this time whether the consequences of Year 2000 failures may have a
material adverse effect on the results of Prudential's operations, liquidity or
financial condition. In the worst case, it is possible that a Year 2000
technology failure, whether internal or external, could have a material impact
on Prudential's results of operations, liquidity, or financial position. If
Prudential is unable to address the Year 2000 problem, we may have difficulty in
responding to your incoming phone calls, calculating your unit values or
processing withdrawals and purchase payments. It is also possible that the
mutual funds associated with the Cornerstone Survivorship Contract will be
unable to value their securities, in turn creating difficulties in purchasing or
selling shares of the respective mutual fund and calculating corresponding unit
asset values. The objective of Prudential's Year 2000 program has been to reduce
these risks as much as possible.
Most of the operations of the Cornerstone Survivorship Contract involve such a
large number of individual transactions that they can only be handled with the
help of computers. As a result, our current contingency plans include responses
to the failure of specific business programs or infrastructure components.
However, our contingency responses are now being reviewed and we expect to
finalize them by June, 1999 to ensure that they are workable under the special
conditions of a Year 2000 failure. Prudential believes that with the completion
of its Year 2000 program as scheduled, the possibility of significant
interruptions of normal operations will be reduced.
ADDITIONAL INFORMATION
Pruco Life has filed a registration statement with the SEC under the Securities
Act of 1933, relating to the offering described in this prospectus. This
prospectus does not include all of the information set forth in the registration
statement. Certain portions have been omitted pursuant to the rules and
regulations of the SEC. The omitted information may, however, be obtained from
the SEC's principal office in Washington, D.C., upon payment of a prescribed
fee.
Further information may also be obtained from Pruco Life. The address and
telephone number are set forth on the inside front cover of this prospectus.
FINANCIAL STATEMENTS
The financial statements of the Account should be distinguished from the
consolidated financial statements of Pruco Life and subsidiaries, which should
be considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
40
DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life, listed with their principal
occupations during the past five years, are shown below.
DIRECTORS OF PRUCO LIFE
JAMES J. AVERY, JR., CHAIRMAN AND DIRECTOR. -- Senior Vice President and Chief
Actuary, Prudential Individual Insurance Group since 1997; 1995 to 1997:
President of Prudential Select; Prior to 1995: Chief Operating Officer of
Prudential Select.
WILLIAM M. BETHKE, DIRECTOR. -- Chief Investment Officer since 1997; Prior to
1997: President, Prudential Capital Markets Group.
IRA J. KLEINMAN, DIRECTOR. -- Executive Vice President, Prudential International
Insurance Group since 1997; 1995 to 1997: Chief Marketing and Product
Development Officer, Prudential Individual Insurance Group; Prior to 1995:
President, Prudential Select.
ESTHER H. MILNES, PRESIDENT AND DIRECTOR. -- Vice President and Actuary,
Prudential Individual Insurance Group since 1996; Prior to 1996: Senior Vice
President and Chief Actuary, Prudential Insurance and Financial Services.
I. EDWARD PRICE, VICE CHAIRMAN AND DIRECTOR. -- Senior Vice President and
Actuary, Prudential Individual Insurance Group since 1995; Prior to 1995: Chief
Executive Officer, Prudential International Insurance.
KIYOFUMI SAKAGUCHI, DIRECTOR. -- President, Prudential International Insurance
Group since 1995; Prior to 1995: Chairman and Chief Executive Officer, The
Prudential Life Insurance Co., Ltd.
OFFICERS WHO ARE NOT DIRECTORS
C. EDWARD CHAPLIN, TREASURER. -- Vice President and Treasurer of Prudential
since 1995; Prior to 1995: Managing Director and Assistant Treasurer of
Prudential.
JAMES C. DROZANOWSKI, SENIOR VICE PRESIDENT. -- Vice President and Operations
Executive, Prudential Individual Insurance Group since 1996; 1995 to 1996:
President and Chief Executive Officer of Chase Manhattan Bank; Prior to 1995:
Vice President, North America Customer Services, Chase Manhattan Bank.
CLIFFORD E. KIRSCH, CHIEF LEGAL OFFICER AND SECRETARY. -- Chief Counsel,
Variable Products, Law Department of Prudential since 1995; Prior to 1995:
Associate General Counsel with Paine Webber.
FRANK P. MARINO, SENIOR VICE PRESIDENT. -- Vice President, Policyowner Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services.
EDWARD A. MINOGUE, SENIOR VICE PRESIDENT. -- Vice President, Annuity Services,
Prudential Investments since 1997; Prior to 1997: Director, Merrill Lynch.
41
HIROSHI NAKAJIMA, SENIOR VICE PRESIDENT. -- President & Chief Executive Officer,
Pruco Life Insurance Company, Taiwan Branch since 1997; Prior to 1997: Senior
Managing Director, Prudential Life Insurance Co., Ltd.
IMANTS SAKSONS, SENIOR VICE PRESIDENT. -- Vice President, Compliance, Prudential
Individual Financial Services since 1998; Prior to 1998: Vice President, Market
Conduct, U.S. Operations, Manulife Financial.
SHIRLEY H. SHAO, SENIOR VICE PRESIDENT AND CHIEF ACTUARY. -- Vice President and
Associate Actuary, Prudential.
DENNIS G. SULLIVAN, VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER. -- Vice
President and Deputy Controller, Prudential since 1998; 1997 to 1998, Vice
President and Controller, ContiFinancial Corporation; Prior to 1997, Director,
Saloman Brothers.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.
Pruco Life directors and officers are elected annually.
42
CORNERSTONE SURVIVORSHIP
VARIABLE UNIVERSAL
LIFE INSURANCE
Cornerstone Survivorship is issued by Pruco Life Insurance Company, 213
Washington Street, Newark, NJ 07102-2992 and offered through Pruco
Securities Corporation, 751 Broad Street, Newark, NJ 07102-3777, both
subsidiaries of The Prudential Insurance Company of America, 751 Broad
Street, Newark, NJ 07102-3777.
[LOGO] PRUDENTIAL
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone: 800 782-5356
CSVUL-1 Ed. 5/2000
PART II
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION WITH RESPECT TO CHARGES
Pruco Life Insurance Company represents that the fees and charges deducted under
the Survivorship Variable Universal Life Insurance Contracts registered by this
registration statement, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by Pruco Life Insurance Company.
UNDERTAKING WITH RESPECT TO INDEMNIFICATION
The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.
Arizona, being the state of organization of Pruco Life Insurance Company ("Pruco
Life"), permits entities organized under its jurisdiction to indemnify directors
and officers with certain limitations. The relevant provisions of Arizona law
permitting indemnification can be found in Section 10-850 et seq. of the Arizona
Statutes Annotated. The text of Pruco Life's By-law, Article VIII, which
relates to indemnification of officers and directors, is incorporated by
reference to Exhibit 3(ii) to its Form 10-Q, SEC File No. 33-37587, filed August
15, 1997.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-1
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
- -------------------------------------------------------------------------
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 48 pages.
The undertaking to file reports.
The representation with respect to charges.
The signatures.
Written consents of the following persons:
None.
The following exhibits:
- -----------------------
1. The following exhibits correspond to those required by paragraph A of the
instructions as to exhibits in Form N-8B-2:
A. (1) (a) Resolution of Board of Directors of Pruco Life Insurance
Company establishing the Pruco Life Variable Universal
Account. (Note 8)
(b) Amendment of Separate Account Resolution. (Note 1)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities Corporation
and Pruco Life Insurance Company. (Note 8)
(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the Sale
of the Contracts. (Note 8)
(c) Schedule of Sales Commissions. (Note 13)
(d) Participation Agreements and Amendments:
(i) (a) AIM Variable Insurance Funds, Inc., AIM V.I. Value
Fund. (Note 11)
(b) Amendment to the AIM Variable Insurance Funds,
Inc. Participation Agreement. (Note 13)
(ii) (a) American Century Variable Portfolios, Inc., VP
Value Portfolio. (Note 11)
(iii) (a) Janus Aspen Series, Growth Portfolio. (Note 11)
(b) Amendment to the Janus Aspen Series Participation
Agreement. (Note 13)
(iv) (a) MFS Variable Insurance Trust, Emerging Growth
Series. (Note 11)
(b) Amendment to the MFS Variable Insurance Trust
Participation Agreement. (Note 13)
(v) (a) T. Rowe Price International Series, Inc.,
International Stock Portfolio. (Note 11)
(b) Amendment to the T. Rowe Price International
Series, Inc. Participation Agreement. (Note 13)
(vi) (a) Templeton Variable Products Series, Franklin
Small Cap Investments Fund - Class 2. (Note 1)
(b) Amendment to the Templeton Variable Products
Series Participation Agreement. (Note 13)
(4) Not Applicable.
(5) Survivorship Variable Universal Life Insurance Contract. (Note 1)
(6) (a) Articles of Incorporation of Pruco Life Insurance Company, as
amended October 19, 1993. (Note 7)
(b) By-laws of Pruco Life Insurance Company, as amended May 6,
1997. (Note 9)
II-2
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form for Survivorship Variable Universal Life
Insurance Contract. (Note 12)
(b) Supplement to the Application for Survivorship Variable
Universal Life Insurance Contract. (Note 12)
(11) Not Applicable.
(12) Memorandum describing Pruco Life Insurance Company's issuance,
transfer, and redemption procedures for the Contracts pursuant
to Rule 6e-3(T)(b)(12)(iii). (Note 1)
(13) Available Contract Riders and Endorsements.
(a) Rider for Term Insurance Benefit on Life of Second Insured
to Die. (Note 13)
(b) Option to Exchange for Separate Contracts. (Note 13)
2. See Exhibit 1.A.(5).
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of the
securities being registered. (Note 13)
4. None.
5. Not Applicable.
6. Opinion and Consent of Ching-Meei Chang, FSA, MAAA, as to actuarial matters
pertaining to the securities being registered. (Note 13)
7. Powers of Attorney.
(a) William M. Bethke, Ira J. Kleinman, Esther H. Milnes, I. Edward Price
(Note 2)
(b) Kiyofumi Sakaguchi (Note 5)
(c) James J. Avery, Jr. (Note 3)
(d) Dennis G. Sullivan (Note 4)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Form 10-K, Registration No. 33-08698,
filed March 31, 1997 on behalf of the Pruco Life Variable Contract
Real Property Account.
(Note 3) Incorporated by reference to Post-Effective Amendment No. 2 to Form
S-6, Registration No. 333-07451, filed June 25, 1997 on behalf of the
Pruco Life Variable Appreciable Account.
(Note 4) Incorporated by reference to Post-Effective Amendment No. 6 for Form
S-1, Registration No. 33-86780, filed April 16, 1999 on behalf of the
Pruco Life Variable Contract Real Property Account.
(Note 5) Incorporated by reference to Post-Effective Amendment No. 8 to Form
S-6, Registration No. 33-49994, filed April 28, 1997 on behalf of the
Pruco Life PRUvider Variable Appreciable Account.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 9 to Form
S-6, Registration No. 33-29181, filed April 25, 1996 on behalf of the
Pruco Life Variable Universal Account.
(Note 7) Incorporated by reference to Form S-6, Registration No. 333-07451,
filed July 2, 1996 on behalf of the Pruco Life Variable Appreciable
Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 10 to Form
S-6, Registration No. 33-29181, filed April 28, 1997 on behalf of the
Pruco Life Variable Universal Account.
(Note 9) Incorporated by reference to Form 10-Q, Registration No. 33-37587,
filed August 15, 1997 onbehalf of the Pruco Life Insurance Company.
(Note 10) Incorporated by reference to Post-Effective Amendment No. 11 to Form
S-6, Registration No.33-29181, filed April 28, 1998 on behalf of the
Pruco Life Variable Universal Account.
(Note 11) Incorporated by reference to Post-Effective Amendment No. 13 to Form
S-6, Registration No. 33-29181, filed June 4, 1999 on behalf of the
Pruco Life Variable Universal Account.
(Note 12) Incorporated by reference to Form S-6, Registration No. 333-85115,
filed on August 13, 1999 on behalf of the Pruco Life Variable
Universal Account.
(Note 13) To be filed by Pre-Effective Amendment.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life Variable Universal Account, has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal hereunto affixed and attested, all in the city of
Newark and the State of New Jersey, on this 5th day of January, 2000.
(Seal) PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
(Registrant)
By: PRUCO LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/ Thomas C. Castano By: /s/ Esther H. Milnes
------------------------- -------------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on this 5th day of January, 2000.
SIGNATURE AND TITLE
-------------------
/s/ *
- ---------------------------------------------
Esther H. Milnes
President and Director
/s/ *
- ---------------------------------------------
Dennis G. Sullivan
Vice President and Chief Accounting Officer *By: /s/ Thomas C. Castano
---------------------------
/s/ * Thomas C. Castano
- --------------------------------------------- (Attorney-in-Fact)
James J. Avery, Jr.
Director
/s/ *
- ---------------------------------------------
William M. Bethke
Director
/s/ *
- ---------------------------------------------
Ira J. Kleinman
Director
/s/ *
- ---------------------------------------------
I. Edward Price
Director
/s/ *
- ---------------------------------------------
Kiyofumi Sakaguchi
Director
II-4
EXHIBIT INDEX
1.A.(1)(b) Amendment of Separate Account Resolution.
1.A.(3)(d)(vi)(a) Participation Agreement for Templeton Variable Products
Series, Franklin Small Cap Investments Fund - Class 2.
1.A.(5) Survivorship Variable Universal Life Insurance Contract.
1.A.(12) Memorandum describing Pruco Life Insurance Company's
issuance, transfer, and redemption procedures for the
Contract's pursuant to Rule 6e-3(T)(b)(12)(iii).