As filed with the SEC on ______________________. Registration No. 333-49332
---------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
Pre-Effective Amendment No. 1 to
--------------------------------
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
______________
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
______________
Variable Universal Life Insurance Contracts -- The Registrant hereby elects to
register an indefinite amount of securities pursuant to Rule 24f-2 under the
Investment Company Act of 1940.
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
This filing is being made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940.
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; Riders; 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; How a
Type C (Return of Premium) Contract's
Death Benefit Will Vary; Surrender of a
Contract; Withdrawals; Lapse and
Reinstatement; Decreases in Basic
Insurance Amount; When Proceeds are Paid;
Contract Loans; Other General Contract
Provisions; Substitution of Series Fund
Shares
11. Introduction and Summary; Pruco Life
Variable Universal Account
12. Cover Page; Introduction and Summary; The
Prudential Series Fund, Inc.; Sale of the
Contract and Sales Commissions
13. Introduction and Summary; The Prudential
Series Fund, Inc.; 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 Prudential
Series Fund, Inc.; Charges and Expenses
27. Pruco Life Insurance Company; The
Prudential Series Fund, Inc.
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
N-8B-2 Item Number Location
- ------------------ --------
44. Introduction and Summary; The Prudential
Series Fund, Inc.; How a Contract's Cash
Surrender Value Will Vary; How a Type A
(Fixed) Contract's Death Benefit Will
Vary; How a Type B (Variable) Contract's
Death Benefit Will Vary; How a Type C
(Return of Premium) Contract's Death
Benefit Will Vary
45. Not Applicable
46. Introduction and Summary; Pruco Life
Variable Universal Account; The Prudential
Series Fund, Inc.
47. Pruco Life Variable Universal Account; The
Prudential Series Fund, Inc.
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Series Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements: Financial Statements
of the Pruco Life Variable Universal
Account; Consolidated Financial Statements
of Pruco Life Insurance Company and its
subsidiaries
PART I
INFORMATION REQUIRED IN PROSPECTUS
PruLife Custom Premier
Variable Universal Life Insurance
PROSPECTUS
Pruco Life
Variable Universal Account
February 12, 2001
Pruco Life Insurance Company
PROSPECTUS
February 12, 2001
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
PruLife Custom Premier
This prospectus describes an individual flexible premium variable universal life
insurance contract (the "Contract") offered by Pruco Life Insurance Company
("Pruco Life," "us," "we," or "our"). Pruco Life is a wholly-owned subsidiary of
The Prudential Insurance Company of America. The Contract provides life
insurance coverage with flexible premium payments, a variety of investment
options, and three types of death benefit options. The Contract may be issued
with a Target Term Rider that could have a significant effect on the performance
of your Contract. For the factors to consider when adding a Target Term Rider to
your Contract, see Riders, page 17.
You may choose to invest your Contract's premiums and its earnings in one or
more of 16 available variable investment options of the Pruco Life Variable
Universal Account (the "Account"), each of which invests in one of the following
portfolios of The Prudential Series Fund, Inc. ("Series Fund"):
. Diversified Bond Portfolio . SP Alliance Technology Portfolio
. Equity Portfolio . SP Davis Value Portfolio
. High Yield Bond Portfolio . SP Deutsche International Equity Portfolio
. Money Market Portfolio . SP INVESCO Small Company Growth Portfolio
. Prudential Jennison Portfolio . SP MFS Capital Opportunities Portfolio
. Stock Index Portfolio . SP MFS Mid-Cap Growth Portfolio
. SP AIM Aggressive Growth Portfolio . SP Prudential U.S. Emerging Growth Portfolio
. SP Alliance Large Cap Growth Portfolio . SP Small/Mid Cap Value Portfolio
For a detailed list of the 16 available Series Fund portfolios, their investment
objectives, and investment advisers, see The Prudential Series Fund, Inc., page
7.
You may also choose to invest your Contract's premiums and its earnings in the
fixed-rate option which pays a guaranteed interest rate. See The Fixed-Rate
Option, page 9.
This prospectus describes the Contract generally and the Pruco Life Variable
Universal Account (the "Account"). The attached prospectus for the Series Fund
and the Series Fund's statement of additional information describes the
investment objectives and the risks of investing in the Series Fund portfolios.
Pruco Life may add additional investment options in the future. Please read this
prospectus and keep it for future reference.
The Securities and Exchange Commission ("SEC") maintains a Web site
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding registrants that file electronically with the SEC.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
The Contract may be purchased through registered representatives located in
banks and other financial institutions. An investment in the Contract is not a
bank deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation ("FDIC") or any other governmental agency and may lose value. An
investment is also not a condition to the provision or term of any banking
service or activity. The participating bank is not a registered broker-dealer
and is not affiliated with Pruco Securities Corporation.
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 778-2255
PROSPECTUS CONTENTS
Page
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS.................................................................... 1
INTRODUCTION AND SUMMARY................................................................................................ 2
Brief Description of the Contract.................................................................................... 2
Charges.............................................................................................................. 2
Types of Death Benefit............................................................................................... 5
Life Insurance Definitional Tests.................................................................................... 5
Premium Payments..................................................................................................... 5
Refund............................................................................................................... 5
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, THE PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT, AND THE VARIABLE
INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACT......................................................................... 6
Pruco Life Insurance Company......................................................................................... 6
The Pruco Life Variable Universal Account............................................................................ 6
The Prudential Series Fund, Inc...................................................................................... 7
Voting Rights........................................................................................................ 9
The Fixed-Rate Option................................................................................................ 9
Which Investment Option Should Be Selected?.......................................................................... 9
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS.................................................................... 11
Charges and Expenses................................................................................................. 11
Charges After Age 100................................................................................................ 15
Allocated Charges.................................................................................................... 15
Requirements for Issuance of a Contract.............................................................................. 15
Short-Term Cancellation Right or "Free-Look"......................................................................... 16
Types of Death Benefit............................................................................................... 16
Changing the Type of Death Benefit................................................................................... 16
Riders............................................................................................................... 17
Contract Date........................................................................................................ 19
Premiums............................................................................................................. 19
Allocation of Premiums............................................................................................... 20
Death Benefit Guarantee.............................................................................................. 21
Transfers............................................................................................................ 23
Dollar Cost Averaging................................................................................................ 23
Auto-Rebalancing..................................................................................................... 23
How a Contract's Cash Surrender Value Will Vary...................................................................... 24
How a Type A (Fixed) Contract's Death Benefit Will Vary.............................................................. 24
How a Type B (Variable) Contract's Death Benefit Will Vary........................................................... 25
How a Type C (Return of Premium) Contract's Death Benefit Will Vary.................................................. 26
Surrender of a Contract.............................................................................................. 27
Withdrawals.......................................................................................................... 27
Lapse and Reinstatement.............................................................................................. 28
Increases in Basic Insurance Amount.................................................................................. 28
Decreases in Basic Insurance Amount.................................................................................. 29
When Proceeds Are Paid............................................................................................... 30
Living Needs Benefit................................................................................................. 30
Illustrations of Cash Surrender Values, Death Benefits, and Accumulated Premiums..................................... 31
Contract Loans....................................................................................................... 33
Tax Treatment of Contract Benefits................................................................................... 33
Legal Considerations Relating to Sex-Distinct Premiums and Benefits.................................................. 36
Other General Contract Provisions.................................................................................... 36
Substitution of Series Fund Shares................................................................................... 36
Reports to Contract Owners........................................................................................... 36
Sale of the Contract and Sales Commissions........................................................................... 37
State Regulation...................................................................................................... 37
Experts............................................................................................................... 37
Litigation and Regulatory Proceedings................................................................................. 38
Additional Information................................................................................................ 38
Financial Statements.................................................................................................. 38
DIRECTORS AND OFFICERS................................................................................................... 39
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, also accumulated
at an effective annual rate of 4%.
attained age -- The insured's age on the Contract date plus the number of years
since then. For any coverage segment effective after the Contract date, the
insured's attained age is the issue age of that segment plus the length of time
since its effective date.
basic insurance amount -- The amount of life insurance as shown in the Contract.
Also referred to as "face amount."
cash 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 any applicable surrender charge. Also referred to in the Contract as "Net
Cash Value."
Contract -- The variable universal life insurance policy described in this
prospectus.
Contract anniversary -- The same date as the Contract date in each later year.
Contract date -- The date the Contract is effective, as specified in the
Contract.
Contract debt -- The principal amount of all outstanding loans plus any interest
accrued thereon.
Contract Fund -- The total amount credited to a specific Contract. On any date
it is equal to the sum of the amounts in all the variable investment options and
the fixed-rate option, and the principal amount of any Contract debt plus any
interest earned thereon.
Contract owner -- You. Unless a different owner is named in the application, the
owner of the Contract is the insured.
Contract year -- A year that starts on the Contract date or on a Contract
anniversary. For any coverage segment representing an increase, "Contract year"
is a year that starts on the effective date of the increase (referred to as
"Target year" in the Contract). See Increases in Basic Insurance Amount, page
28.
death benefit -- If the Contract is not in default, this is the amount we will
pay upon the death of the insured, assuming no Contract debt.
fixed-rate option -- An investment option under which interest is accrued daily
at a rate that Pruco Life declares periodically, but not less than an effective
annual rate of 4%.
The Prudential Series Fund, Inc. -- A mutual fund with separate portfolios. One
or more of the available Series Fund portfolios may be chosen as an underlying
investment for the Contract.
Death Benefit Guarantee -- Sufficient premium payments, on an accumulated basis,
will guarantee that your Contract will not lapse and a death benefit will be
paid upon the death of the insured, regardless of investment experience and
assuming no loans. See Death Benefit Guarantee, page 21.
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 are held by us in a separate account called the
Pruco Life Variable Universal Account (the "Account"). The separate account is
set apart from all of the general assets of Pruco Life Insurance Company.
valuation period -- The period of time from one determination of the value of
the amount invested in a variable investment option to the next. Such
determinations are made when the net asset values of the portfolios of the
Series Fund are calculated, which is generally at 4:00 p.m. Eastern time on each
day during which the New York Stock Exchange is open.
variable investment options -- The 16 available subaccounts of the Pruco Life
Variable Universal Account. Each subaccount invests in a portfolio of the Series
Fund with the same name.
you -- The owner of the Contract.
1
INTRODUCTION AND SUMMARY
This Summary provides a brief overview of the more significant aspects of the
Contract. We provide further detail in the subsequent sections of this
prospectus and in the Contract.
Brief Description of the Contract
The Contract is a form of variable universal life insurance. It is based on a
Contract Fund, the value of which changes every day. The chart on the following
page describes how the value of your Contract Fund changes.
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
the value of the particular investment options you have selected. These
Contracts may be issued with a Target Term Rider that could have a significant
effect on the performance of your Contract. For the factors to consider when
adding a Target Term Rider to your Contract, see Riders, page 17.
Although the value of your Contract Fund will increase if there is favorable
investment performance in the variable investment options you select, investment
returns in the variable investment options are NOT guaranteed. There is a risk
that investment performance will be unfavorable and that the value of your
Contract Fund will decrease. The risk will be different, depending upon which
investment options you choose. See Which Investment Option Should Be Selected?,
page 9. If you select the fixed-rate option, Pruco Life credits your account
with a declared rate of interest but 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.
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 Series Fund.
For the DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, see page 1.
Charges
The following chart outlines the components of your Contract Fund and the
adjustments which may be made including the maximum charges which may be
deducted from each premium payment and from the amounts held in the designated
investment options. These charges are largely designed to cover insurance costs
and risks as well as sales and administrative expenses.
The maximum charges shown in the following chart, as well as the lower current
charges, are fully described under Charges and Expenses, page 11.
2
------------------------
Premium Payment
------------------------
-----------------------------------------------------------
. less a charge of up to 7.5% of the premiums paid for
taxes attributable to premiums. In California, Oregon,
and Texas this is called a premium based administrative
charge.
. less a charge for sales expenses of up to 6% of the
premiums paid.
-----------------------------------------------------------
-------------------------------------------------------------------
Invested Premium Amount
To be invested in one or a combination of:
. 16 investment portfolios of the Series Fund
. The fixed-rate option
-------------------------------------------------------------------
----------------------------------------------------------------------------
Contract Fund
On the Contract Date, the Contract Fund is equal to the invested premium
amount minus any of the charges described below which may be due on that
date. Thereafter, the value of the Contract Fund changes daily.
----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pruco Life adjusts the Contract Fund for:
. Addition of any new invested premium amounts.
. Addition of any increase due to investment results of the chosen variable
investment options.
. Addition of guaranteed interest at an effective annual rate of 4% (plus any
excess interest if applicable) on the portion of the Contract Fund allocated
to the fixed-rate option.
. Addition of guaranteed interest at an effective annual rate of 4% on the
amount of any Contract loan. (Separately, interest charged on the loan accrues
at an effective annual rate of 4.10% or 5%.) See Contract Loans, page 33.
. Subtraction of any decrease due to investment results of the chosen variable
investment options.
. Subtraction of any amount withdrawn.
. Subtraction of the charges listed below, as applicable.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Daily Charges
. Management fees and expenses are deducted from the Series Fund assets. See
Underlying Portfolio Expenses chart, below.
. We deduct a daily mortality and expense risk charge, equivalent to an annual
rate of up to 0.45%, from the assets in the variable investment options.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Monthly Charges
. We reduce the Contract Fund by a monthly administrative charge of up to $20
for the first two Contract years, $10 thereafter; plus an amount of up to
$1.12 per $1,000 of the basic insurance amount for the first five Contract
years, zero thereafter. The amount per $1,000 varies by sex, issue age and
rating class of the insured. See Monthly Deductions from the Contract Fund,
page 13.
. For each coverage segment representing an increase in basic insurance amount,
we will deduct $12 per segment for the first two years of the coverage
segment and zero thereafter; plus an amount of up to $1.12 per $1,000 of the
coverage segment amount for the first five Contract years and zero
thereafter. The amount per $1,000 varies by the sex, issue age, and rating
class of the insured. See Increases in Basic Insurance Amount, page 28 and
Monthly Deductions from the Contract Fund, page 13.
. In either of the instances described above, the highest charge per thousand
is $1.12 and applies to male and female smoker and non-smoker above age 74 at
certain rating classes. The lowest charge per thousand is $0.03 and applies
to female age 0-14, non-smoker at certain rating classes.
. 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.
- --------------------------------------------------------------------------------
3
----------------------------------------------------------------------------
Possible Additional Charges
. We will deduct a surrender charge if, during the first 10 Contract years
(or during the first 10 years of a coverage segment representing an
increase in basic insurance amount), the Contract lapses, is surrendered,
or the basic insurance amount is decreased (including as a result of a
withdrawal or a death benefit type change). The surrender charge is a
percentage of the Surrender Target Premium. The percentage varies by
issue age. The duration of the surrender charge also varies by issue age.
The maximum first year percentage, which applies to issue ages 0-45, is
90% of the Surrender Target Premium and is reduced annually at a constant
rate to zero by the end of the 10/th/ year. For issue ages above age 45,
the percentages are reduced. The surrender charge period is shorter for
Contracts issued to insureds over age 55. See Surrender Charges, page 14.
. We will assess an administrative charge of up to $25 for any withdrawals.
. We will assess an administrative charge of up to $25 for each transfer
exceeding 12 in any Contract year.
. We may assess an administrative charge of up to $25 for any change in
basic insurance amount.
. We may assess an administrative charge of up to $25 for any change in the
Target Term Rider coverage amount. See Riders, page 17.
----------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Underlying Portfolio Expenses
- -------------------------------------------------------------------------------------------------
Investment Total
The Prudential Series Fund, Inc. Portfolios Advisory Other Contractual Total Actual
Fee Expenses Expenses Expenses*
- ------------------------------------------------------------------------------------------------
Diversified Bond Portfolio 0.40% 0.03% 0.43% 0.43%
- ------------------------------------------------------------------------------------------------
Equity Portfolio 0.45% 0.02% 0.47% 0.47%
- ------------------------------------------------------------------------------------------------
High Yield Bond Portfolio 0.55% 0.05% 0.60% 0.60%
- ------------------------------------------------------------------------------------------------
Money Market Portfolio 0.40% 0.02% 0.42% 0.42%
- ------------------------------------------------------------------------------------------------
Prudential Jennison Portfolio 0.60% 0.03% 0.63% 0.63%
- ------------------------------------------------------------------------------------------------
Stock Index Portfolio 0.35% 0.04% 0.39% 0.39%
- ------------------------------------------------------------------------------------------------
SP AIM Aggressive Growth Portfolio 0.95% 0.50% 1.45% 1.07%
- ------------------------------------------------------------------------------------------------
SP Alliance Large Cap Growth Portfolio 0.90% 0.30% 1.20% 1.10%
- ------------------------------------------------------------------------------------------------
SP Alliance Technology Portfolio 1.15% 0.47% 1.62% 1.30%
- ------------------------------------------------------------------------------------------------
SP Davis Value Portfolio 0.75% 0.31% 1.06% 0.83%
- ------------------------------------------------------------------------------------------------
SP Deutsche International Equity Portfolio 0.90% 0.77% 1.67% 1.10%
- ------------------------------------------------------------------------------------------------
SP INVESCO Small Company Growth Portfolio 0.95% 0.59% 1.54% 1.15%
- ------------------------------------------------------------------------------------------------
SP MFS Capital Opportunities Portfolio 0.75% 0.39% 1.14% 1.00%
- ------------------------------------------------------------------------------------------------
SP MFS Mid-Cap Growth Portfolio 0.80% 0.52% 1.32% 1.00%
- ------------------------------------------------------------------------------------------------
SP Prudential U.S. Emerging Growth Portfolio 0.60% 0.52% 1.12% 0.90%
- ------------------------------------------------------------------------------------------------
SP Small/Mid Cap Value Portfolio 0.90% 0.68% 1.58% 1.05%
- ------------------------------------------------------------------------------------------------
* Reflects fee waivers and reimbursement of expenses, if any.
- ------------------------------------------------------------------------------------------------
4
Types of Death Benefit
There are three types of death benefit available. You may choose a Contract with
a Type A (fixed) death benefit under which the cash surrender value varies daily
with investment experience, and the death benefit generally remains at the basic
insurance amount you initially chose. However, the Contract Fund may grow to a
point where the death benefit may increase and vary with investment experience.
If you choose a Contract with a Type B (variable) death benefit, the cash
surrender value and the death benefit both vary with investment experience. For
Type A and Type B death benefits, as long as the Contract is in-force, the death
benefit will never be less than the basic insurance amount shown in your
Contract. If you choose a Contract with a Type C (return of premium) death
benefit, the death benefit is increased by the amount of premiums paid into the
Contract, less withdrawals. You may change your Contract's death benefit type
after issue, however, if you choose a Type A or Type B death benefit at issue,
you will not be able to change to a Type C death benefit thereafter. See Types
of Death Benefit, page 16 and Changing the Type of Death Benefit, page 16.
Life Insurance Definitional Tests
In order to qualify as life insurance for Federal tax purposes, the Contract
must adhere to the definition of life insurance under Section 7702 of the
Internal Revenue Code. At issue, the Contract owner chooses one of the following
definition of life insurance tests: (1) Cash Value Accumulation Test or (2)
Guideline Premium Test. Under the Cash Value Accumulation Test, there is a
minimum death benefit to cash value ratio. Under the Guideline Premium Test,
there is a limit to the amount of premiums that can be paid into the Contract,
as well as a minimum death benefit to cash value ratio. For more information,
see Tax Treatment of Contract Benefits, page 33.
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 in-force if the Contract Fund less any applicable surrender
charges is greater than zero and more than any Contract debt. 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 are high enough and
there is 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. The length of time that the guarantee against lapse is
available depends on your Contract's death benefit type and the definition of
life insurance test selected at issue. See Premiums, page 19, Death Benefit
Guarantee, page 21 and Lapse and Reinstatement, page 28.
We offer and suggest regular billing of premiums even though you decide when to
make premium payments and, subject to a $25 minimum, in what amounts. You should
discuss your billing options with your Pruco Life representative when you apply
for the Contract. See Premiums, page 19.
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.
5
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, THE PRUCO LIFE
VARIABLE UNIVERSAL ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE
UNDER THE CONTRACT
Pruco Life Insurance Company
Pruco Life Insurance Company ("Pruco Life") is a stock life insurance company,
organized in 1971 under the laws of the State of Arizona. It is licensed to sell
life insurance and annuities in the District of Columbia, Guam, and in all
states except New York. These Contracts are not offered in any state where the
necessary approvals have not been obtained. Pruco Life's consolidated financial
statements begin on page B1 and should be considered only as bearing upon Pruco
Life's ability to meet its obligations under the Contracts.
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 pursuing reorganizing
itself into a publicly traded stock company through a process known as
"demutualization". On July 1, 1998, legislation was enacted in New Jersey that
would permit this conversion to occur and that specified the process for
conversion. On December 15, 2000, the Board of Directors adopted a plan of
reorganization pursuant to that legislation and authorized management to submit
an application to the New Jersey Commissioner of Banking and Insurance for
approval of the plan. However, demutualization is a complex process and a number
of additional steps must be taken before the demutualization can occur,
including a public hearing, voting by qualified policyholders, and regulatory
approval. Prudential is planning on completing this process in 2001, but there
is no certainty that the demutualization will be completed in this timeframe or
that the necessary approvals will be obtained. Also it is possible that after
careful review, Prudential could decide not to demutualize or could decide to
delay its plans. As a general rule, the plan of reorganization provides that, in
order for policies or contracts to be eligible for compensation in the
demutualization, they must have been in force on the date the Board of Directors
adopted the plan, December 15, 2000.
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 the legal owner of the assets in the Account. Pruco Life will
maintain assets in the Account with a total market value at least equal to the
reserve and other liabilities relating to the variable benefits attributable to
the Account. These assets may not be charged with liabilities which arise from
any other business Pruco Life conducts. In addition to these assets, the
Account's assets may include funds contributed by Pruco Life to commence
operation of the Account and may include accumulations of the charges Pruco Life
makes against the Account. From time to time these additional assets will be
transferred to Pruco Life's general account. 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 Contracts
are general corporate obligations of Pruco Life.
Currently, you may invest in one or a combination of 16 available variable
investment options. When you choose a variable investment option, we purchase
shares of the Series Fund portfolio which is held as an investment for that
option. We hold these shares in the separate account. Pruco Life may add
additional variable investment options in the future. The Account's financial
statements begin on page A1.
6
The Prudential Series Fund, Inc.
Listed below are the Series Fund portfolios in which the variable investment
options invest, their investment objectives, and investment advisers.
The Series Fund has a separate prospectus that is provided with this prospectus.
You should read the Series Fund prospectus before you decide to allocate assets
to a variable investment option using its corresponding Series Fund portfolio.
There is no assurance that the investment objectives of the portfolios will be
met.
. 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.
. 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.
. High Yield Bond Portfolio: The investment objective is a high total return.
The Portfolio invests primarily in high yield/high risk debt securities.
. 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.
. 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.
. Stock Index Portfolio: The investment objective is investment results that
generally correspond to the performance of publicly-traded common stocks. The
Portfolio attempts to duplicate the price and yield performance of the
Standard & Poor's 500 Stock Index ("S&P 500").
. SP AIM Aggressive Growth Portfolio: The investment objective is to achieve
long-term growth of capital. The Portfolio invests primarily in securities of
companies whose earnings the portfolio managers expect to grow more than 15%
per year.
. SP Alliance Large Cap Growth Portfolio: The investment objective is growth of
capital by pursuing aggressive investment policies. The Portfolio invests
primarily in equity securities of a limited number of large, carefully
selected, high-quality U.S. Companies that are judged likely to achieve
superior earnings growth.
. SP Alliance Technology Portfolio: The investment objective is growth of
capital and invests for capital appreciation. The Portfolio invests primarily
in securities of companies expected to benefit from technological advances
and improvements (i.e. companies that use technology extensively in the
development of new or improved products or processes).
. SP Davis Value Portfolio: The investment objective is growth of capital. The
Portfolio invests primarily in common stock of U.S. companies with market
capitalizations of at least $5 billion.
. SP Deutsche International Equity Portfolio: The investment objective is long-
term capital appreciation. The Portfolio invests primarily in the stocks and
other securities with equity characteristics of companies in developed
countries outside the United States.
. SP INVESCO Small Company Growth Portfolio: The investment objective is long-
term capital growth. The Portfolio invests primarily in the stocks of small
companies with market capitalizations under $2 billion at the time of
purchase.
. SP MFS Capital Opportunities Portfolio: The investment objective is capital
appreciation. The Portfolio invests primarily in stocks, convertible
securities and depository receipts of companies in both the United States and
in
7
foreign countries, which the portfolio managers believe have favorable growth
prospects and attractive valuations based on current and expected earnings or
cash flow.
. SP MFS Mid-Cap Growth Portfolio: The investment objective is long-term growth
of capital. The Portfolio invests primarily in stocks, convertible securities
and depository receipts of companies with medium market capitalizations,
which the Portfolio's portfolio managers believe have above-average growth
potential.
. SP Prudential U.S. Emerging Growth Portfolio: The investment objective is
long-term capital appreciation. The Portfolio seeks investments whose price
will increase over several years. The Portfolio invests primarily in stocks
of small and medium-sized U.S. companies with potential for above-average
growth.
. SP Small/Mid Cap Value Portfolio: The investment objective is long-term
growth of capital. The Portfolio invests primarily in common stocks of
companies with small to medium market capitalizations.
Prudential is the overall investment adviser to the Diversified Bond Portfolio,
Equity Portfolio, High Yield Bond Portfolio, Money Market Portfolio, Prudential
Jennison Portfolio, and the Stock Index Portfolio. Prudential's principal
business address is 751 Broad Street, Newark, NJ 07102-3777.
Jennison Associates LLC ("Jennison"), a wholly-owned subsidiary of Prudential,
serves as subadviser to the Equity Portfolio, Prudential Jennison Portfolio, and
the SP Prudential U.S. Emerging Growth Portfolio. Jennison's principal business
address is 466 Lexington Avenue, New York, NY 10017.
Prudential Investment Corporation ("PIC"), also a wholly-owned subsidiary of
Prudential, serves as subadviser to the Stock Index Portfolio and the Money
Market Portfolio. PIC's business address is 751 Broad Street, Newark, NJ 07102.
Prudential Investments Fund Management LLC ("PIFM"), subsidiary of Prudential,
is the investment adviser to the SP AIM Aggressive Growth Portfolio, SP Alliance
Large Cap Growth Portfolio, SP Alliance Technology Portfolio, SP Davis Value
Portfolio, SP Deutsche International Equity Portfolio, SP INVESCO Small Company
Growth Portfolio, SP MFS Capital Opportunities Portfolio, SP MFS Mid-Cap Growth
Portfolio, SP Prudential U.S. Emerging Growth Portfolio, and the SP Small/Mid
Cap Value Portfolio. PIFM's business address is 100 Mulberry Street, Newark, NJ
07102.
A I M Capital Management, Inc. ("A I M Capital") serves as the sub-adviser to
the SP AIM Aggressive Growth Portfolio. A I M Capital's principal business
address is 11 Greenway Plaza, Suite 100, Houston, TX 77046-1173.
Alliance Capital Management, L.P. ("Alliance") serves as the sub-adviser to the
SP Alliance Large Cap Growth Portfolio and the SP Alliance Technology Portfolio.
Alliance's principal business address is 1345 Avenue of the Americas, New York,
NY 10105.
Bankers Trust Company ("Bankers Trust"), an indirect wholly-owned subsidiary of
Deutsche Bank AG, serves as the sub-adviser to the SP Deutsche International
Equity Portfolio. Bankers Trust's principal business address is 130 Liberty
Street, New York, NY 10006.
Davis Selected Advisers, LP serves as the sub-adviser to the SP Davis Value
Portfolio. The principal business address for Davis Selected Advisers, LP is 124
East Elvira Street, Santa Fe, NM 87501.
Fidelity Management & Research Company ("FMR") serves as the sub-adviser to the
SP Small/Mid Cap Value Portfolio. FMR's principal business address is 82
Devonshire Street, Boston, MA 02109.
Invesco Funds Group, Inc. ("Invesco') serves as the sub-adviser to the SP
Invesco Small Company Growth Portfolio. Invesco's principal business address is
7800 East Union Avenue, Denver, CO 80237.
Massachusetts Financial Services Company ("MFS") serves as the sub-adviser for
the SP MFS Capital Opportunities Portfolio and the SP MFS Mid-Cap Growth
Portfolio. The principal business address for MFS is 500 Boylston Street,
Boston, MA 02116.
The Series Fund's investment advisers charge a daily investment management fee
as compensation for their services. These fees are described in the table under
Deductions from Portfolios in the Charges and Expenses section, see page 11, and
are more fully described in the Series Fund prospectus.
8
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 Series Fund
nor the Series Fund currently foresees any such disadvantage, the Series Fund's
Board of Directors 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 Series
Fund; or
(4) differences between voting instructions given by variable life
insurance and variable annuity contract owners.
Voting Rights
We are the legal owner of the shares in the Series Fund associated with the
variable investment options. However, we vote the shares in the Series Fund
according to voting instructions we receive from Contract owners. We will mail
you a proxy, which is a form you need to complete and return to us to tell us
how you wish us to vote. When we receive those instructions, we will vote all of
the shares we own on your behalf in accordance with those instructions. We will
vote the shares for which we do not receive instructions and shares that we own,
in the same proportion as the shares for which instructions are received. We may
change the way your voting instructions are calculated if it is required by
federal regulation. Should the applicable federal securities laws or
regulations, or their current interpretation, change so as to permit Pruco Life
to vote shares of the Series Fund in its own right, it may elect to do so.
The Fixed-Rate Option
Because of exemptive and exclusionary provisions, interests in the fixed-rate
option under the Contract have not been registered under the Securities Act of
1933 and the general account has not been registered as an investment company
under the Investment Company Act of 1940. Accordingly, interests in the fixed-
rate option are not subject to the provisions of these Acts, and Pruco Life has
been advised that the staff of the SEC has not reviewed the disclosure in this
prospectus relating to the fixed-rate option. Any inaccurate or misleading
disclosure regarding the fixed-rate option may, however, be subject to certain
generally applicable provisions of federal securities laws.
You may choose to invest, either initially or by transfer, all or part of your
Contract Fund to a fixed-rate option. This amount becomes part of Pruco Life's
general account. The general account consists of all assets owned by Pruco Life
other than those in the Account and in other separate accounts that have been or
may be established by Pruco Life. Subject to applicable law, Pruco Life has sole
discretion over the investment of the general account assets, and Contract
owners do not share in the investment experience of those assets. Instead, Pruco
Life guarantees that the part of the Contract Fund allocated to the fixed-rate
option will accrue interest daily at an effective annual rate that Pruco Life
declares periodically, but not less than an effective annual rate of 4%. Pruco
Life is not obligated to credit interest at a rate higher than an effective
annual rate of 4%, although we may do so.
Transfers from the fixed-rate option are subject to strict limits, see
Transfers, page 23. 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 30.
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. For example,
portfolios such as the Equity, Prudential Jennison, Stock Index, SP AIM
Aggressive Growth, and SP Prudential U.S. Emerging Growth may be desirable
options if you are willing to accept such volatility in your Contract values.
Each equity portfolio involves different policies and investment risks. See The
Prudential Series Fund, Inc., page 7, for additional equity portfolios available
under the Contract and their specific investment objectives.
9
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 available
options. Your choice should take into account your willingness to accept
investment risks, how your other assets are invested, and what investment
results you may experience in the future. You should consult your Pruco Life
representative from time to time about the choices available to you under the
Contract. Pruco Life recommends against frequent transfers among the several
options. Experience generally indicates that "market timing" investing,
particularly by non-professional investors, is likely to prove unsuccessful.
10
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 33. 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. If circumstances change, we
reserve the right to increase each current charge, up to the maximum charge,
without giving any advance notice.
Deductions from Premium Payments
(a) We reserve the right to charge up to 7.5% for taxes attributable to
premiums. In California, Oregon, and Texas 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. This charge
is made up of two parts which currently equal a total of 3.75% of the
premiums received.
The first part is a charge for state and local premium taxes. The current
amount for this first part is 2.5% of the premium and is Pruco Life's
estimate of the average burden of state taxes generally. Tax rates vary
from jurisdiction to jurisdiction and generally range from 0.75% to 5%.
The rate applies uniformly to all policyholders without regard to state of
residence. Pruco Life may collect more for this charge than it actually
pays for state and local premium taxes.
The second part is for federal income taxes measured by premiums, and it
is currently equal to 1.25% of premiums. We believe that this charge is a
reasonable estimate of an increase in its federal income taxes resulting
from a 1990 change in the Internal Revenue Code. It is intended to recover
this increased tax.
(b) We reserve the right to charge up to 6% of premiums paid for sales
expenses in all 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.
Currently, the charge is equal to 4% of premiums paid up to the amount of
the Sales Load Target Premium and 2% of premiums paid in excess of this
amount for the first 10 Contract years (or the first 10 years of a
coverage segment representing an increase in basic insurance amount); 0%
thereafter. The Sales Load Target Premium may vary from the Target
Premium, depending on the issue age and rating class of the insured, any
extra risk charges, or additional riders. For Contracts issued on an
unrated insured below age 56, the Sales Load Target Premium is generally
equal to what the Target Premium for a Type A Contract would be if the
insured was either in the Nonsmoker or Smoker rating class, and there were
no extra risk charges or riders on the Contract. For Contracts issued on
an unrated insured below age 56 in a more favorable rating class, the
Sales Load Target Premium will be greater than the Target Premium, if
there are no extra risk charges or riders on the Contract. For Contracts
issued on insureds age 56 or greater or with substandard ratings, the
Sales Load Target Premium will generally be less than the Target Premium.
See Premiums, page 19.
Paying more than the Sales Load Target Premium in any of the first 10
Contract years could reduce your total sales load. For example, assume
that a Contract with no riders or extra insurance charges has a Sales Load
Target Premium of $884 and the Contract owner would like to pay 10
premiums. If the Contract owner paid $1,768 (two times the amount of the
Sales Load Target Premium) in every other Contract year up to the ninth
year (i.e. in years 1, 3, 5, 7, 9), the total sales load charge would be
$265.20. If the Contract owner paid $884 in each of the first 10 Contract
years, the total sales load would be $353.60. For additional information,
see Increases in Basic Insurance Amount, page 28.
11
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 Death Benefit Guarantee Values shown on
your Contract data pages. See Death Benefit Guarantee, page 21. 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 33.
Deductions from Portfolios
We deduct an investment advisory fee daily from each portfolio of the Series
Fund at a rate, on an annualized basis, ranging from 0.35% for the Stock Index
Portfolio to 1.15% for the SP Alliance Technology 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 vary from portfolio to portfolio.
The total expenses of each portfolio for the year ended December 31, 1999,
expressed as a percentage of the average assets during the year, are shown
below:
- -----------------------------------------------------------------------------------------------------------------
Investment Total Total
Advisory Other Contractual Actual
The Prudential Series Fund, Inc. Portfolios Fee Expenses Expenses Expenses*
- -----------------------------------------------------------------------------------------------------------------
Diversified Bond Portfolio 0.40% 0.03% 0.43% 0.43%
- -----------------------------------------------------------------------------------------------------------------
Equity Portfolio 0.45% 0.02% 0.47% 0.47%
- -----------------------------------------------------------------------------------------------------------------
High Yield Bond Portfolio 0.55% 0.05% 0.60% 0.60%
- -----------------------------------------------------------------------------------------------------------------
Money Market Portfolio 0.40% 0.02% 0.42% 0.42%
- -----------------------------------------------------------------------------------------------------------------
Prudential Jennison Portfolio 0.60% 0.03% 0.63% 0.63%
- -----------------------------------------------------------------------------------------------------------------
Stock Index Portfolio 0.35% 0.04% 0.39% 0.39%
- -----------------------------------------------------------------------------------------------------------------
SP AIM Aggressive Growth Portfolio 0.95% 0.50% 1.45% 1.07%
- -----------------------------------------------------------------------------------------------------------------
SP Alliance Large Cap Growth Portfolio 0.90% 0.30% 1.20% 1.10%
- -----------------------------------------------------------------------------------------------------------------
SP Alliance Technology Portfolio 1.15% 0.47% 1.62% 1.30%
- -----------------------------------------------------------------------------------------------------------------
SP Davis Value Portfolio 0.75% 0.31% 1.06% 0.83%
- -----------------------------------------------------------------------------------------------------------------
SP Deutsche International Equity Portfolio 0.90% 0.77% 1.67% 1.10%
- -----------------------------------------------------------------------------------------------------------------
SP INVESCO Small Company Growth Portfolio 0.95% 0.59% 1.54% 1.15%
- -----------------------------------------------------------------------------------------------------------------
SP MFS Capital Opportunities Portfolio 0.75% 0.39% 1.14% 1.00%
- -----------------------------------------------------------------------------------------------------------------
SP MFS Mid-Cap Growth Portfolio 0.80% 0.52% 1.32% 1.00%
- -----------------------------------------------------------------------------------------------------------------
SP Prudential U.S. Emerging Growth Portfolio 0.60% 0.52% 1.12% 0.90%
- -----------------------------------------------------------------------------------------------------------------
SP Small/Mid Cap Value Portfolio 0.90% 0.68% 1.58% 1.05%
- -----------------------------------------------------------------------------------------------------------------
* Reflects fee waivers and reimbursement of expenses, if any.
- -----------------------------------------------------------------------------------------------------------------
12
Daily Deduction from the Contract Fund
Each day we deduct a charge from the assets of each of the variable investment
options in an amount equivalent to an effective annual rate of up to 0.45%.
Currently, we charge 0.25%. This charge is intended to compensate Pruco Life for
assuming mortality and expense risks under the Contract. The mortality risk
assumed is that insureds may live for shorter periods of time than Pruco Life
estimated when it determined what mortality charge to make. The expense risk
assumed is that expenses incurred in issuing and administering the Contract will
be greater than Pruco Life estimated in fixing its administrative charges. This
charge is not assessed against amounts allocated to the fixed-rate option.
Monthly Deductions from the Contract Fund
Pruco Life deducts the following monthly charges proportionately from the dollar
amounts held in each of the chosen investment option[s] or you may select up to
two variable investment options from which we deduct your Contract's monthly
charges. See Allocated Charges, page 15.
(a) An administrative charge based on the basic insurance amount is deducted.
The charge is intended to compensate us for things like processing claims,
keeping records, and communicating with Contract owners. Currently, the
first part of the charge is equal to $20 per Contract for the first two
Contract years and $8 per Contract thereafter. Pruco Life reserves the
right, however, to charge up to $20 per Contract for the first two Contract
years and $10 per Contract thereafter. The second part of this charge is
equal to an amount up to $1.12 per $1,000 of the basic insurance amount for
the first five Contract years and zero thereafter. The amount per $1,000
varies by sex, issue age, and rating class of the insured.
If the Contract includes a coverage segment representing an increase in
basic insurance amount, we will deduct $12 per segment for the first two
years of the coverage segment and zero thereafter; plus an amount up to
$1.12 per $1,000 of the coverage segment for the first five Contract years
and zero thereafter. The amount per $1,000 varies by sex, issue age, and
rating class of the insured.
In either of the instances described above, the highest charge per thousand
is $1.12 and applies to male and female smoker and non-smoker above age 74
at certain rating classes. The lowest charge per thousand is $0.03 and
applies to female age 0-14, non-smoker at certain rating classes. The
amount of the charge that applies to a particular Contract is shown on the
Contract Data pages under the heading "Adjustments to the Contract
Fund."
The following table provides sample per thousand charges:
--------------------------------------------------------------------------------
Male Male Female Female
Issue Age Non-Smoker Smoker Non-Smoker Smoker
--------------------------------------------------------------------------------
35 $0.14 $0.23 $0.12 $0.16
--------------------------------------------------------------------------------
45 $0.24 $0.34 $0.19 $0.28
--------------------------------------------------------------------------------
55 $0.40 $0.45 $0.31 $0.42
--------------------------------------------------------------------------------
65 $0.67 $0.76 $0.53 $0.70
--------------------------------------------------------------------------------
A cost of insurance ("COI") charge is deducted. When an insured dies, the
amount payable to the beneficiary (assuming there is no Contract debt) is
larger than the Contract Fund - significantly larger if the insured dies in
the early years of a Contract. The cost of insurance charges collected from
all Contract owners enables Pruco Life to pay this larger death benefit.
The maximum COI charge is determined by multiplying the "net amount at
risk" under a Contract (the amount by which the Contract's death benefit
exceeds the Contract Fund) by maximum COI rates. The maximum COI rates are
based upon the 1980 Commissioners Standard Ordinary ("CSO") Tables and an
insured's current attained age, sex (except where unisex rates apply),
smoker/non-smoker status, and extra rating class, if any. At most ages,
Pruco Life's current COI rates are lower than the maximum rates. For
additional information, see Increases in Basic Insurance Amount, page 28.
(b) 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. See Riders, page 17.
13
(c) If an insured is in a substandard risk classification (for example, a
person in a hazardous occupation), additional charges will be deducted.
(d) A charge may be deducted to cover federal, state or local taxes (other than
"taxes attributable to premiums" described above) that are imposed upon the
operations of the Account. In California, Oregon, and Texas this is called
a premium based administrative charge. At present no such taxes are imposed
and no charge is made.
The earnings of the Account are taxed as part of the operations of Pruco
Life. Currently, no charge is being made to the Account for Pruco Life's
federal income taxes, other than the 1.25% charge for federal income taxes
measured by premiums. See Deductions from Premiums, page 11. Pruco Life
periodically reviews the question of a charge to the Account for Company
federal income taxes. We may make such a charge in the future for any
federal income taxes that would be attributable to the Contracts.
Surrender Charges
We will deduct a surrender charge if, during the first 10 Contract years (or
during the first 10 years of a coverage segment representing an increase in
basic insurance amount), the Contract lapses, is surrendered, or the basic
insurance amount is decreased (including as a result of a withdrawal or a death
benefit type change). The surrender charge is a percentage of the Surrender
Target Premium. The percentage varies by issue age. The Surrender Target Premium
is equal to the Sales Load Target Premium at the time the policy (or coverage)
is issued less premiums for riders or extras. The duration of the surrender
charge also varies by issue age. For all issue ages 0-45, the maximum first year
percentage is 90% of the Surrender Target Premium, and is reduced annually at a
constant rate to zero by the end of the 10/th/ year.
The chart below shows the maximum percentages for all ages at the beginning of
the first Contract year, the rate at which the percentages is reduced annually,
and the end of the last Contract year for which a surrender charge is shown. The
surrender charge is not deducted from the death benefit if the insured should
die during this period. This charge is deducted to cover sales and
administrative costs, such as: the cost of processing applications, conducting
examinations, determining insurability and the insured's rating class, and
establishing records. A schedule showing the maximum surrender charges for a
full surrender occurring during each year for which a surrender charge may be
payable is found in the Contract Data pages of the Contract.
-------------------------------------------------------- --------------------------------------------------------
Reduction in Reduction in
Issue Percentage percentage To the Issue Percentage at percentage To the
Age at start of points each end of year Age start of year points each end of year
year 1 year 1 year
-------------------------------------------------------- --------------------------------------------------------
0-45 90.0% 9.00% 10 60 47.5% 6.79% 7
-------------------------------------------------------- --------------------------------------------------------
46 87.0% 8.70% 10 61 45.0% 7.50% 6
-------------------------------------------------------- --------------------------------------------------------
47 84.0% 8.40% 10 62 42.5% 7.08% 6
-------------------------------------------------------- --------------------------------------------------------
48 81.0% 8.10% 10 63 40.0% 8.00% 5
-------------------------------------------------------- --------------------------------------------------------
49 78.0% 7.80% 10 64 37.5% 9.37% 4
-------------------------------------------------------- --------------------------------------------------------
50 75.0% 7.50% 10 65 35.0% 8.75% 4
-------------------------------------------------------- --------------------------------------------------------
51 72.0% 7.20% 10 66 34.0% 8.50% 4
-------------------------------------------------------- --------------------------------------------------------
52 69.0% 6.90% 10 67 33.5% 8.37% 4
-------------------------------------------------------- --------------------------------------------------------
53 66.0% 6.60% 10 68 33.0% 8.25% 4
-------------------------------------------------------- --------------------------------------------------------
54 63.0% 6.30% 10 69 32.5% 10.83% 3
-------------------------------------------------------- --------------------------------------------------------
55 60.0% 6.00% 10 70 32.0% 10.67% 3
-------------------------------------------------------- --------------------------------------------------------
56 57.5% 6.39% 9 71 31.5% 10.50% 3
-------------------------------------------------------- --------------------------------------------------------
57 55.0% 6.87% 8 72 31.0% 10.33% 3
-------------------------------------------------------- --------------------------------------------------------
58 52.5% 6.56% 8 73 30.5% 10.17% 3
-------------------------------------------------------- --------------------------------------------------------
59 50.0% 7.14% 7 74 and 30.0% 10.00% 3
above
-------------------------------------------------------- --------------------------------------------------------
We will show a surrender charge threshold for each coverage segment in the
Contract data pages. This threshold amount is the segment's lowest coverage
amount since its effective date. If during the first 10 Contract years (or
during the first 10 years of a coverage segment representing an increase in
basic insurance amount), the basic
14
insurance amount is decreased (including as a result of a withdrawal or a change
in type of death benefit), and the new basic insurance amount for any coverage
segment is below the threshold for that segment, we will deduct a percentage of
the surrender charge for that segment. The percentage will be the amount by
which the new coverage segment is less than the threshold, divided by the
threshold. After this transaction, the threshold will be updated and a
corresponding new surrender charge schedule will also be determined to reflect
that portion of surrender charges deducted in the past. See Increases in Basic
Insurance Amount, page 28 and Decreases in Basic Insurance Amount, page 29.
Transaction Charges
(a) We currently charge an administrative processing fee equal to the lesser
of $25 or 2% of the withdrawal amount in connection with each withdrawal.
(b) We currently charge an administrative processing fee of $25 for each
transfer exceeding 12 in any Contract year.
(c) We may charge an administrative processing fee of up to $25 for any change
in basic insurance amount.
(d) We may charge an administrative processing fee of up to $25 for any change
in the Target Term Rider coverage amount for Contracts with this rider.
Charges After Age 100
Beginning on the contract anniversary when the insured reaches attained age 100,
premiums will no longer be accepted and monthly charges will no longer be
deducted from the Contract Fund. You may continue the contract until the
insured's death, or until you surrender the contract for its cash surrender
value. You may continue to make transfers, loans and withdrawals, subject to the
limitations on these transactions described elsewhere. If you have any amounts
allocated to the variable investment options, mortality and expense risk charges
and investment advisory fees will continue to be deducted daily. Any outstanding
loan will remain on the policy, unless repaid, and will continue to accrue
interest.
Allocated Charges
You may choose from which variable investment option(s) we deduct your
Contract's monthly charges. Monthly charges include: (1) monthly administrative
charges, (2) COI charges, (3) any rider charges, and (4) any charge for
substandard risk classification. You may select up to two variable investment
options for the allocation of monthly charges. Allocations must be designated in
whole percentages. For example, 33% can be selected but 33"% cannot. Of course,
the total allocation to the selected variable investment options must equal
100%. The fixed-rate option is not available as an allocation option. See
Monthly Deductions from the Contract Fund, page 13.
If there are insufficient funds in one or both of the selected variable
investment options to cover the monthly charges, the selected variable
investment option(s) will be reduced to zero. Any remaining charge will be
deducted from all other variable investment options and the fixed-rate option
proportionately to the dollar amount in each. Furthermore, if you do not specify
an allocation of monthly charges, we will deduct monthly charges proportionately
from your variable investment options and the fixed-rate option.
Requirements for Issuance of a Contract
The Contract may generally be issued on insureds through age 90. Currently, the
minimum face amount for Contracts without a Target Term Rider is $75,000
($50,000 for insureds below the age of 18, $100,000 for insureds ages 76-80, and
$250,000 for insureds ages 81 and above). The minimum face amount for Contracts
issued with a Type C (return of premium) death benefit is $250,000. See Types of
Death Benefit, page 16.
For Contracts with a Target Term Rider, the minimum total face amount (basic
insurance amount plus any Target Term Rider coverage amount combined) is
$250,000. Furthermore, if the Target Term Rider is added to the Contract, the
minimum face amount of the base Contract is $100,000, while the minimum rider
coverage amount is $5,000. See Riders, page 17. Pruco Life may reduce the
minimum face amounts of the Contracts it will issue.
15
Pruco Life requires evidence of insurability, which may include a medical
examination, before issuing any Contract. Non-smokers are offered the most
favorable cost of insurance rates. We charge 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, with no adjustment for investment experience. However, if applicable law
so requires and you exercise your short-term cancellation right, you will
receive a refund of all premium payments made, plus or minus any change due to
investment experience. For information on how premium payments are allocated
during the "free-look" period, see Allocation of Premiums, page 20.
Types of Death Benefit
You may select either of three types of death benefit at issue. 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
24. The payment of additional premiums and favorable investment results of the
variable investment options to which the assets are allocated will generally
increase the cash surrender value. See How a Contract's Cash Surrender Value
Will Vary, page 24.
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 Type A (fixed) Contract.
This is because, given two Contracts with the same basic insurance amount and
equal Contract Funds, generally the cost of insurance charge for a Type B
(variable) Contract will be greater. See How a Contract's Cash Surrender Value
Will Vary, page 24 and How a Type B (Variable) Contract's Death Benefit Will
Vary, page 25. Unfavorable investment performance will result in decreases in
the death benefit and in the cash surrender value. But, as long as the Contract
is not in default, the death benefit may not fall below the basic insurance
amount stated in the Contract.
A Contract with a Type C (return of premium) death benefit has a death benefit
which will generally equal the basic insurance amount plus the total premiums
paid into the Contract, less withdrawals. This death benefit allows the Contract
owner, in effect, to recover the cost of the Contract upon the death of the
insured. Under certain circumstances, it is possible for a Type C Contract's
death benefit to fall below the basic insurance amount. Favorable investment
performance and payment of additional premiums will generally increase the
Contract's cash value. Over time, however, the increase in cash value will be
less than under a Type A (fixed) Contract. See How a Contract's Surrender Value
Will Vary, page 24 and How a Type C (Return of Premium) Contract's Death Benefit
Will Vary, page 26.
In choosing a death benefit type, you should also consider whether you intend to
use the withdrawal feature. Contract owners of Type A (fixed) Contracts should
note that any withdrawal may result in a reduction of the basic insurance amount
and the deduction of any applicable surrender charges. We will not allow you to
make a withdrawal that will decrease the basic insurance amount below the
minimum basic insurance amount. For Type B (variable) and Type C (return of
premium) Contracts, withdrawals will not change the basic insurance amount. See
Withdrawals, page 27.
Changing the Type of Death Benefit
You may change the type of death benefit any time after issue and subject to
Pruco Life's approval. We will increase or decrease the basic insurance amount
so that the death benefit immediately after the change matches the death benefit
immediately before the change. The basic insurance amount after a change may not
be lower than the minimum basic insurance amount applicable to the Contract. See
Requirements for Issuance of a Contract, page 15. We reserve the right to make
an administrative processing charge of up to $25 for any change in the basic
16
insurance amount, although we do not currently do so. A type change that reduces
the basic insurance amount may result in the assessment of surrender charges.
See Charges and Expenses, page 11. Furthermore, if you choose a Type A or Type B
death benefit at issue, you will NOT be able to change to a Type C death benefit
after issue.
If you are changing your Contract's type of death benefit from a Type A (fixed)
to a Type B (variable) death benefit, we will reduce the basic insurance amount
by the amount in your Contract Fund on the date the change takes place.
If you are changing from a Type A (fixed) to a Type C (return of premium) death
benefit, we will change the basic insurance amount by subtracting the total
premiums paid on this Contract minus total withdrawals on the date the change
takes effect. This change is only available to Contracts which were issued with
a Type C death benefit and subsequently changed to a Type A death benefit.
If you are changing from a Type B (variable) to a Type A (fixed) death benefit,
we will increase the basic insurance amount by the amount in your Contract Fund
on the date the change takes place.
If you are changing from a Type B (variable) to a Type C (return of premium)
death benefit, we first find the difference between: (1) the amount in your
Contract Fund and (2) the total premiums paid on this Contract minus total
withdrawals, determined on the date the change takes effect. If (1) is larger
than (2), we will increase the basic insurance amount by that difference. If (2)
is larger than (1), we will reduce the basic insurance amount by that
difference. This change is only available to Contracts which were issued with a
Type C death benefit and subsequently changed to a Type B death benefit.
If you are changing from a Type C (return of premium) to a Type A (fixed) death
benefit, we will change the basic insurance amount by adding the total premiums
paid minus total withdrawals to this Contract on the date the change takes
place.
If you are changing from a Type C (return of premium) to a Type B (variable)
death benefit, we first find the difference between: (1) the amount in your
Contract Fund and (2) the total premiums paid on this Contract minus total
withdrawals, determined on the date the change takes effect. If (2) is larger
than (1), we will increase the basic insurance amount by that difference. If (1)
is larger than (2), we will reduce the basic insurance amount by that
difference.
The following chart illustrates the changes in basic insurance amount with each
change of death benefit type described above. The chart assumes a $50,000
Contract Fund and a $300,000 death benefit. For changes to and from a Type C
death benefit, the chart assumes $40,000 in total premiums minus total
withdrawals.
--------------------------------------------------------
Basic Insurance Amount
========================================================
FROM TO
--------------------------------------------------------
Type A Type B Type C
$300,000 $250,000 $260,000
--------------------------------------------------------
Type B Type A Type C
$250,000 $300,000 $260,000
--------------------------------------------------------
Type C Type A Type B
$260,000 $300,000 $250,000
--------------------------------------------------------
To request a change, fill out an application for change which can be obtained
from your Pruco Life representative or a Home Office. If the change is approved,
we will recompute the Contract's charges and appropriate tables and send you new
Contract data pages. We may require you to send us your Contract before making
the change.
Riders
Contract owners may be able to obtain extra 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
17
be deducted from the Contract Fund on each Monthly date. The amounts of these
benefits do not depend on the performance of the Account, although they will no
longer be available if the Contract lapses. Certain restrictions may apply and
are clearly described in the applicable rider. Your Pruco Life representative
can explain all of these extra benefits further. Also, samples of the provisions
are available from Pruco Life upon written request.
Enhanced Disability Benefit -- The Enhanced Disability Benefit pays certain
amounts into the Contract if the insured is totally disabled, as defined in the
benefit provision.
Accidental Death Benefit -- The Accidental Death Benefit provides an additional
death benefit that is payable if the insured's death is accidental, as defined
in the benefit provision.
Children Level Term Rider -- The Children Level Term Rider provides term life
insurance coverage on the life of the insured's children.
Target Term Rider -- The Target Term Rider provides a flexible term insurance
benefit to attained age 100 on the life of the insured. You specify the amount
of term rider coverage you desire, up to four times the base Contract's basic
insurance amount. This amount is called the rider coverage amount and is the
maximum death benefit payable under the rider. After issue, while the rider is
in-force, you may increase the rider coverage amount subject to a minimum
increase amount of $25,000 and the underwriting requirements determined by Pruco
Life. The rider coverage amount after the increase cannot exceed four times the
base Contract's basic insurance amount. You may also decrease your rider
coverage amount after issue, subject to a minimum decrease amount of $10,000.
The Rider death benefit fluctuates as the base Contract's death benefit changes.
When the Contract Fund has not grown to the point where the base Contract's
death benefit is increased to satisfy the Internal Revenue Code's definition of
life insurance, the rider death benefit equals the rider coverage amount.
However, if the Contract Fund has grown to the point where the base Contract's
death benefit begins to vary as required by the Internal Revenue Code's
definition of life insurance, the rider's death benefit will decrease (or
increase) dollar for dollar as the base Contract's death benefit increases (or
decreases). The rider death benefit will never increase beyond the rider
coverage amount. It is possible, however, for the Contract Fund and,
consequently, the base Contract's death benefit to grow to the point where the
rider death benefit is reduced to zero.
$500,000 Basic Insurance Amount and $500,000 Target Term Rider
Type A Death Benefit
[GRAPH]
Target Term Rider Plot Points
Policy Year Base Policy Death Benefit Target Death Benefit
1 $ 500,000 $ 500,000
2 $ 500,000 $ 500,000
3 $ 500,000 $ 500,000
4 $ 500,000 $ 500,000
5 $ 500,000 $ 500,000
6 $ 500,000 $ 500,000
7 $ 500,000 $ 500,000
8 $ 500,000 $ 500,000
9 $ 500,000 $ 500,000
10 $ 550,000 $ 450,000
11 $ 605,000 $ 395,000
12 $ 665,500 $ 334,500
13 $ 732,050 $ 267,950
14 $ 805,255 $ 194,745
15 $ 885,781 $ 114,220
16 $ 1,000,000 $ -
17 $ 1,100,000 $ -
18 $ 1,210,000 $ -
19 $ 1,331,000 $ -
20 $ 1,464,100 $ -
You should consider the following factors when purchasing a Contract with a
Target Term Rider:
. A Contract with a Target Term Rider will offer higher cash values and death
benefits than an all base policy with the same death benefit if Pruco Life
does not change its current charges. This is because the current sales
expense charge attributable to the Target Term Rider is 2% rather than the
4% charge attributable to the Sales Load Target Premium under the base
Contract. We currently take lower current Cost of Insurance charges under
the term rider and we currently charge no monthly administrative charge
under the rider.
. However, a Contract with a Target Term Rider offers the potential for lower
cash values and death benefits than an all base policy with the same death
benefit if Pruco Life raises its current charges to the maximum contractual
18
level. This is because guaranteed maximum charges under the Contract and
Target Term Rider are the same except for the per $1,000 of insurance
portion of the monthly administrative charge which extends for 10 years on
the rider and only five years on the base Contract. The surrender charge
does not apply to the Target Term Rider.
Other factors to consider are:
. The length of the Death Benefit Guarantee available on Contracts with a
Target Term Rider is limited to five years. If it is important to you to
have a Death Benefit Guarantee period longer than five years, you may want
to purchase a Contract without a Target Term Rider. See Death Benefit
Guarantee, page 21.
. The Enhanced Disability Benefit, as described above, is unavailable on
Contracts with a Target Term Rider. If it is important to you to have the
Enhanced Disability Benefit, you may want to purchase a Contract without a
Target Term Rider.
. The Accidental Death Benefit, as described above, does not apply to any
portion of the death benefit that is attributable to a Target Term Rider.
If it is important to you to have the maximum amount of Accidental Death
Benefit allowed under your Contract, you may want to purchase a Contract
without a Target Term Rider.
. The Living Needs Benefit does not apply to the portion of the death benefit
that is attributable to a Target Term Rider. If it is important to you that
the Living Needs Benefit applies to the entire death benefit, you may want
to purchase a Contract without a Target Term Rider. See Living Needs
Benefit, page 30.
. The rider coverage amount terminates at the insured's age 100. If it is
important to you that no coverage amount then in effect terminates at the
insured's attained age 100, you may want to purchase a contract without a
Target Term Rider.
Some of the factors outlined above can have effects on the financial performance
of a Contract, including the amount of the Contract's cash value and death
benefit. It is important that you ask your Pruco Life representative to provide
illustrations based on different combinations of base Contract basic insurance
amount and rider coverage amount. You can then discuss with your Pruco Life
representative how these combinations may address your objectives.
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 the insured's issue age, 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. It is the premium needed to start the Contract.
There is no insurance under the Contract unless the minimum initial premium is
paid. Thereafter, you decide when to make premium payments and, subject to a $25
minimum, in what amounts (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 24, How a Type B
(Variable) Contract's Death Benefit Will Vary, page 25, and How a Type C (Return
of Premium) Contract's Death Benefit Will Vary, page 26. Furthermore, 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 33.
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.
19
Target Premiums are premiums that, if paid at the beginning of each
Contract year, will keep the Contract in-force until the insured's age 65,
or if later, during the first 10 Contract years, regardless of investment
performance and assuming no loans or withdrawals (not applicable to
Contracts with the Target Term Rider). If you choose to continue the Death
Benefit Guarantee beyond this period, you will have to begin paying
premiums substantially higher than the Target Premium. However, not all
Contracts offer the Death Benefit Guarantee beyond this period. The length
of the Death Benefit Guarantee available to you depends on your Contract's
death benefit type, the definition of life insurance test selected at
issue, and whether the Target Term Rider is on the Contract. See Death
Benefit Guarantee, page 21. When you purchase a Contract, your Pruco Life
representative can tell you the amount[s] of the Target Premium. For a
Contract with no riders or extra risk charges, these premiums will be
level.
It is possible, in some instances, to pay a premium lower than the Target
Premium; the Short-Term Premium. These Short-Term Premiums, if paid at the
beginning of each Contract year, will keep the Contract in-force during
the first five Contract years, regardless of investment performance and
assuming no loans or withdrawals. To continue the Death Benefit Guarantee
beyond this period, you will have to begin paying premiums higher than the
Short-Term Premium. However, not all Contracts offer the Death Benefit
Guarantee beyond five Contract years. The length of the Death Benefit
Guarantee available to you depends on your Contract's death benefit type,
the definition of life insurance test selected at issue, and whether the
Target Term Rider is on the Contract. See Death Benefit Guarantee, page
21. When you purchase a Contract, your Pruco Life representative can tell
you the amount[s] of the Short-Term Premium. As is the case with the
Target Premium, for a Contract with no riders or extra risk charges, these
premiums will be level.
Lifetime Premiums are the premiums that, if paid at the beginning of each
Contract year, will keep the Contract in-force during the lifetime of the
insured, regardless of investment performance and assuming no loans or
withdrawals (not applicable to all Contracts). See Death Benefit
Guarantee, page 21. As is the case with the Target Premium, for a Contract
with no riders or extra risk charges, these premiums will be level. When
you purchase a Contract, your Pruco Life representative can tell you the
amount[s] of the Lifetime Premium.
We can bill you for the amount you select annually, semi-annually, or quarterly.
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 in-force if: (1) the Contract Fund,
less any applicable surrender charges, is greater than zero and more than any
Contract debt or (2) you have paid sufficient premiums, on an accumulated basis,
to meet the Death Benefit Guarantee conditions and Contract debt is not equal to
or greater than the Contract Fund, less any applicable surrender charges. You
may also pay premiums automatically through pre-authorized monthly electronic
fund 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. 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: (1) we deduct the charge for sales expenses and the charge
for taxes attributable to premiums from the initial premium (In California,
Oregon, and Texas this is called a premium based administrative charge); (2) we
allocate the remainder of the initial premium and any other premium received
during the short-term cancellation right ("free-look") period to the Money
Market investment option; and (3) 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 under Transfers, page
23. If the first premium is received before the Contract date, there will be a
period during which the Contract owner's initial premium will not be
invested.
The charge for sales expenses and the charge for taxes attributable to premiums
also apply to all subsequent premium payments. The remainder will be invested as
of the end of the valuation period in which it is received at a Home Office, in
accordance with the allocation you previously designated. Provided the Contract
is not in default, you may change the way in which subsequent premiums are
allocated by giving written notice to a Home Office or by telephoning a Home
Office, provided you are enrolled to use the Telephone Transfer System. There is
no charge for
20
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 death of the insured. 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. Likewise, a Contract loan will negate any guarantee. See Withdrawals,
page 27, and Contract Loans, page 33. You should consider how important the
Death Benefit Guarantee is to you when deciding what premium amounts to pay into
the Contract.
At the Contract date and on each Monthly date, during the Death Benefit
Guarantee period shown on your Contract data pages, 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%.
We also calculate Death Benefit Guarantee Values. These are values used solely
to determine if a Death Benefit Guarantee is in effect. These are not cash
values that you can realize by surrendering the Contract, nor are they payable
death benefits. Your Contract data pages contain a table of Death Benefit
Guarantee Values, calculated as of Contract anniversaries. Values for
non-anniversary Monthly dates will reflect the number of months elapsed between
Contract anniversaries.
At each Monthly date, during the Death Benefit Guarantee period shown on your
Contract data pages, we will compare your Accumulated Net Payments to the Death
Benefit Guarantee Value as of that date. If your Accumulated Net Payments equal
or exceed the Death Benefit Guarantee Value and Contract debt does not equal or
exceed the Contract Fund less any applicable surrender charges, then the
Contract is kept in-force, regardless of the amount in the Contract Fund.
Short-Term, Target, and Lifetime Premiums are payments which correspond to the
Death Benefit Guarantee Values shown on your Contract data pages. For example,
payment of the Short-Term Premium at the beginning of each Contract year
guarantees that your Contract will not lapse during the first five Contract
years, assuming no loans or withdrawals. However, payment of the Short-Term
Premium after year five will not assure that your Contract's Accumulated Net
Payments will continue to meet the Death Benefit Guarantee Values. See Premiums,
page 19.
If you want a Death Benefit Guarantee to last longer than five years, you should
expect to pay at least the Target Premium at the start of each Contract year.
Paying the Target Premium at the beginning of each Contract year guarantees your
Contract against lapse until the insured's age 65 or for 10 years after issue,
whichever comes later, assuming no loans or withdrawals. However, payment of the
Target Premium after this Death Benefit Guarantee period, will not assure that
your Contract's Accumulated Net Payments will meet the subsequent, much higher,
Death Benefit Guarantee Values.
If you want a Death Benefit Guarantee to last the lifetime of the insured, then
you should expect to pay at least the Lifetime Premium at the start of each
Contract year. Paying the Lifetime Premium at the beginning of each Contract
year guarantees your Contract against lapse for the insured's lifetime, assuming
no loans or withdrawals.
The following table provides sample Short-Term, Target, and Lifetime Premiums
(to the nearest dollar). The examples assume: (1) the insured is a male,
Preferred Best, with no extra risk or substandard ratings; (2) a $250,000 basic
insurance amount; (3) no extra benefit riders have been added to the Contract;
and (4) the Cash Value Accumulation Test has been elected for definition of life
insurance testing.
21
-----------------------------------------------------------------------------
Illustrative Annual Premiums
----------------------------------------------------------------------------
Age of
insured at Type of Short-Term Target Lifetime
issue Death Benefit Chosen Premium Premium Premium
----------------------------------------------------------------------------
40 Type A (Fixed) $ 1,640 $ 2,138 $ 4,765
----------------------------------------------------------------------------
40 Type B (Variable) $ 1,643 $ 2,220 $14,185
----------------------------------------------------------------------------
40 Type C (Return of Premium) $ 1,643 N/A N/A
----------------------------------------------------------------------------
60 Type A (Fixed) $ 6,678 $ 7,158 $12,963
----------------------------------------------------------------------------
60 Type B (Variable) $ 6,705 $ 7,218 $33,195
----------------------------------------------------------------------------
60 Type C (Return of Premium) $ 7,055 N/A N/A
----------------------------------------------------------------------------
80 Type A (Fixed) $36,723 $39,358 $47,235
----------------------------------------------------------------------------
80 Type B (Variable) $37,550 $43,980 $83,015
----------------------------------------------------------------------------
80 Type C (Return of Premium) N/A N/A N/A
----------------------------------------------------------------------------
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; it is
certainly not the only way. 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.
When determining what premium amounts to pay and the frequency of your payments,
you should consider carefully the value of maintaining the Death Benefit
Guarantee. If you desire the Death Benefit Guarantee until the later of the
insured's age 65 or 10 years after issue, 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 Death Benefit
Guarantee Values in the first five years, you will need to pay more than the
Target Premium at the beginning of the 6th year in order to continue the Death
Benefit Guarantee.
Similarly, 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 Death Benefit Guarantee Values until the later of the
insured's age 65 or 10 years after issue, a substantial amount may be required
-----------
to meet the subsequent Death Benefit Guarantee Values and continue the
guarantee. In addition, it is possible that the payment required to continue the
guarantee beyond this 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 33.
Not all Contracts will have the Death Benefit Guarantee available in all years.
Type A and Type B Contracts with the Cash Value Accumulation Test elected for
definition of life insurance testing will have the Death Benefit Guarantee
available for the lifetime of the insured. However, Type A and Type B Contracts
with the Guideline Premium Test elected for definition of life insurance testing
will have the Death Benefit Guarantee available until the insured's age 65 or 10
years after issue, whichever is later. Furthermore, Type C Contracts with either
the Cash Value Accumulation Test or Guideline Premium Test elected for
definition of life insurance testing, will only have the Death Benefit Guarantee
available for the first five Contract years. Contracts with the Target Term
Rider will also have the Death Benefit Guarantee available for only the first
five Contract years. Your Contract data pages will show Death Benefit Guarantee
Values for the duration available with your Contract. See Types of Death
Benefit, page 16 and Tax Treatment of Contract Benefits, page 33.
22
Transfers
You may, up to 12 times each Contract year, transfer amounts from one variable
investment option to another variable investment option or to the fixed-rate
option without charge. There is an administrative charge of up to $25 for each
transfer made exceeding 12 in any Contract year. All or a portion of the amount
credited to a variable investment option may be transferred.
Transfers will take effect as of the end of the valuation period in which a
proper transfer request is received at a Home Office. The request may be in
terms of dollars, such as a request to transfer $5,000 from one variable
investment option to another, or may be in terms of a percentage reallocation
among variable investment options. In the latter case, as with premium
reallocations, the percentages must be in whole numbers. You may transfer
amounts by proper written notice to a Home Office or by telephone, provided you
are enrolled to use the Telephone Transfer System. You will automatically be
enrolled to use the Telephone Transfer System unless the Contract is jointly
owned or you elect not to have this privilege. Telephone transfers may not be
available on Contracts that are assigned, depending on the terms of the
assignment. See Assignment, page 36.
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.
Only one transfer from the fixed-rate option will be permitted during each
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).
The Contract was not designed for professional market timing organizations,
other organizations, or individuals using programmed, large, or frequent
transfers. A pattern of exchanges that coincides with a "market timing" strategy
may be disruptive to the investment option or to the disadvantage of other
contract owners. If such a pattern were to be found, we may modify your right to
make transfers by restricting the number, timing and amount of transfers. We
also reserve the right to prohibit transfer requests made by an individual
acting under a power of attorney on behalf of more than one contract owner.
Dollar Cost Averaging
As an administrative practice, we are currently offering a feature called Dollar
Cost Averaging ("DCA"). Under this feature, either fixed dollar amounts or a
percentage of the amount designated for use under the DCA option will be
transferred periodically from the DCA Money Market investment option into other
variable investment options available under the Contract, excluding the fixed-
rate option. You may choose to have periodic transfers made monthly or
quarterly.
Each automatic transfer will take effect as of the end of the valuation period
on the date coinciding with the periodic timing you designate provided the New
York Stock Exchange is open on that date. If the New York Stock Exchange is not
open on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. Automatic transfers will continue until: (1) $50
or less remains of the amount designated for Dollar Cost Averaging, at which
time the remaining amount will be transferred; or (2) you give us notification
of a change in DCA allocation or cancellation of the feature. Currently, a
transfer that occurs under the DCA feature is not counted towards the 12 free
transfers permitted each Contract year. We reserve the right to change this
practice, modify the requirements or discontinue the feature.
Auto-Rebalancing
As an administrative practice, we are currently offering a feature called
Auto-Rebalancing. This feature allows you to automatically rebalance variable
investment option assets 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%
23
and 60%, respectively. Then, due to investment results, that split changes. You
may instruct that those assets be rebalanced to your original or different
allocation percentages.
Auto-Rebalancing 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 (referred to as net
cash value in the Contract). The Contract's cash surrender value on any date
will be the Contract Fund less any applicable surrender charges and less any
Contract debt. See Contract Loans, page 33. 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) the daily asset charge
for mortality and expense risks assessed against the variable investment
options. The Contract Fund value also changes to reflect the receipt of premium
payments and the monthly deductions described under Charges and Expenses, page
11. Upon request, Pruco Life will tell you the cash surrender value of your
Contract. It is possible for the cash surrender value of a Contract to decline
to zero because of unfavorable investment performance or outstanding Contract
debt.
The tables on pages T1 through T10 of this prospectus illustrate approximately
what the cash surrender values would be for representative Contracts paying
certain premium amounts, and assuming hypothetical uniform investment results in
the Series Fund portfolios. Five of the tables assume current charges will be
made throughout the lifetime of the Contract and five of them assume maximum
charges will be made. See Illustrations of Cash Surrender Values, Death
Benefits, and Accumulated Premiums, page 31.
How a Type A (Fixed) Contract's Death Benefit Will Vary
As described earlier, there are three types of death benefit available under the
Contract: (1) Type A, a generally fixed death benefit; (2) Type B, a variable
death benefit; and (3) Type C, a return of premium death benefit. A Type C
(return of premium) death benefit generally varies by the amount of premiums
paid, a Type B (variable) death benefit varies with investment performance, and
a Type A (fixed) death benefit does not vary unless it must be increased to
comply with the Internal Revenue Code's definition of life insurance.
Under a Type A (fixed) Contract, the death benefit is generally equal to the
basic insurance amount. If the Contract is kept in-force for several years,
depending on how much premium you pay, and/or if investment performance is
reasonably favorable, the Contract Fund may grow to the point where Pruco Life
will increase the death benefit in order to ensure that the Contract will
satisfy the Internal Revenue Code's definition of life insurance.
The death benefit under a Type A (fixed) Contract will always be the greater of:
(1) the basic insurance amount; and
(2) the Contract Fund before the deduction of any monthly charges due
on that date, multiplied by the attained age factor that applies.
A listing of attained age factors can be found on your Contract data pages. The
latter provision ensures that the Contract will always have a death benefit
large enough so that the Contract will be treated as life insurance for tax
purposes under current law. Before the Contract is issued, the Contract owner
may choose between two methods that we use to determine the tax treatment of the
Contract. See Tax Treatment of Contract Benefits, page 33, for a discussion of
these methods and the impact of each on the Contract's values, benefits and tax
status.
The following table illustrates at different ages how the attained age factor
affects the death benefit for different Contract Fund amounts. The table assumes
a $250,000 Type A (fixed) Contract was issued when the insured was a male
nonsmoker, age 35.
24
Type A (Fixed) Death Benefit
- -------------------------------------------------------------------------------
IF THEN
- -------------------------------------------------------------------------------
and the the attained the Contract Fund and the
the insured Contract age factor multiplied by the Death
is age Fund is is** attained age factor is Benefit is
- -------------------------------------------------------------------------------
40 $ 25,000 3.57 89,250 $250,000
40 $ 75,000 3.57 267,750 $267,750*
40 $100,000 3.57 357,000 $357,000*
- -------------------------------------------------------------------------------
60 $ 75,000 1.92 144,000 $250,000
60 $125,000 1.92 240,000 $250,000
60 $150,000 1.92 288,000 $288,000*
- -------------------------------------------------------------------------------
80 $150,000 1.26 189,000 $250,000
80 $200,000 1.26 252,000 $252,000*
80 $225,000 1.26 283,500 $283,500*
- -------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
** Assumes the Contract owner selected the Cash Value Accumulation Test.
- -------------------------------------------------------------------------------
This means, for example, that if the insured has reached the age of 60, and the
Contract Fund is $150,000, the death benefit will be $288,000, even though the
basic insurance amount is $250,000. In this situation, for every $1 increase in
the Contract Fund, the death benefit will be increased by $1.92. We reserve the
right to refuse to accept any premium payment that increases the death benefit
by more than it increases the Contract Fund. If we exercise this right, in
certain situations it may result in the loss of the Death Benefit Guarantee.
How a Type B (Variable) Contract's Death Benefit Will Vary
Under a Type B (variable) Contract, while the Contract is in-force, the death
benefit will never be less than the basic insurance amount, but will vary,
immediately after it is issued, with the investment results of the selected
investment options. The death benefit may be increased to ensure that the
Contract will satisfy the Internal Revenue Code's definition of life insurance.
The death benefit under a Type B (variable) Contract will always be the greater
of:
(1) the basic insurance amount plus the Contract Fund before the
deduction of any monthly charges due on that date; and
(2) the Contract Fund before the deduction of any monthly charges due
on that date, multiplied by the attained age factor that applies.
For purposes of computing the death benefit, if the Contract Fund is less than
zero we will consider it to be zero. A listing of attained age factors can be
found on your Contract data pages. The latter provision ensures that the
Contract will always have a death benefit large enough so that the Contract will
be treated as life insurance for tax purposes under current law. Before the
Contract is issued, the Contract owner may choose between two methods that we
use to determine the tax treatment of the Contract. See Tax Treatment of
Contract Benefits, page 33, for a discussion of these methods and the impact of
each on the Contract's values, benefits and tax status.
The following table illustrates various attained age factors and Contract Funds
and the corresponding death benefits. The table assumes a $250,000 Type B
(variable) Contract was issued when the insured was a male nonsmoker, age 35.
25
Type B (Variable) Death Benefit
- ------------------------------------------------------------------------------
IF THEN
- ------------------------------------------------------------------------------
and the the attained the Contract Fund and the
the insured Contract age factor multiplied by the Death
is age Fund is is** attained age factor is Benefit is
- ------------------------------------------------------------------------------
40 $ 25,000 3.57 89,250 $275,000
40 $ 75,000 3.57 267,750 $325,000
40 $100,000 3.57 357,000 $357,000*
- ------------------------------------------------------------------------------
60 $ 75,000 1.92 144,000 $325,000
60 $125,000 1.92 240,000 $375,000
60 $150,000 1.92 288,000 $400,000
- ------------------------------------------------------------------------------
80 $150,000 1.26 189,000 $400,000
80 $200,000 1.26 252,000 $450,000
80 $225,000 1.26 283,500 $475,000
- ------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
** Assumes the Contract owner selected the Cash Value Accumulation Test.
- ------------------------------------------------------------------------------
This means, for example, that if the insured has reached the age of 40, and the
Contract Fund is $100,000, the death benefit will be $357,000, even though the
basic insurance amount is $250,000. In this situation, for every $1 increase in
the Contract Fund, the death benefit will be increased by $3.57. We reserve the
right to refuse to accept any premium payment that increases the death benefit
by more than it increases the Contract Fund. If we exercise this right, in
certain situations it may result in the loss of the Death Benefit Guarantee.
How a Type C (Return of Premium) Contract's Death Benefit Will Vary
Under a Type C (return of premium) Contract, while the Contract is in-force, the
death benefit will vary by the amount of premiums paid, less any withdrawals.
Unlike Type A and Type B Contracts, the death benefit of a Type C Contract may
be less than the basic insurance amount in the event total withdrawals are
greater than total premiums paid. The death benefit may be increased to ensure
that the Contract will satisfy the Internal Revenue Code's definition of life
insurance.
The death benefit under a Type C (return of premium) Contract will always be the
greater of:
(1) the basic insurance amount plus the total premiums paid into the
Contract less any withdrawals; and
(2) the Contract Fund before the deduction of monthly charges due on
that date, multiplied by the attained age factor that applies.
A listing of attained age factors can be found on your Contract data pages. The
latter provision ensures that the Contract will always have a death benefit
large enough so that the Contract will be treated as life insurance for tax
purposes under current law. Before the Contract is issued, the Contract owner
may choose between two methods that we use to determine the tax treatment of the
Contract. See Tax Treatment of Contract Benefits, page 33, for a discussion of
these methods and the impact of each on the Contract's values, benefits and tax
status.
The following table illustrates various attained age factors and Contract Funds
and the corresponding death benefits. The table assumes a $250,000 Type C
(return of premium) Contract was issued when the insured was a male nonsmoker,
age 35.
26
Type C (Return of Premium) Death Benefit
--------------------------------------------------------------------------------------
IF THEN
--------------------------------------------------------------------------------------
and the the Contract
the and the premiums paid the attained Fund multiplied
insured Contract less any age factor by the attained and the Death
is age Fund is withdrawals is is** age factor is Benefit is
--------------------------------------------------------------------------------------
40 $ 25,000 $ 15,000 3.57 89,250 $265,000
40 $ 75,000 $ 60,000 3.57 267,750 $310,000
40 $100,000 $ 80,000 3.57 357,000 $357,000*
----------------------------------------------------------------------------------------
60 $ 75,000 $ 60,000 1.92 144,000 $310,000
60 $125,000 $100,000 1.92 240,000 $350,000
60 $150,000 $125,000 1.92 288,000 $375,000
----------------------------------------------------------------------------------------
80 $150,000 $125,000 1.26 189,000 $375,000
80 $200,000 $150,000 1.26 252,000 $400,000
80 $225,000 $175,000 1.26 283,500 $425,000
----------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
** Assumes the Contract owner selected the Cash Value Accumulation Test.
----------------------------------------------------------------------------------------
This means, for example, that if the insured has reached the age of 40, and the
premiums paid less any withdrawals equals $80,000, the death benefit will be
$357,000, even though the basic insurance amount is $250,000. In this situation,
for every $1 increase in the Contract Fund, the death benefit will be increased
by $3.57. We reserve the right to refuse to accept any premium payment that
increases the death benefit by more than it increases the Contract Fund. If we
exercise this right, in certain situations it may result in the loss of the
Death Benefit Guarantee.
Surrender of a Contract
A Contract may be surrendered for its cash surrender value while the insured is
living. To surrender a Contract, we may require you to deliver or mail the
Contract with a written request in a form that meets Pruco Life's needs, to a
Home Office. The 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 a Home Office. Surrender of a Contract may have tax consequences.
See Tax Treatment of Contract Benefits, page 33.
Withdrawals
Under certain circumstances, you may withdraw a portion of the Contract's cash
surrender value without surrendering the Contract. The withdrawal amount is
limited by the requirement that the cash surrender value after the withdrawal
may not be zero or less than zero after deducting the withdrawal charges. The
amount withdrawn must be at least $500. There is an administrative processing
fee for each withdrawal which is the lesser of: (a) $25 and; (b) 2% of the
withdrawal amount. An amount withdrawn may not be repaid except as a premium
subject to the applicable charges. Upon request, we will tell you how much you
may withdraw. Withdrawal of the cash surrender value may have tax consequences.
See Tax Treatment of Contract Benefits, page 33.
Whenever a withdrawal is made, the death benefit will immediately be reduced by
at least the amount of the withdrawal. Withdrawals under Type B (variable) and
Type C (return of premium) Contracts, will not change the basic insurance
amount. However, under a Type A (fixed) Contract, the withdrawal may require a
reduction in the basic insurance amount. If the basic insurance amount is
decreased to an amount less than the basic insurance amount at issue, a
surrender charge may be deducted. See Charges and Expenses, page 11. No
withdrawal will be permitted under a Type A (fixed) Contract if it would result
in a basic insurance amount of less than the minimum basic insurance amount. See
Requirements for Issuance of a Contract, page 15. It is important to note,
however, that if the basic insurance amount is decreased, there is a possibility
that the Contract might be classified as a Modified Endowment Contract. Before
making any withdrawal which causes a decrease in basic insurance amount, you
should consult with your tax adviser and your Pruco Life representative. See Tax
Treatment of Contract Benefits, page 33.
27
When a withdrawal is made, the Contract Fund is reduced by the sum of the cash
withdrawn, the withdrawal fee, and any 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 in-force under the Death Benefit Guarantee, since
withdrawals decrease your Accumulated Net Payments. See Death Benefit Guarantee,
page 21.
Lapse and Reinstatement
Pruco Life will determine the value of the Contract Fund on each Monthly date.
If the Contract Fund less any applicable surrender charges is zero or less, the
Contract is in default unless it remains in-force under the Death Benefit
Guarantee. See Death Benefit Guarantee, page 21. If the Contract debt ever grows
to be equal to or more than the Contract Fund less any applicable surrender
charges, 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 in-force for three months from the date of default. This
payment must be received at a Home Office within the 61-day grace period after
the notice of default is mailed or the Contract will end and have no value. A
Contract that lapses with an outstanding Contract loan may have tax
consequences. See Tax Treatment of Contract Benefits, page 33.
A Contract that ended in default may be reinstated within five years after the
date of default if the following conditions are met: (1) renewed evidence of
insurability is provided on the insured; (2) submission of certain payments
sufficient to bring the Contract up to date plus a premium that we estimate will
cover all charges and deductions for the next three months; and (3) any Contract
debt with interest to date must be restored or paid back. If the Contract debt
is restored and the debt with interest would exceed the loan value of the
reinstated Contract, the excess must be paid to us before reinstatement. The
reinstatement date will be the 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 an amount equal to the surrender charge applicable as of the date of
reinstatement.
Increases in Basic Insurance Amount
Subject to state approval and subject to the underwriting requirements
determined by Pruco Life, after the first Contract anniversary, you may increase
the amount of insurance by increasing the basic insurance amount of the
Contract, thus, creating an additional coverage segment.
The following conditions must be met:
(1) you must ask for the change in a form that meets Pruco Life's
needs;
(2) the amount of the increase must be at least equal to the minimum
increase in basic insurance amount shown under Contract
Limitations in your Contract data pages;
(3) you must prove to us that the insured is insurable for any
increase;
(4) the Contract must not be in default;
(5) we must not be paying premiums into the Contract as a result of
the insured's total disability; and
(6) if we ask you to do so, you must send us the Contract to be
endorsed.
If we approve the change, we will send you new Contract data pages showing the
amount and effective date of the change and the recomputed charges, values and
limitations. If the insured is not living on the effective date, the change will
not take effect. No administrative processing charge is currently being made in
connection with an increase in basic insurance amount. However, we reserve the
right to make such a charge in an amount of up to $25.
The Sales Load Target Premium is calculated separately for each coverage
segment. When premiums are paid, each payment is allocated to each coverage
segment based on the proportion of the Sales Load Target Premium in each segment
to the total Sales Load Target Premiums of all segments. Currently, the sales
load charge for each segment is equal to 4% of the allocated premium paid in
each Contract year up to the Sales Load Target Premium and 2% of allocated
premiums paid in excess of this amount for the first 10 Contract years; 0%
thereafter. See the definition of Contract year for an increase in basic
insurance amount under DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS,
page 1.
28
Each coverage segment will have its own surrender charge period beginning on
that segment's effective date and its own surrender charge threshold. The
surrender charge threshold is the segment's lowest coverage amount since its
effective date. See Decreases in Basic Insurance Amount, below, and Surrender
Charges, page 14.
The COI rates for a coverage segment representing an increase in basic insurance
amount are based upon 1980 CSO Tables, the age at the segment's effective date
and the number of years since then, sex (except where unisex rates apply);
smoker/nonsmoker status, and extra rating class, if any. The net amount at risk
for the whole contract (the death benefit minus the Contract Fund) is allocated
to each coverage segment based on the proportion of its basic insurance amount
to the total of all coverage segments. In addition, the attained age factor for
a Contract with an increase in basic insurance amount is based on the Insured's
attained age for the initial coverage segment. For a description of attained age
factor, see How a Type A (Fixed) Contract's Death Benefit Will Vary, page 24,
How a Type B (Variable) Contract's Death Benefit Will Vary, page 25, and How a
Type C (Return of Premium) Contract's Death Benefit Will Vary, page 26.
Each Contract owner who elects to increase the basic insurance amount of his or
her Contract will receive a "free-look" right which will apply only to the
increase in basic insurance amount, not the entire Contract. This right is
comparable to the right afforded to a purchaser of a new Contract except that,
any cost of insurance charge for the increase in the basic insurance amount will
be returned to the Contract Fund instead of a refund of premium. See Short-Term
Cancellation Right or "Free-Look", page 16. Generally, the "free-look" right
would have to be exercised no later than 10 days after receipt of the Contract
as increased.
An increase in basic insurance amount may cause the Contract to be classified as
a Modified Endowment Contract. See Tax Treatment of Contract Benefits, page 33.
Therefore, before increasing the basic insurance amount, you should consult with
your tax adviser and your Pruco Life representative.
Decreases in Basic Insurance Amount
As explained earlier, you may make a withdrawal. See Withdrawals, page 27. You
also have the option of decreasing the basic insurance amount of your Contract
without withdrawing any cash surrender value at any time after the first
Contract anniversary. Contract owners who conclude that, because of changed
circumstances, the amount of insurance is greater than needed will be able to
decrease their amount of insurance protection, and the monthly deductions for
the cost of insurance. The amount of the decrease must be at least equal to the
minimum decrease in basic insurance amount shown under Contract Limitations in
your Contract data pages.
In addition, the basic insurance amount after the decrease must be at least
equal to the minimum basic insurance amount shown under Contract Limitations in
your Contract data pages. No administrative processing charge is currently being
made in connection with a decrease in basic insurance amount. However, we
reserve the right to make such a charge in an amount of up to $25. See Charges
and Expenses, page 11. 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. A decrease will not take effect if the insured is not living on the
effective date.
For Contracts with more than one coverage segment, a decrease in basic insurance
amount will reduce each coverage segment based on the proportion of the coverage
segment amount to the total of all coverage segment amounts in effect just
before the change. Each coverage segment will have its own surrender charge
threshold equal to the segment's lowest coverage amount since its effective
date. If the decrease in basic insurance amount reduces a coverage segment to an
amount equal to or greater than its surrender charge threshold, we will not
impose a surrender charge. However, if the decrease in basic insurance amount
reduces a coverage segment below its threshold, we will subtract the new
coverage segment amount from the threshold amount. We will then multiply the
surrender charge by the lesser of this difference and the amount of the
decrease, divide by the threshold amount, and deduct the result from the
Contract Fund. See Surrender Charges, page 14.
We may decline a reduction if we determine it would cause the Contract to fail
to qualify as "life insurance" for purposes of Section 7702 of the Internal
Revenue Code. In addition, it is important to note that if the basic insurance
amount is decreased, there is a possibility that the Contract will be classified
as a Modified Endowment Contract. See Tax Treatment of Contract Benefits, page
33. Before requesting any decrease in basic insurance amount, you should consult
with your tax adviser and your Pruco Life representative.
29
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 death, the amount will be determined as of
the end of the valuation period in which the necessary documents are received at
a Home Office. However, Pruco Life may delay payment of proceeds from the
variable investment option[s] and the variable portion of the death benefit due
under the Contract if the disposal or valuation of the Account's assets is not
reasonably practicable because the New York Stock Exchange is closed for other
than a regular holiday or weekend, trading is restricted by the SEC, or the SEC
declares that an emergency exists.
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
surrender value for up to six months (or a shorter period if required by
applicable law). Pruco Life will pay interest of at least 3% a year if it delays
such a payment for 30 days or more (or a shorter period if required by
applicable law).
Living Needs Benefit
You may elect to add the Living Needs Benefit(SM) to your Contract at issue. The
benefit may vary by state. There is no charge for adding the benefit to the
Contract. However, an administrative charge (not to exceed $150) will be made at
the time the Living Needs Benefit is paid.
Subject to state regulatory approval, the Living Needs Benefit allows you to
elect to receive an accelerated payment of all or part of the Contract's death
benefit, adjusted to reflect current value, at a time when certain special needs
exist. The adjusted death benefit will always be less than the death benefit,
but will generally be greater than the Contract's cash surrender value. One or
both of the following options may be available. A Pruco Life representative
should be consulted as to whether additional options may be available.
Terminal Illness Option. This option is available if the insured is diagnosed as
terminally ill with a life expectancy of six months or less. When satisfactory
evidence is provided, Pruco Life will provide an accelerated payment of the
portion of the death benefit selected by the Contract owner as a Living Needs
Benefit. The Contract owner may (1) elect to receive the benefit in a single sum
or (2) receive equal monthly payments for six months. If the insured dies before
all the payments have been made, the present value of the remaining payments
will be paid to the beneficiary designated in the Living Needs Benefit claim
form in a single sum.
Nursing Home Option. This option is available after the insured has been
confined to an eligible nursing home for six months or more. When satisfactory
evidence is provided, including certification by a licensed physician, that the
insured is expected to remain in the nursing home until death, Pruco Life will
provide an accelerated payment of the portion of the death benefit selected by
the Contract owner as a Living Needs Benefit. The Contract owner may (1) elect
to receive the benefit in a single sum or (2) receive equal monthly payments for
a specified number of years (not more than 10 nor less than 2), depending upon
the age of the insured. If the insured dies before all of the payments have been
made, the present value of the remaining payments will be paid to the
beneficiary designated in the Living Needs Benefit claim form in a single sum.
Subject to state approval, all or part of the Contract's death benefit may be
accelerated under the Living Needs Benefit. If the benefit is only partially
accelerated, a death benefit of at least $25,000 must remain under the Contract.
Pruco Life reserves the right to determine the minimum amount that may be
accelerated.
No benefit will be payable if you are required to elect it in order to meet the
claims of creditors or to obtain a government benefit. Pruco Life can furnish
details about the amount of Living Needs Benefit that is available to an
eligible Contract owner, and the effect on the Contract if less than the entire
death benefit is accelerated.
You should consider whether adding this settlement option is appropriate in your
given situation. Adding the Living Needs Benefit to the Contract has no adverse
consequences; however, electing to use it could. With the exception of certain
business-related Contracts, the Living Needs Benefit is excluded from income if
the insured is terminally ill or chronically ill as defined in the tax law
(although the exclusion in the latter case may be limited). You should consult a
30
qualified tax adviser before electing to receive this benefit. Receipt of a
Living Needs Benefit payment may also affect your eligibility for certain
government benefits or entitlements.
Illustrations of Cash Surrender Values, Death Benefits, and Accumulated Premiums
The following tables (pages T1 through T10) 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 ten tables assume the following:
. a Contract bought by a 35 year old male, Preferred Best, with no extra
risks or substandard ratings.
. a given premium amount 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 Series Fund and no portion of the Contract Fund has been
allocated to the fixed-rate option.
The first two tables (pages T1 and T2) assume: (1) a Type A (fixed) Contract has
been purchased, (2) a $250,000 basic insurance amount and no riders have been
added to the Contract, and (3) a Cash Value Accumulation Test has been elected
for definition of life insurance testing. See Tax Treatment of Contract
Benefits, page 33 and Types of Death Benefit, page 16. The first table assumes
current charges will continue for the indefinite future while the second table
assumes maximum contractual charges have been made from the beginning. See
Charges and Expenses, page 11.
The third and fourth tables (pages T3 and T4) assume: (1) a Type A (fixed)
Contract has been purchased, (2) a $100,000 basic insurance amount and a
$150,000 Target Term Rider has been added to the Contract, and (3) a Cash Value
Accumulation Test has been elected for definition of life insurance testing. See
Tax Treatment of Contract Benefits, page 33 and Types of Death Benefit, page 16.
The third table assumes current charges will continue for the indefinite future
while the fourth table assumes maximum contractual charges have been made from
the beginning. See Charges and Expenses, page 11.
The next two tables (pages T5 and T6) assume: (1) a Type A (fixed) Contract has
been purchased, (2) a $250,000 basic insurance amount and no riders have been
added to the Contract, and (3) a Guideline Premium Test has been elected for
definition of life insurance testing. See Tax Treatment of Contract Benefits,
page 33 and Types of Death Benefit, page 16. The fifth table assumes current
charges will continue for the indefinite future while the sixth table assumes
maximum contractual charges have been made from the beginning. See Charges and
Expenses, page 11.
The tables on pages T7 and T8 assume: (1) a Type B (variable) Contract has been
purchased, (2) a $250,000 basic insurance amount and no riders have been added
to the Contract, and (3) a Cash Value Accumulation Test has been elected for
definition of life insurance testing. See Tax Treatment of Contract Benefits,
page 33 and Types of Death Benefit, page 16. The table on page T7 assumes
current charges will continue for the indefinite future while the table on page
T8 assumes maximum contractual charges have been made from the beginning. See
Charges and Expenses, page 11.
The last two tables (pages T9 and T10) assume: (1) a Type C (return of premium)
Contract has been purchased, (2) a $250,000 basic insurance amount and no riders
have been added to the Contract, and (3) a Cash Value Accumulation Test has been
elected for definition of life insurance testing. See Tax Treatment of Contract
Benefits, page 33 and Types of Death Benefit, page 16. The table on page T9
assumes current charges will continue for the indefinite future while the table
on page T10 assumes maximum contractual charges have been made from the
beginning. See Charges and Expenses, page 11.
Finally, there are three assumptions, shown separately, about the average
investment performance of the portfolios. The first is that there will be a
uniform 0% gross rate of return with the average value of the Contract Fund
uniformly adversely affected by very unfavorable investment performance. The
other two assumptions are that investment performance will be at a uniform gross
annual rate of 6% and 12%. Actual returns will fluctuate from year to year. In
addition, death benefits and cash surrender values would be different from those
shown if investment returns averaged 0%, 6% and 12% but fluctuated from those
averages throughout the years. Nevertheless, these assumptions help show how the
Contract values will change with investment experience.
31
ILLUSTRATIONS
-------------
PRULIFE CUSTOM PREMIER VARIABLE UNIVERSAL LIFE
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS IN ALL YEARS
USING CURRENT CHARGES
Death Benefit (1) Surrender Value (1)
---------------------------------------------------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End Of Accumulated ---------------------------------------------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.09% Net) (4.91% Net) (10.91% Net) (-1.109% Net) (4.91% Net) (10.91% Net)
- -------- --------------- ------------- ----------------- ------------ --------------- ------------------- ------------
1 $ 1,794 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 0
2 $ 3,660 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 124
3 $ 5,600 $ 250,000 $ 250,000 $ 250,000 $ 814 $ 1,173 $ 1,564
4 $ 7,618 $ 250,000 $ 250,000 $ 250,000 $ 1,877 $ 2,469 $ 3,140
5 $ 9,717 $ 250,000 $ 250,000 $ 250,000 $ 2,930 $ 3,819 $ 4,868
6 $ 11,900 $ 250,000 $ 250,000 $ 250,000 $ 4,391 $ 5,657 $ 7,207
7 $ 14,170 $ 250,000 $ 250,000 $ 250,000 $ 5,836 $ 7,574 $ 9,780
8 $ 16,530 $ 250,000 $ 250,000 $ 250,000 $ 7,264 $ 9,572 $ 12,609
9 $ 18,986 $ 250,000 $ 250,000 $ 250,000 $ 8,672 $ 11,653 $ 15,720
10 $ 21,539 $ 250,000 $ 250,000 $ 250,000 $ 10,060 $ 13,820 $ 19,143
15 $ 35,922 $ 250,000 $ 250,000 $ 250,000 $ 16,191 $ 25,655 $ 41,922
20 $ 53,422 $ 250,000 $ 250,000 $ 250,000 $ 21,212 $ 39,852 $ 79,342
25 $ 74,713 $ 250,000 $ 250,000 $ 280,004 $ 24,622 $ 56,619 $ 141,416
30 $100,616 $ 250,000 $ 250,000 $ 421,337 $ 25,768 $ 76,214 $ 243,548
35 $132,132 $ 250,000 $ 250,000 $ 632,234 $ 24,029 $ 99,337 $ 410,541
40 $170,476 $ 250,000 $ 250,000 $ 948,246 $ 17,172 $ 126,284 $ 682,191
45 $217,127 $ 250,000 (2) $ 250,000 $ 1,436,304 $ 1,794 (2) $ 158,245 $ 1,122,113
(1) Assumes no Contract Loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 46, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T1
PRULIFE CUSTOM PREMIER VARIABLE UNIVERSAL LIFE
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS IN ALL YEARS
USING MAXIMUM CHARGES
Death Benefit (1) Surrender Value (1)
-------------------------------------------------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End Of Accumulated -------------------------------------------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.29% Net) (4.71% Net) (10.71% Net) (-1.29% Net) (4.71% Net) (10.71% Net)
--------- -------------- ---------------------------------------------------- -----------------------------------------
1 $ 1,794 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 0
2 $ 3,660 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 0
3 $ 5,600 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 161
4 $ 7,618 $ 250,000 $ 250,000 $ 250,000 $ 258 $ 641 $ 1,082
5 $ 9,717 $ 250,000 $ 250,000 $ 250,000 $ 827 $ 1,381 $ 2,045
6 $ 11,900 $ 250,000 $ 250,000 $ 250,000 $ 1,768 $ 2,535 $ 3,493
7 $ 14,170 $ 250,000 $ 250,000 $ 250,000 $ 2,657 $ 3,693 $ 5,032
8 $ 16,530 $ 250,000 $ 250,000 $ 250,000 $ 3,493 $ 4,851 $ 6,670
9 $ 18,986 $ 250,000 $ 250,000 $ 250,000 $ 4,271 $ 6,004 $ 8,415
10 $ 21,539 $ 250,000 $ 250,000 $ 250,000 $ 4,988 $ 7,149 $ 10,271
15 $ 35,922 $ 250,000 $ 250,000 $ 250,000 $ 6,686 $11,733 $ 20,752
20 $ 53,422 $ 250,000 $ 250,000 $ 250,000 $ 5,565 $14,518 $ 35,134
25 $ 74,713 $ 250,000 $ 250,000 $ 250,000 $ 0 $13,052 $ 54,709
30 $ 100,616 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 2,306 $ 81,295
35 $ 132,132 $ 0 (2) $ 0 (2) $ 250,000 $ 0 (2) $ 0 (2) $ 118,261
40 $ 170,476 $ 0 $ 0 $ 250,000 $ 0 $ 0 $ 175,700
45 $ 217,127 $ 0 $ 0 $ 343,438 $ 0 $ 0 $ 268,311
(1) Assumes no Contract Loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in policy
year 31, unless an additional premium payment was made. Based on a gross
return of 6%, the Contract would go into default in policy year 31, unless
an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T2
PRULIFE CUSTOM PREMIER VARIABLE UNIVERSAL LIFE
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 TARGET COVERAGE AMOUNT($100,000 BASIC INSURANCE AMOUNT,
$150,000 TARGET TERM RIDER)
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS FOR ALL YEARS
USING CURRENT CHARGES
Death Benefit (1) Surrender Value (1)
------------------------------------------------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End Of Accumulated -------------------------------------------- -------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.09% Net) (4.91% Net) (10.91% Net) (-1.109% Net) (4.91% Net) (10.91% Net)
-------- -------------- ------------ ----------------- ------------ --------------- ------------------- ------------
1 $ 1,794 $250,000 $250,000 $ 250,000 $ 235 $ 316 $ 396
2 $ 3,660 $250,000 $250,000 $ 250,000 $ 1,395 $ 1,625 $ 1,865
3 $ 5,600 $250,000 $250,000 $ 250,000 $ 2,679 $ 3,135 $ 3,630
4 $ 7,618 $250,000 $250,000 $ 250,000 $ 3,945 $ 4,710 $ 5,573
5 $ 9,717 $250,000 $250,000 $ 250,000 $ 5,193 $ 6,353 $ 7,715
6 $ 11,900 $250,000 $250,000 $ 250,000 $ 6,590 $ 8,240 $ 10,253
7 $ 14,170 $250,000 $250,000 $ 250,000 $ 7,967 $ 10,210 $ 13,054
8 $ 16,530 $250,000 $250,000 $ 250,000 $ 9,321 $ 12,263 $ 16,142
9 $ 18,986 $250,000 $250,000 $ 250,000 $10,652 $ 14,404 $ 19,550
10 $ 21,539 $250,000 $250,000 $ 250,000 $11,957 $ 16,635 $ 23,310
15 $ 35,922 $250,000 $250,000 $ 250,000 $17,959 $ 29,192 $ 48,862
20 $ 53,422 $250,000 $250,000 $ 250,000 $22,898 $ 44,380 $ 91,076
25 $ 74,713 $250,000 $250,000 $ 319,042 $26,241 $ 62,453 $ 161,132
30 $100,616 $250,000 $250,000 $ 477,504 $27,337 $ 83,805 $ 276,014
35 $132,132 $250,000 $250,000 $ 714,325 $25,569 $109,343 $ 463,848
40 $170,476 $250,000 $250,000 $1,069,450 $18,719 $139,775 $ 769,389
45 $217,127 $250,000(2) $250,000 $1,618,157 $ 3,404(2) $177,093 $1,264,185
(1) Assumes no Contract Loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 46, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T3
PRULIFE CUSTOM PREMIER VARIABLE UNIVERSAL LIFE
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 TARGET COVERAGE AMOUNT($100,000 BASIC INSURANCE AMOUNT,
$150,000 TARGET TERM RIDER)
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM CHARGES
Death Benefit (1) Surrender Value (1)
----------------------------------------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End Of Accumulated ------------------------------------------ -------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.29% Net) (4.71% Net) (10.71% Net) (-1.29% Net) (4.71% Net) (10.71% Net)
------------- -------------- ------------- --------------- -------------- ----------- ----------- --------------
1 $ 1,794 $250,000 $250,000 $250,000 $ 0 $ 0 $ 0
2 $ 3,660 $250,000 $250,000 $250,000 $ 0 $ 117 $ 259
3 $ 5,600 $250,000 $250,000 $250,000 $ 519 $ 762 $ 1,030
4 $ 7,618 $250,000 $250,000 $250,000 $1,018 $ 1,401 $ 1,842
5 $ 9,717 $250,000 $250,000 $250,000 $1,478 $ 2,032 $ 2,696
6 $ 11,900 $250,000 $250,000 $250,000 $2,060 $ 2,820 $ 3,769
7 $ 14,170 $250,000 $250,000 $250,000 $2,593 $ 3,597 $ 4,904
8 $ 16,530 $250,000 $250,000 $250,000 $3,075 $ 4,361 $ 6,105
9 $ 18,986 $250,000 $250,000 $250,000 $3,501 $ 5,107 $ 7,375
10 $ 21,539 $250,000 $250,000 $250,000 $3,868 $ 5,828 $ 8,718
15 $ 35,922 $250,000 $250,000 $250,000 $5,512 $ 9,896 $ 17,931
20 $ 53,422 $250,000 $250,000 $250,000 $4,430 $12,133 $ 30,295
25 $ 74,713 $ 0(2) $250,000 $250,000 $ 0(2) $ 9,895 $ 46,247
30 $100,616 $ 0 $ 0(2) $250,000 $ 0 $ 0(2) $ 66,015
35 $132,132 $ 0 $ 0 $250,000 $ 0 $ 0 $ 89,122
40 $170,476 $ 0 $ 0 $250,000 $ 0 $ 0 $114,874
45 $217,127 $ 0 $ 0 $250,000 $ 0 $ 0 $142,191
(1) Assumes no Contract Loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 25, unless an additional premium payment was made.
Based on a gross return of 6%, the Contract would go into default in
policy year 30, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T4
PRULIFE CUSTOM PREMIER VARIABLE UNIVERSAL LIFE
GUIDELINE PREMIUM TEST
TYPE A (FIXED) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS FOR ALL YEARS
USING CURRENT CHARGES
Death Benefit (1) Surrender Value (1)
---------------------------------------------------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End Of Accumulated ---------------------------------------------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.09% Net) (4.91% Net) (10.91% Net) (-1.09% Net) (4.91% Net) (10.91% Net)
- ------------ --------------- ------------------ -------------- ------------- -------------- ------------- --------------
1 $ 1,794 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 0
2 $ 3,660 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 124
3 $ 5,600 $ 250,000 $ 250,000 $ 250,000 $ 814 $ 1,173 $ 1,564
4 $ 7,618 $ 250,000 $ 250,000 $ 250,000 $ 1,877 $ 2,469 $ 3,140
5 $ 9,717 $ 250,000 $ 250,000 $ 250,000 $ 2,930 $ 3,819 $ 4,868
6 $ 11,900 $ 250,000 $ 250,000 $ 250,000 $ 4,391 $ 5,657 $ 7,207
7 $ 14,170 $ 250,000 $ 250,000 $ 250,000 $ 5,836 $ 7,574 $ 9,780
8 $ 16,530 $ 250,000 $ 250,000 $ 250,000 $ 7,264 $ 9,572 $ 12,609
9 $ 18,986 $ 250,000 $ 250,000 $ 250,000 $ 8,672 $ 11,653 $ 15,720
10 $ 21,539 $ 250,000 $ 250,000 $ 250,000 $ 10,060 $ 13,820 $ 19,143
15 $ 35,922 $ 250,000 $ 250,000 $ 250,000 $ 16,191 $ 25,655 $ 41,922
20 $ 53,422 $ 250,000 $ 250,000 $ 250,000 $ 21,212 $ 39,852 $ 79,342
25 $ 74,713 $ 250,000 $ 250,000 $ 250,000 $ 24,622 $ 56,619 $ 141,472
30 $ 100,616 $ 250,000 $ 250,000 $ 300,299 $ 25,768 $ 76,214 $ 246,147
35 $ 132,132 $ 250,000 $ 250,000 $ 488,644 $ 24,029 $ 99,337 $ 421,245
40 $ 170,476 $ 250,000 $ 250,000 $ 763,376 $ 17,172 $ 126,284 $ 713,436
45 $ 217,127 $ 250,000(2) $ 250,000 $ 1,262,965 $ 1,794(2) $ 158,245 $ 1,202,824
(1) Assumes no Contract Loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 46, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T5
PRULIFE CUSTOM PREMIER VARIABLE UNIVERSAL LIFE
GUIDELINE PREMIUM TEST
TYPE A (FIXED) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS IN ALL YEARS
USING MAXIMUM CHARGES
Death Benefit Surrender
(1) Value (1)
----------------------------------------------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross and Net)
Premiums Annual Investment Return of Annual Investment Return of
End Of Accumulated ---------------------------------------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.29% Net) (4.71% Net) (10.71% Net) (-1.29% Net) (4.71% Net) (10.71% Net)
- ---------------- -------------- ------------------------------------------------ ------------------------------------------
1 $ 1,794 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 0
2 $ 3,660 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 0
3 $ 5,600 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 161
4 $ 7,618 $ 250,000 $ 250,000 $ 250,000 $ 258 $ 641 $ 1,082
5 $ 9,717 $ 250,000 $ 250,000 $ 250,000 $ 827 $ 1,381 $ 2,045
6 $ 11,900 $ 250,000 $ 250,000 $ 250,000 $ 1,768 $ 2,535 $ 3,493
7 $ 14,170 $ 250,000 $ 250,000 $ 250,000 $ 2,657 $ 3,693 $ 5,032
8 $ 16,530 $ 250,000 $ 250,000 $ 250,000 $ 3,493 $ 4,851 $ 6,670
9 $ 18,986 $ 250,000 $ 250,000 $ 250,000 $ 4,271 $ 6,004 $ 8,415
10 $ 21,539 $ 250,000 $ 250,000 $ 250,000 $ 4,988 $ 7,149 $ 10,271
15 $ 35,922 $ 250,000 $ 250,000 $ 250,000 $ 6,686 $ 11,733 $ 20,752
20 $ 53,422 $ 250,000 $ 250,000 $ 250,000 $ 5,565 $ 14,518 $ 35,134
25 $ 74,713 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 13,052 $ 54,709
30 $ 100,616 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 2,306 $ 81,295
35 $ 132,132 $ 0(2) $ 0(2) $ 250,000 $ 0(2) $ 0(2) $ 118,261
40 $ 170,476 $ 0 $ 0 $ 250,000 $ 0 $ 0 $ 175,700
45 $ 217,127 $ 0 $ 0 $ 299,609 $ 0 $ 0 $ 285,342
(1) Assumes no Contract Loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 31, unless an additional premium payment was made.
Based on a gross return of 6%, the Contract would go into default in
policy year 31, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T6
PRULIFE CUSTOM PREMIER VARIABLE UNIVERSAL LIFE
CASH VALUE ACCUMULATION TEST
TYPE B (VARIABLE) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS FOR ALL YEARS
USING CURRENT CHARGES
Death Benefit (1) Surrender Value (1)
------------------------------------------------------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End Of Accumulated ------------------------------------------------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.09% Net) (4.91% Net) (10.91% Net) (-1.09% Net) (4.91% Net) (10.91% Net)
- ----------- -------------- ------------------------------------------------- ---------------------------------------------------
1 $ 1,794 $ 250,750 $ 250,818 $ 250,888 $ 0 $ 0 $ 0
2 $ 3,660 $ 251,490 $ 251,676 $ 251,871 $ 0 $ 0 $ 121
3 $ 5,600 $ 252,366 $ 252,723 $ 253,114 $ 811 $ 1,168 $ 1,558
4 $ 7,618 $ 253,231 $ 253,822 $ 254,492 $ 1,871 $ 2,461 $ 3,131
5 $ 9,717 $ 254,087 $ 254,974 $ 256,020 $ 2,921 $ 3,807 $ 4,853
6 $ 11,900 $ 255,350 $ 256,612 $ 258,158 $ 4,378 $ 5,640 $ 7,186
7 $ 14,170 $ 256,596 $ 258,328 $ 260,526 $ 5,818 $ 7,550 $ 9,748
8 $ 16,530 $ 257,824 $ 260,123 $ 263,147 $ 7,241 $ 9,540 $ 12,564
9 $ 18,986 $ 259,032 $ 261,999 $ 266,047 $ 8,643 $ 11,611 $ 15,658
10 $ 21,539 $ 260,217 $ 263,959 $ 269,254 $ 10,023 $ 13,764 $ 19,060
15 $ 35,922 $ 266,090 $ 275,475 $ 291,598 $ 16,090 $ 25,475 $ 41,598
20 $ 53,422 $ 270,971 $ 289,340 $ 328,222 $ 20,971 $ 39,340 $ 78,222
25 $ 74,713 $ 274,071 $ 305,211 $ 387,679 $ 24,071 $ 55,211 $ 137,679
30 $ 100,616 $ 274,645 $ 322,656 $ 484,329 $ 24,645 $ 72,656 $ 234,329
35 $ 132,132 $ 272,044 $ 341,202 $ 642,379 $ 22,044 $ 91,202 $ 392,379
40 $ 170,476 $ 264,038 $ 358,409 $ 904,033 $ 14,038 $ 108,409 $ 650,383
45 $ 217,127 $ 0(2) $ 370,362(2) $1,369,764 $ 0(2) $ 120,362(2) $1,070,128
(1) Assumes no Contract Loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 45, unless an additional premium payment was made. Based on
a gross return of 6%, the Contract would go into default in policy year
63, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T7
PRULIFE CUSTOM PREMIER VARIABLE UNIVERSAL LIFE
CASH VALUE ACCUMULATION TEST
TYPE B (VARIABLE) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM CHARGES
Death Benefit (1) Surrender Value (1)
------------------------------------------------------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End Of Accumulated -------------------------------------------------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.29% Net) (4.71% Net) (10.71% Net) (-1.29% Net) (4.71% Net) (10.71% Net)
- ----------- -------------- --------------------------------------------------- --------------------------------------------------
1 $ 1,794 $ 250,389 $ 250,444 $ 250,499 $ 0 $ 0 $ 0
2 $ 3,660 $ 250,752 $ 250,885 $ 251,027 $ 0 $ 0 $ 0
3 $ 5,600 $ 251,199 $ 251,440 $ 251,707 $ 0 $ 0 $ 152
4 $ 7,618 $ 251,608 $ 251,988 $ 252,426 $ 247 $ 627 $ 1,065
5 $ 9,717 $ 251,977 $ 252,526 $ 253,184 $ 810 $ 1,359 $ 2,018
6 $ 11,900 $ 252,716 $ 253,476 $ 254,424 $ 1,744 $ 2,504 $ 3,452
7 $ 14,170 $ 253,401 $ 254,425 $ 255,748 $ 2,624 $ 3,647 $ 4,971
8 $ 16,530 $ 254,031 $ 255,370 $ 257,165 $ 3,448 $ 4,787 $ 6,581
9 $ 18,986 $ 254,600 $ 256,306 $ 258,677 $ 4,211 $ 5,917 $ 8,288
10 $ 21,539 $ 255,105 $ 257,228 $ 260,292 $ 4,911 $ 7,033 $ 10,097
15 $ 35,922 $ 256,478 $ 261,351 $ 270,046 $ 6,478 $ 11,351 $ 20,046
20 $ 53,422 $ 255,155 $ 263,547 $ 282,839 $ 5,155 $ 13,547 $ 32,839
25 $ 74,713 $ 0(2) $ 260,987 $ 298,000 $ 0(2) $ 10,987 $ 48,000
30 $ 100,616 $ 0 $ 0(2) $ 312,991 $ 0 $ 0(2) $ 62,991
35 $ 132,132 $ 0 $ 0 $ 320,460 $ 0 $ 0 $ 70,460
40 $ 170,476 $ 0 $ 0 $ 304,017 $ 0 $ 0 $ 54,017
45 $ 217,127 $ 0 $ 0 $ 0(2) $ 0 $ 0 $ 0(2)
(1) Assumes no Contract Loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 25, unless an additional premium payment was made.
Based on a gross return of 6%, the Contract would go into default in
policy year 30, unless an additional premium payment was made.
Based on a gross return of 12%, the Contract would go into default in
policy year 45, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T8
PRULIFE CUSTOM PREMIER VARIABLE UNIVERSAL LIFE
CASH VALUE ACCUMULATION TEST
TYPE C (RETURN OF PREMIUM) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS FOR ALL YEARS
USING CURRENT CHARGES
Death Benefit (1) Surrender Value (1)
-----------------------------------------------------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
-----------------------------------------------------------------------------------------------------
End Of Accumulated
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.09% Net) (4.91% Net) (10.91% Net) (-1.09% Net) (4.91% Net) (10.91% Net)
- --------- -------------- --------------- ------------ ----------- ------------- ----------- --------------
1 $ 1,794 $251,725 $251,725 $ 251,725 $ 0 $ 0 $ 0
2 $ 3,660 $253,450 $253,450 $ 253,450 $ 0 $ 0 $ 120
3 $ 5,600 $255,175 $255,175 $ 255,175 $ 807 $ 1,165 $ 1,556
4 $ 7,618 $256,900 $256,900 $ 256,900 $ 1,865 $ 2,456 $ 3,126
5 $ 9,717 $258,625 $258,625 $ 258,625 $ 2,913 $ 3,800 $ 4,846
6 $ 11,900 $260,350 $260,350 $ 260,350 $ 4,367 $ 5,629 $ 7,176
7 $ 14,170 $262,075 $262,075 $ 262,075 $ 5,804 $ 7,536 $ 9,736
8 $ 16,530 $263,800 $263,800 $ 263,800 $ 7,222 $ 9,522 $ 12,549
9 $ 18,986 $265,525 $265,525 $ 265,525 $ 8,619 $ 11,589 $ 15,642
10 $ 21,539 $267,250 $267,250 $ 267,250 $ 9,994 $ 13,739 $ 19,042
15 $ 35,922 $275,875 $275,875 $ 275,875 $16,024 $ 25,432 $ 41,615
20 $ 53,422 $284,500 $284,500 $ 284,500 $20,821 $ 39,302 $ 78,522
25 $ 74,713 $293,125 $293,125 $ 293,125 $23,707 $ 55,292 $ 139,370
30 $100,616 $301,750 $301,750 $ 415,384 $23,757 $ 73,197 $ 240,106
35 $132,132 $310,375 $310,375 $ 623,532 $19,990 $ 92,990 $ 404,891
40 $170,476 $319,000 $319,000 $ 935,399 $ 9,208 $113,235 $ 672,949
45 $217,127 $ 0(2) $327,625(2) $1,417,028 $ 0(2) $131,745(2) $1,107,054
(1) Assumes no Contract Loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 43, unless an additional premium payment was made. Based on
a gross return of 6%, the Contract would go into default in policy year
65, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T9
PRULIFE CUSTOM PREMIER VARIABLE UNIVERSAL LIFE
CASH VALUE ACCUMULATION TEST
TYPE C (RETURN OF PREMIUM) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM CHARGES
Death Benefit (1) Surrender Value (1)
-----------------------------------------------------------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End Of Accumulated -----------------------------------------------------------------------------------------------------
Policy at 4% Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.29% Net) (4.71% Net) (10.71% Net) (-1.29% Net) (4.71% Net) (10.71% Net)
- ---------- -------------- ------------- -------------- ------------ ------------- ----------- --------------
1 $ 1,794 $251,725 $251,725 $251,725 $ 0 $ 0 $ 0
2 $ 3,660 $253,450 $253,450 $253,450 $ 0 $ 0 $ 0
3 $ 5,600 $255,175 $255,175 $255,175 $ 0 $ 0 $ 140
4 $ 7,618 $256,900 $256,900 $256,900 $ 225 $ 605 $ 1,042
5 $ 9,717 $258,625 $258,625 $258,625 $ 776 $ 1,323 $ 1,981
6 $ 11,900 $260,350 $260,350 $260,350 $1,693 $ 2,450 $ 3,396
7 $ 14,170 $262,075 $262,075 $262,075 $2,552 $ 3,572 $ 4,892
8 $ 16,530 $263,800 $263,800 $263,800 $3,351 $ 4,684 $ 6,475
9 $ 18,986 $265,525 $265,525 $265,525 $4,085 $ 5,783 $ 8,149
10 $ 21,539 $267,250 $267,250 $267,250 $4,749 $ 6,860 $ 9,919
15 $ 35,922 $275,875 $275,875 $275,875 $6,008 $10,847 $19,565
20 $ 53,422 $284,500 $284,500 $284,500 $3,952 $12,271 $31,843
25 $ 74,713 $ 0(2) $293,125 $293,125 $ 0(2) $ 7,794 $46,338
30 $100,616 $ 0 $ 0(2) $301,750 $ 0 $ 0(2) $60,874
35 $132,132 $ 0 $ 0 $310,375 $ 0 $ 0 $68,605
40 $170,476 $ 0 $ 0 $319,000 $ 0 $ 0 $50,532
45 $217,127 $ 0 $ 0 $ 0(2) $ 0 $ 0 $ 0(2)
(1) Assumes no Contract Loan has been made.
(2) Based on a gross return of 0%, the Contract would go into default in
policy year 24, unless an additional premium payment was made.
Based on a gross return of 6%, the Contract would go into default in
policy year 28, unless an additional premium payment was made.
Based on a gross return of 12%, the Contract would go into default in
policy year 44, unless an additional premium payment was made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more or
less than those shown and will depend on a number of factors including the
investment allocations made by an owner, prevailing interest rates, and rates of
inflation. The death benefit and cash surrender value for a contract would be
different from those shown if the actual rates of return averaged 0%, 6%, 12%
over a period of years, but also fluctuated above or below those averages for
individual contract years. No representations can be made by Pruco Life or the
Series Fund that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
T10
The first column of the following illustrations (pages T1 through T10) shows the
Contract year. The second column, to provide context, shows what the aggregate
amount would be if the premiums had been invested to earn interest, after taxes,
at 4% compounded annually. The next four columns show the death benefit payable
in each of the years shown for the three different assumed investment returns.
The last four columns show the cash surrender value payable in each of the years
shown for the three different assumed investment returns. The cash surrender
values in the first 10 years reflect the surrender charges that would be
deducted if the Contract were surrendered in those years.
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 Series Fund expenses. The net
return reflects average total annual expenses of the 16 portfolios of 0.84%, and
the daily deduction from the Contract Fund of 0.25% per year for the tables
based on current charges and 0.45% per year for the tables based on maximum
charges. Thus, assuming current charges, gross returns of 0%, 6% and 12% are the
equivalent of net returns of -1.09%, 4.91% and 10.91%, respectively. Assuming
maximum charges, gross returns of 0%, 6% and 12% are the equivalent of net
returns of-1.29%, 4.71% and 10.71%, respectively. The actual fees and expenses
of the portfolios associated with a particular Contract may be more or less than
0.84% 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 Series Fund and under the Contract.
If you are considering the purchase of a variable life insurance contract from
another insurance company, you should not rely upon these tables for comparison
purposes. A comparison between two tables, each showing values for a 35 year old
man, may be useful for a 35 year old man but would be inaccurate if made for
insureds of other ages or sex. Your Pruco Life representative can provide you
with a hypothetical illustration for your own age, sex, and rating class.
32
Contract Loans
You may borrow from Pruco Life an amount up to the current loan value of your
Contract less any existing Contract debt using the Contract as the only security
for the loan. The loan value at any time is equal to the sum of (1) 90% of the
portion of the cash value attributable to the variable investment options, and
(2) the balance of the cash value. The cash value is equal to the Contract Fund
less any surrender charge. 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%.
A portion of any amount you borrow on or after the 10th Contract anniversary may
be considered a preferred loan. The maximum preferred loan amount is the total
amount you may borrow minus the total net premiums paid (net premiums equal
premiums paid less total withdrawals, if any). If the net premium amount is less
than zero, we will, for purposes of this calculation, consider it to be zero.
Only new loans borrowed after the 10th Contract anniversary may be considered
preferred loans. Standard loans will not automatically be converted into
preferred loans. Preferred loans are charged interest at an effective annual
rate of 4.10%.
The Contract debt is the amount of all outstanding loans plus any interest
accrued but not yet due. If at any time the Contract debt equals or exceeds the
Contract Fund less any applicable surrender charges, the Contract will go into
default. See Lapse and Reinstatement, page 28. If the Contract debt equals or
exceeds the Contract Fund less any applicable surrender charges and you fail to
keep the Contract in-force, the amount of unpaid Contract debt will be treated
as a distribution which may be taxable. See Tax Treatment of Contract Benefits,
page 33.
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 value in each variable
investment option and the fixed-rate option bears to the total value of the
Contract. While a loan is outstanding, the amount that was so transferred will
continue to be treated as part of the Contract Fund. It will be credited with an
effective annual rate of return of 4%. On each Monthly date, we will increase
the portion of the Contract Fund in the investment options by interest credits
accrued on the loan since the last Monthly date. The net cost of a standard loan
is 1% and the net cost of a preferred loan is 0.10%.
A loan will not cause the Contract to lapse as long as Contract debt does not
equal or exceed the Contract Fund, less any applicable surrender charges. Loans
from Modified Endowment Contracts may be treated for tax purposes as
distributions of income. See Tax Treatment of Contract Benefits, page 33.
Any Contract debt will directly reduce a Contract's cash surrender value and
will be subtracted from the death benefit to determine the amount payable. In
addition, even if the loan is fully repaid, it may have an effect on future
death benefits because the investment results of the selected investment options
will apply only to the amount remaining invested under those options. The longer
the loan is outstanding, the greater the effect is likely to be. The effect
could be favorable or unfavorable. If investment results are greater than the
rate being credited on the amount of the loan while the loan is outstanding,
values under the Contract will not increase as rapidly as they would have if no
loan had been made. If investment results are below that rate, Contract values
will be higher than they would have been had no loan been made.
When you repay all or part of a loan, we will increase the portion of the
Contract Fund in the investment options by the amount of the loan you repay
using the investment allocation for future premium payments as of the loan
payment date, plus interest credits accrued on the loan since the last
transaction date. If loan interest is paid when due, it will not change the
portion of the Contract Fund allocated to the investment options. We reserve the
right to change the manner in which we allocate loan repayments.
Tax Treatment of Contract Benefits
This summary provides general information on the federal income tax treatment of
the Contract. It is not a complete statement of what the federal income taxes
will be in all circumstances. It is based on current law and interpretations,
33
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.
In order to meet the definition of life insurance rules for federal income tax
purposes, the Contract must satisfy one of the two following tests: (1) Cash
Value Accumulation Test or (2) Guideline Premium Test. At issue, the Contract
owner chooses which of these two tests will apply to their Contract. This choice
cannot be changed thereafter.
Under the Cash Value Accumulation Test, the Contract must maintain a minimum
ratio of death benefit to cash value. Therefore, in order to ensure that the
Contract qualifies as life insurance, the Contract's death benefit may increase
as the Contract Fund value increases. The death benefit, at all times, must be
at least equal to the Contract Fund multiplied by the applicable attained age
factor. A listing of attained age factors can be found on your Contract data
pages.
Under the Guideline Premium Test, there is a limit as to the amount of premium
that can be paid into the Contract in relation to the death benefit. In
addition, there is a minimum ratio of death benefit to cash value associated
with this test. This ratio, however, is less than the required ratio under the
Cash Value Accumulation test. Therefore, the death benefit required under this
test is generally lower than that of the Cash Value Accumulation test.
The selection of the definition of life insurance test most appropriate for you
is dependent on several factors, including the insured's age at issue, actual
Contract earnings, and whether or not the Contract is classified as a Modified
Endowment Contract. You should consult your own qualified tax adviser for
complete information and advice with respect to the selection of the definition
of life insurance test.
We believe we have taken adequate steps to insure that the Contract qualifies as
life insurance for tax purposes. Generally speaking, this means that:
. you will not be taxed on the growth of the funds in the Contract,
unless you receive a distribution from the Contract,
. the Contract's death benefit will be income tax free to your
beneficiary.
Although we believe that the Contract should qualify as life insurance for tax
purposes, there are some uncertainties, particularly because the Secretary of
Treasury has not yet issued permanent regulations that bear on this question.
Accordingly, we reserve the right to make changes -- which will be applied
uniformly to all Contract owners after advance written notice -- that we deem
necessary to 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.
34
. 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, you should know that the Internal Revenue Service may
take the position that the preferred loan should be treated as a
distribution for tax purposes because of the relatively low
differential between the loan interest rate and Contract's
crediting rate. Were the Internal Revenue Service to take this
position, Pruco Life would take reasonable steps to avoid this
result, including modifying the Contract's loan provisions.
Modified Endowment Contracts.
. The rules change if the Contract is classified as a Modified
Endowment Contract. The Contract could be classified as a
Modified Endowment Contract if premiums in amounts that are too
large are paid or a decrease in the face amount of insurance is
made (or a rider removed). The addition of a rider or an increase
in the face amount of insurance may also cause the Contract to be
classified as a Modified Endowment Contract. You should first
consult a qualified tax adviser and your Pruco Life
representative if you are contemplating any of these steps.
. If the Contract is classified as a Modified Endowment Contract,
then amounts you receive under the Contract before the insured's
death, including loans and withdrawals, are included in income to
the extent that the Contract Fund before surrender charges
exceeds the premiums paid for the Contract increased by the
amount of any loans previously included in income and reduced by
any untaxed amounts previously received other than the amount of
any loans excludible from income. An assignment of a Modified
Endowment Contract is taxable in the same way. These rules also
apply to pre-death distributions, including loans and
assignments, made during the two-year period before the time that
the Contract became a Modified Endowment Contract.
. Any taxable income on pre-death distributions (including full
surrenders) is subject to a penalty of 10 percent unless the
amount is received on or after age 59 1/2, on account of your
becoming disabled or as a life annuity. It is presently unclear
how the penalty tax provisions apply to Contracts owned by
businesses.
. All Modified Endowment Contracts issued by us to you during the
same calendar year are treated as a single Contract for purposes
of applying these rules.
Withholding. You must affirmatively elect that no taxes be withheld from a
pre-death distribution. Otherwise, the taxable portion of any amounts you
receive will be subject to withholding. You are not permitted to elect out of
withholding if you do not provide a social security number or other taxpayer
identification number. You may be subject to penalties under the estimated tax
payment rules if your withholding and estimated tax payments are insufficient to
cover the tax due.
Other Tax Considerations. If you transfer or assign the Contract to someone
else, there may be gift, estate and/or income tax consequences. If you transfer
the Contract to a person two or more generations younger than you (or designate
such a younger person as a beneficiary), there may be Generation Skipping
Transfer tax consequences. Deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied. Your individual situation or that of your beneficiary
will determine the federal estate taxes and the state and local estate,
inheritance and other taxes due if you or the insured dies.
Business-Owned Life Insurance. If a business, rather than an individual, is the
owner of the Contract, there are some additional rules. Business Contract owners
generally cannot deduct premium payments. Business Contract owners generally
cannot take tax deductions for interest on Contract debt paid or accrued after
October 13, 1995. An exception permits the deduction of interest on policy loans
on Contracts for up to 20 key persons. The interest deduction for Contract debt
on these loans is limited to a prescribed interest rate and a maximum aggregate
loan amount of $50,000 per key insured person. The corporate alternative minimum
tax also applies to business-owned life insurance. This is an indirect tax on
additions to the Contract Fund or death benefits received under business-owned
life insurance policies.
35
Legal Considerations Relating to Sex-Distinct Premiums and Benefits
The Contract generally employs mortality tables that distinguish between males
and females. Thus, premiums and benefits differ under Contracts issued on males
and females of the same age. However, in those states that have adopted
regulations prohibiting sex-distinct insurance rates, premiums and cost of
insurance charges will be based on male rates, whether the insureds are male or
female. In addition, employers and employee organizations considering 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. We will not be
obligated to comply with any assignment unless we receive a copy at a Home
Office.
Beneficiary. You designate and name your beneficiary in the application.
Thereafter, you may change the beneficiary, provided it is in accordance with
the terms of the Contract. Should the insured die with no surviving beneficiary,
the insured's estate will become the beneficiary.
Incontestability. We will not contest the Contract after it has been in-force
during the insured's lifetime for two years from the issue date except when any
change is made in the Contract that requires Pruco Life's approval and would
increase our liability. We will not contest such change after it has been in
effect for two years during the lifetime of the insured.
Misstatement of Age or Sex. If the insured's stated age or sex or both are
incorrect in the Contract, Pruco Life will adjust the death benefits payable and
any amount to be paid, as required by law, to reflect the correct age and sex.
Any such benefit will be based on what the most recent deductions from the
Contract Fund would have provided at the insured's correct age and sex.
Settlement Options. The Contract grants to most owners, or to the beneficiary, a
variety of optional ways of receiving Contract proceeds, other than in a lump
sum. Any Pruco Life representative authorized to sell this Contract can explain
these options upon request.
Suicide Exclusion. Generally, if the insured, whether sane or insane, dies by
suicide within two years from the Contract date, the Contract will end and Pruco
Life will return the premiums paid, less any Contract debt, and less any
withdrawals. Generally, if the insured, whether sane or insane, dies by suicide
after two years from the issue date, but within two years of the effective date
of an increase in the basic insurance amount, we will pay, as to the increase in
amount, no more than the sum of the premiums paid on and after the effective
date of an increase.
Substitution of Series 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 Series Fund may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, Pruco Life may seek to substitute the shares of another portfolio or
of an entirely different mutual fund. Before this can be done, the approval of
the SEC, and possibly one or more state insurance departments, may be required.
Contract owners will be notified of any such substitution.
Reports to Contract Owners
Once each year, Pruco Life will send you a statement that provides certain
information pertinent to your own Contract. This statement will detail values,
transactions made, and specific Contract data that apply only to your particular
Contract.
You will also be sent annual and semi-annual reports of the Series Fund showing
the financial condition of the portfolios and the investments held in each
portfolio.
36
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 issue age and rating class of the insured, any extra
risk charges, or additional riders. For Contracts issued on an unrated insured
below age 56, the Commissionable Target Premium is generally equal to what the
Target Premium would be for a Type A Contract if the insured was either in the
Nonsmoker or Smoker rating class, and there were no extra risk charges or riders
on the Contract. For Contracts issued on an unrated insured below age 56 in a
more favorable rating class, the Commissionable Target Premium will be greater
than the Target Premium, if there are no extra risk charges or riders on the
Contract. For Contracts issued on insureds age 56 or greater or with substandard
ratings, the Commissionable Target Premium will generally be less than the
Target Premium. See Premiums, page 19.
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; (2) 4% of premiums received in years two through 10 on premiums
up to the Commissionable Target Premium; and (3) 2% on premiums received in the
first 10 years in excess of the Commissionable Target Premium. If the basic
insurance amount is increased, representatives will generally receive a
commission of no more than: (1) 50% of the premiums received up to the
Commissionable Target Premium for the increase received in the first year; (2)
4% of the premiums received up to the Commissionable Target Premium for years
two through 10; and (3) 2% on other premiums received for the increase.
Moreover, trail commissions of up to 0.0625% of the Contract Fund as of the end
of each calendar quarter may be paid. 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.
State Regulation
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
Experts
The consolidated financial statements of Pruco Life and its subsidiaries as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999 and the financial statements of the Account as of December 31,
1999 and for each of the three years in the period then ended included in this
prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting. PricewaterhouseCoopers LLP's
principal business address is 1177 Avenue of the Americas, New York, New York
10036.
Actuarial matters included in this prospectus have been examined by Nancy D.
Davis, MAAA, FSA, Vice President and Actuary of Prudential, whose opinion is
filed as an exhibit to the registration statement.
37
Litigation and Regulatory Proceedings
We are subject to legal and regulatory actions in the ordinary course of our
businesses, including class actions. Pending legal and regulatory actions
include proceedings specific to our practices and proceedings generally
applicable to business practices in the industries in which we operate. In
certain of these lawsuits, large and/or indeterminate amounts are sought,
including punitive or exemplary damages.
Beginning in 1995, regulatory authorities and customers brought significant
regulatory actions and civil litigation against Pruco Life and Prudential
involving individual life insurance sales practices. In 1996, Prudential, on
behalf of itself and many of its life insurance subsidiaries, including Pruco
Life, entered into settlement agreements with relevant insurance regulatory
authorities and plaintiffs in the principal life insurance sales practices class
action lawsuit covering policyholders of individual permanent life insurance
policies issued in the United States from 1982 to 1995. Pursuant to the
settlements, the companies agreed to various changes to their sales and business
practices controls, to a series of fines, and to provide specific forms of
relief to eligible class members. Virtually all claims by class members filed in
connection with the settlements have been resolved and virtually all aspects of
the remediation program have been satisfied.
As of December 31, 2000, Prudential and/or Pruco Life remained a party to
approximately 109 individual sales practices actions filed by policyholders who
"opted out" of the class action settlement relating to permanent life insurance
policies issued in the United States between 1982 and 1995. Some of these cases
seek substantial damages while other seek unspecified compensatory, punitive or
treble damages. It is possible that substantial punitive damages might be
awarded in one or more of these cases. Additional suits may also be filed by
other individuals who "opted out" of the settlements.
Prudential has indemnified Pruco Life for any liabilities incurred in connection
with sales practices litigation covering policyholders of individual permanent
life insurance policies issued in the United States from 1982 to 1995.
As of December 31, 2000 Prudential has paid or reserved for payment of $4.405
billion before tax, equivalent to $2.850 billion after tax to provide for
remediation costs, and additional sales practices costs including related
administrative costs, regulatory fines, penalties and related payments,
litigation costs and settlements, including settlements associated with the
resolution of claims of deceptive sales practices asserted by policyholders who
elected to "opt-out" of the class action settlement and litigate their claims
against Prudential separately, and other fees and expenses associated with the
resolution of sales practices issues.
Additional Information
Pruco Life has filed a registration statement with the SEC under the Securities
Act of 1933, relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. Certain portions have been omitted pursuant to the rules and
regulations of the SEC. The omitted information may, however, be obtained from
the SEC's Public Reference Section at 450 Fifth Street, N.W., Washington, D.C.
20549, or by telephoning (800) SEC-0330, upon payment of a prescribed fee.
Further information may also be obtained from Pruco Life. Its address and
telephone number are set forth on the inside front cover of this prospectus.
Financial Statements
The financial statements of the Account should be distinguished from the
consolidated financial statements of Pruco Life and its subsidiaries, which
should be considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
38
DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life, listed with their principal
occupations during the past five years, are shown below.
DIRECTORS OF PRUCO LIFE
JAMES J. AVERY, JR., Chairman and Director - President, Prudential Individual
Life Insurance since 1998; 1997 to 1998: Senior Vice President, Chief Actuary
and CFO, Prudential Individual Insurance Group; prior to 1997: President,
Prudential Select.
RONALD P. JOELSON, Director - Senior Vice President, Prudential Asset, Liability
and Risk Management since 1999; 1996 to 1999: President, Guaranteed Products,
Prudential Institutional.
IRA J. KLEINMAN, Director - Executive Vice President, Prudential International
Insurance Group since 1997; prior to 1997: Chief Marketing and Product
Development Officer, Prudential Individual Insurance Group.
ESTHER H. MILNES, President and Director - Vice President and Chief Actuary,
Prudential Individual Life Insurance since 1999; prior to 1999: Vice President
and Actuary, Prudential Individual Insurance Group.
DAVID R. ODENATH, JR., Director - President, Prudential Investments since 1999;
prior to 1999: Senior Vice President and Director of Sales, Investment
Consulting Group, PaineWebber.
I. EDWARD PRICE, Vice Chairman and Director - Senior Vice President and Actuary,
Prudential Individual Life Insurance since 1998; prior to 1998: Senior Vice
President and Actuary, Prudential Individual Insurance Group.
KIYOFUMI SAKAGUCHI, Director - President and CEO, Prudential International
Insurance Group.
OFFICERS WHO ARE NOT DIRECTORS
C. EDWARD CHAPLIN, Treasurer - Senior Vice President and Treasurer, Prudential
since 2000; prior to 2000: Vice President and Treasurer, Prudential.
JAMES C. DROZANOWSKI, Senior Vice President - Vice President, Operations and
Systems, Prudential Individual Financial Services since 1998; prior to 1998:
Vice President and Operations Executive, Prudential Individual Insurance Group.
THOMAS F. HIGGINS, Senior Vice President - Vice President, Annuity Services,
Prudential Individual Financial Services since 1999; 1998 to 1999: Vice
President, Mutual Funds, Prudential Individual Financial Services; prior to
1998: Principal, Mutual Fund Operations, The Vanguard Group.
CLIFFORD E. KIRSCH, Chief Legal Officer and Secretary - Chief Counsel, Variable
Products, Prudential Law Department.
HIROSHI NAKAJIMA, Senior Vice President - President and CEO, Pruco Life
Insurance Company Taiwan Branch since 1997; prior to 1997: Senior Managing
Director, Prudential Life Insurance Co., Ltd.
SHIRLEY H. SHAO, Senior Vice President and Chief Actuary - Vice President and
Associate Actuary, Prudential since 1996.
WILLIAM J. ECKERT, IV, Vice President and Chief Accounting Officer - Vice
President and IFS Controller, Enterprise Financial Management, Prudential since
2000; 1999 to 2000: Vice President and Individual Life Controller, Enterprise
Financial Management, Prudential; 1997 to 1999: Vice President, Accounting,
Enterprise Financial Management; prior to 1997: Vice President, Accounting,
External Financial Reporting.
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.
39
FINANCIAL STATEMENTS OF
THE PRULIFE CUSTOM PREMIER SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF NET ASSETS (unaudited)
September 30, 2000
SUBACCOUNTS
----------------------------------------------------------------------------------
Money Diversified High Yield Stock Prudential
Market Bond Equity Bond Index Jennison
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ------------ ------------- ------------ ------------ -----------
ASSETS
Investment in The Prudential Series Fund,
Inc.
Portfolios and non--Prudential administered
funds, at net asset value [Note 3]........ $ 21,706,891 $ 48,600,254 $ 47,919,639 $ 2,808,056 $ 208,618,124 $ 6,177,943
------------ ------------ ------------ ----------- ------------- -----------
Net Assets.................................. 21,706,891 48,600,254 47,919,639 2,808,056 208,618,124 6,177,943
============ =========== =========== ========== ============ ===========
NET ASSETS, representing:
Equity of contract owners [Note 4].......... $ 21,706,891 $ 48,600,254 $ 47,919,639 $ 2,808,056 $ 208,618,124 $ 6,177,943
------------ ------------ ------------ ----------- ------------- -----------
$ 21,706,891 $ 48,600,254 $ 47,919,639 $ 2,808,056 $ 208,618,124 $ 6,177,943
============ ============ ============ =========== ============= ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A8 THROUGH A13
A1
FINANCIAL STATEMENTS OF
THE PRULIFE CUSTOM PREMIER SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the nine months ended September 30, 2000 and the years ended December 31,
1999 and 1998
SUBACCOUNTS
------------------------------------------------------------------------------------
Money Diversified
Market Bond
Portfolio Portfolio
----------------------------------------- ---------------------------------------
01/01/2000 01/01/1999 01/01/1998 01/01/2000 01/01/1999 01/01/1998
to to to to to to
09/30/2000 12/31/1999 12/31/1998 09/30/2000 12/31/1999 12/31/1998
(unaudited) (unaudited)
----------- ---------- ---------- ----------- ---------- -----------
INVESTMENT INCOME
Dividend income............................. $ 766,728 $ 835,985 $ 461,945 $ 1,430,569 $ 0 $ 2,359,120
----------- ---------- ---------- ----------- ---------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk
[Notes 5A]................................. 73,723 102,057 53,117 201,017 253,044 229,634
----------- ---------- ---------- ----------- ---------- -----------
NET INVESTMENT INCOME (LOSS).................... 693,005 733,928 408,828 1,229,552 (253,044) 2,129,486
----------- ---------- ---------- ----------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received........... 0 0 0 5,872 114,761 128,093
Realized gain (loss) on shares redeemed........ 0 0 0 11,210 (24,825) 173,161
Net change in unrealized gain (loss) on
investments................................. 0 0 0 1,330,216 (406,752) (29,348)
----------- ---------- ---------- ----------- ---------- -----------
NET GAIN (LOSS) ON INVESTMENTS 0 0 0 1,347,298 (316,816) 271,906
----------- ---------- ---------- ----------- ---------- -----------
NET INCREASE NET (DECREASE) IN ASSETS
RESULTING FROM OPERATIONS................... $ 693,005 $ 733,928 $ 408,828 $ 2,576,850 $ (569,860) $ 2,401,392
=========== ========== ========== =========== ========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A8 THROUGH A13
A2
SUBACCOUNTS (Continued)
- ---------------------------------------------------------------------------------------------------------------------------------
Equity High Yield Bond Stock Index
Portfolio Portfolio Portfolio
- ------------------------------------------ --------------------------------------- ------------------------------------------
01/01/2000 01/01/1999 01/01/1998 01/01/2000 01/01/1999 01/01/1998 01/01/2000 01/01/1999 01/01/1998
to to to to to to to
09/30/2000 12/31/1999 12/31/1998 09/30/2000 12/31/1999 12/31/1998 09/30/2000 12/31/1999 12/31/1998
(unaudited) (unaudited) (unaudited)
- ----------- ----------- ----------- ---------- ---------- ---------- ------------ ------------ ------------
$ 480,908 $ 716,887 $ 860,120 $ 176,263 $ 8,128 $ 261,439 $ 885,876 $ 1,908,245 $ 1,729,752
- ----------- ----------- ----------- ---------- ---------- ---------- ------------ ------------ ------------
200,296 263,130 284,011 12,928 16,950 15,665 920,136 1,068,971 820,541
- ----------- ----------- ----------- ---------- ---------- ---------- ------------ ------------ ------------
280,612 453,757 576,109 163,335 (8,822) 245,774 (34,260) 839,274 909,211
- ----------- ----------- ----------- ---------- ---------- ---------- ------------ ------------ ------------
1,116,669 5,076,635 5,026,484 0 0 0 215,039 2,384,852 2,499,196
(804,967) 1,953,344 4,779,486 (61,530) (58,390) (4,633) 5,152,104 5,878,374 5,771,729
712,394 (1,836,843) (5,230,122) (190,421) 181,106 (334,049) (8,912,273) 24,251,918 24,590,569
- ----------- ----------- ----------- ---------- ---------- ---------- ------------ ------------ ------------
1,024,096 5,193,136 4,575,848 (251,951) 122,716 (338,682) (3,545,130 32,515,144 32,861,494
- ----------- ----------- ----------- ---------- ---------- ---------- ------------ ------------ ------------
$ 1,304,708 $ 5,646,893 $ 5,151,957 $ (88,616) $ 113,894 $ (92,908) $ (3,579,390) $ 33,354,418 $ 33,770,705
=========== =========== =========== ========== ========== ========== ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A8 THROUGH A13
A3
FINANCIAL STATEMENTS OF
THE PRULIFE CUSTOM PREMIER SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the nine months ended September 30, 2000 and the years ended December
31,1999 and 1998
SUBACCOUNTS
--------------------------------------------
Prudential
Jennison
Portfolio
--------------------------------------------
01/01/2000 01/01/1999 01/01/1998
to to to
09/30/2000 12/31/1999 12/31/1998
(unaudited)
----------- ----------- ----------
INVESTMENT INCOME
Dividend Income.............................. 1,670 $ 8,827 $ 3,905
----------- ----------- ----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk
[Notes 5A]................................. 30,095 28,413 11,315
----------- ----------- ----------
NET INVESTMENT INCOME (LOSS).................... (28,425) (19,586) (7,410)
----------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received......... 122,616 273,783 37,636
Realized gain (loss) on shares redeemed...... 736,702 65,721 22,375
Net change in unrealized gain (loss) on
investments................................ (919,847) 1,513,045 478,204
----------- ----------- ----------
NET GAIN (LOSS) ON INVESTMENTS.................. (60,529) $ 1,852,549 538,215
----------- ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................... (88,954) $ 1,832,963 $ 530,805
=========== =========== ==========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A8 THROUGH A13
A4
FINANCIAL STATEMENTS OF
THE PRULIFE CUSTOM PREMIER SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the nine months ended September 30, 2000 and the years ended December 31,
1999 and 1998
SUBACCOUNTS
-------------------------------------------------------------------------------------
Money Diversified
Market Bond
Portfolio Portfolio
----------------------------------------- -----------------------------------------
01/01/2000 01/01/1999 01/01/1998 01/01/2000 01/01/1999 01/01/1998
to to to to to to
09/30/2000 12/31/1999 12/31/1998 9/30/2000 12/31/1999 12/31/1998
(unaudited) (unaudited)
----------- ---------- ---------- ----------- ---------- ----------
OPERATIONS
Net investment income (loss) ............. $ 693,005 $ 733,928 $ 408,828 $ 1,229,552 $ (253,044) $ 2,129,486
Capital gains distributions received ..... 0 0 0 5,872 114,761 128,093
Realized gain (loss) on shares redeemed .. 0 0 0 11,210 (24,825) 173,161
Net change in unrealized gain (loss) on
investments ............................. 0 0 0 1,330,216 (406,752) (29,348)
------------ ----------- ----------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................ 693,005 733,928 408,828 2,576,850 (569,860) 2,401,392
------------ ----------- ----------- ------------ ----------- -----------
PREMIUM PAYMENTS AND
OTHER OPERATING TRANSFERS
Contract Owner Net Payments .............. 16,570,667 14,681,912 8,459,179 2,960,581 4,403,759 4,026,378
Policy Loans ............................. 0 0 0 (527) (153) (10,790)
Policy Loan Repayments and Interest ...... 0 0 0 303 399 85
Surrenders, Withdrawals and Death
Benefits ................................ (31,677) (487,668) 48,094 (2,470,964) (525,927) (5,421,341)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Option .................... (16,216,446) (6,419,780) (5,068,699) 673,871 1,276,029 4,043,371
Withdrawal and Other Charges ............. (329,079) (442,288) (258,516) (394,620) (461,017) (491,540)
------------ ----------- ----------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS ............ (6,535) 7,332,176 3,180,058 768,644 4,693,090 2,146,163
------------ ----------- ----------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [Note 7] ......... 0 0 (1,722) 0 0 (35,755)
------------ ----------- ----------- ------------ ----------- -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ................................... 686,470 8,066,104 3,587,164 3,345,494 4,123,230 4,511,800
NET ASSETS:
Beginning of period ...................... 21,020,421 12,954,317 9,367,153 45,254,760 41,131,530 36,619,730
------------ ----------- ----------- ------------ ----------- -----------
End of period ............................ $ 21,706,891 $21,020,421 $12,954,317 $ 48,600,254 $45,254,760 $41,131,530
============ =========== =========== ============ =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A8 THROUGH A13
A5
SUBACCOUNTS (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Equity High Yield Bond Stock Index
Portfolio Portfolio Portfolio
- ----------------------------------------- ------------------------------------------- --------------------------------------------
01/01/2000 01/01/1999 01/01/1998 01/01/2000 01/01/1999 01/01/1998 01/01/2000 01/01/1999 01/01/1998
to to to to to to to to to
09/30/2000 12/31/1999 12/31/1998 09/30/2000 12/31/1999 12/31/1998 09/30/2000 12/31/1999 12/31/1998
(unaudited) (unaudited) (unaudited)
- ------------- ------------- ------------ ------------- ------------- -------------- -------------- ------------- -------------
$ 280,612 $ 453,757 $ 576,109 $ 163,335 $ (8,822) $ 245,774 $ (34,260) $ 839,274 $ 909,211
1,116,669 5,076,635 5,026,484 0 0 0 215,039 2,384,852 2,499,196
(804,967) 1,953,344 4,779,486 (61,530) (58,390) (4,633) 5,152,104 5,878,374 5,771,729
712,394 (1,836,843) (5,230,122) (190,421) 181,106 (334,049) (8,912,273) 24,251,918 24,590,569
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,304,708 5,646,893 5,151,957 (88,616) 113,894 (92,908) (3,579,390) 33,354,418 33,770,705
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
3,810,469 4,684,781 5,974,743 246,895 245,021 637,224 6,704,570 13,998,881 13,077,570
(1,004) (6,740) (16,155) 0 0 0 (1,602) (16,721) (19,574)
771 1,776 2,348 0 0 0 1,221 1,041 144
(1,632,278) (4,842,312) (11,366,743) (477,910) (307,785) (1,826) (10,608,918) (10,598,966) (432,906)
(99,232) (6,140,793) (6,233,542) 499,462 (466,171) 556,432 8,531,820 6,749,174 11,664,940
(395,093) (570,661) (750,093) (25,707) (51,266) (67,806) (1,335,873) (1,633,867) (1,454,112)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,683,633 (6,873,949) (12,389,442) 242,740 (580,201) 1,124,024 3,291,218 8,499,542 22,836,062
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
0 0 (378,339) 0 0 (1,836) 0 0 42,339
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
2,988,341 (1,227,056) (7,615,824) 154,124 (466,307) 1,029,280 (288,172) 41,853,960 56,649,106
44,931,298 46,158,354 53,774,178 2,653,932 3,120,239 2,090,959 208,906,296 167,052,336 110,403,230
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 47,919,639 $ 44,931,298 $ 46,158,354 $ 2,808,056 $ 2,653,932 $ 3,120,239 $208,618,124 $208,906,296 $167,052,336
============ ============ ============ ============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A8 THROUGH A13
A6
FINANCIAL STATEMENTS OF
THE PRULIFE CUSTOM PREMIER SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the nine months ended September 30, 2000 and the years ended December 31,
1999 and 1998
SUBACCOUNTS
-----------------------------------------
Prudential
Jennison
Portfolio
---------------------------------------
01/01/2000 01/01/1999 01/01/1998
to to to
09/30/2000 12/31/1999 12/31/1998
(unaudited)
----------- ------------ -----------
OPERATIONS
Net investment income (loss)................. $ (28,425) $ (19,586) $ (7,410)
Capital gains distributions received......... 122,616 273,783 37,636
Realized gain (loss) on shares redeemed...... 736,702 65,721 22,375
Net change in unrealized gain (loss) on
investments................................. (919,847) 1,513,045 478,204
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................... (88,954) 1,832,963 530,805
----------- ----------- -----------
PREMIUM PAYMENTS AND OTHER OPERATING
TRANSFERS
Contract Owner Net Payments.................. 501,479 144,235 75,139
Policy Loans................................. 0 0 0
Policy Loan Repayments and Interest.......... 0 0 0
Surrenders, Withdrawals and Death Benefits... (3,809,762) (13,816) 0
Net Transfers From (To) Other Subaccounts
or Fixed Rate Option....................... 2,825,327 2,170,749 1,234,490
Withdrawal and Other Charges................. (73,096) (46,761) (22,311)
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS............... (556,052) 2,254,407 1,287,318
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [Note 7]............. 0 0 32,534
----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS...... (645,006) 4,087,370 1,850,657
NET ASSETS:
Beginning of period.......................... 6,822,949 2,735,579 884,922
----------- ----------- -----------
End of period................................ $ 6,177,943 $ 6,822,949 $ 2,735,579
=========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A8 THROUGH A13
A7
FINANCIAL STATEMENTS OF
THE PRULIFE CUSTOM PREMIER SUBACCOUNTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
September 30, 2000 (unaudited)
Note 1: General
Pruco Life Variable Universal Account (the "Account") was established
on April 17, 1989 under Arizona law as a separate investment account
of Pruco Life Insurance Company ("Pruco Life") which is a wholly--
owned subsidiary of The Prudential Insurance Company of America
("Prudential"). The assets of the Account are segregated from Pruco
Life's other assets. Proceeds from sales of the Pruselect I, Pruselect
II, effective November 10, 1999 Pruselect III, effective May 1, 2000
Survivorship Variable Universal Life ("SVUL") and effective February
12, 2001 PruLife Custom Premier ("VUL") contracts are invested in the
Account as directed by the contract owners.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. There are twenty--nine
subaccounts within the Account, seventeen of which are available to
PruLife Custom Premier contract owners. Each subaccount invests in its
corresponding portfolio of The Prudential Series Fund, Inc. (the
"Series Fund"). The Series Fund is a diversified open--end management
investment company, and is managed by Prudential.
Beginning February 12, 2001, the following ten additional owners: SP
Alliance Large Cap Growth Portfolio, SP Davis Venture Value Portfolio,
SP Small/Mid Cap Value Portfolio, SP INVESCO Small Company Growth
Portfolio, SP Aim Aggressive Growth Portfolio, SP MFS Capital
Opportunities Portfolio, SP MFS Mid Cap Growth Portfolio, SP
Prudential US Emerging Growth Fund, SP Alliance Technology Portfolio,
and SP Deutsche International Equity Portfolio. New Sales of the VAL
Product, which invests in the Account, were discontinued as of May 1,
1992. However, premium payments made by the contract owners existing
at the date will continue to be received by the Account.
At September 30, 2000, there were no balances pertaining to PruLife
Custom Premier in the subaccounts investing in the Series Fund.
Note 2: Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
accounting principles generally accepted in the United States
("GAAP"). The preparation of the financial statements in conformity
with GAAP requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could
differ from those estimates.
Investments--The investments in shares of the Series Fund or the non--
-----------
Prudential administered funds are stated at the net asset value of the
respective portfolio.
Security Transactions--Realized gains and losses on security
---------------------
transactions are reported on an average cost basis. Purchase and sale
transactions are recorded as of the trade date of the security being
purchased or sold.
Distributions Received--Dividend and capital gain distributions
----------------------
received are reinvested in additional shares of the Series Fund or
the non--Prudential administered funds and are recorded on the ex--
dividend date.
A8
Note 3: Investment Information for The Pruco Life Variable Universal Account
The net asset value per share for each portfolio of the Series Fund, or
the non--Prudential administered variable funds, the number of shares
(rounded) of each portfolio heldby the Account and the aggregate cost of
investments in such shares at September 30, 2000 were as follows:
(unaudited)
Money Diversified High Yield Stock
Market Bond Equity Bond Index
Portfolio Portfolio Portfolio Portfolio Portfolio
-------------- ------------ ------------ ---------- -----------
Number of shares (rounded): 2,170,689 4,312,356 1,687,311 404,619 4,785,917
Net asset value per share: $ 10.00 $ 11.27 $ 28.40 $ 6.94 $ 43.59
Cost: $ 21,706,891 $ 47,661,391 $ 45,240,758 $ 3,092,600 $ 138,798,345
Prudential
Jennison
Portfolio
--------------
Number of shares (rounded): 194,949
Net asset value per share: $ 31.69
Cost: $ 5,017,926
A9
Note 4: Contract Owner Unit Information
Outstanding contract owner units (rounded), unit values and total value
of contract owner equity at September 30, 2000 were as follows:
(unaudited)
SUBACCOUNTS
-----------------------------------------------------------------------
Money Diversified High Yield
Market Bond Equity Bond
Portfolio Portfolio Portfolio Portfolio
--------------- -------------- -------------- -------------
Contract Owner Units Outstanding
(Pruselect I - rounded).............. 284,439 4,148,448 578,908 28,328
Unit Value (Pruselect I)............... $ 1.66709 $ 2.15364 $ 3.93821 $ 2.19784
-------------- -------------- -------------- -------------
Contract Owner Equity (Pruselect I).... $ 474,186 $ 8,934,264 $ 2,279,860 $ 62,260
-------------- -------------- -------------- -------------
Contract Owner Units Outstanding
(Pruselect II - rounded)............. $ 8,370,431 17,818,009 11,357,310 1,102,877
Unit Value (Pruselect II).............. $ 1.66709 $ 2.15364 $ 3.93821 $ 2.19784
-------------- -------------- -------------- -------------
Contract Owner Equity (Pruselect II)... $ 13,954,262 $ 38,373,578 $ 44,727,472 $ 2,423,947
-------------- -------------- -------------- -------------
Contract Owner Units Outstanding
(Pruselect III - rounded)............ 5,441,534 1,209,306 807,661 237,727
Unit Value (Pruselect III)............. $ 1.05223 $ 1.05453 $ 1.07068 $ 0.99652
-------------- -------------- -------------- -------------
Contract Owner Equity (Pruselect III).. $ 5,725,745 $ 1,275,249 $ 864,747 $ 236,900
-------------- -------------- -------------- -------------
Contract Owner Units Outstanding
(SVUL II - rounded).................. 1,519,809 16,173 45,308 85,792
Unit Value (SVUL II)................... $ 1.02164 $ 1.06126 $ 1.04969 $ 0.99017
-------------- -------------- -------------- -------------
Contract Owner Equity (SVUL II)........ $ 1,552,698 $ 17,163 $ 47,560 $ 84,949
-------------- -------------- -------------- -------------
Total Contract Owner Equity............ $ 21,706,891 $ 48,600,254 $ 47,919,639 $ 2,808,056
============== ============== ============== =============
SUBACCOUNTS (Continued)
---------------------------------
Stock Prudential
Index Jennison
Portfolio Portfolio
--------------- ----------------
Contract Owner Units Outstanding
(Pruselect I - rounded).............. 7,006,785 0
Unit Value (Pruselect I)............... $ 4.78077 $ 3.56118
-------------- --------------
Contract Owner Equity (Pruselect I).... $ 33,497,828 $ 0
-------------- --------------
Contract Owner Units Outstanding
(Pruselect II - rounded)............. 35,980,180 1,543,876
Unit Value (Pruselect II)............ $ 4.78077 $ 3.56118
-------------- --------------
Contract Owner Equity (Pruselect II)... $ 172,012,967 $ 5,498,022
-------------- --------------
Contract Owner Units Outstanding
(Pruselect III - rounded)............ 2,639,237 367,881
Unit Value (Pruselect III)............. $ 1.06034 $ 1.15273
-------------- --------------
Contract Owner Equity (Pruselect III).. $ 2,798,489 $ 424,067
-------------- --------------
Contract Owner Units Outstanding
(SVUL II - rounded).................. 307,625 265,221
Unit Value (SVUL II)................... $ 1.00395 $ 0.96468
-------------- --------------
Contract Owner Equity (SVUL II)........ $ 308,840 $ 255,854
-------------- --------------
Total Contract Owner Equity............ $ 208,618,124 $ 6,177,943
============== ==============
A10
Note 5: Charges and Expenses
A. Mortality Risk and Expense Risk Charges
The mortality risk and expense risk charges, at an effective annual
rate of up to 0.90% for Pruselect I, Pruselect II and SVUL contracts,
0.50% for Pruselect III contracts, and 0.45% for VUL contracts are
applied daily against the net assets representing equity of contract
owners held in each subaccount. Mortality risk is that contract
owners may not live as long as estimated and expense risk is that the
cost of issuing and administering the policies may exceed related
charges by Pruco Life. Pruco Life intends to charge only 0.60% on
Pruselect I and Pruselect II contracts, but reserves the right to
make the full 0.90% charge. Pruco Life intends to charge only 0.20%
on Pruselect III contracts but reserves the right to make the full
0.50% charge. For VUL contracts Pruco Life intends to charge only
0.25% but reserves the right to charge 0.45%.
B. Partial Withdrawal Charge
A charge is imposed by Pruco Life on partial withdrawals of the cash
surrender value. A charge equal to the lesser of $15 or 2% and $25 or
2% will be made in connection with each partial withdrawal of the
cash surrender value of a Pruselect I or Pruselect II and Pruselect
III, SVUL or VUL contracts respectively.
C. Expense Reimbursement
The Account is reimbursed by Pruco Life for Pruselect I and Pruselect
II contracts, on a non--guaranteed basis, for expenses incurred by
the Series Fund in excess of the effective rate of 0.40% for all Zero
Coupon Bond Portfolios, 0.45% for the Stock Index Portfolio, 0.50%
for the High Dividend Stock Portfolio, 0.55% for the Natural
Resources Portfolio, and 0.65% for the High Yield Bond Portfolio of
the average daily net assets of these portfolios.
D. Cost of Insurance and Other Related Charges
Contract owners contributions are subject to certain deductions prior
to being invested in the Account. The deductions are for (1)
transaction costs which are deducted from each premium payment to
cover premium collection and processing costs; (2) state premium
taxes; (3) sales charges which are deducted in order to compensate
Pruco Life for the cost of selling the contract. Contracts are also
subject to monthly charges for the costs of administering the
contract.
Note 6: Taxes
Pruco Life is taxed as a "life insurance company" as defined by the
Internal Revenue Code and the results of operations of the Account form
a part of Prudential's consolidated federal tax return. Under current
federal law, no federal income taxes are payable by the Account. As
such, no provision for tax liability has been recorded in these
financial statements.
Note 7: Net Increase (Decrease) in Net Assets Retained in the Account
The increase (decrease) in net assets retained in the account represents
the net contributions (withdrawals) of Pruco Life to (from) the Account.
Effective October 13, 1998, Pruco Life no longer maintains a position in
the Account. Previously, Pruco Life maintained a position in the Account
for liquidity purposes including unit purchases and redemptions, fund
share transactions and expense processing.
A11
Note 8: Unit Activity
Transactions in units (including transfers among subaccounts) for the
nine months ended September 30, 2000 and the years ended December 31,
1999 and 1998 were as follows:
SUBACCOUNTS
------------------------------------------------------------------------------------
Money Market Diversified Bond
Portfolio Portfolio
----------------------------------- -----------------------------------------
2000 1999 1998 2000 1999 1998
---------- ---------- ----------- ----------- ----------- -----------
Contract Owner
Contributions: 18,188,465 13,870,279 11,769,929 4,672,324 5,773,771 5,686,444
Contract Owner
Redemptions: (16,534,101) (8,349,759) (9,721,732) (3,704,183) (3,482,099) (4,658,242)
SUBACCOUNTS (Continued)
-------------------------------------------------------------------------------------
High Yield
Equity Bond
Portfolio Portfolio
----------------------------------- ------------------------------------------
2000 1999 1998 2000 1999 1998
---------- ---------- ----------- ------------- ------------- ------------
Contract Owner
Contributions: 6,099,140 3,528,860 2,885,417 682,773 232,862 621,628
Contract Owner
Redemptions: (4,877,633) (5,248,863) (6,422,617) (402,922) (494,213) (117,717)
SUBACCOUNTS (Continued)
-------------------------------------------------------------------------------------
Prudential
Stock Index Jennison
Portfolio Portfolio
----------------------------------- ------------------------------------------
2000 1999 1998 2000 1999 1998
---------- ---------- --------- ------------ ------------- ----------
Contract Owner
Contributions: 8,114,566 10,380,525 12,075,930 2,137,687 1,880,279 1,126,502
Contract Owner
Redemptions: (5,070,792) (8,588,993) (5,649,830) (1,858,297) (1,058,268) (524,101)
A12
Note 9: Purchases and Sales of Investments
The aggregate costs of purchases and proceeds from sales of investments
in the Series Fund and the non--Prudential administered funds for the
nine months ended September 30, 2000 were as follows: (unaudited)
Money Diversified Equity High Yield
Market Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio
-------------- ------------- -------------- --------------
Purchases.............................. $ 18,347,830 $ 5,612,447 $ 16,531,372 $ 1,087,787
Sales:................................. $ (18,428,088) $ (5,044,819) $ (14,978,933) $ (857,975)
Stock Prudential
Index Jennison
Portfolio Portfolio
-------------- -------------
Purchases.............................. $ 15,664,228 $ 2,720,917
Sales:................................. $ (13,251,258) $ (3,307,064)
A13
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1999
SUBACCOUNTS
------------------------------------------------------------------------------
Prudential Prudential Prudential Prudential
Money Diversified Prudential Flexible Conservative
Market Bond Equity Managed Balanced
Portfolio Portfolio Portfolio Portfolio Portfolio
-------------- -------------- ------------- ------------- ----------------
ASSETS
Investment in The Prudential Series Fund, Inc.
Portfolios and non-Prudential administered
funds, at net asset value [Note 3]............ $ 21,020,421 $ 45,254,760 $ 44,862,196 $ 9,406,730 $ 51,592,566
Receivable from
Pruco Life Insurance Company [Note 2]......... 0 0 69,102 0 0
-------------- ------------- ------------- ------------- -------------
Net Assets...................................... $ 21,020,421 $ 45,254,760 $ 44,931,298 $ 9,406,730 $ 51,592,566
============== ============= ============= ============= =============
NET ASSETS, representing:
Equity of contract owners [Note 4].............. $ 21,020,421 $ 45,254,760 $ 44,931,298 $ 9,406,730 $ 51,592,566
-------------- ------------- ------------- ------------- -------------
$ 21,020,421 $ 45,254,760 $ 44,931,298 $ 9,406,730 $ 51,592,566
============== ============= ============= ============= =============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A14
SUBACCOUNTS (Continued)
- -------------------------------------------------------------------------------------------------------
Prudential Prudential
Zero Coupon High Prudential Prudential Prudential Prudential
Bond Yield Stock Equity Natural Prudential Government
2000 Bond Index Income Resources Global Income
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- ----------- ----------- ----------- ------------ ------------- -------------- --------------
$ 20,140,787 $ 2,653,932 $208,864,409 $ 14,525,330 $ 1,299,349 $ 22,276,540 $ 9,115,688
8,927 0 41,887 0 0 39,109 0
- ------------ ------------ ------------ ------------- ----------- ------------- -------------
$ 20,149,714 $ 2,653,932 $208,906,296 $ 14,525,330 $ 1,299,349 $ 22,315,649 $ 9,115,688
============ ============ ============ ============= =========== ============= =============
$ 20,149,714 $ 2,653,932 $208,906,296 $ 14,525,330 $ 1,299,349 $ 22,315,649 $ 9,115,688
- ------------ ------------ ------------ ------------- ----------- ------------- -------------
$ 20,149,714 $ 2,653,932 $208,906,296 $ 14,525,330 $ 1,299,349 $ 22,315,649 $ 9,115,688
============ ============ ============ ============= =========== ============= =============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A15
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1999
SUBACCOUNTS
-----------------------------------------------------------------------
Prudential Prudential
Zero Coupon Small T. Rowe Price
Bond Prudential Capitalization International AIM V.I.
2005 Jennison Stock Stock Value
Portfolio Portfolio Portfolio Portfolio Fund
------------ ----------- -------------- ------------- -------------
ASSETS
Investment in The Prudential Series Fund, Inc
Portfolios and non-Prudential administered
funds, at net asset value [Note 3]............. $ 18,245,173 $ 6,822,949 $ 13,425,006 $ 18,814 $ 94,337
Receivable from
Pruco Life Insurance Company [Note 2].......... 8,887 0 0 0 0
---------------- ------------- -------------- ------------ ------------
Net Assets....................................... $ 18,254,060 $ 6,822,949 $ 13,425,006 $ 18,814 $ 94,337
================ ============= ============== ============ ============
NET ASSETS, representing:
Equity of contract owners [Note 4]............... $ 18,254,060 $ 6,822,949 $ 13,425,006 $ 18,814 $ 94,337
---------------- ------------- -------------- ------------ ------------
$ 18,254,060 $ 6,822,949 $ 13,425,006 $ 18,814 $ 94,337
================ ============= ============== ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A16
SUBACCOUNTS (Continued)
-------------------------
Janus MFS
Aspen Emerging
Growth Growth
Portfolio Series
------------- ----------
$ 22,400 $ 4,545
0 0
----------- ----------
$ 22,400 $ 4,545
=========== ==========
$ 22,400 $ 4,545
------------ ----------
$ 22,400 $ 4,545
============ ==========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A17
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the periods ended December 31, 1999, 1998, and 1997
SUBACCOUNTS
-----------------------------------------------------------------------------------
Prudential Prudential
Money Diversified
Market Bond
Portfolio Portfolio
----------- ----------- ----------- ------------- ------------ ------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ------------- ------------ ------------
INVESTMENT INCOME
Dividend income........................... $ 835,985 $ 461,945 $ 461,061 $ 0 $ 2,359,120 $ 2,574,631
----------- ----------- ----------- ------------- ------------ ------------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk
[Note 5A]............................ 102,057 53,117 50,651 253,044 229,634 205,292
Reimbursement for excess expenses
[Note 5C]............................... 0 0 0 0 0 0
----------- ----------- ----------- ------------- ------------ ------------
NET EXPENSES................................. 102,057 53,117 50,651 253,044 229,634 205,292
----------- ----------- ----------- ------------- ------------ ------------
NET INVESTMENT INCOME (LOSS)................. 733,928 408,828 410,410 (253,044) 2,129,486 2,369,339
----------- ----------- ----------- ------------- ------------ ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions
received............................. 0 0 0 114,761 128,093 408,037
Realized gain (loss) on shares
redeemed........................... 0 0 0 (24,825) 173,161 94,146
Net change in unrealized gain
(loss) on investments................ 0 0 0 (406,752) (29,348) (288,588)
----------- ----------- ----------- ------------- ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS............... 0 0 0 (316,816) 271,906 213,595
----------- ----------- ----------- ------------- ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS................................ $ 733,928 $ 408,828 $ 410,410 $ (569,860) $ 2,401,392 $ 2,582,934
=========== =========== =========== ============ ============ ============
A18
SUBACCOUNTS (Continued)
- -------------------------------------------------------------------------------------------------------------------------------
Prudential Prudential
Prudential Flexible Conservative
Equity Managed Balanced
Portfolio Portfolio Portfolio
- --------------------------------------- --------------------------------------- --------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ----------- ----------- ----------- ----------- ------------ ----------- ----------- -------------- -------------
$ 716,887 $ 860,120 $ 1,108,812 $ 1,508 $ 1,147,432 $ 1,050,936 $ 2,010,476 $ 1,965,960 $ 2,025,296
- ----------- ----------- ----------- ----------- ------------ ----------- ----------- -------------- -------------
263,130 284,011 286,301 111,448 209,364 206,248 289,895 271,618 256,921
0 0 0 0 0 0 0 0 0
- ----------- ----------- ----------- ----------- ------------ ----------- ----------- -------------- -------------
263,130 284,011 286,301 111,448 209,364 206,248 289,895 271,618 256,921
- ----------- ----------- ----------- ----------- ------------ ----------- ----------- -------------- -------------
453,757 576,109 822,511 (109,940) 938,068 844,688 1,720,581 1,694,342 1,768,375
- ----------- ----------- ----------- ----------- ------------ ----------- ----------- -------------- -------------
5,076,635 5,026,484 2,827,131 382,730 3,419,770 5,545,715 270,329 2,703,038 5,037,552
1,953,344 4,779,486 1,774,816 (650,961) 353,509 605,368 (17,659) 935,553 200,066
(1,836,843) 5,230,122) 4,476,157 2,299,575 (1,305,317) (1,682,924) 959,440 (276,688) (1,945,306)
- ----------- ----------- ----------- ----------- ------------ ----------- ----------- -------------- -------------
5,193,136 4,575,848 9,078,104 2,031,344 2,467,962 4,468,159 1,212,110 3,361,903 3,292,312
- ----------- ----------- ----------- ----------- ------------ ----------- ----------- -------------- -------------
$ 5,646,893 $ 5,151,957 $ 9,900,615 $ 1,921,404 $ 3,406,030 $ 5,312,847 $ 2,932,691 $ 5,056,245 $ 5,060,687
=========== =========== =========== =========== ============ =========== =========== ============== =============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A19
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the periods ended December 31, 1999, 1998, and 1997
SUBACCOUNTS
-----------------------------------------------------------------------------
Prudential Prudential
Zero Coupon High
Bond Yield
2000 Bond
Portfolio Portfolio
---------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
---------- ----------- --------- ---------- ------------ ------------
INVESTMENT INCOME
Dividend income............................. $ 0 $ 821,929 $ 745,017 $ 8,128 $ 261,439 $ 197,684
---------- ----------- --------- ---------- ------------ ------------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk
[Note 5A]................................. 108,538 101,177 101,616 16,950 15,665 12,354
Reimbursement for excess expenses
[Note 5C]................................. (33,065) (37,196) (42,117) 0 0 0
---------- ----------- --------- ---------- ------------ ------------
NET EXPENSES................................... 75,473 63,981 59,499 16,950 15,665 12,354
---------- ----------- --------- ---------- ------------ ------------
NET INVESTMENT INCOME (LOSS)................... (75,473) 757,948 685,518 (8,822) 245,774 185,330
---------- ----------- --------- ---------- ------------ ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received...... 32,835 227,825 690,332 0 0 0
Realized gain (loss) on shares
redeemed............................... (424) (52,050) (94,913) (58,390) (4,633) 16,526
Net change in unrealized gain (loss)
on investments......................... 369,335 217,606 (355,649) 181,106 (334,049) 59,640
---------- ----------- --------- ---------- ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS................. 401,746 393,381 239,770 122,716 (338,682) 76,166
---------- ----------- --------- ---------- ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................................. $ 326,273 $ 1,151,329 $ 925,288 $ 113,894 $ (92,908) $ 261,496
========== =========== ========= ========== ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A20
SUBACCOUNTS (Continued)
- ---------------------------------------------------------------------------------------------------------------------------------
Prudential Prudential Prudential
Stock Equity Natural
Index Income Resources
Portfolio Portfolio Portfolio
- ------------------------------------------ ----------------------------------------- ---------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------ ------------- ------------ ----------- ----------- ---------- ---------- --------- -----------
$ 1,908,245 $ 1,729,752 $ 1,326,042 $ 334,015 $ 365,234 $ 370,792 $ 7,779 $ 8,084 $ 8,087
- ------------ ------------- ------------ ----------- ----------- ---------- ---------- --------- -----------
1,068,971 820,541 502,161 87,421 90,144 85,229 6,660 5,828 9,335
0 0 0 0 0 0 0 0 0
- ------------ ------------- ------------ ----------- ----------- ---------- ---------- --------- -----------
1,068,971 820,541 502,161 87,421 90,144 85,229 6,660 5,828 9,335
- ------------ ------------- ------------ ----------- ----------- ---------- ---------- --------- -----------
839,274 909,211 823,881 246,594 275,090 285,563 1,119 2,256 (1,248)
- ------------ ------------- ------------ ----------- ----------- ---------- ---------- --------- -----------
2,384,852 2,499,196 2,997,271 1,617,066 797,222 1,414,553 0 50,250 136,346
5,878,374 5,771,729 2,754,626 87,899 2,673,910 481,377 (16,748) (28,695) 24,931
24,251,918 24,590,569 15,534,339 (246,900) (4,107,342) 2,177,083 416,542 (210,866) (299,786)
- ------------ ------------- ------------ ----------- ----------- ---------- ---------- --------- -----------
32,515,144 32,861,494 21,286,236 1,458,065 (636,210) 4,073,013 399,794 (189,311) (138,509)
- ------------ ------------- ------------ ----------- ----------- ---------- ---------- --------- -----------
$ 33,354,418 $ 33,770,705 $ 22,110,117 $ 1,704,659 $ (361,120) $4,358,576 $ 400,913 $(187,055) $ (139,757)
============ ============= ============ =========== =========== ========== =========== ========= ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A21
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the periods ended December 31, 1999, 1998, and 1997
SUBACCOUNTS
------------------------------------------------------------------------------
Prudential
Prudential Government
Global Income
Portfolio Portfolio
--------------------------------------- ------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ---------- --------- ----------
INVESTMENT INCOME
Dividend income.......................... $ 65,033 $ 160,959 $ 149,254 $ 0 $ 402,330 $ 257,272
----------- ----------- ----------- ---------- --------- ----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk
[Note 5A].............................. 93,204 70,813 80,250 53,497 38,968 23,144
Reimbursement for excess expenses
[Note 5C].............................. 0 0 0 0 0 0
----------- ----------- ----------- ---------- --------- ----------
NET EXPENSES................................ 93,204 70,813 80,250 53,497 38,968 23,144
----------- ----------- ----------- ---------- --------- ----------
NET INVESTMENT INCOME (LOSS)................ (28,171) 90,146 69,004 (53,497) 363,362 234,128
----------- ----------- ----------- ---------- --------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Capital gains distributions received... 114,030 536,310 504,462 0 0 0
Realized gain (loss) on shares
redeemed............................. 472,274 235,100 1,501,595 7,916 8,247 17,410
Net change in unrealized gain (loss)
on investments....................... 6,341,128 1,531,076 (871,934) (235,875) 205,452 86,634
----------- ----------- ----------- ---------- --------- ----------
NET GAIN (LOSS) ON INVESTMENTS.............. 6,927,432 2,302,486 1,134,123 (227,959) 213,699 104,044
----------- ----------- ----------- ---------- --------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS......... $ 6,899,261 $ 2,392,632 $ 1,203,127 $ (281,456) $ 577,061 $ 338,172
=========== ============ =========== ========== ========= ==========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A22
SUBACCOUNTS (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Prudential Prudential
Zero Coupon Small
Bond Prudential Capitalization
2005 Jennison Stock
Portfolio Portfolio Portfolio
--------------------------------------- ------------------------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
------------- ----------- ---------- ------------- ---------- --------- ----------- ----------- -------------
$ 0 $ 650,198 $ 485,431 $ 8,827 $ 3,905 $ 1,751 $ 0 $ 49,149 $ 39,052
------------- ----------- ----------- ------------- ---------- --------- ----------- ----------- -------------
100,526 67,532 42,708 28,413 11,315 4,217 63,208 43,679 34,205
(30,803) (22,824) (23,762) 0 0 0 0 0 0
------------- ----------- ----------- ------------- ---------- --------- ----------- ----------- -------------
69,723 44,708 18,946 28,413 11,315 4,217 63,208 43,679 34,205
------------- ----------- ----------- ------------- ---------- --------- ----------- ----------- -------------
(69,723) 605,490 466,485 (19,586) (7,410) (2,466) (63,208) 5,470 4,847
------------- ----------- ----------- ------------- ---------- --------- ----------- ----------- -------------
0 7,803 124,816 273,783 37,636 50,105 212,536 604,937 381,206
2,368 12,587 225,279 65,721 22,375 43,121 46,013 (29,549) 703,647
(972,258) 773,486 215,644 1,513,045 478,204 73,161 1,237,638 (95,776) 238,634
------------- ----------- ----------- ------------- ---------- --------- ----------- ----------- -------------
(969,890) 793,876 565,739 1,852,549 538,215 166,387 1,496,187 479,612 1,323,487
------------- ----------- ----------- ------------- ---------- --------- ----------- ----------- -------------
$ (1,039,613) $ 1,399,366 $ 1,032,224 $ 1,832,963 $ 530,805 $ 163,921 $1,432,979 $ 485,082 $ 1,328,334
============= =========== =========== ============= ========== ========= =========== =========== =============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A23
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF OPERATIONS
For the periods ended December 31, 1999, 1998, and 1997
SUBACCOUNTS
----------------------------------------------------------
T. Rowe Price Janus MFS
International AIM V.I. Aspen Emerging
Stock Value Growth Growth
Portfolio* Fund* Portfolio* Series*
--------------- --------- ------------ -----------
1999 1999 1999 1999
--------------- --------- ------------ -----------
INVESTMENT INCOME
Dividend income................................... $ 68 $ 141 $ 20 $ 0
--------- ----------- ----------- ---------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk
[Note 5A]...................................... 33 60 30 2
Reimbursement for excess expenses
[Note 5C]...................................... 0 0 0 0
--------- ----------- ----------- ---------
NET EXPENSES........................................ 33 60 30 2
--------- ----------- ----------- ---------
NET INVESTMENT INCOME (LOSS)........................ 35 81 (10) (2)
NET REALIZED AND UNREALIZED GAIN --------- ----------- ----------- ---------
(LOSS) ON INVESTMENTS
Capital gains distributions received........... 214 738 0 0
Realized gain (loss) on shares redeemed........ 0 (17) (28) (29)
Net change in unrealized gain (loss) on
investments................................... 3,329 4,894 3,357 800
--------- ----------- ----------- ---------
NET GAIN (LOSS) ON INVESTMENTS ..................... 3,543 5,615 3,329 771
NET INCREASE (DECREASE) IN NET --------- ----------- ----------- ---------
ASSETS RESULTING FROM
OPERATIONS........................................ $ 3,578 $ 5,696 $ 3,319 $ 769
========= =========== =========== =========
*Became available on June 7, 1999 (Note 1)
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A24
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended December 31, 1999, 1998 and 1997
SUBACCOUNTS
-----------------------------------------------------------------------------------
Prudential Prudential
Money Diversified
Market Bond
Portfolio Portfolio
--------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
----------- ------------ ----------- ----------- ------------ ------------
OPERATIONS
Net investment income (loss)............. $ 733,928 $ 408,828 $ 410,410 $ (253,044) $ 2,129,486 $ 2,369,339
Capital gains distributions received..... 0 0 0 114,761 128,093 408,037
Realized gain (loss) on shares redeemed.. 0 0 0 (24,825) 173,161 94,146
Net change in unrealized gain (loss) on
investments............................ 0 0 0 (406,752) (29,348) (288,588)
----------- ------------ ----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................ 733,928 408,828 410,410 (569,860) 2,401,392 2,582,934
----------- ------------ ----------- ----------- ------------ ------------
PREMIUM PAYMENTS AND OTHER OPERATING
TRANSFERS
Contract Owner Net Payments.............. 4,681,912 8,459,179 16,018,494 4,403,759 4,026,378 5,573,222
Policy Loans............................. 0 0 (45,968) (153) (10,790) 0
Policy Loan Repayments and Interest...... 0 0 44,362 399 85 449,595
Surrenders, Withdrawals and Death
Benefits............................... (487,668) 48,094 (447,841) (525,927) (5,421,341) (3,109,854)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Option................... 6,419,780) (5,068,699) (17,376,103) 1,276,029 4,043,371 146,922
Withdrawal and Other Charges............. (442,288) (258,516) (264,540) (461,017) (491,540) (665,026)
----------- ------------ ----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS...................... 7,332,176 3,180,058 (2,071,596) 4,693,090 2,146,163 2,394,859
----------- ------------ ----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [Note 7]......... 0 (1,722) (115,766) 0 (35,755) (86,028)
----------- ------------ ----------- ----------- ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS..... 8,066,104 3,587,164 (1,776,952) 4,123,230 4,511,800 4,891,765
NET ASSETS
Beginning of period...................... 12,954,317 9,367,153 11,144,105 41,131,530 36,619,730 31,727,965
----------- ------------ ----------- ----------- ------------ ------------
End of period $21,020,421 $ 12,954,317 $ 9,367,153 $45,254,760 $ 41,131,530 $ 36,619,730
=========== ============ =========== =========== ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A25
SUBACCOUNTS (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
Prudential Prudential
Prudential Flexible Conservative
Equity Managed Balanced
Portfolio Portfolio Portfolio
------------------------------------------- ----------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 453,757 $ 576,109 $ 822,511 $ (109,940) $ 938,068 $ 844,688 $ 1,720,581 $ 1,694,342 $ 1,768,375
5,076,635 5,026,484 2,827,131 382,730 3,419,770 5,545,715 270,329 2,703,038 5,037,552
1,953,344 4,779,486 1,774,816 (650,961) 353,509 605,368 (17,659) 935,553 200,066
(1,836,843) (5,230,122) 4,476,157 2,299,575 (1,305,317) (1,682,924) 959,440 (276,688) (1,945,306)
------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
5,646,893 5,151,957 9,900,615 1,921,404 3,406,030 5,312,847 2,932,691 5,056,245 5,060,687
------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
4,684,781 5,974,743 8,187,661 641,303 2,727,720 4,391,711 1,545,758 6,161,137 2,723,156
(6,740) (16,155) (2,354) (200) (13,509) (101,032) 0 (15) (114,831)
1,776 2,348 6,595 1,440 2,543 109,493 0 976 1,296,181
(4,842,312) (11,366,743) (3,056,522) (22,131,312) (1,109,742) (3,330,740) (2,737,605) (41,543) (871,239)
(6,140,793) (6,233,542) (2,416,623) (3,703,401) (9,445,233) 2,115,451 3,457,685 (11,038,745) 2,899,464
(570,661) (750,093) (962,520) (167,745) (300,968) (387,697) (630,939) (628,277) (699,975)
------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
(6,873,949) (12,389,442) 1,756,237 (25,359,915) (8,139,189) 2,797,186 1,634,899 (5,546,467) 5,232,756
------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
0 (378,339) 2,060 0 99,015 (1,047) 0 (6,712) 1,650,849
------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
(1,227,056) (7,615,824) 11,658,912 (23,438,511) (4,634,144) 8,108,986 4,567,590 (496,934) 11,944,292
46,158,354 53,774,178 42,115,266 32,845,241 37,479,385 29,370,399 47,024,976 47,521,910 35,577,618
------------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 44,931,298 $46,158,354 $ 53,774,178 $ 9,406,730 $ 32,845,241 $ 37,479,385 $ 51,592,566 $ 47,024,976 $ 47,521,910
============= =========== ============ ============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A26
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended December 31, 1999, 1998 and 1997
SUBACCOUNTS
-------------------------------------------------------------------------------
Prudential Prudential
Zero Coupon High
Bond Yield
2000 Bond
Portfolio Portfolio
------------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
------------- ----------- --------- ----------- ------------ -----------
OPERATIONS
Net investment income (loss) ................. $ (75,473) $ 757,948 $ 685,518 $ (8,822) $ 245,774 $ 185,330
Capital gains distributions received ......... 32,835 227,825 690,332 0 0 0
Realized gain (loss) on shares redeemed ...... (424) (52,050) (94,913) (58,390) (4,633) 16,526
Net change in unrealized gain (loss) on
investments ................................ 369,335 217,606 (355,649) 181,106 (334,049) 59,640
------------ ----------- ----------- ----------- ------------ -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ................................... 326,273 1,151,329 925,288 113,894 (92,908) 261,496
------------ ----------- ----------- ----------- ------------ -----------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments .................. 2,430,047 2,718,006 2,096,958 245,021 637,224 330,357
Policy Loans ................................. 0 0 0 0 0 0
Policy Loan Repayments and Interest .......... 0 0 0 0 0 0
Surrenders, Withdrawals and Death
Benefits ................................... (4) (5) (99,448) (307,785) (1,826) (298,998)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Option ....................... 44,509 (4,790,386) (5,246,708) (466,171) 556,432 297,454
Withdrawal and Other Charges ................. (84,071) (84,639) (125,845) (51,266) (67,806) (67,627)
------------ ----------- ----------- ----------- ------------ -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS .................................... 2,390,481 (2,157,024) (3,375,043) (580,201) 1,124,024 261,186
------------ ----------- ----------- ----------- ------------ -----------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7] ............................. 0 (33,379) (325,458) 0 (1,836) (7,832)
------------ ----------- ----------- ----------- ------------ -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ....................................... 2,716,754 (1,039,074) (2,775,213) (466,307) 1,029,280 514,850
NET ASSETS
Beginning of period .......................... 17,432,960 18,472,034 21,247,247 3,120,239 2,090,959 1,576,109
------------ ----------- ----------- ----------- ------------ -----------
End of period ................................ $ 20,149,714 $17,432,960 $18,472,034 $ 2,653,932 $ 3,120,239 $ 2,090,959
============ =========== =========== =========== ============ ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A27
SUBACCOUNTS(Continued)
- ---------------------------------------------------------------------------------------------------------------------------------
Prudential Prudential
Prudential Equity Natural
Stock Index Income Resources
Portfolio Portfolio Portfolio
- ------------------------------------------- ---------------------------------------- --------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------- ----------- ------------ ----------- ------------ ----------- ---------- ----------- ----------
$ 839,274 $ 909,211 $ 823,881 $ 246,594 $ 275,090 $ 285,563 $ 1,119 $ 2,256 $ (1,248)
2,384,852 2,499,196 2,997,271 1,617,066 797,222 1,414,553 0 50,250 136,346
5,878,374 5,771,729 2,754,626 87,899 2,673,910 481,377 (16,748) (28,695) 24,931
24,251,918 24,590,569 15,534,339 (246,900) (4,107,342) 2,177,083 416,542 (210,866) (299,786)
------------ ------------ ------------ ----------- ------------ ----------- ---------- ----------- ----------
33,354,418 33,770,705 22,110,117 1,704,659 (361,120) 4,358,576 400,913 (187,055) (139,757)
------------ ------------ ------------ ----------- ------------ ----------- ---------- ----------- ----------
13,998,881 13,077,570 14,400,181 355,583 260,870 857,548 35,856 48,993 343,362
(16,721) (19,574) (15,209) (12,069) 0 0 0 0 0
1,041 144 25,713 139 0 0 0 0 0
(10,598,966) (432,906) (3,907,071) (497,594) (8,141,933) (802,616) (16) 0 (674,237)
6,749,174 11,664,940 17,853,467 (1,279,058) 7,241,853 (358,547) 17,250 22,258 47,378
(1,633,867) (1,454,112) (1,103,134) (175,220) (248,861) (366,230) (25,740) (23,922) (38,500)
------------ ------------ ------------ ----------- ------------ ----------- ---------- ----------- ----------
8,499,542 22,836,062 27,253,947 (1,608,219) (888,071) (669,845) 27,350 47,329 (321,997)
------------ ------------ ------------ ----------- ------------ ----------- ---------- ----------- ----------
0 42,339 (7,138) 0 (15,048) (64,926) 0 (5,635) (11,668)
------------ ------------ ------------ ----------- ------------ ----------- ---------- ----------- ----------
41,853,960 56,649,106 49,356,926 96,440 (1,264,239) 3,623,805 428,263 (145,361) (473,422)
167,052,336 110,403,230 61,046,304 14,428,890 15,693,129 12,069,324 871,086 1,016,447 1,489,869
------------ ------------ ------------ ----------- ------------ ----------- ---------- ----------- ----------
$208,906,296 $167,052,336 $110,403,230 $14,525,330 $ 14,428,890 $15,693,129 $1,299,349 $ 871,086 $1,016,447
------------ ------------ ------------ ----------- ------------ ----------- ---------- ----------- ----------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A28
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended December 31, 1999, 1998 and 1997
SUBACCOUNTS
-------------------------------------------------------------------------------
Prudential
Prudential Government
Global Income
Portfolio Portfolio
-------------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ----------- -------- ---------- -------------
OPERATIONS
Net investment income (loss)............. $ (28,171) $ 90,146 $ 69,004 $ (53,497) $ 363,362 $ 234,128
Capital gains distributions received..... 114,030 536,310 504,462 0 0 0
Realized gain (loss) on shares redeemed.. 472,274 235,100 1,501,595 7,916 8,247 17,410
Net change in unrealized gain (loss) on
investments............................ 6,341,128 1,531,076 (871,934) (235,875) 205,452 86,634
------------ ----------- ----------- ---------- ---------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS............................... 6,899,261 2,392,632 1,203,127 (281,456) 577,061 338,172
------------ ----------- ----------- ---------- ---------- -----------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments.............. 2,076,557 1,832,043 2,622,189 34,648 139,842 425,284
Policy Loans............................. 0 0 (67,171) 0 0 0
Policy Loan Repayments and Interest...... 0 0 67,209 0 0 0
Surrenders, Withdrawals and Death
Benefits............................... (1,963,919) (16,418) (4,072,024) (29,494) 120 (1,472,671)
Net Transfers From (To) Other Subaccounts
or Fixed Rate Option................... 2,397,693 (1,739,609) (4,363,304) 1,026,359 4,402,000 763,266
Withdrawal and Other Charges............. (134,514) (128,121) (199,522) (100,336) (84,070) (87,039)
------------ ----------- ----------- ---------- ---------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS................................ 2,375,817 (52,105) (6,012,623) 931,177 4,457,892 (371,160)
------------ ----------- ----------- ---------- ---------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7]......................... 0 (27,164) (140,126) 0 (2,141) (104,696)
------------ ----------- ----------- ---------- ---------- -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS................................... 9,275,078 2,313,363 (4,949,622) 649,721 5,032,812 (137,684)
NET ASSETS
Beginning of period...................... 13,040,571 10,727,208 15,676,830 8,465,967 3,433,155 3,570,839
------------ ----------- ----------- ---------- ---------- -----------
End of period............................ $ 22,315,649 $13,040,571 $10,727,208 $9,115,688 $8,465,967 $ 3,433,155
============ =========== =========== ========== ========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A29
SUBACCOUNTS (Continued)
- -------------------------------------------------------------------------------------------------------------------------------
Prudential Prudential
Zero Coupon Small
Bond Prudential Capitalization
2005 Jennison Stock
Portfolio Portfolio Portfolio
- ----------------------------------------- ------------------------------------ ------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ----------- ----------- ---------- ---------- ----------- --------- ---------- ----------- -------------
$ (69,723) $ 605,490 $ 466,485 $ (19,586) $ (7,410) $ (2,466) $ (63,208) $ 5,470 $ 4,847
0 7,803 124,816 273,783 37,636 50,105 212,536 604,937 381,206
2,368 12,587 225,279 65,721 22,375 43,121 46,013 (29,549) 703,647
(972,258) 773,486 215,644 1,513,045 478,204 73,161 1,237,638 (95,776) 238,634
- ----------- ----------- ----------- ----------- ----------- --------- ------------ ----------- -------------
(1,039,613) 1,399,366 1,032,224 1,832,963 530,805 163,921 1,432,979 485,082 1,328,334
- ----------- ----------- ----------- ----------- ----------- --------- ------------ ----------- -------------
2,436,857 2,768,957 962,033 144,235 75,139 238,539 2,648,566 1,531,442 2,981,948
0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0
0 25,615 (26,502) (13,816) 0 (293,084) (1,666,822) (19,451) (4,293,128)
154,707 6,405,234 3,302,946 2,170,749 1,234,490 508,875 604,964 2,745,637 1,826,062
(79,980) (52,935) (50,149) (46,761) (22,311) (8,919) (138,049) (129,979) (180,256)
- ----------- ----------- ----------- ----------- ----------- --------- ------------ ----------- -------------
2,511,584 9,146,871 4,188,328 2,254,407 1,287,318 445,411 1,448,659 4,127,649 334,626
- ----------- ----------- ----------- ----------- ----------- --------- ------------ ----------- -------------
0 (91,783) 119,618 0 32,534 806 0 (24,899) 18,918
- ----------- ----------- ----------- ----------- ----------- --------- ------------ ----------- -------------
1,471,971 10,454,454 5,340,170 4,087,370 1,850,657 610,138 2,881,638 4,587,832 1,681,878
16,782,089 6,327,635 987,465 2,735,579 884,922 274,784 10,543,368 5,955,536 4,273,658
- ----------- ----------- ----------- ----------- ----------- --------- ------------ ----------- -------------
$18,254,060 $16,782,089 $ 6,327,635 $ 6,822,949 $ 2,735,579 $ 884,922 $ 13,425,006 $10,543,368 $ 5,955,536
=========== =========== =========== =========== =========== ========= ============ =========== =============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A30
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended December 31, 1999, 1998 and 1997
SUBACCOUNTS
-----------------------------------------------
T. Rowe Price Janus MFS
International AIM V.I. Aspen Emerging
Stock Value Growth Growth
Portfolio* Fund* Portfolio* Series*
------------- -------- ---------- --------
1999 1999 1999 1999
------------- -------- ---------- --------
OPERATIONS
Net investment income (loss)............................... $ 35 $ 81 $ (10) $ (2)
Capital gains distributions received....................... 214 738 0 0
Realized gain (loss) on shares redeemed.................... 0 (17) (28) (29)
Net change in unrealized gain (loss) on investments........ 3,329 4,894 3,357 800
------------- -------- ---------- --------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM OPERATIONS....................... 3,578 5,696 3,319 769
------------- -------- ---------- --------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments............................... 43 3,832 9,107 3,779
Policy Loans.............................................. 0 0 0 0
Policy Loan Repayments and Interest....................... 0 0 0 0
Surrenders, Withdrawals and Death Benefits............... 0 0 0 0
Net Transfers From (To) Other Subaccounts or Fixed Rate
Option................................................... 15,220 84,865 10,000 0
Withdrawal and Other Charges.............................. (27) (56) (26) (3)
------------- -------- ---------- --------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS................................................. 15,236 88,641 19,081 3,776
------------- -------- ---------- --------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7].......................................... 0 0 0 0
------------- -------- ---------- --------
TOTAL INCREASE (DECREASE) IN NET
ASSETS.................................................... 18,814 94,337 22,400 4,545
NET ASSETS
Beginning of period........................................ 0 0 0 0
------------- -------- ---------- --------
End of period.............................................. $ 18,814 $ 94,337 $ 22,400 $ 4,545
============= ======== ========== ========
*Became available on June 7, 1999 (Note 1)
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A32 THROUGH A39
A31
NOTES TO FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE UNIVERSAL ACCOUNT
December 31, 1999
Note 1: General
Pruco Life Variable Universal Account (the "Account") was established
on April 17, 1989 under Arizona law as a separate investment account
of Pruco Life Insurance Company ("Pruco Life") which is a wholly--
owned subsidiary of The Prudential Insurance Company of America
("Prudential"). The assets of the Account are segregated from Pruco
Life's other assets. Proceeds from sales of the Pruselect I, Pruselect
II and, effective November 10, 1999, Pruselect III Variable Universal
Life products are invested in the Account as directed by the contract
owners.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. There are twenty subaccounts
within the Account, each of which invests only in a corresponding
portfolio of The Prudential Series Fund, Inc. (the "Series Fund") or
any of the non-Prudential administered fund shown on Note 3. The
Series Fund is a diversified open --end management investment company,
and is managed by Prudential.
Beginning June 7, 1999, the following five additional non--Prudential
administered subaccounts became available to contract owners for
Pruselect I and Pruselect II and beginning November 10, 1999, as
discussed above, they became available for Pruselect III contract
owners: AIM V.I. Value Fund; American Century VP Value Fund; Janus
Aspen Growth Portfolio; MFS Emerging Growth Series; and the T. Rowe
International Stock Portfolio.
At December 31, 1999 there were no balances pertaining to the VP Value
Portfolio in the Account.
Note 2: Significant Accounting Policies
The accompanying financial statements are prepared in conformity with
accounting principles generally accepted in the United States
("GAAP"). The preparation of the financial statements in conformity
with GAAP requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could
differ from those estimates.
Investments--The investments in shares of the Series Fund or the non-
-----------
Prudential administered funds are stated at the net asset value of the
respective portfolio.
Security Transactions--Realized gains and losses on security
---------------------
transactions are reported on an average cost basis. Purchase and sale
transactions are recorded as of the trade date of the security being
purchased or sold.
Distributions Received--Dividend and capital gain distributions
----------------------
received are reinvested in additional shares of the Series Fund or the
non-Prudential administered funds and are recorded on the ex--dividend
date.
Receivable from Pruco Life Insurance Company--At times, Pruco Life may
--------------------------------------------
expect to receive an amount from the Account primarily related to
processing contract owner payments, surrenders, withdrawals and death
benefits. This amount is reflected in the Account's Statements of Net
Assets as a receivable from Pruco Life. The receivable does not have
an effect on the Contract owner's account or the related unit
value.
A32
Note 3: Investment Information for the Pruco Life Variable Universal Account
The net asset value per share for each portfolio of the Series Fund or
the non-Prudential administered funds, the number of shares (rounded)
of each portfolio held by the Account and the aggregate cost of
investments in such shares at December 31, 1999 were as follows:
Prudential Prudential Prudential Prudential
Money Diversified Prudential Flexible Conservative
Market Bond Equity Managed Balanced
Portfolio Portfolio Portfolio Portfolio Portfolio
------------- -------------- ------------ ------------ --------------
Number of shares (rounded): 2,102,042 4,132,855 1,552,325 533,261 3,358,891
Net asset value per share: $ 10.00 $ 10.95 $ 28.90 $ 17.64 $ 15.36
Cost: $ 21,020,421 $ 45,646,113 $ 42,895,709 $ 9,411,230 $ 51,242,001
Prudential Prudential
Zero High Prudential Prudential Prudential
Coupon Yield Stock Equity Natural
Bond 2000 Bond Index Income Resources
Portfolio Portfolio Portfolio Portfolio Portfolio
------------- -------------- ------------ ------------ --------------
Number of shares (rounded): 1,550,484 352,917 4,698,862 744,126 74,761
Net asset value per share: $ 12.99 $ 7.52 $ 44.45 $ 19.52 $ 17.38
Cost: $ 19,935,376 $ 2,748,055 $130,132,357 $ 15,147,463 $ 1,245,142
Prudential Prudential
Prudential Zero Small
Prudential Government Coupon Prudential Capitalization
Global Income Bond 2005 Jennison Stock
Portfolio Portfolio Portfolio Portfolio Portfolio
------------- -------------- ------------ ------------ --------------
Number of shares (rounded): 719,062 789,237 1,438,894 210,650 826,154
Net asset value per share: $ 30.98 $ 11.55 $ 12.68 $ 32.39 $ 16.25
Cost: $ 13,685,943 $ 9,058,064 $ 18,225,067 $ 4,743,085 $ 11,821,881
T. Rowe Price Janus MFS
International AIM V.I. Aspen Emerging
Stock Value Growth Growth
Portfolio Fund Portfolio Series
------------- -------------- ------------ ------------
Number of shares (rounded): 988 2,816 666 120
Net asset value per share: $ 19.04 $ 33.50 $ 33.65 $ 37.94
Cost: $ 15,485 $ 89,443 $ 19,043 $ 3,745
A33
Note 4: Contract Owner Unit Information
Outstanding contract owner units (rounded), unit values and total value
of contract owner equity at December 31, 1999 were as follows:
SUBACCOUNTS
-----------------------------------------------------------------------
Prudential Prudential Prudential Prudential
Money Diversified Prudential Flexible Conservative
Market Bond Equity Managed Balanced
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------- ------------ ----------- -------------
Contract Owner Units Outstanding
(Pruselect I-rounded)................ 290,751 4,876,997 718,417 69,687 6,224,235
Unit Value (Pruselect I)............... $ 1.60147 $ 2.03632 $ 3.88421 $ 2.92824 $ 2.57655
------------ ------------- ------------ ----------- -------------
Contract Owner Equity (Pruselect I).... $ 465,630 $ 9,931,127 $ 2,790,481 $ 204,061 $ 16,037,053
------------ ------------- ------------ ----------- -------------
Contract Owner Units Outstanding
(Pruselect II-rounded)............... 11,415,720 17,346,798 10,849,263 3,142,730 13,799,660
Unit Value (Pruselect II).............. $ 1.60147 $ 2.03632 $ 3.88421 $ 2.92824 $ 2.57655
------------ ------------- ------------ ----------- -------------
Contract Owner Equity (Pruselect II)... $ 18,281,934 $ 35,323,633 $ 42,140,817 $ 9,202,669 $ 35,555,513
------------ ------------- ------------ ----------- -------------
Contract Owner Units Outstanding
(Pruselect III-rounded).............. 2,255,378 0 0 0 0
Unit Value (Pruselect III.............. $ 1.00775 $ .99424 $ 1.05287 $ 1.03671 $ 1.02714
------------ ------------- ------------ ----------- -------------
Contract Owner Equity (Pruselect III).. $ 2,272,857 $ 0 $ 0 $ 0 $ 0
------------ ------------- ------------ ----------- -------------
Total Contract Owner Equity............ $ 21,020,421 $ 45,254,760 $ 44,931,298 $ 9,406,730 $ 51,592,566
============ ============= ============ =========== =============
SUBACCOUNTS (Continued)
-----------------------------------------------------------------------
Prudential Prudential
Zero High Prudential Prudential Prudential
Coupon Yield Stock Equity Natural
Bond 2000 Bond Index Income Resources
Portfolio Portfolio Portfolio Portfolio Portfolio
Contract Owner Units Outstanding
(Pruselect I-rounded)................ 0 28,956 8,211,055 1,062,378 243,922
Unit Value (Pruselect I)............... $ 2.17624 $ 2.25891 $ 4.87074 $ 3.46967 $ 2.36154
------------ ------------- ------------ ----------- -------------
Contract Owner Equity (Pruselect I).... $ 0 $ 65,409 $ 39,993,915 $ 3,686,102 $ 576,032
------------ ------------- ------------ ----------- -------------
Contract Owner Units Outstanding
(Pruselect II-rounded)............... 9,258,958 1,145,917 34,678,998 3,123,994 306,290
Unit Value (Pruselect II).............. $ 2.17624 $ 2.25891 $ 4.87074 $ 3.46967 $ 2.36154
------------ ------------- ------------ ----------- -------------
Contract Owner Equity (Pruselect II)... $ 20,149,714 $ 2,588,523 $168,912,381 $10,839,228 $ 723,317
------------ ------------- ------------ ----------- -------------
Contract Owner Units Outstanding
(Pruselect III-rounded).............. N/A 0 0 0 N/A
Unit Value (Pruselect III)............. $ N/A $ 1.0234 $ 1.07712 $ 1.07537 $ N/A
------------ ------------- ------------ ----------- -------------
Contract Owner Equity (Pruselect III).. $ N/A $ 0 $ 0 $ 0 $ N/A
------------ ------------- ------------ ----------- -------------
Total Contract Owner Equity............ $ 20,149,714 $ 2,653,932 $208,906,296 $14,525,330 $ 1,299,349
============ ============= ============ =========== =============
A34
Note 4: Contract Owner Unit Information (Continued)
SUBACCOUNTS (Continued)
-----------------------------------------------------------------------
Prudential Prudential
Prudential Zero Small
Prudential Government Coupon Prudential Capitalization
Global Income Bond 2005 Jennison Stock
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------ --------------
Contract Owner Units Outstanding
(Pruselect I-rounded)................ 0 1,733,249 25,293 394,435 0
Unit Value (Pruselect I)............... $ 2.58864 $ 1.93411 $ 2.36982 $ 3.59559 $ 1.95551
------------ ------------ ------------ ----------- --------------
Contract Owner Equity (Pruselect I).... $ 0 $ 3,352,294 $ 59,940 $ 1,418,226 $ 0
------------ ------------ ------------ ----------- --------------
Contract Owner Units Outstanding
(Pruselect II-rounded)............... 8,620,607 2,979,869 7,677,427 1,503,153 6,865,220
Unit Value (Pruselect II).............. $ 2.58864 $ 1.93411 $ 2.36982 $ 3.59559 $ 1.95551
------------ ------------ ------------ ----------- --------------
Contract Owner Equity (Pruselect II)... $ 22,315,649 $ 5,763,394 $ 18,194,120 $ 5,404,723 $ 13,425,006
------------ ------------ ------------ ----------- --------------
Contract Owner Units Outstanding
(Pruselect III-rounded).............. 0 N/A N/A 0 N/A
Unit Value (Pruselect III)............. $ 1.20743 $ N/A $ N/A $ 1.16040 $ N/A
------------ ------------ ------------ ----------- --------------
Contract Owner Equity (Pruselect III).. $ 0 $ N/A $ N/A $ 0 $ N/A
------------ ------------ ------------ ----------- --------------
Total Contract Owner Equity............ $ 22,315,649 $ 9,115,688 $ 18,254,060 $ 6,822,949 $ 13,425,006
============ ============= ============ =========== ==============
SUBACCOUNTS (Continued)
----------------------------------------------------------
T. Rowe Price AIM Janus MFS
International V.I. Aspen Emerging
Stock Value Growth Growth
Portfolio Fund Portfolio Series
-------------- --------- -------------- ------------
Contract Owner Units Outstanding
(Pruselect I-rounded)................ 0 0 0 0
Unit Value (Pruselect I)............... $ 1.30529 $ 1.17702 $ 1.28732 $ 1.64532
-------------- ---------- -------------- ------------
Contract Owner Equity (Pruselect I).... $ 0 $ 0 $ 0 $ 0
-------------- ---------- -------------- ------------
Contract Owner Units Outstanding
(Pruselect II-rounded)............... $ 14,414 $ 80,149 $ 17,401 $ 2,762
Unit Value (Pruselect II).............. $ 1.30529 $ 1.17702 $ 1.28732 $ 1.64532
-------------- ---------- -------------- ------------
Contract Owner Equity (Pruselect II)... $ 18,814 $ 94,337 $ 22,400 $ 4,545
-------------- ---------- -------------- ------------
Contract Owner Units Outstanding
(Pruselect III-rounded).............. 0 0 0 0
Unit Value (Pruselect III)............. $ 1.17859 $ 1.10318 $ 1.13634 $ 1.39445
-------------- ---------- -------------- ------------
Contract Owner Equity (Pruselect III).. $ 0 $ 0 $ 0 $ 0
-------------- ---------- -------------- ------------
Total Contract Owner Equity............ $ 18,814 $ 94,337 $ 22,400 $ 4,545
============== ========== ============== ============
A35
Note 5: Charges and Expenses
A. Mortality Risk and Expense Risk Charges
The mortality risk and expense risk charges, at an effective annual
rate of 0.90% for Pruselect I and Pruselect II contracts, are applied
daily against the net assets representing equity of contract owners
held in each subaccount and at 0.20% for Pruselect III contract
owners. Mortality risk is that contract holders may not live as long
as estimated and expense risk is that the cost of issuing and
administering the policies may exceed related charges by Pruco Life.
Pruco Life currently intends to charge only 0.60% on Pruselect I and
Pruselect II contracts, but reserves the right to make the full 0.90%
charge.
B. Partial Withdrawal Charge
A charge is imposed by Pruco Life on partial withdrawals of the cash
surrender value. A charge equal to the lesser of $15 or 2% and $25 or
2% will be made in connection with each partial withdrawal of the
cash surrender value of a Pruselect I and Pruselect II contract, and
Pruselect III contract, respectively.
C. Expense Reimbursement
The Account is reimbursed by Pruco Life for Pruselect I and Pruselect
II contracts, on a non--guaranteed basis, for expenses incurred by
the Series Fund in excess of the effective rate of 0.40% for all Zero
Coupon Bond Portfolios and for the Stock Index Portfolio, 0.50% for
the High Dividend Stock Portfolio, 0.55% for the Natural Resources
Portfolio, and 0.65% for the High Yield Bond Portfolio of the average
daily net assets of these portfolios.
D. Cost of Insurance and Other Related Charges
Contract owner contributions are subject to certain deductions prior
to being invested in the Account. The deductions are for (1)
transaction costs which are deducted from each premium payment to
cover premium collection and processing costs; (2) state premium
taxes; (3) sales charges which are deducted in order to compensate
Pruco Life for the cost of selling the contract. Contracts are also
subject to monthly charges for the costs of administering the
contract.
Note 6: Taxes
Pruco Life is taxed as a "life insurance company" as defined by the
Internal Revenue Code and the results of operations of the Account form
a part of Prudential's consolidated federal tax return. Under current
federal law, no federal income taxes are payable by the Account. As
such, no provision for tax liability has been recorded, in these
financial statements.
Note 7: Net Increase (Decrease) in Net Assets Retained in the Account
The increase (decrease) in net assets retained in the Account
represents the net contributions (withdrawals) of Pruco Life to
(from) the Account. Effective October 13, 1998, Pruco Life no longer
maintains a position in the Account. Previously, Pruco Life
maintained a position in the Account for liquidity purposes
including unit purchases and redemptions, fund share transactions
and expense processing.
A36
Note 8: Unit Activity
Transactions in units (including transfers among subaccounts), for the
periods ended December 31, 1999, 1998 and 1997 were as follows:
SUBACCOUNTS
--------------------------------------------------------------------------------------------------
Prudential Prudential
Money Market Diversified Bond
Portfolio Portfolio
----------------------------------------------- ------------------------------------------------
1999 1998 1997 1999 1998 1997
-------------- ------------- ------------- ------------ --------------- ---------------
Contract Owner
Contributions: 13,870,279 11,769,929 15,281,942 5,773,771 5,686,444 4,556,760
Contract Owner
Redemptions: (8,349,759) (9,721,732) (16,788,123) (3,482,099) (4,658,242) (3,288,085)
SUBACCOUNTS (Continued)
--------------------------------------------------------------------------------------------------
Prudential Prudential
Equity Flexible Managed
Portfolio Portfolio
----------------------------------------------- ------------------------------------------------
1999 1998 1997 1999 1998 1997
-------------- ------------- ------------- ------------ --------------- ---------------
Contract Owner
Contributions: 3,528,860 2,885,417 4,465,527 1,991,070 8,590,002 4,476,620
Contract Owner
Redemptions: (5,248,863) (6,422,617) (3,935,074) (10,795,219) (11,597,522) (3,255,025)
SUBACCOUNTS (Continued)
--------------------------------------------------------------------------------------------------
Prudential Prudential
Conservative Balanced Zero Coupon 2000
Portfolio Portfolio
----------------------------------------------- ------------------------------------------------
1999 1998 1997 1999 1998 1997
-------------- ------------- ------------- ------------ --------------- ---------------
Contract Owner
Contributions: 3,818,833 12,272,439 5,516,349 1,146,913 3,053,595 11,968,207
Contract Owner
Redemptions: (3,154,189) (14,641,165) (2,950,237) (40,331) (4,144,022) (13,929,611)
SUBACCOUNTS (Continued)
--------------------------------------------------------------------------------------------------
Prudential Prudential
High Yield Bond Stock Index
Portfolio Portfolio
----------------------------------------------- ------------------------------------------------
1999 1998 1997 1999 1998 1997
-------------- ------------- ------------- ------------ --------------- ---------------
Contract Owner
Contributions: 232,862 621,628 1,021,708 10,380,525 12,075,930 20,876,571
Contract Owner
Redemptions: (494,213) (117,717) (879,849) (8,588,993) (5,649,830) (11,486,568)
SUBACCOUNTS (Continued)
--------------------------------------------------------------------------------------------------
Prudential Prudential
Equity Income Natural Resources
Portfolio Portfolio
----------------------------------------------- ------------------------------------------------
1999 1998 1997 1999 1998 1997
-------------- ------------- ------------- ------------ --------------- ---------------
Contract Owner
Contributions: 3,603,113 3,556,140 679,346 60,007 89,639 237,684
Contract Owner
Redemptions: (4,068,251) (3,811,832) (873,682) (45,074) (66,113) (378,671)
A37
Note 8: Unit Activity (Continued)
SUBACCOUNTS (Continued)
--------------------------------------------------------------------------------------------------
Prudential Prudential
Global Government Income
Portfolio Portfolio
----------------------------------------------- ------------------------------------------------
1999 1998 1997 1999 1998 1997
-------------- ------------- ------------- ------------ --------------- ---------------
Contract Owner
Contributions: 2,831,806 2,263,591 10,705,193 5,739,533 3,917,010 3,049,723
Contract Owner
Redemptions: (1,636,224) (2,393,156) (14,887,428) (5,259,971) (1,539,750) (3,251,977)
SUBACCOUNTS (Continued)
--------------------------------------------------------------------------------------------------
Prudential Prudential
Zero Coupon Bond 2005 Jennison
Portfolio Portfolio
----------------------------------------------- ------------------------------------------------
1999 1998 1997 1999 1998 1997
-------------- ------------- ------------- ------------ --------------- ---------------
Contract Owner
Contributions: 1,086,474 3,960,131 9,228,779 1,880,279 1,126,502 589,921
Contract Owner
Redemptions: (36,898) (75,113) (6,935,187) (1,058,268) (524,101) (302,690)
SUBACCOUNTS (Continued)
--------------------------------------------------------------------------------------------------
Prudential T. Rowe Price AIM V.I. Janus Aspen
Small Capitalization Stock International Stock Value Growth
Portfolio Portfolio* Fund* Portfolio*
----------------------------------------------- ------------------------------------------------
1999 1998 1997 1999 1999 1999
-------------- ------------- ------------- ------------ --------------- ---------------
Contract Owner
Contributions: 2,442,573 3,950,209 3,529,907 29,489 88,424 28,034
Contract Owner
Redemptions: (1,617,078) (1,275,859) (3,181,968) (15,075) (8,275) (10,635)
SUBACCOUNTS (Continued)
------------------------
MFS Emerging
Growth
Series*
-----------------
1999
-----------------
Contract Owner
Contributions: 2,762
Contract Owner
Redemptions: 0
* Became available on June 7, 1999 (Note 1)
A38
Note 9: Purchases and Sales of Investments
The aggregate costs of purchases and proceeds from sales of investments
in the Series Fund and the non-Prudential administered funds for the
period ended December 31, 1999 were as follows:
Prudential Prudential Prudential Prudential
Money Diversified Prudential Flexible Conservative
Market Bond Equity Managed Balanced
Portfolio Portfolio Portfolio Portfolio Portfolio
------------- ----------- ------------ ----------- --------------
Purchases................................ $ 17,522,078 $ 6,484,012 $ 5,601,878 $ 1,266,462 $ 7,370,428
Sales.................................... $(10,291,958) $ (2,043,966) $ (12,808,060) $ (26,737,825) $ (6,025,425)
Prudential Prudential Prudential Prudential Prudential
Zero Coupon High Yield Stock Equity Natural
Bond 2000 Bond Index Income Resources
Portfolio Portfolio Portfolio Portfolio Portfolio
-------------- -------------- -------------- --------------- -------------
Purchases................................ $ 2,451,612 $ 375,340 $ 24,405,119 $ 410,034 $ 117,146
Sales.................................... $ (145,531) $ (972,491) $ (17,016,436) $ (2,105,673) $ (96,455)
Prudential
Prudential Prudential Small
Prudential Government Zero Coupon Prudential Capitalization
Global Income 2005 Jennison Stock
Portfolio Portfolio Portfolio Portfolio Portfolio
-------------- -------------- ------------- ------------- --------------
Purchases................................ $ 4,718,947 $ 1,289,684 $ ,559,523 $ 2,501,921 $ 3,675,059
Sales.................................... $ (2,475,443) $ (412,004) $ (126,550) $ (275,927) $(2,289,608)
T. Rowe Price
International AIM V.I. Janus Aspen MFS Emerging
Stock Value Growth Growth
Portfolio* Fund* Portfolio* Series*
--------------- ------------ ------------- ------------
Purchases................................ $ 16,260 $ 89,743 $ 20,158 $ 4,748
Sales.................................... $ (1,057) $ (1,161) $ (1,106) $ (974)
* Became available on June 7, 1999 (Note 1)
A39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the
Pruselect II Variable Life Subaccounts of
Pruco Life Variable Universal Account
and the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the subaccounts (Prudential Money
Market Portfolio, Prudential Diversified Bond Portfolio, Prudential Equity
Portfolio, Prudential Flexible Managed Portfolio, Prudential Conservative
Balanced Portfolio, Prudential Zero Coupon Bond 2000 Portfolio, Prudential High
Yield Bond Portfolio, Prudential Stock Index Portfolio, Prudential Equity Income
Portfolio, Prudential Natural Resources Portfolio, Prudential Global Portfolio,
Prudential Government Income Portfolio, Prudential Zero Coupon Bond 2005
Portfolio, Prudential Jennison Portfolio, Prudential Small Capitalization Stock
Portfolio, T. Rowe International Stock Portfolio, AIM V.I. Value Fund, Janus
Aspen Growth Fund Portfolio and MFS Emerging Growth Series) of the Pruco Life
Variable Universal Account at December 31, 1999, the results of each of their
operations and the changes in each of their net assets for each of the three
years in the period then ended (for the period June 7, 1999 through December 31,
1999 for T. Rowe International Stock Portfolio, AIM V.I. Value Fund, Janus Aspen
Growth Fund Portfolio and MFS Emerging Growth Series), in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of Pruco Life Insurance Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of fund shares owned at December 31, 1999, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 17, 2000
A40
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Financial Position
As of September 30, 2000 and December 31, 1999 (In Thousands)
- --------------------------------------------------------------------------------
(Unaudited)
September 30, December 31,
2000 1999
------------- ------------
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 2000: $3,359,031; $ 3,315,978 $ 2,998,362
1999: $3,084,057)
Held to maturity, at amortized cost (fair value, 2000: $346,033; 353,579 388,990
1999: $377,822)
Equity securities - available for sale, at fair value (cost, 2000: $7,822 ; 7,657 4,532
1999: $3,238)
Mortgage loans on real estate 9,645 10,509
Policy loans 844,680 792,352
Short-term investments 509,692 207,219
Other long-term investments 88,352 77,769
------------ ------------
Total investments 5,129,583 4,479,733
Cash 70,046 76,396
Deferred policy acquisition costs 1,138,699 1,062,785
Accrued investment income 79,148 68,917
Other assets 110,894 48,228
Separate Account assets 16,996,687 16,032,449
------------ ------------
TOTAL ASSETS $ 23,525,057 $ 21,768,508
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 3,452,178 $ 3,116,261
Future policy benefits and other policyholder liabilities 693,401 635,978
Cash collateral for loaned securities 174,645 87,336
Securities sold under agreement to repurchase 50,691 21,151
Income taxes payable 233,933 145,600
Payables to affiliate 24,011 487
Other liabilities 138,685 59,427
Separate Account liabilities 16,996,687 16,032,449
------------ ------------
Total liabilities 21,764,231 20,098,689
------------ ------------
Contingencies (See Footnote 2)
Stockholder's Equity
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,335,041 1,258,428
Accumulated other comprehensive loss
Net unrealized investment losses (14,093) (28,364)
Foreign currency translation adjustments (2,204) (2,327)
------------ ------------
Accumulated other comprehensive loss (16,297) (30,691)
------------ ------------
Total stockholder's equity 1,760,826 1,669,819
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 23,525,057 $ 21,768,508
============ ============
See Notes to Consolidated Financial Statements
B1
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
Nine and Three Months Ended September 30, 2000 and 1999 (In Thousands)
- --------------------------------------------------------------------------------
Nine months ended Three months ended
September 30, September 30,
2000 1999 2000 1999
--------- --------- --------- ---------
REVENUES
Premiums $ 87,695 $ 68,794 $ 26,967 $ 27,892
Policy charges and fee income 350,779 304,593 121,372 98,227
Net investment income 248,495 209,508 80,520 71,911
Realized investment losses, net (15,222) (17,916) (1,228) (4,116)
Asset management fees 53,702 40,863 18,850 15,347
Other income 685 1,005 275 160
--------- --------- --------- ---------
Total revenues 726,134 606,847 246,756 209,421
--------- --------- --------- ---------
BENEFITS AND EXPENSES
Policyholders' benefits 181,172 142,125 63,452 35,392
Interest credited to policyholders' account 123,490 93,697 44,039 31,448
balances
General, administrative and other expenses 304,903 298,183 92,354 106,525
--------- --------- --------- ---------
Total benefits and expenses 609,565 534,005 199,845 173,365
--------- --------- --------- ---------
Income from operations before income taxes 116,569 72,842 46,911 36,056
--------- --------- --------- ---------
Income tax provision 39,956 25,494 16,419 12,619
--------- --------- --------- ---------
NET INCOME $ 76,613 $ 47,348 $ 30,492 $ 23,437
--------- --------- --------- ---------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities,
net of
reclassification adjustment 14,271 (27,867) 13,696 (8,369)
Foreign currency translation adjustments 123 790 1,550 260
--------- --------- --------- ---------
Other comprehensive income (loss), net of tax 14,394 (27,077) 15,246 (8,109)
--------- --------- --------- ---------
TOTAL COMPREHENSIVE INCOME $ 91,007 $ 20,271 $ 45,738 $ 15,328
========= ========= ========= =========
See Notes to Consolidated Financial Statements
B2
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity (Unaudited)
Periods Ended September 30, 2000 and December 31, 1999 and 1998 (In Thousands)
- --------------------------------------------------------------------------------
Accumulated
other Total
Common Paid-in- Retained comprehensive stockholder's
stock capital earnings income (loss) equity
----------- ----------- ----------- ------------- -------------
Balance, January 1, 1998 $ 2,500 $ 439,582 $ 1,050,871 $ 12,564 $ 1,505,517
Net income -- -- 151,962 -- 151,962
Change in foreign currency
translation adjustments, -- -- -- 2,980 2,980
net of taxes
Change in net unrealized
investment losses, net of -- -- -- (7,227) (7,227)
reclassification adjustment
and taxes
----------- ----------- ----------- ------------- -------------
Balance, December 31, 1998 $ 2,500 $ 439,582 $ 1,202,833 $ 8,317 $ 1,653,232
Net income -- -- 55,595 -- 55,595
Change in foreign currency
translation adjustments, -- -- -- (742) (742)
net of taxes
Change in net unrealized
investment losses, net of -- -- -- (38,266) (38,266)
reclassification adjustment
and taxes
----------- ----------- ----------- ------------- -------------
Balance, December 31, 1999 $ 2,500 $ 439,582 $ 1,258,428 $ (30,691) $ 1,669,819
Net income -- -- 76,613 -- 76,613
Change in foreign currency
translation adjustments, -- -- -- 123 123
net of taxes
Change in net unrealized
investment gains, net of -- -- -- 14,271 14,271
reclassification adjustment
and taxes
----------- ----------- ----------- ------------- -------------
Balance, September 30, 2000 $ 2,500 $ 439,582 $ 1,335,041 $ (16,297) $ 1,760,826
=========== =========== =========== ============= =============
See Notes to Consolidated Financial Statements
B3
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2000 and 1999 (In Thousands)
- --------------------------------------------------------------------------------
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 76,613 $ 47,348
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Policy charges and fee income (50,971) (68,377)
Interest credited to policyholders' account balances 123,490 93,697
Realized investment losses, net 15,222 17,916
Amortization and other non-cash items (8,372) 48,808
Change in:
Future policy benefits and other policyholders' 57,423 7,549
liabilities
Accrued investment income (10,231) (5,773)
Payables to/Receivables from affiliate, net 23,524 (212)
Policy loans (52,328) (24,844)
Deferred policy acquisition costs (75,914) (122,831)
Income taxes payable 88,333 (21,821)
Other, net 16,593 68,630
----------- -----------
Cash Flows From Operating Activities $ 203,382 $ 40,090
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 1,703,145 2,558,072
Held to maturity 35,180 38,903
Equity securities 1,147 5,189
Mortgage loans on real estate 864 683
Other long-term investments -- 320
Payments for the purchase of:
Fixed maturities:
Available for sale (2,004,763) (2,732,358)
Held to maturity -- (24,170)
Equity securities (5,503) (2,059)
Other long-term investments (4,137) (33)
Cash collateral for loaned securities, net 87,309 (8,354)
Securities sold under agreement to repurchase, net 29,540 505
Other long-term investments (6,446) (14,918)
Short-term investments, net (302,517) (40,558)
----------- -----------
Cash Flows Used In Investing Activities (466,181) (218,778)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 1,894,558 2,598,383
Withdrawals (1,638,109) (2,424,550)
----------- -----------
Cash Flows From Financing Activities 256,449 173,833
----------- -----------
Net decrease in Cash (6,350) (4,855)
Cash, beginning of year 76,396 89,679
----------- -----------
CASH, END OF PERIOD $ 70,046 $ 84,824
=========== ===========
See Notes to Consolidated Financial Statements
B4
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying interim consolidated financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-Q on the basis of
accounting principles generally accepted in the United States. These interim
financial statements are unaudited but reflect all adjustments which, in the
opinion of management, are necessary to provide a fair presentation of the
consolidated results of operations and financial condition of the Pruco Life
Insurance Company ("the Company"), a wholly owned subsidiary of The Prudential
Insurance Company of America ("Prudential"), for the interim periods presented.
All such adjustments are of a normal recurring nature. The results of operations
for any interim period are not necessarily indicative of results for a full
year. Certain amounts in the Company's prior year consolidated financial
statements have been reclassified to conform with the 2000 presentation. These
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999.
2. CONTINGENCIES
Various lawsuits against the Company have arisen in the course of the Company's
business. In certain of these matters, large and/or indeterminate amounts are
sought.
On October 28, 1996, the Company entered into a Stipulation of Settlement with
attorneys for the plaintiffs in a consolidated class action lawsuit pending in a
Multi-District Litigation proceeding in the U.S. District Court for the District
of New Jersey. The class action suit involved alleged improprieties in
connection with the sale, servicing and operation of permanent life insurance
policies from 1982 through 1995. Pursuant to the settlement, the Company has
participated in a remediation program pursuant to which relief was offered to
policyowners who were misled when they purchased permanent life insurance
policies in the United States from 1982 to 1995. Prudential has agreed to
indemnify the Company for any liability incurred in connection with that
litigation.
The balance of the Company's litigation is subject to many uncertainties, and
given the complexity and scope, the outcomes cannot be predicted with precision.
Management believes that any ultimate liability that could result from such
litigation would not have a material adverse effect on the Company's financial
position.
3. RELATED PARTY TRANSACTIONS
The Company has extensive transactions and relationships with Prudential and
other affiliates. It is possible that the terms of these transactions are not
the same as those that would result from transactions among wholly unrelated
parties.
Expense Charges and Allocations
All of the Company's expenses are allocations or charges from Prudential or
other affiliates. These expenses can be grouped into the following categories:
general and administrative expenses, retail distribution expenses and asset
management fees.
The Company's general and administrative expenses are charged to the Company
using allocation methodologies based on business processes. Management believes
that the methodology is reasonable and reflects costs incurred by Prudential to
process transactions on behalf of the Company. Prudential and the Company
operate under service and lease agreements whereby services of officers and
employees (except for those agents employed directly by the Company in Taiwan),
supplies, use of equipment and office space are provided by Prudential.
B5
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
3. RELATED PARTY TRANSACTIONS (continued)
The Company is allocated estimated distribution expenses from Prudential's
retail agency network for both its domestic life and annuity products. The
Company has capitalized the majority of these distribution expenses as deferred
policy acquisition costs ("DAC"). At April 1, 2000, Prudential and the Company
agreed to revise the estimate of allocated distribution expenses to reflect a
market based pricing arrangement.
The Company is charged an asset management fee by Prudential Global Asset
Management ("PGAM") for managing the Separate Account investment portfolio.
These fees are a component of general, administrative and other expenses.
In accordance with a profit sharing agreement with Prudential, the Company
receives fee income from policyholder account balances invested in the
Prudential Series Funds ("PSF"). These amounts are recorded as "Asset management
fees" in the Consolidated Statements of Operations. The Company also collects
these fees on behalf of Prudential and records a Payable to affiliate in the
Consolidated Statements of Financial Position.
On September 29, 2000, the Board of Directors for the Prudential Series Fund,
Inc. ("PSFI") adopted resolutions to terminate the existing management agreement
between PSFI and Prudential, and has appointed another subsidiary of Prudential
as the fund manager for PSF. The Company is currently assessing the effect of
these resolutions on its profit sharing agreement with Prudential.
Corporate Owned Life Insurance
The Company has sold three Corporate Owned Life Insurance ("COLI") policies to
Prudential. The cash surrender value included in Separate Accounts was $715.1
million and $725.3 million at September 30, 2000 and December 31, 1999,
respectively. The fees received related to the COLI policies were $4.0 million
for the nine months ending September 30, 2000.
Reinsurance
The Company currently has three reinsurance agreements in place with Prudential
(the reinsurer). Specifically a reinsurance Group Annuity Contract, whereby the
reinsurer, in consideration for a single premium payment by the Company,
provides reinsurance equal to 100% of all payments due under the contract, and
two yearly renewable term agreements in which the Company may offer and the
reinsurer may accept reinsurance on any life in excess of the Company's maximum
limit of retention. The Company is not relieved of its primary obligation to the
policyholder as a result of these reinsurance transactions. These agreements had
no material effect on net income for the periods ended September 30, 2000 and
December 31, 1999.
Debt Agreements
In July 1998, the Company established a revolving line of credit facility of up
to $500 million with Prudential Funding Corporation, a wholly owned subsidiary
of Prudential. There is no outstanding debt relating to this credit facility as
of September 30, 2000 or December 31, 1999.
B6
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 was amended by SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities- Deferral of the
Effective Date of FASB Statement No. 133," issued June 1999, and by SFAS 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities"
issued in June 2000. SFAS 133, as amended, requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS 133 does not apply to most traditional
insurance contracts. However, certain hybrid contracts that contain features
which may affect settlement amounts similarly to derivatives may require
separate accounting for the "host contract" and the underlying "embedded
derivative" provisions. The latter provisions would be accounted for as
derivatives as specified by the statement.
SFAS No. 133 provides, if certain conditions are met, that a derivative may be
specifically designated as (1) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment
(fair value hedge), (2) a hedge of the exposure to variable cash flows of a
forecasted transaction (cash flow hedge), or (3) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security or a foreign-currency-denominated
forecasted transaction (foreign currency hedge).
Under SFAS No. 133, the accounting for changes in fair value of a derivative
depends on its intended use and designation. For a fair value hedge, the gain or
loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item. For a cash flow hedge, the effective
portion of the derivative's gain or loss is initially reported as a component of
other comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings. For a hedge of a net investment in a
foreign subsidiary, the gain or loss is reported in other comprehensive income
as part of the foreign currency translation adjustment. For all other
derivatives not designated as hedging instruments, the gain or loss is
recognized in earnings in the period of change. The Company is required to adopt
this Statement, as amended, as of January 1, 2001. Adoption of SFAS 133, as
amended, is not expected to have a material impact on the Company's financial
position or results of operations.
B7
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Financial Position
December 31, 1999 and 1998 (In Thousands)
- --------------------------------------------------------------------------------
1999 1998
------------ ------------
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1999: $3,084,057; $ 2,998,362 $ 2,763,926
1998: $2,738,654)
Held to maturity, at amortized cost (fair value, 1999: $377,822; 388,990 410,558
1998: $421,845)
Equity securities - available for sale, at fair value (cost, 1999: $3,238; 4,532 2,847
1998: $2,951)
Mortgage loans on real estate 10,509 17,354
Policy loans 792,352 766,917
Short-term investments 207,219 240,727
Other long-term investments 77,769 42,050
------------ ------------
Total investments 4,479,733 4,244,379
Cash 76,396 89,679
Deferred policy acquisition costs 1,062,785 861,713
Accrued investment income 68,917 61,114
Receivables from affiliate 23,329 --
Other assets 48,228 65,145
Separate Account assets 16,032,449 11,490,751
------------ ------------
TOTAL ASSETS $ 21,791,837 $ 16,812,781
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 3,116,261 $ 2,702,011
Future policy benefits and other policyholder liabilities 635,978 528,779
Cash collateral for loaned securities 87,336 73,336
Securities sold under agreement to repurchase 21,151 49,708
Income taxes payable 145,600 193,358
Payables to affiliate -- 66,568
Other liabilities 83,243 55,038
Separate Account liabilities 16,032,449 11,490,751
------------ ------------
Total liabilities 20,122,018 15,159,549
------------ ------------
Contingencies (See Footnote 12)
Stockholder's Equity
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,258,428 1,202,833
Accumulated other comprehensive (loss) income
Net unrealized investment (losses) gains (28,364) 9,902
Foreign currency translation adjustments (2,327) (1,585)
------------ ------------
Accumulated other comprehensive (loss) income (30,691) 8,317
------------ ------------
Total stockholder's equity 1,669,819 1,653,232
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 21,791,837 $ 16,812,781
============ ============
See Notes to Consolidated Financial Statements
B8
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
Years Ended December 31, 1999, 1998 and 1997 (In Thousands)
- --------------------------------------------------------------------------------
1999 1998 1997
--------- --------- ---------
REVENUES
Premiums $ 98,976 $ 82,139 $ 69,614
Policy charges and fee income 414,425 350,569 332,132
Net investment income 276,821 261,430 259,634
Realized investment (losses) gains, net (32,545) 44,841 10,974
Asset management fees 60,392 40,200 33,310
Other income 1,397 1,067 491
--------- --------- ---------
Total revenues 819,466 780,246 706,155
--------- --------- ---------
BENEFITS AND EXPENSES
Policyholders' benefits 205,042 193,739 199,537
Interest credited to policyholders' account balances 136,852 118,992 110,815
General, administrative and other expenses 392,041 231,320 227,561
--------- --------- ---------
Total benefits and expenses 733,935 544,051 537,913
--------- --------- ---------
Income from operations before income taxes 85,531 236,195 168,242
--------- --------- ---------
Income tax provision 29,936 84,233 61,868
--------- --------- ---------
NET INCOME 55,595 151,962 106,374
--------- --------- ---------
Other comprehensive (loss) income, net of tax:
Unrealized gains (losses) on securities, net of
reclassification adjustment (38,266) (7,227) 3,025
Foreign currency translation adjustments (742) 2,980 (2,863)
--------- --------- ---------
Other comprehensive (loss) income (39,008) (4,247) 162
--------- --------- ---------
TOTAL COMPREHENSIVE INCOME $ 16,587 $ 147,715 $ 106,536
========= ========= =========
See Notes to Consolidated Financial Statements
B9
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years Ended December 31, 1999, 1998, and 1997 (In Thousands)
- --------------------------------------------------------------------------------
Accumulated
other Total
Common Paid-in- Retained comprehensive stockholder's
stock capital earnings income (loss) equity
----------- ----------- ----------- ------------- -------------
Balance, January 1, 1997 $ 2,500 $ 439,582 $ 944,497 $ 12,402 $ 1,398,981
Net income -- -- 106,374 -- 106,374
Change in foreign currency -- -- -- (2,863) (2,863)
translation adjustments,
net of taxes
Change in net unrealized
investment gains, net of -- -- -- 3,025 3,025
reclassification adjustment
and taxes
----------- ----------- ----------- ------------- -------------
Balance, December 31, 1997 2,500 439,582 1,050,871 12,564 1,505,517
Net income -- -- 151,962 -- 151,962
Change in foreign currency
translation adjustments, -- -- -- 2,980 2,980
net of taxes
Change in net unrealized
investment losses, net of -- -- -- (7,227) (7,227)
reclassification adjustment
and taxes
----------- ----------- ----------- ------------- -------------
Balance, December 31, 1998 2,500 439,582 1,202,833 8,317 1,653,232
Net income -- -- 55,595 -- 55,595
Change in foreign currency
translation adjustments, -- -- -- (742) (742)
net of taxes
Change in net unrealized
investment losses, net of -- -- -- (38,266) (38,266)
reclassification adjustment
and taxes
----------- ----------- ----------- ------------- -------------
Balance, December 31, 1999 $ 2,500 $ 439,582 $ 1,258,428 $ (30,691) $ 1,669,819
=========== =========== =========== ============= =============
See Notes to Consolidated Financial Statements
B10
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998, and 1997 (In Thousands)
- --------------------------------------------------------------------------------
1999 1998 1997
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 55,595 $ 151,962 $ 106,374
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Policy charges and fee income (83,961) (29,827) (40,783)
Interest credited to policyholders' account balances 136,852 118,992 110,815
Realized investment (gains) losses, net 32,545 (44,841) (10,974)
Amortization and other non-cash items 75,037 19,655 (26,405)
Change in:
Future policy benefits and other policyholders' 107,199 61,095 34,907
liabilities
Accrued investment income (7,803) 5,886 (4,890)
Payable to affiliate (89,897) (3,807) 20,547
Policy loans (25,435) (62,962) (64,173)
Deferred policy acquisition costs (201,072) (206,471) (22,083)
Income taxes payable (47,758) (16,828) 68,417
Other, net 45,122 (43,675) 34,577
----------- ----------- -----------
Cash Flows (Used In) From Operating Activities (3,576) (50,821) 206,329
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 3,076,848 5,429,396 2,828,665
Held to maturity 45,841 74,767 138,626
Equity securities 5,209 4,101 6,939
Mortgage loans on real estate 6,845 5,433 24,925
Other long-term investments 385 33,428 (10,618)
Payments for the purchase of:
Fixed maturities:
Available for sale (3,452,289) (5,617,208) (3,141,785)
Held to maturity (24,170) (145,919) (70,532)
Equity securities (5,110) (2,274) (4,594)
Other long-term investments (39,094) (409) (51)
Cash collateral for loaned securities, net 14,000 (70,085) 143,421
Securities sold under agreement to repurchase, net (28,557) 49,708 -
Short-term investments, net 33,580 75,771 (147,030)
----------- ----------- -----------
Cash Flows Used In Investing Activities (366,512) (163,291) (232,034)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 3,448,370 3,098,764 2,099,600
Withdrawals (3,091,565) (2,866,331) (2,076,303)
----------- ----------- -----------
Cash Flows From (Used in) Financing Activities 356,805 232,433 23,297
----------- ----------- -----------
Net increase (decrease) in Cash (13,283) 18,321 (2,408)
Cash, beginning of year 89,679 71,358 73,766
----------- ----------- -----------
CASH, END OF PERIOD $ 76,396 $ 89,679 $ 71,358
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid (received) $ 55,144 $ 99,810 $ (7,904)
=========== =========== ===========
See Notes to Consolidated Financial Statements
B11
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. BUSINESS
Pruco Life Insurance Company ("the Company") is a stock life insurance company,
organized in 1971 under the laws of the state of Arizona. The Company is
licensed to sell individual life insurance, variable life insurance, variable
annuities, fixed annuities, and a group annuity program ("the Contracts") in the
District of Columbia, Guam and in all states and territories except New York. In
addition, the Company markets individual life insurance through its branch
office in Taiwan. The Company has two wholly owned subsidiaries, Pruco Life
Insurance Company of New Jersey ("PLNJ") and The Prudential Life Insurance
Company of Arizona ("PLICA"). PLNJ is a stock life insurance company organized
in 1982 under the laws of the state of New Jersey. It is licensed to sell
individual life insurance, variable life insurance, fixed annuities, and
variable annuities only in the states of New Jersey and New York. PLICA is a
stock life insurance company organized in 1988 under the laws of the state of
Arizona. PLICA had no new business sales in 1997, 1998 or 1999 and at this time
will not be issuing new business.
The Company is a wholly owned subsidiary of The Prudential Insurance Company of
America ("Prudential"), a mutual insurance company founded in 1875 under the
laws of the state of New Jersey. Prudential is currently considering
reorganizing itself into a publicly traded stock company through a process known
as "demutualization." On February 10, 1998, Prudential's Board of Directors
authorized management to take the preliminary steps necessary to allow
Prudential to demutualize. On July 1, 1998, legislation was enacted in New
Jersey that would permit this conversion to occur and that specified the process
for conversion. Demutualization is a complex process involving development of a
plan of reorganization, adoption of a plan by Prudential's Board of Directors, a
public hearing and review and approval by two-thirds of the qualified
policyholders who vote on the plan, review and approved by the New Jersey
Department of Banking and Insurance. Prudential's management is in the process
of developing a proposed plan of demutualization, although there can be no
assurance that Prudential's Board of Directors will approve such a plan.
Prudential intends to make additional capital contributions to the Company, as
needed, to enable it to comply with its reserve requirements and fund expenses
in connection with its business. Generally, Prudential is under no obligation to
make such contributions and its assets do not back the benefits payable under
the Contracts.
The Company is engaged in a business that is highly competitive because of the
large number of stock and mutual life insurance companies and other entities
engaged in marketing insurance products, and individual and group annuities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. ("GAAP"). The
Company has extensive transactions and relationships with Prudential and other
affiliates, as more fully described in Footnote 14. Due to these relationships,
it is possible that the terms of these transactions are not the same as those
that would result from transactions among wholly unrelated parties. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, in particular deferred policy acquisition costs ("DAC")
and future policy benefits, and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
Investments
Fixed maturities classified as "available for sale" are carried at estimated
fair value. Fixed maturities that the Company has both the intent and ability to
hold to maturity are stated at amortized cost and classified as "held to
maturity". The amortized cost of fixed maturities is written down to estimated
fair value if a decline in value is considered to be other than temporary.
Unrealized gains and losses on fixed maturities "available for sale", including
the effect on deferred policy acquisition costs and policyholders' account
balances that would result from the realization of unrealized gains and losses,
net of income taxes, are included in a separate component of equity,
"Accumulated other comprehensive income."
B12
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Equity securities, available for sale, comprised of common and non-redeemable
preferred stock, are carried at estimated fair value. The associated unrealized
gains and losses, net of income tax, the effects on deferred policy acquisition
costs and on policyholders' account balances that would result from the
realization of unrealized gains and losses, are included in a separate component
of equity, "Accumulated other comprehensive income."
Mortgage loans on real estate are stated primarily at unpaid principal balances,
net of unamortized discounts and an allowance for losses. The allowance for
losses includes a loan specific reserve for impaired loans and a portfolio
reserve for incurred but not specifically identified losses. Impaired loans
include those loans for which a probability exists that all amounts due
according to the contractual terms of the loan agreement will not be collected.
Impaired loans are measured at the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the fair value of the
collateral if the loan is collateral dependent. Interest received on impaired
loans, including loans that were previously modified in a troubled debt
restructuring, is either applied against the principal or reported as revenue,
according to management's judgment as to the collectibility of principal.
Management discontinues accruing interest on impaired loans after the loans are
90 days delinquent as to principal or interest, or earlier when management has
serious doubts about collectibility. When a loan is recognized as impaired, any
accrued but uncollectible interest is reversed against interest income of the
current period. Generally, a loan is restored to accrual status only after all
delinquent interest and principal are brought current and, in the case of loans
where the payment of interest has been interrupted for a substantial period, a
regular payment performance has been established. The portfolio reserve for
incurred but not specifically identified losses considers the Company's past
loan loss experience, the current credit composition of the portfolio,
historical credit migration, property type diversification, default and loss
severity statistics and other relevant factors.
Policy loans are carried at unpaid principal balances.
Short-term investments, including highly liquid debt instruments purchased with
an original maturity of twelve months or less, are carried at amortized cost,
which approximates fair value.
Other long-term investments represent the Company's investments in joint
ventures and partnerships in which the Company does not have control. These
investments are recorded using the equity method of accounting, reduced for
other than temporary declines in value. The Company's investment in the Separate
Accounts are included on this line.
Realized investment gains, net are computed using the specific identification
method. Costs of fixed maturity and equity securities are adjusted for
impairments considered to be other than temporary.
Cash
Cash includes cash on hand, amounts due from banks, and money market
instruments.
Deferred Policy Acquisition Costs
The costs which vary with and that are related primarily to the production of
new insurance business are deferred to the extent that they are deemed
recoverable from future profits. Such costs include certain commissions, costs
of policy issuance and underwriting, and certain variable field office expenses.
Deferred policy acquisition costs are subject to recoverability testing at the
time of policy issue and loss recognition testing at the end of each accounting
period. Deferred policy acquisition costs are adjusted for the impact of
unrealized gains or losses on investments as if these gains or losses had been
realized, with corresponding credits or charges included in "Accumulated other
comprehensive income".
Policy acquisition costs related to interest-sensitive products and certain
investment-type products are deferred and amortized over the expected life of
the contracts (periods ranging from 15 to 30 years) in proportion to estimated
gross profits arising principally from investment results, mortality and expense
margins, and surrender charges based on historical and anticipated future
experience, which is updated periodically. The effect of changes to estimated
gross profits on unamortized deferred acquisition costs is reflected in "General
and administrative expenses" in the period such estimated gross profits are
revised.
B13
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Securities loaned
Securities loaned are treated as financing arrangements and are recorded at the
amount of cash received as collateral. The Company obtains collateral in an
amount equal to 102% and 105% of the fair value of the domestic and foreign
securities, respectively. The Company monitors the market value of securities
loaned on a daily basis with additional collateral obtained as necessary.
Non-cash collateral received is not reflected in the consolidated statements of
financial position because the debtor typically has the right to redeem the
collateral on short notice. Substantially all of the Company's securities loaned
are with large brokerage firms.
Securities sold under agreements to repurchase
Securities sold under agreements to repurchase are treated as financing
arrangements and are carried at the amounts at which the securities will be
subsequently reacquired, including accrued interest, as specified in the
respective agreements. Assets to be repurchased are the same, or substantially
the same, as the assets transferred and the transferor, through right of
substitution, maintains the right and ability to redeem the collateral on short
notice. The market value of securities to be repurchased is monitored and
additional collateral is obtained, where appropriate, to protect against credit
exposure.
Securities lending and securities repurchase agreements are used to generate net
investment income and facilitate trading activity. These instruments are
short-term in nature (usually 30 days or less). Securities loaned are
collateralized principally by U.S. Government and mortgage-backed securities.
Securities sold under repurchase agreements are collateralized principally by
cash. The carrying amounts of these instruments approximate fair value because
of the relatively short period of time between the origination of the
instruments and their expected realization.
Separate Account Assets and Liabilities
Separate Account assets and liabilities are reported at estimated fair value and
represent segregated funds which are invested for certain policyholders and
other customers. Separate Account assets include common stocks, fixed
maturities, real estate related securities, and short-term investments. The
assets of each account are legally segregated and are not subject to claims that
arise out of any other business of the Company. Investment risks associated with
market value changes are borne by the customers, except to the extent of minimum
guarantees made by the Company with respect to certain accounts. The investment
income and gains or losses for Separate Accounts generally accrue to the
policyholders and are not included in the Consolidated Statements of Operations.
Mortality, policy administration and surrender charges on the accounts are
included in "Policy charges and fee income".
Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life Modified Guaranteed Annuity
Account. The Pruco Life Modified Guaranteed Annuity Account is a non-unitized
Separate Account, which funds the Modified Guaranteed Annuity Contract and the
Market Value Adjustment Annuity Contract. Owners of the Pruco Life Modified
Guaranteed Annuity and the Market Value Adjustment Annuity Contracts do not
participate in the investment gain or loss from assets relating to such
accounts. Such gain or loss is borne, in total, by the Company.
Insurance Revenue and Expense Recognition
Premiums from insurance policies are generally recognized when due. Benefits are
recorded as an expense when they are incurred. For traditional life insurance
contracts, a liability for future policy benefits is recorded using the net
level premium method. For individual annuities in payout status, a liability for
future policy benefits is recorded for the present value of expected future
payments based on historical experience.
Premiums from non-participating group annuities with life contingencies are
generally recognized when due. For single premium immediate annuities, premiums
are recognized when due with any excess profit deferred and recognized in a
constant relationship to insurance in-force or, for annuities, the amount of
expected future benefit payments.
B14
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Amounts received as payment for interest-sensitive life, individual annuities
and guaranteed investment contracts are reported as deposits to "Policyholders'
account balances". Revenues from these contracts reflected as "Policy charges
and fee income" consist primarily of fees assessed during the period against the
policyholders' account balances for mortality charges, policy administration
charges and surrender charges. In addition, interest earned from the investment
of these account balances is reflected in "Net investment income". Benefits and
expenses for these products include claims in excess of related account
balances, expenses of contract administration, interest credited and
amortization of deferred policy acquisition costs.
Foreign Currency Translation Adjustments
Assets and liabilities of the Taiwan branch are translated to U.S. dollars at
the exchange rate in effect at the end of the period. Revenues, benefits and
other expenses are translated at the average rate prevailing during the period.
Cumulative translation adjustments arising from the use of differing exchange
rates from period to period are charged or credited directly to "Other
comprehensive income". The cumulative effect of changes in foreign exchange
rates are included in "Accumulated other comprehensive income".
Asset Management Fees
The Company receives asset management fee income from policyholder account
balances invested in The Prudential Series Fund ("PSF"), which are a portfolio
of mutual fund investments related to the Company's Separate Account products.
Derivative Financial Instruments
Derivatives are financial instruments whose values are derived from interest
rates, foreign exchange rates, various financial indices or the value of
securities or commodities. Derivative financial instruments used by the Company
include futures, currency swaps and options contracts and can be exchange-traded
or contracted in the over-the-counter market. The Company uses derivative
financial instruments to seek to reduce market risk from changes in interest
rates or foreign currency exchange rates, and to alter interest rate or currency
exposures arising from mismatches between assets and liabilities. All
derivatives used by the Company are for other than trading purposes.
To qualify as a hedge, derivatives must be designated as hedges for existing
assets, liabilities, firm commitments or anticipated transactions which are
identified and probable to occur, and effective in reducing the market risk to
which the Company is exposed. The effectiveness of the derivatives must be
evaluated at the inception of the hedge and throughout the hedge period.
When derivatives qualify as hedges, the changes in the fair value or cash flows
of the derivatives and the hedged items are recognized in earnings in the same
period. If the Company's use of derivatives does not meet the criteria to apply
hedge accounting, the derivatives are recorded at fair value in "Other
liabilities" in the Consolidated Statements of Financial Position, and changes
in their fair value are recognized in earnings in "Realized investment gains,
net" without considering changes in the hedged assets or liabilities. Cash flows
from derivative assets and liabilities are reported in the operating activities
section in the Consolidated Statements of Cash Flows.
Income Taxes
The Company and its subsidiaries are members of the consolidated federal income
tax return of Prudential and files separate company state and local tax returns.
Pursuant to the tax allocation arrangement with Prudential, total federal income
tax expense is determined on a separate company basis. Members with losses
record tax benefits to the extent such losses are recognized in the consolidated
federal tax provision. Deferred income taxes are generally recognized, based on
enacted rates, when assets and liabilities have different values for financial
statement and tax reporting purposes. A valuation allowance is recorded to
reduce a deferred tax asset to that portion that is expected to be realized.
B15
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS No. 133 does not apply to most traditional
insurance contracts. However, certain hybrid contracts that contain features
which may affect settlement amounts similarly to derivatives may require
separate accounting for the "host contract" and the underlying "embedded
derivative" provisions. The latter provisions would be accounted for as
derivatives as specified by the statement.
SFAS No. 133 provides, if certain conditions are met, that a derivative may be
specifically designated as (1) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment
(fair value hedge), (2) a hedge of the exposure to variable cash flows of a
forecasted transaction (cash flow hedge), or (3) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security or a foreign-currency-denominated
forecasted transaction (foreign currency hedge).
Under SFAS No. 133, the accounting for changes in fair value of a derivative
depends on its intended use and designation. For a fair value hedge, the gain or
loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item. For a cash flow hedge, the effective
portion of the derivative's gain or loss is initially reported as a component of
other comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings. For a foreign currency hedge, the gain
or loss is reported in other comprehensive income as part of the foreign
currency translation adjustment. For all other derivatives not designated as
hedging instruments, the gain or loss is recognized in earnings in the period of
change. The Company is required to adopt this Statement, as amended, as of
January 1, 2001 and is currently assessing the effect of the new standard.
In October 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-7, "Deposit Accounting: Accounting for
Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk" ("SOP
98-7"). This statement provides guidance on how to account for insurance and
reinsurance contracts that do not transfer insurance risk. SOP 98-7 is effective
for fiscal years beginning after June 15, 1999. The adoption of this statement
is not expected to have a material effect on the Company's financial position or
results of operations.
Reclassifications
Certain amounts in the prior years have been reclassified to conform to current
year presentation.
B16
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS
Fixed Maturities and Equity Securities:
The following tables provide additional information relating to fixed maturities
and equity securities as of December 31,:
1999
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
(In Thousands)
Fixed maturities available for sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 113,172 $ 2 $ 2,052 $ 111,122
Foreign government bonds 92,725 1,718 1,455 92,988
Corporate securities 2,876,602 8,013 92,075 2,792,540
Mortgage-backed securities 1,558 157 3 1,712
---------- ---------- ---------- ----------
Total fixed maturities available for sale $3,084,057 $ 9,890 $ 95,585 $2,998,362
========== ========== ========== ==========
Fixed maturities held to maturity
Corporate securities $ 388,990 $ 1,832 $ 13,000 $ 377,822
---------- ---------- ---------- ----------
Total fixed maturities held to maturity $ 388,990 $ 1,832 $ 13,000 $ 377,822
========== ========== ========== ==========
Equity securities available for sale $ 3,238 $ 1,373 $ 79 $ 4,532
========== ========== ========== ==========
1998
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
(In Thousands)
Fixed maturities available for sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 110,294 $ 864 $ 319 $ 110,839
Foreign government bonds 87,112 2,003 696 88,419
Corporate securities 2,540,498 30,160 6,896 2,563,762
Mortgage-backed securities 750 156 -- 906
---------- ---------- ---------- ----------
Total fixed maturities available for sale $2,738,654 $ 33,183 $ 7,911 $2,763,926
========== ========== ========== ==========
Fixed maturities held to maturity
Corporate securities $ 410,558 $ 11,287 $ -- $ 421,845
---------- ---------- ---------- ----------
Total fixed maturities held to maturity $ 410,558 $ 11,287 $ -- $ 421,845
========== ========== ========== ==========
Equity securities available for sale $ 2,951 $ 168 $ 272 $ 2,847
========== ========== ========== ==========
B17
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The amortized cost and estimated fair value of fixed maturities, categorized by
contractual maturities at December 31, 1999 are shown below:
Available for Sale Held to Maturity
--------------------------- ----------------------------
Amortized Estimated Fair Amortized Estimated Fair
Cost Value Cost Value
---------- -------------- ---------- --------------
(In Thousands) (In Thousands)
Due in one year or less $ 178,298 $ 175,638 $ 18,369 $ 18,296
Due after one year through five years 1,144,552 1,118,150 178,893 178,624
Due after five years through ten years 1,326,637 1,283,515 175,549 165,341
Due after ten years 433,012 419,347 16,179 15,561
Mortgage-backed securities 1,558 1,712 -- --
---------- ---------- ---------- ----------
Total $3,084,057 $2,998,362 $ 388,990 $ 377,822
========== ========== ========== ==========
Actual maturities will differ from contractual maturities because, in certain
circumstances, issuers have the right to call or prepay obligations.
Proceeds from the sale of fixed maturities available for sale during 1999, 1998,
and 1997 were $2,950.4 million, $5,327.3 million, and $2,796.3 million,
respectively. Gross gains of $13.1 million, $46.3 million, and $18.6 million and
gross losses of $31.1 million, $14.1 million, and $7.9 million were realized on
those sales during 1999, 1998, and 1997, respectively. During the years ended
December 31, 1999, 1998, and 1997, there were no securities classified as held
to maturity that were sold.
Proceeds from the maturity of fixed maturities available for sale during 1999,
1998, and 1997 were $126.5 million, $102.1 million, and $32.4 million,
respectively.
Writedowns for impairments of fixed maturities which were deemed to be other
than temporary were $11.2 million, $2.8 million and $0.1 million for the years
1999, 1998 and 1997, respectively.
Mortgage Loans on Real Estate
The Company's mortgage loans were collateralized by the following property types
at December 31, 1999 and 1998.
1999 1998
----------------- -----------------
(In Thousands)
Retail stores $ 6,518 62.0% $ 7,356 42.4%
Apartment complexes -- -- 5,988 34.5%
Industrial buildings 3,991 38.0% 4,010 23.1%
----------------- -----------------
Net carrying value $10,509 100.0% $17,354 100.0%
================= =================
The largest concentration of mortgage loans are in the states of Washington
(51%), New Jersey (38%), and North Dakota (11%).
Special Deposits and Restricted Assets
Fixed maturities of $8.2 million and $8.6 million at December 31, 1999 and 1998,
respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws. Equity securities restricted as to sale were
$.3 million and $2.5 million at December 31, 1999 and 1998, respectively.
B18
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
Other Long-Term Investments
The Company's "Other long-term investments" of $77.8 million and $42.0 million
as of December 31, 1999 and 1998, respectively, are comprised of joint ventures,
limited partnerships, and the Company's investment in the Separate Accounts.
Joint ventures, limited partnerships and other totaled $32.8 million and $1.0
million at December 31, 1999 and 1998, respectively. The Company's share of net
income from the joint ventures was $0.3 million, $0.1 million and $2.2 million
for the years ended December 31, 1999, 1998 and 1997, respectively, and is
reported in "Net investment income." The Company's investment in the Separate
Accounts was $45.0 million and $41.0 million at December 31, 1999 and 1998,
respectively.
Investment Income and Investment Gains and Losses
Net investment income arose from the following sources for the years ended
December 31:
1999 1998 1997
--------- --------- ---------
(In Thousands)
Fixed maturities - available for sale $ 188,236 $ 179,184 $ 161,140
Fixed maturities - held to maturity 29,245 26,128 26,936
Equity securities - 14 76
Mortgage loans on real estate 2,825 1,818 2,585
Policy loans 42,422 40,928 37,398
Short-term investments 19,208 23,110 22,011
Other 4,432 6,886 14,920
--------- --------- ---------
Gross investment income 286,368 278,068 265,066
Less: investment expenses (9,547) (16,638) (5,432)
--------- --------- ---------
Net investment income $ 276,821 $ 261,430 $ 259,634
========= ========= =========
Realized investment gains (losses), net including charges for other than
temporary reductions in value, for the years ended December 31, were from the
following sources:
1999 1998 1997
-------- -------- --------
(In Thousands)
Fixed maturities - available for sale $(29,192) $ 29,330 $ 9,039
Fixed maturities - held to maturity 102 487 821
Equity securities 392 3,489 8
Mortgage loans on real estate -- -- 797
Derivative instruments (1,557) 12,414 -
Other (2,290) (879) 309
-------- -------- --------
Realized investment (losses) gains, net $(32,545) $ 44,841 $ 10,974
======== ======== ========
B19
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Net Unrealized Investment Gains (Losses)
Net unrealized investment gains (losses) on securities available for sale are
included in the Consolidated Statements of Financial Position as a component of
"Accumulated other comprehensive income". Changes in these amounts include
reclassification adjustments to avoid including in "Other Comprehensive income
(loss)", those items that are included as part of "Net income" for a period that
also had been part of "Other Comprehensive income (loss)" in earlier periods.
The amounts for the years ended December 31, net of tax, are as follows:
Accumulated
other
comprehensive
income (loss)
Deferred Deferred related to net
Unrealized policy Policyholders' income tax unrealized
gains (losses) acquisition Account (liability) investment
on investments costs Balances benefit gains(losses)
-------------- ----------- --------------------------------------------
(In Thousands)
Balance, January 1, 1997 $ 26,930 $ (7,893) $ 2,451 $ (7,384) $ 14,104
Net investment gains (losses) on
investments arising during the period 21,338 -- -- (7,445) 13,893
Reclassifications adjustment for
gains included in net income (10,277) -- -- 3,585 (6,692)
Impact of net unrealized investment
gains on deferred policy acquisition costs -- (8,412) -- 2,944 (5,468)
Impact of net unrealized investment
gains on policyholders' account balances -- -- 1,292 -- 1,292
-------------- ----------- -------------- --------- -------------
Balance, December 31, 1997 37,991 (16,305) 3,743 (8,300) 17,129
Net investment gains (losses) on
investments arising during the period 22,801 -- -- (7,588) 15,213
Reclassifications adjustment for
gains included in net income (35,623) -- -- 11,855 (23,768)
Impact of net unrealized investment
gains on deferred policy acquisition costs -- 3,190 -- (1,048) 2,142
Impact of net unrealized investment
gains on policyholders' account balances -- -- (1,063) 249 (814)
-------------- ----------- -------------- --------- -------------
Balance, December 31, 1998 25,169 (13,115) 2,680 (4,832) 9,902
Net investment gains (losses) on
investments arising during the period (138,268) -- -- 47,785 (90,483)
Reclassifications adjustment for
gains included in net income 28,698 -- -- (9,970) 18,728
Impact of net unrealized investment
gains on deferred policy acquisition costs -- 53,407 -- (16,283) 37,124
Impact of net unrealized investment
gains on policyholders' account balances -- -- (5,712) 2,077 (3,635)
-------------- ----------- -------------- --------- -------------
Balance, December 31, 1999 $ (84,401) $ 40,292 $ (3,032) $ 18,777 $ (28,364)
============== =========== ============== ========= =============
B20
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
4. DEFERRED POLICY ACQUISITION COSTS
The balances of and changes in deferred policy acquisition costs for the year
ended December 31, 1999, are as follows:
1999
-------------
(In Thousands)
Balance, beginning of year $ 861,713
Capitalization on commissions, sales and issue expenses 242,373
Amortization (96,451)
Change in unrealized investment gains 53,407
Foreign currency translation 1,743
-------------
Balance, end of year $ 1,062,785
=============
5. POLICYHOLDERS' LIABILITIES
Future policy benefits and other policyholder liabilities at December 31 are as
follows:
1999 1998
---------- ----------
(In Thousands)
Life insurance $ 587,162 $ 500,429
Annuities 48,816 28,350
---------- ----------
$ 635,978 $ 528,779
========== ==========
Life insurance liabilities include reserves for death benefits. Annuity
liabilities include reserves for immediate annuities.
The following table highlights the key assumptions generally utilized in
calculating these reserves:
Product Mortality Interest Rate Estimation Method
- ------------------------------- ------------------------- -------------------- -------------------------
Life insurance - Domestic Generally rates 2.5% to 7.5% Net level premium based
guaranteed in on non-forfeiture
calculating cash interest rate
surrender values
Life insurance - International Generally rates 2.5% to 7.5% Net level premium based
guaranteed in on the expected
calculating cash investment return
surrender values
Individual immediate annuities 1983 Individual Annuity 3.5% to 11.0% Present value of
Mortality Table with expected future payment
certain modifications based on historical
experience
B21
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
5. POLICYHOLDERS' LIABILITIES (continued)
Policyholders' account balances at December 31, are as follows:
1999 1998
------------- -------------
(In Thousands)
Interest-sensitive life contracts $ 1,383,795 $ 1,392,649
Individual annuities 1,147,722 1,077,996
Guaranteed investment contracts 584,744 231,366
------------- -------------
$ 3,116,261 $ 2,702,011
============= =============
Policyholders' account balances for interest-sensitive life, individual
annuities, and guaranteed investment contracts are equal to policy account
values plus unearned premiums. The policy account values represent an
accumulation of gross premium payments plus credited interest less withdrawals,
expenses and mortality charges.
Certain contract provisions that determine the policyholder account balances are
as follows:
Product Interest Rate Withdrawal / Surrender Charges
- --------------------------------- ------------------------------------ ------------------------------------
Interest sensitive life contracts 4.0% to 6.5% Various up to 10 years
Individual annuities 3.0% to 5.6% 0% to 8% for up to 8 years
Guaranteed investment contracts 5.02% to 7.32% Subject to market value withdrawal
provisions for any funds withdrawn
other than for benefit responsive
and contractual payments
6. REINSURANCE
The Company participates in reinsurance, with Prudential and other companies, in
order to provide greater diversification of business, provide additional
capacity for future growth and limit the maximum net loss potential arising from
large risks. Reinsurance ceded arrangements do not discharge the Company or the
insurance subsidiaries as the primary insurer, except for cases involving a
novation. Ceded balances would represent a liability of the Company in the event
the reinsurers were unable to meet their obligations to the Company under the
terms of the reinsurance agreements. The likelihood of a material reinsurance
liability reassumed by the Company is considered to be remote.
B22
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
6. REINSURANCE (continued)
Reinsurance amounts included in the Consolidated Statements of Operations for
the year ended December 31 are below.
1999 1998 1997
------- ------- --------
(In Thousands)
Reinsurance premiums assumed 1,778 1,395 1,369
Reinsurance premiums ceded - affiliated (6,882) (6,532) (686)
Reinsurance premiums ceded - unaffiliated (1,744) (2,819) (3,038)
======= ======= =======
Policyholders' benefits ceded $ 4,228 $ 4,044 $ 3,912
======= ======= =======
Reinsurance recoverables, included in "Other assets" in the Company's
Consolidated Statements of Financial Position, at December 31 include amounts
recoverable on unpaid and paid losses and were as follows:
1999 1998
------- -------
(In Thousands)
Life insurance - affiliated $ 6,653 $ 4,155
Life insurance - unaffiliated 2,625 2,326
Other reinsurance - affiliated 15,600 21,650
------- -------
$24,878 $28,131
======= =======
7. EMPLOYEE BENEFIT PLANS
Pension and Other Postretirement Plans
The Company has a non-contributory defined benefit pension plan which covers
substantially all of its Taiwanese employees. This plan was established as of
September 30, 1998 and the projected benefit obligation and related expenses at
December 31, 1999 were not material to the Consolidated Statements of Financial
Position or results of operations for the years presented. All other employee
benefit costs are allocated to the Company by Prudential in accordance with the
service agreement described in Footnote 14.
B23
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. INCOME TAXES
The components of income taxes for the years ended December 31, are as follows:
1999 1998 1997
-------- -------- --------
(In Thousands)
Current tax expense (benefit):
U.S. $(14,093) $ 67,272 $ 71,989
State and local 378 2,496 1,337
Foreign 15 -- --
-------- -------- --------
Total (13,700) 69,768 73,326
-------- -------- --------
Deferred tax expense (benefit):
U.S 42,320 14,059 (11,458)
State and local 1,316 406 --
-------- -------- --------
Total 43,636 14,465 (11,458)
-------- -------- --------
Total income tax expense $ 29,936 $ 84,233 $ 61,868
======== ======== ========
The income tax expense for the years ended December 31, differs from the amount
computed by applying the expected federal income tax rate of 35% to income from
operations before income taxes for the following reasons:
1999 1998 1997
-------- -------- --------
(In Thousands)
Expected federal income tax expense $ 29,936 $ 82,668 $ 58,885
State and local income taxes 1,101 1,886 869
Dividends received deduction (1,010) (199) --
Other (91) (122) 2,114
-------- -------- --------
Total income tax expense $ 29,936 $ 84,233 $ 61,868
======== ======== ========
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
1999 1998
--------- ---------
(In Thousands)
Deferred tax assets
Insurance reserves $ 93,949 $ 93,564
Net unrealized (gains) losses on securities 31,132 (9,061)
Other 2,502 --
--------- ---------
Deferred tax assets 127,583 84,503
--------- ---------
Deferred tax liabilities
Deferred acquisition costs 299,683 224,179
Net investment gains 110 3,180
Other -- 5,978
--------- ---------
Deferred tax liabilities 299,793 233,337
--------- ---------
Net deferred tax liability $ 172,210 $ 148,834
========= =========
B24
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. INCOME TAXES (continued)
Management believes that based on its historical pattern of taxable income, the
Company and its subsidiaries will produce sufficient income in the future to
realize its deferred tax assets after valuation allowance. Adjustments to the
valuation allowance will be made if there is a change in management's assessment
of the amount of the deferred tax asset that is realizable. At December 31, 1999
and 1998, respectively, the Company and its subsidiaries had no federal or state
operating loss carryforwards for tax purposes.
The Internal Revenue Service (the "Service") has completed all examinations of
the consolidated federal income tax returns through 1992. The Service has begun
their examination of the years 1993 through 1995.
9. EQUITY
Reconciliation of Statutory Surplus and Net Income
Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following table
reconciles the Company's statutory net income and surplus as of and for the
years ended December 31, determined in accordance with accounting practices
prescribed or permitted by the Arizona Department of Insurance and the New
Jersey Department of Banking and Insurance with net income and equity determined
using GAAP.
1999 1998 1997
--------- --------- ---------
(In Thousands)
Statutory net (loss) income $ (82,291) $ (33,097) $ 12,778
Adjustments to reconcile to net income on a GAAP basis:
Statutory income of subsidiaries 20,221 18,953 18,553
Amortization and capitalization of deferred 145,921 202,375 38,003
acquisition costs
Deferred premium 639 2,625 1,144
Insurance revenue and expenses 45,915 (24,942) 26,517
Income taxes (43,644) (21,805) 11,956
Valuation of investments (24,908) 20,077 506
Asset management fees (13,503) -- --
Other, net 7,245 (12,224) (3,083)
--------- --------- ---------
GAAP net income $ 55,595 $ 151,962 $ 106,374
========= ========= =========
1999 1998
----------- -----------
(In Thousands)
Statutory surplus $ 889,186 $ 931,164
Adjustments to reconcile to equity on a GAAP basis:
Valuation of investments (38,258) 117,254
Deferred acquisition costs 1,062,785 861,713
Deferred premium (16,539) (15,625)
Insurance liabilities (54,927) (133,811)
Income taxes (150,957) (123,343)
Asset management fees (13,503) --
Other, net (7,968) 15,880
----------- -----------
GAAP stockholder's equity $ 1,669,819 $ 1,653,232
=========== ===========
B25
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values presented below have been determined using available
information and valuation methodologies. Considerable judgment is applied in
interpreting data to develop the estimates of fair value. Accordingly, such
estimates presented may not be realized in a current market exchange. The use of
different market assumptions and/or estimation methodologies could have a
material effect on the estimated fair values. The following methods and
assumptions were used in calculating the estimated fair values (for all other
financial instruments presented in the table, the carrying value approximates
estimated fair value).
Fixed maturities and Equity securities
Estimated fair values for fixed maturities and equity securities, other than
private placement securities, are based on quoted market prices or estimates
from independent pricing services. Fair values for private placement securities
are estimated using a discounted cash flow model which considers the current
market spreads between the U.S. Treasury yield curve and corporate bond yield
curve, adjusted for the type of issue, its current credit quality and its
remaining average life. The estimated fair value of certain non-performing
private placement securities is based on amounts estimated by management.
Mortgage loans on real estate
The estimated fair value of the mortgage loan portfolio is primarily based upon
the present value of the scheduled future cash flows discounted at the
appropriate U.S. Treasury rate, adjusted for the current market spread for a
similar quality mortgage.
Policy loans
The estimated fair value of policy loans is calculated using a discounted cash
flow model based upon current U.S. Treasury rates and historical loan
repayments.
Investment contracts
For guaranteed investment contracts, estimated fair values are derived by using
discounted projected cash flows based on interest rates being offered for
similar contracts, with maturities consistent with those remaining for the
contracts being valued. Estimated fair values for individual deferred annuities
are derived using the policyholder's account balance.
Derivative financial instruments
The fair value of futures is estimated based on market quotes for transactions
with similar terms.
The following table discloses the carrying amounts and estimated fair values of
the Company's financial instruments at December 31:
1999 1998
---------------------------- ---------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
------------ ------------ ------------ ------------
(In Thousands)
Financial Assets:
Fixed maturities: Available for sale $ 2,998,362 $ 2,998,362 $ 2,763,926 $ 2,763,926
Fixed maturities: Held to maturity 388,990 377,822 410,558 421,845
Equity securities 4,532 4,532 2,847 2,847
Mortgage loans on real estate 10,509 11,550 17,354 19,465
Policy loans 792,352 761,232 766,917 806,099
Short-term investments 207,219 207,219 240,727 240,727
Cash 76,396 76,396 89,679 89,679
Separate Account assets 16,032,449 16,032,449 11,490,751 11,490,751
Derivatives 38 38 -- --
Financial Liabilities:
Investment contracts $ 1,282,964 $ 1,277,317 $ 835,034 $ 839,105
Cash collateral for loaned securities 87,336 87,336 73,336 73,336
Securities sold under repurchase agreements 21,151 21,151 49,708 49,708
Separate Account liabilities 16,032,449 16,032,449 11,490,751 11,490,751
Derivatives 5,012 5,243 1,723 2,374
B26
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
11. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
Futures & Options
The Company uses exchange-traded Treasury futures and options to reduce market
risk from changes in interest rates and to manage the duration of assets and the
duration of liabilities supported by those assets. The Company enters into
exchange-traded futures and options with regulated futures commissions merchants
who are members of a trading exchange. The fair value of futures and options is
estimated based on market quotes for a transaction with similar terms.
Under exchange-traded futures, the Company agrees to purchase a specified number
of contracts with other parties and to post variation margin on a daily basis in
an amount equal to the difference in the daily market values of those contracts.
Treasury futures move substantially in value as interest rates change and can be
used to either modify or hedge existing interest rate risk. This strategy
protects against the risk that cash flow requirements may necessitate
liquidation of investments at unfavorable prices resulting from increases in
interest rates. This strategy can be a more cost effective way of temporarily
reducing the Company's exposure to a market decline than selling fixed income
securities and purchasing a similar portfolio when such a decline is believed to
be over.
If futures meet hedge accounting criteria, changes in their fair value are
deferred and recognized as an adjustment to the carrying value of the hedged
item. Deferred gains or losses from the hedges for interest-bearing financial
instruments are amortized as a yield adjustment over the remaining lives of the
hedged item. Futures that do not qualify as hedges are carried at fair value
with changes in value reported in current period earnings. The notional value of
futures contracts was $122.1 million and $40.8 million at December 31, 1999 and
1998, respectively. The fair value of futures contracts was $(2.0) million at
December 31, 1999 and immaterial at December 31, 1998.
When the Company anticipates a significant decline in the stock market which
will correspondingly affect its diversified portfolio, it may purchase put index
options where the basket of securities in the index is appropriate to provide a
hedge against a decrease in the value of the equity portfolio or a portion
thereof. This strategy effects an orderly sale of hedged securities. When the
Company has large cash flows which it has allocated for investment in equity
securities, it may purchase call index options as a temporary hedge against an
increase in the price of the securities it intends to purchase. This hedge
permits such investment transactions to be executed with the least possible
adverse market impact.
Option premium paid or received is reported as an asset or liability and
amortized into income over the life of the option. If options meet the criteria
for hedge accounting, changes in their fair value are deferred and recognized as
an adjustment to the hedged item. Deferred gains or losses from the hedges for
interest-bearing financial instruments are recognized as an adjustment to
interest income or expense of the hedged item. If the options do not meet the
criteria for hedge accounting, they are fair valued, with changes in fair value
reported in current period earnings. The fair value of options was immaterial at
December 31, 1999 and 1998.
Currency Derivatives
The Company uses currency swaps to reduce market risk from changes in currency
values of investments denominated in foreign currencies that the Company either
holds or intends to acquire and to manage the currency exposures arising from
mismatches between such foreign currencies and the US Dollar.
Under currency swaps, the Company agrees with other parties to exchange, at
specified intervals, the difference between one currency and another at a
forward exchange rate and calculated by reference to an agreed principal amount.
Generally, the principal amount of each currency is exchanged at the beginning
and termination of the currency swap by each party. These transactions are
entered into pursuant to master agreements that provide for a single net payment
to be made by one counterparty for payments made in the same currency at each
due date.
If currency swaps are effective as hedges of foreign currency translation and
transaction exposures, gains or losses are recorded in "Accumulated Other
Comprehensive Income". If currency swaps do not meet hedge accounting criteria,
gains or losses from those derivatives are recognized in current period
earnings.
The notional value and fair value of the currency swaps $31.0 million and $(3.2)
million and $40.5 million and $(2.3) million, respectively, at December 31, 1999
and 1998.
B27
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
11. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (continued)
Credit Risk
The current credit exposure of the Company's derivative contracts is limited to
the fair value at the reporting date. Credit risk is managed by entering into
transactions with creditworthy counterparties and obtaining collateral where
appropriate and customary. The Company also attempts to minimize its exposure to
credit risk through the use of various credit monitoring techniques. All of the
net credit exposure for the Company from derivative contracts are with
investment grade counterparties. As of December 31, 1999, 80% of notional
consisted of interest rate derivatives, and 20% of notional consisted of foreign
currency derivatives.
12. CONTINGENCIES
Various lawsuits against the Company have arisen in the course of the Company's
business. In certain of these matters, large and/or indeterminate amounts are
sought.
On October 28, 1996, the Company entered into a Stipulation of Settlement with
attorneys for the plaintiffs in a consolidated class action lawsuit pending in a
Multi-District Litigation proceeding in the U.S. District Court for the District
of New Jersey. The class action suit involved alleged improprieties in
connection with the sale, servicing and operation of permanent life insurance
policies from 1982 through 1995. Pursuant to the settlement, the Company has
participated in a remediation program pursuant to which relief was offered to
policyowners who were misled when they purchased permanent life insurance
policies in the United States from 1982 to 1995. Prudential has agreed to
indemnify the Company for any liability incurred in connection with that
litigation.
The balance of the Company's litigation is subject to many uncertainties, and
given the complexity and scope, the outcomes cannot be predicted with precision.
Management believes that any ultimate liability which could result from such
litigation would not have a material adverse effect on the Company's financial
position.
13. DIVIDENDS
The Company is subject to Arizona law which limits the amount of dividends that
insurance companies can pay to stockholders. The maximum dividend which may be
paid in any twelve month period without notification or approval is limited to
the lesser of 10% of statutory surplus as of December 31 of the preceding year
or the net gain from operations of the preceding calendar year. Cash dividends
may only be paid out of surplus derived from realized net profits. Based on
these limitations and the Company's surplus position at December 31, 1999, the
Company would not be permitted a non-extraordinary dividend distribution in
2000.
14. RELATED PARTY TRANSACTIONS
Service Agreements
Prudential and the Company operate under service and lease agreements whereby
services of officers and employees (except for those agents employed directly by
the Company in Taiwan), supplies, use of equipment and office space are provided
by Prudential. Prudential periodically reviews its methods for determining the
level of administrative expenses charged to the Company. Late in 1998,
Prudential revised its allocation methodology to more closely align allocations
based on business processes, resulting in increased allocations from 1998
levels. Management believes that the updated methodology is reasonable and
better reflects actual costs incurred by Prudential to process transactions on
behalf of the Company. The net cost of these services allocated to the Company
were $317.4 million, $269.9 million and $139.5 million for the years ended
December 31, 1999, 1998, and 1997, respectively.
In addition, the Company received allocated distribution expenses from
Prudential's retail agency network. Beginning in 1999, market based distribution
transfer pricing was the basis for allocating costs to each product line that
distributes products through Prudential's retail agency channels. A majority of
these distribution expenses have been capitalized by the Company as deferred
policy acquisition costs ("DAC").
The Company receives asset management fee income from policyholder account
balances invested in the Prudential Series Fund ("PSF"). These amounts are shown
as asset management fees on the statement of operations. The Company also
collects these fees on behalf of Prudential. The amounts due to Prudential
related to PSF fees were $0.1 million and $22.6 million at December 31, 1999 and
December 31, 1998, respectively.
B28
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
14. RELATED PARTY TRANSACTIONS (continued)
The Company pays an asset management fee to Prudential Global Asset Management
("PGAM") for managing the Separate Account investment portfolio. The expense for
the year was $25.9 million, which is shown in general, administrative and other
expenses.
The Company has sold three Corporate Owned Life Insurance ("COLI") policies to
Prudential. The cash surrender value included in Separate Accounts was $725.3
million and $362.3 million at December 31, 1999, and 1998, respectively. The
fees received in 1999 related to the COLI policies were $4.0 million.
Reinsurance
The Company currently has three reinsurance agreements in place with Prudential
(the reinsurer). Specifically a reinsurance Group Annuity Contract, whereby the
reinsurer, in consideration for a single premium payment by the Company,
provides reinsurance equal to 100% of all payments due under the contract, and
two yearly renewable term agreements in which the Company may offer and the
reinsurer may accept reinsurance on any life in excess of the Company's maximum
limit of retention. The Company is not relieved of its primary obligation to the
policyholder as a result of these reinsurance transactions. These agreements had
no material effect on net income for the years ended December 31, 1999, 1998,
and 1997.
Debt Agreements
In July 1998, the Company established a revolving line of credit facility of up
to $500 million with Prudential Funding Corporation, a wholly owned subsidiary
of Prudential. There is no outstanding debt relating to this credit facility as
of December 31, 1999.
B29
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Board of Directors and Stockholder of
Pruco Life Insurance Company
In our opinion, the accompanying consolidated statements of financial
position and the related consolidated statements of operations, of changes in
stockholder's equity and of cash flows present fairly, in all material
respects, the financial position of Pruco Life Insurance Company (a
wholly-owned subsidiary of the Prudential Insurance Company of America) and
its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 21, 2000
B30
PruLife Custom Premier
Variable Universal Life
Insurance
PruLife Custom Premier Variable Universal Life is issued by Pruco Life Insurance
Company, 213 Washington Street, Newark, NJ 07102-2992 and offered through Pruco
Securities Corporation, 751 Broad Street, Newark, NJ 07102-3777, both
subsidiaries of The Prudential Insurance Company of America, 751 Broad Street,
Newark, NJ 07102-3777.
[LOGO OF PRUDENTIAL]
Pruco Life Insurance Company
213 Washington Street, Newark, NJ 07102-2992
Telephone 800 778-2255
VUL-2 ED. 2/01
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 ("Pruco Life") represents that the fees and charges
deducted under the Variable Universal Life Insurance Contracts registered by
this registration statement, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by Pruco Life.
UNDERTAKING WITH RESPECT TO INDEMNIFICATION
The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.
Arizona, being the state of organization of Pruco Life, permits entities
organized under its jurisdiction to indemnify directors and officers with
certain limitations. The relevant provisions of Arizona law permitting
indemnification can be found in Section 10-850 et seq. of the Arizona Statutes
Annotated. The text of Pruco Life's By-law, Article VIII, which relates to
indemnification of officers and directors, is incorporated by reference to
Exhibit 3(ii) to its Form 10-Q, SEC File No. 33-37587, filed August 15,
1997.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-1
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 124 pages.
The undertaking to file reports.
The representation with respect to charges.
The undertaking with respect to indemnification.
The signatures.
Written consents of the following persons:
Clifford E. Kirsch, Esq.
Nancy D. Davis, FSA, MAAA
PricewaterhouseCoopers, LLC
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 6)
(b) Amendment of Separate Account Resolution. (Note 9)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities Corporation
and Pruco Life Insurance Company. (Note 6)
(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the Sale
of the Contracts. (Note 6)
(c) Schedule of Sales Commissions. (Note 11)
(4) Not Applicable.
(5) Variable Universal Life Insurance Contract. (Note 11)
(6) (a) Articles of Incorporation of Pruco Life Insurance Company,
as amended October 19, 1993. (Note 5)
(b) By-laws of Pruco Life Insurance Company, as amended May 6,
1997. (Note 7)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form for Variable Universal Life Insurance
Contract. (Note 8)
(b) Supplement to the Application for Variable Universal Life
Insurance Contract. (No te 8)
(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 Insured's Accidental Death Benefit (Note 11)
(b) Rider for Insured's Total Disability Benefit (Note 11)
(c) Rider for Level Term Insurance Benefit on Dependent Children
(Note 11)
(d) Rider for Level Term Insurance Benefit on Dependent Children-
From Conversions (Note 11)
II-2
(e) Endorsement providing Type C Death Benefit Provisions (Note 11)
2. See Exhibit 1.A.(5).
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of the
securities being registered. (Note 1)
4. None.
5. Not Applicable.
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as to actuarial matters
pertaining to the securities being registered. (Note 1)
7. Powers of Attorney.
(a) Ira J. Kleinman, Esther H. Milnes, I. Edward Price (Note 2)
(b) Kiyofumi Sakaguchi (Note 4)
(c) James J. Avery, Jr. (Note 3)
(d) David R. Odenath, Jr., William J. Eckert, IV, Ronald P. Joelson (Note
10)
(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. 8 to Form S-6, Registration No.
33-49994, filed April 28, 1997 on behalf of
the Pruco Life PRUvider Variable Appreciable
Account.
(Note 5) 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 6) 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 7) Incorporated by reference to Form 10-Q,
Registration No. 33-37587, filed August 15,
1997 on behalf of the Pruco Life Insurance
Company.
(Note 8) 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 9) Incorporated by reference to Form S-6,
Registration No. 333-94117, filed on January
5, 2000 on behalf of the Pruco Life Variable
Universal Account.
(Note 10) Incorporated by reference to Form N-4,
Registration No. 333-52754, filed on December
26, 2000 on behalf of the Pruco Life Flexible
Premium Variable Annuity Account.
(Note 11) Incorporated by reference to Registrant's Form
S-6, filed on November 3, 2000.
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 Pre-Effective
Amendment No. 1 to the 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 2nd day
of February, 2001.
(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 Pre-Effective
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 2nd day of February, 2001.
Signature and Title
-------------------
/s/ *
- -------------------------------------------
Esther H. Milnes
President and Director
/s/ *
- -------------------------------------------
William J. Eckert, IV
Vice President and Chief Accounting Officer *By: /s/ Thomas C. Castano
---------------------
Thomas C. Castano
(Attorney-in-Fact)
/s/ *
- -------------------------------------------
James J. Avery, Jr.
Director
/s/ *
- -------------------------------------------
Ronald P. Joelson
Director
/s/ *
- ------------------------------------------
Ira J. Kleinman
Director
/s/ *
- -------------------------------------------
David R. Odenath, Jr.
Director
/s/ *
- -------------------------------------------
I. Edward Price
Director
/s/ *
- -------------------------------------------
Kiyofumi Sakaguchi
Director
II-4
EXHIBIT INDEX
Consent of PricewaterhouseCoopers LLP, independent accountants. Page II-5
1.A. (12). Memorandum describing Pruco Life Insurance Company's issuance, transfer, and redemption Page II-7
procedures for the Contracts pursuant to Rule 6e-3(T)(b)(12)(iii).
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of the securities Page II-15
being registered.
6. Opinion and Consent of Nancy D. Davis, MAAA, FSA, as to actuarial matters pertaining to Page II-16
the securities being registered