As filed with the SEC on ____________________. Registration No. 33-37587
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM S-1
Post-Effective Amendment No. 5
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
PRUCO LIFE INSURANCE COMPANY
(Exact Name of Registrant)
Arizona
(State or other jurisdiction of incorporation or organization)
6311
(Primary Standard Industrial Classification Code Number)
22-194455
(I.R.S. Employer Identification Number)
c/o PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
(800) 445-4571
(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
(800)445-4571
(Name, address, and telephone number of agent for service)
Copy to:
Jeffrey C. Martin
Shea & Gardner
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
------------------
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<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
(as required by Form S-1)
S-1 Item Number and Caption Location
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<S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus ................................... Cover
2. Inside Front and Outside Back Cover Pages of Prospectus .......... Inside Front Cover
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges ........................................ Cover; Charges, Fees, and Deductions
4. Use of Proceeds .................................................. Investments by Pruco Life
5. Determination of Offering Price .................................. Not applicable
6. Dilution ......................................................... Not applicable
7. Selling Security Holders ......................................... Not applicable
8. Plan of Distribution ............................................. Sale of the Contract and Sales Commissions
9. Description of Securities to be Registered ....................... Cover; Pruco Life Insurance Company; Charges, Fees,
and Deductions
10. Interests of Named Experts and Counsel ........................... Not applicable
11. Information with Respect to the Registrant ....................... The Company; Selected Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Litigation; Financial
Statements; State Regulation; Federal Tax Status;
Directors and Officers; Executive Compensation
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities ................................... Not applicable
</TABLE>
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
PROSPECTUS
May 1, 1995
PRUCO LIFE INSURANCE COMPANY
FUTURE VALUE ANNUITY(SM)
Individual Deferred
Annuity Contracts
This prospectus describes the Future Value Annuity(SM) Contract* (the
"Contract"), an individual deferred annuity contract offered by Pruco Life
Insurance Company ("Pruco Life"), a stock life insurance company that is a
wholly-owned subsidiary of The Prudential Insurance Company of America ("The
Prudential").
The Contract is purchased by making a single payment of at least $10,000.
Subsequent purchase payments are not permitted; however, more than one Contract
may be purchased by a Contract owner. These contracts are guaranteed only by
Pruco Life, and are not guaranteed by The Prudential. All of the assets of Pruco
Life will be available to meet Pruco Life's obligations under this annuity.
Contract owners will select among various initial interest rate periods offered
by Pruco Life. IF AMOUNTS ARE WITHDRAWN PRIOR TO THE EXPIRATION OF THE SELECTED
INTEREST RATE PERIOD, THE CONTRACT VALUE MAY BE SUBJECT TO A SUBSTANTIAL
WITHDRAWAL CHARGE AND/OR MARKET VALUE ADJUSTMENT, WHICH COULD RESULT IN RECEIPT
OF LESS THAN THE ORIGINAL PURCHASE PAYMENT. WITHDRAWALS MAY BE SUBJECT TO TAX
AND, UNDER CERTAIN CIRCUMSTANCES, A TAX PENALTY EQUAL TO 10% OF THAT PORTION OF
THE AMOUNT WITHDRAWN WHICH IS INCLUDIBLE IN INCOME.
UPON A SUBSEQUENT GUARANTEED PERIOD, A NEW GUARANTEED INTEREST RATE WILL BE
DECLARED BY PRUCO LIFE IN ITS DISCRETION. IT MAY BE HIGHER OR LOWER THAN THE
PREVIOUS GUARANTEED INTEREST RATE.
-------------------------
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 445-4571
*Future Value Annuity is a service mark of The Prudential.
MVA-1 Ed 5-95
Catalog #646676L
<PAGE>
PROSPECTUS CONTENTS
Page
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS........................ 1
BRIEF DESCRIPTION OF THE CONTRACT........................................... 2
DETAILED INFORMATION ABOUT THE CONTRACT..................................... 3
Requirements for Issuance of the Contract................................. 3
Short-Term Cancellation Right or "Free Look".............................. 3
Investments by Pruco Life................................................. 3
Interest Rate Periods..................................................... 3
Guaranteed Interest Rates................................................. 3
Withdrawals............................................................... 3
Death Benefit............................................................. 4
CHARGES, FEES, AND DEDUCTIONS............................................... 4
1. Premium Taxes.......................................................... 4
2. Withdrawal Charge...................................................... 4
3. Administrative Charge.................................................. 5
4. Market Value Adjustment................................................ 5
FEDERAL TAX STATUS.......................................................... 6
Taxes Payable by Contract Owners Upon Withdrawals For Non-Qualified
Contracts .............................................................. 6
Taxes Payable Upon Receipt of Annuity Payments For Non-Qualified
Contracts .............................................................. 6
Withholding............................................................... 7
Contracts Used in Connection with Tax Favored Plans....................... 7
ERISA Disclosure.......................................................... 7
Taxes on Pruco Life....................................................... 8
EFFECTING AN ANNUITY........................................................ 8
1. Installments for a Fixed Period........................................ 8
2. Life Annuity with 120 Payments Certain................................. 8
Page
3. Interest Payment Option................................................ 8
4. Minimum Distribution Option............................................ 8
Legal Considerations Relating to Sex-Distinct Annuity Purchase Rates...... 8
THE COMPANY................................................................. 9
Pruco Life Insurance Company.............................................. 9
SELECTED FINANCIAL DATA..................................................... 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ............................................................ 10
OTHER INFORMATION........................................................... 13
Required Distributions on Death of Owner.................................. 13
Sale of the Contract and Sales Commissions................................ 13
Ownership of the Contract................................................. 13
State Regulation.......................................................... 13
Experts .................................................................. 14
Litigation................................................................ 14
Additional Information.................................................... 14
Financial Statements...................................................... 14
DIRECTORS AND OFFICERS...................................................... 15
EXECUTIVE COMPENSATION...................................................... 16
MARKET VALUE ADJUSTMENT FORMULA............................................. A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY AND
SUBSIDIARIES.............................................................. B1
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
The Registrant is required by the Securities Exchange Act of 1934 to file
reports and provide other information to the Securities and Exchange Commission.
All reports and information filed by the Registrant can be inspected and copied
at the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at certain of its regional offices: 500 West Madison
Street, Suite 1400, Chicago, IL 60661-2511; 75 Park Place, New York, NY 10007.
Copies of the Registrant's filings can be obtained from the Public Reference
Section of the Commission at prescribed rates.
REPORTS TO CONTRACT OWNERS
Once each Contract year, Contract owners will be sent an annual statement that
provides certain information pertinent to their own Contract. These statements
detail values and transactions made and specific Contract data that apply only
to each particular Contract. On request, a Contract owner will be sent a current
statement in a form similar to that of the annual statement but Pruco Life may
limit the number of such requests or impose a reasonable charge if such requests
are made too frequently.
<PAGE>
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS
annuitant--The person or persons, designated by the Contract owner, upon whose
life or lives monthly annuity payments are based after an annuity is effected.
annuity contract--A contract designed to provide an annuitant with an income,
which may be a lifetime income, beginning on the annuity date.
annuity date--The date specified in the Contract when the annuity payments
begin.
cash value--The Contract fund after any Market Value Adjustment, minus any
withdrawal charge.
Contract anniversary--The same day and month as the Contract date in each later
year.
Contract date--The date Pruco Life received the purchase payment for the
Contract.
Contract fund--The amount of the invested purchase payment plus any interest
less any administrative charges and less any withdrawals.
Contract owner--The person who purchases a Future Value Annuity Contract and
makes the purchase payment. The owner will usually also be an annuitant, but
need not be. The owner has all rights in the Contract before the annuity date.
Contract year--A year that starts on the Contract date or on a Contract
anniversary.
Guaranteed Interest Rate--The effective annual interest rate credited during the
Interest Rate Period.
Interest Rate Period--The period for which the Guaranteed Interest Rate is
credited. The initial Interest Rate Period is selected by the Contract owner.
Each subsequent Interest Rate, generally of the same duration as the Initial
Interest Rate period, may also be selected by the Contract owner at the end of
the initial and each subsequent Interest Rate Period. A subsequent Interest Rate
Period resulting in an annuity date beyond 90 will not be permitted. If a
subsequent Interest Rate Period is not selected, a 1 year duration will
automatically apply.
Minimum Guaranteed Interest Rate--The effective annual interest rate (3%)
guaranteed to be credited during any Interest Rate Period.
1
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BRIEF DESCRIPTION OF THE CONTRACT
Pruco Life Insurance Company ("Pruco Life"), a subsidiary of The Prudential
Insurance Company of America ("The Prudential"), is offering the Future Value
Annuity Contract (the "Contract"), an individual deferred annuity contract. The
Contract may, but need not be, purchased in connection with tax favored plans.
This prospectus describes the Contract.
Pruco Life guarantees stipulated rates of interest for stated periods of time on
the Contract fund. The currently available initial Interest Rate Periods range
from 2 years to 10 years. The quoted interest rates will be expressed as an
effective annual yield. Interest is credited daily throughout the Interest Rate
Period at a rate that will provide the guaranteed annual effective yield over
the period of 1 year.
Subsequent Interest Rate Periods, generally of the same duration as the initial
Interest Rate Periods, may be selected at the end of the initial and each
subsequent Interest Rate Period. If a subsequent Interest Rate Period is not
selected and if the annuitant is not yet 89 years old, a 1 year duration will
automatically apply. Guaranteed Interest Rates will never be less than an annual
effective rate of 3%. (See Guaranteed Interest Rates, page 3.) However, each
subsequent Guaranteed Interest Rate may be higher or lower than the previous
Guaranteed Interest Rate. Pruco Life cannot predict future levels of Guaranteed
Interest Rates above the contractually guaranteed rate of 3% nor guarantee what
such rates will be until they are declared for each guaranteed term.
On the annuity date specified in the Contract, Pruco Life will begin to make a
series of monthly payments to the annuitant based on the annuity option or
options which the Contract owner has selected. (See EFFECTING AN ANNUITY, page
8.) However, if the Contract fund is not large enough to produce a monthly
payment of $50, the Contract owner will be paid the value of the Contract fund
in a single sum.
On any Contract subject to premium tax, the tax will be deducted, as provided
under applicable law, from the purchase payment when received, or from the
Contract fund at the time the annuity is effected. The deduction for taxes
imposed on purchase payments will be lower, or not made at all, if total
purchase payments meet certain minimum amounts. (See Premium Taxes, page 4.)
Subject to certain restrictions, partial and total withdrawals from the Contract
fund are permitted. Any such withdrawal may be subject to tax, and under certain
circumstances may be subject to a tax penalty equal to 10% of that portion of
the amount withdrawn which is includible in income. Moreover, withdrawals may be
subject to a withdrawal charge and/or a Market Value Adjustment. (See Withdrawal
Charge, page 4 and FEDERAL TAX STATUS, page 6.)
Except as described below, a withdrawal charge will be deducted from any partial
or full withdrawal made before the end of the initial Interest Rate Period. (See
Withdrawal Charge, page 4.) The withdrawal charge will vary depending upon the
Contract owner's initial Interest Rate Period and the Contract year of the
withdrawal. If otherwise applicable, the withdrawal charge will be applied to
withdrawals on the annuity date made to effect an annuity, unless the annuity
option effected is a lifetime annuity or a period certain annuity with a
duration of 10 years or more.
A full or partial withdrawal made other than at the end of an Interest Rate
Period may be subject to a Market Value Adjustment. The Market Value Adjustment
reflects the difference between the Guaranteed Interest Rate on the Contract and
the Guaranteed Interest Rate Pruco Life offers as of the date of the withdrawal
on similar contracts. (See MARKET VALUE ADJUSTMENT, page A1, for the mechanics
of this calculation.) If the Guaranteed Interest Rate Pruco Life is offering on
the date a request for withdrawal is made is higher than the Guaranteed Interest
Rate on the Contract, the Market Value Adjustment will decrease the cash value
of the Contract. If the Guaranteed Interest Rate Pruco Life is offering on the
date a request for withdrawal is made is lower than the Guaranteed Interest Rate
on the Contract, the Market Value Adjustment will increase the cash value of the
Contract. However, if the Guaranteed Interest Rate Pruco Life is offering on the
date a request for withdrawal is made is the same as the Guaranteed Interest
Rate on the Contract, the Market Value Adjustment will neither increase nor
decrease the cash value of the Contract. In any event, the maximum value of the
Market Value Adjustment, either positive or negative, is 40% of the Contract
fund.
During the 1-month period beginning at the end of each Interest Rate Period, any
withdrawals made will not be subject to a Market Value Adjustment and will not
be subject to a withdrawal charge.
The application of premium taxes, the Market Value Adjustment, and the
withdrawal charge may result in a cash value upon withdrawal that is less than
the amount initially invested.
An administrative charge of up to $30 will be deducted from the Contract fund on
any Contract anniversary, or upon a full withdrawal, when the value of the
Contract fund is less than $10,000. There is no administrative charge assessed
after annuitization.
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The Contract also provides for a death benefit. See Death Benefit, page 4.
DETAILED INFORMATION ABOUT THE CONTRACT
Requirements for Issuance of the Contract. The minimum purchase payment is
$10,000. The Contract may generally be issued on proposed annuitants below the
age of 89. Pruco Life currently will not accept purchase payments on or after
the annuitant's 89th birthday. Before issuing any Contract, Pruco Life requires
submission of certain information. Following Pruco Life's review of the
information and approval of issuance of the Contract, a Contract will be issued
that sets forth precisely the owner's rights and the Company's obligations.
Subsequent purchase payments are not permitted; however, additional Contracts
may be purchased by the Contract owner.
The Contract date will be the date the purchase payment and required information
are received in the Pruco Life Home Office. If the issuance of the Contract is
not approved, because the current underwriting requirements are not met, the
purchase payment will promptly be returned. The Company reserves the right to
change these requirements on a non-discriminatory basis.
Short-Term Cancellation Right or "Free Look". Generally, a Contract may be
returned for a refund within 10 days after it is received by the Contract owner.
Some states allow a longer period of time during which a Contract may be
returned for a refund. A refund can be requested by mailing or delivering the
Contract to the representative who sold it or to the Pruco Life Home Office
specified in the Contract. The Contract owner will then receive a refund of the
purchase payment.
Investments by Pruco Life. Assets of Pruco Life must be invested in accordance
with requirements established by applicable state laws regarding the nature and
quality of investments that may be made by life insurance companies and the
percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit investments, within specified limits
and subject to certain qualifications, in federal, state, and municipal
obligations, corporate bonds, preferred and common stocks, real estate
mortgages, real estate and certain other investments.
Contracts do not represent a unit ownership of assets belonging to this separate
account. Owners of 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
Pruco Life. All benefits attributable to the Contract are Contract guarantees
made by Pruco Life. All assets of Pruco Life will be available to meet the
guarantees under the Contract.
Interest Rate Periods. Upon application, the Contract owner will select the
duration of the initial Interest Rate Period. Pruco Life determines the
effective guaranteed, annual interest rate (initial "Guaranteed Interest Rate")
that the invested purchase payment will earn throughout the initial Interest
Rate Period.
Unless a full withdrawal has been made (See Withdrawal Charge, page 4), a
subsequent Interest Rate Period, generally of the same duration as the initial
Interest Rate Period, may be selected at the end of the initial and each
subsequent Interest Rate Period. A subsequent Interest Rate Period resulting in
an annuity date beyond age 90 will not be permitted. If a subsequent Interest
Rate Period is not selected, a 1 year duration will automatically apply. The
subsequent Guaranteed Interest Rate may be higher, lower or the same as the
previous Guaranteed Interest Rate; however, the Minimum Guaranteed Interest Rate
for any guaranteed period will be at least an effective annual rate of 3%.
Guaranteed Interest Rates. At the time the Contract is purchased, the Contract
owner will know his or her Guaranteed Interest Rate for the initial Interest
Rate Period. Subsequent Guaranteed Interest Rates, which will be applicable to
the subsequent Interest Rate Periods, will be determined periodically.
Interest will be added to the Contract fund daily at a rate that will provide
the guaranteed effective yield over the period of 1 year. Thus, for Interest
Rate Periods of 2 or more years, the Guaranteed Interest Rate will be compounded
annually.
Factors such as regulatory and tax requirements, general economic trends, Pruco
Life administrative expenses and sales commissions, and competitive factors may
be taken into consideration when determining the Guaranteed Interest Rates.
PRUCO LIFE RESERVES THE RIGHT TO DETERMINE THE GUARANTEED INTEREST RATES IT WILL
PROVIDE. PRUCO LIFE CANNOT PREDICT NOR GUARANTEE FUTURE RATES BEYOND THE 3%
MINIMUM GUARANTEED INTEREST RATE.
Withdrawals. Subject to any restrictions on withdrawals contained in the tax
favored plan under which the Contract owner is covered, the Contract owner may
at any time before the annuity date make a withdrawal from the Contract fund of
all or part of the cash value of the Contract. The cash value is the Contract
fund after any Market Value Adjustment (see Market Value Adjustment, page 5),
minus any withdrawal charge (see Withdrawal Charge, page 4). During the 1-month
period beginning at the end of each Interest Rate Period, the cash value will
3
<PAGE>
equal the Contract fund. However, Pruco Life's consent will be required for a
partial withdrawal if the amount is less than $500 or if it would reduce the
Contract fund to less than $10,000.
In addition, there are certain restrictions on the withdrawal of salary
reduction contributions and earnings invested in contracts issued under plans
subject to section 403(b) of the Internal Revenue Code (the "Code"). Under such
contracts, withdrawals may be made prior to attaining age 59 1/2 in the event of
severance of employment, death, total and permanent disability and, in limited
circumstances, hardship. The withdrawal restrictions do not apply if the amount
withdrawn is transferred directly to a different tax-deferred annuity contract
of Pruco Life, to a tax-deferred annuity contract of another issuer or to a
mutual fund custodial account under section 403(b)(7) of the Code.
Pruco Life will generally pay the amount of any withdrawal, less any applicable
charges and any required tax withholding, promptly after it receives a properly
completed withdrawal request. However, Pruco Life has the right to delay payment
of such withdrawal for up to 6 months (or a shorter period if required by
applicable law). Only under extraordinary circumstances will Pruco Life defer
payment of a withdrawal. While all circumstances under which Pruco Life may
defer payment of a withdrawal are not foreseeable, such circumstances could
include an inability to liquidate assets due to a general financial crisis.
Pruco Life will pay interest of at least 3% a year if it delays such a payment
for more than 30 days (or a shorter period if required by applicable law). If
Pruco Life intends to defer payment on a properly completed withdrawal request
for more than 30 days, the Contract owner will be notified in writing.
A withdrawal will generally have federal income tax consequences, which could
include tax penalties. The Contract owner should consult with a tax advisor
before making a withdrawal. See FEDERAL TAX STATUS, page 6.
Death Benefit. If the last surviving or sole annuitant dies prior to the annuity
date, Pruco Life will, upon receipt of all the information necessary to make the
payment (including due proof of death and election of a payment option), pay a
death benefit to the beneficiary or beneficiaries designated by the Contract
owner. Unless the beneficiary or beneficiaries have been irrevocably designated,
the owner may change the beneficiary designation at any time. The death benefit
will equal the greater of: (1) the Contract fund, and (2) the Contract fund
after any Market Value Adjustment. Both of these alternatives will be calculated
as of the date on which Pruco Life's Home Office receives due proof of death. A
certified copy of the death certificate will constitute such due proof of death,
but Pruco Life may also deem alternative forms of proof acceptable. The
beneficiary may receive the death benefit in one sum or in a settlement option,
including installments for a fixed period or a life income option with 120
monthly payments certain. Certain minimum distribution requirements apply when
the annuitant is also the Contract owner. See Required Distributions on Death of
Owner, page 13.
If the last surviving or sole annuitant dies after he or she has begun to
receive annuity payments, the death benefit, if any, will be determined by the
type[s] of annuity payments in effect.
CHARGES, FEES, AND DEDUCTIONS
1. Premium Taxes. In some states a premium tax is imposed on purchase payments.
In several other states a premium tax is payable when a Contract fund is
converted into an annuity. The tax rates currently in effect in those states
that impose a tax range from 1% to 5%. Some local jurisdictions also impose a
tax. On any Contract subject to premium tax, the tax will be deducted at the
rate and incidence provided under applicable law, either from the purchase price
when received or from the Contract fund at the time the annuity is effected.
A deduction for any such taxes imposed on purchase payments will not be made,
however, except to the extent that the total tax attributable to premiums is in
excess of 4% when: (1) a Contract owner's combined purchase payment for
Contract[s] purchased at the same time is equal to or exceeds $50,000; or (2) a
Contract owner purchases separate Contracts for each of his or her children or
grandchildren as annuitants, each Contract has purchase payments totaling at
least $25,000, and total purchase payments equal or exceed $50,000. Pruco Life
currently does not waive premium taxes due upon annuitization.
2. Withdrawal Charge. A charge may be applied against the amount withdrawn when
a full or partial withdrawal is made. However, the amount subject to a
withdrawal charge is first reduced by the following amounts not subject to a
withdrawal charge: (1) any charge-free withdrawal amount not previously
withdrawn. The charge-free withdrawal amount that is available in a given
Contract year is equal to 10% of the Contract fund, after any Market Value
Adjustment (see Market Value Adjustment, page 5), as of the first withdrawal in
a Contract year. (These amounts may not be accumulated from Contract year to
Contract year); (2) earnings not previously withdrawn. Earnings are the excess,
if any, of the Contract fund after any Market Value Adjustment, over the total
purchase payment amount less any prior withdrawals and less any associated
withdrawal charges; (3) any amount used to provide a lifetime annuity or a
period certain annuity with a duration of 10 years or more; (4) any amount
4
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withdrawn during the 1-month period following the end of an Interest Rate
Period; and (5) Critical Care Access, where available based on regulatory
approval of the Waiver of Withdrawal Charges endorsement, for non-qualified
contracts issued on or after February 1, 1985 and qualified contracts issued on
or after May 1, 1993, all or part of any withdrawal and maintenance charges
associated with a full or partial withdrawal, or an annuitization or withdrawal
charge due on the annuity date, following the receipt of due proof that the
annuitant or co-annuitant (if applicable) has been confined to an eligible
nursing home or hospital for a period of at least 3 months or a physician has
certified that the annuitant or co-annuitant (if applicable) has 6 months or
less to live.
Once the amount subject to a withdrawal charge is determined by subtracting the
amounts described above, the withdrawal charge is determined by multiplying the
balance of the withdrawal, if any, by the appropriate charge rate below. The
charge rate depends on the Contract owner's initial Interest Rate Period and
Contract year in which the withdrawal is made.
For contracts issued in Michigan and New Jersey, withdrawal charges apply for
seven years. After an initial interest Rate Period of 6 years or less, the
withdrawal charge is 1% through year seven.
Table of Withdrawal Charges
- -------------------------------------------------------------------------------
Contract Owner's
Initial Interest Year of Withdrawal
Rate Period -----------------------------------------------------
(Years) 1 2 3 4 5 6 7 8 and after
- ---------------- -- -- -- -- -- -- -- -----------
7 - 10 7% 7% 7% 7% 6% 5% 4% 0%
6 7% 7% 6% 5% 4% 3% 0% 0%
5 6% 6% 5% 4% 3% 0% 0% 0%
4 5% 4% 3% 2% 0% 0% 0% 0%
3 4% 3% 2% 0% 0% 0% 0% 0%
2 3% 2% 0% 0% 0% 0% 0% 0%
For example, if the Contract owner's initial Interest Rate Period is for 5 years
and a withdrawal is requested during year 2, the amount subject to the
withdrawal charge would be multiplied by 6% to determine the withdrawal charge.
Pruco Life will not apply a withdrawal charge upon any amount which becomes
payable due to the death of the annuitant before the annuity date.
3. Administrative Charge. An annual maintenance charge of $30 will be deducted
if and only if the Contract fund is less than $10,000 on a Contract anniversary
or at the time a full withdrawal is effected. This charge is not made after
annuitization or if option (5) under the Withdrawal Charge section is elected.
4. Market Value Adjustment. When a full or partial withdrawal is made during an
Interest Rate Period, a Market Value Adjustment will be applied. The only time a
Market Value Adjustment is not applied is during the 1-month period immediately
following the end of any Interest Rate Period.
The amount payable on a full withdrawal or the amount deducted from the Contract
fund on a partial withdrawal may be adjusted up or down as a result of the
application of the Market Value Adjustment. This is because the Market Value
Adjustment reflects the relationship between the Contract owner's Guaranteed
Interest Rate and the rate Pruco Life is offering on a Contract with an Interest
Rate Period equal to 1 year more than the number of years remaining in the
Interest Rate Period at the time the withdrawal is requested.
Generally, if the Contract owner's Guaranteed Interest Rate is higher than the
applicable current rate, the application of the Market Value Adjustment will
result in a higher payment upon full withdrawal. Similarly, if the Contract
owner's Guaranteed Interest Rate is lower than the applicable current rate, the
application of the Market Value Adjustment will result in a lower payment upon
full withdrawal. If the Contract owner's Guaranteed Interest Rate is the same as
the applicable current rate, the application of the Market Value Adjustment will
have no effect on the full withdrawal amount.
Partial withdrawals are handled differently. Since a request for a partial
withdrawal is made in terms of a dollar amount (e.g., $9,000), the application
of the Market Value Adjustment will affect the remaining Contract fund. The
value of the remaining Contract fund will be increased if the Contract owner's
Guaranteed Interest Rate is higher than the applicable current rate. Similarly,
the value of the remaining Contract fund will be decreased if the Contract
owner's Guaranteed Interest Rate is lower than the applicable current rate.
There will be no impact on the remaining Contract fund if the rates are equal.
The Market Value Adjustment formula can be found on page A1, along with examples
explaining how it works.
5
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FEDERAL TAX STATUS
During the period that a Contract is in force, the interest added to the
Contract fund is not treated as taxable income of the Contract owner. A tax is
generally payable, however, whenever a withdrawal is made and when annuity
payments are received. The discussion below is general in nature. It is not
intended as tax advice. Nor does it consider any applicable state or other tax
laws. A qualified tax advisor should be consulted for complete information and
advice. The discussion is based on current laws and interpretations, which may
change.
The following rules do not generally apply to annuity contracts held by or for
non-natural persons (e.g., corporations). Where a contract is held by a
non-natural person, unless the contract owner is a nominee or agent for a
natural person (or in other limited circumstances), the contract will generally
not be treated as an annuity for tax purposes, and increases in the value of the
contract will be subject to current tax.
Taxes Payable by Contract Owners Upon Withdrawals For Non-Qualified Contracts.
The Internal Revenue Code (the "Code") provides generally that amounts withdrawn
by a Contract owner from his or her Contract, before annuity payments begin,
will be treated for tax purposes as being first withdrawals of investment
income, rather than as withdrawals of purchase payments, until all investment
income has been withdrawn. The assignment or pledge of (or agreement to assign
or pledge) any portion of the value of the Contract for a loan will be treated
as a withdrawal subject to this rule. Amounts withdrawn before annuity payments
begin which represent a distribution of investment income will be taxable as
ordinary income and may be subject to a penalty tax. Amounts which represent a
withdrawal of purchase payments will not be taxable as ordinary income or
subject to a penalty tax. Amounts withdrawn from tax-qualified contracts are
generally subject to taxation and penalty, if applicable. All contracts issued
by the same company (and affiliates) to the same contract owner during any
calendar year are treated as one annuity contract for purposes of determining
the amount includible in income of any distribution that is not received as an
annuity payment.
The amount of the penalty tax is equal to 10% of that portion of the amount
withdrawn which is includible in income. Some withdrawals will be exempt from
the penalty. They include withdrawals: (1) made on or after the Contract owner
reaches age 59 1/2, (2) made on or after the death of the Contract owner, (3)
attributable to certain Contract owners becoming disabled within the meaning of
Code section 72(m)(7); (4) in the form of level annuity payments, made not less
frequently than annually under a lifetime annuity; (5) allocable to investment
in the contract before August 14, 1982; (6) under a qualified funding asset
(defined by Code section 130(d)); or (7) under an immediate annuity contract
(within the meaning of section 72(u)(4)).
If the 10% penalty tax does not apply to a withdrawal by reason of the exception
for withdrawals in the form of a level annuity (clause (4) above), but the
series of payments is modified (other than by reason of death or disability),
either (a) before the end of the 5-year period beginning with the first payment
and after the Contract owner reaches age 59 1/2, the Contract owner's tax for
the year of the modification will be increased by the penalty tax that would
have been imposed without the exception, plus interest for the deferral period.
Where a contract is issued, in exchange for a contract continuing purchase
payments made before August 14, 1982, favorable tax rules may apply to certain
withdrawals from the contract. Consult a tax advisor for information regarding
these rules.
Taxes Payable Upon Receipt of Annuity Payments For Non-Qualifed Contracts. A
portion of each annuity payment received under a Contract will be treated as a
partial return of the purchase payments and will not be taxable. The remaining
portion of the annuity payment will be taxed as ordinary income. Exactly how an
annuity payment is divided into taxable and non-taxable portions depends upon
the period over which annuity payments are expected to be received, which in
turn is governed by the form of annuity selected and, where a lifetime annuity
is chosen, by the life expectancy of the annuitant. Annuity payments which are
received after the annuitant recovers the full amount of the purchase payment
will be fully includible in income. Generally, annuity payments from
tax-qualified contracts are fully includible in ordinary income. Should annuity
payments cease on account of the death of the annuitant before the purchase
payment has been fully recovered, the annuitant on his or her last tax return
(or in certain cases the beneficiary), is allowed a deduction for the
unrecovered amount. A lump sum payment taken in lieu of remaining annuity
payments is not considered an annuity payment for tax purposes. Any such lump
sum payment distributed to an annuitant generally would be taxable as ordinary
income and may be subject to a penalty tax as described above.
Generally, the same tax rules apply to amounts received as a death benefit by
the beneficiary as those set forth above with respect to the Contract owner,
except that the early withdrawal penalty tax does not apply. The election of an
annuity payment option by the beneficiary may defer taxes otherwise payable upon
the receipt of a lump sum death benefit. Certain minimum distribution
requirements apply in the case where the owner dies. See Required Distributions
on Death of Owner, page 13.
6
<PAGE>
In addition, a transfer of the Contract to or the designation of a beneficiary
who is either 37 1/2 years younger than the Contract owner or a grandchild of
the Contract owner may have Generation Skipping Transfer Tax consequences under
section 2601 of the Code.
Certain transfers of a Contract for less than full consideration, such as a
gift, will trigger tax on the investment income in the Contract. This rule does
not apply to certain transfers between spouses or incident to divorce. See
Ownership of the Contract, page 13.
Withholding. The taxable portion of any amounts received under the Contract will
be subject to withholding to meet federal income tax obligations. If the
Contract owner fails to elect that there be no withholding, or if mandatory 20%
withholding applies, Pruco Life will withhold from every withdrawal or annuity
payment the appropriate percentage of the amount of the payment that is taxable.
Pruco Life will provide the Contract owner with forms and instructions
concerning the right to elect that no amount be withheld from payments or the
ability to avoid mandatory withholding by requesting a direct rollover.
Recipients who elect not to have withholding made are liable for payment of
federal income taxes on the taxable portion of the distribution. All recipients
may be subject to penalties under the estimated tax payment rules if withholding
and estimated tax payments are not sufficient. Contract owners who do not
provide a social security number or other taxpayer identification number will
not be permitted to elect out of withholding.
Generally, there will be no withholding for taxes until payments are actually
received under the Contract. The rate of withholding on annuity payments will be
determined on the basis of federal and state withholding laws and if applicable
according to the withholding certificate filed by the Contract owner with Pruco
Life. If no such certificate is filed, the Contract owner will be treated, for
purposes of determining the withholding rate on annuity payment, as a married
person with three exemptions. The rate of withholding on eligible rollover
distributions from qualified plans (other than IRSs), that are not direct
rollovers, is 20%. The rate of withholding on all other payments made under
Contracts that are not tax qualified will be 10%.
Contracts Used in Connection with Tax Favored Plans. The Contract may be
purchased for use in connection with various retirement arrangements entitled to
favorable federal income tax treatment ("tax favored plans"). These are
individual retirement accounts and annuities ("IRAs") subject to sections 408(b)
of the Code, simplified employee pension plans ("SEPs") under section 408(k) of
the Code, tax deferred annuities ("TDA's") under section 403(b) of the Code,
deferred compensation plans of state and local governments and tax exempt
organizations under section 457 of the Code, and pension, profit sharing and
annuity plans qualified under sections 401(a) and 403(a) of the Code. Such
plans, accounts, and annuities must satisfy certain requirements of the Code in
order to be entitled to the federal income tax benefits according to these
plans. A discussion of these requirements is beyond the scope of this
prospectus, and it is assumed that such requirements are met with respect to a
Contract purchased for use in connection with a tax favored plan. In addition, a
discussion of the federal tax rules applicable to distributions from tax favored
plans is beyond the scope of this prospectus. As suggested above, a qualified
tax advisor should be consulted for advice and answers to any questions.
ERISA Disclosure. If a Contract is purchased in connection with a tax favored
plan, the provisions of The Employee Retirement Income Security Act of 1974
("ERISA") may become applicable. ERISA prevents a fiduciary with respect to a
pension or profit sharing plan from receiving any benefit from any party dealing
with the plan as a result of the sale of the Contract (other than benefits that
would otherwise be provided in the plan).
Administrative exemptions issued by the IRS and the Department of Labor under
ERISA permit transactions between insurance agents and qualified pension and
profit sharing plans under section 401(a) and 403(a) of the Code and with SEP
IRAs. To be able to rely on the exemption, certain information must be disclosed
to the plan fiduciary. The information that must be disclosed includes the
relationship between the agent and the insurer, a description of any charges,
fees, discounts, penalties or adjustments that may be imposed in connection with
the purchase, holding, exchange or termination of the Contract, as well as the
commissions received by the agent. Information about any applicable charges,
fees, discounts, penalties or adjustments may be found under CHARGES, FEES, AND
DEDUCTIONS, page 4. Information about sales representatives and commissions may
be found under Sale of the Contract and Sales Commissions, page 13. In addition
to disclosure, other conditions apply to the use of the exemption. For example,
a plan fiduciary may not be a partner or employee of the Pruco Life
representative making the sale. The fiduciary must not be a relative of the
representative (including spouse, direct descendant, spouse of a direct
descendant, ancestor, brother, sister, spouse of a brother or sister). The
representative may not be an employee, officer, director or partner of either
the independent fiduciary or the employer establishing the plan. No relative of
the representative may: (1) control, directly or indirectly, the corporation
establishing or maintaining the plan; (2) be either a partner with 10% or more
interest in the partnership or the sole proprietor establishing or maintaining
the plan; or (3) be an owner of a 5% or more interest in a Subchapter S
Corporation establishing or maintaining the plan. In addition, no affiliate
(including relatives) of the representative may be a trustee, administrator or a
fiduciary with written authority to acquire, manage or dispose of the assets of
the plan.
7
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Taxes on Pruco Life. Pruco Life is taxed as a life insurance company under Part
I of Subchapter L of the Code. The income earned on assets underlying the
Contract will be Pruco Life's income.
EFFECTING AN ANNUITY
Upon the annuity date, the Contract fund, after a Market Value Adjustment
(unless it is during the 1-month period following the end of an Interest Rate
Period), is converted into a fixed-dollar annuity payable to the annuitant[s]
named in the Contract. If two annuitants are named in the Contract, the Contract
owner may decide how much of the amount is to be applied to each annuitant and
under which form[s] of annuity. If the Contract is not large enough to produce a
monthly payment of $50, the Contract owner will be paid the cash value in a
single sum.
When a Contract owner requests a withdrawal in the form of an annuity, an amount
equal to the withdrawal charge, if any, will be deducted, unless a lifetime
annuity or a period certain annuity with a duration of 10 years or more is
selected, or unless the annuity date is within the 1-month period following the
end of an Interest Rate Period. An amount equal to the premium tax, if any,
imposed by the jurisdiction in which the annuitant resides is then deducted
(unless deducted earlier). Many states do not impose a premium tax. In other
states the tax ranges from 1% to 5% of the amount applied to effect an annuity.
See Premium Taxes, page 4. Some local jurisdictions also impose a tax. The
amount remaining after deducting any applicable premium tax is used to effect a
fixed-rate annuity.
The amount of the monthly payments will depend upon the amount applied and
tables of rates, set forth in the Contract, which Pruco Life guarantees will be
used even if longevity has significantly improved since the Contract date. If,
however, Pruco Life at the time is offering more favorable rates, then those
will be used.
The annuity will be in one of two forms listed below and other forms may be
available with Pruco Life's consent. The annuity options under this Contract are
fixed annuity options and the amount of each monthly payment does not change. An
annuity must begin on the annuity date designated in the Contract which may be
no later than the first Contract anniversary after the annuitant's 90th
birthday. For tax favored plans, the annuity must begin no later than April 1st
of the year after the annuitant's 70 1/2 birthday. The annuity date may be
changed, if Pruco Life consents. Pruco Life will then make monthly payments to
the annuitant on the first day of each month for a period determined by the form
of the annuity selected. If the Contract owner has not selected an annuity
option to take effect by the annuity date, the interest payment option (see
option 3 below) will then become effective.
1. Installments for a Fixed Period. Equal payments will be made to the annuitant
quarterly, semi-annually or annually for up to 25 years. If the annuitant dies
before the last payment is due, the beneficiary designated by the annuitant will
not continue to receive periodic payments unless he or she so selects. Instead,
the discounted value of the remaining unpaid installments, to and including the
last payment, is payable to the beneficiary in one sum. In calculating the
discounted value of the unpaid future payments, Pruco Life will discount each
such payment at an interest rate of 3.5% a year or at the interest rate Pruco
Life used to compute the actual payments under this option, if higher. Once
annuity payments have begun, an annuitant may withdraw the present value of any
of the equal payments that have not been paid.
2. Life Annuity with 120 Payments Certain. Payments will be made to the
annuitant monthly during his or her lifetime. If the annuitant dies before the
120th monthly payment is due, the beneficiary designated by the annuitant will
not continue to receive monthly payments unless he or she so selects. Instead,
the discounted value of the remaining unpaid installments, to and including the
120th monthly payment, is payable to the beneficiary in one sum. In calculating
the discounted value of the unpaid future payments, Pruco Life will discount
each such payment at an interest rate of 3.5% a year or at the interest rate
Pruco Life used to compute the actual payments under this option, if higher.
3. Interest Payment Option. The annuitant may choose to have Pruco Life hold and
pay interest upon the amount of the Contract fund. Pruco Life will pay interest
at an effective rate of at least 3.5% a year, and it may pay a higher rate of
interest. Pruco Life will inform the Contract owner, upon request, what interest
rate it will pay. Once this option is effected, an annuitant may withdraw the
unpaid balance, or any part not less than $100.
4. Minimum Distribution Option. The Minimum Distribution Option is a new program
available with IRA and SEP programs. It enables the client to satisfy IRS
minimum distribution requirements, without having to annuitize or cash surrender
their Contracts. Each year until the maturity date, Pruco Life will recalculate
the minimum amount the Contract owner is required to withdraw from his or her
IRA or SEP. Pruco Life will send the Contract owner a check for the minimum
distribution amount less any partial withdrawals made during the year. Pruco
Life's calculations are based solely on the cash value of the Contract. If the
Contract owner has other IRA accounts, he or she will be responsible for taking
the minimum distribution from each.
Legal Considerations Relating to Sex-Distinct Annuity Purchase Rates. It should
be noted that while in general the Contract provides for sex-distinct annuity
purchase rates for life annuities, those rates are not applicable to
8
<PAGE>
Contracts offered in states that have adopted regulations prohibiting
sex-distinct annuity purchase rates or to qualified plans. Rather, blended
unisex annuity purchase rates for life annuities will be provided under all
Contracts issued in those instances whether the annuitant is male or female.
Other things being equal, such unisex annuity purchase rates will result in the
same monthly annuity payments for male and female annuitants.
In addition, employers and employee organizations considering purchase of a
Contract should consult their legal advisors to determine whether purchase of a
Contract based on sex-distinct annuity purchase rates is consistent with Title
VII of the Civil Rights Act of 1964 or other applicable law. Pruco Life may
offer the Contract with unisex annuity purchase rates to such prospective
purchasers.
Special provisions may apply if the Contract is issued in connection with a tax
favored retirement plan. The necessary information will be provided by the plan
sponsor or administrator.
THE COMPANY
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, and through its branch office
in Taiwan. These Contracts are not offered in any state in which the necessary
approvals have not yet been obtained. Pruco Life has two subsidiaries, Pruco
Life Insurance Company of New Jersey ("Pruco Life of New Jersey") and The
Prudential Life Insurance Company of Arizona ("PLICA"). Pruco Life of New Jersey
is a stock life insurance company organized in 1982 under the laws of the State
of New Jersey. It is licensed to sell life insurance and annuities only in the
States of New Jersey and New York. PLICA is a stock life insurance company
organized in 1989 under the laws of the State of Arizona. It is licensed to sell
life insurance and annuities only in the State of Arizona. PLICA had no new
business sales in 1994 and at this time will not be issuing new business.
Pruco Life is a wholly-owned subsidiary of The Prudential, a mutual insurance
company founded in 1875 under the laws of the State of New Jersey. As of
December 31, 1994, it has invested over $442 million in Pruco Life in connection
with Pruco Life's organization and operation. The Prudential intends from time
to time to make additional capital contributions to Pruco Life as needed to
enable it to meet its reserve requirements and expenses in connection with its
business. However, The Prudential is under no obligation to make such
contributions and its assets do not back the benefits payable under the
Contract. 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 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. There are approximately 1,900 stock,
mutual and other types of insurers in the life insurance business in the United
States.
Pruco Life has no United States common-law employees; its Taiwan branch has
approximately 330 employees. Officers and directors of Pruco Life are employees
of The Prudential serving pursuant to a service agreement. All insurer functions
of Pruco Life are likewise performed by The Prudential under service, marketing,
distribution and lease agreements.
9
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for Pruco Life should be read in
conjunction with the CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE
COMPANY AND SUBSIDIARIES and notes thereto included in this prospectus
beginning on page B1.
<TABLE>
<CAPTION>
Pruco Life Insurance Company and Subsidiaries
For The Years Ended December 31,
-----------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
($000'S)
<S> <C> <C> <C> <C> <C>
Revenues
Premiums, annuity fund deposits and
other revenue.................... $ 603,864 $ 591,660 $ 541,248 $ 521,590 $ 577,692
Net investment income.............. 245,977 260,939 274,037 285,565 270,785
---------- ---------- ---------- ---------- ----------
Total revenues....................... 849,841 852,599 815,285 807,155 848,477
---------- ---------- ---------- ---------- ----------
Benefits and expenses
Current and future benefits
and claims....................... 559,658 534,354 478,148 501,454 513,165
Other expenses..................... 149,478 157,557 129,701 126,201 144,642
---------- ---------- ---------- ---------- ----------
Total benefits and expenses.......... 709,136 691,911 607,849 627,655 657,807
---------- ---------- ---------- ---------- ----------
Income before provision in lieu of
federal income tax and cumulative
effect of a change in accounting
principle.......................... 140,705 160,688 207,436 179,500 190,670
Provision in lieu of federal income
tax................................ 87,750 83,640 96,578 75,242 62,871
---------- ---------- ---------- ---------- ----------
Net income before cumulative effect
of a change in accounting
principle.......................... $ 52,955 $ 77,048 $ 110,858 $ 104,258 $ 127,799
---------- ---------- ---------- ---------- ----------
Cumulative effect on prior years
(to December 31, 1990) of change in
reserve basis...................... -- -- -- 140,424 --
---------- ---------- ---------- ---------- ----------
Net income........................... $ 52,955 $ 77,048 $ 110,858 $ 244,682 $ 127,799
========== ========== ========== ========== ==========
Assets............................... $7,090,802 $7,172,104 $6,709,958 $6,369,288 $5,570,360
---------- ---------- ---------- ---------- ----------
</TABLE>
Prior years' financial statements have been revised to reflect a change in
presentation of Separate Account policyholder net investment income and net
realized and unrealized gains (losses). Please see Note 1J of the Notes to the
Consolidated Financial Statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pruco Life Insurance Company consists of Pruco Life Insurance Company (Pruco
Life), Pruco Life Insurance Company of New Jersey and The Prudential Life
Insurance Company of Arizona (collectively, the Company). The Company markets
individual life insurance and single pay deferred annuities primarily through
The Prudential's sales force. The Company held $7 billion in assets at December
31, 1994, $3.5 billion of which were held in Separate Accounts under variable
life insurance policies and variable annuity contracts. The remaining assets
were held in the general account for investment primarily in bonds, short-term
investments and mortgage loans.
Because of the large number of stock and mutual life insurance companies and
other entities engaged in marketing insurance products, the Company is engaged
in a business that is highly competitive. During the past several years, the
insurance industry has suffered setbacks both financially and in public
relations. The Company, however, remains sound.
1. Results of Operations
(a) 1994 Versus 1993
Net income for 1994 was $53 million, representing a $24 million decrease
from the same period in 1993.
Premiums and annuity considerations increased $48 million in 1994, from
$564 million for the year ended December 31, 1993, to $612 million for
the same period in 1994. An increase in unscheduled premium payments on
two individual life insurance products together with an increase in
renewal premiums, driven by these two products, account for this
increase.
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<PAGE>
Net investment income decreased $15 million for the twelve months ended
December 31, 1994, from the same period in 1993. Reduced yields on the
Company's fixed rate investment portfolio lead to reduced net investment
income. In addition, net cash outflows to meet policyholder obligations
resulted in a decrease in invested assets which, in turn, contributed to
the lower investment income.
The Company had net realized investment losses of $21 million during 1994
compared to investment gains of $9 million during 1993. Sales of
Corporate and Mortgage-Backed Securities during the twelve months of 1994
generated realized losses attributable to the increase in interest rates
during this period. However, the expectation is that the newly structured
portfolio will align more closely with the company's liability duration
and reduce the portfolio's interest rate risk. Following statutory
Interest Maintenance Reserve (IMR) guidelines, net realized investment
losses of $20 million were deferred for the period ended December 31,
1994. In comparison, $19 million of net realized investment gains were
deferred for the period ended December 31, 1993. Amortized into net
investment income were $5 million and $7 million of IMR for the twelve
month period ended December 31, 1994, and 1993, respectively.
Current and future benefits and claims increased $25 million for the
twelve months ended December 31, 1994, from the same period in 1993. An
increase in benefits paid during 1994 as compared to 1993 combined with
high surrender benefits, which can be attributed to contract maturities
of annuity products as the Company's inforce ages, was more than offset
by an increase in reserves resulting from the 1994 increase in premiums
and annuity considerations.
Total expenses for the year ended December 31, 1994 decreased by $8
million from the same period in 1993. General, administrative, and other
expenses for the year ended December 31, 1994, decreased $9.8 million due
to the decrease in allocation of costs from The Prudential. Allocations
are primarily based on average compensation over a period of recent years
and inforce. The average compensation and inforce amounts used in 1994
decreased from 1993 by 48% and 5% respectively. This can be attributable
to a decline in the sales of certain life insurance products between
periods of allocation. Offsetting this decrease is an increase in
commission expense of $1.8 million from the same period in 1993, which is
consistent with the increase in first year premiums.
Provision in lieu of federal income taxes increased $4 million for the
year ended December 31, 1994, as compared to December 31, 1993. Although
operating income for 1994 was lower than the previous year, provision in
lieu of federal income taxes increased due to federal income taxes
applicable to prior years.
(b) 1993 versus 1992
Net income for 1993 was $77 million, representing a $34 million decrease
from the same period in 1992.
Premiums and annuity considerations increased $67 million in 1993, from
$497 million for the year ended December 31, 1992, to $564 million for
the same period in 1993. This increase was primarily from sales of two
new individual life insurance products. Offsetting this increase were the
continuing decline in renewal premiums from normal surrender and lapse
activity for certain life insurance contracts and contract maturities. In
addition, sales of the Future Value Annuity contract decreased during the
year ended December 31, 1993.
Net investment income decreased $13 million for the twelve months ended
December 31, 1993, from the same period in 1992. Reduced yields on the
Company's fixed rate investment portfolio lead to reduced net investment
income. A decline in invested assets also contributed to this decrease.
Net realized investment gains decreased $19 million for the twelve months
ended December 31, 1993, from the same period in 1992. This decrease is
primarily due to the decline in activity in the purchases and sales of
fixed maturities. Net realized investment gains of $19 million and $37
million were deferred in 1993 and 1992, respectively, as dictated by
Interest Maintenance Reserve (IMR) guidelines. Amortized into net
investment income were $7 million and $3 million of IMR for the year
ended December 31, 1993 and 1992, respectively.
Current and future benefits and claims increased $56 million for the year
ended December 31, 1993, from the same period in 1992. Surrender
benefits, which increased from $223 million at December 31, 1992, to $462
million at December 31, 1993, and change in reserves, which decreased
from $129 million at December 31, 1992, to $(49) million at December 31,
1993, were the two major components of this increase. Surrender activity
increased significantly during the first three months of 1993, as
contractholders exercised a provision included in the contract which
allows withdrawal of funds without surrender charges if the Company's
renewal crediting rate is more than 1% below the initial crediting rate
(renewal crediting rates are established at January 1 each year). A
contractholder's ability to exercise this provision is limited to 30 days
following notification of the renewal crediting rate. The surrender
activity has a direct correlation with reserve activity and accounts for
a significant portion of the change in reserves. The effect of the
surrender activity on the change in reserve was somewhat mitigated by new
business sales of the two new individual life insurance products.
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<PAGE>
Total expenses for the year ended December 31, 1993, increased by $28
million, from the same period in 1992. The commission expense increase of
$10 million is due to first year sales of two new individual life
insurance products. Commission rates on new business sales are higher
than on renewal business. General, administrative, and other expenses for
the year ended December 31, 1993, increased $18 million due to an
increase in the allocation of costs from The Prudential. Under service
and lease agreements with The Prudential, services of officers and
employees, supplies, use of equipment and office space are provided to
the Company. The increase in allocated costs is due to a rise in the
inforce caused by increased sales. The allocations were further affected
by the reorganization of The Prudential's Individual Insurance
Department. Effective January 1, 1993, the corporate staff of the Company
was absorbed by the parent as a result of this reorganization. The costs
associated with these employees are now charged to the Company under the
service and lease agreements with the parent.
Provision in lieu of federal income tax decreased $13 million for the
year ended December 31, 1993, as compared to December 31, 1992. This
decrease in tax is due primarily to the effect of the large decrease in
capital gains and a lower equity tax assessment by the consolidated tax
sharing group. The effective tax rates for the years ended December 31,
1993 and 1992, were 52% and 47%, respectively. This increase is due
primarily to the tax effect of the change in tax reserves as compared to
the change in statutory reserves. However, the decrease in the equity tax
assessment and the effect of the IMR offset this increase. Provision in
lieu of federal income tax for the year ended December 31, 1993, reflects
the new corporate income tax rate of 35%, an increase of 1% over the same
period in 1992. This rate change did not have a material effect on net
income.
2. Liquidity
For an insurance company, cash needs, for the purpose of paying current
benefits, making policy loans, and paying expenses, are met primarily from
premiums and investment income. Benefit expenses incurred in 1994, 1993 and
1992 were respectively, $547 million, $584 million and $350 million. Cash
flows are anticipated to be ample to meet the Company's liquidity needs for
the foreseeable future.
3. Investments
The Company maintains a well diversified portfolio consisting of fixed as
well as equity investments. Of the Company's total assets of $7 billion as of
December 31, 1994, 37.33% was invested in fixed maturities, 0.05% in equity
securities, 2.70% in short-term investments, 1.01% in mortgage loans, 0.10%
in real estate, 49.53% in separate account assets and the remaining 9.28% in
other assets.
Fixed Maturities. As of December 31, 1994 and 1993, the Company's investments
in fixed maturities, which are primarily carried at amortized cost, were $2.6
billion and $2.8 billion, respectively. Included in fixed maturities are
securities classified by the National Association of Insurance Commissioners
(NAIC) as being in the lowest three rating categories. The lowest three NAIC
categories represent, for the most part, high-yield securities. These
approximate 1.5% of the Company's assets at December 31, 1994 and 1.6% at
December 31, 1993.
Mortgage Loans. As of December 31, 1994 and 1993, the Company's investments
in mortgage loans were $72 million and $56 million, respectively. Mortgage
loans are carried at the lower of unpaid principal balance or fair value of
the underlying property. The increase in mortgage loans is due to the
acquisition of 7 new loans totaling $35.3 million. During the year ended
December 31, 1994, one loan in the amount of $4.7 million was transferred to
real estate through foreclosure. A net loss of $.6 million was realized in
1994 as a result of this foreclosure. This loss was reserved for in the Asset
Valuation Reserve and therefore had no impact on surplus. Currently, the
Company has one loan in the amount of $6 million in the process of
foreclosure and two loans with restructured terms in the amount of $7.1
million.
Real Estate. As of December 31, 1994 and 1993, the Company's investment in
real estate was $7 million and $10 million, respectively. Real estate is
carried at the lower of cost or fair value less disposition costs. Pruco Life
sold three properties during the second half of 1994 for $10.8 million and
acquired one property through foreclosure for $4.1 million.
4. Emerging Accounting Issues
The Financial Accounting Standards Board (the "FASB") issued Financial
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises", which, as amended
is effective for fiscal years beginning after December 15, 1995.
Interpretation No. 40 changes the current practice of the Company with
respect to utilizing statutory basis financial statements for general
purposes in that it would not allow such financial statements to be referred
to as having been prepared in accordance with GAAP. Interpretation No. 40
requires GAAP financial statements to apply all GAAP pronouncements, unless
specifically exempted. Implementation of the Interpretation will require
significant effort and judgment as to determining GAAP for insurance
operations. The Company is currently unable to determine the impact of
Interpretation No. 40 on its financial statements.
12
<PAGE>
OTHER INFORMATION
Required Distributions on Death of Owner. If the Contract owner dies before the
entire interest in the Contract is distributed, the value of the Contract must
be distributed to the designated beneficiary as described in this section so
that the Contract qualifies as an annuity under the Internal Revenue Code.
If the death occurs on or after the annuity date, the remaining portion of the
interest in the Contract must be distributed at least as rapidly as under the
method of distribution being used as of the date of death. If the death occurs
before the annuity date, the entire interest in the Contract must be distributed
within 5 years after date of death. However, if an annuity payment option is
selected by the designated beneficiary and if annuity payments begin within 1
year of the owner's death, the value of the Contract may be distributed over the
beneficiary's life or over a specified period not exceeding the beneficiary's
life expectancy. The owner's designated beneficiary is the person to whom
ownership of the Contract passes by reason of death, and must be a natural
person. If the designated beneficiary is the owner's spouse these rules will not
apply until the death of the owner's spouse. For Contracts purchased in
connection with a tax favored plan where the Contract owner's spouse is the
designated beneficiary, annuity payments need only begin on or before April 1st
of the calendar year following the calendar year in which the owner would have
attained age 70 1/2 or, in some instances, the remaining interest in the
Contract may be rolled over to an IRA owned by the spouse. Special additional
rules apply to contracts issued in connection with plans subject to section 457
of the Code.
If any portion of the Contract owner's interest is payable to (or for the
benefit of) the surviving spouse of the owner, the Contract may be continued
with the surviving spouse as the owner. This rule does not apply to Contracts
issued in connection with tax favored plans other than IRAs.
Sale of the Contract and Sales Commissions. Pruco Securities Corporation
("Prusec"), an indirect wholly-owned subsidiary of The 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 1111 Durham Avenue, South
Plainfield, New Jersey 07080. The Contract is sold by registered representatives
of Prusec who are also authorized by state insurance departments to do so. The
Contract may also be sold through other broker-dealers authorized by Prusec and
applicable law to do so. Registered representatives of such other broker-dealers
may be paid on a different basis than described below. The commissions that will
be paid to the representative and the broker-dealer will vary with the duration
of the Interest Rate Period selected by the Contract owner (longer durations
will result in higher commissions). Commissions up to 3% of the purchase payment
received will be paid to the representative. The maximum commission that will be
paid to the broker-dealer to cover both the individual representative's
commission and other distribution expenses will not exceed 6.25% of the purchase
payment. Pruco Life and Prusec reserve the right to change the portion of the
total compensation paid to the representative. Payment of these commissions to a
broker-dealer will not result in any decrease in the Contract fund. They will be
paid by Pruco Life. Renewal commissions based on the size of the Contract fund
may be paid. The representative may be required to return all of the first year
commission if the Contract is not continued through the first year.
Representatives who meet certain productivity, profitability, and persistency
standards with regard to the sale of the Contract will be eligible for
additional compensation.
Ownership of the Contract. The Contract owner is usually, but not always, an
annuitant. The Contract owner is entitled to exercise all the rights under the
Contract. Subject to certain limitations and requirements described in this
prospectus, these rights include the right to make withdrawals or surrender the
Contract, to designate and change the beneficiaries who will receive the
proceeds at the death of the annuitant before the annuity date, and to designate
a mode of settlement for the annuitant on the annuity date. Subject to certain
limitations, ownership of the Contract may, however, be transferred to another
person who need not be the person who is to receive annuity payments. Generally,
ownership of the contract is not assignable to an employee benefit plan or
program without Pruco Life's consent. Transfer of the ownership of a Contract
may involve federal income tax consequences, or may be prohibited under certain
Contracts, and the owner should consult with a qualified tax advisor before
attempting any such transfer.
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.
13
<PAGE>
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
Experts. The financial statements included in this prospectus and the related
financial statement schedules included elsewhere in the registration statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the registration statement. Such
financial statements and financial statement schedules have been included herein
and elsewhere in the registration statement in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing. Deloitte
& Touche LLP's principal business address is Two Hilton Court, Parsippany, New
Jersey 07054-0319.
Litigation. Pruco Life is involved in pending and threatened litigation in which
claims for monetary damages are asserted. Pruco Life does not anticipate the
ultimate liability arising from such pending or threatened litigation to have a
material effect on the condition of the Company.
Additional Information. A registration statement has been filed with the SEC
under the Securities Act of 1933, relating to the offering described in this
prospectus. This prospectus does not include all of the information set forth in
the registration statement. Certain portions have been omitted pursuant to the
rules and regulations of the SEC. The omitted information may, however, be
obtained from the SEC's principal office in Washington, D.C., upon payment of a
prescribed fee.
Further information, including statutory statements filed with the state
insurance departments, may also be obtained from Pruco Life's office. The
address and telephone number of Pruco Life are set forth on the cover of this
prospectus.
Financial Statements. The consolidated financial statements of Pruco Life and
subsidiaries included herein should be considered only as bearing upon the
ability of Pruco Life to meet its obligations under the Contracts.
14
<PAGE>
DIRECTORS AND OFFICERS
The directors and officers of Pruco Life, listed with their principal
occupations during the past 5 years, are shown below.
DIRECTORS OF PRUCO LIFE
E. MICHAEL CAULFIELD, Director. -- Chief Executive Officer, Prudential Preferred
Financial Services since 1995; 1993 to 1995: President, Prudential Preferred
Financial Services; 1992 to 1993: President, Prudential Property and Casualty
Insurance Company*; Prior to 1992: President of Investment Services of The
Prudential. Age 48.
ROBERT P. HILL, Chairman and Director.-- Executive Vice President of The
Prudential. Age 54.
GARNETT L. KEITH, JR., Director. -- Vice Chairman of The Prudential. Age 59.
IRA J. KLEINMAN, Director. -- President, Prudential Select Marketing since 1993;
1992 to 1993: Senior Vice President of The Prudential; Prior to 1992: Vice
President of The Prudential. Age 48.
ESTHER H. MILNES, President and Director. -- Senior Vice President and Chief
Actuary, Prudential Insurance and Financial Services since 1993; Prior to 1993:
Vice President and Associate Actuary of The Prudential. Age 44.
I. EDWARD PRICE, Vice Chairman and Director. -- Chief Executive Officer,
International Insurance of The Prudential since 1994; 1993 to 1994: President,
International Insurance of The Prudential; Prior to 1993: Senior Vice President
and Company Actuary of The Prudential. Age 52.
DONALD G. SOUTHWELL, Director. -- President, Prudential Insurance and Financial
Services since 1993; Prior to 1993: Senior Vice President of The Prudential. Age
43.
OFFICERS WHO ARE NOT DIRECTORS
BEVERLY R. BARNEY, Senior Vice President. -- Vice President and Associate
Actuary, Prudential Insurance and Financial Services since 1995; 1993 to 1995:
Senior Vice President and Associate Actuary, Prudential Direct; 1991 to 1993:
Senior Vice President and Actuary of Pruco Life; Prior to 1991: Vice President
and Actuary of Pruco Life. Age 47.
ROBERT EARL, Senior Vice President. -- Vice President, Strategic Initiatives,
Prudential Preferred Financial Services since 1993; Prior to 1993: Vice
President Regional Marketing of The Prudential. Age 44.
JOHN P. GUALTIERI, Senior Vice President and Assistant Secretary. -- Vice
President and Insurance Counsel of The Prudential since 1993. Prior to 1993:
Senior Vice President and General Counsel of Pruco Life. Age 60.
RICHARD F. LAMBERT, Senior Vice President, Chief Actuary, Appointed Actuary. --
Vice President and Associate Actuary, Prudential Preferred Financial Services
since 1993; 1991 to 1993: Vice President and Actuary of The Prudential. Prior to
1991: Vice President, Prudential Select Marketing. Age 37.
DOROTHY K. LIGHT, Secretary. -- Vice President and Secretary of The Prudential.
Age 57.
DIANE M. MCGOVERN, Vice President and Actuary. -- Vice President and Assistant
Actuary of The Prudential. Age 44.
MARTIN PFINSGRAFF, Treasurer. -- Vice President and Treasurer of The Prudential
since 1991; Prior to 1991: Managing Director, Corporate Finance of The
Prudential. Age 40.
MICHAEL R. SHAPIRO, Senior Vice President. -- Senior Vice President, Prudential
Select Brokerage. Age 47.
LAWRENCE J. SUNDRAM, Senior Vice President. -- Senior Vice President of Property
and Casualty, Prudential Insurance and Financial Services since 1994; 1993 to
1994: Vice President, Prudential Insurance and Financial Services; Prior to
1993: Vice President, District Agencies Marketing for The Prudential. Age 48.
STEPHEN P. TOOLEY, Vice President, Comptroller and Chief Accounting Officer. --
Vice President and Comptroller, Prudential Insurance and Financial Services
since 1993; Prior to 1993: Director, Financial Analysis for The Prudential. Age
42.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.
* Subsidiary of The Prudential
15
<PAGE>
EXECUTIVE COMPENSATION
Executive Officers of Pruco Life may also serve one or more affiliated companies
of Pruco Life. Allocations have been made as to each individual's time devoted
to his duties as an executive officer of Pruco Life and its subsidiaries. The
following table shows the cash compensation paid, based on these allocations, to
the executive officers of Pruco Life as a group for services rendered in all
capacities in Pruco Life and its subsidiaries during 1994. Directors of Pruco
Life who are also employees of The Prudential do not receive compensation in
addition to their compensation as employees of The Prudential.
Allocated Cash
Name & Principal Position Year Compensation ($)
------------------------- ---- ----------------
Esther H. Milnes 1994 $ 14,250
President 1993 $ 9,846
*1992 $ ------
John P. Gualtieri, Jr. 1994 $ 25,285
Senior Vice President 1993 $ 72,608
1992 $142,038
Beverly R. Barney 1994 $ ------
Senior Vice President 1993 $126,142
1992 $105,380
Helen M. Galt **1994 $ ------
President **1993 $ 13,382
1992 $169,626
Robert B. Likins **1994 $ ------
Senior Vice President **1993 $ 6,181
1992 $138,511
-------
* Current position was not held as of reporting date.
** Resigned position as of July, 1993.
16
<PAGE>
MARKET VALUE ADJUSTMENT FORMULA
The Market Value Adjustment, which is applied to withdrawals made at any time
other than the 1-month period following the end of an Interest Rate Period,
involves four amounts:
1. The number of whole months remaining in the existing Interest Rate
Period.
2. The Guaranteed Interest Rate.
3. The interest rate that Pruco Life would guarantee today if the
Contract owner were to purchase a similar Contract at the time the
withdrawal is requested, for a term of years equal to the number of
whole years remaining on the existing Contract, plus 1 additional
year.
4. The value of the Contract fund.
An adjusted Contract fund prior to withdrawal is first determined by the
following steps:
Step 1: Divide the number of whole months left in the existing Interest
Rate Period by 12.
Step 2: Determine the interest rate Pruco Life will guarantee on the date
the request for withdrawal is received for a similar contract, for a term
of years equal to the whole number of years determined in Step 1, plus 1
additional year. Subtract this interest rate from the Guaranteed Interest
Rate. The result could be negative.
Step 3: Multiply the results of Step 1 and Step 2. Again, the result could
be negative. If the result is less than -0.4, use the value -0.4. If the
result is in between -0.4 and 0.4, use the actual value. If the result is
more than 0.4, use the value 0.4.
Step 4: Multiply the result of Step 3 (which is the Market Value Factor)
by the value of the Contract fund. The result is the Market Value
Adjustment.
Step 5: The result of Step 4 is added to the Contract fund. If the Market
Value Adjustment is positive, the Contract fund will go up in value. If the
Market Value Adjustment is negative, the Contract fund will go down in
value.
Depending upon when the withdrawal request is made, a withdrawal charge may
apply.
Example 1:
If the Contract owner asks for a total withdrawal, and it is not during the
1-month period following the Interest Rate Period, and
1. There are 30 months remaining in the existing Interest Rate Period,
2. The Guaranteed Interest Rate is 10% (0.10),
3. The interest rate of 8% (0.08) would then be guaranteed by Pruco Life
on a newly-issued contract of this type with an Interest Rate Period
of 3 years (the 2 whole years remaining, plus 1 year), and
4. The value of the Contract fund is $20,000.
First, 30 would be divided by 12, resulting in 2.5. Second, 0.08 would be
subtracted from 0.10, resulting in 0.02. Then, 2.5 would be multiplied by 0.02,
resulting in 0.05 (the Market Value Factor). Next, 0.05 would be multiplied by
$20,000, resulting in a Market Value Adjustment of $1,000. Finally, $1,000 would
be added to $20,000, and the market value adjusted Contract fund would become
$21,000.
If, in this example, the Contract owner wished to receive only $9,000, the
amount deducted from the Contract fund would be $9,000 divided by 1.05, which is
$8,571.43, so that the Contract fund remaining under the Contract would be
$20,000 minus $8,571.43, resulting in $11,428.57. The Contract owner would
receive the requested $9,000.
Example 2:
If the Contract owner asks for a total withdrawal, and it is not during the
1-month period following the Interest Rate Period, and
1. There are 30 months remaining in the existing Interest Rate Period,
2. The Guaranteed Interest Rate is 10% (0.10),
3. The interest rate of 12% (0.12) would then be guaranteed by Pruco Life
on a newly-issued contract of this type with an Interest Rate Period
of 3 years (the 2 whole years remaining on the Contract, plus 1 year),
and
A-1
<PAGE>
4. The value of the Contract fund is $20,000.
First, 30 would be divided by 12, resulting in 2.5. Second, 0.12 would be
subtracted from 0.10, resulting in -0.02. Then, 2.5 would be multiplied by
- -0.02, resulting in -0.05 (the Market Value Factor). Next, -0.05 would be
multiplied by $20,000, resulting in a Market Value Adjustment of -$1,000.
Finally, $1,000 would be added to $20,000, and the market value adjusted
Contract fund would become $19,000.
If, in this example, the Contract owner wished to receive only $9,000, the
amount deducted from the Contract fund would be $9,000 divided by 0.95 (because
the adjustment is downward), which is $9,473.68, so that the Contract fund
remaining under the Contract would be $20,000 minus $9,473.68, resulting in
$10,526.32. The Contract owner would receive the requested $9,000.
Stated as a formula, the Market Value Factor is equal to:
(M/12) x (R-C), not to exceed +0.40 or be less than -0.40;
Where,
M = the number of whole months remaining in the Interest Rate Period.
R = the Contract's Guaranteed Interest Rate expressed as a decimal. Thus 6.2%
is converted to 0.062.
C = the interest rate, expressed as a decimal, that Pruco Life would offer on
newly issued contracts like this one for a term equal to the number of whole
years remaining in the present Interest Rate Period, plus 1 year as of the
date the request for a withdrawal is received.
The Market Value Adjustment is then equal to the Market Value Factor multiplied
by the Contract fund.
If these Contracts are no longer offered by Pruco Life, a rate equal to the most
recent Moody's Corporate Bond Yield Average-Monthly Average Corporate, for that
duration, as published by Moody's Investment Services, Inc. or any successor to
that service will be used. If that average is no longer published, a
substantially similar average, established by the insurance regulator where this
Contract is delivered, will be used.
A-2
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31,
----------------------
1994 1993
---------- ----------
($000'S)
ASSETS
Fixed maturities (market value
$2,596,172 and $2,951,602)........ $2,647,315 $2,835,251
Equity securities (cost $5,434 and
$4,405)........................... 3,326 2,788
Mortgage loans...................... 71,919 56,184
Investment in real estate........... 7,189 9,994
Policy loans........................ 493,862 420,271
Other long-term investments......... 4,044 2,753
Short-term investments.............. 191,455 201,079
---------- ----------
Total Investments................. 3,419,110 3,528,320
Cash................................ 27,780 671
Notes receivable from affiliates.... - 50,000
Interest receivable from
affiliates........................ - 23
Accrued investment income........... 59,382 56,785
Premiums due and deferred........... 16,821 16,569
Receivable from affiliates.......... 7,517 6,880
Federal income taxes--from
affiliate......................... 23,306 4,151
Other assets........................ 25,102 15,829
Assets held in Separate Accounts.... 3,511,784 3,492,876
---------- ----------
TOTAL ASSETS.......................... $7,090,802 $7,172,104
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Policy liabilities and insurance
reserves:
Future policy benefits and
claims.......................... $2,767,552 $2,912,283
Other policy claims and benefits
payable......................... 15,184 13,606
Interest Maintenance Reserve (IMR) 21,802 46,506
Payable to affiliates............... 30,257 54,286
Other liabilities................... 131,695 103,985
Asset Valuation Reserve (AVR)....... 23,690 22,692
Liabilities related to Separate
Accounts.......................... 3,424,535 3,399,953
---------- ----------
Total Liabilities..................... 6,414,715 6,553,311
---------- ----------
STOCKHOLDER'S EQUITY:
Common Stock, $10 par value;
authorized, 1,000,000 shares;
issued and outstanding, 250,000
shares............................ 2,500 2,500
Paid-in capital..................... 439,582 439,582
Unassigned surplus.................. 234,005 176,711
---------- ----------
Total Stockholder's Equity............ 676,087 618,793
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY................ $7,090,802 $7,172,104
========== ==========
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
----------------------------------
1994 1993 1992
---------- ---------- ----------
($000'S)
REVENUE
Premiums and annuity
considerations......... $ 611,820 $ 563,900 $ 497,088
Net investment income.... 245,977 260,939 274,037
Net realized investment
gains/(losses) (21,215) 8,878 28,117
Other income............. 13,259 18,882 16,043
---------- ---------- ----------
Total Revenue.............. 849,841 852,599 815,285
---------- ---------- ----------
BENEFITS AND EXPENSES
Current and future
benefits and claims.... 559,658 534,354 478,148
Commission expenses...... 30,169 28,386 17,956
General, administrative
and other expenses..... 119,309 129,171 111,745
---------- ---------- ----------
Total Benefits and
Expenses................. 709,136 691,911 607,849
---------- ---------- ----------
Income before provision
in lieu of federal
income tax............. 140,705 160,688 207,436
Provision in lieu of
federal income tax..... (87,750) (83,640) (96,578)
---------- ---------- ----------
NET INCOME................. $ 52,955 $ 77,048 $ 110,858
========== ========== ==========
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-1
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Years Ended December 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
($000'S)
COMMON STOCK
Balance, beginning of
year................... $ 2,500 $ 2,500 $ 2,500
Issued during year....... - - -
--------- --------- ---------
Balance, end of year..... 2,500 2,500 2,500
--------- --------- ---------
Paid-in Capital
Balance, beginning of
year................... 439,582 439,582 439,582
Paid-in during year...... - - -
--------- --------- ---------
Balance, end of year..... 439,582 439,582 439,582
--------- --------- ---------
Unassigned Surplus
Balance, beginning of
year................... 176,711 162,530 98,966
Net income............... 52,955 77,048 110,858
Net unrealized investment
gains/(losses)......... 5,814 (9,351) 2,750
(Increase) decrease in
non-admitted assets.... (477) 575 130
(Increase) decrease in
AVR.................... (998) 5,909 3,681
Dividends to
stockholder............ - (60,000) (53,855)
--------- --------- ---------
Balance, end of year..... 234,005 176,711 162,530
--------- --------- ---------
TOTAL STOCKHOLDER'S
EQUITY..................... $ 676,087 $ 618,793 $ 604,612
========= ========= =========
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
($000'S)
CASH FLOW FROM OPERATING ACTIVITIES
Net income................ $ 52,955 $ 77,048 $ 110,858
Adjustments to reconcile
net income to net cash
from operations:
Increase (decrease) in
policy liabilities and
insurance reserves.... (143,153) (124,602) 95,927
Net decrease in Separate
Accounts.............. 5,674 12,173 4,531
Net realized
investment(gains)/
losses................ 21,215 (8,878) (28,117)
Depreciation,
amortization and other
non-cash items........ 314 1,907 (1,810)
(Increase) decrease in
operating assets:
Policy loans.......... (73,591) (71,472) (86,306)
Notes receivable from
affiliates.......... 50,000 9,000 4,000
Interest receivable
from affiliates..... 23 420 361
Accrued investment
income.............. (2,597) 880 (45)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
Years Ended December 31,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
($000'S)
Premiums due and
deferred............ (252) (880) 47,374
Receivable from
affiliates.......... (637) 1,970 10,818
Federal income
taxes--from
affiliate........... (19,155) 6,879 (11,030)
Other assets.......... (9,273) (9,481) (3,476)
Increase (decrease) in
operating liabilities:
Payable to
affiliates............ (24,029) 13,260 (53,063)
Federal income
taxes--to
affiliate........... - - (497)
Other liabilities..... 27,710 34,632 (50,303)
----------- ----------- -----------
Cash Flow From (Used For)
Operating Activities...... (114,796) (57,144) 39,222
----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from the sale/
maturity of:
Fixed maturities........ 2,710,424 1,687,992 3,898,399
Equity securities....... 1,909 4,032 1,791
Mortgage loans.......... 10,821 21,691 954
Other long-term
investments........... 607 520 -
Investment in real
estate................ 8,676 - -
Payments for the purchase
of:
Fixed maturities........ (2,561,081) (1,483,234) (3,986,331)
Equity securities....... (2,436) (3,068) (1,170)
Mortgage loans.......... (35,276) (918) -
Other long-term
investments........... (1,584) (84) (860)
Investment in real
estate................ - (20) (71)
Net proceeds (payments)
of short-term
investments........... 9,845 (116,735) 108,858
----------- ----------- -----------
Cash Flow From Investing
Activities................ 141,905 110,176 21,570
----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid............ - (60,000) (53,855)
----------- ----------- -----------
Net increase (decrease) in
Cash.................... 27,109 (6,968) 6,937
Cash, beginning of year... 671 7,639 702
----------- ----------- -----------
CASH, END OF YEAR........... $ 27,780 $ 671 $ 7,639
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash financing:
Investment in real
estate from foreclosed
mortgage loans.......... $ 4,139 $ 7,300 $ 6,338
=========== =========== ===========
Cash paid in lieu of
income taxes............ $ 73,903 $ 76,760 $ 108,105
=========== =========== ===========
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-2
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1994, 1993, and 1992
1. Summary of Significant Accounting Policies and Principles
A. Principles of Consolidation
The accompanying financial statements include the consolidated accounts of
Pruco Life Insurance Company (Pruco Life), a stock life insurance company,
and its subsidiaries (collectively, the Company). Pruco Life is a
wholly-owned subsidiary of The Prudential Insurance Company of America
(The Prudential), a mutual life insurance company. The Company markets
individual life insurance and single pay deferred annuities primarily
through The Prudential's sales force. All significant intercompany
balances and transactions have been eliminated in consolidation.
B. Basis of Presentation
The financial statements are presented in conformity with Generally
Accepted Accounting Principles (GAAP), which for mutual life insurance
companies and their life insurance subsidiaries are statutory accounting
practices prescribed or permitted by state regulatory authorities in the
domiciliary states. Certain reclassifications have been made to the 1992
and 1993 financial statements and footnotes to conform to the 1994
presentation. Included in the Statement of Operations are certain items
which, under statutory accounting practices, are charged or credited
directly to surplus.
In 1994, The American Institute of Certified Public Accountants issued
Statement of Position 94-5 "Disclosures of Certain Matters in the
Financial Statements of Insurance Enterprises" ("SOP 94-5") which requires
insurance enterprises to disclose in their financial statements the
accounting methods used in their statutory financial statements that are
permitted by the state insurance departments rather than prescribed
statutory accounting practices.
Pruco Life Insurance Company, domiciled in the State of Arizona, prepares
its statutory financial statements in accordance with accounting practices
prescribed or permitted by the Arizona Department of Insurance ("the
Department"), and its insurance subsidiaries prepare statutory financial
statements in accordance with accounting practices prescribed or permitted
by their domiciliary home state insurance department. Prescribed statutory
accounting practices include publications of the National Association of
Insurance Commissioners (NAIC), state laws, regulations, and general
administrative rules. Permitted statutory accounting practices encompass
all accounting practices not so prescribed.
The Company has established guaranty fund liabilities for the insolvencies
of certain life insurance companies. The liabilities were established net
of premium tax credits and federal income tax. Prescribed statutory
accounting practices do not address the establishment of liabilities for
guaranty fund assessments.
The Company, with permission from the Department, prepares an Annual
Report that differs from the Annual Statement filed with the Department in
that subsidiaries are consolidated and certain financial statement
captions are presented differently.
B-3
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1994, 1993, and 1992
The following is a reconciliation of Pruco Life's statutory net income with net
income per the consolidated financial statements.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
($000'S)
<S> <C> <C> <C>
Pruco Life Statutory Net Income including net gains
and losses on sales of investments................ $ 49,374 $ 79,405 $ 126,507
Adjustments to reconcile to net income as follows:
Dividends from subsidiary......................... - (26,000) (27,162)
Change in determination of deferred premiums...... - - (12,495)
Provision for future assessments.................. 349 577 (3,493)
Net gain from operations in Separate Accounts..... 7,508 5,572 2,563
Income tax applicable to other than current
year............................................ (25,467) - -
Other............................................. 7,684 (2,429) 1,459
Subsidiaries' Net Income.......................... 13,507 19,923 23,479
--------- --------- ---------
Net Income.......................................... $ 52,955 $ 77,048 $ 110,858
========= ========= =========
</TABLE>
C. Future Application of Accounting Standards
The Financial Accounting Standards Board (the "FASB") issued Financial
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises", which, as
amended is effective for fiscal years beginning after December 15, 1995.
Interpretation No. 40 changes the current practice of the Company with
respect to utilizing statutory basis financial statements for general
purposes in that it would not allow such financial statements to be
referred to as having been prepared in accordance with GAAP.
Interpretation No. 40 requires GAAP financial statements to apply all GAAP
pronouncements, unless specifically exempted. Implementation of the
Interpretation will require significant effort and judgment as to
determining GAAP for insurance operations.
The Company is currently unable to determine the impact of Interpretation
No. 40 on its financial statements.
B-4
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1994, 1993, and 1992
D. Selected Financial Data of Pruco Life
Pruco Life markets the Future Value Annuity Contract, an individual
deferred annuity contract. Only assets of Pruco Life, shown below, are
available to meet the guarantees under this annuity contract. The
following is the selected financial data of Pruco Life:
<TABLE>
<CAPTION>
December 31,
----------------------
1994 1993
---------- ----------
($000'S)
<S> <C> <C>
Assets:
Investments................................................. $2,758,088 $2,835,163
Investment in subsidiaries.................................. 169,816 156,515
Other assets................................................ 135,778 133,020
Assets held in Separate Accounts.............................. 2,869,734 2,846,792
---------- ----------
Total Assets.................................................. $5,933,416 $5,971,490
========== ==========
Liabilities:
Policy liabilities and insurance reserves................... $2,296,987 $2,417,098
Other liabilities........................................... 163,322 165,974
Liabilities related to Separate Accounts 2,797,020 2,769,625
---------- ----------
Total Liabilities........................................... $5,257,329 $5,352,697
========== ==========
</TABLE>
Years Ended December 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
($000'S)
Revenues...................................... $ 698,685 $ 716,402 $ 675,863
--------- --------- ---------
Benefits, expenses and taxes.................. 659,237 633,277 561,322
--------- --------- ---------
Net Income.................................... $ 39,448 $ 83,125 $ 114,541
========= ========= =========
E. Investments
Fixed maturities, which include long-term bonds and redeemable preferred
stock, are stated primarily at amortized cost. Certain investments in this
category were non-income producing at December 31, 1994 and 1993. These
investments amounted to $13.2 million and $2 million, respectively. Equity
securities, which consist primarily of common stock, are carried at market
value which is based on quoted market prices, where available, or prices
provided by the National Association of Insurance Commissioners' (NAIC)
Securities Valuation Office (SVO).
Mortgage loans are carried at the lower of the fair value of the
underlying property or unpaid principal balance. At December 31, 1994, one
loan was in foreclosure in the amount of $6 million. At December 31, 1993,
aside from one loan in foreclosure, one mortgage, in the amount of $3
million, was in default.
Policy loans are stated primarily at unpaid principal balances.
All the Company's real estate investments were acquired through
foreclosure during 1994 and 1993. These properties are carried at the
lower of cost or fair value less disposition costs. Fair value is
considered to be the amount that could reasonably be expected in a current
transaction between willing parties, other than in forced or liquidation
sale. Depreciation on these properties for the years ended December 31,
1994 and 1993 was $456 thousand and $289 thousand, respectively.
Other long-term investments, which consist solely of limited partnerships,
are valued at the aggregate net equity in the partnerships. There were no
non-income producing investments in this category at December 31, 1994.
Certain investments in this category were non-income producing at December
31, 1993. These investments amounted to $118 thousand.
Short-term investments are stated at amortized cost, which approximates
fair value.
B-5
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1994, 1993, and 1992
Realized investment gains and losses are reported based on specific
identification of the investments sold.
F. Future Policy Benefits, Losses and Claims
Reserves for individual life insurance are calculated using various
methods, interest rates and mortality tables which produce reserves that
meet the aggregate requirements of state laws and regulations.
Approximately 7% of individual life insurance reserves are determined
using the net level premium method, or by using the greater of a net level
premium reserve or the policy cash value. About 93% of individual life
insurance reserves are calculated according to the Commissioner's Reserve
Valuation Method ("CRVM"), or methods which compare CRVM reserves to
policy cash values.
Reserves for individual annuity contracts are determined using the
Commissioner's Annuity Reserve Valuation Method.
For life insurance, unpaid claims include estimates of both the death
benefits on reported claims and those which are incurred but not reported.
G. Revenue Recognition and Related Expenses
Premium revenues are recognized as income over the premium paying period
of the related policies. Annuity considerations are recognized as revenue
when received. Expenses, including new business acquisition costs such as
commissions, are charged to operations as incurred.
H. Asset Valuation Reserve and Interest Maintenance Reserve
The Asset Valuation Reserve (AVR) and the Interest Maintenance Reserve
(IMR) are required reserves for assets of life insurance companies. AVR is
calculated based on a statutory formula and designed to mitigate the
effect of valuation and credit related losses on unassigned surplus.
The components of AVR at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Fixed Equity Real Estate
Maturities Mortgages Securities & Other Inv. Total
----------- ----------- ----------- ------------ ---------
($000'S)
<S> <C> <C> <C> <C> <C>
Transfer from December 31, 1992 --
AVR ............................... $23,152 $5,139 $310 $ 0 $28,601
Additions ........................... 7,197 0 650 2,353 10,200
Deductions .......................... (12,055) (1,440) (261) (2,353) (16,109)
------- ------ ---- ------ -------
End of Year 1993 -- AVR ............. 18,294 3,699 699 0 22,692
======= ====== ==== ====== =======
Beginning of Year 1994 -- AVR ....... 18,294 3,699 699 0 22,692
Additions ........................... 12,062 2,166 348 2,047 16,623
Deductions .......................... (10,454) (4,355) (314) (502) (15,625)
------- ------ ---- ------ -------
End of Year 1994 -- AVR ............. $19,902 $1,510 $733 $1,545 $23,690
======= ====== ==== ====== =======
</TABLE>
The IMR is designed to reduce the fluctuations of surplus resulting from
market interest rate movements. Predominantly all interest rate related
realized capital gains and losses are deferred and amortized into
investment income over the remaining life of the investment sold. The IMR
balance was $21.8 million and $46.5 million at December 31, 1994 and 1993,
respectively. "Net realized investment gains/(losses)" of $(19.9) million
and $19.2 million were deferred in 1994 and 1993, respectively. Amortized
into "Net investment income" were $4.8 million and $6.7 million of IMR for
the year ended December 31, 1994 and 1993, respectively.
I. Federal Income Taxes
The Company is a member of a group of affiliated companies which join in
filing a consolidated federal tax return. Pursuant to a tax allocation
agreement, current tax liabilities are determined for individual companies
based upon their separate return basis taxable income. Members with
taxable income incur an amount in lieu of the separate return basis
federal tax. Members with a loss for tax purposes recognize a current
benefit in proportion to the amount of their losses utilized in computing
consolidated taxable income. Differences
B-6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1994, 1993, and 1992
between estimated liabilities and actual payments are included in the
current year's operations as an adjustment to the provision in lieu of
income taxes. For the years 1993 and 1992, the Company was allocated a
portion of the consolidated income tax liability attributable to Section
809 of the Internal Revenue Code (commonly referred to as "Equity Tax").
Beginning in 1994, the Company will no longer be allocated this Equity
Tax.
Taxes on the Company are calculated under the Internal Revenue Code of
1986 which provides that life insurance companies be taxed on their gain
from operations after dividends to policyholders. In calculating this tax,
the Code requires the capitalization and amortization of policy
acquisition expenses.
J. Separate Accounts
Separate accounts represent funds for which investment income and
investment gains and losses accrue directly to, and investment risk is
borne by, the policyholders. Each account has specific investment
objectives. Assets are carried at market value. Deposits to such accounts
are included in revenues with a corresponding liability increase included
in benefits and expenses. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of the Company. Consequently, management believes that it is
appropriate to combine Separate Account policyholder net investment income
and net realized and unrealized capital gains/(losses) along with benefit
payments and change in reserves in "Current and future benefits and
claims". Policyholder net investment income and net realized and
unrealized gains/(losses) for the years ended December 31, 1994, 1993 and
1992 were ($28) million, $443 million and $223 million, respectively.
2. Federal Income Taxes
The following is a reconciliation of the Company's federal tax provision as
computed at the federal tax rate with that computed at the Company's
effective tax rate. The below amounts include federal income tax applicable
to prior years, where appropriate.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
($000'S)
<S> <C> <C> <C>
Operating income before federal income taxes.......... $ 140,705 $ 160,688 $ 207,436
Statutory tax rate.................................... 35% 35% 34%
--------- --------- ---------
Expected federal income taxes......................... 49,247 56,241 70,528
Tax effect of:
Statutory/tax policy reserve difference............. 19,949 14,577 (16,381)
Timing differences in tax/book income recognition on
investments....................................... 11,608 4,055 14,404
Timing differences in tax/book income recogni-
tion--other....................................... (6,816) (415) 921
Change in determination of deferred premiums........ - - 6,128
Decrease/(Increase) in life insurance premiums
deferred and uncollected.......................... (88) (308) 2,650
Capitalization of policy acquisition expenses....... 13,850 7,374 8,158
Allocated equity tax................................ - 2,116 10,170
--------- --------- ---------
Federal income taxes.................................. $ 87,750 $ 83,640 $ 96,578
========= ========= =========
Effective tax rate.................................... 62% 52% 47%
========= ========= =========
</TABLE>
B-7
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1994, 1993, and 1992
3. Net Investment Income
Net investment income consisted of:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
($000'S)
<S> <C> <C> <C>
Gross investment income
Fixed maturities.................................... $ 196,909 $ 216,660 $ 237,884
Equity securities................................... 14 22 14
Mortgage loans...................................... 4,041 6,359 7,529
Investment in real estate........................... 2,146 2,066 1,258
Policy loans........................................ 25,692 21,741 17,437
Short-term investments.............................. 12,676 9,031 11,638
Other............................................... 5,075 3,945 2,681
--------- --------- ---------
246,553 259,824 278,441
Investment expenses................................... (5,421) (5,570) (7,687)
--------- --------- ---------
Net investment income before IMR...................... 241,132 254,254 270,754
Amortization of Interest Maintenance Reserve.......... 4,845 6,685 3,283
--------- --------- ---------
Net investment income................................. $ 245,977 $ 260,939 $ 274,037
========= ========= =========
</TABLE>
4. Investments and Investment Gains (Losses)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
($000'S)
<S> <C> <C> <C>
Realized Gains (Losses)
Fixed maturities..................................... $ (38,180) $ 32,471 $ 69,559
Equity securities.................................... 503 607 967
Mortgage loans....................................... (4,581) (2,592) (3,889)
Investment in real estate............................ 1,184 (2,004) (1,757)
Other................................................ (1) (411) 517
Tax effected amounts transferred to Interest
Maintenance Reserve.................................. 19,860 (19,193) (37,280)
--------- --------- ---------
Net realized investment gains.......................... $ (21,215) $ 8,878 $ 28,117
========= ========= =========
Unrealized Gains (Losses)
Fixed maturities..................................... 5,430 (9,380) 3,637
Equity securities.................................... (490) 260 (1,305)
Other................................................ 874 (231) 418
--------- --------- ---------
Net unrealized investment gains (losses)............... 5,814 (9,351) 2,750
Balance beginning of year.............................. (18,166) (8,815) (11,565)
--------- --------- ---------
Balance end of year.................................... $ (12,352) $ (18,166) $ (8,815)
========= ========= =========
</TABLE>
B-8
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1994, 1993, and 1992
Equity Securities at December 31,
($000'S)
Unrealized
--------------------------------
Cost Gains Losses
--------- --------- ----------
1994........................................ $5,434 $ 386 $2,494
1993........................................ 4,405 742 2,359
1992........................................ 4,762 1,093 2,969
Fixed Maturities
($000'S)
At December 31,
Increase (Decrease)
in Difference
Between Market Value
Amortized Market and Amortized
Cost Value Cost During the Year
---------- ---------- ----------------------
1994........................... $2,647,315 $2,596,172 $(167,494)
1993........................... 2,835,251 2,951,602 10,453
1992........................... 3,025,030 3,130,928 (74,958)
The amortized cost and estimated market value of fixed maturities at December
31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
($000'S) ($000'S) ($000'S) ($000'S)
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies... $ 409,678 $ 224 $20,259 $ 389,643
Obligations of U.S. and political
subdivisions................................ - - - -
Debt securities issued by foreign governments
and their agencies.......................... 86,026 2,075 2,310 85,791
Corporate securities.......................... 1,960,296 17,005 43,521 1,933,780
Mortgage-backed securities.................... 191,315 1,429 5,786 186,958
---------- ------- ------- ----------
Total......................................... $2,647,315 $20,733 $71,876 $2,596,172
========== ======= ======= ==========
<CAPTION>
1993
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
($000'S) ($000'S) ($000'S) ($000'S)
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies... $ 374,797 $ 3,819 $ 638 $ 377,978
Obligations of U.S. and political
subdivisions................................ 3,705 1,106 - 4,811
Debt securities issued by foreign governments
and their agencies.......................... 99,524 6,632 3 106,153
Corporate securities.......................... 2,070,066 107,643 4,514 2,173,195
Mortgage-backed securities.................... 287,159 6,223 3,917 289,465
---------- -------- ------ ----------
Total......................................... $2,835,251 $125,423 $9,072 $2,951,602
========== ======== ====== ==========
</TABLE>
B-9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1994, 1993, and 1992
The amortized cost and estimated market value of debt securities at December 31,
1994 by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
($000'S) ($000'S)
---------- ----------
<S> <C> <C>
Due in one year or less................................. $ 127,296 $ 130,795
Due after one year through five years.................. 1,823,406 1,794,674
Due after five years through ten years................. 402,232 384,814
Due after ten years.................................... 103,066 98,931
---------- ----------
2,456,000 2,409,214
Mortgage-backed securities............................. 191,315 186,958
---------- ----------
Total.................................................. $2,647,315 $2,596,172
========== ==========
</TABLE>
Proceeds from the sale/maturity of debt securities during 1994, 1993 and
1992 were $2.7 billion, $1.7 billion and $3.9 billion, respectively. Gross
gains of $16.8 million, $44.5 million and $90.4 million and gross losses
of $49.8 million, $12.0 million and $20.8 million were realized on those
sales during 1994, 1993, and 1992, respectively.
The Company invests in both investment grade and non-investment grade
securities. The SVO of the NAIC rates fixed maturities held by insurers
(SVO rated securities accounted for approximately 93.6% and 93.0% of the
Company's total fixed maturities balances at both December 31, 1994 and
1993) for regulatory purposes and groups investments into six categories
ranging from highest quality bonds to those in or near default. The lowest
three NAIC categories represent, for the most part, high-yield securities
and are defined by the NAIC as including any security with a public agency
rating of B+ or B1 or less.
Included in "fixed maturities" are securities that are classified by the
NAIC as being in the lowest three rating categories. These approximated
1.5% and 1.6% of the Company's assets at December 31, 1994 and 1993,
respectively. The amount by which the market value of these securities
exceeded the carrying value was approximately $(.9) million and 1.0
million at December 31, 1994 and 1993, respectively.
5. Related Party Transactions
A. Service Agreements
The Company, The Prudential, Pruco Life of New Jersey and Pruco Securities
Corporation, an indirect wholly-owned subsidiary of The Prudential,
operate under service and lease agreements whereby services of officers
and employees, supplies, use of equipment and office space are provided.
The net cost of these services allocated to the Company were $78 million,
$98 million, and $71 million for the years ended December 31, 1994, 1993,
and 1992, respectively.
In a reorganization of the parent's Individual Insurance Department,
effective January 1, 1993, the corporate staff of the Company was absorbed
by the parent. The costs associated with these employees, which were
previously borne by the Company, are now charged to the Company under the
service and lease agreements with the parent.
B. Employee Benefit Plans
Pension Plans
The Company is a wholly-owned subsidiary of The Prudential which sponsors
a defined benefit pension plan. The defined benefit pension plan is
generally based on career average earnings and credit length of service.
The Prudential's funding policy is to contribute annually the amount
necessary to satisfy the Internal Revenue Service contribution guidelines.
No pension expense for contributions to the plan was allocated to the
Company in 1994, 1993 or 1992 because the plan was subject to the full
funding limitation under the Internal Revenue Code.
B-10
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1994, 1993, and 1992
Postretirement Life and Health Benefits
The Prudential also sponsors postretirement defined benefit plans which
provide certain life insurance and health care benefits. Substantially all
employees may become eligible to receive a benefit if they retire after
age 55 with at least 10 years of service. Prior to 1993, The Prudential's
policy was to fund the cost of providing these benefits in the years that
the employees were providing services to the Company. Effective for 1993,
The Prudential has recognized the cost of these benefits in accordance
with the accounting policy issued by the National Association of Insurance
Commissioners (NAIC). The NAIC's policy is similar to SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
except that the NAIC policy excludes non-vested employees and only allows
the transition obligation to be recognized immediately or amortized over
twenty years. The Prudential has elected to amortize its transition
obligation over twenty years. A provision for contributions to the
postretirement fund is included in the net cost of services allocated to
the Company discussed above for the years ended December 31, 1994, 1993
and 1992.
C. Reinsurance
The Company currently has two reinsurance agreements in place with The
Prudential (the reinsurer). Specifically: reinsurance of a 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, a Yearly Renewable Term agreement 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 ($2.5 million).
These agreements had no material effect on net income for the years ended
December 1994, 1993, and 1992.
D. Other Transactions
A certificate of deposit issued by The Prudential Bank and Trust Company
of $50 million as of December 31, 1993 was not renewed in 1994. The
Company also received a $9 million payment settlement of a promissory note
from Pruco Inc. during 1993.
The Company has issued approximately 375 variable universal life contracts
to The Prudential for the purpose of funding non-qualified pension
benefits for certain employees. Included in insurance premiums and annuity
considerations for the years ended December 31, 1994, 1993 and 1992 are
respectively, $12 million, $12 million and $13 million, which are
attributable to these contracts.
6. 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 12 month period without notification or approval is
limited to the lesser of 10% of 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,
1994, the Company would be permitted a maximum of $60 million in dividend
distributions in 1995, all of which could be paid in cash, without approval
from The State of Arizona Department of Insurance.
7. Fair Value Information
The fair value amounts have been determined by the Company using available
information and reasonable valuation methodologies for only those accounts
for which fair value disclosures are required. Considerable judgment is
necessarily applied in interpreting data to develop the estimates of fair
value. Accordingly, the 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 fair
values. For all other financial instruments presented in the table, the
carrying value is a reasonable estimate of fair value.
Fixed Maturities. Fair values for fixed maturities, 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.
B-11
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1994, 1993, and 1992
Treasury yield curve and corporate bond yield curve adjusted for the type of
issue, its current quality and its remaining average life. The fair value of
certain non-performing private placement securities is based on amounts
provided by state regulatory authorities.
Mortgage Loans. The fair value of the commercial mortgage and agricultural
loan portfolio is primarily based upon the present value of the scheduled
cash flows discounted at the appropriate U.S. Treasury rate, adjusted for the
current market spread for a similar quality mortgage. For certain
non-performing and other loans, fair value is based upon the value of the
underlying collateral.
Policy Loans. The estimated fair value is calculated using a discounted cash
flow model based upon current U.S. Treasury rates and historical loan
repayments.
Investment-Type Insurance Contract Liabilities. Fair values for the Company's
investment-type insurance contract liabilities are estimated using a
discounted cash flow model, based on interest rates currently being offered
for similar contracts.
The following table discloses the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
---------------------- ----------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- ---------- ---------- ----------
($000'S) ($000'S)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities $2,647,315 $2,596,172 $2,835,251 $2,951,602
Equity securities 3,326 3,326 2,788 2,788
Mortgage loans 71,919 71,805 56,184 58,738
Policy loans 493,862 448,617 420,271 416,243
Other long-term investments 4,044 4,044 2,753 2,753
Short-term investments 191,455 191,455 201,079 201,079
Financial Liabilities:
Investment-type insurance contracts $ 794,691 $ 761,324 $1,053,025 $1,033,692
</TABLE>
8. 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. In the opinion of the Company, any ultimate liability
which would result from such litigation would not have a material adverse
effect on the Company's financial position.
B-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying consolidated statements of financial position
of Pruco Life Insurance Company and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of operations, stockholder's
equity, and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Pruco Life Insurance Company and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
March 6, 1995
B-13
<PAGE>
FUTURE VALUE ANNUITY (SM)
Individual Deferred
Annuity Contracts
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 445-4571
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
<PAGE>
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Prudential Directors' and Officers' Liability and Corporation Reimbursement
Program, purchased by The Prudential from Aetna Casualty & Surety Company, CNA
Insurance Company, Lloyds of London, Great American Insurance Company, Reliance
Insurance Company, Corporate Officers & Directors Assurance Ltd., A.C.E.
Insurance Company, Ltd., XL Insurance Company, Ltd., and Zurich-American
Insurance Company, provides coverage for "Loss" (as defined in the policies)
arising from any claim or claims by reason of any actual or alleged act, error,
misstatement, misleading statement, omission, or breach of duty by persons in
the discharge of their duties solely in their capacities as directors or
officers of The Prudential, any of its subsidiaries, or certain investment
companies affiliated with The Prudential. Coverage is also provided to the
individual directors or officers for such Loss, for which they shall not be
indemnified. Loss essentially is the legal liability on claims against a
director or officer, including adjudicated damages, settlements and reasonable
and necessary legal fees and expenses incurred in defense of adjudicatory
proceedings and appeals therefrom. Loss does not include punitive or exemplary
damages or the multiplied portion of any multiplied damage award, criminal or
civil fines or penalties imposed by law, taxes or wages, or matters which are
insurable under the law pursuant to which the policies are construed.
There are a number of exclusions from coverage. Among the matters excluded are
Losses arising as the result of (1) claims brought about or contributed to by
the criminal or deliberate fraudulent acts of a director or officer, and (2)
claims arising from actual or alleged performance of, or failure to perform,
services as, or in any capacity similar to, an investment adviser, investment
banker, underwriter, broker or dealer, as those terms are defined in the
Securities Act of 1933, the Securities Exchange Act of 1934, the Investment
Advisers Act of 1940, the Investment Company Act of 1940, any rules or
regulations thereunder, or any similar federal, state or local statute, rule or
regulation.
The limit of coverage under the Program for both individual and corporate
reimbursement coverage is $150,000,000. The retention for corporate
reimbursement coverage is $10,000,000 per loss.
The relevant provisions of New Jersey law permitting or requiring
indemnification, New Jersey being the state of organization of The Prudential,
can be found in Section 14A:3-5 of the New Jersey Statutes Annotated. The
relevant provisions of Arizona law, Arizona being the state of organization of
Pruco Life, can be found in Section 10-005 of the Arizona Statutes Annotated.
The text of The Prudential's by-law 27, which relates to indemnification of
officers and directors, is incorporated by reference to Exhibit 1.A.(6)(b) of
Post-Effective Amendment No. 4 to Form S-6, Registration No. 33-20000, filed
March 2, 1990, on behalf of The Prudential Variable Appreciable Account. The
text of Pruco Life's by-laws, Article VIII, which relates to indemnification of
officers and directors, is incorporated by reference to Exhibit (3)(b) to this
Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
(1) Distribution Agreement between Pruco Securities Corporation
(Underwriter) and Pruco Life Insurance Company (Registrant), dated
October 15, 1990. (Note 4)
(3) (a) Articles of Incorporation of Pruco Life Insurance Company, as
amended July 25, 1972. (Note 2)
(b) By-laws of Pruco Life Insurance Company, as amended June 14,
1983. (Note 3)
(c) Resolution of the Board of Directors of Pruco Life Insurance
Company establishing the Pruco Life Modified Guaranteed Annuity
Account. (Note 4)
(5) Opinion and Consent of John P. Gualtieri, Jr. to the legality of the
securities being registered. (Note 1)
(10) Modified Guaranteed Annuity Contract. (Note 4)
(22) Subsidiary Organizational Chart. (Note 6)
(23) Written consent of Deloitte & Touche LLP, independent auditors. (Note
1)
(24) (b) Written consent of John P. Gualtieri, Jr. (incorporated by
reference to Exhibit (5) hereto)
(25) Powers of Attorney.
(Note 5)
(27) Financial Data Schedule. (Note 1)
(28) (a) Enhanced Death Benefit Endorsement PLI 387-91 to the Future Value
Annuity Contract. (Note 6)
(b) Renewal Endorsement PLI 427-92 to the Future Value Annuity
Contract. (Note 7)
(c) Waiver of Withdrawal Charges rider PLI 400-92 to the Future Value
Annuity Contract (at issue). (Note 7)
(d) Waiver of Withdrawal Charges rider PLI 401-92 to the Future Value
Annuity Contract (after issue). (Note 7)
(e) Spousal Continuance Rider PLI 436-93 (Note 8)
(f) Endorsement altering the Assignment provision. (Note 1)
(b) Financial Statement Schedules
Pruco Life Insurance Company and Subsidiaries:
Schedule I--Summary of Investments--Other than Investments in
Affiliates. (Note 1)
Schedule VI--Schedule of Reinsurance. (Note 1)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Form N-8B-2, Registration No. 2-80513,
filed November 22, 1982, on behalf of the Pruco Life Variable
Insurance Account.
(Note 3) Incorporated by reference to Post-Effective Amendment No. 13 to Form
S-6, Registration No. 2-89558, filed March 2, 1989, on behalf of the
Pruco Life Variable Appreciable Account.
(Note 4) Incorporated by reference to Registrant's Form S-1 Registration
Statement, filed November 2, 1990.
(Note 5) Incorporated by reference to Form S-1, Registration No. 33-8670, filed
November 23, 1994 on behalf of the Pruco Life Real Property Account.
(Note 6) Incorporated by reference to Registrant's Form S-1 Registration
Statement, filed April 9, 1992.
(Note 7) Incorporated by reference to Post-Effective Amendment No. 3 to this
Registration Statement, filed April 15, 1993.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 4 to this
Registration Statement filed April 7, 1994.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Post-Effective Amendment No. 5 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Newark, State of New Jersey, on the 3rd day of April, 1995.
Pruco Life Insurance Company
(Registrant)
By: /s/ Esther H. Milnes
-----------------------
Esther H. Milnes
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 5 to the Registration Statement has been signed by the following
persons in the capacities and the date indicated.
Signature and Title April 3, 1995
/s/ *
- -----------------------------------------
Robert P. Hill
Chairman of the Board and Director
/s/ *
- -----------------------------------------
Esther H. Milnes
President and Director
/s/ *
- -----------------------------------------
Stephen P. Tooley
Chief Accounting Officer and Comptroller
/s/ * *By: /s/ Thomas C. Castano
- ----------------------------------------- --------------------
E. Michael Caulfield Thomas C. Castano
Director (Attorney-in-Fact)
/s/ *
- -----------------------------------------
Garnett L. Keith, Jr.
Director
/s/ *
- -----------------------------------------
Ira J. Kleinman
Director
/s/ *
- -----------------------------------------
I. Edward Price
Director
/s/ *
- -----------------------------------------
Donald G. Southwell
Director
II-3
<PAGE>
EXHIBIT INDEX
(a)(5) Opinion and Consent of John P. Gualtieri, Jr. as to Page II-5
the legality of the securities being registered.
(a)(23) Written consent of Deloitte & Touche LLP, independent Page II-6
auditors.
(a)(27) Financial Data Schedule. Page II-7
(a)(28)(f) Endorsement altering the Assignment provision. Page II-8
(b) Financial Statement Schedules: Page II-9
Pruco Life Insurance Company and Subsidiaries:
Schedule I--Summary of Investments--Other than Investments in
Affiliates.
Schedule VI--Schedule of Reinsurance.
II-4
Exhibit (a)(5)
April 3, 1995
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
Gentlemen:
In my capacity as Senior Vice President and General Counsel of Pruco Life
Insurance Company ("Pruco Life"), I have reviewed the establishment of the Pruco
Life Modified Guaranteed Annuity Account (the "Account") on September 25, 1990
by the Executive Committee of the Board of Directors of Pruco Life as a separate
account for assets applicable to certain modified guaranteed annuity contracts,
pursuant to the provisions of Section 20-651 of the Arizona Insurance Code. I
have also participated in the preparation and review of the Registration
Statement on Form S-1, as amended, filed by Pruco Life with the Securities and
Exchange Commission (Registration No. 33 - 37587) under the Securities Act of
1933 for the registration of certain modified guaranteed annuity contracts
issued with respect to the Account.
I am of the following opinion:
(1) Pruco Life was duly organized under the laws of Arizona and is a
validly existing corporation.
(2) The Account has been duly created and is validly existing as a
separate account pursuant to the aforesaid provisions of Arizona law.
(3) The modified guaranteed annuity contracts are legal and binding
obligations of Pruco Life in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
John P. Gualtieri, Jr.
II-5
Exhibit (a)(23)
INDEPENDENT AUDITORS' CONSENT
We consent to (a) the use in this Post-Effective Amendment No.5 to Registration
Statement No. 33-37587 on form S-1 of Pruco Life Insurance Company of our report
dated March 6, 1995, relating to the consolidated financial statements of Pruco
Life Insurance Company and subsidiaries appearing in the Prospectus, which is
part of this Registration Statement; (b) the use in Part II of this Registration
Statement of our report dated March 6, 1995, relating to the financial statement
schedules of Pruco Life Insurance Company and subsidiaries listed in Item 16(b);
and (c) the reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
April 7, 1995
II-6
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 2,647,315
<DEBT-MARKET-VALUE> 2,569,172
<EQUITIES> 3,326
<MORTGAGE> 71,919
<REAL-ESTATE> 7,189
<TOTAL-INVEST> 3,419,110
<CASH> 27,780
<RECOVER-REINSURE> 38
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 7,090,802
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 15,184
<POLICY-HOLDER-FUNDS> 2,253
<NOTES-PAYABLE> 0
<COMMON> 2,500
0
0
<OTHER-SE> 673,587
<TOTAL-LIABILITY-AND-EQUITY> 7,090,802
611,820
<INVESTMENT-INCOME> 245,977
<INVESTMENT-GAINS> (21,215)
<OTHER-INCOME> 13,259
<BENEFITS> 559,658
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 149,478
<INCOME-PRETAX> 140,705
<INCOME-TAX> 87,750
<INCOME-CONTINUING> 52,955
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,955
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
Exhibit (a)(28)(f)
ENDORSEMENTS
(Only we can endorse this contract.)
ALTERATION OF TEXT
The provision of this contract entitled "Assignment" is
replaced at issue by the following:
Assignment We will not be deemed to know of an assignment unless we
receive it, or a copy of it, at our Home Office. We are not
obliged to see that an assignment is valid or sufficient. This
contract may not be assigned to any employee benefit plan or
program without our consent. This contract may not be assigned
if such assignment would violate any federal, state, or local
law or regulation prohibiting sex distinct rates for
insurance.
The Prudential Insurance Company of America,
By Dorothy K. Light
Secretary
II-8
Pruco Life Insurance Company and Subsidiaries
Schedule I - Summary of Investments - Other than Investments in Affiliates
December 31, 1994
($000's)
<TABLE>
<CAPTION>
Amount
at which
shown on
Market the Balance
Type of investment Cost Value Sheet
------------------ ---------- ---------- ----------
<S> <C> <C> <C>
Fixed Maturities:
Bonds:
United States Government and government
agencies and authorities ............ $ 600,992 $ 576,601 $ 600,992
Foreign governments ................... 86,027 85,791 86,027
Public Utilities ...................... 174,687 174,972 174,687
All other corporate bonds ............. 1,783,448 1,756,651 1,783,448
Redeemable preferred stock ............ 2,161 2,157 2,161
---------- ---------- ----------
Total fixed maturities ........... 2,647,315 2,596,172 2,647,315
---------- ---------- ----------
Equity Securities:
Common Stock ................................. 4,531 2,765 2,765
Nonredeemable preferred stock ................ 903 561 561
---------- ---------- ----------
Total equity securities .......... 5,434 3,326 3,326
Mortgage loans on real estate .................. 71,919 XXXXXX 71,919
Real Estate .................................... 7,189 XXXXXX 7,189
Policy Loans ................................... 493,862 XXXXXX 493,862
Other long-term investments .................... 4,044 XXXXXX 4,044
Short-term investments ......................... 191,455 XXXXXX 191,455
---------- ----------
Total investments ................ $3,421,218 $3,419,110
========== ==========
</TABLE>
II-9
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Schedule VI - Schedule of Reinsurance
For Year Ended December 31, 1994
($000's)
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
Amount companies companies amount net
----------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Life insurance in force ......... $48,003,675 $531,166 $ 0 $47,472,509 N/A
=========== ======== ========== =========== ============
Life insurance premiums and
annuity considerations ........ $ 613,237 $ 1,476 $ 59 $ 611,820 .010%
=========== ======== ========== =========== ============
</TABLE>
II-10
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Schedule VI - Schedule of Reinsurance
For Year Ended December 31, 1993
($000's)
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
Amount companies companies amount net
----------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Life insurance in force ......... $48,837,477 $290,386 $ 0 $48,547,091 N/A
=========== ======== ========== =========== ============
Life insurance premiums and
annuity considerations ........ $ 564,747 $ 847 $ 0 $ 563,900 N/A
=========== ======== ========== =========== ============
</TABLE>
II-11
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Schedule VI - Schedule of Reinsurance
For Year Ended December 31, 1992
($000's)
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
Amount companies companies amount net
----------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Life insurance in force ......... $49,317,116 $168,915 $ 0 $49,148,201 N/A
=========== ======== ========== =========== ============
Life insurance premiums and
annuity considerations ........ $ 497,610 $ 552 $ 0 $ 497,088 N/A
=========== ======== ========== =========== ============
</TABLE>
II-12
<PAGE>
Exhibit (b)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pruco Life Insurance Company
Newark, New Jersey
We have audited the consolidated financial statements of Pruco Life Insurance
Company and subsidiaries as of December 31, 1994 and 1993 and for each of the
three years in the period ended December 31, 1994, and have issued our report
thereon dated March 6, 1995 (included elsewhere in this Registration Statement).
Our audits also included the financial statement schedules listed in Item 16 of
this Registration Statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
Parsippany, New Jersey
March 6, 1995
II-13
