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. 6
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
----------------
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
(AS REQUIRED BY FORM S-1)
S-1 ITEM NUMBER AND CAPTION LOCATION
- --------------------------- --------
<S> <C> <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 Indemni-
fication for Securities Act Liabilities............... Not applicable
</TABLE>
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
PROSPECTUS
MAY 1, 1996
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"). As of May 1, 1995, these Contracts are no longer available for
sale.
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 5-96
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............................................................ 4
DEATH BENEFIT.......................................................... 4
CHARGES, FEES, AND DEDUCTIONS............................................. 4
1. PREMIUM TAXES....................................................... 4
2. WITHDRAWAL CHARGE................................................... 5
3. ADMINISTRATIVE CHARGE............................................... 5
4. MARKET-VALUE ADJUSTMENT............................................. 6
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............................................... 7
WITHHOLDING............................................................ 7
CONTRACTS USED IN CONNECTION WITH TAX FAVORED PLANS.................... 8
ERISA DISCLOSURE....................................................... 8
TAXES ON PRUCO LIFE.................................................... 8
EFFECTING AN ANNUITY...................................................... 8
1. INSTALLMENTS FOR A FIXED PERIOD..................................... 9
2. LIFE ANNUITY WITH 120 PAYMENTS CERTAIN.............................. 9
3. INTEREST PAYMENT OPTION............................................. 9
4. MINIMUM DISTRIBUTION OPTION......................................... 9
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT ANNUITY
PURCHASE RATES....................................................... 9
THE COMPANY............................................................... 10
PRUCO LIFE INSURANCE COMPANY........................................... 10
SELECTED FINANCIAL DATA................................................... 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................ 12
OTHER INFORMATION......................................................... 14
REQUIRED DISTRIBUTIONS ON DEATH OF OWNER............................... 14
SALE OF THE CONTRACT AND SALES COMMISSIONS............................. 14
OWNERSHIP OF THE CONTRACT.............................................. 14
STATE REGULATION....................................................... 15
EXPERTS................................................................ 15
LITIGATION............................................................. 15
ADDITIONAL INFORMATION................................................. 15
FINANCIAL STATEMENTS................................................... 15
DIRECTORS AND OFFICERS.................................................... 16
EXECUTIVE COMPENSATION.................................................... 17
MARKET-VALUE ADJUSTMENT FORMULA........................................... A1
<PAGE>
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.,
Room 1024, Washington, D.C. 20549, and at certain of its regional offices:
Midwestern Regional Office, CitiCorp Center, 500 West Madison Street, Suite
1400, Chicago, IL 60661-2511; Northeastern Regional Office SEC, 7 World Trade
Center, Suite 1300, New York, NY 10048. 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
<PAGE>
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. As of May 1, 1995, these Contracts are
no longer available for sale.
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 5 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 5.) 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.
2
<PAGE>
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.
The Contract also provides for a death benefit. See DEATH BENEFIT, page 4.
DETAILED INFORMATION ABOUT THE CONTRACT
REQUIREMENTS FOR ISSUANCE OF THE CONTRACT
As of May 1, 1995, these Contracts are no longer available for sale. 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 5), 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.
3
<PAGE>
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 6), minus any
withdrawal charge (see WITHDRAWAL CHARGE, page 5). During the 1-month period
beginning at the end of each Interest Rate Period, the cash value will 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 15.
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 0.5% to 5%. Some local jurisdictions also impose a tax. On any
Contract subject to premium tax, the
4
<PAGE>
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 6), 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 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>
<CAPTION>
TABLE OF WITHDRAWAL CHARGES
CONTRACT OWNER'S INITIAL YEAR OF WITHDRAWAL
INTEREST RATE PERIOD --------------------------------------------------------------------------------
(YEARS) 1 2 3 4 5 6 7 8 AND AFTER
------------------------ ------- ------- ------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
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 and 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.
5
<PAGE>
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.
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, under certain circumstances, 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)).
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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-QUALIFIED 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 and may under
certain circumstances be subject to the penalty tax as described above. 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 14.
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 14.
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 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%.
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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 14. 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.
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.
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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. Unless applicable law states otherwise, 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 monthly, 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
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.
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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. 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, 1995, 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.
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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 A1.
<TABLE>
<CAPTION>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
($000'S)
<S> <C> <C> <C> <C> <C>
Revenues
Premiums, annuity fund deposits
and other revenue ............... $ 615,379 $ 603,864 $ 591,660 $ 541,248 $ 521,590
Net investment income ............. 250,386 245,977 260,939 274,037 285,565
---------- ---------- ---------- ---------- ----------
Total revenues ........................ 865,765 849,841 852,599 815,285 807,155
---------- ---------- ---------- ---------- ----------
Benefits and expenses
Current and future benefits and
claims .......................... 512,988 559,658 534,354 478,148 501,454
Other expenses .................... 144,563 149,478 157,557 129,701 126,201
---------- ---------- ---------- ---------- ----------
Total benefits and expenses ........... 657,551 709,136 691,911 607,849 627,655
---------- ---------- ---------- ---------- ----------
Income before provision in lieu of
federal income tax and cumulative
effect of a change in accounting
principle............................ 208,214 140,705 160,688 207,436 179,500
Provision in lieu of federal
income tax .......................... (50,013) (87,750) (83,640) (96,578) (75,242)
---------- ---------- ---------- ---------- ----------
Net income before cumulative effect of
a change in accounting principle .... $ 158,201 $ 52,955 $ 77,048 $ 110,858 $ 104,258
---------- ---------- ---------- ---------- ----------
Cumulative effect on prior years
(to December 31, 1990) of change
in reserve basis .................... - - - - 140,242
---------- ---------- ---------- ---------- ----------
Net income ............................ $ 158,201 $ 52,955 $ 77,048 $ 110,858 $ 244,682
========== ========== ========== ========== ==========
Assets ................................ $7,817,436 $7,090,802 $7,172,104 $6,709,958 $6,369,288
---------- ---------- ---------- ---------- ----------
</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
Consolidated Financial Statements on page B6.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pruco Life Insurance Company consists of Pruco Life Insurance Company, 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 $7.8 billion in assets at December 31, 1995, $4.3
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) 1995 VERSUS 1994
Net income for 1995 was $158 million, representing a $105 million increase from
the same period in 1994.
Premiums and annuity considerations decreased $42 million in 1995, from $612
million for the year ended December 31, 1994, to $570 million for the same
period in 1995. This decrease is primarily due to the decline in first year
premiums for certain life insurance products.
Net investment income increased $4 million for the twelve months ended December
31, 1995, from the same period in 1994. This is primarily due to an increase in
income generated by policy loans.
The Company had net realized investment gains of $4 million during 1995 compared
to investment losses of $21 million during 1994. This increase is due to our
newly structured portfolio aligned more closely with the company's liability
duration and reduced the portfolio's interest rate risk. Following statutory
Interest Maintenance Reserve (IMR) guidelines, net realized investment gains of
$9 million were deferred for the period ended December 31, 1995. In comparison,
$20 million of net realized investment losses were deferred for the period
ending December 31, 1994. Amortized into net investment income were $4 million
and $5 million of IMR for the twelve month period ended December 31, 1995 and
1994, respectively.
Other income increased $28 million for the year ended December 31, 1995 from the
year ended December 31,1994. This increase was partially due a special provision
for non-guaranteed policyholder credits. In addition, the company share of
separate account improved from a loss of $4 million for the year ended December
31, 1994 to a gain of $7 million for the same period in 1995.
Current and future benefits and claims decreased $47 million for the twelve
months ended December 31, 1995, from the same period in 1994. This was driven by
the decline in premiums during 1995, which reduces the level of reserves needed
to be held.
Total expenses for the year ended December 31, 1995 decreased by $5 million from
the same period in 1994. This is primarily due to a decrease in commission
expenses of $4 million, which correlates with the decrease in sales.
Provision in lieu of federal income taxes decreased $38 million for the year
ended December 31, 1995, as compared to December 31, 1994. Although operating
income for 1995 was higher than the previous year, provision in lieu of federal
income taxes includes a benefit of federal income taxes applicable to prior
years.
(B) 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.
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
12
<PAGE>
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.
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 1995, 1994 and 1993
were respectively, $684 million, $547 million and $584 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 $7.8 billion as of
December 31, 1995, 32.12% was invested in fixed maturities, 0.05% in equity
securities, 2.92% in short-term investments, 0.82% in mortgage loans, 0.05% in
real estate, 54.82% in separate account assets and the remaining 9.22% in other
assets.
Fixed Maturities. As of December 31, 1995 and 1994, the Company's investments in
fixed maturities, which are primarily carried at amortized cost, were $2.5
billion and $2.6 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 1.0% of the Company's assets at December 31, 1995 and 1.5% at
December 31, 1994.
Mortgage Loans. As of December 31, 1995 and 1994, the Company's investments in
mortgage loans were $64 million and $72 million, respectively. Mortgage loans
are carried at the lower of unpaid principal balance or fair value of the
underlying property. The decrease in mortgage loans is due to the payment of one
loan totaling $6.0 million. As of December 31, 1995, the Company has two loans
in the amount of $8.4 million in the process of foreclosure and two loans with
restructured terms in the amount of $6.9 million.
Real Estate. As of December 31, 1995 and 1994, the Company's investment in real
estate was $4 million and $7 million, respectively. Real estate is carried at
the lower of cost or fair value less disposition costs. The Company sold one
property during the first quarter of 1995.
4. EMERGING ACCOUNTING ISSUES
The accompanying audited financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP), which are considered
statutory accounting practices for a wholly owned stock subsidiary of a mutual
life insurance company. The Financial Accounting Standards Board (the "FASB")
issued 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 mutual life insurance companies, with respect
to utilizing statutory basis financial statements for general purposes, in not
allowing such financial statements to be referred to as having been prepared in
accordance with GAAP. Interpretation No. 40 requires GAAP financial statements
of mutual life insurance companies to apply all GAAP pronouncements, unless
specifically exempted. Implementation of Interpretation No. 40 will require
significant effort and judgement. The company is assessing the impact of
Interpretation No. 40 on its consolidated financial statements, such effort has
not been completed and management currently believes surplus will increase
significantly.
13
<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.
14
<PAGE>
STATE REGULATION
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
EXPERTS
The 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.
On March 12, 1996, Deloitte & Touche LLP was dismissed as the independent
accountants of Pruco Life. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make a reference
to the matter in their reports.
LITIGATION
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by The Prudential, the Company and agents appointed by The Prudential
and the Company. The Prudential has agreed to indemnify the Company for any and
all losses resulting from such litigation.
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.
15
<PAGE>
DIRECTORS AND OFFICERS
The directors and major 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 Money
Management Group 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 49.
GARNETT L. KEITH, JR., Director. -- Vice Chairman of The Prudential. Age 60.
IRA J. KLEINMAN, Director. -- Chief Marketing and Product Development Officer,
Prudential Individual Insurance Group since 1995; 1993 to 1995: President,
Prudential Select; Prior to 1993: Senior Vice President of The Prudential.
Age 49.
ESTHER H. MILNES, President and Director. -- Vice President and Actuary,
Prudential Individual Insurance Group since 1996; 1993 to 1996: 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
45.
I. EDWARD PRICE, Vice Chairman and Director. -- Senior Vice President and
Actuary, Prudential Individual Insurance Group since 1995; 1994 to 1995: Chief
Executive Officer, Prudential International Insurance; 1993 to 1994: President,
Prudential International Insurance; Prior to 1993: Senior Vice President and
Company Actuary of The Prudential. Age 53.
WILLIAM F. YELVERTON, Director. -- Chief Executive Officer, Prudential
Individual Insurance Group since 1995; Prior to 1995: Chief Executive Officer,
New York Life Worldwide. Age 54.
OFFICERS WHO ARE NOT DIRECTORS
BEVERLY R. BARNEY, Senior Vice President. -- Vice President and Re-Engineering
Officer, Prudential Individual Insurance Group since 1995; 1993 to 1995: Senior
Vice President and Associate Actuary, Prudential Direct; Prior to 1993: Senior
Vice President and Actuary of Pruco Life. Age 48.
SUSAN L. BLOUNT, Secretary.--Vice President and Secretary of The Prudential
since 1995; Prior to 1995: Assistant General Counsel for Prudential Residential
Services Company. Age 38.
C. EDWARD CHAPLIN, Treasurer. -- Vice President and Treasurer of The Prudential
since 1995; 1993 to 1995: Managing Director and Assistant Treasurer of The
Prudential; 1992 to 1993: Vice President and Assistant Treasurer, Banking and
Cash Management for The Prudential; Prior to 1992: Regional Vice President of
Prudential Mortgage Capital Company. Age 39.
CLIFFORD E. KIRSCH, Chief Legal Officer -- Chief Counsel, Variable Products, Law
Department of The Prudential since 1995; 1994 to 1995: Associate General Counsel
with Paine Webber; Prior to 1994: Assistant Director in the Division of
Investment Management with the Securities and Exchange Commission. Age 36.
RICHARD F. LAMBERT, Senior Vice President and Chief Actuary. -- Vice President
and Actuary, Prudential Individual Insurance Group since 1996; 1994 to 1996:
Vice President and Chief Actuary, Prudential Preferred Financial Services since
1994; 1993 to 1994: Vice President and Actuary, Prudential Preferred Financial
Services; Prior to 1993: Vice President and Associate Actuary of The Prudential.
Age 39.
FRANK MARINO, Senior Vice President. -- Vice President, Policyholder Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services.
MICHAEL R. SHAPIRO, Senior Vice President. -- Vice President, Marketing and
Product Development, Prudential Individual Insurance Group since 1996; Prior to
1996: Senior Vice President, Prudential Select Brokerage. Age 48.
STEPHEN P. TOOLEY, Vice President, Comptroller and Chief Accounting Officer. --
Vice President, Product Performance, Prudential Individual Insurance Group since
1996; 1993 to 1996: Vice President and Comptroller, Prudential Insurance and
Financial Services; Prior to 1993: Director, Financial Analysis for The
Prudential. Age 43.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.
* SUBSIDIARY OF THE PRUDENTIAL
16
<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 1995. 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 1995 $ 17,879
President 1994 $ 14,250
1993 $ 9,846
Beverly R. Barney 1995 $ 9,771
Senior Vice President 1994 $ 0
1993 $126,142
Helen M. Galt **1995 $-------
President **1994 $-------
**1993 $ 13,382
- --------------------------------------------------------------------------------
** Resigned position as of July, 1993.
- --------------------------------------------------------------------------------
17
<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. If the adjustment is made during the initial interest rate period, the
interest rate that Pruco Life would guarantee today, if you could buy
this same contract for the same number of whole years, plus one, that
you now have left in your interest rate period. If the adjustment is
made during a subsequent interest rate period, the rate Pruco Life
would guarantee you today if you chose an optional interest rate
period for the same number of whole years, plus one year, that you now
have left in your interest rate period.
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
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
A1
<PAGE>
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.
A2
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31,
-----------------------------
1995 1994
-------- -------
($000'S)
ASSETS
Fixed maturities (market value $2,598,439
and $2,596,172)....................... $2,510,783 $2,647,315
Equity securities (cost $5,317 and $5,434) 4,009 3,326
Mortgage loans........................... 64,464 71,919
Investment in real estate................ 4,059 7,189
Policy loans............................. 569,273 493,862
Other long-term investments.............. 4,159 4,044
Short-term investments................... 228,016 191,455
---------- ----------
Total Investments..................... 3,384,763 3,419,110
Cash..................................... 41,435 27,780
Accrued investment income................ 59,862 59,382
Premiums due and deferred................ 19,521 16,821
Receivable from affiliates............... 8,275 7,517
Federal income taxes--from affiliate..... 8,875 23,306
Other assets............................. 9,436 25,102
Assets held in Separate Accounts......... 4,285,269 3,511,784
---------- ----------
TOTAL ASSETS............................. $7,817,436 $7,090,802
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Policy liabilities and insurance reserves:
Future policy benefits and claims...... $2,606,856 $2,767,552
Other policy claims and benefits payable 13,822 15,184
Interest Maintenance Reserve (IMR)..... 27,282 21,802
Payable to affiliates.................... 41,584 30,257
Other liabilities........................ 52,865 131,695
Asset Valuation Reserve (AVR)............ 37,268 23,690
Liabilities related to Separate Accounts 4,208,737 3,424,535
---------- ----------
TOTAL LIABILITIES ........................ 6,988,414 6,414,715
---------- ----------
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....................... 386,940 234,005
---------- ----------
TOTAL STOCKHOLDER'S EQUITY................ 829,022 676,087
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY. $7,817,436 $7,090,802
========== ==========
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
($000'S)
REVENUE
Premiums and annuity considerations....... $570,440 $611,820 $563,900
Net investment income..................... 250,386 245,977 260,939
Net realized investment gains/(losses).... 3,952 (21,215) 8,878
Other income.............................. 40,987 13,259 18,882
-------- -------- --------
TOTAL REVENUE.............................. 865,765 849,841 852,599
-------- -------- --------
BENEFITS AND EXPENSES
Current and future benefits and claims.... 512,988 559,658 534,354
Commission expenses....................... 25,755 30,169 28,386
General, administrative and other expenses 118,808 119,309 129,171
-------- -------- --------
TOTAL BENEFITS AND EXPENSES................ 657,551 709,136 691,911
-------- -------- --------
Income before provision in lieu of federal
income tax............................... 208,214 140,705 160,688
Provision in lieu of federal
income tax............................... (50,013) (87,750) (83,640)
-------- -------- --------
NET INCOME................................. $158,201 $ 52,955 $ 77,048
======== ======== ========
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,
---------------------------------
1995 1994 1993
-------- -------- -------
($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................. 234,005 176,711 162,530
Net income................................. 158,201 52,955 77,048
Net unrealized investment gains/(losses)... 8,761 5,814 (9,351)
(Increase) decrease in non-admitted assets. (449) (477) 575
(Increase) decrease in AVR................. (13,578) (998) 5,909
Dividends to stockholder................... - - (60,000)
-------- -------- --------
Balance, end of year....................... 386,940 234,005 176,711
-------- -------- --------
TOTAL STOCKHOLDER'S EQUITY.................. $829,022 $676,087 $618,793
======== ======== ========
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------- -------- ------
($000'S)
CASH FLOW FROM OPERATING ACTIVITIES
Net income............................... $ 158,201 $ 52,955 $ 77,048
Adjustments to reconcile net income
to net cash from operations:
Increase/(decrease) in policy
liabilities and insurance reserves..... (162,058) (143,153) (124,602)
Net decrease in Separate Accounts....... 10,717 5,674 12,173
Net realized investment (gains)/losses.. (3,952) 21,215 (8,878)
Depreciation, amortization and
other non-cash items................... (2,854) 314 1,907
(Increase)/decrease in operating assets:
Policy loans........................... (75,411) (73,591) (71,472)
Notes receivable from affiliates....... - 50,000 9,000
Interest receivable from affiliates.... - 23 420
Accrued investment income.............. (480) (2,597) 880
Premiums due and deferred.............. (2,700) (252) (880)
Receivable from affiliates............. (758) (637) 1,970
Federal income taxes--from affiliate... 14,467 (19,155) 6,879
Other assets........................... 15,666 (9,273) (9,481)
Increase/(decrease) in operating
liabilities:
Payable to affiliates.................. 11,327 (24,029) 13,260
Federal income taxes--to affiliate..... (36) - -
Other liabilities...................... (78,830) 27,710 34,632
--------- --------- ---------
CASH FLOW FROM (USED FOR) OPERATING
ACTIVITIES ............................ (116,701) (114,796) (57,144)
--------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from the sale/maturity of:
Fixed maturities....................... 2,031,587 2,710,424 1,687,992
Equity securities...................... 5,557 1,909 4,032
Mortgage loans......................... 7,395 10,821 21,691
Other long-term investments............ 1,559 607 520
Investment in real estate.............. 2,925 8,676 -
Payments for the purchase of:
Fixed maturities....................... (1,876,232) (2,561,081) (1,483,234)
Equity securities...................... (4,279) (2,436) (3,068)
Mortgage loans......................... - (35,276) (918)
Other long-term investments............ (1,674) (1,584) (84)
Investment in real estate.............. - - (20)
Net proceeds/(payments) of short-term
investments............................ (36,482) 9,845 (116,735)
--------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES...... 130,356 141,905 110,176
--------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid......................... - - (60,000)
--------- ---------- -----------
Net increase/(decrease) in Cash........ 13,655 27,109 (6,968)
Cash, beginning of year................ 27,780 671 7,639
--------- ---------- ----------
CASH, END OF YEAR....................... $ 41,435 $ 27,780 $ 671
========= ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Non-cash financing:
Investment in real estate from
foreclosed mortgage loans.......... $ - $ 4,139 $ 7,300
========= ========== ==========
Cash paid in lieu of income taxes.... $ 53,107 $ 73,903 $ 76,760
========= ========== ==========
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, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPLES
A. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the 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 consolidated financial statements are presented in conformity with
generally accepted accounting principles ("GAAP"), which for mutual life
insurance companies and their insurance subsidiaries are statutory
accounting practices prescribed or permitted by the National Association
of Insurance Commissioners ("NAIC") and their respective domiciliary home
state insurance departments. Prescribed statutory accounting practices
include publications of the NAIC, state laws, regulations and general
administrative rules. Permitted statutory accounting practices encompass
all accounting practices not so prescribed.
The Company, with permission from the Arizona Department of Insurance
("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.
Certain reclassifications have been made to the 1994 and 1993 financial
statements and footnotes to conform to the 1995 presentation. Included in
the Statement of Operations are certain items which, under statutory
accounting practices, are charged or credited directly to surplus.
Management has used estimates and assumptions in the preparation of the
financial statements that affect the reported amounts of assets,
liabilities, revenue and expenses. Actual results could differ from those
estimates.
The following is a reconciliation of Pruco Life's Statutory Net Income
with net income per the consolidated financial statements.
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
-------- -------- -------
($000'S)
Pruco Life Statutory Net Income including net
gains and losses on sales of investments....... $113,565 $ 49,374 $ 79,405
Adjustments to reconcile to net income
as follows:
Dividends from subsidiary...................... - - (26,000)
Change in General Account Reserve due to
changes in valuation basis................... 8,990 10,853 (2,331)
Provision for future assessments............... 367 377 588
Net gain from operations in Separate Accounts.. (9,775) 8,880 5,114
Gain/(Loss) due to income tax applicable to
other than current year...................... 19,752 (33,001) -
Other.......................................... (510) (13) 67
Subsidiaries' Statutory Net Income............. 25,812 16,485 20,205
-------- -------- --------
Consolidated Net Income.......................... $158,201 $ 52,955 $ 77,048
======== ======== ========
C. FUTURE APPLICATION OF ACCOUNT STANDARDS
The Financial Accounting Standards Board (the "FASB") issued
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
B-3
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
mutual life insurance companies, with respect to utilizing statutory basis
financial statements for general purposes, in not allowing such financial
statements to be referred to as having been prepared in accordance with
GAAP. Interpretation No. 40 requires GAAP financial statements of mutual
life insurance companies to apply all GAAP pronouncements, unless
specifically exempted. Implementation of Interpretation No. 40 will
require significant effort and judgement. The company is assessing the
impact of Interpretation No. 40 on its consolidated financial statements,
such effort has not been completed and management currently believes
surplus will increase significantly.
D. SELECTED FINANCIAL DATA OF PRUCO LIFE
Pruco Life markets the Future Value Annuity Contract, and 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:
DECEMBER 31,
------------------------------
1995 1994
---------- ----------
($000'S)
Assets:
Investments other than subsidiaries........ $2,736,259 $2,758,088
Investment in subsidiaries................. 198,601 169,816
Other assets............................... 132,185 135,778
Assets held in Separate Accounts........... 3,495,841 2,869,734
---------- ----------
Total Assets............................... $6,562,886 $5,933,416
========== ==========
Liabilities:
Policy liabilities and insurance reserves.. $2,187,632 $2,296,987
Other liabilities.......................... 115,115 163,322
Liabilities related to Separate Accounts... 3,431,117 2,797,020
---------- ----------
Total Liabilities.......................... $5,733,864 $5,257,329
========== ==========
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
-------- --------- ---------
($000'S)
Revenues........................... $717,990 $698,685 $716,402
Benefits, expenses and taxes....... 588,812 659,237 633,277
-------- -------- --------
Net Income......................... $129,178 $ 39,448 $ 83,125
======== ======== ========
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, 1995 and 1994. These
investments amounted to $29 million and $13 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, 1995, two
loans were in foreclosure in the amount of $8 million. At December 31,
1994, one loan was in foreclosure in the amount of $6 million.
Policy loans are stated primarily at unpaid principal balances.
B-4
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
All the Company's real estate investments were acquired through
foreclosure during 1995 and 1994. These properties are carried at the
lower of cost of 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,
1995 and 1994 was $106 thousand and $456 thousand, respectively.
Other long-term investments, which consist solely of limited partnerships,
are valued at the aggregate net equity in the partnerships. Certain
investments in this category were non-income producing at December 31,
1995. These investments amounted to $300 thousand. There were no
non-income producing investments at December 31, 1994.
Short-term investments are stated at amortized cost, which approximates
fair value.
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 deferred individual annuity contracts are determined using
the Commissioner's Annuity Reserve Valuation Method.
For life insurance and annuities, unpaid claims include estimates of both
the death benefits on reported claims and those which are incurred but not
reported.
Reserves for other deposit funds or other liabilities with life
contingencies reflect the contract deposit account or experience
accumulation for the contract and any purchased annuity reserves.
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 for life insurance companies under NAIC regulations.
The 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, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
($000'S)
FIXED EQUITY REAL ESTATE
MATURITIES MORTGAGES SECURITIES & OTHER INV. TOTAL
---------- --------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
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
======== ======= ======= ====== ========
Beginning of Year 1995 -- AVR ................ $ 19,902 $ 1,510 $ 733 $1,545 $ 23,690
Additions .................................... 14,540 1,007 2,764 272 18,583
Deductions ................................... (1,832) (39) (2,627) (507) (5,005)
-------- ------- ------- ------ --------
End of Year 1995-- AVR ....................... $ 32,610 $ 2,478 $ 870 $1,310 $ 37,268
========= ======= ======= ====== ========
</TABLE>
B-5
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The IMR captures net realized capital gains and losses resulting from
changes in the general level of interest rates. These gains and losses are
amortized into investment income over the expected remaining life of the
investment sold. The IMR balance was $27.3 million and $21.8 million at
December 31, 1995 and 1994, respectively. "Net realized investment
gains/(losses)" of $9.2 million and $(19.9) million were deferred in 1995
and 1994, respectively. Amortized into "Net investment income" were $3.8
million and $4.8 million of IMR for the year ended December 31, 1995 and
1994, 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 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 year 1993,
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"). Since 1994, the Company has no
longer been 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, with the exception of the Pruco Life Modified
Guaranteed Annuity Account. The Pruco Life Modified Guaranteed Annuity
Account is a non-unitized separate account, which funds the Modified
Guaranteed Annuity Contract and the Market Value Adjustment Annuity
Contract. Owners of the Pruco Life Modified Annuity and the Market Value
Adjustment Annuity Contracts do not participate in the investment gain or
loss from assets relating to such accounts. Such gain, or loss is borne,
in total, by Pruco Life. 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, 1995, 1994 and
1993 were $805 million, ($28) million and $443 million, respectively.
B-6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
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,
------------------------------------------
1995 1994 1993
-------- -------- -------
($000'S)
<S> <C> <C> <C>
Income before provision in lieu of federal
income taxes............................. $208,214 $140,705 $160,688
Statutory tax rate......................... 35% 35% 35%
--------- -------- --------
Expected federal income taxes.............. $ 72,875 $ 49,247 $ 56,241
Tax effect of:
Statutory/tax policy reserve
difference......................... (14,524) 19,949 14,577
Timing differences in tax/book income
recognition on investments......... (6,980) 11,608 4,055
Timing differences in tax/book income
Recognition--other................. (7,173) (6,816) (415)
Decrease/(Increase) in life insurance
premiums deferred and uncollected.. (953) (88) (308)
Capitalization of policy acquisition
expenses........................... 6,768 13,850 7,374
Allocated equity tax................. - - 2,116
-------- -------- --------
Federal income taxes..................... $ 50,013 $ 87,750 $ 83,640
======== ======== ========
Effective tax rate....................... 24% 62% 52%
======== ======== ========
</TABLE>
3. NET INVESTMENT INCOME
Net investment income consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
---------- ---------- --------
($000'S)
<S> <C> <C> <C>
Gross investment income
Fixed maturities......................... $194,198 $196,909 $216,660
Equity securities......................... 104 14 22
Mortgage loans............................ 7,757 4,041 6,359
Investment in real estate................. 647 2,146 2,066
Policy loans.............................. 29,775 25,692 21,741
Short-term investments.................... 15,092 12,676 9,031
Other..................................... 3,949 5,075 3,945
-------- -------- --------
251,522 246,553 259,824
Investment expenses......................... (4,904) (5,421) (5,570)
-------- -------- --------
Net investment income before IMR............ 246,618 241,132 254,254
Amortization of Interest Maintenance Reserve 3,768 4,845 6,685
-------- -------- --------
Net investment income....................... $250,386 $245,977 $260,939
======== ======== ========
</TABLE>
B-7
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
4. INVESTMENT AND INVESTMENT GAINS (LOSSES)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
---------- ---------- --------
($000'S)
<S> <C> <C> <C>
Realized Gains (Losses)
Fixed maturities.......................... $ 11,359 $(38,180) $ 32,471
Equity securities......................... 2,020 503 607
Mortgage loans............................ (90) (4,581) (2,592)
Investment in real estate................. (99) 1,184 (2,004)
Other..................................... 10 (1) (411)
Tax effected amounts transferred to Interest
Maintenance Reserve....................... (9,248) 19,860 (19,193)
-------- -------- --------
Net realized investment gains............... $ 3,952 $(21,215) $ 8,878
======== ======== ========
Unrealized Gains (Losses)
Fixed maturities.......................... 9,192 5,430 (9,380)
Equity securities......................... 799 (490) 260
Other..................................... (1,229) 874 (231)
-------- -------- --------
Net unrealized investment gains (losses) 8,762 5,814 (9,351)
Balance beginning of year................... (12,352) (18,166) (8,815)
-------- -------- --------
Balance end of year......................... $ (3,590) $(12,352) $(18,166)
======== ======== ========
</TABLE>
EQUITY SECURITIES AT DECEMBER 31,
($000'S)
GROSS UNREALIZED
-----------------------------------------------------
FAIR
MARKET
COST GAINS LOSSES VALUE
------- ------- -------- -------
1995 ........... $5,317 $581 $1,889 $4,009
1994 ........... 5,434 386 2,493 3,327
1993 ........... 4,405 742 2,359 2,788
FIXED MATURIES
--------------------------------
($000'S)
INCREASE (DECREASE)
AT DECEMBER 31, IN DIFFERENCE BETWEEN
-------------------------------- MARKET VALUE AND
AMORTIZED MARKET AND AMORTIZED COST
COST VALUE DURING THE YEAR
---------- ---------- ------------------
1995 .... $2,510,782 $2,598,439 $ 138,800
1994 .... 2,647,315 2,596,172 (167,494)
1993 .... 2,835,251 2,951,602 10,453
B-8
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The amortized cost and estimated market value of fixed maturities at December
31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995
--------------------------------------------------------
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 ........................ $ 324,854 $ 6,829 $ 61 $ 331,622
Obligations of U.S. and
political subdivisions .............. - - - -
Debt securities issued by foreign
governments and
their agencies ...................... 73,042 3,055 - 76,097
Corporate securities .................. 1,943,696 73,489 3,974 2,013,211
Mortgage backed securities ............ 169,190 8,717 398 177,509
---------- -------- ------- ----------
Total ................................. $2,510,782 $ 92,090 $ 4,433 $2,598,439
========== ======== ======= ==========
<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
========== ======== ======== ==========
</TABLE>
The amortized cost and estimated market value of fixed maturities at December
31, 1995 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.
ESTIMATED
AMORTIZED MARKET
COST VALUE
($000's) ($000's)
---------- ----------
Due in one year or less ................... $ 161,693 $ 163,629
Due after one year through five years ..... 1,500,204 1,549,264
Due after five years through ten years .... 529,845 556,294
Due after ten years ....................... 149,850 151,743
---------- ----------
2,341,592 2,420,930
Mortgage-backed securities ................ 169,190 177,509
---------- ----------
Total ..................................... $2,510,782 $2,598,439
========== ==========
Proceeds from the sale/maturity of fixed maturities during 1995, 1994, and
1993 were $2.0 billion, $2.7 billion and $1.7 billion, respectively. Gross
gains of $28.8 million, $16.8 million and $44.5 million and gross losses
of $17.5 million, $49.8 million and $12.0 million were realized on those
sales during 1995, 1994, and 1993, 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 87.2% and 93.6% of the
Company's total fixed maturities balances at both December 31, 1995 and
1994) for regulatory purposes and
B-9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
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
1.0% and 1.5% of the Company's assets at December 31, 1995 and 1994,
respectively. The amount by which the market value of these securities
exceeded the carrying value was approximately $1.8 million and $(0.9)
million at December 31, 1995 and 1994, 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 $98 million,
$78 million, and $98 million for the years ended December 31, 1995, 1994,
and 1993, 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
several defined benefit pension plans that cover substanially all of its
employees. Benefits are generally based on career average earnings and
credited 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 1995, 1994 or 1993 because the plan was subject to the full
funding limitation under the Internal Revenue Code.
POSTRETIREMENT LIFE AND HEALTH BENEFITS
The Prudential also sponsors certain life insurance and health care
benefits for its retired employees. Substantially all employees may become
eligible to receive a benefit if they retire after age 55 with at least 10
years of service. Postretirement benefits, with respect to The Prudential,
are recognized in accordance with the prescribed NAIC policy. The
Prudential elected to amortize its 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, 1995, 1994, and 1993.
C. REINSURANCE
The Company currently has three 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 contact; and, two 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 1995, 1994, and 1993.
D. OTHER TRANSACTIONS
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, 1995, 1994 and 1993 are
respectively, $12 million, $12 million and $12 million, which are
attributable to these contracts.
B-10
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
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, 1995, the Company would be permitted a maximum of $83
million in dividend distributions in 1996, 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 judgement 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. 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.
EQUITY SECURITIES. Fair value is based on quoted market prices, where
available, or prices 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.
B-11
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The following table discloses the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1995 and
1994.
<TABLE>
<CAPTION>
(000's) (000's)
1995 1994
----------------------- --------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities ............. $2,510,782 $2,598,438 $ 2,647,315 $ 2,596,172
Equity securities ............ 4,009 4,036 3,326 3,326
Mortgage Loans ............... 64,464 63,635 71,919 71,805
Policy Loans ................. 569,273 577,975 493,862 448,617
Other Long term investments .. 4,159 4,159 4,044 4,044
Short term investments ....... 228,016 228,016 191,455 191,455
Financial Liabilities:
Investment type
insurance contracts ........ $ 536,963 $ 537,241 $ 794,691 $ 761,324
</TABLE>
8. CONTINGENCIES
Several actions have been brought against the Company on behalf of those
persons who purchased life insurance policies based on complaints about
sales practices engaged in by The Prudential, the Company and agents
appointed by The Prudential and the Company. The Prudential has agreed to
indemnify the Company for any and all losses resulting from such
litigation.
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, 1995 and
1994, 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, 1995. 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, 1995 and 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
March 15, 1996
B-13
<PAGE>
FUTURE VALUE ANNUITY(SM)
INDIVIDUAL DEFERRED
ANNUITY CONTRACTS
- -------------------------------------------------------------------------------
--------------------------------------
--------------------
BULK RATE
U.S. Postage
PAID
Jersey City, N.J.
Permit No. 60
--------------------
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
Insurance Program, purchased by The Prudential from Aetna Casualty & Surety
Company, CNA Insurance Companies, 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 reimbursement for "Loss" (as defined
in the policies) which the Company pays as indemnification to its directors or
officers resulting from any claim for any actual or alleged act, error,
misstatement, misleading statement, omission, or breach of duty by persons in
the discharge of their duties 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 uninsurable 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 fraudulent acts or omissions or the willful violation of any law
by a director or officer, (2) claims based on or attributable to directors or
officers gaining personal profit or advantage to which they were not legally
entitled, and (3) 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 26, which relates to indemnification of
officers and directors, is incorporated by reference to Exhibit 1.A.(6)(b) of
Post-Effective Amendment No. 1 to Form S-6, Registration No. 33-61079, filed
April 25, 1996, 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 Clifford E. Kirsch, Esq. as 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 Clifford E. Kirsch, Esq. (incorporated by
reference to Exhibit (5) hereto)
(25) Powers of Attorney.
(a) E. Michael Caulfield, Robert Hill, Garnett L. Keith, Jr.,
Ira J. Kleinman, Ester H. Milnes, I. Edward Price,
Stephen P. Tooley (Note 5)
(b) William F. Yelverton (Note 10)
(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 9)
(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 N-4, Registration No. 33-61125,
Filed July 19, 1995 on behalf of the Pruco Life Flexible Premium
Variable Annuity 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.
(Note 9) Incorporated by reference to Post-Effective Amendment No. 5 to this
Registration Statement filed April 7, 1995.
(Note 10) Incorporated by reference to Pre-Effective Amendment No. 1 to Form
N-4, Registration No. 33-61125, filed November 17, 1995 on behalf of
the Pruco Life Flexible Premium Variable Annuity Account.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Post-Effective Amendment No. 6 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 4th day of April, 1996.
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. 6 to the Registration Statement has been signed by the following
persons in the capacities and the date indicated.
SIGNATURE AND TITLE
/s/ *
- ---------------------------------------- April 4, 1996
Esther H. Milnes
President and Director
/s/ *
- ----------------------------------------
Stephen P. Tooley
Chief Accounting Officer and Comptroller
/s/ *
- ----------------------------------------
E. Michael Caulfield
Director *By: /s/ THOMAS C. CASTANO
----------------------
/s/ * Thomas C. Castano
- ---------------------------------------- (Attorney-in-Fact)
Garnett L. Keith, Jr.
Director
/s/ *
- ----------------------------------------
Ira J. Kleinman
Director
/s/ *
- ----------------------------------------
I. Edward Price
Director
/s/ *
- ----------------------------------------
William F. Yelverton
Director
II-3
<PAGE>
EXHIBIT INDEX
(a)(5) Opinion and Consent of Clifford E. Kirsch, Esq. as to the Page II-5
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
(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 4, 1996
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
Gentlemen:
In my capacity as Chief Legal Officer 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 was responsible
for the oversight of 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,
Clifford E. Kirsch
II-5
EXHIBIT (a)(23)
INDEPENDENT AUDITORS' CONSENT
We consent to (a) the use in this Post-Effective Amendment No. 6 to Registration
Statement No. 33-37587 on Form S-1 of Pruco Life Insurance Company of our report
dated March 15, 1996, 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 15, 1996, 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 4, 1996
II-6
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
Exhibit 27
FINANCIAL DATA SCHEDULE
Article 7 of Regulation S-X
Pruco Life Insurance Company
</LEGEND>
<CAPTION>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 2,510,783
<DEBT-MARKET-VALUE> 2,598,439
<EQUITIES> 4,009
<MORTGAGE> 64,464
<REAL-ESTATE> 4,059
<TOTAL-INVEST> 3,384,763
<CASH> 41,435
<RECOVER-REINSURE> 267
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 7,817,436
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 13,822
<POLICY-HOLDER-FUNDS> 2,469
<NOTES-PAYABLE> 0
<COMMON> 2,500
0
0
<OTHER-SE> 826,522
<TOTAL-LIABILITY-AND-EQUITY> 7,817,436
570,440
<INVESTMENT-INCOME> 250,386
<INVESTMENT-GAINS> 3,952
<OTHER-INCOME> 40,987
<BENEFITS> 512,988
<UNDERWRITING-AMORTIZATION> 25,755
<UNDERWRITING-OTHER> 118,808
<INCOME-PRETAX> 208,214
<INCOME-TAX> 50,013
<INCOME-CONTINUING> 158,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158,201
<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>
<TABLE>
<CAPTION>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN AFFILIATES
DECEMBER 31, 1995
($000'S)
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 ............................. $ 494,044 $ 509,131 $ 494,044
Foreign governments ....................................... 73,042 76,097 73,042
Public Utilities .......................................... 172,358 180,019 172,358
All other corporate bonds ................................. 1,771,222 1,833,075 1,771,222
Redeemable preferred stock ................................ 117 117 117
---------- ---------- ----------
Total fixed maturities ............................... 2,510,783 2,598,439 2,510,783
---------- ---------- ----------
Equity Securities:
Common Stock .............................................. 3,247 2,978 2,978
Nonredeemable preferred stock ............................. 2,070 1,058 1,032
---------- ---------- ----------
Total equity securities .............................. 5,317 4,036 4,009
Mortgage loans on real estate ..................................... 64,464 63,635 64,464
Real Estate ....................................................... 4,059 4,800 4,059
Policy Loans ...................................................... 569,273 577,975 569,273
Other long-term investments ....................................... 4,159 0 4,159
Short-term investments ............................................ 228,016 0 228,016
---------- ---------- ----------
Total investments .................................... $3,386,070 $3,248,885 $3,384,763
========== ========== ==========
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE VI - SCHEDULE OF REINSURANCE
FOR YEAR ENDED DECEMBER 31, 1995
($000'S)
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........................ $47,822,892 $822,619 $ 0 $47,000,273 N/A
=========== ======== ======= =========== =====
Life insurance premiums and
annuity considerations....................... $ 572,255 $ 2,268 $ 453 $ 570,440 0.080%
=========== ======== ======= =========== =====
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE VI - SCHEDULE OF REINSURANCE
FOR YEAR ENDED DECEMBER 31, 1994
($000'S)
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>
<TABLE>
<CAPTION>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE VI - SCHEDULE OF REINSURANCE
FOR YEAR ENDED DECEMBER 31, 1993
($000'S)
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
