SUPPLEMENT DATED JUNE 10, 1996 TO PROSPECTUS DATED MAY 1, 1996
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
VARIABLE ANNUITY CONTRACTS
PRUCO LIFE MARKET-VALUE ADJUSTMENT ANNUITY CONTRACTS
DISCOVERY PREFERRED
WITH RESPECT TO RESIDENTS OF PENNSYLVANIA ONLY, PAGES C1 - C3 ARE HEREBY DELETED
AND REPLACED IN THEIR ENTIRETY WITH THE FOLLOWING:
MARKET-VALUE ADJUSTMENT FORMULA
The Market-Value Adjustment, which is applied to withdrawals and transfers made
at any time other than the 30-day period following the end of an interest rate
period, involves three amounts:
1. The number of whole months remaining in the existing interest rate period.
2. The guaranteed interest rate.
3. The interpolated value of the interest rates that Pruco Life declares
for the number of whole years remaining and the duration 1 year longer
than the number of whole years remaining in the existing interest rate
period.
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 (not to be less than one) 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 interpolated value of the interest rates, expressed as a decimal,
that Pruco Life declares for the number of whole years remaining and the
duration 1 year longer than the number of whole years remaining as of the
date the request for a withdrawal or transfer is received or m/365 x
(n+1)year rate + (365-m)/365 x n year rate, where 'n' equals years and
'm' equals days remaining in year 'n' of the existing interest rate
period.
The Market-Value Adjustment is then equal to the Market Value Factor multiplied
by the amount subject to a Market-Value Adjustment.
The steps below explain how a Market-Value Adjustment is calculated.
STEP 1: Divide the number of whole months left in the existing interest rate
period (not to be less than one) by 12.
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STEP 2: Interpolate the interest rates Pruco Life declares on the date the
request for withdrawal or transfer is received for the duration of years
equal to the whole number of years determined in Step 1, plus the whole
number of years plus 1 additional year.
STEP 3: Subtract this interpolated interest rate from the guaranteed
interest rate. The result could be negative.
STEP 4: 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 5: Multiply the result of Step 3 (which is the Market Value Factor) by
the value of the amount subject to a Market-Value Adjustment. The result is
the Market-Value Adjustment.
STEP 6: The result of Step 4 is added to the interest cell. If the
Market-Value Adjustment is positive, the interest cell will go up in value.
If the Market-Value Adjustment is negative, the interest cell will go down
in value.
Depending upon when the withdrawal request is made, a withdrawal charge may
apply.
The following example will illustrate the application of a Market-Value
Adjustment and the determination of the withdrawal charge. Suppose a Contract
owner made two invested purchase payments, the first in the amount of $10,000 on
December 1, 1995, all of which was allocated to the Equity Subaccount, and the
second in the amount of $5,000 on October 1, 1997, all of which was allocated to
the MVA Option with a guaranteed interest rate of 8% (0.08) for 7 years. A
request for withdrawal of $8,500 is made on February 1, 2000 (the Contract owner
does not provide any withdrawal instructions). On that date the amount in the
Equity Subaccount is equal to $12,000 and the amount in the interest cell with a
maturity date of September 30, 2004 is $5,985.23, so that the Contract Fund on
that date is equal to $17,985.23.
On February 1, 2000, the interest rates declared by Pruco Life for the durations
4 and 5 years (4 whole years remaining until September 30, 2004, plus 1 year)
are 10.8% and 11.4%, respectively.
The following computations would be made:
1. Calculate the Contract Fund value as of the effective date of the
transaction. This would be $17,985.23.
2. Calculate the charge-free amount (the amount of the withdrawal that is not
subject to a withdrawal charge).
DATE PAYMENT FREE
---- ------- ----
12/1/95 $10,000 $1,000
12/1/96 $2,000
10/1/97 $ 5,000 $2,500
12/1/97 $4,000
12/1/98 $5,500
12/1/99 $7,000
The charge-free amount in the fifth Contract year is 10% of $15,000 (total
purchase payments) plus $5,500 (the charge-free amount available in the fourth
Contract year) for a total of $7,000.
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3. Since the withdrawal request is in the fifth Contract year, a 3% withdrawal
charge rate applies to any portion of the withdrawal which is not
charge-free.
$8,500.00 requested withdrawal amount
- $7,000.00 charge-free
-----------
$1,500.00 additional amount needed to complete withdrawal
The Contract provides that the Contract Fund will be reduced by an amount
which, when reduced by the withdrawal charge, will equal the amount requested.
Therefore, in order to produce the amount needed to complete the withdrawal
request ($1,500), we must "gross-up" that amount, before applying the withdrawal
charge rate. This is done by dividing by 1 minus the withdrawal charge rate.
$1,500.00 / (1-.03) =
$1,500.00 / 0.97 = $1,546.39 grossed-up amount
Please note that a 3% withdrawal charge on this grossed-up amount reduces
it to $1,500, the balance needed to complete the request.
$1,546.39 grossed-up amount
X .03 withdrawal charge rate
---------
$ 46.39 withdrawal charge
4. The Market Value Factor is determined as described in steps 1 through 5,
above. In this case, it is equal to 0.08 (8% is the guaranteed rate in the
existing cell) minus 0.11 (11% is the interpolated value for the interest rates
that would be offered for interest cells with durations of whole years remaining
and whole year plus 1 remaining in the existing interest rate period), which is
- -0.03, multiplied by 4.58333 (55 months remaining until September 30, 2004,
divided by 12) or -0.13750. Thus, there will be a negative Market-Value
Adjustment of 14% of the amount in the interest cell that is subject to the
adjustment.
-0.13750 X $5,985.23 = - 822.97 negative MVA
$ 5,985.23 unadjusted value
----------
$ 5,162.26 adjusted value
$12,000.00 Equity value
----------
$17,162.26 adjusted Contract Fund
5. The total amount to be withdrawn, $8,546.39, (sum of the surrender charge,
$46.39, and the requested withdrawal amount of $8,500) is apportioned over all
accounts making up the Contract Fund following the Market-Value Adjustments, if
any, associated with the MVA option.
Equity ($12,000 / $17,162.26) X $8,546.39 = $5,975.71
7-Yr MVA ($5,162.26 / $17,162.26) X $8,546.39 = $2,570.68
---------
$8,546.39
6. The adjusted value of the interest cell, $5,162.26, reduced by the withdrawal
of $2,570.68 leaves $2,591.58. This amount must be "unadjusted" by dividing it
by 0.86250 (1 plus the Market-Value Adjustment of -0.13750) to determine the
amount remaining in the interest cell to which the guaranteed interest rate of
8% will continue to be credited until September 30, 2004 or a subsequent
withdrawal. That amount is $3,004.73.
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