AS FILED WITH THE SEC ON APRIL 28, 1997. REGISTRATION NO. 33-37587
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
POST-EFFECTIVE AMENDMENT NO. 7
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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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)
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THOMAS C. CASTANO
ASSISTANT SECRETARY
PRUCO LIFE INSURANCE COMPANY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(800) 445-4571
(Name, address, and telephone number of agent for service)
Copy to:
JEFFREY C. MARTIN
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036
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<TABLE>
CROSS REFERENCE SHEET
(AS REQUIRED BY FORM S-1)
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S-1 ITEM NUMBER AND CAPTION LOCATION
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1. Forepart of the Registration Statement
and Outside Front Cover Page of Prospectus ... Cover
2. Inside Front and Outside Back Cover
Pages of Prospectus .......................... Inside Front Cover
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges ........... Cover; Charges, Fees, and Deductions
4. Use of Proceeds .............................. Investments by Pruco Life
5. Determination of Offering Price .............. Not applicable
6. Dilution ..................................... Not applicable
7. Selling Security Holders ..................... Not applicable
8. Plan of Distribution ......................... Sale of the Contract and Sales Commissions
9. Description of Securities to be Registered ... Cover; Pruco Life Insurance Company;
Charges, Fees, and Deductions
10. Interests of Named Experts and Counsel ....... Not applicable
11. Information with Respect to the Registrant ... The Company; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Litigation; Financial
Statements; State Regulation; Federal Tax
Status; Directors and Officers; Executive
Compensation
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities .............................. Part II, Item 14
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PART I
INFORMATION REQUIRED IN PROSPECTUS
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PROSPECTUS
MAY 1, 1997
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
("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 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.
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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 Prudential.
MVA-1 Ed 5-97
Catalog #646676L
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PROSPECTUS CONTENTS
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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. OTHER ANNUITY OPTION ........................................................ 9
5. MINIMUM DISTRIBUTION OPTION ................................................. 10
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT ANNUITY PURCHASE RATES ........... 10
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 ................................................................ 13
REQUIRED DISTRIBUTIONS ON DEATH OF OWNER ....................................... 13
SALE OF THE CONTRACT AND SALES COMMISSIONS ..................................... 13
OWNERSHIP OF THE CONTRACT ...................................................... 14
STATE REGULATION ............................................................... 14
EXPERTS ........................................................................ 14
LITIGATION ..................................................................... 14
ADDITIONAL INFORMATION ......................................................... 15
FINANCIAL STATEMENTS ........................................................... 15
DIRECTORS AND OFFICERS ........................................................... 16
EXECUTIVE COMPENSATION ........................................................... 17
MARKET-VALUE ADJUSTMENT FORMULA .................................................. A1
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND
SUBSIDIARIES ................................................................... B1
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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.
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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.
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BRIEF DESCRIPTION OF THE CONTRACT
Pruco Life Insurance Company ("Pruco Life"), a subsidiary of The Prudential
Insurance Company of America ("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.
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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 was $10,000. The Contract was generally issued on proposed
annuitants below the age of 89. The Contract sets forth precisely the owner's
rights and the Company's obligations. Subsequent purchase payments are not
permitted. The Contract date is the date the purchase payment and required
information was received in the Pruco Life Home Office.
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.
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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 14.
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 was 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
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range from 0.5% to 5%. Some local jurisdictions also impose a tax. On any
Contract subject to premium tax, the tax will be deducted at the rate and
incidence provided under applicable law, either from the purchase price when
received or from the Contract fund at the time the annuity is effected.
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.
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TABLE OF WITHDRAWAL CHARGES
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CONTRACT OWNER'S INITIAL YEAR OF WITHDRAWAL
INTEREST RATE PERIOD -----------------------------------------------------------------------------------------
(YEARS) 1 2 3 4 5 6 7 8 and after
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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%
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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.
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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. All Contracts issued by
the same company (and affiliates) to the same contract owner during any calendar
year are treated as one annuity contract for purposes of determining the amount
includible in income of any distribution that is not received as an annuity
payment.
The amount of the penalty tax is equal to 10% of that portion of the amount
withdrawn which is includible in income. Some withdrawals will be exempt from
the penalty. They include withdrawals: (1) made on or after the Contract owner
reaches age 59-1/2, (2) made on or after the death of the Contract owner, (3)
attributable to certain Contract owners becoming disabled within the meaning of
Code section 72(m)(7); (4) in the form of level annuity payments, made not less
frequently than annually under a lifetime annuity; (5) allocable to investment
in the Contract before August 14, 1982; (6) under a qualified funding asset
(defined by Code section 130(d)); or (7) under an immediate annuity contract
(within the meaning of section 72(u)(4)).
If the 10% penalty tax does not apply to a withdrawal by reason of the exception
for withdrawals in the form of a level annuity (clause (4) above), but the
series of payments is modified (other than by reason of death or disability),
6
<PAGE>
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 containing 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. 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.
Election of the interest pay option is not considered as an annuity payment for
tax purposes.
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. 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 and TDAs that are not direct
rollovers is 20%. The rate of withholding on all other payments (including
IRAs), such as amounts received upon withdrawals, made under Contracts that are
not tax qualified will be 10%. Special withholding rules apply for nonresident
aliens.
7
<PAGE>
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(a) and 408(b) of the Code, simplified employee pensions plans
("SEPs") under section 408(k) of the Code, savings incentive match plans for
employees ("SIMPLES") under section 408(p) of the Code, tax deferred annuities
("TDAs") 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. 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 SEPs
and 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 fixed period 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
8
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1% to 5% of the amount applied to effect an annuity. See PREMIUM TAXES, page 4.
Some local jurisdictions also impose a tax. The amount remaining after deducting
any applicable premium tax is used to effect a fixed-rate annuity.
The amount of the monthly payments will depend upon the amount applied and
tables of rates, set forth in the Contract, which Pruco Life guarantees will be
used even if longevity has significantly improved since the Contract date. If,
however, Pruco Life at the time is offering more favorable rates, then those
will be used.
The annuity will be in one of the forms listed below. 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 generally
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.
Generally, this option will not satisfy IRAs minimum distribution requirements.
4. OTHER ANNUITY OPTIONS
Currently, you may choose to receive the proceeds of your Contract fund in the
form of payments like those of any annuity or life annuity then regularly
offered by Prudential or by Pruco Life that (1) is based on United States
Currency; (2) is bought by a single sum; (3) does not provide for dividends; and
(4) does not normally provide for deferral of the first payment. Prudential and
Pruco Life currently offer a number of different annuity options, including
joint and survivor annuities covering more than one person.
Under Option 4, unless a fixed period annuity of less than 10 years is selected,
Prudential will waive withdrawal charges that might be applicable under other
annuity options. Further, if you select Option 1 or 2 without a right of
withdrawal, Prudential will effect that option under Option 3 if doing so
provides greater monthly payments.
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5. MINIMUM DISTRIBUTION OPTION
The Minimum Distribution Option is a 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.
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 Prudential, a mutual insurance
company founded in 1875 under the laws of the State of New Jersey. As of
December 31, 1996, it has invested over $442 million in Pruco Life in connection
with Pruco Life's organization and operation. 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, 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 Prudential serving pursuant to a service agreement. All insurer functions of
Pruco Life are likewise performed by Prudential under service, marketing,
distribution and lease agreements.
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SELECTED FINANCIAL DATA
The following selected financial data for Pruco Life Insurance Company and
Subsidiaries 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 B-1.
<TABLE>
<CAPTION>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
GAAP BASIS STATUTORY BASIS
------------------------------------------ ---------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Premiums and other revenue ................. $ 408,154 $ 401,287 $ 303,627 $ 591,660 $ 541,248
Net investment income ...................... 247,328 246,618 241,132 260,939 274,037
--------------------------------------------------------------------------
Total revenues .............................. 655,482 647,905 544,759 852,599 815,285
Benefits and expenses:
Current and future benefits and
claims .................................... 305,119 280,913 235,660 534,354 478,148
Other expenses ............................. 122,006 134,790 179,173 157,557 129,701
--------------------------------------------------------------------------
Total benefits and expenses ................. 427,125 415,703 414,833 691,911 607,849
--------------------------------------------------------------------------
Income before income tax provision .......... 228,357 232,202 129,926 160,688 207,436
Income tax provision ........................ 79,135 79,558 48,031 83,640 96,578
--------------------------------------------------------------------------
Net income .................................. $ 149,222 $ 152,644 $ 81,895 $ 77,048 $ 110,858
==========================================================================
Assets ...................................... $9,678,427 $8,471,638 $7,713,183 $7,172,104 $6,709,958
==========================================================================
</TABLE>
In 1996, the Company retroactively adopted applicable accounting pronouncements
to present its financial statements in conformity with generally accepted
accounting principles. Refer to footnote 1.B. of the Consolidated Financial
Statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pruco Life Insurance Company consists of Pruco Life Insurance Company and its
subsidiaries (collectively, the Company). Pruco Life Insurance Company is a
wholly owned subsidiary of The Prudential Insurance Company of America
(Prudential). The Company markets individual life insurance and annuities
primarily through Prudential's sales force in the United States and in Taiwan.
The Company held $9.7 billion in assets at December 31, 1996, $5.3 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 policy
loans.
The business climate in the United States was characterized by moderate economic
growth, low inflation, and growing investor confidence that fueled bond and
stock prices. Merger and consolidation activity accelerated, as well as
expansion of US companies into foreign markets. Those economic trends impacted
the insurance industry during the year, prompting them to implement strategies,
including consolidation, and sales of certain lines of business to counter risk,
control expenses and diversify products to remain competitive. Regulatory
changes which opened the insurance industry to other financial institutions,
particularly banks and mutual funds, heightened competition in investment type
products since those institutions were positioned to deliver the same products
through large, stable distribution channels. In addition, the industry has been
beset by negative publicity following the discovery of unacceptable sales
practices that resulted in investigations of most large insurers, including
Prudential. In spite of the difficult operating environment, 1996 was a year of
progress for the Company. It achieved solid performance in core businesses,
instituted significant cost reduction programs, and strategic initiatives which
are expected to place it on a firm course of continued growth.
The Company's assets were $9.7 billion at December 31, 1996 compared to $8.5
billion at December 31, 1995. Net income amounted to $149.2 million, a decrease
of $3.4 million or 2.2% compared to the $152.6 million earned in 1995.
1. RESULTS OF OPERATIONS
(a) 1996 VERSUS 1995
Premiums increased by $9.4 million from $42.1 million in 1995 to $51.5 million
for the same period in 1996. This change is primarily due to increased sales of
$6.2 million related to traditional life insurance products in our Taiwan branch
which continued to expand its business throughout 1996.
Policy charges and fee income increased approximately $5.9 million during the
current year as compared to 1995. This is primarily attributable to the
increased sales of new variable annuity products and fees earned on policyholder
withdrawal and surrender activity.
Other income decreased $6.2 million for the year ended December 31, 1996 from
the year ended December 31, 1995. This decrease is due to a reduction in
separate account net gains.
Policyholders' benefits increased $32.9 million during the current year to
$186.9 million. Approximately $10 million of this increase is attributable to
the mortality costs associated with the Company's products. The additional $22
million results from the increase in reserves associated with new and existing
contracts at December 31, 1996.
Interest credited to policyholders' account balances decreased by $8.7 million.
This decrease is primarily attributable to the decrease in policyholders'
account balances due to the Company experiencing increased policyholder
withdrawals and slightly lower interest rates.
Other operating expenses decreased $12.8 million for the year ended December 31,
1996 compared to the same period for 1995. This is attributable to a decrease in
the amortization of deferred policy acquisition costs, and a company wide
initiative to reduce expenses resulting in a decrease in general expenses.
(b) 1995 VERSUS 1994
The Company recorded net income of $152.6 million and $81.9 million for 1995 and
1994, respectively.
Premiums increased by $19.4 million from $22.7 million for the year ended
December 31, 1994 to $42.1 million for the same period in 1995, stemming from
increased sales of life insurance in the Taiwan branch and a steady flow of
renewals in the US.
Policy charges and fee income increased $10.3 million from $308.8 million for
the year ended December 31, 1994, to $319.1 million for the same period in 1995.
This is primarily attributable to the increased sales of new variable annuity
products and fees earned on policyholder withdrawal and surrender activity.
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<PAGE>
Net investment income increased $5.5 million for the twelve months ended
December 31, 1995, from the same period in 1994. Policy loans increased $75.4
million, which resulted in additional policy loan interest income of $2.4
million. Secondly, the Company's income from equity securities increased $2.0
million as a result of favorable stock market conditions.
Net realized investment gains increased $54.3 million, to $13.2 million for the
year ended December 31, 1995 from a loss of $41.1 million for the same period in
1994. The Company restructured its investment portfolio to more closely align
with the liability duration and to reduce the portfolio's interest rate risk.
Sales activity of the Company's fixed maturities produced favorable gains as a
result of falling interest rates during 1995.
Policyholders' benefits increased $32.0 million to $154.0 million in 1995, from
$122.0 million in 1994. This change is primarily attributable to the increase in
reserves for new and existing policies.
Interest credited to policyholders' account balances increased $13.2 million for
the twelve months ended December 31, 1995, from the same period in 1994. This
change was a result of increased interest rates offset with decreasing
policyholder account balances.
Other operating costs and expenses decreased $44.4 million for the year ended
December 31, 1995 due a decrease in the allocation of costs from Prudential, a
decrease in the amortization of deferred policy acquisition costs, and a company
wide initiative to reduce expenses resulting in a decrease in general expenses.
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 1996, 1995, and
1994 were $186.9 million, $154.0 million, and $122.0 million, respectively. Cash
flows are anticipated to be sufficient to meet the Company's liquidity needs for
the foreseeable future.
3. CAPITAL RESOURCES
The primary components of the Company's total assets of $9.7 billion at December
31, 1996 are as follows (as a percentage of total assets): fixed income
securities 27.3%, separate account assets (fixed income and equity securities)
55.1%, policy loans 6.6%, and other assets 11.0%.
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, such portion of 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
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<PAGE>
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
213 Washington Street, Newark, New Jersey 07102-2992. The Contract is sold by
registered representatives of Prusec who are also authorized by state insurance
departments to do so. The Contract may also be sold through other broker-dealers
authorized by Prusec and applicable law to do so. Registered representatives of
such other broker-dealers may be paid on a different basis than described below.
The commissions that will be paid to the representative and the broker-dealer
will vary with the duration of the Interest Rate Period selected by the Contract
owner (longer durations will result in higher commissions). Commissions up to 3%
of the purchase payment received will be paid to the representative. The maximum
commission that will be paid to the broker-dealer to cover both the individual
representative's commission and other distribution expenses will not exceed
6.25% of the purchase payment. Pruco Life and Prusec reserve the right to change
the portion of the total compensation paid to the representative. Payment of
these commissions to a broker-dealer will not result in any decrease in the
Contract fund. They will be paid by Pruco Life. Renewal commissions based on the
size of the Contract fund may be paid. The representative may be required to
return all of the first year commission if the Contract is not continued through
the first year. Representatives who meet certain productivity, profitability,
and persistency standards with regard to the sale of the Contract will be
eligible for additional compensation.
OWNERSHIP OF THE CONTRACT
The Contract owner is usually, but not always, an annuitant. The Contract owner
is entitled to exercise all the rights under the Contract. Subject to certain
limitations and requirements described in this prospectus, these rights include
the right to make withdrawals or surrender the Contract, to designate and change
the beneficiaries who will receive the proceeds at the death of the annuitant
before the annuity date, and to designate a mode of settlement for the annuitant
on the annuity date. Subject to certain limitations, ownership of the Contract
may, however, be transferred to another person who need not be the person who is
to receive annuity payments. Generally, ownership of the contract is not
assignable to an employee benefit plan or program without Pruco Life's consent.
Transfer of the ownership of a Contract may involve federal income tax
consequences, or may be prohibited under certain Contracts, and the owner should
consult with a qualified tax advisor before attempting any such transfer.
STATE REGULATION
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
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 for the year ended December
31, 1996 have been audited by Price Waterhouse LLP, independent accountants, as
stated in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing. Price Waterhouse LLP's principal business address is 1177 Avenue of
the Americas, New York, New York 10036.
The financial statements included in this prospectus for years ended December
31, 1995 and December 31, 1994, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein, and are
included 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 Pruco Life alleging that Pruco Life
and its agents engaged in improper life insurance sales practices. Prudential
has agreed to indemnify Pruco Life for losses, if any, resulting from such
14
<PAGE>
litigation. No other significant litigation is being brought against Pruco Life
that would have a material effect on its financial position.
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
WILLIAM M. BETHKE, Director. -- President, Prudential Capital Markets Group
since 1992.
IRA J. KLEINMAN, Director. -- Executive Vice President, International Insurance
Group since 1997; 1995 to 1997: Chief Marketing and Product Development Officer,
Prudential Individual Insurance Group; 1993 to 1995: President, Prudential
Select; Prior to 1993: Senior Vice President of Prudential.
MENDEL A. MELZER, Director. -- Chief Investment Officer, Mutual Funds and
Annuities, Prudential Investments since 1996; 1995 to 1996: Chief Financial
Officer of the Money Management Group of Prudential; 1993 to 1995: Senior Vice
President and Chief Financial Officer of Prudential Preferred Financial
Services; Prior to 1993: Managing Director, Prudential Investment Corporation.
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; Prior
to 1993: Vice President and Associate Actuary of Prudential.
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 Prudential.
KIYOFUMI SAKAGUCHI, Director. -- President, Prudential International Insurance
Group since 1995; 1994 to 1995: Chairman and Chief Executive Officer, The
Prudential Life Insurance Co., Ltd.; Prior to 1994: President and Chief
Executive Officer, Asia Pacific Region-Prudential International Insurance, and
President, The Prudential Life Insurance Co., Ltd.
WILLIAM F. YELVERTON, Chairman and Director. -- Chief Executive Officer,
Prudential Individual Insurance Group since 1995; Prior to 1995: Chief Executive
Officer, New York Life Worldwide.
OFFICERS WHO ARE NOT DIRECTORS
SUSAN L. BLOUNT, Secretary. -- Vice President and Secretary of Prudential since
1995; Prior to 1995: Assistant General Counsel for Prudential Residential
Services Company.
C. EDWARD CHAPLIN, Treasurer. -- Vice President and Treasurer of Prudential
since 1995; 1993 to 1995: Managing Director and Assistant Treasurer of
Prudential; 1992 to 1993: Vice President and Assistant Treasurer, Banking
and Cash Management for Prudential.
LINDA S. DOUGHERTY, Vice President, Comptroller and Chief Accounting Officer. --
Vice President and Comptroller, Prudential Individual Insurance Group since
1997; Prior to.1997: Vice President, Accounting, Prudential.
JAMES C. DROZANOWSKI, Senior Vice President. -- Vice President and Operations
Executive, Prudential Individual Insurance Group since 1996; 1995 to 1996:
President and Chief Executive Officer of Chase Manhattan Bank; 1993 to 1995:
Vice President, North America Customer Services, Chase Manhattan Bank; Prior to
1993: Operations Executive, Global Securities Services, Chase Manhattan Bank.
CLIFFORD E. KIRSCH, Chief Legal Officer. -- Chief Counsel, Variable Products,
Law Department of 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.
FRANK P. MARINO, Senior Vice President. -- Vice President, Policyowner Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services.
MARIO A. MOSSE, Senior Vice President -- Vice President, Annuity Services,
Prudential Investments since 1996; Prior to 1996: Vice President, Chase
Manhattan Bank.
SHIRLEY H. SHAO, Senior Vice President and Chief Actuary. -- Vice President and
Associate Actuary, Prudential.
KAREN L. SHAPIRO, Senior Vice President. -- Vice President, Prudential
Individual Insurance Group since 1996; Vice President and Associate General
Counsel, Prudential Securities Incorporated 1993 to 1996; Prior to 1993: Senior
Associate with Shaw, Pittman, Potts and Trowbridge.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.
* SUBSIDIARY OF 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 1996. Directors of Pruco
Life who are also employees of Prudential do not receive compensation in
addition to their compensation as employees of Prudential.
-------------------------------------------------------------------------
ALLOCATED CASH
NAME & PRINCIPAL POSITION YEAR COMPENSATION ($)
-------------------------------------------------------------------------
Esther H. Milnes 1996 $ 21,136
President 1995 $ 14,250
1994 $ 9,846
Linda S. Dougherty 1996 $ 55,931
Vice President &
Comptroller 1995 $ ------
1994 $ ------
Hwei-Chung S. Shao 1996 $ 21,048
Chief Actuary 1995 $ ------
1994 $ ------
Clifford E. Kirsch 1996 $ 54,190
Chief Legal Counsel 1995 $ 30,962
1994 $ ------
Frank P. Marino 1996 $ 12,076
Senior Vice President 1995 $ ------
1994 $ ------
- ----------------------------------------------------------------------------
--------- Did not hold position during this year.
17
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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.
A-1
<PAGE>
First, 30 would be divided by 12, resulting in 2.5. Second, 0.12 would be
subtracted from 0.10, resulting in -0.02. Then, 2.5 would be multiplied by
- -0.02, resulting in -0.05 (the Market-Value Factor). Next, -0.05 would be
multiplied by $20,000, resulting in a Market-Value Adjustment of -$1,000.
Finally, $1,000 would be added to $20,000, and the market-value adjusted
Contract fund would become $19,000.
If, in this example, the Contract owner wished to receive only $9,000, the
amount deducted from the Contract fund would be $9,000 divided by 0.95 (because
the adjustment is downward), which is $9,473.68, so that the Contract fund
remaining under the Contract would be $20,000 minus $9,473.68, resulting in
$10,526.32. The Contract owner would receive the requested $9,000.
Stated as a formula, the Market-Value Factor is equal to:
(M/12) x (R-C), not to exceed +0.40 or be less than -0.40;
Where,
M = the number of whole months remaining in the Interest Rate Period.
R = the Contract's Guaranteed Interest Rate expressed as a decimal. Thus 6.2%
is converted to 0.062.
C = the interest rate, expressed as a decimal, that Pruco Life would offer on
newly issued Contracts like this one for a term equal to the number of
whole years remaining in the present Interest Rate Period, plus 1 year as
of the date the request for a withdrawal is received.
The Market-Value Adjustment is then equal to the Market-Value Factor multiplied
by the Contract fund.
If these Contracts are no longer offered by Pruco Life, a rate equal to the most
recent Moody's Corporate Bond Yield Average-Monthly Average Corporate, for that
duration, as published by Moody's Investment Services, Inc. or any successor to
that service will be used. If that average is no longer published, a
substantially similar average, established by the insurance regulator where this
Contract is delivered, will be used.
A-2
<PAGE>
<TABLE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<CAPTION>
DECEMBER 31,
1996 1995
----------- ------------
(000'S)
ASSETS
<S> <C> <C>
Fixed maturities
Held to maturity $ 405,731 $ 437,727
Available for sale 2,236,817 2,144,854
Equity securities 3,748 4,036
Mortgage loans 46,915 64,464
Investment real estate - 4,059
Policy loans 639,782 569,273
Other long term investments 4,528 4,159
Short term investments 169,830 228,016
----------- ------------
Total invested assets 3,507,351 3,456,588
----------- ------------
Cash 73,766 41,435
Deferred policy acquisition costs 633,159 566,976
Premiums due 9,084 6,367
Accrued investment income 62,110 59,862
Receivable from affiliates 1,901 8,275
Federal income tax receivable 7,191 6,375
Reinsurance recoverable on unpaid losses 27,014 27,914
Other assets 20,000 12,578
Separate Account assets 5,336,851 4,285,268
----------- ------------
TOTAL ASSETS $9,678,427 $8,471,638
=========== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Future policy benefits and other policyholders'
liabilities $ 557,351 $ 501,200
Policyholders' account balances 2,188,862 2,218,330
Deferred federal income tax payable 148,960 141,048
Payable to affiliate 51,729 41,584
Other liabilities 55,090 37,387
Separate Account liabilities 5,277,454 4,263,896
----------- ------------
Total Liabilities 8,279,446 7,203,445
----------- ------------
Contingencies - Note 9
Stockholder's Equity
Common Stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
December 31, 1996 and 1995 2,500 2,500
Paid-in-capital 439,582 439,582
Net unrealized investment gains (less deferred
income tax) 12,402 30,836
Retained earnings 944,497 795,275
----------- ------------
Total Stockholder's Equity 1,398,981 1,268,193
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $9,678,427 $8,471,638
=========== ============
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-1
<PAGE>
<TABLE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-----------------------------------
(000'S)
REVENUES
<S> <C> <C> <C>
Premiums $ 51,525 $ 42,089 $ 22,689
Policy charges and fee income 324,976 319,012 308,753
Net investment income 247,328 246,618 241,132
Realized investment gains (losses) 10,835 13,200 (41,074)
Other income 20,818 26,986 13,259
-----------------------------------
Total Revenues 655,482 647,905 544,759
-----------------------------------
BENEFITS AND EXPENSES
Policyholders' benefits 186,873 153,987 121,949
Interest credited to policyholders' account
balances 118,246 126,926 113,711
Other operating costs and expenses 122,006 134,790 179,173
-----------------------------------
Total Benefits and Expenses 427,125 415,703 414,833
-----------------------------------
Income before income tax provision 228,357 232,202 129,926
-----------------------------------
Income tax provision 79,135 79,558 48,031
-----------------------------------
NET INCOME $ 149,222 $ 152,644 $ 81,895
===================================
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-2
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-----------------------------------
(000'S)
Common Stock
<S> <C> <C> <C>
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
-----------------------------------
Net Unrealized Investment Gains (Losses)
(Less Deferred Income Tax)
Balance, beginning of year 30,836 (1,349) -
Adoption of SFAS 115 - (39,762) -
Net change in unrealized investment
gains (losses) (18,434) 71,947 (1,349)
-----------------------------------
Balance, end of year 12,402 30,836 (1,349)
-----------------------------------
RETAINED EARNINGS
Balance, beginning of year 795,275 642,631 560,736
Net income 149,222 152,644 81,895
-----------------------------------
Balance, end of year 944,497 795,275 642,631
-----------------------------------
TOTAL STOCKHOLDER'S EQUITY $1,398,981 $1,268,193 $1,083,364
===================================
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-3
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
------------------------------------------
(000'S)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 149,222 $ 152,644 $ 81,895
Adjustments to reconcile net income to net cash from
operating activities:
Increase in future policy benefits and other policyholders'
liabilities 56,151 22,877 31,932
General account policy fee income (50,286) (56,637) (48,401)
Interest credited to policyholders' account balances 118,246 126,926 113,711
Net decrease (increase) in Separate Accounts (38,025) (3,520) (4,121)
Net realized investment (gains) losses (10,835) (13,200) 41,074
Amortization and other non-cash items 26,709 (8,106) 6,228
Change in:
Accrued investment income (2,248) (480) (2,597)
Premiums due (2,717) (1,957) (1,374)
Receivable from affiliates 6,374 (758) (637)
Note receivable from affiliate -- -- 50,000
Deferred policy acquisition costs (66,183) 31,318 34,124
Federal income tax receivable (816) 12,031 (28,908)
Other assets (6,522) (12,689) (11,121)
Payable to affiliate 10,145 11,327 (24,029)
Deferred federal income tax payable 7,912 30,779 --
Other liabilities 17,703 (61,306) (5,293)
-----------------------------------------
Cash Flows From Operating Activities 214,830 229,249 232,483
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Held to maturity 138,127 144,898 2,710,423
Available for sale 3,886,254 1,886,687 --
Equity securities 7,527 5,557 1,910
Mortgage loans 19,226 7,395 10,821
Other long term investments 288 1,559 607
Investment real estate 4,488 2,926 8,677
Payments for the purchase of:
Fixed maturities:
Held to maturity (114,494) (135,092) (2,561,082)
Available for sale (4,008,810) (1,741,139) --
Equity securities (4,697) (4,279) (2,436)
Mortgage loans -- -- (35,276)
Other long term investments (657) (1,674) (1,584)
Policy loans (70,509) (75,411) (73,591)
Net proceeds (payments) of short term investments 58,186 (36,482) 9,845
-----------------------------------------
Cash Flows From Investing Activities (85,071) 54,945 68,314
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 536,370 95,039 114,105
Withdrawals (net of transfers to/from separate accounts) (633,798) (365,578) (387,793)
-----------------------------------------
Cash Flows From Financing Activities (97,428) (270,539) (273,688)
-----------------------------------------
Net increase in Cash 32,331 13,655 27,109
Cash, beginning of year 41,435 27,780 671
-----------------------------------------
CASH, END OF YEAR $ 73,766 $ 41,435 $ 27,780
=========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid $ 61,760 $ 53,107 $ 56,089
=========================================
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-4
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
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
(Prudential), a mutual life insurance company. The Company markets
individual life insurance and deferred annuities primarily through
Prudential's sales force in the United States, and in Taiwan. All
significant intercompany balances and transactions have been eliminated in
consolidation.
B. Basis of Presentation
The Financial Accounting Standards Board (FASB) issued Interpretation No. 40
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises", as amended by Statement of Financial
Accounting Standards (SFAS) No. 120 "Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts", effective for fiscal years beginning after
December 15, 1995. Financial statements of mutual life insurance companies,
and their wholly owned stock life insurance subsidiaries, for periods
beginning after December 15, 1995 which are prepared on the basis of
statutory accounting practices will no longer be characterized as in
conformity with generally accepted accounting principles (GAAP). As a
result, the Company has prepared its 1996 consolidated financial statements
in accordance with all applicable GAAP pronouncements. The 1995 and 1994
consolidated financial statements, which were previously prepared on the
statutory basis of accounting, have been restated in accordance with GAAP.
The cumulative effect of adopting GAAP as of January 1, 1994 was an increase
in retained earnings of $378.3 million. See Note 7 for a reconciliation of
the Company's surplus and net income determined in accordance with statutory
accounting practices with equity and net income determined on a GAAP basis.
On January 1, 1995, the Company adopted SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," which expanded the use of fair
value accounting for those securities that a company does not have positive
intent and ability to hold to maturity. Implementation of this statement
decreased stockholder's equity by $39.8 million net of deferred income tax
benefit of $21.4 million. In 1994 prior to the adoption of SFAS 115, all
fixed maturities were carried at amortized cost.
C. Investments
Fixed Maturities - Securities held to maturity are those that the Company
has the positive intent and ability to hold to maturity and are principally
reported at amortized cost. Amortized cost is adjusted to estimated fair
value for impairments which are deemed to be other than temporary.
Where the Company may not have the positive intent to hold fixed maturities
until maturity, the securities are classified as "Available for Sale." These
securities are reported at market value based principally on their quoted
market prices. The associated unrealized gains and losses, net of income
taxes and deferred policy acquisition costs, are included as a component of
equity or if deemed to be other than temporary, are included as a realized
loss.
Equity Securities consist primarily of common and preferred stocks.
Marketable equity securities are reported at market value based principally
on their quoted market prices. Cost basis of the equity securities is $3.9
million and $5.3 million as of December 31, 1996 and 1995, respectively. The
associated unrealized gains and losses are included as a component of
equity.
Mortgage Loans and Policy Loans are stated primarily at unpaid principal
balances, net of unamortized discounts. Interest income is recognized as net
investment income earned.
B-5
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
Investment Real Estate acquired through foreclosure during 1994 was sold in
1996 for $4.5 million.
Other Long Term Investments, which consist 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 were $.3 million at December 31, 1995. There were no non-income
producing investments at December 31, 1996 and 1994.
Partnership and joint venture interests in which the Company does not have
control and a majority economic interest are reported on the equity basis of
accounting. Non real estate related interests of $4.5 million and $4.1
million are included in other long term investments, at December 31, 1996
and 1995, respectively. The Company's share of net income from such entities
was $1.4 million, $.3 million, and $1.9 million for the years ended December
31, 1996, 1995, and 1994, respectively, and is reported in net investment
income.
Realized investment gains and losses are reported based on specific
identification of the investments sold.
Short-term investments are fixed maturities that mature within one year, and
are reported at estimated fair value.
D. Revenue Recognition and Related Expenses
Universal life contracts are long duration life insurance contracts that
involve significant mortality and morbidity risk with both fixed and
guaranteed terms. Investment contracts are long duration contracts that do
not subject the insurance enterprise to risks arising from policyholder
mortality or morbidity. Amounts received as payments for these contracts are
reported as deposits to policyholders' account balances. Revenues from these
contracts consist primarily of amounts assessed during the period against
policyholders' account balances for mortality charges, policy administration
fees and surrender charges. Policy benefits and claims that are charged to
expenses include benefit claims incurred in the period in excess of related
policyholders' account balances.
Premiums, policy benefits and claims from traditional life and annuity
policies, generally are recognized in operations when due.
E. Deferred Policy Acquisition Costs
Acquisition costs consist of commissions and other costs which vary with and
are primarily related to the production or acquisition of new business.
Acquisition costs related to universal life products and investment-type
contracts are deferred and amortized in proportion to total estimated gross
profits arising principally from investment results, mortality, expense
margins and surrender charges based on historical and anticipated future
experience. Amortization of deferred policy acquisition costs was $9.3
million, $54.4 million, and $76.0 million for the years ended December 31,
1996, 1995, and 1994, respectively. Deferred policy acquisition costs are
analyzed to determine if they are recoverable from future income, including
investment income. If such costs are determined to be unrecoverable, they
are expensed at the time of determination. The effect on the deferred policy
acquisition asset that would result from realization of unrealized
investment gains (losses) is recognized with an offset to unrealized
investment gains (losses) in consolidated stockholder's equity.
B-6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
F. Future Policy Benefits and Policyholders' Account Balances
Benefit reserve liabilities for payout annuities such as matured deferred
annuities and supplementary contracts represent the present values of
estimated future benefits payments and related expenses. Present values for
these contracts are computed using interest rates ranging from 6.5% to 11%.
The mortality assumption for these contracts is the 83 IAM tables. Reserves
for supplementary benefits are stated at interest rates that vary from 4% to
6.5% using mortality and morbidity assumptions either from company
experience or various actuarial tables.
When liabilities for future policy benefits plus the present value of
expected future gross deposits are insufficient to provide expected future
policy benefits and expenses, unrecoverable deferred policy acquisition
costs are written off and thereafter, if required, a premium deficiency
reserve is established as a charge to income.
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account values
represent an accumulation of gross deposits plus interest credited less
expense and mortality charges and withdrawals.
Interest crediting rates on life insurance products range from 3.35% to 7%.
G. 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 Guaranteed Annuity and the Market Value Adjustment
Annuity Contracts do not participate in the investment gain or loss from
assets relating to such accounts. Such gain or loss is borne, in total, by
the Company.
All Separate Account assets are carried at market value. Deposits to all
Separate Accounts are reported as increases in Separate Account liabilities,
which equal the Separate Account policy account fund values. Charges
assessed against Policyholders' account balances for mortality, policy
administration and surrender charges are included in policy charges and fee
income. Mortality and expense risk charges are applied against the
Policyholders' account balance. The Separate Account assets are legally
segregated and are not subject to claims that arise out of any other
business of the Company.
H. Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
B-7
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
2. FIXED MATURITIES
Gross unrealized gains and losses for securities classified as Held to Maturity
and Available for Sale, by major security type, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(000's) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ - $ - $ - $ -
Foreign government bonds - - - -
Corporate securities 405,731 10,947 576 416,102
Mortgage-backed securities - - - -
Other fixed maturities - - - -
- ---------------------------------------------------------------------------------------------------
Total $ 405,731 $ 10,947 $ 576 $ 416,102
- ---------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(000's) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available For Sale
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 32,055 $ 30 $ 174 $ 31,911
Foreign government bonds 90,447 857 205 91,099
Corporate securities 2,087,250 30,365 4,206 2,113,409
Mortgage-backed securities 398 - - 398
Other fixed maturities - - - -
- ---------------------------------------------------------------------------------------------------
Total $ 2,210,150 $ 31,252 $ 4,585 $ 2,236,817
- ---------------------------------------------------------------------------------------------------
</TABLE>
B-8
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(000's) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ - $ - $ - $ -
Foreign government bonds - - - -
Corporate securities 437,727 18,629 1,805 454,551
Mortgage-backed securities - - - -
Other fixed maturities - - - -
- ---------------------------------------------------------------------------------------------------
Total $ 437,727 $ 18,629 $ 1,805 $ 454,551
- ---------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(000's) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available For Sale
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 324,854 $ 6,830 $ 61 $ 331,623
Foreign government bonds 73,042 3,055 - 76,097
Corporate securities 1,507,248 54,545 2,168 1,559,625
Mortgage-backed securities 169,190 8,717 398 177,509
Other fixed maturities - - - -
- ---------------------------------------------------------------------------------------------------
Total $ 2,074,334 $ 73,147 $ 2,627 $ 2,144,854
- ---------------------------------------------------------------------------------------------------
</TABLE>
B-9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
The amortized cost and estimated fair value of fixed maturities at December 31,
1996, categorized by contractual maturity, are shown below. Actual maturities
will differ from contractual maturities because borrowers may prepay obligations
with or without call or prepayment penalties.
DECEMBER 31, 1996
- ------------------------------------------------------------------------------
Estimated
Amortized Fair
(000's) Cost Value
- ------------------------------------------------------------------------------
Held to Maturity
Due in one year or less $ 28,653 $ 28,762
Due after one year through five years 156,013 158,183
Due after five years through ten years 194,765 202,766
Due after ten years 26,300 26,391
Mortgage-backed securities -- --
- ------------------------------------------------------------------------------
Total $ 405,731 $ 416,102
- ------------------------------------------------------------------------------
DECEMBER 31, 1996
- ------------------------------------------------------------------------------
Estimated
Amortized Fair
(000's) Cost Value
- ------------------------------------------------------------------------------
Available For Sale
Due in one year or less $ 130,400 $ 131,301
Due after one year through five years 1,561,854 1,578,979
Due after five years through ten years 398,090 404,920
Due after ten years 119,408 121,219
Mortgage-backed securities 398 398
- ------------------------------------------------------------------------------
Total $2,210,150 $2,236,817
- ------------------------------------------------------------------------------
Proceeds from the sale of fixed maturities during 1996, 1995, and 1994 were $3.8
billion, $1.8 billion, and $2.6 billion, respectively. Gross gains of $28.7
million, $28.8 million, and $16.8 million and gross losses of $19.7 million,
$17.5 million, and $49.8 million were realized on those sales during 1996, 1995,
and 1994, respectively.
B-10
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
3. Net Investment Income YEAR ENDED
DECEMBER 31,
1996 1995 1994
-------------------------------------------
(000'S)
<S> <C> <C> <C>
Net investment income consists of:
Gross investment income
Fixed maturities
Held to maturity $ 33,419 $ 33,458 $ 196,909
Available for sale 152,445 160,740 --
Equity securities 44 104 14
Mortgage loans 5,669 7,757 4,041
Investment real estate 613 647 2,146
Policy loans 33,449 29,775 25,692
Short term investments 16,780 15,092 12,676
Other 9,438 3,949 5,075
-------------------------------------------
251,857 251,522 246,553
Investment expenses (4,529) (4,904) (5,421)
===========================================
Net investment income $ 247,328 $ 246,618 $ 241,132
===========================================
4. Investment Gains (Losses)
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-------------------------------------------
(000'S)
<S> <C> <C> <C>
Realized investment gains (losses)
Fixed maturities - Available for sale $ 9,036 $ 11,359 $ (38,180)
Equity securities 781 2,020 503
Mortgage loans 1,677 (90) (4,581)
Investment real estate 487 (99) 1,184
Other (1,146) 10 --
-------------------------------------------
Realized investment gains (losses) $ 10,835 $ 13,200 $ (41,074)
===========================================
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-------------------------------------------
(000'S)
<S> <C> <C> <C>
Net unrealized investment gains
(losses), beginning of period $ 30,836 $ (1,349) $ --
Net unrealized investment gains (losses)
Fixed maturities - Available for sale (43,853) 131,712 --
Equity securities 1,403 827 (2,108)
-------------------------------------------
(42,450) 132,539 (2,108)
Deferred income tax benefit (provision) 15,398 (47,714) 759
Deferred policy acquisition costs
(net of deferred income taxes) 8,618 (12,878) --
-------------------------------------------
Net change in unrealized
investment gains (losses) (18,434) 71,947 (1,349)
Adoption of SFAS 115 -- (39,762) --
-------------------------------------------
Net unrealized investment gains
(losses), end of period $ 12,402 $ 30,836 (1,349)
===========================================
</TABLE>
B-11
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
5. Fair Value Information
The fair value amounts have been determined by the Company using available
information and reasonable valuation methodologies. Considerable judgment is
applied, as necessary, 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.
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.
Equity Securities - Fair value is based on quoted market prices.
Mortgage Loans - The fair value of the mortgage 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.
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.
Policyholders' Account Balances - Fair values for policyholders' account
balances are equal to the policy account values.
Short-term Investments - Fair values for short-term investments are based on
quoted market prices or estimates from independent pricing services.
The following table discloses the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ---------- -------------- ----------
(000'S)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities:
Held to maturity $ 405,731 $ 416,102 $ 437,727 $ 454,551
Available for sale 2,236,817 2,236,817 2,144,854 2,144,854
Mortgage loans 46,915 46,692 64,464 63,635
Policy loans 639,782 623,218 569,273 577,975
Equity securities 3,748 3,748 4,036 4,036
Short-term investments 169,830 169,830 228,016 228,016
Financial Liabilities:
Policyholders'
account balances $ 2,188,862 $ 2,188,862 $ 2,218,330 $ 2,218,330
</TABLE>
B-12
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
6. Income Taxes
The Company is a member of a group of affiliated companies which join in filing
a consolidated federal income tax return in addition to separate company state
and local tax returns. The Internal Revenue Code limits the amount of nonlife
insurance losses that may offset life insurance company taxable income.
Companies operating outside the United States are taxed under applicable foreign
statutes.
Pursuant to the tax allocation arrangement, total federal income tax expense is
determined on a separate company basis. Members with losses record tax benefits
to the extent such losses are recognized in the consolidated federal tax
provision. The Company has a net receivable from Prudential of $7.2 million and
$6.4 million as of December 31, 1996 and 1995, respectively.
Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes.
The components of income taxes are as follows:
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-------------------------------------
(000'S)
Current income tax provision:
Federal income tax $ 59,489 $ 65,131 $ 59,641
State and local income tax 703 1,876 3,036
Foreign income tax 4 7 7
-------------------------------------
Total current income tax 60,196 67,014 62,684
Deferred income tax provision
(benefit):
Federal income tax 18,413 12,196 (14,246)
State and local income tax 526 348 (407)
-------------------------------------
Total deferred income tax 18,939 12,544 (14,653)
-------------------------------------
Total income tax provision $ 79,135 $ 79,558 $ 48,031
=====================================
The income tax provision is different from the amount computed using the
expected federal income tax rate of 35% for the following reasons:
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-------------------------------------
(000'S)
Expected federal income tax expense $ 79,926 $ 81,271 $ 45,474
State income taxes 1,229 2,224 2,629
Other (2,020) (3,937) (72)
=====================================
Total income tax provision $ 79,135 $ 79,558 $ 48,031
=====================================
B-13
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
The components of net deferred income taxes payable are as follows:
YEAR ENDED
DECEMBER 31,
1996 1995
------------------------------
(000'S)
Deferred Income Tax Assets
Insurance liabilities $ 38,532 $ 40,732
Other -- --
------------------------------
Total deferred income tax assets $ 38,532 $ 40,732
==============================
Deferred Income Tax Liabilities
Deferred acquisition costs $ 173,785 $ 153,526
Net investment gains 12,502 28,157
Other 1,205 97
------------------------------
Total deferred income tax liabilities 187,492 181,780
------------------------------
Deferred federal income tax payable $ 148,960 $ 141,048
==============================
The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns through 1989. The Service is examining
the years 1990 through 1992. Discussions are being held with the Service with
respect to proposed adjustments. However, management believes there are adequate
defenses against, or sufficient reserves to provide for, such adjustments.
B-14
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
7. Stockholder's Equity Reconciliation
The reconciliation of statutory net income to GAAP net income, and statutory
surplus to GAAP equity as of December 31, 1996, 1995, and 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------
(000'S)
<S> <C> <C> <C>
Statutory net income $ 73,847 $ 157,751 $ 52,955
Deferred acquisition costs 48,862 (6,103) (34,124)
Deferred premium 1,295 (743) 1,122
Insurance liabilities 10,211 22,890 31,780
Income taxes (7,780) (27,669) 42,755
Interest maintenance reserve 365 5,480 (24,704)
Separate accounts and other 22,422 1,038 12,111
---------------------------------------------------------
GAAP net income $ 149,222 $ 152,644 $ 81,895
=========================================================
Statutory surplus $ 901,645 $ 829,022 $ 676,087
Investment valuation 26,678 70,776 -
Deferred acquisition costs 633,159 566,976 598,294
Deferred premium (11,859) (13,154) (12,412)
Insurance liabilities (124,781) (153,995) (71,076)
Income taxes (124,823) (128,070) (82,167)
Asset valuation reserve and interest
maintenance reserve 68,733 64,551 23,690
Other 30,229 32,087 (49,052)
---------------------------------------------------------
GAAP stockholder's equity $ 1,398,981 $ 1,268,193 $ 1,083,364
=========================================================
</TABLE>
The New York State Insurance Department ("Department") recognizes only
statutory accounting for determining and reporting the financial condition
and results of operations of an insurance company, for determining its
solvency under the New York Insurance Law, and for determining whether its
financial condition warrants the payment of a dividend to its stockholders.
No consideration is given by the Department to financial statements prepared
in accordance with generally accepted accounting principles in making such
determinations.
B-15
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
8. Related Party Transactions
A. Service Agreements
The Company, Prudential, and Pruco Securities Corporation, an indirect
wholly-owned subsidiary of 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 $102 million, $98 million and $78 million for
the years ended December 31, 1996, 1995, and 1994, respectively.
B. Pension Plans
The Company is a wholly-owned subsidiary of Prudential which sponsors
several defined benefit pension plans that cover substantially all of its
employees. Benefits are generally based on career average earnings and
credited length of service. 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 1996, 1995, or 1994 because the plan was subject to the full
funding limitation under the Internal Revenue Code.
C. Postretirement Life and Health Benefits
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. 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, 1996, 1995, and 1994.
D. Reinsurance
The Company currently has three reinsurance agreements in place with
Prudential (the reinsurer). Specifically: reinsurance Group Annuity
Contract, whereby the reinsurer, in consideration for a single premium
payment by the Company, provides reinsurance equal to 100% of all payments
due under the contract, and two yearly renewable term agreements in which
the Company may offer and the reinsurer may accept reinsurance on any life
in excess of the Company's maximum limit of retention. The Company is not
relieved of its primary obligation to the policyholder as a result of these
reinsurance transactions. These agreements had no material effect on net
income for the years ended December 31, 1996, 1995, and 1994.
9. 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 Prudential, the Company and agents appointed
by Prudential and the Company. Prudential has agreed to indemnify the
Company for any and all losses resulting from such litigation.
10. Dividends
The Company is subject to Arizona law which limits the amount of dividends
that insurance companies can pay to stockholders. The maximum dividend which
may be paid in any twelve month period without notification or approval is
limited to the lesser of 10% of 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, 1996, the Company would be permitted a maximum of $48 million in
dividend distribution in 1997, all of which could be paid in cash, without
approval from The State of Arizona Department of Insurance.
B-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying consolidated statement of financial position
and the related consolidated statements of operations, of stockholder's equity
and of cash flows present fairly, in all material respects, the financial
position of Pruco Life Insurance Company and its subsidiaries at December 31,
1996, and the results of their operations and their cash flows for the year in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
- --------------------------
PRICE WATERHOUSE LLP
New York, New York
March 21, 1997
B-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors of
Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying consolidated statement of financial position of
Pruco Life Insurance Company and subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, stockholder's equity and cash
flows for the years ended December 31, 1995 and 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying financial statements presents fairly, in all
material respects, the consolidated financial position of Pruco Life Insurance
Company and subsidiaries as of December 31, 1995, and the consolidated results
of operations and cash flows for the years ended December 31, 1995 and 1994 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company has
retroactively adopted all applicable generally accepted accounting principles
relating to stock life insurance subsidiaries of mutual life insurance companies
and has changed, as of January 1, 1995, the method of accounting for fixed
maturity investments.
/s/ DELOITTE & TOUCHE LLP
Parsippany, N.J.
December 19, 1996
B-18
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
FUTURE VALUE ANNUITY sm
INDIVIDUAL DEFERRED
ANNUITY CONTRACTS
- ----------------------------------------====================================----
A Subsidiary of BULK RATE
U.S. Postage
PAID
[LOGO] 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 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 or claims by reason of actual or alleged act,
error, misstatement, misleading statement, omission, or breach of duty by
persons in the discharge of their duties solely in their capacities as directors
or officers of Prudential, any of its subsidiaries, or certain investment
companies affiliated with 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, dishonest or fraudulent acts or omissions or the willful
violation of any law by directors or officers, (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, and investment adviser, investment banker, underwriter, broker or
dealer, as those terms are defined in the Securities Act or 1933, the Securities
Exchange Act of 1934, the Investment Advisers Act or 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 or 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 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 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 defence 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 3)
(3) (a) Articles of Incorporation of Pruco Life Insurance Company, as
amended October 19, 1993. (Note 2)
(b) By-laws of Pruco Life Insurance Company, as amended June 18, 1996.
(Note 11)
(c) Resolution of the Board of Directors of Pruco Life Insurance
Company establishing the Pruco Life Modified Guaranteed Annuity
Account. (Note 3)
(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 3)
(22) Subsidiary Organizational Chart. (Note 4)
(23) (a) Written consent of Price Waterhouse LLP. independent
accountants. (Note 1)
(b) Written consent of Deloitte & Touche LLP, independent auditors.
(Note 1)
(25) Powers of Attorney.
(a) William M. Bethke, Ira J, Kleinman, Mendel A. Melzer, Esther H.
Milnes, I. Edward Price and William Yelverton (Note 5)
(b) Linda S. Dougherty (Note 11)
(c) Kiyofumi Sakaguchi (Note 7)
(27) Financial Data Schedule. (Note 1)
(28) (a) Enhanced Death Benefit Endorsement PLI 387-91 to the Future Value
Annuity Contract (Note 4)
(b) Renewal Endorsement PLI 427-92 to the Future Value Annuity
Contact. (Note 8)
(c) Waiver of Withdrawal Charges rider PLI 400-92 to the Future Value
Annuity Contract (at issue). (Note 8)
(d) Waiver of Withdrawal Charges rider PLI 401-92 to the Future Value
Annuity Contract (after issue). (Note 8)
(e) Spousal Continuance Rider PLI 436-93 (Note 9)
(f) Endorsement altering the Assignment provision. (Note 10)
(b) Financial Statement Schedules
Pruco Life Insurance Company and Subsidiaries:
Schedule IV--Schedule of Reinsurance. (Note 1)
- ----------
(Note 1) Filed herewith
(Note 2) Incorporated by reference to Form S-6, Registration No. 333-07451,
filed July 19, 1995, on behalf of the Pruco Life Flexible Premium
Variable Annuity Account.
(Note 3) Incorporated by reference to Registrant's Form S-1 Registration
Statement filed November 2, 1990.
(Note 4) Incorporated by reference to Registrant's Form S-1 Registration
Statement, filed April 9, 1992.
(Note 5) Incorporated by reference to Form 10-K, Registration No. 33-08698,
filed March 31, 1997 on behalf of the Pruco Life Variable Contract Real
Property Account.
II-2
<PAGE>
(Note 6) Incorporated by reference to Form S-6, Registration No. 333-07451,
filed July 2, 1996, on behalf of the Pruco Life Variable Appreciable
Account.
(Note 7) Incorporated by reference to Post-Effective Amendment No. 8 to Form
S-6, Registration No. 33-49994, filed on or about April 25, 1997, on
behalf of the Pruco Life PRUvider Variable Appreciable Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 3 to this
Registration Statement, filed April 15, 1993.
(Note 9) Incorporated by reference to Post-Effective Amendment No. 4 to this
Registration Statement filed April 7, 1994.
(Note 10) Incorporated by reference to Post-Effective Amendment No. 5 to this
Registration Statement filed April 7, 1995.
(Note 11) Incorporated by reference to Post-Effective Amendment No. 3 to Form
S-1, Registration No. 33-86780, filed April 9, 1997 on behalf of the
Pruco Life Variable Contract Real Property Account.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, the Registrant
has duly caused this Post-Effective Amendment No. 7 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 25th day of
April, 1997.
PRUCO LIFE INSURANCE COMPANY
(Registrant)
*By: /s/ ESTHER H. MILNES
-----------------------------
Esther H. Milnes
President
Pursuant to the requirements of the Securities Act of 1993, this
Post-Effective Amendment No. 7 to the Registration Statement has been signed by
the following persons in the capacities and the date indicated.
SIGNATURE AND TITLE
-------------------
/s/ * April 25, 1997
- ---------------------------------------------
Esther H. Milnes
President And Director
/S/ *
- ---------------------------------------------
Linda S. Dougherty
Vice President, Chief Accounting Officer
And Comptroller
/S/ * *By: /S/ CLIFFORD E. KIRSCH
- --------------------------------------------- ----------------------
William M. Bethke Clifford E. Kirsch
Director (Attorney-in-fact)
/S/ *
- ---------------------------------------------
Mendel A. Melzer
Director
/S/ *
- ---------------------------------------------
Ira J. Kleinman
Director
/S/ *
- ---------------------------------------------
I. Edward Price
Director
/S/ *
- ---------------------------------------------
William F. Yelverton
Director
/S/ *
- ---------------------------------------------
Kiyofumi Sakaguchi
Director
II-4
<PAGE>
EXHIBIT INDEX
(a)(5) Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of
the securities being registered.
(a)(23)(a) Written consent of Deloitte & Touche LLP, independent auditors
(b) Written consent of Price Waterhouse LLP, independent accountants
(a)(27) Financial Data Schedules
(B) FINANCIAL STATEMENT SCHEDULES:
Pruco Life Insurance Company and Subsidiaries:
Schedule IV - Schedule of Reinsurance.
II-5
Exhibit (a)5
April 25, 1997
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 non-unitized
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 oversight of the preparation and review of the
Registration Statement on Form S-1, as amended, filed by Pruco Life with the
U.S. Securities and Exchange Commission (Registration No.33-37587) under the
Securities Act of 1933 for the registraticn 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 non-unitized 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.
II-6
<PAGE>
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,
/s/ CLIFFORD E. KIRSCH
Clifford E. Kirsch
II-7
EXHIBIT (a)(23)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No.7 to Registration
Statement No.33-37587 on Form 5-1 of Pruco Life Insurance Company of (a) 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-8
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No.7 to the registration statement on Form S-1 (the
"Registration Statement") of our report dated March 21, 1997, relating to the
consolidated financial statements of Pruco Life Insurance Company and
Subsidiaries, which appears in such Prospectus.
We also consent to the application of our report to the Financial Statement
Schedules of Pruco Life Insurance Company and Subsidiaries for the year ended
December 31, 1996 listed under item 16(b) of this Registration Statement when
such schedules are read in conjunction with the financial statements referred to
in our report. The audit referred to in such report also included these
schedules.
We also consent to the reference to us under the heading "Experts" in the
Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 24, 1997
II-9
<TABLE>
<CAPTION>
Pruco Life Insurance Company and Subsidiaries
Schedule IV - Schedule of Reinsurance
For Year Ended December 31, 1996
(000's)
Ceded to other Assumed from Percentage of amount
Gross Amount companies other companies Net amount assumed to net
------------ --------- --------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Life insurance in $ 47,430,580 $ 1,172,449 $ 0 $ 46,258,131 N/A
force.....................
=================== ==================== ==================== =================== ===================
Life insurance $ 54,904 $ 3,379 $ 0 $ 51,525 N/A
premiums...............
=================== ==================== ==================== =================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pruco Life Insurance Company and Subsidiaries
Schedule IV - Schedule of Reinsurance
For Year Ended December 31, 1995
(000's)
Ceded to other Assumed from Percentage of amount
Gross Amount companies other companies Net amount assumed to net
------------ --------- --------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Life insurance in $ 47,822,892 $ 822,619 $ 0 $ 47,000,273 N/A
force.....................
=================== =================== ==================== =================== ===================
Life insurance $ 44,357 $ 2,268 $ 0 $ 42,089 N/A
premiums...............
=================== =================== ==================== =================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pruco Life Insurance Company and Subsidiaries
Schedule IV - Schedule of Reinsurance
For Year Ended December 31, 1994
(000's)
Ceded to other Assumed from Percentage of amount
Gross Amount companies other companies Net amount assumed to net
------------ --------- --------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Life insurance in $ 48,003,675 $ 531,166 $ 0 $ 47,472,509 N/A
force.....................
================== ==================== ==================== =================== ====================
Life insurance $ 24,165 $ 1,476 $ 0 $ 22,689 N/A
premiums...............
================== ==================== ==================== =================== ====================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 2,236,817
<DEBT-CARRYING-VALUE> 405,731
<DEBT-MARKET-VALUE> 416,102
<EQUITIES> 3,748
<MORTGAGE> 46,915
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,507,351
<CASH> 73,766
<RECOVER-REINSURE> 27,014
<DEFERRED-ACQUISITION> 633,159
<TOTAL-ASSETS> 9,678,427
<POLICY-LOSSES> 2,188,862
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 557,351
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
2,500
0
<COMMON> 0
<OTHER-SE> 1,396,481
<TOTAL-LIABILITY-AND-EQUITY> 9,678,427
51,525
<INVESTMENT-INCOME> 247,328
<INVESTMENT-GAINS> 10,835
<OTHER-INCOME> 20,818
<BENEFITS> 305,119
<UNDERWRITING-AMORTIZATION> 9,309
<UNDERWRITING-OTHER> 112,697
<INCOME-PRETAX> 228,357
<INCOME-TAX> 79,135
<INCOME-CONTINUING> 149,222
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 149,222
<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>
