<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 33-37587
PRUCO LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)
Arizona 22-1944557
- ------------------------------------- --------------------------------------
(State or other jurisdiction, (IRS Employer Identification No.)
incorporation or organization)
213 Washington Street, Newark, New Jersey 07102
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(Address of principal executive offices ) (Zip Code)
(973) 802-5740
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(Registrant's Telephone Number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO ___
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of August 13, 1999. Common stock, par value
of $10 per share: 250,000 shares outstanding
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PRUCO LIFE INSURANCE COMPANY
INDEX TO FINANCIAL STATEMENTS
PAGE NO.
--------
Cover Page 1
Index 2
PART I - Financial Information
- ------------------------------
Item 1. (Unaudited) Consolidated Financial Statements
Statements of Financial Position
June 30, 1999 and December 31, 1998 3
Statements of Operations and Comprehensive Income
Three and Six months ended June 30, 1999 and 1998 4
Statements of Changes in Stockholder's Equity
Six months ended June 30, 1999 and the year ended
December 31, 1998 5
Statements of Cash Flows
Six months ended June 30, 1999 and 1998 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 12
PART II - Other Information
- ---------------------------
Item 2. Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K 14
Signature Page 15
2
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Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Financial Position (Unaudited)
June 30, 1999 and December 31, 1998 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1999: $2,619,551; 1998: $2,738,654) $ 2,585,298 $ 2,763,926
Held to maturity, at amortized cost (fair value, 1999: $409,171; 1998: $421,845) 409,621 410,558
Equity securities - available for sale, at fair value (cost, 1999: $2,308; 1998: $2,951) 3,223 2,847
Mortgage loans on real estate 16,889 17,354
Policy loans 789,441 766,917
Short-term investments 359,538 240,727
Other long-term investments 761 1,047
---------------- ----------------
Total investments 4,164,771 4,203,376
Cash 101,130 89,679
Deferred policy acquisition costs 951,805 861,713
Accrued investment income 61,061 61,114
Other assets 61,035 65,145
Separate Account assets 14,024,610 11,531,754
--------------- ----------------
TOTAL ASSETS $ 19,364,412 $ 16,812,781
=============== ================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 2,793,676 $ 2,701,984
Future policy benefits and other policyholder liabilities 543,891 528,806
Cash collateral for loaned securities 34,135 73,336
Securities sold under agreement to repurchase 47,715 49,708
Income taxes payable 161,117 193,358
Payable to affiliate 68,051 66,568
Other liabilities 78,768 55,038
Separate Account liabilities 13,978,884 11,490,751
-------------- -----------------
Total liabilities 17,706,237 15,159,549
-------------- -----------------
Contingencies (See Note 3)
Stockholder's Equity
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
June 30, 1999 and December 31, 1998 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,226,744 1,202,833
Accumulated other comprehensive income
Net unrealized investment (losses) gains (9,596) 9,902
Foreign currency translation adjustments (1,055) (1,585)
--------------- ------------------
Accumulated other comprehensive income (10,651) 8,317
--------------- ------------------
Total stockholder's equity 1,658,175 1,653,232
--------------- ------------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 19,364,412 $ 16,812,781
=============== ==================
</TABLE>
See Notes to Consolidated Financial Statements
3
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Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
Three and Six Months Ended June 30, 1999 and 1998 (In Thousands)
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUES
Premiums $ 31,309 $ 25,684 $ 17,601 $ 13,977
Policy charges and fee income 206,366 168,642 112,625 82,738
Net investment income 137,597 129,967 67,784 65,852
Realized investment (losses) gains, net (13,800) 12,985 (8,777) 7,546
Asset management fee income 25,516 18,025 14,307 8,615
Other income 845 822 294 10
---------------- ---------------- ---------------- ----------------
Total revenues 387,833 356,125 203,834 178,738
---------------- ---------------- ---------------- ----------------
BENEFITS AND EXPENSES
Policyholders' benefits 97,140 72,360 44,230 27,619
Interest credited to policyholders' account
balances 62,249 56,884 30,987 31,525
General, administrative and other expenses 191,658 149,340 122,678 94,251
---------------- ---------------- ---------------- ----------------
Total benefits and expenses 351,047 278,584 197,895 153,395
---------------- ---------------- ---------------- ----------------
Income before income taxes 36,786 77,541 5,939 25,343
---------------- ---------------- ---------------- ----------------
Income taxes 12,875 27,107 1,596 8,049
---------------- ---------------- ---------------- ----------------
NET INCOME $ 23,911 $ 50,434 $ 4,343 $ 17,294
---------------- ---------------- ---------------- ----------------
Other comprehensive income, net of tax:
Unrealized losses on securities, net of
reclassification adjustment (19,498) (5,607) (9,628) (823)
Foreign currency translation adjustments 530 (1,279) 641 (1,160)
---------------- ---------------- ---------------- ----------------
Other comprehensive income (18,968) (6,886) (8,987) (1,983)
---------------- ---------------- ---------------- ----------------
TOTAL COMPREHENSIVE INCOME $ 4,943 $ 43,548 $ (4,644) $ 15,311
================ ================ ================ ================
</TABLE>
See Notes to Consolidated Financial Statements
4
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Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity (Unaudited)
Six Months Ended June 30, 1999 and the Year Ended December 31, 1998 (In
Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
other Total
Common Paid-in- Retained comprehensive stockholder's
stock capital earnings income equity
------------- ------------ ---------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 2,500 $ 439,582 $1,050,871 $ 12,564 $1,505,517
Net income - - 151,962 - 151,962
Change in foreign currency
translation adjustments - - - 2,980 2,980
Change in net unrealized
investment losses, net of
reclassification adjustment - - - (7,227) (7,227)
------------- ------------ ---------------- ----------------- ------------------
Balance, December 31, 1998 $ 2,500 $ 439,582 $1,202,833 $ 8,317 $1,653,232
Net income - - 23,911 - 23,911
Change in foreign currency
translation adjustments - - - 530 530
Change in net unrealized
investment losses, net of
reclassification adjustment - - - (19,498) (19,498)
------------- ------------ ---------------- ----------------- ------------------
Balance, June 30, 1999 $ 2,500 $ 439,582 $1,226,744 $ (10,651) $1,658,175
============= ============ ================ ================= ==================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1999 and 1998 (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $23,911 $50,434
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Policy charges and fee income (39,520) (21,513)
Interest credited to policyholders' account balances 62,249 56,884
Realized investment losses (gains), net 13,800 (12,985)
Amortization and other non-cash items 38,830 (162)
Change in:
Future policy benefits and other policyholder liabilities 15,085 57,515
Accrued investment income 53 2,203
Separate Accounts (4,723) 17,248
Payable to affiliate 1,483 159,113
Policy loans (22,524) (34,059)
Deferred policy acquisition costs (90,092) (57,047)
Income taxes payable (32,241) (47,155)
Other, net 27,840 32,874
--------------- ---------------
Cash Flows (Used In) From Operating Activities (5,849) 203,350
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 2,095,979 2,285,192
Held to maturity 25,206 45,826
Equity securities 2,452 2,747
Mortgage loans on real estate 466 431
Other long-term investments 318 -
Payments for the purchase of:
Fixed maturities:
Available for sale (1,988,779) (2,371,163)
Held to maturity (24,170) (33,771)
Equity securities (1,989) (2,703)
Other long-term investments (33) (499)
Cash collateral for loaned securities, net (39,201) 53,274
Securities sold under agreement to repurchase, net (1,993) -
Short-term investments, net (118,819) (163,664)
--------------- ---------------
Cash Flows Used In Investing Activities (50,563) (184,330)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 1,671,054 1,578,895
Withdrawals (1,603,191) (1,575,394)
--------------- ---------------
Cash Flows From Financing Activities 67,863 3,501
--------------- ---------------
Net increase in Cash 11,451 22,521
Cash, beginning of year 89,679 71,358
--------------- ---------------
CASH, END OF PERIOD $ 101,130 $ 93,879
=============== ===============
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Pruco Life
Insurance Company ("the Company"), a wholly owned subsidiary of The Prudential
Insurance Company of America ("Prudential"), have been prepared in accordance
with the requirements of Form 10-Q and generally accepted accounting
principles ("GAAP") for interim financial information. These statements should
be read in conjunction with the consolidated financial statements and notes
thereto for the year ended December 31, 1998 included in the Company's Annual
Report on Form 10-K for that year.
The accompanying consolidated financial statements have not been audited by
independent accountants in accordance with generally accepted auditing
standards, but in the opinion of management such financial statements include
all adjustments, consisting only of normal recurring accruals and elimination
of intercompany balances and transactions, necessary to summarize fairly the
Company's financial position and results of operations. The results of
operations for the six months ended June 30, 1999 may not be indicative of the
results that may be expected for the year ending December 31, 1999.
Certain amounts in the prior years have been reclassified to conform to
current year presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Realized investment gains, net, are computed using the specific identification
method. The carrying values of fixed maturity and equity securities are
adjusted for impairments considered to be other than temporary. During 1999,
the Company determined that for certain fixed maturities in the investment
portfolio there were declines in fair value considered to be other than
temporary. The Company wrote down the carrying value of these fixed maturities
and recorded a charge of $3.3 million in "realized investment gains, net," on
the Consolidated Statements of Operations and Comprehensive Income.
3. 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.
In the normal course of business, the Company is subject to various claims and
assessments. Management believes the settlement of these matters would not
have a material effect on the financial position or results of operations of
the Company.
4. RELATED PARTY TRANSACTIONS
Prudential and the Company have an agreement with respect to administrative
services for the Prudential Series Fund ("Series Fund"), the portfolio of
mutual fund investments related to the Company's Separate Account products.
Under this agreement, Prudential pays compensation to the Company in the
amount equal to a portion of the gross investment advisory fees paid by the
Series Fund. This is recorded as "Asset management fee income" on the
Consolidated Statements of Operations and Comprehensive Income.
Prudential and the Company operate under service and lease agreements whereby
services of officers and employees (except for those agents employed by the
Company in Taiwan), supplies, use of equipment and office space are provided
by Prudential. During the first six months of 1999, Prudential reviewed and
modified its methods for determining the level of administrative expenses
charged to the Company. As a result, the level of such expenses has increased
significantly over the 1998 levels.
7
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Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
- -------------------------------------------------------------------------------
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and
Hedging Activities". The new accounting treatment required by this statement
will not affect the Company's liquidity or the ultimate economic gain or loss
from its derivative positions. However, it may affect the way the Company
recognizes changes in value of some of its derivatives and derivative-like
contract features, and this could lead to more volatility in the Company's
reported income statement results, especially on a quarterly basis.
Under previous accounting standards, companies could defer recognizing changes
in the value of derivatives used to hedge various risks if certain conditions
were met. Under the new accounting standards, all derivatives must be reported
at fair value each quarter, but if special hedge accounting requirements are
met this change in fair value may be offset, entirely or partially, by also
recognizing the corresponding change in value of the hedged item. Since the
Company already marks most of its derivative positions to market each quarter,
the Company does not expect this new treatment to materially increase its net
income volatility assuming the Company continues its current derivative and
hedging strategies.
While the Statement does not apply to most traditional insurance contracts,
some contracts may contain features that can affect settlement amounts
similarly to derivatives. For these contracts, the new standards call for
separate accounting for the "host contract" and the "embedded derivative",
leading to mark-to-market for the "embedded derivative" features that was not
previously required. While the Company's economic results from these contracts
are also unaffected, this accounting could lead to increased volatility in the
quarterly income statement results it reports.
The Company has not yet completed its assessment of the impact of the
statement, and its effect on the Company depends, among other things, on its
derivative positions and hedging strategies after the date of adoption. The
Company is required to adopt this statement no later than January 1, 2001.
8
<PAGE>
Cautionary Note Regarding Forward-Looking Statements
Certain of the statements included in this document may constitute
forward-looking statements within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995. Words such as "expects," "believes,"
"anticipates," "intends," "plans," "assumes," "estimates," "projects," or
variations of such words are generally part of forward-looking statements.
Forward-looking statements are made based on management's current expectations
and beliefs concerning future developments and their potential effects upon
the Company. There can be no assurance that future developments affecting the
Company will be those anticipated by management. These forward looking
statements are not a guarantee of future performance and involve risks and
uncertainties, and there are certain important factors that could cause actual
results to differ materially from estimates or expectations reflected in such
forward-looking statements including, without limitation, changes in general
economic conditions, including the performance of financial markets and
interest rates; market acceptance of new products and distribution channels;
competitive, regulatory or tax changes that affect the cost or demand for the
Company's products; and adverse litigation results. While the Company
reassesses material trends and uncertainties affecting its financial condition
and results of operations, it does not intend to review or revise any
particular forward-looking statement referenced in this document in light of
future events. The information referred to above should be considered by
readers when reviewing any forward-looking statements contained in this
document.
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations.
----------------------
The following analysis should be read in conjunction with the notes to
Consolidated Financial Statements.
The Company markets individual life insurance, variable life insurance,
variable annuities, fixed annuities, and a group annuity program primarily
through Prudential's sales force in the United States and markets individual
life insurance through its branch office in Taiwan.
The Company markets its products in the life insurance and annuity sectors of
the insurance industry. These markets are subject to regulatory oversight with
particular emphasis placed on company solvency and sales practices. These
markets are also subject to increasing competitive pressure as the legal
barriers which have historically segregated the markets of the financial
services industry are being challenged through both legislative and judicial
processes. Regulatory changes have opened the insurance industry to
competition from other financial institutions, particularly banks and mutual
funds that are positioned to deliver competing investment products through
large, stable distribution channels.
Competition in the annuity industry particularly, is very intense. In the
annuity marketplace, with respect to variable annuities, investment and
product features as well as distribution capability are critical to our
ability to compete. Demographic trends and the concerns over the viability of
Social Security have resulted in the need to provide consumers with long term
retirement alternatives. Given the strong growth within the retirement savings
market, the level of competition has increased significantly not only from
other insurance companies but from other financial intermediaries as well.
Product sales and asset retention are a function of investment performance,
product features, customer service, distribution capability and product
pricing.
The Company held $19.4 billion in assets at June 30, 1999 compared to $16.8
billion at December 31, 1998, of which $14.0 billion and $11.5 billion were
held in Separate Accounts in 1999 and 1998, respectively, under variable life
insurance policies and variable annuity contracts. The remaining assets
consisted primarily of general account investments and deferred policy
acquisition costs.
1. Results of Operations
For the six months ended June 30, 1999 versus 1998
- --------------------------------------------------
Net income for the six months ended June 30, 1999 was $23.9 million, a
decrease of $26.5 million or 52.6% from $50.4 million earned in the six
months ended June 30, 1998.
Total insurance revenues, consisting of premiums and policy charges and fee
income, increased $43.4 million for the six months ended June 30, 1999 to
$237.7 million from $194.3 million for the six months ended June 30, 1998
primarily due to increased fees generated from asset appreciation and, to a
lesser extent, new deposits from sales of the Discovery Select Variable
Annuity ("Discovery Select"). Introduced in 1996, Discovery Select offers
contract holders investment options in
9
<PAGE>
a diversified portfolio which includes 24 separate equity and fixed income
investment portfolios. Discovery Select is sold by agents in the insurance
channel as well as financial planners in Prudential Securities, a wholly owned
indirect subsidiary of Prudential. The Company also has a variable universal
life ("VUL") insurance product, which provides an option to the customer to
select proprietary or non-proprietary mutual fund investments.
Favorable market conditions have provided a stimulus for investors to purchase
variable life and annuity products, including the Discovery Select and VUL
products. Overall, appreciation in Separate Account asset values and sales
have contributed to the growth in assets under management and consequently in
policy charges and fees earned. For Discovery Select, Separate Account assets
under management increased by $3.0 billion to $6.3 billion as of June 30, 1999
from the June 30, 1998 level. Over the same period, VUL assets under
management grew $422.5 million to $674.1 million at June 30, 1999. In
addition, the Company's Taiwan branch generated continued growth in premiums
for traditional life insurance products. Taiwan's sales and the number of
Taiwanese life planners grew by 30% and 23%, respectively.
The Company's consolidated net investment income was $137.6 million for the
six months ended June 30, 1999, an increase of $7.6 million from the six
months ended June 30, 1998. The increase was primarily the result of higher
average balances of fixed maturity portfolio assets due to sales of a new
non-participating guaranteed investment contract ("GIC") product, Prudential
Credit Enhanced ("PACE"). This increase was partially offset by a decrease in
short-term investment income, which was a result of lower average yields and
average asset balances during the first half of 1999 versus 1998.
Consolidated net realized investment gains decreased $26.8 million for the six
months ended June 30, 1999 to a $13.8 million loss from a $13.0 million gain
for the six months ended June 30, 1998. This decrease was primarily due to net
sales of fixed maturities during a period of increasing interest rates. These
sales are a result of a strategic decision to reallocate money to short term
investments. In addition, during 1999, the Company determined that for certain
fixed maturities in the investment portfolio there were declines in fair value
considered to be other than temporary. For the six months ended June 30, 1999,
the Company recorded a charge of $3.3 million to write down the carrying value
of these fixed maturities.
Asset management fee income increased $7.5 million for the six months ended
June 30, 1999 to $25.5 million from $18.0 million for the six months ended
June 30, 1998. Appreciation in the Separate Account products and new deposits
have generated an increase in asset management fee income from the Series
Fund.
Policyholders' benefits increased $24.7 million for the six months ended June
30, 1999 to $97.1 million from $72.4 million for the six months ended June 30,
1998. This change is attributable to an increase in death claims in both size
and number reflecting the overall aging of the business in force as well as an
increase in disability reserves and reserve growth driven by business growth
in Taiwan.
Interest credited to policyholders' account balances increased by $5.3 million
for the six months ended June 30, 1999 to $62.2 million from $56.9 million for
the six months ended June 30, 1998. Most of this increase is attributable to
the new PACE product. The remaining increase is attributable to the growth in
policyholder account balances, largely Discovery Select and VUL.
General, administrative and other expenses increased $42.4 million for the six
months ended June 30, 1999 to $191.7 million compared to $149.3 million for
the six months ended June 30, 1998. The primary reason for the higher level of
expenses in 1999 is a change in Prudential's allocation methodology for
expenses billed to the Company resulting in an increase in non-deferrable
expenses.
10
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For the three months ended June 30, 1999 versus 1998
- ----------------------------------------------------
Net income for the three months ended June 30, 1999 was $4.3 million, a
decrease of $13.0 million or 75.1% from $17.3 million earned in the three
months ended June 30, 1998.
Total insurance revenues, consisting of premiums and policy charges and fee
income, increased $33.5 million for the three months ended June 30, 1999 to
$130.2 million from $96.7 million for the three months ended June 30, 1998.
Favorable market conditions have provided a stimulus to investors to purchase
variable life and annuity products, including the VUL and Discovery Select
products. Appreciation in Separate Account asset values and other sales
contributed to the growth in assets under management and consequently on fees
earned.
The Company's consolidated net investment income was $67.8 million for the
three months ended June 30, 1999 an increase of $1.9 million from the three
months ended June 30, 1998. The increase in income was primarily the result of
higher average balances of fixed maturity portfolio assets due to the PACE
product.
Consolidated net realized investment gains decreased $16.3 million for the
three months ended June 30, 1999 to an $8.8 million loss from a $7.5 million
gain for the three months ended June 30, 1998. This decrease was primarily due
to net sales of fixed maturities during a period of increasing interest rates.
These sales are a result of a strategic decision to reallocate money to short
term investments.
Asset management fee income increased $5.7 million for the three months ended
June 30, 1999 to $14.3 million from $8.6 million for the three months ended
June 30, 1998. Appreciation in the Separate Account products and new deposits
from sales have generated an increase in the asset management fee income from
the Series Fund.
Policyholders' benefits increased $16.6 million for the three months ended
June 30, 1999 to $44.2 million from $27.6 million for the three months ended
June 30, 1998. This change is attributable to an increase in death claims in
both size and number reflecting the overall aging of the business in force as
well as an increase in disability reserves and Taiwan new business reserves.
General, administrative and other expenses increased $28.4 million for the
three months ended June 30, 1999 to $122.7 million compared to $94.3 million
for the three months ended June 30, 1998. The primary reason for the higher
level of expenses in 1999 is a change in Prudential's allocation methodology
for expenses billed to the Company resulting in an increase in non-deferrable
expenses.
2. The Year 2000 Issue
Prudential has addressed the Year 2000 issue on an enterprise-wide basis;
therefore, it is not possible to differentiate the Company's Year 2000 issue
from that of Prudential. Refer to management's discussion of the Year 2000
issue in the December 31, 1998 Form 10-K for the steps taken by Prudential to
mitigate the Year 2000 risks.
The Business Application, Infrastructure and Business Partners components of
Prudential's Year 2000 project are substantially complete. Although a small
number of projects did not meet their targeted completion dates in the second
quarter, Prudential expects all projects will be completed by September, 1999.
Accordingly, these delays do not have a significant impact on the timing of
the project as a whole.
Prudential believes that the Year 2000 project is substantially on schedule.
Prudential is continuing to review and update their contingency plans until
2000 in an effort to reduce the level of uncertainty about the effect of the
Year 2000 issue and further mitigate risk. Prudential believes that, with the
completion of the Year 2000 program as scheduled, the possibility of
significant interruptions of normal operations will be reduced.
Prudential has investment securities that are both publicly traded and
privately placed. Prudential is exposed to the risk that issuers of these
investments will be adversely affected by Year 2000 issues. Prudential
assesses the impact which Year 2000 issues may have on our investments as part
of due diligence for proposed new investments as well as their ongoing review
of current portfolio holdings. Any recommended actions with respect to
particular investments consider the disclosed potential impact of Year 2000 on
the issuer.
11
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The Year 2000 costs allocated to the Company to date are not material to its
operations and financial position. Moreover, the forecasted allocated Year
2000 costs are not expected to have a material impact on the Company's ability
to meet its contractual commitments. The discussion of the Year 2000 issue
herein, and in particular the Company's plans to remediate this issue and
estimated costs thereof, are forward-looking in nature.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
- --------------------------------------------------------------------
The Company's exposure to market risks and the way these risks are managed,
are summarized in Item 7a of the 1998 Form 10K.
12
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PART II
--------
Item 2. Changes in Securities and Use of Proceeds.
- ---------------------------------------------------
(d) Information required by Item 701(f) of Regulation S-K:
The information below pertains to modified guaranteed annuity
contracts issued by the Company in two distinct variable annuity
products, Discovery Preferred Variable Annuity and Discovery Select
Variable Annuity. However, because the modified guaranteed annuity
option of each of these products is identical, the Company has
aggregated the registration of these securities.
(1) The original effective date of the Registration Statement of
the Company for the Discovery Preferred Variable Annuity on
Form S-1 was declared effective on November 27, 1995
(Registration No. 33-61143). The Discovery Select prospectus
was added through filings under Rule 424 of the Securities
Act of 1993. The registration statement continues to be
effective through annual amendments, the most recent filed
April 16, 1999 and declared effective April 30, 1999.
(2) Offering commenced immediately upon effectiveness of the
registration statement.
(3) Not applicable.
(4) (i) The offering has not been terminated.
(ii) The managing underwriter of the offering is
Prudential Investment Management Services LLC.
(iii) Market-Value Adjustment Annuity Contracts (also
known as modified guaranteed annuity contracts).
<TABLE>
<S> <C> <C>
(iv) Securities registered and sold for the account of the
Company:
Amount registered*: $ 500,000,000
Aggregate price of the offering amount registered: $ 500,000,000
Amount sold*: $ 221,056,000
Aggregate offering price of amount sold to date: $ 221,056,000
* Securities not issued in predetermined units
No securities have been registered for the account
of any selling security holder.
(v) Expenses associated with the issuance of the securities:
Underwriting discounts and commissions** $ 7,737,000
Other expenses** $ 10,917,000
-------------
Total $ 18,654,000
** Amounts are estimated and are paid to
affiliated parties.
(vi) Net offering proceeds: $ 202,402,000
(vii) Not applicable.
(viii) Not applicable.
</TABLE>
13
<PAGE>
PART II
-------
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
3(i)(a) The Articles of Incorporation of Pruco Life Insurance
Company (as amended through October 19, 1993) are
incorporated by reference to the initial Registration
Statement on Form S-6 of Pruco Life Variable Appreciable
Account as filed July 2, 1996, Registration No. 333-07451.
3(ii) By-Laws of Pruco Life Insurance Company (as amended through
May 6, 1997) are incorporated by reference to Form 10-Q as
filed by the Company on August 15, 1997.
4(a) Modified Guaranteed Annuity Contract is filed herewith
(previously filed as an exhibit to the Company's
Registration Statement on Form S-1 as filed November 2,
1990, Registration No. 33-37587).
4(b) Market-Value Adjustment Annuity Contract is incorporated by
reference to the Company's registration statement on Form
S-1, Registration No. 333-18053, as filed November 17, 1995.
27 Financial Data Schedule is filed herewith in accordance with
EDGAR instructions.
(b) Reports on Form 8K
------------------
None
14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
PRUCO LIFE INSURANCE COMPANY
(Registrant)
Signature Title Date
- --------- ----- ----
/s/ ESTHER H. MILNES President and Director August 13, 1999
- -----------------------
Esther H. Milnes
/s/ DENNIS G. SULLIVAN Principal Financial Officer and August 13, 1999
- ----------------------- Chief Accounting Officer
Dennis G. Sullivan
15
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 2,585,298
<DEBT-CARRYING-VALUE> 409,621
<DEBT-MARKET-VALUE> 409,171
<EQUITIES> 3,223
<MORTGAGE> 16,889
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,164,771
<CASH> 101,130
<RECOVER-REINSURE> 22,780
<DEFERRED-ACQUISITION> 951,805
<TOTAL-ASSETS> 19,364,412
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 543,891
<POLICY-HOLDER-FUNDS> 2,793,676
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,500
<OTHER-SE> 1,655,675
<TOTAL-LIABILITY-AND-EQUITY> 19,364,412
31,309
<INVESTMENT-INCOME> 137,597
<INVESTMENT-GAINS> (13,800)
<OTHER-INCOME> 845
<BENEFITS> 159,389
<UNDERWRITING-AMORTIZATION> 49,686
<UNDERWRITING-OTHER> 141,972
<INCOME-PRETAX> 36,786
<INCOME-TAX> 12,875
<INCOME-CONTINUING> 23,911
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,911
<EPS-BASIC> 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>
