AS FILED WITH THE SEC ON _____________. REGISTRATION NO. 33-61125
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 1 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. [ ]
(Check appropriate box or boxes)
---------------------
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE
ANNUITY ACCOUNT
(Exact Name of Registrant)
PRUCO LIFE INSURANCE COMPANY
(Name of Depositor)
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(800) 445-4571
(Address and telephone number of principal executive offices)
THOMAS C. CASTANO
ASSISTANT SECRETARY
PRUCO LIFE INSURANCE COMPANY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(Name and address of agent for service)
Copy to:
JEFFREY C. MARTIN
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036
---------------------
Individual Variable Annuity Contracts -- The Registrant has registered an
indefinite amount of securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Rule 24f-2 notice for fiscal year 1995 was filed on
February 29, 1996.
---------------------
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1996 pursuant to paragraph (b) of Rule 485
(date)
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on May 1, 1996 pursuant to paragraph (a) of Rule 485
(date)
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495(A) UNDER THE 1933 ACT)
<TABLE>
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N-4 ITEM NUMBER AND CAPTION LOCATION
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PART A
1. Cover Page................................................ Cover Page
2. Definitions............................................... Definitions of Special Terms Used in This Prospectus
3. Synopsis or Highlights.................................... Brief Description of the Contract
4. Condensed Financial Information........................... N/A
5. General Description of Registrant,
Depositor, and Portfolio Companies........................ General Information About Pruco Life, The Pruco Life
Flexible Premium Variable Annuity Account, and The
Investment Options Available Under the Contract;
The Interest-Rate Investment Options and
Investments by Pruco Life
6. Deductions and Expenses................................... Brief Description of the Contract; Charges, Fees, and
Deductions
7. General Description of Variable Annuity
Contracts................................................. Part A: Brief Description of the Contract; Allocation
of Purchase Payments; Transfers; Death Benefit; The
Interest-Rate Investment Options and Investments by
Pruco Life; Voting Rights; Ownership of the Contract;
State Regulation
8. Annuity Period............................................ Brief Description of the Contract; Effecting an
Annuity
9. Death Benefit............................................. Death Benefit; Effecting an Annuity
10. Purchases and Contract Value.............................. Brief Description of the Contract; Pruco Life
Insurance Company; Requirements for Issuance of a
Contract; Valuation of a Contract Owner's Contract
Fund
11. Redemptions............................................... Brief Description of the Contract; Short-Term
Cancellation Right or "Free Look"; Withdrawals;
Charges, Fees and Deductions; Effecting an Annuity
12. Taxes..................................................... Premium Taxes and Taxes Attributable to Purchase
Payments; Federal Tax Status
13. Legal Proceedings......................................... Litigation
14. Table of Contents of the Statement of
Additional Information.................................... Additional Information
PART B
15. Cover Page................................................ Cover Page
16. Table of Contents......................................... Contents
17. General Information and History........................... Not Applicable
18. Services.................................................. Part A: Experts
</TABLE>
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<TABLE>
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N-4 ITEM NUMBER AND CAPTION LOCATION
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<S> <C>
19. Purchase of Securities Being Offered...................... Part A: Brief Description of the Contract; Charges,
Fees and Deductions; Sale of the Contract and Sales
Commissions
20. Underwriters.............................................. Part A: Sale of the Contract and Sales Commissions
Part B: Principal Underwriters
21. Calculation of Performance Data........................... Performance Information
22. Annuity Payments.......................................... Part A: Valuation of a Contract Owner's Contract
Fund; Effecting an Annuity
23. Financial Statements...................................... Part A: Consolidated Financial Statements of Pruco
Life Insurance Company and Subsidiaries
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered in Part C to this Registration Statement.
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
PROSPECTUS
MAY 1, 1996
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
VARIABLE ANNUITY CONTRACTS
PRUCO LIFE MARKET-VALUE ADJUSTMENT ANNUITY CONTRACTS
DISCOVERY PREFERRED
This prospectus describes the DISCOVERY PREFERRED(SM) Annuity Contract*, an
individual variable annuity contract offered by Pruco Life Insurance Company
("Pruco Life", "we" or "us"), a stock life insurance company that is a
wholly-owned subsidiary of The Prudential Insurance Company of America ("The
Prudential").
The Contract is purchased by making an initial payment of $10,000 or more.
Additional payments of $1,000 or more may also be made. Following the deduction
for any applicable taxes, the purchase payments may be allocated as you direct
in one or more of the following ways.
o They may be allocated to one or more of twelve subaccounts, each of which
invests in a corresponding portfolio of The Prudential Series Fund, Inc.
(the "Series Fund").
o They may be allocated to a fixed-rate option which guarantees a stipulated
rate of interest for a one year period.
o They may be allocated to a market-value adjustment option which guarantees
a stipulated rate of interest if held for a seven year period.
The value allocated to the subaccounts will vary daily with the investment
performance of those accounts. If amounts allocated to a market-value adjustment
option are withdrawn or transferred prior to the expiration of the interest rate
period, the contract value will be subject to a Market-Value Adjustment, which
could result in receipt of more or less than the original amount allocated to
that option. On the annuity date, the amount credited under the Contract will be
applied to effect a fixed-dollar annuity. Upon annuitization, your participation
in the investment options ceases. Prior to that annuity date, you may withdraw
in whole or in part the cash value of the Contract.
--------------
This prospectus provides information a prospective investor should know before
investing. Additional information about the Contract has been filed with the
Securities and Exchange Commission in a Statement of Additional Information,
dated May 1, 1996, which information is incorporated herein by reference, and is
available without charge upon written request to Pruco Life Insurance Company,
213 Washington Street, Newark, New Jersey 07102-2992, or by telephoning
(800) 445-4571.
The attached prospectus for the Series Fund and its statement of additional
information describe the investment objectives and risks of investing in the
portfolios. Additional portfolios and subaccounts may be offered in the future.
The Contents of the Statement of Additional Information appear on page 20 of
this prospectus.
--------------
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ATTACHED TO
A CURRENT PROSPECTUS FOR THE PRUDENTIAL SERIES FUND, INC.
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
*DISCOVERY PREFERRED is a service mark of The Prudential.
DISCOP-1 Ed 5-96
Cat. No. 64M630L
<PAGE>
PROSPECTUS CONTENTS
PAGE
----
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS....................... 1
BRIEF DESCRIPTION OF THE CONTRACT.......................................... 2
FEE TABLE.................................................................. 4
GENERAL INFORMATION ABOUT PRUCO LIFE, THE PRUCO
LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY
ACCOUNT, AND THE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACT ........ 7
PRUCO LIFE INSURANCE COMPANY............................................. 7
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT..................... 7
THE PRUDENTIAL SERIES FUND, INC.......................................... 7
THE INTEREST-RATE INVESTMENT OPTIONS AND INVESTMENTS BY PRUCO LIFE....... 8
DETAILED INFORMATION ABOUT THE CONTRACT ................................... 8
REQUIREMENTS FOR ISSUANCE OF A CONTRACT.................................. 8
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"............................. 9
ALLOCATION OF PURCHASE PAYMENTS.......................................... 9
CASH VALUE............................................................... 9
GUARANTEED INTEREST RATE PERIODS......................................... 9
WHAT HAPPENS WHEN AN INTEREST CELL REACHES ITS MATURITY DATE?............ 9
TRANSFERS................................................................ 10
DOLLAR COST AVERAGING.................................................... 10
AUTO-REBALANCING......................................................... 10
WITHDRAWALS.............................................................. 11
AUTOMATED WITHDRAWALS.................................................... 11
MARKET-VALUE ADJUSTMENT.................................................. 11
DEATH BENEFIT............................................................ 11
VALUATION OF A CONTRACT OWNER'S CONTRACT FUND............................ 12
CHARGES, FEES AND DEDUCTIONS .............................................. 12
PREMIUM TAXES AND TAXES ATTRIBUTABLE TO PURCHASE PAYMENTS................ 12
ADMINISTRATIVE CHARGE.................................................... 12
CHARGE FOR ASSUMING MORTALITY AND EXPENSE RISKS.......................... 13
EXPENSES INCURRED BY THE SERIES FUND..................................... 13
WITHDRAWAL CHARGE........................................................ 13
TRANSACTION CHARGE....................................................... 14
CRITICAL CARE ACCESS..................................................... 14
FEDERAL TAX STATUS ........................................................ 14
DIVERSIFICATION.......................................................... 14
TAXES PAYABLE BY CONTRACT OWNERS......................................... 14
WITHHOLDING.............................................................. 15
IMPACT OF FEDERAL INCOME TAXES........................................... 15
IRAS .................................................................... 16
MINIMUM DISTRIBUTION OPTION.............................................. 16
TAXES ON PRUCO LIFE...................................................... 16
EFFECTING AN ANNUITY ...................................................... 16
ANNUITY PAYMENTS FOR A FIXED PERIOD...................................... 17
LIFE ANNUITY WITH 120 PAYMENTS CERTAIN................................... 17
INTEREST PAYMENT OPTION.................................................. 17
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT ANNUITY PURCHASE RATES..... 17
OTHER INFORMATION ......................................................... 17
REQUIRED DISTRIBUTIONS ON DEATH OF OWNER................................. 17
MISSTATEMENT OF AGE OR SEX............................................... 18
SALE OF THE CONTRACT AND SALES COMMISSIONS............................... 18
VOTING RIGHTS............................................................ 18
SUBSTITUTION OF SERIES FUND SHARES....................................... 19
<PAGE>
OWNERSHIP OF THE CONTRACT................................................ 19
PERFORMANCE INFORMATION.................................................. 19
REPORTS TO CONTRACT OWNERS............................................... 19
STATE REGULATION......................................................... 19
EXPERTS ................................................................ 20
LITIGATION............................................................... 20
STATEMENT OF ADDITIONAL INFORMATION...................................... 20
ADDITIONAL INFORMATION................................................... 20
FINANCIAL STATEMENTS..................................................... 20
SELECTED FINANCIAL DATA.................................................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................. 22
DIRECTORS AND OFFICERS..................................................... 25
EXECUTIVE COMPENSATION..................................................... 26
FINANCIAL STATEMENTS OF THE PRUCO LIFE FLEXIBLE PREMIUM
VARIABLE ANNUITY ACCOUNT................................................. A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE
COMPANY AND SUBSIDIARIES................................................. B1
MARKET-VALUE ADJUSTMENT FORMULA............................................ C1
<PAGE>
DEFINITIONS OF SPECIAL TERMS USED IN THIS
PROSPECTUS
ACCOUNT--See the Pruco Life Flexible Premium Variable Annuity Account (the
"Account"), below.
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 annuity payments begin.
CASH VALUE--The surrender value of the Contract, which equals the Contract Fund
plus or minus any Market-Value Adjustments less any withdrawal charge and any
administrative charge due upon surrender.
CHARGE-FREE AMOUNT--The amount of your Contract Fund that is not subject to a
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 initial purchase payment and
necessary documentation for the Contract.
CONTRACT FUND--The total value attributable to a specific Contract representing
amounts invested in all the subaccounts and in the interest-rate investment
options.
CONTRACT OWNER--You. The person who purchases a DISCOVERY PREFERRED Contract and
makes the purchase payments. The owner will usually also be an annuitant, but
need not be. The owner has all rights in the Contract before the annuity date.
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, to transfer funds among the
investment options, and to designate a mode of settlement for the annuitant on
the annuity date.
CONTRACT YEAR--A year that starts on the Contract date or on a Contract
anniversary.
FIXED-RATE OPTION--An investment option under which Pruco Life credits interest
to the amount allocated at a guaranteed interest rate periodically declared in
advance by Pruco Life but not less than 3%.
GUARANTEED INTEREST RATE--The effective annual interest rate credited during the
interest rate period.
INTEREST CELL--A division of the interest-rate investment options which is
established whenever you allocate or transfer money into an interest-rate
investment option. The amount in the interest cell is credited with a guaranteed
interest rate, declared in advance by Pruco Life and never less than 3%, if held
for the duration of the cell's interest rate period.
INTEREST-RATE INVESTMENT OPTIONS--The fixed-rate option and the market-value
adjustment option.
INTEREST RATE PERIOD--The period for which the guaranteed interest rate is
credited.
MARKET-VALUE ADJUSTMENT--If amounts are withdrawn or transferred from a
market-value adjustment option before the end of the interest rate period, a
Market-Value Adjustment will occur. A Market-Value Adjustment may result in an
increase, decrease or no change in the value of the money that was in the
interest cell. For the formula used to calculate the adjustment, see
MARKET-VALUE ADJUSTMENT FORMULA, on page C1.
MARKET-VALUE ADJUSTMENT OPTION ("MVA OPTION")--An interest-rate investment
option subject to a Market-Value Adjustment.
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT (THE "ACCOUNT")--A
separate account of Pruco Life registered as a unit investment trust under the
Investment Company Act of 1940.
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND")--A series mutual fund with
separate portfolios, one or more of which may be chosen as an underlying
investment for the Contract.
SUBACCOUNT--A division of the Account, the assets of which are invested in
shares of the corresponding portfolio of the Series Fund.
VALUATION PERIOD--The period of time from one determination of the value of the
amount invested in a subaccount to the next. Such determinations are made when
the net asset values of the portfolios are calculated, which is generally at
4:15 p.m. New York City time on each day during which the New York Stock
Exchange is open.
VARIABLE INVESTMENT OPTIONS--The subaccounts.
1
<PAGE>
BRIEF DESCRIPTION OF THE CONTRACT
The DISCOVERY PREFERRED Annuity Contract offers you a way to invest on a
tax-deferred basis in a variety of investment options and provide income
protection for later life by financing annuity payments commencing on the
annuity date. The Contract is a variable annuity contract. The value of the
Contract depends upon investment results of the investment option[s]. Currently,
you may place the invested portion of your purchase payments into one or a
combination of variable and interest-rate investment options. Amounts held under
the Contract may be withdrawn, in whole or in part, prior to the annuity date.
The Contract also provides for a death benefit.
The Contract is purchased by making an initial payment of at least $10,000.
Additional payments of $1,000 or more may also be made. After the deduction of
any charge for taxes attributable to purchase payments is made, purchase
payments are allocated to the subaccounts and/or the fixed-rate investment or
Market-Value Adjustment Options in accordance with your instructions.
Currently, there are twelve variable investment options, each of which is called
a subaccount. The assets of each subaccount are invested in a corresponding
portfolio of The Prudential Series Fund, Inc., a series mutual fund for which
The Prudential acts as investment adviser. The MONEY MARKET PORTFOLIO is
invested in short-term debt obligations similar to those purchased by money
market funds; the DIVERSIFIED BOND PORTFOLIO (formerly the Bond Portfolio) is
invested primarily in high quality medium-term corporate and government debt
securities; the CONSERVATIVE BALANCED PORTFOLIO (formerly the Conservatively
Managed Flexible Portfolio) is invested in a mix of money market instruments,
fixed income securities, and common stocks, in proportions believed by the
investment manager to be appropriate for an investor who desires diversification
of investment and who prefers a relatively lower risk of loss and a
correspondingly reduced chance of high appreciation; the FLEXIBLE MANAGED
PORTFOLIO (formerly the Aggressively Managed Flexible Portfolio) is invested in
a mix of money market instruments, fixed income securities, and common stocks,
in proportions believed by the investment manager to be appropriate for an
investor desiring diversification of investment who is willing to accept a
relatively high level of loss in an effort to achieve greater appreciation; the
HIGH YIELD BOND PORTFOLIO is invested primarily in high yield fixed income
securities of medium to lower quality, also known as high risk bonds; the STOCK
INDEX PORTFOLIO is invested in common stocks selected to duplicate the price and
yield performance of the Standard & Poor's 500 Composite Stock Price Index; the
EQUITY INCOME PORTFOLIO (formerly the High Dividend Stock Portfolio) is invested
primarily in common stocks and convertible securities that provide favorable
prospects for investment income returns above those of the Standard & Poor's 500
Stock Index or the NYSE Composite Index; the EQUITY PORTFOLIO (formerly the
Common Stock Portfolio) is invested primarily in common stocks; the PRUDENTIAL
JENNISON PORTFOLIO (formerly the Growth Stock Portfolio) is invested primarily
in equity securities of established companies with above-average growth
prospects; the SMALL CAPITALIZATION STOCK PORTFOLIO is invested primarily in
equity securities of publicly-traded companies with small market capitalization;
the GLOBAL PORTFOLIO (formerly the Global Equity Portfolio) is invested
primarily in common stocks and common stock equivalents (such as convertible
debt securities) of foreign and domestic issuers; and the NATURAL RESOURCES
PORTFOLIO is invested primarily in common stocks and convertible securities of
natural resource companies, and in securities (typically debt securities or
preferred stock) the terms of which are related to the market value of a natural
resource. Further information about the Series Fund portfolios can be found
under THE PRUDENTIAL SERIES FUND, INC. on page 7 and in the attached prospectus
for the Series Fund.
The FIXED-RATE OPTION guarantees a stipulated rate of interest for a one-year
period. The MARKET-VALUE ADJUSTMENT OPTION (the "MVA option") guarantees a
stipulated rate of interest if held for a seven-year period.
The quoted interest rates will be expressed as an effective annual yield.
Interest will be credited daily throughout the interest rate period at a rate
that will provide the guaranteed annual effective yield over the period of one
year. The MVA and fixed-rate options are made up of individual "interest cells"
each of which is established whenever you allocate or transfer money into those
options. Your Pruco Life representative will tell you the rates of interest
currently in effect. This rate will never be below 3%.
The value of each Market-Value Adjustment interest cell, prior to its maturity
date, varies with changes in interest rates in the same way that the value of a
bond changes. If interest rates have risen since the interest cell was
established, its value will have decreased. If you make a withdrawal or transfer
prior to the maturity date, the value of the interest cell will be adjusted up
or down or not at all, depending upon the difference in interest rates between
the date when the cell was established and the date of withdrawal. The maximum
value of the factor used in determining the amount of adjustment, either
positive or negative, is 0.40. See MARKET-VALUE ADJUSTMENT, page 11.
Pruco Life makes charges under the Contract for the costs of selling and
distributing the Contract, for administering the Contract, and for assuming
mortality and expense risks under the Contract. Moreover, a charge may be
2
<PAGE>
deducted for taxes attributable to purchase payments, including premium tax. In
the case of premium tax, Pruco Life will deduct the tax, as provided by
applicable law, either from the purchase payment when received, or from the
Contract Fund at the time the annuity is effected. The deduction may be lower,
or not made at all, for larger purchase payments. See PREMIUM TAXES AND TAXES
ATTRIBUTABLE TO PURCHASE PAYMENTS, page 12. A charge against the Series Fund's
assets is made by the investment adviser for providing investment advisory and
management services.
An administrative charge is deducted from the assets held in the variable
investment options at an annual rate of 0.15%. Although there is no current
intention to do so, we reserve the right to impose an additional administrative
charge of up to $25 on each Contract anniversary and at the time of a full
withdrawal for Contract Funds less than $50,000. A mortality and expense risk
charge equal to an annual rate of 1.25% is deducted from the assets held in the
variable investment options. A withdrawal charge may be imposed upon withdrawals
made in the first seven Contract years. The maximum withdrawal charge is 7% of
the amount withdrawn. Further detail about charges may be found under CHARGES,
FEES AND DEDUCTIONS, page 12.
In the event that the sole or last surviving annuitant dies prior to the annuity
date or the surrender of the Contract for its cash value, Pruco Life will pay a
death benefit to the stated beneficiary. If the annuitant was the sole owner of
the Contract and the sole beneficiary is the annuitant's spouse, the spouse may
be able to continue the Contract. See DEATH BENEFIT, page 11. In the event that
the annuitant dies after an annuity has been effected but before the entire
value of the Contract is distributed, special distribution rules apply. See
EFFECTING AN ANNUITY, page 16.
Amounts may be transferred out of an investment option into any combination of
other investment options available under the Contract. There are no minimum
transfer dollar amount requirements. Market-Value Adjustments may apply.
Restrictions apply on transfers made from the fixed-rate option. See TRANSFERS,
page 10.
For a limited time, a Contract may be returned for a refund in accordance with
the terms of its "free look" provision. See SHORT-TERM CANCELLATION RIGHT OR
"FREE LOOK", page 9.
You may withdraw all or part of the Contract Fund prior to the annuity date,
subject to the possible withdrawal charge mentioned above. See WITHDRAWALS, page
11. If a full or partial withdrawal is requested, it may be wholly or partially
taxable. Certain withdrawals may be subject to a federal penalty tax as well as
a federal income tax. See TAXES PAYABLE BY CONTRACT OWNERS, page 14. If a lump
sum is requested, it will generally be paid within 7 days and deducted from the
Contract Fund. See WITHDRAWALS, page 11. If an annuity option is selected,
annuity payments will be in installments of guaranteed amounts. See EFFECTING AN
ANNUITY, page 16.
This Brief Description of the Contract is intended to provide a broad overview
of the more significant features of the Contract. More detailed information will
be found in subsequent sections of this prospectus and in the Contract document.
3
<PAGE>
FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
Sales Charge Imposed on Purchase Payments............................ None
Maximum Withdrawal Charge:
THE WITHDRAWAL CHARGE WILL BE EQUAL
FOR WITHDRAWALS DURING THE CONTRACT TO THE FOLLOWING PERCENTAGE OF THE
YEAR INDICATED AMOUNT WITHDRAWN*
- ----------------------------------- -----------------------------------
First Contract Year 7%
Second Contract Year 6%
Third Contract Year 5%
Fourth Contract Year 4%
Fifth Contract Year 3%
Sixth Contract Year 2%
Seventh Contract Year 1%
Eighth and Subsequent Contract Years No Charge
- ---------
* The withdrawal charge is not imposed on any charge-free withdrawal amounts,
withdrawals made under Critical Care Access, see page 14, or any amount used to
provide income under the Life Annuity with 120 Payments Certain option. There
will be a reduction in such withdrawal charge in the case of contracts issued to
Contract owners issue age 84 and older.
Annual Contract Fee and Fee upon Full Withdrawal...................... None**
** We reserve the right to impose such a charge in the future, but not more than
$25. If made, it will be apportioned over all accounts making up the Contract
Fund as of the effective date of that deduction. Amounts apportioned to the two
interest-rate investment options will reduce the interest cells on a FIFO (first
in/first out) basis determined by the age of the cell. The charge will not be
made upon withdrawals under Critical Care Access or if the Contract Fund is
$50,000 or more.
TRANSFER CHARGE
Imposed for transfers in excess of twelve transfers in a Contract year..... $25
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE CONTRACT FUND)
ALL SUBACCOUNTS
- ---------------
Mortality and Expense Risk Fee....................................... 1.25%
Administrative Fee................................................... 0.15%
-----
Total Separate Account Annual Expenses............................... 1.40%
=====
THE PRUDENTIAL SERIES FUND, INC. ANNUAL EXPENSES
(AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
HIGH
MONEY DIVERSIFIED CONSERVATIVE FLEXIBLE YIELD STOCK
MARKET BOND BALANCED MANAGED BOND INDEX
------ ------------ ------------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Investment Management Fee....... .40% .40% .55% .60% .55% .35%
Other Expenses.................. .04% .04% .03% .03% .06% .03%
---- ---- ---- ---- ---- ----
Total Series Fund Annual
Expenses........................ .44% .44% .58% .63% .61% .38%
==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
SMALL
EQUITY PRUDENTIAL CAPITALIZATION NATURAL
INCOME EQUITY JENNISON STOCK GLOBAL RESOURCES
------ ------ ---------- -------------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Investment Management Fee ...... .40% .45% .60% .40% .75% .45%
Other Expenses.................. .03% .03% .19% .20% .31% .05%
---- ---- ---- ---- ---- ----
Total Series Fund Annual
Expenses........................ .43% .48% .79% .60% 1.06% .50%
==== ==== ==== ==== ===== ====
</TABLE>
4
<PAGE>
The purpose of the foregoing tables is to assist Contract owners in
understanding the expenses of the Pruco Life Flexible Premium Variable Annuity
Account and The Prudential Series Fund, Inc. that they bear, directly or
indirectly. See the sections on charges in this prospectus and the attached
prospectus for the Series Fund. The above tables do not include any taxes
attributable to purchase payments nor any premium taxes. Currently, there is no
deduction for such taxes at the time purchase payments are made, but in some
states, a deduction is made when an annuity is effected.
Except for the Global Portfolio, The Prudential reimburses a portfolio when its
ordinary operating expenses, excluding taxes, interest, and brokerage
commissions exceed 0.75% of the portfolio's average daily net assets. The
amounts listed for the portfolios under "Other Expenses" are based on amounts
incurred in the last fiscal year.
The Prudential Jennison and Small Capitalization Stock Portfolios commenced
operations in 1995 and therefore do not have expense amounts available for the
entire fiscal year. Consequently, for the fee table above and the examples that
follow, the figures shown as "Other Expenses" and total expenses are based on
actual amounts from May 1 through December 31, 1995. It is anticipated that as
average net assets of both portfolios grow, the magnitude of "Other Expenses"
will decrease and become comparable to that of other portfolios.
EXAMPLES OF FEES AND EXPENSES
The following examples illustrate the cumulative dollar amount of all the above
expenses that would be incurred on each $1,000 of your investment.
o The examples assume a consistent 5% annual return on invested assets;
o The examples do not take into consideration any taxes attributable to
purchase payments nor any premium taxes which may be payable at the time of
annuitization or at the time of purchase payments;
For a term less than 10 years, the expenses shown in Table I describe applicable
charges for the withdrawal of your entire Contract Fund or if you use your
Contract Fund to effect an annuity assuming, in each case, that your Contract
Fund is invested entirely in the designated portfolio. THE EXAMPLES SHOULD NOT
BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES
INCURRED IN ANY GIVEN YEAR MAY BE MORE OR LESS THAN THOSE SHOWN IN THE EXAMPLES.
5
<PAGE>
TABLE I
If you withdraw your entire Contract Fund just prior to the end of the
applicable time period or if you use your Contract Fund to effect an annuity at
the end of the applicable time period, you would pay the following cumulative
expenses on each $1,000 invested. (Note: The 1, 3 and 5 Year columns reflect the
imposition of the withdrawal charge; however, if you choose certain annuity
options after the first year this charge will not be made. Where this is the
case, the expenses shown in Table II below would be applicable. See WITHDRAWAL
CHARGE, on page 13.)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO....................................... $ 81 $ 92 $113 $212
DIVERSIFIED BOND PORTFOLIO................................... $ 81 $ 92 $113 $212
CONSERVATIVE BALANCED PORTFOLIO.............................. $ 83 $ 96 $120 $227
FLEXIBLE MANAGED PORTFOLIO................................... $ 83 $ 98 $123 $232
HIGH YIELD BOND PORTFOLIO.................................... $ 83 $ 97 $122 $230
STOCK INDEX PORTFOLIO........................................ $ 81 $ 90 $110 $206
EQUITY INCOME PORTFOLIO...................................... $ 81 $ 92 $112 $211
EQUITY PORTFOLIO............................................ $ 82 $ 93 $115 $217
PRUDENTIAL JENNISON PORTFOLIO................................ $ 85 $103 $131 $249
SMALL CAPITALIZATION STOCK PORTFOLIO......................... $ 83 $ 97 $121 $229
GLOBAL PORTFOLIO............................................ $ 88 $111 $144 $276
NATURAL RESOURCES PORTFOLIO.................................. $ 82 $ 94 $116 $219
</TABLE>
TABLE II
If you do not withdraw any portion of your Contract Fund as of the end of the
applicable time period, you would pay the following cumulative expenses on each
$1,000 invested.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO....................................... $ 18 $ 57 $ 98 $212
DIVERSIFIED BOND PORTFOLIO................................... $ 18 $ 57 $ 98 $212
CONSERVATIVE BALANCED PORTFOLIO.............................. $ 20 $ 61 $105 $227
FLEXIBLE MANAGED PORTFOLIO................................... $ 20 $ 63 $108 $232
HIGH YIELD BOND PORTFOLIO.................................... $ 20 $ 62 $107 $230
STOCK INDEX PORTFOLIO........................................ $ 18 $ 55 $ 95 $206
EQUITY INCOME PORTFOLIO...................................... $ 18 $ 57 $ 97 $211
EQUITY PORTFOLIO............................................. $ 19 $ 58 $100 $217
PRUDENTIAL JENNISON PORTFOLIO................................ $ 22 $ 68 $116 $249
SMALL CAPITALIZATION STOCK PORTFOLIO......................... $ 20 $ 62 $106 $229
GLOBAL PORTFOLIO............................................. $ 25 $ 76 $129 $276
NATURAL RESOURCES PORTFOLIO.................................. $ 19 $ 59 $101 $219
</TABLE>
Notice that in both of the above tables, the level of cumulative charges is
identical for the 10 year column. This is because at that point there are no
withdrawal charges taken by Pruco Life upon surrender or annuitization.
6
<PAGE>
GENERAL INFORMATION ABOUT PRUCO LIFE,
THE PRUCO LIFE FLEXIBLE PREMIUM
VARIABLE ANNUITY ACCOUNT, AND THE
INVESTMENT OPTIONS AVAILABLE UNDER THE
CONTRACT
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. Pruco Life is licensed
to sell life insurance and annuities in the District of Columbia, Guam, and in
all states except New York. These Contracts are not offered in any state in
which the necessary approvals have not yet been obtained. Pruco Life is a
wholly-owned subsidiary of The Prudential, a mutual insurance company founded in
1875 under the laws of the State of New Jersey. As of December 31, 1995, The
Prudential has invested over $442 million in Pruco Life in connection with Pruco
Life's organization and operation. The Prudential intends from time to time to
make additional capital contributions to Pruco Life as needed to enable it to
meet its reserve requirements and expenses in connection with its business. The
Prudential is under no obligation to make such contributions and its assets do
not back the benefits payable under the Contract. Pruco Life's consolidated
financial statements appear on page B1 and should be considered only as bearing
upon Pruco Life's ability to meet its obligations under the Contracts.
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
The Pruco Life Flexible Premium Variable Annuity Account (the "Account") was
established on June 16, 1995 under Arizona law as a separate investment account.
The Account meets the definition of a "separate account" under federal
securities laws. Pruco Life is the legal owner of the assets in the Account and
is obligated to provide all benefits under the Contracts. Pruco Life will at all
times maintain assets in the Account with a total market value at least equal to
the reserve and other liabilities relating to the variable benefits attributable
to the Account. These assets are segregated from all of Pruco Life's other
assets and may not be charged with liabilities which arise from any other
business Pruco Life conducts. In addition to these assets, the Account's assets
may include funds contributed by Pruco Life to commence operation of the Account
and may include accumulations of the charges Pruco Life makes against the
Account. From time to time these additional assets will be transferred to Pruco
Life's general account. Before making any such transfer, Pruco Life will
consider any possible adverse impact the transfer might have on the Account.
The Account is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 ("1940 Act") as a unit investment
trust, which is a type of investment company. This does not involve any
supervision by the SEC of the management or investment policies or practices of
the Account. For state law purposes, the Account is treated as a part or
division of Pruco Life. There are currently twelve subaccounts within the
Account, each of which invests in corresponding portfolios of the Series Fund.
Additional subaccounts may be added in the future. The Account's financial
statements begin on page A1.
THE PRUDENTIAL SERIES FUND, INC.
The Prudential Series Fund, Inc. is registered under the 1940 Act as an open-end
diversified management investment company. Its shares are currently sold only to
separate accounts of The Prudential and certain other subsidiary insurers that
offer variable life insurance and variable annuity contracts. The Account will
purchase and redeem shares from the Series Fund at net asset value. Shares will
be redeemed to the extent necessary for The Prudential to provide benefits under
the Contract and to transfer assets from one subaccount to another, as requested
by Contract owners. Any dividend or capital gain distribution received from a
portfolio of the Series Fund will be reinvested immediately at net asset value
in shares of that portfolio and retained as assets of the corresponding
subaccount.
The Prudential is the investment advisor for the assets of each of the
portfolios of the Series Fund. The Prudential's principal business address is
Prudential Plaza, Newark, New Jersey 07102-3777. The Prudential has a Service
Agreement with its wholly-owned subsidiary The Prudential Investment Corporation
("PIC"), which provides that, subject to The Prudential's supervision, PIC will
furnish investment advisory services in connection with the management of the
Series Fund. In addition, The Prudential has entered into a Subadvisory
Agreement with its wholly-owned subsidiary Jennison Associates Capital Corp.
("Jennison"), under which Jennison furnishes investment advisory services in
connection with the management of the Prudential Jennison Portfolio. Further
7
<PAGE>
detail is provided in the prospectus and statement of additional information for
the Series Fund. The Prudential, PIC and Jennison are registered as investment
advisors under the Investment Advisers Act of 1940.
As an investment advisor, The Prudential charges the Series Fund a daily
investment management fee as compensation for its services. The following table
shows the investment management fee charged for each portfolio of the Series
Fund available for investment by Contract owners.
ANNUAL INVESTMENT
MANAGEMENT FEE AS
A PERCENTAGE OF AVERAGE
PORTFOLIO DAILY NET ASSETS
- --------- -----------------------
MONEY MARKET PORTFOLIO 0.40%
DIVERSIFIED BOND PORTFOLIO 0.40%
CONSERVATIVE BALANCED PORTFOLIO 0.55%
FLEXIBLE MANAGED PORTFOLIO 0.60%
HIGH YIELD BOND PORTFOLIO 0.55%
STOCK INDEX PORTFOLIO 0.35%
EQUITY INCOME PORTFOLIO 0.40%
EQUITY PORTFOLIO 0.45%
PRUDENTIAL JENNISON PORTFOLIO 0.60%
SMALL CAPITALIZATION STOCK PORTFOLIO 0.40%
GLOBAL PORTFOLIO 0.75%
NATURAL RESOURCES PORTFOLIO 0.45%
It is conceivable that in the future it may become disadvantageous for both
variable life insurance and variable annuity contract separate accounts to
invest in the same underlying mutual fund. Although neither the companies which
invest in the series fund, nor the series fund currently foresees any such
disadvantage, the series fund's board of directors intends to monitor events in
order to identify any material conflict between variable life insurance and
variable annuity contract owners and to determine what action, if any, should be
taken in response thereto. Material conflicts could result from such things as:
(1) changes in state insurance law; (2) changes in federal income tax law; (3)
changes in the investment management of any portfolio of the series fund; or (4)
differences between voting instructions given by variable life insurance and
variable annuity contract owners.
A FULL DESCRIPTION OF THE SERIES FUND, ITS INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, AND RESTRICTIONS, ITS EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN--INCLUDING ANY RISKS ASSOCIATED WITH INVESTMENT IN THE HIGH YIELD BOND
PORTFOLIO, AND ALL OTHER ASPECTS OF ITS OPERATION IS CONTAINED IN THE ATTACHED
PROSPECTUS FOR THE SERIES FUND AND IN ITS STATEMENT OF ADDITIONAL INFORMATION,
WHICH SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS. THERE IS NO ASSURANCE
THAT THE INVESTMENT OBJECTIVES WILL BE MET.
THE INTEREST-RATE INVESTMENT OPTIONS AND INVESTMENTS BY PRUCO LIFE
Purchase payments invested in the interest-rate investment options do not result
in participation in the investment gains or losses of any designated portfolio
of investments as is the case for payments invested in the variable investment
options. The amounts invested in the interest-rate investment options are
credited with interest at rates guaranteed by Pruco Life. All of Pruco Life's
assets stand behind those guarantees.
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.
DETAILED INFORMATION ABOUT THE CONTRACT
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
The minimum initial purchase payment is $10,000. Purchase payments in excess of
$2 million require prior approval of Pruco Life. The Contract may generally be
issued on proposed annuitants below the age of 86. Contracts purchased in
connection with Individual Retirement Annuity plans (IRAs) will generally be
issued to annuitants below the age of 70. However, IRA Contracts may be issued
up to age 80 provided that the Minimum Distribution Option or other appropriate
IRS election is made. Before issuing any Contract, we require submission
8
<PAGE>
of certain information. Following our review of the information and approval of
issuance, a Contract will be issued that sets forth precisely your rights and
Pruco Life's obligations. You may thereafter make additional payments of $1,000
or more, but there is no obligation to do so.
The Contract date will be the date the purchase payment and required information
are received at a Pruco Life Home Office. If the current underwriting
requirements are not met and the issuance of the Contract is not approved, the
purchase payment will promptly be returned. Pruco Life reserves the right to
change these requirements on a non-discriminatory basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, you may return a Contract for refund within 10 days after you receive
it. Some states allow a longer period of time during which a Contract may be
returned for a refund. A refund may be requested by mailing or delivering the
Contract to the representative who sold it or to a Pruco Life Home Office. You
will then receive a refund of all purchase payments made, plus any interest
credited, plus or minus any change in cash value due to investment experience or
market value adjustment, calculated as if no charges had been made against the
account or the underlying variable investment funds. If you purchase the
Contract as an individual retirement annuity, federal law requires that you
return the Contract for refund within 7 days. However, where applicable state
law so requires and as required by federal law, if you exercise your short-term
cancellation right you will receive a refund of all purchase payments made
without adjustment.
ALLOCATION OF PURCHASE PAYMENTS
You determine how the initial purchase payment will be allocated among the
subaccounts and interest-rate investment options by specifying the desired
allocation on the application form for the Contract. You may choose to allocate
nothing to a particular subaccount or interest-rate option. Unless you tell us
otherwise, subsequent purchase payments will be allocated in the same
proportions as the most recent purchase payment made (unless that was a purchase
payment you directed us to allocate on a one time-only basis). You may change
the way in which subsequent purchase payments are allocated by providing Pruco
Life with proper written instruction or by telephoning the designated Pruco Life
Home Office, provided you are enrolled to use the Telephone Transfer system. See
TRANSFERS, page 10.
CASH VALUE
The cash value of the Contract is the amount you will receive if you withdraw
all of your Contract Fund. It is equal to the value of the Contract Fund plus or
minus any applicable Market-Value Adjustment of all amounts in MVA option
interest cells and minus any applicable withdrawal charge. A withdrawal will
generally have federal income tax consequences, which could include tax
penalties. You should consult with a tax adviser before making a withdrawal. See
WITHDRAWALS, on page 11 and FEDERAL TAX STATUS, on page 14.
GUARANTEED INTEREST RATE PERIODS
Pruco Life determines the effective guaranteed annual interest rate ("guaranteed
interest rate") that is available at any given time for the one year fixed-rate
option and for the MVA option. This is the rate that the portion of the Contract
Fund allocated to that option will earn throughout each interest rate period.
The rates change frequently and you may learn what rate[s] are available from
your Pruco Life representative. When you select an interest-rate investment
option, your payment will be allocated to an interest rate cell and the interest
rate will then not change until the cell's maturity date. Interest will be added
to the amount in the cell daily at a rate that will provide the guaranteed
effective yield over the period of one year.
Although the guaranteed interest rates offered may change, the minimum
guaranteed interest rate will never be less than an effective annual rate of 3%.
WHAT HAPPENS WHEN AN INTEREST CELL REACHES ITS MATURITY DATE?
On each maturity date, we will offer an election to transfer the amount maturing
into either of the available interest-rate investment options or the
subaccounts. A Market-Value Adjustment will not be made if this is done within
the first 30 days after an interest cell within the MVA option matures. Any
amount that you transfer into the same interest-rate investment option during
the 30-day period will receive the appropriate rate for that option, effective
as of the maturity date. Amounts that you withdraw or transfer into a variable
investment option or into a different interest-rate investment option during the
30-day period will receive interest for the period between the maturity date and
the date of withdrawal or transfer at the declared renewal rate for the matured
cell (i.e. as if you
9
<PAGE>
had taken no action within the 30-day period) and will be effective on the date
Pruco Life receives your request. If you do not make an election to transfer
within the 30-day period following the maturity date, the amount maturing will
ordinarily be transferred into a new interest cell of the same duration as the
maturing cell at the prevailing interest rate. The transfer date will be the
maturity date.
TRANSFERS
You may transfer out of an investment option into any combination of other
investment options available under the Contract. The transfer request may be in
dollars, such as a request to transfer $1,000 from one subaccount to another, or
may be in terms of a percentage reallocation among subaccounts. In the latter
case, the percentages must be whole numbers. You may make transfers by proper
written notice to a Pruco Life Home Office, or by telephone, provided you are
enrolled to use the Telephone Transfer System.
You will automatically be enrolled to use the Telephone Transfer System unless
you elect not to have this privilege. Pruco Life has adopted procedures designed
to ensure that requests by telephone are genuine. We will not be held liable for
following telephone instructions that we reasonably believe to be genuine. We
cannot guarantee that you will be able to get through to complete a telephone
transfer during peak periods such as periods of drastic economic or market
change.
Transfers among subaccounts will take effect as of the end of the valuation
period in which a proper transfer request is received at a Pruco Life Home
Office. Transfers from interest-rate investment options will take effect on the
day we receive your proper notice at our Home Office. Transfers out of an
interest cell in the fixed-rate option are permitted only during the 30-day
period following its maturity date. Amounts transferred from a Market-Value
Adjustment Option interest cell may be subject to a Market-Value Adjustment if
the transfer is not made in the 30-day period following the maturity date of the
interest cell.
You may make up to 12 transfers a year without charge. Thereafter, Pruco Life
will assess a charge of $25 for each subsequent transfer during that Contract
year. See TRANSACTION CHARGE, page 14. Dollar Cost Averaging transfers do not
count towards the 12 transfers per year that can be made without charge.
DOLLAR COST AVERAGING
Additionally, an administrative feature called Dollar Cost Averaging ("DCA") is
available to Contract owners. This feature allows you to transfer amounts out of
one of the variable investment options or the fixed-rate option and into one or
more other variable investment options. If you decide to employ this feature,
you establish a "DCA account" which may be all or part of the investment option
from which you wish the transfers to be made, but it may not be less than
$5,000. Transfers may be in specific dollar amounts or percentages of the amount
in the DCA account at the time of the transfer. If the DCA account balance drops
below $250, the entire remaining balance of the account will be transferred on
the next transfer date. You may ask that transfers be made monthly, quarterly,
semi-annually or annually. You can add to the DCA account at any time. Monthly
transfers must be at least 3% of the amount allocated to the Dollar Cost
Averaging account. The minimum transfer amount will only be recalculated upon an
increase in the amount allocated to the feature. These amounts are subject to
change at Pruco Life's discretion.
Each automatic transfer will take effect as of the end of the valuation period
in monthly, quarterly, semi-annual or annual intervals as designated by you
based on the date the Dollar Cost Averaging account was established provided the
New York Stock Exchange is open on that date. The DCA Account can only be
established on the 1st through the 28th of a month. If the New York Stock
Exchange is not open on a transfer date, the transfer will take effect as of the
end of the valuation period which immediately follows that date. Automatic
transfers will continue until the amount designated for Dollar Cost Averaging
has been transferred, or until you notify us of a change in allocation or
cancellation of the feature.
AUTO-REBALANCING
This Contract offers a means of utilizing another investment technique that you
may find attractive. The Auto-Rebalancing feature allows you to automatically
rebalance subaccount assets at specified intervals based on percentage
allocations that you choose. For example, suppose your initial investment
allocation of variable investment options A and B is split 40% and 60%,
respectively. Then, due to investment results, that split changes. You may
instruct that those assets be rebalanced to your original or different
allocation percentages. Auto-Rebalancing can be performed on a one-time basis or
periodically, as you choose. The interest-rate investment options cannot
participate in this administrative feature.
10
<PAGE>
WITHDRAWALS
You 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. However, Pruco Life's
consent will be required for a partial withdrawal if the amount requested is
less than $500. For federal income tax purposes, withdrawals from Contracts
other than individual retirement annuities are considered to have been made
first from investment income. See TAXES PAYABLE BY CONTRACT OWNERS, page 14.
You may specify from which investment options you would like the withdrawal
processed. The withdrawal amount may be specified as a dollar amount or as a
percentage of the Contract Fund. If you do not specify from where you would like
the withdrawal processed, a partial withdrawal will be withdrawn proportionally
from all investment options. Within the interest-rate investment options, we
will take the withdrawal first from the oldest eligible interest cell or cells.
A Market-Value Adjustment may apply. See MARKET-VALUE ADJUSTMENT, page 11.
Only amounts withdrawn from purchase payments are subject to a withdrawal
charge. For purposes of determining withdrawal charges, withdrawals are
considered as having been made first from purchase payments. See WITHDRAWAL
CHARGE, page 13. The withdrawal will be effected as of the end of the valuation
period in which a proper withdrawal request is received at a Pruco Life Home
Office.
Pruco Life will generally pay the amount of any withdrawal, less any required
tax withholding, within 7 days after we receive a properly completed withdrawal
request. We will adjust the Contract Fund to reflect any applicable sales and/or
administrative charge and Market-Value Adjustment. We may delay payment of any
withdrawal allocable to the subaccount[s] for a longer period if the disposal or
valuation of the Account's assets is not reasonably practicable because the New
York Stock Exchange is closed for other than a regular holiday or weekend,
trading is restricted by the SEC or the SEC declares that an emergency exists.
With respect to the amount of any withdrawal allocable to the interest-rate
investment options, we expect to pay the withdrawal promptly upon request.
AUTOMATED WITHDRAWALS
Pruco Life also offers an Automated Withdrawal feature which enables you to
receive periodic withdrawals either monthly, quarterly, semi-annually or
annually. Withdrawals may be made from a designated investment option or
proportionally from all investment options. Withdrawals may be expressed as a
specified dollar amount or as a percentage of the Contract Fund. Market-value
adjustments may apply, and withdrawal charges may apply if the withdrawals in
any Contract year exceed the charge-free amount.
MARKET-VALUE ADJUSTMENT
An amount transferred or withdrawn from an MVA option before its maturity date
will be subject to a Market-Value Adjustment.
The amount of the Market-Value Adjustment depends upon the difference between
the guaranteed interest rate for the interest cell from which the withdrawal or
transfer is being made and the interest rate being declared on the date of the
withdrawal or transfer by Pruco Life for interest rate periods approximately
equal to one year longer than the time remaining until the maturity date of the
interest cell. Pruco Life may not always offer MVA options at all durations.
Rates for intermediate durations not currently offered will be declared as often
as rates for durations which are offered. Such declared rates will be determined
in a manner consistent with the offered rates, but reflecting the different
investment horizon of the intermediate duration. If you specify your withdrawal
or transfer as a dollar amount, the Market-Value Adjustment may increase or
decrease the amount remaining in the MVA option. If you request the withdrawal
or transfer as a percentage of the Contract Fund, the Market-Value Adjustment
may increase or decrease the amount being withdrawn or transferred. If the
current declared rate is higher than the guaranteed rate, there will be a
decrease. If the current declared rate is lower than the guaranteed rate, there
will be an increase. The adjustment - whether up or down - will never be greater
than 40% of each amount subject to the adjustment. For a more precise
description of how the Market-Value Adjustment is determined, and an example of
how it affects the amount remaining after a partial withdrawal, see MARKET-VALUE
ADJUSTMENT FORMULA on page C1.
DEATH BENEFIT
If the last surviving or sole annuitant dies prior to the annuity date, Pruco
Life will, upon receipt of all of 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 designated by the Contract owner. The death benefit
will equal the greatest of:
11
<PAGE>
(1) the Contract Fund as of the date of due proof of death; (2) the sum of all
invested purchase payments made less total withdrawals made (including
withdrawal charges); and (3) the greatest of the Contract Fund values calculated
on every third Contract anniversary reduced by all subsequent withdrawals and
withdrawal charges.
The beneficiary may receive this amount in one sum or under a payout option.
Unless the beneficiary has been irrevocably designated, you may change the
beneficiary at any time. If the 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 payout provisions then in effect.
If the annuitant was the sole owner of the Contract, the annuitant's spouse was
the sole beneficiary, and the spouse had an unrestricted right to receive the
death benefit in one sum, then the spouse has the right to continue the Contract
as annuitant and owner.
VALUATION OF A CONTRACT OWNER'S CONTRACT FUND
The value of your Contract Fund is the sum of your interests in the variable
investment options and in the interest-rate investment options. The portion of
the Contract Fund allocated to the Account is the sum of the interests in each
subaccount. The values are measured in Units, for example, Money Market Units,
Diversified Bond Units or Flexible Managed Units. Every purchase payment made by
an owner is converted into Units of the subaccount or subaccounts selected by
dividing the amount of the purchase payment by the Unit Value for the subaccount
to which that amount has been allocated. The value of these Units changes each
valuation period to reflect the investment results, expenses, and charges of the
subaccount and the corresponding Series Fund portfolio. Further detail about
Units is contained in the Statement of Additional Information.
There is, of course, no guarantee that your Contract Fund will increase or that
it will not fall below the amount of your total purchase payments. However,
Pruco Life guarantees a minimum interest rate of 3% a year on that portion of
the Contract Fund allocated to the interest-rate investment options. Excess
interest on payments allocated to the interest-rate investment options may be
credited in addition to the guaranteed interest rate. A Market-Value Adjustment
may apply to amounts held in the MVA option, which could reduce effective annual
yields below the guaranteed interest rate levels.
CHARGES, FEES AND DEDUCTIONS
PREMIUM TAXES AND TAXES ATTRIBUTABLE TO PURCHASE PAYMENTS
A charge may be deducted for premium taxes and any taxes attributable to
purchase payments. For these purposes, "premium taxes and taxes attributable to
purchase payments" shall include any state or local premium taxes and any
federal premium taxes and any federal, state or local income, excise, business
or any other type of tax (or component thereof) measured by or based upon the
amount of premium received by Pruco Life. If Pruco Life pays a state or local
tax at the time purchase payments are made, the deduction will be made at the
time based on the applicable rate. In many states, Pruco Life pays a premium tax
when an annuity is effected. In those states, the tax will be deducted at that
time. The tax rates currently in effect in those states that impose a tax range
from 1% to 5%. The Prudential also reserves the right to deduct from each
purchase payment a charge up to a maximum of 0.3% for federal income taxes
measured by premiums in those state where approval has been obtained. Currently,
no such charge is being made in any state.
A deduction for any such taxes imposed on purchase payments will not be made,
however, except to the extent that the total tax attributable to premiums is in
excess of 4% when: (1) your total purchase payments, less any purchase payments
withdrawn, equal or exceed $50,000; or (2) you purchase separate Contracts for
each of your children or grandchildren as annuitants, each Contract has purchase
payments totaling at least $25,000, and total purchase payments, less any
purchase payments withdrawn, equal or exceed $50,000. Special tax rules may
apply to multiple annuity contracts issued by the same company (and affiliates)
to the same Contract owner during any calendar year. See FEDERAL TAX STATUS,
page 14.
ADMINISTRATIVE CHARGE
There is an administrative charge to reimburse Pruco Life for the expenses
incurred in administering the Contracts. This includes such things as issuing
the Contract, establishing and maintaining records, and providing reports to
Contract owners. This charge is deducted daily from the assets in each of the
variable subaccounts and is equivalent to an effective annual rate of 0.15%
(.00041065% daily). Although we do not do so now, we reserve the right to impose
an additional charge of up to $25 annually and upon surrender on Contracts with
less than
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<PAGE>
$50,000 in the Contract Fund. This $25 charge would be apportioned over all
investment options making up the Contract Fund as of the effective date of that
deduction. The administrative charge contains no element of anticipated profit.
CHARGE FOR ASSUMING MORTALITY AND EXPENSE RISKS
A deduction is made daily from the assets of each of the variable investment
options to reimburse Pruco Life for assuming the risk that our estimates of
longevity and of the expenses we expect to incur over the lengthy periods that
the Contract may be in effect will turn out to be incorrect. The charge is made
daily at an annual rate of 1.25% (.00340349% daily) of the assets held in the
subaccounts. This charge is not assessed against amounts allocated to the
interest-rate investment options.
To the extent that the charge for these risks exceeds the actual cost of
expenses and benefits, Pruco Life will realize a gain. These proceeds will
become part of Pruco Life's general account and will be available to cover any
deficiency to the extent to which withdrawal charges are less than sales
expenses under the Contracts.
EXPENSES INCURRED BY THE SERIES FUND
The charges and expenses of the Series Fund are indirectly borne by the Contract
owners. Investment management fees for the available Series Fund portfolios are
briefly described under THE PRUDENTIAL SERIES FUND, INC. on page 7. Further
detail about management fees and other underlying fund expenses are provided in
the fee table and in the attached prospectus for the Series Fund and its
statement of additional information.
WITHDRAWAL CHARGE
A withdrawal charge may be made upon full or partial withdrawals. The charge
compensates Pruco Life for paying all of the expenses of selling and
distributing the Contracts, including sales commissions, printing of
prospectuses, sales administration, preparation of sales literature, and other
promotional activities. No withdrawal charge is imposed whenever earnings are
withdrawn.
Withdrawals are deemed to be made first from purchase payments and then from
earnings. A portion of the purchase payments to be withdrawn in any Contract
year may be withdrawn without the imposition of any charge. That amount is
referred to as the "charge-free amount". It is equal to 10% of the total of all
purchase payments less all withdrawals of purchase payments previously made plus
any charge-free amount still available from the immediately preceding Contract
year. An example of how the charge-free amount and the withdrawal charge are
determined is given on page C1 as part of the example of how the Market-Value
Adjustment works.
If your withdrawal exceeds the charge-free amount and it is made within the
first seven Contract years, a percentage charge will be applied. The following
table sets forth the rates that apply:
THE WITHDRAWAL CHARGE WILL BE EQUAL
FOR WITHDRAWALS DURING THE CONTRACT TO THE FOLLOWING PERCENTAGE OF THE
YEAR INDICATED AMOUNT WITHDRAWN*
- ----------------------------------- -----------------------------------
First Contract Year 7%
Second Contract Year 6%
Third Contract Year 5%
Fourth Contract Year 4%
Fifth Contract Year 3%
Sixth Contract Year 2%
Seventh Contract Year 1%
Eighth and Subsequent Contract Years No Charge
- ------------
* SUBJECT TO CHARGE-FREE AMOUNT DESCRIBED ABOVE.
No withdrawal charge is made upon a withdrawal used to effect an annuity under
the Life Annuity with 120 Payments Certain option. See EFFECTING AN ANNUITY,
page 16. Also, at our discretion, we may reduce or waive withdrawal charges for
certain classes of contracts (e.g., contracts purchased by Prudential employees
or exchanged from existing Prudential contracts).
Contracts issued to annuitants aged 84 or older are subject to a reduced
withdrawal charge. The withdrawal charge will never be greater than permitted by
applicable law or regulation.
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To the extent that the contingent deferred sales charge is insufficient to
recover all distribution expenses associated with the Contracts, the deficiency
will be met from Pruco Life's surplus which is, in part, derived from the
charges for the assumption of mortality and expense risks and from mortality
gains from Contracts under which annuity payments are being made.
TRANSACTION CHARGE
There is a charge of $25 for each transfer you make after the first 12
(excluding DCA transfers) in a Contract year. The charge is taken pro-rata from
the investment options from which the transfer is made. Any affected MVA option
cells will not undergo a Market-Value Adjustment as a result of this processing.
CRITICAL CARE ACCESS
All or part of any withdrawal and annual administrative charges associated with
a full or partial withdrawal, or any annuitization or withdrawal charge due on
the annuity date, will be waived following the receipt of due proof that the
annuitant or (if applicable) co-annuitant 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 has 6 months or less to live.
FEDERAL TAX STATUS
The following discussion is based on current law and interpretations which may
change. The discussion 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
adviser should be consulted for complete information and advice. The following
rules do not generally apply to annuity contracts held by or for non-natural
persons (e.g. corporations) or to contracts held under tax-favored retirement
plans (other than an IRA rollover). 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.
DIVERSIFICATION
Section 817(h) of the Internal Revenue Code (the "Code") provides that the
underlying investments for a variable annuity must satisfy certain
diversification requirements. For further detail on diversification
requirements, see DIVIDENDS, DISTRIBUTIONS, AND TAXES in the attached prospectus
for the Series Fund. Pruco Life believes the underlying variable investment
options for the Contract meet these diversification requirements. IRS
regulations issued to date, however, do not provide guidance concerning the
extent to which Contract owners may direct their investments to particular
divisions of a separate account. Such guidance will be included in regulations
or revenue rulings under Section 817(d) relating to the definition of a variable
contract. Because of this uncertainty, Pruco Life reserves the right to make
such changes as it deems necessary to assure that the Contract continues to
qualify as an annuity for tax purposes. Any such changes will apply uniformly to
affected Contract owners and will be made with such notice to affected Contract
owners as is feasible under the circumstances.
TAXES PAYABLE BY CONTRACT OWNERS
Under current law, Pruco Life believes that the Contract will be treated as an
annuity for Federal income tax purposes and that the issuing insurance company,
Pruco Life, and not the Contract owner, will be treated as the owner of the
underlying investments for the Contract. Accordingly, generally no tax should be
payable by any Contract owner as a result of any increase in the value of the
Contract until money is received by him or her. It is important, however, to
consider how amounts that are received will be taxed.
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 withdrawals of
purchase payments, until all investment income has been withdrawn.
To the extent assignment is authorized by the Contract, 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 these rules. Amounts
withdrawn before annuity payments begin which represent a distribution of
investment income will be taxable as ordinary income and may be subject to a
penalty tax. Amounts which represent a withdrawal of purchase payments will not
be taxable as ordinary income or subject to a penalty tax. Moreover, all annuity
contracts issued by the same company (and affiliates) to the same Contract owner
during any calendar year shall be treated as one annuity contract for purposes
of determining whether an amount is subject to tax under these rules.
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Different tax rules apply to your receipt of annuity payments. For Contracts
other than individual retirement annuities, a portion of each annuity payment
you receive under a Contract will be treated as a partial return of your
purchase payments and will not be taxable. The remaining portion of the annuity
payment will be taxed as ordinary income. Exactly how an annuity payment is
divided into taxable and non-taxable portions depends upon the period over which
annuity payments are expected to be received, which in turn is governed by the
form of annuity selected and, where a lifetime annuity is chosen, by the life
expectancy of the annuitant. Annuity payments which are received after the
annuitant recovers the full amount of the purchase payments will be fully
includible in income. Should annuity payments cease on account of the death of
the annuitant before purchase payments have 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.
The Code provides that any amount received under an annuity contract which is
included in income may be subject to a penalty tax. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include amounts: (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 the Contract owner 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) under a
qualified funding asset (defined by Code section 130(d)), or (6) under an
immediate annuity contract (within the meaning of section 72(u)(4)).
Election of the interest pay option is not considered as an annuity payment for
tax purposes. Accordingly, unless the Contract is held by an individual
retirement annuity, such election will cause investment income under the
Contract to be taxable.
Generally, the same tax rules apply to amounts received by the beneficiary as
those set forth above with respect to the Contract owner, except that the early
withdrawal penalty tax does not apply. The election of an annuity payment option
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 17.
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 19.
WITHHOLDING
Generally, unless you elect to the contrary, the portion of any amounts you
receive under your Contract that are attributable to investment income will be
subject to withholding to meet federal income tax obligations. The rate of
withholding on annuity payments made to you will be determined on the basis of
the withholding certificate you may file with Pruco Life. If you do not file
such a certificate, you will be treated, for purposes of determining your
withholding rate, as a married person with three exemptions. The rate of
withholding on all other payments made to you under your Contract, such as
amounts you receive upon withdrawals, will be 10%. Thus, if you fail to elect
that Pruco Life not do so, it will withhold from withdrawal by, or annuity
payment to, you the appropriate percentage of the amount of the payment that
constitutes investment income and hence is taxable. Pruco Life will provide you
with forms and instructions concerning your right to elect that no amount be
withheld from payments to you. If you elect not to have withholding made, you
are liable for payment of federal income taxes on the taxable portion of the
distribution. You may be subject to penalties under the estimated tax payment
rules if your withholding and estimated tax payments are not sufficient. If you
do not provide a social security number or other taxpayer identification number,
you will not be permitted to elect out of withholding. Special withholding rules
apply for nonresident aliens. Generally, there will be no withholding for taxes
until you actually receive payments under your Contract.
IMPACT OF FEDERAL INCOME TAXES
In general, if you expect to accumulate savings over a relatively long period of
time without making significant withdrawals, there should be tax advantages,
regardless of your tax bracket, in purchasing a Contract rather than, for
example, a mutual fund with a similar investment policy and approximately the
same level of expected investment results. This is because little or no income
taxes are incurred by you or by Pruco Life while you hold the Contract and it is
generally advantageous to defer the payment of income taxes, so that the
investment return
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<PAGE>
is compounded without any deduction for income taxes. The advantage may be
considerably greater if you decide to liquidate your investment in the form of
monthly annuity payments after your retirement, and even more so if your income,
and your tax rate, are lower at that time than they were during your working
years.
IRAS
The Contracts will not be available in connection with tax-favored plans except
for IRAs. Because the Contract's minimum initial payment of $10,000 is greater
than the maximum annual contribution permitted to be made to an IRA (generally,
$2,000), a Contract may be purchased as a Section 408(b) IRA only in connection
with a "rollover" of the proceeds of a qualified plan, TDA or IRA. The Code
permits persons who are entitled to receive certain qualifying distributions
from a qualified pension or profit-sharing plan described in section 401(a) or
403(a), a tax-deferred section 403(b) annuity ("TDA"), or an IRA, to directly
rollover or make, within 60 days, a tax-free "rollover" of all or any part of
the amount of such distribution to an IRA which they establish. Additionally,
the spouse of a deceased employee may roll over to an IRA certain distributions
received by the spouse from a qualified pension or profit-sharing plan, TDA or
IRA on account of the employee's death. Once the Contract has been purchased,
regular IRA contributions will be accepted to the extent permitted by law.
In order to qualify as an IRA under Section 408(b) of the Code, a Contract (or a
rider made a part of the Contract) must contain certain additional provisions:
(1) the owner of the Contract must be the annuitant, except when a transfer is
made to a former spouse in accordance with a divorce decree as provided in
Section 408(d)(6) of the Code; (2) the rights of the owner cannot be
forfeitable; (3) the Contract may not be sold, assigned, discounted or pledged
for any purpose to any person except Pruco Life; and (4) annuity and death
benefit payments must satisfy certain minimum distribution requirements.
Contracts issued as Section 408(b) rollover IRAs will conform to such
requirements.
MINIMUM DISTRIBUTION OPTION
A Minimum Distribution Option is available under IRAs. This option enables the
owner to satisfy IRS minimum distribution requirements without having to
annuitize or cash surrender the Contract. Distributions from IRAs must begin by
April 1 of the year following attainment of age 70 1/2. The owner can select
either a "calculation" or "recalculation" method to determine the minimum
distribution payout. Pruco Life will send the owner a check for the minimum
distribution amount less any partial withdrawals made during the year and less
any applicable withdrawal charges and plus or minus any applicable market value
adjustment. Pruco Life's calculations are based on the cash value of this
Contract, the calculation method chosen and the owner's age as specified on the
application. Other calculation methods may be available for an owner/spouse
combination. If the owner has other IRA accounts, he or she will be responsible
for taking the minimum distribution from each.
TAXES ON PRUCO LIFE
The earnings of the Account are taxed as part of the operations of Pruco Life.
No charge is being made currently against the Account for company federal income
taxes (excluding any charge for taxes attributable to premiums). Pruco Life will
review the question of a charge to the Account for company federal income taxes
periodically. Such a charge may be made in future years for any federal income
taxes that would be attributable to the Contract.
Under current law, Pruco Life may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant
and they are not charged against the Contract or the Account. If there is a
material change in applicable state or local tax laws, the imposition of any
such taxes upon Pruco Life that are attributable to the Account may result in a
corresponding charge against the Account.
EFFECTING AN ANNUITY
Upon the annuity date, the cash value of the Contract will be converted into a
fixed-dollar annuity payable to the annuitant[s] named in the Contract. In
certain cases, any applicable withdrawal charge will be waived. If two
annuitants are named in the Contract, you may decide how much of the amount is
to be applied for each annuitant and under which form[s] of annuity. If the
Contract is not large enough to produce an initial monthly payment of $50, you
will be paid the cash value in a single sum.
When you choose to annuitize, all amounts held in the investment options will be
withdrawn. An amount equal to the premium tax, if any, imposed by the state in
which the annuitant resides is then deducted (unless deducted earlier). Many
states do not impose a premium tax. In other states the tax ranges from 1% to 5%
of the amount
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applied to effect an annuity. See PREMIUM TAXES, page 12. Some local
jurisdictions also impose a tax. The amount remaining is applied to effect an
annuity. This amount becomes part of Pruco Life's general account.
The amount of the monthly payments will depend upon the amount applied and the
table of rates set forth in the Contract which we guarantee will be used even if
longevity has significantly improved since the Contract date. If Pruco Life is
offering more favorable rates at that time, then those rates will be used.
The annuity will be in one of three forms listed below and other forms may be
available with our consent. All the annuity options under this Contract are
fixed annuity options. Your participation in the variable investment options
ceases when the annuity is effected. Unless we consent to a later date, an
annuity must begin no later than the Contract anniversary coinciding with or
next following the annuitant's 90th birthday (or the younger annuitant's if
there are two annuitants named in the Contract). We will then make payments to
the annuitant on the first day of each period determined by the form of annuity
selected. Unless applicable law states otherwise, if you have not selected an
annuity option to take effect by the annuity date, the Interest Payment Option
(see below) will become effective then. Special rules apply in the case of a
Contract issued in connection with an IRA.
ANNUITY PAYMENTS FOR A FIXED PERIOD
Payments will be to the annuitant during his or her lifetime for up to 25 years.
Payments may be in monthly, quarterly, semi-annual, or annual installments. If
the annuitant dies during the annuity certain period, unless you designate
otherwise, the beneficiary will receive a lump sum payment. The amount of the
lump sum payment is determined by discounting each remaining unpaid payment at
the interest rate used to compute the actual payments. If the payments were
based on the table of rates set forth in the Contract, the interest rate used is
3 1/2% a year.
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, monthly annuity
payments do not continue to the beneficiary designated by the annuitant unless
he or she so selects. Instead, the present value of the remaining unpaid
installments, up to and including the 120th monthly payment, is payable to the
beneficiary in one sum. In calculating the present value of the unpaid future
payments, we will discount each such payment at the interest rate used to
compute the amount of the actual 120 payments. If the payments were based on the
table of rates set forth in the Contract, an interest rate of 3 1/2% a year is
used. Once annuity payments have begun, an annuitant may withdraw the present
value of any of the 120 payments certain that have not been paid.
INTEREST PAYMENT OPTION
The annuitant may choose to have Pruco Life hold a designated amount to
accumulate at interest. Unless applicable law states otherwise, if no option has
been selected by the annuity date, this option will automatically become
effective. Pruco Life will pay interest at an effective rate of at least 3% a
year, and we may pay a higher rate of interest.
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT ANNUITY PURCHASE RATES
Although the Contract generally 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. Rather, blended unisex annuity purchase rates for life annuities will be
provided under all Contracts issued in those states, 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.
Special provisions may apply if the Contract is issued in connection with an
IRA. The necessary information will be provided by the plan sponsor or
administrator.
OTHER INFORMATION
REQUIRED DISTRIBUTIONS ON DEATH OF OWNER
Federal tax law requires that if the Contract owner dies before the annuity
date, the entire value of the Contract must generally be distributed within 5
years of the date of death. Special rules may apply to the spouse of the
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deceased owner. The rules regarding required distributions after the Contract
owner's death are described in the Statement of Additional Information.
MISSTATEMENT OF AGE OR SEX
If an annuitant's stated age or sex (except where unisex rates apply) or both
are incorrect in the Contract, we will change each benefit and the amount of
each annuity payment to that which the total purchase payment amounts would have
bought for the correct age and sex. Also, we will adjust for the amount of any
overpayments we have already made.
SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
The Prudential, acts as the principal underwriter of the Contract. Prusec,
organized in 1971 under New Jersey law, is registered as a broker and dealer
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. Prusec's principal business address is
1111 Durham Avenue, South Plainfield, New Jersey 07080. The Contract is sold by
registered representatives of Prusec who are also authorized by state insurance
departments to do so. The Contract may also be sold through other broker-dealers
authorized by Prusec and applicable law to do so. Registered representatives of
such other broker-dealers may be paid on a different basis than described below.
The maximum commission that will be paid to the representative is 3.5% of the
purchase payment received, and the amount paid to the broker-dealer to cover
both the individual representative's commission and other distribution expenses
will not exceed 6% of the purchase payment. Trail commissions based on the size
of the Contract Fund may be paid. Such commissions will be subject to reduction
if Pruco Life accepts purchase payments on and after the annuitant's 84th
birthday. 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.
Sales expenses in any year are not equal to the deduction for sales loads in
that year. Pruco Life expects to recover its total sales expenses over the
periods the Contracts are in effect. To the extent that the sales charges are
insufficient to cover total sales expenses, the sales expenses will be recovered
from Pruco Life's surplus.
VOTING RIGHTS
As stated above, all of the assets held in the subaccounts of the Account are
invested in shares of the corresponding portfolios of the Series Fund. Pruco
Life is the legal owner of those shares and as such has the right to vote on any
matter voted on at any Series Fund shareholders meetings. However, as required
by law, Pruco Life votes the shares of the Series Fund at any regular and
special shareholders meetings it is required to hold in accordance with voting
instructions received from Contract owners. The Series Fund does not hold annual
shareholders meetings when not required to do so under Maryland law or the
Investment Company Act of 1940. Fund shares for which no timely instructions
from Contract owners are received, and any shares owned directly or indirectly
by Pruco Life are voted in the same proportion as shares in the respective
portfolios for which instructions are received. Should the applicable federal
securities laws or regulations, or their current interpretation, change so as to
permit Pruco Life to vote shares of the Series Fund in its own right, it may
elect to do so.
Matters on which you may give voting instructions include the following: (1)
election of the Board of Directors of the Series Fund; (2) ratification of the
independent accountant of the Series Fund; (3) approval of the investment
advisory agreement for a portfolio of the Series Fund corresponding to your
selected subaccount[s]; (4) any change in the fundamental investment policy of a
portfolio corresponding to your selected subaccount[s]; and (5) any other matter
requiring a vote of the shareholders of the Series Fund. With respect to
approval of the investment advisory agreement or any change in a portfolio's
fundamental investment policy, Contract owners participating in such portfolios
will vote separately on the matter, pursuant to the requirements of Rule 18f-2
under the Investment Company Act of 1940.
The number of Series Fund shares for which you may give instructions is
determined by dividing the portion of the value of the Contract derived from
participation in a subaccount, by the value of one share in the corresponding
portfolio of the applicable Fund. The number of votes for which you may give
Pruco Life instructions is determined as of the record date chosen by the Board
of Directors of the Series Fund. We furnish you with proper forms and proxies to
enable you to give these instructions. We reserve the right to modify the manner
in which the weight to be given voting instructions is calculated where such a
change is necessary to comply with current federal regulations or
interpretations of those regulations.
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Pruco Life may, if required by state insurance regulations, disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the sub-classification or investment objectives of one or more
of the Funds' portfolios, or to approve or disapprove an investment advisory
contract for a Fund. In addition, Pruco Life itself may disregard voting
instructions that would require changes in the investment policy or investment
adviser of one or more of the Funds' portfolios, provided that we reasonably
disapprove such changes in accordance with applicable federal regulations. If we
do disregard voting instructions, we will advise you of that action and our
reasons for such action in the next annual or semi-annual report to Contract
owners.
SUBSTITUTION OF SERIES FUND SHARES
Although Pruco Life believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Series Fund may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, we may seek to substitute the shares of another portfolio or of an
entirely different mutual fund. Before this can be done, the approval of the
SEC, and possibly one or more state insurance departments, will be required. You
will be notified of such substitution.
OWNERSHIP OF THE CONTRACT
The Contract owner is entitled to exercise all the rights under the Contract.
The Contract owner is usually, but not always, an annuitant. Ownership of the
Contract may, however, be transferred to another person who need not be the
person who is to receive annuity payments. Transfer of the ownership of a
Contract may involve federal income tax consequences, or may be prohibited under
certain Contracts, and you should consult with a qualified tax adviser before
attempting any such transfer. Generally, ownership of the Contract is not
assignable to a tax-qualified retirement plan or program without Pruco Life's
consent.
PERFORMANCE INFORMATION
Performance information for the subaccounts may appear in advertising and
reports to current and prospective Contract owners. Performance information is
based on historical investment experience of the Series Fund, adjusted to take
charges under the Contract into account, and does not indicate or represent
future performance.
Total returns are based on the overall dollar or percentage change in value of a
hypothetical investment over a stipulated period, and assume a surrender of the
Contract at the end of the period. Total return quotations reflect changes in
unit values and the deduction of applicable charges including any applicable
withdrawal charges.
A cumulative total return reflects performance over a stated period of time. An
average annual total return reflects the hypothetical annually compounded return
that would have produced the same cumulative total return if the performance had
been constant over the entire period.
The Money Market Subaccount may advertise its current and effective yield.
Current yield reflects the income generated by an investment in the subaccount
over a specified seven-day period. Effective yield is calculated in a similar
manner except that income earned is assumed to be reinvested.
Reports or advertising may include comparative performance information,
including, but not limited to: comparisons to market indices; comparisons to
other investments; performance rankings; personalized illustrations of
historical performance; and data presented by analysts or included in
publications.
See PERFORMANCE INFORMATION in the Statement of Additional Information for
recent performance information.
REPORTS TO CONTRACT OWNERS
You will be sent quarterly statements that provide certain information pertinent
to your Contract. These statements provide Contract data that apply only to each
particular Contract, including Contract values and transactions during the
period. You may request current Contract information at any time, however, we
may limit the number of such requests or impose a reasonable charge if such
requests are made too frequently.
You will also be sent an annual report for the Account and annual and
semi-annual reports for the Series Fund.
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.
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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 audited financial statements and the financial statements from which the
Condensed Financial Information included in this prospectus have been derived,
have been examined by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein. Such financial statements have been included
herein in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing. Deloitte & Touche LLP's principal business
address is Two Hilton Court, Parsippany, New Jersey 07054-0319.
On March 12, 1996, Deloitte & Touche LLP was dismissed as the independent
accountants of Pruco Life. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make a reference
to the matter in their reports.
LITIGATION
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by The Prudential, the Company and agents appointed by The Prudential
and the Company. The Prudential has agreed to indemnify the Company for any and
all losses resulting from such litigation.
STATEMENT OF ADDITIONAL INFORMATION
The contents of the Statement of Additional Information include:
OTHER INFORMATION CONCERNING THE ACCOUNT
PRINCIPAL UNDERWRITER
DETERMINATION OF SUBACCOUNT UNIT VALUES
IRS REQUIRED DISTRIBUTIONS ON DEATH OF OWNER
PERFORMANCE INFORMATION
COMPARATIVE PERFORMANCE INFORMATION
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 should be
distinguished from the financial statements of the Account, and should be
considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
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SELECTED FINANCIAL DATA
The following selected financial data for Pruco Life should be read in
conjunction with the CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE
COMPANY AND SUBSIDIARIES and notes thereto included in this prospectus
beginning on page A1.
<TABLE>
<CAPTION>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
($000'S)
<S> <C> <C> <C> <C> <C>
Revenues
Premiums, annuity fund deposits
and other revenue ............................ $ 615,379 $ 603,864 $ 591,660 $ 541,248 $ 521,590
Net investment income .......................... 250,386 245,977 260,939 274,037 285,565
---------- ---------- ---------- ---------- ----------
Total revenues ..................................... 865,765 849,841 852,599 815,285 807,155
---------- ---------- ---------- ---------- ----------
Benefits and expenses
Current and future benefits and
claims ....................................... 512,988 559,658 534,354 478,148 501,454
Other expenses ................................. 144,563 149,478 157,557 129,701 126,201
---------- ---------- ---------- ---------- ----------
Total benefits and expenses ........................ 657,551 709,136 691,911 607,849 627,655
---------- ---------- ---------- ---------- ----------
Income before provision in lieu of
federal income tax and cumulative effect
of a change in accounting principle .............. 208,214 140,705 160,688 207,436 179,500
Provision in lieu of federal income tax ............ (50,013) (87,750) (83,640) (96,578) (75,242)
---------- ---------- ---------- ---------- ----------
Net income before cumulative effect of
a change in accounting principle ................. $ 158,201 $ 52,955 $ 77,048 $ 110,858 $ 104,258
---------- ---------- ---------- ---------- ----------
Cumulative effect on prior years
(to December 31, 1990) of change
in reserve basis ................................. -- -- -- -- 140,242
---------- ---------- ---------- ---------- ----------
Net income ......................................... $ 158,201 $ 52,955 $ 77,048 $ 110,858 $ 244,682
========== ========== ========== ========== ==========
Assets ............................................. $7,817,436 $7,090,802 $7,172,104 $6,709,958 $6,369,288
---------- ---------- ---------- ---------- ----------
</TABLE>
Prior years' financial statements have been revised to reflect a change in
presentation of Separate Account policyholder net investment income and net
realized and unrealized gains (losses). Please see Note 1J of the Notes to
Consolidated Financial Statements on page B-6.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pruco Life Insurance Company consists of Pruco Life Insurance Company, Pruco
Life Insurance Company of New Jersey and The Prudential Life Insurance Company
of Arizona (collectively, the Company). The Company markets individual life
insurance and single pay deferred annuities primarily through the Prudential's
sales force. The Company held $7.8 billion in assets at December 31, 1995, $4.3
billion of which were held in Separate Accounts under variable life insurance
policies and variable annuity contracts. The remaining assets were held in the
general account for investment primarily in bonds, short-term investments and
mortgage loans.
Because of the large number of stock and mutual life insurance companies and
other entities engaged in marketing insurance products, the Company is engaged
in a business that is highly competitive. During the past several years, the
insurance industry has suffered setbacks both financially and in public
relations. The Company, however, remains sound.
1. RESULTS OF OPERATIONS
(A) 1995 VERSUS 1994
Net income for 1995 was $158 million, representing a $105 million increase from
the same period in 1994.
Premiums and annuity considerations decreased $42 million in 1995, from $612
million for the year ended December 31, 1994, to $570 million for the same
period in 1995. This decrease is primarily due to the decline in first year
premiums for certain life insurance products.
Net investment income increased $4 million for the twelve months ended December
31, 1995, from the same period in 1994. This is primarily due to an increase in
income generated by policy loans.
The Company had net realized investment gains of $4 million during 1995 compared
to investment losses of $21 million during 1994. This increase is due to our
newly structured portfolio aligned more closely with the company's liability
duration and reduced the portfolio's interest rate risk. Following statutory
Interest Maintenance Reserve (IMR) guidelines, net realized investment gains of
$9 million were deferred for the period ended December 31, 1995. In comparison,
$20 million of net realized investment losses were deferred for the period
ending December 31, 1994. Amortized into net investment income were $4 million
and $5 million of IMR for the twelve month period ended December 31, 1995 and
1994, respectively.
Other income increased $28 million for the year ended December 31, 1995 from the
year ended December 31, 1994. This increase was partially due to a special
provision for non-guaranteed policyholder credits. In addition, the company
share of separate account improved from a loss of $4 million for the year ended
December 31, 1994 to a gain of $7 million for the same period in 1995.
Current and future benefits and claims decreased $47 million for the twelve
months ended December 31, 1995, from the same period in 1994. This was driven by
the decline in premiums during 1995, which reduces the level of reserves needed
to be held.
Total expenses for the year ended December 31, 1995 decreased by $5 million from
the same period in 1994. This is primarily due to a decrease in commission
expenses of $4 million, which correlates with the decrease in sales.
Provision in lieu of federal income taxes decreased $38 million for the year
ended December 31, 1995, as compared to December 31, 1994. Although operating
income for 1995 was higher than the previous year, provision in lieu of federal
income taxes includes a benefit of federal income taxes applicable to prior
years.
(B) 1994 VERSUS 1993
Net income for 1994 was $53 million, representing a $24 million decrease from
the same period in 1993.
Premiums and annuity considerations increased $48 million in 1994, from $564
million for the year ended December 31, 1993, to $612 million for the same
period in 1994. An increase in unscheduled premium payments on two individual
life insurance products together with an increase in renewal premiums, driven by
these two products, account for this increase.
Net investment income decreased $15 million for the twelve months ended December
31, 1994, from the same period in 1993. Reduced yields on the Company's fixed
rate investment portfolio lead to reduced net investment income. In addition,
net cash outflows to meet policyholder obligations resulted in a decrease in
invested assets which, in turn, contributed to the lower investment income.
22
<PAGE>
The Company had net realized investment losses of $21 million during 1994
compared to investment gains of $9 million during 1993. Sales of Corporate and
Mortgage-Backed Securities during the twelve months of 1994 generated realized
losses attributable to the increase in interest rates during this period.
However, the expectation is that the newly structured portfolio will align more
closely with the company's liability duration and reduce the portfolio's
interest rate risk. Following statutory Interest Maintenance Reserve (IMR)
guidelines, net realized investment losses of $20 million were deferred for the
period ended December 31, 1994. In comparison, $19 million of net realized
investment gains were deferred for the period ended December 31, 1993. Amortized
into net investment income were $5 million and $7 million of IMR for the twelve
month period ended December 31, 1994, and 1993, respectively.
Current and future benefits and claims increased $25 million for the twelve
months ended December 31, 1994, from the same period in 1993. An increase in
benefits paid during 1994 as compared to 1993 combined with high surrender
benefits, which can be attributed to contract maturities of annuity products as
the Company's inforce ages, was more than offset by an increase in reserves
resulting from the 1994 increase in premiums and annuity considerations.
Total expenses for the year ended December 31, 1994 decreased by $8 million from
the same period in 1993. General, administrative, and other expenses for the
year ended December 31, 1994, decreased $9.8 million due to the decrease in
allocation of costs from The Prudential. Allocations are primarily based on
average compensation over a period of recent years and inforce. The average
compensation and inforce amounts used in 1994 decreased from 1993 by 48% and 5%,
respectively. This can be attributable to a decline in the sales of certain life
insurance products between periods of allocation. Offsetting this decrease is an
increase in commission expense of $1.8 million from the same period in 1993,
which is consistent with the increase in first year premiums.
Provision in lieu of federal income taxes increased $4 million for the year
ended December 31, 1994, as compared to December 31, 1993. Although operating
income for 1994 was lower than the previous year, provision in lieu of federal
income taxes increased due to federal income taxes applicable to prior years.
2. LIQUIDITY
For an insurance company, cash needs, for the purpose of paying current
benefits, making policy loans, and paying expenses, are met primarily from
premiums and investment income. Benefit expenses incurred in 1995, 1994 and 1993
were respectively, $684 million, $547 million and $584 million. Cash flows are
anticipated to be ample to meet the Company's liquidity needs for the
foreseeable future.
3. INVESTMENTS
The Company maintains a well diversified portfolio consisting of fixed as well
as equity investments. Of the Company's total assets of $7.8 billion as of
December 31, 1995, 32.12% was invested in fixed maturities, 0.05% in equity
securities, 2.92% in short-term investments, 0.82% in mortgage loans, 0.05% in
real estate, 54.82% in separate account assets and the remaining 9.22% in other
assets.
Fixed Maturities. As of December 31, 1995 and 1994, the Company's investments in
fixed maturities, which are primarily carried at amortized cost, were $2.5
billion and $2.6 billion, respectively. Included in fixed maturities are
securities classified by the National Association of Insurance Commissioners
(NAIC) as being in the lowest three rating categories. The lowest three NAIC
categories represent, for the most part, high-yield securities. These
approximate 1.0% of the Company's assets at December 31, 1995 and 1.5% at
December 31, 1994.
Mortgage Loans. As of December 31, 1995 and 1994, the Company's investments in
mortgage loans were $64 million and $72 million, respectively. Mortgage loans
are carried at the lower of unpaid principal balance or fair value of the
underlying property. The decrease in mortgage loans is due to the payment of one
loan totaling $6.0 million. As of December 31, 1995, the Company has two loans
in the amount of $8.4 million in the process of foreclosure and two loans with
restructured terms in the amount of $6.9 million.
Real Estate. As of December 31, 1995 and 1994, the Company's investment in real
estate was $4 million and $7 million, respectively. Real estate is carried at
the lower of cost or fair value less disposition costs. The Company sold one
property during the first quarter of 1995.
4. EMERGING ACCOUNTING ISSUES
The accompanying audited financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP), which are considered
statutory accounting practices for a wholly owned stock subsidiary of a mutual
life insurance company. The Financial Accounting Standards Board (the "FASB")
issued Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and
23
<PAGE>
Other Enterprises", which as amended, is effective for fiscal years beginning
after December 15, 1995. Interpretation No. 40 changes the current practice of
mutual life insurance companies, with respect to utilizing statutory basis
financial statements for general purposes, in not allowing such financial
statements to be referred to as having been prepared in accordance with GAAP.
Interpretation No. 40 requires GAAP financial statements of mutual life
insurance companies to apply all GAAP pronouncements, unless specifically
exempted. Implementation of Interpretation No. 40 will require significant
effort and judgement. The company is assessing the impact of Interpretation No.
40 on its consolidated financial statements, such effort has not been completed
and management currently believes surplus will increase significantly.
24
<PAGE>
DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life, listed with their principal
occupations during the past 5 years, are shown below.
DIRECTORS OF PRUCO LIFE
E. MICHAEL CAULFIELD, Director. -- Chief Executive Officer, Prudential Money
Management Group since 1995; 1993 to 1995: President, Prudential Preferred
Financial Services; 1992 to 1993: President, Prudential Property and Casualty
Insurance Company*; Prior to 1992: President of Investment Services of The
Prudential. Age 49.
GARNETT L. KEITH, JR., Director. -- Vice Chairman of The Prudential. Age 60.
IRA J. KLEINMAN, Director. -- Chief Marketing and Product Development Officer,
Prudential Individual Insurance Group since 1995; 1993 to 1995: President,
Prudential Select; Prior to 1993: Senior Vice President of The Prudential. Age
49.
ESTHER H. MILNES, President and Director. -- Vice President and Actuary,
Prudential Individual Insurance Group since 1996; 1993 to 1996: Senior Vice
President and Chief Actuary, Prudential Insurance and Financial Services since
1993; Prior to 1993: Vice President and Associate Actuary of The Prudential. Age
45.
I. EDWARD PRICE, Vice Chairman and Director. -- Senior Vice President and
Actuary, Prudential Individual Insurance Group since 1995; 1994 to 1995: Chief
Executive Officer, Prudential International Insurance; 1993 to 1994: President,
Prudential International Insurance; Prior to 1993: Senior Vice President and
Company Actuary of The Prudential. Age 53.
WILLIAM F. YELVERTON, Director. -- Chief Executive Officer, Prudential
Individual Insurance Group since 1995; Prior to 1995: Chief Executive Officer,
New York Life Worldwide. Age 54.
OFFICERS WHO ARE NOT DIRECTORS
BEVERLY R. BARNEY, Senior Vice President. -- Vice President and Re-Engineering
Officer, Prudential Individual Insurance Group since 1995; 1993 to 1995: Senior
Vice President and Associate Actuary, Prudential Direct; Prior to 1993: Senior
Vice President and Actuary of Pruco Life. Age 48.
SUSAN L. BLOUNT, Secretary.--Vice President and Secretary of The Prudential
since 1995; Prior to 1995: Assistant General Counsel for Prudential Residential
Services Company. Age 38.
C. EDWARD CHAPLIN, Treasurer. -- Vice President and Treasurer of The Prudential
since 1995; 1993 to 1995: Managing Director and Assistant Treasurer of The
Prudential; 1992 to 1993: Vice President and Assistant Treasurer, Banking and
Cash Management for The Prudential; Prior to 1992: Regional Vice President of
Prudential Mortgage Capital Company. Age 39.
CLIFFORD E. KIRSCH, Chief Legal Officer -- Chief Counsel, Variable Products, Law
Department of The Prudential since 1995; 1994 to 1995: Associate General Counsel
with Paine Webber; Prior to 1994: Assistant Director in the Division of
Investment Management with the Securities and Exchange Commission. Age 36.
RICHARD F. LAMBERT, Senior Vice President and Chief Actuary. -- Vice President
and Actuary, Prudential Individual Insurance Group since 1996; 1994 to 1996:
Vice President and Chief Actuary, Prudential Preferred Financial Services since
1994; 1993 to 1994: Vice President and Actuary, Prudential Preferred Financial
Services; Prior to 1993: Vice President and Associate Actuary of The Prudential.
Age 39.
FRANK MARINO, Senior Vice President. -- Vice President, Policyholder Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services. Age 51.
MICHAEL R. SHAPIRO, Senior Vice President. -- Vice President, Marketing and
Product Development, Prudential Individual Insurance Group since 1996; Prior to
1996: Senior Vice President, Prudential Select Brokerage. Age 48.
STEPHEN P. TOOLEY, Vice President, Comptroller and Chief Accounting Officer. --
Vice President Product Performance, Prudential Individual Insurance Group since
1996; 1993 to 1996: Vice President and Comptroller, Prudential Insurance and
Financial Services; Prior to 1993: Director, Financial Analysis for The
Prudential. Age 43.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.
* SUBSIDIARY OF THE PRUDENTIAL
25
<PAGE>
EXECUTIVE COMPENSATION
Executive Officers of Pruco Life may also serve one or more affiliated companies
of Pruco Life. Allocations have been made as to each individual's time devoted
to his duties as an executive officer of Pruco Life and its subsidiaries. The
following table shows the cash compensation paid, based on these allocations, to
the executive officers of Pruco Life as a group for services rendered in all
capacities in Pruco Life and its subsidiaries during 1995. Directors of Pruco
Life who are also employees of The Prudential do not receive compensation in
addition to their compensation as employees of The Prudential.
ALLOCATED CASH
NAME & PRINCIPAL POSITION YEAR COMPENSATION ($)
- ------------------------- ---- -----------------
Esther H. Milnes 1995 $ 17,879
President 1994 $ 14,250
1993 $ 9,846
Beverly R. Barney 1995 $ 9,771
Senior Vice President 1994 $ 0
1993 $126,142
Helen M. Galt **1995 $-------
President **1994 $-------
**1993 $ 13,382
- ----------
** Resigned position as of July, 1993.
26
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE
TOTAL MARKET BOND EQUITY MANAGED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 2]........ $ 738,154 $ 90,123 $ 19,352 $ 222,527 $ 74,607
Receivable from Related Separate Account........ 146,148 54,286 0 31,616 13,593
-------------- -------------- -------------- -------------- --------------
Total Assets.................................. $ 884,302 $ 144,409 $ 19,352 $ 254,143 $ 88,200
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners....................... $ 827,309 $ 144,409 $ 9,105 $ 254,143 $ 88,200
Equity of Pruco Life Insurance Company.......... 56,993 0 10,247 0 0
-------------- -------------- -------------- -------------- --------------
$ 884,302 $ 144,409 $ 19,352 $ 254,143 $ 88,200
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
STATEMENTS OF OPERATIONS
For the period ended December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE
TOTAL MARKET BOND EQUITY MANAGED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
11/22/95* 11/22/95* 11/22/95* 11/22/95* 11/22/95*
TO TO TO TO TO
12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
-------------- -------------- -------------- -------------- --------------
INVESTMENT INCOME
Dividend distributions received................. $ 2,714 $ 123 $ 434 $ 142 $ 206
-------------- -------------- -------------- -------------- --------------
NET INVESTMENT INCOME............................. 2,714 123 434 142 206
-------------- -------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 2,310 0 23 337 426
Net unrealized gain (loss) on investments....... 3,133 0 (104) 3,048 (25)
-------------- -------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS.................... 5,443 0 (81) 3,385 401
-------------- -------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 8,157 $ 123 $ 353 $ 3,527 $ 607
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
*Commencement of Business
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A5 AND A6.
A1
<PAGE>
STATEMENTS OF NET ASSETS (CONTINUED)
December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
HIGH
CONSERVATIVE YIELD EQUITY NATURAL
BALANCED BOND INCOME RESOURCES GLOBAL
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 2]........ $ 61,730 $ 20,274 $ 87,295 $ 10,622 $ 23,072
Receivable from Related Separate Account........ 29,284 0 0 0 0
-------------- -------------- -------------- -------------- --------------
Total Assets.................................. $ 91,014 $ 20,274 $ 87,295 $ 10,622 $ 23,072
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners....................... $ 91,014 $ 9,191 $ 65,762 $ 0 $ 19,564
Equity of Pruco Life Insurance Company.......... 0 11,083 21,533 10,622 3,508
-------------- -------------- -------------- -------------- --------------
$ 91,014 $ 20,274 $ 87,295 $ 10,622 $ 23,072
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
<CAPTION>
SMALL
PRUDENTIAL CAPITALIZATION
JENNISON STOCK
-------------- --------------
<S> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc.
Portfolios at net asset value [Note 2]........ $ 64,759 $ 63,793
Receivable from Related Separate Account........ 6,365 11,004
-------------- --------------
Total Assets.................................. $ 71,124 $ 74,797
-------------- --------------
-------------- --------------
NET ASSETS, representing:
Equity of Contract owners....................... $ 71,124 $ 74,797
Equity of Pruco Life Insurance Company.......... 0 0
-------------- --------------
$ 71,124 $ 74,797
-------------- --------------
-------------- --------------
</TABLE>
STATEMENTS OF OPERATIONS (CONTINUED)
For the period ended December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
HIGH
CONSERVATIVE YIELD EQUITY NATURAL
BALANCED BOND INCOME RESOURCES GLOBAL
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
11/22/95* 11/22/95* 11/22/95* 11/22/95* 11/22/95*
TO TO TO TO TO
12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
-------------- -------------- -------------- -------------- --------------
INVESTMENT INCOME
Dividend distributions received................. $ 266 $ 1,032 $ 259 $ 80 $ 138
-------------- -------------- -------------- -------------- --------------
NET INVESTMENT INCOME............................. 266 1,032 259 80 138
-------------- -------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 353 0 431 446 193
Net unrealized gain (loss) on investments....... 112 (758) (395) 96 (259)
-------------- -------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS.................... 465 (758) 36 542 (66)
-------------- -------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 731 $ 274 $ 295 $ 622 $ 72
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
*Commencement of Business
<CAPTION>
SMALL
PRUDENTIAL CAPITALIZATION
JENNISON STOCK
-------------- --------------
<S> <C> <C>
11/22/95* 11/22/95*
TO TO
12/31/95 12/31/95
-------------- --------------
INVESTMENT INCOME
Dividend distributions received................. $ 0 $ 34
-------------- --------------
NET INVESTMENT INCOME............................. 0 34
-------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 0 101
Net unrealized gain (loss) on investments....... 759 659
-------------- --------------
NET GAIN (LOSS) ON INVESTMENTS.................... 759 760
-------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 759 $ 794
-------------- --------------
-------------- --------------
*Commencement of Business
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A5 AND A6.
A2
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the period ended December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
TOTAL MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- -------------- -------------- -------------- --------------
11/22/95* 11/22/95* 11/22/95* 11/22/95* 11/22/95* 11/22/95*
TO TO TO TO TO TO
12/31/95 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income............ $ 2,714 $ 123 $ 434 $ 142 $ 206 $ 266
Capital gains distributions
received....................... 2,310 0 23 337 426 353
Net unrealized gain (loss) on
investments.................... 3,133 0 (104) 3,048 (25) 112
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........ 8,157 123 353 3,527 607 731
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS.... 824,380 144,295 8,998 253,239 87,611 90,594
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM SURPLUS
TRANSFERS........................ 51,765 (9) 10,001 (2,623) (18) (311)
-------------- -------------- -------------- -------------- -------------- --------------
TOTAL INCREASE IN NET ASSETS....... 884,302 144,409 19,352 254,143 88,200 91,014
NET ASSETS:
Beginning of Period.............. 0 0 0 0 0 0
-------------- -------------- -------------- -------------- -------------- --------------
End of Period.................... $ 884,302 $ 144,409 $ 19,352 $ 254,143 $ 88,200 $ 91,014
-------------- -------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- -------------- --------------
*Commencement of Business
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A5 AND A6.
A3
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the period ended December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
HIGH
YIELD EQUITY NATURAL
BOND INCOME RESOURCES GLOBAL
-------------- -------------- -------------- --------------
11/22/95* 11/22/95* 11/22/95* 11/22/95*
TO TO TO TO
12/31/95 12/31/95 12/31/95 12/31/95
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income............ $ 1,032 $ 259 $ 80 $ 138
Capital gains distributions
received....................... 0 431 446 193
Net unrealized gain (loss) on
investments.................... (758) (395) 96 (259)
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........ 274 295 622 72
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS.... 9,090 65,753 0 19,677
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM SURPLUS
TRANSFERS........................ 10,910 21,247 10,000 3,323
-------------- -------------- -------------- --------------
TOTAL INCREASE IN NET ASSETS....... 20,274 87,295 10,622 23,072
NET ASSETS:
Beginning of Period.............. 0 0 0 0
-------------- -------------- -------------- --------------
End of Period.................... $ 20,274 $ 87,295 $ 10,622 $ 23,072
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
*Commencement of Business
<CAPTION>
SMALL
PRUDENTIAL CAPITALIZATION
JENNISON STOCK
-------------- --------------
11/22/95* 11/22/95*
TO TO
12/31/95 12/31/95
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income............ $ 0 $ 34
Capital gains distributions
received....................... 0 101
Net unrealized gain (loss) on
investments.................... 759 659
-------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........ 759 794
-------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS.... 70,817 74,306
-------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM SURPLUS
TRANSFERS........................ (452) (303)
-------------- --------------
TOTAL INCREASE IN NET ASSETS....... 71,124 74,797
NET ASSETS:
Beginning of Period.............. 0 0
-------------- --------------
End of Period.................... $ 71,124 $ 74,797
-------------- --------------
-------------- --------------
*Commencement of Business
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A5 AND A6.
A4
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
FOR THE PERIOD ENDED DECEMBER 31, 1995
NOTE 1: GENERAL
Pruco Life Flexible Premium Variable Annuity Account (the "Account") was
established on June 16, 1995 under Arizona law as a separate investment account
of Pruco Life Insurance Company ("Pruco Life") which is a wholly-owned
subsidiary of the Prudential Insurance Company of America ("The Prudential").
The assets of the Account are segregated from Pruco Life's other assets.
The Account is registered under the Investment Company Act of 1940, as amended,
as a unit investment trust. There are eleven subaccounts within the Account,
each of which invests only in a corresponding portfolio of The Prudential Series
Fund, Inc. (the "Series Fund"). The Series Fund is a diversified open-end
management investment company, and is managed by The Prudential.
NOTE 2: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
The net asset value per share for each portfolio of the Series Fund, the number
of shares of each portfolio held by the subaccounts of the Account and the
aggregate cost of investments in such shares at December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
PORTFOLIOS
---------------------------------------------------------
PORTFOLIO MONEY DIVERSIFIED FLEXIBLE
INFORMATION MARKET BOND EQUITY MANAGED
- -------------------------- --------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Number of shares: 9,012 1,711 8,679 4,177
Net asset value per share: $ 10.0000 $ 11.3131 $ 25.6399 $ 17.8593
Cost: $ 90,123 $ 19,456 $ 219,479 $ 74,632
<CAPTION>
PORTFOLIOS (CONTINUED)
---------------------------------------------------------
HIGH
PORTFOLIO CONSERVATIVE YIELD EQUITY NATURAL
INFORMATION BALANCED BOND INCOME RESOURCES
- -------------------------- --------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Number of shares: 4,032 2,599 5,365 615
Net asset value per share: $ 15.3088 $ 7.8004 $ 16.2709 $ 17.2718
Cost: $ 61,619 $ 21,032 $ 87,690 $ 10,526
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
------------------------------------------
SMALL
PORTFOLIO PRUDENTIAL CAPITALIZATION
INFORMATION GLOBAL JENNISON STOCK
- -------------------------- --------------- ---------- -------------
<S> <C> <C> <C>
Number of shares: 1,485 5,161 5,391
Net asset value per share: $ 15.5332 $ 12.5468 $ 11.8334
Cost: $ 23,331 $ 64,000 $ 63,134
</TABLE>
NOTE 3: CHARGES AND EXPENSES
A. Mortality Risk and Expense Risk Charges
The mortality risk and expense risk charges at an effective annual rate of
1.25% are applied daily against the net assets representing equity of
Contract owners held in each subaccount.
B. Administrative Charge
The administrative charge at an effective annual rate of .15% is applied
against the net assets representing equity of Contract owners held in each
subaccount.
Pruco Life had determined not to assess the Mortality and Expense Risk
Charge and Administrative Charge until after December 31, 1995. Pruco Life
began assessing these charges as of January 22, 1996. The Mortality and
Expense Risk Charge and Administrative Charge are not assessed against
amounts allocated to the interest-rate investment options.
A5
<PAGE>
C. Withdrawal Charge
A withdrawal charge is imposed upon the withdrawal of funds from certain
variable annuity contracts to compensate Pruco Life for sales and other
marketing expenses. The amount of any withdrawal charge will depend on the
amount withdrawn and the number of years that have elapsed since the
Contract date. No withdrawal charge will be imposed after the eighth
Contract Year or upon a withdrawal used to effect an annuity under the Life
Annuity with 120 Payments Certain option.
NOTE 4: TAXES
The operations of the subaccounts form a part of, and are taxed with, the
operations of Pruco Life. Under the Internal Revenue Code, all ordinary income
and capital gains allocated to the Contract owners are not taxed to Pruco Life.
As a result, the net asset values of the subaccounts are not affected by federal
income taxes on distributions received by the subaccounts.
NOTE 5: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SURPLUS TRANSFERS
The increase (decrease) in net assets resulting from surplus transfers
represents the net contributions (withdrawals) of Pruco Life to the Account.
A6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Contract Owners of
Pruco Life Flexible Premium Variable Annuity
Account and the Board of Directors
of Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying statements of net assets of Pruco Life Flexible
Premium Variable Annuity Account of Pruco Life Insurance Company (comprising,
respectively, the Money Market, Diversified Bond, Equity, Flexible Managed,
Conservative Balanced, High Yield Bond, Equity Income, Natural Resources,
Global, Prudential Jennison, and Small Capitalization Stock subaccounts) as of
December 31, 1995, the related statements of operations for the periods
presented in the year then ended, and the statements of changes in net assets
for each of the periods presented in the year then ended. 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 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. Our procedures included
confirmation of securities owned as of December 31, 1995. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of each of the respective subaccounts
constituting the Pruco Life Flexible Premium Variable Annuity Account as of
December 31, 1995, the results of their operations, and the changes in their net
assets for the respective stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 15, 1996
A7
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31,
-----------------------------
1995 1994
-------- -------
($000'S)
ASSETS
Fixed maturities (market value $2,598,439
and $2,596,172)....................... $2,510,783 $2,647,315
Equity securities (cost $5,317 and $5,434) 4,009 3,326
Mortgage loans........................... 64,464 71,919
Investment in real estate................ 4,059 7,189
Policy loans............................. 569,273 493,862
Other long-term investments.............. 4,159 4,044
Short-term investments................... 228,016 191,455
---------- ----------
Total Investments..................... 3,384,763 3,419,110
Cash..................................... 41,435 27,780
Accrued investment income................ 59,862 59,382
Premiums due and deferred................ 19,521 16,821
Receivable from affiliates............... 8,275 7,517
Federal income taxes--from affiliate..... 8,875 23,306
Other assets............................. 9,436 25,102
Assets held in Separate Accounts......... 4,285,269 3,511,784
---------- ----------
TOTAL ASSETS............................. $7,817,436 $7,090,802
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Policy liabilities and insurance reserves:
Future policy benefits and claims...... $2,606,856 $2,767,552
Other policy claims and benefits payable 13,822 15,184
Interest Maintenance Reserve (IMR)..... 27,282 21,802
Payable to affiliates.................... 41,584 30,257
Other liabilities........................ 52,865 131,695
Asset Valuation Reserve (AVR)............ 37,268 23,690
Liabilities related to Separate Accounts 4,208,737 3,424,535
---------- ----------
TOTAL LIABILITIES ........................ 6,988,414 6,414,715
---------- ----------
STOCKHOLDER'S EQUITY:
Common Stock, $10 par value; authorized,
1,000,000 shares; issued and outstanding,
250,000 shares......................... 2,500 2,500
Paid-in capital.......................... 439,582 439,582
Unassigned surplus....................... 386,940 234,005
---------- ----------
TOTAL STOCKHOLDER'S EQUITY................ 829,022 676,087
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY. $7,817,436 $7,090,802
========== ==========
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
($000'S)
REVENUE
Premiums and annuity considerations....... $570,440 $611,820 $563,900
Net investment income..................... 250,386 245,977 260,939
Net realized investment gains/(losses).... 3,952 (21,215) 8,878
Other income.............................. 40,987 13,259 18,882
-------- -------- --------
TOTAL REVENUE.............................. 865,765 849,841 852,599
-------- -------- --------
BENEFITS AND EXPENSES
Current and future benefits and claims.... 512,988 559,658 534,354
Commission expenses....................... 25,755 30,169 28,386
General, administrative and other expenses 118,808 119,309 129,171
-------- -------- --------
TOTAL BENEFITS AND EXPENSES................ 657,551 709,136 691,911
-------- -------- --------
Income before provision in lieu of federal
income tax............................... 208,214 140,705 160,688
Provision in lieu of federal
income tax............................... (50,013) (87,750) (83,640)
-------- -------- --------
NET INCOME................................. $158,201 $ 52,955 $ 77,048
======== ======== ========
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-1
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------- -------- -------
($000'S)
COMMON STOCK
Balance, beginning of year................. $ 2,500 $ 2,500 $ 2,500
Issued during year......................... - - -
-------- -------- --------
Balance, end of year....................... 2,500 2,500 2,500
-------- -------- --------
PAID-IN CAPITAL
Balance, beginning of year................. 439,582 439,582 439,582
Paid-in during year........................ - - -
-------- -------- --------
Balance, end of year ...................... 439,582 439,582 439,582
-------- -------- --------
UNASSIGNED SURPLUS
Balance, beginning of year................. 234,005 176,711 162,530
Net income................................. 158,201 52,955 77,048
Net unrealized investment gains/(losses)... 8,761 5,814 (9,351)
(Increase) decrease in non-admitted assets. (449) (477) 575
(Increase) decrease in AVR................. (13,578) (998) 5,909
Dividends to stockholder................... - - (60,000)
-------- -------- --------
Balance, end of year....................... 386,940 234,005 176,711
-------- -------- --------
TOTAL STOCKHOLDER'S EQUITY.................. $829,022 $676,087 $618,793
======== ======== ========
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------- -------- ------
($000'S)
CASH FLOW FROM OPERATING ACTIVITIES
Net income............................... $ 158,201 $ 52,955 $ 77,048
Adjustments to reconcile net income
to net cash from operations:
Increase/(decrease) in policy
liabilities and insurance reserves..... (162,058) (143,153) (124,602)
Net decrease in Separate Accounts....... 10,717 5,674 12,173
Net realized investment (gains)/losses.. (3,952) 21,215 (8,878)
Depreciation, amortization and
other non-cash items................... (2,854) 314 1,907
(Increase)/decrease in operating assets:
Policy loans........................... (75,411) (73,591) (71,472)
Notes receivable from affiliates....... - 50,000 9,000
Interest receivable from affiliates.... - 23 420
Accrued investment income.............. (480) (2,597) 880
Premiums due and deferred.............. (2,700) (252) (880)
Receivable from affiliates............. (758) (637) 1,970
Federal income taxes--from affiliate... 14,467 (19,155) 6,879
Other assets........................... 15,666 (9,273) (9,481)
Increase/(decrease) in operating
liabilities:
Payable to affiliates.................. 11,327 (24,029) 13,260
Federal income taxes--to affiliate..... (36) - -
Other liabilities...................... (78,830) 27,710 34,632
--------- --------- ---------
CASH FLOW FROM (USED FOR) OPERATING
ACTIVITIES ............................ (116,701) (114,796) (57,144)
--------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from the sale/maturity of:
Fixed maturities....................... 2,031,587 2,710,424 1,687,992
Equity securities...................... 5,557 1,909 4,032
Mortgage loans......................... 7,395 10,821 21,691
Other long-term investments............ 1,559 607 520
Investment in real estate.............. 2,925 8,676 -
Payments for the purchase of:
Fixed maturities....................... (1,876,232) (2,561,081) (1,483,234)
Equity securities...................... (4,279) (2,436) (3,068)
Mortgage loans......................... - (35,276) (918)
Other long-term investments............ (1,674) (1,584) (84)
Investment in real estate.............. - - (20)
Net proceeds/(payments) of short-term
investments............................ (36,482) 9,845 (116,735)
--------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES...... 130,356 141,905 110,176
--------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid......................... - - (60,000)
--------- ---------- -----------
Net increase/(decrease) in Cash........ 13,655 27,109 (6,968)
Cash, beginning of year................ 27,780 671 7,639
--------- ---------- ----------
CASH, END OF YEAR....................... $ 41,435 $ 27,780 $ 671
========= ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Non-cash financing:
Investment in real estate from
foreclosed mortgage loans.......... $ - $ 4,139 $ 7,300
========= ========== ==========
Cash paid in lieu of income taxes.... $ 53,107 $ 73,903 $ 76,760
========= ========== ==========
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-2
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPLES
A. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Pruco Life Insurance Company (Pruco Life), a stock life insurance company,
and its subsidiaries (collectively, the Company). Pruco Life is a
wholly-owned subsidiary of The Prudential Insurance Company of America
(The Prudential), a mutual life insurance company. The Company markets
individual life insurance and single pay deferred annuities primarily
through The Prudential's sales force. All significant intercompany
balances and transactions have been eliminated in consolidation.
B. BASIS OF PRESENTATION
The consolidated financial statements are presented in conformity with
generally accepted accounting principles ("GAAP"), which for mutual life
insurance companies and their insurance subsidiaries are statutory
accounting practices prescribed or permitted by the National Association
of Insurance Commissioners ("NAIC") and their respective domiciliary home
state insurance departments. Prescribed statutory accounting practices
include publications of the NAIC, state laws, regulations and general
administrative rules. Permitted statutory accounting practices encompass
all accounting practices not so prescribed.
The Company, with permission from the Arizona Department of Insurance
("the Department"), prepares an Annual Report that differs from the Annual
Statement filed with the Department in that subsidiaries are consolidated
and certain financial statement captions are presented differently.
Certain reclassifications have been made to the 1994 and 1993 financial
statements and footnotes to conform to the 1995 presentation. Included in
the Statement of Operations are certain items which, under statutory
accounting practices, are charged or credited directly to surplus.
Management has used estimates and assumptions in the preparation of the
financial statements that affect the reported amounts of assets,
liabilities, revenue and expenses. Actual results could differ from those
estimates.
The following is a reconciliation of Pruco Life's Statutory Net Income
with net income per the consolidated financial statements.
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
-------- -------- -------
($000'S)
Pruco Life Statutory Net Income including net
gains and losses on sales of investments....... $113,565 $ 49,374 $ 79,405
Adjustments to reconcile to net income
as follows:
Dividends from subsidiary...................... - - (26,000)
Change in General Account Reserve due to
changes in valuation basis................... 8,990 10,853 (2,331)
Provision for future assessments............... 367 377 588
Net gain from operations in Separate Accounts.. (9,775) 8,880 5,114
Gain/(Loss) due to income tax applicable to
other than current year...................... 19,752 (33,001) -
Other.......................................... (510) (13) 67
Subsidiaries' Statutory Net Income............. 25,812 16,485 20,205
-------- -------- --------
Consolidated Net Income.......................... $158,201 $ 52,955 $ 77,048
======== ======== ========
C. FUTURE APPLICATION OF ACCOUNT STANDARDS
The Financial Accounting Standards Board (the "FASB") issued
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises," which, as
amended, is effective for fiscal years beginning after December 15, 1995.
Interpretation No. 40 changes the current practice of
B-3
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
mutual life insurance companies, with respect to utilizing statutory basis
financial statements for general purposes, in not allowing such financial
statements to be referred to as having been prepared in accordance with
GAAP. Interpretation No. 40 requires GAAP financial statements of mutual
life insurance companies to apply all GAAP pronouncements, unless
specifically exempted. Implementation of Interpretation No. 40 will
require significant effort and judgement. The company is assessing the
impact of Interpretation No. 40 on its consolidated financial statements,
such effort has not been completed and management currently believes
surplus will increase significantly.
D. SELECTED FINANCIAL DATA OF PRUCO LIFE
Pruco Life markets the Future Value Annuity Contract, and individual
deferred annuity contract. Only assets of Pruco Life, shown below, are
available to meet the guarantees under this annuity contract. The
following is the selected financial data of Pruco Life:
DECEMBER 31,
------------------------------
1995 1994
---------- ----------
($000'S)
Assets:
Investments other than subsidiaries........ $2,736,259 $2,758,088
Investment in subsidiaries................. 198,601 169,816
Other assets............................... 132,185 135,778
Assets held in Separate Accounts........... 3,495,841 2,869,734
---------- ----------
Total Assets............................... $6,562,886 $5,933,416
========== ==========
Liabilities:
Policy liabilities and insurance reserves.. $2,187,632 $2,296,987
Other liabilities.......................... 115,115 163,322
Liabilities related to Separate Accounts... 3,431,117 2,797,020
---------- ----------
Total Liabilities.......................... $5,733,864 $5,257,329
========== ==========
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
--------- --------- ---------
($000'S)
Revenues........................... $717,990 $698,685 $716,402
Benefits, expenses and taxes....... 588,812 659,237 633,277
-------- -------- --------
Net Income......................... $129,178 $ 39,448 $ 83,125
======== ======== ========
E. INVESTMENTS
Fixed maturities, which include long-term bonds and redeemable preferred
stock, are stated primarily at amortized cost. Certain investments in this
category were non-income producing at December 31, 1995 and 1994. These
investments amounted to $29 million and $13 million, respectively.
Equity securities, which consist primarily of common stock, are carried at
market value which is based on quoted market prices, where available, or
prices provided by the National Association of Insurance Commissioners'
(NAIC) Securities Valuation Office (SVO).
Mortgage loans are carried at the lower of the fair value of the
underlying property or unpaid principal balance. At December 31, 1995, two
loans were in foreclosure in the amount of $8 million. At December 31,
1994, one loan was in foreclosure in the amount of $6 million.
Policy loans are stated primarily at unpaid principal balances.
B-4
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
All the Company's real estate investments were acquired through
foreclosure during 1995 and 1994. These properties are carried at the
lower of cost of fair value less disposition costs. Fair value is
considered to be the amount that could reasonably be expected in a current
transaction between willing parties, other than in forced or liquidation
sale. Depreciation on these properties for the years ended December 31,
1995 and 1994 was $106 thousand and $456 thousand, respectively.
Other long-term investments, which consist solely of limited partnerships,
are valued at the aggregate net equity in the partnerships. Certain
investments in this category were non-income producing at December 31,
1995. These investments amounted to $300 thousand. There were no
non-income producing investments at December 31, 1994.
Short-term investments are stated at amortized cost, which approximates
fair value.
Realized investment gains and losses are reported based on specific
identification of the investments sold.
F. FUTURE POLICY BENEFITS, LOSSES AND CLAIMS
Reserves for individual life insurance are calculated using various
methods, interest rates and mortality tables which produce reserves that
meet the aggregate requirements of state laws and regulations.
Approximately 7% of individual life insurance reserves are determined
using the net level premium method, or by using the greater of a net level
premium reserve or the policy cash value. About 93% of individual life
insurance reserves are calculated according to the Commissioner's Reserve
Valuation Method ("CRVM"), or methods which compare CRVM reserves to
policy cash values.
Reserves for deferred individual annuity contracts are determined using
the Commissioner's Annuity Reserve Valuation Method.
For life insurance and annuities, unpaid claims include estimates of both
the death benefits on reported claims and those which are incurred but not
reported.
Reserves for other deposit funds or other liabilities with life
contingencies reflect the contract deposit account or experience
accumulation for the contract and any purchased annuity reserves.
G. REVENUE RECOGNITION AND RELATED EXPENSES
Premium revenues are recognized as income over the premium paying period
of the related policies. Annuity considerations are recognized as revenue
when received. Expenses, including new business acquisition costs such as
commissions, are charged to operations as incurred.
H. ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE
The Asset Valuation Reserve (AVR) and the Interest Maintenance Reserve
(IMR) are required for life insurance companies under NAIC regulations.
The AVR is calculated based on a statutory formula and designed to
mitigate the effect of valuation and credit-related losses on unassigned
surplus.
The components of AVR at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
($000'S)
FIXED EQUITY REAL ESTATE
MATURITIES MORTGAGES SECURITIES & OTHER INV. TOTAL
---------- --------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Beginning of Year 1994 -- AVR ................ $ 18,294 $ 3,699 $ 699 $ 0 $ 22,692
Additions .................................... 12,062 2,166 348 2,047 16,623
Deductions ................................... (10,454) (4,355) (314) (502) (15,625)
-------- ------- ------- ------ --------
End of Year 1994 -- AVR ...................... $ 19,902 $ 1,510 $ 733 $1,545 $ 23,690
======== ======= ======= ====== ========
Beginning of Year 1995 -- AVR ................ $ 19,902 $ 1,510 $ 733 $1,545 $ 23,690
Additions .................................... 14,540 1,007 2,764 272 18,583
Deductions ................................... (1,832) (39) (2,627) (507) (5,005)
-------- ------- ------- ------ --------
End of Year 1995-- AVR ....................... $ 32,610 $ 2,478 $ 870 $1,310 $ 37,268
========= ======= ======= ====== ========
</TABLE>
B-5
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The IMR captures net realized capital gains and losses resulting from
changes in the general level of interest rates. These gains and losses are
amortized into investment income over the expected remaining life of the
investment sold. The IMR balance was $27.3 million and $21.8 million at
December 31, 1995 and 1994, respectively. "Net realized investment
gains/(losses)" of $9.2 million and $(19.9) million were deferred in 1995
and 1994, respectively. Amortized into "Net investment income" were $3.8
million and $4.8 million of IMR for the year ended December 31, 1995 and
1994, respectively.
I. FEDERAL INCOME TAXES
The Company is a member of a group of affiliated companies which join in
filing a consolidated federal tax return. Pursuant to a tax allocation
agreement, current tax liabilities are determined for individual companies
based upon their separate return basis taxable income. Members with
taxable income incur an amount in lieu of the separate return basis
federal tax. Members with a loss for tax purposes recognize a current
benefit in proportion to the amount of their losses utilized in computing
consolidated taxable income. Differences between estimated liabilities and
actual payments are included in the current year's operations as an
adjustment to the provision in lieu of income taxes. For the year 1993,
the Company was allocated a portion of the consolidated income tax
liability attributable to Section 809 of the Internal Revenue Code
(commonly referred to as "Equity Tax"). Since 1994, the Company has no
longer been allocated this Equity Tax.
Taxes on the Company are calculated under the Internal Revenue Code of
1986 which provides that life insurance companies be taxed on their gain
from operations after dividends to policyholders. In calculating this tax,
the Code requires the capitalization and amortization of policy
acquisition expenses.
J. SEPARATE ACCOUNTS
Separate accounts represent funds for which investment income and
investment gains and losses accrue directly to, and investment risk is
borne by, the policyholders, with the exception of the Pruco Life Modified
Guaranteed Annuity Account. The Pruco Life Modified Guaranteed Annuity
Account is a non-unitized separate account, which funds the Modified
Guaranteed Annuity Contract and the Market Value Adjustment Annuity
Contract. Owners of the Pruco Life Modified Annuity and the Market Value
Adjustment Annuity Contracts do not participate in the investment gain or
loss from assets relating to such accounts. Such gain, or loss is borne,
in total, by Pruco Life. Assets are carried at market value. Deposits to
such accounts are included in revenues with a corresponding liability
increase included in benefits and expenses. The assets of each account are
legally segregated and are not subject to claims that arise out of any
other business of the Company. Consequently, management believes that it
is appropriate to combine Separate Account policyholder net investment
income and net realized and unrealized capital gains/(losses) along with
benefit payments and change in reserves in "Current and future benefits
and claims". Policyholder net investment income and net realized and
unrealized gains/(losses) for the years ended December 31, 1995, 1994 and
1993 were $805 million, ($28) million and $443 million, respectively.
B-6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
2. FEDERAL INCOME TAXES
The following is a reconciliation of the Company's federal tax provision
as computed at the federal tax rate with that computed at the Company's
effective tax rate. The below amounts include federal income tax
applicable to prior years, where appropriate.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
-------- -------- -------
($000'S)
<S> <C> <C> <C>
Income before provision in lieu of
federal income taxes.................... $208,214 $140,705 $160,688
Statutory tax rate........................ 35% 35% 35%
--------- -------- --------
Expected federal income taxes............. $ 72,875 $ 49,247 $ 56,241
Tax effect of:
Statutory/tax policy reserve
difference............................ (14,524) 19,949 14,577
Timing differences in tax/book income
recognition on investments............ (6,980) 11,608 4,055
Timing differences in tax/book income
Recognition--other.................... (7,173) (6,816) (415)
Decrease/(Increase) in life insurance
premiums deferred and uncollected..... (953) (88) (308)
Capitalization of policy acquisition
expenses.............................. 6,768 13,850 7,374
Allocated equity tax.................... - - 2,116
-------- -------- --------
Federal income taxes...................... $ 50,013 $ 87,750 $ 83,640
======== ======== ========
Effective tax rate........................ 24% 62% 52%
======== ======== ========
</TABLE>
3. NET INVESTMENT INCOME
Net investment income consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
---------- ---------- --------
($000'S)
<S> <C> <C> <C>
Gross investment income
Fixed maturities......................... $194,198 $196,909 $216,660
Equity securities......................... 104 14 22
Mortgage loans............................ 7,757 4,041 6,359
Investment in real estate................. 647 2,146 2,066
Policy loans.............................. 29,775 25,692 21,741
Short-term investments.................... 15,092 12,676 9,031
Other..................................... 3,949 5,075 3,945
-------- -------- --------
251,522 246,553 259,824
Investment expenses......................... (4,904) (5,421) (5,570)
-------- -------- --------
Net investment income before IMR............ 246,618 241,132 254,254
Amortization of Interest Maintenance Reserve 3,768 4,845 6,685
-------- -------- --------
Net investment income....................... $250,386 $245,977 $260,939
======== ======== ========
</TABLE>
B-7
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
4. INVESTMENT AND INVESTMENT GAINS (LOSSES)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
---------- ---------- --------
($000'S)
<S> <C> <C> <C>
Realized Gains (Losses)
Fixed maturities.......................... $ 11,359 $(38,180) $ 32,471
Equity securities......................... 2,020 503 607
Mortgage loans............................ (90) (4,581) (2,592)
Investment in real estate................. (99) 1,184 (2,004)
Other..................................... 10 (1) (411)
Tax effected amounts transferred to Interest
Maintenance Reserve....................... (9,248) 19,860 (19,193)
-------- -------- --------
Net realized investment gains............... $ 3,952 $(21,215) $ 8,878
======== ======== ========
Unrealized Gains (Losses)
Fixed maturities.......................... 9,192 5,430 (9,380)
Equity securities......................... 799 (490) 260
Other..................................... (1,229) 874 (231)
-------- -------- --------
Net unrealized investment gains (losses) 8,762 5,814 (9,351)
Balance beginning of year................... (12,352) (18,166) (8,815)
-------- -------- --------
Balance end of year......................... $ (3,590) $(12,352) $(18,166)
======== ======== ========
</TABLE>
EQUITY SECURITIES AT DECEMBER 31,
($000'S)
GROSS UNREALIZED
-----------------------------------------------------
FAIR
MARKET
COST GAINS LOSSES VALUE
------- ------- -------- -------
1995 ........... $5,317 $581 $1,889 $4,009
1994 ........... 5,434 386 2,493 3,327
1993 ........... 4,405 742 2,359 2,788
FIXED MATURIES
--------------------------------
($000'S)
INCREASE (DECREASE)
AT DECEMBER 31, IN DIFFERENCE BETWEEN
-------------------------------- MARKET VALUE AND
AMORTIZED MARKET AND AMORTIZED COST
COST VALUE DURING THE YEAR
---------- ---------- ------------------
1995 .... $2,510,782 $2,598,439 $ 138,800
1994 .... 2,647,315 2,596,172 (167,494)
1993 .... 2,835,251 2,951,602 10,453
B-8
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The amortized cost and estimated market value of fixed maturities at December
31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995
--------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
($000's) ($000's) ($000's) ($000's)
----------- -------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of
U.S. government corporations
and agencies ........................ $ 324,854 $ 6,829 $ 61 $ 331,622
Obligations of U.S. and
political subdivisions .............. - - - -
Debt securities issued by foreign
governments and
their agencies ...................... 73,042 3,055 - 76,097
Corporate securities .................. 1,943,696 73,489 3,974 2,013,211
Mortgage backed securities ............ 169,190 8,717 398 177,509
---------- -------- ------- ----------
Total ................................. $2,510,782 $ 92,090 $ 4,433 $2,598,439
========== ======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
($000'S) ($000'S) ($000'S) ($000'S)
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of
U.S. government corporations
and agencies $ 409,678 $ 224 $ 20,259 $ 389,643
Obligations of U.S. and
political subdivisions ............. - - - -
Debt securities issued by
foreign governments and
their agencies ..................... 86,026 2,075 2,310 85,791
Corporate securities ................. 1,960,296 17,005 43,521 1,933,780
Mortgage-backed securities ........... 191,315 1,429 5,786 186,958
---------- -------- -------- ----------
Total ................................ $2,647,315 $ 20,733 $ 71,876 $2,596,172
========== ======== ======== ==========
</TABLE>
The amortized cost and estimated market value of fixed maturities at December
31, 1995 by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
ESTIMATED
AMORTIZED MARKET
COST VALUE
($000's) ($000's)
---------- ----------
Due in one year or less ................... $ 161,693 $ 163,629
Due after one year through five years ..... 1,500,204 1,549,264
Due after five years through ten years .... 529,845 556,294
Due after ten years ....................... 149,850 151,743
---------- ----------
2,341,592 2,420,930
Mortgage-backed securities ................ 169,190 177,509
---------- ----------
Total ..................................... $2,510,782 $2,598,439
========== ==========
Proceeds from the sale/maturity of fixed maturities during 1995, 1994, and
1993 were $2.0 billion, $2.7 billion and $1.7 billion, respectively. Gross
gains of $28.8 million, $16.8 million and $44.5 million and gross losses
of $17.5 million, $49.8 million and $12.0 million were realized on those
sales during 1995, 1994, and 1993, respectively.
The Company invests in both investment grade and non-investment grade
securities. The SVO of the NAIC rates fixed maturities held by insurers
(SVO rated securities accounted for approximately 87.2% and 93.6% of the
Company's total fixed maturities balances at both December 31, 1995 and
1994) for regulatory purposes and
B-9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
groups investments into six categories ranging from highest quality bonds
to those in or near default. The lowest three NAIC categories represent,
for the most part, high-yield securities and are defined by the NAIC as
including any security with a public agency rating of B+ or B1 or less.
Included in "fixed maturities" are securities that are classified by the
NAIC as being in the lowest three rating categories. These approximated
1.0% and 1.5% of the Company's assets at December 31, 1995 and 1994,
respectively. The amount by which the market value of these securities
exceeded the carrying value was approximately $1.8 million and $(0.9)
million at December 31, 1995 and 1994, respectively.
5. RELATED PARTY TRANSACTIONS
A. SERVICE AGREEMENTS
The Company, The Prudential, Pruco Life of New Jersey and Pruco Securities
Corporation, an indirect wholly-owned subsidiary of The Prudential,
operate under service and lease agreements whereby services of officers
and employees, supplies, use of equipment and office space are provided.
The net cost of these services allocated to the Company were $98 million,
$78 million, and $98 million for the years ended December 31, 1995, 1994,
and 1993, respectively.
In a reorganization of the parent's Individual Insurance Department,
effective January 1, 1993, the corporate staff of the Company was absorbed
by the parent. The costs associated with these employees, which were
previously borne by the Company, are now charged to the Company under the
service and lease agreements with the parent.
B. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company is a wholly-owned subsidiary of The Prudential which sponsors
several defined benefit pension plans that cover substanially all of its
employees. Benefits are generally based on career average earnings and
credited length of service. The Prudential's funding policy is to
contribute annually the amount necessary to satisfy the Internal Revenue
Service contribution guidelines.
No pension expense for contributions to the plan was allocated to the
Company in 1995, 1994 or 1993 because the plan was subject to the full
funding limitation under the Internal Revenue Code.
POSTRETIREMENT LIFE AND HEALTH BENEFITS
The Prudential also sponsors certain life insurance and health care
benefits for its retired employees. Substantially all employees may become
eligible to receive a benefit if they retire after age 55 with at least 10
years of service. Postretirement benefits, with respect to The Prudential,
are recognized in accordance with the prescribed NAIC policy. The
Prudential elected to amortize its obligation over twenty years. A
provision for contributions to the postretirement fund is included in the
net cost of services allocated to the Company discussed above for the
years ended December 31, 1995, 1994, and 1993.
C. REINSURANCE
The Company currently has three reinsurance agreements in place with The
Prudential (the reinsurer). Specifically: reinsurance of a Group Annuity
Contract, whereby the reinsurer, in consideration for a single premium
payment by the Company, provides Reinsurance equal to 100% of all payments
due under the contact; and, two Yearly Renewable Term agreement in which
the Company may offer and the reinsurer may accept reinsurance on any life
in excess of the Company's maximum limit of retention ($2.5 million).
These agreements had no material effect on net income for the years ended
December 1995, 1994, and 1993.
D. OTHER TRANSACTIONS
The Company has issued approximately 375 variable universal life contracts
to The Prudential for the purpose of funding non-qualified pension
benefits for certain employees. Included in insurance premiums and annuity
considerations for the years ended December 31, 1995, 1994 and 1993 are
respectively, $12 million, $12 million and $12 million, which are
attributable to these contracts.
B-10
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
6. DIVIDENDS
The Company is subject to Arizona law which limits the amount of dividends
that insurance companies can pay to stockholders. The maximum dividend
which may be paid in any 12 month period without notification or approval
is limited to the lesser of 10% of surplus as of December 31 of the
preceding year or the net gain from operations of the preceding calendar
year. Cash dividends may only be paid out of surplus derived from realized
net profits. Based on these limitations and the Company's surplus position
at December 31, 1995, the Company would be permitted a maximum of $83
million in dividend distributions in 1996, all of which could be paid in
cash, without approval from The State of Arizona Department of Insurance.
7. FAIR VALUE INFORMATION
The fair value amounts have been determined by the Company using available
information and reasonable valuation methodologies for only those accounts
for which fair value disclosures are required. Considerable judgement is
necessarily applied in interpreting data to develop the estimates of fair
value. Accordingly, the estimates presented may not be realized in a
current market exchange. The use of different market assumptions and/or
estimation methodologies could have a material effect on the estimated
fair values.
The following methods and assumptions were used in calculating the fair
values. For all other financial instruments presented in the table, the
carrying value is a reasonable estimate of fair value.
FIXED MATURITIES. Fair values for fixed maturities, other than private
placement securities, are based on quoted market prices or estimates from
independent pricing services. Fair values for private placement securities
are estimated using a discounted cash flow model which considers the
current market spreads between the U.S. Treasury yield curve and corporate
bond yield curve adjusted for the type of issue, its current quality and
its remaining average life. The fair value of certain non-performing
private placement securities is based on amounts provided by state
regulatory authorities.
EQUITY SECURITIES. Fair value is based on quoted market prices, where
available, or prices provided by state regulatory authorities.
MORTGAGE LOANS. The fair value of the commercial mortgage and agricultural
loan portfolio is primarily based upon the present value of the scheduled
cash flows discounted at the appropriate U.S. Treasury rate, adjusted for
the current market spread for a similar quality mortgage. For certain
non-performing and other loans, fair value is based upon the value of the
underlying collateral.
POLICY LOANS. The estimated fair value is calculated using a discounted
cash flow model based upon current U.S. Treasury rates and historical loan
repayments.
INVESTMENT-TYPE INSURANCE CONTRACT LIABILITIES. Fair values for the
Company's investment-type insurance contract liabilities are estimated
using a discounted cash flow model, based on interest rates currently
being offered for similar contracts.
B-11
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The following table discloses the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1995 and
1994.
<TABLE>
<CAPTION>
(000's) (000's)
1995 1994
----------------------- --------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities ............. $2,510,782 $2,598,438 $ 2,647,315 $ 2,596,172
Equity securities ............ 4,009 4,036 3,326 3,326
Mortgage Loans ............... 64,464 63,635 71,919 71,805
Policy Loans ................. 569,273 577,975 493,862 448,617
Other Long term investments .. 4,159 4,159 4,044 4,044
Short term investments ....... 228,016 228,016 191,455 191,455
Financial Liabilities:
Investment type
insurance contracts ........ $ 536,963 $ 537,241 $ 794,691 $ 761,324
</TABLE>
8. CONTINGENCIES
Several actions have been brought against the Company on behalf of
those persons who purchased life insurance policies based on complaints
about sales practices engaged in by The Prudential, the Company and agents
appointed by The Prudential and the Company. The Prudential has agreed to
indemnify the Company for any and all losses resulting from such
litigation.
B-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying consolidated statements of financial position
of Pruco Life Insurance Company and Subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholder's
equity, and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Pruco Life Insurance Company and
subsidiaries as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
March 15, 1996
B-13
<PAGE>
MARKET-VALUE ADJUSTMENT FORMULA
The Market-Value Adjustment, which is applied to withdrawals and transfers made
at any time other than the 30-day period following the end of an interest rate
period, involves three amounts:
1. The number of whole months remaining in the existing interest rate
period.
2. The guaranteed interest rate.
3. The interest rate that Pruco Life declares for a duration of one year
longer than the number of whole years remaining on the existing cell
being withdrawn from.
Stated as a formula, the Market Value Factor is equal to:
(M/12) x (R-C), not to exceed +0.40 or be less than -0.40;
Where,
M = the number of whole months (not to be less than one) remaining in the
interest rate period.
R = the Contract's guaranteed interest rate expressed as a decimal. Thus
6.2% is converted to 0.062.
C = the interest rate, expressed as a decimal, that Pruco Life declares for
a duration 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 or transfer is received.
The Market-Value Adjustment is then equal to the Market Value Factor multiplied
by the amount subject to a Market-Value Adjustment.
The steps below explain how a Market-Value Adjustment is calculated.
STEP 1: Divide the number of whole months left in the existing interest rate
period (not to be less than one) by 12.
STEP 2: Determine the interest rate Pruco Life declares on the date the
request for withdrawal or transfer is received for a duration 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 amount subject to a Market-Value Adjustment. The result is
the Market-Value Adjustment.
STEP 5: The result of Step 4 is added to the interest cell. If the
Market-Value Adjustment is positive, the interest cell will go up in value.
If the Market-Value Adjustment is negative, the interest cell will go down
in value.
Depending upon when the withdrawal request is made, a withdrawal charge may
apply.
The following example will illustrate the application of a Market-Value
Adjustment and the determination of the withdrawal charge. Suppose a Contract
owner made two invested purchase payments, the first in the amount of $10,000 on
December 1, 1995, all of which was allocated to the Equity Subaccount, and the
second in the amount of $5,000 on October 1, 1997, all of which was allocated to
the MVA Option with a guaranteed interest rate of 8% (0.08) for 7 years. A
request for withdrawal of $8,500 is made on February 1, 2000 (the Contract owner
does not provide any withdrawal instructions). On that date the amount in the
Equity Subaccount is equal to $12,000 and the amount in the interest cell with a
maturity date of September 30, 2004 is $5,985.23, so that the Contract Fund on
that date is equal to $17,985.23.
On February 1, 2000, the interest rate declared by Pruco Life for the duration
of 5 years (4 whole years remaining until September 30, 2004, plus one year) is
11%.
C-1
<PAGE>
The following computations would be made:
1. Calculate the Contract Fund value as of the effective date of the
transaction. This would be $17,985.23.
2. Calculate the charge-free amount (the amount of the withdrawal that is not
subject to a withdrawal charge).
DATE PAYMENT FREE
---- ------- ----
12/1/95 $ 10,000 $1,000
12/1/96 $2,000
10/1/97 $ 5,000 $2,500
12/1/97 $4,000
12/1/98 $5,500
12/1/99 $7,000
The charge-free amount in the fifth Contract year is 10% of $15,000 (total
purchase payments) plus $5,500 (the charge-free amount available in the
fourth Contract year) for a total of $7,000.
3. Since the withdrawal request is in the fifth Contract year, a 3% withdrawal
charge rate applies to any portion of the withdrawal which is not
charge-free.
$8,500.00 requested withdrawal amount
- $7,000.00 charge-free
-----------
$1,500.00 additional amount needed to complete withdrawal
The Contract provides that the Contract Fund will be reduced by an amount
which, when reduced by the withdrawal charge, will equal the amount
requested. Therefore, in order to produce the amount needed to complete the
withdrawal request ($1,500), we must "gross-up" that amount, before
applying the withdrawal charge rate. This is done by dividing by 1 minus
the withdrawal charge rate.
$1,500.00 / (1-.03) =
$1,500.00 / 0.97 = $1,546.39 grossed-up amount
Please note that a 3% withdrawal charge on this grossed-up amount reduces
it to $1,500, the balance needed to complete the request.
$1,546.39 grossed-up amount
X .03 withdrawal charge rate
---------
$ 46.39 withdrawal charge
4. The Market Value Factor is determined as described in steps 1 through 5,
above. In this case, it is equal to 0.08 (8% is the guaranteed rate in the
existing cell) minus 0.11 (11% is the interest rate that would be offered
for an interest cell with a duration of the remaining whole years plus 1),
which is -0.03, multiplied by 4.58333 (55 months remaining until September
30, 2004, divided by 12) or -0.13750. Thus, there will be a negative
Market-Value Adjustment of 14% of the amount in the interest cell that is
subject to the adjustment.
-0.13750 X $5,985.23 = - 822.97 negative MVA
$ 5,985.23 unadjusted value
----------
$ 5,162.26 adjusted value
$12,000.00 Equity value
----------
$17,162.26 adjusted Contract Fund
5. The total amount to be withdrawn, $8,546.39, (sum of the surrender charge,
$46.39, and the requested withdrawal amount of $8,500) is apportioned over
all accounts making up the Contract Fund following the Market-Value
Adjustments, if any, associated with the MVA option.
Equity ($12,000 / $17,162.26) X $8,546.39 = $5,975.71
7-Yr MVA ($5,162.26 / $17,162.26) X $8,546.39 = $2,570.68
---------
$8,546.39
C-2
<PAGE>
6. The adjusted value of the interest cell, $5,162.26, reduced by the
withdrawal of $2,570.68 leaves $2,591.58. This amount must be "unadjusted"
by dividing it by 0.86250 (1 plus the Market-Value Adjustment of -0.13750)
to determine the amount remaining in the interest cell to which the
guaranteed interest rate of 8% will continue to be credited until September
30, 2004 or a subsequent withdrawal. That amount is $3,004.73.
C-3
<PAGE>
O FLEXIBLE PREMIUM VARIABLE ANNUITY
ACCOUNT
O THE PRUDENTIAL SERIES FUND, INC.
===============================================
- --------------------------------------------------------------------------------
--------------------
BULK RATE
U.S. Postage
PAID
Jersey City, N.J.
Permit No. 60
--------------------
The Pruco Life Insurance Company of America
213 Washington Street
Newark, New Jersey 07102-3777
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT
OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
VARIABLE ANNUITY CONTRACTS
The DISCOVERY PREFERRED(SM) Annuity Contract* (the "Contract") is an individual
variable annuity contract issued by the Pruco Life Insurance Company ("Pruco
Life"), a stock life insurance company that is a wholly-owned subsidiary of The
Prudential Insurance Company of America ("The Prudential") and is funded through
the Pruco Life Flexible Premium Variable Annuity Account (the "Account"). The
Contract is purchased by making an initial purchase payment of $10,000 or more;
subsequent payments must be $1,000 or more.
This statement of additional information is not a prospectus and should be read
in conjunction with the Contract's prospectus, dated May 1, 1996, which is
available without charge upon written request to the Pruco Life Insurance
Company, 213 Washington Street, Newark, New Jersey 07102-2992, or by telephoning
(800) 445-4571.
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 445-4571
*DISCOVERY PREFERRED is a service mark of The Prudential.
DISCOP-1B Ed 5-96
Catalog No. 64M6294
<PAGE>
CONTENTS
PAGE
OTHER INFORMATION CONCERNING THE ACCOUNT................................... 1
PRINCIPAL UNDERWRITER............................................. 1
DETERMINATION OF SUBACCOUNT UNIT VALUES........................... 1
IRS REQUIRED DISTRIBUTIONS ON DEATH OF OWNER...................... 1
PERFORMANCE INFORMATION........................................... 1
COMPARATIVE PERFORMANCE INFORMATION............................... 5
<PAGE>
OTHER INFORMATION CONCERNING THE ACCOUNT
PRINCIPAL UNDERWRITER
Pruco Securities Corporation ("Prusec"), an indirectly wholly-owned subsidiary
of The Prudential, performs all sales and distribution functions regarding the
Contracts and may be deemed to be the "principal underwriter" of the Account
under the Investment Company Act of 1940.
DETERMINATION OF SUBACCOUNT UNIT VALUES
The value for each Subaccount Unit is computed as of the end of each "valuation
period" as defined in the prospectus (also referred to in this section as
"business day"). On any given business day the value of a Unit in each
subaccount will be determined by multiplying the value of a Unit of that
subaccount for the preceding business day by the net investment factor for that
subaccount for the current business day. The net investment factor for any
business day is determined by dividing the value of the assets of the subaccount
for that day by the value of the assets of the subaccount for the preceding
business day (ignoring, for this purpose, changes resulting from new purchase
payments and withdrawals), and subtracting from the result the daily equivalent
of the 1.4% annual charge for administrative expenses and mortality and expense
risks. (See CHARGES, FEES, AND DEDUCTIONS in the prospectus.) The value of the
assets of a subaccount is determined by multiplying the number of shares of The
Prudential Series Fund, Inc. (the "Series Fund") held by that subaccount by the
net asset value of each share and adding the value of dividends declared by the
Series Fund but not yet paid.
IRS 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 a 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. Special
additional rules apply to Contracts issued in conjunction with plans subject to
Section 457 of the Code. For Contracts purchased in connection with a tax
favored plan where the owner's spouse is the beneficiary, annuity payments need
only begin on or before April 1 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.
If any portion of the Contract owner's interest is payable to (or for the
benefit of) the surviving spouse of the owner, the Contract may be continued
with the surviving spouse as the owner. This rule does not apply to Contracts
issued in connection with tax favored plans other than IRAs.
PERFORMANCE INFORMATION
The tables that follow provide performance information for each subaccount
through December 31, 1995. The performance information is based on historical
experience and does not indicate or represent future performance.
1
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
The DISCOVERY PREFERRED Annuity is a new contract. The returns shown below were
calculated using historical investment returns of the portfolios of the Series
Fund. All fees, expenses and charges associated with the DISCOVERY PREFERRED
Annuity and the Series Fund have been reflected in these returns, as if the
Contract had existed from the inception date of each Series Fund portfolio.
Table 1 below shows the average annual rates of total return on hypothetical
investments of $1,000 for periods ended December 31, 1995 in each subaccount
other than the Money Market Subaccount. These figures assume withdrawal of the
investments at the end of the period other than to effect an annuity under the
Contract.
TABLE 1
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
====================================================================================================================
FROM DATE
PORTFOLIO
ONE YEAR FIVE YEARS TEN YEARS ESTABLISHED
SERIES FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIOS ESTABLISHED 12/31/95 12/31/95 12/31/95 12/31/95
====================================================================================================================
<S> <C> <C> <C> <C> <C>
DIVERSIFIED BOND 6/83
- --------------------------------------------------------------------------------------------------------------------
CONSERVATIVE 6/83
BALANCED
- --------------------------------------------------------------------------------------------------------------------
FLEXIBLE MANAGED 5/83
- --------------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND 2/87 N/A
- --------------------------------------------------------------------------------------------------------------------
STOCK INDEX 10/87 N/A
- --------------------------------------------------------------------------------------------------------------------
EQUITY INCOME 2/88 N/A
- --------------------------------------------------------------------------------------------------------------------
EQUITY 6/83
- --------------------------------------------------------------------------------------------------------------------
PRUDENTIAL JENNISON 5/95 N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------
SMALL CAPITALIZATION 5/95 N/A N/A N/A
STOCK
- --------------------------------------------------------------------------------------------------------------------
GLOBAL 9/88 N/A
- --------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES 5/88 N/A
====================================================================================================================
</TABLE>
The average annual rates of total return shown above are computed by finding the
average annual compounded rates of return over the periods shown that would
equate the initial amount invested to the withdrawal value, in accordance with
the following formula: P(1+T)"- ERA. In the formula, P is a hypothetical
investment of $1,000; T is the average annual total return; " is the number of
years; and ERA is the withdrawal value at the end of the periods shown. These
figures assume deduction of the maximum withdrawal charge that may be applicable
to a particular period. The rates of return for the Prudential Jennison and
Small Capitalization Stock portfolios are for an eight month period and are not
annualized.
2
<PAGE>
NON-STANDARD TOTAL RETURN
Table 2 below shows the average annual rates of return as in Table 1, but
assumes that the investments are not withdrawn at the end of the period or that
the Contract owner annuitizes at the end of the period.
TABLE 2
AVERAGE ANNUAL TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
====================================================================================================================
FROM DATE
PORTFOLIOS
ONE YEAR FIVE YEARS TEN YEARS ESTABLISHED
SERIES FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 12/31/95 12/31/95 12/31/95 12/31/95
====================================================================================================================
<S> <C> <C> <C> <C> <C>
DIVERSIFIED BOND 6/83
- --------------------------------------------------------------------------------------------------------------------
CONSERVATIVE 6/83
BALANCED
- --------------------------------------------------------------------------------------------------------------------
FLEXIBLE MANAGED 5/83
- --------------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND 2/87 N/A
- --------------------------------------------------------------------------------------------------------------------
STOCK INDEX 10/87 N/A
- --------------------------------------------------------------------------------------------------------------------
EQUITY INCOME 2/88 N/A
- --------------------------------------------------------------------------------------------------------------------
EQUITY 6/83
- --------------------------------------------------------------------------------------------------------------------
PRUDENTIAL JENNISON 5/95 N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------
SMALL CAPITALIZATION 5/95 N/A N/A N/A
STOCK
- --------------------------------------------------------------------------------------------------------------------
GLOBAL 9/88 N/A
- --------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES 5/88 N/A
====================================================================================================================
</TABLE>
3
<PAGE>
Table 3 shows the cumulative total return for the portfolios, assuming no
withdrawal.
TABLE 3
CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
====================================================================================================================
FROM DATE
PORTFOLIOS
ONE YEAR FIVE YEARS TEN YEARS ESTABLISHED
SERIES FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIOS ESTABLISHED 12/31/95 12/31/95 12/31/95 12/31/95
====================================================================================================================
<S> <C> <C> <C> <C> <C>
DIVERSIFIED BOND 6/83
- --------------------------------------------------------------------------------------------------------------------
CONSERVATIVE 6/83
BALANCED
- --------------------------------------------------------------------------------------------------------------------
FLEXIBLE MANAGED 5/83
- --------------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND 2/87 N/A
- --------------------------------------------------------------------------------------------------------------------
STOCK INDEX 10/87 N/A
- --------------------------------------------------------------------------------------------------------------------
EQUITY INCOME 2/88 N/A
- --------------------------------------------------------------------------------------------------------------------
EQUITY 6/83
- --------------------------------------------------------------------------------------------------------------------
PRUDENTIAL JENNISON 5/95 N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------
SMALL CAPITALIZATION 5/95 N/A N/A N/A
STOCK
- --------------------------------------------------------------------------------------------------------------------
GLOBAL 9/88 N/A
- --------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES 5/88 N/A
====================================================================================================================
</TABLE>
MONEY MARKET SUBACCOUNT YIELD
The "yield" and "effective yield" figures for the Money Market Subaccount shown
below were calculated using historical investment returns of the Money Market
Portfolio of the Series Fund. All fees, expenses and charges associated with the
DISCOVERY PREFERRED Annuity and the Series Fund have been reflected.
The "yield" and "effective yield" of the Money Market Subaccount for the seven
days ended December 31, 1995 were 4.3245% and 4.4175% respectively.
The yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one accumulation unit of the Money Market Subaccount at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from contract
owner accounts, and dividing the difference by the value of the subaccount at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7), with the resulting figure carried
to the nearest ten-thousandth of 1%.
The deduction referred to above consists of the 1.25% charge for mortality and
expense risks and the 0.15% charge for administration. It does not reflect the
withdrawal charge.
The effective yield is obtained by taking the base period return, adding 1,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result, according to the following formula: Effective Yield - ((base period
return + 1) 365/7) - 1.
The yields on amounts held in the Money Market Subaccount will fluctuate on a
daily basis. Therefore, the stated yields for any given period are not an
indication of future yields.
4
<PAGE>
COMPARATIVE PERFORMANCE INFORMATION
Reports or advertising may include comparative performance information,
including, but not limited to: (1) comparisons to market indices such as the Dow
Jones Industrial Average, the Standard & Poor's 500 Index, the Value Line
Composite Index, the Russell 2000 Index, the Morgan Stanley World Index, the
Lehman Brothers bond indices; (2) comparisons to other investments, such as
certificates of deposit; (3) performance rankings assigned by services such as
Morningstar, Inc. and Variable Annuity Research and Data Services (VARDS), and
Lipper Analytical Services, Inc.; (4) data presented by analysts such as Dow
Jones, A.M. Best, The Bank Rate Monitor National Index; and (5) data in
publications such as The Wall Street Journal, Times, Forbes, Barrons, Fortune,
Money Magazine, and Financial World.
5
<PAGE>
FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
VARIABLE ANNUITY CONTRACTS
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 445-4571
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(1) Financial Statements of The Pruco Life Premium Flexible Annuity
Account (Registrant) consisting of the Statements of Net Assets, as of
December 31, 1995; the Statements of Operations for the periods ended
December 31, 1995; the Statements of Changes in Net Assets for the
periods ended December 31, 1995; and the Notes relating thereto appear
in the prospectus (Part A of the Registration Statement).
(2) Consolidated Financial Statements of The Pruco Life Insurance Company
(Depositor) and subsidiaries consisting of the Consolidated Statements
of Financial Position as of December 31, 1995 and 1994; the
Consolidated Statements of Operations and Changes in Surplus and Asset
Valuation Reserve/Mandatory Securities Valuation Reserve and the
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993; and the Notes relating thereto appear in the
prospectus (Part A of the Registration Statement).
(b) Exhibits
(1) Resolution of the Board of Directors of Pruco Life Insurance Company
establishing the Pruco Life Flexible Premium Variable Annuity Account.
(Note 2)
(2) Agreements for custody of securities and similar investments--Not
Applicable.
(3) (a) Distribution Agreement between Pruco Securities Corporation
(Underwriter) and Pruco Life Insurance Company (Depositor). (Note
2)
(b) Proposed form of Selected Broker Agreement between Pruco
Securities Corporation and brokers with respect to sale of the
Contracts. (Note 2)
(4) (a) The Prudential DISCOVERY PREFERRED Contract. (Note 2)
(5) (a) Application form for the Contract. (Note 2)
(6) (a) Articles of Incorporation of Pruco Life Insurance Company, as
amended July 25, 1972. (Note 2)
(b) By-laws of Pruco Life Insurance Company, as amended June 14, 1983.
(Note 2)
(7) Contract of reinsurance in connection with variable annuity
contract--Not Applicable.
(8) Other material contracts performed in whole or in part after the date
the registration statement is filed:
(9) Opinion of Counsel and consent to its use as to legality of the
securities being registered. (Note 1)
(10) Written consent of Deloitte & Touche LLP, independent auditors. (Note
1)
(11) All financial statements omitted from Item 23, Financial
Statements--Not Applicable.
(12) Agreements in consideration for providing initial capital between or
among Registrant, Depositor, Underwriter, or initial Contract
owners--Not Applicable.
(13) Schedule of Performance Computations. (Note 1)
(14) Powers of Attorney.
(a) E. Michael Caulfield, Robert Hill, Garnett L. Keith, Jr.,
Ira J. Kleinman, Esther H. Milnes, I. Edward Price,
Stephen P. Tooley (Note 2)
(b) William F. Yelverton (Note 3)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Registrant's Form N-4, filed July 19,
1995.
(Note 3) Incorporated by reference to Pre-Effective Amendment No. 1 to this
Registration Statement, filed November 17, 1995.
C-1
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Incorporated by reference to the Pruco Life Flexible Premium Variable Annuity
Account prospectus under "Directors and Officers" contained in Part A of this
registration statement.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT
Pruco Life Insurance Company ("Pruco Life"), a corporation organized under the
laws of Arizona, is a direct, wholly-owned subsidiary of The Prudential
Insurance Company of America, ("The Prudential"), a mutual life insurance
company organized under the laws of New Jersey. The subsidiaries of The
Prudential and short descriptions of each are set forth on the following pages.
Pruco Life may be deemed to control its two wholly-owned subsidiaries, Pruco
Life Insurance Company of New Jersey ("Pruco Life of New Jersey") and The
Prudential Insurance Company of Arizona ("PLICA"). Pruco Life may also be deemed
to control the following separate accounts which are registered as unit
investment trusts under the Investment Company Act of 1940: the Pruco Life
Variable Appreciable Account, the Pruco Life Variable Insurance Account, the
Pruco Life Single Premium Variable Life Account, the Pruco Life Variable
Universal Account, the Pruco Life PRUvider Variable Appreciable Account, the
Pruco Life Single Premium Variable Annuity Account, the Pruco Life Flexible
Premium Variable Annuity Account (Registrant) (separate accounts of Pruco Life),
the Pruco Life of New Jersey Variable Appreciable Account, the Pruco Life of New
Jersey Variable Insurance Account, the Pruco Life of New Jersey Single Premium
Variable Life Account, and the Pruco Life of New Jersey Single Premium Variable
Annuity Account (separate accounts of Pruco Life of New Jersey).
The above-referenced separate accounts, along with The Prudential and certain of
The Prudential's separate accounts, hold all the shares of The Prudential Series
Fund, Inc., a Maryland corporation. In addition, The Prudential holds all the
shares of Prudential's Gibraltar Fund, a Delaware Corporation, in three of its
separate accounts. The Prudential Series Fund, Inc. and Prudential's Gibraltar
Fund are registered as open-end diversified, management investment companies
under the Investment Company Act of 1940. Additionally, the aforementioned
separate accounts of The Prudential are registered as unit investment trusts
under the Investment Company Act of 1940.
In addition, Pruco Life may also be deemed to be under common control with The
Prudential Variable Contract Account-2, The Prudential Variable Contract
Account-10, and The Prudential Variable Contract Account-11, separate accounts
of The Prudential, all of which are registered as open-end, diversified,
management investment companies under the Investment Company Act of 1940.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 23, 1996, there were 236 Contract owners of qualified Contracts
and 475 owners of non-qualified Contracts offered by the Registrant.
ITEM 28. INDEMNIFICATION
The Prudential Directors' and Officers' Liability and Corporation Reimbursement
Insurance Program, purchased by The Prudential from Aetna Casualty & Surety
Company, CNA Insurance Companies, Lloyds of London, Great American Insurance
Company, Reliance Insurance Company, Corporate Officers & Directors Assurance
Ltd., A.C.E. Insurance Company, Ltd., XL Insurance Company, Ltd., and
Zurich-American Insurance Company, provides reimbursement for "Loss" (as defined
in the policies) which the Company pays as indemnification to its directors or
officers resulting from any claim for any actual or alleged act, error,
misstatement, misleading statement, omission, or breach of duty by persons in
the discharge of their duties in their capacities as directors or officers of
The Prudential, any of its subsidiaries, or certain investment companies
affiliated with The Prudential. Coverage is also provided to the individual
directors or officers for such Loss, for which they shall not be indemnified.
Loss essentially is the legal liability on claims against a director or officer,
including adjudicated damages, settlements and reasonable and necessary legal
fees and expenses incurred in defense of adjudicatory proceedings and appeals
therefrom. Loss does not include punitive or exemplary damages or the multiplied
portion of any multiplied damage award, criminal or civil fines or penalties
imposed by law, taxes or wages, or matters which are uninsurable under the law
pursuant to which the policies are construed.
C-2
<PAGE>
There are a number of exclusions from coverage. Among the matters excluded are
Losses arising as the result of (1) claims brought about or contributed to by
the criminal or fraudulent acts or omissions or the willful violation of any law
by a director or officer, (2) claims based on or attributable to directors or
officers gaining personal profit or advantage to which they were not legally
entitled, and (3) claims arising from actual or alleged performance of, or
failure to perform, services as, or in any capacity similar to, an investment
adviser, investment banker, underwriter, broker or dealer, as those terms are
defined in the Securities Act of 1933, the Securities Exchange Act of 1934, the
Investment Advisers Act of 1940, the Investment Company Act of 1940, any rules
or regulations thereunder, or any similar federal, state or local statute, rule
or regulation.
The limit of coverage under the Program for both individual and corporate
reimbursement coverage is $150,000,000. The retention for corporate
reimbursement coverage is $10,000,000 per loss.
The relevant provisions of New Jersey law permitting or requiring
indemnification, New Jersey being the state of organization of The Prudential,
can be found in Section 14A:3-5 of the New Jersey Statutes Annotated. The
relevant provisions of Arizona law, Arizona being the state of organization of
Pruco Life, can be found in Section 10-005 of the Arizona Statutes Annotated.
The text of The Prudential's by-law 26, which relates to indemnification of
officers and directors, is incorporated by reference to Exhibit 1.A.(6)(b) of
Post-Effective Amendment No. 1 to Form S-6, Registration No. 33-61079, filed
April 25, 1996, on behalf of The Prudential Variable Appreciable Account. The
text of Pruco Life's by-laws, Article VIII, which relates to indemnification of
officers and directors, is incorporated by reference to Exhibit (6)(b) to this
Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Pruco Securities Corporation also acts as principal underwriter for the
Pruco Life PRUvider Variable Appreciable Account, the Pruco Life Variable
Insurance Account, the Pruco Life Variable Appreciable Account, the Pruco
Life Variable Universal Account, the Pruco Life Single Premium Variable
Life Account, the Pruco Life Single Premium Variable Annuity Account, the
Pruco Life of New Jersey Variable Insurance Account, the Pruco Life of New
Jersey Variable Appreciable Account, the Pruco Life of New Jersey Single
Premium Variable Life Account, the Pruco Life of New Jersey Single Premium
Variable Annuity Account, The Prudential Variable Appreciable Account, The
Prudential Individual Variable Contract Account, The Prudential Qualified
Individual Variable Contract Account, Prudential's Annuity Plan Account,
Prudential's Investment Plan Account, Prudential's Annuity Plan Account-2,
Prudential's Gibraltar Fund, and The Prudential Series Fund, Inc.
(b) NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
------------------ ----------------------
E. Michael Caulfield * Director
Joseph Mahoney **** Director
Edward Paul Baird** Director
Ira J. Kleinman ** Director
Stephen P. Tooley *** Vice President and Comptroller
Clifford E. Kirsch* Chief Legal Officer and Assistant Secretary
Thomas C. Castano ** Secretary
* Principal Business Address: Prudential Plaza, Newark, NJ 07102
** Principal Business Address: 213 Washington Street, Newark, NJ 07102
*** Principal Business Address: 1111 Durham Avenue, South Plainfield, NJ 07080
**** Principal Business Address: 477 Martinsville Road, Liberty Corner, NJ 07938
(c) Not applicable
C-3
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books or other documents required to be maintained by Section 31
(a) of the 1940 Act and the rules promulgated thereunder are maintained by the
Registrant through The Prudential Insurance Company of America, Prudential
Plaza, Newark, New Jersey 07102-3777.
ITEM 31. MANAGEMENT SERVICES
Summary of any contract not discussed in Part A or Part B of the registration
statement under which management-related services are provided to the
Registrant--Not Applicable.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes to file a post-effective amendment to this Registrant
Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16
months old for so long as payments under the variable annuity contracts may
be accepted.
(b) Registrant undertakes to include either (1) as part of any application to
purchase a contract offered by the prospectus, a space that an applicant
can check to request a statement of additional information, or (2) a
postcard or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a statement of
additional information.
(c) Registrant undertakes to deliver any statement of additional information
and any financial statements required to be made available under this Form
promptly upon written or oral request.
(d) Restrictions on withdrawal under Section 403(b) Contracts are imposed in
reliance upon, and in compliance with, a no-action letter issued by the
Chief of the Office of Insurance Products and Legal Compliance of the
Securities and Exchange Commission to the American Council of Life
Insurance on November 28, 1988.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that this Amendment is filed solely for one or more of the purposes
specified in Rule 485(b)(1) under the Securities Act of 1933 and that no
material event requiring disclosure in the prospectus, other than one listed in
Rule 485(b)(1), has occurred since the effective date of the most recent
Amendment to the Registration Statement which included a prospectus and has
caused this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal hereunto affixed and attested, all in
the city of Newark and the State of New Jersey, on this 25th day of April, 1996.
(Seal) THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
(Registrant)
By: PRUCO LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/ Thomas C. Castano By: /s/ Esther H. Milnes
------------------------- ---------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary President
As required by the Securities Act of 1933, this Post-Effective Amendment No. 1
to the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE AND TITLE
/s/ * April 25, 1996
- -------------------------------------------
Esther Milnes
President and Director
/s/ *
- -------------------------------------------
Stephen Tooley
Chief Accounting Officer and Comptroller
/s/ *
- -------------------------------------------
E. Michael Caulfield
Director
/s/ * *By: /s/ Thomas C. Castano
- ------------------------------------------- -----------------------
Garnett L. Keith, Jr. Thomas C. Castano
Director (Attorney-in-Fact)
/s/ *
- -------------------------------------------
Ira J. Kleinman
Director
/s/ *
- -------------------------------------------
I. Edward Price
Director
/s/*
- -------------------------------------------
William F. Yelverton
Director
C-5
<PAGE>
EXHIBIT INDEX
(9) Opinion and consent of Clifford E. Kirsch, Esq. as to its Page C-7
use as to the legality of the securities being registered.
(10) Written consent of Deloitte & Touche LLP, independent Page C-8
auditors.
(13) Schedule of Performance Computations. Page C-9
(27) Financial Data Schedule Page C-10
C-6
Exhibit 9
April 25, 1996
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
Gentlemen:
In my capacity as Chief Legal Officer of Pruco Life Insurance Company ("Pruco
Life"), I have reviewed the establishment of the Pruco Life Flexible Premium
Variable Annuity Account (the "Account") on June 16, 1995, by the Board of
Directors of Pruco Life as a separate account for assets applicable to certain
individual variable 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 N-4, as amended,
filed by The Prudential with the Securities and Exchange Commission
(Registration No. 33-61125) under the Securities Act of 1933 for the
registration of certain individual variable annuity contracts issued with
respect to the Account.
I am of the following opinion:
(1) Pruco Life was duly organized under the laws of Arizona and is a
validly existing corporation.
(2) The Account has been duly created and is validly existing as a
separate account pursuant to the aforesaid provisions of Arizona law.
(3) The portion of the assets held in the Account equal to the reserve and
other liabilities for variable benefits under the individual variable
annuity contracts is not chargeable with liabilities arising out of
any other business Pruco Life may conduct.
(4) The individual variable annuity contracts are legal and binding
obligations of Pruco Life in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
Clifford E. Kirsch
C-7
EXHIBIT (10)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement No. 33-61125 on Form N-4 of Pruco Life Flexible Premium Variable
Annuity Account of Pruco Life Insurance Company of our report dated February 15,
1996, relating to the financial statements of Pruco Life Flexible Premium
Variable Annuity Account, and of our report dated March 15, 1996, relating to
the consolidated financial statements of Pruco Life Insurance Company and
subsidiaries appearing in the Prospectus, which is part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
April 25, 1996
C-8
To be filed pursuant to Rule 497(e).
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 735
<INVESTMENTS-AT-VALUE> 738
<RECEIVABLES> 146
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 884
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 48
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 884
<DIVIDEND-INCOME> 3
<INTEREST-INCOME> 0
<OTHER-INCOME> 2
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 3
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 3
<NET-CHANGE-FROM-OPS> 8
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 884
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
