<PAGE>
As filed with the SEC on April 16, 1998 Registration No. 333-06701
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
Form N-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933 ___
PRE-EFFECTIVE AMENDMENT NO. 1 ___
POST-EFFECTIVE AMENDMENT NO. 2 _X_
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 ___
POST-EFFECTIVE AMENDMENT NO. 2 _X_
(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
(888) PRU-2888
(Address and telephone number of depositor's 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)
Copies to:
Christopher E. Palmer Lee D. Augsburger
Shea & Gardner Assistant General Counsel
1800 Massachusetts Avenue, N.W. The Prudential Insurance
Washington, D.C. 20036 Company of America
(202) 828-2093 751 Broad Street
Newark, New Jersey 07102
(973) 367-1388
-------------------------
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, 1998 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on May 1, 1998 pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Interests in Individual Variable Annuity
Contracts
<PAGE>
CROSS REFERENCE SHEET
(As required by Rule 495(a) under the 1933 Act)
<TABLE>
<CAPTION>
N-4 Item Number and Caption Location
---------------------------------------- ----------------------------------------
<S> <C> <C>
PART A
1. Cover Page.............................. Cover Page
2. Definitions............................. Definitions of Special Terms Used in
this Prospectus
3. Synopsis................................ Profile
4. Condensed Financial Information......... Appendix; Other Information
5. General Description of Registrant,
Depositor, and Portfolio Companies..... Cover Page; 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; Other Information
6. Deductions.............................. Profile; Fee Table; Charges, Fees, and
Deductions
7. General Description of Variable Annuity
Contracts.............................. Cover; Profile; Definitions of Special
Terms Used in this Prospectus;
Detailed Information About the
Contract; Other Information
8. Annuity Period.......................... Profile; Payout Provisions
9. Death Benefit........................... Profile; Detailed Information About the
Contract; Payout Provisions
10. Purchases and Contract Value............ Profile; Detailed Information About the
Contract; Other Information
11. Redemptions............................. Profile; Detailed Information About the
Contract; Charges, Fees and Deductions
12. Taxes................................... Profile; Charges, Fees and Deductions;
Federal Tax Status
13. Legal Proceedings....................... Other Information
14. Table of Contents of the Statement of
Additional Information................. Other Information
PART B
15. Cover Page.............................. Cover Page
16. Table of Contents....................... Table of Contents
17. General Information and History......... Cover Page
18. Services................................ Part A: Other Information
19. Purchase of Securities Being Offered.... Part A: Profile; Detailed Information
About the Contract; Other Information
20. Underwriters............................ Part A: Other Information
Part B: Other Information Concerning the
Account
21. Calculation of Performance Data......... Part B: Other Information Concerning the
Account
22. Annuity Payments........................ Part A: Payout Provisions
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
23. Financial Statements.................... Part A: Financial Statements of the
Pruco Life Flexible Premium Variable
Annuity Account; 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>
MAY 1, 1998
PROFILE
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PRUCO LIFE INSURANCE COMPANY
DISCOVERY SELECT VARIABLE ANNUITY CONTRACT
- ------------------------------------------------------------------------------
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
CONSIDER AND KNOW BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE FULLY
DESCRIBED IN THE FULL PROSPECTUS WHICH ACCOMPANIES THIS PROFILE. PLEASE READ THE
PROSPECTUS CAREFULLY.
-------------------
1. THE DISCOVERY SELECT VARIABLE ANNUITY.
The Discovery Select Variable Annuity is a contract between you and Pruco Life
Insurance Company that uses investment portfolios which accumulate cash value on
a tax-deferred basis. This allows the variable annuity to combine the advantages
of a tax-deferred investment with the flexibility and versatility of
professionally managed portfolios to meet your long-term financial goals, such
as retirement. Tax deferral simply means that you do not pay taxes on your
investments' income, dividends and capital gains each year; instead, taxes are
due when you take withdrawals or otherwise receive funds from the annuity. The
results of tax-deferred compounding can grow your assets faster than they would
in a similar taxable investment. In addition, your family receives the added
protection of a guaranteed death benefit.
The Discovery Select Variable Annuity offers a diverse selection of money
managers and variable investment options. Amounts that you allocate to a
variable investment option will fluctuate in response to market forces. You can
also select a fixed-rate option with a stipulated rate of interest for one year
or a market-value adjustment option which guarantees a stipulated rate of
interest if held for a seven year period. If you make a withdrawal or transfer
prior to the maturity date of a market-value adjustment option, the value will
be adjusted up or down or not at all, depending upon the difference in interest
rates between the date when funds were allocated to the option and the date of
the withdrawal or transfer.
The Discovery Select Contract, like all deferred annuity contracts, has two
phases: the accumulation phase and the income phase. During the accumulation
phase, you invest money in your Contract and earnings accumulate on a
tax-deferred basis. Your earnings are based on the investment performance of the
variable investment options and/or the interest rate earned on the fixed
investment options to which your money is allocated. During the income phase you
receive regular payments from your Contract. Among other factors, the growth of
your Contract during the accumulation phase will determine the amount or
duration of your payments during the income phase.
The automated withdrawal feature enables you to set up a regular income schedule
on a monthly, quarterly, semiannual or annual basis without annuitizing your
Contract. Of course, withdrawals are subject to tax and a 10% federal tax
penalty may apply if you are under age 59 1/2.
2. PAYOUT PROVISIONS.
If you want to receive regular income from your Contract, you can choose one of
these options: (1) equal installments for a fixed period; (2) monthly payments
for your life with 120 payments certain; (3) certain other annuity options; or
(4) we will hold an amount at a stated interest rate and pay the interest
annually, semi-annually, quarterly or monthly. The interest payment option is
not available for Contracts sold in connection with individual retirement
annuities ("IRAs").
<PAGE>
PROFILE
----------
PRUCO LIFE INSURANCE COMPANY
DISCOVERY SELECT VARIABLE ANNUITY CONTRACT
- ------------------------------------------------------------------------------
During the income phase you can only choose the above options to be payable on a
fixed basis. Once you begin receiving regular payments, you cannot change your
payment plan.
3. PURCHASING A DISCOVERY SELECT ANNUITY.
You can buy a Contract through your financial representative who can also help
you complete the proper forms. You can buy a Contract with $10,000 or more.
Additional payments of $1,000 or more may also be made during the accumulation
phase. Restrictions apply to IRA Contracts.
4. INVESTMENT OPTIONS.
You can put your money in any or all of the investment options listed below:
<TABLE>
<S> <C>
THE PRUDENTIAL SERIES FUND, INC.
ADVISED BY: PRUDENTIAL INVESTMENT CORPORATION
Money Market Portfolio Equity Income Portfolio
Diversified Bond Portfolio Equity Portfolio
High Yield Bond Portfolio Global Portfolio
Stock Index Portfolio Prudential Jennison Portfolio (a growth
portfolio)
AIM VARIABLE INSURANCE FUNDS, INC. JANUS ASPEN SERIES
ADVISED BY: AIM ADVISORS, INC. ADVISED BY: JANUS CAPITAL CORPORATION
AIM V.I. Growth and Income Fund Growth Portfolio
AIM V.I. Value Fund International Growth Portfolio
MFS VARIABLE INSURANCE TRUST OCC ACCUMULATION TRUST
ADVISED BY: MASSACHUSETTS FINANCIAL ADVISED BY: OPCAP ADVISORS
SERVICES COMPANY Small Cap Portfolio
Emerging Growth Series Managed Portfolio (a balanced portfolio)
Research Series (a growth portfolio)
T. ROWE PRICE EQUITY SERIES, INC. T. ROWE PRICE INTERNATIONAL SERIES, INC.
ADVISED BY: T. ROWE PRICE ASSOCIATES, INC. ADVISED BY: ROWE PRICE-FLEMING INTERNATIONAL,
INC.
Equity Income Portfolio International Stock Portfolio
WARBURG PINCUS TRUST
ADVISED BY: WARBURG, PINCUS COUNSELLORS, INC.
Post-Venture Capital Portfolio
(an aggressive growth portfolio)
</TABLE>
Depending upon market fluctuations, you can make or lose money in any of these
portfolios.
You may also allocate money to the one year fixed-rate option which guarantees a
stipulated rate of interest for a one-year period or to the Market-Value
Adjustment (the "MVA") option which
2
<PAGE>
PROFILE
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PRUCO LIFE INSURANCE COMPANY
DISCOVERY SELECT VARIABLE ANNUITY CONTRACT
- ------------------------------------------------------------------------------
guarantees a stipulated rate of interest if held for a seven year period. Each
time you allocate or transfer money into either the fixed-rate option or the MVA
option a new interest cell is established. If you make a withdrawal or transfer
prior to the end of the interest cell period, the value of the MVA option will
be adjusted up or down or not at all, depending upon the difference in the
interest rates at the time when the interest cell was established and the date
of withdrawal or transfer. You may only transfer money out of the fixed-rate
option during the 30-day period following the maturity of the fixed-rate
interest cell.
5. EXPENSES.
The Discovery Select Contract has the following cost-related product features,
outlined below.
There is an administrative charge of $30 that is imposed on each Contract
anniversary and at the time of a full withdrawal for Contracts of less than
$50,000. We deduct insurance and expense charges which total 1.40% annually of
the average daily value of your Contract allocated to the variable investment
options. There are also investment management fees and other expenses imposed on
Contracts with money allocated to the variable investment options which in
fiscal year 1997 ranged from 0.37% to 1.40% annually of the average daily value
of the investment portfolio. If applicable, you may be assessed a state premium
tax which ranges from 0.5% to 5%, depending upon the state and whether the
Contract is non-qualified or issued in connection with an IRA.
If you withdraw money in excess of the free withdrawal amount allowed in the
Contract during the first 7 years of the Contract, a withdrawal charge is
assessed. The charge is based upon the amount withdrawn and starts with 7% in
the first year and decreases 1% each year until in the 8th and later years there
is no charge.
The following chart will help you understand the charges in the Contract. The
column "Total Annual Charges" shows the total of (i) insurance charges, (ii)
expense charges, (iii) administrative charges and (iv) investment charges. The
next two columns show you examples of the charges, in dollars, you would pay
under a Contract. The examples assume that you invested $1,000 in each
investment option within the Contract earning 5% annually and that you withdraw
your money (1) at the end of year 1, and (2) at the end of year 10. For year 1,
the Total Annual Charges are assessed as well as the withdrawal charges. For
year 10, the examples show the aggregate of all the annual charges assessed for
the 10 years with no withdrawal charge. The premium tax is assumed to be 0% in
both examples.
3
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PROFILE
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PRUCO LIFE INSURANCE COMPANY
DISCOVERY SELECT VARIABLE ANNUITY CONTRACT
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<TABLE>
<CAPTION>
TOTAL
TOTAL ANNUAL ANNUAL
TOTAL ANNUAL TOTAL ANNUAL CHARGES AT CHARGES AT
INSURANCE PORTFOLIO TOTAL ANNUAL END OF 1 YEAR END OF 10
PORTFOLIO CHARGES CHARGES CHARGES (1) YEARS (2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THE PRUDENTIAL SERIES FUND, INC.
Money Market 1.41% 0.43% 1.84% $ 82 $ 216
Diversified Bond 1.41% 0.43% 1.84% $ 82 $ 216
High Yield 1.41% 0.57% 1.98% $ 83 $ 230
Stock Index 1.41% 0.37% 1.78% $ 81 $ 209
Equity Income 1.41% 0.41% 1.82% $ 81 $ 213
Equity 1.41% 0.46% 1.87% $ 82 $ 219
Prudential Jennison 1.41% 0.64% 2.05% $ 84 $ 238
Global 1.41% 0.85% 2.26% $ 86 $ 259
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income 1.41% 0.69% 2.10% $ 84 $ 243
AIM V.I. Value 1.41% 0.70% 2.11% $ 84 $ 244
JANUS ASPEN SERIES
Growth 1.41% 0.70% 2.11% $ 84 $ 244
International Growth 1.41% 0.96% 2.37% $ 87 $ 270
MFS VARIABLE INSURANCE TRUST
Emerging Growth 1.41% 0.87% 2.28% $ 86 $ 261
Research 1.41% 0.88% 2.29% $ 86 $ 262
OCC ACCUMULATION TRUST
Managed 1.41% 0.87% 2.28% $ 86 $ 261
Small Cap 1.41% 0.97% 2.38% $ 87 $ 271
T. ROWE PRICE EQUITY SERIES, INC.
Equity Income 1.41% 0.85% 2.26% $ 86 $ 259
T. ROWE PRICE INTERNATIONAL SERIES,
INC.
International Stock 1.41% 1.05% 2.46% $ 88 $ 279
WARBURG PINCUS TRUST
Post-Venture Capital 1.41% 1.40% 2.81% $ 91 $ 313
</TABLE>
The portfolio charges reflect any expense reimbursement or fee waiver that may
be in effect. Total Annual Insurance Charges include the annual administrative
charge reflected as a percentage as 0.01%. Depending on Contract value and the
numbers of investment options chosen, the annual administrative charge expressed
as a percentage will vary. For more detailed information, see the Fee Table in
the Prospectus for the Contract.
6. TAXES.
Earnings in your Contract are tax-deferred until you take them out. In addition,
if money is taken out before age 59 1/2, there may be a 10% tax penalty assessed
on the amount that is deemed to be income. In general, for tax purposes, if you
take money out, earnings are deemed to be taken out first and are taxed as
income. For Contracts sold in connection with traditional IRAs, the entire
distribution amount is generally considered taxable income. For Contracts sold
in connection with Roth IRAs, the entire distribution will be tax free if
certain conditions are met.
4
<PAGE>
PROFILE
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PRUCO LIFE INSURANCE COMPANY
DISCOVERY SELECT VARIABLE ANNUITY CONTRACT
- ------------------------------------------------------------------------------
7. ACCESS TO YOUR MONEY.
You can take money out at any time during the accumulation phase. Each year you
can take up to 10% of your total purchase payments without any charge plus any
charge-free amount still available from the immediately preceding Contract year.
If you withdraw money in excess of the free withdrawal amount, a percentage of
the amount you withdraw may be assessed a decreasing withdrawal charge during
the first seven Contract years (7%-6%-5%-4%-3%-2%-1%-0%). This charge will be
waived for payment of the death benefit and under the Critical Care Access
provision of the Contract, if applicable. A withdrawal may be subject to income
tax and to a tax penalty.
8. PERFORMANCE.
The value of the Contract will fluctuate depending upon the performance of the
investment option(s) you choose. From time to time, we may advertise total
return figures for each variable investment option. The following chart shows
total returns for each investment option for calendar year 1997. These numbers
reflect the insurance charges, the administrative fees, investment charges, and
all other expenses of the investment portfolio. These numbers do not reflect any
withdrawal charges and if such charges were applied, performance would be lower.
Past performance is not a guarantee of future results.
<TABLE>
<CAPTION>
PORTFOLIO CALENDAR YEAR 1997
- --------------------------------------------------------------- --------------------
<S> <C>
Diversified Bond 7.00%
High Yield 12.14%
Stock Index 30.92%
Equity Income 34.65%
Equity 22.86%
Global 5.42%
Prudential Jennison 29.82%
AIM V.I. Growth and Income 23.90%
AIM V.I. Value 21.91%
Janus Growth 20.97%
Janus International Growth 16.80%
MFS Emerging Growth 20.15%
MFS Research 18.53%
OCC Managed 20.53%
OCC Small Cap 20.48%
T. Rowe Price Equity Income 26.94%
T. Rowe Price International Stock 1.56%
Warburg Pincus Post-Venture Capital 11.69%
</TABLE>
The "yield" and "effective yield" of the Money Market Subaccount for the seven
days ended December 31, 1997 were 4.20% and 4.29% respectively.
9. DEATH BENEFIT.
If you die during the accumulation phase, the person you have chosen as the
beneficiary will receive a death benefit. The death benefit will be the greatest
of three amounts: 1) the money you have put in
5
<PAGE>
PROFILE
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PRUCO LIFE INSURANCE COMPANY
DISCOVERY SELECT VARIABLE ANNUITY CONTRACT
- ------------------------------------------------------------------------------
the Contract less any money you have taken out including the related withdrawal
charges; 2) the value of your Contract as of the date of due proof of death; and
3) the greatest value of your Contract calculated as of each Contract
anniversary reduced by all subsequent withdrawals and withdrawal charges.
Special provisions apply in certain states. The death benefit will be subject to
tax.
10. OTHER INFORMATION.
FREE LOOK. You may return your Contract for a 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. Simply deliver or mail the Contract to the
Prudential Annuity Service Center or to the representative who sold it to you.
We will return your money or Contract value in accordance with applicable law
and the Contract will be canceled. Special rules apply for Contracts issued in
connection with IRAs.
ASSET ALLOCATION. An asset allocation program is available, at no cost, to
assist you in determining how to allocate your purchase payments.
DOLLAR COST AVERAGING. Dollar Cost Averaging allows you to have a regular
amount of money automatically transferred from the fixed-rate option or one of
the variable investment options into one or more variable investment options.
AUTO-REBALANCING. Auto-rebalancing will help keep your investment in line with
the investment mix you selected. We will maintain your allocation mix by
adjusting your money between the selected variable investment options based on
the percentage allocations that you choose. This will be done at specified
intervals as elected by you.
CRITICAL CARE ACCESS. Under certain circumstances, we will waive any
administrative and withdrawal charges if you need to access your money while
confined to a nursing home or hospital, or if you become terminally ill.
11. INQUIRIES.
If you need more information, please contact us at:
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
(888) PRU-2888
If you need Contract owner services (such as changes in Contract
information, inquiries as to Contract values, or to elect or modify
Contract options) please contact us at:
PRUDENTIAL ANNUITY SERVICE CENTER
P.O. Box 14205
New Brunswick, New Jersey 08906-4205
(888) PRU-2888
6
<PAGE>
PROSPECTUS
MAY 1, 1998
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
VARIABLE ANNUITY CONTRACTS
PRUCO LIFE MARKET-VALUE ADJUSTMENT ANNUITY CONTRACTS
DISCOVERY SELECT
This prospectus describes the DISCOVERY SELECT-SM- Annuity Contract* (the
"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
("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.
- - They may be allocated to one or more of nineteen subaccounts, each of which
invests in one of the following portfolios of The Prudential Series Fund,
Inc. (the "Prudential Series Fund") or other listed portfolios (collectively,
the "Funds"):
THE PRUDENTIAL SERIES FUND, INC.
<TABLE>
<S> <C> <C>
Money Market Portfolio Stock Index Portfolio Prudential Jennison Portfolio
Diversified Bond Portfolio Equity Income Portfolio Global Portfolio
High Yield Bond Portfolio Equity Portfolio
</TABLE>
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Fund AIM V.I. Value Fund
<TABLE>
<S> <C>
JANUS ASPEN SERIES MFS VARIABLE INSURANCE TRUST
Growth Portfolio International Growth Portfolio Emerging Growth Series Research Series
OCC ACCUMULATION TRUST T. ROWE PRICE EQUITY SERIES, INC.
Managed Portfolio Small Cap Portfolio Equity Income Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC. WARBURG PINCUS TRUST
International Stock Portfolio Post-Venture Capital Portfolio
</TABLE>
- - They may be allocated to a fixed-rate option which guarantees a stipulated
rate of interest for a one year period.
- - 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 market-value
adjustment option is not available to residents of Maryland, Oregon and
Washington.
CONTINUED ON NEXT PAGE
----------------------------------------------
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ACCOMPANIED
BY A CURRENT PROSPECTUS FOR EACH OF THE FUNDS. EACH OF THESE PROSPECTUSES SHOULD
BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. 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.
<TABLE>
<S> <C>
PRUCO LIFE INSURANCE COMPANY PRUDENTIAL ANNUITY SERVICE CENTER
213 Washington Street P.O. Box 14205
Newark, New Jersey 07102-2992 New Brunswick, New Jersey 08906-4205
Telephone: (888) PRU-2888
</TABLE>
*DISCOVERY SELECT is a service mark of Prudential.
<PAGE>
CONTINUED FROM FRONT COVER
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 cash value 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
U.S. Securities and Exchange Commission in a Statement of Additional
Information, dated May 1, 1998, which information is incorporated herein by
reference, and is available without charge upon written request to Prudential
Annuity Service Center, P.O. Box 14205, New Brunswick, New Jersey 08906-4205, or
by telephoning (888) PRU-2888.
The accompanying prospectuses for the Funds and the related statements of
additional information describe the investment objectives and risks of investing
in the Funds. Additional Funds and subaccounts may be offered in the future.
The Contents of the Statement of Additional Information with respect to the
Contract appear on page 28 of this prospectus.
<PAGE>
PROSPECTUS CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS...................... 1
FEE TABLE................................................................. 2
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 FUNDS............................................................... 8
THE INTEREST-RATE INVESTMENT OPTIONS AND INVESTMENTS BY PRUCO LIFE...... 10
DETAILED INFORMATION ABOUT THE CONTRACT................................... 10
REQUIREMENTS FOR ISSUANCE OF A CONTRACT................................. 10
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"............................ 11
ALLOCATION OF PURCHASE PAYMENTS......................................... 11
ASSET ALLOCATION PROGRAM................................................ 11
CASH VALUE.............................................................. 11
GUARANTEED INTEREST RATE PERIODS........................................ 11
WHAT HAPPENS WHEN AN INTEREST CELL REACHES ITS MATURITY DATE?........... 12
TRANSFERS............................................................... 12
DOLLAR COST AVERAGING................................................... 12
AUTO-REBALANCING........................................................ 13
WITHDRAWALS............................................................. 13
AUTOMATED WITHDRAWALS................................................... 13
MARKET-VALUE ADJUSTMENT................................................. 14
DEATH BENEFIT........................................................... 14
VALUATION OF A CONTRACT OWNER'S CONTRACT FUND........................... 15
CHARGES, FEES AND DEDUCTIONS.............................................. 16
PREMIUM TAXES AND TAXES ATTRIBUTABLE TO PURCHASE PAYMENTS............... 16
ADMINISTRATIVE CHARGE................................................... 16
CHARGE FOR ASSUMING MORTALITY AND EXPENSE RISKS......................... 16
EXPENSES INCURRED BY THE FUNDS.......................................... 16
WITHDRAWAL CHARGE....................................................... 16
TRANSACTION CHARGE...................................................... 17
CRITICAL CARE ACCESS.................................................... 17
OTHER CHARGES........................................................... 17
FEDERAL TAX STATUS........................................................ 17
DIVERSIFICATION AND INVESTOR CONTROL.................................... 18
TAXES PAYABLE BY CONTRACT OWNERS........................................ 18
WITHHOLDING............................................................. 19
IMPACT OF FEDERAL INCOME TAXES.......................................... 20
IRS REQUIRED DISTRIBUTIONS ON DEATH OF OWNER............................ 20
CONTRACTS USED IN CONNECTION WITH TAX FAVORED PLANS..................... 20
IRAS.................................................................... 21
SEPS.................................................................... 21
SIMPLE-IRAS............................................................. 22
TDAS.................................................................... 22
MINIMUM DISTRIBUTION OPTION............................................. 22
WITHHOLDING ON TAX FAVORED PLANS........................................ 22
PENALTY FOR EARLY WITHDRAWALS........................................... 23
ERISA DISCLOSURE........................................................ 23
ADDITIONAL ERISA REQUIREMENTS........................................... 23
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
PAYOUT PROVISIONS......................................................... 24
1. ANNUITY PAYMENTS FOR A FIXED PERIOD.................................. 24
2. LIFE ANNUITY WITH 120 PAYMENTS CERTAIN............................... 24
3. INTEREST PAYMENT OPTION.............................................. 24
4. OTHER ANNUITY OPTIONS................................................ 25
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT ANNUITY PURCHASE RATES.... 25
OTHER INFORMATION......................................................... 25
MISSTATEMENT OF AGE OR SEX.............................................. 25
SALE OF THE CONTRACT AND SALES COMMISSIONS.............................. 25
VOTING RIGHTS........................................................... 25
SUBSTITUTION OF FUND SHARES............................................. 26
OWNERSHIP OF THE CONTRACT............................................... 26
PERFORMANCE INFORMATION................................................. 26
REPORTS TO CONTRACT OWNERS.............................................. 27
STATE REGULATION........................................................ 27
EXPERTS................................................................. 27
LITIGATION.............................................................. 27
STATEMENT OF ADDITIONAL INFORMATION..................................... 28
ADDITIONAL INFORMATION.................................................. 28
FINANCIAL STATEMENTS.................................................... 28
ACCUMULATION UNIT VALUES.................................................. 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................. 32
DIRECTORS AND OFFICERS.................................................... 39
EXECUTIVE COMPENSATION.................................................... 40
FINANCIAL STATEMENTS OF THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY
ACCOUNT................................................................ A-1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY AND
SUBSIDIARIES........................................................... B-1
MARKET-VALUE ADJUSTMENT FORMULA........................................... C-1
</TABLE>
ii
<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 purchase payments in 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
certain required documentation.
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. A person who purchases a DISCOVERY SELECT-SM- Contract and
makes the purchase payments. The Contract may be owned by joint owners, however,
the joint owners must be spouses and joint owners will only be allowed on
non-qualified Contracts. An owner will usually also be an annuitant, but need
not be. An 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 C-1. With respect to residents of
Pennsylvania only, see page C-4.
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.
SUBACCOUNT--A division of the Account, the assets of which are invested in
shares of the corresponding portfolio of the Funds.
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>
FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Charge Imposed on Purchase Payments........................................................... None
</TABLE>
Maximum Withdrawal Charge:
<TABLE>
<CAPTION>
THE WITHDRAWAL CHARGE WILL BE EQUAL
FOR WITHDRAWALS DURING THE CONTRACT TO THE FOLLOWING PERCENTAGE OF THE
YEAR INDICATED AMOUNT WITHDRAWN*
<S> <C>
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
</TABLE>
* THE WITHDRAWAL CHARGE IS NOT IMPOSED ON ANY CHARGE-FREE WITHDRAWAL
AMOUNTS, WITHDRAWALS MADE UNDER CRITICAL CARE ACCESS, SEE PAGE 17, 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.
<TABLE>
<S> <C>
Annual Contract Fee and Fee upon Full Withdrawal.................................................... $30
</TABLE>
THIS CHARGE WILL BE APPORTIONED OVER ALL THE 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.
<TABLE>
<S> <C>
Transfer Charge..................................................................................... $25
Imposed only for transfers in excess of twelve transfers in a Contract year, excluding transfers in
connection with dollar cost averaging and auto-rebalancing.
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE CONTRACT FUND)
<TABLE>
<CAPTION>
ALL SUBACCOUNTS
- --------------------------------------------------------------------------
<S> <C>
Mortality and Expense Risk Charge......................................... 1.25%
Administrative Fee........................................................ 0.15%
---------
Total Separate Account Annual Expenses.................................... 1.40%
---------
---------
</TABLE>
ANNUAL EXPENSES OF THE FUNDS
(AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND ANNUAL
INVESTMENT OTHER EXPENSES (AFTER EXPENSE
MANAGEMENT FEE EXPENSES REIMBURSEMENTS)
------------------- ----------- ---------------------------
<S> <C> <C> <C>
THE PRUDENTIAL SERIES FUND(1)
Money Market Portfolio........................ 0.40% 0.03% 0.43%
Diversified Bond Portfolio.................... 0.40% 0.03% 0.43%
High Yield Bond Portfolio..................... 0.55% 0.02% 0.57%
Stock Index Portfolio......................... 0.35% 0.02% 0.37%
Equity Income Portfolio....................... 0.40% 0.01% 0.41%
Equity Portfolio.............................. 0.45% 0.01% 0.46%
Prudential Jennison Portfolio................. 0.60% 0.04% 0.64%
Global Portfolio.............................. 0.75% 0.10% 0.85%
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
TOTAL FUND ANNUAL
INVESTMENT OTHER EXPENSES (AFTER EXPENSE
MANAGEMENT FEE EXPENSES REIMBURSEMENTS)
------------------- ----------- ---------------------------
<S> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.(2)
AIM V.I. Growth and Income Fund............... 0.63% 0.06% 0.69%
AIM V.I. Value Fund........................... 0.62% 0.08% 0.70%
JANUS ASPEN SERIES(3)
Growth Portfolio.............................. 0.65% 0.05% 0.70%
International Growth Portfolio................ 0.67% 0.29% 0.96%
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series........................ 0.75% 0.12% 0.87%
Research Series............................... 0.75% 0.13% 0.88%
OCC ACCUMULATION TRUST(4)
Managed Portfolio............................. 0.80% 0.07% 0.87%
Small Cap Portfolio........................... 0.80% 0.17% 0.97%
T. ROWE PRICE(5)
T. Rowe Price Equity Series, Inc., Equity
Income Portfolio............................ 0.85% 0.00% 0.85%
T. Rowe Price International Series, Inc.,
International Stock Portfolio............... 1.05% 0.00% 1.05%
WARBURG PINCUS TRUST(6)
Post-Venture Capital Portfolio................ 1.07% 0.33% 1.40%
</TABLE>
The purpose of the foregoing tables is to assist Contract owners in
understanding the expenses that they bear, directly or indirectly of the Pruco
Life Flexible Premium Variable Annuity Account and the Funds. The expenses
relating to the Funds (other than those in the Prudential Series Fund) have been
provided to Pruco Life by the Funds and have not been independently verified by
Pruco Life. See the sections on charges in this prospectus and the accompanying
prospectuses for the Funds. 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.
(1) The Prudential Series Fund. With respect to The Prudential Series Fund
portfolios, except for the Global Portfolio, 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.
(2) AIM Variable Insurance Funds, Inc. AIM may from time to time voluntarily
waive or reduce its respective fees. The Funds listed above did not have any fee
waivers for the year ended 12/31/97. None of the expense ratios have been
restated. Effective May 1, 1998, the Funds reimburse AIM in an amount up to
0.25% of the average net asset value of each Fund, for expenses incurred in
providing, or assuring that participating insurance companies provide, certain
administrative services. The fee currently only applies to the average net asset
value of each Fund in excess of the net asset value of each Fund as calculated
on April 30, 1998.
(3) Janus Aspen Series. Management fees for Growth and International Growth
Portfolios reflect a reduced fee schedule effective July 1, 1997. The management
fee for each of these Portfolios reflects the new rate applied to net assets as
of December 31, 1997. Other expenses are based on gross expenses of the Shares
before expense offset arrangements for the fiscal year ended December 31, 1997.
The information for each Portfolio is net of fee waivers or reductions from
Janus Capital. Fee reductions for the Growth and International Growth Portfolios
reduce the management fee to the level of the corresponding Janus retail fund.
Other waivers, if applicable, are first applied against the management fee and
then against other expenses. Without such waivers or reductions, the Management
Fee, Other Expenses and Total Operating Expenses for the Shares would have been
0.74%, 0.04% and 0.78% for Growth Portfolio and 0.79%, 0.29% and 1.08% for
International Growth Portfolio. Janus Capital may modify or terminate the
waivers or reductions at any time upon at least 90 days notice to the Trustees.
(4) Other Expenses are shown gross of expense offsets afforded the Portfolios
which effectively lowered overall custody expenses. Total Portfolio Expenses for
the Small Cap and Managed Portfolios are limited by OpCap
3
<PAGE>
Advisors so that their respective annualized operating expenses (net of any
expense offsets) do not exceed 1.00% of their average daily net assets. Without
such expense limitations and without giving effect to any expense offsets, the
Management Fees, Other Expenses and Total Portfolio Annual Expenses incurred for
the fiscal year ended December 31, 1997 would have been: .80%, .17% and .97%,
respectively, for the Small Cap Portfolio, and .80%, .07% and .87%,
respectively, for the Managed Portfolio. Expense offsets for each Portfolio for
the fiscal year ended December 31, 1997 amounted to less than one basis point
for each Portfolio.
(5) T. Rowe Price Equity Series, Inc. and T. Rowe Price International Series,
Inc. With respect to the T. Rowe Price Funds, the Investment Management Fees
include the ordinary expenses of operating the Funds.
(6) Warburg Pincus Trusts. The expense figures shown above are based on actual
expenses for fiscal year 1997 including fee waivers and/or expense
reimbursements by the Portfolio's investment adviser and co-administrator. With
respect to the Warburg Pincus Trust Post-Venture Capital Portfolio, absent the
waivers and/or reimbursements, the Investment Management Fee would equal 1.25%,
Other Expenses would equal 0.33%, and Total Fund Annual Expenses would equal
1.58%. The investment adviser and co-administrator have undertaken to limit the
Portfolio's Total Portfolio Operating Expenses to the limits shown in the table
above through December 31, 1998.
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.
- The examples assume a consistent 5% annual return on invested assets;
- 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.
4
<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 16.)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
The Prudential Series Fund
Money Market Portfolio....................................... $ 82 $ 93 $ 114 $ 216
Diversified Bond Portfolio................................... $ 82 $ 93 $ 114 $ 216
High Yield Bond Portfolio.................................... $ 83 $ 97 $ 122 $ 230
Stock Index Portfolio........................................ $ 81 $ 91 $ 111 $ 209
Equity Income Portfolio...................................... $ 81 $ 92 $ 113 $ 213
Equity Portfolio............................................. $ 82 $ 94 $ 116 $ 219
Prudential Jennison Portfolio................................ $ 84 $ 99 $ 125 $ 238
Global Portfolio............................................. $ 86 $ 106 $ 136 $ 259
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth And Income Fund.............................. $ 84 $ 101 $ 128 $ 243
AIM V.I. Value Fund.......................................... $ 84 $ 101 $ 128 $ 244
Janus Aspen Series
Growth Portfolio............................................. $ 84 $ 101 $ 128 $ 244
International Growth Portfolio............................... $ 87 $ 109 $ 141 $ 270
MFS Variable Insurance Trust
Emerging Growth Series....................................... $ 86 $ 106 $ 138 $ 264
Research Series.............................................. $ 87 $ 108 $ 139 $ 266
OCC Accumulation Trust
Managed Portfolio............................................ $ 86 $ 106 $ 137 $ 261
Small Cap Portfolio.......................................... $ 87 $ 109 $ 142 $ 271
T. Rowe Price
T. Rowe Price Equity Series, Inc.,
Equity Income Portfolio.................................... $ 86 $ 106 $ 136 $ 259
T. Rowe Price International Series, Inc.,
International Stock Portfolio.............................. $ 88 $ 112 $ 146 $ 279
Warburg Pincus Trust
Post-Venture Capital Portfolio............................... $ 91 $ 122 $ 163 $ 313
</TABLE>
5
<PAGE>
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>
The Prudential Series Fund
Money Market Portfolio....................................... $ 19 $ 58 $ 99 $ 216
Diversified Bond Portfolio................................... $ 19 $ 58 $ 99 $ 216
High Yield Bond Portfolio.................................... $ 20 $ 62 $ 107 $ 230
Stock Index Portfolio........................................ $ 18 $ 56 $ 96 $ 209
Equity Income Portfolio...................................... $ 18 $ 57 $ 98 $ 213
Equity Portfolio............................................. $ 19 $ 59 $ 101 $ 219
Prudential Jennison Portfolio................................ $ 21 $ 64 $ 110 $ 238
Global Portfolio............................................. $ 23 $ 71 $ 121 $ 259
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth And Income Fund.............................. $ 21 $ 66 $ 113 $ 243
AIM V.I. Value Fund.......................................... $ 21 $ 66 $ 113 $ 244
Janus Aspen Series
Growth Portfolio............................................. $ 21 $ 66 $ 113 $ 244
International Growth Portfolio............................... $ 24 $ 74 $ 126 $ 270
MFS Variable Insurance Trust
Emerging Growth Series....................................... $ 23 $ 72 $ 123 $ 264
Research Series.............................................. $ 24 $ 73 $ 124 $ 266
OCC Accumulation Trust
Managed Portfolio............................................ $ 23 $ 71 $ 122 $ 261
Small Cap Portfolio.......................................... $ 24 $ 74 $ 127 $ 271
T. Rowe Price
T. Rowe Price Equity Series, Inc.,
Equity Income Portfolio.................................... $ 23 $ 71 $ 121 $ 259
T. Rowe Price International Series, Inc.,
International Stock Portfolio.............................. $ 25 $ 77 $ 131 $ 279
Warburg Pincus Trust
Post-Venture Capital Portfolio............................... $ 28 $ 87 $ 148 $ 313
</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. Each
year (and upon surrender), Pruco Life deducts a $30 fee with respect to a
Contract having a Contract Fund valued less than $50,000. The above examples use
as the annual Contract fee the average fee assessed based on the aggregate
annual Contract fees collected during the 12 month period ended December 31,
1997 divided by the total assets allocated to the subaccounts. Your actual fees
will vary based on the amount of your Contract Fund and your specific
allocation.
The required table of accumulation unit values, which sets out certain
historical information about the value of interests in each subaccount, appears
in the Appendix to this prospectus on Page 29.
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 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. This Contract is not offered in any state in which the
necessary approvals have not yet been obtained.
Pruco Life is a wholly-owned subsidiary of Prudential, a mutual insurance
company founded in 1875 under the laws of the State of New Jersey. Prudential is
currently considering reorganizing itself into a stock company. This form of
reorganization, known as demutualization, is a complex process that may take two
or more years to complete. No plan of demutualization has been adopted yet by
the Company's Board of Directors. Adoption of a plan of demutualization would
occur only after enactment of appropriate legislation in New Jersey and would
have to be approved by Company policyholders and appropriate state insurance
regulators. Throughout the process, there will be a continuing evaluation by the
Board of Directors and management of the Company as to the desirability of
demutualization. The Board of Directors, in its discretion, may choose not to
demutualize or to delay demutualization for a time.
Should Prudential convert to a stock company, the allocation of stock, cash or
other benefits to policyholders and contract owners would be made in accordance
with procedures set forth in the plan of demutualization. In recent
demutualizations, policyholders and contract owners of the converting mutual
insurer have been eligible to receive consideration while policyholders and
contract owners of the insurer's stock subsidiaries have not. It has not yet
been determined whether any exceptions to that general approach will be made
with respect to policyholders and contract owners of Prudential's subsidiaries,
including the Pruco Life.
As of December 31, 1997, Prudential has invested over $442 million in Pruco Life
in connection with Pruco Life's organization and operation. Prudential may from
time to time make additional capital contributions to Pruco Life as needed to
enable it to meet its reserve requirements and expenses in connection with its
business. 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 B-1 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 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 U.S. 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 nineteen subaccounts within the
Account which invest in corresponding portfolios of the Funds available under
the Contract. There are additional subaccounts which invest in other portfolios
of the Prudential Series Fund which
7
<PAGE>
are not available under the Contract. Additional subaccounts may be added in the
future. Pursuant to the terms of the Contract, Pruco Life has the right to
modify unilaterally the Contract to limit the number and/or type of funds. The
Account's financial statements begin on page A-1.
THE FUNDS
The following is a list showing each Fund, its investment objectives and its
investment adviser:
THE PRUDENTIAL SERIES FUND, INC.
MONEY MARKET PORTFOLIO. The maximum current income that is consistent with
stability of capital and maintenance of liquidity through investment in
high-quality short-term debt obligations. There are no assurances that this
portfolio will maintain a stable net asset value.
DIVERSIFIED BOND PORTFOLIO. A high level of income over the longer term while
providing reasonable safety of capital through investment primarily in readily
marketable intermediate and long-term fixed income securities that provide
attractive yields but do not involve substantial risk of loss of capital through
default.
HIGH YIELD BOND PORTFOLIO. Achievement of a high total return through
investment in high yield/high risk fixed income securities in the medium to
lower quality ranges.
STOCK INDEX PORTFOLIO. Achievement of investment results that correspond to the
price and yield performance of publicly traded common stocks in the aggregate by
following a policy of attempting to duplicate the price and yield performance of
the Standard & Poor's 500 Composite Stock Price Index.
EQUITY INCOME PORTFOLIO. Both current income and capital appreciation through
investment primarily in common stocks and convertible securities that provide
favorable prospects for investment income returns above those of the Standard &
Poor's 500 Composite Stock Price Index or the New York Stock Exchange Composite
Index.
EQUITY PORTFOLIO. Capital appreciation through investment primarily in common
stocks of companies, including major established corporations as well as smaller
capitalization companies, that appear to offer attractive prospects of price
appreciation that is superior to broadly-based stock indices. Current income, if
any, is incidental.
PRUDENTIAL JENNISON PORTFOLIO. Long-term growth of capital through investment
primarily in equity securities of established companies with above-average
growth prospects. Current income, if any, is incidental.
GLOBAL PORTFOLIO. Long-term growth of capital through investment primarily in
common stock and common stock equivalents of foreign and domestic issuers.
Current income, if any, is incidental.
Prudential is the investment advisor for the assets of each of the portfolios of
the Prudential Series Fund. Prudential has a Service Agreement with its
wholly-owned subsidiary The Prudential Investment Corporation ("PIC"), which
provides that, subject to Prudential's supervision, PIC will furnish investment
advisory services in connection with the management of the Prudential Series
Fund. In addition, 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.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. GROWTH AND INCOME FUND. The Fund's investment objective is to seek
growth of capital, with current income as a secondary objective.
AIM V.I. VALUE FUND. The Fund's investment objective is to achieve long-term
growth of capital by investing primarily in equity securities judged by A I M
Advisors, Inc. to be undervalued relative to the current or projected earnings
of the companies issuing the securities, or relative market values of assets
owned by the companies issuing the securities or relative to the equity market
generally. Income is a secondary objective and would be satisfied principally
from the income (interest and dividends) generated by the common stocks,
convertible bonds and convertible preferred stocks that make up the Fund's
portfolio.
A I M Advisors, Inc., serves as the investment adviser to the AIM V.I. Value
Fund and the AIM V.I. Growth and Income Fund.
8
<PAGE>
JANUS ASPEN SERIES
GROWTH PORTFOLIO. A diversified portfolio that seeks long-term growth of
capital by investing primarily in common stocks, with an emphasis on companies
with larger market capitalizations.
INTERNATIONAL GROWTH PORTFOLIO. A diversified portfolio that seeks long-term
growth of capital by investing primarily in common stocks of foreign issuers.
Janus Capital Corporation is the investment adviser to the Growth Portfolio and
the International Growth Portfolio and is responsible for the day-to-day
management of the portfolios and other business affairs of the portfolios.
MFS VARIABLE INSURANCE TRUST
EMERGING GROWTH SERIES. This Series seeks to provide long-term growth of
capital. Dividend and interest income from portfolio securities, if any, is
incidental to the Series' investment objective of long-term growth of capital.
RESEARCH SERIES. The Research Series' investment objective is to provide
long-term growth of capital and future income.
Massachusetts Financial Services Company, a Delaware corporation, is the
investment adviser to each MFS Series.
OCC ACCUMULATION TRUST (FORMERLY KNOWN AS QUEST FOR VALUE ACCUMULATION TRUST)
MANAGED PORTFOLIO. Growth of capital over time through investment in a
portfolio consisting of common stocks, bonds and cash equivalents, the
percentages of which will vary based on management's assessments of relative
investment.
SMALL CAP PORTFOLIO. Capital appreciation through investment in a diversified
portfolio of equity securities of companies with market capitalizations of under
$1 billion.
OpCap Advisors (formerly known as Quest for Value Advisors, the "OCC Manager")
is responsible for management of the OCC Accumulation Trust's business. Pursuant
to the investment advisory agreement with the OCC Accumulation Trust, and
subject to the authority of the Board of Trustees, the OCC Manager supervises
the investment operation of the Managed Portfolio and the Small Cap Portfolio,
furnishes advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities and provides certain
administrative services for the OCC Accumulation Trust.
T. ROWE PRICE
T. ROWE PRICE EQUITY SERIES, INC., EQUITY INCOME PORTFOLIO. The fund's
objective is to provide substantial dividend income as well as long-term capital
appreciation through investment in common stocks of established companies.
T. ROWE PRICE INTERNATIONAL SERIES, INC., INTERNATIONAL STOCK PORTFOLIO. The
fund's objective is long-term growth of capital through investment primarily in
common stocks of established, non-U.S. companies.
T. Rowe Price Associates, Inc. is the Investment Manager for the Equity Income
Portfolio and Rowe Price-Fleming International, Inc. is the Investment Manager
for the International Stock Portfolio.
WARBURG PINCUS TRUST
POST-VENTURE CAPITAL PORTFOLIO. Seeks long-term growth of capital by investing
primarily in equity securities of issuers in their post-venture capital stage of
development and pursues an aggressive investment strategy.
The Warburg Pincus Trust employs Warburg, Pincus Counsellors, Inc. as investment
adviser and Abbott Capital Management, L.P. as its sub-investment adviser with
respect to a portion of the Post-Venture Capital Portfolio allocated to private
limited partnerships or other investment funds.
The investment advisors with respect to the various funds charge a daily
investment management fee as compensation for their services, as set forth in
the table beginning on page 2 and as more fully described in the prospectus for
each Fund.
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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 Funds, nor the Funds currently foresees any such disadvantage, the
Funds' Boards intend 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. This
might force a Fund to sell securities at disadvantageous prices. 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 Funds; or (4) differences between voting instructions
given by variable life insurance and variable annuity contract owners.
Pruco Life will be compensated by an affiliate of each of the Funds (other than
those in the Prudential Series Fund) based upon an annual percentage of the
average assets held in the Fund by Pruco Life under the Contracts. These
percentages vary by Fund, and reflect administrative and other services provided
by Pruco Life.
A FULL DESCRIPTION OF THE FUNDS, THEIR INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, AND RESTRICTIONS, THEIR EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN, AND ALL OTHER ASPECTS OF THEIR OPERATION IS CONTAINED IN THE
ACCOMPANYING PROSPECTUSES FOR EACH FUND AND IN THE RELATED STATEMENTS 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. Any 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
Internal Revenue Service ("IRS") election is made. Before issuing any Contract,
we require submission 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 initial purchase payment and required
information in good order are received at the Prudential Annuity Service Center.
The initial purchase payment is credited to the Contract Fund as of the Contract
Date. If the initial purchase payment that you submit is not accompanied by all
the information we need to issue the Contract, we will contact you to get the
needed information. If we cannot obtain all the needed information within five
business days after receipt, we will either return your initial purchase payment
or get your consent to retaining it until we have received all the necessary
information. 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. Similarly, a subsequent purchase payment will be
credited to the Contract Fund on the date following the valuation period during
which it was received in good order at the Prudential Annuity Service Center.
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SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
You can cancel the Contract within 10 days after receiving it (or whatever
greater period is required in your state). A refund may be requested by mailing
or delivering the Contract to the representative who sold it or to the
Prudential Annuity Service Center. You will receive whatever your Contract is
worth as of the day we receive your request plus or minus the market-value
adjustment with respect to any values in the MVA option. This may be more or
less than your original payments. Some states require that we return your
payments, less any previous withdrawals. If this Contract was purchased as an
IRA, and you exercise this cancellation right, the purchase payments or the
total value of the Contract Fund (whichever is greater depending on applicable
state law) will be refunded to you.
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). Subsequent
purchase payments are credited to the Contract Fund as of the end of the
valuation period in which a proper request is received at the Prudential Annuity
Service Center. You may change the way in which subsequent purchase payments are
allocated by providing Pruco Life with proper written instruction or by
telephoning the Prudential Annuity Service Center, once you have provided the
appropriate identification to effect a telephone transfer. See TRANSFERS, page
12.
ASSET ALLOCATION PROGRAM
An Asset Allocation Program is available to assist you in determining how to
allocate your purchase payments. If you choose to participate in the program,
your registered representative will provide you with an investor profile
questionnaire. Based on your answers to the questionnaire, a software program,
designed by Prudential with the assistance of Ibbotson Associates, will identify
an asset allocation model that is appropriate for investors that have investment
objectives, risk tolerance and time horizons comparable to yours. The Asset
Allocation Program is available at no charge to you. You are under no obligation
to participate in the program or to invest according to the program
recommendations. You may ignore, in whole or in part, the investment allocations
provided by the program.
The Asset Allocation Program is intended as an aid in making your purchase
payment allocations. It is not a guarantee of investment return and there can be
no assurance that any portfolio will attain its investment objectives. You
should consider reviewing your investor profile questionnaire annually, and each
time your investor profile changes.
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 and administrative charges. 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 13 and FEDERAL TAX STATUS, on page 17.
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%.
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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 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. You may make
transfers by proper written notice to the Prudential Annuity Service Center, or
by telephone. Transfers will take effect as of the end of the valuation period
in which a proper transfer request is received at the Prudential Annuity Service
Center.
You will automatically be enrolled to use the Telephone Transfer System. 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 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
MVA 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.
The Contract was not designed for professional market timing organizations or
other organizations or individuals using programed, large or frequent transfers.
A pattern of exchanges that coincides with a "market timing" strategy may be
disruptive to the Funds and will be discouraged. If such a pattern were to be
found, we may be required to modify the transfer procedures, including but not
limited to, not accepting transfer requests of an agent acting under a power of
attorney on behalf of more than one owner.
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 17. Dollar Cost Averaging and Auto-
Rebalancing 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
the fixed-rate option or one of the variable investment options (designated as
the "DCA account") and into one or more other variable investment options.
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. A subsequent purchase payment allocated to a depleted DCA
account will "reactivate" the account. You may ask that transfers be made
monthly, quarterly, semi-annually or annually. You can add to the DCA account at
any time. Initial transfers must be at least 3% of the DCA account. These
amounts are subject to change at Pruco Life's discretion. Any transfers made
pursuant to DCA are not counted in determining the number of transfers subject
to the transfer charge.
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 DCA account was established provided the New York Stock
Exchange is open on that date. 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 in the DCA account has been transferred, or until you notify us
and we process a change in allocation or cancellation of the feature.
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AUTO-REBALANCING
This Contract offers 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. You may select
that rebalancing occur in monthly, quarterly, semi-annual or annual intervals
based on your Contract year. Rebalancing will take effect as of the end of the
valuation period in the intervals you specify and will continue at those
intervals until you notify us otherwise. If the New York Stock Exchange is not
open on the rebalancing date, the transfer will take effect as of the end of the
valuation period which immediately follows that date. Any transfers made
pursuant to Auto-Rebalancing are not counted in determining the number of
transfers subject to the transfer charge. The interest-rate investment options
cannot participate in this administrative feature. In addition, you should not
include the DCA account as one of the subaccounts to be rebalanced.
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 IRAs are considered to have been made first from investment income.
See TAXES PAYABLE BY CONTRACT OWNERS, page 18.
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 13.
Only amounts withdrawn from purchase payments (including full withdrawals) 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 16. This differs from the treatment of withdrawals for
federal income taxes as described above, where generally, withdrawals are
considered to have been made first from investment income. The withdrawal will
be effected as of the end of the valuation period in which a proper withdrawal
request is received at the Prudential Annuity Service Center.
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 in monthly, quarterly, semi-annual or annual
intervals. Withdrawals will be processed as of the end of the valuation period
in the intervals you specify and will continue at those intervals until you
notify us otherwise. If the New York Stock Exchange is not open on the
processing date, the withdrawal will be processed as of the end of the valuation
period which immediately follows that date. 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.
The minimum automated withdrawal amount is $250. An automated withdrawal will
generally have federal income tax consequences, which could include tax
penalties. See FEDERAL TAX STATUS, on page 17.
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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 C-1. With respect to residents of Pennsylvania only,
see page C-4.
DEATH BENEFIT
Early in 1998, Pruco Life began to offer an enhanced Death Benefit under the
Contract. For Contracts issued after the new Death Benefit became available in a
particular state, the new Death Benefit is contained in an Endorsement that is
issued with the Contract. Existing Contract Owners are also being given the
option to elect the new Death Benefit or retain the Death Benefit currently
available under their Contracts. For existing Contract Owners electing the new
Death Benefit, the Endorsement describing the new Death Benefit will be issued
after the Contract and should be attached to and kept with the Contract. As used
here, the term "Endorsement Date" describes both the date on which the Contract
is issued with the Endorsement for Contracts purchased after the new Death
Benefit is available and the date on which the Endorsement is issued for
existing Contract Owners so electing. The new Death Benefit provisions are
described below.
If the sole or last surviving 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.
IF THE SOLE OR OLDER ANNUITANT IS UNDER AGE 80 when the Death Benefit
Endorsement is issued, the Death Benefit on or prior to the Contract Anniversary
coinciding with or next following his or her 80th birthday will equal the
greater of, the Contract Fund value or the Guaranteed Minimum Death Benefit, as
of the date of due proof of death. The Guaranteed Minimum Death Benefit is
calculated daily and is equal to the greater of: (1) the 5% annual increase
("Roll-Up"); or (2) the highest annual Contract Fund value ("Step-Up"), both of
which are described below.
Roll-Up
The Roll-Up is equal to the total invested purchase payments (initial and
additional) and is increased daily to the date of death at an effective annual
interest rate of 5%, until the cap maximum is reached. The cap is equal to the
sum of two times each invested purchase payment. The Roll-Up and the cap are
proportionally reduced by the effect of withdrawals. Once the cap is reached,
the Roll-Up can only be increased by the amount of additional invested purchase
payments and will be proportionally reduced by the effect of withdrawals. For
purposes of determining the Death Benefit, "proportionally reduced by the effect
of withdrawals" means that withdrawals (including any applicable charges) will
reduce other values in the same proportion as they reduce the Contract Fund
value.
Step-Up
Prior to the first Contract Anniversary, the Step-Up is the initial invested
purchase payment increased by additional invested purchase payments and
proportionally reduced by the effect of withdrawals. The Step-Up for
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each subsequent Contract Anniversary will be reset to the greater of the
Contract Fund value as of that Contract Anniversary and the prior Step-Up.
Between Contract Anniversaries, the Step-Up will be increased by invested
purchase payments and proportionally reduced by effect of withdrawals.
After the Contract Anniversary coinciding with or following the Annuitant's 80th
birthday, the Death Benefit will equal the greater of the Contract Fund value as
of the date of due proof of death or the Guaranteed Minimum Death Benefit as of
the Contract Anniversary coinciding with or next following his or her 80th
birthday, increased by additional invested purchase payments and proportionally
reduced by the effect of withdrawals since such Contract Anniversary.
IF THE SOLE OR OLDER ANNUITANT IS AGE 80 OR OVER on the Endorsement Date, the
Death Benefit will equal the greater of the Contract Fund value as of the date
of due proof of death or the total invested purchase payments (initial and
additional) proportionally reduced by the effect of withdrawals.
Upon issuance of the Endorsement, you may not change an Annuitant or
Co-Annuitant. You may add or remove an Annuitant or Co-Annuitant only with our
prior approval.
If the Contract was issued prior to the Endorsement Date, the following rules
apply: (1) the initial value of the Roll-Up and the Step-Up is the total
invested purchase payments (initial and additional), less total withdrawals
(including any applicable charges) as of the issuance of the Endorsement; (2)
the initial value of the cap will be two times the initial value of the Roll-Up;
and (3) the words, "Prior to the first Contract Anniversary", as used in the
description of the Step-Up, means prior to the first Contract Anniversary
following the issuance of the Endorsement.
Contracts issued prior to the Endorsement Date WHOSE OWNERS DO NOT ELECT TO
ATTACH THE ENDORSEMENT TO THEIR CONTRACTS and Contracts issued in states in
which the Endorsement is not available will continue to have the Death Benefit
calculated as originally offered, as follows: The Death Benefit will equal the
greatest of: (1) the Contract Fund as of the date of due proof of death; or (2)
the sum of all invested purchase payments made less total withdrawals made
(including withdrawal charges); or (3) the greatest of the Contract Fund values
calculated on every third Contract Anniversary reduced by all subsequent
withdrawals and withdrawal charges.
The Death Benefit is payable on the death of the sole or last surviving
Annuitant, not the Contract Owner. For a discussion of the required distribution
rules, SEE TAXES PAYABLE BY CONTRACT OWNERS, page 18.
The beneficiary may receive this amount in a lump 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 a lump 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 High Yield Bond 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 Fund. 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.
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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. Currently, no such deduction is made from
purchase payments in any state. In some states, however, 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 0.5% to 5%, and may also vary depending on whether the
Contract is issued in connection with an IRA. Pruco Life 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 states where approval has
been obtained. Currently, no such charge is being made in any state.
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). There will be an additional charge of $30 annually and upon
surrender on Contracts with less than $50,000 in the Contract Fund. This $30
charge will be apportioned over all investment options making up the Contract
Fund as of the effective date of that deduction.
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.
EXPENSES INCURRED BY THE FUNDS
The charges and expenses of the Funds are indirectly borne by the Contract
owners. Details about investment management fees and other underlying fund
expenses are provided in the fee table and in the accompanying prospectuses for
the Funds and the related statements 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 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 C-1 as part of the
example of how the Market-Value Adjustment works.
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If your withdrawal of purchase payments exceeds the charge-free amount and it is
made within the first seven Contract years, a percentage charge will be applied.
The withdrawal charge is based on Contract Date and not deposit date. The
following table sets forth the rates that apply:
<TABLE>
<CAPTION>
THE WITHDRAWAL CHARGE WILL BE EQUAL
FOR WITHDRAWALS DURING THE CONTRACT TO THE FOLLOWING PERCENTAGE OF THE
YEAR INDICATED AMOUNT WITHDRAWN*
<S> <C>
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
</TABLE>
* 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 PAYOUT PROVISIONS, page
24. Pruco Life may reduce or eliminate the amount of the withdrawal charge when
the Contract is sold under circumstances which reduce its sales expenses. Some
examples are: if there is a large group of individuals that will be purchasing
the Contract or a prospective purchaser already has a relationship with Pruco
Life or its affiliates.
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.
TRANSACTION CHARGE
There is a charge of $25 for each transfer you make after the first 12
(excluding DCA and Auto-Rebalancing 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 withdrawal charge due on the annuity date,
will be waived following the receipt of due proof that the annuitant or (if
applicable) last surviving 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 is terminally ill (i.e., has 6 months or less
to live). Other definitions and restrictions may apply based upon your state of
residence.
OTHER CHARGES
The Account is not a separate taxpayer for purposes of the Code. The earnings of
the Account are taxed as part of the operations of Pruco Life. No charge is
currently being made 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 company federal
income taxes that would be attributable to the Account.
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 Account. If there is a material change in
the 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.
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
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annuity contracts held by or for non-natural persons (e.g., corporations) or to
contracts held under tax-favored retirement plans. Where a Contract is held by a
non-natural person, unless the Contract owner is a nominee or agent for a
natural person (or in other limited circumstances), the Contract will generally
not be treated as an annuity for tax purposes, and increases in the value of the
Contract will be subject to current tax.
DIVERSIFICATION AND INVESTOR CONTROL
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 accompanying
prospectus for the Prudential Series Fund.
IRS regulations issued to date do not provide guidance concerning the extent to
which Contract owners may direct their investments to particular subaccounts of
a separate account without causing the Contract owners instead of Pruco Life to
be considered the owners of the underlying assets. Such guidance will be
included in regulations or revenue rulings under Section 817(d) relating to the
definition of a variable contract. The ownership rights under the Contract are
similar to, but different in certain respects from, those addressed by the
Internal Revenue Service in Rulings in which it was determined that Contract
owners were not owners of separate account assets. For example, a Contract owner
has the choice of more Funds, including Funds with similar broad investment
strategies and different investment managers, and may be able to reallocate
amounts between subaccounts more frequently than in such rulings. While Pruco
Life believes it will be considered the owner of the Account assets, these
differences could result in a Contract owner being considered the owner of the
Account assets. Because of this uncertainty, Pruco Life reserves the right to
make such changes as it deems necessary to assure that the Contract qualifies 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.
For non-qualified Contracts, amounts withdrawn before annuity payments begin
which represent a distribution of investment income and may, under certain
circumstances, be subject to a penalty tax. Amounts which represent a withdrawal
of purchase payments will not be taxable as ordinary income and may, under
certain circumstances, be 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.
Different tax rules apply to your receipt of annuity payments. For Contracts
other than those used in connection with tax favored plans, 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.
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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 withdrawals: (1) made on or after the
Contract owner reaches age 59 1/2; (2) made on or after the death of the
Contract owner; (3) attributable to 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) allocable
to investment in the Contract before August 14, 1982; (6) under a qualified
funding asset (defined by Code section 130(d)); or (7) under an immediate
annuity contract (within the meaning of Code section 72(u)(4)).
If the 10% penalty tax does not apply to a withdrawal by reason of the exception
for withdrawals in the form of a level annuity (clause (4) above), but the
series of payments is modified (other than by reason of death or disability),
either (a) before the end of the 5-year period beginning with the first payment
and after the Contract Owner reaches age 59 1/2, or (b) before the Contract
Owner attains age 59 1/2, the Contract Owner's tax for the year of the
modification will be increased by the penalty tax that would have been imposed
without the exception, plus interest for the deferral period.
Where a contract is issued in exchange for a Contract containing purchase
payments made before August 14, 1982, favorable tax rules may apply to certain
withdrawals from the Contract. Consult a tax advisor for information regarding
these rules.
Election of the interest payment option is not considered 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. 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 IRS REQUIRED DISTRIBUTIONS ON DEATH OF OWNER,
page 20.
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 26.
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.
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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 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.
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 the 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, such portion of the Contract may
be continued with the surviving spouse as the owner. This rule does not apply to
Contracts issued in connection with tax favored plans other than IRAs.
CONTRACTS USED IN CONNECTION WITH TAX FAVORED PLANS
Currently, the Contract may be purchased for use in connection with individual
retirement accounts or annuities ("IRAs") which are subject to Sections 408(a),
408(b) and 408A of the Code. At some time in the future, we may allow the
Contract to be purchased in connection with other retirement arrangements which
are entitled to favorable federal income tax treatment ("tax favored plans").
These include: simplified employee pension plans ("SEPs") under Section 408(k)
of the Code, saving incentive match plans for employees-IRA ("SIMPLE-IRAs")
under Section 408(p) of the Code, and tax deferred annuities under Section
403(b) of the Code ("TDAs"). Such plans, accounts, and annuities must satisfy
certain requirements of the Code in order to be entitled to the federal income
tax benefits accorded to these plans. A discussion of these requirements is
beyond the scope of this prospectus, and it is assumed that such requirements
are met with respect to a Contract purchased for use in connection with a tax
favored plan.
In general, assuming the requirements and limitations of the Code provisions
applicable to the particular type of tax favored plan involved are satisfied,
purchase payments (other than after-tax employee payments) under the Contract
will be deductible (or not includible in income) up to certain amounts each year
and federal income tax will not be imposed on the investment income and realized
gains of the subaccounts in which the purchase payments have been invested until
a distribution is received. Persons contemplating the purchase of a Contract in
connection with a tax favored plan should consult their tax advisor before
purchasing a Contract for such purposes.
The comments which follow concerning specific tax favored plans are intended
merely to call attention to certain of their features. No attempt has been made
to discuss in full the tax ramifications involved or to offer tax advice. As
suggested above, a qualified tax advisor should be consulted for advice and
answers to any questions.
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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),
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. However, if regular IRA contributions are made, the
Funds in the Contract cannot be used as a conduit IRA and may not later be
placed in another plan that is qualified under Sections 401(a), 403(a) or 403(b)
of the Code.
In order to qualify as an IRA under Section 408(b) of the Code, a Contract (or
an endorsement 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; (4) except in the case of a
"rollover" contribution, the annual premium may not exceed $2,000; (5) generally
for traditional IRAs, the annuity date may be no later than April 1 of the
calendar year following the calendar year in which the annuitant attains age
70 1/2; and (6) annuity and death benefit payments must satisfy certain minimum
distribution requirements. Contracts issued as Section 408(b) IRAs will conform
to such requirements.
In general, the full amount distributed from a traditional IRA (and not properly
rolled over to another IRA) is subject to federal income tax and to the
withholding rules described above. A 10% early distribution penalty applies to
distributions made before the Contract owner reaches age 59 1/2, subject to
certain exceptions. If the owner borrows against the IRA or engages in certain
prohibited transactions, the Contract ceases to qualify as an IRA and the full
amount is deemed to be distributed. In addition, any amount pledged as security
for a loan is deemed to be distributed. Payments from a traditional IRA
generally must begin by April 1 of the calendar year following attainment of age
70 1/2 and are subject to certain minimum distribution requirements.
SEPS
Under a SEP, annual employer contributions to an IRA established by an employee
are not includible in income up to the lesser of $30,000 or 15% of the
employee's earned income (excluding the employer's contribution to the SEP). In
addition, a SEP must satisfy certain minimum participation requirements and
contributions may not discriminate in favor of highly compensated employees.
Contracts issued as Section 408(b) IRAs established under a SEP must satisfy the
requirements described above for a Section 408(b) IRA.
Certain SEP arrangements are permitted to allow employees to elect to reduce
their salaries by as much as $10,000 (in 1998) and have their employer make
contributions on their behalf to the SEP. These arrangements, called salary
reduction SEPs, are available only if the employer maintaining the SEP has 25 or
fewer employees and at least 50% of the eligible employees elect to make salary
reduction contributions. Other limitations may reduce the permissible
contribution level for highly compensated employees. New salary reduction SEPs
may not be established after 1996.
In accordance with IRS regulations, persons who purchase a Contract used as an
IRA, including one established under a SEP arrangement, are given disclosure
material prepared by Pruco Life. The material includes this prospectus, a copy
of the Contract, and a brochure containing information about eligibility,
contribution limits, tax consequences, and other particulars concerning IRAs.
The regulations require that such persons be given a free look after making an
initial contribution in which to affirm or reverse their decision to
participate. Therefore, within the free look a person may cancel his or her
Contract by notifying Pruco Life in writing, and Pruco Life will refund all of
the purchase payments under the Contract or, if greater, the amount credited
under the Contract (less any bonus) computed as of the valuation period that
Pruco Life receives the notice for cancellation. See SHORT-TERM CANCELLATION
RIGHT OR "FREE LOOK", page 10.
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SIMPLE-IRAS
Under a SIMPLE-IRA, an employee can elect to contribute up to $6,000 (in 1998,
indexed) per year to an IRA. Employer contributions are also provided as either
a match (up to 3% of compensation) or 2% nonelective contribution. These
contributions are not taxable until withdrawn, and are fully vested.
Distributions are generally taxed under the rules applicable to IRAs.
SIMPLE-IRAs are not subject to the general nondiscrimination rules and
simplified reporting rules apply.
To qualify for a SIMPLE-IRA, the employer may employ no more than 100 employees
(on a controlled group basis) who received at least $5,000 in compensation from
the employer in the preceding year, and may not maintain other
employer-sponsored retirement plans to which contributions were made or benefits
accrued.
TDAS
Section 403(b) of the Code permits employers and employees of Section 501(c)(3)
tax-exempt organizations and public educational organizations to make, subject
to certain limitations, contributions to an annuity in which the employee's
rights are nonforfeitable (commonly referred to as a "tax deferred annuity").
The amounts contributed under a TDA and increments thereon are not taxable as
income until distributed as annuity income or otherwise. Generally,
contributions to a TDA may be made through a salary reduction arrangement up to
a maximum of $10,000 (in 1998, as indexed). However, under certain special
rules, the limit could be increased as much as $3,000. In addition, the Code
permits certain total distributions from a TDA to be "rolled over" to another
TDA or IRA. Certain partial distributions from a TDA may be "rolled over" to an
IRA.
An annuity contract will not qualify as a TDA, unless under such contract
distributions from salary reduction contributions and earnings thereon (other
than distributions attributable to assets held as of December 31, 1988) may be
paid only on account of attainment of age 59 1/2, severance of employment,
death, total and permanent disability and, in limited circumstances, hardship.
(Such hardship withdrawals are permitted, however, only to the extent of salary
reduction contributions and not earnings thereon.) The Section 403(b)(11)
withdrawal restrictions referred to above do not apply to the transfer of all or
part of a Contract owner's interest in his or her Contract among the available
investment options offered by Pruco Life or to the direct transfer of all or
part of the Contract owner's interest in the Contract to a Section 403(b)
tax-deferred annuity contract of another insurance company or to a mutual fund
custodial account under Section 403(b)(7) of the Code.
In imposing the restrictions on withdrawals as described above, Pruco Life is
relying upon a no-action letter dated November 28, 1988 from the Chief of the
Office of Insurance Products and Legal Compliance of the SEC to the American
Council of Life Insurance.
Employer contributions are subject generally to the same coverage, minimum
participation and nondiscrimination rules applicable to qualified pension and
profit-sharing plans. Distributions from a TDA generally must commence by April
1 of the calendar year following the later of the calendar year in which the
employee: (i) attains age 70 1/2; or (2) retires. Distributions must satisfy
minimum distribution requirements similar to those that apply to qualified plans
generally.
MINIMUM DISTRIBUTION OPTION
A Minimum Distribution Option is available under traditional IRAs and certain
other tax favored plans. This option enables the owner to satisfy IRS minimum
distribution requirements without having to annuitize or cash surrender the
Contract. Distributions from certain tax favored plans generally must begin by
April 1 of the calendar year following the later of the calendar year in which
the employee: (1) attains age 70 1/2; or (2) retires (part 2 is not applicable
to traditional IRAs). 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. 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 tax favored accounts, he or
she will be responsible for taking the minimum distribution from each.
WITHHOLDING ON TAX FAVORED PLANS
Certain distributions from qualified retirement plans and 403(b) annuities will
be subject to mandatory 20% federal income tax withholding unless the
distribution is an eligible rollover distribution that is "directly" rolled
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over into another qualified plan, 403(b) annuity or IRA. Unless the Contract
owner elects to the contrary, the portion of any taxable amounts received under
the Contract will be subject to withholding to meet federal income tax
obligations. The rate of withholding on annuity payments where mandatory
withholding is not required will be determined on the basis of the withholding
certificate filed by the Contract owner with Pruco Life. For annuity payments
not subject to mandatory withholding, if no such certificate is filed, the
Contract owner will be treated, for purposes of determining the withholding
rate, as a married person with three exemptions. The rate of withholding on all
other payments made under the Contract, such as amounts received upon
withdrawals, will be 10%. Thus, if the Contract owner fails to elect that there
be no withholding, Pruco Life will withhold from every withdrawal or annuity
payment the appropriate percentage of the amount of the payment that is taxable.
Pruco Life will provide the Contract owner with forms and instructions
concerning the right to elect that no amount be withheld from payments.
Recipients who elect not to have withholding made are liable for payment of
federal income taxes on the taxable portion of the distribution. All recipients
may be subject to penalties under the estimated tax payment rules if withholding
and estimated tax payments are not sufficient. Contract owners who do not
provide a social security number or other taxpayer identification number will
not be permitted to elect out of withholding. Generally, there will be no
withholding for taxes until payments are actually received under the Contract.
PENALTY FOR EARLY WITHDRAWALS
A 10% penalty tax will generally apply to the taxable part of distributions
received from an IRA, SEP, SIMPLE-IRA (25% penalty in certain situations),
Section 403(b) annuity, and qualified retirement plan before age 59 1/2. Limited
exceptions are provided, such as where amounts are paid in the form of a
qualified life annuity, upon death of the employee, to pay certain medical
expenses, or in certain instances disability or upon separation from service on
or after the attainment of age 55.
ERISA DISCLOSURE
The Employee Retirement Income Security Act of 1974 ("ERISA") prevents a
fiduciary and other "parties in interest" with respect to a pension or
profit-sharing plan from receiving any benefit from any party dealing with the
plan as a result of the sale of the Contract (other than benefits that would
otherwise be provided in the plan).
Administrative exemptions issued by the Department of Labor under ERISA permit
transactions between insurance agents and qualified pension and profit sharing
plans under Section 401(a) and 403(a) of the Code and with SEPs or IRAs. To be
able to rely on the exemptions certain information must be disclosed to the plan
fiduciary purchasing the insurance contract. The information that must be
disclosed includes the relationship between the agent and the insurer, a
description of any charges, fees, discounts, penalties or adjustments that may
be imposed in connection with the purchase, holding, exchange or termination of
the Contract, as well as the commissions received by the agent. Information
about any applicable charges, fees, discounts, penalties or adjustments may be
found under CHARGES, FEES AND DEDUCTIONS, page 16. Information about sales
representatives and commissions may be found under SALE OF THE CONTRACT AND
SALES COMMISSIONS, page 25. Additional information relevant for qualified plan
or IRA investment may be found in the Contract and accompanying documentation.
In addition to disclosure, other conditions apply to the use of the exemption.
For example, a plan fiduciary may not be a partner or employee of Prudential
representative making the sale. The fiduciary must not be a relative of the
representative (including spouse, direct descendant, spouse of a direct
descendant, ancestor, brother, sister, spouse of a brother or sister). The
representative may not be an employee, officer, director or partner of either
the independent fiduciary or the employer establishing the plan. No relative of
the representative may: (1) control, directly or indirectly, the corporation
establishing or maintaining the plan; (2) be either a partner with a 10% or more
interest in the partnership or the sole proprietor establishing or maintaining
the plan; or (3) be an owner of a 5% or more interest in a Subchapter S
Corporation establishing or maintaining the plan. In addition, no affiliate
(including relatives) of the representative may be a trustee, administrator or a
fiduciary with written authority to acquire, manage or dispose of the assets of
the plan.
ADDITIONAL ERISA REQUIREMENTS
If your retirement arrangement is part of a plan governed by ERISA, additional
requirements such as spousal consent to distributions may be necessary. Consult
the terms of your retirement arrangement.
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PAYOUT PROVISIONS
The Contract can be annuitized any time after the end of the first Contract year
(Maryland residents however, may not annuitize the Contract within the first 7
years following the Contract Date). 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. 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 (which may be less in some states), you will
be paid the cash value in a single sum. There is no minimum required monthly
payment in New Jersey.
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 Contract Owner resides is then deducted (unless deducted earlier).
Many states do not impose a premium tax. In other states the tax ranges from 0%
to 5% of the amount applied to effect an annuity. See PREMIUM TAXES AND TAXES
ATTRIBUTABLE TO PURCHASE PAYMENTS, page 16. 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 the forms listed below. 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 ofannuity 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.
1. ANNUITY PAYMENTS FOR A FIXED PERIOD
Payments will be made 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.
2. LIFE ANNUITY WITH 120 PAYMENTS CERTAIN
Payments will be made to the annuitant monthly during his or her lifetime. If
the annuitant dies before the 120th monthly payment is due, 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. No surrender
charge is applicable under this option.
3. 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.
Special provisions may apply if the Contract is issued in connection with an
IRA.
24
<PAGE>
4. OTHER ANNUITY OPTIONS
Currently, you may choose to receive the proceeds of your Contract Fund in the
form of payments like those of any annuity or life annuity then regularly
offered by Prudential or by Pruco Life that (1) is based on United States
currency; (2) is bought by a single sum; (3) does not provide for dividends; and
(4) does not normally provide for deferral of the first payment. Prudential and
Pruco Life currently offer a number of different annuity options, including
joint and survivor annuities covering more than one person.
Under Option 4, unless a fixed period annuity of less than 10 years is selected,
Pruco Life will waive withdrawal charges that might be applicable under other
annuity options. Further, if you select Option 1 without a right of withdrawal,
Pruco Life will effect that option under Option 4 if doing so provides greater
monthly payments.
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.
OTHER 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
Currently, Pruco Securities Corporation ("Prusec"), an indirect wholly-owned
subsidiary of Prudential which was organized in 1971 under New Jersey law, acts
as the principal underwriter of the Contract. Pruco Life expects that during the
second quarter of 1998 Prusec's responsibilities as principal underwriter will
be assigned to Prudential Investment Management Services LLC ("PIMS"). PIMS,
also an indirect wholly-owned subsidiary of Prudential, is a limited liability
corporation organized under Delaware law in 1996. PIMS will act as principal
underwriter under substantially the same terms as Prusec does currently. Both
Prusec and PIMS are registered as broker-dealers under the Securities Exchange
Act of 1934 and are members of the National Association of Securities Dealers,
Inc. The principal business address of both Prusec and PIMS is 751 Broad Street,
Newark, New Jersey 07102-3777.
The Contract is currently sold by registered representatives of the principal
underwriter and may also be sold through other broker-dealers authorized by the
principal underwriter, including broker-dealers otherwise unaffiliated with
Prudential. Registered representatives of such other unaffiliated broker-dealers
may be paid on a different basis than registered representatives of the
principal underwriter or broker-dealers affiliated with Prudential. The maximum
commission that will be paid to the broker-dealer to cover both the individual
representative's commission and other distribution expenses will not exceed 6%
of the purchase payment. In addition, trail commissions based on the size of the
contract Fund may be paid.
VOTING RIGHTS
As stated above, all of the assets held in the subaccounts of the Account are
invested in shares of the corresponding Funds. Pruco Life is the legal owner of
those shares and as such has the right to vote on any matter voted on at any
shareholders meetings of the Funds. However, as required by law, Pruco Life
votes the shares of the Funds at any regular and special shareholders meetings
in accordance with voting instructions received from Contract owners. The Funds
may not hold annual shareholders meetings when not required to do so under the
laws of the state of their incorporation or the 1940 Act. 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
25
<PAGE>
shares in the respective Funds 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 Funds in
its own right, it may elect to do so.
Generally, you may give voting instructions on matters that would be changes in
fundamental policies and any matter requiring a vote of the shareholders of the
Funds. With respect to approval of the investment advisory agreement or any
change in a Fund's fundamental investment policy, Contract owners participating
in such funds will vote separately on the matter.
The number of 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 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 the applicable 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.
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 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 Funds may
become unsuitable for investment by Contract owners. This may occur because of
investment policy changes, tax law changes, the unavailability of shares for
investment or at the discretion of Pruco Life. 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, the annuitant. Ownership of the
Contract may, however, be transferred to another person who need not be the
person who is to receive annuity payment. 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 Funds, 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.
26
<PAGE>
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 annual and semi-annual reports for the applicable Funds.
If a single individual or company invests in the Prudential Series Fund through
more than one variable insurance contract, then the individual or company will
receive only one copy of each annual and semi-annual report issued by the
Prudential Series Fund. However, if such individual or company wishes to receive
multiple copies of any such report, a request may be made by calling the
toll-free telephone number listed on the cover page of this prospectus.
STATE REGULATION
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
EXPERTS
The financial statements included in this prospectus for the years ended
December 31, 1997 and December 31, 1996 have been audited by Price Waterhouse
LLP, independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing. Price Waterhouse LLP's principal business
address is 1177 Avenue of the Americas, New York, New York, 10036.
The financial statements included in this prospectus for the year ended December
31, 1995, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing. Deloitte & Touche LLP's principal business address is Two Hilton
Court, Parsippany, New Jersey 07054-0319.
On March 12, 1996, Deloitte & Touche LLP was replaced as the independent
accountant of Pruco Life. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statements disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make a reference
to the matter in their reports.
LITIGATION
Several actions have been brought against Pruco Life alleging that Pruco Life
and its agents engaged in improper life insurance sales practices. Prudential
has agreed to indemnify Pruco Life for losses, if any, resulting from such
litigation. No other significant litigation is being brought against Pruco Life
that would have a material effect on its financial position.
27
<PAGE>
YEAR 2000 COMPLIANCE
The services provided to the Contract owners by Pruco Life, Prusec and PIMS
depend on the smooth functioning of their respective computer systems. The year
2000, however, holds the potential for a significant disruption in the operation
of these systems. Many computer programs cannot distinguish the year 2000 from
the year 1900 because of the way in which dates are encoded. Left uncorrected,
the year "00" could cause systems to perform date comparisons and calculations
incorrectly that in turn could compromise the integrity of business records and
lead to serious interruption of business processes.
Prudential, as Pruco Life, Prusec and PIMS's ultimate corporate parent,
identified this issue as a critical priority in 1995 and has established quality
assurance procedures including a certification process to monitor and evaluate
enterprise-wide conversion and upgrading of systems for "Year 2000" compliance.
Prudential has also initiated an analysis of potential exposure that could
result from the failure of major service providers such as suppliers, custodians
and brokers, to achieve Year 2000 compliance. Prudential expects to complete its
adaptation, testing and certification of software for Year 2000 compliance by
December 31, 1998. During 1999, Prudential plans to conduct additional internal
testing, to participate in securities industry-wide test efforts and to complete
major service provider analysis and contingency planning.
The expenses of Prudential's Year 2000 compliance are allocated across its
various businesses, including those businesses not engaged in providing services
to Contract owners. Accordingly, while the expense is substantial in the
aggregate, it is not expected to have a material impact on Pruco Life's,
Prusec's and PIMS's abilities to meet their contractual commitments to contract
owners.
Prudential believes that it is well positioned to achieve the necessary
modifications and mitigate Year 2000 risks. However, if such efforts are not
completed on a timely basis, the Year 2000 issue could have a material adverse
impact on Prudential's operations, those of its subsidiary and affiliate
companies and/or the Account. Moreover, there can be no assurance that the
measures taken by Prudential's external service providers will be sufficient to
avoid any material adverse impact on Prudential's operations or those of its
subsidiary and affiliate companies.
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
PERFORMANCE INFORMATION
COMPARATIVE PERFORMANCE INFORMATION
ADDITIONAL INFORMATION
A registration statement has been filed with the SEC, 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 of Pruco Life is 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. This prospectus also contains financial
statements for the Account.
28
<PAGE>
APPENDIX
ACCUMULATION UNIT VALUES
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF THE
FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
<TABLE>
<CAPTION>
------------------------------ ------------------------------ --------------
PRUDENTIAL
PRUDENTIAL PRUDENTIAL HIGH YIELD
MONEY MARKET DIVERSIFIED BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------ ------------------------------ --------------
1/1/97 10/7/96* 1/1/97 10/7/96* 1/1/97
TO TO TO TO TO
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of
period......................................... $ 1.04505 $ 1.03576 $ 1.06033 $ 1.03731 $ 1.12263
2. Accumulation unit value at end of period....... $ 1.08688 $ 1.04505 $ 1.13525 $ 1.06033 $ 1.25972
3. Number of accumulation units outstanding at end
of period...................................... 80,833,415.276 16,621,393.391 83,725,722.943 6,007,103.917 84,952,656.068
<CAPTION>
------------------------------
OCC ACCUMULATION
TRUST MANAGED
PORTFOLIO
------------------------------
10/7/96* 1/1/97 10/7/96*
TO TO TO
12/31/96 12/31/97 12/31/96
-------------- -------------- --------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of
period......................................... $ 1.11250 $ 1.05185 $ 0.99909
2. Accumulation unit value at end of period....... $ 1.12263 $ 1.26868 $ 1.05185
3. Number of accumulation units outstanding at end
of period...................................... 8,231,177.952 144,784,302.260 8,643,613.602
</TABLE>
<TABLE>
<CAPTION>
------------------------------ ------------------------------ --------------
AIM V.I.
PRUDENTIAL PRUDENTIAL GROWTH &
STOCK INDEX EQUITY INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------ ------------------------------ --------------
1/1/97 10/7/96* 1/1/97 10/7/96* 1/1/97
TO TO TO TO TO
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of
period......................................... $ 1.13652 $ 1.07837 $ 1.23339 $ 1.13494 $ 1.03757
2. Accumulation unit value at end of period....... $ 1.48876 $ 1.13652 $ 1.66167 $ 1.23339 $ 1.28644
3. Number of accumulation units outstanding at end
of period...................................... 115,667,745.942 7,481,300.307 99,533,256.833 2,784,920.648 32,365,951.864
<CAPTION>
------------------------------
T. ROWE PRICE
EQUITY INCOME
PORTFOLIO
------------------------------
10/7/96* 1/1/97 10/7/96*
TO TO TO
12/31/96 12/31/97 12/31/96
-------------- -------------- --------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of
period......................................... $ 1.00065 $ 1.04885 $ 0.99996
2. Accumulation unit value at end of period....... $ 1.03757 $ 1.33212 $ 1.04885
3. Number of accumulation units outstanding at end
of period...................................... 3,408,549.878 65,481,114.119 6,578,342.434
</TABLE>
<TABLE>
<CAPTION>
------------------------------ ------------------------------ --------------
PRUDENTIAL PRUDENTIAL AIM V.I.
EQUITY JENNISON VALUE
PORTFOLIO PORTFOLIO FUND
------------------------------ ------------------------------ --------------
1/1/97 10/7/96* 1/1/97 10/7/96* 1/1/97
TO TO TO TO TO
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of
period......................................... $ 1.20807 $ 1.13479 $ 1.13943 $ 1.12169 $ 1.04935
2. Accumulation unit value at end of period....... $ 1.48518 $ 1.20807 $ 1.48006 $ 1.13943 $ 1.27997
3. Number of accumulation units outstanding at end
of period...................................... 134,944,416.513 8,287,180.736 72,354,119.265 4,882,616.029 37,009,784.835
<CAPTION>
------------------------------
JANUS ASPEN SERIES
GROWTH
PORTFOLIO
------------------------------
10/7/96* 1/1/97 10/7/96*
TO TO TO
12/31/96 12/31/97 12/31/96
-------------- -------------- --------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of
period......................................... $ 1.00223 $ 1.00830 $ 1.00191
2. Accumulation unit value at end of period....... $ 1.04935 $ 1.22056 $ 1.00830
3. Number of accumulation units outstanding at end
of period...................................... 4,033,863.906 40,236,134.863 5,459,308.662
</TABLE>
* Commencement of Business
29
<PAGE>
<TABLE>
<CAPTION>
------------------------------ ------------------------------ --------------
OCC
ACCUMULATION
MFS TRUST
MFS EMERGING GROWTH SMALL CAP.
RESEARCH SERIES SERIES PORTFOLIO
------------------------------ ------------------------------ --------------
1/1/97 10/7/96* 1/1/97 10/7/96* 1/1/97
TO TO TO TO TO
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of
period......................................... $ 1.02610 $ 1.00228 $ 0.95812 $ 1.00860 $ 1.05106
2. Accumulation unit value at end of period....... $ 1.21695 $ 1.02610 $ 1.15186 $ 0.95812 $ 1.26710
3. Number of accumulation units outstanding at end
of period...................................... 31,409,622.799 2,727,173.841 44,342,699.749 5,755,823.499 36,276,986.681
<CAPTION>
------------------------------
WARBURG PINCUS
POST-VENTURE CAPITAL
PORTFOLIO
------------------------------
10/7/96* 1/1/97 10/7/96*
TO TO TO
12/31/96 12/31/97 12/31/96
-------------- -------------- --------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of
period......................................... $ 0.99623 $ 0.95745 $ 1.00587
2. Accumulation unit value at end of period....... $ 1.05106 $ 1.07018 $ 0.95745
3. Number of accumulation units outstanding at end
of period...................................... 2,345,892.859 11,039,843.408 1,786,114.670
</TABLE>
<TABLE>
<CAPTION>
------------------------------ ------------------------------ --------------
T. ROWE PRICE
PRUDENTIAL JANUS ASPEN SERIES INTERNATIONAL
GLOBAL INTERNATIONAL GROWTH STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------ ------------------------------ --------------
1/1/97 10/7/96* 1/1/97 10/7/96* 1/1/97
TO TO TO TO TO
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1. Accumulation unit value at beginning of
period......................................... $ 1.19505 $ 1.14330 $ 1.05349 $ 1.00130 $ 1.03988
2. Accumulation unit value at end of period....... $ 1.26079 $ 1.19505 $ 1.23121 $ 1.05349 $ 1.05690
3. Number of accumulation units outstanding at end
of period...................................... 18,580,228.224 1,375,155.605 63,737,491.551 5,902,196.099 22,039,049.211
<CAPTION>
10/7/96*
TO
12/31/96
--------------
<S> <C> <C> <C> <C>
1. Accumulation unit value at beginning of
period......................................... $ 1.00159
2. Accumulation unit value at end of period....... $ 1.03988
3. Number of accumulation units outstanding at end
of period...................................... 2,951,073.568
</TABLE>
* Commencement of Business
30
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for Pruco Life Insurance Company and
Subsidiaries should be read in conjunction with the CONSOLIDATED FINANCIAL
STATEMENTS OF PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES and notes thereto
included in this prospectus beginning on page B-1.
<TABLE>
<CAPTION>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
----------------------------------------------------------------
STATUTORY
GAAP BASIS BASIS
--------------------------------------------------- -----------
1997 1996 1995 1994 1993
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Premiums and other revenue............... $ 424,563 $ 408,154 $ 401,287 $ 303,627 $ 591,660
Net investment income.................... 259,634 247,328 246,618 241,132 260,939
----------------------------------------------------------------
Total revenues............................. 684,197 655,482 647,905 544,759 852,599
Benefits and expenses:
Current and future benefits and
claims................................. 290,234 305,119 280,913 235,660 534,354
Other expenses........................... 225,721 122,006 134,790 179,173 157,557
----------------------------------------------------------------
Total benefits and expenses................ 515,955 427,125 415,703 414,833 691,911
----------------------------------------------------------------
Income before income tax provision......... 168,242 228,357 232,202 129,926 160,688
Income tax provision....................... 61,868 79,135 79,558 48,031 83,640
----------------------------------------------------------------
Net income................................. $ 106,374 $ 149,222 $ 152,644 $ 81,895 $ 77,048
----------------------------------------------------------------
----------------------------------------------------------------
Assets..................................... $ 12,851,467 $ 9,710,366 $ 8,471,638 $ 7,713,183 $ 7,172,104
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
In 1996, the Company retroactively adopted, as of January 1, 1995, applicable
accounting pronouncements to present its financial statements in conformity with
generally accepted accounting principles ("GAAP").
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The Company markets individual life insurance, variable life insurance, variable
annuities, and deferred annuities primarily through Prudential's sales force in
the United States, and in Taiwan.
The Company markets its products in the life insurance and annuity sectors of
the insurance industry. These markets are faced with an increased tightening of
the regulatory environment with particular emphasis placed on company solvency
and sales practices. The legal barriers which have historically segregated the
markets of the financial services industry are being challenged through both
legislative and judicial process. Regulatory changes which opened the insurance
industry to other financial institutions, particularly banks and mutual funds,
heightened competition in investment type products since those institutions were
positioned to deliver the same products through large, stable distribution
channels.
The Company held $12.8 billion in assets at December 31, 1997 compared to $9.7
billion at December 31, 1996, of which $8.0 billion and $5.3 billion were held
in Separate Accounts in 1997 and 1996, respectively, under variable life
insurance policies and variable annuity contracts. The remaining assets were
held in the general account for investment primarily in bonds, short-term
investments and policy loans.
1. RESULTS OF OPERATIONS
Net income for the year ended December 31, 1997 amounted to $106.4 million, a
decrease of $42.8 million or 28.7% compared to the $149.2 million earned in the
year ended December 31, 1996. Net income for the year ended December 31, 1995
amounted to $152.6 million.
(a) 1997 VERSUS 1996
Total insurance revenues, consisting of premiums and policy charges and fee
income increased $3.3 million for the year ended December 31, 1997 to $379.8
million from $376.5 million for the year ended December 31, 1996. This increase
in insurance revenues consists of an increase of $5.3 million in policy charges
and fee income offset by a decrease in premiums of $2.0 million. These
fluctuations are due to an increased emphasis in the domestic market place on
investments in retirement type products, rather than in life insurance
protection products. This was partially offset by an increase in premiums for
traditional insurance products generated from our Taiwan branch, which has
continued its growth throughout 1997.
The Company's consolidated net investment income increased $12.3 million for the
year ended December 31, 1997 to $259.6 from $247.3 million for the year ended
December 31, 1996. Increase in cash flows from insurance operations and average
assets as well as the asset allocation strategies, produced favorable investment
results in 1997. Fixed maturity income increased in 1997 due to higher
investment returns as a result of a shift to higher yielding securities. Income
from short term investments increased because of higher fixed maturity assets
available to lend to third parties as part of the Company's securities lending
program. Offsetting these increases was a decline in income on the mortgage loan
portfolio, a result of declining asset base due to loan prepayments and
repayments exceeding origination levels.
Other income increased $13.0 million for the year ended December 31, 1997 to
$33.8 million from $20.8 million for the year ended December 31, 1996. This
increase is due to an increase in advisory fees attributable to the Discovery
Preferred and Discovery Select Separate Account products.
Policyholders' benefits decreased $7.5 million for the year ended December 31,
1997 to $179.4 million from $186.9 million for the year ended December 31, 1996.
This decrease is attributable to better mortality experience associated with the
Company's products.
Interest credited to policyholders' account balances decreased by $7.4 million
for the year ended December 31, 1997 to $110.8 million from $118.2 million for
the year ended December 31, 1996. This decrease is primarily attributable to a
decrease in interest crediting rates, partially offset by increased fund values
due to new sales of Separate Account products.
Other operating costs and expenses increased $103.7 million for the year ended
December 31, 1997 to $225.7 million compared to $122.0 million for the year
ended December 31, 1996. The increase reflects factors
32
<PAGE>
including the refinement of estimated gross profit margins used to amortize
deferred policy acquisition costs (DAC). Favorable mortality experience and
reduction in cost of insurance charges contributed to a change in net
amortization. Favorable sales in 1997 were a partial offset. Also, increased
operating costs resulted from higher sales activity of Discovery Select and
Discovery Preferred annuity products, and technological advancements made in
annuity processing, customer service, and product development.
INVESTMENT RESULTS
The Company's investment portfolio supports its insurance and annuity
liabilities and other obligations to customers for which it assumes investment
related risks. The portfolio was comprised of total investments amounting to
$3.9 billion at December 31, 1997, versus $3.5 billion at December 31, 1996. A
diversified portfolio of publicly traded bonds, private placement securities,
commercial mortgages and equities is managed under strategies intended to
maintain optimal asset mix consistent with current and anticipated cash flow
requirements of the related obligations. The risk tolerance reflects the
Company's aggregate capital position, exposure to business risk, liquidity, and
rating agency considerations.
The asset management strategy for the portfolio is set in accordance with an
investment policy statement developed and coordinated within The Prudential by
the Portfolio Management Group and agreed to by senior management and approved
by the Board of Directors. In managing the investment portfolio, the long term
objective is to generate favorable investment results through asset/liability
management, strategic and tactical asset allocation and asset manager selection
based on performance. Asset mix strategies are developed with criteria intended
to match asset structure to product liabilities considering the underlying
income and return characteristics of investment alternatives, seeking to closely
approximate the interest rate sensitivity of the asset portfolio with the
estimated interest rate sensitivity of the product liabilities. Other objectives
include maintenance of broad diversification across asset classes, issuers and
sectors; effective utilization of capital while maintaining liquidity funds
believed to be adequate to satisfy cash flow requirements; and achievement of
competitive performance. The major categories of invested assets, quality across
the portfolio, recent activities to reduce risk and more carefully manage the
portfolio are discussed below.
FIXED MATURITIES
The fixed maturity portfolio is diversified across maturities, sectors and
issuers. The Company has classified all publicly traded securities and
approximately 50% of privately traded securities as "available for sale" and the
remainder of the privately placed fixed maturities as "held to maturity".
"Available for sale" securities are carried in the Consolidated Statements of
Financial Position at fair value, with unrealized gains and losses (after
certain related adjustments) recognized by credits and charges to equity
capital. Securities "held to maturity" are carried at amortized cost, and
unrealized gains or losses on these securities are not recognized in the
financial statements.
At December 31, 1997, the net unrealized capital gains on the "available for
sale" fixed maturity portfolio totaled $37 million compared to $27 million at
December 31, 1996. The increase in the net unrealized gain position is primarily
attributable to declining interest rates. The following table details the
amortized cost and estimated fair value of the fixed maturity portfolio as of
December 31:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------- -----------------------------------------
AMORTIZED ESTIMATED NET UNREALIZED AMORTIZED ESTIMATED NET UNREALIZED
COST FAIR VALUE GAINS COST FAIR VALUE GAINS
----------- ----------- --------------- ----------- ----------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
FIXED MATURITIES -- AVAILABLE FOR SALE
Publicly traded......................... $ 2,158 $ 2,188 $ 30 $ 1,955 $ 1,977 $ 22
Privately traded........................ 369 376 7 255 260 5
----------- ----------- --- ----------- ----------- ---
Total Fixed maturities -- available for
sale.................................. $ 2,527 $ 2,564 $ 37 $ 2,210 $ 2,237 $ 27
----------- ----------- --- ----------- ----------- ---
FIXED MATURITIES -- HELD TO MATURITY
Privately traded........................ 339 350 11 406 416 10
----------- ----------- --- ----------- ----------- ---
Total................................... $ 2,866 $ 2,914 $ 48 $ 2,616 $ 2,653 $ 37
----------- ----------- --- ----------- ----------- ---
----------- ----------- --- ----------- ----------- ---
</TABLE>
33
<PAGE>
At December 31, 1997, the Company's holdings of private placement fixed
maturities had an estimated fair value totaling $726.1 million and constituted
25% of total carrying value of fixed maturities. These investments generally
offer higher yields than comparable quality public market securities, increase
the diversification of the portfolio, and contain more restrictive covenants
than public securities. In particular, private placement securities offer
greater call protection, a key feature for assets backing longer term guaranteed
products.
The private placement fixed maturity portfolio decreased more than $49 million
from year ended December 31, 1996, primarily as a result of prepayment and sales
activity relative to 1997 origination levels.
The public fixed maturity portfolio increased from $2.0 billion at December 31,
1996 to $2.2 billion at December 31, 1997. Investment grade fixed maturities
comprised approximately 94% and 93% of total publicly traded fixed maturities at
December 31, 1997 and 1996, respectively.
The Company reviews all fixed maturities quarterly and identifies potential
problem assets which require additional monitoring. These assets, while not
currently impaired, are believed to present default risk associated with future
debt service obligations and are therefore managed more actively.
MORTGAGE LOANS
As of December 31, 1997, the Company's mortgage loan portfolio totaled $22.8
million, a decrease of $24.1 million from $46.9 million as of December 31, 1996.
The portfolio is comprised of commercial mortgage loans. The overall decline in
the portfolio was a result of maturities, sales and repayments.
The Company monitors the mortgage loan portfolio quarterly and through that
process identifies loans which require additional monitoring. Loans with
estimated collateral value less than the outstanding loan balances, loans
demonstrating characteristics indicative of higher than normal credit risks, are
reviewed by management. The underlying collateral values are based upon
discounted property cash flow projections or external appraisals.
(b) 1996 VERSUS 1995
Premiums increased by $9.4 million in 1996 from $42.1 million in 1995 to $51.5
million for the same period in 1996. This change is primarily due to increased
sales of $6.2 million related to traditional life insurance products in our
Taiwan branch which continued to expand its business throughout 1996.
Policy charges and fee income increased approximately $5.9 million during the
current year as compared to 1995. This is primarily attributable to the
increased sales of new variable annuity products and fees earned on policyholder
withdrawal and surrender activity.
Other income decreased $6.2 million for the year ended December 31, 1996 from
the year ended December 31, 1995. This decrease is due to a reduction in
separate account net gains.
Policyholders' benefits increased $32.9 million during the current year to
$186.9 million. Approximately $10 million of this increase is attributable to
the mortality costs associated with the Company's products. The additional $22
million results from the increase in reserves associated with new and existing
contracts at December 31, 1996.
Interest credited to policyholders' account balances decreased by $8.7 million.
This decrease is primarily attributable to the decrease in policyholders'
account balances due to the Company experiencing increased policyholder
withdrawals and slightly lower interest rates.
Other operating expenses decreased $12.8 million for the year ended December 31,
1996 compared to the same period for 1995. This is attributable to a decrease in
the amortization of deferred policy acquisition costs and a company wide
initiative to reduce expenses.
2. LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements include the payment of sales commissions
and other underwriting expenses and the funding of its contractual obligations
for the life insurance and annuity contracts it has in-force. The Company has
developed and utilizes a cash flow projection system and regularly performs
asset/liability duration matching in the management of its asset and liability
portfolios. The Company anticipates funding all its
34
<PAGE>
cash requirements utilizing cash from operations, normal investment maturities
and anticipated calls and repayments, consistent with prior years. As of
December 31, 1997, the Company's assets included $2.4 billion of cash,
short-term investments and investment grade publicly traded fixed maturity
securities that could be liquidated if funds were required.
In order to continue to market life insurance and annuity products, the Company
must meet or exceed the statutory capital and surplus requirements of the
insurance departments of the states in which it conducts business. Statutory
accounting practices differ from generally accepted accounting principles
("GAAP") in two major respects. First, under statutory accounting practices, the
acquisition costs of new business are charged to expense, while under GAAP they
are amortized over a period of time. Second, under statutory accounting
practices, the required additions to statutory reserves for new business in some
cases may initially exceed the statutory revenues attributable to such business.
These practices result in a reduction of statutory income and surplus at the
time of recording new business.
Insurance companies are subject to Risk-Based Capital (RBC) guidelines,
monitored by insurance regulatory authorities, that measure the ratio of the
Company's statutory equity with certain adjustments ("Adjusted Capital") to its
required capital, based on the risk characteristics of its insurance liabilities
and investments. Required capital is determined by statutory formulae that
consider risks related to the type and quality of invested assets,
insurance-related risks associated with the Company's products, interest rate
risks, and general business risks. The RBC calculations are intended to assist
regulators in measuring the adequacy of the Company's statutory capitalization.
The Company considers RBC implications in its asset/liability management
strategies. Each year, the Company conducts a thorough review of the adequacy of
statutory insurance reserves and other actuarial liabilities. The review is
performed to ensure that the Company's statutory reserves are computed in
accordance with accepted actuarial standards, reflect all contractual
obligations, meet the requirements of state laws and regulations and include
adequate provisions for any other actuarial liabilities that need to be
established. All significant reserve changes are reviewed by the Board of
Directors and are subject to approval by the Arizona Department of Banking and
Insurance. The Company believes that its statutory capital is adequate for its
currently anticipated levels of risk as measured by regulatory guidelines.
The National Association of Insurance Commissioners recently approved a series
of codified statutory accounting standards for consideration by the various
state regulators. Certain of the proposed standards, if adopted by insurance
regulatory authorities, could have an impact on the measurement of statutory
capital which, in turn, could affect RBC ratios of insurance companies. At the
present time, the Company cannot estimate the potential impact of these proposed
standards on its RBC position.
3. RISK MANAGEMENT
As a direct subsidiary of Prudential, the Company benefits from the risk
management strategies implemented by its parent.
Risk management includes the identification and measurement of various forms of
risk, establishment of acceptable risk thresholds, and processes intended to
maintain risks within these thresholds while maximizing returns. Prudential
considers risk management an integral part of its core businesses.
The risks inherent in the Company's operations include product risk, market
risk, credit risk, liquidity risk, and operating risk. These risk categories,
and Prudential's strategies relative to each, are discussed below.
Prudential's risk management is centrally controlled through a Corporate Risk
Management Unit (CRMU) which sets standards for risk identification, policies
and procedures, and limits, as well as standards for measurement and management
reporting. CRMU interfaces with the Company's business groups through an
enterprise level Financial Controls Council and Enterprise Financial Management
Risk Management Committee, as well as through frequent informal meetings. Risk
limits are set at multiple levels throughout the Company, with different limits
at the desk, portfolio, subsidiary, and enterprise level. Risks are generally
managed as close as possible to their origin, subject to review and oversight by
CRMU to monitor compliance with established standards. Where appropriate, such
as with respect to credit concentration risk and foreign exchange risk,
exposures are aggregated and managed at the enterprise level.
35
<PAGE>
Prudential's risk monitoring processes include preparation and review of risk
reports on a regular basis, with frequency based on the purpose of the report.
For example, desk-level reports are generally produced daily, while portfolio
level reports are typically semi-monthly or monthly and high level reports may
be quarterly or semi-annually.
PRODUCT RISK is the risk of adverse results due to deviation of experience from
expected levels reflected in pricing. Prudential, in its insurance and annuity
operations, sells traditional and interest sensitive individual insurance
products, individual annuity products, a variety of group annuity products, and
group life insurance products. Products are priced to reflect the expected
levels of risk and to allow a margin for adverse deviation. The level of margins
varies with product design and pricing strategy with respect to the targeted
market. Prudential seeks to maintain underwriting standards so that premium
charged is consistent with risk assumed on an overall basis. Additionally, most
of Prudential's policies and contracts allow the Company to adjust credits (via
crediting interest rates) and/or charges (in contracts where elements such as
mortality and expense charges are not guaranteed), allowing the Company to
respond to changes in experience. The competitive environment is an important
element in determining pricing elements including premiums, crediting rates and
non-guaranteed charges.
Mortality risks, generally inherent in most of the Company's life insurance and
annuity products, are incorporated in pricing based on the Company's experience
(if available and relevant) or industry experience. Mortality studies are
performed periodically to compare the actual incidence of death claims in
relation to business in force, to levels assumed in pricing and to industry
experience. Expense risk relates to all products and is influenced by management
practices as well as general price level changes. Persistency risk represents
the risk that the pattern of policy surrenders will deviate from assumed levels
so that policies do not remain in force for a sufficient period to allow the
Company to recover its acquisition costs. Certain products are designed, by
implementation of surrender charges and other features, to discourage early
surrenders and thus mitigate this risk to the Company. Periodic studies are
performed to compare actual surrender experience to pricing assumptions and
industry experience.
MARKET RISK is the risk of change in value of financial instruments as a result
of changes in interest rates, currency exchange rates, and securities market
conditions. The Company's asset/liability management strategies provide for
targeting of asset durations within specified ranges based on the estimated
durations of the associated product liabilities. Portfolio managers are directed
to maintain interest rate exposures within the established ranges, which are
subject to adjustment based on market conditions and product design. Prudential
uses statistical techniques such as duration and convexity analysis to measure
price sensitivity to interest rate changes. The Company also performs portfolio
stress testing annually as part of its cash flow testing in which various
interest-sensitive assumptions (such as asset calls and prepayments and contract
persistency) are evaluated under various severe interest rate environments. Any
shortfalls revealed by cash flow testing are evaluated to determine whether
there is a need to increase statutory reserves or change portfolio management
strategies such as alteration of asset duration and/or composition. For
fee-based (variable, separate account and mutual fund) products, equity risk is
borne primarily by the contractholders rather than the Company (subject to any
minimum guarantees). However, in the event of subpar performance, asset based
fees will be reduced and competitive factors may impede the Company's ability to
cultivate this business.
CREDIT RISK is the risk that counterparties may default or fail to fully honor
contractual obligations and is inherent in investment portfolio asset positions
including corporate bonds and mortgages, private placements and other
lending-type products, and various investment operations functions. The Company
attempts to manage risk associated with customer activities through proprietary
credit analysis, establishment of credit limits and by requiring maintenance of
margin and/or collateral in compliance with established internal control and
regulatory standards.
LIQUIDITY RISK is the risk that the Company will be unable to liquidate
positions at a reasonable price in order to meet cash flow requirements under
various scenarios. As indicated above, the Company's asset/liability management
strategies seek to maintain asset positions that are consistent with the
expected cash flow demands associated with its liabilities under various
possible situations. Liquidity policies are formally managed at the enterprise
level, using various comparisons of asset liquidity to potential liability
outflows. Prudential believes that the comparison of its general account net
liquidity to individual policy net cash surrender value is key to the periodic
evaluation of its ability to meet policyholder claim requirements, and stress
tests are utilized to measure the expected liquidity situation under assumed
unusual events.
36
<PAGE>
OPERATING RISK is the risk of potential loss from internal or external events
such as mismanagement, fraud, systems breakdowns, business interruption, or
failure to satisfy legal or fiduciary responsibilities. All financial
institutions, including Prudential, are exposed to the risk of unauthorized
activities by employees that are contrary to the internal controls designed to
managed such risks. Legal risk may arise from inadequate control over contract
documentation, marketing processes, or other operations. Internal controls
responsive to regulatory, legal, credit, asset stewardship and other concerns
are established at the business unit level for specific lines of business and at
the enterprise level for company-wide processes. Controls are monitored by
business unit management, internal and external auditors, and by an enterprise
level Management Internal Control unit and in certain instances are subject to
regulatory review.
Following revelations and negative publicity surrounding the issue of sales
practices, Prudential has implemented a strategy to emphasize ethical conduct in
the recruitment and training of agents and in the sales process. The Company has
also strengthened controls including the establishment of a client acquisition
program, in conjunction with the underwriting process, intended to ascertain the
appropriateness of insurance coverages sold and mitigate the risk of
inappropriate policy replacement activity.
Another aspect of operating risk relates to the Company's ability to conduct
transactions electronically and to gather, process, and disseminate information
and maintain data integrity and uninterrupted operations given the possibility
of unexpected or unusual events. The Company is implementing a business
continuation initiative to address these concerns. Considerations relative to
the impact of the Year 2000 on computer operations are discussed below.
4. REGULATORY ENVIRONMENT
The Company is subject to the laws of the State of Arizona as governing
insurance companies and to the regulations of the Arizona Insurance Department
(the "Insurance Department"). A detailed financial statement in the prescribed
form (the "Annual Statement") is filed with the Insurance Department each year
covering the Company's operations for the preceding year and its financial
condition as of the end of that year. Regulation by the Insurance Department
includes periodic examination to determine contract liabilities and reserves so
that the Insurance Department may certify that these items are correct. The
Company's books and accounts are subject to review by the Insurance Department
at all times. A full examination of the Company's operations is conducted
periodically by the Insurance Department and under the auspices of the NAIC.
A triennial financial examination, for the period January 1, 1994 through
December 31, 1996, is in progress by the Insurance Department as of December 31,
1997. We have included the effects of items known to date in our Reconciliation
of Statutory Surplus on page B-15.
The Company is subject to regulation under the insurance laws of all
jurisdictions in which it operates. The laws of the various jurisdictions
establish supervisory agencies with broad administrative powers with respect to
various matters, including licensing to transact business, overseeing trade
practices, licensing agents, approving contract forms, establishing reserve
requirements, fixing maximum interest rates on life insurance contract loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. The Company is required to file the Annual Statement with
supervisory agencies in each of the jurisdictions in which it does business, and
its operations and accounts are subject to examination by these agencies at
regular intervals.
The NAIC has adopted several regulatory initiatives designed to improve the
surveillance and financial analysis regarding the solvency of insurance
companies in general. These initiatives include the development and
implementation of a risk-based capital formula for determining adequate levels
of capital and surplus. Insurance companies are required to calculate their
risk-based capital in accordance with this formula and to include the results in
their Annual Statement. It is anticipated that these standards will have no
significant effect upon the Company.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Certain insurance products of the Company are subject to
various federal securities laws and regulations. In addition, current and
proposed federal measures which may significantly affect the insurance business
include regulation of insurance company solvency, employee benefit regulation,
removal of barriers preventing banks from engaging in the insurance business,
tax law changes affecting the taxation of insurance companies and the tax
treatment of insurance products and its impact on the relative desirability of
various personal investment vehicles.
37
<PAGE>
5. THE YEAR 2000 ISSUE
The Company is a direct subsidiary of Prudential; therefore, is impacted by the
enterprise focus on the Year 2000 Issue. The Year 2000 issue is best understood
as a computer hardware and software problem involving the way dates are stored
and processed in computers. Many computer systems are programmed to recognize
only the last two digits in a date. As a result, any computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. If this anomaly is not corrected, the year "00" could cause
systems to perform date comparisons and calculations incorrectly which could in
turn affect the accuracy and compromise the integrity of business records.
Business operations could be interrupted when companies are unable to process
transactions, send invoices, or engage in similar normal business activities.
The Year 2000 issue presents critical business risks for public and private
sector entities across the globe .
Prudential identified the Year 2000 issue as a critical priority in 1995 and
established a Company-wide Program Office (CPO) to develop and coordinate an
operating framework for the Year 2000 compliance activities. The CPO assessed
potential business impact, identified software and hardware components that will
require upgrading, renovating, or replacing, and developed a strategy for
renovation, replacement or retirement of all affected business applications. The
initial assessment, completed in 1995, provided an estimate of the magnitude of
the project and necessary resources.
Prudential's CPO has established quality assurance procedures including a
certification process to monitor and evaluate enterprise-wide conversion and
upgrading of systems for Year 2000 compliance. Prudential is utilizing both
internal and external resources to reprogram or replace and test software.
Prudential plans to complete its adaptation, testing and certification of
software for Year 2000 compliance by December 31, 1998 and to conduct additional
testing pertaining to the securities industry (in a scheduled industry-wide
effort) as well as complete its "business partner" analysis and contingency
planning during 1999. Prudential believes that it is well positioned to achieve
the necessary modifications and mitigate the Year 2000 risks.
Prudential has commenced contacting and communicating formally with major
suppliers and customers, including brokers, vendors, health care providers, and
institutions that pass electronic information to Prudential, to determine the
significance of the potential exposure that could result from their failure to
achieve Year 2000 compliance on a timely basis.
While, as indicated above, Prudential believes that it is well positioned to
mitigate its Year 2000 issue, this issue by its nature carries the risk of
unforeseen problems of internal or external origin. There can be no assurance
that the required systems modifications will be completed in accordance with
current estimates of timing and cost, or that the systems of other companies
with which some of Prudential's systems interface will be converted on a timely
and compatible basis. In the event that the required adaptations to mitigate the
Year 2000 issue are not completed on a timely basis, this issue could have a
material adverse impact on the Company's operations. The discussion of the Year
2000 issue herein, and in particular the Company's plans to remediate this issue
and estimated costs thereof, are forward-looking in nature. See cautionary
statement below relating to forward-looking statements.
6. INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in Management's Discussion and Analysis may
be considered forward-looking statements. Words such as "expects," "believes,"
"anticipates," "intends," "plans," or variations of such words are generally
part of forward-looking statements. Forward-looking statements are made based
upon management's current expectations and beliefs concerning future
developments and their potential effects upon the Company. There can be no
assurance that future developments affecting the Company will be those
anticipated by management. There are certain important factors that could cause
actual results to differ materially from estimates or expectations reflected in
such forward-looking statements including without limitation, changes in general
economic conditions, including the performance of financial markets and interest
rates; market acceptance of new products and distribution channels; competitive,
regulatory or tax changes that affect the cost or demand for the Company's
products; and adverse litigation results. While the Company reassesses material
trends and uncertainties affecting its financial condition and results of
operations, it does not intend to review or revise any particular forward-
looking statement referenced in this Management's Discussion and Analysis in
light of future events. The information referred to above should be considered
by readers when reviewing any forward-looking statements contained in this
Management's Discussion and Analysis.
38
<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
JAMES J. AVERY, JR., CHAIRMAN AND DIRECTOR--Senior Vice President, Chief
Actuary and CFO, Prudential Individual Insurance since 1997; 1995 to 1997:
President Prudential Select; 1993 to 1995: Chief Operating Officer, Prudential
Select. Age 46.
WILLIAM M. BETHKE, DIRECTOR.--Chief Investment Officer since 1997; 1992 to
1997: President, Prudential Capital Markets Group since 1992. Age 51
IRA J. KLEINMAN, DIRECTOR--Executive Vice President, International Insurance
Group since 1997; 1995 to 1997: Chief Marketing and Product Development Officer,
Prudential Individual Insurance Group; 1993 to 1995: President, Prudential
Select. Age 51.
MENDEL A. MELZER, DIRECTOR.--Chief Investment Officer, Mutual Funds and
Annuities, Prudential Investments since 1996; 1995 to 1996: Chief Financial
Officer of the Money Management Group of Prudential; 1993 to 1995: Senior Vice
President and Chief Financial Officer of Prudential Preferred Financial
Services. Age 37.
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. Age
47.
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. Age 55.
KIYOFUMI SAKAGUCHI, DIRECTOR.--President, Prudential International Insurance
Group since 1995; 1994 to 1995: Chairman and Chief Executive Officer, The
Prudential Life Insurance Co., Ltd.; Prior to 1994: President and Chief
Executive Officer, Asia Pacific Region-Prudential International Insurance, and
President, The Prudential Life Insurance Co., Ltd. Age 55.
OFFICERS WHO ARE NOT DIRECTORS
SUSAN L. BLOUNT, SECRETARY.--Vice President and Secretary of Prudential since
1995; Prior to 1995: Assistant General Counsel for Prudential Residential
Services Company. Age 40
C. EDWARD CHAPLIN, TREASURER.--Vice President and Treasurer of Prudential since
1995; 1993 to 1995: Managing Director and Assistant Treasurer of Prudential. Age
41
JAMES C. DROZANOWSKI, SENIOR VICE PRESIDENT.--Vice President and Operations
Executive, Prudential Individual Insurance Group since 1996; 1995 to 1996:
President Credit Card Division, Chase Manhattan Bank; Prior to 1995: Chase
Manhattan Bank. Age 55.
CLIFFORD E. KIRSCH, CHIEF LEGAL OFFICER.--Chief Counsel, Variable Products, Law
Department of Prudential since 1995; 1994 to 1995: Associate General Counsel
with Paine Webber; Prior to 1994: Assistant Director in the Division of
Investment Management of the Securities and Exchange Commission. Age 38.
FRANK P. MARINO, SENIOR VICE PRESIDENT.--Vice President, Policyowner Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services. Age 53.
EDWARD A. MINOGUE, SENIOR VICE PRESIDENT.--Vice President, Annuity Services,
Prudential Investments since 1997; Prior to 1997: Director, Merrill Lynch. Age
55.
JAMES H. SCHLOMANN, VICE PRESIDENT, COMPTROLLER AND CHIEF ACCOUNTING
OFFICER.--Vice President and Associate Comptroller, Prudential, since 1997;
Prior to 1997: Senior Executive Vice and CFO, USLife Corp. Age 49.
SHIRLEY H. SHAO, SENIOR VICE PRESIDENT AND CHIEF ACTUARY.--Vice President and
Associate Actuary, Prudential. Age 43.
JAMES A. TIGNANELLI, SENIOR VICE PRESIDENT.--Vice President, Compliance,
Prudential Individual Insurance since 1996; Prior to 1996: Vice President Field
Operations. Age 45.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.
39
<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 compensation paid, based on these allocations, to the
executive officers for services rendered in all capacities to Pruco Life and its
subsidiaries during 1997. With the exception of the President, only officers
receiving compensation in excess of $100,000 per year are shown in the table
below. Directors of Pruco Life who are also employees of Prudential do not
receive compensation in addition to their compensation as employees of
Prudential.
<TABLE>
<CAPTION>
OTHER
NAME & PRINCIPAL ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION
<S> <C> <C> <C> <C>
Esther H. Milnes 1997 $ 18,660 $ 21,398 $ 0
President 1996 $ 18,058 $ 12,136 $ 0
1995 $ 17,158 $ 8,384 $ 0
</TABLE>
40
<PAGE>
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1997
SUBACCOUNTS
----------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL OCC
MONEY DIVERSIFIED HIGH YIELD ACCUMULATION
MARKET BOND BOND TRUST MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential
Series Fund, Inc. Portfolios and
non-Prudential administered funds at
net asset value [Note 3] . . . . . . . . . . . $ 108,469,140 $ 123,549,074 $ 135,375,741 $ 187,917,039
Receivable from Pruco Life Insurance
Company [Note 2] . . . . . . . . . . . . . . . 0 0 0 0
------------- ------------- ------------- -------------
Net Assets . . . . . . . . . . . . . . . . $ 108,469,140 $ 123,549,074 $ 135,375,741 $ 187,917,039
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET ASSETS, representing:
Equity of Contract owners. . . . . . . . . . . . $ 104,823,850 $ 121,274,610 $ 132,388,354 $ 183,684,949
Equity of Pruco Life Insurance Company . . . . . 3,645,290 2,274,464 2,987,387 4,232,090
------------- ------------- ------------- -------------
$ 108,469,140 $ 123,549,074 $ 135,375,741 $ 187,917,039
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
SUBACCOUNTS
----------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL OCC
MONEY DIVERSIFIED HIGH YIELD ACCUMULATION
MARKET BOND BOND TRUST MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received. . . . . . . . . $ 3,793,893 $ 5,091,552 $ 7,551,413 $ 205,139
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk and for
administration [Notes 5A and 5B] . . . . . . . 988,032 789,342 908,728 929,317
------------- ------------- -------------- -------------
NET INVESTMENT INCOME (LOSS) . . . . . . . . . . . 2,805,861 4,302,210 6,642,685 (724,178)
------------- ------------- -------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received . . . . . . 0 990,026 0 630,049
Realized gain (loss) on shares redeemed
[average cost basis] . . . . . . . . . . . . . 0 10,366 1,679 0
Net change in unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . 0 (1,646,356) 725,780 9,040,969
------------- ------------- -------------- -------------
NET GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . 0 (645,964) 727,459 9,671,018
------------- ------------- -------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . $ 2,805,861 $ 3,656,246 $ 7,370,144 $ 8,946,840
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A12 THROUGH A18
A1
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1997
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL AIM V.I. T.ROWE PRICE
STOCK EQUITY GROWTH EQUITY
INDEX INCOME AND INCOME
PORTFOLIO PORTFOLIO INCOME FUND PORTFOLIO
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential
Series Fund, Inc. Portfolios and
non-Prudential administered funds at
net asset value [Note 3] . . . . . . . . . . . $ 223,656,238 $ 224,623,347 $ 42,141,716 $ 88,620,584
Receivable from Pruco Life Insurance
Company [Note 2] . . . . . . . . . . . . . . . 0 0 0 0
------------- ------------- ------------- -------------
Net Assets . . . . . . . . . . . . . . . . $ 223,656,238 $ 224,623,347 $ 42,141,716 $ 88,620,584
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET ASSETS, representing:
Equity of Contract owners. . . . . . . . . . . . $ 220,483,373 $ 220,974,113 $ 41,636,855 $ 87,228,702
Equity of Pruco Life Insurance Company . . . . . 3,172,865 3,649,234 504,861 1,391,882
------------- ------------- ------------- -------------
$ 223,656,238 $ 224,623,347 $ 42,141,716 $ 88,620,584
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL AIM V.I. T.ROWE PRICE
STOCK EQUITY GROWTH EQUITY
INDEX INCOME AND INCOME
PORTFOLIO PORTFOLIO INCOME FUND PORTFOLIO
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received. . . . . . . . . $ 1,851,761 $ 2,611,995 $ 20,185 $ 1,181,000
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk and for
administration [Notes 5A and 5B] . . . . . . . 1,404,070 1,188,795 274,340 577,046
------------- ------------- ------------- -------------
NET INVESTMENT INCOME (LOSS) . . . . . . . . . . . 447,691 1,423,200 (254,155) 603,954
------------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received . . . . . . 5,729,265 17,500,207 30,277 2,449,223
Realized gain (loss) on shares redeemed
[average cost basis] . . . . . . . . . . . . . 167,995 6,173 0 0
Net change in unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . 16,247,474 3,805,126 3,379,969 6,442,340
------------- ------------- ------------- -------------
NET GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . 22,144,734 21,311,506 3,410,246 8,891,563
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . $ 22,592,425 $ 22,734,706 $ 3,156,091 $ 9,495,517
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1997
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL JANUS ASPEN
EQUITY JENNISON AIM V.I. GROWTH
PORTFOLIO PORTFOLIO VALUE FUND PORTFOLIO
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential
Series Fund, Inc. Portfolios and
non-Prudential administered funds at
net asset value [Note 3] . . . . . . . . . . . $ 332,630,396 $ 158,244,016 $ 48,214,130 $ 49,897,369
Receivable from Pruco Life Insurance
Company [Note 2] . . . . . . . . . . . . . . . 0 0 0 0
------------- ------------- ------------- -------------
Net Assets . . . . . . . . . . . . . . . . $ 332,630,396 $ 158,244,016 $ 48,214,130 $ 49,897,369
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET ASSETS, representing:
Equity of Contract owners. . . . . . . . . . . . $ 327,647,055 $ 155,433,519 $ 47,371,414 $ 49,110,617
Equity of Pruco Life Insurance Company . . . . . 4,983,341 2,810,497 842,716 786,752
------------- ------------- ------------- -------------
$ 332,630,396 $ 158,244,016 $ 48,214,130 $ 49,897,369
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL JANUS ASPEN
EQUITY JENNISON AIM V.I. GROWTH
PORTFOLIO PORTFOLIO VALUE FUND PORTFOLIO
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received. . . . . . . . . $ 4,755,494 $ 188,376 $ 391,444 $ 468,723
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk and for
administration [Notes 5A and 5B] . . . . . . . 2,490,175 1,065,105 305,742 374,623
------------- ------------- ------------- -------------
NET INVESTMENT INCOME (LOSS) . . . . . . . . . . . 2,265,319 (876,729) 85,702 94,100
------------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received . . . . . . 15,719,756 8,181,395 1,201,782 385,140
Realized gain (loss) on shares redeemed
[average cost basis] . . . . . . . . . . . . . (636) 61,502 0 0
Net change in unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . 13,608,394 9,311,718 1,914,673 3,755,829
------------- ------------- ------------- -------------
NET GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . 29,327,514 17,554,615 3,116,455 4,140,969
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . $ 31,592,833 $ 16,677,886 $ 3,202,157 $ 4,235,069
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A12 THROUGH A18
A2
<PAGE>
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1997
SUBACCOUNTS
----------------------------------------------------------------------------
MFS OCC WARBURG PINCUS
MFS EMERGING ACCUMULATION POST-VENTURE
RESEARCH GROWTH TRUST SMALL CAP CAPITAL
SERIES SERIES PORTFOLIO PORTFOLIO
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential
Series Fund, Inc. Portfolios and
non-Prudential administered funds at
net asset value [Note 3] . . . . . . . . . . $ 38,977,005 $ 51,830,467 $ 46,845,588 $ 12,065,919
Receivable from Pruco Life Insurance
Company [Note 2] . . . . . . . . . . . . . . . 0 0 0 0
------------- ------------- ------------- -------------
Net Assets . . . . . . . . . . . . . . . . $ 38,977,005 $ 51,830,467 $ 46,845,588 $ 12,065,919
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET ASSETS, representing:
Equity of Contract owners. . . . . . . . . . . . $ 38,223,940 $ 51,076,582 $ 45,966,570 $ 11,814,620
Equity of Pruco Life Insurance Company . . . . . 753,065 753,885 879,018 251,299
------------- ------------- ------------- -------------
$ 38,977,005 $ 51,830,467 $ 46,845,588 $ 12,065,919
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
SUBACCOUNTS
----------------------------------------------------------------------------
MFS OCC WARBURG PINCUS
MFS EMERGING ACCUMULATION POST-VENTURE
RESEARCH GROWTH TRUST SMALL CAP CAPITAL
SERIES SERIES PORTFOLIO PORTFOLIO
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received. . . . . . . . . $ 0 $ 0 $ 34,124 $ 1,673
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk and for
administration [Notes 5A and 5B] . . . . . . . 267,245 374,272 248,392 94,004
------------- ------------- ------------- -------------
NET INVESTMENT INCOME (LOSS) . . . . . . . . . . . (267,245) (374,272) (214,268) (92,331)
------------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received . . . . . . 0 0 240,648 0
Realized gain (loss) on shares redeemed
[average cost basis] . . . . . . . . . . . . . 0 0 0 0
Net change in unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . 2,822,118 4,899,167 2,483,382 957,631
------------- ------------- ------------- -------------
NET GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . 2,822,118 4,899,167 2,724,030 957,631
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . $ 2,554,873 $ 4,524,895 $ 2,509,762 $ 865,300
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A12 THROUGH A18
A3
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1997
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------
JANUS ASPEN T. ROWE PRICE
PRUDENTIAL INTERNATIONAL INTERNATIONAL
GLOBAL GROWTH STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Investment in shares of The Prudential
Series Fund, Inc. Portfolios and
non-Prudential administered funds at
net asset value [Note 3] . . . . . . . . . . . $ 42,307,417 $ 79,971,358 $ 23,712,931
Receivable from Pruco Life Insurance
Company [Note 2] . . . . . . . . . . . . . . . 0 0 0
------------- ------------- -------------
Net Assets . . . . . . . . . . . . . . . . $ 42,307,417 $ 79,971,358 $ 23,712,931
------------- ------------- -------------
NET ASSETS, representing:
Equity of Contract owners. . . . . . . . . . . . $ 41,540,966 $ 78,474,237 $ 23,293,071
Equity of Pruco Life Insurance Company . . . . . 766,451 1,497,121 419,860
------------- ------------- -------------
$ 42,307,417 $ 79,971,358 $ 23,712,931
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------
JANUS ASPEN T. ROWE PRICE
PRUDENTIAL INTERNATIONAL INTERNATIONAL
GLOBAL GROWTH STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received. . . . . . . . . $ 400,453 $ 304,845 $ 214,095
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk and for
administration [Notes 5A and 5B] . . . . . . . 375,611 567,919 182,358
------------- ------------- -------------
NET INVESTMENT INCOME (LOSS) . . . . . . . . . . . 24,842 (263,074) 31,737
------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received . . . . . . 1,856,846 55,201 303,300
Realized gain (loss) on shares redeemed
[average cost basis] . . . . . . . . . . . . . 46,693 0 (76)
Net change in unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . (1,676,026) 3,119,708 (843,846)
------------- ------------- -------------
NET GAIN (LOSS) ON INVESTMENTS . . . . . . . . . . 227,513 3,174,909 (540,622)
------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . $ 252,355 $ 2,911,835 $ (508,885)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A12 THROUGH A18
A4
<PAGE>
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
SUBACCOUNTS
----------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
------------------------------------ ----------------------------------
1997 1996 1997 1996
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . . . . . . $ 2,805,861 $ 489,952 $ 4,302,210 $ 907,041
Capital gains distributions received . . . . . . 0 0 990,026 0
Realized gain (loss) on shares redeemed
[average cost basis] . . . . . . . . . . . . . 0 0 10,366 (25,544)
Net change in unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . 0 0 (1,646,356) (230,889)
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . 2,805,861 489,952 3,656,246 650,608
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS [Note 7] . . . . . 65,086,593 36,320,424 93,630,245 23,222,899
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS [Note 8] . . . . (380,562) 4,002,463 196,097 2,173,627
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . 67,511,892 40,812,839 97,482,588 26,047,134
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . 40,957,248 144,409 26,066,486 19,352
------------- ------------- ------------- -------------
End of year. . . . . . . . . . . . . . . . . . . $ 108,469,140 $ 40,957,248 $ 123,549,074 $ 26,066,486
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
* Commenced business on October 7, 1996.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A12 THROUGH A18
A5
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
PRUDENTIAL OCC ACCUMULATION
HIGH YIELD TRUST MANAGED
PORTFOLIO PORTFOLIO
------------------------------------ ----------------------------------
1997 1996 1997 1996*
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . . . . . . $ 6,642,685 $ 1,210,786 $ (724,178) $ (9,797)
Capital gains distributions received . . . . . . 0 0 630,049 0
Realized gain (loss) on shares redeemed
[average cost basis] . . . . . . . . . . . . . 1,679 1,894 0 0
Net change in unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . 725,780 (588,812) 9,040,969 44,881
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . 7,370,144 623,868 8,946,840 35,084
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS [Note 7] . . . . . 102,073,217 22,289,699 165,787,420 9,023,181
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS [Note 8] . . . . (95,489) 3,094,028 2,586,898 1,537,616
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . 109,347,872 26,007,595 177,321,158 10,595,881
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . 26,027,869 20,274 10,595,881 0
------------- ------------- ------------- -------------
End of year. . . . . . . . . . . . . . . . . . . $ 135,375,741 $ 26,027,869 $ 187,917,039 $ 10,595,881
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
STOCK INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO
------------------------------------ ----------------------------------
1997 1996 1997 1996
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . . . . . . $ 447,691 $ 144,890 $ 1,423,200 $ 507,514
Capital gains distributions received . . . . . . 5,729,265 199,451 17,500,207 751,896
Realized gain (loss) on shares redeemed
[average cost basis] . . . . . . . . . . . . . 167,995 0 6,173 0
Net change in unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . 16,247,474 529,306 3,805,126 1,523,505
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . 22,592,425 873,647 22,734,706 2,782,915
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS [Note 7] . . . . . 174,904,278 22,208,546 170,508,615 25,008,509
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS [Note 8] . . . . 945,791 2,131,551 2,106,180 1,395,127
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . 198,442,494 25,213,744 195,349,501 29,186,551
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . 25,213,744 0 29,273,846 87,295
------------- ------------- ------------- -------------
End of year. . . . . . . . . . . . . . . . . . . $ 223,656,238 $ 25,213,744 $ 224,623,347 $ 29,273,846
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A12 THROUGH A18
A6
<PAGE>
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
SUBACCOUNTS
----------------------------------------------------------------------------
T. ROWE PRICE
AIM V.I. GROWTH AND EQUITY INCOME
INCOME FUND PORTFOLIO
------------------------------------ ----------------------------------
1997 1996* 1997 1996*
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . . . . . . $ (254,155) $ 17,534 $ 603,954 $ 39,400
Capital gains distributions received . . . . . . 30,277 4,713 2,449,223 29,797
Realized gain (loss) on shares redeemed
[average cost basis] . . . . . . . . . . . . . 0 0 0 0
Net change in unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . 3,379,969 (11,169) 6,442,340 (27,600)
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . 3,156,091 11,078 9,495,517 41,597
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS [Note 7] . . . . . 35,014,091 3,509,876 70,852,683 6,841,311
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS [Note 8] . . . . (867,750) 1,318,330 (254,637) 1,644,113
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . 37,302,432 4,839,284 80,093,563 8,527,021
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . 4,839,284 0 8,527,021 0
------------- ------------- ------------- -------------
End of year. . . . . . . . . . . . . . . . . . . $ 42,141,716 $ 4,839,284 $ 88,620,584 $ 8,527,021
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
* Commenced business on October 7, 1996.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A12 THROUGH A18
A7
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
PRUDENTIAL
EQUITY PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO
------------------------------------ ----------------------------------
1997 1996 1997 1996
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . . . . . . $ 2,265,319 $ 890,946 $ (876,729) $ (126,843)
Capital gains distributions received . . . . . . 15,719,756 6,017,025 8,181,395 0
Realized gain (loss) on shares redeemed
[average cost basis] . . . . . . . . . . . . . (636) 0 61,502 4,129
Net change in unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . 13,608,394 (1,007,503) 9,311,718 1,748,413
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . 31,592,833 5,900,468 16,677,886 1,625,699
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS [Note 7] . . . . . 216,685,608 73,501,350 106,948,114 30,279,548
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS [Note 8] . . . . 1,258,567 3,437,427 906,990 1,734,655
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . 249,537,008 82,839,245 124,532,990 33,639,902
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . 83,093,388 254,143 33,711,026 71,124
------------- ------------- ------------- -------------
End of year. . . . . . . . . . . . . . . . . . . $ 332,630,396 $ 83,093,388 $ 158,244,016 $ 33,711,026
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
AIM V.I. JANUS ASPEN
VALUE FUND GROWTH PORTFOLIO
------------------------------------ ----------------------------------
1997 1996* 1997 1996*
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . . . . . . $ 85,702 $ 8,539 $ 94,100 $ 35,066
Capital gains distributions received . . . . . . 1,201,782 126,631 385,140 0
Realized gain (loss) on shares redeemed
[average cost basis] . . . . . . . . . . . . . 0 0 0 0
Net change in unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . 1,914,673 (84,462) 3,755,829 (8,457)
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . 3,202,157 50,708 4,235,069 26,609
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS [Note 7] . . . . . 39,961,324 4,169,841 39,461,403 5,482,511
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS [Note 8] . . . . 29,418 800,682 (463,780) 1,155,557
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . 43,192,899 5,021,231 43,232,692 6,664,677
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . 5,021,231 0 6,664,677 0
------------- ------------- ------------- -------------
End of year. . . . . . . . . . . . . . . . . . . $ 48,214,130 $ 5,021,231 $ 49,897,369 $ 6,664,677
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
* Commenced business on October 7, 1996.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A12 THROUGH A18
A8
<PAGE>
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
SUBACCOUNTS
----------------------------------------------------------------------------
MFS MFS
RESEARCH SERIES EMERGING GROWTH SERIES
------------------------------------ ----------------------------------
1997 1996* 1997 1996*
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . . . . . . $ (267,245) $ 3,143 $ (374,272) $ (6,073)
Capital gains distributions received . . . . . . 0 49,126 0 63,150
Realized gain (loss) on shares redeemed
[average cost basis] . . . . . . . . . . . . . 0 0 0 0
Net change in unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . 2,822,118 (54,352) 4,899,167 (207,849)
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . 2,554,873 (2,083) 4,524,895 (150,772)
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS [Note 7] . . . . . 32,897,840 2,799,671 41,124,199 5,650,514
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS [Note 8] . . . . (293,596) 1,020,300 (1,293,928) 1,975,559
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . 35,159,117 3,817,888 44,355,166 7,475,301
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . 3,817,888 0 7,475,301 0
------------- ------------- ------------- -------------
End of year. . . . . . . . . . . . . . . . . . . $ 38,977,005 $ 3,817,888 $ 51,830,467 $ 7,475,301
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
* Commenced business on October 7, 1996.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A12 THROUGH A18
A9
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
WARBURG PINCUS
OCC ACCUMULATION TRUST POST-VENTURE CAPITAL
SMALL CAP PORTFOLIO PORTFOLIO
------------------------------------ ----------------------------------
1997 1996* 1997 1996*
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . . . . . . $ (214,268) $ (2,618) $ (92,331) $ (1,760)
Capital gains distributions received . . . . . . 240,648 0 0 0
Realized gain (loss) on shares redeemed
[average cost basis] . . . . . . . . . . . . . 0 0 0 0
Net change in unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . 2,483,382 64,219 957,631 10,615
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . 2,509,762 61,601 865,300 8,855
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS [Note 7] . . . . . 40,979,090 2,410,812 9,256,504 1,710,288
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS [Note 8] . . . . (212,483) 1,096,806 (234,500) 459,472
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . 43,276,369 3,569,219 9,887,304 2,178,615
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . 3,569,219 0 2,178,615 0
------------- ------------- ------------- -------------
End of year. . . . . . . . . . . . . . . . . . . $ 46,845,588 $ 3,569,219 $ 12,065,919 $ 2,178,615
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
PRUDENTIAL JANUS ASPEN
GLOBAL INTERNATIONAL GROWTH
PORTFOLIO PORTFOLIO
------------------------------------ ----------------------------------
1997 1996 1997 1996*
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . . . . . . $ 24,842 $ 58,105 $ (263,074) $ 10,219
Capital gains distributions received . . . . . . 1,856,846 207,745 55,201 0
Realized gain (loss) on shares redeemed
[average cost basis] . . . . . . . . . . . . . 46,693 6,038 0 0
Net change in unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . (1,676,026) 796,437 3,119,708 112,687
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . 252,355 1,068,325 2,911,835 122,906
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS [Note 7] . . . . . 27,107,692 13,112,774 69,312,081 6,099,790
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS [Note 8] . . . . 96,919 646,280 694,838 829,908
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . 27,456,966 14,827,379 72,918,754 7,052,604
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . 14,850,451 23,072 7,052,604 0
------------- ------------- ------------- -------------
End of year. . . . . . . . . . . . . . . . . . . $ 42,307,417 $ 14,850,451 $ 79,971,358 $ 7,052,604
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
* Commenced business on October 7, 1996.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A12 THROUGH A18
A10
<PAGE>
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
SUBACCOUNTS
-------------------------------------
T. ROWE PRICE
INTERNATIONAL STOCK
PORTFOLIO
-------------------------------------
1997 1996*
--------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . . . . . . $ 31,737 $ 16,946
Capital gains distributions received . . . . . . 303,300 12,100
Realized gain (loss) on shares redeemed
[average cost basis] . . . . . . . . . . . . . (76) 0
Net change in unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . (843,846) 32,193
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS. . . . . . . . . . . . (508,885) 61,239
------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS [Note 7] . . . . . 20,714,840 3,008,537
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM EQUITY TRANSFERS [Note 8] . . . . (309,483) 746,683
------------- -------------
TOTAL INCREASE IN NET ASSETS . . . . . . . . . . . 19,896,472 3,816,459
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . 3,816,459 0
------------- -------------
End of year. . . . . . . . . . . . . . . . . . . $ 23,712,931 $ 3,816,459
------------- -------------
------------- -------------
</TABLE>
* Commenced business on October 7, 1996.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A12 THROUGH A18
A11
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1997
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
("Prudential"). The assets of the Account are segregated from Pruco
Life's other assets. Proceeds from the purchases of Discovery Preferred
Variable Annuity Contracts ("Discovery Preferred") and Discovery Select
Variable Annuity Contracts ("Discovery Select") are invested in the
Account.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. There are twenty-three subaccounts
within the Account. Discovery Select Contracts offer the option to
invest in nineteen of these subaccounts, each of which invests in
either a corresponding portfolio of the Prudential Series Fund, Inc.
(the "Series Fund") or any of the non-Prudential administered funds
shown in Note 3. The Series Fund is a diversified open-end management
investment company, and is managed by Prudential.
Discovery Select contracts became available to contract owners on
October 7, 1996.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in conformity with generally
accepted accounting principles (GAAP). The preparation of the financial
statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts and disclosures. Actual
results could differ from those estimates.
INVESTMENTS--The investments in shares of the Series Fund or
non-Prudential administered funds are stated at the net asset value of
the respective portfolio.
SECURITY TRANSACTIONS--Realized gains and losses on security
transactions are reported on an average cost basis. Purchase and sale
transactions are recorded as of the trade date of the security being
purchased or sold.
DISTRIBUTIONS RECEIVED--Dividend and capital gain distributions received
are reinvested in additional shares of the Series Fund or non-Prudential
administered funds and are recorded on the ex-dividend date.
EQUITY OF PRUCO LIFE INSURANCE COMPANY--Pruco Life maintains a position
in the Account for liquidity purposes including unit purchases and
redemptions, fund share transactions, and expense processing. Pruco Life
monitors the balance daily and transfers funds based upon anticipated
activity. At times, Pruco Life may owe an amount to the Account, which
is reflected in the Account's Statements of Net Assets as a receivable
from Pruco Life. The receivable does not have an effect on the Contract
owner's account or the related unit value.
A12
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE DISCOVERY SELECT VARIABLE ANNUITY
SUBACCOUNTS OF THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY
ACCOUNT
The net asset value per share for each portfolio of the Series Fund or
non-Prudential administered variable 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, 1997 were
as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL OCC PRUDENTIAL
MONEY DIVERSIFIED HIGH YIELD ACCUMULATION STOCK
MARKET BOND BOND TRUST MANAGED INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of Shares: 10,846,914 11,209,468 16,621,677 4,434,097 7,401,043
Net asset value per share: $ 10.00000 $ 11.02185 $ 8.14453 $ 42.38000 $ 30.21956
Cost: $108,469,140 $125,426,423 $135,239,532 $178,831,189 $206,879,458
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------
PRUDENTIAL T. ROWE PRICE
EQUITY EQUITY PRUDENTIAL PRUDENTIAL AIM V.I.
INCOME INCOME EQUITY JENNISON VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO FUND
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of Shares: 10,033,485 4,767,110 10,706,152 8,924,453 2,314,649
Net asset value per share: $ 22.38737 $ 18.59000 $ 31.06909 $ 17.73151 $ 20.83000
Cost: $219,295,111 $ 82,205,844 $320,026,479 $147,183,126 $ 46,383,919
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------
MFS OCC WARBURG PINCUS
JANUS ASPEN MFS EMERGING ACCUMULATION POST-VENTURE
GROWTH RESEARCH GROWTH TRUST SMALL CAP CAPITAL
PORTFOLIO SERIES SERIES PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of Shares: 2,700,074 2,468,461 3,211,305 1,776,473 1,090,951
Net asset value per share: $ 18.48000 $ 15.79000 $ 16.14000 $ 26.37000 $ 11.06000
Cost: $ 46,149,997 $ 36,209,239 $ 47,139,150 $ 44,297,986 $ 11,097,673
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------
JANUS ASPEN T. ROWE PRICE AIM V.I.
PRUDENTIAL INTERNATIONAL INTERNATIONAL GROWTH &
GLOBAL GROWTH STOCK INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Number of Shares: 2,360,447 4,327,454 1,861,298 2,233,265
Net asset value per share: $ 17.92348 $ 18.48000 $ 12.74000 $ 18.87000
Cost: $ 43,187,266 $ 76,738,963 $ 24,524,584 $ 38,772,915
</TABLE>
A13
<PAGE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding Contract owner units, unit values and total value of
Contract owner equity at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL OCC PRUDENTIAL
MONEY DIVERSIFIED HIGH YIELD ACCUMULATION STOCK
MARKET BOND BOND TRUST MANAGED INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units
Outstanding (Discovery Preferred). . 15,611,316.006 23,100,623.341 20,140,820.165 N/A 32,430,921.902
Unit Value (Discovery Preferred) . . . $ 1.08688 $ 1.13525 $ 1.25972 N/A $ 1.48876
--------------- --------------- --------------- ---------------- ----------------
Contract Owner Equity
(Discovery Preferred). . . . . . . . $ 16,967,627 $ 26,224,983 $ 25,371,794 N/A $ 48,281,859
--------------- --------------- --------------- ---------------- ----------------
Contract Owner Units
Outstanding (Discovery Select) . . . 80,833,415.276 83,725,722.943 84,952,656.068 144,784,302.260 115,667,745.942
Unit Value (Discovery Select). . . . . $ 11.08688 $ 1.13525 $ 1.25972 $ 1.26868 $ 1.48876
--------------- --------------- --------------- ---------------- ----------------
Contract Owner Equity
(Discovery Select) . . . . . . . . . $ 87,856,223 $ 95,049,627 $ 107,016,560 $ 183,684,949 $ 172,201,514
--------------- --------------- --------------- ---------------- ----------------
TOTAL CONTRACT OWNER EQUITY. . . . . . $ 104,823,850 $ 121,274,610 $ 132,388,354 $ 183,684,949 $ 220,483,373
--------------- --------------- --------------- ---------------- ----------------
--------------- --------------- --------------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------------------
AIM V.I. T. ROWE PRICE
PRUDENTIAL GROWTH & EQUITY PRUDENTIAL PRUDENTIAL
EQUITY INCOME INCOME INCOME EQUITY JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units
Outstanding (Discovery Preferred). . 33,449,894.551 N/A N/A 85,666,590.098 32,664,271.245
Unit Value (Discovery Preferred) . . . $ 1.66167 N/A N/A $ 1.48518 $ 1.48006
--------------- --------------- --------------- ---------------- ----------------
Contract Owner Equity
(Discovery Preferred). . . . . . . . $ 55,582,686 N/A N/A $ 127,230,306 $ 48,345,081
--------------- --------------- --------------- ---------------- ----------------
Contract Owner Units Outstanding
(Discovery Select) . . . . . . . . . 99,533,256.833 32,365,951.864 65,481,114.119 134,944,416.513 72,354,119.265
Unit Value (Discovery Select). . . . . $ 1.66167 $ 1.28644 $ 1.33212 $ 1.48518 $ 1.48006
--------------- --------------- --------------- ---------------- ----------------
Contract Owner Equity
(Discovery Select) . . . . . . . . . $ 165,391,427 $ 41,636,855 $ 87,228,702 $ 200,416,749 $ 107,088,438
--------------- --------------- --------------- ---------------- ----------------
TOTAL CONTRACT OWNER EQUITY. . . . . . $ 220,974,113 $ 41,636,855 $ 87,228,702 $ 327,647,055 $ 155,433,519
--------------- --------------- --------------- ---------------- ----------------
--------------- --------------- --------------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------------------
MFS OCC
AIM V.I. JANUS ASPEN MFS EMERGING ACCUMULATION
VALUE GROWTH RESEARCH GROWTH TRUST SMALL CAP
FUND PORTFOLIO SERIES SERIES PORTFOLIO
--------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Discovery Preferred). . . . . . . . N/A N/A N/A N/A N/A
Unit Value (Discovery Preferred) . . . N/A N/A N/A N/A N/A
--------------- --------------- --------------- ---------------- ----------------
Contract Owner Equity (Discovery
Preferred) . . . . . . . . . . . . . N/A N/A N/A N/A N/A
--------------- --------------- --------------- ---------------- ----------------
Contract Owner Units Outstanding
(Discovery Select) . . . . . . . . . 37,009,784.835 40,236,134.863 31,409,622.799 44,342,699.749 36,276,986.681
Unit Value (Discovery Select). . . . . $ 1.27997 $ 1.22056 $ 1.21695 $ 1.15186 $ 1.26710
--------------- --------------- --------------- ---------------- ----------------
Contract Owner Equity (Discovery
Select). . . . . . . . . . . . . . . $ 47,371,414 $ 49,110,617 $ 38,223,940 $ 51,076,582 $ 45,966,570
--------------- --------------- --------------- ---------------- ----------------
TOTAL CONTRACT OWNER EQUITY. . . . . . $ 47,371,414 $ 49,110,617 $ 38,223,940 $ 51,076,582 $ 45,966,570
--------------- --------------- --------------- ---------------- ----------------
--------------- --------------- --------------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------
WARBURG PINCUS T. ROWE PRICE
POST-VENTURE PRUDENTIAL JANUS ASPEN INTERNATIONAL
CAPITAL GLOBAL INTERNATIONAL STOCK
PORTFOLIO PORTFOLIO GROWTH PORTFOLIO PORTFOLIO
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Discovery Preferred). . . . . . . . N/A 14,368,133.962 N/A N/A
Unit Value (Discovery Preferred) . . . N/A $ 1.26079 N/A N/A
--------------- --------------- ---------------- ----------------
Contract Owner Equity (Discovery
Preferred) . . . . . . . . . . . . . N/A $ 18,115,200 N/A N/A
--------------- --------------- ---------------- ----------------
Contract Owner Units Outstanding
(Discovery Select). . . . . . . . . . 11,039,843.408 18,580,228.224 63,737,491.551 22,039,049.211
Unit Value (Discovery Select). . . . . $ 1.07018 $ 1.26079 $ 1.23121 $ 1.05690
--------------- --------------- ---------------- ----------------
Contract Owner Equity (Discovery
Select). . . . . . . . . . . . . . . $ 11,814,620 $ 23,425,766 $ 78,474,237 $ 23,293,071
--------------- --------------- ---------------- ----------------
TOTAL CONTRACT OWNER EQUITY. . . . . . $ 11,814,620 $ 41,540,966 $ 78,474,237 $ 23,293,071
--------------- --------------- ---------------- ----------------
--------------- --------------- ---------------- ----------------
</TABLE>
A14
<PAGE>
NOTE 5: 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 Discovery Preferred and Discovery Select Contract owners
held in each subaccount. Mortality risk is that Annuitants may live
longer than estimated and expense risk is that the cost of issuing and
administering the policies may exceed the estimated expenses. For
1997, the amount of these charges, pertaining to the twenty-three
subaccounts within the Account, paid to Pruco Life for Discovery
Preferred was $6,054,227 and for Discovery Select was $8,354,029.
B. Administration Charges
The administration charge at an effective annual rate of .15% is
applied daily against the net assets representing equity of Discovery
Preferred and Discovery Select Contract owners held in each
subaccount. Administration charges include costs associated with
issuing the Contract, establishing and maintaining records, and
providing reports to Contract owners. For 1997, the amount of these
charges, pertaining to the twenty-three subaccounts within the
Account, paid to Pruco Life for Discovery Preferred was $730,469 and
for Discovery Select was $1,007,951.
C. Withdrawal Charge
A withdrawal charge may be made upon full or partial contract owner
redemptions. 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. For 1997
the amount of these charges, pertaining to the twenty-three
subaccounts within the Account, paid to Pruco Life for Discovery
Preferred was $537,912 and for Discovery Select was $341,614.
NOTE 6: TAXES
Pruco Life is taxed as a "life insurance company" as defined by the
Internal Revenue Code and the results of operations of the Account
form a part of Pruco Life's consolidated federal tax return. Under
current federal law, no federal income taxes are payable by the
Account. As such, no provision for tax liability has been recorded in
these financial statements.
A15
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
The following amounts represent components of Contract owner activity
for the year ended December 31, 1997:
<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL OCC PRUDENTIAL
MONEY DIVERSIFIED HIGH YIELD ACCUMULATION STOCK
MARKET BOND BOND TRUST MANAGED INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Contract Owner Net Payments. . . . . . $156,368,031 $90,502,554 $102,025,301 $162,688,544 $166,375,561
Surrenders, Withdrawals, and
Death Benefits . . . . . . . . . . . (3,412,599) (2,186,522) (3,019,258) (1,854,703) (2,434,104)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options. . (87,867,187) 5,316,673 3,069,977 4,957,886 10,967,240
Administrative and Other Charges . . . (1,652) (2,460) (2,803) (4,307) (4,419)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------
PRUDENTIAL AIM V.I. T. ROWE PRICE
EQUITY GROWTH & EQUITY PRUDENTIAL PRUDENTIAL
INCOME INCOME INCOME EQUITY JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Contract Owner Net Payments. . . . . . $ 162,528,106 $ 32,736,806 $ 65,786,704 $211,729,155 $100,500,489
Surrenders, Withdrawals, and Death
Benefits . . . . . . . . . . . . . . (3,079,806) (444,399) (953,609) (6,549,765) (2,888,488)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options. . 11,062,157 2,723,104 6,023,121 11,511,987 9,339,671
Administrative and Other Charges . . . (1,842) (1,420) (3,533) (5,769) (3,558)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------
MFS OCC
AIM V.I. JANUS ASPEN MFS EMERGING ACCUMULATION
VALUE GROWTH RESEARCH GROWTH TRUST SMALL CAP
FUND PORTFOLIO SERIES SERIES PORTFOLIO
------------- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Contract Owner Net Payments. . . . . . $ 35,933,953 $ 36,890,007 $ 30,075,572 $ 36,979,650 $ 37,166,379
Surrenders, Withdrawals, and
Death Benefits . . . . . . . . . . . (398,379) (648,814) (346,563) (698,867) (282,900)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options. . 4,427,716 3,223,174 3,170,198 4,845,890 4,096,988
Administrative and Other Charges . . . (1,966) (2,964) (1,367) (2,474) (1,377)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------
WARBURG PINCUS T. ROWE PRICE
POST-VENTURE PRUDENTIAL JANUS ASPEN INTERNATIONAL
CAPITAL GLOBAL INTERNATIONAL STOCK
PORTFOLIO PORTFOLIO GROWTH PORTFOLIO PORTFOLIO
-------------- ------------ ---------------- -------------
<S> <C> <C> <C> <C>
Contract Owner Net Payments. . . . . . $ 8,798,742 $ 25,739,457 $ 64,694,757 $ 19,034,012
Surrenders, Withdrawals, and
Death Benefits . . . . . . . . . . . (168,156) (977,710) (852,419) (249,325)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options. . 626,737 2,346,713 5,472,805 1,931,123
Administrative and Other Charges . . . (819) (768) (3,062) (970)
</TABLE>
A16
<PAGE>
NOTE 8: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM EQUITY TRANSFERS
The increase (decrease) in net assets resulting from equity transfers
represents the net contributions (withdrawals) of Pruco Life to the
Account.
NOTE 9: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) for the
year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL OCC
MONEY DIVERSIFIED HIGH YIELD ACCUMULATION PRUDENTIAL
MARKET BOND BOND TRUST MANAGED STOCK INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Contract Owner Contributions: 65,831,878.542 86,785,364.670 87,620,835.950 138,319,187.460 130,289,809.730
Contract Owner Redemptions: (4,748,605.740) (2,529,033.040) (2,939,880.110) (2,176,072.730) (2,545,104.000)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------
AIM V.I. T. ROWE PRICE
PRUDENTIAL GROWTH & EQUITY PRUDENTIAL PRUDENTIAL
EQUITY INCOME INCOME INCOME EQUITY JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner Contributions: 113,122,809.290 29,512,407.120 59,990,904.980 160,533,737.490 79,878,499.050
Contract Owner Redemptions: (2,711,089.770) (553,112.680) (1,088,510.780) (5,825,559.670) (2,874,850.950)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------
MFS OCC
AIM V.I. JANUS ASPEN MFS EMERGING ACCUMULATION
VALUE GROWTH RESEARCH GROWTH TRUST SMALL CAP
FUND PORTFOLIO SERIES SERIES PORTFOLIO
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner Contributions: 33,600,344.030 35,742,382.750 29,135,886.370 39,702,100.310 34,338,760.000
Contract Owner Redemptions: (624,549.900) (965,116.790) (449,033.260) (1,114,281.290) (407,189.130)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------
WARBURG PINCUS T. ROWE PRICE
POST-VENTURE PRUDENTIAL JANUS ASPEN INTERNATIONAL
CAPITAL GLOBAL INTERNATIONAL STOCK
PORTFOLIO PORTFOLIO GROWTH PORTFOLIO PORTFOLIO
------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 9,575,257.710 22,201,104.720 58,792,020.410 19,626,821.540
Contract Owner Redemptions: (320,553.090) (1,082,051.220) (948,109.390) (538,232.840)
</TABLE>
A17
<PAGE>
NOTE 10: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of
investments in the Series Fund and non-Prudential administered funds
were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
---------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL OCC
MONEY DIVERSIFIED HIGH YIELD ACCUMULATION PRUDENTIAL
MARKET BOND BOND TRUST MANAGED STOCK INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Purchases . . . . . . . . . . . . . . $ 78,132,000 $ 93,601,000 $ 101,169,000 $ 167,445,000 $ 175,788,000
Sales . . . . . . . . . . . . . . . $ (14,414,000) $ (564,000) $ (100,000) $ 0 $ (1,342,000)
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
---------------------------------------------------------------------------------------
AIM V.I. T. ROWE PRICE
PRUDENTIAL GROWTH & EQUITY PRUDENTIAL PRUDENTIAL
EQUITY INCOME INCOME INCOME EQUITY JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Purchases . . . . . . . . . . . . . . $ 171,458,000 $ 33,872,000 $ 70,021,000 $ 215,677,000 $ 107,353,000
Sales . . . . . . . . . . . . . . . $ (32,000) $ 0 $ 0 $ (223,000) $ (563,000)
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
---------------------------------------------------------------------------------------
MFS OCC
AIM V.I. JANUS ASPEN MFS EMERGING ACCUMULATION
VALUE GROWTH RESEARCH GROWTH TRUST SMALL CAP
FUND PORTFOLIO SERIES SERIES PORTFOLIO
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Purchases. . . . . . . . . . . . . . . $ 39,685,000 $ 38,623,000 $ 32,337,000 $ 39,456,000 $ 40,518,215
Sales . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIOS (CONTINUED)
--------------------------------------------------------------------
WARBURG PINCUS T. ROWE PRICE
POST-VENTURE PRUDENTIAL JANUS ASPEN INTERNATIONAL
CAPITAL GLOBAL INTERNATIONAL STOCK
PORTFOLIO PORTFOLIO GROWTH PORTFOLIO PORTFOLIO
------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
For the year ended December 31, 1997
Purchases . . . . . . . . . . . . . . $ 8,928,000 $ 27,278,000 $ 69,439,000 $ 20,231,000
Sales . . . . . . . . . . . . . . . $ 0 $ (449,000) $ 0 $ (8,000)
</TABLE>
A18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the
Discovery Select Variable Annuity Subaccounts of
Pruco Life Flexible Premium Variable Annuity Account
and the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of the Prudential Money Market,
Prudential Diversified Bond, Prudential High Yield Bond, OCC Accumulation
Trust Managed Portfolio, Prudential Stock Index, Prudential Equity Income,
AIM V.I. Growth and Income Fund, T. Rowe Price Equity Income Portfolio,
Prudential Equity, Prudential Jennison, AIM V.I. Value Fund, Janus Aspen
Growth Portfolio, MFS Research Series, MFS Emerging Growth Series, OCC
Accumulation Trust Small Cap Portfolio, Warburg Pincus Post-Venture Capital
Portfolio, Prudential Global, Janus Aspen International Growth Portfolio and
T. Rowe Price International Stock Portfolio Subaccounts of the Pruco Life
Flexible Premium Variable Annuity Account at December 31, 1997, the results
of each of their operations for the year then ended and the changes in each
of their net assets for each of the two years in the period then ended, (for
the year ended December 31, 1997 and for the period October 7, 1996
(commencement of operations) through December 31, 1996 for OCC Accumulation
Trust Managed Portfolio, AIM V.I. Growth and Income Fund, T. Rowe Price
Equity Income Portfolio, AIM V.I. Value Fund, Janus Aspen Growth Portfolio,
MFS Research Series, MFS Emerging Growth Series, OCC Accumulation Trust Small
Cap Portfolio, Warburg Pincus Post-Venture Capital Portfolio, Janus Aspen
International Growth Portfolio and T. Rowe Price International Stock
Portfolio), in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Pruco Life Insurance
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of fund shares owned at December 31,
1997, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
March 20, 1998
A19
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1997 AND 1996 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1997: $2,526,554;
1996: $2,210,150) $ 2,563,852 $ 2,236,817
Held to maturity, at amortized cost (fair value, 1997: $350,056; 1996:
$416,102) 338,848 405,731
Equity securities - available for sale, at fair value (cost, 1997: $1,289;
1996: $3,626) 1,982 3,748
Mortgage loans on real estate 22,787 46,915
Policy loans 703,955 639,782
Short-term investments 316,355 169,830
Other long-term investments 1,317 4,528
----------------- -----------------
Total investments 3,949,096 3,507,351
Cash 71,358 73,766
Deferred policy acquisition costs 655,242 633,159
Accrued investment income 67,000 62,110
Income taxes receivable - 7,191
Reinsurance recoverable on unpaid losses 25,882 27,014
Other assets 60,810 62,924
Separate Account assets 8,022,079 5,336,851
----------------- -----------------
TOTAL ASSETS $12,851,467 $9,710,366
================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances $ 2,282,191 $ 2,188,862
Future policy benefits and other policyholder liabilities 570,729 557,351
Cash collateral for loaned securities 143,421 -
Income taxes payable 71,703 -
Deferred income tax liability 138,483 148,960
Payable to affiliate 70,375 49,828
Other liabilities 120,260 88,930
Separate Account liabilities 7,948,788 5,277,454
----------------- -----------------
TOTAL LIABILITIES 11,345,950 8,311,385
----------------- -----------------
CONTINGENCIES - (SEE NOTE 10)
STOCKHOLDER'S EQUITY
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
December 31, 1997 and 1996 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,050,871 944,497
Net unrealized investment gains 17,129 14,104
Foreign currency translation adjustments (4,565) (1,702)
----------------- -----------------
TOTAL STOCKHOLDER'S EQUITY 1,505,517 1,398,981
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $12,851,467 $9,710,366
================= =================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-1
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES
Premiums $ 49,496 $ 51,525 $ 42,089
Policy charges and fee income 330,292 324,976 319,012
Net investment income 259,634 247,328 246,618
Realized investment gains, net 10,974 10,835 13,200
Other income 33,801 20,818 26,986
----------------- ----------------- -----------------
TOTAL REVENUES 684,197 655,482 647,905
----------------- ----------------- -----------------
BENEFITS AND EXPENSES
Policyholders' benefits 179,419 186,873 153,987
Interest credited to policyholders' account balances 110,815 118,246 126,926
General, administrative and other expenses 225,721 122,006 134,790
----------------- ----------------- -----------------
TOTAL BENEFITS AND EXPENSES 515,955 427,125 415,703
----------------- ----------------- -----------------
Income from operations before income taxes 168,242 228,357 232,202
----------------- ----------------- -----------------
Income taxes
Current 73,326 60,196 67,014
Deferred (11,458) 18,939 12,544
----------------- ----------------- -----------------
Total income taxes 61,868 79,135 79,558
----------------- ----------------- -----------------
NET INCOME $ 106,374 $ 149,222 $ 152,644
================= ================= =================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-2
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
NET FOREIGN
UNREALIZED CURRENCY TOTAL
COMMON PAID-IN- RETAINED INVESTMENT TRANSLATION STOCKHOLDER'S
STOCK CAPITAL EARNINGS GAINS ADJUSTMENTS EQUITY
------------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 2,500 $ 439,582 $ 642,631 $(41,761) $ 650 $1,043,602
Net income -- -- 152,644 -- -- 152,644
Change in foreign
currency translation
adjustments -- -- -- -- (1,870) (1,870)
Change in net
unrealized
investment gains -- -- -- 73,817 -- 73,817
------------- ------------- ------------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1995 2,500 439,582 795,275 32,056 (1,220) 1,268,193
Net income -- -- 149,222 -- -- 149,222
Change in foreign
currency translation
adjustments -- -- -- -- (482) (482)
Change in net
unrealized
investment gains -- -- -- (17,952) -- (17,952)
------------- ------------- ------------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1996 2,500 439,582 944,497 14,104 (1,702) 1,398,981
Net income -- -- 106,374 -- -- 106,374
Change in foreign
currency translation
adjustments -- -- -- -- (2,863) (2,863)
Change in net
unrealized
investment gains -- -- -- 3,025 -- 3,025
------------- ------------- ------------- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1997 $ 2,500 $ 439,582 $1,050,871 $ 17,129 $ (4,565) $1,505,517
============= ============= ============= ============= =========== =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-3
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 106,374 $ 149,222 $ 152,644
Adjustments to reconcile net income to net cash provided by
operating activities:
Policy charges and fee income (40,783) (50,286) (56,637)
Interest credited to policyholders' account balances 110,815 118,246 126,926
Net increase in Separate Accounts (13,894) (38,025) (3,520)
Realized investment gains, net (10,974) (10,835) (13,200)
Amortization and other non-cash items (5,525) 26,709 (8,106)
Change in:
Future policy benefits and other policyholders' liabilities 13,378 56,151 22,877
Accrued investment income (4,890) (2,248) (480)
Payable to affiliate 20,547 16,519 10,569
Policy loans (64,173) (70,509) (75,411)
Deferred policy acquisition costs (22,083) (66,183) 31,318
Income taxes payable/receivable 78,894 (816) 12,031
Reinsurance recoverable on unpaid losses 1,132 900 750
Deferred income tax liability (10,477) 7,912 30,779
Other, net 34,094 7,564 (76,702)
--------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES 192,435 144,321 153,838
--------------- -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 2,828,665 3,886,254 1,886,687
Held to maturity 138,626 138,127 144,898
Equity securities 6,939 7,527 5,557
Mortgage loans on real estate 24,925 19,226 7,395
Other long-term investments 3,276 288 1,559
Investment real estate -- 4,488 2,926
Payments for the purchase of:
Fixed maturities:
Available for sale (3,141,785) (4,008,810) (1,741,139)
Held to maturity (70,532) (114,494) (135,092)
Equity securities (4,594) (4,697) (4,279)
Other long-term investments (51) (657) (1,674)
Cash collateral for loaned securities, net 143,421 -- --
Short-term investments, net (147,030) 58,186 (36,482)
--------------- -------------- ------------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES (218,140) (14,562) 130,356
--------------- -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 2,099,600 536,370 95,039
Withdrawals (2,076,303) (633,798) (365,578)
--------------- -------------- ------------
CASH FLOWS FROM (USED IN)FINANCING ACTIVITIES 23,297 (97,428) (270,539)
--------------- -------------- ------------
Net (decrease) increase in Cash (2,408) 32,331 13,655
Cash, beginning of year 73,766 41,435 27,780
--------------- -------------- ------------
CASH, END OF YEAR $ 71,358 $ 73,766 $ 41,435
=============== ============== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes (received) paid $ (7,904) $ 61,760 $ 53,107
=============== ============== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B-4
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS
Pruco Life Insurance Company (the Company) is a stock life insurance company,
organized in 1971 under the laws of the state of Arizona. The Company markets
individual life insurance, variable life insurance, variable life insurance,
variable annuities, and deferred annuities (the Contracts) in all states except
New York, the District of Columbia and Guam. In addition, the Company markets
individual life insurance through its branch office in Taiwan. The Company has
two subsidiaries, Pruco Life Insurance Company of New Jersey (PLNJ) and The
Prudential Life Insurance company of Arizona (PLICA). PLNJ is a stock life
insurance company organized in 1982 under the laws of the state of New Jersey.
It is licenced to sell individual life insurance and deferred annuities only in
the states of New Jersey and New York. PLICA is a stock life insurance company
organized in 1988 under the laws of the state of Arizona. PLICA had no new
business sales in 1977 and at this time will not be issuing new business.
The only reportable industry segment of the Company is "Life Insurance."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company, a
stock life insurance company, and its subsidiaries. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP"). All significant intercompany balances and transactions have
been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
INVESTMENTS
FIXED MATURITIES classified as "available for sale" are carried at estimated
fair value. Fixed maturities that the Company has both the positive intent and
ability to hold to maturity are stated at amortized cost and classified as "held
to maturity". The amortized cost of fixed maturities are written down to
estimated fair value when considered impaired and the decline in value is
considered to be other than temporary. Unrealized gains and losses on fixed
maturities "available for sale", net of income tax, the effect on deferred
policy acquisition costs and participating annuity contracts that would result
from the realization of unrealized gains and losses are included in a separate
component of equity, "Net unrealized investment gains."
EQUITY SECURITIES, available for sale, comprised of common and non-redeemable
preferred stock, are carried at estimated fair value. The associated unrealized
gains and losses, net of income tax, the effect on deferred policy acquisition
costs and participating annuity contracts that would result from the realization
of unrealized gains and losses, are included in separate component of equity,
"Net unrealized investment gains."
MORTGAGE LOANS ON REAL ESTATE are stated primarily at unpaid principal balances,
net of unamortized discounts
POLICY LOANS are carried at unpaid principal balances.
SHORT-TERM INVESTMENTS, including highly liquid debt instruments purchased with
an original maturity of twelve months or less, are carried at amortized cost,
which approximates fair value.
OTHER LONG-TERM INVESTMENTS primarily represent the Company's investments in
joint ventures and partnerships in which the Company does not have control.
These investments are recorded using the equity method of accounting, reduced
for other than temporary declines in value.
REALIZED INVESTMENT GAINS, NET are computed using the specific identification
method. Costs of fixed maturity and equity securities are adjusted for
impairments considered to be other than temporary.
CASH
Cash includes cash on hand, amounts due from banks, and money market
instruments.
DEFERRED POLICY ACQUISITION COSTS
The costs which vary with and that are related primarily to the production of
new insurance business are deferred to the extent such costs are deemed
recoverable from future profits. Such costs include certain commissions, costs
of policy issuance and underwriting, and certain variable field office expenses.
Deferred policy acquisition costs are subject to recoverability testing at the
time of policy issue and loss recognition testing at the end of each accounting
period. Deferred policy acquisition costs are
B-5
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
adjusted for the impact of unrealized gains or losses on investments as if these
gains or losses had been realized, with corresponding credits or charges
included in equity.
Acquisition costs related to interest-sensitive life products and
investment-type contracts are deferred and amortized in proportion to total
estimated gross profits arising principally from investment results, mortality
and expense margins and surrender charges based on historical and anticipated
future experience. Amortization periods range from 15 to 30 years. Amortization
of deferred policy acquisition costs was $149,851 thousand, $9,309 thousand, and
$54,371 thousand for the years ended December 31, 1997, 1996, and 1995,
respectively. Deferred policy acquisition costs are analyzed to determine if
they are recoverable from future income, including investment income. If such
costs are determined to be unrecoverable, they are expensed at the time of
determination. The effect of revisions to estimated gross profits on unamortized
deferred acquisition costs is reflected in earnings in the period such estimated
gross profits are revised.
FUTURE POLICY BENEFITS AND POLICYHOLDERS' ACCOUNT BALANCES
Future policy benefits includes reserves for annuities in payout status as well
as reserves for riders and supplemental benefits. Reserves for annuities in
payout status are generally calculated as the present value of estimated future
benefit payments and related expenses, using interest rates ranging from 6.5% to
11.0%. The mortality assumption is generally the 1983 Individual Annuity
Mortality Table. Reserves for riders and supplemental benefits are calculated
using interest rates ranging from 2.5% to 7.25% and various mortality and
morbidity tables derived from company or industry experience. Reserves for
business in the Company's Taiwan branch are generally calculated using interest
rates ranging from 6.25% to 7.5% and the 1989 Taiwan Standard Ordinary
Experience Mortality table with modifications.
For the above categories, premium deficiency reserves are established, if
necessary, when the liabilities for future policy benefits plus the present
value of expected future gross premiums are insufficient to provide for expected
future policy benefits and expenses.
Policyholders' account balances for interest-sensitive life and investment-type
contracts are equal to the policy account values. The policy account values
represent an accumulation of gross premium payments plus credited interest, less
expense and mortality charges and withdrawals. Interest crediting rates on life
insurance products range from 4.2% to 6.5% and on investment-type products range
from 3.15% to 7.9%.
SECURITIES LOANED are recorded at the amount of cash received as collateral. The
Company obtains collateral in an amount equal to 102% of the fair value of the
domestic securities. The Company monitors the market value of securities loaned
on a daily basis with additional collateral obtained as necessary. Non-cash
collateral received is not reflected in the consolidated statements of financial
position. Substantially, all of the Company's securities loaned are with large
brokerage firms.
These transactions are used to generate net investment income and facilitate
trading activity. These instruments are short-term in nature (usually 30 days or
less) and are collateralized principally by U.S. Government and mortgage-backed
securities. The carrying amounts of these instruments approximate fair value
because of the relatively short period of time between the origination of the
instruments and their expected realization.
SEPARATE ACCOUNT ASSETS AND LIABILITIES
Separate Account assets and liabilities are reported at estimated fair value and
represent segregated funds which are invested for certain policyholders, pension
funds and other customers. The assets consist of common stocks, fixed
maturities, real estate related securities, and short-term investments. The
assets of each account are legally segregated and are not subject to claims that
arise out of any other business of the Company. Investment risks associated with
market value changes are generally borne by the customers, except to the extent
of minimum guarantees made by the Company with respect to certain accounts. The
investment income and gains or losses for Separate Accounts generally accrue to
the policyholders and are not included in the Consolidated Statement of
Operations. Mortality, policy administration and surrender charges on the
accounts are included in "Policy charges and fee income."
Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life Modified Guaranteed Annuity
Account. The Pruco Life Modified Guaranteed Annuity Account is a non-unitized
separate account, which funds the Modified Guaranteed Annuity Contract and the
Market Value Adjustment Annuity Contract. Owners of the Pruco Life Modified
Guaranteed Annuity and the Market Value Adjustment Annuity Contracts do not
participate in the investment gain or loss from assets relating to such
accounts. Such gain or loss is borne, in total, by the Company.
B-6
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INSURANCE REVENUE AND EXPENSE RECOGNITION
Amounts received as payment for interest-sensitive life, investment contracts
and deferred annuities are reported as deposits to "Policyholders' account
balances." Revenues from these contracts are reflected as "Policy charges and
fee income" and consist primarily of fees assessed during the period against the
policyholders' account balances for mortality charges, policy administration
charges, surrender charges, and interest earned from the investment of these
account balances. Benefits and expenses for these products include claims in
excess of related account balances, expenses of contract administration,
interest credited and amortization of deferred policy acquisition costs.
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Assets and liabilities of the Taiwan branch reported in other than U.S. dollars
are translated at the exchange rate in effect at the end of the period.
Revenues, benefits and other expenses are translated at the average rate
prevailing during the period. Translation adjustments arising from the use of
differing exchange rates from period to period are charged or credited directly
to equity. The cumulative effect of changes in foreign exchange rates are
included in "Foreign currency translation adjustments."
DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives include futures subject to market risk, all of which are used by the
Company in other than trading activities. Income and expenses related to
derivatives used to hedge are recorded on the accrual basis on the Statements of
Financial Position. Gains and losses relating to derivatives used to hedge the
risks associated with anticipated transactions are realized in "Realized
investment gains, net." If it is determined that the transaction will not close,
such gains and losses are included in "Realized investment gains, net."
Derivatives held for purposes other than trading are primarily used to hedge or
reduce exposure to interest rate and foreign currency risks associated with
assets held or expected to be purchased or sold, and liabilities incurred or
expected to be incurred. Additionally, other than trading derivatives are used
to change the characteristics of the Company's asset/liability mix consistent
with the Company's risk management activities.
INCOME TAXES
The Company and its subsidiaries are members of a group of affiliated companies
which join in filing a consolidated federal income tax return in addition to
separate company state and local tax returns. Pursuant to the tax allocation
arrangement, total federal income tax expense is determined on a separate
company basis. Members with losses record tax benefits to the extent such losses
are recognized in the consolidated federal tax provision. Deferred income taxes
are generally recognized, based on enacted rates, when assets and liabilities
have different values for financial statement and tax reporting purposes. A
valuation allowance is recorded to reduce a deferred tax asset to that portion
which management believes is more likely than not to be realized.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 125"). The statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
and provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. SFAS 125
became effective January 1, 1997 and is to be applied prospectively. Subsequent
to June 1996, FASB issued SFAS No. 127 "Deferral of the Effective Date of
Certain Provisions of SFAS 125" ("SFAS 127"). SFAS 127 delays the implementation
of SFAS 125 for one year for certain provisions, including repurchase
agreements, dollar rolls, securities lending and similar transactions. The
Company will delay implementation with respect to those affected provisions.
Adoption of SFAS 125 has not, and will not have a material impact on the
Company's results of operations, financial condition and liquidity.
In June of 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for years beginning after December 15, 1997. This statement
defines comprehensive income as "the change in equity of a business enterprise
during a
B-7
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
period from transactions and other events and circumstances from non-owner
sources, excluding investments by owners and distributions to owners" and
establishes standards for reporting and displaying comprehensive income and its
components in financial statements. The statement requires that the Company
classify items of other comprehensive income by their nature and display the
accumulated balance of other comprehensive income separately from retained
earnings in the equity section of the Statement of Financial Position. In
addition, reclassification of financial statements for earlier periods must be
provided for comparative purposes.
RECLASSIFICATIONS
Certain amounts in the prior years have been reclassified to conform to current
year presentation.
B-8
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES:
The following tables provide additional information relating to fixed maturities
and equity securities as of December 31,:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
------------------ ---------------- ------------- ----------------
(In Thousands)
<S> <C> <C> <C> <C>
FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 177,691 $ 1,231 $ 20 $ 178,902
Foreign government bonds 83,889 1,118 19 84,988
Corporate securities 2,263,898 36,857 2,017 2,298,738
Mortgage-backed securities 1,076 180 32 1,224
------------------ ---------------- ------------- ----------------
Total fixed maturities available for sale $2,526,554 $ 39,386 $ 2,088 $2,563,852
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
EQUITY SECURITIES AVAILABLE FOR SALE $ 1,289 $ 802 $ 109 $ 1,982
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
FIXED MATURITIES HELD TO MATURITY
Corporate securities $ 338,848 $ 11,427 $ 219 $ 350,056
------------------ ---------------- ------------- ----------------
Total fixed maturities held to maturity $ 338,848 $ 11,427 $ 219 $ 350,056
================== ================= ============== ===============
1996
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
------------------ ---------------- ------------- ----------------
(In Thousands)
FIXED MATURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 32,055 $ 30 $ 174 $ 31,911
Foreign government bonds 90,447 857 205 91,099
Corporate securities 2,087,250 30,365 4,206 2,113,409
Mortgage-backed securities 398 -- -- 398
------------------ ---------------- ------------- ----------------
Total fixed maturities available for sale $2,210,150 $ 31,252 $ 4,585 $2,236,817
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
EQUITY SECURITIES AVAILABLE FOR SALE $ 3,626 $ 819 $ 697 $ 3,748
================== ================= ============== ===============
------------------ ---------------- ------------- ----------------
FIXED MATURITIES HELD TO MATURITY
Corporate securities $ 405,731 $ 10,947 $ 576 $ 416,102
------------------ ---------------- ------------- ----------------
Total fixed maturities held to maturity $ 405,731 $ 10,947 $ 576 $ 416,102
================== ================= ============== ===============
</TABLE>
B-9
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of fixed maturities, categorized by
contractual maturities at December 31, 1997, are shown below:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
---------------------------------- -----------------------------------
ESTIMATED ESTIMATED
FAIR FAIR
AMORTIZED COST VALUE AMORTIZED COST VALUE
----------------- ---------------- ----------------- -----------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 29,759 $ 29,731 $ 13,736 $ 13,838
Due after one year through five years 1,738,532 1,758,946 204,298 212,050
Due after five years through ten years 555,194 567,928 98,192 101,143
Due after ten years 201,993 206,023 22,622 23,025
Mortgage-backed securities 1,076 1,224 -- --
----------------- ---------------- ----------------- -----------------
Total $2,526,554 $2,563,852 $ 338,848 $ 350,056
================= ================ ================= =================
</TABLE>
Actual maturities will differ from contractual maturities because issuers have
the right to call or prepay obligations.
Proceeds from the sale of fixed maturities available for sale during 1997, 1996,
and 1995 were $2,796,306 thousand, $3,667,062 thousand, and $1,807,584 thousand,
respectively. Gross gains of $18,635 thousand, $22,078 thousand, and $25,909
thousand and gross losses of $7,990 thousand, $17,718 thousand, and $13,907
thousand were realized on those sales during 1997, 1996, and 1995, respectively.
Proceeds from the maturity of fixed maturities available for sale during 1997,
1996, and 1995 were $32,359 thousand, $219,192 thousand, and $79,103 thousand,
respectively. During the years ended December 31, 1997, 1996 and 1995, there
were no securities classified as held to maturity that were sold.
The following table describes the amortized cost and estimated fair value of
fixed maturity securities by rating agency equivalent as of December 31, 1997:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
-------------------------------- -------------------------------
AMORTIZED ESTIMATED FAIR AMORTIZED ESTIMATED FAIR
COST VALUE COST VALUE
--------------- ---------------- --------------- ---------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
AAA/AA/A $ 1,319,527 $ 1,334,823 $ 187,692 $ 194,797
BBB 1,047,203 1,062,641 128,481 131,820
BB 80,136 83,293 20,540 21,264
B 73,717 76,781 2,132 2,172
CCC or lower 5,943 6,288 -- --
In or near default 28 26 3 3
--------------- ---------------- --------------- ---------------
Total $ 2,526,554 $ 2,563,852 $ 338,848 $ 350,056
=============== ================ =============== ===============
</TABLE>
The NAIC rates certain public and private placement securities as "in or near
default" if they are currently non-performing or believed subject to default in
the near term. The Company's holdings of these securities, in the aggregate,
comprised less than 1% of total invested assets at December 31, 1997 and 1996.
B-10
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
MORTGAGE LOANS ON REAL ESTATE
The Company's mortgage loans were collateralized by the following property types
at December 31,
1997 1996
---------------------- -----------------------
(In Thousands)
Office buildings $ 4,607 20% $ 18,497 39%
Retail stores 8,090 35% 8,731 19%
Apartment complexes 6,080 27% 11,771 25%
Industrial buildings 4,010 18% 7,916 17%
---------------------- -----------------------
Net carrying value $ 22,787 100% $ 46,915 100%
====================== =======================
The mortgage loans are geographically dispersed throughout the United States
with the largest concentrations in Washington (29%) and Pennsylvania (27%).
SPECIAL DEPOSITS
Fixed maturities of $8,302 thousand and $8,744 thousand at December 31, 1997 and
1996, respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws.
OTHER LONG-TERM INVESTMENTS
The Company's "Other long-term investments" of $1,317 thousand and $4,528
thousand as of December 31, 1997 and 1996, respectively, are comprised of
non-real estate related interests. The Company's share of net income from these
entities is $2,158 thousand, $1,434 thousand and $345 thousand for the years
ended December 31, 1997, 1996 and 1995, respectively, and is reported in "Net
investment income."
B-11
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
INVESTMENT INCOME AND INVESTMENT GAINS AND LOSSES
NET INVESTMENT INCOME arose from the following sources for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale $ 161,140 $ 152,445 $ 160,740
Fixed maturities - held to maturity 26,936 33,419 33,458
Equity securities 76 44 104
Mortgage loans on real estate 2,585 5,669 7,757
Investment real estate - 613 647
Policy loans 37,398 33,449 29,775
Short-term investments 22,011 16,780 15,092
Other 14,920 9,438 3,949
----------------- ----------------- -----------------
Gross investment income 265,066 251,857 251,522
Less: investment expenses (5,432) (4,529) (4,904)
----------------- ----------------- -----------------
Net investment income $ 259,634 $ 247,328 $ 246,618
================= ================= =================
</TABLE>
REALIZED INVESTMENT GAINS ,NET including charges for other than temporary
reductions in value, for the years ended December 31, were from the following
sources:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale $ 9,039 $ 9,036 $ 11,359
Fixed maturities - held to maturity 821 - -
Equity securities 8 781 2,020
Mortgage loans on real estate 797 1,677 (90)
Investment real estate - 487 (99)
Other 309 (1,146) 10
----------------- ----------------- -----------------
Realized investment gains, net $ 10,974 $ 10,835 $ 13,200
================= ================= =================
</TABLE>
NET UNREALIZED INVESTMENT GAINS on securities available for sale are included in
the consolidated statement of financial position as a component of equity, net
of tax. Changes in these amounts for the years ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 14,104 $ 32,056 $ (41,761)
Changes in unrealized investment gains
(losses) attributable to:
Fixed maturities 10,631 (43,853) 110,932
Equity securities 571 1,403 68
Participating group annuity contracts 1,292 (3,855) 5,092
Deferred policy acquisition costs (8,412) 17,321 (25,214)
Deferred federal income taxes (1,057) 11,032 (17,061)
----------------- ----------------- -----------------
Balance, end of year $ 17,129 $ 14,104 $ 32,056
================= ================= =================
</TABLE>
B-12
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INCOME TAXES
The components of income taxes for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
(In Thousands)
<S> <C> <C> <C>
Current tax expense:
U.S. $71,989 $59,489 $65,131
State and local 1,337 703 1,876
Foreign -- 4 7
--------------------- --------------------- ---------------------
Total 73,326 60,196 67,014
--------------------- --------------------- ---------------------
Deferred tax (benefit) expense:
U.S. (11,458) 18,413 12,196
State and local -- 526 348
--------------------- --------------------- ---------------------
Total (11,458) 18,939 12,544
--------------------- --------------------- ---------------------
Total income tax expense $61,868 $79,135 $79,558
===================== ===================== =====================
</TABLE>
The Company's income tax expense for the years ended December 31, differs from
the amount computed by applying the expected federal income tax rate of 35% to
income from operations before income taxes for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- --------------------
(In Thousands)
<S> <C> <C> <C>
Expected federal income tax expense $58,885 $79,925 $81,271
State income taxes 869 1,229 2,224
Other 2,114 (2,019) (3,937)
--------------------- --------------------- ---------------------
Total income tax expense $61,868 $79,135 $79,558
===================== ===================== ====================
</TABLE>
B-13
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
(In Thousands)
<S> <C> <C>
Deferred income tax assets
Insurance reserves $ 40,896 $ 38,532
-------------------- --------------------
Total deferred income tax assets 40,896 38,532
-------------------- --------------------
Deferred income tax liabilities
Deferred acquisition costs 168,702 173,785
Net investment gains 8,161 12,502
Other 2,516 1,205
-------------------- --------------------
Total deferred income tax liabilities 179,379 187,492
-------------------- --------------------
Deferred federal income tax liabilities $ 138,483 $ 148,960
==================== ====================
</TABLE>
Management believes that based on its historical pattern of taxable income, the
Company will produce sufficient income in the future to realize its deferred tax
assets after valuation allowance. Adjustments to the valuation allowance will be
made if there is a change in management's assessment of the amount of the
deferred tax assets that are realizable.
The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns through 1989. The Service has examined
the years 1990 through 1992. Discussions are being held with the Service with
respect to proposed adjustments. However, management believes there are adequate
defenses against, or sufficient reserves to provide for, such adjustments. The
Service has begun their examination of the years 1993 through 1995.
5. REINSURANCE
The Company assumes and cedes reinsurance with Prudential and other companies.
The effect of reinsurance for the years ended December 31, is summarized as
follows:
1997 1996 1995
----------- ----------- -----------
Life insurance premiums
Gross Amount $ 51,851 $ 53,776 $ 44,357
Ceded to other companies (3,724) (3,379) (2,268)
Assumed from other companies 1,369 1,128 --
----------- ----------- -----------
Net amount $ 49,496 $ 51,525 $ 42,089
=========== =========== ===========
1997 1996 1995
----------- ----------- -----------
Life insurance in force
Gross Amount $47,328,495 $47,430,580 $47,822,892
Ceded to other companies (1,292,395) (1,172,449) (822,619)
----------- ----------- -----------
Net amount $46,036,100 $46,258,131 $47,000,273
=========== =========== ===========
B-14
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. EQUITY
RECONCILIATION OF STATUTORY SURPLUS AND NET INCOME
Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following table
reconciles the Company's statutory net income and surplus as of and for the
years ended December 31, determined in accordance with accounting practices
prescribed or permitted by the Arizona Department of Banking and Insurance with
net income and equity determined using GAAP.
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
(In Thousands)
<S> <C> <C> <C>
STATUTORY NET INCOME $ 12,778 $ 48,846 $ 113,565
Adjustments to reconcile to net income on a GAAP basis:
Statutory income of subsidiaries 18,553 25,001 44,186
Deferred acquisition costs 38,003 48,862 (6,103)
Deferred premium 1,144 1,295 (743)
Insurance liabilities 26,517 28,662 32,665
Deferred taxes 11,458 (7,780) (27,669)
Valuation of investments 506 365 5,480
Other, net (2,585) 3,971 (8,737)
------------------ ------------------ ------------------
GAAP NET INCOME $ 106,374 $ 149,222 $ 152,644
================== ================== ==================
<CAPTION>
1997 1996
-------------------- --------------------
(In Thousands)
<S> <C> <C>
STATUTORY SURPLUS $ 853,130 $ 901,645
Adjustments to reconcile to equity on a GAAP basis:
Valuation of investments 97,787 95,411
Deferred acquisition costs 655,242 633,159
Deferred premium (14,817) (11,859)
Insurance liabilities (107,525) (124,781)
Deferred taxes (113,461) (124,823)
Other, net 135,161 30,229
-------------------- --------------------
GAAP STOCKHOLDER'S EQUITY $ 1,505,517 $ 1,398,981
==================== ====================
</TABLE>
The New York State Insurance Department ("Department") recognizes only statutory
accounting for determining and reporting the financial condition of an insurance
company, for determining its solvency under the New York Insurance Law and for
determining whether its financial condition warrants the payment of a dividend
to its stockholders. No consideration is given by the Department to financial
statements prepared in accordance with GAAP in making such determinations.
B-15
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values presented below have been determined using available information
and valuation methodologies. Considerable judgment is applied in interpreting
data to develop the estimates of fair value. Accordingly, such 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 approximates fair value.)
FIXED MATURITIES AND EQUITY SECURITIES
Fair values for fixed maturities and equity securities, 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 credit quality and its remaining
average life. The estimated fair value of certain non-performing private
placement securities is based on amounts estimated by management.
MORTGAGE LOANS ON REAL ESTATE
The fair value of the mortgage loan portfolio is primarily based upon the
present value of the scheduled future cash flows discounted at the appropriate
U.S. Treasury rate, adjusted for the current market spread for a similar quality
mortgage.
POLICY LOANS
The estimated fair value of policy loans is calculated using a discounted cash
flow model based upon current U.S. Treasury rates and historical loan
repayments.
DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of futures is estimated based on market quotes for a transactions
with similar terms.
The following table discloses the carrying amounts and estimated fair values of
the Company's financial instruments at December 31,:
<TABLE>
<CAPTION>
1997 1996
------------------------------------- --------------------------------------
ESTIMATED ESTIMATED
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
------------------ ------------------ ------------------ -------------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities:
Available for sale $ 2,563,852 $ 2,563,852 $ 2,236,817 $ 2,236,817
Held to maturity 338,848 350,056 405,731 416,102
Equity securities 1,982 1,982 3,748 3,748
Mortgage loans 22,787 24,994 46,915 46,692
Policy loans 703,955 703,605 639,782 623,218
Short-term investments 316,355 316,355 169,830 169,830
Cash 71,358 71,358 73,766 73,766
Separate Account assets 8,022,079 8,022,079 5,336,851 5,336,851
Financial Liabilities:
Policyholders'
account balances $ 2,282,191 $ 2,282,191 $ 2,188,862 $ 2,188,862
Cash collateral for loaned
securities 143,421 143,421 -- --
Separate Account liabilities 7,948,788 7,948,788 5,277,454 5,277,454
Derivatives 653 653 -- --
</TABLE>
B-16
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. DERIVATIVE INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of liability positions in future instruments, which represents
the Company's current exposure to credit loss from other parties'
non-performance, was $653 thousand at December 31, 1997. This includes the
estimated fair values of outstanding derivative positions only and does not
include the fair values of associated financial and non-financial assets and
liabilities, which generally offset derivative notional amounts. The fair value
amounts presented also do not reflect the netting of amounts pursuant to right
of setoff, qualifying master netting agreements with counterparties or
collateral arrangements.
9. RELATED PARTY TRANSACTIONS
SERVICE AGREEMENTS
Prudential, and Pruco Securities Corporation, an indirect wholly-owned
subsidiary of Prudential, operate under service and lease agreements whereby
services of officers and employees (except for those agents employed by the
Company in Taiwan), supplies, use of equipment and office space are provided.
The net cost of these services allocated to the Company were $139,489 thousand,
$101,662 thousand and $98,119 thousand for the years ended December 31, 1997,
1996, and 1995, respectively.
REINSURANCE
The Company currently has three reinsurance agreements in place with Prudential
(the reinsurer). Specifically a reinsurance Group Annuity Contract, whereby the
reinsurer, in consideration for a single premium payment by the Company,
provides reinsurance equal to 100% of all payments due under the contract, and
two yearly renewable term agreements in which the Company may offer and the
reinsurer may accept reinsurance on any life in excess of the Company's maximum
limit of retention. The Company is not relieved of its primary obligation to the
policyholder as a result of these reinsurance transactions. These agreements had
no material effect on net income for the years ended December 31, 1997, 1996,
and 1995.
10. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and the
Company. Prudential has agreed to indemnify the Company for any and all losses
resulting from such litigation.
In the normal course of business, the Company is subject to various claims and
assessments. Management believes the settlement of these matters would not have
a material effect on the financial position or results of operations of the
Company.
11. DIVIDENDS
The Company is subject to Arizona law which limits the amount of dividends that
insurance companies can pay to stockholders. The maximum dividend which may be
paid in any twelve month period without notification or approval is limited to
the lesser of 10% of statutory 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, 1997, the
Company would be permitted a maximum of $15,260 thousand in dividend
distribution in 1998, all of which could be paid in cash, without approval from
The State of Arizona Department of Insurance.
B-17
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying consolidated statements of financial position
and the related consolidated statements of operations, of changes in
stockholder's equity and of cash flows present fairly, in all material respects,
the financial position of Pruco Life Insurance Company and its subsidiaries at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
managememt; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
New York, New York
March 23, 1998
B-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors of
Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying consolidated statement of operations, changes
in stockholder's equity, and cash flows of Pruco Life Insurance Company and
subsidiaries for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated statements of operations, changes in
stockholder's equity, and cash flows present fairly, in all material respects,
the results of operations and cash flows of Pruco Life Insurance Company and
subsidiaries for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Parsippany, NJ
December 19, 1996
B-19
<PAGE>
WITH RESPECT TO RESIDENTS OF STATES, OTHER THAN PENNSYLVANIA, IN WHICH DISCOVERY
SELECT-SM- IS BEING OFFERED. WITH RESPECT TO RESIDENTS OF PENNSYLVANIA, SEE PAGE
C-4.
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: Divide 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 rates declared by Pruco Life for the duration
of 5 years (4 whole years remaining until September 30, 2004, plus 1 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).
<TABLE>
<CAPTION>
DATE PAYMENT FREE
- --------- ----------- ---------
<S> <C> <C>
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
</TABLE>
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.
<TABLE>
<S> <C>
$8,500.00 requested withdrawal amount
- -$7,000.00 charge-free
- ---------
$1,500.00 additional amount needed to complete withdrawal
</TABLE>
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.
<TABLE>
<C> <S>
$1,546.39 grossed-up amount
X .03 withdrawal charge rate
- ---------
$ 46.39 withdrawal charge
</TABLE>
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.
<TABLE>
<S> <C> <C>
- -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
</TABLE>
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.
<TABLE>
<S> <C> <C>
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
</TABLE>
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-2
<PAGE>
WITH RESPECT TO RESIDENTS OF PENNSYLVANIA ONLY.
MARKET-VALUE ADJUSTMENT FORMULA
The Market-Value Adjustment, which is applied to withdrawals and transfers made
at any time other than the 30-day period following the end of an interest rate
period, involves three amounts:
1. The number of whole months remaining in the existing interest rate
period.
2. The guaranteed interest rate.
3. The interpolated value of the interest rates that Pruco Life declares
for the number of whole years remaining and the duration 1 year longer
than the number of whole years remaining in the existing interest rate
period.
Stated as a formula, the Market Value Factor is equal to:
(M/12) x (R-C), not to exceed +0.40 or be less than -0.40;
Where,
M = the number of whole months (not to be less than one) remaining in the
interest rate period.
R = the Contract's guaranteed interest rate expressed as a decimal. Thus 6.2% is
converted to 0.062.
C = the interpolated value of the interest rates, expressed as a decimal, that
Pruco Life declares for the number of whole years remaining and the duration
1 year longer than the number of whole years remaining as of the date the
request for a withdrawal or transfer is received or m/365 x (n+1) year rate
+ (365-m)/365 X n year rate, where 'n' equals years and 'm' equals days
remaining in year 'n' of the existing interest rate period.
The Market-Value Adjustment is then equal to the Market Value Factor multiplied
by the amount subject to a Market-Value Adjustment.
The steps below explain how a Market-Value Adjustment is calculated.
STEP 1: Divide the number of whole months left in the existing interest rate
period (not to be less than one) by 12.
STEP 2: Interpolate the interest rates Pruco Life declares on the date the
request for withdrawal or transfer is received for the duration of years
equal to the whole number of years determined in Step 1, plus the whole
number of years plus 1 additional year.
STEP 3: Subtract this interpolated interest rate from the guaranteed
interest rate. The result could be negative.
STEP 4: Multiply the results of Step 1 and Step 2. Again, the result could
be negative. If the result is less than -0.4, use the value -0.4. If the
result is in between -0.4 and 0.4, use the actual value. If the result is
more than 0.4, use the value 0.4.
STEP 5: Multiply the result of Step 3 (which is the Market Value Factor) by
the value of the amount subject to a Market-Value Adjustment. The result is
the Market-Value Adjustment.
STEP 6: The result of Step 4 is added to the interest cell. If the
Market-Value Adjustment is positive, the interest cell will go up in value.
If the Market-Value Adjustment is negative, the interest cell will go down
in value.
Depending upon when the withdrawal request is made, a withdrawal charge may
apply.
The following example will illustrate the application of a Market-Value
Adjustment and the determination of the withdrawal charge. Suppose a Contract
owner made two invested purchase payments, the first in the amount of $10,000 on
December 1, 1995, all of which was allocated to the Equity Subaccount, and the
second in the amount of $5,000 on October 1, 1997, all of which was allocated to
the MVA Option with a guaranteed interest rate of 8% (0.08) for 7 years. A
request for withdrawal of $8,500 is made on February 1, 2000 (the Contract owner
does not provide any withdrawal instructions). On that date the amount in the
Equity Subaccount is equal to $12,000 and the amount in the interest cell with a
maturity date of September 30, 2004 is $5,985.23, so that the Contract Fund on
that date is equal to $17,985.23.
C-3
<PAGE>
On February 1, 2000, the interest rates declared by Pruco Life for the durations
4 and 5 years (4 whole years remaining until September 30, 2004, plus 1 year)
are 10.8% and 11.4%, respectively.
The following computations would be made:
1. Calculate the Contract Fund value as of the effective date of the
transaction. This would be $17,985.23.
2. Calculate the charge-free amount (the amount of the withdrawal that is not
subject to a withdrawal charge).
<TABLE>
<CAPTION>
DATE PAYMENT FREE
- --------- ----------- ---------
<S> <C> <C>
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
</TABLE>
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.
<TABLE>
<S> <C>
$8,500.00 requested withdrawal amount
- -$7,000.00 charge-free
- ---------
$1,500.00 additional amount needed to complete withdrawal
</TABLE>
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.
<TABLE>
<C> <S>
$1,546.39 grossed-up amount
X .03 withdrawal charge rate
- ---------
$ 46.39 withdrawal charge
</TABLE>
4. The Market Value Factor is determined as described in steps 1 through 5,
above. In this case, it is equal to 0.08 (8% is the guaranteed rate in the
existing cell) minus 0.11 (11% is the interpolated value for the interest
rates that would be offered for interest cells with durations of whole years
remaining and whole year plus 1 remaining in the existing interest rate
period), which is -0.03, multiplied by 4.58333 (55 months remaining until
September 30, 2004, divided by 12) or -0.13750. Thus, there will be a
negative Market-Value Adjustment of approximately 14% of the amount in the
interest cell that is subject to the adjustment.
<TABLE>
<S> <C> <C>
- -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
</TABLE>
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.
<TABLE>
<S> <C> <C>
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
</TABLE>
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-4
<PAGE>
- - FLEXIBLE PREMIUM VARIABLE ANNUITY
ACCOUNT
- - THE PRUDENTIAL SERIES FUND, INC
- - AIM VARIABLE INSURANCE FUNDS, INC.
- - JANUS ASPEN SERIES
- - MFS VARIABLE INSURANCE TRUST
- - OCC ACCUMULATION TRUST
- - T. ROWE PRICE EQUITY SERIES, INC.
- - T. ROWE PRICE INTERNATIONAL
SERIES, INC.
- - WARBURG PINCUS TRUST
- -----------------------------------------------
- -----------------------------------------------
-------------------------------------------------------------------------------
-------------------------
A Subsidiary of
[PRUDENTIAL LOGO]
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-3777
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
VARIABLE ANNUITY CONTRACTS
The DISCOVERY SELECT(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 ("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, 1998, which is
available without charge upon written request to the Prudential Annuity Service
Center, P.O. Box 14205, New Brunswick, New Jersey 08906-4205, or by telephoning
(888) PRU-2888.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
OTHER INFORMATION CONCERNING THE ACCOUNT................................................................... 1
PRINCIPAL UNDERWRITER...................................................................................... 1
DETERMINATION OF SUBACCOUNT UNIT VALUES.................................................................... 1
PERFORMANCE INFORMATION.................................................................................... 1
COMPARATIVE PERFORMANCE INFORMATION........................................................................ 5
</TABLE>
<TABLE>
<S> <C>
PRUCO LIFE INSURANCE COMPANY PRUDENTIAL ANNUITY SERVICE CENTER
213 WASHINGTON STREET P.O. BOX 14205
NEWARK, NEW JERSEY 07102-2992 NEW BRUNSWICK, NEW JERSEY 08906-4205
TELEPHONE: (888) PRU-2888
</TABLE>
* DISCOVERY SELECT is a service mark of Prudential.
Catalog No. 40MZ259J
<PAGE>
OTHER INFORMATION CONCERNING THE ACCOUNT
PRINCIPAL UNDERWRITER
Currently, Pruco Securities Corporation ("Prusec"), an indirect wholly-owned
subsidiary of Prudential which was organized in 1971 under New Jersey law, acts
as the principal underwriter of the Contract. Pruco Life expects that during the
second quarter of 1998 Prusec's responsibilities as principal underwriter will
be assigned to Prudential Investment Management Services LLC ("PIMS"). PIMS,
also an indirect wholly-owned subsidiary of Prudential, is a limited liability
corporation organized under Delaware law in 1996. PIMS will act as principal
underwriter under substantially the same terms as Prusec does currently. Both
Prusec and PIMS are registered as broker-dealers under the Securities Exchange
Act of 1934 and are members of the National Association of Securities Dealers,
Inc. The principal business address of both Prusec and PIMS is 751 Broad Street,
Newark, New Jersey 07102-3777.
The Contract is currently sold by registered representatives of the principal
underwriter and may also be sold through other broker-dealers authorized by the
principal underwriter, including broker-dealers otherwise unaffiliated with
Prudential. Registered representatives of such other unaffiliated broker-dealers
may be paid on a different basis than registered representatives of the
principal underwriter or broker-dealers affiliated with Prudential. The maximum
commission that will be paid to the broker-dealer to cover both the individual
representative's commission and other distribution expenses will not exceed 6%
of the purchase payment. In addition, trail commissions based on the size of the
contract Fund may be paid.
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") or other Fund held by that
subaccount by the net asset value of each share and adding the value of
dividends declared by the Series Fund or other Fund but not yet paid.
PERFORMANCE INFORMATION
The tables that follow provide performance information for each subaccount
through December 31, 1997. The performance information is based on historical
experience and does not indicate or represent future performance.
AVERAGE ANNUAL TOTAL RETURN
The DISCOVERY SELECT Annuity is a new contract. The returns shown below were
calculated using historical investment returns of the Funds. All fees, expenses
and charges associated with the DISCOVERY SELECT Annuity and the Funds have been
reflected in these returns, as if the Contract had existed from the inception
date of each Funds' portfolios.
1
<PAGE>
Table 1 below shows the average annual rates of total return on hypothetical
investments of $1,000 for periods ended December 31, 1997 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. This table assumes deferred sales charges.
TABLE 1
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FROM DATE
FIVE TEN PORTFOLIO
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 12/31/97 12/31/97 12/31/97 12/31/97
- ---------------------------------------------------- ------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
The Prudential Series Fund
Diversified Bond Portfolio........................ 6/08/83 2.20% 6.16% 7.68% 8.10%
High Yield Bond Portfolio......................... 2/23/87 7.34% 9.86% 9.11% 7.74%
Stock Index Portfolio............................. 10/19/87 26.12% 18.04% 15.80% 16.24%
Equity Income Portfolio........................... 2/19/88 29.85% 18.41% N/A 15.15%
Equity Portfolio.................................. 6/06/83 18.06% 17.64% 15.86% 14.00%
Prudential Jennison Portfolio..................... 5/01/95 25.02% N/A N/A 23.82%
Global Portfolio.................................. 9/19/88 0.62% 13.36% N/A 8.52%
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth and Income Fund................... 5/02/94 19.10% N/A N/A 18.98%
AIM V.I. Value Fund............................... 6/01/93 17.11% N/A N/A 17.54%
Janus Aspen Series
Growth Portfolio.................................. 9/13/93 16.17% N/A N/A 15.77%
International Growth Portfolio.................... 5/02/94 12.00% N/A N/A 17.17%
MFS Variable Insurance Trust
Emerging Growth Series............................ 7/24/95 15.35% N/A N/A 20.72%
Research Series................................... 7/24/95 13.73% N/A N/A 19.27%
OCC Accumulation Trust
Managed Portfolio (See Note 2).................... 8/01/88 15.73% 18.14% N/A 18.71%
Small Cap Portfolio (See Note 2).................. 8/01/88 15.68% 12.84% N/A 13.87%
T. Rowe Price Equity Series, Inc.
Equity Income Portfolio........................... 3/31/94 22.14% N/A N/A 21.57%
T. Rowe Price International Series, Inc.
International Stock Portfolio..................... 3/31/94 -3.24% N/A N/A 5.96%
Warburg Pincus Trust
Post-Venture Capital Portfolio.................... 9/30/96 6.89% N/A N/A 4.06%
</TABLE>
- ------------------------
Note 1: This table assumes deferred sales charges.
Note 2: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had
commenced operations on August 1, 1988, then called Quest for Value
Accumulation Trust (the "Old Trust"), was effectively divided into two
investment funds--the Old Trust and the present Quest for Value
Accumulation Trust (the "Present Trust")--at which time the Present Trust
Commenced Operations.
Note 3: All tables assume a $30.00 annual charge for contracts under $50,000.
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)(n)=ERV. In the formula, P is a hypothetical
investment of $1,000; T is the average annual total return; "n" is the number of
years; and ERV 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.
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. This table assumes no
deferred sales charges.
TABLE 2
AVERAGE ANNUAL TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
FROM DATE
FIVE TEN PORTFOLIO
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 12/31/97 12/31/97 12/31/97 12/31/97
- ---------------------------------------------------- ------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
The Prudential Series Fund
Diversified Bond Portfolio........................ 6/08/83 7.00% 6.28% 7.68% 8.10%
High Yield Bond Portfolio......................... 2/23/87 12.14% 9.97% 9.11% 7.74%
Stock Index Portfolio............................. 10/19/87 30.92% 18.12% 15.80% 16.24%
Equity Income Portfolio........................... 2/19/88 34.65% 18.49% N/A 15.15%
Equity Portfolio.................................. 6/06/83 22.86% 17.72% 15.86% 14.00%
Prudential Jennison Portfolio..................... 5/01/95 29.82% N/A N/A 24.74%
Global Portfolio.................................. 9/19/88 5.42% 13.46% N/A 8.52%
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth and Income Fund................... 5/02/94 23.90% N/A N/A 19.39%
AIM V.I. Value Fund............................... 6/01/93 21.91% N/A N/A 17.72%
Janus Aspen Series
Growth Portfolio.................................. 9/13/93 20.97% N/A N/A 15.99%
International Growth Portfolio.................... 5/02/94 16.80% N/A N/A 17.60%
MFS Variable Insurance Trust
Emerging Growth Series............................ 7/24/95 20.15% N/A N/A 21.81%
Research Series................................... 7/24/95 18.53% N/A N/A 20.38%
OCC Accumulation Trust
Managed Portfolio (See Note 2).................... 8/01/88 20.53% 18.22% N/A 18.71%
Small Cap Portfolio (See Note 2).................. 8/01/88 20.48% 12.94% N/A 13.87%
T. Rowe Price Equity Series, Inc.
Equity Income Portfolio........................... 3/31/94 26.94% N/A N/A 21.95%
T. Rowe Price International Series, Inc.
International Stock Portfolio..................... 3/31/94 1.56% N/A N/A 6.50%
Warburg Pincus Trust
Post-Venture Capital Portfolio.................... 9/30/96 11.69% N/A N/A 7.84%
</TABLE>
- ------------------------
Note 1: This table assumes no deferred sales charges.
Note 2: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had
commenced operations on August 1, 1988, then called Quest for Value
Accumulation Trust (the "Old Trust"), was effectively divided into two
investment funds--the Old Trust and the present Quest for Value
Accumulation Trust (the "Present Trust")--at which time the Present Trust
Commenced Operations.
Note 3: All tables assume a $30.00 annual charge for contracts under $50,000.
3
<PAGE>
Table 3 shows the cumulative total return for the portfolios, assuming no
withdrawal. This table assumes no deferred sales charges.
TABLE 3
CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
FROM DATE
FIVE TEN PORTFOLIO
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 12/31/97 12/31/97 12/31/97 12/31/97
- ---------------------------------------------------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
The Prudential Series Fund
Diversified Bond Portfolio........................ 6/08/83 7.00% 35.61% 109.57% 210.89%
High Yield Bond Portfolio......................... 2/23/87 12.14% 60.81% N/A 124.51%
Stock Index Portfolio............................. 10/19/87 30.92% 129.98% N/A 364.34%
Equity Income Portfolio........................... 2/19/88 34.65% 133.60% N/A 302.26%
Equity Portfolio.................................. 6/06/83 22.86% 126.08% 336.03% 574.78%
Prudential Jennison Portfolio..................... 5/01/95 29.82% N/A N/A 80.40%
Global Portfolio.................................. 9/19/88 5.42% 88.00% N/A 113.50%
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth and Income Fund................... 5/02/94 23.90% N/A N/A 91.52%
AIM V.I. Value Fund............................... 6/01/93 21.91% N/A N/A 111.24%
Janus Aspen Series
Growth Portfolio.................................. 9/13/93 20.97% N/A N/A 89.17%
International Growth Portfolio.................... 5/02/94 16.80% N/A N/A 81.18%
MFS Variable Insurance Trust
Emerging Growth Series............................ 7/24/95 20.15% N/A N/A 61.82%
Research Series................................... 7/24/95 18.53% N/A N/A 57.21%
OCC Accumulation Trust
Managed Portfolio
(Note 2)........................................ 8/01/88 20.53% 130.90% N/A 402.63%
Small Cap Portfolio
(Note 2)........................................ 8/01/88 20.48% 83.78% N/A 239.66%
T. Rowe Price Equity Series, Inc.
Equity Income Portfolio........................... 3/31/94 26.94% N/A N/A 110.59%
T. Rowe Price International Series, Inc.
International Stock Portfolio..................... 3/31/94 1.56% N/A N/A 26.67%
Warburg Pincus Trust
Post-Venture Capital Portfolio.................... 9/30/96 11.69% N/A N/A 9.90%
</TABLE>
- ------------------------
Note 1: This table assumes no deferred sales charges.
Note 2: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had
commenced operations on August 1, 1988, then called Quest for Value
Accumulation Trust (the "Old Trust"), was effectively divided into two
investment funds--the Old Trust and the present Quest for Value
Accumulation Trust (the "Present Trust")--at which time the Present Trust
Commenced Operations.
Note 3: All tables assume a $30.00 annual charge for contracts under $50,000.
4
<PAGE>
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 Prudential Series Fund. All fees, expenses and charges
associated with the DISCOVERY SELECT 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, 1997 were 4.20% and 4.29%, 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.
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: (888) PRU-2888
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<S> <C> <C> <C>
(a) FINANCIAL STATEMENTS
(1) Financial Statements of the Pruco Life Flexible Premium Variable Annuity Account
(Registrant) consisting of the Statements of Net Assets as of December 31, 1997;
the Statements of Operations for the period ended December 31, 1997; the
Statements of Changes in Net Assets for the periods ended December 31, 1997 and
December 31, 1996; and the Notes relating thereto appear in the prospectus (Part
A of the Registration Statement).
(2) Consolidated Statements of Pruco Life Insurance (Depositor) and subsidiaries
consisting of the Consolidated Statements of Financial Position as of December
31, 1997 and 1996; and the related Consolidated Statements of Operations of
Stockholder's Equity and Cash Flows for the years ended December 31, 1997, 1996
and 1995; and the Notes to the Consolidated Financial Statements.
(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 3)
(b) Form of Selected Broker Agreement between Prudential Securities Incorporated
and Pruco Securities Corporation with respect to sale of the Contracts. (Note
3)
(4) The Prudential DISCOVERY SELECT Contract. (Note 3)
(5) (a) Application form for the Contract. (Note 4)
(6) (a) Articles of Incorporation of Pruco Life Insurance Company, as amended
October 19, 1993. (Note 5)
(b) By-laws of Pruco Life Insurance Company, as amended May 6, 1997. (Note 9)
(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:
(a) Form of Fund Participation Agreement. (Note 3)
(9) Opinion of Counsel as to legality of the securities being registered. (Note 1)
</TABLE>
C - 1
<PAGE>
<TABLE>
<S> <C> <C> <C>
(10) (a) Written consent of Price Waterhouse LLP, independent accountants.
(Note 1)
(b) 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) William M. Bethke, Ira J. Kleinman, Mendel A. Melzer, Esther H. Milnes and
I. Edward Price (Note 7)
(b) James M. Schlomann (Note 5)
(c) Kiyofumi Sakaguchi (Note 8)
(d) James J. Avery Jr (Note 10)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Form N-4, Registration No. 33-61125, filed July 19,
1995 on behalf of the Pruco Life Flexible Premium Variable Annuity Account.
(Note 3) Incorporated by reference to Form N-4, Registration No. 333-06701, filed June
24, 1996 on behalf of the Pruco Life Flexible Premium Variable Annuity Account.
(Note 4) Incorporated by reference to Pre-Effective Amendment No. 1 to Form
N-4, Registration No. 333-06701, filed September 12, 1996 on behalf of the Pruco
Life Flexible Premium Variable Annuity Account.
(Note 5) Incorporated by reference to Form S-6, Registration No. 333-07451, filed July 2,
1996 on behalf of the Pruco Life Variable Appreciable Account.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 4 to Form
S-1, Registration No. 33-86780, filed April 9, 1998 on behalf of the Pruco Life
Variable Contract Real Property Account.
(Note 7) Incorporated by reference to Form 10-K, Registration No. 33-08698, filed March
31, 1997 on behalf of the Pruco Life Variable Contract Real Property Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 8 to Form S-6,
Registration No. 33-49994, filed April 28, 1997, on behalf of the Pruco Life
PRUvider Variable Appreciable Account.
(Note 9) Incorporated by reference to Form 10-Q, Registration No. 33-37587, filed August
15, 1997 on behalf of the Pruco Life Insurance Company.
</TABLE>
C - 2
<PAGE>
<TABLE>
<S> <C> <C> <C>
(Note 10) Incorporated by reference to Post-Effective Amendment No. 2 to Form S-6,
Registration No. 333-07451, filed June 25, 1997 on behalf of the Pruco Life
Variable Appreciable Account.
</TABLE>
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
See Part A: Directors and Officers.
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, ("Prudential"), a mutual life insurance company
organized under the laws of New Jersey. The subsidiaries of 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 Prudential and certain of
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 Maryland 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 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 Prudential, all of which are registered as open-end, diversified, management
investment companies under the Investment Company Act of 1940 and with the
Prudential Variable Contract Account-24, a registered unit investment trust.
The subsidiaries of Prudential and short descriptions of each are listed under
Item 25 of Post-Effective Amendment No. 32 to the Form N-1A Registration
Statement for The Prudential Series Fund, Inc., Registration No. 2-80896, filed
February 28, 1997, the text of which is hereby incorporated.
Item 27. NUMBER OF CONTRACT OWNERS
As of March 23, 1998, there were 15,741 Contract owners of qualified Contracts
and 19,418 owners of non-qualifed Contracts offered by the Registrant.
Item 28. INDEMNIFICATION
The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.
Arizona, being the state of organization of Pruco Life Insurance Company
("Pruco"), permits entities organized under its jurisdiction to indemnify
directors and officers with certain limitations. The relevant provisions of
Arizona law permitting indemnification can be found in Section 10-850 et. seq.
of the Arizona
C - 3
<PAGE>
Statutes Annotated. The text of Pruco's By-law, Article VIII, which relates to
indemnification of officers and directors, is incorporated by reference to
Exhibit 3(ii) to its form 10-Q filed August 15, 1997.
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
<TABLE>
<S> <C> <C> <C>
(a) Pruco Securities Corporation ("Prusec") 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 Pruco Life of New Jersey Flexible
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.
</TABLE>
<TABLE>
<S> <C> <C> <C>
(b)
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
James Avery Jr. ** Chairman and Director
Richard Topp* President and Director
R. Brock Armstrong** Director
E. Michael Caulfield* Director
Joseph F. Mahoney Jr.** Director
Richard Painter** Director
James D. Price* Director
Charles A. McGee** Chief Financial Officer and
Comptroller
Clifford E. Kirsch** Chief Legal Officer and
Secretary
--------------
* Principal Business Address: 751 Broad Street, Newark, NJ 07102
** Principal Business Address: 213 Washington Street, Newark, NJ
07102
(c) Not applicable
</TABLE>
C - 4
<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, 751 Broad
Street, 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
<TABLE>
<S> <C> <C> <C>
(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 communica-
tion 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 U.S. Securities and Exchange Commission
to the American Council of Life Insurance on November 28, 1988.
(e) Pruco Life hereby represents that the fees and charges deducted under the Contract, in
the aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred and the risks assumed by Pruco Life.
</TABLE>
C - 5
<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
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 15th day of April, 1998.
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE
ANNUITY ACCOUNT
(Registrant)
By: PRUCO LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/ Clifford E. Kirsch By: /s/ Esther H. Milnes
------------------------ ------------------------
Clifford E. Kirsch Esther H. Milnes
Chief Legal Officer President
C - 6
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------ ------------------------------ ------------------------
<S> <C> <C> <C>
*Esther Milnes
President and Director ) April 15, 1998
- ---------------------------- )
Esther Milnes
*James J. Avery Jr
Chairman of the Board and )
- ---------------------------- Director )
James J. Avery Jr
*James M. Schlomann
Chief Accounting Officer, Vice )
- ---------------------------- President and Comptroller )
James M. Schlomann
*William M. Bethke
Director )
- ---------------------------- )
William M. Bethke
*Ira J. Kleinman
Director )
- ---------------------------- )
Ira J. Kleinman
*Mendel A. Melzer
Director )
- ---------------------------- )
Mendel A. Melzer
*I. Edward Price
Director )
- ---------------------------- )
I. Edward Price
*Kiyofumi Sakaguchi
Director )
- ---------------------------- )
Kiyofumi Sakaguchi
</TABLE>
*By: __/s/ CLIFFORD E. KIRSCH________________
CLIFFORD E. KIRSCH
(Attorney-in-Fact)
C - 7
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C> <C>
(9) Opinion of Counsel C - 9
(10) (a) Written Consent of Price Waterhouse LLP, independent Page C - 10
accountants.
(b) Written Consent of Deloitte & Touche LLP, independent C - 11
auditors.
(13) Schedule of Performance Computations. Page C - 12
</TABLE>
C - 8
<PAGE>
April 15, 1998
Pruco Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
Gentlemen:
In my capacity as Chief Legal Officer and Assistant Secretary 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 Pruco Life with the Securities and Exchange
Commission (Registration No. 333-06701) 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
<PAGE>
Exhibit 10(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 2 to the registration statement on Form N-4 (the
"Registration Statement") of our report dated March 20, 1998, relating to the
financial statements of the Discovery Select Variable Annuity Subaccounts of
the Pruco Life Flexible Premium Variable Annuity Account, which appears in such
Prospectus.
We also consent to the use in the Prospectus constituting part of this
Registration Statement of our report dated March 23, 1998, relating to the
consolidated financial statements of Pruco Life Insurance Company and
Subsidiaries, which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in the
Prospectus.
PRICE WATERHOUSE LLP
New York, New York
April 15, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 2 on Form N-4 to the
Registration Statement No. 333-06701 of the Pruco Life Flexible Premium
Variable Annuity Account of the Pruco Life Insurance Company of our report
dated December 19, 1996, relating to the consolidated financial statements of
The Pruco Life Insurance Company and subsidiaries 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
Parsippany, New Jersey
April 15, 1998
<PAGE>
ANNUALIZED RATES OF RETURN 30/40000*1000 = $0.75
AVG POLICY SIZE 40000
<TABLE>
<CAPTION>
DISCOVERY SELECT MMKT BOND STOCK HIDIV HIYLD GLEQ GROWTH
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5 YR RATE OF RETURN
YEARS IN EXISTENCE 5.00 5.00 5.00 5.00 5.00 5.00 N/A
92(OR INCEPT) TO '93 ROR 1.54% 8.62% 20.19% 20.59% 17.62% 41.17% N/A
92 TO '93 ERV 1015.36 1086.17 1201.90 1205.94 1176.24 1411.72 N/A
ANNUAL ADMIN CHARGE 0.75 0.75 0.75 0.75 0.75 0.75 N/A
92 TO '93 ERV LESS ADMIN CHG 1014.61 1085.42 1201.15 1205.19 1175.49 1410.97 N/A
93(OR INCEPT) TO '94 ROR 2.60% (4.57%) 1.36% 0.04% (4.06%) (6.20%) N/A
93 TO '94 ERV 1041.02 1035.79 1217.45 1205.62 1127.72 1323.55 N/A
ANNUAL ADMIN CHARGE 0.75 0.75 0.75 0.75 0.75 0.75 N/A
93 TO '94 ERV LESS ADMIN CHG 1040.27 1035.04 1216.70 1204.87 1126.97 1322.80 N/A
94(OR INCEPT) TO '95 ROR 4.33% 19.07% 29.48% 20.03% 15.94% 14.28% N/A
94 TO '95 ERV 1085.34 1232.39 1575.39 1446.20 1306.62 1511.72 N/A
ANNUAL ADMIN CHARGE 0.75 0.75 0.75 0.75 0.75 0.75 N/A
94 TO '95 ERV LESS ADMIN CHG 1084.59 1231.64 1574.64 1445.45 1305.87 1510.97 N/A
95(OR INCEPT) TO '96 ROR 3.77% 2.95% 16.88% 20.05% 9.85% 18.04% N/A
95 TO '96 ERV 1125.53 1267.99 1840.37 1735.25 1434.47 1783.50 N/A
ANNUAL ADMIN CHARGE 0.75 0.75 0.75 0.75 0.75 0.75 N/A
95 TO '96 ERV LESS ADMIN CHG 1124.78 1267.24 1839.62 1734.50 1433.72 1782.75 N/A
96(OR INCEPT) TO '97 ROR 3.98% 7.07% 22.93% 34.72% 12.21% 5.49% N/A
96 TO '97 ERV 1169.53 1356.84 2261.51 2336.78 1608.84 1880.71 N/A
ANNUAL ADMIN CHARGE 0.75 0.75 0.75 0.75 0.75 0.75 N/A
96 TO '97 ERV LESS ADMIN CHG 1168.78 1356.09 2260.76 2336.03 1608.09 1879.96 N/A
ANNUALIZED ROR BEFORE LOAD 3.17% 6.28% 17.72% 18.49% 9.97% 13.46% N/A
CHARGE FREE AMOUNT 600.00 600.00 600.00 600.00 600.00 600.00 N/A
AMT SUBJ TO LOAD 400.00 400.00 400.00 400.00 400.00 400.00 N/A
5TH (OR INCEPTION) SALE CHARGE 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% N/A
AMT OF LOAD 8.00 8.00 8.00 8.00 8.00 8.00 N/A
ERV LESS LOAD 1160.78 1348.09 2252.76 2328.03 1600.09 1871.96 N/A
ANN 5YR RET W/LOAD AND ADM CHG 3.03% 6.16% 17.64% 18.41% 9.86% 13.36% N/A
<CAPTION>
DISCOVERY SELECT STIX TRINST TREQST JANINT JANGRW MFSEMG MFSRSR
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5 YR RATE OF RETURN
YEARS IN EXISTENCE 5.00 N/A N/A N/A N/A N/A N/A
92(OR INCEPT) TO '93 ROR 8.16% N/A N/A N/A N/A N/A N/A
92 TO '93 ERV 1081.57 N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE 0.75 N/A N/A N/A N/A N/A N/A
92 TO '93 ERV LESS ADMIN CHG 1080.82 N/A N/A N/A N/A N/A N/A
93(OR INCEPT) TO '94 ROR (0.39%) N/A N/A N/A N/A N/A N/A
93 TO '94 ERV 1076.63 N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE 0.75 N/A N/A N/A N/A N/A N/A
93 TO '94 ERV LESS ADMIN CHG 1075.88 N/A N/A N/A N/A N/A N/A
94(OR INCEPT) TO '95 ROR 35.18% N/A N/A N/A N/A N/A N/A
94 TO '95 ERV 1454.33 N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE 0.75 N/A N/A N/A N/A N/A N/A
94 TO '95 ERV LESS ADMIN CHG 1453.58 N/A N/A N/A N/A N/A N/A
95(OR INCEPT) TO '96 ROR 20.87% N/A N/A N/A N/A N/A N/A
95 TO '96 ERV 1756.89 N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE 0.75 N/A N/A N/A N/A N/A N/A
95 TO '96 ERV LESS ADMIN CHG 1756.14 N/A N/A N/A N/A N/A N/A
96(OR INCEPT) TO '97 ROR 31.00% N/A N/A N/A N/A N/A N/A
96 TO '97 ERV 2300.51 N/A N/A N/A N/A N/A N/A
ANNUAL ADMIN CHARGE 0.75 N/A N/A N/A N/A N/A N/A
96 TO '97 ERV LESS ADMIN CHG 2299.76 N/A N/A N/A N/A N/A N/A
ANNUALIZED ROR BEFORE LOAD 18.12% N/A N/A N/A N/A N/A N/A
CHARGE FREE AMOUNT 600.00 N/A N/A N/A N/A N/A N/A
AMT SUBJ TO LOAD 400.00 N/A N/A N/A N/A N/A N/A
5TH (OR INCEPTION) SALE CHARGE 2.00% N/A N/A N/A N/A N/A N/A
AMT OF LOAD 8.00 N/A N/A N/A N/A N/A N/A
ERV LESS LOAD 2291.76 N/A N/A N/A N/A N/A N/A
ANN 5YR RET W/LOAD AND ADM CHG 18.04% N/A N/A N/A N/A N/A N/A
<CAPTION>
DISCOVERY SELECT AIMGRI AIMVAL OPPMAN OPPSMC WARVCP TOTAL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5 YR RATE OF RETURN
YEARS IN EXISTENCE N/A N/A 5.00 5.00 N/A
92(OR INCEPT) TO '93 ROR N/A N/A 8.95% 18.09% N/A
92 TO '93 ERV N/A N/A 1089.54 1180.94 N/A
ANNUAL ADMIN CHARGE N/A N/A 0.75 0.75 N/A
92 TO '93 ERV LESS ADMIN CHG N/A N/A 1088.79 1180.19 N/A
93(OR INCEPT) TO '94 ROR N/A N/A 1.32% (2.78%) N/A
93 TO '94 ERV N/A N/A 1103.21 1147.42 N/A
ANNUAL ADMIN CHARGE N/A N/A 0.75 0.75 N/A
93 TO '94 ERV LESS ADMIN CHG N/A N/A 1102.46 1146.67 N/A
94(OR INCEPT) TO '95 ROR N/A N/A 43.55% 13.64% N/A
94 TO '95 ERV N/A N/A 1582.61 1303.03 N/A
ANNUAL ADMIN CHARGE N/A N/A 0.75 0.75 N/A
94 TO '95 ERV LESS ADMIN CHG N/A N/A 1581.86 1302.28 N/A
95(OR INCEPT) TO '96 ROR N/A N/A 21.12% 17.17% N/A
95 TO '96 ERV N/A N/A 1915.92 1525.86 N/A
ANNUAL ADMIN CHARGE N/A N/A 0.75 0.75 N/A
95 TO '96 ERV LESS ADMIN CHG N/A N/A 1915.17 1525.11 N/A
96(OR INCEPT) TO '97 ROR N/A N/A 20.60% 20.55% N/A
96 TO '97 ERV N/A N/A 2309.79 1838.55 N/A
ANNUAL ADMIN CHARGE N/A N/A 0.75 0.75 N/A
96 TO '97 ERV LESS ADMIN CHG N/A N/A 2309.04 1837.80 N/A
ANNUALIZED ROR BEFORE LOAD N/A N/A 18.22% 12.94% N/A 118.37%
CHARGE FREE AMOUNT N/A N/A 600.00 600.00 N/A
AMT SUBJ TO LOAD N/A N/A 400.00 400.00 N/A
5TH (OR INCEPTION) SALE CHARGE N/A N/A 2.00% 2.00% N/A
AMT OF LOAD N/A N/A 8.00 8.00 N/A
ERV LESS LOAD N/A N/A 2301.04 1829.80 N/A
ANN 5YR RET W/LOAD AND ADM CHG N/A N/A 18.14% 12.84% N/A 117.47%
</TABLE>
<PAGE>
UNIT VALUES FOR THE FIRST DAY OF EVERY YEAR FOR THE PRU DISCO SELECT PRODUCT
<TABLE>
<CAPTION>
DISCOVERY SELECT MMKT BOND STOCK HIDIV HIYLD GLEQ GROWTH STIX TRINST TREQST
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-96 1.95487 2.91204 5.53059 2.99006 2.01251 2.03061 1.40276 2.85512 1.24923 1.66087
<CAPTION>
DISCOVERY SELECT JANINT JANGRW MFSEMG MFSRSR AIMGRI AIMVAL OPPMAN OPPSMC WARVCP TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31-Dec-96 1.55340 1.56638 1.34766 1.32722 1.54775 1.75108 4.18117 2.82864 0.98413
</TABLE>
<PAGE>
UNIT VALUES FOR THE LAST DAY OF EVERY QUARTER SINCE INCEPTION
FOR THE PRU DISCO SELECT PRODUCT
<TABLE>
<CAPTION>
DISCOVERY SELECT MMKT BOND STOCK HIDIV HIYLD GLEQ GROWTH
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 02-Jun-83 08-Jun-83 06-Jun-83 19-Feb-88 23-Feb-87 19-Sep-88 01-May-95
WHOLE YEARS SINCE
INCEPTION 14.00 14.00 14.00 9.00 10.00 9.00 2.00
INCEPTION UNIT VALUE 1.00018 0.99691 1.00241 0.99730 0.99968 0.99848 1.00866
30-Jun-83 1.00515 1.00263 1.02682 N/A N/A N/A N/A
30-Sep-83 1.02314 1.00221 0.99435 N/A N/A N/A N/A
31-Dec-83 1.04146 1.01524 0.98054 N/A N/A N/A N/A
1984 31-Mar-84 1.06058 1.02483 0.93938 N/A N/A N/A N/A
30-Jun-84 1.08271 1.01481 0.93882 N/A N/A N/A N/A
30-Sep-84 1.10815 1.07700 1.01823 N/A N/A N/A N/A
31-Dec-84 1.13159 1.13344 1.04168 N/A N/A N/A N/A
1985 31-Mar-85 1.14983 1.14693 1.13401 N/A N/A N/A N/A
30-Jun-85 1.16867 1.22545 1.20733 N/A N/A N/A N/A
30-Sep-85 1.18624 1.24580 1.14590 N/A N/A N/A N/A
31-Dec-85 1.20424 1.32595 1.36494 N/A N/A N/A N/A
1986 31-Mar-86 1.22158 1.39617 1.56588 N/A N/A N/A N/A
30-Jun-86 1.23756 1.41615 1.60984 N/A N/A N/A N/A
30-Sep-86 1.25228 1.44380 1.49021 N/A N/A N/A N/A
31-Dec-86 1.26532 1.49670 1.54936 N/A N/A N/A N/A
1987 31-Mar-87 1.27915 1.50981 1.87814 N/A 1.01369 N/A N/A
30-Jun-87 1.29454 1.47264 1.93737 N/A 1.00140 N/A N/A
30-Sep-87 1.31112 1.41678 2.03515 N/A 0.97037 N/A N/A
31-Dec-87 1.32931 1.48043 1.55338 N/A 0.93936 N/A N/A
<CAPTION>
DISCOVERY SELECT STIX TRINST TREQST JANINT JANGRW MFSEMG MFSRSR
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 19-Oct-87 31-Mar-94 31-Mar-94 02-May-94 13-Sep-93 24-Jul-95 24-Jul-95
WHOLE YEARS SINCE
INCEPTION 10.00 3.00 3.00 3.00 4.00 2.00 2.00
INCEPTION UNIT VALUE 0.80241 0.99985 0.99985 0.99996 0.99996 0.99996 0.99996
30-Jun-83 N/A N/A N/A N/A N/A N/A N/A
30-Sep-83 N/A N/A N/A N/A N/A N/A N/A
31-Dec-83 N/A N/A N/A N/A N/A N/A N/A
1984 31-Mar-84 N/A N/A N/A N/A N/A N/A N/A
30-Jun-84 N/A N/A N/A N/A N/A N/A N/A
30-Sep-84 N/A N/A N/A N/A N/A N/A N/A
31-Dec-84 N/A N/A N/A N/A N/A N/A N/A
1985 31-Mar-85 N/A N/A N/A N/A N/A N/A N/A
30-Jun-85 N/A N/A N/A N/A N/A N/A N/A
30-Sep-85 N/A N/A N/A N/A N/A N/A N/A
31-Dec-85 N/A N/A N/A N/A N/A N/A N/A
1986 31-Mar-86 N/A N/A N/A N/A N/A N/A N/A
30-Jun-86 N/A N/A N/A N/A N/A N/A N/A
30-Sep-86 N/A N/A N/A N/A N/A N/A N/A
31-Dec-86 N/A N/A N/A N/A N/A N/A N/A
1987 31-Mar-87 N/A N/A N/A N/A N/A N/A N/A
30-Jun-87 N/A N/A N/A N/A N/A N/A N/A
30-Sep-87 N/A N/A N/A N/A N/A N/A N/A
31-Dec-87 0.85903 N/A N/A N/A N/A N/A N/A
<CAPTION>
DISCOVERY SELECT AIMGRI AIMVAL OPPMAN OPPSMC WARVCP TOTAL
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 02-May-94 01-Jun-93 01-Aug-88 01-Aug-88 30-Sep-96
WHOLE YEARS SINCE
INCEPTION 3.00 4.00 9.00 9.00 1.00
INCEPTION UNIT VALUE 0.99996 1.00881 0.99989 0.99989 1.00000 18.81412
30-Jun-83 N/A N/A N/A N/A N/A 3.03460
30-Sep-83 N/A N/A N/A N/A N/A 3.01970
31-Dec-83 N/A N/A N/A N/A N/A 3.03724
1984 31-Mar-84 N/A N/A N/A N/A N/A 3.02479
30-Jun-84 N/A N/A N/A N/A N/A 3.03634
30-Sep-84 N/A N/A N/A N/A N/A 3.20338
31-Dec-84 N/A N/A N/A N/A N/A 3.30671
1985 31-Mar-85 N/A N/A N/A N/A N/A 3.43077
30-Jun-85 N/A N/A N/A N/A N/A 3.60145
30-Sep-85 N/A N/A N/A N/A N/A 3.57794
31-Dec-85 N/A N/A N/A N/A N/A 3.89513
1986 31-Mar-86 N/A N/A N/A N/A N/A 4.18363
30-Jun-86 N/A N/A N/A N/A N/A 4.26355
30-Sep-86 N/A N/A N/A N/A N/A 4.18629
31-Dec-86 N/A N/A N/A N/A N/A 4.31138
1987 31-Mar-87 N/A N/A N/A N/A N/A 5.68079
30-Jun-87 N/A N/A N/A N/A N/A 5.70595
30-Sep-87 N/A N/A N/A N/A N/A 5.73342
31-Dec-87 N/A N/A N/A N/A N/A 6.16151
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISCOVERY SELECT MMKT BOND STOCK HIDIV HIYLD GLEQ GROWTH
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1988 31-Mar-88 1.34683 1.53083 1.70198 1.00261 1.00061 N/A N/A
30-Jun-88 1.36427 1.54510 1.81001 1.06050 1.01172 N/A N/A
30-Sep-88 1.38485 1.57378 1.74932 1.07351 1.02977 1.00586 N/A
31-Dec-88 1.40768 1.57964 1.79322 1.09680 1.04843 1.07983 N/A
1989 31-Mar-89 1.43381 1.58916 1.89404 1.15356 1.06436 1.12695 N/A
30-Jun-89 1.46273 1.70938 2.05552 1.24706 1.08803 1.12363 N/A
30-Sep-89 1.48969 1.71664 2.24492 1.32515 1.06159 1.23424 N/A
31-Dec-89 1.51667 1.76801 2.29422 1.32679 1.01279 1.26541 N/A
1990 31-Mar-90 1.54121 1.74036 2.23465 1.27222 0.96666 1.15976 N/A
30-Jun-90 1.56660 1.79428 2.28791 1.30917 1.01715 1.21030 N/A
30-Sep-90 1.59159 1.80617 1.92449 1.16547 0.91553 1.05289 N/A
31-Dec-90 1.61757 1.88843 2.14426 1.25965 0.88031 1.08669 N/A
1991 31-Mar-91 1.64007 1.93178 2.54576 1.39732 1.01671 1.13425 N/A
30-Jun-91 1.65943 1.95982 2.56794 1.42269 1.09665 1.12538 N/A
30-Sep-91 1.67708 2.06514 2.56190 1.49197 1.15554 1.18030 N/A
31-Dec-91 1.69352 2.16852 2.66469 1.58384 1.20818 1.19366 N/A
1992 31-Mar-92 1.70647 2.13280 2.80723 1.56248 1.28975 1.13553 N/A
30-Jun-92 1.71673 2.21191 2.82123 1.59376 1.32878 1.18434 N/A
30-Sep-92 1.72539 2.29772 2.84544 1.65912 1.37870 1.12607 N/A
31-Dec-92 1.73311 2.29194 3.00000 1.72009 1.40033 1.13674 N/A
1993 31-Mar-93 1.74004 2.38331 3.26582 1.90917 1.48145 1.23501 N/A
30-Jun-93 1.74636 2.44112 3.35740 1.97475 1.54887 1.28352 N/A
30-Sep-93 1.75291 2.50972 3.47422 2.03732 1.56716 1.44096 N/A
31-Dec-93 1.75973 2.48943 3.60570 2.07432 1.64713 1.60476 N/A
1994 31-Mar-94 1.76667 2.41065 3.50101 2.03262 1.63845 1.53641 N/A
30-Jun-94 1.77613 2.37820 3.51214 2.03906 1.61797 1.53198 N/A
30-Sep-94 1.78921 2.38221 3.69964 2.15338 1.61477 1.59646 N/A
30-Dec-94 1.80554 2.37561 3.65464 2.07507 1.58019 1.50533 N/A
<CAPTION>
DISCOVERY SELECT STIX TRINST TREQST JANINT JANGRW MFSEMG MFSRSR
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1988 31-Mar-88 0.89961 N/A N/A N/A N/A N/A N/A
30-Jun-88 0.95207 N/A N/A N/A N/A N/A N/A
30-Sep-88 0.95209 N/A N/A N/A N/A N/A N/A
31-Dec-88 0.97813 N/A N/A N/A N/A N/A N/A
1989 31-Mar-89 1.04210 N/A N/A N/A N/A N/A N/A
30-Jun-89 1.12827 N/A N/A N/A N/A N/A N/A
30-Sep-89 1.24262 N/A N/A N/A N/A N/A N/A
31-Dec-89 1.26306 N/A N/A N/A N/A N/A N/A
1990 31-Mar-90 1.21953 N/A N/A N/A N/A N/A N/A
30-Jun-90 1.28772 N/A N/A N/A N/A N/A N/A
30-Sep-90 1.10713 N/A N/A N/A N/A N/A N/A
31-Dec-90 1.20018 N/A N/A N/A N/A N/A N/A
1991 31-Mar-91 1.36794 N/A N/A N/A N/A N/A N/A
30-Jun-91 1.35821 N/A N/A N/A N/A N/A N/A
30-Sep-91 1.42369 N/A N/A N/A N/A N/A N/A
31-Dec-91 1.53544 N/A N/A N/A N/A N/A N/A
1992 31-Mar-92 1.49022 N/A N/A N/A N/A N/A N/A
30-Jun-92 1.51129 N/A N/A N/A N/A N/A N/A
30-Sep-92 1.55168 N/A N/A N/A N/A N/A N/A
31-Dec-92 1.62200 N/A N/A N/A N/A N/A N/A
1993 31-Mar-93 1.68565 N/A N/A N/A N/A N/A N/A
30-Jun-93 1.68585 N/A N/A N/A N/A N/A N/A
30-Sep-93 1.72162 N/A N/A N/A 1.01928 N/A N/A
31-Dec-93 1.75431 N/A N/A N/A 1.03060 N/A N/A
1994 31-Mar-94 1.68051 0.99985 0.99985 N/A 1.03899 N/A N/A
30-Jun-94 1.68075 1.00648 1.01342 0.96178 1.02019 N/A N/A
30-Sep-94 1.75506 1.04459 1.06188 0.98120 1.04618 N/A N/A
30-Dec-94 1.74751 1.00728 1.06022 0.96290 1.04447 N/A N/A
<CAPTION>
DISCOVERY SELECT AIMGRI AIMVAL OPPMAN OPPSMC WARVCP TOTAL
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1988 31-Mar-88 N/A N/A N/A N/A N/A 7.48247
30-Jun-88 N/A N/A N/A N/A N/A 7.74367
30-Sep-88 N/A N/A 1.00056 0.99757 N/A 10.76731
31-Dec-88 N/A N/A 1.03786 1.01297 N/A 11.03456
1989 31-Mar-89 N/A N/A 1.14942 1.09464 N/A 11.54804
30-Jun-89 N/A N/A 1.20189 1.11059 N/A 12.12710
30-Sep-89 N/A N/A 1.29635 1.19138 N/A 12.80258
31-Dec-89 N/A N/A 1.35673 1.18235 N/A 12.98603
1990 31-Mar-90 N/A N/A 1.30368 1.13117 N/A 12.56924
30-Jun-90 N/A N/A 1.39023 1.18407 N/A 13.04743
30-Sep-90 N/A N/A 1.20701 1.01227 N/A 11.78255
31-Dec-90 N/A N/A 1.29213 1.05300 N/A 12.42222
1991 31-Mar-91 N/A N/A 1.55612 1.25113 N/A 13.84108
30-Jun-91 N/A N/A 1.62229 1.33498 N/A 14.14739
30-Sep-91 N/A N/A 1.71975 1.45902 N/A 14.73439
31-Dec-91 N/A N/A 1.86092 1.53837 N/A 15.44714
1992 31-Mar-92 N/A N/A 1.95413 1.70897 N/A 15.78758
30-Jun-92 N/A N/A 1.95175 1.64842 N/A 15.96821
30-Sep-92 N/A N/A 2.05793 1.64933 N/A 16.29138
31-Dec-92 N/A N/A 2.17831 1.85035 N/A 16.93287
1993 31-Mar-93 N/A N/A 2.25024 1.99725 N/A 17.94794
30-Jun-93 N/A 1.04992 2.30742 2.03405 N/A 19.42926
30-Sep-93 N/A 1.09909 2.37853 2.11644 N/A 21.11725
31-Dec-93 N/A 1.11975 2.37335 2.18516 N/A 21.64424
1994 31-Mar-94 N/A 1.14703 2.34605 2.09741 N/A 23.19550
30-Jun-94 0.97476 1.09567 2.40329 2.00545 N/A 25.01727
30-Sep-94 1.01372 1.16241 2.45725 2.13931 N/A 25.89727
30-Dec-94 0.99101 1.14893 2.40478 2.12447 N/A 25.48795
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISCOVERY SELECT MMKT BOND STOCK HIDIV HIYLD GLEQ GROWTH
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 31-Mar-95 1.82495 2.47253 3.96491 2.19764 1.65780 1.49401 N/A
30-Jun-95 1.84509 2.64432 4.23150 2.35171 1.71894 1.63630 1.12463
30-Sep-95 1.86443 2.69911 4.59104 2.47267 1.76307 1.75970 1.22724
31-Dec-95 1.88376 2.82857 4.73205 2.49069 1.83209 1.72032 1.24327
1996 31-Mar-96 1.90143 2.76354 4.96716 2.63240 1.88681 1.82365 1.28380
30-Jun-96 1.91871 2.76596 5.04308 2.64792 1.90659 1.88361 1.32734
30-Sep-96 1.93636 2.81876 5.10366 2.71157 1.98705 1.92369 1.35265
31-Dec-96 1.95487 2.91204 5.53059 2.99006 2.01251 2.03061 1.40276
1997 31-Mar-97 1.97283 2.89412 5.59478 3.00384 2.01311 2.01313 1.36628
30-Jun-97 1.99194 3.01096 6.22129 3.48848 2.11615 2.26846 1.62977
30-Sep-97 2.01202 3.10796 6.90980 4.02910 2.23578 2.34954 1.87490
31-Dec-97 2.03265 3.11795 6.79896 4.02831 2.25832 2.14219 1.82209
<CAPTION>
DISCOVERY SELECT STIX TRINST TREQST JANINT JANGRW MFSEMG MFSRSR
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 31-Mar-95 1.90917 1.00104 1.14384 0.92301 1.11969 N/A N/A
30-Jun-95 2.08204 1.03905 1.21932 1.01429 1.18159 N/A N/A
30-Sep-95 2.23815 1.07973 1.30867 1.11179 1.28258 1.08409 1.03722
31-Dec-95 2.36221 1.10437 1.40860 1.16948 1.34097 1.16778 1.10015
1996 31-Mar-96 2.47973 1.15567 1.46762 1.27761 1.44865 1.24335 1.15983
30-Jun-96 2.57933 1.19593 1.50526 1.41050 1.47543 1.33460 1.22504
30-Sep-96 2.64723 1.19763 1.55152 1.45403 1.53372 1.37550 1.26774
31-Dec-96 2.85512 1.24923 1.66087 1.55340 1.56638 1.34766 1.32722
1997 31-Mar-97 2.91822 1.24301 1.70560 1.65650 1.56912 1.25690 1.29554
30-Jun-97 3.41174 1.38496 1.89331 1.82540 1.76212 1.48306 1.49788
30-Sep-97 3.65149 1.37228 2.03465 1.91156 1.92332 1.68038 1.61270
31-Dec-97 3.74014 1.26964 2.10954 1.81547 1.89610 1.62024 1.57411
<CAPTION>
DISCOVERY SELECT AIMGRI AIMVAL OPPMAN OPPSMC WARVCP TOTAL
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 31-Mar-95 1.07328 1.25820 2.70937 2.06215 N/A 26.81159
30-Jun-95 1.18230 1.41395 3.09791 2.23452 N/A 30.01746
30-Sep-95 1.30451 1.57246 3.31366 2.38130 N/A 34.09142
31-Dec-95 1.30858 1.54376 3.45213 2.41418 N/A 35.10296
1996 31-Mar-96 1.36888 1.54899 3.68746 2.50577 N/A 36.60235
30-Jun-96 1.42154 1.61976 3.73399 2.60294 N/A 37.59753
30-Sep-96 1.46656 1.63779 3.90401 2.66541 N/A 38.53488
31-Dec-96 1.54775 1.75108 4.18117 2.82864 0.98413 41.68609
1997 31-Mar-97 1.53018 1.72519 4.21706 2.78346 0.89137 41.65024
30-Jun-97 1.79385 2.01672 4.73333 3.22056 1.01045 46.76043
30-Sep-97 1.96898 2.17722 5.03915 3.50516 1.15461 50.55060
31-Dec-97 1.91890 2.13600 5.04270 3.40999 1.09996 49.83326
</TABLE>
