AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 17, 1999
1933 ACT REGISTRATION NO. 333-79201
1940 ACT REGISTRATION NO. 811-07325
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. _1_ [ ]
POST-EFFECTIVE AMENDMENT NO. ___ [ ]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
POST-EFFECTIVE AMENDMENT NO. 8 [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 COMPANY OF AMERICA
WASHINGTON, D.C. 20036 751 BROAD STREET
(202) 828-2093 NEWARK, NEW JERSEY 07102
(973) 367-1388
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of this Registration.
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on __________pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on __________pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[ ] on __________pursuant to paragraph (a)(1) of Rule 485
Title of Securities Being Registered:
Interests in Individual Variable Annuity Contracts
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states this registration statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the registration statement shall become effective on such
date as the Commission may determine.
<PAGE>
DISCOVERY CHOICE _________, 1999
VARIABLE ANNUITY
THIS PROSPECTUS DESCRIBES AN INDIVIDUAL VARIABLE ANNUITY CONTRACT OFFERED BY
PRUCO LIFE INSURANCE COMPANY (PRUCO LIFE). PRUCO LIFE IS A WHOLLY OWNED
SUBSIDIARY OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA.
Discovery Choice offers a wide variety of investment choices, including 24
variable investment options that invest in mutual funds managed by these leading
asset managers.
PRUDENTIAL INVESTMENTS JANUS CAPITAL
AIM ADVISORS MFS
AMERICAN CENTURY OPPENHEIMER CAPITAL
FRANKLIN ADVISERS T. ROWE PRICE
WARBURG PINCUS
Please read this prospectus before purchasing a Discovery Choice variable
annuity contract and keep it for future reference. Current prospectuses for each
of the underlying mutual funds accompany this prospectus. These prospectuses
contain important information about the mutual funds. Please read these
prospectuses and keep them for reference.
To learn more about the Discovery Choice variable annuity, you can request a
copy of the Statement of Additional Information (SAI) dated ___________, 1999.
The SAI has been filed with the Securities and Exchange Commission (SEC) and is
legally a part of this prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the Discovery Choice SAI, material
incorporated by reference, and other information regarding registrants that file
electronically with the SEC. The Table of Contents of the SAI is on Page 30 of
this prospectus. For a free copy of the SAI, call us at: (888) PRU-2888 or write
to us at:
Pruco Life Insurance Company Prudential Annuity Service Center
213 Washington Street P.O. Box 14215
Newark, New Jersey 07102-2992 New Brunswick, New Jersey 08906
THE SEC HAS NOT DETERMINED THAT THIS CONTRACT IS A GOOD INVESTMENT, NOR HAS THE
SEC DETERMINED THAT THIS PROSPECTUS IS COMPLETE OR ACCURATE. IT IS A CRIMINAL
OFFENSE TO STATE OTHERWISE.
INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT TO RISK, INCLUDING THE
POSSIBLE LOSS OF YOUR MONEY. AN INVESTMENT IN DISCOVERY CHOICE IS NOT A BANK
DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
<PAGE>
DISCOVERY CHOICE VARIABLE ANNUITY
TABLE OF CONTENTS
GLOSSARY .................................................................. ii
SUMMARY ................................................................... 1
SUMMARY OF CONTRACT EXPENSES .............................................. 3
EXPENSE EXAMPLES .......................................................... 5
1. WHAT IS THE DISCOVERY CHOICE VARIABLE ANNUITY?
Short Term Cancellation Right or "Free Look" ........................... 7
2. WHAT INVESTMENT OPTIONS CAN I CHOOSE?
Variable Investment Options ............................................ 8
Transfers Among Options ................................................ 9
Dollar Cost Averaging .................................................. 10
Asset Allocation Program ............................................... 10
Auto-Rebalancing ....................................................... 10
Voting Rights .......................................................... 11
Substitution ........................................................... 11
3. WHAT KIND OF PAYMENTS WILL I RECEIVE DURING
THE INCOME PHASE? (ANNUITIZATION)
Payment Provisions ..................................................... 11
Option 1: Annuity Payments for a Fixed Period .......................... 11
Option 2: Life Annuity with 120 Payments
(10 Years) Certain ................................................... 11
Option 3: Interest Payment Option ...................................... 12
Option 4: Other Annuity Options ........................................ 12
4. WHAT IS THE DEATH BENEFIT?
Beneficiary ............................................................ 12
Calculation of the Death Benefit ....................................... 12
5. HOW CAN I PURCHASE A DISCOVERY CHOICE CONTRACT?
Purchase Payments ...................................................... 13
Allocation of Purchase Payments ........................................ 13
Calculating Contract Value ............................................. 13
6. WHAT ARE THE EXPENSES ASSOCIATED WITH
THE DISCOVERY SELECT CONTRACT?
Insurance Charges ...................................................... 14
Annual Contract Fee .................................................... 14
Premium Taxes .......................................................... 15
Transfer Fee ........................................................... 15
Company Taxes .......................................................... 15
7. HOW CAN I ACCESS MY MONEY? ............................................. 15
Automated Withdrawals .................................................. 15
Suspension of Payments or Transfers .................................... 16
8. WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED
WITH THE DISCOVERY CHOICE CONTRACT? .................................... 16
Taxes Payable by You ................................................... 16
Taxes on Withdrawals and Surrender ..................................... 16
Taxes on Annuity Payments .............................................. 16
Penalty Taxes on Withdrawals and Annuity Payments ...................... 17
Taxes Payable by Beneficiaries ......................................... 17
Withholding of Tax from Distributions .................................. 17
Annuity Qualification .................................................. 17
Diversification and Investor Control ................................... 17
Required Distributions Upon Your Death ................................. 17
Changes in the Contract ................................................ 18
Additional Information ................................................. 18
Contracts Held by Tax Favored Plans .................................... 18
9. OTHER INFORMATION ...................................................... 22
Pruco Life Insurance Company ........................................... 22
The Separate Account ................................................... 22
Sale and Distribution of the Contract .................................. 23
Assignment ............................................................. 23
Year 2000 Compliance ................................................... 23
Financial Statements ................................................... 23
Statement of Additional Information .................................... 30
i
<PAGE>
DISCOVERY CHOICE VARIABLE ANNUITY
GLOSSARY
We have tried to make this prospectus as easy to read and understand as
possible. By the nature of the contract, however, certain technical words or
terms are unavoidable. We have identified the following as some of these words
or terms.
ACCUMULATION PHASE: The period that begins with the contract date (see
definition below) and ends when you start receiving income payments, or earlier
if the contract is terminated through a full withdrawal or payment of a death
benefit.
ANNUITANT: The person whose life determines the amount of income payments that
will be paid.
ANNUITY DATE: The date when income payments are scheduled to begin.
BENEFICIARY: The person(s) or entity you have chosen to receive a death benefit.
CONTRACT DATE: The date we receive your initial purchase payment and all
necessary paperwork in good order at the Prudential Annuity Service Center.
Contract anniversaries are measured from the contract date. A contract year
starts on the contract date or on a contract anniversary.
CONTRACTOWNER, OWNER OR YOU: The person entitled to the ownership rights under
the contract.
CONTRACT VALUE: This is the total value of your contract.
DEATH BENEFIT: If the sole or last surviving owner dies, the designated
person(s) or the beneficiary will receive, at a minimum, the total amount
invested or a potentially greater amount related to market appreciation. See
"What is the Death Benefit?" on page ___.
INCOME OPTIONS: Options under the contract that define the frequency and
duration of income payments. In your contract, these are referred to as payout
or annuity options.
JOINT OWNER: The person named as the joint owner, who shares ownership rights
with the owner as defined in the contract.
PRUDENTIAL ANNUITY SERVICE CENTER: P.O. Box 14215, New Brunswick, New Jersey,
08906. The phone number is 1-888-PRU-2888.
PURCHASE PAYMENTS: The amount of money you pay us to purchase the contract.
Generally, with some restrictions, you can make additional purchase payments at
any time during the accumulation phase.
SEPARATE ACCOUNT: Purchase payments allocated to the variable investment options
are held by us in a separate account called the Pruco Life Flexible Premium
Variable Annuity Account. The separate account is set apart from all of the
general assets of Pruco Life.
TAX DEFERRAL: This is a way to increase your assets without currently being
taxed. Generally, you do not pay taxes on your contract earnings until you take
money out of your contract.
VARIABLE INVESTMENT OPTION: When you choose a variable investment option, we
purchase shares of the mutual fund which are held as an investment for that
option. We hold these shares in the separate account. The division of the
separate account of Pruco Life that invests in a particular mutual fund is
referred to in your contract as a subaccount.
ii
<PAGE>
DISCOVERY CHOICE VARIABLE ANNUITY
SUMMARY: FOR A MORE COMPLETE DISCUSSION OF THE FOLLOWING TOPICS, SEE THE
CORRESPONDING SECTION IN THE PROSPECTUS.
1. WHAT IS THE DISCOVERY CHOICE VARIABLE ANNUITY?
The Discovery Choice Variable Annuity is a contract between you, the
owner, and us, the insurance company, Pruco Life Insurance Company (Pruco Life
Insurance Company will hereafter be referred to as Pruco Life, We or Us). The
contract allows you to invest on a tax-deferred basis in one or more of 24
variable investment options. The contract is intended for retirement savings or
other long-term investment purposes and provides for a death benefit.
The variable investment options are designed to offer the opportunity for
a favorable return. However, this is NOT guaranteed. It is possible, due to
market changes, that your investments may decrease in value.
You can invest your money in any or all of the variable investment
options. You are allowed 12 tax free transfers each contract year among the
variable investment options, without a charge.
The contract, like all deferred annuity contracts, has two phases: the
accumulation phase; and the income phase. During the accumulation phase, any
earnings grow on a tax-deferred basis and are generally only taxed as income
when you make a withdrawal. The income phase starts when you begin receiving
regular payments from your contract. The amount of money you are able to
accumulate in your contract during the accumulation phase will help determine
the amount of payments you will receive during the income phase. Other factors
will affect the amount of your payments such as age, gender and the payout
option you selected.
If you change your mind about owning Discovery Choice, YOU MAY CANCEL YOUR
CONTRACT WITHIN 10 DAYS AFTER RECEIVING IT (or whatever time period is required
in the applicable state). This time period is referred to as the Free-look
period.
2. WHAT INVESTMENT OPTIONS CAN I CHOOSE?
You can invest your money in any or all of the variable investment options
that use the mutual funds described in the fund prospectuses provided with this
prospectus:
THE PRUDENTIAL SERIES FUND
Diversified Bond Portfolio
Diversified Conservative Growth Portfolio
Equity Income Portfolio
Equity Portfolio
Global Portfolio
High Yield Bond Portfolio
Money Market Portfolio
Prudential Jennison Portfolio
Small Capitalization Stock Portfolio
Stock Index Portfolio
20/20 Focus Portfolio
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC.
American Century VP Value
JANUS ASPEN SERIES
Growth Portfolio
International Growth Portfolio
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series
Research Series
OCC ACCUMULATION TRUST
Managed Portfolio
Small Cap Portfolio
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
Franklin Small Cap Investments Fund - Class 2
T.ROWE PRICE
Equity Series - Equity Income Portfolio
International Series - International Stock Portfolio
WARBURG PINCUS TRUST
Post-Venture Capital Portfolio
Depending upon market conditions, you may earn or lose money in any
of these options. The value of your contract will fluctuate depending upon the
investment performance of the mutual funds used by the variable investment
options that you choose. Performance information
1
<PAGE>
DISCOVERY CHOICE VARIABLE ANNUITY
for the variable investment options is provided in the Statement of Additional
Information (SAI). Past performance is not a guarantee of future results.
2
<PAGE>
DISCOVERY CHOICE VARIABLE ANNUITY
3. WHAT KIND OF PAYMENTS WILL I RECEIVE DURING THE INCOME PHASE?
(ANNUITIZATION)
If you want to receive regular income from your annuity, you can choose
one of several options, including guaranteed payments for the annuitant's
lifetime. Generally, once you begin receiving regular payments, you cannot
change your payment plan.
4. WHAT IS THE DEATH BENEFIT?
If the sole or last surviving owner or joint owner dies before the income
phase of the contract begins, the person(s) or entity that you have chosen as
your beneficiary will receive at a minimum, the total amount invested adjusted
for withdrawals or a potentially greater amount relating to market appreciation
depending on the death benefit option you choose.
5. HOW CAN I PURCHASE A DISCOVERY CHOICE ANNUITY CONTRACT?
You can purchase this contract, under most circumstances, with a minimum
initial purchase payment of $10,000. Generally, you can add $1,000 or more at
any time during the accumulation phase of the contract. Your representative can
help you fill out the proper forms.
6. WHAT ARE THE EXPENSES ASSOCIATED WITH THE DISCOVERY CHOICE CONTRACT?
The contract has insurance features and investment features, and there are
costs related to each. Each year we deduct a contract maintenance charge if your
contract value is less than $50,000. This charge is equal to the lesser of $30
or 2% of your contract value. For insurance and administrative costs, we also
deduct an annual charge of 1.35% or 1.65% of the average daily value of all
assets allocated to the variable investment options, depending on the death
benefit option that you have chosen.
There are a few states/jurisdictions that assess a premium tax when you
begin receiving regular income payments from your annuity. In those states, we
will assess the required premium tax charge which can range up to 5%.
There are also charges made by the mutual funds which are invested in by
the variable investment options. These annual charges currently range from 0.37%
to 1.40% of a fund's average daily assets.
7. HOW CAN I ACCESS MY MONEY?
You may take money out at any time during the accumulation phase. You may,
however, be subject to income tax and, if you make a withdrawal prior to age 59
1/2, an additional tax penalty as well.
8. WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE DISCOVERY CHOICE
CONTRACT?
Your earnings are generally not taxed until withdrawn. If you take money
out during the accumulation phase, earnings are withdrawn first and are taxed as
income. If you are younger than 59 1/2 when you take money out, you may be
charged a 10% federal tax penalty on the earnings in addition to ordinary
taxation. A portion of the payments you receive during the income phase is
considered partly a return of your original investment. As a result, that
portion of each payment is not taxable as income. Generally, all amounts
withdrawn from an Individual Retirement Annuity (IRA) contracts are taxable and
subject to the 10% penalty if withdrawn prior to age 59 1/2.
9. OTHER INFORMATION
3
<PAGE>
DISCOVERY CHOICE VARIABLE ANNUITY
This contract is issued by Pruco Life, a subsidiary of the Prudential
Insurance Company of America, and sold by registered representatives.
4
<PAGE>
DISCOVERY CHOICE VARIABLE ANNUITY
This contract is issued by Pruco Life, a subsidiary of the Prudential
Insurance Company of America, and sold by registered representatives.
SUMMARY OF CONTRACT EXPENSES
- - - --------------------------------------------------------------------------------
The purpose of this summary is to help you to understand the costs you will pay
for Discovery Choice. This summary includes the expenses of the mutual funds
used by the variable investment options but does not include any charge for
premium taxes that might be applicable in your state.
FOR MORE DETAILED INFORMATION:
More detailed information can be found on page ___ under the section called,
"What Are The Expenses Associated With The Discovery Choice Variable Annuity?"
For more detailed expense information about the mutual funds, please refer to
the individual fund prospectuses which you will find at the back of this
prospectus.
TRANSACTION EXPENSES
- - - --------------------------------------------------------------------------------
TRANSFER FEE (SEE NOTE 1 BELOW)
- - - --------------------------------------------------------------------------------
First 12 transfers per year $ 0.00
Each transfer after 12 $ 10.00
ANNUAL CONTRACT FEE AND CONTRACT CHARGE UPON
FULL WITHDRAWAL (SEE NOTE 2 BELOW)
- - - --------------------------------------------------------------------------------
$ 30.00
ANNUAL ACCOUNT EXPENSES
- - - --------------------------------------------------------------------------------
AS A PERCENTAGE OF YOUR AVERAGE ACCOUNT VALUE.
BASIC DEATH BENEFIT OPTION
- - - --------------------------------------------------------------------------------
Insurance Charge: 1.35%
ENHANCED DEATH BENEFIT OPTION
- - - --------------------------------------------------------------------------------
Insurance Charge: 1.65%
NOTE 1: YOU WILL NOT BE CHARGED FOR TRANSFERS MADE IN CONNECTION WITH DOLLAR
COST AVERAGING AND AUTO-REBALANCING.
NOTE 2: THIS FEE IS ASSESSED ANNUALLY AND AT THE TIME OF A FULL WITHDRAWAL
PROVIDED THE VALUE OF YOUR CONTRACT IS LESS THAN $50,000.
NOTES FOR ANNUAL MUTUAL FUND EXPENSES (APPEARING ON PAGE ___):
THESE EXPENSES ARE BASED ON THE HISTORICAL FUND EXPENSES FOR THE YEAR ENDED
DECEMBER 31, 1998, EXCEPT AS INDICATED. FUND EXPENSES ARE NOT FIXED OR
GUARANTEED BY THE DISCOVERY CHOICE CONTRACT AND MAY VARY FROM YEAR TO YEAR.
(1) THE PRUDENTIAL SERIES FUND: BECAUSE THIS IS THE FIRST YEAR OF OPERATION OF
THE DIVERSIFIED CONSERVATIVE GROWTH PORTFOLIO AND THE 20/20 FOCUS PORTFOLIO,
OTHER EXPENSES ARE ESTIMATED BASED ON MANAGEMENT'S PROJECTION OF NON-MANAGEMENT
FEE EXPENSES.
(2) AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. AND T.ROWE PRICE FUNDS:
MANAGEMENT FEES INCLUDE ORDINARY EXPENSES OF OPERATING THE FUNDS.
(3) JANUS ASPEN SERIES: FEE REDUCTIONS REDUCE MANAGEMENT FEES TO THE LEVEL OF
THE CORRESPONDING JANUS RETAIL FUND. JANUS HAS AGREED TO CONTINUE THE APPLICABLE
WAIVERS AND FEE REDUCTIONS UNTIL AT LEAST THE NEXT ANNUAL RENEWAL OF THE
ADVISORY AGREEMENT.
(4) TEMPLETON VARIABLE PRODUCTS SERIES FUND: FIGURES REFLECT EXPENSES FROM THE
FUND'S INCEPTION ON MANY 1, 1998 AND ARE ANNUALIZED. THE INVESTMENT MANAGER
AGREED IN ADVANCE TO LIMIT MANAGEMENT FEES AND MAKE CERTAIN PAYMENTS TO REDUCE
THE FUND'S EXPENSES AS NECESSARY SO THAT TOTAL ACTUAL EXPENSES DID NOT EXCEED
1.25% OF THE FUND'S CLASS 2 NET ASSETS IN 1998. THE INVESTMENT MANAGER HAS
AGREED TO CONTINUE THIS ARRANGEMENT IN 1998. THE FUND MAINTAINS A DISTRIBUTION
OR "12B-1" PLAN FOR CLASS 2 WHICH IS INCLUDED IN OTHER EXPENSES AND IS DESCRIBED
IN ITS PROSPECTUS.
(5) WARBURG PINCUS TRUST: ACTUAL FEES AND EXPENSES FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998 WERE 1.08% AND 0.32% FOR MANAGEMENT FEES AND OTHER EXPENSES,
RESPECTIVELY. FEE WAIVERS AND EXPENSE REIMBURSEMENT OR CREDITS REDUCED FEES AND
EXPENSES DURING 1998 BUT MAY BE DISCONTINUED AT ANY TIME.
5
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DISCOVERY CHOICE VARIABLE ANNUITY
SUMMARY OF CONTRACT EXPENSES
ANNUAL MUTUAL FUND EXPENSES (after reimbursement, if any)
- - - --------------------------------------------------------------------------------
As a percentage of each Fund's average daily net assets:
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT TOTAL TOTAL
MANAGEMENT OTHER CONTRACTUAL ACTUAL
THE PRUDENTIAL SERIES FUND (1) FEES EXPENSES EXPENSES EXPENSES*
- - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Diversified Bond Portfolio 0.40% 0.02% 0.42% 0.42%
Diversified Conservative Growth Portfolio 0.75% 0.20% 0.95% 0.95%
Equity Income Portfolio 0.40% 0.02% 0.42% 0.42%
Equity Portfolio 0.45% 0.02% 0.47% 0.47%
Global Portfolio 0.75% 0.11% 0.86% 0.86%
High Yield Bond Portfolio 0.55% 0.03% 0.58% 0.58%
Money Market Portfolio 0.40% 0.01% 0.41% 0.41%
Prudential Jennison Portfolio 0.60% 0.03% 0.63% 0.63%
Small Capitalization Stock Portfolio 0.40% 0.07% 0.47% 0.47%
Stock Index Portfolio 0.35% 0.02% 0.37% 0.37%
20/20 Focus Portfolio 0.75% 0.20% 0.95% 0.95%
AIM VARIABLE INSURANCE FUNDS, INC
- - - ----------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund 0.61% 0.04% 0.65% 0.65%
AIM V.I. Value Fund 0.61% 0.05% 0.66% 0.66%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. (2)
- - - ----------------------------------------------------------------------------------------------------------------------------
American Century VP Value 1.00% 0.0% 1.00% 1.00%
JANUS ASPEN SERIES (3)
- - - ----------------------------------------------------------------------------------------------------------------------------
Growth Portfolio 0.72% 0.03% 0.75% 0.68%
International Growth Portfolio 0.75% 0.20% 0.95% 0.86%
MFS VARIABLE INSURANCE TRUST
- - - ----------------------------------------------------------------------------------------------------------------------------
Emerging Growth Series 0.75% 0.10% 0.85% 0.85%
Research Series 0.75% 0.11% 0.86% 0.86%
OCC ACCUMULATION TRUST
- - - ----------------------------------------------------------------------------------------------------------------------------
Managed Portfolio 0.78% 0.04% 0.82% 0.82%
Small Cap Portfolio 0.80% 0.08% 0.88% 0.88%
TEMPLETON VARIABLE PRODUCTS SERIES FUND (4)
- - - ----------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Investments Fund - Class 2 0.75% 1.25% 2.00% 1.25%
T.ROWE PRICE (2)
- - - ----------------------------------------------------------------------------------------------------------------------------
Equity Series - Equity Income Portfolio 0.85% 0.00% 0.85% 0.85%
International Series - International Stock Portfolio 1.05% 0.00% 1.05% 1.05%
WARBURG PINCUS TRUST (5)
- - - ----------------------------------------------------------------------------------------------------------------------------
Post-Venture Capital Portfolio 1.25% 0.45% 1.70% 1.40%
- - - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* REFLECTS FEE WAIVERS AND REIMBURSEMENT OF EXPENSES, IF ANY. SEE NOTES ON
PAGE ___.
THE "EXPENSE EXAMPLES" ON THE FOLLOWING PAGES ARE CALCULATED USING THE TOTAL
ACTUAL EXPENSES.
6
<PAGE>
DISCOVERY CHOICE VARIABLE ANNUITY
EXPENSE EXAMPLES
- - - --------------------------------------------------------------------------------
THESE EXAMPLES WILL HELP YOU COMPARE THE FEES AND EXPENSES OF THE DIFFERENT
VARIABLE INVESTMENT OPTIONS OFFERED BY DISCOVERY CHOICE. YOU CAN ALSO USE THE
EXAMPLE TO COMPARE THE COST OF DISCOVERY CHOICE WITH OTHER VARIABLE ANNUITY
CONTRACTS.
EXAMPLE 1: BASIC DEATH BENEFIT OPTION
This example assumes that you:
o Invest $10,000 in Discovery Choice;
o Elect the BASIC Death Benefit Option;
o Allocate all of your assets to only one of the variable investment
options;
o That investment has a 5% return each year; and
o The mutual fund's operating expenses remain the same each year.
EXAMPLE 2: ENHANCED DEATH BENEFIT OPTION
This example assumes that you:
o Invest $10,000 in Discovery Choice;
o Elect the ENHANCED Death Benefit Option;
o Allocate all of your assets to only one of the variable investment
options;
o That investment has a 5% return each year; and
o The mutual fund's operating expenses remain the same each year.
Because this contract has no withdrawal charges, your costs are not impacted by
whether or not you choose to make withdrawals. Your actual costs may be higher
or lower, but on the following page are examples of what your costs would be
based on these assumptions.
NOTES FOR EXPENSE EXAMPLES:
- - - --------------------------------------------------------------------------------
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
IF YOUR CONTRACT VALUE IS LESS THAN $50,000, ON YOUR CONTRACT ANNIVERSARY (AND
UPON A FULL WITHDRAWAL), WE DEDUCT THE LESSER OF $30.00 OR 2% OF THE CONTRACT
VALUE. THE EXAMPLES USE AN AVERAGE NUMBER AS THE AMOUNT OF THE ANNUAL CONTRACT
FEE. THIS AMOUNT WAS CALCULATED BY ESTIMATING THE CONTRACT FEES THAT WILL BE
COLLECTED IN THE INITIAL YEARS OF THIS CONTRACT AND THEN DIVIDING THAT NUMBER BY
THE TOTAL ASSETS ESTIMATED TO BE ALLOCATED TO THE VARIABLE INVESTMENT OPTIONS
DURING THE SAME TIME PERIOD. BASED ON THESE ESTIMATES, THE ANNUAL CONTRACT FEE
IS INCLUDED AS AN ANNUAL CHARGE OF 0.05% OF CONTRACT VALUE. YOUR ACTUAL FEES
WILL VARY BASED ON THE AMOUNT OF YOUR CONTRACT AND YOUR SPECIFIC ALLOCATION(S).
PREMIUM TAXES ARE NOT REFLECTED IN THE EXAMPLES. OUR CHARGE FOR PREMIUM TAXES
MAY APPLY DEPENDING ON THE STATE WHERE YOU LIVE.
7
<PAGE>
DISCOVERY CHOICE VARIABLE ANNUITY
<TABLE>
<CAPTION>
EXPENSE EXAMPLES 1 AND 2
- - - ------------------------------------------------------------------------------------------------------------------------------------
EXAMPLE 1: EXAMPLE 2:
WITH THE BASIC DEATH BENEFIT WITH THE ENHANCED DEATH BENEFIT
-------------------------------------------------------------------------------
THE PRUDENTIAL SERIES FUND 1 YR 3 YRS 5 YRS 10 YRS 1 YR 3 YRS 5 YRS 10 YRS
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Diversified Bond Portfolio $185 $573 $ 985 $2137 $215 $664 $1139 $2452
Diversified Conservative Growth Portfolio $238 $733 $1255 $2686 $268 $823 $1405 $2983
Equity Income Portfolio $185 $573 $ 985 $2137 $215 $664 $1139 $2452
Equity Portfolio $190 $588 $1011 $2190 $220 $679 $1164 $2503
Global Portfolio $229 $706 $1210 $2595 $259 $796 $1360 $2895
High Yield Bond Portfolio $201 $621 $1068 $2306 $231 $712 $1220 $2615
Money Market Portfolio $184 $569 $ 980 $2127 $214 $661 $1134 $2441
Prudential Jennison Portfolio $206 $637 $1093 $2358 $236 $727 $1245 $2666
Small Capitalization Stock Portfolio $190 $588 $1011 $2190 $220 $679 $1164 $2503
Stock Index Portfolio $180 $557 $ 959 $2084 $210 $649 $1114 $2400
20/20 Focus Portfolio $238 $733 $1255 $2686 $268 $823 $1405 $2983
AIM VARIABLE INSURANCE FUNDS INC.
- - - ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund $208 $643 $1103 $2379 $238 $733 $1255 $2686
AIM V.I. Value Fund $209 $646 $1108 $2390 $239 $736 $1260 $2696
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
- - - ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Value $243 $748 $1280 $2736 $273 $838 $1430 $3032
JANUS ASPEN SERIES
- - - ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio $211 $652 $1119 $2410 $241 $742 $1270 $2716
International Growth Portfolio $229 $706 $1210 $2595 $259 $796 $1360 $2895
MFS VARIABLE INSURANCE TRUST
- - - ------------------------------------------------------------------------------------------------------------------------------------
Emerging Growth Series $228 $703 $1205 $2585 $258 $793 $1355 $2885
Research Series $229 $706 $1210 $2595 $259 $796 $1360 $2895
OCC ACCUMULATION TRUST
- - - ------------------------------------------------------------------------------------------------------------------------------------
Managed Portfolio $225 $694 $1190 $2554 $255 $785 $1340 $2856
Small Cap Portfolio $231 $712 $1220 $2615 $261 $802 $1370 $2915
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- - - ------------------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Investments Fund - Class 2 $268 $823 $1405 $2983 $298 $913 $1552 $3271
T. ROWE PRICE
- - - ------------------------------------------------------------------------------------------------------------------------------------
Equity Series - Equity Income Portfolio $228 $703 $1205 $2585 $258 $793 $1355 $2885
International Series - Int'l Stock Portfolio $248 $764 $1306 $2786 $278 $853 $1454 $3080
WARBURG PINCUS TRUST
- - - ------------------------------------------------------------------------------------------------------------------------------------
Post-Venture Capital Portfolio $283 $868 $1479 $3128 $313 $957 $1625 $3411
</TABLE>
THESE EXAMPLES DO NOT SHOW PAST OR FUTURE EXPENSES. ACTUAL EXPENSES FOR A
PARTICULAR YEAR MAY BE MORE OR LESS THAN THOSE SHOWN IN THE EXAMPLES.
8
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DISCOVERY CHOICE VARIABLE ANNUITY
1. WHAT IS THE DISCOVERY CHOICE VARIABLE ANNUITY?
The Discovery Choice Variable Annuity is a contract between you, the
owner, and us, the insurance company, Pruco Life Insurance Company (Pruco Life,
We or Us).
Under our contract or agreement, in exchange for your payment to us, we
promise to pay you a guaranteed income stream that can begin any time after the
second contract anniversary. Your annuity is in the accumulation phase until you
decide to begin receiving annuity payments. The date you begin receiving annuity
payments is the annuity date. On the annuity date, your contract switches to the
income phase.
This annuity contract benefits from tax deferral. Tax deferral means that
you are not taxed on earnings or appreciation on the assets in your contract
until you withdraw money from your contract.
Discovery Choice is a variable annuity contract. This means that during
the accumulation phase, you can allocate your assets among 24 variable
investment options. The amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the investment performance
of the mutual fund associated with that variable investment option. Because the
mutual funds' portfolios fluctuate in value depending upon market conditions,
your contract value can either increase or decrease. This is important, since
the amount of the annuity payments you receive during the income phase depends
upon the value of your contract at the time you begin receiving payments.
As the owner of the contract, you have all of the decision-making rights
under the contract. You will also be the annuitant unless you designate someone
else. The annuitant is the person who receives the annuity payments when the
income phase begins. The annuitant is also the person whose life is used to
determine how much and how long these payments will continue. On and after the
annuity date, the annuitant is the owner and may not be changed.
The beneficiary is the person(s) or entity designated to receive any death
benefit if the owner(s) dies during the accumulation phase. You may change the
beneficiary any time prior to the annuity date by making a written request to
us. Your request becomes effective when we approve it. The beneficiary becomes
the owner when a death benefit is payable.
SHORT TERM CANCELLATION RIGHT OR "FREE LOOK"
If you change your mind about owning Discovery Choice, you may cancel your
contract within 10 days after receiving it (or whatever period is required by
applicable law). You can request a refund by returning the contract either to
the representative who sold it to you, or to the Prudential Annuity Service
Center at the address shown on the first page of this prospectus. You will
receive, depending on applicable law:
o Your full purchase payment; or
o The amount your contract is worth as of the day we receive your request.
This amount may be more or less than your original payment.
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DISCOVERY CHOICE VARIABLE ANNUITY
2. WHAT INVESTMENT OPTIONS CAN I CHOOSE?
The contract gives you the choice of allocating your purchase payments to
any one or more of 24 variable investment options. The 24 variable investment
options invest in mutual funds managed by leading investment advisors. Each of
these mutual funds has a separate prospectus that is provided with this
prospectus. YOU SHOULD READ THE MUTUAL FUND PROSPECTUS BEFORE YOU DECIDE TO
ALLOCATE YOUR ASSETS TO THE VARIABLE INVESTMENT OPTION USING THAT FUND.
VARIABLE INVESTMENT OPTIONS
Listed below are the mutual funds in which the variable investment options
invest. Each variable investment option has a different investment objective.
THE PRUDENTIAL SERIES FUND, INC.
o Diversified Bond Portfolio
o Diversified Conservative Growth Portfolio
o Equity Income Portfolio
o Equity Portfolio
o Global Portfolio
o High Yield Bond Portfolio
o Money Market Portfolio
o Prudential Jennison Portfolio (domestic equity)
o Small Capitalization Stock Portfolio
o Stock Index Portfolio
o 20/20 Focus Portfolio
The Prudential Series Fund, Inc. is managed by Prudential through another
company it owns called The Prudential Investment Corporation. The Prudential
Investment Corporation manages each of the portfolios of the Prudential Series
Fund except the Prudential Jennison Portfolio and the Diversified Conservative
Growth Portfolio. For the Jennison Portfolio, Prudential Investment Corporation
oversees another company owned by Prudential called Jennison Associates Capital
Corp. that provides the day to day investment advisory services. For the
Diversified Conservative Growth Portfolio, Prudential Investment Corporation
oversees The Dreyfus Corporation and Pacific Investment Management Company,
which provide the day to day investment advisory services.
AIM VARIABLE INSURANCE FUNDS, INC.
o AIM V.I. Growth and Income Fund
o AIM V.I. Value Fund
AIM Advisors, Inc. serves as investment adviser to both of these funds.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
o American Century VP Value
American Century Investment Management, Inc. is the investment adviser for
American Century VP Value.
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DISCOVERY CHOICE VARIABLE ANNUITY
JANUS ASPEN SERIES
o Growth Portfolio
o International Growth Portfolio
Janus Capital Corporation serves as investment adviser to the Growth
Portfolio and the International Growth Portfolio.
MFS VARIABLE INSURANCE TRUST
o Emerging Growth Series
o Research Series (long-term growth and future income)
Massachusetts Financial Services Company, a Delaware corporation, is the
investment adviser to the Emerging Growth Series and the Research Series.
OCC ACCUMULATION TRUST
o Managed Portfolio (equity)
o Small Cap Portfolio
OpCap Advisors is the investment adviser to the Managed Portfolio and the
Small Cap Portfolio.
T. ROWE PRICE
o T. Rowe Price Equity Series, Inc., Equity Income Portfolio
o T. Rowe Price International Series, Inc., International Stock
Portfolio
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.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
o Franklin Small Cap Investments Fund--Class 2
Franklin Advisers, Inc. is the investment manager for this portfolio of the
Templeton Variable Products Series Fund.
WARBURG PINCUS TRUST
o Post-Venture Capital Portfolio
Warburg Pincus Counselors, Inc. serves as investment adviser and Abbott Capital
Management, L.P. serves as sub-investment adviser for that portion of the
Post-Venture Capital Portfolio allocated to private limited partnerships or
other investment funds.
Except for the Prudential Series Fund Inc., we are paid by each fund or an
affiliate of each fund for administrative and other services that we provide.
The amount we receive is based on an annual percentage of the average assets of
Discovery Choice invested in that fund.
TRANSFERS AMONG OPTIONS
You can transfer money among the variable investment options. Your transfer
request may be made by telephone or in writing to the Prudential Annuity Service
Center. Only two transfers per month may be made by telephone. After that, all
transfer requests must be in writing with an original signature. We have
procedures in place to confirm that instructions received by telephone are
genuine. We will not be liable for following telephone instructions that we
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DISCOVERY CHOICE VARIABLE ANNUITY
reasonably believe to be genuine. Your transfer request will take effect at the
end of the business day on which it was received. Our business day closes,
usually at 4:15 p.m. Eastern time.
During the contract accumulation phase, you can make 12 transfers each contract
year, among the investment options, without charge. If you make more than 12
transfers in one contract year, you may be charged up to $30 for each additional
transfer. Currently we charge only $10 for additional transfers. (Dollar Cost
Averaging and Auto-Rebalancing transfers are always free, and do not count
toward the 12 free transfers per year.)
DOLLAR COST AVERAGING
The dollar cost averaging (DCA) feature allows you to systematically transfer
either a fixed dollar amount or a percentage out of the Money Market Portfolio
and into any other variable investment option(s). You can transfer money to more
than one variable investment option. The investment option used for the
transfers is designated as the DCA account. You can have these automatic
transfers made from the DCA account monthly, quarterly, semiannually or
annually. By allocating amounts on a regular schedule instead of allocating the
total amount at one particular time, you may be less susceptible to the impact
of market fluctuations.
Each transfer from your DCA account must be at least $100. Transfers will be
made automatically on the schedule you elect until the entire amount in your DCA
account has been transferred or until you tell us to discontinue the transfers.
If your DCA account balance drops below $100, the entire remaining balance of
the account will be transferred on the next transfer date. You can allocate
subsequent purchase payments to re-open the DCA account at any time.
Your transfers will be made on the last calendar day of each transfer period you
have selected, provided that the New York Stock Exchange is open on that date.
If the New York Stock Exchange is not open on a particular transfer date, the
transfer will take effect on the next business day.
Any transfers you make because of Dollar Cost Averaging are not counted toward
the 12 free transfers you are allowed each contract year. This feature is
available only during the contract accumulation phase.
ASSET ALLOCATION PROGRAM
We recognize the value of having advice when deciding on the allocation of your
money. If you choose to participate in the Asset Allocation Program, your
representative will give you a questionnaire to complete that will help
determine a program that is appropriate for you. Your asset allocation will be
prepared based on your answers to the questionnaire. You will not be charged for
this service and you are not obligated to participate or to invest according to
program recommendations.
AUTO-REBALANCING
Once your money has been allocated among the variable investment options, the
actual performance of the investment options may cause your allocation to shift.
For example, an investment option that initially holds only a small percentage
of your assets could perform much better than another investment option. Over
time, this option could increase to a larger percentage of your assets than you
desire. You can direct us to automatically rebalance your
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DISCOVERY CHOICE VARIABLE ANNUITY
assets to return to your original allocation or to change allocations by
selecting the Auto-Rebalancing feature. The DCA account cannot participate in
this feature.
Your rebalancing will be done monthly, quarterly, semiannually or annually based
on your choice. The rebalancing will be done on the last calendar day of the
period you have chosen, provided that the New York Stock Exchange is open on
that date. If the New York Stock Exchange is not open on that date, the
rebalancing will take effect on the next business day.
Any transfers you make because of Auto-Rebalancing are not counted toward the 12
free transfers you are allowed per year. This feature is available only during
the contract accumulation phase.
VOTING RIGHTS
We are the legal owner of the shares in the mutual funds available as variable
investment options. However, we vote the shares of the mutual funds according to
voting instructions we receive from contractowners. We will mail you a proxy
which is a form you need to complete and return to us to tell us how you wish us
to vote. When we receive those instructions, we will vote all of the shares we
own on your behalf in accordance with those instructions. Fund shares for which
we do not receive instructions on, that we own on your behalf, are voted in the
same proportion as shares for which instructions are received from
contractowners. We may change the way your voting instructions are calculated if
it is required by federal regulation.
SUBSTITUTION
We may substitute one or more of the mutual funds used by the variable
investment options. We may also cease to allow investments in existing funds. We
would do this only if events such as investment policy changes or tax law
changes make the mutual fund unsuitable. We would not do this without the
approval of the Securities and Exchange Commission and necessary state insurance
department approvals. You will be given specific notice in advance of any
substitution we intend to make.
3. WHAT KIND OF PAYMENTS WILL I RECEIVE DURING THE INCOME PHASE?
(ANNUITIZATION)
PAYMENT PROVISIONS
The annuitant can begin receiving annuity payments any time after the second
contract anniversary (or as required by state law if different). Annuity
payments must begin no later than the contract anniversary that coincides with
or follows the annuitant's 90th birthday (unless we agree to another date).
You may choose among the income plans described below at any time before the
annuity date. These plans are called annuity options or settlement options.
During the income phase, all of the annuity options under this contract are
fixed annuity options. This means that your participation in the variable
investment options ends on the annuity date. If you have not selected an annuity
option by the annuity date, the Life Income Annuity Option (Option 2, described
below) will automatically be selected unless prohibited by applicable law.
GENERALLY, ONCE THE ANNUITY PAYMENTS BEGIN, YOU CANNOT CHANGE THE ANNUITY
OPTION.
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DISCOVERY CHOICE VARIABLE ANNUITY
OPTION 1. ANNUITY PAYMENTS FOR A FIXED PERIOD
Under this option, we will make equal payments for a period you choose, up to 25
years. The annuity payments may be made monthly, quarterly, semiannually, or
annually, as you choose for the fixed period. If the annuitant dies during the
income phase, payments will continue to the beneficiary for the remainder of the
fixed period. A lump sum payment will be made to the beneficiary if the
beneficiary so chooses. The amount of the lump sum payment is determined by
calculating the present value of the unpaid future payments. This is done by
using the interest rate used to compute the actual payments. The interest rate
used will always be at least 3% a year.
OPTION 2. LIFE INCOME ANNUITY OPTION
Under this option, we will make annuity payments to the annuitant monthly,
quarterly, semiannually, or annually as long as the annuitant is alive. If the
annuitant dies before we have made 10 years worth of payments, we will pay the
beneficiary the present value of the remaining annuity payments in one lump sum
unless the annuitant has specifically instructed that the remaining monthly
annuity payments continue to be paid to the beneficiary. The present value of
the remaining annuity payments is calculated by using the interest rate used to
compute the amount of the original 120 payments. The interest rate used will
always be at least 3% a year.
If you have not selected an annuity option by the annuity date, this is the
option we will automatically select for you, unless prohibited by applicable
law.
OPTION 3. INTEREST PAYMENT OPTION
Under this option, you can choose to have us hold all or a portion of your
contract value in order to accumulate interest. You can receive interest
payments on a monthly, quarterly, semiannual, or annual basis or you can allow
the interest to accrue on your contract assets. Under this option, we will pay
you interest at an effective rate of at least 3% a year.
This option is not available if your contract is held in an IRA.
OPTION 4. OTHER ANNUITY OPTIONS
We currently offer a variety of other annuity options not described above. At
the time you choose to receive your annuity payments, we may make available to
you any of the fixed annuity options that are offered at your annuity date.
4. WHAT IS THE DEATH BENEFIT?
The death benefit feature protects the value of the contract for the
beneficiary.
BENEFICIARY
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued, unless you
change it at a later date. Unless an irrevocable beneficiary has been named,
during the accumulation period you can change the beneficiary at any time before
the owner or last survivor, if joint owners, dies.
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DISCOVERY CHOICE VARIABLE ANNUITY
CALCULATION OF THE DEATH BENEFIT
The death benefit to which your beneficiary is entitled depends on whether you
elected the basic death benefit or the enhanced death benefit.
BASIC DEATH BENEFIT:
If the sole or last survivor of the owner or joint owner dies during the
accumulation period, after we receive the appropriate proof of death and any
other needed documentation ("due proof of death"), your beneficiary will receive
the greater of the following:
1. the contract value as of the date we receive due proof of death; or
2. the total of all purchase payments made, proportionally reduced by the
effect of withdrawals.
ENHANCED DEATH BENEFIT:
If the sole or last survivor of the owner or joint owner dies during the
accumulation period and prior to age 80, after we receive due proof of death,
your beneficiary will receive the greater of the following:
1. the contract value as of the date we receive due proof of death; or
2. the guaranteed minimum death benefit (GMDB). The GMDB is calculated daily
and is equal to the greater of:
(a) the total purchase payments compounded daily at an effective annual
interest rate of 5%, subject to a 200% cap. This is called the
roll-up value. Both the roll-up value and the cap are proportionally
reduced by the effect of withdrawals. Once the cap is reached, the
roll-up value will be increased by subsequent purchase payments and
proportionally reduced by the effect of withdrawals; and
(b) the highest value of the contract on any contract anniversary. This
is called the step-up value. Before the first contract anniversary,
the step-up value is the initial purchase payment increased by
subsequent purchase payments and proportionally reduced by the
effect of withdrawals. Between anniversaries, the step-up is
increased only by purchase payments and proportionally reduced by
the effect of withdrawals.
After the contract anniversary on or next following the 80th birthday of the
sole or older of the owner or joint owner, the beneficiary will receive a death
benefit equal to the greater of:
(a) the contract value as of the date we receive due proof of death; or
(b) the GMDB as of the contract anniversary on or next following the
sole or older of the owner or joint owner's 80th birthday increased
by subsequent purchase payments since such contract anniversary and
proportionally reduced by the effect of withdrawals since such
contract anniversary.
Here is an example of a proportional reduction:
If an owner withdrew 50% of a contract valued at $100,000 and if the step-up
value at that time was $80,000, the new step-up value following the withdrawal
would be $40,000, or 50% of what it had been prior to the withdrawal.
15
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DISCOVERY CHOICE VARIABLE ANNUITY
5. HOW CAN I PURCHASE A DISCOVERY CHOICE CONTRACT?
PURCHASE PAYMENTS
A purchase payment is the amount of money you give us to purchase the contract.
The minimum purchase payment is $10,000. With some restrictions, you can make
additional purchase payments of at least $1,000 or more at any time during the
accumulation phase. However, no purchase payments may be made on or after
the 85th birthday of:
o the owner;
o joint owners;
o the annuitant.
We have established an aggregate maximum purchase payment limit of $2 million,
and we limit the maximum total purchase payments per contract in any contract
year, other than the first, to $2 million. Depending on the applicable state,
other limits may apply.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, we will allocate your purchase payment among the
variable investment options based on the percentages you choose. The percentage
of your allocation to a specific investment option can range in whole
percentages from 1% to 100%. If you make additional purchase payments, they will
be allocated in the same way as your initial allocation unless you tell us
otherwise. You may submit an allocation change request at any time. Contact the
Annuity Service Center for details. We will credit these purchase payments to
your contract as of the end of the business day on which the payment is
received. Our business day closes when the New York Stock Exchange does, usually
at 4:15 p.m. Eastern time.
CALCULATING CONTRACT VALUE
The value of your contract will go up or down depending on the investment
performance of the variable investment option(s) you choose. To determine the
value of your contract, we use a unit of measure called an accumulation unit. An
accumulation unit works like a share of a mutual fund.
Every day we determine the value of an accumulation unit for each of the
variable investment options. We do this by:
1. adding up the total amount of money allocated to a specific
investment option;
2. subtracting from that amount insurance charges and any other
applicable charges such as for taxes; and
3. dividing this amount by the number of outstanding accumulation
units.
When you make a purchase payment, we credit your contract with accumulation
units of the subaccount or subaccounts selected. The number of accumulation
units credited to your contract is determined by dividing the amount of the
purchase payment allocated to an investment option by the unit price of the
accumulation unit for that investment option. We calculate the unit price for
each investment option after the New York Stock Exchange closes each day and
then credit your contract. The value of the accumulation units can increase,
decrease, or remain the same from day to day.
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DISCOVERY CHOICE VARIABLE ANNUITY
We cannot guarantee that your contract value will increase or that it will not
fall below the amount of your total purchase payments.
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DISCOVERY CHOICE VARIABLE ANNUITY
6. WHAT ARE THE EXPENSES ASSOCIATED WITH THE DISCOVERY CHOICE CONTRACT?
There are charges and other expenses associated with the contract that reduce
the return on your investment. These charges and expenses are described below.
INSURANCE CHARGES
Each day, we make a deduction for the insurance charge. The insurance charge
covers our expenses for mortality and expense risk, administration, marketing
and distribution. The mortality risk portion of the charge is for assuming the
risk that the annuitant(s) will live longer than expected based on our life
expectancy tables. When this happens, we pay a greater number of annuity
payments. The expense risk portion of the charge is for assuming that the
current charges will be insufficient in the future to cover the cost of
administering the contract. The administrative expense portion of the charge is
for the expenses associated with the administration of the contract. This would
include preparing and issuing the contract; establishing and maintaining
contract records; preparation of confirmations and annual reports; personnel
costs; legal and accounting fees; filing fees and systems costs.
The insurance charge is equal, on an annual basis, to 1.35% (Basic Death
Benefit) or 1.65% (Enhanced Death Benefit) of the daily value of the contract
after expenses have been deducted.
If the charges under the contract are not sufficient, then we will bear the
loss. We do, however, expect to profit from this charge. The insurance risk
charge for your contract cannot be increased. Any profits made from this charge
may be used by us to pay for the costs of distributing the contracts.
ANNUAL CONTRACT FEE
Each contract year during the accumulation phase, if your contract value is less
than $50,000, we will deduct the lesser of $30 or 2% of your contract value, for
administrative expenses. (This fee may differ in certain states). While this is
what we currently charge, we may increase this charge up to a maximum of $60.
Also, we may raise the level of the contract value at which we waive this fee.
The charge will be deducted proportionately from each of the contract's variable
investment options. This charge will also be deducted when you surrender your
contract if your contract value is less than $50,000.
PREMIUM TAXES
Some states and/or municipalities charge premium taxes or similar taxes. We are
responsible for the payment of these taxes and will make a deduction from the
value of the contract to pay them. Some of these taxes are due when the contract
is issued, others are due when annuity payments begin. It is our current
practice not to deduct a charge for these taxes until annuity payments begin. In
the few states that impose a tax, the current rates range up to 5%. If, in the
future, we are charged for additional taxes that are based on purchase payments,
that charge may be passed on to contractowners.
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DISCOVERY CHOICE VARIABLE ANNUITY
TRANSFER FEE
You can make 12 free transfers every contract year. We measure a contract year
from the date we issue your contract (contract date). If you make more than 12
transfers in a contract year (excluding Dollar Cost Averaging and
Auto-Rebalancing), we will deduct a transfer fee of $10 for each additional
transfer. The transfer fee will be deducted proportionately from all the
affected investment options.
COMPANY TAXES
We will pay the taxes on the earnings of the separate account. We are not
currently charging the separate account for taxes. We will periodically review
the issue of charging the separate account for these taxes and may impose a
charge in the future.
7. HOW CAN I ACCESS MY MONEY?
You can access your money by:
o Making a withdrawal (either partial or complete); or
o Electing to receive annuity payments during the income phase.
YOU CAN MAKE WITHDRAWALS ONLY DURING THE ACCUMULATION PHASE (UNLESS THE PAYMENT
OPTION THAT YOU CHOOSE PROVIDES FOR WITHDRAWALS).
When you make a complete withdrawal, you will receive the value of your contract
on the day you made the withdrawal. We will calculate the value of your contract
and charges, if any, as of the date we receive your request in good order at the
Prudential Annuity Service Center.
Unless you tell us otherwise, any partial withdrawal will be made
proportionately from all of the affected variable investment options you have
selected. The minimum amount which may be withdrawn is $250. If, after a
withdrawal, your contract value is less than $2,000, we have the right to choose
to end your contract.
We will generally pay the withdrawal amount, less any required tax withholding,
within seven days after we receive a withdrawal request in good order. We will
deduct applicable charges, if any, from the assets in your contract.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL
YOU MAKE. FOR A MORE COMPLETE EXPLANATION, SEE SECTION 8 OF THIS PROSPECTUS.
AUTOMATED WITHDRAWALS
We offer an Automated Withdrawal feature. This feature enables you to receive
periodic withdrawals in monthly, quarterly, semiannual or annual intervals. We
will process your withdrawals at the end of the business day at the intervals
you specify. We will continue at these intervals until you tell us otherwise.
You can make withdrawals from any designated investment option or proportionally
from all investment options. The minimum automated withdrawal amount you can
make is $100.
INCOME TAXES AND A 10% PENALTY TAX ON EARNINGS MAY APPLY TO AUTOMATED
WITHDRAWALS AS WELL AS ANY OTHER WITHDRAWALS MADE FROM YOUR CONTRACT.
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DISCOVERY CHOICE VARIABLE ANNUITY
SUSPENSION OF PAYMENTS OR TRANSFERS
We may be required to suspend or postpone payments made in connection with
withdrawals or transfers for any period when:
o The New York Stock Exchange is closed (other than customary weekend and
holiday closings);
o Trading on the New York Stock Exchange is restricted;
o An emergency exists during which sales and redemptions of shares of the
mutual funds are not reasonable or we cannot reasonably value the
accumulation units; or
o The Securities and Exchange Commission, by order, so permits suspension or
postponement of payments for the protection of owners.
8. WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE DISCOVERY CHOICE
CONTRACT?
The tax considerations associated with the Discovery Choice contract vary
depending on whether the contract is (i) owned by an individual and not
associated with a tax-favored retirement plan, or (ii) held under a tax-favored
retirement plan. We discuss the tax considerations for these categories of
contracts below. The discussion is general in nature and describes only federal
income tax law (not state or other tax laws). It is based on current law and
interpretations, which may change. It is not intended as tax advice. A qualified
tax adviser should be consulted for complete information and advice.
We believe the contract is an annuity contract for tax purposes. Accordingly, as
a general rule, you should not pay any tax until you receive money under the
contract.
CONTRACTS OWNED BY INDIVIDUALS
(NOT ASSOCIATED WITH TAX-FAVORED RETIREMENT PLANS)
TAXES PAYABLE BY YOU
Generally, annuity contracts issued by the same company (and affiliates) to you
during the same calendar year must be treated as one annuity contract for
purposes of determining the amount subject to tax under the rules described
below.
TAXES ON WITHDRAWALS AND SURRENDER
If you make a withdrawal from your contract or surrender it before annuity
payments begin, the amount you receive will be taxed as ordinary income, rather
than as return of purchase payments, until all gain has been withdrawn.
If you assign all or part of your contract as collateral for a loan, the part
assigned will be treated as a withdrawal. Also, if you elect the interest
payment option, that election will be treated, for tax purposes, as surrendering
your contract.
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DISCOVERY CHOICE VARIABLE ANNUITY
If you transfer your contract for less than full consideration, such as by gift,
you will trigger tax on the gain in the contract. This rule does not apply if
you transfer the contract to your spouse or you are incident to divorce.
It is the company's position that the enhanced death benefit option is an
integral part of the annuity contract and accordingly that the charges made
against the annuity contract's cash value for should not be treated as
distributions subject to income tax. It is possible, however, that the Internal
Revenue Service could take the position that such charges should be treated as
distributions.
TAXES ON ANNUITY PAYMENTS
A portion of each annuity payment you receive will be treated as a partial
return of your purchase payments and will not be taxed. The remaining portion
will be taxed as ordinary income. Generally, the nontaxable portion is
determined by multiplying the annuity payment you receive by a fraction, the
numerator of which is your purchase payments (less any amounts previously
received tax-free) and the denominator of which is the total expected payments
under the contract.
After the full amount of your purchase payments have been recovered tax-free,
the full amount of the annuity payments will be taxable. If annuity payments
stop due to the death of the annuitant before the full amount of your purchase
payments have been recovered, a tax deduction is allowed for the unrecovered
amount.
PENALTY TAXES ON WITHDRAWALS AND ANNUITY PAYMENTS
Any taxable amount you receive under your contract may be subject to a 10 %
penalty tax. Amounts are not subject to this penalty tax if:
o the amount is paid on or after you reach age 59 1/2 or die;
o the amount received is attributable to your becoming disabled;
o the amount paid or received is in the form of level annuity payments not
less frequently than annually under a lifetime annuity;
TAXES PAYABLE BY BENEFICIARIES
Generally, the same tax rules apply to amounts received by your beneficiary as
those set forth above with respect to you. The election of an annuity payment
option instead of a lump sum death benefit may defer taxes. Certain minimum
distribution requirements apply upon your death, as discussed further below.
WITHHOLDING OF TAX FROM DISTRIBUTIONS
Taxable amounts distributed from your annuity contracts are subject to tax
withholding. You may generally elect not to have tax withheld from your
payments. These elections must be made on the appropriate Pruco Life forms.
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ANNUITY QUALIFICATION
DIVERSIFICATION AND INVESTOR CONTROL
In order to qualify for the tax rules applicable to annuity contracts described
above, the contract must be an annuity contract for tax purposes. This means
that the assets underlying the annuity contract must be diversified, according
to certain rules. It also means that Pruco Life, and not you as the
contract-owner, must have sufficient control over the underlying assets to be
treated as the owner of the underlying assets for tax purposes. We believe these
rules, which are further discussed in the Statement of Additional Information,
will be met.
REQUIRED DISTRIBUTIONS UPON YOUR DEATH
Upon your death (or the death of a joint owner, if earlier), certain
distributions must be made under the contract. The required distributions depend
on whether you die before you start taking annuity payments under the contract
or after you start taking annuity payments under the contract.
If you die 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 you die 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 your designated beneficiary and if annuity
payments begin within 1 year of your death, the value of the contract may be
distributed over the beneficiary's life or a period not exceeding the
beneficiary's life expectancy. Your designated beneficiary is the person to whom
ownership of the contract passes by reason of death, and must be a natural
person.
If any portion of the contract is payable to (or for the benefit of) your
surviving spouse, such portion of the contract may be continued with your spouse
as the owner.
CHANGES IN THE CONTRACT
We reserve the right to make any changes we deem necessary to assure that the
contract qualifies as an annuity contract for tax purposes. Any such changes
will apply to all contractowners and you will be given notice to the extent
feasible under the circumstances.
ADDITIONAL INFORMATION
You should refer to the Statement of Additional Information if:
o The contract is held by a corporation or other entity instead of by
an individual or as agent for an individual.
o Your contract was issued in exchange for a contract containing
purchase payments made before August 14, 1982.
o You are a nonresident alien.
o You transfer your contract to, or designate, a beneficiary who is
either 37 1/2 years younger than you or a grandchild.
o You wish additional information on withholding taxes.
CONTRACTS HELD BY TAX FAVORED PLANS
The following discussion covers annuity contracts held under tax-favored
retirement plans.
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DISCOVERY CHOICE VARIABLE ANNUITY
Currently, the contract may be purchased for use in connection with individual
retirement accounts and annuities ("IRAs") which are subject to Sections 408(a),
408(b) and 408A of the Code. At some future time we may allow the contract to be
purchased in connection with other retirement arrangements which are also
entitled to favorable federal income tax treatment ("tax favored plans"). These
other tax favored plans include:
Simplified employee pension plans ("SEPs") under Section 408(k) of the Code;
Saving incentive match plans for employees-IRAs ("SIMPLE-IRAs") under Section
408(p) of the Code; and Tax-deferred annuities ("TDAs") under Section 403(b) of
the Code. This description assumes that (i) we will be offering this to both IRA
and non-IRA tax favored plans, and (ii) you have satisfied the requirements for
eligibility for these products.
Types of Tax Favored Plans
IRAS
If you buy a contract for use as an IRA, we will provide you a copy of the
prospectus, contract and a brochure containing information about eligibility,
contribution limits, tax particulars and other IRA information. In addition to
this information (some of which is summarized below), the IRS requires that you
have a "free look" after making an initial contribution to the contract. During
this time, you can cancel the contract by notifying us in writing, and we will
refund all of the purchase payments under the contract (or, if provided by
applicable state law, the amount credited under the contract, calculated as of
the date that we receive this cancellation notice, if greater).
Contributions Limits/Rollovers: Because of the way the contract is designed, you
may only purchase a contract for an IRA in connection with a "rollover" of
amounts from a qualified retirement plan. You must make a minimum initial
payment of $10,000 to purchase a contract. This minimum is greater than the
maximum amount of any annual contribution you may make to an IRA (which is
generally $2,000/year). The "rollover" rules under the Code are fairly
technical; however, an individual (or his or her surviving spouse) may generally
"roll over" certain distributions from tax favored retirement plans (either
directly or within 60 days from the date of these distributions) if he or she
meets the requirements for distribution. Once you buy the contract, you can make
regular IRA contributions under the contract (to the extent permitted by law).
However, if you make such regular IRA contributions, you should note that you
will not be able to treat the contract as a "conduit IRA," which means that you
will not be able subsequently to "roll over" the contract funds into another
Section 401(a) plan or TDA (although you may be able to transfer the funds to
another IRA).
Required Provisions: Contracts that are IRAs (or endorsements that are part of
the contract) must contain certain provisions:
o You, as owner of the contract, must be the "annuitant" under the contract
(except in certain cases involving the division of property under a decree
of divorce);
o Your rights as owner are non-forfeitable;
o You cannot sell, assign or pledge the contract, other than to Pruco Life;
o The annual premium you pay cannot be greater than $2,000 (which does not
include any rollover amounts);
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DISCOVERY CHOICE VARIABLE ANNUITY
o The date on which annuity payments must begin cannot be later than the
April 1st of the calendar year after the calendar year you turn age 70
1/2; and
o Death and annuity payments must meet "minimum distribution requirements"
(described below).
Usually, the full amount of any distribution from an IRA (including a
distribution from this contract) which is not a rollover is taxable. As taxable
income, these distributions are subject to the general tax withholding rules
described earlier. In addition to this normal tax liability, you may also be
liable for the following, depending on your actions:
o A 10% "early distribution penalty" (described below);
o Liability for "prohibited transactions" if you, for example, borrow
against the value of an IRA; or
o Failure to take a minimum distribution (also generally described below).
SEPS
SEPs are a variation on a standard IRA, and contracts issued to a SEP must
satisfy the same general requirements described under IRAs (above). There are,
however, some differences:
o If you participate in a SEP, you generally do not include in income any
employer contributions made to the SEP on your behalf up to the lesser of
(a) $30,000 or (b) 15% of the employee's earned income (not including the
employer contribution amount as "earned income" for these purposes);
o SEPs must satisfy certain participation and nondiscrimination requirements
not generally applicable to IRAs; and
o Some SEPs for small employers permit salary deferrals (up to $10,000 in
1999) with the employer making these contributions to the SEP. However, no
new "salary reduction" or "SAR-SEPs" can be established after 1996.
You will also be provided the same information, and have the same "free look"
period, as you would have if you were purchasing the contract for a standard
IRA.
SIMPLE-IRAS
SIMPLE-IRAs are another variation on the standard IRA, available to small
employers (under 100 employees, on a "controlled group" basis) that do not offer
other tax favored plans. SIMPLE-IRAs are also subject to the same basic IRA
requirements with the following exceptions:
o Participants in a SIMPLE-IRA may contribute up to $6,000 (in 1999,
indexed), as opposed to the usual $2,000 limit, and employer contributions
may also be provided as either a match (up to 3% of your compensation);
and
o SIMPLE -IRAs are not subject to the SEP nondiscrimination rules.
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DISCOVERY CHOICE VARIABLE ANNUITY
ROTH IRAS
Congress amended the Code in 1997 to add a new Section 408A, creating the "Roth
IRA" as a new type of individual retirement plan. Like standard IRAs, income
within a Roth IRA accumulates tax-free, and contributions are subject to
specific limits. Roth IRAs have, however, the following differences:
o Contributions to a Roth IRA cannot be deducted from your gross income;
o "Qualified distributions" (generally, held for 5 years and payable on
account of death, disability, attainment of age 59 1/2, or first
time-homebuyer) from Roth IRAs are excludable from your gross income; and
o If eligible, you may make contributions to a Roth IRA after attaining age
70 1/2, and distributions are not required to begin upon attaining such
age or at any time thereafter.
Because the contract's minimum initial payment of $10,000 is greater than the
maximum annual contribution permitted to be made to a Roth IRA (generally,
$2,000 less any contributions to a traditional IRA), you may purchase a contract
as a Roth IRA only in connection with a "rollover" or "conversion" of the
proceeds of another traditional IRA, conduit IRA, SEP, SIMPLE-IRA, or Roth IRA.
The Code permits persons who meet certain income limitations (generally,
adjusted gross income under $100,000), and who receive certain qualifying
distributions from such non-Roth IRAs, to directly rollover or make, within 60
days, a "rollover" of all or any part of the amount of such distribution to a
Roth IRA which they establish. This conversion triggers current taxation (but is
not subject to a 10% early distribution penalty). Once the contract has been
purchased, regular Roth IRA contributions will be accepted to the extent
permitted by law.
TDAS
You may own a TDA generally if you are either an employer or employee of a
tax-exempt organization (as defined under Code Section 501(c)(3)) or a public
educational organization, and you may make contributions to a TDA so long as the
employee's rights to the annuity are nonforfeitable. Contributions to a TDA, and
any earnings, are not taxable until distribution. You may also make
contributions to a TDA under a salary reduction agreement, generally up to a
maximum of $10,000 (1999, indexed). Further, you may roll over TDA amounts to
another TDA or an IRA.
A contract may only qualify as a TDA if distributions (other than
"grandfathered" amounts held as of December 31, 1988) may be made only on
account of:
o Your attainment of age 59 1/2;
o Your severance of employment;
o Your death;
o Your total and permanent disability; or
o Hardship (under limited circumstances, and only related to salary
deferrals and any earnings attributable to these amounts).
In any event, you must begin receiving distributions from your TDA by April 1st
of the calendar year after the calendar year you turn age 70 1/2 or retire,
whichever is later.
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DISCOVERY CHOICE VARIABLE ANNUITY
These distribution limits do not apply either to transfers or exchanges of
investments under the contract, or to any "direct transfer" of your interest in
the contract to another TDA or to a mutual fund "custodial account" described
under Code Section 403(b)(7).
Employer contributions to TDAs are subject to the same general contribution,
nondiscrimination, and minimum participation rules applicable to "qualified"
retirement plans.
ADDITIONAL TAX FEATURES FOR TAX FAVORED PLANS
MINIMUM DISTRIBUTION OPTION
If you hold the contract under an IRA or other tax favored plan, you can satisfy
the IRS minimum distribution requirements described above (generally,
distribution after age 70 1/2) under the contract without either annuitizing or
"cash surrendering" a portion of the contract. You, as owner of the contract,
can select either a "calculation" or "recalculation" method to determine the
minimum distribution. We will send you a check for the minimum distribution
amount, less any other partial withdrawals that you made during the year. More
information on the mechanics of this calculation is available on request.
PENALTY FOR EARLY WITHDRAWALS
You may owe a 10% penalty tax to the taxable part of distributions received from
an IRA, SEP, SIMPLE-IRA (which may increase to 25%), Roth IRA, TDA or qualified
retirement plan before you attain age 59 1/2. There are only limited exceptions
to this tax, and you should consult your tax adviser for further details.
WITHHOLDING
The Code requires a mandatory 20% federal income tax withholding for certain
distributions from a TDA or qualified retirement plan, unless the distribution
is an eligible rollover contribution that is "directly" rolled into another
qualified plan, IRA (including the IRA variations described above) or TDA. For
all other distributions, unless you elect otherwise, we will withhold federal
income tax from the taxable portion of such distribution at an appropriate
percentage. The rate of withholding on annuity payments where no mandatory
withholding is required is determined on the basis of the withholding
certificate that you file with us. If you do not file a certificate, we will
automatically withhold federal taxes on the following basis:
o For any annuity payments not subject to mandatory withholding, you will
have taxes withheld by us as if you are a married individual, with 3
exemptions; and
o For all other distributions, you will be withheld at a 10% rate.
We will provide you with forms and instructions concerning the right to elect
that no amount be withheld from payments in the ordinary course. However, you
should know that, in any event, you are liable for payment of federal income
taxes on the taxable portion of the distributions, and you should consult with
your tax advisor to find out more information on your potential liability if you
fail to pay such taxes.
ERISA DISCLOSURE/REQUIREMENTS
ERISA (the "Employee Retirement Income Security Act of 1974") and the Code
prevents a fiduciary and other "parties in interest" with respect to a plan
(and, for these purposes, an IRA
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DISCOVERY CHOICE VARIABLE ANNUITY
would also constitute a "plan") from receiving any benefit from any party
dealing with the plan, as a result of the sale of the contract Administrative
exemptions under ERISA generally permit the sale of insurance/annuity products
to plans, provided that certain information is disclosed to the person
purchasing the contract. This information has to do primarily with the fees,
charges, discounts and other costs related to the contract, as well as any
commissions paid to any agent selling the contract.
Information about any applicable fees, charges, discounts, penalties or
adjustments may be found under "What Are the Expenses Associated with the
Discovery Choice Contract" starting on page ___.
Information about sales representatives and commissions may be found under
"Other Information" and "Sale and Distribution of the Contract on page ____."
In addition, other relevant information required by the exemptions is contained
in the contract and accompanying documentation. Please consult your tax advisor
if you have any additional questions.
9. OTHER INFORMATION
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 and therefore is subject to the insurance laws and regulations
of all the jurisdictions where it is licensed to do business. Pruco Life is a
wholly-owned subsidiary of The Prudential Insurance Company of America
(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 publicly traded
stock company through a process known as "demutualization." On February 10,
1998, the Company's Board of Directors authorized management to take the
preliminary steps necessary to allow the Company to demutualize. On July 1,
1998, legislation was enacted in New Jersey that would permit this conversion to
occur and that specified the process for conversion. Demutualization is a
complex process involving development of a plan of reorganization, adoption of a
plan by the Company's Board of Directors, a public hearing, voting by qualified
policyholders and regulatory approval, all of which could take two or more years
to complete. Prudential's management and Board of Directors have not yet
determined to demutualize and it is possible that, after careful review,
Prudential could decide not to go public.
The plan of reorganization, which hasn't been developed and approved, would
provide the criteria for determining eligibility and the methodology for
allocating shares or other consideration to those who would be eligible.
Generally, the amount of shares or other consideration eligible customers would
receive would be based on a number of factors, including the types, amounts and
issue years of their policies. As a general rule, owners of Prudential-issued
insurance policies and annuity contracts would be eligible, while mutual fund
customers and customers of the Company's subsidiaries, such as the Pruco Life
insurance companies, would not be. It has not yet been determined whether any
exceptions to that general rule will be made with respect to policyholders and
contract owners of Prudential's subsidiaries.
THE SEPARATE ACCOUNT
We have established a separate account, the Pruco Life Flexible Premium Variable
Annuity Account (separate account), to hold the assets that are associated with
the contracts. The separate account was established under Arizona law on June
16, 1995, and is registered with the U.S. Securities and Exchange Commission
under the Investment Company Act of 1940, as a unit
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DISCOVERY CHOICE VARIABLE ANNUITY
investment trust, which is a type of investment company. The assets of the
separate account are held in the name of Pruco Life and legally belong to us.
These assets are kept separate from all of our other assets and may not be
charged with liabilities arising out of any other business we may conduct. More
detailed information about Pruco Life, including its audited financial
statements, are provided in the Statement of Additional Information.
SALE AND DISTRIBUTION OF THE CONTRACT
Prudential Investment Management Services LLC ("PIMS"), 751 Broad Street,
Newark, New Jersey 07102-3777, acts as the distributor of the contracts. PIMS is
a wholly-owned subsidiary of Prudential and is a limited liability corporation
organized under Delaware law in 1996. It is a registered broker-dealer under the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. Commissions for the sales of contracts are paid to
Prudential representatives and to other independent broker-dealers who sell the
contracts. Registered representatives of independent broker-dealers may be paid
on a different basis than those affiliated with PIMS. 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 be more
than 1.25% of the purchase payment.
ASSIGNMENT
You can assign the contract at any time during your lifetime. We will not be
bound by the assignment until we receive written notice. We will not be liable
for any payment or other action we take in accordance with the contract if that
action occurs before we receive notice of the assignment. AN ASSIGNMENT, LIKE
ANY OTHER CHANGE IN OWNERSHIP, MAY TRIGGER A TAXABLE EVENT.
If the contract is issued under a qualified plan, there may be limitations on
your ability to assign the contract. For further information please speak to
your representative.
YEAR 2000 COMPLIANCE
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 computer systems.
The services provided to you as a purchaser of Discovery Choice depend on the
smooth functioning of these computer systems. Many computer systems in use today
are programmed to recognize only the last two digits of a date as the year. As a
result, any systems using this kind of programming can not distinguish a date
using "00" and may treat it as 1900 instead of 2000. This problem may impact
computer systems that store business information, but it could also affect other
equipment used in our business such as telephones, fax machines and elevators.
If this problem is not corrected, the "Year 2000" issue could affect the
accuracy and integrity of business records. Prudential's regular business
operations could be interrupted as well as those of other companies that deal
with us.
In addition, the operations of the mutual funds associated with the Discovery
Choice contract could experience problems resulting from the Year 2000 issue.
Please refer to the mutual fund prospectus for information regarding their
approach to Year 2000 concerns.
To address this potential problem Prudential has organized its Year 2000 efforts
around the following three areas:
o Business Applications - Computer programs directly used to support our
business.
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DISCOVERY CHOICE VARIABLE ANNUITY
o Infrastructure - Computers and other business equipment such as telephones
and fax machines.
o Business Partners - Year 2000 readiness of essential business partners.
Business Applications. The business applications component includes a wide range
of computer programs that directly support Prudential's business operations
including applications used for insurance product administration, securities
trading, personnel record keeping and general accounting systems. All business
applications have been analyzed to determine whether each computer program with
a Year 2000 problem should be retired, replaced or renovated. Renovation,
replacement, and retirement of business applications are now substantially
complete. Newly developed or purchased programs are being tested prior to their
use.
Infrastructure. As with business applications, we have established a specific
methodology and process for addressing infrastructure issues. The infrastructure
effort includes mainframe computer system hardware and operating system
software, mid-range systems and servers, telecommunications equipment and
systems, buildings and facilities systems, personal computers and vendor
hardware and software. With the exception of personal computers, which are
scheduled for completion in the third quarter of 1999, infrastructure systems
are substantially complete.
Business Partners. - Early in the Year 2000 program, Prudential recognized the
importance of determining the Year 2000 readiness of external business
relationships, especially those that involve electronic data transfer services
and products that impact our essential business processes. We first classified
each business partner as a "priority" or "non-priority" to our business and then
began to develop risk assessment and contingency plans to address the
possibility that a business partner could experience a Year 2000 failure. All
priority and non-priority business partner relationships have been assessed and
contingency planning is complete. We will continue to assess our risk, review
and update our contingency planning and assess any new business partners until
2000 in an effort to minimize risk.
Prudential believes that its Year 2000 project is substantially on schedule. A
small number of the projects may not meet their targeted completion date but we
expect that these projects will be completed by September, 1999. Should there be
any delays, they will not significantly impact the timing of the project as a
whole.
THE COST OF YEAR 2000 READINESS
Prudential is funding the Year 2000 program from internal operating budgets, and
estimates that its total costs to address the Year 2000 issue will be
approximately $232 million. Because these expenses were part of the operating
budget, they do not impact the management of the Discovery Choice. During the
course of the Year 2000 program, some optional computer projects have been
delayed, but these delays have not had any material effect on Discovery Choice.
YEAR 2000 RISKS AND CONTINGENCY PLANNING
Prudential believes that it is well positioned to lessen the impact of the Year
2000 problem. However, given the nature of this issue, we cannot be 100% certain
of Year 2000 readiness of third parties. As a result, we are unable to determine
at this time whether the consequences of
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DISCOVERY CHOICE VARIABLE ANNUITY
Year 2000 failures may have a material adverse effect on the results of
Prudential's operations, liquidity or financial condition. In the worst case, it
is possible that a Year 2000 technology failure, whether internal or external,
could have a material impact on Prudential's results of operations, liquidity,
or financial position. If Prudential is unable to achieve Year 2000 compliance
on a timely basis, we may have difficulty in responding to your incoming phone
calls, calculating your unit values or processing withdrawals and purchase
payment. It is also possible that the mutual funds associated with Discovery
Choice will be unable to value their securities, in turn creating difficulties
in purchasing or selling shares of the mutual fund and calculating corresponding
unit asset values. The objective of Prudential's Year 2000 program is to reduce
these risks as much as possible.
Most of the operations of Discovery Choice involve such a large number of
individual transactions that they can only be handled with the help of
computers. As a result, our current contingency plans include responses to the
failure of specific business applications or infrastructure components.
Prudential will continue to review and update its contingency plans until 2000
in an effort to reduce the level of uncertainty about the effect of the Year
2000 issue and further minimize risk. Prudential believes that with the
completion of its Year 2000 program as scheduled, the possibility of significant
interruptions of normal operations will be reduced.
FINANCIAL STATEMENTS
The financial statements of the separate account associated with Discovery
Choice are included in the Statement of Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
CONTENTS:
Company
Experts
Litigation
Legal Opinions
Principal Underwriter
Determination of Accumulation Unit Values
Performance Information
Comparative Performance Information
Federal Tax Status
Financial Information
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DISCOVERY CHOICE VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
__________, 1999
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
VARIABLE ANNUITY CONTRACTS
The Discovery Choice 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 Discovery Choice prospectus, dated __________, 1999. To
obtain a copy of the prospectus, without charge, you can write to the Prudential
Annuity Service Center, P.O. Box 14215, New Brunswick, New Jersey 08906, or by
telephoning (888) PRU-2888.
TABLE OF CONTENTS
PAGE
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COMPANY.....................................................................2
EXPERTS.....................................................................2
LITIGATION..................................................................2
LEGAL OPINIONS..............................................................2
PRINCIPAL UNDERWRITER.......................................................2
DETERMINATION OF SUBACCOUNT UNIT VALUES.....................................2
PERFORMANCE INFORMATION.....................................................3
COMPARATIVE PERFORMANCE INFORMATION.........................................5
FEDERAL TAX STATUS..........................................................8
FINANCIAL STATEMENTS .......................................................8
ADDITIONAL FINANCIAL INFORMATION............................................A1
PRUCO LIFE INSURANCE COMPANY PRUDENTIAL ANNUITY SERVICE CENTER
213 WASHINGTON STREET P.O. BOX 14215
NEWARK, NEW JERSEY 07102-2992 NEW BRUNSWICK, NEW JERSEY 08906
TELEPHONE: (888) PRU-2888
SAI-1
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DISCOVERY CHOICE VARIABLE ANNUITY
COMPANY
Pruco Life Insurance Company ("Pruco Life") is a stock life insurance company
organized in 1971 under the laws of the State of Arizona. Pruco Life is licensed
to sell life insurance and annuities in the District of Columbia, Guam and all
states except New York.
Pruco Life is a wholly-owned subsidiary of The Prudential Insurance Company of
America ("Prudential"), a mutual life insurance company founded in 1875 under
the laws of the State of New Jersey.
EXPERTS
The financial statements of the Pruco Life Flexible Premium Variable Annuity
Account as of December 31, 1998 and for each of the two years in the period then
ended and the consolidated financial statements of Pruco Life and its
subsidiaries as of December 31, 1998 and 1997 and for each of the three years in
the period ended December 31, 1998 have been so included in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants given on the
authority of said firm as experts in auditing and accounting.
PricewaterhouseCoopers LLP's principal business address is 1177 Avenue of the
Americas, New York, New York, 10036.
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.
LEGAL OPINIONS
Shea & Gardner of Washington, D.C., has provided advice on certain matters
relating to the federal securities laws in connection with the contracts.
PRINCIPAL UNDERWRITER
Prudential Investment Management Services LLC ("PIMS"),a subsidiary of
Prudential offers the contracts on a continuous basis in those states in which
contracts may be lawfully sold. It may also offer the contract through licensed
insurance brokers and agents, or through appropriately registered direct or
indirect subsidiary(ies) of Prudential, provided clearances to do so are
obtained in any jurisdiction where such clearances may be necessary.
Prudential may pay trail commissions to registered representatives who maintain
an ongoing relationship with a contractholder. Typically, a trail commission is
a compensation that is paid periodically to a representative, the amount of
which is linked to the value of the contract and the amount of time that the
contract has been in effect.
DETERMINATION OF ACCUMULATION UNIT VALUES
The value for each accumulation unit is computed as of the end of each
"valuation period" (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 1.35% or 1.65%
(depending on death benefit option elected) annual charge for administrative
expenses and mortality and expense risks. (See WHAT ARE THE EXPENSES ASSOCIATED
WITH THE DISCOVERY CHOICE VARIABLE ANNUITY and CALCULATING CONTRACT VALUE 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.
SAI-2
<PAGE>
DISCOVERY CHOICE VARIABLE ANNUITY
PERFORMANCE INFORMATION
The tables that follow provide performance information for each subaccount
through June 30, 1999. The performance information is based on historical
experience and does not indicate or represent future performance.
AVERAGE ANNUAL TOTAL RETURN
Although DISCOVERY CHOICE Annuity is a new contract it uses subaccounts that
have been registered with the Securities Exchange Commission for sometime. The
returns shown below were calculated using historical investment returns of the
Funds. All fees, expenses and charges associated with the DISCOVERY CHOICE
Annuity and the Funds have been reflected in these returns, as if the contract
had existed from the initial registration date of the respective subaccounts.
The tables below show the average annual rates of total return on hypothetical
investments of $1,000 for periods ended June 30, 1999 in each subaccount other
than the Money Market Subaccount. These figures reflect all applicable charges.
Table 1 shows the performance assuming that the Basic Death Benefit was elected.
Table 2 shows the performance assuming that the Enhanced Death Benefit was
elected.
TABLE 1
AVERAGE ANNUAL TOTAL RETURN--BASIC DEATH BENEFIT
<TABLE>
<CAPTION>
FIVE TEN FROM SEC
SEC ONE YEAR YEARS YEARS REGISTRATION
FUND REGISTRATION ENDED ENDED ENDED THROUGH
PORTFOLIO DATE 6/30/99 6/30/99 6/30/99 6/30/99
--------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
The Prudential Series Fund
Diversified Bond Portfolio 11/95 -0.49% N/A N/A 3.84%
Diversified Conservative Growth Portfolio 5/99 N/A N/A N/A 0.35%
High Yield Bond Portfolio 11/95 -5.29% N/A N/A 5.61%
Stock Index Portfolio 11/95 20.84% N/A N/A 25.86%
Equity Income Fund 11/95 3.59% N/A N/A 18.31%
Equity Portfolio 11/95 N/A N/A N/A N/A
Prudential Jennison Portfolio 11/95 29.42% N/A N/A 25.64%
Global Portfolio 11/95 13.42% N/A N/A 15.54%
Small Capitalization Stock Portfolio 9/98 N/A N/A N/A 4.47%
20/20 Focus Portfolio 5/99 N/A N/A N/A 5.24%
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth and Income Fund 10/96 26.07% N/A N/A 25.10%
AIM V.I. Value Fund 10/96 26.15% N/A N/A 26.42%
American Century Variable Portfolios, Inc.
American Century VP Value 9/98 N/A N/A N/A 0.19%
Janus Aspen Series
Growth Portfolio 10/96 30.83% N/A N/A 26.23%
International Growth Portfolio 10/96 4.02% N/A N/A 17.51%
MFS Variable Insurance Trust
Emerging Growth Series 10/96 22.79% N/A N/A 21.28%
Research Series 10/96 10.04% N/A N/A 18.18%
OCC Accumulation Trust (Note 2)
Managed Portfolio 10/96 -3.09% N/A N/A 11.85%
Small Cap Portfolio 10/96 -6.83% N/A N/A 5.77%
T. Rowe Price Equity Series, Inc.
Equity Income Portfolio 10/96 6.02% N/A N/A 3.51%
T. Rowe Price International Series, Inc.
International Stock Portfolio 10/96 4.24% N/A N/A 8.28%
Templeton Variable Products Series Fund
Franklin Small Cap Investments Fund - Class 2 9/98 N/A N/A N/A 15.45%
Warburg Pincus Trust
Post-Venture Capital Portfolio 10/96 4.59% N/A N/A 9.03%
</TABLE>
TABLE 2
AVERAGE ANNUAL TOTAL RETURN--ENHANCED DEATH BENEFIT
<TABLE>
<CAPTION>
FIVE TEN FROM SEC
SEC ONE YEAR YEARS YEARS REGISTRATION
FUND REGISTRATION ENDED ENDED ENDED THROUGH
PORTFOLIO DATE 6/30/99 6/30/99 6/30/99 6/30/99
--------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
The Prudential Series Fund
Diversified Bond Portfolio 11/95 -0.79% N/A N/A 3.57%
Diversified Conservative Growth Portfolio 5/99 N/A N/A N/A 0.30%
High Yield Bond Portfolio 11/95 -5.56% N/A N/A 5.34%
Stock Index Portfolio 11/95 20.48% N/A N/A 25.53%
Equity Income Fund 11/95 3.27% N/A N/A 18.00%
Equity Portfolio 11/95 N/A N/A N/A N/A
Prudential Jennison Portfolio 11/95 29.03% N/A N/A 25.30%
Global Portfolio 11/95 13.08% N/A N/A 15.23%
Small Capitalization Stock Portfolio 9/98 N/A N/A N/A 4.32%
20/20 Focus Portfolio 5/99 N/A N/A N/A 5.19%
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth and Income Fund 10/96 25.85% N/A N/A 25.02%
AIM V.I. Value Fund 10/96 25.79% N/A N/A 26.05%
American Century Variable Portfolios, Inc.
American Century VP Value 9/98 N/A N/A N/A 0.06%
Janus Aspen Series
Growth Portfolio 10/96 30.44% N/A N/A 25.86%
International Growth Portfolio 10/96 3.71% N/A N/A 17.17%
MFS Variable Insurance Trust
Emerging Growth Series 10/96 22.42% N/A N/A 20.93%
Research Series 10/96 9.72% N/A N/A 17.83%
OCC Accumulation Trust (Note 2)
Managed Portfolio 10/96 -3.38% N/A N/A 11.52%
Small Cap Portfolio 10/96 -7.10% N/A N/A 5.46%
T. Rowe Price Equity Series, Inc.
Equity Income Portfolio 10/96 5.71% N/A N/A 3.21%
T. Rowe Price International Series, Inc.
International Stock Portfolio 10/96 3.92% N/A N/A 7.96%
Templeton Variable Products Series Fund
Franklin Small Cap Investments Fund - Class 2 9/98 N/A N/A N/A 15.29%
Warburg Pincus Trust
Post-Venture Capital Portfolio 10/96 4.27% N/A N/A 8.70%
</TABLE>
<PAGE>
For each subaccount other than the Money Market Subaccount, Table 3 and 4 below
show the historical average annual rates of total return on hypothetical
investments of $1,000 for periods ended June 30, 1999 based on the inception
date of the Fund rather than the initial registration date of the subaccount.
Table 3 shows performance assuming that the Basic Death Benefit is elected and
Table 4 shows performance assuming that the Enhanced Death Benefit was elected.
TABLE 3
HISTORICAL AVERAGE ANNUAL TOTAL RETURN - BASIC DEATH BENEFIT
<TABLE>
<CAPTION>
FROM DATE
FIVE TEN PORTFOLIO
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 6/30/99 6/30/99 6/30/99 6/30/99
--------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
The Prudential Series Fund
Diversified Bond Portfolio 6/83 -0.54% 6.09% 6.51% 7.54%
Diversified Conservative Growth Portfolio 5/99 N/A N/A N/A 0.34%
High Yield Bond Portfolio 2/87 -5.35% 6.56% 8.00% 6.69%
Stock Index Portfolio 10/87 20.77% 25.59% 14.44% 17.44%
Equity Income Fund 2/88 3.53% 17.33% 13.38% 14.27%
Equity Portfolio 6/83 N/A N/A N/A N/A
Prudential Jennison Portfolio 5/95 29.35% N/A N/A 28.07%
Global Portfolio 9/88 13.36% 13.36% 8.45% 10.29%
Small Capitalization Stock Portfolio 5/95 4.49% N/A N/A 14.65%
20/20 Focus Portfolio 5/99 N/A N/A N/A 5.23%
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth and Income Fund 5/94 26.02% 23.04% N/A 21.64%
AIM V.I. Value Fund 6/93 26.09% 23.67% N/A 20.72%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century VP Value 5/96 10.38% N/A N/A 16.20%
Janus Aspen Series
Growth Portfolio 9/93 30.82% 23.56% N/A 20.44%
International Growth Portfolio 5/94 4.04% 18.98% N/A 17.45%
MFS Variable Insurance Trust
Emerging Growth Series 7/95 22.73% N/A N/A 24.93%
Research Series 7/95 11.38% N/A N/A 20.30%
OCC Accumulation Trust (Note 1)
Managed Portfolio 8/88 1.92% 18.73% 16.57% 17.26%
Small Cap Portfolio 8/88 -6.22% 9.41% 11.69% 11.08%
T. Rowe Price Equity Series, Inc.
Equity Income Portfolio 3/94 13.59% 19.92% N/A 19.20%
T. Rowe Price International Series, Inc.
International Stock Portfolio 3/94 4.19% 8.21% N/A 7.95%
Templeton Variable Products Series Fund
Franklin Small Cap Investments Fund - Class 2 9/98 N/A N/A N/A 18.01%
Warburg Pincus Trust
Post-Venture Capital Portfolio 9/96 4.54% N/A N/A 9.80%
</TABLE>
TABLE 4
HISTORICAL AVERAGE ANNUAL TOTAL RETURN - ENHANCED DEATH BENEFIT
<TABLE>
<CAPTION>
FROM DATE
FIVE TEN PORTFOLIO
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 6/30/99 6/30/99 6/30/99 6/30/99
--------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
The Prudential Series Fund
Diversified Bond Portfolio 6/83 -0.54% 6.66% 6.64% 7.50%
Diversified Conservative Growth Portfolio 5/99 N/A N/A N/A 0.29%
High Yield Bond Portfolio 2/87 -5.35% 6.89% 8.01% 6.63%
Stock Index Portfolio 10/87 20.77% 25.95% 14.43% 17.38%
Equity Income Fund 2/88 3.53% 17.64% 13.36% 14.21%
Equity Portfolio 6/83 N/A N/A N/A N/A
Prudential Jennison Portfolio 5/95 29.35% N/A N/A 27.89%
Global Portfolio 9/88 13.36% 13.61% 8.41% 10.23%
Small Capitalization Stock Portfolio 5/95 4.49% N/A N/A 14.45
20/20 Focus Portfolio 5/99 N/A N/A N/A 5.18
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth and Income Fund 5/94 26.02% 22.77% N/A 21.37%
AIM V.I. Value Fund 6/93 26.09% 23.39% N/A 20.44%
American Century Variable Portfolios, Inc.
American Century VP Value 5/96 10.29% N/A N/A 15.94%
Janus Aspen Series
Growth Portfolio 9/93 30.82% 23.29% N/A 20.16%
International Growth Portfolio 5/94 4.04% 18.72% N/A 17.19%
MFS Variable Insurance Trust
Emerging Growth Series 7/95 22.73% N/A N/A 24.68%
Research Series 7/95 11.38% N/A N/A 20.07%
OCC Accumulation Trust (Note 2)
Managed Portfolio 8/88 1.92% 18.47% 16.27% 16.95%
Small Cap Portfolio 8/88 -6.22% 9.17% 11.40% 10.80%
T. Rowe Price Equity Series, Inc.
Equity Income Portfolio 3/94 13.59% 19.65% N/A 18.93%
T. Rowe Price International Series, Inc.
International Stock Portfolio 3/94 4.19% 7.98% N/A 7.70%
Templeton Variable Products Series Fund
Franklin Small Cap Investments Fund - Class 2 9/98 N/A N/A N/A 18.01%
Warburg Pincus Trust
Post-Venture Capital Portfolio 9/96 4.54% N/A N/A 9.61%
</TABLE>
Note 1: 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.
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.
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 CHOICE Annuity and the Series Fund have been
reflected.
SAI-3
<PAGE>
DISCOVERY CHOICE VARIABLE ANNUITY
The "yield" and "effective yield" of the Money Market Subaccount for the seven
days ended June 30, 1999 were 2.77% and 2.81%, respectively, assuming election
of the Basic Death Benefit. Assuming election of the Enhanced Death Benefit the
"yield" and "effective yield" were 2.53% and 2.56%, 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 1.35% charge for insurance risks
for the Basic Death Benefit and 1.65% for the Enhanced Death Benefit.
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.
FEDERAL TAX STATUS
X. OTHER TAX RULES.
1. DIVERSIFICATION.
The Internal Revenue 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 Statement of Additional Information the Prudential Series Fund. Pruco
Life of New Jersey believes the underlying variable investment options for the
Contract meet these diversification requirements.
2. INVESTOR CONTROL.
Treasury Department regulations do not provide guidance concerning the
extent to which you may direct your investment in the particular investment
options without causing you, instead of Pruco Life of New Jersey, to be
considered the owner of the underlying assets. Because of this uncertainty,
Pruco Life of New Jersey 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 contractowners and will be
made with such notice to affected contractowners as is feasible under the
circumstances.
3. ENTITY OWNERS.
Where a contract is held by a non-natural person (e.g., a corporation),
other than as an agent or nominee for a natural person (or in other limited
circumstances), the contract will not be taxed as an annuity and increases in
the value of the contract will be subject to tax.
4. PURCHASE PAYMENTS MADE BEFORE AUGUST 14, 1982.
If your contract was 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. Generally, withdrawals are treated as a recovery
of your investment in the contract first until purchase payments made before
August 14, 1982 are withdrawn. Moreover, any income allocable to purchase
payments made before August 14, 1982, is not subject to the 10% penalty tax.
5. WITHHOLDING OF TAX FROM DISTRIBUTIONS.
Taxable amounts distributed from annuity contracts are subject to tax
withholding. You may generally elect not to have tax withheld from your
payments. The rate of withholding on annuity payments will be determined on the
basis of the withholding certificate you file with Pruco Life of New Jersey.
These elections must be made on the appropriate Pruco Life of New Jersey forms.
Absent these elections, Pruco Life of New Jersey will withhold the tax amounts
required by the applicable tax regulations. You may be subject to penalties
under the estimated tax payment rules if your withholding and estimated tax
payments are not sufficient.
6. NONRESIDENT ALIENS.
Special tax withholding rules apply to nonresident aliens.
FINANCIAL STATEMENTS
The following financial statements describe the sub-accounts of the Pruco Life
Flexible Premium Variable Annuity Account associated with the Discovery Select
Variable Annuity, another variable annuity contract offered by Pruco Life. This
information is provided because the sub-accounts associated with Discovery
Select are also used by the Discovery Choice variable annuity contract.
Financial information specific to the Discovery Choice variable annuity contract
will be available following the completion of the initial accounting period for
this contract.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
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 The Prudential Series Fund, Inc. Portfolios
and non-Prudential administered funds, at net asset value [Note 3] $240,620,995 $367,706,799 $302,699,998 $405,603,080
------------ ------------ ------------ ------------
Net Assets ............................................................ $240,620,995 $367,706,799 $302,699,998 $405,603,080
============ ============ ============ ============
NET ASSETS, representing:
Equity of contract owners ............................................. $240,620,995 $367,706,799 $302,699,998 $405,603,080
------------ ------------ ------------ ------------
$240,620,995 $367,706,799 $302,699,998 $405,603,080
============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
</TABLE>
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- - - ---------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL AIM V.I. T. ROWE PRICE
STOCK EQUITY GROWTH EQUITY PRUDENTIAL PRUDENTIAL JANUS ASPEN
INDEX INCOME AND INCOME EQUITY JENNISON AIM V.I. GROWTH
PORTFOLIO PORTFOLIO INCOME FUND PORTFOLIO PORTFOLIO PORTFOLIO VALUE FUND PORTFOLIO
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$565,248,472 $467,755,026 $ 96,226,194 $157,792,961 $588,646,085 $495,648,718 $117,874,169 $114,857,708
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$565,248,472 $467,755,026 $ 96,226,194 $157,792,961 $588,646,085 $495,648,718 $117,874,169 $114,857,708
============ ============ ============ ============ ============ ============ ============ ============
$565,248,472 $467,755,026 $ 96,226,194 $157,792,961 $588,646,085 $495,648,718 $117,874,169 $114,857,708
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$565,248,472 $467,755,026 $ 96,226,194 $157,792,961 $588,646,085 $495,648,718 $117,874,169 $114,857,708
============ ============ ============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
</TABLE>
A2
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
SUBACCOUNTS
----------------------------------------------------------
MFS OCC WARBURG PINCUS
MFS EMERGING ACCUMULATION POST-VENTURE
RESEARCH GROWTH TRUST SMALL CAPITAL
SERIES SERIES CAP PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in The Prudential Series Fund, Inc. Portfolios
and non-Prudential administered funds, at net asset value [Note 3] $ 74,840,141 $147,707,864 $ 77,839,114 $ 21,034,529
------------ ------------ ------------ ------------
Net Assets ........................................................... $ 74,840,141 $147,707,864 $ 77,839,114 $ 21,034,529
------------ ------------ ------------ ------------
NET ASSETS, representing:
Equity of contract owners ............................................ $ 74,840,141 $147,707,864 $ 77,839,114 $ 21,034,529
------------ ------------ ------------ ------------
$ 74,840,141 $147,707,864 $ 77,839,114 $ 21,034,529
------------ ------------ ------------ ------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
</TABLE>
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- - - ---------------------------------------------------------------------------------------
PRUDENTIAL
JANUS ASPEN T. ROWE PRICE SMALL
PRUDENTIAL INTERNATIONAL INTERNATIONAL CAPITALIZATION AMERICAN FRANKLIN
GLOBAL GROWTH STOCK STOCK CENTURY SMALL CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO VP VALUE GROWTH FUND
- - - ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 74,581,852 $136,172,457 $ 36,131,667 $ 36,438,134 $ 3,616,481 $ 3,510,676
- - - ------------ ------------ ------------ ------------ ------------ ------------
$ 74,581,852 $136,172,457 $ 36,131,667 $ 36,438,134 $ 3,616,481 $ 3,510,676
- - - ------------ ------------ ------------ ------------ ------------ ------------
$ 74,581,852 $136,172,457 $ 36,131,667 $ 36,438,134 $ 3,616,481 $ 3,510,676
- - - ------------ ------------ ------------ ------------ ------------ ------------
$ 74,581,852 $136,172,457 $ 36,131,667 $ 36,438,134 $ 3,616,481 $ 3,510,676
- - - ------------ ------------ ------------ ------------ ------------ ------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
</TABLE>
A4
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
SUBACCOUNTS
----------------------------------------------------------------
PRUDENTIAL
PRUDENTIAL PRUDENTIAL HIGH YIELD OCC ACCUMULATION
MONEY MARKET DIVERSIFIED BOND BOND TRUST MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income ............................. $ 8,492,659 $ 16,240,647 $ 23,959,782 $ 1,725,460
------------- ------------- ------------- -------------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk and for
administration [Notes 5A and 5B] ........... 2,272,054 3,216,920 3,142,804 4,395,811
------------- ------------- ------------- -------------
NET INVESTMENT INCOME (LOSS) ................. 6,220,605 13,023,727 20,816,978 (2,670,351)
------------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ........ 0 716,977 0 6,952,938
Realized gain (loss) on shares redeemed ..... 0 (6,174) (473,469) (277,190)
Net change in unrealized gain (loss) on
investments ................................ 0 (1,510,869) (34,004,857) 5,676,242
------------- ------------- ------------- -------------
NET GAIN (LOSS) ON INVESTMENTS ............... 0 (800,066) (34,478,326) 12,351,990
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................... $ 6,220,605 $ 12,223,661 $ (13,661,348) $ 9,681,639
============= ============= ============= =============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
</TABLE>
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- - - -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. T. ROWE PRICE
PRUDENTIAL PRUDENTIAL GROWTH EQUITY PRUDENTIAL PRUDENTIAL JANUS ASPEN
STOCK INDEX EQUITY INCOME AND INCOME EQUITY JENNISON AIM V.I. GROWTH
PORTFOLIO PORTFOLIO INCOME FUND PORTFOLIO PORTFOLIO PORTFOLIO VALUE FUND PORTFOLIO
- - - ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 5,157,532 $ 10,935,790 $ 371,162 $ 2,739,616 $ 9,369,624 $ 654,202 $ 533,847 $ 2,693,319
- - - ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
5,342,808 5,344,771 935,304 1,767,667 6,652,511 4,166,876 1,070,958 1,056,688
- - - ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(185,276) 5,591,019 (564,142) 971,949 2,717,113 (3,512,674) (537,111) 1,636,631
- - - ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
8,054,760 25,710,606 916,060 4,669,654 62,992,043 6,752,988 4,721,622 2,162,901
856,268 (231,835) 36,024 34,283 386,861 266,858 68,930 1,707,561
81,282,537 (61,296,933) 16,122,807 2,625,091 (39,567,051) 93,984,005 18,290,373 19,044,323
- - - ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
90,193,565 (35,818,162) 17,074,891 7,329,028 23,811,853 101,003,851 23,080,925 22,914,785
- - - ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 90,008,289 $ (30,227,143) $ 16,510,749 $ 8,300,977 $ 26,528,966 $ 97,491,177 $ 22,543,814 $ 24,551,416
============= ============= ============= ============= ============= ============= ============= =============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A2
A6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
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 income .............................................. $ 82,379 $ 0 $ 170,100 $ 0
----------- ----------- ----------- ----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk and for
administration [Notes 5A and 5B] ............................ 792,525 1,270,095 896,410 220,149
----------- ----------- ----------- ----------
NET INVESTMENT INCOME (LOSS) .................................. (710,146) (1,270,095) (726,310) (220,149)
----------- ----------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received ......................... 1,080,320 638,659 1,857,356 0
Realized gain (loss) on shares redeemed ...................... 101,567 519,956 (185,468) (29,780)
Net change in unrealized gain (loss) on
investments ................................................. 10,224,375 27,427,720 (8,799,441) 1,225,477
----------- ----------- ----------- ----------
NET GAIN (LOSS) ON INVESTMENTS ................................ 11,406,262 28,586,335 (7,127,553) 1,195,697
----------- ----------- ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .................................... $10,696,116 $27,316,240 $(7,853,863) $ 975,548
=========== =========== =========== ==========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
</TABLE>
A7
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------
PRUDENTIAL
JANUS ASPEN T. ROWE PRICE SMALL
PRUDENTIAL INTERNATIONAL INTERNATIONAL CAPITALIZATION AMERICAN FRANKLIN
GLOBAL GROWTH STOCK STOCK CENTURY SMALL CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO VP VALUE* GROWTH FUND*
----------- -------------- ------------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C>
$ 840,087 $ 1,906,886 $ 411,232 $ 178,186 $ 0 $ 0
- - - ----------- ----------- ---------- ----------- --------- --------
788,358 1,531,309 420,639 402,062 6,029 5,958
- - - ----------- ----------- ---------- ----------- --------- --------
51,729 375,577 (9,407) (223,876) (6,029) (5,958)
- - - ----------- ----------- ---------- ----------- --------- --------
3,067,421 277,964 145,141 2,099,444 0 0
343,605 257,344 (5,370) 100,021 (98) 6,735
8,158,029 12,138,102 3,521,094 (1,974,627) 112,247 340,261
- - - ----------- ----------- ---------- ----------- --------- --------
11,569,055 12,673,410 3,660,865 224,838 112,149 346,996
- - - ----------- ----------- ---------- ----------- --------- --------
$11,620,784 $13,048,987 $3,651,458 $ 962 $ 106,120 $341,038
=========== =========== ========== =========== ========= ========
* Commenced operations on September 1, 1998.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
SUBACCOUNTS
------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................................. $ 6,220,605 $ 2,805,861 $ 13,023,727 $ 4,302,210
Capital gains distributions received .......................... 0 0 716,977 990,026
Realized gain (loss) on shares redeemed ....................... 0 0 (6,174) 10,366
Net change in unrealized gain (loss) on investments ........... 0 0 (1,510,869) (1,646,356)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ..................................... 6,220,605 2,805,861 12,223,661 3,656,246
------------ ------------ ------------ ------------
ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS
Contract Owner Net Payments ................................... 222,388,823 156,368,031 221,694,519 90,502,554
Surrenders, Withdrawals and Death Benefits .................... (19,037,371) (3,412,599) (11,972,687) (2,186,522)
Net Transfers From (To) Other Subaccounts or
Fixed Rate Options .......................................... (73,761,433) (87,867,187) 24,535,852 5,316,673
Administrative and Other Charges .............................. (17,990) (1,652) (37,955) (2,460)
------------ ------------ ------------ ------------
TOTAL ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS ..................................... 129,572,029 65,086,593 234,219,729 93,630,245
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [Note 7] .............................. (3,640,779) (380,562) (2,285,665) 196,097
------------ ------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS ................................... 132,151,855 67,511,892 244,157,725 97,482,588
NET ASSETS:
Beginning of year ............................................. 108,469,140 40,957,248 123,549,074 26,066,486
------------ ------------ ------------ ------------
End of year ................................................... $240,620,995 $108,469,140 $367,706,799 $123,549,074
============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
</TABLE>
A9
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- - - ----------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL OCC ACCUMULATION PRUDENTIAL PRUDENTIAL
HIGH YIELD BOND TRUST MANAGED STOCK INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- - - ---------------------------- ---------------------------- -------------------------- ---------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- - - ------------ ------------ ----------- ------------ ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 20,816,978 $ 6,642,685 $ (2,670,351) $ (724,178) $ (185,276) $ 447,691 $ 5,591,019 $ 1,423,200
0 0 6,952,938 630,049 8,054,760 5,729,265 25,710,606 17,500,207
(473,469) 1,679 (277,190) 0 856,268 167,995 (231,835) 6,173
(34,004,857) 725,780 5,676,242 9,040,969 81,282,537 16,247,474 (61,296,933) 3,805,126
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(13,661,348) 7,370,144 9,681,639 8,946,840 90,008,289 22,592,425 (30,227,143) 22,734,706
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
188,630,259 102,025,301 228,513,667 162,688,544 252,590,459 166,375,561 290,496,090 162,528,106
(13,920,895) (3,019,258) (15,187,256) (1,854,703) (18,498,579) (2,434,104) (17,041,887) (3,079,806)
9,082,688 3,069,977 (1,385,568) 4,957,886 20,564,789 10,967,240 2,985,956 11,062,157
(35,661) (2,803) (82,063) (4,307) (78,726) (4,419) (65,773) (1,842)
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
183,756,391 102,073,217 211,858,780 165,787,420 254,577,943 174,904,278 276,374,386 170,508,615
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(2,770,786) (95,489) (3,854,378) 2,586,898 (2,993,998) 945,791 (3,015,564) 2,106,180
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
167,324,257 109,347,872 217,686,041 177,321,158 341,592,234 198,442,494 243,131,679 195,349,501
135,375,741 26,027,869 187,917,039 10,595,881 223,656,238 25,213,744 224,623,347 29,273,846
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$302,699,998 $135,375,741 $405,603,080 $187,917,039 $565,248,472 $223,656,238 $467,755,026 $224,623,347
============ ============ ============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
</TABLE>
A10
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
SUBACCOUNTS
-------------------------------------------------------------
T. ROWE PRICE
AIM V.I. GROWTH AND EQUITY INCOME
INCOME FUND PORTFOLIO
----------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ................................. $ (564,142) $ (254,155) $ 971,949 $ 603,954
Capital gains distributions received ......................... 916,060 30,277 4,669,654 2,449,223
Realized gain (loss) on shares redeemed ...................... 36,024 0 34,283 0
Net change in unrealized gain (loss) on investments .......... 16,122,807 3,379,969 2,625,091 6,442,340
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .................................... 16,510,749 3,156,091 8,300,977 9,495,517
------------ ------------ ------------ ------------
ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS
Contract Owner Net Payments .................................. 39,265,963 32,736,806 65,996,482 65,786,705
Surrenders, Withdrawals and Death Benefits ................... (2,875,990) (444,399) (5,579,801) (953,609)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options ............................................... 1,659,949 2,723,104 1,810,796 6,023,121
Administrative and Other Charges ............................. (15,890) (1,420) (35,415) (3,534)
------------ ------------ ------------ ------------
TOTAL ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS .................................... 38,034,032 35,014,091 62,192,062 70,852,683
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [Note 7] ............................. (460,303) (867,750) (1,320,662) (254,637)
------------ ------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS .................................. 54,084,478 37,302,432 69,172,377 80,093,563
NET ASSETS:
Beginning of year ............................................ 42,141,716 4,839,284 88,620,584 8,527,021
------------ ------------ ------------ ------------
End of year .................................................. $ 96,226,194 $ 42,141,716 $157,792,961 $ 88,620,584
============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
</TABLE>
A11
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- - - ----------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL
EQUITY PRUDENTIAL JENNISON AIM V.I. JANUS ASPEN
PORTFOLIO PORTFOLIO VALUE FUND GROWTH PORTFOLIO
- - - --------------------------- ---------------------------- ---------------------------- ----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- - - ------------ ----------- ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 2,717,113 $ 2,265,319 $ (3,512,674) $ (876,729) $ (537,111) $ 85,702 $ 1,636,631 $ 94,100
62,992,043 15,719,756 6,752,988 8,181,395 4,721,622 1,201,782 2,162,901 385,140
386,861 (636) 266,858 61,502 68,930 0 1,707,561 0
(39,567,051) 13,608,394 93,984,005 9,311,718 18,290,373 1,914,673 19,044,323 3,755,829
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
26,528,966 31,592,833 97,491,177 16,677,886 22,543,814 3,202,157 24,551,416 4,235,069
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
252,668,916 211,729,155 226,450,341 100,500,489 44,708,869 35,933,953 39,709,839 36,890,007
(21,218,983) (6,549,765) (12,706,368) (2,888,488) (2,887,607) (398,379) (3,026,558) (648,814)
2,789,177 11,511,987 28,775,735 9,339,671 6,080,094 4,427,716 4,761,250 3,223,174
(85,832) (5,769) (52,520) (3,558) (18,853) (1,966) (21,890) (2,964)
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
234,153,278 216,685,608 242,467,188 106,948,114 47,882,503 39,961,324 41,422,641 39,461,403
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(4,666,555) 1,258,567 (2,553,663) 906,990 (766,278) 29,418 (1,013,718) (463,780)
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
256,015,689 249,537,008 337,404,702 124,532,990 69,660,039 43,192,899 64,960,339 43,232,692
332,630,396 83,093,388 158,244,016 33,711,026 48,214,130 5,021,231 49,897,369 6,664,677
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$588,646,085 $332,630,396 $495,648,718 $158,244,016 $117,874,169 $ 48,214,130 $114,857,708 $ 49,897,369
============ ============ ============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
</TABLE>
A12
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
SUBACCOUNTS
-----------------------------------------------------------
MFS MFS
RESEARCH SERIES EMERGING GROWTH SERIES
--------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ................................... $ (710,146) $ (267,245) $ (1,270,095) $ (374,272)
Capital gains distributions received ........................... 1,080,320 0 638,659 0
Realized gain (loss) on shares redeemed ........................ 101,567 0 519,956 0
Net change in unrealized gain (loss) on investments ............ 10,224,375 2,822,118 27,427,720 4,899,167
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ...................................... 10,696,116 2,554,873 27,316,240 4,524,895
------------ ------------ ------------ ------------
ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS
Contract Owner Net Payments .................................... 27,881,903 30,075,572 66,934,974 36,979,650
Surrenders, Withdrawals and Death Benefits ..................... (2,149,211) (346,563) (3,655,122) (698,867)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options ................................................. 201,719 3,170,198 5,933,717 4,845,890
Administrative and Other Charges ............................... (16,202) (1,367) (22,762) (2,474)
------------ ------------ ------------ ------------
TOTAL ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS ...................................... 25,918,209 32,897,840 69,190,807 41,124,199
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [Note 7] ............................... (751,189) (293,596) (629,650) (1,293,928)
------------ ------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS .................................... 35,863,136 35,159,117 95,877,397 44,355,166
NET ASSETS:
Beginning of year .............................................. 38,977,005 3,817,888 51,830,467 7,475,301
------------ ------------ ------------ ------------
End of year .................................................... $ 74,840,141 $ 38,977,005 $147,707,864 $ 51,830,467
============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
</TABLE>
A13
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- - - ----------------------------------------------------------------------------------------------------------------------------
WARBURG PINCUS PRUDENTIAL JANUS ASPEN
OCC ACCUMULATION TRUST POST-VENTURE CAPITAL GLOBAL INTERNATIONAL GROWTH
SMALL CAP PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- - - --------------------------- ----------------------------- ---------------------------- ----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- - - ------------ ------------ ------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (726,310) $ (214,268) $ (220,149) $ (92,331) $ 51,729 $ 24,842 $ 375,577 $ (263,074)
1,857,356 240,648 0 0 3,067,421 1,856,846 277,964 55,201
(185,468) 0 (29,780) 0 343,605 46,693 257,344 0
(8,799,441) 2,483,382 1,225,477 957,631 8,158,029 (1,676,026) 12,138,102 3,119,708
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(7,853,863) 2,509,762 975,548 865,300 11,620,784 252,355 13,048,987 2,911,835
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
40,824,682 37,166,379 7,812,255 8,798,742 25,232,854 25,739,457 46,761,121 64,694,757
(2,179,774) (282,900) (716,362) (168,156) (2,991,488) (977,710) (5,140,181) (852,419)
1,029,950 4,096,988 1,132,477 626,737 (807,455) 2,346,713 3,054,726 5,472,805
(17,090) (1,377) (4,532) (819) (9,953) (768) (32,754) (3,062)
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
39,657,768 40,979,090 8,223,838 9,256,504 21,423,958 27,107,692 44,642,912 69,312,081
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(810,379) (212,483) (230,776) (234,500) (770,307) 96,919 (1,490,800) 694,838
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
30,993,526 43,276,369 8,968,610 9,887,304 32,274,435 27,456,966 56,201,099 72,918,754
46,845,588 3,569,219 12,065,919 2,178,615 42,307,417 14,850,451 79,971,358 7,052,604
- - - ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 77,839,114 $ 46,845,588 $ 21,034,529 $ 12,065,919 $ 74,581,852 $ 42,307,417 $136,172,457 $ 79,971,358
============ ============ ============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
</TABLE>
A14
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
SUBACCOUNTS
-----------------------------------------------------------
PRUDENTIAL SMALL
T. ROWE PRICE CAPITALIZATION
INTERNATIONAL STOCK STOCK
PORTFOLIO PORTFOLIO
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ................................... $ (9,407) $ 31,737 $ (223,876) $ (142,506)
Capital gains distributions received ........................... 145,141 303,300 2,099,444 1,817,976
Realized gain (loss) on shares redeemed ........................ (5,370) (76) 100,021 73,418
Net change in unrealized gain (loss) on investments ............ 3,521,094 (843,846) (1,974,627) 2,438,918
----------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ...................................... 3,651,458 (508,885) 962 4,187,806
----------- ------------ ----------- -----------
ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS
Contract Owner Net Payments .................................... 11,193,741 19,034,012 9,070,074 8,093,205
Surrenders, Withdraws and Death Benefits ....................... (1,426,032) (249,325) (1,481,001) (837,394)
Net Transfers From (To) Other Subaccounts or Fixed
Rate Options ................................................. (546,402) 1,931,123 2.431,672 1,971,426
Administrative and Other Changes ............................... (9,049) (970) (24) 0
----------- ------------ ----------- -----------
TOTAL ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS ...................................... 9,212,258 20,714,840 10,020,721 9,227,237
----------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [Note 7] ............................... (444,980) (309,483) (2,337) (368,443)
----------- ------------ ----------- -----------
TOTAL INCREASE IN NET ASSETS .................................... 12,418,736 19,896,472 10,019,346 13,046,600
NET ASSETS:
Beginning of year .............................................. 23,712,931 3,816,459 26,418,788 13,372,188
----------- ------------ ----------- -----------
End of year .................................................... $36,131,667 $ 23,712,931 $36,438,134 $26,418,788
=========== ============ =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
</TABLE>
A15
<PAGE>
SUBACCOUNTS (CONTINUED)
--------------------------------------------
AMERICAN FRANKLIN
CENTURY SMALL CAP
VP VALUE* GROWTH FUND*
------------ ------------
1998 1998
------------ ------------
$ (6,029) $ (5,958)
0 0
(98) 6,735
112,247 340,261
----------- -----------
106,120 341,038
----------- -----------
2,778,442 2,545,887
(8,361) (4,069)
740,969 630,269
(8) (9)
----------- -----------
3,511,042 3,172,078
----------- -----------
(681) (2,440)
----------- -----------
3,616,481 3,510,676
0 0
----------- -----------
$ 3,616,481 $ 3,510,676
=========== ===========
* Commenced operations on September 1, 1998.
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A16
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
DECEMBER 31, 1998
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. The Account is a funding vehicle
for individual variable annuity contracts. There are twenty-five
subaccounts within the Account. Discovery Select contracts offer the
option to invest in twenty-two 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.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The accompanying 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 the
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 the
non-Prudential administered funds and are recorded on the ex-dividend
date.
A17
<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 (rounded) for each portfolio of the
Series Fund or the non-Prudential administered variable funds, the
number of shares of each portfolio held by the Discovery Select
Variable Annuity subaccounts and the aggregate cost of investments in
such shares at December 31, 1998 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: 24,062,099 33,243,029 41,995,588 9,273,047 14,977,437
Net asset value per share (rounded): $ 10.00 $ 11.06 $ 7.21 $ 43.74 $ 37.74
Cost: $240,620,995 $371,095,017 $336,568,646 $390,840,988 $467,189,155
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
PRUDENTIAL AIM V.I. T. ROWE PRICE
EQUITY GROWTH & EQUITY PRUDENTIAL PRUDENTIAL
INCOME INCOME INCOME EQUITY JENNISON
PORTFOLIO FUND PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of shares: 23,349,785 4,051,629 8,197,037 19,861,999 20,732,489
Net asset value per share (rounded): $ 20.03 $ 23.75 $ 19.25 $ 29.64 $ 23.91
Cost: $523,723,723 $ 76,734,586 $ 148,753,130 $615,609,219 $390,603,823
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>
Number of shares: 4,490,445 4,879,257 3,928,616 6,879,733 3,369,659
Net asset value per share (rounded): $ 26.25 $ 23.54 $ 19.05 $ 21.47 $ 23.10
Cost: $97,743,585 $ 92,066,013 $ 61,848,000 $115,588,827 $ 84,090,953
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
PRUDENTIAL
WARBURG PINCUS JANUS ASPEN T. ROWE PRICE SMALL
POST-VENTURE PRUDENTIAL INTERNATIONAL INTERNATIONAL CAPITALIZATION
CAPITAL GLOBAL GROWTH STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Number of shares: 1,779,571 3,525,180 6,402,090 2,488,407 2,476,995
Net asset value per share (rounded): $ 11.82 $ 21.16 $ 21.27 $ 14.52 $ 14.71
Cost: $18,840,806 $ 67,303,672 $120,801,960 $ 33,422,226 $ 35,155,365
SUBACCOUNTS (CONTINUED)
----------------------------
AMERICAN FRANKLIN
CENTURY SMALL CAP
VP VALUE GROWTH FUND
------------ -----------
<S> <C> <C>
Number of shares: 537,367 380,355
Net asset value per share (rounded): $ 6.73 $ 9.23
Cost: $ 3,504,234 $ 3,170,415
</TABLE>
A18
<PAGE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units, unit values and total value of
contract owner equity at December 31, 1998 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 Units Outstanding
(Discovery Preferred) ............... 16,875,120 27,227,803 21,653,103 N/A 37,972,661
Unit Value (Discovery Preferred) ..... $ 1.12985 $ 1.19977 $ 1.21296 N/A $ 1.88540
------------ ------------ ------------ ------------ ------------
Contract Owner Equity
(Discovery Preferred) ............... $ 19,066,355 $ 32,667,101 $ 26,264,348 N/A $ 71,593,654
------------ ------------ ------------ ------------ ------------
Contract Owner Units Outstanding
(Discovery Select) .................. 196,092,083 279,253,272 227,901,703 302,639,179 261,830,285
Unit Value (Discovery Select) ........ $ 1.12985 $ 1.19977 $ 1.21296 $ 1.34022 $ 1.88540
------------ ------------ ------------ ------------ ------------
Contract Owner Equity
(Discovery Select) .................. $221,554,640 $335,039,698 $276,435,650 $405,603,080 $493,654,818
------------ ------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY .......... $240,620,995 $367,706,799 $302,699,998 $405,603,080 $565,248,472
============ ============ ============ ============ ============
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------
AIM V.I. T.ROWE PRICE
PRUDENTIAL GROWTH & EQUITY PRUDENTIAL PRUDENTIAL
EQUITY INCOME INCOME INCOME EQUITY JENNISON
PORTFOLIO FUND PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Discovery Preferred) ............. 37,673,379 N/A N/A 87,093,573 37,478,162
Unit Value (Discovery Preferred) ... $ 1.59960 N/A N/A $ 1.60144 $ 2.00651
------------ ------------ ------------ ------------ ------------
Contract Owner Equity
(Discovery Preferred) ............. $ 60,262,337 N/A N/A $139,475,131 $ 75,200,307
------------ ------------ ------------ ------------ ------------
Contract Owner Units Outstanding
(Discovery Select) ................ 254,746,617 59,407,686 110,131,397 280,479,415 209,542,146
Unit Value (Discovery Select) ...... $ 1.59960 $ 1.61976 $ 1.43277 $ 1.60144 $ 2.00651
------------ ------------ ------------ ------------ ------------
Contract Owner Equity
(Discovery Select) ................ $407,492,689 $ 96,226,194 $157,792,961 $449,170,954 $420,448,411
------------ ------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY ........ $467,755,026 $ 96,226,194 $157,792,961 $588,646,085 $495,648,718
============ ============ ============ ============ ============
<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) ................ 70,530,542 70,344,877 50,551,268 96,930,075 68,479,356
Unit Value (Discovery Select) ...... $ 1.67125 $ 1.63278 $ 1.48048 $ 1.52386 $ 1.13668
------------ ------------ ----------- ------------ -----------
Contract Owner Equity
(Discovery Select) ................ $117,874,169 $114,857,708 $74,840,141 $147,707,864 $77,839,114
------------ ------------ ----------- ------------ -----------
TOTAL CONTRACT OWNER EQUITY ........ $117,874,169 $114,857,708 $74,840,141 $147,707,864 $77,839,114
============ ============ =========== ============ ===========
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
PRUDENTIAL
WARBURG PINCUS T. ROWE PRICE SMALL
POST-VENTURE PRUDENTIAL JANUS ASPEN INTERNATIONAL CAPITALIZATION
CAPITAL GLOBAL INTERNATIONAL STOCK STOCK
PORTFOLIO PORTFOLIO GROWTH PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------ ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Discovery Preferred) ............. N/A 13,058,602 N/A N/A 18,713,705
Unit Value (Discovery Preferred) ... N/A $ 1.55516 N/A N/A $ 1.48176
----------- ----------- ------------ ----------- -----------
Contract Owner Equity
(Discovery Preferred) ............. N/A $20,308,215 N/A N/A $27,729,220
----------- ----------- ------------ ----------- -----------
Contract Owner Units Outstanding
(Discovery Select) ................ 18,712,329 34,899,069 95,669,051 29,923,449 6,947,511
Unit Value (Discovery Select) ...... $ 1.12410 $ 1.55516 $ 1.42337 $ 1.20747 $ 1.25353
----------- ----------- ------------ ----------- -----------
Contract Owner Equity
(Discovery Select) ................ $21,034,529 $54,273,637 $136,172,457 $36,131,667 $ 8,708,914
----------- ----------- ------------ ----------- -----------
TOTAL CONTRACT OWNER EQUITY ........ $21,034,529 $74,581,852 $136,172,457 $36,131,667 $36,438,134
=========== =========== ============ =========== ===========
</TABLE>
A19
<PAGE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION (CONTINUED)
SUBACCOUNTS (CONTINUED)
----------------------------
AMERICAN FRANKLIN
CENTURY SMALL CAP
VP VALUE GROWTH FUND
----------- -----------
Contract Owner Units Outstanding
(Discovery Preferred) ............. N/A N/A
Unit Value (Discovery Preferred) ... N/A N/A
---------- ----------
Contract Owner Equity
(Discovery Preferred) ............. N/A N/A
---------- ----------
Contract Owner Units Outstanding
(Discovery Select) ................ 3,082,973 2,820,341
Unit Value (Discovery Select) ...... $ 1.17305 $ 1.24477
---------- ----------
Contract Owner Equity
(Discovery Select) ................ $3,616,481 $3,510,676
---------- ----------
TOTAL CONTRACT OWNER EQUITY ........ $3,616,481 $3,510,676
========== ==========
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 related charges by Pruco Life.
B. Administration Charges
The administration charges 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.
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.
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 Prudential'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.
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE ACCOUNT
The increase (decrease) in net assets retained in the account
represents the net contributions (withdrawals) of Pruco Life to (from)
the Account. Effective October 13, 1998, Pruco Life no longer
maintains a position in the account. Previously, Pruco Life maintained
a position in the Account for liquidity purposes including unit
purchases and redemptions, fund share transactions and expense
processing.
A20
<PAGE>
NOTE 8: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) for the
years ended December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED HIGH YIELD
MARKET BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------ ---------------------------- --------------------------
1998 1997 1998 1997 1998 1997
----------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 331,650,231 65,831,879 237,118,644 86,785,365 184,723,455 87,620,836
Contract Owner Redemptions: (215,127,759) (4,748,606) (37,463,915) (2,529,033) (40,262,125) (2,939,880)
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------
OCC
ACCUMULATION PRUDENTIAL PRUDENTIAL
TRUST MANAGED STOCK INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------ ---------------------------- --------------------------
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 191,632,041 138,319,187 191,146,233 130,289,810 197,270,485 113,122,809
Contract Owner Redemptions: (33,777,164) (2,176,073) (39,441,955) (2,545,104) (37,833,640) (2,711,090)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------
AIM V.I. T. ROWE PRICE
GROWTH & EQUITY PRUDENTIAL
INCOME INCOME EQUITY
FUND PORTFOLIO PORTFOLIO
------------------------ ---------------------------- ---------------------------
1998 1997 1998 1997 1998 1997
----------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 33,393,776 29,512,407 59,351,080 59,990,905 187,580,463 160,533,737
Contract Owner Redemptions: (6,352,042) (553,113) (14,700,797) (1,088,511) (40,618,482) (5,825,560)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------
PRUDENTIAL AIM V.I. JANUS ASPEN SERIES
JENNISON VALUE GROWTH
PORTFOLIO FUND PORTFOLIO
------------------------ --------------------------- --------------------------
1998 1997 1998 1997 1998 1997
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 169,816,396 79,878,499 42,370,683 33,600,344 38,586,915 35,742,383
Contract Owner Redemptions: (27,814,479) (2,874,851) (8,849,926) (624,550) (8,478,173) (965,117)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------
MFS OCC
MFS EMERGING ACCUMULATION
RESEARCH GROWTH TRUST SMALL CAP
SERIES SERIES PORTFOLIO
------------------------ ---------------------------- --------------------------
1998 1997 1998 1997 1998 1997
----------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 25,587,443 29,135,886 65,462,962 39,702,100 42,145,368 34,338,760
Contract Owner Redemptions: (6,445,798) (449,033) (12,875,587) (1,114,281) (9,942,999) (407,189)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------
WARBURG PINCUS
POST-VENTURE PRUDENTIAL JANUS ASPEN
CAPITAL GLOBAL INTERNATIONAL
PORTFOLIO PORTFOLIO GROWTH PORTFOLIO
------------------------ --------------------------- ---------------------------
1998 1997 1998 1997 1998 1997
----------- --------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 9,699,611 9,575,258 22,311,044 22,201,105 46,728,091 58,792,020
Contract Owner Redemptions: (2,027,125) (320,553) (7,301,735) (1,082,051) (14,796,532) (948,109)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------
PRUDENTIAL
T. ROWE PRICE SMALL
INTERNATIONAL CAPITALIZATION AMERICAN FRANKLIN
STOCK STOCK CENTURY SMALL CAP
PORTFOLIO PORTFOLIO VP VALUE* GROWTH FUND*
------------------------ ------------------------ ---------- ------------
1998 1997 1998 1997 1998 1998
----------- ---------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner Contributions: 12,732,340 19,626,822 11,437,423 7,528,116 3,106,101 2,877,726
Contract Owner Redemptions: (4,847,940) (538,233) (3,224,486) (669,603) (23,128) (57,385)
</TABLE>
* Commenced operations on September 1, 1998.
A21
<PAGE>
NOTE 9: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of
investments in the Series Fund and the non-Prudential administered
funds for the year ended December 31, 1998 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>
Purchases ......................... $164,993,546 $231,918,762 $183,495,337 $206,903,908 $254,552,253
Sales ............................. $(41,334,350) $ (3,201,618) $ (5,652,537) $ (3,295,316) $ (8,311,116)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------
AIM V.I. T. ROWE PRICE
PRUDENTIAL GROWTH & EQUITY PRUDENTIAL PRUDENTIAL
EQUITY INCOME INCOME INCOME EQUITY JENNISON
PORTFOLIO FUND PORTFOLIO PORTFOLIO PORTFOLIO
------------- ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Purchases ......................... $274,968,092 $37,570,755 $61,202,619 $235,180,873 $242,388,704
Sales ............................. $ (6,954,040) $ (932,330) $(2,098,886) $(12,346,660) $ (6,642,052)
<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>
Purchases ......................... $ 47,616,743 $ 52,440,779 $25,931,545 $73,599,825 $38,874,634
Sales ............................. $ (1,571,476) $(13,088,543) $(1,557,051) $(6,308,763) $ (923,655)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------
PRUDENTIAL
WARBURG PINCUS T. ROWE PRICE SMALL
POST-VENTURE PRUDENTIAL JANUS ASPEN INTERNATIONAL CAPITALIZATION
CAPITAL GLOBAL INTERNATIONAL STOCK STOCK
PORTFOLIO PORTFOLIO GROWTH PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ---------- ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Purchases ......................... $7,989,459 $23,709,931 $45,885,779 $9,313,473 $12,366,314
Sales ............................. $ (216,545) $(3,844,639) $(4,264,976) $ (966,833) $(2,564,756)
</TABLE>
SUBACCOUNTS (CONTINUED)
----------------------------
AMERICAN FRANKLIN
CENTURY SMALL CAP
VP VALUE GROWTH FUND
----------- ------------
Purchases ......................... $3,508,437 $3,260,513
Sales ............................. $ (4,000) $ (96,786)
A22
<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
Portfolio, Prudential Diversified Bond Portfolio, Prudential High Yield Bond
Portfolio, OCC Accumulation Trust Managed Portfolio, Prudential Stock Index
Portfolio, Prudential Equity Income Portfolio, AIM V.I. Growth and Income Fund,
T. Rowe Price Equity Income Portfolio, Prudential Equity Portfolio, Prudential
Jennison 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, Prudential Global
Portfolio, Janus Aspen International Growth Portfolio, T. Rowe Price
International Stock Portfolio, Prudential Small Capitalization Stock Portfolio,
American Century VP Value and Franklin Small Cap Growth Fund of the Discovery
Select Variable Annuity Subaccounts of Pruco Life Flexible Premium Variable
Annuity Account at December 31, 1998, the results of each of their operations
for the year then ended (for the period September 1, 1998 through December 31,
1998 for American Century VP Value and Franklin Small Cap Growth Fund) and the
changes in each of their net assets for each of the two years in the period then
ended, (for the period September 1, 1998 through December 31, 1998 for American
Century VP Value and Franklin Small Cap Growth Fund), 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, 1998,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 19, 1999
A23
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY
AND SUBSIDIARIES
<TABLE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Financial Position
December 31, 1998 and 1997 (In Thousands)
- - - --------------------------------------------------------------------------------
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1998: $2,738,654;
1997: $2,526,554) $ 2,763,926 $ 2,563,852
Held to maturity, at amortized cost (fair value, 1998: $421,845; 1997:
$350,056) 410,558 338,848
Equity securities - available for sale, at fair value (cost, 1998: $2,951; 2,847 1,982
1997: $1,289)
Mortgage loans on real estate 17,354 22,787
Policy loans 766,917 703,955
Short-term investments 240,727 316,355
Other long-term investments 1,047 1,317
------------ ------------
Total investments 4,203,376 3,949,096
Cash 89,679 71,358
Deferred policy acquisition costs 861,713 655,242
Accrued investment income 61,114 67,000
Other assets 65,145 86,692
Separate Account assets 11,531,754 8,022,079
------------ ------------
TOTAL ASSETS $ 16,812,781 $ 12,851,467
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 2,696,191 $ 2,380,460
Future policy benefits and other policyholder liabilities 534,599 472,460
Cash collateral for loaned securities 73,336 143,421
Securities sold under agreement to repurchase 49,708 --
Income taxes payable 44,524 71,703
Net deferred income tax liability 148,834 138,483
Payable to affiliate 66,568 70,375
Other liabilities 55,038 120,260
Separate Account liabilities 11,490,751 7,948,788
------------ ------------
Total liabilities 15,159,549 11,345,950
------------ ------------
Contingencies (See Note 11)
Stockholder's Equity
Common stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
December 31, 1998 and 1997 2,500 2,500
Paid-in-capital 439,582 439,582
Retained earnings 1,202,833 1,050,871
Accumulated other comprehensive income
Net unrealized investment gains 9,902 17,129
Foreign currency translation adjustments (1,585) (4,565)
------------ ------------
Accumulated other comprehensive income 8,317 12,564
------------ ------------
Total stockholder's equity 1,653,232 1,505,517
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 16,812,781 $ 12,851,467
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
B-1
<PAGE>
<TABLE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31, 1998, 1997 and 1996 (In Thousands)
- - - --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
--------- --------- ---------
REVENUES
<S> <C> <C> <C>
Premiums $ 57,467 $ 49,496 $ 51,525
Policy charges and fee income 364,719 330,292 324,976
Net investment income 261,430 259,634 247,328
Realized investment gains, net 44,841 10,974 10,835
Other income 41,267 33,801 20,818
--------- --------- ---------
Total revenues 769,724 684,197 655,482
--------- --------- ---------
BENEFITS AND EXPENSES
Policyholders' benefits 186,527 179,419 186,873
Interest credited to policyholders' account balances 118,935 110,815 118,246
General, administrative and other expenses 228,067 225,721 122,006
--------- --------- ---------
Total benefits and expenses 533,529 515,955 427,125
--------- --------- ---------
Income from operations before income taxes 236,195 168,242 228,357
--------- --------- ---------
Income taxes
Current 69,768 73,326 60,196
Deferred 14,465 (11,458) 18,939
--------- --------- ---------
Total income taxes 84,233 61,868 79,135
--------- --------- ---------
NET INCOME 151,962 106,374 149,222
--------- --------- ---------
Other comprehensive income, net of tax:
Unrealized gains on securities, net of
reclassification adjustment (7,227) 3,025 (17,952)
Foreign currency translation adjustments 2,980 (2,863) (482)
--------- --------- ---------
Other comprehensive income (4,247) 162 (18,434)
--------- --------- ---------
TOTAL COMPREHENSIVE INCOME $ 147,715 $ 106,536 $ 130,788
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
B-2
<PAGE>
<TABLE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years Ended December 31, 1998, 1997, and 1996 (In Thousands)
- - - --------------------------------------------------------------------------------
<CAPTION>
Accumulated
other Total
Common Paid-in- Retained comprehensive stockholder's
stock capital earnings income equity
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $ 2,500 $ 439,582 $ 795,275 $ 30,836 $ 1,268,193
Net income -- -- 149,222 -- 149,222
Change in foreign currency
translation adjustments -- -- -- (482) (482)
Change in net unrealized
investment gains, net of
reclassification adjustment -- -- -- (17,952) (17,952)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 2,500 439,582 944,497 12,402 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, net of
reclassification adjustment -- -- -- 3,025 3,025
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 2,500 439,582 1,050,871 12,564 1,505,517
Net income -- -- 151,962 -- 151,962
Change in foreign currency
translation adjustments -- -- -- 2,980 2,980
Change in net unrealized
investment gains, net of
reclassification adjustment -- -- -- (7,227) (7,227)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 $ 2,500 $ 439,582 $ 1,202,833 $ 8,317 $ 1,653,232
=========== =========== =========== =========== ============
</TABLE>
See Notes to Consolidated Financial Statements
B-3
<PAGE>
<TABLE>
Pruco Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997, and 1996 (In Thousands)
- - - --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 151,962 $ 106,374 $ 149,222
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Policy charges and fee income (47,230) (40,783) (50,286)
Interest credited to policyholders' account balances 118,935 110,815 118,246
Realized investment gains, net (44,841) (10,974) (10,835)
Amortization and other non-cash items 18,611 (31,181) 29,334
Change in:
Future policy benefits and other policyholders' liabilities 62,139 39,683 54,176
Accrued investment income 5,886 (4,890) (2,248)
Separate Accounts 32,288 (13,894) (38,025)
Payable to affiliate (3,807) 20,547 16,519
Policy loans (62,962) (64,173) (70,509)
Deferred policy acquisition costs (206,471) (22,083) (66,183)
Income taxes payable (27,179) 78,894 (816)
Deferred income tax liability 10,351 (10,477) 7,912
Other, net (43,675) 34,577 7,814
----------- ----------- -----------
Cash Flows (Used In) From Operating Activities (35,993) 192,435 144,321
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 5,429,396 2,828,665 3,886,254
Held to maturity 74,767 138,626 138,127
Equity securities 4,101 6,939 7,527
Mortgage loans on real estate 5,433 24,925 19,226
Other long-term investments 1,140 3,276 288
Investment real estate -- -- 4,488
Payments for the purchase of:
Fixed maturities:
Available for sale (5,617,208) (3,141,785) (4,008,810)
Held to maturity (145,919) (70,532) (114,494)
Equity securities (2,274) (4,594) (4,697)
Other long-term investments (409) (51) (657)
Cash collateral for loaned securities, net (70,085) 143,421 -
Securities sold under agreement to repurchase, net 49,708 - -
Short-term investments, net 75,771 (147,030) 58,186
----------- ----------- -----------
Cash Flows Used In Investing Activities (195,579) (218,140) (14,562)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 3,098,721 2,099,600 536,370
Withdrawals (2,848,828) (2,076,303) (633,798)
----------- ----------- -----------
Cash Flows From (Used in) Financing Activities 249,893 23,297 (97,428)
----------- ----------- -----------
Net increase (decrease) in Cash 18,321 (2,408) 32,331
Cash, beginning of year 71,358 73,766 41,435
----------- ----------- -----------
CASH, END OF PERIOD $ 89,679 $ 71,358 $ 73,766
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid (received) $ 99,810 $ (7,904) $ 61,760
=========== =========== ===========
</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 annuities, fixed
annuities, and a group annuity program (the Contracts) in all states and
territories except the District of Columbia and Guam. In addition, the Company
markets individual life insurance through its branch office in Taiwan. The
Company has two wholly owned 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 licensed to sell individual life insurance, variable life
insurance, fixed annuities, and variable 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 1997
or 1998 and at this time will not be issuing new business.
The Company is a wholly owned subsidiary of The Prudential Insurance Company of
America (Prudential), a mutual insurance company founded in 1875 under the laws
of the state of New Jersey. Prudential intends to make additional capital
contributions to the Company, as needed, to enable it to comply with its reserve
requirements and fund expenses in connection with its business. Generally,
Prudential is under no obligation to make such contributions and its assets do
not back the benefits payable under the Contracts.
The Company is engaged in a business that is highly competitive because of the
large number of stock and mutual life insurance companies and other entities
engaged in marketing insurance products, and individual and group annuities.
There are approximately 1,620 stock, mutual and other types of insurers in the
life insurance business in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
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 intent and ability to
hold to maturity are stated at amortized cost and classified as "held to
maturity". The amortized cost of fixed maturities is written down to estimated
fair value if a decline in value is considered to be other than temporary.
Unrealized gains and losses on fixed maturities "available for sale", including
the effect on deferred policy acquisition costs and participating annuity
contracts that would result from the realization of unrealized gains and losses,
net of income taxes, are included in a separate component of equity,
"Accumulated other comprehensive income."
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 effects on deferred policy acquisition
costs and on participating annuity contracts that would result from the
realization of unrealized gains and losses, are included in a separate component
of equity, "Accumulated other comprehensive income."
Mortgage loans on real estate are stated primarily at unpaid principal balances,
net of unamortized discounts and allowance for losses. The allowance for losses
is based upon a loan specific review and management's consideration of past
results, current trends, the estimated value of the underlying collateral,
composition of the loan portfolio, current economic conditions and other
relevant factors. Impaired loans are identified by management as loans in which
a probability exists that all amounts due according to the contractual terms of
the loan agreement will not be collected.
B-5
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impaired loans are measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate, or the fair value of the
collateral if the loan is collateral dependent.
Interest received on impaired loans, including loans that were previously
modified in a troubled debt restructuring, is either applied against the
principal or reported as revenue, according to management's judgment as to the
collectibility of principal. Management discontinues the accrual of interest on
impaired loans after the loans are 90 days delinquent as to principal or
interest, or earlier when management has serious doubts about collectibility.
When a loan is recognized as impaired, any accrued but unpaid interest
previously recorded on such loan is reversed against interest income of the
current period. Generally, a loan is restored to accrual status only after all
delinquent interest and principal are brought current and, in the case of loans
where interest has been interrupted for a substantial period, a regular payment
performance has been established.
Policy loans are carried at unpaid principal balances.
Short-term investments, consists primarily of highly liquid debt instruments
purchased with an original maturity of twelve months or less and 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 that they 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 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 "Accumulated other
comprehensive income."
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. For
participating life insurance, deferred policy acquisition costs are amortized
over the expected life of the contracts in proportion to estimated gross margins
based on historical and anticipated future experience, which is updated
periodically. 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.
Securities loaned
Securities loaned are treated as financing arrangements and 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 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.
B-6
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are treated as financing
arrangements and are carried at the amounts at which the securities will be
subsequently reacquired, including accrued interest, as specified in the
respective agreements. The Company's policy is to take possession of securities
purchased under agreements to resell. The market value of securities to be
repurchased is monitored and additional collateral is requested, where
appropriate, to protect against credit exposure.
Securities lending and securities repurchase agreements are used to generate net
investment income and facilitate trading activity. These instruments are
short-term in nature (usually 30 days or less). Securities loaned are
collateralized principally by U.S. Government and mortgage-backed securities.
Securities sold under repurchase agreements are collateralized principally by
cash. 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 and
other customers. Separate Account assets include 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 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.
Insurance Revenue and Expense Recognition
Premiums from insurance policies are generally recognized when due. Benefits are
recorded as an expense when they are incurred. For traditional life insurance
contracts, a liability for future policy benefits is recorded using the net
level premium method. For individual annuities in payout status, a liability for
future policy benefits is recorded for the present value of expected future
payments based on historical experience.
Premiums from non-participating group annuities with life contingencies are
generally recognized when due. For single premium immediate annuities, premiums
are recognized when due with any excess profit deferred and recognized in a
constant relationship to insurance in-force or, for annuities, the amount of
expected future benefit payments.
Amounts received as payment for interest-sensitive life, individual annuities,
and guaranteed investment contracts are reported as deposits to "Policyholders'
account balances." Revenues from these contracts reflected as "Policy charges
and fee income" consist primarily of fees assessed during the period against the
policyholders' account balances for mortality charges, policy administration
charges and surrender charges. In addition, interest earned from the investment
of these account balances is reflected in "Net investment income." 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 are translated to U.S. dollars 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.
Cumulative translation adjustments arising from the use of differing exchange
rates from period to period are charged or credited directly to "Other
comprehensive income." The cumulative effect of changes in foreign exchange
rates are included in "Accumulated other comprehensive income."
B-7
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Other Income
Other income consists primarily of asset management fees which are received by
the Company from Prudential for services Prudential provides to the Prudential
Series Fund, an underlying investment option of the Separate Accounts.
Derivative Financial Instruments
Derivatives are financial instruments whose values are derived from interest
rates, foreign exchange rates, various financial indices, or the value of
securities or commodities. Derivative financial instruments used by the Company
include futures, currency swaps, and options contracts and can be
exchange-traded or contracted in the over-the-counter market. The Company uses
derivative financial instruments to hedge market risk from changes in interest
rates or foreign currency exchange rates, and to alter interest rate or currency
exposures arising from mismatches between assets and liabilities. All
derivatives used by the Company are for other than trading purposes.
To qualify as a hedge, derivatives must be designated as hedges for existing
assets, liabilities, firm commitments, or anticipated transactions which are
identified and probable to occur, and effective in reducing the market risk to
which the Company is exposed. The effectiveness of the derivatives must be
evaluated at the inception of the hedge and throughout the hedge period.
When derivatives qualify as hedges, the changes in the fair value or cash flows
of the derivatives and the hedged items are recognized in earnings in the same
period. If the Company's use of other than trading derivatives does not meet the
criteria to apply hedge accounting, the derivatives are recorded at fair value
in "Other liabilities" in the Consolidated Statements of Financial Position, and
changes in their fair value are recognized in earnings in "Realized investment
gains, net" without considering changes in the hedged assets or liabilities.
Cash flows from other than trading derivative assets and liabilities are
reported in the operating activities section in the Consolidated Statements of
Cash Flows.
Income Taxes
The Company and its subsidiaries are members of the consolidated federal income
tax return of Prudential and files separate company state and local tax returns.
Pursuant to the tax allocation arrangement with Prudential, 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 that is expected 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 transactions, including repurchase
agreements, dollar rolls, securities lending and similar transactions. Adoption
of SFAS 125 did not have a material impact on the Company's results of
operations, financial position and liquidity.
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
which was issued by the FASB in June 1997. This statement defines comprehensive
income 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.
Application of this statement did not change recognition or measurement of net
income and, therefore, did not affect the Company's financial position or
results of operations.
B-8
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
On January 1, 1999, the Company adopted the American Institute of Certified
Public Accountants ("AICPA") Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" ("SOP 97-3").
This statement provides guidance for determining when an insurance company or
other enterprise should recognize a liability for guaranty-fund assessments as
well as guidance for measuring the liability. The adoption of SOP 97-3 is not
expected to have a material effect on the Company's financial position or
results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS No. 133 provides, if certain conditions
are met, that a derivative may be specifically designated as (1) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment (fair value hedge), (2) a hedge of the exposure to
variable cash flows of a forecasted transaction (cash flow hedge), or (3) a
hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security or a
foreign-currency-denominated forecasted transaction (foreign currency hedge).
SFAS No. 133 does not apply to most traditional insurance contracts. However,
certain hybrid contracts that contain features which can affect settlement
amounts similarly to derivatives may require separate accounting for the "host
contract" and the underlying "embedded derivative" provisions. The latter
provisions would be accounted for as derivatives as specified by the statement.
Under SFAS No. 133, the accounting for changes in fair value of a derivative
depends on its intended use and designation. For a fair value hedge, the gain or
loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item. For a cash flow hedge, the effective
portion of the derivative's gain or loss is initially reported as a component of
other comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings. For a foreign currency hedge, the gain
or loss is reported in other comprehensive income as part of the foreign
currency translation adjustment. For all other derivatives not designated as
hedging instruments, the gain or loss is recognized in earnings in the period of
change. The Company is required to adopt this Statement no later than January 1,
2000 and is currently assessing the effect of the new standard.
In October, 1998, the AICPA issued Statement of Position 98-7, "Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk," ("SOP 98-7"). This statement provides guidance on how
to account for insurance and reinsurance contracts that do not transfer
insurance risk. SOP 98-7 is effective for fiscal years beginning after June 15,
1999. The adoption of this statement is not expected to have a material effect
on the Company's financial position or results of operations.
Reclassifications
Certain amounts in the prior years have been reclassified to conform to current
year presentation.
B-9
<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>
1998
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair 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 110,294 864 318 110,840
Foreign government bonds 87,112 2,003 696 88,419
Corporate securities 2,540,498 30,160 6,897 2,563,761
Mortgage-backed securities 750 156 -- 906
---------- ---------- ---------- ----------
Total fixed maturities available for sale $2,738,654 $ 33,183 $ 7,911 $2,763,926
========== ========== ========== ==========
Equity securities available for sale $ 2,951 $ 168 $ 272 $ 2,847
========== ========== ========== ==========
Fixed maturities held to maturity
Corporate securities $ 410,558 $ 11,287 $ -- $ 421,845
---------- ---------- ---------- ----------
Total fixed maturities held to maturity $ 410,558 $ 11,287 $ -- $ 421,845
========== ========== ========== ==========
1997
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
(In Thousands)
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
========== ========== ========== ==========
</TABLE>
B-10
<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, 1998 are shown below:
<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>
Due in one year or less $ 72,931 $ 73,254 $ 3,036 $ 3,064
Due after one year through five years 1,050,981 1,059,389 193,749 201,136
Due after five years through ten years 1,142,507 1,156,664 155,568 158,801
Due after ten years 471,485 473,713 58,205 58,844
Mortgage-backed securities 750 906 -- --
---------- ---------- ---------- ----------
Total $2,738,654 $2,763,926 $ 410,558 $ 421,845
========== ========== ========== ==========
</TABLE>
Actual maturities will differ from contractual maturities because, in certain
circumstances, issuers have the right to call or prepay obligations.
Proceeds from the sale of fixed maturities available for sale during 1998, 1997,
and 1996 were $5,327.3 million, $2,796.3 million, and $3,667.1 million,
respectively. Gross gains of $46.3 million, $18.6 million, and $22.1 million and
gross losses of $14.1 million, $7.9 million, and $17.6 million were realized on
those sales during 1998, 1997, and 1996, respectively.
Proceeds from the maturity of fixed maturities available for sale during 1998,
1997, and 1996 were $102.1 million, $32.4 million, and $219.2 million,
respectively. During the years ended December 31, 1998, 1997, and 1996, there
were no securities classified as held to maturity that were sold.
Writedowns for impairments of fixed maturities which were deemed to be other
than temporary were $2.8 million, $.1 million and $.1 million for the years
1998, 1997 and 1996, respectively.
B-11
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The following table describes the credit quality of the fixed maturity
portfolio, based on ratings assigned by the National Association of Insurance
Commissioners ("NAIC") or Standard & Poor's Corporation, an independent rating
agency as of December 31, 1998:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------ -------------------------------------
Amortized Estimated Fair Amortized Estimated Fair
Cost Value Cost Value
---------- -------------- ---------- --------------
(In Thousands) (In Thousands)
NAIC Standard & Poor's
<S> <C> <C> <C> <C>
1 AAA to AA- $1,195,301 $1,211,995 $ 180,070 $ 186,683
2 BBB+ to BBB- 1,254,522 1,263,656 182,298 185,417
3 BB+ to BB- 201,033 204,278 39,346 40,654
4 B+ to B- 59,799 57,695 8,821 9,068
5 CCC or lower 27,552 26,061 -- --
6 In or near default 447 241 23 23
---------- ---------- ---------- ----------
Total $2,738,654 $2,763,926 $ 410,558 $ 421,845
========== ========== ========== ==========
</TABLE>
The fixed maturity portfolio consists largely of investment grade assets (rated
"1" or "2" by the NAIC), with such investments accounting for 89% and 94% of the
portfolio at December 31, 1998 and 1997, respectively, based on fair value. As
of both of those dates, less than 1% of the fixed maturities portfolio was rated
"6" by the NAIC, defined as public and private placement securities which are
currently non-performing or believed subject to default in the near-term.
The Company continually reviews fixed maturities and identifies potential
problem assets which require additional monitoring. The Company defines
"problem" fixed maturities as those for which principal and/or interest payments
are in default. The Company defines "potential problem" fixed maturities as
assets which are believed to present default risk associated with future debt
service obligations and therefore require more active management. At December
31, 1998 management identified $264.0 thousand of fixed maturity investments as
problem or potential problem. An immaterial amount of problem or potential
problem fixed maturities were identified in 1997.
Mortgage Loans on Real Estate
The Company's mortgage loans were collateralized by the following property types
at December 31, 1998 and 1997.
1998 1997
------------------ -------------------
(In Thousands)
Office buildings $ -- -- $ 4,607 20%
Retail stores 7,356 42% 8,090 35%
Apartment complexes 5,988 35% 6,080 27%
Industrial buildings 4,010 23% 4,010 18%
------------------ ------------------
Net carrying value $17,354 100% $22,787 100%
================== ==================
B-12
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The largest concentration of mortgage loans are in the states of Pennsylvania
(35%), Washington (34%), and New Jersey (23%).
Special Deposits
Fixed maturities of $8.6 million and $8.3 million at December 31, 1998 and 1997,
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 $1.0 million and $1.3 million as
of December 31, 1998 and 1997, respectively, are comprised of joint ventures and
limited parterships. The Company's share of net income from these entities was
$.1 million, $2.2 million and $1.4 million for the years ended December 31,
1998, 1997 and 1996, respectively, and is reported in "Net investment income."
Investment Income and Investment Gains and Losses
Net investment income arose from the following sources for the years ended
December 31:
1998 1997 1996
--------- --------- ---------
(In Thousands)
Fixed maturities - available for sale $ 179,184 $ 161,140 $ 152,445
Fixed maturities - held to maturity 26,128 26,936 33,419
Equity securities 14 76 44
Mortgage loans on real estate 1,818 2,585 5,669
Policy loans 40,928 37,398 33,449
Short-term investments 23,110 22,011 16,780
Other 6,886 14,920 10,051
--------- --------- ---------
Gross investment income 278,068 265,066 251,857
Less: investment expenses (16,638) (5,432) (4,529)
--------- --------- ---------
Net investment income $ 261,430 $ 259,634 $ 247,328
========= ========= =========
Realized investment gains ,net including charges for other than temporary
reductions in value, for the years ended December 31, were from the following
sources:
1998 1997 1996
--------- --------- ---------
(In Thousands)
Fixed maturities - available for sale $ 29,330 $ 9,039 $ 9,036
Fixed maturities - held to maturity 487 821 --
Equity securities 3,489 8 781
Mortgage loans on real estate -- 797 1,677
Derivative instruments 12,414 -- --
Other (879) 309 (659)
--------- --------- ---------
Realized investment gains, net $ 44,841 $ 10,974 $ 10,835
========= ========= =========
B-13
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
Net Unrealized Investment Gains
Net unrealized investment gains on securities available for sale are included in
the Consolidated Statement of Financial Position as a component of "Accumulated
other comprehensive income." Changes in these amounts include reclassification
adjustments to avoid double-counting in "Comprehensive income," items that are
included as part of "Net income" for a period that also have been part of "Other
comprehensive income" in earlier periods. The amounts for the years ended
December 31, net of tax, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Net unrealized investment gains, beginning of year $ 17,129 $ 14,104 $ 32,056
Changes in net unrealized investment gains attributable to:
Investments:
Net unrealized gains on investments arising during the period 14,593 13,880 (20,405)
Reclassification adjustment for gains included in net income 22,799 6,680 6,165
-------- -------- --------
Change in net unrealized gains on investments, net of adjustments (8,206) 7,200 (26,570)
Impact of net unrealized investment gains on:
Policyholder's account balances (1,063) 1,293 (2,467)
Deferred policy acquisition costs 2,042 (5,468) 11,085
-------- -------- --------
Change in net unrealized investment gains (7,227) 3,025 (17,952)
-------- -------- --------
Net unrealized investment gains, end of year $ 9,902 $ 17,129 $ 14,104
======== ======== ========
</TABLE>
Unrealized gains (losses) on investments arising during the periods reported in
the above table are net of income tax (benefit) expense of $(8.2) million,
$(7.6) million and $12.1 million for the years ended December 31, 1998, 1997 and
1996, respectively.
Reclassification adjustments reported in the above table for the years ended
December 31, 1998, 1997 and 1996 are net of income tax expense of $12.8 million,
$3.6 million and $3.8 million, respectively.
Policyholder's account balances reported in the above table are net of income
tax (benefit) expense of $(.2) million, $.0 million and $1.4 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
Deferred policy acquisition costs in the above tables for the years ended
December 31, 1998, 1997 and 1996 are net of income tax (benefit) expense of
$(1.1) million, $2.9 million and $(6.2) million, respectively.
4. POLICYHOLDERS' LIABILITIES
Future policy benefits and other policyholder liabilities at December 31 are as
follows:
1998 1997
-------- --------
(In Thousands)
Life insurance $506,249 $444,737
Annuities 28,350 27,723
-------- --------
$534,599 $472,460
======== ========
B-14
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
4. POLICYHOLDERS' LIABILITIES (continued)
Life insurance liabilities include reserves for death benefits. Annuity
liabilities include reserves for immediate annuities.
The following table highlights the key assumptions generally utilized in
calculating these reserves:
<TABLE>
<CAPTION>
Product Mortality Interest Rate Estimation Method
- - - ------------------------------ ------------------------- ------------- -----------------------
<S> <C> <C> <C>
Life insurance - Domestic Generally rates 2.5% to 7.5% Net level premium based
guaranteed in on non-forfeiture
calculating cash interest rate
surrender values
Life insurance - International Generally rates 6.25% to 6.5% Net level premium based
guaranteed in on the expected
calculating cash investment return
surrender values
Individual immediate annuities 1983 Individual Annuity 6.25% to 11.0% Present value of
Mortality Table with expected future payment
certain modifications based on historical
experience
</TABLE>
Policyholders' account balances at December 31, are as follows:
1998 1997
---------- ----------
(In Thousands)
Interest-sensitive life contracts $1,386,829 $1,345,089
Individual annuities 1,077,996 1,035,371
Guaranteed investment contracts 231,366 --
---------- ----------
$2,696,191 $2,380,460
========== ==========
Policyholders' account balances for interest-sensitive life, individual
annuities, and guaranteed investment contracts are equal to policy account
values plus unearned premiums. The policy account values represent an
accumulation of gross premium payments plus credited interest less withdrawals,
expenses, mortality charges.
Certain contract provisions that determine the policyholder account balances are
as follows:
<TABLE>
<CAPTION>
Product Interest Rate Withdrawal / Surrender Charges
- - - --------------------------------- -------------- ----------------------------------
<S> <C> <C>
Interest sensitive life contracts 4.0% to 6.5% Various up to 10 years
Individual annuities 3.0% to 5.6% 0% to 8% for up to 8 years
Guaranteed investment contracts 5.02% to 6.23% Subject to market value withdrawal
provisions for any funds withdrawn
other than for benefit responsive
and contractual payments
</TABLE>
B-15
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
5. REINSURANCE
The Company participates in reinsurance, with Prudential and other companies, in
order to provide greater diversification of business, provide additional
capacity for future growth and limit the maximum net loss potential arising from
large risks. Reinsurance ceded arrangements do not discharge the Company or the
insurance subsidiaries as the primary insurer, except for cases involving a
novation. Ceded balances would represent a liability to the Company in the event
the reinsurers were unable to meet their obligations to the Company under the
terms of the reinsurance agreements. The likelihood of a material reinsurance
liability reassumed by the Company is considered to be remote.
Reinsurance amounts included in the Consolidated Statement of Operations for the
year ended December 31 are below.
1998 1997 1996
-------- -------- --------
(In Thousands)
Direct Premiums $ 65,423 $ 51,851 $ 53.776
Reinsurance assumed 1,395 1,369 1,128
Reinsurance ceded - affiliated (6,532) (686) (254)
Reinsurance ceded - unaffiliated (2,819) (3,038) (3,125)
-------- -------- --------
Premiums $ 57,467 $ 49,496 $ 51,525
======== ======== ========
Policyholders' benefits ceded $ 27,991 $ 25,704 $ 26,796
======== ======== ========
Reinsurance recoverables, included in "Other assets" in the Company's
Consolidated Statements of Financial Position, at December 31 include amounts
recoverable on unpaid and paid losses and were as follows:
1998 1997
------- -------
(In Thousands)
Life insurance - affiliated $ 6,481 $ 2,618
Other reinsurance - affiliated 21,650 23,243
------- -------
$28,131 $25,861
======= =======
B-16
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
6. EMPLOYEE BENEFIT PLANS
Pension and Other Postretirement Plans
The Company has a non-contributory defined benefit pension plan which covers
substantially all of its Taiwanese employees. This plan was established as of
September 30, 1997 and the projected benefit obligation and related expenses at
September 30, 1998 was not material to the Consolidated Statements of Financial
Position or results of operations for the years presented. All other employee
benefit costs are allocated to the Company from Prudential in accordance with
the service agreement described in Note 13.
7. INCOME TAXES
The components of income taxes for the years ended December 31, are as follows:
1998 1997 1996
-------- -------- --------
(In Thousands)
Current tax expense (benefit):
U.S $ 67,272 $ 71,989 $ 59,489
State and local 2,496 1,337 703
Foreign -- -- 4
-------- -------- --------
Total 69,768 73,326 60,196
-------- -------- --------
Deferred tax expense (benefit):
U.S 14,059 (11,458) 18,413
State and local 406 -- 526
-------- -------- --------
Total 14,465 (11,458) 18,939
-------- -------- --------
Total income tax expense $ 84,233 $ 61,868 $ 79,135
======== ======== ========
The 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:
1998 1997 1996
-------- -------- --------
(In Thousands)
Expected federal income tax expense $ 82,668 $ 58,885 $ 79,925
State and local income taxes 1,886 869 799
Other (321) 2,114 (1,589)
-------- -------- --------
Total income tax expense $ 84,233 $ 61,868 $ 79,135
======== ======== ========
B-17
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
7. INCOME TAXES (continued)
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
1998 1997
-------- --------
(In Thousands)
Deferred tax assets
Insurance reserves $ 93,564 $ 52,144
-------- --------
Deferred tax assets 93,564 52,144
-------- --------
Deferred tax liabilities
Deferred acquisition costs 224,179 167,128
Net investment gains 12,241 16,068
Other 5,978 7,431
-------- --------
Deferred tax liabilities 242,398 190,627
-------- --------
Net deferred tax liability $148,834 $138,483
======== ========
Management believes that based on its historical pattern of taxable income, the
Company and its subsidiaries 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 asset that is realizable. At December 31, 1998
and 1997, respectively, the Company and its subsidiaries had no federal or state
operating loss carryforwards for tax purposes.
The Internal Revenue Service (the "Service") has completed examinations of all
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.
B-18
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
8. 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 and New Jersey Departments of Banking and
Insurance with net income and equity determined using GAAP.
1998 1997 1996
--------- --------- ---------
(In Thousands)
Statutory net income $ (33,097) $ 12,778 $ 48,846
Adjustments to reconcile to net
income on a GAAP basis:
Statutory income of subsidiaries 18,953 18,553 25,001
Deferred acquisition costs 202,375 38,003 48,862
Deferred premium 2,625 1,144 1,295
Insurance liabilities (24,942) 26,517 28,662
Deferred taxes (14,465) 11,458 (18,939)
Valuation of investments 20,077 506 365
Other, net (19,564) (2,585) 15,130
--------- --------- ---------
GAAP net income $ 151,962 $ 106,374 $ 149,222
========= ========= =========
1998 1997
----------- -----------
(In Thousands)
Statutory surplus $ 931,164 $ 853,130
Adjustments to reconcile to equity
on a GAAP basis:
Valuation of investments 117,254 97,787
Deferred acquisition costs 861,713 655,242
Deferred premium (15,625) (14,817)
Insurance liabilities (133,811) (107,525)
Deferred taxes (148,834) (138,483)
Other, net 41,371 160,183
----------- -----------
GAAP stockholder's equity $ 1,653,232 $ 1,505,517
=========== ===========
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated 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 estimated fair values (for all other
financial instruments presented in the table, the carrying value approximates
estimated fair value).
B-19
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
9. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Fixed maturities and Equity securities
Estimated 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 estimated 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.
Policyholders' account balances
Estimated fair values of policyholders' account balances are derived by using
discounted projected cash flows, based on interest rates being offered for
similar contracts, with maturities consistent with those remaining for the
contracts being valued.
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>
1998 1997
------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----------- ----------- ------------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities:
Available for sale $ 2,763,926 $ 2,763,926 $ 2,563,852 $ 2,563,852
Held to maturity 410,558 421,845 338,848 350,056
Equity securities 2,847 2,847 1,982 1,982
Mortgage loans 17,354 19,465 22,787 24,994
Policy loans 766,917 806,099 703,955 703,605
Short-term investments 240,727 240,727 316,355 316,355
Cash 89,679 89,679 71,358 71,358
Separate Account assets 11,531,754 11,531,754 8,022,079 8,022,079
Financial Liabilities:
Policyholders'
account balances $ 2,696,191 $ 2,703,725 $ 2,380,460 $ 2,374,040
Cash collateral for loaned
securities 123,044 123,044 143,421 143,421
Separate Account liabilities 11,490,751 11,490,751 7,948,788 7,948,788
Derivatives 1,723 2,374 653 653
</TABLE>
B-20
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
10. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
Futures & Options
The Company uses exchange-traded Treasury futures and options to reduce market
risks from changes in interest rates, to alter mismatches between the duration
of assets in a portfolio and the duration of liabilities supported by those
assets, and to hedge against changes in the value of securities it owns or
anticipates acquiring. The Company enters into exchange-traded futures and
options with regulated futures commissions merchants who are members of a
trading exchange. The fair value of futures and options is estimated based on
market quotes for a transaction with similar terms.
Under exchange-traded futures, the Company agrees to purchase a specified number
of contracts with other parties and to post variation margin on a daily basis in
an amount equal to the difference in the daily market values of those contracts.
Futures are typically used to hedge duration mismatches between assets and
liabilities by replicating Treasury performance. Treasury futures move
substantially in value as interest rates change and can be used to either
generate new or hedge existing interest rate risk. This strategy protects
against the risk that cash flow requirements may necessitate liquidation of
investments at unfavorable prices resulting from increases in interest rates.
This strategy can be a more cost effective way of temporarily reducing the
Company's exposure to a market decline than selling fixed income securities and
purchasing a similar portfolio when such a decline is believed to be over.
For futures that meet hedge accounting criteria, changes in their fair value are
deferred and recognized as an adjustment to the carrying value of the hedged
item. Deferred gains or losses from the hedges for interest-bearing financial
instruments are amortized as a yield adjustment over the remaining lives of the
hedged item. Futures that do not qualify as hedges are carried at fair value
with changes in value reported in current period earnings. The notional value of
futures contracts was $40.8 million and $115.7 million at December 31, 1998 and
1997, respectively. The fair value of futures contracts was immaterial at
December 31, 1998 and 1997.
When the Company anticipates a significant decline in the stock market which
will correspondingly affect its diversified portfolio, it may purchase put index
options where the basket of securities in the index is appropriate to provide a
hedge against a decrease in the value of the equity portfolio or a portion
thereof. This strategy effects an orderly sale of hedged securities. When the
Company has large cash flows which it has allocated for investment in equity
securities, it may purchase call index options as a temporary hedge against an
increase in the price of the securities it intends to purchase. This hedge
permits such investment transactions to be executed with the least possible
adverse market impact.
Option premium paid or received is reported as an asset or liability and
amortized into income over the life of the option. If options meet the criteria
for hedge accounting, changes in their fair value are deferred and recognized as
an adjustment to the hedged item. Deferred gains or losses from the hedges for
interest-bearing financial instruments are recognized as an adjustment to
interest income or expense of the hedged item. If the options do not meet the
criteria for hedge accounting, they are fair valued, with changes in fair value
reported in current period earnings. The fair value of options was immaterial at
December 31, 1998, and there were no options in 1997.
Currency Derivatives
The Company uses currency swaps to reduce market risks from changes in currency
values of investments denominated in foreign currencies that the Company either
holds or intends to acquire and to alter the currency exposures arising from
mismatches between such foreign currencies and the US Dollar.
Under currency swaps, the Company agrees with other parties to exchange, at
specified intervals, the difference between one currency and another at a
forward exchange rate and calculated by reference to an agreed principal amount.
Generally, the principal amount of each currency is exchanged at the beginning
and termination of the currency swap by each party. These transactions are
entered into pursuant to master agreements that provide for a single net payment
to be made by one counterparty for payments made in the same currency at each
due date.
If currency derivatives are effective as hedges of foreign currency translation
and transaction exposures, gains or losses are recorded in "Foreign currency
translation adjustments". If currency derivatives do not meet hedge accounting
criteria, gains or losses from those derivatives are recognized in current
period earnings.
As of December 31, 1998, the notional value of the swaps was $40.5 million with
a fair value of ($2.3) million. There were no currency swaps at year end 1997.
B-21
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
10. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (continued)
Credit Risk
The current credit exposure of the Company's derivative contracts is limited to
the fair value at the reporting date. Credit risk is managed by entering into
transactions with creditworthy counterparties and obtaining collateral where
appropriate and customary. The Company also attempts to minimize its exposure to
credit risk through the use of various credit monitoring techniques. As of
December 31, 1998, 47% of notional consisted of interest rate derivatives, 47%
of notional consisted of foreign currency derivatives, and 6% of notional
consisted of equity derivatives.
11. 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.
12. 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, 1998, the
Company would not be permitted a dividend distribution in 1998.
13. RELATED PARTY TRANSACTIONS
Service Agreements
Prudential and Pruco Life operate under service and lease agreements whereby
services of officers and employees (except for those agents employed by the
Company in Taiwan), supplies, use of equipment and office space are provided by
Prudential. The net cost of these services allocated to the Company were $269.9
million, $139.5 million and $101.7 million for the years ended December 31,
1998, 1997, and 1996, respectively. These costs are treated in a manner
consistent with the Company's policy on deferred acquisition costs.
Prudential and Pruco Life have an agreement with respect to administrative
services for the Prudential Series Fund. The Company invests in the various
portfolios of the Series Fund through the Separate Accounts. Under this
agreement, Prudential pays compensation to Pruco Life in the amount equal to a
portion of the gross investment advisory fees paid by the Prudential Series
Fund. The Company received from Prudential its allocable share of such
compensation in the amount of $40.1 million, $29.4 million and $19.1 million
during 1998, 1997 and 1996, respectively, recorded in other income.
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, 1998, 1997,
and 1996.
B-22
<PAGE>
Pruco Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS (continued)
Debt Agreements
In July 1998, the Company established a revolving line of credit facility of up
to $300 million with Prudential Funding Corporation, a wholly owned subsidiary
of Prudential. There is no outstanding debt relating to this credit facility as
of December 31, 1998.
B-23
<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, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our 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.
PricewaterhouseCoopers LLP
New York, New York
February 26, 1999
B-24
B-1
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
(1) Financial Statements of the Dicovery Select Variable Annuity Subaccounts
of Pruco Life Flexible Premium Variable Annuity Account (Registrant)
consisting of the Statements of Net Assets as of December 31, 1998; the
Statements of Operations for the period ended December 31, 1998; the
Statements of Changes in Net Assets for the periods ended December 31,
1998 and December 31, 1997; and the Notes relating thereto will appear in
the statement of additional information. (Part B of the Registration
Statement) (Note 1)
(2) Consolidated Statements of Pruco Life Insurance Company (Depositor) and
its subsidiaries consisting of the Consolidated Statements of Financial
Position as of December 31, 1998 and 1997; and the related Consolidated
Statements of Operations, Changes in Stockholder's Equity and Cash Flows
for the years ended December 31, 1998, 1997 and 1996; and the Notes to
the Consolidated Financial Statements will appear in the statement of
additional information (Part B of the Registration Statement) (Note 1).
(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) Form of Distribution Agreement between Prudential Investment
Management Services, Inc. "PIMS" (Underwriter) and Pruco Life
Insurance Company (Depositor)(Note 3)
(b) Form of Selected Broker Agreement used by PIMS (Note 3)
(4) (a) The Discovery Choice Contract VFLX-99 C-ROP. (Note 4)
(b) The Discovery Choice Contract VFLX-99 C-GMDB. (Note 4)
(5) (a) Application form for the Contract. (Note 4)
(6) (a) Articles of Incorporation of Pruco Life Insurance Company, as
amended through October 19, 1993. (Note 5)
(b) By-laws of Pruco Life Insurance Company, as amended through May 6,
1997. (Note 6)
(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 7)
(9) Opinion of Counsel as to legality of the securities being
registered.(Note 1)
(10) Written consent of PricewaterhouseCoopers LLP independent
accountants.(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, Esther H. Milnes and I. Edward
Price (Note 8)
(b) Dennis G. Sullivan (Note 9)
(c) Kiyofumi Sakaguchi (Note 10)
(d) James J. Avery, Jr (Note 11)
C-1
<PAGE>
(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 Post-Effective Amendment No. 6 to
Form N-4, Registration No.333-06701, filed April 15, 1999 on
behalf of the Pruco Life Flexible Premium Variable Annuity
Account.
(Note 4) Filed herewith.
(Note 5) Incorporated by reference to the initial registration on 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 Form 10-Q as filed August 15, 1997,
on behalf of the Pruco Life Insurance Company.
(Note 7) 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 8) 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 9) Incorporated by reference to Post-Effective Amendment No. 5 to
Form S-1, Registration No. 33-86780, filed April 13, 1999 on
behalf of the Pruco Life Variable Contract Real Property Account.
(Note 10) Incorporated by reference to Post Effective Amendment No.8 to
Form S-6, Registration No.33-49994, filed April 28, 1999, on
behalf of the Pruco Life Variable Appreciable Account.
(Note 11) 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.
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.
C-2
<PAGE>
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
Not Applicable.
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 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
(a) Prudential Investment Management Services LLC (PIMS)
PIMS is distributor for Cash Accumulation Trust, Command Money Fund,
Command Government Fund, Command Tax-Free Fund, The Global Total Return Fund,
Inc., Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Balanced Fund, Prudential
California Municipal Fund, Prudential Distressed Securities Fund, Inc.,
Prudential Diversified Bond Fund, Inc., Prudential Emerging Growth Fund, Inc.,
Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential Europe
Growth Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential Global
Limited Maturity Fund, Inc., Prudential Government Income Fund, Inc., Prudential
Government Securities Trust, Prudential High Yield Fund, Inc., Prudential High
Yield Total Return Fund, Inc., Prudential Index Series Fund, Prudential
Institutional Liquidity Portfolio, Inc., Prudential Intermediate Global Income
Fund, Inc., Prudential International Bond Fund, Inc., The Prudential Investment
Portfolios, Inc., Prudential Mid-Cap Value Fund, Prudential MoneyMart Assets,
Inc., Prudential Mortgage Income Fund, Inc., Prudential Municipal Bond Fund,
Prudential Municipal Series Fund, Prudential National Municipals Fund, Inc.,
Prudential Natural Resources Fund, Inc., Prudential Pacific Growth Fund, Inc.,
Prudential Real Estate Securities Fund, Prudential Small-Cap Quantum Fund, Inc.,
Prudential Small Company Value Fund, Inc., Prudential Special Money Market Fund,
Inc., Prudential Structured Maturity Fund, Inc., Prudential Tax-Free Money Fund,
Inc., Prudential 20/20 Focus Fund, Prudential Utility Fund, Inc., Prudential
World Fund, Inc. and The Target Portfolio Trust.
C-3
<PAGE>
(b) Information concerning the officers and directors of PIMS is set forth
below.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME (1) WITH UNDERWRITER WITH REGISTRANT
- - - -------- ---------------- ---------------
<S> <C> <C>
Robert F. Gunia .......................... President None
Jean D. Hamilton ........................ Executive Vice President None
John R. Strangfeld ....................... Executive Vice President None
Kevin B. Frawley ......................... Senior Vice President and Chief None
Compliance Officer
Mark D. Smith ............................ Senior Vice President and Chief None
Operating Officer
William V. Healey ........................ Senior Vice President, Secretary and None
Chief Legal Officer
Margaret M. Deverell ..................... Senior Vice President, Comptroller and None
Chief Financial Officer
C. Edward Chaplin......................... Treasurer None
</TABLE>
- - - ---------------------------
(1) The address of each person named is Prudential Plaza, 751 Broad Street,
Newark, New Jersey 07102 unless otherwise noted.
(c) Not applicable
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
(a) Registrant undertakes to file a post-effective amendment to this
Registrant Statement as frequently as is necessary to ensure that the
audited financial statements in the Registration Statement are never more
than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
(b) Registrant undertakes to include either (1) as part of any application to
purchase a contract offered by the prospectus, a space that an applicant
can check to request a statement of additional information, or (2) a
postcard or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a statement of
additional information.
(c) Registrant undertakes to deliver any statement of additional information
and any financial statements required to be made available under this
Form promptly upon written or oral request.
(d) Restrictions on withdrawal under Section 403(b) Contracts are imposed in
reliance upon, and in compliance with, a no-action letter issued by the
Chief of the Office of Insurance Products and Legal Compliance of the
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.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
has caused this pre-effective amendment No.1 to its Registration Statement; and
pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has caused this post-effective amendment No. 8 to its 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 17th day of August, 1999.
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
(Registrant)
BY: PRUCO LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/ CLIFFORD E. KIRSCH /s/ ESTHER H. MILNES
- - - --------------------------------------------- ---------------------------
CLIFFORD E. KIRSCH ESTHER H. MILNES
CHIEF LEGAL OFFICE AND SECRETARY PRESIDENT
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the date
indicated:
SIGNATURE AND TITLE
---------------------
*
- - - -------------------------------------
ESTHER MILNES Date: August 17, 1999
PRESIDENT AND DIRECTOR
*
- - - -------------------------------------
JAMES J. AVERY JR
CHAIRMAN OF THE BOARD AND DIRECTOR
* *By: CLIFFORD E. KIRSCH
- - - ------------------------------------- ---------------------------------------
DENNIS G. SULLIVAN CLIFFORD E. KIRSCH
VICE PRESIDENT AND COMPTROLLER (ATTORNEY-IN-FACT)
*
- - - -------------------------------------
WILLIAM M. BETHKE
DIRECTOR
*
- - - -------------------------------------
IRA J. KLEINMAN
DIRECTOR
*
- - - -------------------------------------
I. EDWARD PRICE
DIRECTOR
*
- - - -------------------------------------
KIYOFUMI SAKAGUCHI
DIRECTOR
C-5
August 6, 1999
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. 333-79201) 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,
/s/ CLIFFORD E. KIRSCH
--------------------------------
Clifford E. Kirsch
DISCOVERY CHOICE 30-JUN-99
TABLE 1
ASSUMING NO LOAD
1.65 M&E
1 year 5 years 10 years
Ending Ending Ending Since Inception
YTD 30-Jun-99 30-Jun-99 30-Jun-99 Inception Date
------ ---------- ----------- ---------- --------- ----------
MMKT 1.56% 3.50% 4.27% 3.60% 4.78% 6/02/83
DIBOND -2.35% -0.54% 6.66% 6.64% 7.50% 6/08/83
HIYLD 2.75% -5.35% 6.89% 8.01% 6.63% 2/23/87
OPPMAN 6.44% 1.92% 18.47% 16.27% 16.95% 8/01/88 See Note
STIX 11.30% 20.77% 25.95% 14.43% 17.38% 10/19/87
EQINC 17.43% 3.53% 17.64% 13.36% 14.21% 2/19/88
AIMGRI 13.76% 26.02% 22.77% N/A 21.37% 5/02/94
TREQST 11.56% 13.59% 19.65% N/A 18.93% 3/31/94
EQUITY N/A N/A N/A N/A N/A 6/06/83
PRUJEN 14.46% 29.35% N/A N/A 27.89% 5/01/95
AIMVAL 13.62% 26.09% 23.39% N/A 20.44% 6/01/93
JANGRW 15.84% 30.82% 23.29% N/A 20.16% 9/13/93
MFSRSR 8.09% 11.38% N/A N/A 20.07% 7/24/95
MFSEMG 12.01% 22.73% N/A N/A 24.68% 7/24/95
OPPSMC 2.84% -6.22% 9.17% 11.40% 10.80% 8/01/88 See Note
WARVCP 11.93% 4.54% N/A N/A 9.61% 9/30/96
GLOBAL 8.97% 13.36% 13.61% 8.41% 10.23% 9/19/88
JANINT 9.28% 4.04% 18.72% N/A 17.19% 5/02/94
TRINST 3.05% 4.19% 7.98% N/A 7.70% 3/31/94
SMCAP 4.45% 4.49% N/A N/A 14.45% 5/01/95
AMCVAL 12.35% 10.29% N/A N/A 15.94% 5/01/96
FTSMCP 18.01% N/A N/A N/A 18.01% 9/01/98
20/20 FOCUS 5.18% N/A N/A N/A 5.18% 5/01/99
DCGRW 0.29% N/A N/A N/A 0.29% 5/01/99
Note: 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.
DISCOVERY CHOICE 30-JUN-99
TABLE 1
ASSUMING NO LOAD
1.35 M&E
1 year 5 years 10 years
Ending Ending Ending Since Inception
YTD 30-Jun-99 30-Jun-99 30-Jun-99 Inception Date
------ ---------- ----------- ---------- --------- ----------
MMKT 1.56% 3.50% 3.71% 3.47% 4.82% 6/02/83
DIBOND -2.35% -0.54% 6.09% 6.51% 7.54% 6/08/83
HIYLD 2.75% -5.35% 6.56% 8.00% 6.69% 2/23/87
OPPMAN 6.44% 1.92% 18.73% 16.57% 17.26% 8/01/88 See Note
STIX 11.30% 20.77% 25.59% 14.44% 17.44% 10/19/87
EQINC 17.43% 3.53% 17.33% 13.38% 14.27% 2/19/88
AIMGRI 13.76% 26.02% 23.04% N/A 21.64% 5/02/94
TREQST 11.56% 13.59% 19.92% N/A 19.20% 3/31/94
EQUITY N/A N/A N/A N/A N/A 6/06/83
PRUJEN 14.46% 29.35% N/A N/A 28.07% 5/01/95
AIMVAL 13.62% 26.09% 23.67% N/A 20.72% 6/01/93
JANGRW 15.84% 30.82% 23.56% N/A 20.44% 9/13/93
MFSRSR 8.09% 11.38% N/A N/A 20.30% 7/24/95
MFSEMG 12.01% 22.73% N/A N/A 24.93% 7/24/95
OPPSMC 2.84% -6.22% 9.41% 11.69% 11.08% 8/01/88 See Note
WARVCP 11.93% 4.54% N/A N/A 9.80% 9/30/96
GLOBAL 8.97% 13.36% 13.36% 8.45% 10.29% 9/19/88
JANINT 9.28% 4.04% 18.98% N/A 17.45% 5/02/94
TRINST 3.05% 4.19% 8.21% N/A 7.95% 3/31/94
SMCAP 4.45% 4.49% N/A N/A 14.65% 5/01/95
AMCVAL 12.35% 10.38% N/A N/A 16.20% 5/01/96
FTSMCP 18.01% N/A N/A N/A 18.01% 9/01/98
20/20 FOCUS 5.23% N/A N/A N/A 5.23% 5/01/99
DCGRW 0.34% N/A N/A N/A 0.34% 5/01/99
Note: 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.
<PAGE>
DISCOVERY CHOICE 30-Jun-99
TABLE 1
ASSUMING NO LOAD
1.65 M&E
1 year 5 years 10 years
Ending Ending Ending Since Inception
YTD 30-Jun-99 30-Jun-99 30-Jun-99 Inception Date
------ ---------- ----------- ---------- --------- ----------
MMKT 1.43% 3.22% N/A N/A 3.52% 11/20/95
DIBOND -2.46% -0.79% N/A N/A 3.57% 11/20/95
HIYLD 2.65% -5.56% N/A N/A 5.34% 11/20/95
OPPMAN 1.05% -3.38% N/A N/A 11.52% 10/07/96
STIX 11.17% 20.48% N/A N/A 25.53% 11/20/95
EQINC 17.29% 3.27% N/A N/A 18.00% 11/20/95
AIMGRI 13.62% 25.85% N/A N/A 25.02% 10/07/96
TREQST 3.41% 5.71% N/A N/A 3.21% 10/07/96
EQUITY N/A N/A N/A N/A N/A 11/20/95
PRUJEN 14.32% 29.03% N/A N/A 25.30% 11/20/95
AIMVAL 13.49% 25.79% N/A N/A 26.05% 10/07/96
JANGRW 15.70% 30.44% N/A N/A 25.86% 10/07/96
MFSRSR 6.61% 9.72% N/A N/A 17.83% 10/07/96
MFSEMG 11.87% 22.42% N/A N/A 20.93% 10/07/96
OPPSMC 2.00% -7.10% N/A N/A 5.46% 10/07/96
WARVCP 11.80% 4.27% N/A N/A 8.70% 10/07/96
GLOBAL 8.83% 13.08% N/A N/A 15.23% 11/20/95
JANINT 9.15% 3.71% N/A N/A 17.17% 10/07/96
TRINST 2.92% 3.92% N/A N/A 7.96% 10/07/96
SMCAP 4.32% N/A N/A N/A 4.32% 09/01/98
AMCVAL 0.06% N/A N/A N/A 0.06% 09/01/98
FTSMCP 15.29% N/A N/A N/A 15.29% 09/01/98
20/20 Focus 5.19% N/A N/A N/A 5.19% 05/03/99
DCGRW 0.30% N/A N/A N/A 0.30% 05/03/99
DISCOVERY CHOICE 30-Jun-99
TABLE 1
ASSUMING NO LOAD
1.35 M&E
1 year 5 years 10 years
Ending Ending Ending Since Inception
YDT 30-Jun-99 30-Jun-99 30-Jun-99 Inception Date
---- --------- --------- --------- ---------- ----------
MMKT 1.58% 3.52% N/A N/A 3.79% 11/20/95
DIBOND -2.31% -0.49% N/A N/A 3.84% 11/20/95
HIYLD 2.79% -5.29% N/A N/A 5.61% 11/20/95
OPPMAN 1.20% -3.09% N/A N/A 11.85% 10/07/96
STIX 11.33% 20.84% N/A N/A 25.86% 11/20/95
EQINC 17.46% 3.59% N/A N/A 18.31% 11/20/95
AIMGRI 13.78% 26.07% N/A N/A 25.10% 10/07/96
TREQST 3.56% 6.02% N/A N/A 3.51% 10/07/96
EQUITY N/A N/A N/A N/A N/A 11/20/95
PRUJEN 14.49% 29.42% N/A N/A 25.64% 11/20/95
AIMVAL 13.65% 26.15% N/A N/A 26.42% 10/07/96
JANGRW 15.87% 30.83% N/A N/A 26.23% 10/07/96
MFSRSR 6.77% 10.04% N/A N/A 18.18% 10/07/96
MFSEMG 12.03% 22.79% N/A N/A 21.28% 10/07/96
OPPSMC 2.15% -6.83% N/A N/A 5.77% 10/07/96
WARVCP 11.97% 4.59% N/A N/A 9.03% 10/07/96
GLOBAL 8.99% 13.42% N/A N/A 15.54% 11/20/95
JANINT 9.31% 4.02% N/A N/A 17.51% 10/07/96
TRINST 3.07% 4.24% N/A N/A 8.28% 10/07/96
SMCAP 4.47% N/A N/A N/A 4.47% 09/01/98
AMCVAL 0.19% N/A N/A N/A 0.19% 09/01/98
FTSMCP 15.45% N/A N/A N/A 15.45% 09/01/98
20/20 FOCUS 5.24% N/A N/A N/A 5.24% 05/03/99
DCGRW 0.35% N/A N/A N/A 0.35% 05/03/99
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 1 to the registration
statement on Form N-4 (the "Registration Statement") of our report dated March
19, 1999, 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 Statement of Additional Information.
We also consent to the use in the Statement of Additional Information
constituting part of this Registration Statement of our report dated February
26, 1999, relating to the consolidated financial statements of Pruco Life
Insurance Company and its subsidiaries, which appears in such Statement of
Additional Information.
We also consent to the reference to us under the heading "Experts" in the
Statement of Additional Information.
PricewaterhouseCoopers LLP
New York, New York
August 10, 1999
