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STRATEGIC PARTNERS
ANNUITY ONE(SM)
VARIABLE ANNUITY
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PROSPECTUS: SEPTEMBER 18, 2000
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.
THE FUNDS
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Strategic Partners Annuity One offers a wide variety of investment choices,
including 25 variable investment options that invest in mutual funds managed by
these leading asset managers:
PRUDENTIAL INVESTMENTS
JENNISON ASSOCIATES
AIM ADVISORS
ALLIANCE CAPITAL MANAGEMENT
BANKERS TRUST, PART OF DEUTSCHE ASSET MANAGEMENT
DAVIS SELECT ADVISERS
FIDELITY MANAGEMENT AND RESEARCH
INVESCO
JANUS CAPITAL
MFS
PIMCO
You may choose between two versions of Strategic Partners Annuity One. One
version, the Contract With Credit, provides for a bonus credit that we add to
each purchase payment you make. If you choose this version of Annuity One, some
charges and expenses may be higher than if you choose the version without the
credit. Those higher charges could exceed the amount of the credit under some
circumstances, particularly if you withdraw purchase payments within a few years
of making those purchase payments.
PLEASE READ THIS PROSPECTUS
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Please read this prospectus before purchasing a Strategic Partners Annuity One
variable annuity contract, and keep it for future reference. Current
prospectuses for 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 as well.
TO LEARN MORE ABOUT STRATEGIC PARTNERS ANNUITY ONE
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To learn more about the Strategic Partners Annuity One variable annuity, you can
request a copy of the Statement of Additional Information (SAI) dated September
18, 2000. 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 Strategic Partners Annuity One 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 47 of this prospectus.
FOR A FREE COPY OF THE SAI CALL US AT:
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(888) PRU-2888 or write to us at:
Prudential Annuity Service Center
P.O. Box 7960
Philadelphia, PA 19101
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 STRATEGIC
PARTNERS ANNUITY ONE IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
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CONTENTS
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PART I: STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS
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SUMMARY
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Glossary........................................... 6
Summary............................................ 9
Summary of Contract Expenses....................... 13
Expense Examples................................... 17
PART II: STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS
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SECTIONS 1-9
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Section 1: What is the Strategic Partners Annuity One
Variable Annuity?..................................... 24
Short Term Cancellation Right or "Free Look"....... 25
Section 2: What Investment Options Can I Choose?........ 26
Variable Investment Options........................ 26
Fixed Interest Rate Options........................ 26
Transfers Among Options............................ 27
Other Available Features........................... 28
Voting Rights...................................... 29
Substitution....................................... 29
Section 3: What Kind of Payments Will I Receive During
the Income Phase? (Annuitization).......... .......... 30
Payment Provisions Without the Guaranteed Minimum
Income Benefit................................... 30
Option 1: Annuity Payments for a Fixed
Period........................................... 30
Option 2: Life Annuity with 120 Payments (10
Years) Certain................................... 30
Option 3: Interest Payment Option.............. 30
Other Annuity Options.......................... 30
Guaranteed Minimum Income Benefit.................. 31
GMIB Option 1 -- Single Life Payout Option..... 32
GMIB Option 2 -- Joint Life Payout Option...... 32
Section 4: What is the Death Benefit?................... 33
Beneficiary........................................ 33
Calculation of the Death Benefit................... 33
Payout Options..................................... 34
Section 5: How Can I Purchase a Strategic Partners
Annuity One Contract?................................. 35
Purchase Payments.................................. 35
Allocation of Purchase Payments.................... 35
Credits............................................ 35
Calculating Contract Value......................... 36
Section 6: What are the Expenses Associated with the
Strategic Partners Annuity One Contract?.............. 37
Insurance and Administrative Charge................ 37
Guaranteed Minimum Income Benefit Charge........... 37
Annual Contract Fee................................ 38
Withdrawal Charge.................................. 38
Premium Taxes...................................... 39
Transfer Fee....................................... 39
Company Taxes...................................... 39
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<TABLE>
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Section 7: How Can I Access My Money?................... 40
Withdrawals During the Accumulation Phase.......... 40
Automated Withdrawals.............................. 40
Suspension of Payments or Transfers................ 40
Section 8: What are the Tax Considerations Associated
with the Strategic Partners Annuity One Contract?..... 41
Contracts Owned by Individuals (Not Associated with
Tax Favored Retirement Plans).................... 41
Contracts Held by Tax-Favored Plans................ 42
Section 9: Other Information............................ 46
Pruco Life Insurance Company....................... 46
The Separate Account............................... 46
Sale and Distribution of the Contract.............. 46
Assignment......................................... 47
Financial Statements............................... 47
Statement of Additional Information................ 47
IRA Disclosure Statement........................... 48
PART III: PROSPECTUSES
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VARIABLE INVESTMENT OPTIONS
--------------------------------
THE PRUDENTIAL SERIES FUND, INC.
JANUS ASPEN SERIES
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PART I SUMMARY
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STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS
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PART I
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SUMMARY
GLOSSARY
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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 (which we define 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.
ADJUSTED CONTRACT VALUE
When you begin receiving income payments, the value of your contract minus (i)
any charge we impose for premium taxes and (ii) if you have chosen the Contract
With Credit, any credit that has not yet vested.
ANNUITANT
The person whose life determines the amount of income payments that we will pay.
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 on which we credit your initial purchase payment. We will credit the
initial purchase payment to your contract within two business days from the day
on which we receive your 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.
CONTRACT OWNER, OWNER, OR YOU
The person entitled to the ownership rights under the contract.
CONTRACT VALUE
This is the total value of your contract, equal to the sum of the values of your
investment in each investment option you have chosen. Your contract value will
go up or down based on the performance of the investment options you choose.
CONTRACT WITH CREDIT
A version of the annuity contract that provides for a bonus credit with each
purchase payment that you make, has higher withdrawal charges and a longer
withdrawal charge period, and has no fixed rate investment options available.
CONTRACT WITHOUT CREDIT
A version of the annuity contract that does not provide a credit, has lower
withdrawal charges and a shorter withdrawal charge period, and offers two fixed
rate investment options: a one-year fixed rate option and a dollar cost
averaging fixed rate option.
CREDIT
If you choose the Contract With Credit (which we previously defined), this is
the bonus amount that we allocate to your account each time you make a purchase
payment. The amount of the credit is a percentage of the purchase payment. The
credit is subject to a vesting schedule, which means that if you withdraw all or
part of a purchase payment within a certain period, or you begin the income
phase or we pay a death benefit during that period, we may take back all or part
of the credit. See "How Can I Purchase A Strategic Partners Annuity One
Contract" on page 35.
DEATH BENEFIT
If the sole or last surviving owner dies, the beneficiary you designate will
receive, at a minimum, the total amount invested or a potentially greater amount
related to
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PART I
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SUMMARY
market appreciation. A guaranteed minimum death benefit is available for an
additional charge.
FIXED INTEREST RATE OPTIONS
Under the Contract Without Credit (which we previously defined), these are
investment options that offer a fixed rate of interest for either a one-year
period (fixed rate option) or a selected period during which periodic transfers
are made to selected variable investment options (dollar cost averaging fixed
rate option). The fixed interest rate options are available only with the
Contract Without Credit.
GUARANTEED MINIMUM DEATH BENEFIT
An optional feature available for an additional charge that guarantees that the
death benefit that the beneficiary receives will be no less than a certain
"protected value". Depending upon the terms of your contract, the protected
value for the guaranteed minimum death benefit may equal the "roll-up value,"
the "step-up value," or the larger of the two. We define these terms below.
GUARANTEED MINIMUM INCOME BENEFIT
An optional feature that may be available for an additional charge that
guarantees that the income payments you receive during the income phase will be
no less than a certain "protected value" applied to the guaranteed annuity
purchase rates. Currently, the protected value for the guaranteed minimum income
benefit is equal to the "roll-up value," which we define below.
INCOME OPTIONS
Options under the contract that define the frequency and duration of income
payments. In your contract, we also refer to these as payout or annuity options.
INCOME PHASE
The period in which you receive income payments under the contract.
INVESTED PURCHASE PAYMENTS
Your purchase payments (which we define below) less any deduction we make for
any premium or other tax charge.
JOINT OWNER
The person named as the joint owner, who shares ownership rights with the owner
as defined in the contract.
NET PURCHASE PAYMENTS
Your total purchase payments (which we define below) less any withdrawals you
have made.
PROTECTED VALUE
If you choose a guaranteed minimum death benefit and/or guaranteed minimum
income benefit, the guaranteed amount of the benefit. If both the guaranteed
minimum death benefit and the guaranteed minimum income benefit are available to
you and you choose both of these options, the protected value of each may be
different. Depending upon the terms of your contract, the protected value of the
guaranteed minimum death benefit may equal the "roll-up value," the "step-up
value," or the greater of the two. The protected value of the guaranteed minimum
income benefit, if available, will equal the "roll-up value."
PRUDENTIAL ANNUITY SERVICE CENTER
For general correspondence: P.O. Box 7960, Philadelphia, PA 19101. For express
overnight mail: 2101 Welsh Road, Dresher, PA 19025. The telephone number is
800-PRU-2888.
PURCHASE PAYMENTS
The amount of money you pay us to purchase the contract. With some restrictions,
you can make additional purchase payments at any time during the accumulation
phase.
ROLL-UP VALUE
The total of all invested purchase payments compounded daily at an effective
annual rate of 5.0%, subject to a cap of 200% of all invested purchase payments
and to certain age restrictions. Both the roll-up and the cap are reduced
proportionally by withdrawals. Depending upon the terms of your contract and
what options you choose, we may use the roll-up value to compute the protected
value of the guaranteed minimum death benefit and/or the guaranteed minimum
income benefit.
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GLOSSARY CONTINUED
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PART I
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SUMMARY
SEPARATE ACCOUNT
We hold your purchase payments allocated to the variable investment options 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.
STATEMENT OF ADDITIONAL INFORMATION
A document containing certain additional information about the Strategic
Partners Annuity One variable annuity. We have filed the Statement of Additional
Information with the Securities and Exchange Commission and it is legally a part
of this prospectus. To learn how to obtain a copy of the Statement of Additional
Information, see the front cover of this prospectus.
STEP-UP VALUE
The highest value of the contract on any contract anniversary date, subject to
certain age restrictions. Between anniversary dates, the step-up value is only
increased by additional purchase payments and reduced proportionally by
withdrawals. Depending upon the terms of your contract and what options you
choose, we may use the step-up value to compute the protected value of the
guaranteed minimum death benefit.
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. You should be aware that tax favored plans (such as IRAs) already
provide tax deferral regardless whether they invest in annuity contracts. See
"What Are the Tax Considerations Associated with the Strategic Partners Annuity
One Contract," page 41.
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.
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PART I
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SUMMARY
SUMMARY FOR SECTIONS 1-9
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FOR A MORE COMPLETE DISCUSSION OF THE FOLLOWING TOPICS, SEE THE CORRESPONDING
SECTION IN PART II OF THE PROSPECTUS.
SECTION 1
WHAT IS THE STRATEGIC PARTNERS ANNUITY ONE VARIABLE ANNUITY?
The Strategic Partners Annuity One variable annuity is a contract between you,
the owner, and us, the insurance company, Pruco Life Insurance Company (Pruco
Life, we or us). The contract allows you to invest on a tax-deferred basis in
one or more of 25 variable investment options. The contract is intended for
retirement savings or other long-term investment purposes and provides for a
death benefit.
There are two versions of the Strategic Partners Annuity One variable
annuity.
Contract With Credit. One version of the contract:
- provides for a bonus credit that we add to each purchase payment that you
make,
- has higher withdrawal charges and a longer withdrawal charge period, and
- has no fixed rate investment options available.
We call this version the "Contract With Credit."
Contract Without Credit. The other version of the contract:
- does not provide a credit,
- has lower withdrawal charges and a shorter withdrawal charge period, and
- offers two fixed rate investment options: a one-year fixed rate option and a
dollar cost averaging fixed rate option.
We call this version the "Contract Without Credit."
Unless we state otherwise, when we use the word contract, it applies to both
versions.
The variable investment options available under the contract 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.
The fixed interest rate options available under the Contract Without Credit
offer a guaranteed interest rate. While your money is allocated to one of these
options, your principal amount will not decrease and we guarantee that your
money will earn at least 3% in interest annually. Payments you allocate to the
fixed interest rate options become part of Pruco Life's general assets.
You can invest your money in any or all of the variable investment options
and (under the Contract Without Credit) the fixed interest rate options. You may
make up to 12 free transfers each contract year among the variable investment
options. For the Contract Without Credit, certain restrictions apply to
transfers involving the fixed interest rate options.
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 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 select.
The contract offers a choice of death benefit options. A guaranteed minimum
income benefit may also be available to you.
If you change your mind about owning Strategic Partners Annuity One, you may
cancel your contract within 10 days after receiving it (or whatever period is
required under applicable state law). We call this the "Free Look" period.
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SUMMARY FOR SECTIONS 1-9 CONTINUED
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PART I
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SUMMARY
SECTION 2
WHAT INVESTMENT OPTIONS CAN I CHOOSE?
You can invest your money in any or all of the following variable investment
options:
The Prudential Series Fund
Prudential Global Portfolio
Prudential Jennison Portfolio
Prudential Money Market Portfolio
Prudential Stock Index Portfolio
SP Aggressive Growth Asset Allocation Portfolio
SP AIM Aggressive Growth Portfolio
SP AIM Growth and Income Portfolio
SP Alliance Large Cap Growth Portfolio
SP Alliance Technology Portfolio
SP Balanced Asset Allocation Portfolio
SP Conservative Asset Allocation Portfolio
SP Davis Value Portfolio
SP Deutsche International Equity Portfolio
SP Growth Asset Allocation Portfolio
SP INVESCO Small Company Growth Portfolio
SP Jennison International Growth Portfolio
SP Large Cap Value Portfolio
SP MFS Capital Opportunities Portfolio
SP MFS Mid Cap Growth Portfolio
SP PIMCO High Yield Portfolio
SP PIMCO Total Return Portfolio
SP Prudential U.S. Emerging Growth Portfolio
SP Small/Mid Cap Value Portfolio
SP Strategic Partners Focused Growth Portfolio
Janus Aspen Series
Growth Portfolio -- Service Shares
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
performance of the mutual fund portfolios used by the variable investment
options that you choose. Performance information for the variable investment
options appears in the Statement of Additional Information (SAI). Past
performance is not a guarantee of future results.
If you choose the Contract Without Credit, two guaranteed fixed interest rate
options are also available:
- The one-year fixed rate option offers an interest rate that is guaranteed by
us for one year and will always be at least 3% per year.
- The dollar cost averaging fixed rate option offers an interest rate that is
guaranteed by us for a selected period during which we make periodic
transfers from this option to the variable investment options you select. We
guarantee that the interest rate for dollar cost averaging fixed rate option
will always be at least 3% per year.
SECTION 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.
For an additional fee, you may also choose, if it is available under your
contract, the guaranteed minimum income benefit. See "What Kind Of Payments Will
I Receive During the Income Phase" on page 30.
SECTION 4
WHAT IS THE DEATH BENEFIT?
If the sole owner, or last surviving of the owner and 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 greater of (i) the
contract value, (ii) either the base death benefit or, for a higher insurance
charge, a potentially larger guaranteed minimum death benefit. The base death
benefit equals the total amount invested adjusted for withdrawals. The
guaranteed minimum death benefit is equal to a "protected value" that depends
upon which of the following guaranteed minimum death benefit options you choose:
- the highest value of the contract on any contract anniversary, which we call
the "step-up value";
- the total amount you invest increased by a guaranteed rate of return, which
we call the "roll-up value"; or
- the greater of the step-up value or roll-up value.
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PART I
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Depending upon the terms of your contract, not all guaranteed death benefit
options may be available. See "What is the Death Benefit" on page 33.
SECTION 5
HOW CAN I PURCHASE A STRATEGIC PARTNERS ANNUITY ONE CONTRACT?
Under most circumstances, you can purchase this contract with a minimum initial
purchase payment of $10,000. Generally, you can make additional purchase
payments of $1,000 or more at any time during the accumulation phase of the
contract. Your representative can help you fill out the proper forms. The
Contract With Credit provides for the allocation of a credit with each purchase
payment.
SECTION 6
WHAT ARE THE EXPENSES ASSOCIATED WITH THE STRATEGIC PARTNERS ANNUITY ONE
CONTRACT?
The contract has insurance features and investment features, both of which have
related cost and charges.
- Each year we may deduct a contract maintenance charge. Currently, if your
contract value is $50,000 or more, we do not deduct such a charge. If your
contract value is less than $50,000, we deduct a charge equal to $30 or, if
your contract value is less than $1,500, equal to 2% of your contract value.
- For insurance and administrative costs, we also deduct a daily charge based
on the average daily value of all assets allocated to the variable investment
options, depending on the death benefit option that you choose. The daily
charge is equivalent to an annual charge of:
-- 1.40% if you do not choose the guaranteed minimum death benefit,
-- 1.60% if you choose the roll-up or step-up guaranteed minimum death
benefit option, and
-- 1.70% if you choose the guaranteed minimum death benefit option of the
greater of the roll-up or step-up.
- We will make an additional charge if you choose the guaranteed minimum income
benefit. We deduct this annual charge from your contract value on the
contract anniversary and upon certain other events. Currently, only the
roll-up guaranteed minimum income benefit option is available. The charge for
this benefit is equal to 0.25% of the roll-up value. In the future, we may
also offer other options, for which different charges may apply.
- A few states and jurisdictions 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% of your contract
value.
- The mutual funds in which the variable investment options invest also incur
fees and expenses. These daily charges currently range on an annual basis
from 0.39% to 1.30% of a fund's average daily net assets.
- If, after making a purchase payment, you withdraw money (or you begin the
income phase) less than:
-- nine years later, if you purchase the Contract With Credit, or
-- seven years later, if you purchase the Contract Without Credit,
then you may have to pay a withdrawal charge on all or part of the
withdrawal. This charge ranges from 1-7%.
For more information, including details about other possible charges under
the contract, see "Summary of Contract Expenses" on page 13 and "What Are The
Expenses Associated With The Strategic Partners Annuity One Contract?" on page
37.
SECTION 7
HOW CAN I ACCESS MY MONEY?
You may withdraw money at any time during the accumulation phase. If you do so,
however, you may be subject to income tax and, if you make a withdrawal prior to
age 59 1/2, an additional tax penalty as well. If you withdraw money less than
nine years (for the Contract With Credit) or seven years (for the Contract
Without Credit) after making a purchase payment, we may impose a withdrawal
charge. In addition, if you purchase a Contract With Credit, we may take back
any
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SUMMARY FOR SECTIONS 1-9 CONTINUED
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PART I
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SUMMARY
credit that has not vested that corresponds to the purchase payment(s) you
withdraw.
SECTION 8
WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE STRATEGIC PARTNERS ANNUITY
ONE CONTRACT?
Your earnings are generally not taxed until you withdraw them. If you take money
out during the accumulation phase, the tax laws treat the withdrawal as first a
withdrawal of earnings, which are taxed as income. If you are younger than age
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 a return of your original
investment and therefore will not be taxable as income. Generally, all amounts
withdrawn from an Individual Retirement Annuity (IRA) contracts prior to age
59 1/2 are taxable and subject to the 10% penalty.
SECTION 9
OTHER INFORMATION
This contract is issued by Pruco Life, a subsidiary of the Prudential Insurance
Company of America, and sold by registered representatives.
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PART I
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SUMMARY
SUMMARY OF CONTRACT EXPENSES
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THE PURPOSE OF THIS SUMMARY IS TO HELP YOU TO UNDERSTAND THE COSTS AND EXPENSES
YOU WILL PAY FOR STRATEGIC PARTNERS ANNUITY ONE. THIS SUMMARY INCLUDES THE 1999
EXPENSES OF THE MUTUAL FUNDS USED BY THE VARIABLE INVESTMENT OPTIONS (OR FOR
THOSE FUNDS THAT DID NOT BEGIN OPERATING UNTIL AFTER 1999, ESTIMATED EXPENSES)
BUT DOES NOT INCLUDE ANY CHARGE FOR PREMIUM TAXES THAT MIGHT BE APPLICABLE IN
YOUR STATE.
The chart below summarizes maximum charges for Strategic Partners Annuity One.
For more detailed information, including additional information about current
and maximum charges, see "What Are The Expenses Associated With The Strategic
Partners Annuity One Contract?" on page 37. For more detailed expense
information about the mutual funds, please refer to the individual fund
prospectuses, which you will find attached at the back of this prospectus.
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WITHDRAWAL CHARGE (SEE NOTE 1 ON PAGE 14)
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NUMBER OF CONTRACT CONTRACT CONTRACT
ANNIVERSARIES SINCE WITH WITHOUT
PURCHASE PAYMENT CREDIT CREDIT
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0 7% 7%
1 7% 6%
2 7% 5%
3 6% 4%
4 5% 3%
5 4% 2%
6 3% 1%
7 2% 0%
8 1% 0%
9 0% 0%
-- --
</TABLE>
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SUMMARY OF CONTRACT EXPENSES CONTINUED
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PART I
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SUMMARY
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MAXIMUM TRANSFER FEE ALL CONTRACTS
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first 12 transfers per contract year $ 0
each transfer after the first 12 in a contract year
(see Note 2 below) $ 30
MAXIMUM ANNUAL CONTRACT FEE AND CONTRACT CHARGE UPON FULL
WITHDRAWAL (see Note 3 below)
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$ 60
INSURANCE AND ADMINISTRATIVE EXPENSES
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AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE ALLOCATED
TO VARIABLE INVESTMENT OPTIONS
BASE DEATH BENEFIT: 1.40%
Guaranteed Minimum Death Benefit Option--Roll-Up or
Step-Up: 1.60%
Guaranteed Minimum Death Benefit Option--Greater of
Roll-Up and Step-Up: 1.70%
</TABLE>
ANNUAL GUARANTEED MINIMUM INCOME BENEFIT CHARGE AND CHARGE
UPON CERTAIN WITHDRAWALS (see Note 4 below)
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0.25% of the "roll-up
value"
(see Note 4 below)
NOTE 1: EACH CONTRACT YEAR, YOU MAY WITHDRAW UP TO 10% OF YOUR NET PURCHASE
PAYMENTS WITHOUT PAYING A WITHDRAWAL CHARGE. WE WILL WAIVE THE WITHDRAWAL FEE IF
WE PAY A DEATH BENEFIT OR UNDER CERTAIN OTHER CIRCUMSTANCES. SEE "WITHDRAWAL
CHARGE" ON PAGE 38.
NOTE 2: CURRENTLY WE CHARGE $25 FOR EACH TRANSFER AFTER THE TWELFTH IN A
CONTRACT YEAR. WE CAN RAISE THAT CHARGE UP TO A MAXIMUM OF $30, AS SHOWN IN THE
ABOVE TABLE, BUT HAVE NO CURRENT INTENTION TO DO SO. WE WILL NOT CHARGE YOU FOR
TRANSFERS MADE IN CONNECTION WITH DOLLAR COST AVERAGING AND AUTO-REBALANCING AND
DO NOT COUNT THEM TOWARD THE LIMIT OF 12 FREE TRANSFERS PER YEAR.
NOTE 3: AS SHOWN IN THE TABLE ABOVE, WE HAVE THE RIGHT TO ASSESS A FEE OF UP TO
$60 ANNUALLY AND AT THE TIME OF FULL WITHDRAWAL. CURRENTLY, WE DO NOT ASSESS
THIS FEE IF YOUR CONTRACT VALUE IS AT LEAST $50,000. IF YOUR CONTRACT VALUE IS
AT LEAST $1,500 BUT LESS THAN $50,000, WE CURRENTLY ASSESS A FEE OF $30. IF YOUR
CONTRACT VALUE IS LESS THAN $1,500, WE CURRENTLY ASSESS A LOWER FEE, EQUAL TO 2%
OF YOUR CONTRACT VALUE. ALTHOUGH WE COULD RAISE THESE FEES UP TO THE MAXIMUM OF
$60, WE HAVE NO CURRENT INTENTION TO DO SO.
NOTE 4: WE IMPOSE THIS CHARGE ONLY IF YOU CHOOSE THE GUARANTEED MINIMUM INCOME
BENEFIT. SEE "GUARANTEED MINIMUM INCOME BENEFIT," ON PAGE 31. THIS CHARGE IS
EQUAL TO 0.25% OF THE "ROLL-UP VALUE." SUBJECT TO CERTAIN AGE RESTRICTION, THE
ROLL-UP VALUE IS THE TOTAL OF ALL INVESTED PURCHASE PAYMENTS COMPOUNDED DAILY AT
AN EFFECTIVE ANNUAL RATE OF 5.0%, SUBJECT TO A 200% CAP. BOTH THE ROLL-UP VALUE
AND THE CAP ARE REDUCED PROPORTIONALLY BY WITHDRAWALS. WE ASSESS THIS FEE
ANNUALLY. WE ALSO ASSESS THIS FEE IF YOU MAKE A FULL WITHDRAWAL, BUT PRORATE THE
FEE TO REFLECT A PARTIAL RATHER THAN FULL YEAR. IF YOU MAKE A PARTIAL
WITHDRAWAL, WE WILL ASSESS THE PRORATED FEE IF THE REMAINING CONTRACT VALUE
AFTER THE WITHDRAWAL WOULD BE LESS THAN THE AMOUNT OF THE PRORATED FEE;
OTHERWISE WE WILL NOT ASSESS THE FEE AT THAT TIME. IN THE FUTURE, WE MAY MAKE
OTHER GUARANTEED MINIMUM INCOME BENEFIT OPTIONS AVAILABLE. THOSE OTHER OPTIONS
MAY INVOLVE DIFFERENT FEES.
NOTES FOR ANNUAL MUTUAL FUND
EXPENSES
(Appearing on Page 15)
THESE ARE THE HISTORICAL FUND EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1999,
EXCEPT AS INDICATED. FUND EXPENSES ARE NOT FIXED OR GUARANTEED BY THE STRATEGIC
PARTNERS ANNUITY ONE CONTRACT AND WILL VARY FROM YEAR TO YEAR.
(1) THE PRUDENTIAL SERIES FUND:
BECAUSE THIS IS THE FIRST YEAR OF OPERATION FOR ALL "SP" PORTFOLIOS, OTHER
EXPENSES ARE ESTIMATED BASED ON MANAGEMENT'S PROJECTION OF NON-ADVISORY FEE
EXPENSES. EACH "SP" PORTFOLIO HAS EXPENSE REIMBURSEMENTS IN EFFECT, AND THE
TABLE SHOWS TOTAL EXPENSES BOTH WITH AND WITHOUT THESE EXPENSE REIMBURSEMENTS.
THESE EXPENSE REIMBURSEMENTS ARE VOLUNTARY AND MAY BE TERMINATED AT ANY TIME.
(2) EACH ASSET ALLOCATION PORTFOLIO OF THE PRUDENTIAL SERIES FUND INVESTS IN A
COMBINATION OF UNDERLYING PORTFOLIOS OF THE PRUDENTIAL SERIES FUND. THE TOTAL
EXPENSES AND TOTAL EXPENSES AFTER EXPENSE REIMBURSEMENT FOR EACH ASSET
ALLOCATION PORTFOLIO ARE CALCULATED AS A BLEND OF THE ADVISORY FEES OF THE
UNDERLYING PORTFOLIOS, PLUS A 0.05% ADVISORY FEE PAYABLE TO THE INVESTMENT
ADVISER, PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC.
(3) JANUS ASPEN SERIES GROWTH
PORTFOLIO -- SERVICE SHARES:
EXPENSES ARE BASED ON THE ESTIMATED EXPENSES THAT THE NEW SERVICE SHARES CLASS
OF THE GROWTH PORTFOLIO EXPECTS TO INCUR IN ITS FIRST FISCAL YEAR. JANUS ASPEN
SERIES MAINTAINS A DISTRIBUTION PLAN, OR "12B-1 PLAN", FOR THIS CLASS OF SHARES
UNDER WHICH AN ANNUAL FEE OF 0.25% OF THE CLASS'S AVERAGE DAILY NET ASSETS IS
PAID TO THE CLASS DISTRIBUTOR. THIS FEE IS DISCUSSED IN THE JANUS ASPEN SERIES
PROSPECTUS.
--------------------------------------------------------------------------------
14
<PAGE> 15
--------------------------------------------------------------------------------
PART I
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SUMMARY
<TABLE>
<CAPTION>
ANNUAL MUTUAL FUND EXPENSES (AFTER REIMBURSEMENT, IF ANY):
----------------------------------------------------------------------------------------------------------------------------------
AS A PERCENTAGE OF EACH FUND'S AVERAGE DAILY NET ASSETS
----------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES AFTER
INVESTMENT OTHER EXPENSE
ADVISORY FEES EXPENSES TOTAL EXPENSES REIMBURSEMENT*
THE PRUDENTIAL SERIES FUND(1)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prudential Global Portfolio 0.75% 0.09% 0.84% 0.84%
Prudential Jennison Portfolio 0.60% 0.03% 0.63% 0.63%
Prudential Money Market Portfolio 0.40% 0.02% 0.42% 0.42%
Prudential Stock Index Portfolio 0.35% 0.04% 0.39% 0.39%
SP Aggressive Growth Asset Allocation
Portfolio(2) 0.84% 0.64% 1.48% 1.04%
SP AIM Aggressive Growth Portfolio 0.95% 0.50% 1.45% 1.07%
SP AIM Growth and Income Portfolio 0.85% 0.38% 1.23% 1.00%
SP Alliance Large Cap Growth Portfolio 0.90% 0.30% 1.20% 1.10%
SP Alliance Technology Portfolio 1.15% 0.47% 1.62% 1.30%
SP Balanced Asset Allocation Portfolio(2) 0.75% 0.51% 1.26% 0.92%
SP Conservative Asset Allocation Portfolio(2) 0.71% 0.60% 1.31% 0.87%
SP Davis Value Portfolio 0.75% 0.31% 1.06% 0.83%
SP Deutsche International Equity Portfolio 0.90% 0.77% 1.67% 1.10%
SP Growth Asset Allocation Portfolio(2) 0.80% 0.51% 1.31% 0.97%
SP INVESCO Small Company Growth Portfolio 0.95% 0.59% 1.54% 1.15%
SP Jennison International Growth Portfolio 0.85% 0.99% 1.84% 1.24%
SP Large Cap Value Portfolio 0.80% 0.34% 1.14% 0.90%
SP MFS Capital Opportunities Portfolio 0.75% 0.39% 1.14% 1.00%
SP MFS Mid Cap Growth Portfolio 0.80% 0.52% 1.32% 1.00%
SP PIMCO High Yield 0.60% 0.77% 1.37% 0.82%
SP PIMCO Total Return Portfolio 0.60% 0.57% 1.17% 0.76%
SP Prudential U.S. Emerging Growth Portfolio 0.60% 0.52% 1.12% 0.90%
SP Small/Mid Cap Value Portfolio 0.90% 0.68% 1.58% 1.05%
SP Strategic Partners Focused Growth Portfolio 0.90% 0.42% 1.32% 1.01%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT
ADVISORY 12b-1 OTHER
FEES FEE(2) EXPENSES TOTAL EXPENSES
JANUS ASPEN SERIES(3)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Portfolio--Service Shares 0.65% 0.25% 0.02% 0.92%
</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 FIGURES
IN THE "TOTAL ACTUAL EXPENSES AFTER EXPENSE REIMBURSEMENT" COLUMN IN THE ABOVE
TABLE.
--------------------------------------------------------------------------------
15
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--------------------------------------------------------------------------------
16
<PAGE> 17
PART I
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SUMMARY
Expense Examples
--------------------------------------------------------------------------------
THESE EXAMPLES WILL HELP YOU COMPARE THE FEES AND EXPENSES OF THE DIFFERENT
VARIABLE INVESTMENT OPTIONS OFFERED BY STRATEGIC PARTNERS ANNUITY ONE. YOU CAN
ALSO USE THE EXAMPLES TO COMPARE THE COST OF STRATEGIC PARTNERS ANNUITY ONE WITH
OTHER VARIABLE ANNUITY CONTRACTS.
EXAMPLE 1A: CONTRACT WITHOUT CREDIT, BASE DEATH BENEFIT, AND YOU WITHDRAW ALL
YOUR ASSETS
This example assumes that:
- You invest $10,000 in the Contract Without Credit;
- You do not choose a Guaranteed Minimum Death Benefit Option or Guaranteed
Minimum Income Benefit Option;
- You allocate all of your assets to only one of the variable investment
options;
- The investment has a 5% return each year;
- The mutual fund's operating expenses remain the same each year; and
- You withdraw all your assets the end of the indicated period.
EXAMPLE 1B: CONTRACT WITHOUT CREDIT, BASE DEATH BENEFIT, AND YOU DO NOT WITHDRAW
YOUR ASSETS
This example makes exactly the same assumptions as Example 1a except that it
assumes that you do not withdraw any of your assets at the end of the indicated
period.
EXAMPLE 2A: CONTRACT WITHOUT CREDIT, GREATER OF ROLL-UP OR STEP-UP GUARANTEED
MINIMUM DEATH BENEFIT OPTION, GUARANTEED MINIMUM INCOME BENEFIT, AND YOU
WITHDRAW ALL YOUR ASSETS
This example assumes that:
- You invest $10,000 in the Contract Without Credit;
- You choose Guaranteed Minimum Death Benefit Option that provides the greater
of the step-up or roll-up death benefit;
- You choose the Guaranteed Minimum Income Benefit Option;
- You allocate all of your assets to only one of the variable investment
options;
- The investment has a 5% return each year;
- The mutual fund's operating expenses remain the same each year; and
- You withdraw all your assets the end of the indicated period.
--------------------------------------------------------------------------------
17
<PAGE> 18
EXPENSE EXAMPLES CONTINUED
--------------------------------------------------------------------------------
PART I
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SUMMARY
EXAMPLE 2B: CONTRACT WITHOUT CREDIT, GREATER OF ROLL-UP OR STEP-UP GUARANTEED
MINIMUM DEATH BENEFIT OPTION, GUARANTEED MINIMUM INCOME BENEFIT, AND YOU DO NOT
WITHDRAW YOUR ASSETS
This example makes exactly the same assumptions as Example 2a except that it
assumes that you do not withdraw any of your assets at the end of the indicated
period.
EXAMPLE 3A: CONTRACT WITH CREDIT, BASE DEATH BENEFIT, AND YOU WITHDRAW ALL YOUR
ASSETS
This example makes exactly the same assumptions as Example 1a except that it
assumes that you invest in the Contract With Credit.
EXAMPLE 3B: CONTRACT WITH CREDIT, BASE DEATH, AND YOU DO NOT WITHDRAW YOUR
ASSETS
This example makes exactly the same assumptions as Example 1b except that it
assumes that you invest in the Contract With Credit
EXAMPLE 4A: CONTRACT WITH CREDIT, GREATER OF ROLL-UP OR STEP-UP GUARANTEED
MINIMUM DEATH BENEFIT OPTION, GUARANTEED MINIMUM INCOME BENEFIT, AND YOU
WITHDRAW ALL YOUR ASSETS
This example makes exactly the same assumptions as Example 2a except that it
assumes that you invest in the Contract With Credit;
EXAMPLE 4B: Contract With Credit, Greater of Roll-up or Step-up Guaranteed
Minimum Death Benefit Option, Guaranteed Minimum Income Benefit, and You Do Not
Withdraw Your Assets
This example makes exactly the same assumptions as Example 2b except that it
assumes that you invest in the Contract With Credit.
Your actual costs may be higher or lower, but examples of what your costs would
be based on these assumptions appear on the following page.
NOTES FOR EXPENSE EXAMPLES:
THESE EXAMPLES DO NOT SHOW PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE HIGHER OR LOWER.
THESE EXAMPLES ASSUME THAT THE CURRENT EXPENSE REIMBURSEMENTS REMAIN IN EFFECT
DURING THE LIFE OF THE CONTRACT. IF THE EXPENSE REIMBURSEMENTS TERMINATED,
EXPENSES COULD INCREASE.
THE CHARGES SHOWN IN THE 10 YEAR COLUMN ARE THE SAME FOR EXAMPLE 1A AND EXAMPLE
1B, THE SAME FOR EXAMPLE 2A AND 2B, THE SAME FOR EXAMPLE 3A AND 3B, AND THE SAME
FOR EXAMPLE 4A AND 4B. THIS IS BECAUSE IF 10 YEARS HAVE ELAPSED SINCE YOUR LAST
PURCHASE PAYMENT, WE WOULD NO LONGER DEDUCT WITHDRAWAL CHARGES WHEN YOU MAKE A
WITHDRAWAL OR BEGIN THE INCOME PHASE OF YOUR CONTRACT.
IF YOUR CONTRACT VALUE IS LESS THAN $50,000 ON YOUR CONTRACT ANNIVERSARY (OR
UPON A FULL WITHDRAWAL), WE DEDUCT $30 OR, IF YOUR CONTRACT VALUE IS LESS THAN
$1,500, A LOWER AMOUNT EQUAL TO 2% OF YOUR CONTRACT VALUE. THE EXAMPLES USE AN
AVERAGE ANNUAL CONTRACT FEE, WHICH WE CALCULATED BASED ON OUR ESTIMATE OF THE
TOTAL CONTRACT FEES WE EXPECT TO COLLECT IN THE INITIAL YEAR OF THIS CONTRACT.
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 AMONG THE INVESTMENT OPTIONS.
THE EXAMPLES DO NOT REFLECT PREMIUM TAXES. WE MAY APPLY A CHARGE FOR PREMIUM
TAXES DEPENDING ON WHAT STATE YOU LIVE IN.
--------------------------------------------------------------------------------
18
<PAGE> 19
--------------------------------------------------------------------------------
PART I
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SUMMARY
<TABLE>
<CAPTION>
CONTRACT WITHOUT CREDIT:
BASE DEATH BENEFIT; NO GUARANTEED MINIMUM INCOME BENEFIT
-----------------------------------------------------------------------------------------------------------------------
EXAMPLE 1B:
EXAMPLE 1A: IF YOU DO NOT WITHDRAW YOUR
IF YOU WITHDRAW YOUR ASSETS ASSETS
-------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS 1 YR 3 YRS 5 YRS 10 YRS
THE PRUDENTIAL SERIES FUND
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Prudential Global Portfolio $862 $1165 $1495 $2626 $232 $715 $1225 $2626
Prudential Jennison Portfolio $841 $1102 $1389 $2410 $211 $652 $1119 $2410
Prudential Money Market Portfolio $820 $1038 $1281 $2190 $190 $588 $1011 $2190
Prudential Stock Index Portfolio $817 $1029 $1265 $2159 $187 $579 $995 $2159
SP Aggressive Growth Asset Allocation Portfolio $882 $1226 $1596 $2826 $252 $776 $1326 $2826
SP AIM Aggressive Growth Portfolio $885 $1235 $1610 $2856 $255 $785 $1340 $2856
SP AIM Growth and Income Portfolio $878 $1214 $1576 $2786 $248 $764 $1306 $2786
SP Alliance Large Cap Growth Portfolio $888 $1243 $1625 $2885 $258 $793 $1355 $2885
SP Alliance Technology Portfolio $908 $1303 $1724 $3080 $278 $853 $1454 $3080
SP Balanced Asset Allocation Portfolio $870 $1189 $1535 $2706 $240 $739 $1265 $2706
SP Conservative Asset Allocation Portfolio $870 $1190 $1537 $2713 $240 $740 $1267 $2713
SP Davis Value Portfolio $861 $1162 $1490 $2615 $231 $712 $1220 $2615
SP Deutsche International Equity Portfolio $888 $1243 $1625 $2885 $258 $793 $1355 $2885
SP Growth Asset Allocation Portfolio $875 $1205 $1561 $2756 $245 $755 $1291 $2756
SP INVESCO Small Company Growth Portfolio $893 $1258 $1650 $2934 $263 $808 $1380 $2934
SP Jennison International Growth Portfolio $902 $1285 $1695 $3022 $272 $835 $1425 $3022
SP Large Cap Value Portfolio $868 $1183 $1525 $2686 $238 $733 $1255 $2686
SP MFS Capital Opportunities Portfolio $878 $1214 $1576 $2786 $248 $764 $1306 $2786
SP MFS Mid Cap Growth Portfolio $878 $1214 $1576 $2786 $248 $764 $1306 $2786
SP PIMCO High Yield Portfolio $860 $1159 $1485 $2605 $230 $709 $1215 $2605
SP PIMCO Total Return Portfolio $854 $1141 $1455 $2544 $224 $691 $1185 $2544
SP Prudential U.S. Emerging Growth Portfolio $868 $1183 $1525 $2686 $238 $733 $1255 $2686
SP Small/Mid Cap Value Portfolio $883 $1229 $1601 $2836 $253 $779 $1331 $2836
SP Strategic Partners Focused Growth Portfolio $879 $1217 $1581 $2796 $249 $767 $1311 $2796
JANUS ASPEN SERIES
-----------------------------------------------------------------------------------------------------------------------
Growth Portfolio--Service Shares $870 $1189 $1535 $2706 $240 $739 $1265 $2706
</TABLE>
THESE EXAMPLES DO NOT SHOW PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
HIGHER OR LOWER.
--------------------------------------------------------------------------------
19
<PAGE> 20
EXPENSE EXAMPLES CONTINUED
--------------------------------------------------------------------------------
PART I
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SUMMARY
<TABLE>
<CAPTION>
CONTRACT WITHOUT CREDIT: GREATER OF ROLL-UP OR STEP-UP GUARANTEED MINIMUM
DEATH BENEFIT OPTION; GUARANTEED MINIMUM INCOME BENEFIT
------------------------------------------------------------------------------------------------------------------------------
EXAMPLE 2A: EXAMPLE 2B:
IF YOU WITHDRAW YOUR ASSETS IF YOU DO NOT WITHDRAW YOUR ASSETS
---------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS 1 YR 3 YRS 5 YRS 10 YRS
THE PRUDENTIAL SERIES FUND
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Prudential Global Portfolio $917 $1330 $1769 $3166 $287 $880 $1499 $3166
Prudential Jennison Portfolio $896 $1267 $1665 $2964 $266 $817 $1395 $2964
Prudential Money Market Portfolio $875 $1205 $1561 $2756 $245 $755 $1291 $2756
Prudential Stock Index Portfolio $872 $1195 $1545 $2726 $242 $745 $1275 $2726
SP Aggressive Growth Asset Allocation
Portfolio $937 $1389 $1866 $3355 $307 $939 $1596 $3355
SP AIM Aggressive Growth Portfolio $940 $1398 $1881 $3383 $310 $948 $1611 $3383
SP AIM Growth and Income Portfolio $933 $1377 $1847 $3318 $303 $927 $1577 $3318
SP Alliance Large Cap Growth Portfolio $943 $1407 $1895 $3411 $313 $957 $1625 $3411
SP Alliance Technology Portfolio $963 $1465 $1992 $3595 $333 $1015 $1722 $3595
SP Balanced Asset Allocation Portfolio $925 $1354 $1808 $3242 $295 $904 $1538 $3242
SP Conservative Asset Allocation Portfolio $925 $1354 $1810 $3251 $295 $904 $1540 $3251
SP Davis Value Portfolio $916 $1327 $1764 $3157 $286 $877 $1494 $3157
SP Deutsche International Equity Portfolio $943 $1407 $1895 $3411 $313 $957 $1625 $3411
SP Growth Asset Allocation Portfolio $930 $1368 $1832 $3290 $300 $918 $1562 $3290
SP INVESCO Small Company Growth Portfolio $948 $1421 $1919 $3457 $318 $971 $1649 $3457
SP Jennison International Growth Portfolio $957 $1448 $1963 $3540 $327 $998 $1693 $3540
SP Large Cap Value Portfolio $923 $1348 $1798 $3223 $293 $898 $1528 $3223
SP MFS Capital Opportunities Portfolio $933 $1377 $1847 $3318 $303 $927 $1577 $3318
SP MFS Mid Cap Growth Portfolio $933 $1377 $1847 $3318 $303 $927 $1577 $3318
SP PIMCO High Yield Portfolio $915 $1324 $1759 $3147 $285 $874 $1489 $3147
SP PIMCO Total Return Portfolio $909 $1306 $1729 $3090 $279 $856 $1459 $3090
SP Prudential U.S. Emerging Growth Portfolio $923 $1348 $1798 $3223 $293 $898 $1528 $3223
SP Small/Mid Cap Value Portfolio $938 $1392 $1871 $3365 $308 $942 $1601 $3365
SP Strategic Partners Focused Growth Portfolio $934 $1380 $1852 $3327 $304 $930 $1582 $3327
JANUS ASPEN SERIES
------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio--Service Shares $925 $1354 $1808 $3242 $295 $904 $1538 $3242
</TABLE>
THESE EXAMPLES DO NOT SHOW PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
HIGHER OR LOWER.
--------------------------------------------------------------------------------
20
<PAGE> 21
--------------------------------------------------------------------------------
PART I
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SUMMARY
<TABLE>
<CAPTION>
CONTRACT WITH CREDIT:
BASE DEATH BENEFIT; NO GUARANTEED MINIMUM INCOME BENEFIT
-----------------------------------------------------------------------------------------------------------------------
EXAMPLE 3B:
EXAMPLE 3A: IF YOU DO NOT WITHDRAW YOUR
IF YOU WITHDRAW YOUR ASSETS ASSETS
--------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS 1 YR 3 YRS 5 YRS 10 YRS
THE PRUDENTIAL SERIES FUND
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Prudential Global Portfolio $1271 $1700 $1972 $2731 $241 $744 $1274 $2731
Prudential Jennison Portfolio $1249 $1633 $1861 $2507 $219 $678 $1163 $2507
Prudential Money Market Portfolio $1228 $1567 $1749 $2278 $198 $611 $1051 $2278
Prudential Stock Index Portfolio $1224 $1557 $1733 $2245 $194 $602 $1035 $2245
SP Aggressive Growth Asset Allocation
Portfolio $1292 $1762 $2077 $2939 $262 $807 $1379 $2939
SP AIM Aggressive Growth Portfolio $1295 $1771 $2092 $2970 $265 $816 $1394 $2970
SP AIM Growth and Income Portfolio $1288 $1750 $2056 $2898 $258 $794 $1358 $2898
SP Alliance Large Cap Growth Portfolio $1298 $1781 $2108 $3001 $268 $825 $1410 $3001
SP Alliance Technology Portfolio $1319 $1843 $2211 $3203 $289 $887 $1513 $3203
SP Balanced Asset Allocation Portfolio $1280 $1725 $2014 $2814 $250 $769 $1316 $2814
SP Conservative Asset Allocation Portfolio $1280 $1725 $2016 $2822 $250 $770 $1318 $2822
SP Davis Value Portfolio $1270 $1696 $1967 $2720 $240 $741 $1269 $2720
SP Deutsche International Equity Portfolio $1298 $1781 $2108 $3001 $268 $825 $1410 $3001
SP Growth Asset Allocation Portfolio $1285 $1740 $2040 $2867 $255 $785 $1342 $2867
SP INVESCO Small Company Growth Portfolio $1304 $1796 $2133 $3052 $274 $841 $1435 $3052
SP Jennison International Growth Portfolio $1313 $1824 $2180 $3143 $283 $869 $1482 $3143
SP Large Cap Value Portfolio $1278 $1718 $2004 $2794 $248 $763 $1306 $2794
SP MFS Capital Opportunities Portfolio $1288 $1750 $2056 $2898 $258 $794 $1358 $2898
SP MFS Mid Cap Growth Portfolio $1288 $1750 $2056 $2898 $258 $794 $1358 $2898
SP PIMCO High Yield Portfolio $1269 $1693 $1962 $2709 $239 $738 $1264 $2709
SP PIMCO Total Return Portfolio $1263 $1674 $1930 $2646 $233 $719 $1232 $2646
SP Prudential U.S. Emerging Growth Portfolio $1278 $1718 $2004 $2794 $248 $763 $1306 $2794
SP Small/Mid Cap Value Portfolio $1293 $1765 $2082 $2949 $263 $810 $1384 $2949
SP Strategic Partners Focused Growth Portfolio $1289 $1753 $2061 $2908 $259 $797 $1363 $2908
JANUS ASPEN SERIES
-----------------------------------------------------------------------------------------------------------------------
Growth Portfolio--Service Shares $1280 $1725 $2014 $2814 $250 $769 $1316 $2814
</TABLE>
THESE EXAMPLES DO NOT SHOW PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
HIGHER OR LOWER.
21
<PAGE> 22
EXPENSE EXAMPLES CONTINUED
--------------------------------------------------------------------------------
PART I
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SUMMARY
<TABLE>
<CAPTION>
CONTRACT WITH CREDIT: GREATER OF ROLL-UP OR STEP-UP GUARANTEED MINIMUM
DEATH BENEFIT OPTION; GUARANTEED MINIMUM INCOME BENEFIT
------------------------------------------------------------------------------------------------------------------------------
EXAMPLE 4A: EXAMPLE 4B:
IF YOU WITHDRAW YOUR ASSETS IF YOU DO NOT WITHDRAW YOUR ASSETS
----------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS 1 YR 3 YRS 5 YRS 10 YRS
THE PRUDENTIAL SERIES FUND
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Prudential Global Portfolio $1329 $1871 $2257 $3293 $299 $915 $1559 $3293
Prudential Jennison Portfolio $1307 $1806 $2149 $3082 $277 $850 $1451 $3082
Prudential Money Market Portfolio $1285 $1740 $2040 $2867 $255 $785 $1342 $2867
Prudential Stock Index Portfolio $1282 $1731 $2024 $2835 $252 $775 $1326 $2835
SP Aggressive Growth Asset Allocation
Portfolio $1349 $1932 $2358 $3489 $319 $977 $1660 $3489
SP AIM Aggressive Growth Portfolio $1352 $1941 $2373 $3518 $322 $986 $1675 $3518
SP AIM Growth and Income Portfolio $1345 $1920 $2338 $3450 $315 $964 $1640 $3450
SP Alliance Large Cap Growth Portfolio $1355 $1951 $2388 $3547 $325 $995 $1690 $3547
SP Alliance Technology Portfolio $1376 $2012 $2488 $3738 $346 $1056 $1790 $3738
SP Balanced Asset Allocation Portfolio $1337 $1895 $2297 $3372 $307 $940 $1599 $3372
SP Conservative Asset Allocation Portfolio $1337 $1896 $2299 $3381 $307 $940 $1601 $3381
SP Davis Value Portfolio $1328 $1868 $2252 $3283 $298 $912 $1554 $3283
SP Deutsche International Equity Portfolio $1355 $1951 $2388 $3547 $340 $1038 $1761 $3682
SP Growth Asset Allocation Portfolio $1342 $1911 $2323 $3421 $312 $955 $1625 $3421
SP INVESCO Small Company Growth Portfolio $1361 $1966 $2413 $3596 $331 $1010 $1715 $3596
SP Jennison International Growth Portfolio $1370 $1993 $2459 $3682 $340 $1038 $1761 $3682
SP Large Cap Value Portfolio $1335 $1889 $2287 $3352 $305 $934 $1589 $3352
SP MFS Capital Opportunities Portfolio $1345 $1920 $2338 $3450 $315 $964 $1640 $3450
SP MFS Mid Cap Growth Portfolio $1345 $1920 $2338 $3450 $315 $964 $1640 $3450
SP PIMCO High Yield Portfolio $1326 $1865 $2246 $3273 $296 $909 $1548 $3273
SP PIMCO Total Return Portfolio $1320 $1846 $2216 $3213 $290 $890 $1518 $3213
SP Prudential U.S. Emerging Growth Portfolio $1335 $1889 $2287 $3352 $305 $934 $1589 $3352
SP Small/Mid Cap Value Portfolio $1350 $1935 $2363 $3499 $320 $980 $1665 $3499
SP Strategic Partners Focused Growth
Portfolio $1346 $1923 $2343 $3460 $316 $967 $1645 $3460
JANUS ASPEN SERIES
------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio--Service Shares $1337 $1895 $2297 $3372 $307 $940 $1599 $3372
</TABLE>
THESE EXAMPLES DO NOT SHOW PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
HIGHER OR LOWER.
--------------------------------------------------------------------------------
22
<PAGE> 23
PART II SECTIONS 1-9
--------------------------------------------------------------------------------
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS
--------------------------------------------------------------------------------
23
<PAGE> 24
PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
1:
WHAT IS THE STRATEGIC PARTNERS ANNUITY ONE
VARIABLE ANNUITY?
--------------------------------------------------------------------------------
THE STRATEGIC PARTNERS ANNUITY ONE VARIABLE ANNUITY IS A CONTRACT BETWEEN YOU,
THE OWNER, AND US, PRUCO LIFE INSURANCE COMPANY (PRUCO LIFE, WE OR US).
Under our contract, in exchange for your payment to us, we promise to pay you a
guaranteed income stream that can begin any time on or after the third 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. (If you hold the annuity contract in a
tax-favored plan such as an IRA, that plan generally provides tax deferral even
without investing in an annuity contact.)
There are two versions of Strategic Partners Annuity One.
Contract With Credit. One version of the contract:
- provides for a bonus credit that we add to each purchase payment that you
make and that vests over time,
- has higher withdrawal charges and a longer withdrawal charge period, and
- has no fixed rate investment options available.
We call this version the "Contract With Credit."
Contract Without Credit. The other version of the contract:
- does not provide a credit,
- has lower withdrawal charges and a shorter withdrawal charge period, and
- offers two fixed rate investment options: a one-year fixed rate option and a
dollar cost averaging fixed rate option.
We call this version the "Contract Without Credit."
Unless we state otherwise, when we use the word contract, it applies to both
versions.
You may prefer the Contract With Credit if:
- You anticipate that you will not need to withdraw purchase payments any
earlier than four to seven years after making them, AND
- You do not wish to allocate purchase payments to the fixed interest rate
options.
If you wish to have the option of allocating part of your contract value to
the fixed interest rate options, you may prefer the Contract Without Credit.
Because of the higher withdrawal charges, if you choose the Contract With
Credit and you withdraw a purchase payment earlier than four to seven contract
anniversaries after making that purchase payment, depending upon the performance
of the investment options you choose, you may be worse off than if you had
chosen the Contract Without Credit. We do not recommend purchase of either
version of Strategic Partners Annuity One if you anticipate having to withdraw a
significant amount of your purchase payments within a few years of making those
purchase payments.
Strategic Partners Annuity One is a variable annuity contract. This means
that during the accumulation phase, you can allocate your assets among 25
variable investment options and, if you choose the Contract Without Credit, two
guaranteed fixed interest rate options as well. If you select 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 funds associated with those variable investment options. 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
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
value of your contract at the time you begin receiving payments.
As mentioned above, if you choose the Contract Without Credit, two guaranteed
fixed interest rate options are available:
- The one-year fixed rate option offers an interest rate that is guaranteed by
us for one year and will always be at least 3% per year.
- The dollar cost averaging fixed rate option offers an interest rate that is
guaranteed by us for a selected period during which periodic transfers are
made to selected variable investment options.
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 whose life is used to determine how much and
how long the annuity payments will continue once the annuity phase begins. On
and after the annuity date, the annuitant is the owner and may not be changed.
The beneficiary is the person(s) or entity you designate to receive any death
benefit. 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 Strategic Partners Annuity One, you may
cancel your contract within 10 days after receiving it (or whatever period is
required by applicable state 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 state law:
- Your full purchase payment; or
- 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. If you have purchased
the Contract With Credit, we will deduct any credit we had added to your
contract value.
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STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
2:
WHAT INVESTMENT OPTIONS
CAN I CHOOSE?
--------------------------------------------------------------------------------
THE CONTRACT GIVES YOU THE CHOICE OF ALLOCATING YOUR PURCHASE PAYMENTS TO ANY
ONE OR MORE OF 25 VARIABLE INVESTMENT OPTIONS.
The 25 variable investment options invest in mutual funds managed by leading
investment advisers. Separate prospectuses for these funds are attached to this
prospectus. You should read a mutual fund's 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 separate investment objective.
THE PRUDENTIAL SERIES FUND
- Prudential Global Portfolio
- Prudential Jennison Portfolio (domestic equity)
- Prudential Money Market Portfolio
- Prudential Stock Index Portfolio
- SP Aggressive Growth Asset Allocation Portfolio
- SP AIM Aggressive Growth Portfolio
- SP AIM Growth and Income Portfolio
- SP Alliance Large Cap Growth Portfolio
- SP Alliance Technology Portfolio
- SP Balanced Asset Allocation Portfolio
- SP Conservative Asset Allocation Portfolio
- SP Davis Value Portfolio
- SP Deutsche International Equity Portfolio
- SP Growth Asset Allocation Portfolio
- SP INVESCO Small Company Growth Portfolio
- SP Jennison International Growth Portfolio
- SP Large Cap Value Portfolio
- SP MFS Capital Opportunities Portfolio
- SP MFS Mid Cap Growth Portfolio
- SP PIMCO High Yield Portfolio
- SP PIMCO Total Return Portfolio
- SP Prudential U.S. Emerging Growth Portfolio
- SP Small/Mid Cap Value Portfolio
- SP Strategic Partners Focused Growth Portfolio
The Prudential Global Portfolio, Prudential Jennison Portfolio, Prudential Money
Market Portfolio, and Prudential Stock Index Portfolio are managed by The
Prudential Insurance Company of America ("Prudential"). The remaining portfolios
of the Prudential Series Fund are managed by Prudential Investments Fund
Management LLC ("PIFM"), a subsidiary of Prudential. In addition, the portfolios
listed below also have subadvisers, which are listed below and which have
day-to-day responsibility for managing the portfolio, subject to the oversight
of Prudential or PIFM.
Prudential Money Market Portfolio and Prudential Stock Index Portfolio:
Prudential Investment Corporation
Prudential Jennison Portfolio, SP Jennison International Growth
Portfolio, and SP Prudential U.S. Focused Growth Portfolio: Jennison
Associates LLC
SP Strategic Partners Focused Growth Portfolio: Jennison Associates LLC.
and Alliance Capital Management L.P.
SP AIM Aggressive Growth Portfolio and SP AIM Growth and Income
Portfolio: AIM Advisors, Inc.
SP Alliance Large Cap Growth Portfolio and SP Alliance Technology
Portfolio: Alliance Capital Management L.P.
SP Davis Value Portfolio: Davis Select Advisers, LP
SP Deutsche International Equity Portfolio: Bankers Trust Company, part
of Deutsche Asset Management and a wholly-owned subsidiary of Deutsche
International Bank A.G.
SP INVESCO Small Company Growth Portfolio: INVESCO
SP Large Cap Value Portfolio and SP Small/Mid Cap Value Portfolio:
Fidelity Management and Research Company
SP MFS Capital Opportunities Portfolio and SP MFS Mid Cap Growth
Portfolio: Massachusetts Financial Services Company
SP PIMCO High Yield Portfolio and PIMCO Total Return Portfolio: Pacific
Investment Management Company
JANUS ASPEN SERIES
- Growth Portfolio--Service Shares
Janus Capital Corporation serves as investment adviser to the Growth
Portfolio--Service Shares of Janus Aspen Series.
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
FIXED INTEREST RATE OPTIONS
If you choose the Contract Without Credit, we offer two fixed interest rate
options:
- a one-year fixed rate option, and
- a dollar cost averaging fixed rate option ("DCA Fixed Rate Option").
We set a one year guaranteed annual interest rate that is always available
for the one-year fixed rate option. For the DCA Fixed Rate Option, the interest
rate is guaranteed for the applicable period of time for which transfers are
made. Neither fixed interest rate option is available if you choose the Contract
With Credit.
When you select one of these options, your payment will earn interest at the
established rate for the applicable interest rate period. A new interest rate
period is established every time you allocate or transfer money into a fixed
interest rate option. (You may not transfer amounts from other investment
options into the DCA Fixed Rate Option.) You may have money allocated in more
than one interest rate period at the same time. This could result in your money
earning interest at different rates and each interest rate period maturing at a
different time. While these interest rates may change from time to time, the
minimum rate will never be less than 3%.
DCA Fixed Rate Option With the Contract Without Credit, you may allocate all
or part of any purchase payment to the DCA Fixed Rate Option. Under this option,
you automatically transfer amounts over a stated period (currently, six or
twelve months) from the DCA Fixed Rate Option to the variable investment options
you select. We will invest the assets you allocate to the DCA Fixed Rate Option
in our general account until they are transferred. You may not transfer from
other investment options to the DCA Fixed Rate Option.
If you choose to allocate all or part of a purchase payment to the DCA Fixed
Rate Option, the minimum amount of the purchase payment you may allocate is
$5,000. Purchase payments of less than $5,000 may not be allocated to the DCA
Fixed Rate Option. The first periodic transfer will occur on the date you
allocate your purchase payment to the DCA Fixed Rate Option. Subsequent
transfers will occur on the monthly anniversary of the first transfer.
Currently, you may choose to have the purchase payment allocated to the DCA
Fixed Rate Option transfer to the selected variable investment options in either
six or twelve monthly installments, and you may not change that number of
monthly installments after you have chosen the DCA Fixed Rate Option. You may
allocate to both the six-month and twelve-month options, but the minimum amount
of a purchase payment that may be allocated to one or the other is $5,000. (In
the future, we may make available other numbers of transfers and other transfer
schedules--for example, quarterly as well as monthly.) If you choose a
six-payment transfer schedule, each transfer generally will equal 1/6th of the
amount you allocated to the DCA Fixed Rate Option, and if you choose a
twelve-payment transfer schedule, each transfer generally will equal 1/12th of
the amount you allocated to the DCA Fixed Rate Option. In either case, the final
transfer amount generally will also include the credited interest. You may
change at any time the variable investment options into which the DCA Fixed Rate
Option assets are transferred. Transfers from the DCA Fixed Rate Option do not
count toward the maximum number of free transfers allowed under the contract.
If you make a withdrawal or have a fee assessed from your contract, and all
or part of that withdrawal or fee comes out of the DCA Fixed Rate Option, we
will recalculate the periodic transfer amount to reflect the change. This
recalculation may include some or all of the interest credited to the date of
the next scheduled transfer. If a withdrawal or fee assessment reduces the
monthly transfer amount below $100, we will transfer the remaining balance in
the DCA Fixed Rate Option on the next scheduled transfer date.
By investing amounts on a regular basis instead of investing the total amount
at one time, the DCA Fixed Rate Option may decrease the effect of market
fluctuation on the investment of your purchase payment. Of course, dollar cost
averaging cannot ensure a profit or protect against loss in a declining market.
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2:
WHAT INVESTMENT OPTIONS CAN I CHOOSE? CONTINUED
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
TRANSFERS AMONG OPTIONS
You can transfer money among the variable investment options and, if you have
chosen the Contract Without Credit, the fixed interest rate options as well. You
may make your transfer request by telephone or in writing to the Prudential
Annuity Service Center. You may make up to two telephone transfer requests per
month. You must make any additional transfer requests during that month 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 reasonably believe to be genuine. Your
transfer request will take effect at the end of the business day on which we
receive it. Our business day generally closes at 4:00 p.m. Eastern time, and
requests received after that time will take effect at the end of the next
business day.
YOU CAN MAKE TRANSFERS OUT OF A FIXED INTEREST-RATE OPTION, OTHER THAN THE
DCA OPTION, ONLY DURING THE 30-DAY PERIOD FOLLOWING THE END OF THE ONE YEAR
INTEREST RATE PERIOD. TRANSFERS FROM THE DCA OPTION ARE MADE ON A PERIODIC BASIS
FOR THE PERIOD THAT YOU SELECT.
During the contract accumulation phase, you can make up to 12 transfers each
contract year without charge. We will charge you up to $30 for each transfer
after the twelfth in a contract year. Currently that charge is $25 for each
additional transfer. (Dollar Cost Averaging and Auto-Rebalancing transfers are
always free, and do not count toward the 12 free transfers per year.)
OTHER AVAILABLE FEATURES
DOLLAR COST AVERAGING
The dollar cost averaging (DCA) feature (which is distinct from the DCA Fixed
Rate Option) allows you to systematically transfer either a fixed dollar amount
or a percentage out of any variable investment option and into one or more other
variable investment options. You can have these automatic transfers occur
monthly, quarterly, semiannually or annually. By investing amounts on a regular
basis instead of investing the total amount at one time, dollar cost averaging
may decrease the effect of market fluctuation on the investment of your purchase
payment. Of course, dollar cost averaging cannot ensure a profit or protect
against loss in a declining market.
Each dollar cost averaging transfer must be at least $100. Transfers will be
made automatically on the schedule you choose until the entire amount you chose
to have transferred has been transferred or until you tell us to discontinue the
transfers. If the remaining amount to be transferred drops below $100, the
entire remaining balance will be transferred on the next transfer date. You can
allocate additional amounts to be transferred at any time.
Your transfers will occur 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 dollar cost averaging transfers you make do not count toward the 12 free
transfers you are allowed each contract year. The dollar cost averaging feature
is available only during the contract accumulation phase.
ASSET ALLOCATION PROGRAM
We recognize the value of having advice when deciding how to allocate your
purchase payments among the investment options. 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. We
will prepare your asset allocation based on your answers to the questionnaire.
We will not charge you for this service and you are not obligated to participate
or to invest according to program recommendations.
AUTO-REBALANCING
Once you have allocated your money 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
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
percentage of your assets than you desire. You can direct us to automatically
rebalance your assets to return to your original allocation or to change
allocations by selecting the Auto-Rebalancing feature. If you also participate
in the DCA feature, then the variable investment option from which you make the
DCA transfers will not be rebalanced.
You may choose to have your rebalancing occur monthly, quarterly,
semiannually, or annually. The rebalancing will occur 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 that occur as a result of the Auto-Rebalancing feature do not
count toward the 12 free transfers you are allowed per year. The
auto-rebalancing 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 currently vote the shares of the mutual funds
according to voting instructions we receive from contract owners. When a vote is
required, we will mail you a form that you can 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. We
will vote fund shares for which we do not receive instructions, and any other
shares that we own, in the same proportion as shares for which we do receive
instructions from contract owners. We may change the way your voting
instructions are calculated if federal law requires or permits it.
SUBSTITUTION
We may substitute one or more of the mutual funds used by the variable
investment options. We would not do this without the approval of the Securities
and Exchange Commission and applicable state insurance departments. We would
give you specific notice in advance of any substitution we intended to make. We
may also stop allowing investments in existing funds.
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
3:
WHAT KIND OF PAYMENTS WILL I RECEIVE DURING THE
INCOME PHASE? (ANNUITIZATION)
--------------------------------------------------------------------------------
The annuitant can begin receiving annuity payments any time after the third
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).
The Strategic Partners Annuity One variable annuity contract offers an
optional guaranteed minimum income benefit, which we describe below. Your
annuity options vary depending upon whether you choose this benefit.
PAYMENT PROVISIONS WITHOUT THE GUARANTEED MINIMUM INCOME BENEFIT
You may choose among the income plans described below at any time before the
annuity date. We call these plans "annuity options" or "settlement options."
During the income phase, all of the annuity options under this contract are
fixed annuity options. This means that you no longer invest in the variable
investment options--that is, in the underlying mutual funds--on or after the
annuity date. If you have not selected another annuity Option by the annuity
date, you will automatically select the Life Income Annuity Option (Option 2,
described below) unless prohibited by applicable law. GENERALLY, ONCE THE
ANNUITY PAYMENTS BEGIN, YOU CANNOT CHANGE THE ANNUITY OPTION.
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. We will make these payments monthly, quarterly, semiannually, or
annually, as you choose, for the fixed period. If the annuitant dies during the
income phase, we will continue payments to the beneficiary for the remainder of
the fixed period or, if the beneficiary so chooses, we will make a single
lump-sum payment. We calculate the amount of the lump sum payment as present
value of the unpaid future payments based upon the interest rate used to compute
the actual payments. That interest rate 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 us to continue to pay the
remaining monthly annuity payments. We calculate the present value of the
remaining annuity payments using the interest rate used to compute the amount of
the original 120 payments. That interest rate will always be at least 3% a year.
If you have not selected an annuity Option by the annuity date, you will
automatically select this option, 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 you hold your contract in an IRA.
OTHER ANNUITY OPTIONS
We currently offer a variety of other annuity options. At the time you choose to
receive your annuity payments, we may make available to you any of the fixed
annuity options then offered.
Applicable state law may limit some of these options. Consult the Statement
of Additional Information for details.
Depending upon the annuity Option you choose, you may incur a withdrawal
charge when the income phase begins. Currently, if permitted by state law, we
deduct any applicable withdrawal charge if you choose Option 1 for a period
shorter than five years, Option 3, or certain other annuity options that we may
make available. We do not deduct a withdrawal charge if you
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
choose Option 1 for a period of five years or longer or Option 2. For
information about withdrawal charges, see "What are the expenses associated with
the Strategic Partners Annuity One contract," page 37. In addition, if you have
purchased the Contract With Credit, we will take back any credits that have not
vested when you begin the income phase. See "Credits," on page 35.
GUARANTEED MINIMUM INCOME BENEFIT
The guaranteed minimum income benefit, or "GMIB," is an optional feature that,
if you choose it, guarantees that once the income period begins, your income
payments will be no less than a certain "protected value" applied to the
guaranteed annuity purchase rates. Depending on applicable state law, the GMIB
is not available under all contracts. In addition, the GMIB is subject to
certain age restrictions described below.
- If you want the guaranteed minimum income benefit, you must choose this
Option when you make your initial purchase payment, and you must also
participate in the "Guaranteed Minimum Death Benefit," which we describe
later in this prospectus. See "What is the Death Benefit?," page 33.
- If you do choose the guaranteed minimum income benefit, you must continue to
participate in this feature until at least the end of the seventh contract
year. If, after the seventh contract year, you decide to stop participating
in the GMIB, you may do so (if permitted by state law) but will not be able
to reinstate it.
- If you choose the guaranteed minimum income benefit, we will impose an annual
charge equal to 0.25% of the "roll-up value" described below. (In some
states, we may calculate this fee on a different basis, but it will not be
higher than 0.25% of the roll-up value.) See "What are the expenses
associated with the Strategic Partners Annuity One Contract?" on page 37.
- To take advantage of the guaranteed minimum income benefit, you must wait a
certain amount of time before you begin the income phase. The length of that
waiting period depends upon the age of the annuitant (or, if there is a
co-annuitant as well, the age of the older of the two) as shown in the
following chart:
<TABLE>
<CAPTION>
AGE AT CONTRACT ANNIVERSARY WHEN
ISSUE GMIB BECOMES
OF CONTRACT AVAILABLE
----------- -------------------------
<S> <C>
0-45 15
46 14
47 13
48 12
49 11
50-80 10
</TABLE>
Once that period has elapsed, you will have a thirty-day period each year,
beginning on the contract anniversary, during which you may begin the income
phase with the guaranteed minimum income benefit by submitting the necessary
forms in good order to the Annuity Service Center.
Payout Amount. The guaranteed minimum income benefit payout amount is based
on the age and sex of the annuitant (and, if there is one, the co-annuitant as
well). After we first deduct a charge for any applicable premium taxes, the
payout amount will equal the greater of:
1) the "protected value" as of the date you exercise the guaranteed minimum
income benefit payout option, applied to the guaranteed annuity purchase
rates and based on the period certain as described below. Currently, the
protected value is equal to the "roll-up value," which is the total of all
invested purchase payments compounded daily at an effective annual rate of
5.0%, subject to a cap of 200% of all invested purchase payments. Both the
roll-up and the cap are reduced proportionally by withdrawals.
2) the adjusted contract value--that is, the contract value minus (i) any charge
we impose for premium taxes and (ii), if you have chosen the Contract With
Credit, any credit that has not vested--as of the date the exercise of the
GMIB payout Option applied to the current annuity purchase rates then in use
and based on the "period certain," as described below.
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3:
WHAT KIND OF PAYMENTS WILL I RECEIVE DURING THE INCOME PHASE? (ANNUITIZATION)
CONTINUED
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
The guaranteed annuity purchase rates are attached to your contract.
After the contract anniversary on or after the sole or older owner's 80th
birthday, we stop increasing the protected value. This means that we do not
increase the roll-up by the effective annual interest rate. But when you make a
withdrawal on or after that contract anniversary, we still reduce the roll-up
value proportionally by the effect of the withdrawal.
GMIB Annuity Payout Options. We currently offer two guaranteed minimum income
benefit annuity payout options. Each involves payment for at least a "period
certain," which we define below.
GMIB OPTION 1
SINGLE LIFE PAYOUT OPTION
We will make monthly payments for as long as the annuitant lives, with payments
for a period certain. We will stop making payments after the later of the death
of the annuitant or the end of the period certain.
GMIB OPTION 2
JOINT LIFE PAYOUT OPTION
In the case of an annuitant and co-annuitant, we will make monthly payments for
the joint lifetime of the annuitant and co-annuitant, with payments for a period
certain. If the co-annuitant dies first, we will continue to make payments until
the later of the death of the annuitant and the end of the period certain. If
the annuitant dies first, we will continue to make payments until the later of
the death of the co-annuitant and the end of the period certain, but if the
period certain ends first, we will reduce the amount of each payment to 50% of
the original amount.
The annuitant (or co-annuitant) has no right to withdraw amounts early under
either GMIB payout option. We may make other payout frequencies available, such
as quarterly, semi-annually or annually.
The "period certain" for the guaranteed minimum income benefit depends upon
the annuitant's age on the date you exercise the GMIB payout option:
<TABLE>
<CAPTION>
AGE PERIOD CERTAIN
---------- --------------
<S> <C>
80 or less 10 years
81 9 years
82 8 years
83 7 years
84 6 years
85-90 5 years
</TABLE>
Because we do not impose a new waiting period for each subsequent purchase
payment, if you choose the GMIB, we reserve the right to limit subsequent
purchase payments if we discover that by the timing of your purchase payments
and withdrawals, your protected value is increasing in ways we did not intend.
In determining whether to limit purchase payments, we will look at purchase
payments which are disproportionately larger than your initial purchase payment
and other actions that may artificially increase the GMIB protected value.
Certain states' laws may prevent us from limiting your subsequent purchase
payments. Consult the Statement of Additional Information for details.
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
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. You name the beneficiary at the time the contract is issued, unless you
change it at a later date. Unless you name an irrevocable beneficiary, during
the accumulation period you can change the beneficiary at any time before the
owner (or, if there is a joint owner, the last surviving of the owner and joint
owner) dies.
CALCULATION OF THE DEATH BENEFIT
If the owner (or the last surviving of the owner and joint owner, if there is a
joint owner) dies during the accumulation phase, we will, upon receiving
appropriate proof of death, pay a death benefit to the beneficiary designated by
the owner. If death is prior to age 80, the beneficiary will receive the greater
of the following:
1) The current value of your contract (as of the time we receive appropriate
proof of death). If you have purchased the Contract With Credit, we will
first deduct any non-vested credit corresponding to a purchase payment made
later than one year prior to death.
2) Either the base death benefit, which equals the total purchase payments you
have made less any withdrawals, or, if you have chosen a guaranteed minimum
death benefit, the "protected value" of that death benefit.
The protected value of the guaranteed minimum death benefit, which depends
upon which option you have chosen, may equal the "step-up value," the "roll-up
value," or the greater of the two:
STEP-UP GUARANTEED MINIMUM DEATH BENEFIT--The step-up value equals the highest
value of the contract on any contract anniversary date--that is, on each
contract anniversary, the new step-up value becomes the higher of the previous
step-up value and the current contract value. Between anniversary dates, the
step-up value is only increased by additional purchase payments and reduced
proportionally by withdrawals. If an owner who has purchased a Contract With
Credit makes any purchase payment later than one year prior to death, we will
adjust the death benefit to take back any non-vested credit corresponding to
that purchase payment.
ROLL-UP GUARANTEED MINIMUM DEATH BENEFIT--The roll-up value equals the total of
all invested purchase payments compounded daily at an effective annual rate of
5.0%, subject to a cap of 200% of all invested purchase payments. Both the
roll-up and the cap are reduced proportionally by withdrawals.
GREATER OF STEP-UP AND ROLL-UP GUARANTEED MINIMUM DEATH BENEFIT--Under this
option, the protected value is equal to the greater of the step-up value and the
roll-up value.
If you have chosen the base death benefit and death occurs on or after age
80, the beneficiary will receive the base death benefit described above. If you
have chosen a guaranteed minimum death benefit option and death occurs on or
after age 80, the beneficiary will receive the greater of: 1) the current
contract value as of the date that due proof of death is received, and 2) the
death benefit as of age 80, reduced proportionally by any withdrawals. For this
purpose, an owner is deemed to reach age 80 on the contract anniversary on or
following the owner's actual 80th birthday (or if there is a joint owner, the
contract anniversary on or following the older owner's actual 80th birthday).
Here is an example of a proportional reduction:
If an owner withdrew 50% of a contract valued at $100,000 and if the
protected value was $80,000, the new protected value following the withdrawal
would be $40,000 or 50% of what it had been prior to the withdrawal.
Special rules apply if the beneficiary is the spouse of the owner, and the
contract does not have a joint owner. In that case, upon the death of the owner,
the spouse will have the choice of the following:
- The contract can continue, and the spouse will become the new owner of the
contract; or
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WHAT IS THE DEATH BENEFIT? CONTINUED
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
- The spouse can receive the death benefit. If the spouse does wish to receive
the death benefit, he or she must make that choice within the first 60 days
following our receipt of proof of death. Otherwise, the contract will
continue with the spouse as owner.
Special rules also apply if the contract has an owner and a joint owner and
they are spouses at the time that one dies. If that occurs, the surviving spouse
has the choice of the following:
- The contract can continue, with the surviving spouse as the sole owner of the
contract; or
- The surviving spouse can receive the adjusted contract value and the contract
will end. If the surviving spouse does wish to receive the adjusted contract
value, he or she must make that choice within the first 60 days following our
receipt of proof of death. Otherwise, the contract will continue with the
surviving spouse as the sole owner.
Finally, special rules apply if the contract has an owner and a joint owner,
and they are not spouses at the time that one dies. In that situation, the
contract will not continue. Instead, the beneficiary will receive the adjusted
contract value.
If ownership of the contract changes as a result of the owner assigning it to
someone else, we will reset the value of the death benefit to equal the contract
value on the date the change of ownership occurs, and for purposes of computing
the future death benefit, we will treat that contract value as a purchase
payment occurring on that date.
Depending on applicable state law, some death benefit options may not be
available or may be subject to certain restrictions under your contract.
PAYOUT OPTIONS
The beneficiary may, within 60 days of providing proof of death, choose to take
the death benefit under one of several death benefit payout options listed
below.
The death benefit payout options are:
Choice 1. Lump sum payment of the death benefit. If the beneficiary does not
choose a payout option within sixty days, the beneficiary will receive this
payout option.
Choice 2. The payment of the entire death benefit within 5 years of the date
of death of the last to survive of the owner or joint owner.
Choice 3. Payment of the death benefit under an annuity or annuity settlement
option over the lifetime of the beneficiary or over a period not extending
beyond the life expectancy of the beneficiary with distribution beginning
within one year of the date of death of the last to survive of the owner or
joint owner.
If the contract has an owner and a joint owner:
- If the owner and joint owner are spouses at the death of the first to die of
the two, any portion of the death benefit not applied under Choice 3 within
one year of the survivor's date of death must be distributed within five
years of the survivor's date of death.
- If the owner and joint owner are not spouses at the death of the first to die
of the two, any portion of the death benefit (which is equal to the adjusted
contract value) not applied under Choice 3 within one year of the date of
death of the first to die must be distributed within five years of that date
of death.
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
5:
HOW CAN I PURCHASE A STRATEGIC PARTNERS
ANNUITY ONE CONTRACT?
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PURCHASE PAYMENTS
The initial purchase payment is the amount of money you first pay us to purchase
the contract. The minimum initial purchase payment is $10,000. With some
restrictions, you can make additional purchase payments of $1,000 or more at any
time during the accumulation phase. However, no purchase payments may be made on
or after the earliest of the 80th birthday of (i) the owner, (ii) the joint
owner, or (iii) the annuitant.
Currently, the maximum aggregate purchase payments you may make is $20
million. We limit the maximum total purchase payments in any contract year other
than the first to $2 million. Depending on applicable state law, lower limits
may apply. Consult the Statement of Additional Information for details.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, we will allocate your invested purchase payment
among the variable investment options based on the percentages you choose. The
percentage of your allocation to a particular investment option can range in
whole percentages from 0% to 100%.
You may change your allocation of future invested purchase payments at any
time. Contact the Annuity Service Center for details.
If you make an additional purchase payment without allocation instructions,
we will allocate the invested purchase payment in the same proportion as your
most recent purchase payment, unless you directed us in connection with that
purchase payment to make that allocation on a one-time-only basis.
If you purchase the Contract Without Credit and you allocated all or part of
your initial purchase payment to the DCA Fixed Rate Option, we will treat your
transfer allocation instructions for the DCA Fixed Rate Option as part of your
allocation instructions for subsequent purchase payments until you direct us
otherwise.
We will credit the initial purchase payment to your contract within two
business days from the day on which we receive your payment at the Prudential
Annuity Service Center. If, however, your first payment is made without enough
information for us to set up your contract, we may need to contact you to obtain
the required information. If we are not able to obtain this information within
five business days, we will within that five business day period either return
your purchase payment or obtain your consent to continue holding it until we
receive the necessary information. We will generally credit each subsequent
purchase payment as of the business day we receive it in good order. Our
business day generally closes at 4:00 p.m. Eastern time. We will generally
credit subsequent purchase payments received in good order after the close of a
business day on the following business day.
CREDITS
If you purchase the Contract With Credit, we will add a credit amount to your
contract value with each purchase payment you make. The credit is allocated to
the variable investment options in the same percentages as the purchase payment.
The credit percentage is currently equal to 4% of each purchase payment. With
the approval of the Securities and Exchange Commission, we can change that
credit percentage, but we guarantee it will never be less than 3%.
Each credit is subject to its own vesting schedule, which is shown below. If
you make a withdrawal of all or part of a purchase payment, or you begin the
income phase of the contract, we will take back the non-vested portion of the
credit attributable to that purchase payment. Withdrawals of purchase payments
occur on a
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HOW CAN I PURCHASE A STRATEGIC PARTNERS ANNUITY ONE CONTRACT? CONTINUED
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
first-in first-out basis. This credit that we take back is in addition to any
withdrawal charges that may apply.
<TABLE>
<CAPTION>
NUMBER OF CONTRACT ANNIVERSARIES
SINCE DATE OF EACH PURCHASE PAYMENT VESTED PERCENTAGE
----------------------------------- -----------------
<S> <C>
0 0%
1 10%
2 20%
3 30%
4 40%
5 50%
6 60%
7 100%
</TABLE>
If you exercise your right to cancel the contract, we will take back the
entire credit. If we pay a death benefit under the contract, we will take back
the non-vested portion of any credit we applied one year prior to the date of
death or later.
Depending upon the state in which your contract was issued, your contract may
include a different vesting schedule. We are in the process, however, of
enhancing those contracts to make sure that their vesting schedules are no less
favorable to you than the above vesting schedule. Accordingly, we intend to
follow the above vesting schedule even if your contract currently shows a less
favorable schedule.
CALCULATING CONTRACT VALUE
The value of your contract will go up or down depending on the investment
performance of the variable investment options 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 for the investment options you choose. We
determine the number of accumulation units credited to your contract by dividing
the amount of the purchase payment, plus (if you have purchased the Contract
With Credit) any applicable credit, 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.
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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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
6:
WHAT ARE THE EXPENSES ASSOCIATED WITH THE STRATEGIC
PARTNERS ANNUITY ONE CONTRACT?
--------------------------------------------------------------------------------
THERE ARE CHARGES AND OTHER EXPENSES ASSOCIATED WITH THE CONTRACT THAT REDUCE
THE RETURN ON YOUR INVESTMENT. WE DESCRIBE THESE CHARGES AND EXPENSES BELOW.
INSURANCE AND ADMINISTRATIVE CHARGE
Each day, we make a deduction for the insurance and administrative charge. This
charge covers our expenses for mortality and expense risk, administration,
marketing and distribution. If you choose a guaranteed minimum death benefit
option, the insurance and administrative charge also includes a charge to cover
our assumption of the associated risk. The mortality risk portion of the charge
is for our assumption of 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 our assumption of the risk 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 compensates us for the expenses associated with
the administration of the contract. This includes 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 guaranteed minimum death benefit risk
portion of the charge, if applicable, covers our assumption of the risk that the
protected value of the contract will be larger than the base death benefit if
the contract owner dies during the accumulation phase.
If the insurance and administrative charge is not sufficient to cover our
expenses, then we will bear the loss. We do, however, expect to profit from this
charge. The insurance and administrative charge for your contract cannot be
increased. We may use any profits from this charge to pay for the costs of
distributing the contracts. If you choose the Contract With Credit, we will also
use any profits from this charge to recoup our costs of providing the credit.
We calculate the insurance and administrative charge based on the average
daily value of all assets allocated to the variable investment options. The
amount of the charge depends on the death benefit option that you choose. The
charge is equal to 1.40% on an annual basis if you choose the base death
benefit, 1.60% on an annual basis if you choose either the roll-up or step-up
guaranteed minimum death benefit option, and 1.70% on an annual basis if you
choose the guaranteed minimum death benefit option of the greater of the roll-up
and step-up.
GUARANTEED MINIMUM INCOME BENEFIT CHARGE
We will impose an additional charge if you choose the guaranteed minimum income
benefit. This is an annual charge equal to 0.25% of the roll-up value of your
contract, which we deduct from your contract value on each of the following
events:
- each contract anniversary;
- when you begin the income phase of the contract;
- when you decide no longer to participate in the guaranteed minimum income
benefit;
- upon a full withdrawal; and
- upon a partial withdrawal if the remaining contract value remaining would not
be enough to cover the then applicable GMIB charge.
If we impose this fee other than on a contract anniversary, then we will
pro-rate it based on the portion of the contract year for which the GMIB was in
effect. We withdraw the fee from each investment option in the same proportion
that your contract value is allocated to that investment option. Upon a full
withdrawal or if the contract value remaining after a partial withdrawal is not
enough to cover the applicable GMIB charge, we will deduct the GMIB Charge from
the amount we pay you.
In some states, we may calculate the charge for the guaranteed minimum income
benefit in a different manner, but that charge will not exceed 0.25% of the
roll-up value. Consult the Statement of Additional Information for details.
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WHAT ARE THE EXPENSES ASSOCIATED WITH THE STRATEGIC PARTNERS ANNUITY ONE
CONTRACT? CONTINUED
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
We will not impose the GMIB charge after the income phase begins, after you
revoke the GMIB option, or after you choose your GMIB payout option.
Currently, only the roll-up guaranteed minimum income benefit option is
available. In the future, we may also offer a step-up option or the greater of
the step-up or roll-up option, for which different charges will apply.
ANNUAL CONTRACT FEE
Currently, we do not deduct an annual contract fee for administrative expenses
while your contract value is $50,000 or more. If your contract value is less
than $50,000 on a contract anniversary during the accumulation phase or when you
make a full withdrawal, we will deduct $30 (or if your contract value is less
than $1,500, then a lower amount equal to 2% of your contract value) for
administrative expenses. (This fee may differ in certain states.) We may
increase this charge up to a maximum of $60 per year. Also, we may raise the
level of the contract value at which we waive this fee. We will deduct this
charge proportionately from each of your contract's investment options.
WITHDRAWAL CHARGE
A withdrawal charge may apply if you make a full or partial withdrawal during
the withdrawal charge period for a purchase payment. The withdrawal charge may
also apply if you begin the income phase during the withdrawal charge period,
depending upon the annuity option you choose. The amount and duration of the
withdrawal charge depends on whether you choose the Contract With Credit or the
Contract Without Credit. The withdrawal charge varies with the number of
contract anniversaries that have elapsed since each purchase payment was made,
and is a percentage, shown below, of the amount withdrawn.
<TABLE>
<CAPTION>
NUMBER OF CONTRACT
ANNIVERSARIES SINCE THE
DATE OF EACH CONTRACT WITH CREDIT CONTRACT WITHOUT CREDIT
PURCHASE PAYMENT WITHDRAWAL CHARGE WITHDRAWAL CHARGE
----------------------- -------------------- -----------------------
<S> <C> <C>
0 7% 7%
1 7% 6%
2 7% 5%
3 6% 4%
4 5% 3%
5 4% 2%
6 3% 1%
7 2% 0%
8 1% 0%
9 0% 0%
</TABLE>
If a withdrawal is effective on the day before a contract anniversary, the
withdrawal charge percentage as of the following contract anniversary will
apply.
If you request a withdrawal, we will:
- deduct an amount from the contract value that is sufficient to pay the
withdrawal charge,
- if you have chosen the Contract With Credit, take back any credit that has
not vested under the vesting schedule, and
- provide you with the amount requested.
If you request a full withdrawal, we will provide you with the full amount of
the contract value after making these deductions.
Each contract year, you may withdraw up to 10% of your net purchase payments
without paying a withdrawal charge. For purposes of determining the withdrawal
charge, withdrawals of this 10% "charge-free" amount will come first from
purchase payments, on a first-in first-out basis. Withdrawals in excess of the
charge-free amount will come first from purchase payments, also on a first-in
first-out basis, and will be subject to withdrawal charges, if applicable, even
if earnings are available on that date. Once you have withdrawn all purchase
payments, further withdrawals will come from any remaining earnings. Earnings
are not subject to withdrawal charges.
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
Except as restricted by applicable state law, we will waive all withdrawal
charges upon receipt of proof that the owner or a joint owner is terminally ill,
or has been confined to an eligible nursing home or eligible hospital
continuously for at least three months after the contract date. This waiver is
not available if the owner has assigned ownership of the contract to someone
else.
Regardless whether we waive withdrawal charges, we will take back any credits
that have not vested under the vesting schedule. If you choose the Contract With
Credit and make a withdrawal that is subject to a withdrawal charge, we may use
part of that withdrawal charge to recoup our costs of providing the credit.
Withdrawal charges will never be greater than permitted by applicable law.
PREMIUM TAXES
Some states and 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, while 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% of the
contract value. If, in the future, we are charged for additional taxes that are
based on purchase payments, we will pass that charge on to contract owners.
TRANSFER FEE
You can make 12 free transfers every contract year. We measure a contract year
from the date we issue your contract, which is the 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 $25 for each additional
transfer. In the future we could raise that charge up to $30 per additional
transfer, although we have no current plans to do so. We will deduct the
transfer fee proportionately from all the investment options involved in the
transfer. In certain states, we may limit the transfer fee to a lower amount to
comply with applicable state law. Consult the Statement of Additional
Information for details.
COMPANY TAXES
We will pay the taxes on the earnings of the separate account. We do not
currently charge you for these taxes. We will periodically review the issue of
charging for these taxes and may impose a charge in the future.
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
7:
HOW CAN I
ACCESS MY MONEY?
--------------------------------------------------------------------------------
YOU CAN ACCESS YOUR MONEY BY:
- MAKING A WITHDRAWAL (EITHER PARTIAL OR FULL); OR
- CHOOSING TO RECEIVE ANNUITY PAYMENTS DURING THE INCOME PHASE.
WITHDRAWALS DURING THE ACCUMULATION PHASE
When you make a full withdrawal, you will receive the value of your contract on
the day you made the withdrawal, minus any applicable fees and, if you have
purchased the Contract With Credit, after we have taken back any credits that
have not yet vested. 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, we will take any partial withdrawal
proportionately from all of the variable investment options in which you have
invested. For a partial withdrawal, we will deduct any applicable fees and, if
you have purchased the Contract With Credit, take back any credit corresponding
to the purchase payments you are withdrawing, from the assets in your contract.
The minimum amount you may withdraw is $250. If, after a withdrawal, your
contract value is less than $2,000, we have the right 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.
INCOME TAXES, TAX PENALTIES, AND CERTAIN RESTRICTIONS MAY APPLY TO ANY
WITHDRAWAL YOU MAKE. FOR MORE INFORMATION, SEE SECTION 8, "WHAT ARE THE TAX
CONSIDERATIONS ASSOCIATED WITH THE STRATEGIC PARTNERS ANNUITY ONE CONTRACT," ON
PAGE 41 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.
SUSPENSION OF PAYMENTS OR TRANSFERS
The Securities and Exchange Commission may require us to suspend or postpone
payments made in connection with withdrawals or transfers for any period when:
- The New York Stock Exchange is closed (other than customary weekend and
holiday closings);
- Trading on the New York Stock Exchange is restricted;
- 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
- The Securities and Exchange Commission, by order, permits suspension or
postponement of payments for the protection of owners.
We expect to pay the amount of any withdrawal or transfer made from the fixed
interest rate options promptly upon request.
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
8:
WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE STRATEGIC
PARTNERS ANNUITY ONE CONTRACT?
--------------------------------------------------------------------------------
The tax considerations associated with the Strategic Partners Annuity One
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. You should consult with a qualified tax adviser for complete information
and advice.
CONTRACTS OWNED BY INDIVIDUALS (NOT ASSOCIATED WITH TAX-FAVORED RETIREMENT
PLANS)
TAXES PAYABLE BY YOU
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.
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.
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 transfer the contract
incident to divorce.
It is our position that the guaranteed minimum death benefit and guaranteed
minimum income benefit are an integral part of the annuity contract and
accordingly that the charges made against the annuity contract's cash value for
the benefit 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:
- the amount is paid on or after you reach age 59 1/2 or die;
- the amount received is attributable to your becoming disabled;
- 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 described above would also apply to amounts
received by your beneficiary. Choosing an annuity payment option instead of a
lump sum death benefit may defer taxes. Certain minimum
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8:
TAX CONSIDERATIONS ASSOCIATED WITH THE STRATEGIC PARTNERS ANNUITY ONE CONTRACT
CONTINUED
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
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 choose not to have tax withheld from your
payments. You must make that choice on the appropriate forms that we provide.
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 we,
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, that 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 contract owners 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:
- The contract is held by a corporation or other entity instead of by an
individual or as agent for an individual.
- Your contract was issued in exchange for a contract containing purchase
payments made before August 14, 1982.
- You are a nonresident alien.
- You transfer your contract to, or designate, a beneficiary who is either
37 1/2 years younger than you or a grandchild.
- 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. 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 Tax Code. This description assumes that
you have satisfied the requirements for eligibility for these products.
YOU SHOULD BE AWARE THAT TAX FAVORED PLANS SUCH AS IRAS GENERALLY PROVIDE TAX
DEFERRAL REGARDLESS WHETHER THEY INVEST IN ANNUITY CONTRACTS. THIS MEANS THAT
WHEN A TAX FAVORED PLAN INVESTS IN AN ANNUITY CONTRACT, IT GENERALLY DOES NOT
RESULT IN ANY ADDITIONAL TAX DEFERRAL BENEFITS.
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PART II
STRATEGIC PARTNERS ANNUITY ONE PROSPECTUS SECTIONS 1-9
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 and contract. The "IRA Disclosure Statement" on page 48 contains
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 Tax 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:
- 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);
- Your rights as owner are non-forfeitable;
- You cannot sell, assign or pledge the contract, other than to Pruco Life;
- The annual premium you pay cannot be greater than $2,000 (which does not
include any rollover amounts);
- 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
- 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:
- A 10% "early distribution penalty" (described below);
- Liability for "prohibited transactions" if you, for example, borrow against
the value of an IRA; or
- Failure to take a minimum distribution (also generally described below).
ROTH IRAS Congress amended the Tax 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:
- Contributions to a Roth IRA cannot be deducted from your gross income;
- "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
- If eligible, you may make contributions to a Roth IRA after attaining age
70 1/2, and distributions are
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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 Tax 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.
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 beginning
annuity payments or making a withdrawal of 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 Tax 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:
- 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
- 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 Tax Code
prevents a fiduciary and other "parties in interest" with respect to a plan
(and, for these purposes, an IRA 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
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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
Strategic Partners Annuity One Contract" starting on page 37.
Information about sales representatives and commissions may be found under
"Other Information" and "Sale and Distribution of the Contract" on page 45.
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.
ADDITIONAL INFORMATION
For additional information about federal tax law requirements applicable to tax
favored plans, see the "IRA Disclosure Statement" on page 48.
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9:
OTHER
INFORMATION
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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 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, Prudential's Board of Directors authorized management to take the
preliminary steps necessary to allow Prudential 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
Prudential's Board of Directors, a public hearing, voting by qualified
policyholders and regulatory approval. Prudential is working toward completing
this process in 2001 and currently expects adoption by the Board of Directors to
take place in the latter part of 2000. However, there is no certainty that the
demutualization will be completed in this timeframe or that the necessary
approvals will be obtained. Also, it is possible that after careful review,
Prudential could decide not to demutualize or could decide to delay its plans.
The plan of reorganization, which hasn't been fully 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, provided that their
policies were in force on the date Prudential's Board of Directors adopted a
plan of reorganization, while mutual fund customers and customers of
Prudential'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. This does not constitute a proposal, offer, solicitation or
recommendation regarding any plan of reorganization that may be proposed or a
recommendation regarding the ownership of any stock that could be issued in
connection with any such demutualization.
THE SEPARATE ACCOUNT
We have established a separate account, the Pruco Life Flexible Premium Variable
Annuity Account (the "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 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, appears in the
Statement of Additional Information.
SALE AND DISTRIBUTION OF THE CONTRACT
Prudential Investment Management Services LLC ("PIMS"), 100 Mulberry Street,
Newark, New Jersey 07102-4077, 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, and do not
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reduce the amount of your investment. Registered representatives of independent
broker-dealers may be paid on a different basis than those affiliated with PIMS.
ASSIGNMENT
You can assign the contract at any time during your lifetime. If you do so, we
will reset the death benefit to equal the contract value on the date the
assignment occurs. For details, see "What is the Death Benefit," on page 33. 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.
FINANCIAL STATEMENTS
The financial statements of the separate account associated with Strategic
Partners Annuity One 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 and Advertising
- Federal Tax Status
- State Specific Variations
- Directors and Officers
- Financial Statements
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IRA DISCLOSURE STATEMENT
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This statement is designed to help you understand the requirements of federal
tax law which apply to your individual retirement annuity (IRA), your Roth IRA,
your simplified employee pension IRA (SEP) for employer contributions, your
Savings Incentive Match Plan for Employees (SIMPLE) IRA, or to one you purchase
for your spouse. You can obtain more information regarding your IRA either from
your sales representative or from any district office of the Internal Revenue
Service. Those are federal tax law rules; state tax laws may vary.
FREE LOOK PERIOD
The annuity contract offered by this prospectus gives you the opportunity to
return the contract for a full refund within 10 days (or whatever period is
required by applicable state law) after it is delivered. This is a more liberal
provision than is required in connection with IRAs. To exercise this "free-look"
provision, return the contract to the representative who sold it you or to the
Prudential Annuity Service Center at the address shown on the first page of this
prospectus.
ELIGIBILITY REQUIREMENTS
IRAs are intended for all persons with earned compensation whether or not they
are covered under other retirement programs. Additionally, if you have a
non-working spouse (and you file a joint tax return), you may establish an IRA
on behalf of your non-working spouse. A working spouse may establish his or her
own IRA. A divorced spouse receiving taxable alimony (and no other income) may
also establish an IRA.
CONTRIBUTIONS AND DEDUCTIONS
Contributions to your IRA will be deductible if you are not an "active
participant" in an employer maintained qualified retirement plan or you have
"Adjusted Gross Income" (as defined under Federal tax laws) which does not
exceed the "applicable dollar limit." IRA (or SEP) contributions must be made by
no later than the time you file your income tax return for that year. For a
single taxpayer, the applicable dollar limitation is $30,000, with the amount of
IRA contribution which may be deducted reduced proportionately for Adjusted
Gross Income between $30,000 -- $40,000. For married couples filing jointly, the
applicable dollar limitation is $50,000, with the amount of IRA contribution
which may be deducted reduced proportionately for Adjusted Gross Income between
$50,000-$60,000. There is no deduction allowed for IRA contributions when
Adjusted Gross Income reaches $40,000 for individuals and $60,000 for married
couples filing jointly.
Contributions made by your employer to your SEP are excludable from your
gross income for tax purposes in the calendar year for which the amount is
contributed. Certain employees who participate in a SEP will be entitled to
elect to have their employer make contributions to their SEP on their behalf or
to receive the contributions in cash. If the employee elects to have
contributions made on the employee's behalf to the SEP, those funds are not
treated as current taxable income to the employee. Elective deferrals under a
SEP are subject to an inflation-adjusted limit, which is $10,500 in 2000.
Salary-reduction SEPs (also called "SARSEPs") are available only if at least 50%
of the employees elect to have amounts contributed to the SARSEP and if the
employer has 25 or fewer employees at all times during the preceding year. New
SARSEPs may not be established after 1996.
The IRA maximum annual contribution and your tax deduction is limited to the
lesser of: (1) $2,000 or (2) 100% of your earned compensation. Contributions in
excess of the deduction limits may be subject to penalty. See below.
Under a SEP agreement, the maximum annual contribution which your employer
may make on your behalf to a SEP contract that is excludable from your income is
the lesser of 15% of your salary or $24,000. An employee who is a participant in
a SEP agreement may make after-tax contributions to the SEP contract, subject to
the contribution limits applicable to IRAs in general. Those employee
contributions will be deductible subject to the deductibility rules described
above.
The maximum tax deductible annual contribution that a divorced spouse with no
other income may make
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to an IRA is the lesser of (1) $2,000 or (2) 100% of taxable alimony.
If you or your employer should contribute more than the maximum contribution
amount to your IRA or SEP, the excess amount will be considered an "excess
contribution." You are permitted to withdraw an excess contribution from your
IRA or SEP before your tax filing date without adverse tax consequences. If,
however, you fail to withdraw any such excess contribution before your tax
filing date, a 6% excise tax will be imposed on the excess for the tax year of
contribution.
Once the 6% excise tax has been imposed, an additional 6% penalty for the
following tax year can be avoided if the excess is (1) withdrawn before the end
of the following year, or (2) treated as a current contribution for the
following year. (See Premature Distributions below for penalties imposed on
withdrawal when the contribution exceeds $2,000.)
IRA FOR NON-WORKING SPOUSE
If you establish an IRA for yourself, you may also be eligible to establish an
IRA for your "non-working" spouse. In order to be eligible to establish such a
spousal IRA, you must file a joint tax return with your spouse and, if your
non-working spouse has compensation, his/her compensation must be less than your
compensation for the year. Contributions of up to $2,000 each may be made to
your IRA and the spousal IRA if the combined compensation of you and your spouse
is at least equal to the amount contributed. If requirements for deductibility
(including income levels) are met, you will be able to deduct an amount equal to
the least of (i) the amount contributed to the IRAs; (ii) $4,000; or (iii) 100%
of your combined gross income.
Contributions in excess of the contribution limits may be subject to penalty.
See above under "Contributions and Deductions." If you contribute more than the
allowable amount, the excess portion will be considered an excess contribution.
The rules for correcting it are the same as discussed above for regular IRAs.
Other than the items mentioned in this section, all of the requirement
generally applicable to IRAs are also applicable to IRAs established for
non-working spouses.
ROLLOVER CONTRIBUTION
Once every year, you are permitted to withdraw any portion of the value of your
IRA or SEP and reinvest it in another IRA or bond. Withdrawals may also be made
from other IRAs and contributed to this contract. This transfer of funds from
one IRA to another is called a "rollover" IRA. To qualify as a rollover
contribution, the entire portion of the withdrawal must be reinvested in another
IRA within 60 days after the date it is received. You will not be allowed a
tax-deduction for the amount of any rollover contribution.
A similar type of rollover to an IRA can be made with the proceeds of a
qualified distribution from a qualified retirement plan or tax-sheltered
annuity. Properly made, such a distribution will not be taxable until you
receive payments from the IRA created with it. Unless you were a self-employed
participant in the distributing plan, you may later roll over such a
contribution to another qualified retirement plan as long as you have not mixed
it with IRA (or SEP) contributions you have deducted from your income. (You may
roll less than all of a qualified distribution into an IRA, but any part of it
not rolled over will be currently includable in your income without any capital
gains treatment.)
DISTRIBUTIONS
(A) PREMATURE DISTRIBUTIONS
At no time can your interest in your IRA or SEP be forfeited. To insure that
your contributions will be used for retirement, the federal tax law does not
permit you to use your IRA or SEP as security for a loan. Furthermore, as a
general rule, you may not sell or assign your interest in your IRA or SEP to
anyone. Use of an IRA (or SEP) as security or assignment of it to another will
invalidate the entire annuity. It then will be includable in your income in the
year it is invalidated and will be subject to a 10% penalty tax if you are not
at least age 59 1/2 or totally disabled. (You may, however, assign your IRA or
SEP without penalty to your former spouse in accordance with the terms of a
divorce decree.)
You may surrender any portion of the value of your IRA (or SEP). In the case
of a partial surrender which
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does not qualify as a rollover, the amount withdrawn will be includable in your
income and subject to the 10% penalty if you are not at least age 59 1/2 or
totally disabled unless you comply with special rules requiring distributions to
be made at least annually over your life expectancy.
The 10% penalty tax does not apply to the withdrawal of an excess
contribution as long as the excess is withdrawn before the due date of your tax
return. Withdrawals of excess contributions after the due date of your tax
return will generally be subject to the 10% penalty unless the excess
contribution results from erroneous information from a plan trustee making an
excess rollover contribution or unless you are over age 59 1/2 or are disabled.
(B) DISTRIBUTION AT AFTER AGE 59 1/2
Once you have attained age 59 1/2 (or have become totally disabled), you may
elect to receive a distribution of your IRA (or SEP) regardless of when you
actually retire. In addition, you must commence distributions from your IRA by
April 1 following the year you attain age 70 1/2. You may elect to receive the
distribution under any one of the periodic payment options available under the
contract. The distributions from your IRA under any one of the period payment
options or in one sum will be treated as ordinary income as you receive them to
the degree that you have made deductible contributions. If you have made both
deductible and nondeductible contributions, a portion of the distribution
attributable to the nondeductible contribution will be tax-free.
(C) INADEQUATE DISTRIBUTIONS--50% TAX
Your IRA or SEP is intended to provide retirement benefits over your lifetime.
Thus, federal tax law requires that you either (1) receive a lump-sum
distribution of your IRA by April 1 of the year following the year in which you
attain age 70 1/2 or (2) start to receive periodic payments by that date. If you
elect to receive periodic payments, those payments must be sufficient to pay out
the entire value of your IRA during your life expectancy (or over the joint life
expectancies of you and your spouse). If the payments are not sufficient to meet
these requirements, an excise tax of 50% will be imposed on the amount of any
underpayment.
(D) DEATH BENEFITS
If you, (or your surviving spouse) die before receiving the entire value of your
IRA (or SEP), the remaining interest must be distributed to your beneficiary (or
your surviving spouse's beneficiary) in one lump-sum within 5 years of death, or
applied to purchase an immediate annuity for the beneficiary. This annuity must
be payable over the life expectancy of the beneficiary beginning within one year
after your or your spouse's death. If your spouse is the designated beneficiary,
he or she is treated as the owner of the IRA. If minimum required distributions
have begun, the entire amount must be distributed at least as rapidly as if the
owner had survived. A distribution of the balance of your IRA upon your death
will not be considered a gift for federal tax purposes, but will be included in
your gross estate for purposes of federal estate taxes.
ROTH IRAS
Section 408A of the Tax Code permits eligible individuals to contribute to a
type of IRA known as a "Roth IRA." Contributions may be made to a Roth IRA by
taxpayers with adjusted gross incomes of less than $160,000 for married
individuals filing jointly and less than $100,000 for single individuals.
Married individuals filing separately are not eligible to contribute to a Roth
IRA. The maximum amount of contributions allowable for any taxable year to all
Roth IRAs maintained by an individual is generally the lesser of $2,000 and 100%
of compensation for that year (the $2,000 limit is phased out for incomes
between $150,000 and $160,000 for married and between $95,000 and $110,000 for
singles). The contribution limit is reduced by the amount of any contributions
made to a non-Roth IRA. Contributions to a Roth IRA are not deductible.
For taxpayers with adjusted gross income of $100,000 or less, all or part of
amounts in a non-Roth IRA may be converted, transferred or rolled over to a Roth
IRA. Some or all of the IRA value will typically be
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includable in the taxpayer's gross income. If such a rollover, transfer or
conversion occurred before January 1, 1999, the portion of the amount includable
in gross income must be included in income ratably over the next four years
beginning with the year in which the transaction occurred. Provided a rollover
contribution meets the requirements of IRAs under Section 408(d)(3) of the Code,
a rollover may be made from a Roth IRA to another Roth IRA.
UNDER SOME CIRCUMSTANCES, IT MAY NOT BE ADVISABLE TO ROLL OVER, TRANSFER OR
CONVERT ALL OR PART OF A NON-ROTH IRA TO A ROTH IRA. PERSONS CONSIDERING A
ROLLOVER, TRANSFER OR CONVERSION SHOULD CONSULT THEIR OWN TAX ADVISOR.
"Qualified distributions" from a Roth IRA are excludable from gross income. A
"qualified distribution" is a distribution that satisfies two requirements: (1)
the distribution must be made (a) after the owner of the IRA attains age 59 1/2;
(b) after the owner's death; (c) due to the owner's disability; or (d) for a
qualified first time homebuyer distribution within the meaning of Section
72(t)(2)(F) of the Code; and (2) the distribution must be made in the year that
is at least five years after the first year for which a contribution was made to
any Roth IRA established for the owner or five years after a rollover, transfer,
or conversion was made from a non-Roth IRA to a Roth IRA. Distributions from a
Roth IRA that are not qualified distributions will be treated as made first from
contributions and then from earnings, and taxed generally in the same manner as
distributions from a non-Roth IRA.
Distributions from a Roth IRA need not commence at age 70 1/2. However, if
the owner dies before the entire interest in a Roth IRA is distributed, any
remaining interest in the contract must be distributed by December 31 of the
calendar year containing the fifth anniversary of the owner's death subject to
certain exceptions.
REPORTING TO THE IRS
Whenever you are liable for one of the penalty taxes discussed above (6% for
excess contributions, 10% for premature distributions or 50% for underpayments),
you must file Form 5329 with the Internal Revenue Service. The form is to be
attached to your federal income tax return for the tax year in which the penalty
applies. Normal contributions and distributions must be shown on your income tax
return for the year to which they relate.
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GLOSSARY
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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 (which we define 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.
ADJUSTED CONTRACT VALUE
When you begin receiving income payments, the value of your contract minus (i)
any charge we impose for premium taxes and (ii) if you have chosen the Contract
With Credit, any credit that has not yet vested.
ANNUITANT
The person whose life determines the amount of income payments that we will pay.
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 on which we credit your initial purchase payment. We will credit the
initial purchase payment to your contract within two business days from the day
on which we receive your 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.
CONTRACT OWNER, OWNER, OR YOU
The person entitled to the ownership rights under the contract.
CONTRACT VALUE
This is the total value of your contract, equal to the sum of the values of your
investment in each investment option you have chosen. Your contract value will
go up or down based on the performance of the investment options you choose.
CONTRACT WITH CREDIT
A version of the annuity contract that provides for a bonus credit with each
purchase payment that you make, has higher withdrawal charges and a longer
withdrawal charge period, and has no fixed rate investment options available.
CONTRACT WITHOUT CREDIT
A version of the annuity contract that does not provide a credit, has lower
withdrawal charges and a shorter withdrawal charge period, and offers two fixed
rate investment options: a one-year fixed rate option and a dollar cost
averaging fixed rate option.
CREDIT
If you choose the Contract With Credit (which we previously defined), this is
the bonus amount that we allocate to your account each time you make a purchase
payment. The amount of the credit is a percentage of the purchase payment. The
credit is subject to a vesting schedule, which means that if you withdraw all or
part of a purchase payment within a certain period, or you begin the income
phase or we pay a death benefit during that period, we may take back all or part
of the credit. See "How Can I Purchase A Strategic Partners Annuity One
Contract" on page 35.
DEATH BENEFIT
If the sole or last surviving owner dies, the beneficiary you designate will
receive, at a minimum, the total amount invested or a potentially greater amount
related to
<PAGE> 61
--------------------------------------------------------------------------------
market appreciation. A guaranteed minimum death benefit is available for an
additional charge.
FIXED INTEREST RATE OPTIONS
Under the Contract Without Credit (which we previously defined), these are
investment options that offer a fixed rate of interest for either a one-year
period (fixed rate option) or a selected period during which periodic transfers
are made to selected variable investment options (dollar cost averaging fixed
rate option). The fixed interest rate options are available only with the
Contract Without Credit.
GUARANTEED MINIMUM DEATH BENEFIT
An optional feature available for an additional charge that guarantees that the
death benefit that the beneficiary receives will be no less than a certain
"protected value". Depending upon the terms of your contract, the protected
value for the guaranteed minimum death benefit may equal the "roll-up value,"
the "step-up value," or the larger of the two. We define these terms below.
GUARANTEED MINIMUM INCOME BENEFIT
An optional feature that may be available for an additional charge that
guarantees that the income payments you receive during the income phase will be
no less than a certain "protected value" applied to the guaranteed annuity
purchase rates. Currently, the protected value for the guaranteed minimum income
benefit is equal to the "roll-up value," which we define below.
INCOME OPTIONS
Options under the contract that define the frequency and duration of income
payments. In your contract, we also refer to these as payout or annuity options.
INCOME PHASE
The period in which you receive income payments under the contract.
INVESTED PURCHASE PAYMENTS
Your purchase payments (which we define below) less any deduction we make for
any premium or other tax charge.
JOINT OWNER
The person named as the joint owner, who shares ownership rights with the owner
as defined in the contract.
NET PURCHASE PAYMENTS
Your total purchase payments (which we define below) less any withdrawals you
have made.
PROTECTED VALUE
If you choose a guaranteed minimum death benefit and/or guaranteed minimum
income benefit, the guaranteed amount of the benefit. If both the guaranteed
minimum death benefit and the guaranteed minimum income benefit are available to
you and you choose both of these options, the protected value of each may be
different. Depending upon the terms of your contract, the protected value of the
guaranteed minimum death benefit may equal the "roll-up value," the "step-up
value," or the greater of the two. The protected value of the guaranteed minimum
income benefit, if available, will equal the "roll-up value."
PRUDENTIAL ANNUITY SERVICE CENTER
For general correspondence: P.O. Box 7960, Philadelphia, PA 19101. For express
overnight mail: 2101 Welsh Road, Dresher, PA 19025. The telephone number is
800-PRU-2888.
PURCHASE PAYMENTS
The amount of money you pay us to purchase the contract. With some restrictions,
you can make additional purchase payments at any time during the accumulation
phase.
ROLL-UP VALUE
The total of all invested purchase payments compounded daily at an effective
annual rate of 5.0%, subject to a cap of 200% of all invested purchase payments
and to certain age restrictions. Both the roll-up and the cap are reduced
proportionally by withdrawals. Depending upon the terms of your contract and
what options you choose, we may use the roll-up value to compute the protected
value of the guaranteed minimum death benefit and/or the guaranteed minimum
income benefit.
<PAGE> 62
GLOSSARY CONTINUED
--------------------------------------------------------------------------------
SEPARATE ACCOUNT
We hold your purchase payments allocated to the variable investment options 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.
STATEMENT OF ADDITIONAL INFORMATION
A document containing certain additional information about the Strategic
Partners Annuity One variable annuity. We have filed the Statement of Additional
Information with the Securities and Exchange Commission and it is legally a part
of this prospectus. To learn how to obtain a copy of the Statement of Additional
Information, see the front cover of this prospectus.
STEP-UP VALUE
The highest value of the contract on any contract anniversary date, subject to
certain age restrictions. Between anniversary dates, the step-up value is only
increased by additional purchase payments and reduced proportionally by
withdrawals. Depending upon the terms of your contract and what options you
choose, we may use the step-up value to compute the protected value of the
guaranteed minimum death benefit.
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. You should be aware that tax favored plans (such as IRAs) already
provide tax deferral regardless whether they invest in annuity contracts. See
"What Are the Tax Considerations Associated with the Strategic Partners Annuity
One Contract," page 41.
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.
<PAGE> 63
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<PAGE> 64
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 18, 2000
PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
VARIABLE ANNUITY CONTRACTS
The Strategic Partners Annuity One(SM) annuity contract* (the "contract")
is an individual variable annuity contract issued by the Pruco Life Insurance
Company ("Pruco Life"), a stock life insurance company that is a wholly-owned
subsidiary of The Prudential Insurance Company of America ("Prudential") and is
funded through the Pruco Life Flexible Premium Variable Annuity Account (the
"Account"). The contract is purchased by making an initial purchase payment of
$10,000 or more; subsequent payments must be $1,000 or more.
This statement of additional information is not a prospectus and should be
read in conjunction with the Strategic Partners Annuity One prospectus, dated
September 18, 2000. To obtain a copy of the prospectus, without charge, you can
write to the Prudential Annuity Service Center, P.O. Box 7960, Philadelphia,
Pennsylvania 19101, or by telephoning (888) PRU-2888.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPANY..................................................... 2
EXPERTS..................................................... 2
LITIGATION.................................................. 2
LEGAL OPINIONS.............................................. 3
PRINCIPAL UNDERWRITER....................................... 3
DETERMINATION OF SUBACCOUNT UNIT VALUES..................... 3
PERFORMANCE INFORMATION..................................... 4
COMPARATIVE PERFORMANCE INFORMATION AND ADVERTISING......... 10
FEDERAL TAX STATUS.......................................... 11
STATE SPECIFIC VARIATIONS................................... 12
DIRECTORS AND OFFICERS...................................... 13
FINANCIAL STATEMENTS........................................ 14
</TABLE>
<TABLE>
<S> <C>
PRUCO LIFE INSURANCE COMPANY PRUDENTIAL ANNUITY SERVICE CENTER
213 WASHINGTON STREET P.O. BOX 7960
NEWARK, NEW JERSEY 07102-2992 PHILADELPHIA, PENNSYLVANIA 19101
TELEPHONE: (888) PRU-2888
</TABLE>
* STRATEGIC PARTNERS ANNUITY ONE is a service mark of Prudential.
ORD000045B
<PAGE> 65
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 consolidated financial statements of Pruco Life and its subsidiaries as
of December 31, 1999 and 1998 and for each of the three years in the period
ended December 31, 1999 and the financial statements of the Pruco Life Flexible
Premium Variable Annuity Account as of December 31, 1999 and for each of the two
years in the period then ended included in this Statement of Additional
Information have been so included in reliance on the report 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
We are subject to legal and regulatory actions in the ordinary course of
our businesses, including class actions. Pending legal regulatory actions
include proceedings specific to our practices and proceedings generally
applicable to business practices in the industries in which we operate. As an
example of such litigation, in March 2000, plaintiffs filed a purported class
action against us titled Olmsted v. Pruco Life Insurance Company of New Jersey
and The Prudential Insurance Company of America, alleging that certain fees and
expenses charged to the plaintiffs in connection with the sale of variable
annuities since March 1, 1997 were excessive and unreasonable. In certain of
these lawsuits, large and/or indeterminate amounts are sought, including
punitive or exemplary damages.
In particular, Pruco Life and Prudential have been subject to substantial
regulatory actions and civil litigation involving individual life insurance
sales practices. In 1996, Prudential, on behalf of itself and many of its life
insurance subsidiaries including Pruco Life, entered into settlement agreements
with relevant insurance regulatory authorities and plaintiffs in the principal
life insurance sales practices class action lawsuit covering policyholders of
individual permanent life insurance policies issued in the United States from
1982 to 1995. Pursuant to the settlements, the companies agreed to various
changes to their sales and business practices controls and a series of fines,
and are in the process of distributing final remediation relief to eligible
class members. In many instances, claimants have the right to "appeal" the
decision to an independent reviewer. The bulk of such appeals were resolved in
1999, and the balance is expected to be addressed in 2000. As of January 31,
2000, Prudential and/or Pruco Life remained a party to two putative class
actions and approximately 158 individual actions relating to permanent life
insurance policies issued in the United States between 1982 and 1995. Additional
suits may be filed by individuals who opted out of the settlements. While the
approval of the class action settlement is now final, Prudential and Pruco Life
remain subject to oversight and review by insurance regulators and other
regulatory authorities with respect to their sales practices and the conduct of
the remediation program. The U.S. District Court has also retained jurisdiction
as to all matters relating to the administration, consummation, enforcement and
interpretation of the settlements.
Prudential has indemnified Pruco Life for any liabilities incurred in
connection with sales practices litigation covering policyholders of individual
permanent life insurance policies issued in the United States from 1982 to 1995.
In 1999, 1998, 1997 and 1996, Prudential recorded provision in its
Consolidated Statements of Operation of $100 million, $1,150 million, $2,030
million and $1,125 million, respectively, to provide for estimated remediation
costs, and additional sales practices costs including related administrative
costs, regulatory fines, penalties and related payments, litigation costs and
settlements, including settlements associated with the
2
<PAGE> 66
resolution of claims of deceptive sales practices asserted by policyholders who
elected to "opt-out" of the class action settlement and litigate their claims
against Prudential separately, and other fees and expenses associated with the
resolution of sales practices issues.
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 through corporate office
and regional home office employees 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
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 annual
charge for administrative expenses and mortality and expense risks. (See WHAT
ARE THE EXPENSES ASSOCIATED WITH THE STRATEGIC PARTNERS ANNUITY ONE CONTRACT 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.
3
<PAGE> 67
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN
The Account may advertise average annual total return information
calculated according to a formula prescribed by the U.S. Securities and Exchange
Commission ("SEC"). Average annual total return shows the average annual
percentage increase, or decrease, in the value of a hypothetical contribution
allocated to a Subaccount from the beginning to the end of each specified period
of time. The SEC standardized version of this performance information is based
on an assumed contribution of $1,000 allocated to a Subaccount at the beginning
of each period and full withdrawal of the value of that amount at the end of
each specified period. This method of calculating performance further assumes
that (i) a $1,000 contribution was allocated to a Subaccount and (ii) no
transfers or additional payments were made. Premium taxes are not included in
the term "charges" for purposes of this calculation. Average annual total return
is calculated by finding the average annual compounded rates of return of a
hypothetical contribution that would compare the Unit Value on the first day of
the specified period to the ending redeemable value at the end of the period
according to the following formula:
P(1+T)n=ERV
Where T equals average annual total return, where ERV (the ending
redeemable value) is the value at the end of the applicable period of a
hypothetical contribution of $1,000 made at the beginning of the applicable
period, where P equals a hypothetical contribution of $1,000, and where n equals
the number of years.
NON-STANDARD TOTAL RETURN
In addition to the standardized average annual total return information
described above, we may present total return information computed on bases
different from that standardized method. The Account may also present aggregate
total return figures for various periods, reflecting the cumulative change in
value of an investment in the Account for the specified period.
The tables below provide performance information for specified periods
ending December 31, 1999 for each Subaccount that invests in a Fund that had a
performance history as of December 31, 1999. No standard total return table is
included because the Subaccounts are only commencing operations on or after the
date of this Statement of Additional Information. For the periods prior to the
date the Subaccounts commenced operations, non-standard performance information
for the Contracts will be calculated based on the performance of the Funds and
the assumption that the Subaccounts were in existence for the same periods as
those indicated for the Funds, with the level of Contract charges that were in
effect at the inception of the Subaccounts (this is referred to as "hypothetical
performance data"). Standard and non-standard average annual return calculations
include all of the fees under the Contract (i.e., the mortality and expense risk
charge and the administrative fee). This information does not indicate or
represent future performance.
The following three tables assume a daily insurance and administrative
charge equal to 1.40% on an annual basis and no guaranteed minimum income
benefit.
4
<PAGE> 68
Table 1 below shows the average annual rates of total return on
hypothetical investments of $1,000 for periods ended June 30, 2000 in each
subaccount other than the Money Market Subaccount. These figures assume
withdrawal of the investments at the end of the period other than to effect an
annuity under the Contract. This table assumes deferred sales charges.
TABLE 1
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FIVE TEN FROM DATE
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 06/30/2000 06/30/2000 06/30/2000 06/30/2000
--------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Prudential Global Portfolio 09/88 26.26% 18.14% 12.08% 11.95%
Prudential Jennison Portfolio 05/95 20.85% 25.72% N/A 27.60%
Prudential Stock Index Portfolio 09/87 -0.19% 21.40% 15.66% 14.29%
SP Aggressive Growth Asset Allocation
Portfolio 08/00 N/A N/A N/A N/A
SP AIM Aggressive Growth Portfolio 08/00 N/A N/A N/A N/A
SP AIM Growth And Income Portfolio 08/00 N/A N/A N/A N/A
SP Alliance Large Cap Growth Portfolio 08/00 N/A N/A N/A N/A
SP Alliance Technology Portfolio 08/00 N/A N/A N/A N/A
SP Balanced Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Conservative Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Davis Value Portfolio 08/00 N/A N/A N/A N/A
SP Deutsche International Equity Portfolio 08/00 N/A N/A N/A N/A
SP Growth Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Invesco Small Company Growth Portfolio 08/00 N/A N/A N/A N/A
SP Jennison International Growth Portfolio 08/00 N/A N/A N/A N/A
SP Large Cap Value Portfolio 08/00 N/A N/A N/A N/A
SP MFS Capital Opportunities Portfolio 08/00 N/A N/A N/A N/A
SP MFS Mid Cap Growth Portfolio 08/00 N/A N/A N/A N/A
SP PIMCO High Yield Portfolio 08/00 N/A N/A N/A N/A
SP PIMCO Total Return Portfolio 08/00 N/A N/A N/A N/A
SP Prudential U.S. Emerging Growth
Portfolio 08/00 N/A N/A N/A N/A
SP Small/Mid Cap Value Portfolio 08/00 N/A N/A N/A N/A
SP Strategic Partners Focused Growth
Portfolio 08/00 N/A N/A N/A N/A
Janus Aspen Series--Growth Portfolio
Service Shares 09/93 18.14% 25.04% N/A 20.85%
</TABLE>
5
<PAGE> 69
Table 2 shows the average annual rates of return as in Table 1, but assumes
that the investments are not withdrawn at the end of the period. This table
assumes no deferred sales charges.
TABLE 2
AVERAGE ANNUAL TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
FIVE TEN FROM DATE
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 06/30/2000 06/30/2000 06/30/2000 06/30/2000
--------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Prudential Global Portfolio 09/88 31.86% 18.31% 12.08% 11.95%
Prudential Jennison Portfolio 05/95 26.45% 25.85% N/A 27.80%
Prudential Stock Index Portfolio 09/87 5.41% 21.55% 15.66% 14.29%
SP Aggressive Growth Asset Allocation
Portfolio 08/00 N/A N/A N/A N/A
SP AIM Aggressive Growth Portfolio 08/00 N/A N/A N/A N/A
SP AIM Growth And Income Portfolio 08/00 N/A N/A N/A N/A
SP Alliance Large Cap Growth Portfolio 08/00 N/A N/A N/A N/A
SP Alliance Technology Portfolio 08/00 N/A N/A N/A N/A
SP Balanced Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Conservative Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Davis Value Portfolio 08/00 N/A N/A N/A N/A
SP Deutsche International Equity Portfolio 08/00 N/A N/A N/A N/A
SP Growth Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Invesco Small Company Growth Portfolio 08/00 N/A N/A N/A N/A
SP Jennison International Growth Portfolio 08/00 N/A N/A N/A N/A
SP Large Cap Value Portfolio 08/00 N/A N/A N/A N/A
SP MFS Capital Opportunities Portfolio 08/00 N/A N/A N/A N/A
SP MFS Mid Cap Growth Portfolio 08/00 N/A N/A N/A N/A
SP PIMCO High Yield Portfolio 08/00 N/A N/A N/A N/A
SP PIMCO Total Return Portfolio 08/00 N/A N/A N/A N/A
SP Prudential U.S. Emerging Growth
Portfolio 08/00 N/A N/A N/A N/A
SP Small/Mid Cap Value Portfolio 08/00 N/A N/A N/A N/A
SP Strategic Partners Focused Growth
Portfolio 08/00 N/A N/A N/A N/A
Janus Aspen Series--Growth Portfolio
Service Shares 09/93 23.74% 25.17% N/A 20.89%
</TABLE>
6
<PAGE> 70
Table 3 shows the cumulative total return for the portfolios, assuming no
withdrawal. This table assumes no deferred sales charges.
TABLE 3
CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
FIVE TEN FROM DATE
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 06/30/2000 06/30/2000 06/30/2000 06/30/2000
--------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Prudential Global Portfolio 09/88 31.86% 131.78% 212.74% 278.45%
Prudential Jennison Portfolio 05/95 26.45% 215.71% N/A 255.08%
Prudential Stock Index Portfolio 09/87 5.41% 165.32% 328.23% 453.38%
SP Aggressive Growth Asset Allocation
Portfolio 08/00 N/A N/A N/A N/A
SP AIM Aggressive Growth Portfolio 08/00 N/A N/A N/A N/A
SP AIM Growth And Income Portfolio 08/00 N/A N/A N/A N/A
SP Alliance Large Cap Growth Portfolio 08/00 N/A N/A N/A N/A
SP Alliance Technology Portfolio 08/00 N/A N/A N/A N/A
SP Balanced Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Conservative Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Davis Value Portfolio 08/00 N/A N/A N/A N/A
SP Deutsche International Equity Portfolio 08/00 N/A N/A N/A N/A
SP Growth Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Invesco Small Company Growth Portfolio 08/00 N/A N/A N/A N/A
SP Jennison International Growth Portfolio 08/00 N/A N/A N/A N/A
SP Large Cap Value Portfolio 08/00 N/A N/A N/A N/A
SP MFS Capital Opportunities Portfolio 08/00 N/A N/A N/A N/A
SP MFS Mid Cap Growth Portfolio 08/00 N/A N/A N/A N/A
SP PIMCO High Yield Portfolio 08/00 N/A N/A N/A N/A
SP PIMCO Total Return Portfolio 08/00 N/A N/A N/A N/A
SP Prudential U.S. Emerging Growth
Portfolio 08/00 N/A N/A N/A N/A
SP Small/Mid Cap Value Portfolio 08/00 N/A N/A N/A N/A
SP Strategic Partners Focused Growth
Portfolio 08/00 N/A N/A N/A N/A
Janus Aspen Series--Growth Portfolio
Service Shares 09/93 23.74% 207.31% N/A 262.89%
</TABLE>
The following three tables assume a daily insurance and administrative
charge equal to 1.70% on an annual basis and a charge for the guaranteed minimum
income benefit equal to 0.25% on an annual basis of the "roll-up value" as
defined in the prospectus.
7
<PAGE> 71
Table 1 below shows the average annual rates of total return on
hypothetical investments of $1,000 for periods ended June 30, 2000 in each
subaccount other than the Money Market Subaccount. These figures assume
withdrawal of the investments at the end of the period other than to effect an
annuity under the Contract. This table assumes deferred sales charges.
TABLE 1
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FIVE TEN FROM DATE
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 06/30/2000 06/30/2000 06/30/2000 06/30/2000
--------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Prudential Global Portfolio 09/88 25.54% 17.50% 11.46% 11.35%
Prudential Jennison Portfolio 05/95 20.16% 25.03% N/A 26.93%
Prudential Stock Index Portfolio 09/87 -0.77% 20.74% 15.03% 13.67%
SP Aggressive Growth Asset Allocation
Portfolio 08/00 N/A N/A N/A N/A
SP AIM Aggressive Growth Portfolio 08/00 N/A N/A N/A N/A
SP AIM Growth And Income Portfolio 08/00 N/A N/A N/A N/A
SP Alliance Large Cap Growth Portfolio 08/00 N/A N/A N/A N/A
SP Alliance Technology Portfolio 08/00 N/A N/A N/A N/A
SP Balanced Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Conservative Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Davis Value Portfolio 08/00 N/A N/A N/A N/A
SP Deutsche International Equity Portfolio 08/00 N/A N/A N/A N/A
SP Growth Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Invesco Small Company Growth Portfolio 08/00 N/A N/A N/A N/A
SP Jennison International Growth Portfolio 08/00 N/A N/A N/A N/A
SP Large Cap Value Portfolio 08/00 N/A N/A N/A N/A
SP MFS Capital Opportunities Portfolio 08/00 N/A N/A N/A N/A
SP MFS Mid Cap Growth Portfolio 08/00 N/A N/A N/A N/A
SP PIMCO High Yield Portfolio 08/00 N/A N/A N/A N/A
SP PIMCO Total Return Portfolio 08/00 N/A N/A N/A N/A
SP Prudential U.S. Emerging Growth
Portfolio 08/00 N/A N/A N/A N/A
SP Small/Mid Cap Value Portfolio 08/00 N/A N/A N/A N/A
SP Strategic Partners Focused Growth
Portfolio 08/00 N/A N/A N/A N/A
Janus Aspen Series--Growth Portfolio
Service Shares 09/93 17.46% 24.36% N/A 20.19%
</TABLE>
8
<PAGE> 72
Table 2 shows the average annual rates of return as in Table 1, but assumes
that the investments are not withdrawn at the end of the period. This table
assumes no deferred sales charges.
TABLE 2
AVERAGE ANNUAL TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
FIVE TEN FROM DATE
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 06/30/2000 06/30/2000 06/30/2000 06/30/2000
--------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Prudential Global Portfolio 09/88 31.14% 17.66% 11.46% 11.35%
Prudential Jennison Portfolio 05/95 25.76% 25.17% N/A 27.10%
Prudential Stock Index Portfolio 09/87 4.83% 20.89% 15.03% 13.67%
SP Aggressive Growth Asset Allocation
Portfolio 08/00 N/A N/A N/A N/A
SP AIM Aggressive Growth Portfolio 08/00 N/A N/A N/A N/A
SP AIM Growth And Income Portfolio 08/00 N/A N/A N/A N/A
SP Alliance Large Cap Growth Portfolio 08/00 N/A N/A N/A N/A
SP Alliance Technology Portfolio 08/00 N/A N/A N/A N/A
SP Balanced Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Conservative Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Davis Value Portfolio 08/00 N/A N/A N/A N/A
SP Deutsche International Equity Portfolio 08/00 N/A N/A N/A N/A
SP Growth Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Invesco Small Company Growth Portfolio 08/00 N/A N/A N/A N/A
SP Jennison International Growth Portfolio 08/00 N/A N/A N/A N/A
SP Large Cap Value Portfolio 08/00 N/A N/A N/A N/A
SP MFS Capital Opportunities Portfolio 08/00 N/A N/A N/A N/A
SP MFS Mid Cap Growth Portfolio 08/00 N/A N/A N/A N/A
SP PIMCO High Yield Portfolio 08/00 N/A N/A N/A N/A
SP PIMCO Total Return Portfolio 08/00 N/A N/A N/A N/A
SP Prudential U.S. Emerging Growth
Portfolio 08/00 N/A N/A N/A N/A
SP Small/Mid Cap Value Portfolio 08/00 N/A N/A N/A N/A
SP Strategic Partners Focused Growth
Portfolio 08/00 N/A N/A N/A N/A
Janus Aspen Series--Growth Portfolio
Service Shares 09/93 23.06% 24.49% N/A 20.22%
</TABLE>
9
<PAGE> 73
Table 3 shows the cumulative total return for the portfolios, assuming no
withdrawal. This table assumes no deferred sales charges.
TABLE 3
CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
FIVE TEN FROM DATE
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 06/30/2000 06/30/2000 06/30/2000 06/30/2000
--------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Prudential Global Portfolio 09/88 31.14% 125.53% 195.89% 254.89%
Prudential Jennison Portfolio 05/95 25.76% 207.20% N/A 245.18%
Prudential Stock Index Portfolio 09/87 4.83% 158.17% 305.61% 416.26%
SP Aggressive Growth Asset Allocation
Portfolio 08/00 N/A N/A N/A N/A
SP AIM Aggressive Growth Portfolio 08/00 N/A N/A N/A N/A
SP AIM Growth And Income Portfolio 08/00 N/A N/A N/A N/A
SP Alliance Large Cap Growth Portfolio 08/00 N/A N/A N/A N/A
SP Alliance Technology Portfolio 08/00 N/A N/A N/A N/A
SP Balanced Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Conservative Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Davis Value Portfolio 08/00 N/A N/A N/A N/A
SP Deutsche International Equity Portfolio 08/00 N/A N/A N/A N/A
SP Growth Asset Allocation Portfolio 08/00 N/A N/A N/A N/A
SP Invesco Small Company Growth Portfolio 08/00 N/A N/A N/A N/A
SP Jennison International Growth Portfolio 08/00 N/A N/A N/A N/A
SP Large Cap Value Portfolio 08/00 N/A N/A N/A N/A
SP MFS Capital Opportunities Portfolio 08/00 N/A N/A N/A N/A
SP MFS Mid Cap Growth Portfolio 08/00 N/A N/A N/A N/A
SP PIMCO High Yield Portfolio 08/00 N/A N/A N/A N/A
SP PIMCO Total Return Portfolio 08/00 N/A N/A N/A N/A
SP Prudential U.S. Emerging Growth
Portfolio 08/00 N/A N/A N/A N/A
SP Small/Mid Cap Value Portfolio 08/00 N/A N/A N/A N/A
SP Strategic Partners Focused Growth
Portfolio 08/00 N/A N/A N/A N/A
Janus Aspen Series--Growth Portfolio
Service Shares 09/93 23.06% 199.02% N/A 249.57%
</TABLE>
COMPARATIVE PERFORMANCE INFORMATION AND ADVERTISING
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.
Reports or advertising may also include the use of tax deferred compounding
charts and charts describing the power of tax deferred compounding on the bonus
payment.
10
<PAGE> 74
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. Each
Portfolio is required to diversify its investments each quarter so that no more
than 55% of the value of its assets is represented by any one investment, no
more than 70% is represented by any two investments, no more than 80% is
represented by any three investments, and no more than 90% is represented by any
four investments. Generally, securities of a single issuer are treated as one
investment and obligations of each U.S. Government agency and instrumentality
(such as the Government National Mortgage Association) are treated as issued by
separate issuers. In addition, any security issued, guaranteed or insured (to
the extent so guaranteed or insured) by the United States or an instrumentality
of the U.S. will be treated as a security issued by the U.S. Government or its
instrumentality, whichever is applicable. Pruco Life 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, to be considered the owner
of the underlying assets. Because of this uncertainty, Pruco Life reserves the
right to make such changes as it deems necessary to assure that the contract
qualifies as an annuity for tax purposes. Any such changes will apply uniformly
to affected 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. These elections
must be made on the appropriate Pruco Life forms. Absent these elections, Pruco
Life 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.
11
<PAGE> 75
7. TRANSFERS TO YOUNGER PERSONS.
If you transfer your contract to a person either 37 1/2 years younger than
you, or a grandchild, or designate such younger person as a beneficiary, there
may be Generation Skipping tax consequences.
STATE SPECIFIC VARIATIONS
We list below certain limitations and restrictions of the Strategic
Partners Annuity One contract imposed by state law. If your contract was issued
in one of the states listed below, consult your contract for additional details.
- The transfer fee will never exceed $10 for contracts issued in
Florida and Texas.
- Although we do not have the right to refuse subsequent purchase
payments for contracts issued in Maryland, New Jersey, Oregon,
Pennsylvania, or Texas, we do impose a maximum annual purchase
payment limit of $2 million and a maximum aggregate purchase payment
limit of $7 million.
- For contracts issued in Pennsylvania, state law prevents us from
waiving withdrawal charges because of terminal illness.
- When you enter the income phase of a contract issued in Maryland,
Oregon or Washington:
- if you select Income Option 1 -- Annuity Payments For A Fixed
Period, the minimum period you can elect is 5 years; and
- Option 3 -- Interest Payment Option is not available
- The guaranteed minimum income benefit is not available in
California.
- The "roll-up" value guaranteed minimum death benefit option is not
available for contracts issued in Washington State.
- We will calculate and deduct the charge for the guaranteed minimum
income benefit based solely on the portion of the contract value you
have allocated to the variable investment options, for contracts
issued in Washington State.
- Pennsylvania does not permit joint ownership of the contract.
- Non-spousal joint ownership is available for contracts issued in New
Jersey only if you choose the base death benefit.
12
<PAGE> 76
DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life, listed with their principal
occupations during the past 5 years, are shown below.
DIRECTORS OF PRUCO LIFE
JAMES J. AVERY, JR., Chairman and Director -- President, Prudential
Individual Life Insurance since 1998; 1997 to 1998: Senior Vice President, Chief
Actuary and CFO, Prudential Individual Insurance Group; 1995 to 1997: President,
Prudential Select. Age 48.
RONALD P. JOELSON, Director -- Senior Vice President, Prudential Asset,
Liability and Risk Management since 1999; 1996 to 1999: President, Guaranteed
Products, Prudential Institutional; 1995 to 1996: Managing Director, Prudential
Enterprise Planning. Age 42.
IRA J. KLEINMAN, Director -- Executive Vice President, Prudential
International Insurance Group since 1997; 1995 to 1997: Chief Marketing and
Product Development Officer, Prudential Individual Insurance Group. Age 53.
ESTHER H. MILNES, President and Director -- Vice President and Chief
Actuary, Prudential Individual Life Insurance since 1999; prior to 1999: Vice
President and Actuary, Prudential Individual Insurance Group. Age 49.
DAVID R. ODENATH, JR., Director -- President, Prudential Investments since
1999; prior to 1999; Senior Vice President and Director of Sales, Investment
Consulting Group, Paine Webber. Age 43.
I. EDWARD PRICE, Vice Chairman and Director -- Senior Vice President and
Actuary, Prudential Individual Life Insurance since 1998; 1995 to 1998: Senior
Vice President and Actuary, Prudential Individual Insurance Group. Age 57.
KIYOFUMI SAKAGUCHI, Director -- President and CEO, Prudential International
Insurance Group since 1995. Age 57.
OFFICERS WHO ARE NOT DIRECTORS
C. EDWARD CHAPLIN, Treasurer -- Vice President and Treasurer, Prudential
since 1995. Age 43.
JAMES C. DROZANOWSKI, Senior Vice President -- Vice President, Operations
and Systems, Prudential Individual Financial Services since 1998; 1996 to 1998:
Vice President and Operations Executive, Prudential Individual Insurance Group;
1995 to 1996: President, Credit Card Division, Chase Manhattan Bank. Age 57.
THOMAS F. HIGGINS, Senior Vice President -- Vice President, Annuity
Services, Prudential Individual Financial Services since 1999; 1998 to 1999:
Vice President, Mutual Funds, Prudential Individual Financial Services; 1995 to
1998: Principal, Mutual Fund Operations, The Vanguard Group. Age 45.
CLIFFORD E. KIRSCH, Chief Legal Officer and Secretary -- Chief Counsel,
Variable Products, Prudential Law Department since 1995. Age 40.
HIROSHI NAKAJIMA, Senior Vice President -- President and CEO, Pruco Life
Insurance Company Taiwan Branch since 1997; prior to 1997: Senior Managing
Director, Prudential Life Insurance Co., Ltd. Age 56.
SHIRLEY H. SHAO, Senior Vice President and Chief Actuary -- Vice President
and Associate Actuary, Prudential since 1996; prior to 1996: Vice President and
Assistant Actuary, Prudential Corporate Risk Management. Age 45.
DENNIS G. SULLIVAN, Vice President and Chief Accounting Officer -- Vice
President and Deputy Controller, Prudential since 1998; 1997 to 1998: Vice
President and Controller, ContiFinancial Corporation; prior to 1997: Director,
Salomon Brothers. Age 44.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992. Pruco Life directors and
officers are elected annually.
13
<PAGE> 77
FINANCIAL STATEMENTS
The following financial statements describe the sub-accounts of the
Discovery Select Variable Annuity, another variable annuity contract offered by
Pruco Life. This information is provided because some of the sub-accounts
associated with Discovery Select are also used by the Strategic Partners Annuity
One variable annuity contract. Financial information specific to the Strategic
Partners Annuity One variable annuity contract will be available following the
completion of the initial accounting period for this contract.
14
<PAGE> 78
(This page intentionally left blank)
15
<PAGE> 79
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1999
<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>
ASSETS
Investment in the Prudential Series
Fund, Inc.
Portfolios and non-Prudential
administered funds, at net
asset value [Note 3]........... $ 409,517,164 $ 571,573,815 $ 381,208,372 $ 446,142,833 $1,017,362,289
-------------- -------------- -------------- -------------- --------------
Net Assets......................... $ 409,517,164 $ 571,573,815 $ 381,208,372 $ 446,142,833 $1,017,362,289
============== ============== ============== ============== ==============
NET ASSETS, representing:
Equity of contract owners
[Note 4].......................... $ 409,517,164 $ 571,573,815 $ 381,208,372 $ 446,142,833 $1,017,362,289
-------------- -------------- -------------- -------------- --------------
$ 409,517,164 $ 571,573,815 $ 381,208,372 $ 446,142,833 $1,017,362,289
============== ============== ============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A2
<PAGE> 80
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------
PRUDENTIAL AIM V.I. T. ROWE PRICE
EQUITY GROWTH EQUITY PRUDENTIAL PRUDENTIAL JANUS ASPEN
INCOME AND INCOME EQUITY JENNISON AIM V.I. GROWTH
PORTFOLIO INCOME FUND PORTFOLIO PORTFOLIO PORTFOLIO VALUE FUND PORTFOLIO
-------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 552,654,145 $ 200,291,842 $ 189,276,527 $ 786,985,738 $1,215,578,269 $ 342,341,778 $ 364,020,511
-------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 552,654,145 $ 200,291,842 $ 189,276,527 $ 786,985,738 $1,215,578,269 $ 342,341,778 $ 364,020,511
============== ============== ============== ============== ============== ============== ==============
$ 552,654,145 $ 200,291,842 $ 189,276,527 $ 786,985,738 $1,215,578,269 $ 342,341,778 $ 364,020,511
-------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 552,654,145 $ 200,291,842 $ 189,276,527 $ 786,985,738 $1,215,578,269 $ 342,341,778 $ 364,020,511
============== ============== ============== ============== ============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A3
<PAGE> 81
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1999
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------
OCC WARBURG
MFS ACCUMULATION PINCUS
MFS EMERGING TRUST SMALL POST-VENTURE
RESEARCH GROWTH CAP CAPITAL
SERIES SERIES 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]........................... $106,649,299 $377,908,001 $ 77,837,223 $ 41,140,550
------------ ------------ ------------ ------------
Net Assets.............................................. $106,649,299 $377,908,001 $ 77,837,223 $ 41,140,550
============ ============ ============ ============
NET ASSETS, representing:
Equity of contract owners [Note 4]...................... $106,649,299 $377,908,001 $ 77,837,223 $ 41,140,550
------------ ------------ ------------ ------------
$106,649,299 $377,908,001 $ 77,837,223 $ 41,140,550
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A4
<PAGE> 82
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
JANUS ASPEN T. ROWE PRICE SMALL PRUDENTIAL DIVERSIFIED
PRUDENTIAL INTERNATIONAL INTERNATIONAL CAPITALIZATION AMERICAN FRANKLIN 20/20 CONSERVATIVE
GLOBAL GROWTH STOCK STOCK CENTURY SMALL CAP FOCUS GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO VP VALUE GROWTH FUND PORTFOLIO PORTFOLIO
------------ ------------- ------------- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$172,963,851 $342,761,586 $ 59,352,704 $ 77,061,987 $ 29,307,658 $ 45,690,342 $ 59,740,611 $107,555,867
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$172,963,851 $342,761,586 $ 59,352,704 $ 77,061,987 $ 29,307,658 $ 45,690,342 $ 59,740,611 $107,555,867
============ ============ ============ ============ ============ ============ ============ ============
$172,963,851 $342,761,586 $ 59,352,704 $ 77,061,987 $ 29,307,658 $ 45,690,342 $ 59,740,611 $107,555,867
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$172,963,851 $342,761,586 $ 59,352,704 $ 77,061,987 $ 29,307,658 $ 45,690,342 $ 59,740,611 $107,555,867
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A5
<PAGE> 83
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
For the period ended December 31, 1999
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------
OCC
PRUDENTIAL PRUDENTIAL PRUDENTIAL ACCUMULATION
MONEY DIVERSIFIED HIGH YIELD TRUST
MARKET BOND BOND MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income........................................ $ 15,237,235 $ 0 $ 899,319 $ 6,092,205
------------ ------------ ------------ ------------
EXPENSES
Charges to contract owners for assuming mortality risk
and expense risk and for administration [Notes 5A and
5B].................................................. 4,319,880 6,984,293 4,850,578 6,120,507
------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS)............................. 10,917,355 (6,984,293) (3,951,259) (28,302)
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Capital gains distributions received................... 0 1,285,540 0 13,670,677
Realized gain (loss) on shares redeemed................ 0 (217,332) (1,335,323) 897,961
Net change in unrealized gain (loss) on investments.... 0 (4,059,603) 15,367,189 324,829
------------ ------------ ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS........................... 0 (2,991,395) 14,031,866 14,893,467
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. $ 10,917,355 $ (9,975,688) $ 10,080,607 $ 14,865,165
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A6
<PAGE> 84
<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> <C>
$ 8,820,513 $ 12,066,262 $ 983,762 $ 3,440,291 $ 12,078,192 $ 1,392,985 $ 893,450 $ 555,659
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
10,910,240 7,164,555 1,928,075 2,481,037 9,656,037 11,111,111 3,032,917 2,973,970
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(2,089,727) 4,901,707 (944,313) 959,254 2,422,155 (9,718,126) (2,139,467) (2,418,311)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
11,127,890 60,578,751 679,249 8,086,306 89,969,855 47,725,828 4,672,141 1,086,014
1,703,966 (1,995,011) 261,097 380,940 856,311 3,182,966 139,822 163,612
130,084,476 (13,812,667) 43,708,751 (6,757,908) (24,789,617) 263,864,400 56,483,118 87,382,804
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
142,916,332 44,771,073 44,649,097 1,709,338 66,036,549 314,773,194 61,295,081 88,632,430
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$140,826,605 $ 49,672,780 $ 43,704,784 $ 2,668,592 $ 68,458,704 $305,055,068 $ 59,155,614 $ 86,214,119
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A7
<PAGE> 85
FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
For the period ended December 31, 1999
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------
OCC
MFS ACCUMULATION WARBURG PINCUS
MFS EMERGING TRUST POST-VENTURE
RESEARCH GROWTH SMALL CAP CAPITAL
SERIES SERIES PORTFOLIO PORTFOLIO
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income....................................... $ 168,118 $ 0 $ 492,737 $ 0
------------ ------------ ------------ ------------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk and for
administration [Notes 5A and 5B].................... 1,212,884 3,014,243 1,066,833 351,026
------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS)............................ (1,044,766) (3,014,243) (574,096) (351,026)
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received.................. 888,428 0 0 0
Realized gain (loss) on shares redeemed............... 916,660 1,054,720 (779,717) 228,993
Net change in unrealized gain (loss) on investments... 18,501,505 156,194,947 (1,154,571) 15,136,721
------------ ------------ ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS.......................... 20,306,593 157,249,667 (1,934,288) 15,365,714
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................ $ 19,261,827 $154,235,424 $ (2,508,384) $ 15,014,688
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A8
<PAGE> 86
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
JANUS ASPEN T. ROWE PRICE SMALL PRUDENTIAL DIVERSIFIED
PRUDENTIAL INTERNATIONAL INTERNATIONAL CAPITALIZATION AMERICAN FRANKLIN 20/20 CONSERVATIVE
GLOBAL GROWTH STOCK STOCK CENTURY SMALL CAP FOCUS GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO VP VALUE GROWTH FUND PORTFOLIO* PORTFOLIO*
----------- ------------- ------------- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 415,757 $ 459,400 $ 215,438 $ 0 $ 69,828 $ 10,300 $ 71,135 $ 1,794,864
----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,537,803 2,642,970 605,829 737,136 247,291 216,215 235,466 501,898
----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
(1,122,046) (2,183,570) (390,391) (737,136) (177,463) (205,915) (164,331) 1,292,966
----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
728,997 0 677,091 808,152 661,557 106,375 11,564 0
644,200 938,177 275,936 50,819 (2,693) 33,496 7,246 (355)
50,590,003 145,749,839 13,306,940 8,008,016 (2,145,944) 13,249,074 7,034,042 4,352,952
----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
51,963,200 146,688,016 14,259,967 8,866,987 (1,487,080) 13,388,945 7,052,852 4,352,597
----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$50,841,154 $144,504,446 $ 13,869,576 $ 8,129,851 $ (1,644,543) $ 13,183,030 $ 6,888,521 $ 5,645,563
=========== ============ ============ ============ ============ ============ ============ ============
</TABLE>
* Became available on May 3, 1999 (Note 1)
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A9
<PAGE> 87
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 periods ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
------------------------------- -------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss)..................... $ 10,917,355 $ 6,220,605 $ (6,984,293) $ 13,023,727
Capital gains distributions received............. 0 0 1,285,540 716,977
Realized gain (loss) on shares redeemed.......... 0 0 (217,332) (6,174)
Net change in unrealized gain (loss) on
investments.................................... 0 0 (4,059,603) (1,510,869)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS.................................. 10,917,355 6,220,605 (9,975,688) 12,223,661
-------------- -------------- -------------- --------------
ANNUITY PAYMENTS AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments...................... 272,372,341 222,388,823 277,727,914 221,694,519
Surrenders, Withdrawals and Death Benefits....... (42,335,727) (19,037,371) (36,944,522) (11,972,687)
Net Transfers From (To) Other Subaccounts or
Fixed Rate Option.............................. (71,873,867) (73,761,433) (26,698,441) 24,535,852
Withdrawal Charge................................ (183,933) (17,990) (242,247) (37,955)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM ANNUITY PAYMENTS AND OTHER OPERATING
TRANSFERS........................................ 157,978,814 129,572,029 213,842,704 234,219,729
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [NOTE 7]................. 0 (3,640,779) 0 (2,285,665)
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............ 168,896,169 132,151,855 203,867,016 244,157,725
NET ASSETS
Beginning of period.............................. 240,620,995 108,469,140 367,706,799 123,549,074
-------------- -------------- -------------- --------------
End of period.................................... $ 409,517,164 $ 240,620,995 $ 571,573,815 $ 367,706,799
============== ============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A10
<PAGE> 88
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------------
PRUDENTIAL OCC ACCUMULATION PRUDENTIAL
HIGH YIELD BOND TRUST MANAGED STOCK INDEX
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ------------------------------- -------------------------------
1999 1998 1999 1998 1999 1998
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ (3,951,259) $ 20,816,978 $ (28,302) $ (2,670,351) $ (2,089,727) $ (185,276)
0 0 13,670,677 6,952,938 11,127,890 8,054,760
(1,335,323) (473,469) 897,961 (277,190) 1,703,966 856,268
15,367,189 (34,004,857) 324,829 5,676,242 130,084,476 81,282,537
-------------- -------------- -------------- -------------- -------------- --------------
10,080,607 (13,661,348) 14,865,165 9,681,639 140,826,605 90,008,289
-------------- -------------- -------------- -------------- -------------- --------------
129,036,884 188,630,259 112,391,697 228,513,667 321,599,131 252,590,459
(30,777,962) (13,920,895) (36,218,849) (15,187,256) (47,411,223) (18,498,579)
(29,441,596) 9,082,688 (50,061,353) (1,385,568) 37,359,865 20,564,789
(389,559) (35,661) (436,907) (82,063) (260,561) (78,726)
-------------- -------------- -------------- -------------- -------------- --------------
68,427,767 183,756,391 25,674,588 211,858,780 311,287,212 254,577,943
-------------- -------------- -------------- -------------- -------------- --------------
0 (2,770,786) 0 (3,854,378) 0 (2,993,998)
-------------- -------------- -------------- -------------- -------------- --------------
78,508,374 167,324,257 40,539,753 217,686,041 452,113,817 341,592,234
302,699,998 135,375,741 405,603,080 187,917,039 565,248,472 223,656,238
-------------- -------------- -------------- -------------- -------------- --------------
$ 381,208,372 $ 302,699,998 $ 446,142,833 $ 405,603,080 $1,017,362,289 $ 565,248,472
============== ============== ============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------
PRUDENTIAL
EQUITY INCOME
PORTFOLIO
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
$ 4,901,707 $ 5,591,019
60,578,751 25,710,606
(1,995,011) (231,835)
(13,812,667) (61,296,933)
-------------- --------------
49,672,780 (30,227,143)
-------------- --------------
115,693,987 290,496,090
(36,847,150) (17,041,887)
(43,263,785) 2,985,956
(356,713) (65,773)
-------------- --------------
35,226,339 276,374,386
-------------- --------------
0 (3,015,564)
-------------- --------------
84,899,119 243,131,679
467,755,026 224,623,347
-------------- --------------
$ 552,654,145 $ 467,755,026
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A11
<PAGE> 89
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 periods ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------
AIM V.I. T. ROWE PRICE
GROWTH AND EQUITY INCOME
INCOME FUND PORTFOLIO
------------------------------- -------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)..................... $ (944,313) $ (564,142) $ 959,254 $ 971,949
Capital gains distributions received............. 679,249 916,060 8,086,306 4,669,654
Realized gain (loss) on shares redeemed.......... 261,097 36,024 380,940 34,283
Net change in unrealized gain (loss) on
investments.................................... 43,708,751 16,122,807 (6,757,908) 2,625,091
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS.................................. 43,704,784 16,510,749 2,668,592 8,300,977
-------------- -------------- -------------- --------------
ANNUITY PAYMENTS AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments...................... 63,862,790 39,265,963 47,231,184 65,996,482
Surrenders, Withdrawals and Death Benefits....... (9,606,456) (2,875,990) (11,063,140) (5,579,801)
Net Transfers From (To) Other Subaccounts or
Fixed Rate Option.............................. 6,136,356 1,659,949 (7,280,014) 1,810,796
Withdrawal Charge................................ (31,826) (15,890) (73,056) (35,415)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM ANNUITY PAYMENTS AND OTHER OPERATING
TRANSFERS........................................ 60,360,864 38,034,032 28,814,974 62,192,062
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN
THE ACCOUNT [NOTE 7]............................. 0 (460,303) 0 (1,320,662)
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............ 104,065,648 54,084,478 31,483,566 69,172,377
NET ASSETS:
Beginning of period.............................. 96,226,194 42,141,716 157,792,961 88,620,584
-------------- -------------- -------------- --------------
End of period.................................... $ 200,291,842 $ 96,226,194 $ 189,276,527 $ 157,792,961
============== ============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A12
<PAGE> 90
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL AIM V.I.
EQUITY JENNISON VALUE
PORTFOLIO PORTFOLIO FUND
------------------------------- ------------------------------- -------------------------------
1999 1998 1999 1998 1999 1998
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,422,155 $ 2,717,113 $ (9,718,126) $ (3,512,674) $ (2,139,467) $ (537,111)
89,969,855 62,992,043 47,725,828 6,752,988 4,672,141 4,721,622
856,311 386,861 3,182,966 266,858 139,822 68,930
(24,789,617) (39,567,051) 263,864,400 93,984,005 56,483,118 18,290,373
-------------- -------------- -------------- -------------- -------------- --------------
68,458,704 26,528,966 305,055,068 97,491,177 59,155,614 22,543,814
-------------- -------------- -------------- -------------- -------------- --------------
204,643,213 252,668,916 372,108,655 226,450,341 143,043,185 44,708,869
(45,524,510) (21,218,983) (49,014,642) (12,706,368) (12,933,293) (2,887,607)
(28,913,363) 2,789,177 92,106,617 28,775,735 35,258,086 6,080,094
(324,391) (85,832) (327,147) (52,520) (55,983) (18,853)
-------------- -------------- -------------- -------------- -------------- --------------
129,880,949 234,153,278 414,873,483 242,467,188 165,311,995 47,882,503
-------------- -------------- -------------- -------------- -------------- --------------
0 (4,666,555) 0 (2,553,663) 0 (766,278)
-------------- -------------- -------------- -------------- -------------- --------------
198,339,653 256,015,689 719,928,551 337,404,702 224,467,609 69,660,039
588,646,085 332,630,396 495,648,718 158,244,016 117,874,169 48,214,130
-------------- -------------- -------------- -------------- -------------- --------------
$ 786,985,738 $ 588,646,085 $1,215,577,269 $ 495,648,718 $ 342,341,778 $ 117,874,169
============== ============== ============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------
JANUS ASPEN
GROWTH
PORTFOLIO
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
$ (2,418,311) $ 1,636,631
1,086,014 2,162,901
163,612 1,707,561
87,382,804 19,044,323
-------------- --------------
86,214,119 24,551,416
-------------- --------------
132,338,514 39,709,839
(14,142,704) (3,026,558)
44,810,730 4,761,250
(57,856) (21,890)
-------------- --------------
162,948,684 41,422,641
-------------- --------------
0 (1,013,718)
-------------- --------------
249,162,803 64,960,339
114,857,708 49,897,369
-------------- --------------
$ 364,020,511 $ 114,857,708
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A13
<PAGE> 91
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 periods ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------
MFS MFS
RESEARCH EMERGING GROWTH
SERIES SERIES
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)........................... $ (1,044,766) $ (710,146) $ (3,014,243) $ (1,270,095)
Capital gains distributions received................... 888,428 1,080,320 0 638,659
Realized gain (loss) on shares redeemed................ 916,660 101,567 1,054,720 519,956
Net change in unrealized gain (loss) on investments.... 18,501,505 10,224,375 156,194,947 27,427,720
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. 19,261,827 10,696,116 154,235,424 27,316,240
------------ ------------ ------------ ------------
ANNUITY PAYMENTS AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments............................ 19,128,059 27,881,903 79,496,716 66,934,974
Surrenders, Withdrawals and Death Benefits............. (4,803,341) (2,149,211) (13,508,434) (3,655,122)
Net Transfers From (To) Other Subaccounts or Fixed Rate
Option............................................... (1,734,031) 201,719 10,085,471 5,933,717
Withdrawal Charge...................................... (43,356) (16,202) (109,040) (22,762)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
ANNUITY PAYMENTS AND OTHER OPERATING TRANSFERS......... 12,547,331 25,918,209 75,964,713 69,190,807
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE
ACCOUNT [NOTE 7]....................................... 0 (751,189) 0 (629,650)
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................. 31,809,158 35,863,136 230,200,137 95,877,397
NET ASSETS:
Beginning of period.................................... 74,840,141 38,977,005 147,707,864 51,830,467
------------ ------------ ------------ ------------
End of period.......................................... $106,649,299 $ 74,840,141 $377,908,001 $147,707,864
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A14
<PAGE> 92
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------------------------------
OCC WARBURG PINCUS PRUDENTIAL JANUS ASPEN
ACCUMULATION TRUST POST-VENTURE CAPITAL GLOBAL INTERNATIONAL GROWTH
SMALL CAP PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------- --------------------------- --------------------------- ---------------------------
1999 1998 1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (574,096) $ (726,310) $ (351,026) $ (220,149) $ (1,122,046) $ 51,729 $ (2,183,570) $ 375,577
0 1,857,356 0 0 728,997 3,067,421 0 277,964
(779,717) (185,468) 228,993 (29,780) 644,200 343,605 938,177 257,344
(1,154,571) (8,799,441) 15,136,721 1,225,477 50,590,003 8,158,029 145,749,839 12,138,102
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(2,508,384) (7,853,863) 15,014,688 975,548 50,841,154 11,620,784 144,504,446 13,048,987
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
14,475,643 40,824,682 7,384,487 7,812,255 50,926,412 25,232,854 67,353,904 46,761,121
(5,403,265) (2,179,774) (1,361,901) (716,362) (6,794,389) (2,991,488) (9,802,085) (5,140,181)
(6,539,646) 1,029,950 (924,117) 1,132,477 3,429,607 (807,455) 4,587,183 3,054,726
(26,239) (17,090) (7,136) (4,532) (20,785) (9,953) (54,319) (32,754)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
2,506,493 39,657,768 5,091,333 8,223,838 47,540,845 21,423,958 62,084,683 44,642,912
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
0 (810,379) 0 (230,776) 0 (770,307) 0 (1,490,800)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(1,891) 30,993,526 20,106,021 8,968,610 98,381,999 32,274,435 206,589,129 56,201,099
77,839,114 46,845,588 21,034,529 12,065,919 74,581,852 42,307,417 136,172,457 79,971,358
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$77,837,223 $ 77,839,114 $ 41,140,550 $ 21,034,529 $172,963,851 $ 74,581,852 $342,761,586 $136,172,457
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A15
<PAGE> 93
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 periods ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------
T. ROWE PRICE PRUDENTIAL
INTERNATIONAL SMALL CAPITALIZATION
STOCK STOCK
PORTFOLIO PORTFOLIO
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)........................... $ (390,391) $ (9,407) $ (737,136) $ (223,876)
Capital gains distributions received................... 677,091 145,141 808,152 2,099,444
Realized gain (loss) on shares redeemed................ 275,936 (5,370) 50,819 100,021
Net change in unrealized gain (loss) on investments.... 13,306,940 3,521,094 8,008,016 (1,974,627)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................. 13,869,576 3,651,458 8,129,851 962
------------ ------------ ------------ ------------
ANNUITY PAYMENTS AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments............................ 12,272,179 11,193,741 35,151,433 9,070,074
Surrenders, Withdraws and Death Benefits............... (2,369,288) (1,426,032) (2,900,328) (1,481,001)
Net Transfers From (To) Other Subaccounts or Fixed Rate
Option............................................... (539,182) (546,402) 245,904 2,431,672
Withdrawal Charge...................................... (12,248) (9,049) (3,007) (24)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
ANNUITY PAYMENTS AND OTHER OPERATING TRANSFERS......... 9,351,461 9,212,258 32,494,002 10,020,721
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE
ACCOUNT [NOTE 7]....................................... 0 (444,980) 0 (2,337)
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................. 23,221,037 12,418,736 40,623,853 10,019,346
NET ASSETS:
Beginning of period.................................... 36,131,667 23,712,931 36,438,134 26,418,788
------------ ------------ ------------ ------------
End of period.......................................... $ 59,352,704 $ 36,131,667 $ 77,061,987 $ 36,438,134
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A16
<PAGE> 94
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
AMERICAN FRANKLIN 20/20 DIVERSIFIED
CENTURY SMALL CAP FOCUS CONSERVATIVE
VP VALUE* GROWTH FUND* PORTFOLIO** GROWTH PORTFOLIO**
--------------------------- --------------------------- ------------ ------------------
1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
$ (177,463) $ (6,029) $ (205,915) $ (5,958) $ (164,331) $ 1,292,966
661,557 0 106,375 0 11,564 0
(2,693) (98) 33,496 6,735 7,246 (355)
(2,145,944) 112,247 13,249,074 340,261 7,034,042 4,352,952
------------ ------------ ------------ ------------ ------------ ------------
(1,664,543) 106,120 13,183,030 341,038 6,888,521 5,645,563
------------ ------------ ------------ ------------ ------------ ------------
23,604,381 2,778,442 22,122,028 2,545,887 38,855,299 92,547,214
(631,172) (8,361) (543,922) (4,069) (504,773) (2,063,359)
4,383,749 740,969 7,420,093 630,269 14,502,718 11,427,441
(1,238) (8) (1,563) (9) (1,154) (992)
------------ ------------ ------------ ------------ ------------ ------------
27,355,720 3,511,042 28,996,636 3,172,078 52,852,090 101,910,304
------------ ------------ ------------ ------------ ------------ ------------
0 (681) 0 (2,440) 0 0
------------ ------------ ------------ ------------ ------------ ------------
25,691,177 3,616,481 42,179,666 3,510,676 59,740,611 107,555,867
3,616,481 0 3,510,676 0 0 0
------------ ------------ ------------ ------------ ------------ ------------
$ 29,307,658 $ 3,616,481 $ 45,690,342 $ 3,510,676 $59,740,611 $107,555,867
============ ============ ============ ============ ============ ============
</TABLE>
* Became available on September 1, 1998 (Note 1)
** Became available on May 3, 1999 (Note 1)
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A24
A17
<PAGE> 95
NOTES TO FINANCIAL STATEMENTS OF
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
DECEMBER 31, 1999
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") and beginning October 11, 1999 Discovery Choice Variable
Annuity contracts, Basic and Enhanced ("Discovery Choice") 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 thirty subaccounts
within the Account. Discovery Select contracts offer the option to
invest in twenty-four 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 accounting principles generally accepted in the United States
("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.
A18
<PAGE> 96
NOTE 3: INVESTMENT INFORMATION THE PRUCO LIFE FLEXIBLE PREMIUM VARIABLE ANNUITY
ACCOUNT
The net asset value per share for each portfolio of the Series Fund
or the non-Prudential administered variable funds, the number of shares
(rounded) of each portfolio held by the Account and the aggregate cost
of investments in such shares at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
OCC
PRUDENTIAL PRUDENTIAL PRUDENTIAL ACCUMULATION PRUDENTIAL
MONEY DIVERSIFIED HIGH YIELD TRUST STOCK
MARKET BOND BOND MANAGED INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of shares (rounded).................. 40,951,716 52,198,522 50,692,603 10,220,913 22,887,791
Net asset value per share................... $ 10.00 $ 10.95 $ 7.52 $ 43.65 $ 44.45
Cost........................................ $409,517,164 $579,021,636 $399,709,831 $431,055,912 $789,218,496
</TABLE>
<TABLE>
<CAPTION>
PRUDENTIAL AIM V.I. T. ROWE PRICE
EQUITY GROWTH AND EQUITY PRUDENTIAL PRUDENTIAL
INCOME INCOME INCOME EQUITY JENNISON
PORTFOLIO FUND PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of shares (rounded)................. 28,312,200 6,340,356 10,105,527 27,231,340 37,529,431
Net asset value per share.................. $ 19.52 $ 31.59 $ 18.73 $ 28.90 $ 32.39
Cost....................................... $622,435,509 $137,091,483 $186,994,604 $838,738,489 $846,668,974
</TABLE>
<TABLE>
<CAPTION>
OCC
MFS ACCUMULATION
AIM V.I. JANUS ASPEN MFS EMERGING TRUST
VALUE GROWTH RESEARCH GROWTH SMALL CAP
FUND PORTFOLIO SERIES SERIES PORTFOLIO
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of shares (rounded).................. 10,219,158 10,817,861 4,569,379 9,960,675 3,456,360
Net asset value per share................... $ 33.50 $ 33.65 $ 23.34 $ 37.94 $ 22.52
Cost........................................ $265,728,076 $253,846,012 $ 75,155,653 $189,594,017 $ 85,243,633
</TABLE>
<TABLE>
<CAPTION>
WARBURG PRUDENTIAL
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 (rounded).............. 2,136,062 5,583,081 8,863,760 3,117,264 4,742,276
Net asset value per share............... $ 19.26 $ 30.98 $ 38.67 $ 19.04 $ 16.25
Cost.................................... $ 23,810,106 $115,095,668 $181,641,250 $ 43,336,323 $ 67,771,202
</TABLE>
<TABLE>
<CAPTION>
PRUDENTIAL
PRUDENTIAL DIVERSIFIED
AMERICAN FRANKLIN 20/20 CONSERVATIVE
CENTURY SMALL CAP FOCUS GROWTH
VP VALUE GROWTH FUND PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Number of shares (rounded).................. 4,925,657 2,902,822 5,028,671 10,371,829
Net asset value per share................... $ 5.95 $ 15.74 $ 11.88 $ 10.37
Cost........................................ $ 31,341,355 $ 32,101,007 $ 52,706,569 $103,202,915
</TABLE>
A19
<PAGE> 97
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units (rounded), unit values and total
value of contract owner equity at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL OCC
MONEY DIVERSIFIED HIGH YIELD ACCUMULATION
MARKET BOND BOND TRUST MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Discovery Preferred-rounded)............ 18,428,614 23,741,453 17,801,035 N/A
Unit Value (Discovery Preferred).......... $ 1.16977 $ 1.17457 $ 1.25119 N/A
-------------- -------------- -------------- --------------
Contract Owner Equity
(Discovery Preferred).................... $ 21,557,240 $ 27,885,998 $ 22,272,477 N/A
-------------- -------------- -------------- --------------
Contract Owner Units Outstanding
(Discovery Select-rounded)............... 331,274,925 462,776,279 286,794,531 321,473,248
Unit Value (Discovery Select)............. $ 1.16977 $ 1.17457 $ 1.25119 $ 1.38780
-------------- -------------- -------------- --------------
Contract Owner Equity
(Discovery Select)....................... $ 387,515,470 $ 543,563,134 $ 358,834,450 $ 446,140,573
-------------- -------------- -------------- --------------
Contract Owner Units Outstanding
(Discovery Choice Basic-rounded)......... 192,759 3,666 7,701 0.000
Unit Value (Discovery Choice Basic)....... $ 1.00705 $ 1.00134 $ 1.02910 $ 0.98149
-------------- -------------- -------------- --------------
Contract Owner Equity
(Discovery Choice Basic)................. $ 194,118 $ 3,671 $ 7,925 $ 0
-------------- -------------- -------------- --------------
Contract Owner Units Outstanding
(Discovery Choice Enhanced-rounded)...... 248,722 120,911 90,921 2,303
Unit Value (Discovery Choice Enhanced).... $ 1.00649 $ 1.00083 $ 1.02858 $ 0.98101
-------------- -------------- -------------- --------------
Contract Owner Equity
(Discovery Choice Enhanced).............. $ 250,336 $ 121,012 $ 93,520 $ 2,260
-------------- -------------- -------------- --------------
TOTAL CONTRACT OWNER EQUITY............... $ 409,517,164 $ 571,573,815 $ 381,208,372 $ 446,142,833
============== ============== ============== ==============
<CAPTION>
SUBACCOUNTS
--------------
PRUDENTIAL
STOCK INDEX
PORTFOLIO
--------------
<S> <C>
Contract Owner Units Outstanding
(Discovery Preferred-rounded)............ 40,197,437
Unit Value (Discovery Preferred).......... $ 2.24149
--------------
Contract Owner Equity
(Discovery Preferred).................... $ 90,102,154
--------------
Contract Owner Units Outstanding
(Discovery Select-rounded)............... 413,343,040
Unit Value (Discovery Select)............. $ 2.24149
--------------
Contract Owner Equity
(Discovery Select)....................... $ 926,504,291
--------------
Contract Owner Units Outstanding
(Discovery Choice Basic-rounded)......... 67,412
Unit Value (Discovery Choice Basic)....... $ 1.07732
--------------
Contract Owner Equity
(Discovery Choice Basic)................. $ 72,625
--------------
Contract Owner Units Outstanding
(Discovery Choice Enhanced-rounded)...... 634,532
Unit Value (Discovery Choice Enhanced).... $ 1.07673
--------------
Contract Owner Equity
(Discovery Choice Enhanced).............. $ 683,219
--------------
TOTAL CONTRACT OWNER EQUITY............... $1,017,362,289
==============
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------
AIM V.I. T. ROWE PRICE
PRUDENTIAL GROWTH AND EQUITY
EQUITY INCOME INCOME INCOME
PORTFOLIO FUND PORTFOLIO
-------------- -------------- --------------
<S> <C> <C> <C>
Contract Owner Units Outstanding
(Discovery Preferred-rounded)............ 32,470,878 N/A N/A
Unit Value (Discovery Preferred).......... $ 1.77516 N/A N/A
-------------- -------------- --------------
Contract Owner Equity
(Discovery Preferred).................... $ 57,641,005 N/A N/A
-------------- -------------- --------------
Contract Owner Units Outstanding
(Discovery Select-rounded)............... 278,847,271 93,248,281 129,059,108
Unit Value (Discovery Select)............. $ 1.77516 $ 2.14458 $ 1.46563
-------------- -------------- --------------
Contract Owner Equity
(Discovery Select)....................... $ 494,998,521 $ 199,978,398 $ 189,152,900
-------------- -------------- --------------
Contract Owner Units Outstanding
(Discovery Choice Basic-rounded)......... 2,939 91,373 18,191
Unit Value (Discovery Choice Basic)....... $ 1.07799 $ 1.16053 $ 0.97418
-------------- -------------- --------------
Contract Owner Equity
(Discovery Choice Basic)................. $ 3,169 $ 106,041 $ 17,721
-------------- -------------- --------------
Contract Owner Units Outstanding
(Discovery Choice Enhanced-rounded)...... 10,626 178,802 108,770
Unit Value (Discovery Choice Enhanced).... $ 1.07749 $ 1.15996 $ 0.97367
-------------- -------------- --------------
Contract Owner Equity
(Discovery Choice Enhanced).............. $ 11,450 $ 207,403 $ 105,906
-------------- -------------- --------------
TOTAL CONTRACT OWNER EQUITY............... $ 552,654,145 $ 200,291,842 $ 189,276,527
============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------
PRUDENTIAL PRUDENTIAL
EQUITY JENNISON
PORTFOLIO PORTFOLIO
-------------- --------------
<S> <C> <C>
Contract Owner Units Outstanding
(Discovery Preferred-rounded)............ 77,161,984 41,947,739
Unit Value (Discovery Preferred).......... $ 1.77642 $ 2.81446
-------------- --------------
Contract Owner Equity
(Discovery Preferred).................... $ 137,072,091 $ 118,060,232
-------------- --------------
Contract Owner Units Outstanding
(Discovery Select-rounded)............... 365,751,430 389,581,022
Unit Value (Discovery Select)............. $ 1.77642 $ 2.81446
-------------- --------------
Contract Owner Equity
(Discovery Select)....................... $ 649,728,156 $1,096,460,204
-------------- --------------
Contract Owner Units Outstanding
(Discovery Choice Basic-rounded)......... 0.000 192,663
Unit Value (Discovery Choice Basic)....... $ 1.07278 $ 1.17793
-------------- --------------
Contract Owner Equity
(Discovery Choice Basic)................. $ 0 $ 226,943
-------------- --------------
Contract Owner Units Outstanding
(Discovery Choice Enhanced-rounded)...... 172,987 705,729
Unit Value (Discovery Choice Enhanced).... $ 1.07228 $ 1.17735
-------------- --------------
Contract Owner Equity
(Discovery Choice Enhanced).............. $ 185,491 $ 830,890
-------------- --------------
TOTAL CONTRACT OWNER EQUITY............... $ 786,985,738 $1,215,578,269
============== ==============
</TABLE>
A20
<PAGE> 98
NOTE 4: CONTRACT OWNER UNIT INFORMATION (CONTINUED)
Outstanding contract owner units, unit values and total value of
contract owner equity at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------
MFS
AIM V.I. JANUS ASPEN MFS EMERGING
VALUE GROWTH RESEARCH GROWTH
FUND PORTFOLIO SERIES SERIES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Discovery Preferred-rounded)............ N/A N/A N/A N/A
Unit Value (Discovery Preferred).......... N/A N/A N/A N/A
------------ ------------ ------------ ------------
Contract Owner Equity
(Discovery Preferred).................... N/A N/A N/A N/A
------------ ------------ ------------ ------------
Contract Owner Units Outstanding
(Discovery Select-rounded)............... 159,478,282 156,489,738 58,852,725 142,181,941
Unit Value (Discovery Select)............. $ 2.14096 $ 2.31856 $ 1.81149 $ 2.65585
------------ ------------ ------------ ------------
Contract Owner Equity
(Discovery Select)....................... $341,436,622 $362,830,846 $106,611,123 $377,613,907
------------ ------------ ------------ ------------
Contract Owner Units Outstanding
(Discovery Choice Basic-rounded)......... 71,394 225,112 11,559 87,135
Unit Value (Discovery Choice Basic)....... $ 1.11027 $ 1.14801 $ 1.15051 $ 1.46600
------------ ------------ ------------ ------------
Contract Owner Equity
(Discovery Choice Basic)................. $ 79,267 $ 258,430 $ 13,299 $ 127,741
------------ ------------ ------------ ------------
Contract Owner Units Outstanding
(Discovery Choice Enhanced-rounded)...... 744,211 811,597 21,634 113,531
Unit Value (Discovery Choice Enhanced).... $ 1.10975 $ 1.14741 $ 1.14991 $ 1.46527
------------ ------------ ------------ ------------
Contract Owner Equity
(Discovery Choice Enhanced).............. $ 825,889 $ 931,235 $ 24,877 $ 166,353
------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY............... $342,341,778 $364,020,511 $106,649,299 $377,908,001
============ ============ ============ ============
<CAPTION>
SUBACCOUNTS
--------------
OCC
ACCUMULATION
TRUST SMALL
CAP
PORTFOLIO
--------------
<S> <C>
Contract Owner Units Outstanding
(Discovery Preferred-rounded)............ N/A
Unit Value (Discovery Preferred).......... N/A
------------
Contract Owner Equity
(Discovery Preferred).................... N/A
------------
Contract Owner Units Outstanding
(Discovery Select-rounded)............... 70,710,730
Unit Value (Discovery Select)............. $ 1.10051
------------
Contract Owner Equity
(Discovery Select)....................... $ 77,817,866
------------
Contract Owner Units Outstanding
(Discovery Choice Basic-rounded)......... 13,871
Unit Value (Discovery Choice Basic)....... $ 1.04407
------------
Contract Owner Equity
(Discovery Choice Basic)................. $ 14,482
------------
Contract Owner Units Outstanding
(Discovery Choice Enhanced-rounded)...... 4,672
Unit Value (Discovery Choice Enhanced).... $ 1.04349
------------
Contract Owner Equity
(Discovery Choice Enhanced).............. $ 4,875
------------
TOTAL CONTRACT OWNER EQUITY............... $ 77,837,223
============
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------
WARBURG PINCUS JANUS ASPEN
POST-VENTURE PRUDENTIAL INTERNATIONAL
CAPITAL GLOBAL GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- --------------
<S> <C> <C> <C>
Contract Owner Units Outstanding
(Discovery Preferred-rounded)............ N/A 12,841,628 N/A
Unit Value (Discovery Preferred).......... N/A $ 2.27423 N/A
------------ ------------ ------------
Contract Owner Equity
(Discovery Preferred).................... N/A $ 29,204,816 N/A
------------ ------------ ------------
Contract Owner Units Outstanding
(Discovery Select-rounded)............... 22,673,902 63,210,475 133,606,831
Unit Value (Discovery Select)............. $ 1.81263 $ 2.27423 $ 2.55865
------------ ------------ ------------
Contract Owner Equity
(Discovery Select)....................... $ 41,099,395 $143,755,159 $341,853,118
------------ ------------ ------------
Contract Owner Units Outstanding
(Discovery Choice Basic-rounded)......... 1,934 0.000 148,790
Unit Value (Discovery Choice Basic)....... $ 1.39652 $ 1.24477 $ 1.46027
------------ ------------ ------------
Contract Owner Equity
(Discovery Choice Basic)................. $ 2,701 $ 0 $ 217,274
------------ ------------ ------------
Contract Owner Units Outstanding
(Discovery Choice Enhanced-rounded)...... 27,550 3,116 473,563
Unit Value (Discovery Choice Enhanced).... $ 1.39579 $ 1.24417 $ 1.45956
------------ ------------ ------------
Contract Owner Equity
(Discovery Choice Enhanced).............. $ 38,454 $ 3,876 $ 691,194
------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY............... $ 41,140,550 $172,963,851 $342,761,586
============ ============ ============
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------
PRUDENTIAL
T. ROWE PRICE SMALL
INTERNATIONAL CAPITALIZATION
STOCK STOCK
PORTFOLIO PORTFOLIO
-------------- --------------
<S> <C> <C>
Contract Owner Units Outstanding
(Discovery Preferred-rounded)............ N/A 15,770,345
Unit Value (Discovery Preferred).......... N/A $ 1.64674
------------ ------------
Contract Owner Equity
(Discovery Preferred).................... N/A $ 25,969,657
------------ ------------
Contract Owner Units Outstanding
(Discovery Select-rounded)............... 37,353,154 36,672,909
Unit Value (Discovery Select)............. $ 1.58765 $ 1.39319
------------ ------------
Contract Owner Equity
(Discovery Select)....................... $ 59,303,735 $ 51,092,330
------------ ------------
Contract Owner Units Outstanding
(Discovery Choice Basic-rounded)......... 0.000 0.000
Unit Value (Discovery Choice Basic)....... $ 1.19809 $ 1.12193
------------ ------------
Contract Owner Equity
(Discovery Choice Basic)................. $ 0 $ 0
------------ ------------
Contract Owner Units Outstanding
(Discovery Choice Enhanced-rounded)...... 40,893 0.000
Unit Value (Discovery Choice Enhanced).... $ 1.19749 $ 1.12143
------------ ------------
Contract Owner Equity
(Discovery Choice Enhanced).............. $ 48,969 $ 0
------------ ------------
TOTAL CONTRACT OWNER EQUITY............... $ 59,352,704 $ 77,061,987
============ ============
</TABLE>
A21
<PAGE> 99
NOTE 4: CONTRACT OWNER UNIT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------
PRUDENTIAL
PRUDENTIAL DIVERSIFIED
AMERICAN FRANKLIN 20/20 CONSERVATIVE
CENTURY SMALL CAP FOCUS GROWTH
VP VALUE GROWTH FUND PORTFOLIO PORTFOLIO
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Contract Owner Units Outstanding
(Discovery Preferred-rounded)............ N/A N/A N/A N/A
Unit Value (Discovery Preferred).......... N/A N/A N/A N/A
------------ ------------ ------------ ------------
Contract Owner Equity
(Discovery Preferred).................... N/A N/A N/A N/A
------------ ------------ ------------ ------------
Contract Owner Units Outstanding
(Discovery Select-rounded)............... 25,545,686 21,301,323 50,083,559 102,284,285
Unit Value (Discovery Select)............. $ 1.14715 $ 2.14040 $ 1.17842 $ 1.05128
------------ ------------ ------------ ------------
Contract Owner Equity
(Discovery Select)....................... $ 29,304,734 $ 45,593,352 $ 59,019,467 $107,529,423
------------ ------------ ------------ ------------
Contract Owner Units Outstanding
(Discovery Choice Basic-rounded)......... 0.00 24,088 29,922 6,052
Unit Value (Discovery Choice Basic)....... $ 0.97477 $ 1.27363 $ 1.14337 $ 1.05464
------------ ------------ ------------ ------------
Contract Owner Equity
(Discovery Choice Basic)................. $ 0 $ 30,679 $ 34,212 $ 6,383
------------ ------------ ------------ ------------
Contract Owner Units Outstanding
(Discovery Choice Enhanced-rounded)...... 3,002 52,091 601,106 19,031
Unit Value (Discovery Choice Enhanced).... $ 0.97426 $ 1.27297 $ 1.14278 $ 1.05412
------------ ------------ ------------ ------------
Contract Owner Equity
(Discovery Choice Enhanced).............. $ 2,924 $ 66,311 $ 686,932 $ 20,061
------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY............... $ 29,307,658 $ 45,690,342 $ 59,740,611 $107,555,867
============ ============ ============ ============
</TABLE>
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%, 1.25%, 1.35% and 1.65%, are applied daily
against the net assets representing equity of Discovery
Preferred, Discovery Select, Discovery Choice Basic and
Discovery Choice Enhanced contract owners respectively, 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 Charge
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.
A22
<PAGE> 100
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.
NOTE 8: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts) for
the years ended December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED HIGH YIELD
MARKET BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------- --------------------------- ---------------------------
1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions:............. 456,935,811 331,650,231 291,375,622 237,118,644 133,657,032 184,723,455
Contract Owner Redemptions:.. (319,757,994) (215,127,759) (111,214,388) (37,463,915) (78,517,650) (40,262,125)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------
OCC
ACCUMULATION PRUDENTIAL PRUDENTIAL
TRUST MANAGED STOCK INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------- --------------------------- ---------------------------
1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions:............. 97,333,166 191,632,041 217,901,612 191,146,233 93,026,349 197,270,485
Contract Owner Redemptions:.. (78,496,794) (33,777,164) (63,462,137) (39,441,955) (74,144,631) (37,833,640)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------
AIM V.I. T. ROWE PRICE
GROWTH AND EQUITY PRUDENTIAL
INCOME INCOME EQUITY
FUND PORTFOLIO PORTFOLIO
--------------------------- --------------------------- ---------------------------
1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions:............. 46,491,648 33,393,776 43,773,751 59,351,080 150,750,917 187,580,463
Contract Owner Redemptions:.. (12,380,878) (6,352,042) (24,719,079) (14,700,797) (75,237,504) (40,618,482)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------
PRUDENTIAL AIM V.I. JANUS ASPEN
JENNISON VALUE GROWTH
PORTFOLIO FUND PORTFOLIO
--------------------------- --------------------------- ---------------------------
1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions:............. 254,836,824 169,816,396 109,052,648 42,370,683 107,500,782 38,586,915
Contract Owner Redemptions:.. (69,429,979) (27,814,479) (19,289,303) (8,849,926) (20,319,212) (8,478,173)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------
MFS OCC
MFS EMERGING ACCUMULATION
RESEARCH GROWTH TRUST SMALL CAP
SERIES SERIES PORTFOLIO
--------------------------- --------------------------- ---------------------------
1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions:............. 18,280,673 25,587,443 70,528,999 65,462,962 22,091,651 42,145,368
Contract Owner Redemptions:.. (9,946,023) (6,445,798) (25,076,467) (12,875,587) (19,841,734) (9,942,999)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------
WARBURG PINCUS
POST-VENTURE PRUDENTIAL JANUS ASPEN
CAPITAL GLOBAL INTERNATIONAL
PORTFOLIO PORTFOLIO GROWTH PORTFOLIO
--------------------------- --------------------------- ---------------------------
1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions:............. 8,119,699 9,699,611 38,863,649 22,311,044 58,594,897 46,728,091
Contract Owner Redemptions:.. (4,128,642) (2,027,125) (10,766,101) (7,301,735) (20,034,764) (14,796,532)
</TABLE>
A23
<PAGE> 101
NOTE 8: UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------
T. ROWE PRICE PRUDENTIAL
INTERNATIONAL SMALL CAPITALIZATION AMERICAN
STOCK STOCK CENTURY
PORTFOLIO PORTFOLIO VP VALUE*
--------------------------- --------------------------- ---------------------------
1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions:............. 14,025,682 12,732,340 35,801,924 11,437,423 25,178,300 3,106,101
Contract Owner Redemptions:.. (6,555,084) (4,847,940) (9,019,886) (3,224,485) (2,712,585) (23,128)
</TABLE>
* Became available on September 1, 1998
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------
PRUDENTIAL
PRUDENTIAL DIVERSIFIED
FRANKLIN 20/20 CONSERVATIVE
SMALL CAP FOCUS GROWTH
GROWTH FUND* PORTFOLIO** PORTFOLIO**
--------------------------- ------------ ------------
1999 1998 1999 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contract Owner
Contributions:............. 20,865,250 2,877,726 55,311,847 109,391,417
Contract Owner Redemptions:.. (2,308,089) (57,385) (4,597,260) (7,082,049)
</TABLE>
* Became available on September 1, 1998 (Note 1)
** Became available on May 3, 1999 (Note 1)
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, 1999 were as follows:
<TABLE>
<CAPTION>
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........... $206,858,775 $218,701,233 $ 79,837,332 $ 49,695,587 $307,114,320
Sales............... $(53,199,841) $(11,842,823) $(16,260,144) $(30,141,506) $ (6,737,349)
</TABLE>
<TABLE>
<CAPTION>
AIM V.I. T. ROWE PRICE
PRUDENTIAL GROWTH AND EQUITY PRUDENTIAL PRUDENTIAL
EQUITY INCOME INCOME INCOME EQUITY JENNISON
PORTFOLIO FUND PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Purchases........... $ 57,186,887 $ 59,506,973 $ 31,561,310 $145,133,645 $414,169,282
Sales............... $(29,125,101) $ (1,074,184) $ (5,227,372) $(24,908,733) $(10,405,909)
</TABLE>
<TABLE>
<CAPTION>
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........... $162,944,434 $160,723,651 $ 15,829,308 $ 75,757,539 $ 7,977,825
Sales............... $ (665,356) $ (748,938) $ (4,494,861) $ (2,807,069) $ (6,538,165)
</TABLE>
<TABLE>
<CAPTION>
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>
Purchases........... $ 6,050,667 $ 48,942,279 $ 62,035,894 $ 11,045,835 $ 37,590,708
Sales............... $ (1,310,360) $ (2,939,236) $ (2,594,179) $ (2,300,203) $ (5,833,842)
</TABLE>
<TABLE>
<CAPTION>
PRUDENTIAL
PRUDENTIAL DIVERSIFIED
AMERICAN FRANKLIN 20/20 CONSERVATIVE
CENTURY SMALL CAP FOCUS GROWTH
VP VALUE GROWTH FUND PORTFOLIO* PORTFOLIO*
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Purchases........... $ 27,184,239 $ 29,172,612 $ 52,835,991 $101,434,895
Sales............... $ (75,810) $ (392,191) $ (219,367) $ (26,489)
</TABLE>
* Became available on May 3, 1999
A24
<PAGE> 102
NOTE 10: SUBSEQUENT EVENT
As of May 1, 2000 the Warburg Pincus Post-Venture Capital
Portfolio's name is being changed to the Global Post-Venture Capital
Portfolio. This will have no effect on the contract owner's account or
the related unit value.
A25
<PAGE> 103
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, Franklin Small Cap Growth Fund, Prudential 20/20
Focus Portfolio and Prudential Diversified Conservative Growth Portfolio of the
Discovery Select Variable Annuity Subaccounts of Pruco Life Flexible Premium
Variable Annuity Account at December 31, 1999, the results of each of their
operations for the period then ended (for the period September 1, 1998 through
December 31, 1999 for American Century VP Value and Franklin Small Cap Growth
Fund and for the period May 3, 1999 through December 31, 1999 for Prudential
20/20 Focus Portfolio and Prudential Diversified Conservative Growth Portfolio)
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, 1999
for American Century VP Value and Franklin Small Cap Growth Fund and for the
period May 3, 1999 through December 31, 1999 for Prudential 20/20 Focus
Portfolio and Prudential Diversified Conservative Growth Portfolio), in
conformity with accounting principles generally accepted in the United States.
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 auditing standards generally accepted in
the United States, 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, 1999,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 17, 2000
A26
<PAGE> 104
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1999 AND 1998 (IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost,
1999: $3,084,057; 1998: $2,738,654)................... $ 2,998,362 $ 2,763,926
Held to maturity, at amortized cost (fair value, 1999:
$377,822; 1998: $421,845)............................. 388,990 410,558
Equity securities -- available for sale, at fair value
(cost, 1999: $3,238; 1998: $2,951)........................ 4,532 2,847
Mortgage loans on real estate............................... 10,509 17,354
Policy loans................................................ 792,352 766,917
Short-term investments...................................... 207,219 240,727
Other long-term investments................................. 77,769 42,050
----------- -----------
Total investments................................. 4,479,733 4,244,379
Cash........................................................ 76,396 89,679
Deferred policy acquisition costs........................... 1,062,785 861,713
Accrued investment income................................... 68,917 61,114
Receivables from affiliate.................................. 23,329 --
Other assets................................................ 48,228 65,145
Separate Account assets..................................... 16,032,449 11,490,751
----------- -----------
TOTAL ASSETS................................................ $21,791,837 $16,812,781
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances............................. $ 3,116,261 $ 2,702,011
Future policy benefits and other policyholder liabilities... 635,978 528,779
Cash collateral for loaned securities....................... 87,336 73,336
Securities sold under agreement to repurchase............... 21,151 49,708
Income taxes payable........................................ 145,600 193,358
Payables to affiliate....................................... -- 66,568
Other liabilities........................................... 83,243 55,038
Separate Account liabilities................................ 16,032,449 11,490,751
----------- -----------
TOTAL LIABILITIES........................................... 20,122,018 15,159,549
----------- -----------
CONTINGENCIES (SEE FOOTNOTE 12)
STOCKHOLDER'S EQUITY
Common stock, $10 par value; 1,000,000 shares, authorized;
250,000 shares, issued and outstanding.................... 2,500 2,500
Paid-in-capital............................................. 439,582 439,582
Retained earnings........................................... 1,258,428 1,202,833
Accumulated other comprehensive (loss) income
Net unrealized investment (losses) gains............... (28,364) 9,902
Foreign currency translation adjustments............... (2,327) (1,585)
----------- -----------
Accumulated other comprehensive (loss) income............... (30,691) 8,317
----------- -----------
TOTAL STOCKHOLDER'S EQUITY.................................. 1,669,819 1,653,232
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.................. $21,791,837 $16,812,781
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B1
<PAGE> 105
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Premiums.................................................... $ 98,976 $ 82,139 $ 69,614
Policy charges and fee income............................... 414,425 350,569 332,132
Net investment income....................................... 276,821 261,430 259,634
Realized investment (losses) gains, net..................... (32,545) 44,841 10,974
Asset management fees....................................... 60,392 40,200 33,310
Other income................................................ 1,397 1,067 491
-------- -------- --------
TOTAL REVENUES.............................................. 819,466 780,246 706,155
-------- -------- --------
BENEFITS AND EXPENSES
Policyholders' benefits..................................... 205,042 193,739 199,537
Interest credited to policyholders' account balances........ 136,852 118,992 110,815
General, administrative and other expenses.................. 392,041 231,320 227,561
-------- -------- --------
TOTAL BENEFITS AND EXPENSES................................. 733,935 544,051 537,913
-------- -------- --------
Income from operations before income taxes.................. 85,531 236,195 168,242
-------- -------- --------
Income tax provision........................................ 29,936 84,233 61,868
-------- -------- --------
NET INCOME.................................................. 55,595 151,962 106,374
-------- -------- --------
Other comprehensive (loss) income, net of tax:
Unrealized gains (losses) on securities, net of
reclassification adjustment........................... (38,266) (7,227) 3,025
Foreign currency translation adjustments............... (742) 2,980 (2,863)
-------- -------- --------
Other comprehensive (loss) income........................... (39,008) (4,247) 162
-------- -------- --------
TOTAL COMPREHENSIVE INCOME.................................. $ 16,587 $147,715 $106,536
======== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B2
<PAGE> 106
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON PAID-IN- RETAINED COMPREHENSIVE STOCKHOLDER'S
STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY
------ -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997........................ $2,500 $439,582 $ 944,497 $ 12,402 $1,398,981
Net income................................. -- -- 106,374 -- 106,374
Change in foreign currency translation
adjustments, net of taxes................ -- -- -- (2,863) (2,863)
Change in net unrealized investment gains,
net of reclassification adjustment and
taxes.................................... -- -- -- 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, net of taxes................ -- -- -- 2,980 2,980
Change in net unrealized investment losses,
net of reclassification adjustment and
taxes.................................... -- -- -- (7,227) (7,227)
------ -------- ---------- -------- ----------
BALANCE, DECEMBER 31, 1998...................... 2,500 439,582 1,202,833 8,317 1,653,232
Net income................................. -- -- 55,595 -- 55,595
Change in foreign currency translation
adjustments, net of taxes................ -- -- -- (742) (742)
Change in net unrealized investment losses,
net of reclassification adjustment and
taxes.................................... -- -- -- (38,266) (38,266)
------ -------- ---------- -------- ----------
BALANCE, DECEMBER 31, 1999...................... $2,500 $439,582 $1,258,428 $(30,691) $1,669,819
====== ======== ========== ======== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B3
<PAGE> 107
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 55,595 $ 151,962 $ 106,374
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Policy charges and fee income............................. (83,961) (29,827) (40,783)
Interest credited to policyholders' account balances...... 136,852 118,992 110,815
Realized investment (gains) losses, net................... 32,545 (44,841) (10,974)
Amortization and other non-cash items..................... 75,037 19,655 (26,405)
Change in:
Future policy benefits and other policyholders'
liabilities.......................................... 107,199 61,095 34,907
Accrued investment income.............................. (7,803) 5,886 (4,890)
Payable to affiliate................................... (89,897) (3,807) 20,547
Policy loans........................................... (25,435) (62,962) (64,173)
Deferred policy acquisition costs...................... (201,072) (206,471) (22,083)
Income taxes payable................................... (47,758) (16,828) 68,417
Other, net............................................. 45,122 (43,675) 34,577
----------- ----------- -----------
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES.............. (3,576) (50,821) 206,329
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale................................ 3,076,848 5,429,396 2,828,665
Held to maturity.................................. 45,841 74,767 138,626
Equity securities...................................... 5,209 4,101 6,939
Mortgage loans on real estate.......................... 6,845 5,433 24,925
Other long-term investments............................ 385 33,428 (10,618)
Payments for the purchase of:
Fixed maturities:
Available for sale................................ (3,452,289) (5,617,208) (3,141,785)
Held to maturity.................................. (24,170) (145,919) (70,532)
Equity securities...................................... (5,110) (2,274) (4,594)
Other long-term investments............................ (39,094) (409) (51)
Cash collateral for loaned securities, net................ 14,000 (70,085) 143,421
Securities sold under agreement to repurchase, net........ (28,557) 49,708 --
Short-term investments, net............................... 33,580 75,771 (147,030)
----------- ----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES..................... (366,512) (163,291) (232,034)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits............................................. 3,448,370 3,098,764 2,099,600
Withdrawals.......................................... (3,091,565) (2,866,331) (2,076,303)
----------- ----------- -----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES.............. 356,805 232,433 23,297
----------- ----------- -----------
Net increase (decrease) in Cash........................... (13,283) 18,321 (2,408)
Cash, beginning of year................................... 89,679 71,358 73,766
----------- ----------- -----------
CASH, END OF PERIOD......................................... $ 76,396 $ 89,679 $ 71,358
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid (received).............................. $ 55,144 $ 99,810 $ (7,904)
=========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B4
<PAGE> 108
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
is licensed to sell individual life insurance, variable life insurance, variable
annuities, fixed annuities, and a group annuity program ("the Contracts") in the
District of Columbia, Guam and in all states and territories except New York. 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, 1998 or 1999 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 is currently considering
reorganizing itself into a publicly traded stock company through a process known
as "demutualization." On February 10, 1998, Prudential's Board of Directors
authorized management to take the preliminary steps necessary to allow
Prudential 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 Prudential's Board of Directors, a
public hearing and review and approval by two-thirds of the qualified
policyholders who vote on the plan, review and approved by the New Jersey
Department of Banking and Insurance. Prudential's management is in the process
of developing a proposed plan of demutualization, although there can be no
assurance that Prudential's Board of Directors will approve such a plan.
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States ("GAAP"). The
Company has extensive transactions and relationships with Prudential and other
affiliates, as more fully described in Footnote 14. Due to these relationships,
it is possible that the terms of these transactions are not the same as those
that would result from transactions among wholly unrelated parties. All
significant intercompany transactions and balances have been eliminated in
consolidation.
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, in particular deferred policy acquisition costs ("DAC")
and future policy benefits, 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.
B5
<PAGE> 109
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 policyholders'
account balances 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 policyholders' account balances 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 an allowance for losses. The
allowance for losses includes a loan specific reserve for impaired loans and a
portfolio reserve for incurred but not specifically identified losses. Impaired
loans include those loans for which a probability exists that all amounts due
according to the contractual terms of the loan agreement will not be collected.
Impaired loans are measured at the present value of expected future cash flows
discounted at the loan's effective interest rate, or at 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 accruing 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 uncollectible interest 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 the payment of interest has been interrupted for a substantial period, a
regular payment performance has been established. The portfolio reserve for
incurred but not specifically identified losses considers the Company's past
loan loss experience, the current credit composition of the portfolio,
historical credit migration, property type diversification, default and loss
severity statistics and other relevant factors.
POLICY LOANS are carried at unpaid principal balances.
SHORT-TERM INVESTMENTS, including highly liquid debt instruments purchased
with an original maturity of twelve months or less, are carried at amortized
cost, which approximates fair value.
OTHER LONG-TERM INVESTMENTS 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. The Company's investment in the Separate
Accounts are included on this line.
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
B6
<PAGE> 110
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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".
Policy acquisition costs related to interest-sensitive products and certain
investment-type products are deferred and amortized over the expected life of
the contracts (periods ranging from 15 to 30 years) in proportion to estimated
gross profits arising principally from investment results, mortality and expense
margins, and surrender charges based on historical and anticipated future
experience, which is updated periodically. The effect of changes to estimated
gross profits on unamortized deferred acquisition costs is reflected in "General
and administrative expenses" 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% and 105% of the fair value of the domestic and foreign
securities, respectively. 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 because the debtor typically has the right to redeem the
collateral on short notice. Substantially all of the Company's securities loaned
are with large brokerage firms.
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. Assets to be repurchased are the same, or substantially
the same, as the assets transferred and the transferor, through right of
substitution, maintains the right and ability to redeem the collateral on short
notice. The market value of securities to be repurchased is monitored and
additional collateral is obtained, 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 Statements 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
B7
<PAGE> 111
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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".
ASSET MANAGEMENT FEES
The Company receives asset management fee income from policyholder account
balances invested in The Prudential Series Fund ("PSF"), which are a portfolio
of mutual fund investments related to the Company's Separate Account products.
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 seek to reduce 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
B8
<PAGE> 112
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 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 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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 does not apply to most
traditional insurance contracts. However, certain hybrid contracts that contain
features which may 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.
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).
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, as amended, as of January 1, 2001 and is currently assessing the
effect of the new standard.
In October 1998, the American Institute of Certified Public Accountants
("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.
B9
<PAGE> 113
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the prior years have been reclassified to conform to
current year presentation.
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>
1999
-------------------------------------------------
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................................ $ 113,172 $ 2 $ 2,052 $ 111,122
Foreign government bonds................................... 92,725 1,718 1,455 92,988
Corporate securities....................................... 2,876,602 8,013 92,075 2,792,540
Mortgage-backed securities................................. 1,558 157 3 1,712
---------- ------ ------- ----------
Total fixed maturities available for sale.................. $3,084,057 $9,890 $95,585 $2,998,362
========== ====== ======= ==========
FIXED MATURITIES HELD TO MATURITY
Corporate securities....................................... $ 388,990 $1,832 $13,000 $ 377,822
---------- ------ ------- ----------
Total fixed maturities held to maturity.................... $ 388,990 $1,832 $13,000 $ 377,822
========== ====== ======= ==========
EQUITY SECURITIES AVAILABLE FOR SALE....................... $ 3,238 $1,373 $ 79 $ 4,532
========== ====== ======= ==========
</TABLE>
<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 $ 319 $ 110,839
Foreign government bonds................................... 87,112 2,003 696 88,419
Corporate securities....................................... 2,540,498 30,160 6,896 2,563,762
Mortgage-backed securities................................. 750 156 -- 906
---------- ------- ------ ----------
Total fixed maturities available for sale.................. $2,738,654 $33,183 $7,911 $2,763,926
========== ======= ====== ==========
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
========== ======= ====== ==========
EQUITY SECURITIES AVAILABLE FOR SALE....................... $ 2,951 $ 168 $ 272 $ 2,847
========== ======= ====== ==========
</TABLE>
B10
<PAGE> 114
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of fixed maturities,
categorized by contractual maturities at December 31, 1999 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........................... $ 178,298 $ 175,638 $ 18,369 $ 18,296
Due after one year through five years............. 1,144,552 1,118,150 178,893 178,624
Due after five years through ten years............ 1,326,637 1,283,515 175,549 165,341
Due after ten years............................... 433,012 419,347 16,179 15,561
Mortgage-backed securities........................ 1,558 1,712 -- --
---------- ---------- -------- --------
Total............................................. $3,084,057 $2,998,362 $388,990 $377,822
========== ========== ======== ========
</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 1999,
1998, and 1997 were $2,950.4 million, $5,327.3 million, and $2,796.3 million,
respectively. Gross gains of $13.1 million, $46.3 million, and $18.6 million and
gross losses of $31.1 million, $14.1 million, and $7.9 million were realized on
those sales during 1999, 1998, and 1997, respectively. During the years ended
December 31, 1999, 1998, and 1997, there were no securities classified as held
to maturity that were sold.
Proceeds from the maturity of fixed maturities available for sale during
1999, 1998, and 1997 were $126.5 million, $102.1 million, and $32.4 million,
respectively
Writedowns for impairments of fixed maturities which were deemed to be
other than temporary were $11.2 million, $2.8 million and $0.1 million for the
years 1999, 1998 and 1997, respectively.
MORTGAGE LOANS ON REAL ESTATE
The Company's mortgage loans were collateralized by the following property
types at December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
(In Thousands)
<S> <C> <C> <C> <C>
Retail stores............................................... $ 6,518 62.0% $ 7,356 42.4%
Apartment complexes......................................... -- -- 5,988 34.5%
Industrial buildings........................................ 3,991 38.0% 4,010 23.1%
------- ------ ------- ------
Net carrying value........................................ $10,509 100.0% $17,354 100.0%
======= ====== ======= ======
</TABLE>
The largest concentration of mortgage loans are in the states of Washington
(51%), New Jersey (38%), and North Dakota (11%).
SPECIAL DEPOSITS AND RESTRICTED ASSETS
Fixed maturities of $8.2 million and $8.6 million at December 31, 1999 and
1998, respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws. Equity securities restricted as to sale were
$.3 million and $2.5 million at December 31, 1999 and 1998, respectively.
B11
<PAGE> 115
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
OTHER LONG-TERM INVESTMENTS
The Company's "Other long-term investments" of $77.8 million and $42.0
million as of December 31, 1999 and 1998, respectively, are comprised of joint
ventures, limited partnerships, and the Company's investment in the Separate
Accounts. Joint ventures, limited partnerships and other totaled $32.8 million
and $1.0 million at December 31, 1999 and 1998, respectively. The Company's
share of net income from the joint ventures was $0.3 million, $0.1 million and
$2.2 million for the years ended December 31, 1999, 1998 and 1997, respectively,
and is reported in "Net investment income." The Company's investment in the
Separate Accounts was $45.0 million and $41.0 million at December 31, 1999 and
1998, respectively.
INVESTMENT INCOME AND INVESTMENT GAINS AND LOSSES
NET INVESTMENT INCOME arose from the following sources for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities -- available for sale...................... $188,236 $179,184 $161,140
Fixed maturities -- held to maturity........................ 29,245 26,128 26,936
Equity securities........................................... -- 14 76
Mortgage loans on real estate............................... 2,825 1,818 2,585
Policy loans................................................ 42,422 40,928 37,398
Short-term investments...................................... 19,208 23,110 22,011
Other....................................................... 4,432 6,886 14,920
-------- -------- --------
Gross investment income..................................... 286,368 278,068 265,066
Less: investment expenses................................. (9,547) (16,638) (5,432)
-------- -------- --------
Net investment income....................................... $276,821 $261,430 $259,634
======== ======== ========
</TABLE>
REALIZED INVESTMENT GAINS (LOSSES), NET including charges for other than
temporary reductions in value, for the years ended December 31, were from the
following sources:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities -- available for sale...................... $(29,192) $29,330 $ 9,039
Fixed maturities -- held to maturity........................ 102 487 821
Equity securities........................................... 392 3,489 8
Mortgage loans on real estate............................... -- -- 797
Derivative instruments...................................... (1,557) 12,414 --
Other....................................................... (2,290) (879) 309
-------- ------- -------
Realized investment (losses) gains, net..................... $(32,545) $44,841 $10,974
======== ======= =======
</TABLE>
NET UNREALIZED INVESTMENT GAINS (LOSSES)
Net unrealized investment gains (losses) on securities available for sale
are included in the Consolidated Statements of Financial Position as a component
of "Accumulated other comprehensive income". Changes in these amounts include
reclassification adjustments to avoid including in "Other Comprehensive income
(loss)", those items that are included as
B12
<PAGE> 116
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
3. INVESTMENTS (CONTINUED)
part of "Net income" for a period that also had been part of "Other
Comprehensive income (loss)" in earlier periods. The amounts for the years ended
December 31, net of tax, are as follows:
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME (LOSS)
DEFERRED DEFERRED RELATED TO NET
UNREALIZED POLICY POLICYHOLDERS' INCOME TAX UNREALIZED
GAINS (LOSSES) ACQUISITION ACCOUNT (LIABILITY) INVESTMENT
ON INVESTMENTS COSTS BALANCES BENEFIT GAINS (LOSSES)
-------------- ----------- -------------- ----------- --------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997..................... $ 26,930 $ (7,893) $ 2,451 $ (7,384) $ 14,104
Net investment gains (losses) on investments
arising during the period.................. 21,338 -- -- (7,445) 13,893
Reclassifications adjustment for gains
included in net income..................... (10,277) -- -- 3,585 (6,692)
Impact of net unrealized investment gains on
deferred policy acquisition costs.......... -- (8,412) -- 2,944 (5,468)
Impact of net unrealized investment gains on
policyholders' account balances............ -- -- 1,292 -- 1,292
--------- -------- ------- -------- --------
BALANCE, DECEMBER 31, 1997................... 37,991 (16,305) 3,743 (8,300) 17,129
Net investment gains (losses) on investments
arising during the period.................. 22,801 -- -- (7,588) 15,213
Reclassifications adjustment for gains
included in net income..................... (35,623) -- -- 11,855 (23,768)
Impact of net unrealized investment gains on
deferred policy acquisition costs.......... -- 3,190 -- (1,048) 2,142
Impact of net unrealized investment gains on
policyholders' account balances............ -- -- (1,063) 249 (814)
--------- -------- ------- -------- --------
BALANCE, DECEMBER 31, 1998................... 25,169 (13,115) 2,680 (4,832) 9,902
Net investment gains (losses) on investments
arising during the period.................. (138,268) -- -- 47,785 (90,483)
Reclassifications adjustment for gains
included in net income..................... 28,698 -- -- (9,970) 18,728
Impact of net unrealized investment gains on
deferred policy acquisition costs.......... -- 53,407 -- (16,283) 37,124
Impact of net unrealized investment gains on
policyholders' account balances............ -- -- (5,712) 2,077 (3,635)
--------- -------- ------- -------- --------
BALANCE, DECEMBER 31, 1999................... $ (84,401) $ 40,292 $(3,032) $ 18,777 $(28,364)
========= ======== ======= ======== ========
</TABLE>
B13
<PAGE> 117
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
4. DEFERRED POLICY ACQUISITION COSTS
The balances of and changes in deferred policy acquisition costs for the
year ended December 31, 1999, are as follows:
<TABLE>
<CAPTION>
1999
--------------
(In Thousands)
<S> <C>
Balance, beginning of year.................................. $ 861,713
Capitalization on commissions, sales and issue expenses..... 242,373
Amortization................................................ (96,451)
Change in unrealized investment gains....................... 53,407
Foreign currency translation................................ 1,743
----------
Balance, end of year........................................ $1,062,785
==========
</TABLE>
5. POLICYHOLDERS' LIABILITIES
FUTURE POLICY BENEFITS AND OTHER POLICYHOLDER LIABILITIES at December 31
are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In Thousands)
<S> <C> <C>
Life insurance.............................................. $587,162 $500,429
Annuities................................................... 48,816 28,350
-------- --------
$635,978 $528,779
======== ========
</TABLE>
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 guaranteed 2.5% to 7.5% Net level premium based on
in calculating cash non-forfeiture interest rate
surrender values
Life Generally rates guaranteed 2.5% to 7.5% Net level premium based on
insurance -- International in calculating cash the expected investment
surrender values return
Individual immediate annuities 1983 Individual Annuity 3.5% to 11.0% Present value of expected
Mortality Table with certain future payment based on
modifications historical experience
</TABLE>
POLICYHOLDERS' ACCOUNT BALANCES at December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
Interest-sensitive life contracts........................... $1,383,795 $1,392,649
Individual annuities........................................ 1,147,722 1,077,996
Guaranteed investment contracts............................. 584,744 231,366
---------- ----------
$3,116,261 $2,702,011
========== ==========
</TABLE>
B14
<PAGE> 118
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
5. POLICYHOLDERS' LIABILITIES (CONTINUED)
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 and 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 4.0% to 6.5% Various up to 10 years
contracts
Individual annuities 3.0% to 5.6% 0% to 8% for up to 8 years
Guaranteed investment contracts 5.02% to 7.32% Subject to market value withdrawal provisions for any
funds withdrawn other than for benefit responsive and
contractual payments
</TABLE>
6. 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 of 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 Statements of Operations
for the year ended December 31 are below.
<TABLE>
<CAPTION>
1999 1998 1997
------- -------------- -------
(In Thousands)
<S> <C> <C> <C>
Reinsurance premiums assumed................................ 1,778 1,395 1,369
Reinsurance premiums ceded -- affiliated.................... (6,882) (6,532) (686)
Reinsurance premiums ceded -- unaffiliated.................. (1,744) (2,819) (3,038)
======= ======= =======
Policyholders' benefits ceded............................... $ 4,228 $ 4,044 $ 3,912
======= ======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998
------- -------
(In Thousands)
<S> <C> <C>
Life insurance -- affiliated................................ $ 6,653 $ 4,155
Life insurance -- unaffiliated.............................. 2,625 2,326
Other reinsurance -- affiliated............................. 15,600 21,650
------- -------
$24,878 $28,131
======= =======
</TABLE>
B15
<PAGE> 119
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
7. 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, 1998 and the projected benefit obligation and related
expenses at December 31, 1999 were 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 by Prudential in
accordance with the service agreement described in Footnote 14.
8. INCOME TAXES
The components of income taxes for the years ended December 31, are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
(In Thousands)
<S> <C> <C> <C>
Current tax expense (benefit):
U.S. .................................................. $(14,093) $67,272 $ 71,989
State and local........................................ 378 2,496 1,337
Foreign................................................ 15 -- --
-------- ------- --------
Total.................................................. (13,700) 69,768 73,326
-------- ------- --------
Deferred tax expense (benefit):
U.S. .................................................. 42,320 14,059 (11,458)
State and local........................................ 1,316 406 --
-------- ------- --------
Total.................................................. 43,636 14,465 (11,458)
-------- ------- --------
Total income tax expense............................... $ 29,936 $84,233 $ 61,868
======== ======= ========
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Expected federal income tax expense......................... $29,936 $82,668 $58,885
State and local income taxes................................ 1,101 1,886 869
Dividends received deduction................................ (1,010) (199) --
Other....................................................... (91) (122) 2,114
------- ------- -------
Total income tax expense.................................... $29,936 $84,233 $61,868
======= ======= =======
</TABLE>
B16
<PAGE> 120
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
8. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In Thousands)
<S> <C> <C>
Deferred tax assets Insurance reserves...................... $ 93,949 $ 93,564
Net unrealized (gains) losses on securities............... 31,132 (9,061)
Other..................................................... 2,502 --
-------- --------
Deferred tax assets....................................... 127,583 84,503
-------- --------
Deferred tax liabilities
Deferred acquisition costs................................ 299,683 224,179
Net investment gains...................................... 110 3,180
Other..................................................... -- 5,978
-------- --------
Deferred tax liabilities.................................. 299,793 233,337
-------- --------
Net deferred tax liability.................................. $172,210 $148,834
======== ========
</TABLE>
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, 1999
and 1998, 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 all examinations
of the consolidated federal income tax returns through 1992. The Service has
begun their examination of the years 1993 through 1995.
9. EQUITY
RECONCILIATION OF STATUTORY SURPLUS AND NET INCOME
Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following table
reconciles the Company's statutory net income and surplus as of and for the
years ended December 31, determined in accordance with accounting practices
prescribed or permitted by the Arizona Department of
B17
<PAGE> 121
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
9. EQUITY (CONTINUED)
Insurance and the New Jersey Department of Banking and Insurance with net income
and equity determined using GAAP.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- --------
(In Thousands)
<S> <C> <C> <C>
STATUTORY NET (LOSS) INCOME................................. $ (82,291) $ (33,097) $ 12,778
Adjustments to reconcile to net income on a GAAP basis:
Statutory income of subsidiaries.......................... 20,221 18,953 18,553
Amortization and capitalization of deferred acquisition
costs.................................................. 145,921 202,375 38,003
Deferred premium.......................................... 639 2,625 1,144
Insurance revenue and expenses............................ 45,915 (24,942) 26,517
Income taxes.............................................. (43,644) (21,805) 11,956
Valuation of investments.................................. (24,908) 20,077 506
Asset management fees..................................... (13,503) -- --
Other, net................................................ 7,245 (12,224) (3,083)
---------- ---------- --------
GAAP NET INCOME............................................. $ 55,595 $ 151,962 $106,374
========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
STATUTORY SURPLUS........................................... $ 889,186 $ 931,164
Adjustments to reconcile to equity on a GAAP basis:
Valuation of investments.................................. (38,258) 117,254
Deferred acquisition costs................................ 1,062,785 861,713
Deferred premium.......................................... (16,539) (15,625)
Insurance liabilities..................................... (54,927) (133,811)
Income taxes.............................................. (150,957) (123,343)
Asset management fees..................................... (13,503) --
Other, net................................................ (7,968) 15,880
---------- ----------
GAAP STOCKHOLDER'S EQUITY................................... $1,669,819 $1,653,232
========== ==========
</TABLE>
10. 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).
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
B18
<PAGE> 122
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
INVESTMENT CONTRACTS
For guaranteed investment contracts, estimated fair values 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. Estimated fair values for individual deferred annuities
are derived using the policyholder's account balance.
DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of futures is estimated based on market quotes for
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>
1999 1998
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities: Available for sale.............. $ 2,998,362 $ 2,998,362 $ 2,763,926 $ 2,763,926
Fixed maturities: Held to maturity................ 388,990 377,822 410,558 421,845
Equity securities................................. 4,532 4,532 2,847 2,847
Mortgage loans on real estate..................... 10,509 11,550 17,354 19,465
Policy loans...................................... 792,352 761,232 766,917 806,099
Short-term investments............................ 207,219 207,219 240,727 240,727
Cash.............................................. 76,396 76,396 89,679 89,679
Separate Account assets........................... 16,032,449 16,032,449 11,490,751 11,490,751
Derivatives....................................... 38 38 -- --
Financial Liabilities:
Investment contracts.............................. $ 1,282,964 $ 1,277,317 $ 835,034 $ 839,105
Cash collateral for loaned securities............. 87,336 87,336 73,336 73,336
Securities sold under repurchase agreements....... 21,151 21,151 49,708 49,708
Separate Account liabilities...................... 16,032,449 16,032,449 11,490,751 11,490,751
Derivatives....................................... 5,012 5,243 1,723 2,374
</TABLE>
B19
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PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
11. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
FUTURES & OPTIONS
The Company uses exchange-traded Treasury futures and options to reduce
market risk from changes in interest rates and to manage the duration of assets
and the duration of liabilities supported by those assets. 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. Treasury futures move substantially in value as interest rates change
and can be used to either modify 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.
If futures 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 $122.1 million and $40.8 million at December 31, 1999 and
1998, respectively. The fair value of futures contracts was $(2.0) million at
December 31, 1999 and immaterial at December 31, 1998.
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, 1999 and 1998.
CURRENCY DERIVATIVES
The Company uses currency swaps to reduce market risk from changes in
currency values of investments denominated in foreign currencies that the
Company either holds or intends to acquire and to manage 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.
B20
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PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
11. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (CONTINUED)
If currency swaps are effective as hedges of foreign currency translation
and transaction exposures, gains or losses are recorded in "Accumulated Other
Comprehensive Income". If currency swaps do not meet hedge accounting criteria,
gains or losses from those derivatives are recognized in current period
earnings.
The notional value and fair value of the currency swaps $31.0 million and
$(3.2) million and $40.5 million and $(2.3) million, respectively, at December
31, 1999 and 1998.
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. All of the net credit exposure for the Company from
derivative contracts are with investment grade counterparties. As of December
31, 1999, 80% of notional consisted of interest rate derivatives, and 20% of
notional consisted of foreign currency derivatives.
12. CONTINGENCIES
Various lawsuits against the Company have arisen in the course of the
Company's business. In certain of these matters, large and/or indeterminate
amounts are sought.
On October 28, 1996, the Company entered into a Stipulation of Settlement
with attorneys for the plaintiffs in a consolidated class action lawsuit pending
in a Multi-District Litigation proceeding in the U.S. District Court for the
District of New Jersey. The class action suit involved alleged improprieties in
connection with the sale, servicing and operation of permanent life insurance
policies from 1982 through 1995. Pursuant to the settlement, the Company has
participated in a remediation program pursuant to which relief was offered to
policyowners who were misled when they purchased permanent life insurance
policies in the United States from 1982 to 1995. Prudential has agreed to
indemnify the Company for any liability incurred in connection with that
litigation.
The balance of the Company's litigation is subject to many uncertainties,
and given the complexity and scope, the outcomes cannot be predicted with
precision. Management believes that any ultimate liability which could result
from such litigation would not have a material adverse effect on the Company's
financial position.
13. 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,
1999, the Company would not be permitted a non-extraordinary dividend
distribution in 2000.
14. RELATED PARTY TRANSACTIONS
SERVICE AGREEMENTS
Prudential and the Company operate under service and lease agreements
whereby services of officers and employees (except for those agents employed
directly by the Company in Taiwan), supplies, use of equipment and office space
are provided by Prudential. Prudential periodically reviews its methods for
determining the level of administrative expenses charged to the Company. Late in
1998, Prudential revised its allocation methodology to more closely align
allocations
B21
<PAGE> 125
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
14. RELATED PARTY TRANSACTIONS (CONTINUED)
based on business processes, resulting in increased allocations from 1998
levels. Management believes that the updated methodology is reasonable and
better reflects actual costs incurred by Prudential to process transactions on
behalf of the Company. The net cost of these services allocated to the Company
were $317.4 million, $269.9 million and $139.5 million for the years ended
December 31, 1999, 1998, and 1997, respectively.
In addition, the Company received allocated distribution expenses from
Prudential's retail agency network. Beginning in 1999, market based distribution
transfer pricing was the basis for allocating costs to each product line that
distributes products through Prudential's retail agency channels. A majority of
these distribution expenses have been capitalized by the Company as deferred
policy acquisition costs ("DAC").
The Company receives asset management fee income from policyholder account
balances invested in the Prudential Series Fund ("PSF"). These amounts are shown
as asset management fees on the statement of operations. The Company also
collects these fees on behalf of Prudential. The amounts due to Prudential
related to PSF fees were $0.1 million and $22.6 million at December 31, 1999 and
December 31, 1998, respectively.
The Company pays an asset management fee to Prudential Global Asset
Management ("PGAM") for managing the Separate Account investment portfolio. The
expense for the year was $25.9 million, which is shown in general,
administrative and other expenses.
The Company has sold three Corporate Owned Life Insurance ("COLI") policies
to Prudential. The cash surrender value included in Separate Accounts was $725.3
million and $362.3 million at December 31, 1999, and 1998, respectively. The
fees received in 1999 related to the COLI policies were $4.0 million.
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, 1999, 1998, and 1997.
DEBT AGREEMENTS
In July 1998, the Company established a revolving line of credit facility
of up to $500 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, 1999.
B22
<PAGE> 126
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder 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 (a wholly-owned
subsidiary of the Prudential Insurance Company of America) and its subsidiaries
at December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States 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
March 21, 2000
B23
