-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O+6uRP74ckn5Ti0oTiOpcAQiPGDR+T7uxXdlV0QQ8sJ4MoNRE19XwXQ0+b98KuIp fPMjb4H1j9VR2JGVKy7kSg== 0000889812-99-003378.txt : 19991117 0000889812-99-003378.hdr.sgml : 19991117 ACCESSION NUMBER: 0000889812-99-003378 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUCO LIFE INSURANCE CO CENTRAL INDEX KEY: 0000777917 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 221944557 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-37587 FILM NUMBER: 99754443 BUSINESS ADDRESS: STREET 1: 213 WASHINGTON ST STREET 2: 111 DURHAM AVENUE CITY: NEWARK STATE: NJ ZIP: 07102 BUSINESS PHONE: 2018026000 MAIL ADDRESS: STREET 1: 213 WASHINGTON STREET CITY: NEWARK STATE: NJ ZIP: 07102 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) /x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 33-37587 PRUCO LIFE INSURANCE COMPANY (Exact name of Registrant as specified in its charter) Arizona 22-1944557 - ---------------------------- --------------------------- (State or other (IRS Employer jurisdiction, Identification No.) incorporation or organization) 213 Washington Street, Newark, New Jersey 07102 ------------------------------------------------------ (Address of principal executive offices)(Zip Code) (973) 802-2042 ------------------------------------------------------ (Registrant's Telephone Number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO --- --- Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of November 15, 1999. Common stock, par value of $10 per share: 250,000 shares outstanding PRUCO LIFE INSURANCE COMPANY INDEX TO FINANCIAL STATEMENTS PAGE NO. -------- Cover Page 1 Index 2 PART I - Financial Information - ------------------------------ Item 1. (Unaudited) Consolidated Financial Statements Consolidated Statements of Financial Position September 30, 1999 and December 31, 1998 3 Consolidated Statements of Operations and Comprehensive Income Nine and Three months ended September 30, 1999 and 1998 4 Consolidated Statements of Cash Flows Nine months ended September 30, 1999 and 1998 5 Notes to the Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 10 PART II - Other Information - --------------------------- Item 2. Changes in Securities and Use of Proceeds 11 Item 6. Exhibits and Reports on Form 8-K 12 Signature Page 13 2 Pruco Life Insurance Company and Subsidiaries Consolidated Statements of Financial Position September 30, 1999 (Unaudited) and December 31, 1998 (In Thousands) - -------------------------------------------------------------------------------- September 30, December 31, 1999 1998 ------------ ----------- ASSETS Fixed maturities Available for sale, at fair value (amortized cost, 1999: $2,895,223; 1998: $2,738,654) $2,842,836 $2,763,926 Held to maturity, at amortized cost (fair value, 1999: $390,621; 1998: $421,845) 395,927 410,558 Equity securities - available for sale, at fair value (cost, 1999: $193; 1998: $2,951) 507 2,847 Mortgage loans on real estate 16,671 17,354 Policy loans 791,761 766,917 Short-term investments 281,322 240,727 Other long-term investments 760 1,047 ----------- ----------- Total investments 4,329,784 4,203,376 Cash 84,824 89,679 Deferred policy acquisition costs 984,544 861,713 Accrued investment income 66,887 61,114 Other assets 56,035 65,145 Separate Account assets 13,933,944 11,531,754 ----------- ----------- TOTAL ASSETS $19,456,018 $16,812,781 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities Policyholders' account balances $2,901,108 $2,702,601 Future policy benefits and other policyholder liabilities 535,738 528,189 Cash collateral for loaned securities 64,982 73,336 Securities sold under agreement to repurchase 50,213 49,708 Income taxes 171,537 193,358 Payable to affiliate 66,356 66,568 Other liabilities 114,558 55,038 Separate Account liabilities 13,878,023 11,490,751 ----------- ----------- Total liabilities 17,782,515 15,159,549 ----------- ----------- Contingencies (See Note 3) Stockholder's Equity Common stock, $10 par value; 1,000,000 shares, authorized; 250,000 shares, issued and outstanding 2,500 2,500 Paid-in-capital 439,582 439,582 Retained earnings 1,250,181 1,202,833 Accumulated other comprehensive income Net unrealized investment (losses) gains (17,965) 9,902 Foreign currency translation adjustments (795) (1,585) ----------- ----------- Accumulated other comprehensive income (18,760) 8,317 ----------- ----------- Total stockholder's equity 1,673,503 1,653,232 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $19,456,018 $16,812,781 =========== =========== See Notes to Consolidated Financial Statements 3 Pruco Life Insurance Company and Subsidiaries Consolidated Statements of Operations and Comprehensive Income (Unaudited) Three and Nine Months Ended September 30, 1999 and 1998 (In Thousands) - -------------------------------------------------------------------------------- Nine months ended Three months ended September 30, September 30, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- REVENUES Premiums $ 50,815 $ 42,410 $ 15,588 $ 17,487 Policy charges and fee income 308,097 257,463 105,649 88,831 Net investment income 209,508 199,079 71,911 69,112 Realized investment (losses) gains, net (17,916) 37,645 (4,116) 24,660 Asset management fee income 40,863 29,319 15,347 11,294 Other income 15,480 13,933 5,042 4,509 ----------- ----------- ----------- ----------- Total revenues 606,847 579,849 209,421 215,893 ----------- ----------- ----------- ----------- BENEFITS AND EXPENSES Policyholders' benefits 142,125 135,278 35,392 52,951 Interest credited to policyholders' account balances 93,697 83,354 31,448 28,606 General, administrative and other expenses 298,183 214,445 106,525 65,105 ----------- ----------- ----------- ----------- Total benefits and expenses 534,005 433,077 173,365 146,662 ----------- ----------- ----------- ----------- Income before income taxes 72,842 146,772 36,056 69,231 Income taxes 25,494 51,316 12,619 24,209 ----------- ----------- ----------- ----------- NET INCOME $47,348 $95,456 $23,437 $45,022 ----------- ----------- ----------- ----------- Other comprehensive income, net of tax: Unrealized losses on securities, net of reclassification adjustment (27,867) 7,960 (8,369) 13,566 Foreign currency translation adjustments 790 (1,305) 260 (27) ----------- ----------- ----------- ----------- Other comprehensive income (27,077) 6,655 (8,109) 13,539 ----------- ----------- ----------- ----------- TOTAL COMPREHENSIVE INCOME $ 20,271 $102,111 $ 15,328 $ 58,561 ============ ============ ============ ============ See Notes to Consolidated Financial Statements 4 Pruco Life Insurance Company and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 1999 and 1998 (In Thousands) - -------------------------------------------------------------------------------- 1999 1998 ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $47,348 $95,456 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Policy charges and fee income (68,377) (23,351) Interest credited to policyholders' account balances 93,697 83,354 Realized investment losses (gains), net 17,916 (37,645) Amortization and other non-cash items 48,808 13,719 Change in: Future policy benefits and other policyholder liabilities 7,549 22,469 Accrued investment income (5,773) 328 Separate Accounts (14,918) (7,971) Payable to affiliate (212) (47,182) Policy loans (24,844) (49,387) Deferred policy acquisition costs (122,831) (130,483) Income taxes (21,821) (12,829) Other, net 68,630 (120,941) ----------- ----------- Cash Flows (Used In) From Operating Activities 25,172 (214,463) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale/maturity of: Fixed maturities: Available for sale 2,558,072 3,881,574 Held to maturity 38,903 58,412 Equity securities 5,189 2,830 Mortgage loans on real estate 683 661 Other long-term investments 320 510 Payments for the purchase of: Fixed maturities: Available for sale (2,732,358) (4,029,692) Held to maturity (24,170) (77,914) Equity securities (2,059) (2,097) Other long-term investments (33) (499) Cash collateral for loaned securities, net (8,354) 116,891 Securities sold under agreement to repurchase, net 505 - Short-term investments, net (40,558) (25,856) ----------- ----------- Cash Flows Used In Investing Activities (203,860) (75,180) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Policyholders' account balances: Deposits 2,598,383 2,479,601 Withdrawals (2,424,550) (2,272,924) Proceeds from issuance of affiliated notes payable - 164,000 ------------ ----------- Cash Flows From Financing Activities 173,833 370,677 ------------ ----------- Net increase in Cash (4,855) 81,034 Cash, beginning of year 89,679 71,358 ------------ ----------- CASH, END OF PERIOD $84,824 $152,392 ============ =========== See Notes to Consolidated Financial Statements 5 Pruco Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The accompanying interim consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q on the basis of generally accepted accounting principles. These interim financial statements are unaudited but reflect all adjustments which, in the opinion of management, are necessary to provide a fair presentation of the consolidated results of operations and financial condition of the Pruco Life Insurance Company ("the Company"), a wholly owned subsidiary of The Prudential Insurance Company of America ("Prudential"), for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for a full year. Certain amounts in the Company's prior year consolidated financial statements have been reclassified to conform with the 1999 presentation. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Realized investment gains, net, are computed using the specific identification method. The carrying values of fixed maturity and equity securities are adjusted for impairments considered to be other than temporary. During 1999, the Company determined that for certain fixed maturities and equities in the investment portfolio there were declines in fair value considered to be other than temporary. For the three months and nine months ended September 30, 1999 the Company recorded charges of $1.2 million and $4.5 million, respectively, in "realized investment gains, net," in the Consolidated Statement of Operations and Comprehensive Income. 3. CONTINGENCIES Several actions, based on complaints about sales practices engaged in by Prudential, the Company and agents, have been brought against the Company on behalf of those persons who purchased life insurance policies. Prudential has agreed to indemnify the Company for any and all losses resulting from such litigation. In the normal course of business, the Company is subject to various claims and assessments. Management believes the settlement of these matters would not have a material effect on the Company's financial position. 4. RELATED PARTY TRANSACTIONS 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. During 1999, Prudential revised its allocation methodology to more closely align allocations based on business processes, resulting in increased allocations from 1998 levels. In addition, the method of allocating distribution costs to individual annuity products was modified during 1999 such that allocated costs exceeding an agreed upon amount remained with Prudential instead of being allocated to non-annuity products within the Company. 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 Company has sold three Corporate Owned Life Insurance ("COLI") policies to Prudential. The cash surrender value included in Separate Accounts was $653.4 million and $362.3 million at September 30, 1999 and December 31, 1998, respectively. The Company receives asset management fee income from policyholder account balances invested in the Prudential Series Fund ("PSF"). The Company also collects these fees on behalf of Prudential. The amounts due to Prudential related to PSF fees were $11.7 million and $22.6 million at September 30, 1999 and December 31, 1998, respectively. 6 Pruco Life Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) - -------------------------------------------------------------------------------- 5. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging Activities." The new accounting treatment required by this statement will not affect the Company's liquidity or the ultimate economic gain or loss from its derivative positions. However, it may affect the way the Company recognizes changes in value of some of its derivatives and derivative-like contract features, and this could lead to more volatility in the Company's reported income statement results, especially on a quarterly basis. Under previous accounting standards, companies could defer recognizing changes in the value of derivatives used to hedge various risks if certain conditions were met. Under the new accounting standards, all derivatives must be reported at fair value each quarter, but if special hedge accounting requirements are met this change in fair value may be offset, entirely or partially, by also recognizing the corresponding change in value of the hedged item. Since the Company already marks most of its derivative positions to market each quarter, the Company does not expect this new treatment to materially increase its net income volatility assuming the Company continues its current derivative and hedging strategies. While the Statement does not apply to most traditional insurance contracts, some contracts may contain features that can affect settlement amounts similarly to derivatives. For these contracts, the new standard calls for separate accounting for the "host contract" and the "embedded derivative," leading to mark-to-market for the "embedded derivative" features that was not previously required. While the Company's economic results from these contracts are also unaffected, this accounting could lead to increased volatility in the quarterly income statement results it reports. The Company has not yet completed its assessment of the impact of the statement, and its effect on the Company depends, among other things, on its derivative positions and hedging strategies after the date of adoption. The Company is required to adopt this statement no later than January 1, 2001. 7 Cautionary Note Regarding Forward-Looking Statements Certain of the statements included in this document may constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as "expects," "believes," "anticipates," "intends," "plans," "assumes," "estimates," "projects," or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management's current expectations and beliefs concerning future developments and their potential effects upon the Company. There can be no assurance that future developments affecting the Company will be those anticipated by management. These forward looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ materially from estimates or expectations reflected in such forward-looking statements including, without limitation, changes in general economic conditions, including the performance of financial markets and interest rates; market acceptance of new products and distribution channels; competitive, regulatory or tax changes that affect the cost or demand for the Company's products; and adverse litigation results. While the Company reassesses material trends and uncertainties affecting its financial condition and results of operations, it does not intend to review or revise any particular forward-looking statement referenced in this document in light of future events. The information referred to below should be considered by readers when reviewing any forward-looking statements contained in this document. Item 2. Management's Discussion and Analysis of Financial Condition and Results - ------------------------------------------------------------------------------- of Operations. - -------------- The following analysis should be read in conjunction with the Notes to the Consolidated Financial Statements. The Company markets individual life insurance, variable life insurance, variable annuities, fixed annuities, and a group annuity program primarily through Prudential's sales force in the United States and markets individual life insurance through its branch office in Taiwan. The life insurance and annuity sectors of the insurance industry are subject to regulatory oversight with particular emphasis placed on company solvency and sales practices. These markets are also subject to increasing competitive pressure as the legal barriers which have historically segregated the markets of the financial services industry are being challenged through both legislative and judicial processes. Regulatory changes have opened the insurance industry to competition from other financial institutions, particularly banks and mutual funds that are positioned to deliver competing investment products through large, stable distribution channels. Competition in the annuity industry particularly, is very intense. In the annuity marketplace, with respect to variable annuities, investment and product features as well as distribution capability are critical to our ability to compete. Demographic trends and the concerns over the viability of Social Security have resulted in the need to provide consumers with long term retirement alternatives. Given the strong growth within the retirement savings market, the level of competition has increased significantly not only from other insurance companies but from other financial intermediaries as well. Product sales and asset retention are a function of investment performance, product features, customer service, distribution capability and product pricing. 1. Results of Operations For the nine months ended September 30, 1999 versus 1998 - -------------------------------------------------------- Net income for the nine months ended September 30, 1999 was $47.3 million, a decrease of $48.2 million or 50.5% from $95.5 million earned in the nine months ended September 30, 1998. Total insurance revenues, consisting of premiums and policy charges and fee income, increased $59.0 million for the nine months ended September 30, 1999 to $358.9 million from $299.9 million for the nine months ended September 30, 1998 primarily due to increased fees generated from sales of the Discovery Select Variable Annuity ("Discovery Select") and, to a lesser extent, asset appreciation. Appreciation in Separate Account asset values and sales have contributed to the growth in assets under management and consequently in policy charges and fees earned. For Discovery Select, assets under management increased by $3.2 billion to $6.6 billion as of September 30, 1999 from the September 30, 1998 level. Appreciation in the Separate Account products and new deposits have also generated an increase in asset management fee income from the Prudential Series Fund. Asset management fee income increased $11.6 million for the nine months ended September 30, 1999 to $40.9 million from $29.3 million for the nine months ended September 30, 1998. 8 The Company's Taiwan branch generated continued growth in premiums for traditional life insurance products. Taiwan's annualized new business premiums and the number of Taiwanese life planners grew by 45.5% and 25.9%, respectively. The Company's net investment income was $209.5 million for the nine months ended September 30, 1999, an increase of $10.4 million from the nine months ended September 30, 1998. The increase was primarily the result of higher fixed maturity portfolio assets due to the addition of the Prudential Credit Enhanced ("PACE") product. Net realized investment gains decreased $55.5 million for the nine months ended September 30, 1999 to a $17.9 million loss from a $37.6 million gain for the nine months ended September 30, 1998. The decrease in net realized investment gains was primarily due to sales of fixed maturities during a period of increasing interest rates for most of 1999. In addition, during 1999, the Company determined that for certain fixed maturities and equities in the investment portfolio there were declines in fair value considered to be other than temporary resulting in a charge of $4.5 million. Interest credited to policyholders' account balances increased by $10.3 million for the nine months ended September 30, 1999 to $93.7 million from $83.4 million for the nine months ended September 30, 1998. This increase is due primarily to the new PACE product. General, administrative and other expenses increased $83.8 million for the nine months ended September 30, 1999 to $298.2 million from $214.4 million for the nine months ended September 30, 1998. The primary reason for the higher level of expenses in 1999 is a change in Prudential's allocation methodology for expenses billed to the Company resulting in an increase in non-deferrable expenses. The increase in expenses was partially offset by a reduction in distribution costs allocated to the Company's annuity products by Prudential. For the three months ended September 30, 1999 versus 1998 - --------------------------------------------------------- Net income for the three months ended September 30, 1999 was $23.4 million, a decrease of $21.6 million or 48.0% from $45.0 million earned in the three months ended September 30, 1998. Total insurance revenues, consisting of premiums and policy charges and fee income, increased $14.9 million for the three months ended September 30, 1999 to $121.2 million from $106.3 million for the three months ended September 30, 1998. Appreciation in Separate Account asset values and product sales contributed to the growth in assets under management and consequently in policy charges and fees earned. Appreciation in the Separate Account products and new deposits have also generated an increase in the asset management fee income from the Prudential Series Fund. Asset management fee income increased $4.0 million for the three months ended September 30, 1999 to $15.3 million from $11.3 million for the three months ended September 30, 1998 The Company's net investment income was $71.9 million for the three months ended September 30, 1999 an increase of $2.8 million from the three months ended September 30, 1998. The increase in income was primarily the result of higher fixed maturity portfolio assets due to the addition of the PACE product. Net realized investment gains decreased $28.8 million for the three months ended September 30, 1999 to a $4.1 million loss from a $24.7 million gain for the three months ended September 30, 1998. The decrease in net realized investment gains was primarily due to sales of fixed maturities during a period of increasing interest rates for most of 1999. In addition, the Company determined that for certain fixed maturities and equities in the investment portfolio there were declines in fair value considered to be other than temporary resulting in a charge of $1.2 million. Interest credited to policyholders' account balances increased by $2.8 million for the three months ended September 30, 1999 to $31.4 million from $28.6 million for the three months ended September 30, 1998. This quarter's increase is attributable to the new PACE product. General, administrative and other expenses increased $41.4 million for the three months ended September 30, 1999 to $106.5 million from $65.1 million for the three months ended September 30, 1998. The primary reason for the higher level of expenses in 1999 is a change in Prudential's allocation methodology for expenses billed to the Company resulting in an increase in non-deferrable expenses. The increase in expenses was partially offset by a reduction in distribution costs allocated to the Company's annuity products by Prudential. 9 2. Liquidity Principal cash flow sources are investment and fee income, investment maturities and sales, and premiums. These cash inflows may be complemented by financing activities through other Prudential affiliates. Cash outflows consist principally of benefits, claims and amounts paid to policyholders in connection with policy surrenders, withdrawals and net policy loan activity. Uses of cash also include commissions, general and administrative expenses, and purchases of investments. Liquidity requirements associated with policyholder obligations are monitored regularly so that the Company can manage cash inflows to match anticipated cash outflow requirements. The Company believes that cash flow from operations together with proceeds from scheduled maturities and sales of fixed maturity investments, are adequate to satisfy liquidity requirements based on the Company's current liability structure. The Company had $19.5 billion of assets at September 30, 1999 compared to $16.8 billion at December 31, 1998, of which $13.9 billion and $11.5 billion were held in Separate Accounts at September 30, 1999 and December 31, 1998, respectively, under variable life insurance policies and variable annuity contracts. The remaining assets consisted primarily of investments and deferred policy acquisition costs. 3. The Year 2000 Issue Prudential has addressed the Year 2000 issue on an enterprise-wide basis; therefore, it is not possible to differentiate the Company's Year 2000 issue from that of Prudential. Refer to management's discussion of the Year 2000 issue in the December 31, 1998 Form 10-K for the steps taken by Prudential to mitigate the Year 2000 risks. The Business Application, Infrastructure and Business Partner components of Prudential's Year 2000 project are virtually complete. Prudential believes that it is well positioned to lessen the impact of the Year 2000 problem. However, given the nature of this issue, it cannot be certain of Year 2000 readiness of third parties. As a result, we are unable to determine at this time whether the consequences of Year 2000 failures may have a materially adverse effect on the results of Prudential's operations, liquidity or financial condition. Prudential will continue to review and test its contingency plans in an effort to reduce the level of uncertainty about the effect of the Year 2000 issue and further mitigate risk. Prudential is establishing a Year 2000 Global Control Center ("GCC") to monitor Year 2000 activity during the rollover weekend to the Year 2000 and thereafter. The GCC will receive status information from our applications, facilities, communication centers and business partners and serve as a central location to manage Year 2000 issues. Prudential believes that, with the completion of the Year 2000 project as scheduled, the possibility of significant interruptions of normal operations will be reduced. Prudential has investment securities that are both publicly traded and privately placed. Prudential is exposed to the risk that issuers of these investments will be adversely affected by Year 2000 issues. Prudential has implemented procedures to assess the impact that Year 2000 issues may have on its investments as part of due diligence for proposed new investments, where appropriate, as well as their ongoing review of certain portfolio holdings. Any recommended actions with respect to particular investments the Company will consider the disclosed potential impact of Year 2000 on the issuer. The Year 2000 costs allocated to Pruco Life to date are not material to its operations and financial position. Moreover, the forecasted Year 2000 allocated costs are not expected to have a material impact on Pruco Life's ability to meet its contractual commitments. The discussion of the Year 2000 issue herein, and in particular the Company's plans to remediate this issue and estimated costs thereof, are forward-looking in nature. See cautionary statement above relating to forward-looking statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk. - ------------------------------------------------------------------- The Company's exposure to market risks and the way these risks are managed, are summarized in Item 7a of the 1998 Form 10-K. 10 PART II ------- Item 2. Changes in Securities and Use of Proceeds. - -------------------------------------------------- (d) Information required by Item 701(f) of Regulation S-K: The information below pertains to modified guaranteed annuity contracts issued by the Company in two distinct variable annuity products, Discovery Preferred Variable Annuity and Discovery Select Variable Annuity. However, because the modified guaranteed annuity option of each of these products is identical, the Company has aggregated the registration of these securities. (1) The original effective date of the Registration Statement of the Company for the Discovery Preferred Variable Annuity on Form S-1 was declared effective on November 27, 1995 (Registration No. 33-61143). The Discovery Select prospectus was added through filings under Rule 424 of the Securities Act of 1993. The registration statement continues to be effective through annual amendments, the most recent filed April 16, 1999 and declared effective April 30, 1999. (2) Offering commenced immediately upon effectiveness of the registration statement. (3) Not applicable. (4) (i) The offering has not been terminated. (ii) The managing underwriter of the offering is Prudential Investment Management Services LLC. (iii) Market-Value Adjustment Annuity Contracts (also known as modified guaranteed annuity contracts). (iv) Securities registered and sold for the account of the Company: Amount registered*: $ 500,000,000 Aggregate price of the offering amount registered: $ 500,000,000 Amount sold*: $ 243,293,000 Aggregate offering price of amount sold to date: $ 243,293,000 * Securities not issued in predetermined units No securities have been registered for the account of any selling security holder. (v) Expenses associated with the issuance of the securities: Underwriting discounts and commissions** $ 8,515,000 Other expenses** $ 11,938,000 ------------- Total $ 20,453,000 ** Amounts are estimated and are paid to affiliated parties. (vi) Net offering proceeds: $ 222,840,000 (vii) Not applicable. (viii) Not applicable. 11 PART II ------- Item 6. Exhibits and Reports on Form 8-K - ---------------------------------------- (a) Exhibits -------- 3(i)(a) The Articles of Incorporation of Pruco Life Insurance Company (as amended through October 19, 1993) are incorporated by reference to the initial Registration Statement on Form S-6 of Pruco Life Variable Appreciable Account as filed July 2, 1996, Registration No. 333-07451. 3(ii) By-Laws of Pruco Life Insurance Company (as amended through May 6, 1997) are incorporated by reference to Form 10-Q as filed by the Company on August 15, 1997. 4(a) Modified Guaranteed Annuity Contract is filed herewith (previously filed as an exhibit to the Company's Registration Statement on Form S-1 as filed November 2, 1990, Registration No. 33-37587). 4(b) Market-Value Adjustment Annuity Contract is incorporated by reference to the Company's registration statement on Form S-1, Registration No. 333-18053, as filed November 17, 1995. 27 Financial Data Schedule is filed herewith in accordance with EDGAR instructions. (b) Reports on Form 8K ------------------ None 12 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf of the undersigned, thereunto duly authorized. PRUCO LIFE INSURANCE COMPANY (Registrant) Signature Title Date - --------- ----- ---- /s/Esther H. Milnes President and Director November 15, 1999 - ------------------------- Esther H. Milnes /s/Dennis G. Sullivan Principal Financial Officer November 15, 1999 - ------------------------- and Chief Accounting Officer Dennis G. Sullivan 13 EX-27 2 FINANCIAL DATA SCHEDULE
7 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 2,842,836 395,927 390,621 507 16,671 0 4,329,784 84,824 24,178 984,544 19,456,018 0 0 535,738 2,901,108 0 0 0 2,500 1,671,003 19,456,018 50,815 209,508 (17,916) 15,480 142,125 84,398 213,785 72,842 25,494 47,348 0 0 0 47,348 0 0 0 0 0 0 0 0 0
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