STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
VARIABLE ANNUITY CONTRACTS
The DISCOVERY SELECT(R) Annuity Contract* (the "contract") is an individual
variable annuity contract issued by the Pruco Life Insurance Company of New
Jersey ("Pruco Life of New Jersey"), 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 of New Jersey Flexible
Premium Variable Annuity Account (the "Account"). The contract is purchased by
making an initial purchase payment of $10,000 or more; subsequent payments must
be $1,000 or more.
This statement of additional information is not a prospectus and should be read
in conjunction with the Discovery Select prospectus, dated May 1, 1999. To
obtain a copy of the prospectus, without charge, you can write to the Prudential
Annuity Service Center, P.O. Box 14215, New Brunswick, New Jersey 08906, or by
telephoning (888) PRU-2888.
TABLE OF CONTENTS
PAGE
----
COMPANY.....................................................................2
EXPERTS.....................................................................2
LITIGATION..................................................................2
LEGAL OPINIONS..............................................................2
PRINCIPAL UNDERWRITER.......................................................2
DETERMINATION OF SUBACCOUNT UNIT VALUES.....................................2
PERFORMANCE INFORMATION.....................................................3
COMPARATIVE PERFORMANCE INFORMATION.........................................5
FURTHER INFORMATION ABOUT THE DEATH BENEFIT.................................5
FEDERAL TAX STATUS..........................................................8
FINANCIAL INFORMATION.......................................................A1
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY PRUDENTIAL ANNUITY SERVICE CENTER
213 WASHINGTON STREET P.O. BOX 14215
NEWARK, NEW JERSEY 07102-2992 NEW BRUNSWICK, NEW JERSEY 08906
TELEPHONE: (888) PRU-2888
* DISCOVERY SELECT is a service mark of Prudential.
ORD96639NY1B
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COMPANY
Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey") is a
stock life insurance company organized in 1982 under the laws of the State of
New Jersey. Pruco Life of New Jersey is licensed to sell life insurance and
annuities in the states of New Jersey and New York.
Pruco Life of New Jersey is a wholly-owned subsidiary of Pruco Life, which is a
wholly-owned subsidiary of The Prudential Insurance Company of America
("Prudential"), a mutual life insurance company founded in 1875 under the laws
of the State of New Jersey.
EXPERTS
The financial statements of the Pruco Life of New Jersey Flexible Premium
Variable Annuity Account as of December 31, 1998 and for the year ended December
31, 1998 and for the period January 24, 1997 through December 31, 1997 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
Several actions have been brought against Pruco Life of New Jersey alleging that
Pruco Life of New Jersey and its agents engaged in improper life insurance sales
practices. Prudential has agreed to indemnify Pruco Life of New Jersey for
losses, if any resulting from such litigation. No other significant litigation
is being brought against Pruco Life of New Jersey that would have a material
effect on its financial position.
LEGAL OPINIONS
Shea & Gardner of Washington, D.C., has provided advice on certain matters
relating to the federal securities laws in connection with the contracts.
PRINCIPAL UNDERWRITER
Prudential Investment Management Services LLC ("PIMS"), a subsidiary of
Prudential offers the contracts on a continuous basis 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
subsidiariy(ies) of Prudential, provided clearances to do so are obtained in any
jurisdiction where such clearances may be necessary. During 1998, 1997 and 1996,
the aggregate dollar amount of underwriting commissions paid to and the amounts
retained by PIMS were $5,105, $0 and $0 respectively. During 1998, 1997 and 1996
PIMS paid $5,105, $0 and $0 respectively to cover individual representatives'
commissions and other distribution expenses.
Prudential may pay trail commissions to registered representatives who maintain
an ongoing relationship with a contractholder. Typically, a trail commission is
a compensation that is paid periodically to a representative, the amount of
which is linked to the value of the contract and the amount of time that the
contract has been in effect.
DETERMINATION OF ACCUMULATION UNIT VALUES
The value for each accumulation unit is computed as of the end of each
"valuation period" as defined in the prospectus (also referred to in this
section as "business day"). On any given business day the value of a Unit in
each subaccount will be determined by multiplying the value of a Unit of that
subaccount for the preceding business day by the net investment factor for that
subaccount for the current business day. The net investment factor for any
business day is determined by dividing the value of the assets of the subaccount
for that day by the value of the assets of the subaccount for the preceding
business day (ignoring, for this purpose, changes resulting from new purchase
payments and withdrawals), and subtracting from the result the daily equivalent
of the 1.4% annual charge for administrative expenses and mortality and expense
risks. (See WHAT ARE THE EXPENSES ASSOCIATED WITH THE DISCOVERY SELECT 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.
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PERFORMANCE INFORMATION
The tables that follow provide performance information for each subaccount
through December 31, 1998. The performance information is based on historical
experience and does not indicate or represent future performance.
AVERAGE ANNUAL TOTAL RETURN
The DISCOVERY SELECT Annuity is a relatively new contract. The returns shown
below were calculated using historical investment returns of the Funds. All
fees, expenses and charges associated with the DISCOVERY SELECT Annuity and the
Funds have been reflected in these returns, as if the Contract had existed from
the inception date of each Funds' portfolios.
Table 1 below shows the average annual rates of total return on hypothetical
investments of $1,000 for periods ended December 31, 1998 in each subaccount
other than the Money Market Subaccount. These figures assume withdrawal of the
investments at the end of the period other than to effect an annuity under the
Contract. This table assumes deferred sales charges.
TABLE 1
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FROM DATE
FIVE TEN PORTFOLIO
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 12/31/98 12/31/98 12/31/98 12/31/98
--------- ----------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
The Prudential Series Fund
Diversified Bond Portfolio ......... 6/83 0.81% 5.57% 8.27% 7.94%
High Yield Bond Portfolio .......... 2/87 -8.36% 5.52% 8.70% 6.72%
Stock Index Portfolio .............. 10/87 21.77% 21.84% 18.57% 17.14%
Equity Income Fund ................. 2/88 -8.38% 13.17% 14.49% 13.27%
Equity Portfolio ................... 6/83 2.95% 15.10% 16.74% 13.59%
Prudential Jennison Portfolio ...... 5/95 30.69% N/A N/A 27.19%
Global Portfolio ................... 9/88 18.48% 10.31% 10.16% 9.87%
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth and Income Fund .... 5/94 21.03% N/A N/A 20.56%
AIM V.I. Value Fund ................ 6/93 25.69% 19.89% N/A 19.85%
Janus Aspen Series
Growth Portfolio ................... 9/93 28.90% 19.60% N/A 19.06%
International Growth Portfolio ..... 5/94 10.73% N/A N/A 16.95%
MFS Variable Insurance Trust
Emerging Growth Series ............. 7/95 27.42% N/A N/A 24.29%
Research Series .................... 7/95 16.78% N/A N/A 20.22%
OCC Accumulation Trust (Note 2)
Managed Portfolio .................. 8/88 0.76% 17.41% 18.16% 17.39%
Small Cap Portfolio ................ 8/88 -14.55% 6.77% 11.78% 11.29%
T. Rowe Price Equity Series, Inc.
Equity Income Portfolio ............ 3/94 1.93% N/A N/A 18.39%
T. Rowe Price International Series, Inc.
International Stock Portfolio ...... 3/94 9.37% N/A N/A 7.79%
Warburg Pincus Trust
Post-Venture Capital Portfolio ..... 9/96 0.17% N/A N/A 4.90%
- ---------------
</TABLE>
Note 1: This table assumes deferred sales charges.
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Note 2: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had commenced
operations on August 1, 1988, then called Quest for Value Accumulation Trust
(the "Old Trust"), was effectively divided into two investment funds--the Old
Trust and the present Quest for Value Accumulation Trust (the "Present
Trust")--at which time the Present Trust Commenced Operations.
Note 3: All tables assume a $30.00 annual charge for contracts under $50,000.
The average annual rates of total return shown above are computed by finding the
average annual compounded rates of return over the periods shown that would
equate the initial amount invested to the withdrawal value, in accordance with
the following formula: P(1+T)(n)=ERV. In the formula, P is a hypothetical
investment of $1,000; T is the average annual total return; "n" is the number of
years; and ERV is the withdrawal value at the end of the periods shown. These
figures assume deduction of the maximum withdrawal charge that may be applicable
to a particular period.
NON-STANDARD TOTAL RETURN
Table 2 below shows the average annual rates of return as in Table 1, but
assumes that the investments are not withdrawn at the end of the period or that
the Contract owner annuitizes at the end of the period. This table assumes no
deferred sales charges.
TABLE 2
AVERAGE ANNUAL TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
FROM DATE
FIVE TEN PORTFOLIO
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 12/31/98 12/31/98 12/31/98 12/31/98
---------- ----------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
The Prudential Series Fund
Diversified Bond Portfolio ........... 6/83 5.61% 5.70% 8.27% 7.94%
High Yield Bond Portfolio ............ 2/87 -3.79% 5.65% 8.70% 6.72%
Stock Index Portfolio ................ 10/87 26.57% 21.92% 18.57% 17.14%
Equity Income Fund ................... 2/88 -3.81% 13.27% 14.49% 13.27%
Equity Portfolio ..................... 6/83 7.75% 15.19% 16.74% 13.59%
Prudential Jenison Portfolio ......... 5/95 35.49% N/A N/A 27.59%
Global Portfolio ..................... 9/88 23.28% 10.42% 10.16% 9.87%
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth and Income Fund ...... 5/94 25.83% N/A N//A 20.76%
AIM V.I. Value Fund .................. 6/93 30.49% 19.96% N/A 19.92%
Janus Aspen Series
Growth Portfolio ..................... 9/93 33.70% 19.68% N/A 19.15%
International Growth Portfolio ....... 5/94 15.53% N/A N/A 17.16%
MFS Variable Insurance Trust
Emerging Growth Series ............... 7/95 32.22% N/A N/A 24.76%
Research Series ...................... 7/95 21.58% N/A N/A 20.74%
OCC Accumulation Trust (Note 2)
Managed Portfolio .................... 8/88 5.56% 17.49% 18.16% 17.39%
Small Cap Portfolio .................. 8/88 -10.37% 6.89% 11.78% 11.29%
T. Rowe Price Equity Series, Inc.
Equity Income Portfolio .............. 3/94 6.73% N/A N/A 18.59%
T. Rowe Price International Series, Inc.
International Stock Portfolio ........ 3/94 14.17% N/A N/A 8.07%
Warburg Pincus Trust
Post-Venture Capital Portfolio ....... 9/96 4.97% N/A N/A 6.56%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
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- ---------------
Note 1: This table assumes no deferred sales charges.
Note 2: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had commenced
operations on August 1, 1988, then called Quest for Value Accumulation Trust
(the "Old Trust"), was effectively divided into two investment funds--the Old
Trust and the present Quest for Value Accumulation Trust (the "Present
Trust")--at which time the Present Trust Commenced Operations.
Note 3: All tables assume a $30.00 annual charge for contracts under $50,000.
Table 3 shows the cumulative total return for the portfolios, assuming no
withdrawal. This table assumes no deferred sales charges.
TABLE 3
CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
FROM DATE
FIVE TEN PORTFOLIO
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 12/31/98 12/31/98 12/31/98 12/31/98
--------- ----------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
The Prudential Series Fund
Diversified Bond Portfolio .......... 6/83 5.61% 31.93% 121.40% 228.48%
High Yield Bond Portfolio ........... 2/87 -3.79% 31.60% 130.21% 116.10%
Stock Index Portfolio ............... 10/87 26.57% 169.35% 449.16% 487.98%
Equity Income Fund .................. 2/88 -3.81% 86.44% 287.12% 287.16%
Equity Portfolio .................... 6/83 12.00% 15.58% 13.52% 13.37%
Prudential Jennison Portfolio ....... 5/95 35.49% N/A N/A 144.49%
Global Portfolio .................... 9/88 13.16% 11.04% N/A 8.89%
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth and Income Fund ..... 5/94 25.83% N/A N/A 141.06%
AIM V.I. Value Fund ................. 6/93 30.49% 148.46% N/A 175.74%
Janus Aspen Series
Growth Portfolio .................... 9/93 33.70% 145.50 N/A 152.98%
International Growth Portfolio ...... 5/94 15.53% N/A N/A 109.38%
MFS Variable Insurance Trust
Emerging Growth Series .............. 7/95 32.22% N/A N/A 114.01%
Research Series ..................... 7/95 21.58% N/A N/A 91.17%
OCC Accumulation Trust (Note 2)
Managed Portfolio ................... 8/88 5.56% 123.92% 430.67% 430.90%
Small Cap Portfolio ................. 8/88 -10.37% 39.56% 204.49% 204.62%
T. Rowe Price Equity Series, Inc.
Equity Income Portfolio ............. 3/94 6.73% N/A N/A 124.85%
T. Rowe Price International Series, Inc.
International Stock Portfolio ....... 3/94 14.17% N/A N/A 44.64%
Warburg Pincus Trust
Post-Venture Capital Portfolio ...... 9/96 4.97 N/A N/A 15.37%
</TABLE>
Note 1: This table assumes no deferred sales charges.
Note 2: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had commenced
operations on August 1, 1988, then called Quest for Value Accumulation Trust
(the "Old Trust"), was effectively divided into two investment funds--the Old
Trust and the present Quest for Value Accumulation Trust (the "Present
Trust")--at which time the Present Trust Commenced Operations.
Note 3: All tables assume a $30.00 annual charge for contracts under $50,000.
5
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MONEY MARKET SUBACCOUNT YIELD
The "yield" and "effective yield" figures for the Money Market Subaccount shown
below were calculated using historical investment returns of the Money Market
Portfolio of the Prudential Series Fund. All fees, expenses and charges
associated with the DISCOVERY SELECT Annuity and the Series Fund have been
reflected.
The "yield" and "effective yield" of the Money Market Subaccount for the seven
days ended December 31, 1998 were 3.30% and 3.35%, respectively.
The yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one accumulation unit of the Money Market Subaccount at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from contract
owner accounts, and dividing the difference by the value of the subaccount at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7), with the resulting figure carried
to the nearest ten-thousandth of 1%.
The deduction referred to above consists of the 1.25% charge for mortality and
expense risks and the 0.15% charge for administration. It does not reflect the
withdrawal charge.
The effective yield is obtained by taking the base period return, adding 1,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result, according to the following formula: Effective Yield--([base period
return + 1] 365/7)-1.
The yields on amounts held in the Money Market Subaccount will fluctuate on a
daily basis. Therefore, the stated yields for any given period are not an
indication of future yields.
COMPARATIVE PERFORMANCE INFORMATION
Reports or advertising may include comparative performance information,
including, but not limited to: (1) comparisons to market indices such as the Dow
Jones Industrial Average, the Standard & Poor's 500 Index, the Value Line
Composite Index, the Russell 2000 Index, the Morgan Stanley World Index, the
Lehman Brothers bond indices; (2) comparisons to other investments, such as
certificates of deposit; (3) performance rankings assigned by services such as
Morningstar, Inc. and Variable Annuity Research and Data Services (VARDS), and
Lipper Analytical Services, Inc.; (4) data presented by analysts such as Dow
Jones, A.M. Best, The Bank Rate Monitor National Index; and (5) data in
publications such as The Wall Street Journal, Times, Forbes, Barrons, Fortune,
Money Magazine, and Financial World.
FURTHER INFORMATION ABOUT THE DEATH BENEFIT
Early in 1998, Pruco Life of New Jersey began to offer an enhanced death benefit
under the contract. For contracts issued after the new death benefit became
available in a particular state, the new death benefit is contained in an
endorsement that is issued with the contract. Existing contractowners are also
being given the option to elect the new death benefit or retain the death
benefit currently available under their contracts. For existing contractowners
electing the new death benefit, the endorsement describing the new death benefit
will be issued after the contract and should be attached to and kept with the
contract. As used here, the term "endorsement date" describes both the date on
which the contract is issued with the endorsement for contracts purchased after
the new death benefit is available and the date on which the endorsement is
issued for existing contractowners so electing. The new death benefit provisions
are described below.
If the sole or last surviving annuitant dies prior to the annuity date, Pruco
Life of New Jersey will, upon receipt of all of the information necessary to
make the payment (including due proof of death and election of a payment
option), pay a death benefit to the beneficiary designated by the contractowner.
IF THE SOLE OR OLDER ANNUITANT IS UNDER AGE 80 when the death benefit
endorsement is issued, the death benefit on or prior to the contract anniversary
coinciding with or next following his or her 80th birthday will equal the
greater of, the contract fund value or the guaranteed minimum death benefit, as
of the date of due proof of death. The guaranteed minimum death benefit is
calculated daily and is equal to the highest annual contract fund value
("step-up").
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STEP-UP
Prior to the first contract anniversary, the step-up is the initial invested
purchase payment increased by additional invested purchase payments and
proportionally reduced by the effect of withdrawals. The step-up for each
subsequent contract anniversary will be reset to the greater of the contract
fund value as of that contract anniversary and the prior step-up. Between
contract anniversaries, the step-up will be increased by invested purchase
payments and proportionally reduced by effect of withdrawals.
After the contract anniversary coinciding with or following the Annuitant's 80th
birthday, the death benefit will equal the greater of the contract fund value as
of the date of due proof of death or the guaranteed minimum death benefit as of
the contract anniversary coinciding with or next following his or her 80th
birthday, increased by additional invested purchase payments and proportionally
reduced by the effect of withdrawals since such contract anniversary.
IF THE SOLE OR OLDER ANNUITANT IS AGE 80 OR OVER on the endorsement date, the
death benefit will equal the greater of the contract fund value as of the date
of due proof of death or the total invested purchase payments (initial and
additional) proportionally reduced by the effect of withdrawals.
Upon issuance of the endorsement, you may not change an annuitant or
co-annuitant. You may add or remove an annuitant or co-annuitant only with our
prior approval.
If the contract was issued prior to the endorsement date, the following rules
apply: (1) the initial value of the step-up is the total invested purchase
payments (initial and additional), less total withdrawals (including any
applicable charges) as of the issuance of the endorsement; (2) the words, "Prior
to the first contract anniversary", as used in the description of the step-up,
means prior to the first contract anniversary following the issuance of the
endorsement.
Contracts issued prior to the endorsement date WHOSE OWNERS DO NOT ELECT TO
ATTACH THE ENDORSEMENT TO THEIR CONTRACTS and contracts issued in states in
which the endorsement is not available will continue to have the death benefit
calculated as originally offered, as follows: The death benefit will equal the
greatest of: (1) the contract fund as of the date of due proof of death; or (2)
the sum of all invested purchase payments made less total withdrawals made
(including withdrawal charges); or (3) the greatest of the contract fund values
calculated on every third contract anniversary reduced by all subsequent
withdrawals and withdrawal charges.
The death benefit is payable on the death of the sole or last surviving
annuitant, not the contractowner.
The beneficiary may receive this amount in a lump sum or under a payout option.
Unless the beneficiary has been irrevocably designated, you may change the
beneficiary at any time. If the annuitant dies after he or she has begun to
receive annuity payments, the death benefit, if any, will be determined by the
type(s) of payout provisions then in effect.
If the annuitant was the sole owner of the contract, the annuitant's spouse was
the sole beneficiary, and the spouse had an unrestricted right to receive the
death benefit in a lump sum, then the spouse has the right to continue the
contract as annuitant and owner.
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FEDERAL TAX STATUS
X. OTHER TAX RULES.
1. DIVERSIFICATION.
The Internal Revenue Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements. For further
detail on diversification requirements, see DIVIDENDS, DISTRIBUTIONS, AND TAXES
in the accompanying prospectus for the Prudential Series Fund. Pruco Life of New
Jersey believes the underlying variable investment options for the Contract meet
these diversification requirements.
2. INVESTOR CONTROL.
Treasury Department regulations do not provide guidance concerning the
extent to which you may direct your investment in the particular investment
options without causing you, instead of Pruco Life of New Jersey, to be
considered the owner of the underlying assets. Because of this uncertainty,
Pruco Life of New Jersey reserves the right to make such changes as it deems
necessary to assure that the contract qualifies as an annuity for tax purposes.
Any such changes will apply uniformly to affected contractowners and will be
made with such notice to affected contractowners as is feasible under the
circumstances.
3. ENTITY OWNERS.
Where a contract is held by a non-natural person (e.g., a corporation),
other than as an agent or nominee for a natural person (or in other limited
circumstances), the contract will not be taxed as an annuity and increases in
the value of the contract will be subject to tax.
4. PURCHASE PAYMENTS MADE BEFORE AUGUST 14, 1982.
If your contract was issued in exchange for a contract containing purchase
payments made before August 14, 1982, favorable tax rules may apply to certain
withdrawals from the contract. Generally, withdrawals are treated as a recovery
of your investment in the contract first until purchase payments made before
August 14, 1982 are withdrawn. Moreover, any income allocable to purchase
payments made before August 14, 1982, is not subject to the 10% penalty tax.
5. WITHHOLDING OF TAX FROM DISTRIBUTIONS. Taxable amounts distributed from
annuity contracts are subject to tax withholding. You may generally elect not to
have tax withheld from your payments. The rate of withholding on annuity
payments will be determined on the basis of the withholding certificate you file
with Pruco Life of New Jersey. These elections must be made on the appropriate
Pruco Life of New Jersey forms. Absent these elections, Pruco Life of New Jersey
will withhold the tax amounts required by the applicable tax regulations. You
may be subject to penalties under the estimated tax payment rules if your
withholding and estimated tax payments are not sufficient.
6. NONRESIDENT ALIENS. Special tax withholding rules apply to nonresident
aliens.
8
