AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1999
REGISTRATION NO. 333-18117
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. ___ [ ]
POST-EFFECTIVE AMENDMENT NO. 3 [x]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
POST-EFFECTIVE AMENDMENT NO. 3 [x]
(Check appropriate box or boxes)
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PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM
VARIABLE ANNUITY ACCOUNT
(Exact Name of Registrant)
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Name of Depositor)
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(888) PRU-2888
(Address and telephone number of depositor's principal executive offices)
----------
THOMAS C. CASTANO
ASSISTANT SECRETARY
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(Name and address of agent for service)
Copies to:
CHRISTOPHER E. PALMER LEE D. AUGSBURGER
SHEA & GARDNER ASSISTANT GENERAL COUNSEL
1800 MASSACHUSETTS AVENUE, N.W. THE PRUDENTIAL INSURANCE COMPANY
WASHINGTON, D.C. 20036 OF AMERICA
(202) 828-2093 751 BROAD STREET
NEWARK, NEW JERSEY 07102
(973) 367-1388
It is proposed that this filing will become effective (Check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on May 1, 1999 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on May 1, 1999 pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered:
Interests in Individual Variable Annuity Contracts
================================================================================
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
DISCOVERY
SELECT (R)
VARIABLE ANNUITY
THIS PROSPECTUS DESCRIBES AN INDIVIDUAL VARIABLE ANNUITY CONTRACT OFFERED BY
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY (PRUCO LIFE OF NEW JERSEY). PRUCO
LIFE OF NEW JERSEY IS A WHOLLY OWNED SUBSIDIARY OF THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA.
Discovery Select offers a wide variety of investment choices, including 24
variable investment options that invest in mutual funds managed by these leading
asset managers:
PRUDENTIAL INVESTMENTS
AIM ADVISORS
AMERICAN CENTURY
FRANKLIN ADVISERS
JANUS CAPITAL
MFS
OPPENHEIMER CAPITAL
T. ROWE PRICE
WARBURG PINCUS
MAY 1, 1999
Please read this prospectus before purchasing a Discovery Select variable
annuity contract and keep it for future reference. Current prospectuses for each
of the underlying mutual funds accompany this prospectus. These prospectuses
contain important information about the mutual funds. Please read these
prospectuses and keep them for reference.
To learn more about the Discovery Select variable annuity, you can request a
copy of the Statement of Additional Information (SAI) dated May 1, 1999. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is legally
a part of this prospectus. The SEC maintains a Web site (http://www.sec.gov)
that contains the Discovery Select 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 25 of this prospectus. For a free
copy of the SAI, call us at: (888) PRU-2888 or write to us at:
Pruco Life Insurance Company of New Jersey
213 Washington Street
Newark, New Jersey 07102-2992
Prudential Annuity Service Center
P.O. Box 14215
New Brunswick, New Jersey 08906
THE SEC HAS NOT DETERMINED THAT THIS CONTRACT IS A GOOD INVESTMENT, NOR HAS THE
SEC DETERMINED THAT THIS PROSPECTUS IS COMPLETE OR ACCURATE. IT IS A CRIMINAL
OFFENSE TO STATE OTHERWISE.
INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT TO RISK, INCLUDING THE
POSSIBLE LOSS OF YOUR MONEY. AN INVESTMENT IN DISCOVERY SELECT IS NOT A BANK
DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
[LOGO] PRUDENTIAL
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
TABLE OF CONTENTS
CAPTION PAGE
GLOSSARY .................................................................. ii
SUMMARY ................................................................... 1
SUMMARY OF CONTRACT EXPENSES .............................................. 3
EXPENSE EXAMPLES .......................................................... 5
1. WHAT IS THE DISCOVERY SELECT VARIABLE ANNUITY? ....................... 7
Short Term Cancellation Right or "Free Look" ......................... 7
2. WHAT INVESTMENT OPTIONS CAN I CHOOSE?................................. 8
Variable Investment Options .......................................... 8
Fixed Interest-Rate Options .......................................... 9
Transfers Among Options .............................................. 9
Dollar Cost Averaging ................................................ 10
Asset Allocation Program ............................................. 10
Auto-Rebalancing ..................................................... 10
Voting Rights ........................................................ 11
Substitution ......................................................... 11
3. WHAT KIND OF PAYMENTS WILL I RECEIVE DURING THE INCOME PHASE?
(ANNUITIZATION)....................................................... 11
Payment Provisions ................................................... 11
Option 1: Annuity Payments for a Fixed Period ........................ 11
Option 2: Life Annuity with 120 Payments
(10 Years) Certain.................................................. 11
Option 3: Interest Payment Option .................................... 12
Option 4: Other Annuity Options ...................................... 12
4. WHAT IS THE DEATH BENEFIT?............................................ 12
Beneficiary........................................................... 12
Calculation of the Death Benefit ..................................... 12
5. HOW CAN I PURCHASE A DISCOVERY SELECT CONTRACT?....................... 13
Purchase Payments .................................................... 13
Allocation of Purchase Payments ...................................... 13
Calculating Contract Value ........................................... 13
CAPTION PAGE
6. WHAT ARE THE EXPENSES ASSOCIATED WITH THE DISCOVERY SELECT CONTRACT?.. 13
Insurance Charges .................................................... 13
Annual Contract Fee................................................... 14
Withdrawal Charge .................................................... 14
Premium Taxes ........................................................ 15
Transfer Fee ......................................................... 15
Company Taxes ........................................................ 15
7. HOW CAN I ACCESS MY MONEY? ........................................... 15
Automated Withdrawals ................................................ 15
Suspension of Payments or Transfers .................................. 15
8. WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE DISCOVERY SELECT
CONTRACT?............................................................. 16
Taxes Payable by You ................................................. 16
Taxes on Withdrawals and Surrender ................................... 16
Taxes on Annuity Payments ............................................ 16
Penalty Taxes on Withdrawals and Annuity Payments .....................16
Taxes Payable by Beneficiaries........................................ 17
Withholding of Tax from Distributions................................. 17
Annuity Qualification................................................. 17
Diversification and Investor Control ................................. 17
Required Distributions Upon Your Death................................ 17
Changes in the Contract............................................... 17
Additional Information................................................ 17
Contracts Held by Tax Favored Plans................................... 18
9. OTHER INFORMATION .................................................... 22
Pruco Life Insurance Company of New Jersey ........................... 22
The Separate Account ................................................. 22
Experts............................................................... 22
Sale of the Contract and Distributor ................................. 22
Assignment ........................................................... 23
Financial Statements ................................................. 23
Year 2000 Compliance.................................................. 23
Statement of Additional Information .................................. 25
Accumulation Unit Values.............................................. 26
Market-Value Adjustment Formula ...................................... 28
ADDITIONAL FINANCIAL INFORMATION
Further Information about Pruco Life of New Jersey................... A-1
Pruco Life of New Jersey Financial Information ...................... B-1
i
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
GLOSSARY
We have tried to make this prospectus as easy to read and understand as
possible. By the nature of the contract, however, certain technical words or
terms are unavoidable. We have identified the following as some of these words
or terms.
- --------------------------------------------------------------------------------
ACCUMULATION PHASE. The period that begins with the contract date (see below
definition) and ends when you start receiving income payments or earlier if the
contract is terminated through a full withdrawal or payment of a death benefit.
ANNUITANT. The person whose life determines how long the contract lasts and the
amount of income payments that will be paid.
ANNUITY DATE. The date when income payments are scheduled to begin.
BENEFICIARY. The person(s) or entity you have chosen to receive a death benefit.
CASH VALUE. This is the total value of your contract minus any withdrawal
charge(s) or market-value adjustment, if applicable.
CONTRACT DATE. The date we receive your initial purchase payment and all
necessary paperwork in good order at the Prudential Annuity Service Center.
Contract anniversaries are measured from the contract date. A contract year
starts on the contract date or on a contract anniversary.
CONTRACTOWNER, OWNER OR YOU. The person entitled to the ownership rights under
the contract.
CONTRACT VALUE. The total value of the amounts in a contract allocated to the
variable investment options and the interest rate options as of a particular
date.
DEATH BENEFIT. If the sole or last surviving annuitant dies, the designated
person(s) or the beneficiary, will receive, at a minimum, the total amount
invested or a potentially greater amount related to market appreciation. See
"What is the Death Benefit?" on page 12.
INCOME OPTIONS. Options under the contract that define the frequency and
duration of income payments. In your contract, these are referred to as payout
or annuity options.
INTEREST-RATE OPTION. An investment option that offers a fixed-rate of interest
for either a one year (fixed-rate option) or a seven-year period (market-value
adjustment option).
PURCHASE PAYMENTS. The amount of money you pay us to purchase the contract.
Generally, you can make additional purchase payments at any time during the
accumulation phase.
PRUDENTIAL ANNUITY SERVICE CENTER. P.O. Box 14215, New Brunswick, New Jersey,
08906. The phone number is 1-888-PRU-2888.
SEPARATE ACCOUNT. Purchase payments allocated to the variable investment options
are held by us in a separate account called the Pruco Life of New Jersey
Flexible Premium Variable Annuity Account. The Separate Account is set apart
from all of the general assets of Pruco Life of New Jersey.
TAX DEFERRAL. This is a way to increase your assets without currently being
taxed. You do not pay taxes on your contract earnings until you take money out
of your contract.
VARIABLE INVESTMENT OPTION. When you choose a variable investment option, we
purchase shares of the mutual fund which are held as an investment for that
option. We hold these shares in the Separate Account. The division of the
Separate Account of Pruco Life of New Jersey that invests in a particular mutual
fund is referred to in your contract as a subaccount.
ii
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
SUMMARY
FOR A MORE COMPLETE DISCUSSION OF THE FOLLOWING TOPICS, SEE THE CORRESPONDING
SECTION IN THE PROSPECTUS.
1. WHAT IS THE DISCOVERY SELECT VARIABLE ANNUITY?
This variable annuity contract, offered by Pruco Life of New Jersey, is a
contract between you, as the owner, and us. The contract allows you to invest on
a tax-deferred basis in one or more of 24 variable investment options. There are
also two fixed interest rate options which are available in most states. The
contract is intended for retirement savings or other long-term investment
purposes and provides a death benefit and guaranteed income options.
The variable investment options are designed to offer the opportunity over
the long term for a better return than the fixed interest rate option. However,
this is NOT guaranteed. It is possible, due to market changes, that your
investments may decrease in value.
The fixed interest-rate options offer an interest rate that is guaranteed.
While your money is in the fixed account, you principal amount is guaranteed and
the interest amount that your money will earn guaranteed by us to always be at
least 3.0%.
You can invest your money in any or all of the variable investment options
and the interest-rate options. You are allowed 12 transfers each contract year
among the variable investment options, without a charge. There are certain
restrictions on transfers involving the interest-rate options.
The contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
grow on a tax-deferred basis and are taxed as income when you make a withdrawal.
The income phase starts when you begin receiving regular payments from your
contract. The amount of money you are able to accumulate in your contract during
the accumulation phase will help determine the amount of payments you will
receive during the income phase. Other factors will affect the amount of your
payments such as, age, gender and payout option you selected.
FREE LOOK. If you change your mind about owning Discovery Select, YOU MAY
CANCEL YOUR CONTRACT WITHIN 10 DAYS AFTER RECEIVING IT (or whatever time period
is required in the state where the contract was issued).
2. WHAT INVESTMENT OPTIONS CAN I CHOOSE?
You can invest your money in any or all of the variable investment options
that invest in the mutual funds described in the fund prospectuses provided with
this prospectus:
THE PRUDENTIAL SERIES FUND
Diversified Bond Portfolio
Diversified Conservative Growth Portfolio
Equity Income Portfolio
Equity Portfolio
Global Portfolio
High Yield Bond Portfolio
Money Market Portfolio
Prudential Jennison Portfolio
Small Capitalization Stock Portfolio
Stock Index Portfolio
20/20 Focus Portfolio
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC.
American Century VP Value
JANUS ASPEN SERIES
Growth Portfolio
International Growth Portfolio
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series
Research Series
OCC ACCUMULATION TRUST
Managed Portfolio
Small Cap Portfolio
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
Franklin Small Cap Investments Fund - Class 2
T.ROWE PRICE
Equity Series - Equity Income Portfolio
International Series - International Stock Portfolio
WARBURG PINCUS TRUST
Post-Venture Capital Portfolio
1
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
Depending upon market conditions, you may earn or lose money in any of
these options. The value of your contract will fluctuate depending upon the
investment performance of the mutual funds used by the variable investment
options you choose. Performance information for the variable investment options
is provided in the Statement of Additional Information (SAI). Past performance
is not a guarantee of future results.
You can also put your money into one or both of the fixed interest-rate
options.
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.
Once you begin receiving regular payments, you cannot change your payment plan.
4. WHAT IS THE DEATH BENEFIT?
If the sole or last surviving annuitant dies the designated person(s) or
the beneficiary will receive at a minimum, the total amount invested or a
potentially greater amount related to market appreciation.
5. HOW CAN I PURCHASE A DISCOVERY SELECT ANNUITY CONTRACT?
You can purchase this contract, under most circumstances, with a minimum
initial purchase payment of $10,000. You can add $1,000 or more at any time
during the accumulation phase of the contract. Your representative can help you
fill out the proper forms.
6. WHAT ARE THE EXPENSES ASSOCIATED WITH THE DISCOVERY SELECT CONTRACT?
The contract has insurance features and investment features, and there are
costs related to each.
Each year we deduct a $30 contract maintenance charge if your contract
value is less than $50,000. For insurance and administrative costs, we also
deduct an annual charge of 1.40% of the average daily value of all assets
allocated to the variable investment options. This charge is not assessed
against amounts allocated to the interest-rate investment options.
There are a few states/jurisdictions that assess a premium tax when you
begin receiving regular income payments from your annuity. In those states, we
will assess the required premium tax charge which can range up to 5%.
There are also charges associated with the mutual funds. The annual charges
currently of the mutual funds range from 0.37% to 1.40% of a fund's assets.
7. HOW CAN I ACCESS MY MONEY?
You may take money out at any time during the accumulation phase. Each
year, you withdraw up to 10% of your total purchase payments without charge.
Withdrawals greater than 10% of your purchase payments will be subject to a
withdrawal charge. This charge decreases 1% each year. After the 7th year, there
is no charge for a withdrawal. You may also be subject to income tax and a tax
penalty if you make an early withdrawal.
8. WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE DISCOVERY SELECT
CONTRACT?
Your earnings are not taxed until withdrawn. If you take money out during
the accumulation phase, purchase payments are withdrawn first and are taxed as
income. If you are younger than 59 1/2 when you take money out, you may be
charged a 10% federal tax penalty on the earnings in addition to ordinary
taxation. A portion of the payments you receive during the income phase is
considered partly a return of your original investment. As a result, that
portion of each payment is not taxable as income. Generally, all amounts
withdrawn from IRA contracts are fully taxable and subject to the 10% penalty if
withdrawn prior to age 59 1/2.
9. OTHER INFORMATION
This contract is issued by Pruco Life of New Jersey, a subsidiary of The
Prudential Insurance Company of America.
2
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
SUMMARY OF CONTRACT EXPENSES
THE PURPOSE OF THIS SUMMARY IS TO HELP YOU TO UNDERSTAND THE COSTS YOU WILL PAY
FOR DISCOVERY SELECT. THIS SUMMARY INCLUDES THE EXPENSES OF THE MUTUAL FUNDS
USED BY THE VARIABLE INVESTMENT OPTIONS BUT DOES NOT INCLUDE ANY PREMIUM TAXES
THAT MIGHT BE APPLICABLE IN YOUR STATE.
FOR MORE DETAILED INFORMATION:
More detailed information can be found on page __ under the section called,
"What Are The Expenses Associated With The Discovery Select Variable Annuity?"
For more detailed expense information about the mutual funds, please refer to
the individual fund prospectuses which you will find at the back of this
prospectus.
TRANSACTION EXPENSES
- ----------------------------------------------------------
WITHDRAWAL CHARGE (SEE NOTE 1 BELOW)
- ----------------------------------------------------------
During contract year 1 7%
During contract year 2 6%
During contract year 3 5%
During contract year 4 4%
During contract year 5 3%
During contract year 6 2%
During contract year 7 1%
TRANSFER FEE (SEE NOTE 2 BELOW)
- ----------------------------------------------------------
first 12 transfers per year $ 0.00
each transfer after 12 $ 25.00
ANNUAL CONTRACT FEE AND FULL WITHDRAWAL FEE (SEE NOTE 3 BELOW)
- ----------------------------------------------------------
$ 30.00
ANNUAL ACCOUNT EXPENSES
- ----------------------------------------------------------
AS A PERCENTAGE OF THE AVERAGE ACCOUNT VALUE
Mortality and Expense Risk: 1.25%
Administrative Fee: 0.15%
Total: 1.40%
NOTE 1: AS OF THE BEGINNING OF THE CONTRACT YEAR, YOU MAY WITHDRAW UP TO
10% OF THE TOTAL PURCHASE PAYMENTS PLUS ANY CHARGE-FREE AMOUNT CARRIED OVER FROM
THE PREVIOUS CONTRACT YEAR WITHOUT CHARGE. THERE IS NO WITHDRAWAL CHARGE ON ANY
WITHDRAWALS MADE UNDER THE CRITICAL CARE ACCESS OPTION (SEE PAGE __ ) OR ON ANY
AMOUNT USED TO PROVIDE INCOME UNDER THE LIFE ANNUITY WITH 120 PAYMENTS (10
YEARS) CERTAIN OPTION. (SEE PAGE __ ). SURRENDER CHARGES ARE WAIVED WHEN A DEATH
BENEFIT IS PAID.
NOTE 2: YOU WILL NOT BE CHARGED FOR TRANSFERS MADE IN CONNECTION WITH
DOLLAR COST AVERAGING AND AUTO-REBALANCING
NOTE 3: THERE IS NO CHARGE ON WITHDRAWALS IF THE VALUE OF YOUR CONTRACT IS
$50,000 OR MORE, OR IF THE WITHDRAWALS ARE MADE UNDER THE CRITICAL CARE ACCESS
OPTION.
NOTES FOR ANNUAL MUTUAL FUND EXPENSES:
THESE EXPENSES ARE BASED ON THE HISTORICAL FUND EXPENSES FOR THE YEAR ENDED
DECEMBER 31, 1998, EXCEPT AS INDICATED. FUND EXPENSES ARE NOT FIXED OR
GUARANTEED BY THE DISCOVERY SELECT CONTRACT AND MAY VARY FROM YEAR TO YEAR.
(1) THE PRUDENTIAL SERIES FUND:
BECAUSE THIS IS THE FIRST YEAR OF OPERATION FOR DIVERSIFIED CONSERVATIVE GROWTH
PORTFOLIO AND THE 20/20 FOCUS PORTFOLIO, OTHER EXPENSES ARE ESTIMATED BASED ON
MANAGEMENT'S PROJECTION OF NON-MANAGEMENT FEE EXPENSES.
(2) AMERICAN CENTURY VARIABLE PORTFOLIOS INC. AND T. ROWE PRICE FUNDS:
INVESTMENT MANAGEMENT FEES INCLUDE ORDINARY EXPENSES OF OPERATING THE FUNDS.
(3) JANUS ASPEN SERIES
FEE REDUCTIONS REDUCE THE INVESTMENT MANAGEMENT FEE TO THE LEVELS OF THE
CORRESPONDING JANUS RETAIL FUND. JANUS HAS AGREED TO CONTINUE THE APPLICABLE
WAIVERS AND FEE REDUCTIONS UNTIL AT LEAST THE NEXT ANNUAL RENEWAL OF THE
ADVISORY AGREEMENT.
(4) TEMPLETON VARIABLE PRODUCTS SERIES FUND
FIGURES REFLECT EXPENSES FROM THE FUND'S INCEPTION ON MAY 1, 1998 AND ARE
ANNUALIZED. THE MANAGER AGREED IN ADVANCE TO LIMIT MANAGEMENT FEES AND MAKE
CERTAIN PAYMENTS TO REDUCE THE FUND'S EXPENSES AS NECESSARY SO THAT TOTAL ACTUAL
EXPENSES DID NOT EXCEED 1.25% OF THE FUND'S CLASS 2 NET ASSETS IN 1998. THE
MANAGER IS CONTRACTUALLY OBLIGATED TO CONTINUE THIS ARRANGEMENT THROUGH 1999.
INVESTMENT MANAGEMENT FEE AND OTHER EXPENSES IN 1998 AFTER THESE WAIVERS WERE
0.15% AND 1.25%. THE FUND MAINTAINS A DISTRIBUTION OR "12B-1 PLAN" FOR CLASS 2
WITH A MAXIMUM ANNUAL OF 0.25%, WHICH IS INCLUDED IN OTHER EXPENSES AND IS
DISCUSSED IN THE FUND'S PROSPECTUS.
(5) WARBURG PINCUS TRUST
ACTUAL FEES AND EXPENSES FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 WERE 1.08%
AND 0.32% FOR INVESTMENT MANAGEMENT FEES AND OTHER EXPENSES, RESPECTIVELY. FEE
WAIVERS AND EXPENSE REIMBURSEMENT OR CREDITS REDUCED FEES AND EXPENSES DURING
1998 BUT MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
<TABLE>
<CAPTION>
ANNUAL MUTUAL FUND EXPENSES: (AFTER REIMBURSEMENT, IF ANY) AS A PERCENTAGE OF EACH FUND'S AVERAGE DAILY NET ASSETS
INVESTMENT OTHER TOTAL CONTRACTUAL TOTAL ACTUAL
MANAGEMENT FEE EXPENSES EXPENSES EXPENSES*
THE PRUDENTIAL SERIES FUND(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Diversified Bond Portfolio 0.40% 0.02% 0.42% 0.42%
Diversified Conservative Growth Portfolio 0.75% 0.20% 0.95% 0.95%
Equity Income Portfolio 0.40% 0.02% 0.42% 0.42%
Equity Portfolio 0.45% 0.02% 0.47% 0.47%
Global Portfolio 0.75% 0.11% 0.86% 0.86%
High Yield Bond Portfolio 0.55% 0.03% 0.58% 0.58%
Money Market Portfolio 0.40% 0.01% 0.41% 0.41%
Prudential Jennison Portfolio 0.60% 0.03% 0.63% 0.63%
Small Capitalization Stock Portfolio 0.40% 0.07% 0.47% 0.47%
Stock Index Portfolio 0.35% 0.02% 0.37% 0.37%
20/20 Focus Portfolio 0.75% 0.20% 0.95% 0.95%
AIM VARIABLE INSURANCE FUNDS, INC.
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund 0.61% 0.04% 0.65% 0.65%
AIM V.I. Value Fund 0.61% 0.05% 0.66% 0.66%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC(2)
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Value 1.00% 0.00% 1.00% 1.00%
JANUS ASPEN SERIES(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio 0.72% 0.03% 0.75% 0.68%
International Growth Portfolio 0.75% 0.20% 0.95% 0.86%
MFS VARIABLE INSURANCE TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Growth Series 0.75% 0.10% 0.85% 0.85%
Research Series 0.75% 0.11% 0.86% 0.86%
OCC ACCUMULATION TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Managed Portfolio 0.78% 0.04% 0.82% 0.82%
Small Cap Portfolio 0.80% 0.08% 0.88% 0.88%
TEMPLETON VARIABLE PRODUCTS SERIES FUND(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Investments Fund - Class 2 0.75% 1.25% 2.00% 1.25%
T. ROWE PRICE(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Series - Equity Income Portfolio 0.85% 0.00% 0.85% 0.85%
International Series - International Stock
Portfolio 1.05% 0.00% 1.05% 1.05%
WARBURG PINCUS TRUST(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Post-Venture Capital Portfolio 1.25% 0.45% 1.70% 1.40%
</TABLE>
* Reflects the effect management fee waivers and reimbursement of expenses, if
any. See notes on page 5. The "Expenses Examples" on the following pages are
calculated using the Total Actual Expenses.
4
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
EXPENSE EXAMPLES
- --------------------------------------------------------------------------------
These examples will help you compare the fees and expenses of the different
variable investment options offered by Discovery Select. You can also use the
examples to compare the cost of Discovery Select with other variable annuity
contracts.
- --------------------------------------------------------------------------------
EXAMPLE 1- IF YOU WITHDRAW YOUR ASSETS
Example 1 assumes that you invest $10,000 in Discovery Select and that you
allocate all of your assets to one of the variable investment options and
withdraw all your assets at the end of the time period indicated. The example
also assumes that your investment has a 5% return each year and that the mutual
fund's operating expenses remain the same. Your actual costs may be higher or
lower.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
THE PRUDENTIAL SERIES FUND
Diversified Bond Portfolio $ 817 $ 930 $ 1147 $ 2162
Diversified Conservative Growth Portfolio $ 870 $ 1090 $ 1417 $ 2709
Equity Income Portfolio $ 817 $ 930 $ 1147 $ 2162
Equity Portfolio $ 822 $ 945 $ 1173 $ 2215
Global Portfolio $ 861 $ 1063 $ 1372 $ 2618
High Yield Bond Portfolio $ 833 $ 978 $ 1229 $ 2330
Money Market Portfolio $ 816 $ 926 $ 1142 $ 2151
Prudential Jennison Portfolio $ 838 $ 994 $ 1255 $ 2382
Small Capitalization Stock Portfolio $ 822 $ 945 $ 1173 $ 2215
Stock Index Portfolio $ 812 $ 914 $ 1121 $ 2108
20/20 Focus Portfolio $ 870 $ 1090 $ 1417 $ 2709
---------------------------------------------------------------------------------------------------------------------
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Fund $ 840 $ 1000 $ 1265 $ 2403
AIM V.I. Value Fund $ 841 $ 1003 $ 1270 $ 2414
---------------------------------------------------------------------------------------------------------------------
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century VP Value $ 875 $ 1105 $ 1442 $ 2759
---------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES
Growth Portfolio $ 843 $ 1009 $ 1280 $ 2434
International Growth Portfolio $ 861 $ 1063 $ 1372 $ 2618
---------------------------------------------------------------------------------------------------------------------
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series $ 860 $ 1060 $ 1367 $ 2608
Research Series $ 861 $ 1063 $ 1372 $ 2618
---------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
Managed Portfolio $ 857 $ 1051 $ 1351 $ 2578
Small Cap Portfolio $ 863 $ 1069 $ 1382 $ 2639
---------------------------------------------------------------------------------------------------------------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Small Cap Investments Fund - Class 2 $ 900 $ 1180 $ 1566 $ 3006
---------------------------------------------------------------------------------------------------------------------
T.ROWE PRICE
Equity Series - Equity Income Portfolio $ 860 $ 1060 $ 1367 $ 2608
International Series - International Stock Portfolio $ 880 $ 1120 $ 1467 $ 2809
---------------------------------------------------------------------------------------------------------------------
WARBURG PINCUS TRUST
Post-Venture Capital Portfolio $ 915 $ 1225 $ 1640 $ 3150
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The charges shown in the 10 year column are the same for Example 1 and Example
2. This is because after 10 years the withdrawal charges are no longer deducted
by us when you make a withdrawal or when you begin the income phase of your
contract.
5
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
EXAMPLE 2 - IF YOU DO NOT WITHDRAW YOUR ASSETS
Example 2 assumes that you invest $10,000 in Discovery Select and allocate all
of your assets to one of the variable investment options and DO NOT WITHDRAW any
of your assets at the end of the time period indicated. The example also assumes
that your investment has a 5% return each year and that the mutual fund's
operating expenses remain the same. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------------------------------------------------
THE PRUDENTIAL SERIES FUND
<S> <C> <C> <C> <C>
Diversified Bond Portfolio $ 187 $ 580 $ 997 $ 2162
Diversified Conservative Growth Portfolio $ 240 $ 740 $ 1267 $ 2709
Equity Income Portfolio $ 187 $ 580 $ 997 $ 2162
Equity Portfolio $ 192 $ 595 $ 1023 $ 2215
Global Portfolio $ 231 $ 713 $ 1222 $ 2618
High Yield Bond Portfolio $ 203 $ 628 $ 1079 $ 2330
Money Market Portfolio $ 186 $ 576 $ 992 $ 2151
Prudential Jennison Portfolio $ 208 $ 644 $ 1105 $ 2382
Small Capitalization Stock Portfolio $ 192 $ 595 $ 1023 $ 2215
Stock Index Portfolio $ 182 $ 564 $ 971 $ 2108
20/20 Focus Portfolio $ 240 $ 740 $ 1267 $ 2709
---------------------------------------------------------------------------------------------------------------------
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Fund $ 210 $ 650 $ 1115 $ 2403
AIM V.I. Value Fund $ 211 $ 653 $ 1120 $ 2414
---------------------------------------------------------------------------------------------------------------------
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century VP Value $ 245 $ 755 $ 1292 $ 2759
---------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES
Growth Portfolio $ 213 $ 659 $ 1130 $ 2434
International Growth Portfolio $ 231 $ 713 $ 1222 $ 2618
---------------------------------------------------------------------------------------------------------------------
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series $ 230 $ 710 $ 1217 $ 2608
Research Series $ 231 $ 713 $ 1222 $ 2618
---------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
Managed Portfolio $ 227 $ 701 $ 1201 $ 2578
Small Cap Portfolio $ 233 $ 719 $ 1232 $ 2639
---------------------------------------------------------------------------------------------------------------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Small Cap Investments Fund - Class 2 $ 270 $ 830 $ 1416 $ 3006
---------------------------------------------------------------------------------------------------------------------
T.ROWE PRICE
Equity Series - Equity Income Portfolio $ 230 $ 710 $ 1217 $ 2608
International Series - International Stock Portfolio $ 250 $ 770 $ 1317 $ 2809
---------------------------------------------------------------------------------------------------------------------
WARBURG PINCUS TRUST
Post-Venture Capital Portfolio $ 285 $ 875 $ 1490 $ 3150
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
These examples do not show past or future expenses. Actual expenses for a
particular year may be more or less than those shown in the examples.
- --------------------------------------------------------------------------------
Notes: (cont.) If your contract value is less than $50,000, on your contract
anniversary (and upon a surrender), we deduct a $30 fee. The examples use an
average number as the amount of the annual contract fee. This amount was
calculated by taking the total annual contract fees collected in 1998 and then
dividing that number by the total assets allocated to the variable investment
options. Based on this calculation the annual contract fee is included as an
annual charge of 0.23% of contract value. Your actual fees will vary based on
the amount of your contract and your specific allocation(s). A table of
accumulation unit values of interests in each variable investment option,
appears on Page 26. Premium taxes are not reflected. in these examples. Premium
taxes may apply depending on the state where you live.
6
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
1. WHAT IS THE DISCOVERY SELECT VARIABLE ANNUITY?
The Discovery Select Variable Annuity is a contract between you, the owner, and
us, the insurance company, Pruco Life Insurance Company of New Jersey (Pruco
Life of New Jersey, We or Us).
Under our contract or agreement, in exchange for your payment to us, we promise
to pay you a guaranteed income stream that can begin any time after the first
contract anniversary. Your annuity is in the accumulation phase until you decide
to begin receiving annuity payments. The date you begin receiving annuity
payments is the annuity date. On the annuity date, your contract switches to the
income phase.
This annuity contract benefits from tax deferral. Tax deferral means that you
are not taxed on earnings or appreciation on the assets in your contract until
you withdraw money from your contract.
Discovery Select is a variable annuity contract. This means that during the
accumulation phase, you can allocate your assets among 24 variable investment
options as well as 2 guaranteed interest-rate options. If you select a variable
investment option, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the investment performance
of the mutual fund associated with that variable investment option. Because the
mutual funds' portfolios fluctuate in value depending upon market conditions,
your contract value can either increase or decrease. This is important, since
the amount of the annuity payments you receive during the income phase depends
upon the value of your contract at the time you begin receiving payments.
As mentioned above, Discovery Select also contains two guaranteed interest-rate
options: a fixed-rate option and a market-value adjustment option. The
fixed-rate option offers an interest rate that is guaranteed by us for one year
and will always be at least 3.0% per year. The market-value adjustment option
guarantees a stated interest rate, generally higher than the fixed-rate option.
However, in order to get the full benefit of the stated interest rate, assets in
this option must be held for a seven-year period.
As the owner of the contract, you have all of the decision-making rights under
the contract. You will also be the annuitant unless you designate someone else.
The annuitant is the person who receives the annuity payments when the income
phase begins. The annuitant is also the person whose life is used to determine
how much and how long these payments will continue. On and after the annuity
date, the annuitant is the owner and may not be changed. The beneficiary becomes
the owner when a death benefit is payable.
The beneficiary is the person(s) or entity designated to receive any death
benefit if the annuitant(s) dies during the accumulation phase. You may change
the beneficiary any time prior to the annuity date by making a written request
to us. Your request becomes effective when we approve it.
SHORT TERM CANCELLATION RIGHT OR "FREE LOOK"
If you change your mind about owning Discovery Select, you may cancel your
contract within 10 days after receiving it (or whatever period is required by
applicable law). You can request a refund by returning the contract either to
the representative who sold it to you, or to the Prudential Annuity Service
Center at the address shown on the first page of this prospectus. You will
receive, depending on applicable law:
o Your full purchase payment; or
o The amount your contract is worth as of the day we receive your request.
This amount may be more or less than your original payment.
7
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
2. WHAT INVESTMENT OPTIONS CAN I CHOOSE?
The contract gives you the choice of allocating your purchase payments to any
one or more of 24 variable investment options, as well as two guaranteed
interest-rate options. The 24 variable investment options invest in mutual funds
managed by leading investment advisors. Each of these mutual funds has a
separate prospectus that is provided with this prospectus. YOU SHOULD READ THE
MUTUAL FUND PROSPECTUS BEFORE YOU DECIDE TO ALLOCATE YOUR ASSETS TO THE VARIABLE
INVESTMENT OPTION USING THAT FUND.
VARIABLE INVESTMENT OPTIONS
Listed below are the mutual funds in which the variable investment options
invest. Each variable investment option has a different investment objective.
THE PRUDENTIAL SERIES FUND, INC.
o Diversified Bond Portfolio
o Diversified Conservative Growth Portfolio
o Equity Income Portfolio
o Equity Portfolio
o Global Portfolio
o High Yield Bond Portfolio
o Money Market Portfolio
o Prudential Jennison Portfolio (domestic equity)
o Small Capitalization Stock Portfolio
o Stock Index Portfolio
o 20/20 Focus Portfolio (domestic equity)
The Prudential Series Fund, Inc. is managed by Prudential through another
company it owns called The Prudential Investment Corporation. The Prudential
Investment Corporation manages each of the portfolios of the Prudential Series
fund except the Prudential Jennison Portfolio and the Diversified Conservative
Growth Portfolio. For the Jennison portfolio, Prudential Investment Corporation
oversees another company owned by Prudential called Jennison Associates Capital
Corp. which provides the day to day investment advisory services. For the
Diversified Conservative Growth Portfolio, Prudential Investments Corporation
oversees The Dreyfus Corporation and Pacific Investments Management Company,
which provide the day to day investment advisory services.
AIM VARIABLE INSURANCE FUNDS, INC.
o AIM V.I. Growth and Income Fund
o AIM V.I. Value Fund
AIM Advisors, Inc. serves as investment adviser to both of these funds.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
o American Century VP Value
American Century Investment Management, Inc. is the investment adviser for
American Century VP Value.
JANUS ASPEN SERIES
o Growth Portfolio
o International Growth Portfolio
Janus Capital Corporation serves as investment adviser to the Growth Portfolio
and the International Growth Portfolio.
MFS VARIABLE INSURANCE TRUST
o Emerging Growth Series
o Research Series (long-term growth and future income)
Massachusetts Financial Services Company, a Delaware corporation, is the
investment adviser to the Emerging Growth Series and the Research Series.
OCC ACCUMULATION TRUST
o Managed Portfolio (equity)
o Small Cap Portfolio
OpCap Advisors is the investment adviser to the Managed Portfolio and the Small
Cap Portfolio.
T. ROWE PRICE
o T. Rowe Price Equity Series, Inc., Equity Income Portfolio
8
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
o T. Rowe Price International Series, Inc., International Stock Portfolio
T. Rowe Price Associates, Inc. is the investment manager for the Equity Income
Portfolio and Rowe Price-Fleming International, Inc. is the investment manager
for the International Stock Portfolio.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
o Franklin Small Cap Investments Fund--Class 2
Franklin Advisers, Inc. is the investment manager for this portfolio of the
Templeton Variable Products Series Fund.
WARBURG PINCUS TRUST
o Post-Venture Capital Portfolio
Warburg Pincus Counselors, Inc. serves as investment adviser and Abbott Capital
Management, L.P. serves as sub-investment adviser for that portion of the
Post-Venture Capital Portfolio allocated to private limited partnerships or
other investment funds.
Except for the Prudential Series Fund Inc., we are paid by each fund or an
affiliate of each fund for administrative and other services that we provide.
The amount we receive is based on an annual percentage of the average assets of
Discovery Select invested in the fund.
FIXED INTEREST-RATE OPTIONS
We offer two interest-rate options: a fixed-rate option and a market-value
adjustment option. We set a one year guaranteed annual interest rate that is
always available for the one-year fixed-rate option. For the market-value
adjustment option, We set a seven-year guaranteed interest rate.
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 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 3.0%.
If you transfer or withdraw assets or annuitize from the market-value adjustment
option before an interest rate period is over, the assets will be subject to a
market value adjustment.
The market-value adjustment may increase or decrease the amount being withdrawn
or transferred and may be substantial. The adjustment, whether up or down will
never be greater than 40%. The amount of the market-value adjustment is based on
the difference between the:
1. Guaranteed interest rate for the amount you are withdrawing or
transferring; and
2. Interest rate that is in effect on the date of the withdrawal or
transfer.
The amount of time left in the interest rate period is also a factor. You will
find a detailed description of how the market-value adjustment is calculated on
Page 28 of this prospectus.
TRANSFERS AMONG OPTIONS
You can transfer money among the variable investment options and the fixed
interest-rate options. Your transfer request may be made by telephone or in
writing to the Prudential Annuity Service Center. Only two transfers per month
may be made by telephone. After that, all transfer requests must be in writing
with an original signature. We have procedures in place to confirm that
instructions received by telephone are genuine. We will not be liable for
following telephone instructions that we reasonably believe to be genuine. Your
transfer request will take effect at the end of the business day on which it was
received. Our business day closes at 4:15 p.m. Eastern time
YOU CAN MAKE TRANSFERS OUT OF A FIXED INTEREST-RATE OPTION ONLY DURING THE
30-DAY PERIOD FOLLOWING THE END OF AN INTEREST RATE PERIOD. If you transfer
money from a market-value adjustment option after the 30-day period has ended,
9
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
the money will be subject to a market-value adjustment.
During the contract accumulation phase, you can make 12 transfers each contract
year, among the investment options, without charge. If you make more than 12
transfers in one contract year, you will be charged $25 for each additional
transfer. (Dollar Cost Averaging and Auto-Rebalancing transfers do not count
toward the 12 free transfers per year.)
DOLLAR COST AVERAGING
The dollar cost averaging (DCA) feature allows you to systematically transfer
either a fixed dollar amount or a percentage out of any variable investment
option or the one-year fixed interest-rate option and into any variable
investment option(s). You can transfer money to more than one variable
investment option. The investment option used for the transfers is designated as
the DCA account. You can have these automatic transfers made from the DCA
account monthly, quarterly, semiannually or annually. By allocating amounts on a
regular schedule instead of allocating the total amount at one particular time,
you may be less susceptible to the impact of market fluctuations.
Transfers must be at least $100 from your DCA account. After that, transfers
will continue automatically until the entire amount in your DCA account has been
transferred or until you tell us to discontinue the transfers. If your DCA
account balance drops below $100, the entire remaining balance of the account
will be transferred on the next transfer date, You can allocate subsequent
purchase payments to re-open the DCA account at any time.
Your transfers will be made on the last calendar day of each transfer period you
have selected, provided that the New York Stock Exchange is open on that date.
If the New York Stock Exchange is not open on a particular transfer date, the
transfer will take effect on the next business day.
Any transfers you make because of dollar cost averaging are not counted toward
the 12 free transfers you are allowed per year. This feature is available only
during the contract accumulation phase.
ASSET ALLOCATION PROGRAM
We recognize the value of having advice when deciding on the allocation of your
money. If you choose to participate in the Asset Allocation Program, your
financial professional will give you a questionnaire to complete that will help
determine a program that is appropriate for you. Your asset allocation will be
prepared based on your answers to the questionnaire. You will not be charged for
this service and you are not obligated to participate or to invest according to
program recommendations.
AUTO-REBALANCING
Once your money has been allocated among the variable investment options, the
actual performance of the investment options may cause your allocation to shift.
For example, an investment option that initially holds only a small percentage
of your assets could perform much better than another investment option. Over
time, this option could increase to a larger percentage of your assets than you
desire. You can direct us to automatically rebalance your assets to return to
your original allocation or to change allocations by selecting the
Auto-Rebalancing feature. The fixed interest-rate options and the DCA account
cannot participate in this feature.
Your rebalancing will be done monthly, quarterly, semiannually or annually based
on your choice. The rebalancing will be done on the last calendar day of the
period you have chosen, provided that the New York Stock Exchange is open on
that date. If the New York Stock Exchange is not open on that date, the
rebalancing will take effect on the next business day.
Any transfers you make because of Auto-Rebalancing are not counted toward the 12
free transfers you are allowed per year. This feature is available only during
the contract accumulation phase. If you choose auto-rebalancing and dollar cost
averaging, auto-rebalancing will take place after the transfers from your DCA
account.
10
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
VOTING RIGHTS
We are the legal owner of the shares in the mutual funds associated with the
variable investment options. However, We vote the shares of the mutual funds
according to voting instructions we receive from contractowners. We will mail
you a proxy which is a form you need to complete and return to us to tell us how
you wish us to vote. When we receive those instructions, we will vote all of the
shares we own on your behalf, in accordance with those instructions. We will
vote the shares for which we do not receive instructions, and shares that we
own, in the same proportion as the shares for which instructions are received.
We may change the way your voting instructions are calculated if it is required
by federal regulation.
SUBSTITUTION
We may substitute one or more of the mutual funds used by the variable
investment options. We may also cease to allow investments in existing funds. We
would do this only if events such as investment policy changes or tax law
changes make the mutual fund unsuitable. We would not do this without the
approval of the Securities and Exchange Commission and necessary state insurance
department approvals. You will be given specific notice in advance of any
substitution we intend to make.
3. WHAT KIND OF PAYMENTS WILL I RECEIVE DURING THE INCOME PHASE? (ANNUITIZATION)
PAYMENT PROVISIONS
The annuitant can begin receiving annuity payments any time after the first
contract anniversary. Annuity payments must begin no later than the contract
anniversary that coincides with or follows the annuitant's 90th birthday.
You may choose among the income plans described below at any time before the
annuity date. These plans are called annuity options. During the income phase,
all of the annuity options under this contract are fixed annuity options. This
means that your participation in the variable investment options ends on the
annuity date. If you have not selected an annuity option by the annuity date,
the Interest Payment Option (Option 3, described below) will automatically be
selected unless prohibited by applicable law. 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. The annuity payments may be made monthly, quarterly, semiannually, or
annually for as long as the annuitant is alive. If the annuitant dies during the
income phase, a lump sum payment will be made to the beneficiary. The amount of
the lump sum payment is determined by calculating the present value of the
unpaid future payments. This is done by using the interest rate used to compute
the actual payments. The interest rate used will always be at least 3.50% a
year. For payment periods of 10 years or more, we will waive any withdrawal
charges that otherwise would have been applied.
OPTION 2. LIFE ANNUITY WITH 120 PAYMENTS (10 YEARS) CERTAIN
Under this option, we will make annuity payments to the annuitant monthly,
quarterly, semiannually, or annually as long as the annuitant is alive. If the
annuitant dies before we have made 10 years worth of payments, we will pay the
beneficiary the present value of the remaining annuity payments in one lump sum
unless the annuitant has specifically instructed that the remaining monthly
annuity payments continue to be paid to the beneficiary. The present value of
the remaining annuity payments is calculated by using the interest rate used to
compute the amount of the original 120 payments. The interest rate used will
always be at least 3.50% a year.
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
11
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
on your contract assets. If you have not selected an annuity option by the
annuity date, this is the option we will automatically select for you, unless
prohibited by applicable law. Under this option, we will pay you interest at an
effective rate of at least 3.0% a year.
This option is not available if your contract is held in an Individual
Retirement Account.
OPTION 4. OTHER ANNUITY OPTIONS
We currently offer a variety of other annuity options not described above. At
the time you choose to receive your annuity payments, we may make available to
you any of the fixed annuity options that are offered at your annuity date.
You should be aware that depending on your contract date and the annuity option
you choose, you may have to pay withdrawal charges.
4. WHAT IS THE DEATH BENEFIT?
The death benefit feature protects the value of the contract for the
beneficiary.
BENEFICIARY
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued, unless you
change it at a later date. Unless an irrevocable beneficiary has been named, you
can change the beneficiary at any time before the annuitant or last surviving
annuitant dies.
CALCULATION OF THE DEATH BENEFIT
If the annuitant (or the last surviving annuitant, if there are co-annuitants)
dies during the accumulation phase, we will, upon receiving appropriate proof of
death, pay a death benefit to the beneficiary designated by the contractowner.
If death is prior to age 80, the beneficiary will receive the greater of the
following:
o Current value of your contract (as of the time we receive appropriate proof
of death); or
o Guaranteed Minimum Death Benefit-
This is the highest value of the contract on any contract anniversary date.
This is called the step-up value. Between anniversary dates, the step-up
value is only increased by additional purchase payments and reduced
proportionally by withdrawals.
If death is 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 Guaranteed Minimum Death benefit as of age 80, increased by
additional purchase payments, and reduced proportionally by the withdrawals. For
this purpose, an annuitant is deemed to reach age 80 on the contract anniversary
on or following the annuitant's actual 80th birthday.
If the sole or older annuitant is age 80 or older at the time the contract is
issued, upon death, the beneficiary will receive the greater of: 1) current
contract value as of the date that due proof of death is received; and 2) the
total purchase payments reduced proportionally by withdrawals.
Here is an example of a proportional reduction:
If an owner withdrew 50% of a contract valued at $100,000 and if the step-up
value was $80,000, the new step-up value following the withdrawal, would be
$40,000 or 50% of what it had been prior to the withdrawal.
If the contractowner and annuitant are not the same, the death benefit is
payable only in the event of the death of a sole annuitant or last surviving
annuitant, not the death of the contractowner.
This death benefit was enhanced in January, 1998, to provide for the Guaranteed
Minimum Death Benefit. Certain contractowners must have elected an endorsement
in order for this enhanced death benefit to apply. See the Statement of
Additional Information (SAI) for details.
5. HOW CAN I PURCHASE A DISCOVERY SELECT CONTRACT?
12
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DISCOVERY SELECT(R) VARIABLE ANNUITY
PURCHASE PAYMENTS
A purchase payment is the amount of money you give us to purchase the contract.
The minimum purchase payment is $10,000. You can make additional purchase
payments of at least $1,000 or more at any time during the accumulation phase.
You must get our prior approval for any purchase payments over $2 million.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, we will allocate your purchase payment among the
variable investment options and the fixed interest-rate options based on the
percentages you choose. The percentage of your allocation to a specific
investment option can range in whole percentages from 0% to 100%. If you make
additional purchase payments, they will be allocated in the same way as your
most recent purchase payment, unless you tell us otherwise.
We will credit these purchase payments to your contract as of the end of the
business day on which the payment is received at the Prudential Annuity Service
Center. Our business day closes at 4:15 p.m. Eastern time. If, however, your
first payment is made without enough information for us to set up your contract
we may need to contact you to get the required information. If we are not able
to get this information within five business days we will either return your
purchase payment or get your consent to continue holding it until we receive the
necessary information.
CALCULATING CONTRACT VALUE
The value of the variable portion of your contract will go up or down depending
on the investment performance of the variable investment option(s) you choose.
To determine the value of your contract, we use a unit of measure called an
accumulation unit. An accumulation unit works like a share of a mutual fund.
Every day we determine the value of an accumulation unit for each of the
variable investment options. We do this by:
1. Adding up the total amount of money allocated to a specific investment
option;
2. Subtracting from that amount insurance charges and any other
applicable charges; 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 relating to the variable investment options you have chosen. The number of
accumulation units credited to your contract is determined by dividing the
amount of the purchase payment allocated to an investment option by the unit
price of the accumulation unit for that investment option. We calculate the unit
price for each investment option after the New York Stock Exchange closes each
day and then credit your contract. The value of the accumulation units can
increase, decrease, or remain the same from day to day. The Accumulation Unit
Values chart provided in Appendix A to this prospectus gives you more detailed
information about the accumulation units of the variable investment options.
We cannot guarantee that the value of your contract will increase or that it
will not fall below the amount of your total purchase payments. However, we do
guarantee a minimum interest rate of 3.0% a year on that portion of the contract
value allocated to the fixed interest-rate options.
6. WHAT ARE THE EXPENSES ASSOCIATED WITH THE DISCOVERY SELECT CONTRACT?
There are charges and other expenses associated with the contract that reduce
the return on your investment. These charges and expenses are described below.
INSURANCE CHARGES
Each day, We makes a deduction for its insurance charges. The insurance charges
have two parts:
1. Mortality and expense risk charge
2. Administrative expense charge
1. Mortality and Expense Risk Charge
The mortality risk charge is for assuming the risk
13
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
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 charge is for assuming that the current charges will
be insufficient in the future to cover the cost of administering the contract.
The mortality and expense risk charge is equal, on an annual basis, to 1.25% of
the daily value of the contract invested in the variable investment options,
after expenses have been deducted. This charge is not assessed against amounts
allocated to the interest-rate options.
If the charges under the contract are not sufficient, then we will bear the
loss. We do, however, expect to profit from this charge. The mortality and
expense risk charge cannot be increased. Any profits made from this charge may
be used by us to pay for the costs of distributing the contracts.
2. Administrative Expense Charge
This charge is for the expenses associated with the administration of the
contract. The administration of the contract includes preparing and issuing the
contract, establishing and maintaining contract records, issuing confirmations
and annual reports, personnel costs, legal and accounting fees, filing fees, and
systems costs.
This charge is equal, on an annual basis, to 0.15% of the daily value of the
contract invested in the variable investment options, after expenses have been
deducted.
ANNUAL CONTRACT FEE
During the accumulation phase, if your contract value is less than $50,000, We
will deduct $30 per contract year (this fee may differ in certain states). This
annual contract fee is used for administrative expenses and cannot be increased.
The $30 charge will be deducted proportionately from each of the contract's
investment options. This charge will also be deducted when you surrender your
contract if your contract value is less than $50,000.
WITHDRAWAL CHARGE
During the accumulation phase you can make withdrawals from your contract. When
you make a withdrawal, money will be taken first from your purchase payments for
purposes of determining withdrawal charges. When your purchase payments have
been used up, then we will take the money from your earnings. You will not have
to pay any withdrawal charge when you withdraw your earnings.
The withdrawal charge is for the payment of the expenses involved in selling and
distributing the contracts, including sales commissions, printing of
prospectuses, sales administration, preparation of sales literature and other
promotional activities.
You can withdraw up to 10% of your total purchase payments each contract year
without paying a withdrawal charge. This amount is referred to as the
"charge-free amount." If any of the charge-free amount is not used during a
contract year, it will be carried over to the next contract year. During the
first seven contract years, if your withdrawal of purchase payments is more than
the charge-free amount, a withdrawal charge will be applied. This charge is
based on your contract date.
The following table shows the percentage of withdrawal charges that would apply:
During contract year 1 ......... 7%
During contract year 2 ......... 6%
During contract year 3 ......... 5%
During contract year 4 ......... 4%
During contract year 5 ......... 3%
During contract year 6 ......... 2%
During contract year 7 ......... 1%
After that ..................... 0%
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DISCOVERY SELECT(R) VARIABLE ANNUITY
PREMIUM TAXES
Some states and/or municipalities charge premium taxes or similar taxes. We are
responsible for the payment of these taxes and will make a deduction from the
value of the contract to pay them. Some of these taxes are due when the contract
is issued, others are due when annuity payments begin. It is our current
practice not to deduct these taxes until annuity payments begin. In the few
states that impose a tax, the current rates range up to 5.0% If, in the future,
we are charged for additional taxes that are based on purchase payments, that
charge may be passed on to contractholders.
TRANSFER FEE
You can make 12 free transfers every year. We measure a year from the date we
issue your contract (contract date). If you make more than 12 transfers in a
year (excluding Dollar Cost Averaging and Auto-Rebalancing), we will deduct a
transfer fee of $25 for each additional transfer. The transfer fee will be
deducted proportionately from all the affected investment options. The transfer
fee is deducted before the MVA is calculated.
COMPANY TAXES
We will pay the taxes on the earnings of the Separate Account. We are not
currently charging the Separate Account for taxes. We will periodically review
the issue of charging the Separate Account for these taxes, and may impose such
a charge in the future.
7. HOW CAN I ACCESS MY MONEY?
You can access your money by:
o Making a withdrawal (either partial or complete); or
o Electing to receive annuity payments during the income phase.
YOU CAN MAKE WITHDRAWALS ONLY DURING THE ACCUMULATION PHASE.
When you make a complete withdrawal, you will receive the value of your contract
on the day you made the withdrawal, less any applicable charges. We will
calculate the value of your contract, and charges, if any, as of the date we
receive your request in good order at the Prudential Annuity Service Center.
Unless you tell us otherwise, any partial withdrawal will be made
proportionately from all of the affected investment options and interest-rate
options you have selected. You will have to receive our consent to make a
partial withdrawal if the requested withdrawal is less than $500.
We will generally pay the withdrawal amount, less any required tax withholding,
within seven days after we receive a properly completed withdrawal request. We
will deduct applicable charges, and apply a market-value adjustment, if any,
from the assets in your contract.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL
YOU MAKE. FOR A MORE COMPLETE EXPLANATION, SEE SECTION 8 OF THIS PROSPECTUS AND
THE TAX DISCUSSION IN THE STATEMENT OF ADDITIONAL INFORMATION.
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. Market-value adjustments may apply. Withdrawal
charges may be deducted if the withdrawals in any contract year are more than
the charge-free amount. The minimum automated withdrawal amount you can make is
$250.
INCOME TAXES AND A 10% PENALTY TAX ON EARNINGS MAY APPLY TO AUTOMATED
WITHDRAWALS AS WELL AS ANY OTHER WITHDRAWALS MADE FROM YOUR CONTRACT.
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SUSPENSION OF PAYMENTS OR TRANSFERS
We may be required to suspend or postpone payments made in connection with
withdrawals or transfers for any period when:
o The New York Stock Exchange is closed (other than customary weekend and
holiday closings);
o Trading on the New York Stock Exchange is restricted;
o An emergency exists during which sales of shares of the mutual funds are
not reasonable or We cannot reasonably value the accumulation units; or
o The Securities and Exchange Commission, by order, so permits suspension or
postponement of payments for the protection of owners.
We expect to pay the amount of any withdrawal or transfer made from the
interest-rate options promptly upon request.
8. WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE DISCOVERY SELECT
CONTRACT?
The tax considerations associated with the Discovery Select contact 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
plan. We discuss the tax considerations for these categories of contracts below.
The discussion is general in nature and describes only federal income tax law
(not state or other tax laws). It is based on current law and interpretations,
which may change. It is not intended as tax advice. A qualified tax adviser
should be consulted for complete information and advice.
We believe the contract is an annuity contract for tax purposes. Accordingly, as
a general rule, you should not pay any tax until you receive money under the
contract.
CONTRACTS OWNED BY INDIVIDUALS (NOT ASSOCIATED WITH TAX FAVORED RETIREMENT
PLANS)
TAXES PAYABLE BY YOU
Generally, annuity contracts issued by the same company (and affiliates) to you
during the same calendar year must be treated as one annuity contract for
purposes of determining the amount subject to tax under the rules described
below.
TAXES ON WITHDRAWALS AND SURRENDER
If you make a withdrawal from your contract or surrender it before annuity
payments begin, the amount you receive will be taxed as ordinary income, rather
than as return of purchase payments, until all gain has been withdrawn.
If you assign all or part of your contract as collateral for a loan, the part
assigned will be treated as a withdrawal. Also, if you elect the interest
payment option, you 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 incident to divorce.
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
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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
percent penalty tax. Amounts are not subject to this penalty tax if:
o the amount is paid on or after you reach age 59-1/2 or die;
o the amount received is attributable to your becoming disabled;
o the amount paid or received is in the form of level annuity payments not
less frequently than annually under a lifetime annuity; and
o the amount received is paid under an immediate annuity contract (in which
annuity payments begin within one year of purchase).
If you modify the lifetime annuity payment stream (other than as a result of
death or disability) before you reach age 59-1/2 (or before the end of the five
year period beginning with the first payment and ending after you reach age
59-1/2), your tax for the year of modification will be increased by the penalty
tax that would have been imposed without the exception, plus interest for the
deferral.
TAXES PAYABLE BY BENEFICIARIES
Generally, the same tax rules apply to amounts received by your beneficiary as
those set forth above with respect to you. The election of an annuity payment
option instead of a lump sum death benefit may defer taxes. Certain minimum
distribution requirements apply upon your death, as discussed further below.
WITHHOLDING OF TAX FROM DISTRIBUTIONS
Taxable amounts distributed from your annuity contracts are subject to tax
withholding. You may generally elect not to have tax withheld from your
payments. These elections must be made on the appropriate Pruco Life of New
Jersey forms.
ANNUITY QUALIFICATION
DIVERSIFICATION AND INVESTOR CONTROL
In order to qualify for the tax rules applicable to annuity contracts described
above, the contract must be an annuity contract for tax purposes. This means
that the assets underlying the annuity contract must be diversified, according
to certain rules. It also means that Pruco Life of New Jersey, and not you as
the contractowner, 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 on or before you start taking annuity payments under the
contract or after you start taking annuity payments under the contract.
If you die on or after the annuity date, the remaining portion of the interest
in the contract must be distributed at least as rapidly as under the method of
distribution being used as of the date of death.
If you die before the annuity date, the entire interest in the contract must be
distributed within 5 years after the date of death. However, if an annuity
payment option is selected by your designated beneficiary and if annuity
payments begin within 1 year of your death, the value of the contract may be
distributed over the beneficiary's life or a period not exceeding the
beneficiary's life expectancy. Your designated beneficiary is the person to whom
ownership of the contract passes by reason of death, and must be a natural
person.
If any portion of the contract is payable to (or for the benefit of) your
surviving spouse, such portion of the contract may be continued with your spouse
as the owner.
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CHANGES IN THE CONTRACT
We reserve the right to make any changes we deem necessary to assure that the
contract qualifies as an annuity contract for tax purposes. Any such changes
will apply to all contractowners and you will be given notice to the extent
feasible under the circumstances.
ADDITIONAL INFORMATION
You should refer to the Statement of Additional Information if:
o The contract is held by a corporation or other entity instead of by an
individual or as agent for an individual.
o Your contract was issued in exchange for a contract containing purchase
payments made before August 14, 1982.
o You are a nonresident alien.
o You transfer your contract to, or designate, a beneficiary who is either
37-1/2 years younger than you or a grandchild.
o You wish additional information on withholding taxes.
CONTRACTS HELD BY TAX FAVORED PLANS
Currently, the contract may be purchased for use in connection with individual
retirement accounts and annuities ("IRAs") which are subject to Sections 408(a),
408(b) and 408A of the Code. At some future time we may allow the contract to be
purchased in connection with other retirement arrangements which are also
entitled to favorable federal income tax treatment ("tax favored plans"). These
other tax favored plans include:
o Simplified employee pension plans ("SEPs") under Section 408(k) of the
Code;
o Saving incentive match plans for employees-IRAs ("SIMPLE-IRAs") under
Section 408(p) of the Code; and
o Tax-deferred annuities ("TDAs") under Section 403(b) of the Code.
This description assumes that (i) we will be offering this to both IRA and
non-IRA tax favored plans, and (ii) you have satisfied the general requirements
for eligibility for these products.
Types of Tax Favored Plans
IRAS
If you buy a contract for use as an IRA, we will provide you a copy of the
prospectus, contract and a brochure containing information about eligibility,
contribution limits, tax particulars and other IRA information. In addition to
this information (some of which is summarized below), the IRS requires that you
have a "free look" after making an initial contribution to the contract. During
this time, you can cancel the contract by notifying us in writing, and we will
refund all of the purchase payments under the contract (or, if greater, the
amount credited under the contract, calculated as of the valuation period that
we receive this cancellation notice).
Contributions Limits/Rollovers: Because of the way the contract is designed, you
may only purchase a contract for an IRA in connection with a "rollover" of
amounts from a qualified retirement plan. You must make a minimum initial
payment of $10,000 to purchase a contract. This minimum is greater than the
maximum amount of any annual contribution you may make to an IRA (which is
generally $2,000/year). The "rollover" rules under the Code are fairly
technical; however, an individual (or his or her surviving spouse) may generally
"roll over" certain distributions from tax favored retirement plans (either
directly or within 60 days from the date of these distributions) if he or she
meets the requirements for distribution. Once you buy the contract, you can make
regular IRA contributions under the contract (to the extent permitted by law).
However, if you make such regular IRA contributions, you should note that you
will not be able to treat the contract as a "conduit
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DISCOVERY SELECT(R) VARIABLE ANNUITY
IRA," which means that you will not be able subsequently to "roll over" the
contract funds into another Section 401(a) plan or TDA (although you may be able
to transfer the funds to another IRA).
Required Provisions: Contracts that are IRAs (or endorsements that are part of
the contract) must contain certain provisions:
o You, as owner of the contract, must be the "annuitant" under the contract
(except in certain cases involving the division of property under a decree
of divorce);
o Your rights as owner are non-forfeitable;
o You cannot sell, assign or pledge the contract, other than to us;
o The annual premium you pay cannot be greater than $2,000 (which does not
include any rollover amounts);
o The date on which annuity payments must begin cannot be later than the
April 1st of the calendar year after the calendar year you turn age 70-1/2;
and
o Death and annuity payments must meet "minimum distribution requirements"
(described below).
Usually, the full amount of any distribution from an IRA (including a
distribution from this contract) which is not a rollover is taxable. As taxable
income, these distributions are subject to the general tax withholding rules
described earlier. In addition to this normal tax liability, you may also be
liable for the following, depending on your actions:
o A 10% "early distribution penalty" (described below);
o Liability for "prohibited transactions" if you, for example, borrow against
the value of an IRA; or
o Failure to take a minimum distribution (also generally described below).
SEPS
SEPs are a variation on a standard IRA, and contracts issued to a SEP must
satisfy the same general requirements described under IRAs (above). There are,
however, some differences:
o If you participate in a SEP, you generally do not include into income any
employer contributions made to the SEP on your behalf up to the lesser of
(a) $30,000 or (b) 15% of the employee's earned income (not including the
employer contribution amount as "earned income" for these purposes;
o SEPs must satisfy certain participation and nondiscrimination requirements
not generally applicable to IRAs; and
o Some SEPs for small employers permit salary deferrals (up to $10,000 in
1999) with the employer making these contributions to the SEP. However, no
new "salary reduction" or "SAR-SEPs" can be established after 1996.
You will also be provided the same information, and have the same "free look"
period, as you would have if you were purchasing the contract for a standard
IRA.
SIMPLE-IRAS
SIMPLE-IRAs are another variation on the standard IRA, available to small
employers (under 100 employees, on a "controlled group" basis) that do not offer
other tax favored plans. SIMPLE-IRAs are also subject to the same basic IRA
requirements with the following exceptions:
o Participants in a SIMPLE-IRA may contribute up to $6,000 (in 1999,
indexed), as opposed to the usual $2,000 limit, and employer contributions
may also be provided as either a match (up to 3% of your compensation; and
o SIMPLE-IRAs are not subject to the SEP nondiscrimination rules.
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ROTH IRAS
Congress amended the Code in 1997 to add a new Section 408A, creating the "Roth
IRA" as a new type of individual retirement plan. Like standard IRAs, income
within a Roth IRA accumulates tax-free, and contributions are subject to
specific limits. Roth IRAs have, however, the following differences:
o Contributions to a Roth IRA cannot be deducted from your gross income;
o "Qualified distributions" (generally, held for 5 years and payable on
account of death, disability, attainment of age 59-1/2, or first
time-homebuyer) from Roth IRAs are excludable from your gross income; and
o If eligible, you may make contributions to a Roth IRA after attaining age
70-1/2, and distributions are not required to begin upon attaining such age
or at any time thereafter.
Because the contract's minimum initial payment of $10,000 is greater than the
maximum annual contribution permitted to be made to a Roth IRA (generally,
$2,000 less any contributions to a traditional IRA), you may purchase a contract
as a Roth IRA only in connection with a "rollover" or "conversion" of the
proceeds of another traditional IRA, conduit IRA, SEP, SIMPLE-IRA, or Roth IRA.
The Code permits persons who meet certain income limitations (generally,
adjusted gross income under $100,000), and who receive certain qualifying
distributions from such non-Roth IRAs, to directly rollover or make, within 60
days, a "rollover" of all or any part of the amount of such distribution to a
Roth IRA which they establish. This conversion triggers current taxation (but is
not subject to a 10% early distribution penalty). Once the contract has been
purchased, regular Roth IRA contributions will be accepted to the extent
permitted by law.
TDAS
You may own a TDA generally if you are either an employer or employee of a
tax-exempt organization (as defined under Code Section 501(c)(3)) or a public
educational organization, you may make contributions to a TDA so long as the
employee's rights to the annuity are nonforfeitable. Contributions to a TDA, and
any earnings, are not taxable until distribution. You may also make
contributions to a TDA under a salary reduction agreement, generally up to a
maximum of $10,000 (1999, indexed). Further, you may roll over TDA amounts to
another TDA or an IRA.
A contract may only qualify as a TDA if distributions (other than
"grandfathered" amounts held as of December 31, 1988) may be made only on
account of:
o Your attainment of age 59-1/2;
o Your severance of employment;
o Your death;
o Your total and permanent disability; OR
o Hardship (under limited circumstances, and only related to salary deferrals
and any earnings attributable to these amounts).
In any event, you must begin receiving distributions from your TDA by April 1st
of the calendar year after the calendar year you turn age 70-1/2 or retire,
whichever is later.
These distribution limits do not apply either to transfers or exchanges of
investments under the contract, or to any "direct transfer" of your interest in
the contract to another TDA or to a mutual fund "custodial account" described
under Code Section 403(b)(7).
Employer contributions to TDAs are subject to the same general contribution,
nondiscrimination, and minimum participation rules applicable to "qualified"
retirement plans.
Additional Tax Features for Tax Favored Plans
MINIMUM DISTRIBUTION OPTION
If you hold the contract under an IRA or other tax favored plan, you can satisfy
the IRS minimum
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DISCOVERY SELECT(R) VARIABLE ANNUITY
distribution requirements described above (generally, distribution after age
70-1/2) under the contract without either annuitizing or "cash surrendering" a
portion of the contract. You, as owner of the contract, can select either a
"calculation" or "recalculation" method to determine the minimum distribution.
We will send you a check for the minimum distribution amount, less any other
partial withdrawals that you made during the year. More information on the
mechanics of this calculation is available on request.
PENALTY FOR EARLY WITHDRAWALS
You may owe a 10% penalty tax to the taxable part of distributions received from
an IRA, SEP, SIMPLE-IRA (which may increase to 25%), Roth IRA, TDA or qualified
retirement plan before you attain age 59-1/2. There are only limited exceptions
to this tax, and you should consult your tax adviser for further details.
WITHHOLDING
The Code requires a mandatory 20% federal income tax withholding for certain
distributions from a TDA or qualified retirement plan, unless the distribution
is an eligible rollover contribution that is "directly" rolled into another
qualified plan, IRA (including the IRA variations described above) or TDA. For
all other distributions, unless you elect otherwise, we will withhold federal
income tax from the taxable portion of such distribution at an appropriate
percentage. The rate of withholding on annuity payments where no mandatory
withholding is required is determined on the basis of the withholding
certificate that you file with us. If you do not file a certificate, we will
automatically withhold federal taxes on the following basis:
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 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 other costs related to the
contract, as well as any commissions paid to any agent selling the contract.
Information about any applicable fees, charges, discounts, penalties or
adjustments may be found under "What Are the Expenses Associated with the
Discovery Select Contract" starting on page 13. Information about sales
representatives and commissions may be found under "Other Information and "Sale
of the Contract and Distributor".
In addition, other relevant information required by the exemptions is contained
in the contract and accompanying documentation. Please consult your tax advisor
if you have any additional questions.
9. OTHER INFORMATION
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Pruco Life Insurance Company of New Jersey is a stock life insurance company
organized in 1982 under the laws of the State of New Jersey. Pruco
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DISCOVERY SELECT(R) VARIABLE ANNUITY
Life of New Jersey is licensed to sell life insurance and annuities in the
states of New Jersey and New York and therefore is subject to the insurance laws
and regulations of those states where it is licensed to do business. Pruco Life
of New Jersey is a wholly-owned subsidiary of Pruco Life Insurance Company,
which is a wholly-owned subsidiary of The Prudential Life 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 though a process known as "demutualization." On February 10, 1998,
the company's Board of Directors authorized management to take the preliminary
steps necessary to allow the company to demutalize. On July 1, 1998, legislation
was enacted in New Jersey that would permit this conversion to occur and that
specified the process for conversion. Demutualization is a complex process
involving development of a plan of reorganization, adoption of a plan by the
company's Board of Directors, a public hearing, voting by qualified
policyholders and regulatory approval. This process could take two or more years
to complete. Prudential's management and Board of Directors have not yet
determined to demutalize and it is possible that, after careful review,
Prudential could decide not to go public.
The plan of reorganization, which has not been developed and approved, would
provide the criteria for determining eligibility and the methodology for
allocating shares or other consideration to those who would be eligible.
Generally, the amount of shares or other consideration eligible customers would
receive would be based on a number of factors, including the types, amounts and
issue years of their policies. As a general rule, owners of Prudential-issued
insurance policies and annuity contracts would be eligible, while mutual fund
customers and customers of the company's subsidiaries, such as the Pruco Life
insurance companies, would not be. It has not yet been determined whether any
exceptions to that general rule will be made with respect to policyholders and
contractowners of Prudential's subsidiaries.
THE SEPARATE ACCOUNT
We have established a separate account, the Pruco Life of New Jersey Flexible
Premium Variable Annuity Account (Separate Account), to hold the assets that are
associated with the contracts. The Separate Account was established under New
Jersey law on May 20, 1996, 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 of New Jersey 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 of New Jersey, including its
audited financial statements, is provided in Part III of this prospectus.
EXPERTS
The financial statements of Pruco Life of New Jersey as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998
included in this Prospectus 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.
SALE OF THE CONTRACT AND DISTRIBUTOR
Prudential Investment Management Services LLC ("PIMS"), 751 Broad Street,
Newark, New Jersey 07102-3777, acts as the distributor of the contracts. PIMS is
a wholly-owned subsidiary of Prudential and is a limited liability corporation
organized under Delaware law in 1996. It is a registered broker-dealer under the
Securities Exchange Act of 1934 and a member of the National Association of
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Securities Dealers, Inc. Commissions for the sales of contracts are paid to
Prudential representatives and to other independent broker-dealers who sell the
contracts. Registered representatives of independent broker-dealers may be paid
on a different basis than those affiliated with PIMS. The maximum commission
that will be paid to the broker-dealer to cover both the individual
representative's commission and other distribution expenses will not be more
than 6.0% of the purchase payment.
ASSIGNMENT
You can assign the contract at any time during your lifetime. We will not be
bound by the assignment until we receive written notice. We will not be liable
for any payment or other action we take in accordance with the contract if that
action occurs before we receive notice of the assignment. AN ASSIGNMENT, LIKE
ANY OTHER CHANGE IN OWNERSHIP, MAY TRIGGER A TAXABLE EVENT.
If the contract is issued under a qualified plan, there may be limitations on
your ability to assign the contract. For further information please speak to
your financial professional.
FINANCIAL STATEMENTS
The financial statements of the Separate Account associated with Discovery
Select are included in the Statement of Additional Information.
YEAR 2000 COMPLIANCE
The services provided to you as a purchaser of Discovery Select depend on the
smooth functioning of numerous computer systems. Many computer systems in use
today are programmed to recognize only the last two digits of a date as the
year. As a result, any systems using this kind of programming can not
distinguish a date using "00" and may treat it as "1900" instead of "2000." This
problem may impact computer systems that store business information, but it
could also affect other equipment used in our business like telephone, fax
machines and elevators. If this problem is not corrected, the "Year 2000" issue
could affect the accuracy and integrity of business records. Prudential's
regular business operations could be interrupted as well as those of other
companies that deal with us.
In addition, the operations of the mutual funds associated with Discovery Select
could experience problems resulting from the Year 2000 issue. Please refer to
the respective mutual fund's prospectus for information regarding their approach
to Year 2000 concerns. The following describes Prudential's effort to address
Year 2000 concerns.
To address this potential problem Prudential as the parent company of Pruco Life
of New Jersey organized its Year 2000 efforts around the following three areas:
o BUSINESS SYSTEMS - Computer programs directly used to support our business;
o INFRASTRUCTURE - Computers and other business equipment like telephones and
fax machines; and
o BUSINESS PARTNERS - Year 2000 readiness of essential business partners.
BUSINESS SYSTEMS. The business systems component includes a wide range of
computer programs that directly support Prudential's business operations
including systems for: insurance product processing, securities trading,
personnel record keeping and general accounting systems. All business systems
were analyzed to determine whether each computer program with a Year 2000
problem should be retired, replaced or renovated. The majority of this work has
been completed. A few remaining programs are currently being tested and
completion of this process is expected by June 1999.
INFRASTRUCTURE. As with business applications, we established a specific
methodology and process for addressing infrastructure issues. The infrastructure
effort includes mainframe computer system hardware and operating system
software, mid-range systems and servers, telecommunications equipment
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and systems, buildings and facilities systems, personal computers, and vendor
hardware and software. Other than desktop systems, substantially all other
infrastructure systems have been tested. Presently, a small number of midrange
computers, and building and facility systems are still in the testing phase. We
expect to have the infrastructure implementation process completed by June 1999.
BUSINESS PARTNERS. Prudential recognizes the importance of determining the Year
2000 readiness of external business relationships especially those that involve
electronic data transfer product and services, and products that impact our
essential business processes. Prudential first classified each business partner
as "highly critical" or "less critical" to our business, and then began to
develop risk assessment and contingency plans to address the potential that a
business partner could experience a Year 2000 failure. All highly critical
business partner relationships have been assessed and contingency planning is
complete. Risk assessment and contingency planning continues for less critical
business partners, and the target completion date for these relationships is
June 1999.
Prudential believes that the Business Application, Infrastructure and Business
Partners components of the Year 2000 project are substantially on schedule. A
small number of the projects may not meet their targeted completion date.
However, Prudential expects that these projects will be completed by September,
1999. If there are any delays, they should not have a significant impact on the
timing of the project as a whole.
THE COST OF YEAR 2000 READINESS
Prudential is funding the Year 2000 program from internal operating budgets, and
estimates that its total costs to address the Year 2000 issue will total
approximately $220 million. Because these expenses were part of the operating
budget, they did not impact the management of Discovery Select. During the
course of the Year 2000 program, some optional computer projects have been
delayed, but these delays have not had any material effect on Discovery Select.
YEAR 2000 RISKS AND CONTINGENCY PLANNING
Prudential believes that it is well positioned to lessen the impact of the Year
2000 problem. However, given the nature of this issue, we can not be 100%
certain that we are completely prepared, particularly because we can not 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
material adverse effect on the results of Prudential's operations, liquidity or
financial condition. In the worst case, it is possible that a Year 2000
technology failure, whether internal or external, could have a material impact
on Prudential's results of operations, liquidity, or financial position. If
Prudential is unable to address the Year 2000 problem, we may have difficulty in
responding to your incoming phone calls, calculating your unit values or
processing withdrawals and purchase payments. It is also possible that the
mutual funds associated with Discovery Select will be unable to value their
securities, in turn creating difficulties in purchasing or selling shares of the
respective mutual fund and calculating corresponding unit asset values. The
objective of Prudential's Year 2000 program has been to reduce these risks as
much as possible.
Most of the operations of Discovery Select involve such a large number of
individual transactions that they can only be handled with the help of
computers. As a result, our current contingency plans include responses to the
failure of specific business programs or infrastructure components. However, our
contingency responses are now being reviewed and we expect to finalize them by
June, 1999 to ensure that they are workable under the special conditions of a
Year 2000 failure. Prudential believes that with the completion of its Year 2000
program as scheduled, the possibility of significant interruptions of normal
operations will be reduced.
24
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
Contents:
Company
Experts
Litigation
Legal Opinions
Principal Underwriter
Determination of Accumulation Unit Values
Performance Information
Comparative Performance Information
Further Information about the Death Benefit
Financial Information
25
<PAGE>
APPENDIX A
DISCOVERY SELECT(R) VARIABLE ANNUITY
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUES
THE DISCOVERY SELECT VARIABLE ANNUITY SUBACCOUNTS OF THE
PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
Accumulation Accumulation Number of
Unit Value at Unit Value at Accumulation
Beginning of End of Period Units
Period Outstanding at
the End of
Period
<S> <C> <C> <C> <C>
PRUDENTIAL SERIES FUND
Diversified Bond Portfolio
1/24/97* to 12/31/97 $1.05924 $1.13525 4,451,359
1/1/98 to 12/31/98 $1.13525 $1.19977 28,376,932
Equity Income Portfolio
1/24/97* to 12/31/97 $1.24933 $1.66167 5,978,495
1/1/98 to 12/31/98 $1.66167 $1.59960 25,310,440
Equity Portfolio
1/24/97* to 12/31/97 $1.23280 $1.48518 9,062,852
1/1/98 to 12/31/98 $1.48518 $1.60144 27,877,412
Global Portfolio
1/24/97* to 12/31/97 $1.20025 $1.26079 1,544,582
1/1/98 to 12/31/98 $1.26079 $1.55516 3,115,243
High Yield Portfolio
1/24/97* to 12/31/97 $1.12690 $1.25972 5,397,207
1/1/98 to 12/31/98 $1.25972 $1.21296 23,777,679
Money Market Portfolio
1/24/97* to 12/31/97 $1.04778 $1.08688 5,366,453
1/1/98 to 12/31/98 $1.08688 $1.12985 16,317,010
Prudential Jennison Portfolio
1/24/97* to 12/31/97 $1.19836 $1.48006 4,356,135
1/1/98 to 12/31/98 $1.48006 $2.00651 19,579,080
Small Capitalization Stock Portfolio
9/1/98* to 12/31/98 $1.02621 $1.25353 514,051
Stock Index Portfolio
1/24/97* to 12/31/97 $1.18151 $1.48876 8,543,943
1/1/98 to 12/31/98 $1.48876 $1.88540 25,485,050
AIM VARIABLE INSURANCE FUND, INC.
AIM VI Growth and Income Fund
1/24/97* to 12/31/97 $1.08005 $1.28644 2,414,429
1/1/98 to 12/31/98 $1.28644 $1.61976 5,636,579
AIM VI Value Fund
1/24/97* to 12/31/97 $1.06636 $1.27997 2,687,877
1/1/98 to 12/31/98 $1.27997 $1.67125 6,623,349
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century VP Value Fund
9/1/98* to 12/31/98 $1.02098 $1.17305 122,871
* Commencement of Business
</TABLE>
<PAGE>
APPENDIX A (Continued)
DISCOVERY SELECT(R) VARIABLE ANNUITY
<TABLE>
<CAPTION>
Accumulation Accumulation Number of
Unit Value at Unit Value at Accumulation
Beginning of End of Period Units
Period Outstanding at
the End of
Period
<S> <C> <C> <C> <C>
JANUS ASPEN SERIES
Growth Portfolio
1/24/97* to 12/31/97 $1.04112 $1.22056 2,360,624
1/1/98 to 12/31/98 $1.22056 $1.63278 6,145,905
International Growth Portfolio
1/24/97* to 12/31/97 $1.07728 $1.23121 3,626,939
1/1/98 to 12/31/98 $1.23121 $1.42337 7,490,614
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series
1/24/97* to 12/31/97 $0.99843 $1.15186 2,636,905
1/1/98 to 12/31/98 $1.15186 $1.52386 8,147,991
Research Series
1/24/97* to 12/31/97 $1.05478 $1.21695 2,159,262
1/1/98 to 12/31/98 $1.21695 $1.48048 4,582,935
OCC ACCUMULATION TRUST
Managed Portfolio
1/24/97* to 12/31/97 $1.08859 $1.26668 7,302,011
1/1/98 to 12/31/98 $1.26668 $1.34022 21,770,163
Small Cap Portfolio
1/24/97* to 12/31/97 $1.05425 $1.26710 2,630,491
1/1/98 to 12/31/98 $1.26710 $1.13668 6,811,750
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Small Cap Investments Fund - Class 2
9/1/98* to 12/31/98 $1.00945 $1.24477 253,350
T. ROWE PRICE
Equity Series - Equity Income Portfolio
1/24/97* to 12/31/97 $1.07051 $1.33212 3,846,266
1/1/98 to 12/31/98 $1.33212 $1.43277 9,576,908
International Series - International Stock Portfolio
1/24/97* to 12/31/97 $1.02164 $1.05690 1,286,791
1/1/98 to 12/31/98 $1.05690 $1.20747 2,623,440
WARBURG PINCUS TRUST
Post-Venture Capital Portfolio
1/24/97* to 12/31/97 $0.98396 $1.07018 624,929
1/1/98 to 12/31/98 $1.07018 $1.12410 1,555,894
* Commencement of Business
</TABLE>
26
<PAGE>
MARKET-VALUE ADJUSTMENT FORMULA
MARKET-VALUE ADJUSTMENT FORMULA
The Market-Value Adjustment, which is applied to withdrawals and transfers made
at any time other than the 30-day period following the end of an interest rate
period, involves three amounts:
1. The number of whole months remaining in the existing interest rate
period.
2. The guaranteed interest rate.
3. The interest rate that Pruco Life of New Jersey declares for a
duration of one year longer than the number of whole years remaining
on the existing cell being withdrawn from.
Stated as a formula, the Market Value Factor is equal to:
(M/12) x (R-C), not to exceed +0.40 or be less than -0.40;
Where,
M = the number of whole months (not to be less than one) remaining in the
interest rate period.
R = the contract's guaranteed interest rate expressed as a decimal. Thus
6.2% is converted to 0.062.
C = the interest rate, expressed as a decimal, that Pruco Life of New
Jersey declares for a duration equal to the number of whole years remaining
in the present interest rate period, plus 1 year as of the date the request
for a withdrawal or transfer is received.
The Market-Value Adjustment is then equal to the Market Value Factor
multiplied by the amount subject to a Market-Value Adjustment.
The steps below explain how a Market-Value Adjustment is calculated.
STEP 1: Divide the number of whole months left in the existing interest
rate period (not to be less than one) by 12.
STEP 2: Divide the interest rate Pruco Life of New Jersey declares on the
date the request for withdrawal or transfer is received for a duration of
years equal to the whole number of years determined in Step 1, plus 1
additional year. Subtract this interest rate from the guaranteed interest
rate. The result could be negative.
STEP 3: Multiply the results of Step 1 and Step 2. Again, the result could
be negative. If the result is less than -0.4, use the value -0.4. If the
result is in between -0.4 and 0.4, use the actual value. If the result is
more than 0.4, use the value 0.4.
STEP 4: Multiply the result of Step 3 (which is the Market Value Factor) by
the value of the amount subject to a Market-Value Adjustment. The result is
the Market-Value Adjustment.
STEP 5: The result of Step 4 is added to the interest cell. If the
Market-Value Adjustment is positive, the interest cell will go up in value.
If the Market-Value Adjustment is negative, the interest cell will go down
in value.
27
<PAGE>
Depending upon when the withdrawal request is made, a withdrawal charge may
apply.
The following example will illustrate the application of a Market-Value
Adjustment and the determination of the withdrawal charge. Suppose a
contractowner made two invested purchase payments, the first in the amount of
$10,000 on December 1, 1995, all of which was allocated to the Equity
Subaccount, and the second in the amount of $5,000 on October 1, 1997, all of
which was allocated to the MVA Option with a guaranteed interest rate of 8%
(0.08) for 7 years. A request for withdrawal of $8,500 is made on February 1,
2000 (the contractowner does not provide any withdrawal instructions). On that
date the amount in the Equity Subaccount is equal to $12,000 and the amount in
the interest cell with a maturity date of September 30, 2004 is $5,985.23, so
that the contract fund on that date is equal to $17,985.23.
On February 1, 2000, the interest rates declared by Pruco Life of New
Jersey for the duration of 5 years (4 whole years remaining until September 30,
2004, plus 1 year) is 11%.
The following computations would be made:
1. Calculate the contract fund value as of the effective date of the
transaction. This would be $17,985.23.
2. Calculate the charge-free amount (the amount of the withdrawal that is not
subject to a withdrawal charge).
DATE PAYMENT FREE
---- ------- ----
12/1/95 $10,000 $1,000
12/1/96 $2,000
10/1/97 $5,000 $2,500
12/1/97 $4,000
12/1/98 $5,500
12/1/99 $7,000
The charge-free amount in the fifth contract year is 10% of $15,000 (total
purchase payments) plus $5,500 (the charge-free amount available in the
fourth contract year) for a total of $7,000.
3. Since the withdrawal request is in the fifth contract year, a 3% withdrawal
charge rate applies to any portion of the withdrawal which is not
charge-free.
$8,500.00 requested withdrawal amount
$7,000.00 charge-free
$1,500.00 additional amount needed to complete withdrawal
The contract provides that the contract fund will be reduced by an amount
which, when reduced by the withdrawal charge, will equal the amount
requested. Therefore, in order to produce the amount needed to complete the
withdrawal request ($1,500), we must "gross-up" that amount, before
applying the withdrawal charge rate. This is done by dividing by 1 minus
the withdrawal charge rate.
$1,500.00 / (1-.03) =
$1,500.00 / 0.97 = $1,546.39 grossed-up amount
28
<PAGE>
Please note that a 3% withdrawal charge on this grossed-up amount reduces
it to $1,500, the balance needed to complete the request.
$1,546.39 grossed-up amount
x .03 withdrawal charge rate
$ 46.39 withdrawal charge
4. The Market Value Factor is determined as described in steps 1 through 5,
above. In this case, it is equal to 0.08 (8% is the guaranteed rate in the
existing cell) minus 0.11 (11% is the interest rate that would be offered
for an interest cell with a duration of the remaining whole years plus 1),
which is -0.03, multiplied by 4.58333 (55 months remaining until September
30, 2004, divided by 12) or -0.13750. Thus, there will be a negative
Market-Value Adjustment of 14% of the amount in the interest cell that is
subject to the adjustment.
-0.13750 x $5,985.23 = -822.97 negative MVA
$5,985.23 unadjusted value
$5,162.26 adjusted value
$12,000.00 Equity value
$17,162.26 adjusted contract fund
5. The total amount to be withdrawn, $8,546.39, (sum of the surrender charge,
$46.39, and the requested withdrawal amount of $8,500) is apportioned over
all accounts making up the contract fund following the Market-Value
Adjustments, if any, associated with the MVA option.
Equity ($12,000/$17,162.26) x $8,546.39 = $5,975.71
7-Yr ($5,162.26/$17,162.26) x $8,546.39 = $2,570.68
MVA
$8,546.39
6. The adjusted value of the interest cell, $5,162.26, reduced by the
withdrawal of $2,570.68 leaves $2,591.58. This amount must be "unadjusted"
by dividing it by 0.86250 (1 plus the Market-Value Adjustment of -0.13750)
to determine the amount remaining in the interest cell to which the
guaranteed interest rate of 8% will continue to be credited until September
30, 2004 or a subsequent withdrawal. That amount is $3,004.73.
29
<PAGE>
<TABLE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
FURTHER INFORMATION ABOUT PRUCO LIFE OF NEW JERSEY
This section provides further information about Pruco Life of New Jersey. Presented first is selected financial data
followed by a discussiion of Pruco Life of New Jersey's overall business status. We have also provided a listing of
Pruco Life of New Jersey's officers and directors as well as a complete set of audited financial statements.
SELECTED FINANCIAL DATA
<CAPTION>
Pruco Life Insurance Company of New Jersey
For the Years Ended December 31,
--------------------------------
(In Thousands)
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues
Premiums and other revenue............................... $ 63,347 $ 62,773 $ 63,963 $ 64,457 $ 60,091
Realized investment gains, net........................... 8,446 1,707 1,221 3,592 (8,310)
Net investment income.................................... 47,032 46,324 43,784 43,530 42,357
------------- ------------- ------------- ------------- -------------
Total revenues 118,825 110,804 108,968 111,579 94,138
Benefits and expenses
Current and future benefits and claims................... 47,327 53,371 48,722 47,695 44,939
Other expenses........................................... 22,105 27,236 12,848 21,881 23,716
------------- ------------- ------------- ------------- -------------
Total benefits and expenses............................... 69,432 80,607 61,570 69,576 68,655
------------- ------------- ------------- ------------- -------------
Income before income tax provision........................ 49,393 30,197 47,398 42,003 25,483
Income tax provision...................................... 17,570 10,974 15,611 15,002 9,483
------------- ------------- ------------- ------------- -------------
Net income................................................ $ 31,823 $ 19,223 $ 31,787 $ 27,001 $ 16,000
============= ============= ============= ============= =============
Total assets at period end................................ $ 2,411,157 $ 2,002,432 $ 1,695,616 $ 1,558,282 $ 1,424,886
============= ============= ============= ============= =============
Separate Account liabilities.............................. $ 1,450,986 $ 1,108,994 $ 880,065 $ 787,566 $ 639,928
============= ============= ============= ============= =============
</TABLE>
A-1
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION
AND RESULTS OF OPERATIONS.
The following analysis should be read in conjunction with the Notes to Financial
Statements.
The Company markets individual life insurance, variable life insurance, variable
annuities, and fixed annuities through Prudential's sales force in New Jersey
and New York.
The Company markets its products in the life insurance and annuity sectors of
the insurance industry. These markets are subject to regulatory oversight with
particular emphasis placed on company solvency and sales practices. These
markets are also subject to increasing competitive pressures 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.
The Company had $2.4 billion in assets at December 31, 1998 compared to $2.0
billion at December 31, 1997, of which $1.5 billion and $1.1 billion were held
in Separate Accounts in 1998 and 1997, respectively under variable life
insurance policies and variable annuity contracts. The remaining assets
consisted primarily of general account investments in bonds, policy loans, and
short-term investments.
1. RESULTS OF OPERATIONS
Net income for the year ended December 31, 1998 was $31.8 million, an increase
of $12.6 million or 66% from $19.2 million earned in the year ended December 31,
1997. Net income for the year ended December 31, 1996 was $31.8 million.
(a) 1998 versus 1997
Total insurance revenues, consisting of premiums and policy charges and fee
income increased $.1 million for the year ended December 31, 1998 to $57.6
million from $57.5 million for the year ended December 31, 1997. This increase
in insurance revenues is primarily attributable to an increase in sales of
Discovery Select, a variable annuity retirement type product. This has proven to
be a successful product of the Company's portfolio since its introduction in
January 1997. However, these gains were offset by a decline in the number of
traditional life insurance policies in force in 1998 compared to 1997.
The Company's net investment income increased $.7 million for the year ended
December 31, 1998 to $47.0 million from $46.3 million for the year ended
December 31, 1997. Realized investment gains, net, increased $6.7 million for
the year ended December 31, 1998 to $8.4 million from $1.7 million for the year
ended December 31, 1997. Please refer to the section below titled "Investment
Portfolio and Investment Strategies" for a discussion of investment income and
net unrealized investment gains by asset type.
Other income increased $.5 million for the year ended December 31, 1998 to $5.8
million from $5.3 million for the year ended December 31, 1997. The portfolio of
mutual fund investments related to the Company's Separate Account products are
known as The Prudential Series Fund. The Company receives an allocated portion
of investment management fees that Prudential earns from the Prudential Series
Fund and records these fees in "Other income."
Policyholders' benefits decreased $5.7 million for the year ended December 31,
1998 to $28.3 million from $34.0 million for the year ended December 31, 1997.
This decrease is attributable to a favorable change in reserves due to better
than expected mortality experiences.
Interest credited to policyholders' account balances decreased by $.4 million
for the year ended December 31, 1998 to $19.0 million from $19.4 million for the
year ended December 31, 1997. This decrease is primarily
A-2
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
attributable to a decrease in interest crediting rates, partially offset by
increased interest credited to policy loans as well as increased fund values due
to new sales of Separate Account products.
Other operating costs and expenses decreased $5.1 million for the year ended
December 31, 1998 to $22.1 million compared to $27.2 million for the year ended
December 31, 1997. This decrease is primarily attributable to refinements in the
DAC amortization model leading to comparably lower 1998 expenses. Offsetting
this decrease was an increase in sales volume of Discovery Select which resulted
in a corresponding increase in expenses. In addition to the increased sales
volume, the Parent company's expense allocation methodology changed in 1998,
resulting in increased expenses allocated to the Company.
INVESTMENT PORTFOLIO AND INVESTMENT STRATEGIES
The Company's investment portfolio supports its insurance and annuity
liabilities and other obligations to customers for which it assumes investment
related risks. The portfolio was comprised of total investments amounting to
$816.2 million at December 31, 1998, versus $772.1 million at December 31, 1997.
A diversified portfolio of publicly traded bonds, private placement investments
and short term investments is managed under strategies intended to maintain
optimal asset mix consistent with current and anticipated cash flow requirements
of the related obligations.
The asset management strategy for the portfolio is set in accordance with an
investment policy statement developed and coordinated within the Company by the
Portfolio Management Group, agreed to by senior management, and approved by the
Board of Directors. In managing the investment portfolio, the long term
objective is to generate favorable investment results through asset-liability
management, strategic and tactical asset allocation and asset manager selection.
Asset mix strategies are constrained by the need to match asset structure to
product liabilities, considering the underlying income and return
characteristics of investment alternatives and seeking to closely approximate
the interest rate sensitivity of the asset portfolio with the estimated interest
rate sensitivity of the product liabilities. Asset mix strategies also include
maintenance of broad diversification across asset classes, issuers and sectors;
effective utilization of capital while maintaining liquidity believed to be
adequate to satisfy cash flow requirements; and achievement of competitive
performance. The major categories of invested assets, quality across the
portfolio, and recent activities to manage the portfolio are discussed below.
FIXED MATURITIES
The fixed maturity portfolio is diversified across maturities, sectors and
issuers. The Company has classified all securities as "available for sale".
Fixed maturities totaled $622.9 million, an increase of $30.6 million compared
to December 31, 1997. The increase is primarily attributable to a higher
beginning of year asset base.
<TABLE>
<CAPTION>
1998 1997
---------------------------------------- ------------------------------------------
NET NET
AMORTIZED ESTIMATED UNREALIZED AMORTIZED ESTIMATED UNREALIZED
COST FAIR VALUE GAINS COST FAIR VALUE GAINS
------------- ------------ ------------- ------------- ------------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FIXED MATURITIES - AVAILABLE FOR SALE
Publicly traded............................... $ 537,339 $ 541,874 $ 4,535 $ 575,110 $ 582,315 $ 7,205
Privately traded.............................. 80,419 81,116 697 9,999 10,046 47
------------- ------------ ------------- ------------- ------------- -------------
TOTAL......................................... $ 617,758 $ 622,990 $ 5,232 $ 585,109 $ 592,361 $ 7,252
============= ============ ============= ============= ============= =============
</TABLE>
At December 31, 1998, the net unrealized capital gains on the fixed maturity
portfolio totaled $5.2 million compared to $7.3 million at December 31, 1997.
The decrease is primarily due to the effect of a higher level of sales activity,
offset in part by the effect of lower interest rates.
A-3
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
At December 31, 1998, the Company's holdings of private placement fixed
maturities totaled $81.1 million and constituted 13% of total fixed maturities
compared to $10.0 million representing 2% in 1997. These investments generally
offer higher yields than comparable quality public market securities, increase
the diversification of the portfolio, and contain tighter covenant protection
than public securities.
Gross investment income was relatively unchanged from year to year, despite the
increase in the average size of the fixed maturity portfolio from 1997 to 1998.
Realized gains increased by $4.7 million from 1997 primarily due to the sale of
fixed maturities during a period of declining interest rates. The table below
presents a summary of investment results from fixed maturity investments.
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997
----------- -----------
(In Thousands)
Gross investment income................. $ 39,478 $ 37,563
Yield (1)............................... 6.94% 6.97%
Realized capital gains.................. $ 6,360 $ 1,707
(1) Yields are determined by dividing gross investment income by the average of
quarter-end asset carrying values, excluding unrealized gains and losses, less
one-half of gross investment income.
A-4
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
CREDIT QUALITY
The following table describes the credit quality of the fixed maturity
portfolio, based on ratings assigned by the National Association of Insurance
Commissioners ("NAIC") or Standard & Poor's Corporation, an independent rating
agency:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------------------------------- ----------------------------------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
NAIC STANDARD & POOR'S COST % FAIR VALUE % COST % FAIR VALUE %
---- ------------------ ------------------------ ------------------------- -------------------------- -----------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 AAA to AA- $ 303,209 49.1% $ 306,693 49.2% $ 310,409 53.0% $ 313,746 53.0%
2 BBB+ to BBB- 286,640 46.4 287,888 46.2 254,084 43.4 257,024 43.4
3 BB+ to BB- 27,134 4.4 27,692 4.5 20,616 3.6 21,591 3.6
4 B+ to B- 704 0.1 638 0.1 -- -- -- --
5 CCC or lower 71 -- 79 -- -- -- -- --
6 In or near default -- -- -- -- -- -- -- --
------------- -------------- ------------- --------------
TOTAL $ 617,758 $ 622,990 $ 585,109 $ 592,361
============= ============== ============== ==============
</TABLE>
The fixed maturity portfolio consists largely of investment grade assets (rated
"1" or "2" by the NAIC), with such investments accounting for 95% and 96% of the
portfolio at December 31, 1998 and 1997, respectively, based on fair value.
The Company continually reviews fixed maturities and identifies potential
problem assets which require additional monitoring. The Company defines
"problem" fixed maturities as those for which principal and/or interest payments
are in default. The Company defines "potential problem" fixed maturities as
assets which are believed to present default risk associated with future debt
service obligations and therefore require more active management. Management has
identified no fixed maturity investments as problem or potential problem asset
at December 31, 1998 and 1997.
PORTFOLIO DIVERSITY
The fixed maturity portfolio is broadly diversified by type and industry of
issuer. The greatest industry concentrations within the public portfolio were
finance, manufacturing, and utilities. While the greatest concentration within
the private portfolio was asset backed securities. The total portfolio is
summarized below by issuer category:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------- ------------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
United States government securities
and obligations............................................... $ 51,663 $ 51,605 $ 42,885 $ 43,222
Mortgage backed securities........................................ 1,507 1,505 2,039 2,036
Asset backed securities (1)....................................... 78,396 79,075 5,076 5,070
Manufacturing .................................................... 95,713 96,369 92,805 94,041
Utilities......................................................... 101,287 102,487 87,416 88,996
Retail and wholesale.............................................. 9,992 9,834 0 0
Finance........................................................... 120,084 121,470 221,624 223,900
Services.......................................................... 78,586 78,727 54,075 54,494
Transportation.................................................... 49,695 50,331 40,856 41,717
Other............................................................. 30,835 31,587 38,333 38,885
------------ ------------ ------------ ------------
TOTAL............................................................. $ 617,758 $ 622,990 $ 585,109 $ 592,361
============ ============ ============ ============
</TABLE>
(1) The asset backed securities are primarily backed by credit card receivables,
home equity loans, trade receivables and auto loans.
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DISCOVERY SELECT(R) VARIABLE ANNUITY
SHORT-TERM INVESTMENTS
Short-term investments include highly liquid debt instruments such as commercial
paper and are purchased with an original maturity of twelve months or less.
These securities are carried at amortized cost, which approximates fair value.
As of December 31, 1998, the Company's short-term investments totaled $53.8
million versus $52.5 million at December 31, 1997. While assets and income are
relatively unchanged, the short-term yield decreased 210 basis points primarily
due to lower average interest rates in 1998 compared to 1997. The table below
presents summary data with respect to the Company's short-term investment
positions:
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997
----------- -----------
(In Thousands)
Carrying amount at end of period........ $ 53,761 $ 52,464
Net investment income................... $ 3,502 $ 3,023
Yield (1)............................... 5.38% 7.48%
(1) Yields are determined by dividing net investment income by the average of
quarter-end asset carrying values, less one-half of net investment income.
(b) 1997 versus 1996
Total insurance revenues, consisting of premiums and policy charges and fee
income, decreased $2.4 million for the year ended December 31, 1997 to $57.5
million from $59.9 million for the year ended December 31, 1996. This decrease
in insurance revenues is primarily attributable to a decrease of $2.2 million in
policy charges and fee income. This is a result of an aging book of business
along with an increased emphasis in the domestic market place on retirement type
products rather than life insurance protection products.
The Company's net investment income increased $2.5 million for the year ended
December 31, 1997 to $46.3 million from $43.8 million for the year ended
December 31, 1996. Increase in cash flows from insurance operations and average
assets as well as the asset mix strategies, produced favorable investment
results in 1997. Fixed maturity income increased in 1997 due to higher
investment returns as a result of a shift to higher yielding securities. Income
from short-term investments increased because of higher fixed maturity assets
available to lend to third parties as part of the Company's securities lending
program.
Other income increased $1.3 million for the year ended December 31, 1997 to $5.3
million from $4.0 million for the year ended December 31, 1996. This increase is
due a higher level of advisory fees attributable to the Discovery Preferred and
Discovery Select Separate Account products.
Policyholders' benefits increased $5.3 million for the year ended December 31,
1997 to $34.0 million from $28.7 million for the year ended December 31, 1996.
This increase is attributable to an increase in mortality costs associated with
the aging book of business.
Other operating costs and expenses increased $14.4 million for the year ended
December 31, 1997 to $27.2 million compared to $12.8 million for the year ended
December 31, 1996. The increase reflects factors including the refinement of
estimated gross profit margins used to amortize deferred policy acquisition
costs (DAC). Favorable mortality experience and reduction in cost of insurance
charges contributed to a change in net amortization. Also, increased operating
costs resulted from higher sales activity of Discovery Select and Discovery
Preferred annuity products, and technological advancements made in annuity
processing, customer service, and product development.
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DISCOVERY SELECT(R) VARIABLE ANNUITY
2. LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements include the payment of sales commissions
and other underwriting expenses and the funding of its contractual obligations
for the life insurance and annuity contracts it has in-force. The Company has
developed and utilizes a cash flow projection system and regularly performs
asset/liability duration matching in the management of its asset and liability
portfolios. The Company anticipates funding all its cash requirements utilizing
cash from operations, normal investment maturities and anticipated calls and
repayments or through short term lending from its affiliate Prudential Funding
Corporation (see Item 13 Certain Relationships and Related Transactions). As of
December 31, 1998, the Company's assets included $567.5 million of cash,
short-term investments and investment grade publicly traded fixed maturity
securities that could be liquidated if funds were required.
In order to continue to market life insurance and annuity products, the Company
must meet or exceed the statutory capital and surplus requirements of the
insurance departments of the states in which it conducts business. Statutory
accounting practices differ from generally accepted accounting principles
("GAAP") in two major respects. First, under statutory accounting practices, the
acquisition costs of new business are charged to expense, while under GAAP they
are initially deferred and amortized over a period of time. Second, under
statutory accounting practices, the required additions to statutory reserves for
new business in some cases may initially exceed the statutory revenues
attributable to such business. These practices result in a reduction of
statutory income and surplus at the time of recording new business.
Insurance companies are subject to Risk-Based Capital (RBC) guidelines,
monitored by insurance regulatory authorities, that measure the ratio of the
Company's statutory equity with certain adjustments ("Adjusted Capital") to its
required capital, based on the risk characteristics of its insurance liabilities
and investments. Required capital is determined by statutory formulae that
consider risks related to the type and quality of invested assets,
insurance-related risks associated with the Company's products, interest rate
risks, and general business risks. The RBC calculations are intended to assist
regulators in measuring the adequacy of the Company's statutory capitalization.
The Company considers RBC implications in its asset/liability management
strategies. Each year, the Company conducts a thorough review of the adequacy of
statutory insurance reserves and other actuarial liabilities. The review is
performed to ensure that the Company's statutory reserves are computed in
accordance with accepted actuarial standards, reflect all contractual
obligations, meet the requirements of state laws and regulations and include
adequate provisions for any other actuarial liabilities that need to be
established. All significant reserve changes are reviewed by the Board of
Directors and are subject to approval by the New Jersey Department of Banking
and Insurance. The Company believes that its statutory capital is adequate for
its currently anticipated levels of risk as measured by regulatory guidelines.
The National Association of Insurance Commissioners recently approved a series
of codified statutory accounting standards for consideration by the various
state regulators. Certain of the proposed standards, if adopted by insurance
regulatory authorities, could have an impact on the measurement of statutory
capital which, in turn, could affect RBC ratios of insurance companies. If
adopted, implementation could commence with 1999 statutory financial statements.
At the present time, the Company cannot estimate the potential impact of these
proposed standards on its RBC position.
3. REGULATORY ENVIRONMENT
The Company is subject to the laws of the State of New Jersey as governing
insurance companies and to the regulations of the New Jersey Department of
Banking and Insurance (the "Insurance Department"). A detailed financial
statement in the prescribed form (the "Annual Statement") is filed with the
Insurance Department each year covering the Company's operations for the
preceding year and its financial position as of the end of that year. Regulation
by the Insurance Department includes periodic examination to verify the accuracy
of contract
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DISCOVERY SELECT(R) VARIABLE ANNUITY
liabilities and reserves. The Company's books and accounts are subject to review
by the Insurance Department at all times.
A full examination of the Company's operations is conducted periodically by the
Insurance Department and under the auspices of the NAIC.
The Company is subject to regulation under the insurance laws of all
jurisdictions in which it operates. The laws of the various jurisdictions
establish supervisory agencies with broad administrative powers with respect to
various matters, including licensing to transact business, overseeing trade
practices, licensing agents, approving contract forms, establishing reserve
requirements, fixing maximum interest rates on life insurance contract loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. The Company is required to file the Annual Statement with
supervisory agencies in each of the jurisdictions in which it does business, and
its operations and accounts are subject to examination by these agencies at
regular intervals.
The NAIC has adopted several regulatory initiatives designed to improve the
surveillance and financial analysis regarding the solvency of insurance
companies in general. These initiatives include the development and
implementation of a risk-based capital formula for determining adequate levels
of capital and surplus. Insurance companies are required to calculate their
risk-based capital in accordance with this formula and to include the results in
their Annual Statement. It is anticipated that these standards will have no
significant effect upon the Company.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Certain insurance products of the Company are subject to
various federal securities laws and regulations. In addition, current and
proposed federal measures which may significantly affect the insurance business
include regulation of insurance company solvency, employee benefit regulation,
removal of barriers preventing banks from engaging in the insurance business,
tax law changes affecting the taxation of insurance companies and the tax
treatment of insurance products and its impact on the relative desirability of
various personal investment vehicles.
4. THE YEAR 2000 ISSUE
Pruco Life of New Jersey utilizes many of the same business applications,
infrastructure and business partners as Prudential. Prudential has addressed the
Year 2000 issue on an enterprise-wide basis. Therefore, it is not possible to
differentiate Pruco Life of New Jersey's Year 2000 issue from that of
Prudential. The accompanying discussion of the Year 2000 issue reflects steps
taken by Prudential to mitigate the Year 2000 risks.
Many computer systems are programmed to recognize only the last two digits in a
date. As a result, any computer system that has date-sensitive programming may
recognize a date using "00" as the year 1900 rather than the year 2000. This
problem can affect non-information technology systems that include embedded
technology, such as microprocessors included in "infrastructure" equipment used
for telecommunications and other services as well as computer systems. If this
anomaly is not corrected, the year "00" could cause systems to perform date
comparisons and calculations incorrectly, which could in turn affect the
accuracy and compromise the integrity of business records. Business operations
could be interrupted when companies are unable to process transactions, send
invoices, or engage in similar normal business activities.
Prudential established a Company-wide Program Office (CPO) to develop and
coordinate an operating framework for the Year 2000 compliance activities.
Prudential's CPO structured the Year 2000 program into three major components:
Business Applications, Infrastructure and Business Partners. The CPO also
established quality assurance procedures including a certification process to
monitor and evaluate enterprise-wide progress of each component of Prudential's
program for conversion and upgrading of systems for Year 2000 compliance.
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DISCOVERY SELECT(R) VARIABLE ANNUITY
BUSINESS APPLICATIONS
The scope of the Business Applications component includes a wide range of
computer systems that directly support Prudential's business operations and
accounting systems. The entire application portfolio was analyzed in 1996 to
determine appropriate Year 2000 readiness strategies (i.e., renovate, replace or
retire). Rigorous testing standards have been employed for all applications that
will not be retired, including those that are newly developed or purchased.
Application replacement and renovation projects follow a similar path toward
Year 2000 compliance. The key project phases include Year 2000 analysis and
design, programming activities, testing, and implementation. Replacement
projects are also tracked until the existing applications are removed from
production.
Of Prudential's total application portfolio, approximately 70% of the
applications are being renovated, 13% are being replaced by Year 2000 compliant
systems, and the remaining 17% are being retired from production. At December
31, 1998, the percentage of business applications (based on application count)
at Prudential in the implementation phase for Year 2000 compliance for
renovation, replacement and retirement are 99%, 96% and 99%, respectively. The
overall completion date for Business Applications is June 1999.
INFRASTRUCTURE
The scope of Prudential's Year 2000 Infrastructure initiatives include mainframe
computer system hardware and operating system software, mid-range systems and
servers, telecommunications equipment, buildings and facilities systems,
personal computers, and vendor hardware and software.
Although there are minor differences among these various components, the
approach to Year 2000 readiness for Infrastructure generally involves phases
identified as inventory, assessment, remediation activities (e.g., upgrading
hardware or software), testing and implementation. The overall completion date
for Infrastructure is June 1999.
BUSINESS PARTNERS
Prudential's approach to business partner readiness includes classification of
each partner's status as "highly critical" or "less critical" and the
development of contingency plans to address the potential that a business
partner could experience a Year 2000 failure. Approximately 30% of Prudential's
business partners have been identified as highly critical and the remaining 70%
as less critical. Project phases include inventory, risk assessment, and
contingency planning activities. All project phases for highly critical business
partner readiness were achieved in December 1998; Prudential has an overall
completion date for less critical business partner readiness of June 1999.
THE COST OF YEAR 2000 READINESS
Prudential is funding the Year 2000 program from operating cash flows. Some of
the expenses of Prudential's Year 2000 readiness are allocated across its
various businesses and subsidiaries, including Pruco Life of New Jersey.
Expenses related to the Year 2000 initiatives allocated to Pruco Life of New
Jersey are part of systems overhead costs to date and are included in Pruco Life
of New Jersey's general and administrative expenses. The Year 2000 costs
allocated to Pruco Life of New Jersey to date are not material to its operations
and financial position. Moreover, the forecasted allocated Year 2000 costs are
not expected to have a material impact on Pruco Life of New Jersey's ability to
meet its contractual commitments.
YEAR 2000 RISKS AND CONTINGENCY PLANNING
The major portion of the Prudential's transactions are of such volume that they
can only be effectively processed through the use of automated systems.
Therefore, substantially all of Prudential's contingency plans include the
ultimate resolution of any causative technology failures that may be
encountered.
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DISCOVERY SELECT(R) VARIABLE ANNUITY
Prudential believes that the Business Application, Infrastructure and Business
Partners components of the Year 2000 project are substantially on schedule.
While management expects a small number of the projects may not meet their
targeted completion date, it is anticipated that these projects will be
completed by September 1999 so that any delays, if experienced, would not have a
significant impact on the timing of the project as a whole. During the course of
the Year 2000 program, some discretionary technology projects have been delayed
in favor of the completion of Year 2000 projects. However, this impact has been
minimized by Prudential's strategic decision to outsource most of the Year 2000
renovation work.
While Prudential and its subsidiaries believe that they are well positioned to
mitigate its Year 2000 issue, this issue, by its nature, contains inherent
uncertainties, including the uncertainty of Year 2000 readiness of third
parties. Consequently, the Company is unable to determine at this time whether
the consequences of Year 2000 failures will have a material adverse effect on
the Company's results of operations, liquidity or financial position. In the
worst case, it is possible that any technology failure, including an internal or
external Year 2000 failure, could have a material impact on the Company's
results of operations, liquidity, or financial position.
Prudential is enhancing existing business contingency plans to mitigate Year
2000 risk. Current contingency plans include planned responses to the failure of
specific business applications or infrastructure components. These responses are
being reviewed and expected to be finalized by June 1999 to ensure that they are
workable under the special conditions of a Year 2000 failure. The plans are also
being updated to reduce the level of uncertainty about the Year 2000 problem
including readiness of Prudential's business partners.
The discussion of the Year 2000 Issue herein, and in particular Prudential's
plans to remediate this issue and the estimated costs thereof, are
forward-looking in nature. See cautionary statement below relating to
forward-looking statements.
5. EFFECTIVE NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 2, "Summary of Significant Accounting Policies," of the Notes to
Financial Statements.
6. INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in Management's Discussion and Analysis may
be considered forward-looking statements. Words such as "expects," "believes,"
"anticipates," "intends," "plans," or variations of such words are generally
part of forward-looking statements. Forward-looking statements are made based
upon management's current expectations and beliefs concerning future
developments and their potential effects upon the Company. There can be no
assurance that future developments affecting the Company will be those
anticipated by management. There are certain important factors that could cause
actual results to differ materially from estimates or expectations reflected in
such forward-looking statements including without limitation, changes in general
economic conditions, including the performance of financial markets and interest
rates; market acceptance of new products and distribution channels; competitive,
regulatory or tax changes that affect the cost or demand for the Company's
products; and adverse litigation results. While the Company reassesses material
trends and uncertainties affecting its financial position and results of
operations, it does not intend to review or revise any particular
forward-looking statement referenced in this Management's Discussion and
Analysis in light of future events. The information referred to above should be
considered by readers when reviewing any forward-looking statements contained in
this Management's Discussion and Analysis.
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DISCOVERY SELECT(R) VARIABLE ANNUITY
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As an indirect subsidiary of Prudential, the Company benefits from the risk
management strategies implemented by its parent.
Risk management includes the identification and measurement of various forms of
risk, establishment of acceptable risk thresholds, and creation of processes
intended to maintain risks within these thresholds while maximizing returns.
Prudential considers risk management an integral part of its core businesses.
The risks inherent in the Company's operations include market risk, product
risk, credit risk, concentration risk, liquidity risk, and operating risk. These
risk categories, and the Company's strategies relative to each, are discussed
below.
The Company's risk monitoring processes include preparation and review of risk
reports on a regular basis, with frequency based on the purpose of the report.
For example, reports associated with specific strategies or assets are produced
daily, while portfolio level reports are typically semi-monthly or monthly and
high level reports are produced quarterly.
MARKET RISK is the risk of change in the value of financial instruments as a
result of changes in interest rates, currency exchange rates, equity and
commodity prices. To varying degrees, the investment activities supporting all
of the Company's products and services generate market risks. These products and
services include life insurance and annuities. Market risks incurred and the
strategies for managing these risks vary by product.
Insurance products and annuities, incur market risk primarily in the form of
interest rate risk. This is controlled through asset/liability management
strategies that seek to match the interest rate sensitivity of the assets to
that of the underlying liabilities, with the objective of insulating the
portfolio's underlying capital from market value changes due to interest rate
movements. If perfectly matched, interest rate movements will generate asset
market value changes that offset changes in the value of the liabilities
relating to the underlying insurance products.
For fee-based products, including variable contracts and separate accounts,
investment risk is borne primarily by the contractholders rather than the
Company (subject to any minimum guarantees). The greatest market-related risk to
the Company for these products is the indirect one that, in the event of sub-par
performance, asset based fee revenues could decline and that competitive factors
could impede the Company's ability to maintain or grow assets under management.
However, since this is primarily an operating risk it is not quantified as part
of the Company's analysis of market risk.
The Company's exposure to market risk results from "other than trading"
activities in its insurance businesses. Market risks in the Company's insurance
business are managed through an investment process that incorporates
asset/liability management techniques and other risk management policies and
limits. Derivatives, as discussed further below, are used for hedging purposes
in the asset/liability management process.
INSURANCE ASSET/LIABILITY MANAGEMENT
Interest rate and equity exposures are maintained within established ranges,
which are subject to adjustment based on market conditions and the design of
related insurance products sold to customers. Risk managers, independent of
portfolio and asset managers, establish investment risk limits on
asset/liability management and oversee ongoing efforts to manage risk within
policy constraints.
The Company uses duration and convexity analyses to measure price sensitivity to
interest rate changes. Duration measures the relative sensitivity of the fair
value of a financial instrument to changes in interest rates. Convexity measures
the rate of change of duration with respect to changes in yield, recognizing
that the price of a bond is usually expected to fall at a slower rate as yield
increases.
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DISCOVERY SELECT(R) VARIABLE ANNUITY
While duration and convexity are useful indicators of asset price sensitivity to
interest rate changes, pricing models used in the portfolio management process
also consider the effects of optionality. This entails a variety of option
pricing model applications.
The Company also performs portfolio stress testing as part of its regulatory
cash flow testing in which interest-sensitive assumptions (such as asset calls
and prepayments and insurance product contract persistency) are evaluated under
various severe interest rate environments. Any shortfalls revealed by cash flow
testing are evaluated to determine whether there is a need to increase reserves
or adjust portfolio management strategies.
INTEREST RATE RELATED MARKET RISK ON ASSETS
Assets with interest rate risk include fixed maturities and policy loans which,
in the aggregate, comprise 85% of the Company's invested assets (excluding
assets held in Separate Accounts) as of December 31, 1998.
INTEREST RATE Related MARKET RISK ON LIABILITIES
In addition to insurance reserves, which are not measured by the sensitivity
analysis below, the Company has policyholder account balances relating to
interest-sensitive life and annuity contracts through which it is exposed to
interest rate risk.
INTEREST RATE SENSITIVITY
Interest rate sensitivity for the indicated classes of financial assets and
financial liabilities is assessed using hypothetical test scenarios which assume
both upward and downward 100 basis point parallel shifts in the yield curve from
prevailing interest rates at December 31, 1998. The following table summarizes
the potential loss in fair value associated with a hypothetical 100 basis point
upward parallel shift in the yield curve from prevailing interest rates at
December 31, 1998. This scenario results in the greatest net exposure to
interest rate risk of the hypothetical scenarios tested. The test scenario is
for illustrative purposes only and is not intended to reflect management's
expectations regarding future interest rates or performance of fixed income
markets.
In addition, this presentation includes only assets, liabilities and derivatives
required by the Rules and does not include $90 million of insurance liabilities.
Management includes the interest rate sensitivities implicit in these insurance
liabilities in its internal measurements and believes these insurance
liabilities substantially offset the interest rate risk summarized in the
following table.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------------------------
FAIR VALUE AFTER + 100 HYPOTHETICAL
FAIR BASIS POINT YIELD CHANGE IN
VALUE CURVE SHIFT (1) FAIR VALUE
----------------------- ------------------------ --------------------
(In Millions)
<S> <C> <C> <C>
FINANCIAL ASSETS AND LIABILITIES WITH
INTEREST RATE RISK:
Financial Assets:
Fixed maturities:
Available for sale ...................................... 623 601 (22)
Policy loans ............................................ 147 138 (9)
Financial Liabilities:
Policyholders' account balances ............................. (415) (418) (3)
-----------
Total estimated potential loss .............................. (34)
===========
</TABLE>
The estimated changes in fair values of financial assets shown above relate to
assets invested in support of the Company's insurance liabilities, and do not
include assets associated with products for which investment risk is borne
primarily by the contractholders rather than the Company.
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DISCOVERY SELECT(R) VARIABLE ANNUITY
PRODUCT RISK is the risk of adverse results due to deviation of experience from
expected levels reflected in pricing. The Company, in its insurance and annuity
operations, sells traditional and interest sensitive individual insurance
products and annuity products. Products are priced to reflect the expected
levels of risk and to allow a margin for adverse deviation. The level of margin
varies with product design and pricing strategy with respect to the targeted
market. The Company seeks to maintain underwriting standards so that premium
charged is consistent with risk assumed on an overall basis. Additionally, most
of the Company's policies and contracts allow the Company to adjust credits (via
interest crediting rates) and/or charges (in contracts where elements such as
mortality and expense charges are not guaranteed), allowing the Company to
respond to changes in actuarial experience. The competitive environment is also
an important element in determining pricing elements including premiums,
crediting rates and non-guaranteed charges.
Mortality risks, generally inherent in the Company's products, are incorporated
in pricing based on the Company's experience (if available and relevant) and/or
industry experience. Mortality studies are performed periodically to compare the
actual incidence of death claims in relation to business in force, to levels
assumed in pricing and to industry experience. Persistency risk represents the
risk that the pattern of policy surrenders will deviate from assumed levels so
that policies do not remain in force long enough to allow the Company to recover
its acquisition costs. Certain products are designed, by use of surrender
charges and other features, to discourage early surrenders and thus mitigate
this risk to the Company. Periodic studies are performed to compare actual
surrender experience to pricing assumptions and industry experience.
For fee-based products in which investment risk is borne by the client, the
Company retains the risk that fees charged may not adequately cover
administrative expenses. The ability to earn a spread between these fees and the
associated costs is dependent upon the competitive environment, product
performance, the ability to attract clients and assets, and the Company's
control of expense levels.
CREDIT RISK is the risk that counterparties or issuers may default or fail to
fully honor contractual obligations and is inherent in investment portfolio
asset positions including corporate bonds and mortgages, private placements and
other lending-type products, certain derivative transactions, and various
investment operations functions.
Limits of exposure by counterparty, country and industry are in place at the
portfolio level, and counterparty concentration risk is also reviewed at the
enterprise level. Credit concentration risks are limited based on credit
quality, and enterprise-level concentrations are reviewed on a quarterly basis.
Business group credit analysis units evaluate creditworthiness of counterparties
and assign internal credit ratings based on data from independent rating
agencies and their own fundamental analysis. Additionally, stress tests and
sensitivity analysis are utilized to estimate the exposure to credit losses from
unusual events.
LIQUIDITY RISK is the risk that the Company will be unable to liquidate
positions at a reasonable price in order to meet cash flow requirements under
various scenarios. As indicated above, the Company's asset/liability management
strategies seek to maintain asset positions that are consistent with the
expected cash flow demands associated with its liabilities under various
possible situations. Liquidity policies are formally managed at the enterprise
level, using various comparisons of asset liquidity to potential liability
outflows. The Company believes that the comparison of its general account net
liquidity to individual policy net cash surrender value is key to the periodic
evaluation of its ability to meet policyholder claim requirements, and stress
tests are utilized to measure the expected liquidity situation under
hypothetical unusual events. The Company believes that its liquidity position is
more than adequate to meet the expected cash flow demands associated with its
liabilities under reasonably possible stress situations.
OPERATING RISK is the risk of potential loss from internal or external events
such as mismanagement, fraud, systems breakdowns, business interruption, or
failure to satisfy legal or fiduciary responsibilities. All financial
institutions, including the Company, are exposed to the risk of unauthorized
activities by employees that are contrary to the internal controls designed to
manage such risks. Legal risk may arise from inadequate control
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DISCOVERY SELECT(R) VARIABLE ANNUITY
over contract documentation, marketing processes, or other operations. Internal
controls responsive to regulatory, legal, credit, asset stewardship and other
concerns are established at the business unit level for specific lines of
business and at the enterprise level for company-wide processes. Controls are
monitored by business unit management, internal and external auditors, and by an
enterprise level Management Internal Control unit, and in certain instances, are
subject to regulatory review.
Following recent revelations and negative publicity surrounding the issue of
sales practices, the Company has implemented a strategy to emphasize ethical
conduct in the recruitment and training of agents and in the sales process.
Prudential has also strengthened controls including the establishment of a
client acquisition program, in conjunction with the underwriting process,
intended to ascertain the appropriateness of insurance coverages sold and
mitigate the risk of inappropriate policy replacement activity.
Another aspect of operating risk relates to the Company's ability to conduct
transactions electronically and to gather, process, and disseminate information
and maintain data integrity and uninterrupted operations given the possibility
of unexpected or unusual events. The Company is implementing a business
continuation initiative to address these concerns. Considerations relative to
the potential impact of the Year 2000 on computer operations, infrastructural
support, and other matters are discussed above.
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DISCOVERY SELECT(R) VARIABLE ANNUITY
DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life of New Jersey, listed with their
principal occupations during the past 5 years, are shown below.
DIRECTORS OF PRUCO LIFE OF NEW JERSEY
JAMES J. AVERY, JR. CHAIRMAN AND DIRECTOR--Senior Vice President, Chief Actuary
and CFO, Prudential Individual Insurance since 1997; 1995 to 1997: President,
Prudential Select; 1993 to 1995: Chief Operating Officer, Prudential Select. Age
47.
WILLIAM M. BETHKE, DIRECTOR--Chief Investment Officer since 1997; 1992 to 1997:
President, Prudential Capital Markets Group. Age 52.
IRA J. KLEINMAN, DIRECTOR--Executive Vice President, International Insurance
Group since 1997; 1995 to 1997: Chief Marketing and Product Development Officer,
Prudential Individual Insurance Group; 1993 to 1995: President, Prudential
Select. Age 52.
ESTHER H. MILNES, PRESIDENT AND DIRECTOR--Vice President and Actuary,
Prudential Individual Insurance Group since 1996; 1993 to 1996: Senior Vice
President and Chief Actuary, Prudential Insurance and Financial Services. Age
48.
I. EDWARD PRICE, VICE CHAIRMAN AND DIRECTOR--Senior Vice President and Actuary,
Prudential Individual Insurance Group since 1995; 1994 to 1995: Chief Executive
Officer, Prudential International Insurance. Age 56.
OFFICERS WHO ARE NOT DIRECTORS
C. EDWARD CHAPLIN, TREASURER--Vice President and Treasurer of Prudential since
1995; 1993 to 1995: Managing Director and Assistant Treasurer of Prudential. Age
42.
JAMES C. DROZANOWSKI, SENIOR VICE PRESIDENT--Vice President and Operations
Executive, Prudential Individual Insurance Group since 1996; 1995 to 1996: Vice
President, Credit Card Division, Chase Manhattan Bank; prior to 1995: Chase
Manhattan Bank. Age 56.
CLIFFORD E. KIRSCH, CHIEF LEGAL OFFICER AND SECRETARY--Chief Counsel, Variable
Products, Law Department of Prudential since 1995; 1994 to 1995: Associate
General Counsel with Paine Webber. Age 39.
FRANK P. MARINO, SENIOR VICE PRESIDENT--Vice President, Policyowner Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services. Age 54.
EDWARD A. MINOGUE, SENIOR VICE PRESIDENT--Vice President, Annuity Services,
Prudential Investments since 1997; prior to 1997: Director, Merrill Lynch. Age
56.
IMANTS SAKSONS, SENIOR VICE PRESIDENT--Vice President, Compliance, Prudential
Individual Financial Services since 1998; prior to 1998, Vice President, Market
Conduct, U.S. Operations, Manulife Financial. Age 48.
DENNIS G. SULLIVAN, VICE PRESIDENT, & CHIEF ACCOUNTING OFFICER--Vice President
and Deputy Controller, Prudential, since 1998; 1997 to 1998, Vice President and
Controller, Contifinancial Corporation. Prior to 1997, Director, Saloman
Brothers. Age 43.
SHIRLEY H. SHAO, SENIOR VICE PRESIDENT AND CHIEF ACTUARY--Vice President and
Associate Actuary, Prudential. Age 43.
The business address of all directors and officers of Pruco Life of New Jersey
(PLNJ) is 213 Washington Street, Newark, New Jersey 07102-2992. PLNJ directors
and officers are elected annually.
A-15
<PAGE>
DISCOVERY SELECT(R) VARIABLE ANNUITY
EXECUTIVE COMPENSATION
The following table shows the 1998 annual compensation, paid by Prudential, and
allocated based on time devoted to the duties as an executive of the Company for
services provided to the Company:
NAME AND PRINCIPAL OTHER ANNUAL
POSITION YEAR SALARY BONUS COMPENSATION
- ------------------ ---- -------- ------- ------------
Esther H. Milnes 1998 $ 6,231 $ 7,894 $ 0
President 1997 5,598 6,419 0
1996 5,417 3,641 0
A-16
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
<TABLE>
Pruco Life Insurance Company of New Jersey
Statements of Financial Position
December 31, 1998 and 1997 (In Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1998: $617,758; and
1997: $585,109) $ 622,990 $ 592,361
Policy loans 139,443 127,306
Short-term investments 53,761 52,464
---------- ----------
Total investments 816,194 772,131
Cash 45 3
Deferred policy acquisition costs 113,923 101,625
Accrued investment income 12,209 14,075
Other assets 15,379 4,037
Separate Account assets 1,453,407 1,110,561
---------- ----------
TOTAL ASSETS $2,411,157 $2,002,432
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 413,848 $ 402,601
Future policy benefits and other policyholder liabilities 90,530 85,220
Cash collateral for loaned securities 34,424 33,663
Securities sold under agreements to repurchase 27,210 --
Income taxes payable 1,610 12,963
Net deferred income tax liability 23,715 22,188
Payable to affiliate 3,492 4,307
Other liabilities 19,489 17,103
Separate Account liabilities 1,450,986 1,108,994
---------- ----------
Total liabilities 2,065,304 1,687,039
Contingencies - (See Note 10) ---------- ----------
Stockholder's Equity
Common stock, $5 par value;
400,000 shares, authorized;
issued and outstanding at
December 31, 1998 and 1997 2,000 2,000
Paid-in-capital 125,000 125,000
Retained earnings 217,260 185,437
Accumulated other comprehensive income 1,593 2,956
---------- ----------
Total stockholder's equity 345,853 315,393
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,411,157 $2,002,432
========== ==========
</TABLE>
See Notes to Financial Statements
B-1
<PAGE>
<TABLE>
Pruco Life Insurance Company of New Jersey
Statements of Operations
Years Ended December 31, 1998, 1997, and 1996 (In Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Premiums $ 1,345 $ 1,105 $ 1,345
Policy charges and fee income 56,247 56,382 58,571
Net investment income 47,032 46,324 43,784
Realized investment gains, net 8,446 1,707 1,221
Other income 5,755 5,286 4,047
--------- --------- ---------
Total revenues 118,825 110,804 108,968
--------- --------- ---------
BENEFITS AND EXPENSES
Policyholders' benefits 28,342 33,999 28,653
Interest credited to policyholders' account balances 18,985 19,372 20,069
General, administrative and other expenses 22,105 27,236 12,848
--------- --------- ---------
Total benefits and expenses 69,432 80,607 61,570
--------- --------- ---------
Income from operations before income taxes 49,393 30,197 47,398
--------- --------- ---------
Income taxes
Current 15,309 13,279 12,682
Deferred 2,261 (2,305) 2,929
--------- --------- ---------
Total income taxes 17,570 10,974 15,611
--------- --------- ---------
NET INCOME $ 31,823 $ 19,223 $ 31,787
========= ========= =========
Net unrealized investment gains (losses) on securities,
net of reclassification adjustment (1,363) 924 (4,556)
--------- --------- ---------
TOTAL COMPREHENSIVE INCOME $ 30,460 $ 20,147 $ 27,231
========= ========= =========
</TABLE>
See Notes to Financial Statements
B-2
<PAGE>
<TABLE>
Pruco Life Insurance Company of New Jersey
Statements of Changes in Stockholder's Equity
Years Ended December 31, 1998, 1997, and 1996 (In Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
Accumulated
other Total
Common Paid-in- Retained comprehensive stockholder's
stock capital earnings income equity
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $ 2,000 $ 125,000 $ 134,427 $ 6,588 $ 268,015
Net income -- -- 31,787 -- 31,787
Change in net unrealized
investment gains, net of
reclassification adjustment -- -- -- (4,556) (4,556)
--------- --------- --------- --------- ---------
Balance, December 31, 1996 2,000 125,000 166,214 2,032 295,246
Net income -- -- 19,223 -- 19,223
Change in net unrealized
investment gains, net of
reclassification adjustment -- -- -- 924 924
--------- --------- --------- --------- ---------
Balance, December 31, 1997 2,000 125,000 185,437 2,956 315,393
Net income -- -- 31,823 -- 31,823
Change in net unrealized
investment gains, net of
reclassification adjustment -- -- -- (1,363) (1,363)
--------- --------- --------- --------- ---------
Balance, December 31, 1998 $ 2,000 $ 125,000 $ 217,260 $ 1,593 $ 345,853
========= ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements
B-3
<PAGE>
<TABLE>
Pruco Life Insurance Company of New Jersey
Statements of Cash Flows
Years Ended December 31, 1998, 1997, and 1996 (In Thousands)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,823 $ 19,223 $ 31,787
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Policy charges and fee income (10,871) (7,841) (9,963)
Interest credited to policyholders' account balances 18,985 19,372 20,069
Realized investment gains, net (8,446) (1,707) (1,221)
Amortization and other non-cash items 2,491 (1,046) 10,065
Change in:
Future policy benefits and other policyholders' liabilities 5,310 8,981 7,461
Accrued investment income 1,866 (1,167) (1,329)
Policy loans (12,137) (13,388) (15,724)
Separate Accounts (854) 1,629 (1,335)
Payable to affiliates (815) (1,752) 4,300
Deferred policy acquisition costs (12,298) 5,340 (10,934)
Income taxes payable (11,353) 10,993 1,970
Deferred income tax liability 1,527 (1,987) 366
Other, net (8,955) 2,812 4,669
----------- ----------- -----------
Cash Flows (Used in) From Operating Activities (3,727) 39,462 40,181
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 1,001,096 645,355 901,775
Payments for the purchase of:
Fixed maturities:
Available for sale (1,029,988) (679,709) (956,483)
Cash collateral for loaned securities, net 761 33,663 --
Securities sold under agreements to repurchase, net 27,210 -- --
Short term investments, net (1,297) (35,461) 28,306
----------- ----------- -----------
Cash Flows Used in Investing Activities (2,218) (36,152) (26,402)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 300,536 134,020 16,754
Withdrawals (294,549) (141,255) (26,605)
----------- ----------- -----------
Cash Flows From (Used in) Financing Activities 5,987 (7,235) (9,851)
----------- ----------- -----------
Net increase (decrease) in Cash 42 (3,925) 3,928
Cash, beginning of year 3 3,928 --
----------- ----------- -----------
CASH, END OF PERIOD $ 45 $ 3 $ 3,928
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 27,083 $ 1,896 $ 11,673
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
B-4
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. BUSINESS
Pruco Life Insurance Company of New Jersey (the Company) 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,
variable annuities, and fixed annuities (the Contracts) only in the states of
New Jersey and New York.
The Company is a wholly owned subsidiary of Pruco Life Insurance Company (Pruco
Life), a stock life insurance company organized in 1971 under the laws of the
state of Arizona. Pruco Life, in turn, 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. Pruco Life 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, Pruco Life 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 annuities. There are
approximately 1,620 stock, mutual and other types of insurers in the life
insurance business in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements include the accounts of the Company, a stock life
insurance company. The financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP").
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
Investments
Fixed maturities classified as "available for sale" are carried at estimated
fair value. The amortized cost of fixed maturities is written down to estimated
fair value if a decline in value is considered to be other than temporary.
Unrealized gains and losses on fixed maturities "available for sale" including
the effect on deferred policy acquisition costs and participating annuity
contracts that would result from the realization of unrealized gains and losses,
net of income taxes, are included in a separate component of equity,
"Accumulated other comprehensive income."
Policy loans are carried at unpaid principal balances.
Short-term investments, consists primarily of highly liquid debt instruments
purchased with an original maturity of twelve months or less and are carried at
amortized cost, which approximates fair value.
Realized investment gains, net, are computed using the specific identification
method. Costs of fixed maturity are adjusted for impairments considered to be
other than temporary.
Cash
Cash includes cash on hand, amounts due from banks, and money market
instruments.
Deferred Policy Acquisition Costs
The costs which vary with and that are related primarily to the production of
new insurance business are deferred to the extent that they are deemed
recoverable from future profits. Such costs include certain commissions, costs
of policy issuance and underwriting, and certain variable field office expenses.
Deferred policy acquisition costs are subject to recoverability testing at the
time of policy issue and loss recognition testing at the end of each accounting
period. Deferred policy acquisition costs are adjusted for the impact of
unrealized gains or losses on investments as if these gains or losses had been
realized, with corresponding credits or charges included in equity.
B-5
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Acquisition costs related to interest-sensitive life products and
investment-type contracts are deferred and amortized in proportion to total
estimated gross profits arising principally from investment results, mortality
and expense margins and surrender charges based on historical and anticipated
future experience. Amortization periods range from 15 to 30 years. Deferred
policy acquisition costs are analyzed to determine if they are recoverable from
future income, including investment income. If such costs are determined to be
unrecoverable, they are expensed at the time of determination. The effect of
revisions to estimated gross profits on unamortized deferred acquisition costs
is reflected in earnings in the period such estimated gross profits are revised.
Securities loaned
Securities loaned are treated as financing arrangements and are recorded at the
amount of cash received as collateral. The Company obtains collateral in an
amount equal to 102% of the fair value of the securities. The Company monitors
the market value of securities loaned on a daily basis with additional
collateral obtained as necessary. Non-cash collateral received is not reflected
in the statements of financial position. 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. The Company's policy is to take possession of securities
purchased under agreements to resell. The market value of securities to be
repurchased is monitored and additional collateral is requested, where
appropriate, to protect against credit exposure.
Securities lending and securities repurchase agreements are used to generate net
investment income and facilitate trading activity. These instruments are
short-term in nature (usually 30 days or less). Securities loaned are
collateralized principally by U.S. Government and mortgage-backed securities.
Securities sold under repurchase agreements are collateralized principally by
cash. The carrying amounts of these instruments approximate fair value because
of the relatively short period of time between the origination of the
instruments and their expected realization.
Separate Account Assets and Liabilities
Separate Account assets and liabilities are reported at estimated fair value and
represent segregated funds which are invested for certain policyholders and
other customers. Separate Account assets include common stocks, fixed
maturities, real estate related securities, and short-term investments. The
assets of each account are legally segregated and are not subject to claims that
arise out of any other business of the Company. Investment risks associated with
market value changes are borne by the customers, except to the extent of minimum
guarantees made by the Company with respect to certain accounts. The investment
income and gains or losses for Separate Accounts generally accrue to the
policyholders and are not included in the Statement of Operations. Mortality,
policy administration and surrender charges on the accounts are included in
"Policy charges and fee income."
Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life of New Jersey Modified
Guaranteed Annuity Account. The Pruco Life of New Jersey 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 of New Jersey 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.
B-6
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Amounts received as payment for interest sensitive life, investment contracts
and variable annuities are reported as deposits to "Policyholders' account
balances." Revenues from these contracts are reflected as "Policy charges and
fee income" and consist primarily of fees assessed during the period against the
policyholders' account balances for mortality charges, policy administration
charges, 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.
Other Income
Other income consists primarily of asset management fees which are received by
the Company from Prudential for services Prudential provides to the Prudential
Series Fund, an underlying investment option of the Separate Accounts.
Derivative Financial Instruments
Derivatives are financial instruments whose values are derived from interest
rates, foreign exchange rates, various financial indices, or the value of
securities or commodities. Derivative financial instruments used by the Company
are futures and can be exchange-traded or contracted in the over-the-counter
market. The Company uses derivative financial instruments to hedge market risk
from changes in interest rates and to alter interest rate or currency exposures
arising from mismatches between assets and liabilities. All derivatives used by
the Company are for other than trading purposes.
To qualify as a hedge, derivatives must be designated as hedges for existing
assets, liabilities, firm commitments, or anticipated transactions which are
identified and probable to occur, and effective in reducing the market risk to
which the Company is exposed. The effectiveness of the derivatives must be
evaluated at the inception of the hedge and throughout the hedge period.
When derivatives qualify as hedges, the changes in the fair value or cash flows
of the derivatives and the hedged items are recognized in earnings in the same
period. If the Company's use of other than trading derivatives does not meet the
criteria to apply hedge accounting, the derivatives are recorded at fair value
in "Other liabilities" in the Statements of Financial Position, and changes in
their fair value are recognized in earnings in "Realized investment gains, net"
without considering changes in the hedged assets or liabilities. Cash flows from
other than trading derivative assets and liabilities are reported in the
operating activities section in the Statements of Cash Flows.
Income Taxes
The Company is a member of the consolidated federal income tax return of
Prudential and files separate company state and local tax returns. Pursuant to
the tax allocation arrangement, total federal income tax expense is determined
on a separate company basis. Members with losses record tax benefits to the
extent such losses are recognized in the consolidated federal tax provision.
Deferred income taxes are generally recognized, based on enacted rates, when
assets and liabilities have different values for financial statement and tax
reporting purposes. A valuation allowance is recorded to reduce a deferred tax
asset to that portion that is expected to be realized.
New Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 125"). The statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
and provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. SFAS 125
became effective January 1, 1997 and was applied prospectively. Subsequent to
June 1996, FASB issued SFAS No. 127 "Deferral of the Effective Date of Certain
Provisions of SFAS 125" ("SFAS 127"). SFAS 127 delays the implementation of SFAS
125 for one year for certain transactions, including repurchase agreements,
dollar rolls, securities lending and similar transactions. Adoption of SFAS 125
did not have a material impact on the Company's results of operations, financial
position and liquidity.
On January 1, 1999, the Company adopted the American Institute of Certified
Public Accountants ("AICPA") Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" ("SOP 97-3").
This statement provides guidance for determining when an insurance company or
other enterprise should recognize a liability for guaranty-fund assessments as
well as guidance for measuring the liability. The adoption of SOP 97-3 is not
expected to have a material effect on the Company's financial position or
results of operations.
B-7
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS No. 133 provides, if certain conditions
are met, that a derivative may be specifically designated as (1) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment (fair value hedge), (2) a hedge of the exposure to
variable cash flows of a forecasted transaction (cash flow hedge), or (3) a
hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security or a
foreign-currency-denominated forecasted transaction (foreign currency hedge).
SFAS No. 133 does not apply to most traditional insurance contracts. However,
certain hybrid contracts that contain features which can affect settlement
amounts similarly to derivatives may require separate accounting for the "host
contract" and the underlying "embedded derivative" provisions. The latter
provisions would be accounted for as derivatives as specified by the statement.
Under SFAS No. 133, the accounting for changes in fair value of a derivative
depends on its intended use and designation. For a fair value hedge, the gain or
loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item. For a cash flow hedge, the effective
portion of the derivative's gain or loss is initially reported as a component of
other comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings. For a foreign currency hedge, the gain
or loss is reported in other comprehensive income as part of the foreign
currency translation adjustment. For all other items 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 by the first quarter of 2000 and
is currently assessing the effect of the new standard.
In October, 1998, the AICPA issued Statement of Position 98-7, "Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk," ("SOP 98-7"). This statement provides guidance on how
to account for insurance and reinsurance contracts that do not transfer
insurance risk. SOP 98-7 is effective for fiscal years beginning after June 15,
1999. The adoption of this statement is not expected to have a material effect
on the Company's financial position or results of operations.
Reclassifications
Certain amounts in the prior years have been reclassified to conform to current
year presentations.
B-8
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS
Fixed Maturities
The following tables provide additional information relating to fixed maturities
as of December 31:
<TABLE>
<CAPTION>
1998
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturities available for sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 51,663 $ 260 $ 318 $ 51,605
Foreign government bonds 34,744 887 236 35,395
Corporate Securities 531,351 7,273 2,634 535,990
-------- -------- -------- --------
Total fixed maturities available for sale $617,758 $ 8,420 $ 3,188 $622,990
======== ======== ======== ========
<CAPTION>
1997
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturities available for sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 42,885 $ 340 $ 3 $ 43,222
Foreign government bonds 38,332 551 -- 38,883
Corporate securities 503,892 6,545 181 510,256
-------- -------- -------- --------
Total fixed maturities available for sale $585,109 $ 7,436 $ 184 $592,361
======== ======== ======== ========
</TABLE>
B-9
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The amortized cost and estimated fair value of fixed maturities, categorized by
contractual maturities at December 31, 1998, are shown below:
Available for Sale
---------------------------
Amortized Estimated
Cost Fair Value
-------- ----------
(In Thousands)
Due in one year or less $ 13,645 $ 13,767
Due after one year through five years 269,252 271,525
Due after five years through ten years 255,280 257,992
Due after ten years 79,581 79,706
-------- --------
Total $617,758 $622,990
======== ========
Actual maturities will differ from contractual maturities because, in certain
circumstances, issuers have the right to call or prepay obligations.
Proceeds from the sale of fixed maturities available for sale during 1998, 1997,
and 1996 were $990.7 million, $635.4 million and $854.8 million, respectively.
Gross gains of $8.8 million, $2.9 million, and $3.9 million and gross losses of
$1.8 million, $1.2 million, and $3.8 million were realized on those sales during
1998, 1997, and 1996, respectively. Proceeds from maturities of fixed maturities
available for sale during 1998, 1997, and 1996 were $10.4 million, $10.0
million, and $47.0 million, respectively.
Writedowns for impairments of fixed maturities which were deemed to be other
than temporary were $.6 million for 1998. There were no impairments of fixed
maturities for the years 1997 and 1996.
The following table describes the credit quality of the fixed maturity
portfolio, based on ratings assigned by the National Association of Insurance
Commissioners ("NAIC") or Standard & Poor's Corporation, an independent rating
agency as of December 31, 1998:
Available for Sale
-------------------------------
Amortized Estimated
Cost Fair Value
--------- ----------
NAIC Standard & Poor's (In Thousands)
1 AAA to AA- $ 303,209 $ 306,693
2 BBB+ to BBB- 286,640 287,888
3 BB+ to BB- 27,134 27,692
4 B+ to B- 704 638
5 CCC or lower 71 79
6 In or near default -- --
--------- ---------
Total $ 617,758 $ 622,990
========= =========
B-10
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The fixed maturity portfolio consists largely of investment grade assets (rated
"1" or "2" by the NAIC), with such investments accounting for 95% and 96% of the
portfolio at December 31, 1998 and 1997, respectively, based on fair value. As
of both of those dates, no fixed maturities in the portfolio were rated "6" by
the NAIC, defined as public and private placement securities which are currently
non-performing or believed subject to default in the near-term.
The Company continually reviews fixed maturities and identifies potential
problem assets which require additional monitoring. The Company defines
"problem" fixed maturities as those for which principal and/or interest payments
are in default. The Company defines "potential problem" fixed maturities as
assets which are believed to present default risk associated with future debt
service obligations and therefore require more active management. No problem or
potential problem fixed maturities were identified in 1998 or 1997.
Special Deposits
Fixed maturities of $.5 million at both December 31, 1998 and 1997,
respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws.
Investment Income and Investment Gains and Losses
Net investment income arose from the following sources for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - available for sale $ 39,478 $ 37,563 $ 36,193
Policy loans 7,350 6,596 5,761
Short-term investments 3,502 3,023 2,504
Other (842) 333 28
-------- -------- --------
Gross investment income 49,488 47,515 44,486
Less investment expenses (2,456) (1,191) (702)
-------- -------- --------
Net investment income $ 47,032 $ 46,324 $ 43,784
======== ======== ========
</TABLE>
Realized investment gains, net, including charges for other than temporary
reductions in value, for the years ended December 31, were as follows:
1998 1997 1996
-------- -------- --------
(In Thousands)
Realized investment gains $ 17,957 $ 2,898 $ 5,232
Realized investment losses (9,511) (1,191) (4,011)
-------- -------- --------
Realized investment gains, net $ 8,446 $ 1,707 $ 1,221
======== ======== ========
B-11
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
Net Unrealized Investment Gains
Net unrealized investment gains on fixed maturities available for sale are
included in the Statements of Financial Position as a component of accumulated
other comprehensive income. Changes in these amounts include adjustments to
avoid double-counting in comprehensive income, items that are included as part
of net income for a period that also have been part of other comprehensive
income in earlier periods. The amounts for the years ended December 31, net of
tax, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Net unrealized investment gains, beginning of year $ 2,956 $ 2,032 $ 6,588
Changes in net unrealized investment gains attributable to:
Investments:
Net unrealized investment gains on investments arising during the period 3,227 3,228 (6,403)
Reclassification adjustment for gains included in net income 4,539 1,109 860
------- ------- -------
Change in net unrealized investment gains, net of adjustments (1,312) 2,119 (7,263)
Impact of net unrealized investment gains on:
Future policy benefits 57 216 (776)
Deferred policy acquisition costs (108) (1,411) 3,483
------- ------- -------
Change in net unrealized investment gains (1,363) 924 (4,556)
------- ------- -------
Net unrealized investment gains, end of year $ 1,593 $ 2,956 $ 2,032
======= ======= =======
</TABLE>
Unrealized gains (losses) on investments arising during the periods reported in
the above table are net of income tax expense (benefit) of $1.7 million, $1.7
million and $(3.6) million for the years ended December 31, 1998, 1997, and
1996, respectively.
Reclassification adjustments reported in the above table for the years ended
December 31, 1998, 1997, and 1996 are net of income tax expense of $(2.4)
million, $(.6) million and $(.5) million, respectively.
The future policy benefits reported in the above table are net of income tax
expense (benefit) of $.03 million, $0, and $(.4) million for the years ended
December 31, 1998, 1997 and 1996, respectively.
Deferred policy acquisition costs in the above tables for the years ended
December 31, 1998, 1997 and 1996 are net of income tax expense (benefit) of
$(.06) million, $(.8) million and $2.0 million, respectively.
4. POLICYHOLDERS' LIABILITIES
Future policy benefits and other policyholder liabilities at December 31 are as
follows:
1998 1997
------- -------
(In Thousands)
Life insurance $85,523 $80,464
Annuities 5,007 4,756
------- -------
$90,530 $85,220
======= =======
Life insurance liabilities include reserves for death and endowment policy
benefits. Annuity liabilities include reserves for immediate annuities.
B-12
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
4. POLICYHOLDERS' LIABILITIES (continued)
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 Generally rates 2.5% to 7.5% Net level premium based
guaranteed in on non-forfeiture
calculating interest rate
cash surrender values
Individual immediate 1983 Individual Annuity 6.25% to 8.75% Present value of
annuities Mortality Table with expected future payment
certain modifications based on historical experience
</TABLE>
Policyholders' account balances at December 31, are as follows:
1998 1997
-------- --------
(In Thousands)
Individual annuities $148,327 $145,120
Interest-sensitive life contracts 265,521 257,481
-------- --------
$413,848 $402,601
======== ========
Policyholders' account balances for interest-sensitive life, individual
annuities, and guaranteed investment contracts are equal to policy account
values plus unearned premiums. The policy account values represent an
accumulation of gross premium payments plus credited interest less withdrawals,
expenses, mortality charges.
Certain contract provisions that determine the policyholder account balances are
as follows:
<TABLE>
<CAPTION>
Product Interest Rate Withdrawal / Surrender Charges
------- ------------- ------------------------------
<S> <C> <C>
Interest sensitive life contracts 4.0% to 5.4% Various up to 10 years
Individual annuities 3.0% to 5.6% 0% to 8% for up to 8 years
</TABLE>
B-13
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
5. REINSURANCE
The Company participates in reinsurance, with Prudential and other companies, in
order to provide greater diversification of business, provide additional
capacity for future growth and limit the maximum net loss potential arising from
large risks. Reinsurance ceded arrangements do not discharge the Company or the
insurance subsidiaries as the primary insurer, except for cases involving a
novation. Ceded balances would represent a liability to the Company in the event
the reinsurers were unable to meet their obligations to the Company under the
terms of the reinsurance agreements. The likelihood of a material reinsurance
liability reassumed by the Company is considered to be remote.
Reinsurance amounts included in the Statement of Operations for the year ended
December 31 are below.
1998 1997 1996
------- ------- -------
(In Thousands)
Direct Premiums $ 1,373 $ 1,117 $ 1,345
Reinsurance ceded-affiliated (28) (12) --
------- ------- -------
Premiums $ 1,345 $ 1,105 $ 1,345
======= ======= =======
Policyholders' benefits ceded $ 15 $ 14 $ 13
======= ======= =======
Reinsurance recoverables, included in "Other assets" in the Company's Statements
of Financial Position, at December 31 include amounts recoverable on unpaid and
paid losses and were as follows:
1998 1997
---- ----
(In Thousands)
Life insurance - affiliated $31 $30
--- ---
$31 $30
=== ===
B-14
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
6. INCOME TAXES
The components of income taxes for the years ended December 31, are as follows:
1998 1997 1996
-------- -------- --------
(In Thousands)
Current tax expense (benefit):
U.S. $ 14,786 $ 12,880 $ 13,589
State and local 523 399 (907)
-------- -------- --------
Total 15,309 13,279 12,682
-------- -------- --------
Deferred tax expense (benefit):
U.S. 2,198 (2,305) 2,848
State and local 63 -- 81
-------- -------- --------
Total 2,261 (2,305) 2,929
-------- -------- --------
Total income tax expense $ 17,570 $ 10,974 $ 15,611
======== ======== ========
The Company's income tax expense for the years ended December 31, differs from
the amount computed by applying the expected federal income tax rate of 35% to
income from operations before income taxes for the following reasons:
1998 1997 1996
-------- -------- --------
(In Thousands)
Expected federal income tax expense $ 17,288 $ 10,569 $ 16,589
State and local income taxes 381 259 (537)
Other (99) 146 (441)
-------- -------- --------
Total income tax expense $ 17,570 $ 10,974 $ 15,611
======== ======== ========
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
1998 1997
------- -------
(In Thousands)
Deferred income tax assets:
Insurance reserves $10,016 $ 6,907
Other -- --
------- -------
Deferred tax assets $10,016 $ 6,907
------- -------
Deferred income tax liabilities:
Deferred acquisition costs 28,509 24,725
Net investment gains 2,847 4,284
Other 2,375 86
------- -------
Deferred tax liabilities 33,731 29,095
------- -------
Net deferred federal tax liability $23,715 $22,188
======= =======
B-15
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
6. INCOME TAXES (continued)
Management believes that based on its historical pattern of taxable income, the
Company will produce sufficient income in the future to realize its deferred tax
assets after valuation allowance. Adjustments to the valuation allowance will be
made if there is a change in management's assessment of the amount of the
deferred tax asset that is realizable. At December 31, 1998 and 1997,
respectively, the Company had no federal or state operating loss carryforwards
for tax purposes.
The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns through 1989. The Service has examined
the years 1990 through 1992. Discussions are being held with the Service with
respect to proposed adjustments. Management, however, believes there are
adequate defenses against, or sufficient reserves to provide for, such
adjustments. The Service has begun their examination of the years 1993 through
1995.
B-16
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
7. 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 New Jersey Department of Banking and Insurance
with net income and equity determined using GAAP.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Statutory net income $ 18,704 $ 18,306 $ 24,774
Adjustments to reconcile to net income on a GAAP basis:
Deferred acquisition costs 12,464 (3,170) 5,656
Deferred premium 534 198 221
Insurance liabilities (808) 2,324 4,784
Deferred taxes (2,261) 2,305 (2,929)
Valuation of investments 3,794 (143) (765)
Other, net (604) (597) 46
-------- -------- --------
GAAP net income $ 31,823 $ 19,223 $ 31,787
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(In Thousands)
<S> <C> <C>
Statutory surplus $ 252,530 $ 235,958
Adjustments to reconcile to equity on a GAAP basis:
Valuation of investments 20,799 18,540
Deferred acquisition costs 113,923 101,625
Deferred premium (1,473) (2,007)
Insurance liabilities (18,141) (19,120)
Deferred taxes (23,715) (22,188)
Other, net 1,930 2,585
--------- ---------
GAAP stockholder's equity $ 345,853 $ 315,393
========= =========
</TABLE>
8. 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 fair values (for all other financial
instruments presented in the table, the carrying value approximates estimated
fair value).
Fixed maturities
Estimated fair values for fixed maturities are based on quoted market prices or
estimates from independent pricing services.
Policy loans
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.
B-17
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
8. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Policyholders' account balances
Estimated fair values of policyholders' account balances are derived by using
discounted projected cash flows, based on interest rates being offered for
similar contracts, with maturities consistent with those remaining for the
contracts being valued.
Derivative financial instruments
The fair value of futures is estimated based on market quotes for transactions
with similar terms. The following table discloses the carrying amounts and
estimated fair values of the Company's financial instruments at December 31,:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities available for sale $ 622,990 $ 622,990 $ 592,361 $ 592,361
Policy loans 139,443 146,504 127,306 126,262
Short-term investments 53,761 53,761 52,464 52,464
Cash 45 45 3 3
Separate Accounts assets 1,453,407 1,453,407 1,110,561 1,110,561
Financial Liabilities:
Policyholders'
account balances $ 413,848 $ 414,602 $ 402,601 $ 401,267
Cash collateral for loaned
securities 61,634 61,634 33,663 33,663
Separate Accounts liabilities 1,450,986 1,450,986 1,108,994 1,108,994
Derivatives -- -- 83 83
</TABLE>
9. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
Futures
The Company uses exchange-traded Treasury futures to reduce market risks from
changes in interest rates, to alter mismatches between the duration of assets in
a portfolio and the duration of liabilities supported by those assets, and to
hedge against changes in the value of securities it owns or anticipates
acquiring. The Company enters into exchange-traded futures with regulated
futures commissions merchants who are members of a trading exchange. The fair
value of futures is estimated based on market quotes for a transaction with
similar terms.
Under exchange-traded futures, the Company agrees to purchase a specified number
of contracts with other parties and to post variation margin on a daily basis in
an amount equal to the difference in the daily market values of those contracts.
Futures are typically used to hedge duration mismatches between assets and
liabilities by replicating Treasury performance. Treasury futures move
substantially in value as interest rates change and can be used to either
generate new or hedge existing interest rate risk. This strategy protects
against the risk that cash flow requirements may necessitate liquidation of
investments at unfavorable prices resulting from increases in interest rates.
This strategy can be a more cost effective way of temporarily reducing the
Company's exposure to a market decline than selling fixed income securities and
purchasing a similar portfolio when such a decline is believed to be over.
B-18
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
9. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (continued)
For futures that meet hedge accounting criteria, changes in their fair value are
deferred and recognized as an adjustment to the carrying value of the hedged
item. Deferred gains or losses from the hedges for interest-bearing financial
instruments are amortized as a yield adjustment over the remaining lives of the
hedged item. Futures that do not qualify as hedges are carried at fair value
with changes in value reported in current period earnings. The fair value of
futures contracts was immaterial at December 31, 1998 and 1997.
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 is with
investment-grade counterparties.
10. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and the
Company. Prudential has agreed to indemnify the Company for any and all losses
resulting from such litigation.
In the normal course of business, the Company is subject to various claims and
assessments. Management believes the settlement of these matters would not have
a material effect on the financial position or results of operations of the
Company.
11. DIVIDENDS
The Company is subject to New Jersey law which requires any shareholder dividend
or distribution must be filed with the New Jersey Commissioner of Insurance.
Cash dividends may only be paid out of surplus derived from realized net
profits.
12. RELATED PARTY TRANSACTIONS
Service Agreements
Prudential and Pruco Life of New Jersey operate under service and lease
agreements whereby services of officers and employees, supplies, use of
equipment and office space are provided by Prudential. The net cost of these
services allocated to the Company were $23.5 million, $16.2 million, and $12.2
million for the years ended December 31, 1998, 1997, and 1996, respectively.
These costs are treated in a manner consistent with the Company's policy on
deferred acquisition costs.
Prudential and Pruco Life of New Jersey have an agreement with respect to
administrative services for the Prudential Series Fund. The Company invests in
the various portfolios of the Series Fund through the Separate Accounts. Under
this agreement, Prudential pays compensation to Pruco Life of New Jersey in the
amount equal to a portion of the gross investment advisory fees paid by the
Prudential Series Fund. The Company received from Prudential its allocable
shares of such compensation in the amount of $5.6 million, $5.0 million, and
$3.5 million during 1998, 1997, and 1996 respectively, recorded in "Other
income."
B-19
<PAGE>
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
12. RELATED PARTY TRANSACTIONS (continued)
Reinsurance
The Company currently has a reinsurance agreement in place with Prudential (the
reinsurer). The reinsurance agreement is a yearly renewable term agreement in
which the Company may offer and the reinsurer may accept reinsurance on any life
in excess of the Company's maximum limit of retention. The Company is not
relieved of its primary obligation to the policyholder as a result of these
reinsurance transactions. These agreements had no material effect on net income
for the years ended December 31, 1998, 1997, and 1996.
Debt Agreements
In July 1998, the Company established a revolving line of credit facility with
Prudential Funding Corporation, a wholly-owned subsidiary of Prudential. There
is no outstanding debt relating to this credit facility as of December 31, 1998.
B-20
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors of
Pruco Life Insurance Company of New Jersey
In our opinion, the accompanying statements of financial position and the
related 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 of New Jersey at December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
February 26, 1999
B-21
<PAGE>
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
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.
Catalog No. 40M261Y
1
<PAGE>
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.
2
<PAGE>
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.
3
<PAGE>
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 Jennison 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>
4
<PAGE>
- ---------------
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>
<CAPTION>
TABLE 3
CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL
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
<PAGE>
MONEY MARKET SUBACCOUNT YIELD
The "yield" and "effective yield" figures for the Money Market Subaccount shown
below were calculated using historical investment returns of the Money Market
Portfolio of the Prudential Series Fund. All fees, expenses and charges
associated with the DISCOVERY SELECT Annuity and the Series Fund have been
reflected.
The "yield" and "effective yield" of the Money Market Subaccount for the seven
days ended December 31, 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").
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
6
<PAGE>
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.
7
<PAGE>
FINANCIAL STATEMENTS OF THE
PRUCO LIFE OF NEW JERSEY
FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY MARKET DIVERSIFIED BOND HIGH YIELD BOND STOCK INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ----------------- ---------------- ----------- ----------------
ASSETS
<S> <C> <C> <C> <C> <C>
Investments in The Prudential Series Fund, Inc.
Portfolios and non-Prudential administered
funds, at net asset value [Note 3] ......... $ 18,435,774 $ 34,045,791 $ 28,841,374 $ 48,057,625 $ 40,486,580
--------------- --------------- ----------------- ------------ ---------------
Net Assets ................................... $ 18,435,774 $ 34,045,791 $ 28,841,374 $ 48,057,625 $ 40,486,580
=============== =============== ================= ============ ===============
NET ASSETS, representing:
Equity of contract owners .................. $ 18,435,774 $ 34,045,791 $ 28,841,374 $ 48,057,625 $ 40,486,580
--------------- --------------- ----------------- ------------ ---------------
$ 18,435,774 $ 34,045,791 $ 28,841,374 $ 48,057,625 $ 40,486,580
=============== =============== ================= ============ ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A21
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN
PRUDENTIAL PRUDENTIAL PRUDENTIAL AIM V.I. JANUS ASPEN INTERNATIONAL
EQUITY JENNISON GLOBAL GROWTH AND AIM V.I. GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO INCOME FUND VALUE FUND PORTFOLIO PORTFOLIO
- --------------- ------------------ -------------- ---------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
$ 44,644,003 $ 39,285,619 $ 4,844,702 $ 9,129,905 $ 11,069,271 $ 10,034,910 $ 10,661,915
------------- ----------------- ------------- --------------- ------------- ---------------- ---------------
$ 44,644,003 $ 39,285,619 $ 4,844,702 $ 9,129,905 $ 11,069,271 $ 10,034,910 $ 10,661,915
============= ================= ============= =============== ============= ================ ===============
$ 44,644,003 $ 39,285,619 $ 4,844,702 $ 9,129,905 $ 11,069,271 $ 10,034,910 $ 10,661,915
------------- ----------------- ------------- --------------- ------------- ---------------- ---------------
$ 44,644,003 $ 39,285,619 $ 4,844,702 $ 9,129,905 $ 11,069,271 $ 10,034,910 $ 10,661,915
============= ================= ============= =============== ============= ================ ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A21
A2
<PAGE>
FINANCIAL STATEMENTS OF THE
PRUCO LIFE OF NEW JERSEY
FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------------------------------------
OCC OCC
ACCUMULATION ACCUMULATION T. ROWE PRICE
MFS EMERGING MFS TRUST MANAGED TRUST SMALL CAP EQUITY INCOME
GROWTH SERIES RESEARCH SERIES PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------- ------------------ --------------------------------
ASSETS
<S> <C> <C> <C> <C> <C>
Investments in The Prudential Series Fund, Inc.
Portfolios and non-Prudential administered
funds, at net asset value [Note 3] ......... $ 12,416,397 $ 6,784,944 $ 29,176,808 $ 7,742,780 $ 13,721,549
--------------- --------------- ----------------- ------------ ---------------
Net Assets ................................... $ 12,416,397 $ 6,784,944 $ 29,176,808 $ 7,742,780 $ 13,721,549
=============== =============== ================= ============ ===============
NET ASSETS, representing:
Equity of contract owners .................. $ 12,416,397 $ 6,784,944 $ 29,176,808 $ 7,742,780 $ 13,721,549
--------------- --------------- ----------------- ------------ ---------------
$ 12,416,397 $ 6,784,944 $ 29,176,808 $ 7,742,780 $ 13,721,549
=============== =============== ================= ============ ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A21
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -------------------------------------------------------------------------------------------
T. ROWE PRICE WARBURG PINCUS PRUDENTIAL FRANKLIN
INTERNATIONAL POST-VENTURE SMALL CAPITALIZATION AMERICAN SMALL CAP
STOCK CAPITAL STOCK CENTURY VP GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO VALUE FUND
- ---------------- ------------------- ------------------- --------------- ----------------
<S> <C> <C> <C> <C>
$ 3,167,726 $ 1,757,173 $ 644,378 $ 144,134 $ 315,362
-------------- ----------------- ------------------ ------------- --------------
$ 3,167,726 $ 1,757,173 $ 644,378 $ 144,134 $ 315,362
============== ================= ================== ============= ==============
$ 3,167,726 $ 1,757,173 $ 644,378 $ 144,134 $ 315,362
-------------- ----------------- ------------------ ------------- --------------
$ 3,167,726 $ 1,757,173 $ 644,378 $ 144,134 $ 315,362
============== ================= ================== ============= ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A21
A4
<PAGE>
FINANCIAL STATEMENTS OF THE
PRUCO LIFE OF NEW JERSEY
FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED HIGH YIELD STOCK
MARKET BOND BOND INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- ---------------- ---------------
INVESTMENT INCOME
<S> <C> <C> <C> <C>
Dividend income...................................... $ 530,791 $ 1,400,639 $ 2,197,294 $ 434,269
-------------- -------------- -------------- --------------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk and for
administration [Notes 5A and 5B].................. 142,233 260,157 271,171 434,767
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)......................... 388,558 1,140,482 1,926,123 (498)
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received................. 0 55,251 0 685,310
Realized gain (loss) on shares redeemed.............. 0 (1,277) (66,919) (15,648)
Net change in unrealized gain (loss) on investments.. 0 (220,174) (3,362,203) 6,220,619
-------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS....................... 0 (166,200) (3,429,122) 6,890,281
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS......................... $ 388,558 $ 974,282 $ (1,502,999) $ 6,889,783
=============== =============== =============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A21
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL
EQUITY PRUDENTIAL PRUDENTIAL PRUDENTIAL AIM V.I. JANUS ASPEN
INCOME EQUITY JENNISON GLOBAL GROWTH AMI V.I. GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO INCOME FUND VALUE FUND PORTFOLIO
- ------------------- ---------------- --------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$ 863,460 $ 653,936 $ 48,122 $ 51,484 $ 35,325 $ 50,912 $ 213,798
-------------- ------------- ------------- ------------- ------------ -------------- -------------
401,996 435,118 299,941 46,045 87,246 99,461 83,955
-------------- ------------- ------------- ------------- ------------ -------------- -------------
461,464 218,818 (251,819) 5,439 (51,921) (48,549) 129,843
-------------- ------------- ------------- ------------- ------------ -------------- -------------
2,112,014 4,709,227 522,676 196,136 87,186 450,290 171,381
(132,522) (23,763) (23,766) (4,864) 4,610 (535) (5,570)
(5,326,474) (3,841,284) 6,793,178 455,299 1,461,242 1,671,765 1,674,117
-------------- ------------- ------------- ------------- ------------ -------------- -------------
(3,346,982) 844,180 7,292,088 646,571 1,553,038 2,121,520 1,839,928
-------------- ------------- ------------- ------------- ------------ -------------- -------------
$ (2,885,518) $ 1,062,998 $ 7,040,269 $ 652,010 $ 1,501,117 $ 2,072,971 $ 1,969,771
============== ============== ============== ============== ============== ============== =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A21
A6
<PAGE>
FINANCIAL STATEMENTS OF THE
PRUCO LIFE OF NEW JERSEY
FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------
OCC
JANUS ASPEN MFS ACCUMULATION
INTERNATIONAL EMERGING MFS TRUST
GROWTH GROWTH RESEARCH MANAGED
PORTFOLIO SERIES SERIES PORTFOLIO
--------------- --------------- ---------------- ---------------
INVESTMENT INCOME
<S> <C> <C> <C> <C>
Dividend income...................................... $ 140,074 $ 0 $ 6,843 $ 96,191
-------------- ------------ --------------- -------------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk and for
administration [Notes 5A and 5B]................... 111,330 99,739 67,097 297,511
-------------- ------------ --------------- -------------
NET INVESTMENT INCOME (LOSS)......................... 28,744 (99,739) (60,254) (201,320)
-------------- ------------ --------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received................. 20,343 48,546 89,748 390,487
Realized gain (loss) on shares redeemed.............. 15,256 17,411 8,037 (33,042)
Net change in unrealized gain (loss) on investments.. 803,166 2,185,347 848,009 262,512
-------------- ------------ --------------- -------------
NET GAIN (LOSS) ON INVESTMENTS....................... 838,765 2,251,304 945,794 619,957
-------------- ------------ --------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.......................... $ 867,509 $ 2,151,565 $ 885,540 $ 418,637
============== ============ =============== =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A21
A7
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
Occ Prudential
Accumulation T. Rowe Price Rowe Price Warburg Small Franklin
Trust Equity International Post-venture Capitalization American Small Cap
Small Cap Income Stock Capital Stock Century Vp Growth
Portfolio Portfolio Portfolio Portfolio Portfolio* Value* Fund*
- ------------------- ---------------- --------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 12,175 $ 36,132 $ 227,349 $ 0 $ 1,112 $ 0 $ 0
--------- --------- --------- --------- --------- --------- ---------
82,183 142,074 32,233 17,026 1,090 270 491
--------- --------- --------- --------- --------- --------- ---------
(70,008) 85,275 3,899 (17,026) 22 (270) (491)
--------- --------- --------- --------- --------- --------- ---------
132,949 402,942 12,753 0 28,379 0 0
(87,824) 920 (1,816) (9,485) 1,244 109 (141)
(726,536) 113,818 258,507 78,797 35,630 3,508 30,781
--------- --------- --------- --------- --------- --------- ---------
(681,411) 517,680 269,444 69,312 65,253 3,617 30,640
--------- --------- --------- --------- --------- --------- ---------
$(751,419) $ 602,955 $ 273,343 $ 52,286 $ 65,275 $ 3,347 $ 30,149
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
*Commenced Operations on September 1, 1998
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A21
A8
<PAGE>
FINANCIAL STATEMENTS OF THE
PRUCO LIFE OF NEW JERSEY
FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the period January 24,1997** through December 31, 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY MARKET DIVERSIFIED BOND HIGH YIELD BOND
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------- -------------------------- --------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ----------- ------------ ------------ ------------
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) .................. $ 388,558 $ 86,282 $ 1,140,482 $ 158,186 $1,926,123 $ 294,982
Capital gains distributions received .......... 0 0 55,251 36,843 0 0
Realized gain (loss) on shares redeemed........ 0 0 (1,277) 1,268 (66,919) 632
Net change in unrealized gain (loss) on
investments ................................... 0 0 (220,174) (87,951) (3,362,203) (27,151)
----------- ----------- ----------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ..................... 388,558 86,282 974,282 108,346 (1,502,999) 268,463
----------- ----------- ----------- ---------- ----------- -----------
ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS
Contract Owner Net Payments ................. 18,308,790 8,199,777 26,338,579 4,748,888 23,904,670 7,044,786
Surrenders, Withdrawals and Death Benefits .. (590,456) (35,679) (754,090) (42,482) (654,641) (56,437)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options ......... (5,502,058) (2,418,500) 2,425,538 241,601 271,531 (461,981)
Administrative and Other Charges ............ (906) 0 (2,759) 0 (3,313) 0
----------- ----------- ----------- ---------- ----------- -----------
TOTAL ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS...................... 12,215,370 5,745,598 28,007,268 4,948,007 23,518,247 6,526,368
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [Note 7]............... (262,762) 262,728 (102,106) 109,994 (15,650) 46,945
----------- ----------- ----------- ---------- ----------- -----------
TOTAL INCREASE IN NET ASSETS .................... 12,341,166 6,094,608 28,879,444 5,166,347 21,999,598 6,841,776
NET ASSETS
Beginning of year................................ 6,094,608 0 5,166,347 0 6,841,776 0
----------- ----------- ----------- ---------- ----------- -----------
End of year...................................... $18,435,774 $6,094,608 $34,045,791 $5,166,347 $28,841,374 $6,841,776
=========== ========== =========== =========== =========== ==========
</TABLE>
**Commenced Operations
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A21
A9
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
STOCK INDEX EQUITY INCOME EQUITY PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------- ----------------------------- ------------------------------ -----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- -------------- ------------- -------------- ------------- --------------- ------------- --------------
<S><C> <C> <C> <C> <C> <C> <C> <C>
$ (498) $ 31,172 $ 461,464 $ 56,244 $ 218,818 $ 80,142 $ (251,819) $ (23,019)
685,310 342,433 2,112,014 733,657 4,709,227 613,254 522,676 319,882
(15,648) 8,889 (132,522) 0 (23,763) 12,529 (23,766) 14,031
6,220,619 640,205 (5,326,474) (105,243) (3,841,284) (86,245) 6,793,178 16,226
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
6,889,783 1,022,699 (2,885,518) 684,658 1,062,998 619,680 7,040,269 327,120
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
29,771,169 11,537,843 33,802,922 9,092,591 30,494,085 12,608,951 24,608,849 6,026,720
(1,266,564) (91,204) (1,336,359) (34,592) (1,135,559) (76,063) (650,657) (42,111)
(125,011) 260,453 867,586 192,312 699,976 312,812 1,768,266 137,529
(7,572) 0 (5,784) 0 (8,237) 0 (4,533) 0
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
28,372,022 11,707,092 33,328,365 9,250,311 30,050,265 12,845,700 25,721,925 6,122,138
34,044 31,985 109,447 (683) 70,773 (5,413) 76,083 (1,916)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
35,295,849 12,761,776 30,552,294 9,934,286 31,184,036 13,459,967 32,838,277 6,447,342
12,761,776 0 9,934,286 0 13,459,967 0 6,447,342 0
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 48,057,625 $ 12,761,776 $ 40,486,580 9,934,286 44,644,003 13,459,967 39,285,619 6,447,342
============ ============ ============ ============ ============ ============ ============ ============
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------
PRUDENTIAL
GLOBAL
PORTFOLIO
----------------------------
1998 1997
------------- -------------
<C> <C>
$ 5,439 $ 3,621
196,136 72,144
(4,864) (2,314)
455,299 (140,267)
------------ ------------
652,010 (66,816)
------------ ------------
2,481,167 1,977,078
(217,230) (29,052)
(24,347) 65,358
(948) 0
------------ ------------
2,238,642 2,013,384
6,656 826
------------ ------------
2,897,308 1,947,394
1,947,394 0
------------ ------------
4,844,702 1,947,394
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A21
A10
<PAGE>
FINANCIAL STATEMENTS OF THE
PRUCO LIFE OF NEW JERSEY
FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the period January 24,1997** through December 31, 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------
AIM V.I.
GROWTH AND AIM V.I. JANUS ASPEN
INCOME FUND VALUE FUND GROWTH PORTFOLIO
------------------------ ------------------------- --------------------------
1998 1997 1998 1997 1998 1997
----------- ----------- ------------ ----------- ------------- -----------
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) ................. $ (51,921) $ (15,396) $ (48,549) $ 7,524 $ 129,843 $ 4,589
Capital gains distributions received ......... 87,186 2,228 450,290 88,873 171,381 17,098
Realized gain (loss) on shares redeemed ...... 4,610 0 (53) 371 (5,570) 0
Net change in unrealized gain (loss) on
investments .................................. 1,461,242 182,008 1,671,765 116,794 1,674,117 171,601
----------- ----------- ------------ ----------- ------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .................... 1,501,117 168,840 2,072,971 213,562 1,969,771 193,288
----------- ----------- ------------ ----------- ------------ -----------
ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS
Contract Owner Net Payments ................ 4,951,267 2,781,009 5,515,714 3,159,930 4,882,924 2,628,766
Surrenders, Withdrawals and Death Benefits . (132,626) (11,469) (202,116) (24,406) (108,984) (21,537)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options ........ (311,867) 174,382 218,523 101,636 390,842 83,586
Administrative and Other Charges ........... (1,439) 0 (1,821) 0 (1,601) 0
----------- ----------- ------------ ----------- ------------ -----------
TOTAL ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS .................... 4,505,335 2,943,922 5,530,300 3,237,160 5,163,181 2,690,815
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [Note 7] ............. (66,268) 76,959 5,014 10,264 (19,268) 37,123
----------- ----------- ------------ ----------- ------------ -----------
TOTAL INCREASE IN NET ASSETS ................... 5,940,184 3,189,721 7,608,285 3,460,986 7,113,684 2,921,226
NET ASSETS
Beginning of year .............................. 3,189,721 0 3,460,986 0 2,921,226 0
----------- ----------- ------------ ----------- ------------ -----------
End of year .................................... $ 9,129,905 $ 3,189,721 $ 11,069,271 $ 3,460,986 $ 10,034,910 $ 2,921,226
----------- ----------- ------------ ----------- ------------ -----------
</TABLE>
**Commenced Operations
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A21
A11
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS
- ------------------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN
INTERNATIONAL OCC OCC
GROWTH MFS EMERGING MFS ACCUMULATION TRUST ACCUMULATION TRUST
PORTFOLIO GROWTH SERIES RESEARCH SERIES MANAGED PORTFOLIO SMALL CAP PORTFOLIO
- ------------------------- -------------------------- ------------------------ -------------------------- -------------------------
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
- ----------- ------------ ------------ ----------- ----------- ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 28,744 $ (12,338) $ (99,739) $ (18,721) $ (60,254) $ (16,301) $ (201,320) $ (49,797) $ (70,008) $ (16,425)
20,343 2,428 48,546 0 89,748 0 390,487 794 132,949 1,010
15,256 0 17,411 0 8,037 0 (33,042) 0 (87,824) 0
803,166 63,890 2,185,347 258,606 848,009 164,625 262,512 511,431 (726,536) 148,654
- ----------- ----------- ------------ ----------- ----------- ----------- ------------ ----------- ----------- -----------
867,509 53,980 2,151,565 239,885 885,540 148,324 418,637 462,428 (751,419) 133,239
- ----------- ----------- ------------ ----------- ----------- ----------- ------------ ----------- ----------- -----------
5,187,370 4,363,549 6,934,305 2,769,659 3,284,005 2,441,201 19,620,342 8,773,973 5,267,682 3,028,743
(270,571) (38,474) (149,038) (6,029) (156,768) (25,514) (685,019) (59,475) (429,739) (15,236)
404,030 89,832 420,695 36,872 137,403 69,380 498,744 81,504 323,120 189,461
(2,669) 0 (1,900) 0 (1,267) 0 (5,090) 0 (1,432) 0
- ----------- ----------- ------------ ----------- ----------- ----------- ------------ ----------- ----------- -----------
5,318,160 4,414,907 7,204,062 2,800,502 3,263,373 2,485,067 19,428,977 8,796,002 5,159,631 3,202,968
(81,593) 88,952 (12,836) 33,219 (12,594) 15,234 65,279 5,485 (26,238) 24,599
- ----------- ----------- ------------ ----------- ----------- ----------- ------------ ----------- ----------- -----------
6,104,076 4,557,839 9,342,791 3,073,606 4,136,319 2,648,625 19,912,893 9,263,915 4,381,974 3,360,806
4,557,839 0 3,073,606 0 2,648,625 0 9,263,915 0 3,360,806 0
- ----------- ----------- ------------ ----------- ----------- ----------- ------------ ----------- ----------- -----------
$10,661,915 $ 4,557,839 $ 12,416,397 $ 3,073,606 $ 6,784,944 $ 2,648,625 $ 29,176,808 $ 9,263,915 $ 7,742,780 $ 3,360,806
- ----------- ----------- ------------ ----------- ----------- ----------- ------------ ----------- ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A21
A12
<PAGE>
FINANCIAL STATEMENTS OF THE
PRUCO LIFE OF NEW JERSEY
FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the period January 24,1997** through December 31, 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------
T. ROWE PRICE T. ROWE PRICE WARBURG PINCUS
EQUITY INCOME INTERNATIONAL STOCK POST-VENTURE CAPITAL
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------- -------------------------- --------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ----------- ------------ ------------ ------------
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) ................... $ 85,275 $ 33,286 $ 3,899 $ 3,958 $ (17,026) $ (4,029)
Capital gains distributions received ........... 402,942 138,220 12,753 17,767 0 0
Realized gain (loss) on shares redeemed ........ 920 0 (1,816) 0 (9,485) 0
Net change in unrealized gain (loss) on
investments .................................. 113,818 308,579 258,507 (84,403) 78,797 51,292
---------- ----------- ----------- ----------- ----------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ...................... 602,955 480,085 273,343 (62,678) 52,286 47,263
---------- ----------- ----------- ----------- ----------- ---------
ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS
Contract Owner Net Payments .................. 8,126,207 4,463,509 1,445,262 1,316,610 1,012,106 579,387
Surrenders, Withdrawals and Death Benefits ... (253,996) (37,721) (30,350) (10,790) (12,105) (2,648)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Options ........... 98,585 223,911 121,453 117,939 35,849 45,694
Administrative and Other Charges ............. (2,839) 0 (655) 0 (520) 0
---------- ----------- ----------- ----------- ----------- ---------
TOTAL ANNUITY PAYMENTS AND
OTHER OPERATING TRANSFERS ...................... 7,967,957 4,649,699 1,535,710 1,423,759 1,035,330 622,433
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [Note 7] ............... (55,800) 76,653 (44,233) 41,825 (36,828) 36,689
----------- ----------- ----------- ----------- ----------- ---------
TOTAL INCREASE IN NET ASSETS ..................... 8,515,112 5,206,437 1,764,820 1,402,906 1,050,788 706,385
NET ASSETS
Beginning of year ................................ 5,206,437 0 1,402,906 0 706,385 0
----------- ----------- ----------- ----------- ----------- ---------
End of year...................................... $13,721,549 $ 5,206,437 $ 3,167,726 $ 1,402,906 $ 1,757,173 $ 706,385
=========== =========== =========== =========== =========== =========
</TABLE>
**Commenced Operations
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A21
A13
<PAGE>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------
PRUDENTIAL
SMALL FRANKLIN
CAPITALIZATION AMERICAN SMALL CAP
STOCK CENTURY VP GROWTH
PORTFOLIO*** VALUE*** FUND***
--------- --------- ---------
1998 1998 1998
--------- --------- ---------
$ 22 $ (270) $ (491)
28,379 0 0
1,244 109 (141)
35,630 3,508 30,781
--------- --------- ---------
65,275 3,347 30,149
--------- --------- ---------
516,286 131,048 224,651
(593) (384) (99)
64,252 10,141 60,831
0 0 (4)
--------- --------- ---------
579,945 140,805 285,379
(842) (18) (166)
--------- --------- ---------
644,378 144,134 315,362
0 0 0
--------- --------- ---------
$ 644,378 $ 144,134 $ 315,362
--------- --------- ---------
***Investment option commenced operations on September 1, 1998
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A21
A14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OF THE PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM
VARIABLE ANNUITY ACCOUNT
DECEMBER 31, 1998
NOTE 1: GENERAL
Pruco Life of New Jersey Flexible Premium Variable Annuity Account
(the "Account") was established on May 20, 1996 under New Jersey law
as a separate investment account of Pruco Life Insurance Company of
New Jersey ("Pruco Life of New Jersey") which is a wholly-owned
subsidiary of Pruco Life Insurance Company (an Arizona domiciled
company) and is indirectly wholly-owned by the Prudential Insurance
Company of America ("Prudential"). The assets of the Account are
segregated from Pruco Life of New Jersey's other assets.
The Account is registered under the Investment Company Act of 1940,
as amended, as a unit investment trust. The Account is a funding
vehicle for individual variable annuity contracts. There are
twenty-two subaccounts within the account, each of which invests in 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.
The Discovery Select Variable Annuity subaccounts of the Pruco Life
of New Jersey Flexible Premium Variable Annuity Account commenced
operations on January 24, 1997.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of
the financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts
and disclosures. Actual results could differ from those estimates.
Investments--The investments in shares of the Series Fund or the
non-Prudential administered funds are stated at the net asset value
of the respective portfolio.
Security Transactions--Realized gains and losses on security
transactions are reported on an average cost basis. Purchase and sale
transactions are recorded as of the trade date of the security being
purchased or sold.
Distributions Received--Dividend and capital gain distributions
received are reinvested in additional shares of the Series Fund or
the non-Prudential administered funds and are recorded on the
ex-dividend date.
A15
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUCO LIFE OF NEW JERSEY FLEXIBLE
PREMIUM VARIABLE ANNUITY ACCOUNT
The net asset value per share (rounded) for each portfolio of the
Series Fund or the non-Prudential administered funds, the number of
shares of each portfolio held by the subaccounts of the Account and
the aggregate cost of investments in such shares at December 31, 1998
were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
---------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED HIGH YIELD STOCK EQUITY
MARKET BOND BOND INDEX INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- ---------------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C>
Number of shares: 1,843,577 3,077,956 4,001,356 1,273,387 2,021,043
Net asset value per
share (rounded): $ 10.00 $ 11.06 $ 7.21 $ 37.74 $ 20.03
Cost: $ 18,435,774 $ 34,353,916 $ 32,230,728 $ 41,196,801 $ 45,918,297
<CAPTION>
PORTFOLIOS (CONTINUED)
---------------------------------------------------------------------------------------------
AIM V.I.
PRUDENTIAL PRUDENTIAL PRUDENTIAL GROWTH AND AIM V.I.
EQUITY JENNISON GLOBAL INCOME VALUE
PORTFOLIO PORTFOLIO PORTFOLIO FUND FUND
---------------- ---------------- ---------------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C>
Number of shares: 1,506,371 1,643,278 228,989 384,417 421,687
Net asset value per
share (rounded): $ 29.64 $ 23.91 $ 21.16 $ 23.75 $ 26.25
Cost: $ 48,571,532 $ 32,476,215 $ 4,529,670 $ 7,486,655 $ 9,280,712
<CAPTION>
PORTFOLIOS (CONTINUED)
---------------------------------------------------------------------------------------------
JANUS ASPEN MFS OCC
JANUS INTERNATIONAL EMERGING MFS ACCUMULATION
ASPEN GROWTH GROWTH GROWTH RESEARCH TRUST MANAGED
PORTFOLIO PORTFOLIO SERIES SERIES PORTFOLIO
---------------- ---------------- ---------------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C>
Number of shares: 426,298 501,265 578,314 356,165 667,051
Net asset value per
share (rounded):
$ 23.54 $ 21.27 $ 21.47 $ 19.05 $ 43.74
Cost: $ 8,189,192 $ 9,794,859 $ 9,972,444 $ 5,772,310 $ 28,402,865
<CAPTION>
PORTFOLIOS (CONTINUED)
---------------------------------------------------------------------------------------------
WARBURG PRUDENTIAL
OCC T. ROWE PRICE T. ROWE PRICE PINCUS SMALL
ACCUMULATION EQUITY INTERNATIONAL POST-VENTURE CAPITALIZATION
TRUST SMALL INCOME STOCK CAPITAL STOCK
CAP PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- ---------------- --------------- ----------------------
<S> <C> <C> <C> <C> <C>
Number of shares: 335,185 712,808 218,163 148,661 43,804
Net asset value per
share (rounded): $ 23.10 $ 19.25 $ 14.52 $ 11.82 $ 14.71
Cost: $ 8,320,662 $ 13,299,152 $ 2,993,622 $ 1,627,084 $ 608,748
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------
FRANKLIN
AMERICAN SMALL CAP
CENTURY GROWTH
VP VALUE FUND
---------------- ----------------
<S> <C> <C>
Number of shares: 21,417 34,167
Net asset value per
share (rounded): $ 6.73 $ 9.23
Cost: $ 140,626 $ 284,581
</TABLE>
A16
<PAGE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units, unit values and total value of
contract owner equity at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED HIGH YIELD STOCK EQUITY
MARKET BOND BOND INDEX INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding 16,317,010 28,376,932 23,777,679 25,489,353 25,310,440
Unit Value.................... $ 1.12985 $ 1.19977 $ 1.21296 $ 1.88540 $ 1.59960
-------------- -------------- --------------- -------------- ---------------
TOTAL CONTRACT OWNER EQUITY... $ 18,435,774 $ 34,045,791 $ 28,841,374 $ 48,057,625 $ 40,486,580
============== ============== =============== ============== ===============
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------
AIM V.I.
PRUDENTIAL PRUDENTIAL PRUDENTIAL GROWTH AND AIM V.I.
EQUITY JENNISON GLOBAL INCOME VALUE
PORTFOLIO PORTFOLIO PORTFOLIO FUND FUND
-------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding 27,877,412 19,579,080 3,115,243 5,636,579 6,623,349
Unit Value.................... $ 1.60144 $ 2.00651 $ 1.55516 $ 1.61976 $ 1.67125
-------------- --------------- --------------- -------------- --------------
TOTAL CONTRACT OWNER EQUITY... $ 44,644,003 $ 39,285,619 $ 4,844,702 $ 9,129,905 $ 11,069,271
============== =============== =============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------
JANUS MFS OCC
JANUS INTERNATIONAL EMERGING MFS ACCUMULATION
ASPEN GROWTH GROWTH GROWTH RESEARCH MANAGED
PORTFOLIO PORTFOLIO SERIES SERIES PORTFOLIO
-------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding 6,145,905 7,490,614 8,147,991 4,582,935 21,770,163
Unit Value.................... $ 1.63278 $ 1.42337 $ 1.52386 $ 1.48048 $ 1.34022
-------------- --------------- --------------- -------------- ---------------
TOTAL CONTRACT OWNER EQUITY... $ 10,034,910 $ 10,661,915 $ 12,416,397 $ 6,784,944 $ 29,176,808
============== =============== =============== ============== ===============
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------
PRUDENTIAL
OCC T. ROWE PRICE T. ROWE PRICE WARBURG PINCUS SMALL
ACCUMULATION EQUITY INTERNATIONAL POST-VENTURE CAPITALIZATION
TRUST SMALL INCOME STOCK CAPITAL STOCK
CAP PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding 6,811,750 9,576,938 2,623,440 1,563,182 514,051
Unit Value.................... $ 1.13668 $ 1.43277 $ 1.20747 $ 1.12410 $ 1.25353
-------------- --------------- --------------- -------------- ---------------
TOTAL CONTRACT OWNER EQUITY... $ 7,742,780 $ 13,721,549 $ 3,167,726 $ 1,757,173 $ 644,378
============== =============== =============== ============== ===============
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------
FRANKLIN
AMERICAN SMALL CAP
CENTURY GROWTH
VP VALUE FUND
-------------- ---------------
<S> <C> <C>
Contract Owner Units Outstanding 122,871 253,350
Unit Value.................... $ 1.17305 $ 1.24477
-------------- ---------------
TOTAL CONTRACT OWNER EQUITY... $ 144,134 $ 315,362
============== ===============
</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%, are applied daily against the net assets representing
equity of contract owners held in each subaccount. Mortality risk is
that annuitants may live longer than estimated and expense risk is
that the cost of issuing and administering the policies may exceed
the related charges by Pruco Life of New Jersey.
A17
<PAGE>
NOTE 5: CHARGES AND EXPENSES (CONTINUED)
B. Administration Charge
A deferred sales charge is imposed upon withdrawals of certain
purchase payments to compensate Prudential for sales and other
marketing expenses. The administration charge at an effective annual
rate of .15% is applied daily against the net assets representing
equity of 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 of New Jersey 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 of New Jersey is taxed as a "life insurance company" as
defined by the Internal Revenue Code and the results of operations of
the Account form a part of Prudential's consolidated federal tax
return. Under current federal law, no federal income taxes are
payable by the Account. As such, no provision for tax liability has
been recorded in these financial statements.
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE ACCOUNT
The increase (decrease) in net assets retained in the Account
represents the net contributions (withdrawals) of Pruco Life of New
Jersey to (from) the Account. Effective October 13, 1998, Pruco Life
of New Jersey no longer maintains a position in the account.
Previously, Pruco Life of New Jersey 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
period January 24, 1997* through December 31, 1997 and the year ended
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------
PRUDENTIAL MONEY MARKET PRUDENTIAL DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
--------------------------------- ----------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 22,847,069 5,435,980 26,289,325 4,500,473
Contract Owner Redemptions: (11,896,512) (69,527) (2,363,752) (49,045)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------
PRUDENTIAL HIGH YIELD BOND PRUDENTIAL STOCK INDEX
PORTFOLIO PORTFOLIO
--------------------------------- ----------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 20,814,498 5,453,214 19,792,548 8,626,854
Contract Owner Redemptions: (2,434,026) (56,008) (2,847,138) (82,951)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------
PRUDENTIAL EQUITY INCOME PRUDENTIAL EQUITY
PORTFOLIO PORTFOLIO
--------------------------------- ----------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 21,415,860 6,034,726 20,939,711 9,211,888
Contract Owner Redemptions: (2,083,915) (56,231) (2,125,152) (149,016)
</TABLE>
A18
<PAGE>
NOTE 8: UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------
PRUDENTIAL JENNISON PRUDENTIAL GLOBAL
PORTFOLIO PORTFOLIO
----------------------------------- -----------------------------------
1998 1997 1998 1997
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 16,411,856 4,405,058 2,051,714 1,575,148
Contract Owner Redemptions: (1,188,911) (48,943) (481,053) (30,566)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------
AIM V.I. GROWTH AIM V.I.
AND VALUE
INCOME FUND FUND
----------------------------------- -----------------------------------
1998 1997 1998 1997
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 3,927,853 2,423,634 4,507,581 2,708,560
Contract Owner Redemptions: (705,704) (9,205) (572,109) (20,683)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------
JANUS ASPEN GROWTH JANUS ASPEN INTERNATIONAL
PORTFOLIO GROWTH PORTFOLIO
----------------------------------- -----------------------------------
1998 1997 1998 1997
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 4,136,299 2,381,042 4,602,117 3,660,400
Contract Owner Redemptions: (351,019) (20,418) (738,443) (33,461)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------
MFS EMERGING MFS RESEARCH
GROWTH SERIES SERIES
----------------------------------- -----------------------------------
1998 1997 1998 1997
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 6,101,761 2,643,271 2,848,755 2,189,366
Contract Owner Redemptions: (590,675) (6,366) (425,082) (30,104)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------
OCC ACCUMULATION TRUST OCC ACCUMULATION TRUST
MANAGED PORTFOLIO SMALL CAP PORTFOLIO
----------------------------------- -----------------------------------
1998 1997 1998 1997
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 16,105,759 7,464,664 5,096,373 2,675,189
Contract Owner Redemptions: (1,637,607) (162,668) (915,114) (44,698)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------
T. ROWE PRICE EQUITY T. ROWE PRICE INTERNATIONAL
INCOME PORTFOLIO STOCK PORTFOLIO
----------------------------------- -----------------------------------
1998 1997 1998 1997
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Contract Owner Contributions: 6,462,462 3,884,774 1,496,184 1,296,132
Contract Owner Redemptions: (731,820) (38,509) (159,534) (9,342)
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------
PRUDENTIAL
WARBURG PINCUS POST-VENTURE SMALL CAPITALIZATION
CAPITAL PORTFOLIO STOCK PORTFOLIO*
----------------------------------- -----------------------------------
1998 1997 1998
----------------- ---------------- ----------------
<S> <C> <C> <C>
Contract Owner Contributions: 1,091,791 633,040 517,841
Contract Owner Redemptions: (153,538) (8,111) (3,791)
</TABLE>
*Commenced Operations on September 1, 1998
A19
<PAGE>
NOTE 8: UNIT ACTIVITY (CONTINUED)
SUBACCOUNTS (CONTINUED)
----------------------------------
AMERICAN FRANKLIN
CENTURY SMALL CAP
VP VALUE* GROWTH FUND*
----------------------------------
1998 1998
----------------- ---------------
Contract Owner Contributions: 126,750 253,707
Contract Owner Redemptions: (3,879) (357)
* Commenced Operations on September 1, 1998
NOTE 9: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of
investments in the Series Fund and the non-Prudential administered
funds for the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY MARKET DIVERSIFIED BOND HIGH YIELD BOND STOCK INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Purchases...................... $ 18,211,448 $ 28,444,318 $ 24,117,444 $ 29,455,131 $ 34,590,205
Sales.......................... $ (6,401,073) $ (799,313) $ (886,019) $ (1,483,832) $ (998,970)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------
AIM V.I.
PRUDENTIAL PRUDENTIAL PRUDENTIAL GROWTH AIM V.I.
EQUITY JENNISON GLOBAL AND INCOME VALUE
PORTFOLIO PORTFOLIO PORTFOLIO FUND FUND
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Purchases...................... $ 30,742,320 $ 26,234,294 $ 2,961,364 $ 4,760,969 $ 5,595,881
Sales.......................... $ (750,068) $ (372,877) $ (497,326) $ (409,148) $ (160,028)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------
JANUS OCC
ASPEN MFS ACCUMULATION
JANUS INTERNATIONAL EMERGING MFS TRUST
ASPEN GROWTH GROWTH GROWTH RESEARCH MANAGED
PORTFOLIO PORTFOLIO SERIES SERIES PORTFOLIO
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Purchases..................... $ 5,160,376 $ 5,555,687 $ 7,326,127 $ 3,454,739 $ 20,042,129
Sales......................... $ (100,418) $ (430,451) $ (234,640) $ (271,057) $ (675,952)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------
WARBURG
OCC T. ROWE PRICE T. ROWE PRICE PINCUS PRUDENTIAL
ACCUMULATION EQUITY INTERNATIONAL POST-VENTURE SMALL
TRUST SMALL INCOME STOCK CAPITAL CAPITALIZATION
CAP PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO*
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Purchases..................... $ 5,662,402 $ 8,051,550 $ 1,588,202 $ 1,069,169 $ 608,714
Sales......................... $ (611,193) $ (281,465) $ (128,958) $ (87,694) $ (30,570)
</TABLE>
* Commenced Operations on September 1, 1998
A20
<PAGE>
NOTE 9: PURCHASES AND SALES OF INVESTMENTS (CONTINUED)
SUBACCOUNTS (CONTINUED)
---------------------------------
AMERICAN FRANKLIN
CENTURY SMALL CAP
VP VALUE* GROWTH FUND*
----------------- --------------
Purchases..................... $ 165,542 $ 295,891
Sales......................... $ (24,920) $ (11,121)
* Commenced Operations on September 1, 1998
A21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the
Pruco Life of New Jersey Flexible Premium Variable Annuity Account
and the Board of Directors of
Pruco Life Insurance Company of New Jersey
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 subaccounts (Prudential Money
Market Portfolio, Prudential Diversified Bond Portfolio, Prudential High Yield
Bond Portfolio, Prudential Stock Index Portfolio, Prudential Equity Income
Portfolio, Prudential Equity Portfolio, Prudential Jennison Portfolio,
Prudential Global Portfolio, AIM V.I. Growth and Income Fund, AIM V.I. Value
Fund, Janus Aspen Growth Portfolio, Janus Aspen International Growth Portfolio,
MFS Emerging Growth Series, MFS Research Series, OCC Accumulation Trust Managed
Portfolio, OCC Accumulation Trust Small Cap Portfolio, T. Rowe Price Equity
Income Portfolio, T. Rowe Price International Stock Portfolio, Warburg Pincus
Post-Venture Capital Portfolio, Prudential Small Capitalization Stock Portfolio,
American Century VP Value, and Franklin Small Cap Growth Fund) of the Pruco Life
of New Jersey Flexible Premium Variable Annuity Account at December 31, 1998,
the results of each of their operations for the year then ended (for the period
September 1, 1998 through December 31, 1998 for Prudential Small Capitalization
Stock Portfolio, American Century VP Value and Franklin Small Cap Growth Fund)
and the changes in each of their net assets for the year ended December 31, 1998
and for the period January 24, 1997 through December 31, 1997 for Prudential
Money Market Portfolio, Prudential Diversified Bond Portfolio, Prudential High
Yield Bond Portfolio, Prudential Stock Index Portfolio, Prudential Equity Income
Portfolio, Prudential Equity Portfolio, Prudential Jennison Portfollio,
Prudential Global Portfolio, AIM V.I. Growth and Income Fund, AIM V.I. Value
Fund, Janus Aspen Growth Portfolio, Janus Aspen International Growth Portfolio,
MFS Emerging Growth Series, MFS Research Series, OCC Accumulation Trust Managed
Portfolio, OCC Accumulation Trust Small Cap Portfolio, T. Rowe Price Equity
Income Portfolio, T. Rowe Price International Stock Portfolio and Warburg Pincus
Post-Venture Capital Portfolio and for the period September 1, 1998 through
December 31, 1998 for Prudential Small Capitalization Stock Portfolio, American
Century VP Value and Franklin Small Cap Growth Fund in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Pruco Life Insurance Company of New Jersey's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of fund shares owned at
December 31, 1998, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 19, 1999
A22
<PAGE>
FINANCIAL
INFORMATION
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
(1) Financial Statements of the Pruco Life of New Jersey Flexible Premium
Variable Annuity Account (Registrant) consisting of the Statements of Net
Assets as of December 31, 1998; the Statements of Operations for the
period ended December 31, 1998; the Statements of Changes in Net Assets
for the periods ended December 31, 1998 and December 31, 1997; and the
Notes relating thereto appear in the Statement of Additional Information
(Part B of the Registration Statement).
(2) Statements of Pruco Life of New Jersey (Depositor) consisting of the
Statements of Financial Position as of December 31, 1998 and 1997; and the
related Statements of Operations of Stockholder's Equity and Cash Flows
for the years ended December 31, 1998, 1997 and 1996; and the Notes to the
Financial Statements appear in the prospectus (Part A of the Registration
Statement).
(b) EXHIBITS
(1) Resolution of the Board of Directors of Pruco Life Insurance Company of
New Jersey establishing the Pruco Life of New Jersey Flexible Premium
Variable Annuity Account and the Pruco Life of New Jersey Modified
Guaranteed Annuity Account (Note 3)
(2) Agreements for custody of securities and similar investments--Not
Applicable.
(3) (a) Form of Distribution Agreement between Prudential Investment
Management Services, Inc. "PIMS" (Underwriter) and Pruco Life
Insurance Company of New Jersey (Depositor) (Note 1)
(b) Form of Selected Broker Agreement used by PIMS (Note 1)
(4) The Prudential DISCOVERY SELECT Contract. (Note 3)
(5) (a) Application form for the Contract. (Note 4)
(6) (a) Articles of Incorporation of Pruco Life Insurance Company of New
Jersey, as amended February 12, 1998. (Note 7)
(b) By-laws of Pruco Life Insurance Company of New Jersey, as amended
February 1, 1991. (Note 5)
(7) Contract of reinsurance in connection with variable annuity contract--Not
Applicable.
(8) Other material contracts performed in whole or in part after the date the
registration statement is filed:
(a) Form of Fund Participation Agreement. (Note 4)
(9) Opinion of Counsel as to legality of the securities being registered.
(Note 1)
(10) Written consent of PricewaterhouseCoopers LLP, independent accountants.
(Note 1)
(11) All financial statements omitted from Item 23, Financial Statements--Not
Applicable.
(12) Agreements in consideration for providing initial capital between or among
Registrant, Depositor, Underwriter, or initial Contract owners--Not
Applicable.
(13) Schedule of Performance Computations. (Note 1)
(14) Powers of Attorney.
(a) William M. Bethke, Ira J. Kleinman, Esther H. Milnes and I. Edward
Price (Note 3)
(b) James J. Avery Jr. (Note 6)
(c) Dennis G. Sullivan (Note 7)
C-1
<PAGE>
- ----------
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Post-Eeffective Amendment No. 26 to Form
S-6 Registration No. 2-89780, filed April 28, 1997, on behalf of the
Pruco Life of New Jersey Variable Appreciable Account.
(Note 3) Incorporated by reference to Form N-4, Registration No. 333-18113,
filed December 18, 1996 on behalf of the Pruco Life of New Jersey
Flexible Premium Variable Annuity Account.
(Note 4) Incorporated by reference to Form N-4, Registration No. 333-06701,
filed June 26, 1996 on behalf of the Pruco Life Flexible Premium
Variable Annuity Account.
(Note 5) Incorporated by reference to Form 10-Q, Registration No. 333-18117,
filed August 15, 1997 on behalf of the Pruco Life of New Jersey.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 10 to Form
S-1, Registration No. 33-20018, filed April 9, 1998 on behalf of the
Pruco Life of New Jersey Variable Contract Real Property Account.
(Note 7) Incorporated by reference to Post-Effective Amendment No. 12 to Form
S-1, Registration No. 33-20018, filed on or about April 15, 1999 on
behalf of the Pruco Life of New Jersey Variable Contract Real Property
Account.
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
See Part A: Directors and Officers.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
THE DEPOSITOR OR REGISTRANT
Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey"), a
corporation organized under the laws of New Jersey, is an indirect, wholly-owned
subsidiary of The Prudential Insurance Company of America, ("Prudential"), a
mutual life insurance company organized under the laws of New Jersey. The
subsidiaries of Prudential and short descriptions of each are set forth on the
following pages.
Pruco Life of New Jersey may be deemed to control the following separate
accounts which are registered as unit investment trusts under the Investment
Company Act of 1940: the Pruco Life of New Jersey Variable Appreciable Account,
the Pruco Life of New Jersey Variable Insurance Account, the Pruco Life of New
Jersey Single Premium Variable Life Account, the Pruco Life of New Jersey Single
Premium Variable Annuity Account, the Pruco Life of New Jersey Flexible Premium
Variable Annuity Account (Registrant), the Pruco Life of New Jersey Modified
Guaranteed Annuity Account and the Pruco Life of New Jersey Variable Real
Property Account (separate accounts of Pruco Life of New Jersey).
The above-referenced separate accounts, along with Prudential and certain of
Prudential's separate accounts, hold all the shares of The Prudential Series
Fund, Inc., a Maryland corporation. In addition, The Prudential holds all the
shares of Prudential's Gibraltar Fund, a Maryland Corporation, in three of its
separate accounts. The Prudential Series Fund, Inc. and Prudential's Gibraltar
Fund are registered as open-end diversified, management investment companies
under the Investment Company Act of 1940. Additionally, the aforementioned
separate accounts of Prudential are registered as unit investment trusts under
the Investment Company Act of 1940.
In addition, Pruco Life of New Jersey may also be deemed to be under common
control with The Prudential Variable Contract Account-2, The Prudential Variable
Contract Account-10, and The Prudential Variable Contract Account-11, separate
accounts of Prudential, all of which are registered as open-end, diversified,
management investment companies under the Investment Company Act of 1940 and
with the Prudential Variable Contract Account-24, a registered unit investment
trust.
The subsidiaries of Prudential and short descriptions of each are listed under
Item 25 of Post-Effective Amendment No. 34 to the Form N-1A Registration
Statement for The Prudential Series Fund, Inc., Registration No. 2-80896, filed
April 24, 1998, the text of which is hereby incorporated.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 5, 1999, there were 3,018 owners of qualified contracts and 3,589
owners of nonqualified contracts offered by the Registrant.
C-2
<PAGE>
ITEM 28. INDEMNIFICATION
The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.
New Jersey, being the state of organization of Pruco Life Insurance Company of
New Jersey ("PLNJ"), permits entities organized under its jurisdiction to
indemnify directors and officers with certain limitations. The relevant
provisions of New Jersey law permitting indemnification can be found in Section
14A:3-5 of the New Jersey Statutes Annotated. The text of PLNJ's By-law, Article
V, which relates to indemnification of officers and directors, is incorporated
by reference to Exhibit 3(ii) to its form 10-Q filed August 15, 1997.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Prudential Investment Management Services LLC (PIMS)
PIMS is distributor for Cash Accumulation Trust, Command Money Fund,
Command Government Fund, Command Tax-Free Fund, The Global Total Return Fund,
Inc., Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Balanced Fund, Prudential
California Municipal Fund, Prudential Distressed Securities Fund, Inc.,
Prudential Diversified Bond Fund, Inc., Prudential Emerging Growth Fund, Inc.,
Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential Europe
Growth Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential Global
Limited Maturity Fund, Inc., Prudential Government Income Fund, Inc., Prudential
Government Securities Trust, Prudential High Yield Fund, Inc., Prudential High
Yield Total Return Fund, Inc., Prudential Index Series Fund, Prudential
Institutional Liquidity Portfolio, Inc., Prudential Intermediate Global Income
Fund, Inc., Prudential International Bond Fund, Inc., The Prudential Investment
Portfolios, Inc., Prudential Mid-Cap Value Fund, Prudential MoneyMart Assets,
Inc., Prudential Mortgage Income Fund, Inc., Prudential Municipal Bond Fund,
Prudential Municipal Series Fund, Prudential National Municipals Fund, Inc.,
Prudential Natural Resources Fund, Inc., Prudential Pacific Growth Fund, Inc.,
Prudential Real Estate Securities Fund, Prudential Small-Cap Quantum Fund, Inc.,
Prudential Small Company Value Fund, Inc., Prudential Special Money Market Fund,
Inc., Prudential Structured Maturity Fund, Inc., Prudential Tax-Free Money Fund,
Inc., Prudential 20/20 Focus Fund, Prudential Utility Fund, Inc., Prudential
World Fund, Inc. and The Target Portfolio Trust.
(b) Information concerning the officers and directors of PIMS is set forth
below.
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME (1) WITH UNDERWRITER REGISTRANT
- -------- --------------------- -------------
Robert F. Gunia............ President None
Kevin B. Frawley .......... Compliance Officer None
Jean D. Hamilton........... Executive Vice President None
John R. Strangfeld ........ Executive Vice President None
Brian Henderson............ Senior Vice President and Chief None
Operating Officer
C-3
<PAGE>
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME (1) WITH UNDERWRITER REGISTRANT
- -------- --------------------- -------------
William V. Healey ......... Senior Vice President, Secretary
and Chief Legal Officer None
Margaret M. Deverell ...... Vice President, Comptroller and
Chief Financial Officer None
C. Edward Chaplin ......... Treasurer None
- ----------
(1) The address of each person named is Prudential Plaza, 751 Broad Street,
Newark, New Jersey 07102 unless otherwise noted.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books or other documents required to be maintained by Section 31
(a) of the 1940 Act and the rules promulgated thereunder are maintained by the
Registrant through The Prudential Insurance Company of America, 751 Broad
Street, Newark, New Jersey 07102-3777.
ITEM 31. MANAGEMENT SERVICES
Summary of any contract not discussed in Part A or Part B of the registration
statement under which management-related services are provided to the
Registrant--Not Applicable.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes to file a post-effective amendment to this Registrant
Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16
months old for so long as payments under the variable annuity contracts may
be accepted.
(b) Registrant undertakes to include either (1) as part of any application to
purchase a contract offered by the prospectus, a space that an applicant
can check to request a statement of additional information, or (2) a
postcard or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a statement of
additional information.
(c) Registrant undertakes to deliver any statement of additional information
and any financial statements required to be made available under this Form
promptly upon written or oral request.
(d) Restrictions on withdrawal under Section 403(b) Contracts are imposed in
reliance upon, and in compliance with, a no-action letter issued by the
Chief of the Office of Insurance Products and Legal Compliance of the U.S.
Securities and Exchange Commission to the American Council of Life
Insurance on November 28, 1988.
(e) Pruco Life of New Jersey hereby represents that the fees and charges
deducted under the Contract, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred and the
risks assumed by Pruco Life of New Jersey.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirements of the Securities Act Rule 485(b) for effectiveness of this
Registration Statement and has caused this Post-effective Amendment No. 3 to the
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, and its seal hereunto affixed and attested, all in the City of
Newark and the State of New Jersey, on this 16th day of April, 1999.
THE PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM
VARIABLE ANNUITY ACCOUNT
(Registrant)
BY: PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Depositor)
Attest: /s/ CLIFFORD E. KIRSCH /s/ ESTHER H. MILNES
- --------------------------------- -----------------------
CLIFFORD E. KIRSCH ESTHER H. MILNES
CHIEF LEGAL OFFICER PRESIDENT
AND SECRETARY
C-5
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
SIGNATURE AND TITLE
------------------
*
- ----------------------------------------
ESTHER MILNES Date April 16, 1999
PRESIDENT AND DIRECTOR
*
- ----------------------------------------
JAMES J. AVERY JR
CHAIRMAN OF THE BOARD AND DIRECTOR
* *By: CLIFFORD E. KIRSCH
- ---------------------------------------- -------------------------
DENNIS G. SULLIVAN CLIFFORD E. KIRSCH
VICE PRESIDENT AND CHIEF (ATTORNEY-IN-FACT)
ACCOUNTING OFFICER (PRINCIPAL
FINANCIAL OFFICER AND CHIEF
ACCOUNTING OFFICER
*
- ----------------------------------------
WILLIAM M. BETHKE
DIRECTOR
*
- ----------------------------------------
IRA J. KLEINMAN
DIRECTOR
*
- ----------------------------------------
I. EDWARD PRICE
DIRECTOR
C-6
DISTRIBUTION AGREEMENT
* * *
This Distribution Agreement made this __ day of ____________, 199_, by
and between Pruco Life Insurance Company of New Jersey, a New Jersey corporation
("Company"), on its own behalf and on behalf of Pruco Life of New Jersey
Flexible Premium Variable Annuity Account ("Account") used to fund individual
annuity contracts and Prudential Investment Management Services LLC, a Delaware
limited liability company ("Distributor").
WITNESSETH:
WHEREAS, Company has established and maintains the Account, which is a
separate investment account, pursuant to the laws of the State of New Jersey for
the purpose of selling variable annuity contracts ("Contracts"), to commence
after the effectiveness of the Registration Statement relating thereto filed
with the Securities and Exchange Commission on Forms S-1 and N-4 pursuant to the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940 ("Investment Company Act"); and
WHEREAS, the Account is registered as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934 (the "Exchange Act") and is a member of the
National Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, Company and the Distributor wish to enter into an agreement to
have the Distributor act as Company's principal underwriter for the sale of the
Contracts through the Account.
NOW, THEREFORE, for good and valuable consideration, the sufficiency of
which is acknowledged hereby, the parties agree as follows:
1. APPOINTMENT OF THE DISTRIBUTOR
Company agrees that during the term of this Agreement it will take all
action required to cause the Contracts to comply as an insurance product and a
registered security with all applicable federal and state laws and regulations.
Company appoints Distributor and Distributor agrees to act as the principal
underwriter for the sale of Contracts to the public, during the term of this
Agreement, in each state and other jurisdictions in which such Contracts may
lawfully be sold. Distributor shall offer Contracts for sale and distribution at
premium rates set by Company. Applications for Contracts shall be solicited only
by representatives duly and appropriately licensed or otherwise qualified for
the sale of such Contracts in each state or other jurisdiction. Company shall
undertake to appoint Distributor's qualified representatives as life insurance
agents of Company. Completed applications for Contracts shall be transmitted
directly to Company for acceptance or rejection in accordance with underwriting
rules established by Company. Initial premium payments under the Contracts shall
be made by check payable to Company and shall be held at all times by
Distributor or its representatives in a fiduciary capacity and remitted promptly
<PAGE>
to Company. Anything in this Agreement to the contrary notwithstanding, Company
retains the ultimate right to control the sale of Contracts and to appoint and
discharge life insurance agents of Company. Distributor shall be held to the
exercise of reasonable care in carrying out the provisions of this Agreement.
2. SALES AGREEMENTS
Distributor is hereby authorized to enter into separate written
agreements, on such terms and conditions as Distributor may determine not
inconsistent with the terms of this Agreement, with one or more organizations
which agree to participate in the distribution of Contracts. Such organizations
(hereafter "Brokers" or "Broker") shall be both registered as a broker/dealer
under the Exchange Act and a member in good standing of the NASD. Broker and its
agents or representatives soliciting applications for Contracts shall be duly
and appropriately licensed, registered, or otherwise qualified for the sale of
such Contracts (and the riders and other policies offered in connection
therewith) under the insurance laws and any applicable blue-sky laws of each
state or other jurisdiction in which Company is licensed to sell the Contracts.
Distributor shall have the responsibility for ensuring that Broker
supervises its representatives. Broker shall assume any legal responsibilities
of Company for the acts, commissions or defalcations of such representatives
insofar as they relate to the sale of the Contracts. Applications for Contracts
solicited by such Broker through its agents or representatives shall be
transmitted directly to Company, and if received by Distributor, shall be
forwarded to Company. All premium payments under the Contracts shall be made by
check to Company and, if received by Distributor, shall be held at all times in
a fiduciary capacity and remitted promptly to Company.
3. LIFE INSURANCE LICENSING
Company shall be responsible for insuring that Brokers are duly
qualified, under the insurance laws of the applicable jurisdictions, to sell the
Contracts.
4. SUITABILITY
Company wishes to ensure that Contracts sold by Distributor will be
issued to purchasers for whom the Contract will be suitable. Distributor shall
take reasonable steps to ensure that the various representatives appointed by it
shall not make recommendations to an applicant to purchase a Contract in the
absence of reasonable grounds to believe that the purchase of the Contract is
suitable for such applicant. While not limited to the following, a determination
of suitability shall be based on information furnished to representatives after
reasonable inquiry of such applicant concerning the applicant's insurance and
investment objectives, financial situation and needs, and the likelihood that
the applicant will continue to make the premium payments contemplated by the
Contracts.
5. PROMOTION MATERIALS
Company shall have the responsibility for furnishing to Distributor and
its representatives sales promotion materials and individual sales proposals
related to the sale of Contracts. Distributor shall not use any such materials
that have not been approved by Company. Distributor shall be responsible for
obtaining NASD review of all promotional materials.
<PAGE>
6. COMPENSATION
Company shall arrange for the payment of commissions directly to those
registered representatives of Distributor who are entitled thereto in connection
with the sale of the Contracts on behalf of Distributor, in the amounts and on
such terms and conditions as Company and Distributor shall determine; provided
that such terms, conditions, and commissions shall be as set forth in, or as are
not inconsistent with, the Prospectus included as part of the Registration
Statement for the Contracts and effective under the 1933 Act.
Company shall arrange for the payment of commissions directly to those
Brokers who sell Contracts under agreements entered into pursuant to paragraph 2
hereof, in amounts as may be agreed to by the Company and specified in such
written agreements.
Company shall reimburse Distributor for the costs and expenses incurred
by Distributor in furnishing or obtaining the services, materials and supplies
required by the terms of this Agreement in the initial sales efforts and the
continuing obligations hereunder.
7. RECORDS
Distributor shall be responsible for maintaining records of
representatives licensed, registered, and otherwise qualified to sell Contracts.
Distributor shall maintain such other records as are required of it by
applicable laws and regulations. The books, accounts, and records of Company,
the Account, and Distributor shall be maintained so as to clearly and accurately
disclose the nature and details of the transactions. All records maintained by
Distributor in connection with this Agreement shall be the property of Company
and shall be returned to Company upon termination of this Agreement, free from
any claims or retention of rights by Distributor. Distributor shall keep
confidential any information obtained pursuant to this Agreement and shall
disclose such information only if Company has authorized such disclosure or if
such disclosure is expressly required by applicable federal or state regulatory
authorities.
8. INVESTIGATION AND PROCEEDING
(a) Distributor and Company agree to cooperate fully in any insurance
regulatory investigation or proceeding or judicial proceeding arising in
connection with Contracts distributed under this Agreement. Distributor and
Company further agree to cooperate fully in any securities regulatory
investigation or proceeding or judicial proceeding with respect to Company,
Distributor, their affiliates and their agents or representatives to the extent
that such investigation or proceeding is in connection with Contracts
distributed under this Agreement. Distributor shall furnish applicable federal
and state regulatory authorities with any information or reports in connection
with its services under this Agreement which such authorities may request in
order to ascertain whether Company's operations are being conducted in a manner
consistent with any applicable law or regulations.
(b) In the case of a substantive customer complaint, Distributor and
Company will cooperate in investigating such complaint and any response to such
complaint will be sent to the other party to this Agreement for approval not
less than FIVE (5) BUSINESS DAYS prior to its being
<PAGE>
sent to the customer or regulatory authority, except that if more prompt
response is required, the proposed response shall be communicated by telephone
or telegraph.
9. TERMINATION
This Agreement may be terminated at any time by either party on SIXTY
(60) DAYS prior written notice to the other party, without payment of penalty.
In the event that the Agreement is assigned, however, it shall terminate
automatically. Upon termination of this Agreement, all authorizations, rights,
and obligations shall cease except the obligation to settle accounts hereunder,
including commissions on premiums subsequently received for Contracts in effect
at times of termination, and the agreements contained in paragraph 8 hereof.
10. ASSIGNMENTS AND TRANSFERS
No transfer or assignment shall be effective without the prior written
consent of both the Company and the Distributor, except with respect to
transfers pursuant to Rule 2a-6 under the Investment Company Act. All agreements
that result from any assignment or transfer affecting New Jersey are subject to
the approval of the New Jersey Department of Insurance. Additional regulatory
approvals may also be required.
11. REGULATION
This Agreement shall be subject to the provisions of the 1940 Act and
the Exchange Act and the rules, regulations, and rulings thereunder and of the
applicable rules and regulations of the NASD, from time to time in effect, and
the terms hereof shall be interpreted and construed in accordance therewith.
12. SEVERABILITY
Should any provision of this Agreement be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby.
13. WARRANTIES
Each party to this Agreement warrants to the other party as follows:
(a) it has full power and authority to execute and deliver this
Agreement and to perform and observe the provisions herein;
(b) the execution, delivery, and performance of this Agreement have
been authorized by all necessary corporate actions and do not and will not
contravene any requirement of law or any contractual restrictions or agreement
binding on or affecting such party or its assets; and
(c) this Agreement has been duly and properly executed and delivered by
such party and constitutes a legal, valid, and binding obligation of such party
enforceable with its terms.
14. APPLICABLE LAW
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of New Jersey.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PRUCO LIFE INSURANCE COMPANY
OF NEW JERSEY
By: _______________________
Name: _______________________
Title: _______________________
PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
By: _______________________
Name: _______________________
Title: _______________________
BROKER AND AGENCY SALES AGREEMENT
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
Prudential Investment Management Services LLC ("Distributor"),
_______________ ("Broker") and _______________ ("Agency"), which is an
affiliate of, or the same person as, Broker, or whose employees are also
registered representatives of Broker, or which is itself an individual who is an
associated person of Broker, each have agreed that Broker and Agency will
participate in the distribution of certain variable annuity and variable life
insurance contracts ("Contracts") funded by separate accounts ("Accounts")
established and maintained by The Prudential Insurance Company of America, Pruco
Life Insurance Company, and/or Pruco Life Insurance Company of New Jersey
(collectively "Company"), subject to the terms of this Broker and Agency Sales
Agreement ("Agreement"). The Accounts are registered as unit investment trusts
under the Investment Company Act of 1940, as amended, ("Investment Company
Act") and interests in such Accounts are registered under the Securities Act of
1933, as amended ("1933 Act") through means of registration statements,
including financial statements and exhibits thereto ("Registration Statements")
filed with the United States Securities and Exchange Commission ("SEC"), which
Registration Statements include prospectuses and statements of additional
information ("Prospectuses"). The Contracts covered by this Agreement are
specified in Exhibit A hereto. Additional Contracts may be included in this
Agreement upon Distributor's written notification to Broker and Agency.
1. REGISTRATION, LICENSING AND APPOINTMENT
a. Broker represents and warrants that it is: (i) a broker-dealer
registered with the SEC; (ii) a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); and (iii) licensed by the
appropriate regulatory agencies of each State or other jurisdiction in which
Broker will offer and sell Contracts and interests in any Accounts relating
thereto, to the extent necessary to perform the duties and activities
contemplated by this Agreement.
b. Agency represents and warrants that it is an insurance agency duly
licensed to solicit applications and sell Contracts in any state or other
jurisdiction in which the Agency intends to perform duties hereunder. In those
instances in which Agency is an individual, rather than a non-natural person,
Broker represents and warrants that said person is employed by Broker and is an
"associated person" of Broker, as that term is defined in Section 3(a)(18) of
the Securities Exchange Act of 1934, as amended ("1934 Act"), and that such
person is duly licensed to solicit applications and sell Contracts in any state
or other jurisdiction in which it intends to perform its duties hereunder.
c. Broker and Agency each represents and warrants that it, and each of
its partners, directors, officers, employees, registered representatives,
associated persons, and agents who will be utilized with respect to its duties
and activities under this Agreement, is either appropriately licensed or exempt
from the licensing requirements by the appropriate securities, insurance, or
other regulatory agencies of each state or other jurisdiction in which Contracts
and interests in
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<PAGE>
any Accounts relating thereto will be offered and sold, and is, to the extent
necessary, appointed by the Company, or will be appointed by the Company, to
sell the Contracts and interests in the Accounts relating thereto, and to
perform actions contemplated by this Agreement. Broker and Agency shall ensure
that each of those persons fulfills any training requirements necessary to be so
licensed. Broker and Agency shall have the responsibility for monitoring and
maintaining the records of each of its partners, directors, officers, employees
registered representatives, associated persons, and agents who are licensed,
registered, or otherwise qualified to sell or service Contracts and interests in
the Accounts relating thereto, or to otherwise assist each other with the
performance of its respective duties and activities under this Agreement.
Nothing herein shall require the maintenance of duplicate records unless
otherwise required by applicable laws or regulations.
d. It is understood and agreed that the partners, directors, officers,
employees, registered representatives, associated persons and agents of Broker
engaged in the sale and service of Contracts may be employed by or associated
with Agency, whose partners, directors, officers, employees, registered
representatives, associated persons and agents are "associated persons" of
Broker within the meaning of Section 3(a)(18) of the 1934 Act. It is further
understood and agreed that records relating to sale and service of Contracts by
such associated persons may be maintained by Broker or Agency, as deemed
appropriate by those parties. Any books and records maintained by Agency in the
sale and service of Contracts will be deemed, for purposes of the 1934 Act, to
be books and records of Broker and will conform to the requirements of Section
17 of the 1934 Act and the rules thereunder and all necessary provisions of the
Investment Company Act. The manner in which the books and records of Broker and
Agency are made and maintained will permit supervisory personnel of Broker as
well as authorized examiners of the SEC, or of another appropriate governmental
agency or self-regulatory organization, to review data concerning transactions
under the Contracts effected through Agency to the same extent as if such
transactions had been effected through Broker itself. This may be accomplished
either through maintaining one set of books and records for Broker and Agency or
by maintaining separate sets of books and records with adequate integration,
through cross-referencing or otherwise, between records maintained by Broker and
those maintained by Agency.
e. Agency is vested under this Agreement with power and authority to
select and recommend individuals who are associated with Agency (or comprise the
Agency) and are registered representatives of Broker for appointment as
insurance agents of the Company. Only individuals so recommended by Agency to
the Distributor may become agents of the Company. Nothing in this Agreement is
to be construed as requiring the Company to obtain a license or issue a consent
or submission of appointment papers to enable any particular agent to sell
Contracts. All matters concerning the licensing of any individuals recommended
for appointment by Agency under any applicable state insurance law shall be a
matter directly between the Agency and such individual. Agency shall furnish the
Company with proof of proper licensing of such individual or other proof,
reasonably acceptable to the Company, of satisfaction by such individual of
licensing requirements prior to the appointment of any such individual as an
insurance agent of the Company. In conjunction with the submission of
appointment papers for all such individuals as insurance agents of the Company,
Agency represents that each individual
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<PAGE>
is competent and qualified to act as an insurance agent for the Company and to
hold himself or herself out in good faith to the general public. If Agency is an
individual who is an associated person of Broker, Broker represents that such
individual is competent and qualified to act as an insurance agent for the
Company and to hold himself or herself out in good faith to the general public.
Broker and Agency acknowledge that Company, in its sole discretion, may refuse
to appoint as insurance agents of the Company any of the Broker's or Agency's
partners, directors, officers, employees, registered representatives, associated
persons, or agents. Broker and Agency further acknowledge that Distributor and
the Company each, in its sole discretion, may refuse to do business with, or
continue to do business with, any of Broker's or Agency's partners, directors,
officers, employees, registered representatives, associated persons, or agents.
f. Broker and Agency each represents and warrants that it will promptly
advise Distributor and the Company in writing of any change in the status of
Broker or Agency, or any of its or their partners, directors, officers,
employees, registered representatives, associated persons, and agents utilized
with respect to its or their duties and activities under this Agreement to the
extent such change may adversely affect the performance of Broker's or Agency's
duties hereunder, and to promptly notify any such person if such person shall
become ineligible to sell or service Contracts or interests in any Accounts
relating thereto or to otherwise assist Broker or Agency with the performance of
its duties and activities under this Agreement.
g. Broker agrees that: (i) termination or suspension of its
registration with the SEC; (ii) termination or suspension of its membership with
the NASD or, if applicable, membership with the New York Stock Exchange; or
(iii) termination or suspension of its license to do business or to offer and
sell Contracts and interests in any Account relating thereto by any state or
other jurisdiction or federal regulatory agency shall immediately cause the
termination of this Agreement. Broker further agrees to immediately notify
Distributor in writing of any such action or event, and hereby acknowledges that
any such action or event constitutes a "material breach" of this Agreement.
h. Agency agrees that (i) termination or suspension of its license as
an insurance agency or agent, as appropriate, or (ii) termination or suspension
of its license to do business or to offer and sell Contracts and interests in
any Account relating thereto by any state or other jurisdiction or federal
regulatory agency, shall immediately cause the termination of this Agreement.
Agency further agrees to immediately notify Distributor in writing of any such
action or event, and hereby acknowledges that any such action or event
constitutes a "material breach" of this Agreement.
i. Broker agrees that this Agreement and the performance of its duties
hereunder is in all respects subject to the Conduct Rules of the NASD, including
interpretive guidance thereunder and NASD notices related thereto, and such
Conduct Rules shall control any provision to the contrary in this Agreement.
j. Broker and Agency agree to be bound by and to comply with all
applicable state and federal laws and all rules and regulations (including in
particular all applicable state insurance laws and regulations imposing
licensing requirements) promulgated thereunder
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<PAGE>
generally affecting the sale or distribution of the Contracts as variable
insurance contracts or interests in any Accounts relating thereto as securities.
2. SOLICITATION OF APPLICATIONS
Pursuant to the authority delegated to it by the Company, during the
term of this Agreement Distributor hereby authorizes Broker and Agency to
solicit applications for the sale of Contracts, provided that a Registration
Statement under the 1933 Act and Investment Company Act is in effect relating to
the Contracts, the related Accounts and interests in any Account relating to the
Contracts, as appropriate, and provided further that Broker and Agency have been
notified in writing by Distributor of the states and jurisdictions in which such
Contracts and interests in any Account relating to the Contracts are qualified
for sale. In connection with the solicitation of applications for the sale of
Contracts, Broker and Agency are hereby authorized to offer any riders that are
available under the Contracts in accordance with written instructions furnished
by Distributor or the Company.
3. ORDERS AND DELIVERY OF CONTRACTS
a. Broker and Agency agree to offer and sell interests in the Accounts
relating to the Contracts only at the public offering price applicable to such
interests at the time that the order with respect thereto is deemed received in
accordance with the Prospectus and the Contract. The procedures relating to all
orders and the handling of each order (including the forwarding of applications,
premium payments and loan repayments, and the effective time of orders received
from Broker or Agency) are subject to: (i) the terms of the then current
Prospectuses (including any amendments, supplements, or stickers thereto)
relating to each Contract or interests in any Accounts relating thereto, as
filed with the SEC; (ii) the new account application for each Contract, as
supplemented or amended from time to time; and (iii) Distributor's and/or the
Company's written instructions, procedures and guidelines, as provided to Broker
and Agency from time to time. To the extent that the Prospectuses contain
provisions that are inconsistent with this Agreement or any other document, the
terms of the Prospectuses shall be controlling.
b. Distributor reserves the right at any time, and without notice to
Broker or Agency, to suspend the sale of Contracts or interests in any Accounts
relating thereto, or to withdraw or limit the offering of Contracts or interests
in any Accounts relating thereto. Distributor and the Company each reserves the
unqualified right not to accept any specific application for the purchase of
Contracts.
c. In all offers and sales to the public of the Contracts, neither
Broker nor Agency is authorized to act as broker or agent for, or employee of,
Distributor or the Company, or any other dealer, and neither Broker nor Agency
shall in any manner represent to any third party that it has such authority or
is acting in such capacity. Rather, Broker and Agency each agrees that it is
acting as agent on behalf of its customers in all transactions in connection
with the Contracts or interests in any Accounts relating thereto, except as
otherwise provided herein. Broker and Agency each acknowledges that it is solely
responsible for all suitability determinations with respect to sales of
Contracts, or interests in any Accounts relating thereto, to its customers and
that neither Distributor nor the Company has any responsibility for the manner
of Broker's or
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<PAGE>
Agency's performance of, or for Broker's or Agency's acts or omissions in
connection with, the duties and activities Broker and Agency provide under this
Agreement. Neither Broker nor Agency shall have authority on behalf of
Distributor or the Company to: (1) make, alter or discharge the Contracts or any
other form or sales materials used in connection with the Contracts or any other
contract entered into pursuant to the Contracts; (2) waive any forfeiture or
extend the time of paying any premium or other Contract provision; or (3)
receive any monies or premiums due, or to become due, to the Company, except for
the sole purpose of forwarding monies or premiums to the Company. All premiums
derived from the sale or service of Contracts through Agency will be sent
directly to the Company by Broker and/or Agency, net of any compensation due and
owing Broker, as more fully described in Section 8 hereof and Exhibit B. Such
compensation shall be withheld or deducted from premiums received by Broker
and/or Agency, provided, however, that no monies received as a result of Section
1035 exchanges, or as a result of direct transfers of assets or direct payments
made to the Company will be subject to any such withholding or deduction for
commission payments. In addition, it may be agreed upon by the parties, from
time to time, that no withholding or deductions from premiums shall be
permitted. Agency will not receive, accumulate or maintain custody of premiums
intended for payment under the Contracts, except as noted directly above.
d. All orders are subject to acceptance by Distributor and the Company,
in the sole discretion of either, and become effective only upon confirmation by
Distributor.
e. Upon issuance of a Contract by the Company, the Company shall
promptly deliver such Contract to its purchaser.
4. SURRENDERS, REBATES AND EXCHANGES
a. The Prospectuses describe the provisions whereby customers may
exchange or surrender their Contracts. Broker and Agency agree not to make any
representations to customers relating to the exchange or surrender of their
Contracts other than the statements contained in the Prospectuses. Broker and
Agency agree to comply with any restrictions and limitations on exchanges
described in the Prospectuses.
b. Broker and Agency agree that, with respect to any surrender request
which Broker or Agency has forwarded to the Company, if instructions in proper
form with respect to such surrender request are not received by the Company
within the time customary or the time required by law, the surrender may be
canceled forthwith without any responsibility or liability on Distributor's part
or on the part of the Company.
c. Broker and Agency acknowledge that payment of rebates on sales of
Contracts or the counseling of a customer to exchange a Contract without an
adequate basis for the exchange shall constitute a material breach of this
Agreement and shall immediately terminate the obligation of Distributor or the
Company to pay compensation hereunder with respect to such Contract.
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<PAGE>
5. DUTIES OF BROKER AND AGENCY
a. Commencing at such time as the parties to this Agreement mutually
shall agree, Broker and Agency agree to use their best efforts to find
applicants for the purchase of Contracts who are acceptable to Distributor and
the Company.
b. Broker and Agency agree to enter orders for the purchase of
Contracts, or interests in any Accounts relating thereto or requests for
surrender or exchange of Contracts, only with Distributor and only with respect
to applications, purchase orders or requests Broker and Agency have already
received from customers.
c. Broker and Agency agree to maintain appropriate books and records
concerning all purchases and sales of Contracts made through Broker and Agency
and, in that regard, the activities of agents as are required to be maintained
by the SEC, the NASD and other regulatory authorities, including in particular
insurance regulatory agencies, to reflect adequately the Contracts processed
through the Agency, and each agrees to promptly furnish Distributor or
regulatory authorities with copies of such records upon request. The books,
accounts, and records of the Accounts, the Company, Distributor, Broker and
Agency relating to the sale and service of Contracts and, in that regard, the
activities of agents shall be maintained so as to disclose clearly and
accurately the nature and details of each transaction. In that regard, Broker
and Agency agree to provide Distributor with an application for each applicant
which, to the best of Broker's and Agency's knowledge, is complete and accurate
and meets all requirements necessary for the application to be considered to be
in good order. All records maintained by Broker in connection with this
Agreement shall be the property of the Company and shall be returned to the
Company upon termination of this Agreement free from any claims or retention of
rights by Broker. Nothing in this Section shall be interpreted to prevent the
Broker or Agency from retaining copies of any such other records which it, in
its discretion, deems necessary or desirable to be kept. Broker and Agency shall
keep confidential any information obtained pursuant to this Agreement and shall
disclose such information only if Distributor has authorized such disclosure, or
if such disclosure is required by any federal, state, or other regulatory
authorities, or by any court of competent jurisdiction.
d. Broker and Agency agree that if any Contract is surrendered within
the applicable "free look" period described in the Prospectuses, Broker and
Agency shall forfeit their rights to any concession or commission received with
respect to such Contract and shall forthwith refund to Distributor the full
concession allowed to Broker and Agency or commission paid to Broker and Agency
on the original sale. Distributor agrees to notify Broker and Agency of such
surrender within a reasonable time after such surrender. Termination or
cancellation of this Agreement shall not relieve Broker or Agency from its
obligation under this provision.
e. Broker and Agency agree that they, jointly and severally: (i) shall
assume responsibility for any loss to Distributor or the Company caused by a
correction to any order placed by Broker or Agency that is made subsequent to
the effective date of the order, provided such order correction was not based on
any negligence on Distributor's part; and (ii) will immediately pay such loss to
Distributor or the Company, as appropriate, upon notification.
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<PAGE>
f. Broker and Agency agree that in connection with orders for the
purchase of Contracts on behalf of any retirement plan accounts, by mail,
telephone, or wire, Broker and Agency shall act as agents for the custodian or
trustee of such plans (solely with respect to the time the application and
payments are deemed received), and Broker and Agency shall not place such an
order with Distributor until receipt from the customer of a completed
application and initial premium payment and, if such transaction represents the
first contribution to such a retirement plan account, the completed documents
necessary to establish the retirement plan. Broker and Agency agree to indemnify
the Company, Distributor, and their affiliates for any claim, loss, or liability
resulting from incorrect instructions received by Distributor from Broker and
Agency.
g. Broker and Agency agree not to make any conditional applications for
the purchase of Contracts and acknowledge that Distributor will not accept
conditional orders for the purchase of Contracts.
h. Broker and Agency agree to continuously use only Prospectuses and
marketing materials, which include articles of "advertisement" and "sales
literature" as they are defined in Rule 2210(a) of the NASD's Conduct Rules
("Marketing Materials"), relating to Contracts, and any amendments,
supplements or stickers thereto, that have been approved by the Company and
provided to the Broker and Agency by Distributor.
i. Broker and Agency agree to adequately train, control and supervise
their partners, directors, officers, employees, registered representatives,
associated persons and agents who sell or service the Contracts and to establish
and implement procedures reasonably designed to achieve compliance with
applicable federal and state securities and insurance laws and regulations,
including the rules of the SEC and NASD, relating to the sales practices of
those persons. Without limitation of the above, Broker and Agency agree to the
following supervisory responsibilities:
(1) Agency shall train, supervise and be solely responsible for the
conduct of its partners, directors, officers, employees,
associated persons and agents in their solicitation activities in
connection with the Contracts, and shall supervise their strict
compliance with applicable rules and regulations of any
governmental or other insurance authorities that have jurisdiction
over insurance contract activities, as well as the rules and
procedures of the Distributor and the Company pertaining to the
solicitation, sale and submission of applications for the
Contracts and the provision of services relating to the Contracts.
Agency shall be solely responsible for background investigations
of the proposed agents to determine their qualifications, good
character and moral fitness to sell the Contracts. If Agency is an
individual and an associated person of Broker, Agency shall be
responsible for its conduct and compliance with all applicable
rules and regulations in its solicitation activities in connection
with the Contracts and the provision of services relating to the
Contracts. In addition, in such instance, Broker shall also be
responsible for any background investigation of such Agency to
determine its qualifications, good character and moral fitness to
sell the Contracts. Further, in such instance, Broker shall
supervise such Agency's conduct and Broker
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<PAGE>
shall assume full responsibility for such Agency's actions, course
of conduct and compliance with all applicable rules and
regulations with respect to Agency's solicitation activities in
connection with Contracts and the provision of services relating
to the Contracts.
(2) Broker shall retain full responsibility for compliance with the
requirements of all applicable federal and state securities laws,
including without limitation, applicable no-action guidance from
the SEC staff, relating to the performance of its obligations set
forth in this Agreement, and shall be responsible for securities
training, supervision and control of its partners, directors,
officers, employees, registered representatives, associated
persons and agents in connection with their solicitation
activities and any incidental services with respect to the
Contracts and shall supervise their strict compliance with
applicable federal and state securities laws and NASD requirements
in connection with such solicitation activities and with the rules
and procedures of the Distributor and the Company.
j. Broker and Agency each agrees that all out-of-pocket expenses
incurred by it in connection with its activities under this Agreement will be
borne by Broker or Agency, as appropriate.
k. Broker agrees that it will keep in force appropriate broker's
blanket bond insurance policies issued by a reputable bonding company covering
any and all acts of Broker's partners, directors, officers, employees,
registered representatives, associated persons, and agents adequate to
reasonably protect and indemnify the Distributor and the Company against any
loss which any party may suffer or incur, directly or indirectly, as a result of
any action by Broker or Broker's partners, directors, officers, employees,
registered representatives, associated persons, and agents.
l. Broker agrees that it will maintain the required net capital as
specified by the rules and regulations of the SEC, NASD and other regulatory
authorities.
m. Broker and Agency agree to promptly notify Distributor of any
material change or intention to materially change the marketing operations
relating to the Contracts. A material change may arise from a change in the
terms used in or the emphasis of any marketing operations employed by the Broker
or Agency concerning the Contract or any change in any aspect of any marketing
campaign employed by the Broker or Agency concerning the Contract.
n. Broker and Agency each agrees that premiums and other payments
received by it relating to the Contracts shall be held at all times in a
fiduciary capacity and such premiums and other payments, net of any compensation
due and owing the Broker and Agency, as described in Sections 3.c and 8 hereof,
shall be remitted promptly (and in no event later than two (2) business days
after receipt), together with such completed applications, forms and other
required documentation to an office of the Company designated by Distributor.
Broker and Agency each agrees to make all payments to Distributor under this
Agreement in Fed Funds, New York clearinghouse or other immediately available
funds. Wire transfers in payment of premiums
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<PAGE>
shall be designated to The Prudential Insurance Company of America, Pruco Life
Insurance Company, or Pruco Life Insurance Company of New Jersey, as the
appropriate party may be. Broker and Agency acknowledge that the Company retains
the ultimate right to control the sale of Contracts and that Distributor or the
Company shall have the unconditional right (i) to reject any application for the
purchase of any Contract or any interests in any Account relating thereto and
(ii) to refuse any premium payments received relating to any Contract. If the
Company or Distributor rejects an application, the Company immediately will
return all payments directly to the applicant, and Broker and Agency will be
promptly notified of such action and shall immediately remit any compensation
retained by either or both of them to the Company. If any purchaser of any
Contract elects to return or surrender a Contract pursuant to applicable law,
the purchaser will receive a refund of premium payments (or other appropriate
amounts) calculated in accordance with such applicable law and the terms of the
Contract and Prospectuses.
o. Broker and Agency each agrees that any material it develops,
approves or intends to use for sales, training, explanatory or other purposes in
connection with the solicitation of applications for Contracts (other than
general advertising materials which do not make specific reference to the
Contracts) will not be used without the prior written consent of Distributor,
which will not be unreasonably withheld. Distributor shall be responsible for
securing and will secure all required regulatory approvals relating to such
materials.
p. Broker and Agency each understands and acknowledges that it is not
authorized by Distributor or the Company to give any information or make any
representation in connection with this Agreement or the offering or servicing of
Contracts other than those contained in the Prospectuses, the Contract or
related marketing materials, as supplemented or amended, unless Broker or Agency
is authorized in writing by Distributor or the Company to do so.
q. Broker and Agency shall promptly furnish to the Company, or its
authorized agent any reports and information that the Company may reasonably
request for the purpose of meeting the Company's reporting and recordkeeping
requirements under the insurance laws of any state, under any applicable federal
or state securities laws, rules or regulations, or the rules of the NASD.
r. Broker and Agency shall ensure that each partner, director, officer,
employee, associated person, registered representative, and agent appointed as
an agent of the Company shall comply with the "Standard of Conduct for Agents"
attached as Exhibit C.
t. Broker and Agency agree to promptly notify the Company, i.e., within
one (1) business day after receipt, of any customer complaint that directly or
indirectly concerns the Company. In the case of a customer complaint,
Distributor, Broker and Agency will cooperate in investigating any such
complaint, and any response by Broker or Agency to such complaint will be sent
to Distributor for written approval not less than five (5) business days prior
to its being sent to the customer or appropriate regulatory authority, except
that if a more prompt response is required, the proposed response shall be
communicated by telephone or facsimile. Distributor shall have final authority
to determine the content of each such response.
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u. With respect to Contracts purchased by Broker for which Broker is
the owner of record, Broker agrees to perform all federal, state and local tax
reporting with respect to such Contracts in its capacity as owner of such
Contracts.
6. DUTIES OF DISTRIBUTOR
a. Distributor agrees to take all actions necessary to effect and
maintain qualification of the Registration Statements and the Contracts under
applicable securities laws of the states or other jurisdictions where the
Contracts and any interests in any Accounts relating thereto are to be sold in
accordance with the terms of this Agreement. Maintenance of the qualification of
the Contracts under applicable insurance laws of the states or other
jurisdictions where the Contracts are to be sold is the responsibility of the
Company.
b. Distributor agrees, during the term of this Agreement, to promptly
notify Broker and Agency of the issuance of any stop order or similar suspension
order pertaining to the Registration Statements or any amendments thereto by the
SEC or any state or other jurisdiction, or the initiation of any proceedings for
that purpose relating to the registration, qualification, and/or offering of the
Contracts, or any interests in any Accounts relating thereto, and of any other
action or circumstance that may prevent the lawful sale of Contracts or any
interests in any Account relating thereto in any state or jurisdiction.
c. Distributor agrees, during the term of this Agreement, to promptly
advise Broker and Agency of any amendment or supplement to the Contract,
Registration Statement, including any amendment, supplement or sticker to the
Prospectuses. Furthermore, Distributor will provide Broker and Agency with a
reasonable quantity of any applicable Prospectuses and Marketing Materials and
any amendments, supplements or stickers thereto, to be used in connection with
the transactions contemplated by this Agreement. Such Prospectuses, Marketing
Materials, and any amendments, supplements or stickers thereto, shall be
approved (to the extent necessary) by all relevant regulatory authorities.
Distributor shall be responsible for obtaining any necessary regulatory
clearance or approval of such Marketing Materials.
7. CONTRACTS
a. Broker and Agency each agrees that neither it nor any of its
partners, directors, officers, employees, registered representatives, associated
persons, and agents is authorized to give any information or make any
representations concerning the Contracts except those contained in the current
Prospectuses, Contracts or Marketing Materials for such Contracts.
b. Distributor acts solely as agent for the Company and the Accounts.
Distributor shall have no obligation or responsibility with respect to Broker's
or Agency's activities or those of the partners, directors, officers, employees,
registered representatives, associated persons or agents of Broker or Agency in
connection with the purchase or sale Contracts in any state or jurisdiction.
c. Broker and Agency each agrees not to solicit applications for
Contracts or to transact orders for Contracts in states or jurisdictions in
which it has not been informed that Contracts may be sold or in which it and its
personnel are not duly authorized to sell Contracts or
-10-
<PAGE>
interests in any Accounts relating thereto, and Broker and Agency each further
agrees that it will make no offers or sales of Contracts or interests in any
Accounts relating thereto in any foreign jurisdiction, except with the express
written consent of Distributor.
d. Distributor shall have no responsibility, under the laws regulating
the sale of securities or Contracts in the United States or any foreign
jurisdiction, with respect to the qualification, control, supervision or status
of Broker, Agency or the partners, directors, officers, employees, registered
representatives or agents of either selling Contracts or interests in any
Accounts relating thereto.
8. COMPENSATION
a. Pursuant to the distribution agreements between the Company and
Distributor, Distributor shall cause the Company to arrange for the payment of
commissions to Broker and Agency as compensation for the sale of each Contract
sold by any partner, director, officer, employee, registered representative,
associated person or agent of Broker or Agency. The amount of such commission
shall be based on the Compensation Schedule attached as Exhibit B. The
Compensation Schedule may hereafter be amended by Distributor, provided
Distributor gives Broker and Agency thirty (30) days written notice of any
change to the Compensation Schedule. No compensation is payable to any such
person unless the Broker, Agency and such person have first complied with all
applicable securities and insurance laws, rules, and regulations. The Company
shall identify to Broker and Agency with each such payment the name of the
registered representative or agent who solicited each Contract covered by the
payment. Broker and Agency each agrees to reflect all such commission payments
received by it or its partners, directors, officers, employees, registered
representatives, associated persons or agents on any report as required by
applicable laws and regulations, including Broker's FOCUS report and NASD fee
assessment reports. Notwithstanding any other provision in the Compensation
Schedule concerning charge-backs, if any Contract is returned or surrendered
within the applicable "free look" period, no compensation shall be paid and
any compensation retained by Broker or Agency in accordance with Exhibit B shall
be immediately remitted to the Company.
b. Broker and Agency shall have the right to withhold or deduct any
part of the premium it or they shall receive for purposes of payment of
commissions due and owing it or them, provided that (i) any withholding or
deduction from premium payments or other payments in order to pay commissions to
Broker and/or Agency shall be in accordance with Exhibit B hereof with respect
to each payment and (ii) no monies received as a result of Section 1035
exchanges, or direct transfers of assets, or direct payments made to the Company
shall be subject to any withholding or deduction in order to pay commissions.
Neither Broker, Agency nor any partner, director, officer, employee, registered
representative, associated person or agent shall have an interest in any
compensation paid by the Company to Distributor, now or hereafter, in connection
with the sale of any Contracts hereunder. Further, Broker and Agency each
acknowledges that agents shall have no interest in this Agreement or right to
any commissions to be paid by the Distributor to the Broker or Agency.
-11-
<PAGE>
c. Upon the termination of this Agreement, the Company will pay
commissions to the Broker and Agency on: (a) premiums which the Company receives
within SIXTY (60) DAYS of the termination date on applications submitted by the
Broker and Agency on or before the termination date provided that neither Broker
or Agency has received compensation in accordance with this Section 8, with
respect to any such applications, and (b) any trail commission which would
otherwise be due on business placed with Distributor prior to the termination
date of this Agreement, unless such receipt of trail commissions is determined
to violate current directives to the contrary as provided by the SEC, NASD or a
court of competent jurisdiction.
d. Distributor, the Company and Broker each agree to abide by all
record-keeping and other requirements relating to the receipt of "cash
compensation" and "non-cash compensation", as prescribed in NASD Conduct Rule
2820 or any amendment or modification of that Rule.
9. INDEMNIFICATION
a. Broker and Agency jointly and severally agree to indemnify, defend
and hold harmless Distributor and the Company and the predecessors, successors,
affiliates, each current or former partner, officer, director, employee,
shareholder or agent and each person who controls or is controlled by
Distributor or the Company from any and all losses, claims, liabilities, costs,
and expenses, including attorney fees, that may be assessed against or suffered
or incurred by any of them howsoever they arise, and as they are incurred, which
relate in any way to: (i) any alleged violation of any statute or regulation
(including without limitation the securities and insurance laws and regulations
of the United States or any state or foreign country) or any alleged tort or
breach of contract, related to the offer or sale by Broker and Agency of
Contracts or interests in any Accounts relating thereto pursuant to this
Agreement (except to the extent that the negligence of Distributor or the
Company or Distributor's failure to follow correct instructions received from
Broker is the cause of such loss, claim, liability, cost or expense); or (ii)
the breach by Broker or Agency of any of its representations and warranties
specified herein or Broker's or Agency's failure to comply with the terms and
conditions of this Agreement, whether or not such action, failure, error,
omission, misconduct or breach is committed by Broker, Agency, or a predecessor,
successor, affiliate, each current or former partner, officer, director,
employee, registered representative, associated person, or agent and each person
who controls or is controlled by Broker or Agency.
b. Distributor agrees to indemnify, defend and hold harmless Broker and
Agency and the predecessors, successors and affiliates, each current or former
partner, officer, director, employee, registered representative, associated
person, or agent, and each person who controls or is controlled by Broker or
Agency from any and all losses, claims, liabilities, costs and expenses,
including attorney fees, that may be assessed against or suffered or incurred by
any of them which arise, and which relate to any untrue statement of or omission
to state a material fact (except for information supplied by or on behalf of
Broker or Agency or for which Broker or Agency is responsible) contained in the
Prospectuses, Contracts or Marketing Materials provided
-12-
<PAGE>
by the Distributor to Broker or Agency, required to be stated therein or
necessary to make the statements therein not misleading.
c. Each party agrees to notify the others, within a reasonable time, of
any claim or complaint or any enforcement action or other proceeding with
respect to Contracts offered hereunder, or interests in any Accounts relating
thereto, against such party or its partners, affiliates, officers, directors,
employees, registered representatives, associated person or agents, or any
person who controls such party, within the meaning of Section 15 of the 1933
Act.
d. Each party's obligations under these indemnification provisions
shall survive any termination of this Agreement.
10. TERMINATION AND AMENDMENT
a. In addition to the automatic termination of this Agreement specified
in this Agreement, each party to this Agreement may unilaterally terminate this
Agreement by giving thirty (30) days prior written notice to the other parties.
In addition, each party to this Agreement may terminate this Agreement
immediately by giving written notice to the other parties of another party's
material breach of this Agreement. Such notice shall be deemed to have been
given and to be effective on the date on which it was either delivered
personally to the other parties or any officer or member thereof, or was mailed
postpaid, sent via facsimile or delivered to a telegraph office for transmission
to the other parties' designated persons at the addresses shown herein or in the
most recent NASD Manual.
b. This Agreement shall terminate immediately upon the appointment of a
Trustee under the Securities Investor Protection Act for Broker or any other act
of insolvency by Broker or Agency.
c. The termination of this Agreement by any of the foregoing means
shall have no effect upon transactions entered into prior to the effective date
of termination and shall not relieve Broker or Agency of its obligations, duties
and indemnities specified in this Agreement. An order placed or application
submitted by Broker or Agency subsequent to its voluntary termination of this
Agreement will not serve to reinstate the Agreement. Reinstatement, except in
the case of a temporary suspension of Broker or Agency, will only be effective
upon written notification by Distributor.
d. This Agreement may be amended by Distributor at any time by written
notice to Broker and Agency. Broker's or Agency's placing of an order,
submitting an application or accepting payment of any kind after the effective
date and receipt of notice of such amendment shall constitute Broker's
acceptance of such amendment.
11. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES
Distributor represents and warrants that:
a. It is a limited liability company duly organized and existing and in
good standing under the laws of the State of Delaware and is duly registered or
exempt from registration as a
-13-
<PAGE>
broker-dealer in all states and jurisdictions in which it provides services as
principal underwriter and distributor of the Contracts.
b. It is a member in good standing of the NASD.
c. It is empowered under applicable laws and by Distributor's charter
and by-laws to enter into this Agreement and perform all activities and services
of the Distributor provided for herein and that there are no impediments, prior
or existing, regulatory, self-regulatory, administrative, civil or criminal
matters affecting Distributor's ability to perform under this Agreement.
d. All requisite actions have been taken to authorize Distributor to
enter into and perform this Agreement.
12. BROKER'S REPRESENTATIONS AND WARRANTIES
In addition to the representations and warranties found elsewhere in
this Agreement, Broker represents and warrants that:
a. It is duly organized and existing and in good standing under the
laws of the state, commonwealth or other jurisdiction in which Broker is
organized and that Broker will not offer Contracts or any interests in any
Accounts relating thereto for sale in any state or jurisdiction where such
Contracts or any interests in any Accounts relating thereto may not be legally
sold or where Broker is not qualified to act as a broker-dealer.
b. It is empowered under applicable laws and by Broker's organizational
documents to enter into this Agreement and perform all activities and services
of Broker provided for herein and that there are no impediments, prior or
existing, regulatory, self-regulatory, administrative, civil or criminal matters
affecting Broker's ability to perform under this Agreement.
c. All requisite actions have been taken to authorize Broker to enter
into and perform this Agreement. Broker further agrees that it will provide
Distributor with the name of Broker's designated "contact person" and furnish
other relevant information necessary for Distributor to communicate with such
designee.
d. It is not, at the time of the execution of this Agreement, subject
to any enforcement action or other proceeding with respect to its activities
under applicable state or federal laws, rules or regulations.
e. Broker further agrees that it will, upon request, send to
Distributor copies of (i) any report filed pursuant to NASD Conduct Rule 3070,
including without limitation quarterly reports filed pursuant to Rule
3070(C)(c), (ii) reports filed with any other self-regulatory organization in
lieu of Rule 3070 reports pursuant to Rule 3070(e), and (iii) amendments to
Broker's Form BD.
13. AGENCY'S REPRESENTATIONS AND WARRANTIES
In addition to the representations and warranties found elsewhere in
this Agreement, Agency represents and warrants that:
a. It is duly organized, if it is a non-natural person, and existing
and in good standing under the laws of the state, commonwealth or other
jurisdiction in which Agency is organized or domiciled and that Agency will not
offer Contracts or any interests in any Accounts relating thereto for sale in
any state or jurisdiction where such Contracts or any interests in any Accounts
relating thereto may not be legally sold or where Agency is not qualified to act
as an insurance agent.
-14-
<PAGE>
b. It shall take all necessary action to ensure that no individual
shall offer or sell the Contracts on behalf of Agency in any state or other
jurisdiction unless such individual is duly appointed as an agent of Agency (or
is itself the Agency), duly licensed and appointed as an agent of the Company
and appropriately licensed, registered or otherwise qualified to offer and sell
the Contracts to be offered and sold by such individual under the insurance laws
of such state or jurisdiction. Agency understands that certain states may
require that a special variable contracts examination be passed by each agent
before he or she can solicit applications for the Contracts.
c. It is empowered under applicable laws and by Agency's organizational
documents, if applicable, to enter into this Agreement and perform all
activities and services of Agency provided for herein and that there are no
impediments, prior or existing, regulatory, self-regulatory, administrative,
civil or criminal matters affecting Agency's ability to perform under this
Agreement.
d. All requisite actions have been taken to authorize Agency to enter
into and perform this Agreement.
e. It is not, at the time of the execution of this Agreement, subject
to any enforcement action or other proceeding with respect to its activities
under applicable state or federal laws, rules or regulations. Agency further
agrees to provide Broker and Distributor, upon request, all reasonable
information requested concerning any inspection, enforcement action or other
proceeding with respect to Agency's activities under applicable state or federal
laws, rules or regulations.
14. DISPUTE RESOLUTION
In the event of a dispute concerning any provision of this Agreement,
any party may require the dispute to be submitted to binding arbitration under
the commercial arbitration rules and procedures of the NASD. The parties agree
that, to the extent permitted under such arbitration rules and procedures, the
arbitrators selected shall be from the securities industry. Judgment upon any
arbitration award may be entered by any state or federal court having
jurisdiction.
15. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the
laws of the State of New Jersey, not including any provision which would require
the general application of the law of another jurisdiction.
16. INVESTIGATIONS AND PROCEEDINGS
The parties to this Agreement agree to cooperate fully in any
securities or insurance regulatory investigation or proceeding or judicial
proceeding with respect to the others' activities under this Agreement and
promptly to notify the other parties of any such investigation or proceeding.
-15-
<PAGE>
17. BINDING NATURE, ASSIGNABILITY
This Agreement shall be binding upon and inure to the benefit of the
respective successors and permitted assigns of the parties hereto. A party
hereto may not assign any rights, obligations, or liabilities hereunder without
the prior written consent of the other parties.
18. SEVERABILITY
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law.
If, however, any provision of this Agreement is held under applicable law to be
invalid, illegal, or unenforceable in any respect, such provision shall be
ineffective only to the extent of such invalidity, and the validity, legality
and enforceability of the remaining provisions of this Agreement shall not be
affected or impaired in any way.
19. CAPTIONS
All captions used in this Agreement are for convenience only, are not a
part hereof, and are not to be used in construing or interpreting any aspect
hereof
-16-
<PAGE>
20. ENTIRE UNDERSTANDING
This Agreement contains the entire understanding of the parties hereto
with respect to the subject matter contained herein and supersedes all previous
agreements. This Agreement may be executed in one or more counterparts, which
together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year set forth below.
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
BY:
Name: _____________________________________________
Title: __________________________________________
Signature: ________________________________________
Date: __________________________________________
BROKER:
BY:
Name: _____________________________________________
Title: __________________________________________
Signature: ________________________________________
Date: ____________________________________________
NASD CRD#
Prudential Broker # _______________________________
(Internal Use Only)
AGENCY:
BY:
Name: _____________________________________________
Title: ____________________________________________
Address: __________________________________________
Tax Identification No. ____________________________
Date:______________________________________________
-17-
<PAGE>
EXHIBIT A
CONTRACTS
Discovery Select Variable Annuity Contract
-18-
<PAGE>
EXHIBIT B
COMPENSATION
PRUCO LIFE INSURANCE COMPANY CONTRACTS
OPTION #1: Purchase payment based commissions with a decreasing rate will
be paid on purchase payments made during the first seven contract years.
Additionally, a trail commission of 0.85% of the contract fund will be
paid in years 8 and later.
Purchase Payment Trail
Contract Year Based Commission Commission
------------- ---------------- ----------
1 6.00% --
2 5.15% --
3 4.30% --
4 3.45% --
5 2.60% --
6 1.75% --
7 0.85% --
8 and Later -- 0.85%
OPTION #2: Purchase payment commissions with a decreasing rate will be
paid on purchase payments made during the first seven contract years. A
trail commission of 0.25% of the contract fund will be paid on the
contract anniversary in contract years two through seven. A trail
commission of 0.75% of the contract fund will be paid in years 8 and
later.
Purchase Payment Trail
Contract Year Based Commission Commission
------------- ---------------- ----------
1 5.00% --
2 3.95% 0.25%
3 3.30% 0.25%
4 2.70% 0.25%
5 2.05% 0.25%
6 1.40% 0.25%
7 0.80% 0.25%
8 and Later -- 0.75%
-19-
<PAGE>
OPTION #3: Purchase payment commissions with a decreasing rate will be
paid on purchase payments made during the first seven contract years. A
trail commission of 0.60% of the contract fund will be paid on the
contract anniversary in years two and later.
Purchase Payment Trail
Contract Year Based Commission Commission
------------- ---------------- ----------
1 4.00% --
2 3.00% 0.60%
3 2.50% 0.60%
4 2.00% 0.60%
5 1.50% 0.60%
6 1.00% 0.60%
7 0.50% 0.60%
8 and later -- 0.60%
OPTION #4: A purchase payment based commission of 1.25% will be paid on
purchase payments made in the first contract year. Thereafter, a trail
commission of 1.00% of the contract fund will be paid in years 2 and
later.
Purchase Payment Trail
Contract Year Based Commission Commission
------------- ---------------- ----------
1 1.25% --
2 -- 1.00%
3 -- 1.00%
4 -- 1.00%
5 -- 1.00%
6 -- 1.00%
7 -- 1.00%
8 and Later -- 1.00%
-20-
<PAGE>
The following reduced commission schedules for Options #1 and #2 apply to
purchase payments made under contracts issued to individuals age 84 and 85.
These are the only allowable commission options for contracts issued to
individuals age 84 and 85:
OPTION #1: Purchase payment based commissions with a decreasing rate
will be paid on purchase payments made during the first six contract
years.
Purchase Payment Trail
Contract Year Based Commission Commission
------------- ---------------- ----------
1 3.00% --
2 2.575% --
3 2.150% --
4 1.725% --
5 1.300% --
6 0.875% --
OPTION #2: Purchase payment based commissions with a decreasing rate
will be paid on purchase payments made during the first six contract
years. Trail commissions of 0.25% of the contract fund will be paid in
years 2 through 6.
Purchase Payment Trail
Contract Year Based Commission Commission
------------- ---------------- ----------
1 2.00% --
2 1.40% 0.25%
3 1.15% 0.25%
4 1.00% 0.25%
5 0.75% 0.25%
6 0.55% 0.25%
-21-
<PAGE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Purchase payment based commissions with a decreasing rate will be paid
on purchase payments made during the first seven contract years. Trail
commissions of 0.30% of the contract fund will be paid in years 5 and
later.
Purchase Payment Trail
Contract Year Based Commission Commission
------------- ---------------- ----------
1 5.60% --
2 5.15% --
3 4.30% --
4 3.45% --
5 2.60% 0.30%
6 1.75% 0.30%
7 0.85% 0.30%
8 and Later -- 0.30%
Commissions will be reduced by 50% under contracts issued to
individuals age 84 and 85.
-22-
<PAGE>
EXHIBIT C
STANDARD OF CONDUCT FOR AGENTS
1. An agent shall be duly qualified, licensed and registered to solicit and
participate in the sale of Contracts and interests in any Accounts relating
thereto as provided in the Agreement.
2. An agent shall not solicit applications for the Contracts without
delivering the appropriate Prospectuses, the prospectus for any underlying
investment company and, where required by state insurance law (as set forth
in a notice to be supplied by the Company), the then currently effective
statement of additional information for the Contracts, and any other
information whose delivery is specifically required. In soliciting
applications for the Contracts, an agent shall only make statements, oral
or written, which are in accordance with the terms of the Agreement. An
agent shall utilize only those applications for the Contracts provided to
the Agency by the Distributor.
3. An agent shall recommend the purchase of a Contract to an applicant only if
he or she has reasonable grounds to believe that such purchase is suitable
for the applicant in accordance with, among other things, applicable
regulations of any state regulatory authority, the SEC and the NASD. While
not limited to the following, a determination of suitability shall be based
on information supplied to an agent after a reasonable inquiry concerning
the applicant's insurance and investment objectives and financial situation
and needs.
4. An agent shall require that any payment of an initial premium, whether in
the form of a check or otherwise, shall be drawn in U.S. dollars on a bank
located in the United States and made payable to the Company and, if in the
form of a check, signed by the applicant for the Contract. An agent shall
not accept third-party checks or cash for premiums.
5. All checks and applications for the Contracts received by an agent shall be
forwarded promptly (and in any event not later than two business days after
receipt), to the processing office designated by the Company.
6. An agent shall have no authority to endorse checks to the Company.
7. An agent shall have no authority to alter, modify, waive or change any of
the terms, rates, charges or conditions of the Contracts.
8. An agent shall make no representations concerning the continuation of
non-guaranteed terms or provisions of the Contracts.
9. An agent shall have no authority to advertise for, on behalf of, or with
respect to the Company, the Distributor, the Accounts, or the Contracts
except as provided in the Agreement.
10. An agent shall have no authority to solicit applications for Contracts or
premiums thereunder which will be subject to or in connection with any
so-called "market timing" or "asset allocation" program, plan, arrangement
or service which is not approved in advance by the Distributor and the
Company.
-23-
<PAGE>
11. An agent shall not furnish any transfer or other instructions by telephone
to the Distributor or the Company on behalf of an owner of a Contract
without having first obtained from such owner a written authorization in a
form acceptable to the Distributor or the Company.
12. An agent shall not encourage a prospective purchaser to surrender or
exchange an insurance policy or contract issued by the Company in order to
purchase a Contract or, conversely, to surrender or exchange a Contract in
order to purchase another insurance policy or contract issued by the
Company, without an adequate basis for the surrender or exchange and except
to the extent such surrenders or exchanges have been authorized by the
Distributor. In the event that an insurance policy or contract issued by
the Company is surrendered or exchanged in order to purchase a Contract, no
compensation shall be paid under the Agreement.
13. An agent shall act in accordance with the rules and procedures of the
Distributor and the Company in connection with any solicitation activities
relating to the Contracts.
-24-
April 15, 1999
Pruco Insurance Company of New Jersey
213 Washington Street
Newark, New Jersey 07102-2992
Gentlemen:
In my capacity as Chief Legal Officer and Assistant Secretary of Pruco Life
Insurance Company of New Jersey ("Pruco Life of New Jersey"), I have reviewed
the establishment of the Pruco Life of New Jersey Flexible Premium Variable
Annuity Account (the "Account") on May 20, 1996, by the Board of Directors of
Pruco Life of New Jersey as a separate account for assets applicable to certain
individual variable annuity contracts, pursuant to the provisions of Section
17B:28-7 of the New Jersey Insurance Code. I was responsible for oversight of
the preparation and review of the Registration Statement on Form N-4, as
amended, filed by Pruco Life of New Jersey with the Securities and Exchange
Commission (Registration No. 333-18117) under the Securities Act of 1933 for the
registration of certain individual variable annuity contracts issued with
respect to the Account.
I am of the following opinion:
(1) Pruco Life of New Jersey was duly organized under the laws of New Jersey and
is a validly existing corporation.
(2) The Account has been duly created and is validly existing as a separate
Account pursuant to the aforesaid provisions of New Jersey law.
(3) The portion of the assets held in the Account equal to the reserve and other
liabilities for variable benefits under the individual variable annuity
contracts is not chargeable with liabilities arising out of any other business
Pruco Life of New Jersey may conduct.
(4) The individual variable annuity contracts are legal and binding obligations
of Pruco Life of New Jersey in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
Clifford E. Kirsch
DISCOVERY SELECT (SAPDU #17) 31-Dec-98
TABLE 1
ASSUMING NO LOAD
1 year 5 years 10 years
Ending Ending Ending Since Inception
YTD 31-Dec-98 31-Dec-98 31-Dec-98 Inception Date
------ ---------- ----------- ----------- -------- ----------
MMKT 3.87% 3.87% 3.66% 4.68% 4.87% 6/83
DIBOND 5.61% 5.61% 5.70% 8.27% 7.94% 6/83
HIYLD -3.79% -3.79% 5.65% 8.70% 6.72% 2/87
PRUJEN 35.49% 35.49% N/A N/A 27.59% 5/95
STIX 26.57% 26.57% 21.92% 18.57% 17.14% 10/87
AIMGRI 25.83% 25.83% N/A N/A 20.76% 5/94
JANGRW 33.70% 33.70% 19.68% N/A 19.15% 9/93
MFSRSR 21.58% 21.58% N/A N/A 20.74% 7/95
EQINC -3.81% -3.81% 13.27% 14.49% 13.27% 2/88
EQUITY 7.75% 7.75% 15.19% 16.74% 13.59% 6/83
AIMVAL 30.49% 30.49% 19.96% N/A 19.92% 6/93
OPPMAN 5.56% 5.56% 17.49% 18.16% 17.39% 8/88 See Note
TREQST 6.73% 6.73% N/A N/A 18.59% 3/94
SMCAP -2.22% -2.22% N/A N/A 15.36% 5/95
FTSMC -8.64% -8.64% N/A N/A -8.64% 5/98
MFSEMG 32.22% 32.22% N/A N/A 24.76% 7/95
WARVCP 4.97% 4.97% N/A N/A 6.56% 9/96
AMCVAL 3.28% 3.28% N/A N/A 14.28% 5/96
OPPSMC -10.37% -10.37% 6.89% 11.78% 11.29% 8/88 See Note
GLOBAL 23.28% 23.28% 10.42% 10.16% 9.87% 9/88
JANINT 15.53% 15.53% N/A N/A 17.16% 5/94
TRINST 14.17% 14.17% N/A N/A 8.07% 3/94
---------------------------------------------------------------------
TOTAL 267.80% 267.80% 139.82% 111.55% 306.38%
Note: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had
commenced operations on August 1, 1988, then called Quest for Value
Accumulation Trust ( the "Old Trust"), was effectively divided into two
investment funds - the Old Trust and the present Quest for Value
Accumulation Trust (the "Present Trust") - at which time the Present Trust
commenced Operations.
CHECK 267.80% 267.80% 139.82% 111.55% 302.39%
ABOVE
DISCOVERY SELECT (SAPDU #17) 31-Dec-98
TABLE 2
ASSUMING CHARGES
1 year 5 years 10 years
Ending Ending Ending Since Inception
YTD 31-Dec-98 31-Dec-98 31-Dec-98 Inception Date
------ ---------- ----------- ----------- -------- ----------
MMKT -0.93% -0.93% 3.52% 4.68% 4.87% 6/83
DIBOND 0.81% 0.81% 5.57% 8.27% 7.94% 6/83
HIYLD -8.36% -8.36% 5.52% 8.70% 6.72% 2/87
PRUJEN 30.69% 30.69% N/A N/A 27.19% 5/95
STIX 21.77% 21.77% 21.84% 18.57% 17.14% 10/87
AIMGRI 21.03% 21.03% N/A N/A 20.56% 5/94
JANGRW 28.90% 28.90% 19.60% N/A 19.06% 9/93
MFSRSR 16.78% 16.78% N/A N/A 20.22% 7/95
EQINC -8.38% -8.38% 13.17% 14.49% 13.27% 2/88
EQUITY 2.95% 2.95% 15.10% 16.74% 13.59% 6/83
AIMVAL 25.69% 25.69% 19.89% N/A 19.85% 6/93
OPPMAN 0.76% 0.76% 17.41% 18.16% 17.39% 8/88 See Note
TREQST 1.93% 1.93% N/A N/A 18.39% 3/94
SMCAP -6.88% -6.88% N/A N/A 14.84% 5/95
FTSMC -12.93% -12.93% N/A N/A 12.93% 5/98
MFSEMG 27.42% 27.42% N/A N/A 24.29% 7/95
WARVCP 0.17% 0.17% N/A N/A 4.90% 9/96
AMCVAL -1.52% -1.52% N/A N/A 13.22% 5/96
OPPSMC -14.55% -14.55% 6.77% 11.78% 11.29% 8/88 See Note
GLOBAL 18.48% 18.48% 10.31% 10.16% 9.87% 9/88
JANINT 10.73% 10.73% N/A N/A 16.95% 5/94
TRINST 9.37% 9.37% N/A N/A 7.79% 3/94
-----------------------------------------------------------------------
TOTAL 163.93% 163.93% 138.70% 111.55% 296.39%
Note: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had
commenced operations on August 1, 1988, then called Quest for Value
Accumulation Trust ( the "Old Trust"), was effectively divided into two
investment funds - the Old Trust and the present Quest for Value
Accumulation Trust (the "Present Trust") - at which time the Present Trust
commenced Operations.
CHECK 163.93% 163.93% 138.70% 111.55% 288.67%
ABOVE
DISCOVERY SELECT 31-Dec-98
CUMULATIVE WITH NO CHARGES
1 year 5 years 10 years
Inception Ending Ending Ending Since
Date 31-Dec-98 31-Dec-98 31-Dec-98 Inception
---------- ---------- --------- ---------- ----------
MMKT 6/83 3.87% 19.66% 57.95% 109.65%
BOND 6/83 5.61% 31.93% 121.40% 228.48%
HIYLD 2/87 -3.79% 31.60% 130.21% 116.10%
PRUJENN 5/95 35.49% N/A N/A 144.49%
STIX 10/87 26.57% 169.35% 449.16% 487.98%
AIMGRI 5/94 25.83% N/A N/A 141.06%
JANGRW 9/93 33.70% 145.50% N/A 152.98%
MFSRSR 7/95 21.58% N/A N/A 91.17%
EQINC 2/88 -3.81% 86.44% 287.12% 287.16%
STOCK 6/83 7.75% 102.80% 370.08% 627.53%
AIMVAL 6/93 30.49% 148.46% N/A 175.74%
OPPMAN 8/88 5.56% 123.92% 430.67% 430.90%
TREQST 3/94 6.73% N/A N/A 124.85%
SMCAP 5/95 -2.22% N/A N/A 68.94%
FTSMC 5/98 -8.64% N/A N/A -8.62%
MFSEMG 7/95 32.22% N/A N/A 114.01%
WARVCP 9/96 4.97% N/A N/A 15.37%
AMCVAL 5/96 3.28% N/A N/A 42.74%
OPPSMC 8/88 -10.37% 39.56% 204.49% 204.62%
GLEQ 9/88 23.28% 64.15% 163.15% 163.28%
JANINT 5/94 15.53% N/A N/A 109.38%
TRINST 3/94 14.17% N/A N/A 44.64%
Note: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had
commenced operations on August 1, 1988, then called Quest for Value
Accumulation Trust ( the "Old Trust"), was effectively divided into two
investment funds - the Old Trust and the present Quest for Value
Accumulation Trust (the "Present Trust") - at which time the Present Trust
commenced Operations.
<PAGE>
<TABLE>
UNIT VALUES FOR THE LAST DAY OF EVERY QUARTER SINCE INCEPTION FOR THE PRU DISCO SELECT PRODUCT
<CAPTION>
DISCOVERY SELECT MMKT BOND STOCK HIDIV HIYLD GLEQ GROWTH
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 02-Jun-83 08-Jun-83 06-Jun-83 19-Feb-88 23-Feb-87 19-Sep-88 01-May-95
WHOLE YEARS SINCE
INCEPTION 15.00 15.00 15.00 10.00 11.00 10.00 3.00
INCEPTION UNIT VALUE 1.00018 0.99691 1.00241 0.99730 0.99968 0.99848 1.00866
30-Jun-83 1.00515 1.00263 1.02682 N/A N/A N/A N/A
30-Sep-83 1.02314 1.00221 0.99435 N/A N/A N/A N/A
31-Dec-83 1.04146 1.01524 0.98054 N/A N/A N/A N/A
1984 31-Mar-84 1.06058 1.02483 0.93938 N/A N/A N/A N/A
30-Jun-84 1.08271 1.01481 0.93882 N/A N/A N/A N/A
30-Sep-84 1.10815 1.07700 1.01823 N/A N/A N/A N/A
31-Dec-84 1.13159 1.13344 1.04168 N/A N/A N/A N/A
1985 31-Mar-85 1.14983 1.14693 1.13401 N/A N/A N/A N/A
30-Jun-85 1.16867 1.22545 1.20733 N/A N/A N/A N/A
30-Sep-85 1.18624 1.24580 1.14590 N/A N/A N/A N/A
31-Dec-85 1.20424 1.32595 1.36494 N/A N/A N/A N/A
1986 31-Mar-86 1.22158 1.39617 1.56588 N/A N/A N/A N/A
30-Jun-86 1.23756 1.41615 1.60984 N/A N/A N/A N/A
30-Sep-86 1.25228 1.44380 1.49021 N/A N/A N/A N/A
31-Dec-86 1.26532 1.49670 1.54936 N/A N/A N/A N/A
1987 31-Mar-87 1.27915 1.50981 1.87814 N/A 1.01369 N/A N/A
30-Jun-87 1.29454 1.47264 1.93737 N/A 1.00140 N/A N/A
30-Sep-87 1.31112 1.41678 2.03515 N/A 0.97037 N/A N/A
31-Dec-87 1.32931 1.48043 1.55338 N/A 0.93936 N/A N/A
1988 31-Mar-88 1.34683 1.53083 1.70198 1.00261 1.00061 N/A N/A
30-Jun-88 1.36427 1.54510 1.81001 1.06050 1.01172 N/A N/A
30-Sep-88 1.38485 1.57378 1.74932 1.07351 1.02977 1.00586 N/A
31-Dec-88 1.40768 1.57964 1.79322 1.09680 1.04843 1.07983 N/A
1989 31-Mar-89 1.43381 1.58916 1.89404 1.15356 1.06436 1.12695 N/A
30-Jun-89 1.46273 1.70938 2.05552 1.24706 1.08803 1.12363 N/A
30-Sep-89 1.48969 1.71664 2.24492 1.32515 1.06159 1.23424 N/A
31-Dec-89 1.51667 1.76801 2.29422 1.32679 1.01279 1.26541 N/A
1990 31-Mar-90 1.54121 1.74036 2.23465 1.27222 0.96666 1.15976 N/A
30-Jun-90 1.56660 1.79428 2.28791 1.30917 1.01715 1.21030 N/A
30-Sep-90 1.59159 1.80617 1.92449 1.16547 0.91553 1.05289 N/A
31-Dec-90 1.61757 1.88843 2.14426 1.25965 0.88031 1.08669 N/A
1991 31-Mar-91 1.64007 1.93178 2.54576 1.39732 1.01671 1.13425 N/A
30-Jun-91 1.65943 1.95982 2.56794 1.42269 1.09665 1.12538 N/A
30-Sep-91 1.67708 2.06514 2.56190 1.49197 1.15554 1.18030 N/A
31-Dec-91 1.69352 2.16852 2.66469 1.58384 1.20818 1.19366 N/A
1992 31-Mar-92 1.70647 2.13280 2.80723 1.56248 1.28975 1.13553 N/A
30-Jun-92 1.71673 2.21191 2.82123 1.59376 1.32878 1.18434 N/A
30-Sep-92 1.72539 2.29772 2.84544 1.65912 1.37870 1.12607 N/A
31-Dec-92 1.73311 2.29194 3.00000 1.72009 1.40033 1.13674 N/A
1993 31-Mar-93 1.74004 2.38331 3.26582 1.90917 1.48145 1.23501 N/A
30-Jun-93 1.74636 2.44112 3.35740 1.97475 1.54887 1.28352 N/A
30-Sep-93 1.75291 2.50972 3.47422 2.03732 1.56716 1.44096 N/A
31-Dec-93 1.75973 2.48943 3.60570 2.07432 1.64713 1.60476 N/A
1994 31-Mar-94 1.76667 2.41065 3.50101 2.03262 1.63845 1.53641 N/A
30-Jun-94 1.77613 2.37820 3.51214 2.03906 1.61797 1.53198 N/A
30-Sep-94 1.78921 2.38221 3.69964 2.15338 1.61477 1.59646 N/A
30-Dec-94 1.80554 2.37561 3.65464 2.07507 1.58019 1.50533 N/A
1995 31-Mar-95 1.82495 2.47253 3.96491 2.19764 1.65780 1.49401 N/A
30-Jun-95 1.84509 2.64432 4.23150 2.35171 1.71894 1.63630 1.12463
30-Sep-95 1.86443 2.69911 4.59104 2.47267 1.76307 1.75970 1.22724
31-Dec-95 1.88376 2.82857 4.73205 2.49069 1.83209 1.72032 1.24327
1996 31-Mar-96 1.90143 2.76354 4.96716 2.63240 1.88681 1.82365 1.28380
30-Jun-96 1.91871 2.76596 5.04308 2.64792 1.90659 1.88361 1.32734
30-Sep-96 1.93636 2.81876 5.10366 2.71157 1.98705 1.92369 1.35265
31-Dec-96 1.95487 2.91204 5.53059 2.99006 2.01251 2.03061 1.40276
1997 31-Mar-97 1.97283 2.89412 5.59478 3.00384 2.01311 2.01313 1.36628
30-Jun-97 1.99194 3.01096 6.22129 3.48848 2.11615 2.26846 1.62977
30-Sep-97 2.01202 3.10796 6.90980 4.02910 2.23578 2.34954 1.87490
31-Dec-97 2.03265 3.11795 6.79896 4.02831 2.25832 2.14219 1.82209
1998 31-Mar-98 1.97283 2.89412 5.59478 3.00384 2.01311 2.01313 1.36628
30-Jun-98 1.99194 3.01096 6.22129 3.48848 2.11615 2.26846 1.62977
30-Sep-98 2.01202 3.10796 6.90980 4.02910 2.23578 2.34954 1.87490
31-Dec-98 2.03265 3.11795 6.79896 4.02831 2.25832 2.14219 1.82209
<CAPTION>
Date: 12-Apr-99
UNIT VALUES FOR THE LAST DAY OF EVERY QUARTER SINCE INCEPTION FOR THE PRU DISCO SELECT PRODUCT
DISCOVERY SELECT STIX TRINST TREQST JANINT JANGRW MFSEMG MFSRSR
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 19-Oct-87 31-Mar-94 31-Mar-94 02-May-94 13-Sep-93 24-Jul-95 24-Jul-95
WHOLE YEARS SINCE
INCEPTION 11.00 4.00 4.00 4.00 5.00 3.00 3.00
INCEPTION UNIT VALUE 0.80241 0.99985 0.99985 0.99996 0.99996 0.99996 0.99996
30-Jun-83 N/A N/A N/A N/A N/A N/A N/A
30-Sep-83 N/A N/A N/A N/A N/A N/A N/A
31-Dec-83 N/A N/A N/A N/A N/A N/A N/A
1984 31-Mar-84 N/A N/A N/A N/A N/A N/A N/A
30-Jun-84 N/A N/A N/A N/A N/A N/A N/A
30-Sep-84 N/A N/A N/A N/A N/A N/A N/A
31-Dec-84 N/A N/A N/A N/A N/A N/A N/A
1985 31-Mar-85 N/A N/A N/A N/A N/A N/A N/A
30-Jun-85 N/A N/A N/A N/A N/A N/A N/A
30-Sep-85 N/A N/A N/A N/A N/A N/A N/A
31-Dec-85 N/A N/A N/A N/A N/A N/A N/A
1986 31-Mar-86 N/A N/A N/A N/A N/A N/A N/A
30-Jun-86 N/A N/A N/A N/A N/A N/A N/A
30-Sep-86 N/A N/A N/A N/A N/A N/A N/A
31-Dec-86 N/A N/A N/A N/A N/A N/A N/A
1987 31-Mar-87 N/A N/A N/A N/A N/A N/A N/A
30-Jun-87 N/A N/A N/A N/A N/A N/A N/A
30-Sep-87 N/A N/A N/A N/A N/A N/A N/A
31-Dec-87 0.85903 N/A N/A N/A N/A N/A N/A
1988 31-Mar-88 0.89961 N/A N/A N/A N/A N/A N/A
30-Jun-88 0.95207 N/A N/A N/A N/A N/A N/A
30-Sep-88 0.95209 N/A N/A N/A N/A N/A N/A
31-Dec-88 0.97813 N/A N/A N/A N/A N/A N/A
1989 31-Mar-89 1.04210 N/A N/A N/A N/A N/A N/A
30-Jun-89 1.12827 N/A N/A N/A N/A N/A N/A
30-Sep-89 1.24262 N/A N/A N/A N/A N/A N/A
31-Dec-89 1.26306 N/A N/A N/A N/A N/A N/A
1990 31-Mar-90 1.21953 N/A N/A N/A N/A N/A N/A
30-Jun-90 1.28772 N/A N/A N/A N/A N/A N/A
30-Sep-90 1.10713 N/A N/A N/A N/A N/A N/A
31-Dec-90 1.20018 N/A N/A N/A N/A N/A N/A
1991 31-Mar-91 1.36794 N/A N/A N/A N/A N/A N/A
30-Jun-91 1.35821 N/A N/A N/A N/A N/A N/A
30-Sep-91 1.42369 N/A N/A N/A N/A N/A N/A
31-Dec-91 1.53544 N/A N/A N/A N/A N/A N/A
1992 31-Mar-92 1.49022 N/A N/A N/A N/A N/A N/A
30-Jun-92 1.51129 N/A N/A N/A N/A N/A N/A
30-Sep-92 1.55168 N/A N/A N/A N/A N/A N/A
31-Dec-92 1.62200 N/A N/A N/A N/A N/A N/A
1993 31-Mar-93 1.68565 N/A N/A N/A N/A N/A N/A
30-Jun-93 1.68585 N/A N/A N/A N/A N/A N/A
30-Sep-93 1.72162 N/A N/A N/A 1.01928 N/A N/A
31-Dec-93 1.75431 N/A N/A N/A 1.03060 N/A N/A
1994 31-Mar-94 1.68051 0.99985 0.99985 N/A 1.03899 N/A N/A
30-Jun-94 1.68075 1.00648 1.01342 0.96178 1.02019 N/A N/A
30-Sep-94 1.75506 1.04459 1.06188 0.98120 1.04618 N/A N/A
30-Dec-94 1.74751 1.00728 1.06022 0.96290 1.04447 N/A N/A
1995 31-Mar-95 1.90917 1.00104 1.14384 0.92301 1.11969 N/A N/A
30-Jun-95 2.08204 1.03905 1.21932 1.01429 1.18159 N/A N/A
30-Sep-95 2.23815 1.07973 1.30867 1.11179 1.28258 1.08409 1.03722
31-Dec-95 2.36221 1.10437 1.40860 1.16948 1.34097 1.16778 1.10015
1996 31-Mar-96 2.47973 1.15567 1.46762 1.27761 1.44865 1.24335 1.15983
30-Jun-96 2.57933 1.19593 1.50526 1.41050 1.47543 1.33460 1.22504
30-Sep-96 2.64723 1.19763 1.55152 1.45403 1.53372 1.37550 1.26774
31-Dec-96 2.85512 1.24923 1.66087 1.55340 1.56638 1.34766 1.32722
1997 31-Mar-97 2.91822 1.24301 1.70560 1.65650 1.56912 1.25690 1.29554
30-Jun-97 3.41174 1.38496 1.89331 1.82540 1.76212 1.48306 1.49788
30-Sep-97 3.65149 1.37228 2.03465 1.91156 1.92332 1.68038 1.61270
31-Dec-97 3.74014 1.26964 2.10954 1.81547 1.89610 1.62024 1.57411
1998 31-Mar-98 2.91822 1.24301 1.70560 1.65650 1.56912 1.25690 1.29554
30-Jun-98 3.41174 1.38496 1.89331 1.82540 1.76212 1.48306 1.49788
30-Sep-98 3.65149 1.37228 2.03465 1.91156 1.92332 1.68038 1.61270
31-Dec-98 3.74014 1.26964 2.10954 1.81547 1.89610 1.62024 1.57411
<CAPTION>
UNIT VALUES FOR THE LAST DAY OF EVERY QUARTER SINCE INCEPTION FOR THE PRU DISCO SELECT PRODUCT
DISCOVERY SELECT AIMGRI AIMVAL OPPMAN OPPSMC WARVCP TOTAL
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 02-May-94 01-Jun-93 01-Aug-88 01-Aug-88 30-Sep-96
WHOLE YEARS SINCE
INCEPTION 4.00 5.00 10.00 10.00 2.00
INCEPTION UNIT VALUE 0.99996 1.00881 0.99989 0.99989 1.00000 5.00855
30-Jun-83 N/A N/A N/A N/A N/A 0.00000
30-Sep-83 N/A N/A N/A N/A N/A 0.00000
31-Dec-83 N/A N/A N/A N/A N/A 0.00000
1984 31-Mar-84 N/A N/A N/A N/A N/A 0.00000
30-Jun-84 N/A N/A N/A N/A N/A 0.00000
30-Sep-84 N/A N/A N/A N/A N/A 0.00000
31-Dec-84 N/A N/A N/A N/A N/A 0.00000
1985 31-Mar-85 N/A N/A N/A N/A N/A 0.00000
30-Jun-85 N/A N/A N/A N/A N/A 0.00000
30-Sep-85 N/A N/A N/A N/A N/A 0.00000
31-Dec-85 N/A N/A N/A N/A N/A 0.00000
1986 31-Mar-86 N/A N/A N/A N/A N/A 0.00000
30-Jun-86 N/A N/A N/A N/A N/A 0.00000
30-Sep-86 N/A N/A N/A N/A N/A 0.00000
31-Dec-86 N/A N/A N/A N/A N/A 0.00000
1987 31-Mar-87 N/A N/A N/A N/A N/A 0.00000
30-Jun-87 N/A N/A N/A N/A N/A 0.00000
30-Sep-87 N/A N/A N/A N/A N/A 0.00000
31-Dec-87 N/A N/A N/A N/A N/A 0.00000
1988 31-Mar-88 N/A N/A N/A N/A N/A 0.00000
30-Jun-88 N/A N/A N/A N/A N/A 0.00000
30-Sep-88 N/A N/A 1.00056 0.99757 N/A 1.99813
31-Dec-88 N/A N/A 1.03786 1.01297 N/A 2.05083
1989 31-Mar-89 N/A N/A 1.14942 1.09464 N/A 2.24406
30-Jun-89 N/A N/A 1.20189 1.11059 N/A 2.31248
30-Sep-89 N/A N/A 1.29635 1.19138 N/A 2.48773
31-Dec-89 N/A N/A 1.35673 1.18235 N/A 2.53908
1990 31-Mar-90 N/A N/A 1.30368 1.13117 N/A 2.43485
30-Jun-90 N/A N/A 1.39023 1.18407 N/A 2.57430
30-Sep-90 N/A N/A 1.20701 1.01227 N/A 2.21928
31-Dec-90 N/A N/A 1.29213 1.05300 N/A 2.34513
1991 31-Mar-91 N/A N/A 1.55612 1.25113 N/A 2.80725
30-Jun-91 N/A N/A 1.62229 1.33498 N/A 2.95727
30-Sep-91 N/A N/A 1.71975 1.45902 N/A 3.17877
31-Dec-91 N/A N/A 1.86092 1.53837 N/A 3.39929
1992 31-Mar-92 N/A N/A 1.95413 1.70897 N/A 3.66310
30-Jun-92 N/A N/A 1.95175 1.64842 N/A 3.60017
30-Sep-92 N/A N/A 2.05793 1.64933 N/A 3.70726
31-Dec-92 N/A N/A 2.17831 1.85035 N/A 4.02866
1993 31-Mar-93 N/A N/A 2.25024 1.99725 N/A 4.24749
30-Jun-93 N/A 1.04992 2.30742 2.03405 N/A 5.39139
30-Sep-93 N/A 1.09909 2.37853 2.11644 N/A 5.59406
31-Dec-93 N/A 1.11975 2.37335 2.18516 N/A 5.67826
1994 31-Mar-94 N/A 1.14703 2.34605 2.09741 N/A 5.59049
30-Jun-94 0.97476 1.09567 2.40329 2.00545 N/A 6.47917
30-Sep-94 1.01372 1.16241 2.45725 2.13931 N/A 6.77269
30-Dec-94 0.99101 1.14893 2.40478 2.12447 N/A 6.66919
1995 31-Mar-95 1.07328 1.25820 2.70937 2.06215 N/A 7.10300
30-Jun-95 1.18230 1.41395 3.09791 2.23452 N/A 7.92868
30-Sep-95 1.30451 1.57246 3.31366 2.38130 N/A 8.57193
31-Dec-95 1.30858 1.54376 3.45213 2.41418 N/A 8.71865
1996 31-Mar-96 1.36888 1.54899 3.68746 2.50577 N/A 9.11110
30-Jun-96 1.42154 1.61976 3.73399 2.60294 N/A 9.37823
30-Sep-96 1.46656 1.63779 3.90401 2.66541 N/A 9.67377
31-Dec-96 1.54775 1.75108 4.18117 2.82864 0.98413 11.29277
1997 31-Mar-97 1.53018 1.72519 4.21706 2.78346 0.89137 11.14726
30-Jun-97 1.79385 2.01672 4.73333 3.22056 1.01045 12.77491
30-Sep-97 1.96898 2.17722 5.03915 3.50516 1.15461 13.84512
31-Dec-97 1.91890 2.13600 5.04270 3.40999 1.09996 13.60755
1998 31-Mar-98 1.53018 1.72519 4.21706 2.78346 0.89137 11.14726
30-Jun-98 1.79385 2.01672 4.73333 3.22056 1.01045 12.77491
30-Sep-98 1.96898 2.17722 5.03915 3.50516 1.15461 13.84512
31-Dec-98 1.91890 2.13600 5.04270 3.40999 1.09996 13.60755
</TABLE>
<PAGE>
<TABLE>
UNIT VALUES FOR THE FIRST DAY OF EVERY YEAR FOR THE PRU DISCO SELECT PRODUCT
<CAPTION>
DISCOVERY SELECT MMKT BOND STOCK HIDIV HIYLD GLEQ GROWTH
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
31-Dec-96 1.95487 2.91204 5.53059 2.99006 2.01251 2.03061 1.40276
<CAPTION>
DISCOVERY SELECT STIX TRINST TREQST JANINT JANGRW MFSEMG MFSRSR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
31-Dec-96 2.85512 1.24923 1.66087 1.55340 1.56638 1.34766 1.32722
<CAPTION>
DISCOVERY SELECT AIMGRI AIMVAL OPPMAN OPPSMC WARVCP TOTAL
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
31-Dec-96 1.54775 1.75108 4.18117 2.82864 0.98413
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 3 to the registration
statement on Form N-4 (the "Registration Statement") of our report dated March
19, 1999, relating to the financial statements of Pruco Life of New Jersey
Flexible Premium Variable Annuity Account, which appears in such Statement of
Additional Information.
We also consent to the use in the Prospectus constituting part of this
Registration Statement of our report dated February 26, 1999, relating to the
financial statements of Pruco Life Insurance Company of New Jersey, which
appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in the
Statement of Additional Information and the Prospectus.
PRICEWATERHOUSECOOPERS LLP
New York, New York
April 12, 1999
