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DISCOVERY CHOICE(SM)
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VARIABLE ANNUITY
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PROSPECTUS: MAY 1, 2000
THIS PROSPECTUS DESCRIBES AN INDIVIDUAL VARIABLE ANNUITY CONTRACT OFFERED BY
PRUCO LIFE OF NEW JERSEY INSURANCE COMPANY (PRUCO LIFE OF NEW JERSEY). PRUCO
LIFE OF NEW JERSEY IS AN INDIRECT WHOLLY OWNED SUBSIDIARY OF THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA.
THE FUNDS
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Discovery Choice offers a wide variety of investment choices, including 26
variable investment options that invest in mutual funds managed by these leading
asset managers.
PRUDENTIAL INVESTMENTS
AIM ADVISORS
ALLIANCE CAPITAL MANAGEMENT L.P.
AMERICAN CENTURY
DAVIS SELECTED ADVISERS, L.P.
FRANKLIN ADVISERS
JANUS CAPITAL
MFS
OPPENHEIMER CAPITAL
T. ROWE PRICE
WARBURG PINCUS
PLEASE READ THIS PROSPECTUS
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Please read this prospectus before purchasing a Discovery Choice variable
annuity contract and keep it for future reference. Current prospectuses for each
of the underlying mutual funds accompany this prospectus. These prospectuses
contain important information about the mutual funds. Please read these
prospectuses and keep them for reference.
TO LEARN MORE ABOUT DISCOVERY CHOICE
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To learn more about the Discovery Choice variable annuity, you can request a
copy of the Statement of Additional Information (SAI) dated May 1, 2000. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is legally
a part of this prospectus. Pruco Life of New Jersey also files other reports
with the SEC. All of these filings can be reviewed and copied at the SEC's
offices, and can be obtained from the SEC's Public Reference Section, 450 5th
Street N.W., Washington, D.C. 20549. The SEC also maintains a Web site
(http://www.sec.gov) that contains the Discovery Choice SAI, material
incorporated by reference, and other information regarding registrants that file
electronically with the SEC. The Table of Contents of the SAI is on Page 32 of
this prospectus.
FOR A FREE COPY OF THE SAI CALL US AT:
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(888) PRU-2888 or write to us at:
Pruco Life Insurance Company
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
CHOICE IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
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CONTENTS
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<TABLE>
<S> <C>
PART I: DISCOVERY CHOICE PROSPECTUS
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SUMMARY
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Glossary........................................... 7
Summary............................................ 8
Summary of Contract Expenses....................... 10
Expense Examples................................... 12
PART II: DISCOVERY CHOICE PROSPECTUS
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SECTIONS 1-9
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Section 1: What is the Discovery Choice Variable
Annuity?.............................................. 16
Short Term Cancellation Right or "Free Look"....... 16
Section 2: What Investment Options Can I Choose?........ 17
Variable Investment Options........................ 17
Transfers Among Options............................ 18
Dollar Cost Averaging.............................. 18
Asset Allocation Program........................... 18
Auto-Rebalancing................................... 19
Voting Rights...................................... 19
Substitution....................................... 19
Section 3: What Kind of Payments Will I Receive During
the Income Phase? (Annuitization)..................... 20
Payment Provisions................................. 20
Option 1: Annuity Payments for a Fixed
Period........................................... 20
Option 2: Life Annuity with 120 Payments (10
Years) Certain................................... 20
Option 3: Interest Payment Option.............. 20
Option 4: Other Annuity Options................ 20
Section 4: What is the Death Benefit?................... 21
Beneficiary........................................ 21
Calculation of the Death Benefit................... 21
Section 5: How can I Purchase a Discovery Choice
Contract?............................................. 22
Purchase Payments.................................. 22
Allocation of Purchase Payments.................... 22
Calculating Contract Value......................... 22
Section 6: What are the Expenses Associated with the
Discovery Choice Contract?............................ 23
Insurance Charges.................................. 23
Contract Maintenance Charge........................ 23
Premium Taxes...................................... 23
Transfer Fee....................................... 23
Company Taxes...................................... 23
Section 7: How Can I Access My Money?................... 24
Automated Withdrawals.............................. 24
Suspension of Payments or Transfers................ 24
</TABLE>
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<TABLE>
<S> <C>
Section 8: What are the Tax Considerations Associated
with the Discovery Choice Contract?................... 25
Contracts Owned by Individuals (Not Associated with
Tax Favored Retirement Plans).................... 25
Contracts Held by Tax Favored Plans................ 26
Section 9: Other Information............................ 31
Pruco Life Insurance Company of New Jersey......... 31
The Separate Account............................... 31
Sale and Distribution of the Contract.............. 31
Assignment......................................... 32
Financial Statements............................... 32
Statement of Additional Information................ 32
IRA Disclosure Statement........................... 33
</TABLE>
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PART I SUMMARY
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DISCOVERY CHOICE PROSPECTUS
[ROCKWELL GRAPHIC]
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PART I
DISCOVERY CHOICE PROSPECTUS SUMMARY
GLOSSARY
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WE HAVE TRIED TO MAKE THIS PROSPECTUS AS EASY TO READ AND UNDERSTAND AS
POSSIBLE. BY THE NATURE OF THE CONTRACT, HOWEVER, CERTAIN TECHNICAL WORDS OR
TERMS ARE UNAVOIDABLE. WE HAVE IDENTIFIED THE FOLLOWING AS SOME OF THESE WORDS
OR TERMS.
ACCUMULATION PHASE
The period that begins with the contract date (see definition below) and ends
when you start receiving income payments, or earlier if the contract is
terminated through a full withdrawal or payment of a death benefit.
ANNUITANT
The person whose life determines the amount of income payments that will be
paid.
ANNUITY DATE
The date when income payments are scheduled to begin.
BENEFICIARY
The person(s) or entity you have chosen to receive a death benefit.
CONTRACT DATE
The date we receive your initial purchase payment and all necessary paperwork in
good order at the Prudential Annuity Service Center. Contract anniversaries are
measured from the contract date. A contract year starts on the contract date or
on a contract anniversary.
CONTRACT OWNER, OWNER OR YOU
The person entitled to the ownership rights under the contract.
CONTRACT VALUE
This is the total value of your contract.
DEATH BENEFIT
If the owner dies, the designated person(s) or the beneficiary will receive, at
a minimum, the total amount invested or a potentially greater amount related to
market appreciation. See "What is the Death Benefit?" on page 21.
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.
PRUDENTIAL ANNUITY SERVICE CENTER
P.O. Box 14215, New Brunswick, New Jersey, 08906. The phone number is (888)
PRU-2888.
PURCHASE PAYMENTS
The amount of money you pay us to purchase the contract. Generally, with some
restrictions you can make additional purchase payments at any time during the
accumulation phase.
SEPARATE ACCOUNT
Purchase payments allocated to the variable investment options are held by us in
a separate account called the Pruco Life 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. Generally,
you do not pay taxes on your contract earnings until you take money out of your
contract.
VARIABLE INVESTMENT OPTION
When you choose a variable investment option, we purchase shares of the mutual
fund which are held as an investment for that option. We hold these shares in
the separate account. The division of the separate account of Pruco Life of New
Jersey that invests in a particular mutual fund is referred to in your contract
as a subaccount.
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PART I
DISCOVERY CHOICE PROSPECTUS SUMMARY
SUMMARY FOR SECTIONS 1-9
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FOR A MORE COMPLETE DISCUSSION OF THE FOLLOWING TOPICS, SEE THE CORRESPONDING
SECTION IN PART II OF THE PROSPECTUS.
SECTION 1
WHAT IS THE DISCOVERY CHOICE VARIABLE ANNUITY?
The Discovery Choice Variable Annuity is a contract, between you, the owner, and
us, the insurance company, Pruco Life Insurance Company of New Jersey. Pruco
Life Insurance Company of New Jersey will hereafter be referred to as Pruco Life
of New Jersey, we or us. The contract allows you to invest on a tax-deferred
basis in one or more of 26 variable investment options. The contract is intended
for retirement savings or other long-term investment purposes and provides for a
death benefit.
The variable investment options are designed to offer the opportunity for a
favorable return. However, this is NOT guaranteed. It is possible, due to market
changes, that your investments may decrease in value.
You can invest your money in any or all of the variable investment options.
You are allowed 12 tax-free transfers each contract year among the variable
investment options, without a charge.
The contract, like all deferred annuity contracts, has two phases: the
accumulation phase; and the income phase. During the accumulation phase, any
earnings grow on a tax-deferred basis and are generally only taxed as income
when you make a withdrawal. The income phase starts when you begin receiving
regular payments from your contract. The amount of money you are able to
accumulate in your contract during the accumulation phase will help determine
the amount of payments you will receive during the income phase. Other factors
will affect the amount of your payments such as age, gender and the payout
option you selected.
If you change your mind about owning Discovery Choice, you may cancel your
contract within 10 days after receiving it (or whatever time period is required
under the appliable state law). This time period is referred to as the Free-Look
period.
SECTION 2
WHAT INVESTMENT OPTIONS CAN I CHOOSE?
You can invest your money in any or all of the variable investment options that
use the mutual funds described in the fund prospectuses provided with this
prospectus:
THE PRUDENTIAL SERIES FUND
Diversified Bond Portfolio
Diversified Conservative Growth Portfolio
Equity Income Portfolio
Equity Portfolio
Global Portfolio
High Yield Bond Portfolio
Money Market Portfolio
Prudential Jennison Portfolio
Small Capitalization Stock Portfolio
Stock Index Portfolio
20/20 Focus Portfolio
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Alliance Premier Growth Portfolio
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century VP Value
DAVIS VARIABLE ACCOUNT FUND, INC.
Davis Value Portfolio
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Franklin Small Cap Fund--Class 2
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
T. ROWE PRICE
Equity Series--Equity Income Portfolio
International Series--International Stock Portfolio
WARBURG PINCUS TRUST
Global Post-Venture Capital Portfolio
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PART I
DISCOVERY CHOICE PROSPECTUS SUMMARY
Depending upon market conditions, you may earn or lose money in any of these
options. The value of your contract will fluctuate depending upon the investment
performance of the mutual funds used by the variable investment options that you
choose. Performance information for the variable investment options is provided
in the Statement of Additional Information (SAI). Past performance is not a
guarantee of future results.
SECTION 3
WHAT KIND OF PAYMENTS WILL I RECEIVE DURING THE INCOME PHASE? (ANNUITIZATION)
If you want to receive regular income from your annuity, you can choose one of
several options, including guaranteed payments for the annuitant's lifetime.
Generally, once you begin receiving regular payments, you cannot change your
payment plan.
SECTION 4
WHAT IS THE DEATH BENEFIT?
If the owner dies before the income phase of the contract begins, the person(s)
or entity that you have chosen as your beneficiary will receive at a minimum,
the total amount invested adjusted for withdrawals or a potentially greater
amount relating to market appreciation depending on the death benefit option you
choose.
SECTION 5
HOW CAN I PURCHASE A DISCOVERY CHOICE ANNUITY CONTRACT?
You can purchase this contract, under most circumstances, with a minimum initial
purchase payment of $10,000. Generally, you can add $1,000 or more at any time
during the accumulation phase of the contract. Your representative can help you
fill out the proper forms.
SECTION 6
WHAT ARE THE EXPENSES ASSOCIATED WITH THE DISCOVERY CHOICE CONTRACT?
The contract has insurance features and investment features, and there are costs
related to each. Each year we deduct a contract maintenance charge if your
contract value is less than $50,000. This charge is equal to the lesser of $30
or 2% of your contract value. For insurance and administrative costs, we also
deduct an annual charge of 1.35% or 1.65% of the average daily value of all
assets allocated to the variable investment options, depending on the death
benefit option that you have chosen.
There are a few states/jurisdictions that assess a premium tax when you begin
receiving regular income payments from your annuity. In those states, we impose
the required premium tax charge, which can range up to 5%.
There are also charges made by the mutual funds which are invested in by the
variable investment options. These charges currently range from 0.39% to 1.40%
per year of a fund's average daily assets.
SECTION 7
HOW CAN I ACCESS MY MONEY?
You may take money out at any time during the accumulation phase. You may,
however, be subject to income tax, if you make a withdrawal prior to age 59 1/2
an additional tax penalty as well.
SECTION 8
WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE DISCOVERY CHOICE CONTRACT?
Your earnings are generally not taxed until withdrawn. If you take money out
during the accumulation phase, earnings are withdrawn first and are taxed as
income. If you are younger than age 59 1/2 when you take money out, you may be
charged a 10% federal tax penalty on the earnings in addition to ordinary
taxation. A portion of the payments you receive during the income phase is
considered partly a return of your original investment. As a result, that
portion of each payment is not taxable as income. Generally, all amounts
withdrawn from an Individual Retirement Annuity (IRA) contracts are taxable and
subject to the 10% penalty if withdrawn prior to age 59 1/2.
SECTION 9
OTHER INFORMATION
This contract is issued by Pruco Life of New Jersey, an indirect wholly owned
subsidiary of the Prudential Insurance Company of America, and sold by
registered representatives.
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PART I
DISCOVERY CHOICE PROSPECTUS SUMMARY
Summary of Contract Expenses
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THE PURPOSE OF THIS SUMMARY IS TO HELP YOU TO UNDERSTAND THE COSTS YOU WILL PAY
FOR DISCOVERY CHOICE. THIS SUMMARY INCLUDES THE EXPENSES OF THE MUTUAL FUNDS
USED BY THE VARIABLE INVESTMENT OPTIONS BUT DOES NOT INCLUDE ANY CHARGE FOR
PREMIUM TAXES THAT MIGHT BE APPLICABLE IN YOUR STATE.
FOR MORE DETAILED INFORMATION:
More detailed information can be found on page 23 under the section called,
"What Are The Expenses Associated With The Discovery Choice Contract?" 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
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TRANSFER FEE (SEE NOTE 1 BELOW)
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first 12 transfers per year $0.00
transfer after 12 $10.00
ANNUAL CONTRACT FEE AND CONTRACT CHARGE UPON FULL WITHDRAWAL (SEE NOTE 2 BELOW)
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$30.00
ANNUAL ACCOUNT EXPENSES
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AS A PERCENTAGE OF THE AVERAGE ACCOUNT VALUE
Basic Death Benefit Option Insurance
Charge: 1.35%
Enhanced Death Benefit Option
Insurance Charge: 1.65%
NOTE 1: YOU WILL NOT BE CHARGED FOR TRANSFERS MADE IN CONNECTION WITH DOLLAR
COST AVERAGING AND AUTO-REBALANCING.
NOTE 2: THIS FEE IS ASSESSED ANNUALLY AND AT THE TIME OF A FULL WITHDRAWAL
PROVIDED THE VALUE OF YOUR CONTRACT IS LESS THAN $50,000.
NOTES FOR ANNUAL MUTUAL FUND
EXPENSES
THESE EXPENSES ARE BASED ON THE
HISTORICAL FUND EXPENSES FOR THE
YEAR ENDED DECEMBER 31, 1999,
EXCEPT AS INDICATED. FUND EXPENSES
ARE NOT FIXED OR GUARANTEED BY THE
DISCOVERY CHOICE CONTRACT AND MAY
VARY FROM YEAR TO YEAR.
(1) ALLIANCE VARIABLE PRODUCTS
SERIES FUND, INC.:
THE FUND MAINTAINS A DISTRIBUTION
PLAN OR "12B-1 PLAN," FOR THIS
CLASS OF SHARES UNDER WHICH AN
ANNUAL FEE OF 0.25% OF THE CLASS'S
AVERAGE DAILY NET ASSETS IS PAID TO
THE FUND'S DISTRIBUTOR. THIS FEE IS
INCLUDED IN OTHER EXPENSES AND IS
DISCUSSED IN THE FUND'S PROSPECTUS.
(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
TABLE REFLECTS EXPENSES BASED UPON
EXPENSES FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999, RESTATED TO
REFLECT A REDUCTION IN THE
MANAGEMENT FEE.
(4) FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST
TABLE REFLECTS RESTATED MANAGEMENT
FEES AND EXPENSES BASED ON A MERGER
THAT BECAME EFFECTIVE ON MAY 1,
2000. THE FORMALLY ADOPTED
DISTRIBUTION PLAN OR "12B-1 PLAN",
PROVIDES FOR A MAXIMUM ANNUAL FEE
OF 0.35% OF THE FUND'S AVERAGE
DAILY NET ASSETS, HOWEVER THE
FUND'S BOARD OF TRUSTEES HAS SET
THE CURRENT RATE AT 0.25%.
(5) WARBURG PINCUS TRUST AND DAVIS
VARIABLE ACCOUNT FUND, INC.
FEE WAIVERS AND EXPENSE
REIMBURSEMENT OR CREDITS REDUCED
INVESTMENT MANAGEMENT FEES AND
OTHER EXPENSES DURING 1999, BUT MAY
BE DISCONTINUED AT ANY TIME.
(6) MFS VARIABLE INSURANCE TRUST
AN EXPENSE OFFSET ARRANGEMENT WITH
THE FUND'S CUSTODIAN RESULTED IN A
REDUCTION IN OTHER EXPENSES BY
0.01%.
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PART I
DISCOVERY CHOICE PROSPECTUS SUMMARY
<TABLE>
<CAPTION>
ANNUAL MUTUAL FUND EXPENSES (AFTER REIMBURSEMENT, IF ANY)
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AS A PERCENTAGE OF EACH PORTFOLIO'S AVERAGE DAILY NET ASSETS:
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INVESTMENT OTHER TOTAL CONTRACTUAL TOTAL ACTUAL
MANAGEMENT FEES EXPENSES EXPENSES EXPENSES*
THE PRUDENTIAL SERIES FUND, INC.
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<S> <C> <C> <C> <C>
Diversified Bond Portfolio 0.40% 0.03% 0.43% 0.43%
Diversified Conservative Growth Portfolio 0.75% 0.30% 1.05% 1.05%
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% 0.09% 0.84% 0.84%
High Yield Bond Portfolio 0.55% 0.05% 0.60% 0.60%
Money Market Portfolio 0.40% 0.02% 0.42% 0.42%
Prudential Jennison Portfolio 0.60% 0.03% 0.63% 0.63%
Small Capitalization Stock Portfolio 0.40% 0.05% 0.45% 0.45%
Stock Index Portfolio 0.35% 0.04% 0.39% 0.39%
20/20 Focus Portfolio 0.75% 0.34% 1.09% 1.09%
AIM VARIABLE INSURANCE FUNDS
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AIM V.I. Growth and Income Fund 0.61% 0.16% 0.77% 0.77%
AIM V.I. Value Fund 0.61% 0.15% 0.76% 0.76%
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.(1)
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Alliance Premier Growth Portfolio--Class B 1.00% 0.29% 1.29% 1.29%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.(2)
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American Century VP Value 1.00% 0.00% 1.00% 1.00%
DAVIS VARIABLE ACCOUNT FUND, INC.(5)
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Davis Value Portfolio 0.75% 1.54% 2.29% 1.00%
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST(4)
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Franklin Small Cap Fund--Class 2 0.55% 0.52% 1.07% 1.07%
JANUS ASPEN SERIES(3)
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Growth Portfolio 0.65% 0.02% 0.67% 0.67%
International Growth Portfolio 0.65% 0.11% 0.76% 0.76%
MFS VARIABLE INSURANCE TRUST(6)
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Emerging Growth Series 0.75% 0.09% 0.84% 0.83%
Research Series 0.75% 0.11% 0.86% 0.85%
OCC ACCUMULATION TRUST
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Managed Portfolio 0.77% 0.06% 0.83% 0.83%
Small Cap Portfolio 0.80% 0.09% 0.89% 0.89%
T. ROWE PRICE(2)
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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)
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Global Post-Venture Capital Portfolio 1.25% 0.33% 1.58% 1.40%
</TABLE>
* REFLECTS THE EFFECT OF MANAGEMENT FEE WAIVERS AND REIMBURSEMENT OF EXPENSES,
IF ANY. SEE NOTES ON PAGE [10].
THE "EXPENSE EXAMPLES" ON THE FOLLOWING PAGES ARE CALCULATED USING THE TOTAL
ACTUAL EXPENSES.
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PART I
DISCOVERY CHOICE PROSPECTUS SUMMARY
EXPENSE EXAMPLES
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THESE EXAMPLES WILL HELP YOU COMPARE THE FEES AND EXPENSES OF THE DIFFERENT
VARIABLE INVESTMENT OPTIONS OFFERED BY DISCOVERY CHOICE. YOU CAN ALSO USE THE
EXAMPLE TO COMPARE THE COST OF DISCOVERY CHOICE WITH OTHER VARIABLE ANNUITY
CONTRACTS.
EXAMPLE 1: BASIC DEATH BENEFIT OPTION
This example assumes that you:
- Invest $10,000 in Discovery Choice;
- Elect the BASIC Death Benefit Option;
- Allocate all of your assets to only one of the variable investment options;
- That investment has a 5% return each year; and
- The mutual fund's operating expenses remain the same each year.
EXAMPLE 2: ENHANCED DEATH BENEFIT OPTION
This example assumes that you:
- Invest $10,000 in Discovery Choice;
- Elect the ENHANCED Death Benefit Option;
- Allocate all of your assets to only one of the variable investment options;
- That investment has a 5% return each year; and
- The mutual fund's operating expenses remain the same each year.
Because this contract has no withdrawal charges, your costs are not impacted by
whether or not you choose to make withdrawals. Your actual costs may be higher
or lower, but on the following page are examples of what your costs would be
based on these assumptions.
NOTES FOR EXPENSE EXAMPLES:
THESE EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE
SHOWN.
IF YOUR CONTRACT VALUE IS LESS THAN
$50,000, ON YOUR CONTRACT
ANNIVERSARY (AND UPON A FULL
WITHDRAWAL), WE DEDUCT THE LESSER
OF $30.00 OR 2% OF THE CONTRACT
VALUE. THE EXAMPLES USE AN AVERAGE
ANNUAL CONTRACT FEE, WHICH WE
CALCULATED BASED ON OUR ESTIMATE OF
THE TOTAL CONTRACT FEES WE EXPECT
TO COLLECT IN 2000. BASED ON THESE
ESTIMATES, THE ANNUAL CONTRACT FEE
IS INCLUDED AS AN ANNUAL CHARGE OF
0.05% OF CONTRACT VALUE. YOUR
ACTUAL FEES WILL VARY BASED ON THE
AMOUNT OF YOUR CONTRACT AND YOUR
SPECIFIC ALLOCATION(S).
PREMIUM TAXES ARE NOT REFLECTED IN
THE EXAMPLES. A CHARGE FOR PREMIUM
TAXES MAY APPLY DEPENDING ON THE
STATE WHERE YOU LIVE.
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PART I
DISCOVERY CHOICE PROSPECTUS SUMMARY
<TABLE>
<CAPTION>
EXPENSE EXAMPLES 1 AND 2
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EXAMPLE 1: EXAMPLE 2:
WITH THE BASIC DEATH BENEFIT WITH THE ENHANCED DEATH BENEFIT
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1 YR 3 YRS 5 YRS 10 YRS 1 YR 3 YRS 5 YRS 10 YRS
THE PRUDENTIAL SERIES FUND
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Diversified Bond Portfolio $186 $576 $990 $2148 $216 $667 $1144 $2462
Diversified Conservative Growth Portfolio $248 $764 $1306 $2786 $278 $853 $1454 $3080
Equity Income Portfolio $185 $573 $985 $2137 $215 $664 $1139 $2452
Equity Portfolio $190 $588 $1011 $2190 $220 $679 $1164 $2503
Global Portfolio $227 $700 $1200 $2575 $257 $791 $1350 $2875
High Yield Bond Portfolio $203 $627 $1078 $2327 $233 $718 $1230 $2636
Money Market Portfolio $185 $573 $985 $2137 $215 $664 $1139 $2452
Prudential Jennison Portfolio $206 $637 $1093 $2358 $236 $727 $1245 $2666
Small Capitalization Stock Portfolio $188 $582 $1001 $2169 $218 $673 $1154 $2483
Stock Index Portfolio $182 $563 $970 $2105 $212 $655 $1124 $2421
20/20 Focus Portfolio $252 $776 $1326 $2826 $282 $865 $1474 $3119
AIM VARIABLE INSURANCE FUNDS
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AIM V.I. Growth and Income Fund $220 $679 $1164 $2503 $250 $770 $1316 $2806
AIM V.I. Value Fund $219 $676 $1159 $2493 $249 $767 $1311 $2796
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
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Alliance Premier Growth Portfolio--Class B $248 $751 $1298 $2752 $278 $850 $1445 $3043
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
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American Century VP Value $243 $748 $1280 $2736 $273 $838 $1430 $3032
DAVIS VARIABLE ACCOUNT FUND, INC.
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Davis Value Portfolio $247 $750 $1266 $2617 $276 $838 $1410 $2893
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
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Franklin Small Cap Fund--Class 2 $250 $770 $1316 $2806 $280 $859 $1464 $3099
JANUS ASPEN SERIES
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Growth Portfolio $210 $649 $1114 $2400 $240 $739 $1265 $2706
International Growth Portfolio $219 $676 $1159 $2493 $249 $767 $1311 $2796
MFS VARIABLE INSURANCE TRUST
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Emerging Growth Series $226 $697 $1195 $2566 $256 $788 $1345 $2866
Research Series $228 $703 $1205 $2585 $258 $793 $1355 $2885
OCC ACCUMULATION TRUST
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Managed Portfolio $226 $697 $1195 $2565 $256 $788 $1345 $2866
Small Cap Portfolio $232 $715 $1225 $2626 $262 $805 $1375 $2925
T. ROWE PRICE
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Equity Series--Equity Income Portfolio $228 $703 $1205 $2585 $258 $793 $1355 $2885
International Series--Int'l Stock Portfolio $248 $764 $1306 $2786 $278 $853 $1454 $3080
WARBURG PINCUS TRUST
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Global Post-Venture Capital Portfolio $301 $921 $1567 $3299 $331 $1010 $1712 $3576
</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.
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PART II SECTIONS 1-9
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DISCOVERY CHOICE PROSPECTUS
[ROCKWELL GRAPHIC]
15
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PART II
DISCOVERY CHOICE PROSPECTUS SECTIONS 1-9
1:
WHAT IS THE DISCOVERY CHOICE
VARIABLE ANNUITY?
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THE DISCOVERY CHOICE 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 second
contract anniversary. Your annuity is in the accumulation phase until you decide
to begin receiving annuity payments. The date you begin receiving annuity
payments is the annuity date. On the annuity date, your contract switches to the
income phase.
THIS ANNUITY CONTRACT BENEFITS FROM TAX DEFERRAL. Tax deferral means that you
are not taxed on earnings or appreciation on the assets in your contract until
you withdraw money from your contract.
DISCOVERY CHOICE IS A VARIABLE ANNUITY CONTRACT. This means that during the
accumulation phase, you can allocate your assets among 26 variable investment
options. The amount of money you are able to accumulate in your contract during
the accumulation phase depends upon the investment performance of the mutual
fund associated with that variable investment option. Because the mutual funds'
portfolios fluctuate in value depending upon market conditions, your contract
value can either increase or decrease. This is important, since the amount of
the annuity payments you receive during the income phase depends upon the value
of your contract at the time you begin receiving payments.
AS THE OWNER OF THE CONTRACT, YOU HAVE ALL OF THE DECISION-MAKING RIGHTS
UNDER THE CONTRACT. You will also be the annuitant unless you designate someone
else. The annuitant is the person who receives the annuity payments when the
income phase begins. The annuitant is also the person whose life is used to
determine how much and how long these payments will continue. On and after the
annuity date, the annuitant is the owner and may not be changed.
THE BENEFICIARY IS the person(s) or entity designated to receive any death
benefit if the owner(s) dies during the accumulation phase. You may change the
beneficiary any time prior to the annuity date by making a written request to
us. Your request becomes effective on the date your written request is signed,
provided your written request is received in good order. The beneficiary becomes
the owner when a death benefit is payable.
SHORT TERM CANCELLATION RIGHT OR "FREE LOOK"
If you change your mind about owning Discovery Choice, you may cancel your
contract within 10 days after receiving it (or whatever period is required by
applicable law). You can request a refund by returning the contract either to
the representative who sold it to you, or to the Prudential Annuity Service
Center at the address shown on the first page of this prospectus. You will
receive, depending on applicable law:
- Your full purchase payment; or
- The amount your contract is worth as of the day your contract is mailed or
delivered to us. This amount may be more or less than your original payment.
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PART II
DISCOVERY CHOICE PROSPECTUS SECTIONS 1-9
2:
WHAT INVESTMENT OPTIONS
CAN I CHOOSE?
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THE CONTRACT GIVES YOU THE CHOICE OF ALLOCATING YOUR PURCHASE PAYMENTS TO ANY
ONE OR MORE OF 26 VARIABLE INVESTMENT OPTIONS.
The 26 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.
- Diversified Bond Portfolio
- Diversified Conservative Growth Portfolio
- Equity Income Portfolio
- Equity Portfolio
- Global Portfolio
- High Yield Bond Portfolio
- Money Market Portfolio
- Prudential Jennison Portfolio (domestic equity)
- Small Capitalization Stock Portfolio
- Stock Index Portfolio
- 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. THAT PROVIDES THE DAY-TO-DAY INVESTMENT ADVISORY SERVICES. FOR THE
DIVERSIFIED CONSERVATIVE GROWTH PORTFOLIO, PRUDENTIAL INVESTMENT CORPORATION
OVERSEES THE DREYFUS CORPORATION AND PACIFIC INVESTMENT MANAGEMENT COMPANY,
WHICH PROVIDE THE DAY-TO-DAY INVESTMENT ADVISORY SERVICES.
AIM VARIABLE INSURANCE FUNDS
- AIM V.I. Growth and Income Fund
- AIM V.I. Value Fund
AIM ADVISORS, INC. SERVES AS INVESTMENT ADVISER TO BOTH OF THESE FUNDS.
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
- Alliance Premier Growth Portfolio
ALLIANCE CAPITAL MANAGEMENT IS THE INVESTMENT ADVISER OF THE ALLIANCE VARIABLE
PRODUCTS SERIES FUND.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
- American Century VP Value
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. IS THE INVESTMENT ADVISER FOR
AMERICAN CENTURY VP VALUE.
DAVIS VARIABLE ACCOUNT FUND, INC.
- Davis Value Portfolio
DAVIS SELECTED ADVISERS, L.P. IS THE INVESTMENT ADVISER AND DAVIS SELECTED
ADVISER-NY, INC. IS SUB-ADVISER TO THE DAVIS VALUE PORTFOLIO.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
- Franklin Small Cap Fund--Class 2
FRANKLIN ADVISERS, INC. IS THE INVESTMENT MANAGER FOR THIS PORTFOLIO OF THE
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST.
JANUS ASPEN SERIES
- Growth Portfolio
- International Growth Portfolio
JANUS CAPITAL CORPORATION SERVES AS INVESTMENT ADVISER TO THE GROWTH PORTFOLIO
AND THE INTERNATIONAL GROWTH PORTFOLIO.
MFS VARIABLE INSURANCE TRUST
- Emerging Growth Series
- 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
- Managed Portfolio (equity)
- Small Cap Portfolio
OPCAP ADVISORS IS THE INVESTMENT ADVISER TO THE MANAGED PORTFOLIO AND THE SMALL
CAP PORTFOLIO.
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PART II
DISCOVERY CHOICE PROSPECTUS SECTIONS 1-9
2:
WHAT INVESTMENT OPTIONS CAN I CHOOSE? CONTINUED
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T. ROWE PRICE
- T. Rowe Price Equity Series, Inc., Equity Income Portfolio
- 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.
WARBURG PINCUS TRUST
- Global 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 GLOBAL
POST-VENTURE CAPITAL PORTFOLIO ALLOCATED TO PRIVATE LIMITED PARTNERSHIPS OR
OTHER INVESTMENT FUNDS.
Except for the Prudential Series Fund Inc., we are paid by each fund or an
affiliate of each fund for administrative and other services that we provide.
The amount we receive is based on an annual percentage of the average assets of
Discovery Choice invested in that fund.
TRANSFERS AMONG OPTIONS
You can transfer money among the variable investment options. Your transfer
request may be made by telephone or in writing to the Prudential Annuity Service
Center. Only two transfers per month may be made by telephone. After that, all
transfer requests must be in writing with an original signature. We have
procedures in place to confirm that instructions received by telephone are
genuine. We will not be liable for following telephone instructions that we
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 usually
closes, at 4:00 p.m. Eastern time.
During the contract accumulation phase, you can make 12 transfers each
contract year, among the investment options, without charge. If you make more
than 12 transfers in one contract year, you may be charged up to $30 for each
additional transfer. Currently we charge only $10 for additional transfers.
(Dollar Cost Averaging and Auto-Rebalancing transfers are always free, and do
not count toward the 12 free transfers per year.)
DOLLAR COST AVERAGING
The dollar cost averaging (DCA) feature allows you to systematically transfer
either a fixed dollar amount or a percentage out of the Money Market Portfolio
and into any other variable investment option(s). You can transfer money to more
than one variable investment option. The investment option used for the
transfers is designated as the DCA account. You can have these automatic
transfers made from the DCA account monthly, quarterly, semiannually or
annually. By allocating amounts on a regular schedule instead of allocating the
total amount at one particular time, you may be less susceptible to the impact
of market fluctuations. Of course, there is no guarantee that dollar cost
averaging will ensure a profit or protect against a loss in declining markets.
Each transfer from your DCA account must be at least $100. Transfers will be
made automatically on the schedule you elect until the entire amount in your DCA
account has been transferred or until you tell us to discontinue the transfers.
If your DCA account balance drops below $100, the entire remaining balance of
the account will be transferred on the next transfer date. You can allocate
subsequent purchase payments to re-open the DCA account at any time.
Your transfers will be made on the last calendar day of each transfer period
you have selected, provided that the New York Stock Exchange is open on that
date. If the New York Stock Exchange is not open on a particular transfer date,
the transfer will take effect on the next business day.
Any transfers you make because of Dollar Cost Averaging are not counted
toward the 12 free transfers you are allowed each contract year. The DCA 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
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PART II
DISCOVERY CHOICE PROSPECTUS SECTIONS 1-9
--------------------------------------------------------------------------------
representative will give you a questionnaire to complete that will help
determine a program that is appropriate for you. Your asset allocation will be
prepared based on your answers to the questionnaire. You will not be charged for
this service and you are not obligated to participate or to invest according to
program recommendations.
AUTO-REBALANCING
Once your money has been allocated among the variable investment options, the
actual performance of the investment options may cause your allocation to shift.
For example, an investment option that initially holds only a small percentage
of your assets could perform much better than another investment option. Over
time, this option could increase to a larger percentage of your assets than you
desire. You can direct us to automatically rebalance your assets to return to
your original allocation or to change allocations by selecting the
Auto-Rebalancing feature. The DCA account cannot participate in this feature.
Your rebalancing will be done monthly, quarterly, semiannually or annually
based on your choice. The rebalancing will be done on the last calendar day of
the period you have chosen, provided that the New York Stock Exchange is open on
that date. If the New York Stock Exchange is not open on that date, the
rebalancing will take effect on the next business day.
Any transfers you make because of Auto-Rebalancing are not counted toward the
12 free transfers you are allowed per year. This feature is available only
during the contract accumulation phase.
VOTING RIGHTS
We are the legal owner of the shares in the mutual funds available as variable
investment options. However, we vote the shares of the mutual funds according to
voting instructions we receive from contractowners. We will mail you a proxy
which is a form you need to complete and return to us to tell us how you wish us
to vote. When we receive those instructions, we will vote all of the shares we
own on your behalf in accordance with those instructions. Fund shares for which
we do not receive instructions or, are voted in the same proportion as shares
for which instructions are received from contractowners. We may change the way
your voting instructions are calculated if it is required by federal regulation.
SUBSTITUTION
We may substitute one or more of the mutual funds used by the variable
investment options. We may also cease to allow investments in existing funds. We
would do this only if events such as investment policy changes or tax law
changes make the mutual fund unsuitable. We would not do this without the
approval of the Securities and Exchange Commission and necessary state insurance
department approvals. You will be given specific notice in advance of any
substitution we intend to make.
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PART II
DISCOVERY CHOICE PROSPECTUS SECTIONS 1-9
3:
WHAT KIND OF PAYMENTS WILL I RECEIVE DURING THE
INCOME PHASE? (ANNUITIZATION)
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PAYMENT PROVISIONS
The annuitant can begin receiving annuity payments any time after the first
contract anniversary (or as required by state law, if different). Annuity
payments must begin no later than the contract anniversary that coincides with
or follows the annuitant's 90th birthday (unless we agree to another date).
You may choose among the income plans described below at any time before the
annuity date. These plans are called annuity options or settlement options.
During the income phase, all of the annuity options under this contract are
fixed annuity options. This means that your participation in the variable
investment options ends on the annuity date. If you have not selected an annuity
option by the annuity date, the Life Income Annuity Option (Option 2, described
below) will automatically be selected unless prohibited by applicable law.
GENERALLY, ONCE THE ANNUITY PAYMENTS BEGIN, YOU CANNOT CHANGE THE ANNUITY
OPTION.
OPTION 1
ANNUITY PAYMENTS FOR A FIXED PERIOD
Under this option, we will make equal payments for a period you choose, up to 25
years. The annuity payments may be made monthly, quarterly, semiannually, or
annually, as you choose, for the fixed period. If the annuitant dies during the
income phase, payments will continue to the beneficiary for the remainder of the
fixed period. A lump sum payment will be made to the beneficiary if the
beneficiary so chooses. The amount of the lump sum payment is determined by
calculating the present value of the unpaid future payments. This is done by
using the interest rate used to compute the actual payments. The interest rate
used will always be at least 3% a year.
OPTION 2
LIFE INCOME ANNUITY OPTION
Under this option, we will make annuity payments to the annuitant monthly,
quarterly, semiannually, or annually, as you choose, as long as the annuitant is
alive. If the annuitant dies before we have made 10 years worth of payments, we
will pay the beneficiary the present value of the remaining annuity payments in
one lump sum unless the annuitant has specifically instructed that the remaining
monthly annuity payments continue to be paid to the beneficiary. The present
value of the remaining annuity payments is calculated by using the interest rate
used to compute the amount of the original 120 payments. The interest rate used
will always be at least 3% a year. No withdrawal charge is applicable under this
option.
If you have not selected an annuity option by the annuity date, this is the
option we will automatically select for you, unless prohibited by applicable
law.
OPTION 3
INTEREST PAYMENT OPTION
Under this option, you can choose to have us hold all or a portion of your
contract value in order to accumulate interest. You can receive interest
payments on a monthly, quarterly, semiannual, or annual basis or you can allow
the interest to accrue on your contract assets. Under this option, we will pay
you interest at an effective rate of at least 3% a year.
This option is not available if your contract is held in an IRA.
OPTION 4
OTHER ANNUITY OPTIONS
We currently offer a variety of other annuity options not described above. At
the time you choose to receive your annuity payments, we may make available to
you any of the fixed annuity options that are offered at your annuity date.
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PART II
DISCOVERY CHOICE PROSPECTUS SECTIONS 1-9
4:
WHAT IS THE
DEATH BENEFIT?
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THE DEATH BENEFIT FEATURE PROTECTS THE VALUE OF THE CONTRACT FOR THE
BENEFICIARY.
BENEFICIARY
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued, unless you
change it at a later date. Unless an irrevocable beneficiary has been named,
during the accumulation period you can change the beneficiary at any time before
the owner dies.
CALCULATION OF THE DEATH BENEFIT:
The death benefit to which your beneficiary is entitled depends on whether you
elected the basic death benefit or the enhanced death benefit.
BASIC DEATH BENEFIT:
If the owner dies during the accumulation period, after we receive the
appropriate proof of death and any other needed documentation ("due proof of
death"), your beneficiary will receive the greater of the following:
1. the contract value as of the date we receive due proof of death; or
2. the total of all purchase payments made, proportionally reduced by the effect
of withdrawals.
ENHANCED DEATH BENEFIT:
If the owner dies during the accumulation period and prior to age 80, after we
receive due proof of death, your beneficiary will receive the greater of the
following:
1. the contract value as of the date we receive due proof of death; or
2. the guaranteed minimum death benefit (GMDB). The GMDB is calculated daily and
is equal to the highest value of the contract on any contract anniversary.
This is called the step-up value. Before the first contract anniversary, the
step-up value is the initial purchase payment increased by subsequent
purchase payments and proportionally reduced by the effect of withdrawals.
Between anniversaries, the step-up is increased only by purchase payments and
proportionally reduced by the effect of withdrawals.
After the contract anniversary on or next following the 80th birthday of the
owner, the beneficiary will receive a death benefit equal to the greater of:
(a) the contract value as of the date we receive due proof of death; or
(b) the GMDB as of the contract anniversary on or next following the owner's
80th birthday increased by subsequent purchase payments since such contract
anniversary and proportionally reduced by the effect of withdrawals since
such contract anniversary.
Here is an example of a proportional reduction:
If an owner withdrew 50% of a contract valued at $100,000 and if the step-up
value at that time was $80,000, the new step-up value following the withdrawal
would be $40,000, or 50% of what it had been prior to the withdrawal.
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PART II
DISCOVERY CHOICE PROSPECTUS SECTIONS 1-9
5:
HOW CAN I PURCHASE A
DISCOVERY CHOICE CONTRACT?
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PURCHASE PAYMENTS
A purchase payment is the amount of money you give us to purchase the contract.
The minimum purchase payment is $10,000. With some restrictions, you can make
additional purchase payments of at least $1,000 or more at any time during the
accumulation phase. However, no purchase payments may be made on or after the
85th birthday of either:
- the owner
- the annuitant.
We have established an aggregate maximum purchase payment limit of $20
million, and we limit the maximum total purchase payments per contract in any
contract year, other than the first, to $2 million. Depending on applicable
state law, other limits may apply.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, we will allocate your purchase payment among the
variable investment options based on the percentages you choose. The percentage
of your allocation to a specific investment option can range in whole
percentages from 1% to 100%. If, after the initial invested purchase payment, we
receive a purchase payment without allocation instructions, we will allocate the
corresponding invested purchase payment in the same proportion as your most
recent purchase payment (unless you directed us to allocate that purchase
payment on a one-time-only basis). You may submit an allocation change request
at any time. Contact the Prudential Annuity Service Center for details.
We generally will credit the initial purchase payment to your contract within
two business days from the day on which the payment is received and subsequent
payments on the business day on which they are received in good order. Our
business day ends when the New York Stock Exchange closes, usually at 4:00 p.m.
Eastern time.
CALCULATING CONTRACT VALUE
The value of your contract will go up or down depending on the investment
performance of the variable investment option(s) you choose. To determine the
value of your contract, we use a unit of measure called an accumulation unit. An
accumulation unit works like a share of a mutual fund.
Every day we determine the value of an accumulation unit for each of the
variable investment options. We do this by:
1) adding up the total amount of money allocated to a specific investment
option;
2) subtracting from that amount insurance charges and any other applicable
charges such as for taxes; and
3) dividing this amount by the number of outstanding accumulation units.
When you make a purchase payment, we credit your contract with accumulation
units of the subaccount or subaccounts selected. The number of accumulation
units credited to your contract is determined by dividing the amount of the
purchase payment allocated to an investment option by the unit price of the
accumulation unit for that investment option. We calculate the unit price for
each investment option after the New York Stock Exchange closes each day and
then credit your contract. The value of the accumulation units can increase,
decrease, or remain the same from day to day.
We cannot guarantee that your contract value will increase or that it will
not fall below the amount of your total purchase payments.
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PART II
DISCOVERY CHOICE PROSPECTUS SECTIONS 1-9
6:
WHAT ARE THE EXPENSES ASSOCIATED WITH THE
DISCOVERY CHOICE CONTRACT?
--------------------------------------------------------------------------------
THERE ARE CHARGES AND OTHER EXPENSES ASSOCIATED WITH THE CONTRACT THAT REDUCE
THE RETURN ON YOUR INVESTMENT. THESE CHARGES AND EXPENSES ARE DESCRIBED BELOW.
INSURANCE CHARGES
Each day, we make a deduction for the insurance charge. The insurance charge
covers our expenses for mortality and expense risk, administration, marketing
and distribution. The mortality risk portion of the charge is for assuming the
risk that the annuitant(s) will live longer than expected based on our life
expectancy tables. When this happens, we pay a greater number of annuity
payments. The expense risk portion of the charge is for assuming the risk that
the current charges will be insufficient in the future to cover the cost of
administering the contract. The administrative expense portion of the charge is
for the expenses associated with the administration of the contract. This would
include preparing and issuing the contract; establishing and maintaining
contract records; preparation of confirmations and annual reports; personnel
costs; legal and accounting fees; filing fees; and systems costs.
The insurance charge is equal, on an annual basis, to 1.35% (Basic Death
Benefit) or 1.65% (Enhanced Death Benefit) of the daily value of the contract,
after expenses have been deducted.
If the charges under the contract are not sufficient, then we will bear the
loss. We do, however, expect to profit from this charge. The insurance risk
charge for your contract cannot be increased. Any profits made from this charge
may be used by us to pay for the costs of distributing the contracts.
CONTRACT MAINTENANCE CHARGE
On each contract anniversary during the accumulation phase, if your contract
value is less than $50,000, we will deduct the lesser of $30 or 2% of your
contract value, for administrative expenses. (This fee may differ in certain
states). While this is what we currently charge, we may increase this charge up
to a maximum of $60. Also, we may raise the level of the contract value at which
we waive this fee. The charge will be deducted proportionately from each of the
contract's variable investment options. This charge will also be deducted when
you surrender your contract if your contract value is less than $50,000.
PREMIUM TAXES
Some states and/or municipalities charge premium taxes or similar taxes. We are
responsible for the payment of these taxes and will make a deduction from the
value of the contract to pay them. Some of these taxes are due when the contract
is issued, others are due when annuity payments begin. It is our current
practice not to deduct a charge for these taxes until annuity payments begin. In
the few states that impose a tax, the current rates range up to 5%. If, in the
future, we are charged for additional taxes that are based on purchase payments,
that charge may be passed on to contractowners.
TRANSFER FEE
You can make 12 free transfers every contract year. We measure a contract year
from the date we issue your contract (contract date). If you make more than 12
transfers in a contract year (excluding Dollar Cost Averaging and
Auto-Rebalancing), we will deduct a transfer fee of $10 for each additional
transfer. The transfer fee will be deducted proportionately from each of the
investment options involved in the transfer.
COMPANY TAXES
We will pay the taxes on the earnings of the separate account. We are not
currently charging the separate account for taxes. We will periodically review
the issue of charging the separate account for these taxes and may impose a
charge in the future.
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PART II
DISCOVERY CHOICE PROSPECTUS SECTIONS 1-9
7:
HOW CAN I
ACCESS MY MONEY?
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YOU CAN ACCESS YOUR MONEY BY:
- MAKING A WITHDRAWAL (EITHER PARTIAL OR COMPLETE); OR
- ELECTING TO RECEIVE ANNUITY PAYMENTS DURING THE INCOME PHASE.
WITHDRAWALS DURING THE ACCUMULATION PHASE
When you make a complete withdrawal, you will receive the value of your contract
minus the contract maintenance fee, if applicable. 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 variable investment options you have selected.
The minimum amount which may be withdrawn is $250. If you request a withdrawal
that would reduce your total contract fund below the minimum $2,000, we will
withdraw the maximum amount that will not reduce the total contract fund below
that amount.
We will generally pay the withdrawal amount, less any required tax
withholding, within seven days after we receive a withdrawal request in good
order. We will deduct applicable charges, if any, from the assets in your
contract.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY
WITHDRAWAL YOU MAKE. FOR A MORE COMPLETE EXPLANATION, SEE SECTION 8 OF THIS
PROSPECTUS.
AUTOMATED WITHDRAWALS
We offer an Automated Withdrawal feature. This feature enables you to receive
periodic withdrawals in monthly, quarterly, semiannual or annual intervals. We
will process your withdrawals at the end of the business day at the intervals
you specify. We will continue at these intervals until you tell us otherwise.
You can make withdrawals from any designated investment option or proportionally
from all investment options. The minimum automated withdrawal amount you can
make is $100.
INCOME TAXES AND A 10% PENALTY TAX ON EARNINGS MAY APPLY TO AUTOMATED
WITHDRAWALS AS WELL AS ANY OTHER WITHDRAWALS MADE FROM YOUR CONTRACT.
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:
- The New York Stock Exchange is closed (other than customary weekend and
holiday closings);
- Trading on the New York Stock Exchange is restricted;
- An emergency exists during which sales and redemptions of shares of the
mutual funds are not reasonable or we cannot reasonably value the
accumulation units; or
- The Securities and Exchange Commission, by order, permits suspension or
postponement of payments for the protection of owners.
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PART II
DISCOVERY CHOICE PROSPECTUS SECTIONS 1-9
8:
WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE
DISCOVERY CHOICE CONTRACT?
--------------------------------------------------------------------------------
The tax considerations associated with the Discovery Choice contract vary
depending on whether the contract is (i) owned by an individual and not
associated with a tax-favored retirement plan, or (ii) held under a tax-favored
retirement plan. We discuss the tax considerations for these categories of
contracts below. The discussion is general in nature and describes only federal
income tax law (not state or other tax laws). It is based on current law and
interpretations, which may change. It is not intended as tax advice. A qualified
tax adviser should be consulted for complete information and advice.
CONTRACTS OWNED BY INDIVIDUALS (NOT ASSOCIATED WITH TAX-FAVORED RETIREMENT
PLANS)
TAXES PAYABLE BY YOU
We believe the contract is an annuity contract for tax purposes. Accordingly, as
a general rule, you should not pay any tax until you receive money under the
contract.
Generally, annuity contracts issued by the same company (and affiliates) to
you during the same calendar year must be treated as one annuity contract for
purposes of determining the amount subject to tax under the rules described
below.
TAXES ON WITHDRAWALS AND SURRENDER
If you make a withdrawal from your contract or surrender it before annuity
payments begin, the amount you receive will be taxed as ordinary income, rather
than as return of purchase payments, until all gain has been withdrawn.
If you assign all or part of your contract as collateral for a loan, the part
assigned will be treated as a withdrawal. Also, if you elect the interest
payment option, that election will be treated, for tax purposes, as surrendering
your contract.
If you transfer your contract for less than full consideration, such as by
gift, you will trigger tax on the gain in the contract. This rule does not apply
if you transfer the contract to your spouse or incident to divorce.
It is our position that the enhanced death benefit option is an integral part
of the annuity contract and accordingly that the charges made against the
annuity contract's cash value option should not be treated as distributions
subject to income tax. It is possible, however, that the Internal Revenue
Service could take the position that such charges be treated as distributions.
TAXES ON ANNUITY PAYMENTS
A portion of each annuity payment you receive will be treated as a partial
return of your purchase payments and will not be taxed. The remaining portion
will be taxed as ordinary income. Generally, the nontaxable portion is
determined by multiplying the annuity payment you receive by a fraction, the
numerator of which is your purchase payments (less any amounts previously
received tax-free) and the denominator of which is the total expected payments
under the contract.
After the full amount of your purchase payments have been recovered tax-free,
the full amount of the annuity payments will be taxable. If annuity payments
stop due to the death of the annuitant before the full amount of your purchase
payments have been recovered, a tax deduction is allowed for the unrecovered
amount.
PENALTY TAXES ON WITHDRAWALS AND ANNUITY PAYMENTS
Any taxable amount you receive under your contract may be subject to a 10%
penalty tax. Amounts are not subject to this penalty tax if:
- the amount is paid on or after you reach age 59 1/2 or die;
- the amount received is attributable to your becoming disabled;
- the amount paid or received is in the form of level annuity payments paid or
received not less frequently than annually under a lifetime annuity.
TAXES PAYABLE BY BENEFICIARIES
Generally, the same tax rules apply to amounts received by your beneficiary as
those set forth above with respect to you. The election of an annuity payment
option instead of a lump sum death benefit may defer taxes.
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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 forms that we provide.
ANNUITY QUALIFICATION
DIVERSIFICATION AND INVESTOR CONTROL. In order to qualify for the tax rules
applicable to annuity contracts described above, the contract must be an annuity
contract for tax purposes. This means that the assets underlying the annuity
contract must be diversified, according to certain rules. It also means that we
and not you as the contract-owner, must have sufficient control over the
underlying assets to be treated as the owner of the underlying assets for tax
purposes. We believe these rules, which are further discussed in the Statement
of Additional Information, will be met.
REQUIRED DISTRIBUTIONS UPON YOUR DEATH. Upon your death, certain
distributions must be made under the contract. The required distributions depend
on whether you die before you start taking annuity payments under the contract
or after you start taking annuity payments under the contract.
If you die on or after the annuity date, the remaining portion of the
interest in the contract must be distributed at least as rapidly as under the
method of distribution being used as of the date of death.
If you die before the annuity date, the entire interest in the contract must
be distributed within 5 years after the date of death. However, if an annuity
payment option is selected by your designated beneficiary and if annuity
payments begin within 1 year of your death, the value of the contract may be
distributed over the beneficiary's life or a period not exceeding the
beneficiary's life expectancy. Your designated beneficiary is the person to whom
ownership of the contract passes by reason of death, and must be a natural
person.
If any portion of the contract is payable to (or for the benefit of) your
surviving spouse, that portion of the contract may be continued with your spouse
as the owner.
CHANGES IN THE CONTRACT. We reserve the right to make any changes we deem
necessary to assure that the contract qualifies as an annuity contract for tax
purposes. Any such changes will apply to all 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:
- The contract is held by a corporation or other entity instead of by an
individual or as agent for an individual.
- Your contract was issued in exchange for a contract containing purchase
payments made before August 14, 1982.
- You are a nonresident alien.
- You transfer your contract to, or designate, a beneficiary who is either
37 1/2 years younger than you or a grandchild.
- You wish additional withholding on withholding taxes.
CONTRACTS HELD BY TAX FAVORED PLANS
The following discussion covers annuity contracts held under tax-favored
retirement plans.
Currently, the contract may be purchased for use in connection with
individual retirement accounts and annuities ("IRAs") which are subject to
Sections 408(a), 408(b) and 408A of the Code. At some future time we may allow
the contract to be purchased in connection with other retirement arrangements
which are also entitled to favorable federal income tax treatment ("tax favored
plans"). These other tax favored plans include:
Simplified employee pension plans ("SEPs") under Section 408(k) of the Code;
Saving incentive match plans for employees-IRAs ("SIMPLE-IRAs") under Section
408(p) of the Code; and Tax-deferred annuities ("TDAs") under Section 403(b) of
the Code. This description assumes that (i) we will be offering this to
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both IRA and non-IRA tax favored plans, and (ii) you
have satisfied the requirements for eligibility for these products.
You should be aware that tax favored plans such as IRAs generally provide tax
deferral regardless whether they invest in annuity contracts. This means that
when a tax favored plan invests in an annuity contract, it generally does not
result in any additional tax deferral benefits.
TYPES OF TAX FAVORED PLANS
IRAS
If you buy a contract for use as an IRA, we will provide you a copy of the
prospectus and contract. The "IRA Disclosure Statement" on page 33 contains
information about eligibility, contribution limits, tax particulars and other
IRA information. In addition to this information (some of which is summarized
below), the IRS requires that you have a "free look" after making an initial
contribution to the contract. During this time, you can cancel the contract by
notifying us in writing, and we will refund all of the purchase payments under
the contract (or, if provided by applicable state law, the amount credited under
the contract, calculated as of the date that we receive this cancellation
notice, if greater).
Contributions Limits/Rollovers: Because of the way the contract is designed,
you may only purchase a contract for an IRA in connection with a "rollover" of
amounts from a qualified retirement plan. You must make a minimum initial
payment of $10,000 to purchase a contract. This minimum is greater than the
maximum amount of any annual contribution you may make to an IRA (which is
generally $2,000/year). The "rollover" rules under the Code are fairly
technical; however, an individual (or his or her surviving spouse) may generally
"roll over" certain distributions from tax favored retirement plans (either
directly or within 60 days from the date of these distributions) if he or she
meets the requirements for distribution. Once you buy the contract, you can make
regular IRA contributions under the contract (to the extent permitted by law).
However, if you make such regular IRA contributions, you should note that you
will not be able to treat the contract as a "conduit IRA," which means that you
will not be able subsequently to "roll over" the contract funds into another
Section 401(a) plan or TDA (although you may be able to transfer the funds to
another IRA).
Required Provisions: Contracts that are IRAs (or endorsements that are part
of the contract) must contain certain provisions:
- You, as owner of the contract, must be the "annuitant" under the contract
(except in certain cases involving the division of property under a decree of
divorce);
- Your rights as owner are non-forfeitable;
- You cannot sell, assign or pledge the contract, other than to Pruco Life of
New Jersey;
- The annual premium you pay cannot be greater than $2,000 (which does not
include any rollover amounts);
- The date on which annuity payments must begin cannot be later than the April
1st of the calendar year after the calendar year you turn age 70 1/2; and
- Death and annuity payments must meet "minimum distribution requirements"
(described below).
Usually, the full amount of any distribution from an IRA (including a
distribution from this contract) which is not a rollover is taxable. As taxable
income, these distributions are subject to the general tax withholding rules
described earlier. In addition to this normal tax liability, you may also be
liable for the following, depending on your actions:
- A 10% "early distribution penalty" (described below);
- Liability for "prohibited transactions" if you, for example, borrow against
the value of an IRA; or
- Failure to take a minimum distribution (also generally described below).
SEPS. SEPs are a variation on a standard IRA, and contracts issued to a SEP
must satisfy the same general
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requirements described under IRAs (above). There are, however, some differences:
- If you participate in a SEP, you generally do not include in income any
employer contributions made to the SEP on your behalf up to the lesser of (a)
$30,000 or (b) 15% of the employee's earned income (not including the
employer contribution amount as "earned income" for these purposes). However,
for these purposes, compensation in excess of certain limits established by
the IRS will not be considered. In 2000, this limit is $170,000;
- SEPs must satisfy certain participation and nondiscrimination requirements
not generally applicable to IRAs; and
- Some SEPs for small employers permit salary deferrals (up to $10,500 in 2000)
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:
- Participants in a SIMPLE-IRA may contribute up to $6,000 (in 2000, 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
- SIMPLE-IRAs are not subject to the SEP nondiscrimination rules.
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:
- Contributions to a Roth IRA cannot be deducted from your gross income;
- "Qualified distributions" (generally, held for 5 years and payable on account
of death, disability, attainment of age 59 1/2, or first time-homebuyer) from
Roth IRAs are excludable from your gross income; and
- If eligible, you may make contributions to a Roth IRA after attaining age
70 1/2, and distributions are not required to begin upon attaining such age
or at any time thereafter.
Because the contract's minimum initial payment of $10,000 is greater than the
maximum annual contribution permitted to be made to a Roth IRA (generally,
$2,000 less any contributions to a traditional IRA), you may purchase a contract
as a Roth IRA only in connection with a "rollover" or "conversion" of the
proceeds of another traditional IRA, conduit IRA, SEP, SIMPLE-IRA, or Roth IRA.
The Code permits persons who meet certain income limitations (generally,
adjusted gross income under $100,000), and who receive certain qualifying
distributions from such non-Roth IRAs, to directly rollover or make, within 60
days, a "rollover" of all or any part of the amount of such distribution to a
Roth IRA which they establish. This conversion triggers current taxation (but is
not subject to a 10% early distribution penalty). Once the contract has been
purchased, regular Roth IRA contributions will be accepted to the extent
permitted by law.
TDAS. You may own a TDA generally if you are either an employer or employee
of a tax-exempt organization (as defined under Code Section 501(c)(3)) or a
public educational organization, and you may make contributions to a TDA so long
as the employee's rights to the annuity are nonforfeitable. Contributions to a
TDA, and any earnings, are not taxable until distribution. You may also make
contributions to a TDA under a salary reduction agreement, generally up to a
maximum of $10,500 (2000, indexed). Further, you may roll over TDA amounts to
another TDA or an IRA.
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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:
- Your attainment of age 59 1/2;
- Your severance of employment;
- Your death;
- Your total and permanent disability; or
- 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.
MINIMUM DISTRIBUTION OPTION
If you hold the contract under an IRA or other tax favored plan, you can satisfy
the IRS minimum distribution requirements described above (generally,
distribution after age 70 1/2) under the contract without either annuitizing or
"cash surrendering" a portion of the contract. You, as owner of the contract,
can select either a "calculation" or "recalculation" method to determine the
minimum distribution. We will send you a check for the minimum distribution
amount, less any other partial withdrawals that you made during the year. More
information on the mechanics of this calculation is available on request.
PENALTY FOR EARLY WITHDRAWALS
You may owe a 10% penalty tax to the taxable part of distributions received from
an IRA, SEP, SIMPLE-IRA (which may increase to 25%), Roth IRA, TDA or qualified
retirement plan before you attain age 59 1/2. There are only limited exceptions
to this tax, and you should consult your tax adviser for further details.
WITHHOLDING
The Code requires a mandatory 20% federal income tax withholding for certain
distributions from a TDA or qualified retirement plan, unless the distribution
is an eligible rollover contribution that is "directly" rolled into another
qualified plan, IRA (including the IRA variations described above) or TDA. For
all other distributions, unless you elect otherwise, we will withhold federal
income tax from the taxable portion of such distribution at an appropriate
percentage. The rate of withholding on annuity payments where no mandatory
withholding is required is determined on the basis of the withholding
certificate that you file with us. If you do not file a certificate, we will
automatically withhold federal taxes on the following basis:
- 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
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PART II
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person purchasing the contract. This information has to do primarily with the
fees, charges, discounts and other costs related to the contract, as well as any
commissions paid to any agent selling the contract.
Information about any applicable fees, charges, discounts, penalties or
adjustments may be found under "What Are the Expenses Associated with the
Discovery Choice Contract?" starting on page 23.
Information about sales representatives and commissions may be found under
"Other Information" and "Sale and Distribution of the Contract" on page 31.
In addition, other relevant information required by the exemptions is
contained in the contract and accompanying documentation. Please consult your
tax advisor if you have any additional questions.
ADDITIONAL INFORMATION
For additional information about the requirements of Federal tax law applicable
to tax favored plans, see the "IRA Disclosure Statement" on page 33.
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OTHER
INFORMATION
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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. It is licensed to
sell life insurance and annuities only in the States of New Jersey and New York.
Prudential is currently considering reorganizing itself into a publicly
traded stock company through a process known as "demutualization". On February
10, 1998, the company's Board of Directors authorized management to take
preliminary steps necessary to allow the company to demutualize. On July 1,
1998, legislation was enacted in New Jersey that would permit this conversion to
occur and that specified the process for conversion. Demutualization is a
complex process involving development of a plan of reorganization, adoption of a
plan by the company's Board of Directors, a public hearing, voting by qualified
policyholders and regulatory approval. Prudential is working toward completing
this process in 2001 and currently expects adoption by the Board of Directors to
take place in the latter part of 2000. However, there is no certainty that the
demutualization will be completed in this timeframe or that the necessary
approvals will be obtained. Also it is possible that after careful review,
Prudential could decide not to demutualize or could decide to delay its plans.
The plan of reorganization, which has not been fully developed and approved,
would provide the criteria for determining eligibility and the methodology for
allocating shares or other consideration to those who would be eligible.
Generally the amount of shares or other consideration eligible customers would
receive would be based on a number of factors, including types, amounts and
issue years of the policies. As a general rule, owners of Prudential-issued
insurance policies and annuity contracts would be eligible, provided that their
policies were in force on the date Prudential's Board of Directors adopted a
plan of reorganization, while mutual fund customers and customers of 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 contractholders of Prudential's
subsidiaries. This does not constitute a proposal, offer, solicitation or
recommendation regarding any plan of reorganization that may be proposed or a
recommendation regarding the ownership of any stock that could be issued in
connection with any such demutualization.
THE SEPARATE ACCOUNT
We have established a separate account, the Pruco Life of New Jersey Flexible
Premium Variable Annuity 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, are
provided in the Statement of Additional Information.
SALE AND DISTRIBUTION OF THE CONTRACT
Prudential Investment Management Services LLC ("PIMS"), 751 Broad Street,
Newark, New Jersey 07102-3777, acts as the distributor of the contracts. PIMS is
a wholly-owned subsidiary of Prudential and is a limited liability corporation
organized under Delaware law in 1996. It is a registered broker-dealer under the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. Commissions for the sales of contracts are paid to
Prudential representatives and to other independent broker-dealers who sell the
contracts, and do not reduce the amount of your investment. Registered
representatives of independent broker-dealers may be paid on a different basis
than those affiliated with PIMS.
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OTHER INFORMATION CONTINUED
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ASSIGNMENT
You can assign the contract at any time during your lifetime. We will not be
bound by the assignment until we receive written notice. We will not be liable
for any payment or other action we take in accordance with the contract if that
action occurs before we receive notice of the assignment. AN ASSIGNMENT, LIKE
ANY OTHER CHANGE IN OWNERSHIP, MAY TRIGGER A TAXABLE EVENT.
If the contract is issued under a qualified plan, there may be limitations on
your ability to assign the contract. For further information please speak to
your representative.
FINANCIAL STATEMENTS
The financial statements of the separate account associated with Discovery
Choice are included in the Statement of Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
Contents:
- Company
- Directors and Officers
- Experts
- Litigation
- Legal Opinions
- Principal Underwriter
- Determination of Accumulation Unit Values
- Performance Information
- Comparative Performance Information
- Federal Tax Status
- Financial Information
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IRA DISCLOSURE STATEMENT
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This statement is designed to help you understand the requirements of federal
tax law which apply to your individual retirement annuity (IRA), your Roth IRA,
your simplified employee pension IRA (SEP) for employer contributions, your
Savings Incentive Match Plan for Employees (SIMPLE) IRA, or to one you purchase
for your spouse. You can obtain more information regarding your IRA either from
your sales representative or from any district office of the Internal Revenue
Service. Those are federal tax law rules; state tax laws may vary.
FREE LOOK PERIOD
The annuity contract offered by this prospectus gives you the opportunity to
return the contract for a full refund within 10 days (or whatever period is
required by applicable state law) after it is delivered. This is a more liberal
provision than is required in connection with IRAs. To exercise this "free-look"
provision, return the contract to the representative who sold it to you or to
the Prudential Annuity Service Center at the address shown on the first page of
this prospectus.
ELIGIBILITY REQUIREMENTS
IRAs are intended for all persons with earned compensation whether or not they
are covered under other retirement programs. Additionally, if you have a non-
working spouse (and you file a joint tax return), you may establish an IRA on
behalf of your non-working spouse. A working spouse may establish his or her own
IRA. A divorced spouse receiving taxable alimony (and no other income) may also
establish an IRA.
CONTRIBUTIONS AND DEDUCTIONS
Contributions to your IRA will be deductible if you are not an "active
participant" in an employer maintained qualified retirement plan or you have
"Adjusted Gross Income" (as defined under Federal tax laws) which does not
exceed the "applicable dollar limit." IRA (or SEP) contributions must be made by
no later than the time you file your income tax return for that year. For a
single taxpayer, the applicable dollar limitation is $30,000, with the amount of
IRA contribution which may be deducted reduced proportionately for Adjusted
Gross Income between $30,000-$40,000. For married couples filing jointly, the
applicable dollar limitation is $50,000, with the amount of IRA contribution
which may be deducted reduced proportionately for Adjusted Gross Income between
$50,000-$60,000. There is no deduction allowed for IRA contributions when
Adjusted Gross Income reaches $40,000 for individuals and $60,000 for married
couples filing jointly.
Contributions made by your employer to your SEP are excludable from your
gross income for tax purposes in the calendar year for which the amount is
contributed. Certain employees who participate in a SEP will be entitled to
elect to have their employer make contributions to their SEP on their behalf or
to receive the contributions in cash. If the employee elects to have
contributions made on the employee's behalf to the SEP, those funds are not
treated as current taxable income to the employee. Elective deferrals under a
SEP are subject to an inflation-adjusted limit, which is $10,500 in 2000.
Salary-reduction SEPs (also called "SARSEPs") are available only if at least 50%
of the employees elect to have amounts contributed to the SARSEP and if the
employer has 25 or fewer employees at all times during the preceding year. New
SARSEPs may not be established after 1996.
The IRA maximum annual contribution and your tax deduction is limited to the
lesser of: (1) $2,000 or (2) 100% of your earned compensation. Contributions in
excess of the deduction limits may be subject to penalty. See below.
Under a SEP agreement, the maximum annual contribution which your employer
may make on your behalf to a SEP contract that is excludable from your income is
the lesser of 15% of your salary or $24,000. An employee who is a participant in
a SEP agreement may make after-tax contributions to the SEP contract, subject to
the contribution limits applicable to IRAs in general. Those employee
contributions will be deductible subject to the deductibility rules described
above.
The maximum tax deductible annual contribution that a divorced spouse with no
other income may make to an IRA is the lesser of (1) $2,000 or (2) 100% of
taxable alimony.
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IRA DISCLOSURE STATEMENT CONTINUED
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If you or your employer should contribute more than the maximum contribution
amount to your IRA or SEP, the excess amount will be considered an "excess
contribution." You are permitted to withdraw an excess contribution from your
IRA or SEP before your tax filing date without adverse tax consequences. If,
however, you fail to withdraw any such excess contribution before your tax
filing date, a 6% excise tax will be imposed on the excess for the tax year of
contribution.
Once the 6% excise tax has been imposed, an additional 6% penalty for the
following tax year can be avoided if the excess is (1) withdrawn before the end
of the following year, or (2) treated as a current contribution for the
following year. (See Premature Distributions below for penalties imposed on
withdrawal when the contribution exceeds $2,000.)
IRA FOR NON-WORKING SPOUSE
If you establish an IRA for yourself, you may also be eligible to establish an
IRA for your "non-working" spouse. In order to be eligible to establish such a
spousal IRA, you must file a joint tax return with your spouse and, if your
non-working spouse has compensation, his/her compensation must be less than your
compensation for the year. Contributions of up to $2,000 each may be made to
your IRA and the spousal IRA if the combined compensation of you and your spouse
is at least equal to the amount contributed. If requirements for deductibility
(including income levels) are met, you will be able to deduct an amount equal to
the least of (i) the amount contributed to the IRAs; (ii) $4,000; or (iii) 100%
of your combined gross income.
Contributions in excess of the contribution limits may be subject to penalty.
See above under "Contributions and Deductions." If you contribute more than the
allowable amount, the excess portion will be considered an excess contribution.
The rules for correcting it are the same as discussed above for regular IRAs.
Other than the items mentioned in this section, all of the requirement
generally applicable to IRAs are also applicable to IRAs established for
non-working spouses.
ROLLOVER CONTRIBUTION
Once every year, you are permitted to withdraw any portion of the value of your
IRA or SEP and reinvest it in another IRA or bond. Withdrawals may also be made
from other IRAs and contributed to this contract. This transfer of funds from
one IRA to another is called a "rollover" IRA. To qualify as a rollover
contribution, the entire portion of the withdrawal must be reinvested in another
IRA within 60 days after the date it is received. You will not be allowed a
tax-deduction for the amount of any rollover contribution.
A similar type of rollover to an IRA can be made with the proceeds of a
qualified distribution from a qualified retirement plan or tax-sheltered
annuity. Properly made, such a distribution will not be taxable until you
receive payments from the IRA created with it. Unless you were a self-employed
participant in the distributing plan, you may later roll over such a
contribution to another qualified retirement plan as long as you have not mixed
it with IRA (or SEP) contributions you have deducted from your income. (You may
roll less than all of a qualified distribution into an IRA, but any part of it
not rolled over will be currently includable in your income without any capital
gains treatment.)
DISTRIBUTIONS
(A) PREMATURE DISTRIBUTIONS
At no time can your interest in your IRA or SEP be forfeited. To insure that
your contributions will be used for retirement, the federal tax law does not
permit you to use your IRA or SEP as security for a loan. Furthermore, as a
general rule, you may not sell or assign your interest in your IRA or SEP to
anyone. Use of an IRA (or SEP) as security or assignment of it to another will
invalidate the entire annuity. It then will be includable in your income in the
year it is invalidated and will be subject to a 10% penalty tax if you are not
at least age 59 1/2 or totally disabled. (You may, however, assign your IRA or
SEP without penalty to your former spouse in accordance with the terms of a
divorce decree.)
You may surrender any portion of the value of your IRA (or SEP). In the case
of a partial surrender which
--------------------------------------------------------------------------------
34
<PAGE> 35
PART II
DISCOVERY CHOICE PROSPECTUS SECTIONS 1-9
--------------------------------------------------------------------------------
does not qualify as a rollover, the amount withdrawn will be includable in your
income and subject to the 10% penalty if you are not at least age 59 1/2 or
totally disabled unless you comply with special rules requiring distributions to
be made at least annually over your life expectancy.
The 10% penalty tax does not apply to the withdrawal of an excess
contribution as long as the excess is withdrawn before the due date of your tax
return. Withdrawals of excess contributions after the due date of your tax
return will generally be subject to the 10% penalty unless the excess
contribution results from erroneous information from a plan trustee making an
excess rollover contribution or unless you are over age 59 1/2 or are disabled.
(B) DISTRIBUTION AT AFTER AGE 59 1/2
Once you have attained age 59 1/2 (or have become totally disabled), you may
elect to receive a distribution of your IRA (or SEP) regardless of when you
actually retire. In addition, you must commence distributions from your IRA by
April 1 following the year you attain age 70 1/2. You may elect to receive the
distribution under any one of the periodic payment options available under the
contract. The distributions from your IRA under any one of the period payment
options or in one sum will be treated as ordinary income as you receive them to
the degree that you have made deductible contributions. If you have made both
deductible and nondeductible contributions, a portion of the distribution
attributable to the nondeductible contribution will be tax-free.
(C) INADEQUATE DISTRIBUTIONS--50% TAX
Your IRA or SEP is intended to provide retirement benefits over your lifetime.
Thus, federal tax law requires that you either (1) receive a lump-sum
distribution of your IRA by April 1 of the year following the year in which you
attain age 70 1/2 or (2) start to receive periodic payments by that date. If you
elect to receive periodic payments, those payments must be sufficient to pay out
the entire value of your IRA during your life expectancy (or over the joint life
expectancies of you and your spouse). If the payments are not sufficient to meet
these requirements, an excise tax of 50% will be imposed on the amount of any
underpayment.
(D) DEATH BENEFITS
If you, (or your surviving spouse) die before receiving the entire value of your
IRA (or SEP), the remaining interest must be distributed to your beneficiary (or
your surviving spouse's beneficiary) in one lump-sum within 5 years of death, or
applied to purchase an immediate annuity for the beneficiary. This annuity must
be payable over the life expectancy of the beneficiary beginning within one year
after your or your spouse's death. If your spouse is the designated beneficiary,
he or she is treated as the owner of the IRA. If minimum required distributions
have begun, the entire amount must be distributed at least as rapidly as if the
owner had survived. A distribution of the balance of your IRA upon your death
will not be considered a gift for federal tax purposes, but will be included in
your gross estate for purposes of federal estate taxes.
ROTH IRAS
Section 408A of the Tax Code permits eligible individuals to contribute to a
type of IRA known as a "Roth IRA." Contributions may be made to a Roth IRA by
taxpayers with adjusted gross incomes of less than $160,000 for married
individuals filing jointly and less than $100,000 for single individuals.
Married individuals filing separately are not eligible to contribute to a Roth
IRA. The maximum amount of contributions allowable for any taxable year to all
Roth IRAs maintained by an individual is generally the lesser of $2,000 and 100%
of compensation for that year (the $2,000 limit is phased out for incomes
between $150,000 and $160,000 for married and between $95,000 and $110,000 for
singles). The contribution limit is reduced by the amount of any contributions
made to a non-Roth IRA. Contributions to a Roth IRA are not deductible.
For taxpayers with adjusted gross income of $100,000 or less, all or part of
amounts in a non-Roth IRA may be converted, transferred or rolled over to a Roth
IRA. Some or all of the IRA value will typically be
--------------------------------------------------------------------------------
35
<PAGE> 36
PART II
DISCOVERY CHOICE PROSPECTUS SECTIONS 1-9
IRA DISCLOSURE STATEMENT CONTINUED
--------------------------------------------------------------------------------
includable in the taxpayer's gross income. If such a rollover, transfer or
conversion occurred before January 1, 1999, the portion of the amount includable
in gross income must be included in income ratably over the next four years
beginning with the year in which the transaction occurred. Provided a rollover
contribution meets the requirements of IRAs under Section 408(d)(3) of the Code,
a rollover may be made from a Roth IRA to another Roth IRA.
UNDER SOME CIRCUMSTANCES, IT MAY NOT BE ADVISABLE TO ROLL OVER, TRANSFER OR
CONVERT ALL OR PART OF A NON-ROTH IRA TO A ROTH IRA. PERSONS CONSIDERING A
ROLLOVER, TRANSFER OR CONVERSION SHOULD CONSULT THEIR OWN TAX ADVISOR.
"Qualified distributions" from a Roth IRA are excludable from gross income. A
"qualified distribution" is a distribution that satisfies two requirements:
(1) the distribution must be made (a) after the owner of the IRA attains age
59 1/2; (b) after the owner's death; (c) due to the owner's disability; or (d)
for a qualified first time homebuyer distribution within the meaning of Section
72(t)(2)(F) of the Code; and (2) the distribution must be made in the year that
is at least five years after the first year for which a contribution was made to
any Roth IRA established for the owner or five years after a rollover, transfer,
or conversion was made from a non-Roth IRA to a Roth IRA. Distributions from a
Roth IRA that are not qualified distributions will be treated as made first from
contributions and then from earnings, and taxed generally in the same manner as
distributions from a non-Roth IRA.
Distributions from a Roth IRA need not commence at age 70 1/2. However, if
the owner dies before the entire interest in a Roth IRA is distributed, any
remaining interest in the contract must be distributed by December 31 of the
calendar year containing the fifth anniversary of the owner's death subject to
certain exceptions.
REPORTING TO THE IRS
Whenever you are liable for one of the penalty taxes discussed above (6% for
excess contributions, 10% for premature distributions or 50% for underpayments),
you must file Form 5329 with the Internal Revenue Service. The form is to be
attached to your federal income tax return for the tax year in which the penalty
applies. Normal contributions and distributions must be shown on your income tax
return for the year to which they relate.
--------------------------------------------------------------------------------
36
<PAGE> 37
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
VARIABLE ANNUITY CONTRACTS
The Discovery Choice Annuity Contract (the "contract") is an individual
variable annuity contract issued by the Pruco Life Insurance Company of New
Jersey ("Pruco Life of New Jersey"), a stock life insurance company that is an
indirect 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 Choice prospectus, dated May 1, 2000. 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPANY..................................................... 2
DIRECTORS AND OFFICERS...................................... 2
EXPERTS..................................................... 2
LITIGATION.................................................. 3
LEGAL OPINIONS.............................................. 3
PRINCIPAL UNDERWRITER....................................... 3
DETERMINATION OF ACCUMULATION UNIT VALUES................... 4
PERFORMANCE INFORMATION..................................... 5
COMPARATIVE PERFORMANCE INFORMATION......................... 9
FEDERAL TAX STATUS.......................................... 10
FINANCIAL STATEMENTS........................................ 11
SEPARATE ACCOUNT FINANCIAL INFORMATION...................... A1
COMPANY FINANCIAL INFORMATION............................... B1
</TABLE>
<TABLE>
<S> <C>
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
</TABLE>
<PAGE> 38
COMPANY
Pruco Life of New Jersey Insurance Company ("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 in the states of New Jersey and New York.
Pruco Life of New Jersey is a wholly-owned subsidiary of Pruco Life
insurance Company, 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.
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 -- President, Prudential
Individual Life Insurance since 1998; 1997 to 1998: Senior Vice President, Chief
Actuary and CFO, Prudential Individual Insurance Group; 1995 to 1997: President,
Prudential Select. Age 48.
IRA J. KLEINMAN, Director -- Executive Vice President, Prudential
International Insurance Group since 1997; 1995 to 1997: Chief Marketing and
Product Development Officer, Prudential Individual Insurance Group. Age 53.
ESTHER H. MILNES, President and Director -- Vice President and Chief
Actuary, Prudential Individual Life Insurance since 1999; prior to 1999: Vice
President and Actuary, Prudential Individual Insurance Group. Age 49.
L. EDWARD PRICE, Vice Chairman and Director -- Senior Vice President and
Actuary, Prudential Individual Life Insurance since 1998; 1995 to 1998: Senior
Vice President and Actuary, Prudential Individual Insurance Group. Age 57.
DAVID R. ODENATH, JR., Director -- President, Prudential Investments since
1999; prior to 1999: Senior Vice President and Director of Sales, Investment
Consulting Group, PaineWebber. Age 43.
OFFICERS WHO ARE NOT DIRECTORS
C. EDWARD CHAPLIN, Treasurer -- Vice President and Treasurer, Prudential
since 1995. Age 43.
JAMES C. DROZANOWSKI, Senior Vice President -- Vice President, Operations
and Systems, Prudential Individual Financial Services since 1998; 1996 to 1998:
Vice President and Operations Executive, Prudential Individual Insurance Group;
1995 to 1996: President, Credit Card Division, Chase Manhattan Bank. Age 57.
CLIFFORD E. KIRSCH, Chief Legal Officer and Secretary -- Chief Counsel,
Variable Products, Prudential Law Department since 1995. Age 40.
SHIRLEY H. SHAO, Senior Vice President and Chief Actuary -- Vice President
and Associate Actuary, Prudential since 1996; prior to 1996: Vice President and
Assistant Actuary, Prudential Corporate Risk Management. Age 45.
DENNIS G. SULLIVAN, Vice President and Chief Accounting Officer -- Vice
President and Deputy Controller, Prudential since 1998; 1997 to 1998: Vice
President and Controller, ContiFinancial Corporation; prior to 1997: Director,
Salomon Brothers. Age 44.
The business address of all directors and officers of Pruco Life of New
Jersey (PLNJ) is 213 Washington Street, Newark, New Jersey 07102-2992. PLNJ
directors and officers are elected annually.
EXPERTS
The financial statements of the Pruco Life of New Jersey Flexible Premium
Variable Annuity Account as of December 31, 1999 and for each of the two years
in the period then ended and the financial statements of Pruco Life of
2
<PAGE> 39
New Jersey as of December 31, 1999 and 1998 and for each of the three years in
the period ended December 31, 1999 have been so included in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
PricewaterhouseCoopers LLP's, principal business address is 1177 Avenue of the
Americas, New York, New York, 10036.
LITIGATION
We are subject to legal and regulatory actions in the ordinary course of our
businesses, including class actions. Pending legal regulatory actions include
proceedings specific to our practices and proceedings generally applicable to
business practices in the industries in which we operate. As an example of such
litigation, in March, 2000, plaintiffs filed a purported class action against us
titled Olmsted v. Pruco Life Insurance Company of New Jersey and The Prudential
Insurance Company of America, alleging that certain fees and expenses charged to
the plaintiffs in connection with the sale of variable annuities since March 1,
1997 were excessive and unreasonable. In certain of these lawsuits, large and/or
indeterminate amounts are sought, including punitive or exemplary damages.
In particular, Pruco Life and Prudential have been subject to substantial
regulatory actions and civil litigation involving individual life insurance
sales practices. In 1996, Prudential, on behalf of itself and many of its life
insurance subsidiaries including Pruco Life, entered into settlement agreements
with relevant insurance regulatory authorities and plaintiffs in the principal
life insurance sales practices class action lawsuit covering policyholders of
individual permanent life insurance policies issued in the United States from
1982 to 1995. Pursuant to the settlements, the companies agreed to various
changes to their sales and business practices controls and a series of fines,
and are in the process of distributing final remediation relief to eligible
class members. In many instances, claimants have the right to "appeal" the
decision to an independent reviewer. The bulk of such appeals were resolved in
1999, and the balance is expected to be addressed in 2000. As of January 31,
2000, Prudential and/or Pruco Life remained a party to two putative class
actions and approximately 158 individual actions relating to permanent life
insurance policies issued in the United States between 1982 and 1995. Additional
suits may be filed by individuals who opted out of the settlements. While the
approval of the class action settlement is now final, Prudential and Pruco Life
remain subject to oversight and review by insurance regulators and other
regulatory authorities with respect to their sales practices and the conduct of
the remediation program. The U.S. District Court has also retained jurisdiction
as to all matters relating to the administration, consummation, enforcement and
interpretation of the settlements.
Prudential has indemnified Pruco Life for any liabilities incurred in
connection with sales practices litigation covering policyholders of individual
permanent life insurance policies issued in the United States from 1982 to 1995.
In 1999, 1998, 1997 and 1996, Prudential recorded provision in its
Consolidated Statements of Operation of $100 million, $1,150 million, $2,030
million and $1,125 million, respectively, to provide for estimated remediation
costs, and additional sales practices costs including related administrative
costs, regulatory fines, penalties and related payments, litigation costs and
settlements, including settlements associated with the resolution of claims of
deceptive sales practices asserted by policyholders who elected to "opt-out" of
the class action settlement and litigate their claims against Prudential
separately, and other fees and expenses associated with the resolution of sales
practices issues.
LEGAL OPINIONS
Shea & Gardner of Washington, D.C., has provided advice on certain matters
relating to the federal securities laws in connection with the contracts.
PRINCIPAL UNDERWRITER
Prudential Investment Management Services LLC ("PIMS"), a subsidiary of
Prudential, offers the contracts on a continuous basis in those states in which
contracts may be lawfully sold. It may also offer the contract through licensed
insurance brokers and agents, or through appropriately registered direct or
indirect subsidiary(ies) of Prudential, provided clearances to do so are
obtained in any jurisdiction where such clearances may be necessary.
Prudential may pay trail commissions to registered representatives who
maintain an ongoing relationship with a contractholder. Typically, a trail
commission is a compensation that is paid periodically to a representative, the
amount of which is linked to the value of the contract and the amount of time
that the contract has been in effect.
3
<PAGE> 40
DETERMINATION OF ACCUMULATION UNIT VALUES
The value for each accumulation unit is computed as of the end of each
"valuation period" (also referred to in this section as "business day"). On any
given business day the value of a Unit in each subaccount will be determined by
multiplying the value of a Unit of that subaccount for the preceding business
day by the net investment factor for that subaccount for the current business
day. The net investment factor for any business day is determined by dividing
the value of the assets of the subaccount for that day by the value of the
assets of the subaccount for the preceding business day (ignoring, for this
purpose, changes resulting from new purchase payments and withdrawals), and
subtracting from the result the daily equivalent of the 1.35% or 1.65%
(depending on death benefit option elected) annual charge for administrative
expenses and mortality and expense risks. (See WHAT ARE THE EXPENSES ASSOCIATED
WITH THE DISCOVERY CHOICE 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.
4
<PAGE> 41
PERFORMANCE INFORMATION
The tables that follow provide performance information for each subaccount
through December 31, 1999. The performance information is based on historical
experience and does not indicate or represent future performance.
AVERAGE ANNUAL TOTAL RETURN
Although DISCOVERY CHOICE Annuity is a new contract it uses subaccounts that
have been registered with the Securities Exchange Commission for some time. The
returns shown below were calculated using historical investment returns of the
Funds. All fees, expenses and charges associated with the DISCOVERY CHOICE
Annuity and the Funds have been reflected in these returns, as if the contract
had existed from the initial registration date of the respective subaccounts.
The tables below show the average annual rates of total return on
hypothetical investments of $1,000 for periods ended December 31, 1999 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. The tables assume deferred sales charges. Table 1
shows performance assuming that the Basic Death Benefit was elected. Table 2
shows the performance assuming that the Enhanced Death Benefit was elected.
TABLE 1
AVERAGE ANNUAL TOTAL RETURN--BASIC DEATH BENEFIT
<TABLE>
<CAPTION>
FIVE TEN FROM SEC
SEC ONE YEAR YEARS YEARS REGISTRATION
FUND REGISTRATION ENDED ENDED ENDED THROUGH
PORTFOLIO DATE 12/31/99 12/31/99 12/31/99 12/31/99
--------- ------------ -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
The Prudential Series Fund
Diversified Bond Portfolio 11/95 -2.36% N/A N/A 2.21%
Diversified Conservative Growth Portfolio 5/99 5.09% N/A N/A 7.82%
High Yield Bond Portfolio 11/95 3.16% N/A N/A 4.91%
Stock Index Portfolio 11/95 18.87% N/A N/A 24.24%
Equity Income Portfolio 11/96 10.95% N/A N/A 14.10%
Equity Portfolio 11/95 10.91% N/A N/A 14.75%
Prudential Jennison Portfolio 11/95 40.25% N/A N/A 28.66%
Global Portfolio 11/95 46.22% N/A N/A 21.98%
Small Capitalization Stock Portfolio 9/98 11.12% N/A N/A 45.73%
20/20 Focus Portfolio 5/99 17.81% N/A N/A 28.10%
AIM Variable Insurance Funds
AIM V.I. Growth and Income Fund 10/96 32.39% N/A N/A 28.38%
AIM V.I. Value Fund 10/96 28.10% N/A N/A 28.22%
American Century Variable Portfolios, Inc.
American Century VP Value 9/98 -12.84% N/A N/A 0.12%
Franklin Templeton Variable Insurance Products
Trust
Franklin Small Cap Fund--Class 2 9/98 68.20% N/A N/A 73.03%
Janus Aspen Series
Growth Portfolio 10/96 42.00% N/A N/A 31.10%
International Growth Portfolio 10/96 79.78% N/A N/A 34.82%
MFS Variable Insurance Trust
Emerging Growth Series 10/96 74.29% N/A N/A 38.60%
Research Series 10/96 20.82% N/A N/A 21.68%
OCC Accumulation Trust (Note 1)
Managed Portfolio 10/96 -1.60% N/A N/A 10.29%
Small Cap Portfolio 10/96 -3.88% N/A N/A 3.45%
T. Rowe Price Equity Series, Inc.
Equity Income Portfolio 10/96 2.27% N/A N/A 13.67%
T. Rowe Price International Series, Inc.
International Stock Portfolio 10/96 31.48% N/A N/A 16.22%
Warburg Pincus Trust
Global Post-Venture Capital Portfolio 10/96 61.26% N/A N/A 20.61%
</TABLE>
5
<PAGE> 42
TABLE 2
AVERAGE ANNUAL TOTAL RETURN--ENHANCED DEATH BENEFIT
<TABLE>
<CAPTION>
FIVE TEN FROM SEC
SEC ONE YEAR YEARS YEARS REGISTRATION
FUND REGISTRATION ENDED ENDED ENDED THROUGH
PORTFOLIO DATE 12/31/99 12/31/99 12/31/99 12/31/99
--------- ------------ -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
The Prudential Series Fund
Diversified Bond Portfolio 11/95 -2.69% N/A N/A 1.90%
Diversified Conservative Growth Portfolio 5/99 4.89% N/A N/A 7.51%
High Yield Bond Portfolio 11/95 2.86% N/A N/A 4.60%
Stock Index Portfolio 11/95 18.52% N/A N/A 23.87%
Equity Income Portfolio 11/96 10.62% N/A N/A 13.76%
Equity Portfolio 11/95 10.58% N/A N/A 14.42%
Prudential Jennison Portfolio 11/95 39.84% N/A N/A 28.28%
Global Portfolio 11/95 45.80% N/A N/A 21.62%
Small Capitalization Stock Portfolio 9/98 10.79% N/A N/A 44.39%
20/20 Focus Portfolio 5/99 17.58% N/A N/A 27.74%
AIM Variable Insurance Funds
AIM V.I. Growth and Income Fund 10/96 32.00% N/A N/A 28.03%
AIM V.I. Value Fund 10/96 27.72% N/A N/A 27.78%
American Century Variable Portfolios, Inc.
American Century VP Value 9/98 -13.09% N/A N/A -0.17%
Franklin Templeton Variable Insurance Products
Trust
Franklin Small Cap Fund--Class 2 9/98 67.71% N/A N/A 72.52%
Janus Aspen Series
Growth Portfolio 10/96 41.58% N/A N/A 30.70%
International Growth Portfolio 10/96 79.25% N/A N/A 34.41%
MFS Variable Insurance Trust
Emerging Growth Series 10/96 73.78% N/A N/A 38.18%
Research Series 10/96 20.46% N/A N/A 21.31%
OCC Accumulation Trust (Note 1)
Managed Portfolio 10/96 -1.89% N/A N/A 9.96%
Small Cap Portfolio 10/96 -4.17% N/A N/A 3.14%
T. Rowe Price Equity Series, Inc.
Equity Income Portfolio 10/96 1.96% N/A N/A 13.33%
T. Rowe Price International Series, Inc.
International Stock Portfolio 10/96 31.08% N/A N/A 15.85%
Warburg Pincus Trust
Global Post-Venture Capital Portfolio 10/96 60.77% N/A N/A 20.21%
</TABLE>
6
<PAGE> 43
For each subaccount other than the Money Market Subaccount, Table 3 and 4
below show the historical average annual rates of total return on hypothetical
investments of $1,000 for periods ended December 31, 1999 based on the inception
date of the Fund rather than the initial registration date of the subaccount.
Table 3 shows performance assuming that the Basic Death Benefit is elected and
Table 4 shows performance assuming that the Enhanced Death Benefit was elected.
TABLE 3
HISTORICAL AVERAGE ANNUAL TOTAL RETURN--BASIC DEATH BENEFIT
<TABLE>
<CAPTION>
FROM DATE
FIVE TEN PORTFOLIO
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 12/31/99 12/31/99 12/31/99 12/31/99
--------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
The Prudential Series Fund
Diversified Bond Portfolio 6/83 -2.40% 4.85% 5.72% 6.91%
Diversified Conservative Growth Portfolio 5/99 5.09% N/A N/A 7.76%
High Yield Bond Portfolio 2/87 3.15% 6.74% 7.68% 6.29%
Stock Index Portfolio 10/87 18.87% 26.25% 14.07% 15.22%
Equity Income Portfolio 2/88 10.95% 15.21% 11.08% 12.92%
Equity Portfolio 6/83 10.91% 17.36% 12.32% 13.49%
Prudential Jennison Portfolio 5/95 40.26% N/A N/A 30.09%
Global Portfolio 9/88 46.23% 20.65% 7.59% 12.72%
Small Capitalization Stock Portfolio 5/95 11.11% N/A N/A 14.50%
20/20 Focus Portfolio 5/99 17.81% N/A N/A 27.85%
AIM Variable Insurance Funds
AIM V.I. Growth and Income Fund 5/94 32.39% 17.87% N/A 15.43%
AIM V.I. Value Fund 6/93 28.10% 25.48% N/A 21.19%
American Century Variable Portfolios, Inc.
American Century VP Value 5/96 -12.87% N/A N/A 6.22%
Franklin Templeton Variable Insurance Products
Trust
Franklin Small Cap Fund--Class 2 9/98 68.17% N/A N/A 29.42%
Janus Aspen Series
Growth Portfolio 9/93 42.00% 28.09% N/A 22.56%
International Growth Portfolio 5/94 79.80% 31.41% N/A 26.41%
MFS Variable Insurance Trust
Emerging Growth Series 7/95 74.29% N/A N/A 34.59%
Research Series 7/95 20.82% N/A N/A 20.81%
OCC Accumulation Trust (Note 1)
Managed Portfolio 8/88 -1.61% 16.88% 14.67% 15.64%
Small Cap Portfolio 8/88 -3.88% 6.82% 9.98% 9.92%
T. Rowe Price Equity Series, Inc.
Equity Income Portfolio 3/94 2.27% 16.81% N/A 15.63%
T. Rowe Price International Series, Inc.
International Stock Portfolio 3/94 31.48% 13.61% N/A 11.87%
Warburg Pincus Trust
Global Post-Venture Capital Portfolio 9/96 61.26% N/A N/A 21.09%
</TABLE>
7
<PAGE> 44
TABLE 4
HISTORICAL AVERAGE ANNUAL TOTAL RETURN--ENHANCED DEATH BENEFIT
<TABLE>
<CAPTION>
FIVE TEN FROM SEC
SEC ONE YEAR YEARS YEARS REGISTRATION
FUND REGISTRATION ENDED ENDED ENDED THROUGH
PORTFOLIO DATE 12/31/99 12/31/99 12/31/99 12/31/99
--------- ------------ -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
The Prudential Series Fund
Diversified Bond Portfolio 6/83 -2.69% 4.54% 5.44% 6.60%
Diversified Conservative Growth Portfolio 5/99 4.88% N/A N/A 7.44%
High Yield Bond Portfolio 2/87 2.85% 6.42% 7.39% 5.98%
Stock Index Portfolio 10/87 18.51% 25.87% 13.77% 14.87%
Equity Income Portfolio 2/88 10.63% 14.87% 10.79% 12.59%
Equity Portfolio 6/83 10.59% 17.01% 12.02% 13.15%
Prudential Jennison Portfolio 5/95 39.84% N/A N/A 29.70%
Global Portfolio 9/88 45.80% 20.30% 7.30% 12.37%
Small Capitalization Stock Portfolio 5/95 10.79% N/A N/A 14.15%
20/20 Focus Portfolio 5/99 17.57% N/A N/A 27.46%
AIM Variable Insurance Funds
AIM V.I. Growth and Income Fund 5/94 32.00% 26.05% N/A 22.43%
AIM V.I. Value Fund 6/93 27.45% 25.12% N/A 21.00%
American Century Variable Portfolios, Inc.
American Century VP Value 5/96 -13.10% N/A N/A 5.92%
Franklin Templeton Variable Insurance Products
Trust
Franklin Small Cap Fund--Class 2 9/98 67.70% N/A N/A 29.06%
Janus Aspen Series
Growth Portfolio 9/93 41.58% 27.72% N/A 22.20%
International Growth Portfolio 5/94 79.25% 31.01% N/A 26.04%
MFS Variable Insurance Trust
Emerging Growth Series 7/95 73.78% N/A N/A 34.19%
Research Series 7/95 20.46% N/A N/A 20.46%
OCC Accumulation Trust (Note 1)
Managed Portfolio 8/88 -1.90% 16.53% 14.36% 15.31%
Small Cap Portfolio 8/88 -4.17% 6.40% 9.68% 9.60%
T. Rowe Price Equity Series, Inc.
Equity Income Portfolio 3/94 1.96% 16.46% N/A 15.29%
T. Rowe Price International Series, Inc.
International Stock Portfolio 3/94 31.08% 13.27% N/A 11.54%
Warburg Pincus Trust
Global Post-Venture Capital Portfolio 9/96 60.77% N/A N/A 20.73%
</TABLE>
------------------
NOTE 1: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had commenced
operations on August 1, 1988, then called Quest for Value Accumulation Trust
(the "Old Trust"), was effectively divided into two investment funds--the Old
Trust and the present Quest for Value Accumulation Trust (the "Present
Trust")--at which time the Present Trust Commenced Operations.
The average annual rates of total return shown above are computed by finding
the average annual compounded rates of return over the periods shown that would
equate the initial amount invested to the withdrawal value, in accordance with
the following formula: P(1+T)(n)=ERV. In the formula, P is a hypothetical
investment of $1,000; T is the average annual total return; "n" is the number of
years; and ERV is the withdrawal value at the end of the periods shown. These
figures assume deduction of the maximum withdrawal charge that may be applicable
to a particular period.
8
<PAGE> 45
MONEY MARKET SUBACCOUNT YIELD
The "yield" and "effective yield" figures for the Money Market Subaccount
shown below were calculated using historical investment returns of the Money
Market Portfolio of the Prudential Series Fund. All fees, expenses and charges
associated with the DISCOVERY CHOICE Annuity and the Series Fund have been
reflected.
The "yield" and "effective yield" of the Money Market Subaccount for the
seven days ended December 31, 1999 were 6.61% and 6.83%, respectively, assuming
election of the Enhanced Death Benefit the "yield" and "effective yield" were
6.10% and 6.28%, respectively.
The yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one accumulation unit of the Money Market Subaccount at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from contract
owner accounts, and dividing the difference by the value of the subaccount at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7), with the resulting figure carried
to the nearest ten-thousandth of 1%.
The deduction referred to above consists of the 1.35% charge for insurance
risks for the Basic Death Benefit and 1.65% for the Enhanced Death Benefit.
The effective yield is obtained by taking the base period return, adding 1,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result, according to the following formula: Effective Yield-([base period return
+ 1] 365/7)-1.
The yields on amounts held in the Money Market Subaccount will fluctuate on
a daily basis. Therefore, the stated yields for any given period are not an
indication of future yields.
COMPARATIVE PERFORMANCE INFORMATION
Reports or advertising may include comparative performance information,
including, but not limited to: (1) comparisons to market indices such as the Dow
Jones Industrial Average, the Standard & Poor's 500 Index, the Value Line
Composite Index, the Russell 2000 Index, the Morgan Stanley World Index, the
Lehman Brothers bond indices; (2) comparisons to other investments, such as
certificates of deposit; (3) performance rankings assigned by services such as
Morningstar, Inc. and Variable Annuity Research and Data Services (VARDS), and
Lipper Analytical Services, Inc.; (4) data presented by analysts such as Dow
Jones, A.M. Best, The Bank Rate Monitor National Index; and (5) data in
publications such as The Wall Street Journal, Times, Forbes, Barrons, Fortune,
Money Magazine, and Financial World.
9
<PAGE> 46
FEDERAL TAX STATUS
X. OTHER TAX RULES.
1. DIVERSIFICATION.
The Internal Revenue Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements. Each
Portfolio is required to diversify its investments each quarter so that no more
than 55% of the value of its assets is represented by any one investment, no
more than 70% is represented by any two investments, no more than 80% is
represented by any three investments, and no more than 90% is represented by any
four investments. Generally, securities of a single issuer are treated as one
investment and obligations of each U.S. Government agency and instrumentality
(such as the Government National Mortgage Association) are treated as issued by
separate issuers. In addition, any security issued, guaranteed or insured (to
the extent so guaranteed or insured) by the United States or an instrumentality
of the U.S. will be treated as a security issued by the U.S. Government or its
instrumentality, whichever is applicable. Pruco Life of New Jersey believes the
underlying variable investment options for the Contract meet these
diversification requirements.
2. INVESTOR CONTROL.
Treasury Department regulations do not provide guidance concerning the
extent to which you may direct your investment in the particular investment
options without causing you, instead of Pruco Life of New Jersey, to be
considered the owner of the underlying assets. Because of this uncertainty,
Pruco Life of New Jersey reserves the right to make such changes as it deems
necessary to assure that the contract qualifies as an annuity for tax purposes.
Any such changes will apply uniformly to affected contractowners and will be
made with such notice to affected contractowners as is feasible under the
circumstances.
3. ENTITY OWNERS.
Where a contract is held by a non-natural person (e.g., a corporation),
other than as an agent or nominee for a natural person (or in other limited
circumstances), the contract will not be taxed as an annuity and increases in
the value of the contract will be subject to tax.
4. PURCHASE PAYMENTS MADE BEFORE AUGUST 14, 1982.
If your contract was issued in exchange for a contract containing purchase
payments made before August 14, 1982, favorable tax rules may apply to certain
withdrawals from the contract. Generally, withdrawals are treated as a recovery
of your investment in the contract first until purchase payments made before
August 14, 1982 are withdrawn. Moreover, any income allocable to purchase
payments made before August 14, 1982, is not subject to the 10% penalty tax.
5. WITHHOLDING OF TAX FROM DISTRIBUTIONS.
Taxable amounts distributed from annuity contracts are subject to tax
withholding. You may generally elect not to have tax withheld from your
payments. The rate of withholding on annuity payments will be determined on the
basis of the withholding certificate you file with Pruco Life of New Jersey.
These elections must be made on the appropriate Pruco Life of New Jersey forms.
Absent these elections, Pruco Life of New Jersey will withhold the tax amounts
required by the applicable tax regulations. You may be subject to penalties
under the estimated tax payment rules if your withholding and estimated tax
payments are not sufficient.
6. NONRESIDENT ALIENS.
Special tax withholding rules apply to nonresident aliens.
7. TRANSFERS TO YOUNGER PERSONS.
If you transfer your contract to a person either 37 1/2 years younger than
you, or a grandchild, or designate such younger person as a beneficiary, there
may be Generation Skipping Transfer tax consequences.
10
<PAGE> 47
FINANCIAL STATEMENTS
The following financial statements describe the sub-accounts of the Pruco
Life of New Jersey Flexible Premium Variable Annuity Account associated with the
Discovery Select Variable Annuity, another variable annuity contract offered by
Pruco Life. This information is provided because the sub-accounts associated
with Discovery Select are also used by the Discovery Choice variable annuity
contract. Financial information specific to the Discovery Choice variable
annuity contract will be available following the completion of the initial
accounting period for this contract.
11
<PAGE> 48
FINANCIAL STATEMENTS OF
THE DISCOVERY CHOICE VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1999
<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>
ASSETS
Investment in The Prudential Series Fund,
Inc.
Portfolios and non-Prudential
administered funds, at net asset value
[Note 3].............................. $ 28,752,580 $ 53,371,206 $ 35,698,410 $ 86,939,050 $ 48,636,634
------------ ------------ ------------ ------------ ------------
Net Assets................................ $ 28,752,580 $ 53,371,206 $ 35,698,410 $ 86,939,050 $ 48,636,634
============ ============ ============ ============ ============
NET ASSETS, representing:
Equity of contract owners [Note 4]........ $ 28,752,580 $ 53,371,206 $ 35,698,410 $ 86,939,050 $ 48,636,634
------------ ------------ ------------ ------------ ------------
$ 28,752,580 $ 53,371,206 $ 35,698,410 $ 86,939,050 $ 48,636,634
============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A1
<PAGE> 49
<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> <C>
$ 68,585,671 $105,709,375 $ 13,903,838 $ 18,117,557 $ 29,733,016 $ 31,011,122 $ 27,887,749
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 68,585,671 $105,709,375 $ 13,903,838 $ 18,117,557 $ 29,733,016 $ 31,011,122 $ 27,887,749
============ ============ ============ ============ ============ ============ ============
$ 68,585,671 $105,709,375 $ 13,903,838 $ 18,117,557 $ 29,733,016 $ 31,011,122 $ 27,887,749
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 68,585,671 $105,709,375 $ 13,903,838 $ 18,117,557 $ 29,733,016 $ 31,011,122 $ 27,887,749
============ ============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A2
<PAGE> 50
FINANCIAL STATEMENTS OF
THE DISCOVERY CHOICE VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1999
<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------
OCC OCC
MFS ACCUMULATION ACCUMULATION
EMERGING MFS TRUST TRUST SMALL
GROWTH RESEARCH MANAGED CAP
SERIES SERIES PORTFOLIO PORTFOLIO
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in The Prudential Series Fund, Inc. Portfolios
and
non-Prudential administered funds, at net asset value
[Note 3]................................................ $31,319,807 $ 9,982,879 $32,320,124 $ 8,588,764
----------- ----------- ----------- -----------
Net Assets................................................ $31,319,807 $ 9,982,879 $32,320,124 $ 8,588,764
=========== =========== =========== ===========
NET ASSETS, representing:
Equity of contract owners [Note 4]........................ $31,319,807 $ 9,982,879 $32,320,124 $ 8,588,764
----------- ----------- ----------- -----------
$31,319,807 $ 9,982,879 $32,320,124 $ 8,588,764
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A3
<PAGE> 51
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
T. ROWE PRICE T. ROWE PRICE WARBURG PINCUS SMALL FRANKLIN DIVERSIFIED
EQUITY INTERNATIONAL POST-VENTURE CAPITALIZATION AMERICAN SMALL CAP PRUDENTIAL CONSERVATIVE
INCOME STOCK CAPITAL STOCK CENTURY VP GROWTH 20/20 FOCUS GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO VALUE FUND PORTFOLIO PORTFOLIO
------------- ------------- -------------- -------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$17,067,981 $ 5,704,743 $ 3,815,026 $ 4,859,464 $ 2,400,228 $ 4,186,264 $ 5,334,334 $ 8,217,344
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$17,067,981 $ 5,704,743 $ 3,815,026 $ 4,859,464 $ 2,400,228 $ 4,186,264 $ 5,344,334 $ 8,217,344
=========== =========== =========== =========== =========== =========== =========== ===========
$17,067,981 $ 5,704,743 $ 3,815,026 $ 4,859,464 $ 2,400,228 $ 4,186,264 $ 5,334,334 $ 8,217,344
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$17,067,981 $ 5,704,743 $ 3,815,026 $ 4,859,464 $ 2,400,228 $ 4,186,264 $ 5,334,334 $ 8,217,344
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A4
<PAGE> 52
FINANCIAL STATEMENTS OF
THE DISCOVERY CHOICE VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
For the period ended December 31, 1999
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED HIGH YIELD STOCK
MARKET BOND BOND INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ---------------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income......................................... $ 1,041,065 $ 0 $ 82,488 $ 742,606
----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming mortality risk
and expense risk and for administration [Notes 5A and
5B]................................................... 295,390 630,761 448,837 918,696
----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS).............................. 745,675 (630,761) (366,349) (176,090)
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Capital gains distributions received.................... 0 109,889 0 949,132
Realized gain (loss) on shares redeemed................. 0 (35,648) (338,945) 597,412
Net change in unrealized gain (loss) on investments..... 0 (257,741) 1,670,217 10,649,026
----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS............................ 0 (183,500) 1,331,272 12,195,570
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.............................................. $ 745,675 $ (814,261) $ 964,923 $12,019,480
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A5
<PAGE> 53
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------------------------------------
AIM V.I. JANUS ASPEN
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL GROWTH JANUS ASPEN INTERNATIONAL
EQUITY INCOME EQUITY JENNISON GLOBAL AND AIM V.I. GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO INCOME FUND VALUE FUND PORTFOLIO PORTFOLIO
------------- ----------- ----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,060,080 $ 997,043 $ 109,529 $ 28,527 $ 89,628 $ 77,253 $ 46,406 $ 35,002
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
626,250 785,965 904,865 113,046 178,776 265,728 249,099 206,751
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
433,830 211,078 (795,336) (84,519) (89,148) (188,475) (202,693) (171,749)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
5,329,219 7,676,793 4,118,355 50,018 61,885 403,982 88,325 0
(449,569) (157,198) 978,248 131,717 115,409 130,602 173,572 157,018
(957,621) (2,245,221) 21,649,324 3,919,633 3,932,741 4,885,809 7,276,124 11,553,620
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
3,922,029 5,274,374 26,745,927 4,101,368 4,110,035 5,420,393 7,538,021 11,710,638
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$4,355,859 $ 5,485,452 $25,950,591 $ 4,016,849 $4,020,887 $ 5,231,918 $ 7,335,328 $11,538,889
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A6
<PAGE> 54
FINANCIAL STATEMENTS OF
THE DISCOVERY CHOICE VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
For the period ended December 31, 1999
<TABLE>
<CAPTION>
SUBACCOUNTS
-------------------------------------------------------
OCC OCC
MFS ACCUMULATION ACCUMULATION
EMERGING MFS TRUST TRUST
GROWTH RESEARCH MANAGED SMALL CAP
SERIES SERIES PORTFOLIO PORTFOLIO
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income........................................... $ 0 $ 14,673 $ 446,506 $ 48,948
----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming mortality risk and
expense risk and for administration [Notes 5A and 5B]... 244,459 109,520 443,425 109,857
----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS)................................ (244,459) (94,847) 3,081 (60,909)
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Capital gains distributions received...................... 0 77,540 1,001,944 0
Realized gain (loss) on shares redeemed................... 282,067 178,470 101,347 (107,172)
Net change in unrealized gain (loss) on investments....... 12,666,424 1,609,825 40,116 (53,970)
----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS.............................. 12,948,491 1,865,835 1,143,407 (161,142)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS................................................ $12,704,032 $ 1,770,988 $ 1,146,488 $ (222,051)
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A7
<PAGE> 55
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
T. ROWE PRICE T. ROWE PRICE WARBURG SMALL FRANKLIN PRUDENTIAL DIVERSIFIED
EQUITY INTERNATIONAL POST-VENTURE CAPITALIZATION AMERICAN SMALL CAP 20/20 CONSERVATIVE
INCOME STOCK CAPITAL STOCK CENTURY VP GROWTH FOCUS GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO VALUE FUND PORTFOLIO* PORTFOLIO*
------------- ------------- ------------ -------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 302,337 $ 20,370 $ 0 $ 0 $ 2,743 $ 898 $ 8,757 $ 381,387
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
218,225 53,605 29,652 35,775 15,560 20,780 19,522 38,853
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
84,112 (33,235) (29,652) (35,775) (12,817) (19,882) (10,765) 342,534
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
724,724 64,020 0 23,062 25,992 9,272 1,055 0
97,954 47,077 39,525 (29,180) (4,884) 8,739 43,712 503,805
(659,400) 1,220,987 1,314,182 443,217 (170,884) 1,248,012 588,285 (397,267)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
163,278 1,332,084 1,353,707 437,099 (149,776) 1,266,023 633,052 106,538
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 247,390 $ 1,298,849 $ 1,324,055 $ 401,324 $ (162,593) $ 1,246,141 $ 622,287 $ 449,072
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
* Became available on May 3, 1999 (Note 1)
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A8
<PAGE> 56
FINANCIAL STATEMENTS OF
THE DISCOVERY CHOICE VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------
PRUDENTIAL PRUDENTIAL
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).............................. $ 745,675 $ 388,558 $ (630,761) $ 1,140,482
Capital gains distributions received...................... 0 0 109,889 55,251
Realized gain (loss) on shares redeemed................... 0 0 (35,648) (1,277)
Net change in unrealized gain (loss) on investments....... 0 0 (257,741) (220,174)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS................................................ 745,675 388,558 (814,261) 974,282
----------- ----------- ----------- -----------
ANNUITY PAYMENTS AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments............................... 20,587,959 18,308,790 25,513,762 26,338,579
Surrenders, Withdrawals and Death Benefits................ (1,560,658) (590,456) (2,622,110) (754,090)
Net Transfers From (To) Other Subaccounts or Fixed Rate
Option.................................................. (9,451,903) (5,502,058) (2,738,166) 2,425,538
Withdrawal Charge......................................... (4,267) (906) (13,810) (2,759)
----------- ----------- ----------- -----------
TOTAL ANNUITY PAYMENTS AND OTHER OPERATING TRANSFERS........ 9,571,131 12,215,370 20,139,676 28,007,268
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE
ACCOUNT [NOTE 7].......................................... 0 (262,762) 0 (102,106)
----------- ----------- ----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 10,316,806 12,341,166 19,325,415 28,879,444
NET ASSETS:
Beginning of period....................................... 18,435,774 6,094,608 34,045,791 5,166,347
----------- ----------- ----------- -----------
End of period............................................. $28,752,580 $18,435,774 $53,371,206 $34,045,791
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A9
<PAGE> 57
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
HIGH YIELD BOND STOCK INDEX EQUITY INCOME EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------- ------------------------- ------------------------- -------------------------
1999 1998 1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (366,349) $ 1,926,123 $ (176,090) $ (498) $ 433,830 $ 461,464 $ 211,078 $ 218,818
0 0 949,132 685,310 5,329,219 2,112,014 7,676,793 4,709,227
(338,945) (66,919) 597,412 (15,648) (449,569) (132,522) (157,198) (23,763)
1,670,217 (3,362,203) 10,649,026 6,220,619 (957,621) (5,326,474) (2,245,221) (3,841,284)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
964,923 (1,502,999) 12,019,480 6,889,783 4,355,859 (2,885,518) 5,485,452 1,062,998
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
11,536,600 23,904,670 27,516,374 29,771,169 10,395,500 33,802,922 23,050,765 30,494,085
(2,796,061) (654,641) (2,569,693) (1,266,564) (2,776,500) (1,336,359) (3,369,896) (1,135,559)
(2,836,829) 271,531 1,936,162 (125,011) (3,807,475) 867,586 (1,203,966) 699,976
(11,597) (3,313) (20,898) (7,572) (17,330) (5,784) (20,687) (8,237)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
5,892,113 23,518,247 26,861,945 28,372,022 3,794,195 33,328,365 18,456,216 30,050,265
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
0 (15,650) 0 34,044 0 109,447 0 70,773
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
6,857,036 21,999,598 38,881,425 35,295,849 8,150,054 30,552,294 23,941,668 31,184,036
28,841,374 6,841,776 48,057,625 12,761,776 40,486,580 9,934,286 44,644,003 13,459,967
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$35,698,410 $28,841,374 $86,939,050 $48,057,625 $48,636,634 $40,486,580 $68,585,671 $44,644,003
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A10
<PAGE> 58
FINANCIAL STATEMENTS OF
THE DISCOVERY CHOICE VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------
PRUDENTIAL PRUDENTIAL
JENNISON GLOBAL
PORTFOLIO PORTFOLIO
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)............................ $ (795,336) $ (251,819) $ (84,519) $ 5,439
Capital gains distributions received.................... 4,118,355 522,676 50,018 196,136
Realized gain (loss) on shares redeemed................. 978,248 (23,766) 131,717 (4,864)
Net change in unrealized gain (loss) on investments..... 21,649,324 6,793,178 3,919,633 455,299
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.............................................. 25,950,591 7,040,269 4,016,849 652,010
------------ ------------ ------------ ------------
ANNUITY PAYMENTS AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments............................. 33,031,211 24,608,849 5,088,201 2,481,167
Surrenders, Withdrawals and Death Benefits.............. (3,231,132) (650,657) (408,097) (217,230)
Net Transfers From (To) Other Subaccounts or Fixed Rate
Option................................................ 10,694,501 1,768,266 364,430 (24,347)
Withdrawal Charge....................................... (21,415) (4,533) (2,247) (948)
------------ ------------ ------------ ------------
TOTAL ANNUITY PAYMENTS AND OTHER OPERATING TRANSFERS...... 40,473,165 25,721,925 5,042,287 2,238,642
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE
ACCOUNT [NOTE 7]........................................ 0 76,083 0 6,656
------------ ------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS.............................. 66,423,756 32,838,277 9,059,136 2,897,308
NET ASSETS:
Beginning of period..................................... 39,285,619 6,447,342 4,844,702 1,947,394
------------ ------------ ------------ ------------
End of period........................................... $105,709,375 $ 39,285,619 $ 13,903,838 $ 4,844,702
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A11
<PAGE> 59
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------------------------------
AIM V.I. JANUS ASPEN JANUS ASPEN
GROWTH AND AIM V.I. GROWTH INTERNATIONAL
INCOME FUND VALUE FUND PORTFOLIO GROWTH PORTFOLIO
--------------------------- --------------------------- --------------------------- ---------------------------
1999 1998 1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (89,148) $ (51,921) $ (188,475) $ (48,549) $ (202,693) $ 129,843 $ (171,749) $ 28,744
61,885 87,186 403,982 450,290 88,325 171,381 0 20,343
115,409 4,610 130,602 (535) 173,572 (5,570) 157,018 15,256
3,932,741 1,461,242 4,885,809 1,671,765 7,276,124 1,674,117 11,553,620 803,166
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
4,020,887 1,501,117 5,231,918 2,072,971 7,335,328 1,969,771 11,538,889 867,509
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
5,166,436 4,951,267 12,644,254 5,515,714 10,424,660 4,882,924 6,247,580 5,187,370
(525,606) (132,626) (1,273,721) (202,116) (581,178) (108,984) (601,028) (270,571)
330,039 (311,867) 2,065,982 218,523 3,802,129 390,842 45,025 404,030
(4,104) (1,439) (4,688) (1,821) (4,727) (1,601) (4,632) (2,669)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
4,966,765 4,505,335 13,431,827 5,530,300 13,640,884 5,163,181 5,686,945 5,318,160
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
0 (66,268) 0 5,014 0 (19,268) 0 (81,593)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
8,987,652 5,940,184 18,663,745 7,608,285 20,976,212 7,113,684 17,225,834 6,104,076
9,129,905 3,189,721 11,069,271 3,460,986 10,034,910 2,921,226 10,661,915 4,557,839
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 18,117,557 $ 9,129,905 $ 29,733,016 $ 11,069,271 $ 31,011,122 $ 10,034,910 $ 27,887,749 $ 10,661,915
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A12
<PAGE> 60
FINANCIAL STATEMENTS OF
THE DISCOVERY CHOICE VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------
MFS
EMERGING MFS
GROWTH SERIES RESEARCH SERIES
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).............................. $ (244,459) $ (99,739) $ (94,847) $ (60,254)
Capital gains distributions received...................... 0 48,546 77,540 89,748
Realized gain (loss) on shares redeemed................... 282,067 17,411 178,470 8,037
Net change in unrealized gain (loss) on investments....... 12,666,424 2,185,347 1,609,825 848,009
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS................................................ 12,704,032 2,151,565 1,770,988 885,540
----------- ----------- ----------- -----------
ANNUITY PAYMENTS AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments............................... 6,302,950 6,934,305 2,112,145 3,284,005
Surrenders, Withdrawals and Death Benefits................ (1,002,137) (149,038) (582,758) (156,768)
Net Transfers From (To) Other Subaccounts or Fixed Rate
Option.................................................. 904,500 420,695 (100,128) 137,403
Withdrawal Charge......................................... (5,935) (1,900) (2,312) (1,267)
----------- ----------- ----------- -----------
TOTAL ANNUITY PAYMENTS AND OTHER OPERATING TRANSFERS........ 6,199,378 7,204,062 1,426,947 3,263,373
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE
ACCOUNT [NOTE 7].......................................... 0 (12,836) 0 (12,594)
----------- ----------- ----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 18,903,410 9,342,791 3,197,935 4,136,319
NET ASSETS:
Beginning of period....................................... 12,416,397 3,073,606 6,784,944 2,648,625
----------- ----------- ----------- -----------
End of period............................................. $31,319,807 $12,416,397 $ 9,982,879 $ 6,784,944
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A13
<PAGE> 61
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------------------------------------------------
OCC OCC T. ROWE PRICE
ACCUMULATION TRUST ACCUMULATION TRUST T. ROWE PRICE INTERNATIONAL STOCK
MANAGED PORTFOLIO SMALL CAP PORTFOLIO EQUITY INCOME PORTFOLIO PORTFOLIO
------------------------- ------------------------- ------------------------- -------------------------
1999 1998 1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,081 $ (201,320) $ (60,909) $ (70,008) $ 84,112 $ 85,275 $ (33,235) $ 3,899
1,001,944 390,487 0 132,949 724,724 402,942 64,020 12,753
101,347 (33,042) (107,172) (87,824) 97,954 920 47,077 (1,816)
40,116 262,512 (53,970) (726,536) (659,400) 113,818 1,220,987 258,507
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,146,488 418,637 (222,051) (751,419) 247,390 602,955 1,298,849 273,343
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
5,808,566 19,620,342 1,634,865 5,267,682 4,344,662 8,126,207 1,459,317 1,445,262
(1,697,629) (685,019) (372,014) (429,739) (681,456) (253,996) (99,219) (30,350)
(2,100,849) 498,744 (192,001) 323,120 (557,938) 98,585 (120,911) 121,453
(13,260) (5,090) (2,815) (1,432) (6,226) (2,839) (1,019) (655)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,996,828 19,428,977 1,068,035 5,159,631 3,099,042 7,967,957 1,238,168 1,535,710
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
0 65,279 0 (26,238) 0 (55,800) 0 (44,233)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
3,143,316 19,912,893 845,984 4,381,974 3,346,432 8,515,112 2,537,017 1,764,820
29,176,808 9,263,915 7,742,780 3,360,806 13,721,549 5,206,437 3,167,726 1,402,906
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$32,320,124 $29,176,808 $ 8,588,764 $ 7,742,780 $17,067,981 $13,721,549 $ 5,704,743 $ 3,167,726
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A14
<PAGE> 62
FINANCIAL STATEMENTS OF
THE DISCOVERY CHOICE VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------
WARBURG PINCUS PRUDENTIAL
POST-VENTURE SMALL CAPITALIZATION
CAPITAL STOCK
PORTFOLIO PORTFOLIO*
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).............................. $ (29,652) $ (17,026) $ (35,775) $ 22
Capital gains distributions received...................... 0 0 23,062 28,379
Realized gain (loss) on shares redeemed................... 39,525 (9,485) (29,180) 1,244
Net change in unrealized gain (loss) on investments....... 1,314,182 78,797 443,217 35,630
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS................................................ 1,324,055 52,286 401,324 65,275
----------- ----------- ----------- -----------
ANNUITY PAYMENTS AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments............................... 895,813 1,012,106 5,611,087 516,286
Surrenders, Withdrawals and Death Benefits................ (138,965) (12,105) (73,905) (593)
Net Transfers From (To) Other Subaccounts or Fixed Rate
Option.................................................. (22,107) 35,849 (1,723,101) 64,252
Withdrawal Charge......................................... (943) (520) (319) 0
----------- ----------- ----------- -----------
TOTAL ANNUITY PAYMENTS AND OTHER OPERATING TRANSFERS........ 733,798 1,035,330 3,813,762 579,945
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RETAINED IN THE ACCOUNT [NOTE 7].......................... 0 (36,828) 0 (842)
----------- ----------- ----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 2,057,853 1,050,788 4,215,086 644,378
NET ASSETS:
Beginning of period....................................... 1,757,173 706,385 644,378 0
----------- ----------- ----------- -----------
End of period............................................. $ 3,815,026 $ 1,757,173 $ 4,859,464 $ 644,378
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A15
<PAGE> 63
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
AMERICAN FRANKLIN 20/20 DIVERSIFIED
CENTURY SMALL CAP FOCUS CONSERVATIVE
VP VALUE* GROWTH FUND* PORTFOLIO** GROWTH PORTFOLIO**
------------------------- ------------------------- ----------- ------------------
1999 1998 1999 1998 1999 1999
----------- ----------- ----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
$ (12,817) $ (270) $ (19,882) $ (491) $ (10,765) $ 342,534
25,992 0 9,272 0 1,055 0
(4,884) 109 8,739 (141) 43,712 503,805
(170,884) 3,508 1,248,012 30,781 588,285 (397,267)
----------- ----------- ----------- ----------- ----------- -----------
(162,593) 3,347 1,246,141 30,149 622,287 449,072
----------- ----------- ----------- ----------- ----------- -----------
2,025,894 131,048 2,090,380 224,651 3,536,510 7,341,487
(25,889) (384) (55,042) (99) (66,772) (130,748)
418,783 10,141 589,566 60,831 1,242,428 557,551
(101) 0 (143) (4) (119) (18)
----------- ----------- ----------- ----------- ----------- -----------
2,418,687 140,805 2,624,761 285,379 4,712,047 7,768,272
----------- ----------- ----------- ----------- ----------- -----------
0 (18) 0 (166) 0 0
----------- ----------- ----------- ----------- ----------- -----------
$2,256,094 144,134 3,870,902 315,362 5,334,334 8,217,344
144,134 0 315,362 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
$2,400,228 $ 144,134 $ 4,186,264 $ 315,362 $ 5,334,334 $ 8,217,344
=========== =========== =========== =========== =========== ===========
</TABLE>
* Became available on September 1, 1998 (Note 1)
** Became available on May 3, 1999 (Note 1)
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A16
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS OF
THE DISCOVERY CHOICE VARIABLE ANNUITY SUBACCOUNTS OF
THE PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
DECEMBER 31, 1999
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. Proceeds from the purchases of Discovery
Select Variable Annuity contracts ("Discovery Select") and Discovery
Choice Variable Annuity contracts, Basic and Enhanced, ("Discovery
Choice") are invested in the Account. The contract is considered basic
or enhanced depending on the death benefit option that you choose, where
the enhanced contract offers a guaranteed minimum death benefit.
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-four
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 and Discovery Choice Variable Annuity
subaccounts of the Pruco Life of New Jersey Flexible Premium Variable
Annuity Account became available on January 24, 1997 and May 1, 1999,
respectively.
At December 31, 1999 there were no balances pertaining to Discovery
Choice in the subaccounts investing in the Series Fund or the
non-Prudential administered funds.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in conformity
with accounting principles generally accepted in the United States
("GAAP"). The preparation of the financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect
the reported amounts and disclosures. Actual results could differ from
those estimates.
Investments--The investments in shares of the Series Fund or the
non-Prudential administered funds are stated at the net asset value of
the respective portfolio.
Security Transactions--Realized gains and losses on security
transactions are reported on an average cost basis. Purchase and sale
transactions are recorded as of the trade date of the security being
purchased or sold.
Distributions Received--Dividend and capital gain distributions
received are reinvested in additional shares of the Series Fund or the
non-Prudential administered funds and are recorded on the ex-dividend
date.
A17
<PAGE> 65
NOTE 3: INVESTMENT INFORMATION FOR THE PRUCO LIFE OF NEW JERSEY FLEXIBLE
PREMIUM VARIABLE ANNUITY ACCOUNT
The net asset value per share for each portfolio of the Series Fund
or the non-Prudential administered funds, the number of shares (rounded)
of each portfolio held by the aggregate cost of investments in such
shares at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
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 (rounded)....................... 2,875,258 4,874,083 4,747,129 1,955,884 2,491,631
Net asset value per share........................ $ 10.00 $ 10.95 $ 7.52 $ 44.45 $ 19.52
Cost............................................. $28,752,580 $53,937,072 $37,417,547 $69,429,200 $55,025,972
</TABLE>
<TABLE>
<CAPTION>
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 (rounded)....................... 2,373,207 3,263,642 448,800 573,522 887,553
Net asset value per share........................ $ 28.90 $ 32.39 $ 30.98 $ 31.59 $ 33.50
Cost............................................. $74,758,421 $77,250,647 $ 9,669,173 $12,541,566 $23,058,648
</TABLE>
<TABLE>
<CAPTION>
OCC
JANUS ASPEN MFS ACCUMULATION
JANUS ASPEN INTERNATIONAL EMERGING MFS TRUST
GROWTH GROWTH GROWTH RESEARCH MANAGED
PORTFOLIO PORTFOLIO SERIES SERIES PORTFOLIO
----------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Number of shares (rounded).................... 921,579 721,173 825,509 427,715 740,438
Net asset value per share..................... $ 33.65 $ 38.67 $ 37.94 $ 23.34 $ 43.65
Cost.......................................... $21,889,280 $15,467,073 $16,209,430 $ 7,360,420 $31,506,065
</TABLE>
<TABLE>
<CAPTION>
OCC T. ROWE T. ROWE WARBURG PRUDENTIAL
ACCUMULATION PRICE PRICE PINCUS SMALL
TRUST EQUITY INTERNATIONAL POST-VENTURE CAPITALIZATION
SMALL CAP INCOME STOCK CAPITAL STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Number of shares (rounded)................ 381,384 911,264 299,619 198,080 299,044
Net asset value per share................. $ 22.52 $ 18.73 $ 19.04 $ 19.26 $ 16.25
Cost...................................... $ 9,220,616 $17,304,984 $ 4,309,652 $ 2,370,755 $ 4,380,617
</TABLE>
<TABLE>
<CAPTION>
PRUDENTIAL
FRANKLIN PRUDENTIAL DIVERSIFIED
AMERICAN SMALL CAP 20/20 CONSERVATIVE
CENTURY GROWTH FOCUS GROWTH
VP VALUE* FUND* PORTFOLIO** PORTFOLIO**
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Number of shares (rounded)...................... 403,400 265,964 449,018 792,415
Net asset value per share....................... $ 5.95 $ 15.74 $ 11.88 $ 10.37
Cost............................................ $ 2,567,604 $ 2,907,471 $ 4,746,049 $ 8,614,611
</TABLE>
* Became available on September 1, 1998 (Note 1)
** Became available on May 3, 1999 (Note 1)
A18
<PAGE> 66
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units (rounded), unit values and total
value of contract owner equity at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED HIGH YIELD PRUDENTIAL
MARKET BOND BOND STOCK INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Contract Owner Units Outstanding
(rounded)................................ 24,579,687 45,438,932 28,531,566 38,786,276
Unit Value................................ $ 1.16977 $ 1.17457 $ 1.25119 $ 2.24149
------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY............... $ 28,752,580 $ 53,371,206 $ 35,698,410 $ 86,939,050
============ ============ ============ ============
<CAPTION>
SUBACCOUNTS
---------------
PRUDENTIAL
EQUITY INCOME
PORTFOLIO
---------------
<S> <C>
Contract Owner Units Outstanding
(rounded)................................ 27,398,451
Unit Value................................ $ 1.77516
------------
TOTAL CONTRACT OWNER EQUITY............... $ 48,636,634
============
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
EQUITY JENNISON GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- ---------------
<S> <C> <C> <C>
Contract Owner Units Outstanding
(rounded)................................ 38,608,928 37,559,381 6,113,646
Unit Value................................ $ 1.77642 $ 2.81446 $ 2.27423
------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY............... $ 68,585,671 $105,709,375 $ 13,903,838
============ ============ ============
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------
AIM V.I.
GROWTH AND AIM V.I.
INCOME VALUE
FUND FUND
--------------- ---------------
<S> <C> <C>
Contract Owner Units Outstanding
(rounded)................................ 8,448,068 13,887,703
Unit Value................................ $ 2.14458 $ 2.14096
------------ ------------
TOTAL CONTRACT OWNER EQUITY............... $ 18,117,557 $ 29,733,016
============ ============
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------
JANUS MFS
JANUS ASPEN INTERNATIONAL EMERGING
GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO SERIES
--------------- --------------- ---------------
<S> <C> <C> <C>
Contract Owner Units Outstanding
(rounded)................................ 13,375,166 10,899,400 11,792,762
Unit Value................................ $ 2.31856 $ 2.55865 $ 2.65585
-------------- -------------- --------------
TOTAL CONTRACT OWNER EQUITY............... $ 31,011,122 $ 27,887,749 $ 31,319,807
============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------
OCC
MFS ACCUMULATION
RESEARCH MANAGED
SERIES PORTFOLIO
--------------- ---------------
<S> <C> <C>
Contract Owner Units Outstanding
(rounded)................................ 5,510,866 23,288,748
Unit Value................................ $ 1.81149 $ 1.38780
-------------- --------------
TOTAL CONTRACT OWNER EQUITY............... $ 9,982,879 $ 32,320,124
============== ==============
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------
OCC T. ROWE PRICE T. ROWE PRICE
ACCUMULATION EQUITY INTERNATIONAL
TRUST SMALL CAP INCOME STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- ---------------
<S> <C> <C> <C>
Contract Owner Units Outstanding
(rounded)................................ 7,804,349 11,645,491 3,593,199
Unit Value................................ $ 1.10051 $ 1.46563 $ 1.58765
-------------- -------------- --------------
TOTAL CONTRACT OWNER EQUITY............... $ 8,588,764 $ 17,067,981 $ 5,704,743
============== ============== ==============
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------
PRUDENTIAL
WARBURG PINCUS SMALL
POST-VENTURE CAPITALIZATION
CAPITAL STOCK
PORTFOLIO PORTFOLIO
--------------- ---------------
<S> <C> <C>
Contract Owner Units Outstanding
(rounded)................................ 2,104,691 3,488,013
Unit Value................................ $ 1.81263 $ 1.39319
-------------- --------------
TOTAL CONTRACT OWNER EQUITY............... $ 3,815,026 $ 4,859,464
============== ==============
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------
PRUDENTIAL
PRUDENTIAL DIVERSIFIED
AMERICAN FRANKLIN 20/20 CONSERVATIVE
CENTURY SMALL CAP FOCUS GROWTH
VP VALUE* GROWTH FUND* PORTFOLIO** PORTFOLIO**
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Contract Owner Units Outstanding
(rounded)................................ 2,092,340 1,955,833 4,526,683 7,816,513
Unit Value................................ $ 1.14715 $ 2.14040 $ 1.17842 $ 1.05128
-------------- -------------- -------------- --------------
TOTAL CONTRACT OWNER EQUITY............... $ 2,400,228 $ 4,186,264 $ 5,334,334 $ 8,217,344
============== ============== ============== ==============
</TABLE>
* Became available on September 1, 1998 (Note 1)
** Became available on May 3, 1999 (Note 1)
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.
A19
<PAGE> 67
NOTE 5: CHARGES AND EXPENSES (CONTINUED)
B. Administration Charge
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 years ended December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED HIGH YIELD
MARKET BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------- ------------------------- -------------------------
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 33,897,097 22,847,069 25,761,635 26,289,325 11,763,945 20,814,498
Contract Owner Redemptions: (25,634,420) (11,896,512) (8,699,635) (2,363,752) (7,010,058) (2,434,026)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
STOCK INDEX EQUITY INCOME EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------- ------------------------- -------------------------
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 18,376,082 19,792,548 7,863,227 21,415,860 15,834,124 20,939,711
Contract Owner Redemptions: (5,079,159) (2,847,138) (5,775,217) (2,083,915) (5,102,608) (2,125,152)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------
AIM V.I.
PRUDENTIAL PRUDENTIAL GROWTH AND
JENNISON GLOBAL INCOME
PORTFOLIO PORTFOLIO FUND
------------------------- ------------------------- -------------------------
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 24,417,751 16,411,856 3,721,323 2,051,714 3,639,248 3,927,853
Contract Owner Redemptions: (6,437,450) (1,188,911) (722,920) (481,055) (827,759) (705,704)
</TABLE>
A20
<PAGE> 68
NOTE 8: UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------
AIM V.I. JANUS ASPEN JANUS ASPEN
VALUE GROWTH INTERNATIONAL
FUND PORTFOLIO GROWTH PORTFOLIO
------------------------- ------------------------- -------------------------
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 8,587,786 4,507,581 8,238,129 4,136,299 4,827,570 4,602,117
Contract Owner Redemptions: (1,323,432) (572,109) (1,008,870) (351,019) (1,418,784) (738,443)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------
MFS OCC
EMERGING MFS ACCUMULATION
GROWTH RESEARCH TRUST MANAGED
SERIES SERIES PORTFOLIO
------------------------- ------------------------- -------------------------
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 5,128,422 6,101,761 1,681,969 2,848,755 5,334,023 16,105,759
Contract Owner Redemptions: (1,483,651) (590,675) (754,038) (425,082) (3,815,439) (1,637,607)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------
OCC T. ROWE PRICE T. ROWE PRICE
ACCUMULATION EQUITY INTERNATIONAL
TRUST SMALL CAP INCOME STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------- ------------------------- -------------------------
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 2,444,933 5,096,373 3,692,979 6,462,462 1,432,991 1,496,184
Contract Owner Redemptions: (1,452,334) (915,114) (1,624,397) (731,820) (463,232) (159,534)
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------
PRUDENTIAL
WARBURG PINCUS SMALL
POST-VENTURE CAPITALIZATION AMERICAN
CAPITAL STOCK CENTURY
PORTFOLIO PORTFOLIO VP VALUE*
------------------------- ------------------------- -------------------------
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 922,360 1,091,791 4,762,945 517,841 2,093,750 126,750
Contract Owner Redemptions: (375,563) (153,538) (1,788,983) (3,791) (124,281) (3,879)
</TABLE>
* Became available on September 1, 1998 (Note 1)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------
PRUDENTIAL
PRUDENTIAL DIVERSIFIED
FRANKLIN 20/20 CONSERVATIVE
SMALL CAP FOCUS GROWTH
GROWTH FUND* PORTFOLIO** PORTFOLIO**
------------------------- ----------- ------------
1999 1998 1999 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Contract Owner
Contributions:............. 1,819,593 253,707 4,691,336 7,998,404
Contract Owner Redemptions:.. (117,111) (357) (164,653) (181,891)
</TABLE>
* Commenced operations on September 1, 1998
** Commenced operations on May 3, 1999
A21
<PAGE> 69
NOTE 9: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of
investments in the Series Fund and the non-Prudential administered funds
for the year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
PRUDENTIAL PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED HIGH YIELD PRUDENTIAL PRUDENTIAL
MARKET BOND BOND STOCK INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Purchases........... $ 27,904,150 $ 22,307,229 $ 9,722,804 $ 29,724,824 $ 8,074,632
Sales............... $(18,628,409) $ (2,798,314) $ (4,279,528) $ (3,781,575) $ (4,906,687)
</TABLE>
<TABLE>
<CAPTION>
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>
Purchases........... $ 20,000,549 $ 44,896,974 $ 5,817,008 $ 5,318,239 $ 13,909,004
Sales............... $ (2,330,298) $ (5,328,676) $ (887,767) $ (530,250) $ (742,905)
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN MFS OCC
JANUS ASPEN INTERNATIONAL EMERGING MFS ACCUMULATION
GROWTH GROWTH GROWTH RESEARCH TRUST MANAGED
PORTFOLIO PORTFOLIO SERIES SERIES PORTFOLIO
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Purchases........... $ 14,189,045 $ 6,511,134 $ 6,934,050 $ 2,502,062 $ 5,019,838
Sales............... $ (797,261) $ (1,030,940) $ (979,130) $ (1,184,635) $ (3,466,436)
</TABLE>
<TABLE>
<CAPTION>
PRUDENTIAL
OCC T. ROWE PRICE T. ROWE PRICE WARBURG PINCUS SMALL
ACCUMULATION EQUITY INTERNATIONAL POST-VENTURE CAPITALIZATION
TRUST SMALL CAP INCOME STOCK CAPITAL STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Purchases........... $ 2,014,304 $ 4,344,601 $ 1,724,215 $ 1,013,868 $ 5,829,971
Sales............... $ (1,056,126) $ (1,463,784) $ (539,652) $ (309,721) $ (2,051,985)
</TABLE>
<TABLE>
<CAPTION>
PRUDENTIAL
PRUDENTIAL DIVERSIFIED
AMERICAN FRANKLIN 20/20 CONSERVATIVE
CENTURY SMALL CAP FOCUS GROWTH
VP VALUE GROWTH FUND PORTFOLIO* PORTFOLIO*
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Purchases........... $ 2,504,097 $ 2,684,499 $ 14,566,429 $ 57,104,087
Sales............... $ (100,969) $ (80,518) $(10,288,093) $(49,086,434)
</TABLE>
* Became available on May 3, 1999 (Note 1)
NOTE 10: SUBSEQUENT EVENT
As of May 1, 2000 the Warburg Pincus Post-Venture Capital
Portfolio's name is being changed to the Global Post-Venture Capital
Portfolio. This will have no effect on the contract owner's account or
the related unit value.
A22
<PAGE> 70
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the Discovery Choice Subaccounts 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, Franklin Small Cap Growth Fund, Prudential 20/20
Focus Portfolio and Prudential Diversified Conservative Growth Portfolio) of the
Discovery Choice Subaccounts of the Pruco Life of New Jersey Flexible Premium
Variable Annuity Account at December 31, 1999, the results of each of their
operations for the period then ended (for the period May 3, 1999 through
December 31, 1999 for Prudential 20/20 Focus Portfolio and Prudential
Diversified Conservative Growth Portfolio) and the changes in each of their net
assets for the period ended December 31, 1999 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 and for
the period May 3, 1999 for Prudential 20/20 Focus Portfolio and Prudential
Diversified Conservative Growth Portfolio in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of Pruco Life Insurance Company 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 auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of fund shares owned at December 31, 1999,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 17, 2000
A23
<PAGE> 71
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
<PAGE>
Pruco Life Insurance Company of New Jersey
Statements of Financial Position
December 31, 1999 and 1998 (In Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------------- ---------------
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1999: $604,223; and $ 585,271 $ 622,990
1998: $617,758)
Held to maturity, at amortized cost (fair value, 1999: $6,938) 7,470 -
Policy loans 143,815 139,443
Short-term investments 27,473 53,761
Other long-term investments 2,520 2,421
----------------- ---------------
Total investments 766,549 818,615
Cash 117 45
Deferred policy acquisition costs 129,184 113,923
Accrued investment income 12,492 12,209
Receivables from affiliate 16,231 -
Other assets 474 15,379
Separate Account assets 1,827,484 1,450,986
----------------- ---------------
TOTAL ASSETS $2,752,531 $2,411,157
================= ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 414,917 $ 414,546
Future policy benefits and other policyholder liabilities 105,861 89,832
Cash collateral for loaned securities 17,900 34,424
Securities sold under agreements to repurchase - 27,210
Income taxes payable 27,829 25,325
Payables to affiliate - 3,492
Other liabilities 7,571 19,489
Separate Account liabilities 1,827,484 1,450,986
----------------- ---------------
Total liabilities 2,401,562 2,065,304
----------------- ---------------
Contingencies - (See Footnote 11)
Stockholder's Equity
Common stock, $5 par value;
400,000 shares, authorized;
issued and outstanding at
December 31, 1999 and 1998 2,000 2,000
Paid-in-capital 125,000 125,000
Retained earnings 230,057 217,260
Accumulated other comprehensive (loss) income (6,088) 1,593
----------------- ---------------
Total stockholder's equity 350,969 345,853
----------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,752,531 $2,411,157
================= ===============
</TABLE>
See Notes to Financial Statements
B1
<PAGE>
Pruco Life Insurance Company of New Jersey
Statements of Operations and Comprehensive Income
Years Ended December 31, 1999, 1998, and 1997 (In Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- ----------------
<S> <C> <C> <C>
REVENUES
Premiums $ 6,742 $ 7,282 $ 6,832
Policy charges and fee income 52,714 53,152 56,687
Net investment income 47,600 47,032 46,324
Realized investment (losses) gains, net (5,013) 8,446 1,707
Asset management fees 7,407 5,641 5,287
Other income 386 114 -
---------------- ----------------- ----------------
Total revenues 109,836 121,667 116,837
---------------- ----------------- ----------------
BENEFITS AND EXPENSES
Policyholders' benefits 26,237 30,679 39,727
Interest credited to policyholders' account 18,846 19,038 19,372
balances
General, administrative and other expenses 45,065 22,557 27,541
---------------- ----------------- ----------------
Total benefits and expenses 90,148 72,274 86,640
---------------- ----------------- ----------------
Income from operations before income taxes 19,688 49,393 30,197
---------------- ----------------- ----------------
Income tax provision 6,891 17,570 10,974
---------------- ----------------- ----------------
NET INCOME $ 12,797 $ 31,823 $ 19,223
================ ================= ================
Net unrealized investment (losses) gains on
securities, net of reclassification adjustment and
taxes (7,681) (1,363) 924
---------------- ----------------- ----------------
TOTAL COMPREHENSIVE INCOME $ 5,116 $ 30,460 $ 20,147
================ ================= ================
</TABLE>
See Notes to Financial Statements
B2
<PAGE>
Pruco Life Insurance Company of New Jersey
Statements of Changes in Stockholder's Equity
Years Ended December 31, 1999, 1998, and 1997 (In Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
other Total
Common Paid - in - Retained comprehensive stockholder's
stock capital earnings income (loss) equity
------------ ----------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 2,000 $ 125,000 $ 166,214 $ 2,032 $ 295,246
Net income - - 19,223 - 19,223
Change in net unrealized
investment (losses) gains,
net of reclassification
and taxes 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 (losses) gains,
net of reclassification
and taxes - - - (1,363) (1,363)
--------- --------- --------- --------- ---------
Balance, December 31, 1998 2,000 125,000 217,260 1,593 345,853
Net income - - 12,797 - 12,797
Change in net unrealized
investment (losses) gains,
net of reclassification
and taxes - - - (7,681) (7,681)
--------- --------- --------- --------- ---------
Balance, December 31, 1999 $ 2,000 $ 125,000 $ 230,057 $ (6,088) $ 350,969
========= ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements
B3
<PAGE>
Pruco Life Insurance Company of New Jersey
Statements of Cash Flows
Years Ended December 31, 1999, 1998, and 1997 (In Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,797 $ 31,823 $ 19,223
Adjustments to reconcile net income to net cash (used in)
provided by
operating activities:
Policy charges and fee income (11,399) (5,180) (7,841)
Interest credited to policyholders' account balances 18,846 19,038 19,372
Realized investment losses (gains), net 5,013 (8,446) (1,707)
Amortization and other non-cash items 18,092 2,497 (342)
Change in:
Future policy benefits and other policyholders' 16,029 5,304 8,277
liabilities
Accrued investment income (283) 1,866 (1,167)
Policy loans (4,372) (12,137) (13,388)
Payable to affiliates (19,723) (815) (1,752)
Deferred policy acquisition costs (15,261) (12,298) 5,340
Income taxes payable 2,504 (9,826) 9,006
Other, net 2,987 (8,954) 2,812
----------- ----------- -----------
Cash Flows From Operating Activities 25,230 2,872 37,833
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 702,380 1,001,096 645,355
Payments for the purchase of:
Fixed maturities:
Available for sale (695,198) (1,029,988) (679,709)
Held to maturity (7,470) -- --
Other long term investments, net 99 (854) 1,629
Cash collateral for loaned securities, net (16,524) 761 33,663
Securities sold under agreements to repurchase, net (27,210) 27,210 --
Short term investments, net 26,296 (1,297) (35,461)
----------- ----------- -----------
Cash Flows Used in Investing Activities (17,627) (3,072) (34,523)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 256,842 298,391 134,020
Withdrawals (264,373) (298,149) (141,255)
----------- ----------- -----------
Cash Flows (Used in) From Financing Activities (7,531) 242 (7,235)
----------- ----------- -----------
Net increase (decrease) in Cash 72 42 (3,925)
Cash, beginning of year 45 3 3,928
----------- ----------- -----------
CASH, END OF PERIOD $ 117 $ 45 $ 3
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 480 $ 27,083 $ 1,896
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
B4
<PAGE>
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. Prudential is currently considering reorganizing itself into a
publicly traded stock company through a process known as "demutualization."
On February 10, 1998, Prudential's Board of Directors authorized management
to take the preliminary steps necessary to allow Prudential to demutualize.
On July 1, 1998, legislation was enacted in New Jersey that would permit this
conversion to occur and that specified the process for conversion.
Demutualization is a complex process involving development of a plan of
reorganization, adoption of a plan by Prudential's Board of Directors, a
public hearing, approval by two-thirds of the qualified policyholders who
vote on the plan review and approval by the New Jersey Department of Banking
and Insurance. Prudential's management is in the process of developing a
proposed plan of demutualization, although there can be no assurance that
Prudential's Board of Directors will approve such a plan. Prudential's
decision whether to demutualize is not expected to have a material effect on
the Company's operations.
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.
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 accounting principles generally accepted in the United States ("GAAP").
The Company has extensive transactions and relationships with Prudential and
other affiliates, as more fully described in Footnote 13. Due to these
relationships, it is possible that the terms of those transactions are not
the same as those that would result from transactions among wholly unrelated
parties.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, in particular deferred policy acquisition costs
("DAC") and future policy benefits, and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the period. Actual results could differ from
those estimates.
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 DAC and policyholders' account balances that
would result from the realization of unrealized gains and losses, net of
income taxes, are included in a separate component of equity, "Accumulated
other comprehensive income."
Policy loans are carried at unpaid principal balances.
Short-term investments, including highly liquid debt instruments purchased
with an original maturity of twelve months or less and are carried at
amortized cost, which approximates fair value.
Realized investment gains (losses), net, are computed using the specific
identification method. Costs of fixed maturities are adjusted for impairments
considered to be other than temporary.
Cash
Cash includes cash on hand, amounts due from banks, and money market
instruments.
B5
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Policy acquisition costs related to interest-sensitive products and certain
investment-type products are deferred and amortized over the expected life of
the contracts (periods ranging from 15 to 30 years) in proportion to
estimated gross profits arising principally from investment results,
mortality and expense margins, and surrender charges based on historical and
anticipated future experience, which is updated periodically. The effect of
changes to estimated gross profits on unamortized deferred acquisition costs
is reflected in "General and administrative expenses" in the period such
estimated gross profits are revised.
Securities loaned
Securities loaned are treated as financing arrangements and are recorded at
the amount of cash received as collateral. The Company obtains collateral in
an amount equal to 102% and 105% of the fair value of the domestic and
foreign securities, respectively. The Company monitors the market value of
securities loaned on a daily basis with additional collateral obtained as
necessary. Non-cash collateral received is not reflected in the statements of
financial position because the debtor typically has the right to redeem the
collateral on short notice. Substantially all of the Company's securities
loaned are with large brokerage firms.
Securities sold under agreements to repurchase
Securities sold under agreements to repurchase are treated as financing
arrangements and are carried at the amounts at which the securities will be
subsequently reacquired, including accrued interest, as specified in the
respective agreements. Assets to be repurchased are the same, or
substantially the same, as the assets transferred and the transferor, through
right of substitution, maintains the right and ability to redeem the
collateral on short notice. The market value of securities to be repurchased
is monitored and additional collateral is obtained, where appropriate, to
protect against credit exposure.
Securities lending and securities repurchase agreements are used to generate
net investment income and facilitate trading activity. These instruments are
short-term in nature (usually 30 days or less). Securities loaned are
collateralized principally by U.S. Government and mortgage-backed securities.
Securities sold under repurchase agreements are collateralized principally by
cash. The carrying amounts of these instruments approximate fair value
because of the relatively short period of time between the origination of the
instruments and their expected realization.
Separate Account Assets and Liabilities
Separate Account assets and liabilities are reported at estimated fair value
and represent segregated funds which are invested for certain policyholders
and other customers. Separate Account assets include common stocks, fixed
maturities, real estate related securities, and short-term investments. The
assets of each account are legally segregated and are not subject to claims
that arise out of any other business of the Company. Investment risks
associated with market value changes are borne by the customers, except to
the extent of minimum guarantees made by the Company with respect to certain
accounts. The investment income and gains or losses for Separate Accounts
generally accrue to the policyholders and are not included in the
Consolidated Statements of Operations. Mortality, policy administration and
surrender charges on the accounts are included in "Policy charges and fee
income."
B6
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 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.
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 DAC.
Asset Management Fees
The Company receives asset management fee income from Separate Account
policyholder account balances invested in the Prudential Series Fund ("PSF").
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
seek to reduce 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 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 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.
B7
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires that companies
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. SFAS No. 133 does not
apply to most traditional insurance contracts. However, certain hybrid
contracts that contain features which may affect settlement amounts similarly
to derivatives may require separate accounting for the "host contract" and
the underlying "embedded derivative" provisions. The latter provisions would
be accounted for as derivatives as specified by the statement.
SFAS No. 133 provides, if certain conditions are met, that a derivative may
be specifically designated as (1) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an unrecognized firm
commitment (fair value hedge), (2) a hedge of the exposure to variable cash
flows of a forecasted transaction (cash flow hedge), or (3) a hedge of the
foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security or a
foreign-currency-denominated forecasted transaction (foreign currency hedge).
Under SFAS No. 133, the accounting for changes in fair value of a derivative
depends on its intended use and designation. For a fair value hedge, the gain
or loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item. For a cash flow hedge, the
effective portion of the derivative's gain or loss is initially reported as a
component of other comprehensive income and subsequently reclassified into
earnings when the forecasted transaction affects earnings. For a foreign
currency hedge, the gain or loss is reported in other comprehensive income as
part of the foreign currency translation adjustment. For all other
derivatives not designated as hedging instruments, the gain or loss is
recognized in earnings in the period of change. The Company is required to
adopt this Statement, as amended, as of January 1, 2001 and is currently
assessing the effect of the new standard.
In October 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-7, "Deposit Accounting: Accounting
for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk"
("SOP 98-7"). This statement provides guidance on how to account for
insurance and reinsurance contracts that do not transfer insurance risk. SOP
98-7 is effective for fiscal years beginning after June 15, 1999. The
adoption of this statement is not expected to have a material effect on the
Company's financial position or results of operations.
Reclassifications
Certain amounts in the prior years have been reclassified to conform to
current year presentation.
B8
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
3. INVESTMENTS
Fixed Maturities
The following tables provide additional information relating to fixed
maturities as of December 31:
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------
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 $ 9,489 $ - $ 63 $ 9,426
Foreign government bonds 5,000 - 68 4,932
Corporate Securities 588,695 681 19,499 569,877
Mortgage-backed securities 1,039 - 3 1,036
--------- ------- -------- ---------
Total fixed maturities available for $ 604,223 $ 681 $ 19,633 $ 585,271
sale
Fixed Maturities held to maturity
Corporate Securities $ 7,470 $ - $ 531 $ 6,938
--------- ------- -------- ---------
Total fixed maturities held to $ 7,470 $ - $ 532 $ 6,938
maturity
========= ======== ======== =========
</TABLE>
<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 529,844 7,273 2,633 534,484
Mortgage-backed securities 1,507 - 1 1,506
--------- ------- -------- ---------
Total fixed maturities available for
sale $ 617,758 $ 8,420 $ 3,188 $ 622,990
========= ======== ======== =========
</TABLE>
B9
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The amortized cost and estimated fair value of fixed maturities, categorized
by contractual maturities at December 31, 1999, are shown below:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------------ ---------------------------------------
Amortized Estimated Fair Amortized Estimated Fair
Cost Value Cost Value
------------------------------------ ------------------- ------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 78,150 $ 76,922 $ - $ -
Due after one year through five 187,710 183,686 - -
years
Due after five years through ten 268,224 257,241 7,470 6,938
years
Due after ten years 70,139 67,422 - -
---------- ----------- --------- ----------
Total $ 604,223 $ 585,271 $ 7,470 $ 6,938
========== =========== ========= ==========
</TABLE>
Actual maturities will differ from contractual maturities because, in certain
circumstances, issuers have the right to call or prepay obligations.
Proceeds from the sale of fixed maturities available for sale during 1999,
1998, and 1997 were $698.8 million, $990.7 million, and $635.4 million,
respectively. Gross gains of $3.5 million, $8.8 million, and $2.9 million,
and gross losses of $8.0 million, $1.8 million, and $1.2 million were
realized on those sales during 1999, 1998, and 1997, respectively. Proceeds
from maturities of fixed maturities available for sale during 1999, 1998, and
1997 were $3.6 million, $10.4 million, and $10.0 million, respectively.
During the years ended December 31, 1999, 1998, and 1997, there were no
securities classified as held to maturity that were sold.
Special Deposits
Fixed maturities of $.5 million at both December 31, 1999 and 1998
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>
1999 1998 1997
---------- ---------- -----------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities - AFS & HTM $ 39,538 $ 39,478 $ 37,563
Policy loans 7,641 7,350 6,596
Short-term investments 2,516 3,502 3,023
Other 60 (842) 333
--------- --------- ----------
Gross investment income 49,755 49,488 47,515
Less investment expenses (2,155) (2,456) (1,191)
--------- --------- ----------
Net investment income $ 47,600 $ 47,032 $ 46,324
========= ========== ==========
Realized investment gains (losses), net, including charges for other than
temporary reductions in value, for the years ended December 31, were as
follows:
1999 1998 1997
------------------ ------------------ -------------------
(In Thousands)
Realized investment gains $ 6,436 $ 17,957 $ 2,898
Realized investment losses (11,449) (9,511) (1,191)
---------- ---------- ---------
Realized investment (losses) gains, net $ (5,013) $ 8,446 $ 1,707
========== ========== =========
</TABLE>
B10
<PAGE>
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 including in "Other comprehensive income (loss)" those
items that are included as part of "net income" for a period that also had
been part of "Other comprehensive income (loss)" in earlier periods. The
amounts for the years ended December 31, net of tax, are as follows:
<TABLE>
<CAPTION>
Accumulated
other
comprehensive
income (loss)
Deferred Deferred related to net
Unrealized policy Policyholders' income tax unrealized
gains (losses) acquisition Account (liability) investment
on investments costs Balances benefit gains (losses)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 4,170 $ (1,209) $330 $ (1,259) $ 2,032
Net investment gains on investments
arising during the period 4,788 (1,676) 3,112
Reclassification adjustment for
(losses) included in net income (1,706) 597 (1,109)
Impact of net unrealized investment
(losses) on deferred policy
acquisition costs (2,170) 759 (1,411)
Impact of net unrealized investment
gains on policyholders' account
balances 519 (187) 332
--------- -------- --------- --------- --------
Balance, December 31, 1997 $ 7,252 $ (3,379) $ 849 $ (1,766) $ 2,956
Net investment gains on investments
arising during the period 4,966 (1,662) 3,304
Reclassification adjustment for
(losses) included in net income (6,985) 2,338 (4,647)
Impact of net unrealized investment
(losses) on deferred policy
acquisition costs (166) 58 (108)
Impact of net unrealized investment
gains on policyholders' account
balances 138 (50) 88
--------- -------- --------- --------- --------
Balance, December 31, 1998 $ 5,233 $(3,545) $ 987 $ (1,082) $ 1,593
Net investment (losses) on investments
arising during the period (28,794) 10,366 (18,428)
Reclassification adjustment for gains
included in net income 4,610 (1,660) 2,950
Impact of net unrealized investment
gains on deferred policy acquisition
costs 14,681 (5,285) 9,396
Impact of net unrealized investment
(losses) on policyholders' account
balances (2,499) 900 (1,599)
--------- -------- --------- --------- --------
Balance, December 31, 1999 $ (18,951) $ 11,136 $ (1,512) $ 3,239 $ (6,088)
========= ========= ========= ========= ========
</TABLE>
B11
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
4. DEFERRED POLICY ACQUISITION COSTS
The balance of and changes in deferred policy acquisition costs for the year
ended December 31, are as follows:
<TABLE>
<CAPTION>
1999
---------------------
(In Thousands)
<S> <C>
Balance, beginning of year $ 113,923
Capitalization of commissions, sales and issue 13,439
expenses
Amortization (12,859)
Change in unrealized investment losses 14,681
---------------------
Balance, end of year $ 129,184
=====================
</TABLE>
5. POLICYHOLDERS' LIABILITIES
Future policy benefits and other policyholder liabilities at December 31 are
as follows:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
(In Thousands)
<S> <C> <C>
Life insurance $ 100,686 $ 84,825
Annuities 5,175 5,007
------------------- -------------------
$ 105,861 $ 89,832
=================== ===================
</TABLE>
Life insurance liabilities include reserves for death and endowment policy
benefits. Annuity liabilities include reserves for immediate annuities.
The following table highlights the key assumptions generally utilized in
calculating these reserves:
<TABLE>
<CAPTION>
Product Mortality Interest Rate Estimation Method
------------------------- -------------------------- ---------------------- ---------------------------
<S> <C> <C> <C>
Life insurance 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 3.5% to 8.75% Present value of
annuities Mortality Table with expected future payment
certain modifications based on historical
experience
Policyholders' account balances at December 31, are as follows:
<CAPTION>
1999 1998
------------------- -------------------
(In Thousands)
<S> <C> <C>
Individual annuities $ 150,687 $ 148,327
Interest-sensitive life contracts 264,230 266,219
------------------- -------------------
$ 414,917 $ 414,546
=================== ===================
</TABLE>
Policyholders' account balances for interest-sensitive life and individual
annuities 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.
B12
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
5. POLICYHOLDERS' LIABILITIES (continued)
Certain contract provisions that determine the policyholder account balances
are as follows:
<TABLE>
<CAPTION>
Product Interest Rate Withdrawal / Surrender Charges
-------------------------------- ------------------------------------ -------------------------------------
<S> <C> <C>
Interest sensitive life 4.0% to 5.4 % Various up to 10 years
contracts
Individual annuities 3.0% to 5.6% 0% to 8% for up to 8 years
</TABLE>
6. REINSURANCE
The Company participates in reinsurance with Prudential in order to provide
greater diversification of business, provide additional capacity for future
growth and limit the maximum net loss potential arising from large risks.
Reinsurance ceded arrangements do not discharge the Company or the insurance
subsidiaries as the primary insurer, except for cases involving a novation.
Ceded balances would represent a liability of the Company in the event the
reinsurers were unable to meet their obligations to the Company under the
terms of the reinsurance agreements. The likelihood of a material reinsurance
liability reassumed by the Company is considered to be remote.
Reinsurance amounts included in the Statement of Operations for the year
ended December 31 are below.
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ -------------------
(In Thousands)
<S> <C> <C> <C>
Reinsurance premiums ceded - affiliated $ (17) $ (28) $ (12)
================== ================== ===================
Policyholders' benefits ceded $ 0 $ 0 $ 0
================== ================== ===================
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(In Thousands)
<S> <C> <C>
Life insurance - affiliated $16 $ 31
============ ============
</TABLE>
B13
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
7. INCOME TAXES
The components of income taxes for the years ended December 31, are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Current tax expense (benefit):
U.S. $ 6,769 $14,786 $12,880
State and local 178 523 399
----------------- ---------------- -----------------
Total 6,947 15,309 13,279
----------------- ---------------- -----------------
Deferred tax expense (benefit):
U.S. (54) 2,198 (2,305)
State and local (2) 63 -
----------------- ---------------- -----------------
Total (56) 2,261 (2,305)
----------------- ---------------- -----------------
Total income tax expense $ 6,891 $17,570 $10,974
================= ================ =================
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Expected federal income tax expense $6,891 $17,288 $10,569
State and local income taxes 115 381 259
Other (115) (99) 146
----------------- ---------------- -----------------
Total income tax expense $6,891 $17,570 $10,974
================= ================ =================
</TABLE>
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Insurance reserves $ 9,711 $10,016
Net unrealized (gains) losses on 6,823 (1,884)
securities
Investment gains 2,083 -
---------------- ----------------
Deferred tax assets $18,617 $8,132
---------------- ----------------
Deferred tax liabilities:
Deferred acquisition costs 37,174 28,509
Investment gains - 963
Other 879 2,375
---------------- ----------------
Deferred tax liabilities 38,053 31,847
---------------- ----------------
Net deferred tax liability $19,436 $23,715
================ ================
</TABLE>
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, 1999 and
1998, respectively, the Company had no federal or state operating loss
carryforwards for tax purposes.
B14
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
7. INCOME TAXES (continued)
The Internal Revenue Service (the "Service") has completed examinations of
the consolidated federal income tax returns through 1992. The Service has
begun their examination of the years 1993 through 1995.
8. EQUITY
Reconciliation of Statutory Surplus and Net Income
Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following
table reconciles the Company's statutory net income and surplus as of and for
the years ended December 31, determined in accordance with accounting
practices prescribed or permitted by the New Jersey Department of Banking and
Insurance with net income and equity determined using GAAP.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ --------
(In Thousands)
<S> <C> <C> <C>
Statutory net income $ 20,221 $ 18,704 $ 18,306
Adjustments to reconcile to net income on a GAAP basis:
Amortization and capitalization of deferred 580 12,464 (3,170)
acquisition costs
Deferred premium (314) 534 198
Insurance revenues and expenses 983 (808) 2,324
Income taxes (139) (2,973) 2,517
Valuation of investments (3,199) 5,896 1,707
Amortization of IMR (2,089) (2,102) (1,850)
Asset management fees (2,050) -- --
Other, net (1,196) 108 (809)
-------- -------- --------
GAAP net income $ 12,797 $ 31,823 $ 19,223
======== ======== ========
<CAPTION>
1999 1998
---------------- ----------------
(In Thousands)
<S> <C> <C>
Statutory surplus $274,437 $252,530
Adjustments to reconcile to equity on a GAAP basis:
Valuation of investments (9,644) 20,799
Deferred acquisition costs 129,184 113,923
Deferred premium (1,159) (1,473)
Insurance liabilities (23,889) (18,141)
Income Taxes (17,977) (21,716)
Asset management fees (2,050) -
Other, net 2,067 (69)
---------------- ----------------
GAAP stockholder's equity $350,969 $345,853
================ ================
</TABLE>
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values presented below have been determined using
available information and valuation methodologies. Considerable judgment is
applied in interpreting data to develop the estimates of fair value.
Accordingly, such estimates presented may not be realized in a current market
exchange. The use of different market assumptions and/or estimation
methodologies could have a material effect on the estimated fair values. The
following methods and assumptions were used in calculating the fair values
(for all other financial instruments presented in the table, the carrying
value approximates estimated fair value).
B15
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
9. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Fixed maturities
Estimated fair values for fixed maturities are based on quoted market prices
or estimates from independent pricing services.
Policy loans
The estimated fair value of policy loans is calculated using a discounted
cash flow model based upon current U.S. Treasury rates and historical loan
repayments.
Investment contracts
Estimated fair values of investment contracts are derived by using the
policyholder's account balance.
Derivative financial instruments
The fair value of futures is estimated based on market quotes for
transactions with similar terms.
The following table discloses the carrying amounts and estimated fair values
of the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1999 1998
---------------------------------- -----------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------------- ----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities:
Available for sale $ 585,271 $585,271 $622,990 $622,990
Held to maturity 7,470 6,938 - -
Policy loans 143,815 136,990 139,443 146,504
Short-term investments 27,473 27,473 53,761 53,761
Cash 117 117 45 45
Separate Accounts assets 1,827,484 1,827,484 1,450,986 1,450,986
Financial Liabilities:
Investment contracts $ 92,096 $ 92,096 $ 87,948 $ 87,948
Cash collateral for loaned 17,900 17,900 34,424 34,424
securities
Securities sold under
agreements to repurchase - - 27,210 27,210
Separate Accounts liabilities 1,827,484 1,827,484 1,450,986 1,450,986
Derivatives 597 597 - -
</TABLE>
10. 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 and to manage the duration of assets to better
match the duration of liabilities supported by those assets. 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. Treasury futures move substantially in value as interest
rates change and can be used to either modify or hedge existing interest rate
risk. This strategy protects against the risk that cash flow requirements may
necessitate liquidation of investments at unfavorable prices resulting from
increases in interest rates. This strategy can be a more cost effective way
of temporarily reducing the Company's exposure to a market decline than
selling fixed income securities and purchasing a similar portfolio when such
a decline is believed to be over.
B16
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
10. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (continued)
If futures meet hedge accounting criteria, changes in their fair value are
deferred and recognized as an adjustment to the carrying value of the hedged
item. Deferred gains or losses from the hedges for interest-bearing financial
instruments are amortized as a yield adjustment over the remaining lives of
the hedged item. Futures that do not qualify as hedges are carried at fair
value with changes in value reported in current period earnings. The notional
and fair value of futures contracts was $46.4 million and $(.6) million at
December 31, 1999, respectively. There were no open futures contracts at
December 31, 1998.
Credit Risk
The current credit exposure of the Company's derivative contracts is limited
to the fair value at the reporting date. Credit risk is managed by entering
into transactions with creditworthy counterparties and obtaining collateral
where appropriate and customary. The Company also attempts to minimize its
exposure to credit risk through the use of various credit monitoring
techniques. All of the net credit exposure for the Company from derivative
contracts is with investment-grade counterparties. As of December 31, 1999
100% of the notional consisted of interest rate derivatives.
11. CONTINGENCIES
Various lawsuits against the Company have arisen in the course of the
Company's business. In certain of these matters, large and/or indeterminate
amounts are sought.
On October 28, 1996, the Company entered into a Stipulation of Settlement
with attorneys for the plaintiffs in a consolidated class action lawsuit
pending in a Multi-District Litigation proceeding in the U.S. District Court
for the District of New Jersey. The class action suit involved alleged
improprieties in connection with the sale, servicing and operation of
permanent life insurance policies from 1982 through 1995. Pursuant to the
settlement, the Company has participated in a remediation program pursuant to
which relief was offered to policyowners who were misled when they purchased
permanent life insurance policies in the United States from 1982 to 1995.
Prudential has agreed to indemnify the Company for any liability incurred in
connection with that litigation.
The balance of the Company's litigation is subject to many uncertainties, and
given the complexity and scope, the outcomes cannot be predicted with
precision. Management believes that any ultimate liability which could result
from such litigation would not have a material adverse effect on the
Company's financial position.
12. 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 earned surplus derived from
realized net profits.
13. RELATED PARTY TRANSACTIONS
Service Agreements
Prudential and the Company operate under service and lease agreements whereby
services of officers and employees, supplies, use of equipment and office
space are provided by Prudential. Prudential periodically reviews its methods
for determining the level of administrative expenses charged to the Company.
Late in 1998, Prudential revised its allocation methodology to more closely
align allocations based on business processes, resulting in increased
allocations from 1998 levels. Management believes that the updated
methodology is reasonable and better reflects actual costs incurred by
Prudential to process transactions on behalf of the Company. The net cost of
these services allocated to the Company were $28.3 million, $23.5 million and
$16.2 million for the years ended December 31, 1999, 1998, and 1997,
respectively.
In addition, the Company received allocated distribution expenses from
Prudential's retail agency network. Beginning in 1999, market based
distribution transfer pricing was the basis for allocating costs to each
product line that distributes products through Prudential's retail agency
channels. A majority of these distribution expenses have been capitalized by
the Company as DAC.
The Company receives asset management fees from Pruco Life for its
policyholder account balances invested in the Prudential Series Fund ("PSF")
managed by Pruco Life. The Company received from Pruco Life its allocable
shares of such compensation in the amount of $7.4 million, $5.6 million, and
$5.3 million, during 1999, 1998, and 1997, respectively, recorded as "Asset
management fee income" in the Statements of Operations and Comprehensive
Income.
B17
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS (continued)
The Company pays an asset management fee to Prudential Global Asset
Management ("PGAM") for managing the Separate Account investment portfolio.
The expense for the year was $3.0 million, which is shown in general,
administrative and other expenses.
The Company has sold a Corporate Owned Life Insurance ("COLI") policy to
Prudential. The cash surrender value included in Separate Accounts at
December 31, 1999 was $199.0 million.
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, 1999,
1998, and 1997.
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, 1999.
B18
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholder 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 (an indirect, wholly-owned
subsidiary of the Prudential Insurance Company of America) at December 31,
1999 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 21, 2000
B19
