<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 2000
REGISTRATION NO. 333-18117
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. ___ [ ]
POST-EFFECTIVE AMENDMENT NO. 4 [x]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
POST-EFFECTIVE AMENDMENT NO. 5 [x]
(Check appropriate box or boxes)
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PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM
VARIABLE ANNUITY ACCOUNT
(Exact Name of Registrant)
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Name of Depositor)
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(888) PRU-2888
(Address and telephone number of depositor's principal executive offices)
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THOMAS C. CASTANO
ASSISTANT SECRETARY
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(Name and address of agent for service)
Copies to:
CHRISTOPHER E. PALMER LEE D. AUGSBURGER
SHEA & GARDNER ASSISTANT GENERAL COUNSEL
1800 MASSACHUSETTS AVENUE, N.W. THE PRUDENTIAL INSURANCE COMPANY
WASHINGTON, D.C. 20036 OF AMERICA
(202) 828-2093 100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(973) 367-1388
It is proposed that this filing will become effective (Check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on May 1, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on May 1, 2000 pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered:
Interests in Individual Variable Annuity Contracts
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<PAGE> 2
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 3
DISCOVERY SELECT(R)
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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 INSURANCE COMPANY OF NEW JERSEY (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 Select offers a wide variety of investment choices, including 26
variable investment options that invest in mutual funds managed by these leading
asset managers.
[/R]
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 Select variable
annuity contract and keep it for future reference. Current prospectuses for each
of the underlying mutual funds accompany this prospectus. These prospectuses
contain important information about the mutual funds. Please read these
prospectuses and keep them for reference.
TO LEARN MORE ABOUT DISCOVERY SELECT
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To learn more about the Discovery Select 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 also 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 Select SAI, material
incorporated by reference, and other information regarding registrants that file
electronically with the SEC. The Table of Contents of the SAI is on Page 30 of
this prospectus.
FOR A FREE COPY OF THE SAI CALL US AT:
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O (888) PRU-2888 or write to us at:
O Pruco Life Insurance Company of New Jersey
213 Washington Street
Newark, New Jersey 07102-2992
O Prudential Annuity Service Center
P.O. Box 14215
New Brunswick, New Jersey 08906
THE SEC HAS NOT DETERMINED THAT THIS CONTRACT IS A GOOD INVESTMENT, NOR HAS THE
SEC DETERMINED THAT THIS PROSPECTUS IS COMPLETE OR ACCURATE. IT IS A CRIMINAL
OFFENSE TO STATE OTHERWISE. INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT
TO RISK, INCLUDING THE POSSIBLE LOSS OF YOUR MONEY. AN INVESTMENT IN DISCOVERY
SELECT IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
1
<PAGE> 4
CONTENTS
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PART I: DISCOVERY SELECT PROSPECTUS
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SUMMARY
Glossary..........................................4
Summary ..........................................5
Summary of Contract Expenses......................7
Expense Examples..................................9
PART II: DISCOVERY SELECT PROSPECTUS
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SECTIONS 1-9
Section 1: What is the Discovery Select
Variable Annuity?................................12
Short Term Cancellation Right or "Free Look".....12
Section 2: What Investment Options
Can I Choose.....................................13
Variable Investment Options......................13
Fixed Interest-Rate Options......................14
Transfers Among Options..........................14
Other Available Features
Voting Rights....................................15
Substitution.....................................15
Section 3: What Kind of Payments Will I Receive
During the Income Phase?(Annuitization)..........16
Payment Provisions...............................16
Option 1: Annuity Payments for a
Fixed Period................................16
Option 2: Life Annuity with 120 Payments
(10 Years) Certain..........................16
Option 3: Interest Payment Option................16
Option 4: Other Annuity Options..................16
Section 4: What is the Death Benefit?............17
Beneficiary......................................17
Calculation of the Death Benefit.................17
Section 5: How Can I Purchase a Discovery
Select Contract?.................................18
Purchase Payments................................18
Allocation of Purchase Payments..................18
Calculating Contract Value.......................18
Section 6: What are the Expenses Associated
with the Discovery Select Contract?..............19
Insurance Charges................................19
Annual Contract Fee..............................19
Withdrawal Charge................................19
Premium Taxes....................................20
Transfer Fee.....................................20
Company Taxes....................................20
Section 7: How Can I Access My Money?............21
Automated Withdrawals............................21
Suspension of Payments or Transfers..............21
Section 8: What are the Tax Considerations
Associated with the Discovery Select Contract?...22
Contracts Owned By Individuals (Not Associated
with Tax Favored Retirement Plans)...........22
Contracts Held by Tax Favored Plans..............23
Section 9: Other Information.....................28
Pruco Life Insurance Company of New Jersey.......28
The Separate Account.............................28
Sale and Distribution of the Contract ...........28
Assignment.......................................29
Financial Statements.............................29
Statement of Additional Information..............30
Accumulation Unit Values.........................31
Market-Value Adjustment Formula..................33
IRA Disclosure Statement.........................35
PART III: VARIABLE INVESTMENT OPTIONS'
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PROSPECTUSES
The Prudential Series Fund
AIM Variable Insurance Funds
Alliance Variable Products Series Fund, Inc.
American Century Variable Portfolios, Inc.
Davis Variable Account Fund, Inc.
Franklin Templeton Variable Insurance Products Trust
Janus Aspen Series
MFS Variable Insurance Trust
OCC Accumulation Trust
T. Rowe Price
Warburg Pincus Trust
2
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PART I SUMMARY
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DISCOVERY SELECT PROSPECTUS
3
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GLOSSARY
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WE HAVE TRIED TO MAKE THIS PROSPECTUS AS EASY TO READ AND UNDERSTAND AS
POSSIBLE. BY THE NATURE OF THE CONTRACT, HOWEVER, CERTAIN TECHNICAL WORDS OR
TERMS ARE UNAVOIDABLE. WE HAVE IDENTIFIED THE FOLLOWING AS SOME OF THESE WORDS
OR TERMS.
ACCUMULATION PHASE
The period that begins with the contract date (see below definition) and ends
when you start receiving income payments or earlier if the contract is
terminated through a full withdrawal or payment of a death benefit.
ANNUITANT
The person whose life determines how long the contract lasts and the amount of
income payments that will be paid.
ANNUITY DATE
The date when income payments are scheduled to begin.
BENEFICIARY
The person(s) or entity you have chosen to receive a death benefit.
CASH VALUE
This is the total value of your contract minus any withdrawal charge(s) or
market-value adjustment, if applicable.
CONTRACT DATE
The date we receive your initial purchase payment and all necessary paperwork in
good order at the Prudential Annuity Service Center. Contract anniversaries are
measured from the contract date. A contract year starts on the contract date or
on a contract anniversary.
CONTRACTOWNER, OWNER OR YOU
The person entitled to the ownership rights under the contract.
CONTRACT VALUE
The total value of the amounts in a contract allocated to the variable
investment options and the interest rate options as of a particular date.
DEATH BENEFIT
If the sole or last surviving annuitant dies, the designated person(s) or the
beneficiary will receive, at a minimum, the total amount invested or a
potentially greater amount related to market appreciation. See "What is the
Death Benefit?" on page 17.
INCOME OPTIONS
Options under the contract that define the frequency and duration of income
payments. In your contract, these are referred to as payout or annuity options.
INTEREST-RATE OPTION
An investment option that offers a fixed-rate of interest for a selected period
during which periodic transfers are made to selected variable investment options
(dollar cost averaging option), a one-year period (fixed-rate option) or a
seven-year period (market-value adjustment option).
PURCHASE PAYMENTS
The amount of money you pay us to purchase the contract. Generally, you can make
additional purchase payments at any time during the accumulation phase.
PRUDENTIAL ANNUITY SERVICE CENTER
P.O. Box 14215, New Brunswick, New Jersey, 08906. The phone number is
(888) PRU-2888.
SEPARATE ACCOUNT
Purchase payments allocated to the variable investment options are held by us in
a separate account called the Pruco Life of New Jersey Flexible Premium Variable
Annuity Account. The Separate Account is set apart from all of the general
assets of Pruco Life of New Jersey.
TAX DEFERRAL
This is a way to increase your assets without currently being taxed. You do not
pay taxes on your contract earnings until you take money out of your contract.
VARIABLE INVESTMENT OPTION
When you choose a variable investment option, we purchase shares of the mutual
fund which are held as an investment for that option. We hold these shares in
the Separate Account. The division of the Separate Account of Pruco Life of New
Jersey that invests in a particular mutual fund is referred to in your contract
as a subaccount.
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4
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SUMMARY OF SECTIONS 1-9
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FOR A MORE COMPLETE DISCUSSION OF THE FOLLOWING TOPICS, SEE THE CORRESPONDING
SECTION IN THE PROSPECTUS.
SECTION 1
WHAT IS THE DISCOVERY SELECT VARIABLE ANNUITY?
This variable annuity contract, offered by Pruco Life of New Jersey, is a
contract between you, as the owner, and us. The contract allows you to invest on
a tax-deferred basis in one or more of 26 variable investment options. There are
also three fixed interest rate options which are available in most states. The
contract is intended for retirement savings or other long-term investment
purposes and provides a death benefit and guaranteed income options.
The variable investment options are designed to offer the opportunity over
the long term for a better return than the fixed interest rate options. However,
this is NOT guaranteed. It is possible, due to market changes, that your
investments may decrease in value.
The fixed interest-rate options offer an interest-rate that is guaranteed.
While your money is in a fixed account, your principal amount is guaranteed and
the interest amount that your money will earn is guaranteed by us to always be
at least 3.0%. Payments allocated to the fixed interest-rate options become part
of Pruco Life of New Jersey's general assets. As a result, the strength of our
guarantee is based on the overall financial strength of Pruco Life of New
Jersey.
You can invest your money in any or all of the variable investment options
and the interest-rate options. You are allowed 12 transfers each contract year
among the variable investment options, without a charge. There are certain
restrictions on transfers involving the interest-rate options.
The contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
grow on a tax-deferred basis and are taxed as income when you make a withdrawal.
The income phase starts when you begin receiving regular payments from your
contract. The amount of money you are able to accumulate in your contract during
the accumulation phase will help determine the amount of the 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.
FREE LOOK. If you change your mind about owning Discovery Select, you may cancel
your contract within 10 days after receiving it (or whatever time period is
required in the state where the contract was issued).
SECTION 2
WHAT INVESTMENT OPTIONS CAN I CHOOSE?
You can invest your money in any or all of the variable investment options that
invest in the mutual funds described in the fund prospectuses provided with this
prospectus:
THE PRUDENTIAL SERIES FUND
Diversified Bond Portfolio
Diversified Conservative Growth Portfolio
Equity Income Portfolio
Equity Portfolio
Global Portfolio
High Yield Bond Portfolio
Money Market Portfolio
Prudential Jennison Portfolio
Small Capitalization Stock Portfolio
Stock Index Portfolio
20/20 Focus Portfolio
AIM VARIABLE INSURANCE FUNDS
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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5
<PAGE> 8
SUMMARY OF SECTIONS 1-9 CONTINUED
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Depending upon market conditions, you may earn or lose money in any of these
options. The value of your contract will fluctuate depending upon the investment
performance of the mutual funds used by the variable investment options you
choose. Performance information for the variable investment options is provided
in the Statement of Additional Information (SAI). Past performance is not a
guarantee of future results.
You can also put your money into one or more of the fixed interest-rate
options.
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.
Once you begin receiving regular payments, you cannot change your payment plan.
SECTION 4
WHAT IS THE DEATH BENEFIT?
If the sole or last surviving annuitant dies the designated person(s) or the
beneficiary will receive at a minimum, the total amount invested or a
potentially greater amount related to market appreciation.
SECTION 5
HOW CAN I PURCHASE A DISCOVERY SELECT ANNUITY CONTRACT?
You can purchase this contract, under most circumstances, with a minimum initial
purchase payment of $10,000. You can add $1,000 or more at any time during the
accumulation phase of the contract. Your representative can help you fill out
the proper forms.
SECTION 6
WHAT ARE THE EXPENSES ASSOCIATED WITH THE DISCOVERY SELECT CONTRACT?
The contract has insurance features and investment features, and there are costs
related to each.
Each year we deduct a $30 contract maintenance charge if your contract value
is less than $50,000. For insurance and administrative costs, we also deduct an
annual charge of 1.40% of the average daily value of all assets allocated to the
variable investment options. This charge is not assessed against amounts
allocated to the interest-rate investment options.
There are a few states/jurisdictions that assess a premium tax when you
begin receiving regular income payments from your annuity. In those states, we
impose the required premium tax charge which can range up to 5%.
There are also charges associated with the mutual funds. 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. Each year, you
withdraw up to 10% of your total purchase payments without charge. Withdrawals
greater than 10% of your purchase payments will be subject to a withdrawal
charge. This charge decreases 1% each year. After the 7th year, there is no
charge for a withdrawal. You may also be subject to income tax and a tax penalty
if you make an early withdrawal.
SECTION 8
WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH
THE DISCOVERY SELECT CONTRACT?
Your earnings are not taxed until withdrawn. If you take money out during the
accumulation phase, 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 IRA contracts are fully 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, a subsidiary of The
Prudential Insurance Company of America.
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6
<PAGE> 9
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 SELECT. THIS SUMMARY INCLUDES THE EXPENSES OF THE MUTUAL FUNDS
USED BY THE VARIABLE INVESTMENT OPTIONS BUT DOES NOT INCLUDE ANY PREMIUM TAXES
THAT MIGHT BE APPLICABLE IN YOUR STATE.
FOR MORE DETAILED INFORMATION:
More detailed information can be found on page 19 under the section called,
"What Are The Expenses Associated With The Discovery Select Variable Annuity?"
For more detailed expense information about the mutual funds, please refer to
the individual fund prospectuses which you will find at the back of this
prospectus.
TRANSACTION EXPENSES
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WITHDRAWAL CHARGE (SEE NOTE 1 BELOW)
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During contract year 1 7%
During contract year 2 6%
During contract year 3 5%
During contract year 4 4%
During contract year 5 3%
During contract year 6 2%
During contract year 7 1%
TRANSFER FEE (SEE NOTE 2 BELOW)
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first 12 transfers per year $ 0.00
each transfer after 12 $ 25.00
ANNUAL CONTRACT FEE AND FULL WITHDRAWAL FEE (SEE NOTE 3 BELOW)
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$ 30.00
ANNUAL ACCOUNT EXPENSES
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AS A PERCENTAGE OF THE AVERAGE ACCOUNT VALUE
Mortality and Expense Risk: 1.25%
Administrative Fee: 0.15%
Total: 1.40%
NOTE 1: AS OF THE BEGINNING OF THE CONTRACT YEAR, YOU MAY WITHDRAW UP TO 10% OF
THE TOTAL PURCHASE PAYMENTS PLUS ANY CHARGE-FREE AMOUNT CARRIED OVER FROM THE
PREVIOUS CONTRACT YEAR WITHOUT CHARGE. THERE IS NO WITHDRAWAL CHARGE ON ANY
WITHDRAWALS MADE UNDER THE CRITICAL CARE ACCESS OPTION (SEE PAGE __) OR ON ANY
AMOUNT USED TO PROVIDE INCOME UNDER THE LIFE ANNUITY WITH 120 PAYMENTS (10
YEARS) CERTAIN OPTION. (SEE PAGE 16). SURRENDER CHARGES ARE WAIVED WHEN A DEATH
BENEFIT IS PAID.
NOTE 2: YOU WILL NOT BE CHARGED FOR TRANSFERS MADE IN CONNECTION WITH DOLLAR
COST AVERAGING AND AUTO-REBALANCING
NOTE 3: THERE IS NO CHARGE ON WITHDRAWALS IF THE VALUE OF YOUR CONTRACT IS
$50,000 OR MORE.
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 SELECT 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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7
<PAGE> 10
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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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<TABLE>
<CAPTION>
INVESTMENT OTHER TOTAL CONTRACTUAL TOTAL ACTUAL
MANAGEMENT FEE EXPENSES EXPENSES EXPENSES*
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<S> <C> <C> <C> <C>
THE PRUDENTIAL SERIES FUND
- -----------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------------------------------------------------
Davis Value Portfolio 0.75% 1.54% 2.29% 1.00%
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST(4)
- -----------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Investments Fund - Class 2 0.55% 0.52% 1.07% 1.07%
JANUS ASPEN SERIES(3)
- -----------------------------------------------------------------------------------------------------------------------
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>
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* REFLECTS THE EFFECT OF MANAGEMENT FEE WAIVERS AND REIMBURSEMENT OF EXPENSES,
IF ANY. SEE NOTES ON PAGE 7.
THE "EXPENSES EXAMPLES" ON THE FOLLOWING PAGES ARE CALCULATED USING THE TOTAL
ACTUAL EXPENSES.
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8
<PAGE> 11
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 SELECT. YOU CAN ALSO USE THE
EXAMPLES TO COMPARE THE COST OF DISCOVERY SELECT WITH OTHER VARIABLE ANNUITY
CONTRACTS.
EXAMPLE 1: IF YOU WITHDRAW YOUR ASSETS
Example 1 assumes that you invest $10,000 in Discovery Select and that you
allocate all of your assets to one of the variable investment options and
withdraw all your assets at the end of the time period indicated. The example
also assumes that your investment has a 5% return each year and that the mutual
fund's operating expenses remain the same. Your actual costs may be higher or
lower.
EXAMPLE 2: IF YOU DO NOT WITHDRAW YOUR ASSETS
Example 2 assumes that you invest $10,000 in Discovery Select and allocate all
of your assets to one of the variable investment options and DO NOT WITHDRAW any
of your assets at the end of the time period indicated. The example also assumes
that your investment has a 5% return each year and that the mutual fund's
operating expenses remain the same. Your actual costs may be higher or lower.
On the following page are examples of what your costs would be using these
assumptions.
NOTES FOR ANNUAL MUTUAL FUND EXPENSES:
- --------------------------------------------
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE CHARGES SHOWN IN THE 10 YEAR COLUMN ARE THE SAME FOR EXAMPLE 1 AND EXAMPLE
2. THIS IS BECAUSE AFTER 10 YEARS, THE WITHDRAWAL CHARGES ARE NO LONGER DEDUCTED
BY US WHEN YOU MAKE A WITHDRAWAL OR WHEN YOU BEGIN THE INCOME PHASE OF YOUR
CONTRACT.
IF YOUR CONTRACT VALUE IS LESS THAN $50,000, ON YOUR CONTRACT ANNIVERSARY (AND
UPON A SURRENDER), WE DEDUCT A $30 FEE. THE EXAMPLES USE AN AVERAGE NUMBER AS
THE AMOUNT OF THE ANNUAL CONTRACT FEE. THIS AMOUNT WAS CALCULATED BY TAKING THE
TOTAL ANNUAL CONTRACT FEES COLLECTED IN 1999 AND THEN DIVIDING THAT NUMBER BY
THE TOTAL ASSETS ALLOCATED TO THE VARIABLE INVESTMENT OPTIONS. BASED ON THIS
CALCULATION THE ANNUAL CONTRACT FEE IS INCLUDED AS AN ANNUAL CHARGE OF .023% OF
CONTRACT VALUE.
YOUR ACTUAL FEES WILL VARY BASED ON THE AMOUNT OF YOUR CONTRACT AND YOUR
SPECIFIC ALLOCATION(S). A TABLE OF ACCUMULATION UNIT VALUES OF INTERESTS IN EACH
VARIABLE INVESTMENT OPTION APPEARS ON PAGE 31. CHARGES FOR PREMIUM TAXES ARE
NOT REFLECTED. IN THESE EXAMPLES. PREMIUM TAXES MAY APPLY DEPENDING ON THE
STATE WHERE YOU LIVE.
- --------------------------------------------------------------------------------
9
<PAGE> 12
<TABLE>
<CAPTION>
EXPENSE EXAMPLES 1 AND 2
- -----------------------------------------------------------------------------------------------------------------------
EXAMPLE 1: EXAMPLE 2:
IF YOU WITHDRAW YOUR ASSETS IF YOU DO NOT WITHDRAW YOUR ASSETS
----------------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS 1 YR 3 YRS 5 YRS 10 YRS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THE PRUDENTIAL SERIES FUND
- -----------------------------------------------------------------------------------------------------------------------
Diversified Bond Portfolio $816 $925 $1138 $2142 $186 $575 $988 $2142
Diversified Conservative Growth Portfolio $878 $1112 $1452 $2777 $248 $762 $1302 $2777
Equity Income Portfolio $815 $922 $1133 $2132 $185 $572 $983 $2132
Equity Portfolio $820 $937 $1159 $2184 $190 $587 $1009 $2184
Global Portfolio $857 $1049 $1347 $2566 $227 $699 $1197 $2566
High Yield Bond Portfolio $833 $976 $1225 $2320 $203 $626 $1075 $2320
Money Market Portfolio $815 $922 $1133 $2132 $185 $572 $983 $2132
Prudential Jennison Portfolio $836 $985 $1240 $2351 $206 $635 $1090 $2351
Small Capitalization Stock Portfolio $818 $931 $1149 $2163 $188 $581 $999 $2163
Stock Index Portfolio $812 $912 $1118 $2100 $182 $562 $968 $2100
20/20 Focus Portfolio $882 $1124 $1472 $2817 $252 $774 $1322 $2817
AIM VARIABLE INSURANCE FUNDS
- -----------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund $850 $1028 $1311 $2495 $220 $678 $1161 $2495
AIM V.I. Value Fund $849 $1025 $1306 $2485 $219 $675 $1156 $2485
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------
Alliance Premier Growth Portfolio - Class B $902 $1184 $1572 $3013 $272 $834 $1422 $3013
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
- -----------------------------------------------------------------------------------------------------------------------
American Century VP Value $873 $1097 $1427 $2727 $243 $747 $1277 $2727
DAVIS VARIABLE ACCOUNT FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------
Davis Value Portfolio $1002 $1479 $2056 $3938 $372 $1129 $1906 $3938
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
- -----------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Investments Fund -
Class 2 $880 $1118 $1462 $2797 $250 $768 $1312 $2797
JANUS ASPEN SERIES
- -----------------------------------------------------------------------------------------------------------------------
Growth Portfolio $840 $997 $1261 $2393 $210 $647 $1111 $2393
International Growth Portfolio $849 $1025 $1306 $2485 $219 $675 $1156 $2485
MFS VARIABLE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------
Emerging Growth Series $856 $1046 $1342 $2556 $226 $696 $1192 $2556
Research Series $858 $1052 $1352 $2577 $228 $702 $1202 $2577
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------
Managed Portfolio $856 $1046 $1342 $2556 $226 $696 $1192 $2566
Small Cap Portfolio $862 $1064 $1372 $2617 $232 $714 $1222 $2617
T.ROWE PRICE
- -----------------------------------------------------------------------------------------------------------------------
Equity Series - Equity Income Portfolio $858 $1052 $1352 $2577 $228 $702 $1202 $2577
International Series - Int'l Stock
Portfolio $878 $1112 $1452 $2777 $248 $762 $1302 $2777
WARBURG PINCUS TRUST
- -----------------------------------------------------------------------------------------------------------------------
Global Post-Venture Capital Portfolio $931 $1270 $1714 $3291 $301 $920 $1564 $3291
</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.
- --------------------------------------------------------------------------------
10
<PAGE> 13
PART II SECTIONS 1-9
- --------------------------------------------------------------------------------
DISCOVERY SELECT PROSPECTUS
11
<PAGE> 14
1:
WHAT IS THE DISCOVERY SELECT
VARIABLE ANNUITY?
- --------------------------------------------------------------------------------
THE DISCOVERY SELECT VARIABLE ANNUITY IS A CONTRACT BETWEEN YOU, THE OWNER, AND
US, THE INSURANCE COMPANY, PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY (PRUCO
LIFE OF NEW JERSEY, WE OR US).
Under our contract or agreement, in exchange for your payment to us, we promise
to pay you a guaranteed income stream that can begin any time after the first
contract anniversary. Your annuity is in the accumulation phase until you decide
to begin receiving annuity payments. The date you begin receiving annuity
payments is the annuity date. On the annuity date, your contract switches to the
income phase.
THIS ANNUITY CONTRACT BENEFITS FROM TAX DEFERRAL.
Tax deferral means that you are not taxed on earnings or appreciation on the
assets in your contract until you withdraw money from your contract.
DISCOVERY SELECT IS A VARIABLE ANNUITY CONTRACT.
This means that during the accumulation phase, you can allocate your assets
among 26 variable investment options as well as 3 guaranteed interest-rate
options. If you select a variable investment option, the amount of money you are
able to accumulate in your contract during the accumulation phase depends upon
the investment performance of the mutual fund associated with that variable
investment option. Because the mutual funds' portfolios fluctuate in value
depending upon market conditions, your contract value can either increase or
decrease. This is important, since the amount of the annuity payments you
receive during the income phase depends upon the value of your contract at the
time you begin receiving payments.
AS MENTIONED ABOVE, DISCOVERY SELECT ALSO CONTAINS THREE GUARANTEED
INTEREST-RATE OPTIONS: a fixed-rate option, a dollar cost averaging option, and
a market-value adjustment option. The fixed-rate option offers an interest rate
that is guaranteed by us for one year and will always be at least 3.0% per
year. The dollar cost averaging option offers an interest-rate that is
guaranteed by us for a selected period during which periodic transfers are made
to selected variable investment options. The market-value adjustment option
guarantees a stated interest rate, generally higher than the fixed-rate option.
However, in order to get the full benefit of the stated interest rate, assets
in this option must be held for a seven-year period.
AS THE OWNER OF THE CONTRACT, YOU HAVE ALL OF THE DECISION-MAKING RIGHTS UNDER
THE CONTRACT. You will also be the annuitant unless you designate someone else.
The annuitant(s) is the person upon whose death during the accumulation phase,
the death benefit is payable. The annuitant is the person who receives the
annuity payments when the income phase begins. The annuitant is also the person
whose life is used to determine how much and how long these payments will
continue. On and after the annuity date, the annuitant is the owner and may not
be changed. The beneficiary becomes the owner when a death benefit is payable.
THE BENEFICIARY IS: the person(s) or entity designated to receive any death
benefit if the annuitant(s) dies during the accumulation phase. You may change
the beneficiary any time prior to the annuity date by making a written request
to us. Your request becomes effective when we approve it.
SHORT TERM CANCELLATION RIGHT OR "FREE LOOK"
If you change your mind about owning Discovery Select, you may cancel your
contract within 10 days after receiving it (or whatever period is required by
applicable law). You can request a refund by returning the contract either to
the representative who sold it to you, or to the Prudential Annuity Service
Center at the address shown on the first page of this prospectus. You will
receive, depending on applicable law:
o Your full purchase payment; or
o The amount your contract is worth as of the day we receive your request.
This amount may be more or less than your original payment.
- --------------------------------------------------------------------------------
12
<PAGE> 15
2:
WHAT INVESTMENT OPTIONS
CAN I CHOOSE?
- --------------------------------------------------------------------------------
THE CONTRACT GIVES YOU THE CHOICE OF ALLOCATING YOUR PURCHASE PAYMENTS TO ANY
ONE OR MORE OF 26 VARIABLE INVESTMENT OPTIONS, AS WELL AS THREE GUARANTEED
INTEREST-RATE 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.
o Diversified Bond Portfolio
o Diversified Conservative Growth Portfolio
o Equity Income Portfolio
o Equity Portfolio
o Global Portfolio
o High Yield Bond Portfolio
o Money Market Portfolio
o Prudential Jennison Portfolio (domestic equity)
o Small Capitalization Stock Portfolio
o Stock Index Portfolio
o 20/20 Focus Fund (domestic equity)
THE PRUDENTIAL SERIES FUND, INC. IS MANAGED BY PRUDENTIAL THROUGH ANOTHER
COMPANY IT OWNS CALLED THE PRUDENTIAL INVESTMENT CORPORATION. THE PRUDENTIAL
INVESTMENT CORPORATION MANAGES EACH OF THE PORTFOLIOS OF THE PRUDENTIAL SERIES
FUND EXCEPT THE PRUDENTIAL JENNISON PORTFOLIO AND THE DIVERSIFIED CONSERVATIVE
GROWTH PORTFOLIO. FOR THE JENNISON PORTFOLIO, PRUDENTIAL INVESTMENT CORPORATION
OVERSEES ANOTHER COMPANY OWNED BY PRUDENTIAL CALLED JENNISON ASSOCIATES CAPITAL
CORP. WHICH PROVIDES THE DAY-TO-DAY INVESTMENT ADVISORY SERVICES. FOR THE
DIVERSIFIED CONSERVATIVE GROWTH PORTFOLIO, PRUDENTIAL INVESTMENTS CORPORATION
OVERSEES THE DREYFUS CORPORATION AND PACIFIC INVESTMENTS MANAGEMENT COMPANY,
WHICH PROVIDE THE DAY-TO-DAY INVESTMENT ADVISORY SERVICES.
AIM VARIABLE INSURANCE FUNDS
o AIM V.I. Growth and Income Fund
o AIM V.I. Value Fund
AIM ADVISORS, INC. SERVES AS INVESTMENT ADVISER TO BOTH OF THESE FUNDS.
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
o Alliance Premier Growth Portfolio
ALLIANCE CAPITAL MANAGEMENT L.P. IS THE INVESTMENT ADVISER OF THE ALLIANCE
VARIABLE PRODUCTS SERIES FUND.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
o American Century VP Value
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. IS THE INVESTMENT ADVISER FOR
AMERICAN CENTURY VP VALUE.
DAVIS VARIABLE ACCOUNT FUND, INC.
o Davis Value Portfolio
DAVIS SELECTED ADVISERS, L.P. IS THE INVESTMENT ADVISER AND DAVIS SELECTED
ADVISERS-NY, INC. IS SUB-ADVISER TO THE DAVIS VALUE PORTFOLIO.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
o 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
o Growth Portfolio
o International Growth Portfolio
JANUS CAPITAL CORPORATION SERVES AS INVESTMENT ADVISER TO THE GROWTH PORTFOLIO
AND THE INTERNATIONAL GROWTH PORTFOLIO.
MFS VARIABLE INSURANCE TRUST
o Emerging Growth Series
o Research Series (long-term growth and future income)
MASSACHUSETTS FINANCIAL SERVICES COMPANY, A DELAWARE CORPORATION, IS THE
INVESTMENT ADVISER TO THE EMERGING GROWTH SERIES AND THE RESEARCH SERIES.
OCC ACCUMULATION TRUST
o Managed Portfolio (equity)
o Small Cap Portfolio
OPCAP ADVISORS IS THE INVESTMENT ADVISER TO THE MANAGED PORTFOLIO AND THE SMALL
CAP PORTFOLIO.
T. ROWE PRICE
o T. Rowe Price Equity Series, Inc., Equity Income Portfolio
o T. Rowe Price International Series, Inc., International Stock Portfolio
T. ROWE PRICE ASSOCIATES, INC. IS THE INVESTMENT MANAGER FOR THE EQUITY INCOME
PORTFOLIO AND ROWE PRICE-FLEMING INTERNATIONAL, INC. IS THE INVESTMENT MANAGER
FOR THE INTERNATIONAL STOCK PORTFOLIO.
WARBURG PINCUS TRUST
o Global Post-Venture Capital Portfolio
WARBURG PINCUS COUNSELORS, INC. SERVES AS INVESTMENT ADVISER AND ABBOTT CAPITAL
MANAGEMENT, L.P. SERVES AS SUB-
INVESTMENT ADVISE 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 the fund or an
affiliate of each fund for administrative and other services that we provide.
The amount we receive is based on an annual percentage of the average assets of
Discovery Select invested in the fund held by the associated variable investment
option.
- --------------------------------------------------------------------------------
13
<PAGE> 16
2:
WHAT INVESTMENT OPTIONS CAN I CHOOSE? CONTINUED
- --------------------------------------------------------------------------------
FIXED INTEREST-RATE OPTIONS
We offer three interest-rate options: a one-year fixed-rate option, a dollar
cost averaging fixed interest-rate option ("DCA Fixed Option"), and a
market-value adjustment option. We set a one year guaranteed annual interest
rate that is always available for the one-year fixed-rate option. For the DCA
Fixed Option, the interest-rate is guaranteed for the applicable period of time
for which transfers are made. For the market-value adjustment option, We set a
seven-year guaranteed interest-rate.
When you select one of these options, your payment will earn interest at the
established rate for the applicable interest rate period. A new interest rate
period is established every time you allocate or transfer money into a fixed
interest-rate option. Transfers are not permitted to the DCA Option. You may
have money allocated in more than one interest rate period at the same time.
This could result in your money earning interest at different rates and each
interest rate period maturing at a different time. While these interest rates
may change from time to time, the minimum rate will never be less than 3.0%.
Payments that you apply to either of the fixed interest-rate options become
part of Pruco Life of New Jersey's general assets. As a result, the strength of
the interest rate guarantees is based on the overall financial strength of
Pruco Life of New Jersey. If Pruco Life of New Jersey suffered a material
financial set back, the ability of Pruco Life of New Jersey to meet its
financial obligations could be affected.
MARKET-VALUE ADJUSTMENT
If you transfer or withdraw assets or annuitize from the market-value
adjustment option before an interest rate period is over, the assets will be
subject to a market value adjustment. The market-value adjustment may increase
or decrease the amount being withdrawn or transferred and may be substantial.
The adjustment, whether up or down will never be greater than 40%. The amount of
the market-value adjustment is based on the difference between the:
1) Guaranteed interest rate for the amount you are withdrawing or transferring;
and
2) Interest rate that is in effect on the date of the withdrawal or transfer.
The amount of time left in the interest rate period is also a factor. You
will find a detailed description of how the market-value adjustment is
calculated on Page 28 of this prospectus.
DCA Fixed Option. You may allocate all or part of your first purchase payment
to the DCA Fixed Option. Under this option, you automatically transfer amounts
over a stated period (currently, six or twelve months) from the DCA Fixed
Option to the variable investment options you select. We will invest the assets
you allocate to the DCA Fixed Option in our general account until they are
trasferred. You may not transfer from other investment options to the DCA Fixed
Option. Currently, you may only allocate all or a portion of your initial
invested purchase payment to the DCA Fixed Option. In the future, we may permit
you to allocate subsequent purchase payments to the DCA Fixed Options as well
under certain circumstances.
If you choose the DCA Fixed Option, you must allocate a minimum of $5,000
to it. The first periodic transfer will occur on the date you allocate your
purchase payment to the DCA Fixed Option. Subsequent transfers will occur on the
monthly anniversary of the first transfer. Currently, you may choose to have the
purchase payment allocated to the DCA Fixed Option transfer in either six or
twelve monthly installments, and you may not change that number after you have
chosen the DCA Fixed Option. (In the future, we may make available other numbers
of transfers and other transfer schedules - for example, quarterly as well as
monthly.) If you choose a 6-payment transfer schedule, each transfer generally
will equal 1/6th of the amount you allocated to the DCA Fixed Option, and if you
choose a 12-payment transfer schedule, each transfer generally will equal 1/12th
of the amount you allocated to the DCA Fixed Option. In either case, the final
transfer amount generally will also include the credited interest. You may
change at any time the variable investment options into which to transfer the
DCA Fixed Option assets. Transfers from the DCA Fixed Option do not count toward
the maximum number of free transfers allowed under the contract.
If you make a withdrawal or have a fee assessed from your contract, and
all or part of that withdrawal or fee comes out of the DCA Fixed Option, we
will recalculate the periodic transfer amount to reflect the change. This
recalculation may include some or all of the interest credited to the date of
the next scheduled transfer. If a withdrawal or fee assessment reduces the
monthly transfer amount below $100, we will transfer the remaining balance in
the DCA Fixed Option on the next scheduled transfer date.
By investing amounts on a regular schedule instead of investing the total
amount at one time, the DCA Fixed Option may decrease the effect of market
fluctuations on the investment of your purchase payment. Of course, dollar cost
averaging cannot ensure a profit or protect against a loss in declining markets.
TRANSFERS AMONG OPTIONS
You can transfer money among the variable investment options and the fixed
interest-rate options. Your transfer request may be made by telephone or in
writing to the Prudential Annuity Service Center. Only two transfers per month
may be made by telephone. After that, all transfer requests must be in writing
with an original signature. We have procedures in place to confirm that
instructions received by telephone are genuine. We will not be liable for
following telephone instructions that we reasonably believe to be genuine. Your
transfer request will take effect at the end of the business day on which it was
received. Our business day usually closes at 4:00 p.m. Eastern time.
YOU CAN MAKE TRANSFERS OUT OF A FIXED INTEREST-RATE OPTION, OTHER THAN THE
DCA OPTION, ONLY DURING THE 30-DAY PERIOD FOLLOWING THE END OF AN INTEREST RATE
PERIOD. IF YOU TRANSFER MONEY FROM A MARKET-VALUE ADJUSTMENT OPTION AFTER THE
30-DAY PERIOD HAS ENDED, THE MONEY WILL BE SUBJECT TO A MARKET-VALUE ADJUSTMENT.
TRANSFERS FROM THE DCA OPTION ARE MADE ON A PERIODIC BASIS FOR THE PERIOD THAT
YOU SELECT.
During the contract accumulation phase, you can make 12 transfers each
contract year, among the investment options, without charge. If you make more
than 12 transfers in one contract year, you will be charged $25 for each
additional transfer. (Dollar Cost Averaging and Auto-Rebalancing transfers do
not count toward the 12 free transfers per year.)
OTHER AVAILABLE FEATURES
DOLLAR COST AVERAGING FEATURE
The dollar cost averaging (DCA) feature is distinct from the DCA Option. It is
a feature which allows you to systematically transfer either a fixed dollar
amount or a percentage out of any variable investment option or the one-year
fixed interest-rate option and into any variable investment option(s). You can
transfer money to more than one variable investment option. The investment
option used for the transfers is designated as the DCA account. If this
feature is elected, your assets are not allocated to the DCA Option. 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.
- --------------------------------------------------------------------------------
14
<PAGE> 17
- --------------------------------------------------------------------------------
Transfers must be at least $100 from your DCA account. After that, transfers
will continue automatically until the entire amount in your DCA account has been
transferred or until you tell us to discontinue the transfers. If your DCA
account balance drops below $100, the entire remaining balance of the account
will be transferred on the next transfer date. You can allocate subsequent
purchase payments to re-open the DCA account at any time.
Your transfers will be made on the last calendar day of each transfer period
you have selected, provided that the New York Stock Exchange is open on that
date. If the New York Stock Exchange is not open on a particular transfer date,
the transfer will take effect on the next business day.
Any transfers you make because of dollar cost averaging are not counted
toward the 12 free transfers you are allowed per year. This feature is available
only during the contract accumulation phase.
ASSET ALLOCATION PROGRAM
We recognize the value of having advice when deciding on the allocation of your
money. If you choose to participate in the Asset Allocation Program, your
financial professional will give you a questionnaire to complete that will help
determine a program that is appropriate for you. Your asset allocation will be
prepared based on your answers to the questionnaire. You will not be charged for
this service and you are not obligated to participate or to invest according to
program recommendations.
AUTO-REBALANCING
Once your money has been allocated among the variable investment options, the
actual performance of the investment options may cause your allocation to shift.
For example, an investment option that initially holds only a small percentage
of your assets could perform much better than another investment option. Over
time, this option could increase to a larger percentage of your assets than you
desire. You can direct us to automatically rebalance your assets to return to
your original allocation or to change allocations by selecting the
Auto-Rebalancing feature. The fixed interest-rate options and the DCA account
cannot participate in this feature.
Your rebalancing will be done monthly, quarterly, semiannually or annually
based on your choice. The rebalancing will be done on the last calendar day of
the period you have chosen, provided that the New York Stock Exchange is open on
that date. If the New York Stock Exchange is not open on that date, the
rebalancing will take effect on the next business day.
Any transfers you make because of Auto-Rebalancing are not counted toward
the 12 free transfers you are allowed per year. This feature is available only
during the contract accumulation phase. If you choose auto-rebalancing and
dollar cost averaging, auto-rebalancing will take place after the transfers from
your DCA account.
VOTING RIGHTS
We are the legal owner of the shares in the mutual funds associated with the
variable investment options. However, we vote the shares of the mutual funds
according to voting instructions we receive from contractowners. We will mail
you a proxy which is a form you need to complete and return to us to tell us how
you wish us to vote. When we receive those instructions, we will vote all of the
shares we own on your behalf in accordance with those instructions. We will
vote the shares for which we do not receive instructions, and shares that we
own, in the same proportion as the shares for which instructions are received.
We may change the way your voting instructions are calculated if it is required
by federal regulation.
SUBSTITUTION
We may substitute one or more of the mutual funds used by the variable
investment options. We may also cease to allow investments in existing funds. We
would do this only if events such as investment policy changes or tax law
changes make the mutual fund unsuitable. We would not do this without the
approval of the Securities and Exchange Commission and necessary state insurance
department approvals. You will be given specific notice in advance of any
substitution we intend to make.
- --------------------------------------------------------------------------------
15
<PAGE> 18
3:
WHAT KIND OF PAYMENTS WILL I RECEIVE DURING THE
INCOME PHASE?(ANNUITIZATION)
- --------------------------------------------------------------------------------
PAYMENT PROVISIONS
The annuitant can begin receiving annuity payments any time after the first
contract anniversary. Annuity payments must begin no later than the contract
anniversary that coincides with or follows the annuitant's 90th birthday.
You may choose among the income plans described below at any time before the
annuity date. These plans are called annuity options. During the income phase,
all of the annuity options under this contract are fixed annuity options. This
means that your participation in the variable investment options ends on the
annuity date. If you have not selected an annuity option by the annuity date,
the Interest Payment Option (Option 3, described below) will automatically be
selected unless prohibited by applicable law. ONCE THE ANNUITY PAYMENTS BEGIN,
YOU CANNOT CHANGE THE ANNUITY OPTION.
OPTION 1
ANNUITY PAYMENTS FOR A FIXED PERIOD
Under this option, we will make equal payments for a period you choose, up to 25
years. The annuity payments may be made monthly, quarterly, semiannually, or
annually for as long as the annuitant is alive. If the annuitant dies during the
income phase, a lump sum payment will be made to the beneficiary. The amount of
the lump sum payment is determined by calculating the present value of the
unpaid future payments. This is done by using the interest rate used to compute
the actual payments. The interest rate used will always be at least 3.50% a
year. For payment periods of 10 years or more, we will waive any withdrawal
charges that otherwise would have been applied.
OPTION 2
LIFE ANNUITY WITH 120 PAYMENTS (10 YEARS) CERTAIN
Under this option, we will make annuity payments to the annuitant monthly,
quarterly, semiannually, or annually as long as the annuitant is alive. If the
annuitant dies before we have made 10 years worth of payments, we will pay the
beneficiary the present value of the remaining annuity payments in one lump sum
unless the annuitant has specifically instructed that the remaining monthly
annuity payments continue to be paid to the beneficiary. The present value of
the remaining annuity payments is calculated by using the interest rate used to
compute the amount of the original 120 payments. The interest rate used will
always be at least 3.50% a year.
OPTION 3
INTEREST PAYMENT OPTION
Under this option, you can choose to have us hold all or a portion of your
contract value in order to accumulate interest. You can receive interest
payments on a monthly, quarterly, semiannual, or annual basis or you can allow
the interest to accrue on your contract assets. If you have not selected an
annuity option by the annuity date, this is the option we will automatically
select for you, unless prohibited by applicable law. Under this option, we will
pay you interest at an effective rate of at least 3.0% a year.
This option is not available if your contract is held in an Individual
Retirement Account.
OPTION 4
OTHER ANNUITY OPTIONS
We currently offer a variety of other annuity options not described above. At
the time you choose to receive your annuity payments, we may make available to
you any of the fixed annuity options that are offered at your annuity date.
You should be aware that depending on your contract date and the annuity
option you choose, you may have to pay withdrawal charges.
- --------------------------------------------------------------------------------
16
<PAGE> 19
4:
WHAT IS THE
DEATH BENEFIT?
- --------------------------------------------------------------------------------
THE DEATH BENEFIT FEATURE PROTECTS THE VALUE OF THE CONTRACT FOR THE
BENEFICIARY.
BENEFICIARY
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued, unless you
change it at a later date. Unless an irrevocable beneficiary has been named, you
can change the beneficiary at any time before the annuitant or last surviving
annuitant dies.
CALCULATION OF THE DEATH BENEFIT
If the annuitant (or the last surviving annuitant, if there are co-annuitants)
dies during the accumulation phase, we will, upon receiving appropriate proof of
death, pay a death benefit to the beneficiary designated by the contractowner.
If death is prior to age 80, the beneficiary will receive the greater of the
following:
o Current value of your contract (as of the time we receive appropriate proof
of death); or
o Guaranteed Minimum Death Benefit --
This is the highest value of the contract on any contract anniversary
date. This is called the step-up value. Between anniversary dates, the
step-up value is only increased by additional purchase payments and
reduced proportionally by withdrawals.
If death occurs on or after age 80, the beneficiary will receive the greater
of: 1) the current contract value as of the date that due proof of death is
received, and 2) the Guaranteed Minimum Death benefit as of age 80, increased by
additional purchase payments, and reduced proportionally by the withdrawals. For
this purpose, an annuitant is deemed to reach age 80 on the contract anniversary
on or following the annuitant's actual 80th birthday.
If the sole or older annuitant is age 80 or older at the time the contract
is issued, upon death, the beneficiary will receive the greater of: 1) current
contract value as of the date that due proof of death is received; and 2) the
total purchase payments reduced proportionally by withdrawals.
Here is an example of a proportional reduction:
If an owner withdrew 50% of a contract valued at $100,000 and if the step-up
value was $80,000, the new step-up value following the withdrawal would be
$40,000 or 50% of what it had been prior to the withdrawal.
If the contractowner and annuitant are not the same, the death benefit is
payable only in the event of the death of a sole annuitant or last surviving
annuitant, not the death of the contractowner.
This death benefit was enhanced in January, 1998, to provide for the
Guaranteed Minimum Death Benefit. Certain contractowners must have elected an
endorsement in order for this enhanced death benefit to apply. See the Statement
of Additional Information (SAI) for details.
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5:
HOW CAN I PURCHASE A
DISCOVERY SELECT 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. You can make additional purchase
payments of at least $1,000 or more at any time during the accumulation phase.
You must get our prior approval for any purchase payments over $2 million.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, we will allocate your purchase payment among the
variable investment options and the fixed interest-rate options based on the
percentages you choose. The percentage of your allocation to a specific
investment option can range in whole percentages from 0% to 100%. If, 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). (If
you allocated all or part of your initial payment to the DCA Fixed Option and
do not change your allocation instructions, we will treat your allocation
instructions for the DCA Fixed Option as part of your allocation instructions
for all subsequent purchase payments.) You may submit an allocation change
request at any time. Contact the Prudential Annuity Service Center for details.
We will credit the initial purchase payment to your contract within two
business days from the day on which the payment is received at the Prudential
Annuity Service Center. Our business day usually closes at 4:00 p.m. Eastern
time. If, however, your first payment is made without enough information for us
to set up your contract we may need to contact you to get the required
information. If we are not able to get this information within five business
days we will either return your purchase payment or get your consent to continue
holding it until we receive the necessary information. We will generally credit
each subsequent purchase payment as of the business day we receive it in good
order.
CALCULATING CONTRACT VALUE
The value of the variable portion of your contract will go up or down depending
on the investment performance of the variable investment option(s) you choose.
To determine the value of your contract, we use a unit of measure called an
accumulation unit. An accumulation unit works like a share of a mutual fund.
Every day we determine the value of an accumulation unit for each of the
variable investment options. We do this by:
1) Adding up the total amount of money allocated to a specific investment
option;
2) Subtracting from that amount insurance charges and any other applicable
charges; and
3) Dividing this amount by the number of outstanding accumulation units.
When you make a purchase payment, we credit your contract with accumulation
units relating to the variable investment options you have chosen. The number of
accumulation units credited to your contract is determined by dividing the
amount of the purchase payment allocated to an investment option by the unit
price of the accumulation unit for that investment option. We calculate the unit
price for each investment option after the New York Stock Exchange closes each
day and then credit your contract. The value of the accumulation units can
increase, decrease, or remain the same from day to day. The Accumulation Unit
Values chart provided in Appendix A to this prospectus gives you more detailed
information about the accumulation units of the variable investment options.
We cannot guarantee that the value of your contract will increase or that it
will not fall below the amount of your total purchase payments. However, we do
guarantee a minimum interest rate of 3.0% a year on that portion of the contract
value allocated to the fixed interest-rate options.
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6:
WHAT ARE THE EXPENSES ASSOCIATED WITH THE
DISCOVERY SELECT CONTRACT?
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THERE ARE CHARGES AND OTHER EXPENSES ASSOCIATED WITH THE CONTRACT THAT REDUCE
THE RETURN ON YOUR INVESTMENT. THESE CHARGES AND EXPENSES ARE DESCRIBED BELOW.
INSURANCE CHARGES
Each day, we makes a deduction for its insurance charges. The insurance charges
have two parts:
1) Mortality and expense risk charge
2) Administrative expense charge
1) MORTALITY AND EXPENSE RISK CHARGE
The mortality risk charge is for assuming the risk that the annuitant(s) will
live longer than expected based on our life expectancy tables. When this
happens, we pay a greater number of annuity payments. The expense risk charge is
for assuming that the current charges will be insufficient in the future to
cover the cost of administering the contract.
The mortality and expense risk charge is equal, on an annual basis, to 1.25%
of the daily value of the contract invested in the variable investment options,
after expenses have been deducted. This charge is not assessed against amounts
allocated to the interest-rate options.
If the charges under the contract are not sufficient, then we will bear the
loss. We do, however, expect to profit from this charge. The mortality and
expense risk charge cannot be increased. Any profits made from this charge may
be used by us to pay for the costs of distributing the contracts.
2) ADMINISTRATIVE EXPENSE CHARGE
This charge is for the expenses associated with the administration of the
contract. The administration of the contract includes preparing and issuing the
contract, establishing and maintaining contract records, issuing confirmations
and annual reports, personnel costs, legal and accounting fees, filing fees, and
systems costs.
This charge is equal, on an annual basis, to 0.15% of the daily value of the
contract invested in the variable investment options, after expenses have been
deducted.
ANNUAL CONTRACT FEE
During the accumulation phase, if your contract value is less than $50,000, we
will deduct $30 per contract year (this fee may differ in certain states). This
annual contract fee is used for administrative expenses and cannot be increased.
The $30 charge will be deducted proportionately from each of the contract's
investment options. This charge will also be deducted when you surrender your
contract if your contract value is less than $50,000.
WITHDRAWAL CHARGE
During the accumulation phase you can make withdrawals from your contract. When
you make a withdrawal, money will be taken first from your purchase payments for
purposes of determining withdrawal charges. When your purchase payments have
been used up, then we will take the money from your earnings. You will not have
to pay any withdrawal charge when you withdraw your earnings.
The withdrawal charge is for the payment of the expenses involved in
selling and distributing the contracts, including sales commissions, printing of
prospectuses, sales administration, preparation of sales literature and other
promotional activities. If the contract is sold under circumstances that reduce
the sales expenses, we may reduce or eliminate the withdrawal charge. For
example, a large group of individuals purchasing contracts or an individual who
already has a relationship with us may receive such a reduction.
You can withdraw up to 10% of your total purchase payments each contract
year without paying a withdrawal charge. This amount is referred to as the
"charge-free amount." If any of the charge-free amount is not used during a
contract year, it will be carried over to the next contract year. During the
first seven contract years, if your withdrawal of purchase payments is more than
the charge-free amount, a withdrawal charge will be applied. This charge is
based on your contract date.
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6:
DISCOVERY SELECT CONTRACT EXPENSES CONTINUED
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The following table shows the percentage of withdrawal charges that would
apply:
PERCENTAGE OF APPLICABLE WITHDRAWAL CHARGES
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During contract year 1 7%
During contract year 2 6%
During contract year 3 5%
During contract year 4 4%
During contract year 5 3%
During contract year 6 2%
During contract year 7 1%
After that 0%
Note: As of the beginning of the contract year, you may withdraw up to 10% of
the total purchase payments plus any charge-free amount carried over from the
previous contract year without charge. There is no withdrawal charge on any
amount used to provide income under the Life Annuity with 120 Payments (10
years) Certain Option. Surrender charges are waived when a death benefit is
paid. There will be a reduction in the withdrawal charge for contracts issued to
contractowners whose age is 84 and older.
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 impose a charge for these taxes until annuity payments begin. In
the few states that impose a tax, the current rates range up to 5.0%. If, in the
future, we are charged for additional taxes that are based on purchase payments,
that charge may be passed on to contractholders.
TRANSFER FEE
You can make 12 free transfers every year. We measure a year from the date we
issue your contract (contract date). If you make more than 12 transfers in a
year (excluding Dollar Cost Averaging and Auto-Rebalancing), we will deduct a
transfer fee of $25 for each additional transfer. The transfer fee will be
deducted proportionately from all the affected investment options. The transfer
fee is deducted before the market value adjustment, if any, is calculated.
COMPANY TAXES
We will pay the taxes on the earnings of the Separate Account. We are not
currently charging the Separate Account for taxes. We will periodically review
the issue of charging the Separate Account for these taxes, and may impose such
a charge in the future.
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7:
HOW CAN I
ACCESS MY MONEY?
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YOU CAN ACCESS YOUR MONEY BY:
o MAKING A WITHDRAWAL
(EITHER PARTIAL OR COMPLETE); OR
o ELECTING TO RECEIVE ANNUITY
PAYMENTS DURING THE INCOME PHASE.
YOU CAN MAKE WITHDRAWALS ONLY DURING THE ACCUMULATION PHASE
When you make a complete withdrawal, you will receive the value of your contract
on the day you made the withdrawal, less any applicable charges. We will
calculate the value of your contract, and charges, if any, as of the date we
receive your request in good order at the Prudential Annuity Service Center.
Unless you tell us otherwise, any partial withdrawal will be made
proportionately from all of the affected investment options and interest-rate
options you have selected. You will need our consent to make a
partial withdrawal if the requested withdrawal is less than $500.
We will generally pay the withdrawal amount, less any required tax
withholding, within seven days after we receive a properly completed withdrawal
request. We will deduct applicable charges, and apply a market-value adjustment,
if any, from the assets in your contract.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY
WITHDRAWAL YOU MAKE. FOR A MORE COMPLETE EXPLANATION, SEE SECTION 8 OF THIS
PROSPECTUS AND THE TAX DISCUSSION IN THE STATEMENT OF ADDITIONAL INFORMATION.
AUTOMATED WITHDRAWALS
We offer an Automated Withdrawal feature. This feature enables you to receive
periodic withdrawals in monthly, quarterly, semiannual or annual intervals. We
will process your withdrawals at the end of the business day at the intervals
you specify. We will continue at these intervals until you tell us otherwise.
You can make withdrawals from any designated investment option or
proportionally from all investment options. Market-value adjustments may apply.
Withdrawal charges may be deducted if the withdrawals in any contract year are
more than the charge-free amount. The minimum automated withdrawal amount you
can make is $250.
INCOME TAXES AND A 10% PENALTY TAX ON EARNINGS MAY APPLY TO AUTOMATED
WITHDRAWALS AS WELL AS ANY OTHER WITHDRAWALS MADE FROM YOUR CONTRACT.
SUSPENSION OF PAYMENTS OR TRANSFERS
We may be required to suspend or postpone payments made in connection with
withdrawals or transfers for any period when:
o The New York Stock Exchange is closed (other than customary weekend and
holiday closings);
o Trading on the New York Stock Exchange is restricted;
o An emergency exists during which sales of shares of the mutual funds are not
reasonable or we cannot reasonably value the accumulation units; or
o The Securities and Exchange Commission, by order, permits suspension or
postponement of payments for the protection of owners.
We expect to pay the amount of any withdrawal or transfer made from the
interest-rate options promptly upon request.
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8:
WHAT ARE THE TAX CONSIDERATIONS ASSOCIATED WITH THE
DISCOVERY SELECT CONTRACT?
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The tax considerations associated with the Discovery Select contact vary
depending on whether the contract is (i) owned by an individual and not
associated with a tax-favored retirement plan, or (ii) held under a tax-favored
plan. We discuss the tax considerations for these categories of contracts below.
The discussion is general in nature and describes only federal income tax law
(not state or other tax laws). It is based on current law and interpretations,
which may change. It is not intended as tax advice. A qualified tax adviser
should be consulted for complete information and advice.
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, you will be treated, for tax purposes, as surrendering your
contract.
If you transfer your contract for less than full consideration, such as by
gift, you will trigger tax on the gain in the contract. This rule does not apply
if you transfer the contract to your spouse or incident to divorce.
TAXES ON ANNUITY PAYMENTS
A portion of each annuity payment you receive will be treated as a partial
return of your purchase payments and will not be taxed. The remaining portion
will be taxed as ordinary income. Generally, the nontaxable portion is
determined by multiplying the annuity payment you receive by a fraction, the
numerator of which is your purchase payments (less any amounts previously
received tax-free) and the denominator of which is the total expected payments
under the contract.
After the full amount of your purchase payments have been recovered
tax-free, the full amount of the annuity payments will be taxable. If annuity
payments stop due to the death of the annuitant before the full amount of your
purchase payments have been recovered, a tax deduction is allowed for the
unrecovered amount.
PENALTY TAXES ON WITHDRAWALS AND ANNUITY PAYMENTS
Any taxable amount you receive under your contract may be subject to a 10
percent penalty tax. Amounts are not subject to this penalty tax if:
o the amount is paid on or after you reach age 59-1/2 or die;
o the amount received is attributable to your becoming disabled;
o the amount paid or received is in the form of level annuity payments not
less frequently than annually under a lifetime annuity; and
o the amount received is paid under an immediate annuity contract (in which
annuity payments begin within one year of purchase).
If you modify the lifetime annuity payment stream (other than as a result of
death or disability) before you reach age 59-1/2 (or before the end of the five
year period beginning with the first payment and ending after you reach age
59-1/2), your tax for the year of modification will be increased by the penalty
tax that would have been imposed without the exception, plus interest for the
deferral.
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TAXES PAYABLE BY BENEFICIARIES
Generally, the same tax rules apply to amounts received by your beneficiary as
those set forth above with respect to you. The election of an annuity payment
option instead of a lump sum death benefit may defer taxes. Certain minimum
distribution requirements apply upon your death, as discussed further below.
WITHHOLDING OF TAX FROM DISTRIBUTIONS
Taxable amounts distributed from your annuity contracts are subject to tax
withholding. You may generally elect not to have tax withheld from your
payments. These elections must be made on the appropriate 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 contractowner, must have sufficient control over the
underlying assets to be treated as the owner of the underlying assets for tax
purposes. We believe these rules, which are further discussed in the Statement
of Additional Information, will be met.
REQUIRED DISTRIBUTIONS UPON YOUR DEATH Upon your death (or the death of a joint
owner, if earlier), certain distributions must be made under the contract. The
required distributions depend on whether you die on or before you start taking
annuity payments under the contract or after you start taking annuity payments
under the contract.
If you die on or after the annuity date, the remaining portion of the
interest in the contract must be distributed at least as rapidly as under the
method of distribution being used as of the date of death.
If you die before the annuity date, the entire interest in the contract must
be distributed within 5 years after the date of death. However, if an annuity
payment option is selected by your designated beneficiary and if annuity
payments begin within 1 year of your death, the value of the contract may be
distributed over the beneficiary's life or a period not exceeding the
beneficiary's life expectancy. Your designated beneficiary is the person to whom
ownership of the contract passes by reason of death, and must be a natural
person.
If any portion of the contract is payable to (or for the benefit of) your
surviving spouse, such portion of the contract may be continued with your spouse
as the owner.
CHANGES IN THE CONTRACT We reserve the right to make any changes we deem
necessary to assure that the contract qualifies as an annuity contract for tax
purposes. Any such changes will apply to all contractowners and you will be
given notice to the extent feasible under the circumstances.
ADDITIONAL INFORMATION
You should refer to the Statement of Additional Information if:
o The contract is held by a corporation or other entity instead of by an
individual or as agent for an individual.
o Your contract was issued in exchange for a contract containing purchase
payments made before August 14, 1982.
o You are a nonresident alien.
o You transfer your contract to, or designate, a beneficiary who is either
37-1/2 years younger than you or a grandchild.
o You wish additional information on withholding taxes.
CONTRACTS HELD BY TAX FAVORED PLANS
Currently, the contract may be purchased for use in connection with individual
retirement accounts and annuities ("IRAs") which are subject to Sections 408(a),
408(b) and 408A of the Code. At some future time we may allow the contract to be
purchased in connection with other retirement arrangements which are also
entitled to favorable federal income tax treatment ("tax favored plans"). These
other tax favored plans include:
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8:
TAX CONSIDERATIONS ASSOCIATED WITH THE DISCOVERY SELECT CONTRACT CONTINUED
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o Simplified employee pension plans ("SEPs") under Section 408(k) of the Code;
o Saving incentive match plans for employees-IRAs ("SIMPLE-IRAs") under
Section 408(p) of the Code; and
o Tax-deferred annuities ("TDAs") under Section 403(b) of the Code.
This description assumes that (i) we will be offering this to both IRA and
non-IRA tax favored plans, and (ii) you have satisfied the general requirements
for eligibility for these products.
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.
IRAS If you buy a contract for use as an IRA, we will provide you a copy of the
prospectus and the contract. The IRA Disclosure Statement on page ___ 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 greater, the amount credited under the contract, calculated
as of the valuation period that we receive this cancellation notice).
Contributions Limits/Rollovers: Because of the way the contract is designed,
you may only purchase a contract for an IRA in connection with a "rollover" of
amounts from a qualified retirement plan. You must make a minimum initial
payment of $10,000 to purchase a contract. This minimum is greater than the
maximum amount of any annual contribution you may make to an IRA (which is
generally $2,000/year). The "rollover" rules under the Code are fairly
technical; however, an individual (or his or her surviving spouse) may generally
"roll over" certain distributions from tax favored retirement plans (either
directly or within 60 days from the date of these distributions) if he or she
meets the requirements for distribution. Once you buy the contract, you can make
regular IRA contributions under the contract (to the extent permitted by
law). However, if you make such regular IRA contributions, you should note that
you will not be able to treat the contract as a "conduit IRA," which means that
you will not be able subsequently to "roll over" the contract funds into another
Section 401(a) plan or TDA (although you may be able to transfer the funds to
another IRA).
Required Provisions: Contracts that are IRAs (or endorsements that are part
of the contract) must contain certain provisions:
o You, as owner of the contract, must be the "annuitant" under the contract
(except in certain cases involving the division of property under a decree
of divorce); o Your rights as owner are non-forfeitable;
o You cannot sell, assign or pledge the contract, other than to us;
o The annual premium you pay cannot be greater than $2,000 (which does not
include any rollover amounts);
o The date on which annuity payments must begin cannot be later than the April
1st of the calendar year after the calendar year you turn age 70-1/2; and
o Death and annuity payments must meet "minimum distribution requirements"
(described below).
Usually, the full amount of any distribution from an IRA (including a
distribution from this contract) which is not a rollover is taxable. As taxable
income, these distributions are subject to the general tax withholding rules
described earlier. In addition to this normal tax liability, you may also be
liable for the following, depending on your actions:
o A 10% "early distribution penalty" (described below);
o Liability for "prohibited transactions" if you, for example, borrow against
the value of an IRA; or
o Failure to take a minimum distribution (also generally described below).
SEPS SEPs are a variation on a standard IRA, and contracts issued to a SEP must
satisfy the same general requirements described under IRAs (above). There are,
however, some differences:
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o If you participate in a SEP, you generally do not include into income any
employer contributions made to the SEP on your behalf up to the lesser of
(a) $30,000 or (b) 15% of the employee's earned income (not including the
employer contribution amount as "earned income" for these purposes).
However, for these purposes, compensation in excess of certain limits
established by IRS will not be considered. In 2000, this limit is $170,000;
o SEPs must satisfy certain participation and nondiscrimination requirements
not generally applicable to IRAs; and
o Some SEPs for small employers permit salary deferrals (up to $10,500 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:
o 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
o 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:
o Contributions to a Roth IRA cannot be deducted from your gross income;
o "Qualified distributions" (generally, held for 5 years and payable on
account of death, disability, attainment of age 59-1/2, or first
time-homebuyer) from Roth IRAs are excludable from your gross income; and
o If eligible, you may make contributions to a Roth IRA after attaining age
70-1/2, and distributions are not required to begin upon attaining such age
or at any time thereafter.
Because the contract's minimum initial payment of $10,000 is greater than
the maximum annual contribution permitted to be made to a Roth IRA (generally,
$2,000 less any contributions to a traditional IRA), you may purchase a contract
as a Roth IRA only in connection with a "rollover" or "conversion" of the
proceeds of another traditional IRA, conduit IRA, SEP, SIMPLE-IRA, or Roth IRA.
The Code permits persons who meet certain income limitations (generally,
adjusted gross income under $100,000), and who receive certain qualifying
distributions from such non-Roth IRAs, to directly rollover or make, within 60
days, a "rollover" of all or any part of the amount of such distribution to a
Roth IRA which they establish. This conversion triggers current taxation (but is
not subject to a 10% early distribution penalty). Once the contract has been
purchased, regular Roth IRA contributions will be accepted to the extent
permitted by law.
TDAS You may own a TDA generally if you are either an employer or employee of a
tax-exempt organization (as defined under Code Section 501(c)(3)) or a public
educational organization, you may make contributions to a TDA so long as the
employee's rights to the annuity are nonforfeitable. Contributions to a TDA, and
any earnings, are not taxable until distribution. You may also make
contributions to a TDA under a salary reduction agreement, generally up to a
maximum of $10,500 (2000, indexed). Further, you may roll over TDA amounts to
another TDA or an IRA.
A contract may only qualify as a TDA if distributions (other than
"grandfathered" amounts held as of
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TAX CONSIDERATIONS ASSOCIATED WITH THE DISCOVERY SELECT CONTRACT CONTINUED
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December 31, 1988) may be made only on account of:
o Your attainment of age 59-1/2;
o Your severance of employment;
o Your death;
o Your total and permanent disability; OR
o Hardship (under limited circumstances, and only related to salary deferrals
and any earnings attributable to these amounts).
In any event, you must begin receiving distributions from your TDA by April
1st of the calendar year after the calendar year you turn age 70-1/2 or retire,
whichever is later.
These distribution limits do not apply either to transfers or exchanges of
investments under the contract, or to any "direct transfer" of your interest in
the contract to another TDA or to a mutual fund "custodial account" described
under Code Section 403(b)(7).
Employer contributions to TDAs are subject to the same general contribution,
nondiscrimination, and minimum participation rules applicable to "qualified"
retirement plans.
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:
o 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
o For all other distributions, you will be withheld at a 10% rate.
We will provide you with forms and instructions concerning the right to
elect that no amount be withheld from payments in the ordinary course. However,
you should know that, in any event, you are liable for payment of federal income
taxes on the taxable portion of the distributions, and you should consult with
your tax advisor to find out more information on your potential liability if you
fail to pay such taxes.
ERISA DISCLOSURE/REQUIREMENTS
ERISA (the "Employee Retirement Income Security Act of 1974") and the Code
prevents a fiduciary and other "parties in interest" with respect to a plan
(and, for these purposes, an IRA would also constitute a "plan") from receiving
any benefit from any party dealing with the plan, as a result of the sale of the
contract Administrative exemptions under ERISA generally permit the sale of
insurance/annuity products to plans, provided that certain information is
disclosed to the person purchasing the contract. This information has to do
primarily
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with the fees, charges, discounts and other costs related to the contract, as
well as any commissions paid to any agent selling the contract.
Information about any applicable fees, charges, discounts, penalties or
adjustments may be found under "What Are the Expenses Associated with the
Discovery Select Contract" starting on page 13. Information about sales
representatives and commissions may be found under "Other Information and "Sale
and Distribution of the Contract".
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 35.
- --------------------------------------------------------------------------------
27
<PAGE> 30
9:
OTHER
INFORMATION
- --------------------------------------------------------------------------------
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Pruco Life Insurance Company of New Jersey is a stock life insurance company
organized in 1982 under the laws of the State of New Jersey. Pruco Life of New
Jersey is licensed to sell life insurance and annuities in the states of New
Jersey and New York and therefore is subject to the insurance laws and
regulations of those states where it is licensed to do business. Pruco Life of
New Jersey is a wholly-owned subsidiary of Pruco Life Insurance Company, which
is a wholly-owned subsidiary of The Prudential Life Insurance Company of America
(Prudential), a mutual insurance company founded in 1875 under the laws of the
State of New Jersey.
Pruco Life of New Jersey publishes annual and quarterly reports that are filed
with the SEC. These reports contain financial information about Pruco Life of
New Jersey that is annually audited by independent accountants. The most recent
annual report is contained in the SAI. While Pruco Life of New Jersey's annual
report is not ordinarily mailed to contractholders, you can obtain a copy at no
cost by calling us at our number listed on the cover. This information, together
with all the more current reports filed with the SEC as required by section 15
of the Exchange Act of 1934, is legally a part of this prospectus.
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 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 (Separate Account), to hold the assets that are
associated with the contracts. The Separate Account was established under New
Jersey law on May 20, 1996, and is registered with the U.S. Securities and
Exchange Commission under the Investment Company Act of 1940, as a unit
investment trust, which is a type of investment company. The assets of the
Separate Account are held in the name of Pruco Life of New Jersey and legally
belong to us. These assets are kept separate from all of our other assets and
may not be charged with liabilities arising out of any other business we may
conduct. More detailed information about Pruco Life of New Jersey, including its
audited financial statements, is provided in the Statement of Additional
Information.
SALE AND DISTRIBUTION OF THE CONTRACT
Prudential Investment Management Services LLC ("PIMS"), 100 Mulberry Street,
Newark, New Jersey 07102-4077, acts as the distributor of the contracts. PIMS is
a wholly-owned subsidiary of Prudential and is a limited liability corporation
organized under Delaware law in 1996. It is a registered broker-dealer under the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. Commissions for the sales of contracts are paid to
- --------------------------------------------------------------------------------
28
<PAGE> 31
- --------------------------------------------------------------------------------
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.
ASSIGNMENT
You can assign the contract at any time during your lifetime. We will not be
bound by the assignment until we receive written notice. We will not be liable
for any payment or other action we take in accordance with the contract if that
action occurs before we receive notice of the assignment. An assignment, like
any other change in ownership, may trigger a taxable event.
If the contract is issued under a qualified plan, there may be limitations
on your ability to assign the contract. For further information please speak to
your financial professional.
FINANCIAL STATEMENTS
The financial statements of the Separate Account associated with Discovery
Select are included in the Statement of Additional Information.
- --------------------------------------------------------------------------------
29
<PAGE> 32
OTHER INFORMATION CONTINUED
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
Contents:
o Company
o Experts
o Litigation
o Legal Opinions
o Principal Underwriter
o Determination of Accumulation Unit Values
o Performance Information
o Comparative Performance Information
o Further Information about the Death Benefit
o Federal Tax Status
o Financial Information
- --------------------------------------------------------------------------------
30
<PAGE> 33
ACCUMULATION UNIT VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUES: AS A PERCENTAGE OF EACH FUND'S AVERAGE DAILY NET ASSETS
ACCUMULATION UNIT VALUE ACCUMULATION UNIT VALUE NUMBER OF ACCUMULATION UNITS
AT BEGINNING OF PERIOD AT END OF PERIOD OUTSTANDING AT END OF PERIOD
<S> <C> <C> <C>
PRUDENTIAL DIVERSIFIED BOND PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.05924 $1.13525 4,451,359
1/1/98 TO 12/31/98 $1.13525 $1.19977 28,376,932
1/1/99 TO 12/31/99 $1.19977 $1.17457 45,438,932
PRUDENTIAL DIVERSIFIED CONSERVATIVE GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/1/99* TO 12/31/99 $0.99960 $1.05128 7,816,513
PRUDENTIAL EQUITY INCOME PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.24933 $1.66167 5,978,495
1/1/98 TO 12/31/98 $1.66167 $1.59960 25,310,440
1/1/99 TO 12/31/99 $1.59960 $1.77516 27,398,451
PRUDENTIAL EQUITY PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.23280 $1.48518 9,062,852
1/1/98 TO 12/31/98 $1.48518 $1.60144 27,877,412
1/1/99 TO 12/31/99 $1.60144 $1.77642 38,608,928
PRUDENTIAL GLOBAL PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.20025 $1.26079 1,544,582
1/1/98 TO 12/31/98 $1.26079 $1.55516 3,115,243
1/1/99 TO 12/31/99 $1.55516 $2.27423 6,113,646
PRUDENTIAL HIGH YIELD BOND PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.12690 $1.25972 5,397,207
1/1/98 TO 12/31/98 $1.25972 $1.21296 23,777,679
1/1/99 TO 12/31/99 $1.21296 $1.25119 28,531,566
PRUDENTIAL MONEY MARKET PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.04778 $1.08688 5,366,453
1/1/98 TO 12/31/98 $1.08688 $1.12985 16,317,010
1/1/99 TO 12/31/99 $1.12985 $1.16977 24,579,687
PRUDENTIAL JENNISON PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.19836 $1.48006 4,356,135
1/1/98 TO 12/31/98 $1.48006 $2.00651 19,579,080
1/1/99 TO 12/31/99 $2.00651 $2.81446 37,559,381
PRUDENTIAL SMALL CAPITALIZATION STOCK PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
9/1/98* TO 12/31/98 $1.02621 $1.25353 514,051
1/1/99 TO 12/31/99 $1.25353 $1.39319 3,488,013
PRUDENTIAL STOCK INDEX PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.18151 $1.48876 8,543,943
1/1/98 TO 12/31/98 $1.48876 $1.88540 25,485,050
1/1/99 TO 12/31/99 $1.88540 $2.24149 38,786,276
PRUDENTIAL 20/20 FOCUS PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/1/99* TO 12/31/99 $0.99960 $1.17842 4,526,683
AIM VI GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.08005 $1.28644 2,414,429
1/1/98 TO 12/31/98 $1.28644 $1.61976 5,636,579
1/1/99 TO 12/31/99 $1.61976 $2.14458 8,448,068
AIM VI VALUE FUND
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.06636 $1.27997 2,687,877
1/1/98 TO 12/31/98 $1.27997 $1.67125 6,623,349
1/1/99 TO 12/31/99 $1.67125 $2.14096 13,867,703
AMERICAN CENTURY VP VALUE FUND
- ------------------------------------------------------------------------------------------------------------------------------
9/1/98* TO 12/31/98 $1.02098 $1.17305 122,871
1/1/99 TO 12/31/99 $1.17305 $1.14715 2,092,340
THIS CHART CONTINUES ON THE NEXT PAGE
- --------------------------------------------------------------------------------
31
</TABLE>
<PAGE> 34
ACCUMULATION UNIT VALUES CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUES (CONTINUED): AS A PERCENTAGE OF EACH FUND'S AVERAGE DAILY NET ASSETS
ACCUMULATION UNIT VALUE ACCUMULATION UNIT VALUE NUMBER OF ACCUMULATION UNITS
AT BEGINNING OF PERIOD AT END OF PERIOD OUTSTANDING AT END OF PERIOD
<S> <C> <C> <C>
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
FRANKLIN SMALL CAP INVESTMENTS FUND - CLASS 2
- ------------------------------------------------------------------------------------------------------------------------------
9/1/98* TO 12/31/98 $1.00945 $1.24477 253,350
1/1/99 TO 12/31/99 $1.24477 $2.14040 1,955,833
JANUS ASPEN SERIES GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.04112 $1.22056 2,360,624
1/1/98 TO 12/31/98 $1.22056 $1.63278 6,145,905
1/1/99 TO 12/31/99 $1.63278 $2.31865 13,375,166
JANUS ASPEN SERIES INTN'L GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.07728 $1.23121 3,626,939
1/1/98 TO 12/31/98 $1.23121 $1.42337 7,490,614
1/1/99 TO 12/31/99 $1.42337 $2.55865 10,899,400
MFS EMERGING GROWTH SERIES
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $0.99843 $1.15186 2,636,905
1/1/98 TO 12/31/98 $1.15186 $1.52386 8,147,991
1/1/99 TO 12/31/99 $1.52386 $2.65585 11,792,762
MFS RESEARCH SERIES
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.05478 $1.21695 2,159,262
1/1/98 TO 12/31/98 $1.21695 $1.48048 4,582,935
1/1/99 TO 12/31/99 $1.48048 $1.81149 5,510,866
OCC ACCUMULATION TRUST MANAGED PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.08859 $1.26668 7,302,011
1/1/98 TO 12/31/98 $1.26668 $1.34022 21,770,163
1/1/99 TO 12/31/99 $1.34022 $1.38780 23,288,748
OCC ACCUMULATION TRUST SMALL CAP PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.05425 $1.26710 2,630,491
1/1/98 TO 12/31/98 $1.26710 $1.13668 6,811,750
1/1/99 TO 12/31/99 $1.13668 $1.10051 7,804,349
T. ROWE PRICE EQUITY INCOME PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.07051 $1.33212 3,846,266
1/1/98 TO 12/31/98 $1.33212 $1.43277 9,576,908
1/1/99 TO 12/31/99 $1.43277 $1.46583 11,645,491
T. ROWE PRICE INTN'L SERIES - INTN'L STOCK PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $1.02164 $1.05690 1,286,791
1/1/98 TO 12/31/98 $1.05690 $1.20747 2,623,440
1/1/99 TO 12/31/99 $1.20747 $1.58765 3,593,199
WARBURG PINCUS TRUST GLOBAL POST-VENTURE CAPITAL PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1/24/97* TO 12/31/97 $0.98396 $1.07018 624,929
1/1/98 TO 12/31/98 $1.07018 $1.12410 1,555,894
1/1/99 TO 12/31/99 $1.12410 $1.81263 2,104,691
* COMMENCEMENT OF BUSINESS
</TABLE>
- --------------------------------------------------------------------------------
32
<PAGE> 35
MARKET-VALUE
ADJUSTMENT FORMULA
- --------------------------------------------------------------------------------
MARKET-VALUE ADJUSTMENT FORMULA
The Market-Value Adjustment, which is applied to withdrawals and transfers
made at any time other than the 30-day period following the end of an interest
rate period, involves three amounts:
1) The number of whole months remaining in the existing interest rate period.
2) The guaranteed interest rate.
3) The interest rate that Pruco Life declares for a duration of one year longer
than the number of whole years remaining on the existing cell being
withdrawn from.
STATED AS A FORMULA, THE MARKET VALUE IS EQUAL TO:
(M/12) X (R-C)
NOT TO EXCEED +0.40 OR BE LESS THAN -0.40; WHERE,
- --------------------------------------------------------------------------------
M = the number of whole months (not to be less than one) remaining in the
interest-rate period.
R = the Contract's guaranteed interest-rate expressed as a decimal. Thus 6.2% is
converted to 0.062.
C = the interest-rate, expressed as a decimal, that Pruco Life declares for a
duration equal to the number of whole years remaining in the present
interest-rate period, plus 1 year as of the date the request for a
withdrawal or transaction is received.
- --------------------------------------------------------------------------------
The Market-Value Adjustment is then equal to the Market Value Factor multiplied
by the amount subject to a Market-Value Adjustment.
STEP BY STEP
THE STEPS BELOW EXPLAIN HOW A MARKET-VALUE ADJUSTMENT IS CALCULATED.
STEP 1: Divide the number of whole months left in the existing interest rate
period (not to be less than one) by 12.
STEP 2: Divide the interest rate Pruco Life declares on the date the request for
withdrawal or transfer is received for a duration of years equal to the whole
number of years determined in Step 1, plus 1 additional year. Subtract this
interest rate from the guaranteed interest rate. The result could be negative.
STEP 3: Multiply the results of Step 1 and Step 2. Again, the result could be
negative. If the result is less than -0.4, use the value -0.4. If the result is
in between -0.4 and 0.4, use the actual value. If the result is more than 0.4,
use the value 0.4.
STEP 4: Multiply the result of Step 3 (which is the Market Value Factor) by the
value of the amount subject to a Market-Value Adjustment. The result is the
Market-Value Adjustment.
STEP 5: The result of Step 4 is added to the interest cell. If the Market-Value
Adjustment is positive, the interest cell will go up in value. If the
Market-Value Adjustment is negative, the interest cell will go down in value.
DEPENDING UPON WHEN THE WITHDRAWAL REQUEST IS MADE, A WITHDRAWAL CHARGE MAY
APPLY.
THE FOLLOWING EXAMPLE WILL ILLUSTRATE THE APPLICATION OF A MARKET-VALUE
ADJUSTMENT AND THE DETERMINATION OF THE WITHDRAWAL CHARGE:
SUPPOSE A CONTRACTOWNER MADE TWO INVESTED PURCHASE PAYMENTS, THE FIRST IN THE
AMOUNT OF $10,000 ON DECEMBER 1, 1995, ALL OF WHICH WAS ALLOCATED TO THE EQUITY
SUBACCOUNT, AND THE SECOND IN THE AMOUNT OF $5,000 ON OCTOBER 1, 1997, ALL OF
WHICH WAS ALLOCATED TO THE MVA OPTION WITH A GUARANTEED INTEREST RATE OF 8%
(0.08) FOR 7 YEARS. A REQUEST FOR WITHDRAWAL OF $8,500 IS MADE ON FEBRUARY 1,
2000 (THE CONTRACT OWNER DOES NOT PROVIDE ANY WITHDRAWAL INSTRUCTIONS). ON THAT
DATE THE AMOUNT IN THE EQUITY SUBACCOUNT IS EQUAL TO $12,000 AND THE AMOUNT IN
THE INTEREST CELL WITH A MATURITY DATE OF SEPTEMBER 30, 2004 IS $5,985.23, SO
THAT THE CONTRACT FUND ON THAT DATE IS EQUAL TO $17,985.23.
ON FEBRUARY 1, 2000, THE INTEREST RATES DECLARED BY PRUCO LIFE FOR THE
DURATION OF 5 YEARS (4 WHOLE YEARS REMAINING UNTIL SEPTEMBER 30, 2004, PLUS 1
YEAR) IS 11%.
- --------------------------------------------------------------------------------
33
<PAGE> 36
MARKET-VALUE ADJUSTMENT FORMULA CONTINUED
- --------------------------------------------------------------------------------
THE FOLLOWING COMPUTATIONS WOULD BE MADE:
1) Calculate the Contract Fund value as of the effective date of the
transaction. This would be $17,985.23.
2) Calculate the charge-free amount (the amount of the withdrawal that is not
subject to a withdrawal charge).
DATE PAYMENT FREE
-------------------------------------------------
12/1/95 $10,000 $1,000
12/1/96 $2,000
10/1/97 $5,000 $2,500
12/1/97 $4,000
12/1/98 $5,500
12/1/99 $7,000
The charge-free amount in the fifth Contract year is 10% of $15,000 (total
purchase payments) plus $5,500 (the charge-free amount available in the
fourth Contract year) for a total of $7,000.
3) Since the withdrawal request is in the fifth Contract year, a 3% withdrawal
charge rate applies to any portion of the withdrawal which is not
charge-free.
-------------------------------------------------
$8,500.00 REQUESTED WITHDRAWAL AMOUNT
-$7,000.00 CHARGE-FREE
-------------------------------------------------
$1,500.00 ADDITIONAL AMOUNT NEEDED TO
COMPLETE WITHDRAWAL
The Contract provides that the Contract Fund will be reduced by an amount
which, when reduced by the withdrawal charge, will equal the amount
requested. Therefore, in order to produce the amount needed to complete the
withdrawal request ($1,500), we must "gross-up" that amount, before applying
the withdrawal charge rate. This is done by dividing by 1 minus the
withdrawal charge rate.
-------------------------------------------------
$1,500.00 / (1-.03) =
$1,500.00 / 0.97 = $1,546.39 GROSSED-UP AMOUNT
Please note that a 3% withdrawal charge on this grossed-up amount reduces it
to $1,500, the balance needed to complete the request.
-------------------------------------------------
$1,546.39 GROSSED-UP AMOUNT
X .03 WITHDRAWAL CHARGE RATE
-------------------------------------------------
$46.39 WITHDRAWAL CHARGE
4) The Market Value Factor is determined as described in steps 1 through 5,
above. In this case, it is equal to 0.08 (8% is the guaranteed rate in the
existing cell) minus 0.11 (11% is the interest-rate that would be offered
for an interest cell with a duration of the remaining whole years plus 1),
which is -0.03, multiplied by 4.58333 (55 months remaining until September
30, 2004, divided by 12) or -0.13750. Thus, there will be a negative
Market-Value Adjustment of 14% of the amount in the interest cell that is
subject to the adjustment.
-------------------------------------------------
-0.13750 X $5,985.23 =
-------------------------------------------------
-822.97 NEGATIVE MVA
$5,985.23 UNADJUSTED VALUE
-------------------------------------------------
$5,162.26 ADJUSTED VALUE
$12,000.00 EQUITY VALUE
-------------------------------------------------
$17,162.26 ADJUSTED CONTRACT FUND
5) The total amount to be withdrawn, $8,546.39, (sum of the surrender charge,
$46.39, and the requested withdrawal amount of $8,500) is apportioned over
all accounts making up the Contract Fund following the Market-Value
Adjustments, if any, associated with the MVA option.
--------------------------------------------------
EQUITY
($12,000/$17,162.26) X $8,546.39 = $5,975.71
--------------------------------------------------
7-YR MVA
($5,162.26/$17,162.26) X $8,546.39= $2,570.68
---------
$8,546.39
6) The adjusted value of the interest cell, $5,162.26, reduced by the
withdrawal of $2,570.68 leaves $2,591.58. This amount must be "unadjusted"
by dividing it by 0.86250 (1 plus the Market-Value Adjustment of -0.13750)
to determine the amount remaining in the interest cell to which the
guaranteed interest-rate of 8% will continue to be credited until September
30, 2004 or a subsequent withdrawal. That amount is $3,004.73.
- --------------------------------------------------------------------------------
34
<PAGE> 37
IRA DISCLOSURE STATEMENT
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
35
<PAGE> 38
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.
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.
<PAGE> 39
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 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
<PAGE> 40
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.
<PAGE> 41
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 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
<PAGE> 42
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.
<PAGE> 43
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM VARIABLE ANNUITY ACCOUNT
VARIABLE ANNUITY CONTRACTS
The DISCOVERY SELECT(R) Annuity Contract* (the "contract") is an individual
variable annuity contract issued by the Pruco Life Insurance Company of New
Jersey ("Pruco Life of New Jersey"), a stock life insurance company that is 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 Select 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
EXPERTS.....................................................................2
LITIGATION..................................................................2
LEGAL OPINIONS..............................................................2
PRINCIPAL UNDERWRITER.......................................................2
DETERMINATION OF SUBACCOUNT UNIT VALUES.....................................2
PERFORMANCE INFORMATION.....................................................3
COMPARATIVE PERFORMANCE INFORMATION.........................................6
FURTHER INFORMATION ABOUT THE DEATH BENEFIT.................................6
FEDERAL TAX STATUS..........................................................8
SEPARATE ACCOUNT FINANCIAL INFORMATION......................................A1
COMPANY FINANCIAL INFORMATION...............................................B1
FURTHER INFORMATION ABOUT PRUCO LIFE OF NEW JERSEY..........................C1
</TABLE>
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY PRUDENTIAL ANNUITY SERVICE CENTER
213 WASHINGTON STREET P.O. BOX 14215
NEWARK, NEW JERSEY 07102-2992 NEW BRUNSWICK, NEW JERSEY 08906
TELEPHONE: (888) PRU-2888
* DISCOVERY SELECT is a service mark of Prudential.
ORD96639NY1B
1
<PAGE> 44
COMPANY
Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey") is a
stock life insurance company organized in 1982 under the laws of the State of
New Jersey. Pruco Life of New Jersey is licensed to sell life insurance and
annuities in the states of New Jersey and New York.
Pruco Life of New Jersey is a wholly-owned subsidiary of Pruco Life 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.
EXPERTS
The financial statements of Pruco Life of New Jersey as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31, 1999 and
the financial statements of the Pruco Life of New Jersey Flexible Premium
Variable Annuity Account as of December 31, 1999 and for each of the two
years in the period ended December 31, 1999 included in this Statement
of Additional Information have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting. PricewaterhouseCoopers LLP's
principal business address is 1177 Avenue of the Americas, New York, New York,
10036.
LITIGATION
We are subject to legal and regulatory actions in the ordinary course of our
businesses, including class actions. Pending legal regulatory actions include
proceedings specific to our practices and proceedings generally applicable to
business practices in the industries in which we operate. As an example of such
litigation, in March, 2000, plaintiffs filed a purported class action against us
titled Olmsted v. Pruco Life Insurance Company of New Jersey and The Prudential
Insurance Company of America, alleging that certain fees and expenses charged to
the plaintiffs in connection with the sale of variable annuities since March 1,
1997 were excessive and unreasonable. In certain of these lawsuits, large and/or
indeterminate amounts are sought, including punitive or exemplary damages.
In particular, Pruco Life and Prudential have been subject to substantial
regulatory actions and civil litigation involving individual life insurance
sales practices. In 1996, Prudential, on behalf of itself and many of its life
insurance subsidiaries including Pruco Life, entered into settlement agreements
with relevant insurance regulatory authorities and plaintiffs in the principal
life insurance sales practices class action lawsuit covering policyholders of
individual permanent life insurance policies issued in the United States from
1982 to 1995. Pursuant to the settlements, the companies agreed to various
changes to their sales and business practices controls and a series of fines,
and are in the process of distributing final remediation relief to eligible
class members. In many instances, claimants have the right to "appeal" the
decision to an independent reviewer. The bulk of such appeals were resolved in
1999, and the balance is expected to be addressed in 2000. As of January 31,
2000, Prudential and/or Pruco Life remained a party to two putative class
actions and approximately 158 individual actions relating to permanent life
insurance policies issued in the United States between 1982 and 1995. Additional
suits may be filed by individuals who opted out of the settlements. While the
approval of the class action settlement is now final, Prudential and Pruco Life
remain subject to oversight and review by insurance regulators and other
regulatory authorities with respect to their sales practices and the conduct of
the remediation program. The U.S. District Court has also retained jurisdiction
as to all matters relating to the administration, consummation, enforcement and
interpretation of the settlements.
Prudential has indemnified Pruco Life for any liabilities incurred in connection
with sales practices litigation covering policyholders of individual permanent
life insurance policies issued in the United States from 1982 to 1995.
In 1999, 1998, 1997 and 1996, Prudential recorded provision in its Consolidated
Statements of Operation of $100 million, $1,150 million, $2,030 million and
$1,125 million, respectively, to provide for estimated remediation costs, and
additional sales practices costs including related administrative costs,
regulatory fines, penalties and related payments, litigation costs and
settlements, including settlements associated with the resolution of claims of
deceptive sales practices asserted by policyholders who elected to "opt-out" of
the class action settlement and litigate their claims against Prudential
separately, and other fees and expenses associated with the resolution of sales
practices issues.
LEGAL OPINIONS
Shea & Gardner of Washington, D.C., has provided advice on certain matters
relating to the federal securities laws in connection with the contracts.
PRINCIPAL UNDERWRITER
Prudential Investment Management Services LLC ("PIMS"), a subsidiary of
Prudential, offers the contracts on a continuous basis through corporate office
and regional home office employees in those states in which contracts may be
lawfully sold. It may also offer the contract through licensed insurance
brokers and agents, or through appropriately registered direct or indirect
subsidiariy(ies) of Prudential, provided clearances to do so are obtained in
any jurisdiction where such clearances may be necessary. During 1999, 1998 and
1997, the aggregate dollar amount of underwriting commissions paid to and the
amounts retained by PIMS were $11,589,953, $5,105 and $0 respectively. During
1999, 1998 and 1997 PIMS paid $11,589,953, $5,105 and $0 respectively to cover
individual representatives' commissions and other distribution expenses.
Prudential may pay trail commissions to registered representatives who maintain
an ongoing relationship with a contractholder. Typically, a trail commission is
a compensation that is paid periodically to a representative, the amount of
which is linked to the value of the contract and the amount of time that the
contract has been in effect.
DETERMINATION OF ACCUMULATION UNIT VALUES
The value for each accumulation unit is computed as of the end of each business
day. On any given business day the value of a Unit in each subaccount will be
determined by multiplying the value of a Unit of that subaccount for the
preceding business day by the net investment factor for that subaccount for the
current business day. The net investment factor for any business day is
determined by dividing the value of the assets of the subaccount for that day
by the value of the assets of the subaccount for the preceding business day
(ignoring, for this purpose, changes resulting from new purchase payments and
withdrawals), and subtracting from the result the daily equivalent of the 1.4%
annual charge for administrative expenses and mortality and expense risks. (See
WHAT ARE THE EXPENSES ASSOCIATED WITH THE DISCOVERY SELECT CONTRACT and
CALCULATING CONTRACT VALUE in the prospectus.) The value of the assets of a
subaccount is determined by multiplying the number of shares of The Prudential
Series Fund, Inc. (the "Series Fund") or other Fund held by that subaccount by
the net asset value of each share and adding the value of dividends declared by
the Series Fund or other fund but not yet paid.
2
<PAGE> 45
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
The DISCOVERY SELECT Annuity is a relatively new contract. The returns shown
below were calculated using historical investment returns of the Funds. All
fees, expenses and charges associated with the DISCOVERY SELECT Annuity and the
Funds have been reflected in these returns, as if the Contract had existed from
the inception date of each Funds' portfolios.
Table 1 below shows the average annual rates of total return on hypothetical
investments of $1,000 for periods ended December 31, 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. This table assumes deferred sales charges.
TABLE 1
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FROM DATE
FIVE TEN PORTFOLIO
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 12/31/99 12/31/99 12/31/99 12/31/99
--------- ----------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
THE PRUDENTIAL SERIES FUND
Diversified Bond Portfolio ................. 6/83 -7.10% 6.12% 6.14% 7.30%
Diversified Conservative Growth Portfolio... 5/99 N/A N/A N/A -4.39%
High Yield Bond Portfolio .................. 2/87 -1.72% 7.07% 8.22% 6.43%
Stock Index Portfolio ...................... 10/87 14.01% 26.26% 16.07% 17.28%
Equity Income Portfolio .................... 2/88 6.10% 15.56% 12.44% 13.07%
Equity Portfolio ........................... 6/83 6.05% 17.21% 13.44% 13.43%
Global Portfolio ........................... 9/88 42.72% 20.61% 11.75% 12.69%
Prudential Jennison Portfolio .............. 5/95 35.39% N/A N/A 30.08%
Small Capitalization Stock Portfolio........ 5/95 6.25% N/A N/A 14.24%
20/20 Focus Portfolio....................... 5/99 N/A N/A N/A 7.95%
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Growth and Income Fund ............ 5/94 27.53% 26.30% N/A 22.68%
AIM V.I. Value Fund ........................ 6/93 23.23% 25.36% N/A 21.12%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century VP Value................... 5/96 -6.95% N/A N/A 8.99%
FRANKLIN TEMPLETON VARIABLE INVESTMENT
PRODUCTS TRUST
Franklin Small Cap Fund - Class 2........... 5/98 67.07% N/A N/A 28.68%
JANUS ASPEN SERIES
Growth Portfolio ........................... 9/93 37.13% 27.98% N/A 22.49%
International Growth Portfolio ............. 5/94 74.88% 31.30% N/A 26.31%
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series ..................... 7/95 69.41% N/A N/A 34.38%
Research Series ............................ 7/95 17.48% N/A N/A 20.89%
OCC ACCUMULATION TRUST
Managed Portfolio .......................... 8/88 -1.32% 17.93% 15.01% 16.10%
Small Cap Portfolio ........................ 8/88 -7.86% 6.69% 9.57% 9.94%
T. ROWE PRICE EQUITY SERIES, INC.
Equity Income Portfolio .................... 3/94 -2.58% 16.67% N/A 15.50%
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio .............. 3/94 26.61% 13.46% N/A 11.73%
WARBURG PINCUS TRUST
Global Post-Venture Capital Portfolio ...... 9/96 56.38% N/A N/A 20.47%
- ---------------
</TABLE>
Note 1: This table assumes deferred sales charges.
3
<PAGE> 46
Note 2: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had commenced
operations on August 1, 1988, then called Quest for Value Accumulation Trust
(the "Old Trust"), was effectively divided into two investment funds--the Old
Trust and the present Quest for Value Accumulation Trust (the "Present
Trust")--at which time the Present Trust Commenced Operations.
Note 3: All tables assume a $30.00 annual charge for contracts under $50,000.
The average annual rates of total return shown above are computed by finding the
average annual compounded rates of return over the periods shown that would
equate the initial amount invested to the withdrawal value, in accordance with
the following formula: P(1+T)(n)=ERV. In the formula, P is a hypothetical
investment of $1,000; T is the average annual total return; "n" is the number of
years; and ERV is the withdrawal value at the end of the periods shown. These
figures assume deduction of the maximum withdrawal charge that may be applicable
to a particular period.
NON-STANDARD TOTAL RETURN
Table 2 below shows the average annual rates of return as in Table 1, but
assumes that the investments are not withdrawn at the end of the period or that
the Contract owner annuitizes at the end of the period. This table assumes no
deferred sales charges.
TABLE 2
AVERAGE ANNUAL TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
FROM DATE
FIVE TEN PORTFOLIO
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 12/31/99 12/31/99 12/31/99 12/31/99
---------- ----------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
THE PRUDENTIAL SERIES FUND
Diversified Bond Portfolio .................. 6/83 -2.45% 6.25% 6.14% 7.30%
Diversified Conservative Growth Portfolio.... 5/99 N/A N/A N/A 5.05%
High Yield Bond Portfolio ................... 2/87 3.08% 7.20% 8.22% 6.43%
Stock Index Portfolio ....................... 10/87 18.81% 26.32% 16.07% 17.28%
Equity Income Portfolio ..................... 2/88 10.90% 15.65% 12.44% 13.07%
Equity Portfolio ............................ 6/83 10.85% 17.30% 13.44% 13.43%
Prudential Jenison Portfolio ................ 5/95 40.19% N/A N/A 30.21%
Global Portfolio ............................ 9/88 47.52% 20.69% 11.75% 12.69%
Small Capitalization Stock Portfolio......... 5/95 11.06% N/A N/A 14.44%
20/20 Focus Portfolio........................ 5/99 N/A N/A N/A 17.76%
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Growth and Income Fund ............. 5/94 32.33% 26.36% N/A 22.73%
AIM V.I. Value Fund ......................... 6/93 28.03% 25.42% N/A 21.13%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century VP Value ................... 5/96 -2.28% N/A N/A 9.51%
FRANKLIN TEMPLETON VARIABLE INVESTMENTS PRODUCTS
TRUST
Franklin Small Cap Fund - Class 2 ........... 5/98 71.87% N/A N/A 31.09%
JANUS ASPEN SERIES
Growth Portfolio ............................ 9/93 41.93% 28.04% N/A 22.51%
International Growth Portfolio .............. 5/94 79.68% 31.35% N/A 26.36%
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series ...................... 7/95 74.21% N/A N/A 34.53%
Research Series ............................. 7/95 22.28% N/A N/A 21.10%
OCC ACCUMULATION TRUST
Managed Portfolio ........................... 8/88 3.48% 18.02% 15.01% 16.10%
Small Cap Portfolio ......................... 8/88 -3.26% 6.81% 9.57% 9.94%
T. ROWE PRICE EQUITY SERIES, INC.
Equity Income Portfolio ..................... 3/94 2.22% 16.75% N/A 15.57%
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio ............... 3/94 31.41% 13.55% N/A 11.82%
WARBURG PINCUS TRUST
Global Post-Venture Capital Portfolio ....... 9/96 61.18% N/A N/A 21.03%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 47
- ---------------
Note 1: This table assumes no deferred sales charges.
Note 2: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had commenced
operations on August 1, 1988, then called Quest for Value Accumulation Trust
(the "Old Trust"), was effectively divided into two investment funds--the Old
Trust and the present Quest for Value Accumulation Trust (the "Present
Trust")--at which time the Present Trust Commenced Operations.
Note 3: All tables assume a $30.00 annual charge for contracts under $50,000.
Table 3 shows the cumulative total return for the portfolios, assuming no
withdrawal. This table assumes no deferred sales charges.
TABLE 3
CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
FROM DATE
FIVE TEN PORTFOLIO
ONE YEAR YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 12/31/99 12/31/99 12/31/99 12/31/99
---------- ----------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
THE PRUDENTIAL SERIES FUND
Diversified Bond Portfolio .................. 6/83 -2.45% 35.40% 81.52% 221.50%
Diversified Conservative Growth Portfolio.... 5/99 N/A N/A N/A 3.35%
High Yield Bond Portfolio ................... 2/87 3.08% 41.55% 120.41% 122.84%
Stock Index Portfolio ....................... 10/87 18.81% 221.64% 343.87% 598.97%
Equity Income Portfolio ..................... 2/88 10.90% 106.91% 222.92% 329.58%
Equity Portfolio ............................ 6/83 10.85% 122.03% 252.92% 706.94%
Prudential Jenison Portfolio ................ 5/95 40.19% N/A N/A 242.86%
Global Portfolio ............................ 9/88 47.52% 156.07% 203.60% 284.94%
Small Capitalization Stock Portfolio......... 5/95 11.06% N/A N/A 87.68%
20/20 Focus Portfolio........................ 5/99 N/A N/A N/A 11.54%
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Growth and Income Fund ............. 5/94 32.33% 222.15% N/A 219.09%
AIM V.I. Value Fund ......................... 6/93 28.03% 210.34% N/A 253.16%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century VP Value ................... 5/96 -2.28% N/A N/A 39.51%
FRANKLIN TEMPLETON VARIABLE INVESTMENT PRODUCTS
TRUST
Franklin Small Cap Fund - Class 2 ........... 5/98 71.87% N/A N/A 57.06%
JANUS ASPEN SERIES
Growth Portfolio ............................ 9/93 41.93% 244.15% N/A 259.15%
International Growth Portfolio .............. 5/94 79.68% 291.02% N/A 276.31%
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series ...................... 7/95 74.21% N/A N/A 273.01%
Research Series ............................. 7/95 22.28% N/A N/A 133.91%
OCC ACCUMULATION TRUST
Managed Portfolio ........................... 8/88 3.48% 128.93% 305.04% 449.61%
Small Cap Portfolio ......................... 8/88 -3.26% 39.02% 149.42% 194.82%
T. ROWE PRICE EQUITY SERIES, INC.
Equity Income Portfolio ..................... 3/94 2.22% 116.93% N/A 129.93%
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio ............... 3/94 31.41% 88.81% N/A 90.11%
WARBURG PINCUS TRUST
Global Post-Venture Capital Portfolio ....... 9/96 61.18% N/A N/A 85.96%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: This table assumes no deferred sales charges.
Note 2: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had commenced
operations on August 1, 1988, then called Quest for Value Accumulation Trust
(the "Old Trust"), was effectively divided into two investment funds--the Old
Trust and the present Quest for Value Accumulation Trust (the "Present
Trust")--at which time the Present Trust Commenced Operations.
Note 3: All tables assume a $30.00 annual charge for contracts under $50,000.
5
<PAGE> 48
MONEY MARKET SUBACCOUNT YIELD
The "yield" and "effective yield" figures for the Money Market Subaccount shown
below were calculated using historical investment returns of the Money Market
Portfolio of the Prudential Series Fund. All fees, expenses and charges
associated with the DISCOVERY SELECT Annuity and the Series Fund have been
reflected.
The "yield" and "effective yield" of the Money Market Subaccount for the seven
days ended December 31, 1999 were 6.53% and 6.74%, respectively.
The yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one accumulation unit of the Money Market Subaccount at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from contract
owner accounts, and dividing the difference by the value of the subaccount at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7), with the resulting figure carried
to the nearest ten-thousandth of 1%.
The deduction referred to above consists of the 1.25% charge for mortality and
expense risks and the 0.15% charge for administration. It does not reflect the
withdrawal charge.
The effective yield is obtained by taking the base period return, adding 1,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result, according to the following formula: Effective Yield--([base period
return + 1] 365/7)-1.
The yields on amounts held in the Money Market Subaccount will fluctuate on a
daily basis. Therefore, the stated yields for any given period are not an
indication of future yields.
COMPARATIVE PERFORMANCE INFORMATION
Reports or advertising may include comparative performance information,
including, but not limited to: (1) comparisons to market indices such as the Dow
Jones Industrial Average, the Standard & Poor's 500 Index, the Value Line
Composite Index, the Russell 2000 Index, the Morgan Stanley World Index, the
Lehman Brothers bond indices; (2) comparisons to other investments, such as
certificates of deposit; (3) performance rankings assigned by services such as
Morningstar, Inc. and Variable Annuity Research and Data Services (VARDS), and
Lipper Analytical Services, Inc.; (4) data presented by analysts such as Dow
Jones, A.M. Best, The Bank Rate Monitor National Index; and (5) data in
publications such as The Wall Street Journal, Times, Forbes, Barrons, Fortune,
Money Magazine, and Financial World.
FURTHER INFORMATION ABOUT THE DEATH BENEFIT
Early in 1998, Pruco Life of New Jersey began to offer an enhanced death
benefit under the contract. For contracts issued after the new death benefit
became available in a particular state, the new death benefit is contained in
an endorsement that is issued with the contract. Existing contractowners were
also given the option to elect the new death benefit or retain the death
benefit available at that time under their contracts. As used here, the term
"endorsement date" describes both the date on which the contract is issued
with the endorsement for contracts purchased after the new death benefit is
available and the date on which the endorsement was issued for existing
contractowners so electing. The new death benefit provisions are described
below.
If the sole or last surviving annuitant dies prior to the annuity date, Pruco
Life of New Jersey will, upon receipt of all of the information necessary to
make the payment (including due proof of death and election of a payment
option), pay a death benefit to the beneficiary designated by the contractowner.
IF THE SOLE OR OLDER ANNUITANT IS UNDER AGE 80 when the death benefit
endorsement is issued, the death benefit on or prior to the contract anniversary
coinciding with or next following his or her 80th birthday will equal the
greater of, the contract fund value or the guaranteed minimum death benefit, as
of the date of due proof of death. The guaranteed minimum death benefit is
calculated daily and is equal to the highest annual contract fund value
("step-up").
6
<PAGE> 49
STEP-UP
Prior to the first contract anniversary, the step-up is the initial invested
purchase payment increased by additional invested purchase payments and
proportionally reduced by the effect of withdrawals. The step-up for each
subsequent contract anniversary will be reset to the greater of the contract
fund value as of that contract anniversary and the prior step-up. Between
contract anniversaries, the step-up will be increased by invested purchase
payments and proportionally reduced by effect of withdrawals.
After the contract anniversary coinciding with or following the Annuitant's 80th
birthday, the death benefit will equal the greater of the contract fund value as
of the date of due proof of death or the guaranteed minimum death benefit as of
the contract anniversary coinciding with or next following his or her 80th
birthday, increased by additional invested purchase payments and proportionally
reduced by the effect of withdrawals since such contract anniversary.
IF THE SOLE OR OLDER ANNUITANT IS AGE 80 OR OVER on the endorsement date, the
death benefit will equal the greater of the contract fund value as of the date
of due proof of death or the total invested purchase payments (initial and
additional) proportionally reduced by the effect of withdrawals.
Upon issuance of the endorsement, you may not change an annuitant or
co-annuitant. You may add or remove an annuitant or co-annuitant only with our
prior approval.
If the contract was issued prior to the endorsement date, the following rules
apply: (1) the initial value of the step-up is the total invested purchase
payments (initial and additional), less total withdrawals (including any
applicable charges) as of the issuance of the endorsement; (2) the words, "Prior
to the first contract anniversary", as used in the description of the step-up,
means prior to the first contract anniversary following the issuance of the
endorsement.
Contracts issued prior to the endorsement date WHOSE OWNERS DO NOT ELECT TO
ATTACH THE ENDORSEMENT TO THEIR CONTRACTS and contracts issued in states in
which the endorsement is not available will continue to have the death benefit
calculated as originally offered, as follows: The death benefit will equal the
greatest of: (1) the contract fund as of the date of due proof of death; or (2)
the sum of all invested purchase payments made less total withdrawals made
(including withdrawal charges); or (3) the greatest of the contract fund values
calculated on every third contract anniversary reduced by all subsequent
withdrawals and withdrawal charges.
The death benefit is payable on the death of the sole or last surviving
annuitant, not the contractowner.
The beneficiary may receive this amount in a lump sum or under a payout option.
Unless the beneficiary has been irrevocably designated, you may change the
beneficiary at any time. If the annuitant dies after he or she has begun to
receive annuity payments, the death benefit, if any, will be determined by the
type(s) of payout provisions then in effect.
If the annuitant was the sole owner of the contract, the annuitant's spouse was
the sole beneficiary, and the spouse had an unrestricted right to receive the
death benefit in a lump sum, then the spouse has the right to continue the
contract as annuitant and owner.
7
<PAGE> 50
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.
8
<PAGE> 51
FINANCIAL STATEMENTS OF THE
DISCOVERY SELECT 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> 52
<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>
$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> 53
FINANCIAL STATEMENTS OF THE
DISCOVERY SELECT 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
-------------------------------------------------------------------------
MFS OCC OCC T. ROWE PRICE
EMERGING MFS ACCUMULATION ACCUMULATION EQUITY
GROWTH RESEARCH TRUST MANAGED TRUST SMALL INCOME
SERIES SERIES PORTFOLIO CAP 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] .................. $31,319,807 $9,982,879 $32,320,124 $8,588,764 $17,067,981
----------- ---------- ----------- ---------- -----------
Net Assets ............................................ $31,319,807 $9,982,879 $32,320,124 $8,588,764 $17,067,981
=========== ========== =========== ========== ===========
NET ASSETS, representing:
Equity of contract owners [Note 4] .................... $31,319,807 $9,982,879 $32,320,124 $8,588,764 $17,067,981
----------- ---------- ----------- ---------- -----------
$31,319,807 $9,982,879 $32,320,124 $8,588,764 $17,067,981
=========== ========== =========== ========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A3
<PAGE> 54
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
T. ROWE PRICE WARBURG PINCUS SMALL FRANKLIN DIVERSIFIED
INTERNATIONAL POST-VENTURE CAPITALIZATION AMERICAN SMALL CAP PRUDENTIAL CONSERVATIVE
STOCK CAPITAL STOCK CENTURY VP GROWTH 20/20 FOCUS GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO VALUE FUND PORTFOLIO PORTFOLIO
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$5,704,743 $3,815,026 $4,859,464 $2,400,228 $4,186,264 $5,334,334 $8,217,344
---------- ---------- ---------- ---------- ---------- ---------- ----------
$5,704,743 $3,815,026 $4,859,464 $2,400,228 $4,186,264 $5,334,334 $8,217,344
========== ========== ========== ========== ========== ========== ==========
$5,704,743 $3,815,026 $4,859,464 $2,400,228 $4,186,264 $5,334,334 $8,217,344
---------- ---------- ---------- ---------- ---------- ---------- ----------
$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> 55
FINANCIAL STATEMENTS OF THE
DISCOVERY SELECT 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> 56
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL AIM V.I. JANUS ASPEN
EQUITY PRUDENTIAL PRUDENTIAL PRUDENTIAL GROWTH AND AIM V.I. JANUS ASPEN INTERNATIONAL
INCOME EQUITY JENNISON GLOBAL INCOME VALUE GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO FUND FUND PORTFOLIO PORTFOLIO
- ---------- ----------- ----------- ---------- ---------- ---------- ---------- -----------
<S> <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> 57
FINANCIAL STATEMENTS OF THE
DISCOVERY SELECT 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> 58
<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
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A8
<PAGE> 59
FINANCIAL STATEMENTS OF THE
DISCOVERY SELECT 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> 60
<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> 61
FINANCIAL STATEMENTS OF THE
DISCOVERY SELECT 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> 62
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN
AIM V.I. JANUS ASPEN INTERNATIONAL
GROWTH AND AIM V.I. GROWTH GROWTH
INCOME FUND VALUE FUND PORTFOLIO 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> 63
FINANCIAL STATEMENTS OF THE
DISCOVERY SELECT 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> 64
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
OCC OCC T. ROWE PRICE
ACCUMULATION TRUST ACCUMULATION TRUST T. ROWE PRICE INTERNATIONAL
MANAGED SMALL CAP EQUITY INCOME STOCK
PORTFOLIO PORTFOLIO 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> 65
FINANCIAL STATEMENTS OF THE
DISCOVERY SELECT 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>
* Became available on September 1, 1998
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A15
<PAGE> 66
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------
FRANKLIN PRUDENTIAL
AMERICAN SMALL CAP PRUDENTIAL DIVERSIFIED
CENTURY VP GROWTH 20/20 FOCUS CONSERVATIVE GROWTH
VALUE* FUND* PORTFOLIO** 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
** Became available on May 3, 1999
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A22
A16
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS OF THE
DISCOVERY SELECT 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
("Discovery Choice") are invested in the Account. 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.
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.
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> 68
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 subaccounts of the Account and 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>
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>
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>
WARBURG PRUDENTIAL
OCC T. ROWE PRICE T. ROWE PRICE PINCUS SMALL
ACCUMULATION EQUITY INTERNATIONAL POST-VENTURE CAPITALIZATION
TRUST SMALL INCOME STOCK CAPITAL STOCK
CAP PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of shares (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
PRUDENTIAL DIVERSIFIED
AMERICAN FRANKLIN 20/20 CONSERVATIVE
CENTURY SMALL CAP FOCUS GROWTH
VP VALUE* GROWTH FUND* PORTFOLIO** PORTFOLIO**
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Number of shares (rounded): 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
** Became available on May 3, 1999
A18
<PAGE> 69
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 PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED HIGH YIELD STOCK EQUITY
MARKET BOND BOND INDEX INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(rounded) .................................... 24,579,687 45,438,932 28,531,566 38,786,276 27,398,451
Unit Value ................................... $ 1.16977 $ 1.17457 $ 1.25119 $ 2.24149 $ 1.77516
----------- ------------ ----------- ----------- -----------
TOTAL CONTRACT OWNER EQUITY .................... $28,752,580 $ 53,371,206 $35,698,410 $86,939,050 $48,636,634
=========== ============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------
AIM V.I.
PRUDENTIAL PRUDENTIAL PRUDENTIAL GROWTH AND AIM V.I.
EQUITY JENNISON GLOBAL INCOME VALUE
PORTFOLIO PORTFOLIO PORTFOLIO FUND FUND
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(rounded) .................................... 38,608,928 37,559,381 6,113,646 8,448,068 13,887,703
Unit Value ................................... $ 1.77642 $ 2.81446 $ 2.27423 $ 2.14458 $ 2.14096
----------- ------------ ----------- ----------- -----------
TOTAL CONTRACT OWNER EQUITY .................... $68,585,671 $105,709,375 $13,903,838 $18,117,557 $29,733,016
=========== ============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------
JANUS MFS OCC
JANUS ASPEN INTERNATIONAL EMERGING MFS ACCUMULATION
GROWTH GROWTH GROWTH RESEARCH MANAGED
PORTFOLIO PORTFOLIO SERIES SERIES PORTFOLIO
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(rounded) .................................... 13,375,166 10,899,400 11,792,762 5,510,866 23,288,748
Unit Value ................................... $ 2.31856 $ 2.55865 $ 2.65585 $ 1.81149 $ 1.38780
----------- ------------ ----------- ----------- -----------
TOTAL CONTRACT OWNER EQUITY .................... $31,011,122 $ 27,887,749 $31,319,807 $ 9,982,879 $32,320,124
=========== ============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------
PRUDENTIAL
OCC T. ROWE PRICE T. ROWE PRICE WARBURG PINCUS SMALL
ACCUMULATION EQUITY INTERNATIONAL POST-VENTURE CAPITALIZATION
TRUST SMALL INCOME STOCK CAPITAL STOCK
CAP PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Contract Owner Units Outstanding
(rounded) .................................... 7,804,349 11,645,491 3,593,199 2,104,691 3,488,013
Unit Value ................................... $ 1.10051 $ 1.46563 $ 1.58765 $ 1.81263 $ 1.39319
----------- ------------ ----------- ----------- -----------
TOTAL CONTRACT OWNER EQUITY .................... $ 8,588,764 $ 17,067,981 $ 5,704,743 $ 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
** Became available on May 3, 1999
A19
<PAGE> 70
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.
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.
A20
<PAGE> 71
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>
<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
A21
<PAGE> 72
NOTE 8: UNIT ACTIVITY (CONTINUED)
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL
FRANKLIN 20/20 DIVERSIFIED
SMALL CAP FOCUS CONSERVATIVE
GROWTH FUND* PORTFOLIO** GROWTH 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>
* Became available on September 1, 1998
** Became available on May 3, 1999
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 PRUDENTIAL PRUDENTIAL
MONEY DIVERSIFIED HIGH YIELD STOCK EQUITY
MARKET BOND BOND INDEX 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 INCOME STOCK CAPITAL STOCK
CAP 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 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> 73
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the Discovery Select Subaccounts of
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 Templeton Small Cap Growth Fund, Prudential
20/20 Focus Portfolio and Prudential Diversified Conservative Growth Portfolio)
of the Discovery Select Subaccounts of 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> 74
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
<PAGE> 75
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS.
The following analysis should be read in conjunction with the Notes to Financial
Statements.
The Company markets individual life insurance, variable life insurance, variable
annuities, and fixed annuities through Prudential's sales force in New Jersey
and New York. These markets are subject to regulatory oversight with particular
emphasis placed on company solvency and sales practices. These markets are also
subject to increasing competitive pressures as the legal barriers which have
historically segregated the markets of the financial services industry have been
changed through both legislative and judicial processes. Regulatory changes have
opened the insurance industry to competition from other financial institutions,
particularly banks and mutual funds, that are positioned to deliver competing
investment products through large, stable distribution channels.
The Company's Results of Operations and Changes in Statements of Financial
Position are described below.
1. RESULTS OF OPERATIONS
Net income for the year ended December 31, 1999 was $12.8 million, a decrease of
$19.0 million from $31.8 million earned in the year ended December 31, 1998. The
decrease was due to revenues that were $11.9 million lower than 1998 primarily
due to realized losses from bond sales and expenses that were $17.8 million
higher mainly from general and administrative expenses, offset somewhat by a
decrease in the tax provision of $10.7 million.
(a) 1999 versus 1998
Premiums decreased by $.6 million to $6.7 million for the year ended December
31, 1999 from $7.3 million for the year ended December 31, 1998. The majority of
the premiums, approximately $5.9 million in each of the two years, represent
income from extended term or reduced paid-up life insurance. As an option in the
event of a lapse, individual variable life insurance policies provide
policyholders with additional extended term or reduced paid-up life insurance
based on the amount that can be purchased with the remaining cash value of the
contract (if the contractholder does not elect to receive the remaining cash
value as a cash distribution). The application of the remaining cash value to
purchase such coverage is recorded as premium revenue in the Statement of
Operations.
Policy charges and fee income, primarily consisting of expense, mortality,
loading and other insurance charges assessed on policyholder account balances,
decreased by $.5 million to $52.7 million in 1999 from $53.2 million in 1998.
The decrease is a result of lower fee income on variable life products due to
decreased sales in 1999, offset somewhat by increases in annuity fee income. The
annuity income increase reflects the growth in Separate Accounts as a result of
the strong equity market and increased sales and exchanges of the Discovery
Select annuity product. The Exchange Program provides the contractholders of
older Prudential, Pruco Life or Pruco Life of New Jersey annuity products an
opportunity to convert to the Discovery Select product.
C-1
<PAGE> 76
Net investment income increased slightly by $.6 million to $47.6 million for the
year ended December 31, 1999 from $47.0 million at year ended December 31, 1998.
The General Account investment portfolio, consisting primarily of bonds,
decreased from $818.6 million to $766.5 million in 1999 as new cash inflows were
primarily invested in Separate Accounts; however the average asset balance in
1999 was slightly higher than in 1998. The yield also remained approximately the
same at 6.75% in 1999 versus 6.79% in 1998, therefore the income remained
relatively constant between the two years.
Realized investment losses, net were $5.0 million for the year ended December
31, 1999 compared to realized investment gains, net of $8.4 million for the year
ended December 31, 1998. This variance reflects the sale of debt securities in
1999 during a period of rising interest rates.
Asset management fees increased by $1.8 million to $7.4 million at December 31,
1999 from $5.6 million at December 31, 1998. These fees represent investment
advisory fees collected from the Prudential Series Funds ("PSF"), a portfolio of
mutual fund investments related to the Company's Separate Account products. The
increase was due to a $376.5 million increase in Separate Account assets in 1999
as a result of strong equity markets and increased sales and exchanges of the
Discovery Select product.
Policyholder benefits were $26.2 million for the year ended December 31, 1999, a
decrease of $4.5 million from $30.7 million for the year ended December 31,
1998. The decrease is related to variable life contracts, as death claims are
$3.1 million less and reserve changes are $1.4 million less than last year. The
reserve variance is primarily attributable to fewer extended term policies.
Annuity policyholder benefits remained the same in the two years.
Interest credited to policyholder account balances for the year ended December
31, 1999 was $18.8 million, a slight decrease of $.2 million from $19.0 million
in 1998. Variable life contracts had approximately the same average policyholder
account balance of $245.0 million and an interest credited rate of 4.6% in the
two years. Interest credited on annuity products was $7.7 million in both years
as the average policyholder balance increased slightly by $3.0 million while the
average crediting rate dropped about 20 basis points.
General, administrative and other expenses, net of capitalization and
amortization of deferred policy acquisition costs ("DAC"), increased $22.5
million to $45.1 million at year end December 31, 1999 from $22.6 million at
December 31, 1998. The increase was primarily the result of the implementation
of a new expense allocation methodology from Prudential. This new allocation
process shifts a greater amount of expenses to products requiring more complex
business processes and more transactions, such as variable products which allow
policyholders to make changes in their investment portfolio. These allocated
expenses include 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 network. A majority of these distribution expenses
have been capitalized by the Company as DAC. In addition, there was an increase
over the prior year in DAC amortization of $10.3 million, the majority of which
reflects refinements in the gross profit margin used to amortize DAC.
(b) 1998 versus 1997
Total insurance revenues, consisting of premiums and policy charges and fee
income decreased $3.1 million for the year ended December 31, 1998 to $60.4
million from $63.5 million for the year ended December 31, 1997, due to a
decline in the number of life insurance policies in force.
The Company's net investment income increased $.7 million for the year ended
December 31, 1998 to $47.0 million from $46.3 million for the year ended
December 31, 1997. Realized investment gains, net, increased $6.7 million for
the year ended December 31, 1998 to $8.4 million from $1.7 million for the year
ended December 31, 1997, primarily due to the sale of fixed maturities in 1998
during a period of declining interest rates.
C-2
<PAGE> 77
Asset management fees increased by $.3 to $5.6 million at December 31, 1998 from
$5.3 million at December 31, 1997 due to an increase in the Separate Account
portfolio.
Policyholders' benefits decreased $9.0 million for the year ended December 31,
1998 to $30.7 million from $39.7 million for the year ended December 31, 1997.
This decrease is attributable to a favorable change in reserves due to better
than expected mortality experience.
Interest credited to policyholders' account balances decreased by $.4 million
for the year ended December 31, 1998 to $19.0 million from $19.4 million for the
year ended December 31, 1997. This decrease is primarily attributable to a
decrease in interest crediting rates, partially offset by increased interest
credited to policy loans as well as increased fund values due to new sales of
Separate Account products.
General, administrative and other expenses decreased $4.9 million for the year
ended December 31, 1998 to $22.6 million compared to $27.5 million for the year
ended December 31, 1997. This decrease is primarily attributable to refinements
in the DAC amortization model leading to comparably lower 1998 expenses.
Offsetting this decrease was an increase in sales volume of Discovery Select
which resulted in a corresponding increase in expenses. In addition to the
increased sales volume, Prudential's expense allocation methodology changed late
in 1998, resulting in increased expenses allocated to the Company.
CHANGES IN FINANCIAL POSITION
1999 versus 1998
The Company had $2.8 billion in assets at December 31, 1999 compared to $2.4
billion at December 31, 1998 of which $1.8 billion and $1.5 billion were held in
Separate Accounts in 1999 and 1998, respectively supporting variable life
insurance policies and variable annuity contracts. The remaining assets
consisted primarily of General Account investments in bonds, policy loans,
short-term investments and DAC. For discussion of investments, see "Investment
Portfolio and Investment Strategies" below.
INVESTMENT PORTFOLIO AND INVESTMENT STRATEGIES
The Company's investment portfolio supports its insurance and annuity
liabilities and other obligations to customers for which it assumes investment
related risks. The portfolio was comprised of total investments amounting to
$766.5 million at December 31, 1999, versus $818.6 million at December 31, 1998.
A diversified portfolio of publicly traded bonds, private placement investments
and short term investments is managed under strategies intended to maintain
optimal asset mix consistent with current and anticipated cash flow requirements
of the related obligations. The risk tolerance reflects the Company's aggregate
capital position, exposure to business risk, liquidity and rating agency
considerations.
The asset management strategy for the portfolio is set in accordance with an
investment policy statement developed and coordinated within the Company by the
Portfolio Management Group, agreed to by senior management, and approved by the
Company's Board of Directors. In managing the investment portfolio, the long
term objective is to generate favorable investment results through
asset-liability management, strategic and tactical asset allocation and asset
manager selection. Asset mix strategies are constrained by the need to match
asset structure to product liabilities, considering the underlying income and
return characteristics of investment alternatives and seeking to closely
approximate the interest rate sensitivity of the asset portfolio with the
estimated interest rate sensitivity of the product liabilities. Asset mix
strategies also include maintenance of broad diversification across asset
classes, issuers and sectors; effective utilization of capital while maintaining
liquidity believed to be adequate to satisfy cash flow requirements; and
achievement of competitive performance. The major categories of invested assets,
quality across the portfolio, and recent activities to manage the portfolio are
discussed below.
C-3
<PAGE> 78
FIXED MATURITIES
The fixed maturity portfolio is diversified across maturities, sectors and
issuers. The Company has classified all publicly traded securities as "available
for sale" or "AFS". As of December 31, 1999 and 1998, approximately 96% and 100%
respectively, of privately traded securities, were classified as AFS. The
remainder of the privately placed fixed maturities were classified as "held to
maturity" or "HTM". "Available for sale" securities are carried in the
Statements of Financial Position at fair value, with unrealized gains and losses
(after certain related adjustments) recognized by credits and charges to
stockholder's equity. Securities "held to maturity" are carried at amortized
cost, and unrealized gains or losses on these securities are not recognized in
the financial statements. Fixed maturities totaled $592.8 million (AFS fair
value of $585.3 million and HTM amortized cost of $7.5 million), a decrease of
$30.2 million compared to December 31, 1998. The decrease resulted primarily
from a rising interest rate environment during most of 1999, causing a decrease
in fair value of the assets.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------------------------------- ----------------------------------------------
ESTIMATED NET
ESTIMATED FAIR NET UNREALIZED FAIR UNREALIZED
AMORTIZED COST VALUE (LOSSES) AMORTIZED COST VALUE GAINS
--------------- -------------- -------------- -------------- -------------- ---------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FIXED MATURITIES
Publicly traded $ 430,167 $ 414,695 $(15,472) $537,339 $541,874 $ 4,535
Privately placed 181,526 177,514 ( 4,012) 80,419 81,116 697
--------------- -------------- -------------- -------------- -------------- ---------------
TOTAL $ 611,693 $ 592,209 $(19,484) $617,758 $622,990 $ 5,232
=============== ============== ============== ============== ============== ===============
</TABLE>
At December 31, 1999, the net unrealized losses on the AFS fixed maturity
portfolio totaled losses of $19.5 million compared to gains of $5.2 million at
December 31, 1998. The decrease is primarily due to an increasing interest rate
environment for most of 1999.
The average asset base increased slightly while gross investment income and
yields were relatively unchanged from year to year. During 1999, there was a
reallocation from government securities to the retail and wholesale sector. In
addition, the Company's holdings of private placement fixed maturities totaled
$177.5 million and constituted 30% of total fixed maturities portfolio at
December 31, 1999 compared to $81.1 million representing 13% in 1998. These
investments generally offer higher yields than comparable quality public market
securities and increase the diversification of the portfolio.
Gross investment income from fixed maturities remained constant between 1999 and
1998 at $39.5 million. Net realized losses of $4.6 million were $11.0 million
below December 31, 1998, primarily due to net sales activity during a period of
increasing interest rates.
C-4
<PAGE> 79
CREDIT QUALITY
The following table describes the credit quality of the fixed maturity
portfolio, based on ratings assigned by the National Association of Insurance
Commissioners ("NAIC") or Standard & Poor's Corporation, an independent rating
agency as of December 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------------------------------- -----------------------------------------------
STANDARD AMORTIZED ESTIMATED AMORTIZED ESTIMATED
NAIC & POOR'S COST % FAIR VALUE % COST % FAIR VALUE %
- ------------------------- ---------------------------------------------- -----------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 AAA to AAA- $ 224,037 36.6% $ 218,163 36.8% $ 303,209 49.1% $ 306,693 49.2%
2 BBB+ to BBB- 356,235 58.2% 344,246 58.1% 286,640 46.4% 287,888 46.2%
3 BB+ to BB- 31,421 5.1% 29,800 5.0% 27,134 4.4% 27,692 4.4%
4 B+ to B- 0 0.0% 0 0.0% 704 0.1% 638 0.1%
5 CCC or lower 0 0.0% 0 0.0% 71 0.0% 79 0.0%
6 In or near default 0 0.0% 0 0.0% 0 0.0% 0 0.0%
------------ ------------- --------------- ----------
TOTAL $ 611,693 100.0% $ 592,209 100.0% $ 617,758 100.0% $ 622,990 100.0%
============ ============= =============== ==========
</TABLE>
The fixed maturity portfolio consists largely of investment grade assets (rated
"1" or "2" by the NAIC), with such investments accounting for 95% of the
portfolio at December 31, 1999 and 1998, based on fair value. As of both of
those dates, no fixed maturities in the portfolio were rated "6" by the NAIC,
defined as public and private placement securities which are currently
non-performing or believed subject to default in the near-term.
The Company maintains separate monitoring processes for public and private fixed
maturities and creates watch lists to highlight securities which require special
scrutiny and management. The Company's public fixed maturity asset managers
formally review all public fixed maturity holdings on a monthly basis and more
frequently when necessary to identify potential credit deterioration whether due
to ratings downgrades, unexpected price variances, and/or industry specific
concerns. We classify public fixed maturity securities of issuers that have
defaulted as "not in good standing" and all other public watch list assets as
"closely monitored".
The Company's private fixed maturity asset managers conduct specific servicing
tests on each investment on a quarterly basis to determine whether the
investment is in compliance or should be placed on the watch list or assigned an
early warning classification. The Company assigns early warning classification
to those issuers that have failed a servicing test or experienced a minor
covenant default, and we continue to monitor them for improvement or
deterioration. The Company assigns "closely monitored" status to those
investments that have been recently restructured or for which restructuring is a
possibility due to substantial credit deterioration or material covenant
defaults. The Company classifies securities of issuers that are in more severe
conditions, for example, bankruptcy or payment default as "not in good
standing". Writedowns for impairments of fixed maturities which were deemed to
be other than temporary were $.6 million for 1998, no impairments in 1999 and
1997.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------------------------- ---------------------------------------------
AMORTIZED AMORTIZED
COST % OF TOTAL COST % OF TOTAL
-------------------- --------------------- -------------------- ----------------------
(In Thousands)
<S> <C> <C> <C> <C>
Performing $ 611,693 100.0% $ 616,944 99.9%
Watch List
Closely monitored - 0.0% 814 0.1%
Not in good standing - 0.0% - 0.0%
-------------------- --------------------
Total $ 611,693 100.0% $ 617,758 100.0%
==================== ====================
</TABLE>
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<PAGE> 80
PORTFOLIO DIVERSITY
The fixed maturity portfolio is broadly diversified by type and industry of
issuer. The greatest industry concentrations within the public portfolio were
finance, manufacturing, and utilities, while the greatest concentration within
the private portfolio was asset backed securities. The portfolio is summarized
below by issuer category:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------------------
AMORTIZED ESTIMATED % OF
COST FAIR VALUE FAIR VALUE
--------------------- --------------------- -----------------
(In Thousands)
<S> <C> <C> <C>
United States government securities and
obligations $ 9,489 $ 9,424 1.6%
Mortgage backed securities 1,038 1,035 0.2%
Asset backed securities (1) 116,985 114,211 19.3%
Foreign government securities 5,000 4,932 0.8%
Manufacturing 102,483 97,638 16.5%
Utilities 98,860 93,991 15.9%
Retail and wholesale 41,148 40,337 6.8%
Energy 5,000 4,965 0.8%
Finance 119,475 117,371 19.8%
Services 51,403 48,767 8.2%
Transportation 60.812 59,538 10.1%
Other 0 0 0.0%
--------------------- --------------------- -----------------
TOTAL $ 611,693 $ 592,209 100.0%
===================== ===================== =================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------
AMORTIZED ESTIMATED % OF
COST FAIR VALUE FAIR VALUE
--------------------- ---------------------- -----------------
(In Thousands)
<S> <C> <C> <C>
United States government securities and
obligations $ 51,663 $ 51,605 8.3%
Mortgage backed securities 1,507 1,506 0.2%
Asset backed securities (1) 74,612 75,307 12.1%
Foreign government securities 34,744 35,394 5.7%
Manufacturing 95,713 96,369 15.5%
Utilities 96,612 97,794 15.7%
Retail and wholesale 9,992 9,834 1.6%
Energy 0 0 0.0%
Finance 123,733 125,124 20.1%
Services 78,586 78,727 12.6%
Transportation 49,695 50,331 8.1%
Other 901 999 0.1%
--------------------- ---------------------- -----------------
TOTAL $ 617,758 $ 622,990 100.0%
===================== ====================== =================
</TABLE>
(1) The asset backed securities are primarily backed by credit card
receivables, home equity loans, trade receivables and auto loans.
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<PAGE> 81
SHORT-TERM INVESTMENTS
Short-term investments include highly liquid debt instruments such as commercial
paper and are purchased with an original maturity of twelve months or less.
These securities are carried at amortized cost, which approximates fair value.
Short-term investments also include receivables resulting from securities
lending and borrowing activities. As of December 31, 1999, the Company's
short-term investments totaled $27.5 million versus $53.8 million at December
31, 1998. The decrease in short-term investments of $26.3 million was primarily
due to decreased securities financing activity. Net investment income was $2.5
million for 1999 and $3.5 million for 1998. The reduction in net income was
related to the decrease in the average asset base.
2. LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements include the payment of sales commissions,
other underwriting expenses and the funding of its contractual obligations for
the life insurance and annuity contracts it has in-force. The Company has
developed and utilizes a cash flow projection system and regularly performs
asset/liability duration matching in the management of its asset and liability
portfolios. The Company anticipates funding all its cash requirements utilizing
cash from operations, normal investment maturities and anticipated calls and
repayments or through short term lending from its affiliate Prudential Funding
Corporation (refer to Footnote 13 in the Notes to Consolidated Financial
Statements). As of December 31, 1999, the Company's assets included $413.4
million of cash, short-term investments and investment grade publicly traded
fixed maturity securities that could be liquidated if funds were required.
In order to continue to market life insurance and annuity products, the Company
must meet or exceed the statutory capital and surplus requirements of the
insurance departments of the states in which it conducts business. Statutory
accounting practices differ from generally accepted accounting principles
("GAAP") in two major respects. First, under statutory accounting practices, the
acquisition costs of new business are charged to expense, while under GAAP they
are initially deferred and amortized over a period of time. Second, under
statutory accounting practices, the required additions to statutory reserves for
new business in some cases may initially exceed the statutory revenues
attributable to such business. These practices result in a reduction of
statutory income and surplus at the time of recording new business.
Insurance companies are subject to Risk-Based Capital ("RBC") guidelines,
monitored by insurance regulatory authorities, that measure the ratio of the
Company's statutory surplus with certain adjustments ("Adjusted Capital") to its
required capital, based on the risk characteristics of its insurance liabilities
and investments. Required capital is determined by statutory formulae that
consider risks related to the type and quality of invested assets,
insurance-related risks associated with the Company's products, interest rate
risks, and general business risks. The RBC calculations are intended to assist
regulators in measuring the adequacy of the Company's statutory capitalization.
The Company considers RBC implications in its asset/liability management
strategies. Each year, the Company conducts a thorough review of the adequacy of
statutory insurance reserves and other actuarial liabilities. The review is
performed to ensure that the Company's statutory reserves are computed in
accordance with accepted actuarial standards, reflect all contractual
obligations, meet the requirements of state laws and regulations and include
adequate provisions for any other actuarial liabilities that need to be
established. All significant reserve changes are reviewed by the Board of
Directors and are subject to approval by the New Jersey Department of Banking
and Insurance (the "Insurance Department"). The Company believes that its
statutory capital is adequate for its currently anticipated levels of risk as
measured by regulatory guidelines.
The NAIC has approved a series of codified statutory accounting standards which
will replace the current Accounting Practices and Procedures Manual as the
NAIC's primary guidance on statutory accounting. Certain of the standards could
have an impact on the measurement of statutory capital which, in turn, could
affect RBC ratios of insurance companies. The Insurance Department has issued
notices requiring adoption of the new Accounting Practices and Procedures Manual
beginning with the quarterly statement for the period ending March 31, 2001. The
Company has not estimated the potential effect of the Codification guidance, but
does not believe it will have an adverse impact on the Company's surplus
position.
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<PAGE> 82
3. REGULATORY ENVIRONMENT
The Company is subject to the laws of the Insurance Department. A detailed
financial statement in the prescribed form (the "Annual Statement") is filed
with the Insurance Department each year covering the Company's operations for
the preceding year and its financial position as of the end of that year.
Regulation by the Insurance Department includes periodic examination to verify
the accuracy of contract liabilities and reserves. The Company's books and
accounts are subject to review by the Insurance Department at all times. A full
examination of the Company's operations is conducted periodically by the
Insurance Department and under the auspices of the NAIC.
The Company is subject to regulation under the insurance laws of all
jurisdictions in which it operates. The laws of the various jurisdictions
establish supervisory agencies with broad administrative powers with respect to
various matters, including licensing to transact business, overseeing trade
practices, licensing agents, approving contract forms, establishing reserve
requirements, fixing maximum interest rates on life insurance contract loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. The Company is required to file the Annual Statement with
supervisory agencies in each of the jurisdictions in which it does business, and
its operations and accounts are subject to examination by these agencies at
regular intervals.
The NAIC has adopted several regulatory initiatives designed to improve the
surveillance and financial analysis regarding the solvency of insurance
companies in general. These initiatives include the development and
implementation of a risk-based capital formula as described in the Liquidity and
Capital Resources disclosure. The implementation of these standards has not had
an effect upon the Company.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Certain insurance products of the Company are subject to
various federal securities laws and regulations. In addition, current and
proposed federal measures which may significantly affect the insurance business
include regulation of insurance company solvency, employee benefit regulation,
removal of barriers preventing banks from engaging in the insurance business,
tax law changes affecting the taxation of insurance companies and the tax
treatment of insurance products and its impact on the relative desirability of
various personal investment vehicles.
4. THE YEAR 2000 ISSUE
The Company utilizes many of the same business applications, infrastructure and
business partners as Prudential. Prudential addressed the Year 2000 issue on an
enterprise-wide basis. Therefore, it is not possible to differentiate the
Company's Year 2000 issue from that of Prudential. The accompanying discussion
of the Year 2000 issue and its outcome reflects steps taken by Prudential to
mitigate the Year 2000 risks.
The Year 2000 issue is best understood as a computer hardware and software
problem in which computer systems that have date-sensitive programming may
recognize a date using "00" as the year 1900 instead of the year 2000.
Prudential's total cost to address the Year 2000 issue was $225 million, with
$13 million spent in 1996, $64 million in 1997, $104 million in 1998 and $44
million in 1999. These amounts do not include Prudential's share of Year 2000
costs incurred by partnerships or joint ventures in which Prudential
participates but does not have a controlling financial interest. These amount
also exclude costs for replacement systems that Prudential implemented or
accelerated solely due to potential Year 2000 failures because they were
immaterial. Prudential funded the cost of its Year 2000 program from operations.
During the course of its Year 2000 program, Prudential delayed some
discretionary computer projects to focus on completion of the Year 2000
projects. These delays did not have a material impact on Prudential's or Pruco
Life's financial condition or operations.
To date, neither Prudential nor the Company have experienced material Year 2000
related problems in any of their operations. Prudential believes that it has
mitigated the Year 2000 risk, Prudential cannot guarantee that it will not
experience a Year 2000 failure that has thus far been undetected. In the worst
case, it is possible that an as yet unknown Year 2000 failure, whether internal
or external, could have a material impact on Prudential or the Company's results
of operations, liquidity or financial condition. Where necessary, we have
enhanced our general business continuation contingency plans to ensure that they
would be effective in responding to a Year 2000 failure. Substantially all of
these plans, as they related to Year 2000 issues, include the ultimate
resolution of any technology failure that we may encounter.
C-8
<PAGE> 83
5. EFFECTIVE NEW ACCOUNTING PRONOUNCEMENTS
Refer to Footnote 2, "Summary of Significant Accounting Policies," of the Notes
to Financial Statements.
6. INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Some of the statements contained in Management's Discussion and Analysis,
including those words such as "believes", "expects", "intends", "estimates",
"assumes", "anticipates" and "seeks", are forward-looking statements. These
forward-looking statements involve risk and uncertainties. Actual results may
differ materially from those suggested by the forward-looking statements for
various reasons. In particular, statements contained in Management's Discussion
and Analysis regarding the Company's business strategies involve risks and
uncertainties, and we can provide no assurance that we will be able to execute
our strategies effectively or achieve our financial and other objectives.
C-9
<PAGE> 84
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.
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.
I. EDWARD PRICE, Vice Chairman and Director - Senior Vice President and Actuary,
Prudential Individual Life Insurance since 1998; 1995 to 1998: Senior Vice
President and Actuary, Prudential Individual Insurance Group. Age 57.
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.
C-10
<PAGE> 85
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
(1) Financial Statements of the Pruco Life of New Jersey Flexible Premium
Variable Annuity Account (Registrant) consisting of the Statements of Net
Assets as of December 31, 1999; the Statements of Operations for the
period ended December 31, 1999; the Statements of Changes in Net Assets
for the periods ended December 31, 1999 and December 31, 1998; and the
Notes relating thereto appear in the Statement of Additional Information
(Part B of the Registration Statement).
(2) Statements of Pruco Life of New Jersey (Depositor) consisting of the
Statements of Financial Position as of December 31, 1999 and 1998; and the
related Statements of Operations of Stockholder's Equity and Cash Flows
for the years ended December 31, 1999, 1998 and 1997; and the Notes to the
Financial Statements appear in the prospectus (Part B of the Statement of
Additional Information).
(b) EXHIBITS
(1) Resolution of the Board of Directors of Pruco Life Insurance Company of
New Jersey establishing the Pruco Life of New Jersey Flexible Premium
Variable Annuity Account and the Pruco Life of New Jersey Modified
Guaranteed Annuity Account (Note 3)
(2) Agreements for custody of securities and similar investments--Not
Applicable.
(3) (a) Form of Distribution Agreement between Prudential Investment
Management Services, Inc. "PIMS" (Underwriter) and Pruco Life
Insurance Company of New Jersey (Depositor) (Note 7)
(b) Form of Selected Broker Agreement used by PIMS (Note 7)
(4) The Prudential DISCOVERY SELECT Contract. (Note 3)
(5) (a) Application form for the Contract. (Note 4)
(6) (a) Articles of Incorporation of Pruco Life Insurance Company of New
Jersey, as amended February 12, 1998. (Note 6)
(b) By-laws of Pruco Life Insurance Company of New Jersey, as amended
August 4, 1999. (Note 2)
(7) Contract of reinsurance in connection with variable annuity contract--Not
Applicable.
(8) Other material contracts performed in whole or in part after the date the
registration statement is filed:
(a) Form of Fund Participation Agreement. (Note 4)
(9) Opinion of Counsel as to legality of the securities being registered.
(Note 1)
(10) Written consent of PricewaterhouseCoopers LLP, independent accountants.
(Note 1)
(11) All financial statements omitted from Item 23, Financial Statements--Not
Applicable.
(12) Agreements in consideration for providing initial capital between or among
Registrant, Depositor, Underwriter, or initial Contract owners--Not
Applicable.
(13) Schedule of Performance Computations. (Note 1)
(14) Powers of Attorney.
(a) Ira J. Kleinman, Esther H. Milnes and I. Edward Price (Note 3)
(b) James J. Avery Jr. (Note 5)
(c) Dennis G. Sullivan (Note 6)
(d) David R. Odenath, Jr. (Note 8)
C-1
<PAGE> 86
- ----------
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Form S-6 Registration No. 333-85117, filed
August 13, 1999, on behalf of the Pruco Life of New Jersey Variable
Appreciable Account.
(Note 3) Incorporated by reference to Form N-4, Registration No. 333-18113,
filed December 18, 1996 on behalf of the Pruco Life of New Jersey
Flexible Premium Variable Annuity Account.
(Note 4) Incorporated by reference to Form N-4, Registration No. 333-06701,
filed June 26, 1996 on behalf of the Pruco Life Flexible Premium
Variable Annuity Account.
(Note 5) Incorporated by reference to Post-Effective Amendment No. 10 to Form
S-1, Registration No. 33-20018, filed April 9, 1998 on behalf of the
Pruco Life of New Jersey Variable Contract Real Property Account.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 12 to Form
S-1, Registration No. 33-20018, filed on or about April 15, 1999 on
behalf of the Pruco Life of New Jersey Variable Contract Real Property
Account.
(Note 7) Incorporated by reference to Post-Effective Amendment No. 3 on Form
N-4, Registration No. 333-18117, filed April 16, 1999, on behalf of the
Pruco Life of New Jersey Flexible Premium Variable Annuity Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 13 to Form
S-1, Registration No. 33-20018, filed April 12, 2000, on behalf
of the Pruco Life of New Jersey Variable Contract Real Property
Account.
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
See Part A: Directors and Officers.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
THE DEPOSITOR OR REGISTRANT
Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey"), a
corporation organized under the laws of New Jersey, is an indirect, wholly-owned
subsidiary of The Prudential Insurance Company of America, ("Prudential"), a
mutual life insurance company organized under the laws of New Jersey. The
subsidiaries of Prudential and short descriptions of each are set forth on the
following pages.
Pruco Life of New Jersey may be deemed to control the following separate
accounts which are registered as unit investment trusts under the Investment
Company Act of 1940: the Pruco Life of New Jersey Variable Appreciable Account,
the Pruco Life of New Jersey Variable Insurance Account, the Pruco Life of New
Jersey Single Premium Variable Life Account, the Pruco Life of New Jersey Single
Premium Variable Annuity Account, the Pruco Life of New Jersey Flexible Premium
Variable Annuity Account (Registrant), the Pruco Life of New Jersey Modified
Guaranteed Annuity Account and the Pruco Life of New Jersey Variable Real
Property Account (separate accounts of Pruco Life of New Jersey).
The above-referenced separate accounts, along with Prudential and certain of
Prudential's separate accounts, hold the majority of the shares of The
Prudential Series Fund, Inc., a Maryland corporation. In addition, The
Prudential holds all the shares of Prudential's Gibraltar Fund, a Maryland
Corporation, in three of its separate accounts. The Prudential Series Fund,
Inc. and Prudential's Gibraltar Fund are registered as open-end diversified,
management investment companies under the Investment Company Act of 1940.
Additionally, the aforementioned separate accounts of Prudential are registered
as unit investment trusts under the Investment Company Act of 1940.
In addition, Pruco Life of New Jersey may also be deemed to be under common
control with The Prudential Variable Contract Account-2, The Prudential Variable
Contract Account-10, and The Prudential Variable Contract Account-11, separate
accounts of Prudential, all of which are registered as open-end, diversified,
management investment companies under the Investment Company Act of 1940 and
with the Prudential Variable Contract Account-24, a registered unit investment
trust.
The subsidiaries of Prudential and short descriptions of each are listed under
Item 25 of Post-Effective Amendment No. 34 to the Form N-1A Registration
Statement for The Prudential Series Fund, Inc., Registration No. 2-80896, filed
April 24, 1998, the text of which is hereby incorporated.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 29, 2000, there were 6,329 owners of qualified contracts and
6,586 owners of nonqualified contracts offered by the Registrant.
C-2
<PAGE> 87
ITEM 28. INDEMNIFICATION
The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.
New Jersey, being the state of organization of Pruco Life Insurance Company of
New Jersey ("PLNJ"), permits entities organized under its jurisdiction to
indemnify directors and officers with certain limitations. The relevant
provisions of New Jersey law permitting indemnification can be found in Section
14A:3-5 of the New Jersey Statutes Annotated. The text of PLNJ's By-law, Article
V, which relates to indemnification of officers and directors, is incorporated
by reference to Exhibit 3(ii) to its form 10-Q filed August 15, 1997.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Prudential Investment Management Services LLC (PIMS)
PIMS is distributor for the following open-end management companies: Cash
Accumulation Trust, COMMAND Money Fund, COMMAND Government Fund, COMMAND
Tax-Free Fund, Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Balanced Fund, Prudential
California Municipal Fund, Prudential Diversified Bond Fund, Inc., Prudential
Diversified Funds, Prudential Emerging Growth Fund, Inc., Prudential Equity
Fund, Inc., Prudential Equity Income Fund, Prudential Europe Growth Fund, Inc.,
Prudential Global Genesis Fund, Inc., Prudential Global Total Return Fund, Inc.,
Prudential Government Income Fund, Inc., Prudential Government Securities Trust,
Prudential High Yield Fund, Inc., Prudential High Yield Total Return Fund, Inc.,
Prudential Index Series Fund, Prudential Institutional Liquidity Portfolio,
Inc., Prudential International Bond Fund, Inc., Prudential Mid-Cap Value Fund,
Prudential MoneyMart Assets, Inc., Prudential Municipal Bond Fund, Prudential
Municipal Series Fund, Prudential National Municipals Fund, Inc., Prudential
Natural Resources Fund, Inc., Prudential Pacific Growth Fund, Inc., Prudential
Real Estate Securities Fund, Prudential Sector Funds, Inc., Prudential Small-Cap
Quantum Fund, Inc., Prudential Small Company Value Fund, Inc., Prudential
Special Money Market Fund, Inc., Prudential Structured Maturity Fund, Inc.,
Prudential Tax-Free Money Fund, Inc., Prudential Tax-Managed Funds, Prudential
20/20 Focus Fund, Prudential World Fund, Inc., The Prudential Investment
Portfolios, Inc., Strategic Partners Series, Target Funds and The Target
Portfolio Trust.
PIMS is also distributor of the following unit investment trusts:
Prudential's Gibraltar Fund, Inc., The Prudential Variable Contract Account-2,
The Prudential Variable Contract Account-10, The Prudential Variable Contract
Account-11, The Prudential Variable Contract Account-24, The Prudential
Variable Contract GI-2, The Prudential Discovery Select Group Variable Contract
Account, The Pruco Life Flexible Premium Variable Annuity Account, The
Prudential Individual Variable Contract Account and The Prudential Qualified
Individual Variable Contract Account.
(b) Information concerning the officers and directors of PIMS is set forth
below.
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME (1) WITH UNDERWRITER REGISTRANT
- -------- --------------------- -------------
Robert F. Gunia............ President None
Kevin B. Frawley .......... Senior Vice President and Chief None
Compliance Officer
Jean D. Hamilton .......... Executive Vice President None
John R. Strangfeld ........ Executive Vice President None
Francis O. Odubekun ....... Senior Vice President and Chief None
Operating Officer
C-3
<PAGE> 88
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME (1) WITH UNDERWRITER REGISTRANT
- -------- --------------------- -------------
William V. Healey ......... Senior Vice President, Secretary
and Chief Legal Officer None
Margaret M. Deverell ...... Vice President, Comptroller and
Chief Financial Officer None
C. Edward Chaplin ......... Treasurer None
- ----------
(1) The address of each person named is Prudential Plaza, 751 Broad Street,
Newark, New Jersey 07102 unless otherwise noted.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books or other documents required to be maintained by Section 31
(a) of the 1940 Act and the rules promulgated thereunder are maintained by the
Registrant through The Prudential Insurance Company of America, 751 Broad
Street, Newark, New Jersey 07102-3777.
ITEM 31. MANAGEMENT SERVICES
Summary of any contract not discussed in Part A or Part B of the registration
statement under which management-related services are provided to the
Registrant--Not Applicable.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes to file a post-effective amendment to this Registrant
Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16
months old for so long as payments under the variable annuity contracts may
be accepted.
(b) Registrant undertakes to include either (1) as part of any application to
purchase a contract offered by the prospectus, a space that an applicant
can check to request a statement of additional information, or (2) a
postcard or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a statement of
additional information.
(c) Registrant undertakes to deliver any statement of additional information
and any financial statements required to be made available under this Form
promptly upon written or oral request.
(d) Restrictions on withdrawal under Section 403(b) Contracts are imposed in
reliance upon, and in compliance with, a no-action letter issued by the
Chief of the Office of Insurance Products and Legal Compliance of the U.S.
Securities and Exchange Commission to the American Council of Life
Insurance on November 28, 1988.
(e) Pruco Life of New Jersey hereby represents that the fees and charges
deducted under the Contract, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred and the
risks assumed by Pruco Life of New Jersey.
C-4
<PAGE> 89
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirements of the Securities Act Rule 485(b) for effectiveness of this
Registration Statement and has caused this Post-effective Amendment No. 4 to the
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, and its seal hereunto affixed and attested, all in the City of
Newark and the State of New Jersey, on this 17th day of April, 2000.
THE PRUCO LIFE OF NEW JERSEY FLEXIBLE PREMIUM
VARIABLE ANNUITY ACCOUNT
(Registrant)
BY: PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Depositor)
Attest: /s/ CLIFFORD E. KIRSCH /s/ ESTHER H. MILNES
- --------------------------------- -----------------------
CLIFFORD E. KIRSCH ESTHER H. MILNES
CHIEF LEGAL OFFICER PRESIDENT
AND SECRETARY
C-5
<PAGE> 90
SIGNATURES
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
SIGNATURE AND TITLE
------------------
*
- ----------------------------------------
ESTHER MILNES Date April 17, 2000
PRESIDENT AND DIRECTOR
*
- ----------------------------------------
JAMES J. AVERY JR
CHAIRMAN OF THE BOARD AND DIRECTOR
* *By: CLIFFORD E. KIRSCH
- ---------------------------------------- -------------------------
DENNIS G. SULLIVAN CLIFFORD E. KIRSCH
VICE PRESIDENT AND CHIEF (ATTORNEY-IN-FACT)
ACCOUNTING OFFICER (PRINCIPAL
FINANCIAL OFFICER AND CHIEF
ACCOUNTING OFFICER
*
- ----------------------------------------
IRA J. KLEINMAN
DIRECTOR
*
- ----------------------------------------
I. EDWARD PRICE
DIRECTOR
*
- ----------------------------------------
DAVID R. ODENATH, JR.
DIRECTOR
C-6
<PAGE> 91
EXHIBIT INDEX
EXHIBITS
(9) Opinion of Counsel
(10) Written Consent of PricewaterhouseCoopers, LLP.
(13) Schedule of Performance Computations
<PAGE> 1
EXHIBIT 9
April 14, 2000
Pruco Insurance Company of New Jersey
213 Washington Street
Newark, New Jersey 07102-2992
Gentlemen:
In my capacity as Chief Legal Officer and Assistant Secretary of Pruco Life
Insurance Company of New Jersey ("Pruco Life of New Jersey"), I have reviewed
the establishment of the Pruco Life of New Jersey Flexible Premium Variable
Annuity Account (the "Account") on May 20, 1996, by the Board of Directors of
Pruco Life of New Jersey as a separate account for assets applicable to certain
individual variable annuity contracts, pursuant to the provisions of Section
17B:28-7 of the New Jersey Insurance Code. I was responsible for oversight of
the preparation and review of the Registration Statement on Form N-4, as
amended, filed by Pruco Life of New Jersey with the Securities and Exchange
Commission (Registration No. 333-18117) under the Securities Act of 1933 for the
registration of certain individual variable annuity contracts issued with
respect to the Account.
I am of the following opinion:
(1) Pruco Life of New Jersey was duly organized under the laws of New Jersey and
is a validly existing corporation.
(2) The Account has been duly created and is validly existing as a separate
Account pursuant to the aforesaid provisions of New Jersey law.
(3) The portion of the assets held in the Account equal to the reserve and other
liabilities for variable benefits under the individual variable annuity
contracts is not chargeable with liabilities arising out of any other business
Pruco Life of New Jersey may conduct.
(4) The individual variable annuity contracts are legal and binding obligations
of Pruco Life of New Jersey in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
Clifford E. Kirsch
<PAGE> 1
EXHIBIT 10
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 5 to the registration
statement on Form N-4 (the "Registration Statement") of our report dated March
17, 2000, relating to the financial statements of Pruco Life of New Jersey
Flexible Premium Variable Annuity Account, which appears in such Statement of
Additional Information.
We also consent to the use in the Statement of Additional Information
constituting part of this Registration Statement of our report dated March 21,
2000, relating to the financial statements of Pruco Life Insurance Company of
New Jersey, which appears in such Statement of Additional Information.
We also consent to the reference to us under the heading "Experts" in the
Statement of Additional Information and the Prospectus.
PRICEWATERHOUSECOOPERS LLP
New York, New York
April 10, 2000
<PAGE> 1
EXHIBIT 13
TABLE 1
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
From Date
Portfolio
One Year Five Years Ten Years Established
Fund Date Ended Ended Ended Through
Portfolio Established 12/31/1999 12/31/1999 12/31/1999 12/31/1999
--------- ----------- ---------- ---------- ---------- ----------
THE PRUDENTIAL SERIES FUND
<S> <C> <C> <C> <C> <C>
Diversified Bond Portfolio 06/83 -7.10% 6.12% 6.14% 7.30%
Diversified Conservative Growth Portfolio 05/99 N/A N/A N/A -4.39%
High Yield Bond Portfolio 02/87 -1.72% 7.07% 8.22% 6.43%
Stock Index Portfolio 10/87 14.01% 26.26% 16.07% 17.28%
Equity Income Portfolio 02/88 6.10% 15.56% 12.44% 13.07%
Equity Portfolio 06/83 6.05% 17.21% 13.44% 13.43%
Global Portfolio 09/88 42.72% 20.61% 11.75% 12.69%
Prudential Jennison Portfolio 05/95 35.39% N/A N/A 30.08%
Small Capitalization Stock Portfolio 05/95 6.25% N/A N/A 14.24%
20/20 Focus Portfolio 05/99 N/A N/A N/A 7.95%
AIM VARIABLE INSURANCE FUNDS INC.
AIM V.I. Growth and Income Fund 05/94 27.53% 26.30% N/A 22.68%
AIM V.I. Value Fund 06/93 23.23% 25.36% N/A 21.12%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century VP Value 05/96 -6.95% N/A N/A 8.99%
JANUS ASPEN SERIES
Growth Portfolio 09/93 37.13% 27.98% N/A 22.49%
International Growth Portfolio 05/94 74.88% 31.30% N/A 26.31%
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series 07/95 69.41% N/A N/A 34.38%
Research Series 07/95 17.48% N/A N/A 20.89%
OCC ACCUMULATION TRUST
Managed Portfolio 08/88 -1.32% 17.93% 15.01% 16.10%
Small Cap Portfolio 08/88 -7.86% 6.69% 9.57% 9.94%
T. ROWE PRICE EQUITY SERIES, INC.
Equity Income Portfolio 03/94 -2.58% 16.67% N/A 15.50%
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio 03/94 26.61% 13.46% N/A 11.73%
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Small Cap Investments Fund - Class 2 05/98 67.07% N/A N/A 28.68%
WARBURG PINCUS TRUST
Post-Venture Capital Portfolio 09/96 56.38% N/A N/A 20.47%
482.71% 258.52% 92.64% 377.36%
-1.34% 3.71% 3.67% 4.78%
481.37% 262.23% 96.31% 382.14%
</TABLE>
<PAGE> 2
TABLE 2
AVERAGE ANNUAL TOTAL RETURN
ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
From Date
Portfolio
One Year Five Years Ten Years Established
Fund Date Ended Ended Ended Through
Portfolio Established 12/31/1999 12/31/1999 12/31/1999 12/31/1999
--------- ----------- ---------- ---------- ---------- ----------
THE PRUDENTIAL SERIES FUND
<S> <C> <C> <C> <C> <C>
Diversified Bond Portfolio 06/83 -2.45% 6.25% 6.14% 7.30%
Diversified Conservative Growth Portfolio 05/99 N/A N/A N/A 5.05%
High Yield Bond Portfolio 02/87 3.08% 7.20% 8.22% 6.43%
Stock Index Portfolio 10/87 18.81% 26.32% 16.07% 17.28%
Equity Income Portfolio 02/88 10.90% 15.65% 12.44% 13.07%
Equity Portfolio 06/83 10.85% 17.30% 13.44% 13.43%
Prudential Jennison Portfolio 05/95 40.19% N/A N/A 30.21%
Global Portfolio 09/88 47.52% 20.69% 11.75% 12.69%
Small Capitalization Stock Portfolio 05/95 11.06% N/A N/A 14.44%
20/20 Focus Portfolio 05/99 N/A N/A N/A 17.76%
AIM VARIABLE INSURANCE FUNDS INC.
AIM V.I. Growth and Income Fund 05/94 32.33% 26.36% N/A 22.73%
AIM V.I. Value Fund 06/93 28.03% 25.42% N/A 21.13%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century VP Value 05/96 -2.28% N/A N/A 9.51%
JANUS ASPEN SERIES
Growth Portfolio 09/93 41.93% 28.04% N/A 22.51%
International Growth Portfolio 05/94 79.68% 31.35% N/A 26.36%
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series 07/95 74.21% N/A N/A 34.53%
Research Series 07/95 22.28% N/A N/A 21.10%
OCC ACCUMULATION TRUST
Managed Portfolio 08/88 3.48% 18.02% 15.01% 16.10%
Small Cap Portfolio 08/88 -3.26% 6.81% 9.57% 9.94%
T. ROWE PRICE EQUITY SERIES, INC.
Equity Income Portfolio 03/94 2.22% 16.75% N/A 15.57%
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio 03/94 31.41% 13.55% N/A 11.82%
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Small Cap Investments Fund - Class 2 05/98 71.87% N/A N/A 31.09%
WARBURG PINCUS TRUST
Post-Venture Capital Portfolio 09/96 61.18% N/A N/A 21.03%
583.04% 259.71% 92.64% 401.08%
3.46% 3.84% 3.67% 4.78%
586.50% 263.55% 96.31% 405.86%
</TABLE>
<PAGE> 3
TABLE 3
CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
From Date
Portfolio
One Year Five Years Ten Years Established
Fund Date Ended Ended Ended Through
Portfolio Established 12/31/1999 12/31/1999 12/31/1999 12/31/1999
--------- ----------- ---------- ---------- ---------- ----------
THE PRUDENTIAL SERIES FUND
<S> <C> <C> <C> <C> <C>
Diversified Bond Portfolio 06/83 -2.45% 35.40% 81.52% 221.50%
Diversified Conservative Growth Portfolio 05/99 N/A N/A N/A 3.35%
High Yield Bond Portfolio 02/87 3.08% 41.55% 120.41% 122.84%
Stock Index Portfolio 10/87 18.81% 221.64% 343.87% 598.97%
Equity Income Portfolio 02/88 10.90% 106.91% 222.92% 329.58%
Equity Portfolio 06/83 10.85% 122.03% 252.92% 706.94%
Prudential Jennison Portfolio 05/95 40.19% N/A N/A 242.86%
Global Portfolio 09/88 47.52% 156.07% 203.60% 284.94%
Small Capitalization Stock Portfolio 05/95 11.06% N/A N/A 87.68%
20/20 Focus Portfolio 05/99 N/A N/A N/A 11.54%
AIM VARIABLE INSURANCE FUNDS INC.
AIM V.I. Growth and Income Fund 05/94 32.33% 222.15% N/A 219.09%
AIM V.I. Value Fund 06/93 28.03% 210.34% N/A 253.16%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century VP Value 05/96 -2.28% N/A N/A 39.51%
JANUS ASPEN SERIES
Growth Portfolio 09/93 41.93% 244.15% N/A 259.15%
International Growth Portfolio 05/94 79.68% 291.02% N/A 276.31%
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series 07/95 74.21% N/A N/A 273.01%
Research Series 07/95 22.28% N/A N/A 133.91%
OCC ACCUMULATION TRUST
Managed Portfolio 08/88 3.48% 128.93% 305.04% 449.61%
Small Cap Portfolio 08/88 -3.26% 39.02% 149.42% 194.82%
T. ROWE PRICE EQUITY SERIES, INC.
Equity Income Portfolio 03/94 2.22% 116.93% N/A 129.93%
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio 03/94 31.41% 88.81% N/A 90.11%
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Small Cap Investments Fund - Class 2 05/98 71.87% N/A N/A 57.06%
WARBURG PINCUS TRUST
Post-Venture Capital Portfolio 09/96 61.18% N/A N/A 85.96%
583.04% 2024.95% 1679.70% 5071.83%
3.46% 20.75% 43.35% 116.99%
586.50% 2045.70% 1723.05% 5188.82%
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