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Prospectus -- May 1, 2000
SURVIVORSHIP VARIABLE
UNIVERSAL LIFE
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
Pruco Life Insurance Company of New Jersey
(In New Jersey and New York)
[LOGO] PRUDENTIAL
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PROSPECTUS
MAY 1, 2000
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
SURVIVORSHIP VARIABLE UNIVERSAL LIFE
This prospectus describes an individual flexible premium survivorship variable
universal life insurance contract (the "Contract"), offered by Pruco Life
Insurance Company of New Jersey ("Pruco Life of New Jersey," "us," "we," or
"our"). Pruco Life of New Jersey is an indirect, wholly-owned subsidiary of The
Prudential Insurance Company of America. The Contract provides life insurance
coverage on two insureds with a death benefit payable on the second death.
INVESTMENT CHOICES
Survivorship Variable Universal Life offers a wide variety of investment
choices, including 16 variable investment options that invest in mutual funds
managed by these leading asset managers:
o THE PRUDENTIAL INVESTMENT CORPORATION
o A I M ADVISORS, INC.
o AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
o FRANKLIN ADVISERS, INC.
o JANUS CAPITAL CORPORATION
o MASSACHUSETTS FINANCIAL SERVICES COMPANY
o ROWE PRICE-FLEMING INTERNATIONAL, INC.
For a complete list of the 16 available variable investment options and their
investment objectives, see THE FUNDS, page 7.
You may also choose to invest your Contract's premiums and its earnings in the
fixed-rate option which pays a guaranteed interest rate. See THE FIXED-RATE
OPTION, page 10.
This prospectus describes the Contract generally and the Pruco Life of New
Jersey Variable Appreciable Account (the "Account"). The attached prospectuses
for the Funds, and their related statements of additional information describe
the investment objectives and the risks of investing in the Fund portfolios.
Pruco Life of New Jersey may add additional investment options in the future.
Please read this prospectus and keep it for future reference.
The Securities and Exchange Commission ("SEC") maintains a Web site
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding registrants that file electronically with the SEC.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE CONTRACT MAY BE PURCHASED THROUGH REGISTERED REPRESENTATIVES LOCATED IN
BANKS AND OTHER FINANCIAL INSTITUTIONS. AN INVESTMENT IN THE CONTRACT IS NOT A
BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION ("FDIC") OR ANY OTHER GOVERNMENTAL AGENCY AND MAY LOSE VALUE. AN
INVESTMENT IS ALSO NOT A CONDITION TO THE PROVISION OR TERM OF ANY BANKING
SERVICE OR ACTIVITY. THE PARTICIPATING BANK IS NOT A REGISTERED BROKER-DEALER
AND IS NOT AFFILIATED WITH PRUCO SECURITIES CORPORATION.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 782-5356
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PROSPECTUS CONTENTS
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PAGE
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DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS...........................................................................1
INTRODUCTION AND SUMMARY.......................................................................................................2
BRIEF DESCRIPTION OF THE CONTRACT...........................................................................................2
CHARGES.....................................................................................................................2
TYPES OF DEATH BENEFIT......................................................................................................5
PREMIUM PAYMENTS............................................................................................................5
REFUND......................................................................................................................5
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY,
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT, AND THE
VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACT.......................................................................6
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY..................................................................................6
THE PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT...................................................................6
THE FUNDS...................................................................................................................7
VOTING RIGHTS...............................................................................................................9
THE FIXED-RATE OPTION......................................................................................................10
WHICH INVESTMENT OPTION SHOULD BE SELECTED?................................................................................11
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS..........................................................................11
CHARGES AND EXPENSES.......................................................................................................11
REQUIREMENTS FOR ISSUANCE OF A CONTRACT....................................................................................15
SHORT-TERM CANCELLATION RIGHT OR "FREE-LOOK"...............................................................................15
TYPES OF DEATH BENEFIT.....................................................................................................15
CHANGING THE TYPE OF DEATH BENEFIT.........................................................................................16
CONTRACT DATE..............................................................................................................17
PREMIUMS...................................................................................................................17
ALLOCATION OF PREMIUMS.....................................................................................................18
DEATH BENEFIT GUARANTEE....................................................................................................19
TRANSFERS..................................................................................................................20
DOLLAR COST AVERAGING......................................................................................................21
AUTO-REBALANCING...........................................................................................................21
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY............................................................................22
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY....................................................................22
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY.................................................................23
SURRENDER OF A CONTRACT....................................................................................................24
WITHDRAWALS................................................................................................................25
DECREASES IN BASIC INSURANCE AMOUNT........................................................................................25
WHEN PROCEEDS ARE PAID.....................................................................................................26
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS...........................................26
CONTRACT LOANS.............................................................................................................28
SALE OF THE CONTRACT AND SALES COMMISSIONS.................................................................................29
TAX TREATMENT OF CONTRACT BENEFITS.........................................................................................29
LAPSE AND REINSTATEMENT....................................................................................................31
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS........................................................32
OTHER GENERAL CONTRACT PROVISIONS..........................................................................................32
RIDERS.....................................................................................................................33
SUBSTITUTION OF FUND SHARES................................................................................................33
REPORTS TO CONTRACT OWNERS.................................................................................................33
STATE REGULATION...........................................................................................................33
EXPERTS....................................................................................................................34
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LITIGATION AND REGULATORY PROCEEDINGS......................................................................................34
ADDITIONAL INFORMATION.....................................................................................................35
FINANCIAL STATEMENTS.......................................................................................................35
DIRECTORS AND OFFICERS........................................................................................................36
FINANCIAL STATEMENTS OF THE PRUCO LIFE OF NEW JERSEY
VARIABLE APPRECIABLE ACCOUNT..................................................................................................A1
FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY............................................................B1
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DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS
ACCUMULATED NET PAYMENTS -- The actual premium payments you make accumulated at
an effective annual rate of 4%, less any withdrawals you make, accumulated at an
effective annual rate of 4%.
ATTAINED AGE -- An insured's age on the Contract date plus the number of years
since then.
BASIC INSURANCE AMOUNT -- The amount of life insurance as shown in the Contract.
Also referred to as "face amount."
CASH VALUE -- An amount equal to the Contract Fund minus surrender charges.
CASH SURRENDER VALUE -- The amount payable to the Contract owner upon surrender
of the Contract. It is equal to the Contract Fund minus any Contract debt and
minus surrender charges. Also referred to in the Contract as Net Cash Value.
CONTRACT -- The Pruco Life of New Jersey Survivorship Variable Universal Life
policy described in this prospectus.
CONTRACT ANNIVERSARY -- The same date as the Contract date in each later year.
CONTRACT DATE -- The date the Contract is effective, as specified in the
Contract.
CONTRACT DEBT -- The principal amount of all outstanding loans plus any interest
accrued thereon.
CONTRACT FUND -- The total amount credited to a specific Contract. On any date
it is equal to the sum of the amounts in all the variable investment options and
the fixed-rate option, and the principal amount of any Contract debt plus any
interest earned thereon.
CONTRACT MONTH -- A month that starts on the Monthly date.
CONTRACT OWNER[S] -- You. Unless a different owner is named in the application,
the owners of the Contract are the insureds jointly or the survivor of them. If
the Contract is owned jointly, the exercise of rights under the Contract must be
made by both jointly.
CONTRACT YEAR -- A year that starts on the Contract date or on a Contract
anniversary.
DEATH BENEFIT -- If the Contract is not in default, this is the amount we will
pay upon the second death of two insureds, assuming no Contract debt.
FIXED-RATE OPTION -- An investment option under which Pruco Life of New Jersey
guarantees that interest will be added to the amount invested at a rate declared
periodically in advance.
FUNDS -- Mutual funds with separate portfolios. One or more of the available
Fund portfolios may be chosen as an underlying investment for the Contract.
ISSUE AGE -- An insured's age as of the Contract date.
LIFETIME DEATH BENEFIT GUARANTEE PERIOD -- The lifetime of the Contract, during
which time the Lifetime Death Benefit Guarantee is available if sufficient
premiums are paid and there is no outstanding loan. See DEATH BENEFIT GUARANTEE,
page 19.
LIMITED DEATH BENEFIT GUARANTEE PERIOD -- the period until age 75 of the younger
insured or 10 years after issue, whichever comes later, during which time the
Limited Death Benefit Guarantee is available if sufficient premiums are paid and
there is no outstanding loan. The period applicable to your Contract is shown on
the Contract data pages. See DEATH BENEFIT GUARANTEE, page 19.
MONTHLY DATE -- The Contract date and the same date in each subsequent month.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY -- Pruco Life of New Jersey, us, we,
our. The company offering the Contract.
SEPARATE ACCOUNT -- Amounts under the Contract that are allocated to the
variable investment options held by us in a separate account called the Pruco
Life of New Jersey Variable Appreciable Account. The separate account is set up
apart from all of the general assets of Pruco Life Insurance Company of New
Jersey.
VALUATION PERIOD -- The period of time from one determination of the value of
the amount invested in a variable investment option to the next. Such
determinations are made when the net asset values of the portfolios of the Funds
are calculated, which is generally at 4:00 p.m. Eastern time on each day during
which the New York Stock Exchange is open.
VARIABLE INVESTMENT OPTION -- the 16 mutual funds available under this Contract,
whose shares are held in the separate account.
YOU -- The owner[s] of the Contract.
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INTRODUCTION AND SUMMARY
THIS SUMMARY PROVIDES A BRIEF OVERVIEW OF THE MORE SIGNIFICANT ASPECTS OF THE
CONTRACT. WE PROVIDE FURTHER DETAIL IN THE SUBSEQUENT SECTIONS OF THIS
PROSPECTUS AND IN THE CONTRACT.
BRIEF DESCRIPTION OF THE CONTRACT
The PRUCO LIFE OF NEW JERSEY SURVIVORSHIP VARIABLE UNIVERSAL LIFE Contract is a
flexible premium variable universal life insurance policy. It is issued by Pruco
Life Insurance Company of New Jersey. The Contract provides life insurance
coverage, with a death benefit payable upon the second death of two insureds. If
the Contract is not in default, the amount we will pay will be the death benefit
determined as of the date of the second death reduced by any Contract debt. See
CONTRACT LOANS, page 28. A significant element of the Contract is the Contract
Fund. The Contract Fund represents the value of your Contract and changes every
business day.
A broad objective of the Contract is to provide benefits that will increase in
value if favorable investment results are achieved. You may invest premiums in
one or more of the 16 available variable investment options or in the fixed-rate
option. Your Contract Fund value changes every day depending upon the change in
value of the particular investment options that you have selected.
Although the value of your Contract Fund will increase if there is favorable
investment performance in the variable investment options you select, investment
returns in the variable investment options are NOT guaranteed. There is a risk
that investment performance will be unfavorable and that the value of your
Contract Fund will decrease. The risk will be different, depending upon which
investment options you choose. See WHICH INVESTMENT OPTION SHOULD BE SELECTED?,
page 11. If you select the fixed-rate option, Pruco Life of New Jersey credits
your account with a declared rate or rates of interest. You assume the risk that
the rate may change, although it will never be lower than an effective annual
rate of 4%.
Variable life insurance contracts are unsuitable as short-term savings vehicles.
Loans will negate any guarantee against lapse and may result in adverse tax
consequences. See DEATH BENEFIT Guarantee, page 19, and TAX TREATMENT OF
CONTRACT BENEFITS, page 29.
CHARGES
The following chart outlines the components of your Contract Fund and the
adjustments which may be made including the maximum charges which may be
deducted from each premium payment and from the amounts held in the designated
investment options. These charges are largely designed to cover insurance costs
and risks as well as sales and administrative expenses.
The maximum charges shown in the chart, as well as the current lower charges,
are fully described under CHARGES AND EXPENSES, page 11.
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PREMIUM PAYMENT
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o less a charge of up to 7.5% for any taxes attributable to premiums.
o less a charge for sales expenses during the first five contract years
at a rate of up to 12%; after the fifth contract year, we may charge
up to 4%.
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INVESTED PREMIUM AMOUNT
To be invested in one or a combination of:
o 16 investment portfolios of the Funds
o The fixed-rate option
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CONTRACT FUND
On the Contract Date, the Contract Fund is equal to the invested premium amount
minus any of the charges described below which may be due on that date.
Thereafter, the value of the Contract Fund changes daily.
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DAILY CHARGES
o We deduct management fees and expenses from the Fund assets. See UNDERLYING
PORTFOLIO EXPENSES chart, below.
o We deduct a daily mortality and expense risk charge, equivalent to an
effective annual rate of up to 0.9%, from assets in the variable investment
options.
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MONTHLY CHARGES
o During the first five years, we reduce the Contract Fund by a monthly
administrative charge of $10.00 per Contract plus up to $0.10 per $1,000 of
basic insurance amount; after the first five Contract years, we charge
$10.00 per Contract plus up to $0.05 per $1,000 of the basic insurance
amount.
o We deduct a cost of insurance ("COI") charge.
o If the Contract includes riders, we deduct rider charges from the Contract
Fund.
o If the rating class of an insured results in an extra charge, we will
deduct that charge from the Contract Fund.
o We reserve the right to deduct a charge to cover federal, state or local
taxes imposed upon the operations of the Account.
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POSSIBLE ADDITIONAL CHARGES
o We will assess contingent deferred sales and administrative charges
(surrender charges) if the Contract is surrendered. We may charge up to $8
per $1,000 of basic insurance amount if you surrender your Contract. This
charge is level for the first five years and declines monthly until it
reaches zero at the end of the 10th Contract year.
o We assess an administrative processing charge of up to $25 for any
withdrawals.
o We reserve the right to charge up to $25 for each basic insurance amount
decrease, although no such charge is currently being made.
o We assess an administrative processing charge of up to $25 for each
transfer exceeding 12 in any Contract year.
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UNDERLYING PORTFOLIO EXPENSES
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TOTAL
INVESTMENT OTHER CONTRACTUAL TOTAL ACTUAL
PORTFOLIO ADVISORY FEE EXPENSES EXPENSES EXPENSES*
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SERIES FUND
<S> <C> <C> <C> <C>
Money Market 0.40% 0.02% 0.42% 0.42%
Diversified Bond 0.40% 0.03% 0.43% 0.43%
Conservative Balanced 0.55% 0.02% 0.57% 0.57%
Flexible Managed 0.60% 0.02% 0.62% 0.62%
High Yield Bond 0.55% 0.05% 0.60% 0.60%
Stock Index 0.35% 0.04% 0.39% 0.39%
Equity Income 0.40% 0.02% 0.42% 0.42%
Equity 0.45% 0.02% 0.47% 0.47%
Prudential Jennison 0.60% 0.03% 0.63% 0.63%
Global 0.75% 0.09% 0.84% 0.84%
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Value Fund 0.61% 0.15% 0.76% 0.76%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. (1)
VP Value Fund 1.00% 0.00% 1.00% 1.00%
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS
TRUST (2)
Franklin Small Cap 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%
MFS(R) VARIABLE INSURANCE TRUST/SM/ (4)
Emerging Growth Series 0.75% 0.09% 0.84% 0.84%
T. ROWE PRICE INTERNATIONAL SERIES, INC. (1)
International Stock Portfolio 1.05% 0.00% 1.05% 1.05%
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* Reflects fee waivers and reimbursement of expenses, if any.
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(1) AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. / T. ROWE PRICE INTERNATIONAL
SERIES, INC.
The Investment Advisory Fee includes the ordinary expenses of operating the
Fund.
(2) FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
The 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%.
(3) JANUS ASPEN SERIES
The table reflects expenses based on expenses for the fiscal year ended
December 31, 1999, restated to reflect a reduction in the management fee.
(4) MFS(R) VARIABLE INSURANCE TRUST/SM/
The 0.09% in "Other Expenses" does not take into account a 0.01% expense
offset arrangement with the Fund's custodian and is therefore higher than
the actual expenses of the Series.
THE EXPENSES RELATING TO THE FUNDS (OTHER THAN THOSE OF THE PRUDENTIAL SERIES
FUND, INC. (THE "SERIES FUND") HAVE BEEN PROVIDED TO PRUCO LIFE OF NEW JERSEY BY
THE FUNDS. PRUCO LIFE OF NEW JERSEY HAS NOT INDEPENDENTLY VERIFIED THEM.
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TYPES OF DEATH BENEFIT
There are two types of death benefit available: Type A (fixed) death benefit and
Type B (variable) death benefit. You may choose a Type A death benefit under
which the cash surrender value varies daily with investment experience, and the
death benefit you initially chose does not change. However, the Contract Fund
may grow to a point where the death benefit may increase and vary with
investment experience. You may choose a Type B death benefit under which the
cash surrender value and the death benefit both vary with investment experience.
For either type of death benefit, as long as the Contract is inforce, the death
benefit will never be less than the basic insurance amount shown in your
Contract. See TYPE OF DEATH BENEFIT, page 15.
PREMIUM PAYMENTS
The Contract is a flexible premium contract - there are no scheduled premiums.
Except for the minimum initial premium, and subject to a minimum of $25 per
subsequent payment ($15 for premiums made by electronic fund transfer), you
choose the timing and amount of premium payments. The Contract will remain
inforce if the Contract Fund is sufficient to cover the charges, including
surrender charges. Paying insufficient premiums, poor investment results, or the
taking of loans or withdrawals from the Contract will increase the possibility
that the Contract will lapse. However, if the accumulated premiums you pay, less
withdrawals, are high enough, and you have no Contract debt, Pruco Life of New
Jersey guarantees that your Contract will not lapse even if investment
experience is very unfavorable and the Contract Fund drops below zero. There are
two guarantees available, one that lasts for the lifetime of the Contract and
one that lasts for a stated, reasonably lengthy period. The guarantee for the
life of the Contract requires higher premium payments. See PREMIUMS, page 17,
DEATH BENEFIT GUARANTEE, page 19 and LAPSE AND REINSTATEMENT, page 31. You
should discuss your billing options with your Pruco Life of New Jersey
representative when you apply for the Contract. See PREMIUMS, page 17.
REFUND
For a limited time, you may return your Contract for a refund in accordance with
the terms of its "free-look" provision. See SHORT-TERM CANCELLATION RIGHT OR
"FREE-LOOK," page 15.
For the DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, see page 1.
THE REPLACEMENT OF LIFE INSURANCE IS GENERALLY NOT IN YOUR BEST INTEREST. IN
MOST CASES, IF YOU REQUIRE ADDITIONAL COVERAGE, THE BENEFITS OF YOUR EXISTING
CONTRACT CAN BE PROTECTED BY PURCHASING ADDITIONAL INSURANCE OR A SUPPLEMENTAL
CONTRACT. IF YOU ARE CONSIDERING REPLACING A CONTRACT, YOU SHOULD COMPARE THE
BENEFITS AND COSTS OF SUPPLEMENTING YOUR EXISTING CONTRACT WITH THE BENEFITS AND
COSTS OF PURCHASING THE CONTRACT DESCRIBED IN THIS PROSPECTUS AND YOU SHOULD
CONSULT WITH A QUALIFIED TAX ADVISER.
THIS PROSPECTUS MAY ONLY BE OFFERED IN JURISDICTIONS IN WHICH THE OFFERING IS
LAWFUL. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE
PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION FOR THE FUNDS.
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GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY, PRUCO
LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT, AND THE VARIABLE
INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACT
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey", "us",
"we", or "our") is a stock insurance company, organized in 1982 under the laws
of the State of New Jersey. It is licensed to sell life insurance and annuities
only in the States of New Jersey and New York. These Contracts are not offered
in any state where the necessary approvals have not been obtained.
Pruco Life of New Jersey is an indirect, 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 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, voting by qualified policyholders and regulatory approval.
Prudential is working toward completing this process in 2001 and currently
expects adoption by the Board of Directors to take place in the latter part of
2000. However, there is no certainty that the demutualization will be completed
in this timeframe or that the necessary approvals will be obtained. Also it is
possible that after careful review, Prudential could decide not to demutualize
or could decide to delay its plans.
The plan of reorganization, which has not been fully developed and approved,
would provide the criteria for determining eligibility and the methodology for
allocating shares or other consideration to those who would be eligible.
Generally the amount of shares or other consideration eligible customers would
receive would be based on a number of factors, including types, amounts and
issue years of the policies. As a general rule, owners of Prudential-issued
insurance policies and annuity contracts would be eligible, provided that their
policies were in force on the date Prudential's Board of Directors adopted a
plan of reorganization, while mutual fund customers and customers of
Prudential'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 PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
We have established a separate account, the Pruco Life of New Jersey Variable
Appreciable Account (the "Account"), to hold the assets that are associated with
the Contracts. The Account was established on January 13, 1984 under New Jersey
law and is registered with the Securities and Exchange Commission ("SEC") under
the Investment Company Act of 1940 as a unit investment trust, which is a type
of investment company. The Account meets the definition of a "separate account"
under the federal securities laws. The Account holds assets that are segregated
from all of Pruco Life of New Jersey's other assets.
Pruco Life of New Jersey is also the legal owner of the assets in the Account.
Pruco Life of New Jersey will maintain assets in the Account with a total market
value at least equal to the reserve and other
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liabilities relating to the variable benefits attributable to the Account. These
assets may not be charged with liabilities which arise from any other business
Pruco Life of New Jersey conducts. In addition to these assets, the Account's
assets may include funds contributed by Prudential to commence operation of the
Account and may include accumulations of the charges Pruco Life of New Jersey
makes against the Account. From time to time these additional assets will be
transferred to Pruco Life of New Jersey's general account. Pruco Life of New
Jersey will consider any possible adverse impact the transfer might have on the
Account before making any such transfer.
The obligations to Contract owners and beneficiaries arising under the Contract
are general corporate obligations of Pruco Life of New Jersey.
Currently, you may invest in one or a combination of 16 available variable
investment options. When you choose a variable investment option, we purchase
shares of a 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 the subaccount. Pruco Life of New Jersey may add additional
variable investment options in the future. The Account's financial statements
begin on page A1.
THE FUNDS
Listed below are the mutual funds (the "Funds") in which the variable investment
options invest, the investment objectives, and investment advisers.
EACH OF THE FUNDS HAS A SEPARATE PROSPECTUS THAT IS PROVIDED WITH THIS
PROSPECTUS. YOU SHOULD READ THE FUND PROSPECTUS BEFORE YOU DECIDE TO ALLOCATE
ASSETS TO THE VARIABLE INVESTMENT OPTION USING THAT FUND. THERE IS NO ASSURANCE
THAT THE INVESTMENT OBJECTIVES OF THE FUNDS WILL BE MET.
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND"):
o MONEY MARKET PORTFOLIO: The investment objective is maximum current income
consistent with the stability of capital and the maintenance of liquidity.
The Portfolio invests in high quality short-term debt obligations that
mature in 13 months or less.
o DIVERSIFIED BOND PORTFOLIO: The investment objective is a high level of
income over a longer term while providing reasonable safety of capital. The
Portfolio invests primarily in higher grade debt obligations and high
quality money market investments.
o CONSERVATIVE BALANCED PORTFOLIO: The investment objective is a total
investment return consistent with a conservatively managed diversified
portfolio. The Portfolio invests in a mix of equity securities, debt
obligations and money market instruments.
o FLEXIBLE MANAGED PORTFOLIO: The investment objective is a total investment
return consistent with an aggressively managed diversified portfolio. The
Portfolio invests in a mix of equity securities, debt obligations and money
market instruments.
o HIGH YIELD BOND PORTFOLIO: The investment objective is a high total return.
The Portfolio invests primarily in high yield/high risk debt securities.
o STOCK INDEX PORTFOLIO: The investment objective is investment results that
generally correspond to the performance of publicly-traded common stocks.
The Portfolio attempts to duplicate the price and yield performance of the
Standard & Poor's 500 Stock Index (the "S&P 500").
o EQUITY INCOME PORTFOLIO: The investment objective is both current income
and capital appreciation. The Portfolio invests primarily in common stocks
and convertible securities that provide good prospects for returns above
those of the S&P 500 or the NYSE Composite Index.
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o EQUITY PORTFOLIO: The investment objective is capital appreciation. The
Portfolio invests primarily in common stocks of major established
corporations as well as smaller companies that offer attractive prospects
of appreciation.
o PRUDENTIAL JENNISON PORTFOLIO: The investment objective is to achieve
long-term growth of capital. The Portfolio invests primarily in equity
securities of major established corporations that offer above-average
growth prospects.
o GLOBAL PORTFOLIO: The investment objective is long-term growth of capital.
The Portfolio invests primarily in common stocks (and their equivalents) of
foreign and U.S. companies.
Prudential is the investment adviser for the assets of each of the portfolios of
the Series Fund. Prudential's principal business address is 751 Broad Street,
Newark, New Jersey 07102-3777. Prudential has a Service Agreement with its
wholly-owned subsidiary, The Prudential Investment Corporation ("PIC"). The
Service Agreement provides that, subject to Prudential's supervision, PIC will
furnish investment advisory services in connection with the management of the
Series Fund. In addition, Prudential has entered into a Subadvisory Agreement
with its wholly-owned subsidiary, Jennison Associates LLC ("Jennison"), under
which Jennison furnishes investment advisory services in connection with the
management of the Prudential Jennison Portfolio.
AIM VARIABLE INSURANCE FUNDS:
o AIM V.I. VALUE FUND. Seeks to achieve long-term growth of capital. Income
is a secondary objective.
A I M Advisors, Inc. ("AIM") is the investment adviser for this fund. The
principal business address for AIM is 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.:
o AMERICAN CENTURY VP VALUE FUND. Seeks long-term capital growth with income
as a secondary objective. The Fund seeks to achieve its objective by
investing primarily in equity securities of well-established companies with
intermediate-to-large market capitalizations that are believed by
management to be undervalued at the time of purchase.
American Century Investment Management, Inc. ("ACIM") is the investment adviser
for this fund. ACIM's principal business address is American Century Tower, 4500
Main Street, Kansas City, Missouri 64111. The principal underwriter of the Fund
is American Century Services, Inc., located at 4500 Main Street, Kansas City,
Missouri 64111.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST:
o FRANKLIN SMALL CAP FUND-- CLASS 2. Seeks long-term capital growth. The Fund
invests primarily in equity securities of U.S. small capitalization growth
companies.
Franklin Advisers, Inc. (Advisers) is the fund's investment manager. The
principal business address for Franklin Advisers, Inc. is 777 Mariners Island
Boulevard, San Mateo, California 94403-7777.
8
<PAGE>
JANUS ASPEN SERIES:
o GROWTH PORTFOLIO. Seeks long-term growth of capital in a manner consistent
with the preservation of capital.
Janus Capital Corporation is the investment adviser and is responsible for the
day-to-day management of the portfolio and other business affairs of the
portfolio. Janus Capital Corporation's principal business address is 100
Fillmore Street, Denver, Colorado 80206-4928.
MFS(R) VARIABLE INSURANCE TRUST/SM/:
o EMERGING GROWTH SERIES. Seeks to provide long-term growth of capital.
Massachusetts Financial Services Company, a Delaware corporation, is the
investment adviser to this MFS Series. The principal business address for the
Massachusetts Financial Services Company is 500 Boylston Street, Boston,
Massachusetts 02116.
T. ROWE PRICE INTERNATIONAL SERIES, INC.:
o INTERNATIONAL STOCK PORTFOLIO. Seeks long-term growth of capital through
investments primarily in common stocks of established, non-U.S. companies.
Rowe Price-Fleming International, Inc. is the investment manager for this fund.
The principal business address for Rowe Price-Fleming International, Inc. is 100
East Pratt Street, Baltimore, Maryland 21202.
The investment advisers for the Funds charge a daily investment management fee
as compensation for their services. These fees are described in the table in the
INTRODUCTION AND SUMMARY section, see page 4, and are more fully described in
the prospectus for each Fund.
In the future it may become disadvantageous for both variable life insurance and
variable annuity contract separate accounts to invest in the same underlying
mutual funds. Although neither of the companies that invest in the Funds nor the
Funds currently foresee any such disadvantage, the Board of Directors for each
Fund intends to monitor events in order to identify any material conflict
between variable life insurance and variable annuity contract owners and to
determine what action, if any, should be taken. Material conflicts could result
from such things as: (1) changes in state insurance law; (2) changes in federal
income tax law; (3) changes in the investment management of any portfolio of the
Funds; or (4) differences between voting instructions given by variable life
insurance and variable annuity contract owners.
Pruco Life of New Jersey may be compensated by an affiliate of each of the Funds
(other than the Prudential Series Fund) based upon an annual percentage of the
average assets held in the Funds by Pruco Life of New Jersey under the
Contracts. These percentages vary by Fund, and reflect administrative and other
services provided by Pruco Life of New Jersey.
VOTING RIGHTS
As described earlier, all of the assets held in the variable investment options
will be invested in shares of the corresponding portfolios of the Funds. Pruco
Life of New Jersey is the legal owner of those shares and as such has the right
to vote on any matter voted on at shareholders meetings of the Funds. However,
Pruco Life of New Jersey will, as required by law, vote the shares of the Funds
in accordance with voting instructions received from Contract owners at any
regular and special shareholders meetings. A Fund may not hold annual
shareholders meetings when not required to do so under the laws of the state of
its incorporation or the Investment Company Act of 1940. Fund shares for which
no timely instructions from Contract owners are received, and any shares
attributable to general account investments of Pruco Life of
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<PAGE>
New Jersey will be voted in the same proportion as shares in the respective
portfolios for which instructions are received. Should the applicable federal
securities laws or regulations, or their current interpretation, change so as to
permit Pruco Life of New Jersey to vote shares of the Funds in its own right, it
may elect to do so.
Matters on which Contract owners may give voting instructions include the
following: (1) election of the Board of Directors of the Series Fund; (2)
ratification of the independent accountant of the Series Fund; (3) approval of
the investment advisory agreement for a portfolio of the Series Fund
corresponding to the Contract owner's selected variable investment option[s];
(4) any change in the fundamental investment policy of a portfolio corresponding
to the Contract owner's selected variable investment option[s]; and (5) any
other matter requiring a vote of the shareholders of the Series Fund. With
respect to approval of the investment advisory agreement or any change in a
portfolio's fundamental investment policy, Contract owners participating in such
portfolios will vote separately on the matter, pursuant to the requirements of
Rule 18f-2 under the Investment Company Act of 1940.
The number of Fund shares for which a Contract owner may give instructions is
determined by dividing the portion of the value of the Contract derived from
participation in a variable investment option, by the value of one share in the
corresponding portfolio of the applicable Fund. The number of votes for which
each Contract owner may give Pruco Life of New Jersey instructions will be
determined as of the record date chosen by the Board of Directors of the
applicable Fund. Pruco Life of New Jersey will furnish Contract owners with
proper forms and proxies to enable them to give these instructions. Pruco Life
of New Jersey reserves the right to modify the manner in which the weight to be
given voting instructions is calculated where such a change is necessary to
comply with current federal regulations or interpretations of those regulations.
Pruco Life of New Jersey may, if required by state insurance regulations,
disregard voting instructions if they would require shares to be voted so as to
cause a change in the sub-classification or investment objectives of one or more
of a Fund's portfolios, or to approve or disapprove an investment advisory
contract for a Fund. In addition, Pruco Life of New Jersey itself may disregard
voting instructions that would require changes in the investment policy or
investment adviser of one or more of the Fund's portfolios, provided that Pruco
Life of New Jersey reasonably disapproves such changes in accordance with
applicable federal regulations. If Pruco Life of New Jersey does disregard
voting instructions, it will advise Contract owners of that action and its
reasons for such action in the next annual or semi-annual report to Contract
owners.
THE FIXED-RATE OPTION
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED-RATE
OPTION UNDER THE CONTRACT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND THE GENERAL ACCOUNT HAS NOT BEEN REGISTERED AS AN INVESTMENT COMPANY
UNDER THE INVESTMENT COMPANY ACT OF 1940. ACCORDINGLY, INTERESTS IN THE
FIXED-RATE OPTION ARE NOT SUBJECT TO THE PROVISIONS OF THESE ACTS, AND PRUCO
LIFE OF NEW JERSEY HAS BEEN ADVISED THAT THE STAFF OF THE SEC HAS NOT REVIEWED
THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED-RATE OPTION. ANY
INACCURATE OR MISLEADING DISCLOSURE REGARDING THE FIXED-RATE OPTION MAY,
HOWEVER, BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF FEDERAL
SECURITIES LAWS.
You may choose to invest, either initially or by transfer, all or part of your
Contract Fund to a fixed-rate option. This amount becomes part of Pruco Life of
New Jersey's general account. The general account consists of all assets owned
by Pruco Life of New Jersey other than those in the Account and in other
separate accounts that have been or may be established by Pruco Life of New
Jersey. Subject to applicable law, Pruco Life of New Jersey has sole discretion
over the investment of the general account assets, and Contract owners do not
share in the investment experience of those assets. Instead, Pruco Life of New
Jersey guarantees that the part of the Contract Fund allocated to the fixed-rate
option will accrue interest daily at an effective annual rate that Pruco Life of
New Jersey declares periodically, but not
10
<PAGE>
less than an effective annual rate of 4%. Pruco Life of New Jersey is not
obligated to credit interest at a rate higher than an effective annual rate of
4%, although we may do so.
Transfers from the fixed-rate option may be subject to strict limits. See
TRANSFERS, page 20. The payment of any cash surrender value attributable to the
fixed-rate option may be delayed up to six months. See WHEN PROCEEDS ARE PAID,
page 26.
WHICH INVESTMENT OPTION SHOULD BE SELECTED?
Historically, for investments held over relatively long periods, the investment
performance of common stocks has generally been superior to that of short or
long-term debt securities, even though common stocks have been subject to much
more dramatic changes in value over short periods of time. Accordingly, the
Stock Index, Equity Income, Equity, Prudential Jennison, Global, AIM, American
Century, Franklin Templeton, Janus, MFS, or T. Rowe Price Portfolios may be
desirable options if you are willing to accept such volatility in your Contract
values. Each of these equity portfolios involves different investment risks,
policies, and programs.
You may prefer the somewhat greater protection against loss of principal (and
reduced chance of high total return) provided by the Diversified Bond Portfolio.
You may want even greater safety of principal and may prefer the Money Market
Portfolio or the fixed-rate option, recognizing that the level of short-term
rates may change rather rapidly. If you are willing to take risks and possibly
achieve a higher total return, you may prefer the High Yield Bond Portfolio,
recognizing that the risks are greater for lower quality bonds with normally
higher yields. You may wish to divide your invested premium among two or more of
the portfolios. You may wish to obtain diversification by relying on
Prudential's judgment for an appropriate asset mix by choosing the Conservative
Balanced or Flexible Managed Portfolios.
Your choice should take into account your willingness to accept investment
risks, how your other assets are invested, and what investment results you may
experience in the future. You should consult your Pruco Life of New Jersey
representative from time to time about the choices available to you under the
Contract. Pruco Life of New Jersey recommends AGAINST frequent transfers among
the several investment options. Experience generally indicates that "market
timing" investing, particularly by non-professional investors, is likely to
prove unsuccessful.
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS
CHARGES AND EXPENSES
The total amount invested at any time in the Contract Fund consists of the sum
of the amount credited to the variable investment options, the amount allocated
to the fixed-rate option, and the principal amount of any Contract loan plus the
amount of interest credited to the Contract upon that loan. See CONTRACT LOANS,
page 28. Most charges, although not all, are made by reducing the Contract Fund.
This section provides a more detailed description of each charge that is
described briefly in the chart on page 2.
In several instances we will use the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, is the highest charge that
Pruco Life of New Jersey is entitled to make under the Contract. The "current
charge" is the lower amount that Pruco Life of New Jersey is now charging.
However, if circumstances change, we reserve the right to increase each current
charge, up to the maximum charge, without giving any advance notice.
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<PAGE>
DEDUCTIONS FROM PREMIUM PAYMENTS
(a) We charge up to 7.5% from each premium for taxes attributable to premiums.
For these purposes, "taxes attributable to premiums" shall include any
federal, state or local income, premium, excise, business or any other type
of tax (or component thereof) measured by or based upon the amount of
premium received by Pruco Life of New Jersey. That charge is currently made
up of two parts, which currently equal a total of 3.75% of the premiums
received. The first part is a charge for state and local premium-based
taxes. The current charge for this first part is 2.5% of the premium and is
Pruco Life of New Jersey's estimate of the average burden of state taxes
generally. The rate applies uniformly to all policyholders without regard
to state of residence. This amount may be more than Pruco Life of New
Jersey actually pays. The second part is for federal income taxes measured
by premiums, and it is currently equal to 1.25% of the premium. We believe
that this charge is a reasonable estimate of an increase in Pruco Life of
New Jersey's federal income taxes resulting from a 1990 change in the
Internal Revenue Code. It is intended to recover this increased tax.
(b) We may deduct up to 12% of premiums paid in the first five Contract years
for sales expenses. This charge is reduced to 4% of premiums paid in
subsequent Contract years. This charge, often called a "sales load", is
deducted to compensate us for the costs of selling the Contracts, including
commissions, advertising and the printing and distribution of prospectuses
and sales literature. Part of those costs related to sales are also
recovered by surrender charges. See SURRENDER CHARGES, page 14.
Currently, we deduct 12% of premiums paid in the first five Contract years
up to the amount of the Lifetime Premium, excluding any premiums for riders
or extra risk charges, (see PREMIUMS, page 17) and 4% of premiums paid in
excess of this amount. We deduct 4% of the premiums paid in Contract years
six through 10, and 2% of premiums paid thereafter.
Attempting to structure the timing and amount of premium payments to reduce
the potential sales load may increase the risk that your Contract will
lapse without value. Delaying the payment of premium amounts to later years
will adversely affect the Death Benefit Guarantee if the accumulated
premium payments do not reach the accumulated values shown under your
Contract's Death Benefit Guarantee Values. See DEATH BENEFIT GUARANTEE,
page 19. In addition, there are circumstances where payment of premiums
that are too large may cause the Contract to be characterized as a Modified
Endowment Contract, which could be significantly disadvantageous. See TAX
TREATMENT OF CONTRACT BENEFITS, page 29.
DEDUCTIONS FROM PORTFOLIOS
We deduct an investment advisory fee daily from each portfolio at a rate, on an
annualized basis, ranging from 0.35% for the Series Fund Stock Index Portfolio
to 1.05% for the T. Rowe Price International Stock Portfolio. The expenses
incurred in conducting the investment operations of the portfolios (such as
custodian fees and preparation and distribution of annual reports) are paid out
of the portfolio's income. These expenses also vary from portfolio to portfolio.
The total expenses of each portfolio for the year ended December 31, 1999,
expressed as a percentage of the average assets during the year, are shown
below:
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<PAGE>
TOTAL PORTFOLIO EXPENSES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL
PORTFOLIO INVESTMENT CONTRACTUAL TOTAL ACTUAL
ADVISORY FEE OTHER EXPENSES EXPENSES EXPENSES*
- ----------------------------------------------------------------------------------------------------------------------------------
SERIES FUND
<S> <C> <C> <C> <C>
Money Market 0.40% 0.02% 0.42% 0.42%
Diversified Bond 0.40% 0.03% 0.43% 0.43%
Conservative Balanced 0.55% 0.02% 0.57% 0.57%
Flexible Managed 0.60% 0.02% 0.62% 0.62%
High Yield Bond 0.55% 0.05% 0.60% 0.60%
Stock Index 0.35% 0.04% 0.39% 0.39%
Equity Income 0.40% 0.02% 0.42% 0.42%
Equity 0.45% 0.02% 0.47% 0.47%
Prudential Jennison 0.60% 0.03% 0.63% 0.63%
Global 0.75% 0.09% 0.84% 0.84%
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Value Fund 0.61% 0.15% 0.76% 0.76%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. (1)
VP Value Fund 1.00% 0.00% 1.00% 1.00%
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (2)
Franklin Small Cap 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%
MFS(R)VARIABLE INSURANCE TRUST/SM/ (4)
Emerging Growth Series 0.75% 0.09% 0.84% 0.84%
T. ROWE PRICE INTERNATIONAL SERIES, INC. (1)
International Stock Portfolio 1.05% 0.00% 1.05% 1.05%
- ----------------------------------------------------------------------------------------------------------------------------------
* Reflects fee waivers and reimbursement of expenses, if any.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. / T. ROWE PRICE INTERNATIONAL
SERIES, INC.
The Investment Advisory Fee includes the ordinary expenses of operating the
Fund.
(2) FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
The 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%.
(3) JANUS ASPEN SERIES
The table reflects expenses based on expenses for the fiscal year ended
December 31, 1999, restated to reflect a reduction in the management fee.
(4) MFS(R) VARIABLE INSURANCE TRUST/SM/
The 0.09% in "Other Expenses" does not take into account a 0.01% expense
offset arrangement with the Fund's custodian and is therefore higher than
the actual expenses of the Series.
DAILY DEDUCTION FROM THE CONTRACT FUND
Each day we deduct a charge from the assets of each of the variable investment
options in an amount equivalent to an effective annual rate of 0.9%. This charge
is intended to compensate Pruco Life of New Jersey for assuming mortality and
expense risks under the Contract. The mortality risk assumed is that the
insureds may live for shorter periods of time than Pruco Life of New Jersey
estimated when it determined what mortality charge to make. The expense risk
assumed is that expenses incurred in issuing and
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<PAGE>
administering the Contract will be greater than Pruco Life of New Jersey
estimated in fixing its administrative charges. This charge is not assessed
against amounts allocated to the fixed-rate option.
MONTHLY DEDUCTIONS FROM CONTRACT FUND
Pruco Life of New Jersey deducts the following monthly charges proportionately
from the dollar amounts held in each of the chosen investment option[s].
a) An administrative charge based on the basic insurance amount is deducted.
The charge is intended to compensate us for things like processing claims,
keeping records and communicating with Contract owners. Currently, we
charge the following:
o generally, if the average issue age of the insureds is less than 40 in
the first five Contract years, we deduct $10 per Contract plus $0.07
per $1,000 of basic insurance amount;
o if the average issue age of the insureds is 40 or greater in the first
five Contract years, we deduct $10 per Contract plus $0.08 per $1,000
of basic insurance amount;
o in all subsequent years, we deduct $10 per Contract plus $0.01 per
$1,000 of basic insurance amount.
PrucoLife of New Jersey reserves the right, however, to charge up to $10
per Contract plus $0.10 per $1,000 of basic insurance amount in the first
five Contract years and $10 per Contract plus $0.05 per $1,000 of basic
insurance amount in subsequent years.
b) A cost of insurance ("COI") charge is deducted. Upon the second death of
two insureds, the amount payable to the beneficiary (assuming there is no
Contract debt) is larger than the Contract Fund - significantly larger if
both insureds died in the early years of the Contract. The cost of
insurance charges collected from all Contract owners enables Pruco Life of
New Jersey to pay this larger death benefit. The maximum COI charge is
determined by multiplying the "net amount at risk" under a Contract (the
amount by which the Contract's death benefit exceeds the Contract Fund) by
maximum COI rates. The maximum COI rates are based upon both insureds'
current attained age, sex, smoking status, and extra rating class, if any.
c) You may add one or more of several riders to the Contract. Some riders are
charged for separately. If you add such a rider to the basic Contract,
additional charges will be deducted.
d) If an insured is in a substandard risk classification (for example, a
person in a hazardous occupation), additional charges will be deducted.
e) A charge may be deducted to cover federal, state or local taxes (other
than "taxes attributable to premiums" described above) that are imposed
upon the operations of the Account. At present no such taxes are imposed
and no charge is made.
The earnings of the Account are taxed as part of the operations of Pruco
Life of New Jersey. Currently, no charge is being made to the Account for
Pruco Life of New Jersey's federal income taxes, other than the 1.25%
charge for federal income taxes measured by premiums. See DEDUCTIONS FROM
PREMIUMS, page 12. Pruco Life of New Jersey reviews the question of a
charge to the Account for Company federal income taxes periodically. We
may make such a charge in the future for any federal income taxes that
would be attributable to the Contracts.
SURRENDER CHARGE
We will assess a surrender charge if, during the first 10 Contract years, the
Contract lapses, is surrendered, or in some instances, the basic insurance
amount is decreased. See CHANGING THE TYPE OF DEATH BENEFIT, page 16,
WITHDRAWALS, page 25, and DECREASES IN BASIC INSURANCE AMOUNT, page 25.
14
<PAGE>
This charge is deducted to cover sales costs and administrative costs, such as:
the cost of processing applications, conducting examinations, determining
insurability and the insured's rating class, and establishing records. We may
charge up to $8 per $1,000 of basic insurance amount if you surrender your
Contract. Currently, we charge $5 per $1,000 of basic insurance amount. This
charge is level for the first five Contract years and declines monthly until it
reaches zero at the end of the 10th Contract year.
TRANSACTION CHARGES
(a) We currently charge an administrative processing fee equal to the lesser of
$25 or 2% of the withdrawal amount in connection with each withdrawal.
(b) We reserve the right to charge an administrative processing fee of up to
$25 made in connection with each decrease in basic insurance amount. We
currently do not make such a charge.
(c) We currently charge an administrative processing fee of $25 for each
transfer exceeding 12 in any Contract year.
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
You may apply for a minimum basic insurance amount of $250,000. The Contract may
be issued on two insureds each between the ages of 18 and 90. Pruco Life of New
Jersey requires evidence of insurability on each insured which may include a
medical examination before issuing any Contract. Non-smokers are offered more
favorable cost of insurance rates than smokers. Pruco Life of New Jersey charges
a higher cost of insurance rate and/or an additional amount if an extra
mortality risk is involved. These are the current underwriting requirements. We
reserve the right to change them on a non-discriminatory basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE-LOOK"
Generally, you may return the Contract for a refund within 10 days after you
receive it. Some states allow a longer period of time during which a Contract
may be returned for a refund. You can request a refund by mailing or delivering
the Contract to the representative who sold it or to the Home Office specified
in the Contract. A Contract returned according to this provision shall be deemed
void from the beginning. You will then receive a refund of all premium payments
made, plus or minus any change due to investment experience. However, if
applicable law so requires, you will receive a refund of all premium payments
made with no adjustment for investment experience. For information on how
premium payments are allocated during the "free-look" period, see ALLOCATION OF
PREMIUMS, page 18.
TYPES OF DEATH BENEFIT
You may select either a Type A (fixed) or a Type B (variable) death benefit.
Generally, a Contract with a Type A (fixed) death benefit has a death benefit
equal to the basic insurance amount. This type of death benefit does not vary
with the investment performance of the investment options you selected, except
in certain circumstances. See HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL
VARY, page 22. The payment of additional premiums and favorable investment
results of the investment options to which the assets are allocated will
generally increase the cash surrender value. See HOW A CONTRACT'S CASH SURRENDER
VALUE WILL VARY, page 22.
A Contract with a Type B (variable) death benefit has a death benefit which will
generally equal the basic insurance amount plus the Contract Fund. Since the
Contract Fund is a part of the death benefit, favorable investment performance
and payment of additional premiums generally result in an increase in the death
benefit, as well as in the cash surrender value. Over time, however, the
increase in the cash surrender value will be less than under a Contract with a
fixed death benefit. This is because, given two Contracts with the same basic
insurance amount and equal Contract Funds, generally the cost of insurance
charge for a Contract with a Type B death benefit will be greater. See HOW A
CONTRACT'S CASH SURRENDER VALUE WILL VARY, page 22 and HOW A TYPE B (VARIABLE)
CONTRACT'S DEATH BENEFIT WILL VARY, page 23.
15
<PAGE>
Unfavorable investment performance will result in decreases in the cash
surrender value and may result in decreases in the death benefit. As long as the
Contract is not in default and there is no Contract debt, the death benefit may
not fall below the basic insurance amount stated in the Contract.
In choosing a death benefit type, you should also consider whether you intend to
use the withdrawal feature. Contract owners with a Type A (fixed) death benefit
should note that any withdrawal may result in a reduction of the basic insurance
amount and possible surrender charges. In addition, we will not allow you to
make a withdrawal that will decrease the basic insurance amount below the
minimum basic insurance amount. See WITHDRAWALS, page 25.
The way in which the cash surrender values and death benefits will change
depends significantly upon the investment results that are actually achieved.
CHANGING THE TYPE OF DEATH BENEFIT
This Contract has two types of death benefit, Type A (fixed) or Type B
(variable). You may change the type of death benefit, subject to Pruco Life of
New Jersey's approval. Currently, Pruco Life of New Jersey does not require a
medical examination. Except as stated below, we will adjust the basic insurance
amount so that the death benefit immediately after the change will remain the
same as the death benefit immediately before the change.
If you are changing your Contract's death benefit from Type A to Type B, we will
reduce the basic insurance amount by the amount in your Contract Fund on the
date the change takes place. The basic insurance amount after the change may not
be lower than the minimum basic insurance amount applicable to the Contract. If
you are changing your Contract's death benefit from Type B to Type A, we will
increase the basic insurance amount by the amount in your Contract Fund on the
date the change takes place. This is illustrated in the following chart.
<TABLE>
<CAPTION>
------------------------------------------ ---------------------------------------------
CHANGING THE DEATH BENEFIT FROM CHANGING THE DEATH BENEFIT FROM
TYPE A TYPE B TYPE B TYPE A
(FIXED) to (VARIABLE) (VARIABLE) to (FIXED)
- ----------------------------------------- ------------------------------------------ ---------------------------------------------
<S> <C> <C>
BASIC INSURANCE AMOUNT $300,000 to $250,000 $300,000 to $350,000
CONTRACT FUND $50,000 to $50,000 $50,000 to $50,000
DEATH BENEFIT* $300,000 to $300,000 $350,000 to $350,000
- ----------------------------------------------------------------------------------------------------------------------------------
* assuming there is no Contract debt
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Changing your Contract's type of death benefit from Type A to Type B during the
first 10 Contract years may result in the assessment of surrender charges. In
addition, we reserve the right to make an administrative processing charge of up
to $25 for any decrease in basic insurance amount, although we do not currently
do so. See CHARGES AND EXPENSES, page 11.
To request a change, fill out an application for change which can be obtained
from your Pruco Life of New Jersey representative or a Home Office. If the
change is approved, we will recompute the Contract's charges and appropriate
tables and send you new Contract data pages. We may ask that you send us your
Contract before making the change. There may be circumstances under which a
change in the death benefit type may cause the Contract to be classified as a
Modified Endowment Contract, which could be significantly disadvantageous. See
TAX TREATMENT OF CONTRACT BENEFITS, page 29.
16
<PAGE>
CONTRACT DATE
When the first premium payment is paid with the application for a Contract, the
Contract date will ordinarily be the later of the application date or the
medical examination date. If the first premium is not paid with the application,
the Contract date will be the date on which the first premium is paid and the
Contract is delivered. Under certain circumstances, we may allow the Contract to
be backdated for the purpose of lowering one or both insureds' issue ages, but
only to a date not earlier than six months prior to the application date. This
may be advantageous for some Contract owners as a lower issue age may result in
lower current charges. For a Contract that is backdated, we will credit the
initial premium as of the date of receipt and will deduct any charges due on or
before that date.
PREMIUMS
The Contract is a flexible premium contract. The minimum initial premium is due
on or before the Contract date. Thereafter, you decide when you would like to
make premium payments and, subject to a $25 minimum, in what amounts. However,
the minimum premium payment is $15 for premiums made by electronic fund
transfer. We may require an additional premium if adjustments to premium
payments exceed the minimum initial premium or there are Contract Fund charges
due on or before the payment date. We reserve the right to refuse to accept any
payment that increases the death benefit by more than it increases the Contract
Fund. See HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY, page 22 and
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY, page 23. There are
circumstances under which the payment of premiums in amounts that are too large
may cause the Contract to be characterized as a Modified Endowment Contract,
which could be significantly disadvantageous. See TAX TREATMENT OF CONTRACT
BENEFITS, page 29.
If we receive the first premium payment on or before the Contract date, we will
credit the invested premium amount to the Contract Fund on the Contract date. If
we receive the first premium payment after the Contract date, we will credit the
premium amount to the Contract Fund on the payment receipt date.
Once the minimum initial premium payment is made, there are no required
premiums. However, there are several types of "premiums" which are described
below. Understanding them may help you understand how the Contract works.
MINIMUM INITIAL PREMIUM - the premium needed to start the Contract.
There is no insurance under the Contract unless the minimum initial
premium is paid.
TARGET PREMIUM - the premiums that, if paid at the beginning of each
Contract year, will keep the Contract inforce during the full Limited
Death Benefit Guarantee period regardless of investment performance,
assuming no loans or withdrawals. For a Contract with no riders or extra
risk charges, these premiums will be level. Payment of Target Premiums at
the beginning of each Contract year is one way to achieve the Limited
Death Benefit Guarantee Values shown on the Contract data pages. At the
end of the Limited Death Benefit Guarantee period, continuation of the
Contract will depend on the Contract Fund having sufficient money to
cover all charges or meeting the conditions of the Lifetime Death Benefit
Guarantee. See DEATH BENEFIT GUARANTEE, page 19. These Target Premiums
will be higher for a Contract with a Type B (variable) death benefit than
for a Contract with a Type A (fixed) death benefit. When you purchase a
Contract, your Pruco Life of New Jersey representative can tell you the
amount[s] of the Target Premium.
It is possible, in some instances, to pay a lower premium (the
"SHORT-TERM PREMIUM") than the Target Premium. These Short-Term Premiums,
if paid at the beginning of each Contract year, will keep the Contract
inforce only during the first five years of the Limited Death Benefit
Guarantee period regardless of investment performance, and assuming no
loans or withdrawals. As is the case with the Target Premium, for a
Contract with no riders or extra risk charges, these premiums will be
level. Payment of Short-Term Premiums at the beginning of each of the
first five Contract years is one
17
<PAGE>
way to achieve the Limited Death Benefit Guarantee Values shown on the
Contract data pages, but only for the first five Contract years. At the
end of the first five years, continuation of the Contract will depend on
the Contract Fund having sufficient money to cover all charges or meeting
the conditions of the Lifetime Death Benefit Guarantee or the Limited
Death Benefit Guarantee. See DEATH BENEFIT GUARANTEE, page 19. When you
purchase a Contract, your Pruco Life of New Jersey representative can
tell you the amount[s] of the Short-Term Premium. This Contract may not
be suitable for those who can afford to pay only the Short-Term Premium.
LIFETIME PREMIUM - the premiums that, if paid at the beginning of each
Contract year, will keep the Contract inforce during the lifetime of the
insureds regardless of investment performance, assuming no loans or
withdrawals. These Lifetime Premiums will be higher for a Contract with a
Type B (variable) death benefit than for a Contract with a Type A (fixed)
death benefit. As is the case with the Target Premium, for a Contract
with no riders or extra risk charges, these premiums will be level.
Payment of Lifetime Premiums at the beginning of each Contract year is
one way to achieve the Lifetime Death Benefit Guarantee Values shown on
the Contract data pages. See DEATH BENEFIT GUARANTEE, page 19. When you
purchase a Contract, your Pruco Life of New Jersey representative can
tell you the amount[s] of the Lifetime Premium.
We can bill you annually, semi-annually, or quarterly for an amount you select.
Because the Contract is a flexible premium contract, there are no scheduled
premium due dates. When you receive a premium notice, you are not required to
pay this amount. The Contract will remain inforce if: (1) the Contract Fund is
sufficient to pay monthly charges including surrender charges; or (2) you have
paid sufficient premiums on an accumulated basis to meet the Death Benefit
Guarantee conditions and there is no Contract debt. You may also pay premiums
automatically through pre-authorized monthly transfers from a bank checking
account. If you elect to use this feature, you choose the day of the month on
which premiums will be paid and the amount of the premiums paid. We will then
draft from your account the same amount on the same date each month.
When you apply for the Contract, you should discuss with your Pruco Life of New
Jersey representative how frequently you would like to be billed (if at all) and
for what amount.
ALLOCATION OF PREMIUMS
On the Contract date, Pruco Life of New Jersey deducts the charge for sales
expenses and the charge for taxes attributable to premiums from the initial
premium. Also on the Contract date, the remainder of the initial premium and any
other premium received during the short-term cancellation right ("free-look")
period, will be allocated to the Money Market investment option and the first
monthly deductions are made. At the end of the "free-look" period, these funds
will be transferred out of the Money Market investment option and allocated
among the variable investment options and/or the fixed-rate option according to
your most current allocation request. See SHORT-TERM CANCELLATION RIGHT OR
"FREE-LOOK", page 15. The transfer from the Money Market investment option
immediately following the "free-look" period will not be counted as one of your
12 free transfers described below. If the first premium is received before the
Contract date, there will be a period during which the Contract owner's initial
premium will not be invested.
The charge for sales expenses and the charge for taxes attributable to premiums
also apply to all subsequent premium payments; the remainder will be invested as
of the end of the valuation period when received at a Home Office in accordance
with the allocation you previously designated. Provided the Contract is not in
default, you may change the way in which subsequent premiums are allocated by
giving written notice to a Home Office or by telephoning a Home Office, provided
you are enrolled to use the Telephone Transfer System. There is no charge for
reallocating future premiums. All percentage allocations must be in whole
numbers. For example, 33% can be selected but 33 1/3% cannot. Of course, the
total allocation to all selected investment options must equal 100%.
18
<PAGE>
DEATH BENEFIT GUARANTEE
Although you decide what premium amounts you wish to pay, sufficient premium
payments, on an accumulated basis, will guarantee that your Contract will not
lapse and a death benefit will be paid upon the second death of two insureds.
This will be true even if, because of unfavorable investment experience, your
Contract Fund value drops to zero. Withdrawals may adversely affect the status
of the guarantee. A contract loan will negate any guarantee, regardless of the
value of your accumulated net payments. See WITHDRAWALS, page 25 and CONTRACT
LOANS, page 28. You should consider how important the Death Benefit Guarantee is
to you when deciding what premium amounts to pay into the Contract. We offer two
levels of death benefit guarantees: (1) Limited Death Benefit Guarantee, and (2)
Lifetime Death Benefit Guarantee.
For purposes of determining if a Death Benefit Guarantee is in effect, we
calculate two sets of values: (1) Limited Death Benefit Guarantee Values, and
(2) Lifetime Death Benefit Guarantee Values. These are values used solely to
determine if a Death Benefit Guarantee is in effect. They are not cash values
that you can realize by surrendering the Contract, nor are they payable death
benefits. The Limited Death Benefit Guarantee Values apply until age 75 of the
younger insured, or 10 years after issue, whichever is later. Correspondingly,
the Lifetime Death Benefit Guarantee Values are shown for the lifetime of the
Contract. In addition, the Contract data pages show Limited and Lifetime Death
Benefit Guarantee Values as of Contract anniversaries. Values for
non-anniversary Monthly dates will reflect the number of months elapsed between
Contract anniversaries.
The Limited Death Benefit Guarantee Values for the first five years are the
end-of-year accumulations of premiums at 4% annual interest assuming Short-Term
Premiums are paid at the beginning of each Contract year. The Limited Death
Benefit Guarantee Values after five years are the end-of-year accumulations of
premiums at 4% annual interest assuming Target Premiums are paid at the
beginning of each Contract year (including years one through five). The Lifetime
Death Benefit Guarantee Values are the end-of-year accumulations of premiums at
4% annual interest assuming Lifetime Premiums are paid at the beginning of each
Contract year.
Short-Term, Target, and Lifetime Premiums are premium levels that, if paid at
the beginning of each Contract year, correspond to the Limited (first five years
only), Limited (all years of the Limited Death Benefit Guarantee period), and
Lifetime Death Benefit Guarantee Values, respectively (assuming no withdrawals
or loans). If you want a death benefit guarantee to last longer than five years,
you should expect to pay at least the Target Premium. See PREMIUMS, page 17.
Paying the Short-Term, Target, or Lifetime Premiums at the start of each
Contract year is one way of reaching the Death Benefit Guarantee Values; they
are certainly not the only way.
At the Contract date, and on each Monthly date, we calculate your Contract's
"Accumulated Net Payments" as of that date. Accumulated Net Payments equal the
premiums you paid, accumulated at an effective annual rate of 4%, less
withdrawals also accumulated at 4%.
At each Monthly date within the Limited Death Benefit Guarantee period
(including years one through five), we will compare your Accumulated Net
Payments to the Limited Death Benefit Guarantee Value as of that date. After the
Limited Death Benefit Guarantee period, we will compare your Accumulated Net
Payments to the Lifetime Death Benefit Guarantee Value as of that date. If your
Accumulated Net Payments equal or exceed the applicable (Limited or Lifetime)
Death Benefit Guarantee Value and there is no Contract debt, then the Contract
is kept inforce, regardless of the amount in the Contract Fund.
Here is a table of Short-Term, Target, or Lifetime Premiums (to the nearest
dollar) for sample cases. The examples assume the insureds are a male and a
female, both the same age, both smokers, with no extra risk or substandard
ratings, and no riders added to the Contract. For those who qualify for more
favorable underwriting classes, the premiums may be lower than those shown on
the chart, and for those who are classified as substandard, the premiums may be
higher.
19
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
BASIC INSURANCE AMOUNT - $250,000
ILLUSTRATIVE ANNUAL PREMIUMS
- ----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM PREMIUM TARGET PREMIUM CORRESPONDING TO LIFETIME PREMIUM
AGE OF BOTH TYPE OF CORRESPONDING TO THE LIMITED THE CORRESPONDING TO THE
INSUREDS AT DEATH BENEFIT DEATH BENEFIT GUARANTEE VALUES LIMITED DEATH BENEFIT GUARANTEE LIFETIME DEATH BENEFIT
ISSUE CHOSEN (FIRST FIVE YEARS ONLY) VALUES GUARANTEE VALUES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
40 Type A (Fixed) $1,137 $2,697 $3,447
40 Type B (Variable) $1,137 $3,456 $11,862
60 Type A (Fixed) $3,766 $6,358 $8,746
60 Type B (Variable) $3,766 $7,613 $27,694
80 Type A (Fixed) $21,803 $26,238 $28,887
80 Type B (Variable) $21,803 $33,321 $71,153
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
You should consider carefully the value of maintaining the Death Benefit
Guarantee. If you desire the Death Benefit Guarantee for the full Limited Death
Benefit Guarantee period, you may prefer to pay at least the Target Premium in
all years, rather than paying the lower Short-Term Premium in the first five
years. If you pay only enough premium to meet the Limited Death Benefit
Guarantee Values in the first five years, you will need to pay more than the
Target Premium at the beginning of the sixth year in order to continue the
guarantee after the first five years of the Limited Death Benefit Guarantee
period.
If you desire the Death Benefit Guarantee for lifetime protection, you may
prefer to pay generally higher premiums in all years, rather than trying to make
such payments on an as needed basis. For example, if you pay only enough premium
to meet the Limited Death Benefit Guarantee Values, a substantial amount may be
required to meet the Lifetime Death Benefit Guarantee Values in order to
continue the guarantee at the end of the Limited Death Benefit Guarantee period.
In addition, it is possible that the payment required to continue the guarantee
after the Limited Death Benefit Guarantee period could exceed the premium
payments allowed to be paid without causing the Contract to become a Modified
Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 29.
The Death Benefit Guarantee allows considerable flexibility as to the timing of
premium payments. Your Pruco Life of New Jersey representative can supply sample
illustrations of various premium amount and frequency combinations that
correspond to the Death Benefit Guarantee Values.
TRANSFERS
You may, up to 12 times in each Contract year, transfer amounts from one
variable investment option to another variable investment option or to the
fixed-rate option without charge. Additional transfers may be made during each
Contract year, but only with our consent. There is an administrative charge of
up to $25 for each transfer made exceeding 12 in any Contract year. All or a
portion of the amount credited to a variable investment option may be
transferred.
Only one transfer from the fixed-rate option will be permitted during the
Contract year. The maximum amount which may be transferred out of the fixed-rate
option each year is the greater of (a) 25% of the amount in the fixed-rate
option; and (b) $2,000. Pruco Life of New Jersey may change these limits in the
future. We may waive these restrictions for limited periods of time in a
non-discriminatory way, (e.g., when interest rates are declining).
20
<PAGE>
Transfers among variable investment options will take effect as of the end of
the valuation period in which a proper transfer request is received at a Home
Office. The request may be in terms of dollars, such as a request to transfer
$10,000 from one variable investment option to another, or may be in terms of a
percentage reallocation among variable investment options. In the latter case,
as with premium reallocations, the percentages must be in whole numbers. You may
transfer amounts by proper written notice to a Home Office or by telephone,
provided you are enrolled to use the Telephone Transfer System. You will
automatically be enrolled to use the Telephone Transfer System unless the
Contract is jointly owned or you elect not to have this privilege. Telephone
transfers may not be available on Contracts that are assigned (see ASSIGNMENT,
page 32), depending on the terms of the assignment.
We will use reasonable procedures, such as asking you to provide certain
personal information provided on your application for insurance, to confirm that
instructions given by telephone are genuine. We will not be held liable for
following telephone instructions that we reasonably believe to be genuine. Pruco
Life of New Jersey cannot guarantee that you will be able to get through to
complete a telephone transfer during peak periods such as periods of drastic
economic or market change.
The Contract was not designed for professional market timing organizations,
other organizations, or individuals using programmed, large, or frequent
transfers. We may restrict the number, timing, and amount of transfers in
accordance with our rules if your transfer activity is determined by us to be
disruptive to the variable investment option or to the disadvantage of other
Contract owners. We may prohibit transfer requests made by an individual acting
under a power of attorney on behalf of more than one Contract owner.
DOLLAR COST AVERAGING
We offer a feature called Dollar Cost Averaging ("DCA"). Under this feature,
either fixed dollar amounts or a percentage of the amount designated for use
under the DCA option will be transferred periodically from the Money Market
investment option into other investment options available under the Contract,
excluding the fixed-rate option. You may choose to have periodic transfers made
monthly or quarterly. DCA transfers will not begin until the end of the
"free-look" period. See SHORT-TERM CANCELLATION RIGHT OR "FREE-LOOK", page 15.
Each automatic transfer will take effect as of the end of the valuation period
on the date coinciding with the periodic timing you designate provided the New
York Stock Exchange is open on that date. If the New York Stock Exchange is not
open on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. Automatic transfers will continue until: (1) $50
or less remains of the amount designated for Dollar Cost Averaging, at which
time the remaining amount will be transferred; or (2) you give us notification
of a change in DCA allocation or cancellation of the feature. Currently, there
is no charge for using the Dollar Cost Averaging feature. We reserve the right
to change this practice, modify the requirements, or discontinue the feature.
AUTO-REBALANCING
As an administrative practice, we are currently offering a feature called
Auto-Rebalancing. This feature allows you to automatically rebalance assets in
the variable investment options at specified intervals based on percentage
allocations that you choose. For example, suppose your initial investment
allocation of variable investment options X and Y is split 40% and 60%,
respectively. Then, due to investment results, the portion in each of the
investment options changes. You may instruct that those assets be rebalanced to
your original or different allocation percentages. Auto-Rebalancing is not
available until the end of the "free-look" period. See SHORT-TERM CANCELLATION
RIGHT OR "FREE-LOOK", page 15.
Auto-Rebalancing can be performed on a quarterly, semi-annual or annual basis.
Each rebalance will take effect as of the end of the valuation period on the
date coinciding with the periodic timing you designate provided the New York
Stock Exchange is open on that date. If the New York Stock Exchange is not open
21
<PAGE>
on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. The fixed-rate option cannot participate in this
administrative procedure. Currently, a transfer that occurs under the
Auto-Rebalancing feature is not counted towards the 12 free transfers permitted
each Contract year. We reserve the right to change this practice, modify the
requirements, or discontinue the feature.
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY
You may surrender the Contract for its cash surrender value. The Contract's cash
surrender value on any date will be the Contract Fund value minus any Contract
debt and minus any applicable surrender charges. See CONTRACT LOANS, page 28.
The Contract Fund value changes daily, reflecting: (1) increases or decreases in
the value of the variable investment options; (2) interest credited on any
amounts allocated to the fixed-rate option; (3) interest credited on any loan;
and (4) by the daily asset charge for mortality and expense risks assessed
against the variable investment options. The Contract Fund value also changes to
reflect the receipt of premium payments and the monthly deductions described
under CHARGES AND EXPENSES, page 11. Upon request, Pruco Life of New Jersey will
tell you the cash surrender value of your Contract. It is possible for the cash
surrender value of a Contract to decline to zero because of unfavorable
investment performance.
The tables on pages T1 through T4 of this prospectus illustrate approximately
what the cash surrender values would be for representative Contracts paying
Target Premium amounts (see PREMIUMS, page 17), assuming hypothetical uniform
investment results in the Fund portfolios. Two of the tables assume current
charges will be made throughout the lifetime of the Contract and two tables
assume maximum charges will be made. See ILLUSTRATIONS OF CASH SURRENDER VALUES,
DEATH BENEFITS, AND ACCUMULATED PREMIUMS, page 26.
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY
As described earlier, there are two types of death benefit available under the
Contract: Type A, a fixed death benefit and Type B, a variable death benefit.
The Type B death benefit varies according to changes in the Contract Fund while
the Type A death benefit does not, unless it must be increased to comply with
the Internal Revenue Code's definition of life insurance.
Under the Type A (fixed) Contract, the death benefit is generally equal to the
basic insurance amount, before any reduction of Contract debt. See CONTRACT
LOANS, page 28. If the Contract is kept inforce for several years, depending on
how much premium you pay, and/or if investment performance is reasonably
favorable, the Contract Fund may grow to the point where Pruco Life of New
Jersey will increase the death benefit in order to ensure that the Contract will
satisfy the Internal Revenue Code's definition of life insurance.
Assuming no Contract debt, the death benefit of a Type A (fixed) Contract will
always be the greater of:
(1) the basic insurance amount; and
(2) the Contract Fund before the deduction of any monthly charges due on
that date, multiplied by the attained age factor that applies.
A listing of attained age factors can be found on your Contract data pages. The
latter provision ensures that the Contract will always have a death benefit
large enough to be treated as life insurance for tax purposes under current law.
The following table illustrates at different ages how the attained age factor
affects the death benefit for different Contract Fund amounts. The table assumes
a $1,000,000 Type A Contract was issued when the younger insured was age 35 and
there is no Contract debt.
22
<PAGE>
<TABLE>
<CAPTION>
TYPE A (FIXED) DEATH BENEFIT
- -------------------------------------------- -----------------------------------------------------------------------
IF THEN
- --------------------------------------------------------------------------------------------------------------------
THE CONTRACT FUND
THE YOUNGER INSURED AND THE CONTRACT THE ATTAINED AGE MULTIPLIED BY THE ATTAINED AND THE DEATH BENEFIT
IS AGE FUND IS FACTOR IS AGE FACTOR IS IS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
40 $100,000 5.7 570,000 $1,000,000
40 $200,000 5.7 1,140,000 $1,140,000*
40 $300,000 5.7 1,710,000 $1,710,000*
- ----------------------- -------------------- -------------------- --------------------------- ----------------------
60 $300,000 2.8 840,000 $1,000,000
60 $400,000 2.8 1,120,000 $1,120,000*
60 $600,000 2.8 1,680,000 $1,680,000*
- ----------------------- -------------------- -------------------- --------------------------- ----------------------
80 $600,000 1.5 900,000 $1,000,000
80 $700,000 1.5 1,050,000 $1,050,000*
80 $800,000 1.5 1,200,000 $1,200,000*
- --------------------------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal Revenue Code's definition of life
insurance. At this point, any additional premium payment will increase the death benefit by more than it
increases the Contract Fund.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
This means, for example, that if the younger insured has reached the age of 60,
and the Contract Fund is $400,000, the death benefit will be $1,120,000, even
though the basic insurance amount is $1,000,000. In this situation, for every $1
increase in the Contract Fund, the death benefit will be increased by $2.80. We
reserve the right to refuse to accept any premium payment that increases the
death benefit by more than it increases the Contract Fund. IF WE EXERCISE THIS
RIGHT, IT MAY IN CERTAIN SITUATIONS RESULT IN THE LOSS OF THE DEATH BENEFIT
GUARANTEE.
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY
Under the Type B (variable) Contract, the death benefit will never be less than
the basic insurance amount, before any reduction of Contract debt, but will also
vary, immediately after it is issued, with the investment results of the
selected investment options. The death benefit may be further increased to
ensure that the Contract will satisfy the Internal Revenue Code's definition of
life insurance.
Assuming no Contract debt, the death benefit of a Type B (variable) Contract
will always be the greater of:
(1) the basic insurance amount plus the Contract Fund before the deduction
of any monthly charges due on that date; and
(2) the Contract Fund before the deduction of any monthly charges due on
that date, multiplied by the attained age factor that applies.
For purposes of determining the death benefit, if the Contract Fund is less than
zero, we will consider it to be zero. A listing of attained age factors can be
found on your Contract data pages. The latter provision ensures that the
Contract will always have a death benefit large enough to be treated as life
insurance for tax purposes under current law.
23
<PAGE>
The following table illustrates various attained age factors and Contract Funds
and the corresponding death benefits. The table assumes a $1,000,000 Type B
Contract was issued when the younger insured was age 35 and there is no Contract
debt.
<TABLE>
<CAPTION>
TYPE B (VARIABLE) DEATH BENEFIT
- -------------------------------------------- -----------------------------------------------------------------------
IF THEN
- -------------------------------------------- -----------------------------------------------------------------------
THE CONTRACT FUND
THE YOUNGER INSURED AND THE CONTRACT THE ATTAINED AGE MULTIPLIED BY THE AND THE DEATH
IS AGE FUND IS FACTOR IS ATTAINED AGE FACTOR IS BENEFIT IS
- ----------------------- -------------------- -------------------- --------------------------- ----------------------
<S> <C> <C> <C> <C>
40 $100,000 5.7 570,000 $1,100,000
40 $200,000 5.7 1,140,000 $1,200,000
40 $300,000 5.7 1,710,000 $1,710,000*
- ----------------------- -------------------- -------------------- --------------------------- ----------------------
60 $300,000 2.8 840,000 $1,300,000
60 $400,000 2.8 1,120,000 $1,400,000
60 $600,000 2.8 1,680,000 $1,680,000*
- ----------------------- -------------------- -------------------- --------------------------- ----------------------
80 $600,000 1.5 900,000 $1,600,000
80 $700,000 1.5 1,050,000 $1,700,000
80 $800,000 1.5 1,200,000 $1,800,000
- --------------------------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal Revenue Code's definition of life
insurance. At this point, any additional premium payment will increase the death benefit by more than it
increases the Contract Fund.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
This means, for example, that if the younger insured has reached the age of 60,
and the Contract Fund is $600,000, the death benefit will be $1,680,000, even
though the basic insurance amount is $1,000,000. In this situation, for every $1
increase in the Contract Fund, the death benefit will be increased by $2.80. We
reserve the right to refuse to accept any premium payment that increases the
death benefit by more than it increases the Contract Fund. IF WE EXERCISE THIS
RIGHT, IT MAY IN CERTAIN SITUATIONS RESULT IN THE LOSS OF THE DEATH BENEFIT
GUARANTEE.
SURRENDER OF A CONTRACT
A Contract may be surrendered for its cash surrender value (or for a fixed
reduced paid-up insurance benefit in New York state) while one or both of the
insureds is living. To surrender a Contract, you must deliver or mail it,
together with a written request in a form that meets Pruco Life of New Jersey's
needs, to a Home Office. The cash surrender value of a surrendered Contract will
be determined as of the end of the valuation period in which such a request is
received in the Home Office. Surrender of a Contract may have tax consequences.
See TAX TREATMENT OF CONTRACT BENEFITS, page 29.
Fixed reduced paid-up insurance (available in New York state only) provides
paid-up insurance, the amount of which will be paid when the second insured
dies. There will be cash values and loan values. The loan interest rate for
fixed reduced paid-up insurance is 5%. Upon surrender of the Contract, the
amount of fixed reduced paid-up insurance depends upon the net cash value and
the insured's issue age, sex, smoker/non-smoker status, and the length of time
since the Contract date.
24
<PAGE>
WITHDRAWALS
Under certain circumstances, you may withdraw a portion of the Contract's cash
surrender value without surrendering the Contract. You must ask for a withdrawal
on a form that meets our needs. The cash surrender value after withdrawal may
not be less than or equal to zero after deducting: (a) any charges associated
with the withdrawal and (b) an amount sufficient to cover the Contract Fund
deductions for two monthly dates following the date of the withdrawal. The
amount withdrawn must be at least $500. There is an administrative processing
fee for each withdrawal equal to the lesser of $25 or 2% of the withdrawal
amount. An amount withdrawn may not be repaid except as a premium subject to the
applicable charges. Upon request, we will tell you how much you may withdraw.
Withdrawal of the cash surrender value may have tax consequences. See TAX
TREATMENT OF CONTRACT BENEFITS, page 29.
Whenever a withdrawal is made, the death benefit payable will immediately be
reduced by at least the amount of the withdrawal. For a Contract with a Type B
death benefit, this will not change the basic insurance amount. However, under a
Contract with a Type A death benefit, the resulting reduction in death benefit
usually requires a reduction in the basic insurance amount. We will send you new
Contract data pages showing these changes. We may also deduct a surrender charge
from the Contract Fund. See DECREASES IN BASIC INSURANCE AMOUNT, page 25. No
withdrawal will be permitted under a Contract with a fixed death benefit if it
would result in a basic insurance amount of less than the minimum basic
insurance amount. It is important to note, however, that if the basic insurance
amount is decreased at any time during the life of the Contract, there is a
possibility that the Contract might be classified as a Modified Endowment
Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 29. Before making any
withdrawal which causes a decrease in basic insurance amount, you should consult
with your Pruco Life of New Jersey representative.
When a withdrawal is made, the Contract Fund is reduced by the sum of the cash
withdrawn, the withdrawal fee, and any applicable surrender charge. An amount
equal to the reduction in the Contract Fund will be withdrawn proportionally
from the investment options unless you direct otherwise.
Withdrawal of the cash surrender value increases the risk that the Contract Fund
may be insufficient to provide Contract benefits. If such a withdrawal is
followed by unfavorable investment experience, the Contract may go into default.
Withdrawals may also affect whether a Contract is kept inforce under the Death
Benefit Guarantee. This is because, for purposes of determining whether a lapse
has occurred, Pruco Life of New Jersey treats withdrawals as a return of
premium. Therefore, withdrawals decrease the accumulated net payments. See DEATH
BENEFIT GUARANTEE, page 19.
DECREASES IN BASIC INSURANCE AMOUNT
As described earlier, you may make a withdrawal (see WITHDRAWALS, page 25). You
also have the additional option of decreasing the basic insurance amount of your
Contract without withdrawing any cash surrender value. Contract owners who
conclude that, because of changed circumstances, the amount of insurance is
greater than needed, will be able to decrease their amount of insurance
protection and the monthly deductions for the cost of insurance without
decreasing their current cash surrender value. The cash surrender value of the
Contract on the date of the decrease will not change, except that an
administrative processing fee of up to $25 and a surrender charge may be
deducted. If we ask you to, you must send us your Contract to be endorsed. The
Contract will be amended to show the new basic insurance amount, charges, values
in the appropriate tables and the effective date of the decrease.
If you decrease your basic insurance amount to an amount equal to or greater
than the Surrender Charge Threshold shown in your Contract, we will not impose a
surrender charge. The Surrender Charge Threshold is the lowest basic insurance
amount since issue. If you decrease your basic insurance amount below this
threshold, we will subtract the new basic insurance amount from the threshold
amount. We will then multiply the surrender charge (see SURRENDER CHARGE, page
14) by the lesser of this difference and
25
<PAGE>
the amount of the decrease and divide by the threshold amount. The result is the
maximum surrender charge we will deduct from the Contract Fund as a result of
this transaction.
The minimum permissible decrease for your Contract is shown under CONTRACT
LIMITATIONS in your Contract data pages. The basic insurance amount after the
decrease may not be lower than the minimum basic insurance amount. No reduction
will be permitted if it would cause the Contract to fail to qualify as "life
insurance" for purposes of Section 7702 of the Internal Revenue Code. The basic
insurance amount cannot be restored to any greater amount once a decrease has
taken effect.
It is important to note, however, that if the basic insurance amount is
decreased at any time during the life of the Contract, there is a possibility
that the Contract might be classified as a Modified Endowment Contract. See TAX
TREATMENT OF CONTRACT BENEFITS, page 29. Before requesting any decrease in basic
insurance amount, you should consult with your Pruco Life of New Jersey
representative.
WHEN PROCEEDS ARE PAID
Pruco Life of New Jersey will generally pay any death benefit, cash surrender
value, loan proceeds or withdrawal within seven days after all the documents
required for such a payment are received at a Home Office. Other than the death
benefit, which is determined as of the date of the second death, the amount will
be determined as of the end of the valuation period in which the necessary
documents are received at a Home Office. However, Pruco Life of New Jersey may
delay payment of proceeds from the variable investment options and the variable
portion of the death benefit due under the Contract if the disposal or valuation
of the Account's assets is not reasonably practicable because the New York Stock
Exchange is closed for other than a regular holiday or weekend, trading is
restricted by the SEC, or the SEC declares that an emergency exists.
With respect to the amount of any cash surrender value allocated to the
fixed-rate option, Pruco Life of New Jersey expects to pay the cash surrender
value promptly upon request. However, Pruco Life of New Jersey has the right to
delay payment of such cash value for up to six months (or a shorter period if
required by applicable law). Any payable death benefit will be credited with
interest from the date of death in accordance with applicable law.
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS
The following four tables (pages T1 through T4) show how a Contract's death
benefit and cash surrender values change with the investment experience of the
Account. They are "hypothetical" because they are based, in part, upon several
assumptions, which are described below. All four tables assume the following:
o a Contract with a basic insurance amount of $1,000,000 bought by a 55 year
old male Preferred Non-Smoker and a 50 year old female Preferred Best, with
no extra risks and no extra benefit riders added to the Contract.
o the Target Premium amount (see PREMIUMS, page 17) is paid on each Contract
anniversary and no loans are taken.
o the Contract Fund has been invested in equal amounts in each of the 16
portfolios of the Funds and no portion of the Contract Fund has been
allocated to the fixed-rate option.
The first table (page T1) assumes a Type A (fixed) Contract has been purchased
and the second table (page T2) assumes a Type B (variable) Contract has been
purchased. Both assume the current charges will continue indefinitely. The third
and fourth tables (pages T3 and T4) are based upon the same assumptions except
it is assumed the maximum contractual charges have been made from the beginning.
See CHARGES AND EXPENSES, page 11.
26
<PAGE>
Under the Type B Contract the death benefit changes to reflect investment
returns. Under the Type A Contract, the death benefit increases only if the
Contract Fund becomes large enough that an increase in the death benefit is
necessary for the Contract to satisfy the Internal Revenue Code's definition of
life insurance. See TYPE OF DEATH BENEFIT, page 15.
There are four assumptions, shown separately, about the average investment
performance of the portfolios. The first is that there will be a uniform 0%
gross rate of return with the average value of the Contract Fund uniformly
adversely affected by very unfavorable investment performance. The other three
assumptions are that investment performance will be at a uniform gross annual
rate of 4%, 8% and 12%. Actual returns will fluctuate from year to year. In
addition, death benefits and cash surrender values would be different from those
shown if investment returns averaged 0%, 4%, 8% and 12% but fluctuated from
those averages throughout the years. Nevertheless, these assumptions help show
how the Contract values will change with investment experience.
The first column in the following four tables (pages T1 through T4) shows the
Contract year. The second column, to provide context, shows what the aggregate
amount would be if the premiums had been invested to earn interest, after taxes,
at 4% compounded annually. The next four columns show the death benefit payable
in each of the years shown for the four different assumed investment returns.
The last four columns show the cash surrender value payable in each of the years
shown for the four different assumed investment returns.
A gross return (as well as the net return) is shown at the top of each column.
The gross return represents the combined effect of investment income and capital
gains and losses, realized or unrealized, of the portfolios before any reduction
is made for investment advisory fees or other Fund expenses. The net return
reflects average total annual expenses of the 16 portfolios of 0.67%, and the
daily deduction from the Contract Fund of 0.90% per year. Thus gross returns of
0%, 4%, 8% and 12% are the equivalent of net returns of -1.57%, 2.43%, 6.43% and
10.43%, respectively. The actual fees and expenses of the portfolios associated
with a particular Contract may be more or less than 0.67% and will depend on
which variable investment options are selected. The death benefits and cash
surrender values shown reflect the deduction of all expenses and charges both
from the Funds and under the Contract.
If you are considering the purchase of a variable life insurance contract from
another insurance company, you should not rely upon these tables for comparison
purposes. A comparison between two tables, each showing values for a 55 year old
man and a 50 year old woman, may be useful for a 55 year old man and a 50 year
old woman, but would be inaccurate if made for insureds of other ages or sex.
Your Pruco Life of New Jersey representative can provide you with a hypothetical
illustration for your own age, sex, and rating class.
27
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATIONS
-------------
SURVIVORSHIP VARIABLE UNIVERSAL LIFE
FIXED INSURANCE AMOUNT
MALE ISSUE AGE 55, PREFERRED NONSMOKER
FEMALE ISSUE AGE 50, PREFERRED BEST
$ 1,000,000 BASIC INSURANCE AMOUNT
$ 12,196.33 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
Death Benefit (1) Cash Surrender Value (1)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net) (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 12,684 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 4,039 $ 4,426 $ 4,814 $ 5,202
2 $ 25,876 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 12,923 $ 14,069 $ 15,247 $ 16,456
3 $ 39,595 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 21,650 $ 23,927 $ 26,330 $ 28,863
4 $ 53,863 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 30,213 $ 33,998 $ 38,099 $ 42,536
5 $ 68,702 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 38,608 $ 44,280 $ 50,592 $ 57,602
6 $ 84,134 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 49,626 $ 57,623 $ 66,755 $ 77,164
7 $ 100,183 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 60,441 $ 71,220 $ 83,847 $ 98,615
8 $ 116,875 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 71,041 $ 85,063 $ 101,914 $ 122,141
9 $ 134,234 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 81,409 $ 99,136 $ 120,999 $ 147,939
10 $ 152,288 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 91,532 $113,432 $ 141,153 $ 176,235
15 $ 253,983 $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $134,358 $184,371 $ 256,744 $ 361,869
20 $ 377,711 $1,000,000 $1,000,000 $1,000,000 $ 1,346,486 $169,903 $260,453 $ 411,239 $ 663,294
25 $ 528,244 $1,000,000 $1,000,000 $1,078,805 $ 1,999,781 $197,178 $341,641 $ 620,003 $ 1,149,300
30 $ 711,392 $1,000,000 $1,000,000 $1,357,698 $ 2,913,934 $204,723 $419,524 $ 893,223 $ 1,917,062
35 $ 934,218 $1,000,000 $1,000,000 $1,691,788 $ 4,234,519 $176,823 $485,124 $1,243,962 $ 3,113,617
40 $1,205,321 $1,000,000 $1,000,000 $2,088,416 $ 6,131,788 $ 70,640 $518,013 $1,684,207 $ 4,944,991
45 $1,535,159 $ 0(2)$1,000,000 $2,512,538 $ 8,692,704 $ 0(2) $391,825 $2,184,815 $ 7,558,873
50 $1,936,457 $ 0 $ 0(2)$2,923,357 $11,958,321 $ 0 $ 0(2) $2,810,920 $11,498,386
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy year 42.
Based on a gross return of 4% the Contract would go into default in policy year 49.
The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should
not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less
than those shown and will depend on a number of factors including the investment allocations made by an owner, prevailing
interest rates, and rates of inflation. The death benefit and cash surrender value for a contract would be different from
those shown if the actual rates of return averaged 0%, 4%, 8%, and 12% over a period of years but also fluctuated above or
below those averages for individual contract years. No representations can be made by Pruco Life of New Jersey or the Series
Fund that these hypothetical rates of return can be achieved for any one year or sustained over any period of time.
T1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SURVIVORSHIP VARIABLE UNIVERSAL LIFE
VARIABLE INSURANCE AMOUNT
MALE ISSUE AGE 55, PREFERRED NONSMOKER
FEMALE ISSUE AGE 50, PREFERRED BEST
$ 1,000,000 BASIC INSURANCE AMOUNT
$ 14,567.25 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
Death Benefit (1) Cash Surrender Value (1)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net) (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,150 $1,011,005 $1,011,472 $1,011,940 $ 1,012,408 $ 6,005 $ 6,472 $ 6,940 $ 7,408
2 $ 30,906 $1,021,824 $1,023,211 $1,024,635 $ 1,026,097 $ 16,824 $ 18,211 $ 19,635 $ 21,097
3 $ 47,292 $1,032,454 $1,035,214 $1,038,125 $ 1,041,193 $ 27,454 $ 30,214 $ 33,125 $ 36,193
4 $ 64,334 $1,042,890 $1,047,481 $1,052,455 $ 1,057,834 $ 37,890 $ 42,481 $ 47,455 $ 52,834
5 $ 82,057 $1,053,127 $1,060,010 $1,067,669 $ 1,076,173 $ 48,127 $ 55,010 $ 62,669 $ 71,173
6 $ 100,489 $1,065,141 $1,074,846 $1,085,926 $ 1,098,554 $ 61,141 $ 70,846 $ 81,926 $ 94,554
7 $ 119,659 $1,076,915 $1,089,990 $1,105,305 $ 1,123,214 $ 73,915 $ 86,990 $ 102,305 $ 120,214
8 $ 139,595 $1,088,437 $1,105,433 $1,125,859 $ 1,150,376 $ 86,437 $103,433 $ 123,859 $ 148,376
9 $ 160,329 $1,099,687 $1,121,158 $1,147,640 $ 1,180,273 $ 98,687 $120,158 $ 146,640 $ 179,273
10 $ 181,892 $1,110,649 $1,137,151 $1,170,705 $ 1,213,170 $110,649 $137,151 $ 170,705 $ 213,170
15 $ 303,356 $1,162,135 $1,222,364 $1,309,530 $ 1,436,154 $162,135 $222,364 $ 309,530 $ 436,154
20 $ 451,136 $1,204,716 $1,312,932 $1,493,018 $ 1,795,629 $204,716 $312,932 $ 493,018 $ 795,629
25 $ 630,933 $1,236,791 $1,407,160 $1,735,027 $ 2,395,447 $236,791 $407,160 $ 735,027 $ 1,376,694
30 $ 849,683 $1,243,728 $1,488,590 $2,038,414 $ 3,490,455 $243,728 $488,590 $1,038,414 $ 2,296,352
35 $1,115,827 $1,207,097 $1,533,273 $2,401,230 $ 5,072,370 $207,097 $533,273 $1,401,230 $ 3,729,684
40 $1,439,631 $1,086,619 $1,489,309 $2,794,304 $ 7,345,085 $ 86,619 $489,309 $1,794,304 $ 5,923,455
45 $1,833,588 $ 0(2)$1,138,429 $3,005,379 $10,412,771 $ 0(2)$138,429 $2,005,379 $ 9,054,583
50 $2,312,897 $ 0 $ 0(2)$2,377,098 $14,390,078 $ 0 $ 0(2) $1,377,098 $13,390,078
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy year 42.
Based on a gross return of 4% the Contract would go into default in policy year 46.
The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should
not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less
than those shown and will depend on a number of factors including the investment allocations made by an owner, prevailing
interest rates, and rates of inflation. The death benefit and cash surrender value for a contract would be different from
those shown if the actual rates of return averaged 0%, 4%, 8%, and 12% over a period of years but also fluctuated above or
below those averages for individual contract years. No representations can be made by Pruco Life of New Jersey or the Series
Fund that these hypothetical rates of return can be achieved for any one year or sustained over any period of time.
T2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SURVIVORSHIP VARIABLE UNIVERSAL LIFE
FIXED INSURANCE AMOUNT
MALE ISSUE AGE 55, PREFERRED NONSMOKER
FEMALE ISSUE AGE 50, PREFERRED BEST
$ 1,000,000 BASIC INSURANCE AMOUNT
$ 12,196.33 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
Death Benefit (1) Cash Surrender Value (1)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net) (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 12,684 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 320 $ 684 $ 1,047 $ 1,412
2 $ 25,876 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 8,429 $ 9,496 $ 10,593 $ 11,719
3 $ 39,595 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 16,312 $ 18,421 $ 20,649 $ 22,997
4 $ 53,863 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 23,949 $ 27,440 $ 31,226 $ 35,323
5 $ 68,702 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 31,319 $ 36,529 $ 42,332 $ 48,783
6 $ 84,134 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 41,552 $ 48,867 $ 57,232 $ 66,778
7 $ 100,183 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 51,441 $ 61,257 $ 72,777 $ 86,274
8 $ 116,875 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 60,953 $ 73,663 $ 88,975 $ 107,396
9 $ 134,234 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 70,051 $ 86,044 $105,830 $ 130,280
10 $ 152,288 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $ 78,690 $ 98,350 $123,337 $ 155,071
15 $ 253,983 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $104,422 $147,975 $211,802 $ 305,498
20 $ 377,711 $1,000,000 $1,000,000 $1,000,000 $1,085,420 $102,746 $178,615 $309,435 $ 534,690
25 $ 528,244 $1,000,000 $1,000,000 $1,000,000 $1,500,950 $ 43,125 $158,172 $401,412 $ 862,615
30 $ 711,392 $ 0(2)$1,000,000 $1,000,000 $1,956,907 $ 0(2) $ 2,491 $453,341 $1,287,439
35 $ 934,218 $ 0 $ 0(2)$1,000,000 $2,457,065 $ 0 $ 0(2) $381,758 $1,806,665
40 $1,205,321 $ 0 $ 0 $ 0(2)$3,020,037 $ 0 $ 0 $ 0(2) $2,435,513
45 $1,535,159 $ 0 $ 0 $ 0 $3,724,642 $ 0 $ 0 $ 0 $3,238,819
50 $1,936,457 $ 0 $ 0 $ 0 $4,602,468 $ 0 $ 0 $ 0 $4,425,450
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy year 27.
Based on a gross return of 4% the Contract would go into default in policy year 31.
Based on a gross return of 8% the Contract would go into default in policy year 40.
The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should
not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less
than those shown and will depend on a number of factors including the investment allocations made by an owner, prevailing
interest rates, and rates of inflation. The death benefit and cash surrender value for a contract would be different from
those shown if the actual rates of return averaged 0%, 4%, 8%, and 12% over a period of years but also fluctuated above or
below those averages for individual contract years. No representations can be made by Pruco Life of New Jersey or the Series
Fund that these hypothetical rates of return can be achieved for any one year or sustained over any period of time.
T3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SURVIVORSHIP VARIABLE UNIVERSAL LIFE
VARIABLE INSURANCE AMOUNT
MALE ISSUE AGE 55, PREFERRED NONSMOKER
FEMALE ISSUE AGE 50, PREFERRED BEST
$ 1,000,000 BASIC INSURANCE AMOUNT
$ 14,567.25 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
Death Benefit (1) Cash Surrender Value (1)
---------------------------------------------------- ----------------------------------------------------
Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)
Premiums Annual Investment Return of Annual Investment Return of
End of Accumulated ---------------------------------------------------- ----------------------------------------------------
Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% Gross
Year Per Year (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net) (-1.57% Net) (2.43% Net) (6.43% Net) (10.43% Net)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,150 $1,010,199 $1,010,638 $1,011,078 $1,011,519 $ 2,199 $ 2,638 $ 3,078 $ 3,519
2 $ 30,906 $1,020,155 $1,021,451 $1,022,783 $1,024,151 $ 12,155 $ 13,451 $ 14,783 $ 16,151
3 $ 47,292 $1,029,852 $1,032,421 $1,035,133 $1,037,992 $ 21,852 $ 24,421 $ 27,133 $ 29,992
4 $ 64,334 $1,039,269 $1,043,528 $1,048,144 $1,053,140 $ 31,269 $ 35,528 $ 40,144 $ 45,140
5 $ 82,057 $1,048,382 $1,054,745 $1,061,830 $1,069,703 $ 40,382 $ 46,745 $ 53,830 $ 61,703
6 $ 100,489 $1,058,904 $1,067,842 $1,078,057 $1,089,710 $ 52,504 $ 61,442 $ 71,657 $ 83,310
7 $ 119,659 $1,069,033 $1,081,024 $1,095,091 $1,111,562 $ 64,233 $ 76,224 $ 90,291 $ 106,762
8 $ 139,595 $1,078,731 $1,094,249 $1,112,936 $1,135,404 $ 75,531 $ 91,049 $109,736 $ 132,204
9 $ 160,329 $1,087,955 $1,107,467 $1,131,592 $1,161,389 $ 86,355 $105,867 $129,992 $ 159,789
10 $ 181,892 $1,096,650 $1,120,613 $1,151,047 $1,189,677 $ 96,650 $120,613 $151,047 $ 189,677
15 $ 303,356 $1,129,196 $1,181,736 $1,258,547 $1,371,076 $129,196 $181,736 $258,547 $ 371,076
20 $ 451,136 $1,130,364 $1,219,077 $1,370,863 $1,631,349 $130,364 $219,077 $370,863 $ 631,349
25 $ 630,933 $1,069,758 $1,193,736 $1,450,563 $1,978,392 $ 69,758 $193,736 $450,563 $ 978,392
30 $ 849,683 $ 0(2)$1,029,094 $1,410,517 $2,385,831 $ 0(2) $ 29,094 $410,517 $1,385,831
35 $1,115,827 $ 0 $ 0(2)$1,101,179 $2,777,294 $ 0 $ 0(2) $101,179 $1,777,294
40 $1,439,631 $ 0 $ 0 $ 0(2)$2,999,124 $ 0 $ 0 $ 0(2) $1,999,124
45 $1,833,588 $ 0 $ 0 $ 0 $2,748,325 $ 0 $ 0 $ 0 $1,748,325
50 $2,312,897 $ 0 $ 0 $ 0 $ 0(2) $ 0 $ 0 $ 0 $ 0(2)
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 0% the Contract would go into default in policy year 28.
Based on a gross return of 4% the Contract would go into default in policy year 31.
Based on a gross return of 8% the Contract would go into default in policy year 36.
Based on a gross return of 12% the Contract would go into default in policy year 50.
The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and should
not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less
than those shown and will depend on a number of factors including the investment allocations made by an owner, prevailing
interest rates, and rates of inflation. The death benefit and cash surrender value for a contract would be different from
those shown if the actual rates of return averaged 0%, 4%, 8%, and 12% over a period of years but also fluctuated above or
below those averages for individual contract years. No representations can be made by Pruco Life of New Jersey or the Series
Fund that these hypothetical rates of return can be achieved for any one year or sustained over any period of time.
T4
</TABLE>
<PAGE>
CONTRACT LOANS
You may borrow from Pruco Life of New Jersey an amount up to the current "loan
value" of your Contract less any existing Contract debt using the Contract as
the only security for the loan. The loan value at any time will equal the sum of
(a) 90% of the cash value attributable to the variable investment options, and
(b) the balance of the cash value, provided the Contract is not in default. A
Contract in default has no loan value. The minimum loan amount you may borrow is
$500.
Interest charged on a loan accrues daily. Interest is due on each Contract
anniversary or when the loan is paid back, whichever comes first. If interest is
not paid when due, it becomes part of the loan and we will charge interest on
it, too. Except in the case of preferred loans, we charge interest at an
effective annual rate of 5%.
Unless you ask us otherwise, a portion of the amount you may borrow on or after
the 10th Contract anniversary will be considered a preferred loan up to an
amount equal to the maximum preferred loan amount. The maximum preferred loan
amount is the total amount you may borrow minus the total net premiums paid (net
premiums equal premiums paid less total withdrawals, if any). If the net premium
amount is less than zero, we will, for purposes of this calculation, consider it
to be zero. Only new loans borrowed after the 10th Contract anniversary may be
considered preferred loans; standard loans will not automatically be converted
into preferred loans. Preferred loans are charged interest at an effective
annual rate of 4.25%.
The Contract debt is the amount of all outstanding loans plus any interest
accrued but not yet due. If at any time the Contract debt equals or exceeds the
cash value, the Contract will go into default. We will notify you of a 61-day
grace period, within which time you may repay all or enough of the loan to
obtain a positive cash surrender value and thus keep the Contract inforce for a
limited time. If the Contract debt equals or exceeds the cash value and you fail
to keep the Contract inforce, the amount of unpaid Contract debt will be treated
as a distribution which may be taxable. See TAX TREATMENT OF CONTRACT BENEFITS,
page 29 and LAPSE AND REINSTATEMENT, page 31.
When a loan is made, an amount equal to the loan proceeds is transferred out of
the Account and/or the fixed-rate option, as applicable. Unless you ask us to
take the loan amount from specific investment options and we agree, the
reduction will be made in the same proportions as the loanable amount in each
variable investment option and the fixed-rate option bears to the total loanable
amount of the Contract. When you take a loan, the amount of the loan continues
to be a part of the Contract Fund and is credited with interest at an effective
annual rate of 4%. Therefore, the net cost of a standard loan is 1% and the net
cost of a preferred loan is 1/4%.
Any Contract debt will be deducted from the death benefit should the death
benefit become payable while a loan is outstanding. Loans from Modified
Endowment Contracts may be treated for tax purposes as distributions of income.
See TAX TREATMENT OF CONTRACT BENEFITS, page 29.
Any Contract debt will be deducted from the cash value to calculate the cash
surrender value should the Contract be surrendered.
In addition, even if the loan is fully repaid, it may have an effect on future
death benefits, because the investment results of the selected investment
options will apply only to the amount remaining invested under those options.
The longer the loan is outstanding, the greater the effect is likely to be. The
effect could be favorable or unfavorable. If investment results are greater than
the rate being credited upon the amount of the loan while the loan is
outstanding, values under the Contract will not increase as rapidly as they
would have if no loan had been made. If investment results are below that rate,
Contract values will be higher than they would have been had no loan been made.
28
<PAGE>
When you repay all or part of a loan, we will increase the portion of the
Contract Fund in the variable investment options by the amount of that
repayment, plus the interest credits accrued on the loan since the last
transaction date. To do this, we will use your investment allocation for future
premium payments as of the loan payment date. We will also decrease the portion
of the Contract Fund on which we credit the guaranteed annual interest rate of
4% by the amount of loan you repay.
SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
Prudential, acts as the principal underwriter of the Contract. Prusec, organized
in 1971 under New Jersey law, is registered as a broker and dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. Prusec's principal business address is 751 Broad
Street, Newark, New Jersey 07102-3777. The Contract is sold by registered
representatives of Prusec who are also authorized by state insurance departments
to do so. The Contract may also be sold through other broker-dealers authorized
by Prusec and applicable law to do so. Registered representatives of such other
broker-dealers may be paid on a different basis than described below.
Commissions are based on a premium value referred to as the commissionable
Target Premium. The commissionable Target Premium may vary from the Target
Premium, depending on the rating class of the insureds, any extra risk charges,
or additional riders.
Generally, representatives will receive a commission of no more than: (1) 50% of
the premiums received in the first year on premiums up to the commissionable
Target Premium amount (see Premiums, page 17); (2) 3% commission on premiums
received in the first year in excess of the commissionable Target Premium
amount; (3) 4% of premiums received in years two through 10; and (4) a trail
commission of 0.0375% of the Contract Fund as of the end of each calendar
quarter starting with the second Contract year. Representatives with less than
four years of service may receive compensation on a different basis.
Representatives who meet certain productivity or persistency standards may be
eligible for additional compensation.
TAX TREATMENT OF CONTRACT BENEFITS
This summary provides general information on the federal income tax treatment of
the Contract. It is not a complete statement of what the federal income taxes
will be in all circumstances. It is based on current law and interpretations,
which may change. It does not cover state taxes or other taxes. It is not
intended as tax advice. You should consult your own qualified tax adviser for
complete information and advice.
TREATMENT AS LIFE INSURANCE. The Contract must meet certain requirements to
qualify as life insurance for tax purposes. These requirements include certain
definitional tests and rules for diversification of the Contract's investments.
For further information on the diversification requirements, see TAXATION OF THE
FUND in the statement of additional information for the Series Fund.
We believe we have taken adequate steps to insure that the Contract qualifies as
life insurance for tax purposes. Generally speaking, this means that:
o you will not be taxed on the growth of the funds in the Contract,
unless you receive a distribution from the Contract,
o the Contract's death benefit will be income tax free to your
beneficiary.
29
<PAGE>
Although we believe that the Contract should qualify as life insurance for tax
purposes, there are some uncertainties, particularly because the Secretary of
Treasury has not yet issued permanent regulations that bear on this question.
Accordingly, we reserve the right to make changes -- which will be applied
uniformly to all Contract owners after advance written notice -- that we deem
necessary to insure that the Contract will qualify as life insurance.
PRE-DEATH DISTRIBUTIONS . The tax treatment of any distribution you receive
before the insured's death depends on whether the Contract is classified as a
Modified Endowment Contract.
CONTRACTS NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
o If you surrender the Contract or allow it to lapse, you will be taxed
on the amount you receive in excess of the premiums you paid less the
untaxed portion of any prior withdrawals. For this purpose, you will
be treated as receiving any portion of the cash surrender value used
to repay Contract debt. The tax consequences of a surrender may differ
if you take the proceeds under an income payment settlement option.
o Generally, you will be taxed on a withdrawal to the extent the amount
you receive exceeds the premiums you paid for the Contract less the
untaxed portion of any prior withdrawals. However, under some limited
circumstances, in the first 15 Contract years, all or a portion of a
withdrawal may be taxed if the Contract Fund exceeds the total
premiums paid less the untaxed portions of any prior withdrawals, even
if total withdrawals do not exceed total premiums paid.
o Extra premiums for optional benefits and riders generally do not count
in computing the premiums paid for the Contract for the purposes of
determining whether a withdrawal is taxable.
o Loans you take against the Contract are ordinarily treated as debt and
are not considered distributions subject to tax. However, there is
some risk the Internal Revenue Service might assert that the preferred
loan should be treated as a distribution for tax purposes because of
the relatively low differential between the loan interest rate and
Contract's crediting rate. Were the Internal Revenue Service to take
this position, Pruco Life of New Jersey would take reasonable steps to
avoid this result, including modifying the Contract's loan provisions.
MODIFIED ENDOWMENT CONTRACTS.
o The rules change if the Contract is classified as a Modified Endowment
Contract. The Contract could be classified as a Modified Endowment
Contract if premiums in amounts that are too large are paid or a
decrease in the face amount of insurance is made (or a rider removed).
The addition of a rider or an increase in the face amount of insurance
may also cause the Contract to be classified as a Modified Endowment
Contract. You should first consult a qualified tax adviser and your
Pruco Life of New Jersey representative if you are contemplating any
of these steps.
o If the Contract is classified as a Modified Endowment Contract, then
amounts you receive under the Contract before the insured's death,
including loans and withdrawals, are included in income to the extent
that the Contract Fund before surrender charges exceeds the premiums
paid for the Contract increased by the amount of any loans previously
included in income and reduced by any untaxed amounts previously
received other than the amount of any loans excludible from income. An
assignment of a Modified
30
<PAGE>
Endowment Contract is taxable in the same way. These rules also apply
to pre-death distributions, including loans and assignments, made
during the two-year period before the time that the Contract became a
Modified Endowment Contract.
o Any taxable income on pre-death distributions (including full
surrenders) is subject to a penalty of 10 percent unless the amount is
received on or after age 59 1/2, on account of your becoming disabled
or as a life annuity. It is presently unclear how the penalty tax
provisions apply to Contracts owned by businesses.
o All Modified Endowment Contracts issued by us to you during the same
calendar year are treated as a single Contract for purposes of
applying these rules.
WITHHOLDING. You must affirmatively elect that no taxes be withheld from a
pre-death distribution. Otherwise, the taxable portion of any amounts you
receive will be subject to withholding. You are not permitted to elect out of
withholding if you do not provide a social security number or other taxpayer
identification number. You may be subject to penalties under the estimated tax
payment rules if your withholding and estimated tax payments are insufficient to
cover the tax due.
OTHER TAX CONSIDERATIONS. If you transfer or assign the Contract to someone
else, there may be gift, estate and/or income tax consequences. If you transfer
the Contract to a person two or more generations younger than you (or designate
such a younger person as a beneficiary), there may be Generation Skipping
Transfer tax consequences. Deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied. Your individual situation or that of your beneficiary
will determine the federal estate taxes and the state and local estate,
inheritance and other taxes due if you or the insured dies.
BUSINESS-OWNED LIFE INSURANCE. If a business, rather than an individual, is the
owner of the Contract, there are some additional rules. Business Contract owners
generally cannot deduct premium payments. Business Contract owners generally
cannot take tax deductions for interest on Contract debt paid or accrued after
October 13, 1995. An exception permits the deduction of interest on policy loans
on Contracts for up to 20 key persons. The interest deduction for Contract debt
on these loans is limited to a prescribed interest rate and a maximum aggregate
loan amount of $50,000 per key insured person. The corporate alternative minimum
tax also applies to business-owned life insurance. This is an indirect tax on
additions to the Contract Fund or death benefits received under business-owned
life insurance policies.
LAPSE AND REINSTATEMENT
Pruco Life of New Jersey will determine the value of the cash surrender value on
each Monthly date. If the cash surrender value is zero or less, the Contract is
in default unless it remains inforce under the Death Benefit Guarantee. See
DEATH BENEFIT GUARANTEE, page 19. If the Contract debt ever grows to be equal to
or more than the cash surrender value, the Contract will be in default. Should
this happen, Pruco Life of New Jersey will send you a notice of default setting
forth the payment which we estimate will keep the Contract inforce for three
months from the date of default. This payment must be received at a Home Office
within the 61-day grace period after the notice of default is mailed or the
Contract will end and have no value. If the second death occurs past the grace
period, no death benefit is payable. A Contract that lapses with an outstanding
Contract loan may have tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS,
page 29.
A Contract that ended in default may be reinstated within five years after the
date of default if all the following conditions are met:
(1) both insureds are alive or one insured is alive and the Contract ended
without value after the death of the other insured;
31
<PAGE>
(2) you must provide renewed evidence of insurability on any insured who
was living when the Contract went into default;
(3) submission of certain payments sufficient to bring the Contract up to
date and cover all charges and deductions for the next three months;
and
(4) any Contract debt with interest to date must be restored or paid back.
If the Contract debt is restored and the debt with interest would
exceed the loan value of the reinstated Contract, the excess must be
paid to us before reinstatement.
The reinstatement date will be the date we approve your request. We will deduct
all required charges from your payment and the balance will be placed into your
Contract Fund. If we approve the reinstatement, we will credit the Contract Fund
with a refund of that part of any surrender charge deducted at the time of
default which would have been charged if the Contract were surrendered
immediately after reinstatement.
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS
The Contract generally employs mortality tables that distinguish between males
and females. Thus, premiums and benefits under Contracts issued on males and
females of the same age will generally differ. However, in those states that
have adopted regulations prohibiting sex-distinct insurance rates, premiums and
cost of insurance charges will be based on male rates, whether the insureds are
male or female. In addition, employers and employee organizations considering
purchase of a Contract should consult their legal advisers to determine whether
purchase of a Contract based on sex-distinct actuarial tables is consistent with
Title VII of the Civil Rights Act of 1964 or other applicable law.
OTHER GENERAL CONTRACT PROVISIONS
ASSIGNMENT. This Contract may not be assigned if the assignment would violate
any federal, state or local law or regulation prohibiting sex distinct rates for
insurance. Generally, the Contract may not be assigned to an employee benefit
plan or program without Pruco Life of New Jersey's consent. Pruco Life of New
Jersey assumes no responsibility for the validity or sufficiency of any
assignment, and we will not be obligated to comply with any assignment unless we
receive a copy at a Home Office.
BENEFICIARY. You designate and name your beneficiary in the application.
Thereafter, you may change the beneficiary, provided it is in accordance with
the terms of the Contract. Should the second insured to die do so with no
surviving beneficiary, that insured's estate will become the beneficiary, unless
someone other than the insureds owned the Contract. In that case, we will make
the Contract owner or the Contract owner's estate the beneficiary.
INCONTESTABILITY. We will not contest the Contract after it has been inforce
during the lifetime of both insureds for two years from the issue date. The
exceptions are: (1) non-payment of enough premium to pay the required charges;
and (2) when any change is made in the Contract that requires Pruco Life of New
Jersey's approval and would increase our liability. We will not contest such
change after it has been in effect for two years during the lifetime of at least
one insured. At the end of the second Contract year we will mail you a notice
requesting that you tell us if either insured has died. Failure to tell us of
the death of an insured will not avoid a contest, if we have a basis for one,
even if premium payments continue to be made.
MISSTATEMENT OF AGE OR SEX. If an insured's stated age or sex or both are
incorrect in the Contract, Pruco Life of New Jersey will adjust each benefit and
any amount to be paid, as required by law, to reflect the correct age and sex.
Any such benefit will be based on what the most recent deductions from the
Contract Fund would have provided at the insured's correct age and sex.
32
<PAGE>
SETTLEMENT OPTIONS. The Contract grants to most owners, or to the beneficiary, a
variety of optional ways of receiving Contract proceeds, other than in a lump
sum. Any Pruco Life of New Jersey representative authorized to sell this
Contract can explain these options upon request.
SIMULTANEOUS DEATH. If both insureds die while the Contract is inforce and we
find there is lack of sufficient evidence that they died other than
simultaneously, we will assume that the older insured died first.
SUICIDE EXCLUSION. If either insured, whether sane or insane, dies by suicide
within two years from the issue date, the Contract will end and we will return
the premiums paid. If there is a surviving insured, we will make a new contract
available on the life of that insured. The issue age, Contract date, and the
insured's underwriting classification will be the same as they are in the
Contract. The amount of coverage will be the lesser of (1) the contract's basic
insurance amount, and (2) the maximum amount we allow on the Contract date for
single life contracts. The new contract will not take effect unless all premiums
due since the Contract date are paid within 31 days after we notify you of the
availability of the new contract.
RIDERS
Contract owners may be able to obtain extra fixed benefits which may require an
additional premium. These optional insurance benefits will be described in what
is known as a "rider" to the Contract. Charges applicable to the riders will be
deducted from the Contract Fund on each Monthly date.
One rider gives insureds the option to exchange the Contract for two new life
insurance contracts, one on the life of each insured, in the event of a divorce
or if certain changes in tax law occur. Exercise of this option may give rise to
taxable income. Another pays an additional amount if both insureds die within a
specified number of years. See TAX TREATMENT OF CONTRACT BENEFITS, page 29.
Certain restrictions may apply; they are clearly described in the applicable
rider. Any Pruco Life of New Jersey representative authorized to sell the
Contract can explain these extra benefits further. Samples of the provisions are
available from Pruco Life of New Jersey upon written request.
SUBSTITUTION OF FUND SHARES
Although Pruco Life of New Jersey believes it to be unlikely, it is possible
that in the judgment of its management, one or more of the portfolios of the
Funds may become unsuitable for investment by Contract owners because of
investment policy changes, tax law changes, or the unavailability of shares for
investment. In that event, Pruco Life of New Jersey may seek to substitute the
shares of another portfolio or of an entirely different mutual fund. Before this
can be done, the approval of the SEC, and possibly one or more state insurance
departments, may be required. Contract owners will be notified of any such
substitution.
REPORTS TO CONTRACT OWNERS
Once each year, Pruco Life of New Jersey will send you a statement that provides
certain information pertinent to your own Contract. This statement will detail
values, transactions made, and specific Contract data that apply only to your
particular Contract.
You will also be sent annual and semi-annual reports of the Funds showing the
financial condition of the portfolios and the investments held in each
portfolio.
STATE REGULATION
Pruco Life of New Jersey is subject to regulation and supervision by the
Department of Insurance of the State of New Jersey, which periodically examines
its operations and financial condition. It is also subject to the insurance laws
and regulations of all jurisdictions in which it is authorized to do business.
33
<PAGE>
Pruco Life of New Jersey is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business to determine solvency and
compliance with local insurance laws and regulations.
In addition to the annual statements referred to above, Pruco Life of New Jersey
is required to file with New Jersey and other jurisdictions a separate statement
with respect to the operations of all its variable contract accounts, in a form
promulgated by the National Association of Insurance Commissioners.
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 Account as of December 31, 1999 and for each of
the three years in the period then ended included in this prospectus have been
so included in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. PricewaterhouseCoopers LLP's principal business address
is 1177 Avenue of the Americas, New York, New York 10036.
Actuarial matters included in this prospectus have been examined by Ching-Meei
Chang, MAAA, FSA, Actuarial Director of Prudential, whose opinion is filed as an
exhibit to the registration statement.
LITIGATION AND REGULATORY PROCEEDINGS
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. In certain of these
lawsuits, large and/or indeterminate amounts are sought, including punitive or
exemplary damages.
In particular, Pruco Life of New Jersey 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 of New Jersey, 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 of New Jersey 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 of New Jersey 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 of New Jersey 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 Operations 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
34
<PAGE>
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.
ADDITIONAL INFORMATION
Pruco Life of New Jersey has filed a registration statement with the SEC under
the Securities Act of 1933, relating to the offering described in this
prospectus. This prospectus does not include all of the information set forth in
the registration statement. Certain portions have been omitted pursuant to the
rules and regulations of the SEC. The omitted information may, however, be
obtained from the SEC's Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549, or by telephoning (800) SEC-0330, upon payment of a
prescribed fee.
Further information may also be obtained from Pruco Life of New Jersey. The
address and telephone number are set forth on the inside front cover of this
prospectus.
FINANCIAL STATEMENTS
The financial statements of the Account should be distinguished from the
financial statements of Pruco Life of New Jersey, which should be considered
only as bearing upon the ability of Pruco Life of New Jersey to meet its
obligations under the Contracts.
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<PAGE>
DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life of New Jersey, listed with their
principal occupations during the past five 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.
WILLIAM M. BETHKE, DIRECTOR - Chief Investment Officer, Prudential since 1997;
prior to 1997: President, Prudential Capital Markets Group.
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.
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.
DAVID R. ODENATH, JR., DIRECTOR - President, Prudential Investments since 1999;
prior to 1999: Senior Vice President and Director of Sales, Investment
Consulting Group, PaineWebber.
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.
OFFICERS WHO ARE NOT DIRECTORS
C. EDWARD CHAPLIN, TREASURER - Vice President and Treasurer, Prudential since
1995.
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.
CLIFFORD E. KIRSCH, CHIEF LEGAL OFFICER AND SECRETARY - Chief Counsel, Variable
Products, Prudential Law Department since 1995.
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.
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.
The business address of all directors and officers of Pruco Life of New Jersey
is 213 Washington Street, Newark, New Jersey 07102-2992.
Pruco Life of New Jersey directors and officers are elected annually.
36
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1999
SUBACCOUNTS
- -----------------------------------------------------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
ASSETS
Investment in The Prudential Series Fund, Inc.
<S> <C> <C> <C> <C> <C>
Portfolios at net asset value [Note 3] ..... $ 7,473,027 $ 23,340,683 $ 193,971,356 $ 246,446,762 $ 115,373,893
Receivable from (Payable to) Pruco
Life of New Jersey [Note 2] ................ (52,351) (2,743) (39,548) 5,862 10,073
------------- ------------- ------------- ------------- -------------
Net Assets ................................... $ 7,420,676 $ 23,337,940 $ 193,931,808 $ 246,452,624 $ 115,383,966
============= ============= ============= ============= =============
NET ASSETS, representing:
Equity of contract owners [Note 4] ........... $ 7,420,676 $ 23,337,940 $ 193,931,808 $ 246,452,624 $ 115,383,966
------------- ------------- ------------- ------------- -------------
$ 7,420,676 $ 23,337,940 $ 193,931,808 $ 246,452,624 $ 115,383,966
============= ============= ============= ============= =============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ----------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
$ 32,097,556 $ 84,394,710 $ 11,892,035 $ 84,715,059 $ 25,369,217
(463) 8,257 1,252 19,516 7,181
- ------------ ------------ ------------ ------------ ------------
$ 32,097,093 $ 84,402,967 $ 11,893,287 $ 84,734,575 $ 25,376,398
============ ============ ============ ============ ============
$ 32,097,093 $ 84,402,967 $ 11,893,287 $ 84,734,575 $ 25,376,398
- ------------ ------------ ------------ ------------ ------------
$ 32,097,093 $ 84,402,967 $ 11,893,287 $ 84,734,575 $ 25,376,398
============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1999, 1998 and 1997
SUBACCOUNTS
------------------------------------------------------------------------------------
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
---------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- ----------- -----------
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C> <C>
Dividend income $ 362,423 $ 376,466 $ 390,865 $ 0 $ 1,518,983 $ 1,730,646
---------- ---------- ---------- ---------- ----------- -----------
EXPENSES
Charges to contract owners for assuming ..
mortality risk and expense risk [Note 5A] 44,562 43,083 44,046 144,104 147,669 140,877
Reimbursement for excess expenses ........
[Note 5D] (1,825) (1,102) (1,630) (6,334) (5,945) (5,701)
---------- ---------- ---------- ---------- ----------- -----------
NET EXPENSES .............................. 42,737 41,981 42,416 137,770 141,724 135,176
---------- ---------- ---------- ---------- ----------- -----------
NET INVESTMENT INCOME (LOSS) .............. 319,686 334,485 348,449 (137,770) 1,377,259 1,595,470
---------- ---------- ---------- ---------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received .. 0 0 0 67,535 88,872 276,650
Realized gain (loss) on shares
redeemed ............................ 0 0 0 41,756 65,294 70,032
Net change in unrealized gain (loss)
on investments ...................... 0 0 0 (295,317) 22,951 (154,839)
---------- ---------- ---------- ---------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ............ 0 0 0 (186,026) 177,117 191,843
---------- ---------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS .............................. $ 319,686 $ 334,485 $ 348,449 $ (323,796) $ 1,554,376 $ 1,787,313
========== ========== ========== ========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------------
EQUITY FLEXIBLE MANAGED CONSERVATIVE BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------- ---------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ---------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 3,250,226 $ 3,479,231 $ 3,958,383 $ 11,143 $ 10,349,173 $ 10,897,673 $ 4,689,573 $ 4,872,397 $ 4,982,357
----------- ----------- ----------- ---------- ------------ ------------ ----------- ----------- -----------
1,150,889 1,143,923 1,028,832 1,509,261 2,116,233 2,184,985 718,530 713,776 665,939
(158,561) (166,679) (133,380) (544,224) (767,447) (793,096) (190,933) (183,772) (163,989)
----------- ----------- ----------- ---------- ------------ ------------ ----------- ----------- -----------
992,328 977,244 895,452 965,037 1,348,786 1,391,889 527,597 530,004 501,950
----------- ----------- ----------- ---------- ------------ ------------ ----------- ----------- -----------
2,257,898 2,501,987 3,062,931 (953,894) 9,000,387 9,505,784 4,161,976 4,342,393 4,480,407
----------- ----------- ----------- ---------- ------------ ------------ ----------- ----------- -----------
22,859,279 20,675,751 9,847,752 2,827,339 27,434,444 56,731,648 658,398 6,925,741 11,925,141
5,681,025 4,685,572 3,605,717 1,322,321 8,721,978 2,974,960 787,439 594,578 961,056
(9,060,032) (12,015,861) 19,914,304 14,382,751 (22,408,120) (11,688,757) 1,388,838 329,870 (4,407,263)
----------- ----------- ----------- ---------- ------------ ------------ ----------- ----------- -----------
19,480,272 13,345,462 33,367,773 18,532,411 13,748,302 48,017,851 2,834,675 7,850,189 8,478,934
----------- ----------- ----------- ---------- ------------ ------------ ----------- ----------- -----------
$ 21,738,170 $ 15,847,449 $ 36,430,704 $ 17,578,517 $ 22,748,689 $ 57,523,635 $ 6,996,651 $ 12,192,582 $ 12,959,341
============ ============ ============ ============ ============ ============ =========== ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
</TABLE>
A4
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1999, 1998 and 1997
SUBACCOUNTS
----------------------------------------------------------------------------
HIGH YIELD BOND STOCK INDEX
PORTFOLIO PORTFOLIO
------------------------------------- ------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------- -------- ----------- ----------- ----------
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C> <C>
Dividend income ............................... $ 85,549 $ 1,994,015 $568,574 $ 767,914 $ 540,470 $ 188,173
----------- ----------- -------- ----------- ----------- ----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] .... 193,583 97,586 35,704 443,707 207,744 73,231
Reimbursement for excess expenses
[Note 5D] .................................... 0 0 0 0 0 0
----------- ----------- -------- ----------- ----------- ----------
NET EXPENSES .................................... 193,583 97,586 35,704 443,707 207,744 73,231
----------- ----------- -------- ----------- ----------- ----------
NET INVESTMENT INCOME (LOSS) .................... (108,034) 1,896,429 532,870 324,207 332,726 114,942
----------- ----------- -------- ----------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ........ 0 0 0 976,749 1,074,502 412,169
Realized gain (loss) on shares
redeemed .................................. (217,380) (173,650) 32,615 4,605,818 1,754,137 260,629
Net change in unrealized gain (loss)
on investments ............................ 1,589,321 (2,569,803) 171,940 8,162,150 11,731,008 2,468,185
----------- ----------- -------- ----------- ----------- ----------
NET GAIN (LOSS) ON INVESTMENTS .................. 1,371,941 (2,743,453) 204,555 13,744,717 14,559,647 3,140,983
----------- ----------- -------- ----------- ----------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ................................... $ 1,263,907 $ (847,024) $737,425 $14,068,924 $14,892,373 $3,255,925
=========== =========== ======== =========== =========== ==========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME GLOBAL PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------- ----------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ---------- ------------- ----------- ------------ ------------ ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 273,914 $ 327,421 $ 237,992 $ 295,800 $ 490,032 $ 69,248 $ 22,451 $ 10,621 $ 5,371
- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
71,439 74,057 53,801 411,889 140,140 31,924 81,659 29,296 13,312
0 0 0 0 0 0 0 0 0
- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
71,439 74,057 53,801 411,889 140,140 31,924 81,659 29,296 13,312
- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
202,475 253,364 184,191 (116,089) 349,892 37,324 (59,208) (18,675) (7,941)
- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,332,460 721,671 998,911 518,662 2,640,161 352,331 970,020 104,664 171,556
244,341 117,016 52,359 1,889,924 32,172 32,176 108,823 27,074 16,410
(422,725) (1,610,976) 1,459,574 25,916,670 7,149,778 (672,740) 4,732,816 1,492,381 364,364
- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,154,076 (772,289) 2,510,844 28,325,256 9,822,111 (288,233) 5,811,659 1,624,119 552,330
- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 1,356,551 $ (518,925) $ 2,695,035 $ 28,209,167 $ 10,172,003 $ (250,909) $ 5,752,451 $ 1,605,444 $ 544,389
=========== ============ ============ ============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1999, 1998 and 1997
SUBACCOUNTS
--------------------------------------------------------------------------------------
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
----------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) ............. $ 319,686 $ 334,485 $ 348,449 $ (137,770) $ 1,377,259 $ 1,595,470
Capital gains distributions received ..... 0 0 0 67,535 88,872 276,650
Realized gain (loss) on shares redeemed .. 0 0 0 41,756 65,294 70,032
Net change in unrealized gain (loss) on ..
investments ............................ 0 0 0 (295,317) 22,951 (154,839)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ............................... 319,686 334,485 348,449 (323,796) 1,554,376 1,787,313
------------ ------------ ------------ ------------ ------------ ------------
PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS
Contract Owner Net Payments .............. 18,255 362,297 505,183 485,236 1,209,116 1,404,553
Policy Loans ............................. (182,692) (147,149) (409,790) (553,832) (529,009) (473,054)
Policy Loan Repayments and Interest ...... 204,337 265,406 140,076 509,659 421,496 409,993
Surrenders, Withdrawals and
Death Benefits ......................... (433,849) (627,277) (550,152) (1,188,933) (1,336,342) (1,502,838)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Option ....... 252,166 538,372 (156,879) (351,534) 682,202 194,525
Withdrawal and Other Charges ............. (231,397) (246,028) (301,944) (571, 355) (621,531) (732,626)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING
TRANSFERS ................................ (373,180) 145,621 (773,506) (1,670,759) (174,068) (699,447)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7] ......................... 0 (15,018) (99,078) 0 (2,680) (57,377)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ................................... (53,494) 465,088 (524,135) (1,994,555) 1,377,628 1,030,489
NET ASSETS
Beginning of year ........................ 7,474,170 7,009,082 7,533,217 25,332,495 23,954,867 22,924,378
------------ ------------ ------------ ------------ ------------ ------------
End of year .............................. $ 7,420,676 $ 7,474,170 $ 7,009,082 $ 23,337,940 $ 25,332,495 $ 23,954,867
============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
EQUITY FLEXIBLE MANAGED CONSERVATIVE BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- ----------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2,257,898 $ 2,501,987 $ 3,062,931 $ (953,894) $ 9,000,387 $ 9,505,784 $ 4,161,976 $ 4,342,393 $ 4,480,407
22,859,279 20,675,751 9,847,752 2,827,339 27,434,444 56,731,648 658,398 6,925,741 11,925,141
5,681,025 4,685,572 3,605,717 1,322,321 8,721,978 2,974,960 787,439 594,578 961,056
(9,060,032) (12,015,861) 19,914,304 14,382,751 (22,408,120) (11,688,757) 1,388,838 329,870 (4,407,263)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
21,738,170 15,847,449 36,430,704 17,578,517 22,748,689 57,523,635 6,996,651 12,192,582 12,959,341
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
484,980 8,768,106 10,298,271 4,963,270 19,460,603 22,730,005 2,955,315 8,965,691 10,313,838
(5,865,015) (6,477,542) (6,145,354) (7,384,636) (7,974,049) (7,849,567) (2,889,851) (3,015,778) (3,213,273)
5,452,661 4,223,794 3,591,634 7,010,849 5,598,233 5,129,697 2,927,288 1,976,521 2,156,195
(7,992,313) (9,891,027) (10,093,245) (10,727,647) (13,996,390) (15,259,724) (5,619,206) (6,131,547) (6,793,526)
(3,629,986) (1,215,581) 678,473 (4,161,991) (144,967,979) (2,359,588) (2,179,539) (1,292,182) (1,375,131)
(5,119,578) (5,422,744) (6,160,863) (9,811,225) (11,055,099) (12,720,067) (4,974,621) (5,312,571) (6,059,806)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(16,669,251) (10,014,994) (7,831,084) (20,111,380) (152,934,681) (10,329,244) (9,780,614) (4,809,866) (4,971,703)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
0 (132,641) (149,464) 0 (177,182) (219,866) 0 (8,012) (508,220)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
5,068,919 5,699,814 28,450,156 (2,532,863) (130,363,174) 46,974,525 (2,783,963) 7,374,704 7,479,418
188,862,889 183,163,075 154,712,919 248,985,487 379,348,661 332,374,136 118,167,929 110,793,225 103,313,807
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$193,931,808 $188,862,889 $183,163,075 $246,452,624 $248,985,487 $379,348,661 $115,383,966 $118,167,929 $110,793,225
============ ============ ============ ============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF THE
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1999, 1998 and 1997
SUBACCOUNTS
------------------------------------------------------------------------------------
HIGH YIELD BOND STOCK INDEX
PORTFOLIO PORTFOLIO
----------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
------------ ------------ ------------ ------------ ------------ -----------
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) ............. $ (108,034) $ 1,896,429 $ 532,870 $ 324,207 $ 332,726 $ 114,942
Capital gains distributions received 0 0 0 976,749 1,074,502 412,169
Realized gain (loss) on shares redeemed .. (217,380) (173,650) 32,615 4,605,818 1,754,137 260,629
Net change in unrealized gain (loss) on
investments ............................ 1,589,321 (2,569,803) 171,940 8,162,150 11,731,008 2,468,185
------------ ------------ ------------ ------------ ------------ -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ............................... 1,263,907 (847,024) 737,425 14,068,924 14,892,373 3,255,925
------------ ------------ ------------ ------------ ------------ -----------
PREMIUM PAYMENTS AND OTHER
OPERATING TRANSFERS
Contract Owner Net Payments .............. 247,400 356,982 469,592 836,738 (458,592) 919,468
Policy Loans ............................. (145,200) (163,296) (201,423) (768,138) (528,435) (466,875)
Policy Loan Repayments and Interest ...... 288,800 167,408 118,870 641,476 429,300 254,143
Surrenders, Withdrawals and
Death Benefits ......................... (164,918) (501,296) (305,958) (1,093,052) (1,117,895) (558,323)
Net Transfers From (To) Other
Subaccounts or Fixed Rate Option ....... (3,734,139) 29,637,732 130,175 (6,699,608) 50,128,317 2,108,397
Deferred Sales and Other Charges ......... (332,102) (283,352) (265,639) (876,437) (637,808) (474,579)
------------ ------------ ------------ ------------ ------------ -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING
TRANSFERS ................................ (3,840,159) 29,214,178 (54,383) (7,959,021) 47,814,887 1,782,231
------------ ------------ ------------ ------------ ------------ -----------
NET INCREASE (DECREASE) IN
NET ASSETS RETAINED IN THE
ACCOUNT [Note 7] ......................... 0 (60,128) 3,000 0 687,255 22,000
------------ ------------ ------------ ------------ ------------ -----------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ............................... (2,576,252) 28,307,026 686,042 6,109,903 63,394,515 5,060,156
NET ASSETS
Beginning of year ........................ 34,673,345 6,366,319 5,680,277 78,293,064 14,898,549 9,838,393
------------ ------------ ------------ ------------ ------------ -----------
End of year .............................. $32,097,093 $ 34,673,345 $ 6,366,319 $ 84,402,967 $ 78,293,064 $ 14,898,549
============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
A9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME GLOBAL PRUDENTIAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------- ----------------------------------------- -----------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 202,475 $ 253,364 $ 184,191 $ (116,089) $ 349,892 $ 37,324 $ (59,208)$ (18,675)$ (7,941)
1,332,460 721,671 998,911 518,662 2,640,161 352,331 970,020 104,664 171,556
244,341 117,016 52,359 1,889,924 32,172 32,176 108,823 27,074 16,410
(422,725) (1,610,976) 1,459,574 25,916,670 7,149,778 (672,740) 4,732,816 1,492,381 364,364
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------
1,356,551 (518,925) 2,695,035 28,209,167 10,172,003 (250,909) 5,752,451 1,605,444 544,389
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------
93,369 625,273 636,376 (1,977,776) (404,538) 296,914 918,991 350,999 221,934
(299,074) (348,765) (321,220) (156,604) (117,217) (119,989) (541,040) (186,693) (95,540)
310,105 211,308 165,506 170,944 65,209 60,528 423,520 207,729 33,699
(501,214) (642,033) (413,503) (19,903) (359,688) (118,830) (548,558) (263,749) (53,534)
(548,343) 1,663,734 1,464,170 (5,578,438) 47,651,150 5,040,462 12,249,824 2,831,858 976,677
(331,274) (356,431) (325,521) (418,808) (207,310) (125,863) (318,494) (156,276) (85,689)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------
(1,276,431) 1,153,086 1,205,808 (7,980,585) 46,627,606 5,033,222 12,184,243 2,783,868 997,547
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------
0 12,012 (21,017) 0 99,132 37,702 0 (7,320) (34,235)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------
80,120 646,173 3,879,826 20,228,582 56,898,741 4,820,015 17,936,694 4,381,992 1,507,701
11,813,167 11,166,994 7,287,168 64,505,993 7,607,252 2,787,237 7,439,704 3,057,712 1,550,011
- ----------- ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------
$11,893,287 $ 11,813,167 $ 11,166,994 $ 84,734,575 $ 64,505,993 $ 7,607,252 $ 25,376,398 $ 7,439,704 $ 3,057,712
=========== ============ ============ ============ ============ ============ ============ =========== ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A16
</TABLE>
A10
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF THE
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
DECEMBER 31, 1999
NOTE 1: GENERAL
Pruco Life of New Jersey Variable Appreciable Account ("the Account")
was established on January 13, 1984 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
Pruco Life of New Jersey Variable Appreciable Life ("VAL"), Pruco Life
of New Jersey PRUvider Variable Appreciable Life ("PRUvider") and,
effective November 10, 1999, Pruco Life of New Jersey Pruselect III
("PSEL III") contracts are invested in the Account. In addition,
effective May 1, 2000, purchases of Survivorship Variable Universal
Life contracts ("SVUL") may be invested in the Account.
The Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. There are eighteen subaccounts
within the Account. VAL contracts offer the option to invest in
thirteen of these subaccounts. SVUL contracts offer the option to
invest in 16 subaccounts, 10 of which are presented in these financial
statements as well as 6 non-Prudential administered funds which will
become available effective May 1, 2000. Each subaccount invests in a
corresponding portfolio of The Prudential Series Fund, Inc. (the
"Series Fund"), or any of the non-Prudential administered funds: Aim
V.I. Value Fund, American Century VP Value Fund, Janus Aspen Growth
Portfolio, MFS Emerging Growth Series, Franklin Small Cap Fund and T.
Rowe Price International Stock Portfolio. The Series Fund is a
diversified open-end management investment company, and is managed
by Prudential.
New sales of the VAL product, which invests in the Account, were
discontinued as of May 1, 1992. However, premium payments made by
contract owners existing at that date will continue to be received by
the Account.
At December 31, 1999, there were no balances pertaining to PruSelect
III and SVUL in the subaccounts investing in the Series Fund or the
non-Prudential administered funds.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in conformity with
accounting principles generally accepted in the United States ("GAAP").
The preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts and disclosures. Actual results could differ from
those estimates.
Investments--The investments in shares of the Series Fund 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 and are
recorded on the ex-dividend date.
Receivable from (Payable to) Pruco Life of New Jersey--At times, Pruco
Life of New Jersey may owe an amount to or expect to receive an amount
from the Account primarily related to processing contract owner
payments, surrenders, withdrawals and death benefits. This amount is
reflected in the Account's Statements of Net Assets as either a
receivable from or payable to Pruco Life of New Jersey. The receivable
and or payable does not have an effect on the contract owner's account
or the related unit value.
A11
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
The net asset value per share for each portfolio of the Series Fund,
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>
PORTFOLIOS
----------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of shares (rounded): ..... 747,303 2,131,569 6,711,812 13,970,904 7,511,321
Net asset value per share: ...... $ 10.00 $ 10.95 $ 28.90 $ 17.64 $ 15.36
Cost: ........................... $7,473,027 $22,886,755 $147,783,464 $224,296,992 $106,500,171
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
----------- ----------- ----------- ----------- -----------
Number of shares (rounded): ....... 4,268,292 1,898,644 609,223 2,734,508 783,242
Net asset value per share: ........ $ 7.52 $ 44.45 $ 19.52 $ 30.98 $ 32.39
Cost: ............................. $32,591,158 $58,429,400 $11,183,919 $51,938,586 $18,635,716
A12
</TABLE>
<PAGE>
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
---------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ----------- ------------ ------------ ------------
Contract Owner Units Outstanding
<S> <C> <C> <C> <C> <C>
(VAL - rounded) .................... 3,690,079 7,796,622 24,051,887 45,581,573 25,613,699
Unit Value (VAL) ..................... $ 2.01098 $ 2.99334 $ 8.06306 $ 5.10277 $ 4.13896
---------- ----------- ------------ ------------ ------------
Contract Owner Equity (VAL) .......... $7,420,676 $23,337,940 $193,931,808 $232,592,282 $106,014,078
---------- ----------- ------------ ------------ ------------
Contract Owner Units Outstanding
(PRUvider - rounded) ............... N/A N/A N/A 3,960,460 3,221,133
Unit Value (PRUvider) ................ N/A N/A N/A $ 3.49968 $ 2.90888
---------- ----------- ------------ ------------ ------------
Contract Owner Equity (PRUvider) ..... N/A N/A N/A $ 13,860,342 $ 9,369,888
---------- ----------- ------------ ------------ ------------
Contract Owner Units Outstanding
(PSEL III - rounded) ............... 0 0 0 0 0
Unit Value (PSEL III) ................ $ 1.00775 $ 0.99424 $ 1.05287 $ 1.03671 $ 1.02714
---------- ----------- ------------ ------------ ------------
Contract Owner Equity (PSEL III) ..... $ 0 $ 0 $ 0 $ 0 $ 0
---------- ----------- ------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY .......... $7,420,676 $23,337,940 $193,931,808 $246,452,624 $115,383,966
========== =========== ============ ============ ============
SUBACCOUNTS (CONTINUED)
-------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------- -----------
Contract Owner Units Outstanding
<S> <C> <C> <C> <C> <C>
(VAL - rounded) ...................... 12,926,323 13,607,807 2,525,607 32,733,240 7,043,717
Unit Value (VAL) ....................... $ 2.48308 $ 6.20254 $ 4.70908 $ 2.58864 $ 3.60270
----------- ----------- ----------- ----------- -----------
Contract Owner Equity (VAL) ............ $32,097,093 $84,402,967 $11,893,287 $84,734,575 $25,376,398
----------- ----------- ----------- ----------- -----------
Contract Owner Units Outstanding
(PRUvider - rounded) ................. N/A N/A N/A N/A N/A
Unit Value (PRUvider) .................. N/A N/A N/A N/A N/A
----------- ----------- ----------- ----------- -----------
Contract Owner Equity (PRUvider) ....... N/A N/A N/A N/A N/A
----------- ----------- ----------- ----------- -----------
Contract Owner Units Outstanding
(PSEL III - rounded) ................. 0 0 0 0 0
Unit Value (PSEL III) .................. $ 1.02134 $ 1.07712 $ 1.07537 $ 1.20743 $ 1.16040
----------- ----------- ----------- ----------- -----------
Contract Owner Equity (PSEL III) ....... $ 0 $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- ----------- -----------
TOTAL CONTRACT OWNER EQUITY ............ $32,097,093 $84,402,967 $11,893,287 $84,734,575 $25,376,398
=========== =========== =========== =========== ===========
</TABLE>
A13
<PAGE>
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 0.60%, 0.90% and 0.20%, are applied daily against the net
assets representing equity of VAL, PRUvider and PruSelect III
contract owners held in each subaccount, respectively. Mortality
risk is that contract owners may not live as long as estimated and
expense risk is that the cost of issuing and administering the
policies may exceed related charges by Pruco Life of New Jersey.
B. Deferred Sales Charge
A deferred sales charge is imposed upon surrenders of certain VAL
and PRUvider variable life insurance contracts to compensate Pruco
Life of New Jersey for sales and other marketing expenses. The
amount of any sales charge will depend on the number of years that
have elapsed since the contract was issued. No sales charge will be
imposed after the tenth year of the contract. No sales charge will
be imposed on death benefits.
C. Partial Withdrawal Charge
A charge is imposed by Pruco Life of New Jersey on partial
withdrawals of the cash surrender value. A charge equal to the
lesser of $15 or 2% and $25 or 2% will be made in connection with
each partial withdrawal of the cash surrender value of a VAL or
PRUvider contract and PruSelect III contract, respectively.
D. Expense Reimbursement
The Account is reimbursed by Pruco Life of New Jersey for expenses
in excess of 0.40% of the VAL product's average daily net assets
incurred by the Money Market, Diversified Bond, Equity, Flexible
Managed and Conservative Balanced Portfolios of the Series Fund.
E. Cost of Insurance and Other Related Charges
Contract owner contributions are subject to certain deductions prior
to being invested in the Account. The deductions are for (1)
transaction costs which are deducted from each premium payment to
cover premium collection and processing costs; (2) state premium
taxes; (3) sales charges which are deducted in order to compensate
Pruco Life of New Jersey for the cost of selling the contract.
Contracts are also subject to monthly charges for the costs of
administering the contract and to compensate Pruco Life of New
Jersey for the guaranteed minimum death benefit risk.
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.
A14
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RETAINED IN THE ACCOUNT
The increase (decrease) in net assets retained in the Account
represents the net contributions (withdrawals) of Pruco Life of New
Jersey to (from) the Account. Effective October 13, 1998 Pruco Life of
New Jersey no longer maintains a position in the account. Previously,
Pruco Life of New Jersey maintained a position in the Account for
liquidity purposes including unit purchases and redemptions, fund share
transactions and expense processing.
NOTE 8: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts), for the
years ended December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
-------------------------------------- --------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
Contract Owner
<S> <C> <C> <C> <C> <C> <C>
Contributions: 1,394,252 1,651,137 1,852,551 1,817,938 3,461,354 957,470
Contract Owner
Redemptions: (1,583,513) (1,575,664) (2,279,240) (2,374,019) (3,523,454) (1,208,781)
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------------
FLEXIBLE
EQUITY MANAGED
PORTFOLIO PORTFOLIO
-------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
------------ ---------- -------- ------------ ---------- ----------
Contract Owner
<S> <C> <C> <C> <C> <C> <C>
Contributions: 1,053,096 4,007,348 2,872,723 2,928,417 16,398,289 7,728,571
Contract Owner
Redemptions: (3,213,126) (5,431,230) (4,155,330) (6,981,728) (51,572,419) (10,193,317)
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------
CONSERVATIVE HIGH YIELD
BALANCED BOND
PORTFOLIO PORTFOLIO
-------------------------------------- --------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
Contract Owner
<S> <C> <C> <C> <C> <C> <C>
Contributions: 2,742,649 3,568,780 4,308,577 10,923,909 33,003,985 415,705
Contract Owner
Redemptions: (5,207,302) (4,841,159) (5,775,601) (12,518,142) (21,070,995) (440,795)
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------
STOCK EQUITY
INDEX INCOME
PORTFOLIO PORTFOLIO
-------------------------------------- ------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- ---------- --------
Contract Owner
<S> <C> <C> <C> <C> <C> <C>
Contributions: 10,650,541 25,612,492 1,448,957 214,150 724,545 651,898
Contract Owner
Redemptions: (12,168,789) (14,154,931) (982,534) (494,521) (492,449) (352,895)
</TABLE>
A15
<PAGE>
<TABLE>
<CAPTION>
NOTE 8: UNIT ACTIVITY (CONTINUED)
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------
GLOBAL JENNISON
PORTFOLIO PORTFOLIO
-------------------------------------- ------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- ---------- --------
Contract Owner
<S> <C> <C> <C> <C> <C> <C>
Contributions: 31,717,854 84,626,033 3,871,182 4,934,733 1,808,411 862,419
Contract Owner
Redemptions: (35,712,959) (53,280,086) (575,706) (810,425) (520,419) (284,443)
NOTE 9: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments
in the Series Fund for the year ended December 31, 1999 were as follows:
PORTFOLIOS
-------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases ........... $ 2,157,046 $ 285,296 $ 343,856 $ 1,048,953 $ 583,087
Sales ............... $(2,520,612) $(2,091,082) $(17,965,888) $(22,131,232) $(10,901,371)
PORTFOLIOS (CONTINUED)
-------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Purchases ........... $ 780,770 $ 9,032,528 $ 401,468 $ 701,472 $ 12,573,470
Sales ............... $(4,814,050) $(17,443,512) $(1,750,590) $(9,113,462) $ (473,067)
</TABLE>
NOTE 10: RELATED PARTY TRANSACTIONS
Prudential has purchased multiple individual VAL contracts of the
Account insuring the lives of certain employees. Prudential is the
owner and beneficiary of the contracts. There were no net premium
payments for the year ended December 31, 1999. Equity of contract
owners in that subaccount at December 31, 1999 includes approximately
$199.1 million owned by Prudential in the Small Capitalization Stock,
High Yield Bond, Global and Stock Index Subaccounts.
A16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the Survivorship Variable Universal Life Subaccounts
of Pruco Life of New Jersey Variable Appreciable 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 (Money Market
Portfolio, Diversified Bond Portfolio, Equity Portfolio, Flexible Managed
Portfolio, Conservative Balanced Portfolio, High Yield Bond Portfolio, Stock
Index Portfolio, Equity Income Portfolio, Global Portfolio and Prudential
Jennison Portfolio) of the Pruco Life of New Jersey Variable Appreciable Account
at December 31, 1999, the results of each of their operations and the changes in
each of their net assets for each of the three years in the period then ended,
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
A17
<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>
Survivorship Variable
Universal Life Insurance
Survivorship Variable Universal Life is issued by Pruco Life Insurance Company
of New Jersey, 213 Washington Street, Newark, NJ 07102-2992 and offered through
Pruco Securities Corporation, 751 Broad Street, Newark, NJ 07102-3777, both
subsidiaries of The Prudential Insurance Company of America, 751 Broad Street,
Newark, NJ 07102-3777.
[LOGO] PRUDENTIAL
Pruco Life Insurance Company of New Jersey
213 Washington Street, Newark, NJ 07102-2992
Telephone: 800 782-5356
SVUL-2NJ Ed. 5/2000
