AS FILED WITH THE SEC ON____________. REGISTRATION NO. 333-85117
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
----------
PRUCO LIFE OF NEW JERSEY
VARIABLE APPRECIABLE ACCOUNT
(Exact Name of Trust)
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Name of Depositor)
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(800) 286-7754
(Address and telephone number of principal executive offices)
THOMAS C. CASTANO
ASSISTANT SECRETARY
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(Name and address of agent for service)
Copy to:
JEFFREY C. MARTIN
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036
Variable Universal Life Insurance Contracts--The Registrant hereby elects to
register an indefinite amount of securities pursuant to Rule 24f-2 under the
Investment Company Act of 1940.
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
This filing is being made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940.
CROSS REFERENCE SHEET
(AS REQUIRED BY FORM N-B-2)
N-B-2 ITEM NUMBER LOCATION
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1. Cover Page
2. Cover Page
3. Not Applicable
4. Sale of the Contracts and Sales Commissions
5. Pruco Life of New Jersey Variable Appreciable
Account
6. Pruco Life of New Jersey Variable Appreciable
Account
7. Not Applicable
8. Not Applicable
9. Litigation and Regulatory Proceedings
10. Introduction and Summary; Charges and
Expenses; Short-Term Cancellation Right or
"Free Look"; Types of Death Benefit; Changing
the Type of Death Benefit; Riders; Premiums;
Allocation of Premiums; Transfers; Dollar Cost
Averaging; Auto-Rebalancing; How a Contract's
Surrender Value Will Vary; How a Type A
(Fixed) Contract's Death Benefit Will Vary;
How a Type B (Variable) Contract's Death
Benefit Will Vary; How a Type C (Return of
Premium) Contract's Death Benefit Will Vary;
Surrender of a Contract; Withdrawals; Lapse
and Reinstatement; Increases in Basic
Insurance Amount; Decreases in Basic Insurance
Amount; When Proceeds are Paid; Contract
Loans; Other General Contract Provisions;
Voting Rights; Substitution of Fund Shares
11. Introduction and Summary; Pruco Life of New
Jersey Variable Appreciable Account
12. Cover Page; Introduction and Summary; The
Funds; Sale of the Contract and Sales
Commissions
13. Introduction and Summary; The Funds; Charges
and Expenses; Premiums; Allocation of
Premiums; Sale of the Contract and Sales
Commissions
14. Introduction and Summary; Detailed Information
for Prospective Contract Owners
15. Introduction and Summary; Premiums; Allocation
of Premiums; Transfers; Dollar Cost Averaging;
Auto-Rebalancing
16. Introduction and Summary; Detailed Information
for Contract Owners
N-B-2 ITEM NUMBER LOCATION
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17. When Proceeds are Paid
18. Pruco Life of New Jersey Variable Appreciable
Account
19. Reports to Contract Owners
20. Not Applicable
21. Contract Loans
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions
25. Pruco Life Insurance Company of New Jersey
26. Introduction and Summary; The Funds; Charges
and Expenses
27. Pruco Life Insurance Company of New Jersey;
The Funds
28. Pruco Life Insurance Company of New Jersey;
Directors and Officers
29. Pruco Life Insurance Company of New Jersey
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Pruco Life Insurance Company of New Jersey
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions
39. Sale of the Contract and Sales Commissions
40. Not Applicable
41. Sale of the Contract and Sales Commissions
42. Not Applicable
43. Not Applicable
N-B-2 ITEM NUMBER LOCATION
- ----------------- --------
44. Introduction and Summary; The Funds; How a
Contract's Cash Surrender Value Will Vary; How
a Type A (Fixed) Contract's Death Benefit Will
Vary; How a Type B (Variable) Contract's Death
Benefit Will Vary; How a Type C (Return of
Premium) Contract's Death Benefit Will Vary
45. Not Applicable
46. Introduction and Summary; Pruco Life of New
Jersey Variable Appreciable Account; The Funds
47. Pruco Life of New Jersey Variable Appreciable
Account; The Funds
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements: Financial Statements
of the PruSelect III Variable Life Subaccounts
of the Pruco Life of New Jersey Variable
Appreciable Account; Financial Statements of
Pruco Life Insurance Company of New Jersey
PART I
INFORMATION REQUIRED IN PROSPECTUS
PRUSELECT(SM) III
VARIABLE LIFE INSURANCE
PROSPECTUS
Pruco Life of New Jersey
Variable Appreciable Account
November 10, 1999
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
PROSPECTUS
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
PRUSELECT(SM) III
VARIABLE LIFE INSURANCE CONTRACTS
This prospectus describes certain individual flexible premium variable universal
life insurance contracts, PRUSELECT(SM) III Variable Life Insurance Contracts
(the "Contract"), issued by Pruco Life Insurance Company of New Jersey ("Pruco
Life of New Jersey"), a stock life insurance company. Pruco Life of New Jersey
is an indirect, wholly-owned subsidiary of The Prudential Insurance Company of
America. These Contracts provide individual variable universal life insurance
coverage with flexible premium payments, a variety of investment options, and
three types of death benefit options. These Contracts may be issued with a
Target Term Rider that could have a significant effect on the performance of
your Contract. For the factors to consider when adding a Target Term Rider to
your Contract, see RIDERS, page 15. The Contracts may be owned individually or
by a corporation, trust, association or similar entity. The Contracts are
available on a multiple life basis where the insureds share a common employment
or business relationship. The Contract owner will have all rights and privileges
under the Contract. The Contracts may be used for funding non-qualified
executive deferred compensation or salary continuation plans, retiree medical
benefits, or other purposes.
You may choose to invest your Contract's premiums and its earnings in the
following ways:
o Invest in one or more of 15 available subaccounts of the Pruco Life of New
Jersey Variable Appreciable Account (the "Account"), each of which invests
in a corresponding portfolio of the Funds indicated below:
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND")
Money Market High Yield Bond Equity
Diversified Bond Stock Index Prudential Jennison
Conservative Balanced Equity Income Global
Flexible Managed
AIM VARIABLE INSURANCE FUNDS, INC. AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
AIM V.I. Value Fund American Century VP Value Fund
JANUS ASPEN SERIES MFS(R) VARIABLE INSURANCE TRUST(SM)
Growth Portfolio Emerging Growth Series
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio
This prospectus describes the Contract generally and the Pruco Life of New
Jersey Variable Appreciable 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.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 286-7754
PRUSELECT is a service mark of Prudential.
PROSPECTUS CONTENTS
PAGE
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
LIFE INSURANCE DEFINITIONAL TESTS ....................................................................................... 5
PREMIUM PAYMENTS ........................................................................................................ 5
REFUND .................................................................................................................. 5
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY, THE 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
WHICH INVESTMENT OPTION SHOULD BE SELECTED? ............................................................................. 9
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS ....................................................................... 10
CHARGES AND EXPENSES .................................................................................................... 10
REQUIREMENTS FOR ISSUANCE OF A CONTRACT ................................................................................. 12
SHORT-TERM CANCELLATION RIGHT OR "FREE-LOOK" ............................................................................ 13
TYPES OF DEATH BENEFIT .................................................................................................. 13
CHANGING THE TYPE OF DEATH BENEFIT ...................................................................................... 14
RIDERS .................................................................................................................. 15
PREMIUMS ................................................................................................................ 16
ALLOCATION OF PREMIUMS .................................................................................................. 16
TRANSFERS ............................................................................................................... 17
DOLLAR COST AVERAGING ................................................................................................... 17
AUTO-REBALANCING ........................................................................................................ 17
HOW A CONTRACT'S SURRENDER VALUE WILL VARY .............................................................................. 18
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY ................................................................. 18
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY .............................................................. 19
HOW A TYPE C (RETURN OF PREMIUM) CONTRACT'S DEATH BENEFIT WILL VARY ..................................................... 20
SURRENDER OF A CONTRACT ................................................................................................. 21
WITHDRAWALS ............................................................................................................. 21
LAPSE AND REINSTATEMENT ................................................................................................. 22
INCREASES IN BASIC INSURANCE AMOUNT ..................................................................................... 22
DECREASES IN BASIC INSURANCE AMOUNT ..................................................................................... 23
WHEN PROCEEDS ARE PAID .................................................................................................. 24
ILLUSTRATIONS OF SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS ............................................. 24
CONTRACT LOANS .......................................................................................................... 26
SALE OF THE CONTRACT AND SALES COMMISSIONS .............................................................................. 27
TAX TREATMENT OF CONTRACT BENEFITS ...................................................................................... 27
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS ..................................................... 29
EXCHANGE RIGHT .......................................................................................................... 29
OTHER GENERAL CONTRACT PROVISIONS ....................................................................................... 29
VOTING RIGHTS ........................................................................................................... 30
SUBSTITUTION OF FUND SHARES ............................................................................................. 31
REPORTS TO CONTRACT OWNERS .............................................................................................. 31
STATE REGULATION ........................................................................................................ 31
EXPERTS ................................................................................................................. 31
LITIGATION AND REGULATORY PROCEEDINGS ................................................................................... 31
YEAR 2000 COMPLIANCE .................................................................................................... 34
ADDITIONAL INFORMATION .................................................................................................. 36
FINANCIAL STATEMENTS .................................................................................................... 36
DIRECTORS AND OFFICERS ..................................................................................................... 37
FINANCIAL STATEMENTS OF THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF THE PRUCO LIFE OF
NEW JERSEY VARIABLE APPRECIABLE ACCOUNT .................................................................................... A1
FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY ......................................................... B1
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS
ATTAINED AGE -- The insured's age on the Contract date plus the number of years
since then. For any coverage segment effective after the Contract date, the
insured's attained age is the issue age of that segment plus the length of time
since its effective date.
BASIC INSURANCE AMOUNT -- The amount of life insurance as shown in the Contract.
CASH VALUE -- The same as the "Contract Fund."
CONTRACT -- The variable universal life insurance 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
we have charged that is not yet due and that we have not yet added to the loan.
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 subaccounts and the principal
amount of any Contract debt.
CONTRACT OWNER -- You. Unless a different owner is named in the application, the
owner of the Contract is the insured.
CONTRACT YEAR -- A year that starts on the Contract date or on a Contract
anniversary. For any portion of a Contract representing an increase, "Contract
year" is a year that starts on the effective date of the increase. See INCREASES
IN BASIC INSURANCE AMOUNT, page 22.
COVERAGE SEGMENT -- The basic insurance amount at issue is the first coverage
segment. For each increase in basic insurance amount, a new coverage segment is
created for the amount of the increase. See INCREASES IN BASIC INSURANCE AMOUNT,
page 22.
DEATH BENEFIT -- The amount we will pay upon the death of the insured before
reduction by any Contract debt and amounts needed to pay charges through the
date of death.
FACE AMOUNT -- The same as the "basic insurance amount." However, if the
Contract is issued with a Target Term Rider, the "basic insurance amount" plus
the rider coverage amount equals the "total face amount."
FUNDS -- Mutual funds with separate portfolios. One or more of the available
Fund portfolios may be chosen as an underlying investment for the Contract.
MONTHLY DATE -- The Contract date and the same date in each subsequent month.
NET CASH VALUE -- The Contract Fund minus any Contract debt.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY -- Us, we, our, Pruco Life of New
Jersey. The company offering the Contract.
THE PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT (THE "ACCOUNT") -- A
separate account of Pruco Life of New Jersey registered as a unit investment
trust under the Investment Company Act of 1940.
SEGMENT ALLOCATION AMOUNT -- The amount used to determine the charge for sales
expenses. It may also be referred to as the "Target Premium." See CHARGES AND
EXPENSES, page 10.
SUBACCOUNT -- An investment division of the Account, the assets of which are
invested in the shares of the corresponding portfolio of the Funds.
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 plus any
return of sales charges.
TARGET PREMIUM -- The same as "segment allocation amount." See CHARGES AND
EXPENSES, page 10.
VALUATION PERIOD -- The period of time from one determination of the value of
the amount invested in a subaccount to the next. Such determinations are made
when the net asset values of the portfolios of the Funds are calculated, which
is generally at 4:15 p.m. Eastern time on each day during which the New York
Stock Exchange is open.
US, WE, OUR -- Pruco Life Insurance Company of New Jersey.
YOU -- The owner of the Contract.
1
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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. THE CONTRACT, INCLUDING THE APPLICATION ATTACHED
TO IT, CONSTITUTES THE ENTIRE AGREEMENT BETWEEN YOU AND PRUCO LIFE OF NEW JERSEY
AND YOU SHOULD RETAIN THESE DOCUMENTS.
As you read this prospectus you should keep in mind that this is a life
insurance contract. VARIABLE LIFE INSURANCE has significant investment aspects
and requires you to make investment decisions, and therefore it is also a
"security." Securities that are offered to the public must be registered with
the Securities and Exchange Commission. The prospectus that is a part of the
registration statement must be given to all prospective purchasers.
BRIEF DESCRIPTION OF THE CONTRACT
The Contract is an individual flexible premium variable universal life insurance
contract that is offered by Pruco Life Insurance Company of New Jersey. These
Contracts may be issued with a Target Term Rider that could have a significant
effect on the performance of your Contract. For the factors to consider when
adding a Target Term Rider to your Contract, see RIDERS, page 15. The Contracts
are available on a multiple life basis where the insureds share a common
employment or business relationship. The Contracts may be owned individually or
by a corporation, trust, association or similar entity. The Contract owner will
have all rights and privileges under the Contract. The Contracts may be used for
such purposes as funding non-qualified executive deferred compensation or salary
continuation plans, retiree medical benefits, or other purposes.
The Contract is a form of variable universal life insurance. It is based on a
Contract Fund, the value of which changes every business day. The chart below
describes how the value of your Contract Fund changes.
You may invest premiums in one or more of the 15 available subaccounts. Your
Contract Fund value changes every day depending upon the change in the 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 subaccounts you select, 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 9.
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 10.
2
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PREMIUM PAYMENT
---------------------------------------------------------
--------------------------------------------------
o less a charge of up to 7.5% of the premiums
paid for taxes attributable to premiums. In
Oregon this is called a premium based
administrative charge.
o less a charge for sales expenses of up to 15%
of the premiums paid.
--------------------------------------------------
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INVESTED PREMIUM AMOUNT
To be invested in one or a combination of 15 investment portfolios of the Funds.
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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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PRUCO LIFE OF NEW JERSEY ADJUSTS
THE CONTRACT FUND FOR:
o Addition of any new invested premium amounts.
o Addition of any increase due to investment results of the chosen
subaccounts.
o Addition of guaranteed interest at an effective annual rate of 4% on the
amount of any Contract loan. (Separately, interest charged on the loan
accrues at an effective annual rate of 4.25% or 5%. See CONTRACT LOANS,
page 26.)
o Subtraction of any decrease due to investment results of the chosen
subaccounts.
o Subtraction of any amount withdrawn.
o Subtraction of the charges listed below, as applicable.
- --------------------------------------------------------------------------------
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DAILY CHARGES
o Management fees and expenses are deducted from the Fund assets.
See Underlying Portfolio Expenses, below.
o We deduct a daily mortality and expense risk charge, equivalent to an
annual rate of up to 0.5%, from the subaccount assets.
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MONTHLY CHARGES
o We reduce the Contract Fund by a monthly administrative charge of up to $10
plus $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.
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3
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POSSIBLE ADDITIONAL CHARGES
o We assess an administrative charge of up to $25 for any withdrawals.
o We may assess an administrative charge of up to $25 for any change in basic
insurance amount.
o We may assess an administrative charge of up to $25 for any change in the
Target Term Rider coverage amount (see RIDERS, page 15).
o We assess an administrative charge of up to $25 for each transfer exceeding
12 in any Contract year.
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UNDERLYING PORTFOLIO EXPENSES
(THE EXPENSE FIGURES FOR THE JANUS ASPEN SERIES GROWTH PORTFOLIO ARE AFTER FEE WAIVERS OR REDUCTIONS.)
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT OTHER TOTAL EXPENSES
PORTFOLIO ADVISORY FEE EXPENSES
- -----------------------------------------------------------------------------------------------------------------------------
SERIES FUND
Money Market 0.40% 0.01% 0.41%
Diversified Bond 0.40% 0.02% 0.42%
Conservative Balanced 0.55% 0.02% 0.57%
Flexible Managed 0.60% 0.01% 0.61%
High Yield Bond 0.55% 0.03% 0.58%
Stock Index 0.35% 0.02% 0.37%
Equity Income 0.40% 0.02% 0.42%
Equity 0.45% 0.02% 0.47%
Prudential Jennison 0.60% 0.03% 0.63%
Global 0.75% 0.11% 0.86%
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Value Fund 0.61% 0.05% 0.66%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Value Portfolio (1) 1.00% 0.00% 1.00%
JANUS ASPEN SERIES
Growth Portfolio (2) 0.65% 0.03% 0.68%
MFS(R) VARIABLE INSURANCE TRUST(SM)
Emerging Growth Series 0.75% 0.10% 0.85%
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio (3) 1.05% 0.00% 1.05%
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(1) AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
Fees are all-inclusive.
(2) JANUS ASPEN SERIES
The fees and expenses shown above are based on net expenses of the
Portfolio after expense offset arrangements for the fiscal year ended
December 31, 1998. The information for the Portfolio is net of fee waivers
or reductions from Janus Capital. Fee reductions for the Portfolio reduce
the management fee to the level of the corresponding Janus retail fund.
Other waivers, if applicable, are first applied against the management fee
and then against other expenses. Without such waivers or reductions, the
management fee, other expenses and total operating expenses for the
Portfolio would have been 0.72%, 0.03% and 0.75%, respectively. Janus
Capital may modify or terminate the waivers or reductions at any time upon
at least 90 days' notice to the Trustees.
(3) T. ROWE PRICE INTERNATIONAL SERIES, INC.
The investment management fee includes the ordinary expenses of operating
the Fund.
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4
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TYPES OF DEATH BENEFIT
There are three types of death benefit available. You may choose a Contract with
a Type A (fixed) death benefit under which the cash value varies daily with
investment experience, and the death benefit generally remains at the basic
insurance amount you initially chose. However, the Contract Fund may grow to a
point where the death benefit may increase and vary with investment experience.
If you choose a Contract with a Type B (variable) death benefit, the cash value
and the death benefit both vary with investment experience. If you choose a
Contract with a Type C (return of premium) death benefit, the death benefit is
increased by the amount of premiums paid into the Contract, less withdrawals,
plus interest at a rate between 0% and 8% (in 1/2% increments) chosen by the
Contract owner. For Type A and Type B death benefits, as long as the Contract is
inforce, the death benefit will never be less than the basic insurance amount
shown in your Contract. See TYPES OF DEATH BENEFIT, page 13.
LIFE INSURANCE DEFINITIONAL TESTS
In order to qualify as life insurance for Federal tax purposes, the Contract
must adhere to the definition of life insurance under Section 7702 of the
Internal Revenue Code. At issue, the Contract owner chooses one of the following
definition of life insurance tests: (1) Cash Value Accumulation Test or (2)
Guideline Premium Test. Under the Cash Value Accumulation Test, there is a
minimum death benefit to cash value ratio. Under the Guideline Premium Test,
there is a limit to the amount of premiums that can be paid into the Contract,
as well as a minimum death benefit to cash value ratio. For more information,
see TAX TREATMENT OF CONTRACT BENEFITS, page 27.
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, you choose the timing and amount of premium payments. The
Contract will remain inforce if the Contract Fund is greater than zero and more
than any Contract debt. See PREMIUMS, page 15 and LAPSE AND REINSTATEMENT, page
22.
We offer and suggest regular billing of premiums even though you decide when to
make premium payments and, subject to a $25 minimum, in what amounts. You should
discuss your billing options with your Pruco Life of New Jersey representative
when you apply for the Contract. See PREMIUMS, page 15.
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 13.
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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5
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE
COMPANY OF NEW JERSEY, THE 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 life insurance company, organized in 1982 under the
laws of the State of New Jersey. It is licensed to sell life insurance and
annuities only in the States of New Jersey and New York. These Contracts are not
offered in any state in which the necessary approvals have not yet 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 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 the Prudential's
Board of Directors, a public hearing, voting by qualified policyholders and
regulatory approval, all of which could take two or more years to complete.
Prudential's management and Board of Directors have not yet determined to
demutualize and it is possible that, after careful review, Prudential could
decide not to go public.
The plan of reorganization, which hasn't been developed and approved, would
provide the criteria for determining eligibility and the methodology for
allocating shares or other consideration to those who would be eligible. Under
New Jersey's demutualization law, a policy would have to be in effect on the
date Prudential's Board of Directors adopted a plan of reorganization in order
to be considered for eligibility. Generally, the amount of shares or other
consideration eligible customers would receive would be based on a number of
factors, including the types, amounts and issue years of their policies. As a
general rule, owners of Prudential-issued insurance policies and annuity
contracts would be eligible, while mutual fund customers and customers of
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 contract owners 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.
As of December 31, 1998, Prudential has invested $127 million in Pruco Life of
New Jersey through its subsidiary Pruco Life Insurance Company in connection
with Pruco Life of New Jersey's organization and operation. Prudential is under
no obligation to make such contributions and its assets do not back the benefits
payable under the Contract. Pruco Life of New Jersey's financial statements
begin on page B1 and should be considered only as bearing upon Pruco Life of New
Jersey's ability to meet its obligations under the Contracts.
THE PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
The 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. 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.
The obligations to Contract owners and beneficiaries arising under the Contracts
are general corporate obligations of Pruco Life of New Jersey. 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 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
Pruco Life of New Jersey 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
6
additional assets will be transferred to Pruco Life of New Jersey's general
account. Before making any such transfer, Pruco Life of New Jersey will consider
any possible adverse impact the transfer might have on the Account.
The Account is a unit investment trust, which is a type of investment company.
It is registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940 ("1940 Act"). This does not involve any
supervision by the SEC of the management or investment policies or practices of
the Account. For state law purposes, the Account is treated as a part or
division of Pruco Life of New Jersey.
Currently, you may invest in one or a combination of 15 available subaccounts
within the Account, each of which invests in a single corresponding portfolio of
the Funds. Additional subaccounts may be added in the future. The Account's
financial statements begin on page A1.
THE FUNDS
The following is a list of the Funds, the portfolios' investment objectives and
investment advisers:
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 Composite Stock Price Index (the "S&P 500 Index").
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 Index or the NYSE Composite Index.
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,
7
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, INC.:
o AIM V.I. VALUE FUND. Seeks to achieve long-term growth of capital by
investing primarily in equity securities judged by the fund's investment
adviser to be undervalued relative to the investment adviser's appraisal of
the current or projected earnings of the companies issuing the securities,
or relative to current market values of assets owned by the companies
issuing the securities or relative to the equity market generally. 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.
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.
Dividend and interest income from portfolio securities, if any, is
incidental to the Series' investment objective of 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. 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.
Further information about Fund portfolios can be found in the attached
prospectuses and their statements of additional information for each Fund.
The investment advisers for the Funds charge a daily investment management fee
as compensation for their services. These fees are described in the table under
DEDUCTIONS FROM PORTFOLIOS in the CHARGES AND EXPENSES section, page 11, and are
more fully described in the prospectus for each Fund.
8
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 Fund 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.
A FULL DESCRIPTION OF THE FUNDS, THEIR INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, RESTRICTIONS, EXPENSES, INVESTMENT RISKS, AND ALL OTHER ASPECTS OF
THEIR OPERATION IS CONTAINED IN THE ATTACHED PROSPECTUSES FOR EACH FUND AND IN
THE RELATED STATEMENTS OF ADDITIONAL INFORMATION, WHICH SHOULD BE READ IN
CONJUNCTION WITH THIS PROSPECTUS. THERE IS NO ASSURANCE THAT THE INVESTMENT
OBJECTIVES OF THE FUNDS WILL BE MET.
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,
portfolios such as the Stock Index, Equity Income, Equity, Prudential Jennison,
Global, AIM V.I. Value Fund, American Century VP Value Fund, Janus Growth, MFS
Emerging Growth Series or T. Rowe Price International Stock may be desirable
options if you are willing to accept such volatility in your Contract values.
Each of these equity portfolios involves different policies and investment
risks.
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, 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 Portfolio.
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 options. Experience generally indicates that "market timing"
investing, particularly by non-professional investors, is likely to prove
unsuccessful.
9
DETAILED INFORMATION FOR
PROSPECTIVE CONTRACT OWNERS
CHARGES AND EXPENSES
This section provides a more detailed description of each charge that is
described briefly in the chart on page 3.
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. If
circumstances change, we reserve the right to increase each current charge, up
to the maximum charge, without giving any advance notice.
DEDUCTIONS FROM PREMIUM PAYMENTS
(a) We charge up to 7.5% for taxes attributable to premiums (in New York this
is called a premium based administrative charge). 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 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 taxes. The current amount for this first part
is 2.5% of the premium. Tax rates vary from jurisdiction to jurisdiction
and generally range from 0.75% to 5%. Pruco Life of New Jersey may collect
more for this charge than it actually pays for state and local premium
taxes. The second part is for federal income taxes measured by premiums,
and it is currently equal to 1.25% of premiums. We believe that this charge
is a reasonable estimate of an increase in its federal income taxes
resulting from a 1990 change in the Internal Revenue Code. It is intended
to recover this increased tax.
(b) We will deduct a charge for sales expenses. This charge, often called a
"sales load", is deducted to compensate us for the cost of selling the
Contracts, including commissions, advertising and the printing and
distribution of prospectuses and sales literature. A portion of the sales
load may be returned to you if the Contract is surrendered during the first
four Contract years. See RETURN OF SALES CHARGES, below.
The amount used to determine the charge for sales expenses is called the
"segment allocation amount" in your Contract. It may also be referred to as
the Target Premium. Target Premiums vary by the age, sex (except where
unisex rates apply), smoking status, and rating class of the insured and
will drop to zero after 10 years. Each coverage segment has its own Target
Premium. Target Premiums for each coverage segment are shown in the Segment
Table located in the data pages of your Contract.
For the first ten years of each coverage segment we charge up to 15% of
premiums received each year up to the Target Premium and up to 2% on any
excess. In years 11 and later of each coverage segment, we charge up to 2%
of premiums received. Currently, we charge 13 1/2% of premiums received up
to the Target Premium and 2% of any excess for the first 10 years of each
coverage segment. In years 11 and later of each coverage segment, we
currently charge 2% of premiums received. For information on determining
the sales expense charge if there are two or more coverage segments in
effect, see INCREASES IN BASIC INSURANCE AMOUNT, page 22.
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. 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 27.
RETURN OF SALES CHARGES
If the Contract is fully surrendered within the first four Contract years and it
is not in default, Pruco Life of New Jersey will return 50% of any sales charges
deducted from premiums paid within 24 months prior to the date Pruco Life of New
Jersey receives the surrender request at a Home Office.
10
DEDUCTIONS FROM PORTFOLIOS
We deduct an investment advisory fee daily from each portfolio of the Funds 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, 1998,
expressed as a percentage of the average assets during the year, are shown
below:
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL PORTFOLIO EXPENSES
(THE EXPENSE FIGURES FOR THE JANUS ASPEN SERIES GROWTH PORTFOLIO ARE AFTER FEE WAIVERS OR REDUCTIONS.)
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT OTHER TOTAL EXPENSES
PORTFOLIO ADVISORY FEE EXPENSES
- -----------------------------------------------------------------------------------------------------------------------------
SERIES FUND
Money Market 0.40% 0.01% 0.41%
Diversified Bond 0.40% 0.02% 0.42%
Conservative Balanced 0.55% 0.02% 0.57%
Flexible Managed 0.60% 0.01% 0.61%
High Yield Bond 0.55% 0.03% 0.58%
Stock Index 0.35% 0.02% 0.37%
Equity Income 0.40% 0.02% 0.42%
Equity 0.45% 0.02% 0.47%
Prudential Jennison 0.60% 0.03% 0.63%
Global 0.75% 0.11% 0.86%
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Value Fund 0.61% 0.05% 0.66%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Value Portfolio (1) 1.00% 0.00% 1.00%
JANUS ASPEN SERIES
Growth Portfolio (2) 0.65% 0.03% 0.68%
MFS(R) VARIABLE INSURANCE TRUST(SM)
Emerging Growth Series 0.75% 0.10% 0.85%
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio (3) 1.05% 0.00% 1.05%
- -----------------------------------------------------------------------------------------------------------------------------
(1) AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
Fees are all-inclusive.
(2) JANUS ASPEN SERIES
The fees and expenses shown above are based on net expenses of the
Portfolio after expense offset arrangements for the fiscal year ended
December 31, 1998. The information for the Portfolio is net of fee waivers
or reductions from Janus Capital. Fee reductions for the Portfolio reduce
the management fee to the level of the corresponding Janus retail fund.
Other waivers, if applicable, are first applied against the management fee
and then against other expenses. Without such waivers or reductions, the
management fee, other expenses and total operating expenses for the
Portfolio would have been 0.72%, 0.03% and 0.75%, respectively. Janus
Capital may modify or terminate the waivers or reductions at any time upon
at least 90 days' notice to the Trustees.
(3) T. ROWE PRICE INTERNATIONAL SERIES, INC.
The investment management fee includes the ordinary expenses of operating
the Fund.
THE EXPENSES RELATING TO THE FUNDS (OTHER THAN THOSE OF 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.
DAILY DEDUCTION FROM THE CONTRACT FUND
Each day we deduct a charge from the assets of each of the subaccounts in an
amount equivalent to an effective annual rate of up to 0.50%. Currently, we
intend to charge 0.20%. 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
11
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 administering the Contract will
be greater than Pruco Life of New Jersey estimated in fixing its administrative
charges.
MONTHLY DEDUCTIONS FROM THE 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, the
charge is equal to $10 per month. Pruco Life of New Jersey reserves the
right, however to charge up to $10 per Contract plus $0.05 per $1,000 of
basic insurance amount each month. For example, a Contract with a basic
insurance amount of $100,000 would currently have a charge equal to $10.
The maximum charge for this same Contract would be $10 plus $5 for a total
of $15 per month.
(b) A cost of insurance ("COI") charge is deducted. When an insured dies, the
amount payable to the beneficiary (assuming there is no Contract debt) is
larger than the Contract Fund - significantly larger if the insured dies in
the early years of a 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 the 1980 Commissioners Standard Ordinary ("CSO")
Tables and an insured's current attained age, sex (except where unisex
rates apply), smoker/non-smoker status, and extra rating class, if any. At
most ages, Pruco Life of New Jersey's current COI rates are lower than the
maximum rates. For additional information, see INCREASES IN BASIC INSURANCE
AMOUNT, page 22.
(c) You may add a Target Term Rider to the Contract. If you add this 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.
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 currently do not charge an administrative processing fee in connection
with a change in basic insurance amount. We reserve the right to make such
a charge in an amount of up to $25 for any change in basic insurance
amount.
(c) We will charge an administrative processing fee of up to $25 for each
transfer exceeding 12 in any Contract year.
(d) We may charge an administrative processing fee of up to $25 for any change
in the Target Term Rider coverage amount for Contracts with this rider.
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
Pruco Life of New Jersey offers the Contract on a fully underwritten, simplified
issue, and guaranteed issue basis. Fully underwritten Contracts require
individualized evidence of the insured's insurability and rating class.
Simplified issue Contracts reflect underwriting risk factors related to the
issue of the Contract as one of several Contracts requiring some medical
underwriting of the proposed insureds. Conversely, guaranteed issue Contracts
are issued with minimal underwriting but may only be issued in certain
circumstances on associated individuals, such as employees of a company who meet
criteria established by Pruco Life of New Jersey.
Pruco Life of New Jersey sets minimum face amounts that it offers. The minimum
face amount offered may depend on whether the Contract is issued on a fully
underwritten, simplified issue or guaranteed issue basis. Currently, the minimum
total face amount (basic insurance amount plus any Target Term Rider coverage
amount combined) that can be applied for is $100,000 for all three
aforementioned underwriting bases. If the Target Term Rider is added to the
Contract, neither the basic insurance amount nor the rider coverage amount can
be less than $5,000. See RIDERS, page 15. Pruco Life of New Jersey may reduce
the minimum face amounts of the Contracts it will issue. Furthermore,
12
the Contract owner may establish a schedule under which the basic insurance
amount increases on designated Contract anniversaries. See INCREASES IN BASIC
INSURANCE AMOUNT, page 22.
Generally, the Contract may be issued on insureds between the ages of 20 and 75
for fully underwritten Contracts and between the ages of 20 and 64 for
simplified and guaranteed issue Contracts. In its discretion, Pruco Life of New
Jersey may issue the Contract on insureds of other ages.
SHORT-TERM CANCELLATION RIGHT OR "FREE-LOOK"
Generally, you may return the Contract for a refund within 10 days after you
receive it. 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 and you exercise your short-term cancellation right, 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 16.
TYPES OF DEATH BENEFIT
You may select from three types of death benefits. 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 18. The payment of
additional premiums and favorable investment results of the subaccounts to which
the assets are allocated will generally increase the cash value. See HOW A
CONTRACT'S SURRENDER VALUE WILL VARY, page 18.
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 value. Over time, however, the increase in the
cash value will be less than under a Type A (fixed) Contract. This is because,
given two Contracts with the same basic insurance amount and equal Contract
Funds, generally the cost of insurance charge for a Type B (variable) Contract
will be greater. Unfavorable investment performance will result in decreases in
the death benefit and in the cash value. But, as long as the Contract is not in
default, the death benefit may not fall below the basic insurance amount stated
in the Contract. See HOW A CONTRACT'S SURRENDER VALUE WILL VARY, page 18 and HOW
A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY, page 19.
A Contract with a Type C (return of premium) death benefit has a death benefit
which will generally equal the basic insurance amount plus the total premiums
paid into the Contract less withdrawals, accumulated at an interest rate
(between 0% and 8%; in 1/2% increments) chosen by the Contract owner to the date
of death. This death benefit allows the Contract owner, in effect, to recover
the cost of the Contract, plus a predetermined rate of return, upon the death of
the insured. Under certain circumstances, it is possible for a Type C Contract's
death benefit to fall below the basic insurance amount. Favorable investment
performance and payment of additional premiums will generally increase the
Contract's cash value. Over time, however, the increase in cash value will be
less than under a Type A (fixed) Contract. See HOW A CONTRACT'S SURRENDER VALUE
WILL VARY, page 18 and HOW A TYPE C (RETURN OF PREMIUM) CONTRACT'S DEATH BENEFIT
WILL VARY, page 20.
In choosing a death benefit type, you should also consider whether you intend to
use the withdrawal feature. Contract owners of Type A (fixed) Contracts should
note that any withdrawal may result in a reduction of the basic insurance
amount. In addition, we will not allow you to make a withdrawal that will
decrease the basic insurance amount below the minimum basic insurance amount.
Furthermore, the sum of the basic insurance amount and the Target Term Rider
must equal or exceed $100,000. See REQUIREMENTS FOR ISSUANCE OF A CONTRACT, page
10. For Type B (variable) and Type C (return of premium) Contracts, withdrawals
will not change the basic insurance amount. See WITHDRAWALS, page 21.
13
CHANGING THE TYPE OF DEATH BENEFIT
You may change the type of death benefit at any time and subject to Pruco Life
of New Jersey's approval. We will increase or decrease the basic insurance
amount so that the death benefit immediately after the change matches the death
benefit immediately before the change.
If you are changing your Contract's type of death benefit from a Type A (fixed)
to a Type B (variable) death benefit, we will reduce the basic insurance amount
by the amount in your Contract Fund on the date the change takes place.
If you are changing from a Type A (fixed) to a Type C (return of premium) death
benefit, we will change the basic insurance amount by subtracting the total
premiums paid on this Contract minus total withdrawals on the date the change
takes effect.
If you are changing from a Type B (variable) to a Type A (fixed) death benefit,
we will increase the basic insurance amount by the amount in your Contract Fund
on the date the change takes place.
If you are changing from a Type B (variable) to a Type C (return of premium)
death benefit, we first find the difference between: (1) the amount in your
Contract Fund and (2) the total premiums paid on this Contract minus total
withdrawals, determined on the date the change takes effect. If (1) is larger
than (2), we will increase the basic insurance amount by that difference. If (2)
is larger than (1), we will reduce the basic insurance amount by that
difference.
If you are changing from a Type C (return of premium) to a Type A (fixed) death
benefit, we will change the basic insurance amount by adding the total premiums
paid minus total withdrawals to this Contract both accumulated with interest at
the rate(s) chosen by the Contract owner on the date the change takes place.
If you are changing from a Type C (return of premium) to a Type B (variable)
death benefit, we first find the difference between: (1) the Contract Fund and
(2) the total premiums paid minus total withdrawals to this Contract both
accumulated with interest at the rate(s) chosen by the Contract owner as of the
date the change takes place. If (2) is larger than (1), we will increase the
basic insurance amount by that difference. If (1) is larger than (2), we will
reduce the basic insurance amount by that difference.
The basic insurance amount after a change may not be lower than the minimum
basic insurance amount applicable to the Contract. In addition, the sum of the
basic insurance amount and the Target Term Rider must equal or exceed $100,000.
See REQUIREMENTS FOR ISSUANCE OF A CONTRACT, page 10. We reserve the right to
make an administrative processing charge of up to $25 for any change in the
basic insurance amount, although we do not currently do so. See CHARGES AND
EXPENSES, page 10.
The following chart illustrates the changes in basic insurance amount with each
change of death benefit type described above. The chart assumes a $50,000
Contract Fund and a $300,000 death benefit. For changes to and from a Type C
death benefit, the chart assumes $40,000 in total premiums minus total
withdrawals and the rate chosen to accumulate premiums minus withdrawals is 0%.
================================================================================
BASIC INSURANCE AMOUNT
================================================================================
FROM TO
- --------------------------------------------------------------------------------
TYPE A TYPE B TYPE C
$300,000 $250,000 $260,000
- --------------------------------------------------------------------------------
TYPE B TYPE A TYPE C
$250,000 $300,000 $260,000
- --------------------------------------------------------------------------------
TYPE C TYPE A TYPE B
$260,000 $300,000 $250,000
- --------------------------------------------------------------------------------
14
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 require you to send us your
Contract before making the change.
RIDERS
Contract owners may be able to obtain extra benefits which may involve an extra
charge. These optional insurance benefits will be described in what is known as
a "rider" to the Contract. Charges applicable to riders will be deducted from
the Contract Fund on each Monthly date.
TARGET TERM RIDER
The Target Term Rider provides a flexible term insurance benefit to attained age
100 on the life of the insured. The Contract owner specifies the amount of term
rider coverage he or she desires. This amount is called the rider coverage
amount and is the maximum death benefit payable under the rider. The sum of the
base Contract's basic insurance amount and the rider coverage amount equals the
target coverage amount. The Rider death benefit fluctuates as the base
Contract's death benefit changes, as described below. See TAX TREATMENT OF
CONTRACT BENEFITS, page 27.
When the Contract Fund has not grown to the point where the base Contract's
death benefit is increased to satisfy the Internal Revenue Code's definition of
life insurance, the rider death benefit equals the rider coverage amount.
However, once the Contract Fund has grown to the point where the base Contract's
death benefit begins to vary as required by the Internal Revenue Code's
definition of life insurance, the rider's death benefit will decrease (or
increase) dollar for dollar as the base Contract's death benefit increases (or
decreases). It is possible for the Contract Fund and, consequently, the base
Contract's death benefit to grow to the point where the rider death benefit is
reduced to zero. As we state above, however, the rider death benefit will never
increase beyond the rider coverage amount. In addition, you may change the rider
coverage amount once each Contract year while the rider is inforce.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL]
Policy Year Base Policy Death Benefit Target Death Benefit
----------- ------------------------- --------------------
1 $ 500,000 $500,000
2 $ 500,000 $500,000
3 $ 500,000 $500,000
4 $ 500,000 $500,000
5 $ 500,000 $500,000
6 $ 500,000 $500,000
7 $ 500,000 $500,000
8 $ 500,000 $500,000
9 $ 500,000 $500,000
10 $ 550,000 $450,000
11 $ 605,000 $395,000
12 $ 665,500 $334,500
13 $ 732,050 $267,950
14 $ 805,255 $194,745
15 $ 885,781 $114,220
16 $1,000,000 $ --
17 $1,100,000 $ --
18 $1,210,000 $ --
19 $1,331,000 $ --
20 $1,464,100 $ --
The following factors should be considered when adding a Target Term Rider to
your Contract:
1. The sales expense charge for a Contract with a Target Term Rider is less
than that for an all base policy with the same death benefit. This is
because the sales expense charge is based on the Target Premium (referred
to as "segment allocation amount" in your Contract) of the Contract's basic
insurance amount (BIA) only. For example, consider two identical $1,000,000
policies; the first with a $1,000,000 BIA and the other with a $500,000 BIA
and $500,000 of rider coverage amount. The sales expense charge for the
first policy will be based on the Target Premium of a $1,000,000 BIA while
the sales expense charge for the second policy will be based on the Target
Premium of a $500,000 BIA only. See CHARGES AND EXPENSES, page 10.
2. The current Cost of Insurance (COI) is different for the basic insurance
amount and for the rider coverage amount. Cost of Insurance is determined
by multiplying the COI rates by the Contract's "net amount of risk." The
"net amount of risk" is the amount by which the Contract's death benefit
exceeds the Contract Fund. The
15
COI rates for both the basic insurance amount and the Target Term Rider
will increase annually. However, current COI rates for the Target Term
Rider are less than the current rates for the basic insurance amount death
benefit for the first ten years, but are greater thereafter.
3. You may increase or decrease both your basic insurance amount and rider
coverage amount after issue subject to the underwriting requirements
determined by Pruco Life of New Jersey. See INCREASES IN BASIC INSURANCE
AMOUNT, page 22 and DECREASES IN BASIC INSURANCE AMOUNT, page 23.
Increasing your basic insurance amount after issue increases your sales
expense charges on any premiums paid after the effective date of the
increase for that portion of the premium allocated to the new coverage
segment.
4. The amount and timing of premium payments, loans, and withdrawals you make
under the Contract and your choice of definition of life insurance test
(see TAX TREATMENT OF CONTRACT BENEFITS, page 27) will all be factors in
determining the relative performance of a Contract with and without a
Target Term Rider.
5. Investment experience will be a factor in determining the relative
performance of a Contract with and without a Target Term Rider.
The five factors outlined above can have opposite effects on the financial
performance of a Contract, including the amount of the Contract's cash value and
death benefit. It is important that you ask your Pruco Life of New Jersey
representative to see illustrations based on different combinations of all of
the above. You can then discuss with your Pruco Life of New Jersey
representative how these combinations may address your objectives.
PREMIUMS
The Contract is a flexible premium contract. The minimum initial premium is due
on or before the Contract date. It is the premium needed to start the Contract.
There is no insurance under the Contract unless the minimum initial premium is
paid. Thereafter, you decide when to make premium payments and, subject to a $25
minimum, in what amounts. 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 18, HOW A TYPE
B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY, page 19 and HOW A TYPE C
(RETURN OF PREMIUM) CONTRACT'S DEATH BENEFIT WILL VARY, page 20. 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 27.
We can bill you for the amount you select annually, semi-annually, quarterly or
monthly. Because the Contract is a flexible premium contract, there are no
premium due dates. When you receive a premium notice, you are not required to
pay this amount. The Contract will remain inforce if the Contract Fund is
greater than zero and more than any Contract debt. 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, we deduct the charge for sales expenses and the charge for
taxes attributable to premiums (in New York this is called a premium based
administrative charge) from the initial premium. See CHARGES AND EXPENSES, page
10. 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 Subaccount and the first monthly
deductions are made. At the end of the "free-look" period, these funds will be
allocated among the subaccounts according to your desired allocation, as
specified in the application form. See SHORT-TERM CANCELLATION RIGHT OR
"FREE-LOOK", page 13. 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
(in New York this is called a premium based administrative charge) also apply to
all subsequent premium payments. The remainder of each subsequent premium
payment will be invested as of the end of the valuation period in which it is
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%.
16
TRANSFERS
You may, up to 12 times each Contract year, transfer amounts from one subaccount
to another subaccount 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 subaccount may be transferred.
Transfers 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 $5,000 from one subaccount to
another, or may be in terms of a percentage reallocation among subaccounts. 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 29), 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. A pattern of exchanges that coincides with a "market timing" strategy
may be disruptive to the investment option or to the disadvantage of other
contract owners. If such a pattern were to be found, we may modify your right to
make transfers by restricting the number, timing and amount of transfers. We
also reserve the right to prohibit transfer requests made by an individual
acting under a power of attorney on behalf of more than one contract owner.
DOLLAR COST AVERAGING
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 DCA Money Market Subaccount into other subaccounts available under the
Contract. You may choose to have periodic transfers made monthly, quarterly,
semi-annually or annually. DCA transfers will not begin until the end of the
"free-look" period. See SHORT-TERM CANCELLATION RIGHT OR "FREE-LOOK", page 13.
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, a
transfer that occurs under the DCA feature is not counted towards the 12 free
transfers permitted each Contract year. We reserve the right to change this
practice.
AUTO-REBALANCING
As an administrative practice, we are currently offering a feature called
Auto-Rebalancing. This feature allows you to automatically rebalance subaccount
assets at specified intervals based on percentage allocations that you choose.
For example, suppose your initial investment allocation of subaccounts X and Y
is split 40% and 60%, respectively. Then, due to investment results, that split
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 13.
Auto-Rebalancing can be performed on a monthly, 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
on that date, or if the
17
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.
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 SURRENDER VALUE WILL VARY
You may surrender the Contract for its surrender value. The Contract's surrender
value on any date will be the Contract Fund less any Contract debt plus any
return of sales charges. See CONTRACT LOANS, page 26 and RETURN OF SALES
CHARGES, page 10. The Contract Fund value changes daily, reflecting: (1)
increases or decreases in the value of the Fund portfolios in which the assets
of the subaccount[s] have been invested; (2) interest credited on any loan; and
(3) the daily asset charge for mortality and expense risks assessed against the
subaccounts. The Contract Fund value also changes to reflect the receipt of
premium payments and the monthly deductions described under CHARGES AND
EXPENSES, page 10. Upon request, Pruco Life of New Jersey will tell you the
surrender value of your Contract. It is possible for the surrender value of a
Contract to decline to zero because of unfavorable investment performance or
outstanding Contract debt.
The tables on pages T1 through T10 of this prospectus illustrate approximately
what the surrender values would be for representative Contracts, assuming
hypothetical uniform investment results in the Fund portfolios. See
ILLUSTRATIONS OF SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS,
page 24.
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY
As described earlier, there are three types of death benefit available under the
Contract: (1) Type A, a generally fixed death benefit; (2) Type B, a variable
death benefit and; (3) Type C, a return of premium death benefit. A Type B
(variable) death benefit varies with investment performance while Type A (fixed)
and Type C (return of premium) death benefits do not, unless they must be
increased to comply with the Internal Revenue Code's definition of life
insurance.
Under a Type A (fixed) Contract, the death benefit is generally equal to the
basic insurance amount. 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.
The death benefit under 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 plus any return of sales charges, multiplied by the attained
age factor that applies.
A listing of attained age factors can be found on the data pages of your
Contract. The second 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. Before the Contract is issued, the Contract owner may choose
between two methods that we use to determine the tax treatment of the Contract.
See TAX TREATMENT OF CONTRACT BENEFITS, page 27, for a discussion of these
methods and the impact of each on the Contract's values, benefits and tax
status.
The following table illustrates at different ages how the attained age factor
affects the death benefit for different Contract Fund amounts. The table assumes
that a $250,000 Type A (fixed) Contract was issued when the insured was a male
nonsmoker, age 35.
18
TYPE A (FIXED) DEATH BENEFIT
- -----------------------------------------------------------------------------------------------------------------------------
IF THEN
- -----------------------------------------------------------------------------------------------------------------------------
THE AND THE THE THE CONTRACT FUND
INSURED CONTRACT ATTAINED AGE MULTIPLIED BY THE AND THE DEATH
IS AGE FUND IS FACTOR IS ** ATTAINED AGE FACTOR IS BENEFIT IS
- -----------------------------------------------------------------------------------------------------------------------------
40 $ 25,000 3.57 89,250 $250,000
40 $ 75,000 3.57 267,750 $267,750*
40 $100,000 3.57 357,000 $357,000*
- -----------------------------------------------------------------------------------------------------------------------------
60 $ 75,000 1.92 144,000 $250,000
60 $125,000 1.92 240,000 $250,000
60 $150,000 1.92 288,000 $288,000*
- -----------------------------------------------------------------------------------------------------------------------------
80 $150,000 1.26 189,000 $250,000
80 $200,000 1.26 252,000 $252,000*
80 $225,000 1.26 283,500 $283,500*
- -----------------------------------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
** Assumes the Contract Owner selected the Cash Value Accumulation Test.
- -----------------------------------------------------------------------------------------------------------------------------
This means, for example, that if the insured has reached the age of 60, and the
Contract Fund is $150,000, the death benefit will be $288,000, even though the
basic insurance amount is $250,000. In this situation, for every $1 increase in
the Contract Fund, the death benefit will be increased by $1.92. We reserve the
right to refuse to accept any premium payment that increases the death benefit
by more than it increases the Contract Fund.
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY
Under a Type B (variable) Contract, while the Contract is inforce, the death
benefit will never be less than the basic insurance amount, 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.
The death benefit under 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 plus any return of sales charges, multiplied by the attained
age factor that applies.
For purposes of computing 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 the data pages of your Contract. 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. Before the Contract is issued, the
Contract owner may choose between two methods that we use to determine the tax
treatment of the Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27, for
a discussion of these methods and the impact of each on the Contract's values,
benefits and tax status.
19
The following table illustrates various attained age factors and Contract Funds
and the corresponding death benefits. The table assumes a $250,000 Type B
(variable) Contract was issued when the insured was a male nonsmoker, age 35.
TYPE B (VARIABLE) DEATH BENEFIT
- -----------------------------------------------------------------------------------------------------------------------------
IF THEN
- -----------------------------------------------------------------------------------------------------------------------------
THE AND THE THE THE CONTRACT FUND
INSURED CONTRACT ATTAINED AGE MULTIPLIED BY THE AND THE DEATH
IS AGE FUND IS FACTOR IS ** ATTAINED AGE FACTOR IS BENEFIT IS
- -----------------------------------------------------------------------------------------------------------------------------
40 $ 25,000 3.57 89,250 $275,000
40 $ 75,000 3.57 267,750 $325,000
40 $100,000 3.57 357,000 $357,000*
- -----------------------------------------------------------------------------------------------------------------------------
60 $ 75,000 1.92 144,000 $325,000
60 $125,000 1.92 240,000 $375,000
60 $150,000 1.92 288,000 $400,000
- -----------------------------------------------------------------------------------------------------------------------------
80 $150,000 1.26 189,000 $400,000
80 $200,000 1.26 252,000 $450,000
80 $225,000 1.26 283,500 $475,000
- -----------------------------------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
** Assumes the Contract Owner selected the Cash Value Accumulation Test.
- -----------------------------------------------------------------------------------------------------------------------------
This means, for example, that if the insured has reached the age of 40, and the
Contract Fund is $100,000, the death benefit will be $357,000, even though the
basic insurance amount is $250,000. In this situation, for every $1 increase in
the Contract Fund, the death benefit will be increased by $3.57. We reserve the
right to refuse to accept any premium payment that increases the death benefit
by more than it increases the Contract Fund.
HOW A TYPE C (RETURN OF PREMIUM) CONTRACT'S DEATH BENEFIT WILL VARY
Under a Type C (return of premium) Contract, while the Contract is inforce, the
death benefit will be the greater of:
(1) the basic insurance amount plus the total premiums paid into the
Contract less any withdrawals, accumulated at an interest rate
(between 0% and 8%; in 1/2% increments) chosen by the Contract owner
to the date of death; and
(2) the Contract Fund before the deduction of monthly charges due on that
date plus any return of sales charges, multiplied by the attained age
factor that applies.
A listing of attained age factors can be found on the data pages of your
Contract. The latter provision ensures that the Contract will always have a
death benefit large enough so that the Contract will be treated as life
insurance for tax purposes under current law. Before the Contract is issued, the
Contract owner may choose between two methods that we use to determine the tax
treatment of the Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27, for
a discussion of these methods and the impact of each on the Contract's values,
benefits and tax status.
Unlike Type A and Type B Contracts, the death benefit of a Type C Contract may
be less than the basic insurance amount in the event total withdrawals plus
interest is greater than total premiums paid plus interest.
20
The following table illustrates various attained age factors and Contract Funds
and the corresponding death benefits. The table assumes a $250,000 Type C
(return of premium) Contract was issued when the insured was a male nonsmoker,
age 35.
TYPE C (RETURN OF PREMIUM) DEATH BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------------
IF THEN
- ------------------------------------------------------------------------------------------------------------------------------------
AND THE PREMIUMS PAID THE CONTRACT FUND
THE AND THE CONTRACT LESS ANY WITHDRAWALS THE ATTAINED AGE MULTIPLIED BY THE AND THE DEATH
INSURED FUND IS WITH INTEREST EQUALS FACTOR IS** ATTAINED AGE FACTOR IS BENEFIT IS
IS AGE
- ------------------------------------------------------------------------------------------------------------------------------------
40 $ 25,000 $15,000 3.57 89,250 $265,000
40 $ 75,000 $60,000 3.57 267,750 $310,000
40 $100,000 $80,000 3.57 357,000 $357,000*
- ------------------------------------------------------------------------------------------------------------------------------------
60 $75,000 $ 60,000 1.92 144,000 $310,000
60 $125,000 $100,000 1.92 240,000 $350,000
60 $150,000 $125,000 1.92 288,000 $375,000
- ------------------------------------------------------------------------------------------------------------------------------------
80 $150,000 $125,000 1.26 189,000 $375,000
80 $200,000 $150,000 1.26 252,000 $400,000
80 $225,000 $175,000 1.26 283,500 $425,000
- ------------------------------------------------------------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
** Assumes the Contract owner selected the Cash Value Accumulation Test.
- ------------------------------------------------------------------------------------------------------------------------------------
This means, for example, that if the insured has reached the age of 40, and the
premiums paid with interest less any withdrawals equals $80,000, the death
benefit will be $357,000, even though the basic insurance amount is $250,000. In
this situation, for every $1 increase in the Contract Fund, the death benefit
will be increased by $3.57. We reserve the right to refuse to accept any premium
payment that increases the death benefit by more than it increases the Contract
Fund.
SURRENDER OF A CONTRACT
A Contract may be surrendered for its net cash value (or for a fixed reduced
paid-up insurance benefit in New York state) while the insured is living. To
surrender a Contract, we may require you to deliver or mail the Contract with a
written request in a form that meets Pruco Life of New Jersey's needs, to a Home
Office. The 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 a Home
Office. If the Contract is fully surrendered within the first four Contract
years, you may be entitled to a return of sales charges. See CHARGES AND
EXPENSES, page 10. Surrender of a Contract may have tax consequences. See TAX
TREATMENT OF CONTRACT BENEFITS, page 27.
Fixed reduced paid-up insurance (available in New York state only) provides
paid-up insurance, the amount of which will be paid when the 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.
WITHDRAWALS
Under certain circumstances, you may withdraw a portion of the Contract's net
cash value without surrendering the Contract. The withdrawal amount is limited
by the requirement that the net cash value after the withdrawal may not be zero
or less than zero. The amount withdrawn must be at least $500. There is an
administrative processing fee for each withdrawal which is the lesser of: (a)
$25 and; (b) 2% of the withdrawal amount. An amount withdrawn may not
21
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 net cash value may
have tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
Generally, whenever a withdrawal is made, the death benefit will be immediately
reduced by at least the amount of the withdrawal. Withdrawals under Type B
(variable) and Type C (return of premium) Contracts, will not change the basic
insurance amount. However, under a Type A (fixed) Contract, the withdrawal may
require a reduction in the basic insurance amount, unless you provide evidence
that the insured is insurable for the increase in net amount at risk. In
addition, no withdrawal will be permitted under a Type A (fixed) Contract if it
would result in a basic insurance amount of less than the minimum basic
insurance amount. Furthermore, the sum of the basic insurance amount and the
Target Term Rider must equal or exceed $100,000. See REQUIREMENTS FOR ISSUANCE
OF A CONTRACT, page 10. It is important to note, however, that if the basic
insurance amount is decreased, there is a possibility that the Contract might be
classified as a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT
BENEFITS, page 27. Before making any withdrawal which causes a decrease in basic
insurance amount, you should consult with your tax adviser and your Pruco Life
of New Jersey representative.
When a withdrawal is made, the Contract Fund is reduced by the sum of the cash
withdrawn and the withdrawal fee. An amount equal to the reduction in the
Contract Fund will be withdrawn proportionally from the investment options
unless you direct otherwise.
Withdrawals increase 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.
LAPSE AND REINSTATEMENT
Pruco Life of New Jersey will determine the value of the Contract Fund on each
Monthly date. If the Contract Fund is zero or less, the Contract is in default.
If the Contract debt ever grows to be equal to or more than the Contract Fund,
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. A
Contract that lapses with an outstanding Contract loan may have tax
consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
A Contract that ended in default may be reinstated within 5 years after the date
of default if the following conditions are met: (1) renewed evidence of
insurability is provided on the insured; (2) submission of certain payments
sufficient to bring the Contract up to date plus a premium that we estimate will
cover all charges and deductions for the next three months; and (3) 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 Monthly date that coincides with or next follows
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.
INCREASES IN BASIC INSURANCE AMOUNT
Subject to state approval and subject to the underwriting requirements
determined by Pruco Life of New Jersey, you may increase the amount of insurance
by increasing the basic insurance amount of the Contract. We will allow up to 98
increases during the life of the Contract. The following conditions must be met:
(1) you must ask for the change in a form that meets Pruco Life of New Jersey's
needs; (2) the amount of the increase must be at least equal to the minimum
increase in basic insurance amount shown under CONTRACT LIMITATIONS in the data
pages of the Contract; (3) you must prove to us that the insured is insurable
for any increase; (4) the Contract must not be in default; and (5) if we ask you
to do so, you must send us the Contract to be endorsed.
If we approve the change, we will send you new Contract data pages showing the
amount and effective date of the change and the recomputed charges, values and
limitations. If the insured is not living on the effective date, the change will
not take effect. No administrative processing charge is currently being made in
connection with an increase in basic insurance amount. We reserve the right to
make such a charge in an amount of up to $25.
22
Furthermore, you may establish a schedule under which the basic insurance amount
increases on designated Contract anniversaries. The schedule of increases must
meet the following conditions:
(1) The amount of each scheduled increase must be at least equal to the
minimum increase in basic insurance amount shown under CONTRACT
LIMITATIONS in the data pages of the Contract.
(2) The amount of each scheduled increase cannot exceed:
(a) 20% of the underwritten death benefit (at issue, the underwritten
death benefit is equal to the face amount on the Contract date)
for increases scheduled to take place at attained ages up to and
including 65; or
(b) 10% of the underwritten death benefit for increases scheduled to
take place at attained ages from 66 up to and including 70.
(3) Increases cannot be scheduled to take place after attained age 70.
(4) The total face amount including scheduled increases can never exceed 4
times the underwritten death benefit for fully underwritten Contracts
or 2 times the underwritten death benefit for Contracts issued on a
simplified issue or guaranteed issue basis.
These are our current guidelines. We reserve the right to change these
conditions.
For sales load purposes, the Target Premium (referred to as "segment allocation
amount" in your Contract) is calculated separately for each coverage segment.
When premiums are paid, each premium payment is allocated to each coverage
segment based on the proportion of its Target Premium to the total of all Target
Premiums currently in effect. Currently, the sales load charge for each segment
is equal to 13 1/2% of the allocated premium paid in each Contract year up to
the Target Premium and 2% on any excess. See CHARGES AND EXPENSES, page 10.
The COI rates for an increase in basic insurance amount are based upon 1980 CSO
Tables, the age at the increase effective date and the number of years since
then, sex (except where unisex rates apply), smoker/nonsmoker status, and extra
rating class, if any. The net amount at risk for the whole Contract (the death
benefit minus the Contract Fund) is allocated to each basic insurance amount
segment based on the proportion of its basic insurance amount to the total of
all basic insurance amount segments. In addition, the attained age factor for a
Contract with an increase in basic insurance amount is based on the Insured's
attained age for the initial basic insurance amount segment. For a description
of attained age factor, see HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL
VARY, page 18, HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY, page
19 and HOW A TYPE C (RETURN OF PREMIUM) CONTRACT'S DEATH BENEFIT WILL VARY, page
20.
Each Contract owner who elects to increase the basic insurance amount of his or
her Contract will receive a "free-look" right which will apply only to the
increase in basic insurance amount, not the entire Contract. This right is
comparable to the right afforded to a purchaser of a new Contract except that,
any cost of insurance charge for the increase in the basic insurance amount will
be returned to the Contract Fund instead of a refund of premium. See SHORT-TERM
CANCELLATION RIGHT OR "FREE-LOOK", page 13. Generally, the "free-look" right
would have to be exercised no later than 10 days after receipt of the Contract
as increased.
An increase in basic insurance amount may cause the Contract to be classified as
a Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
Therefore, before increasing the basic insurance amount, you should consult with
your tax adviser and your Pruco Life of New Jersey representative.
DECREASES IN BASIC INSURANCE AMOUNT
As explained earlier, you may make a withdrawal. See WITHDRAWALS, page 21. You
also have the option of decreasing the basic insurance amount of your Contract
without withdrawing any cash 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. The amount of the decrease must be at
least equal to the minimum decrease in basic insurance amount shown under
CONTRACT LIMITATIONS in the data pages of your Contract. In addition, the basic
insurance amount after the decrease must be at least equal to the minimum basic
insurance amount shown under CONTRACT LIMITATIONS in the data pages of your
Contract. No administrative processing charge is currently being made in
connection with a decrease in basic insurance amount. We reserve the right to
make such a charge in an amount of up to $25. See CHARGES AND
23
EXPENSES, page 10. 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.
We may decline a reduction if we determine it would cause the Contract to fail
to qualify as "life insurance" for purposes of Section 7702 of the Internal
Revenue Code. See TAX TREATMENT OF CONTRACT BENEFITS, page 27. Furthermore, a
decrease will not take effect if the insured is not living on the effective
date.
It is important to note, however, that if the basic insurance amount is
decreased, there is a possibility that the Contract might be classified as a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
Before requesting any decrease in basic insurance amount, you should consult
with your tax adviser and your Pruco Life of New Jersey representative.
WHEN PROCEEDS ARE PAID
Pruco Life of New Jersey will generally pay any death benefit, cash 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 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 subaccount[s] 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.
ILLUSTRATIONS OF SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS
The following tables show how a Contract's death benefit and 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 the tables assume the following:
o a Contract bought by a 45 year old male, select, non-smoker, with no extra
risks or substandard ratings, issued on a Guaranteed Issue basis.
o a given premium amount is paid on each Contract anniversary for seven years
and no loans are taken.
o the Contract Fund has been invested in equal amounts in each of the 15
portfolios of the Funds.
The first two tables (pages T1 and T2) assume: (1) a Type A (fixed) Contract has
been purchased, (2) a $1,000,000 basic insurance amount and no riders have been
added to the Contract, and (3) a Cash Value Accumulation Test has been elected
for definition of life insurance testing. See TAX TREATMENT OF CONTRACT
BENEFITS, page 27 and TYPES OF DEATH BENEFIT, page 13. The first table assumes
current charges will continue for the indefinite future while the second table
assumes maximum contractual charges have been made from the beginning. See
CHARGES AND EXPENSES, page 10.
The third and fourth tables (pages T3 and T4) assume: (1) a Type A (fixed)
Contract has been purchased, (2) a $5,000 basic insurance amount and a $995,000
Target Term Rider has been added to the Contract, and (3) a Cash Value
Accumulation Test has been elected for definition of life insurance testing. See
TAX TREATMENT OF CONTRACT BENEFITS, page 27 and TYPES OF DEATH BENEFIT, page 13.
The third table assumes current charges will continue for the indefinite future
while the fourth table assumes maximum contractual charges have been made from
the beginning. See CHARGES AND EXPENSES, page 10.
The next two tables (pages T5 and T6) assume: (1) a Type A (fixed) Contract has
been purchased, (2) a $1,000,000 basic insurance amount and no riders have been
added to the Contract, and (3) a Guideline Premium Test has been elected for
definition of life insurance testing. See TAX TREATMENT OF CONTRACT BENEFITS,
page 27 and TYPES OF DEATH BENEFIT, page 13. The fifth table assumes current
charges will continue for the indefinite future while the sixth table assumes
maximum contractual charges have been made from the beginning. See CHARGES AND
EXPENSES, page 10.
24
The tables on pages T7 and T8 assume: (1) a Type B (variable) Contract has been
purchased, (2) a $1,000,000 basic insurance amount and no riders have been added
to the Contract, and (3) a Cash Value Accumulation Test has been elected for
definition of life insurance testing. See TAX TREATMENT OF CONTRACT BENEFITS,
page 27 and TYPES OF DEATH BENEFIT, page 13. The table on page T7 assumes
current charges will continue for the indefinite future while the table on page
T8 assumes maximum contractual charges have been made from the beginning. See
CHARGES AND EXPENSES, page 10.
The last two tables (pages T9 and T10) assume: (1) a Type C (return of premium)
Contract has been purchased with premiums accumulating at 6%, (2) a $1,000,000
basic insurance amount and no riders have been added to the Contract, and (3) a
Cash Value Accumulation Test has been elected for definition of life insurance
testing. See TAX TREATMENT OF CONTRACT BENEFITS, page 27 and TYPES OF DEATH
BENEFIT, page 13. The table on page T9 assumes current charges will continue for
the indefinite future while the table on page T10 assumes maximum contractual
charges have been made from the beginning. See CHARGES AND EXPENSES, page 10.
Finally, 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 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 10 tables (pages T1 through T10) 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 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 15 portfolios of 0.64%, and the
daily deduction from the Contract Fund of 0.20% per year for the tables based on
current charges and 0.5% per year for the tables based on maximum charges. Thus,
assuming current charges, gross returns of 0%, 4%, 8% and 12% are the equivalent
of net returns of -0.84%, 3.16%, 7.16% and 11.16%, respectively. Assuming
maximum charges, gross returns of 0%, 4%, 8% and 12% are the equivalent of net
returns of -1.14%, 2.86%, 6.86% and 10.86%, respectively. The actual fees and
expenses of the portfolios associated with a particular Contract may be more or
less than 0.64% and will depend on which subaccounts are selected. The death
benefits and surrender values shown reflect the deduction of all expenses and
charges both from the Funds and under the Contract.
The Contract allows you to invest your net premium dollars in a variety of
professionally managed funds. Fluctuating investment returns in these funds,
together with the actual pattern of your premium payments, our Contract charges,
and any loans and withdrawals you may make will generate different Contract
values than those illustrated, even if the averages of the investment rates of
return over the years were to match those illustrated. Because of this, we
strongly recommend periodic Contract reviews with your Pruco Life of New Jersey
representative. Reviews are an excellent way to monitor the performance of the
policy against your expectations and to identify adjustments that may be
necessary.
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 45 year old
man, may be useful for a 45 year old man 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.
25
ILLUSTRATIONS
-------------
PRUSELECT III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
Death Benefit (1) 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 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-0.84% Net) (5.16% Net) (11.16% Net) (-0.84% Net) (5.16% Net) (11.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
1 $ 56,919 $1,000,000 $1,000,000 $ 1,000,000 $ 48,483 $ 51,197 $ 53,910
2 $ 116,115 $1,000,000 $1,000,000 $ 1,000,000 $ 95,154 $ 103,370 $ 111,914
3 $ 177,679 $1,000,000 $1,000,000 $ 1,000,000 $137,682 $ 154,274 $ 172,219
4 $ 241,705 $1,000,000 $1,000,000 $ 1,000,000 $179,763 $ 207,734 $ 239,208
5 $ 308,293 $1,000,000 $1,000,000 $ 1,000,000 $214,014 $ 256,507 $ 306,267
6 $ 377,544 $1,000,000 $1,000,000 $ 1,003,751 $255,225 $ 315,532 $ 389,051
7 $ 449,565 $1,000,000 $1,000,000 $ 1,201,896 $296,007 $ 377,585 $ 480,759
8 $ 467,547 $1,000,000 $1,000,000 $ 1,292,874 $291,337 $ 395,092 $ 532,047
9 $ 486,249 $1,000,000 $1,000,000 $ 1,383,477 $286,474 $ 413,367 $ 588,713
10 $ 505,699 $1,000,000 $1,000,000 $ 1,484,991 $281,409 $ 432,459 $ 651,312
15 $ 615,260 $1,000,000 $1,071,214 $ 2,130,891 $251,845 $ 541,017 $ 1,076,207
20 (Age 65) $ 748,558 $1,000,000 $1,164,409 $ 3,058,594 $210,928 $ 673,069 $ 1,767,973
25 $ 910,735 $1,000,000 $1,286,999 $ 4,463,920 $156,236 $ 835,714 $ 2,898,649
30 $1,108,049 $1,000,000 $1,434,385 $ 6,569,066 $ 68,741 $1,031,932 $ 4,725,947
35 $1,348,111 $ 0(2) $1,615,068 $ 9,765,705 $ 0(2) $1,261,772 $ 7,629,457
40 $1,640,183 $ 0 $1,835,817 $14,655,228 $ 0 $1,529,847 $12,212,690
45 $1,995,533 $ 0 $2,096,742 $22,097,161 $ 0 $1,839,247 $19,383,474
(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 33, unless an additional premium payment was made.
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%, 6%, 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
PRUSELECT III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
Death Benefit (1) 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 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.14% Net) (4.86% Net) (10.86% Net) (-1.14% Net) (4.86% Net) (10.86% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
1 $ 56,919 $1,000,000 $1,000,000 $ 1,000,000 $ 42,042 $ 44,461 $ 46,882
2 $ 116,115 $1,000,000 $1,000,000 $ 1,000,000 $ 83,525 $ 90,767 $ 98,305
3 $ 177,679 $1,000,000 $1,000,000 $ 1,000,000 $120,352 $134,915 $ 150,684
4 $ 241,705 $1,000,000 $1,000,000 $ 1,000,000 $156,629 $181,116 $ 208,704
5 $ 308,293 $1,000,000 $1,000,000 $ 1,000,000 $184,149 $221,277 $ 264,812
6 $ 377,544 $1,000,000 $1,000,000 $ 1,000,000 $219,323 $271,929 $ 336,158
7 $ 449,565 $1,000,000 $1,000,000 $ 1,038,310 $253,928 $324,989 $ 415,324
8 $ 467,547 $1,000,000 $1,000,000 $ 1,107,268 $245,762 $335,843 $ 455,666
9 $ 486,249 $1,000,000 $1,000,000 $ 1,174,597 $237,173 $346,876 $ 499,829
10 $ 505,699 $1,000,000 $1,000,000 $ 1,249,718 $228,098 $358,065 $ 548,122
15 $ 615,260 $1,000,000 $1,000,000 $ 1,712,552 $172,942 $415,573 $ 864,925
20 (Age 65) $ 748,558 $1,000,000 $1,000,000 $ 2,336,628 $ 90,452 $471,897 $1,350,652
25 $ 910,735 $ 0(2) $1,000,000 $ 3,201,319 $ 0(2) $517,437 $2,078,778
30 $1,108,049 $ 0 $1,000,000 $ 4,379,173 $ 0 $532,776 $3,150,484
35 $1,348,111 $ 0 $1,000,000 $ 5,997,667 $ 0 $465,369 $4,685,677
40 $1,640,183 $ 0 $1,000,000 $ 8,248,146 $ 0 $148,192 $6,873,455
45 $1,995,533 $ 0 $ 0(2) $11,378,593 $ 0 $ 0(2) $9,981,222
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 6%, the Contract would go into default in policy
year 42, unless an additional premium payment was made. Based on a gross
return of 0%, the Contract would go into default in policy year 24, unless
an additional premium payment was made.
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%, 6%, 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
PRUSELECT III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 TARGET COVERAGE AMOUNT($5,000 BASIC INSURANCE AMOUNT,
$995,000 TARGET TERM RIDER)
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
Death Benefit (1) 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 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-0.84% Net) (5.16% Net) (11.16% Net) (-0.84% Net) (5.16% Net) (11.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
1 $ 56,919 $1,000,000 $1,000,000 $ 1,000,000 $ 51,562 $ 54,651 $ 57,741
2 $ 116,115 $1,000,000 $1,000,000 $ 1,000,000 $101,390 $ 110,752 $ 120,486
3 $ 177,679 $1,000,000 $1,000,000 $ 1,000,000 $150,157 $ 169,080 $ 189,544
4 $ 241,705 $1,000,000 $1,000,000 $ 1,000,000 $198,425 $ 230,345 $ 266,254
5 $ 308,293 $1,000,000 $1,000,000 $ 1,000,000 $245,081 $ 293,589 $ 350,377
6 $ 377,544 $1,000,000 $1,000,000 $ 1,147,997 $292,387 $ 361,246 $ 444,960
7 $ 449,565 $1,000,000 $1,080,607 $ 1,373,982 $339,222 $ 432,243 $ 549,593
8 $ 467,547 $1,000,000 $1,099,624 $ 1,478,030 $334,368 $ 452,520 $ 608,243
9 $ 486,249 $1,000,000 $1,113,122 $ 1,581,651 $329,354 $ 473,669 $ 673,043
10 $ 505,699 $1,000,000 $1,130,248 $ 1,697,748 $324,170 $ 495,723 $ 744,626
15 $ 615,260 $1,000,000 $1,228,472 $ 2,436,409 $291,699 $ 620,440 $ 1,230,509
20 (Age 65) $ 748,558 $1,000,000 $1,335,518 $ 3,497,315 $245,586 $ 771,976 $ 2,021,569
25 $ 910,735 $1,000,000 $1,476,275 $ 5,104,392 $182,058 $ 958,620 $ 3,314,540
30 $1,108,049 $1,000,000 $1,645,473 $ 7,511,734 $ 76,656 $1,183,794 $ 5,404,125
35 $1,348,111 $ 0(2) $1,852,871 $11,167,235 $ 0(2) $1,447,556 $ 8,724,403
40 $1,640,183 $ 0 $2,106,240 $16,758,614 $ 0 $1,755,200 $13,965,511
45 $1,995,533 $ 0 $2,405,711 $25,268,771 $ 0 $2,110,273 $22,165,589
(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 33, unless an additional premium payment was made.
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%, 6%, 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
PRUSELECT III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 TARGET COVERAGE AMOUNT($5,000 BASIC INSURANCE AMOUNT,
$995,000 TARGET TERM RIDER)
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
Death Benefit (1) 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 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.14% Net) (4.86% Net) (10.86% Net) (-1.14% Net) (4.86% Net) (10.86% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
1 $ 56,919 $1,000,000 $1,000,000 $ 1,000,000 $ 45,525 $ 48,371 $ 51,218
2 $ 116,115 $1,000,000 $1,000,000 $ 1,000,000 $ 90,440 $ 98,979 $ 107,866
3 $ 177,679 $1,000,000 $1,000,000 $ 1,000,000 $134,190 $ 151,389 $ 170,007
4 $ 241,705 $1,000,000 $1,000,000 $ 1,000,000 $177,348 $ 206,299 $ 238,905
5 $ 308,293 $1,000,000 $1,000,000 $ 1,000,000 $218,793 $ 262,725 $ 314,222
6 $ 377,544 $1,000,000 $1,000,000 $ 1,029,644 $260,782 $ 323,077 $ 399,087
7 $ 449,565 $1,000,000 $1,000,000 $ 1,231,001 $302,183 $ 386,390 $ 492,400
8 $ 467,547 $1,000,000 $1,000,000 $ 1,313,097 $293,761 $ 400,624 $ 540,369
9 $ 486,249 $1,000,000 $1,000,000 $ 1,393,272 $284,947 $ 415,266 $ 592,882
10 $ 505,699 $1,000,000 $1,000,000 $ 1,482,698 $275,681 $ 430,316 $ 650,306
15 $ 615,260 $1,000,000 $1,013,492 $ 2,033,504 $220,190 $ 511,864 $ 1,027,022
20 (Age 65) $ 748,558 $1,000,000 $1,043,508 $ 2,776,008 $138,897 $ 603,184 $ 1,604,629
25 $ 910,735 $1,000,000 $1,078,803 $ 3,804,597 $ 4,483 $ 700,522 $ 2,470,517
30 $1,108,049 $ 0(2) $1,113,542 $ 5,205,578 $ 0(2) $ 801,109 $ 3,745,020
35 $1,348,111 $ 0 $1,150,897 $ 7,130,562 $ 0 $ 899,138 $ 5,570,752
40 $1,640,183 $ 0 $1,194,559 $ 9,807,119 $ 0 $ 995,465 $ 8,172,599
45 $1,995,533 $ 0 $1,243,945 $13,530,182 $ 0 $1,091,180 $11,868,581
(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 26, unless an additional premium payment was made.
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%, 6%, 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
PRUSELECT III VARIABLE LIFE INSURANCE CONTRACT
GUIDELINE PREMIUM TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS (3)
USING CURRENT CHARGES
Death Benefit (1) 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 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year(3) (-0.84% Net) (5.16% Net) (11.16% Net) (-0.84% Net) (5.16% Net) (11.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
1 $ 56,919 $1,000,000 $1,000,000 $ 1,000,000 $ 48,483 $ 51,197 $ 53,910
2 $ 116,115 $1,000,000 $1,000,000 $ 1,000,000 $ 95,154 $103,370 $ 111,914
3 $ 177,679 $1,000,000 $1,000,000 $ 1,000,000 $137,682 $154,274 $ 172,219
4 $ 241,705 $1,000,000 $1,000,000 $ 1,000,000 $179,763 $207,734 $ 239,208
5 $ 255,646 $1,000,000 $1,000,000 $ 1,000,000 $172,385 $212,359 $ 259,601
6 $ 265,872 $1,000,000 $1,000,000 $ 1,000,000 $168,828 $221,252 $ 286,585
7 $ 276,507 $1,000,000 $1,000,000 $ 1,000,000 $165,077 $230,421 $ 316,462
8 $ 287,567 $1,000,000 $1,000,000 $ 1,000,000 $161,123 $239,877 $ 349,572
9 $ 299,070 $1,000,000 $1,000,000 $ 1,000,000 $156,932 $249,610 $ 386,277
10 $ 311,032 $1,000,000 $1,000,000 $ 1,000,000 $152,495 $259,634 $ 427,011
15 $ 378,419 $1,000,000 $1,000,000 $ 1,000,000 $125,225 $313,804 $ 709,979
20 (Age 65) $ 460,404 $1,000,000 $1,000,000 $ 1,454,011 $ 84,602 $373,512 $ 1,191,812
25 $ 560,152 $1,000,000 $1,000,000 $ 2,322,243 $ 28,029 $441,561 $ 2,001,933
30 $ 681,510 $ 0(2) $1,000,000 $ 3,600,556 $ 0(2) $513,012 $ 3,365,005
35 $ 829,162 $ 0 $1,000,000 $ 5,951,349 $ 0 $577,792 $ 5,667,951
40 $1,008,802 $ 0 $1,000,000 $ 9,976,365 $ 0 $625,256 $ 9,501,300
45 $1,227,362 $ 0 $1,000,000(2) $16,592,333 $ 0 $624,317(2) $15,802,222
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 6%, the Contract would go into default in policy
year 54, unless an additional premium payment was made. Based on a gross
return of 0%, the Contract would go into default in policy year 27, unless
an additional premium payment was made.
(3) The Guideline Premium Test limits the premium payable in policy year 5 to
$4,108.12, and zero in years 6 and 7.
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%, 6%, 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.
T5
PRUSELECT III VARIABLE LIFE INSURANCE CONTRACT
GUIDELINE PREMIUM TEST
TYPE A (FIXED) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS (3)
USING MAXIMUM CONTRACTUAL CHARGES
Death Benefit (1) 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 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year(3) (-1.14% Net) (4.86% Net) (10.86% Net) (-1.14% Net) (4.86% Net) (10.86% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
1 $ 56,919 $1,000,000 $1,000,000 $1,000,000 $ 42,042 $ 44,461 $ 46,882
2 $ 116,115 $1,000,000 $1,000,000 $1,000,000 $ 83,525 $ 90,767 $ 98,305
3 $ 177,679 $1,000,000 $1,000,000 $1,000,000 $120,352 $134,915 $ 150,684
4 $ 241,705 $1,000,000 $1,000,000 $1,000,000 $156,629 $181,116 $ 208,704
5 $ 255,646 $1,000,000 $1,000,000 $1,000,000 $145,181 $179,943 $ 221,114
6 $ 265,872 $1,000,000 $1,000,000 $1,000,000 $138,453 $183,659 $ 240,201
7 $ 276,507 $1,000,000 $1,000,000 $1,000,000 $131,364 $187,182 $ 261,097
8 $ 287,567 $1,000,000 $1,000,000 $1,000,000 $123,849 $190,449 $ 283,978
9 $ 299,070 $1,000,000 $1,000,000 $1,000,000 $115,832 $193,381 $ 309,037
10 $ 311,032 $1,000,000 $1,000,000 $1,000,000 $107,244 $195,908 $ 336,512
15 $ 378,419 $1,000,000 $1,000,000 $1,000,000 $ 52,947 $199,407 $ 521,353
20 (Age 65) $ 460,404 $ 0(2) $1,000,000 $1,015,673 $ 0(2) $174,339 $ 832,518
25 $ 560,152 $ 0 $1,000,000 $1,573,520 $ 0 $ 84,903 $1,356,482
30 $ 681,510 $ 0 $ 0(2) $2,369,493 $ 0 $ 0(2) $2,214,480
35 $ 829,162 $ 0 $ 0 $3,820,857 $ 0 $ 0 $3,638,912
40 $1,008,802 $ 0 $ 0 $6,218,175 $ 0 $ 0 $5,922,071
45 $1,227,362 $ 0 $ 0 $9,971,753 $ 0 $ 0 $9,496,907
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 6%, the Contract would go into default in policy
year 28, unless an additional premium payment was made. Based on a gross
return of 0%, the Contract would go into default in policy year 19, unless
an additional premium payment was made.
(3) The Guideline Premium Test limits the premium payable in policy year 5 to
$4,108.12, and zero in years 6 and 7.
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%, 6%, 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.
T6
PRUSELECT III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE B (VARIABLE) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
Death Benefit (1) 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 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-0.84% Net) (5.16% Net) (11.16% Net) (-0.84% Net) (5.16% Net) (11.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
1 $ 56,919 $1,044,789 $1,047,503 $ 1,050,216 $ 48,483 $ 51,197 $ 53,910
2 $ 116,115 $1,087,625 $1,095,828 $ 1,104,358 $ 95,014 $103,217 $ 111,747
3 $ 177,679 $1,129,923 $1,146,463 $ 1,164,352 $137,311 $153,852 $ 171,741
4 $ 241,705 $1,171,667 $1,199,507 $ 1,230,831 $179,056 $206,895 $ 238,220
5 $ 308,293 $1,212,843 $1,255,062 $ 1,304,498 $212,843 $255,062 $ 304,498
6 $ 377,544 $1,253,445 $1,313,250 $ 1,386,144 $253,445 $313,250 $ 386,144
7 $ 449,565 $1,293,449 $1,374,174 $ 1,476,627 $293,449 $374,174 $ 476,627
8 $ 467,547 $1,287,940 $1,390,340 $ 1,526,582 $287,940 $390,340 $ 526,582
9 $ 486,249 $1,282,170 $1,407,023 $ 1,581,785 $282,170 $407,023 $ 581,785
10 $ 505,699 $1,276,132 $1,424,240 $ 1,642,812 $276,132 $424,240 $ 642,812
15 $ 615,260 $1,240,481 $1,517,697 $ 2,096,714 $240,481 $517,697 $ 1,058,946
20 (Age 65) $ 748,558 $1,191,025 $1,620,344 $ 3,009,434 $191,025 $620,344 $ 1,739,557
25 $ 910,735 $1,126,927 $1,732,923 $ 4,392,153 $126,927 $732,923 $ 2,852,048
30 $1,108,049 $1,030,374 $1,837,937 $ 6,463,437 $ 30,374 $837,937 $ 4,649,955
35 $1,348,111 $ 0(2) $1,897,334 $ 9,608,659 $ 0(2) $897,334 $ 7,506,764
40 $1,640,183 $ 0 $1,856,842 $14,419,537 $ 0 $856,842 $12,016,281
45 $1,995,533 $ 0 $1,614,159(2) $21,741,771 $ 0 $614,159(2) $19,071,729
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 6%, the Contract would go into default in policy
year 51, unless an additional premium payment was made. Based on a gross
return of 0%, the Contract would go into default in policy year 32, unless
an additional premium payment was made.
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%, 6%, 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.
T7
PRUSELECT III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE B (VARIABLE) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
Death Benefit (1) 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 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.14% Net) (4.86% Net) (10.86% Net) (-1.14% Net) (4.86% Net) (10.86% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
1 $ 56,919 $1,037,800 $1,040,210 $ 1,042,623 $ 41,904 $ 44,315 $ 46,728
2 $ 116,115 $1,074,892 $1,082,089 $ 1,089,580 $ 83,101 $ 90,298 $ 97,790
3 $ 177,679 $1,111,264 $1,125,697 $ 1,141,322 $119,473 $133,906 $ 149,531
4 $ 241,705 $1,146,895 $1,171,087 $ 1,198,335 $155,105 $179,297 $ 206,545
5 $ 308,293 $1,181,765 $1,218,316 $ 1,261,162 $181,765 $218,316 $ 261,162
6 $ 377,544 $1,215,831 $1,267,422 $ 1,330,381 $215,831 $267,422 $ 330,381
7 $ 449,565 $1,249,045 $1,318,436 $ 1,406,623 $249,045 $318,436 $ 406,623
8 $ 467,547 $1,239,413 $1,326,899 $ 1,443,555 $239,413 $326,899 $ 443,555
9 $ 486,249 $1,229,277 $1,335,141 $ 1,483,847 $229,277 $335,141 $ 483,847
10 $ 505,699 $1,218,574 $1,343,079 $ 1,527,788 $218,574 $343,079 $ 527,788
15 $ 615,260 $1,154,197 $1,374,853 $ 1,814,671 $154,197 $374,853 $ 814,671
20 (Age 65) $ 748,558 $1,062,224 $1,379,373 $ 2,254,175 $ 62,224 $379,373 $1,254,175
25 $ 910,735 $ 0(2) $1,324,163 $ 2,957,206 $ 0(2) $324,163 $1,920,263
30 $1,108,049 $ 0 $1,153,072 $ 4,043,686 $ 0 $153,072 $2,909,127
35 $1,348,111 $ 0 $ 0(2) $ 5,537,753 $ 0 $ 0(2) $4,326,370
40 $1,640,183 $ 0 $ 0 $ 7,615,256 $ 0 $ 0 $6,346,047
45 $1,995,533 $ 0 $ 0 $10,505,118 $ 0 $ 0 $9,215,016
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 6%, the Contract would go into default in policy
year 33, unless an additional premium payment was made. Based on a gross
return of 0%, the Contract would go into default in policy year 23, unless
an additional premium payment was made.
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%, 6%, 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.
T8
PRUSELECT III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE C (RETURN OF PREMIUM AT 6%) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING CURRENT CHARGES
Death Benefit (1) 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 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-0.84% Net) (5.16% Net) (11.16% Net) (-0.84% Net) (5.16% Net) (11.16% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
1 $ 56,919 $1,058,014 $1,058,014 $ 1,058,014 $ 48,483 $ 51,197 $ 53,910
2 $ 116,115 $1,119,508 $1,119,508 $ 1,119,508 $ 94,971 $103,181 $ 111,719
3 $ 177,679 $1,184,693 $1,184,693 $ 1,184,693 $137,186 $153,750 $ 171,668
4 $ 241,705 $1,253,788 $1,253,788 $ 1,253,788 $178,789 $206,686 $ 238,083
5 $ 308,293 $1,327,029 $1,327,029 $ 1,327,029 $212,357 $254,690 $ 304,280
6 $ 377,544 $1,404,665 $1,404,665 $ 1,404,665 $252,634 $312,644 $ 385,833
7 $ 449,565 $1,486,958 $1,486,958 $ 1,486,958 $292,175 $373,244 $ 476,224
8 $ 467,547 $1,516,176 $1,516,176 $ 1,516,176 $286,060 $389,000 $ 526,128
9 $ 486,249 $1,547,146 $1,547,146 $ 1,547,146 $279,507 $405,167 $ 581,351
10 $ 505,699 $1,579,975 $1,579,975 $ 1,579,975 $272,475 $421,740 $ 642,506
15 $ 615,260 $1,776,138 $1,776,138 $ 2,100,333 $226,786 $508,772 $ 1,060,774
20 (Age 65) $ 748,558 $2,038,647 $2,038,647 $ 3,014,713 $149,804 $593,128 $ 1,742,609
25 $ 910,735 $2,389,944 $2,389,944 $ 4,399,860 $ 24,905 $660,913 $ 2,857,052
30 $1,108,049 $ 0(2) $2,860,059 $ 6,474,781 $ 0(2) $645,653 $ 4,658,116
35 $1,348,111 $ 0 $3,489,179 $ 9,625,524 $ 0 $355,487 $ 7,519,940
40 $1,640,183 $ 0 $ 0(2) $14,444,848 $ 0 $ 0(2) $12,037,373
45 $1,995,533 $ 0 $ 0 $21,779,936 $ 0 $ 0 $19,105,207
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 6%, the Contract would go into default in policy
year 38, unless an additional premium payment was made. Based on a gross
return of 0%, the Contract would go into default in policy year 26, unless
an additional premium payment was made.
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%, 6%, 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.
T9
PRUSELECT III VARIABLE LIFE INSURANCE CONTRACT
CASH VALUE ACCUMULATION TEST
TYPE C (RETURN OF PREMIUM AT 6%) DEATH BENEFIT
MALE GUARANTEED ISSUE SELECT PREFERRED ISSUE AGE 45
$1,000,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $54,730 ANNUAL PREMIUMS FOR SEVEN YEARS
USING MAXIMUM CONTRACTUAL CHARGES
Death Benefit (1) 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 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-1.14% Net) (4.86% Net) (10.86% Net) (-1.14% Net) (4.86% Net) (10.86% Net)
---------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
1 $ 56,919 $1,058,014 $1,058,014 $ 1,058,014 $ 41,850 $ 44,262 $ 46,678
2 $ 116,115 $1,119,508 $1,119,508 $ 1,119,508 $ 82,906 $ 90,115 $ 97,621
3 $ 177,679 $1,184,693 $1,184,693 $ 1,184,693 $119,022 $133,491 $ 149,161
4 $ 241,705 $1,253,788 $1,253,788 $ 1,253,788 $154,243 $178,517 $ 205,876
5 $ 308,293 $1,327,029 $1,327,029 $ 1,327,029 $180,294 $217,005 $ 260,082
6 $ 377,544 $1,404,665 $1,404,665 $ 1,404,665 $213,495 $265,365 $ 328,762
7 $ 449,565 $1,486,958 $1,486,958 $ 1,486,958 $245,510 $315,359 $ 404,321
8 $ 467,547 $1,516,176 $1,516,176 $ 1,516,176 $234,337 $322,533 $ 440,487
9 $ 486,249 $1,547,146 $1,547,146 $ 1,547,146 $222,240 $329,147 $ 479,931
10 $ 505,699 $1,579,975 $1,579,975 $ 1,579,975 $209,064 $335,040 $ 522,953
15 $ 615,260 $1,776,138 $1,776,138 $ 1,776,138 $120,122 $346,058 $ 805,225
20 (Age 65) $ 748,558 $ 0(2) $2,038,647 $ 2,159,800 $ 0(2) $289,658 $1,248,440
25 $ 910,735 $ 0 $2,389,944 $ 2,958,528 $ 0 $ 54,663 $1,921,122
30 $1,108,049 $ 0 $ 0(2) $ 4,046,582 $ 0 $ 0(2) $2,911,210
35 $1,348,111 $ 0 $ 0 $ 5,541,723 $ 0 $ 0 $4,329,471
40 $1,640,183 $ 0 $ 0 $ 7,620,718 $ 0 $ 0 $6,350,599
45 $1,995,533 $ 0 $ 0 $10,512,657 $ 0 $ 0 $9,221,629
(1) Assumes no Contract loan has been made.
(2) Based on a gross return of 6%, the Contract would go into default in policy
year 26, unless an additional premium payment was made. Based on a gross
return of 0%, the Contract would go into default in policy year 20, unless
an additional premium payment was made.
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%, 6%, 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.
T10
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 is equal to 90% of the
Contract Fund value. A Contract in default has no loan value. The minimum loan
amount you may borrow is $200.
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%.
A portion of any amount you borrow on or after the 10th Contract anniversary may
be considered a preferred loan if the Contract has not been surrendered for
fixed reduced paid-up insurance. Fixed reduced paid-up insurance is available
only in the state of New York. See SURRENDER OF A CONTRACT, page 21. 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
Contract Fund, the Contract will go into default. See LAPSE AND REINSTATEMENT,
page 22. If the Contract debt equals or exceeds the Contract Fund 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 27.
When a loan is made, an amount equal to the loan proceeds is transferred out of
the Account. 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
value in each subaccount bears to the total value of the Contract. While a loan
is outstanding, the amount that was so transferred will continue to be treated
as part of the Contract Fund. It will be credited with an effective annual rate
of return of 4%. On each Monthly date, we will increase the portion of the
Contract Fund in the investment options by interest credits accrued on the loan
since the last Monthly date. The net cost of a standard loan is 1% and the net
cost of a preferred loan is 1/4%.
Loans from Modified Endowment Contracts may be treated for tax purposes as
distributions of income. See TAX TREATMENT OF CONTRACT BENEFITS, page 27.
Any Contract debt will directly reduce a Contract's cash value and will be
subtracted from the death benefit to determine the amount payable. 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 on 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.
When you repay all or part of a loan, we will increase the portion of the
Contract Fund in the investment options by the amount of the loan you repay
using the investment allocation for future premium payments as of the loan
payment date, plus interest credits accrued on the loan since the last
transaction date. If loan interest is paid when due, it will not change the
portion of the Contract Fund allocated to the investment options. We reserve the
right to change the manner in which we allocate loan repayments.
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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.
Generally, representatives will receive a commission of no more than: (1) 20% of
the premiums received in the first year on premiums up to the Target Premium
(referred to as "segment allocation amount" in your Contract); (2) 12% of
premiums received in years two through 10 on premiums up to the Target Premium;
and (3) 2% on premiums received in the first 10 years in excess of the Target
Premium or received after 10 years. If the basic insurance amount is increased,
representatives will generally receive a commission of no more than: (1) 20% of
the premiums received up to the Target Premium for the increase received in the
first year; (2) 12% of the premiums received up to the Target Premium for years
two through 10; and (3) 2% on other premiums received for the increase.
Moreover, trail commissions of up to 0.05% of the Contract Fund may be paid as
of the end of each calendar quarter for years six through 20 and .025%
thereafter. Representatives with less than 4 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.
In order to meet the definition of life insurance rules for federal income tax
purposes, the Contract must satisfy one of the two following tests: (1) Cash
Value Accumulation Test or (2) Guideline Premium Test. At issue, the Contract
owner chooses which of these two tests will apply to their Contract. This choice
cannot be changed thereafter.
Under the Cash Value Accumulation Test, the Contract must maintain a minimum
ratio of death benefit to cash value. Therefore, in order to ensure that the
Contract qualifies as life insurance, the Contract's basic insurance amount may
increase as the Contract Fund value increases. The death benefit, at all times,
must be at least equal to the Contract Fund multiplied by the applicable
attained age factor. A listing of attained age factors can be found on the data
pages of your Contract.
Under the Guideline Premium Test, there is a limit as to the amount of premium
that can be paid into the Contract in relation to the death benefit. In
addition, there is a minimum ratio of death benefit to cash value associated
with this test. This ratio, however, is less than the required ratio under the
Cash Value Accumulation test. Therefore, the death benefit required under this
test is generally lower than that of the Cash Value Accumulation test.
The selection of the definition of life insurance test most appropriate for you
is dependent on several factors, including the insured's age at issue, actual
Contract earnings, and whether or not the Contract is classified as a Modified
Endowment Contract. You should consult your own qualified tax adviser for
complete information and advice with respect to the selection of the definition
of life insurance test.
27
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, and
o the Contract's death benefit will be income tax free to your
beneficiary.
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 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 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 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 excludable from income. An assignment of a
Modified 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.
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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.
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 differ under Contracts issued on males
and females of the same age. Employers and employee organizations considering
the 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.
EXCHANGE RIGHT
In the state of New York, you have the right to exchange the Contract for a
fixed benefit insurance plan issued by The Prudential Insurance Company of
America on the insured's life. Such an exchange is permitted within the first 18
months after a Contract is issued, so long as the Contract is not in default.
This is a general account policy with guaranteed minimum values. No evidence of
insurability will be required to make an exchange. The new policy will have the
same issue date and risk classification for the insured as the original
Contract. The exchange may be subject to an equitable adjustment in premiums and
values, and a payment may be required. You may wish to obtain tax advice before
effecting such an exchange.
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. 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 insured die with no surviving beneficiary,
the insured's estate will become the beneficiary.
INCONTESTABILITY. We will not contest the Contract after it has been inforce
during the insured's lifetime for two years from the issue date except 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 the insured.
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MISSTATEMENT OF AGE OR SEX. If the insured's stated age or sex or both are
incorrect in the Contract, Pruco Life of New Jersey will adjust the death
benefits payable 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.
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.
SUICIDE EXCLUSION. Generally, if the insured, whether sane or insane, dies by
suicide within two years from the Contract date, the Contract will end and Pruco
Life of New Jersey will return the premiums paid, less any Contract debt, and
less any withdrawals. Generally, if the insured, whether sane or insane, dies by
suicide after two years from the issue date, but within two years of the
effective date of an increase in the basic insurance amount, we will pay, as to
the increase in amount, no more than the sum of the premiums paid on and after
the effective date of an increase.
VOTING RIGHTS
As described earlier, all of the assets held in the subaccounts 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 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 subaccount[s]; (4) any change in
the fundamental investment policy of a portfolio corresponding to the Contract
owner's selected subaccount[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 subaccount, 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 a 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.
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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.
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, 1998 and
1997 and for each of the three years in the period ended December 31, 1998 and
the financial statements of the Account as of December 31, 1998 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 Nancy Davis,
FSA, MAAA, Vice President and Actuary 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
business, including class actions. Our pending legal and regulatory actions
include proceedings specific to us and proceedings generally applicable to
business practices in the industry in which we operate. In our insurance
operations, we are subject to class actions and individual suits involving a
variety of issues, including sales practices, claims payment and denial of
benefit matters and payment of service fees.
In certain of our pending legal and regulatory actions, large and/or
indeterminate amounts are sought, including punitive or exemplary damages. The
following is a summary of pending proceedings against us and/or our parent, The
Prudential Insurance Company of America ("Prudential"), which we currently
believe are significant. Unless otherwise indicated, when we use the terms "we,"
"us," or "our," in the following discussion, we are referring to both Prudential
and Pruco Life of New Jersey.
31
LIFE INSURANCE SALES PRACTICES ISSUES
We have been subject to substantial regulatory investigations and civil
litigation involving alleged deceptive life insurance sales practices engaged in
by us and our insurance agents in violation of state and federal laws. The sales
practices alleged to have occurred are contrary to our policy.
In April 1995, a Multi-State Life Insurance Task Force (the "Task Force"),
comprised of insurance regulators from 29 states and the District of Columbia,
was formed to conduct a review of sales and marketing practices throughout the
life insurance industry. Prudential was the initial focus of the Task Force
examination. In July 1996, the Task Force released its report on its activities
(the "Task Force Report"). The Task Force Report found that some sales of life
insurance policies, including life insurance policies issued by Pruco Life of
New Jersey, had been improper (principally relating to improper financed
insurance sales, improper representations in sales involving abbreviated payment
plans and insurance improperly sold primarily as an investment rather than as
life insurance) and that efforts to prevent such practices were not sufficiently
effective. Pruco Life of New Jersey was not named in the Task Force Report, but
the report covered the sales of Pruco Life of New Jersey policies. Based on
these findings, the Task Force recommended, and Prudential agreed to, various
changes in our sales and other business practices controls (including as to the
training, supervision and discipline of agents and field management) and a
series of fines allocated to all 50 states and the District of Columbia. In
addition, the Task Force and Prudential agreed upon a remediation program
pursuant to which relief would be offered to policyholders who were misled when
they purchased individual permanent life insurance policies in the United States
from 1982 through 1995. By March 1997, Prudential had entered into consent
orders with insurance regulatory authorities in all 50 states and the District
of Columbia in which such authorities adopted the Task Force Report and agreed
to accept this remediation program as enhanced by the Class Action Settlement
discussed below (the "Remediation Program") and the payment of approximately $65
million in fines, penalties and related payments to resolve with these
authorities the sales practices issues identified by the Task Force's
examination (each such agreement a "State Settlement").
Commencing in February 1995, a number of individual and alleged class civil
actions were filed against Prudential and Pruco Life of New Jersey alleging
improprieties in connection with the sale, servicing and operation of permanent
individual life insurance policies. These actions were consolidated and
transferred by the Judicial Panel on Multi-District Litigation to the United
States District Court for the District of New Jersey (the "District Court"). In
September 1996, the plaintiffs in the alleged class actions in the consolidated
proceeding joined in the filing of an amended consolidated class action against
us (the "Class Action") and the pending individual actions (the "Individual
Actions") were stayed. The principal allegations of the Class Action were that
individual permanent life insurance was improperly sold through alleged
misrepresentations concerning the use of an existing policy's value or dividend
stream to purchase or maintain another policy (i.e., financed insurance sales),
alleged misrepresentations relating to the number of out-of-pocket cash premiums
required to be paid for a policy or the realization of specified benefits (i.e.,
"vanishing premium" or abbreviated payment plans) and alleged misrepresentations
of the insurance product sold as an investment rather than a life insurance
policy.
In October 1996, we entered into a Stipulation of Settlement (the "Class Action
Settlement") in the Class Action covering all persons who own or owned at
termination of the policy, an individual permanent life insurance policy issued
in the United States by Prudential and Pruco Life of New Jersey during the
period January 1, 1982 through December 31, 1995 (each a "Covered Policy") other
than those opting out of the Class Action Settlement, those who had previously
settled with us who were represented by counsel, the owners of certain
corporate-owned life insurance or trust-owned life insurance policies and a
limited number of other specified policyholders (the "Class Members"). The Class
Action Settlement proposed to settle the Class Action by adopting the
Remediation Program described in the Task Force Report and previously accepted
in the initial State Settlements plus specified enhancements and changes,
including some additional remedies. In addition, it was agreed in the Class
Action Settlement that the total pre-tax cost of remedies for the claims filed
through the ADR process of the Remediation Program described below would result
in a minimum average cost per remedy of $2,364 for the first 330,000 claims
remedied. It was also agreed that the ADR participants would be provided with
additional compensation to be determined by a formula that would range in
aggregate amount from $50 million to $300 million depending on the total number
of claims remedied, which would be distributed as determined by the District
Court at the end of the ADR claim evaluation process described below. It was
agreed in the Class Action Settlement that the aggregate amount of pre-tax cost
for remedies granted through the Alternative Dispute Resolution ("ADR") process
and the additional compensation to be distributed at the end of the ADR process
would in no event be less than $410 million. The Class Action Settlement
releases Prudential and Pruco Life of New Jersey from all claims that have been
asserted by Class Members and bars Class Members from asserting any other claims
with respect to the sales, servicing or administration of the Covered Policies.
32
In October 1996, a notice of the Class Action and proposed Class Action
Settlement was provided to the owners of the approximately 10.7 million Covered
Policies, giving each owner the opportunity to opt out of the Class Action in
order to pursue alternative remedies. Owners of approximately 21,800 Covered
Policies elected to be excluded from the Class Action Settlement (the "Opt-Out
Policyholders"). In January 1997, the District Court sanctioned and fined
Prudential $1 million for failure to properly implement procedures for its
employees to retain documents in violation of the District Court's order that
required the parties to preserve all documents relevant to the resolution of the
Class Action and the Remediation Program. The District Court ordered Prudential
to implement a document retention policy and directed that an independent expert
be engaged to investigate the extent of document destruction and its impact on
the Remediation Program, so that claim evaluations would take into account any
failure to retain materials relevant to the claim. In March 1997, the District
Court issued an order certifying the class for settlement purposes only and
approving the amended Class Action Settlement as fair to Class Members. In July
1998, this order was affirmed on appeal by the U.S. Court of Appeals for the
Third Circuit, although the issue of class counsel's fees was sent back to the
District Court for review. In January 1999, the U.S. Supreme Court denied a writ
of certiorari filed by certain Class Members objecting to the Class Settlement.
The approval of the settlement is now final and unappealable, although the
District Court has retained jurisdiction over the administration, execution,
enforcement and interpretation of the settlement.
The Remediation Program offered two alternative forms of relief: participation
in the ADR process or Basic Claim Relief. The ADR process was designed to permit
policyholders who believe they were misled regarding the sale of their policies
to submit claims for relief through a no-cost dispute resolution process with
certain specified safeguards to protect policyholders. The ADR process has
provided for an individual review of each claim with remedies tailored to the
type of claim and the available evidence concerning the claim, including any
evidence of document destruction by us. Remedies under the ADR process have
included, among other things: return of policy values improperly used;
cancellation of an unwanted policy and refund of some or all premiums paid
including interest; agreement that the policyholder need not make future
payments for some or all premiums due; or issuance of a substitute product. The
ADR process does not guarantee that there will be a determination in the
policyholder's favor providing for any relief or remedy. Basic Claim Relief has
provided a choice of specified remedies without a claim or showing that any
improper sales practices occurred. The Basic Claim Relief options have included
preferred rate premium loans and annuities, mutual fund shares or life insurance
policies with certain benefits or values that we will enhance.
Pursuant to the Class Action Settlement and the State Settlements, beginning in
February 1997, Remediation Program packages were mailed to Class Members (i.e.,
the owners of the 10.7 million Covered Policies, other than Opt-Out
Policyholders) informing them of their options under the Remediation Program.
The owners of approximately 1.16 million Covered Policies indicated an intent to
file an ADR claim and were provided an ADR claim form for completion and
submission. The ADR process generally has required that individual claim forms
and files be reviewed by Prudential and by one or more independent claim
evaluators. Approximately 649,000 claim forms were completed and returned by
policyholders and virtually all decision letters had been mailed to claimants as
of February 28, 1999. In many instances, claimants have the right to "appeal"
the decision to an independent reviewer. We believe that the bulk of such
appeals will be resolved in 1999. The owners of approximately 503,000 policies
indicated an interest in a Basic Claim Relief Remedy.
In a related matter, the NASD examined our individual life insurance
broker-dealer's (Pruco Securities Corporation) sales practices with respect to
SEC-registered variable life insurance products sold in the United States from
1983 through 1995, as well as the public. In July 1999, Pruco Securities
Corporation entered into a settlement agreement with the NASD that included
findings by the NASD of improper sales practices affecting the sale of some of
our variable life insurance products similar to those cited by the Task Force
and inadequate supervision. This settlement agreement censured Pruco Securities,
required the retention of an independent consultant to review Pruco Securities'
policies and procedures relevant to the NASD's findings, and levied a $20
million fine. This settlement did not change the Remediation Program or add to
our obligations to claimants in the Remediation Program or other policyholders.
On September 2, 1999, the Insurance Department of the State of New York formally
adopted a Report of Examination based on the Department's review, for the years
1996 and 1997, of Prudential's individual life insurance sales practices
controls and various company recordkeeping, reporting and filing requirements.
Significantly, the examination report did not identify problems with sales
practices controls or the steps taken to implement the recommendations contained
in the Task Force Report described above. However, the examiners did cite
violations relating to some of Prudential's advertisements and advertising
files, the use of unfiled policy forms in what is now a discontinued line of
business, various problems related to the back-office maintenance of new
business and complaint files, and the inability to produce all requested
documents and data in a timely manner. The Department also concluded that
Prudential failed
33
to adequately facilitate its examination. These matters were resolved by entry
of a Stipulation in which Prudential agreed to pay a fine of $1.5 million and
agreed that the Auditing Committee of its Board of Directors would provide
semi-annual reports for a three year period to the New York Department
describing the status of steps taken to remedy the issues cited in the Report of
Examination.
We remain subject to oversight and review by insurance regulators and other
regulatory authorities with respect to our sales practices and the conduct of
the Remediation Program. The releases granted by the state insurance regulatory
authorities pursuant to the State Settlements do not become final until the
Remediation Program has been completed without any material changes to which
those regulators have not agreed. The Class Action Settlement does not cover:
policies other than individual permanent life insurance policies issued in the
United States; any type of policy issued prior to 1982 or after 1995; the
Opt-Out Policyholders, some of whom are proceeding with their own individual or
putative class actions; and individual actions not barred by the Class Action
Settlement. Prudential agreed to indemnify Pruco Life of New Jersey for losses,
if any, resulting from claims arising from sales practice violations that
occurred between 1982 and 1995. We believe that no other litigation is being
brought against Pruco Life of New Jersey that would have a material effect on
its financial position.
In 1996, Prudential established a reserve to cover the cost of remedying
policyholder claims of $410 million, as agreed to in the Class Action
Settlement. Prudential had no better information available at that time upon
which to make a reasonable estimate of losses. Prudential also incurred charges
or reserves to cover administrative costs related to the ADR process, regulatory
fines, penalties and related payments, litigation costs and settlements, and
other fees and expenses associated with the resolution of sales practices issues
("Additional Sales Practices Costs") aggregating $715 million. In 1997, based on
additional information derived from claim sampling techniques, the terms of the
settlement and the number of claim forms received, management increased the
estimated liability for the cost of remedying policyholder claims in the ADR
process by $1.64 billion before taxes to approximately $2.05 billion before
taxes, of which $1.80 billion was funded in a settlement trust. Prudential also
incurred charges or additional reserves to cover Additional Sales Practices
Costs aggregating $390 million. Prudential expressly noted that additional cost
items were anticipated that could not be fully evaluated at that time. In 1998,
based on estimates derived from an analysis of claims actually remedied
(including interest) and a sample of claims still to be remedied (both estimates
included the additional liability associated with the results of the
investigation by the independent expert regarding the impact of document
destruction on the ADR program) and an estimate of additional liabilities
associated with a claimant's right to "appeal" the decision, the estimated
liability was increased for the cost of ADR remedies by $510 million before
taxes to a total of $2.56 billion before taxes, all of which has been funded in
the settlement trust. Prudential also incurred charges or established additional
reserves to cover Additional Sales Practices Costs aggregating $640 million.
While Prudential believes it has adequately reserved in all material respects
based on information currently available, the ultimate amount of the total cost
of remedying policyholder claims and related costs is dependent on complex and
varying factors, including the relief options to be chosen by claimants, the
dollar value of those options, and the number and type of claims that may
successfully be appealed. As with any litigation, the litigation by Opt-Out
Policyholders and the Individual Actions are subject to many uncertainties, and,
given the complexity and scope of these suits, their outcome cannot be predicted
with precision.
YEAR 2000 COMPLIANCE
The Year 2000 issue is best understood as a computer hardware and software
problem involving the way dates are stored and processed in computer systems.
The services provided to you as a purchaser of a PruSelect(SM) III Life
Insurance Contract depend on the smooth functioning of these computer systems.
Many computer systems in use today are programmed to recognize only the last two
digits of a date as the year. As a result, any system using this kind of
programming can not distinguish a date using "00" and may treat it as 1900
instead of 2000. This problem may impact computer systems that store business
information, but it could also affect other equipment used in our business such
as telephones, fax machines and elevators. If this problem is not corrected, the
"Year 2000" issue could affect the accuracy and integrity of business records.
Prudential's regular business operations could be interrupted as well as those
of other companies that deal with us.
In addition, the operations of the mutual funds associated with the
PruSelect(SM) III Life Insurance Contract could experience problems resulting
from the Year 2000 issue. Please refer to the mutual fund prospectus for
information regarding their approach to Year 2000 concerns.
To address this potential problem Prudential, as the ultimate parent company of
Pruco Life of New Jersey, has
34
organized its Year 2000 efforts around the following three areas:
o Business Applications - Computer programs directly used to support our
business.
o Infrastructure - Computers and other business equipment such as telephones
and fax machines.
o Business Partners - Year 2000 readiness of essential business partners.
Business Applications. The business applications component includes a wide range
of computer programs that directly support Prudential's business operations
including applications used for insurance product administration, securities
trading, personnel record keeping and general accounting systems. All business
applications have been analyzed to determine whether each computer program with
a Year 2000 problem should be retired, replaced or renovated. Renovation,
replacement, and retirement of business applications are now complete. Newly
developed or purchased programs were rigorously tested prior to their use.
Infrastructure. As with business applications, we have established a specific
methodology and process for addressing infrastructure issues. The infrastructure
effort includes mainframe computer system hardware and operating system
software, mid-range systems and servers, telecommunications equipment and
systems, buildings and facilities systems, personal computers and vendor
hardware and software. With the exception of personal computers, which are
scheduled for completion by October 31, 1999, infrastructure systems are
substantially complete.
Business Partners. Early in the Year 2000 program, Prudential recognized the
importance of determining the Year 2000 readiness of external business
relationships, especially those that involve electronic data transfer services
and products that impact our essential business processes. We first classified
each business partner as a "priority" or "non-priority" to our business and then
began to develop risk assessment and contingency plans to address the
possibility that a business partner could experience a Year 2000 failure. All
priority and non-priority business partner relationships have been assessed and
contingency planning is complete. We will continue to assess our risk, review
and update our contingency planning and assess any new business partners until
2000 in an effort to minimize risk.
THE COST OF YEAR 2000 READINESS
Prudential is funding the Year 2000 program from internal operating budgets, and
estimates that its total costs to address the Year 2000 issue will be
approximately $230 million. Because these expenses were part of the operating
budget, they do not impact the management of PruSelect(SM) III Life Insurance
Contracts. During the course of the Year 2000 program, some optional computer
projects have been delayed, but these delays have not had any material effect on
PruSelect(SM) III Life Insurance Contracts.
YEAR 2000 RISKS AND CONTINGENCY PLANNING
Prudential believes that it is well positioned to lessen the impact of the Year
2000 problem. However, given the nature of this issue, we cannot be 100% certain
of Year 2000 readiness of third parties. As a result, we are unable to determine
at this time whether the consequences of Year 2000 failures may have a material
adverse effect on the results of Prudential's operations, liquidity or financial
condition. In the worst case, it is possible that a Year 2000 technology
failure, whether internal or external, could have a material impact of on
Prudential's results of operations, liquidity, or financial position. If
Prudential is unable to achieve Year 2000 compliance on a timely basis, we may
have difficulty in responding to your incoming phone calls, calculating your
unit values or processing withdrawals and purchase payment. It is also possible
that the mutual funds associated with the PruSelect(SM) III Life Insurance
Contract will be unable to value their securities, in turn creating difficulties
in purchasing or selling shares of the mutual fund and calculating corresponding
unit asset values. The objective of Prudential's Year 2000 program is to reduce
these risks as much as possible.
Most of the operations of the PruSelect(SM) III Life Insurance Contract involve
such a large number of individual transactions that they can only be handled
with the help of computers. As a result, our current contingency plans include
responses to the failure of specific business applications or infrastructure
components. Prudential will continue to review and update its contingency plans
until 2000 in an effort to reduce the level of uncertainty about the effect of
the Year 2000 issue and further minimize risk. Prudential believes that with the
completion of its Year 2000 program as scheduled, the possibility of significant
interruptions of normal operations will be reduced.
35
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 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 principal office in Washington, D.C., upon payment of a
prescribed fee.
Further information may also be obtained from Pruco Life of New Jersey. Its
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.
36
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. -- Senior Vice President and Chief
Actuary, Prudential Individual Insurance Group since 1997; 1995 to 1997:
President of Prudential Select; Prior to 1995: Chief Operating Officer of
Prudential Select.
WILLIAM M. BETHKE, DIRECTOR. -- Chief Investment Officer 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; Prior to 1995:
President, Prudential Select.
ESTHER H. MILNES, PRESIDENT AND DIRECTOR. -- Vice President and Actuary,
Prudential Individual Insurance Group since 1996; Prior to 1996: Senior Vice
President and Chief Actuary, Prudential Insurance and Financial Services.
I. EDWARD PRICE, VICE CHAIRMAN AND DIRECTOR. -- Senior Vice President and
Actuary, Prudential Individual Insurance Group since 1995; Prior to 1995: Chief
Executive Officer, Prudential International Insurance.
OFFICERS WHO ARE NOT DIRECTORS
C. EDWARD CHAPLIN, TREASURER. -- Vice President and Treasurer of Prudential
since 1995; Prior to 1995: Managing Director and Assistant Treasurer of
Prudential.
JAMES C. DROZANOWSKI, SENIOR VICE PRESIDENT. -- Vice President and Operations
Executive, Prudential Individual Insurance Group since 1996; 1995 to 1996:
President and Chief Executive Officer of Chase Manhattan Bank; Prior to 1995:
Vice President, North America Customer Services, Chase Manhattan Bank.
CLIFFORD E. KIRSCH, CHIEF LEGAL OFFICER AND SECRETARY. -- Chief Counsel,
Variable Products, Law Department of Prudential since 1995; Prior to 1995:
Associate General Counsel with Paine Webber.
FRANK P. MARINO, SENIOR VICE PRESIDENT. -- Vice President, Policyowner Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services.
EDWARD A. MINOGUE, SENIOR VICE PRESIDENT. -- Vice President, Annuity Services,
Prudential Investments since 1997; Prior to 1997: Director, Merrill Lynch.
IMANTS SAKSONS, SENIOR VICE PRESIDENT. -- Vice President, Compliance, Prudential
Individual Financial Services since 1998; Prior to 1998: Vice President, Market
Conduct, U.S. Operations, Manulife Financial.
SHIRLEY H. SHAO, SENIOR VICE PRESIDENT AND CHIEF ACTUARY. -- Vice President and
Associate Actuary, Prudential.
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,
Saloman 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.
37
FINANCIAL STATEMENTS OF
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF NET ASSETS (UNAUDITED)
June 30, 1999
SUBACCOUNTS
----------------------------
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
------------ ------------
ASSETS
Investment in The Prudential Series Fund, Inc.
Portfolios at net asset value [Note 3] ..... $ 7,439,698 $ 23,871,167
------------ ------------
Net Assets ................................... $ 7,439,698 $ 23,871,167
============ ============
NET ASSETS, representing:
Equity of contract owners .................... $ 7,439,698 $ 23,871,167
------------ ------------
$ 7,439,698 $ 23,871,167
============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A1
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------
HIGH
FLEXIBLE CONSERVATIVE YIELD STOCK
EQUITY MANAGED BALANCED BOND INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
ASSETS
Investment in The Prudential Series Fund, Inc.
Portfolios at net asset value [Note 3] ..... $206,897,088 $252,888,348 $117,157,419 $ 32,034,787 $ 73,605,981
------------ ------------ ------------ ------------ ------------
Net Assets ................................... $206,897,088 $252,888,348 $117,157,419 $ 32,034,787 $ 73,605,981
============ ============ ============ ============ ============
NET ASSETS, representing:
Equity of contract owners .................... $206,897,088 $252,888,348 $117,157,419 $ 32,034,787 $ 73,605,981
------------ ------------ ------------ ------------ ------------
$206,897,088 $252,888,348 $117,157,419 $ 32,034,787 $ 73,605,981
============ ============ ============ ============ ============
SUBACCOUNTS (CONTINUED)
--------------------------------------------
EQUITY PRUDENTIAL
INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
ASSETS
Investment in The Prudential Series Fund, Inc.
Portfolios at net asset value [Note 3] ..... $ 12,850,718 $ 68,629,826 $ 13,104,278
------------ ------------ ------------
Net Assets ................................... $ 12,850,718 $ 68,629,826 $ 13,104,278
============ ============ ============
NET ASSETS, representing:
Equity of contract owners .................... $ 12,850,718 $ 68,629,826 $ 13,104,278
------------ ------------ ------------
$ 12,850,718 $ 68,629,826 $ 13,104,278
============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A2
FINANCIAL STATEMENTS OF
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF OPERATIONS
For the six months ended June 30, 1999 and the years ended December 31, 1998,
and 1997
SUBACCOUNTS
-----------------------------------------------------------------------------------
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------ ------------
INVESTMENT INCOME
Dividend income .......................... $ 173,660 $ 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] 22,360 43,083 44,046 72,132 147,669 140,877
Reimbursement for excess expenses
[Note 5D] ............................... (939) (1,102) (1,630) (2,541) (5,945) (5,701)
------------ ------------ ------------ ------------ ------------ ------------
NET EXPENSES ............................... 21,421 41,981 42,416 69,591 141,724 135,176
------------ ------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ............... 152,239 334,485 348,449 (69,591) 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 28,763 65,294 70,032
Net change in unrealized gain (loss)
on investments ....................... 0 0 0 (499,036) 22,951 (154,839)
------------ ------------ ------------ ------------ ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS ............. 0 0 0 (402,738) 177,117 191,843
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................... $ 152,239 $ 334,485 $ 348,449 $ (472,329) $ 1,554,376 $ 1,787,313
============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A3
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------
EQUITY FLEXIBLE MANAGED
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------ ------------
INVESTMENT INCOME
Dividend income .......................... $ 673,423 $ 3,479,231 $ 3,958,383 $ 11,143 $ 10,349,173 $ 10,897,673
------------ ------------ ------------ ------------ ------------ ------------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 569,919 1,143,923 1,028,832 750,800 2,116,233 2,184,985
Reimbursement for excess expenses
[Note 5D] ............................... (83,657) (166,679) (133,380) (276,632) (767,447) (793,096)
------------ ------------ ------------ ------------ ------------ ------------
NET EXPENSES ............................... 486,262 977,244 895,452 474,168 1,348,786 1,391,889
------------ ------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ............... 187,161 2,501,987 3,062,931 (463,025) 9,000,387 9,505,784
------------ ------------ ------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ... 3,473,553 20,675,751 9,847,752 2,827,339 27,434,444 56,731,648
Realized gain (loss) on shares
redeemed ............................. 3,445,159 4,685,572 3,605,717 750,966 8,721,978 2,974,960
Net change in unrealized gain (loss)
on investments ....................... 20,751,565 (12,015,861) 19,914,304 12,369,464 (22,408,120) (11,688,757)
------------ ------------ ------------ ------------ ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS ............. 27,670,277 13,345,462 33,367,773 15,947,769 13,748,302 48,017,851
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................... $ 27,857,438 $ 15,847,449 $ 36,430,704 $ 15,484,744 $ 22,748,689 $ 57,523,635
============ ============ ============ ============ ============ ============
SUBACCOUNTS (CONTINUED)
----------------------------------------------
CONSERVATIVE BALANCED
PORTFOLIO
----------------------------------------------
1/1/99 1/1/98 1/1/97
TO TO TO
6/30/99 12/31/98 12/31/97
(UNAUDITED)
------------ ------------ ------------
INVESTMENT INCOME
Dividend income .......................... $ 1,173,506 $ 4,872,397 $ 4,982,357
------------ ------------ ------------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 358,159 713,776 665,939
Reimbursement for excess expenses
[Note 5D] ............................... (95,309) (183,772) (163,989)
------------ ------------ ------------
NET EXPENSES ............................... 262,850 530,004 501,950
------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ............... 910,656 4,342,393 4,480,407
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ... 503,534 6,925,741 11,925,141
Realized gain (loss) on shares
redeemed ............................. 461,247 594,578 961,056
Net change in unrealized gain (loss)
on investments ....................... 2,538,226 329,870 (4,407,263)
------------ ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS ............. 3,503,007 7,850,189 8,478,934
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................... $ 4,413,663 $ 12,192,582 $ 12,959,341
============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A4
FINANCIAL STATEMENTS OF
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF OPERATIONS
For the six months ended June 30, 1999 and the years ended December 31, 1998 and
1997
SUBACCOUNTS
---------------------------------------------------------------------------------
HIGH YIELD BOND STOCK INDEX
PORTFOLIO PORTFOLIO
--------------------------------------- --------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
INVESTMENT INCOME
Dividend income .......................... $ 85,549 $ 1,994,015 $ 568,574 $ 163,726 $ 540,470 $ 188,173
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 96,633 97,586 35,704 216,293 207,744 73,231
Reimbursement for excess expenses
[Note 5D] ............................... 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES ............................... 96,633 97,586 35,704 216,293 207,744 73,231
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ............... (11,084) 1,896,429 532,870 (52,567) 332,726 114,942
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ... 0 0 0 261,269 1,074,502 412,169
Realized gain (loss) on shares
redeemed ............................. (204,710) (173,650) 32,615 4,183,594 1,754,137 260,629
Net change in unrealized gain (loss)
on investments ....................... 1,236,811 (2,569,803) 171,940 4,009,274 11,731,008 2,468,185
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ............. 1,032,101 (2,743,453) 204,555 8,454,137 14,559,647 3,140,983
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................... $ 1,021,017 $ (847,024) $ 737,425 $ 8,401,570 $14,892,373 $ 3,255,925
=========== =========== =========== =========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A5
SUBACCOUNTS (CONTINUED)
-----------------------------------------------------------------------------------
EQUITY INCOME GLOBAL
PORTFOLIO PORTFOLIO
---------------------------------------- ---------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
INVESTMENT INCOME
Dividend income .......................... $ 72,925 $ 327,421 $ 237,992 $ 295,800 $ 490,032 $ 69,248
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 35,955 74,057 53,801 190,912 140,140 31,924
Reimbursement for excess expenses
[Note 5D] ............................... 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES ............................... 35,955 74,057 53,801 190,912 140,140 31,924
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ............... 36,970 253,364 184,191 104,888 349,892 37,324
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ... 198,757 721,671 998,911 518,661 2,640,161 352,331
Realized gain (loss) on shares
redeemed ............................. 179,375 117,016 52,359 308,046 32,172 32,176
Net change in unrealized gain (loss)
on investments ....................... 1,604,605 (1,610,976) 1,459,574 5,025,142 7,149,778 (672,740)
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ............. 1,982,737 (772,289) 2,510,844 5,851,849 9,822,111 (288,233)
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................... $ 2,019,707 $ (518,925) $ 2,695,035 $ 5,956,737 $10,172,003 $ (250,909)
=========== =========== =========== =========== =========== ===========
SUBACCOUNTS (CONTINUED)
-------------------------------------------
PRUDENTIAL JENNISON
PORTFOLIO
-------------------------------------------
1/1/99 1/1/98 1/1/97
TO TO TO
6/30/99 12/31/98 12/31/97
(UNAUDITED)
----------- ----------- -----------
INVESTMENT INCOME
Dividend income .......................... $ 3,265 $ 10,621 $ 5,371
----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 30,963 29,296 13,312
Reimbursement for excess expenses
[Note 5D] ............................... 0 0 0
----------- ----------- -----------
NET EXPENSES ............................... 30,963 29,296 13,312
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ............... (27,698) (18,675) (7,941)
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ... 77,450 104,664 171,556
Realized gain (loss) on shares
redeemed ............................. 45,923 27,074 16,410
Net change in unrealized gain (loss)
on investments ....................... 1,279,702 1,492,381 364,364
----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ............. 1,403,075 1,624,119 552,330
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................... $ 1,375,377 $ 1,605,444 $ 544,389
=========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A6
FINANCIAL STATEMENTS OF
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the years ended December 31, 1998 and
1997
SUBACCOUNTS
------------------------------------------------------------------------------------
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------ ------------
OPERATIONS:
Net investment income (loss) ............ $ 152,239 $ 334,485 $ 348,449 $ (69,591) $ 1,377,259 $ 1,595,470
Capital gains distributions received .... 0 0 0 67,535 88,872 276,650
Realized gain on shares redeemed ........ 0 0 0 28,763 65,294 70,032
Net change in unrealized gain (loss) on
investments ........................... 0 0 0 (499,036) 22,951 (154,839)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS .............................. 152,239 334,485 348,449 (472,329) 1,554,376 1,787,313
------------ ------------ ------------ ------------ ------------ ------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ............. (22,830) 362,297 505,183 76,774 1,209,116 1,404,553
Policy Loans ............................ (98,702) (147,149) (409,790) (254,157) (529,009) (473,054)
Policy Loan Repayments and Interest ..... 154,985 265,406 140,076 245,968 421,496 409,993
Surrenders, Withdrawals and Death
Benefits .............................. (275,114) (627,277) (550,152) (641,251) (1,336,342) (1,502,838)
Net Transfers from (to) Other Subaccounts
or Fixed Rate Option .................. 171,588 538,372 (156,879) (128,779) 682,202 194,525
Administrative and Other Charges ........ (116,638) (246,028) (301,944) (287,554) (621,531) (732,626)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ............................... (186,711) 145,621 (773,506) (988,999) (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 .................................. (34,472) 465,088 (524,135) (1,461,328) 1,377,628 1,030,489
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS:
Beginning of period ..................... 7,474,170 7,009,082 7,533,217 25,332,495 23,954,867 22,924,378
------------ ------------ ------------ ------------ ------------ ------------
End of period ........................... $ 7,439,698 $ 7,474,170 $ 7,009,082 $ 23,871,167 $ 25,332,495 $ 23,954,867
============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A7
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------------
EQUITY FLEXIBLE MANAGED
PORTFOLIO PORTFOLIO
---------------------------------------- ----------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------ ------------
OPERATIONS:
Net investment income (loss) ............ $ 187,161 $ 2,501,987 $ 3,062,931 $ (463,025) $ 9,000,387 $ 9,505,784
Capital gains distributions received .... 3,473,553 20,675,751 9,847,752 2,827,339 27,434,444 56,731,648
Realized gain on shares redeemed ........ 3,445,159 4,685,572 3,605,717 750,966 8,721,978 2,974,960
Net change in unrealized gain (loss) on
investments ........................... 20,751,565 (12,015,861) 19,914,304 12,369,464 (22,408,120) (11,688,757)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS .............................. 27,857,438 15,847,449 36,430,704 15,484,744 22,748,689 57,523,635
------------ ------------ ------------ ------------ ------------ ------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ............. 51,731 8,768,106 10,298,271 1,766,430 19,460,603 22,730,005
Policy Loans ............................ (2,940,483) (6,477,542) (6,145,354) (3,807,566) (7,974,049) (7,849,567)
Policy Loan Repayments and Interest ..... 2,776,763 4,223,794 3,591,634 3,268,834 5,598,233 5,129,697
Surrenders, Withdrawals and Death
Benefits .............................. (4,355,948) (9,891,027) (10,093,245) (5,837,621) (13,996,390) (15,259,724)
Net Transfers from (to) Other Subaccounts
or Fixed Rate Option .................. (2,798,139) (1,215,581) 678,473 (2,058,792) (144,967,979) (2,359,588)
Administrative and Other Charges ........ (2,557,163) (5,422,744) (6,160,863) (4,913,168) (11,055,099) (12,720,067)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ............................... (9,823,239) (10,014,994) (7,831,084) (11,581,883) (152,934,681) (10,329,244)
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7] ........................ 0 (132,641) (149,464) 0 (177,182) (219,866)
TOTAL INCREASE (DECREASE) IN NET
ASSETS .................................. 18,034,199 5,699,814 28,450,156 3,902,861 (130,363,174) 46,974,525
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS:
Beginning of period ..................... 188,862,889 183,163,075 154,712,919 248,985,487 379,348,661 332,374,136
------------ ------------ ------------ ------------ ------------ ------------
End of period ........................... $206,897,088 $188,862,889 $183,163,075 $252,888,348 $248,985,487 $379,348,661
============ ============ ============ ============ ============ ============
SUBACCOUNTS (CONTINUED)
--------------------------------------------
CONSERVATIVE BALANCED
PORTFOLIO
--------------------------------------------
1/1/99 1/1/98 1/1/97
TO TO TO
6/30/99 12/31/98 12/31/97
(UNAUDITED)
------------ ------------ ------------
OPERATIONS:
Net investment income (loss) ............ $ 910,656 $ 4,342,393 $ 4,480,407
Capital gains distributions received .... 503,534 6,925,741 11,925,141
Realized gain on shares redeemed ........ 461,247 594,578 961,056
Net change in unrealized gain (loss) on
investments ........................... 2,538,226 329,870 (4,407,263)
------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS .............................. 4,413,663 12,192,582 12,959,341
------------ ------------ ------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ............. 887,534 8,965,691 10,313,838
Policy Loans ............................ (1,323,864) (3,015,778) (3,213,273)
Policy Loan Repayments and Interest ..... 1,356,051 1,976,521 2,156,195
Surrenders, Withdrawals and Death
Benefits .............................. (3,094,724) (6,131,547) (6,793,526)
Net Transfers from (to) Other Subaccounts
or Fixed Rate Option .................. (752,759) (1,292,182) (1,375,131)
Administrative and Other Charges ........ (2,496,411) (5,312,571) (6,059,806)
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ............................... (5,424,173) (4,809,866) (4,971,703)
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 7] ........................ 0 (8,012) (508,220)
TOTAL INCREASE (DECREASE) IN NET
ASSETS .................................. (1,010,510) 7,374,704 7,479,418
------------ ------------ ------------
NET ASSETS:
Beginning of period ..................... 118,167,929 110,793,225 103,313,807
------------ ------------ ------------
End of period ........................... $117,157,419 $118,167,929 $110,793,225
============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A8
FINANCIAL STATEMENTS OF
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the six months ended June 30, 1999 and the years ended December 31, 1998 and
1997
SUBACCOUNTS
---------------------------------------------------------------------------------------
HIGH YIELD BOND STOCK INDEX
PORTFOLIO PORTFOLIO
------------------------------------------ ------------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------ ------------
OPERATIONS:
Net investment income (loss) ............ $ (11,084) $ 1,896,429 $ 532,870 $ (52,567) $ 332,726 $ 114,942
Capital gains distributions received .... 0 0 0 261,269 1,074,502 412,169
Realized gain on shares redeemed ........ (204,710) (173,650) 32,615 4,183,594 1,754,137 260,629
Net change in unrealized gain (loss) on
investments ........................... 1,236,811 (2,569,803) 171,940 4,009,274 11,731,008 2,468,185
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS .............................. 1,021,017 (847,024) 737,425 8,401,570 14,892,373 3,255,925
------------ ------------ ------------ ------------ ------------ ------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ............. 162,229 356,982 469,592 202,280 (458,592) 919,468
Policy Loans ............................ (82,958) (163,296) (201,423) (337,423) (528,435) (466,875)
Policy Loan Repayments and Interest ..... 146,755 167,408 118,870 320,957 429,300 254,143
Surrenders, Withdrawals and Death
Benefits .............................. (71,246) (501,296) (305,958) (434,420) (1,117,895) (558,323)
Net Transfers from (to) Other Subaccounts
or Fixed Rate Option .................. (3,642,075) 29,637,732 130,175 (12,403,521) 50,128,317 2,108,397
Administrative and Other Charges ........ (172,280) (283,352) (265,639) (436,526) (637,808) (474,579)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ............................... (3,659,575) 29,214,178 (54,383) (13,088,653) 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 .............................. (2,638,558) 28,307,026 686,042 (4,687,083) 63,394,515 5,060,156
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS:
Beginning of period ..................... 34,673,345 6,366,319 5,680,277 78,293,064 14,898,549 9,838,393
------------ ------------ ------------ ------------ ------------ ------------
End of period ........................... $ 32,034,787 $ 34,673,345 $ 6,366,319 $ 73,605,981 $ 78,293,064 $ 14,898,549
============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A9
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------
EQUITY INCOME GLOBAL
PORTFOLIO PORTFOLIO
------------------------------------------ ------------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------ ------------
OPERATIONS:
Net investment income (loss) ............ $ 36,970 $ 253,364 $ 184,191 $ 104,888 $ 349,892 $ 37,324
Capital gains distributions received .... 198,757 721,671 998,911 518,661 2,640,161 352,331
Realized gain on shares redeemed ........ 179,375 117,016 52,359 308,046 32,172 32,176
Net change in unrealized gain (loss) on
investments ........................... 1,604,605 (1,610,976) 1,459,574 5,025,142 7,149,778 (672,740)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS .............................. 2,019,707 (518,925) 2,695,035 5,956,737 10,172,003 (250,909)
------------ ------------ ------------ ------------ ------------ ------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ............. (19,956) 625,273 636,376 (28,723) (404,538) 296,914
Policy Loans ............................ (170,563) (348,765) (321,220) (82,778) (117,217) (119,989)
Policy Loan Repayments and Interest ..... 169,235 211,308 165,506 65,603 65,209 60,528
Surrenders, Withdrawals and Death
Benefits .............................. (338,219) (642,033) (413,503) (73,215) (359,688) (118,830)
Net Transfers from (to) Other Subaccounts
or Fixed Rate Option .................. (454,285) 1,663,734 1,464,170 (1,510,666) 47,651,150 5,040,462
Administrative and Other Charges ........ (168,368) (356,431) (325,521) (203,125) (207,310) (125,863)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ............................... (982,156) 1,153,086 1,205,808 (1,832,904) 46,627,606 5,033,222
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RETAINED IN THE
ACCOUNT [Note 7] ........................ 0 12,012 (21,017) 0 99,132 37,702
TOTAL INCREASE (DECREASE) IN
NET ASSETS .............................. 1,037,551 646,173 3,879,826 4,123,833 56,898,741 4,820,015
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS:
Beginning of period ..................... 11,813,167 11,166,994 7,287,168 64,505,993 7,607,252 2,787,237
------------ ------------ ------------ ------------ ------------ ------------
End of period ........................... $ 12,850,718 $ 11,813,167 $ 11,166,994 $ 68,629,826 $ 64,505,993 $ 7,607,252
============ ============ ============ ============ ============ ============
SUBACCOUNTS (CONTINUED)
------------------------------------------
PRUDENTIAL JENNISON
PORTFOLIO
------------------------------------------
1/1/99 1/1/98 1/1/97
TO TO TO
6/30/99 12/31/98 12/31/97
(UNAUDITED)
------------ ------------ ------------
OPERATIONS:
Net investment income (loss) ............ $ (27,698) $ (18,675) $ (7,941)
Capital gains distributions received .... 77,450 104,664 171,556
Realized gain on shares redeemed ........ 45,923 27,074 16,410
Net change in unrealized gain (loss) on
investments ........................... 1,279,702 1,492,381 364,364
------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS .............................. 1,375,377 1,605,444 544,389
------------ ------------ ------------
PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract Owner Net Payments ............. 89,801 350,999 221,934
Policy Loans ............................ (224,350) (186,693) (95,540)
Policy Loan Repayments and Interest ..... 199,063 207,729 33,699
Surrenders, Withdrawals and Death
Benefits .............................. (303,072) (263,749) (53,534)
Net Transfers from (to) Other Subaccounts
or Fixed Rate Option .................. 4,661,500 2,831,858 976,677
Administrative and Other Charges ........ (133,745) (156,276) (85,689)
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING
TRANSFERS ............................... 4,289,197 2,783,868 997,547
------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RETAINED IN THE
ACCOUNT [Note 7] ........................ 0 (7,320) (34,235)
TOTAL INCREASE (DECREASE) IN
NET ASSETS .............................. 5,664,574 4,381,992 1,507,701
------------ ------------ ------------
NET ASSETS:
Beginning of period ..................... 7,439,704 3,057,712 1,550,011
------------ ------------ ------------
End of period ........................... $ 13,104,278 $ 7,439,704 $ 3,057,712
============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A11 THROUGH A15
A10
NOTES TO FINANCIAL STATEMENTS OF
THE PRUSELECT III VARIABLE LIFE SUBACCOUNTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
JUNE 30, 1999 (UNAUDITED)
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 contracts are invested in the Account.
The Account is registered under the Investment Company Act of 1940,
as amended, as a unit investment trust. There are thirteen
subaccounts within the Account, ten of which are available to
PruSelect III contract owners. Each subaccount invests only in a
corresponding portfolio of The Prudential Series Fund, Inc. (the
"Series Fund"). The Series Fund is a diversified open-end management
investment company, and is managed by Prudential. Beginning November
10, 1999, the following five additional non-Prudential administered
subaccounts will be available to PruSelect III contract owners: AIM
V.I. Value Fund; American Century VP Value Fund; Janus Growth
Portfolio; MFS Emerging Growth Series; and the T. Rowe Price
International Stock Portfolio.
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.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in conformity
with generally accepted accounting principles ("GAAP"). The
preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts and disclosures. Actual results could differ
from those estimates.
Investments--The investments in shares of the Series Fund 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.
A11
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC.
PORTFOLIOS
The net asset value per share (rounded) for each portfolio of the
Series Fund, the number of shares of each portfolio held by the
subaccounts of the Account and the aggregate cost of investments in
such shares at June 30, 1999 were as follows: (unaudited)
PORTFOLIOS
------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------ ------------ ------------ ------------ ------------
Number of shares: 743,970 2,200,108 6,176,032 14,492,169 7,573,201
Net asset value per share
(rounded): $ 10.00 $ 10.85 $ 33.50 $ 17.45 $ 15.47
Cost: $ 7,439,698 $ 23,620,958 $130,897,599 $232,751,865 $107,134,309
PORTFOLIOS (CONTINUED)
------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
------------ ------------ ------------ ------------ ------------
Number of shares: 4,305,751 1,750,856 554,149 2,993,015 478,783
Net asset value per share
(rounded): $ 7.44 $ 42.04 $ 23.19 $ 2.93 $ 27.37
Cost: $32,880,899 $51,793,547 $10,115,272 $56,744,881 $ 9,823,891
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units, unit values and total value of
contract owner equity at June 30, 1999 were as follows: (unaudited)
SUBACCOUNTS
------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
Contract Owner Units Outstanding (VAL) 3,785,624 8,024,839 24,930,334 47,346,555 26,668,662
Unit Value (VAL) ..................... $ 1.96525 $ 2.97466 $ 8.29901 $ 5.05442 $ 4.04431
------------ ------------ ------------ ------------ ------------
Contract Owner Equity (VAL) .......... $ 7,439,698 $ 23,871,167 $206,897,088 $239,309,374 $107,856,336
------------ ------------ ------------ ------------ ------------
Contract Owner Units Outstanding
(PRUvider) ......................... N/A N/A N/A 3,906,652 3,264,408
Unit Value (PRUvider) ................ N/A N/A N/A $ 3.47586 $ 2.84924
------------ ------------ ------------ ------------ ------------
Contract Owner Equity (PRUvider) ..... N/A N/A N/A $ 13,578,974 $ 9,301,082
------------ ------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY .......... $ 7,439,698 $ 23,871,167 $206,897,088 $252,888,348 $117,157,419
============ ============ ============ ============ ============
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
Contract Owner Units Outstanding (VAL) 13,000,129 12,723,109 2,588,355 35,710,664 4,473,901
Unit Value (VAL) ..................... $ 2.46419 $ 5.78522 $ 4.96482 $ 1.92183 $ 2.92905
------------ ------------ ------------ ------------ ------------
Contract Owner Equity (VAL) .......... $ 32,034,787 $ 73,605,981 $ 12,850,718 $ 68,629,826 $ 13,104,278
------------ ------------ ------------ ------------ ------------
Contract Owner Units Outstanding
(PRUvider) ......................... 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
------------ ------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY .......... $ 32,034,787 $ 73,605,981 $ 12,850,718 $ 68,629,826 $ 13,104,278
============ ============ ============ ============ ============
A12
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.
A13
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 six months ended June 30, 1999 and the years ended December 31,
1998 and 1997 were as follows:
SUBACCOUNTS
--------------------------------------------------------------------------------------
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
----------------------------------------- -----------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
Contract Owner
Contributions: 570,455 1,651,137 1,852,551 164,149 3,461,354 957,470
Contract Owner
Redemptions: (664,171) (1,575,664) (2,279,240) (492,013) (3,523,454) (1,208,781)
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------
EQUITY FLEXIBLE MANAGED
PORTFOLIO PORTFOLIO
----------------------------------------- -----------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
Contract Owner
Contributions: 559,523 4,007,348 2,872,723 1,404,256 16,398,289 7,728,571
Contract Owner
Redemptions: (1,841,106) (5,431,230) (4,155,330) (3,746,393) (51,572,419) (10,193,317)
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------
CONSERVATIVE BALANCED HIGH YIELD BOND
PORTFOLIO PORTFOLIO
----------------------------------------- -----------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
Contract Owner
Contributions: 761,265 3,568,780 4,308,577 10,777,693 33,003,985 415,705
Contract Owner
Redemptions: 2,127,680 (4,841,159) (5,775,601) (12,298,120) (21,070,995) (440,795)
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------
STOCK INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO
----------------------------------------- -----------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
Contract Owner
Contributions: 9,168,354 25,612,492 1,448,957 96,609 724,545 651,898
Contract Owner
Redemptions: (11,571,300) (14,154,931) (982,534) (314,232) (492,449) (352,895)
A14
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------
GLOBAL PRUDENTIAL
PORTFOLIO JENNISON PORTFOLIO
----------------------------------------- -----------------------------------------
1/1/99 1/1/98 1/1/97 1/1/99 1/1/98 1/1/97
TO TO TO TO TO TO
6/30/99 12/31/98 12/31/97 6/30/99 12/31/98 12/31/97
(UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
Contract Owner
Contributions: 31,470,830 84,626,033 3,871,182 1,979,715 1,808,411 862,419
Contract Owner
Redemptions: (32,488,511) (53,280,086) (575,706) (425,223) (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 six months ended June 30,
1999 were as follows: (unaudited)
PORTFOLIOS
----------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------ ------------ ------------ ------------ ------------
Purchases ...... $ 803,079 $ 121,294 $ 215,380 $ 540,220 $ 257,577
Sales .......... $ (1,011,211) $ (1,179,885) $(10,524,881) $(12,596,271) $ (5,944,601)
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
------------ ------------ ------------ ------------ ------------
Purchases ...... $ 654,560 $ 2,553,826 $ 161,426 $ 363,289 $ 4,456,793
Sales .......... $ (4,410,769) $(15,858,772) $ (1,179,538) $ (2,387,106) $ (198,559)
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 directed to the Flexible Managed subaccount for the six
months ended June 30, 1999. Equityof contract owners in that
subaccount at June 30, 1999 includes approximately $174.6 million
ownedby Prudential.
A15
FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
SUBACCOUNTS
---------------------------
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
------------ ------------
ASSETS
Investment in The Prudential Series Fund, Inc. Portfolios at net asset value [Note 3] ....... $ 7,474,170 $ 25,332,495
------------ ------------
Net Assets .................................................................................. $ 7,474,170 $ 25,332,495
============ ============
NET ASSETS, representing:
Equity of contract owners ................................................................... $ 7,474,170 $ 25,332,495
------------ ------------
$ 7,474,170 $ 25,332,495
============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A33
A16
SUBACCOUNTS (CONTINUED)
----------------------------------------
FLEXIBLE CONSERVATIVE
EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
ASSETS
Investment in The Prudential Series Fund, Inc. Portfolios at net asset value [Note 3] .. $188,862,889 $248,985,487 $118,167,929
------------ ------------ ------------
Net Assets ............................................................................. $188,862,889 $248,985,487 $118,167,929
============ ============ ============
NET ASSETS, representing:
Equity of contract owners .............................................................. $188,862,889 $248,985,487 $118,167,929
------------ ------------ ------------
$188,862,889 $248,985,487 $118,167,929
============ ============ ============
SUBACCOUNTS (CONTINUED)
----------------------------------------
HIGH
YIELD STOCK EQUITY
BOND INDEX INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
ASSETS
Investment in The Prudential Series Fund, Inc. Portfolios at net asset value [Note 3] .. $ 34,673,345 $ 78,293,064 $ 11,813,167
------------ ------------ ------------
Net Assets ............................................................................. $ 34,673,345 $ 78,293,064 $ 11,813,167
============ ============ ============
NET ASSETS, representing:
Equity of contract owners .............................................................. $ 34,673,345 $ 78,293,064 $ 11,813,167
------------ ------------ ------------
$ 34,673,345 $ 78,293,064 $ 11,813,167
============ ============ ============
SUBACCOUNTS (CONTINUED)
--------------------------
PRUDENTIAL
GLOBAL JENNISON
PORTFOLIO PORTFOLIO
------------ ------------
ASSETS
Investment in The Prudential Series Fund, Inc. Portfolios at net asset value [Note 3] .. $ 64,505,993 $ 7,439,704
------------ ------------
Net Assets ............................................................................. $ 64,505,993 $ 7,439,704
============ ============
NET ASSETS, representing:
Equity of contract owners .............................................................. $ 64,505,993 $ 7,439,704
------------ ------------
$ 64,505,993 $ 7,439,704
============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A33
A17
FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
SUBACCOUNTS
---------------------------------------------------------------------------------
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
--------------------------------------- ---------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
INVESTMENT INCOME
Dividend income .......................... $ 376,466 $ 390,865 $ 363,402 $ 1,518,983 $ 1,730,646 $ 1,454,249
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 43,083 44,046 42,569 147,669 140,877 132,078
Reimbursement for excess expenses
[Note 5D] ............................... (1,102) (1,630) (3,019) (5,945) (5,701) (10,852)
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES ............................... 41,981 42,416 39,550 141,724 135,176 121,226
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ............... 334,485 348,449 323,852 1,377,259 1,595,470 1,333,023
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ... 0 0 0 88,872 276,650 0
Realized gain (loss) on shares
redeemed ............................. 0 0 0 65,294 70,032 57,067
Net change in unrealized gain (loss)
on investments ....................... 0 0 0 22,951 (154,839) (466,074)
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ............. 0 0 0 177,117 191,843 (409,007)
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................... $ 334,485 $ 348,449 $ 323,852 $ 1,554,376 $ 1,787,313 $ 924,016
=========== =========== =========== =========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A33
A18
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------
EQUITY FLEXIBLE MANAGED
PORTFOLIO PORTFOLIO
--------------------------------------- ---------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
INVESTMENT INCOME
Dividend income .......................... $ 3,479,231 $ 3,958,383 $ 3,521,308 $10,349,173 $10,897,673 $ 9,673,291
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 1,143,923 1,028,832 858,560 2,116,233 2,184,985 1,886,931
Reimbursement for excess expenses
[Note 5D] ............................... (166,679) (133,380) (157,857) (767,447) (793,096) (768,611)
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES ............................... 977,244 895,452 700,703 1,348,786 1,391,889 1,118,320
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ............... 2,501,987 3,062,931 2,820,605 9,000,387 9,505,784 8,554,971
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ... 20,675,751 9,847,752 13,675,629 27,434,444 56,731,648 31,237,057
Realized gain (loss) on shares
redeemed ............................. 4,685,572 3,605,717 1,912,078 8,721,978 2,974,960 1,665,484
Net change in unrealized gain (loss)
on investments ....................... (12,015,861) 19,914,304 5,401,309 (22,408,120) (11,688,757) (2,307,005)
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ............. 13,345,462 33,367,773 20,989,016 13,748,302 48,017,851 30,595,536
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................... $15,847,449 $36,430,704 $23,809,621 $22,748,689 $57,523,635 $39,150,507
=========== =========== =========== =========== =========== ===========
SUBACCOUNTS (CONTINUED)
---------------------------------------
CONSERVATIVE BALANCE
PORTFOLIO
---------------------------------------
1998 1997 1996
----------- ----------- -----------
INVESTMENT INCOME
Dividend income .......................... $ 4,872,397 $ 4,982,357 $ 4,036,315
----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 713,776 665,939 603,268
Reimbursement for excess expenses
[Note 5D] ............................... (183,772) (163,989) (184,407)
----------- ----------- -----------
NET EXPENSES ............................... 530,004 501,950 418,861
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ............... 4,342,393 4,480,407 3,617,454
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ... 6,925,741 11,925,141 6,285,583
Realized gain (loss) on shares
redeemed ............................. 594,578 961,056 631,625
Net change in unrealized gain (loss)
on investments ....................... 329,870 (4,407,263) 818,813
----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ............. 7,850,189 8,478,934 7,736,021
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................... $12,192,582 $12,959,341 $11,353,475
=========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A33
A19
FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
SUBACCOUNTS
-----------------------------------------------------------------------------
HIGH YIELD BOND STOCK INDEX
PORTFOLIO PORTFOLIO
-------------------------------------- -------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
INVESTMENT INCOME
Dividend income .......................... $ 1,994,015 $ 568,574 $ 536,584 $ 540,470 $ 188,173 $ 157,666
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 97,586 35,704 32,893 207,744 73,231 49,728
Reimbursement for excess expenses
[Note 5D] ............................... 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES ............................... 97,586 35,704 32,893 207,744 73,231 49,728
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ............... 1,896,429 532,870 503,691 332,726 114,942 107,938
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ... 0 0 0 1,074,502 412,169 110,782
Realized gain (loss) on shares
redeemed ............................. (173,650) 32,615 19,307 1,754,137 260,629 36,129
Net change in unrealized gain (loss)
on investments ....................... (2,569,803) 171,940 35,230 11,731,008 2,468,185 1,396,067
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ............. (2,743,453) 204,555 54,537 14,559,647 3,140,983 1,542,978
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................... $ (847,024) $ 737,425 $ 558,228 $14,892,373 $ 3,255,925 $ 1,650,916
=========== =========== =========== =========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A33
A20
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
EQUITY INCOME GLOBAL
PORTFOLIO PORTFOLIO
-------------------------------------- --------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
INVESTMENT INCOME
Dividend income .......................... $ 327,421 $ 237,992 $ 228,477 $ 490,032 $ 69,248 $ 60,041
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 74,057 53,801 38,393 140,140 31,924 13,342
Reimbursement for excess expenses
[Note 5D] ............................... 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
NET EXPENSES ............................... 74,057 53,801 38,393 140,140 31,924 13,342
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ............... 253,364 184,191 190,084 349,892 37,324 46,699
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ... 721,671 998,911 227,495 2,640,161 352,331 42,205
Realized gain (loss) on shares
redeemed ............................. 117,016 52,359 32,033 32,172 32,176 12,503
Net change in unrealized gain (loss)
on investments ....................... (1,610,976) 1,459,574 799,443 7,149,778 (672,740) 291,245
----------- ----------- ----------- ----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ............. (772,289) 2,510,844 1,058,971 9,822,111 (288,233) 345,953
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................... $ (518,925) $ 2,695,035 $ 1,249,055 $10,172,003 $ (250,909) $ 392,652
=========== =========== =========== =========== =========== ===========
SUBACCOUNTS (CONTINUED)
---------------------------------------
PRUDENTIAL JENNISON
PORTFOLIO
---------------------------------------
1998 1997 1996
----------- ----------- -----------
INVESTMENT INCOME
Dividend income .......................... $ 10,621 $ 5,371 $ 2,497
----------- ----------- -----------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk [Note 5A] 29,296 13,312 5,416
Reimbursement for excess expenses
[Note 5D] ............................... 0 0 0
----------- ----------- -----------
NET EXPENSES ............................... 29,296 13,312 5,416
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ............... (18,675) (7,941) (2,919)
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Capital gains distributions received ... 104,664 171,556 0
Realized gain (loss) on shares
redeemed ............................. 27,074 16,410 3,547
Net change in unrealized gain (loss)
on investments ....................... 1,492,381 364,364 125,105
----------- ----------- -----------
NET GAIN (LOSS) ON INVESTMENTS ............. 1,624,119 552,330 128,652
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS ............................... $ 1,605,444 $ 544,389 $ 125,733
=========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A33
A21
FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998, 1997 and 1996
SUBACCOUNTS
--------------------------------------------------------------------------------------
MONEY MARKET DIVERSIFIED BOND
PORTFOLIO PORTFOLIO
------------------------------------------ ------------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
OPERATIONS:
Net investment income (loss) .......... $ 334,485 $ 348,449 $ 323,852 $ 1,377,259 $ 1,595,470 $ 1,333,023
Capital gains distributions received .. 0 0 0 88,872 276,650 0
Realized gain on shares redeemed ...... 0 0 0 65,294 70,032 57,067
Net change in unrealized gain (loss) on
investments ......................... 0 0 0 22,951 (154,839) (466,074)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ............................ 334,485 348,449 323,852 1,554,376 1,787,313 924,016
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING
TRANSFERS [Note 7] .................... 145,621 (773,506) 72,004 (174,068) (699,447) 710,146
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 8] ...................... (15,018) (99,078) 32,909 (2,680) (57,377) 14,080
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ................................ 465,088 (524,135) 428,765 1,377,628 1,030,489 1,648,242
NET ASSETS:
Beginning of year ..................... 7,009,082 7,533,217 7,104,452 23,954,867 22,924,378 21,276,136
------------ ------------ ------------ ------------ ------------ ------------
End of year ........................... $ 7,474,170 $ 7,009,082 $ 7,533,217 $ 25,332,495 $ 23,954,867 $ 22,924,378
============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A33
A22
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------
EQUITY FLEXIBLE MANAGED
PORTFOLIO PORTFOLIO
------------------------------------------ ------------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
OPERATIONS:
Net investment income (loss) .......... $ 2,501,987 $ 3,062,931 $ 2,820,605 $ 9,000,387 $ 9,505,784 $ 8,554,971
Capital gains distributions received .. 20,675,751 9,847,752 13,675,629 27,434,444 56,731,648 31,237,057
Realized gain on shares redeemed ...... 4,685,572 3,605,717 1,912,078 8,721,978 2,974,960 1,665,484
Net change in unrealized gain (loss) on
investments ......................... (12,015,861) 19,914,304 5,401,309 (22,408,120) (11,688,757) (2,307,005)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ............................ 15,847,449 36,430,704 23,809,621 22,748,689 57,523,635 39,150,507
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING
TRANSFERS [Note 7] .................... (10,014,994) (7,831,084) (4,594,683) (152,934,681) (10,329,244) (4,012,445)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 8] ...................... (132,641) (149,464) 266,385 (177,182) (219,866) (30,235)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ................................ 5,699,814 28,450,156 19,481,323 (130,363,174) 46,974,525 35,107,827
NET ASSETS:
Beginning of year ..................... 183,163,075 154,712,919 135,231,596 379,348,661 332,374,136 297,266,309
------------ ------------ ------------ ------------ ------------ ------------
End of year ........................... $188,862,889 $183,163,075 $154,712,919 $248,985,487 $379,348,661 $332,374,136
============ ============ ============ ============ ============ ============
SUBACCOUNTS (CONTINUED)
------------------------------------------
CONSERVATIVE BALANCED
PORTFOLIO
------------------------------------------
1998 1997 1996
------------ ------------ ------------
OPERATIONS:
Net investment income (loss) .......... $ 4,342,393 $ 4,480,407 $ 3,617,454
Capital gains distributions received .. 6,925,741 11,925,141 6,285,583
Realized gain on shares redeemed ...... 594,578 961,056 631,625
Net change in unrealized gain (loss) on
investments ......................... 329,870 (4,407,263) 818,813
------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ............................ 12,192,582 12,959,341 11,353,475
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING
TRANSFERS [Note 7] .................... (4,809,866) (4,971,703) (2,779,707)
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET
ASSETS RETAINED IN THE
ACCOUNT [Note 8] ...................... (8,012) (508,220) 307,568
------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS ................................ 7,374,704 7,479,418 8,881,336
NET ASSETS:
Beginning of year ..................... 110,793,225 103,313,807 94,432,471
------------ ------------ ------------
End of year ........................... $118,167,929 $110,793,225 $103,313,807
============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A33
A23
FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1998, 1997 and 1996
SUBACCOUNTS
-------------------------------------------------------------------------------------
HIGH YIELD BOND STOCK INDEX
PORTFOLIO PORTFOLIO
------------------------------------------ ----------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
OPERATIONS:
Net investment income (loss) .......... $ 1,896,429 $ 532,870 $ 503,691 $ 332,726 $ 114,942 $ 107,938
Capital gains distributions received .. 0 0 0 1,074,502 412,169 110,782
Realized gain on shares redeemed ...... (173,650) 32,615 19,307 1,754,137 260,629 36,129
Net change in unrealized gain (loss) on
investments ......................... (2,569,803) 171,940 35,230 11,731,008 2,468,185 1,396,067
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ............................ (847,024) 737,425 558,228 14,892,373 3,255,925 1,650,916
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING
TRANSFERS [Note 7] .................... 29,214,178 (54,383) (162,806) 47,814,887 1,782,231 1,266,103
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RETAINED IN THE
ACCOUNT [Note 8] ...................... (60,128) 3,000 (5,301) 687,255 22,000 8,647
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ............................ 28,307,026 686,042 390,121 63,394,515 5,060,156 2,925,666
NET ASSETS:
Beginning of year ..................... 6,366,319 5,680,277 5,290,156 14,898,549 9,838,393 6,912,727
------------ ------------ ------------ ------------ ------------ ------------
End of year ........................... $ 34,673,345 $ 6,366,319 $ 5,680,277 $ 78,293,064 $ 14,898,549 $ 9,838,393
============ ============ ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A33
A24
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------
EQUITY INCOME GLOBAL
PORTFOLIO PORTFOLIO
------------------------------------------ -----------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
OPERATIONS:
Net investment income (loss) .......... $ 253,364 $ 184,191 $ 190,084 $ 349,892 $ 37,324 $ 46,699
Capital gains distributions received .. 721,671 998,911 227,495 2,640,161 352,331 42,205
Realized gain on shares redeemed ...... 117,016 52,359 32,033 32,172 32,176 12,503
Net change in unrealized gain (loss) on
investments ......................... (1,610,976) 1,459,574 799,443 7,149,778 (672,740) 291,245
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ............................ (518,925) 2,695,035 1,249,055 10,172,003 (250,909) 392,652
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING
TRANSFERS [Note 7] .................... 1,153,086 1,205,808 230,617 46,627,606 5,033,222 728,542
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RETAINED IN THE
ACCOUNT [Note 8] ...................... 12,012 (21,017) (10,223) 99,132 37,702 (18,517)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ............................ 646,173 3,879,826 1,469,449 56,898,741 4,820,015 1,102,677
NET ASSETS:
Beginning of year ..................... 11,166,994 7,287,168 5,817,719 7,607,252 2,787,237 1,684,560
------------ ------------ ------------ ------------ ------------ ------------
End of year ........................... $ 11,813,167 $ 11,166,994 $ 7,287,168 $ 64,505,993 $ 7,607,252 $ 2,787,237
============ ============ ============ ============ ============ ============
SUBACCOUNTS (CONTINUED)
------------------------------------------
PRUDENTIAL JENNISON
PORTFOLIO
------------------------------------------
1998 1997 1996
------------ ------------ ------------
OPERATIONS:
Net investment income (loss) .......... $ (18,675) $ (7,941) $ (2,919)
Capital gains distributions received .. 104,664 171,556 0
Realized gain on shares redeemed ...... 27,074 16,410 3,547
Net change in unrealized gain (loss) on
investments ......................... 1,492,381 364,364 125,105
------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS ............................ 1,605,444 544,389 125,733
------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
PREMIUM PAYMENTS
AND OTHER OPERATING
TRANSFERS [Note 7] .................... 2,783,868 997,547 990,676
------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RETAINED IN THE
ACCOUNT [Note 8] ...................... (7,320) (34,235) 35,740
------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ............................ 4,381,992 1,507,701 1,152,149
NET ASSETS:
Beginning of year ..................... 3,057,712 1,550,011 397,862
------------ ------------ ------------
End of year ........................... $ 7,439,704 $ 3,057,712 $ 1,550,011
============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A26 THROUGH A33
A25
NOTES TO FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
DECEMBER 31, 1998
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") and Pruco Life of New Jersey PRUvider Variable
Appreciable Life ("PRUvider") contracts are invested in the Account.
The Account is registered under the Investment Company Act of 1940,
as amended, as a unit investment trust. There are thirteen
subaccounts within the Account, each of which invests only in a
corresponding portfolio of The Prudential Series Fund, Inc. (the
"Series Fund"). 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.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in conformity
with generally accepted accounting principles ("GAAP"). The
preparation of the financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts and disclosures. Actual results could differ
from those estimates.
Investments--The investments in shares of the Series Fund 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.
A26
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC.
PORTFOLIOS
The net asset value per share (rounded) for each portfolio of the
Series Fund, the number of shares of each portfolio held by the
subaccounts of the Account and the aggregate cost of investments in
such shares at December 31, 1998 were as follows:
PORTFOLIOS
----------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------ ------------ ------------ ------------ ------------
Number of shares: 747,417 2,290,218 6,372,580 15,034,666 7,835,779
Net asset value per share
(rounded): $ 10.00 $ 11.06 $ 29.64 $ 16.56 $ 15.08
Cost: $ 7,474,170 $ 24,583,250 $133,614,965 $241,218,468 $110,683,045
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
------------ ------------ ------------ ------------ ------------
Number of shares: 4,810,464 2,074,538 589,700 3,048,935 311,195
Net asset value per share
(rounded): $ 7.21 $ 37.74 $ 20.03 $ 21.16 $ 23.91
Cost: $ 36,756,268 $ 60,489,904 $ 10,682,326 $ 57,646,190 $ 5,439,019
A27
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units, unit values and total value of
contract owner equity at December 31, 1998 were as follows:
SUBACCOUNTS
----------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
Contract Owner Units Outstanding (VAL) 3,879,340 8,352,703 26,211,917 49,738,054 28,020,793
Unit Value (VAL) ..................... $ 1.92666 $ 3.03285 $ 7.20523 $ 4.75185 $ 3.89530
------------ ------------ ------------ ------------ ------------
Contract Owner Equity (VAL) .......... $ 7,474,170 $ 25,332,495 $188,862,889 $236,347,771 $109,149,395
------------ ------------ ------------ ------------ ------------
Contract Owner Units Outstanding
(PRUvider) ......................... N/A N/A N/A 3,857,290 3,278,692
Unit Value (PRUvider) ................ N/A N/A N/A $ 3.27632 $ 2.75065
------------ ------------ ------------ ------------ ------------
Contract Owner Equity (PRUvider) ..... N/A N/A N/A $ 12,637,716 $ 9,018,534
------------ ------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY .......... $ 7,474,170 $ 25,332,495 $188,862,889 $248,985,487 $118,167,929
============ ============ ============ ============ ============
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------ ------------
Contract Owner Units Outstanding (VAL) 14,520,556 15,126,055 2,805,978 36,728,345 2,919,409
Unit Value (VAL) ..................... $ 2.38788 $ 5.17604 $ 4.21000 $ 1.75630 $ 2.54836
------------ ------------ ------------ ------------ ------------
Contract Owner Equity (VAL) .......... $ 34,673,345 $ 78,293,064 $ 11,813,167 $ 64,505,993 $ 7,439,704
------------ ------------ ------------ ------------ ------------
Contract Owner Units Outstanding
(PRUvider) ......................... 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
------------ ------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER EQUITY .......... $ 34,673,345 $ 78,293,064 $ 11,813,167 $ 64,505,993 $ 7,439,704
============ ============ ============ ============ ============
A28
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% and 0.90%, are applied daily against the net assets
representing equity of VAL and PRUvider 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
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% will be made in connection with each partial
withdrawal of the cash surrender value of a contract.
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 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.
A29
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING TRANSFERS
The following amounts represent components of contract owner
activity for the years ended December 31, 1998 and 1997:
SUBACCOUNTS
---------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------- --------------------------- ---------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
Contract Owner Net
Payments ................... $ 362,297 $ 505,183 $ 1,209,116 $ 1,404,553 $ 8,768,106 $ 10,298,271
Policy Loans ................. $ (147,149) $ (409,790) $ (529,009) $ (473,054) $ (6,477,542) $ (6,145,354)
Policy Loan Repayments
and Interest ............... $ 265,406 $ 140,076 $ 421,496 $ 409,993 $ 4,223,794 $ 3,591,634
Surrenders, Withdrawals
and Death Benefits ......... $ (627,277) $ (550,152) $ (1,336,342) $ (1,502,838) $ (9,891,027) $(10,093,245)
Net Transfers From (To)
Other Subaccounts or
Fixed Rate Options ......... $ 538,372 $ (156,879) $ 682,202 $ 194,525 $ (1,215,581) $ 678,473
Administrative and Other
Charges .................... $ (246,028) $ (301,944) $ (621,531) $ (732,626) $ (5,422,744) $ (6,160,863)
------------ ------------ ------------ ------------ ------------ ------------
Net Increase (Decrease) in
Net Assets Resulting from
Premium Payment and
Other Operating Transfers .. $ 145,621 $ (773,506) $ (174,068) $ (699,447) $(10,014,994) $ (7,831,084)
============ ============ ============ ============ ============ ============
SUBACCOUNTS (CONTINUED)
----------------------------------------------------------------
FLEXIBLE CONSERVATIVE
MANAGED BALANCED
PORTFOLIO PORTFOLIO
------------------------------ ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
Contract Owner Net
Payments ................... $ 19,460,603 $ 22,730,005 $ 8,965,691 $ 10,313,838
Policy Loans ................. $ (7,974,049) $ (7,849,567) $ (3,015,778) $ (3,213,273)
Policy Loan Repayments
and Interest ............... $ 5,598,233 $ 5,129,697 $ 1,976,521 $ 2,156,195
Surrenders, Withdrawals
and Death Benefits ......... $ (13,996,390) $ (15,259,724) $ (6,131,547) $ (6,793,526)
Net Transfers From (To)
Other Subaccounts or
Fixed Rate Options ......... $(144,967,979) $ (2,359,588) $ (1,292,182) $ (1,375,131)
Administrative and Other
Charges .................... $ (11,055,099) $ (12,720,067) $ (5,312,571) $ (6,059,806)
------------- ------------- ------------- -------------
Net Increase (Decrease) in
Net Assets Resulting from
Premium Payment and
Other Operating Transfers .. $(152,934,681) $ (10,329,244) $ (4,809,866) $ (4,971,703)
============= ============= ============= =============
SUBACCOUNTS (CONTINUED)
------------------------------
HIGH YIELD
BOND
PORTFOLIO
------------------------------
1998 1997
------------- -------------
Contract Owner Net
Payments ................... $ 356,982 $ 469,592
Policy Loans ................. $ (163,296) $ (201,423)
Policy Loan Repayments
and Interest ............... $ 167,408 $ 118,870
Surrenders, Withdrawals
and Death Benefits ......... $ (501,296) $ (305,958)
Net Transfers From (To)
Other Subaccounts or
Fixed Rate Options ......... $ 29,637,732 $ 130,175
Administrative and Other
Charges .................... $ (283,352) $ (265,639)
------------- -------------
Net Increase (Decrease) in
Net Assets Resulting from
Premium Payment and
Other Operating Transfers .. $ 29,214,178 $ (54,383)
============= =============
A30
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM
PAYMENTS AND OTHER OPERATING TRANSFERS (CONTINUED)
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------
STOCK EQUITY
INDEX INCOME GLOBAL
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------- --------------------------- ---------------------------
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
Contract Owner Net
Payments ................... $ (458,592) $ 919,468 $ 625,273 $ 636,376 $ (404,538) $ 296,914
Policy Loans ................. $ (528,435) $ (466,875) $ (348,765) $ (321,220) $ (117,217) $ (119,989)
Policy Loan Repayments
and Interest ............... $ 429,300 $ 254,143 $ 211,308 $ 165,506 $ 65,209 $ 60,528
Surrenders, Withdrawals
and Death Benefits ......... $ (1,117,895) $ (558,323) $ (642,033) $ (413,503) $ (359,688) $ (118,830)
Net Transfers From (To)
Other Subaccounts or
Fixed Rate Options ......... $ 50,128,317 $ 2,108,397 $ 1,663,734 $ 1,464,170 $ 47,651,150 $ 5,040,462
Administrative and Other
Charges .................... $ (637,808) $ (474,579) $ (356,431) $ (325,521) $ (207,310) $ (125,863)
------------ ------------ ------------ ------------ ------------ ------------
Net Increase (Decrease) in
Net Assets Resulting from
Premium Payment and
Other Operating Transfers .. $ 47,814,887 $ 1,782,231 $ 1,153,086 $ 1,205,808 $ 46,627,606 $ 5,033,222
============ ============ ============ ============ ============ ============
SUBACCOUNTS (CONTINUED)
--------------------------
PRUDENTIAL
JENNISON
PORTFOLIO
--------------------------
1998 1997
----------- -----------
Contract Owner Net
Payments ................... $ 350,999 $ 221,934
Policy Loans ................. $ (186,693) $ (95,540)
Policy Loan Repayments
and Interest ............... $ 207,729 $ 33,699
Surrenders, Withdrawals
and Death Benefits ......... $ (263,749) $ (53,534)
Net Transfers From (To)
Other Subaccounts or
Fixed Rate Options ......... $ 2,831,858 $ 976,677
Administrative and Other
Charges .................... $ (156,276) $ (85,689)
----------- -----------
Net Increase (Decrease) in
Net Assets Resulting from
Premium Payment and
Other Operating Transfers .. $ 2,783,868 $ 997,547
=========== ===========
A31
NOTE 8: 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 9: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts), for
the years ended December 31, 1998, 1997 and 1996 were as follows:
SUBACCOUNTS
--------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
PORTFOLIO PORTFOLIO
----------------------------------------- -----------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
Contract Owner
Contributions: 1,651,137 1,852,551 2,067,686 3,461,354 957,470 3,755,678
Contract Owner
Redemptions: (1,575,664) (2,279,240) (2,029,030) (3,523,454) (1,208,781) (3,461,752)
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------
FLEXIBLE
EQUITY MANAGED
PORTFOLIO PORTFOLIO
----------------------------------------- -----------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
Contract Owner
Contributions: 4,007,348 2,872,723 6,112,976 16,398,289 7,728,571 10,117,095
Contract Owner
Redemptions: (5,431,230) (4,155,330) (7,049,532) (51,572,419) (10,193,317) (10,999,912)
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------
CONSERVATIVE HIGH YIELD
BALANCED BOND
PORTFOLIO PORTFOLIO
----------------------------------------- -----------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
Contract Owner
Contributions: 3,568,780 4,308,577 5,634,628 33,003,985 415,705 403,245
Contract Owner
Redemptions: (4,841,159) (5,775,601) (6,423,987) (21,070,995) (440,795) (482,428)
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------
STOCK EQUITY
INDEX INCOME
PORTFOLIO PORTFOLIO
----------------------------------------- -----------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
Contract Owner
Contributions: 25,612,492 1,448,957 1,047,109 724,545 651,898 553,466
Contract Owner
Redemptions: (14,154,931) (982,534) (588,444) (492,449) (352,895) (471,164)
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------------
PRUDENTIAL
GLOBAL JENNISON
PORTFOLIO PORTFOLIO
----------------------------------------- -----------------------------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
Contract Owner
Contributions: 84,626,033 3,871,182 1,115,470 1,808,411 862,419 941,955
Contract Owner
Redemptions: (53,280,086) (575,706) (515,089) (520,419) (284,443) (200,566)
A32
NOTE 10: 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, 1998
were as follows:
PORTFOLIOS
---------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------- ------------- ------------- ------------- -------------
Purchases ...... $ 1,922,784 $ 1,296,492 $ 874,822 $ 1,384,533 $ 770,632
Sales .......... $ (1,834,163) $ (1,614,965) $ (11,999,701) $(155,845,181) $ (6,102,387)
PORTFOLIOS (CONTINUED)
---------------------------------------------------------------------------------
HIGH YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
------------- ------------- ------------- ------------- -------------
Purchases ...... $ 34,378,432 $ 66,105,619 $ 1,942,743 $ 48,516,865 $ 2,971,241
Sales .......... $ (5,319,054) $ (17,811,220) $ (835,710) $ (1,930,267) $ (223,989)
NOTE 11: 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 directed to the Flexible Managed subaccount for the year
ended December 31, 1998. Equityof contract owners in that subaccount
at December 31, 1998 includes approximately $159.8 million ownedby
Prudential.
A33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners 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, 1998, 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 generally accepted accounting principles. These financial
statements are the responsibility of Pruco Life Insurance Company of New
Jersey's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of fund shares owned at December 31, 1998, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 19, 1999
A34
PRUCO LIFE OF NJ MODULE REFERENCE
- --------------------------------------------------------------------------------
Pruco Life Insurance Company of New Jersey
Statements of Financial Position (Unaudited)
June 30, 1999 and December 31, 1998 (In Thousands)
- --------------------------------------------------------------------------------
June 30, December 31,
1999 1998
------------------ ------------------
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1999: $565,653; $ 557,132 $ 622,990
1998: $617,758)
Held to maturity, at amortized cost (fair value, 1999: $7,285) 7,470 -
Policy loans 142,703 139,443
Short-term investments 60,732 53,761
------------------ ------------------
Total investments 768,037 816,194
Cash 763 45
Deferred policy acquisition costs 122,880 113,923
Accrued investment income 11,752 12,209
Receivable from affiliate 13,211 -
Other assets 2,384 15,379
Separate Account assets 1,649,137 1,453,407
------------------ ------------------
TOTAL ASSETS 2,568,164 2,411,157
================== ==================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 413,254 $ 414,546
Future policy benefits and other policyholder liabilities 93,566 89,832
Cash collateral for loaned securities 4,715 34,424
Securities sold under agreements to repurchase 14,162 27,210
Income taxes payable 26,231 25,325
Payable to affiliate - 3,492
Other liabilities 21,698 19,489
Separate Account liabilities 1,646,026 1,450,986
------------------ ------------------
Total liabilities 2,219,652 2,065,304
------------------ ------------------
Contingencies (See Note 2)
Stockholder's Equity
Common stock, $5 par value;
400,000 shares, authorized;
issued and outstanding at
June 30, 1999 and December 31, 1998 2,000 2,000
Paid-in-capital 125,000 125,000
Retained earnings 223,898 217,260
Accumulated other comprehensive income (2,386) 1,593
------------------ ------------------
Total stockholder's equity 348,512 345,853
------------------ ------------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,568,164 $2,411,157
================== ==================
See Notes to Financial Statements
B-1
Pruco Life Insurance Company of New Jersey
Statements of Operations and Comprehensive Income (Unaudited)
Six Months Ended June 30, 1999 and 1998 (In Thousands)
- --------------------------------------------------------------------------------
Six months ended
June 30,
1999 1998
------------------------------------------
REVENUES
Premiums $ 694 $ 529
Policy charges and fee income 26,186 24,518
Net investment income 24,575 24,096
Realized investment (losses) gains, net (2,139) 1,823
Asset management fee income 3,250 2,601
Other income 164 58
------------------------------------------
Total revenues 52,730 53,625
------------------------------------------
BENEFITS AND EXPENSES
Policyholders' benefits 11,970 12,193
Interest credited to policyholders' account balances 8,925 9,691
General, administrative and other expenses 21,623 17,038
------------------------------------------
Total benefits and expenses 42,518 38,922
------------------------------------------
Income before income taxes 10,212 14,703
------------------------------------------
Income taxes 3,574 5,220
------------------------------------------
NET INCOME $ 6,638 $ 9,483
------------------------------------------
Unrealized gains (losses) on securities,
net of reclassification adjustment (3,979) 82
==========================================
COMPREHENSIVE INCOME $ 2,659 $ 9,565
==========================================
See Notes to Financial Statements
B-2
Pruco Life Insurance Company of New Jersey
Statements of Changes in Stockholder's Equity (Unaudited)
Six Months Ended June 30, 1999 and the Year Ended December 31, 1998 (In Thousands)
- --------------------------------------------------------------------------------
Accumulated
other Total
Common stock Paid-in- Retained comprehensive stockholder's
capital earnings income equity
------------- ------------- ------------- --------------- --------------
Balance, December 31, 1997 $2,000 $125,000 $185,437 $2,956 $315,393
Net income - - 31,823 - 31,823
Change in unrealized losses on
securities, net of - - - (1,363) (1,363)
reclassification
adjustment
------------- ------------- ------------- --------------- --------------
Balance, December 31, 1998 $2,000 $125,000 $217,260 $1,593 $345,853
Net income - - 6,638 - 6,638
Change in unrealized losses on
securities, net of - - - (3,979) (3,979)
reclassification
adjustment
------------- ------------- ------------- --------------- --------------
Balance, June 30, 1999 $2,000 $125,000 $223,898 $ (2,386) $348,512
============= ============= ============= =============== ==============
See Notes to Financial Statements
B-3
Pruco Life Insurance Company of New Jersey
Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1999 and 1998 (In Thousands)
- --------------------------------------------------------------------------------
1999 1998
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,638 $ 9,483
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Policy charges and fee income (4,411) (3,692)
Interest credited to policyholders' account balances 8,925 9,691
Realized investment losses (gains), net 2,139 (1,823)
Amortization and other non-cash items 10,633 843
Change in:
Future policy benefits and other policyholders' liabilities 3,734 2,350
Accrued investment income 457 269
Payable to / Receivable from affiliates, net (16,703) 22,120
Separate Accounts (690) (93)
Policy loans (3,260) (6,970)
Deferred policy acquisition costs (8,957) (2,254)
Income taxes payable 906 (9,016)
Other, net 15,204 (4,649)
--------------- ---------------
Cash Flows From Operating Activities 14,615 16,259
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 559,840 298,205
Payments for the purchase of:
Fixed maturities:
Available for sale (510,634) (305,188)
Held to maturity (7,470) -
Cash collateral for loaned securities, net (29,709) (7,861)
Securities sold under agreement to repurchase, net (13,048) -
Short-term investments, net (6,964) 103
--------------- ---------------
Cash Flows Used In Investing Activities (7,985) (14,741)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 113,275 175,341
Withdrawals (119,187) (175,958)
--------------- ---------------
Cash Flows Used In Financing Activities (5,912) (617)
--------------- ---------------
Net increase in Cash 718 901
Cash, beginning of year 45 3
=============== ===============
CASH, END OF PERIOD $ 763 $ 904
=============== ===============
See Notes to Financial Statements
B-4
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Pruco Life Insurance Company
of New Jersey ("the Company") have been prepared in accordance with the
requirements of Form 10-Q and generally accepted accounting principles ("GAAP")
for interim financial information. These statements should be read in
conjunction with the financial statements and notes thereto for the year ended
December 31, 1998 included in the Company's Annual Report on Form 10-K for that
year.
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.
The accompanying financial statements have not been audited by independent
accountants in accordance with generally accepted auditing standards, but in the
opinion of management such financial statements include all adjustments,
consisting only of normal recurring accruals necessary to summarize fairly the
Company's financial position and results of operations. The results of
operations for the six months ended June 30, 1999 may not be indicative of the
results that may be expected for the year ending December 31, 1999.
Certain amounts in the prior years have been reclassified to conform to current
year presentation.
2. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and the
Company. Prudential has agreed to indemnify the Company for any and all losses
resulting from such litigation.
In the normal course of business, the Company is subject to various claims and
assessments. Management believes the settlement of these matters would not have
a material effect on the financial position or results of operations of the
Company.
3. RELATED PARTY TRANSACTIONS
Prudential and the Company have an agreement with respect to administrative
services for the Prudential Series Fund ("Series Fund"), the portfolio of mutual
fund investments related to the Company's Separate Account products. Under this
agreement, Prudential pays compensation to the Company in the amount equal to a
portion of the gross investment advisory fees paid by the Series Fund. This is
recorded as "Asset management fee income" in the Statements of Operations and
Comprehensive Income.
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. During the first six months of 1999, Prudential
reviewed and modified its methods for determining the level of administrative
expenses charged to the Company. As a result, the level of such expenses has
increased significantly over the 1998 levels.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities". The new accounting treatment required by this statement will not
affect the Company's liquidity or the ultimate economic gain or loss from its
derivative positions. However, it may affect the way the Company recognizes
changes in value of some of its derivatives and derivative-like contract
features, and this could lead to more volatility in the Company's reported
income statement results, especially on a quarterly basis.
4. RECENT ACCOUNTING PRONOUNCEMENTS (continued)
B-5
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Under previous accounting standards, companies could defer recognizing changes
in the value of derivatives used to hedge various risks if certain conditions
were met. Under the new accounting standards, all derivatives must be reported
at fair value each quarter, but if special hedge accounting requirements are met
this change in fair value may be offset, entirely or partially, by also
recognizing the corresponding change in value of the hedged item. Since the
Company already marks most of its derivative positions to market each quarter,
the Company does not expect this new treatment to materially increase its net
income volatility assuming the Company continues its current derivative and
hedging strategies.
While the Statement does not apply to most traditional insurance contracts, some
contracts may contain features that can affect settlement amounts similarly to
derivatives. For these contracts, the new standards call for separate accounting
for the "host contract" and the "embedded derivative", leading to mark-to-market
for the "embedded derivative" features that was not previously required. While
the Company's economic results from these contracts are also unaffected, this
accounting could lead to increased volatility in the quarterly income statement
results it reports.
The Company has not yet completed its assessment of the impact of the
statement, and its effect on the Company depends, among other things, on its
derivative positions and hedging strategies after the date of adoption. The
Company is required to adopt this statement no later than January 1, 2001.
B-6
Pruco Life Insurance Company of New Jersey
Statements of Financial Position
December 31, 1998 and 1997 (In Thousands)
- --------------------------------------------------------------------------------
1998 1997
---------- ----------
ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 1998: $617,758; and
1997: $585,109) $ 622,990 $ 592,361
Policy loans 139,443 127,306
Short-term investments 53,761 52,464
---------- ----------
Total investments 816,194 772,131
Cash 45 3
Deferred policy acquisition costs 113,923 101,625
Accrued investment income 12,209 14,075
Other assets 15,379 4,037
Separate Account assets 1,453,407 1,110,561
---------- ----------
TOTAL ASSETS $2,411,157 $2,002,432
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 414,546 $ 402,601
Future policy benefits and other policyholder liabilities 89,832 85,220
Cash collateral for loaned securities 34,424 33,663
Securities sold under agreements to repurchase 27,210 --
Income taxes payable 25,325 35,151
Payable to affiliate 3,492 4,307
Other liabilities 19,489 17,103
Separate Account liabilities 1,450,986 1,108,994
---------- ----------
Total liabilities 2,065,304 1,687,039
Contingencies - (See Note 10) ---------- ----------
Stockholder's Equity
Common stock, $5 par value;
400,000 shares, authorized;
issued and outstanding at
December 31, 1998 and 1997 2,000 2,000
Paid-in-capital 125,000 125,000
Retained earnings 217,260 185,437
Accumulated other comprehensive income 1,593 2,956
---------- ----------
Total stockholder's equity 345,853 315,393
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,411,157 $2,002,432
========== ==========
See Notes to Financial Statements
B-7
Pruco Life Insurance Company of New Jersey
Statements of Operations
Years Ended December 31, 1998, 1997, and 1996 (In Thousands)
- --------------------------------------------------------------------------------
1998 1997 1996
--------- --------- ---------
REVENUES
Premiums $ 1,345 $ 1,105 $ 1,345
Policy charges and fee income 56,247 56,382 58,571
Net investment income 47,032 46,324 43,784
Realized investment gains, net 8,446 1,707 1,221
Other income 5,755 5,286 4,047
--------- --------- ---------
Total revenues 118,825 110,804 108,968
--------- --------- ---------
BENEFITS AND EXPENSES
Policyholders' benefits 28,342 33,999 28,653
Interest credited to policyholders' account balances 18,985 19,372 20,069
General, administrative and other expenses 22,105 27,236 12,848
--------- --------- ---------
Total benefits and expenses 69,432 80,607 61,570
--------- --------- ---------
Income from operations before income taxes 49,393 30,197 47,398
--------- --------- ---------
Income taxes
Current 15,309 13,279 12,682
Deferred 2,261 (2,305) 2,929
--------- --------- ---------
Total income taxes 17,570 10,974 15,611
--------- --------- ---------
NET INCOME $ 31,823 $ 19,223 $ 31,787
========= ========= =========
Net unrealized investment gains (losses) on securities,
net of reclassification adjustment (1,363) 924 (4,556)
--------- --------- ---------
TOTAL COMPREHENSIVE INCOME $ 30,460 $ 20,147 $ 27,231
========= ========= =========
See Notes to Financial Statements
B-8
Pruco Life Insurance Company of New Jersey
Statements of Changes in Stockholder's Equity
Years Ended December 31, 1998, 1997, and 1996 (In Thousands)
- --------------------------------------------------------------------------------
Accumulated
other Total
Common Paid-in- Retained comprehensive stockholder's
stock capital earnings income equity
--------- --------- --------- --------- ---------
Balance, January 1, 1996 $ 2,000 $ 125,000 $ 134,427 $ 6,588 $ 268,015
Net income -- -- 31,787 -- 31,787
Change in net unrealized
investment gains, net of
reclassification adjustment -- -- -- (4,556) (4,556)
--------- --------- --------- --------- ---------
Balance, December 31, 1996 2,000 125,000 166,214 2,032 295,246
Net income -- -- 19,223 -- 19,223
Change in net unrealized
investment gains, net of
reclassification adjustment -- -- -- 924 924
--------- --------- --------- --------- ---------
Balance, December 31, 1997 2,000 125,000 185,437 2,956 315,393
Net income -- -- 31,823 -- 31,823
Change in net unrealized
investment gains, net of
reclassification adjustment -- -- -- (1,363) (1,363)
--------- --------- --------- --------- ---------
Balance, December 31, 1998 $ 2,000 $ 125,000 $ 217,260 $ 1,593 $ 345,853
========= ========= ========= ========= =========
See Notes to Financial Statements
B-9
Pruco Life Insurance Company of New Jersey
Statements of Cash Flows
Years Ended December 31, 1998, 1997, and 1996 (In Thousands)
- --------------------------------------------------------------------------------
1998 1997 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,823 $ 19,223 $ 31,787
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Policy charges and fee income (10,871) (7,841) (9,963)
Interest credited to policyholders' account balances 18,985 19,372 20,069
Realized investment gains, net (8,446) (1,707) (1,221)
Amortization and other non-cash items 2,491 (1,046) 10,065
Change in:
Future policy benefits and other policyholders' liabilities 5,310 8,981 7,461
Accrued investment income 1,866 (1,167) (1,329)
Policy loans (12,137) (13,388) (15,724)
Separate Accounts (854) 1,629 (1,335)
Payable to affiliates (815) (1,752) 4,300
Deferred policy acquisition costs (12,298) 5,340 (10,934)
Income taxes payable (11,353) 10,993 1,970
Deferred income tax liability 1,527 (1,987) 366
Other, net (8,955) 2,812 4,669
----------- ----------- -----------
Cash Flows (Used in) From Operating Activities (3,727) 39,462 40,181
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 1,001,096 645,355 901,775
Payments for the purchase of:
Fixed maturities:
Available for sale (1,029,988) (679,709) (956,483)
Cash collateral for loaned securities, net 761 33,663 --
Securities sold under agreements to repurchase, net 27,210 -- --
Short term investments, net (1,297) (35,461) 28,306
----------- ----------- -----------
Cash Flows Used in Investing Activities (2,218) (36,152) (26,402)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 300,536 134,020 16,754
Withdrawals (294,549) (141,255) (26,605)
----------- ----------- -----------
Cash Flows From (Used in) Financing Activities 5,987 (7,235) (9,851)
----------- ----------- -----------
Net increase (decrease) in Cash 42 (3,925) 3,928
Cash, beginning of year 3 3,928 --
----------- ----------- -----------
CASH, END OF PERIOD $ 45 $ 3 $ 3,928
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 27,083 $ 1,896 $ 11,673
=========== =========== ===========
See Notes to Financial Statements
B-10
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. BUSINESS
Pruco Life Insurance Company of New Jersey (the Company) is a stock life
insurance company organized in 1982 under the laws of the state of New Jersey.
It is licensed to sell individual life insurance, variable life insurance,
variable annuities, and fixed annuities (the Contracts) only in the states of
New Jersey and New York.
The Company is a wholly owned subsidiary of Pruco Life Insurance Company (Pruco
Life), a stock life insurance company organized in 1971 under the laws of the
state of Arizona. Pruco Life, in turn, is a wholly owned subsidiary of The
Prudential Insurance Company of America (Prudential), a mutual insurance company
founded in 1875 under the laws of the state of New Jersey. Pruco Life intends to
make additional capital contributions to the Company, as needed, to enable it to
comply with its reserve requirements and fund expenses in connection with its
business. Generally, Pruco Life is under no obligation to make such
contributions and its assets do not back the benefits payable under the
Contracts.
The Company is engaged in a business that is highly competitive because of the
large number of stock and mutual life insurance companies and other entities
engaged in marketing insurance products, and individual annuities. There are
approximately 1,620 stock, mutual and other types of insurers in the life
insurance business in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements include the accounts of the Company, a stock life
insurance company. The financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP").
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
Investments
Fixed maturities classified as "available for sale" are carried at estimated
fair value. The amortized cost of fixed maturities is written down to estimated
fair value if a decline in value is considered to be other than temporary.
Unrealized gains and losses on fixed maturities "available for sale" including
the effect on deferred policy acquisition costs and participating annuity
contracts that would result from the realization of unrealized gains and losses,
net of income taxes, are included in a separate component of equity,
"Accumulated other comprehensive income."
Policy loans are carried at unpaid principal balances.
Short-term investments, consists primarily of highly liquid debt instruments
purchased with an original maturity of twelve months or less and are carried at
amortized cost, which approximates fair value.
Realized investment gains, net, are computed using the specific identification
method. Costs of fixed maturity are adjusted for impairments considered to be
other than temporary.
Cash
Cash includes cash on hand, amounts due from banks, and money market
instruments.
Deferred Policy Acquisition Costs
The costs which vary with and that are related primarily to the production of
new insurance business are deferred to the extent that they are deemed
recoverable from future profits. Such costs include certain commissions, costs
of policy issuance and underwriting, and certain variable field office expenses.
Deferred policy acquisition costs are subject to recoverability testing at the
time of policy issue and loss recognition testing at the end of each accounting
period. Deferred
B-11
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Acquisition costs related to interest-sensitive life products and
investment-type contracts are deferred and amortized in proportion to total
estimated gross profits arising principally from investment results, mortality
and expense margins and surrender charges based on historical and anticipated
future experience. Amortization periods range from 15 to 30 years. Deferred
policy acquisition costs are analyzed to determine if they are recoverable from
future income, including investment income. If such costs are determined to be
unrecoverable, they are expensed at the time of determination. The effect of
revisions to estimated gross profits on unamortized deferred acquisition costs
is reflected in earnings in the period such estimated gross profits are revised.
Securities loaned
Securities loaned are treated as financing arrangements and are recorded at the
amount of cash received as collateral. The Company obtains collateral in an
amount equal to 102% of the fair value of the securities. The Company monitors
the market value of securities loaned on a daily basis with additional
collateral obtained as necessary. Non-cash collateral received is not reflected
in the statements of financial position. Substantially all of the Company's
securities loaned are with large brokerage firms.
Securities sold under agreements to repurchase
Securities sold under agreements to repurchase are treated as financing
arrangements and are carried at the amounts at which the securities will be
subsequently reacquired, including accrued interest, as specified in the
respective agreements. The Company's policy is to take possession of securities
purchased under agreements to resell. The market value of securities to be
repurchased is monitored and additional collateral is requested, where
appropriate, to protect against credit exposure.
Securities lending and securities repurchase agreements are used to generate net
investment income and facilitate trading activity. These instruments are
short-term in nature (usually 30 days or less). Securities loaned are
collateralized principally by U.S. Government and mortgage-backed securities.
Securities sold under repurchase agreements are collateralized principally by
cash. The carrying amounts of these instruments approximate fair value because
of the relatively short period of time between the origination of the
instruments and their expected realization.
Separate Account Assets and Liabilities
Separate Account assets and liabilities are reported at estimated fair value and
represent segregated funds which are invested for certain policyholders and
other customers. Separate Account assets include common stocks, fixed
maturities, real estate related securities, and short-term investments. The
assets of each account are legally segregated and are not subject to claims that
arise out of any other business of the Company. Investment risks associated with
market value changes are borne by the customers, except to the extent of minimum
guarantees made by the Company with respect to certain accounts. The investment
income and gains or losses for Separate Accounts generally accrue to the
policyholders and are not included in the Statement of Operations. Mortality,
policy administration and surrender charges on the accounts are included in
"Policy charges and fee income."
Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life of New Jersey Modified
Guaranteed Annuity Account. The Pruco Life of New Jersey Modified Guaranteed
Annuity Account is a non-unitized Separate Account, which funds the Modified
Guaranteed Annuity Contract and the Market Value Adjustment Annuity Contract.
Owners of the Pruco Life of New Jersey Modified Guaranteed Annuity and the
Market Value Adjustment Annuity Contracts do not participate in the investment
gain or loss from assets relating to such accounts. Such gain or loss is borne,
in total, by the Company.
Insurance Revenue and Expense Recognition
Premiums from insurance policies are generally recognized when due. Benefits are
recorded as an expense when they are incurred. For traditional life insurance
contracts, a liability for future policy benefits is recorded using the net
level
B-12
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
premium method. For individual annuities in payout status, a liability for
future policy benefits is recorded for the present value of expected future
payments based on historical experience.
Amounts received as payment for interest sensitive life, investment contracts
and variable annuities are reported as deposits to "Policyholders' account
balances." Revenues from these contracts are reflected as "Policy charges and
fee income" and consist primarily of fees assessed during the period against the
policyholders' account balances for mortality charges, policy administration
charges, and surrender charges. In addition, interest earned from the investment
of these account balances is reflected in "Net investment income." Benefits and
expenses for these products include claims in excess of related account
balances, expenses of contract administration, interest credited and
amortization of deferred policy acquisition costs.
Other Income
Other income consists primarily of asset management fees which are received by
the Company from Prudential for services Prudential provides to the Prudential
Series Fund, an underlying investment option of the Separate Accounts.
Derivative Financial Instruments
Derivatives are financial instruments whose values are derived from interest
rates, foreign exchange rates, various financial indices, or the value of
securities or commodities. Derivative financial instruments used by the Company
are futures and can be exchange-traded or contracted in the over-the-counter
market. The Company uses derivative financial instruments to hedge market risk
from changes in interest rates and to alter interest rate or currency exposures
arising from mismatches between assets and liabilities. All derivatives used by
the Company are for other than trading purposes.
To qualify as a hedge, derivatives must be designated as hedges for existing
assets, liabilities, firm commitments, or anticipated transactions which are
identified and probable to occur, and effective in reducing the market risk to
which the Company is exposed. The effectiveness of the derivatives must be
evaluated at the inception of the hedge and throughout the hedge period.
When derivatives qualify as hedges, the changes in the fair value or cash flows
of the derivatives and the hedged items are recognized in earnings in the same
period. If the Company's use of other than trading derivatives does not meet the
criteria to apply hedge accounting, the derivatives are recorded at fair value
in "Other liabilities" in the Statements of Financial Position, and changes in
their fair value are recognized in earnings in "Realized investment gains, net"
without considering changes in the hedged assets or liabilities. Cash flows from
other than trading derivative assets and liabilities are reported in the
operating activities section in the Statements of Cash Flows.
Income Taxes
The Company is a member of the consolidated federal income tax return of
Prudential and files separate company state and local tax returns. Pursuant to
the tax allocation arrangement, total federal income tax expense is determined
on a separate company basis. Members with losses record tax benefits to the
extent such losses are recognized in the consolidated federal tax provision.
Deferred income taxes are generally recognized, based on enacted rates, when
assets and liabilities have different values for financial statement and tax
reporting purposes. A valuation allowance is recorded to reduce a deferred tax
asset to that portion that is expected to be realized.
New Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 125"). The statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
and provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. SFAS 125
became effective January 1, 1997 and was applied prospectively. Subsequent to
June 1996, FASB issued SFAS No. 127 "Deferral of the Effective Date of Certain
Provisions of SFAS 125" ("SFAS 127"). SFAS 127 delays the implementation of SFAS
125 for one year for certain transactions, including repurchase agreements,
dollar rolls, securities lending and similar transactions. Adoption of SFAS 125
did not have a material impact on the Company's results of operations, financial
position and liquidity.
B-13
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
On January 1, 1999, the Company adopted the American Institute of Certified
Public Accountants ("AICPA") Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" ("SOP 97-3").
This statement provides guidance for determining when an insurance company or
other enterprise should recognize a liability for guaranty-fund assessments as
well as guidance for measuring the liability. The adoption of SOP 97-3 is not
expected to have a material effect on the Company's financial position or
results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS No. 133 provides, if certain conditions
are met, that a derivative may be specifically designated as (1) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment (fair value hedge), (2) a hedge of the exposure to
variable cash flows of a forecasted transaction (cash flow hedge), or (3) a
hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security or a
foreign-currency-denominated forecasted transaction (foreign currency hedge).
SFAS No. 133 does not apply to most traditional insurance contracts. However,
certain hybrid contracts that contain features which can affect settlement
amounts similarly to derivatives may require separate accounting for the "host
contract" and the underlying "embedded derivative" provisions. The latter
provisions would be accounted for as derivatives as specified by the statement.
Under SFAS No. 133, the accounting for changes in fair value of a derivative
depends on its intended use and designation. For a fair value hedge, the gain or
loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item. For a cash flow hedge, the effective
portion of the derivative's gain or loss is initially reported as a component of
other comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings. For a foreign currency hedge, the gain
or loss is reported in other comprehensive income as part of the foreign
currency translation adjustment. For all other items not designated as hedging
instruments, the gain or loss is recognized in earnings in the period of change.
The Company is required to adopt this statement by the first quarter of 2000 and
is currently assessing the effect of the new standard.
In October, 1998, the AICPA issued Statement of Position 98-7, "Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk," ("SOP 98-7"). This statement provides guidance on how
to account for insurance and reinsurance contracts that do not transfer
insurance risk. SOP 98-7 is effective for fiscal years beginning after June 15,
1999. The adoption of this statement is not expected to have a material effect
on the Company's financial position or results of operations.
Reclassifications
Certain amounts in the prior years have been reclassified to conform to current
year presentations.
B-14
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS
Fixed Maturities
The following tables provide additional information relating to fixed maturities
as of December 31:
1998
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
(In Thousands)
Fixed maturities available for sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 51,663 $ 260 $ 318 $ 51,605
Foreign government bonds 34,744 887 236 35,395
Corporate Securities 531,351 7,273 2,634 535,990
-------- -------- -------- --------
Total fixed maturities available for sale $617,758 $ 8,420 $ 3,188 $622,990
======== ======== ======== ========
1997
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
(In Thousands)
Fixed maturities available for sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 42,885 $ 340 $ 3 $ 43,222
Foreign government bonds 38,332 551 -- 38,883
Corporate securities 503,892 6,545 181 510,256
-------- -------- -------- --------
Total fixed maturities available for sale $585,109 $ 7,436 $ 184 $592,361
======== ======== ======== ========
B-15
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The amortized cost and estimated fair value of fixed maturities, categorized by
contractual maturities at December 31, 1998, are shown below:
Available for Sale
---------------------------
Amortized Estimated
Cost Fair Value
-------- ----------
(In Thousands)
Due in one year or less $ 13,645 $ 13,767
Due after one year through five years 269,252 271,525
Due after five years through ten years 255,280 257,992
Due after ten years 79,581 79,706
-------- --------
Total $617,758 $622,990
======== ========
Actual maturities will differ from contractual maturities because, in certain
circumstances, issuers have the right to call or prepay obligations.
Proceeds from the sale of fixed maturities available for sale during 1998, 1997,
and 1996 were $990.7 million, $635.4 million and $854.8 million, respectively.
Gross gains of $8.8 million, $2.9 million, and $3.9 million and gross losses of
$1.8 million, $1.2 million, and $3.8 million were realized on those sales during
1998, 1997, and 1996, respectively. Proceeds from maturities of fixed maturities
available for sale during 1998, 1997, and 1996 were $10.4 million, $10.0
million, and $47.0 million, respectively.
Writedowns for impairments of fixed maturities which were deemed to be other
than temporary were $.6 million for 1998. There were no impairments of fixed
maturities for the years 1997 and 1996.
The following table describes the credit quality of the fixed maturity
portfolio, based on ratings assigned by the National Association of Insurance
Commissioners ("NAIC") or Standard & Poor's Corporation, an independent rating
agency as of December 31, 1998:
Available for Sale
-------------------------------
Amortized Estimated
Cost Fair Value
--------- ----------
NAIC Standard & Poor's (In Thousands)
1 AAA to AA- $ 303,209 $ 306,693
2 BBB+ to BBB- 286,640 287,888
3 BB+ to BB- 27,134 27,692
4 B+ to B- 704 638
5 CCC or lower 71 79
6 In or near default -- --
--------- ---------
Total $ 617,758 $ 622,990
========= =========
B-16
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The fixed maturity portfolio consists largely of investment grade assets (rated
"1" or "2" by the NAIC), with such investments accounting for 95% and 96% of the
portfolio at December 31, 1998 and 1997, respectively, based on fair value. As
of both of those dates, no fixed maturities in the portfolio were rated "6" by
the NAIC, defined as public and private placement securities which are currently
non-performing or believed subject to default in the near-term.
The Company continually reviews fixed maturities and identifies potential
problem assets which require additional monitoring. The Company defines
"problem" fixed maturities as those for which principal and/or interest payments
are in default. The Company defines "potential problem" fixed maturities as
assets which are believed to present default risk associated with future debt
service obligations and therefore require more active management. No problem or
potential problem fixed maturities were identified in 1998 or 1997.
Special Deposits
Fixed maturities of $.5 million at both December 31, 1998 and 1997,
respectively, were on deposit with governmental authorities or trustees as
required by certain insurance laws.
Investment Income and Investment Gains and Losses
Net investment income arose from the following sources for the years ended
December 31:
1998 1997 1996
-------- -------- --------
(In Thousands)
Fixed maturities - available for sale $ 39,478 $ 37,563 $ 36,193
Policy loans 7,350 6,596 5,761
Short-term investments 3,502 3,023 2,504
Other (842) 333 28
-------- -------- --------
Gross investment income 49,488 47,515 44,486
Less investment expenses (2,456) (1,191) (702)
-------- -------- --------
Net investment income $ 47,032 $ 46,324 $ 43,784
======== ======== ========
Realized investment gains, net, including charges for other than temporary
reductions in value, for the years ended December 31, were as follows:
1998 1997 1996
-------- -------- --------
(In Thousands)
Realized investment gains $ 17,957 $ 2,898 $ 5,232
Realized investment losses (9,511) (1,191) (4,011)
-------- -------- --------
Realized investment gains, net $ 8,446 $ 1,707 $ 1,221
======== ======== ========
B-17
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
Net Unrealized Investment Gains
Net unrealized investment gains on fixed maturities available for sale are
included in the Statements of Financial Position as a component of accumulated
other comprehensive income. Changes in these amounts include adjustments to
avoid double-counting in comprehensive income, items that are included as part
of net income for a period that also have been part of other comprehensive
income in earlier periods. The amounts for the years ended December 31, net of
tax, are as follows:
1998 1997 1996
------- ------- -------
(In Thousands)
Net unrealized investment gains, beginning of year $ 2,956 $ 2,032 $ 6,588
Changes in net unrealized investment gains attributable to:
Investments:
Net unrealized investment gains on investments arising during the period 3,227 3,228 (6,403)
Reclassification adjustment for gains included in net income 4,539 1,109 860
------- ------- -------
Change in net unrealized investment gains, net of adjustments (1,312) 2,119 (7,263)
Impact of net unrealized investment gains on:
Future policy benefits 57 216 (776)
Deferred policy acquisition costs (108) (1,411) 3,483
------- ------- -------
Change in net unrealized investment gains (1,363) 924 (4,556)
------- ------- -------
Net unrealized investment gains, end of year $ 1,593 $ 2,956 $ 2,032
======= ======= =======
Unrealized gains (losses) on investments arising during the periods reported in
the above table are net of income tax expense (benefit) of $1.7 million, $1.7
million and $(3.6) million for the years ended December 31, 1998, 1997, and
1996, respectively.
Reclassification adjustments reported in the above table for the years ended
December 31, 1998, 1997, and 1996 are net of income tax expense of $(2.4)
million, $(.6) million and $(.5) million, respectively.
The future policy benefits reported in the above table are net of income tax
expense (benefit) of $.03 million, $0, and $(.4) million for the years ended
December 31, 1998, 1997 and 1996, respectively.
Deferred policy acquisition costs in the above tables for the years ended
December 31, 1998, 1997 and 1996 are net of income tax expense (benefit) of
$(.06) million, $(.8) million and $2.0 million, respectively.
4. POLICYHOLDERS' LIABILITIES
Future policy benefits and other policyholder liabilities at December 31 are as
follows:
1998 1997
------- -------
(In Thousands)
Life insurance $85,523 $80,464
Annuities 5,007 4,756
------- -------
$90,530 $85,220
======= =======
Life insurance liabilities include reserves for death and endowment policy
benefits. Annuity liabilities include reserves for immediate annuities.
B-18
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
4. POLICYHOLDERS' LIABILITIES (continued)
The following table highlights the key assumptions generally utilized in
calculating these reserves:
Product Mortality Interest Rate Estimation Method
- ---------------------- ----------------------- ---------------------- ---------------------------
Life insurance Generally rates 2.5% to 7.5% Net level premium based
guaranteed in on non-forfeiture
calculating interest rate
cash surrender values
Individual immediate 1983 Individual Annuity 6.25% to 8.75% Present value of
annuities Mortality Table with expected future payment
certain modifications based on historical experience
Policyholders' account balances at December 31, are as follows:
1998 1997
-------- --------
(In Thousands)
Individual annuities $148,327 $145,120
Interest-sensitive life contracts 265,521 257,481
-------- --------
$413,848 $402,601
======== ========
Policyholders' account balances for interest-sensitive life, individual
annuities, and guaranteed investment contracts are equal to policy account
values plus unearned premiums. The policy account values represent an
accumulation of gross premium payments plus credited interest less withdrawals,
expenses, mortality charges.
Certain contract provisions that determine the policyholder account balances are
as follows:
Product Interest Rate Withdrawal / Surrender Charges
------- ------------- ------------------------------
Interest sensitive life contracts 4.0% to 5.4% Various up to 10 years
Individual annuities 3.0% to 5.6% 0% to 8% for up to 8 years
B-19
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
5. REINSURANCE
The Company participates in reinsurance, with Prudential and other companies, in
order to provide greater diversification of business, provide additional
capacity for future growth and limit the maximum net loss potential arising from
large risks. Reinsurance ceded arrangements do not discharge the Company or the
insurance subsidiaries as the primary insurer, except for cases involving a
novation. Ceded balances would represent a liability to the Company in the event
the reinsurers were unable to meet their obligations to the Company under the
terms of the reinsurance agreements. The likelihood of a material reinsurance
liability reassumed by the Company is considered to be remote.
Reinsurance amounts included in the Statement of Operations for the year ended
December 31 are below.
1998 1997 1996
------- ------- -------
(In Thousands)
Direct Premiums $ 1,373 $ 1,117 $ 1,345
Reinsurance ceded-affiliated (28) (12) --
------- ------- -------
Premiums $ 1,345 $ 1,105 $ 1,345
======= ======= =======
Policyholders' benefits ceded $ 15 $ 14 $ 13
======= ======= =======
Reinsurance recoverables, included in "Other assets" in the Company's Statements
of Financial Position, at December 31 include amounts recoverable on unpaid and
paid losses and were as follows:
1998 1997
---- ----
(In Thousands)
Life insurance - affiliated $31 $30
--- ---
$31 $30
=== ===
B-20
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
6. INCOME TAXES
The components of income taxes for the years ended December 31, are as follows:
1998 1997 1996
-------- -------- --------
(In Thousands)
Current tax expense (benefit):
U.S. $ 14,786 $ 12,880 $ 13,589
State and local 523 399 (907)
-------- -------- --------
Total 15,309 13,279 12,682
-------- -------- --------
Deferred tax expense (benefit):
U.S. 2,198 (2,305) 2,848
State and local 63 -- 81
-------- -------- --------
Total 2,261 (2,305) 2,929
-------- -------- --------
Total income tax expense $ 17,570 $ 10,974 $ 15,611
======== ======== ========
The Company's income tax expense for the years ended December 31, differs from
the amount computed by applying the expected federal income tax rate of 35% to
income from operations before income taxes for the following reasons:
1998 1997 1996
-------- -------- --------
(In Thousands)
Expected federal income tax expense $ 17,288 $ 10,569 $ 16,589
State and local income taxes 381 259 (537)
Other (99) 146 (441)
-------- -------- --------
Total income tax expense $ 17,570 $ 10,974 $ 15,611
======== ======== ========
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
1998 1997
------- -------
(In Thousands)
Deferred income tax assets:
Insurance reserves $10,016 $ 6,907
Other -- --
------- -------
Deferred tax assets $10,016 $ 6,907
------- -------
Deferred income tax liabilities:
Deferred acquisition costs 28,509 24,725
Net investment gains 2,847 4,284
Other 2,375 86
------- -------
Deferred tax liabilities 33,731 29,095
------- -------
Net deferred federal tax liability $23,715 $22,188
======= =======
B-21
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
6. INCOME TAXES (continued)
Management believes that based on its historical pattern of taxable income, the
Company will produce sufficient income in the future to realize its deferred tax
assets after valuation allowance. Adjustments to the valuation allowance will be
made if there is a change in management's assessment of the amount of the
deferred tax asset that is realizable. At December 31, 1998 and 1997,
respectively, the Company had no federal or state operating loss carryforwards
for tax purposes.
The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns through 1989. The Service has examined
the years 1990 through 1992. Discussions are being held with the Service with
respect to proposed adjustments. Management, however, believes there are
adequate defenses against, or sufficient reserves to provide for, such
adjustments. The Service has begun their examination of the years 1993 through
1995.
B-22
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
7. EQUITY
Reconciliation of Statutory Surplus and Net Income
Accounting practices used to prepare statutory financial statements for
regulatory purposes differ in certain instances from GAAP. The following table
reconciles the Company's statutory net income and surplus as of and for the
years ended December 31, determined in accordance with accounting practices
prescribed or permitted by the New Jersey Department of Banking and Insurance
with net income and equity determined using GAAP.
1998 1997 1996
-------- -------- --------
(In Thousands)
Statutory net income $ 18,704 $ 18,306 $ 24,774
Adjustments to reconcile to net income on a GAAP basis:
Deferred acquisition costs 12,464 (3,170) 5,656
Deferred premium 534 198 221
Insurance liabilities (808) 2,324 4,784
Deferred taxes (2,261) 2,305 (2,929)
Valuation of investments 3,794 (143) (765)
Other, net (604) (597) 46
-------- -------- --------
GAAP net income $ 31,823 $ 19,223 $ 31,787
======== ======== ========
1998 1997
--------- ---------
(In Thousands)
Statutory surplus $ 252,530 $ 235,958
Adjustments to reconcile to equity on a GAAP basis:
Valuation of investments 20,799 18,540
Deferred acquisition costs 113,923 101,625
Deferred premium (1,473) (2,007)
Insurance liabilities (18,141) (19,120)
Deferred taxes (23,715) (22,188)
Other, net 1,930 2,585
--------- ---------
GAAP stockholder's equity $ 345,853 $ 315,393
========= =========
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values presented below have been determined using available
information and valuation methodologies. Considerable judgment is applied in
interpreting data to develop the estimates of fair value. Accordingly, such
estimates presented may not be realized in a current market exchange. The use of
different market assumptions and/or estimation methodologies could have a
material effect on the estimated fair values. The following methods and
assumptions were used in calculating the fair values (for all other financial
instruments presented in the table, the carrying value approximates estimated
fair value).
Fixed maturities
Estimated fair values for fixed maturities are based on quoted market prices or
estimates from independent pricing services.
Policy loans
Estimated fair value of policy loans is calculated using a discounted cash flow
model based upon current U.S. Treasury rates and historical loan repayments.
B-23
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
8. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Policyholders' account balances
Estimated fair values of policyholders' account balances are derived by using
discounted projected cash flows, based on interest rates being offered for
similar contracts, with maturities consistent with those remaining for the
contracts being valued.
Derivative financial instruments
The fair value of futures is estimated based on market quotes for transactions
with similar terms. The following table discloses the carrying amounts and
estimated fair values of the Company's financial instruments at December 31,:
1998 1997
--------------------------- ---------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------- ---------- ---------- ----------
(In Thousands)
Financial Assets:
Fixed maturities available for sale $ 622,990 $ 622,990 $ 592,361 $ 592,361
Policy loans 139,443 146,504 127,306 126,262
Short-term investments 53,761 53,761 52,464 52,464
Cash 45 45 3 3
Separate Accounts assets 1,453,407 1,453,407 1,110,561 1,110,561
Financial Liabilities:
Policyholders'
account balances $ 413,848 $ 414,602 $ 402,601 $ 401,267
Cash collateral for loaned
securities 61,634 61,634 33,663 33,663
Separate Accounts liabilities 1,450,986 1,450,986 1,108,994 1,108,994
Derivatives -- -- 83 83
B-24
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
9. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
Futures
The Company uses exchange-traded Treasury futures to reduce market risks from
changes in interest rates, to alter mismatches between the duration of assets in
a portfolio and the duration of liabilities supported by those assets, and to
hedge against changes in the value of securities it owns or anticipates
acquiring. The Company enters into exchange-traded futures with regulated
futures commissions merchants who are members of a trading exchange. The fair
value of futures is estimated based on market quotes for a transaction with
similar terms.
Under exchange-traded futures, the Company agrees to purchase a specified number
of contracts with other parties and to post variation margin on a daily basis in
an amount equal to the difference in the daily market values of those contracts.
Futures are typically used to hedge duration mismatches between assets and
liabilities by replicating Treasury performance. Treasury futures move
substantially in value as interest rates change and can be used to either
generate new or hedge existing interest rate risk. This strategy protects
against the risk that cash flow requirements may necessitate liquidation of
investments at unfavorable prices resulting from increases in interest rates .
This strategy can be a more cost effective way of temporarily reducing the
Company's exposure to a market decline than selling fixed income securities and
purchasing a similar portfolio when such a decline is believed to be over.
For futures that meet hedge accounting criteria, changes in their fair value are
deferred and recognized as an adjustment to the carrying value of the hedged
item. Deferred gains or losses from the hedges for interest-bearing financial
instruments are amortized as a yield adjustment over the remaining lives of the
hedged item. Futures that do not qualify as hedges are carried at fair value
with changes in value reported in current period earnings. The fair value of
futures contracts was immaterial at December 31, 1998 and 1997.
Credit Risk
The current credit exposure of the Company's derivative contracts is limited to
the fair value at the reporting date. Credit risk is managed by entering into
transactions with creditworthy counterparties and obtaining collateral where
appropriate and customary. The Company also attempts to minimize its exposure to
credit risk through the use of various credit monitoring techniques. All of the
net credit exposure for the Company from derivative contracts is with
investment-grade counterparties.
10. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and the
Company. Prudential has agreed to indemnify the Company for any and all losses
resulting from such litigation.
In the normal course of business, the Company is subject to various claims and
assessments. Management believes the settlement of these matters would not have
a material effect on the financial position or results of operations of the
Company.
11. DIVIDENDS
The Company is subject to New Jersey law which requires any shareholder dividend
or distribution must be filed with the New Jersey Commissioner of Insurance.
Cash dividends may only be paid out of surplus derived from realized net
profits.
B-25
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
12. RELATED PARTY TRANSACTIONS
Service Agreements
Prudential and Pruco Life of New Jersey operate under service and lease
agreements whereby services of officers and employees, supplies, use of
equipment and office space are provided by Prudential. The net cost of these
services allocated to the Company were $23.5 million, $16.2 million, and $12.2
million for the years ended December 31, 1998, 1997, and 1996, respectively.
These costs are treated in a manner consistent with the Company's policy on
deferred acquisition costs.
Prudential and Pruco Life of New Jersey have an agreement with respect to
administrative services for the Prudential Series Fund. The Company invests in
the various portfolios of the Series Fund through the Separate Accounts. Under
this agreement, Prudential pays compensation to Pruco Life of New Jersey in the
amount equal to a portion of the gross investment advisory fees paid by the
Prudential Series Fund. The Company received from Prudential its allocable
shares of such compensation in the amount of $5.6 million, $5.0 million, and
$3.5 million during 1998, 1997, and 1996 respectively, recorded in "Other
income."
Reinsurance
The Company currently has a reinsurance agreement in place with Prudential (the
reinsurer). The reinsurance agreement is a yearly renewable term agreement in
which the Company may offer and the reinsurer may accept reinsurance on any life
in excess of the Company's maximum limit of retention. The Company is not
relieved of its primary obligation to the policyholder as a result of these
reinsurance transactions. These agreements had no material effect on net income
for the years ended December 31, 1998, 1997, and 1996.
Debt Agreements
In July 1998, the Company established a revolving line of credit facility with
Prudential Funding Corporation, a wholly-owned subsidiary of Prudential. There
is no outstanding debt relating to this credit facility as of December 31, 1998.
B-26
Report of Independent Accountants
To the Board of Directors of
Pruco Life Insurance Company of New Jersey
In our opinion, the accompanying statements of financial position and the
related statements of operations, of changes in stockholder's equity and of cash
flows present fairly, in all material respects, the financial position of Pruco
Life Insurance Company of New Jersey at December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years ended
December 31, 1998 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
February 26, 1999
B-27
PRUSELECT(SM) III
Variable Life
Insurance
[LOGO] Prudential
Pruco Life Insurance Company of New Jersey
213 Washington Street, Newark, NJ 07102-2992
Telephone 800 286-7754
CVUL - 3NJ Ed. 11/99
PART II
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION WITH RESPECT TO CHARGES
Pruco Life Insurance Company of New Jersey represents that the fees and charges
deducted under the Variable Universal Life Insurance Contracts registered by
this registration statement, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by Pruco Life Insurance Company of New Jersey.
UNDERTAKING WITH RESPECT TO INDEMNIFICATION
The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.
New Jersey, being the state or organization of Pruco Life Insurance Company of
New Jersey ("Pruco Life of New Jersey"), permits entities organized under its
jurisdiction to indemnify directors and officers with certain limitations. The
relevant provisions of New Jersey law permitting indemnification can be found in
Section 14A:3-5 of the New Jersey Statutes Annotated. The text of Pruco Life of
New Jersey's By-law, Article V, which relates to indemnification of officers and
directors, is filed as Exhibit 1.A.(6)(c) to this registration statement.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-1
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 112 pages.
The undertaking to file reports.
The representation with respect to charges.
The undertaking with respect to indemnification.
The signatures.
Written consents of the following persons:
1. PricewaterhouseCoopers, LLP
2. Clifford E. Kirsch, Esq.
3. Nancy D. Davis, FSA, MAAA
The following exhibits:
1. The following exhibits correspond to those required by paragraph A of the
instructions as to exhibits in Form N-B-2:
A. (1) (a) Resolution of Board of Directors of Pruco Life Insurance
Company of New Jersey establishing the Pruco Life of New
Jersey Variable Appreciable Account. (Note 7)
(b) Amendment of Separate Account Resolution. (Note 9)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities Corporation
and Pruco Life Insurance Company of New Jersey. (Note 7)
(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the Sale
of the Contracts. (Note 9)
(c) Schedules of Sales Commissions. (Note 1)
(d) Participation Agreements and Amendments:
(i) (a) AIM Variable Insurance Funds, Inc., AIM V.I. Value
Fund. (Note 9)
(b) Amendment to the AIM Variable Insurance Funds,
Inc. Participation Agreement. (Note 1)
(ii) (a) American Century Variable Portfolios, Inc., VP
Value Portfolio. (Note 9)
(b) Amendment to the American Century Variable
Insurance Funds, Inc. Participation Agreement.
(Note 1)
(iii) (a) Janus Aspen Series, Growth Portfolio. (Note 9)
(b) Amendment to the Janus Aspen Series Participation
Agreement. (Note 1)
(iv) (a) MFS Variable Insurance Trust, Emerging Growth
Series. (Note 9)
(b) Amendment to the MFS Variable Insurance Trust
Participation Agreement. (Note 1)
(v) (a) T. Rowe Price International Series, Inc.,
International Stock Portfolio. (Note 9)
(b) Amendment to the T. Rowe Price International
Series, Inc. Participation Agreement. (Note 1)
(4) Not Applicable.
(5) Variable Universal Life Insurance Contract. (Note 9)
(6) (a) Articles of Incorporation of Pruco Life Insurance Company of
New Jersey, as amended March 11, 1983. (Note 7)
II-2
(b) Certificate of Amendment of the Articles of Incorporation of
Pruco Life Insurance Company of New Jersey, February 12,
1998. (Note 8)
(c) By-laws of Pruco Life Insurance Company of New Jersey, as
amended August 4, 1999. (Note 9)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) New Jersey Application Form for Variable Universal Life
Insurance Contract. (Note 9)
(b) Supplement to the Application for Variable Universal Life
Insurance Contract. (Note 9)
(11) Not Applicable.
(12) Memorandum describing Pruco Life Insurance Company of New
Jersey's issuance, transfer, and redemption procedures for the
Contracts pursuant to Rule 6e-3(T)(b)(12)(iii). (Note 9)
(13) Rider for Flexible Term Insurance Benefit. (Note 9)
2. See Exhibit 1.A.(5).
3. Opinion and Consent of Clifford E. Kirsch, Esq., as to the legality of the
securities being registered. (Note 1)
4. None.
5. Not Applicable.
6. Opinion and Consent of Nancy D. Davis, FSA, MAAA, as to actuarial matters
pertaining to the securities being registered. (Note 1)
7. Powers of Attorney.
(a) William M. Bethke, Ira J. Kleinman, Esther H. Milnes, I. Edward Price
(Note 4)
(b) James J. Avery, Jr. (Note 6)
(c) Dennis G. Sullivan (Note 8)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Post-Effective Amendment No. 24 to Form
S-6, Registration No. 2-81243, filed April 29, 1997 on behalf of the
Pruco Life of New Jersey Variable Insurance Account.
(Note 3) Incorporated by reference to Form 10-Q, Registration No. 333-18053,
filed August 15, 1997 on behalf of the Pruco Life Insurance Company of
New Jersey.
(Note 4) Incorporated by reference to Form N-4, Registration No. 333-18117,
filed December 18, 1996 on behalf of the Pruco Life of New Jersey
Flexible Premium Variable Annuity Account.
(Note 5) Incorporated by reference to Post-Effective Amendment No. 25 to Form
S-6, Registration No. 2-89780, filed April 25, 1996 on behalf of the
Pruco Life of New Jersey Variable Appreciable Account.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 10 to Form
S-1, Registration No. 33-20018, filed April 9, 1998 on behalf of the
Pruco Life of New Jersey Variable Contract Real Property Account.
(Note 7) Incorporated by reference to Post-Effective Amendment No. 26 to Form
S-6, Registration No. 2-89780, filed April 28, 1997 on behalf of the
Pruco Life of New Jersey Variable Appreciable Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 12 for Form
S-1, Registration No. 33-20018, filed on April 19, 1999 on behalf of
the Pruco Life of New Jersey Variable Contract Real Property Account.
(Note 9) Incorporated by reference to Registrant's Form S-6, filed August 13,
1999.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life of New Jersey Variable Appreciable Account, has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, and its seal hereunto affixed and attested, all in the city of
Newark and the State of New Jersey, on this 2nd day of November, 1999.
(Seal) PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
(Registrant)
By: PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Depositor)
Attest: /s/ Thomas C. Castano By: /s/ Esther H. Milnes
------------------------- ---------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on this 2nd day of November, 1999.
SIGNATURE AND TITLE
-------------------
/s/ *
- --------------------------------------
Esther H. Milnes
President and Director
/s/ *
- --------------------------------------
Dennis G. Sullivan
Vice President and Chief Accounting Officer
/s/ *
- --------------------------------------
James J. Avery, Jr. *By: /s/ Thomas C. Castano
Director ---------------------
Thomas C. Castano
(Attorney-in-Fact)
/s/ *
- --------------------------------------
William M. Bethke
Director
/s/ *
- --------------------------------------
Ira J. Kleinman
Director
/s/ *
- --------------------------------------
I. Edward Price
Director
II-4
EXHIBIT INDEX
Consent of PricewaterhouseCoopers LLP, independent
accountants
1.A (3)(c) Schedule of Sales Commissions
1.A (3)(d)(i)(b) Amendment to the AIM Variable Insurance Funds, Inc.
Participation Agreement
1.A (3)(d)(ii)(b) Amendment to the American Century Variable Insurance
Funds, Inc. Participation Agreement
1.A (3)(d)(iii)(b) Amendment to the Janus Aspen Series Participation
Agreement
1.A (3)(d)(iv)(b) Amendment to the MFS Variable Insurance Trust
Participation Agreement
1.A (3)(d)(v)(b) Amendment to the T. Rowe Price International Series,
Inc. Participation Agreement
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to
the legality of the securities being registered
6. Opinion and Consent of Nancy D. Davis, MAAA, FSA, as
to actuarial matters pertaining to the securities
being registered
II-5