As filed with the SEC on ____________. Registration No.___________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 -- Pursuant to Rule 24f-2 under the
Investment Company Act of 1940, the Registrant elects to register an indefinite
amount of securities.
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date as may be
necessary to delay its effective date until the Registrant shall file a further
amendment which specifically states that this Registration Statement shall
thereafter become effective on such dates as the Commission, action pursuant to
said Section 8(a), may determine.
This filing is being made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940.
Registrant elects to be governed by Rules 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940 with respect to the Contract described in this
Registration Statement.
CROSS REFERENCE SHEET
(as required by Form N-B-2)
N-B-2 Item Number Location
- ----------------- --------
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; Voting Rights;
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; 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; Cash Surrender of a Contract;
Withdrawals; Lapse and Reinstatement;
Decreases in Basic Insurance Amount; When
Proceeds are Paid; Contract Loans; Other
General Contract Provisions; 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
16. Introduction and Summary; Detailed
Information for Contract Owners
17. When Proceeds are Paid
18. Pruco Life of New Jersey Variable
Appreciable Account
19. Reports to Contract Owners
N-B-2 Item Number Location
- ----------------- --------
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
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
N-B-2 Item Number Location
- ----------------- --------
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 Pruco Life of New Jersey Variable
Appreciable Account; Financial Statements
of Pruco Life Insurance Company of New
Jersey
PART I
INFORMATION REQUIRED IN PROSPECTUS
PROSPECTUS
November 4, 2002
PRUCO LIFE of NEW JERSEY VARIABLE APPRECIABLE ACCOUNT
PruLife Advisor Select
This prospectus describes an individual flexible premium variable appreciable
life insurance contract (the "Contract") offered by Pruco Life Insurance Company
of New Jersey ("Pruco Life of New Jersey," "us," "we," or "our"). Pruco Life of
New Jersey is a wholly-owned subsidiary of The Prudential Insurance Company of
America. The Contract provides life insurance coverage with flexible premium
payments, a variety of investment options, and three types of death benefit
options. The Contract may be issued with a Target Term Rider that could have a
significant effect on the performance of your Contract. The Target Term Rider is
not available in New York. For the factors to consider when adding a Target Term
Rider to your Contract, see Riders, page 19.
You may choose to invest your Contract's premiums and its earnings in one or
more of 30 available ProFund VP variable investment options of the Pruco Life of
New Jersey Variable Appreciable Account (the "Account"):
ProFund VP variable investment options
> ProFund VP Bull > ProFund VP Short OTC
> ProFund VP Small-Cap > ProFund VP Rising Rates Opportunity
> ProFund VP OTC > ProFund VP Basic Materials
> ProFund VP Asia 30 > ProFund VP Biotechnology
> ProFund VP Europe 30 > ProFund VP Consumer Cyclical
> ProFund VP Mid-Cap Value > ProFund VP Consumer Non-Cyclical
> ProFund VP Mid-Cap Growth > ProFund VP Energy
> ProFund VP Small-Cap Value > ProFund VP Financial
> ProFund VP Small-Cap Growth > ProFund VP Healthcare
> ProFund VP U.S. Government Plus > ProFund VP Precious Metals
> ProFund VP Bull Plus > ProFund VP Real Estate
> ProFund VP UltraMid-Cap > ProFund VP Technology
> ProFund VP UltraSmall-Cap > ProFund VP Telecommunications
> ProFund VP UltraOTC > ProFund VP Utilities
> ProFund VP Bear > ProFund VP Money Market
For a complete list of the 30 available ProFund VP variable investment options,
their investment objectives, and their investment advisers, see The Funds, page
8.
This prospectus describes the Contract generally and the Pruco Life of New
Jersey Variable Appreciable Account (the "Account"). The attached prospectuses
for the Funds, and their related statements of additional information, describe
the investment objectives and the risks of investing in the Funds. Pruco Life of
New Jersey may add additional investment options in the future. Please read this
prospectus and keep it for future reference.
The Securities and Exchange Commission ("SEC") maintains a Web site
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding registrants that file electronically with the SEC.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
The Contract may be purchased through registered representatives located in
banks and other financial institutions. An investment in the Contract is not a
bank deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation ("FDIC") or any other governmental agency and may lose value. An
investment is also not a condition to the provision or term of any banking
service or activity. The participating bank is not a registered broker-dealer
and is not affiliated with Pruco Securities Corporation.
Pruco Life Insurance Company Of New Jersey
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 778-2255
PROSPECTUS CONTENTS
Page
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS...........................1
INTRODUCTION AND SUMMARY.......................................................1
Brief Description of the Contract...........................................2
Charges.....................................................................3
Types of Death Benefit......................................................6
Life Insurance Definitional Tests...........................................6
Premium Payments............................................................6
Refund......................................................................6
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 Appreciabale Account..................7
The Funds...................................................................8
Voting Rights..............................................................11
Which Investment Option Should Be Selected?................................11
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS..........................12
Charges and Expenses.......................................................12
Charges After Age 100......................................................16
Allocated Charges..........................................................16
Requirements for Issuance of a Contract....................................17
Short-Term Cancellation Right or "Free-Look"...............................17
Types of Death Benefit.....................................................17
Changing the Type of Death Benefit.........................................18
Riders.....................................................................19
Contract Date..............................................................21
Premiums...................................................................21
Allocation of Premiums.....................................................22
Death Benefit Guarantee....................................................22
Transfers..................................................................24
How a Contract's Cash Surrender Value Will Vary............................25
How a Type A (Fixed) Contract's Death Benefit Will Vary....................25
How a Type B (Variable) Contract's Death Benefit Will Vary.................26
How a Type C (Return of Premium) Contract's Death Benefit Will Vary........27
Surrender of a Contract....................................................28
Withdrawals................................................................28
Lapse and Reinstatement....................................................29
Increases in Basic Insurance Amount........................................29
Decreases in Basic Insurance Amount........................................30
When Proceeds Are Paid.....................................................31
Living Needs Benefit.......................................................31
Illustrations of Cash Surrender Values, Death Benefits,
and Accumulated Premiums...................................................32
Contract Loans.............................................................34
Tax Treatment of Contract Benefits.........................................35
Legal Considerations Relating to Sex-Distinct Premiums and Benefits........37
Other General Contract Provisions..........................................37
Substitution of Fund Shares................................................38
Reports to Contract Owners.................................................38
Sale of the Contract and Sales Commissions.................................38
State Regulation...........................................................39
Experts....................................................................39
Litigation and Regulatory Proceedings......................................39
Additional Information.....................................................40
Financial Statements.......................................................40
DIRECTORS AND OFFICERS........................................................41
FINANCIAL STATEMENTS OF THE VARIABLE APPRECIABLE LIFE SUBACCOUNTS OF
THE PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT.....................A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY OF
NEW JERSEY AND SUBSIDIARIES...................................................B1
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS
Accumulated Net Payments -- The actual premium payments you make, accumulated at
an effective annual rate of 4%, less any withdrawals you make, also accumulated
at an effective annual rate of 4%.
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,
not including riders. Also referred to as "face amount."
cash surrender value -- The amount payable to the Contract owner upon surrender
of the Contract. It is equal to the Contract Fund minus any Contract debt and
minus any applicable surrender charge. Also referred to in the Contract as "Net
Cash Value."
Contract -- The variable appreciable 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
accrued thereon.
Contract Fund -- The total amount credited to a specific Contract. On any date
it is equal to the sum of the amounts in all the variable investment options,
and the principal amount of any Contract debt plus any interest earned thereon.
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 coverage segment representing an increase, "Contract year"
is a year that starts on the effective date of the increase (referred to as
"Target year" in the Contract). See Increases in Basic Insurance Amount, page
29.
death benefit -- If the Contract is not in default, this is the amount we will
pay upon the death of the insured, assuming no Contract debt.
Death Benefit Guarantee -- Sufficient premium payments, on an accumulated basis,
will guarantee that your Contract will not lapse and a death benefit will be
paid upon the death of the insured, regardless of investment experience and
assuming no loans. See Death Benefit Guarantee, page 22.
Funds -- The separate ProFund VP portfolios. One or more of the available Funds
may be chosen as an underlying investment for the Contract.
Monthly date -- The Contract date and the same date in each subsequent month.
Pruco Life Insurance Company of New Jersey -- Us, we, our, Pruco Life of New
Jersey. The company offering the Contract.
separate account -- "Amounts under the Contract that are allocated to the
variable investment options are held by us in a separate account called the
Pruco Life of New Jersey Variable Appreciable Account (the "Account"). The
separate account is set apart from all of the general assets of Pruco Life
Insurance Company of New Jersey.
valuation period -- The period of time from one determination of the value of
the amount invested in a variable investment option to the next. Such
determinations are made when the net asset values of the portfolios of the Funds
are calculated, which is generally at 4:00 p.m. Eastern time on each day during
which the New York Stock Exchange is open.
variable investment options -- The portfolios of the mutual funds available
under this Contract, whose shares are held in the separate account.
you -- The owner of the Contract.
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.
1
Brief Description of the Contract
The Contract is a form of variable appreciable life insurance. It is based on a
Contract Fund, the value of which changes every day. The chart on the following
page describes how the value of your Contract Fund changes.
A broad objective of the Contract is to provide benefits that will increase in
value if favorable investment results are achieved. You may invest premiums in
one or more of the 30 available ProFund VP variable investment options. Your
Contract Fund value changes every day depending upon the change in the value of
the particular investment options you have selected. These Contracts may be
issued with a Target Term Rider that could have a significant effect on the
performance of your Contract. The Target Term Rider is not available in New
York. For the factors to consider when adding a Target Term Rider to your
Contract, see Riders, page 19.
Although the value of your Contract Fund will increase if there is favorable
investment performance in the variable investment options you select, investment
returns in the variable investment options are NOT guaranteed. There is a risk
that investment performance will be unfavorable and that the value of your
Contract Fund will decrease. The risk will be different, depending upon which
investment options you choose. See Which Investment Option Should Be Selected?,
page 11. Variable life insurance contracts are unsuitable as short-term saving
vehicles.
The variable investment options of this Contract were chosen to accommodate
those who plan to use programmed, large, or frequent transfers among the
variable investment options, or "market timing". "Market timing" is the practice
of making frequent and typically large transfers among variable investment
options in response to changes in the outlook for various markets with an
expectation of increasing investment returns. Our other variable life insurance
Contracts are not designed to accommodate such activity. By issuing this
product, we don't in any way endorse or recommend the practice of market timing.
However, we acknowledge that there are those who do believe in this practice and
this product is designed to meet the needs of such persons.
Transfers between the variable investment options in this Contract are subject
to restrictions concerning the time of day by which the transfer request must be
properly received in our Service Office. See Transfers, page 24. Premium
payments, surrender of a contract, withdrawals, and loans are also subject to
time of day restrictions.
The investment strategies of some of the Funds are designed to both positively
and negatively exceed the daily investment results of the relevant benchmark
indices. This Contract is designed for those that can tolerate substantial
volatility in investment results.
We will allow you to designate an investment advisor that you select,
compensate, and supervise, to request transfers between variable investment
options on your behalf. If you choose to have an investment advisor request
transfers on your behalf, we must first receive a proper limited power of
attorney. We may require that your investment advisor provide acceptable
identification before we allow the investment advisor to perform transfers on
your behalf.
It is possible that an investment advisor you select may already sell or
distribute our life insurance Contracts. Even if that is the case, the
investment advisor will be acting under your supervision in providing investment
advice. We are not responsible for the advice provided by the investment advisor
or for any transfers the investment advisor makes.
If you elect to make withdrawals - for example, in order to compensate an
investment advisor - any such withdrawals may result in a reduction in the basic
insurance amount and death benefit of the Contract. The withdrawal will also be
subject to fees as described elsewhere in this prospectus, including surrender
charges. There may also be tax consequences of making withdrawals. See
Withdrawals, page 28.
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.
For the DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, see page 1.
2
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 following chart, as well as the lower current
charges, are fully described under Charges and Expenses, page 11.
---------------------------
Premium Payment
---------------------------
|
----------------------------------------------
o less a charge of up to 7.5% of the
premiums paid for taxes attributable
to premiums.
o less a charge for sales expenses of
up to 6% of the premiums paid.
----------------------------------------------
|
---------------------------------------------------------
Invested Premium Amount
o To be invested in one or more of the 30 ProFund VP
variable investment options.
---------------------------------------------------------
|
-------------------------------------------------------------------
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.
-------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
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 variable
investment options.
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 4.10% or 5%.) See Contract Loans,
page 34.
o Subtraction of any decrease due to investment results of the chosen
variable investment options.
o Subtraction of any amount withdrawn.
o Subtraction of the charges listed below, as applicable.
- --------------------------------------------------------------------------------
|
- --------------------------------------------------------------------------------
Daily Charges
o Management fees and expenses are deducted from the Fund assets. See
Underlying Portfolio Expenses chart, below.
o We deduct a daily mortality and expense risk charge, equivalent to an
annual rate of up to 0.45%, from the assets in the variable investment
options.
- --------------------------------------------------------------------------------
3
- --------------------------------------------------------------------------------
Monthly Charges
o We reduce the Contract Fund by a monthly administrative charge of up to
$20 for each contract year; plus an amount of up to $1.12 per $1,000 of
the basic insurance amount for the first five Contract years, zero
thereafter. The amount per $1,000 varies by sex, issue age,
smoker/nonsmoker status, and extra rating class, if any. See Monthly
Deductions from the Contract Fund, page 14.
o For each coverage segment representing an increase in basic insurance
amount, we will deduct $12 per segment for the first two years of the
coverage segment and zero thereafter; plus an amount of up to $1.12 per
$1,000 of the coverage segment for an increase in basic insurance amount
for the first five years from the effective date of the increase and zero
thereafter. The amount per $1,000 varies by the sex, issue age,
smoker/nonsmoker status, extra rating class, if any, and the effective
date of the increase. See Increases in Basic Insurance Amount, page 29 and
Monthly Deductions from the Contract Fund, page 14.
o In either of the instances described above, the highest charge per
thousand is $1.12 and applies to male and female smoker and non-smoker
above age 74 at certain rating classes. The lowest charge per thousand is
$0.03 and applies to female age 0-14, non-smoker at certain rating
classes.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Possible Additional Charges
o We will deduct a surrender charge if, during the first 10 Contract years
(or during the first 10 years of a coverage segment representing an
increase in basic insurance amount), the Contract lapses, is surrendered,
or the basic insurance amount is decreased (including as a result of a
withdrawal or a death benefit type change). The surrender charge is a
percentage of the Surrender Target Premium. The percentage varies by issue
age. The Surrender Target Premium is equal to the Sales Load Target
Premium at the time the policy (or coverage) is issued less premiums for
riders or extras. The duration of the surrender charge also varies by
issue age. The maximum first year percentage, which applies to issue ages
0-45, is 90% of the Surrender Target Premium and is reduced annually at a
constant rate to zero by the end of the 10th year. For issue ages above
age 45, the percentages are reduced. The surrender charge period is
shorter for Contracts issued to insureds over age 55. See Surrender
Charges, page 15.
o We will 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 19.
- --------------------------------------------------------------------------------
4
- -------------------------------------------------------------------------------------------------------------------------------
Underlying Portfolio Expenses
- -------------------------------------------------------------------------------------------------------------------------------
Investment Total Total
Advisory Other 12b-1 Contractual Actual
The ProFund VP variable investment options Fee Expenses Fees Expenses Expenses*
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Bull (1) 0.75% 1.25% 0.25% 2.25% 1.98%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Small-Cap (1) 0.75% 1.65% 0.25% 2.65% 2.25%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP OTC 0.75% 0.91% 0.25% 1.91% 1.91%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Asia 30 (2) 0.75% 0.94% 0.25% 1.94% 1.94%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Europe 30 0.75% 0.89% 0.25% 1.89% 1.89%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Mid-Cap Value (2) 0.75% 0.96% 0.25% 1.96% 1.96%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Mid-Cap Growth (2) 0.75% 0.96% 0.25% 1.96% 1.96%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Small-Cap Value (2) 0.75% 0.97% 0.25% 1.97% 1.97%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Small-Cap Growth (2) 0.75% 0.97% 0.25% 1.97% 1.97%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP U.S. Government Plus (2) 0.50% 0.95% 0.25% 1.70% 1.70%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Bull Plus 0.75% 0.94% 0.25% 1.94% 1.94%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP UltraMid-Cap (2) 0.75% 0.97% 0.25% 1.97% 1.97%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP UltraSmall-Cap (1) 0.75% 1.11% 0.25% 2.11% 1.98%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP UltraOTC 0.75% 0.95% 0.25% 1.95% 1.95%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Bear 0.75% 0.89% 0.25% 1.89% 1.89%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Short OTC (2) 0.75% 0.95% 0.25% 1.95% 1.95%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Rising Rates Opportunity (2) 0.75% 0.95% 0.25% 1.95% 1.95%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Basic Materials (2) 0.75% 0.96% 0.25% 1.96% 1.96%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Biotechnology (1) 0.75% 1.03% 0.25% 2.03% 1.98%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Consumer Cyclical (2) 0.75% 0.96% 0.25% 1.96% 1.96%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Consumer Non-Cyclical (2) 0.75% 0.96% 0.25% 1.96% 1.96%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Energy (1) 0.75% 1.05% 0.25% 2.05% 1.98%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Financial (1) 0.75% 1.10% 0.25% 2.10% 1.98%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Healthcare (1) 0.75% 1.06% 0.25% 2.06% 1.98%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Precious Metals (2) 0.75% 0.96% 0.25% 1.96% 1.96%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Real Estate (1) 0.75% 0.99% 0.25% 1.99% 1.98%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Technology (1) 0.75% 1.10% 0.25% 2.10% 1.98%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Telecommunications (1) 0.75% 1.17% 0.25% 2.17% 1.98%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Utilities (1) 0.75% 1.05% 0.25% 2.05% 1.98%
- -------------------------------------------------------------------------------------------------------------------------------
ProFund VP Money Market 0.75% 0.60% 0.25% 1.60% 1.60%
- -------------------------------------------------------------------------------------------------------------------------------
* Reflects fee waivers, reimbursement of expenses, and expense reductions, if any.
- -------------------------------------------------------------------------------------------------------------------------------
(1) ProFund Advisors LLC has contractually agreed to waive Investment Advisory
and Management Services Fees and to reimburse other expenses to the extent
Total Annual Operating Expenses, as a percentage of average daily net
assets, exceed 1.98% (2.25% for ProFund VP Small-Cap) through December 31,
2002. After such date, any of the expense limitations may be terminated or
revised. Amounts waived or reimbursed in a particular fiscal year may be
repaid to ProFund Advisors LLC from time to time through the next three
fiscal years to the extent that the repayment will not cause the Fund's
expenses to exceed the stated limit during the respective year. A waiver
or reimbursement lowers the expense ratio and increases overall returns to
the investor.
(2) These Portfolios commenced operations on May 1,2002. "Other Expenses"
shown are based on estimated amounts for the fiscal year ending December
31,2002.
5
The expenses relating to the ProFund VP variable investment options have been
provided to Pruco Life of New Jersey by ProFund Advisors LLC. Pruco Life of New
Jersey has not independently verified them.
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 surrender 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
surrender value and the death benefit both vary with investment experience. For
Type A and Type B death benefits, as long as the Contract is in-force, the death
benefit will never be less than the basic insurance amount shown in your
Contract. 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. You may change your Contract's death benefit type
after issue; however, if you choose a Type A or Type B death benefit at issue,
you will not be able to change to a Type C death benefit thereafter. See Types
of Death Benefit, page 17 and Changing the Type of Death Benefit, page 18.
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 35.
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 in-force if the Contract Fund less any applicable surrender
charges is greater than zero and more than any Contract debt. Paying
insufficient premiums, poor investment results, or the taking of loans or
withdrawals from the Contract will increase the possibility that the Contract
will lapse. However, if the accumulated premiums you pay are high enough and
there is no Contract debt, Pruco Life of New Jersey guarantees that your
Contract will not lapse even if investment experience is very unfavorable and
the Contract Fund drops below zero. The length of time that the guarantee
against lapse is available depends on your Contract's death benefit type and the
definition of life insurance test selected at issue. See Premiums, page 21,
Death Benefit Guarantee, page 22 and Lapse and Reinstatement, page 29. Premium
payments must be received at our Service Office ninety minutes prior to any
announced closing of the New York Stock Exchange or they will be applied as of
the end of the valuation period the next business day.
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 21.
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 17.
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") is a
stock life insurance company, organized in 1982 under the laws of New Jersey. It
is licensed to sell life insurance and annuities in the state of New
6
Jersey and New York. These Contracts are not offered in any state where the
necessary approvals have not been obtained. Pruco Life of New Jersey's
consolidated 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.
Pruco Life of New Jersey is and indirect, wholly-owned subsidiary of The
Prudential Insurance Company of America ("Prudential"), a New Jersey stock life
insurance company that has been doing business since 1875. Prudential is an
indirect wholly-owned subsidiary of Prudential Financial, Inc. ("Prudential
Financial"), a New Jersey insurance holding company. As Pruco Life of New
Jersey's ultimate parent, Prudential Financial exercises significant influence
over the operations and capital structure of Pruco Life of New Jersey and
Prudential. However, neither Prudential Financial, Prudential, nor any other
related company has any legal responsibility to pay amounts that Pruco Life of
New Jersey may owe under the contract or policy.
The Pruco Life of New Jersey Variable Appreciable Account
We have established a separate account, the Pruco Life of New Jersey Variable
Appreciable Account (the "Account"), to hold the assets that are associated with
the Contracts. The Account was established on April 17, 1989 under Arizona law
and is registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940 as a unit investment trust, which is a type of
investment company. The Account meets the definition of a "separate account"
under the federal securities laws. The Account holds assets that are segregated
from all of Pruco Life of New Jersey's other assets.
Pruco Life of New Jersey is 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 additional assets will be transferred to
Pruco Life's general account. Pruco Life of New Jersey will consider any
possible adverse impact the transfer might have on the Account before making any
such transfer.
The obligations to Contract owners and beneficiaries arising under the Contracts
are general corporate obligations of Pruco Life of New Jersey.
The account is currently divided into 30 subaccounts (the "variable investment
options"), each of which invests its assets in shares of the corresponding
ProFund VP portfolios (the "Funds") described below.
Pruco Life of New Jersey may add additional variable investment options in the
future. The Account's financial statements begin on page A1.
7
The Funds
Listed below are the Funds in which the variable investment options invest,
their investment objectives, and investment adviser.
The Funds have a separate prospectus ("Fund prospectus") that is provided with
this prospectus. You should read the Fund prospectus before you decide to
allocate assets to a variable investment option using that Fund. There is no
assurance that the investment objective of any Fund will be met.
ProFund VP variable investment options:
ProFund VP Bull: The investment objective is to seek daily investment results,
before fees and expenses, that correspond to the daily performance of the S&P
500 Index. The investment strategy is to invest its assets in securities and
other financial instruments that ProFund Advisors LLC believes should simulate
the movement of the underlying benchmark index.
ProFund VP Small-Cap: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to the daily performance of
the Russell 2000 Index. The investment strategy is to commit at least 80% of its
assets to investments that, in combination, have investment characteristics
similar to small-capitalization equity securities.
ProFund VP OTC: The investment objective is to seek daily investment results,
before fees and expenses, that correspond to the daily performance of the
NASDAQ-100 Index. The investment strategy is to invest its assets in securities
and other financial instruments that ProFund Advisors LLC believes should
simulate the movement of the underlying benchmark index.
ProFund VP Asia 30: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to the daily performance of
the ProFunds Asia 30 Index. The investment strategy is to commit at least 80% of
its assets to investments that, in combination, have investment characteristics
similar to the Asian companies represented in the underlying benchmark index.
ProFund VP Europe 30: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to the daily performance of
the ProFunds Europe 30 Index. The investment strategy is to commit at least 80%
of its assets to investments that, in combination, have investment
characteristics similar to the European companies represented in the underlying
benchmark index.
ProFund VP Mid-Cap Value: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to the daily performance of
the S&P MidCap 400/BARRA Value Index. The investment strategy is to commit at
least 80% of its assets to investments that, in combination, have investment
characteristics similar to mid-capitalization equity securities.
ProFund VP Mid-Cap Growth: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to the daily performance of
the S&P MidCap 400/BARRA Growth Index. The investment strategy is to commit at
least 80% of its assets to investments that, in combination, have investment
characteristics similar to mid-capitalization equity securities.
ProFund VP Small-Cap Value: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to the daily performance of
the S&P SmallCap 600/BARRA Value Index. The investment strategy is to commit at
least 80% of its assets to investments that, in combination, have investment
characteristics similar to small-capitalization equity securities.
ProFund VP Small-Cap Growth: The investment objective is to seek daily
investment results, before fees and expenses, that correspond to the daily
performance of the S&P SmallCap 600/BARRA Growth Index. The investment strategy
is to commit at least 80% of its assets to investments that, in combination,
have investment characteristics similar to small-capitalization equity
securities.
ProFund VP U.S. Government Plus: The investment objective is to seek daily
investment results, before fees and expenses, that correspond to one and one
quarter times (125%) the daily price movement of the most recently issued
30-year U.S. Treasury Bond ("Long Bond"). The investment strategy is to commit
at least 80% of its assets to investments that, in combination, have investment
characteristics similar to the Long Bond.
8
ProFund VP Bull Plus: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to one and a half times
(150%) the daily performance of the S&P 500 Index. The investment strategy is to
invest its assets in securities and other financial instruments that ProFund
Advisors LLC believes should simulate the movement of the underlying benchmark
index.
ProFund VP UltraMid-Cap: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to twice (200%) the daily
performance of the S&P MidCap 400 Index. The investment strategy is to commit at
least 80% of its assets to investments that, in combination, have investment
characteristics similar to mid-capitalization equity securities.
ProFund VP UltraSmall-Cap: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to twice (200%) the daily
performance of the Russell 2000 Index. The investment strategy is to commit at
least 80% of its assets to investments that, in combination, have investment
characteristics similar to small-capitalization equity securities.
ProFund VP UltraOTC: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to twice (200%) the daily
performance of the NASDAQ-100 Index. The investment strategy is to invest its
assets in securities and other financial instruments that ProFund Advisors LLC
believes should track the movement of the Fund's benchmark.
ProFund VP Bear: The investment objective is to seek daily investment results,
before fees and expenses, that correspond to the inverse (opposite) of the daily
performance of the S&P 500 Index. The investment strategy is to invest in
futures contracts, options on futures contracts, options contracts, swaps and
other financial instruments, and engage in short sales in a manner that tracks
the Fund's benchmark. ProFund VP Bear generally does not invest in traditional
securities, such as common stock of operating companies.
ProFund VP Short OTC: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to the inverse (opposite) of
the daily performance of the NASDAQ-100 Index. The investment strategy is to
invest in futures contracts, options on futures contracts, options contracts,
swaps and other financial instruments, and engage in short sales in a manner
that tracks the Fund's benchmark. ProFund VP Short OTC generally does not invest
in traditional securities, such as common stock of operating companies.
ProFund VP Rising Rates Opportunity: The investment objective is to seek daily
investment results, before fees and expenses, that correspond to 125% of the
inverse (opposite) of the daily price movement of the most recently issued
30-year U.S. Treasury Bond ("Long Bond"). The investment strategy is to invest
in futures contracts, options on futures contracts, options contracts, swaps and
other financial instruments, and engage in short sales in a manner that tracks
the Fund's benchmark. ProFund VP Rising Rates Opportunity generally does not
invest in traditional securities, such as common stock of operating companies.
ProFund VP Basic Materials: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to the daily performance of
the Dow Jones U.S. Basic Materials Sector Index. The investment strategy is to
commit at least 80% of its assets to investments that, in combination, have
investment characteristics similar to the basic materials companies represented
in the underlying benchmark index.
ProFund VP Biotechnology: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to the daily performance of
the Dow Jones U.S. Index for the Biotechnology Sector. The investment strategy
is to commit at least 80% of its assets to investments that, in combination,
have investment characteristics similar to the biotechnology companies
represented in the underlying benchmark index.
ProFund VP Consumer Cyclical: The investment objective is to seek daily
investment results, before fees and expenses, that correspond to the daily
performance of the Dow Jones U.S. Index for the Consumer Cyclical Sector. The
investment strategy is to commit at least 80% of its assets to investments that,
in combination, have investment characteristics similar to the consumer cyclical
companies represented in the underlying benchmark index.
9
ProFund VP Consumer Non-Cyclical: The investment objective is to seek daily
investment results, before fees and expenses, that correspond to the daily
performance of the Dow Jones U.S. Index for the Consumer Non-Cyclical Sector.
The investment strategy is to commit at least 80% of its assets to investments
that, in combination, have investment characteristics similar to the consumer
non-cyclical companies represented in the underlying benchmark index.
ProFund VP Energy: The investment objective is to seek daily investment results,
before fees and expenses, that correspond to the daily performance of the Dow
Jones U.S. Index for the Energy Sector. The investment strategy is to commit at
least 80% of its assets to investments that, in combination, have investment
characteristics similar to the energy companies represented in the underlying
benchmark index.
ProFund VP Financial: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to the daily performance of
the Dow Jones U.S. Index for the Financial Sector. The investment strategy is to
commit at least 80% of its assets to investments that, in combination, have
investment characteristics similar to the financial companies represented in the
underlying benchmark index.
ProFund VP Healthcare: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to the daily performance of
the Dow Jones U.S. Index for the Healthcare Sector. The investment strategy is
to commit at least 80% of its assets to investments that, in combination, have
investment characteristics similar to the healthcare companies represented in
the underlying benchmark index.
ProFund VP Precious Metals: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to the daily performance of
the Philadelphia Stock Exchange Gold and Silver Sector Index. The investment
strategy is to commit at least 80% of its assets to investments that, in
combination, have investment characteristics similar to the precious metals
companies represented in the underlying benchmark index.
ProFund VP Real Estate: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to the daily performance of
the Dow Jones U.S. Real Estate Index. The investment strategy is to commit at
least 80% of its assets to investments that, in combination, have investment
characteristics similar to the real estate companies represented in the
underlying benchmark index.
ProFund VP Technology: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to the daily performance of
the Dow Jones U.S. Index for the Technology Sector. The investment strategy is
to commit at least 80% of its assets to investments that, in combination, have
investment characteristics similar to the technology companies represented in
the underlying benchmark index.
ProFund VP Telecommunications: The investment objective is to seek daily
investment results, before fees and expenses, that correspond to the daily
performance of the Dow Jones U.S. Index for the Telecommunications Sector. The
investment strategy is to commit at least 80% of its assets to investments that,
in combination, have investment characteristics similar to the
telecommunications companies represented in the underlying benchmark index.
ProFund VP Utilities: The investment objective is to seek daily investment
results, before fees and expenses, that correspond to the daily performance of
the Dow Jones U.S. Index for the Utilities Sector. The investment strategy is to
commit at least 80% of its assets to investments that, in combination, have
investment characteristics similar to the utilities companies represented in the
underlying benchmark index.
ProFund VP Money Market: The investment objective is to seek as high a level of
current income as is consistent with liquidity and preservation of capital. The
investment strategy is to invest in high-quality, short-term money market
instruments.
Each Fund, except for ProFund VP Money Market, may invest in futures contracts
on stock indices, options on futures contracts, and other financial instruments
as a substitute for investing directly in stocks or bonds in order to gain
exposure to the appropriate benchmark index or security. Each Fund may hold U.S.
government securities, including government agency securities, money market
instruments or cash equivalents. In addition, each Fund, except for ProFund VP
Money Market, may borrow money for investment purposes.
ProFund Advisors LLC is the investment advisor and is responsible for the
day-to-day management of the Funds and other business affairs of the Funds.
ProFund Advisors LLC's principal business address is 7501 Wisconsin Ave, Suite
1000, Bethesda, Maryland 20814.
10
Each of the Funds and/or an affiliate of the Funds may compensate Pruco Life of
New Jersey based upon an annual percentage of the average assets held in the
Fund by Pruco Life of New Jersey under the Contracts. These percentages may vary
by Fund and reflect administrative and other services we provide.
Voting Rights
We are the legal owner of the Fund shares associated with the ProFund VP
variable investment options. However, we vote the shares in the Fund according
to voting instructions we receive from Contract owners. We will mail you a
proxy, which is a form you need to complete and return to us to tell us how you
wish us to vote. When we receive those instructions, we will vote all of the
shares we own on your behalf in accordance with those instructions. We will vote
the shares for which we do not receive instructions and shares that we own, in
the same proportion as the shares for which instructions are received. We may
change the way your voting instructions are calculated if it is required by
federal or state regulation. 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.
Which Investment Option Should Be Selected?
If you decide to apply for this policy, you should seriously consider engaging
the services of an investment advisor to advise you on the proper use of
investment options as part of an overall asset allocation strategy. The variable
investment options of this Contract were chosen to accommodate those who plan to
use programmed, large, or frequent transfers among the variable investment
options. These strategies have significant risks associated with them. The
principal risk is that you or your investment advisor may misread the various
markets and make ill-advised transfers, thereby resulting in investment results
that are less favorable than they would have been in the absence of such
activity. Also, the potential negative impact of bad decisions is magnified by
the fact that an active investment strategy may involve large amounts and be
concentrated in select markets. There are those who assert that (1) the
frequency of transfers increases the volatility of investment results, and (2)
being "out of the market" as a result of market timing activity has a
significant statistically negative impact on investment results. All of these
risks, as well as all the other risks mentioned below, will be present whether
you direct the transfers yourself or engage the services of an investment
advisor.
The investment strategies of some of the ProFund VP portfolios are designed to
magnify (both positively and negatively) the investment results of the
applicable benchmark index. These "leveraged" Funds are the ProFund VP U.S.
Government Plus, ProFund VP Bull Plus, ProFund VP UltraMid-Cap, ProFund VP
UltraSmall-Cap, ProFund VP UltraOTC and ProFund VP Rising Rates Opportunity. The
investment results of these leveraged Funds are expected to exhibit
significantly greater volatility than the other investment options available
under this Contract. When compared to the universe of open-end mutual funds, the
leveraged Funds are considered to be among the most volatile. The leveraged
investment techniques employed by these Funds (including the borrowing costs
incurred in creating leverage) should cause investors to lose more money in
adverse environments. For example, if the daily objective of a Fund seeks to
double the benchmark index, and the benchmark index suffers a 10% loss in value,
the Fund would be expected to lose approximately 20% of its value before
consideration of the borrowing costs and other fees and expenses. Considering
the borrowing costs and other fees and expenses, the loss would be even greater
than 20%. Similarly, a 10% gain in the benchmark index would be expected to
produce less than a 20% gain in the Fund due to the combined effect of the
leverage and the borrowing costs and other fees and expenses.
None of the ProFund VP portfolios seek to provide correlation with its
respective benchmark over any period of time other than daily. The effect of the
fees and expenses associated with the Funds and the compounding of returns may
cause the performance of these Funds to differ, potentially significantly, from
their benchmarks over time. This is particularly true for the leveraged Funds
due to the multiplier effect of leverage.
In addition to all of the risks mentioned above, there are specific investment
risks associated with the various ProFund VP portfolios (such as Active Trading
Risk, Concentration Risk, Correlation Risk, Swap Counterparty Credit Risk and
Risks of Aggressive Investment Techniques) that are described in detail in the
attached Fund prospectus. You should read the attached Fund prospectus very
carefully before applying for this policy, which qualifies in its entirety the
foregoing summary of the Funds.
11
DETAILED INFORMATION FOR
PROSPECTIVE CONTRACT OWNERS
Charges and Expenses
The total amount invested at any time in the Contract Fund consists of the sum
of the amount credited to the variable investment options and the principal
amount of any Contract loan plus the amount of interest credited to the Contract
upon that loan. See Contract Loans, page 34. Most charges, although not all, are
made by reducing the Contract Fund.
This section provides a more detailed description of each charge that is
described briefly in the chart on page 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 reserve the right to charge up to 7.5% for taxes attributable to
premiums. For these purposes, "taxes attributable to premiums" shall
include any federal, state or local income, premium, excise, business or
any other type of tax (or component thereof) measured by or based upon the
amount of premium received by Pruco Life of New Jersey. During 2001, Pruco
Life of New Jersey received a total of approximately $10,000 in taxes
attributable to premiums.
This 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 and is Pruco Life of New
Jersey's estimate of the average burden of state taxes generally. Tax
rates vary from jurisdiction to jurisdiction and generally range from 0%
to 5%. The rate applies uniformly to all contract owners without regard to
state of residence. 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 reserve the right to charge up to 6% of premiums paid for sales
expenses in all Contract years. This charge, often called a "sales load",
is deducted to compensate us for the costs of selling the Contracts,
including commissions, advertising and the printing and distribution of
prospectuses and sales literature.
Currently, the charge is equal to 4% of premiums paid up to the amount of
the Sales Load Target Premium and 2% of premiums paid in excess of this
amount for the first 10 Contract years (or the first 10 years of a
coverage segment representing an increase in basic insurance amount); 0%
thereafter. The Sales Load Target Premium may vary from the Target
Premium, depending on the issue age and rating class of the insured, any
extra risk charges, or additional riders. For Contracts issued on an
unrated insured below age 56, the Sales Load Target Premium is generally
equal to what the Target Premium for a Type A Contract would be if the
insured was either in the Nonsmoker or Smoker rating class, and there were
no extra risk charges or riders on the Contract. For Contracts issued on
an unrated insured below age 56 in a more favorable rating class, the
Sales Load Target Premium will be greater than the Target Premium, if
there are no extra risk charges or riders on the Contract. For Contracts
issued on insureds age 56 or greater or with substandard ratings, the
Sales Load Target Premium will generally be less than the Target Premium.
See Premiums, page 21.
Paying more than the Sales Load Target Premium in any of the first 10
Contract years could reduce your total sales load. For example, assume
that a Contract with no riders or extra insurance charges has a Sales Load
Target Premium of $884 and the Contract owner would like to pay 10
premiums. If the Contract owner paid $1,768 (two times the amount of the
Sales Load Target Premium) in every other Contract year up to the ninth
year (i.e. in years 1, 3, 5, 7, 9), the total sales load charge would be
$265.20. If the Contract owner paid $884 in each of the first 10 Contract
years, the total sales load would be $353.60. For additional information,
see Increases in Basic Insurance Amount, page 29.
Attempting to structure the timing and amount of premium payments to
reduce the potential sales load may increase the risk that your Contract
will lapse without value. Delaying the payment of premium amounts to later
years will adversely affect the Death Benefit Guarantee if the accumulated
premium payments do not reach the
12
Death Benefit Guarantee Values shown on your Contract data pages. See
Death Benefit Guarantee, page 22. 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 35. During 2001, Pruco Life of New Jersey received a total of
approximately $10,000 in sales charges.
Deductions from Funds
An investment advisory fee is deducted daily from each Fund at a rate, on an
annualized basis ranging from 0.50% for ProFund VP US Government Plus to 0.75%
for all other Funds. The expenses incurred in conducting the investment
operations of the Funds (such as custodian fees and preparation and distribution
of annual reports) are paid out of the Funds' assets. These expenses vary from
Fund to Fund.
The total expenses of each Fund for the year ended December 31, 2001, expressed
as a percentage of the average assets during the year, are shown below:
- --------------------------------------------------------------------------------------------------------------------------------
Total Portfolio Expenses
- --------------------------------------------------------------------------------------------------------------------------------
Investment Total
Advisory Other 12b-1 Contractual Total Actual
The ProFund VP variable investment options Fee Expenses Fees Expenses Expenses*
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Bull (1) 0.75% 1.25% 0.25% 2.25% 1.98%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Small-Cap (1) 0.75% 1.65% 0.25% 2.65% 2.25%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP OTC 0.75% 0.91% 0.25% 1.91% 1.91%
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ProFund VP Asia 30 (2) 0.75% 0.94% 0.25% 1.94% 1.94%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Europe 30 0.75% 0.89% 0.25% 1.89% 1.89%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Mid-Cap Value (2) 0.75% 0.96% 0.25% 1.96% 1.96%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Mid-Cap Growth (2) 0.75% 0.96% 0.25% 1.96% 1.96%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Small-Cap Value (2) 0.75% 0.97% 0.25% 1.97% 1.97%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Small-Cap Growth (2) 0.75% 0.97% 0.25% 1.97% 1.97%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP U.S. Government Plus (2) 0.50% 0.95% 0.25% 1.70% 1.70%
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ProFund VP Bull Plus 0.75% 0.94% 0.25% 1.94% 1.94%
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ProFund VP UltraMid-Cap (2) 0.75% 0.97% 0.25% 1.97% 1.97%
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ProFund VP UltraSmall-Cap (1) 0.75% 1.11% 0.25% 2.11% 1.98%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP UltraOTC 0.75% 0.95% 0.25% 1.95% 1.95%
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ProFund VP Bear 0.75% 0.89% 0.25% 1.89% 1.89%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Short OTC (2) 0.75% 0.95% 0.25% 1.95% 1.95%
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ProFund VP Rising Rates Opportunity (2) 0.75% 0.95% 0.25% 1.95% 1.95%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Basic Materials (2) 0.75% 0.96% 0.25% 1.96% 1.96%
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ProFund VP Biotechnology (1) 0.75% 1.03% 0.25% 2.03% 1.98%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Consumer Cyclical (2) 0.75% 0.96% 0.25% 1.96% 1.96%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Consumer Non-Cyclical (2) 0.75% 0.96% 0.25% 1.96% 1.96%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Energy (1) 0.75% 1.05% 0.25% 2.05% 1.98%
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ProFund VP Financial (1) 0.75% 1.10% 0.25% 2.10% 1.98%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Healthcare (1) 0.75% 1.06% 0.25% 2.06% 1.98%
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ProFund VP Precious Metals (2) 0.75% 0.96% 0.25% 1.96% 1.96%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Real Estate (1) 0.75% 0.99% 0.25% 1.99% 1.98%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Technology (1) 0.75% 1.10% 0.25% 2.10% 1.98%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Telecommunications (1) 0.75% 1.17% 0.25% 2.17% 1.98%
- --------------------------------------------------------------------------------------------------------------------------------
ProFund VP Utilities (1) 0.75% 1.05% 0.25% 2.05% 1.98%
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ProFund VP Money Market 0.75% 0.60% 0.25% 1.60% 1.60%
- --------------------------------------------------------------------------------------------------------------------------------
* Reflects fee waivers, reimbursement of expenses, and expense reductions, if any.
- --------------------------------------------------------------------------------------------------------------------------------
(1) ProFund Advisors LLC has contractually agreed to waive Investment Advisory
and Management Services Fees and to reimburse other expenses to the extent
Total Annual Operating Expenses, as a percentage of average daily net
assets, exceed 1.98% (2.25% for ProFund VP Small-Cap) through December 31,
2002. After such date, any of the expense limitations may be terminated or
revised. Amounts waived or reimbursed in a particular fiscal year may be
repaid to ProFund Advisors LLC from time to time through the next three
fiscal years to the extent that the repayment will not cause the Fund's
expenses to exceed the stated limit during the respective year. A waiver
or reimbursement lowers the expense ratio and increases overall returns to
the investor.
(2) These Portfolios commenced operations on May 1,2002. "Other Expenses"
shown are based on estimated amounts for the fiscal year ending December
31,2002.
13
The expenses relating to the ProFund VP variable investment options have been
provided to Pruco Life of New Jersey by ProFund Advisors LLC. 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 variable investment
options in an amount equivalent to an effective annual rate of up to 0.45%.
Currently, we charge 0.25%. 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 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. During 2001, Pruco Life of New
Jersey received a total of approximately $0 in mortality and risk 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] or you
may select up to two variable investment options from which we deduct your
Contract's monthly charges. See Allocated Charges, page 16.
(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
first part of the charge is equal to $20 per Contract for the first two
Contract years and $12.50 per Contract thereafter. Pruco Life of New
Jersey reserves the right, however, to charge up to $20 per Contract for
each Contract year. The second part of this charge is equal to an amount
up to $1.12 per $1,000 of the basic insurance amount for the first five
Contract years and zero thereafter. The amount per $1,000 varies by sex,
issue age, smoker/nonsmoker status, and extra rating class, if any. During
2001, Pruco Life of New Jersey received a total of approximately $29,000
in monthly administrative charges.
If the Contract includes a coverage segment representing an increase in
basic insurance amount, we will deduct $12 per segment for the first two
years of the coverage segment and zero thereafter; plus an amount up to
$1.12 per $1,000 of the coverage segment for an increase in basic
insurance amount for the first five years from the effective date of the
increase and zero thereafter. The amount per $1,000 varies by sex, issue
age, smoker/nonsmoker status, extra rating class, if any, and the
effective date of the increase.
In either of the instances described above, the highest charge per
thousand is $1.12 and applies to male and female smoker and non-smoker
above age 74 at certain rating classes. The lowest charge per thousand is
$0.03 and applies to female age 0-14, non-smoker at certain rating
classes. The amount of the charge that applies to a particular Contract is
shown on the Contract Data pages under the heading "Adjustments to the
Contract Fund."
The following table provides sample per thousand charges:
14
---------------------------------------------------------------
Male Male Female Female
Issue Age Non-Smoker Smoker Non-Smoker Smoker
---------------------------------------------------------------
35 $0.14 $0.23 $0.12 $0.16
---------------------------------------------------------------
45 $0.24 $0.34 $0.19 $0.28
---------------------------------------------------------------
55 $0.40 $0.45 $0.31 $0.42
---------------------------------------------------------------
65 $0.67 $0.76 $0.53 $0.70
---------------------------------------------------------------
(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 29.
(c) You may add one or more of several riders to the Contract. Some riders are
charged for separately. If you add such a rider to the basic Contract,
additional charges will be deducted. See Riders, page 19.
(d) If an insured is in a substandard risk classification (for example, a
person in a hazardous occupation), additional charges will be deducted.
(e) A charge may be deducted to cover federal, state or local taxes (other
than "taxes attributable to premiums" described above) that are imposed
upon the operations of the Account. At present no such taxes are imposed
and no charge is made.
The earnings of the Account are taxed as part of the operations of Pruco
Life of New Jersey. Currently, no charge is being made to the Account for
Pruco Life of New Jersey's federal income taxes, other than the 1.25%
charge for federal income taxes measured by premiums. See Deductions from
Premium Payments, page 12. Pruco Life of New Jerseyperiodically reviews
the question of a charge to the Account for Company federal income taxes.
We may make such a charge in the future for any federal income taxes that
would be attributable to the Contracts.
Surrender Charges
We will assess a surrender charge if, during the first 10 Contract years (or
during the first 10 years of a coverage segment representing an increase in
basic insurance amount), the Contract lapses, is surrendered, or the basic
insurance amount is decreased (including as a result of a withdrawal or a death
benefit type change). The surrender charge is a percentage of the Surrender
Target Premium. The percentage varies by issue age. The Surrender Target Premium
is equal to the Sales Load Target Premium at the time the policy (or coverage)
is issued less premiums for riders or extras. The duration of the surrender
charge also varies by issue age. For all issue ages 0-45, the maximum first year
percentage is 90% of the Surrender Target Premium, and is reduced annually at a
constant rate to zero by the end of the 10th year.
The chart below shows the maximum percentages for all ages at the beginning of
the first Contract year, the rate at which the percentages is reduced annually,
and the end of the last Contract year for which a surrender charge is shown. The
surrender charge is not deducted from the death benefit if the insured should
die during this period. This charge is deducted to cover sales and
administrative costs, such as: the cost of processing applications, conducting
examinations, determining insurability and the insured's rating class, and
establishing records. A schedule showing the maximum surrender charges for a
full surrender occurring during each year for which a surrender charge may be
payable is found in the Contract Data pages of the Contract.
15
-------------------------------------------------------- ------------------------------------------------------
Reduction in Reduction in
Percentage percentage Percentage at percentage
at start of points each To the Issue start of year points each To the
Issue Age year 1 year end of year Age 1 year end of year
-------------------------------------------------------- ------------------------------------------------------
0-45 90.0% 9.00% 10 60 47.5% 6.79% 7
-------------------------------------------------------- ------------------------------------------------------
46 87.0% 8.70% 10 61 45.0% 7.50% 6
-------------------------------------------------------- ------------------------------------------------------
47 84.0% 8.40% 10 62 42.5% 7.08% 6
-------------------------------------------------------- ------------------------------------------------------
48 81.0% 8.10% 10 63 40.0% 8.00% 5
-------------------------------------------------------- ------------------------------------------------------
49 78.0% 7.80% 10 64 37.5% 9.37% 4
-------------------------------------------------------- ------------------------------------------------------
50 75.0% 7.50% 10 65 35.0% 8.75% 4
-------------------------------------------------------- ------------------------------------------------------
51 72.0% 7.20% 10 66 34.0% 8.50% 4
-------------------------------------------------------- ------------------------------------------------------
52 69.0% 6.90% 10 67 33.5% 8.37% 4
-------------------------------------------------------- ------------------------------------------------------
53 66.0% 6.60% 10 68 33.0% 8.25% 4
-------------------------------------------------------- ------------------------------------------------------
54 63.0% 6.30% 10 69 32.5% 10.83% 3
-------------------------------------------------------- ------------------------------------------------------
55 60.0% 6.00% 10 70 32.0% 10.67% 3
-------------------------------------------------------- ------------------------------------------------------
56 57.5% 6.39% 9 71 31.5% 10.50% 3
-------------------------------------------------------- ------------------------------------------------------
57 55.0% 6.87% 8 72 31.0% 10.33% 3
-------------------------------------------------------- ------------------------------------------------------
58 52.5% 6.56% 8 73 30.5% 10.17% 3
-------------------------------------------------------- ------------------------------------------------------
59 50.0% 7.14% 7 74 and 30.0% 10.00% 3
above
-------------------------------------------------------- ------------------------------------------------------
We will show a surrender charge threshold for each coverage segment in the
Contract data pages. This threshold amount is the segment's lowest coverage
amount since its effective date. If during the first 10 Contract years (or
during the first 10 years of a coverage segment representing an increase in
basic insurance amount), the basic insurance amount is decreased (including as a
result of a withdrawal or a change in type of death benefit), and the new basic
insurance amount for any coverage segment is below the threshold for that
segment, we will deduct a percentage of the surrender charge for that segment.
The percentage will be the amount by which the new coverage segment is less than
the threshold, divided by the threshold. After this transaction, the threshold
will be updated and a corresponding new surrender charge schedule will also be
determined to reflect that portion of surrender charges deducted in the past.
See Increases in Basic Insurance Amount, page 29 and Decreases in Basic
Insurance Amount, page 30. During 2001, Pruco Life of New Jersey received a
total of approximately $0 surrender or lapsed Contracts.
Transaction Charges
(a) We currently charge an administrative processing fee equal to $25 in
connection with each withdrawal.
(b) We may charge an administrative processing fee of up to $25 for any change
in basic insurance amount.
(c) 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.
Charges After Age 100
Beginning on the contract anniversary when the insured reaches attained age 100,
premiums will no longer be accepted and monthly charges will no longer be
deducted from the Contract Fund. You may continue the contract until the
insured's death, or until you surrender the contract for its cash surrender
value. You may continue to make transfers, loans and withdrawals, subject to the
limitations on these transactions described elsewhere. Mortality and expense
risk charges and investment advisory fees will continue to be deducted daily.
Any outstanding loan will remain on the policy, unless repaid, and will continue
to accrue interest. Contracts issued in New York mature on the contract
anniversary when the insured reaches attained age 100.
Allocated Charges
You may choose from which variable investment option(s) we deduct your
Contract's monthly charges. Monthly charges include: (1) monthly administrative
charges, (2) COI charges, (3) any rider charges, and (4) any charge for
substandard risk classification. You may select up to two variable investment
options for the allocation of monthly charges. Allocations must be designated in
whole percentages. For example, 33% can be selected but 33"% cannot.
16
Of course, the total allocation to the selected variable investment options must
equal 100%. See Monthly Deductions from the Contract Fund, page 14.
If there are insufficient funds in one or both of the selected variable
investment options to cover the monthly charges, the selected variable
investment option(s) will be reduced to zero. Any remaining charge will be
deducted from all other variable investment options proportionately to the
dollar amount in each. Furthermore, if you do not specify an allocation of
monthly charges, we will deduct monthly charges proportionately from your
variable investment options.
Requirements for Issuance of a Contract
The Contract may generally be issued on insureds through age 90. Currently, the
minimum face amount is $250,000.
For Contracts with a Target Term Rider, the minimum total face amount (basic
insurance amount plus any Target Term Rider coverage amount combined) is
$250,000. Furthermore, if the Target Term Rider is added to the Contract, the
minimum face amount of the base Contract is $100,000, while the minimum rider
coverage amount is $5,000. See Riders, page 19. Pruco Life of New Jersey may
change the minimum face amounts of the Contracts it will issue.
Pruco Life of New Jersey requires evidence of insurability, which may include a
medical examination, before issuing any Contract. Non-smokers are offered the
most favorable cost of insurance rates. We charge a higher cost of insurance
rate and/or an additional amount if an extra mortality risk is involved. These
are the current underwriting requirements. We reserve the right to change them
on a non-discriminatory basis.
Short-Term Cancellation Right or "Free-Look"
Generally, you may return the Contract for a refund within 10 days after you
receive it. Some states allow a longer period of time during which a Contract
may be returned for a refund. You can request a refund by mailing or delivering
the Contract to the representative who sold it or to our Service Office. 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, with no
adjustment for 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, plus or minus any change due to investment
experience. For information on how premium payments are allocated during the
"free-look" period, see Allocation of Premiums, page 22.
Types of Death Benefit
You may select either of three types of death benefit at issue. 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
25. The payment of additional premiums and favorable investment results of the
variable investment options to which the assets are allocated will generally
increase the cash surrender value. See How a Contract's Cash Surrender Value
Will Vary, page 25.
A Contract with a Type B (variable) death benefit has a death benefit which will
generally equal the basic insurance amount plus the Contract Fund. Since the
Contract Fund is a part of the death benefit, favorable investment performance
and payment of additional premiums generally result in an increase in the death
benefit as well as in the cash surrender value. Over time, however, the increase
in the cash surrender value will be less than under a 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. See How a Contract's Cash Surrender Value
Will Vary, page 25 and How a Type B (Variable) Contract's Death Benefit Will
Vary, page 26. Unfavorable investment performance will result in decreases in
the death benefit and in the cash surrender 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.
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. This death benefit allows the Contract
owner, in effect, to recover the cost of the Contract 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
17
Surrender Value Will Vary, page 25 and How a Type C (Return of Premium)
Contract's Death Benefit Will Vary, page 27.
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
and the deduction of any applicable surrender charges. We will not allow you to
make a withdrawal that will decrease the basic insurance amount below the
minimum basic insurance amount. For Type B (variable) and Type C (return of
premium) Contracts, withdrawals will not change the basic insurance amount. See
Withdrawals, page 28.
Changing the Type of Death Benefit
You may change the type of death benefit any time after issue 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. The basic insurance amount
after a change may not be lower than the minimum basic insurance amount
applicable to the Contract. See Requirements for Issuance of a Contract, page
17. 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. A type change that reduces the basic insurance amount may result in the
assessment of surrender charges. See Charges and Expenses, page 11. Furthermore,
if you choose a Type A or Type B death benefit at issue, you will NOT be able to
change to a Type C death benefit after issue.
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. This change is only available to Contracts which were issued with
a Type C death benefit and subsequently changed to a Type A death benefit.
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. This change is only available to Contracts which were issued with a
Type C death benefit and subsequently changed to a Type B death benefit.
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 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 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 (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 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.
18
===================================================
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
===================================================
To request a change, fill out an application for change which can be obtained
from your Pruco Life of New Jersey representative or our Service 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 fixed benefits which may require an
additional premium. These optional insurance benefits will be described in what
is known as a "rider" to the Contract. Charges applicable to the riders will be
deducted from the Contract Fund on each Monthly date. The amounts of these
benefits do not depend on the performance of the Account, although they will no
longer be available if the Contract lapses. Certain restrictions may apply and
are clearly described in the applicable rider. Your Pruco Life of New Jersey
representative can explain all of these extra benefits further. Also, samples of
the provisions are available from Pruco Life of New Jersey upon written request.
Enhanced Disability Benefit -- The Enhanced Disability Benefit pays certain
amounts into the Contract if the insured is totally disabled, as defined in the
benefit provision.
Target Term Rider (not available in New York) -- The Target Term Rider provides
a flexible term insurance benefit to attained age 100 on the life of the
insured. You specify the amount of term rider coverage you desire, up to four
times the base Contract's basic insurance amount. This amount is called the
rider coverage amount and is the maximum death benefit payable under the rider.
After issue, while the rider is in-force, you may increase the rider coverage
amount subject to a minimum increase amount of $25,000 and the underwriting
requirements determined by Pruco Life of New Jersey. The rider coverage amount
after the increase cannot exceed four times the base Contract's basic insurance
amount. You may also decrease your rider coverage amount after issue, subject to
a minimum decrease amount of $10,000.
The rider death benefit fluctuates as the base Contract's death benefit changes.
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, if 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). The rider death benefit will never increase beyond the rider
coverage amount. It is possible, however, 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.
19
[The following information was depicted as a line chart in the
printed material.]
$500,000 Basic Insurance Amount and $500,000 Target Term Rider
Type A Death Benefit
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 $ -
You should consider the following factors when purchasing a Contract with a
Target Term Rider:
o A Contract with a Target Term Rider will offer higher cash values and
death benefits than an all base policy with the same death benefit if
Pruco Life of New Jersey does not change its current charges. This is
because: (1) the Sales Load Target Premium will be lower for a Contract
with a Target Term Rider than for an all base policy with the same death
benefit and this may result in lower current sales expense charges, (2)
the monthly administrative charge will also be lower for a Contract with a
Target Term Rider than for an all base policy with the same death benefit,
and (3) we currently take lower current Cost of Insurance charges under
the Target Term Rider.
o However, a Contract with a Target Term Rider offers the potential for
lower cash values and death benefits than an all base policy with the same
death benefit if Pruco Life of New Jersey raises its current charges to
the maximum contractual level. This is because guaranteed maximum charges
under the Contract and Target Term Rider are the same except for the per
$1,000 of insurance portion of the monthly administrative charge which
extends for 10 years on the rider and only five years on the base
Contract. The surrender charge does not apply to the Target Term Rider.
Other factors to consider are:
o The length of the Death Benefit Guarantee available on Contracts with a
Target Term Rider is limited to five years. If it is important to you to
have a Death Benefit Guarantee period longer than five years, you may want
to purchase a Contract without a Target Term Rider. See Death Benefit
Guarantee, page 22.
o The Enhanced Disability Benefit, as described above, is unavailable on
Contracts with a Target Term Rider. If it is important to you to have the
Enhanced Disability Benefit, you may want to purchase a Contract without a
Target Term Rider.
o The Living Needs Benefit does not apply to the portion of the death
benefit that is attributable to a Target Term Rider. If it is important to
you that the Living Needs Benefit applies to the entire death benefit, you
may want to purchase a Contract without a Target Term Rider. See Living
Needs Benefit, page 31.
o The rider coverage amount terminates at the insured's age 100. If it is
important to you that no coverage amount then in effect terminates at the
insured's attained age 100, you may want to purchase a contract without a
Target Term Rider.
Some of the factors outlined above can have 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 provide illustrations based on different combinations of base
Contract basic insurance amount and rider coverage amount. You can then discuss
with your Pruco Life of New Jersey representative how these combinations may
address your objectives.
20
Contract Date
When the first premium payment is paid with the application for a Contract, the
Contract date will ordinarily be the later of the application date or the
medical examination date. If the first premium is not paid with the application,
the Contract date will be the date on which the first premium is paid and the
Contract is delivered. Under certain circumstances, we may allow the Contract to
be backdated for the purpose of lowering the insured's issue age, but only to a
date not earlier than six months prior to the application date. This may be
advantageous for some Contract owners as a lower issue age may result in lower
current charges. For a Contract that is backdated, we will credit the initial
premium as of the date of receipt and will deduct any charges due on or before
that date.
Premiums
The Contract is a flexible premium contract. The minimum initial premium is due
on or before the Contract date. 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. Premiums after the minimum initial premium must be
received at our Service Office ninety minutes prior to any announced closing of
the New York Stock Exchange or they will be applied as of the end of the
valuation period the next business day.
We may require an additional premium if adjustments to premium payments exceed
the minimum initial premium or there are Contract Fund charges due on or before
the payment date. We reserve the right to refuse to accept any payment that
increases the death benefit by more than it increases the Contract Fund. See How
a Type A (Fixed) Contract's Death Benefit Will Vary, page 25, How a Type B
(Variable) Contract's Death Benefit Will Vary, page 26, and How a Type C (Return
of Premium) Contract's Death Benefit Will Vary, page 27. Furthermore, 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 35.
Once the minimum initial premium payment is made, there are no required
premiums. However, there are several types of premiums which are described
below. Understanding them may help you understand how the Contract works.
Target Premiums are premiums that, if paid at the beginning of each
Contract year, will keep the Contract in-force until the insured's age 65,
or if later, during the first 10 Contract years, regardless of investment
performance and assuming no loans or withdrawals (not applicable to
Contracts with the Target Term Rider). If you choose to continue the Death
Benefit Guarantee beyond this period, you will have to begin paying
premiums substantially higher than the Target Premium. However, not all
Contracts offer the Death Benefit Guarantee beyond this period. The length
of the Death Benefit Guarantee available to you depends on your Contract's
death benefit type, the definition of life insurance test selected at
issue, and whether the Target Term Rider is on the Contract. See Death
Benefit Guarantee, page 22. When you purchase a Contract, your Pruco Life
of New Jersey representative can tell you the amount[s] of the Target
Premium. For a Contract with no riders or extra risk charges, these
premiums will be level.
It is possible, in some instances, to pay a premium lower than the Target
Premium; the Short-Term Premium. These Short-Term Premiums, if paid at the
beginning of each Contract year, will keep the Contract in-force during
the first five Contract years, regardless of investment performance and
assuming no loans or withdrawals. To continue the Death Benefit Guarantee
beyond this period, you will have to begin paying premiums higher than the
Short-Term Premium. However, not all Contracts offer the Death Benefit
Guarantee beyond five Contract years. The length of the Death Benefit
Guarantee available to you depends on your Contract's death benefit type,
the definition of life insurance test selected at issue, and whether the
Target Term Rider is on the Contract. See Death Benefit Guarantee, page
22. When you purchase a Contract, your Pruco Life of New Jersey
representative can tell you the amount[s] of the Short-Term Premium. As is
the case with the Target Premium, for a Contract with no riders or extra
risk charges, these premiums will be level.
Lifetime Premiums are the premiums that, if paid at the beginning of each
Contract year, will keep the Contract in-force during the lifetime of the
insured, regardless of investment performance and assuming no loans or
withdrawals (not applicable to all Contracts). See Death Benefit
Guarantee, page 22. As is the case with the Target Premium, for a Contract
with no riders or extra risk charges, these premiums will be level. When
you purchase a Contract, your Pruco Life of New Jersey representative can
tell you the amount[s] of the Lifetime Premium.
We can bill you for the amount you select annually, semi-annually, or quarterly.
Because the Contract is a flexible
21
premium contract, there are no scheduled premium due dates. When you receive a
premium notice, you are not required to pay this amount. The Contract will
remain in-force if: (1) the Contract Fund, less any applicable surrender
charges, is greater than zero and more than any Contract debt or (2) you have
paid sufficient premiums, on an accumulated basis, to meet the Death Benefit
Guarantee conditions and Contract debt is not equal to or greater than the
Contract Fund, less any applicable surrender charges. 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: (1) we deduct the charge for sales expenses and the charge
for taxes attributable to premiums from the initial; (2) we allocate the
remainder of the initial premium and any other premium received during the
short-term cancellation right ("free-look") period to the ProFund VP Money
Market investment option; and (3) the first monthly deductions are made. At the
end of the "free-look" period, these funds will be transferred out of the
ProFund VP Money Market investment option and allocated among the variable
investment options according to your most current allocation request. See
Short-Term Cancellation Right or "Free-Look," page 17. If the first premium is
received before the Contract date, there will be a period during which the
Contract owner's initial premium will not be invested.
The charge for sales expenses and the charge for taxes attributable to premiums
also apply to all subsequent premium payments. The remainder will be invested as
of the end of the valuation period in which it is received at our Service
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 our Service Office or by
telephoning our Service Office, provided you are enrolled to use the Telephone
Transfer System. Premium allocation changes must be received at our Service
Office ninety minutes prior to any announced closing of the New York Stock
Exchange or they will take effect as of the end of the valuation period the next
business day. There is no charge for reallocating future premiums. All
percentage allocations must be in whole numbers. For example, 33% can be
selected but 33"% cannot. Of course, the total allocation to all selected
investment options must equal 100%.
Death Benefit Guarantee
Although you decide what premium amounts you wish to pay, sufficient premium
payments, on an accumulated basis, will guarantee that your Contract will not
lapse and a death benefit will be paid upon the death of the insured. This will
be true even if, because of unfavorable investment experience, your Contract
Fund value drops to zero. Withdrawals may adversely affect the status of the
guarantee. Likewise, a Contract loan will negate any guarantee. See Withdrawals,
page 28, and Contract Loans, page 34. You should consider how important the
Death Benefit Guarantee is to you when deciding what premium amounts to pay into
the Contract.
At the Contract date and on each Monthly date, during the Death Benefit
Guarantee period shown on your Contract data pages, we calculate your Contract's
"Accumulated Net Payments" as of that date. Accumulated Net Payments equal the
premiums you paid, accumulated at an effective annual rate of 4%, less
withdrawals also accumulated at 4%.
We also calculate Death Benefit Guarantee Values. These are values used solely
to determine if a Death Benefit Guarantee is in effect. These are not cash
values that you can realize by surrendering the Contract, nor are they payable
death benefits. Your Contract data pages contain a table of Death Benefit
Guarantee Values, calculated as of Contract anniversaries. Values for
non-anniversary Monthly dates will reflect the number of months elapsed between
Contract anniversaries.
At each Monthly date, during the Death Benefit Guarantee period shown on your
Contract data pages, we will compare your Accumulated Net Payments to the Death
Benefit Guarantee Value as of that date. If your Accumulated Net Payments equal
or exceed the Death Benefit Guarantee Value and Contract debt does not equal or
exceed the Contract Fund less any applicable surrender charges, then the
Contract is kept in-force, regardless of the amount in the Contract Fund.
Short-Term, Target, and Lifetime Premiums are payments which correspond to the
Death Benefit Guarantee Values shown on your Contract data pages. For example,
payment of the Short-Term Premium at the beginning of each Contract year
guarantees that your Contract will not lapse during the first five Contract
years, assuming no loans or withdrawals. However, payment of the Short-Term
Premium after year five will not assure that your Contract's Accumulated Net
Payments will continue to meet the Death Benefit Guarantee Values. See Premiums,
page 21.
22
If you want a Death Benefit Guarantee to last longer than five years, you should
expect to pay at least the Target Premium at the start of each Contract year.
Paying the Target Premium at the beginning of each Contract year guarantees your
Contract against lapse until the insured's age 65 or for 10 years after issue,
whichever comes later, assuming no loans or withdrawals. However, payment of the
Target Premium after this Death Benefit Guarantee period, will not assure that
your Contract's Accumulated Net Payments will meet the subsequent, much higher,
Death Benefit Guarantee Values.
If you want a Death Benefit Guarantee to last the lifetime of the insured, then
you should expect to pay at least the Lifetime Premium at the start of each
Contract year. Paying the Lifetime Premium at the beginning of each Contract
year guarantees your Contract against lapse for the insured's lifetime, assuming
no loans or withdrawals.
The following table provides sample Short-Term, Target, and Lifetime Premiums
(to the nearest dollar) for Basic Insurance Amounts and increases dated on or
after May 1, 2002. The examples assume: (1) the insured is a male, Preferred
Best, with no extra risk or substandard ratings; (2) a $250,000 basic insurance
amount; (3) no extra benefit riders have been added to the Contract; and (4) the
Cash Value Accumulation Test has been elected for definition of life insurance
testing.
==============================================================================================
Illustrative Annual Premiums
==============================================================================================
Age of
insured at
issue or Type of Short-Term Target Lifetime
increase Death Benefit Chosen Premium Premium Premium
==============================================================================================
40 Type A (Fixed) $1,125 $2,138 $4,765
----------------------------------------------------------------------------------------------
40 Type B (Variable) $1,210 $2,220 $14,185
----------------------------------------------------------------------------------------------
40 Type C (Return of Premium) $1,130 N/A N/A
----------------------------------------------------------------------------------------------
60 Type A (Fixed) $3,363 $7,158 $12,963
----------------------------------------------------------------------------------------------
60 Type B (Variable) $4,415 $7,218 $33,195
----------------------------------------------------------------------------------------------
60 Type C (Return of Premium) $4,163 N/A N/A
----------------------------------------------------------------------------------------------
80 Type A (Fixed) $16,203 $39,345 $47,235
----------------------------------------------------------------------------------------------
80 Type B (Variable) $22,353 $43,980 $83,015
----------------------------------------------------------------------------------------------
80 Type C (Return of Premium) N/A N/A N/A
==============================================================================================
Paying the Short-Term, Target, or Lifetime Premiums at the start of each
Contract year is one way of reaching the Death Benefit Guarantee Values; it is
certainly not the only way. The Death Benefit Guarantee allows considerable
flexibility as to the timing of premium payments. Your Pruco Life of New Jersey
representative can supply sample illustrations of various premium amount and
frequency combinations that correspond to the Death Benefit Guarantee Values.
When determining what premium amounts to pay and the frequency of your payments,
you should consider carefully the value of maintaining the Death Benefit
Guarantee. If you desire the Death Benefit Guarantee until the later of the
insured's age 65 or 10 years after issue, you may prefer to pay at least the
Target Premium in all years, rather than paying the lower Short-Term Premium in
the first five years. If you pay only enough premium to meet the Death Benefit
Guarantee Values in the first five years, you will need to pay more than the
Target Premium at the beginning of the 6th year in order to continue the Death
Benefit Guarantee.
Similarly, if you desire the Death Benefit Guarantee for lifetime protection,
you may prefer to pay generally higher premiums in all years, rather than trying
to make such payments on an as needed basis. For example, if you pay only
23
enough premium to meet the Death Benefit Guarantee Values until the later of the
insured's age 65 or 10 years after issue, a substantial amount may be required
to meet the subsequent Death Benefit Guarantee Values and continue the
guarantee. In addition, it is possible that the payment required to continue the
guarantee beyond this period could exceed the premium payments allowed to be
paid without causing the Contract to become a Modified Endowment Contract. See
Tax Treatment of Contract Benefits, page 35.
Not all Contracts will have the Death Benefit Guarantee available in all years.
Type A and Type B Contracts with the Cash Value Accumulation Test elected for
definition of life insurance testing will have the Death Benefit Guarantee
available for the lifetime of the insured. However, Type A and Type B Contracts
with the Guideline Premium Test elected for definition of life insurance testing
will have the Death Benefit Guarantee available until the insured's age 65 or 10
years after issue, whichever is later. Furthermore, Type C Contracts with either
the Cash Value Accumulation Test or Guideline Premium Test elected for
definition of life insurance testing, will only have the Death Benefit Guarantee
available for the first five Contract years. Contracts with the Target Term
Rider will also have the Death Benefit Guarantee available for only the first
five Contract years. Your Contract data pages will show Death Benefit Guarantee
Values for the duration available with your Contract. See Types of Death
Benefit, page 17 and Tax Treatment of Contract Benefits, page 35.
Transfers
You may transfer amounts from one variable investment option to another variable
investment option without charge. All or a portion of the amount credited to a
variable investment option may be transferred. Transfers will not be made until
the end of the "free-look" period. See Short-Term Cancellation Right or
"Free-Look", page 17.
The request may be in terms of dollars, such as a request to transfer $5,000
from one variable investment option to another, or may be in terms of a
percentage reallocation among variable investment options. In the latter case,
as with premium reallocations, the percentages must be in whole numbers. You may
transfer amounts by proper written notice to our Service 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, depending on the
terms of the assignment. See Assignment, page 37.
Any proper transfer request that is received at our Service Office after ninety
minutes prior to any announced closing of the New York Stock Exchange (generally
2:30 Eastern time) and prior to the end of the valuation period that day will
take effect as of the end of the valuation period the next business day. The
"cut-off" time for proper transfer requests we receive that are submitted
electronically to us, using electronic tools and procedures that we require,
will be extended to forty-five minutes prior to any announced closing of the New
York Stock Exchange (generally 3:15 Eastern time). We may set a later cut-off
time for transfers and other financial transactions, but we will tell you if we
do that.
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.
Some Contract owners may use investment advisors or other third parties to make
transfers on their behalf. Activity by such investment advisors or third parties
may result in unusually large transfers which may interfere with our ability or
the ability of the underlying Fund to process transactions. Such activity may
also adversely affect the investment performance of the Funds.
We reserve the right to limit transfers in any Contract year, or to refuse any
of your transfer requests, if:
o we believe that excessive transfers, a specific transfer request, or a
group of transfer requests by an owner or the owner's investment advisor
may have a detrimental effect on the performance of any investment option
or the share prices of any Fund or would be detrimental to other Contract
owners; or
o we are informed by one or more Funds that they intend to restrict the
purchase of portfolio shares because of excessive trading or because they
believe that a specific transfer or group of transfers would have a
detrimental effect on the price of Fund shares.
24
We may apply the restrictions in a non-discriminatory manner reasonably designed
to prevent transfers that we consider to be disadvantageous to other Contract
owners.
We do not recommend, supervise or select your investment advisor. We are not
responsible for any advice provided by your investment advisor.
To use an investment advisor to effect allocations and transfers among the
investment options, you must:
o notify us in writing of the name of your investment advisor; and
o provide us with a power of attorney approved by us authorizing your
investment advisor to give us asset allocation/transfer instructions.
There is no assurance that your investment advisor will successfully predict
market fluctuations. In selecting your investment advisor, you should carefully
consider his or her background, experience and reputation.
How a Contract's Cash Surrender Value Will Vary
You may surrender the Contract for its cash surrender value (referred to as net
cash value in the Contract). The Contract's cash surrender value on any date
will be the Contract Fund less any applicable surrender charges and less any
Contract debt. See Contract Loans, page 34. The Contract Fund value changes
daily, reflecting: (1) increases or decreases in the value of the variable
investment options; (2) interest credited on any loan; and (3) the daily asset
charge for mortality and expense risks assessed against the variable investment
options. The Contract Fund value also changes to reflect the receipt of premium
payments and the monthly deductions described under Charges and Expenses, page
11. Upon request, Pruco Life of New Jersey will tell you the cash surrender
value of your Contract. It is possible for the cash surrender value of a
Contract to decline to zero because of unfavorable investment performance or
outstanding Contract debt.
The tables on pages T1 through T10 of this prospectus illustrate approximately
what the cash surrender values would be for representative Contracts paying
certain premium amounts, and assuming hypothetical uniform investment results in
the Fund portfolios. Five of the tables assume current charges will be made
throughout the lifetime of the Contract and five of them assume maximum charges
will be made. See Illustrations of Cash Surrender Values, Death Benefits, and
Accumulated Premiums, page 31.
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 C
(return of premium) death benefit generally varies by the amount of premiums
paid, a Type B (variable) death benefit varies with investment performance, and
a Type A (fixed) death benefit does not vary unless it 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 in-force 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, multiplied by the attained age factor that
applies.
A listing of attained age factors can be found on your Contract data pages. The
latter provision ensures that the Contract will always have a death benefit
large enough 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 35, for a discussion of
these methods and the impact of each on the Contract's values, benefits and tax
status.
25
The following table illustrates at different ages how the attained age factor
affects the death benefit for different Contract Fund amounts. The table assumes
a $250,000 Type A (fixed) Contract was issued when the insured was a male
nonsmoker, age 35.
Type A (Fixed) Death Benefit
=============================================================================================================================
IF THEN
=============================================================================================================================
and the Contract the attained age the Contract Fund multiplied by the and the Death
the insured 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. If we exercise this right, in
certain situations it may result in the loss of the Death Benefit Guarantee.
How a Type B (Variable) Contract's Death Benefit Will Vary
Under a Type B (variable) Contract, while the Contract is in-force, the death
benefit will never be less than the basic insurance amount, but will vary,
immediately after it is issued, with the investment results of the selected
investment options. The death benefit may be 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, 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 your Contract data pages. 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 35, for a discussion of these methods and the impact of
each on the Contract's values, benefits and tax status.
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.
26
Type B (Variable) Death Benefit
=========================================================================================================================
IF THEN
=========================================================================================================================
and the Contract the attained age the Contract Fund multiplied by and the Death
the insured is age Fund is factor is** the 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. If we exercise this right, in
certain situations it may result in the loss of the Death Benefit Guarantee.
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 in-force, the
death benefit will vary by the amount of premiums paid, less any withdrawals.
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 are
greater than total premiums paid. The death benefit may be increased to ensure
that the Contract will satisfy the Internal Revenue Code's definition of life
insurance.
The death benefit under a Type C (return of premium) Contract will always be the
greater of:
(1) the basic insurance amount plus the total premiums paid into
the Contract less any withdrawals; and
(2) the Contract Fund before the deduction of monthly charges due
on that date, multiplied by the attained age factor that
applies.
A listing of attained age factors can be found on your Contract data pages. The
latter provision ensures that the Contract will always have a death benefit
large enough 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 35, for a discussion of
these methods and the impact of each on the Contract's values, benefits and tax
status.
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.
27
Type C (Return of Premium) Death Benefit
=============================================================================================================================
IF THEN
=============================================================================================================================
the the Contract Fund and the Death
insured and the Contract and the premiums paid the attained age multiplied by the attained Benefit is
is age Fund is less any withdrawals is factor is** age factor is
=============================================================================================================================
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 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. If we
exercise this right, in certain situations it may result in the loss of the
Death Benefit Guarantee.
Surrender of a Contract
A Contract may be surrendered for its cash surrender value (or for a fixed
reduced paid-up insurance benefit for contracts issued 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 our Service Office. The surrender request must be received at
our Service Office ninety minutes prior to any announced closing of the New York
Stock Exchange or it will take effect as of the end of the valuation period the
next business day. Surrender of a Contract may have tax consequences. See Tax
Treatment of Contract Benefits, page 35.
Fixed reduced paid-up insurance (available in New York 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 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 cash
surrender value without surrendering the Contract. The withdrawal amount is
limited by the requirement that the net cash value after withdrawal may not be
less than or equal to zero after deducting any charges associated with the
withdrawal and an amount that we estimate will be sufficient to cover the
contract fund deductions for two monthly dates following the date of withdrawal.
The amount withdrawn must be at least $100. There is an administrative
processing fee for each withdrawal which is $25. An amount withdrawn may not be
repaid except as a premium subject to the applicable charges. Upon request, we
will tell you how much you may withdraw. The withdrawal request must be received
at our Service Office ninety minutes prior to any announced closing of the New
York Stock Exchange or it will take effect as of the end of the valuation period
the next business day. Withdrawal of the cash surrender value may have tax
consequences. See Tax Treatment of Contract Benefits, page 35.
Whenever a withdrawal is made, the death benefit will immediately be 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. If a decrease in basic insurance amount
reduces a coverage segment below its surrender charge threshold, a surrender
charge may be deducted. See Charges and Expenses, page 11. 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. See
Requirements for Issuance of a Contract, page 17. It is important to note,
however, that if
28
the basic insurance amount is decreased, there is a possibility that the
Contract might be classified as a Modified Endowment Contract. 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. See Tax
Treatment of Contract Benefits, page 35.
When a withdrawal is made, the Contract Fund is reduced by the sum of the cash
withdrawn, the withdrawal fee, and any surrender charge. An amount equal to the
reduction in the Contract Fund will be withdrawn proportionally from the
investment options unless you direct otherwise. Withdrawal of the cash surrender
value increases the risk that the Contract Fund may be insufficient to provide
Contract benefits. If such a withdrawal is followed by unfavorable investment
experience, the Contract may go into default. Withdrawals may also affect
whether a Contract is kept in-force under the Death Benefit Guarantee, since
withdrawals decrease your Accumulated Net Payments. See Death Benefit Guarantee,
page 22.
Lapse and Reinstatement
Pruco Life of New Jersey will determine the value of the Contract Fund on each
Monthly date. If the Contract Fund less any applicable surrender charges is zero
or less, the Contract is in default unless it remains in-force under the Death
Benefit Guarantee. See Death Benefit Guarantee, page 22. If the Contract debt
ever grows to be equal to or more than the Contract Fund less any applicable
surrender charges, 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 in-force for three months from the date
of default. This payment must be received at our Service 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 35.
A Contract that ended in default may be reinstated within five 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 date we approve your request. We will deduct all
required charges from your payment and the balance will be placed into your
Contract Fund. If we approve the reinstatement, we will credit the Contract Fund
with an amount equal to the surrender charge applicable as of the date of
reinstatement.
Increases in Basic Insurance Amount
Subject to state approval and subject to the underwriting requirements
determined by Pruco Life of New Jersey, after the first Contract anniversary,
you may increase the amount of insurance by increasing the basic insurance
amount of the Contract, thus, creating an additional coverage segment.
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 your Contract data pages;
(3) you must prove to us that the insured is insurable for any increase;
(4) the Contract must not be in default;
(5) we must not be paying premiums into the Contract as a result of the
insured's total disability; and
(6) 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. However, we reserve the
right to make such a charge in an amount of up to $25.
The Sales Load Target Premium is calculated separately for each coverage
segment. When premiums are paid, each payment is allocated to each coverage
segment based on the proportion of the Sales Load Target Premium in each segment
to the total Sales Load Target Premiums of all segments. Currently, the sales
load charge for each segment is equal to 4% of the allocated premium paid in
each Contract year up to the Sales Load Target Premium and 2% of
29
allocated premiums paid in excess of this amount for the first 10 Contract
years; 0% thereafter. See the definition of Contract year for an increase in
basic insurance amount under DEFINITIONS OF SPECIAL TERMS USED IN THIS
PROSPECTUS, page 1.
Each coverage segment will have its own surrender charge period beginning on
that segment's effective date and its own surrender charge threshold. The
surrender charge threshold is the segment's lowest coverage amount since its
effective date. See Decreases in Basic Insurance Amount, page 30, and Surrender
Charges, page 15.
The COI rates for a coverage segment representing an increase in basic insurance
amount are based upon 1980 CSO Tables, the age at the segment's effective date
and the number of years since then, sex (except where unisex rates apply);
smoker/nonsmoker status, extra rating class, if any, and the effective date of
the increase. The net amount at risk for the whole contract (the death benefit
minus the Contract Fund) is allocated to each coverage segment based on the
proportion of its basic insurance amount to the total of all coverage 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 coverage
segment. For a description of attained age factor, see How a Type A (Fixed)
Contract's Death Benefit Will Vary, page 25, How a Type B (Variable) Contract's
Death Benefit Will Vary, page 26, and How a Type C (Return of Premium)
Contract's Death Benefit Will Vary, page 27.
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 17. 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 35.
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 28. You
also have the option of decreasing the basic insurance amount of your Contract
without withdrawing any cash surrender value at any time after the first
Contract anniversary. 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
your Contract data pages.
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
your Contract data pages. No administrative processing charge is currently being
made in connection with a decrease in basic insurance amount. However, we
reserve the right to make such a charge in an amount of up to $25. See Charges
and Expenses, page 11. 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. A decrease will not take effect if the insured is not living on the
effective date.
For Contracts with more than one coverage segment, a decrease in basic insurance
amount will reduce each coverage segment based on the proportion of the coverage
segment amount to the total of all coverage segment amounts in effect just
before the change. Each coverage segment will have its own surrender charge
threshold equal to the segment's lowest coverage amount since its effective
date. If the decrease in basic insurance amount reduces a coverage segment to an
amount equal to or greater than its surrender charge threshold, we will not
impose a surrender charge. However, if the decrease in basic insurance amount
reduces a coverage segment below its threshold, we will subtract the new
coverage segment amount from the threshold amount. We will then multiply the
surrender charge by the lesser of this difference and the amount of the
decrease, divide by the threshold amount, and deduct the result from the
Contract Fund. See Surrender Charges, page 15.
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. In addition, it is important to note that if the basic insurance
amount is decreased, there is a possibility that the Contract will be classified
as a Modified Endowment Contract. See
30
Tax Treatment of Contract Benefits, page 35. 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 surrender
value, loan proceeds or withdrawal within seven days after all the documents
required for such a payment are received at our Service 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 our Service Office. However, Pruco Life of New Jersey
may delay payment of proceeds from the variable investment option[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.
Living Needs Benefit
The Living Needs Benefit" is available on your Contract. The benefit may vary by
state. There is no charge for adding the benefit to a Contract. However, an
administrative charge (not to exceed $150) will be made at the time the Living
Needs Benefit is paid.
Subject to state regulatory approval, the Living Needs Benefit allows you to
elect to receive an accelerated payment of all or part of the Contract's death
benefit, adjusted to reflect current value, at a time when certain special needs
exist. The adjusted death benefit will always be less than the death benefit,
but will generally be greater than the Contract's cash surrender value. One or
both of the following options may be available. A Pruco Life of New Jersey
representative should be consulted as to whether additional options may be
available.
Terminal Illness Option. This option is available if the insured is diagnosed as
terminally ill with a life expectancy of six months or less. When satisfactory
evidence is provided, Pruco Life of New Jersey will provide an accelerated
payment of the portion of the death benefit selected by the Contract owner as a
Living Needs Benefit. The Contract owner may (1) elect to receive the benefit in
a single sum or (2) receive equal monthly payments for six months. If the
insured dies before all the payments have been made, the present value of the
remaining payments will be paid to the beneficiary designated in the Living
Needs Benefit claim form in a single sum.
Nursing Home Option. This option is available after the insured has been
confined to an eligible nursing home for six months or more. When satisfactory
evidence is provided, including certification by a licensed physician, that the
insured is expected to remain in the nursing home until death, Pruco Life of New
Jersey will provide an accelerated payment of the portion of the death benefit
selected by the Contract owner as a Living Needs Benefit. The Contract owner may
(1) elect to receive the benefit in a single sum or (2) receive equal monthly
payments for a specified number of years (not more than 10 nor less than 2),
depending upon the age of the insured. If the insured dies before all of the
payments have been made, the present value of the remaining payments will be
paid to the beneficiary designated in the Living Needs Benefit claim form in a
single sum.
Subject to state approval, all or part of the Contract's death benefit may be
accelerated under the Living Needs Benefit. If the benefit is only partially
accelerated, a death benefit of at least $25,000 must remain under the Contract.
Pruco Life of New Jersey reserves the right to determine the minimum amount that
may be accelerated.
No benefit will be payable if you are required to elect it in order to meet the
claims of creditors or to obtain a government benefit. Pruco Life of New Jersey
can furnish details about the amount of Living Needs Benefit that is available
to an eligible Contract owner, and the effect on the Contract if less than the
entire death benefit is accelerated.
You should consider whether adding this settlement option is appropriate in your
given situation. Adding the Living Needs Benefit to the Contract has no adverse
consequences; however, electing to use it could. With the exception of certain
business-related Contracts, the Living Needs Benefit is excluded from income if
the insured is terminally ill or chronically ill as defined in the tax law
(although the exclusion in the latter case may be limited). You should consult a
qualified tax adviser before electing to receive this benefit. Receipt of a
Living Needs Benefit payment may also affect your eligibility for certain
government benefits or entitlements.
31
Illustrations of Cash Surrender Values, Death Benefits, and Accumulated Premiums
The following tables (pages T1 through T10) show how a Contract's death benefit
and cash surrender values change with the investment experience of the Account.
They are "hypothetical" because they are based, in part, upon several
assumptions, which are described below. All ten tables assume the following:
o a Contract bought by a 35 year old male, Preferred Best, with no extra
risks or substandard ratings.
o a given premium amount is paid on each Contract anniversary and no loans
are taken.
o the Contract Fund has been invested in equal amounts in each of the 30
Funds.
The first two tables (pages T1 and T2) assume: (1) a Type A (fixed) Contract has
been purchased, (2) a $250,000 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 35 and Types of Death Benefit, page 17. 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 11.
The third and fourth tables (pages T3 and T4) assume: (1) a Type A (fixed)
Contract has been purchased, (2) a $100,000 basic insurance amount and a
$150,000 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 35 and Types of Death Benefit, page 17.
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 11.
The next two tables (pages T5 and T6) assume: (1) a Type A (fixed) Contract has
been purchased, (2) a $250,000 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 35 and Types of Death Benefit, page 17. 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 11.
The tables on pages T7 and T8 assume: (1) a Type B (variable) Contract has been
purchased, (2) a $250,000 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 35 and Types of Death Benefit, page 17. 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 11.
The last two tables (pages T9 and T10) assume: (1) a Type C (return of premium)
Contract has been purchased, (2) a $250,000 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 35 and Types of Death Benefit, page 17. 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 11.
Finally, there are three 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 two assumptions are that investment performance will be at a uniform gross
annual rate of 6% and 12%. Actual returns will fluctuate from year to year. In
addition, death benefits and cash surrender values would be different from those
shown if investment returns averaged 0%, 6% 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 of the following illustrations (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 three different assumed investment returns.
The last four columns show the cash surrender value payable in each of the years
shown for the three different assumed investment returns. The cash surrender
values in the first 10 years reflect the surrender charges that would be
deducted if the Contract were surrendered in those years.
32
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 30 portfolios of 1.95%, and the
daily deduction from the Contract Fund of 0.25% per year for the tables based on
current charges and 0.45% per year for the tables based on maximum charges.
Thus, assuming current charges, gross returns of 0%, 6% and 12% are the
equivalent of net returns of -2.20%, 3.80% and 9.80%, respectively. Assuming
maximum charges, gross returns of 0%, 6% and 12% are the equivalent of net
returns of -2.40%, 3.60% and 9.60%, respectively. The actual fees and expenses
of the portfolios associated with a particular Contract may be more or less than
1.95% and will depend on which variable investment options are selected. The
death benefits and cash surrender values shown reflect the deduction of all
expenses and charges both from the Funds and under the Contract.
If you are considering the purchase of a variable life insurance contract from
another insurance company, you should not rely upon these tables for comparison
purposes. A comparison between two tables, each showing values for a 35 year old
man, may be useful for a 35 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.
33
ILLUSTRATIONS
PRULIFE ADVISOR SELECT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS IN ALL 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 (-2.20% Net) (3.80% Net) (9.80% Net) (-2.20% Net) (3.80% Net) (9.80% Net)
- ----------- ------------- --------------- ---------------- -------------- ------------- ------------- --------------
1 $ 1,794 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 0
2 $ 3,660 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 87
3 $ 5,600 $ 250,000 $ 250,000 $ 250,000 $ 698 $ 1,048 $ 1,431
4 $ 7,618 $ 250,000 $ 250,000 $ 250,000 $ 1,670 $ 2,240 $ 2,890
5 $ 9,717 $ 250,000 $ 250,000 $ 250,000 $ 2,624 $ 3,471 $ 4,472
6 $ 11,900 $ 250,000 $ 250,000 $ 250,000 $ 3,977 $ 5,169 $ 6,633
7 $ 14,170 $ 250,000 $ 250,000 $ 250,000 $ 5,302 $ 6,922 $ 8,985
8 $ 16,530 $ 250,000 $ 250,000 $ 250,000 $ 6,598 $ 8,731 $ 11,545
9 $ 18,986 $ 250,000 $ 250,000 $ 250,000 $ 7,864 $ 10,596 $ 14,332
10 $ 21,539 $ 250,000 $ 250,000 $ 250,000 $ 9,099 $ 12,517 $ 17,366
15 $ 35,922 $ 250,000 $ 250,000 $ 250,000 $ 14,314 $ 22,591 $ 36,821
20 $ 53,422 $ 250,000 $ 250,000 $ 250,000 $ 18,210 $ 33,887 $ 67,029
25 $ 74,713 $ 250,000 $ 250,000 $ 250,000 $ 20,357 $ 46,173 $ 114,341
30 $ 100,616 $ 250,000 $ 250,000 $ 326,841 $ 20,187 $ 59,082 $ 188,925
35 $ 132,132 $ 250,000 $ 250,000 $ 469,642 $ 17,178 $ 72,386 $ 304,962
40 $ 170,476 $ 250,000 $ 250,000 $ 673,234 $ 9,204 $ 84,713 $ 484,341
45 $ 217,127 $ 0(2) $ 250,000(2) $ 973,272 $ 0(2) $ 94,132(2) $ 760,368
(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 44, unless an additional premium payment was made.
Based on a gross return of 6%, the Contract would go into default in
policy year 63, 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%, 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 that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
T1
PRULIFE ADVISOR SELECT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS IN ALL YEARS
USING MAXIMUM 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 (-2.40% Net) (3.60% Net) (9.60% Net) (-2.40% Net) (3.60% Net) (9.60% Net)
- ----------- --------------- ----------- ------------ -------------- ------------ ----------- ------------
1 $ 1,794 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 0
2 $ 3,660 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 0
3 $ 5,600 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 0
4 $ 7,618 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 316 $ 730
5 $ 9,717 $ 250,000 $ 250,000 $ 250,000 $ 387 $ 888 $ 1,495
6 $ 11,900 $ 250,000 $ 250,000 $ 250,000 $ 1,185 $ 1,861 $ 2,714
7 $ 14,170 $ 250,000 $ 250,000 $ 250,000 $ 1,925 $ 2,819 $ 3,988
8 $ 16,530 $ 250,000 $ 250,000 $ 250,000 $ 2,608 $ 3,758 $ 5,321
9 $ 18,986 $ 250,000 $ 250,000 $ 250,000 $ 3,229 $ 4,675 $ 6,712
10 $ 21,539 $ 250,000 $ 250,000 $ 250,000 $ 3,786 $ 5,563 $ 8,164
15 $ 35,922 $ 250,000 $ 250,000 $ 250,000 $ 4,664 $ 8,532 $ 15,568
20 $ 53,422 $ 250,000 $ 250,000 $ 250,000 $ 2,761 $ 9,081 $ 24,098
25 $ 74,713 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 4,657 $ 32,660
30 $ 100,616 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 38,160
35 $ 132,132 $ 0(2) $ 0(2) $ 250,000 $ 0(2) $ 0(2) $ 32,485
40 $ 170,476 $ 0 $ 0 $ 0(2) $ 0 $ 0 $ 0(2)
45 $ 217,127 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
(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 31, unless an additional premium payment was made.
Based on a gross return of 6%, the Contract would go into default in
policy year 31, unless an additional premium payment was made.
Based on a gross return of 12%, the Contract would go into default
in policy year 40, 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%, 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 that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
T2
PRULIFE ADVISOR SELECT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 TARGET COVERAGE AMOUNT($100,000 BASIC INSURANCE AMOUNT,
$150,000 TARGET TERM RIDER)
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS FOR ALL 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 (-2.20% Net) (3.80% Net) (9.80% Net) (-2.20% Net) (3.80% Net) (9.80% Net)
- ----------- ------------- -------------- ------------- -------------- ------------- -------------- --------------
1 $ 1,794 $ 250,000 $ 250,000 $ 250,000 $ 220 $ 300 $ 381
2 $ 3,660 $ 250,000 $ 250,000 $ 250,000 $ 1,353 $ 1,581 $ 1,820
3 $ 5,600 $ 250,000 $ 250,000 $ 250,000 $ 2,545 $ 2,992 $ 3,478
4 $ 7,618 $ 250,000 $ 250,000 $ 250,000 $ 3,707 $ 4,448 $ 5,286
5 $ 9,717 $ 250,000 $ 250,000 $ 250,000 $ 4,841 $ 5,952 $ 7,258
6 $ 11,900 $ 250,000 $ 250,000 $ 250,000 $ 6,112 $ 7,675 $ 9,586
7 $ 14,170 $ 250,000 $ 250,000 $ 250,000 $ 7,352 $ 9,455 $ 12,129
8 $ 16,530 $ 250,000 $ 250,000 $ 250,000 $ 8,557 $ 11,291 $ 14,905
9 $ 18,986 $ 250,000 $ 250,000 $ 250,000 $ 9,727 $ 13,183 $ 17,935
10 $ 21,539 $ 250,000 $ 250,000 $ 250,000 $ 10,862 $ 15,133 $ 21,242
15 $ 35,922 $ 250,000 $ 250,000 $ 250,000 $ 15,866 $ 25,706 $ 42,957
20 $ 53,422 $ 250,000 $ 250,000 $ 250,000 $ 19,609 $ 37,669 $ 76,895
25 $ 74,713 $ 250,000 $ 250,000 $ 257,999 $ 21,626 $ 50,794 $ 130,303
30 $ 100,616 $ 250,000 $ 250,000 $ 370,293 $ 21,350 $ 64,782 $ 214,042
35 $ 132,132 $ 250,000 $ 250,000 $ 530,034 $ 18,257 $ 79,510 $ 344,178
40 $ 170,476 $ 250,000 $ 250,000 $ 758,026 $ 10,228 $ 93,821 $ 545,342
45 $ 217,127 $ 0(2) $ 250,000(2) $ 1,094,252 $ 0(2) $ 106,198(2) $ 854,884
(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 44, unless an additional premium payment was made.
Based on a gross return of 6%, the Contract would go into default in
policy year 65, 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%, 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 that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
T3
PRULIFE ADVISOR SELECT
CASH VALUE ACCUMULATION TEST
TYPE A (FIXED) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 TARGET COVERAGE AMOUNT($100,000 BASIC INSURANCE AMOUNT,
$150,000 TARGET TERM RIDER)
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM 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 (-2.40% Net) (3.60% Net) (9.60% Net) (-2.40% Net) (3.60% Net) (9.60% Net)
- ----------- ------------- -------------- -------------- -------------- ------------ ----------- ------------
1 $ 1,794 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 0
2 $ 3,660 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 91 $ 232
3 $ 5,600 $ 250,000 $ 250,000 $ 250,000 $ 358 $ 592 $ 851
4 $ 7,618 $ 250,000 $ 250,000 $ 250,000 $ 718 $ 1,076 $ 1,490
5 $ 9,717 $ 250,000 $ 250,000 $ 250,000 $ 1,039 $ 1,540 $ 2,146
6 $ 11,900 $ 250,000 $ 250,000 $ 250,000 $ 1,478 $ 2,147 $ 2,992
7 $ 14,170 $ 250,000 $ 250,000 $ 250,000 $ 1,867 $ 2,729 $ 3,866
8 $ 16,530 $ 250,000 $ 250,000 $ 250,000 $ 2,202 $ 3,282 $ 4,770
9 $ 18,986 $ 250,000 $ 250,000 $ 250,000 $ 2,482 $ 3,802 $ 5,700
10 $ 21,539 $ 250,000 $ 250,000 $ 250,000 $ 2,701 $ 4,281 $ 6,656
15 $ 35,922 $ 250,000 $ 250,000 $ 250,000 $ 3,585 $ 6,839 $ 12,959
20 $ 53,422 $ 250,000 $ 250,000 $ 250,000 $ 1,776 $ 6,996 $ 19,843
25 $ 74,713 $ 0(2) $ 250,000 $ 250,000 $ 0(2) $ 2,041 $ 25,584
30 $ 100,616 $ 0 $ 0(2) $ 250,000 $ 0 $ 0(2) $ 26,010
35 $ 132,132 $ 0 $ 0 $ 250,000 $ 0 $ 0 $ 10,454
40 $ 170,476 $ 0 $ 0 $ 0(2) $ 0 $ 0 $ 0(2)
45 $ 217,127 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
(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 22, unless an additional premium payment was made.
Based on a gross return of 6%, the Contract would go into default in
policy year 27, unless an additional premium payment was made.
Based on a gross return of 12%, the Contract would go into default
in policy year 37, 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%, 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 that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
T4
PRULIFE ADVISOR SELECT
GUIDELINE PREMIUM TEST
TYPE A (FIXED) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS FOR ALL 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 (-2.20% Net) (3.80% Net) (9.80% Net) (-2.20% Net) (3.80% Net) (9.80% Net)
- ----------- ------------ ------------- ------------- ------------ ------------ -------------- ------------
1 $ 1,794 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 0
2 $ 3,660 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 87
3 $ 5,600 $ 250,000 $ 250,000 $ 250,000 $ 698 $ 1,048 $ 1,431
4 $ 7,618 $ 250,000 $ 250,000 $ 250,000 $ 1,670 $ 2,240 $ 2,890
5 $ 9,717 $ 250,000 $ 250,000 $ 250,000 $ 2,624 $ 3,471 $ 4,472
6 $ 11,900 $ 250,000 $ 250,000 $ 250,000 $ 3,977 $ 5,169 $ 6,633
7 $ 14,170 $ 250,000 $ 250,000 $ 250,000 $ 5,302 $ 6,922 $ 8,985
8 $ 16,530 $ 250,000 $ 250,000 $ 250,000 $ 6,598 $ 8,731 $ 11,545
9 $ 18,986 $ 250,000 $ 250,000 $ 250,000 $ 7,864 $ 10,596 $ 14,332
10 $ 21,539 $ 250,000 $ 250,000 $ 250,000 $ 9,099 $ 12,517 $ 17,366
15 $ 35,922 $ 250,000 $ 250,000 $ 250,000 $ 14,314 $ 22,591 $ 36,821
20 $ 53,422 $ 250,000 $ 250,000 $ 250,000 $ 18,210 $ 33,887 $ 67,029
25 $ 74,713 $ 250,000 $ 250,000 $ 250,000 $ 20,357 $ 46,173 $ 114,341
30 $ 100,616 $ 250,000 $ 250,000 $ 250,000 $ 20,187 $ 59,082 $ 189,646
35 $ 132,132 $ 250,000 $ 250,000 $ 360,441 $ 17,178 $ 72,386 $ 310,725
40 $ 170,476 $ 250,000 $ 250,000 $ 538,181 $ 9,204 $ 84,713 $ 502,973
45 $ 217,127 $ 0(2) $ 250,000(2) $ 849,728 $ 0(2) $ 94,132(2) $ 809,265
(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 44, unless an additional premium payment was made. Based
on a gross return of 6%, the Contract would go into default in
policy year 63, 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%, 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 that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
T5
PRULIFE ADVISOR SELECT
GUIDELINE PREMIUM TEST
TYPE A (FIXED) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS IN ALL YEARS
USING MAXIMUM 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 (-2.40% Net) (3.60% Net) (9.60% Net) (-2.40% Net) (3.60% Net) (9.60% Net)
- ----------- --------------- ------------- ----------- ------------ ------------ ----------- -----------
1 $ 1,794 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 0
2 $ 3,660 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 0
3 $ 5,600 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 0
4 $ 7,618 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 316 $ 730
5 $ 9,717 $ 250,000 $ 250,000 $ 250,000 $ 387 $ 888 $ 1,495
6 $ 11,900 $ 250,000 $ 250,000 $ 250,000 $ 1,185 $ 1,861 $ 2,714
7 $ 14,170 $ 250,000 $ 250,000 $ 250,000 $ 1,925 $ 2,819 $ 3,988
8 $ 16,530 $ 250,000 $ 250,000 $ 250,000 $ 2,608 $ 3,758 $ 5,321
9 $ 18,986 $ 250,000 $ 250,000 $ 250,000 $ 3,229 $ 4,675 $ 6,712
10 $ 21,539 $ 250,000 $ 250,000 $ 250,000 $ 3,786 $ 5,563 $ 8,164
15 $ 35,922 $ 250,000 $ 250,000 $ 250,000 $ 4,664 $ 8,532 $ 15,568
20 $ 53,422 $ 250,000 $ 250,000 $ 250,000 $ 2,761 $ 9,081 $ 24,098
25 $ 74,713 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 4,657 $ 32,660
30 $ 100,616 $ 250,000 $ 250,000 $ 250,000 $ 0 $ 0 $ 38,160
35 $ 132,132 $ 0(2) $ 0(2) $ 250,000 $ 0(2) $ 0(2) $ 32,485
40 $ 170,476 $ 0 $ 0 $ 0(2) $ 0 $ 0 $ 0(2)
45 $ 217,127 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
(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 31, unless an additional premium payment was made. Based
on a gross return of 6%, the Contract would go into default in
policy year 31, unless an additional premium payment was made. Based
on a gross return of 12%, the Contract would go into default in
policy year 40, 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%, 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 that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
T6
PRULIFE ADVISOR SELECT
CASH VALUE ACCUMULATION TEST
TYPE B (VARIABLE) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS FOR ALL 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 (-2.20% Net) (3.80% Net) (9.80% Net) (-2.20% Net) (3.80% Net) (9.80% Net)
- --------- -------------- ----------- ------------ ----------- ------------ ----------- -----------
1 $ 1,794 $ 250,737 $ 250,805 $ 250,874 $ 0 $ 0 $ 0
2 $ 3,660 $ 251,457 $ 251,641 $ 251,834 $ 0 $ 0 $ 84
3 $ 5,600 $ 252,249 $ 252,599 $ 252,982 $ 694 $ 1,044 $ 1,426
4 $ 7,618 $ 253,024 $ 253,594 $ 254,242 $ 1,664 $ 2,233 $ 2,881
5 $ 9,717 $ 253,782 $ 254,626 $ 255,625 $ 2,616 $ 3,460 $ 4,459
6 $ 11,900 $ 254,937 $ 256,125 $ 257,584 $ 3,965 $ 5,153 $ 6,612
7 $ 14,170 $ 256,063 $ 257,678 $ 259,733 $ 5,285 $ 6,900 $ 8,955
8 $ 16,530 $ 257,160 $ 259,285 $ 262,087 $ 6,577 $ 8,701 $ 11,504
9 $ 18,986 $ 258,226 $ 260,946 $ 264,664 $ 7,837 $ 10,557 $ 14,276
10 $ 21,539 $ 259,260 $ 262,661 $ 267,485 $ 9,066 $ 12,466 $ 17,291
15 $ 35,922 $ 264,227 $ 272,435 $ 286,539 $ 14,227 $ 22,435 $ 36,539
20 $ 53,422 $ 268,007 $ 283,459 $ 316,093 $ 18,007 $ 33,459 $ 66,093
25 $ 74,713 $ 269,908 $ 295,040 $ 361,303 $ 19,908 $ 45,040 $ 111,303
30 $ 100,616 $ 269,311 $ 306,342 $ 430,400 $ 19,311 $ 56,342 $ 180,400
35 $ 132,132 $ 265,713 $ 316,429 $ 536,621 $ 15,713 $ 66,429 $ 286,621
40 $ 170,476 $ 257,093 $ 322,380 $ 699,059 $ 7,093 $ 72,380 $ 449,059
45 $ 217,127 $ 0(2) $ 319,885(2) $ 947,296 $ 0(2) $ 69,885(2) $ 697,296
(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 43, unless an additional premium payment was made. Based
on a gross return of 6%, the Contract would go into default in
policy year 56, 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%, 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 that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
T7
PRULIFE ADVISOR SELECT
CASH VALUE ACCUMULATION TEST
TYPE B (VARIABLE) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM 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 (-2.40% Net) (3.60% Net) (9.60% Net) (-2.40% Net) (3.60% Net) (9.60% Net)
- ------- ------------- ------------- ----------- ----------- ------------ ----------- -----------
1 $ 1,794 $ 250,379 $ 250,433 $ 250,488 $ 0 $ 0 $ 0
2 $ 3,660 $ 250,727 $ 250,860 $ 251,000 $ 0 $ 0 $ 0
3 $ 5,600 $ 251,038 $ 251,271 $ 251,529 $ 0 $ 0 $ 0
4 $ 7,618 $ 251,309 $ 251,664 $ 252,075 $ 0 $ 303 $ 714
5 $ 9,717 $ 251,539 $ 252,035 $ 252,637 $ 372 $ 869 $ 1,471
6 $ 11,900 $ 252,136 $ 252,805 $ 253,650 $ 1,164 $ 1,833 $ 2,678
7 $ 14,170 $ 252,674 $ 253,557 $ 254,713 $ 1,897 $ 2,780 $ 3,935
8 $ 16,530 $ 253,153 $ 254,288 $ 255,828 $ 2,570 $ 3,705 $ 5,245
9 $ 18,986 $ 253,569 $ 254,992 $ 256,995 $ 3,180 $ 4,603 $ 6,606
10 $ 21,539 $ 253,919 $ 255,662 $ 258,214 $ 3,724 $ 5,468 $ 8,020
15 $ 35,922 $ 254,508 $ 258,242 $ 265,022 $ 4,508 $ 8,242 $ 15,022
20 $ 53,422 $ 252,486 $ 258,401 $ 272,440 $ 2,486 $ 8,401 $ 22,440
25 $ 74,713 $ 0(2) $ 253,401 $ 278,210 $ 0(2) $ 3,401 $ 28,210
30 $ 100,616 $ 0 $ 0(2) $ 277,360 $ 0 $ 0(2) $ 27,360
35 $ 132,132 $ 0 $ 0 $ 258,980 $ 0 $ 0 $ 8,980
40 $ 170,476 $ 0 $ 0 $ 0(2) $ 0 $ 0 $ 0(2)
45 $ 217,127 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
(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 23, unless an additional premium payment was made. Based
on a gross return of 6%, the Contract would go into default in
policy year 27, unless an additional premium payment was made. Based
on a gross return of 12%, the Contract would go into default in
policy year 37, 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%, 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 that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
T8
PRULIFE ADVISOR SELECT
CASH VALUE ACCUMULATION TEST
TYPE C (RETURN OF PREMIUM) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS FOR ALL 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 (-2.20% Net) (3.80% Net) (9.80% Net) (-2.20% Net) (3.80% Net) (9.80% Net)
- ----------- -------------- ------------ ----------- ------------ ------------ ----------- ------------
1 $ 1,794 $ 251,725 $ 251,725 $ 251,725 $ 0 $ 0 $ 0
2 $ 3,660 $ 253,450 $ 253,450 $ 253,450 $ 0 $ 0 $ 83
3 $ 5,600 $ 255,175 $ 255,175 $ 255,175 $ 691 $ 1,041 $ 1,424
4 $ 7,618 $ 256,900 $ 256,900 $ 256,900 $ 1,658 $ 2,228 $ 2,876
5 $ 9,717 $ 258,625 $ 258,625 $ 258,625 $ 2,607 $ 3,452 $ 4,451
6 $ 11,900 $ 260,350 $ 260,350 $ 260,350 $ 3,953 $ 5,142 $ 6,602
7 $ 14,170 $ 262,075 $ 262,075 $ 262,075 $ 5,270 $ 6,885 $ 8,942
8 $ 16,530 $ 263,800 $ 263,800 $ 263,800 $ 6,557 $ 8,683 $ 11,487
9 $ 18,986 $ 265,525 $ 265,525 $ 265,525 $ 7,813 $ 10,534 $ 14,256
10 $ 21,539 $ 267,250 $ 267,250 $ 267,250 $ 9,036 $ 12,439 $ 17,269
15 $ 35,922 $ 275,875 $ 275,875 $ 275,875 $ 14,155 $ 22,380 $ 36,532
20 $ 53,422 $ 284,500 $ 284,500 $ 284,500 $ 17,841 $ 33,374 $ 66,270
25 $ 74,713 $ 293,125 $ 293,125 $ 293,125 $ 19,494 $ 44,942 $ 112,425
30 $ 100,616 $ 301,750 $ 301,750 $ 320,125 $ 18,302 $ 56,305 $ 185,043
35 $ 132,132 $ 310,375 $ 310,375 $ 460,308 $ 13,417 $ 66,605 $ 298,901
40 $ 170,476 $ 319,000 $ 319,000 $ 660,127 $ 1,827 $ 72,945 $ 474,912
45 $ 217,127 $ 0(2) $ 327,625(2) $ 954,572 $ 0(2) $ 70,485(2) $ 745,759
(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 41, unless an additional premium payment was made. Based
on a gross return of 6%, the Contract would go into default in
policy year 55, 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%, 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 that these hypothetical rates of return can be achieved for any one year
or sustained over any period of time.
T9
PRULIFE ADVISOR SELECT
CASH VALUE ACCUMULATION TEST
TYPE C (RETURN OF PREMIUM) DEATH BENEFIT
MALE PREFERRED BEST ISSUE AGE 35
$250,000 BASIC INSURANCE AMOUNT
ASSUME PAYMENT OF $1,725 ANNUAL PREMIUMS FOR ALL YEARS
USING MAXIMUM 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 (-2.40% Net) (3.60% Net) (9.60% Net) (-2.40% Net) (3.60% Net) (9.60% Net)
- -------- --------------- ------------ ------------ ------------ ------------ ------------ -----------
1 $ 1,794 $ 251,725 $ 251,725 $ 251,725 $ 0 $ 0 $ 0
2 $ 3,660 $ 253,450 $ 253,450 $ 253,450 $ 0 $ 0 $ 0
3 $ 5,600 $ 255,175 $ 255,175 $ 255,175 $ 0 $ 0 $ 0
4 $ 7,618 $ 256,900 $ 256,900 $ 256,900 $ 0 $ 280 $ 691
5 $ 9,717 $ 258,625 $ 258,625 $ 258,625 $ 337 $ 832 $ 1,432
6 $ 11,900 $ 260,350 $ 260,350 $ 260,350 $ 1,111 $ 1,778 $ 2,620
7 $ 14,170 $ 262,075 $ 262,075 $ 262,075 $ 1,823 $ 2,701 $ 3,852
8 $ 16,530 $ 263,800 $ 263,800 $ 263,800 $ 2,470 $ 3,597 $ 5,131
9 $ 18,986 $ 265,525 $ 265,525 $ 265,525 $ 3,049 $ 4,461 $ 6,456
10 $ 21,539 $ 267,250 $ 267,250 $ 267,250 $ 3,556 $ 5,284 $ 7,824
15 $ 35,922 $ 275,875 $ 275,875 $ 275,875 $ 4,017 $ 7,691 $ 14,445
20 $ 53,422 $ 284,500 $ 284,500 $ 284,500 $ 1,236 $ 6,975 $ 21,044
25 $ 74,713 $ 0(2) $ 0(2) $ 293,125 $ 0(2) $ 0(2) $ 25,030
30 $ 100,616 $ 0 $ 0 $ 301,750 $ 0 $ 0 $ 19,885
35 $ 132,132 $ 0 $ 0 $ 0(2) $ 0 $ 0 $ 0(2)
40 $ 170,476 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
45 $ 217,127 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
(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 22, unless an additional premium payment was made. Based
on a gross return of 6%, the Contract would go into default in
policy year 25, unless an additional premium payment was made. Based
on a gross return of 12%, the Contract would go into default in
policy year 34, 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%, 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 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
cash value, provided the Contract is not in default. The cash value is equal to
the Contract Fund less any surrender charge. A Contract in default has no loan
value. The minimum loan amount you may borrow is $500. The loan request must be
received at our Service Office ninety minutes prior to any announced closing of
the New York Stock Exchange or it will take effect as of the end of the
valuation period the next business day.
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. 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 4.10%.
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 less any applicable surrender charges, the Contract will go into
default. If the Contract debt equals or exceeds the Contract Fund less any
applicable surrender charges and you fail to keep the Contract in-force, the
amount of unpaid Contract debt will be treated as a distribution and will be
immediately taxable to the extent of gain in the Contract. Reinstatement of the
Contract after lapse will not eliminate the taxable income which we are required
to report to the Internal Revenue Service. See Lapse and Reinstatement, page 29
and Tax Treatment of Contract Benefits " Pre-Death Distributions, page 35.
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 variable investment option 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 0.10%.
A loan will not cause the Contract to lapse as long as Contract debt does not
equal or exceed the Contract Fund, less any applicable surrender charges. Loans
from Modified Endowment Contracts may be treated for tax purposes as
distributions of income. See Tax Treatment of Contract Benefits, page 35.
Any Contract debt will directly reduce a Contract's cash surrender 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.
34
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 InsuranceTreatment 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 Tax Information in the Fund prospectus.
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 death benefit 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 your Contract data
pages.
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.
We believe we have taken adequate steps to insure that the Contract qualifies as
life insurance for tax purposes. Generally speaking, this means that:
o you will not be taxed on the growth of the funds in the Contract,
unless you receive a distribution from the Contract,
o the Contract's death benefit will be income tax free to your
beneficiary.
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 DistributionsPre-Death Distributions. The tax treatment of any
distribution you receive before the insured's death depends on whether the
Contract is classified as a Modified Endowment Contract.
Contracts Not Classified as Modified Endowment Contracts.
o If you surrender the Contract or allow it to lapse, you will
be taxed on the amount you receive in excess of the premiums
you paid less the untaxed portion of any prior withdrawals.
For this purpose, you will be treated as receiving any portion
of the cash surrender value used to repay Contract debt. In
other words, you will immediately have taxable income to the
extent of gain in the Contract. Reinstatement of the Contract
after lapse will not eliminate the taxable income which we are
required to report to the Internal Revenue Service. The tax
consequences of a surrender may differ if you take the
proceeds under an income payment settlement option.
35
o Generally, you will be taxed on a withdrawal to the extent the
amount you receive exceeds the premiums you paid for the
Contract less the untaxed portion of any prior withdrawals.
However, under some limited circumstances, in the first 15
Contract years, all or a portion of a withdrawal may be taxed
if the Contract Fund exceeds the total premiums paid less the
untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums paid.
o Extra premiums for optional benefits and riders generally do
not count in computing the premiums paid for the Contract for
the purposes of determining whether a withdrawal is taxable.
o Loans you take against the Contract are ordinarily treated as
debt and are not considered distributions subject to tax.
However, you should know that the Internal Revenue Service may
take the position that the preferred loan should be treated as
a distribution for tax purposes because of the relatively low
differential between the loan interest rate and Contract's
crediting rate. Were the Internal Revenue Service to take this
position, Pruco Life of New Jersey would take reasonable steps
to avoid this result, including modifying the Contract's loan
provisions.
Modified Endowment Contracts.
o The rules change if the Contract is classified as a Modified
Endowment Contract. The Contract could be classified as a
Modified Endowment Contract if premiums in amounts that are
too large are paid or a decrease in the face amount of
insurance is made (or a rider removed). The addition of a
rider or an increase in the face amount of insurance may also
cause the Contract to be classified as a Modified Endowment
Contract. You should first consult a qualified tax adviser and
your Pruco Life of New Jersey representative if you are
contemplating any of these steps.
o If the Contract is classified as a Modified Endowment
Contract, then amounts you receive under the Contract before
the insured's death, including loans and withdrawals, are
included in income to the extent that the Contract Fund before
surrender charges exceeds the premiums paid for the Contract
increased by the amount of any loans previously included in
income and reduced by any untaxed amounts previously received
other than the amount of any loans excludible from income. An
assignment of a Modified 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.
Investor Control. Treasury Department regulations do not provide guidance
concerning the extent to which you may direct your investment in the particular
variable investment options without causing you, instead of Pruco Life of New
Jersey, to be considered the owner of the underlying assets. Because of this
uncertainty, Pruco Life of New Jersey reserves the right to make such changes as
it deems necessary to assure that the Contract qualifies as life insurance for
tax purposes. Any such changes will apply uniformly to affected Contract owners
and will be made with such notice to affected Contract owners as is feasible
under the circumstances.
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
36
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. However, in those states that have adopted
regulations prohibiting sex-distinct insurance rates, premiums and cost of
insurance charges will be based on male rates, whether the insureds are male or
female. In addition, employers and employee organizations considering purchase
of a Contract should consult their legal advisers to determine whether purchase
of a Contract based on sex-distinct actuarial tables is consistent with Title
VII of the Civil Rights Act of 1964 or other applicable law.
Other General Contract Provisions
Assignment. This Contract may not be assigned if the assignment would violate
any federal, state or local law or regulation prohibiting sex distinct rates for
insurance. Generally, the Contract may not be assigned to an employee benefit
plan or program without Pruco Life of New Jersey's consent. Pruco Life of New
Jersey assumes no responsibility for the validity or sufficiency of any
assignment. We will not be obligated to comply with any assignment unless we
receive a copy at our Service 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 in-force
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.
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.
37
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.
Sale of the Contract and Sales Commissions
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
Prudential, acts as the principal underwriter of the Contract. Prusec, organized
in 1971 under New Jersey law, is registered as a broker and dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. Prusec's principal business address is 751 Broad
Street, Newark, New Jersey 07102-3777. The Contract is sold by registered
representatives of Prusec who are also authorized by state insurance departments
to do so. The Contract may also be sold through other broker-dealers authorized
by Prusec and applicable law to do so. Registered representatives of such other
broker-dealers may be paid on a different basis than described below.
Commissions are based on a premium value referred to as the Commissionable
Target Premium. The Commissionable Target Premium may vary from the Target
Premium, depending on the issue age and rating class of the insured, any extra
risk charges, or additional riders.
Generally, representatives will receive a commission of no more than:
(1) 50% of the premiums received in the first 12 months following the
Contract Date on premiums up to the Commissionable Target Premium
amount;
(2) 4% of the premiums received in years two through 10 on premiums
up to the Commissionable Target Premium amount; and
(3) 4% of the premiums received in the first 10 years in excess of the
Commissionable Target Premium to the extent that the total premiums
in that year exceed the Commissionable Target Premium.
If the basic insurance amount is increased, representatives will generally
receive a commission of no more than:
(1) 50% of the premiums received up to the Commissionable Target Premium
for the increase received in the first year following the effective
date of the increase;
(2) 4% of the premiums received up to the Commissionable Target Premium
for years two through 10; and
(3) 2% of the premiums received in any of the first 10 years following
the effective date of the increase to the extent that premiums in
that year exceed the Commissionable Target Premium.
Moreover, trail commissions of up to 0.0625% of an amount determined by
averaging the Contract Fund less all outstanding loans as of the first and last
day of each calendar quarter starting with the third Contract year may be paid.
Representatives with less than four years of service may receive compensation on
a different basis. Representatives who meet certain productivity or persistency
standards may be eligible for additional compensation.
38
State Regulation
Pruco Life of New Jersey is subject to regulation and supervision by the
Department of Insurance of the State of Arizona, 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 Arizona 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 consolidated financial statements of Pruco Life of New Jersey and its
subsidiaries as of December 31, 2001 and 2000 and for each of the three years in
the period ended December 31, 2001 and the financial statements of the Account
as of December 31, 2001 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 Candace
Woods, MAAA, FSA, 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
businesses, including class actions. Pending legal and regulatory actions
include proceedings specific to our practices and proceedings generally
applicable to business practices in the industries in which we operate. In
certain of these lawsuits, large and/or indeterminate amounts are sought,
including punitive or exemplary damages.
Beginning in 1995, regulatory authorities and customers brought significant
regulatory actions and civil litigation against Pruco Life of New Jersey and
Prudential involving individual life insurance sales practices. In 1996,
Prudential, on behalf of itself and many of its life insurance subsidiaries,
including Pruco Life of New Jersey, entered into settlement agreements with
relevant insurance regulatory authorities and plaintiffs in the principal life
insurance sales practices class action lawsuit covering policyholders of
individual permanent life insurance policies issued in the United States from
1982 to 1995. Pursuant to the settlements, the companies agreed to various
changes to their sales and business practices controls, to a series of fines,
and to provide specific forms of relief to eligible class members. Virtually all
claims by class members filed in connection with the settlements have been
resolved and virtually all aspects of the remediation program have been
satisfied.
As of December 31, 2001 Prudential and/or Pruco Life of New Jersey remained a
party to approximately 44 individual sales practices actions filed by
policyholders who "opted out" of the class action settlement relating to
permanent life insurance policies issued in the United States between 1982 and
1995. In addition, there were 19 sales practices actions pending that were filed
by policyholders who were members of the class and who failed to "opt out" of
the class action settlement. Prudential and Pruco Life of New Jersey believed
that those actions are governed by the class settlement release and expects them
to be enjoined and/or dismissed. Additional suits may be filed by class members
who "opted out" of the class settlements or who failed to "opt out" but
nevertheless seek to proceed against Prudential and/or Pruco Life of New Jersey.
A number of the plaintiffs in these cases seek large and/or indeterminate
amounts, including punitive or exemplary damages. Some of these actions are
brought on behalf of multiple plaintiffs. It is possible that substantial
punitive damages might be awarded in any of these actions and particularly in an
action involving multiple plaintiffs.
Prudential has indemnified Pruco Life of New Jersey for any liabilities incurred
in connection with sales practices litigation covering policyholders of
individual permanent life insurance policies issued in the United States from
1982 to 1995.
39
Pruco Life of New Jersey's litigation is subject to many uncertainties, and
given the complexity and scope, the outcomes cannot be predicted. It is possible
that the results of operations or the cash flow of Pruco Life of New Jersey in a
particular quarterly or annual period could be materially affected by an
ultimate unfavorable resolution of pending litigation and regulatory matters.
Management believes, however, that the ultimate outcome of all pending
litigation and regulatory matters should not have a material adverse effect on
Pruco Life of New Jersey's financial position.
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 Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549, or by telephoning (800) SEC-0330, upon payment of a
prescribed fee.
To reduce costs, we now generally send only a single copy of prospectuses and
shareholder reports to each household ("householding"), in lieu of sending a
copy to each contract owner that resides in the household. You should be aware
that you can revoke or "opt out" of householding at any time by calling
1-877-778-5008.
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
consolidated financial statements of Pruco Life of New Jersey and its
subsidiaries, which should be considered only as bearing upon the ability of
Pruco Life of New Jersey to meet its obligations under the Contracts.
Financial statements for the subaccounts of the Pruco Life of New Jersey
Variable Appreciable Account offered in connection with PruLife Advisor Select
are not available because those subaccounts have not commenced operations prior
to the effective date of this prospectus.
40
DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life of New Jersey, listed with their
principal occupations during the past 5 years, are shown below.
DIRECTORS OF PRUCO LIFE OF NEW JERSEY
JAMES J. AVERY, JR., Vice Chairman and Director - President, Prudential
Individual Life Insurance since 1998; prior to 1998: Senior Vice President,
Chief Actuary and CFO, Prudential Individual Insurance Group.
VIVIAN L. BANTA, President, Chairman, and Director - Executive Vice President,
Individual Financial Services, U.S. Consumer Group since 2000; 1998 to 1999:
Consultant, Individual Financial Services; prior to 1998: Consultant, Morgan
Stanley.
RICHARD J. CARBONE, Director - Senior Vice President and Chief Financial Officer
since 1997.
HELEN M. GALT, Director - Company Actuary, Prudential since 1993.
RONALD P. JOELSON, Director - Senior Vice President, Prudential Asset, Liability
and Risk Management since 1999; prior to 1999: President, Guaranteed Products,
Prudential Institutional.
DAVID R. ODENATH, JR., Director - President, Prudential Investments since 1999;
prior to 1999: Senior Vice President and Director of Sales, Investment
Consulting Group, PaineWebber.
OFFICERS WHO ARE NOT DIRECTORS
SHAUN M. BYRNES, Senior Vice President - Senior Vice President, Director of
Annuities, Prudential Investments since 2001; 2000 to 2001: Senior Vice
President, Director of Research, Prudential Investments; 1999 to 2000: Senior
Vice President, Director of Mutual Funds, Prudential Investments; prior to 1999:
Vice President, Mutual Funds, Prudential Investments.
C. EDWARD CHAPLIN, Treasurer - Senior Vice President and Treasurer, Prudential
since 2000; prior to 2000, Vice President and Treasurer, Prudential.
THOMAS F. HIGGINS, Senior Vice President - Vice President, Annuity Services,
Prudential Individual Financial Services since 1999; 1998 to 1999: Vice
President, Mutual Funds, Prudential Individual Financial Services; prior to
1998: Principal, Mutual Fund Operations, The Vanguard Group.
CLIFFORD E. KIRSCH, Chief Legal Officer and Secretary - Chief Counsel, Variable
Products, Prudential Law Department since 1995.
ANDREW J. MAKO, Executive Vice President - Vice President, Finance, U.S.
Consumer Group since 1999; prior to 1999: Vice President, Business Performance
Management Group.
MELODY C. MCDAID, Senior Vice President - Vice President and Site Executive,
Prudential Financial Services Customer Service Office since 1995.
ESTHER H. MILNES, Senior Vice President - Vice President and Chief Actuary,
Prudential Individual Life Insurance since 1999; prior to 1999: Vice President
and Actuary, Prudential Individual Insurance Group.
JAMES M. O'CONNOR, Senior Vice President and Actuary - Vice President,
Guaranteed Products since 2001; 1998 to 2000: Corporate Vice President,
Guaranteed Products; prior to 1998: Corporate Actuary, Prudential Investments.
SHIRLEY H. SHAO, Senior Vice President and Chief Actuary - Vice President and
Associate Actuary, Prudential since 1996.
41
WILLIAM J. ECKERT, IV, Vice President and Chief Accounting Officer - Vice
President and IFS Controller, Prudential Enterprise Financial Management since
2000; 1999 to 2000: Vice President and Individual Life Controller, Prudential
Enterprise Financial Management; prior to 1999: Vice President, Accounting,
Enterprise Financial Management.
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.
42
Pruco Life Insurance Company of New Jersey
Statements of Financial Position (Unaudited)
As of June 30, 2002 and December 31, 2001 (In Thousands)
- --------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2002 2001
---------- ----------
ASSETS
Fixed maturities:
Available for sale, at fair value (amortized cost, 2002: $530,199; and 2001: $478,996) $ 542,538 $ 490,734
Policy loans 159,308 158,754
Short-term investments 18,896 32,983
Other long-term investments 3,300 2,614
---------- ----------
Total investments 724,042 685,085
Cash and cash equivalents 48,082 58,212
Deferred policy acquisition costs 131,895 118,975
Accrued investment income 11,081 10,399
Receivables from affiliates 16,452 17,270
Other assets 7,257 3,919
Separate Account assets 1,517,948 1,631,113
---------- ----------
TOTAL ASSETS $2,456,757 $2,524,973
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 494,680 $ 457,172
Future policy benefits and other policyholder liabilities 121,952 119,400
Cash collateral for loaned securities 35,249 36,092
Securities sold under agreements to repurchase 25,446 18,514
Income taxes payable 37,394 36,012
Other liabilities 13,596 19,298
Separate Account liabilities 1,517,948 1,631,113
---------- ----------
Total liabilities 2,246,265 2,317,601
---------- ----------
Contingencies - (See Footnote 2)
Stockholder's Equity
Common stock, $5 par value;
400,000 shares, authorized;
issued and outstanding at
June 30, 2002 and December 31, 2001 2,000 2,000
Paid-in-capital 128,689 128,689
Retained earnings 75,749 72,959
Accumulated other comprehensive income 4,054 3,724
---------- ----------
Total stockholder's equity 210,492 207,372
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,456,757 $2,524,973
========== ==========
See Notes to Financial Statements
B-1
Pruco Life Insurance Company of New Jersey
Statements of Operations and Comprehensive Income (Unaudited)
Three and Six Months Ended June 30, 2002 and 2001 (In Thousands)
- ------------------------------------------------------------------------------------------------
Six months ended Three months ended
June 30, June 30,
2002 2001 2002 2001
------- ------- ------- -------
REVENUES
Premiums $ 9,322 $ 7,326 $ 5,239 $ 4,414
Policy charges and fee income 28,564 24,330 15,281 13,682
Net investment income 22,535 27,943 11,356 13,890
Realized investment (losses) gains, net (5,523) 175 (3,391) (805)
Asset management fees 233 299 200 137
Other income 340 210 194 17
------- ------- ------- -------
Total revenues 55,471 60,283 28,879 31,335
------- ------- ------- -------
BENEFITS AND EXPENSES
Policyholders' benefits 15,402 17,164 7,424 9,437
Interest credited to policyholders' account
balances 9,837 10,344 5,036 5,199
General, administrative and other expenses 26,011 19,628 15,665 9,949
------- ------- ------- -------
Total benefits and expenses 51,250 47,136 28,125 24,585
------- ------- ------- -------
Income from operations before income taxes 4,221 13,147 754 6,750
------- ------- ------- -------
Income tax provision 1,431 3,954 452 1,840
------- ------- ------- -------
NET INCOME 2,790 9,193 302 4,910
------- ------- ------- -------
Net unrealized investment gains (losses) on
securities, net of reclassification adjustment 330 2,111 1,826 (1,773)
and taxes
------- ------- ------- -------
TOTAL COMPREHENSIVE INCOME $ 3,120 $11,304 $ 2,128 $ 3,137
======= ======= ======= =======
See Notes to Financial Statements
B-2
Pruco Life Insurance Company of New Jersey
Statements of Changes in Stockholder's Equity (Unaudited) Periods ended June
30, 2002 and December 31, 2001 and 2000 (In Thousands)
- ----------------------------------------------------------------------------------------------------------
Accumulated
other Total
Common Paid - in - Retained comprehensive stockholder's
stock capital earnings income (loss) equity
----------- ----------- -------- ------------- -------------
Balance, January 1, 2000 $ 2,000 $ 125,000 $ 230,057 $ (6,088) $ 350,969
Net income - - 23,584 - 23,584
Contribution - 3,689 - - 3,689
Change in net unrealized
investment losses, net of
reclassification and taxes - - - 5,325 5,325
-------- --------- --------- --------- ---------
Balance, December 31, 2000 2,000 128,689 253,641 (763) 383,567
Net income - - 15,593 - 15,593
Dividend to Parent - - (186,000) - (186,000)
Policy credits issued to
Eligible policyholders - - (10,275) - (10,275)
Change in net unrealized
investment losses, net
of
reclassification and taxes - - - 4,487 4,487
-------- --------- --------- --------- ---------
Balance, December 31, 2001 2,000 128,689 72,959 3,724 207,372
Net income - - 2,790 - 2,790
Change in net unrealized
investment gains, net of - - - 330 330
reclassification and taxes
-------- --------- --------- --------- ---------
Balance, June 30, 2002 $ 2,000 $ 128,689 $ 75,749 $ 4,054 $ 210,492
======== ========= ========= ========= =========
See Notes to Financial Statements
B-3
Pruco Life Insurance Company of New Jersey
Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2002 and 2001 (In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Six months ended,
June 30,
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,790 $ 9,193
Adjustments to reconcile net income to net cash provided by (used in)
Operating activities:
Policy charges and fee income (5,589) (5,634)
Interest credited to policyholders' account balances 9,837 10,344
Realized investment (gains) losses, net 5,523 (175)
Amortization and other non-cash items (825) (8,173)
Change in:
Future policy benefits and other policyholders'
liabilities 2,552 4,069
Accrued investment income (682) 1,301
Policy loans (554) (3,992)
Receivables from affiliates 818 5,953
Deferred policy acquisition costs (12,920) (1,398)
Income taxes payable 1,382 (2,208)
Other, net 81 17,907
--------- ---------
Cash Flows From Operating Activities 2,413 27,187
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities available for sale 123,752 420,381
Payments for the purchase of:
Fixed maturities available for sale (179,568) (461,889)
Cash collateral for loaned securities, net (843) 557
Securities sold under agreements to repurchase, net 6,932 4,439
Other long-term investments, net (1,655) 350
Short term investments, net 14,084 23,532
--------- ---------
Cash Flows Used in Investing Activities (37,298) (12,630)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 69,699 45,437
Withdrawals (35,823) (35,579)
Cash payments to eligible policyholders (9,121) -
--------- ---------
Cash Flows From Financing Activities 24,755 9,858
--------- ---------
Net (decrease) increase in Cash and cash equivalents (10,130) 24,415
Cash and cash equivalents, beginning of year 58,212 65,237
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 48,082 $ 89,652
========= =========
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 interim financial statements have been prepared pursuant to the
rules and regulations for reporting on Form 10-Q on the basis of accounting
principles generally accepted in the United States. These interim financial
statements are unaudited but reflect all adjustments which, in the opinion of
management, are necessary to provide a fair presentation of the results of
operations and financial condition of the Pruco Life Insurance Company of New
Jersey ("the Company"), for the interim periods presented. The Company is a
wholly owned subsidiary of the Pruco Life Insurance Company ("Pruco Life"),
which in turn is a wholly owned subsidiary of The Prudential Insurance Company
of America ("Prudential"). Prudential is a wholly owned subsidiary of Prudential
Financial, Inc. All such adjustments are of a normal recurring nature. The
results of operations for any interim period are not necessarily indicative of
results for a full year. Certain amounts in the Company's prior year financial
statements have been reclassified to conform to the current year presentation.
These financial statements should be read in conjunction with the financial
statements and notes thereto contained in the Company's Annual Report on Form
10-K for the year ended December 31, 2001.
2. CONTINGENCIES AND LITIGATION
Contingencies
On an ongoing basis, our internal supervisory and control functions review the
quality of our sales, marketing and other customer interface procedures and
practices and may recommend modifications or enhancements. In certain cases, if
appropriate, we may offer customers remediation and may incur charges, including
the cost of such remediation, administrative costs and regulatory fines.
It is possible that the results of operations or the cash flow of the Company in
a particular quarterly or annual period could be materially affected as a result
of payments in connection with the matters discussed above depending, in part,
upon the results of operations or cash flow for such period. Management
believes, however, that the ultimate payments in connection with these matters
should not have a material adverse effect on the Company's financial position.
Litigation
Prudential and the Company are subject to legal and regulatory actions in the
ordinary course of our businesses, including class actions. Pending legal and
regulatory actions include proceedings relating to aspects of our businesses and
operations that are specific to the Company and Prudential and that are typical
of the businesses in which the Company and Prudential operate. Some of these
proceedings have been brought on behalf of various alleged classes of
complainants. In certain of these matters, the plaintiffs are seeking large
and/or indeterminate amounts, including punitive or exemplary damages.
Beginning in 1995, regulatory authorities and customers brought significant
regulatory actions and civil litigation against the Company and Prudential
involving individual life insurance sales practices. In 1996, Prudential, on
behalf of itself and many of its life insurance subsidiaries including the
Company entered into settlement agreements with relevant insurance regulatory
authorities and plaintiffs in the principal life insurance sales practices class
action lawsuit covering policyholders of individual permanent life insurance
policies issued in the United States from 1982 to 1995. Pursuant to the
settlements, the companies agreed to various changes to their sales and business
practices controls, to a series of fines, and to provide specific forms of
relief to eligible class members. Virtually all claims by class members filed in
connection with the settlements have been resolved and virtually all aspects of
the remediation program have been satisfied. While the approval of the class
action settlement is now final, Prudential and the Company remain subject to
oversight and review by insurance regulators and other regulatory authorities
with respect to its sales practices and the conduct of the remediation program.
The U.S. District Court has also retained jurisdiction as to all matters
relating to the administration, consummation, enforcement and interpretation of
the settlements.
As of June 30, 2002, Prudential and/or the Company remained a party to
approximately 40 individual sales practices actions filed by policyholders who
"opted out" of the class action settlement relating to permanent life insurance
policies issued in the United States between 1982 and 1995. In addition, there
were 17 sales practices actions pending that were filed by policyholders who
were members of the class and who failed to "opt out" of the class action
settlement. Prudential and the Company believe that those actions are governed
by the class settlement release and expect them to be enjoined and/or dismissed.
Additional suits may be filed by class members who "opted out" of the class
settlements or who failed to "opt out" but nevertheless seek to proceed against
Prudential and/or the Company. A number of the plaintiffs in these cases seek
large and/or indeterminate amounts, including punitive or exemplary damages.
Some of these actions are brought on behalf of multiple plaintiffs. It is
possible that substantial punitive damages might be awarded in any of these
actions and particularly in an action involving multiple plaintiffs.
Prudential has indemnified the Company for any liabilities incurred in
connection with sales practices litigation covering policyholders of individual
permanent life insurance policies issued in the United States from 1982 to 1995.
The Company's litigation is subject to many uncertainties, and given the
complexity and scope, the outcomes cannot be predicted. It is possible that the
results of operations or the cash flow of the Company in a particular quarterly
or annual period could be materially effected by an ultimate unfavorable
resolution of pending litigation and regulatory matters. Management believes,
however, that the ultimate outcome of all pending litigation and regulatory
matters should not have a material adverse effect on the Company's financial
position.
B-5
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
3. RELATED PARTY TRANSACTIONS
The Company has extensive transactions and relationships with Prudential and
other affiliates. It is possible that the terms of these transactions are not
the same as those that would result from transactions among wholly unrelated
parties.
Expense Charges and Allocations
All of the Company's expenses are allocations or charges from Prudential or
other affiliates. These expenses can be grouped into the following categories:
general and administrative expenses and retail distribution expenses.
The Company's general and administrative expenses are charged to the Company
using allocation methodologies based on business processes. Management believes
that the methodology is reasonable and reflects costs incurred by Prudential to
process transactions on behalf of the Company. 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.
The Company is allocated estimated distribution expenses from Prudential's
retail agency network for both its domestic life and annuity products. The
estimate of allocated distribution expenses is intended to reflect a market
based pricing arrangement.
The Company has capitalized the majority of these distribution expenses as
deferred policy acquisition costs.
Corporate Owned Life Insurance
The Company has sold a Corporate Owned Life Insurance ("COLI") policy to
Prudential. The cash surrender value included in Separate Accounts was $168.9
million and $165.7 million at June 30, 2002 and December 31, 2001, respectively.
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 periods ended June 30, 2002 and 2001.
Debt Agreements
In July 1998, the Company established a revolving line of credit facility with
Prudential Funding LLC, a wholly-owned subsidiary of Prudential. There is no
outstanding debt relating to this credit facility as of June 30, 2002 or
December 31, 2001.
B-6
Pruco Life Insurance Company of New Jersey
Statements of Financial Position
December 31, 2001 and 2000 (In Thousands)
- --------------------------------------------------------------------------------
2001 2000
----------- -----------
ASSETS
Fixed Maturities
Available for Sale, at fair value (amortized cost, 2001: $478,996; and
2000: $614,858) $ 490,734 $ 612,851
Held to Maturity, at amortized cost (fair value, 2000: $7,259) -- 7,470
Policy Loans 158,754 152,111
Short-Term Investments 32,983 28,759
Other Long-Term Investments 2,614 3,577
----------- -----------
Total Investments 685,085 804,768
Cash and Cash Equivalents 58,212 65,237
Deferred Policy Acquisition Costs 118,975 116,653
Accrued Investment Income 10,399 13,781
Receivables from Affiliate 17,270 22,265
Other Assets 3,919 292
Separate Account Assets 1,631,113 1,805,584
----------- -----------
TOTAL ASSETS $ 2,524,973 $ 2,828,580
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' Account Balances $ 457,172 $ 434,442
Future Policy Benefits and Other Policyholder Liabilities 119,400 108,218
Cash Collateral for Loaned Securities 36,092 48,309
Securities Sold under agreements to repurchase 18,514 9,754
Income Taxes Payable 36,012 29,913
Other Liabilities 19,298 8,793
Separate Account Liabilities 1,631,113 1,805,584
----------- -----------
Total Liabilities 2,317,601 2,445,013
----------- -----------
Contingencies - (See Footnote 11)
Stockholder's Equity
Common Stock, $5 par value;
400,000 shares authorized;
Issued and outstanding at
December 31, 2001 and 2000 2,000 2,000
Paid-In-Capital 128,689 128,689
Retained Earnings 72,959 253,641
Accumulated Other Comprehensive Income (Loss) 3,724 (763)
----------- -----------
Total Stockholder's Equity 207,372 383,567
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 2,524,973 $ 2,828,580
=========== ===========
See Notes to Financial Statements
B-1
Pruco Life Insurance Company of New Jersey
Statements of Operations and Comprehensive Income
Years Ended December 31, 2001, 2000 and 1999 (In Thousands)
- --------------------------------------------------------------------------------
2001 2000 1999
--------- --------- ---------
REVENUES
Premiums $ 16,284 $ 5,717 $ 6,742
Policy charges and fee income 49,808 55,231 52,714
Net investment income 55,981 54,524 47,600
Realized investment losses, net (9,630) (1,045) (5,013)
Asset management fees 613 8,467 7,407
Other income 646 331 386
--------- --------- ---------
Total Revenues 113,702 123,225 109,836
--------- --------- ---------
BENEFITS AND EXPENSES
Policyholders' benefits 33,148 28,201 26,237
Interest credited to policyholders' account balances 20,503 19,326 18,846
General, administrative and other expenses 37,954 39,415 45,065
--------- --------- ---------
Total Benefits and Expenses 91,605 86,942 90,148
--------- --------- ---------
Income from operations before income taxes 22,097 36,283 19,688
--------- --------- ---------
Income tax provision 6,504 12,699 6,891
--------- --------- ---------
NET INCOME 15,593 23,584 12,797
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities, net of
reclassification adjustment 4,487 5,325 (7,681)
--------- --------- ---------
TOTAL COMPREHENSIVE INCOME $ 20,080 $ 28,909 $ 5,116
========= ========= =========
See Notes to Financial Statements
B-2
Pruco Life Insurance Company of New Jersey
Statements of Changes in Stockholder's Equity
Years Ended December 31, 2001, 2000 and 1999 (In Thousands)
- --------------------------------------------------------------------------------
Accumulated
Other Total
Common Paid - In - Retained Comprehensive Stockholder's
Stock Capital Earnings Income (Loss) Equity
-------------------------------------------------------------------
Balance, December 31, 1998 $ 2,000 $ 125,000 $ 217,260 $ 1,593 $ 345,853
Net income -- -- 12,797 -- 12,797
Change in net unrealized
investment (losses) gains,
net of reclassification and taxes -- -- -- (7,681) (7,681)
--------- --------- --------- --------- ---------
Balance, December 31, 1999 2,000 125,000 230,057 (6,088) 350,969
Contribution -- 3,689 -- -- 3,689
Net income -- -- 23,584 -- 23,584
Change in net unrealized
investment (losses) gains,
net of reclassification and taxes -- -- -- 5,325 5,325
--------- --------- --------- --------- ---------
Balance, December 31, 2000 2,000 128,689 253,641 (763) 383,567
Policy credits issued to
eligible eligible policyholders -- -- (10,275) -- (10,275)
Dividend to Parent -- -- (186,000) -- (186,000)
Net income -- -- 15,593 -- 15,593
Change in net unrealized
investment (losses) gains,
net of reclassification and taxes -- -- -- 4,487 4,487
--------- --------- --------- --------- ---------
Balance, December 31, 2001 $ 2,000 $ 128,689 $ 72,959 $ 3,724 $ 207,372
========= ========= ========= ========= =========
See Notes to Financial Statements
B-3
Pruco Life Insurance Company of New Jersey
Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999 (In Thousands)
- --------------------------------------------------------------------------------
2001 2000 1999
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 15,593 $ 23,584 $ 12,797
Adjustments to reconcile net income to net cash from (used in)
operating activities:
Policy charges and fee income (9,906) (9,881) (11,399)
Interest credited to policyholders' account balances 20,503 19,326 18,846
Realized investment losses, net 9,630 1,045 5,013
Amortization and other non-cash items (10,883) (9,254) 18,092
Change in:
Future policy benefits and other policyholders'
liabilities 11,182 3,468 14,918
Accrued investment income 3,382 (1,289) (283)
Policy loans (6,643) (8,296) (4,372)
Receivable from affiliates 4,995 (2,345) (19,723)
Deferred policy acquisition costs (2,322) 12,531 (15,261)
Income taxes payable 6,099 2,084 2,504
Other, net (2,244) 1,869 2,523
--------- --------- ---------
Cash Flows From Operating Activities 39,386 32,842 23,655
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 552,931 396,117 702,380
Payments for the purchase of:
Fixed maturities:
Available for sale (577,097) (411,579) (695,198)
Held to maturity -- -- (7,470)
Other long term investments, net 963 (1,058) 99
Cash collateral for loaned securities, net (12,217) 30,409 (16,524)
Securities sold under agreements to repurchase, net 8,760 9,754 (27,210)
Short term investments, net (4,224) (28,756) 11,040
--------- --------- ---------
Cash Flows (Used in) Investing Activities (30,884) (5,113) (32,883)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 87,261 170,978 258,417
Withdrawals (76,288) (161,060) (264,373)
Cash dividend paid to Parent (26,500) -- --
--------- --------- ---------
Cash Flows (Used in) From Financing Activities (15,527) 9,918 (5,956)
--------- --------- ---------
Net (decrease) increase in Cash and cash equivalents (7,025) 37,647 (15,184)
Cash and cash equivalents, beginning of year 65,237 27,590 42,774
--------- --------- ---------
CASH and CASH EQUIVALENTS, END OF YEAR $ 58,212 $ 65,237 $ 27,590
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 2,930 $ 13,421 $ 480
--------- --------- ---------
NON-CASH TRANSACTIONS DURING THE YEAR
Dividend paid with fixed maturities $ 159,500 $ -- $ --
--------- --------- ---------
Policy credits issued to eligible policyholders $ 10,275 $ -- $ --
--------- --------- ---------
Contribution from parent $ -- $ 3,689 $ --
--------- --------- ---------
See Notes to Financial Statements
B-4
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. The Company is licensed to sell interest-sensitive individual life
insurance, variable life insurance, term 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"), an
insurance company founded in 1875 under the laws of the state of New Jersey.
On December 18, 2001 ("the date of demutualization") Prudential converted
from a mutual life insurance company to a stock life insurance company and
became an indirect wholly owned subsidiary of Prudential Financial, Inc. (the
"Holding Company"). The demutualization was completed in accordance with
Prudential's Plan of Reorganization, which was approved by the Commissioner
of the New Jersey Department of Banking and Insurance in October 2001.
The Company is engaged in a business that is highly competitive because of
the large number of stock and mutual life insurance companies and other
entities engaged in marketing insurance products and individual annuities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). The
Company has extensive transactions and relationships with Prudential and
other affiliates, as more fully described in Footnote 13. Due to these
relationships, it is possible that the terms of these transactions are not
the same as those that would result from transactions among wholly unrelated
parties.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, in particular deferred policy acquisition costs
("DAC") and future policy benefits, and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the period. Actual results could differ from
those estimates.
Investments
Fixed maturities classified as "available for sale" are carried at estimated
fair value. Fixed maturities that the Company has both the intent and ability
to hold to maturity are stated at amortized cost and classified as "held to
maturity". 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
policyholders' account balances that would result from the realization of
unrealized gains and losses are included in a separate component of equity,
"Accumulated other comprehensive income (loss)", net of income taxes.
Policy loans are carried at unpaid principal balances.
Short-term investments, consisting of highly liquid debt instruments other
than those held in "Cash and cash equivalents" with a maturity of twelve
months or less when purchased, are carried at amortized cost, which
approximates fair value.
Realized investment (losses) gains, net are computed using the specific
identification method. Costs of fixed maturity securities are adjusted for
impairments considered to be other than temporary. Impairment adjustments are
included in "Realized investment gains (losses), net." Factors considered in
evaluating whether a decline in value is other than temporary are: 1) whether
the decline is substantial; 2) the Company's ability and intent to retain the
investment for a period of time sufficient to allow for an anticipated
recovery in value; 3) the duration and extent to which the market value has
been less than cost; and 4) the financial condition and near-term prospects
of the issuer.
Cash and cash equivalents include cash on hand, amounts due from banks, money
market instruments, and other debt issues with a maturity of three months or
less when purchased.
B-5
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred Policy Acquisition Costs
The costs that vary with and that are related primarily to the production of
new insurance and annuity 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 variable field
office expenses. Deferred policy acquisition costs are subject to recognition
testing at the time of policy issue and recoverability and premium deficiency
testing at the end of each accounting period. Deferred policy acquisition
costs, for certain products, 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 "Accumulated other comprehensive
(loss) income."
Policy acquisition costs related to interest-sensitive and variable life
products and certain investment-type products are deferred and amortized over
the expected life of the contracts (periods ranging from 25 to 30 years) in
proportion to estimated gross profits arising principally from investment
results, mortality and expense margins, and surrender charges based on
historical and anticipated future experience, which is updated periodically.
The effect of changes to estimated gross profits on unamortized deferred
acquisition costs is reflected in "General and administrative expenses" in
the period such estimated gross profits are revised. Deferred policy
acquisition costs related to non-participating term insurance are amortized
over the expected life of the contracts in proportion to premium income.
Prudential and the Company have offered programs under which policyholders,
for a selected product or group of products, can exchange an existing policy
or contract issued by Prudential or the Company for another form of policy or
contract. These transactions are known as internal replacements. If the new
policies have terms that are substantially similar to those of the earlier
policies, the DAC is retained with respect to the new policies and amortized
over the life of the new policies. If the terms of the new policies are not
substantially similar to those of the former policy, the unamortized DAC on
the surrendered policies is immediately charged to expense.
Securities loaned
Securities loaned are treated as financing arrangements and are recorded at
the amount of cash received as collateral. The Company obtains collateral in
an amount equal to 102% and 105% of the fair value of the domestic and
foreign securities, respectively. The Company monitors the market value of
securities loaned on a daily basis with additional collateral obtained as
necessary.
Non-cash collateral received is not reflected in the statements of financial
position because the debtor typically has the right to redeem the collateral
on short notice. Substantially all of the Company's securities loaned are
with large brokerage firms.
Securities sold under agreements to repurchase
Securities sold under agreements to repurchase are treated as financing
arrangements and are carried at the amounts at which the securities will be
subsequently reacquired, including accrued interest, as specified in the
respective agreements. Assets to be repurchased are the same, or
substantially the same, as the assets transferred and the transferor, through
right of substitution, maintains the right and ability to redeem the
collateral on short notice. The market value of securities to be repurchased
is monitored and additional collateral is obtained, where appropriate, to
protect against credit exposure.
Securities lending and securities repurchase agreements are used to generate
net investment income and facilitate trading activity. These instruments are
short-term in nature (usually 30 days or less). Securities loaned are
collateralized principally by U.S. Government and mortgage-backed securities.
Securities sold under repurchase agreements are collateralized principally by
cash. The carrying amounts of these instruments approximate fair value
because of the relatively short period of time between the origination of the
instruments and their expected realization.
Separate Account Assets and Liabilities
Separate Account assets and liabilities are reported at estimated fair value
and represent segregated funds which are invested for certain policyholders
and other customers. The assets consist of 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 Statements of Operations and
comprehensive Income. Mortality, policy administration and surrender charges
on the accounts are included in "Policy charges and fee income."
B-6
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life Modified Guaranteed
Annuity Account. The Pruco Life 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 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.
Contingencies
Amounts related to contingencies are accrued if it is probable that a
liability has been incurred and an amount is reasonably estimable. Management
evaluates whether there are incremental legal or other costs directly
associated with the ultimate resolution of the matter that are reasonably
estimable and, if so, they are included in the accrual.
Insurance Revenue and Expense Recognition
Premiums from insurance policies are generally recognized when due. Benefits
are recorded as an expense when they are incurred. For traditional life
insurance contracts, a liability for future policy benefits is recorded using
the net level premium method. For individual annuities in payout status, a
liability for future policy benefits is recorded for the present value of
expected future payments based on historical experience.
Amounts received as payment for interest-sensitive life, individual
annuities and guaranteed investment contracts are reported as deposits to
"Policyholders' account balances." Revenues from these contracts reflected as
"Policy charges and fee income" consist primarily of fees assessed during the
period against the policyholders' account balances for mortality charges,
policy administration charges and surrender charges. 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.
Premiums, benefits and expenses are stated net of reinsurance ceded to other
companies. Estimated reinsurance recoverables and the cost of reinsurance are
recognized over the life of the reinsured policies using assumptions
consistent with those used to account for the underlying policies.
Asset Management Fees
Through December 31, 2000, the Company received asset management fee income
from policyholder account balances invested in The Prudential Series Funds
("PSF"), which are a portfolio of mutual fund investments related to the
Company's Separate Account products (refer to Note 13). In addition, the
Company receives fees from policyholder account balances invested in funds
managed by companies other than Prudential. Asset management fees are
recognized as income as earned.
Derivative Financial Instruments
Derivatives are financial instruments whose values are derived from interest
rates, foreign exchange rates, financial indices, or the value of securities
or commodities. Derivative financial instruments used by the Company include
swaps, futures, forwards and option contracts and may be exchange-traded or
contracted in the over-the-counter market. See Note 10 for a discussion of
the Company's use of derivative financial instruments and the related
accounting and reporting treatment for such instruments.
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 with Prudential, 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 September 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities--a replacement of FASB Statement No. 125." The Company has
adopted the provisions of SFAS No. 140 relating to transfers and
extinguishments of liabilities which are effective for periods occurring
after March 31, 2001. The adoption did not have an effect on the results of
operations of the Company.
B-7
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that
the Company account for all business combinations in the scope of the
statement using the purchase method. SFAS No. 142 requires that an intangible
asset acquired either individually or with a group of other assets shall
initially be recognized and measured based on fair value. An intangible asset
with a finite life is amortized over its useful life to the reporting entity;
an intangible asset with an indefinite useful life, including goodwill, is
not amortized. All intangible assets shall be tested for impairment in
accordance with the statement. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001; however, goodwill and intangible assets
acquired after June 30, 2001 are subject immediately to the nonamortization
and amortization provisions of this statement. As of December 31, 2001, The
Company does not have any goodwill or intangible assets.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 eliminated the requirement
that discontinued operations be measured at net realizable value or that
entities include losses that have not yet occurred. SFAS No. 144 eliminated
the exception to consolidation for a subsidiary for which control is likely
to be temporary. SFAS No. 144 requires that long-lived assets that are to be
disposed of by sale be measured at the lower of book value or fair value less
cost to sell. An impairment for assets that are not considered to be disposed
of is recognized only if the carrying amounts of long-lived assets are not
recoverable and exceed their fair values. Additionally, SFAS No. 144 expands
the scope of discontinued operations to include all components of an entity
with operations and cash flows that (1) can be distinguished from the rest of
the entity and (2) will be eliminated from the ongoing operations of the
entity in a disposal transaction. SFAS No. 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001 and,
generally, its provisions are to be applied prospectively.
Reclassifications
Certain amounts in the prior years have been reclassified to conform to the
current year presentation.
B-8
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:
2001
--------------------------------------------------
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 $ 19,136 $ 241 $ 99 $ 19,278
Foreign Government Bonds 4,029 259 -- 4,288
Corporate Securities 455,150 15,772 4,431 466,491
Mortgage-backed Securities 681 -- 4 677
-------- -------- -------- --------
Total Fixed Maturities Available for Sale $478,996 $ 16,272 $ 4,534 $490,734
======== ======== ======== ========
2000
--------------------------------------------------
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 $ 25,050 $ 708 $ 2 $ 25,756
Foreign Government Bonds 11,181 463 -- 11,644
Corporate Securities 578,627 7,314 10,490 575,451
Mortgage-backed Securities -- -- -- --
-------- -------- -------- --------
Total Fixed Maturities Available for Sale $614,858 $ 8,485 $ 10,492 $612,851
======== ======== ======== ========
Fixed Maturities Held to Maturity
Corporate Securities $ 7,470 $ -- $ 211 $ 7,259
-------- -------- -------- --------
Total Fixed Maturities Held to Maturity $ 7,470 $ -- $ 211 $ 7,259
======== ======== ======== ========
B-9
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
The amortized cost and estimated fair value of fixed maturities, by
contractual maturities at December 31, 2001, is shown below:
Available for Sale
-----------------------------------
Amortized Estimated Fair
Cost Value
-----------------------------------
(In Thousands)
Due in one year or less $ 51,735 $ 53,286
Due after one year through five years 225,748 231,715
Due after five years through ten years 163,721 166,996
Due after ten years 37,792 38,737
---------------- ------------------
Total $ 478,996 $ 490,734
================ ==================
Actual maturities may differ from contractual maturities because issuers have
the right to call or prepay obligations.
Proceeds from the sale of fixed maturities available for sale during 2001,
2000, and 1999 were $552.4 million, $354.4 million, and $698.8 million,
respectively. Gross gains of $10.1 million, $2.2 million, and $3.5 million,
and gross losses of $10.1 million, $5.2 million, and $8.0 million, were
realized on those sales during 2001, 2000, and 1999, respectively. Proceeds
from maturities of fixed maturities available for sale during 2001, 2000, and
1999 were $0.5 million, $41.7 million, and $3.6 million, respectively.
Due to the adoption of FAS 133, "Accounting for Derivative Instruments and
Hedging Activities", on January 1, 2001, the entire portfolio of fixed
maturities classified as held to maturity were transferred to the available
for sale category. The aggregate amortized cost of the securities was $7.5
million. Unrealized losses of $0.2 million, net of tax, were recorded in
"Accumulated Other Comprehensive Income (Loss)" at the time of transfer.
During the years ended December 31, 2001, 2000, and 1999, there were no
securities classified as held to maturity that were sold.
Writedowns for impairments that were deemed to be other than temporary for
fixed maturities were $7.8 million and $1.3 million for the years 2001 and
2000, respectively. There were no writedowns for impairments recorded during
1999.
Special Deposits
Fixed maturities of $0.5 million at December 31, 2001 and 2000 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:
2001 2000 1999
-------- -------- --------
(In Thousands)
Fixed Maturities $ 46,813 $ 43,972 $ 39,538
Policy Loans 8,647 8,053 7,641
Short-Term Investments & Cash Equivalents 4,496 5,126 2,516
Other (418) 1,300 60
-------- -------- --------
Gross Investment Income 59,538 58,451 49,755
Less Investment Expenses (3,557) (3,927) (2,155)
-------- -------- --------
Net Investment Income $ 55,981 $ 54,524 $ 47,600
======== ======== ========
B-10
Pruco Life Insurance Company of New Jersey
- --------------------------------------------------------------------------------
Notes to Financial Statements
3. INVESTMENTS (continued)
Realized investment losses, net, including charges for other than temporary
reductions in value, for the years ended December 31, were from the following
sources:
2001 2000 1999
------- ------- -------
(In Thousands)
Fixed Maturities $(7,807) $(4,324) $(4,616)
Derivatives (1,823) 2,924 (412)
Other -- 355 15
------- ------- -------
Realized Investment Losses, Net $(9,630) $(1,045) $(5,013)
======= ======= =======
Securities Pledged to Creditors
The Company pledges investment securities it owns to unaffiliated parties
through certain transactions including securities lending, securities sold
under agreements to repurchase, and futures contracts. At December 31, 2001
and 2000, the carrying value of fixed maturities available for sale pledged
to third parties as reported in the Statements of Financial Position are
$54.8 million and $57.3 million.
B-11
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
3. INVESTMENTS (continued)
Net Unrealized Investment (Losses) Gains
Net unrealized investment (losses) 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 exclude from "Other comprehensive income (loss)" those items
that are included as part of "net income" for a period that also had been
part of "Other comprehensive income (loss)" in earlier periods. The amounts
for the years ended December 31, net of tax, are as follows:
Accumulated Other
Comprehensive
Income (Loss)
Deferred Deferred Related to Net
Unrealized Policy Policyholders' Income Tax Unrealized
Gains (Losses) Acquisition Account (Liability) Investment
on Investments Costs Balances Benefit Gains (Losses)
-------------- ------------- ------------- ----------- ----------------
(In Thousands)
Balance, December 31, 1998 $ 5,233 $ (3,545) $ 987 $ (1,082) $ 1,593
Net investment gains (losses) on investments
arising during the period (28,794) -- -- 10,366 (18,428)
Reclassification adjustment for gains (losses)
included in net income 4,610 -- -- (1,660) 2,950
Impact of net unrealized investment gains
(losses) on deferred policy acquisition costs -- 14,681 -- (5,285) 9,396
Impact of net unrealized investment gains
(losses) on policyholders' account balances -- -- (2,499) 900 (1,599)
-------- -------- -------- -------- --------
Balance, December 31, 1999 (18,951) 11,136 (1,512) 3,239 (6,088)
Net investment gains (losses) on investments
arising during the period 12,620 -- -- (4,454) 8,166
Reclassification adjustment for gains (losses)
included in net income 4,324 -- -- (1,526) 2,798
Impact of net unrealized investment
gains (losses) on deferred policy acquisition -- (10,161) -- 3,658 (6,503)
Impact of net unrealized investment gains
(losses) on policyholders' account balances -- -- 1,350 (486) 864
-------- -------- -------- -------- --------
Balance, December 31, 2000 (2,007) 975 (162) 431 (763)
Net investment gains (losses) on investments
arising during the period 5,938 -- -- (2,138) 3,800
Reclassification adjustment for gains (losses)
included in net income 7,807 -- -- (2,810) 4,997
Impact of net unrealized investment gains
(losses) on deferred policy acquisition costs -- (8,109) -- 2,919 (5,190)
Impact of net unrealized investment gains
(losses) on policyholders' account balances -- -- 1,376 (496) 880
-------- -------- -------- -------- --------
Balance, December 31, 2001 $ 11,738 $ (7,134) $ 1,214 $ (2,094) $ 3,724
======== ======== ======== ======== ========
B-12
Pruco Life Insurance Company of New Jersey
- --------------------------------------------------------------------------------
Notes to Financial Statements
4. DEFERRED POLICY ACQUISITION COSTS
The balance of and changes in deferred policy acquisition costs for the year
ended December 31, are as follows:
2001 2000 1999
--------- --------- ---------
(In Thousands)
Balance, Beginning of Year $ 116,653 $ 129,184 $ 113,923
Capitalization of Commissions, Sales and Issue
Expenses 25,953 10,638 13,439
Amortization (15,522) (13,008) (12,859)
Change in Unrealized Investment (Gains) Losses (8,109) (10,161) 14,681
--------- --------- ---------
Balance, End of Year $ 118,975 $ 116,653 $ 129,184
========= ========= =========
5. POLICYHOLDERS' LIABILITIES
Future policy benefits and other policyholder liabilities at December 31 are
as follows:
2001 2000
-------------- --------------
(In Thousands)
Life Insurance $ 114,698 $ 103,557
Annuities 4,702 4,661
-------------- -------------
$ 119,400 $ 108,218
============== =============
Life insurance liabilities include reserves for death benefits. Annuity
liabilities include reserves for annuities that are in payout status.
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 11.25% Net level premium based
Variable and guaranteed in calculating on non-forfeiture interest
Interest-Sensitive cash surrender values rate
Life Insurance - Best estimate plus a provision for 6.5% to 6.75% Net level premium plus a
Term Insurance adverse deviation provision for adverse
deviation
Individual Mortality table varies based on 6.25% to 8.75% Present value of expected
Annuities the issue year of the contract. future payment based on
Current table (for 1998 and later historical experience
issues) is the Annuity 2000
Mortality Table
Policyholders' account balances at December 31, are as follows:
2001 2000
------------- -------------
(In Thousands)
Interest-Sensitive Life Contracts $ 345,344 $ 332,761
Individual Annuities 111,828 101,681
------------- -------------
$ 457,172 $ 434,442
============= =============
B-13
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
5. POLICYHOLDERS' LIABILITIES (continued)
Policyholders' account balances for interest-sensitive life and individual
annuities are equal to policy account values plus unearned premiums. The policy
account values represent an accumulation of gross premium payments plus credited
interest less withdrawals, expenses, and mortality charges.
Certain contract provisions that determine the policyholder account balances are
as follows:
Product Interest Rate Withdrawal / Surrender Charges
- --------------------------------- ---------------------------- ----------------------------------
Interest Sensitive Life Contracts 3.0% to 6.75% Various up to 10 years
Individual Annuities 3.0% to 6.0% 0% to 7% for up to 9 years
6. 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 as the
primary insurer. Ceded balances would represent a liability of the Company in
the event the reinsurers were unable to meet their obligations to the Company
under the terms of the reinsurance agreements. The likelihood of a material
reinsurance liability reassumed by the Company is considered to be remote.
Reinsurance amounts included in the Statement of Operations and Comprehensive
Income for the years ended December 31 are below.
2001 2000 1999
-------- -------- --------
(In Thousands)
Reinsurance Premiums ceded - affiliated $ (257) $ (19) $ (17)
Reinsurance Premiums ceded - unaffiliated $(2,540) $ (445) $ --
Policyholders' Benefits ceded $ 762 $ 110 $ --
Reinsurance recoverables, included in "Other assets" in the Company's
Statements of Financial Position, at December 31 were as follows:
2001 2000
----------- -----------
(In Thousands)
Life Insurance - affiliated $ 2,416 $ 369
=========== ===========
The gross and net amounts of life insurance in force at December 31, were as
follows:
2001 2000 1999
---- ---- ----
(In Thousands)
Life Insurance Face Amount In Force $ 11,071,045 $ 7,874,501 $ 7,523,324
Ceded To Other Companies (3,697,344) (673,474) (1,763)
------------ ------------ ------------
Net Amount of Life Insurance In Force $ 7,373,701 $ 7,201,027 $ 7,521,561
============ ============ ============
B-14
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
7. INCOME TAXES
The components of income taxes for the years ended December 31, are as follows:
2001 2000 1999
-------- -------- --------
(In Thousands)
Current Tax Expense (Benefit):
U.S $ (3,756) $ 15,365 $ 6,769
State and Local 153 -- 178
-------- -------- --------
Total (3,603) 15,365 6,947
-------- -------- --------
Deferred Tax Expense (Benefit):
U.S 10,019 (3,211) (54)
State and Local 88 545 (2)
-------- -------- --------
Total 10,107 (2,666) (56)
-------- -------- --------
Total Income Tax Expense $ 6,504 $ 12,699 $ 6,891
======== ======== ========
The 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:
2001 2000 1999
-------- -------- --------
(In Thousands)
Expected Federal Income Tax Expense $ 7,734 $ 12,699 $ 6,891
State and Local Income Taxes 157 354 114
Non taxable investment income (1,558) (843) (878)
Other 171 489 764
-------- -------- --------
Total Income Tax Expense $ 6,504 $ 12,699 $ 6,891
======== ======== ========
Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:
2001 2000
-------- --------
(In Thousands)
Deferred Tax Assets
Insurance Reserves $ 7,331 $ 15,961
Investments 1,061 (914)
-------- --------
Deferred Tax Assets 8,392 15,047
-------- --------
Deferred Tax Liabilities
Deferred Acquisition Costs 35,233 34,249
Net Unrealized (Gains) Losses on Securities 4,226 (723)
Other 1,835 1,791
-------- --------
Deferred Tax Liabilities 41,294 35,317
-------- --------
Net Deferred Tax Liability $ 32,902 $ 20,270
======== ========
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, 2001 and 2000,
respectively, the Company had no federal operating loss carryforwards and $4
million of state operating loss carryforwards for tax purposes, which will
expire in 2021.
B-15
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
7. INCOME TAXES (continued)
The Internal Revenue Service (the "Service") has completed all examinations of
the consolidated federal income tax returns through 1992. The Service has
examined the years 1993 through 1995. The Service has completed its examination
of 1996 and has begun its examination of 1997 through 2000. 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.
8. STATUTORY NET INCOME AND SURPLUS
The Company is required to prepare statutory financial statements in accordance
with accounting practices prescribed or permitted by the New Jersey Department
of Banking and Insurance. Statutory accounting practices primarily differ from
GAAP by charging policy acquisition costs to expense as incurred, establishing
future policy benefit liabilities using different actuarial assumptions and
valuing investments, deferred taxes, and certain assets on a different basis.
Statutory net income (loss) of the Company amounted to $(12.1) million, $21.3
million, and $20.2 million for the years ended December 31, 2001, 2000, and
1999, respectively. Statutory surplus of the Company amounted to $111.5 million
and $294.3 million at December 31, 2001 and 2000, respectively.
In March 1998, the NAIC adopted the Codification of Statutory Accounting
Principles guidance ("Codification"), which replaces the current Accounting
Practices and Procedures manual as the NAIC's primary guidance on statutory
accounting as of January 1, 2001. Codification provides guidance for areas where
statutory accounting has been silent and changes current statutory accounting in
certain areas. The Company has adopted the Codification guidance effective
January 1, 2001. As a result of these changes, the Company reported an increase
to statutory surplus of $7 million, primarily relating to the recognition of
deferred tax assets.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values presented below have been determined using available
market information and by applying valuation methodologies. Considerable
judgment is applied in interpreting data to develop the estimates of fair value.
Estimates of fair values 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 estimated 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, other than private placement
securities, are based on quoted market prices or estimates from independent
pricing services. Generally, fair values for private placement securities are
estimated using a discounted cash flow model which considers the current market
spreads between the U.S. Treasury yield curve and corporate bond yield curve,
adjusted for the type of issue, its current credit quality and its remaining
average life. The estimated fair value of certain non-performing private
placement securities is based on amounts estimated by management.
Policy loans
The estimated fair value of policy loans is calculated using a discounted cash
flow model based upon current U.S. Treasury rates and historical loan repayment
patterns.
Investment contracts
For individual deferred annuities and other deposit liabilities, fair value
approximates carrying value.
Derivative financial instruments
See note 10 for disclosure of fair value on these instruments.
B-16
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
9. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
The following table discloses the carrying amounts and estimated fair values of
the Company's financial instruments at December 31:
2001 2000
-------------------------- ---------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------- ---------- ---------- ----------
(In Thousands)
Financial Assets:
Fixed Maturities:
Available for Sale $ 490,734 $ 490,734 $ 612,851 $ 612,851
Held to Maturity -- -- 7,470 7,259
Policy loans 158,754 169,701 152,111 156,786
Short-Term Investments 32,983 32,983 28,759 28,759
Cash and Cash Equivalents 58,212 58,212 65,237 65,237
Separate Accounts Assets 1,631,113 1,631,113 1,805,584 1,805,584
Financial Liabilities:
Investment Contracts $ 117,694 $ 117,694 $ 102,255 $ 102,255
Cash Collateral for Loaned Securities 36,092 36,092 48,309 48,309
Securities Sold Under Agreements
to Repurchase 18,514 18,514 9,754 9,754
Separate Accounts Liabilities 1,631,113 1,631,113 1,805,584 1,805,584
10. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS
Adoption of Statement of Financial Accounting Standards No. 133
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" as amended, on January 1, 2001. The adoption of this
statement did not have a material impact on the results of operations of the
Company.
Derivative Financial Instruments
A derivative is a financial instrument whose value is derived from interest
rates, foreign exchange rates, financial indices, or the value of securities or
commodities. Derivative financial instruments used by the Company include swaps,
futures, forwards and option contracts and may be exchange-traded or contracted
in the over-the-counter market. The Company uses derivative financial
instruments to seek to reduce market risk from changes in interest rates and to
alter interest rate or currency exposures arising from mismatches between assets
and liabilities. All of the Company's derivatives are classified as other than
trading. As of December 31, 2001, none of the Company's derivatives qualifies
for hedge accounting treatment, therefore they are shown at fair value, with
changes in fair value reported in current earnings.
Futures
The Company uses exchange-traded Treasury futures and options to reduce market
risk from changes in interest rates, and to manage the duration of assets and
the duration of liabilities supported by those assets. In exchange-traded
futures transactions, the Company agrees to purchase or sell a specified number
of contracts, the value of which are determined by the value of designated
classes of Treasury securities, and to post variation margin on a daily basis in
an amount equal to the difference in the daily market values of those contracts.
The Company enters into exchange-traded futures and options with regulated
futures commissions merchants who are members of a trading exchange. The fair
value of futures and options is based on market quotes.
Treasury futures move substantially in value as interest rates change and can be
used to either modify or hedge existing interest rate risk. This strategy
protects against the risk that cash flow requirements may necessitate
liquidation of investments at unfavorable prices resulting from increases in
interest rates. This strategy can be a more cost effective way of temporarily
reducing the Company's exposure to a market decline than selling fixed income
securities and purchasing a similar portfolio when such a decline is believed to
be over.
B-17
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
10. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (continued)
If futures meet hedge accounting criteria, changes in their fair value are
deferred and recognized as an adjustment to the carrying value of the hedged
item. Deferred gains or losses from the hedges for interest-bearing financial
instruments are amortized as a yield adjustment over the remaining lives of the
hedged item. Futures that do not qualify as hedges are carried at fair value
with changes in value reported in current period earnings. The notional and fair
value of futures contracts was $37.0 million and $.03 million at December 31,
2001, respectively. The notional and fair value of futures contracts was $3.6
million and $.1 million at December 31, 2000, respectively.
Credit Risk
The current credit exposure of the Company's derivative contracts is limited to
the fair value at the reporting date. Credit risk is managed by entering into
transactions with creditworthy counterparties and obtaining collateral where
appropriate and customary. The Company also attempts to minimize its exposure to
credit risk through the use of various credit monitoring techniques. All of the
net credit exposure for the Company from derivative contracts is with
investment-grade counterparties. As of December 31, 2000, 100% of the notional
consisted of interest rate derivatives.
11. CONTINGENCIES AND LITIGATION
Prudential and the Company are subject to legal and regulatory actions in the
ordinary course of their businesses, including class actions. Pending legal and
regulatory actions include proceedings relating to aspects of the businesses and
operations that are specific to the Company and Prudential and that are typical
of the businesses in which the Company and Prudential operate. Some of these
proceedings have been brought on behalf of various alleged classes of
complainants. In certain of these matters, the plaintiffs are seeking large
and/or indeterminate amounts, including punitive or exemplary damages.
Beginning in 1995, regulatory authorities and customers brought significant
regulatory actions and civil litigation against the Company and Prudential
involving individual life insurance sales practices. In 1996, Prudential, on
behalf of itself and many of its life insurance subsidiaries including the
Company entered into settlement agreements with relevant insurance regulatory
authorities and plaintiffs in the principal life insurance sales practices class
action lawsuit covering policyholders of individual permanent life insurance
policies issued in the United States from 1982 to 1995. Pursuant to the
settlements, the companies agreed to various changes to their sales and business
practices controls, to a series of fines, and to provide specific forms of
relief to eligible class members. Virtually all claims by class members filed in
connection with the settlements have been resolved and virtually all aspects of
the remediation program have been satisfied. While the approval of the class
action settlement is now final, Prudential and the Company remain subject to
oversight and review by insurance regulators and other regulatory authorities
with respect to its sales practices and the conduct of the remediation program.
The U.S. District Court has also retained jurisdiction as to all matters
relating to the administration, consummation, enforcement and interpretation of
the settlements.
As of December 31, 2001, Prudential and/or the Company remained a party to
approximately 44 individual sales practices actions filed by policyholders who
"opted out" of the class action settlement relating to permanent life insurance
policies issued in the United States between 1982 and 1995. In addition, there
were 19 sales practices actions pending that were filed by policyholders who
were members of the class and who failed to "opt out" of the class action
settlement. Prudential and the Company believe that those actions are governed
by the class settlement release and expects them to be enjoined and/or
dismissed. Additional suits may be filed by class members who "opted out" of the
class settlements or who failed to "opt out" but nevertheless seek to proceed
against Prudential and/or the Company. A number of the plaintiffs in these cases
seek large and/or indeterminate amounts, including punitive or exemplary
damages. Some of these actions are brought on behalf of multiple plaintiffs. It
is possible that substantial punitive damages might be awarded in any of these
actions and particularly in an action involving multiple plaintiffs.
Prudential has indemnified the Company for any liabilities incurred in
connection with sales practices litigation covering policyholders of individual
permanent life insurance policies issued in the United States from 1982 to 1995.
The Company's litigation is subject to many uncertainties, and given the
complexity and scope, the outcomes cannot be predicted. It is possible that the
results of operations or the cash flow of the Company in a particular quarterly
or annual period could be materially affected by an ultimate unfavorable
resolution of pending litigation and regulatory matters. Management believes,
however, that the ultimate outcome of all pending litigation and regulatory
matters should not have a material adverse effect on the Company's financial
position.
B-18
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements
- --------------------------------------------------------------------------------
12. DIVIDENDS
The Company is subject to New Jersey law which requires any shareholder dividend
or distribution must be filed with the New Jersey Commissioner of Insurance.
Cash dividends may only be paid out of earned surplus derived from realized net
profits. The Company received approval from the New Jersey Commissioner of
Insurance to pay an extraordinary dividend to its Parent in 2001 of $186
million.
13. RELATED PARTY TRANSACTIONS
The Company has extensive transactions and relationships with Prudential and
other affiliates. It is possible that the terms of these transactions are not
the same as those that would result from transactions among wholly unrelated
parties.
Expense Charges and Allocations
All of the Company's expenses are allocations or charges from Prudential or
other affiliates. These expenses can be grouped into the following categories:
general and administrative expenses, retail distribution expenses and asset
management fees.
The Company's general and administrative expenses are charged to the Company
using allocation methodologies based on business processes. Management believes
that the methodology is reasonable and reflects costs incurred by Prudential to
process transactions on behalf of the Company. 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.
The Company is allocated estimated distribution expenses from Prudential's
retail agency network for both its domestic life and annuity products. The
Company has capitalized certain of these distribution expenses as deferred
policy acquisition costs. Beginning April 1, 2000, Prudential and the Company
agreed to revise the estimate of allocated distribution expenses to reflect a
market based pricing arrangement.
In accordance with a profit sharing agreement with Prudential that was in effect
through December 31, 2000, the Company received fee income from policyholder
account balances invested in the Prudential Series Funds ("PSF"). These revenues
were recorded as "Asset management fees" in the Statements of Operations and
Comprehensive Income. The Company was charged an asset management fee by
Prudential Global Asset Management ("PGAM") and Jennison Associates LLC
("Jennison") for managing the PSF portfolio. These expenses are a component of
general, administrative and other expenses.
On September 29, 2000, the Board of Directors for the Prudential Series Fund,
Inc. ("PSFI") adopted resolutions to terminate the existing management agreement
between PSFI and Prudential, and has appointed another subsidiary of Prudential
as the fund manager for PSF. The change was approved by the shareholders of the
PSFI during early 2001 and effective January 1, 2001, the Company will no longer
receives fees associated with the PSF. In addition, the Company will no longer
incur the asset management expense from PGAM and Jennison associated with the
PSF.
Corporate Owned Life Insurance
The Company has sold a Corporate Owned Life Insurance ("COLI") policy to
Prudential. The cash surrender value included in Separate Accounts was $165.7
million and $182.4 million at December 31, 2001 and December 31, 2000,
respectively.
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, 2001, 2000, and 1999.
Debt Agreements
In July 1998, the Company established a revolving line of credit facility with
Prudential Funding LLC, a wholly-owned subsidiary of Prudential. There is no
outstanding debt relating to this credit facility as of December 31, 2001.
B-19
Report of Independent Accountants
To the Board of Directors and Stockholder of
Pruco Life Insurance Company of New Jersey
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material aspects, the financial position of Pruco Life
Insurance Company of New Jersey (an indirect, wholly-owned subsidiary of The
Prudential Insurance Company of America) at December 31, 2001 and 2000, and
the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, 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 our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 21, 2002
B-20
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 ("Pruco Life 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 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 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 Form S-6, Registration No. 333-85117, filed on August 13, 1999 on
behalf of the Pruco Life of New Jersey Variable Appreciable Account.
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 XX 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:
PricewaterhouseCoopers, LLC
Clifford E. Kirsch, Esq.
Pamela A. Schiz, 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 3)
(b) Amendment of Separate Account Resolution. (Note 1)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities
Corporation and Pruco Life Insurance Company of
New Jersey. (Note 3)
(b) Proposed form of Agreement between Pruco
Securities Corporation and independent brokers
with respect to the Sale of the Contracts. (Note
1)
(c) Schedules of Sales Commissions. (Note 1)
(4) Not Applicable.
(5) Variable Universal Life Insurance Contract. (Note 6)
(6) (a) Articles of Incorporation of Pruco Life Insurance
Company of New Jersey, as amended March 11, 1983.
(Note 3)
(b) Certificate of Amendment of the Articles of
Incorporation of Pruco Life Insurance Company of
New Jersey, February 12, 1998. (Note 4)
(c) By-laws of Pruco Life Insurance Company of New
Jersey, as amended August 4, 1999. (Note 5)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) New Jersey Application Form for Variable Universal
Life Insurance Contract. (Note 5)
(b) Supplement to the Application for Variable
Universal Life Insurance Contract. (Note 5)
(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 1)
(13) Available Contract Riders and Endorsements.
(a) Rider for Flexible Term Insurance Benefit of Life
of Insured - VL 197B (Note 1)
(b) Rider for Flexible Term Insurance Benefit of Life
of Insured - VL 197B2 (Note 1)
(c) Endorsement providing Type C Death Benefit
Provisions (Note 6)
II-2
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 Pamela A. Schiz, FSA, MAAA, as to actuarial
matters pertaining to the securities being registered. (Note 1)
7. Powers of Attorney.
(a) Vivian L. Banta, Richard J. Carbone, Helen M. Galt (Note 7)
(b) James J. Avery, Jr. (Note 2)
(c) Ronald P. Joelson (Note 8)
(d) William Eckert, IV, David R. Odenath (Note 9).
(Note 1) Filed herewith.
(Note 2) 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 3) 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 4) 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 5) Incorporated by reference to Form S-6, Registration No. 333-85117,
filed on August 13, 1999 on behalf of the Pruco Life of New Jersey
Variable Appreciable Account.
(Note 6) Incorporated by reference to Form S-6, Registration No. 333-94115,
filed on January 5, 2000 on behalf of the Pruco Life of New Jersey
Variable Appreciable Account.
(Note 7) Incorporated by reference to Post-Effective Amendment No. 5 to Form
S-6, Registration No. 333-85117, filed June 28, 2001 on behalf of
the Pruco Life of New Jersey Variable Appreciable Account.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 14 to Form
S-1, Registration No. 33-20018, filed April 10, 2001 on behalf of
the Pruco Life of New Jersey Variable Contract Real Property
Account.
(Note 9) Incorporated by reference to Pre-Effective Amendment No. 1 to Form
S-6, Registration No. 333-49334, filed February 8, 2001 on behalf of
the Pruco Life of New Jersey Variable Appreciable Account.
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 17th day of September, 2002.
(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/ Andrew J. Mako
-------------------------- ----------------------------
Thomas C. Castano Andrew J. Mako
Assistant Secretary Executive Vice 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 17th day of September, 2002.
Signature and Title
-------------------
/s/ *
- -------------------------------------------
Vivian L. Banta
President, Chairperson, and Director
/s/ *
- -------------------------------------------
William J. Eckert, IV
Vice President and Chief Accounting Officer
/s/ * *By: /s/ Thomas C. Castano
- ------------------------------------------- -----------------------------
James J. Avery, Jr. Thomas C. Castano
Director (Attorney-in-Fact)
/s/*
- -------------------------------------------
Richard J. Carbone
Director
/s/ *
- -------------------------------------------
Helen M. Galt
Director
/s/ *
- -------------------------------------------
Ronald P. Joelson
Director
/s/ *
- -------------------------------------------
David R. Odenath, Jr.
Director
II-4
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-6 (the "Registration Statement") of our report
dated February 21, 2002, relating to the financial statements of Pruco Life
Insurance Company of New Jersey, which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in the
Prospectus.
PricewaterhouseCoopers LLP
New York, New York
September 17, 2002
II-5
EXHIBIT INDEX
Consent of PricewaterhouseCoopers LLP, independent accountants.
1.A.(1)(b) Amendment of Separate Account Resolution.
1.A.(3)(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to the Sale
of the Contracts.
1.A.(3)(c) Schedule of Sales Commissions.
1.A.(12) Memorandum describing Pruco Life Insurance Company's
issuance, transfer, and redemption procedures for the
Contracts pursuant to Rule 6e-3(T)(b)(12)(iii).
1.A.(13)(a) Rider for Flexible Term Insurance Benefit of Life of Insured
- VL 197B
1.A.(13)(b) Rider for Flexible Term Insurance Benefit of Life of Insured
- VL 197B2
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the
legality of the securities being registered.
6. Opinion and Consent of Pamela A. Schiz, MAAA, FSA, as to
actuarial matters pertaining to the securities being
registered
II-6