PRUCO LIFE INSURANCE OF NEW JERSEY - 10-K Annual Report

Back to GetFilings.com

================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

(Mark One)

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- - OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 2003

OR

_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]

Commission file number 33-18053

PRUCO LIFE INSURANCE COMPANY
OF NEW JERSEY

(Exact name of Registrant as specified in its charter)

New Jersey 22-2426091
- --------------------------- --------------------------
(State or other jurisdiction, (IRS Employer Identification No.)
incorporation or organization)

213 Washington Street, Newark, New Jersey 07102
--------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

(973) 802-6000
--------------------------------------------------------------
(Registrant's Telephone Number, including area code)

Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: NONE

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ___

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES___ NO X
---

State the aggregate market value of the voting stock held by non-affiliates
of the registrant: NONE

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 19, 2004. Common stock, par value of
$5 per share: 400,000 shares outstanding

Pruco Life Insurance Company of New Jersey meets the conditions set
forth in General Instruction (I) (1) (a) and (b) on Form 10-K and
is therefore filing this Form with the reduced disclosure format.

================================================================================

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Registrant)

INDEX
-----

Page No.
--------

Cover Page -

Index 2

PART I Item 1. Business 3

Item 2. Properties 6

Item 3. Legal Proceedings 6

PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 6

Item 7. Management's Discussion and Analysis of Financial Position and Results of 6
of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 11

Item 8. Financial Statements and Supplementary Data 14

Item 9. Changes in and Disagreements with Independent Accountants on Accounting and
Financial Disclosure 14

Item 9A. Controls and Procedures 14

PART III Item 10. Directors and Executive Officers of the Registrant 15

Item 14. Principal Accountant Fees and Services 15

PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 16

Signatures 18

Forward-Looking Statement Disclosure

Management's Discussion and Analysis of Financial Condition and Results of
Operations, constitute forward-looking statements within the meaning of the U.S.
Private Securities Litigation Reform Act of 1995. Words Certain of the
statements included in this Annual Report on Form 10-K, including but not
limited to those in the such as "expects," "believes," "anticipates,"
"includes," "plans," "assumes," "estimates," "projects," "intends," or
variations of such words are generally part of forward-looking statements.
Forward-looking statements are made based on management's current expectations
and beliefs concerning future developments and their potential effects upon
Pruco Life Insurance Company of New Jersey ("the Company"). There can be no
assurance that future developments affecting the Company will be those
anticipated by management. These forward-looking statements are not a guarantee
of future performance and involve risks and uncertainties, and there are certain
important factors that could cause actual results to differ, possibly
materially, from expectations or estimates reflected in such forward-looking
statements, including without limitation: general economic, market and political
conditions, including the performance of financial markets, interest rate
fluctuations and the continuing negative impact of the current economic
environment; various domestic or international military or terrorist activities
or conflicts; volatility in the securities markets; reestimates of our reserves
for future policy benefits and claims; changes in our assumptions related to
deferred policy acquisition costs; our exposure to contingent liabilities;
catastrophe losses; investment losses and defaults; changes in our claims-paying
or credit ratings; competition in our product lines and for personnel;
fluctuations in foreign currency exchange rates and foreign securities markets;
the impact of changing regulation or accounting practices; adverse litigation
results; and changes in tax law. The Company does not intend, and is under no
obligation to, update any particular forward-looking statement included in this
document.

2

PART 1
------

Item 1. Business
- ----------------

Overview

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 and
variable life insurance, term life insurance, and individual variable 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 Insurance"), an insurance
company founded in 1875 under the laws of the state of New Jersey. On December
18, 2001 ("the date of demutualization") Prudential Insurance converted from a
mutual life insurance company to a stock life insurance company and became an
indirect wholly owned subsidiary of Prudential Financial, Inc. ("Prudential
Financial"). 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. The following
paragraphs describe the Company's products, marketing and distribution, and
underwriting and pricing.

Products

Variable Life Insurance
We offer a number of individual variable life insurance products that provide a
return linked to an underlying investment portfolio designated by the
policyholder while providing the policyholder with the flexibility to change
both the death benefit and premium payments. Each product provides for the
deduction of charges and expenses from the customer's investment account. We
also offer variable life products targeted to the estate planning and
corporate-owned life insurance markets.

Term Life Insurance
We offer a variety of term life insurance products. Most term products include a
conversion feature that allows the policyholder to convert the policy into
permanent life insurance coverage.

Universal Life Insurance
We offer universal life insurance products that feature a market rate fixed
interest investment account and flexible premiums.

Variable and Fixed Annuities
We offer variable annuities that provide our customers with the opportunity to
invest in proprietary and non-proprietary mutual funds and fixed-rate options.
The investments made by customers in the proprietary and non-proprietary mutual
funds represent separate accounts for which the contractholder bears the
investment risk. The investments made in the fixed rate options are credited
with interest at rates determined by us, subject to certain minimums.
Additionally, our variable annuities products offer certain minimum death
benefit and living benefit guarantee options. We also offer a fixed annuity
product that provides a guaranteed rate of interest for a specified maturity
subject to a market value adjustment in the event of early withdrawal. We had
previously offered fixed annuities that provide a guarantee of principal and a
guaranteed interest rate to be credited to the principal amount for a specified
period of time. This type of fixed annuity is no longer offered for sale.

Marketing and Distribution

Prudential Insurance Agents
Agents employed by Prudential Insurance, our Parent company, distribute
variable, universal and term life, variable and fixed annuities, and investment
and protection products with proprietary and non-proprietary investment options
as well as selected insurance products manufactured by others.

The majority of Prudential Insurance Agents are multi-line traditional agents.
Other than certain training allowances or salary paid at the beginning of their
employment, traditional Prudential Insurance Agents are paid on a commission
basis for the products they sell. As described in the Notes to the Financial
Statements, the Company is allocated expenses from Prudential Insurance. These
allocated expenses reflect a market based pricing arrangement.

3

Third Party Distribution
Our individual life and annuity products are offered through a variety of third
party channels, including independent brokers, general agencies, producer
groups, banks and broker-dealers. We have historically focused on serving the
intermediaries who provide insurance solutions in support of estate and wealth
transfer planning for affluent individuals and corporate-owned life insurance
for businesses. However, we have expanded our target market to include mass
affluent individuals in addition to affluent individuals. The life insurance and
annuity products offered are generally the same as those available through
Prudential Insurance Agents. Our third party efforts are supported by a network
of internal and external wholesalers.

Underwriting and Pricing

Life Insurance
Our life insurance underwriters follow detailed and uniform policies and
procedures to assess and quantify the risk of our individual life insurance
products. We require the applicant to take a variety of underwriting tests, such
as medical examinations, electrocardiograms, blood tests, urine tests, chest
x-rays and consumer investigative reports, depending on the age of the applicant
and the amount of insurance applied for. Our universal life insurance contracts
and the fixed component of our variable life insurance contracts feature
crediting rates which are reset periodically. In resetting these rates, we
consider the returns on our portfolios supporting the interest-sensitive life
insurance business, current interest rates, the competitive environment, and our
profit objectives.

Annuities
We earn investment management fees based upon the average assets of the mutual
funds in our variable annuity products and mortality and expense fees and other
fees for various insurance-related options and features based on average daily
net assets of the value of the annuity separate accounts. We price the
fixed-rate options of our variable annuities based on assumptions as to
investment returns, expenses and persistency. Competition also influences our
pricing. We seek to maintain a spread between the return on our general account
invested assets and the interest we credit on our fixed annuities. To encourage
persistency, all of our variable annuities have withdrawal restrictions and
declining surrender or withdrawal charges for a specified number of years.

Reserves

We establish reserve and policyholder fund liabilities to recognize our future
benefit obligations for our in force life and annuity policies. For variable and
interest-sensitive life insurance and annuity contracts, we establish
policyholders' account balances that represent cumulative gross premium payments
plus credited interest and/or fund performance, less withdrawals, expenses and
mortality charges.

Effective January 1, 2004, we will adopt SOP 03-01, which requires us to record
a liability for minimum guaranteed death benefits as well as other changes. This
is discussed in Item 7, Management`s Discussion and Analysis and in Footnote 2
on new accounting pronouncements.

Reinsurance

Since 2000, we have reinsured the majority of the mortality risk we assume under
our new individual life insurance products. The maximum amount of individual
life insurance we may retain on any life is $2.5 million.

4

Regulatory Environment

In order to continue to market life insurance and annuity products, the Company
must meet or exceed the statutory capital and surplus requirements of the
insurance departments of the states in which it conducts business. Statutory
accounting practices differ from generally accepted accounting principles
("GAAP") in two major respects. First, under statutory accounting practices, the
acquisition costs of new business are charged to expense, while under GAAP they
are initially deferred and amortized over a period of time. Second, under
statutory accounting practices, the required additions to statutory reserves for
new business in some cases may initially exceed the statutory revenues
attributable to such business. These practices result in a reduction of
statutory income and surplus at the time of recording new business.

Insurance companies are subject to Risk-Based Capital ("RBC") guidelines,
monitored by insurance regulatory authorities, that measure the ratio of the
Company's statutory surplus with certain adjustments ("Adjusted Capital") to its
required capital, based on the risk characteristics of its insurance liabilities
and investments. Required capital is determined by statutory formulae that
consider risks related to the type and quality of invested assets,
insurance-related risks associated with the Company's products, interest rate
risks, and general business risks. The RBC calculations are intended to assist
regulators in measuring the adequacy of the Company's statutory capitalization.

The Company considers RBC implications in its asset/liability management
strategies. Each year, the Company conducts a thorough review of the adequacy of
statutory insurance reserves and other actuarial liabilities. The review is
performed to ensure that the Company's statutory reserves are computed in
accordance with accepted actuarial standards, reflect all contractual
obligations, meet the requirements of state laws and regulations and include
adequate provisions for any other actuarial liabilities that need to be
established. All significant reserve changes are reviewed by the Board of
Directors and are subject to approval by the New Jersey Department of Banking
and Insurance (the "Insurance Department"). The Company believes that its
statutory capital is adequate for its currently anticipated levels of risk as
measured by regulatory guidelines.

In March 1998 the NAIC adopted the Codification of Statutory Accounting
Principles Guidance ("Codification"), which replaced the current Accounting
Practices and Procedures manual as the NAIC's primary guidance on statutory
accounting as of January 1, 2001. Codification provided guidance for areas where
statutory accounting had been silent and changed current statutory accounting in
certain areas. Certain of the standards had an impact on the measurement of
statutory capital, which in turn, affected RBC ratios of insurance companies.
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 as a result of the recognition of deferred tax assets.

The NAIC has developed a set of financial relationships or tests known as the
Insurance Regulatory Information System ("IRIS") to assist state regulators in
monitoring the financial condition of insurance companies and identifying
companies that require special attention or action by insurance regulatory
authorities. Insurance companies generally submit data annually to the NAIC,
which in turn analyzes the data using prescribed financial data ratios, each
with defined "usual ranges." Generally, regulators will begin to investigate or
monitor an insurance company if ratios fall outside the usual ranges for four or
more of the ratios. If an insurance company has insufficient capital, regulators
may act to reduce the amount of insurance it can issue. The Company is not
currently subject to regulatory scrutiny based on these ratios.

The Company is subject to the laws of the Insurance Department. A detailed
financial statement in the prescribed form (the "Annual Statement") is filed
with the Insurance Department each year covering the Company's operations for
the preceding year and its financial position as of the end of that year.
Regulation by the Insurance Department includes periodic examination to verify
the accuracy of contract liabilities and reserves. The Company's books and
accounts are subject to review by the Insurance Department at all times. A full
examination of the Company's operations is conducted periodically by the
Insurance Department and under the auspices of the NAIC.

The Company is subject to regulation under the insurance laws of all
jurisdictions in which it operates. The laws of the various jurisdictions
establish supervisory agencies with broad administrative powers with respect to
various matters, including licensing to transact business, overseeing trade
practices, licensing agents, approving contract forms, establishing reserve
requirements, fixing maximum interest rates on life insurance contract loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. The Company is required to file the Annual Statement with
supervisory agencies in each of the jurisdictions in which it does business, and
its operations and accounts are subject to examination by these agencies at
regular intervals.

Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Certain insurance products of the Company are subject to
various federal securities laws and regulations. In addition, current and
proposed federal measures which may significantly affect the insurance business
include regulation of insurance company solvency, employee benefit regulation,
removal of barriers preventing banks from engaging in the insurance business,
tax law changes affecting the taxation of insurance companies and the tax
treatment of insurance products and its impact on the relative desirability of
various personal investment vehicles.

5

Item 2. Properties
- ------------------

Office space is provided by Prudential Insurance, as is described in the Notes
to the Financial Statements.

Item 3. Legal Proceedings
- -------------------------

The Company is subject to legal and regulatory actions in the ordinary course of
its 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 that are typical of the businesses in which the
Company operates. Class action and individual lawsuits involve a variety of
issues and/or allegations, which include sales practices, underwriting
practices, claims payment and procedures, premium charges, policy servicing and
breach of fiduciary duties to customers. We are also subject to litigation
arising out of our general business activities, such as our investments and
third party contracts. In certain of these matters, the plaintiffs are seeking
large and/or indeterminate amounts, including punitive or exemplary damages.

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.

PART II
-------

Item 5. Market for the Registrant's Common Equity and Related Stockholder
-----------------------------------------------------------------
Matters
-------

The Company is a wholly owned subsidiary of Pruco Life. There is no public
market for the Company's common stock.

Item 7. Management's Discussion and Analysis of Financial Position and Results
----------------------------------------------------------------------
of Operations.
--------------
Pruco Life Insurance Company of New Jersey meets the conditions set forth in
General Instruction I(1)(a) and (b) on Form 10-K and is filing this form with
reduced disclosure.

Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") addresses the financial condition of Pruco Life Insurance
Company of New Jersey as of December 31, 2003, compared with December 31, 2002,
and its results of operations for the years ended December 31, 2003 and 2002.

Overview

The Company sells individual interest-sensitive life insurance, variable life
insurance, term insurance, and individual variable annuities through Prudential
Insurance's sales force in New Jersey and New York. These markets are subject to
regulatory oversight with particular emphasis placed on company solvency and
sales practices. These markets are also subject to increasing competitive
pressures as the legal barriers which have historically segregated the markets
of the financial services industry have been changed through both legislative
and judicial processes. Regulatory changes have opened the insurance industry to
competition from other financial institutions, particularly banks and mutual
funds that are positioned to deliver competing investment products through
large, stable distribution channels.

Generally, policyholders who purchase the Company's products have the option of
investing in the separate accounts, segregated funds for which investment risks
are borne by the customer, or the Company's portfolio, referred to as the
General Account. The Company earns its profits through policy fees charged to
separate account annuity and life policyholders and through the interest spread
for the General Account annuity and life products. Policy charges and fee income
consist mainly of three types, sales charges or loading fees on new sales,
mortality and expense charges ("M&E") assessed on fund balances, and mortality
and related charges based on total life insurance in-force business.
Policyholder fund values are affected by net sales (sales less withdrawals),
changes in interest rates and investment returns. The interest spread represents
the difference between the investment income earned by the Company on its
investment portfolio and the amount of interest credited to the policyholders'
accounts. Products that generate spread income primarily include the general
account life insurance products, fixed annuities and the fixed-rate option of
variable annuities.

Besides policy charges and fee income, the Company also earns revenues from
insurance premiums from term life insurance and asset management fees on the
Separate Account fund balances. The Company's operating expenses principally
consist of insurance benefits provided, general business expenses, commissions
and other costs of selling and servicing the various products we sell and
interest credited on general account liabilities.

6

The Company's profitability depends principally on its ability and Prudential
Insurance's ability to price and manage risk on insurance products, to attract
and retain customer assets, and to manage expenses. Specific drivers of our
profitability include:

o the ability of the Company and Prudential Insurance to manufacture
and distribute products and services and to introduce new products
gaining market acceptance on a timely basis;

o the ability to price our insurance products at a level that enables
us to earn a margin over the cost of providing benefits and the
expense of acquiring customers and administering those products;

o the mortality and morbidity experience on individual life insurance
and annuity products;

o persistency experience, which affects our ability to recover the cost
of acquiring new business over the lives of the contracts;

o the cost of administering insurance contracts and providing asset
management products and services;

o the returns on invested assets, net of the amounts we credit to
policyholders' accounts;

o the amount of our assets under management and changes in their fair
value, which affect the amount of asset management fees we receive;
and

o the ability to generate favorable investment results through
asset-liability management and strategic and tactical asset
allocation.

Application of Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires the
application of accounting policies that often involve a significant degree of
judgment. Management, on an ongoing basis, reviews estimates and assumptions
used in the preparation of financial statements. If management determines that
modifications in assumptions and estimates are appropriate given current facts
and circumstances, results of operations and financial position as reported in
the Consolidated Financial Statements may change significantly.

The following sections discuss the accounting policies applied in preparing our
financial statements that management believes are most dependent on the
application of estimates and assumptions.

Valuation of investments
A large portion of our investments is reflected at fair value in the statements
of financial position based on quoted market prices or estimates from
independent pricing services. However, when such information is not available,
for example, with respect to private placement fixed maturity securities, which
comprises 16.6% of our investments at December 31, 2003, fair value is
estimated, typically by using a discounted cash flow model, which considers
current market credit spreads for publicly traded issues with similar terms by
companies of comparable credit quality. Consequently, changes in estimated
future cash flows or in our assessment of the issuer's credit quality will
result in changes in fair value estimates. For fixed maturities and equity
securities classified as available for sale, the impact of such changes is
recorded in "Accumulated other comprehensive income (loss)," a separate
component of equity. However, the carrying value of these securities is reduced,
with a corresponding charge to earnings, when a decline in value is considered
to be other than temporary. Factors we consider in determining whether a decline
in value is other than temporary include: whether the decline is substantial,
the length of time the fair value has been less than cost, generally six months;
and the financial condition and near-term prospects of the issuer. This
corresponding charge is referred to as an impairment and is reflected in
"Realized investment losses, net" in the statements of operations. The level of
impairment losses can be expected to increase when economic conditions worsen
and decrease when economic conditions improve.

Policyholder liabilities
The liability for "Future policy benefits and other policyholder liabilities"
represents 5.4% of total liabilities as of December 31, 2003. Changes in this
liability are generally reflected in the "Policyholders' benefits" caption in
our statements of operations. This liability is primarily comprised of the
present value of estimated future payments to holders of life insurance and
annuity products where the timing and amount of payment depends on policyholder
mortality or surrender experience. For life insurance and annuity products,
expected mortality is generally based on the Company's historical experience or
standard industry tables. Interest rate assumptions are based on factors such as
market conditions and expected investment returns. Although mortality and
interest rate assumptions are "locked-in" upon the issuance of new insurance or
annuity business with fixed and guaranteed terms, significant changes in
experience or assumptions may require us to provide for expected future losses
on a product by establishing loss recognition reserves.

7

Deferred policy acquisition costs
For most life insurance and annuity products that we sell, we defer costs that
vary with and are related primarily to the production of new business to the
extent these costs are deemed recoverable from future profits, and we record
these costs as an asset known as deferred policy acquisition costs or "DAC"
which is 5.5% of total assets as of December 31, 2003. We amortize this DAC
asset over the expected lives of the contracts, based on the level and timing of
either estimated profits or premiums, depending on the type of contract. For
products with amortization based on future premiums, the amortization rate is
locked-in when the product is sold. For products with amortization based on
estimated profits, the amortization rate is periodically updated to reflect
current period experience or changes in assumptions that affect future
profitability, such as lapse rates, investment returns, mortality experience,
expense margins and surrender charges.

For example, expected profitability is a significant estimate in evaluating
deferred acquisition costs related to annuity products. Expected profitability
considers, among other assumptions, our best estimate of future asset returns to
estimate the future fees we expect to earn, the costs associated with minimum
death benefit guarantees we expect to incur and other profitability factors. For
the average remaining life of our variable annuity contracts in force as of
December 31, 2003, our evaluation of deferred policy acquisition costs is based
on a 7.7% annual blended rate of return that reflects an assumed rate of return
of 8.9% for equity type assets. Continuation of current market conditions or
further deterioration in market conditions may result in increases in the
amortization of deferred policy acquisition costs, while a significant
improvement in market conditions may result in a decrease in the amortization of
deferred policy acquisition costs. These changes in DAC balances are included as
a component of "General, administrative and other expenses" in our statements of
operations.

See "Results of Operations" for discussion of the impact of DAC amortization on
our results of our life and annuities products, including decreased amortization
recorded in 2003 and increased amortization in 2002 reflecting higher estimates
of future gross profits in 2003 and lower estimates of future gross profits in
2002.

Reserves for contingencies
A contingency is an existing condition that involves a degree of uncertainty
that will ultimately be resolved upon the occurrence of future events. Under
GAAP, reserves for contingencies are required to be established when the future
event is probable and its impact can be reasonably estimated. An example is the
establishment of a reserve for losses in connection with an unresolved legal
matter. The initial reserve reflects management 's best estimate of the probable
cost of ultimate resolution of the matter and is revised accordingly as facts
and circumstances change and, ultimately, when the matter is brought to closure.
In situations in which the Company is to be indemnified by Prudential Insurance,
there will be no financial impact on the statement of operations.

Other significant estimates
In addition to the items discussed above, the application of GAAP requires
management to make other estimates and assumptions. One example is the
recognition of deferred tax assets, which depends on management's assumption
that future earnings will be sufficient to realize the deferred benefit. This is
discussed in Note 7 to the Financial Statements.

Recently Issued Accounting Pronouncements

See Note 2 to the Financial Statements for a discussion of recently issued
accounting pronouncements.

The Company's Changes in Financial Position and Results of Operations are
described below.

Changes in Financial Position

2003 versus 2002

From December 31, 2002 to December 31, 2003 there was an increase of $636
million in total assets from $2,583 million to $3,219 million. Separate account
assets increased by $336 million primarily from market value appreciation as a
result of recoveries in the equity markets. Fixed maturities increased by $229
million as a result of investing general account policyholder deposits, positive
cash flows from insurance operations and the capital contribution from its
Parent into these investments. Fixed maturities also benefited from unrealized
appreciation. Deferred acquisition costs ("DAC") increased by $39 million, as
capitalization of distribution expenses from new sales exceeded the amortization
of DAC. Cash and cash equivalents are higher by $11 million as cash is the
collateral received from securities lending activities, which is higher in 2003.
Other assets are higher by $9 million primarily from an increase in deferred
expenses related to sales inducements for annuity products.

During the year, liabilities increased by $572 million from $2,354 million to
$2,926 million. Corresponding with the asset change, Separate account
liabilities increased by $336 million, as described above. Policyholder account
balances increased by $146 million due primarily to positive net sales of
annuity products with fixed rate options. A higher level of securities lending
activity increased liabilities by $37 million. Future policy benefits increased

8

by $25 million as a result of growth in the term insurance business. Income
taxes payable, which is a net number comprised of payables and receivables,
increased by $18 million mainly as a result of tax expense and a tax refund
received from Prudential Financial. In accordance with the tax sharing agreement
with Prudential Financial, the Company was reimbursed for operating losses
utilized in the consolidated federal tax return Other liabilities increased by
$11 million due to an increase in payables resulting from purchases of
securities that had not settled at the balance sheet date.

Stockholder's equity increased by $64 million from December 31, 2002. The
largest factor in this increase was a capital contribution of $40 million
received from the Parent Company. Retained earnings increased from net income of
approximately $21 million and other accumulated comprehensive income increased
by approximately $3 million due to unrealized appreciation on fixed maturities.

Results of Operations

2003 versus 2002

Net Income
Net income of $20.6 million for 2003 was $5.2 million more than the $15.4
million earned for 2002. The largest contributing factor to this increase was a
decrease in realized investment losses of $13.4 million as a result of an
improving credit environment in 2003. Continued growth in the in-force business
of life and annuity products caused increases in premiums and benefit expenses.
However, policy charges were flat as the prior year had a large fee of $12
million on the sale of an affiliated COLI policy. The total income effect of
this transaction in 2002 was $7.1 million after adjusting for reserves and DAC.
The increase in taxes for the year of $14.1 million is primarily related to the
increase in income from operations before taxes, and a decrease in the dividends
received deduction. Further details regarding the components of revenues and
expenses are described in the following paragraphs.

Revenues
Revenues increased by $25.9 million from the prior year. Realized investment
losses decreased $13.4 million as a result of lower losses on fixed maturities
of $11.6 million and higher derivative gains of $1.8 million. The prior year had
fixed maturity losses of $12.7 million consisting of $9.0 million of impairments
and $3.7 million of credit related losses on sales. The current year has fixed
maturity losses of $1.1 million consisting of $2.0 million of impairments and
$.9 million of gains on sales.

Premiums increased by $9.8 million from higher term insurance sales and renewals
of $13.6 million partially offset by lower extended term insurance of $2.9
million. Extended term insurance is term insurance we issued, under policy
provisions, to customers who previously had lapsing variable life insurance
policies with us. Extended term life insurance decreased as a result of
favorable market performance in the current year, which caused a decrease in
lapses.

Policy charges and fee income, consisting primarily of mortality and expense
("M&E"), loading and other insurance charges assessed on General and Separate
account policyholder fund balances, remained relatively flat with the prior
year. There was a $.3 million increase for individual life products offset by a
$.7 million decrease for annuity products. Current year recurring policy charges
for life products are higher if you exclude the prior year affiliated sale to
Prudential Insurance of Corporate Owned Life Insurance ("COLI"), which generated
$12 million in up-front policy fees. That same COLI contract produced $1.2
million of policy charges in 2003. Excluding the COLI sale, mortality and sales
based loading charges for life products increased as a result of growth of the
in-force business and the sale of newer interest-sensitive products that
generally carry higher expense charges in the first few years of the contract.
The life in-force business (excluding term insurance) grew to $10.3 billion at
December 31, 2003 from $8.9 billion at December 31, 2002. Annuity Separate
account fund balances have increased in the current year as a result of
favorable market performance during the current year. However, the average
balance for the current year is slightly lower than the prior year resulting in
a small decline in policy charges.

Asset management fees increased by $2.8 million in 2003 as the Company did not
begin receiving these fees in the prior year until October 2002.

Net investment income increased by $.3 million as a result of increased income
from fixed maturities due to an increase in the portfolio balance from the
investment of positive operating and financing cash flows into the fixed
maturity portfolio. This was partially offset by the effect of lower
reinvestment rates for fixed maturities and short-term investments due to the
lower interest rate environment.

Benefits and Expenses
Policyholder benefits increased by $5.4 million from increased reserve
provisions for life insurance reserves and higher death claims. The change in
reserves for life and annuity products increased by $4.0 million from the prior
year primarily as a result of higher reserves for term insurance due to
increased premiums, partially offset by lower reserves for extended term
insurance. There were also increased death claims of $1.3 million primarily from
term insurance policies as a result of the increasing in-force business.
Included in this change, is a decrease of $.4 million for annuity guaranteed
minimum death benefits from $1.7 million in 2002 to $1.3 million in 2003 due to
favorable market performance during 2003.

9

The guaranteed minimum death benefit (GMDB) feature provides annuity contract
holders with a guarantee that the benefit received at death will be no less than
a prescribed minimum amount. This minimum amount is based on the net deposits
paid into the contract, the net deposits accumulated at a specified rate, the
highest historical account value on a contract anniversary, or more typically,
the greatest of these values, depending on features offered in various contracts
and elected by the contract holders. Previously, accounting literature did not
prescribe the recognition of a liability for the expected future net costs
associated with GMDB provisions. Accordingly, a reserve was not previously
established for the annuity business. However, effective January 1, 2004, we
will adopt SOP 03-01 which requires us to record such a liability based on
application of an expected loss ratio to "cumulative assessments" through the
balance sheet date, and then subtracting "cumulative excess payments" through
that date. We currently estimate this liability to be approximately $1.6
million. However, in our periodic evaluation of unamortized deferred policy
acquisition costs associated with our variable annuity business, we considered
the expected net costs associated with the guaranteed minimum death benefits in
our calculation of expected gross profits from this business. Accordingly, the
effect of establishing the guaranteed minimum death benefit reserve related to
this business will be partially offset by an estimated increase of approximately
$.4 million in unamortized deferred policy acquisition costs, resulting in
higher future amortization.

In addition to establishing a liability associated with the guaranteed minimum
death benefit feature, SOP 03-01 requires a change in valuation and presentation
of our liability associated with the market value adjustment ("MVA") feature
contained in certain annuity contracts. The MVA feature requires the Company to
pay to the contract holder upon surrender the accreted value of the fund as well
as a market value adjustment based on the crediting rates on the contract
surrendered compared to crediting rates on newly issued contracts. Currently,
this liability is reflected at market value, which considers the effects of
unrealized gains and losses in contract value resulting from changes in
crediting rates. Upon adoption of SOP 03-01, the Company will reclassify this
liability from "Separate Account Liabilities" to "Policyholders' Account
Balances" and reduce it to reflect accreted value, which excludes the effect of
unrealized gains and losses in contract value resulting from changes in
crediting rates. We currently estimate the impact of the reduction in liability
associated with the MVA feature to be a benefit of approximately $1.0 million.

Interest credited increased by $2.2 million due to growth in the policyholders'
account balances for annuity products. Overall net interest spread revenue,
representing net investment income less interest credited, has declined from
last year as investment yields on general account assets have declined as
described above.

General, administrative and other expenses are $1.0 million lower than the prior
year. This resulted mainly from decreases to DAC amortization of $7.2 million
offset by increases to distribution expenses and general and administrative
expenses of $6.2 million due to growth of the in-force business. Amortization
related to annuity products was $12.6 million lower primarily as a result of
charges for additional DAC amortization recorded in the prior year of $9 million
to reflect our lower estimate of future gross profits on annuities based on
asset value declines and expected equity market returns. The current year had
favorable market performance, which benefited DAC amortization on annuity
products by approximately $4 million. DAC amortization for life products was
higher by $5.4 million primarily as a result of increasing amortization on the
growing term life business offset partially by favorable fund performance.

Deferred acquisition costs related to annuity products are evaluated quarterly
by comparing our actual profitability to our expectations. Expected
profitability considers, among other assumptions, our estimate of future asset
returns that determine the future fees we will earn, the costs we expect to
incur associated with minimum death benefit or other contractual guarantees, and
other profitability factors. If actual asset returns do not differ significantly
from our expectations, they do not result in a change in the rate of
amortization of deferred acquisition costs. Where actual asset returns differ
significantly from expectations, future asset return assumptions are evaluated
using a reversion to mean approach. Under the reversion to mean approach, we
consider historical returns over a period of time and project returns for a
future four-year period so that the investments underlying the annuities grow at
a targeted return for the entire period. A calculated rate of return over the
four future years, which we refer to as the look-forward period, is determined
so that this calculated rate, together with the actual rate of return for the
historical period, produces the targeted return for the entire period. If the
calculated rate of return is consistent with our range of expectations in light
of market conditions, we use it to project the asset growth for the next four
years. If the calculated rate of return is not supported by our current
expectations, we adjust the rate of return for purposes of these computations.
For contract years after the look-forward period, we project asset growth using
our long-term rate, currently an 8% annual blended rate of return, which
reflects an assumed rate of return of 8.85% for equity type assets. Beginning in
the second quarter of 2002 and continuing throughout 2002, we utilized a rate of
return lower than the calculated return, which contributed to our additional
amortization of deferred acquisition costs during the second and third quarters
of 2002. The equity rate of return used in the immediate four-year look-forward
period varies by product, but was under 10% for all of our variable annuity
products for our evaluation of deferred policy acquisition costs as of December
31, 2003. For the average remaining life of our variable annuity contracts in
force as of December 31, 2003, our evaluation of deferred policy acquisition
costs is based on a 7.7% annual blended rate of return that reflects an assumed
rate of return of 8.9% for equity type assets. Deterioration in market
conditions may result in increases in the amortization of deferred policy
acquisition costs, while further improvement in market conditions may result in
a decrease in the amortization of deferred policy acquisition costs.

10

General, administrative and other expenses, excluding DAC amortization,
increased $6.2 million from the prior year due to an increase in distribution
expenses of $3.8 million and allocated operating expenses of $2.4 million.
Distribution expenses, net of capitalization increased $3.8 million, as renewal
commissions on term insurance, which have been growing due to the increasing
renewal base, are not fully capitalizable. Operating expenses are higher as a
result of new business and the growing in-force business.

Effective New Accounting Pronouncements

Refer to Footnote 2, "Summary of Significant Accounting Policies," of the Notes
to Financial Statements.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------

Risk Management, Market Risk, and Derivative Financial Instruments
As a downstream subsidiary of Prudential Insurance, the Company benefits from
the risk management strategies implemented by Prudential Insurance. Risk
management includes the identification and measurement of various forms of risk,
establishment of acceptable risk thresholds, and creation of processes intended
to maintain risks within these thresholds while optimizing returns on the
underlying assets or liabilities. Prudential Insurance considers risk management
an integral part of its core businesses.

Market risk is the risk of change in the value of financial instruments as a
result of absolute or relative changes in interest rates, foreign currency
exchange rates or equity or commodity prices. To varying degrees, the investment
activities supporting all of the Company's products and services generate market
risks. Market risks incurred and the strategies for managing these risks vary by
product.

With respect to non-variable life insurance products, fixed rate annuities and
the fixed rate options in our variable life insurance and annuity products, the
Company incurs market risk primarily in the form of interest rate risk. The
Company manages this risk through asset/liability management strategies that
seek to match the interest rate sensitivity of the assets to that of the
underlying liabilities. The Company's overall objective in these strategies is
to limit the net change in value of assets and liabilities arising from interest
rate movements. While it is more difficult to measure the interest sensitivity
of the Company's insurance liabilities than that of the related assets, to the
extent the Company can measure such sensitivities the Company believes that
interest rate movements will generate asset value changes that substantially
offset changes in the value of the liabilities relating to the underlying
products.

For variable annuities and variable life insurance products, excluding the fixed
rate options in these products, the Company's main exposure is the risk that
asset-based fees may decrease as a result of declines in assets under management
due to changes in market performance. For variable annuity and variable life
insurance products with minimum guaranteed death and living benefits, the
Company also faces the risk that declines in the value of underlying investments
as a result of changes in securities prices may increase the Company's net
exposure to death and living benefits under these contracts.

The Company manages its exposure to equity price risk primarily by seeking to
match the risk profile of equity investments against risk-adjusted equity market
benchmarks. The Company measures benchmark risks level in terms of price
volatility in relation to the market in general.

The Company's exposure to market risk results from "other than trading"
activities in its insurance businesses. Market risks in the Company's insurance
business are managed through an investment process that incorporates
asset/liability management techniques and other risk management policies and
limits. Derivatives, as discussed further below, are used to alter interest rate
or currency exposures arising from mismatches between assets and liabilities.
These include sensitivity and Value-at-Risk measures, positions and other limits
based on type of risk, and various hedging methods.

Insurance and Annuities Asset/Liability Management
The Company seeks to maintain interest rate and equity exposures within
established ranges, which we periodically adjust based on market conditions and
the design of related products sold to customers. Our risk managers establish
investment risk limits for exposures to issuers, type of security or industry
sector and oversee efforts to manage risk within policy constraints set by
management and approved by the Board of Directors.

The Company uses duration and convexity analyses to measure price sensitivity to
interest rate changes. Duration measures the relative sensitivity of the fair
value of a financial instrument to changes in interest rates. Convexity measures
the rate of change of duration with respect to changes in interest rates. We
seek to manage our interest rate exposure by matching the relative sensitivity
of asset and liability values to interest rate changes, or controlling "duration
mismatch" of assets and liabilities. The Company has a target duration mismatch
level. As of December 31, 2003 and 2002, the difference between the pre-tax
duration of assets and the target duration of liabilities in our
duration-managed portfolios was within our constraint limits. We consider
risk-based capital implications in our asset/liability management strategies.

11

The Company also performs portfolio stress testing as part of its regulatory
cash flow testing. In this testing, the Company evaluates the impact of altering
its interest-sensitive assumptions under various moderately adverse interest
rate environments. These interest-sensitive assumptions relate to the timing and
amounts of redemptions and pre-payments of fixed-income securities and lapses
and surrenders of insurance products. The Company evaluates any shortfalls that
this cash flow testing reveals to determine if there is a need to increase
statutory reserves or adjust portfolio management strategies.

Market Risk Related to Interest Rates
Assets that subject the Company to interest rate risk include fixed maturities
and policy loans. In the aggregate, the carrying value of these assets
represented 73% of consolidated assets, other than assets that are held in
Separate accounts, as of December 31, 2003 and 72% as of December 31, 2002. With
respect to liabilities, the Company is exposed to interest rate risk through
policyholder account balances relating to life insurance and annuity investment
type contracts.

The Company assesses interest rate sensitivity for its financial assets,
financial liabilities and derivatives using hypothetical test scenarios which
assume both upward and downward 100 basis point parallel shifts in the yield
curve from prevailing interest rates. The following tables set forth the
potential loss in fair value from a hypothetical 100 basis point upward shift at
December 31, 2003 and 2002, because this scenario results in the greatest net
exposure to interest rate risk of the hypothetical scenarios tested at those
dates. While the test scenario is for illustrative purposes only and does not
reflect management's expectations regarding future interest rates or the
performance of fixed income markets, it is a near-term, reasonably possible
hypothetical change that illustrates the potential impact of such events. These
test scenarios do not measure the changes in value that could result from
non-parallel shifts in the yield curve, which would be expected to produce
different changes in discount rates for different maturities. As a result, the
actual loss in fair value from a 100 basis point change in interest rates could
be different from that indicated by these calculations.

This below presentation excludes $522 million and $485 million of insurance
reserves and deposit liabilities at December 31, 2003 and 2002, respectively.
The Company believes that the interest rate sensitivities of these insurance
liabilities offset, in large measure, the interest rate risk of the financial
assets set forth in the following tables.

December 31, 2003
---------------------------------------------------------------
Fair Value
After + 100
Basis Point
Notional Estimated Parallel Hypothetical
Value Fair Yield Curve Change in
(Derivatives) Value Shift Fair Value
---------------------------------------------------------------
Financial Assets with Interest Rate (In millions)

Risk:
Financial Assets:
Fixed Maturities Available for Sale $ - $ 783 $ 755 $ (28)

Policy Loans - 176 166 (10)

Derivatives:
Futures 6 - - -

Financial Liabilities:
Investment Contracts - (313) (313) -

-----
Total Estimated Potential Loss $ (38)
=====

12

December 31, 2002
---------------------------------------------------------------
Fair Value
After + 100
Basis Point
Notional Estimated Parallel Hypothetical
Value Fair Yield Curve Change in
(Derivatives) Value Shift Fair Value
---------------------------------------------------------------
Financial Assets with Interest Rate (In millions)

Risk:
Financial Assets:
Fixed Maturities Available for Sale $ - $ 554 $ 535 $ (19)
Policy Loans - 186 173 (13)

Derivatives:
Futures 12 - - -

Financial Liabilities:
Investment Contracts - (178) (178) -
-----
Total Estimated Potential Loss $ (32)
=====

The estimated changes in fair values of the financial assets shown above relate
to assets invested in support of the Company's insurance liabilities, but do not
include assets associated with products for which investment risk is borne
primarily by the contract holders rather than the Company.

Market Risk Related to Equity Prices
The Company does not have a significant general account investment in equity
securities. For equity investments within the Separate Accounts, the investment
risk is borne primarily by the contract holder rather than by the Company.

Market Risk Related to Foreign Currency Exchange Rates
The Company is exposed to foreign currency exchange risk in its investment
portfolio. The Company generally hedges substantially all foreign
currency-denominated fixed-income investments supporting its U.S. insurance
operations into U.S. dollars, using foreign exchange currency swaps, in order to
mitigate the risk that the fair value of these investments fluctuates as a
result of changes in foreign exchange rates.

Foreign currency exchange risk is actively managed within specified limits at
the enterprise (Prudential Insurance) level using Value-at-Risk ("VaR")
analysis. This statistical technique estimates, at a specified confidence level,
the potential pretax loss in portfolio market value that could occur over an
assumed time horizon due to adverse market movements. This calculation utilizes
a variance/covariance approach. As of December 31, 2003 and December 31, 2002,
foreign currency exposure was hedged.

Limitations of VaR Models
Although VaR models represent a recognized tool for risk management, they have
inherent limitations, including reliance on historical data that may not be
indicative of future market conditions or trading patterns. Accordingly VaR
models should not be viewed as a predictor of future results. The Company may
incur losses that could be materially in excess of the amounts indicated by the
model on a particular trading day or over a period of time. A VaR model does not
estimate the greatest possible loss. The Company uses these models together with
other risk management tools, including stress testing. The results of these
models and analysis thereof are subject to the judgment of the Company's risk
management personnel.

Derivatives
Derivatives are financial instruments whose values are derived from interest
rates, foreign exchange rates, various financial indices, or the value of
securities or commodities. Derivative financial instruments can be
exchange-traded or contracted in the over-the-counter market and include swaps,
futures, options and forwards contracts. See Footnote 10 of the Notes to
Consolidated Financial Statements as to the Company's derivative positions at
December 31, 2003 and 2002. Under insurance statutes the Company may only use
derivative securities in activities intended to offset changes in the market
value of assets held, obligations, and anticipated transactions. These statutes
prohibit the use of derivatives for speculation. The Company uses derivative
financial instruments to manage market risk from changes in interest rates or
foreign currency exchange rates, and to alter interest rate or currency
exposures arising from mismatches between assets and liabilities.

13

Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------

Information required with respect to this Item 8 regarding Financial Statements
and Supplementary Data is set forth commencing on page F-3 hereof. See Index to
Financial Statements elsewhere in this Annual Report.

Item 9. Changes in and Disagreements with Independent Accountants on Accounting
-----------------------------------------------------------------------
and Financial Disclosure
------------------------

None.

Item 9A. Controls and Procedures
- --------------------------------

In order to ensure that the information we must disclose in our filings with the
Securities and Exchange Commission is recorded, processed, summarized, and
reported on a timely basis, the Company's management, including our Chief
Executive Officer and Chief Financial Officer, have reviewed and evaluated the
effectiveness of our disclosure controls and procedures, as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e), as of December 31, 2003. Based on such
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that, as of December 31, 2003, our disclosure controls and procedures
were effective in timely alerting them to material information relating to us
required to be included in our periodic SEC filings. There has been no change in
our internal control over financial reporting during the quarter ended December
31, 2003, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.

14

PART III
--------

Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------

We have adopted a code of conduct, known as Making the Right Choices, which
applies to our chief executive officer, chief financial officer and controller,
as well as to our directors. Making the Right Choices contains a code of ethics,
which is posted on the Prudential website at www.investor.prudential.com. Our
code of ethics, any amendments and any waiver under our code of ethics granted
to any of our directors or executive officers will be available free of charge
on the Prudential website at www.investor.prudential.com.

Item 14. Principal Accounting Fees and Services
- -----------------------------------------------

The Audit Committee of the Board of Directors of Prudential Financial (the
"Audit Committee") has appointed PricewaterhouseCoopers LLP as the independent
auditors of Prudential Financial and certain of its domestic and international
subsidiaries, including the Company. The Audit Committee has established a
policy requiring its pre-approval of all audit and permissible non-audit
services provided by the independent auditor. The specific information called
for by this item is hereby incorporated by reference to the section entitled
"Item 2 - Ratification of the Appointment of Independent Auditors" in Prudential
Financial's definitive proxy statement for the Annual Meeting of Shareholders to
be held on June 8, 2004, to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the year ended December 31,
2003.

15

PART IV
-------

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------------------------------------------------------------------------

(a) (1) and (2) Financial Statements of Registrant are listed in the
accompanying "Index to Financial Statements" on page F-1 hereof and are
filed as part of this Report.

(a) (3) Exhibits
--------

Regulation S-K
- --------------

2. Not applicable.

3(i)(a) The Articles of Incorporation (as amended through March 11, 1983)
of Pruco Life Insurance Company of New Jersey are incorporated by reference to
Post-effective Amendment No. 26 to the Registration Statement on Form S-6 of
Pruco Life of New Jersey Variable Appreciable Account as filed April 28, 1997,
Registration No. 2-89780.

3(i)(b) Amendment to the Articles of Incorporation dated February 12, 1998
is incorporated by reference to Post-Effective Amendment No. 12 to the
Registration Statement on Form S-1, of Pruco Life of New Jersey Variable
Contract Real Property Account as filed on April 16, 1999, Registration No.
33-20018.

3(ii) By-Laws of Pruco Life Insurance Company of New Jersey (as amended
through May 5, 1997) are incorporated by reference to Form 10-Q as filed by the
Company on August 15, 1997.

3b. Reports on Form 8-K
None

4. Exhibits

4(a) Market-Value Adjustment Annuity Contract (Discovery Select
variable annuity) is incorporated by reference to
Pre-Effective Amendment No. 1 to Form N-4, Registration No.
333-18053, filed December 18, 1996, on behalf of the Pruco
Life of New Jersey Flexible Premium Variable Annuity Account.

4(b) Market-Value Adjustment Annuity Contract (Strategic Partners
Select variable annuity) is incorporated by reference to the
Company's registration statement on Form S-3, Registration No.
333-62246, filed April 14, 2003.

4(c) Market-Value Adjustment Annuity Contract (Strategic Partners
Horizon annuity) is incorporated by reference to the Company's
Form S-3, Registration No. 333-100713, filed March 26, 2003.

4(d) Market-Value Adjustment Annuity Contract Endorsement
(Strategic Partners Annuity One variable annuity) is
incorporated by reference to the Company's registration
statement on Form S-3, Registration No. 333-103473, filed
February 27, 2003.

9. None.

10. None.

11. Not applicable.

12. Not applicable.

13. Not applicable.

16. Not applicable.

18. None.

22. None.

16

23. Not applicable.

24. Powers of attorney filed herewith.

31.1 Section 302 Certification of the Chief Executive Officer

31.2 Section 302 Certification of the Chief Financial Officer

32.1 Section 906 Certification of the Chief Executive Officer

32.2 Section 906 Certification of the Chief Financial Officer

17

SIGNATURES
----------

Pursuant to the requirements of Section 13, or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Newark, and
state of New Jersey, on the 19th day of March 2004.

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Registrant)

By: /s/ Andrew J. Mako
----------------------------
Andrew J. Mako
Chief Executive Officer
(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 19, 2004.

Signature Title
- --------- -----

Vivian L. Banta * Chairman of the Board
- -------------------------------------------
Vivian L. Banta

James J. Avery, Jr. * Vice Chairman of the Board
- ------------------------------------------- and Director
James J. Avery, Jr.

/s/ Andrew J. Mako Director and Chief
- ------------------------------------------- Executive Officer
Andrew J. Mako

Ronald Paul Joelson * Director
- -------------------------------------------
Ronald Paul Joelson

Richard J. Carbone * Director
- -------------------------------------------
Richard J. Carbone

Helen M. Galt * Director
- -------------------------------------------
Helen M. Galt

David R. Odenath, Jr. * Director
- -------------------------------------------
David R. Odenath, Jr.

/s/ William J. Eckert, IV Vice President and Chief
- ------------------------------------------- Financial Officer
William J. Eckert, IV
(Principal Accounting and Financial Officer)

* By: /s/ Thomas C. Castano
----------------------------
Thomas C. Castano
(Attorney-in-Fact)

18

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K
ANNUAL REPORT

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Financial Statements and
Report of Independent Auditors

December 31, 2003 and 2002

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

INDEX TO FINANCIAL STATEMENTS

Financial Statements Page No.
-------------------- --------

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Report of Independent Auditors F-2

Financial Statements:

Statements of Financial Position - December 31, 2003 and 2002 F-3

Statements of Operations and Comprehensive Income
Years Ended December 31, 2003, 2002 and 2001 F-4

Statements of Stockholder's Equity - Years Ended December 31, 2003, 2002 and 2001 F-5

Statements of Cash Flows - Years Ended December 31, 2003, 2002 and 2001 F-6

Notes to Financial Statements F-7

Report of Independent Auditors
------------------------------

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 respects, the financial position of Pruco Life
Insurance Company of New Jersey (an indirect, wholly-owned subsidiary of The
Prudential Insurance Company of America) at December 31, 2003 and 2002, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2003, 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.

As described in Note 2, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" as of January 1, 2003.

/s/ PricewaterhouseCoopers LLP

New York, New York
February 10, 2004

F-2

Pruco Life Insurance Company of New Jersey

Statements of Financial Position
December 31, 2003 and 2002 (in thousands)
- -----------------------------------------------------------------------------------------------------

2003 2002
---------- ----------

ASSETS
Fixed maturities available for sale, at fair value
(amortized cost, 2003: $746,370; and 2002: $525,866) $ 782,685 $ 553,901
Policy loans 154,659 158,431
Short-term investments 44,571 30,158
Other long-term investments 2,765 3,561
---------- ----------
Total investments 984,680 746,051
Cash and cash equivalents 72,547 61,482
Deferred policy acquisition costs 176,529 137,053
Accrued investment income 13,635 11,291
Receivables from affiliates 17,173 17,186
Other assets 27,804 19,144
Separate account assets 1,926,301 1,590,335
---------- ----------
TOTAL ASSETS $3,218,669 $2,582,542
========== ==========

LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 675,823 $ 529,333
Future policy benefits and other policyholder liabilities 158,752 134,208
Cash collateral for loaned securities 78,855 25,035
Securities sold under agreements to repurchase 14,483 31,713
Income taxes payable 51,383 33,646
Other liabilities 20,317 9,562
Separate account liabilities 1,926,301 1,590,335
---------- ---------
Total liabilities 2,925,914 2,353,832
---------- ----------

Contingencies - (See Footnote 11)

Stockholder's Equity
Common stock, $5 par value;
400,000 shares authorized;
issued and outstanding at
December 31, 2003 and 2002 2,000 2,000
Paid-in-capital 168,742 128,689
Deferred compensation (108) -
Retained earnings 108,943 88,326
Accumulated other comprehensive income 13,178 9,695
---------- ----------
Total stockholder's equity 292,755 228,710
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $3,218,669 $2,582,542
========== ==========

See Notes to Financial Statements

F-3

Pruco Life Insurance Company of New Jersey

Statements of Operations and Comprehensive Income
Years Ended December 31, 2003, 2002 and 2001 (in thousands)
- -----------------------------------------------------------------------------------------------------

2003 2002 2001
-------- -------- ---------

REVENUES

Premiums $ 38,141 $ 28,321 $ 16,284
Policy charges and fee income 70,060 70,444 49,808
Net investment income 45,148 44,812 55,981
Realized investment losses, net (838) (14,204) (9,630)
Asset management fees 4,029 1,264 613
Other income 1,717 1,709 646
-------- -------- ---------

Total revenues 158,257 132,346 113,702
-------- -------- ---------

BENEFITS AND EXPENSES

Policyholders' benefits 50,898 45,543 33,148
Interest credited to policyholders' account balances 22,641 20,449 20,503
General, administrative and other expenses 55,167 56,145 37,954
-------- -------- ---------

Total benefits and expenses 128,706 122,137 91,605
-------- -------- ---------

Income from operations before income taxes 29,551 10,209 22,097
-------- -------- ---------

Income taxes:
Current (15,103) (8,717) (3,603)
Deferred 24,037 3,558 10,107
-------- -------- ---------

Income tax expense (benefit) 8,934 (5,159) 6,504
-------- -------- ---------

NET INCOME 20,617 15,368 15,593

Other comprehensive income, net of tax:

Change in net unrealized investment gains 3,483 5,971 4,487
-------- -------- ---------

TOTAL COMPREHENSIVE INCOME $ 24,100 $ 21,339 $ 20,080
======== ======== =========

See Notes to Financial Statements

F-4

Pruco Life Insurance Company of New Jersey

Statements of Stockholder's Equity
Years Ended December 31, 2003, 2002 and 2001 (in thousands)
- --------------------------------------------------------------------------------

Accumulated
other Total
Common Paid - in - Retained Deferred comprehensive stockholder's
stock capital earnings Compensation income (loss) equity
-------- ----------- -------- ------------ -------------- --------------

Balance, January 1, 2001 $ 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
taxes - - - - 4,487 4,487
-------- --------- ---------- ----- -------- ----------
Balance, December 31, 2001 2,000 128,689 72,959 - 3,724 207,372

Net income - - 15,368 - - 15,368

Adjustments to policy
credits issued to eligible
policyholders - - (1) - - (1)
Change in net unrealized
investment gains, net of - - - - 5,971 5,971
-------- --------- ---------- ----- -------- ----------
Balance, December 31, 2002 2,000 128,689 88,326 - 9,695 228,710

Net income - - 20,617 - - 20,617

Contribution from Parent - 40,000 - - - 40,000

Stock-based compensation
programs - 53 - (108) - (55)

Change in net unrealized
investment gains, net of
taxes - - - - 3,483 3,483
-------- --------- ---------- ----- -------- ----------
Balance, December 31, 2003 $ 2,000 $ 168,742 $ 108,943 $(108) $ 13,178 $ 292,755
======== ========= ========== ===== ======== ==========

See Notes to Financial Statements

F-5

Pruco Life Insurance Company of New Jersey

Statements of Cash Flows
Years Ended December 31, 2003, 2002 and 2001 (in thousands)
-----------------------------------------------------------------------------

2003 2002 2001
--------- ---------- ----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,617 $ 15,368 $ 15,593
Adjustments to reconcile net income to net cash from
(used in) operating activities:
Policy charges and fee income (15,786) (12,057) (9,906)
Interest credited to policyholders' account balances 22,641 20,449 20,503
Realized investment losses, net 838 14,204 9,630
Amortization and other non-cash items 1,616 (7,651) (10,883)
Change in:
Future policy benefits and other policyholders' 24,544 14,808 11,182
liabilities
Accrued investment income (2,344) (892) 3,382
Policy loans 3,772 323 (6,643)
Receivable from affiliates 13 (7,416) 4,995
Deferred policy acquisition costs (39,476) (18,078) (2,322)
Income taxes payable 17,737 (2,366) 6,099
Other, net 2,040 (8,341) (2,244)
--------- ---------- ----------
Cash flows from operating activities 36,212 8,351 39,386
--------- ---------- ----------

CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities available for sale 314,559 271,401 552,931
Payments for the purchase of:
Fixed maturities available for sale (540,203) (331,512) (577,097)
Other long term investments, net 1,083 (2,458) 963
Cash collateral for loaned securities, net 53,820 (11,057) (12,217)
Securities sold under agreements to repurchase, net (17,230) 13,199 8,760
Short term investments, net (14,254) 2,822 (4,224)
--------- ---------- ----------
Cash flows used in investing activities (202,225) (57,605) (30,884)
--------- ---------- ----------

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 210,872 135,163 87,261
Withdrawals (73,794) (73,518) (76,288)
Contribution from Parent 40,000 - -
Cash dividend paid to parent - - (26,500)
Cash payments to eligible policyholders - (9,121) -
--------- ---------- ----------
Cash flows from (used in) financing activities 177,078 52,524 (15,527)
--------- ---------- ----------

Net increase (decrease) in cash and cash equivalents 11,065 3,270 (7,025)
Cash and cash equivalents, beginning of year 61,482 58,212 65,237
--------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 72,547 $ 61,482 $ 58,212
========= ========== ==========

SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes (received) paid $ (6,883) $ 565 $ 2,930
--------- ---------- ----------
NON-CASH TRANSACTIONS DURING THE YEAR
Dividend paid with fixed maturities $ - $ - $ 159,500
--------- ---------- ----------
Policy credits issued to eligible policyholders $ - $ - $ 10,275
--------- ---------- ----------

See Notes to Financial Statements

F-6

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
Insurance"), an insurance company founded in 1875 under the laws of the state
of New Jersey. On December 18, 2001 ("the date of demutualization")
Prudential Insurance converted from a mutual life insurance company to a
stock life insurance company and became an indirect wholly owned subsidiary
of Prudential Financial, Inc. ("Prudential Financial"). The demutualization
was completed in accordance with Prudential Insurance'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
Insurance and other affiliates, as more fully described in Footnote 12. 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.

Stock Based Compensation
In 2003, Prudential Financial issued stock-based compensation including stock
options, restricted stock, restricted stock units and performance shares.
Effective January 1, 2003, Prudential Financial changed its accounting for
employee stock options to adopt the fair value recognition provisions of SFAS
No. 123, "Accounting for stock Based Compensation" as amended, prospectively
for all new awards granted to employees on or after January 1, 2003.
Accordingly, results of operations of the Company for the year ended December
31, 2003, include costs of $.1 million associated with stock-based
compensation issued by Prudential Financial to certain employees and
non-employees of the Company and the statement of financial position at
December 31, 2003, includes a reduction in equity for deferred compensation.
Prior to January 1, 2003, Prudential Financial accounted for employee stock
options using the intrinsic value method of APB No. 25 "Accounting for Stock
Issued to Employees," and related interpretations. Under this method,
Prudential Financial and the Company did not recognize any stock-based
compensation costs as all options granted had an exercise price equaled to
the market value of Prudential Financial's Common Stock on the date of grant.

Investments
Fixed maturities classified as "available for sale" are carried at estimated
fair value. The amortized cost of fixed maturities is written down to
estimated fair value if a decline in value is considered to be other than
temporary. See the discussion below on realized gains and losses for a
description of the accounting for impairment adjustments. 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 "Accumulated other comprehensive income (loss)", net of income taxes.

Policy loans are carried at unpaid principal balances.

Short-term investments consist of highly liquid debt instruments with a
maturity of greater than three months and less than twelve months when
purchased. These investments are carried at amortized cost, which because of
their short-term nature approximates fair value.

F-7

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements
-----------------------------------------------------------------------------

Other long-term investments consists primarily of the Company's investments
in the Company's own separate accounts, which are carried at estimated fair
value. Also included are equity securities available for sale and derivatives
held for purposes other than trading, both carried at fair value.

Realized investment losses, net are computed using the specific
identification method. Costs of fixed maturities and equity securities are
adjusted for impairments, which are declines in value that are considered to
be other than temporary. Impairment adjustments are included in "Realized
investment losses, net." In evaluating whether a decline in value is other
than temporary, the Company considers several factors including, but not
limited to the following: (1) whether the decline is substantial; (2) the
duration (generally greater than six months); (3) the reasons for the decline
in value (credit event, interest related or market fluctuation); (4) the
Company's ability and intent to hold the investments for a period of time to
allow for a recovery of value; and (5) the financial condition of and
near-term prospects of the issuer.

Cash and cash equivalents
Cash and cash equivalents include cash on hand, amounts due from banks, money
market instruments, and other debt issues with maturities of three months or
less when purchased.

Deferred sales inducement costs
The company provides sales inducements to contract holders, which primarily
include an up-front bonus added to the contract holder's initial deposit and
an enhanced crediting rate over the first year of the contract, for certain
annuity contracts. These costs are deferred and recognized on the statement
of financial position in other assets. They are amortized using the same
methodology and assumptions used to amortized deferred policy acquisition
costs. The amortization expense is included as a component of interest
credited.

Deferred Policy Acquisition Costs
The Company is charged distribution expenses from Prudential's agency network
for both its domestic life and annuity products through a transfer pricing
agreement, which is intended to reflect a market based pricing arrangement.
These costs include commissions and variable field office expenses. The
Company is also allocated costs of policy issuance and underwriting from
Prudential's general and administrative expense allocation system. The
Company also is charged commissions from third parties, which are primarily
capitalized.

The costs that vary with and that are related primarily to the production of
new insurance and annuity business are deferred to the extent such costs are
deemed recoverable from future profits. For annuity products, the entire
transfer-pricing fee is deemed to be related to the production of new annuity
business and is capitalized. For life products, there is a look-through into
the expenses incurred by the Prudential agency network and expenses that are
considered to be related to the production of new insurance business are
deferred. The cost of policy issuance and underwriting are also considered to
be related primarily to the production of new insurance and annuity business
and are fully capitalized. Deferred policy acquisition costs ("DAC") are
subject to recoverability testing at the end of each accounting period. DAC,
for applicable 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
income (loss)."

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 DAC is
reflected in "General, administrative and other expenses" in the period such
estimated gross profits are revised. DAC related to non-participating term
insurance are amortized over the expected life of the contracts in proportion
to premium income.

The Company and Prudential Insurance have offered programs under which
policyholders, for a selected product or group of products, can exchange an
existing policy or contract issued by the Company or Prudential Insurance for
another form of policy or contract. These transactions are known as internal
replacements. 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. 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.

Securities loaned
Securities loaned are treated as collateralized 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.

F-8

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements
-----------------------------------------------------------------------------

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Securities sold under agreements to repurchase
Securities sold under agreements to repurchase are treated as collateralized
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. These instruments are short-term in nature (usually 30
days or less) and are collateralized 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."

Separate accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life of New Jersey Modified
Guaranteed Annuity Account. The Pruco Life of New Jersey Modified Guaranteed
Annuity Account is a non-unitized separate account, which funds the Modified
Guaranteed Annuity Contract and the Market Value Adjustment Annuity Contract.
Owners of the Pruco Life of New Jersey Modified Guaranteed Annuity and the
Market Value Adjustment Annuity Contracts do not participate in the
investment gain or loss from assets relating to such accounts. Such gain or
loss is borne, in total, by the Company. Upon adoption of SOP 03-01
(described below) on January 1, 2004, the Company will reclassify this
liability from Separate Account Liabilities to Policyholders' Account
Balances.

F-9

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements
-----------------------------------------------------------------------------

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Contingencies
Amounts related to contingencies are accrued if it is probable that a
liability has been incurred and an amount is reasonably estimable.

Other assets and other liabilities
Other assets consist primarily of reinsurance recoverable, premiums due and
deferred, deferred sales inducement costs, certain restricted assets, and
receivables resulting from sales of securities that had not yet settled at
the balance sheet date. Other liabilities consist primarily of accrued
expenses, technical overdrafts, and payables resulting from purchases of
securities that had not yet been settled at the balance sheet date.

Insurance Revenue and Expense Recognition
Premiums from insurance policies, excluding interest-sensitive life
contracts, 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.

Certain annuity contracts provide the holder a guarantee that the benefit
received upon death will be no less than a minimum prescribed amount that is
based upon a combination of net deposits to the contract, net deposits to the
contract accumulated at a specified rate or the highest historical account
value on a contract anniversary. To the extent the guaranteed minimum death
benefit exceeds the current account value at the time of death, the Company
incurs a cost that is recorded as "Policyholders' benefits" for the period in
which death occurs.

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
DAC.

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
Beginning October 1, 2002, the Company receives in accordance with a
servicing agreement with Prudential Investments LLC, asset management fee
income from policyholder account balances invested in The Prudential Series
Funds ("PSF"). The PSF are a portfolio of mutual fund investments related to
the Company's separate account products (refer to Note 12). In addition, the
Company receives fees from policyholder account balances invested in funds
managed by companies other than Prudential Insurance. Asset management fees
are recognized as income as earned.

Derivative Financial Instruments
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" as amended, on January 1, 2001. Except as noted below,
the adoption of this statement did not have a material impact on the results
of operations of the Company.

Upon its adoption of FAS 133, the Company reclassified "held to maturity"
securities with a fair value of approximately $7.3 million to "available for
sale" as permitted by the new standard. This reclassification resulted in
unrealized gains of $0.2 million, net of tax, which were recorded in
"Accumulated Other Comprehensive income (loss)."

Derivatives are financial instruments whose values are derived from interest
rates, foreign exchange rates, financial indices, or the value of securities
or commodities. Futures are the only derivative financial instruments used by
the Company. Derivative positions are carried at estimated fair value,
generally by obtaining quoted market prices or through the use of pricing
models. Values can be affected by changes in interest rates, foreign exchange
rates, credit spreads, market volatility and liquidity. Values can also be
affected by changes in estimates and assumptions used in pricing models.

F-10

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements
-----------------------------------------------------------------------------

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Derivatives are used to manage the characteristics of the Company's
asset/liability mix, and to manage the interest rate and currency
characteristics of invested assets. Additionally, derivatives are used to
seek to reduce exposure to interest rates and foreign currency risks
associated with assets held or expected to be purchased or sold, and
liabilities incurred or expected to be incurred.

The Company designates derivatives as either (1) a hedge of the fair value of
a recognized asset or liability or unrecognized firm commitment ("fair value"
hedge), (2) a hedge of a forecasted transaction or the variability of cash
flows to be received or paid related to a recognized asset or liability
("cash flow" hedge), (3) a foreign currency or cash flow hedge ("foreign
currency" hedge), (4) a hedge of a net investment in a foreign operation, or
(5) a derivative entered into as an economic hedge that does not qualify for
hedge accounting. As of December 31, 2003, none of the Company's derivatives
qualify for hedge accounting treatment.

If a derivative does not qualify for hedge accounting, it is recorded at fair
value in "Other long-term investments" or "Other liabilities" in the
Consolidated Statements of Financial Position. Changes in fair value are
included in "Realized investment losses net" without considering changes in
fair value of the hedged assets or liabilities.

The Company occasionally is a party to a financial instrument that contains a
derivative instrument that is "embedded" in the financial instrument. At
inception, the Company assesses whether the economic characteristics of the
embedded derivative are clearly and closely related to the economic
characteristics of the remaining component of the financial instrument (i.e.,
the host contract) and whether a separate instrument with the same terms as
the embedded instrument would meet the definition of a derivative instrument.
When it is determined that (1) the embedded derivative possesses economic
characteristics that are not clearly and closely related to the economic
characteristics of the host contract, and (2) a separate instrument with the
same terms would qualify as a derivative instrument, the embedded derivative
is separated from the host contract, carried at fair value, and changes in
its fair value are included in "Realized investment losses, net."

Income Taxes
The Company is a member of the consolidated federal income tax return of
Prudential Financial and files separate company state and local tax returns.
Pursuant to the tax allocation arrangement with Prudential Financial, 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 December 2003, the Financial Accounting Standards Board ("FASB") revised
Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities",
which was originally issued in January 2003. FIN No. 46 addresses whether
certain types of entities, referred to as variable interest entities
("VIEs"), should be consolidated in a company's financial statements. A VIE
is an entity that either (1) has equity investors that lack certain essential
characteristics of a controlling financial interest (including the ability to
control the entity, the obligation to absorb the entity's expected losses and
the right to receive the entity's expected residual returns), or (2) lacks
sufficient equity to finance its own activities without financial support
provided by other entities, which in turn would be expected to absorb at
least some of the expected losses of the VIE. An entity should consolidate a
VIE if it stands to absorb a majority of the VIE's expected losses or to
receive a majority of the VIE's expected residual returns. The Company
adopted the Interpretation for relationships with VIEs that began on or after
February 1, 2003, and on December 31, 2003 adopted the revised guidance for
all relationships with VIEs that are special purpose entities ("SPEs"). The
Company will implement the revised guidance to relationships with potential
VIEs that are not SPEs as of March 31, 2004. The transition to the revised
guidance for SPEs as of December 31, 2003 did not have a material effect on
the Company's consolidated financial position, results of operations or cash
flows. The Company does not believe the transition to the revised guidance on
March 31, 2004, will have a material effect on the Company's consolidated
financial position or results of operations.

In July 2003, the Accounting Standards Executive Committee ("AcSEC") of the
American Institute of Certified Public Accountants ("AICPA") issued Statement
of Position ("SOP") 03-01, "Accounting and Reporting by Insurance Enterprises
for Certain Nontraditional Long-Duration Contracts and for Separate
Accounts." AcSEC has developed the SOP to address the evolution of product
designs since the issuance of Statement of Financial Accounting Standards
("SFAS") No. 60, "Accounting and Reporting by Insurance Enterprises," and
SFAS No. 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments" and the need for interpretive guidance to be developed in three
areas: separate account presentation and valuation; the accounting
recognition given sales inducements (bonus interest, bonus credits,
persistency bonuses); and the classification and valuation of certain
long-duration contract liabilities.

F-11

The most significant accounting implications of the SOP are as follows: (1)
reporting and measuring assets and liabilities of separate account products
as general account assets and liabilities when specified criteria are not
met; (2) reporting and measuring seed money in separate accounts as general
account assets based on the insurer's proportionate beneficial interest in
the separate account's underlying assets; (3) capitalizing sales inducements
that meet specified criteria and amortizing such amounts over the life of the
contracts using the same methodology as used for amortizing deferred
acquisition costs, but immediately expensing those sales inducements accrued
or credited if such criteria are not met; (4) recognizing contractholder
liabilities for: (a) modified guaranteed (market value adjusted) annuities at
accreted balances that do not include the then current market value surrender
adjustment, (b) two-tier annuities at the lower (non-annuitization) tier
account value, (c) persistency bonuses at amounts that are not reduced for
expected forfeitures, (d) group pension participating and similar general
account "pass through" contracts that are not accounted for under SFAS No.
133 at amounts based on the fair value of the assets or index that determines
the investment return pass through; (5) establishing an additional liability
for guaranteed minimum death and similar mortality and morbidity benefits
only for contracts determined to have mortality and morbidity risk that is
other than nominal and when the risk charges made for a period are not
proportionate to the risk borne during that period; and (6) for contracts
containing an annuitization benefits contract feature, if such contract
feature is not accounted for under the provisions of SFAS No. 133
establishing an additional liability for the contract feature if the present
value of expected annuitization payments at the expected annuitization date
exceeds the expected account balance at the expected annuitization date.

The Company will adopt the SOP effective January 1, 2004. The effect of
initially adopting this SOP will be reported as a cumulative effect of a
change in accounting principle in the 2004 results of operations, which the
Company expects to be a charge of approximately $.2 million, net of taxes.
This charge is caused primarily by an increase in reserves for guaranteed
minimum death benefits relating to our individual variable annuity contracts
and the impact of converting certain individual market value adjusted annuity
(MVA) contracts from separate account accounting treatment to general account
accounting treatment.

In April 2003, the FASB issued Statement No. 133 Implementation Issue No.
B36, "Embedded Derivatives: Modified Coinsurance Arrangements and Debt
Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only
Partially Related to the Creditworthiness of the Obligor Under Those
Instruments." Implementation Issue No. B36 indicates that a modified
coinsurance arrangement ("modco"), in which funds are withheld by the ceding
insurer and a return on those withheld funds is paid based on the ceding
company's return on certain of its investments, generally contains an
embedded derivative feature that is not clearly and closely related to the
host contract and should be bifurcated in accordance with the provisions of
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
Effective October 1, 2003, the Company adopted the guidance prospectively for
existing contracts and all future transactions. As permitted by SFAS No. 133,
all contracts entered into prior to January 1, 1999, were grandfathered and
are exempt from the provisions of SFAS No. 133 that relate to embedded
derivatives. The application of Implementation Issue No. B36 did not have an
effect on the consolidated financial position or results of operations of the
Company.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No.
150 generally applies to instruments that are mandatorily redeemable, that
represent obligations that will be settled with a variable number of company
shares, or that represent an obligation to purchase a fixed number of company
shares. For instruments within its scope, the statement requires
classification as a liability with initial measurement at fair value.
Subsequent measurement depends upon the certainty of the terms of the
settlement (such as amount and timing) and whether the obligation will be
settled by a transfer of assets or by issuance of a fixed or variable number
of equity shares. The Company's adoption of SFAS No. 150, as of July 1, 2003,
did not have a material effect on the Company's consolidated financial
position or results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 requires that a liability for
costs associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. Prior to the
adoption of SFAS No. 146, such amounts were recorded upon the Company's
commitment to a restructuring plan. The Company has adopted this statement
for applicable transactions occurring on or after January 1, 2003.

In November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN No. 45 expands existing accounting guidance and
disclosure requirements for certain guarantees and requires the recognition
of a liability for the fair value of certain types of guarantees issued or
modified after December 31, 2002. The January 1, 2003 adoption of the
Interpretation's guidance did not have a material effect on the Company's
financial position.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." 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
indefinite lived intangible assets shall be tested for impairment in
accordance with the statement. The Company adopted SFAS No. 142 as of January
1, 2002.

F-12

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. The implementation of this provision was not material to the
Company's financial position. 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 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. The Company adopted SFAS No. 144
effective January 1, 2002.

Reclassifications
Certain amounts in the prior years have been reclassified to conform to the
current year presentation.

F-13

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:

2003
---------------------------------------------------------
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 $ 31,909 $ 668 $ - $ 32,577

Foreign government bonds 1,024 174 - 1,198

Corporate securities 699,928 36,179 964 735,143

Mortgage-backed securities 13,509 258 - 13,767
-------- -------- -------- ---------

Total fixed maturities available for
sale $ 746,370 $ 37,279 $ 964 $ 782,685
========= ======== ======== =========

2002
---------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- --------
(in thousands)
Fixed maturities available for sale
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 42,149 $ 1,222 $ - $ 43,371

Foreign government bonds 4,027 280 - 4,307

Corporate securities 464,235 29,148 2,957 490,426

Mortgage-backed securities 15,455 342 - 15,797
-------- -------- -------- ---------

Total fixed maturities available for
sale $525,866 $ 30,992 $ 2,957 $ 553,901
======== ======== ======== =========

F-14

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, 2003, is shown below:

Available for Sale
------------------------------
Amortized Estimated fair
cost value
------------- --------------
(in thousands)

Due in one year or less $ 19,489 $ 19,963

Due after one year through five
years 395,284 413,087

Due after five years through ten
years 258,009 272,727

Due after ten years 60,079 63,140

Mortgage-backed securities 13,509 13,768
--------- ----------
Total $ 746,370 $ 782,685
========= ==========

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 2003,
2002, and 2001 were $275.3 million, $262.4 million, and $552.4 million,
respectively. Gross gains of $2.4 million, $4.9 million, and $10.1 million,
and gross losses of $1.5 million, $8.5 million, and $10.1 million were
realized on those sales during 2003, 2002, and 2001, respectively. Proceeds
from maturities of fixed maturities available for sale during 2003, 2002, and
2001 were $39.3 million, and $9.0 million, and $0.5 million, respectively.

Writedowns for impairments that were deemed to be other than temporary for
fixed maturities were $2.0 million, $9.0 million, and $7.8 million for the
years 2003, 2002 and 2001, respectively.

Investment Income and Investment Gains and Losses

Net investment income arose from the following sources for the years ended
December 31:

2003 2002 2001
-------------- ------------------ ------------
(in thousands)

Fixed maturities $ 36,587 $ 35,078 $ 46,813
Policy loans 8,463 8,715 8,647
Short-term investments and cash
equivalents 1,430 1,852 4,496
Other 535 932 (418)
-------- --------- ---------
Gross investment income 47,015 46,577 59,538
Less investment expenses (1,867) (1,765) (3,557)
-------- --------- ---------
Net investment income $ 45,148 $ 44,812 $ 55,981
======== ========= =========

F-15

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:

2003 2002 2001
-------------- ------------------ -----------
(in thousands)

Fixed maturities $ (1,123) $ (12,690) $ (7,807)

Derivatives 285 (1,514) (1,823)
-------- ---------- --------
Realized investment losses, net $ (838) $ (14,204) $ (9,630)
======== ========== ========

Duration of Gross Unrealized Loss Positions for Fixed Maturities

The following table shows the fair value and gross unrealized losses
aggregated by investment category and length of time that individual fixed
maturity securities have been in a continuous unrealized loss position, as of
December 31, 2003:

Less than twelve Twelve months or
months more Total
----------------------- -------------------- ----------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
---------- ------------ ------- ------------ --------- ------------
(in thousands)

Fixed maturities:
U.S. Treasury securities and
obligations of
U.S. government corporations and
agencies $ 5,694 $ - $ - $ - $ 5,694 $ -
US Corporate securities 99,766 879 3,061 85 102,827 964
-------- ----- ------- ---- --------- ------
Total $105,460 $ 879 $ 3,061 $ 85 $ 108,521 $ 964
======== ===== ======= ==== ========= ======

As of December 31, 2003, gross unrealized losses on fixed maturities totaled
approximately $1.0 million comprising 48 issuers. Of this amount, there was
$.9 million in the less than twelve months category comprising 46 issuers and
$.1 million in the greater than twelve months category comprising 2 issuers.
None of the gross unrealized losses are related to below investment grade
securities. The gross unrealized losses of twelve months or more were
concentrated in the finance sector and there were no individual issuers with
gross unrealized losses greater than $.1 million. Based on a review of the
above information in conjunction with other factors as outlined in our policy
surrounding other than temporary impairments (see Note 2), we have concluded
that an adjustment for other than temporary impairments is not warranted at
December 31, 2003.

Securities Pledged, Restricted Assets and Special Deposits

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, 2003
and 2002, the carrying values of fixed maturities available for sale pledged
to third parties as reported in the Statements of Financial Position were
$90.7 million and $56.6 million, respectively.

Fixed maturities of $0.5 million at December 31, 2003 and 2002 were on
deposit with governmental authorities or trustees as required by certain
insurance laws.

F-16

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements
-----------------------------------------------------------------------------

3. INVESTMENTS (continued)

Net Unrealized Investment Gains (Losses)

Net unrealized investment gains on fixed maturities available for sale are
included in the Statements of Financial Position as a component of
"Accumulated other comprehensive income." Changes in these amounts include
adjustments to 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
Deferred Deferred income (loss)
Unrealized policy Policyholders' income tax related to net
gains (losses) acquisition account (liability) unrealized
on investments costs balances benefit investment
gains (losses)
---------------------------------------------------------------------------
(in thousands)

Balance, January 1, 2001 $ (2,007) $ 975 $ (162) $ 431 $ (763)
Net investment gains on investments
arising during the period 5,938 - - (2,138) 3,800

Reclassification adjustment for losses
included in net income 7,807 - - (2,810) 4,997

Impact of net unrealized investment
gains on deferred policy acquisition
costs - (8,109) - 2,919 (5,190)

Impact of net unrealized investment
gains on policyholders' account
balances - - 1,376 (496) 880
--------- -------- ------- ------- ---------
Balance, December 31, 2001 11,738 (7,134) 1,214 (2,094) 3,724
Net investment gains on investments
arising during the period 3,607 - - (1,299) 2,308

Reclassification adjustment for losses
included in net income 12,690 - - (4,568) 8,122

Impact of net unrealized investment
gains on deferred policy acquisition
costs - (9,128) 3,286 (5,842)

Impact of net unrealized investment
gains on policyholders' account
balances - - 2,161 (778) 1,383

--------- -------- ------- ------- ---------
Balance, December 31, 2002 28,035 (16,262) 3,375 (5,453) 9,695
Net investment gains on investments
arising during the period 7,160 (2,577) 4,583

Reclassification adjustment for losses
included in net income 1,123 (404) 719

Impact of net unrealized investment
gains on deferred policy acquisition
costs (3,662) 1,318 (2,344)

Impact of net unrealized investment
gains on policyholders' account balances 821 (296) 525
--------- -------- ------- ------- ---------
Balance, December 31, 2003 $ 36,318 $(19,924) $ 4,196 $ (7,412) $ 13,178
========= ======== ======= ======== =========

F-17

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:

2003 2002 2001
---------- --------------------- ---------------
(in thousands)

Balance, beginning of year $ 137,053 $ 118,975 $ 116,653
Capitalization of commissions, sales and issue 60,669 51,974 25,953
expenses
Amortization (17,531) (24,768) (15,522)
Change in unrealized investment gains (3,662) (9,128) (8,109)
--------- --------- ----------
Balance, end of year $ 176,529 $ 137,053 $ 118,975
========= ========= ==========

5. POLICYHOLDERS' LIABILITIES

Future policy benefits and other policyholder liabilities at December 31 are
as follows:

2003 2002
------- ------
(in thousands)

Life insurance $ 154,410 $ 129,607
Annuities 4,342 4,601
--------- -----------
Total future policy benefits $ 158,752 $ 134,208
========= ===========

Life insurance liabilities include reserves for death benefits and other
policy benefits. Annuity liabilities include reserves for annuities that are
in payout status.

Future policy benefits for life insurance are based on the net level premium
method, calculated using the guaranteed mortality and nonforfeiture rates,
which range from 2.50% to 7.25%.

Future policy benefits for individual annuities are equal to the aggregate of
1) the present value of expected future payments on the basis of actuarial
assumptions established at issue, and 2) any premium deficiency reserves.
Assumptions as to mortality are based on the Company's experience when the
basis of the reserve is established. The interest rates used in the
determination of the individual annuities reserves range from 6.00% to 8.75%,
with less than 15% of the reserves based on an interest rate in excess of 8%.

Policyholders' account balances at December 31 are as follows:

2003 2002
---------- ----------
(in thousands)

Interest-sensitive life contracts $ 390,044 $ 367,832
Individual annuities 285,779 161,501
---------- ----------
Total policyholders' account balances $ 675,823 $ 529,333
========== ==========

Policyholders' account balances for interest-sensitive life and individual
annuities represent an accumulation of account deposits plus credited
interest less withdrawals, expenses and mortality charges. Interest crediting
rates range from 4.00% to 6.10% for interest-sensitive life contracts.
Interest crediting rates for individual annuities range from 1.50% to 5.40%.

F-18

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements
-----------------------------------------------------------------------------

6. REINSURANCE

The Company participates in reinsurance, with Prudential Insurance 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. Life reinsurance is accomplished through
various plans of reinsurance, primarily yearly renewable term and
coinsurance. 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 premiums, commissions, expense reimbursements, benefits and
reserves related to reinsured long-duration contracts are accounted for over
the life of the underlying reinsured contracts using assumptions consistent
with those used to account for the underlying contracts. Amounts recoverable
from reinsurers are estimated in a manner consistent with the claim
liabilities and policy benefits associated with the reinsured policies.

Reinsurance amounts included in the Statement of Operations and Comprehensive
Income for the years ended December 31 are below.

2002 2002 2001
---------- --------- --------
(in thousands)

Direct premiums and policy charges and fee income $ 119,381 $ 104,180 $ 68,889
Reinsurance ceded (11,180) (5,415) (2,797)
---------- --------- --------
Premiums and policy charges and fee income $ 108,201 $ 98,765 $ 66,092

Policyholders' benefits ceded $ 11,223 $ 12,929 $ 762

Reinsurance ceded for interest-sensitive life products is accounted for as a
reduction of policy charges and fee income. Reinsurance ceded for term
insurance products is accounted for as a reduction of premiums.

Reinsurance recoverables, included in "Other assets" in the Company's
Statements of Financial Position, at December 31, 2003 and 2002 were $17.8
million and $15.7 million, respectively.

The gross and net amounts of life insurance in force at December 31, were as
follows:

2003 2002 2001
------------ ------------ ------------
(in thousands)

Life insurance face amount in force $ 31,868,113 $ 21,119,708 $ 11,071,045
Ceded to other companies (17,782,119) (9,866,510) (3,697,344)
------------ ------------ ------------
Net amount of life insurance in force $ 14,085,994 $ 11,253,198 $ 7,373,701
============ ============ ============

F-19

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:

2003 2002 2001
--------- -------- --------
(in thousands)

Current tax (benefit) expense:
U.S. $ (15,103) $ (8,975) $ (3,756)
State and local - 258 153
--------- -------- --------
Total (15,103) (8,717) (3,603)
--------- -------- --------

Deferred tax expense (benefit):
U.S. 23,735 3,918 10,019
State and local 302 (360) 88
--------- -------- --------
Total 24,037 3,558 10,107
--------- -------- --------

Total income tax expense (benefit) $ 8,934 $ (5,159) $ 6,504
========= ======== ========

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:

2003 2002 2001
-------- -------- --------
(in thousands)

Expected federal income tax expense $ 10,343 $ 3,573 $ 7,734
State and local income taxes 197 (66) 157
Non taxable investment income (2,583) (8,505)
(1,558)
Other 977 (161) 171
-------- -------- --------
Total income tax expense (benefit) $ 8,934 $ (5,159) $ 6,504
======== ======== ========

Deferred tax assets and liabilities at December 31, resulted from the items
listed in the following table:

2003 2002
--------- --------
(in thousands)
Deferred tax assets
Insurance reserves $ - $ 2,124
Net operating loss 1,074 1,938
Investments 1,673 4,180
Other 204 -
--------- --------
Deferred tax assets 2,951 8,242
--------- --------

Deferred tax liabilities
Insurance reserves $ 7,420 $ -
Deferred acquisition costs 48,271 35,778
Net unrealized gains on securities 13,075 10,093
Other - 2,189
--------- --------
Deferred tax liabilities 68,766 48,060
--------- --------

Net deferred tax liability $ 65,815 $ 39,818
========= ========

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, 2003 and
2002, respectively, the Company had state operating loss carryforwards of $70
million and $17 million, which expire by 2018. At December 31, 2002, the
Company had federal and state capital loss carryforwards of $4.6 million.

F-20

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 1996. The Service has
begun its examination of 1997 through 2001. Management believes sufficient
provisions have been made for potential adjustments.

8. STATUTORY NET INCOME AND SURPLUS AND DIVIDEND RESTRICTIONS

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 $(60.2) million,
$(45.0) million, and $(12.1) million for the years ended December 31, 2003,
2002 and 2001, respectively. Statutory surplus of the Company amounted to
$89.5 million and $63.8 million at December 31, 2003 and 2002, respectively.
The statutory losses in 2003, 2002, and 2001 were primarily attributed to the
surplus strain from new business, which results from higher commissions and
selling expenses, which are not deferred under statutory accounting, and from
increases to reserves.

In March 1998, the NAIC adopted the Codification of Statutory Accounting
Principles guidance ("Codification"), which replaced the current Accounting
Practices and Procedures manual as the NAIC's primary guidance on statutory
accounting as of January 1, 2001. Codification provided guidance for areas
where statutory accounting had been silent and changed current statutory
accounting in certain areas. The Company 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.

The Company is subject to New Jersey law. The maximum amount of dividends,
which can be paid by State of New Jersey insurance companies to shareholders
without prior approval of the Insurance Commissioner, is subject to
N.J.S.A.17:27A-4.c(2)(b). Based on 2003 earnings, there is no capacity to pay
a dividend without prior approval in 2004.

The Company received approval from the New Jersey Commissioner of Insurance
to pay an extraordinary dividend to its Parent in 2001 of $186 million. The
Company received a $40 million capital contribution from its Parent during
2003.

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.

F-21

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:

2003 2002
---------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
value fair value value fair value
---------------- ----------------- ----------------- ---------------
(in thousands)

Financial assets:

Fixed maturities available for
sale $ 782,685 $ 782,685 $ 553,901 $ 553,901
Policy loans 154,659 175,659 158,431 185,715
Short-term investments 44,571 44,571 30,158 30,158
Cash and cash equivalents 72,547 72,547 61,482 61,482
Separate accounts assets 1,926,301 1,926,301 1,590,335 1,590,335

Financial liabilities:
Investment contracts $ 312,635 $ 312,635 $ 178,086 $ 178,086
Cash collateral for loaned
securities 78,855 78,855 25,035 25,035
Securities sold under agreement
to repurchases 14,483 14,483 31,713 31,713
Separate accounts liabilities 1,926,301 1,926,301 1,590,335 1,590,335

10. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS

Futures
Exchange-traded treasury futures are used by the Company to reduce market
risks from changes in interest rates, to alter mismatches between the
duration of assets in a portfolio and the duration of liabilities supported
by those assets. As an example, 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 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 with
regulated futures commissions merchants who are members of a trading
exchange.

Treasury futures are used to manage duration mismatches between assets and
liabilities by replicating Treasury performance. Treasury futures move
substantially in value as interest rates change and can be used to modify
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 that selling fixed income securities and
purchasing a similar portfolio when such a decline is believed to be over.

The notional and fair value of futures contracts was $5.6 million and $3
thousand at December 31, 2003, respectively. The notional and fair value of
futures contracts was $12.4 million and $400 thousand at December 31, 2002,
respectively.

Credit Risk
The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to derivative financial instruments.
Generally, the current credit exposure of the Company's derivative contracts
is limited to the fair value at the reporting date. The credit exposure of
the Company's swaps transactions is represented by the fair value (market
value) of contracts with a positive fair value (market value) at the
reporting date. Because exchange-traded futures are effected through
regulated exchanges, and positions are marked to market on a daily basis, the
Company has little exposure to credit-related losses in the event of
nonperformance by counterparties to such financial instruments. The credit
exposure of exchange-traded instruments is represented by the negative
change, if any, in the fair value (market value) of contracts from the fair
value (market value) at the reporting date.

The Company manages credit risk by entering into transactions with
creditworthy counterparties and obtaining collateral where appropriate and
customary. In addition, the Company enters into over-the-counter swaps
pursuant to master agreements that provide for a single net payment to be
made by one counterparty to another at each due date and upon termination.
Likewise, the Company effects exchange-traded futures and options through
regulated exchanges and these positions are marked to market on a daily
basis.

F-22

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements
-----------------------------------------------------------------------------

11. 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.

Prudential Insurance and its affiliates have received formal requests for
information relating to their variable annuity business from regulators and
governmental authorities. The regulators and authorities include, among
others, the Securities and Exchange Commission, the NASD and the State of New
York Attorney General's Office. Prudential Insurance and its affiliates are
cooperating with all such inquiries and are conducting their own internal
review.

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
The Company is subject to legal and regulatory actions in the ordinary course
of its 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 that are typical of the
businesses in which the Company operates. Class action and individual
lawsuits involve a variety of issues and/or allegations, which include sales
practices, underwriting practices, claims payment and procedures, premium
charges, policy servicing and breach of fiduciary duties to customers. We are
also subject to litigation arising out of our general business activities,
such as our investments and third party contracts. In certain of these
matters, the plaintiffs are seeking large and/or indeterminate amounts,
including punitive or exemplary damages.

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.

12. RELATED PARTY TRANSACTIONS

The Company has extensive transactions and relationships with Prudential
Insurance 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
Many of the Company's expenses are allocations or charges from Prudential
Insurance or other affiliates. These expenses can be grouped into the
following categories: general and administrative expenses and agency
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 Insurance to process transactions on behalf of the Company. The
Company operates under service and lease agreements whereby services of
officers and employees, supplies, use of equipment and office space are
provided by Prudential Insurance. Beginning in 2003, general and
administrative expenses include allocations of stock compensation expenses
related to a stock option program and a deferred compensation program issued
by Prudential Financial.

The Company is charged distribution expenses from Prudential's agency network
for both its domestic life and annuity products through a transfer pricing
agreement, which is intended to reflect a market based pricing arrangement.

F-23

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements
-----------------------------------------------------------------------------

12. RELATED PARTY TRANSACTIONS (Continued)

Affiliated Asset Management Fee Income
Beginning October 1, 2002, in accordance with a servicing agreement with
Prudential Investments LLC, the Company receives fee income from policyholder
account balances invested in the Prudential Series Funds ("PSF"). These
revenues are recorded as "Asset management fees" in the Statements of
Operations and Comprehensive Income.

Corporate Owned Life Insurance
The Company has sold two Corporate Owned Life Insurance ("COLI") policies to
Prudential Insurance. The cash surrender value included in separate accounts
was $430.0 million and $359.6 million at December 31, 2003 and December 31,
2002, respectively. Fees related to the COLI policies were $3.4 million and
$7.1 million for the years ending December 31, 2003 and 2002.

Reinsurance with Affiliates
The Company currently has a reinsurance agreement in place with Prudential
Insurance ("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.

Affiliated premiums ceded from these life reinsurance agreements for the
periods ended December 31, 2003, 2002, and 2001 were $.7 million, $.5
million, and $.3 million, respectively. Affiliated benefits ceded for the
periods ended December 31, 2003, 2002, and 2001 from these life reinsurance
agreements are $0 in 2003, $7.5 million in 2002, and $0 in 2001.

Debt Agreements
The Company and its parent, Pruco Life, have a revolving line of credit
facility of up to $800 million with Prudential Funding, LLC, a wholly owned
subsidiary of Prudential Insurance. The total of asset-based financing and
borrowing under this credit facility for the Company and its parent cannot be
more than $800 million. There is no outstanding debt to Prudential Funding,
LLC as of December 31, 2003 or December 31, 2002.

13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The unaudited quarterly results of operations for the years ended December
31, 2003 and 2002 are summarized in the table below:

Three months ended
--------------------------------------------------------------
March 31 June 30 September 30 December 31
--------------------------------------------------------------
2003 (in thousands)
----

Total revenues $ 35,410 $ 42,421 $ 38,893 $ 41,533
Total benefits and expenses 32,104 33,770 33,297 29,535
Income (loss) from operations before
income taxes 3,306 8,651 5,596 11,998
Net income (loss) 2,633 5,932 3,229 8,823
--------------------------------------------------------------

--------------------------------------------------------------
2002 (in thousands)
----
Total revenues $ 26,592 $ 28,879 $ 31,221 $ 45,654
Total benefits and expenses 23,125 28,125 33,146 37,741
Income (loss) from operations before
income taxes 3,467 754 (1,925) 7,913
Net income (loss) 2,488 302 1,518 11,060

F-24