Form: 10-Q

Quarterly report [Sections 13 or 15(d)]

Documents

10-Q: Quarterly report [Sections 13 or 15(d)]

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2000

OR

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

Commission file number 333-18053

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) 802-3274
(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 ___

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 August 15, 2000. 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 (H) (1) (a) and (b) on Form 10-Q and is therefore
filing this Form with the reduced disclosure format.



PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY


INDEX TO FINANCIAL STATEMENTS



Page No.
--------

Cover Page -

Index 2

PART I - Financial Information

Item 1. (Unaudited) Financial Statements

Statements of Financial Position
As of June 30, 2000 and December 31, 1999 3

Statements of Operations and Comprehensive Income
Three and Six months ended June 30, 2000 and 1999 4

Statements of Changes in Stockholder's Equity
Periods ended June 30, 2000 and December 31, 1999 and 1998 5

Statements of Cash Flows
Six months ended June 30, 2000 and 1999 6

Notes to Financial Statements 7

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9


PART II - Other Information

Item 6. Exhibits and Reports on Form 8-K 11

Signature Page 12




2

Pruco Life Insurance Company of New Jersey

Statements of Financial Position
As of June 30, 2000 and December 31, 1999 (In Thousands)
- --------------------------------------------------------------------------------



(Unaudited)
June 30, December 31,
2000 1999
---------- -------------


ASSETS
Fixed maturities
Available for sale, at fair value (amortized cost, 2000: $604,283; $ 587,498 $ 585,271
and 1999: $604,223)
Held to maturity, at amortized cost (fair value, 2000: $6,997; and 7,470 7,470
1999: $6,938)
Policy loans 147,180 143,815
Short-term investments 79,084 27,473
Other long-term investments 4,027 2,520
------------ -----------
Total investments 825,259 766,549
Cash 660 117
Deferred policy acquisition costs 126,866 129,184
Accrued investment income 11,955 12,492
Receivables from affiliate 17,889 16,231
Other assets 8,739 474
Separate Account assets 1,859,915 1,827,484
------------ -----------
TOTAL ASSETS $ 2,851,283 $2,752,531
============ ===========

LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 424,566 $ 414,917
Future policy benefits and other policyholder liabilities 107,641 105,861
Cash collateral for loaned securities 39,348 17,900
Securities sold under agreements to repurchase 14,198 -
Income taxes payable 27,099 27,829
Other liabilities 17,213 7,571
Separate Account liabilities 1,859,915 1,827,484
------------ -----------
Total liabilities 2,489,980 2,401,562
------------ -----------
Contingencies - (See Footnote 2)
Stockholder's Equity
Common stock, $5 par value;
400,000 shares, authorized;
issued and outstanding at
June 30, 2000 and December 31, 1999 2,000 2,000
Paid-in-capital 125,000 125,000
Retained earnings 239,787 230,057
Accumulated other comprehensive loss (5,484) (6,088)
------------ -----------
Total stockholder's equity 361,303 350,969
------------ -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 2,851,283 $2,752,531
============ ===========




See Notes to Financial Statements


3

Pruco Life Insurance Company of New Jersey

Statements of Operations and Comprehensive Income (Unaudited)
Three and Six Months Ended June 30, 2000 and 1999 (In Thousands)
- --------------------------------------------------------------------------------



Six months ended Three months ended
June 30, June 30,

2000 1999 2000 1999
------------- ------------- ------------ -------------

REVENUES

Premiums $ 3,275 $ 3,150 $ 1,786 $ 1,466
Policy charges and fee income 27,457 26,186 13,531 13,418
Net investment income 27,074 24,575 13,358 12,649
Realized investment losses, net (1,549) (2,139) (238) (1,792)
Asset management fees 4,185 3,250 2,144 1,755
Other income 104 164 58 66
------------- ------------- ------------ -------------

Total revenues 60,546 55,186 30,639 27,562
------------- ------------- ------------ -------------

BENEFITS AND EXPENSES

Policyholders' benefits 14,412 14,426 6,692 5,820
Interest credited to policyholders' account 9,521 8,925 5,111 4,645
balances
General, administrative and other expenses 21,643 21,623 9,483 13,186
------------- ------------- ------------ -------------

Total benefits and expenses 45,576 44,974 21,286 23,651
------------- ------------- ------------ -------------

Income from operations before income taxes 14,970 10,212 9,353 3,911
------------- ------------- ------------ -------------

Income tax provision 5,240 3,574 3,274 1,269
------------- ------------- ------------ -------------

NET INCOME $ 9,730 $ 6,638 $ 6,079 $ 2,642
------------- ------------- ------------ -------------

Other comprehensive income, net of tax:

Unrealized gains (losses) on securities,
net of Reclassification adjustment 604 (3,979) (189) (2,410)
------------- ------------- ------------ -------------

TOTAL COMPREHENSIVE INCOME $ 10,334 $ 2,659 $ 5,890 $ 232
============= ============= ============ =============



See Notes to Financial Statements


4

Pruco Life Insurance Company of New Jersey

Statements of Changes in Stockholder's Equity (Unaudited)
Periods ended June 30, 2000 and December 31, 1999 and 1998 (In Thousands)
- --------------------------------------------------------------------------------



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


Balance, January 1, 1998 $ 2,000 $ 125,000 $ 185,437 $ 2,956 $ 315,393

Net income - - 31,823 - 31,823
Change in net unrealized
investment losses, net
of net of reclassification
and taxes ............... - - - (1,363) (1,363)

----------- ----------- ---------- ----------- ----------
Balance, December 31, 1998 $ 2,000 $ 125,000 $ 217,260 $ 1,593 $ 345,853



Net income - - 12,797 - 12,797
Change in net unrealized
investment losses, net
of reclassification
and taxes ............ - - - (7,681) (7,681)
----------- ----------- ---------- ----------- ----------
Balance, December 31, 1999 $ 2,000 $ 125,000 $ 230,057 $ (6,088) $ 350,969




Net income - - 9,730 9,730
Change in net unrealized
investment gains, net
of reclassification
and taxes ............ - - 604 604
----------- ----------- ---------- ----------- ----------
Balance, June 30, 2000 $ 2,000 $ 125,000 $239,787 $ (5,484) $ 361,303
=========== =========== ========== =========== ==========




See Notes to Financial Statements




5

Pruco Life Insurance Company of New Jersey

Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2000 and 1999 (In Thousands)
- --------------------------------------------------------------------------------



Six months ended,
June 30,

2000 1999
------ ------


CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,730 $ 6,638
Adjustments to reconcile net income to net cash (used in)
provided by
Operating activities:
Policy charges and fee income (4,948) (4,411)
Interest credited to policyholders' account balances 9,521 8,925
Realized investment losses (gains), net 1,549 2,139
Amortization and other non-cash items 1,059 10,633
Change in:
Future policy benefits and other policyholders' 1,781 3,734
liabilities
Accrued investment income 537 457
Policy loans (3,365) (3,260)
Payable to/Receivable from affiliates, net (1,659) (16,703)
Deferred policy acquisition costs 2,318 (8,957)
Income taxes payable (729) 906
Other, net 1,376 15,204
---------- ----------
Cash Flows From Operating Activities 17,170 15,305
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Available for sale 237,982 559,840
Payments for the purchase of:
Fixed maturities:
Available for sale (241,776) (510,634)
Held to maturity 0 (7,470)
Cash collateral for loaned securities, net 21,448 (29,709)
Securities sold under agreements to repurchase, net 14,198 (13,048)
Other long-term investments (1,508) (690)
Short term investments, net (51,608) (6,964)
---------- ----------
Cash Flows (Used in) Investing Activities (21,264) (8,675)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 109,057 113,275
Withdrawals (104,420) (119,187)
---------- ----------
Cash Flows From (Used in) Financing Activities 4,637 (5,912)
---------- ----------
Net (decrease) increase in Cash 543 718
Cash, beginning of year 117 45
---------- ----------
CASH, END OF PERIOD $ 660 $ 763
========== ==========



See Notes to Financial Statements


6

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements (Unaudited)
================================================================================

1. BASIS OF PRESENTATION

The accompanying interim financial statements have been prepared pursuant to the
rules and regulations for reporting on Form 10-Q on the basis of accounting
principles generally accepted in the United States. These interim financial
statements are unaudited but reflect all adjustments which, in the opinion of
management, are necessary to provide a fair presentation of the results of
operations and financial condition of the Pruco Life Insurance Company of New
Jersey ("the Company"), for the interim periods presented. The Company is a
wholly-owned subsidiary of the Pruco Life Insurance Company ("Pruco Life") which
in turn is a wholly-owned subsidiary of The Prudential Insurance Company of
America ("Prudential"). All such adjustments are of a normal recurring nature,
with the exception of certain related party transactions, as described in
Footnote 3. The results of operations for any interim period are not necessarily
indicative of results for a full year. Certain amounts in the Company's prior
year financial statements have been reclassified to conform to the 2000
presentation. These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999.

2. CONTINGENCIES

Various lawsuits against the Company have arisen in the course of the Company's
business. In certain of these matters, large and/or indeterminate amounts are
sought.

On October 28, 1996, the Company entered into a Stipulation of Settlement with
attorneys for the plaintiffs in a consolidated class action lawsuit pending in a
Multi-District Litigation proceeding in the U.S. District Court for the District
of New Jersey. The class action suit involved alleged improprieties in
connection with the sale, servicing and operation of permanent life insurance
policies from 1982 through 1995. Pursuant to the settlement, the Company has
participated in a remediation program pursuant to which relief was offered to
policyowners who were misled when they purchased permanent life insurance
policies in the United States from 1982 to 1995. Prudential has agreed to
indemnify the Company for any liability incurred in connection with that
litigation.

The balance of the Company's litigation is subject to many uncertainties, and
given the complexity and scope, the outcomes cannot be predicted with precision.
Management believes that any ultimate liability that could result from such
litigation would not have a material adverse effect on the Company's financial
position.

3. RELATED PARTY TRANSACTIONS

The Company has extensive transactions and relationships with Prudential and
other affiliates. It is possible that the terms of these transactions are not
the same as those that would result from transactions among wholly unrelated
parties.

Expense Charges and Allocations
All of the Company's expenses are allocations or charges from Prudential or
other affiliates. These expenses can be grouped into the following categories:
general and administrative expenses, retail distribution expenses and asset
management fees.

The Company's general and administrative expenses are charged to the Company
using allocation methodologies based on business processes. Management believes
that the methodology is reasonable and reflects costs incurred by Prudential to
process transactions on behalf of the Company. Prudential and the Company
operate under service and lease agreements whereby services of officers and
employees, supplies, use of equipment and office space are provided by
Prudential.

Late in 1998, Prudential undertook a review of its expense allocation
methodology. This review resulted in increased allocations to the Company
compared with 1998 levels, reflecting higher expense allocations to products
requiring more complex business processes and more transactions, such as
variable products which allow policyholders to make changes in their investment
portfolio. Implementation of the revised allocation methodology was
substantially completed in the second quarter of 1999.

The Company is allocated estimated distribution expenses from Prudential's
retail agency network for both its domestic life and annuity products. The
Company has capitalized the majority of these distribution expenses as deferred
policy acquisition costs ("DAC"). At April 1, 2000 Prudential and the Company
agreed to revise the estimate of allocated distribution expenses to reflect a
market based pricing arrangement.


7

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements (Unaudited)
================================================================================

3. RELATED PARTY TRANSACTIONS (continued)

The Company is charged an asset management fee by Prudential Global Asset
Management ("PGAM") for managing the Separate Account investment portfolio.
These fees are a component of general, administrative and other expenses.

In addition, the Company receives asset management fee income from policyholder
account balances invested in the Prudential Series Fund ("PSF"), as shown in the
Statement of Operations.

Corporate Owned Life Insurance
The Company has sold a Corporate Owned Life Insurance ("COLI") policy to
Prudential. The cash surrender value included in Separate Accounts was $200.0
million and $199.0 million at June 30, 2000 and December 31, 1999, respectively.

Reinsurance
The Company currently has a reinsurance agreement in place with Prudential ("the
reinsurer"). The reinsurance agreement is a yearly renewable term agreement in
which the Company may offer and the reinsurer may accept reinsurance on any life
in excess of the Company's maximum limit of retention. The Company is not
relieved of its primary obligation to the policyholder as a result of these
reinsurance transactions. These agreements had no material effect on net income
for the periods ended June 30, 2000 and December 31, 1999.

Debt Agreements
In July 1998, the Company established a revolving line of credit facility with
Prudential Funding Corporation, a wholly-owned subsidiary of Prudential. There
is no outstanding debt relating to this credit facility as of June 30, 2000 or
December 31, 1999.


4. RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS No. 133 does not apply to most traditional
insurance contracts. However, certain hybrid contracts that contain features
which may affect settlement amounts similarly to derivatives may require
separate accounting for the "host contract" and the underlying "embedded
derivative" provisions. The latter provisions would be accounted for as
derivatives as specified by the statement.

SFAS No. 133 provides, if certain conditions are met, that a derivative may be
specifically designated as (1) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment
(fair value hedge), (2) a hedge of the exposure to variable cash flows of a
forecasted transaction (cash flow hedge), or (3) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security or a foreign-currency-denominated
forecasted transaction (foreign currency hedge).

Under SFAS No. 133, the accounting for changes in fair value of a derivative
depends on its intended use and designation. For a fair value hedge, the gain or
loss is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item. For a cash flow hedge, the effective
portion of the derivative's gain or loss is initially reported as a component of
other comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings. For a foreign currency hedge, the gain
or loss is reported in other comprehensive income as part of the foreign
currency translation adjustment. For all other derivatives not designated as
hedging instruments, the gain or loss is recognized in earnings in the period of
change. The Company is required to adopt this Statement, as amended, as of
January 1, 2001 and is currently assessing the effect of the new standard.


8

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

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


1. Analysis of Financial Condition

Total assets for the Company increased $98.8 million during the first six months
of 2000. As a result of increased securities lending activity, short-term
investments rose by $51.6 million. In addition, Separate Account assets
increased by $32.4 million, due to net cash inflows . Other assets increased by
$8.3 million due to timing on the cash collection of receivables for securities
sold.

Similarly, liabilities increased by $88.4 million from December 31,1999. Higher
levels of securities lending increased liabilities by $35.6 million. Separate
Account contractholder fund balances grew by $32.4 million due to contributions
of $118.3 million, offset by net investment losses of $7.0 and surrenders,
withdrawals and disbursements of $78.9 million. Policyholder account balances
increased by $9.7 mainly due to sales of the Discovery Select ("Discovery
Select") annuity product. Other liabilities increased by $9.6 million due to
timing of the cash payment for purchases of securities.


2. Results of Operations

For the six months ended June 30, 2000 and June 30, 1999
- --------------------------------------------------------

Net income for the six months ended June 30, 2000 was $9.7 million, an increase
of $3.1 million from the first six months of 1999. Revenue was up by $5.4
million and expenses increased slightly by $.6 million. The income tax provision
was higher by $1.7 based on the corresponding increase in net income.

Net investment income increased by $2.5 million primarily due to a corresponding
increase in the fixed maturity asset base during the period. There were also
realized losses of $1.5 million, an improvement of $.6 million, as a result of
gains on forward currency contracts, driven by a rise in the value of the US
dollar against other currencies compared to the same period in 1999.

Asset management fees increased by $.9 million when comparing year-to-date June
30, 2000 to June 30, 1999. The increase is related to higher Investment Advisory
Fees resulting from the rise in Separate Account assets as a result of sales of
Discovery Select. Policy charges and fee income also increased by $1.3 million
due to the increase in the Separate Account fund values.

General, administrative and other expenses remained flat with the prior year.
Interest credited to policyholder account balances increased by $.6 million as
the general fund balances have grown.

For the three months ended June 30, 2000 and June 30, 1999
- ----------------------------------------------------------

Net income for the three months ended June 30, 2000 was $6.1 million, an
increase of $3.4 million from the second quarter of 1999, with increases of $3.1
million in revenues and decreases of $2.3 million in expenses. The income tax
provision was higher by $2.0 million based on the corresponding increase in net
income.

Net investment income increased by $.7 million primarily due to a corresponding
increase in the fixed maturity asset base during the period. There were also
realized losses of $.2 million, an improvement of $1.5 million compared to 1999,
as a result of gains on forward currency contracts, driven by a rise in the
value of the US dollar against other currencies.

Asset management fees increased by $.4 million related to higher Investment
Advisory Fees, resulting from the rise in Separate Account assets as a result of
sales of Discovery Select.

Policyholder benefits are $.9 million higher due to an increase in surrender
benefits. Interest credited to policyholder account balances is $.5 million
higher due to higher general account contractholder balances.

General, administrative and other expenses decreased by $3.7 million from the
prior year. As of April 1, 2000, there was a change in the allocation of
estimated distribution expenses from Prudential's retail agency network, which
decreased quarter over quarter expenses by $2.7 million. Salary expenses also
declined by $1.0 million.


9

3. Liquidity and Capital Resources

Principal cash flow sources are investment and fee income, investment maturities
and sales, and premiums and fund deposits. These cash inflows may be
complemented by financing activities through other Prudential affiliates.

Cash outflows consist principally of benefits, claims and amounts paid to
policyholders in connection with policy surrenders, withdrawals and net policy
loan activity. Uses of cash also include commissions, general and administrative
expenses, and purchases of investments. Liquidity requirements associated with
policyholder obligations are monitored regularly so that the Company can manage
cash inflows to match anticipated cash outflow requirements.

The Company believes that cash flow from operations together with proceeds from
scheduled maturities and sales of fixed maturity investments, are adequate to
satisfy liquidity requirements based on the Company's current liability
structure.

The Company had $2.8 billion of assets at June 30, 2000 compared to $2.7 billion
at December 31, 1999, of which $1.9 billion and $1.8 billion were held in
Separate Accounts at June 30, 2000 and December 31, 1999, respectively, under
variable life insurance policies and variable annuity contracts. The remaining
assets consisted primarily of investments and deferred policy acquisition costs.


4. The Year 2000 Issue

The Company utilizes many of the same business applications, infrastructure and
business partners as Prudential. Prudential addressed the Year 2000 issue on an
enterprise-wide basis. Therefore, it is not possible to differentiate the
Company's Year 2000 issue from that of Prudential. To date, neither Prudential
nor the Company has experienced material Year 2000 related problems in any of
their operations. Prudential believes that it has mitigated the Year 2000 risk,
however Prudential cannot guarantee that it will not experience a Year 2000
failure that has thus far been undetected. In the worst case, it is possible
that an as yet unknown Year 2000 failure, whether internal or external, could
have a material impact on Prudential or the Company's results of operations,
liquidity or financial condition. Where necessary, we have enhanced our general
business continuation contingency plans to ensure that they would be effective
in responding to a Year 2000 failure. Substantially all of these plans, as they
related to Year 2000 issues, include the ultimate resolution of any technology
failure that we may encounter.


5. Information Concerning Forward-Looking Statements

Some of the statements contained in Management's Discussion and Analysis,
including those words such as "believes", "expects", "intends", "estimates",
"assumes", "anticipates" and "seeks", are forward-looking statements. These
forward-looking statements involve risk and uncertainties. Actual results may
differ materially from those suggested by the forward-looking statements for
various reasons. In particular, statements contained in Management's Discussion
and Analysis regarding the Company's business strategies involve risks and
uncertainties, and we can provide no assurance that we will be able to execute
our strategies effectively or achieve our financial and other objectives.


10

PART II

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

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.

4 Market-Value Adjustment Annuity Contract is incorporated by
reference to the Company's registration statement on Form S-1,
Registration No. 333-18053, as filed November 17, 1995.

27 Financial Data Schedule is filed herewith in accordance with
EDGAR instructions.



11

SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Registrant)





Signature Title Date
- --------- ----- ----



- -------------------- President and Director August 14, 2000
Esther H. Milnes


- -------------------- Principal Financial Officer August 14, 2000
Dennis G. Sullivan and Chief Accounting Officer


12